UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT COMPANY
Investment Company Act file number: | 811-1027 |
Name of Registrant: | Vanguard World Funds |
Address of Registrant: | P.O. Box 2600 Valley Forge, PA 19482 |
Name and address of agent for service: | Heidi Stam, Esquire P.O. Box 876 Valley Forge, PA 19482 |
Registrant’s telephone number, including area code: (610) 669-1000
Date of fiscal year end: | August 31 |
Date of reporting period: | September 1, 2005 - February 28, 2006 |
Item 1: | Reports to Shareholders |
Vanguard® U.S. Growth Fund | |
› SemiAnnual Report | |
February 28, 2006 | |
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> | Vanguard U.S. Growth Fund returned nearly 9% for the fiscal half-year ended February 28, 2006. |
> | The fund’s return surpassed those of the average large-cap growth fund, the benchmark index, and the broad U.S. stock market by comfortable margins. |
> | Holdings in the information technology and financials sectors were the most valuable contributors to performance. The consumer discretionary and consumer staples sectors detracted from performance. |
Contents | |
---|---|
Your Fund's Total Returns | 1 |
Chairman's Letter | 2 |
Advisors' Report | 6 |
Fund Profile | 9 |
Performance Summary | 10 |
Financial Statements | 11 |
About Your Fund's Expenses | 21 |
Trustees Renew Advisory Agreements | 23 |
Glossary | 24 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the cover of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
Your Fund’s Total Returns
Six Months Year Ended February 28, 2006 | |
---|---|
Total Return | |
Vanguard U.S. Growth Fund | |
Investor Shares | 8.8% |
Admiral™ Shares1 | 8.9 |
Russell 1000 Growth Index | 5.1 |
Average Large-Cap Growth Fund2 | 6.4 |
Dow Jones Wilshire 5000 Index | 6.7 |
Your Fund’s Performance at a Glance:
January 31, 2005–January 31, 2006
Distributions Per Share | ||||
---|---|---|---|---|
Starting | Ending | Income | Capital | |
Share Price | Share Price | Dividends | Gains | |
Vanguard U.S. Growth Fund | ||||
Investor Shares | $16.77 | $18.21 | $0.035 | $0.000 |
Admiral Shares | 43.47 | 47.18 | 0.178 | 0.000 |
1 | A lower-cost class of shares available to many longtime shareholders and to those with significant investments in the fund. |
2 | Derived from data provided by Lipper Inc. |
1
![](https://capedge.com/proxy/N-CSRS/0000932471-06-000850/brennanphoto.gif)
Chairman’s Letter
Dear Shareholder,
Vanguard U.S. Growth Fund returned 8.8% for Investor Shares and 8.9% for Admiral Shares in the six months ended February 28, 2006. In a stock-market environment in which small-capitalization stocks generally outperformed large-caps and large-cap growth issues struggled, your fund profited from excellent stock selection by its two investment advisors.
The tables on page 1 provide details about the total returns (capital change plus reinvested dividends) for your fund and its comparative standards, as well as about the fund’s share price and distributions during the period.
Stock markets rose worldwide, with the biggest gains overseas
During the first half of the 2006 fiscal year, global stock markets reprised patterns that have characterized the investment environment in recent years: reasonably strong returns from the broad U.S. market, better performance from that market’s smaller companies, and a powerful rally in international stocks.
Returns were particularly strong in the Pacific region, where the Japanese stock market and economy appear to have awakened from a 15-year slumber.
Unusual interest rate pattern reflected two views of inflation
In the U.S. bond market, long-term interest rates held relatively steady, while short-term rates rose sharply, in some cases
2
exceeding those of longer-term securities. This unusual interest rate dynamic put pressure on the broad fixed income market, although it enhanced the returns of the shortest-term securities, such as 3-month U.S. Treasury bills.
The rapid rise in short-term rates reflects the Federal Reserve Board’s efforts to defuse any near-term inflationary threats. From June 2004 through January of this year, the Fed boosted its target for short-term rates from 1.00% to 4.50% in 14 separate actions. The relative stability of long-term rates is consistent with Fed comments and the market consensus that long-term inflationary pressures in the economy remain contained.
Tech and financials holdings drove the fund’s success
In the six months ended February 28, the fund’s advisors, AllianceBernstein L.P. (formerly Alliance Capital Management L.P.) and William Blair & Company, L.L.C., generated strong returns by working to identify large-cap growth stocks with sustainable competitive advantages.
The majority of the fund’s gain was earned in the first half of the period, as the stock market advanced broadly on generally positive news about the economy and corporate earnings. During these three months, the Investor Shares gained 6.8 percentage points of their 8.8% return. From December through February, ambiguous economic reports and rising interest rates muffled stock gains.
Market Barometer | Average Annual Total Returns Periods Ended February 28, 2006 | ||
---|---|---|---|
Six Months | One Year | Five Years1 | |
Stocks | |||
Russell 1000 Index (Large-caps) | 6.2% | 9.8% | 3.0% |
Russell 2000 Index (Small-caps) | 10.2 | 16.6 | 10.4 |
Dow Jones Wilshire 5000 Index (Entire market) | 6.7 | 10.8 | 4.1 |
MSCI All Country World Index ex USA (International) | 17.1 | 21.1 | 9.5 |
Bonds | |||
Lehman Aggregate Bond Index (Broad taxable market) | -0.1% | 2.7% | 5.4% |
Lehman Municipal Bond Index | 1.0 | 3.9 | 5.5 |
Citigroup 3-Month Treasury Bill Index | 1.8 | 3.3 | 2.2 |
CPI | |||
Consumer Price Index | 1.2% | 3.6% | 2.5% |
1 Annualized
3
The fund’s holdings in information technology—its largest sector, averaging roughly a third of assets—provided the largest contribution to return for the half-year. The generally strong results in this group were accentuated by the excellent performances of Apple Computer and Google. In addition, the fund’s semiconductor makers, which included sizable holdings Broadcom and Marvell Technology, turned in impressive gains, as intense demand in that business led to rising earnings.
The fund also benefited from its overweighted position in the financials sector, where several key holdings had excellent results. Leading contributors were Goldman Sachs and Legg Mason; the latter purchased Citigroup’s asset management business in December.
The fund’s consumer-oriented selections were among its weakest performers, as it did not hold some of the strongest stocks from the consumer discretionary and consumer staples sectors. Of the stocks they did hold, a number—most notably education company Apollo Group—turned in lackluster results. Stock selection was also disappointing in the health care sector, which accounted for about one-quarter of assets on average.
To learn more about the fund’s positioning and performance during the period, please see the Advisors’ Report, which begins on page 6.
Don’t change your plan to match market trends
Trends in the financial markets, much like trends anywhere else, can change quickly. Large-cap growth stocks are a good example: They soared in the late 1990s,
Fund Assets Managed | February 28, 2006 | |
---|---|---|
$ Million | Percentage | |
AllianceBernstein L.P. | $4,264 | 67% |
William Blair & Company, L.L.C | 1,910 | 30 |
Cash Investments1 | 161 | 3 |
Total | $6,335 | 100% |
1 | These short-term reserves are invested by Vanguard in equity index products to simulate investment in stocks. Each advisor may also maintain a modest cash position. |
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then fell from favor during the stock-market downturn in the early years of the new millennium. In their place, small-cap stocks rose to prominence and have dominated the return charts for the last few years. So are large-cap growth stocks forever destined to play second fiddle? The history of the stock market’s cycles suggests not, although the very same history teaches us that it’s impossible to know when the trend will change.
In the midst of the market’s uncertainties and shifting preferences, how should you respond? In most cases, the answer is to stay the course, remembering three basic investment principles: balance, diversification, and low costs. Maintaining an appropriate asset allocation and resisting the urge to change your portfolio can go a long way toward helping you achieve your long-term goals. The U.S. Growth Fund—with its focus on high-quality, growth-oriented businesses—can serve well as part of the stock portion of a balanced, diversified portfolio.
Thank you for placing your confidence in Vanguard.
Sincerely,
John J. Brennan
Chairman and Chief Executive Officer
March 13, 2006
Annualized Expense Ratios1
Your fund compared with its peer group
Investor Shares | Admiral Shares | Average Large-Cap Growth Fund | |
---|---|---|---|
U.S. Growth Fund | 0.59% | 0.36% | 1.46% |
1 | Fund expense ratios reflect the six months ended February 28, 2006. Peer-group expense ratio is derived from data provided by Lipper Inc. and captures information through year-end 2005. |
5
Advisors’ Report
During the six months ended February 28, 2006, the Investor Shares of Vanguard U.S. Growth Fund returned 8.8%, and the lower-cost Admiral Shares returned 8.9%. This performance reflects the combined results for your fund’s two independent advisors. The use of multiple advisors provides exposure to distinct, yet complementary, investment approaches, enhancing the diversification of your fund.
The advisors, the percentage of fund assets each managed, and a brief description of their investment strategies are presented in the table on page 8. The advisors have prepared discussions of the investment environment and of how their portfolio positioning reflects this assessment.
AllianceBernstein L.P.
Portfolio Manager:
Alan Levi, Senior Vice President
The fundamental environment in the market over the six months was generally strong in terms of both economic expansion and corporate profits. Although we remain optimistic about the prospects for economic growth and corporate profits, we do believe that the economy is going through a shift. For some time, we have anticipated a transition toward a slower, more sustainable pace of expansion, a view based on the maturing of the business cycle, now entering its fourth year. Contributing to this transition are the impact of monetary policy restraint and rising energy costs, with their attendant constraint on consumer spending. In addition, global economic growth rates appear to be converging, as the deceleration of the U.S. expansion is offset by moderately improved growth projections for Western Europe and Japan. At the same time, corporate profits are strong and corporate liquidity is at record levels. Considering all these factors, we expect in the coming year to witness a shift in the pattern of domestic growth, with a slowdown in consumption partially offset by strength in capital investment and exports.
With the pace of expansion likely to moderate in coming months, we anticipate that corporate profit growth will slow. In this context, we expect earnings growth to become a stronger determinant of individual stock performance than has been the case over the past several years.
Accordingly, our focus continues to be on bottom-up fundamentals. We seek to own a portfolio of companies that have strong business franchises, sustainable competitive advantages, and superior
6
growth prospects. Reflecting this, the companies held in the Alliance portion of the fund have achieved average compound growth of revenues per share of 14.1% over the past five years, half again the 9.4% rate of the Russell 1000 Growth Index and twice that of the S&P 500 Index. Similarly, five-year compound earnings growth was 24.1% for the portfolio, compared with rates of 15.1% for the Russell 1000 Growth Index and 12.1% for the S&P 500.
William Blair & Company, L.L.C.
Portfolio Manager:
John F. Jostrand, CFA, Principal
For the six months ended February 28, 2006, the U.S. stock market experienced gains across the board. Small-capitalization stocks outperformed large-cap issues, with small-cap growth stocks showing the strongest leadership. In the large-cap portion of the market, however, value stocks outpaced growth issues.
The market in general seemed sanguine, reassured by the naming of Ben Bernanke as chairman of the Federal Reserve Board and the sense that we are nearing the end of the Fed’s rate-tightening cycle. Investors expected consumer-related stocks to experience relative weakness because of high oil prices, interest rate hikes, and dwindling opportunities for consumers to leverage against their homes. Retailers in general were modestly softer toward year-end, although January sales were aided by warmer-than-expected weather, which lessened the expected impact of heating bills.
Industrial stocks continued to show strength as demand grew from developing countries such as India and China, which are building larger infrastructures for their growing economies. Freight and shipping companies also benefited. Some industrial stocks got a boost from the demand for products and services to rebuild hurricane-devastated areas along the Gulf coast.
One of the more notable trends during the six months was the resurgence of technology stocks. Aside from a brief spike in 2003, technology issues in general have been weak since the market bubble burst in 2000. Now, however, capital expenditures show signs of increasing, an indication that corporations will be looking to upgrade outdated systems. This could mean growth for the tech sector.
The recent economic environment provided an exceptional opportunity for strong earnings growth and high corporate profitability. In an environment so benign, there has been little to delineate the mediocre companies from the great ones.
7
As a result, we believe that higher-quality large-capitalization stocks now offer significant opportunities for growth at historically low valuations.
As the economic cycle matures into a phase of slower growth, companies with strong managements that have demonstrated experience in controlling margins and appropriately deploying capital in a tougher environment are likely to become increasingly attractive. We continue to find opportunities for quality growth investments across the board, particularly in the information technology and health care sectors.
Vanguard U.S. Growth Fund Investment Advisors
Investment Advisors | Fund Assets Managed (%) | Investment Strategy |
---|---|---|
AllianceBernstein L.P. | 67 | Uses a fundamentally based, research-driven approach |
to large-capitalization growth investing. The advisor | ||
seeks to build a diversified portfolio of successful, | ||
well-managed companies with sustainable competitive | ||
advantages and superior prospects for growth not fully | ||
reflected in relative valuation. | ||
William Blair & Company, L.L.C | 30 | Uses a fundamental investment approach in pursuit of |
superior long-term investment results from growth- | ||
oriented companies with leadership positions and | ||
strong market presence. | ||
Cash Investments1 | 3 | — |
1 | These short-term reserves are invested by Vanguard in equity index products to simulate investment in stocks. Each advisor may also maintain a modest cash position. |
8
Fund Profile
As of February 28, 2006
Portfolio Characteristics | Fund | Comparative Index1 | Broad Index2 |
---|---|---|---|
Number of Stocks | 75 | 634 | 4,970 |
Median Market Cap | $45.9B | $44.8B | $27.0B |
Price/Earnings Ratio | 23.6x | 21.4x | 19.8x |
Price/Book Ratio | 4.0x | 4.2x | 2.9x |
Yield | 1.1% | 1.7% | |
Investor Shares | 0.3% | ||
Admiral Shares | 0.5% | ||
Return on Equity | 17.0% | 20.2% | 17.2% |
Earnings Growth Rate | 22.5% | 16.8% | 9.9% |
Foreign Holdings | 9.0% | 0.0% | 2.4% |
Turnover Rate | 43%3 | — | — |
Expense Ratio | — | — | |
Investor Shares | 0.59%3 | ||
Admiral Shares | 0.36%3 | ||
Short-Term Reserves | 2% | — | — |
Sector Diversification (% of portfolio) | Fund | Comparative Index1 | Broad Index2 |
---|---|---|---|
Consumer Discretionary | 10% | 14% | 12% |
Consumer Staples | 3 | 12 | 8 |
Energy | 5 | 3 | 9 |
Financials | 16 | 7 | 22 |
Health Care | 21 | 19 | 13 |
Industrials | 7 | 14 | 11 |
Information Technology | 35 | 27 | 16 |
Materials | 1 | 2 | 3 |
Telecommunication Services | 0 | 1 | 3 |
Utilities | 0 | 1 | 3 |
Short-Term Reserves | 2% | — | — |
Volatility Measures | Fund | Comparative Index1 | Fund | Broad Index2 |
---|---|---|---|---|
R-Squared | 0.89 | 1.00 | 0.81 | 1.00 |
Beta | 1.07 | 1.00 | 1.02 | 1.00 |
Ten Largest Holdings4 (% of total net assets) | ||
---|---|---|
QUALCOMM Inc. | communications equipment | 3.5% |
The Goldman Sachs Group, Inc. | investment banking and brokerage | 3.3 |
Legg Mason Inc. | asset management and custody banks | 3.2 |
Google Inc. | internet software and services | 3.1 |
UnitedHealth Group Inc. | managed healthcare | 2.9 |
Schlumberger Ltd. | oil and gas equipment and services | 2.9 |
Danaher Corp. | industrial machinery | 2.8 |
WellPoint Inc. | managed healthcare | 2.7 |
Broadcom Corp. | semiconductors | 2.4 |
Apple Computer, Inc. | computer hardware | 2.3 |
Top Ten | 29.1% |
Investment Focus
1 | Russell 1000 Growth Index. |
2 | Dow Jones Wilshire 5000 Index. |
3 | Annualized. |
4 | “Ten Largest Holdings” excludes any temporary cash investments and equity index products. See page 24 for a glossary of investment terms. |
9
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at www.vanguard.com.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): May 31, 2000–February 28, 2006
[Dark Gray] - U.S. Growth Fund Investor Shares
[Light Gray} - Russell 1000 Growth Index
Average Annual Total Returns: Periods Ended December 31, 2005
his table presents average annual total returns through the latest calendar quarter—rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information.
Ten Years | ||||||
---|---|---|---|---|---|---|
Inception Date | One Year | Five Years | Capital | Income | Total | |
Investor Shares | 1/6/1959 | 11.15% | -8.04% | 3.16% | 0.46% | 3.62% |
Admiral Shares | 8/13/2001 | 11.38 | -1.182 | — | — | — |
1 | Six months ended February 28, 2006. |
2 | Return since inception. Note: See Financial Highlights tables on pages 16 and 17 for dividend and capital gains information. |
10
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2006
The fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at www.sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Shares | Market Value• ($000) | |
---|---|---|
Common Stocks (96.4%)1 | ||
Consumer Discretionary (10.3%) | ||
Lowe's Cos., Inc. | 1,888,933 | 128,787 |
Centex Corp. | 1,257,600 | 85,026 |
Lennar Corp. Class A | 1,139,600 | 68,216 |
NIKE, Inc. Class B | 633,865 | 55,007 |
Home Depot, Inc. | 1,280,700 | 53,981 |
Marriott International, Inc. Class A | 688,465 | 47,091 |
* Bed Bath & Beyond, Inc. | 1,298,315 | 46,791 |
* Kohl's Corp. | 857,564 | 41,257 |
Staples, Inc. | 1,244,155 | 30,532 |
Johnson Controls, Inc. | 398,125 | 28,374 |
Pulte Homes, Inc. | 651,900 | 25,039 |
* Apollo Group, Inc. Class A | 494,305 | 24,409 |
D. R. Horton, Inc. | 537,133 | 18,322 |
Consumer Staples (3.0%) | 652,832 | |
The Procter & Gamble Co. | 1,096,100 | 65,689 |
Walgreen Co. | 1,252,990 | 56,209 |
PepsiCo, Inc. | 853,340 | 50,441 |
Whole Foods Market, Inc. | 289,400 | 18,487 |
Energy (4.4%) | 190,826 | |
Schlumberger Ltd. | 1,589,770 | 182,824 |
Baker Hughes, Inc. | 636,500 | 43,263 |
Suncor Energy, Inc. | 577,175 | 43,144 |
* Nabors Industries, Inc. | 175,400 | 11,568 |
Financials (15.5%) | 280,799 | |
The Goldman Sachs Group, Inc. | 1,477,140 | 208,705 |
Legg Mason Inc. | 1,565,700 | 204,465 |
American International Group, Inc. | 2,013,600 | 133,623 |
Citigroup, Inc. | 2,657,100 | 123,210 |
Merrill Lynch & Co., Inc. | 893,608 | 68,995 |
Charles Schwab Corp. | 4,111,075 | 66,640 |
JPMorgan Chase & Co. | 1,231,000 | 50,643 |
SLM Corp. | 871,014 | 49,134 |
Capital One Financial Corp. | 441,965 | 38,716 |
State Street Corp. | 616,600 | 38,525 |
Health Care (21.4%) | 982,656 | |
Biotechnology (5.2%) | ||
* Genentech, Inc. | 1,485,500 | 127,293 |
* Amgen, Inc. | 1,459,795 | 110,200 |
* Gilead Sciences, Inc. | 1,060,100 | 66,012 |
* MedImmune Inc. | 719,795 | 26,265 |
Health Care Equipment & Supplies (4.8%) | ||
* Alcon, Inc. | 1,001,900 | 115,379 |
Medtronic, Inc. | 1,931,316 | 104,195 |
* St. Jude Medical, Inc. | 1,814,500 | 82,741 |
Health Care Providers & Services (7.3%) | ||
UnitedHealth Group Inc. | 3,161,411 | 184,089 |
* WellPoint Inc. | 2,188,372 | 168,045 |
* Caremark Rx, Inc. | 2,227,945 | 110,840 |
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Shares | Market Value• ($000) | |
---|---|---|
Pharmaceuticals (4.1%) | ||
Teva Pharmaceutical Industries Ltd.Sponsored ADR | 3,451,000 | 144,907 |
Sanofi-Aventis ADR | 1,293,070 | 55,124 |
Eli Lilly & Co. | 527,200 | 29,323 |
Merck & Co., Inc. | 504,900 | 17,601 |
Schering-Plough Corp. | 571,060 | 10,565 |
Industrials (6.6%) | 1,352,579 | |
Danaher Corp. | 2,965,891 | 179,674 |
General Electric Co. | 2,416,700 | 79,437 |
United Technologies Corp. | 777,600 | 45,490 |
The Boeing Co. | 613,900 | 44,624 |
3M Co. | 481,070 | 35,402 |
Rockwell Automation, Inc. | 450,910 | 30,738 |
Information Technology (34.1%) | 415,365 | |
Communications Equipment (6.7%) | ||
QUALCOMM Inc. | 4,747,975 | 224,152 |
* Juniper Networks, Inc. | 5,528,700 | 101,673 |
* Corning, Inc. | 3,974,465 | 97,016 |
Computers & Peripherals (6.2%) | ||
* Apple Computer, Inc. | 2,155,100 | 147,711 |
* EMC Corp. | 10,075,210 | 141,253 |
* Dell Inc. | 1,901,545 | 55,145 |
* Network Appliance, Inc. | 1,384,400 | 45,907 |
Internet Software & Services (6.4%) | ||
* Google Inc. | 547,200 | 198,426 |
* eBay Inc. | 2,897,800 | 116,086 |
* Yahoo! Inc. | 2,918,125 | 93,555 |
IT Services (3.3%) | ||
Paychex, Inc. | 1,538,666 | 61,624 |
Infosys Technologies Ltd. ADR | 851,935 | 60,317 |
First Data Corp. | 1,140,275 | 51,461 |
Accenture Ltd. | 1,182,515 | 38,621 |
Semiconductors & Semiconductor Equipment (7.9%) | ||
* Broadcom Corp. | 3,388,650 | 152,794 |
* Marvell Technology Group Ltd. | 2,067,100 | 126,548 |
* Advanced Micro Devices, Inc. | 2,843,000 | 109,939 |
Taiwan Semiconductor Manufacturing Co. Ltd. ADR | 6,669,029 | 64,890 |
Linear Technology Corp. | 1,228,156 | 45,270 |
Software (3.6%) | ||
Microsoft Corp. | 3,440,789 | 92,557 |
SAP AG ADR | 1,685,655 | 86,137 |
Adobe Systems, Inc. | 1,311,315 | 50,643 |
Materials (1.1%) | 2,161,725 | |
Praxair, Inc. | 1,293,030 | 69,798 |
Exchange-Traded Fund (0.0%) | ||
2 Vanguard Growth VIPERs | 3,100 | 169 |
Total Common Stocks (Cost $4,893,940) | 6,106,749 | |
Temporary Cash Investments (4.4%)1 | ||
Money Market Fund (4.0%) | ||
3 Vanguard Market Liquidity Fund, 4.511% | 258,069,555 | 258,070 |
Face Amount ($000) | ||
U.S. Agency Obligation (0.4%) | ||
4 Federal National Mortgage Assn 5 4.419%, 4/12/06 | 23,900 | 23,776 |
Total Temporary Cash Investments (Cost $281,848) | 281,846 | |
Total Investments (100.8%) (Cost $5,175,788) | 6,388,595 | |
Other Assets and Liabilities (-0.8%) | ||
Other Assets—Note C | 94,429 | |
Liabilities | (147,858) | |
(53,429) | ||
Net Assets (100%) | 6,335,166 |
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At February 28, 2006, net assets consisted of:6
Amount ($000) | |
---|---|
Paid-in Capital | 12,154,103 |
Overdistributed Net Investment Income | (13,870) |
Accumulated Net Realized Losses | (7,017,469) |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 1,212,807 |
Futures Contracts | (405) |
Net Assets | 6,335,166 |
Investor Shares—Net Assets | |
Applicable to 274,268,654 outstanding $.001 | |
par value shares of beneficial interest | |
(unlimited authorization) | 4,994,359 |
Net Asset Value Per Share— | |
Investor Shares | $18.21 |
Admiral Shares—Net Assets | |
Applicable to 28,421,626 outstanding $.001 | |
par value shares of beneficial interest | |
(unlimited authorization) | 1,340,807 |
Net Asset Value Per Share— | |
Admiral Shares | $47.18 |
• | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
1 | The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures investments, the fund’s effective common stock and temporary cash investment positions represent 98.9% and 1.9%, respectively, of net assets. See Note E in Notes to Financial Statements. |
2 | Considered an affiliated company of the fund as the issuer is another member of The Vanguard Group. |
3 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
4 | The issuer operates under a congressional charter; its securities are neither issued nor guaranteed by the U.S. government. If needed, access to additional funding from the U.S. Treasury (beyond the issuer’s line of credit) would require congressional action. |
5 | Securities with a value of $23,776,000 have been segregated as initial margin for open futures contracts. |
6 | See Note E in Notes to Financial Statements for the tax-basis components of net assets. ADR—American Depositary Receipt. |
13
Statement of Operations
Six Months Ended February 28, 2006 | |
---|---|
($000) | |
Investment Income | |
Income | |
Dividends1 | 17,401 |
Interest1 | 5,707 |
Security Lending | 2 |
Total Income | 23,110 |
Expenses | |
Investment Advisory Fees—Note B | |
Basic Fee | 4,661 |
Performance Adjustment | 1,009 |
The Vanguard Group—Note C | |
Management and Administrative | |
Investor Shares | 9,365 |
Admiral Shares | 880 |
Marketing and Distribution | |
Investor Shares | 679 |
Admiral Shares | 158 |
Custodian Fees | 40 |
Shareholders' Reports | |
Investor Shares | 85 |
Admiral Shares | 1 |
Trustees' Fees and Expenses | 4 |
Total Expenses | 16,882 |
Expenses Paid Indirectly—Note D | (304) |
Net Expenses | 16,578 |
Net Investment Income | 6,532 |
Realized Net Gain (Loss) | |
Investment Securities Sold(1) | 142,735 |
Futures Contracts | 17,328 |
Realized Net Gain (Loss) | 160,063 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | 358,468 |
Futures Contracts | (7,427) |
Change in Unrealized Appreciation (Depreciation) | 351,041 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 517,636 |
1 | Dividend income, interest income, and realized net gain (loss) from affiliated companies of the fund were $1,000, $5,219,000, and $0, respectively. |
14
Statement of Changes in Net Assets
Six Months Ended Feb. 28, 2006 ($000) | Year Ended Aug. 31, 2005 ($000) | |
---|---|---|
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 6,532 | 20,242 |
Realized Net Gain (Loss) | 160,063 | 177,386 |
Change in Unrealized Appreciation (Depreciation) | 351,041 | 760,390 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 517,636 | 958,018 |
Distributions | ||
Net Investment Income | ||
Investor Shares | (9,864) | (15,120) |
Admiral Shares | (4,703) | (4,423) |
Realized Capital Gain | ||
Investor Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (14,567) | (19,543) |
Capital Share Transactions—Note G | ||
Investor Shares | (265,211) | (1,455,206) |
Admiral Shares | 237,801 | 49,555 |
Net Increase (Decrease) from Capital Share Transactions | (27,410) | (1,405,651) |
Total Increase (Decrease) | 475,659 | (467,176) |
Net Assets | ||
Beginning of Period | 5,859,507 | 6,326,683 |
End of Period1 | 6,335,166 | 5,859,507 |
1 | Including overdistributed net investment income of ($13,870,000) and ($5,835,000). |
15
Financial Highlights
U.S. Growth Fund Investor Shares
Six Months Ended Feb. 28, | Year Ended August 31, | |||||
---|---|---|---|---|---|---|
For a Share Outstanding Throughout Each Period | 2006 | 2005 | 2004 | 2003 | 2002 | 2001 |
Net Asset Value, Beginning of Period | $16.77 | $14.39 | $14.00 | $12.92 | $18.00 | $49.26 |
Investment Operations | ||||||
Net Investment Income | .013 | .0401 | .028 | .040 | .031 | .039 |
Net Realized and Unrealized Gain (Loss) on Investments | 1.462 | 2.385 | .409 | 1.082 | (5.075) | (23.799) |
Total from Investment Operations | 1.475 | 2.425 | .437 | 1.122 | (5.044) | (23.760) |
Distributions | ||||||
Dividends from Net Investment Income | (.035) | (.045) | (.047) | (.042) | (.036) | (.050) |
Distributions from Realized Capital Gains | — | — | — | — | — | (7.450) |
Total Distributions | (.035) | (.045) | (.047) | (.042) | (.036) | (7.500) |
Net Asset Value, End of Period | $18.21 | $16.77 | $14.39 | $14.00 | $12.92 | $18.00 |
Total Return | 8.80% | 16.86% | 3.11% | 8.73% | -28.09% | -54.07% |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $4,994 | $4,848 | $5,503 | $5,892 | $5,472 | $9,681 |
Ratio of Total Expenses to Average Net Assets2 | 0.59%3 | 0.55% | 0.53% | 0.55% | 0.50% | 0.44% |
Ratio of Net Investment Income to Average Net Assets | 0.16%3 | 0.30%1 | 0.19% | 0.32% | 0.20% | 0.13% |
Portfolio Turnover Rate | 43%3 | 38% | 71% | 47% | 53% | 135% |
1 | Net investment income per share and the ratio of net investment income to average net assets include $.017 and 0.11%, respectively, resulting from a special dividend from Microsoft Corp. in November 2004. |
2 | Includes performance-based investment advisory fee increases (decreases) of 0.03%, (0.02%), (0.03%), (0.02%), 0.00%, and 0.00%. |
3 | Annualized. |
16
U.S. Growth Fund Admiral Shares
Six Months Ended Feb. 28, | Year Ended August 31, | Aug. 131 to Aug. 31, | ||||
---|---|---|---|---|---|---|
For a Share Outstanding Throughout Each Period | 2006 | 2005 | 2004 | 2003 | 2002 | 2001 |
Net Asset Value, Beginning of Period | $43.47 | $37.29 | $36.28 | $33.46 | $46.59 | $50.00 |
Investment Operations | ||||||
Net Investment Income | .094 | .2262 | .147 | .164 | .168 | .022 |
Net Realized and Unrealized Gain (Loss) on Investments | 3.794 | 6.163 | 1.052 | 2.811 | (13.167) | (3.432) |
Total from Investment Operations | 3.888 | 6.389 | 1.199 | 2.975 | (12.999) | (3.410) |
Distributions | ||||||
Dividends from Net Investment Income | (.178) | (.209) | (.189) | (.155) | (.131) | — |
Distributions from Realized Capital Gains | — | — | — | — | — | — |
Total Distributions | (.178) | (.209) | (.189) | (.155) | (.131) | — |
Net Asset Value, End of Period | $47.18 | $43.47 | $37.29 | $36.28 | $33.46 | $46.59 |
Total Return | 8.95% | 17.16% | 3.29% | 8.95% | -27.99% | -6.82% |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $1,341 | $1,012 | $824 | $1,071 | $1,069 | $262 |
Ratio of Total Expenses to Average Net Assets3 | 0.36%4 | 0.32% | 0.32% | 0.37% | 0.36% | 0.38%4 |
Ratio of Net Investment Income to Average Net Assets | 0.39%4 | 0.53%2 | 0.40% | 0.50% | 0.37% | 0.35%4 |
Portfolio Turnover Rate | 43%4 | 38% | 71% | 47% | 53% | 135% |
1 | Inception. |
2 | Net investment income per share and the ratio of net investment income to average net assets include $.045 and 0.11%, respectively, resulting from a special dividend from Microsoft Corp. in November 2004. |
3 | Includes performance-based investment advisory fee increases (decreases) of 0.03%, (0.02%), (0.03%), (0.02%), 0.00%, and 0.00%. |
4 | Annualized. See accompanying notes, which are an integral part of the financial statements. |
17
Notes to Financial Statements
Vanguard U.S. Growth Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund files reports with the SEC under the company name Vanguard World Funds. The fund offers two classes of shares, Investor Shares and Admiral Shares. Investor Shares are available to any investor who meets the fund’s minimum purchase requirements. Admiral Shares are designed for investors who meet certain administrative, servicing, tenure, and account-size criteria.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. mutual funds. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Temporary cash investments acquired over 60 days to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments are valued at amortized cost, which approximates market value.
2. Futures Contracts: The fund uses index futures contracts to a limited extent, with the objective of maintaining full exposure to the stock market while maintaining liquidity. The fund may purchase or sell futures contracts to achieve a desired level of investment, whether to accommodate portfolio turnover or cash flows from capital share transactions. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market.
Futures contracts are valued at their quoted daily settlement prices. The aggregate principal amounts of the contracts are not recorded in the 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).
3. 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.
4. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
5. Security Lending: The fund may lend its securities to qualified institutional borrowers to earn additional income. Security loans are required to be secured at all times by collateral at least equal to the market value of securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability for the return of the collateral, during the period the securities are on loan. Security lending income represents the income earned on investing cash collateral, less expenses associated with the loan.
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6. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. AllianceBernstein L.P. and William Blair & Company, L.L.C., each provide investment advisory services to a portion of the fund for a fee calculated at an annual percentage rate of average net assets managed by the advisor. The basic fee for AllianceBernstein L.P. is subject to quarterly adjustments based on performance for the preceding three years relative to the Russell 1000 Growth Index. The basic fee for William Blair & Company is subject to quarterly adjustments based on performance since June 1, 2004, relative to the Russell 1000 Growth Index.
The Vanguard Group manages the cash reserves of the portfolio on an at-cost basis.
For the six months ended February 28, 2006, the aggregate investment advisory fee represented an effective annual basic rate of 0.15% of the fund’s average net assets before an increase of $1,009,000 (0.03%) based on performance.
C. The Vanguard Group furnishes at cost corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the fund under methods approved by the board of trustees. The fund has committed to provide up to 0.40% of its net assets in capital contributions to Vanguard. At February 28, 2006, the fund had contributed capital of $728,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.73% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
D. The fund has asked its investment advisors to direct certain security trades, subject to obtaining the best price and execution, to brokers who have agreed to rebate to the fund part of the commissions generated. Such rebates are used solely to reduce the fund’s management and administrative expenses. For the six months ended February 28, 2006, these arrangements reduced the fund’s expenses by $304,000 (an annual rate of 0.01% of average net assets).
E. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at August 31, 2005, the fund had available realized losses of $7,169,803,000 to offset future net capital gains of $3,610,329,000 through August 31, 2010, $2,548,333,000 through August 31, 2011,
19
$887,490,000 through August 31, 2012, and $123,651,000 through August 31, 2013. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2006; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balances above.
At February 28, 2006, net unrealized appreciation of investment securities for tax purposes was $1,212,807,000, consisting of unrealized gains of $1,346,738,000 on securities that had risen in value since their purchase and $133,931,000 in unrealized losses on securities that had fallen in value since their purchase.
At February 28, 2006, the aggregate settlement value of open futures contracts expiring through March 2006 and the related unrealized appreciation (depreciation) were:
($000) | |||
---|---|---|---|
Futures Contracts | Number of Long Contracts | Aggregate Settlement Value | Unrealized Appreciation (Depreciation) |
S&P 500 Index | 237 | 75,982 | 758 |
E-mini NASDAQ 100 Index | 1,685 | 56,431 | (1,381) |
E-mini S&P 500 Index | 450 | 28,854 | 218 |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
F. During the six months ended February 28, 2006, the fund purchased $1,277,829,000 of investment securities and sold $1,306,936,000 of investment securities other than temporary cash investments.
G. Capital share transactions for each class of shares were:
Six Months Ended February 28, 2006 | Year Ended August 31, 2005 | |||
---|---|---|---|---|
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
Investor Shares | ||||
Issued | 444,384 | 24,942 | 701,277 | 44,965 |
Issued in Lieu of Cash Distributions | 9,625 | 531 | 14,787 | 918 |
Redeemed | (719,220) | (40,364) | (2,171,270) | (139,231) |
Net Increase (Decrease)—Investor Shares | (265,211) | (14,891) | (1,455,206) | (93,348) |
Admiral Shares | ||||
Issued | 326,609 | 7,066 | 489,787 | 11,743 |
Issued in Lieu of Cash Distributions | 4,305 | 92 | 4,233 | 102 |
Redeemed | (93,113) | (2,010) | (444,465) | (10,662) |
Net Increase (Decrease)—Admiral Shares | 237,801 | 5,148 | 49,555 | 1,183 |
20
About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The table below illustrates your fund’s costs in two ways:
1. Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading “Expenses Paid During Period.”
2. Based on hypothetical 5% yearly return. This section is intended to help you compare your fund’s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Six Months Ended February 28, 2006
U.S. Growth Fund | Beginning Account Value 8/31/2005 | Ending Account Value 2/28/2006 | Expenses Paid During Period1 |
---|---|---|---|
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $1,087.96 | $3.05 |
Admiral Shares | 1,000.00 | 1,089.46 | 1.87 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,021.87 | $2.96 |
Admiral Shares | 1,000.00 | 1,023.01 | 1.81 |
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect any transactional costs or account maintenance fees. They do not include your fund’s low-balance fee, which is described in the prospectus. If this fee were applied to your account, your costs would be higher. Your fund does not charge transaction fees, such as purchase or redemption fees, nor does it carry a “sales load.”
1 | The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios for that period are 0.59% for Investor Shares and 0.36% for Admiral Shares. The dollar amounts shown as “Expenses Paid”are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period. |
21
The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to the current fund prospectus.
22
Trustees Renew Advisory Agreements
The board of trustees of Vanguard U.S. Growth Fund has renewed the fund’s investment advisory agreements with AllianceBernstein L.P. and William Blair & Company, L.L.C. The board determined that the retention of these advisors was in the best interests of the fund and its shareholders.
The board based its decision upon its most recent evaluation of each advisor’s investment staff, portfolio management process, and performance. The trustees considered the factors discussed below, among others. However, no single factor determined whether the board approved the agreements. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of services
The board considered the quality of the fund’s investment management over both short- and long-term periods and took into account the organizational depth and stability of each advisor. The board concluded that AllianceBernstein, founded in 1971, is among the nation’s leading global investment management firms. The fund is managed by a team of seven portfolio managers with an average of roughly 20 years experience. The firm has advised the fund since 2001.
The board concluded that the fund’s other advisor, William Blair & Company, is known for its independence and commitment to value investing. William Blair & Company was founded in 1935 and has advised a portion of the U.S. Growth Fund since 2004. The board concluded that William Blair & Company continues to employ a sound process. The board also noted that the firm has a deep and talented pool of investment professionals, consisting of 31 portfolio managers averaging over 25 years of experience.
The board concluded that each advisor’s experience, stability, and performance, among other factors, warranted continuation of the advisory agreements.
Investment performance
The board considered the short- and long-term performance of the fund, including any periods of outperformance or underperformance of relevant benchmarks and peer groups. The board concluded that the advisors have carried out the fund’s investment strategy in disciplined fashion, and that while performance results have been disappointing on a long-term basis, the fund has been competitive versus its benchmark and its average peer fund in the more recent past. Information about the fund’s most recent performance can be found in the Performance Summary section of this report.
Cost
The board concluded that the fund’s expense ratio was far below the average expense ratio charged by funds in its peer group. The fund’s advisory fees were also well below the peer-group average. Information about the fund’s expense ratio appears in the About Your Fund’s Expenses section of this report as well as in the Financial Statements section, which also includes information about the advisory fee rate. The board did not consider profitability of AllianceBernstein or William Blair & Company in determining whether to approve the advisory fees, because both firms are independent of Vanguard and the advisory fees are the result of arm’s-length negotiations.
The benefit of economies of scale
The board concluded that the fund’s shareholders benefit from economies of scale because of breakpoints in the fund’s advisory fee schedules. The breakpoints reduce the effective rate of the fee as the fund’s assets increase.
The advisory agreements will continue for one year and are renewable by the fund’s board after that for successive one-year periods.
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Glossary
Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. A fund’s beta should be reviewed in conjunction with its R-squared (see definition below). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Expense Ratio. The percentage of a fund’s average net assets used to pay its annual administrative and advisory expenses. These expenses directly reduce returns to investors.
Foreign Holdings. The percentage of a fund’s equity assets represented by stocks or depositary receipts of companies based outside the United States.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.
Price/Earnings Ratio. The ratio of a stock’s current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company’s future growth.
R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0.
Return on Equity. The annual average rate of return generated by a company during the past five years for each dollar of shareholder’s equity (net income divided by shareholder’s equity). For a fund, the weighted average return on equity for the companies whose stocks it holds.
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
Turnover Rate. An indication of the fund’s trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to investors). The turnover rate excludes in-kind transactions, which have minimal impact on costs.
Yield. A snapshot of a fund’s income from interest and dividends. The yield, expressed as a percentage of the fund’s net asset value, is based on income earned over the past 30 days and is annualized, or projected forward for the coming year. The index yield is based on the current annualized rate of income provided by securities in the index.
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The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals.
Our independent board members bring distinguished backgrounds in business, academia, and public service to their task of working with Vanguard officers to establish the policies and oversee the activities of the funds. Among board members’ responsibilities are selecting investment advisors for the funds; monitoring fund operations, performance, and costs; reviewing contracts; nominating and selecting new trustees/directors; and electing Vanguard officers.
Each trustee serves a fund until its termination; or until the trustee’s retirement, resignation, or death; or otherwise as specified in the fund’s organizational documents. Any trustee may be removed at a shareholders’ meeting by a vote representing two-thirds of the net asset value of all shares of the fund together with shares of other Vanguard funds organized within the same trust. The table on these two pages shows information for each trustee and executive officer of the fund. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482.
Chairman of the Board, Chief Executive Officer, and Trustee
John J. Brennan1 | |
---|---|
Born 1954 Chairman of the Board, Chief Executive Officer, and Trustee since May 1987 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Chairman of the Board, Chief Executive Officer, and Director/ Trustee of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group. |
IndependentTrustees | |
Charles D. Ellis | |
Born 1937 Trustee since January 2001 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Applecore Partners (pro bono ventures in education); Senior Advisor to Greenwich Associates (international business strategy consulting); Successor Trustee of Yale University; Overseer of the Stern School of Business at New York University; Trustee of the Whitehead Institute for Biomedical Research. |
Rajiv L. Gupta | |
Born 1945 Trustee since December 20012 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Chairman and Chief Executive Officer of Rohm and Haas Co. (chemicals); Board Member of the American Chemistry Council; Director of Tyco International, Ltd. (diversified manufacturing and services) (since 2005); Trustee of Drexel University and of the Chemical Heritage Foundation. |
JoAnn Heffernan Heisen | |
Born 1950 Trustee since July 1998 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Vice President, Chief Information Officer, and Member of the Executive Committee of Johnson & Johnson (pharmaceuticals/ consumer products); Director of the University Medical Center at Princeton and Women’s Research and Education Institute. |
André F. Perold | |
---|---|
Born 1952 Trustee since December 2004 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: George Gund Professor of Finance and Banking, Harvard Business School (since 2000); Senior Associate Dean, Director of Faculty Recruiting, and Chair of Finance Faculty, Harvard Business School; Director and Chairman of UNX, Inc. (equities trading firm) (since 2003); Director of registered investment companies advised by Merrill Lynch Investment Managers and affiliates (1985–2004), Genbel Securities Limited (South African financial services firm) (1999–2003), Gensec Bank (1999–2003), Sanlam Investment Management (1999–2001), Sanlam, Ltd. (South African insurance company) (2001–2003), Stockback, Inc. (credit card firm) (2000–2002), and Bulldogresearch.com (investment research) (1999–2001); and Trustee of Commonfund (investment management) (1989–2001). |
Alfred M. Rankin, Jr. | |
Born 1941 Trustee since January 1993 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Chairman, President, Chief Executive Officer, and Director of NACCO Industries, Inc. (forklift trucks/housewares/lignite); Director of Goodrich Corporation (industrial products/aircraft systems and services); Director of Standard Products Company (supplier for the automotive industry) until 1998. |
J. Lawrence Wilson | |
Born 1936 Trustee since April 1985 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Retired Chairman and Chief Executive Officer of Rohm and Haas Co. (chemicals); Director of Cummins Inc. (diesel engines), MeadWestvaco Corp. (packaging products), and AmerisourceBergen Corp. (pharmaceutical distribution); Trustee of Vanderbilt University and of Culver Educational Foundation. |
Executive Officers1 | |
Heidi Stam | |
Born 1956 Secretary since July 2005 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Principal of The Vanguard Group since November 1997; General Counsel of The Vanguard Group since July 2005; Secretary of The Vanguard Group and of each of the investment companies served by The Vanguard Group since July 2005. |
Thomas J. Higgins | |
Born 1957 Treasurer since July 1998 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Principal of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group. |
Vanguard Senior Management Team | |
R. Gregory Barton | |
Mortimer J. Buckley | |
James H. Gately | |
Kathleen C. Gubanich | |
F. William McNabb, III | |
Michael S. Miller | |
Ralph K. Packard | |
George U. Sauter | |
Founder | |
John C. Bogle | |
Chairman and Chief Executive Officer, 1974-1996 |
1 | Officers of the funds are “interested persons” as defined in the Investment Company Act of 1940. |
2 | December 2002 for Vanguard Equity Income Fund, Vanguard Growth Equity Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds. |
More information about the trustees is in the Statement of Additional Information, available from Vanguard. |
![]() P.O. Box 2600 Valley Forge, PA 19482-2600 |
Connect with Vanguard ™ > www.vanguard.com
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Vanguard, and the ship logo are trademarks of | |
Direct Investor Account Services > 800-662-2739 | The Vanguard Group, Inc. |
Institutional Investor Services > 800-523-1036 | |
All other marks are the exclusive property of their | |
Text Telephone > 800-952-3335 | respective owners. |
All comparative mutual fund data are from Lipper Inc. | |
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Q570 042006 |
Vanguard® International Growth Fund
> Semiannual Report
February 28, 2006
> Vanguard International Growth Fund performed well in a period whose performance was driven by expanding
economies in emerging markets and Japan.
> The fund outperformed both its target benchmark and the average return among peer funds.
> The fund selected well among companies that are located in, or benefit from, emerging markets.
Contents | |
Your Fund's Total Returns | 1 |
Chairman's Letter | 2 |
Advisors' Report | 6 |
Fund Profile | 9 |
Performance Summary | 11 |
Financial Statements | 12 |
About Your Fund's Expenses | 26 |
Trustees Renew Advisory Agreements | 28 |
Glossary | 30 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the cover of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
Your Fund’s Total Returns
Six Months Ended February 28, 2006
Total Return | |
---|---|
Vanguard International Growth Fund | |
Investor Shares | 16.5% |
Admiral™ Shares1 | 16.5 |
MSCI EAFE Index | 15.1 |
Average International Fund2 | 14.9 |
MSCI All Country World Index ex USA | 17.1 |
Your Fund’s Performance at a Glance
August31, 2005–February 28, 2006
Distributions Per Share | ||||
---|---|---|---|---|
Starting Share Price | Ending Share Price | Income Dividends | Capital Gains | |
Vanguard International Growth Fund | ||||
Investor Shares | $19.83 | $22.37 | $0.370 | $0.315 |
Admiral Shares | 63.15 | 71.17 | 1.288 | 1.002 |
1 A lower-cost class of shares available to many longtime shareholders and to those with significant investments in the fund.
2 Derived from data provided by Lipper Inc.
1
Chairman’s Letter
Dear Shareholder,
The past six months have seen a continuation of outsized returns outside the United States, with the growing economies of emerging markets leading the way. The dollar generally gained against foreign currencies, dampening returns for U.S. investors somewhat. (A strengthening U.S. dollar means that assets priced in other currencies can be converted into fewer dollars.)
Vanguard International Growth Fund gained 16.5% for the fiscal half-year, ahead of both the average return among its peer funds and that of its benchmark, the Morgan Stanley Capital International Europe, Australasia, Far East (MSCI EAFE) Index. The fund’s relative strength reflected its holdings in emerging markets (which are not included in the benchmark) and its Japanese stocks, as well as shrewd stock selection in select industries such as financials and industrials. The fund’s return was slightly below that of the MSCI All Country World Index ex USA, which had a smaller exposure to weaker-performing economies in Europe.
Stock markets rose worldwide, with the biggest gains overseas
During the first half of the 2006 fiscal year, global stock markets reprised patterns that have characterized the investment environment in recent years: reasonably strong returns from the broad U.S. market, better performance from that market’s smaller companies, and a powerful rally in international stocks. Returns were
2
particularly strong in the Pacific region, where the Japanese stock market and economy appear to have awakened from a 15-year slumber.
Unusual interest rate patterns reflected two views of inflation
In the U.S. bond market, long-term interest rates held relatively steady, while short-term rates rose sharply, in some cases exceeding those of longer-term securities. This unusual interest rate dynamic put pressure on the broad fixed income market, although it enhanced the returns of the shortest-term securities, such as 3-month U.S. Treasury bills.
The rapid rise in short-term rates reflects the Federal Reserve Board’s efforts to defuse any near-term inflationary threats. From June 2004 through January 2006, the Fed boosted its target for short-term rates to 4.50% from 1.00% in 14 separate actions. The relative stability of long-term rates is consistent with Fed comments and the market consensus that long-term inflationary pressures in the economy remain contained.
Emerging markets continue to power international returns
Emerging markets enjoyed robust economic growth and exceptional stock market performance, benefiting from both strong exports and spending by increasing numbers of domestic consumers. Your
Market Barometer
Total Returns Periods Ended February 28, 2006 | |||
---|---|---|---|
Six Months | One Year | Five Years1 | |
Stocks | |||
MSCI All Country World Index ex USA (International) | 17.1% | 21.1% | 9.5% |
Russell 1000 Index (Large-caps) | 6.2 | 9.8 | 3.0 |
Russell 2000 Index (Small-caps) | 10.2 | 16.6 | 10.4 |
Dow Jones Wilshire 5000 Index (Entire market) | 6.7 | 10.8 | 4.1 |
Bonds | |||
Lehman Aggregate Bond Index (Broad taxable market) | -0.1% | 2.7% | 5.4% |
Lehman Municipal Bond Index | 1.0 | 3.9 | 5.5 |
Citigroup 3-Month Treasury Bill Index | 1.8 | 3.3 | 2.2 |
CPI | |||
Consumer Price Index | 1.2% | 3.6% | 2.5% |
1 Annualized.
3
fund tapped these trends by leaning toward emerging markets when selecting technology, banking, and energy stocks. An example of each, respectively: Samsung Electronics of South Korea, Unibanco-Uniao de Bancos Brasileiros, and Petróleo Brasileiro—all top-performing stocks during the half-year. The fund also selected developed-market companies that are benefiting from growth in emerging markets, such as British retailers that have set up shop in far-flung locations, Swedish engineering firms, and Japanese tech companies.
On an absolute basis, the fund’s greatest gains came from Japan, where the portfolio had a 20% weighting. The country benefited from strong export markets and the release of pent-up demand among its cautious consumers.
Top performances came from a wide range of stocks, including Canon, Mitsubishi Estate, and East Japan Railway. The fund’s largest country weighting was the United Kingdom, whose gains were disappointing as consumer spending slowed in that country.
Among sectors, the fund enjoyed double-digit gains in seven of ten industry groups, with the highest performances coming from financial stocks. The fund’s top-ten performing stocks included two Japanese financial companies and banks in Germany and Brazil. Only one sector produced a negative return: telecommunications. As in the United States, this sector struggled with overcapacity and an ever-changing competitive landscape as telephone, Internet, cable, and wireless providers compete and converge.
Annualized Expense Ratios1
Your fund compared with its peer group
Investor Shares | Admiral Shares | Average International Fund | |
---|---|---|---|
International Growth Fund | 0.56% | 0.36% | 1.65% |
Fund Assets Managed
February 28, 2006 | ||
---|---|---|
$ Million | Percentage | |
Schroder Investment Management North America Inc. | $8,505 | 68% |
Baillie Gifford Overseas Ltd. | 3,665 | 29 |
Cash Investments2 | 300 | 3 |
Total | $12,470 | 100% |
1 Peer-group expense ratios are derived from data provided by Lipper Inc. and capture information through year-end 2005.
2 These short-term reserves are invested by Vanguard in equity index products to simulate investment in stocks. Each advisor also may maintain a modest cash
position.
4
Relative to the fund’s MSCI EAFE benchmark, the fund picked up its greatest performance edge via stock selections in the energy sector. The fund’s holdings added nearly 2 percentage points to its return, compared with a negative return for the energy stocks in the benchmark. The fund lost ground by being underweighted among materials and commodities companies, which are booming in the face of Sino-Indian growth.
The fund’s strong performance is a tribute to the disciplined approaches of its two investment advisors: Schroder Investment Management North America, which has managed the fund since its 1981 inception, and Baillie Gifford, which joined the fund in 2003. Both select stocks based on the long-term outlook for each holding, not on what will happen in a six-month window. The fund has a long-term record of meeting its objective of capturing growth abroad for fund investors.
Don’t change your plan based on investment trends
There was a time not too long ago when the conventional wisdom was that large-capitalization U.S. stocks were the only investments you needed to own. The leading U.S. companies had somehow been declared the winners in the 1990s, and venturing overseas was seen as a willful disregard of the obvious.
As the past five years have shown, the markets have a way of upending conventional wisdom, knocking down a new idea each time it gains wide currency. That is why at Vanguard, we counsel investors to build a diversified portfolio that reflects their appetite for risk, their time horizon, and their investment goals. Such a portfolio of stocks, bonds, and cash should be rebalanced periodically to maintain its allocations, notwithstanding shifts in the conventional wisdom.
Thank you for placing your confidence in us.
Sincerely,
John J. Brennan
Chairman and Chief Executive Officer
March 13, 2006
5
Advisors’ Report
During the fiscal half-year ended February 28, 2006, Vanguard International Growth Fund returned 16.5%. This performance reflects the combined efforts of your fund’s two independent advisors. The use of more than one advisor provides exposure to distinct, yet complementary, investment approaches, enhancing the fund’s diversification. The advisors, the percentage of fund assets each manages, and a brief description of their investment strategies are presented in the table below. Each advisor has also prepared a discussion of the investment environment that existed during the first half of the fiscal year and of the portfolio’s positioning.
Schroder Investment Management
North America, Inc.
Portfolio Managers:
Virginie Maisonneuve, CFA,
Executive Director
Matthew Dobbs, Executive Director
International equity markets performed well in the six-month period, despite some concerns over economic growth, persistently high oil and gas prices, and rising U.S. interest rates. Investors’ confidence was bolstered by the economic resilience of what have been the world’s two major growth engines—U.S. consumers and China. China’s growing presence on the global landscape has also helped support growth in the Pacific region and has acted as a deflationary force in keeping down the prices of goods. Japan
Vanguard International Growth Fund Investment Advisors
Investment Advisors | Fund Assets Managed (%) | Investment Strategy |
---|---|---|
Schroder Investment Management | 68 | Regional equity analysts in 11 countries generate |
North America Inc. | ideas, which are overlaid with the perspectives of | |
an international team consisting of global sector and | ||
regional specialists. This knowledge matrix provides | ||
a framework for identifying reasonably priced | ||
companies with strong growth prospects and a | ||
sustainable competitive advantage. | ||
Baillie Gifford Overseas Ltd. | 29 | The advisor seeks stocks that can generate above- |
average growth in earnings and cash flow, producing | ||
a bottom-up, stock-driven approach to country and | ||
asset allocation. An in-depth view on each company | ||
is measured against the consensus view, leading to | ||
discrepancies and potential opportunities to add value. | ||
Cash Investments1 | 3 | |
1 These short-term reserves are invested by Vanguard in equity index products to simulate investment in stocks. Each advisor may also maintain a modest cash
position.
6
was one of the best-performing markets in the period, largely on the back of domestic demand-driven growth. Emerging markets performed well overall, with companies in countries such as South Korea benefiting from strong domestic demand and improved global competitiveness, while those in South America benefited from demand for oil and better economic conditions. The United Kingdom was weak in relative terms, as sluggish consumer spending continued to dampen sentiment.
