UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-1027
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, 2008– February 28, 2009
Item 1: Reports to Shareholders
> | Vanguard U.S. Growth Fund’s Investor Shares returned about –39% for the fiscal half-year ended February 28, 2009. |
> | Despite its disappointing performance, the fund modestly outperformed both its benchmark and the average large-capitalization growth fund. |
> | During one of the worst six-month periods on record for U.S. stocks, the fund posted negative results in all ten sectors of the market. |
Contents |
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Your Fund’s Total Returns | 1 |
President’s Letter | 2 |
Advisors’ Report | 6 |
Fund Profile | 9 |
Performance Summary | 10 |
Financial Statements | 11 |
About Your Fund’s Expenses | 22 |
Trustees Approve Advisory Agreements | 24 |
Glossary | 26 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
Your Fund’s Total Returns
Six Months Ended February 28, 2009 |
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| Total Returns |
Vanguard U.S. Growth Fund |
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Investor Shares | -38.87% |
Admiral™ Shares | -38.83 |
Russell 1000 Growth Index | -39.90 |
Average Large-Cap Growth Fund | -40.13 |
Average Large-Cap Growth Fund: Derived from data provided by Lipper Inc.
Admiral Shares are a lower-cost class of shares available to many longtime shareholders and to those with significant investments in the fund.
Your Fund’s Performance at a Glance |
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August 31, 2008, Through February 28, 2009 |
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| Distributions Per Share | |
| Starting | Ending | Income | Capital |
| Share Price | Share Price | Dividends | Gains |
Vanguard U.S. Growth Fund |
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Investor Shares | $17.89 | $10.83 | $0.116 | $0.000 |
Admiral Shares | 46.37 | 28.02 | 0.376 | 0.000 |
1
President’s Letter
Dear Shareholder,
U.S. stocks fell across the board during the fiscal half-year ended February 28, 2009. Vanguard U.S. Growth Fund’s Investor Shares and Admiral Shares returned about –39% for the period. Despite negative returns, the fund performed slightly better than both its benchmark—the Russell 1000 Growth Index—and the average large-cap growth fund.
Like most mutual funds, the U.S. Growth Fund’s performance over the six-month period left much to be desired. On a relative basis, however, the fund’s recent performance marks a positive change from its struggles over the past few years.
Stocks fell steeply and broadly amid credit woes and slow growth
Stocks began the fiscal half-year inauspiciously and continued to decline as tight credit maintained its grip on business and major economies slipped into recession. Neither landmark programs to bolster financial institutions nor the $787 billion economic stimulus package signed into law in February served to boost investor confidence, which was already badly shaken after the U.S. stock market suffered its second-worst calendar-year performance ever.
2
For the six months ended February 28, U.S. equities overall returned about –42%. International stocks returned about –45%; emerging markets, which had boomed in recent years, were hit especially hard. The declines across the globe were notable for their speed, breadth, and extraordinary magnitude. Volatility also increased dramatically, to levels not seen since the 1930s. For example, the period encompassed not only four of the worst but also two of the best U.S. trading days since 1928 (based on percentage losses and gains).
Investors sought refuge in low-yield, but liquid, Treasuries
In the wake of the September collapse of Lehman Brothers, a leading Wall Street investment bank, credit markets deteriorated globally—a painful reminder of how intertwined markets have become and of how important trust is to keep them functioning. Lacking confidence, investors continued to seek the relative safety and liquidity of U.S. Treasury securities, driving prices up and yields down—even briefly into negative territory for the shortest-term securities. This flight to quality led corporate bonds to experience two of their worst months ever in terms of real returns, in September and October.
Market Barometer |
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| Total Returns |
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| Periods Ended February 28, 2009 | |
| Six | One | Five Years |
| Months | Year | (Annualized) |
Stocks |
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|
Russell 1000 Index (Large-caps) | -42.25% | -43.62% | -6.38% |
Russell 2000 Index (Small-caps) | -46.91 | -42.38 | -6.68 |
Dow Jones Wilshire 5000 Index (Entire market) | -42.27 | -43.15 | -6.04 |
MSCI All Country World Index ex USA (International) | -45.36 | -51.27 | -1.65 |
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Bonds |
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Barclays Capital U.S. Aggregate Bond Index (Broad |
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taxable market) | 1.88% | 2.06% | 4.00% |
Barclays Capital Municipal Bond Index | 0.05 | 5.18 | 3.13 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.42 | 1.31 | 3.07 |
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CPI |
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Consumer Price Index | -3.15% | 0.24% | 2.65% |
3
After several aggressive actions by the Federal Reserve Board and the Treasury—including lowering the target for the federal funds rate to a range of 0% to 0.25%—signs of a thaw began to emerge. January and February, for example, were the most active months for the issuance of investment-grade corporate bonds since 1995. Against this backdrop, the broad taxable bond market returned almost 2% for the six months, while tax-exempt bonds were about flat.
Losses in all sectors led to disappointing results
The six-month period covered in this report included some of the most trying times in the history of the U.S. economy, as the financial crisis intensified, housing prices continued to tumble, and job losses became widespread. Given the constant stream of bad news, investors fled to less-risky investments, causing the stock market to hit record lows.
The downward spiral affected all corners of the market, and the U.S. Growth Fund posted negative results in all ten sectors for the six months. The fund’s biggest losses came from some of the period’s weakest performers, including information technology, energy, and financials.
Information technology stocks—which accounted for about 28% of the portfolio’s holdings at the close of the period—weighed most heavily on the fund’s performance. The fund held many of the sector’s highest-profile companies, including Apple (–47%), Hewlett-Packard
Expense Ratios |
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Your Fund Compared With Its Peer Group |
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| Investor | Admiral | Average Large-Cap |
| Shares | Shares | Growth Fund |
U.S. Growth Fund | 0.50% | 0.31% | 1.34% |
The fund expense ratios shown are from the prospectus dated December 29, 2008, and represent estimated costs for the current fiscal year based on the fund’s current net assets. For the six months ended February 28, 2009, the annualized expense ratios were 0.46% for the Investor Shares and 0.29% for the Admiral Shares. The peer-group expense ratio is derived from data provided by Lipper Inc. and captures information through year-end 2008.
4
(–38%), and Microsoft (–40%). These companies saw their stocks plummet as the global economic downturn restrained sales of PCs and other technologies.
The fund’s energy stocks, which were hit hard as oil prices tumbled, were another weak spot, subtracting over 6 percentage points from the fund’s total return. The fund also suffered sizable losses in the health care and financial sectors.
The six-month period was virtually devoid of bright spots; however, the fund did hold one stock in the consumer discretionary area that contributed a positive return. Apollo Group, an educational services company, posted a 14% return for the period.
A reminder for investors: Keep an eye on the future
The six months ended February 28, 2009 was a very difficult time for the U.S. stock market. As the recession deepened, it affected all areas of the market. There was no place to hide. U.S. Growth Fund, like most equity investments, was hit hard.
During these periods of extreme disruption, investors’ first impulse is often to react to the market’s ups and downs. However, we urge shareholders to consider carefully before making any rash changes to their portfolios based solely on the daily fluctuations of the stock market. Although the market’s volatility can be jarring, it’s important not to let short-term extremes blind us to the long-term case for equities. The stock market’s recent declines are an unavoidable trade-off for their potential to produce superior returns in the long term.
We encourage investors to build a carefully constructed portfolio that contains an appropriate mix of stocks, bonds, and money market funds for your long-term goals. A well-balanced portfolio can provide you with some protection from extreme market swings, while also giving you an opportunity for long-term growth.
With its low expense ratio and mandate to identify superior investments in growth-oriented stocks, we believe that the U.S. Growth Fund can be an excellent addition to such a well-balanced, long-term investment portfolio.
Thank you for entrusting your assets to Vanguard.
Sincerely,
F. William McNabb III
President and Chief Executive Officer
March 11, 2009
5
Advisors’ Report
For the six months ended February 28, 2009, Vanguard U.S. Growth Fund returned about –39%. Your fund is managed by two advisors, a strategy that enhances the fund’s diversification by providing exposure to distinct, yet complementary, investment approaches.
The table below presents the advisors, the percentage and amount of fund assets that each manages, and brief descriptions of their investment strategies. Each advisor has also prepared a discussion of the investment environment during the fiscal half-year and of how the portfolio’s positioning reflects this assessment. These reports were prepared on March 12, 2009.
AllianceBernstein L.P.
Portfolio Managers:
James G. Reilly, Executive Vice President
P. Scott Wallace, CFA, Senior Vice President
For the half-year ended February 28, 2009, U.S. equities declined sharply, as an increasingly negative economic outlook and rising fears about the health of the global financial system weighed on investor sentiment. While the growth style that we pursue held up better than the broad market over this period, these stocks still declined meaningfully as investors’ short-term risk aversion overwhelmed their appreciation of such companies’ superior fundamentals. In our view, these investments still represent extraordinary opportunities today.
Vanguard U.S. Growth Fund Investment Advisors | |||
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| Fund Assets Managed |
| |
Investment Advisor | % | $ Million | Investment Strategy |
AllianceBernstein L.P. | 66 | 1,892 | Uses a fundamentally based, research-driven approach |
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| to large-capitalization growth investing. The advisor |
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| seeks to build a diversified portfolio of successful, |
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| well-managed companies with sustainable competitive |
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| advantages and superior prospects for growth not fully |
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| reflected in relative valuation. |
William Blair & Company, | 31 | 873 | Uses a fundamental investment approach in pursuit of |
L.L.C. |
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| superior long-term investment results from growth- |
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| oriented companies with leadership positions and |
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| strong market presence. |
Cash Investments | 3 | 74 | These short-term reserves are invested by Vanguard in |
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| equity index products to simulate investment in stocks. |
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| Each advisor may also maintain a modest cash |
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| position. |
6
Valuations for equities and nongovernment bonds hit historic lows as evidence mounted that the global economy was entering a severe slowdown. While the near-term economic outlook is grim, we expect unprecedented global monetary and fiscal stimuli to help power a recovery. Across the capital markets, very weak periods have historically been followed by strong recoveries. The upturns have tended to occur suddenly, before there’s solid evidence of an economic rebound. Indeed, stock markets have typically recovered months before recessions have ended.
Health care was the primary contributor to relative performance during the six-month period, while information technology was the primary detractor. As our defensive holdings outperformed, we began to rotate into companies that appear poised to rebound strongly in an eventual economic recovery. However, we are still maintaining an appropriate balance of “stable investments” to guard the portfolio from potential near-term risks.
History has shown the difficulty of defining stock-market troughs in real time. It has also illustrated that the most reliable investment strategy during turbulent periods is to maintain exposure to companies that have the financial resources to survive and are solidly positioned to capture extraordinary upside opportunities in an eventual recovery. As we see evidence that the economic environment is improving, we anticipate shifting the portfolio to more cyclical holdings. However, for the short term we have emphasized stability, with health care remaining our largest overweighting, while maintaining some exposure to what we see as extraordinary potential upside.
William Blair & Company, L.L.C.
Portfolio Manager:
John F. Jostrand, CFA, Principal
Throughout the past six months, equity markets have been extremely challenging, with severe declines and high levels of volatility. In the first half of the period, markets fell substantially as Lehman Brothers collapsed and the global financial crisis deepened. As a result, investors became more risk-averse and flocked to traditional defensive groups such as consumer staples and heath care, at the expense of crippled financials and more cyclical sectors such as energy and industrials. However, after the November low, investors chased laggards and low-quality stocks in anticipation of a recovery.
In 2009, the equity markets have fallen near November 2008 lows amid uncertainty about the direction of the global economies, the impact of the stimulus plans, and the continued deterioration of economic results.
7
The portfolio declined during this time, but in general during the market turmoil, our quality growth process helped us to identify companies with strong balance sheets, market leadership, and competitive sustainable business models. Relative results also benefited from stock selection in the industrials and consumer discretionary sectors.
The portfolio was weakened by stock selection in consumer staples and technology. In addition, late in the fourth quarter of 2008, heavily sold or low-quality stocks rallied, which detracted from the portfolio’s performance given our quality focus.
The outlook for the global equity markets remains unclear. We believe U.S. economic conditions will continue to deteriorate further in the first half of 2009, followed by some improvement in the second half as a result of the aggressive and unprecedented levels of the global stimulus programs. We expect these proactive global monetary and fiscal actions to gradually stem and eventually help reverse the global slowdown. However, our expectations for growth in the United States remain at subdued levels.
In this difficult market environment, we remain committed to our quality growth investment philosophy. We believe companies with these characteristics will be rewarded for their leadership, strong management teams, pristine balance sheets, attractive cash flow, and ability to self-finance. In fact, in this slower-growth environment, these companies should gain further ground by taking market share from weaker peers that stumble or fail.
While it is difficult to say whether market lows have been reached yet and whether a recovery is imminent, we believe that a substantial portion of the bad news has been priced in. Many of the quality growth names in which we invest are now at very attractive valuation levels, providing a significant investment opportunity.