Our portfolio has overweight positions in emerging markets, industrials, and energy, while maintaining a defensive stance with an overweight in consumer staples. This reflects the portfolio’s exposure to what we see as the most attractively priced quality growth companies with strong competitive advantages, such as South Korea’s Daewoo Shipbuilding & Marine Engineering, which is benefiting from strong demand for carriers of liquefied natural gas. Our overweight in energy includes companies such as Petróleo Brasileiro, Suncor, and BG Group. We have a slightly underweight exposure overall to the financials sector, but we like selected European companies, such as Deutsche Bank, which should benefit from “normalizing” Eurozone interest rates. We also favor Japanese companies, such as ORIX and Mitsubishi UFJ Financial Group, based on the outlook for continued improving loan growth as the country’s economy strengthens.
We believe the current environment warrants a cautiously optimistic approach. We expect the global economy to slow down this year, but believe that a marginal rebalancing of global economic growth will help alleviate some of the headwinds facing markets. In particular, stronger domestic demand growth in non-U.S. economies should help offset a slowdown in the United States, where a cooling housing market and higher interest rates could weigh more heavily on homeowners. Moreover, we believe that the strength of the global corporate sector should help compensate for any slowdown in consumer spending. Finally, as global growth becomes scarcer, we believe that investments in quality, large-capitalization growth stocks at reasonable prices should outperform the broader market.
Baillie Gifford Overseas Ltd.
Portfolio Manager:
James K. Anderson, Deputy Chief
Investment Officer
International markets remained strong over the fiscal period, despite signs of increasing nervousness as interest rates continued to rise. The U.S. dollar lost some of its buoyancy as we entered 2006, which helped returns; but the Japanese market was the real star, turning in one of the world’s top performances during 2005. Investors were impressed by the country’s stronger growth, but were particularly excited by signs that the dead hand of deflation was loosening its grip.
7
This was good news for Japanese companies that own plenty of assets or for financial businesses that find a little inflation acts as a welcome lubricant. Despite the current attractions of such businesses, however, we find that most of these firms lack longer-term appeal.
We continue to be encouraged by the performance of the industrials (especially, capital goods) and materials sectors. We believe that the creation of modern industrial economies in China and India, with the consequent effects on the prosperity of commodity producers in Brazil, Russia, and elsewhere, will remain the major drivers of growth for years to come.
The portfolio was well-positioned to take advantage of this trend as a result of its heavy exposure to the industrials (i.e., capital goods), energy, and materials sectors, and, conversely, its aversion to utilities, health care (i.e., pharmaceuticals), and financials.
Our main changes were to increase our emerging market exposure by investing in Taiwan and adding to our Russian holdings. The portfolio’s industrials weighting rose—largely because of performance—and we reduced our exposure to consumer-driven and telecommunication services businesses.
Looking ahead, we think that while stock markets have done well, earnings have too, so valuations have not risen very much and still look reasonable. Investors seem nervous, however. In this environment, reversion to the mean is widely anticipated. This has created some interesting opportunities as long-term growth prospects are still undervalued and companies that can sustain their earnings growth are denied the valuation premium they deserve.
There are signs that markets are due for a period of nervous jitters, as investors itch to realize unbanked profits. On the whole, the fundamentals do not justify these fears (although some industrial commodity prices do look high). We are confident that pursuing our strategy will prove advantageous once confidence reasserts itself.
8
Fund Profile
As of February 28, 2006
Portfolio Characteristics
Fund | Comparative Index1 | Broad Index2 | |
---|---|---|---|
Number of Stocks | 150 | 1,133 | 2,041 |
Turnover Rate | 54%3 | — | — |
Expense Ratio | — | — | |
Investor Shares | 0.563 | ||
Admiral Shares | 0.363 | ||
Short-Term Reserves | 1% | — | — |
Sector Diversification (% of portfolio)
Fund | Comparative Index1 | Broad Index2 | |
---|---|---|---|
Consumer Discretionary | 11% | 12% | 11% |
Consumer Staples | 9 | 8 | 7 |
Energy | 11 | 9 | 10 |
Financials | 26 | 28 | 28 |
Health Care | 6 | 8 | 7 |
Industrials | 16 | 10 | 10 |
Information Technology | 8 | 6 | 7 |
Materials | 5 | 8 | 9 |
Telecommunication Services | 5 | 6 | 6 |
Utilities | 2 | 5 | 5 |
Short-Term Reserves | 1% | — | — |
Volatility Measures
Fund | Comparative Index1 | Fund | Broad Index2 | |
---|---|---|---|---|
R-Squared | 0.97 | 1.00 | 0.97 | 1.00 |
Beta | 0.99 | 1.00 | 0.95 | 1.00 |
Ten Largest Holdings4 (% of total net assets)
Tesco PLC | food and staples retailing | 2.4% |
BG Group PLC | oil gas and consumable fuels | 2.2 |
Petroleo Brasileiro Series A ADR | integrated oils and gas | 2.2 |
Allied Irish Banks PLC | commercial banks | 1.8 |
Deutsche Bank AG | capital markets | 1.8 |
Royal Bank of Scotland Group PLC | commercial banks | 1.6 |
Mitsubishi UFJ Financial Group | commercial banks | 1.6 |
Rio Tinto PLC | metals and mining | 1.6 |
Novartis AG (Registered) | pharmaceuticals | 1.5 |
Suez SA | multi-utilities | 1.5 |
Top Ten | 18.2% |
Allocation by Region (% of portfolio)
1 MSCI EAFE Index.
2 MSCI All Country World Index ex USA.
3 Annualized.
4 "Ten Largest Holdings" excludes any temporary cash investments and equity index products.
9
Country Diversification (% of portfolio)
Fund1 | Comparative Index2 | Broad Index3 | |
---|---|---|---|
Europe | |||
United Kingdom | 24% | 24% | 19% |
France | 11 | 9 | 8 |
Switzerland | 6 | 7 | 6 |
Germany | 6 | 7 | 6 |
Ireland | 3 | 1 | 1 |
Sweden | 3 | 2 | 2 |
Spain | 2 | 4 | 3 |
Belgium | 1 | 1 | 1 |
Greece | 1 | 1 | 1 |
Netherlands | 1 | 3 | 3 |
Austria | 0 | 1 | 0 |
Denmark | 1 | 1 | 1 |
Finland | 0 | 1 | 1 |
Italy | 0 | 4 | 3 |
Norway | 0 | 1 | 1 |
Subtotal | 59% | 67% | 56% |
Pacific | |||
Japan | 20% | 25% | 21% |
Australia | 3 | 5 | 4 |
Hong Kong | 1 | 2 | 1 |
Singapore | 1 | 1 | 1 |
Subtotal | 25% | 33% | 27% |
Emerging Markets | |||
South Korea | 4% | — | 2% |
Brazil | 3 | — | 2 |
India | 1 | — | 1 |
Indonesia | 1 | — | 0 |
Taiwan | 1 | — | 2 |
South Africa | 1 | — | 1 |
Mexico | 0 | — | 1 |
China | 1 | — | 1 |
Russia | 1 | — | 1 |
Subtotal | 13% | — | 11% |
North America | |||
Canada | 2% | — | 6% |
Short-Term Reserves | 1% | — | — |
Total | 100% | 100% | 100% |
1 Country percentages exclude currency contracts held by the fund.
2 MSCI EAFE Index.
3 MSCI All Country World Index ex USA.
See page 30 for a glossary of investment terms.
10
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at www.vanguard.com.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): August 31, 1995–February 28, 2006
Average Annual Total Returns: Periods Ended December 31, 2005
This table presents average annual total returns through the latest calendar quarter—rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information.
Ten Years | ||||||
---|---|---|---|---|---|---|
Inception Date | One Year | Five Years | Capital | Income | Total | |
Investor Shares2 | 9/30/1981 | 15.00% | 4.16% | 5.59% | 1.46% | 7.05% |
Admiral Shares2 | 8/13/2001 | 15.21 | 9.403 | — | — | — |
1 Six months ended February 28, 2006.
2 Total returns do not reflect the 2% fee assessed on redemptions of shares purchased on or after June 27, 2003, and held for less than two months.
3 Since inception.
Note: See Financial Highlights tables on pages 19 and 20 for dividend and capital gains information.
11
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2006
The fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at www.sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Shares | Market Value• ($000) | |
---|---|---|
Common Stocks (96.3%)1 | ||
Argentina (0.3%) | ||
Tenaris SA ADR | 256,000 | 40,998 |
Australia (3.0%) | ||
Macquarie Infrastucture Group | 31,397,896 | 81,190 |
BHP Billiton Ltd. | 4,504,600 | 81,095 |
Westpac Banking Corp., Ltd. | 3,311,000 | 57,847 |
Woodside Petroleum Ltd. | 1,536,000 | 46,130 |
Woolworths Ltd. | 2,553,143 | 34,788 |
James Hardie Industries NV | 4,405,000 | 28,889 |
^ Macquarie Bank Ltd. | 546,000 | 25,838 |
Foster's Group Ltd. | 5,900,000 | 23,761 |
379,538 | ||
Belgium (0.8%) | ||
KBC Bank & Verzekerings Holding | 1,000,000 | 104,410 |
Brazil (3.3%) | ||
Petroleo Brasileiro ADR | 1,721,000 | 150,656 |
Petroleo Brasileiro Series A ADR | 1,493,200 | 119,411 |
Unibanco-Uniao de Bancos Brasileiros SA | 5,144,000 | 89,607 |
Companhia Vale do Rio Doce ADR | 1,203,200 | 48,970 |
408,644 | ||
Canada (1.8%) | ||
^ Suncor Energy, Inc. | 2,185,000 | 163,210 |
Nova Chemicals Corp. | 2,061,853 | 67,058 |
230,268 | ||
China (0.7%) | ||
China Resources Enterprise Ltd. | 24,594,000 | 53,782 |
CNOOC Ltd. | 44,035,000 | 36,489 |
90,271 | ||
Denmark (0.4%) | ||
Danske Bank A/S | 1,453,730 | 51,843 |
France (10.6%) | ||
^ Suez SA | 4,928,400 | 181,032 |
Total SA | 614,000 | 154,440 |
^ L'Oreal SA | 1,493,052 | 132,028 |
Schneider Electric SA | 1,099,000 | 112,313 |
^ BNP Paribas SA | 1,141,000 | 105,609 |
^ Groupe Danone | 846,000 | 97,314 |
^ Societe Generale Class A | 628,465 | 89,011 |
^ AXA | 2,495,000 | 88,230 |
Renault SA | 913,180 | 87,761 |
^ France Telecom SA | 3,566,259 | 77,921 |
Essilor International SA | 769,900 | 66,345 |
^ Imerys SA | 601,000 | 51,341 |
^ Sanofi-Aventis | 501,500 | 42,696 |
^ Pernod Ricard SA | 220,850 | 37,800 |
1,323,841 | ||
Germany (5.9%) | ||
Deutsche Bank AG | 2,030,000 | 224,029 |
SAP AG | 806,705 | 164,599 |
^ Siemens AG | 1,028,000 | 94,420 |
12
Shares | Market Value• ($000) | |
---|---|---|
^ Porsche AG | 56,000 | 47,171 |
Celesio AG | 501,000 | 46,602 |
Bayer AG | 1,123,213 | 45,230 |
^ Adidas-Salomon AG | 205,710 | 40,216 |
RWE AG | 450,000 | 38,598 |
^ Bayerische Motoren Werke AG | 649,600 | 31,264 |
732,129 | ||
Greece (0.7%) | ||
National Bank of Greece SA | 1,658,000 | 85,184 |
Hong Kong (0.6%) | ||
Jardine Matheson Holdings Ltd. | 2,708,400 | 47,832 |
^ Hong Kong Exchanges & Clearing Ltd. | 4,790,000 | 24,452 |
72,284 | ||
India (1.1%) | ||
*2 Satyam Computer Services Ltd. Warrants Exp. 10/13/10 | 3,956,000 | 69,321 |
*2 State Bank of India Warrants Exp. 1/28/09 | 2,711,000 | 54,157 |
Infosys Technologies Ltd. ADR | 179,300 | 12,694 |
136,172 | ||
Indonesia (0.7%) | ||
PT Telekomunikasi Indonesia Tbk | 64,173,500 | 42,462 |
PT Indonesian Satellite Corp Tbk | 71,158,500 | 40,014 |
82,476 | ||
Ireland (2.9%) | ||
Allied Irish Banks PLC (U.K. Shares) | 8,148,843 | 194,746 |
Anglo Irish Bank Corp. PLC | 8,509,015 | 139,534 |
Allied Irish Banks PLC | 1,311,160 | 31,327 |
365,607 | ||
Israel (0.4%) | ||
Teva Pharmaceutical Industries Ltd. Sponsored ADR | 1,050,200 | 44,098 |
Japan (20.3%) | ||
Mitsubishi UFJ Financial Group | 13,540 | 200,912 |
Mitsubishi Corp. | 7,335,000 | 170,078 |
Toyota Motor Corp. | 3,134,400 | 166,986 |
ORIX Corp. | 591,000 | 155,499 |
^ Mitsubishi Estate Co., Ltd. | 6,719,000 | 141,610 |
East Japan Railway Co. | 18,648 | 132,580 |
Mitsui & Co., Ltd. | 9,576,000 | 130,935 |
^ Daikin Industries Ltd. | 3,863,500 | 128,480 |
KDDI Corp. | 22,989 | 118,007 |
Canon, Inc. | 1,818,200 | 113,453 |
T & D Holdings, Inc. | 1,389,000 | 103,987 |
SMC Corp. | 557,500 | 78,706 |
Sumitomo Electric Industries Ltd. | 4,953,000 | 74,384 |
* Jupiter Telecommunications Co., Ltd. | 102,493 | 68,778 |
Japan Tobacco, Inc. | 3,864 | 66,345 |
Ricoh Co. | 3,424,000 | 63,358 |
^ Ushio Inc. | 2,294,300 | 56,033 |
Nitto Denko Corp. | 651,000 | 55,832 |
Asahi Glass Co., Ltd. | 3,937,000 | 55,568 |
Sumitomo Realty & Development Co. | 2,283,000 | 53,026 |
^ Nissan Motor Co., Ltd. | 4,608,100 | 52,868 |
Mitsui Sumitomo Insurance Co. | 4,006,000 | 52,801 |
^ Sumitomo Heavy Industries Ltd. | 5,223,000 | 46,682 |
Hoya Corp. | 1,163,200 | 46,121 |
Omron Corp. | 1,355,500 | 37,594 |
^ Yamada Denki Co., Ltd. | 348,300 | 37,292 |
^ Tokyu Corp. | 5,775,000 | 36,006 |
^ Daito Trust Construction Co., Ltd. | 647,500 | 30,303 |
13
Shares | Market Value• ($000) | |
---|---|---|
^ Koyo Seiko Co., Ltd. | 1,547,000 | 29,286 |
^ Mitsui OSK Lines Ltd. | 3,014,000 | 21,963 |
Sysmex Corp. | 83,800 | 3,488 |
2,528,961 | ||
Mexico (0.3%) | ||
America Movil SA de CV Series L ADR | 1,035,000 | 35,946 |
Netherlands (0.9%) | ||
Reed Elsevier NV | 5,292,000 | 71,484 |
Heineken Holding NV | 1,221,074 | 42,485 |
113,969 | ||
Russia (0.8%) | ||
*^ OAO Gazprom- Sponsored ADR | 808,000 | 68,357 |
Mobile Telesystems ADR | 834,800 | 30,111 |
98,468 | ||
Singapore (1.2%) | ||
Singapore Telecommunications Ltd. | 35,810,000 | 57,454 |
Singapore Press Holdings Ltd. | 18,135,000 | 49,501 |
Capitaland Ltd. | 14,530,000 | 37,462 |
144,417 | ||
South Africa (0.6%) | ||
Sasol Ltd. | 1,213,037 | 41,560 |
MTN Group Ltd. | 3,505,000 | 33,942 |
75,502 | ||
South Korea (4.0%) | ||
Samsung Electronics Co., Ltd. | 238,000 | 166,856 |
Daewoo Shipbuilding & Marine Engineering Co., Ltd. | 4,779,710 | 128,571 |
*2 Samsung Electronics Co., Ltd. GDR | 193,300 | 68,380 |
* LG. Philips LCD Co., Ltd. ADR | 2,751,000 | 61,017 |
Hyundai Motor Co. Ltd. | 686,000 | 58,303 |
Shinsegae Co., Ltd. | 47,000 | 22,274 |
505,401 | ||
Spain (1.7%) | ||
Iberdrola SA | 2,287,000 | 72,141 |
Banco Santander Central Hispano SA | 4,911,000 | 71,757 |
^ Industria de Diseno Textil SA | 1,014,284 | 36,414 |
^ Banco Popular Espanol SA | 2,318,400 | 31,100 |
211,412 | ||
Sweden (2.9%) | ||
^ Skandinaviska Enskilda Banken AB A Shares | 5,236,000 | 115,643 |
Atlas Copco AB A Shares | 4,506,390 | 110,911 |
Sandvik AB | 1,022,400 | 55,001 |
Telefonaktiebolaget LM Ericsson AB Class B | 12,194,815 | 41,525 |
Svenska Handelsbanken AB A Shares | 1,373,670 | 35,724 |
358,804 | ||
Switzerland (6.1%) | ||
^ Novartis AG (Registered) | 3,578,000 | 192,587 |
^ Roche Holdings AG | 1,126,000 | 166,401 |
^ Nestle SA (Registered) | 461,000 | 135,567 |
Cie. Financiere Richemont AG | 1,903,571 | 82,912 |
^ UBS AG (Registered) | 762,218 | 81,001 |
* ABB Ltd. | 5,882,780 | 70,502 |
Holcim Ltd. (Registered) | 450,280 | 35,470 |
764,440 | ||
Taiwan (0.7%) | ||
Hon Hai Precision Industry Co., Ltd. | 8,054,711 | 50,932 |
Taiwan Semiconductor Manufacturing Co., Ltd. | 19,270,000 | 35,706 |
86,638 | ||
Thailand (0.1%) | ||
Kasikornbank Public Co. Ltd. (Foreign) | 3,746,400 | 6,557 |
United Kingdom (23.5%) | ||
Tesco PLC | 50,711,000 | 300,027 |
BG Group PLC | 23,138,000 | 270,571 |
14
Shares | Market Value• ($000) | |
---|---|---|
Royal Bank of Scotland Group PLC | 6,086,034 | 203,241 |
Rio Tinto PLC | 4,185,000 | 196,635 |
HBOS PLC | 8,244,000 | 153,280 |
Vodafone Group PLC | 74,856,281 | 143,191 |
Barclays PLC | 11,241,300 | 131,456 |
Smith & Nephew PLC | 14,365,317 | 127,641 |
WPP Group PLC | 10,263,000 | 118,995 |
^ Royal Dutch Shell PLC Class A | 3,494,000 | 105,349 |
Rolls-Royce Group PLC | 13,225,000 | 101,493 |
Smiths Group PLC | 6,022,000 | 98,962 |
Signet Group PLC | 48,521,000 | 87,590 |
AstraZeneca Group PLC | 1,752,105 | 80,786 |
GUS PLC | 4,056,000 | 74,518 |
Reckitt Benckiser PLC | 1,880,000 | 66,829 |
Prudential PLC | 6,135,644 | 64,807 |
Standard Chartered PLC | 2,377,000 | 61,974 |
Diageo PLC | 4,022,000 | 61,625 |
Capita Group PLC | 7,209,094 | 59,890 |
Brambles Industries PLC | 8,283,000 | 59,755 |
Royal Dutch Shell PLC Class B | 1,872,840 | 58,788 |
Boots Group PLC | 4,474,937 | 55,557 |
Burberry Group PLC | 6,644,000 | 53,264 |
Imperial Tobacco Group PLC | 1,360,000 | 40,835 |
Carnival PLC | 748,030 | 40,800 |
Ladbrokes PLC | 6,126,000 | 39,480 |
Wolseley PLC | 1,322,000 | 32,742 |
* Cairn Energy PLC | 615,558 | 20,785 |
Johnson Matthey PLC | 749,261 | 18,750 |
2,929,616 | ||
Total Common Stocks (Cost $8,770,984) | 12,007,894 | |
Temporary Cash Investments (12.6%)1 | ||
Money Market Fund (12.4%) | ||
3 Vanguard Market Liquidity Fund, 4.511% | 467,014,531 | 467,015 |
3 Vanguard Market Liquidity Fund, 4.511%—Note G | 1,085,323,430 | 1,085,323 |
1,552,338 | ||
U.S. Agency Obligation (0.2%) | ||
4 Federal National Mortgage Assn 5 4.419%, 4/12/06 | 25,000 | 24,870 |
Total Temporary Cash Investments (Cost $1,577,211) | 1,577,208 | |
Total Investments (108.9%) Cost ($10,348,195) | 13,585,102 | |
Other Assets and Liabilities (-8.9%) | ||
Other Assets—Note C | 228,491 | |
Security Lending Collateral Payable to Brokers—Note G | (1,085,323) | |
Other Liabilities | (258,319) | |
(1,115,151) | ||
Net Assets (100%) | 12,469,951 |
15
At February 28, 2006, net assets consisted of:6
Amount ($000) | |
---|---|
Paid-in Capital | 8,867,299 |
Undistributed Net Investment Income | 11,132 |
Accumulated Net Realized Gains | 337,891 |
Unrealized Appreciation | |
Investment Securities | 3,236,907 |
Futures Contracts | 15,609 |
Foreign Currencies and Forward Currency Contracts | 1,113 |
Net Assets | 12,469,951 |
Investor Shares-Net Assets | |
Applicable to 423,377,221 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 9,469,544 |
Net Asset Value Per Share- Investor Shares | $22.37 |
Admiral Shares-Net Assets | |
Applicable to 42,158,546 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 3,000,407 |
Net Asset Value Per Share- Admiral Shares | $71.17 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Part of security position is on loan to broker/dealers. See Note G in Notes to Financial Statements.
1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures investments, the fund's
effective common stock and temporary cash investment positions represent 98.7% and 10.2%, respectively, of net assets. See Note E in Notes to Financial
Statements.
2 Security exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be sold in transactions exempt from registration, normally
to qualified institutional buyers. At February 28, 2006, the aggregate value of these securities was $191,858,000, representing 1.5% of net assets.
3 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
4 The issuer operates under a congressional charter; its securities are neither issued nor guaranteed by the U.S. government, If needed, access to additional
funding from the U.S. Treasury (beyond the issuer's line of credit) would require congressional action.
5 Securities with a value of $24,870,000 have been segregated as initial margin for open futures contracts.
6 See Note E in Notes to Financial Statements for the tax-basis components of net assets.
DR-American Depositary Receipt.
GDR-Global Depositary Receipt.
16
Statement of Operations
Six Months Ended February 28, 2006 | |
---|---|
($000) | |
Investment Income | |
Income | |
Dividends1 | 98,015 |
Interest2 | 9,191 |
Security Lending | 1,382 |
Total Income | 108,588 |
Expenses | |
Investment Advisory Fees—Note B | |
Basic Fee | 7,435 |
Performance Adjustment | (633) |
The Vanguard Group—Note C | |
Management and Administrative | |
Investor Shares | 16,579 |
Admiral Shares | 2,333 |
Marketing and Distribution | |
Investor Shares | 1,123 |
Admiral Shares | 304 |
Custodian Fees | 1,508 |
Shareholders' Reports | |
Investor Shares | 137 |
Admiral Shares | 2 |
Trustees' Fees and Expenses | 7 |
Total Expenses | 28,795 |
Expenses Paid Indirectly—Note D | (1,038) |
Net Expenses | 27,757 |
Net Investment Income | 80,831 |
Realized Net Gain (Loss) | |
Investment Securities Sold | 489,561 |
Futures Contracts | 52,230 |
Foreign Currencies and Forward Currency Contracts | (18,124) |
Realized Net Gain (Loss) | 523,667 |
Change in Unrealized Appreciation (Depreciation) Investment Securities | 1,120,392 |
Futures Contracts | (1,859) |
Foreign Currencies and Forward Currency Contracts | 4,938 |
Change in Unrealized Appreciation (Depreciation) | 1,123,471 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 1,727,969 |
1 Dividends are net of foreign withholding taxes of $3,215,000.
2 Interest income from an affiliated company of the fund was $9,022,000.
17
Statement of Changes in Net Assets
Six Months Ended February 28, 2006 ($000) | Year Ended August 31, 2005 ($000) | |
---|---|---|
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 80,831 | 181,705 |
Realized Net Gain (Loss) | 523,667 | 835,460 |
Change in Unrealized Appreciation (Depreciation) | 1,123,471 | 918,909 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 1,727,969 | 1,936,074 |
Distributions | ||
Net Investment Income | ||
Investor Shares | (151,412) | (132,990) |
Admiral Shares | (48,917) | (26,782) |
Realized Capital Gain1 | ||
Investor Shares | (128,905) | — |
Admiral Shares | (38,055) | — |
Total Distributions | (367,289) | (159,772) |
Capital Share Transactions—Note H | ||
Investor Shares | 228,680 | (91,001) |
Admiral Shares | 517,672 | 618,224 |
Net Increase (Decrease) from Capital Share Transactions | 746,352 | 527,223 |
Total Increase (Decrease) | 2,107,032 | 2,303,525 |
Net Assets | ||
Beginning of Period | 10,362,919 | 8,059,394 |
End of Period2 | 12,469,951 | 10,362,919 |
1 Includes fiscal 2006 short-term gain distributions totaling $43,463,000. Short-term gain distributions are treated as ordinary income dividends for tax purposes.
2 Including undistributed net investment income of $11,132,000 and $132,587,000.
18
Financial Highlights
International Growth Fund Investor Shares
For a Share Outstanding | Six Months Ended Feb. 28, | Year Ended August 31, | ||||
---|---|---|---|---|---|---|
Throughout Each Period | 2006 | 2005 | 2004 | 2003 | 2002 | 2001 |
Net Asset Value, Beginning of Period | $19.83 | $16.33 | $14.01 | $12.97 | $15.41 | $22.23 |
Investment Operations | ||||||
Net Investment Income | .139 | .341 | .27 | .19 | .19 | .23 |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | 3.086 | 3.474 | 2.26 | 1.03 | (2.35) | (5.41) |
Total from Investment Operations | 3.225 | 3.815 | 2.53 | 1.22 | (2.16) | (5.18) |
Distributions | ||||||
Dividends from Net Investment Income | (.370) | (.315) | (.21) | (.18) | (.24) | (.22) |
Distributions from Realized Capital Gains (.315) | — | — | — | (.04) | (1.42) | |
Total Distributions | (.685) | (.315) | (.21) | (.18) | (.28) | (1.64) |
Net Asset Value, End of Period | $22.37 | $19.83 | $16.33 | $14.01 | $12.97 | $15.41 |
Total Return1 | 16.46% | 23.54% | 18.14% | 9.62% | -14.20% | -24.49% |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $9,470 | $8,182 | $6,797 | $5,458 | $4,930 | $6,447 |
Ratio of Total Expenses to | ||||||
Average Net Assets2 | 0.56%3 | 0.60% | 0.63% | 0.69% | 0.67% | 0.61% |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 1.38%3 | 1.89% | 1.69% | 1.57% | 1.28% | 1.19% |
Portfolio Turnover Rate | 54%3 | 48% | 45% | 59% | 40% | 48% |
1 Total returns do not reflect the 2% fee assessed on redemptions of shares purchased on or after June 27, 2003, and held for less than two months.
2 Includes performance-based investment advisory fee increases (decreases) of (0.01%), (0.01%), 0.00%, 0.01%, 0.02%, and 0.01%.
3 Annualized.
19
International Growth Fund Admiral Shares
For a Share Outstanding | Six Months Ended Feb. 28, | Year Ended August 31, | Aug. 131 to Aug. 31, | |||
---|---|---|---|---|---|---|
Throughout Each Period | 2006 | 2005 | 2004 | 2003 | 2002 | 2001 |
Net Asset Value, Beginning of Period | $63.15 | $51.96 | $44.57 | $41.27 | $49.02 | $50.00 |
Investment Operations | ||||||
Net Investment Income | .508 | 1.222 | .93 | .681 | .677 | .07 |
Net Realized and Unrealized | ||||||
Gain (Loss) on Investments | 9.802 | 11.063 | 7.21 | 3.264 | (7.502) | (1.05) |
Total from Investment Operations | 10.310 | 12.285 | 8.14 | 3.945 | (6.825) | (.98) |
Distributions | ||||||
Dividends from Net Investment Income | (1.288) | (1.095) | (.75) | (.645) | (.795) | — |
Distributions from Realized Capital Gains (1.002) | — | — | — | (.130) | — | |
Total Distributions | (2.290) | (1.095) | (.75) | (.645) | (.925) | — |
Net Asset Value, End of Period | $71.17 | $63.15 | $51.96 | $44.57 | $41.27 | $49.02 |
Total Return2 | 16.53% | 23.84% | 18.36% | 9.80% | -14.12% | -1.96% |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $3,000 | $2,181 | $1,262 | $1,044 | $895 | $495 |
Ratio of Total Expenses to | ||||||
Average Net Assets3 | 0.36%4 | 0.40% | 0.45% | 0.51% | 0.54% | 0.54%4 |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 1.58%4 | 2.07% | 1.86% | 1.76% | 1.53% | 2.50%4 |
Portfolio Turnover Rate | 54%4 | 48% | 45% | 59% | 40% | 48% |
1 Inception.
2 Total returns do not reflect the 2% fee assessed on redemptions of shares purchased on or after June 27, 2003, and held for less than two months.
3 Includes performance-based investment advisory fee increases (decreases) of (0.01%), (0.01%), 0.00%, 0.01%, 0.02%, and 0.01%.
4 Annualized.
See accompanying Notes, which are an integral part of the Financial Statements.
20
Notes to Financial Statements
Vanguard International Growth Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund files reports with the SEC under the company name Vanguard World Funds. The fund invests in securities of foreign issuers, which may subject it to investment risks not normally associated with investing in securities of United States corporations. The fund offers two classes of shares, Investor Shares and Admiral Shares. Investor Shares are available to any investor who meets the fund’s minimum purchase requirements. Admiral Shares are designed for investors who meet certain administrative, servicing, tenure, and account-size criteria.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. mutual funds. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued at their fair values calculated according to procedures adopted by the board of trustees. These procedures include obtaining quotations from an independent pricing service, monitoring news to identify significant market- or security-specific events, and evaluating changes in the values of foreign market proxies (for example, ADRs, futures contracts, or exchange-traded funds), between the time the foreign markets close and the fund’s pricing time. When fair-value pricing is employed, the prices of securities used by a fund to calculate its net asset value may differ from quoted or published prices for the same securities. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Temporary cash investments acquired over 60 days to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments are valued at amortized cost, which approximates market value.
2. Foreign Currency: Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rates on the valuation date as employed by Morgan Stanley Capital International (MSCI) in the calculation of its indexes. As part of the fund’s fair value procedures, exchange rates may be adjusted if they change significantly before the fund’s pricing time but after the time at which the MSCI rates are determined (generally 11:00 a.m., Eastern time).
Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the asset or liability is settled in cash, when they are recorded as realized foreign currency gains (losses).
3. Futures and Forward Currency Contracts: The fund uses S&P ASX 200 Index, Dow Jones EURO STOXX 50 Index, FTSE 100 Index, and Topix Index futures contracts to a limited extent, with the objective of maintaining exposure to the European and Pacific stock markets while maintaining liquidity. The fund may purchase or sell futures contracts to achieve a desired level of investment, whether to accommodate portfolio turnover or cash flows from capital share transactions. The primary
21
risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks held by the portfolio and the prices of futures contracts, and the possibility of an illiquid market.
The fund also enters into forward currency contracts to provide the appropriate currency exposure related to any open futures contracts. The fund’s risks in using these contracts include movement in the values of the foreign currencies relative to the U.S. dollar and the ability of the counterparties to fulfill their obligations under the contracts.
Futures and forward currency 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 gains (losses) on futures or forward currency contracts.
4. 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.
5. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
6. Security Lending: The fund may lend its securities to qualified institutional borrowers to earn additional income. Security loans are required to be secured at all times by collateral at least equal to the market value of securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability for the return of the collateral, during the period the securities are on loan. Security lending income represents the income earned on investing cash collateral, less expenses associated with the loan.
7. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold. Fees assessed on redemptions of capital shares are credited to paid-in capital.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. Schroder Investment Management North America Inc. and Baillie Gifford Overseas Ltd. each provide investment advisory services to a portion of the fund for a fee calculated at an annual percentage rate of average net assets managed by the advisor. The basic fee of each advisor is subject to quarterly adjustments based on performance for the preceding three years relative to the Morgan Stanley Capital International Europe, Australasia, Far East Index.
The Vanguard Group manages the cash reserves of the fund on an at-cost basis.
22
For the six months ended February 28, 2006, the aggregate investment advisory fee represented an effective annual basic rate of 0.13% of the fund’s average net assets, before a decrease of $633,000 (0.01%) based on performance.
C. The Vanguard Group furnishes at cost corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the fund under methods approved by the board of trustees. The fund has committed to provide up to 0.40% of its net assets in capital contributions to Vanguard. At February 28, 2006, the fund had contributed capital of $1,394,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 1.40% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
D. The fund has asked its investment advisors to direct certain security trades, subject to obtaining the best price and execution, to brokers who have agreed to rebate to the fund part of the commissions generated. Such rebates are used solely to reduce the fund’s management and administrative expenses. The fund’s custodian bank has also agreed to reduce its fees when the fund maintains cash on deposit in the non-interest-bearing custody account. For the six months ended February 28, 2006, these arrangements reduced the fund’s management and administrative expenses by $1,028,000 and custodian fees by $10,000. The total expense reduction represented an effective annual rate of 0.02% of the fund’s average net assets.
E. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
During the six months ended February 28, 2006, the fund realized net foreign currency losses of $1,957,000, which decreased distributable net income for tax purposes; accordingly, such losses have been reclassified from accumulated net realized gains to undistributed net investment income.
The fund’s tax-basis capital gains and losses are determined at the end of each fiscal year and as of October 31 of each year. For tax purposes, at August 31, 2005, the fund had available realized losses of $25,164,000 to offset future net capital gains. The fund used these capital losses to offset net taxable capital gains realized during the period from August 31 to October 31, 2005, reducing the amount of capital gains required to be distributed to shareholders in December 2005.
At February 28, 2006, net unrealized appreciation of investment securities for tax purposes was $3,235,506,000, consisting of unrealized gains of $3,360,531,000 on securities that had risen in value since their purchase and $125,025,000 in unrealized losses on securities that had fallen in value since their purchase.
23
At February 28, 2006, the aggregate settlement value of open futures contracts expiring in March 2006 and the related unrealized appreciation (depreciation) were:
($000) | |||
---|---|---|---|
Futures Contracts | Number of Long Contracts | Aggregate Settlement Value | Unrealized Appreciation (Depreciation) |
Dow Jones EURO STOXX 50 Index | 2,449 | 110,332 | 7,405 |
FTSE 100 Index | 833 | 84,272 | 3,571 |
Topix Index | 598 | 85,635 | 2,928 |
S&P ASX 200 Index | 276 | 25,237 | 1,705 |
At February 28, 2006, the fund had open forward currency contracts to receive and deliver currencies as follows:
Contract Amount (000) | Unrealized Appreciation (Depreciation) | ||||
---|---|---|---|---|---|
Contract Settlement Date | Receive | Deliver | ($000) | ||
3/22/2006 | EUR | 91,470 | USD | 109,180 | (851) |
3/22/2006 | GBP | 48,265 | USD | 84,531 | (962) |
3/15/2006 | JPY | 10,139,089 | USD | 87,681 | 2,896 |
3/22/2006 | AUD | 34,086 | USD | 25,309 | (421) |
AUD—Australian dollar. | |||||
EUR—Euro. | |||||
GBP—British pound. | |||||
JPY—Japanese yen. | |||||
USD—U.S. dollar. |
Unrealized appreciation (depreciation) on open forward currency contracts is treated as realized gain (loss) for tax purposes.
The fund had net unrealized foreign currency gains of $451,000 resulting from the translation of other assets and liabilities at February 28, 2006.
F. During the six months ended February 28, 2006, the fund purchased $3,292,624,000 of investment securities and sold $2,893,791,000 of investment securities other than temporary cash investments.
G. The market value of securities on loan to broker/dealers at February 28, 2006, was $1,026,982,000, for which the fund received cash collateral of $1,085,323,000.
24
H. Capital share transactions for each class of shares were:
Six Months Ended February 28, 2006 | Year Ended August 31, 2005 | |||
---|---|---|---|---|
Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | |
Investor Shares | ||||
Issued | 1,010,161 | 47,553 | 1,362,143 | 73,790 |
Issued in Lieu of Cash Distributions | 271,637 | 12,831 | 127,164 | 7,006 |
Redeemed1 | (1,053,118) | (49,536) | (1,580,308) | (84,616) |
Net Increase (Decrease)—Investor Shares | 228,680 | 10,848 | (91,001) | (3,820) |
Admiral Shares | ||||
Issued | 691,184 | 10,247 | 900,641 | 15,055 |
Issued in Lieu of Cash Distributions | 78,427 | 1,165 | 23,476 | 407 |
Redeemed1 | (251,939) | (3,796) | (305,893) | (5,213) |
Net Increase (Decrease)—Admiral Shares | 517,672 | 7,616 | 618,224 | 10,249 |
1 Net of redemption fees of $217,000 and $140,000 (fund totals).
25
About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The table below illustrates your fund’s costs in two ways:
• Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading “Expenses Paid During Period.”
• Based on hypothetical 5% yearly return. This section is intended to help you compare your fund’s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Six Months Ended February 28, 2006
International Growth Fund | Beginning Account Value 8/31/2005 | Ending Account Value 2/28/2006 | Expenses Paid During Period1 |
---|---|---|---|
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $1,164.59 | $3.01 |
Admiral Shares | 1,000.00 | 1,165.33 | 1.93 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,022.02 | $2.81 |
Admiral Shares | 1,000.00 | 1,023.01 | 1.81 |
1 | The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios for that period are 0.56% for Investor Shares and 0.36% for Admiral Shares. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period. |
26
Note that the expenses shown in the table on the previous page are meant to highlight and help you compare ongoing costs only; they do not include your fund’s low-balance fee or the 2% fee that applies to shares purchased on or after June 27, 2003, and held for less than two months. These fees are fully described in the prospectus. If the fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to the appropriate fund prospectus.
27
Trustees Renew Advisory Agreements
The board of trustees of Vanguard International Growth Fund has renewed the fund’s investment advisory agreements with Schroder Investment Management North America Inc. (Schroder Inc.) and Baillie Gifford Overseas Ltd. as well as the sub-advisory agreement with Schroder Investment Management North America Ltd. The board determined that the retention of these advisors was in the best interests of the fund and its shareholders.
The board based its decision upon its most recent evaluation of each advisor’s investment staff, portfolio management process, and performance. The trustees considered the factors discussed below, among others. However, no single factor determined whether the board approved the agreements. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of services
The board considered the quality of the fund’s investment management over both short- and long-term periods and took into account the organizational depth and stability of each advisor. The board concluded that Schroder Inc., a unit of Schroders, plc, founded in 1804, offers a talented investment management team. The firm has advised the fund since its inception in 1981 and continues to employ a sound process, selecting attractive growth stocks from developed and emerging markets. The board also noted that the fund is supported by a worldwide network of analysts, economists, and strategists.
The board concluded that the fund’s other advisor, Baillie Gifford Overseas, is known for the depth of its investment management professionals. Baillie Gifford Overseas is a unit of Baillie Gifford & Co., founded in 1908. The firm has advised a portion of the International Growth Fund since 2003. The board concluded that Baillie Gifford continues to employ a sound process, creating a diversified portfolio of high-quality growth stocks from developed and emerging markets. The board also noted that the Baillie Gifford portfolio’s lead manager, James Anderson, has 21 years of investment management experience and is assisted by a team of 33 investment managers and 13 analysts.
The board concluded that each advisor’s experience, stability, and performance, among other factors, warranted continuation of the advisory agreements.
Investment performance
The board considered the short- and long-term performance of the fund, including any periods of outperformance or underperformance of relevant benchmarks and peer groups. The board concluded that the advisors have carried out the fund’s investment strategy in disciplined fashion, and that performance results have allowed the fund to remain competitive versus its benchmark and its average peer fund. Information about the fund’s most recent performance can be found in the Performance Summary section of this report.
Cost
The board concluded that the fund’s expense ratio was far below the average expense ratio charged by funds in its peer group. The fund’s advisory fees were also well below the peer-group average. Information about the fund’s expense ratio appears in the About Your Fund’s Expenses section of this report as well as in the Financial Statements section, which also includes information about the advisory fee rate. The board did not consider profitability of Schroder Inc. or Baillie Gifford Overseas in determining whether to approve the advisory fees, because both firms are independent of Vanguard, and the advisory fees are the result of arm’s-length negotiations.
28
The benefit of economies of scale
The board concluded that the fund’s shareholders benefit from economies of scale because of breakpoints in the fund’s advisory fee schedules. The breakpoints reduce the effective rate of the fee as the fund’s assets increase.
The advisory agreements will continue for one year and are renewable by the fund’s board after that for successive one-year periods.
29
Glossary
Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. A fund’s beta should be reviewed in conjunction with its R-squared (see definition below). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
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.
R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0.
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
Turnover Rate. An indication of the fund’s trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to investors). The turnover rate excludes in-kind transactions, which have minimal impact on costs.
30
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The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals.
Our independent board members bring distinguished backgrounds in business, academia, and public service to their task of working with Vanguard officers to establish the policies and oversee the activities of the funds. Among board members’ responsibilities are selecting investment advisors for the funds; monitoring fund operations, performance, and costs; reviewing contracts; nominating and selecting new trustees/directors; and electing Vanguard officers.
Each trustee serves a fund until its termination; or until the trustee’s retirement, resignation, or death; or otherwise as specified in the fund’s organizational documents. Any trustee may be removed at a shareholders’ meeting by a vote representing two-thirds of the net asset value of all shares of the fund together with shares of other Vanguard funds organized within the same trust. The table on these two pages shows information for each trustee and executive officer of the fund. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482.
Chairman of the Board, Chief Executive Officer, and Trustee
John J. Brennan1 | |
---|---|
Born 1954 Trustee since May 1987; Chairman of the Board and Chief Executive Officer 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Chairman of the Board, Chief Executive Officer, and Director/ Trustee of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group. |
IndependentTrustees | |
Charles D. Ellis | |
Born 1937 Trustee since January 2001 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Applecore Partners (pro bono ventures in education); Senior Advisor to Greenwich Associates (international business strategy consulting); Successor Trustee of Yale University; Overseer of the Stern School of Business at New York University; Trustee of the Whitehead Institute for Biomedical Research. |
Rajiv L. Gupta | |
Born 1945 Trustee since December 20012 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Chairman and Chief Executive Officer of Rohm and Haas Co. (chemicals); Board Member of the American Chemistry Council; Director of Tyco International, Ltd. (diversified manufacturing and services) (since 2005); Trustee of Drexel University and of the Chemical Heritage Foundation. |
JoAnn Heffernan Heisen | |
Born 1950 Trustee since July 1998 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Corporate Vice President and Chief Global Diversity Officer (since January 2006), Vice President and Chief Information Officer (1997–2005), and Member of the Executive Committee of Johnson & Johnson (pharmaceuticals/consumer products); Director of the University Medical Center at Princeton and Women’s Research and Education Institute. |
André F. Perold | |
---|---|
Born 1952 Trustee since December 2004 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: George Gund Professor of Finance and Banking, Harvard Business School (since 2000); Senior Associate Dean, Director of Faculty Recruiting, and Chair of Finance Faculty, Harvard Business School; Director and Chairman of UNX, Inc. (equities trading firm) (since 2003); Director of registered investment companies advised by Merrill Lynch Investment Managers and affiliates (1985–2004), Genbel Securities Limited (South African financial services firm) (1999–2003), Gensec Bank (1999–2003), Sanlam, Ltd. (South African insurance company) (2001–2003), and Stockback, Inc. (credit card firm) (2000–2002). |
Alfred M. Rankin, Jr. | |
Born 1941 Trustee since January 1993 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Chairman, President, Chief Executive Officer, and Director of NACCO Industries, Inc. (forklift trucks/housewares/lignite); Director of Goodrich Corporation (industrial products/aircraft systems and services); Director of Standard Products Company (supplier for the automotive industry) until 1998. |
J. Lawrence Wilson | |
Born 1936 Trustee since April 1985 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Retired Chairman and Chief Executive Officer of Rohm and Haas Co. (chemicals); Director of Cummins Inc. (diesel engines), MeadWestvaco Corp. (packaging products), and AmerisourceBergen Corp. (pharmaceutical distribution); Trustee of Vanderbilt University and of Culver Educational Foundation. |
Executive Officers1 | |
Heidi Stam | |
Born 1956 Secretary since July 2005 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Principal of The Vanguard Group, Inc., since November 1997; General Counsel of The Vanguard Group since July 2005; Secretary of The Vanguard Group and of each of the investment companies served by The Vanguard Group since July 2005. |
Thomas J. Higgins | |
Born 1957 Treasurer since July 1998 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Principal of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group. |
Vanguard Senior Management Team | |
R. Gregory Barton | |
Mortimer J. Buckley | |
James H. Gately | |
Kathleen C. Gubanich | |
F. William McNabb, III | |
Michael S. Miller | |
Ralph K. Packard | |
George U. Sauter | |
Founder | |
John C. Bogle | |
Chairman and Chief Executive Officer, 1974-1996 |
1 | Officers of the funds are “interested persons” as defined in the Investment Company Act of 1940. |
2 | December 2002 for Vanguard Equity Income Fund, Vanguard Growth Equity Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds. |
More information about the trustees is in the Statement of Additional Information, available from The Vanguard Group. |
![]() P.O. Box 2600 Valley Forge, PA 19482-2600 |
Connect with Vanguard ™ > www.vanguard.com
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Vanguard, and the ship logo are trademarks of | |
Direct Investor Account Services > 800-662-2739 | The Vanguard Group, Inc. |
Institutional Investor Services > 800-523-1036 | |
All other marks are the exclusive property of their | |
Text Telephone > 800-952-3335 | respective owners. |
All comparative mutual fund data are from Lipper Inc. | |
or Morningstar, Inc., unless otherwise noted. | |
This material may be used in conjunction | You can obtain a free copy of Vanguard's proxy voting |
with the offering of shares of any Vanguard | guidelines by visiting our website, www.vanguard.com, |
fund only if preceded or accompanied by | and searching for "proxy voting guidelines," or by calling |
the fund's current prospectus | Vanguard at 800-662-2739. They are also available from |
SEC's website, www.sec.gov. In addition, you may | |
obtain a free report on how your fund voted the proxies for | |
securities it owned during the 12 months ended June 30. | |
To get the report, visit either www.vanguard.com or | |
www.sec.gov. | |
You can review and copy information about your fund | |
at the SEC's Public Reference Room in Washington, D.C. | |
To find out more about this public service, call the SEC | |
at 202-551-8090. Information about your fund is also | |
available on the SEC's website, and you can receive | |
copies of this information, for a fee, by sending a request | |
in either of two ways: via e-mail addressed to | |
publicinfo@sec.gov or via regular mail addressed to the | |
Public Reference Section, Securities and Exchange | |
Commission, Washington, DC 20549-0102. | |
© 2006 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q812 042006 |
Vanguard® FTSE Social Index Fund | |
› SemiAnnual Report | |
February 28, 2006 | |
![]() |
> | Effective December 16, 2005, the Calvert Social Index Fund was renamed Vanguard FTSE Social Index Fund, utilizing a different, though comparable, benchmark index. |
> | During the fiscal half-year ended February 28, the fund returned about 7.0%. |
> | The fund’s performance was in line with the advances of both its target index and the average large-cap growth fund. |
Contents | |
---|---|
Your Fund's Total Returns | 1 |
Chairman's Letter | 2 |
Fund Profile | 6 |
Performance Summary | 7 |
Financial Statements | 8 |
About Your Fund's Expenses | 22 |
Glossary | 24 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the cover of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
Your Fund’s Total Returns
Six Months Ended February 28, 2006 | |
---|---|
Total Return | |
Vanguard FTSE Social Index Fund | |
Investor Shares | 6.9% |
Institutional Shares1 | 7.0 |
Spliced Social Index2 | 7.0 |
Average Large-Cap Growth Fund3 | 6.4 |
Dow Jones Wilshire 5000 Index | 6.7 |
Your Fund’s Performance at a Glance:
August 31, 2005–February 28, 2006
Distributions Per Share | ||||
---|---|---|---|---|
Starting | Ending | Income | Capital | |
Share Price | Share Price | Dividends | Gains | |
Vanguard FTSE Social Index Fund | ||||
Investor Shares | $8.03 | $8.48 | $0.10 | $0.00 |
Institutional Shares | 8.04 | 8.49 | 0.11 | 0.00 |
1 | This class of shares carries lower expenses and is available for a minimum initial investment of $5 million. |
2 | The Spliced Social Index captures the performance of the Calvert Social Index through December 16, 2005; the FTSE4Good US Select Index thereafter. |
3 | Derived from data provided by Lipper Inc. |
1
![](https://capedge.com/proxy/N-CSRS/0000932471-06-000850/picturebrennan.gif)
Chairman’s Letter
Dear Shareholder,
During the six months ended February 28, 2006, Vanguard FTSE Social Index Fund—the former Vanguard Calvert Social Index Fund—returned about 7.0%. The fund closely tracked the performance of its target benchmark and outperformed the average large-capitalization growth fund by a small margin. It also bested the Dow Jones Wilshire 5000 Composite Index, a proxy for the broad U.S. stock market (see first table on page 1).
Stock markets rose worldwide, with the biggest gains overseas
During the first half of the 2006 fiscal year, global stock markets reprised patterns that have characterized the investment environment in recent years: reasonably strong returns from the broad U.S. market, better performance from that market’s smaller companies, and a powerful rally in international stocks. Returns were particularly strong in the Pacific region, where the Japanese stock market appears to have awakened from a 15-year slumber.
Unusual interest rate patterns reflected two views of inflation
In the U.S. bond market, long-term interest rates held relatively steady, while short-term rates rose sharply, in some cases slightly exceeding those of longer-term
2
securities. This unusual interest rate dynamic put pressure on the broad fixed income market, although it enhanced the returns of the shortest-term securities, such as 3-month U.S. Treasury bills.
The rapid rise in short-term rates reflects the Federal Reserve Board’s efforts to defuse any near-term inflationary threats. From June 2004 through January of this year, the Fed boosted its target for short-term rates to 4.50% from 1.00% in 14 separate actions. The relative stability of long-term rates is consistent with Fed comments and the market consensus that long-term inflationary pressures in the economy remain contained.
Financials and tech stocks helped drive the fund to a solid return
During the fiscal half-year, the FTSE Social Index Fund achieved returns on par with its target benchmark and slightly ahead of the average large-cap growth fund and the broad U.S. stock market.
Effective December 16, 2005, the fund’s board of trustees approved a new target index: the FTSE4Good US Select Index. The index, administered by FTSE Group, employs social-screening criteria comparable to those employed by Calvert Group, the fund’s former index provider. FTSE focuses on three main areas to determine a company’s inclusion in the index: preserving the environment, upholding and supporting human rights, and developing positive relationships with stakeholders.
Market Barometer | Total Returns Periods Ended February 28, 2006 | ||
---|---|---|---|
Six Months | One Year | Five Years1 | |
Stocks | |||
Russell 1000 Index (Large-caps) | 6.2% | 9.8% | 3.0% |
Russell 2000 Index (Small-caps) | 10.2 | 16.6 | 10.4 |
Dow Jones Wilshire 5000 Index (Entire market) | 6.7 | 10.8 | 4.1 |
MSCI All Country World Index ex USA (International) | 17.1 | 21.1 | 9.5 |
Bonds | |||
Lehman Aggregate Bond Index (Broad taxable market) | -0.1% | 2.7% | 5.4% |
Lehman Municipal Bond Index | 1.0 | 3.9 | 5.5 |
Citigroup 3-Month Treasury Bill Index | 1.8 | 3.3 | 2.2 |
CPI | |||
Consumer Price Index | 1.2% | 3.6% | 2.5% |
1 Annualized.
3
The index includes companies considered to have superior environmental policies, a strong hiring and promotion record for women and minorities, and a safe and healthy workplace. The shift to the new index will not change the fund’s overall investment strategy, and Vanguard Quantitative Equity Group will continue to manage the portfolio.
Historically, the fund’s screening criteria have resulted in a growth-oriented profile for its holdings. Many companies in older industries have difficulty satisfying the index’s environmental criteria; these traditionally value-oriented firms are not strongly represented in the portfolio. On balance, this emphasis was a positive during the fiscal half-year. While the fund had relatively little exposure to surging energy and raw-materials producers, it held heavy weightings in technology and financial services.
As suggested by the combination of heavy weightings and strong performance, financials and tech stocks were the most significant contributors to the fund’s six-month result. Together, these sectors accounted for about one-half of the fund’s assets, yet they contributed nearly 70% of the 6.9% (Investor Shares) and 7.0% (Institutional Shares) total returns. Gains from the consumer discretionary and telecommunications sectors were also important. All but one of the economic sectors in the index posted an advance for the period; the exception was utilities.
Annualized Expense Ratios1
Your fund compared with its peer group
Investor Shares | Institutional Shares | Average Large-Cap Growth Fund | |
---|---|---|---|
FTSE Social Index Fund | 0.25% | 0.12% | 1.46% |
1 | Fund expense ratios reflect the six months ended February 28, 2006. Peer-group expense ratio is derived from data provided by Lipper Inc. and captures information through year-end 2005. |
4
Time is on your side in reaching your financial goals
As prudent investors know, time is their best ally in reaching their financial objectives. A well-diversified portfolio helps put you in position to reap the rewards of the best-performing assets while muting the risks of the worst-performing ones over time.
In investing, the need for a long-term perspective is a constant. Portfolios that are balanced among asset classes—including money market, bond, and stock mutual funds—have historically provided the kind of returns that can better meet your long-term financial objectives. Overall, a balanced portfolio with an asset allocation suitable to your goals, time horizon, and risk tolerance is the best course.
For investors who want a socially screened stock fund that seeks long-term growth of capital—and who are comfortable with the attendant risks—Vanguard FTSE Social Index Fund can play a valuable role.
Thank you for entrusting your assets to Vanguard.
Sincerely,
John J. Brennan
Chairman and Chief Executive Officer
March 15, 2006
5
Fund Profile
As of February 28, 2006
Portfolio Characteristics | Fund | Target Index1 | Broad Index2 |
---|---|---|---|
Number of Stocks | 469 | 469 | 4,970 |
Median Market Cap | $26.4B | $26.4B | $27.0B |
Price/Earnings Ratio | 30.5x | 30.5x | 19.8x |
Price/Book Ratio | 4.0x | 4.0x | 2.9x |
Yield | 1.5% | 1.7% | |
Investor Shares | 1.3% | ||
Institutional Shares | 1.4% | ||
Return on Equity | 17.6% | 17.6% | 17.2% |
Earnings Growth Rate | 13.9% | 13.9% | 9.9% |
Foreign Holdings | 0.4% | 0.4% | 2.4% |
Turnover Rate | 53%3 | — | — |
Expense Ratio | — | — | |
Investor Shares | 0.25%4 | ||
Institutional Shares | 0.12%4 | ||
Short-Term Reserves | 0% | — | — |
Sector Diversification (% of portfolio) | Fund | Target Index1 | Broad Index2 |
---|---|---|---|
Consumer Discretionary | 15% | 15% | 12% |
Consumer Staples | 5 | 5 | 8 |
Energy | 3 | 3 | 9 |
Financials | 37 | 37 | 22 |
Health Care | 17 | 17 | 13 |
Industrials | 4 | 4 | 11 |
Information Technology | 13 | 13 | 16 |
Materials | 2 | 2 | 3 |
Telecommunication Services | 4 | 4 | 3 |
Utilities | 0 | 0 | 3 |
Volatility Measures | Fund | Spliced Index5 | Fund | Broad Index2 |
---|---|---|---|---|
R-Squared | 1.00 | 1.00 | 0.95 | 1.00 |
Beta | 1.00 | 1.00 | 1.03 | 1.00 |
Ten Largest Holdings6 (% of total net assets) | ||
---|---|---|
Bank of America Corp. | diversified banks | 3.2% |
American International Group, Inc. | multiline insurance | 2.6 |
JPMorgan Chase & Co. | diversified financial services | 2.2 |
Intel Corp. | semiconductors | 1.9 |
AT&T Inc. | integrated telecommunication services | 1.6 |
Wells Fargo & Co. | diversified banks | 1.6 |
Amgen, Inc. | biotechnology | 1.5 |
Home Depot, Inc. | home improvement retail | 1.4 |
Wachovia Corp. | diversified banks | 1.3 |
Google Inc. | internet software and services | 1.2 |
Top Ten | 18.5% |
Investment Focus
1 | FTSE4Good US Select Index. |
2 | Dow Jones Wilshire 5000 Index. |
3 | Annualized. Includes activity related to a change in the fund’s target index. |
4 | Annualized. |
5 | Calvert Social Index through December 16, 2005; FTSE4Good US Select Index thereafter. |
6 | “Ten Largest Holdings” excludes any temporary cash investments and equity index products. See page 24 for a glossary of investment terms. |
6
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at www.vanguard.com.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): May 31, 2000–February 28, 2006
[Dark gray] - FTSE Social Index Fund Investor Shares
[Light Gray] - Spliced Social Index2
Average Annual Total Returns: Periods Ended December 31, 2005
his table presents average annual total returns through the latest calendar quarter—rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information.