8
U.S. Growth Fund
Fund Profile
As of February 28, 2009
Share Class Characteristics |
|
|
| Investor | Admiral |
| Shares | Shares |
Ticker Symbol | VWUSX | VWUAX |
Expense Ratio1 | 0.50% | 0.31% |
30-Day SEC Yield | 0.85% | 1.06% |
Portfolio Characteristics |
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| |
|
| Russell |
|
|
| 1000 | Dow |
|
| Growth | Wilshire |
| Fund | Index | 5000 Index |
Number of Stocks | 70 | 640 | 4,524 |
Median Market Cap | $41.9B | $25.6B | $20.9B |
Price/Earnings Ratio | 13.6x | 11.7x | 12.4x |
Price/Book Ratio | 2.5x | 2.4x | 1.5x |
Return on Equity | 24.2% | 24.0% | 20.8% |
Earnings Growth Rate | 32.2% | 23.3% | 17.6% |
Dividend Yield | 1.5% | 2.2% | 3.1% |
Foreign Holdings | 2.8% | 0.0% | 0.0% |
Turnover Rate |
|
|
|
(Annualized) | 91% | — | — |
Short-Term Reserves | 1.9% | — | — |
Sector Diversification (% of equity exposure) | |||
|
| Russell |
|
|
| 1000 | Dow |
|
| Growth | Wilshire |
| Fund | Index | 5000 Index |
Consumer |
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|
|
Discretionary | 8.3% | 9.7% | 9.0% |
Consumer Staples | 13.6 | 14.2 | 11.7 |
Energy | 8.2 | 8.5 | 13.0 |
Financials | 5.4 | 3.0 | 12.3 |
Health Care | 24.4 | 16.1 | 15.3 |
Industrials | 7.5 | 11.8 | 9.9 |
Information |
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|
|
Technology | 27.6 | 30.0 | 17.1 |
Materials | 4.8 | 4.0 | 3.4 |
Telecommunication |
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Services | 0.1 | 0.8 | 3.7 |
Utilities | 0.1 | 1.9 | 4.6 |
Volatility Measures |
| |
| Russell 1000 | Dow Wilshire |
| Growth Index | 5000 Index |
R-Squared | 0.96 | 0.89 |
Beta | 0.95 | 0.91 |
These measures show the degree and timing of the fund’s fluctuations compared with the index over the past 36 months.
Ten Largest Holdings (% of total net assets) | ||
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Google Inc. | Internet Software & |
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| Services | 5.8% |
Hewlett-Packard Co. | Computer |
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| Hardware | 4.7 |
Gilead Sciences, Inc. | Biotechnology | 4.6 |
Apple Inc. | Computer |
|
| Hardware | 4.2 |
QUALCOMM Inc. | Communications |
|
| Equipment | 4.0 |
Genentech, Inc. | Biotechnology | 3.7 |
Cisco Systems, Inc. | Communications |
|
| Equipment | 3.5 |
Wal-Mart Stores, Inc. | Hypermarkets & |
|
| Super Centers | 3.1 |
McDonald’s Corp. | Restaurants | 3.1 |
Schlumberger Ltd. | Oil & Gas |
|
| Equipment & |
|
| Services | 3.0 |
Top Ten |
| 39.7% |
The holdings listed exclude any temporary cash investments and equity index products.
Investment Focus
1 The expense ratios shown are from the prospectus dated December 29, 2008, and represent estimated costs for the current fiscal year based on the fund’s current net assets. For the six months ended February 28, 2009, the annualized expense ratios were 0.46% for the Investor Shares and 0.29% for the Admiral Shares.
9
U.S. Growth 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/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): August 31, 1998, Through February 28, 2009
Average Annual Total Returns: Periods Ended December 31, 2008
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.
| Inception Date | One Year | Five Years | Ten Years |
Investor Shares | 1/6/1959 | -37.82% | -3.68% | -7.72% |
Admiral Shares | 8/13/2001 | -37.69 | -3.46 | -5.351 |
1 Return since inception. |
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Vanguard fund total returns do not include the account service fee that may be applicable to certain accounts with balances below $10,000.
See Financial Highlights for dividend and capital gains information.
10
U.S. Growth Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2009
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).
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| Market |
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| Value• |
|
| Shares | ($000) |
Common Stocks (96.0%)1 |
|
| |
Consumer Discretionary (7.9%) |
|
| |
| McDonald’s Corp. | 1,659,490 | 86,708 |
* | Kohl’s Corp. | 1,559,091 | 54,786 |
| The Walt Disney Co. | 1,912,100 | 32,066 |
| Omnicom Group Inc. | 797,130 | 19,155 |
| Lowe’s Cos., Inc. | 919,760 | 14,569 |
* | Apollo Group, Inc. Class A | 119,280 | 8,648 |
| NIKE, Inc. Class B | 184,910 | 7,679 |
|
|
| 223,611 |
Consumer Staples (13.1%) |
|
| |
| Wal-Mart Stores, Inc. | 1,790,350 | 88,157 |
| PepsiCo, Inc. | 943,400 | 45,415 |
| Colgate-Palmolive Co. | 703,200 | 42,318 |
| Costco Wholesale Corp. | 969,300 | 41,040 |
| The Coca-Cola Co. | 791,850 | 32,347 |
| The Procter & Gamble Co. | 659,720 | 31,779 |
| Philip Morris |
|
|
| International Inc. | 715,500 | 23,948 |
| Campbell Soup Co. | 667,250 | 17,862 |
| CVS Caremark Corp. | 689,040 | 17,736 |
| General Mills, Inc. | 303,900 | 15,949 |
| Molson Coors Brewing Co. |
|
|
| Class B | 433,200 | 15,262 |
|
|
| 371,813 |
Energy (7.8%) |
|
| |
| Schlumberger Ltd. | 2,231,170 | 84,918 |
| Apache Corp. | 793,750 | 46,903 |
| EOG Resources, Inc. | 925,790 | 46,327 |
| XTO Energy, Inc. | 683,400 | 21,636 |
* | Cameron |
|
|
| International Corp. | 787,940 | 15,191 |
* | National Oilwell Varco Inc. | 241,700 | 6,461 |
|
|
| 221,436 |
Exchange-Traded Fund (0.0%) |
|
| |
2 | Vanguard Growth ETF | 3,100 | 108 |
|
|
|
|
Financials (5.0%) |
|
| |
| CME Group, Inc. | 209,210 | 38,160 |
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
| The Goldman |
|
|
| Sachs Group, Inc. | 412,400 | 37,561 |
| JPMorgan Chase & Co. | 1,156,000 | 26,414 |
| Charles Schwab Corp. | 1,670,185 | 21,228 |
| Franklin Resources Corp. | 418,600 | 19,172 |
|
|
| 142,535 |
Health Care (23.7%) |
|
| |
| Biotechnology (11.2%) |
|
|
* | Gilead Sciences, Inc. | 2,929,360 | 131,235 |
* | Genentech, Inc. | 1,221,630 | 104,510 |
* | Celgene Corp. | 1,829,860 | 81,850 |
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|
|
|
| Health Care Equipment & Supplies (3.9%) |
| |
| Baxter International, Inc. | 895,600 | 45,595 |
| Becton, Dickinson & Co. | 399,210 | 24,707 |
* | St. Jude Medical, Inc. | 613,280 | 20,336 |
| Alcon, Inc. | 236,640 | 19,490 |
|
|
|
|
| Health Care Providers & Services (1.8%) |
| |
* | Medco Health |
|
|
| Solutions, Inc. | 981,800 | 39,841 |
| UnitedHealth Group Inc. | 634,600 | 12,470 |
|
|
|
|
| Life Science Tools & Services (0.7%) |
|
|
* | Thermo Fisher |
|
|
| Scientific, Inc. | 556,720 | 20,187 |
|
|
|
|
| Pharmaceuticals (6.1%) |
|
|
| Teva Pharmaceutical |
|
|
| Industries Ltd. |
|
|
| Sponsored ADR | 1,777,060 | 79,221 |
| Abbott Laboratories | 1,617,000 | 76,549 |
| Allergan, Inc. | 452,135 | 17,516 |
|
|
| 673,507 |
Industrials (7.1%) |
|
| |
| Danaher Corp. | 666,915 | 33,853 |
| Emerson Electric Co. | 1,235,870 | 33,059 |
| Roper Industries Inc. | 551,190 | 22,792 |
| Lockheed Martin Corp. | 324,300 | 20,466 |
^ | Fastenal Co. | 662,540 | 19,956 |
11
U.S. Growth Fund
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
* | Jacobs Engineering |
|
|
| Group Inc. | 489,500 | 16,516 |
| J.B. Hunt Transport |
|
|
| Services, Inc. | 659,710 | 13,445 |
| Precision Castparts Corp. | 238,100 | 13,198 |
| Honeywell International Inc. | 408,300 | 10,955 |
| Expeditors International of |
|
|
| Washington, Inc. | 360,320 | 9,927 |
| Fluor Corp. | 132,500 | 4,406 |
| Cummins Inc. | 160,100 | 3,330 |
|
|
| 201,903 |
Information Technology (26.8%) |
|
| |
| Communications Equipment (7.5%) |
|
|
| QUALCOMM Inc. | 3,381,395 | 113,040 |
* | Cisco Systems, Inc. | 6,818,473 | 99,345 |
|
|
|
|
| Computers & Peripherals (9.4%) |
|
|
| Hewlett-Packard Co. | 4,619,800 | 134,113 |
* | Apple Inc. | 1,347,706 | 120,364 |
* | NetApp, Inc. | 997,000 | 13,400 |
|
|
|
|
| Electronic Equipment & Instruments (0.4%) |
| |
* | FLIR Systems, Inc. | 534,399 | 10,907 |
|
|
|
|
| Internet Software & Services (5.8%) |
|
|
* | Google Inc. | 488,585 | 165,137 |
|
|
|
|
| Semiconductors & Semiconductor |
|
|
| Equipment (0.5%) |
|
|
| Intel Corp. | 1,093,110 | 13,926 |
|
|
|
|
| Software (3.2%) |
|
|
| Microsoft Corp. | 4,062,595 | 65,611 |
* | salesforce.com, inc. | 309,670 | 8,671 |
* | Activision Blizzard, Inc. | 851,125 | 8,537 |
* | Adobe Systems, Inc. | 466,939 | 7,798 |
|
|
| 760,849 |
Materials (4.6%) |
|
| |
| Monsanto Co. | 1,101,675 | 84,025 |
| Praxair, Inc. | 424,140 | 24,070 |
| Ecolab, Inc. | 428,320 | 13,612 |
| Air Products & |
|
|
| Chemicals, Inc. | 209,330 | 9,681 |
|
|
| 131,388 |
Total Common Stocks |
|
| |
(Cost $3,870,512) |
| 2,727,150 |
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
Temporary Cash Investments (4.8%)1 |
|
| |
Money Market Fund (4.2%) |
|
| |
3,4 | Vanguard Market |
|
|
| Liquidity Fund, |
|
|
| 0.663% | 117,394,994 | 117,395 |
|
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|
|
|
|
|
|
| Face |
|
|
| Amount |
|
|
| ($000) |
|
U.S. Government and Agency Obligations (0.6%) |
| ||
5 | Federal Home Loan |
|
|
| Mortgage Corp. |
|
|
6 | 0.597%, 8/24/09 | 18,000 | 17,944 |
Total Temporary Cash Investments |
|
| |
(Cost $135,343) |
| 135,339 | |
Total Investments (100.8%) |
|
| |
(Cost $4,005,855) |
| 2,862,489 | |
Other Assets and Liabilities (-0.8%) |
|
| |
Other Assets |
| 26,958 | |
Liabilities4 |
| (50,062) | |
|
|
| (23,104) |
Net Assets (100%) |
| 2,839,385 |
12
U.S. Growth Fund
At February 28, 2009, net assets consisted of: | |
| Amount |
| ($000) |
Paid-in Capital | 10,577,287 |
Overdistributed Net Investment Income | (13,391) |
Accumulated Net Realized Losses | (6,570,530) |
Unrealized Appreciation (Depreciation) |
|
Investment Securities | (1,143,366) |
Futures Contracts | (10,615) |
Net Assets | 2,839,385 |
|
|
Investor Shares—Net Assets |
|
Applicable to 201,855,144 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 2,185,178 |
Net Asset Value Per Share— |
|
Investor Shares | $10.83 |
|
|
Admiral Shares—Net Assets |
|
Applicable to 23,351,494 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 654,207 |
Net Asset Value Per Share— |
|
Admiral Shares | $28.02 |
• | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
^ | Part of security position is on loan to broker-dealers. The total value of securities on loan is $7,530,000. |
1 | The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures investments, the fund’s effective common stock and temporary cash investment positions represent 98.6% and 2.2%, respectively, of net assets. |
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 | Includes $7,750,000 of collateral received for securities on loan. |
5 | The issuer operates under a congressional charter; its securities are not backed by the full faith and credit of the U.S. government. |
6 Securities with a value of $17,944,000 have been segregated as initial margin for open futures contracts.
ADR—American Depositary Receipt.
See accompanying Notes, which are an integral part of the Financial Statements.
13
U.S. Growth Fund
Statement of Operations
| Six Months Ended |
| February 28, 2009 |
| ($000) |
Investment Income |
|
Income |
|
Dividends1 | 21,774 |
Interest1 | 1,846 |
Security Lending | 131 |
Total Income | 23,751 |
Expenses |
|
Investment Advisory Fees—Note B |
|
Basic Fee | 2,859 |
Performance Adjustment | (691) |
The Vanguard Group—Note C |
|
Management and Administrative—Investor Shares | 3,918 |
Management and Administrative—Admiral Shares | 526 |
Marketing and Distribution—Investor Shares | 404 |
Marketing and Distribution—Admiral Shares | 117 |
Custodian Fees | 30 |
Shareholders’ Reports—Investor Shares | 33 |
Shareholders’ Reports—Admiral Shares | 10 |
Trustees’ Fees and Expenses | 3 |
Total Expenses | 7,209 |
Expenses Paid Indirectly | (130) |
Net Expenses | 7,079 |
Net Investment Income | 16,672 |
Realized Net Gain (Loss) |
|
Investment Securities Sold1 | (364,708) |
Futures Contracts | (69,365) |
Realized Net Gain (Loss) | (434,073) |
Change in Unrealized Appreciation (Depreciation) |
|
Investment Securities | (1,409,524) |
Futures Contracts | (3,902) |
Change in Unrealized Appreciation (Depreciation) | (1,413,426) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (1,830,827) |
1 Dividend income, interest income, and realized net gain (loss) from affiliated companies of the fund were $1,000, $1,698,000, and $0, respectively.
See accompanying Notes, which are an integral part of the Financial Statements.
14
U.S. Growth Fund
Statement of Changes in Net Assets
| Six Months Ended | Year Ended |
| February 28, | August 31, |
| 2009 | 2008 |
| ($000) | ($000) |
Increase (Decrease) in Net Assets |
|
|
Operations |
|
|
Net Investment Income | 16,672 | 27,319 |
Realized Net Gain (Loss) | (434,073) | 138,171 |
Change in Unrealized Appreciation (Depreciation) | (1,413,426) | (551,756) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (1,830,827) | (386,266) |
Distributions |
|
|
Net Investment Income |
|
|
Investor Shares | (23,339) | (25,051) |
Admiral Shares | (8,835) | (11,166) |
Realized Capital Gain |
|
|
Investor Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (32,174) | (36,217) |
Capital Share Transactions |
|
|
Investor Shares | (25,766) | (351,798) |
Admiral Shares | (24,658) | (106,170) |
Net Increase (Decrease) from Capital Share Transactions | (50,424) | (457,968) |
Total Increase (Decrease) | (1,913,425) | (880,451) |
Net Assets |
|
|
Beginning of Period | 4,752,810 | 5,633,261 |
End of Period1 | 2,839,385 | 4,752,810 |
1 | Net Assets—End of Period includes undistributed (overdistributed) net investment income of ($13,391,000) and $2,111,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
15
U.S. Growth Fund
Financial Highlights
Investor Shares |
|
|
|
|
|
|
| Six Months |
|
|
|
|
|
| Ended |
|
|
|
|
|
For a Share Outstanding | February 28, | Year Ended August 31, | ||||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 |
Net Asset Value, Beginning of Period | $17.89 | $19.44 | $17.06 | $16.77 | $14.39 | $14.00 |
Investment Operations |
|
|
|
|
|
|
Net Investment Income | .061 | .089 | .113 | .059 | .0401 | .028 |
Net Realized and Unrealized Gain |
|
|
|
|
|
|
(Loss) on Investments | (7.005) | (1.523) | 2.354 | .266 | 2.385 | .409 |
Total from Investment Operations | (6.944) | (1.434) | 2.467 | .325 | 2.425 | .437 |
Distributions |
|
|
|
|
|
|
Dividends from Net Investment Income | (.116) | (.116) | (.087) | (.035) | (.045) | (.047) |
Distributions from Realized Capital Gains | — | — | — | — | — | — |
Total Distributions | (.116) | (.116) | (.087) | (.035) | (.045) | (.047) |
Net Asset Value, End of Period | $10.83 | $17.89 | $19.44 | $17.06 | $16.77 | $14.39 |
|
|
|
|
|
|
|
Total Return2 | -38.87% | -7.44% | 14.50% | 1.93% | 16.86% | 3.11% |
|
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
|
Net Assets, End of Period (Millions) | $2,185 | $3,637 | $4,308 | $4,530 | $4,848 | $5,503 |
Ratio of Total Expenses to |
|
|
|
|
|
|
Average Net Assets3 | 0.46%4 | 0.43% | 0.50% | 0.58% | 0.55% | 0.53% |
Ratio of Net Investment Income to |
|
|
|
|
|
|
Average Net Assets | 0.93%4 | 0.47% | 0.60% | 0.34% | 0.30%1 | 0.19% |
Portfolio Turnover Rate | 91%4 | 107% | 51% | 48% | 38% | 71% |
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 | Total returns do not include the account service fee that may be applicable to certain accounts with balances below $10,000. |
3 Includes performance-based investment advisory fee increases (decreases) of (0.04%), (0.03%), (0.01%), 0.02%, (0.02%), and (0.03%).
4 Annualized.
See accompanying Notes, which are an integral part of the Financial Statements.
16
U.S. Growth Fund
Financial Highlights
Admiral Shares |
|
|
|
|
|
|
| Six Months |
|
|
|
|
|
| Ended |
|
|
|
|
|
For a Share Outstanding | February 28, | Year Ended August 31, | ||||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 |
Net Asset Value, Beginning of Period | $46.37 | $50.42 | $44.24 | $43.47 | $37.29 | $36.28 |
Investment Operations |
|
|
|
|
|
|
Net Investment Income | .186 | .325 | .416 | .271 | .2261 | .147 |
Net Realized and Unrealized Gain (Loss) |
|
|
|
|
|
|
on Investments | (18.160) | (3.950) | 6.107 | .677 | 6.163 | 1.052 |
Total from Investment Operations | (17.974) | (3.625) | 6.523 | .948 | 6.389 | 1.199 |
Distributions |
|
|
|
|
|
|
Dividends from Net Investment Income | (.376) | (.425) | (.343) | (.178) | (.209) | (.189) |
Distributions from Realized Capital Gains | — | — | — | — | — | — |
Total Distributions | (.376) | (.425) | (.343) | (.178) | (.209) | (.189) |
Net Asset Value, End of Period | $28.02 | $46.37 | $50.42 | $44.24 | $43.47 | $37.29 |
|
|
|
|
|
|
|
Total Return | -38.83% | -7.28% | 14.80% | 2.16% | 17.16% | 3.29% |
|
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
|
Net Assets, End of Period (Millions) | $654 | $1,116 | $1,325 | $1,262 | $1,012 | $824 |
Ratio of Total Expenses to |
|
|
|
|
|
|
Average Net Assets2 | 0.29%3 | 0.24% | 0.27% | 0.34% | 0.32% | 0.32% |
Ratio of Net Investment Income to |
|
|
|
|
|
|
Average Net Assets | 1.10%3 | 0.66% | 0.83% | 0.58% | 0.53%1 | 0.40% |
Portfolio Turnover Rate | 91%3 | 107% | 51% | 48% | 38% | 71% |
1 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.
2 | Includes performance-based investment advisory fee increases (decreases) of (0.04%), (0.03%), (0.01%), 0.02%, (0.02%), and (0.03%). |
3 | Annualized. |
See accompanying Notes, which are an integral part of the Financial Statements.
17
U.S. Growth Fund
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 offers two classes of shares, Investor Shares and Admiral Shares. Investor Shares are available to any investor who meets the fund’s minimum purchase requirements. Admiral Shares are designed for investors who meet certain administrative, service, 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 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 Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized futures gains (losses).
3. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken on federal income tax returns for all open tax years (tax years ended August 31, 2005–2008), and for the period ended February 28, 2009, and has concluded that no provision for federal income tax is required in the fund’s 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.
18
U.S. Growth Fund
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, L.L.C., 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, 2009, the aggregate investment advisory fee represented an effective annual basic rate of 0.17% of the fund’s average net assets before a decrease of $691,000 (0.04%) 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, 2009, the fund had contributed capital of $821,000 to Vanguard (included in Other Assets), representing 0.03% of the fund’s net assets and 0.33% 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, 2009, these arrangements reduced the fund’s expenses by $130,000 (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.
19
U.S. Growth Fund
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, 2008, the fund had available realized losses of $6,142,272,000 to offset future net capital gains of $2,582,798,000 through August 31, 2010, $2,548,333,000 through August 31, 2011, $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, 2009; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balances above.
At February 28, 2009, the cost of investment securities for tax purposes was $4,005,855,000. Net unrealized depreciation of investment securities for tax purposes was $1,143,366,000, consisting of unrealized gains of $34,336,000 on securities that had risen in value since their purchase and $1,177,702,000 in unrealized losses on securities that had fallen in value since their purchase.
At February 28, 2009, the aggregate settlement value of open futures contracts expiring through June 2009 and the related unrealized appreciation (depreciation) were:
|
|
| ($000) |
| Number of | Aggregate | Unrealized |
| Long (Short) | Settlement | Appreciation |
Futures Contracts | Contracts | Value | (Depreciation) |
S&P 500 Index (March Expiration) | 159 | 29,184 | (5,882) |
S&P Mid-Cap 400 Index (March Expiration) | 97 | 21,772 | (2,999) |
E-mini S&P 500 Index (March Expiration) | 351 | 12,885 | (1,527) |
S&P 500 Index (June Expiration) | 34 | 6,214 | (151) |
E-mini S&P Mid-Cap 400 Index (March Expiration) | 60 | 2,693 | (56) |
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, 2009, the fund purchased $1,533,937,000 of investment securities and sold $1,584,479,000 of investment securities other than temporary cash investments.
G. Capital share transactions for each class of shares were:
| Six Months Ended | Year Ended | ||
| February 28, 2009 | August 31, 2008 | ||
| Amount | Shares | Amount | Shares |
| ($000) | (000) | ($000) | (000) |
Investor Shares |
|
|
|
|
Issued | 212,554 | 15,946 | 488,406 | 26,158 |
Issued in Lieu of Cash Distributions | 22,922 | 1,941 | 24,561 | 1,226 |
Redeemed | (261,242) | (19,328) | (864,765) | (45,681) |
Net Increase (Decrease)—Investor Shares | (25,766) | (1,441) | (351,798) | (18,297) |
Admiral Shares |
|
|
|
|
Issued | 65,446 | 1,969 | 207,633 | 4,245 |
Issued in Lieu of Cash Distributions | 8,303 | 272 | 10,509 | 203 |
Redeemed | (98,407) | (2,949) | (324,312) | (6,673) |
Net Increase (Decrease)—Admiral Shares | (24,658) | (708) | (106,170) | (2,225) |
20
U.S. Growth Fund
H. In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157 (“FAS 157”), “Fair Value Measurements.” FAS 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements in financial statements.
The various inputs that may be used to determine the value of the fund’s investments are summarized in three broad levels. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
The following table summarizes the fund’s investments as of February 28, 2009, based on the inputs used to value them:
| Investments | Futures |
| in Securities | Contracts |
Valuation Inputs | ($000) | ($000) |
Level 1—Quoted prices | 2,844,545 | (10,615) |
Level 2—Other significant observable inputs | 17,944 | — |
Level 3—Significant unobservable inputs | — | — |
Total | 2,862,489 | (10,615) |
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 accompanying table illustrates your fund’s costs in two ways:
• Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading “Expenses Paid During Period.”
• Based on hypothetical 5% yearly return. This section is intended to help you compare your fund’s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include the account service fee described in the prospectus. If such a 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 your fund’s current prospectus.
22
Six Months Ended February 28, 2009 |
|
|
|
| Beginning | Ending | Expenses |
| Account Value | Account Value | Paid During |
U.S. Growth Fund | 8/31/2008 | 2/28/2009 | Period |
Based on Actual Fund Return |
|
|
|
Investor Shares | $1,000.00 | $611.31 | $1.84 |
Admiral Shares | 1,000.00 | 611.70 | 1.16 |
Based on Hypothetical 5% Yearly Return |
|
|
|
Investor Shares | $1,000.00 | $1,022.51 | $2.31 |
Admiral Shares | 1,000.00 | 1,023.36 | 1.45 |
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 0.46% for Investor Shares and 0.29% 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.
23
Trustees Approve 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 an evaluation of each advisor’s investment staff, portfolio management process, and performance. The trustees considered the factors discussed below, among others. However, no single factor determined whether the board approved the 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 the short and long term and took into account the organizational depth and stability of each firm. The board noted the following:
AllianceBernstein. Founded in 1971, AllianceBernstein is a leading global investment management firm. The investment team at AllianceBernstein seeks out companies likely to increase earnings faster and/or sustain them longer than consensus estimates. The team defines growth broadly, beyond growth forecasts, to be flexible across sectors and company life cycles. The team looks to internal research to identify and evaluate the most attractive investment opportunities, believing that rigorous, insightful analysis is essential to successful long-term performance. AllianceBernstein has managed a portion of the fund since 2001.
William Blair & Co. William Blair is an independently owned, full-service investment firm founded in 1935. The firm has advised a portion of the fund since 2004. William Blair uses an investment process that relies on thorough, in-depth fundamental analysis. Based on this process, the advisor invests in companies that it believes are of high quality and that have sustainable, above-average growth. In selecting stocks, the advisor considers each company’s leadership position within the market it serves, the quality of the products or services it provides, its return on equity, its accounting policies, and the quality of the management team.
The board concluded that each advisor’s experience, stability, depth, 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 a relevant benchmark and peer group. The board concluded that the advisors have carried out the fund’s investment strategy in a disciplined fashion and that the results remain competitive. 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 board noted that 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 the profitability of AllianceBernstein or William Blair 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.
24
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 board will consider whether to renew the advisory agreements again after a one-year period.
25
Glossary
30-Day SEC Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (in the case of bonds) or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.
Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Dividend Yield. Dividend income earned by stocks, expressed as a percentage of the aggregate market value (or of net asset value, for a fund). The yield is determined by dividing the amount of the annual dividends by the aggregate value (or net asset value) at the end of the period. For a fund, the dividend yield is based solely on stock holdings and does not include any income produced by other investments.
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.
Expense Ratio. 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 represented by stocks or depositary receipts of companies based outside the United States.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.
26
Price/Earnings Ratio. The ratio of a stock’s current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company’s future growth.
R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0. For this report, R-squared is based on returns over the past 36 months for both the fund and the index.
Return on Equity. The annual average rate of return generated by a company during the past five years for each dollar of shareholder’s equity (net income divided by shareholder’s equity). For a fund, the weighted average return on equity for the companies whose stocks it holds.
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
Turnover Rate. An indication of the fund’s trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to investors). The turnover rate excludes in-kind transactions, which have minimal impact on costs.
27
The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 157 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at www.vanguard.com.