Inception Date | One Year | Five Years | Since Inception | |
Investor Shares3 | 5/31/2000 | 4.10% | -0.87% | -2.44% |
Institutional Shares | 1/14/2003 | 4.09 | 11.484 | — |
1 | Six months ended February 28, 2006. |
2 | Calvert Social Index through December 16, 2005; FTSE4Good US Select Index thereafter. |
3 | Total return figures do not reflect the $10 annual account maintenance fee applied on balances under $10,000. |
4 | Return since inception. Note: See Financial Highlights tables on pages 18 and 19 for dividend and capital gains information. |
7
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2006
The fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at www.sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Shares | Market Value• ($000) | |
---|---|---|
Common Stocks (100.0%) | ||
Consumer Discretionary (14.8%) | ||
Home Depot, Inc. | 143,219 | 6,037 |
The Walt Disney Co. | 128,358 | 3,593 |
Lowe's Cos., Inc. | 51,552 | 3,515 |
Target Corp. | 59,071 | 3,213 |
McDonald's Corp. | 84,015 | 2,933 |
* Comcast Corp. Class A | 99,285 | 2,664 |
News Corp., Class A | 110,806 | 1,804 |
Best Buy Co., Inc. | 32,578 | 1,755 |
Carnival Corp. | 31,710 | 1,638 |
* Liberty Media Corp. | 178,781 | 1,473 |
The McGraw-Hill Cos., Inc. | 25,051 | 1,330 |
* Comcast Corp. Special Class A | 47,376 | 1,267 |
Federated Department Stores, Inc. | 17,783 | 1,263 |
Staples, Inc. | 49,537 | 1,216 |
* Kohl's Corp. | 22,830 | 1,098 |
* DIRECTV Group, Inc. | 69,271 | 1,092 |
Clear Channel Communications, Inc. | 36,099 | 1,022 |
Gannett Co., Inc. | 16,022 | 996 |
Marriott International, Inc. Class A | 13,922 | 952 |
* Coach, Inc. | 25,230 | 901 |
* Sears Holdings Corp. | 7,458 | 898 |
News Corp., Class B | 52,347 | 898 |
The Gap, Inc. | 45,141 | 837 |
TJX Cos., Inc. | 32,177 | 788 |
* Amazon.com, Inc. | 20,395 | 765 |
* Office Depot, Inc. | 20,557 | 733 |
* Bed Bath & Beyond, Inc. | 19,793 | 713 |
D. R. Horton, Inc. | 20,594 | 702 |
Nordstrom, Inc. | 18,157 | 690 |
Pulte Homes, Inc. | 17,298 | 664 |
* IAC/InterActiveCorp | 22,402 | 655 |
Limited Brands, Inc. | 26,990 | 639 |
Hilton Hotels Corp. | 25,427 | 615 |
Centex Corp. | 8,518 | 576 |
* Chico's FAS, Inc. | 12,128 | 571 |
Lennar Corp. Class A | 8,340 | 499 |
H & R Block, Inc. | 21,601 | 482 |
Tribune Co. | 15,459 | 473 |
Royal Caribbean Cruises, Ltd. | 10,591 | 467 |
*^Sirius Satellite Radio, Inc. | 88,315 | 451 |
KB HOME | 6,438 | 432 |
Darden Restaurants Inc. | 10,009 | 420 |
* Expedia, Inc. | 21,243 | 403 |
* Univision Communications Inc. | 11,840 | 396 |
* Cablevision Systems NY Group Class A | 14,857 | 390 |
* Telewest Global, Inc. | 16,298 | 389 |
Abercrombie & Fitch Co. | 5,774 | 389 |
* Mohawk Industries, Inc. | 4,410 | 382 |
^ Garmin Ltd. | 5,450 | 375 |
* AutoZone Inc. | 3,876 | 375 |
8
Shares | Market Value• ($000) | |
---|---|---|
* NTL Inc. | 5,617 | 370 |
Tiffany & Co. | 9,568 | 355 |
Autoliv, Inc. | 5,823 | 312 |
* Williams-Sonoma, Inc. | 7,669 | 311 |
* Liberty Global, Inc. Class A | 15,184 | 308 |
* Lamar Advertising Co. Class A | 5,991 | 306 |
* NVR, Inc. | 404 | 304 |
E.W. Scripps Co. Class A | 6,280 | 302 |
Circuit City Stores, Inc. | 12,157 | 292 |
Michaels Stores, Inc. | 9,009 | 289 |
Dollar General Corp. | 16,440 | 286 |
Family Dollar Stores, Inc. | 11,092 | 285 |
Ross Stores, Inc. | 9,815 | 278 |
New York Times Co. Class A | 9,613 | 271 |
* AutoNation, Inc. | 12,938 | 271 |
Knight Ridder | 4,466 | 268 |
* Discovery Holding Co. Class A | 17,628 | 257 |
* Getty Images, Inc. | 3,094 | 251 |
PETsMART, Inc. | 9,573 | 249 |
* Toll Brothers, Inc. | 7,678 | 248 |
* XM Satellite Radio Holdings, Inc. | 10,943 | 242 |
ServiceMaster Co. | 19,132 | 240 |
Brinker International, Inc. | 5,732 | 239 |
Foot Locker, Inc. | 10,277 | 237 |
* Urban Outfitters, Inc. | 8,221 | 231 |
* Career Education Corp. | 6,617 | 217 |
Outback Steakhouse, Inc. | 4,900 | 205 |
* Pixar, Inc. | 3,117 | 199 |
* Dollar Tree Stores, Inc. | 7,174 | 197 |
American Eagle Outfitters, Inc. | 7,696 | 196 |
RadioShack Corp. | 8,926 | 175�� |
* Weight Watchers International, Inc. | 2,738 | 144 |
OfficeMax, Inc. | 4,683 | 137 |
* Wynn Resorts Ltd. | 1,994 | 133 |
Dow Jones & Co., Inc. | 3,110 | 126 |
Washington Post Co. Class B | 154 | 116 |
* Live Nation | 4,487 | 80 |
Westwood One, Inc. | 4,205 | 47 |
Consumer Staples (4.5%) | 65,803 | |
Walgreen Co. | 68,191 | 3,059 |
Colgate-Palmolive Co. | 34,699 | 1,890 |
Costco Wholesale Corp. | 31,954 | 1,639 |
CVS Corp. | 54,119 | 1,533 |
General Mills, Inc. | 23,767 | 1,170 |
* The Kroger Co. | 48,644 | 975 |
Kellogg Co. | 20,219 | 896 |
Sara Lee Corp. | 50,696 | 896 |
Avon Products, Inc. | 30,506 | 880 |
Safeway, Inc. | 29,820 | 725 |
Campbell Soup Co. | 20,432 | 636 |
The Hershey Co. | 12,140 | 621 |
Albertson's, Inc. | 24,375 | 620 |
Wm. Wrigley Jr. Co. | 9,565 | 608 |
Whole Foods Market, Inc. | 8,702 | 556 |
Coca-Cola Enterprises, Inc. | 23,371 | 459 |
The Pepsi Bottling Group, Inc. | 12,047 | 354 |
* Dean Foods Co. | 9,304 | 349 |
1 Molson Coors Brewing Co. Class B | 5,472 | 343 |
SuperValu Inc. | 9,009 | 285 |
McCormick & Co., Inc. | 8,014 | 263 |
Estee Lauder Cos. Class A | 6,434 | 241 |
Hormel Foods Corp. | 6,888 | 237 |
* Energizer Holdings, Inc. | 4,237 | 231 |
Alberto-Culver Co. Class B | 4,537 | 207 |
PepsiAmericas, Inc. | 6,559 | 157 |
Del Monte Foods Co. | 13,745 | 150 |
1 Brown-Forman Corp. Class B | 1,500 | 106 |
Energy (3.3%) | 20,086 | |
Schlumberger Ltd. | 39,353 | 4,526 |
Burlington Resources, Inc. | 25,479 | 2,298 |
Apache Corp. | 21,925 | 1,467 |
XTO Energy, Inc. | 24,162 | 1,012 |
Peabody Energy Corp. | 17,396 | 840 |
* Nabors Industries, Inc. | 10,528 | 694 |
9
Shares | Market Value• ($000) | |
---|---|---|
Sunoco, Inc. | 9,038 | 670 |
Smith International, Inc. | 14,068 | 545 |
* Ultra Petroleum Corp. | 10,308 | 536 |
CONSOL Energy, Inc. | 6,165 | 395 |
Pioneer Natural Resources Co. | 8,514 | 358 |
* Newfield Exploration Co. | 8,521 | 329 |
Patterson-UTI Energy, Inc. | 11,496 | 317 |
Rowan Cos., Inc. | 7,241 | 291 |
Pogo Producing Co. | 3,990 | 199 |
Teekay Shipping Corp. | 3,689 | 144 |
Financials (36.8%) | 14,621 | |
Capital Markets (6.4%) | ||
Merrill Lynch & Co., Inc. | 61,605 | 4,757 |
Morgan Stanley | 71,899 | 4,289 |
The Goldman Sachs Group, Inc. | 29,117 | 4,114 |
Lehman Brothers Holdings, Inc. | 17,900 | 2,613 |
The Bank of New York Co., Inc. | 51,603 | 1,767 |
Charles Schwab Corp. | 86,004 | 1,394 |
State Street Corp. | 22,135 | 1,383 |
Franklin Resources Corp. | 12,608 | 1,295 |
Legg Mason Inc. | 7,977 | 1,042 |
Bear Stearns Co., Inc. | 7,589 | 1,020 |
Mellon Financial Corp. | 27,793 | 1,003 |
Northern Trust Corp. | 14,745 | 777 |
* E*TRADE Financial Corp. | 27,347 | 700 |
T. Rowe Price Group Inc. | 8,691 | 667 |
TD Ameritrade Holding Corp. | 20,078 | 437 |
Janus Capital Group Inc. | 14,387 | 316 |
^ Allied Capital Corp. | 8,967 | 263 |
A.G. Edwards & Sons, Inc. | 5,063 | 226 |
SEI Investments Co. | 4,944 | 207 |
Investors Financial Services Corp. | 4,272 | 193 |
Commercial Banks (10.8%) | ||
Bank of America Corp. | 309,815 | 14,205 |
Wells Fargo & Co. | 111,584 | 7,164 |
Wachovia Corp. | 103,681 | 5,813 |
U.S. Bancorp | 122,315 | 3,781 |
SunTrust Banks, Inc. | 24,159 | 1,748 |
BB&T Corp. | 36,502 | 1,443 |
Fifth Third Bancorp | 36,994 | 1,430 |
PNC Financial Services Group | 19,426 | 1,367 |
Regions Financial Corp. | 30,807 | 1,071 |
KeyCorp | 27,432 | 1,022 |
M & T Bank Corp. | 7,523 | 846 |
North Fork Bancorp, Inc. | 31,723 | 810 |
Marshall & Ilsley Corp. | 15,607 | 687 |
AmSouth Bancorp | 23,045 | 640 |
Comerica, Inc. | 11,006 | 631 |
Synovus Financial Corp. | 20,811 | 590 |
Zions Bancorp | 6,990 | 577 |
Commerce Bancorp, Inc. | 11,645 | 386 |
Compass Bancshares Inc. | 7,502 | 377 |
Huntington Bancshares Inc. | 15,136 | 364 |
Popular, Inc. | 17,495 | 357 |
First Horizon National Corp. | 8,338 | 326 |
Associated Banc-Corp | 9,058 | 312 |
Mercantile Bankshares Corp. | 8,104 | 310 |
UnionBanCal Corp. | 3,878 | 268 |
Colonial BancGroup, Inc. | 10,099 | 254 |
City National Corp. | 3,238 | 246 |
TD Banknorth, Inc. | 7,751 | 238 |
Commerce Bancshares, Inc. | 4,548 | 234 |
TCF Financial Corp. | 8,899 | 226 |
Fulton Financial Corp. | 10,411 | 183 |
Valley National Bancorp | 7,265 | 176 |
Consumer Finance (1.8%) | ||
American Express Co. | 82,729 | 4,457 |
SLM Corp. | 27,884 | 1,573 |
Capital One Financial Corp. | 17,835 | 1,562 |
* AmeriCredit Corp. | 9,036 | 267 |
^ The First Marblehead Corp. | 2,161 | 78 |
Student Loan Corp. | 254 | 56 |
10
Shares | Market Value• ($000) | |
---|---|---|
Diversified Financial Services (2.7%) | ||
JPMorgan Chase & Co. | 234,698 | 9,655 |
Moody's Corp. | 19,652 | 1,317 |
CIT Group Inc. | 13,385 | 720 |
The Chicago Mercantile Exchange | 682 | 290 |
Insurance (9.1%) | ||
American International Group, Inc. | 174,730 | 11,595 |
Prudential Financial, Inc. | 33,753 | 2,600 |
MetLife, Inc. | 50,454 | 2,529 |
The Allstate Corp. | 43,259 | 2,370 |
The St. Paul Travelers, Cos. Inc. | 46,253 | 1,988 |
The Hartford Financial Services Group Inc. | 20,034 | 1,650 |
AFLAC Inc. | 33,459 | 1,547 |
Progressive Corp. of Ohio | 13,146 | 1,413 |
The Chubb Corp. | 13,240 | 1,268 |
ACE Ltd. | 21,126 | 1,177 |
Marsh & McLennan Cos., Inc. | 36,364 | 1,124 |
The Principal Financial Group, Inc. | 18,579 | 905 |
Genworth Financial Inc. | 25,411 | 809 |
XL Capital Ltd. Class A | 11,595 | 783 |
Lincoln National Corp. | 11,472 | 651 |
Jefferson-Pilot Corp. | 8,995 | 542 |
MBIA, Inc. | 9,027 | 530 |
Ambac Financial Group, Inc. | 6,969 | 524 |
Cincinnati Financial Corp. | 11,705 | 519 |
W.R. Berkley Corp. | 8,443 | 489 |
Fidelity National Financial, Inc. | 11,582 | 437 |
SAFECO Corp. | 8,231 | 424 |
Everest Re Group, Ltd. | 4,144 | 410 |
UnumProvident Corp. | 19,698 | 408 |
Assurant, Inc. | 8,706 | 395 |
White Mountains Insurance Group Inc. | 715 | 395 |
Torchmark Corp. | 6,949 | 380 |
Old Republic International Corp. | 15,142 | 322 |
Axis Capital Holdings Ltd. | 9,449 | 293 |
Brown & Brown, Inc. | 9,176 | 287 |
Willis Group Holdings Ltd. | 7,845 | 270 |
First American Corp. | 6,317 | 266 |
PartnerRe Ltd. | 3,798 | 230 |
Protective Life Corp. | 4,614 | 225 |
* Markel Corp. | 647 | 213 |
RenaissanceRe Holdings Ltd. | 4,694 | 209 |
Unitrin, Inc. | 3,372 | 163 |
Transatlantic Holdings, Inc. | 1,750 | 107 |
Mercury General Corp. | 1,821 | 102 |
Erie Indemnity Co. Class A | 1,616 | 86 |
Wesco Financial Corp. | 91 | 36 |
Real Estate (2.6%) | ||
Simon Property Group, Inc.REIT | 14,951 | 1,240 |
Equity Residential REIT | 19,087 | 864 |
Equity Office Properties Trust REIT | 27,261 | 857 |
Vornado Realty Trust REIT | 9,407 | 837 |
General Growth Properties Inc.REIT | 15,793 | 796 |
Archstone-Smith Trust REIT | 14,152 | 671 |
Boston Properties, Inc. REIT | 7,540 | 638 |
Kimco Realty Corp. REIT | 15,185 | 546 |
Avalonbay Communities, Inc.REIT | 4,866 | 501 |
Public Storage, Inc. REIT | 6,418 | 501 |
Host Marriott Corp. REIT | 23,567 | 458 |
Developers Diversified Realty Corp. REIT | 7,159 | 359 |
The Macerich Co. REIT | 4,584 | 330 |
Duke Realty Corp. REIT | 9,122 | 320 |
AMB Property Corp. REIT | 5,704 | 306 |
The St. Joe Co. | 5,061 | 303 |
Regency Centers Corp. REIT | 4,507 | 291 |
Liberty Property Trust REIT | 5,800 | 260 |
11
Shares | Market Value• ($000) | |
---|---|---|
Health Care Properties Investors REIT | 9,022 | 248 |
Weingarten Realty Investors REIT | 5,828 | 230 |
iStar Financial Inc. REIT | 5,564 | 212 |
Hospitality Properties Trust REIT | 4,763 | 212 |
Forest City Enterprise Class A | 4,937 | 200 |
Trizec Properties, Inc. REIT | 7,734 | 188 |
Mills Corp. REIT | 3,634 | 144 |
Friedman, Billings, Ramsey Group, Inc. REIT | 10,393 | 103 |
Thrifts & Mortgage Finance (3.4%) | ||
Fannie Mae | 64,642 | 3,535 |
Freddie Mac | 45,915 | 3,094 |
Washington Mutual, Inc. | 66,483 | 2,839 |
Golden West Financial Corp. | 20,498 | 1,456 |
Countrywide Financial Corp. | 39,942 | 1,377 |
Hudson City Bancorp, Inc. | 39,542 | 510 |
Sovereign Bancorp, Inc. | 23,862 | 497 |
MGIC Investment Corp. | 6,018 | 384 |
Radian Group, Inc. | 5,483 | 311 |
New York Community Bancorp, Inc. | 17,480 | 295 |
The PMI Group Inc. | 5,905 | 256 |
Independence Community Bank Corp. | 5,471 | 224 |
Astoria Financial Corp. | 7,053 | 202 |
People's Bank | 4,723 | 146 |
Health Care (17.2%) | 163,932 | |
* Amgen, Inc. | 86,410 | 6,523 |
UnitedHealth Group Inc. | 90,975 | 5,297 |
Merck & Co., Inc. | 148,202 | 5,166 |
Abbott Laboratories | 103,449 | 4,570 |
Medtronic, Inc. | 81,000 | 4,370 |
Eli Lilly & Co. | 75,371 | 4,192 |
* WellPoint Inc. | 43,779 | 3,362 |
* Genentech, Inc. | 28,042 | 2,403 |
Cardinal Health, Inc. | 28,861 | 2,095 |
Aetna Inc. | 38,198 | 1,948 |
* Gilead Sciences, Inc. | 30,186 | 1,880 |
Schering-Plough Corp. | 97,756 | 1,808 |
Guidant Corp. | 22,042 | 1,692 |
Baxter International, Inc. | 41,488 | 1,570 |
* Caremark Rx, Inc. | 30,013 | 1,493 |
HCA Inc. | 28,747 | 1,377 |
* Genzyme Corp. | 17,140 | 1,188 |
* Zimmer Holdings, Inc. | 16,622 | 1,150 |
* Medco Health Solutions, Inc. | 20,516 | 1,143 |
* St. Jude Medical, Inc. | 24,465 | 1,116 |
McKesson Corp. | 20,539 | 1,112 |
* Biogen Idec Inc. | 22,658 | 1,071 |
* Forest Laboratories, Inc. | 22,709 | 1,042 |
CIGNA Corp. | 8,357 | 1,026 |
* Boston Scientific Corp. | 41,000 | 1,001 |
Allergan, Inc. | 9,014 | 976 |
Stryker Corp. | 20,238 | 935 |
* Express Scripts Inc. | 9,949 | 868 |
* Celgene Corp. | 22,526 | 856 |
* Alcon, Inc. | 6,174 | 711 |
* Coventry Health Care Inc. | 10,737 | 640 |
AmerisourceBergen Corp. | 13,836 | 636 |
Biomet, Inc. | 16,908 | 615 |
* MedImmune Inc. | 16,576 | 605 |
* Humana Inc. | 10,807 | 558 |
Quest Diagnostics, Inc. | 10,381 | 549 |
* Laboratory Corp. of America Holdings | 8,806 | 512 |
Omnicare, Inc. | 8,000 | 487 |
* Hospira, Inc. | 10,819 | 429 |
* Chiron Corp. | 9,293 | 424 |
* Sepracor Inc. | 6,968 | 399 |
* DaVita, Inc. | 6,780 | 396 |
* Health Net Inc. | 7,572 | 363 |
* Barr Pharmaceuticals Inc. | 5,378 | 361 |
Applera Corp.—Applied Biosystems Group | 12,533 | 354 |
Health Management Associates Class A | 16,398 | 349 |
12
Shares | Market Value• ($000) | |
---|---|---|
Mylan Laboratories, Inc. | 14,363 | 330 |
* Patterson Cos | 9,132 | 329 |
* Waters Corp. | 7,291 | 312 |
* Cephalon, Inc. | 3,883 | 309 |
* Henry Schein, Inc. | 5,801 | 271 |
* Lincare Holdings, Inc. | 6,420 | 263 |
* King Pharmaceuticals, Inc. | 15,877 | 258 |
Bausch & Lomb, Inc. | 3,573 | 247 |
* Invitrogen Corp. | 3,440 | 244 |
* Triad Hospitals, Inc. | 5,661 | 244 |
* Tenet Healthcare Corp. | 30,853 | 243 |
* Millipore Corp. | 3,458 | 240 |
* Community Health Systems, Inc. | 5,859 | 222 |
* Watson Pharmaceuticals, Inc. | 7,291 | 219 |
Manor Care, Inc. | 5,221 | 216 |
* Millennium Pharmaceuticals, Inc. | 20,328 | 213 |
* Emdeon Corp. | 18,338 | 193 |
Universal Health Services Class B | 3,342 | 168 |
* ImClone Systems, Inc. | 4,181 | 160 |
* Kinetic Concepts, Inc. | 3,445 | 128 |
Industrials (4.3%) | 76,427 | |
Caterpillar, Inc. | 45,630 | 3,335 |
Burlington Northern Santa Fe Corp. | 24,996 | 1,966 |
Union Pacific Corp. | 17,638 | 1,562 |
Norfolk Southern Corp. | 27,053 | 1,385 |
Deere & Co. | 16,248 | 1,239 |
Cendant Corp. | 68,401 | 1,137 |
Southwest Airlines Co. | 52,560 | 881 |
Masco Corp. | 28,174 | 879 |
Rockwell Automation, Inc. | 11,967 | 816 |
PACCAR, Inc. | 11,379 | 795 |
Pitney Bowes, Inc. | 15,159 | 648 |
C.H. Robinson Worldwide Inc. | 11,336 | 508 |
Fastenal Co. | 10,216 | 449 |
W.W. Grainger, Inc. | 5,987 | 443 |
Robert Half International, Inc. | 11,231 | 403 |
* Monster Worldwide Inc. | 7,725 | 378 |
Republic Services, Inc. Class A | 9,203 | 358 |
Cintas Corp. | 8,590 | 353 |
Equifax, Inc. | 8,738 | 320 |
Manpower Inc. | 5,794 | 311 |
* ChoicePoint Inc. | 6,025 | 267 |
American Power Conversion Corp. | 12,949 | 265 |
Ryder System, Inc. | 4,267 | 189 |
J.B. Hunt Transport Services, Inc. | 7,761 | 184 |
Deluxe Corp. | 3,285 | 81 |
Information Technology (13.0%) | 19,152 | |
Intel Corp. | 406,346 | 8,371 |
* Google Inc. | 14,650 | 5,312 |
* Apple Computer, Inc. | 56,630 | 3,881 |
* eBay Inc. | 69,379 | 2,779 |
First Data Corp. | 51,043 | 2,304 |
* Yahoo! Inc. | 70,530 | 2,261 |
Automatic Data Processing, Inc. | 38,501 | 1,778 |
Adobe Systems, Inc. | 38,971 | 1,505 |
* Broadcom Corp. | 27,766 | 1,252 |
Accenture Ltd. | 38,240 | 1,249 |
* Symantec Corp. | 69,632 | 1,176 |
* Advanced Micro Devices, Inc. | 30,066 | 1,163 |
* Electronic Arts Inc. | 20,476 | 1,064 |
Analog Devices, Inc. | 24,903 | 950 |
Electronic Data Systems Corp. | 34,819 | 930 |
* Marvell Technology Group Ltd. | 13,922 | 852 |
Seagate Technology | 32,043 | 851 |
Maxim Integrated Products, Inc. | 21,690 | 848 |
* Network Appliance, Inc. | 25,062 | 831 |
CA, Inc. | 29,143 | 791 |
* SanDisk Corp. | 12,367 | 746 |
13
Shares | Market Value• ($000) | |
---|---|---|
* Juniper Networks, Inc. | 37,497 | 690 |
KLA-Tencor Corp. | 13,062 | 682 |
* Micron Technology, Inc. | 40,996 | 636 |
Xilinx, Inc. | 23,260 | 635 |
* Intuit, Inc. | 12,455 | 605 |
Autodesk, Inc. | 15,163 | 571 |
* Cognizant Technology Solutions Corp. | 9,199 | 530 |
* Fiserv, Inc. | 12,487 | 518 |
* Jabil Circuit, Inc. | 13,496 | 511 |
* Altera Corp. | 24,886 | 499 |
Microchip Technology, Inc. | 13,799 | 486 |
* Freescale Semiconductor, Inc.Class B | 17,106 | 463 |
* Amdocs Ltd. | 13,497 | 447 |
* Tellabs, Inc. | 29,780 | 437 |
* VeriSign, Inc. | 17,193 | 407 |
* Flextronics International Ltd. | 37,535 | 405 |
* LAM Research Corp. | 9,072 | 391 |
* Iron Mountain, Inc. | 8,675 | 379 |
* Comverse Technology, Inc. | 13,142 | 378 |
* Citrix Systems, Inc. | 11,676 | 378 |
* Avaya Inc. | 32,023 | 356 |
* Cadence Design Systems, Inc. | 18,855 | 335 |
* BEA Systems, Inc. | 29,104 | 334 |
* JDS Uniphase Corp. | 105,487 | 321 |
* BMC Software, Inc. | 14,494 | 317 |
* DST Systems, Inc. | 5,575 | 313 |
* NAVTEQ Corp. | 6,093 | 282 |
* Check Point Software Technologies Ltd. | 12,703 | 270 |
* McAfee Inc. | 11,046 | 257 |
Fidelity National Information Services, Inc. | 6,424 | 255 |
* LSI Logic Corp. | 25,748 | 251 |
* Freescale Semiconductor, Inc.Class A | 9,335 | 251 |
* Ceridian Corp. | 9,664 | 250 |
* QLogic Corp. | 5,985 | 246 |
* Novellus Systems, Inc. | 9,198 | 246 |
* Avnet, Inc. | 9,633 | 242 |
Sabre Holdings Corp. | 8,733 | 211 |
* Compuware Corp. | 25,555 | 210 |
* Zebra Technologies Corp. Class A | 4,636 | 205 |
Symbol Technologies, Inc. | 16,525 | 192 |
Fair Isaac, Inc. | 4,279 | 182 |
Diebold, Inc. | 4,545 | 182 |
* Alliance Data Systems Corp. | 4,132 | 179 |
MoneyGram International, Inc. | 5,733 | 164 |
* Convergys Corp. | 9,285 | 161 |
* Agere Systems Inc. | 11,773 | 158 |
* Unisys Corp. | 22,184 | 148 |
Molex, Inc. Class A | 4,317 | 123 |
Total System Services, Inc. | 2,501 | 49 |
Materials (1.4%) | 57,632 | |
Monsanto Co. | 17,917 | 1,503 |
Air Products & Chemicals, Inc. | 15,209 | 976 |
Freeport-McMoRan Copper & Gold, Inc. Class B | 12,279 | 622 |
Vulcan Materials Co. | 6,779 | 536 |
Ashland, Inc. | 4,909 | 320 |
Engelhard Corp. | 7,955 | 316 |
Temple-Inland Inc. | 7,402 | 316 |
* Sealed Air Corp. | 5,425 | 309 |
Sigma-Aldrich Corp. | 4,506 | 290 |
Eastman Chemical Co. | 5,371 | 265 |
* Pactiv Corp. | 9,492 | 218 |
Bemis Co., Inc. | 6,981 | 209 |
Louisiana-Pacific Corp. | 7,112 | 202 |
Lafarge North America Inc. | 2,375 | 197 |
Telecommunication Services (4.4%) | 6,279 | |
AT&T Inc. | 263,119 | 7,259 |
Sprint Nextel Corp. | 188,967 | 4,541 |
BellSouth Corp. | 123,169 | 3,890 |
* American Tower Corp. Class A | 27,527 | 876 |
* Qwest Communications International Inc. | 124,124 | 784 |
* NII Holdings Inc. | 10,054 | 515 |
14
Shares | Market Value• ($000) | |
---|---|---|
* Crown Castle International Corp. | 14,307 | 448 |
CenturyTel, Inc. | 8,615 | 310 |
Citizens Communications Co. | 22,233 | 297 |
* Nextel Partners, Inc. | 9,256 | 260 |
* Level 3 Communications, Inc. | 53,998 | 184 |
Telephone & Data Systems, Inc. | 3,373 | 126 |
Telephone & Data Systems, Inc. - Special Common Shares | 3,374 | 121 |
Utilities (0.3%) | 19,611 | |
Questar Corp. | 5,696 | 417 |
NiSource, Inc. | 17,942 | 368 |
Pepco Holdings, Inc. | 12,580 | 299 |
Equitable Resources, Inc. | 8,000 | 291 |
Puget Energy, Inc. | 7,574 | 163 |
1,538 | ||
Total Common Stocks (Cost $396,217) | 445,081 | |
Temporary Cash Investments (0.3%) | ||
2 Vanguard Market Liquidity Fund, 4.511% | 309,560 | 310 |
2 Vanguard Market Liquidity Fund, 4.511% - Note E | 1,167,200 | 1,167 |
Total Temporary Cash Investments (Cost $1,477) | 1,477 | |
Total Investments (100.3%) (Cost $397,694) | 446,558 | |
Other Assets and Liabilities (-0.3%) | ||
Other Assets—Note B | 3,132 | |
Liabilities—Note E | (4,433) | |
(1,301) | ||
Net Assets (100%) | 445,257 |
At February 28, 2006, net assets consisted of:3 | |
---|---|
Amount ($000) | |
Paid-in Capital | 410,634 |
Undistributed Net Investment Income | 316 |
Accumulated Net Realized Losses | (14,557) |
Unrealized Appreciation | 48,864 |
Net Assets | 445,257 |
Investor Shares—Net Assets | |
Applicable to 47,593,706 outstanding $.001 | |
par value shares of beneficial interest | |
(unlimited authorization) | 403,784 |
Net Asset Value Per Share— | |
Investor Shares | $8.48 |
Institutional Shares—Net Assets | |
Applicable to 4,883,008 outstanding $.001 | |
par value shares of beneficial interest | |
(unlimited authorization) | 41,473 |
Net Asset Value Per Share— | |
Institutional Shares | $8.49 |
• | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
^ | Part of security position is on loan to broker-dealers. See Note E in Notes to Financial Statements. |
1 | The index provider mistakenly included these companies in the index, which ordinarily excludes companies that derive material revenues from alcohol-related products. Vanguard alerted the index provider, and the companies were removed from the index and from the fund on April 7, 2006. |
2 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
3 | See Note C in Notes to Financial Statements for the tax-basis components of net assets. REIT—Real Estate Investment Trust. |
15
Statement of Operations
Six Months Ended February 28, 2006 | |
---|---|
($000) | |
Investment Income | |
Income | |
Dividends | 3,114 |
Interest1 | 10 |
Security Lending | 5 |
Total Income | 3,129 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 17 |
Management and Administrative | |
Investor Shares | 363 |
Institutional Shares | 11 |
Marketing and Distribution | |
Investor Shares | 69 |
Institutional Shares | 4 |
Custodian Fees | 23 |
Shareholders' Reports | |
Investor Shares | 3 |
Institutional Shares | — |
Total Expenses | 490 |
Net Investment Income | 2,639 |
Realized Net Gain (Loss) on Investment Securities Sold | 1,890 |
Change in Unrealized Appreciation (Depreciation) of Investment Securities | 23,164 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 27,693 |
1 Interest income from an affiliated company of the fund was $10,000.
16
Statement of Changes in Net Assets
Six Months Ended Feb. 28, 2006 ($000) | Year Ended Aug. 31, 2005 ($000) | |
---|---|---|
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 2,639 | 6,011 |
Realized Net Gain (Loss) | 1,890 | (3,593) |
Change in Unrealized Appreciation (Depreciation) | 23,164 | 29,703 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 27,693 | 32,121 |
Distributions | ||
Net Investment Income | ||
Investor Shares | (4,630) | (4,823) |
Institutional Shares | (363) | (221) |
Realized Capital Gain | ||
Investor Shares | — | — |
Institutional Shares | — | — |
Total Distributions | (4,993) | (5,044) |
Capital Share Transactions—Note F | ||
Investor Shares | 21,325 | 61,863 |
Institutional Shares | 12,598 | 12,803 |
Net Increase (Decrease) from Capital Share Transactions | 33,923 | 74,666 |
Total Increase (Decrease) | 56,623 | 101,743 |
Net Assets | ||
Beginning of Period | 388,634 | 286,891 |
End of Period1 | 445,257 | 388,634 |
1 Including undistributed net investment income of $316,000 and $2,670,000.
17
Financial Highlights
Investor Shares
Six Months Ended Feb. 28, | Year Ended August 31, | |||||
---|---|---|---|---|---|---|
For a Share Outstanding Throughout Each Period | 2006 | 2005 | 2004 | 2003 | 2002 | 2001 |
Net Asset Value, Beginning of Period | $8.03 | $7.40 | $6.87 | $6.02 | $7.57 | $11.14 |
Investment Operations | ||||||
Net Investment Income | .05 | .131 | .08 | .07 | .05 | .04 |
Net Realized and Unrealized Gain (Loss) on Investments | .50 | .62 | .52 | .84 | (1.55) | (3.57) |
Total from Investment Operations | .55 | .75 | .60 | .91 | (1.50) | (3.53) |
Distributions | ||||||
Dividends from Net Investment Income | (.10) | (.12) | (.07) | (.06) | (.05) | (.03) |
Distributions from Realized Capital Gains | — | — | — | — | — | (.01) |
Total Distributions | (.10) | (.12) | (.07) | (.06) | (.05) | (.04) |
Net Asset Value, End of Period | $8.48 | $8.03 | $7.40 | $6.87 | $6.02 | $7.57 |
Total Return2 | 6.87% | 10.16% | 8.75% | 15.28% | -19.96% | -31.75% |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $404 | $361 | $274 | $150 | $94 | $80 |
Ratio of Total Expenses to Average Net Assets | 0.25%3 | 0.25% | 0.25% | 0.25% | 0.25% | 0.25% |
Ratio of Net Investment Income to Average Net Assets | 1.28%3 | 1.74%1 | 1.17% | 1.18% | 0.82% | 0.70% |
Portfolio Turnover Rate | 53%4 | 12% | 8% | 14% | 18% | 10% |
1 | Net investment income per share and the ratio of net investment income to average net assets include $0.04 and 0.43%, respectively, resulting from a special dividend from Microsoft Corp. in November 2004. |
2 | Total returns do not reflect the $10 annual account maintenance fee applied on balances under $10,000. |
3 | Annualized. |
4 | Annualized. Includes activity related to a change in the fund’s target index. |
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Institutional Shares
Six Months Ended Feb. 28, | Year Ended August 31, | Jan. 141 to Aug. 31, | ||
---|---|---|---|---|
For a Share Outstanding Throughout Each Period | 2006 | 2005 | 2004 | 2003 |
Net Asset Value, Beginning of Period | $8.04 | $7.41 | $6.88 | $6.22 |
Investment Operations | ||||
Net Investment Income | .06 | .1382 | .084 | .05 |
Net Realized and Unrealized Gain (Loss) on Investments | .50 | .620 | .522 | .61 |
Total from Investment Operations | .56 | .758 | .606 | .66 |
Distributions | ||||
Dividends from Net Investment Income | (.11) | (.128) | (.076) | — |
Distributions from Realized Capital Gains | — | — | — | — |
Total Distributions | (.11) | (.128) | (.076) | — |
Net Asset Value, End of Period | $8.49 | $8.04 | $7.41 | $6.88 |
Total Return | 6.99% | 10.26% | 8.83% | 10.61% |
Ratios/Supplemental Data | ||||
Net Assets, End of Period (Millions) | $41 | $27 | $13 | $12 |
Ratio of Total Expenses to Average Net Assets | 0.12%3 | 0.12% | 0.12% | 0.12%3 |
Ratio of Net Investment Income to Average Net Assets | 1.41%3 | 1.83%2 | 1.30% | 1.32%3 |
Portfolio Turnover Rate | 53%4 | 12% | 8% | 14% |
1 | Inception. |
2 | Netinvestment income per share and the ratio of net investment income to average net assets include $0.036 and 0.43%, respectively, resulting from a special dividend from Microsoft Corp. in November 2004. |
3 | Annualized. |
4 | Annualized. Includes activity related to a change in the fund’s target index. See accompanying Notes, which are an integral part of the Financial Statements. |
19
Notes to Financial Statements
Vanguard FTSE Social Index Fund (formerly known as Vanguard Calvert Social Index Fund) is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund files reports with the SEC under the company name Vanguard World Funds. The fund offers two classes of shares, Investor Shares and Institutional Shares. Investor Shares are available to any investor who meets the fund’s minimum purchase requirements. Institutional Shares are designed for investors who meet certain administrative and servicing criteria and invest a minimum of $5 million.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. mutual funds. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset 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. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Security Lending: The fund may lend its securities to qualified institutional borrowers to earn additional income. Security loans are required to be secured at all times by collateral at least equal to the market value of securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability for the return of the collateral, during the period the securities are on loan. Security lending income represents the income earned on investing cash collateral, less expenses associated with the loan.
5. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. The Vanguard Group furnishes at cost investment advisory, 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 February 28, 2006, the fund had contributed capital of
20
$49,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.05% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
C. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at August 31, 2005, the fund had available realized losses of $16,424,000 to offset future net capital gains of $56,000 through August 31, 2009, $3,511,000 through August 31, 2010, $5,505,000 through August 31, 2011, $3,200,000 through August 31, 2012, $985,000 through August 31, 2013, and $3,167,000 through August 31, 2014. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2006; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balances above.
At February 28, 2006, net unrealized appreciation of investment securities for tax purposes was $48,864,000, consisting of unrealized gains of $60,608,000 on securities that had risen in value since their purchase and $11,744,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2006, the fund purchased $226,458,000 of investment securities and sold $195,195,000 of investment securities other than temporary cash investments.
E. The market value of securities on loan to broker-dealers at February 28, 2006, was $1,070,000, for which the fund received cash collateral of $1,167,000.
F. Capital share transactions for each class of shares were:
Six Months Ended February 28, 2006 | Year Ended August 31, 2005 | |||
---|---|---|---|---|
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
Investor Shares | ||||
Issued | 55,199 | 6,705 | 133,415 | 17,210 |
Issued in Lieu of Cash Distributions | 4,249 | 509 | 4,403 | 558 |
Redeemed | (38,123) | (4,628) | (75,955) | (9,751) |
Net Increase (Decrease)—Investor Shares | 21,325 | 2,586 | 61,863 | 8,017 |
Institutional Shares | ||||
Issued | 13,627 | 1,614 | 16,099 | 2,046 |
Issued in Lieu of Cash Distributions | 363 | 44 | 221 | 28 |
Redeemed | (1,392) | (170) | (3,517) | (452) |
Net Increase (Decrease)—Institutional Shares | 12,598 | 1,488 | 12,803 | 1,622 |
21
About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The table below illustrates your fund’s costs in two ways:
• Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading “Expenses Paid During Period.”
• Based on hypothetical 5% yearly return. This section is intended to help you compare your fund’s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Six Months Ended February 28, 2006
FTSE Social Index Fund | Beginning Account Value 8/31/2005 | Ending Account Value 2/28/2006 | Expenses Paid During Period1 |
---|---|---|---|
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $1,068.69 | $1.28 |
Institutional Shares | 1,000.00 | 1,069.88 | 0.62 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,023.55 | $1.25 |
Institutional Shares | 1,000.00 | 1,024.20 | 0.60 |
1 | These calculations are based on expenses incurred in the most recent six-month period. The fund's annualized six-month expense ratios for that period are 0.25% for Investor Shares and 0.12% for Institutional Shares. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period. |
22
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect any transactional costs or account maintenance fees. They do not include your fund’s low-balance fee, which is described in the prospectus. If this fee were applied to your account, your costs would be higher. Your fund does not charge transaction fees, such as purchase or redemption fees, nor does it carry a “sales load.”
The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to the appropriate fund prospectus.
23
Glossary
Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. A fund’s beta should be reviewed in conjunction with its R-squared (see definition below). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Expense Ratio. The percentage of a fund’s average net assets used to pay its annual administrative and advisory expenses. These expenses directly reduce returns to investors.
Foreign Holdings. The percentage of a fund’s equity assets represented by stocks or depositary receipts of companies based outside the United States.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.
Price/Earnings Ratio. The ratio of a stock’s current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company’s future growth.
R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0.
Return on Equity. The annual average rate of return generated by a company during the past five years for each dollar of shareholder’s equity (net income divided by shareholder’s equity). For a fund, the weighted average return on equity for the companies whose stocks it holds.
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
Turnover Rate. An indication of the fund’s trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to investors). The turnover rate excludes in-kind transactions, which have minimal impact on costs.
Yield. A snapshot of a fund’s income from interest and dividends. The yield, expressed as a percentage of the fund’s net asset value, is based on income earned over the past 30 days and is annualized, or projected forward for the coming year. The index yield is based on the current annualized rate of income provided by securities in the index.
24
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The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals.
Our independent board members bring distinguished backgrounds in business, academia, and public service to their task of working with Vanguard officers to establish the policies and oversee the activities of the funds. Among board members’ responsibilities are selecting investment advisors for the funds; monitoring fund operations, performance, and costs; reviewing contracts; nominating and selecting new trustees/directors; and electing Vanguard officers.
Each trustee serves a fund until its termination; or until the trustee’s retirement, resignation, or death; or otherwise as specified in the fund’s organizational documents. Any trustee may be removed at a shareholders’ meeting by a vote representing two-thirds of the net asset value of all shares of the fund together with shares of other Vanguard funds organized within the same trust. The table on these two pages shows information for each trustee and executive officer of the fund. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482.
Chairman of the Board, Chief Executive Officer, and Trustee
John J. Brennan1 | |
---|---|
Born 1954 Chairman of the Board, Chief Executive Officer, and Trustee since May 1987 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Chairman of the Board, Chief Executive Officer, and Director/ Trustee of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group. |
IndependentTrustees | |
Charles D. Ellis | |
Born 1937 Trustee since January 2001 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Applecore Partners (pro bono ventures in education); Senior Advisor to Greenwich Associates (international business strategy consulting); Successor Trustee of Yale University; Overseer of the Stern School of Business at New York University; Trustee of the Whitehead Institute for Biomedical Research. |
Rajiv L. Gupta | |
Born 1945 Trustee since December 20012 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Chairman and Chief Executive Officer of Rohm and Haas Co. (chemicals); Board Member of the American Chemistry Council; Director of Tyco International, Ltd. (diversified manufacturing and services) (since 2005); Trustee of Drexel University and of the Chemical Heritage Foundation. |
JoAnn Heffernan Heisen | |
Born 1950 Trustee since July 1998 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Vice President, Chief Information Officer, and Member of the Executive Committee of Johnson & Johnson (pharmaceuticals/ consumer products); Director of the University Medical Center at Princeton and Women’s Research and Education Institute. |
André F. Perold | |
---|---|
Born 1952 Trustee since December 2004 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: George Gund Professor of Finance and Banking, Harvard Business School (since 2000); Senior Associate Dean, Director of Faculty Recruiting, and Chair of Finance Faculty, Harvard Business School; Director and Chairman of UNX, Inc. (equities trading firm) (since 2003); Director of registered investment companies advised by Merrill Lynch Investment Managers and affiliates (1985–2004), Genbel Securities Limited (South African financial services firm) (1999–2003), Gensec Bank (1999–2003), Sanlam Investment Management (1999–2001), Sanlam, Ltd. (South African insurance company) (2001–2003), Stockback, Inc. (credit card firm) (2000–2002), and Bulldogresearch.com (investment research) (1999–2001); and Trustee of Commonfund (investment management) (1989–2001). |
Alfred M. Rankin, Jr. | |
Born 1941 Trustee since January 1993 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Chairman, President, Chief Executive Officer, and Director of NACCO Industries, Inc. (forklift trucks/housewares/lignite); Director of Goodrich Corporation (industrial products/aircraft systems and services); Director of Standard Products Company (supplier for the automotive industry) until 1998. |
J. Lawrence Wilson | |
Born 1936 Trustee since April 1985 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Retired Chairman and Chief Executive Officer of Rohm and Haas Co. (chemicals); Director of Cummins Inc. (diesel engines), MeadWestvaco Corp. (packaging products), and AmerisourceBergen Corp. (pharmaceutical distribution); Trustee of Vanderbilt University and of Culver Educational Foundation. |
Executive Officers1 | |
Heidi Stam | |
Born 1956 Secretary since July 2005 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Principal of The Vanguard Group since November 1997; General Counsel of The Vanguard Group since July 2005; Secretary of The Vanguard Group and of each of the investment companies served by The Vanguard Group since July 2005. |
Thomas J. Higgins | |
Born 1957 Treasurer since July 1998 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Principal of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group. |
Vanguard Senior Management Team | |
R. Gregory Barton | |
Mortimer J. Buckley | |
James H. Gately | |
Kathleen C. Gubanich | |
F. William McNabb, III | |
Michael S. Miller | |
Ralph K. Packard | |
George U. Sauter | |
Founder | |
John C. Bogle | |
Chairman and Chief Executive Officer, 1974-1996 |
1 | Officers of the funds are “interested persons” as defined in the Investment Company Act of 1940. |
2 | December 2002 for Vanguard Equity Income Fund, Vanguard Growth Equity Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds. |
More information about the trustees is in the Statement of Additional Information, available from Vanguard. |
![]() P.O. Box 2600 Valley Forge, PA 19482-2600 |
Connect with Vanguard™ > www.vanguard.com
Fund Information > 800-662-7447 | All comparative mutual fund data are from Lipper Inc. |
or Morningstar, Inc., unless otherwise noted. | |
Direct Investor Account Services > 800-662-2739 | |
Institutional Investor Services > 800-523-1036 | You can obtain a free copy of Vanguard's proxy voting |
guidelines by visiting our website, www.vanguard.com, | |
Text Telephone > 800-952-3335 | and searching for "proxy voting guidelines," or by calling |
Vanguard at 800-662-2739. They are also available from | |
the SEC's website, www.sec.gov. In addition, you may | |
obtain a free report on how your fund voted the proxies for | |
securities it owned during the 12 months ended June 30. | |
This material may be used in conjunction | To get the report, visit either www.vanguard.com |
with the offering of shares of any Vanguard | or www.sec.gov. |
fund only if preceded or accompanied by | |
the fund's current prospectus | |
You can review and copy information about your fund | |
Vanguard, Vanguard.com, Connect with Vanguard, | at the SEC's Public Reference Room in Washington, D.C. |
and the ship logo are trademarks of | To find out more about this public service, call the SEC |
The Vanguard Group, Inc. | at 202-551-8090. Information about your fund is also |
available on the SEC's website, and you can receive | |
copies of this information, for a fee, by sending a | |
"FTSE®" and "FTSE4Good™" are trademarks jointly | request in either of two ways: via e-mail addressed to |
owned by the London Stock Exchange plc and The | publicinfo@sec.gov or via regular mail addressed to the |
Financial Times Limited and are used by FTSE | Public Reference Section, Securities and Exchange |
International Limited under license. The FTSE4Good | Commission, Washington, DC 20549-0102. |
US Select Index is calculated by FTSE International | |
Limited. FTSE International Limited does not sponsor, | |
endorse, or promote the fund; is not in any way | |
connected to it; and does not accept any liability in | |
relation to its issue, operation, and trading | |
All other marks are the exclusive property of their | |
respective owners | |
© 2006 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q2132 042006 |
Vanguard® U.S. Sector Index Funds | |
› SemiAnnual Report | |
February 28, 2006 | |
![]() |
Vanguard Consumer Discretionary Index Fund | |
Vanguard Consumer Staples Index Fund | |
Vanguard Energy Index Fund | |
Vanguard Financials Index Fund | |
Vanguard Health Care Index Fund | |
Vanguard Industrials Index Fund | |
Vanguard Information Technology Index Fund | |
Vanguard Materials Index Fund | |
Vanguard Telecommunication Services Index Fund | |
Vanguard Utilities Index Fund | |
> | During the six months that ended February 28, the broad U.S. stock market returned nearly 7%, aided by healthy advances in November and January. |
> | The Vanguard U.S. Sector Index Funds posted a broad range of returns. The best-performing sector was materials; laggards included consumer discretionary and utilities. |
> | Domestic small-capitalization stocks outperformed large-caps, while international stocks fared better than U.S. stocks. |
Contents | |
---|---|
Your Fund's Total Returns | 1 |
Chairman's Letter | 2 |
Consumer Discretionary Index Fund | 7 |
Consumer Staples Index Fund | 16 |
Energy Index Fund | 23 |
Financials Index Fund | 30 |
Health Care Index Fund | 40 |
Industrials Index Fund | 48 |
Information Technology Index Fund | 56 |
Materials Index Fund | 65 |
Telecommunication Services Index Fund | 72 |
Utilities Index Fund | 78 |
About Your Fund's Expenses | 85 |
Glossary | 86 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the cover of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
Your Funds’ Total Returns Six Months Ended February 28, 2006
Admiral™ Shares1 | |
---|---|
Vanguard Consumer Discretionary Index Fund | 0.9% |
MSCI US IMI/Consumer Discretionary | 1.0 |
Vanguard Consumer Staples Index Fund | 2.7% |
MSCI US IMI/Consumer Staples | 2.9 |
Vanguard Energy Index Fund | 4.0% |
MSCI US IMI/Energy | 3.6 |
Vanguard Financials Index Fund | 11.5% |
MSCI US IMI/Financials | 11.7 |
Vanguard Health Care Index Fund | 3.9% |
MSCI US IMI/Health Care | 4.0 |
Vanguard Information Technology Index Fund | 6.7% |
MSCI US IMI/Information Technology | 6.8 |
Vanguard Materials Index Fund | 14.1% |
MSCI US IMI/Materials | 14.4 |
Vanguard Telecommunication Services Index Fund | 10.9% |
MSCI US IMI/Telecommunication Services | 10.6 |
Vanguard Utilities Index Fund | 1.1% |
MSCI US IMI/Utilities | 1.2 |
MSCI US IMI/2500 | 6.7% |
VIPER® Shares2 | |
---|---|
Vanguard Consumer Discretionary VIPERs® | |
Market Price | 0.9% |
Net Asset Value | 0.9 |
MSCI US IMI/Consumer Discretionary | 1.0 |
Vanguard Consumer Staples VIPERs | |
Market Price | 2.7% |
Net Asset Value | 2.7 |
MSCI US IMI/Consumer Staples | 2.9 |
Vanguard Energy VIPERs | |
Market Price | 4.2% |
Net Asset Value | 4.1 |
MSCI US IMI/Energy | 3.6 |
Vanguard Financials VIPERs | |
Market Price | 11.8% |
Net Asset Value | 11.6 |
MSCI US IMI/Financials | 11.7 |
Vanguard Health Care VIPERs | |
Market Price | 4.1% |
Net Asset Value | 4.0 |
MSCI US IMI/Health Care | 4.0 |
Vanguard Industrials VIPERs | |
Market Price | 11.8% |
Net Asset Value | 11.8 |
MSCI US IMI/Industrials | 11.2 |
Vanguard Information Technology VIPERs | |
Market Price | 6.8% |
Net Asset Value | 6.7 |
MSCI US IMI/Information Technology | 6.8 |
Vanguard Materials VIPERs | |
Market Price | 14.2% |
Net Asset Value | 14.2 |
MSCI US IMI/Materials | 14.4 |
Vanguard Telecommunication Services VIPERs | |
Market Price | 11.0% |
Net Asset Value | 10.8 |
MSCI US IMI/Telecommunication Services | 10.6 |
Vanguard Utilities VIPERs | |
Market Price | 1.0% |
Net Asset Value | 1.1 |
MSCI US IMI/Utilities | 1.2 |
MSCI US IMI/2500 | 6.7% |
1 | A lower-cost class of shares available to many longtime shareholders and to those with significant investments in the fund. The Industrials Index Fund had not issued Admiral Shares as of February 28, 2006. Returns do not reflect the 2% fee assessed on redemptions of shares held for less than one year. |
2 | VIPER Shares are traded on the American Stock Exchange and are available only through brokers. The table shows VIPER returns based on both the AMEX market price and the net asset value for a share. U.S. Pat. No. 6,879,964 B2. MSCI US IMI/2500 is the Morgan Stanley Capital International US Investable Market 2500 Index. |
1
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Chairman’s Letter
Dear Shareholder,
The broad U.S. stock market posted a solid 6.7% return for the six months ended February 28, 2006, spurred largely by pre- and post-holiday season rallies. Some of the Vanguard U.S. Sector Index Funds participated in these rallies; others did not. The variety of the funds’ performances was consistent with the broader swirl of economic and financial crosscurrents—signs of a deceleration in the housing market, converging short-and long-term interest rates, and a slight retreat from historically high levels of oil and natural gas prices.
All of the sector funds ended the half-year in positive territory, but the difference between the best- and worst-performing sectors was great. The materials, financials, industrials, and telecommunications services sectors outpaced the returns of the broad market. Meanwhile, the consumer discretionary, utilities, consumer staples, energy, and health care sectors lagged. The technology sector generally kept pace with broad-market returns.
The tables on page 1 show the total returns for each share class of the U.S. Sector Index Funds and for the funds’ target indexes. To help put those returns in context, we list results for a variety of broad stock and bond indexes in the “Market Barometer” table below.
Stock markets rose worldwide, with the biggest gains overseas
During the first half of the 2006 fiscal year, global stock markets reprised patterns that have characterized the investment environment in recent years: reasonably strong returns from the broad U.S. market, better performance from that market’s smaller companies, and a powerful rally in international stocks.
Returns were particularly strong in the Pacific region, where the Japanese stock market and economy appear to have awakened from a 15-year slumber.
Unusual interest rate patterns reflected two views of inflation
In the U.S. bond market, long-term interest rates held relatively steady, while short-term rates rose sharply, in some cases
Market Barometer | Total Returns Periods Ended February 28, 2006 | ||
---|---|---|---|
Six Months | One Year | Five Years1 | |
Stocks | |||
Russell 1000 Index (Large-caps) | 6.2% | 9.8% | 3.0% |
Russell 2000 Index (Small-caps) | 10.2 | 16.6 | 10.4 |
Dow Jones Wilshire 5000 Index (Entire market) | 6.7 | 10.8 | 4.1 |
MSCI All Country World Index ex USA (International) | 17.1 | 21.1 | 9.5 |
Bonds | |||
Lehman Aggregate Bond Index (Broad taxable market) | -0.1% | 2.7% | 5.4% |
Lehman Municipal Bond Index | 1.0 | 3.9 | 5.5 |
Citigroup 3-Month Treasury Bill Index | 1.8 | 3.3 | 2.2 |
CPI | |||
Consumer Price Index | 1.2% | 3.6% | 2.5% |
1 Annualized.
2
marginally exceeding those of longer-term securities. This unusual interest rate dynamic put pressure on the broad fixed income market, although it enhanced the returns of the shortest-term securities, such as 3-month U.S. Treasury bills.