Chairman of the Board and Interested Trustee | Rajiv L. Gupta |
| Born 1945. Trustee Since December 2001.2 Principal |
| Occupation(s) During the Past Five Years: Chairman |
John J. Brennan1 | and Chief Executive Officer of Rohm and Haas Co. |
Born 1954. Trustee Since May 1987. Chairman of | (chemicals); President of Rohm and Haas Co. |
the Board. Principal Occupation(s) During the Past Five | (2006–2008); Board Member of American Chemistry |
Years: Chairman of the Board and Director/Trustee of | Council; Director of Tyco International, Ltd. (diversified |
The Vanguard Group, Inc., and of each of the investment | manufacturing and services) and Hewlett-Packard Co. |
companies served by The Vanguard Group; Chief | (electronic computer manufacturing); Trustee of The |
Executive Officer and President of The Vanguard Group | Conference Board. |
and of each of the investment companies served by The |
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Vanguard Group (1996–2008). |
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| Amy Gutmann |
| Born 1949. Trustee Since June 2006. Principal |
Independent Trustees | Occupation(s) During the Past Five Years: President of |
| the University of Pennsylvania; Christopher H. Browne |
| Distinguished Professor of Political Science in the School |
Charles D. Ellis | of Arts and Sciences with Secondary Appointments |
Born 1937. Trustee Since January 2001. Principal | at the Annenberg School for Communication and the |
Occupation(s) During the Past Five Years: Applecore | Graduate School of Education of the University of |
Partners (pro bono ventures in education); Senior | Pennsylvania; Director of Carnegie Corporation of |
Advisor to Greenwich Associates (international business | New York, Schuylkill River Development Corporation, |
strategy consulting); Successor Trustee of Yale University; | and Greater Philadelphia Chamber of Commerce; |
Overseer of the Stern School of Business at New York | Trustee of the National Constitution Center. |
University; Trustee of the Whitehead Institute for |
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Biomedical Research. |
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| JoAnn Heffernan Heisen |
| Born 1950. Trustee Since July 1998. Principal |
Emerson U. Fullwood | Occupation(s) During the Past Five Years: Retired |
Born 1948. Trustee Since January 2008. Principal | Corporate Vice President, Chief Global Diversity Officer, |
Occupation(s) During the Past Five Years: Retired | and Member of the Executive Committee of Johnson & |
Executive Chief Staff and Marketing Officer for North | Johnson (pharmaceuticals/consumer products); Vice |
America and Corporate Vice President of Xerox | President and Chief Information Officer (1997–2005) |
Corporation (photocopiers and printers); Director of | of Johnson & Johnson; Director of the University |
SPX Corporation (multi-industry manufacturing), the | Medical Center at Princeton and Women’s Research |
United Way of Rochester, the Boy Scouts of America, | and Education Institute. |
Amerigroup Corporation (direct health and medical |
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insurance carriers), and Monroe Community College |
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Foundation. |
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André F. Perold | F. William McNabb III1 |
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Born 1952. Trustee Since December 2004. Principal | Born 1957. Chief Executive Officer Since August 2008. | |
Occupation(s) During the Past Five Years: George Gund | President Since March 2008. Principal Occupation(s) | |
Professor of Finance and Banking, Senior Associate | During the Past Five Years: Director of The Vanguard | |
Dean, and Director of Faculty Recruiting, Harvard | Group, Inc., since 2008; Chief Executive Officer and | |
Business School; Director and Chairman of UNX, Inc. | President of The Vanguard Group and of each of the | |
(equities trading firm); Chair of the Investment | investment companies served by The Vanguard Group | |
Committee of HighVista Strategies LLC (private | since 2008; Director of Vanguard Marketing Corporation; | |
investment firm). | Managing Director of The Vanguard Group (1995–2008). | |
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Alfred M. Rankin, Jr. | Heidi Stam1 |
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Born 1941. Trustee Since January 1993. Principal | Born 1956. Secretary Since July 2005. Principal | |
Occupation(s) During the Past Five Years: Chairman, | Occupation(s) During the Past Five Years: Managing | |
President, Chief Executive Officer, and Director of | Director of The Vanguard Group, Inc., since 2006; | |
NACCO Industries, Inc. (forklift trucks/housewares/ | General Counsel of The Vanguard Group since 2005; | |
lignite); Director of Goodrich Corporation (industrial | Secretary of The Vanguard Group and of each of the | |
products/aircraft systems and services). | investment companies served by The Vanguard Group | |
| since 2005; Director and Senior Vice President of | |
| Vanguard Marketing Corporation since 2005; Principal | |
J. Lawrence Wilson | of The Vanguard Group (1997–2006). | |
Born 1936. Trustee Since April 1985. Principal |
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Occupation(s) During the Past Five Years: Retired |
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Chairman and Chief Executive Officer of Rohm and | Vanguard Senior Management Team | |
Haas Co. (chemicals); Director of Cummins Inc. (diesel |
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engines) and AmerisourceBergen Corp. (pharmaceutical |
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distribution); Trustee of Vanderbilt University and of | R. Gregory Barton | Michael S. Miller |
Culver Educational Foundation. | Mortimer J. Buckley | James M. Norris |
| Kathleen C. Gubanich | Glenn W. Reed |
| Paul A. Heller | George U. Sauter |
Executive Officers |
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| Founder |
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Thomas J. Higgins1 |
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Born 1957. Chief Financial Officer Since September |
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2008. Principal Occupation(s) During the Past Five | John C. Bogle |
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Years: Principal of The Vanguard Group, Inc.; Chief | Chairman and Chief Executive Officer, 1974–1996 | |
Financial Officer of each of the investment companies |
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served by The Vanguard Group since 2008; Treasurer |
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of each of the investment companies served by The |
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Vanguard Group (1998–2008). |
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Kathryn J. Hyatt1 |
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Born 1955. Treasurer Since November 2008. Principal |
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Occupation(s) During the Past Five Years: Principal of |
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The Vanguard Group, Inc.; Treasurer of each of the |
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investment companies served by The Vanguard |
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Group since 2008; Assistant Treasurer of each of the |
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investment companies served by The Vanguard Group |
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(1988–2008). |
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1 These individuals 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.
| |
| P.O. Box 2600 |
| Valley Forge, PA 19482-2600 |
Connect with Vanguard® > www.vanguard.com
Fund Information > 800-662-7447 | CFA® is a trademark owned by CFA Institute. |
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|
Direct Investor Account Services > 800-662-2739 | The funds or securities referred to herein are not |
| sponsored, endorsed, or promoted by MSCI, and MSCI |
Institutional Investor Services > 800-523-1036 | bears no liability with respect to any such funds or |
| securities. For any such funds or securities, the |
Text Telephone for People | prospectus or the Statement of Additional Information |
With Hearing Impairment > 800-952-3335 | contains a more detailed description of the limited |
| relationship MSCI has with The Vanguard Group and |
| any related funds. |
This material may be used in conjunction |
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with the offering of shares of any Vanguard |
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fund only if preceded or accompanied by | Russell is a trademark of The Frank Russell Company. |
the fund’s current prospectus. |
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All comparative mutual fund data are from Lipper Inc. or |
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Morningstar, Inc., unless otherwise noted. |
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You can obtain a free copy of Vanguard’s proxy voting |
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guidelines by visiting our website, www.vanguard.com, |
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and searching for “proxy voting guidelines,” or by calling |
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Vanguard at 800-662-2739. The guidelines are also |
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available from the SEC’s website, www.sec.gov. In |
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addition, you may obtain a free report on how your fund |
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voted the proxies for securities it owned during the 12 |
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months ended June 30. To get the report, visit either |
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www.vanguard.com or www.sec.gov. |
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You can review and copy information about your fund at |
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the SEC’s Public Reference Room in Washington, D.C. To |
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find out more about this public service, call the SEC at |
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202-551-8090. Information about your fund is also |
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available on the SEC’s website, and you can receive |
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copies of this information, for a fee, by sending a |
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request in either of two ways: via e-mail addressed to |
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publicinfo@sec.gov or via regular mail addressed to the | © 2009 The Vanguard Group, Inc. |
Public Reference Section, Securities and Exchange | All rights reserved. |
Commission, Washington, DC 20549-0102. | Vanguard Marketing Corporation, Distributor. |
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| Q232 042009 |
> | Vanguard International Growth Fund returned about –45% for the fiscal half-year ended February 28, 2009. |
> | The fund’s disappointing performance was in line with that of its benchmark index and the average return of its peer funds. |
> | The financial woes of developed markets trickled down to emerging markets as commodity prices plunged and demand for exports declined. |
Contents |
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Your Fund’s Total Returns | 1 |
President’s Letter | 2 |
Advisors’ | 7 |
Fund Profile | 12 |
Performance | 14 |
Financial | 15 |
About Your Fund’s | 28 |
Trustees Approve Advisory | 30 |
Glossary | 32 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
Your Fund’s Total Returns
Six Months Ended February 28, 2009 |
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| Total Returns |
Vanguard International Growth Fund |
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Investor Shares | -44.84% |
Admiral™ Shares | -44.79 |
MSCI EAFE Index | -44.58 |
Average International Fund | -44.54 |
Average International Fund: Derived from data provided by Lipper Inc.
Admiral Shares are a lower-cost class of shares available to many longtime shareholders and to those with significant investments in the fund.
Your Fund’s Performance at a Glance |
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August 31, 2008, Through February 28, 2009 |
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| Distributions Per Share | |
| Starting | Ending | Income | Capital |
| Share Price | Share Price | Dividends | Gains |
Vanguard International Growth Fund |
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Investor Shares | $20.43 | $10.06 | $0.562 | $0.903 |
Admiral Shares | 65.09 | 31.99 | 1.909 | 2.870 |
1
President’s Letter
Dear Shareholder,
Vanguard International Growth Fund returned about –45% for the six months ended February 28, 2009, as the credit market crisis that began in the United States spread to international markets, slowing trade and hampering economic growth.
Weakness spread across sectors and regions. Developed markets in Europe and Asia were hit hardest, while emerging markets, which in recent years enjoyed robust growth, contracted as commodity prices shrank, exports fell, and investors sought out less risky investments.
The fund’s disappointing return was in line with both the average return for its peer funds and the return of its market benchmark, the Morgan Stanley Capital International Europe, Australasia, Far East (MSCI EAFE) Index, which—unlike your fund—does not include emerging markets.
Stocks fell steeply and broadly amid credit woes and slow growth
Stocks began the fiscal half-year inauspiciously and continued to decline as tight credit maintained its grip and major economies slipped into recession. Neither landmark programs to bolster financial institutions nor the $787 billion economic stimulus package signed into law in February served to boost investor confidence, which was already badly shaken after the U.S. stock market suffered its second-worst calendar-year performance ever.
2
For the six months ended February 28, U.S. equities overall returned about –42%. International stocks returned about –45%; emerging markets, which had boomed in recent years, were hit especially hard. The declines across the globe were notable for their speed, breadth, and extraordinary magnitude. Volatility also increased dramatically, to levels not seen since the 1930s. For example, the period encompassed not only four of the worst but also two of the best U.S. trading days since 1928 (based on percentage losses and gains).
Investors sought refuge in low-yield, but liquid, Treasuries
In the wake of the September collapse of Lehman Brothers, a leading Wall Street investment bank, credit markets deteriorated globally—a painful reminder of how intertwined markets have become and of how important trust is to keep them functioning. Lacking confidence, investors continued to seek the relative safety and liquidity of U.S. Treasury securities, driving prices up and yields down, and briefly sending very short-term yields into negative territory. This flight to quality led corporate bonds to experience two of their worst months ever in terms of real returns, in September and October.
After several aggressive actions by the Federal Reserve Board and the Treasury—including lowering the target for the federal funds rate to a range of 0% to 0.25%—signs of a thaw began to emerge. January and February, for example, were the most active months for the issuance
Market Barometer |
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| Total Returns |
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| Periods Ended February 28, 2009 | |
| Six | One | Five Years |
| Months | Year | (Annualized) |
Stocks |
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Russell 1000 Index (Large-caps) | -42.25% | -43.62% | -6.38% |
Russell 2000 Index (Small-caps) | -46.91 | -42.38 | -6.68 |
Dow Jones Wilshire 5000 Index (Entire market) | -42.27 | -43.15 | -6.04 |
MSCI All Country World Index ex USA (International) | -45.36 | -51.27 | -1.65 |
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Bonds |
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Barclays Capital U.S. Aggregate Bond Index (Broad |
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taxable market) | 1.88% | 2.06% | 4.00% |
Barclays Capital Municipal Bond Index | 0.05 | 5.18 | 3.13 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.42 | 1.31 | 3.07 |
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CPI |
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Consumer Price Index | -3.15% | 0.24% | 2.65% |
3
of investment-grade corporate bonds since 1995. Against this backdrop, the broad taxable bond market returned almost 2% for the six-month period, while tax-exempt bonds were about flat.
Crisis in U.S. financial markets spread to stocks worldwide
During the fiscal half-year, fears of a global recession stemming from the credit crisis in the United States reverberated throughout global stock markets.
Vanguard International Growth Fund, which seeks stocks with above-average growth potential, plunged by double digits as financial stocks crumbled, commodity prices fell, and emerging markets experienced a slowdown in demand for exports.
Not surprisingly, battered financial stocks and the industrial and consumer discretionary sectors, which are keenly sensitive to the rhythms of the business cycle, did the most damage. Relative to its benchmark index, the fund benefited from its underweighted stake in financials and its limited exposure to large banks embroiled in the global credit turmoil. The fund’s investments in a South Korean shipbuilding company and a luxury German automaker hurt its relative returns in the industrial and consumer discretionary groups, respectively.
On a regional basis, the International Growth Fund’s stocks in the developed markets of Europe, its largest allocation by region, dragged down the fund’s total return by about 29 percentage points. The
Expense Ratios |
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Your Fund Compared With Its Peer Group |
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| Investor | Admiral | Average International |
| Shares | Shares | Fund |
International Growth Fund | 0.54% | 0.35% | 1.44% |
The fund expense ratios shown are from the prospectus dated December 29, 2008, and represent estimated costs for the current fiscal year based on the fund’s current net assets. For the six months ended February 28, 2009, the annualized expense ratios were 0.53% for the Investor Shares and 0.33% for the Admiral Shares. The peer-group expense ratio is derived from data provided by Lipper Inc. and captures information through year-end 2008.
4
fund’s holdings in the United Kingdom, Germany, and Switzerland suffered the most as the materials, industrial, and financial sectors in those countries were pummeled.
Developed markets in Asia, the fund’s second largest concentration of stocks by region, reduced the fund’s total return by 9 percentage points. Japan, which accounts for about half of the fund’s stocks in the region, was hurt by the poor performance of its information technology and industrial sectors. In addition, the fund advisors’ decision not to invest in Japanese utilities deprived the fund of the only sector to post a positive return in the region.