The rapid rise in short-term rates reflects the Federal Reserve Board’s efforts to defuse any near-term inflationary threats. From June 2004 through January of this year, the Fed boosted its target for short-term rates from 1.00% to 4.50% in 14 separate actions. The relative stability of long-term rates is consistent with Fed comments and the market consensus that long-term pressures remain contained.
Materials sector was top performer as all the funds posted gains
While all of the sector funds recorded positive results for the period, the levels of success varied. The top performer was the materials sector, which returned more than 14% on the strength of its metal and mining stocks, as well as its holdings in paper-products and industrial-gas companies. These firms benefited from generally strong prices for the economy’s basic building blocks.
The financials sector was also a leader, posting a gain of nearly 12%. While the unusual interest rate environment proved a challenge for some regional banks, many of the larger asset managers, investment banks, and insurance brokers found success. The strong return in the industrials sector (also nearly 12%) was triggered by companies focused on transportation. Air freight, rail, and trucking services, and even the turbulent airline industry, all recorded impressive results. Construction services and heavy-equipment providers also fared well.
The consumer discretionary sector was the broad market’s worst performer, returning just under 1%. The sector includes the struggling auto and auto-related industries, which continued their multi-year decline, and media stocks, which had weaker performers among large publishers and broadcast- and cable-television operators.
Utilities spent most of the half-year in negative territory, but recovered toward the end of the period to eke out a modest 1% gain. The weakness in the sector afflicted both gas and electric companies, and roughly coincided with the recession of energy prices last autumn.
The U.S. Sector Index Funds generally met their objectives of tightly tracking their target benchmarks. The returns for many of the funds were within one- or two-tenths of a percentage point of the results for their target indexes, a tribute to the discipline and expertise of the funds’ advisor, Vanguard Quantitative Equity Group. The funds’ low costs—for both VIPER and Admiral share classes—helped make the advisor’s task of tracking the indexes easier.
It should be noted that federal diversification regulations require some of the funds to maintain security weightings different from those of their target indexes. This is the case for the Consumer Staples, Energy, Industrials, and Telecommunication Services Index Funds, and the divergence of their returns from their respective indexes is often slightly greater as a result.
Recent results underscore volatility in sector investing
Looking at half-year results for the Vanguard U.S. Sector Index Funds can be a fascinating exercise. A brief review of the numbers can tell you, generally, which areas of the U.S. economy did well over the six months, and which ones did not. The broad range of returns among these funds also serves to remind us of the importance of diversification across sectors.
You may recall that, in our previous report, the top-returning sectors were energy and utilities. Only six months later, those sectors were near the bottom of the performance tables—convincing evidence that things can change quickly in the investment world. And sector investing is a particularly volatile undertaking. The short time in which the energy and utilities sectors fell from favor could be offered as “Exhibit A” in the case against using sector funds as core holdings.
Instead, we think our U.S. Sector Index Funds can offer a useful way to further diversify a portfolio that is balanced across asset classes and diversified within those classes. They can be used to supplement exposure to specific sectors that may be underrepresented in your portfolio, or as powerful tools in the rebalancing and tactical asset allocation strategies used by some institutions.
Thank you for investing with Vanguard.
Sincerely,
John J. Brennan
Chairman and Chief Executive Officer
March 14, 2006
3
Your Fund’s Performance at a Glance
August 31, 2005–February 28, 2006
Distributions Per Share | ||||
---|---|---|---|---|
Starting | Ending | Income | Capital | |
Share Price | Share Price | Dividends | Gains |
Consumer Discretionary Index Fund | ||||
Admiral Shares | $27.75 | $27.83 | $0.157 | $0.000 |
VIPER Shares | 53.65 | 53.81 | 0.308 | 0.000 |
Consumer Staples Index Fund | ||||
Admiral Shares | $27.64 | $28.03 | $0.343 | $0.000 |
VIPER Shares | 56.03 | 56.82 | 0.703 | 0.000 |
Energy Index Fund | ||||
Admiral Shares | $36.29 | $37.40 | $0.350 | $0.000 |
VIPER Shares | 72.72 | 74.97 | 0.701 | 0.000 |
Financials Index Fund | ||||
Admiral Shares | $26.36 | $29.04 | $0.338 | $0.000 |
VIPER Shares | 52.57 | 57.92 | 0.684 | 0.000 |
Health Care Index Fund | ||||
Admiral Shares | $26.92 | $27.79 | $0.185 | $0.000 |
VIPER Shares | 53.85 | 55.59 | 0.387 | 0.000 |
Industrials Index Fund | ||||
VIPER Shares | $54.30 | $60.23 | $0.452 | $0.000 |
Information Technology Index Fund | ||||
Admiral Shares | $23.93 | $25.49 | $0.038 | $0.000 |
VIPER Shares | 46.76 | 49.79 | 0.091 | 0.000 |
Materials Index Fund | ||||
Admiral Shares | $28.34 | $31.83 | $0.495 | $0.000 |
VIPER Shares | 55.70 | 62.59 | 0.968 | 0.000 |
Telecommunication Services Index Fund | ||||
Admiral Shares | $28.18 | $30.38 | $0.792 | $0.000 |
VIPER Shares | 55.35 | 59.67 | 1.557 | 0.000 |
Utilities Index Fund | ||||
Admiral Shares | $34.03 | $33.91 | $0.478 | $0.000 |
VIPER Shares | 67.80 | 67.57 | 0.955 | 0.000 |
4
VIPERs Premium/Discount Record
The extent to which the funds’ VIPER Shares have traded at a premium or a discount to NAV since inception. Market prices for VIPER Shares, and for exchange-traded funds in general, can deviate from the net asset value (NAV) of the underlying securities.
Market Price Above or Equal to Net Asset Value | Market Price Below Net Asset Value | ||||
---|---|---|---|---|---|
Basis Point Differential2 | Number of Days | Percentage of Total Days | Number of Days | Percentage of Total Days | |
January 26, 20041-February 28, 2006 | |||||
Consumer Discretionary VIPERs | 0-24.9 | 273 | 51.70% | 236 | 44.70% |
25-49.9 | 9 | 1.70 | 3 | 0.57 | |
50-74.9 | 1 | 0.19 | 2 | 0.38 | |
75-100.0 | 0 | 0.00 | 0 | 0.00 | |
>100.0 | 2 | 0.38 | 2 | 0.38 | |
Total | 285 | 53.97% | 243 | 46.03% | |
January 26, 20041 - February 28, 2006 | |||||
Consumer Staples VIPERs | 0-24.9 | 307 | 58.14% | 212 | 40.15% |
25-49.9 | 5 | 0.95 | 2 | 0.38 | |
50-74.9 | 0 | 0.00 | 0 | 0.00 | |
75-100.0 | 0 | 0.00 | 2 | 0.38 | |
>100.0 | 0 | 0.00 | 0 | 0.00 | |
Total | 312 | 59.09% | 216 | 40.91% | |
September 23, 20041 -February 28, 2006 | |||||
Energy VIPERs | 0-24.9 | 194 | 53.74% | 164 | 45.43% |
25-49.9 | 3 | 0.83 | 0 | 0.00 | |
50-74.9 | 0 | 0.00 | 0 | 0.00 | |
75-100.0 | 0 | 0.00 | 0 | 0.00 | |
>100.0 | 0 | 0.00 | 0 | 0.00 | |
Total | 197 | 54.57% | 164 | 45.43% | |
January 26, 20041 -February 28, 2006 | |||||
Financials VIPERs | 0-24.9 | 293 | 55.48% | 220 | 41.67% |
25-49.9 | 6 | 1.14 | 0 | 0.00 | |
50-74.9 | 1 | 0.19 | 1 | 0.19 | |
75-100.0 | 2 | 0.38 | 1 | 0.19 | |
>100.0 | 1 | 0.19 | 3 | 0.57 | |
Total | 303 | 57.38% | 225 | 42.62% | |
January 26, 20041 -February 28, 2006 | |||||
Health Care VIPERs | 0-24.9 | 326 | 61.74% | 197 | 37.31% |
25-49.9 | 4 | 0.76 | 1 | 0.19 | |
50-74.9 | 0 | 0.00 | 0 | 0.00 | |
75-100.0 | 0 | 0.00 | 0 | 0.00 | |
>100.0 | 0 | 0.00 | 0 | 0.00 | |
Total | 330 | 62.50% | 198 | 37.50% | |
September 23, 20041 -February 28, 2006 | |||||
Industrials VIPERs | 0-24.9 | 199 | 55.13% | 141 | 39.06% |
25-49.9 | 13 | 3.60 | 2 | 0.55 | |
50-74.9 | 1 | 0.28 | 0 | 0.00 | |
75-100.0 | 2 | 0.55 | 1 | 0.28 | |
>100.0 | 0 | 0.00 | 2 | 0.55 | |
Total | 215 | 59.56% | 146 | 40.44% | |
1 | Inception. |
2 | One basis point equals 1/100th of 1%. |
5
VIPERs Premium/Discount Record (continued)
Market Price Above or Equal to Net Asset Value | Market Price Below Net Asset Value | ||||
---|---|---|---|---|---|
Basis Point Differential2 | Number of Days | Percentage of Total Days | Number of Days | Percentage of Total Days | |
January 26, 20041 -February 28, 2006 | |||||
Information Technology VIPERs | 0-24.9 | 300 | 56.81% | 203 | 38.45% |
25-49.9 | 6 | 1.14 | 4 | 0.75 | |
50-74.9 | 1 | 0.19 | 1 | 0.19 | |
75-100.0 | 0 | 0.00 | 1 | 0.19 | |
>100.0 | 5 | 0.95 | 7 | 1.33 | |
Total | 312 | 59.09% | 216 | 40.91% | |
January 26, 20041 -February 28, 2006 | |||||
Materials VIPERs | 0-24.9 | 260 | 49.24% | 257 | 48.67% |
25-49.9 | 1 | 0.19 | 1 | 0.19 | |
50-74.9 | 1 | 0.19 | 6 | 1.14 | |
75-100.0 | 0 | 0.00 | 1 | 0.19 | |
>100.0 | 1 | 0.19 | 0 | 0.00 | |
Total | 263 | 49.81% | 265 | 50.19% | |
September 23, 20041 -February 28, 2006 | |||||
Telecommunication Services VIPERs | 0-24.9 | 149 | 41.28% | 184 | 50.97% |
25-49.9 | 11 | 3.05 | 2 | 0.55 | |
50-74.9 | 0 | 0.00 | 2 | 0.55 | |
75-100.0 | 2 | 0.55 | 1 | 0.28 | |
>100.0 | 3 | 0.83 | 7 | 1.94 | |
Total | 165 | 45.71% | 196 | 54.29% | |
January 26, 20041 -February 28, 2006 | |||||
Utilities VIPERs | 0-24.9 | 269 | 50.95% | 249 | 47.16% |
25-49.9 | 4 | 0.75 | 3 | 0.57 | |
50-74.9 | 0 | 0.00 | 1 | 0.19 | |
75-100.0 | 0 | 0.00 | 1 | 0.19 | |
>100.0 | 0 | 0.00 | 1 | 0.19 | |
Total | 273 | 51.70% | 255 | 48.30% | |
1 | Inception. |
2 | One basis point equals 1/100th of 1%. |
6
Consumer Discretionary Index Fund
Fund Profile
As of February 28, 2006
Portfolio Characteristics | Fund | Target Index1 | Broad Index2 |
---|---|---|---|
Number of Stocks | 442 | 441 | 2,478 |
Median Market Cap | $13.8B | $13.8B | $30.6B |
Price/Earnings Ratio | 19.4x | 19.4x | 18.1x |
Price/Book Ratio | 2.6x | 2.6x | 2.9x |
Yield | 1.0% | 1.7% | |
Admiral Shares | 0.7% | ||
VIPER Shares | 0.7% | ||
Return on Equity | 14.4% | 14.4% | 17.3% |
Earnings Growth Rate | 20.0% | 20.0% | 14.0% |
Foreign Holdings | 0.1% | 0.0% | 0.0% |
Turnover Rate | 11%3 | — | — |
Expense Ratio | — | — | |
Admiral Shares | 0.28%3 | ||
VIPER Shares | 0.25%3 | ||
Short-Term Reserves | 0% | — | — |
Industry Diversification (% of portfolio) | |
---|---|
Advertising | 2% |
Apparel Retail | 5 |
Apparel, Accessories & Luxury Goods | 2 |
Auto Parts & Equipment | 2 |
Automobile Manufacturers | 2 |
Automotive Retail | 2 |
Broadcasting & Cable TV | 11 |
Casinos & Gaming | 3 |
Computer & Electronics Retail | 2 |
Consumer Electronics | 1 |
Department Stores | 4 |
Distributors | 1 |
Education Services | 1 |
Footwear | 1 |
General Merchandise Stores | 4 |
Home Furnishings | 1 |
Home Improvement Retail | 9 |
Homebuilding | 4 |
Home Furnishing Retail | 1 |
Hotels, Resorts & Cruise Lines | 4 |
Household Appliances | 1 |
Housewares & Specialties | 1 |
Internet Retail | 2 |
Leisure Products | 2 |
Motorcycle Manufacturers | 1 |
Movies & Entertainment | 13 |
Publishing | 5 |
Restaurants | 8 |
Specialized Consumer Services | 1 |
Specialty Stores | 4 |
Ten Largest Holdings4 (% of total net assets) | |
---|---|
Home Depot, Inc. | 5.4% |
Time Warner, Inc. | 4.8 |
Comcast Corp. | 3.4 |
The Walt Disney Co. | 3.4 |
Lowe's Cos., Inc. | 3.0 |
Target Corp. | 2.7 |
McDonald's Corp. | 2.6 |
News Corp. | 2.4 |
Starbucks Corp. | 1.7 |
Viacom Inc. | 1.6 |
Top Ten | 31.0% |
1 | MSCI US IMI/Consumer Discretionary. |
2 | MSCI US IMI/2500. |
3 | Annualized. |
4 | “Ten Largest Holdings” excludes any temporary cash investments and equity index products. |
7
Consumer Discretionary Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at www.vanguard.com.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): January 26, 2004–February 28, 2006
[Dark Gray] - Consumer Discretionary Index Fund VIPER Shares Net Asset Value
[Light Gray] - MSCI US IMI/Consumer Discretionary
Average Annual Total Returns: Periods Ended December 31, 2005
This table presents average annual total returns through the latest calendar quarter—rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information.
Since | |||
---|---|---|---|
Inception Date | One Year | Inception | |
VIPER Shares | 1/26/2004 | ||
Market Price | -4.22% | 3.14% | |
Net Asset Value | -4.21 | 3.11 | |
Admiral Shares | 7/14/2005 | — | -3.48 |
Fee-Adjusted Return2 | — | -5.40 | |
1 | Six months ended February 28, 2006. |
2 | Reflective of the 2% fee assessed on redemptions of shares held less than one year. Note: See Financial Highlights tables on page 14 for dividend and capital gains information. |
8
Consumer Discretionary Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2006
The fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at www.sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Shares | Market Value• ($000) | |
---|---|---|
Common Stocks (99.8%) | ||
Auto Components (2.0%) | ||
Johnson Controls, Inc. | 4,996 | 356 |
BorgWarner, Inc. | 1,458 | 81 |
Gentex Corp. | 3,838 | 64 |
* The Goodyear Tire & Rubber Co. | 4,080 | 58 |
Lear Corp. | 1,772 | 37 |
ArvinMeritor, Inc. | 1,672 | 28 |
* Tenneco Automotive, Inc. | 1,105 | 25 |
* LKQ Corp. | 1,104 | 24 |
Modine Manufacturing Co. | 846 | 24 |
* TRW Automotive Holdings Corp. | 867 | 22 |
Cooper Tire & Rubber Co. | 1,456 | 22 |
* Keystone Automotive Industries, Inc. | 467 | 21 |
American Axle & Manufacturing Holdings, Inc. | 1,114 | 18 |
* Visteon Corp. | 3,211 | 15 |
Superior Industries International, Inc. | 570 | 12 |
* Drew Industries, Inc. | 365 | 12 |
* Aftermarket Technology Corp. | 536 | 12 |
Dana Corp. | 3,703 | 7 |
Bandag, Inc. | 168 | 7 |
Sauer-Danfoss, Inc. | 299 | 6 |
Bandag, Inc. Class A | 133 | 5 |
Automobiles (2.5%) | 856 | |
��Harley-Davidson, Inc. | 7,121 | 374 |
Ford Motor Co. | 46,242 | 369 |
General Motors Corp. | 11,751 | 239 |
Thor Industries, Inc. | 968 | 46 |
Winnebago Industries, Inc. | 824 | 26 |
* Fleetwood Enterprises, Inc. | 1,463 | 16 |
Monaco Coach Corp. | 783 | 11 |
Distributors (0.6%) | 1,081 | |
Genuine Parts Co. | 4,532 | 202 |
Building Materials Holding Corp. | 370 | 25 |
* Source Interlink Cos., Inc. | 1,315 | 14 |
* Prestige Brands Holdings Inc. | 852 | 9 |
* Earle M. Jorgensen Co. | 518 | 7 |
* Audiovox Corp. | 470 | 6 |
Handleman Co. | 490 | 5 |
Diversified Consumer Services (2.8%) | 268 | |
* Apollo Group, Inc. Class A | 3,980 | 196 |
H & R Block, Inc. | 8,172 | 182 |
ServiceMaster Co. | 7,522 | 94 |
* Career Education Corp. | 2,653 | 87 |
* ITT Educational Services, Inc. | 1,192 | 74 |
* Education Management Corp. | 1,640 | 62 |
Service Corp. International | 7,707 | 61 |
* Laureate Education Inc. | 1,153 | 60 |
* Weight Watchers International, Inc. | 1,073 | 56 |
Regis Corp. | 1,166 | 45 |
* DeVry, Inc. | 1,587 | 37 |
Strayer Education, Inc. | 367 | 35 |
Matthews International Corp. | 852 | 32 |
* Corinthian Colleges, Inc. | 2,271 | 29 |
* Sotheby's Holdings Class A | 1,266 | 27 |
Jackson Hewitt Tax Service Inc. | 941 | 27 |
* Bright Horizons Family Solutions, Inc. | 728 | 24 |
* Universal Technical Institute Inc. | 583 | 18 |
* Alderwoods Group, Inc. | 1,002 | 17 |
* Steiner Leisure Ltd. | 397 | 17 |
Stewart Enterprises, Inc. Class A | 2,508 | 13 |
* Vertrue Inc. | 225 | 10 |
Pre-Paid Legal Services, Inc. | 252 | 9 |
* Educate, Inc. | 479 | 4 |
Hotels, Restaurants & Leisure (15.5%) | 1,216 | |
McDonald's Corp. | 32,853 | 1,147 |
* Starbucks Corp. | 19,940 | 724 |
Carnival Corp. | 11,528 | 595 |
Starwood Hotels & Resorts Worldwide, Inc. | 5,649 | 359 |
Yum! Brands, Inc. | 7,406 | 353 |
Harrah's Entertainment, Inc. | 4,526 | 325 |
International Game Technology | 8,850 | 317 |
Marriott International, Inc. Class A | 4,623 | 316 |
Hilton Hotels Corp. | 9,410 | 228 |
Wendy's International, Inc. | 3,014 | 174 |
Darden Restaurants Inc. | 3,796 | 159 |
Royal Caribbean Cruises, Ltd. | 2,922 | 129 |
* MGM Mirage, Inc. | 3,274 | 121 |
Station Casinos, Inc. | 1,497 | 102 |
GTECH Holdings Corp. | 2,984 | 100 |
Brinker International, Inc. | 2,298 | 96 |
* Wynn Resorts Ltd. | 1,283 | 85 |
Outback Steakhouse, Inc. | 1,731 | 72 |
* The Cheesecake Factory Inc. | 1,919 | 69 |
* Penn National Gaming, Inc. | 1,828 | 63 |
* Panera Bread Co. | 762 | 54 |
CBRL Group, Inc. | 1,207 | 54 |
* Scientific Games Corp. | 1,628 | 50 |
* Sonic Corp. | 1,578 | 50 |
Ruby Tuesday, Inc. | 1,655 | 47 |
Boyd Gaming Corp. | 1,045 | 46 |
Applebee's International, Inc. | 2,008 | 46 |
* Gaylord Entertainment Co. | 999 | 45 |
Choice Hotel International, Inc. | 931 | 41 |
International Speedway Corp. | 763 | 36 |
* Jack in the Box Inc. | 904 | 36 |
* Pinnacle Entertainment, Inc. | 1,220 | 34 |
Orient-Express Hotel Ltd. | 965 | 34 |
* P.F. Chang's China Bistro, Inc. | 680 | 33 |
* CEC Entertainment Inc. | 904 | 29 |
* Aztar Corp. | 891 | 27 |
* Rare Hospitality International Inc. | 860 | 27 |
Bob Evans Farms, Inc. | 892 | 26 |
* Six Flags, Inc. | 2,322 | 25 |
* Shuffle Master, Inc. | 891 | 23 |
* Life Time Fitness, Inc. | 549 | 23 |
IHOP Corp. | 451 | 23 |
* Papa John's International, Inc. | 682 | 22 |
CKE Restaurants Inc. | 1,307 | 22 |
Domino's Pizza, Inc. | 853 | 22 |
* Vail Resorts Inc. | 603 | 20 |
* Alliance Gaming Corp. | 1,240 | 18 |
* WMS Industries, Inc. | 615 | 18 |
* Texas Roadhouse, Inc. | 1,031 | 16 |
Lone Star Steakhouse & Saloon, Inc. | 564 | 15 |
* Red Robin Gourmet Burgers | 368 | 15 |
Ameristar Casinos, Inc. | 625 | 14 |
* Isle of Capri Casinos, Inc. | 450 | 14 |
9
Consumer Discretionary Index Fund
Shares | Market Value• ($000) | |
---|---|---|
Speedway Motorsports, Inc. | 380 | 14 |
Landry's Restaurants, Inc. | 464 | 14 |
* California Pizza Kitchen, Inc. | 462 | 14 |
* Steak n Shake Co. | 738 | 13 |
* Ryan's Restaurant Group, Inc. | 1,007 | 13 |
Churchill Downs, Inc. | 289 | 12 |
* O'Charley's Inc. | 610 | 11 |
The Marcus Corp. | 593 | 10 |
Triarc Cos., Inc. Class B | 650 | 10 |
* Krispy Kreme Doughnuts, Inc. | 1,418 | 10 |
Ambassadors Group, Inc. | 361 | 9 |
* Denny's Corp. | 2,060 | 9 |
* Multimedia Games Inc. | 727 | 8 |
AFC Enterprises, Inc. | 535 | 8 |
Triarc Cos., Inc. Class A | 444 | 8 |
* MTR Gaming Group Inc. | 719 | 7 |
* Magna Entertainment Corp. Class A | 1,044 | 7 |
* Great Wolf Resorts, Inc. | 564 | 6 |
Dover Downs Gaming & Entertainment, Inc. | 240 | 4 |
Household Durables (8.2%) | 6,726 | |
Fortune Brands, Inc. | 3,775 | 293 |
D. R. Horton, Inc. | 7,314 | 249 |
Centex Corp. | 3,337 | 226 |
Pulte Homes, Inc. | 5,703 | 219 |
Lennar Corp. Class A | 3,157 | 189 |
Harman International Industries, Inc. | 1,646 | 182 |
Black & Decker Corp. | 2,098 | 180 |
Newell Rubbermaid, Inc. | 7,178 | 178 |
Whirlpool Corp. | 1,722 | 155 |
KB HOME | 2,102 | 141 |
* NVR, Inc. | 160 | 120 |
* Mohawk Industries, Inc. | 1,380 | 119 |
Leggett & Platt, Inc. | 4,861 | 114 |
The Stanley Works | 2,151 | 108 |
Garmin Ltd. | 1,529 | 105 |
* Toll Brothers, Inc. | 2,997 | 97 |
Ryland Group, Inc. | 1,029 | 72 |
Beazer Homes USA, Inc. | 1,074 | 68 |
Snap-On Inc. | 1,506 | 59 |
Standard Pacific Corp. | 1,661 | 55 |
MDC Holdings, Inc. | 858 | 53 |
* Hovnanian Enterprises Inc.Class A | 851 | 39 |
* Jarden Corp. | 1,275 | 38 |
Maytag Corp. | 2,093 | 36 |
Ethan Allen Interiors, Inc. | 870 | 35 |
American Greetings Corp.Class A | 1,673 | 35 |
* Meritage Corp. | 589 | 34 |
The Yankee Candle Co., Inc. | 1,138 | 33 |
Furniture Brands International Inc. | 1,293 | 32 |
* Champion Enterprises, Inc. | 2,017 | 31 |
Tupperware Corp. | 1,433 | 30 |
* WCI Communities, Inc. | 914 | 23 |
La-Z-Boy Inc. | 1,375 | 22 |
Blyth, Inc. | 797 | 18 |
Brookfield Homes Corp. | 341 | 17 |
* Blount International, Inc. | 981 | 16 |
* Helen of Troy Ltd. | 779 | 16 |
M/I Homes, Inc. | 328 | 14 |
* Tempur-Pedic International Inc. | 1,105 | 13 |
* Interface, Inc. | 1,144 | 13 |
Technical Olympic USA, Inc. | 575 | 12 |
Levitt Corp. Class A | 421 | 10 |
Kimball International, Inc. Class B | 669 | 9 |
* Avatar Holding, Inc. | 139 | 8 |
CSS Industries, Inc. | 252 | 8 |
Skyline Corp. | 184 | 7 |
* William Lyon Homes, Inc. | 74 | 6 |
* Palm Harbor Homes, Inc. | 287 | 6 |
Russ Berrie and Co., Inc. | 381 | 5 |
Internet & Catalog Retail (1.9%) | 3,548 | |
* Amazon.com, Inc. | 8,016 | 300 |
* IAC/InterActiveCorp | 5,962 | 174 |
* Expedia, Inc. | 6,214 | 118 |
* Netflix.com, Inc. | 1,218 | 33 |
* Nutri/System Inc. | 751 | 32 |
* Coldwater Creek Inc. | 1,375 | 31 |
* Insight Enterprises, Inc. | 1,238 | 27 |
* priceline.com, Inc. | 610 | 15 |
* J. Jill Group, Inc. | 577 | 14 |
* Blue Nile Inc. | 409 | 14 |
* Stamps.com Inc. | 371 | 12 |
* ValueVision Media, Inc. | 681 | 9 |
* GSI Commerce, Inc. | 520 | 8 |
* Overstock.com, Inc. | 304 | 7 |
* 1-800-FLOWERS.COM, Inc. | 751 | 5 |
* Audible, Inc. | 409 | 4 |
* FTD Group, Inc. | 380 | 4 |
* drugstore.com, Inc. | 1,244 | 3 |
Leisure Equipment & Products (2.0%) | 810 | |
Eastman Kodak Co. | 7,479 | 210 |
Mattel, Inc. | 10,520 | 177 |
Brunswick Corp. | 2,382 | 93 |
Hasbro, Inc. | 4,136 | 84 |
SCP Pool Corp. | 1,372 | 60 |
Polaris Industries, Inc. | 1,100 | 55 |
* Marvel Entertainment, Inc. | 2,072 | 38 |
Callaway Golf Co. | 1,823 | 30 |
* JAKKS Pacific, Inc. | 695 | 17 |
* RC2 Corp. | 473 | 17 |
* MarineMax, Inc. | 496 | 15 |
Nautilus Inc. | 846 | 14 |
* K2 Inc. | 1,104 | 13 |
Oakley, Inc. | 684 | 10 |
Arctic Cat, Inc. | 417 | 10 |
* Leapfrog Enterprises, Inc. | 732 | 9 |
Marine Products Corp. | 432 | 5 |
Sturm, Ruger & Co., Inc. | 478 | 3 |
Media (30.4%) | 860 | |
Time Warner, Inc. | 119,533 | 2,069 |
The Walt Disney Co. | 52,156 | 1,460 |
* Comcast Corp. Class A | 33,571 | 901 |
News Corp., Class A | 49,329 | 803 |
* Viacom Inc. Class B | 17,531 | 701 |
* Liberty Media Corp. | 69,589 | 573 |
* Comcast Corp. Special Class A | 21,403 | 573 |
The McGraw-Hill Cos., Inc. | 9,709 | 515 |
CBS Corp | 17,918 | 438 |
Gannett Co., Inc. | 6,332 | 394 |
Omnicom Group Inc. | 4,726 | 377 |
Clear Channel Communications, Inc. | 11,968 | 339 |
* DIRECTV Group, Inc. | 19,801 | 312 |
News Corp., Class B | 14,713 | 252 |
* Univision Communications Inc. | 5,788 | 194 |
Tribune Co. | 5,694 | 174 |
* Sirius Satellite Radio, Inc. | 32,892 | 168 |
* EchoStar Communications Corp. Class A | 5,492 | 161 |
* Cablevision Systems NY Group Class A | 5,781 | 152 |
* XM Satellite Radio Holdings, Inc. | 5,719 | 126 |
* Liberty Global, Inc. Class A | 6,148 | 125 |
* Telewest Global, Inc. | 5,056 | 121 |
* Liberty Global, Inc. Series C | 6,018 | 117 |
* NTL Inc. | 1,755 | 116 |
Knight Ridder | 1,910 | 115 |
* Interpublic Group of Cos., Inc. | 10,899 | 113 |
* Lamar Advertising Co. Class A | 2,205 | 113 |
* Getty Images, Inc. | 1,350 | 109 |
Washington Post Co. Class B | 142 | 107 |
E.W. Scripps Co. Class A | 2,128 | 102 |
New York Times Co. Class A | 3,537 | 100 |
* Pixar, Inc. | 1,529 | 98 |
10
Consumer Discretionary Index Fund
Shares | Market Value• ($000) | |
---|---|---|
* Discovery Holding Co.Class A | 6,565 | 96 |
* R.H. Donnelley Corp. | 1,339 | 82 |
Dow Jones & Co., Inc. | 1,370 | 56 |
Belo Corp. Class A | 2,532 | 54 |
Meredith Corp. | 970 | 53 |
Harte-Hanks, Inc. | 1,452 | 41 |
Reader's Digest Association, Inc. | 2,406 | 37 |
* Valassis Communications, Inc. | 1,287 | 35 |
Lee Enterprises, Inc. | 1,008 | 35 |
John Wiley & Sons Class A | 926 | 35 |
Arbitron Inc. | 837 | 33 |
* DreamWorks Animation SKG, Inc. | 1,044 | 28 |
Media General, Inc. Class A | 565 | 28 |
The McClatchy Co. Class A | 511 | 28 |
Catalina Marketing Corp. | 1,199 | 27 |
* Scholastic Corp. | 925 | 27 |
* Live Nation | 1,460 | 26 |
* Entercom Communications Corp. | 889 | 25 |
ADVO, Inc. | 786 | 25 |
* RCN Corp. | 925 | 23 |
Warner Music Group Corp. | 1,133 | 23 |
Westwood One, Inc. | 1,858 | 21 |
Regal Entertainment Group Class A | 1,128 | 21 |
Interactive Data Corp. | 929 | 21 |
* Gemstar-TV Guide International, Inc. | 6,569 | 20 |
* Cumulus Media Inc. | 1,449 | 17 |
Hollinger International, Inc. | 1,739 | 16 |
Hearst-Argyle Television Inc. | 649 | 15 |
* Cox Radio, Inc. | 1,054 | 15 |
Citadel Broadcasting Corp. | 1,298 | 14 |
* Radio One, Inc. Class D | 1,631 | 14 |
Journal Register Co. | 1,092 | 14 |
* Emmis Communications, Inc. | 786 | 13 |
* CKX, Inc. | 919 | 13 |
* ProQuest Co. | 600 | 13 |
* Charter Communications, Inc. | 10,692 | 12 |
Journal Communications, Inc. | 978 | 12 |
* Morningstar, Inc. | 258 | 11 |
* Entravision Communications Corp. | 1,360 | 10 |
Courier Corp. | 254 | 10 |
* Martha Stewart Living Omnimedia, Inc. | 566 | 10 |
* Mediacom Communications Corp. | 1,610 | 9 |
Gray Television, Inc. | 1,035 | 9 |
* TiVo Inc. | 1,548 | 9 |
* Playboy Enterprises, Inc. Class B | 623 | 9 |
* Harris Interactive Inc. | 1,367 | 8 |
Sinclair Broadcast Group, Inc. | 1,075 | 8 |
* Lin TV Corp. | 785 | 7 |
* Fisher Communications, Inc. | 158 | 7 |
World Wrestling Entertainment, Inc. | 466 | 7 |
* 4Kids Entertainment Inc. | 408 | 7 |
* PRIMEDIA Inc. | 2,693 | 6 |
* Spanish Broadcasting System, Inc. | 922 | 5 |
* Radio One, Inc. | 600 | 5 |
* Salem Communications Corp. | 359 | 5 |
* Regent Communications, Inc. | 874 | 4 |
* Saga Communications, Inc. | 403 | 4 |
Beasley Broadcast Group, Inc. | 128 | 2 |
Multiline Retail (8.0%) | 13,238 | |
Target Corp. | 21,808 | 1,186 |
Federated Department Stores, Inc. | 7,097 | 504 |
* Kohl's Corp. | 8,028 | 386 |
J.C. Penney Co., Inc. (Holding Co.) | 6,160 | 361 |
* Sears Holdings Corp. | 2,996 | 361 |
Nordstrom, Inc. | 5,348 | 203 |
Dollar General Corp. | 7,032 | 123 |
Family Dollar Stores, Inc. | 3,793 | 98 |
* Dollar Tree Stores, Inc. | 2,704 | 74 |
* Saks Inc. | 2,859 | 54 |
Dillard's Inc. | 1,736 | 43 |
* Big Lots Inc. | 3,005 | 38 |
Tuesday Morning Corp. | 813 | 18 |
* 99 Cents Only Stores | 1,269 | 14 |
Fred's, Inc. | 975 | 14 |
* Conn's, Inc. | 206 | 8 |
Speciality Retail (22.2%) | 3,485 | |
Home Depot, Inc. | 55,449 | 2,337 |
Lowe's Cos., Inc. | 19,227 | 1,311 |
Best Buy Co., Inc. | 10,846 | 584 |
Staples, Inc. | 19,068 | 468 |
TJX Cos., Inc. | 12,206 | 299 |
The Gap, Inc. | 15,947 | 296 |
* Office Depot, Inc. | 8,211 | 293 |
* Bed Bath & Beyond, Inc. | 7,679 | 277 |
* Chico's FAS, Inc. | 4,699 | 221 |
Limited Brands, Inc. | 8,945 | 212 |
Abercrombie & Fitch Co. | 2,226 | 150 |
* AutoZone Inc. | 1,495 | 144 |
Sherwin-Williams Co. | 3,042 | 139 |
Tiffany & Co. | 3,703 | 137 |
* Advance Auto Parts, Inc. | 2,822 | 117 |
Circuit City Stores, Inc. | 4,824 | 116 |
Michaels Stores, Inc. | 3,501 | 112 |
Ross Stores, Inc. | 3,777 | 107 |
* Williams-Sonoma, Inc. | 2,540 | 103 |
* AutoNation, Inc. | 4,715 | 99 |
PETsMART, Inc. | 3,700 | 96 |
Foot Locker, Inc. | 4,043 | 93 |
American Eagle Outfitters, Inc. | 3,575 | 91 |
* O'Reilly Automotive, Inc. | 2,738 | 90 |
* CarMax, Inc. | 2,697 | 85 |
* Urban Outfitters, Inc. | 2,541 | 71 |
Claire's Stores, Inc. | 2,186 | 70 |
* AnnTaylor Stores Corp. | 1,883 | 68 |
Barnes & Noble, Inc. | 1,543 | 66 |
RadioShack Corp. | 3,288 | 64 |
* Tractor Supply Co. | 858 | 54 |
OfficeMax, Inc. | 1,831 | 54 |
* Pacific Sunwear of California, Inc. | 1,934 | 46 |
* Rent-A-Center, Inc. | 1,951 | 46 |
Borders Group, Inc. | 1,810 | 44 |
* Aeropostale, Inc. | 1,459 | 42 |
* Charming Shoppes, Inc. | 3,088 | 41 |
* Payless ShoeSource, Inc. | 1,737 | 41 |
* Men's Wearhouse, Inc. | 1,272 | 40 |
* Dick's Sporting Goods, Inc. | 959 | 36 |
* GameStop Corp. Class A | 865 | 35 |
* Guitar Center, Inc. | 676 | 35 |
* Zale Corp. | 1,327 | 35 |
* Select Comfort Corp. | 907 | 33 |
* The Pantry, Inc. | 537 | 32 |
* Hibbett Sporting Goods, Inc. | 894 | 29 |
* Too Inc. | 888 | 27 |
* The Children's Place Retail Stores, Inc. | 570 | 27 |
Aaron Rents, Inc. Class B | 1,029 | 27 |
* Genesco, Inc. | 630 | 26 |
Burlington Coat Factory Warehouse Corp. | 564 | 25 |
* The Dress Barn, Inc. | 579 | 25 |
* GameStop Corp. Class B | 655 | 24 |
Pier 1 Imports Inc. | 2,307 | 24 |
* The Sports Authority, Inc. | 659 | 24 |
* PETCO Animal Supplies, Inc. | 1,221 | 24 |
United Auto Group, Inc. | 527 | 23 |
The Pep Boys (Manny, Moe & Jack) | 1,408 | 22 |
Christopher & Banks Corp. | 969 | 21 |
Sonic Automotive, Inc. | 796 | 21 |
* Group 1 Automotive, Inc. | 537 | 21 |
Finish Line, Inc. | 1,190 | 20 |
11
Consumer Discretionary Index Fund
Shares | Market Value• ($000) | |
---|---|---|
Stage Stores, Inc. | 676 | 20 |
* The Gymboree Corp. | 811 | 19 |
* CSK Auto Corp. | 1,215 | 19 |
* Jos. A. Bank Clothiers, Inc. | 383 | 17 |
Talbots Inc. | 617 | 16 |
Cato Corp. Class A | 765 | 16 |
* Hot Topic, Inc. | 1,105 | 15 |
Lithia Motors, Inc. | 457 | 15 |
* Cabela's Inc. | 806 | 15 |
* Guess ?, Inc. | 393 | 14 |
Blockbuster Inc. Class A | 3,267 | 13 |
Stein Mart, Inc. | 730 | 12 |
* DSW Inc. Class A | 387 | 11 |
* Cost Plus, Inc. | 568 | 11 |
Big 5 Sporting Goods Corp. | 526 | 11 |
* Volcom, Inc. | 305 | 10 |
* New York & Co., Inc. | 547 | 9 |
* Zumiez Inc. | 162 | 9 |
* Charlotte Russe Holding Inc. | 465 | 8 |
The Buckle, Inc. | 211 | 8 |
bebe stores, inc | 464 | 8 |
* Citi Trends Inc. | 185 | 8 |
* Asbury Automotive Group, Inc. | 431 | 8 |
* Build-A-Bear-Workshop, Inc. | 275 | 8 |
* Jo-Ann Stores, Inc. | 589 | 8 |
Haverty Furniture Cos., Inc. | 528 | 7 |
* A.C. Moore Arts & Crafts, Inc. | 402 | 7 |
Blockbuster Inc. Class B | 1,791 | 6 |
* West Marine, Inc. | 451 | 6 |
Deb Shops, Inc. | 123 | 4 |
Movie Gallery, Inc. | 601 | 2 |
Textiles, Apparel & Luxury Goods (3.7%) | 9,680 | |
NIKE, Inc. Class B | 4,831 | 419 |
* Coach, Inc. | 9,786 | 350 |
VF Corp. | 2,302 | 126 |
Liz Claiborne, Inc. | 2,798 | 101 |
Polo Ralph Lauren Corp. | 1,569 | 91 |
Jones Apparel Group, Inc. | 3,049 | 88 |
* Timberland Co. | 1,444 | 51 |
* Quiksilver, Inc. | 3,139 | 45 |
* Tommy Hilfiger Corp. | 2,381 | 39 |
* Carter's, Inc. | 573 | 37 |
Phillips-Van Heusen Corp. | 924 | 33 |
Wolverine World Wide, Inc. | 1,487 | 33 |
* The Warnaco Group, Inc. | 1,175 | 27 |
* Fossil, Inc. | 1,319 | 22 |
Brown Shoe Co., Inc. | 436 | 21 |
Kellwood Co. | 793 | 20 |
* Columbia Sportswear Co. | 380 | 19 |
K-Swiss, Inc. | 646 | 19 |
Oxford Industries, Inc. | 359 | 16 |
Steven Madden, Ltd. | 405 | 13 |
* Skechers U.S.A., Inc. | 598 | 13 |
The Stride Rite Corp. | 902 | 13 |
Russell Corp. | 855 | 12 |
Movado Group, Inc. | 514 | 11 |
UniFirst Corp. | 320 | 11 |
Kenneth Cole Productions, Inc. | 282 | 8 |
Xerium Technologies Inc. | 352 | 3 |
1,641 | ||
Total Investments (Cost $44,375) | 43,409 | |
Other Assets and Liabilities (0.2%) | ||
Other Assets—Note B | 152 | |
Liabilities | (86) | |
66 | ||
Net Assets (100%) | 43,475 |
At February 28, 2006, net assets consisted of:1
Amount ($000) | |
---|---|
Paid-in Capital | 44,578 |
Undistributed Net Investment Income | 30 |
Accumulated Net Realized Losses | (167) |
Unrealized Depreciation | (966) |
Net Assets | 43,475 |
Admiral Shares—Net Assets | |
Applicable to 15,387 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 428 |
Net Asset Value Per Share— | |
Admiral Shares | $27.83 |
VIPER Shares—Net Assets | |
Applicable to 800,000 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 43,047 |
Net Asset Value Per Share— | |
VIPER Shares | $53.81 |
• | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
1 | See Note C in Notes to Financial Statements for the tax-basis components of net assets. |
12
Consumer Discretionary Index Fund
Statement of Operations
Six Months Ended Feb. 28, 2006 | |
---|---|
($000) | |
Investment Income | |
Income | |
Dividends | 182 |
Interest1 | 1 |
Total Income | 183 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 3 |
Management and Administrative | |
Admiral Shares | — |
VIPER Shares | 8 |
Marketing and Distribution | |
Admiral Shares | — |
VIPER Shares | 6 |
Custodian Fees | 27 |
Shareholders' Reports | |
Admiral Shares | — |
VIPER Shares | 1 |
Total Expenses | 45 |
Net Investment Income | 138 |
Realized Net Gain (Loss) on | |
Investment Securities Sold | 1,043 |
Change in Unrealized Appreciation | |
(Depreciation) of Investment Securities | (909) |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 272 |
Statement of Changes in Net Assets
Six Months Ended Feb. 28, 2006 ($000) | Year Ended Aug. 31, 2005 ($000) | |
---|---|---|
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 138 | 136 |
Realized Net Gain (Loss) | 1,043 | 1,483 |
Change in Unrealized Appreciation (Depreciation) | (909) | 1,242 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 272 | 2,861 |
Distributions | ||
Net Investment Income | ||
Admiral Shares | (2) | — |
VIPER Shares | (216) | (105) |
Realized Capital Gain | ||
Admiral Shares | — | — |
VIPER Shares | — | — |
Total Distributions | (218) | (105) |
Capital Share Transactions—Note E | ||
Admiral Shares | 331 | 100 |
VIPER Shares | 10,800 | 10,639 |
Net Increase (Decrease) from Capital Share Transactions | 11,131 | 10,739 |
Total Increase (Decrease) | 11,185 | 13,495 |
Net Assets | ||
Beginning of Period | 32,290 | 18,795 |
End of Period2 | 43,475 | 32,290 |
1 | Interest income from an affiliated company of the fund was $1,000. |
2 | Including undistributed net investment income of $30,000 and $110,000. |
13
Consumer Discretionary Index Fund
Financial Highlights
Admiral Shares
For a Share Outstanding Throughout Each Period | Six Months Ended Feb. 28, 2006 | July 141 to Aug. 31, 2005 |
---|---|---|
Net Asset Value, Beginning of Period | $27.75 | $28.29 |
Investment Operations | ||
Net Investment Income | .1092 | .162 |
Net Realized and Unrealized Gain (Loss) on Investments | .128 | (.70) |
Total from Investment Operations | .237 | (.54) |
Distributions | ||
Dividends from Net Investment Income | (.157) | — |
Distributions from Realized Capital Gains | — | — |
Total Distributions | (.157) | — |
Net Asset Value, End of Period | $27.83 | $27.75 |
Total Return3 | 0.86% | -1.91% |
Ratios/Supplemental Data | ||
Net Assets, End of Period (Millions) | $0.4 | $0.1 |
Ratio of Total Expenses to Average Net Assets | 0.28%4 | 0.28%4 |
Ratio of Net Investment Income to Average Net Assets | 0.74%4 | 0.67%4 |
Portfolio Turnover Rate5 | 11%4 | 13% |
VIPER Shares
For a Share Outstanding Throughout Each Period | Six Months Ended Feb. 28, 2006 | Year Ended Aug. 31, 2005 | Jan. 261 to Aug. 31, 2004 |
---|---|---|---|
Net Asset Value, Beginning of Period | $53.65 | $46.99 | $50.09 |
Investment Operations | |||
Net Investment Income | .2042 | .352 | .20 |
Net Realized and Unrealized Gain (Loss) on Investments | .264 | 6.66 | (3.30) |
Total from Investment Operations | .468 | 7.01 | (3.10) |
Distributions | |||
Dividends from Net Investment Income | (.308) | (.35) | — |
Distributions from Realized Capital Gains | — | — | — |
Total Distributions | (.308) | (.35) | — |
Net Asset Value, End of Period | $53.81 | $53.65 | $46.99 |
Total Return | 0.88% | 14.91% | -6.19% |
Ratios/Supplemental Data | |||
Net Assets, End of Period (Millions) | $43 | $32 | $19 |
Ratio of Total Expenses to Average Net Assets | 0.25%4 | 0.26% | 0.28%4 |
Ratio of Net Investment Income to Average Net Assets | 0.77%4 | 0.69% | 0.68%4 |
Portfolio Turnover Rate5 | 11%4 | 13% | 11% |
1 | Inception. |
2 | Calculated based on average shares outstanding. |
3 | Total returns do not reflect the 2% fee assessed on redemptions of shares held for less than one year. |
4 | Annualized. |
5 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including VIPER Creation Units. See accompanying Notes, which are an integral part of the Financial Statements. |
14
Consumer Discretionary Index Fund
Notes to Financial Statements
Vanguard Consumer Discretionary Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund files reports with the SEC under the company name Vanguard World Funds. The fund offers two classes of shares, Admiral Shares and VIPER Shares. Admiral Shares are available to any investor who meets the fund’s minimum purchase requirements. VIPER Shares are listed for trading on the American Stock Exchange; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. mutual funds. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset 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. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold. Fees assessed on redemptions of Admiral Shares are credited to paid-in capital.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. The Vanguard Group furnishes at cost investment advisory, 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 February 28, 2006, the fund had contributed capital of $5,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.01% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
C. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
During the six months ended February 28, 2006, the fund realized $1,142,000 of net capital gains resulting from in-kind redemptions—in which shareholders exchanged fund shares for securities held by the fund rather than for cash. Because such gains are not taxable to the fund, and are not distributed to shareholders, they have been reclassified from accumulated net realized gains to paid-in capital.
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at August 31, 2005, the fund had available realized losses of $68,000 to offset future net capital gains of $36,000 through August 31, 2013, and $32,000 through August 31, 2014. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2006; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balances above.
At February 28, 2006, net unrealized depreciation of investment securities for tax purposes was $966,000, consisting of unrealized gains of $1,595,000 on securities that had risen in value since their purchase and $2,561,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2006, the fund purchased $43,625,000 of investment securities and sold $32,399,000 of investment securities, other than temporary cash investments.
E. Capital share transactions for each class of shares were (see table below):
Six Months Ended February 28, 2006 | Year Ended August 31, 2005 | |||
---|---|---|---|---|
Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | |
Admiral Shares | ||||
Issued | 330 | 12 | 100 | 4 |
Issued in Lieu of Cash Distributions | 1 | — | — | — |
Redeemed | — | — | — | — |
Net Increase (Decrease)—Admiral Shares | 331 | 12 | 100 | 4 |
VIPER Shares | ||||
Issued | 41,466 | 800 | 31,226 | 600 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (30,666) | (600) | (20,587) | (400) |
Net Increase (Decrease)—VIPER Shares | 10,800 | 200 | 10,639 | 200 |
15
Consumer Staples Index Fund
Fund Profile
As of February 28, 2006
Portfolio Characteristics | Fund | Target Index1 | Broad Index2 |
---|---|---|---|
Number of Stocks | 102 | 101 | 2,478 |
Median Market Cap | $32.3B | $99.0B | $30.6B |
Price/Earnings Ratio | 18.9x | 18.8x | 18.1x |
Price/Book Ratio | 3.6x | 3.9x | 2.9x |
Yield | 2.2% | 1.7% | |
Admiral Shares | 1.9% | ||
VIPER Shares | 1.9% | ||
Return on Equity | 27.5% | 29.7% | 17.3% |
Earnings Growth Rate | 12.2% | 12.5% | 14.0% |
Foreign Holdings | 0.9% | 0.0% | 0.0% |
Turnover Rate | 21%3 | — | — |
Expense Ratio | — | — | |
Admiral Shares | 0.28%3 | ||
VIPER Shares | 0.25%3 | ||
Short-Term Reserves | 0% | — | — |
Industry Diversification (% of portfolio) | |
---|---|
Agricultural Products | 3% |
Brewers | 3 |
Distillers & Vintners | 1 |
Drug Retail | 7 |
Food Distributors | 2 |
Food Retail | 6 |
Household Products | 23 |
Hypermarkets & Super Centers | 10 |
Packaged Foods & Meats | 15 |
Personal Products | 4 |
Soft Drinks | 13 |
Tobacco | 13 |
Ten Largest Holdings4 (% of total net assets) | |
---|---|
The Procter & Gamble Co. | 15.4% |
Altria Group, Inc. | 10.5 |
Wal-Mart Stores, Inc. | 7.4 |
PepsiCo, Inc. | 6.1 |
The Coca-Cola Co. | 5.4 |
Walgreen Co. | 4.0 |
Anheuser-Busch Cos., Inc. | 2.9 |
Colgate-Palmolive Co. | 2.6 |
Kimberly-Clark Corp. | 2.5 |
Costco Wholesale Corp. | 2.2 |
Top Ten | 59.0% |
1 | MSCI US IMI/Consumer Staples. |
2 | MSCI US IMI/2500. |
3 | Annualized. |
4 | “Ten Largest Holdings” excludes any temporary cash investments and equity index products. |
16
Consumer Staples Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at www.vanguard.com.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): January 26, 2004–February 28, 2006
[Dark gray] - Consumer Staples Index Fund VIPER Shares Net Asset Value
[Light Gray] - MSCI US IMI/Consumer Staples
Average Annual Total Returns: Periods Ended December 31, 2005
This table presents average annual total returns through the latest calendar quarter—rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information.
Since | |||
---|---|---|---|
Inception Date | One Year | Inception | |
VIPER Shares | 1/26/2004 | ||
Market Price | 4.03% | 6.86% | |
Net Asset Value | 3.95 | 6.85 | |
Admiral Shares2 | 1/30/2004 | 3.90 | 7.12 |
1 | Six months ended February 28, 2006. |
2 | Reflective of the 2% fee assessed on redemptions of shares held less than one year. Note: See Financial Highlights tables on page 21 for dividend and capital gains information. |
17
Consumer Staples Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2006
The fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at www.sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Shares | Market Value• ($000) | |
---|---|---|
Common Stocks (100.0%) | ||
Beverages (17.7%) | ||
PepsiCo, Inc. | 103,867 | 6,140 |
The Coca-Cola Co. | 129,988 | 5,456 |
Anheuser-Busch Cos., Inc. | 70,345 | 2,922 |
* Constellation Brands, Inc. Class A | 21,826 | 575 |
Coca-Cola Enterprises, Inc. | 28,986 | 570 |
Molson Coors Brewing Co. Class B | 8,070 | 506 |
The Pepsi Bottling Group, Inc. | 16,687 | 490 |
Brown-Forman Corp. Class B | 5,188 | 365 |
PepsiAmericas, Inc. | 10,935 | 262 |
* Hansen Natural Corp. | 2,396 | 224 |
* Boston Beer Co., Inc. Class A | 5,690 | 152 |
Coca-Cola Bottling Co. | 3,096 | 140 |
Food & Staples Retailing (24.8%) | 17,802 | |
Wal-Mart Stores, Inc. | 164,917 | 7,481 |
Walgreen Co. | 90,641 | 4,066 |
Costco Wholesale Corp. | 43,343 | 2,223 |
CVS Corp. | 75,118 | 2,128 |
Sysco Corp. | 57,841 | 1,740 |
* The Kroger Co. | 66,018 | 1,323 |
Safeway, Inc. | 44,210 | 1,075 |
Whole Foods Market, Inc. | 13,967 | 892 |
Albertson's, Inc. | 32,047 | 815 |
SuperValu Inc. | 15,804 | 499 |
* BJ's Wholesale Club, Inc. | 9,939 | 315 |
* Rite Aid Corp. | 80,068 | 295 |
* United Natural Foods, Inc. | 7,003 | 233 |
Casey's General Stores, Inc. | 8,642 | 227 |
Longs Drug Stores, Inc. | 5,704 | 219 |
* Performance Food Group Co. | 7,393 | 217 |
Ruddick Corp. | 8,203 | 198 |
* Central European Distribution Corp. | 4,203 | 176 |
* The Great Atlantic & Pacific Tea Co., Inc. | 5,353 | 173 |
* Wild Oats Markets Inc. | 9,406 | 169 |
Weis Markets, Inc. | 3,664 | 164 |
The Topps Co., Inc. | 18,489 | 149 |
Arden Group Inc. Class A | 1,616 | 147 |
Ingles Markets, Inc. | 8,645 | 143 |
Food Products (18.0%) | 25,067 | |
Archer-Daniels-Midland Co. | 54,986 | 1,744 |
General Mills, Inc. | 30,187 | 1,487 |
Sara Lee Corp. | 73,090 | 1,292 |
H.J. Heinz Co. | 32,278 | 1,222 |
Kellogg Co. | 25,513 | 1,130 |
ConAgra Foods, Inc. | 51,060 | 1,074 |
Wm. Wrigley Jr. Co. | 14,359 | 912 |
The Hershey Co. | 17,230 | 881 |
Kraft Foods Inc. | 25,837 | 777 |
Campbell Soup Co. | 23,511 | 732 |
Bunge Ltd. | 11,812 | 670 |
* Dean Foods Co. | 14,875 | 557 |
McCormick & Co., Inc. | 14,037 | 461 |
Tyson Foods, Inc. | 28,589 | 387 |
Hormel Foods Corp. | 10,181 | 351 |
* Smithfield Foods, Inc. | 12,344 | 326 |
J.M. Smucker Co. | 8,052 | 318 |
Del Monte Foods Co. | 28,903 | 314 |
Corn Products International, Inc. | 10,546 | 284 |
Flowers Foods, Inc. | 8,800 | 242 |
* Ralcorp Holdings, Inc. | 5,866 | 227 |
Lancaster Colony Corp. | 5,524 | 222 |
Pilgrim's Pride Corp. | 8,965 | 207 |
Delta & Pine Land Co. | 7,784 | 197 |
* Hain Celestial Group, Inc. | 8,336 | 195 |
* TreeHouse Foods Inc. | 8,379 | 189 |
Chiquita Brands International, Inc. | 10,772 | 186 |
Seaboard Corp. | 123 | 184 |
Tootsie Roll Industries, Inc. | 6,310 | 178 |
J & J Snack Foods Corp. | 4,763 | 162 |
Lance, Inc. | 7,398 | 161 |
* Peet's Coffee & Tea Inc. | 5,370 | 161 |
Sanderson Farms, Inc. | 6,412 | 150 |
Premium Standard Farms Inc. | 9,601 | 144 |
Alico, Inc. | 3,143 | 142 |
Farmer Brothers, Inc. | 6,497 | 141 |
* Gold Kist Inc. | 10,419 | 138 |
Household Products (22.6%) | 18,145 | |
The Procter & Gamble Co. | 259,143 | 15,530 |
Colgate-Palmolive Co. | 47,262 | 2,575 |
Kimberly-Clark Corp. | 42,553 | 2,518 |
The Clorox Co. | 15,021 | 916 |
* Energizer Holdings, Inc. | 7,390 | 404 |
Church & Dwight, Inc. | 9,103 | 314 |
* Central Garden and Pet Co. | 3,907 | 212 |
* Spectrum Brands Inc. | 9,931 | 189 |
WD-40 Co. | 5,369 | 164 |
Leisure Equipment & Products (0.0%) | 22,822 | |
* Revlon Inc.Rights Exp. 3/20/06 | 48,197 | 3 |
Personal Products (3.8%) | ||
Avon Products, Inc. | 44,101 | 1,272 |
Estee Lauder Cos. Class A | 13,880 | 519 |
Alberto-Culver Co. Class B | 9,445 | 431 |
* NBTY, Inc. | 10,603 | 232 |
* Herbalife Ltd. | 7,244 | 225 |
Nu Skin Enterprises, Inc. | 12,138 | 219 |
* Elizabeth Arden, Inc. | 7,375 | 180 |
* Chattem, Inc. | 4,535 | 177 |
* USANA Health Sciences, Inc. | 3,884 | 168 |
* Playtex Products, Inc. | 15,247 | 160 |
Mannatech, Inc. | 10,857 | 145 |
* Revlon, Inc. Class A | 39,697 | 134 |
Tobacco (13.1%) | 3,862 | |
Altria Group, Inc. | 147,985 | 10,640 |
Reynolds American Inc. | 8,794 | 933 |
UST, Inc. | 17,459 | 679 |
Carolina Group | 9,400 | 446 |
Universal Corp. (VA) | 5,223 | 212 |
Vector Group Ltd. | 8,815 | 164 |
Alliance One International, Inc. | 35,617 | 159 |
13,233 | ||
Total Common Stocks (Cost $96,647) | 100,934 |
18
Consumer Staples Index Fund
Shares | Market Value• ($000) | |
---|---|---|
Temporary Cash Investment (0.0%) | ||
1 Vanguard Market Liquidity Fund, 4.511% (Cost $12) | 11,513 | 12 |
Total Investments (100.0%) (Cost $96,659) | 100,946 | |
Other Assets and Liabilities (0.0%) | ||
Other Assets—Note B | 935 | |
Liabilities | (954) | |
(19) | ||
Net Assets (100%) | 100,927 |
At February 28, 2006, net assets consisted of:2
Amount ($000) | |
---|---|
Paid-in Capital | 97,082 |
Undistributed Net Investment Income | 220 |
Accumulated Net Realized Losses | (662) |
Unrealized Appreciation | 4,287 |
Net Assets | 100,927 |
Admiral Shares—Net Assets | |
Applicable to 154,528 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 4,332 |
Net Asset Value Per Share— | |
Admiral Shares | $28.03 |
VIPER Shares—Net Assets | |
Applicable to 1,700,000 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 96,595 |
Net Asset Value Per Share— | |
VIPER Shares | $56.82 |
• | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
1 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
2 | See Note C in Notes to Financial Statements for the tax-basis components of net assets. |
19
Consumer Staples Index Fund
Statement of Operations
Six Months Ended Feb. 28, 2006 | |
---|---|
($000) | |
Investment Income | |
Income | |
Dividends | 943 |
Interest1 | 1 |
Total Income | 944 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 6 |
Management and Administrative | |
Admiral Shares | 4 |
VIPER Shares | 79 |
Marketing and Distribution | |
Admiral Shares | 1 |
VIPER Shares | 13 |
Custodian Fees | 2 |
Shareholders' Reports | |
Admiral Shares | 1 |
VIPER Shares | 2 |
Total Expenses | 108 |
Net Investment Income | 836 |
Realized Net Gain (Loss) on | |
Investment Securities Sold | (653) |
Change in Unrealized Appreciation | |
(Depreciation) of Investment Securities | 2,184 |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 2,367 |
Statement of Changes in Net Assets
Six Months Ended Feb. 28, 2006 ($000) | Year Ended Aug. 31, 2005 ($000) | |
---|---|---|
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 836 | 652 |
Realized Net Gain (Loss) | (653) | (10) |
Change in Unrealized Appreciation (Depreciation) | 2,184 | 1,835 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 2,367 | 2,477 |
Distributions | ||
Net Investment Income | ||
Admiral Shares | (51) | (16) |
VIPER Shares | (1,055) | (341) |
Realized Capital Gain | ||
Admiral Shares | — | (4) |
VIPER Shares | — | (96) |
Total Distributions | (1,106) | (457) |
Capital Share Transactions—Note E | ||
Admiral Shares | 245 | 3,109 |
VIPER Shares | 22,553 | 49,996 |
Net Increase (Decrease) from Capital Share Transactions | 22,798 | 53,105 |
Total Increase (Decrease) | 24,059 | 55,125 |
Net Assets | ||
Beginning of Period | 76,868 | 21,743 |
End of Period2 | 100,927 | 76,868 |
1 | Interest income from an affiliated company of the fund was $1,000. |
2 | Including undistributed net investment income of $220,000 and $490,000. |
20
Consumer Staples Index Fund
Financial Highlights
Admiral Shares
For a Share Outstanding Throughout Each Period | Six Months Ended Feb. 28, 2006 | Year Ended Aug. 31, 2005 | Jan. 301 to Aug. 31, 2004 |
---|---|---|---|
Net Asset Value, Beginning of Period | $27.64 | $25.82 | $25.00 |
Investment Operations | |||
Net Investment Income | .2652 | .4272 | .24 |
Net Realized and Unrealized Gain (Loss) on Investments | .468 | 1.952 | .58 |
Total from Investment Operations | .733 | 2.379 | .82 |
Distributions | |||
Dividends from Net Investment Income | (.343) | (.440) | — |
Distributions from Realized Capital Gains | — | (.119) | — |
Total Distributions | (.343) | (.559) | — |
Net Asset Value, End of Period | $28.03 | $27.64 | $25.82 |
Total Return3 | 2.65% | 9.29% | 3.28% |
Ratios/Supplemental Data | |||
Net Assets, End of Period (Millions) | $4 | $4 | $1 |
Ratio of Total Expenses to Average Net Assets | 0.28%4 | 0.28% | 0.28%4 |
Ratio of Net Investment Income to Average Net Assets | 1.92%4 | 1.69% | 1.51%4 |
Portfolio Turnover Rate5 | 21%4 | 7% | 20% |
VIPER Shares
For a Share Outstanding Throughout Each Period | Six Months Ended Feb. 28, 2006 | Year Ended Aug. 31, 2005 | Jan. 261 to Aug. 31, 2004 |
---|---|---|---|
Net Asset Value, Beginning of Period | $56.03 | $52.28 | $50.84 |
Investment Operations | |||
Net Investment Income | .5402 | .9502 | .47 |
Net Realized and Unrealized Gain (Loss) on Investments | .953 | 3.894 | .97 |
Total from Investment Operations | 1.493 | 4.844 | 1.44 |
Distributions | |||
Dividends from Net Investment Income | (.703) | (.853) | — |
Distributions from Realized Capital Gains | — | (.241) | — |
Total Distributions | (.703) | (1.094) | — |
Net Asset Value, End of Period | $56.82 | $56.03 | $52.28 |
Total Return | 2.66% | 9.33% | 2.83% |
Ratios/Supplemental Data | |||
Net Assets, End of Period (Millions) | $97 | $73 | $21 |
Ratio of Total Expenses to Average Net Assets | 0.25%4 | 0.26% | 0.28%4 |
Ratio of Net Investment Income to Average Net Assets | 1.95%4 | 1.71% | 1.51%4 |
Portfolio Turnover Rate5 | 21%4 | 7% | 20% |
1 | Inception. |
2 | Calculated based on average shares outstanding. |
3 | Total returns do not reflect the 2% fee assessed on redemptions of shares held for less than one year. |
4 | Annualized. |
5 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including VIPER Creation Units. See accompanying Notes, which are an integral part of the Financial Statements. |
21
Consumer Staples Index Fund
Notes to Financial Statements
Vanguard Consumer Staples Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund files reports with the SEC under the company name Vanguard World Funds. The fund offers two classes of shares, Admiral Shares and VIPER Shares. Admiral Shares are available to any investor who meets the fund’s minimum purchase requirements. VIPER Shares are listed for trading on the American Stock Exchange; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. mutual funds. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset 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. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold. Fees assessed on redemptions of Admiral Shares are credited to paid-in capital.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. The Vanguard Group furnishes at cost investment advisory, 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 February 28, 2006, the fund had contributed capital of $11,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.01% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
C. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at August 31, 2005, the fund had available realized losses of $18,000 to offset future net capital gains through August 31, 2014. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2006; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2006, net unrealized appreciation of investment securities for tax purposes was $4,287,000, consisting of unrealized gains of $7,196,000 on securities that had risen in value since their purchase and $2,909,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2006, the fund purchased $31,904,000 of investment securities and sold $9,328,000 of investment securities, other than temporary cash investments.
E. Capital share transactions for each class of shares were (see table below):
Six Months Ended February 28, 2006 | Year Ended August 31, 2005 | |||
---|---|---|---|---|
Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | |
Admiral Shares | ||||
Issued | 843 | 30 | 3,792 | 140 |
Issued in Lieu of Cash Distributions | 50 | 2 | 12 | — |
Redeemed1 | (648) | (23) | (695) | (26) |
Net Increase (Decrease)—Admiral Shares | 245 | 9 | 3,109 | 114 |
VIPER Shares | ||||
Issued | 22,553 | 400 | 49,996 | 900 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | — | — | — | — |
Net Increase (Decrease)—VIPER Shares | 22,553 | 400 | 49,996 | 900 |
1 Net of redemption fees of $1,000 and $7,000.
22
Energy Index Fund
Fund Profile
As of February 28, 2006
Portfolio Characteristics | Fund | Target Index1 | Broad Index2 |
---|---|---|---|
Number of Stocks | 137 | 137 | 2,478 |
Median Market Cap | $34.8B | $39.0B | $30.6B |
Price/Earnings Ratio | 11.5x | 11.5x | 18.1x |
Price/Book Ratio | 3.0x | 3.0x | 2.9x |
Yield | 1.4% | 1.7% | |
Admiral Shares | 1.2% | ||
VIPER Shares | 1.2% | ||
Return on Equity | 19.4% | 20.1% | 17.3% |
Earnings Growth Rate | 23.5% | 23.2% | 14.0% |
Foreign Holdings | 0.1% | 0.0% | 0.0% |
Turnover Rate | 35%3 | — | — |
Expense Ratio | — | — | |
Admiral Shares | 0.28%3 | ||
VIPER Shares | 0.25%3 | ||
Short-Term Reserves | 0% | — | — |
Industry Diversification (% of portfolio) | |
---|---|
Coal & Consumable Fuels | 2% |
Integrated Oil & Gas | 47 |
Oil & Gas Drilling | 7 |
Oil & Gas Equipment & Services | 18 |
Oil & Gas Exploration & Production | 19 |
Oil & Gas Refining & Marketing | 4 |
Oil & Gas Storage & Transportation | 3 |
Ten Largest Holdings4 (% of total net assets) | |
---|---|
ExxonMobil Corp. | 20.1% |
Chevron Corp. | 11.7 |
ConocoPhillips Co. | 7.8 |
Schlumberger Ltd. | 6.5 |
Occidental Petroleum Corp. | 3.1 |
Burlington Resources, Inc. | 2.7 |
Halliburton Co. | 2.6 |
Valero Energy Corp. | 2.4 |
Marathon Oil Corp. | 2.0 |
Devon Energy Corp. | 1.9 |
Top Ten | 60.8% |
1 | MSCI US IMI/Consumer Discretionary. |
2 | MSCI US IMI/2500. |
3 | Annualized. |
4 | “Ten Largest Holdings” excludes any temporary cash investments and equity index products. |
23
Energy Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at www.vanguard.com.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): September 23, 2004–February 28, 2006
[Dark Gray] - Energy Index Fund VIPER Shares Net Asset Value
[Light gray] - MSCI US IMI/Energy
Average Annual Total Returns: Periods Ended December 31, 2005
This table presents average annual total returns through the latest calendar quarter—rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information.
Since | |||
---|---|---|---|
Inception Date | One Year | Inception | |
VIPER Shares | 9/23/2004 | ||
Market Price | 39.05% | 36.60% | |
Net Asset Value | 39.05 | 36.55 | |
Admiral Shares2 | 10/7/2004 | 38.97 | 31.76 |
1 | Six months ended February 28, 2006. |
2 | Total returns do not reflect the 2% fee assessed on redemptions of shares held less than one year. Note: See Financial Highlights tables on page 28 for dividend and capital gains information. |
24
Energy Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2006
The fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at www.sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Shares | Market Value• ($000) | |
---|---|---|
Common Stocks (99.9%) | ||
Energy Equipment & Services (25.6%) | ||
Oil & Gas Drilling (7.5%) | ||
* Transocean Inc. | 88,945 | 6,598 |
GlobalSantaFe Corp. | 64,189 | 3,552 |
* Nabors Industries, Inc. | 43,593 | 2,875 |
Noble Corp. | 36,271 | 2,681 |
ENSCO International, Inc. | 40,830 | 1,825 |
Diamond Offshore Drilling, Inc. | 19,360 | 1,498 |
* Pride International, Inc. | 43,367 | 1,343 |
Patterson-UTI Energy, Inc. | 45,681 | 1,259 |
Rowan Cos., Inc. | 28,711 | 1,156 |
Helmerich & Payne, Inc. | 15,812 | 1,040 |
* Unit Corp. | 12,586 | 669 |
Todco Class A | 17,647 | 592 |
* Atwood Oceanics, Inc. | 4,947 | 446 |
* Grey Wolf, Inc. | 54,294 | 377 |
* Parker Drilling Co. | 35,504 | 328 |
* Pioneer Drilling Co. | 15,969 | 230 |
Oil & Gas Equipment & Services (18.1%) | ||
Schlumberger Ltd. | 199,924 | 22,991 |
Halliburton Co. | 137,069 | 9,321 |
Baker Hughes, Inc. | 91,838 | 6,242 |
* Weatherford International Ltd. | 94,171 | 4,061 |
* National Oilwell Varco Inc. | 45,737 | 2,784 |
BJ Services Co. | 86,760 | 2,716 |
Smith International, Inc. | 56,992 | 2,207 |
* Grant Prideco, Inc. | 35,012 | 1,417 |
* Cooper Cameron Corp. | 30,415 | 1,232 |
* FMC Technologies Inc. | 18,794 | 882 |
Tidewater Inc. | 16,331 | 853 |
* Cal Dive International, Inc. | 21,944 | 773 |
* Maverick Tube Corp. | 15,316 | 713 |
* Superior Energy Services, Inc. | 19,687 | 512 |
* Core Laboratories NV | 11,075 | 508 |
* Veritas DGC Inc. | 11,882 | 501 |
* TETRA Technologies, Inc. | 12,540 | 472 |
* Lone Star Technologies, Inc. | 9,129 | 454 |
* Oil States International, Inc. | 13,114 | 453 |
* Universal Compression Holdings, Inc. | 10,128 | 443 |
* Oceaneering International, Inc. | 7,641 | 421 |
* W-H Energy Services, Inc. | 10,511 | 415 |
* Hydrill Co. | 5,429 | 366 |
* Hanover Compressor Co. | 23,211 | 355 |
* SEACOR Holdings Inc. | 4,527 | 330 |
* NS Group Inc. | 7,898 | 322 |
* Global Industries Ltd. | 23,851 | 303 |
CARBO Ceramics Inc. | 5,187 | 284 |
RPC Inc. | 12,610 | 267 |
Lufkin Industries | 4,957 | 257 |
* Dril-Quip, Inc. | 4,690 | 238 |
* Newpark Resources, Inc. | 31,517 | 235 |
* Gulfmark Offshore, Inc. | 7,005 | 192 |
* Hornbeck Offshore Services, Inc. | 5,516 | 177 |
* Bristow Group, Inc. | 5,788 | 173 |
* Input/Output, Inc. | 19,088 | 144 |
Oil, Gas & Consumable Fuels (74.3%) | 90,483 | |
Coal & Consumable Fuels (2.3%) | ||
Peabody Energy Corp. | 71,525 | 3,453 |
CONSOL Energy, Inc. | 25,926 | 1,660 |
Arch Coal, Inc. | 18,973 | 1,387 |
Massey Energy Co. | 19,959 | 742 |
Foundation Coal Holdings, Inc. | 12,223 | 489 |
USEC Inc. | 23,174 | 288 |
* James River Coal Co. | 6,402 | 231 |
Integrated Oil & Gas (46.2%) | ||
ExxonMobil Corp. | 1,195,140 | 70,955 |
Chevron Corp. | 731,306 | 41,304 |
ConocoPhillips Co. | 453,641 | 27,654 |
Occidental Petroleum Corp. | 121,416 | 11,114 |
Marathon Oil Corp. | 98,323 | 6,942 |
Amerada Hess Corp. | 22,293 | 3,083 |
Murphy Oil Corp. | 46,282 | 2,169 |
Oil & Gas Exploration & Production (18.6%) | ||
Burlington Resources, Inc. | 107,639 | 9,707 |
Devon Energy Corp. | 113,281 | 6,642 |
Apache Corp. | 87,650 | 5,866 |
Anadarko Petroleum Corp. | 59,020 | 5,852 |
EOG Resources, Inc. | 64,728 | 4,363 |
XTO Energy, Inc. | 93,926 | 3,935 |
Kerr-McGee Corp. | 30,193 | 2,950 |
Chesapeake Energy Corp. | 95,643 | 2,840 |
* Ultra Petroleum Corp. | 41,976 | 2,184 |
Noble Energy, Inc. | 47,103 | 1,980 |
Pioneer Natural Resources Co. | 37,238 | 1,567 |
* Southwestern Energy Co. | 44,500 | 1,428 |
* Newfield Exploration Co. | 32,844 | 1,269 |
Cimarex Energy Co. | 21,245 | 906 |
Range Resources Corp. | 37,205 | 890 |
* Denbury Resources, Inc. | 29,669 | 841 |
Plains Exploration & Production Co. | 19,490 | 794 |
Pogo Producing Co. | 15,576 | 777 |
* Forest Oil Corp. | 14,635 | 727 |
St. Mary Land & Exploration Co. | 18,359 | 705 |
Cabot Oil & Gas Corp. | 13,615 | 616 |
* Cheniere Energy, Inc. | 13,284 | 527 |
* KFX, Inc. | 22,823 | 477 |
* Quicksilver Resources, Inc. | 12,285 | 446 |
* Houston Exploration Co. | 7,385 | 427 |
Penn Virginia Corp. | 6,750 | 417 |
* Whiting Petroleum Corp. | 9,434 | 383 |
* KCS Energy, Inc. | 14,912 | 352 |
* Atlas America, Inc. | 5,232 | 350 |
* Encore Acquisition Co. | 11,282 | 346 |
* Bill Barrett Corp. | 10,389 | 344 |
* Comstock Resources, Inc. | 12,135 | 341 |
Berry Petroleum Class A | 4,652 | 314 |
* ATP Oil & Gas Corp. | 8,284 | 309 |
* Swift Energy Co. | 7,614 | 295 |
W&T Offshore, Inc. | 6,761 | 263 |
* Stone Energy Corp. | 6,323 | 262 |
* Warren Resources Inc. | 17,872 | 261 |
* Petrohawk Energy Corp. | 20,072 | 254 |
* Remington Oil & Gas Corp. | 6,043 | 253 |
* Delta Petroleum Corp. | 11,279 | 220 |
* Energy Partners, Ltd. | 9,250 | 213 |
* Carrizo Oil & Gas, Inc. | 9,066 | 211 |
* Petroleum Development Corp. | 4,368 | 188 |
25
Energy Index Fund
Shares | Market Value• ($000) | |
---|---|---|
* PetroQuest Energy, Inc. | 18,687 | 175 |
* Goodrich Petroleum Corp. | 6,907 | 167 |
* Brigham Exploration Co. | 19,103 | 164 |
Resource America, Inc. | 9,970 | 164 |
* Bois d'Arc Energy, Inc. | 10,037 | 151 |
* GeoGlobal Resources Inc. | 14,723 | 134 |
* The Meridian Resource Corp. | 23,111 | 98 |
* Harvest Natural Resources, Inc. | 10,307 | 93 |
* Endeavor International Corp. | 28,306 | 87 |
Oil & Gas Refining & Marketing (4.2%) | ||
Valero Energy Corp. | 157,286 | 8,460 |
Sunoco, Inc. | 35,679 | 2,644 |
Tesoro Petroleum Corp. | 18,239 | 1,102 |
Western Gas Resources, Inc. | 15,159 | 717 |
Frontier Oil Corp. | 14,276 | 660 |
Holly Corp. | 5,953 | 355 |
World Fuel Services Corp. | 10,163 | 308 |
* Giant Industries, Inc. | 4,980 | 290 |
* Syntroleum Corp. | 18,253 | 161 |
Oil & Gas Storage & Transportation (3.0%) | ||
Williams Cos., Inc. | 156,859 | 3,383 |
Kinder Morgan, Inc. | 31,165 | 2,891 |
El Paso Corp. | 181,999 | 2,381 |
* Kinder Morgan Management, LLC | 14,387 | 629 |
OMI Corp. | 21,350 | 374 |
Overseas Shipholding Group Inc. | 7,131 | 361 |
Crosstex Energy, Inc. | 2,904 | 231 |
General Maritime Corp. | 5,900 | 216 |
* Enbridge Energy Management LLC | 4,659 | 215 |
262,374 | ||
Total Investments (Cost $317,257) | 352,857 | |
Other Assets and Liabilities (0.1%) | ||
Other Assets—Note B | 8,003 | |
Payables for Investment Securities Purchased | (7,125) | |
Other Liabilities | (690) | |
188 | ||
Net Assets (100%) | 353,045 |
At February 28, 2006, net assets consisted of:1
Amount ($000) | |
---|---|
Paid-in Capital | 317,507 |
Undistributed Net Investment Income | 963 |
Accumulated Net Realized Losses | (1,025) |
Unrealized Appreciation | 35,600 |
Net Assets | 353,045 |
Admiral Shares—Net Assets | |
Applicable to 2,019,209 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 75,526 |
Net Asset Value Per Share— | |
Admiral Shares | $37.40 |
VIPER Shares—Net Assets | |
Applicable to 3,701,969 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 277,519 |
Net Asset Value Per Share— | |
VIPER Shares | $74.97 |
• | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
1 | See Note C in Notes to Financial Statements for the tax-basis components of net assets. |
26
Energy Index Fund
Statement of Operations
Six Months Ended Feb. 28, 2006 | |
---|---|
($000) | |
Investment Income | |
Income | |
Dividends | 2,068 |
Interest1 | 6 |
Total Income | 2,074 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 14 |
Management and Administrative | |
Admiral Shares | 68 |
VIPER Shares | 243 |
Marketing and Distribution | |
Admiral Shares | 13 |
VIPER Shares | — |
Custodian Fees | 9 |
Shareholders' Reports | |
Admiral Shares | 8 |
VIPER Shares | 8 |
Total Expenses | 363 |
Net Investment Income | 1,711 |
Realized Net Gain (Loss) on | |
Investment Securities Sold | 7,216 |
Change in Unrealized Appreciation | |
(Depreciation) of Investment Securities | (5,656) |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 3,271 |
Statement of Changes in Net Assets
Six Months Ended Feb. 28, 2006 ($000) | Sept. 23, 20042 to Aug. 31, 2005 ($000) | |
---|---|---|
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 1,711 | 2,036 |
Realized Net Gain (Loss) | 7,216 | 2,416 |
Change in Unrealized Appreciation (Depreciation) | (5,656) | 41,256 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 3,271 | 45,708 |
Distributions | ||
Net Investment Income | ||
Admiral Shares | (618) | (2) |
VIPER Shares | (2,034) | (130) |
Realized Capital Gain | ||
Admiral Shares | — | — |
VIPER Shares | — | — |
Total Distributions | (2,652) | (132) |
Capital Share Transactions—Note E | ||
Admiral Shares | 13,627 | 51,140 |
VIPER Shares | 96,522 | 145,561 |
Net Increase (Decrease) from Capital Share Transactions | 110,149 | 196,701 |
Total Increase (Decrease) | 110,768 | 242,277 |
Net Assets | ||
Beginning of Period | 242,277 | — |
End of Period3 | 353,045 | 242,277 |
1 | Interest income from an affiliated company of the fund was $6,000. |
2 | Inception. |
3 | Including undistributed net investment income of $963,000 and $1,904,000. |
27
Energy Index Fund
Financial Highlights
Admiral Shares
For a Share Outstanding Throughout Each Period | Six Months Ended Feb. 28, 2006 | Oct. 7, 20041 to Aug. 31, 2005 |
---|---|---|
Net Asset Value, Beginning of Period | $36.29 | $25.98 |
Investment Operations | ||
Net Investment Income | .212 | .5882,3 |
Net Realized and Unrealized Gain (Loss) on Investments | 1.25 | 9.833 |
Total from Investment Operations | 1.46 | 10.421 |
Distributions | ||
Dividends from Net Investment Income | (.35) | (.111) |
Distributions from Realized Capital Gains | — | — |
Total Distributions | (.35) | (.111) |
Net Asset Value, End of Period | $37.40 | $36.29 |
Total Return4 | 4.04% | 40.27% |
Ratios/Supplemental Data | ||
Net Assets, End of Period (Millions) | $76 | $60 |
Ratio of Total Expenses to Average Net Assets | 0.28%5 | 0.28%5 |
Ratio of Net Investment Income to Average Net Assets | 1.19%5 | 1.95%3,5 |
Portfolio Turnover Rate6 | 35%5 | 16% |
VIPER Shares
For a Share Outstanding Throughout Each Period | Six Months Ended Feb. 28, 2006 | Sept. 23, 20041 to Aug. 31, 2005 |
---|---|---|
Net Asset Value, Beginning of Period | $72.72 | $49.24 |
Investment Operations | ||
Net Investment Income | .4492 | 1.1692,7 |
Net Realized and Unrealized Gain (Loss) on Investments | 2.502 | 22.527 |
Total from Investment Operations | 2.951 | 23.696 |
Distributions | ||
Dividends from Net Investment Income | (.701) | (.216) |
Distributions from Realized Capital Gains | — | — |
Total Distributions | (.701) | (.216) |
Net Asset Value, End of Period | $74.97 | $72.72 |
Total Return | 4.07% | 48.29% |
Ratios/Supplemental Data | ||
Net Assets, End of Period (Millions) | $278 | $182 |
Ratio of Total Expenses to Average Net Assets | 0.25%5 | 0.26%5 |
Ratio of Net Investment Income to Average Net Assets | 1.22%5 | 1.97%5,7 |
Portfolio Turnover Rate6 | 35%5 | 16% |
1 | Inception. |
2 | Calculated based on average shares outstanding. |
3 | Net investment income per share and the ratio of net investment income to average net assets include $.163 and 0.52%, respectively, resulting from a cash payment received in connection with the merger of Chevron Corp. and Unocal Corp. in August 2005. |
4 | Total returns do not reflect the 2% fee assessed on redemptions of shares held for less than one year. |
5 | Annualized. |
6 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including VIPER Creation Units. |
7 | Net investment income per share and the ratio of net investment income to average net assets include $.324 and 0.52%, respectively, resulting from a cash payment received in connection with the merger of Chevron Corp. and Unocal Corp. in August 2005. See accompanying Notes, which are an integral part of the Financial Statements. |
28
Energy Index Fund
Notes to Financial Statements
Vanguard Energy Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund files reports with the SEC under the company name Vanguard World Funds. The fund offers two classes of shares, Admiral Shares and VIPER Shares. Admiral Shares are available to any investor who meets the fund’s minimum purchase requirements. VIPER Shares are listed for trading on the American Stock Exchange; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. mutual funds. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset 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. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold. Fees assessed on redemptions of Admiral Shares are credited to paid-in capital.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. The Vanguard Group furnishes at cost investment advisory, 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 February 28, 2006, the fund had contributed capital of $41,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.04% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
C. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
During the six months ended February 28, 2006, the fund realized $8,205,000 of net capital gains resulting from in-kind redemptions—in which shareholders exchanged fund shares for securities held by the fund rather than for cash. Because such gains are not taxable to the fund, and are not distributed to shareholders, they have been reclassified from accumulated net realized gains to paid-in capital.
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at August 31, 2005, the fund had available realized losses of $36,000 to offset future net capital gains of $5,000 through August 31, 2013, and $31,000 through August 31, 2014. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2006; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balances above.
At February 28, 2006, net unrealized appreciation of investment securities for tax purposes was $35,600,000, consisting of unrealized gains of $37,510,000 on securities that had risen in value since their purchase and $1,910,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2006, the fund purchased $187,904,000 of investment securities and sold $78,424,000 of investment securities, other than temporary cash investments.
E. Capital share transactions for each class of shares were (see table below):
Six Months Ended February 28, 2006 | September 23, 20041 to August 31, 2005 | |||
---|---|---|---|---|
Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | |
Admiral Shares | ||||
Issued | 18,492 | 492 | 53,398 | 1,741 |
Issued in Lieu of Cash Distributions | 548 | 15 | 2 | — |
Redeemed2 | (5,413) | (154) | (2,260) | (74) |
Net Increase (Decrease)—Admiral Shares | 13,627 | 353 | 51,140 | 1,667 |
VIPER Shares | ||||
Issued | 124,914 | 1,602 | 162,797 | 2,800 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (28,392) | (400) | (17,236) | (300) |
Net Increase (Decrease)—VIPER Shares | 96,522 | 1,202 | 145,561 | 2,500 |
1 | Inception. |
2 | Net of redemption fees of $89,000 and $46,000. |
29
Financials Index Fund
Fund Profile
As of February 28, 2006
Portfolio Characteristics | Fund | Target Index1 | Broad Index2 |
---|---|---|---|
Number of Stocks | 545 | 545 | 2,478 |
Median Market Cap | $29.0B | $29.0B | $30.6B |
Price/Earnings Ratio | 15.3x | 15.2x | 18.1x |
Price/Book Ratio | 2.0x | 2.0x | 2.9x |
Yield | 2.7% | 1.7% | |
Admiral Shares | 2.4% | ||
VIPER Shares | 2.4% | ||
Return on Equity | 15.8% | 15.8% | 17.3% |
Earnings Growth Rate | 12.9% | 12.9% | 14.0% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 7%3 | — | — |
Expense Ratio | — | — | |
Admiral Shares | 0.28%3 | ||
VIPER Shares | 0.25%3 | ||
Short-Term Reserves | 0% | — | — |
Industry Diversification (% of portfolio) | |
---|---|
Asset Management & Custody Banks | 5% |
Consumer Finance | 4 |
Diversified Banks | 15 |
Insurance Brokers | 1 |
Investment Banking & Brokerage | 9 |
Life & Health Insurance | 5 |
Multiline Insurance | 7 |
Other Diversified Financial Services | 12 |
Property & Casualty Insurance | 8 |
Real Estate Investment Trusts | 11 |
Real Estate Management & Development | 1 |
Regional Banks | 11 |
Reinsurance | 1 |
Specialized Finance | 2 |
Thrifts & Mortgage Finance | 8 |
Ten Largest Holdings4 (% of total net assets) | |
---|---|
Citigroup, Inc. | 7.5% |
Bank of America Corp. | 6.8 |
American International Group, Inc. | 4.7 |
JPMorgan Chase & Co. | 4.6 |
Wells Fargo & Co. | 3.5 |
Wachovia Corp. | 2.8 |
Merrill Lynch & Co., Inc. | 2.2 |
American Express Co. | 1.9 |
Morgan Stanley | 1.9 |
U.S. Bancorp | 1.8 |
Top Ten | 37.7% |
1 | MSCI US IMI/Financials. |
2 | MSCI US IMI/2500. |
3 | Annualized. |
4 | “Ten Largest Holdings” excludes any temporary cash investments and equity index products. |
30
Financials Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at www.vanguard.com.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): January 26, 2004–February 28, 2006
[Dark gray] - Financials Index Fund VIPER Shares Net Asset Value
[Light Gray] - MSCI US IMI/Financials
Average Annual Total Returns: Periods Ended December 31, 2005
This table presents average annual total returns through the latest calendar quarter—rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information.
Since | |||
---|---|---|---|
Inception Date | One Year | Inception | |
VIPER Shares | 1/26/2004 | ||
Market Price | 6.07% | 7.71% | |
Net Asset Value | 6.07 | 7.65 | |
Admiral Shares2 | 2/4/2004 | 6.04 | 8.70 |
1 | Six months ended February 28, 2006. |
2 | Reflective of the 2% fee assessed on redemptions of shares held less than one year. Note: See Financial Highlights tables on page 38 for dividend and capital gains information. |
31
Financials Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2006
The fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at www.sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Shares | Market Value• ($000) | |
---|---|---|
Common Stocks (100.1%) | ||
Capital Markets (14.0%) | ||
Merrill Lynch & Co., Inc. | 25,547 | 1,972 |
Morgan Stanley | 28,475 | 1,699 |
The Goldman Sachs Group, Inc. | 11,247 | 1,589 |
Lehman Brothers Holdings, Inc. | 6,763 | 987 |
The Bank of New York Co., Inc. | 22,609 | 774 |
State Street Corp. | 9,676 | 605 |
Charles Schwab Corp. | 32,325 | 524 |
Franklin Resources Corp. | 4,434 | 455 |
Mellon Financial Corp. | 12,280 | 443 |
Bear Stearns Co., Inc. | 3,160 | 425 |
Legg Mason Inc. | 3,078 | 402 |
Ameriprise Financial, Inc. | 6,607 | 300 |
* E*TRADE Financial Corp. | 10,980 | 281 |
Northern Trust Corp. | 5,146 | 271 |
T. Rowe Price Group Inc. | 3,454 | 265 |
TD Ameritrade Holding Corp. | 8,865 | 193 |
Janus Capital Group Inc. | 6,472 | 142 |
American Capital Strategies, Ltd. | 3,395 | 121 |
Allied Capital Corp. | 4,115 | 121 |
Nuveen Investments, Inc. Class A | 2,286 | 110 |
A.G. Edwards & Sons, Inc. | 2,242 | 100 |
Federated Investors, Inc. | 2,530 | 98 |
* Affiliated Managers Group, Inc. | 995 | 98 |
Eaton Vance Corp. | 3,236 | 91 |
Investors Financial Services Corp. | 1,916 | 86 |
Jefferies Group, Inc. | 1,439 | 82 |
SEI Investments Co. | 1,890 | 79 |
Raymond James Financial, Inc. | 1,634 | 70 |
BlackRock, Inc. | 429 | 61 |
Waddell & Reed Financial, Inc. | 2,478 | 58 |
* Investment Technology Group, Inc. | 1,192 | 54 |
* Knight Capital Group, Inc. Class A | 2,938 | 37 |
* Piper Jaffray Cos., Inc. | 586 | 29 |
Calamos Asset Management, Inc. | 661 | 25 |
* LaBranche & Co. Inc. | 1,657 | 23 |
MCG Capital Corp. | 1,430 | 22 |
optionsXpress Holdings Inc. | 718 | 22 |
Greenhill & Co., Inc. | 308 | 20 |
* GFI Group Inc. | 235 | 14 |
W.P. Stewart & Co., Ltd. | 610 | 12 |
SWS Group, Inc. | 434 | 11 |
Gamco Investors Inc. Class A | 184 | 8 |
Capital Southwest Corp. | 84 | 8 |
* MarketAxess Holdings, Inc. | 616 | 8 |
Cohen & Steers, Inc. | 313 | 6 |
Commercial Banks (26.5%) | 12,801 | |
Bank of America Corp. | 136,394 | 6,254 |
Wells Fargo & Co. | 49,116 | 3,153 |
Wachovia Corp. | 45,598 | 2,556 |
U.S. Bancorp | 53,427 | 1,651 |
SunTrust Banks, Inc. | 10,086 | 730 |
National City Corp. | 18,177 | 633 |
BB&T Corp. | 15,982 | 632 |
PNC Financial Services Group | 8,578 | 603 |
Fifth Third Bancorp | 13,833 | 535 |
KeyCorp | 11,990 | 447 |
Regions Financial Corp. | 12,765 | 444 |
North Fork Bancorp, Inc. | 13,974 | 357 |
AmSouth Bancorp | 10,251 | 284 |
Comerica, Inc. | 4,893 | 280 |
Marshall & Ilsley Corp. | 5,866 | 258 |
Zions Bancorp | 2,926 | 241 |
M & T Bank Corp. | 1,999 | 225 |
Synovus Financial Corp. | 7,356 | 209 |
Compass Bancshares Inc. | 3,470 | 174 |
Commerce Bancorp, Inc. | 4,843 | 161 |
Popular, Inc. | 7,739 | 158 |
Huntington Bancshares Inc. | 6,449 | 155 |
First Horizon National Corp. | 3,516 | 138 |
Mercantile Bankshares Corp. | 3,592 | 137 |
Associated Banc-Corp | 3,615 | 125 |
UnionBanCal Corp. | 1,706 | 118 |
TD Banknorth, Inc. | 3,621 | 111 |
Colonial BancGroup, Inc. | 4,045 | 102 |
City National Corp. | 1,225 | 93 |
Commerce Bancshares, Inc. | 1,751 | 90 |
TCF Financial Corp. | 3,497 | 89 |
Fulton Financial Corp. | 4,788 | 84 |
Bank of Hawaii Corp. | 1,504 | 80 |
Cullen/Frost Bankers, Inc. | 1,434 | 79 |
Wilmington Trust Corp. | 1,805 | 77 |
Valley National Bancorp | 3,107 | 75 |
Sky Financial Group, Inc. | 2,832 | 75 |
Whitney Holdings Corp. | 1,773 | 61 |
East West Bancorp, Inc. | 1,577 | 59 |
Westcorp, Inc. | 827 | 59 |
FirstMerit Corp. | 2,298 | 57 |
The South Financial Group, Inc. | 2,083 | 55 |
* SVB Financial Group | 1,018 | 52 |
Westamerica Bancorporation | 941 | 51 |
BancorpSouth, Inc. | 2,060 | 49 |
UCBH Holdings, Inc. | 2,686 | 48 |
Cathay General Bancorp | 1,306 | 47 |
Pacific Capital Bancorp | 1,275 | 46 |
First Midwest Bancorp, Inc. | 1,273 | 43 |
Old National Bancorp | 2,005 | 43 |
Trustmark Corp. | 1,410 | 43 |
Greater Bay Bancorp | 1,485 | 40 |
Chittenden Corp. | 1,385 | 40 |
United Bankshares, Inc. | 1,054 | 39 |
International Bancshares Corp. | 1,322 | 38 |
Texas Regional Bancshares, Inc. | 1,226 | 38 |
Wintrust Financial Corp. | 701 | 37 |
Park National Corp. | 329 | 35 |
Provident Bankshares Corp. | 941 | 34 |
Susquehanna Bancshares, Inc. | 1,406 | 34 |
Umpqua Holdings Corp. | 1,206 | 32 |
First Community Bancorp | 531 | 32 |
Hancock Holding Co. | 694 | 31 |
BOK Financial Corp. | 675 | 31 |
Sterling Financial Corp. | 1,051 | 30 |
Central Pacific Financial Co. | 822 | 30 |
First Citizens BancShares Class A | 159 | 30 |
32
Financials Index Fund
Shares | Market Value• ($000) | |
---|---|---|
UMB Financial Corp. | 438 | 30 |
Alabama National BanCorporation | 416 | 29 |
Citizens Banking Corp. | 1,058 | 28 |
Glacier Bancorp, Inc. | 881 | 28 |
CVB Financial Corp. | 1,660 | 28 |
TrustCo Bank NY | 2,175 | 27 |
United Community Banks, Inc. | 998 | 27 |
Boston Private Financial Holdings, Inc. | 886 | 27 |
First BanCorp Puerto Rico | 2,140 | 27 |
F.N.B. Corp. | 1,620 | 27 |
Republic Bancorp, Inc. | 2,179 | 26 |
* Signature Bank | 798 | 26 |
First Republic Bank | 686 | 25 |
Frontier Financial Corp. | 765 | 25 |
National Penn Bancshares Inc. | 1,150 | 24 |
First Commonwealth Financial Corp. | 1,775 | 24 |
S & T Bancorp, Inc. | 649 | 24 |
Sterling Bancshares, Inc. | 1,324 | 24 |
MB Financial, Inc. | 621 | 23 |
Chemical Financial Corp. | 695 | 22 |
First Charter Corp. | 912 | 22 |
Amcore Financial, Inc. | 724 | 22 |
NBT Bancorp, Inc. | 943 | 22 |
Hanmi Financial Corp. | 1,129 | 20 |
Westbanco Inc. | 619 | 20 |
Gold Banc Corp., Inc. | 1,065 | 19 |
PrivateBancorp, Inc. | 499 | 19 |
Community Banks, Inc. | 678 | 19 |
City Holding Co. | 517 | 19 |
Prosperity Bancshares, Inc. | 640 | 18 |
Mid-State Bancshares | 618 | 18 |
Capitol Bancorp Ltd. | 398 | 17 |
First Financial Bankshares, Inc. | 461 | 17 |
Unizan Financial Corp. | 587 | 16 |
Community Bank System, Inc. | 738 | 16 |
First Financial Bancorp | 923 | 16 |
IBERIABANK Corp. | 267 | 15 |
Harleysville National Corp. | 695 | 15 |
Independent Bank Corp. (MI) | 538 | 15 |
* Texas Capital Bancshares, Inc. | 670 | 14 |
Sandy Spring Bancorp, Inc. | 406 | 14 |
Old Second Bancorp, Inc. | 436 | 14 |
Sterling Financial Corp. (PA) | 671 | 14 |
Columbia Banking System, Inc. | 391 | 13 |
* Western Alliance Bancorp | 362 | 13 |
First Merchants Corp. | 493 | 13 |
Midwest Banc Holdings, Inc. | 492 | 13 |
Capital City Bank Group, Inc. | 353 | 12 |
Bank of the Ozarks, Inc. | 339 | 12 |
Main Street Banks, Inc. | 461 | 12 |
Independent Bank Corp. (MA) | 384 | 12 |
First Indiana Corp. | 418 | 12 |
Community Trust Bancorp Inc. | 355 | 11 |
West Coast Bancorp | 415 | 11 |
* BankFinancial Corp. | 675 | 11 |
Union Bankshares Corp. | 229 | 10 |
Irwin Financial Corp. | 515 | 10 |
Sterling Bancorp | 501 | 10 |
Washington Trust Bancorp, Inc. | 375 | 10 |
Suffolk Bancorp | 291 | 10 |
First Source Corp. | 371 | 10 |
Placer Sierra Bancshares | 372 | 10 |
Simmons First National Corp. | 336 | 10 |
Integra Bank Corp. | 438 | 9 |
Omega Financial Corp. | 287 | 9 |
Banner Corp. | 286 | 9 |
Seacoast Banking Corp. of Florida | 338 | 9 |
Tompkins Trustco, Inc. | 195 | 9 |
First Community Bancshares, Inc. | 276 | 9 |
Oriental Financial Group Inc. | 610 | 9 |
First Financial Corp. (IN) | 303 | 9 |
CoBiz Inc. | 436 | 8 |
S.Y. Bancorp, Inc. | 332 | 8 |
Great Southern Bancorp, Inc. | 292 | 8 |
Univest Corp. of Pennsylvania | 332 | 8 |
U.S.B. Holding Co., Inc. | 366 | 8 |
Renasant Corp. | 222 | 8 |
Peoples Bancorp, Inc. | 253 | 7 |
First Bancorp (NC) | 326 | 7 |
Arrow Financial Corp. | 248 | 7 |
Lakeland Bancorp, Inc. | 424 | 7 |
BancFirst Corp. | 77 | 7 |
Republic Bancorp, Inc. Class A | 288 | 6 |
First Oak Brook Bancshares, Inc. | 209 | 6 |
Financial Institutions, Inc. | 250 | 4 |
Royal Bancshares of Pennsylvania, Inc. | 178 | 4 |
Consumer Finance (3.9%) | 24,199 | |
American Express Co. | 32,802 | 1,767 |
Capital One Financial Corp. | 8,520 | 746 |
SLM Corp. | 12,255 | 691 |
* AmeriCredit Corp. | 3,983 | 118 |
The First Marblehead Corp. | 941 | 34 |
Student Loan Corp. | 120 | 26 |
Cash America International Inc. | 857 | 23 |
* Nelnet, Inc. | 513 | 21 |
* WFS Financial, Inc. | 230 | 19 |
Advanta Corp. Class B | 467 | 16 |
* CompuCredit Corp. | 423 | 16 |
Advance America Cash Advance Centers Inc. | 1,079 | 15 |
* World Acceptance Corp. | 459 | 12 |
* Collegiate Funding Services, Inc. | 357 | 7 |
Advanta Corp. Class A | 187 | 6 |
Diversified Financial Services (13.9%) | 3,517 | |
Citigroup, Inc. | 148,558 | 6,889 |
JPMorgan Chase & Co. | 102,751 | 4,227 |
Moody's Corp. | 7,370 | 494 |
The Chicago Mercantile Exchange | 1,013 | 431 |
CIT Group Inc. | 5,896 | 317 |
Leucadia National Corp. | 2,369 | 129 |
* Nasdaq Stock Market Inc. | 2,097 | 85 |
* International Securities Exchange, Inc. | 815 | 34 |
* Portfolio Recovery Associates, Inc. | 434 | 21 |
Financial Federal Corp. | 712 | 20 |
* Asset Acceptance Capital Corp. | 485 | 10 |
* Encore Capital Group, Inc. | 408 | 7 |
* eSPEED, Inc. Class A | 843 | 7 |
* Primus Guaranty, Ltd. | 330 | 4 |
Insurance (22.1%) | 12,675 | |
American International Group, Inc. | 64,790 | 4,299 |
Prudential Financial, Inc. | 14,822 | 1,142 |
MetLife, Inc. | 22,228 | 1,114 |
The Allstate Corp. | 18,087 | 991 |
The St. Paul Travelers, Cos. Inc. | 20,326 | 874 |
The Hartford Financial Services Group Inc. | 8,817 | 726 |
* Berkshire Hathaway Inc. Class B | 246 | 710 |
AFLAC Inc. | 14,698 | 680 |
Progressive Corp. of Ohio | 5,505 | 592 |
The Chubb Corp. | 5,868 | 562 |
ACE Ltd. | 9,462 | 527 |
Marsh & McLennan Cos., Inc. | 15,189 | 469 |
33
Financials Index Fund
Shares | Market Value• ($000) | |
---|---|---|
The Principal Financial Group, Inc. | 8,227 | 401 |
Genworth Financial Inc. | 11,238 | 358 |
Loews Corp. | 3,819 | 352 |
XL Capital Ltd. Class A | 5,131 | 347 |
Aon Corp. | 7,988 | 316 |
Lincoln National Corp. | 5,088 | 289 |
Jefferson-Pilot Corp. | 3,945 | 238 |
Ambac Financial Group, Inc. | 3,134 | 236 |
MBIA, Inc. | 3,928 | 231 |
Cincinnati Financial Corp. | 4,612 | 205 |
W.R. Berkley Corp. | 3,380 | 196 |
SAFECO Corp. | 3,667 | 189 |
Everest Re Group, Ltd. | 1,897 | 188 |
UnumProvident Corp. | 8,796 | 182 |
Fidelity National Financial, Inc. | 4,822 | 182 |
Torchmark Corp. | 3,065 | 168 |
Assurant, Inc. | 3,265 | 148 |
Old Republic International Corp. | 6,397 | 136 |
White Mountains Insurance Group Inc. | 222 | 123 |
* Conseco, Inc. | 4,409 | 110 |
Brown & Brown, Inc. | 3,459 | 108 |
HCC Insurance Holdings, Inc. | 3,266 | 105 |
Axis Capital Holdings Ltd. | 3,279 | 102 |
PartnerRe Ltd. | 1,667 | 101 |
First American Corp. | 2,382 | 100 |
Protective Life Corp. | 1,932 | 94 |
StanCorp Financial Group, Inc. | 1,623 | 88 |
RenaissanceRe Holdings Ltd. | 1,985 | 88 |
* Markel Corp. | 262 | 86 |
Arthur J. Gallagher & Co. | 2,774 | 82 |
Hanover Insurance Group Inc. | 1,573 | 76 |
Nationwide Financial Services, Inc. | 1,668 | 71 |
AmerUs Group Co. | 1,149 | 69 |
Unitrin, Inc. | 1,406 | 68 |
Mercury General Corp. | 1,109 | 62 |
* Philadelphia Consolidated Holding Corp. | 574 | 61 |
National Financial Partners Corp. | 987 | 58 |
Ohio Casualty Corp. | 1,872 | 57 |
* Covanta Holding Corp. | 3,129 | 54 |
American Financial Group, Inc. | 1,273 | 53 |
* Arch Capital Group Ltd. | 926 | 52 |
Endurance Specialty Holdings Ltd. | 1,648 | 52 |
Platinum Underwriters Holdings, Ltd. | 1,652 | 51 |
Zenith National Insurance Corp. | 955 | 49 |
Transatlantic Holdings, Inc. | 786 | 48 |
Selective Insurance Group | 848 | 46 |
* ProAssurance Corp. | 880 | 45 |
Delphi Financial Group, Inc. | 846 | 44 |
* Alleghany Corp. | 153 | 44 |
Erie Indemnity Co. Class A | 829 | 44 |
Aspen Insurance Holdings Ltd. | 1,803 | 42 |
Reinsurance Group of America, Inc. | 913 | 42 |
Montpelier Re Holdings Ltd. | 2,363 | 41 |
Assured Guaranty Ltd. | 1,517 | 40 |
The Phoenix Cos., Inc. | 2,650 | 38 |
IPC Holdings Ltd. | 1,440 | 38 |
Commerce Group, Inc. | 687 | 37 |
Hilb, Rogal and Hamilton Co. | 944 | 36 |
UICI | 960 | 35 |
LandAmerica Financial Group, Inc. | 516 | 34 |
R.L.I. Corp. | 625 | 33 |
* Argonaut Group, Inc. | 867 | 32 |
Max Re Capital Ltd. | 1,196 | 29 |
Scottish Re Group Ltd. | 1,122 | 28 |
Infinity Property & Casualty Corp. | 621 | 25 |
Horace Mann Educators Corp. | 1,279 | 24 |
Stewart Information Services Corp. | 519 | 24 |
* USI Holdings Corp. | 1,409 | 20 |
Fidelity National Title Group, Inc. Class A | 837 | 20 |
United Fire & Casualty Co. | 518 | 19 |
American Equity Investment Life Holding Co. | 1,372 | 18 |
Alfa Corp. | 1,129 | 18 |
* Navigators Group, Inc. | 352 | 17 |
* Universal American Financial Corp. | 1,029 | 16 |
Presidential Life Corp. | 622 | 14 |
National Western Life Insurance Co. Class A | 61 | 14 |
* United America Indemnity, Ltd. | 612 | 14 |
Safety Insurance Group, Inc. | 297 | 13 |
FBL Financial Group, Inc. Class A | 350 | 12 |
21st Century Insurance Group | 737 | 12 |
Midland Co. | 353 | 12 |
State Auto Financial Corp. | 337 | 11 |
* CNA Surety Corp. | 597 | 10 |
Harleysville Group, Inc. | 362 | 10 |
Odyssey Re Holdings Corp. | 415 | 10 |
* Quanta Capital Holdings Ltd. | 1,755 | 8 |
Bristol West Holdings, Inc. | 447 | 8 |
Direct General Corp. | 454 | 7 |
Baldwin & Lyons, Inc. Class B | 245 | 6 |
Clark, Inc. | 392 | 4 |
National Interstate Corp. | 166 | 4 |
PXRE Group Ltd. | 848 | 3 |
Crawford & Co. Class B | 346 | 2 |
Internet Software & Services (0.0%) | 20,219 | |
* HouseValues, Inc. | 361 | 5 |
IT Services (0.0%) | ||
* TNS Inc. | 607 | 10 |
Real Estate (11.4%) | ||
Simon Property Group, Inc.REIT | 6,267 | 520 |
Equity Residential REIT | 8,463 | 383 |
Equity Office Properties Trust REIT | 11,982 | 377 |
ProLogis REIT | 7,159 | 376 |
General Growth Properties Inc. REIT | 6,661 | 336 |
Vornado Realty Trust REIT | 3,715 | 331 |
Archstone-Smith Trust REIT | 6,233 | 295 |
Boston Properties, Inc. REIT | 3,304 | 280 |
Avalonbay Communities, Inc. REIT | 2,167 | 223 |
Kimco Realty Corp. REIT | 5,695 | 205 |
Plum Creek Timber Co. Inc. REIT | 5,393 | 200 |
Public Storage, Inc. REIT | 2,454 | 191 |
Host Marriott Corp. REIT | 9,832 | 191 |
Developers Diversified Realty Corp. REIT | 3,037 | 151 |
The Macerich Co. REIT | 2,041 | 147 |
Duke Realty Corp. REIT | 4,034 | 142 |
AMB Property Corp. REIT | 2,516 | 135 |
iStar Financial Inc. REIT | 3,315 | 126 |
* CB Richard Ellis Group, Inc. | 1,825 | 125 |
The St. Joe Co. | 2,087 | 125 |
Apartment Investment & Management Co. Class A REIT | 2,804 | 124 |
Regency Centers Corp. REIT | 1,926 | 124 |
Liberty Property Trust REIT | 2,572 | 115 |
Health Care Properties Investors REIT | 3,993 | 110 |
Federal Realty Investment Trust REIT | 1,546 | 108 |
SL Green Realty Corp. REIT | 1,232 | 107 |
34
Financials Index Fund
Shares | Market Value• ($000) | |
---|---|---|
United Dominion Realty Trust REIT | 3,991 | 107 |
Camden Property Trust REIT | 1,534 | 101 |
Reckson Associates Realty Corp. REIT | 2,445 | 100 |
Weingarten Realty Investors REIT | 2,512 | 99 |
Rayonier Inc. REIT | 2,242 | 97 |
Shurgard Storage Centers, Inc. Class A REIT | 1,444 | 93 |
Arden Realty Group, Inc. REIT | 1,980 | 90 |
Hospitality Properties Trust REIT | 2,003 | 89 |
Ventas, Inc. REIT | 2,748 | 85 |
Pan Pacific Retail Properties, Inc. REIT | 1,201 | 83 |
Mack-Cali Realty Corp. REIT | 1,827 | 82 |
BRE Properties Inc. Class A REIT | 1,486 | 81 |
Thornburg Mortgage, Inc. REIT | 3,056 | 79 |
Brandywine Realty Trust REIT | 2,612 | 77 |
New Plan Excel Realty Trust REIT | 3,041 | 76 |
CBL & Associates Properties, Inc. REIT | 1,786 | 75 |
Forest City Enterprise Class A | 1,859 | 75 |
CarrAmerica Realty Corp. REIT | 1,709 | 71 |
CenterPoint Properties Corp. REIT | 1,411 | 70 |
Jones Lang Lasalle Inc. | 1,032 | 70 |
Trizec Properties, Inc. REIT | 2,724 | 66 |
HRPT Properties Trust REIT | 6,092 | 65 |
CapitalSource Inc. REIT | 2,645 | 65 |
Mills Corp. REIT | 1,638 | 65 |
Kilroy Realty Corp. REIT | 861 | 64 |
Essex Property Trust, Inc. REIT | 638 | 64 |
Health Care Inc. REIT | 1,698 | 62 |
Crescent Real Estate, Inc. REIT | 2,845 | 60 |
Colonial Properties Trust REIT | 1,237 | 60 |
Taubman Co. REIT | 1,504 | 60 |
Alexandria Real Estate Equities, Inc. REIT | 660 | 58 |
New Century Financial Corp. REIT | 1,459 | 57 |
Realty Income Corp. REIT | 2,434 | 56 |
KKR Financial Corp. REIT | 2,362 | 54 |
Healthcare Realty Trust Inc. REIT | 1,425 | 53 |
Post Properties, Inc. REIT | 1,159 | 51 |
First Industrial Realty Trust REIT | 1,322 | 51 |
Sunstone Hotel Investors, Inc. REIT | 1,658 | 49 |
Corporate Office Properties Trust, Inc. REIT | 1,120 | 47 |
Friedman, Billings, Ramsey Group, Inc. REIT | 4,595 | 46 |
American Financial Realty Trust REIT | 3,851 | 46 |
Nationwide Health Properties, Inc. REIT | 2,019 | 45 |
LaSalle Hotel Properties REIT | 1,134 | 45 |
Maguire Properties, Inc. REIT | 1,311 | 44 |
Home Properties, Inc. REIT | 895 | 44 |
Highwood Properties, Inc. REIT | 1,358 | 44 |
Pennsylvania REIT | 1,081 | 44 |
Annaly Mortgage Management Inc. REIT | 3,612 | 42 |
Potlatch Corporation REIT | 1,120 | 41 |
Washington REIT | 1,213 | 41 |
American Home Mortgage Investment Corp. REIT | 1,368 | 39 |
BioMed Realty Trust, Inc. REIT | 1,380 | 38 |
Strategic Hotel Capital, Inc. REIT | 1,701 | 37 |
Senior Housing Properties Trust REIT | 1,952 | 35 |
Cousins Properties, Inc. REIT | 1,099 | 34 |
Commercial Net Lease Realty REIT | 1,475 | 34 |
Mid-America Apartment Communities, Inc. REIT | 615 | 33 |
* Trammell Crow Co. | 1,022 | 33 |
Lexington Corporate Properties Trust REIT | 1,507 | 32 |
U-Store-It Trust REIT | 1,404 | 31 |
Equity Lifestyle Properties, Inc. REIT | 643 | 31 |
Franklin Street Properties Corp. REIT | 1,490 | 30 |
Inland Real Estate Corp. REIT | 1,935 | 30 |
EastGroup Properties, Inc. REIT | 636 | 29 |
Tanger Factory Outlet Centers, Inc. REIT | 903 | 29 |
FelCor Lodging Trust, Inc. REIT | 1,455 | 29 |
Entertainment Properties Trust REIT | 696 | 29 |
Newcastle Investment Corp. REIT | 1,193 | 29 |
Glimcher Realty Trust REIT | 1,052 | 28 |
Spirit Finance Corp. REIT | 2,313 | 28 |
Global Signal, Inc. REIT | 594 | 28 |
Heritage Property Investment Trust REIT | 697 | 27 |
Redwood Trust, Inc. REIT | 644 | 27 |
Sovran Self Storage, Inc. REIT | 504 | 26 |
Trustreet Properties, Inc. REIT | 1,793 | 26 |
Equity Inns, Inc. REIT | 1,651 | 26 |
PS Business Parks, Inc. REIT | 480 | 26 |
Novastar Financial, Inc. REIT | 831 | 25 |
Longview Fibre Co. REIT | 1,329 | 25 |
Equity One, Inc. REIT | 1,109 | 25 |
* MeriStar Hospitality Corp.REIT | 2,382 | 25 |
RAIT Investment Trust REIT | 849 | 23 |
Innkeepers USA Trust REIT | 1,260 | 22 |
Omega Healthcare Investors, Inc. REIT | 1,642 | 21 |
Digital Realty Trust, Inc. REIT | 752 | 21 |
Town & Country Trust REIT | 512 | 21 |
Extra Space Storage Inc. REIT | 1,358 | 20 |
Highland Hospitality Corp. REIT | 1,583 | 20 |
Glenborough Realty Trust, Inc. REIT | 991 | 19 |
Impac Mortgage Holdings, Inc. REIT | 2,261 | 19 |
GMH Communities Trust REIT | 1,125 | 19 |
DiamondRock Hospitality Co. REIT | 1,446 | 19 |
First Potomac REIT | 615 | 18 |
National Health Investors REIT | 674 | 18 |
Parkway Properties Inc. REIT | 402 | 18 |
Fieldstone Investment Corp. REIT | 1,488 | 18 |
Sun Communities, Inc. REIT | 491 | 17 |
Anthracite Capital Inc. REIT | 1,576 | 17 |
Acadia Realty Trust REIT | 768 | 17 |
Deerfield Triarc Capital Corp. REIT | 1,271 | 17 |
MFA Mortgage Investments, Inc. REIT | 2,579 | 15 |
Getty Realty Holding Corp. REIT | 528 | 15 |
Gramercy Capital Corp. REIT | 537 | 14 |
Arbor Realty Trust, Inc. REIT | 517 | 14 |
Ramco-Gershenson Properties Trust REIT | 467 | 14 |
* Tejon Ranch Co. | 292 | 14 |
Saxon Inc. REIT | 1,345 | 13 |
Capital Trust Class A REIT | 384 | 13 |
Saul Centers, Inc. REIT | 326 | 13 |
Investors Real Estate Trust REIT | 1,336 | 13 |
Bedford Property Investors, Inc. REIT | 431 | 12 |
35
Financials Index Fund
Shares | Market Value• ($000) | |
---|---|---|
HomeBanc Corp. REIT | 1,275 | 11 |
Universal Health Realty Income REIT | 309 | 11 |
Education Realty Trust, Inc.REIT | 793 | 11 |
Anworth Mortgage Asset Corp. REIT | 1,418 | 11 |
MortgageIT Holdings Inc. REIT | 752 | 9 |
Urstadt Biddle Properties Class A REIT | 510 | 9 |
Luminent Mortgage Capital, Inc. REIT | 1,075 | 8 |
Affordable Residential Communities REIT | 781 | 7 |
Capital Lease Funding, Inc.REIT | 663 | 7 |
Aames Investment Corp. REIT | 1,159 | 7 |
Urstadt Biddle Properties REIT | 123 | 2 |
Thrifts & Mortgage Finance (8.3%) | 10,367 | |
Fannie Mae | 28,411 | 1,554 |
Freddie Mac | 20,312 | 1,369 |
Washington Mutual, Inc. | 28,786 | 1,229 |
Countrywide Financial Corp. | 17,552 | 605 |
Golden West Financial Corp. | 7,657 | 544 |
Sovereign Bancorp, Inc. | 10,601 | 221 |
Hudson City Bancorp, Inc. | 16,737 | 216 |
MGIC Investment Corp. | 2,733 | 174 |
Radian Group, Inc. | 2,477 | 141 |
New York Community Bancorp, Inc. | 7,179 | 121 |
The PMI Group Inc. | 2,668 | 116 |
Independence Community Bank Corp. | 2,179 | 89 |
Astoria Financial Corp. | 2,869 | 82 |
Webster Financial Corp. | 1,559 | 74 |
IndyMac Bancorp, Inc. | 1,873 | 73 |
Washington Federal Inc. | 2,567 | 61 |
People's Bank | 1,657 | 51 |
NewAlliance Bancshares, Inc. | 3,385 | 48 |
Fremont General Corp. | 1,961 | 47 |
First Niagara Financial Group, Inc. | 3,139 | 44 |
Downey Financial Corp. | 602 | 38 |
MAF Bancorp, Inc. | 846 | 36 |
Provident Financial Services Inc. | 1,927 | 36 |
Doral Financial Corp. | 2,628 | 29 |
Corus Bankshares Inc. | 478 | 29 |
* First Federal Financial Corp. | 478 | 29 |
BankUnited Financial Corp. | 957 | 27 |
W Holding Co., Inc. | 3,262 | 26 |
Brookline Bancorp, Inc. | 1,723 | 26 |
* Accredited Home Lenders Holding Co. | 466 | 25 |
Harbor Florida Bancshares, Inc. | 589 | 22 |
Capitol Federal Financial | 659 | 22 |
Bank Mutual Corp. | 1,869 | 21 |
Fidelity Bankshares, Inc. | 657 | 21 |
Commercial Capital Bancorp, Inc. | 1,336 | 19 |
BankAtlantic Bancorp, Inc.Class A | 1,345 | 18 |
PFF Bancorp, Inc. | 581 | 18 |
Anchor Bancorp Wisconsin Inc. | 553 | 17 |
TierOne Corp. | 488 | 16 |
Partners Trust Financial Group, Inc. | 1,324 | 16 |
Flagstar Bancorp, Inc. | 1,002 | 15 |
Provident New York Bancorp, Inc. | 1,211 | 14 |
Northwest Bancorp, Inc. | 590 | 13 |
KNBT Bancorp Inc. | 836 | 13 |
* Triad Guaranty, Inc. | 268 | 12 |
* Franklin Bank Corp. | 705 | 12 |
Dime Community Bancshares | 868 | 12 |
First Financial Holdings, Inc. | 340 | 11 |
WSFS Financial Corp. | 175 | 11 |
CityBank Lynnwood (WA) | 240 | 10 |
* Ocwen Financial Corp. | 1,031 | 10 |
NetBank, Inc. | 1,289 | 10 |
United Community Financial Corp. | 777 | 10 |
R & G Financial Corp. Class B | 784 | 9 |
First Busey Corp. | 439 | 9 |
First Place Financial Corp. | 354 | 8 |
Kearny Financial Corp. | 631 | 8 |
Federal Agricultural Mortgage Corp. Class C | 260 | 8 |
Flushing Financial Corp. | 463 | 8 |
* ITLA Capital Corp. | 164 | 8 |
OceanFirst Financial Corp. | 268 | 6 |
Clifton Savings Bancorp, Inc. | 488 | 5 |
Charter Financial Corp. | 105 | 4 |
7,576 | ||
Total Common Stocks (Cost $85,013) | 91,369 | |
Temporary Cash Investments (0.1%) | ||
1 Vanguard Market Liquidity Fund, 4.511% (Cost $100) | 100,050 | 100 |
Total Investments (100.2%) (Cost $85,113) | 91,469 | |
Other Assets and Liabilities (-0.2%) | ||
Other Assets—Note B | 430 | |
Liabilities | (568) | |
(138) | ||
Net Assets (100%) | 91,331 |
At February 28, 2006, net assets consisted of:2
Amount ($000) | |
---|---|
Paid-in Capital | 84,695 |
Undistributed Net Investment Income | 242 |
Accumulated Net Realized Gains | 38 |
Unrealized Appreciation | 6,356 |
Net Assets | 91,331 |
Admiral Shares—Net Assets | |
Applicable to 153,344 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 4,453 |
Net Asset Value Per Share— | |
Admiral Shares | $29.04 |
VIPER Shares—Net Assets | |
Applicable to 1,500,000 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 86,878 |
Net Asset Value Per Share— | |
VIPER Shares | $57.92 |
• | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
1 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
2 | See Note C in Notes to Financial Statements for the tax-basis components of net assets. REIT—Real Estate Investment Trust. |
36
Financials Index Fund
Statement of Operations
Six Months Ended Feb. 28, 2006 | |
---|---|
($000) | |
Investment Income | |
Income | |
Dividends | 849 |
Interest1 | 1 |
Total Income | 850 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 4 |
Management and Administrative | |
Admiral Shares | 4 |
VIPER Shares | 53 |
Marketing and Distribution | |
Admiral Shares | — |
VIPER Shares | 9 |
Custodian Fees | 11 |
Shareholders' Reports | |
Admiral Shares | — |
VIPER Shares | 2 |
Total Expenses | 83 |
Net Investment Income | 767 |
Realized Net Gain (Loss) on | |
Investment Securities Sold | 104 |
Change in Unrealized Appreciation | |
(Depreciation) of Investment Securities | 6,064 |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 6,935 |
Statement of Changes in Net Assets
Six Months Ended Feb. 28, 2006 ($000) | Year Ended Aug. 31, 2005 ($000) | |
---|---|---|
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 767 | 749 |
Realized Net Gain (Loss) | 104 | (71) |
Change in Unrealized Appreciation (Depreciation) | 6,064 | 565 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 6,935 | 1,243 |
Distributions | ||
Net Investment Income | ||
Admiral Shares | (43) | (31) |
VIPER Shares | (726) | (764) |
Realized Capital Gain | ||
Admiral Shares | — | — |
VIPER Shares | — | — |
Total Distributions | (769) | (795) |
Capital Share Transactions—Note E | ||
Admiral Shares | 858 | 2,331 |
VIPER Shares | 28,559 | 31,975 |
Net Increase (Decrease) from Capital Share Transactions | 29,417 | 34,306 |
Total Increase (Decrease) | 35,583 | 34,754 |
Net Assets | ||
Beginning of Period | 55,748 | 20,994 |
End of Period2 | 91,331 | 55,748 |
1 | Interest income from an affiliated company of the fund was $1,000. |
2 | Including undistributed net investment income of $242,000 and $244,000. |
37
Financials Index Fund
Financial Highlights
Admiral Shares
For a Share Outstanding Throughout Each Period | Six Months Ended Feb. 28, 2006 | Year Ended Aug. 31, 2005 | Feb. 41 to Aug. 31, 2004 |
---|---|---|---|
Net Asset Value, Beginning of Period | $26.36 | $25.35 | $24.90 |
Investment Operations | |||
Net Investment Income | .3252 | .6602 | .31 |
Net Realized and Unrealized Gain (Loss) on Investments | 2.693 | 1.086 | .14 |
Total from Investment Operations | 3.018 | 1.746 | .45 |
Distributions | |||
Dividends from Net Investment Income | (.338) | (.736) | — |
Distributions from Realized Capital Gains | — | — | — |
Total Distributions | (.338) | (.736) | — |
Net Asset Value, End of Period | $29.04 | $26.36 | $25.35 |
Total Return3 | 11.53% | 6.88% | 1.81% |
Ratios/Supplemental Data | |||
Net Assets, End of Period (Millions) | $4 | $3 | $1 |
Ratio of Total Expenses to Average Net Assets | 0.28%4 | 0.28% | 0.28%4 |
Ratio of Net Investment Income to Average Net Assets | 2.44%4 | 2.59% | 2.38%4 |
Portfolio Turnover Rate5 | 7%4 | 6% | 9% |
VIPER Shares
For a Share Outstanding Throughout Each Period | Six Months Ended Feb. 28, 2006 | Year Ended Aug. 31, 2005 | Jan. 261 to Aug. 31, 2004 |
---|---|---|---|
Net Asset Value, Beginning of Period | $52.57 | $50.57 | $50.51 |
Investment Operations | |||
Net Investment Income | .6252 | 1.3162 | .70 |
Net Realized and Unrealized Gain (Loss) on Investments | 5.409 | 2.160 | (.64) |
Total from Investment Operations | 6.034 | 3.476 | .06 |
Distributions | |||
Dividends from Net Investment Income | (.684) | (1.476) | — |
Distributions from Realized Capital Gains | — | — | — |
Total Distributions | (.684) | (1.476) | — |
Net Asset Value, End of Period | $57.92 | $52.57 | $50.57 |
Total Return | 11.56% | 6.85% | 0.12% |
Ratios/Supplemental Data | |||
Net Assets, End of Period (Millions) | $87 | $53 | $20 |
Ratio of Total Expenses to Average Net Assets | 0.25%4 | 0.26% | 0.28%4 |
Ratio of Net Investment Income to Average Net Assets | 2.47%4 | 2.61% | 2.38%4 |
Portfolio Turnover Rate5 | 7%4 | 6% | 9% |
1 | Inception. |
2 | Calculated based on average shares outstanding. |
3 | Total returns do not reflect the 2% fee assessed on redemptions of shares held for less than one year. |
4 | Annualized. |
5 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including VIPER Creation Units. See accompanying Notes, which are an integral part of the Financial Statements. |
38
Financials Index Fund
Notes to Financial Statements
Vanguard Financials Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund files reports with the SEC under the company name Vanguard World Funds. The fund offers two classes of shares, Admiral Shares and VIPER Shares. Admiral Shares are available to any investor who meets the fund’s minimum purchase requirements. VIPER Shares are listed for trading on the American Stock Exchange; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. mutual funds. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset 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. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold. Fees assessed on redemptions of Admiral Shares are credited to paid-in capital.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. The Vanguard Group furnishes at cost investment advisory, 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 February 28, 2006, the fund had contributed capital of $11,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.01% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
C. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at August 31, 2005, the fund had available realized losses of $92,000 to offset future net capital gains through August 31, 2014. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2006; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2006, net unrealized appreciation of investment securities for tax purposes was $6,356,000, consisting of unrealized gains of $7,440,000 on securities that had risen in value since their purchase and $1,084,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2006, the fund purchased $32,009,000 of investment securities and sold $2,366,000 of investment securities, other than temporary cash investments.