In recent years, the fund has tended to earn higher returns in the sizzling emerging market economies than in the world’s developed markets. That was not the case during the fiscal half-year. Emerging markets fell hard in the period as U.S. investors sought safer, more predictable investments closer to home. Declining commodity prices (mainly in energy and materials) and continuing troubles for financial companies produced double-digit negative returns in all sectors of the world’s emerging markets, led by companies in Russia, South Korea, and Brazil. The fund’s relatively modest stake in emerging markets reduced the overall return by about 5 percentage points.
Long-term strategy keeps international stocks in perspective
Despite years of strong returns, international markets faced challenging headwinds during the fiscal half-year.
Although such volatility may be jarring for some investors, it’s important not to let these short-term extremes blind us to the long-term case for equities in general, and international stocks in particular. The stock market’s occasionally frightening declines are an unavoidable tradeoff for its potential to produce superior returns in the long term. International stocks are subject to this same tradeoff. Over time, however, the combination of U.S. and international stocks can help moderate a portfolio’s volatility.
At Vanguard, we counsel investors to maintain a diversified portfolio consisting of international and U.S. stock funds as well as bond and money market funds that fit their goals, time horizon, and risk tolerance. Even well-diversified portfolios have struggled recently, of course, but we believe that broad diversification among and within asset classes is the right long-term policy to help you weather
5
the occasional storm while putting you in a position to benefit from a return to better times.
The International Growth Fund can play an important role in such a portfolio by offering investors broad exposure to growth stocks in markets around the world.
Thank you for investing in Vanguard.
Sincerely,
F. William McNabb III
President and Chief Executive Officer
March 11, 2009
6
Advisor’s Report
For the fiscal half-year ended February 28, 2009, Vanguard International Growth Fund returned about –45%.This performance reflects the combined efforts of your fund’s three 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 brief descriptions of their investment strategies are presented in the table below. The advisors have also prepared a discussion of the investment environment that existed during the fiscal half-year and of how the portfolio’s positioning reflects this assessment. These comments were prepared on March 17, 2009.
Vanguard International Growth Fund Investment Advisors | |||
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Investment Advisor | % | $ Million | Investment Strategy |
Schroder Investment | 48 | 4,239 | Equity analysts in 11 countries and an international |
Management North America Inc. |
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| team of global sector and regional specialists help to |
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| identify reasonably priced companies with strong |
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| growth prospects and a sustainable competitive |
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| advantage. |
Baillie Gifford Overseas Ltd. | 41 | 3,659 | The advisor seeks stocks that can generate |
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| above-average growth in earnings and cash flow, |
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| producing a bottom-up, stock-driven approach to |
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| country and asset allocation. An in-depth view on each |
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| company is measured against the consensus view, |
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| leading to discrepancies and potential opportunities to |
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| add value. |
M&G Investment Management | 7 | 596 | The advisor constructs a portfolio using a long-term, |
Limited |
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| bottom-up investment approach focusing on identifying |
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| underappreciated companies—particularly those with |
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| scarce assets—with the ability to deliver high returns |
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| and growth potential. |
Cash Investments | 4 | 345 | These short-term reserves are invested by Vanguard in |
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| equity index products to simulate investment in stocks. |
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| Each advisor may also maintain a modest cash |
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7
Schroder Investment Management North America Inc.
Portfolio Managers: Virginie Maisonneuve, CFA
Head of Global and International Equities
Matthew Dobbs
Head of Global Small Companies
International equity markets suffered sharp falls in the six-month period, as investors grew increasingly concerned about the extent of the economic downturn and the difficulty governments around the world have encountered in dealing with the structural adjustments created by the financial crisis. Currencies were also volatile, with the yen appreciating by about 10% versus the U.S. dollar, and the British pound declining by more than 20% versus the dollar.
Global macroeconomic data deteriorated sharply during the period as evidenced by the steep drop in the Organization for Economic Co-operation and Development’s (OECD) composite leading indicators, now below the 1974 level. Industrial production and manufacturing fell substantially, while savings rates and unemployment crept up. Global markets are feeling the pain as Western economies’ excessive leverage, built up in the past decade, unravels, and as Western governments partially assume this leverage from financial institutions and consumers. Most governments have put measures in place to help cushion the impact of the adjustment and to get banks lending again. Most efforts so far have been relatively unsuccessful, as asset prices have not yet reached a clearing level, and banks are reluctant to lend because of the difficulty in assessing the potential risks of other banks and customers.
Most Asian economies, on the other hand, have shown relative resiliance, as the backlash of the Asian crisis in the late 1990s discouraged the development of the excesses seen in the Western world. Furthermore, in the case of China, the government has put in place a stimulus package focusing on domestic demand and infrastructure, which we believe will help counterbalance weaker export growth. Japan, like the West, is also suffering, as its export sector is hampered by a strong currency, and its domestic sector is hurt by anemic growth and little room for interest rate cuts.
Turning to equity markets, banking shares plummeted in the period, vindicating our decision earlier in 2008 to reduce our exposure to the sector. We have been wary of Western European banks and, instead, preferred Asian financials, with holdings such as ICBC, China Overseas Land and Investment, and Swire Pacific. This has worked in our favor. The portfolio also benefited from some of our holdings in technology (Square Enix, Sage), health care (Teva Pharmaceutical, Roche), and consumer discretionary (Denway Motor, Nestle). Our exposure to companies that we believe have the potential for strong medium-term growth, including oil
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services group SBM Offshore and industrial holding Mitsubishi Corp., weakened returns.
From a regional standpoint, the portfolio benefited from our exposure to the United Kingdom, emerging markets, and Asia, excluding Japan. In Japan, the single biggest detractor for the period, we had difficulty finding attractively priced, quality growth companies in which to invest. This problem was compounded by the strong yen. Toward the end of the period, however, our small Japanese exposure began to aid results, as the Japanese economy weakened further.
Looking forward, we believe the global structural adjustment provides strong buying opportunities, resulting from very depressed investor sentiment and attractive valuations for quality franchises with appealing medium-term growth prospects. The operating environment for most companies will remain challenging in 2009, and possibly 2010. While declining demand and lower capacity utilization will add to pricing pressure, lower input costs (including oil and raw materials) should help.
Throughout the portfolio, we remain focused on quality growth companies with competitive advantages, trading at reasonable valuations. We believe companies such as Tesco, Nestle, and Unilever are likely to have better access to capital and more experienced management teams than many of their competitors. We also continue to look for businesses that are linked to strong secular trends, including demographic shifts, global climate change, and infrastructure spending, especially in emerging markets. These trends are likely to provide us with opportunities in every market sector, potentially reducing overall risk in the portfolio.
Baillie Gifford Overseas Ltd.
Portfolio Manager:
James K. Anderson, Chief Investment Officer and Head of Global Equities
This six-month period saw an unprecedented collapse in confidence in the banking system, and a growing fear of the consequences for the wider economy. It is not surprising that bank stocks were the worst performers, or that more defensive companies in the food and health care sectors held up a little better. But there was really no place to hide. All markets shared in the carnage.
Confidence is at a low ebb, and further company collapses in the banking and automobile industries seem distinctly possible. Global markets reacted unfavorably to the U.S. government’s stimulus package, and American monetary policy seems to have encountered unexpected blockages.
There are some rays of sunshine, however. Many of these are in China, where monetary and survey data have been encouraging. The robust
9
performance of the A-share market this year may herald higher Chinese consumer confidence. The Chinese government’s reluctance to run a deficit means it will not solve the world’s financial crisis on its own, but the Chinese economy is likely to continue to grow. Meanwhile, Western consumers are still spending, led by German car buyers.
The core of the optimists’ case is that much of the economic pain so far stems from a massive inventory correction precipitated by the collapse of Lehman Brothers. The optimists’ case is also based on the perception that consumer demand, while lower, has avoided a collapse, which implies that industry may revive somewhat when inventories fall far enough. Consumers are likely to keep on spending, albeit cautiously, because they are benefiting from lower fuel and mortgage costs and considerable retail discounting. Government policy has been disappointing so far, but is likely to have an effect eventually.
While the deleveraging process will take a long time, there are signs that savings rates have already risen. As long as growth eventually reappears, albeit at a low level, a good case can be made for buying equities at current prices.
We have not made any significant changes to the portfolio’s strategy. It remains tilted toward industrial growth in the developing world and away from banking and personal consumption in the West. We reduced our low exposure to banks even further in October, and increased our exposure to businesses that are likely to be more resilient if the downturn drags on. Even so, the portfolio remains fundamentally optimistic. We are determined to recoup our losses. It would be a mistake to run for cover at this stage in the crisis. When more normal conditions return, we believe that the excellent companies in our portfolio will be seen to be significantly undervalued.
M&G Investment Management Limited
Portfolio Managers:
Graham E. French, Portfolio Manager Greg Aldridge, Portfolio Manager
Global equities came under considerable pressure during the six months ended February 28 as the turmoil that has plagued financial markets since the onset of the credit crunch in 2007 spread to the real economy. The high degree of risk aversion among investors prompted a shift toward the relative security of companies and sectors perceived to be more defensive.
In this environment, our substantial holdings in consumer staples businesses such as Kerry Group, Unilever, and Groupe Danone performed relatively well, as demand for their broad range of products remained resilient around the world in the face of the global economic slowdown. Two of the fund’s recently established holdings also made strong
10
contributions to performance. U.K.-based Intertek, which provides quality and safety testing to companies across a range of markets and sectors, is benefiting from a trend toward outsourcing and an increase in quality and environmental regulations. Meanwhile, our holding in French-based advertising agency Publicis proved beneficial in spite of a challenging outlook for the industry. We believe the company is well positioned for the future after investing heavily in digital technology and strengthening its positions in emerging markets.
By contrast, our holdings in companies more exposed to the economic cycle or to slowing consumer discretionary spending were among the portfolio’s main detractors for the period. They included Canadian nickel and coal producer Sherritt International and Canadian diamond miner and retailer Harry Winston, which were hurt by declines in commodities markets. International car distribution business Inchcape suffered as households constrained spending in the current economic environment, while Austrian building materials producer Wienerberger suffered from the slowdown in construction markets. The fund’s relatively low exposure to financials proved beneficial overall, although individual holdings in companies such as Dutch financial group ING and French bank Société Générale had a negative impact.
During this volatile period in the market, portfolio activity was limited principally to building positions in SAP and Intertek. In terms of ongoing portfolio strategy, we will continue to focus on a broad range of businesses, from both cyclical and non-cyclical areas, whose scarce assets differentiate them from competitors and should enable them to generate healthy returns and grow over the long term. We believe this approach will enable the fund to ride out periods of volatility such as the one currently affecting financial markets and will thereby provide superior returns for investors in the long run.
11
International Growth Fund
Fund Profile
As of February 28, 2009
Share-Class Characteristics |
|
|
| Investor | Admiral |
| Shares | Shares |
Ticker Symbol | VWIGX | VWILX |
Expense Ratio1 | 0.54% | 0.35% |
Portfolio Characteristics |
|
| |
|
|
| MSCI AC |
|
| MSCI | World |
|
| EAFE | Index |
| Fund | Index | ex USA |
Number of Stocks | 168 | 985 | 1,814 |
Median Market Cap | $24.7B | $21.7B | $19.3B |
Price/Earnings Ratio | 9.2x | 9.9x | 9.7x |
Price/Book Ratio | 1.4x | 1.1x | 1.2x |
Return on Equity | 22.0% | 18.4% | 19.0% |
Earnings Growth Rate | 25.5% | 20.9% | 22.0% |
Dividend Yield | 4.1% | 5.8% | 5.4% |
Turnover Rate |
|
|
|
(Annualized) | 49% | — | — |
Short-Term Reserves | 0.8% | — | — |
Sector Diversification (% of equity exposure) | |||
|
|
| MSCI AC |
|
| MSCI | World |
|
| EAFE | Index |
| Fund | Index | ex USA |
Consumer |
|
|
|
Discretionary | 12.7% | 10.4% | 8.8% |
Consumer Staples | 14.6 | 10.9 | 9.4 |
Energy | 10.4 | 9.4 | 11.8 |
Financials | 15.8 | 19.9 | 20.8 |
Health Care | 7.7 | 9.8 | 7.9 |
Industrials | 10.7 | 11.5 | 10.3 |
Information |
|
|
|
Technology | 10.0 | 5.2 | 6.3 |
Materials | 8.6 | 8.1 | 10.0 |
Telecommunication |
|
|
|
Services | 7.3 | 7.2 | 8.1 |
Utilities | 2.2 | 7.6 | 6.6 |
Volatility Measures |
|
|
| MSCI | MSCI AC |
| EAFE | World Index |
| Index | ex USA |
R-Squared | 0.97 | 0.97 |
Beta | 1.05 | 0.99 |
These measures show the degree and timing of the fund’s fluctuations compared with the index over 36 months.
Ten Largest Holdings (% of total net assets) | ||
|
|
|
Tesco PLC | Food Retail | 2.9% |
SAP AG | Application |
|
| Software | 2.4 |
Petroleo Brasileiro SA | Integrated Oil & |
|
| Gas | 2.1 |
Teva Pharmaceutical | Pharmaceuticals |
|
Industries Ltd. Sponsored |
|
|
ADR |
| 2.0 |
Canon, Inc. | Office Electronics | 1.9 |
Vodafone Group PLC | Wireless |
|
| Telecommunication |
|
| Services | 1.9 |
Nestle SA (Registered) | Packaged Foods & |
|
| Meats | 1.8 |
Swire Pacific Ltd. | Real Estate |
|
A Shares | Management & |
|
| Development | 1.8 |
L’Oreal SA | Personal Products | 1.7 |
Unilever | Packaged Foods & |
|
| Meats | 1.6 |
Top Ten |
| 20.1% |
The holdings listed exclude any temporary cash investments and equity index products.
Allocation by Region (% of equity exposure)
1 The expense ratios shown are from the prospectus dated December 29, 2008, and represent estimated costs for the current fiscal year based on the fund’s current net assets. For the six months ended February 28, 2009, the annualized expense ratios were 0.53% for the Investor Shares and 0.33% for the Admiral Shares.