E. Capital share transactions for each class of shares were (see table below):
Six Months Ended February 28, 2006 | Year Ended August 31, 2005 | |||
---|---|---|---|---|
Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | |
Admiral Shares | ||||
Issued | 2,142 | 79 | 2,636 | 102 |
Issued in Lieu of Cash Distributions | 43 | 2 | 31 | 1 |
Redeemed1 | (1,327) | (48) | (336) | (13) |
Net Increase (Decrease)—Admiral Shares | 858 | 33 | 2,331 | 90 |
VIPER Shares | ||||
Issued | 28,559 | 500 | 31,975 | 600 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | — | — | — | — |
Net Increase (Decrease)—VIPER Shares | 28,559 | 500 | 31,975 | 600 |
1 Net of redemption fees of $25,000 and $0.
39
Health Care Index Fund
Fund Profile
As of February 28, 2006
Portfolio Characteristics | Fund | Target Index1 | Broad Index2 |
---|---|---|---|
Number of Stocks | 287 | 287 | 2,478 |
Median Market Cap | $50.4B | $50.4B | $30.6B |
Price/Earnings Ratio | 23.8x | 23.8x | 18.1x |
Price/Book Ratio | 4.1x | 4.1x | 2.9x |
Yield | 1.3% | 1.7% | |
Admiral Shares | 1.0% | ||
VIPER Shares | 1.1% | ||
Return on Equity | 21.8% | 21.9% | 17.3% |
Earnings Growth Rate | 16.1% | 16.1% | 14.0% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 13%3 | — | — |
Expense Ratio | — | — | |
Admiral Shares | 0.28%3 | ||
VIPER Shares | 0.25%3 | ||
Short-Term Reserves | 0% | — | — |
Industry Diversification (% of portfolio) | |
---|---|
Biotechnology | 16% |
Health Care Distributors | 4 |
Health Care Equipment | 16 |
Health Care Facilities | 3 |
Health Care Services | 7 |
Health Care Supplies | 1 |
Managed Health Care | 11 |
Pharmaceuticals | 42 |
Ten Largest Holdings4 (% of total net assets) | |
---|---|
Pfizer Inc. | 10.3% |
Johnson & Johnson | 9.2 |
Amgen, Inc. | 5.0 |
UnitedHealth Group Inc. | 4.2 |
Merck & Co., Inc. | 4.1 |
Abbott Laboratories | 3.7 |
Wyeth | 3.6 |
Medtronic, Inc. | 3.5 |
Eli Lilly & Co. | 3.0 |
WellPoint Inc. | 2.7 |
Top Ten | 49.3% |
1 | MSCI US IMI/Health Care. |
2 | MSCI US IMI/2500. |
3 | Annualized. |
4 | “Ten Largest Holdings” excludes any temporary cash investments and equity index products. |
40
Health Care Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at www.vanguard.com.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): January 26, 2004–February 28, 2006
[Dark Gray] - Health Care Index Fund VIPER Shares Net Asset Value
[Light Gray] - MSCI US IMI/Health Care
Average Annual Total Returns: Periods Ended December 31, 2005
This table presents average annual total returns through the latest calendar quarter—rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information.
Since | |||
---|---|---|---|
Inception Date | One Year | Inception | |
VIPER Shares | 1/26/2004 | ||
Market Price | 8.14% | 4.02% | |
Net Asset Value | 8.24 | 4.00 | |
Admiral Shares2 | 2/5/2004 | 8.21 | 3.97 |
1 | Six months ended February 28, 2006. |
2 | Total returns do no reflect the 2% fee assessed on redemptions of shares held less than one year. Note: See Financial Highlights tables on page 46 for dividend and capital gains information. |
41
Health Care Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2006
The fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at www.sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Shares | Market Value• ($000) | |
---|---|---|
Common Stocks (100.1%) | ||
Biotechnology (16.4%) | ||
* Amgen, Inc. | 265,308 | 20,028 |
* Genentech, Inc. | 102,016 | 8,742 |
* Gilead Sciences, Inc. | 98,445 | 6,130 |
* Genzyme Corp. | 55,564 | 3,853 |
* Biogen Idec Inc. | 73,045 | 3,451 |
* Celgene Corp. | 72,968 | 2,773 |
* MedImmune Inc. | 52,935 | 1,932 |
* Chiron Corp. | 25,238 | 1,153 |
Applera Corp.- Applied Biosystems Group | 40,374 | 1,141 |
* Cephalon, Inc. | 12,524 | 995 |
* Vertex Pharmaceuticals, Inc. | 21,399 | 925 |
* Amylin Pharmaceuticals, Inc. | 20,054 | 870 |
* Invitrogen Corp. | 11,342 | 804 |
* Charles River Laboratories, Inc. | 14,801 | 716 |
* Millennium Pharmaceuticals, Inc. | 66,255 | 694 |
* PDL BioPharma Inc. | 21,840 | 684 |
* ImClone Systems, Inc. | 14,341 | 551 |
* Neurocrine Biosciences, Inc. | 8,012 | 526 |
* Affymetrix, Inc. | 14,104 | 501 |
* Alkermes, Inc. | 19,678 | 500 |
* Techne Corp. | 7,838 | 466 |
* OSI Pharmaceuticals, Inc. | 12,054 | 392 |
* Abgenix, Inc. | 17,589 | 391 |
* Nektar Therapeutics | 18,608 | 389 |
* Medarex, Inc. | 22,639 | 334 |
* Human Genome Sciences, Inc. | 25,265 | 316 |
* ICOS Corp. | 13,087 | 316 |
* United Therapeutics Corp. | 4,627 | 285 |
* CV Therapeutics, Inc. | 9,591 | 258 |
* Cubist Pharmaceuticals, Inc. | 11,396 | 252 |
* Onyx Pharmaceuticals, Inc. | 8,721 | 249 |
* Alexion Pharmaceuticals, Inc. | 6,573 | 247 |
* Telik, Inc. | 11,134 | 246 |
* Theravance, Inc. | 8,378 | 235 |
* Martek Biosciences Corp. | 6,895 | 235 |
* Myogen, Inc. | 5,815 | 220 |
* Myriad Genetics, Inc. | 8,426 | 216 |
* BioMarin Pharmaceutical Inc. | 15,791 | 207 |
* Illumina, Inc. | 7,892 | 201 |
* Exelixis, Inc. | 17,025 | 185 |
* Applera Corp.-Celera Genomics Group | 15,819 | 182 |
* Digene Corp. | 4,316 | 179 |
* Regeneron Pharmaceuticals, Inc. | 10,451 | 171 |
* Serologicals Corp. | 6,749 | 163 |
* Zymogenetics, Inc. | 7,042 | 156 |
* NPS Pharmaceuticals Inc. | 10,030 | 154 |
* Progenics Pharmaceuticals, Inc. | 4,386 | 129 |
* Geron Corp. | 13,741 | 123 |
* Keryx Biopharmaceuticals, Inc. | 6,956 | 119 |
* Isis Pharmaceuticals, Inc. | 14,330 | 115 |
* InterMune Inc. | 5,990 | 114 |
* Encysive Pharmaceuticals, Inc. | 12,540 | 114 |
* Tanox, Inc. | 5,773 | 110 |
* MannKind Corp. | 5,988 | 104 |
Cambrex Corp. | 5,397 | 100 |
* Idenix Pharmaceuticals Inc. | 4,829 | 99 |
* deCODE genetics, Inc. | 10,121 | 95 |
* Incyte Corp. | 16,151 | 95 |
* Momenta Pharmaceuticals, Inc. | 3,970 | 95 |
* ARIAD Pharmaceuticals, Inc. | 13,189 | 89 |
* Pharmion Corp. | 5,210 | 86 |
* Enzo Biochem, Inc. | 5,957 | 78 |
* Dendreon Corp. | 14,842 | 72 |
* Cell Genesys, Inc. | 9,780 | 69 |
* Threshold Pharmaceuticals, Inc. | 4,453 | 67 |
* Panacos Pharmaceuticals Inc. | 8,762 | 64 |
* Enzon Pharmaceuticals, Inc. | 9,411 | 64 |
* NeoPharm, Inc. | 5,233 | 53 |
* Nabi Biopharmaceuticals | 12,739 | 52 |
* Rigel Pharmaceuticals, Inc. | 4,998 | 47 |
* Diversa Corp. | 5,842 | 46 |
* Albany Molecular Research, Inc. | 4,500 | 45 |
* Lexicon Genetics Inc. | 10,388 | 43 |
* ImmunoGen, Inc. | 8,857 | 40 |
* Maxygen Inc. | 5,065 | 39 |
* Antigenics, Inc. | 6,068 | 37 |
* Trimeris, Inc. | 2,710 | 34 |
* GTx, Inc. | 2,818 | 30 |
Health Care Equipment & Supplies (17.8%) | 66,081 | |
Medtronic, Inc. | 260,214 | 14,039 |
Guidant Corp. | 71,365 | 5,478 |
Baxter International, Inc. | 133,937 | 5,070 |
* Zimmer Holdings, Inc. | 53,284 | 3,686 |
* St. Jude Medical, Inc. | 78,410 | 3,576 |
Becton, Dickinson & Co. | 53,326 | 3,405 |
* Boston Scientific Corp. | 132,102 | 3,226 |
Stryker Corp. | 56,656 | 2,619 |
Biomet, Inc. | 50,928 | 1,854 |
* Fisher Scientific International Inc. | 26,363 | 1,797 |
* Varian Medical Systems, Inc. | 28,143 | 1,629 |
C.R. Bard, Inc. | 22,530 | 1,475 |
* Hospira, Inc. | 32,940 | 1,308 |
* Thermo Electron Corp. | 34,966 | 1,211 |
* Waters Corp. | 23,661 | 1,011 |
DENTSPLY International Inc. | 16,132 | 919 |
Bausch & Lomb, Inc. | 11,601 | 803 |
* Millipore Corp. | 11,270 | 781 |
Beckman Coulter, Inc. | 13,410 | 723 |
* Cytyc Corp. | 24,595 | 709 |
* Inamed Corp. | 7,844 | 694 |
* Intuitive Surgical, Inc. | 7,209 | 650 |
PerkinElmer, Inc. | 26,571 | 632 |
Dade Behring Holdings Inc. | 17,129 | 625 |
* Advanced Medical Optics, Inc. | 14,010 | 623 |
* ResMed Inc. | 15,351 | 623 |
Hillenbrand Industries, Inc. | 11,793 | 600 |
* Respironics, Inc. | 15,511 | 564 |
* Gen-Probe Inc. | 10,981 | 549 |
* IDEXX Laboratories Corp. | 6,960 | 547 |
* Edwards Lifesciences Corp. | 12,735 | 527 |
Cooper Cos., Inc. | 8,916 | 468 |
* Hologic, Inc. | 9,378 | 449 |
STERIS Corp. | 14,632 | 362 |
Mentor Corp. | 8,326 | 358 |
* Kinetic Concepts, Inc. | 8,938 | 332 |
* Sybron Dental Specialties, Inc. | 8,599 | 329 |
* Haemonetics Corp. | 5,626 | 291 |
* American Medical Systems Holdings, Inc. | 13,322 | 289 |
42
Health Care Index Fund
Shares | Market Value• ($000) | |
---|---|---|
* Immucor Inc. | 9,641 | 287 |
* Varian, Inc. | 6,813 | 272 |
* Intermagnetics General Corp. | 9,129 | 269 |
* Ventana Medical Systems, Inc. | 6,960 | 252 |
* Dionex Corp. | 4,372 | 240 |
* ArthroCare Corp. | 5,256 | 237 |
Diagnostic Products Corp. | 4,752 | 219 |
* Kyphon Inc. | 5,990 | 214 |
West Pharmaceutical Services, Inc. | 6,496 | 210 |
PolyMedica Corp. | 5,171 | 209 |
* Bio-Rad Laboratories, Inc. Class A | 3,637 | 208 |
* Viasys Healthcare Inc. | 6,782 | 198 |
Invacare Corp. | 6,295 | 197 |
* Biosite Inc. | 3,303 | 179 |
* Thoratec Corp. | 8,449 | 170 |
* Integra LifeSciences Holdings | 4,105 | 164 |
* DJ Orthopedics Inc. | 4,644 | 162 |
* LifeCell Corp. | 6,950 | 153 |
* Inverness Medical Innovations, Inc. | 5,319 | 141 |
Analogic Corp. | 2,555 | 138 |
* SonoSite, Inc. | 3,383 | 137 |
Arrow International, Inc. | 4,402 | 136 |
* SurModics, Inc. | 3,406 | 132 |
* Conor Medsystems, Inc. | 5,103 | 131 |
* Orthofix International NV | 3,100 | 129 |
* Cyberonics, Inc. | 4,617 | 125 |
* Wright Medical Group, Inc. | 6,252 | 121 |
* CONMED Corp. | 6,006 | 116 |
Meridian Bioscience Inc. | 4,726 | 105 |
Datascope Corp. | 2,722 | 104 |
* Greatbatch, Inc. | 4,677 | 103 |
* Laserscope | 4,526 | 99 |
* Molecular Devices Corp. | 3,084 | 98 |
* ICU Medical, Inc. | 2,736 | 96 |
* Symmetry Medical Inc. | 4,476 | 93 |
* Align Technology, Inc. | 11,231 | 92 |
* Conceptus, Inc. | 6,326 | 91 |
* OraSure Technologies, Inc. | 9,323 | 89 |
* Aspect Medical Systems, Inc. | 3,098 | 83 |
Vital Signs, Inc. | 1,608 | 82 |
* Merit Medical Systems, Inc. | 5,554 | 79 |
* IntraLase Corp. | 4,000 | 74 |
* Foxhollow Technologies Inc. | 2,770 | 74 |
* Zoll Medical Corp. | 2,058 | 54 |
* Kensey Nash Corp. | 2,193 | 54 |
Young Innovations, Inc. | 1,234 | 42 |
* ev3 Inc. | 2,429 | 40 |
* Bruker BioSciences Corp. | 8,828 | 39 |
Health Care Providers & Services (24.1%) | 71,568 | |
UnitedHealth Group Inc. | 292,129 | 17,011 |
* WellPoint Inc. | 142,079 | 10,910 |
Cardinal Health, Inc. | 92,098 | 6,686 |
Aetna Inc. | 122,937 | 6,270 |
* Caremark Rx, Inc. | 96,700 | 4,811 |
HCA Inc. | 82,154 | 3,935 |
* Medco Health Solutions, Inc. | 66,144 | 3,686 |
McKesson Corp. | 62,740 | 3,396 |
CIGNA Corp. | 27,044 | 3,320 |
* Express Scripts Inc. | 26,549 | 2,317 |
* Coventry Health Care Inc. | 34,979 | 2,085 |
AmerisourceBergen Corp. | 44,603 | 2,051 |
Quest Diagnostics, Inc. | 36,947 | 1,953 |
* Humana Inc. | 33,262 | 1,719 |
* Laboratory Corp. of America Holdings | 28,455 | 1,654 |
Omnicare, Inc. | 25,668 | 1,562 |
* DaVita, Inc. | 21,895 | 1,278 |
IMS Health, Inc. | 49,844 | 1,201 |
* Health Net Inc. | 24,670 | 1,183 |
Health Management Associates Class A | 52,989 | 1,128 |
* Henry Schein, Inc. | 18,714 | 873 |
* Lincare Holdings, Inc. | 20,794 | 850 |
* Patterson Cos | 22,233 | 801 |
* Triad Hospitals, Inc. | 18,480 | 796 |
* Tenet Healthcare Corp. | 100,624 | 794 |
Pharmaceutical Product Development, Inc. | 11,263 | 784 |
* Covance, Inc. | 13,492 | 762 |
* Community Health Systems, Inc. | 18,937 | 718 |
Manor Care, Inc. | 16,968 | 702 |
* Renal Care Group, Inc. | 14,708 | 702 |
* Emdeon Corp. | 59,774 | 630 |
Universal Health Services Class B | 11,094 | 557 |
* Cerner Corp. | 13,176 | 549 |
* Pediatrix Medical Group, Inc. | 5,276 | 498 |
* VCA Antech, Inc. | 16,914 | 473 |
* Sierra Health Services, Inc. | 11,128 | 464 |
* Psychiatric Solutions, Inc. | 10,702 | 353 |
* LifePoint Hospitals, Inc. | 10,918 | 339 |
* United Surgical Partners International, Inc. | 9,384 | 330 |
Chemed Corp. | 5,508 | 305 |
* Healthways, Inc. | 6,901 | 301 |
* Magellan Health Services, Inc. | 7,756 | 296 |
* Beverly Enterprises, Inc. | 23,499 | 290 |
* Sunrise Senior Living, Inc. | 7,757 | 275 |
Owens & Minor, Inc. Holding Co. | 8,462 | 270 |
* Centene Corp. | 9,207 | 252 |
* PSS World Medical, Inc. | 14,070 | 243 |
* Apria Healthcare Group Inc. | 10,510 | 242 |
* AMERIGROUP Corp. | 11,024 | 236 |
* WellCare Health Plans Inc. | 5,910 | 230 |
* Eclipsys Corp. | 8,867 | 228 |
* American Retirement Corp. | 7,160 | 193 |
* Matria Healthcare, Inc. | 4,361 | 189 |
LCA-Vision Inc. | 4,204 | 183 |
* Kindred Healthcare, Inc. | 8,398 | 182 |
* Per-Se Technologies, Inc. | 6,958 | 176 |
* Ventiv Health, Inc. | 5,827 | 162 |
* HealthExtras, Inc. | 5,054 | 156 |
* Genesis Healthcare Corp. | 3,896 | 155 |
* Allscripts Healthcare Solutions, Inc. | 8,195 | 154 |
* eResearch Technology, Inc. | 10,313 | 152 |
* The TriZetto Group, Inc. | 8,827 | 148 |
* PAREXEL International Corp. | 5,663 | 145 |
* Odyssey Healthcare, Inc. | 7,535 | 142 |
* AmSurg Corp. | 6,345 | 139 |
* Lifeline Systems, Inc. | 2,788 | 133 |
* AMN Healthcare Services, Inc. | 5,658 | 117 |
* Dendrite International, Inc. | 8,757 | 116 |
* Amedisys Inc. | 3,268 | 105 |
* Cross Country Healthcare, Inc. | 5,683 | 104 |
* PRA International | 3,664 | 97 |
* Symbion, Inc. | 3,887 | 92 |
* Merge Technologies, Inc. | 4,610 | 89 |
* SFBC International, Inc. | 3,737 | 88 |
* Molina Healthcare Inc. | 3,009 | 85 |
* Gentiva Health Services, Inc. | 4,794 | 80 |
* RehabCare Group, Inc. | 3,734 | 75 |
National Healthcare Corp. | 1,771 | 72 |
* Radiation Therapy Services, Inc. | 2,527 | 72 |
* VistaCare, Inc. | 3,663 | 50 |
Hooper Holmes, Inc. | 13,365 | 38 |
* CorVel Corp. | 1,512 | 29 |
* Alliance Imaging, Inc. | 3,427 | 20 |
Pharmaceuticals (41.8%) | 97,037 | |
Pfizer Inc. | 1,583,944 | 41,483 |
Johnson & Johnson | 639,366 | 36,859 |
Merck & Co., Inc. | 469,970 | 16,383 |
Abbott Laboratories | 333,253 | 14,723 |
Wyeth | 288,358 | 14,360 |
Eli Lilly & Co. | 219,933 | 12,233 |
Bristol-Myers Squibb Co. | 420,212 | 9,707 |
Schering-Plough Corp. | 317,510 | 5,874 |
* Forest Laboratories, Inc. | 72,589 | 3,332 |
43
Health Care Index Fund
Shares | Market Value• ($000) | |
---|---|---|
Allergan, Inc. | 28,867 | 3,125 |
* Barr Pharmaceuticals Inc. | 20,846 | 1,400 |
* Sepracor Inc. | 22,882 | 1,311 |
Mylan Laboratories, Inc. | 46,170 | 1,062 |
* King Pharmaceuticals, Inc. | 51,788 | 842 |
* Endo Pharmaceuticals Holdings, Inc. | 24,226 | 764 |
* Watson Pharmaceuticals, Inc. | 20,705 | 621 |
Valeant Pharmaceuticals International | 19,796 | 353 |
Medicis Pharmaceutical Corp. | 11,601 | 330 |
* Andrx Group | 15,666 | 307 |
* MGI Pharma, Inc. | 16,497 | 291 |
Perrigo Co. | 17,067 | 271 |
Alpharma, Inc. Class A | 8,861 | 268 |
* ViroPharma Inc. | 13,533 | 262 |
* Adolor Corp. | 8,600 | 236 |
* Par Pharmaceutical Cos. Inc. | 7,396 | 220 |
* The Medicines Co. | 10,137 | 207 |
* Kos Pharmaceuticals, Inc. | 4,449 | 195 |
* Salix Pharmaceuticals, Ltd. | 9,756 | 154 |
* K-V Pharmaceutical Co. Class A | 6,644 | 153 |
* American Pharmaceuticals Partners, Inc. | 4,657 | 141 |
* AtheroGenics, Inc. | 8,157 | 131 |
First Horizon Pharmaceutical Corp. | 6,065 | 124 |
* Connetics Corp. | 7,499 | 119 |
* Discovery Laboratories, Inc. | 12,385 | 94 |
* New River Pharmaceuticals Inc. | 2,721 | 83 |
* Noven Pharmaceuticals, Inc. | 5,138 | 77 |
* NitroMed, Inc. | 5,197 | 61 |
* Inspire Pharmaceuticals, Inc. | 9,040 | 46 |
* K-V Pharmaceutical Co.Class B | 1,482 | 34 |
168,236 | ||
Total Common Stocks (Cost $377,726) | 402,922 | |
Temporary Cash Investment (0.0%) | ||
1 Vanguard Market Liquidity Fund, 4.511% (Cost $158) | 158,215 | 158 |
Total Investments (100.1%) (Cost $377,884) | 403,080 | |
Other Assets and Liabilities (-0.1%) | ||
Other Assets—Note B | 7,269 | |
Liabilities | (7,652) | |
(383) | ||
Net Assets (100%) | 402,697 |
At February 28, 2006, net assets consisted of:2
Amount ($000) | |
---|---|
Paid-in Capital | 376,620 |
Undistributed Net Investment Income | 760 |
Accumulated Net Realized Gains | 121 |
Unrealized Appreciation | 25,196 |
Net Assets | 402,697 |
Admiral Shares—Net Assets | |
Applicable to 3,888,983 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 108,081 |
Net Asset Value Per Share— | |
Admiral Shares | $27.79 |
VIPER Shares—Net Assets | |
Applicable to 5,300,000 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 294,616 |
Net Asset Value Per Share— | |
VIPER Shares | $55.59 |
• | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
1 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
2 | See Note C in Notes to Financial Statements for the tax-basis components of net assets. |
44
Health Care Index Fund
Statement of Operations
Six Months Ended Feb. 28, 2006 | |
---|---|
($000) | |
Investment Income | |
Income | |
Dividends | 2,120 |
Interest1 | 10 |
Security Lending | 1 |
Total Income | 2,131 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 22 |
Management and Administrative | |
Admiral Shares | 95 |
VIPER Shares | 226 |
Marketing and Distribution | |
Admiral Shares | 14 |
VIPER Shares | 38 |
Custodian Fees | 20 |
Shareholders' Reports | |
Admiral Shares | 6 |
VIPER Shares | 7 |
Total Expenses | 428 |
Net Investment Income | 1,703 |
Realized Net Gain (Loss) on | |
Investment Securities Sold | 3,329 |
Change in Unrealized Appreciation | |
(Depreciation) of Investment Securities | 9,392 |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 14,424 |
Statement of Changes in Net Assets
Six Months Ended Feb. 28, 2006 ($000) | Year Ended Aug. 31, 2005 ($000) | |
---|---|---|
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 1,703 | 1,592 |
Realized Net Gain (Loss) | 3,329 | (28) |
Change in Unrealized Appreciation (Depreciation) | 9,392 | 16,982 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 14,424 | 18,546 |
Distributions | ||
Net Investment Income | ||
Admiral Shares | (671) | (182) |
VIPER Shares | (1,702) | (133) |
Realized Capital Gain | ||
Admiral Shares | — | — |
VIPER Shares | — | — |
Total Distributions | (2,373) | (315) |
Capital Share Transactions—Note E | ||
Admiral Shares | 31,459 | 55,950 |
VIPER Shares | 81,676 | 172,885 |
Net Increase (Decrease) from Capital Share Transactions | 113,135 | 228,835 |
Total Increase (Decrease) | 125,186 | 247,066 |
Net Assets | ||
Beginning of Period | 277,511 | 30,445 |
End of Period2 | 402,697 | 277,511 |
1 | Interest income from an affiliated company of the fund was $10,000. |
2 | Including undistributed net investment income of $760,000 and $1,430,000. |
45
Health Care Index Fund
Financial Highlights
Admiral Shares
For a Share Outstanding Throughout Each Period | Six Months Ended Feb. 28, 2006 | Year Ended Aug. 31, 2005 | Feb. 51 to Aug. 31, 2004 |
---|---|---|---|
Net Asset Value, Beginning of Period | $26.92 | $23.97 | $25.33 |
Investment Operations | |||
Net Investment Income | .1392 | .2742 | .13 |
Net Realized and Unrealized Gain (Loss) on Investments | .916 | 2.762 | (1.49) |
Total from Investment Operations | 1.055 | 3.036 | (1.36) |
Distributions | |||
Dividends from Net Investment Income | (.185) | (.086) | — |
Distributions from Realized Capital Gains | — | — | — |
Total Distributions | (.185) | (.086) | — |
Net Asset Value, End of Period | $27.79 | $26.92 | $23.97 |
Total Return3 | 3.93% | 12.70% | -5.37% |
Ratios/Supplemental Data | |||
Net Assets, End of Period (Millions) | $108 | $73 | $11 |
Ratio of Total Expenses to Average Net Assets | 0.28%4 | 0.28% | 0.28%4 |
Ratio of Net Investment Income to Average Net Assets | 1.00%4 | 1.11% | 1.09%4 |
Portfolio Turnover Rate5 | 13%4 | 9% | 8% |
VIPER Shares
For a Share Outstanding Throughout Each Period | Six Months Ended Feb. 28, 2006 | Year Ended Aug. 31, 2005 | Jan. 261 to Aug. 31, 2004 |
---|---|---|---|
For a Share Outstanding Throughout Each Period | 2006 | 2005 | 2004 |
Net Asset Value, Beginning of Period | $53.85 | $47.90 | $50.55 |
Investment Operations | |||
Net Investment Income | .2742 | .5972 | .23 |
Net Realized and Unrealized Gain (Loss) on Investments | 1.853 | 5.486 | (2.88) |
Total from Investment Operations | 2.127 | 6.083 | (2.65) |
Distributions | |||
Dividends from Net Investment Income | (.387) | (.133) | — |
Distributions from Realized Capital Gains | — | — | — |
Total Distributions | (.387) | (.133) | — |
Net Asset Value, End of Period | $55.59 | $53.85 | $47.90 |
Total Return | 3.96% | 12.72% | -5.24% |
Ratios/Supplemental Data | |||
Net Assets, End of Period (Millions) | $295 | $205 | $19 |
Ratio of Total Expenses to Average Net Assets | 0.25%4 | 0.26% | 0.28%4 |
Ratio of Net Investment Income to Average Net Assets | 1.03%4 | 1.13% | 1.09%4 |
Portfolio Turnover Rate5 | 13%4 | 9% | 8% |
1 | Inception. |
2 | Calculated based on average shares outstanding. |
3 | Total returns do not reflect the 2% fee assessed on redemptions of shares held for less than one year. |
4 | Annualized. |
5 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including VIPER Creation Units. See accompanying Notes, which are an integral part of the Financial Statements. |
46
Health Care Index Fund
Notes to Financial Statements
Vanguard Health Care Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund files reports with the SEC under the company name Vanguard World Funds. The fund offers two classes of shares, Admiral Shares and VIPER Shares. Admiral Shares are available to any investor who meets the fund’s minimum purchase requirements. VIPER Shares are listed for trading on the American Stock Exchange; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. mutual funds. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset 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. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Security Lending: The fund may lend its securities to qualified institutional borrowers to earn additional income. Security loans are required to be secured at all times by collateral at least equal to the market value of securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability for the return of the collateral, during the period the securities are on loan. Security lending income represents the income earned on investing cash collateral, less expenses associated with the loan.
5. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold. Fees assessed on redemptions of Admiral Shares are credited to paid-in capital.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. The Vanguard Group furnishes at cost investment advisory, 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 February 28, 2006, the fund had contributed capital of $42,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.04% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
C. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
During the six months ended February 28, 2006, the fund realized $3,173,000 of net capital gains resulting from in-kind redemptions—in which shareholders exchanged fund shares for securities held by the fund rather than for cash. Because such gains are not taxable to the fund, and are not distributed to shareholders, they have been reclassified from accumulated net realized gains to paid-in capital.
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at August 31, 2005, the fund had available realized losses of $104,000 to offset future net capital gains through August 31, 2014. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2006; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2006, net unrealized appreciation of investment securities for tax purposes was $25,196,000, consisting of unrealized gains of $36,733,000 on securities that had risen in value since their purchase and $11,537,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2006, the fund purchased $145,570,000 of investment securities and sold $33,499,000 of investment securities, other than temporary cash investments.
E. Capital share transactions for each class of shares were (see table below):
Six Months Ended February 28, 2006 | Year Ended August 31, 2005 | |||
---|---|---|---|---|
Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | |
Admiral Shares | ||||
Issued | 34,121 | 1,279 | 58,293 | 2,329 |
Issued in Lieu of Cash Distributions | 265 | 10 | 40 | 2 |
Redeemed1 | (2,927) | (108) | (2,383) | (94) |
Net Increase (Decrease)—Admiral Shares | 31,459 | 1,181 | 55,950 | 2,237 |
VIPER Shares | ||||
Issued | 97,975 | 1,800 | 172,885 | 3,400 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (16,299) | (300) | — | — |
Net Increase (Decrease)—VIPER Shares | 81,676 | 1,500 | 172,885 | 3,400 |
1 Net of redemption fees of $17,000 and $0.
47
Industrials Index Fund
Fund Profile
As of February 28, 2006
Portfolio Characteristics | Fund | Target Index1 | Broad Index2 |
---|---|---|---|
Number of Stocks | 306 | 307 | 2,478 |
Median Market Cap | $24.9B | $29.6B | $30.6B |
Price/Earnings Ratio | 19.5x | 19.4x | 18.1x |
Price/Book Ratio | 3.1x | 3.1x | 2.9x |
Yield—VIPER Shares | 1.4% | 1.7% | 1.7% |
Return on Equity | 17.9% | 18.1% | 17.3% |
Earnings Growth Rate | 10.1% | 10.0% | 14.0% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 8%3 | — | — |
Expense Ratio—VIPER Shares | 0.25%3 | — | — |
Short-Term Reserves | 0% | — | — |
Industry Diversification (% of portfolio) | |
---|---|
Aerospace & Defense | 18% |
Air Freight & Logistics | 6 |
Airlines | 2 |
Building Products | 2 |
Commercial Printing | 1 |
Construction & Engineering | 2 |
Construction & Farm Machinery & Heavy Trucks | 8 |
Diversified Commercial & Professional Services | 5 |
Electrical Components & Equipment | 5 |
Environmental & Facilities Services | 2 |
Human Resource & Employment Services | 2 |
Industrial Conglomerates | 27 |
Industrial Machinery | 9 |
Office Services & Supplies | 2 |
Railroads | 6 |
Trading Companies & Distributors | 2 |
Trucking | 1 |
Ten Largest Holdings4 (% of total net assets) | |
---|---|
General Electric Co. | 20.0% |
United Technologies Corp. | 3.7 |
The Boeing Co. | 3.5 |
3M Co. | 3.3 |
Tyco International Ltd. | 3.2 |
Caterpillar, Inc. | 3.1 |
United Parcel Service, Inc. | 3.0 |
Emerson Electric Co. | 2.1 |
Honeywell International Inc. | 2.0 |
FedEx Corp. | 1.9 |
Top Ten | 45.8% |
1 | MSCI US IMI/Industrials. |
2 | MSCI US IMI/2500. |
3 | Annualized. |
4 | “Ten Largest Holdings” excludes any temporary cash investments and equity index products. |
48
Industrials Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at www.vanguard.com.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): September 23, 2004–February 28, 2006
[Dark Gray] - Industrials Index Fund VIPER Shares Net Asset Value
[Light Gray] - MSCI US IMI/Industrials
Average Annual Total Returns: Periods Ended December 31, 2005
This table presents average annual total returns through the latest calendar quarter—rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information.
Since | |||
---|---|---|---|
Inception Date | One Year | Inception | |
VIPER Shares | 9/23/2004 | ||
Market Price | 5.23% | 14.85% | |
Net Asset Value | 5.31 | 14.85 | |
1 | Six months ended February 28, 2006. Note: See Financial Highlights table on page 54 for dividend and capital gains information. |
49
Industrials Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2006
The fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at www.sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Shares | Market Value• ($000) | |
---|---|---|
Common Stocks (100.8%) | ||
Aerospace & Defense (18.4%) | ||
United Technologies Corp. | 38,152 | 2,232 |
The Boeing Co. | 28,705 | 2,087 |
Honeywell International Inc. | 29,998 | 1,228 |
Lockheed Martin Corp. | 13,895 | 1,012 |
Northrop Grumman Corp. | 12,664 | 812 |
General Dynamics Corp. | 6,404 | 789 |
Raytheon Co. | 16,906 | 734 |
L-3 Communications Holdings, Inc. | 4,306 | 358 |
Rockwell Collins, Inc. | 6,540 | 348 |
Precision Castparts Corp. | 4,939 | 262 |
Goodrich Corp. | 4,426 | 185 |
* Alliant Techsystems, Inc. | 1,459 | 112 |
DRS Technologies, Inc. | 1,581 | 83 |
* Armor Holdings, Inc. | 1,357 | 80 |
* BE Aerospace, Inc. | 2,865 | 69 |
* Ceradyne, Inc. | 1,082 | 66 |
* Hexcel Corp. | 2,781 | 60 |
Curtiss-Wright Corp. | 797 | 49 |
* Aviall, Inc. | 1,216 | 46 |
* Moog Inc. | 1,362 | 46 |
* Teledyne Technologies, Inc. | 1,316 | 44 |
* Esterline Technologies Corp. | 1,039 | 43 |
* AAR Corp. | 1,499 | 38 |
* GenCorp, Inc. | 1,948 | 38 |
* Orbital Sciences Corp. | 2,342 | 36 |
* Triumph Group, Inc. | 680 | 28 |
United Industrial Corp. | 526 | 27 |
Kaman Corp. Class A | 1,033 | 23 |
EDO Corp. | 764 | 22 |
Cubic Corp. | 945 | 20 |
* Argon ST, Inc. | 635 | 19 |
* Sequa Corp. Class A | 219 | 19 |
* Ionatron Inc. | 1,370 | 16 |
HEICO Corp. Class A | 543 | 14 |
* MTC Technologies, Inc. | 483 | 13 |
HEICO Corp. | 252 | 7 |
Air Freight & Logistics (6.5%) | 11,065 | |
United Parcel Service, Inc. | 23,806 | 1,779 |
FedEx Corp. | 10,744 | 1,152 |
Expeditors International of Washington, Inc. | 4,076 | 317 |
C.H. Robinson Worldwide Inc. | 6,121 | 274 |
Ryder System, Inc. | 2,443 | 108 |
UTI Worldwide, Inc. | 760 | 79 |
* EGL, Inc. | 1,332 | 54 |
Pacer International, Inc. | 1,636 | 52 |
Forward Air Corp. | 1,312 | 46 |
* Hub Group, Inc. | 854 | 36 |
* ABX Air, Inc. | 2,838 | 23 |
Airlines (1.7%) | 3,920 | |
Southwest Airlines Co. | 26,357 | 442 |
* AMR Corp. | 6,816 | 171 |
* Continental Airlines, Inc.Class B | 3,384 | 79 |
* AirTran Holdings, Inc. | 3,620 | 64 |
Skywest, Inc. | 2,205 | 64 |
* JetBlue Airways Corp. | 5,534 | 63 |
* US Airways Group Inc. | 1,567 | 52 |
* Alaska Air Group, Inc. | 1,365 | 44 |
* Republic Airways Holdings Inc. | 1,458 | 20 |
* Frontier Airlines, Inc. | 1,917 | 14 |
* ExpressJet Holdings, Inc. | 1,666 | 12 |
Building Products (2.2%) | 1,025 | |
Masco Corp. | 15,932 | 497 |
American Standard Cos., Inc. | 6,768 | 268 |
* USG Corp. | 1,324 | 112 |
Lennox International Inc. | 2,251 | 72 |
Simpson Manufacturing Co. | 1,562 | 61 |
* NCI Building Systems, Inc. | 950 | 55 |
Universal Forest Products, Inc. | 701 | 43 |
* Jacuzzi Brands, Inc. | 3,574 | 35 |
ElkCorp | 798 | 29 |
Ameron International Corp. | 458 | 27 |
* Griffon Corp. | 1,156 | 27 |
Apogee Enterprises, Inc. | 1,444 | 25 |
* Builders FirstSource, Inc. | 869 | 21 |
American Woodmark Corp. | 551 | 19 |
* Trex Co., Inc. | 623 | 16 |
Commercial Services & Supplies (11.0%) | 1,307 | |
Waste Management, Inc. | 20,718 | 689 |
Cendant Corp. | 38,481 | 639 |
Pitney Bowes, Inc. | 8,556 | 366 |
R.R. Donnelley & Sons Co. | 7,747 | 261 |
Cintas Corp. | 5,456 | 224 |
Robert Half International, Inc. | 6,133 | 220 |
Avery Dennison Corp. | 3,563 | 214 |
* Monster Worldwide Inc. | 4,273 | 209 |
Republic Services, Inc. Class A | 5,302 | 206 |
* The Dun & Bradstreet Corp. | 2,583 | 188 |
Manpower Inc. | 3,400 | 182 |
Equifax, Inc. | 4,949 | 181 |
* ChoicePoint Inc. | 3,505 | 156 |
The Corporate Executive Board Co. | 1,531 | 153 |
Aramark Corp. Class B | 4,602 | 131 |
The Brink's Co. | 2,317 | 113 |
HNI Corp. | 1,937 | 113 |
* Stericycle, Inc. | 1,634 | 99 |
* Allied Waste Industries, Inc. | 9,179 | 98 |
Adesa, Inc. | 3,404 | 85 |
Herman Miller, Inc. | 2,747 | 83 |
IKON Office Solutions, Inc. | 5,632 | 74 |
* Copart, Inc. | 2,846 | 73 |
* Waste Connections, Inc. | 1,870 | 69 |
* Corrections Corp. of America REIT | 1,548 | 67 |
Brady Corp. Class A | 1,775 | 66 |
* United Stationers, Inc. | 1,324 | 66 |
* PHH Corp. | 2,126 | 61 |
* West Corp. | 1,245 | 54 |
* Labor Ready, Inc. | 2,106 | 52 |
* Resources Connection, Inc. | 1,839 | 51 |
* FTI Consulting, Inc. | 1,800 | 50 |
Deluxe Corp. | 1,973 | 49 |
Banta Corp. | 988 | 48 |
Watson Wyatt & Co. Holdings | 1,541 | 47 |
Administaff, Inc. | 930 | 44 |
Steelcase Inc. | 2,513 | 43 |
John H. Harland Co. | 1,160 | 42 |
50
Industrials Index Fund
Shares | Market Value• ($000) | |
---|---|---|
* Tetra Tech, Inc. | 2,348 | 42 |
Mine Safety Appliances Co. | 1,057 | 42 |
* The Advisory Board Co. | 764 | 41 |
* Acco Brands Corp. | 1,705 | 41 |
* Navigant Consulting, Inc. | 2,056 | 40 |
* CoStar Group, Inc. | 743 | 38 |
* Korn/Ferry International | 1,744 | 37 |
* Mobile Mini, Inc. | 620 | 34 |
G & K Services, Inc. Class A | 836 | 33 |
ABM Industries Inc. | 1,797 | 33 |
* Consolidated Graphics, Inc. | 618 | 32 |
* NCO Group, Inc. | 1,390 | 31 |
Viad Corp. | 974 | 31 |
* Heidrick & Struggles International, Inc. | 823 | 30 |
McGrath RentCorp | 1,064 | 29 |
Rollins, Inc. | 1,513 | 29 |
* Cenveo Inc. | 1,961 | 28 |
* Coinstar, Inc. | 1,073 | 28 |
* Spherion Corp. | 2,583 | 26 |
* School Specialty, Inc. | 728 | 25 |
Knoll, Inc. | 1,243 | 25 |
Kelly Services, Inc. Class A | 879 | 24 |
* Teletech Holdings Inc. | 1,883 | 23 |
Healthcare Services Group, Inc. | 1,224 | 23 |
* CRA International Inc. | 503 | 23 |
* American Reprographics Co. | 788 | 23 |
Bowne & Co., Inc. | 1,498 | 22 |
* CBIZ Inc. | 2,977 | 22 |
* SOURCECORP, Inc. | 827 | 21 |
* Clean Harbors Inc. | 595 | 20 |
* Hudson Highland Group, Inc. | 1,220 | 20 |
* Huron Consulting Group Inc. | 661 | 18 |
Ennis, Inc. | 834 | 16 |
* Sirva Inc. | 2,047 | 16 |
Schawk, Inc. | 639 | 16 |
CDI Corp. | 645 | 16 |
* DiamondCluster International, Inc. | 1,534 | 15 |
Central Parking Corp. | 904 | 15 |
* LECG Corp. | 865 | 14 |
The Standard Register Co. | 726 | 12 |
* Volt Information Sciences Inc. | 464 | 11 |
Construction & Engineering (2.0%) | 6,631 | |
Fluor Corp. | 3,296 | 284 |
* Jacobs Engineering Group Inc. | 2,125 | 182 |
* McDermott International, Inc. | 2,490 | 128 |
* Shaw Group, Inc. | 3,125 | 104 |
* Foster Wheeler Ltd. | 2,162 | 104 |
* URS Corp. | 1,932 | 84 |
Granite Construction Co. | 1,457 | 68 |
��Washington Group International, Inc. | 1,108 | 65 |
* EMCOR Group, Inc. | 1,320 | 58 |
* Quanta Services, Inc. | 4,073 | 56 |
* Insituform Technologies Inc. Class A | 1,398 | 38 |
* Perini Corp. | 987 | 30 |
* Infrasource Services Inc. | 1,148 | 20 |
Electrical Equipment (5.5%) | 1,221 | |
Emerson Electric Co. | 15,449 | 1,264 |
Rockwell Automation, Inc. | 6,842 | 466 |
Cooper Industries, Inc. Class A | 3,542 | 296 |
Roper Industries Inc. | 3,274 | 148 |
American Power Conversion Corp. | 6,711 | 137 |
* Thomas & Betts Corp. | 2,380 | 117 |
Ametek, Inc. | 2,710 | 116 |
Hubbell Inc. Class B | 2,091 | 97 |
Acuity Brands, Inc. | 1,882 | 74 |
* Genlyte Group, Inc. | 1,077 | 67 |
Regal-Beloit Corp. | 1,244 | 50 |
* General Cable Corp. | 1,759 | 47 |
* Energy Conversion Devices, Inc. | 978 | 46 |
Woodward Governor Co. | 1,407 | 45 |
Baldor Electric Co. | 1,321 | 43 |
A.O. Smith Corp. | 881 | 41 |
* Evergreen Solar, Inc. | 2,020 | 31 |
Franklin Electric, Inc. | 689 | 31 |
Vicor Corp. | 1,272 | 25 |
* Encore Wire Corp. | 767 | 24 |
* GrafTech International Ltd. | 4,591 | 23 |
* FuelCell Energy, Inc. | 2,057 | 23 |
* II-VI, Inc. | 1,184 | 22 |
* Power-One, Inc. | 3,318 | 19 |
* EnerSys | 1,076 | 15 |
* Plug Power, Inc. | 3,021 | 15 |
C & D Technologies, Inc. | 1,486 | 13 |
* Global Power Equipment Group Inc. | 2,041 | 10 |
Industrial Conglomerates (27.8%) | 3,305 | |
General Electric Co. | 365,662 | 12,019 |
3M Co. | 27,025 | 1,989 |
Tyco International Ltd. | 75,763 | 1,954 |
Textron, Inc. | 4,547 | 401 |
Walter Industries, Inc. | 1,593 | 105 |
Carlisle Co., Inc. | 1,199 | 94 |
Teleflex Inc. | 1,431 | 93 |
Tredegar Corp. | 1,432 | 24 |
Standex International Corp. | 645 | 21 |
Raven Industries, Inc. | 558 | 20 |
Machinery (16.5%) | 16,720 | |
Caterpillar, Inc. | 25,466 | 1,861 |
Illinois Tool Works, Inc. | 8,993 | 772 |
Deere & Co. | 8,959 | 683 |
Danaher Corp. | 9,273 | 562 |
Ingersoll-Rand Co. | 12,248 | 503 |
PACCAR, Inc. | 6,133 | 428 |
Dover Corp. | 7,714 | 370 |
Eaton Corp. | 5,241 | 365 |
Parker Hannifin Corp. | 4,530 | 354 |
ITT Industries, Inc. | 6,606 | 347 |
Joy Global Inc. | 4,654 | 240 |
Cummins Inc. | 1,591 | 172 |
Oshkosh Truck Corp. | 2,880 | 163 |
* Terex Corp. | 1,931 | 153 |
Pentair, Inc. | 3,705 | 149 |
Pall Corp. | 4,749 | 140 |
Harsco Corp. | 1,653 | 132 |
SPX Corp. | 2,575 | 127 |
JLG Industries, Inc. | 2,017 | 119 |
* Flowserve Corp. | 2,231 | 115 |
Graco, Inc. | 2,585 | 108 |
Donaldson Co., Inc. | 2,997 | 104 |
Trinity Industries, Inc. | 1,871 | 99 |
IDEX Corp. | 2,037 | 96 |
Kennametal, Inc. | 1,572 | 92 |
The Manitowoc Co., Inc. | 1,174 | 90 |
The Timken Co. | 2,957 | 85 |
The Toro Co. | 1,693 | 78 |
Crane Co. | 1,981 | 76 |
Briggs & Stratton Corp. | 2,057 | 73 |
* Navistar International Corp. | 2,426 | 71 |
* AGCO Corp. | 3,613 | 71 |
CLARCOR Inc. | 2,110 | 71 |
Lincoln Electric Holdings, Inc. | 1,460 | 67 |
* Gardner Denver Inc. | 1,098 | 67 |
Wabtec Corp. | 1,928 | 64 |
Nordson Corp. | 1,204 | 60 |
Actuant Corp. | 1,082 | 60 |
Bucyrus International, Inc. | 908 | 57 |
* ESCO Technologies Inc. | 1,044 | 53 |
Mueller Industries Inc. | 1,450 | 48 |
Kaydon Corp. | 1,266 | 46 |
Stewart & Stevenson Services, Inc. | 1,205 | 41 |
NACCO Industries, Inc. Class A | 273 | 38 |
Watts Water Technologies, Inc. | 1,066 | 38 |
Albany International Corp. | 1,026 | 38 |
51
Industrials Index Fund
Shares | Market Value• ($000) | |
---|---|---|
Federal Signal Corp. | 2,054 | 37 |
Freightcar America Inc. | 461 | 33 |
Barnes Group, Inc. | 857 | 33 |
* A.S.V., Inc. | 991 | 32 |
* Astec Industries, Inc. | 844 | 30 |
* EnPro Industries, Inc. | 924 | 30 |
Valmont Industries, Inc. | 804 | 29 |
Wabash National Corp. | 1,368 | 27 |
* The Middleby Corp. | 275 | 26 |
Cascade Corp. | 452 | 23 |
Tennant Co. | 439 | 20 |
CIRCOR International, Inc. | 721 | 20 |
* Commercial Vehicle Group Inc. | 910 | 17 |
Robbins & Myers, Inc. | 774 | 16 |
Tecumseh Products Co. Class A | 651 | 15 |
* Accuride Corp. | 1,149 | 13 |
* TurboChef Technologies, Inc. | 926 | 12 |
Tecumseh Products Co. Class B | 122 | 2 |
Marine (0.2%) | 9,961 | |
Alexander & Baldwin, Inc. | 1,540 | 75 |
* Kirby Corp. | 899 | 55 |
Eagle Bulk Shipping Inc. | 1,052 | 14 |
Road & Rail (7.1%) | 144 | |
Burlington Northern Santa Fe Corp. | 13,981 | 1,099 |
Union Pacific Corp. | 9,379 | 831 |
Norfolk Southern Corp. | 15,152 | 775 |
CSX Corp. | 8,172 | 453 |
Laidlaw International Inc. | 3,972 | 110 |
J.B. Hunt Transport Services, Inc. | 4,633 | 110 |
* YRC Worldwide, Inc. | 2,275 | 109 |
Landstar System, Inc. | 2,317 | 108 |
CNF Inc. | 2,048 | 103 |
* Kansas City Southern | 3,010 | 70 |
Florida East Coast Industries, Inc. Class A | 1,146 | 58 |
* Genesee & Wyoming Inc. Class A | 1,138 | 52 |
Heartland Express, Inc. | 2,020 | 47 |
* Swift Transportation Co., Inc. | 1,950 | 46 |
Knight Transportation, Inc. | 2,302 | 46 |
* Amerco, Inc. | 509 | 45 |
Werner Enterprises, Inc. | 2,291 | 45 |
Arkansas Best Corp. | 1,041 | 43 |
* Dollar Thrifty Automotive Group, Inc. | 1,054 | 43 |
* Old Dominion Freight Line, Inc. | 1,263 | 33 |
* RailAmerica, Inc. | 1,813 | 18 |
Trading Companies & Distributors (1.9%) | 4,244 | |
Fastenal Co. | 4,923 | 216 |
W.W. Grainger, Inc. | 2,897 | 214 |
Hughes Supply, Inc. | 2,631 | 122 |
* Wesco International, Inc. | 1,924 | 110 |
* United Rentals, Inc. | 2,780 | 91 |
MSC Industrial Direct Co., Inc. Class A | 1,818 | 86 |
GATX Corp. | 1,981 | 79 |
Watsco, Inc. | 1,005 | 70 |
Applied Industrial Technology, Inc. | 1,167 | 50 |
* Beacon Roofing Supply, Inc. | 1,051 | 41 |
* Interline Brands, Inc. | 1,158 | 27 |
Bluelinx Holdings Inc. | 1,377 | 22 |
* Electro Rent Corp. | 1,189 | 18 |
Lawson Products, Inc. | 349 | 12 |
Transportation Infrastructure (0.0%) | 1,158 | |
Sea Containers Ltd. Class A | 1,440 | 19 |
Total Investments (100.8%) (Cost $57,085) | 60,720 | |
Other Assets and Liabilities (-0.8%) | ||
Other Assets—Note B | 285 | |
Liabilities | (777) | |
(492) | ||
Net Assets (100%) | 60,228 |
At February 28, 2006, net assets consisted of:1
Amount ($000) | |
---|---|
Paid-in Capital | 56,437 |
Undistributed Net Investment Income | 188 |
Accumulated Net Realized Losses | (32) |
Unrealized Appreciation | 3,635 |
Net Assets | 60,228 |
VIPER Shares—Net Assets | |
Applicable to 1,000,000 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 60,228 |
Net Asset Value Per Share— | |
VIPER Shares | $60.23 |
• | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
1 | See Note C in Notes to Financial Statements for the tax-basis components of net assets. REIT—Real Estate Investment Trust. |
52
Industrials Index Fund
Statement of Operations
Six Months Ended Feb. 28, 2006 | |
---|---|
($000) | |
Investment Income | |
Income | |
Dividends | 354 |
Total Income | 354 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 2 |
Management and Administrative | 24 |
Marketing and Distribution | — |
Custodian Fees | 11 |
Shareholders' Reports | 1 |
Total Expenses | 38 |
Net Investment Income | 316 |
Realized Net Gain (Loss) on | |
Investment Securities Sold | (35) |
Change in Unrealized Appreciation | |
(Depreciation) of Investment Securities | 3,284 |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 3,565 |
Statement of Changes in Net Assets
Six Months Ended Feb. 28, 2006 ($000) | September 23, 20041 to August 31, 2005 ($000) | |
---|---|---|
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 316 | 162 |
Realized Net Gain (Loss) | (35) | 1,632 |
Change in Unrealized Appreciation (Depreciation) | 3,284 | 351 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 3,565 | 2,145 |
Distributions | ||
Net Investment Income | (226) | (64) |
Realized Capital Gain | — | — |
Total Distributions | (226) | (64) |
Capital Share Transactions—Note E | ||
VIPER Shares | 40,598 | 14,210 |
Net Increase (Decrease) from Capital Share Transactions | 40,598 | 14,210 |
Total Increase (Decrease) | 43,937 | 16,291 |
Net Assets | ||
Beginning of Period | 16,291 | — |
End of Period2 | 60,228 | 16,291 |
1 | Inception. |
2 | Including undistributed net investment income of $188,000 and $98,000. |
53
Industrials Index Fund
Financial Highlights
Viper Shares
For a Share Outstanding Throughout Each Period | Six Months Ended Feb. 28, 2006 | Sept. 23, 20041 to Aug. 31, 2005 |
---|---|---|
Net Asset Value, Beginning of Period | $54.30 | $48.79 |
Investment Operations | ||
Net Investment Income | .5832 | .65 |
Net Realized and Unrealized Gain (Loss) on Investments | 5.799 | 5.18 |
Total from Investment Operations | 6.382 | 5.83 |
Distributions | ||
Dividends from Net Investment Income | (.452) | (.32) |
Distributions from Realized Capital Gains | — | — |
Total Distributions | (.452) | (.32) |
Net Asset Value, End of Period | $60.23 | $54.30 |
Total Return | 11.78% | 11.94% |
Ratios/Supplemental Data | ||
Net Assets, End of Period (Millions) | $60 | $16 |
Ratio of Total Expenses to Average Net Assets | 0.25%3 | 0.26%3 |
Ratio of Net Investment Income to Average Net Assets | 2.08%3 | 1.30%3 |
Portfolio Turnover Rate4 | 8%3 | 11% |
1 | Inception. |
2 | Calculated based on average shares outstanding. |
3 | Annualized. |
4 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including VIPER Creation Units. See accompanying Notes, which are an integral part of the Financial Statements. |
54
Industrials Index Fund
Notes to Financial Statements
Vanguard Industrials Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund files reports with the SEC under the company name Vanguard World Funds. The fund offers two classes of shares, Admiral Shares and VIPER Shares. Admiral Shares are available to any investor who meets the fund’s minimum purchase requirements. The fund has not issued any Admiral Shares through February 28, 2006. VIPER Shares are listed for trading on the American Stock Exchange; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. mutual funds. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, 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. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. 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. The Vanguard Group furnishes at cost investment advisory, 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 February 28, 2006, the fund had contributed capital of $5,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.01% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
C. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year.
At February 28, 2006, net unrealized appreciation of investment securities for tax purposes was $3,635,000, consisting of unrealized gains of $4,425,000 on securities that had risen in value since their purchase and $790,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2006, the fund purchased $42,426,000 of investment securities and sold $1,250,000 of investment securities, other than temporary cash investments.
E. Capital share transactions were (see table below):
Six Months Ended February 28, 2006 | September 23, 20041 to August 31, 2005 | |||
---|---|---|---|---|
Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | |
VIPER Shares | ||||
Issued | 40,598 | 700 | 30,466 | 600 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | — | — | (16,256) | (300) |
Net Increase (Decrease)—VIPER Shares | 40,598 | 700 | 14,210 | 300 |
1 Inception.
55
Information Technology Index Fund
Fund Profile
As of February 28, 2006
Portfolio Characteristics | Fund | Target Index1 | Broad Index2 |
---|---|---|---|
Number of Stocks | 409 | 409 | 2,478 |
Median Market Cap | $49.6B | $49.6B | $30.6B |
Price/Earnings Ratio | 25.7x | 25.7x | 18.1x |
Price/Book Ratio | 4.0x | 4.0x | 2.9x |
Yield | 0.5% | 1.7% | |
Admiral Shares | 0.3% | ||
VIPER Shares | 0.3% | ||
Return on Equity | 12.6% | 12.7% | 17.3% |
Earnings Growth Rate | 13.7% | 13.8% | 14.0% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 12%3 | — | — |
Expense Ratio | — | — | |
Admiral Shares | 0.28%3 | ||
VIPER Shares | 0.25%3 | ||
Short-Term Reserves | 0% | — | — |
Industry Diversification (% of portfolio) | |
---|---|
Application Software | 4% |
Communications Equipment | 17 |
Computer Hardware | 16 |
Computer Storage & Peripherals | 4 |
Data Processing & Outsourced Services | 7 |
Electronic Equipment & Manufacturers | 2 |
Electronic Manufacturing Services | 1 |
Home Entertainment Software | 1 |
Internet Software & Services | 8 |
IT Consulting & Other Services | 2 |
Office Electronics | 1 |
Semiconductor Equipment | 3 |
Semiconductors | 17 |
Systems Software | 16 |
Technology Distributors | 1 |
Ten Largest Holdings4 (% of total net assets) | |
---|---|
Microsoft Corp. | 11.1% |
International Business Machines Corp. | 5.5 |
Intel Corp. | 5.4 |
Cisco Systems, Inc. | 5.4 |
Hewlett-Packard Co. | 4.0 |
QUALCOMM Inc. | 3.4 |
Google Inc. | 3.1 |
Dell Inc. | 2.8 |
Apple Computer, Inc. | 2.5 |
Motorola, Inc. | 2.3 |
Top Ten | 45.5% |
1 | MSCI US IMI/Information Technology. |
2 | MSCI US IMI/2500. |
3 | Annualized. |
4 | “Ten Largest Holdings” excludes any temporary cash investments and equity index products. |
56
Information Technology Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at www.vanguard.com.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): January 26, 2004–February 28, 2006
[Dark Gray] - Information Technology Index Fund VIPER Shares Net Asset Value
[Light Gray] - MSCI US IMI/Information Technology
Average Annual Total Returns: Periods Ended December 31, 2005
This table presents average annual total returns through the latest calendar quarter—rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information.
Since | |||
---|---|---|---|
Inception Date | One Year | Inception | |
VIPER Shares | 1/26/2004 | ||
Market Price | 2.94% | -1.93% | |
Net Asset Value | 2.89 | -1.91 | |
Admiral Shares2 | 3/25/2004 | 2.85 | 4.05 |
1 | Six months ended February 28, 2006. |
2 | Total returns do not reflect the 2% fee assessed on redemptions of shares held less than one year. Note: See Financial Highlights tables on page 63 for dividend and capital gains information. |
57
Information Technology Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2006
The fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at www.sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Shares | Market Value• ($000) | |
---|---|---|
Common Stocks (99.8%) | ||
Communications Equipment (16.5%) | ||
* Cisco Systems, Inc. | 383,157 | 7,755 |
QUALCOMM Inc. | 102,882 | 4,857 |
Motorola, Inc. | 155,857 | 3,335 |
* Corning, Inc. | 95,061 | 2,320 |
* Lucent Technologies, Inc. | 278,262 | 779 |
* Juniper Networks, Inc. | 30,037 | 552 |
* Tellabs, Inc. | 26,661 | 392 |
Harris Corp. | 8,371 | 382 |
* Comverse Technology, Inc. | 12,572 | 362 |
* Avaya Inc. | 26,731 | 297 |
* JDS Uniphase Corp. | 93,536 | 284 |
* ADC Telecommunications, Inc. | 7,290 | 185 |
* F5 Networks, Inc. | 2,415 | 164 |
* Ciena Corp. | 36,255 | 146 |
* Andrew Corp. | 9,048 | 123 |
* Polycom, Inc. | 6,024 | 117 |
ADTRAN Inc. | 4,051 | 111 |
* 3Com Corp. | 23,941 | 111 |
* Foundry Networks, Inc. | 7,753 | 109 |
* Avocent Corp. | 3,069 | 103 |
Plantronics, Inc. | 2,923 | 101 |
* Powerwave Technologies, Inc. | 6,238 | 92 |
* Interdigital Communications Corp. | 3,394 | 87 |
* CommScope, Inc. | 3,440 | 83 |
* Arris Group Inc. | 6,126 | 78 |
Belden CDT Inc. | 2,861 | 74 |
* Sonus Networks, Inc. | 14,904 | 72 |
* Sycamore Networks, Inc. | 12,204 | 57 |
* Redback Networks Inc. | 2,965 | 56 |
* Dycom Industries, Inc. | 2,509 | 54 |
Black Box Corp. | 1,059 | 51 |
* Tekelec | 3,534 | 47 |
* Comtech Telecommunications Corp. | 1,258 | 39 |
* UTStarcom, Inc. | 6,277 | 39 |
* SafeNet, Inc. | 1,552 | 39 |
* ViaSat, Inc. | 1,411 | 38 |
* Finisar Corp. | 12,430 | 35 |
* NETGEAR, Inc. | 1,978 | 34 |
* Mastec Inc. | 2,566 | 33 |
* Extreme Networks, Inc. | 7,030 | 33 |
* Harmonic, Inc. | 4,492 | 26 |
* Ixia | 2,108 | 25 |
Inter-Tel, Inc. | 1,276 | 25 |
* Packeteer, Inc. | 2,070 | 25 |
* Ditech Communications Corp. | 1,980 | 20 |
* Anaren, Inc. | 1,032 | 18 |
* Westell Technologies, Inc. | 3,673 | 17 |
Bel Fuse, Inc. Class B | 452 | 15 |
* Blue Coat Systems, Inc. | 667 | 14 |
* Oplink Communications, Inc. | 719 | 12 |
Bel Fuse, Inc. Class A | 144 | 4 |
Computers & Peripherals (20.3%) | 23,827 | |
International Business Machines Corp. | 98,835 | 7,931 |
Hewlett-Packard Co. | 177,160 | 5,813 |
* Dell Inc. | 139,904 | 4,057 |
* Apple Computer, Inc. | 52,735 | 3,614 |
* EMC Corp. | 149,593 | 2,097 |
* Sun Microsystems, Inc. | 213,640 | 891 |
* Network Appliance, Inc. | 21,872 | 725 |
* SanDisk Corp. | 11,521 | 695 |
Seagate Technology | 25,865 | 687 |
* NCR Corp. | 11,550 | 463 |
* Lexmark International, Inc. | 7,390 | 348 |
* Western Digital Corp. | 13,497 | 300 |
* QLogic Corp. | 5,019 | 206 |
Diebold, Inc. | 4,352 | 174 |
* Maxtor Corp. | 15,905 | 153 |
* Palm, Inc. | 2,794 | 115 |
* Avid Technology, Inc. | 2,420 | 113 |
* Intermec, Inc. | 3,131 | 96 |
Imation Corp. | 2,133 | 94 |
* Emulex Corp. | 5,187 | 92 |
* Electronics for Imaging, Inc. | 3,408 | 91 |
* Brocade Communications Systems, Inc. | 16,957 | 89 |
* Komag, Inc. | 1,777 | 83 |
* Intergraph Corp. | 1,614 | 58 |
* Adaptec, Inc. | 7,170 | 45 |
* Hutchinson Technology, Inc. | 1,629 | 45 |
* Quantum Corp. | 11,756 | 42 |
* Synaptics Inc. | 1,467 | 34 |
* Gateway, Inc. | 13,645 | 32 |
* Lexar Media, Inc. | 4,842 | 32 |
* McDATA Corp. Class A | 7,328 | 32 |
* Advanced Digital Information Corp. | 3,672 | 32 |
* Presstek, Inc. | 2,026 | 26 |
* Dot Hill Systems Corp. | 2,515 | 17 |
* Novatel Wireless, Inc. | 1,792 | 15 |
* McDATA Corp. Class B | 1,871 | 8 |
Electronic Equipment & Instruments (4.5%) | 29,345 | |
* Agilent Technologies, Inc. | 24,283 | 874 |
* Jabil Circuit, Inc. | 10,887 | 412 |
* Flextronics International Ltd. | 35,609 | 384 |
Amphenol Corp. | 5,539 | 278 |
* Arrow Electronics, Inc. | 7,482 | 260 |
CDW Corp. | 4,024 | 229 |
* Solectron Corp. | 57,256 | 207 |
* Avnet, Inc. | 8,210 | 206 |
Symbol Technologies, Inc. | 15,195 | 177 |
* Ingram Micro, Inc. Class A | 8,403 | 166 |
Tektronix, Inc. | 5,229 | 161 |
* Mettler-Toledo International Inc. | 2,599 | 157 |
* Tech Data Corp. | 3,675 | 153 |
* Vishay Intertechnology, Inc. | 10,484 | 152 |
Molex, Inc. Class A | 5,213 | 148 |
* Trimble Navigation Ltd. | 3,367 | 138 |
* Sanmina-SCI Corp. | 32,624 | 126 |
Molex, Inc. | 3,738 | 119 |
* FLIR Systems, Inc. | 4,351 | 112 |
National Instruments Corp. | 3,449 | 112 |
* Benchmark Electronics, Inc. | 2,627 | 93 |
Anixter International Inc. | 2,024 | 93 |
* Itron, Inc. | 1,551 | 92 |
* Plexus Corp. | 2,738 | 92 |
Cognex Corp. | 2,683 | 74 |
* Brightpoint, Inc. | 2,555 | 72 |
* Checkpoint Systems, Inc. | 2,382 | 68 |
* Coherent, Inc. | 1,942 | 63 |
AVX Corp. | 3,719 | 62 |
* Aeroflex, Inc. | 4,653 | 60 |
* Cogent Inc. | 2,583 | 60 |
Technitrol, Inc. | 2,359 | 52 |
* Global Imaging Systems, Inc. | 1,419 | 51 |
* Rofin-Sinar Technologies Inc. | 938 | 49 |
58
Information Technology Index Fund
Shares | Market Value• ($000) | |
---|---|---|
* Rogers Corp. | 995 | 49 |
* KEMET Corp. | 5,464 | 49 |
MTS Systems Corp. | 1,161 | 46 |
* Electro Scientific Industries, Inc. | 1,818 | 45 |
* Identix, Inc. | 5,479 | 45 |
* Paxar Corp. | 2,322 | 45 |
* ScanSource, Inc. | 775 | 45 |
* Newport Corp. | 2,314 | 41 |
* Dolby Laboratories Inc. | 1,996 | 41 |
* Littelfuse, Inc. | 1,404 | 40 |
Daktronics, Inc. | 983 | 35 |
Park Electrochemical Corp. | 1,152 | 33 |
* Taser International Inc. | 3,371 | 32 |
Methode Electronics, Inc. Class A | 2,413 | 30 |
* TTM Technologies, Inc. | 2,270 | 29 |
* Multi-Fineline Electronix, Inc. | 511 | 29 |
CTS Corp. | 2,146 | 26 |
Agilysys, Inc. | 1,839 | 26 |
Landauer, Inc. | 547 | 25 |
* Mercury Computer Systems, Inc. | 1,342 | 23 |
* Photon Dynamics, Inc. | 1,021 | 22 |
* Excel Technology, Inc. | 727 | 22 |
* Universal Display Corp. | 1,451 | 21 |
* DTS Inc. | 1,080 | 20 |
* OSI Systems Inc. | 931 | 19 |
* Applied Films Corp. | 905 | 17 |
* Metrologic Instruments, Inc. | 647 | 15 |
* SYNNEX Corp. | 806 | 15 |
* Echelon Corp. | 1,719 | 14 |
Keithley Instruments Inc. | 856 | 13 |
Internet Software & Services (8.2%) | 6,464 | |
* Google Inc. | 12,484 | 4,527 |
* eBay Inc. | 65,409 | 2,620 |
* Yahoo! Inc. | 79,897 | 2,562 |
* VeriSign, Inc. | 15,988 | 378 |
* Akamai Technologies, Inc. | 8,105 | 215 |
* CNET Networks, Inc. | 8,828 | 122 |
* Openwave Systems Inc. | 5,543 | 110 |
* ValueClick, Inc. | 5,357 | 94 |
* aQuantive, Inc. | 3,440 | 91 |
* Websense, Inc. | 1,475 | 91 |
* Digital River, Inc. | 2,215 | 83 |
* EarthLink, Inc. | 8,248 | 82 |
* Digitas Inc. | 5,550 | 78 |
* Digital Insight Corp. | 2,168 | 72 |
* Equinix, Inc. | 1,344 | 70 |
* WebEx Communications, Inc. | 2,156 | 60 |
* RealNetworks, Inc. | 7,549 | 59 |
* j2 Global Communications, Inc. | 1,289 | 56 |
* HomeStore, Inc. | 8,704 | 54 |
United Online, Inc. | 3,836 | 46 |
* InfoSpace, Inc. | 1,794 | 43 |
* Ariba, Inc. | 4,230 | 43 |
* CMGI Inc. | 23,464 | 34 |
* Marchex, Inc. | 1,233 | 27 |
* Vignette Corp. | 1,601 | 26 |
* iVillage Inc. | 3,139 | 26 |
* iPass Inc. | 3,358 | 25 |
* webMethods, Inc. | 3,079 | 23 |
* SonicWALL, Inc. | 3,380 | 23 |
* Interwoven Inc. | 2,383 | 21 |
* MatrixOne, Inc. | 3,090 | 19 |
* Jupitermedia Corp. | 1,235 | 18 |
* S1 Corp. | 4,118 | 17 |
* NetRatings, Inc. | 742 | 10 |
IT Services (8.7%) | 11,825 | |
First Data Corp. | 47,659 | 2,151 |
Automatic Data Processing, Inc. | 36,080 | 1,667 |
Accenture Ltd. | 30,478 | 995 |
Electronic Data Systems Corp. | 32,635 | 871 |
Paychex, Inc. | 21,215 | 850 |
* Computer Sciences Corp. | 11,577 | 629 |
* Cognizant Technology Solutions Corp. | 8,492 | 489 |
* Fiserv, Inc. | 11,686 | 485 |
* Affiliated Computer Services, Inc. Class A | 7,448 | 469 |
* Iron Mountain, Inc. | 6,169 | 270 |
* CheckFree Corp. | 4,827 | 239 |
* Ceridian Corp. | 9,054 | 234 |
Global Payments Inc. | 4,084 | 213 |
* DST Systems, Inc. | 3,573 | 201 |
Sabre Holdings Corp. | 8,194 | 198 |
* Alliance Data Systems Corp. | 4,443 | 192 |
Fidelity National Information Services, Inc. | 4,219 | 167 |
* Convergys Corp. | 8,777 | 152 |
MoneyGram International, Inc. | 5,289 | 152 |
* Unisys Corp. | 21,073 | 141 |
Acxiom Corp. | 5,214 | 135 |
* Anteon International Corp. | 2,101 | 116 |
* CACI International, Inc. | 1,885 | 114 |
* BISYS Group, Inc. | 7,474 | 105 |
* BearingPoint, Inc. | 11,094 | 99 |
* MPS Group, Inc. | 6,371 | 96 |
* Hewitt Associates, Inc. | 3,326 | 90 |
* eFunds Corp. | 2,880 | 78 |
* Perot Systems Corp. | 5,055 | 76 |
* SRA International, Inc. | 1,957 | 68 |
* CSG Systems International, Inc. | 2,885 | 63 |
Talx Corp. | 1,876 | 60 |
* Euronet Worldwide, Inc. | 1,692 | 59 |
* Gartner, Inc. Class A | 3,907 | 55 |
* Wright Express Corp. | 2,121 | 51 |
* VeriFone Holdings, Inc. | 1,887 | 50 |
Total System Services, Inc. | 2,476 | 49 |
MAXIMUS, Inc. | 1,180 | 43 |
Gevity HR, Inc. | 1,613 | 41 |
* Sapient Corp. | 4,956 | 37 |
* Keane, Inc. | 3,138 | 37 |
* iPayment Holdings, Inc. | 846 | 36 |
* ManTech International Corp. | 1,122 | 32 |
* Intrado Inc. | 1,103 | 28 |
infoUSA Inc. | 2,239 | 26 |
* Lionbridge Technologies, Inc. | 3,377 | 24 |
* Sykes Enterprises, Inc. | 1,588 | 21 |
* Ciber, Inc. | 3,468 | 20 |
* Tyler Technologies, Inc. | 2,011 | 20 |
* Forrester Research, Inc. | 856 | 19 |
* Kanbay International Inc. | 1,036 | 18 |
* Covansys Corp. | 1,159 | 17 |
* Ness Technologies Inc. | 1,288 | 14 |
* RightNow Technologies Inc. | 713 | 12 |
Syntel, Inc. | 482 | 8 |
Office Electronics (0.7%) | 12,582 | |
* Xerox Corp. | 60,096 | 895 |
* Zebra Technologies Corp. Class A | 4,243 | 187 |
Semiconductors & Semiconductor Equipment (19.7%) | 1,082 | |
Intel Corp. | 377,252 | 7,771 |
Texas Instruments, Inc. | 101,247 | 3,022 |
Applied Materials, Inc. | 101,108 | 1,854 |
* Broadcom Corp. | 26,492 | 1,194 |
* Advanced Micro Devices, Inc. | 28,135 | 1,088 |
Analog Devices, Inc. | 22,954 | 875 |
* Marvell Technology Group Ltd. | 13,299 | 814 |
Maxim Integrated Products, Inc. | 20,513 | 802 |
Linear Technology Corp. | 19,044 | 702 |
KLA-Tencor Corp. | 12,260 | 640 |
National Semiconductor Corp. | 21,505 | 603 |
* Micron Technology, Inc. | 38,671 | 600 |
Xilinx, Inc. | 21,773 | 594 |
* NVIDIA Corp. | 10,176 | 480 |
Microchip Technology, Inc. | 13,152 | 463 |
* Freescale Semiconductor, Inc. Class B | 16,786 | 454 |
* Altera Corp. | 22,609 | 453 |
59
Information Technology Index Fund
Shares | Market Value• ($000) | |
---|---|---|
* MEMC Electronic Materials, Inc. | 10,987 | 368 |
* LAM Research Corp. | 8,488 | 366 |
Intersil Corp. | 9,560 | 271 |
* LSI Logic Corp. | 24,391 | 238 |
* Novellus Systems, Inc. | 8,646 | 231 |
* Freescale Semiconductor, Inc. Class A | 8,434 | 227 |
* Teradyne, Inc. | 12,292 | 206 |
* Integrated Device Technology Inc. | 12,492 | 186 |
* Rambus Inc. | 5,565 | 173 |
* International Rectifier Corp. | 4,416 | 164 |
* Agere Systems Inc. | 11,371 | 153 |
* Cypress Semiconductor Corp. | 8,258 | 147 |
* Cree, Inc. | 4,678 | 140 |
* Fairchild Semiconductor International, Inc. | 7,530 | 131 |
* Atmel Corp. | 26,792 | 122 |
* Silicon Laboratories Inc. | 2,535 | 122 |
* PMC Sierra Inc. | 11,411 | 117 |
* Microsemi Corp. | 3,730 | 115 |
* Varian Semiconductor Equipment Associates, Inc. | 2,333 | 110 |
* Cymer, Inc. | 2,213 | 100 |
* SiRF Technology Holdings, Inc. | 2,484 | 93 |
* OmniVision Technologies, Inc. | 3,630 | 93 |
* Tessera Technologies, Inc. | 2,810 | 88 |
* Conexant Systems, Inc. | 29,295 | 87 |
* Semtech Corp. | 4,603 | 86 |
* FormFactor Inc. | 2,218 | 82 |
* Trident Microsystems, Inc. | 2,825 | 79 |
* RF Micro Devices, Inc. | 11,654 | 78 |
* ATMI, Inc. | 2,361 | 71 |
* Entegris Inc. | 6,568 | 69 |
* Brooks Automation, Inc. | 4,376 | 69 |
* Applied Micro Circuits Corp. | 18,875 | 68 |
* ON Semiconductor Corp. | 9,540 | 63 |
* Amkor Technology, Inc. | 6,748 | 60 |
* Micrel, Inc. | 4,066 | 57 |
* Zoran Corp. | 2,809 | 56 |
* Cabot Microelectronics Corp. | 1,511 | 52 |
* Skyworks Solutions, Inc. | 9,831 | 52 |
* Silicon Image, Inc. | 4,674 | 51 |
* DSP Group Inc. | 1,818 | 49 |
* MKS Instruments, Inc. | 2,150 | 48 |
* Diodes Inc. | 1,220 | 46 |
* Credence Systems Corp. | 5,246 | 45 |
* Power Integrations, Inc. | 1,825 | 45 |
* Genesis Microchip Inc. | 2,106 | 45 |
* Axcelis Technologies, Inc. | 6,143 | 42 |
* Vitesse Semiconductor Corp. | 13,341 | 42 |
* Photronics Inc. | 2,342 | 41 |
* TriQuint Semiconductor, Inc. | 8,455 | 40 |
* Cirrus Logic, Inc. | 5,248 | 40 |
* Standard Microsystem Corp. | 1,191 | 39 |
* Atheros Communications | 1,830 | 38 |
* Kulicke & Soffa Industries, Inc. | 3,216 | 36 |
* Veeco Instruments, Inc. | 1,653 | 33 |
* Mattson Technology, Inc. | 2,681 | 32 |
* Lattice Semiconductor Corp. | 6,975 | 32 |
* FEI Co. | 1,541 | 31 |
* Advanced Energy Industries, Inc. | 2,089 | 30 |
* Asyst Technologies, Inc. | 2,971 | 29 |
* Ultratech, Inc. | 1,388 | 28 |
Cohu, Inc. | 1,265 | 27 |
* Silicon Storage Technology, Inc. | 5,897 | 27 |
* Exar Corp. | 2,122 | 26 |
* PortalPlayer Inc. | 1,026 | 26 |
* AMIS Holdings Inc. | 2,666 | 23 |
* SigmaTel Inc. | 2,112 | 23 |
* Actel Corp. | 1,528 | 22 |
* LTX Corp. | 3,718 | 21 |
* PDF Solutions, Inc. | 1,108 | 19 |
* Kopin Corp. | 4,223 | 18 |
* IXYS Corp. | 1,669 | 18 |
* Integrated Silicon Solution, Inc. | 2,231 | 14 |
* Semitool, Inc. | 1,043 | 13 |
* Pixelworks, Inc. | 2,808 | 13 |
Software (21.2%) | 28,551 | |
Microsoft Corp. | 599,461 | 16,126 |
* Oracle Corp. | 263,617 | 3,274 |
Adobe Systems, Inc. | 37,620 | 1,453 |
* Symantec Corp. | 67,659 | 1,143 |
* Electronic Arts Inc. | 18,895 | 982 |
CA, Inc. | 29,182 | 793 |
Autodesk, Inc. | 14,468 | 545 |
* Intuit, Inc. | 10,445 | 507 |
* Citrix Systems, Inc. | 11,001 | 356 |
* Cadence Design Systems, Inc. | 17,319 | 307 |
* BMC Software, Inc. | 13,580 | 297 |
* Red Hat, Inc. | 10,541 | 283 |
* BEA Systems, Inc. | 23,291 | 267 |
* McAfee Inc. | 10,314 | 240 |
* NAVTEQ Corp. | 5,138 | 238 |
* Novell, Inc. | 23,787 | 226 |
* Activision, Inc. | 16,961 | 212 |
* Synopsys, Inc. | 9,130 | 200 |
* Compuware Corp. | 24,254 | 199 |
Fair Isaac, Inc. | 4,093 | 174 |
* salesforce.com, Inc. | 4,066 | 142 |
* Hyperion Solutions Corp. | 3,733 | 125 |
* Sybase, Inc. | 5,649 | 120 |
Reynolds & Reynolds Class A | 3,900 | 108 |
Jack Henry & Associates Inc. | 4,861 | 107 |
* TIBCO Software Inc. | 11,834 | 103 |
* Parametric Technology Corp. | 6,740 | 103 |
* MICROS Systems, Inc. | 2,384 | 103 |
* THQ Inc. | 3,943 | 95 |
* ANSYS, Inc. | 1,966 | 93 |
* Informatica Corp. | 5,436 | 87 |
* Kronos, Inc. | 1,975 | 81 |
* Nuance Communications, Inc. | 7,486 | 80 |
* Transaction Systems Architects, Inc. | 2,359 | 79 |
FactSet Research Systems Inc. | 1,927 | 75 |
* Wind River Systems Inc. | 4,773 | 74 |
* Progress Software Corp. | 2,485 | 73 |
* Take-Two Interactive Software, Inc. | 4,438 | 69 |
* FileNet Corp. | 2,551 | 66 |
* RSA Security Inc. | 4,390 | 64 |
* Quest Software, Inc. | 4,272 | 62 |
* MicroStrategy Inc. | 666 | 61 |
* Internet Security Systems, Inc. | 2,561 | 60 |
* Macrovision Corp. | 2,947 | 60 |
* Mentor Graphics Corp. | 4,613 | 52 |
* Witness Systems, Inc. | 1,963 | 46 |
* Opsware, Inc. | 5,193 | 41 |
* SERENA Software, Inc. | 1,705 | 41 |
* Advent Software, Inc. | 1,463 | 41 |
* Epicor Software Corp. | 3,093 | 38 |
* Manhattan Associates, Inc. | 1,782 | 38 |
* NetIQ Corp. | 3,313 | 37 |
* Secure Computing Corp. | 2,818 | 34 |
* Open Solutions Inc. | 1,223 | 33 |
Quality Systems, Inc. | 482 | 33 |
* SPSS, Inc. | 978 | 32 |
* Blackboard Inc. | 1,060 | 31 |
* Lawson Software Inc. | 3,841 | 31 |
* Verint Systems Inc. | 810 | 29 |
* Sonic Solutions, Inc. | 1,511 | 27 |
* Altiris, Inc. | 1,348 | 27 |
* Borland Software Corp. | 4,881 | 26 |
* Concur Technologies, Inc. | 1,642 | 25 |
* JDA Software Group, Inc. | 1,668 | 23 |
* Agile Software Corp. | 3,207 | 22 |
* InterVoice, Inc. | 2,447 | 21 |
* EPIQ Systems, Inc. | 943 | 21 |
* MRO Software Inc. | 1,337 | 20 |
60
Information Technology Index Fund
Shares | Market Value• ($000) | |
---|---|---|
* Magma Design Automation, Inc. | 2,122 | 18 |
* OpenTV Corp. | 5,019 | 13 |
* FalconStor Software, Inc. | 1,425 | 13 |
Blackbaud, Inc. | 627 | 11 |
Renaissance Learning, Inc. | 582 | 10 |
* Ulticom, Inc. | 771 | 9 |
QAD Inc. | 758 | 6 |
* Pegasystems Inc. | 729 | 6 |
30,767 | ||
Total Common Stocks (Cost $139,302) | 144,443 | |
Temporary Cash Investment (0.2%) | ||
1 Vanguard Market Liquidity Fund, 4.511% (Cost $286) | 285,629 | 286 |
Total Investments (100.0%) (Cost $139,588) | 144,729 | |
Other Assets and Liabilities (0.0%) | ||
Other Assets—-Note B | 1,121 | |
Liabilities | (1,112) | |
9 | ||
Net Assets (100%) | 144,738 |
At February 28, 2006, net assets consisted of:2
Amount ($000) | |
---|---|
Paid-in Capital | 140,566 |
Undistributed Net Investment Income | 76 |
Accumulated Net Realized Losses | (1,045) |
Unrealized Appreciation | 5,141 |
Net Assets | 144,738 |
Admiral Shares—Net Assets | |
Applicable to 209,273 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 5,334 |
Net Asset Value Per Share— | |
Admiral Shares | $25.49 |
VIPER Shares—Net Assets | |
Applicable to 2,800,000 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 139,404 |
Net Asset Value Per Share— | |
VIPER Shares | $49.79 |
• | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
1 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
2 | See Note C in Notes to Financial Statements for the tax-basis components of net assets. |
61
Information Technology Index Fund
Statement of Operations
Six Months Ended Feb. 28, 2006 | |
---|---|
($000) | |
Investment Income | |
Income | |
Dividends | 292 |
Interest1 | 1 |
Total Income | 293 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 4 |
Management and Administrative | |
Admiral Shares | 3 |
VIPER Shares | 79 |
Marketing and Distribution | |
Admiral Shares | — |
VIPER Shares | 10 |
Custodian Fees | 19 |
Shareholders' Reports | |
Admiral Shares | 1 |
VIPER Shares | 2 |
Total Expenses | 118 |
Net Investment Income | 175 |
Realized Net Gain (Loss) on | |
Investment Securities Sold | (823) |
Change in Unrealized Appreciation | |
(Depreciation) of Investment Securities | 5,057 |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 4,409 |
Statement of Changes in Net Assets
Six Months Ended Feb. 28, 2006 ($000) | Year Ended Aug. 31, 2005 ($000) | |
---|---|---|
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 175 | 343 |
Realized Net Gain (Loss) | (823) | (150) |
Change in Unrealized Appreciation (Depreciation) | 5,057 | 4,225 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 4,409 | 4,418 |
Distributions | ||
Net Investment Income | ||
Admiral Shares | (4) | (6) |
VIPER Shares | (200) | (244) |
Realized Capital Gain | ||
Admiral Shares | — | — |
VIPER Shares | — | — |
Total Distributions | (204) | (250) |
Capital Share Transactions—Note E | ||
Admiral Shares | 3,176 | 1,721 |
VIPER Shares | 83,870 | 31,193 |
Net Increase (Decrease) from Capital Share Transactions | 87,046 | 32,914 |
Total Increase (Decrease) | 91,251 | 37,082 |
Net Assets | ||
Beginning of Period | 53,487 | 16,405 |
End of Period2 | 144,738 | 53,487 |
1 | Interest income from an affiliated company of the fund was $1,000. |
2 | Including undistributed net investment income of $76,000 and $105,000. |
62
Information Technology Index Fund
Financial Highlights
Admiral Shares
For a Share Outstanding Throughout Each Period | Six Months Ended Feb. 28, 2006 | Year Ended Aug. 31, 2005 | Mar. 251 to Aug. 31, 2004 |
---|---|---|---|
Net Asset Value, Beginning of Period | $23.93 | $20.72 | $23.40 |
Investment Operations | |||
Net Investment Income | .0462 | .3513 | .01 |
Net Realized and Unrealized Gain (Loss) on Investments | 1.552 | 3.182 | (2.69) |
Total from Investment Operations | 1.598 | 3.533 | (2.68) |
Distributions | |||
Dividends from Net Investment Income | (.038) | (.323) | — |
Distributions from Realized Capital Gains | — | — | — |
Total Distributions | (.038) | (.323) | — |
Net Asset Value, End of Period | $25.49 | $23.93 | $20.72 |
Total Return4 | 6.68% | 17.05% | -11.45% |
Ratios/Supplemental Data | |||
Net Assets, End of Period (Millions) | $5 | $2 | $0.2 |
Ratio of Total Expenses to Average Net Assets | 0.28%5 | 0.28% | 0.28%5 |
Ratio of Net Investment Income to Average Net Assets | 0.35%5 | 1.26%3 | 0.12%5 |
Portfolio Turnover Rate6 | 12%5 | 7% | 9% |
VIPER Shares
For a Share Outstanding Throughout Each Period | Six Months Ended Feb. 28, 2006 | Year Ended Aug. 31, 2005 | Jan. 261 to Aug. 31, 2004 |
---|---|---|---|
Net Asset Value, Beginning of Period | $46.76 | $40.46 | $50.89 |
Investment Operations | |||
Net Investment Income | .0892 | .6707 | .03 |
Net Realized and Unrealized Gain (Loss) on Investments | 3.032 | 6.239 | (10.46) |
Total from Investment Operations | 3.121 | 6.909 | (10.43) |
Distributions | |||
Dividends from Net Investment Income | (.091) | (.609) | — |
Distributions from Realized Capital Gains | — | — | — |
Total Distributions | (.091) | (.609) | — |
Net Asset Value, End of Period | $49.79 | $46.76 | $40.46 |
Total Return | 6.68% | 17.07% | -20.50% |
Ratios/Supplemental Data | |||
Net Assets, End of Period (Millions) | $139 | $51 | $16 |
Ratio of Total Expenses to Average Net Assets | 0.25%5 | 0.26% | 0.28%5 |
Ratio of Net Investment Income to Average Net Assets | 0.38%5 | 1.28%7 | 0.12%5 |
Portfolio Turnover Rate6 | 12%5 | 7% | 9% |
1 | Inception. |
2 | Calculated based on average shares outstanding. |
3 | Netinvestment income per share and the ratio of net investment income to average net assets include $.284 and 1.00%, respectively, resulting from a special dividend from Microsoft Corp. in November 2004. |
4 | Total returns do not reflect the 2% fee assessed on redemptions of shares held for less than one year. |
5 | Annualized. |
6 | Excludesthe value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including VIPER Creation Units. |
7 | Net investment income per share and the ratio of net investment income to average net assets include $.553 and 1.00%, respectively, resulting from a special dividend from Microsoft Corp. in November 2004. See accompanying Notes, which are an integral part of the Financial Statements. |
63
Information Technology Index Fund
Notes to Financial Statements
Vanguard Information Technology Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund files reports with the SEC under the company name Vanguard World Funds. The fund offers two classes of shares, Admiral Shares and VIPER Shares. Admiral Shares are available to any investor who meets the fund’s minimum purchase requirements. VIPER Shares are listed for trading on the American Stock Exchange; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. mutual funds. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset 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. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold. Fees assessed on redemptions of Admiral Shares are credited to paid-in capital.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. The Vanguard Group furnishes at cost investment advisory, 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 February 28, 2006, the fund had contributed capital of $15,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.01% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
C. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at August 31, 2005, the fund had available realized losses of $222,000 to offset future net capital gains of $62,000 through August 31, 2013, and $160,000 through August 31, 2014. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2006; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balances above.
At February 28, 2006, net unrealized appreciation of investment securities for tax purposes was $5,141,000, consisting of unrealized gains of $10,303,000 on securities that had risen in value since their purchase and $5,162,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2006, the fund purchased $92,588,000 of investment securities and sold $5,761,000 of investment securities, other than temporary cash investments.
E. Capital share transactions for each class of shares were (see table below):
Six Months Ended February 28, 2006 | Year Ended August 31, 2005 | |||
---|---|---|---|---|
Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | |
Adm iral Shares | ||||
Issued | 3,801 | 150 | 1,729 | 76 |
Issued in Lieu of Cash Distributions | 4 | — | 6 | — |
Redeemed1 | (629) | (26) | (14) | (1) |
Net Increase (Decrease)—Admiral Shares | 3,176 | 124 | 1,721 | 75 |
VIPER Shares | ||||
Issued | 83,870 | 1,700 | 31,193 | 700 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | — | — | — | — |
Net Increase (Decrease)—VIPER Shares | 83,870 | 1,700 | 31,193 | 700 |
1 Net of redemption fees of $4,000 and $0
64
Materials Index Fund
Fund Profile
As of February 28, 2006
Portfolio Characteristics | Fund | Target Index1 | Broad Index2 |
---|---|---|---|
Number of Stocks | 119 | 119 | 2,478 |
Median Market Cap | $13.4B | $13.4B | $30.6B |
Price/Earnings Ratio | 17.4x | 17.4x | 18.1x |
Price/Book Ratio | 2.7x | 2.7x | 2.9x |
Yield | 2.0% | 1.7% | |
Admiral Shares | 2.0% | ||
VIPER Shares | 2.1% | ||
Return on Equity | 12.1% | 12.1% | 17.3% |
Earnings Growth Rate | 14.2% | 14.3% | 14.0% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 12%3 | — | — |
Expense Ratio | — | — | |
Admiral Shares | 0.28%3 | ||
VIPER Shares | 0.25%3 | ||
Short-Term Reserves | 0% | — | — |
Industry Diversification (% of portfolio) | |
---|---|
Aluminum | 6% |
Commodity Chemicals | 2 |
Construction Materials | 5 |
Diversified Chemicals | 24 |
Diversified Metals & Mining | 6 |
Fertilizers & Agricultural Chemicals | 6 |
Forest Products | 4 |
Gold | 5 |
Industrial Gases | 8 |
Metal & Glass Containers | 4 |
Paper Packaging | 5 |
Paper Products | 5 |
Precious Metals & Minerals | 1 |
Specialty Chemicals | 10 |
Steel | 9 |
Ten Largest Holdings4 (% of total net assets) | |
---|---|
Dow Chemical Co. | 9.0% |
E.I. du Pont de Nemours & Co. | 8.1 |
Alcoa Inc. | 5.5 |
Newmont Mining Corp. (Holding Co.) | 5.1 |
Monsanto Co. | 4.9 |
Praxair, Inc. | 3.8 |
Weyerhaeuser Co. | 3.6 |
International Paper Co. | 3.3 |
Air Products & Chemicals, Inc. | 3.1 |
Phelps Dodge Corp. | 3.0 |
Top Ten | 49.4% |
1 | MSCI US IMI/Materials. |
2 | MSCI US IMI/2500. |
3 | Annualized. |
4 | “Ten Largest Holdings” excludes any temporary cash investments and equity index products. |
65
Materials Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at www.vanguard.com.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): January 26, 2004–February 28, 2006
[Dark Gray] - Materials Index Fund VIPER Shares Net Asset Value
[Light gray] - MSCI US IMI/Materials
Average Annual Total Returns: Periods Ended December 31, 2005
This table presents average annual total returns through the latest calendar quarter—rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information.