12
International Growth Fund
Market Diversification (% of equity exposure) | |||
|
|
| MSCI AC |
|
| MSCI | World |
|
| EAFE | Index |
| Fund1 | Index | ex USA |
Europe |
|
|
|
United Kingdom | 17.2% | 20.9% | 15.7% |
Switzerland | 9.4 | 8.1 | 6.1 |
France | 8.2 | 10.5 | 7.9 |
Germany | 7.5 | 7.9 | 5.9 |
Spain | 2.9 | 4.2 | 3.2 |
Netherlands | 2.8 | 2.4 | 1.8 |
Sweden | 2.4 | 2.1 | 1.6 |
Denmark | 2.0 | 0.9 | 0.7 |
Italy | 1.1 | 3.4 | 2.5 |
Other | 1.2 | 4.1 | 3.0 |
Subtotal | 54.7 | 64.5 | 48.4 |
Pacific |
|
|
|
Japan | 15.0% | 25.7% | 19.2% |
Hong Kong | 5.2 | 2.4 | 1.8 |
Australia | 3.4 | 6.2 | 4.7 |
Singapore | 1.3 | 1.1 | 0.8 |
Other | 0.0 | 0.1 | 0.1 |
Subtotal | 24.9 | 35.5 | 26.6 |
Emerging Markets |
|
|
|
China | 6.5% | 0.0% | 3.4% |
Brazil | 5.6 | 0.0 | 2.7 |
Israel | 2.3 | 0.0 | 0.7 |
South Korea | 1.0 | 0.0 | 2.2 |
Other | 3.6 | 0.0 | 9.2 |
Subtotal | 19.0 | 0.0 | 18.2 |
North America |
|
|
|
Canada | 1.4% | 0.0% | 6.8% |
1 Market percentages exclude currency contracts held by the fund.
13
International Growth 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/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): August 31, 1998, Through February 28, 2009
Average Annual Total Returns: Periods Ended December 31, 2008
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.
| Inception Date | One Year | Five Years | Ten Years |
Investor Shares | 9/30/1981 | -44.94% | 1.93% | 1.31% |
Admiral Shares | 8/13/2001 | -44.83 | 2.13 | 2.501 |
1 Return since inception. |
|
|
|
|
Vanguard fund total returns do not include the account service fee that may be applicable to certain accounts with balances below $10,000. They also 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.
See Financial Highlights for dividend and capital gains information.
14
International Growth Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2009
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).
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
Common Stocks (95.3%)1 |
|
| |
Australia (3.0%) |
|
| |
| Woolworths Ltd. | 5,583,900 | 92,786 |
| Woodside Petroleum Ltd. | 2,777,000 | 63,203 |
| Brambles Ltd. | 9,423,900 | 27,536 |
| James Hardie |
|
|
| Industries NV | 11,978,469 | 24,990 |
| Orica Ltd. | 2,572,519 | 21,532 |
| Foster’s Group Ltd. | 5,759,000 | 20,162 |
| Amcor Ltd. | 3,900,000 | 10,817 |
| Sims Metal |
|
|
| Management Ltd. | 655,000 | 7,092 |
|
|
| 268,118 |
Austria (0.1%) |
|
| |
| Wienerberger AG | 860,000 | 6,926 |
|
|
|
|
Belgium (0.1%) |
|
| |
^ | Barco NV | 315,000 | 5,198 |
|
|
|
|
Brazil (5.6%) |
|
| |
| Petroleo Brasileiro SA |
|
|
| Series A ADR | 7,733,400 | 173,073 |
| Redecard SA | 7,639,970 | 79,550 |
| Banco Itau Holding |
|
|
| Financeira SA ADR | 7,811,250 | 71,707 |
| Unibanco-Uniao de |
|
|
| Bancos Brasileiros SA | 8,544,500 | 45,163 |
| Companhia Vale do Rio |
|
|
| Doce Sponsored ADR | 3,641,900 | 40,607 |
| Companhia Vale do Rio |
|
|
| Doce Pfd. Class A | 2,627,000 | 29,539 |
| BM&F BOVESPA SA | 11,085,000 | 27,905 |
| Petroleo Brasileiro SA Pfd. | 1,350,000 | 15,129 |
| Banco do Brasil SA | 1,085,000 | 6,234 |
| Votorantim Celulose |
|
|
| e Papel SA Pfd. | 700,000 | 3,398 |
|
|
| 492,305 |
Canada (1.4%) |
|
| |
| Niko Resources Ltd. | 1,893,000 | 71,378 |
| Cameco Corp. | 3,456,000 | 50,772 |
|
|
|
| Market |
|
|
|
| Value• |
|
|
| Shares | ($000) |
|
| Sherritt International Corp. | 1,750,000 | 2,806 |
|
| Harry Winston |
|
|
|
| Diamond Corp. | 545,714 | 1,381 |
2 |
| Harry Winston |
|
|
|
| Diamond Corp. |
|
|
|
| Private Placement | 166,286 | 400 |
|
|
|
| 126,737 |
China (6.5%) |
|
| ||
|
| China Mobile |
|
|
|
| (Hong Kong) Ltd. | 11,372,500 | 98,806 |
|
| China Unicom Ltd. | 101,798,000 | 90,714 |
|
| Ctrip.com |
|
|
|
| International Ltd. ADR | 2,949,700 | 58,994 |
| ^ | Ping An Insurance |
|
|
|
| (Group) Co. of |
|
|
|
| China Ltd. | 12,445,000 | 58,712 |
| ^ | Industrial and |
|
|
|
| Commercial Bank of |
|
|
|
| China Ltd. Class H | 113,314,000 | 45,638 |
|
| Denway Motors Ltd. | 142,814,000 | 42,274 |
|
| China Resources |
|
|
|
| Enterprise Ltd. | 30,046,000 | 42,112 |
|
| CNOOC Ltd. | 44,035,000 | 37,854 |
| ^ | China Overseas Land |
|
|
|
| & Investment Ltd. | 26,436,800 | 34,528 |
| ^ | Dongfang Electrical |
|
|
|
| Corp Ltd. | 9,689,000 | 17,472 |
*,^ | Baidu.com, Inc. | 115,400 | 17,116 | |
| ^ | China |
|
|
|
| Construction Bank | 33,423,000 | 16,754 |
|
| Chaoda Modern |
|
|
|
| Agriculture Holdings Ltd. | 17,750,719 | 10,144 |
|
|
|
| 571,118 |
Denmark (2.0%) |
|
| ||
* |
| Vestas Wind Systems A/S | 1,485,736 | 64,695 |
|
| Novo Nordisk A/S B Shares | 1,135,200 | 55,277 |
| ^ | Novozymes A/S | 634,400 | 46,824 |
|
| AP Moller-Maersk A/S |
|
|
|
| B Shares | 2,250 | 10,555 |
|
|
|
| 177,351 |
15
International Growth Fund
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
France (7.6%) |
|
| |
| L’Oreal SA | 2,346,995 | 150,976 |
| Groupe Danone | 2,781,000 | 131,976 |
| Total SA | 2,562,000 | 120,367 |
| Essilor International SA | 2,480,400 | 85,604 |
| Gaz de France | 1,771,000 | 55,928 |
| AXA | 5,225,000 | 47,627 |
^ | Pinault-Printemps- |
|
|
| Redoute SA | 605,000 | 35,852 |
^ | European Aeronautic |
|
|
| Defence and Space Co. | 1,150,000 | 16,697 |
^ | Publicis Groupe SA | 700,000 | 16,203 |
| Societe Generale Class A | 300,000 | 9,299 |
|
|
| 670,529 |
Germany (7.0%) |
|
| |
| SAP AG | 6,526,500 | 208,802 |
| E.On AG | 4,167,000 | 106,528 |
| Bayerische Motoren |
|
|
| Werke AG | 2,233,000 | 55,193 |
| Siemens AG | 1,062,000 | 53,290 |
| Adidas AG | 1,816,910 | 52,392 |
^ | Porsche AG | 994,400 | 40,586 |
| ThyssenKrupp AG | 2,283,000 | 40,114 |
| Celesio AG | 1,522,800 | 31,406 |
*,^ | Q-Cells AG | 986,500 | 16,021 |
| Symrise AG | 1,200,000 | 10,979 |
|
|
| 615,311 |
Hong Kong (5.1%) |
|
| |
| Swire Pacific Ltd. |
|
|
| A Shares | 26,126,000 | 160,482 |
| Esprit Holdings Ltd. | 20,577,400 | 110,818 |
| Shangri-La Asia Ltd. | 65,320,000 | 69,611 |
^ | Hong Kong Exchanges |
|
|
| & Clearing Ltd. | 6,214,500 | 49,149 |
| Sun Hung Kai |
|
|
| Properties Ltd. | 4,366,000 | 33,864 |
^ | Li & Fung Ltd. | 10,292,000 | 22,303 |
| Techtronic |
|
|
| Industries Co., Ltd. | 20,499,943 | 7,357 |
|
|
| 453,584 |
India (0.8%) |
|
| |
* | Bharti Airtel Ltd. | 5,001,500 | 61,513 |
| Reliance Capital Ltd. | 1,454,500 | 9,856 |
|
|
| 71,369 |
Ireland (0.2%) |
|
| |
| Kerry Group PLC A Shares | 825,000 | 17,529 |
|
|
|
|
Israel (2.3%) |
|
| |
| Teva Pharmaceutical |
|
|
| Industries Ltd. |
|
|
| Sponsored ADR | 3,901,100 | 173,911 |
| Makhteshim-Agan |
|
|
| Industries Ltd. | 8,259,683 | 26,854 |
|
|
| 200,765 |
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
Italy (1.0%) |
|
| |
| Intesa Sanpaolo SpA | 34,829,662 | 84,773 |
|
|
|
|
Japan (13.8%) |
|
| |
| Canon, Inc. | 6,650,600 | 167,842 |
| Toyota Motor Corp. | 3,200,100 | 102,498 |
| SMC Corp. | 1,055,800 | 95,768 |
| Honda Motor Co., Ltd. | 3,895,000 | 93,140 |
| Nintendo Co. | 321,300 | 91,731 |
| Mitsui Sumitomo |
|
|
| Insurance Group |
|
|
| Holdings, Inc. | 3,434,100 | 81,207 |
| Nippon Telegraph and |
|
|
| Telephone Corp. | 1,691,000 | 72,306 |
| Mitsubishi Corp. | 4,692,000 | 58,375 |
| Central Japan Railway Co. | 9,192 | 55,843 |
| Sumitomo Mitsui |
|
|
| Financial Group, Inc. | 1,455,100 | 46,128 |
| Mitsubishi UFJ |
|
|
| Financial Group | 9,726,400 | 43,940 |
| Hoya Corp. | 2,310,700 | 41,876 |
^ | Rakuten, Inc. | 78,252 | 40,266 |
| Yamada Denki Co., Ltd. | 1,023,570 | 37,135 |
| Japan Tobacco, Inc. | 12,639 | 30,147 |
| Rohm Co., Ltd. | 589,500 | 28,156 |
| Sekisui Chemical Co. | 6,349,000 | 27,025 |
| Uni-Charm Corp. | 352,000 | 22,996 |
| Kyocera Corp. | 347,900 | 20,431 |
| Square Enix Co., Ltd. | 1,043,800 | 18,511 |
| Astellas Pharma Inc. | 520,000 | 17,255 |
| Trend Micro Inc. | 695,000 | 15,674 |
| Yamaha Motor Co., Ltd. | 1,425,000 | 12,140 |
|
|
| 1,220,390 |
Luxembourg (0.7%) |
|
| |
| ArcelorMittal |
|
|
| (Amsterdam Shares) | 2,914,500 | 55,862 |
| Reinet Investments SA | 442,983 | 4,055 |
|
|
| 59,917 |
Mexico (0.9%) |
|
| |
| America Movil SA de |
|
|
| CV Series L ADR | 2,396,500 | 61,063 |
| Wal-Mart de Mexico SA | 8,200,000 | 15,285 |
| Consorcio ARA SA de CV | 18,000,000 | 4,432 |
|
|
| 80,780 |
Netherlands (2.7%) |
|
| |
| Unilever NV | 6,554,000 | 125,582 |
| SBM Offshore NV | 5,225,000 | 68,356 |
| Heineken Holding NV | 1,471,074 | 33,894 |
| TNT NV | 640,000 | 9,163 |
| ING Groep NV | 800,000 | 3,616 |
|
|
| 240,611 |
Norway (0.1%) |
|
| |
| StatoilHydro ASA | 779,000 | 12,933 |
16
International Growth Fund
|
|
|
| Market |
|
|
|
| Value• |
|
|
| Shares | ($000) |
Russia (0.7%) |
|
| ||
|
| OAO |
|
|
|
| Gazprom-Sponsored ADR | 4,851,000 | 62,288 |
|
|
|
|
|
Singapore (1.3%) |
|
| ||
|
| Jardine Matheson |
|
|
|
| Holdings Ltd. | 3,663,200 | 63,116 |
|
| Singapore Exchange Ltd. | 6,541,000 | 18,856 |
* |
| Jardine Matheson |
|
|
|
| Holdings Ltd. |
|
|
|
| (U.S. Shares) | 853,200 | 14,547 |
|
| DBS Group Holdings Ltd. | 1,950,000 | 9,739 |
| ^ | Keppel Land Ltd. | 9,529,000 | 7,880 |
|
|
|
| 114,138 |
South Africa (0.3%) |
|
| ||
|
| Impala Platinum |
|
|
|
| Holdings Ltd. | 1,778,600 | 20,782 |
|
| MTN Group Ltd. | 1,100,000 | 9,315 |
|
|
|
| 30,097 |
South Korea (1.0%) |
|
| ||
|
| Samsung |
|
|
|
| Electronics Co., Ltd. | 154,000 | 47,365 |
|
| Samsung Fire & Marine |
|
|
|
| Insurance Co. | 186,900 | 18,963 |
|
| Shinsegae Co., Ltd. | 51,800 | 13,460 |
|
| Hankook Tire Co. Ltd. | 1,200,000 | 9,746 |
|
|
|
| 89,534 |
Spain (2.6%) |
|
| ||
| ^ | Industria de Diseno |
|
|
|
| Textil SA | 2,217,885 | 83,198 |
|
| Repsol YPF SA | 3,673,000 | 56,101 |
|
| Telefonica SA | 2,627,000 | 48,348 |
|
| Banco Santander SA | 7,045,750 | 43,042 |
|
|
|
| 230,689 |
Sweden (2.4%) |
|
| ||
|
| Atlas Copco AB A Shares | 15,095,533 | 104,141 |
| ^ | Sandvik AB | 10,514,363 | 56,107 |
|
| Telefonaktiebolaget LM |
|
|
|
| Ericsson AB Class B | 2,200,000 | 17,819 |
|
| Svenska Handelsbanken |
|
|
|
| AB A Shares | 1,471,406 | 17,611 |
| ^ | Oriflame Cosmetics SA | 575,000 | 13,723 |
|
|
|
| 209,401 |
Switzerland (9.3%) |
|