Since | |||
---|---|---|---|
Inception Date | One Year | Inception | |
VIPER Shares | 1/26/2004 | ||
Market Price | 3.60% | 12.39% | |
Net Asset Value | 3.71 | 12.41 | |
Admiral Shares2 | 2/11/2004 | 3.67 | 10.48 |
1 | Six months ended February 28, 2006. |
2 | Reflective of the 2% fee assessed on redemptions of shares held less than one year. Note: See Financial Highlights tables on page 70 for dividend and capital gains information. |
66
Materials Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2006
The fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at www.sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Shares | Market Value• ($000) | |
---|---|---|
Common Stocks (100.0%) | ||
Chemicals (49.3%) | ||
Dow Chemical Co. | 162,983 | 7,013 |
E.I. du Pont de Nemours & Co. | 156,606 | 6,302 |
Monsanto Co. | 45,323 | 3,802 |
Praxair, Inc. | 54,457 | 2,940 |
Air Products & Chemicals, Inc. | 37,465 | 2,404 |
PPG Industries, Inc. | 28,530 | 1,730 |
Rohm & Haas Co. | 24,289 | 1,208 |
Ecolab, Inc. | 32,405 | 1,173 |
Engelhard Corp. | 20,283 | 806 |
Lyondell Chemical Co. | 37,542 | 785 |
Ashland, Inc. | 11,322 | 739 |
Sigma-Aldrich Corp. | 11,304 | 728 |
Eastman Chemical Co. | 13,648 | 673 |
Lubrizol Corp. | 11,387 | 493 |
International Flavors & Fragrances, Inc. | 13,367 | 463 |
Chemtura Corp. | 39,073 | 433 |
Valspar Corp. | 16,183 | 428 |
Airgas, Inc. | 11,582 | 421 |
Scotts Miracle-Gro Co. | 7,856 | 376 |
* FMC Corp. | 6,156 | 374 |
Cabot Corp. | 9,826 | 364 |
* The Mosaic Co. | 22,363 | 356 |
RPM International, Inc. | 19,697 | 355 |
Cytec Industries, Inc. | 6,554 | 350 |
* Huntsman Corp. | 14,767 | 301 |
Celanese Corp. Series A | 13,284 | 284 |
Albemarle Corp. | 6,637 | 282 |
Olin Corp. | 11,935 | 251 |
* Nalco Holding Co. | 13,092 | 229 |
* Hercules, Inc. | 17,947 | 213 |
H.B. Fuller Co. | 4,841 | 197 |
Minerals Technologies, Inc. | 3,346 | 179 |
Georgia Gulf Corp. | 5,384 | 155 |
* Symyx Technologies, Inc. | 5,253 | 152 |
Ferro Corp. | 7,029 | 141 |
MacDermid, Inc. | 4,608 | 136 |
Sensient Technologies Corp. | 7,538 | 135 |
Spartech Corp. | 5,361 | 130 |
* PolyOne Corp. | 13,864 | 121 |
A. Schulman Inc. | 5,109 | 120 |
* W.R. Grace & Co. | 11,201 | 114 |
* Terra Industries, Inc. | 15,361 | 109 |
Arch Chemicals, Inc. | 3,720 | 105 |
* OM Group, Inc. | 4,668 | 99 |
Westlake Chemical Corp. | 2,140 | 73 |
Calgon Carbon Corp. | 6,527 | 51 |
Wellman, Inc. | 5,927 | 37 |
NL Industries, Inc. | 1,757 | 23 |
Construction Materials (5.2%) | 38,353 | |
Vulcan Materials Co. | 17,215 | 1,360 |
Martin Marietta Materials, Inc. | 7,798 | 760 |
Florida Rock Industries, Inc. | 8,216 | 473 |
Lafarge North America Inc. | 5,441 | 451 |
Eagle Materials, Inc. | 4,872 | 264 |
* Headwaters Inc. | 6,988 | 259 |
Texas Industries, Inc. | 3,851 | 234 |
Eagle Materials, Inc. Class B | 4,209 | 226 |
Containers & Packaging (8.5%) | 4,027 | |
* Sealed Air Corp. | 14,067 | 800 |
Temple-Inland Inc. | 17,967 | 767 |
Ball Corp. | 17,390 | 741 |
* Pactiv Corp. | 25,024 | 574 |
* Smurfit-Stone Container Corp. | 42,585 | 559 |
Sonoco Products Co. | 15,736 | 515 |
Bemis Co., Inc. | 17,038 | 511 |
* Crown Holdings, Inc. | 27,839 | 509 |
* Owens-Illinois, Inc. | 25,748 | 483 |
Packaging Corp. of America | 13,855 | 316 |
AptarGroup Inc. | 5,817 | 309 |
Silgan Holdings, Inc. | 3,988 | 157 |
Greif Inc. Class A | 1,933 | 112 |
Myers Industries, Inc. | 4,226 | 68 |
Rock-Tenn Co. | 4,717 | 62 |
* Caraustar Industries, Inc. | 4,725 | 48 |
Chesapeake Corp. of Virginia | 3,214 | 42 |
* Graphic Packaging Corp. | 16,203 | 42 |
Metals & Mining (27.1%) | 6,615 | |
Alcoa Inc. | 146,976 | 4,309 |
Newmont Mining Corp. (Holding Co.) | 75,423 | 3,991 |
Phelps Dodge Corp. | 17,173 | 2,370 |
Nucor Corp. | 26,298 | 2,263 |
Freeport-McMoRan Copper & Gold, Inc. Class B | 31,235 | 1,581 |
United States Steel Corp. | 19,128 | 1,042 |
Allegheny Technologies Inc. | 14,031 | 709 |
Reliance Steel & Aluminum Co. | 4,776 | 393 |
Commercial Metals Co. | 8,264 | 374 |
Carpenter Technology Corp. | 3,822 | 319 |
Cleveland-Cliffs Inc. | 3,686 | 317 |
Steel Dynamics, Inc. | 6,083 | 280 |
Quanex Corp. | 4,383 | 272 |
* Coeur d'Alene Mines Corp. | 41,986 | 233 |
* Titanium Metals Corp. | 5,632 | 231 |
Worthington Industries, Inc. | 11,798 | 231 |
* Oregon Steel Mills, Inc. | 5,928 | 225 |
* AK Steel Corp. | 17,485 | 194 |
* Aleris International Inc. | 4,379 | 188 |
* Apex Silver Mines Ltd. | 7,706 | 178 |
* Chaparral Steel Co. | 3,768 | 173 |
* RTI International Metals, Inc. | 3,765 | 158 |
* Century Aluminum Co. | 3,687 | 131 |
Compass Minerals International | 5,040 | 126 |
Schnitzer Steel Industries, Inc. Class A | 3,690 | 115 |
Royal Gold, Inc. | 3,353 | 105 |
Metal Management, Inc. | 3,734 | 105 |
Gibraltar Industries Inc. | 4,090 | 104 |
AMCOL International Corp. | 3,664 | 101 |
Ryerson Tull, Inc. | 3,957 | 100 |
* Hecla Mining Co. | 19,577 | 97 |
* Stillwater Mining Co. | 6,725 | 87 |
Oil, Gas & Consumable Fuels (0.2%) | 21,102 | |
* Alpha Natural Resources, Inc. | 8,688 | 186 |
Paper & Forest Products (9.6%) | ||
Weyerhaeuser Co. | 40,982 | 2,799 |
International Paper Co. | 78,563 | 2,575 |
MeadWestvaco Corp. | 30,784 | 856 |
Louisiana-Pacific Corp. | 17,673 | 502 |
Bowater Inc. | 9,316 | 242 |
Glatfelter | 6,194 | 102 |
67
Materials Index Fund
Shares | Market Value• ($000) | |
---|---|---|
Wausau Paper Corp. | 7,760 | 101 |
Deltic Timber Corp. | 1,681 | 88 |
Neenah Paper Inc. | 2,431 | 74 |
Schweitzer-Mauduit International, Inc. | 2,311 | 59 |
* Buckeye Technology, Inc. | 6,031 | 53 |
Trading Companies & Distributors (0.1%) | 7,451 | |
UAP Holding Corp. | 4,619 | 101 |
Total Investments (Cost $74,160) | 77,835 | |
Other Assets and Liabilities (0.0%) | ||
Other Assets—Note B | 734 | |
Liabilities | (729) | |
5 | ||
Net Assets (100%) | 77,840 |
At February 28, 2006, net assets consisted of:1
Amount ($000) | |
---|---|
Paid-in Capital | 74,801 |
Undistributed Net Investment Income | 242 |
Accumulated Net Realized Losses | (878) |
Unrealized Appreciation | 3,675 |
Net Assets | 77,840 |
Admiral Shares—Net Assets | |
Applicable to 282,535 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 8,994 |
Net Asset Value Per Share— | |
Admiral Shares | $31.83 |
VIPER Shares—Net Assets | |
Applicable to 1,100,000 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 68,846 |
Net Asset Value Per Share— | |
VIPER Shares | $62.59 |
• | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
1 | See Note C in Notes to Financial Statements for the tax-basis components of net assets. |
68
Materials Index Fund
Statement of Operations
Six Months Ended Feb. 28, 2006 | |
---|---|
($000) | |
Investment Income | |
Income | |
Dividends | 797 |
Interest1 | 1 |
Total Income | 798 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 6 |
Management and Administrative | |
Admiral Shares | 8 |
VIPER Shares | 51 |
Marketing and Distribution | |
Admiral Shares | 1 |
VIPER Shares | 9 |
Custodian Fees | 3 |
Shareholders' Reports | |
Admiral Shares | 1 |
VIPER Shares | 1 |
Total Expenses | 80 |
Net Investment Income | 718 |
Realized Net Gain (Loss) on | |
Investment Securities Sold | (435) |
Change in Unrealized Appreciation | |
(Depreciation) of Investment Securities | 7,893 |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 8,176 |
Statement of Changes in Net Assets
Six Months Ended Feb. 28, 2006 ($000) | Year Ended Aug. 31, 2005 ($000) | |
---|---|---|
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 718 | 694 |
Realized Net Gain (Loss) | (435) | 4,347 |
Change in Unrealized Appreciation (Depreciation) | 7,893 | (5,049) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 8,176 | (8) |
Distributions | ||
Net Investment Income | ||
Admiral Shares | (135) | (11) |
VIPER Shares | (871) | (390) |
Realized Capital Gain | ||
Admiral Shares | — | — |
VIPER Shares | — | — |
Total Distributions | (1,006) | (401) |
Capital Share Transactions—Note E | ||
Admiral Shares | 1,213 | 6,678 |
VIPER Shares | 12,494 | 29,307 |
Net Increase (Decrease) from Capital Share Transactions | 13,707 | 35,985 |
Total Increase (Decrease) | 20,877 | 35,576 |
Net Assets | ||
Beginning of Period | 56,963 | 21,387 |
End of Period2 | 77,840 | 56,963 |
1 | Interest income from an affiliated company of the fund was $1,000. |
2 | Including undistributed net investment income of $242,000 and $530,000. |
69
Materials Index Fund
Financial Highlights
Admiral Shares
For a Share Outstanding Throughout Each Period | Six Months Ended Feb. 28, 2006 | Year Ended Aug. 31, 2005 | Feb. 111 to Aug. 31, 2004 |
---|---|---|---|
Net Asset Value, Beginning of Period | $28.34 | $26.53 | $26.14 |
Investment Operations | |||
Net Investment Income | .325 | .48 | .24 |
Net Realized and Unrealized Gain (Loss) on Investments | 3.660 | 1.83 | .15 |
Total from Investment Operations | 3.985 | 2.31 | .39 |
Distributions | |||
Dividends from Net Investment Income | (.495) | (.50) | — |
Distributions from Realized Capital Gains | — | — | — |
Total Distributions | (.495) | (.50) | — |
Net Asset Value, End of Period | $31.83 | $28.34 | $26.53 |
Total Return2 | 14.14% | 8.61% | 1.49% |
Ratios/Supplemental Data | |||
Net Assets, End of Period (Millions) | $9 | $7 | $1 |
Ratio of Total Expenses to Average Net Assets | 0.28%3 | 0.28% | 0.28%3 |
Ratio of Net Investment Income to Average Net Assets | 2.25%3 | 1.81% | 1.93%3 |
Portfolio Turnover Rate4 | 12%3 | 12% | 8% |
VIPER Shares
For a Share Outstanding Throughout Each Period | Six Months Ended Feb. 28, 2006 | Year Ended Aug. 31, 2005 | Jan. 261 to Aug. 31, 2004 |
---|---|---|---|
Net Asset Value, Beginning of Period | $55.70 | $52.13 | $49.48 |
Investment Operations | |||
Net Investment Income | .645 | .915 | .58 |
Net Realized and Unrealized Gain (Loss) on Investments | 7.213 | 3.630 | 2.07 |
Total from Investment Operations | 7.858 | 4.545 | 2.65 |
Distributions | |||
Dividends from Net Investment Income | (.968) | (.975) | — |
Distributions from Realized Capital Gains | — | — | — |
Total Distributions | (.968) | (.975) | — |
Net Asset Value, End of Period | $62.59 | $55.70 | $52.13 |
Total Return | 14.17% | 8.62% | 5.36% |
Ratios/Supplemental Data | |||
Net Assets, End of Period (Millions) | $69 | $50 | $21 |
Ratio of Total Expenses to Average Net Assets | 0.25%3 | 0.26% | 0.28%3 |
Ratio of Net Investment Income to Average Net Assets | 2.28%3 | 1.83% | 1.93%3 |
Portfolio Turnover Rate4 | 12%3 | 12% | 8% |
1 | Inception. |
2 | Total returns do not reflect the 2% fee assessed on redemptions of shares held for less than one year. |
3 | Annualized. |
4 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including VIPER Creation Units. See accompanying Notes, which are an integral part of the Financial Statements. |
70
Materials Index Fund
Notes to Financial Statements
Vanguard Materials Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund files reports with the SEC under the company name Vanguard World Funds. The fund offers two classes of shares, Admiral Shares and VIPER Shares. Admiral Shares are available to any investor who meets the fund’s minimum purchase requirements. VIPER Shares are listed for trading on the American Stock Exchange; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. mutual funds. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset 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. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold. Fees assessed on redemptions of Admiral Shares are credited to paid-in capital.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. The Vanguard Group furnishes at cost investment advisory, 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 February 28, 2006, the fund had contributed capital of $8,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.01% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
C. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year.
During the six months ended February 28, 2006, the fund realized $440,000 of net capital gains resulting from in-kind redemptions—in which shareholders exchanged fund shares for securities held by the fund rather than for cash. Because such gains are not taxable to the fund, and are not distributed to shareholders, they have been reclassified from accumulated net realized gains to paid-in capital.
At February 28, 2006, net unrealized appreciation of investment securities for tax purposes was $3,675,000, consisting of unrealized gains of $6,918,000 on securities that had risen in value since their purchase and $3,243,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2006, the fund purchased $22,179,000 of investment securities and sold $8,787,000 of investment securities, other than temporary cash investments.
E. Capital share transactions for each class of shares were (see table below):
Six Months Ended February 28, 2006 | Year Ended August 31, 2005 | |||
---|---|---|---|---|
Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | |
Admiral Shares | ||||
Issued | 1,417 | 48 | 6,863 | 228 |
Issued in Lieu of Cash Distributions | 125 | 4 | 11 | — |
Redeemed1 | (329) | (11) | (196) | (7) |
Net Increase (Decrease)—Admiral Shares | 1,213 | 41 | 6,678 | 221 |
VIPER Shares | ||||
Issued | 18,479 | 300 | 63,127 | 1,100 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (5,985) | (100) | (33,820) | (600) |
Net Increase (Decrease)—VIPER Shares | 12,494 | 200 | 29,307 | 500 |
1 Net of redemption fees of $0 and $4,000.
71
Telecommunication Services Index Fund
Fund Profile
As of February 28, 2006
Portfolio Characteristics | Fund | Target Index1 | Broad Index2 |
---|---|---|---|
Number of Stocks | 44 | 44 | 2,478 |
Median Market Cap | $24.2B | $69.8B | $30.6B |
Price/Earnings Ratio | 24.8x | 19.0x | 18.1x |
Price/Book Ratio | 2.5x | 2.2x | 2.9x |
Yield | 3.2% | 1.7% | |
Admiral Shares | 2.5% | ||
VIPER Shares | 2.5% | ||
Return on Equity | 8.1% | 11.4% | 17.3% |
Earnings Growth Rate | -0.8% | -2.9% | 14.0% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 44%3 | — | — |
Expense Ratio | — | — | |
Admiral Shares | 0.28%3 | ||
VIPER Shares | 0.25%3 | ||
Short-Term Reserves | 0% | — | — |
Industry Diversification (% of portfolio) | |
---|---|
Alternative Carriers | 7% |
Integrated Telecommunication Services | 56 |
Wireless Telecommunication Services | 37 |
Ten Largest Holdings4 (% of total net assets) | |
---|---|
AT&T Inc. | 17.6% |
Verizon Communications Inc. | 15.5 |
Sprint Nextel Corp. | 8.3 |
BellSouth Corp. | 5.9 |
Alltel Corp. | 4.5 |
American Tower Corp. Class A | 3.9 |
Qwest Communications International Inc. | 3.2 |
NII Holdings Inc. | 2.4 |
Crown Castle International Corp. | 2.4 |
Citizens Communications Co. | 1.9 |
Top Ten | 65.6% |
1 | MSCI US IMI/Telecommunication Services. |
2 | MSCI US IMI/2500. |
3 | Annualized. |
4 | “Ten Largest Holdings” excludes any temporary cash investments and equity index products. |
72
Telecommunication Services Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at www.vanguard.com.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): September 23, 2004–February 28, 2006
[Dark Gray] - Telecommunication Services Index Fund VIPER Shares Net Asset Value
[Light Gray] - MSCI US IMI/TelecommunicationServices
Average Annual Total Returns: Periods Ended December 31, 2005
This table presents average annual total returns through the latest calendar quarter—rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information.
Since | |||
---|---|---|---|
Inception Date | One Year | Inception | |
VIPER Shares | 9/23/2004 | ||
Market Price | 1.90% | 10.79% | |
Net Asset Value | 1.92 | 10.82 | |
Admiral Shares | 3/11/2005 | — | 6.55 |
Fee-Adjusted Returns2 | — | 4.48 | |
1 | Six months ended February 28, 2006. |
2 | Reflective of the 2% fee assessed on redemptions of shares held less than one year. Note: See Financial Highlights tables on page 76 for dividend and capital gains information. |
73
Telecommunication Services Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2006
The fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at www.sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Shares | Market Value• ($000) | |
---|---|---|
Common Stocks (99.9%) | ||
Diversified Telecommunication Services (62.9%) | ||
Alternative Carriers (7.3%) | ||
* Level 3 Communications, Inc. | 150,030 | 510 |
PanAmSat Holding Corp. | 17,386 | 437 |
* Time Warner Telecom Inc. | 31,355 | 396 |
* Broadwing Corp. | 40,153 | 360 |
* Premiere Global Services, Inc. | 42,637 | 350 |
New Skies Satellites Holdings Ltd. | 15,505 | 342 |
* Cogent Communications Group, Inc. | 44,620 | 319 |
Integrated Telecommunication Services (55.6%) | ||
AT&T Inc. | 238,136 | 6,570 |
Verizon Communications Inc. | 171,807 | 5,790 |
BellSouth Corp. | 70,002 | 2,211 |
* Qwest Communications International Inc. | 187,577 | 1,186 |
Citizens Communications Co. | 52,653 | 703 |
CenturyTel, Inc. | 19,463 | 700 |
* NeuStar, Inc. Class A | 13,966 | 402 |
* Cincinnati Bell Inc. | 97,098 | 397 |
Valor Communications Group, Inc. | 29,163 | 360 |
FairPoint Communications, Inc. | 25,596 | 360 |
Commonwealth Telephone Enterprises, Inc. | 10,980 | 355 |
Surewest Communications | 13,290 | 336 |
* General Communication, Inc. | 29,474 | 332 |
North Pittsburgh Systems, Inc. | 16,264 | 331 |
Iowa Telecommunications Services Inc. | 18,017 | 319 |
* IDT Corp. Class B | 23,151 | 275 |
* IDT Corp. | 6,872 | 81 |
Wireless Telecommunication Services (37.0%) | 23,422 | |
Sprint Nextel Corp. | 128,499 | 3,088 |
Alltel Corp. | 26,764 | 1,690 |
* American Tower Corp. Class A | 45,638 | 1,453 |
* NII Holdings Inc. | 17,608 | 902 |
* Crown Castle International Corp. | 28,502 | 894 |
* Nextel Partners, Inc. | 24,142 | 677 |
* Leap Wireless International, Inc. | 11,309 | 476 |
* SBA Communications Corp. | 19,973 | 449 |
* Price Communications Corp. | 23,413 | 392 |
* Dobson Communications Corp. | 53,922 | 390 |
* U.S. Cellular Corp. | 7,061 | 388 |
USA Mobility, Inc. | 12,853 | 370 |
* UbiquiTel Inc. | 37,834 | 370 |
* @ Road, Inc. | 64,600 | 333 |
Telephone & Data Systems, Inc. | 8,739 | 327 |
* Wireless Facilities, Inc. | 71,116 | 320 |
* Syniverse Holdings Inc. | 22,279 | 319 |
Telephone & Data Systems, Inc.--Special Common Shares | 8,862 | 318 |
Centennial Communications Corp. Class A | 41,747 | 317 |
* InPhonic, Inc. | 55,743 | 313 |
13,786 | ||
Total Common Stocks (Cost $35,645) | 37,208 | |
Temporary Cash Investment (0.0%) | ||
1 Vanguard Market Liquidity Fund, 4.511% (Cost $2) | 2,293 | 2 |
Total Investments (99.9%) (Cost $35,647) | 37,210 | |
Other Assets and Liabilities (0.1%) | ||
Receivables for Investment Securities Sold | 1,021 | |
Other Assets--Note B | 17 | |
Payables for Investment Securities Purchased | (967) | |
Other Liabilities | (22) | |
49 | ||
Net Assets (100%) | 37,259 |
At February 28, 2006, net assets consisted of:2
Amount ($000) | |
---|---|
Paid-in Capital | 35,701 |
Undistributed Net Investment Income | 216 |
Accumulated Net Realized Losses | (221) |
Unrealized Appreciation | 1,563 |
Net Assets | 37,259 |
Admiral Shares—Net Assets | |
Applicable to 47,912 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 1,456 |
Net Asset Value Per Share— | |
Admiral Shares | $30.38 |
VIPER Shares—Net Assets | |
Applicable to 600,000 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 35,803 |
Net Asset Value Per Share— | |
VIPER Shares | $59.67 |
• | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
1 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
2 | See Note C in Notes to Financial Statements for the tax-basis components of net assets. |
74
Telecommunication Services Index Fund
Statement of Operations
Six Months Ended Feb. 28, 2006 | |
---|---|
($000) | |
Investment Income | |
Income | |
Dividends | 522 |
Interest1 | 2 |
Total Income | 524 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 3 |
Management and Administrative | |
Admiral Shares | 2 |
VIPER Shares | 23 |
Marketing and Distribution | |
Admiral Shares | — |
VIPER Shares | — |
Custodian Fees | 2 |
Total Expenses | 30 |
Net Investment Income | 494 |
Realized Net Gain (Loss) on | |
Investment Securities Sold | 1,454 |
Change in Unrealized Appreciation | |
(Depreciation) of Investment Securities | 1,097 |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 3,045 |
Statement of Changes in Net Assets
Six Months Ended Feb. 28, 2006 ($000) | Sept. 23, 20042 to August 31, 2005 ($000) | |
---|---|---|
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 494 | 496 |
Realized Net Gain (Loss) | 1,454 | 2,602 |
Change in Unrealized Appreciation (Depreciation) | 1,097 | 466 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 3,045 | 3,564 |
Distributions | ||
Net Investment Income | ||
Admiral Shares | (28) | — |
VIPER Shares | (623) | (123) |
Realized Capital Gain | ||
Admiral Shares | — | — |
VIPER Shares | — | — |
Total Distributions | (651) | (123) |
Capital Share Transactions—Note E | ||
Admiral Shares | 551 | 783 |
VIPER Shares | 16,900 | 13,190 |
Net Increase (Decrease) from Capital Share Transactions | 17,451 | 13,973 |
Total Increase (Decrease) | 19,845 | 17,414 |
Net Assets | ||
Beginning of Period | 17,414 | — |
End of Period3 | 37,259 | 17,414 |
1 | Interest income from an affiliated company of the fund was $2,000. |
2 | Inception. |
3 | Including undistributed net investment income of $216,000 and $373,000. |
75
Telecommunication Services Index Fund
Financial Highlights
Admiral Shares
For a Share Outstanding Throughout Each Period | Six Months Ended Feb. 28, 2006 | Mar. 111 to Aug. 31, 2005 |
---|---|---|
Net Asset Value, Beginning of Period | $28.18 | $26.75 |
Investment Operations | ||
Net Investment Income | .6292,3 | .342 |
Net Realized and Unrealized Gain (Loss) on Investments | 2.363 | 1.09 |
Total from Investment Operations | 2.992 | 1.43 |
Distributions | ||
Dividends from Net Investment Income | (.792) | — |
Distributions from Realized Capital Gains | — | — |
Total Distributions | (.792) | — |
Net Asset Value, End of Period | $30.38 | $28.18 |
Total Return4 | 10.85% | 5.35% |
Ratios/Supplemental Data | ||
Net Assets, End of Period (Millions) | $1 | $1 |
Ratio of Total Expenses to Average Net Assets | 0.28%5 | 0.28%5 |
Ratio of Net Investment Income to Average Net Assets | 3.70%3,5 | 2.70%5 |
Portfolio Turnover Rate6 | 44%5 | 41% |
Viper Shares
For a Share Outstanding Throughout Each Period | Six Months Ended Feb. 28, 2006 | Sept. 23, 20041 to Aug. 31, 2005 |
---|---|---|
Net Asset Value, Beginning of Period | $55.35 | $49.50 |
Investment Operations | ||
Net Investment Income | 1.1762,7 | 1.30(2) |
Net Realized and Unrealized Gain (Loss) on Investments | 4.701 | 4.96 |
Total from Investment Operations | 5.877 | 6.26 |
Distributions | ||
Dividends from Net Investment Income | (1.557) | (.41) |
Distributions from Realized Capital Gains | — | — |
Total Distributions | (1.557) | (.41) |
Net Asset Value, End of Period | $59.67 | $55.35 |
Total Return | 10.85% | 12.65% |
Ratios/Supplemental Data | ||
Net Assets, End of Period (Millions) | $36 | $17 |
Ratio of Total Expenses to Average Net Assets | 0.25%5 | 0.26%5 |
Ratio of Net Investment Income to Average Net Assets | 3.73%5,7 | 2.72%5 |
Portfolio Turnover Rate6 | 44%5 | 41% |
1 | Inception. |
2 | Calculated based on average shares outstanding. |
3 | Net investment income per share and the ratio of net investment income to average net assets include $0.112 and 0.38%, respectively, resulting from a special dividend from MCI in December 2005. |
4 | Total returns do not reflect the 2% fee assessed on redemptions of shares held for less than one year. |
5 | Annualized. |
6 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including VIPER Creation Units. |
7 | Net investment income per share and the ratio of net investment income to average net assets include $0.219 and 0.38%, respectively, resulting from a special dividend from MCI in December 2005. See accompanying Notes, which are an integral part of the Financial Statements. |
76
Telecommunication Services Index Fund
Notes to Financial Statements
Vanguard Telecommunication Services Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund files reports with the SEC under the company name Vanguard World Funds. The fund offers two classes of shares, Admiral Shares and VIPER Shares. Admiral Shares are available to any investor who meets the fund’s minimum purchase requirements. VIPER Shares are listed for trading on the American Stock Exchange; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. mutual funds. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset 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. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold. Fees assessed on redemptions of Admiral Shares are credited to paid-in capital.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. The Vanguard Group furnishes at cost investment advisory, 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 February 28, 2006, the fund had contributed capital of $3,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.003% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
C. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year.
During the six months ended February 28, 2006, the fund realized $1,652,000 of net capital gains resulting from in-kind redemptions—in which shareholders exchanged fund shares for securities held by the fund rather than for cash. Because such gains are not taxable to the fund, and are not distributed to shareholders, they have been reclassified from accumulated net realized gains to paid-in capital.
At February 28, 2006, net unrealized appreciation of investment securities for tax purposes was $1,563,000, consisting of unrealized gains of $2,510,000 on securities that had risen in value since their purchase and $947,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2006, the fund purchased $34,133,000 of investment securities and sold $16,509,000 of investment securities, other than temporary cash investments.
E. Capital share transactions for each class of shares were (see table below):
Six Months Ended February 28, 2006 | September 23, 20041 to August 31, 2005 | |||
---|---|---|---|---|
Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | |
Admiral Shares | ||||
Issued | 523 | 18 | 783 | 29 |
Issued in Lieu of Cash Distributions | 28 | 1 | — | — |
Redeemed | — | — | — | — |
Net Increase (Decrease)—Admiral Shares | 551 | 19 | 783 | 29 |
VIPER Shares | ||||
Issued | 28,232 | 500 | 40,420 | 800 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (11,332) | (200) | (27,230) | (500) |
Net Increase (Decrease)—VIPER Shares | 16,900 | 300 | 13,190 | 300 |
77
Utilities Index Fund
Fund Profile
As of February 28, 2006
Portfolio Characteristics | Fund | Target Index1 | Broad Index2 |
---|---|---|---|
Number of Stocks | 88 | 88 | 2,478 |
Median Market Cap | $12.3B | $12.3B | $30.6B |
Price/Earnings Ratio | 17.7x | 17.7x | 18.1x |
Price/Book Ratio | 2.1x | 2.1x | 2.9x |
Yield | 3.4% | 1.7% | |
Admiral Shares | 3.2% | ||
VIPER Shares | 3.2% | ||
Return on Equity | 13.4% | 13.4% | 17.3% |
Earnings Growth Rate | 3.4% | 3.5% | 14.0% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 4%3 | — | — |
Expense Ratio | — | — | |
Admiral Shares | 0.28%3 | ||
VIPER Shares | 0.25%3 | ||
Short-Term Reserves | 1% | — | — |
Industry Diversification (% of portfolio) | |
---|---|
Electric Utilities | 42% |
Gas Utilities | 8 |
Independent Power Producers & Energy Traders | 15 |
Multi-Utilities | 33 |
Water Utilities | 1 |
Short-Term Reserves | 1% |
Ten Largest Holdings4 (% of total net assets) | |
---|---|
Exelon Corp. | 7.6% |
Duke Energy Corp. | 5.2 |
Dominion Resources, Inc. | 5.2 |
Southern Co. | 5.0 |
TXU Corp. | 4.7 |
FirstEnergy Corp. | 3.3 |
Public Service Enterprise Group, Inc. | 3.3 |
FPL Group, Inc. | 3.1 |
Entergy Corp. | 3.0 |
PG&E Corp. | 2.9 |
Top Ten | 43.3% |
1 | MSCI US IMI/Utilities. |
2 | MSCI US IMI/2500. |
3 | Annualized. |
4 | “Ten Largest Holdings” excludes any temporary cash investments and equity index products. |
78
Utilities Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at www.vanguard.com.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): January 26, 2004–February 28, 2006
[Dark Gray] - Utilities Index Fund VIPER Shares Net Asset Value
[Light Gray] - MSCI US IMI/Utilities
Average Annual Total Returns: Periods Ended December 31, 2005
This table presents average annual total returns through the latest calendar quarter—rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information.
Since | |||
---|---|---|---|
Inception Date | One Year | Inception | |
VIPER Shares | 1/26/2004 | ||
Market Price | 14.66% | 18.47% | |
Net Asset Value | 14.75 | 18.48 | |
Admiral Shares2 | 4/28/2004 | 14.72 | 21.28 |
1 | Six months ended February 28, 2006. |
2 | Reflective of the 2% fee assessed on redemptions of shares held less than one year. Note: See Financial Highlights tables on page 83 for dividend and capital gains information. |
79
Utilities Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2006
The fund provides a complete list of its holdings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at www.sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Shares | Market Value• ($000) | |
---|---|---|
Common Stocks (99.9%) | ||
Electric Utilities (42.2%) | ||
Exelon Corp. | 218,603 | 12,484 |
Southern Co. | 242,937 | 8,267 |
FirstEnergy Corp. | 108,066 | 5,520 |
FPL Group, Inc. | 122,900 | 5,153 |
Entergy Corp. | 67,980 | 4,929 |
American Electric Power Co., Inc. | 128,986 | 4,708 |
Edison International | 101,411 | 4,499 |
PPL Corp. | 124,524 | 3,960 |
Progress Energy, Inc. | 78,311 | 3,475 |
Cinergy Corp. | 62,077 | 2,736 |
* Allegheny Energy, Inc. | 53,401 | 1,910 |
Pepco Holdings, Inc. | 62,071 | 1,475 |
Pinnacle West Capital Corp. | 32,408 | 1,330 |
DPL Inc. | 41,787 | 1,125 |
* Reliant Energy, Inc. | 99,830 | 1,014 |
Northeast Utilities | 48,099 | 944 |
* Sierra Pacific Resources | 59,956 | 854 |
Hawaiian Electric Industries Inc. | 26,561 | 710 |
Great Plains Energy, Inc. | 24,498 | 696 |
Westar Energy, Inc. | 28,460 | 612 |
IDACORP, Inc. | 13,867 | 457 |
Duquesne Light Holdings, Inc. | 25,526 | 443 |
ALLETE, Inc. | 9,366 | 437 |
Cleco Corp. | 16,287 | 366 |
UniSource Energy Corp. | 11,393 | 346 |
* El Paso Electric Co. | 15,736 | 322 |
Otter Tail Corp. | 9,140 | 285 |
UIL Holdings Corp. | 4,538 | 233 |
MGE Energy, Inc. | 6,652 | 223 |
Empire District Electric Co. | 8,479 | 188 |
Gas Utilities (7.8%) | 69,701 | |
Questar Corp. | 27,904 | 2,044 |
Equitable Resources, Inc. | 37,626 | 1,368 |
ONEOK, Inc. | 30,298 | 927 |
AGL Resources Inc. | 24,125 | 866 |
National Fuel Gas Co. | 26,234 | 849 |
Energen Corp. | 22,848 | 816 |
UGI Corp. Holding Co. | 34,299 | 770 |
* Southern Union Co. | 30,928 | 761 |
Atmos Energy Corp. | 26,371 | 696 |
Piedmont Natural Gas, Inc. | 25,175 | 622 |
NICOR Inc. | 14,489 | 622 |
WGL Holdings Inc. | 15,982 | 492 |
Peoples Energy Corp. | 12,519 | 460 |
New Jersey Resources Corp. | 9,039 | 407 |
Southwest Gas Corp. | 12,824 | 366 |
Northwest Natural Gas Co. | 9,053 | 310 |
South Jersey Industries, Inc. | 9,410 | 269 |
The Laclede Group, Inc. | 6,534 | 220 |
Independent Power Producers & Energy Traders (15.7%) | 12,865 | |
Duke Energy Corp. | 303,901 | 8,631 |
TXU Corp. | 149,437 | 7,829 |
* AES Corp. | 203,306 | 3,517 |
Constellation Energy Group, Inc. | 58,478 | 3,435 |
* NRG Energy, Inc. | 33,706 | 1,458 |
* Dynegy, Inc. | 94,652 | 512 |
Black Hills Corp. | 10,316 | 357 |
Ormat Technologies Inc. | 2,554 | 98 |
Multi-Utilities (33.1%) | 25,837 | |
Dominion Resources, Inc. | 113,779 | 8,545 |
Public Service Enterprise Group, Inc. | 78,402 | 5,440 |
PG&E Corp. | 124,322 | 4,730 |
Consolidated Edison Inc. | 80,259 | 3,682 |
Sempra Energy | 75,810 | 3,627 |
Ameren Corp. | 66,929 | 3,391 |
DTE Energy Co. | 58,265 | 2,523 |
Xcel Energy, Inc. | 132,152 | 2,453 |
KeySpan Corp. | 57,187 | 2,330 |
NiSource, Inc. | 89,413 | 1,836 |
Wisconsin Energy Corp. | 38,388 | 1,569 |
SCANA Corp. | 35,637 | 1,453 |
Alliant Energy Corp. | 38,219 | 1,265 |
MDU Resources Group, Inc. | 35,364 | 1,247 |
Energy East Corp. | 48,406 | 1,213 |
CenterPoint Energy Inc. | 91,421 | 1,186 |
TECO Energy, Inc. | 68,209 | 1,164 |
NSTAR | 35,050 | 1,029 |
* CMS Energy Corp. | 71,955 | 1,013 |
OGE Energy Corp. | 29,634 | 852 |
Puget Energy, Inc. | 37,836 | 816 |
WPS Resources Corp. | 13,126 | 690 |
Vectren Corp. | 24,974 | 658 |
PNM Resources Inc. | 21,434 | 531 |
* Aquila, Inc. | 122,515 | 478 |
NorthWestern Corp. | 11,704 | 380 |
Avista Corp. | 15,781 | 309 |
CH Energy Group, Inc. | 5,120 | 251 |
Water Utilities (1.1%) | 54,661 | |
Aqua America, Inc. | 42,063 | 1,209 |
California Water Service Group | 5,704 | 250 |
American States Water Co. | 5,478 | 189 |
SJW Corp. | 2,209 | 113 |
1,761 | ||
Total Common Stocks (Cost $153,662) | 164,825 | |
Temporary Cash Investment (0.6%) | ||
1 Vanguard Market Liquidity Fund, 4.511% (Cost $954) | 954,030 | 954 |
Total Investments (100.5%) (Cost $154,616) | 165,779 | |
Other Assets and Liabilities (-0.5%) | ||
Other Assets—Note B | 1,299 | |
Liabilities | (2,156) | |
(857) | ||
Net Assets (100%) | 164,922 |
80
Utilities Index Fund
At February 28, 2006, net assets consisted of:2
Amount ($000) | |
---|---|
Paid-in Capital | 153,749 |
Undistributed Net Investment Income | 815 |
Accumulated Net Realized Losses | (805) |
Unrealized Appreciation | 11,163 |
Net Assets | 164,922 |
Admiral Shares—Net Assets | |
Applicable to 1,446,826 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 49,067 |
Net Asset Value Per Share— | |
Admiral Shares | $33.91 |
VIPER Shares—Net Assets | |
Applicable to 1,714,500 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 115,855 |
Net Asset Value Per Share— | |
VIPER Shares | $67.57 |
• | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
1 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
2 | See Note C in Notes to Financial Statements for the tax-basis components of net assets. |
81
Utilities Index Fund
Statement of Operations
Six Months Ended Feb. 28, 2006 | |
---|---|
($000) | |
Investment Income | |
Income | |
Dividends | 2,432 |
Interest1 | 5 |
Security Lending | 5 |
Total Income | 2,442 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 10 |
Management and Administrative | |
Admiral Shares | 31 |
VIPER Shares | 78 |
Marketing and Distribution | |
Admiral Shares | 3 |
VIPER Shares | 17 |
Custodian Fees | 35 |
Shareholders' Reports | |
Admiral Shares | 9 |
VIPER Shares | 4 |
Total Expenses | 187 |
Net Investment Income | 2,255 |
Realized Net Gain (Loss) on | |
Investment Securities Sold | (715) |
Change in Unrealized Appreciation | |
(Depreciation) of Investment Securities | (545) |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 995 |
Statement of Changes in Net Assets
Six Months Ended Feb. 28, 2006 ($000) | Year Ended Aug. 31, 2005 ($000) | |
---|---|---|
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 2,255 | 2,117 |
Realized Net Gain (Loss) | (715) | 4,948 |
Change in Unrealized Appreciation (Depreciation) | (545) | 9,476 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 995 | 16,541 |
Distributions | ||
Net Investment Income | ||
Admiral Shares | (560) | (121) |
VIPER Shares | (1,494) | (2,283) |
Realized Capital Gain | ||
Admiral Shares | — | — |
VIPER Shares | — | — |
Total Distributions | (2,054) | (2,404) |
Capital Share Transactions—Note E | ||
Admiral Shares | 19,618 | 27,773 |
VIPER Shares | 21,846 | 39,518 |
Net Increase (Decrease) from Capital Share Transactions | 41,464 | 67,291 |
Total Increase (Decrease) | 40,405 | 81,428 |
Net Assets | ||
Beginning of Period | 124,517 | 43,089 |
End of Period2 | 164,922 | 124,517 |
1 | Interest income from an affiliated company of the fund was $5,000. |
2 | Including undistributed net investment income of $815,000 and $614,000. |
82
Utilities Index Fund
Financial Highlights
Admiral Shares
For a Share Outstanding Throughout Each Period | Six Months Ended Feb. 28, 2006 | Year Ended Aug. 31, 2005 | Apr. 281 to Aug. 31, 2004 |
---|---|---|---|
Net Asset Value, Beginning of Period | $34.03 | $26.70 | $25.03 |
Investment Operations | |||
Net Investment Income | .5122 | .9722 | .36 |
Net Realized and Unrealized Gain (Loss) on Investments | (.154) | 7.623 | 1.31 |
Total from Investment Operations | .358 | 8.595 | 1.67 |
Distributions | |||
Dividends from Net Investment Income | (.478) | (1.265) | — |
Distributions from Realized Capital Gains | — | — | — |
Total Distributions | (.478) | (1.265) | — |
Net Asset Value, End of Period | $33.91 | $34.03 | $26.70 |
Total Return3 | 1.08% | 32.87% | 6.67% |
Ratios/Supplemental Data | |||
Net Assets, End of Period (Millions) | $49 | $30 | $1 |
Ratio of Total Expenses to Average Net Assets | 0.28%4 | 0.28% | 0.28%4 |
Ratio of Net Investment Income to Average Net Assets | 3.09%4 | 3.34% | 3.82%4 |
Portfolio Turnover Rate5 | 4%4 | 7% | 7% |
VIPER Shares
For a Share Outstanding Throughout Each Period | Six Months Ended Feb. 28, 2006 | Year Ended Aug. 31, 2005 | Jan. 261 to Aug. 31, 2004 |
---|---|---|---|
Net Asset Value, Beginning of Period | $67.80 | $53.14 | $49.64 |
Investment Operations | |||
Net Investment Income | 1.022(2) | 2.036(2) | 1.11 |
Net Realized and Unrealized Gain (Loss) on Investments | (.297) | 15.115 | 2.39 |
Total from Investment Operations | .725 | 17.151 | 3.50 |
Distributions | |||
Dividends from Net Investment Income | (.955) | (2.491) | — |
Distributions from Realized Capital Gains | — | — | — |
Total Distributions | (.955) | (2.491) | — |
Net Asset Value, End of Period | $67.57 | $67.80 | $53.14 |
Total Return | 1.09% | 32.93% | 7.05% |
Ratios/Supplemental Data | |||
Net Assets, End of Period (Millions) | $116 | $95 | $43 |
Ratio of Total Expenses to Average Net Assets | 0.25%4 | 0.26% | 0.28%4 |
Ratio of Net Investment Income to Average Net Assets | 3.12%4 | 3.36% | 3.82%4 |
Portfolio Turnover Rate5 | 4%4 | 7% | 7% |
1 | Inception. |
2 | Calculated based on average shares outstanding. |
3 | Total returns do not reflect the 2% fee assessed on redemptions of shares held for less than one year. |
4 | Annualized. |
5 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including VIPER Creation Units. See accompanying Notes, which are an integral part of the Financial Statements. |
83
Utilities Index Fund
Notes to Financial Statements
Vanguard Utilities Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund files reports with the SEC under the company name Vanguard World Funds. The fund offers two classes of shares, Admiral Shares and VIPER Shares. Admiral Shares are available to any investor who meets the fund’s minimum purchase requirements. VIPER Shares are listed for trading on the American Stock Exchange; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. mutual funds. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4:00 p.m. Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset 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. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Security Lending: The fund may lend its securities to qualified institutional borrowers to earn additional income. Security loans are required to be secured at all times by collateral at least equal to the market value of securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability for the return of the collateral, during the period the securities are on loan. Security lending income represents the income earned on investing cash collateral, less expenses associated with the loan.
5. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold. Fees assessed on redemptions of Admiral Shares are credited to paid-in capital.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. The Vanguard Group furnishes at cost investment advisory, 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 February 28, 2006, the fund had contributed capital of $18,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.02% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
C. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at August 31, 2005, the fund had available realized losses of $69,000 to offset future net capital gains of $62,000 through August 31, 2013, and $7,000 through August 31, 2014. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2006; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balances above.
At February 28, 2006, net unrealized appreciation of investment securities for tax purposes was $11,163,000, consisting of unrealized gains of $12,409,000 on securities that had risen in value since their purchase and $1,246,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2006, the fund purchased $45,184,000 of investment securities and sold $3,243,000 of investment securities, other than temporary cash investments.
E. Capital share transactions for each class of shares were (see table below):
Six Months Ended February 28, 2006 | Year Ended August 31, 2005 | |||
---|---|---|---|---|
Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | |
Admiral Shares | ||||
Issued | 24,840 | 738 | 28,295 | 864 |
Issued in Lieu of Cash Distributions | 501 | 15 | 112 | 4 |
Redeemed1 | (5,723) | (176) | (634) | (20) |
Net Increase (Decrease)—Admiral Shares | 19,618 | 577 | 27,773 | 848 |
VIPER Shares | ||||
Issued | 21,846 | 315 | 64,154 | 1,000 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | — | — | (24,636) | (400) |
Net Increase (Decrease)—VIPER Shares | 21,846 | 315 | 39,518 | 600 |
1 Net of redemption fees of $85,000 and $12,000.
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About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The examples on this page are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The adjacent table illustrates your fund’s costs in two ways:
• Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading “Expenses Paid During Period.”
• Based on hypothetical 5% yearly return. This section is intended to help you compare your fund’s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only; they do not include the 2% fee assessed on redemptions of Admiral Shares held for less than one year. If the fee were applied to your account, your costs would be higher. The funds do not carry a “sales load.”
The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s expenses in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to the appropriate fund prospectus.
Based on actual fund return
Six months ended February 28, 2006
Index Fund | Share Class | Beginning Account Value 8/31/2005 | Ending Account Value 2/28/2006 | Expenses Paid During Period1 |
---|---|---|---|---|
Consumer Discretionary | Admiral | $1,000.00 | $1,008.65 | $1.39 |
VIPER | 1,000.00 | 1,008.82 | 1.25 | |
Consumer Staples | Admiral | $1,000.00 | $1,026.53 | $1.41 |
VIPER | 1,000.00 | 1,026.64 | 1.26 | |
Energy | Admiral | $1,000.00 | $1,040.37 | $1.42 |
VIPER | 1,000.00 | 1,040.74 | 1.26 | |
Financials | Admiral | $1,000.00 | $1,115.29 | $1.47 |
VIPER | 1,000.00 | 1,115.55 | 1.31 | |
Health Care | Admiral | $1,000.00 | $1,039.33 | $1.42 |
VIPER | 1,000.00 | 1,039.59 | 1.26 | |
Industrials | VIPER | $1,000.00 | $1,117.85 | $1.31 |
Information Technology | Admiral | $1,000.00 | $1,066.80 | $1.43 |
VIPER | 1,000.00 | 1,066.76 | 1.28 | |
Materials | Admiral | $1,000.00 | $1,141.44 | $1.49 |
VIPER | 1,000.00 | 1,141.74 | 1.33 | |
Telecommunication Services | Admiral | $1,000.00 | $1,108.53 | $1.46 |
VIPER | 1,000.00 | 1,108.47 | 1.31 | |
Utilities | Admiral | $1,000.00 | $1,010.78 | $1.40 |
VIPER | 1,000.00 | 1,010.88 | 1.25 | |
Based on hypothetical 5% yearly return
Six months ended February 28, 2006
Index Fund | Share Class | Beginning Account Value 8/31/2005 | Ending Account Value 2/28/2006 | Expenses Paid During Period1 |
---|---|---|---|---|
Consumer Discretionary | Admiral | $1,000.00 | $1,023.41 | $1.40 |
VIPER | 1,000.00 | 1,023.55 | 1.25 | |
Consumer Staples | Admiral | $1,000.00 | $1,023.41 | $1.40 |
VIPER | 1,000.00 | 1,023.55 | 1.25 | |
Energy | Admiral | $1,000.00 | $1,023.41 | $1.40 |
VIPER | 1,000.00 | 1,023.55 | 1.25 | |
Financials | Admiral | $1,000.00 | $1,023.41 | $1.40 |
VIPER | 1,000.00 | 1,023.55 | 1.25 | |
Health Care | Admiral | $1,000.00 | $1,023.41 | $1.40 |
VIPER | 1,000.00 | 1,023.55 | 1.25 | |
Industrials | VIPER | $1,000.00 | $1,023.55 | $1.25 |
Information Technology | Admiral | $1,000.00 | $1,023.41 | $1.40 |
VIPER | 1,000.00 | 1,023.55 | 1.25 | |
Materials | Admiral | $1,000.00 | $1,023.41 | $1.40 |
VIPER | 1,000.00 | 1,023.55 | 1.25 | |
Telecommunication Services | Admiral | $1,000.00 | $1,023.41 | $1.40 |
VIPER | 1,000.00 | 1,023.55 | 1.25 | |
Utilities | Admiral | $1,000.00 | $1,023.41 | $1.40 |
VIPER | 1,000.00 | 1,023.55 | 1.25 | |
1 | The calculations are based on expenses incurred in the most recent six-month period. The funds’ annualized six-month expense ratios for that period are: 0.28% for the Consumer Discretionary Index Fund Admiral Shares and 0.25% for the VIPER Shares; 0.28% for the Consumer Staples Index Fund Admiral Shares and 0.25% for the VIPER Shares; 0.28% for the Energy Index Fund Admiral Shares and 0.25% for the VIPER Shares; 0.28% for the Financials Index Fund Admiral Shares and 0.25% for the VIPER Shares; 0.28% for the Health Care Index Fund Admiral Shares and 0.25% for the VIPER Shares; 0.25% for the Industrials Index VIPER Shares; 0.28% for the Information Technology Index Fund Admiral Shares and 0.25% for the VIPER Shares; 0.28% for the Materials Index Fund Admiral Shares and 0.25% for the VIPER Shares; 0.28% for the Telecommunication Services Index Fund Admiral Shares and 0.25% for the VIPER Shares; 0.28% for the Utilities Index Fund Admiral Shares and 0.25% for the VIPER Shares. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period. |
85
Glossary
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 depositary receipts of companies based outside the United States.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.
Price/Earnings Ratio. The ratio of a stock’s current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company’s future growth.
Return on Equity. The annual average rate of return generated by a company during the past five years for each dollar of shareholder’s equity (net income divided by shareholder’s equity). For a fund, the weighted average return on equity for the companies whose stocks it holds.
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
Turnover Rate. An indication of the fund’s trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to investors). The turnover rate excludes in-kind transactions, which have minimal impact on costs.
Yield. A snapshot of a fund’s income from interest and dividends. The yield, expressed as a percentage of the fund’s net asset value, is based on income earned over the past 30 days and is annualized, or projected forward for the coming year. The index yield is based on the current annualized rate of income provided by securities in the index.
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The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals.
Our independent board members bring distinguished backgrounds in business, academia, and public service to their task of working with Vanguard officers to establish the policies and oversee the activities of the funds. Among board members’ responsibilities are selecting investment advisors for the funds; monitoring fund operations, performance, and costs; reviewing contracts; nominating and selecting new trustees/directors; and electing Vanguard officers.
Each trustee serves a fund until its termination; or until the trustee’s retirement, resignation, or death; or otherwise as specified in the fund’s organizational documents. Any trustee may be removed at a shareholders’ meeting by a vote representing two-thirds of the net asset value of all shares of the fund together with shares of other Vanguard funds organized within the same trust. The table on these two pages shows information for each trustee and executive officer of the fund. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482.
Chairman of the Board, Chief Executive Officer, and Trustee
John J. Brennan1 | |
---|---|
Born 1954 Chairman of the Board, Chief Executive Officer, and Trustee since May 1987 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Chairman of the Board, Chief Executive Officer, and Director/ Trustee of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group. |
IndependentTrustees | |
Charles D. Ellis | |
Born 1937 Trustee since January 2001 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Applecore Partners (pro bono ventures in education); Senior Advisor to Greenwich Associates (international business strategy consulting); Successor Trustee of Yale University; Overseer of the Stern School of Business at New York University; Trustee of the Whitehead Institute for Biomedical Research. |
Rajiv L. Gupta | |
Born 1945 Trustee since December 20012 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Chairman and Chief Executive Officer of Rohm and Haas Co. (chemicals); Board Member of the American Chemistry Council; Director of Tyco International, Ltd. (diversified manufacturing and services) (since 2005); Trustee of Drexel University and of the Chemical Heritage Foundation. |
JoAnn Heffernan Heisen | |
Born 1950 Trustee since July 1998 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Vice President, Chief Information Officer, and Member of the Executive Committee of Johnson & Johnson (pharmaceuticals/ consumer products); Director of the University Medical Center at Princeton and Women’s Research and Education Institute. |
André F. Perold | |
---|---|
Born 1952 Trustee since December 2004 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: George Gund Professor of Finance and Banking, Harvard Business School (since 2000); Senior Associate Dean, Director of Faculty Recruiting, and Chair of Finance Faculty, Harvard Business School; Director and Chairman of UNX, Inc. (equities trading firm) (since 2003); Director of registered investment companies advised by Merrill Lynch Investment Managers and affiliates (1985–2004), Genbel Securities Limited (South African financial services firm) (1999–2003), Gensec Bank (1999–2003), Sanlam Investment Management (1999–2001), Sanlam, Ltd. (South African insurance company) (2001–2003), Stockback, Inc. (credit card firm) (2000–2002), and Bulldogresearch.com (investment research) (1999–2001); and Trustee of Commonfund (investment management) (1989–2001). |
Alfred M. Rankin, Jr. | |
Born 1941 Trustee since January 1993 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Chairman, President, Chief Executive Officer, and Director of NACCO Industries, Inc. (forklift trucks/housewares/lignite); Director of Goodrich Corporation (industrial products/aircraft systems and services); Director of Standard Products Company (supplier for the automotive industry) until 1998. |
J. Lawrence Wilson | |
Born 1936 Trustee since April 1985 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Retired Chairman and Chief Executive Officer of Rohm and Haas Co. (chemicals); Director of Cummins Inc. (diesel engines), MeadWestvaco Corp. (packaging products), and AmerisourceBergen Corp. (pharmaceutical distribution); Trustee of Vanderbilt University and of Culver Educational Foundation. |
Executive Officers1 | |
Heidi Stam | |
Born 1956 Secretary since July 2005 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Principal of The Vanguard Group since November 1997; General Counsel of The Vanguard Group since July 2005; Secretary of The Vanguard Group and of each of the investment companies served by The Vanguard Group since July 2005. |
Thomas J. Higgins | |
Born 1957 Treasurer since July 1998 133 Vanguard Funds Overseen | Principal Occupation(s) During the Past Five Years: Principal of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group. |
Vanguard Senior Management Team | |
R. Gregory Barton | |
Mortimer J. Buckley | |
James H. Gately | |
Kathleen C. Gubanich | |
F. William McNabb, III | |
Michael S. Miller | |
Ralph K. Packard | |
George U. Sauter | |
Founder | |
John C. Bogle | |
Chairman and Chief Executive Officer, 1974-1996 |
1 | Officers of the funds are “interested persons” as defined in the Investment Company Act of 1940. |
2 | December 2002 for Vanguard Equity Income Fund, Vanguard Growth Equity Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds. |
More information about the trustees is in the Statement of Additional Information, available from Vanguard. |
![]() P.O. Box 2600 Valley Forge, PA 19482-2600 |
Connect with Vanguard™ > www.vanguard.com
Fund Information > 800-662-7447 | Vanguard, Vanguard.com, Admiral, Connect with Vanguard, VIPER, |
VIPERs, and the ship logo are trademarks of The Vanguard Group, Inc. | |
Direct Investor Account Services > 800-662-2739 | All other marks are the exclusive property of their respective owners. |
Institutional Investor Services > 800-523-1036 | |
The funds or securities referred to herein that are offered by | |
Text Telephone > 800-952-3335 | The Vanguard Group and track an MSCI index are not sponsored, |
endorsed, or promoted by MSCI, and MSCI bears no liability with | |
respect to any such funds or securities. For such funds or securities, | |
the prospectus or the Statement of Additional Information contains | |
This material may be used in conjunction with the | a more detailed description of the limited relationship MSCI has |
offering of shares of any Vanguard fund only if | with The Vanguard Group. |
preceded or accompanied by the fund's current | |
prospectus | |
All comparative mutual fund data are from Lipper Inc. or | |
Morningstar, Inc., unless otherwise noted. | |
You can obtain a free copy of Vanguard's proxy voting guidelines | |
by visiting our website, www.vanguard.com, and searching for | |
"proxy voting guidelines," or by calling Vanguard at 800-662-2739. | |
They are also available from the SEC's website, www.sec.gov. In | |
addition, you may obtain a free report on how your fund voted the | |
proxies for securities it owned during the 12 months ended June 30. | |
To get the report, visit either www.vanguard.com or www.sec.gov. | |
You can review and copy information about your fund at the SEC's | |
Public Reference Room in Washington, D.C. To find out more about | |
this public service, call the SEC at 202-551-8090. Information about | |
your fund is also available on the SEC's website, and you can | |
receive copies of this information, for a fee, by sending a request | |
in either of two ways: via e-mail addressed to publicinfo@sec.gov | |
or via regular mail addressed to the Public Reference Section, | |
Securities and Exchange Commission, Washington, DC 20549-0102. | |
© 2006 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q4832 042006 |
Item 2: Not Applicable
Item 3: Not Applicable
Item 4: Not Applicable
Item 5: Not applicable.
Item 6: Not applicable.
Item 7: Not applicable.
Item 8: Not applicable.
Item 9: Not applicable.
Item 10: Not applicable.
Item 11: Controls and Procedures
(a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant's Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.
(b) Internal Control Over Financial Reporting. There were no significant changes in Registrant‘s Internal Control Over Financial Reporting or in other factors that could significantly affect this control subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Item 12: Exhibits.
Certifications.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
VANGUARD WORLD FUNDS | |
BY: | (signature) |
(HEIDI STAM) JOHN J. BRENNAN* CHIEF EXECUTIVE OFFICER |
Date: | April 18, 2006 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
VANGUARD WORLD FUNDS | |
BY: | (signature) |
(HEIDI STAM) JOHN J. BRENNAN* CHIEF EXECUTIVE OFFICER |
Date: | April 18, 2006 |
VANGUARD WORLD FUNDS | |
BY: | (signature) |
(HEIDI STAM) THOMAS J. HIGGINS* TREASURER |
Date: | April 18, 2006 |
*By Power of Attorney. See File Number 2-31333, filed on January 23, 2006. Incorporated by Reference.