| ||
|
| Nestle SA (Registered) | 4,920,000 | 160,837 |
|
| Roche Holdings AG | 1,254,684 | 142,429 |
|
| Syngenta AG | 629,100 | 134,487 |
|
| Novartis AG (Registered) | 3,429,500 | 125,120 |
* |
| UBS AG | 8,367,391 | 78,352 |
|
| Credit Suisse Group |
|
|
|
| (Registered) | 2,705,000 | 65,829 |
|
| Geberit AG | 494,180 | 44,266 |
* |
| Compagnie Financiere |
|
|
|
| Richemont SA | 3,236,100 | 42,739 |
|
|
| Market | |
|
|
| Value• | |
|
| Shares | ($000) | |
| Adecco SA (Registered) | 505,797 | 15,405 | |
| Holcim Ltd. (Registered) | 350,000 | 11,595 | |
|
|
| 821,059 | |
Taiwan (0.6%) |
|
| ||
| Taiwan Semiconductor |
|
| |
| Manufacturing Co., Ltd. | 36,937,826 | 46,658 | |
| Compal Electronics Inc. | 17,487,000 | 9,958 | |
|
|
| 56,616 | |
Turkey (0.3%) |
|
| ||
* | Turkiye Garanti |
|
| |
| Bankasi A.S. | 20,354,000 | 24,818 | |
|
|
|
| |
United Kingdom (15.9%) |
|
| ||
| Tesco PLC | 53,976,300 | 255,977 | |
| Vodafone Group PLC | 92,864,324 | 164,544 | |
| BG Group PLC | 9,504,900 | 135,867 | |
| British American |
|
| |
| Tobacco PLC | 4,363,464 | 111,532 | |
| BHP Billiton PLC | 5,536,700 | 86,289 | |
| Admiral Group PLC | 6,266,000 | 76,217 | |
| Rio Tinto PLC | 2,733,000 | 71,875 | |
| Standard Chartered PLC | 7,532,300 | 70,986 | |
| Rexam PLC | 17,185,000 | 63,932 | |
* | WPP Plc | 11,253,039 | 58,382 | |
| Rolls-Royce Group PLC | 13,797,616 | 56,440 | |
| The Sage Group PLC | 16,990,000 | 41,165 | |
| Capita Group PLC | 3,551,612 | 33,514 | |
| Meggitt PLC | 14,917,500 | 26,560 | |
| Bunzl PLC | 2,828,500 | 23,347 | |
| Unilever PLC | 1,000,000 | 19,318 | |
| GlaxoSmithKline PLC | 1,250,000 | 18,959 | |
| Morrison |
|
| |
| Supermarkets PLC | 5,020,000 | 18,439 | |
| Ultra Electronics |
|
| |
| Holdings PLC | 1,010,000 | 15,852 | |
| Intertek Testing |
|
| |
| Services PLC | 1,300,000 | 15,312 | |
| HSBC Holdings PLC | 1,761,577 | 12,252 | |
| Victrex PLC | 1,618,557 | 11,069 | |
* | Signet Jewelers Ltd. | 1,356,000 | 10,330 | |
| Lloyds Banking Group PLC | 10,109,000 | 8,298 | |
| Inchcape PLC | 4,250,000 | 2,697 | |
|
|
| 1,409,153 | |
Total Common Stocks |
|
| ||
(Cost $13,484,633) |
| 8,424,037 | ||
Temporary Cash Investments (7.1%)1 |
|
| ||
Money Market Fund (6.2%) |
|
| ||
3,4 | Vanguard Market |
|
| |
| Liquidity Fund, |
|
| |
| 0.663% | 552,939,892 | 552,940 | |
17
International Growth Fund
|
| Face | Market |
|
| Amount | Value• |
|
| ($000) | ($000) |
U.S. Agency Obligations (0.9%) |
|
| |
5 | Federal Home Loan |
|
|
| Mortgage Corp. |
|
|
| 1.206%, 4/30/09 | 15,000 | 14,991 |
5 | Federal National |
|
|
| Mortgage Assn. |
|
|
6 | 1.357%, 3/31/09 | 50,000 | 49,989 |
6 | 0.597%, 8/26/09 | 12,000 | 11,962 |
Total Temporary Cash Investments |
|
| |
(Cost $629,819) |
| 629,882 | |
Total Investments (102.4%) |
|
| |
(Cost $14,114,452) |
| 9,053,919 | |
Other Assets and Liabilities (-2.4%) |
|
| |
Other Assets |
| 92,274 | |
Liabilities4 |
| (307,600) | |
|
|
| (215,326) |
Net Assets (100%) |
| 8,838,593 |
At February 28, 2009, net assets consisted of: | |
| Amount |
| ($000) |
Paid-in Capital | 16,269,903 |
Overdistributed Net Investment Income | (6,697) |
Accumulated Net Realized Losses | (2,317,883) |
Unrealized Appreciation (Depreciation) |
|
Investment Securities | (5,060,533) |
Futures Contracts | (28,578) |
Foreign Currencies and |
|
Forward Currency Contracts | (17,619) |
Net Assets | 8,838,593 |
|
|
Investor Shares—Net Assets |
|
Applicable to 631,823,071 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 6,356,679 |
Net Asset Value Per Share— |
|
Investor Shares | $10.06 |
|
|
Admiral Shares—Net Assets |
|
Applicable to 77,580,447 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 2,481,914 |
Net Asset Value Per Share— |
|
Admiral Shares | $31.99 |
• | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
^ | Part of security position is on loan to broker-dealers. The total value of securities on loan is $202,178,000. |
1 | The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures investments, the fund’s effective common stock and temporary cash investment positions represent 99.2% and 3.2%, respectively, of net assets. |
2 | Restricted security represents 0% 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 | Includes $212,826,000 of collateral received for securities on loan. |
5 | The issuer operates under a congressional charter; its securities are not backed by the full faith and credit of the U.S. government. |
6 | Securities with a value of $45,954,000 have been segregated as initial margin for open futures contracts. |
ADR—American Depositary Receipt.
See accompanying Notes, which are an integral part of the Financial Statements.
18
International Growth Fund
Statement of Operations
| Six Months Ended |
| February 28, 2009 |
| ($000) |
Investment Income |
|
Income |
|
Dividends1,2 | 166,901 |
Interest2 | 4,868 |
Security Lending | 2,395 |
Total Income | 174,164 |
Expenses |
|
Investment Advisory Fees—Note B |
|
Basic Fee | 7,177 |
Performance Adjustment | 983 |
The Vanguard Group—Note C |
|
Management and Administrative—Investor Shares | 11,911 |
Management and Administrative—Admiral Shares | 1,771 |
Marketing and Distribution—Investor Shares | 1,486 |
Marketing and Distribution—Admiral Shares | 569 |
Custodian Fees | 2,110 |
Shareholders’ Reports—Investor Shares | 112 |
Shareholders’ Reports—Admiral Shares | 13 |
Trustees’ Fees and Expenses | 10 |
Total Expenses | 26,142 |
Expenses Paid Indirectly | (165) |
Net Expenses | 25,977 |
Net Investment Income | 148,187 |
Realized Net Gain (Loss) |
|
Investment Securities Sold2 | (2,152,238) |
Futures Contracts | (161,133) |
Foreign Currencies and Forward Currency Contracts | 22,796 |
Realized Net Gain (Loss) | (2,290,575) |
Change in Unrealized Appreciation (Depreciation) |
|
Investment Securities | (5,231,417) |
Futures Contracts | 3,039 |
Foreign Currencies and Forward Currency Contracts | (38,155) |
Change in Unrealized Appreciation (Depreciation) | (5,266,533) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (7,408,921) |
1 Dividends are net of foreign withholding taxes of $8,384,000.
2 | Dividend income, interest income, and realized net gain (loss) from affiliated companies of the fund were $0, $3,954,000, and ($55,653,000), respectively. |
See accompanying Notes, which are an integral part of the Financial Statements.
19
International Growth Fund
Statement of Changes in Net Assets
| Six Months Ended | Year Ended |
| February 28, | August 31, |
| 2009 | 2008 |
| ($000) | ($000) |
Increase (Decrease) in Net Assets |
|
|
Operations |
|
|
Net Investment Income | 148,187 | 402,143 |
Realized Net Gain (Loss) | (2,290,575) | 1,164,232 |
Change in Unrealized Appreciation (Depreciation) | (5,266,533) | (4,104,988) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (7,408,921) | (2,538,613) |
Distributions |
|
|
Net Investment Income |
|
|
Investor Shares | (320,391) | (273,198) |
Admiral Shares | (134,624) | (119,608) |
Realized Capital Gain1 |
|
|
Investor Shares | (514,799) | (1,145,568) |
Admiral Shares | (202,398) | (456,714) |
Total Distributions | (1,172,212) | (1,995,088) |
Capital Share Transactions |
|
|
Investor Shares | 502,274 | 1,975,823 |
Admiral Shares | 103,566 | 1,092,739 |
Net Increase (Decrease) from Capital Share Transactions | 605,840 | 3,068,562 |
Total Increase (Decrease) | (7,975,293) | (1,465,139) |
Net Assets |
|
|
Beginning of Period | 16,813,886 | 18,279,025 |
End of Period2 | 8,838,593 | 16,813,886 |
1Includes fiscal 2009 and 2008 short-term gain distributions totaling $0 and $364,747,000, respectively. Short-term gain distributions are treated as ordinary income dividends for tax purposes.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of ($6,697,000) and $303,101,000.
See accompanying Notes, which are an integral part of the Financial Statements.
20
International Growth Fund
Financial Highlights
Investor Shares |
|
|
|
|
|
|
| Six Months |
|
|
|
|
|
| Ended |
|
|
|
|
|
For a Share Outstanding | February 28, | Year Ended August 31, | ||||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 |
Net Asset Value, Beginning of Period | $20.43 | $26.13 | $23.97 | $19.83 | $16.33 | $14.01 |
Investment Operations |
|
|
|
|
|
|
Net Investment Income | .1974 | .473 | .594 | .541 | .341 | .270 |
Net Realized and Unrealized Gain (Loss) |
|
|
|
|
|
|
on Investments | (9.102) | (3.431) | 4.132 | 4.284 | 3.474 | 2.26 |
Total from Investment Operations | (8.905) | (2.958) | 4.726 | 4.825 | 3.815 | 2.53 |
Distributions |
|
|
|
|
|
|
Dividends from Net Investment Income | (.562) | (.528) | (.530) | (.370) | (.315) | (.210) |
Distributions from Realized Capital Gains | (.903) | (2.214) | (2.036) | (.315) | — | — |
Total Distributions | (1.465) | (2.742) | (2.566) | (.685) | (.315) | (.210) |
Net Asset Value, End of Period | $10.06 | $20.43 | $26.13 | $23.97 | $19.83 | $16.33 |
|
|
|
|
|
|
|
Total Return1 | -44.84% | -12.83% | 20.87% | 24.79% | 23.54% | 18.14% |
|
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
|
Net Assets, End of Period (Millions) | $6,357 | $11,969 | $13,219 | $10,466 | $8,182 | $6,797 |
Ratio of Total Expenses to |
|
|
|
|
|
|
Average Net Assets2 | 0.53%3 | 0.47% | 0.51% | 0.55% | 0.60% | 0.63% |
Ratio of Net Investment Income to |
|
|
|
|
|
|
Average Net Assets | 2.12%3,4 | 2.07% | 2.47% | 2.52% | 1.89% | 1.69% |
Portfolio Turnover Rate | 49%3 | 55% | 41% | 45% | 48% | 45% |
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 or the account service fee that may be applicable to certain accounts with balances below $10,000.
2 | Includes performance-based investment advisory fee increases (decreases) of 0.02%, 0.02%, 0.01%, (0.01%), (0.01%), and 0.00%. |
3 Annualized.
4 Net investment income per share and the ratio of net investment income to average net assets include $0.061 and 0.49%, respectively, resulting from income accrued in connection with a spinoff in October 2008 by Reinet Investments SA of British American Tobacco PLC.
See accompanying Notes, which are an integral part of the Financial Statements.
21
International Growth Fund
Financial Highlights
Admiral Shares |
|
|
|
|
|
|
| Six Months |
|
|
|
|
|
| Ended |
|
|
|
|
|
For a Share Outstanding | February 28, | Year Ended August 31, | ||||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 |
Net Asset Value, Beginning of Period | $65.09 | $83.26 | $76.36 | $63.15 | $51.96 | $44.57 |
Investment Operations |
|
|
|
|
|
|
Net Investment Income | .6624 | 1.649 | 2.051 | 1.861 | 1.222 | .930 |
Net Realized and Unrealized Gain (Loss) |
|
|
|
|
|
|
on Investments | (28.983) | (10.929) | 13.159 | 13.639 | 11.063 | 7.210 |
Total from Investment Operations | (28.321) | (9.280) | 15.210 | 15.500 | 12.285 | 8.140 |
Distributions |
|
|
|
|
|
|
Dividends from Net Investment Income | (1.909) | (1.845) | (1.832) | (1.288) | (1.095) | (.750) |
Distributions from Realized Capital Gains | (2.870) | (7.045) | (6.478) | (1.002) | — | — |
Total Distributions | (4.779) | (8.890) | (8.310) | (2.290) | (1.095) | (.750) |
Net Asset Value, End of Period | $31.99 | $65.09 | $83.26 | $76.36 | $63.15 | $51.96 |
|
|
|
|
|
|
|
Total Return1 | -44.79% | -12.67% | 21.11% | 25.03% | 23.84% | 18.36% |
|
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
|
Net Assets, End of Period (Millions) | $2,482 | $4,845 | $5,060 | $3,506 | $2,181 | $1,262 |
Ratio of Total Expenses to |
|
|
|
|
|
|
Average Net Assets2 | 0.33%3 | 0.28% | 0.31% | 0.35% | 0.40% | 0.45% |
Ratio of Net Investment Income to |
|
|
|
|
|
|
Average Net Assets | 2.32%3,4 | 2.26% | 2.67% | 2.72% | 2.07% | 1.86% |
Portfolio Turnover Rate | 49%3 | 55% | 41% | 45% | 48% | 45% |
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 0.02%, 0.02%, 0.01%, (0.01%), (0.01%), and 0.00%. |
3 | Annualized. |
4 | Net investment income per share and the ratio of net investment income to average net assets include $0.193 and 0.49%, respectively, resulting from income accrued in connection with a spinoff in October 2008 by Reinet Investments SA of British American Tobacco PLC. |
See accompanying Notes, which are an integral part of the Financial Statements.
22
International Growth Fund
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 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, service, 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 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued at their fair values calculated according to procedures adopted by the board of trustees. These procedures include obtaining quotations from an independent pricing service, monitoring news to identify significant market- or security-specific events, and evaluating changes in the values of foreign market proxies (for example, ADRs, futures contracts, or exchange-traded funds), between the time the foreign markets close and the fund’s pricing time. When fair-value pricing is employed, the prices of securities used by a fund to calculate its net asset value may differ from quoted or published prices for the same securities. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Temporary cash investments acquired over 60 days to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments are valued at amortized cost, which approximates market value.
2. Foreign Currency: Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates obtained from an independent third party as of the fund’s pricing time on the valuation date. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the assets or liabilities are settled in cash, at which time they are recorded as realized foreign currency gains (losses).
3. Futures and Forward Currency Contracts: The fund uses index futures contracts to a limited extent, with the objective of maintaining full 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 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.
The fund may also enter into forward currency contracts to provide the appropriate currency exposure related to any open futures contracts or to protect the value of securities and related receivables and payables against changes in foreign exchange rates. The primary risk associated with the fund’s use of
23
International Growth Fund
these contracts is that a counterparty will fail to fulfill its obligation to pay gains due to the fund 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 Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized 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. Management has analyzed the fund’s tax positions taken on federal income tax returns for all open tax years (tax years ended August 31, 2005–2008), and for the period ended February 28, 2009, and has concluded that no provision for federal income tax is required in the fund’s 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., Baillie Gifford Overseas Ltd., and M&G Investment Management 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 fees of Schroder Investment Management North America Inc. and Baillie Gifford Overseas Ltd. are 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 basic fee of M&G Investment Management Ltd. is subject to quarterly adjustments based on the fund’s performance since February 29, 2008, relative to the MSCI All Country World Index ex USA.
The Vanguard Group manages the cash reserves of the fund on an at-cost basis.
For the six months ended February 28, 2009, the aggregate investment advisory fee represented an effective annual basic rate of 0.13% of the fund’s average net assets before an increase of $983,000 (0.02%) based on performance.
24
International Growth Fund
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, 2009, the fund had contributed capital of $2,557,000 to Vanguard (included in Other Assets), representing 0.03% of the fund’s net assets and 1.02% 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, 2009, these arrangements reduced the fund’s management and administrative expenses by $162,000 and custodian fees by $3,000. The total expense reduction represented an effective annual rate of 0.00% 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.
During the six months ended February 28, 2009, the fund realized net foreign currency losses of $2,970,000, which decreased distributable net income for tax purposes; accordingly, such losses have been reclassified from accumulated net realized losses to undistributed net investment income.
At February 28, 2009, the cost of investment securities for tax purposes was $14,114,452,000. Net unrealized depreciation of investment securities for tax purposes was $5,060,533,000, consisting of unrealized gains of $321,959,000 on securities that had risen in value since their purchase and $5,382,492,000 in unrealized losses on securities that had fallen in value since their purchase.
At February 28, 2009, the aggregate settlement value of open futures contracts expiring in March 2009 and the related unrealized appreciation (depreciation) were:
|
|
| ($000) |
| Number of | Aggregate | Unrealized |
| Long (Short) | Settlement | Appreciation |
Futures Contracts | Contracts | Value | (Depreciation) |
Dow Jones EURO STOXX 50 Index | 5,380 | 134,949 | (17,461) |
Topix Index | 1,199 | 93,315 | (2,658) |
FTSE 100 Index | 1,631 | 88,515 | (7,134) |
S&P ASX 200 Index | 530 | 28,069 | (1,325) |
25
International Growth Fund
At February 28, 2009, the fund had open forward currency contracts to receive and deliver currencies as follows:
|
|
|
|
| Unrealized |
|
|
|
|
| Appreciation |
|
|
| Contract Amount (000) | (Depreciation) | |
Contract Settlement Date |
| Receive |
| Deliver | ($000) |
3/25/09 | EUR | 107,434 | USD | 144,700 | (8,318) |
3/18/09 | JPY | 9,062,510 | USD | 95,477 | (2,731) |
3/25/09 | GBP | 63,164 | USD | 94,124 | (4,038) |
3/25/09 | AUD | 44,369 | USD | 29,696 | (1,399) |
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 losses of $1,133,000 resulting from the translation of other assets and liabilities at February 28, 2009.
F. During the six months ended February 28, 2009, the fund purchased $2,755,232,000 of investment securities and sold $3,086,098,000 of investment securities other than temporary cash investments.
G. Capital share transactions for each class of shares were:
| Six Months Ended | Year Ended | ||
| February 28, 2009 | August 31, 2008 | ||
| Amount | Shares | Amount | Shares |
| ($000) | (000) | ($000) | (000) |
Investor Shares |
|
|
|
|
Issued | 840,442 | 63,543 | 2,869,056 | 117,748 |
Issued in Lieu of Cash Distributions | 819,474 | 67,224 | 1,393,855 | 58,443 |
Redeemed1 | (1,157,642) | (84,767) | (2,287,088) | (96,226) |
Net Increase (Decrease)—Investor Shares | 502,274 | 46,000 | 1,975,823 | 79,965 |
Admiral Shares |
|
|
|
|
Issued | 356,453 | 8,389 | 1,350,456 | 17,226 |
Issued in Lieu of Cash Distributions | 312,461 | 8,068 | 534,007 | 7,037 |
Redeemed1 | (565,348) | (13,312) | (791,724) | (10,598) |
Net Increase (Decrease)—Admiral Shares | 103,566 | 3,145 | 1,092,739 | 13,665 |
1 Net of redemption fees of $529,000 and $1,294,000 (fund totals). |
26
International Growth Fund
H. The fund had invested in a company that was considered to be an affiliated company of the fund because the fund owned more than 5% of the outstanding voting securities of the company. Transactions during the period in securities of this company were as follows:
|
|
| Current Period Transactions |
| |
| Aug. 31, 2008 |
| Proceeds from |
| Feb. 28, 2009 |
| Market | Purchases | Securities | Dividend | Market |
| Value | at Cost | Sold | Income | Value |
| ($000) | ($000) | ($000) | ($000) | ($000) |
SBM Offshore NV | 177,698 | 4,251 | 33,856 | — | NA1 |
1 At February 28, 2009, the security was still held but the issuer was no longer an affiliated company of the fund.
NA—Not applicable.
I. In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157 (“FAS 157”), “Fair Value Measurements.” FAS 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements in financial statements.
The various inputs that may be used to determine the value of the fund’s investments are summarized in three broad levels. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
The following table summarizes the fund’s investments as of February 28, 2009, based on the inputs used to value them:
|
|
| Forward |
| Investments | Futures | Currency |
| in Securities | Contracts | Contracts |
Valuation Inputs | ($000) | ($000) | ($000) |
Level 1—Quoted prices | 1,516,932 | (28,578) | (16,486) |
Level 2—Other significant observable inputs | 7,536,587 | — | — |
Level 3—Significant unobservable inputs | 400 | — | — |
Total | 9,053,919 | (28,578) | (16,486) |
The following table summarizes changes in investments valued based on Level 3 inputs during the six months ended February 28, 2009:
| Investments |
| in Securities |
Amount valued based on Level 3 Inputs | ($000) |
Balance as of August 31, 2008 | 3,095 |
Change in Unrealized Appreciation (Depreciation) | (2,695) |
Balance as of February 28, 2009 | 400 |
27
About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table illustrates your fund’s costs in two ways:
• Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading “Expenses Paid During Period.”
• Based on hypothetical 5% yearly return. This section is intended to help you compare your fund’s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include the 2% fee on redemptions of shares held for less than two months, nor do they include the account service fee described in the prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a ”sales load.”
The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.
29
Six Months Ended February 28, 2009 |
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|
|
| Beginning | Ending | Expenses |
| Account Value | Account Value | Paid During |
International Growth Fund | 8/31/2008 | 2/28/2009 | Period |
Based on Actual Fund Return |
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|
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Investor Shares | $1,000.00 | $551.59 | $2.04 |
Admiral Shares | 1,000.00 | 552.12 | 1.27 |
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Based on Hypothetical 5% Yearly Return |
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Investor Shares | $1,000.00 | $1,022.17 | $2.66 |
Admiral Shares | 1,000.00 | 1,023.16 | 1.66 |
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 0.53% for the Investor Shares and 0.33% for the 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.
30
Trustees Approve 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.), Baillie Gifford Overseas Ltd., and M&G Investment Management Limited, as well as the sub-advisory agreement with Schroder Investment Management North America Limited (Schroder Limited). 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 an evaluation of each advisor’s investment staff, portfolio management process, and performance. The trustees considered the factors discussed below, among others. However, no single factor determined whether the board approved the 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 the short and long term and took into account the organizational depth and stability of each firm. The board noted the following:
Schroder Investment Management North America Inc. Schroder Inc. is a subsidiary of Schroders plc., a firm founded more than 200 years ago, with investment management experience dating back to 1926. The firm has provided investment advisory services to the fund since its inception in 1981. The advisor employs a sound process, selecting attractive growth stocks from developed and emerging markets outside the United States. Stocks are chosen using a bottom-up approach supported by Schroder’s worldwide network of analysts, economists, and strategists.
Baillie Gifford Overseas Ltd. Baillie Gifford is among the largest independently owned investment management firms in the United Kingdom. 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. Baillie Gifford employs a sound process, building a diversified portfolio of high-quality non-U.S. growth stocks from developed and emerging markets. Stocks are selected using fundamental research conducted by the firm’s Edinburgh-based analysts.
M&G Investment Management Limited. M&G, founded in 1931, is based in London, England, and specializes in managing equity and fixed income portfolios for both institutional and retail clients worldwide. The firm has advised a portion of the fund since 2008. The advisor employs a sound process, building a diversified portfolio of high-quality non-U.S. growth stocks from developed and emerging markets. The advisor’s global equity team—made up of the portfolio managers, Greg Aldridge and Graham French, and eight other portfolio manager/analysts—conducts intensive fundamental analysis of companies, including regular company visits.
The board concluded that each advisor’s experience, stability, depth, 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 a relevant benchmark and peer group. The board concluded that the advisors have carried out the fund’s investment strategy in disciplined fashion, and that the performance results have allowed the fund to remain competitive versus its benchmark and the average return of peer funds. Information about the fund’s most recent performance can be found in the Performance Summary section of this report.
30
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 board noted that 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., Baillie Gifford, or M&G in determining whether to approve the advisory fees, because each firm is 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 board will consider whether to renew the advisory agreements again after a one-year period.
31
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%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Dividend Yield. Dividend income earned by stocks, expressed as a percentage of the aggregate market value (or of net asset value, for a fund). The yield is determined by dividing the amount of the annual dividends by the aggregate value (or net asset value) at the end of the period. For a fund, the dividend yield is based solely on stock holdings and does not include any income produced by other investments.
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.
Expense Ratio. 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.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.
Price/Earnings Ratio. The ratio of a stock’s current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company’s future growth.
R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0. For this report, R-squared is based on returns over the past 36 months for both the fund and the index.
Return on Equity. The annual average rate of return generated by a company during the past five years for each dollar of shareholder’s equity (net income divided by shareholder’s equity). For a fund, the weighted average return on equity for the companies whose stocks it holds.
32
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.
33
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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’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 157 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at www.vanguard.com.
Chairman of the Board and Interested Trustee | Rajiv L. Gupta |
| Born 1945. Trustee Since December 2001.2 Principal |
| Occupation(s) During the Past Five Years: Chairman |
John J. Brennan1 | and Chief Executive Officer of Rohm and Haas Co. |
Born 1954. Trustee Since May 1987. Chairman of | (chemicals); President of Rohm and Haas Co. |
the Board. Principal Occupation(s) During the Past Five | (2006–2008); Board Member of American Chemistry |
Years: Chairman of the Board and Director/Trustee of | Council; Director of Tyco International, Ltd. (diversified |
The Vanguard Group, Inc., and of each of the investment | manufacturing and services) and Hewlett-Packard Co. |
companies served by The Vanguard Group; Chief | (electronic computer manufacturing); Trustee of The |
Executive Officer and President of The Vanguard Group | Conference Board. |
and of each of the investment companies served by The |
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Vanguard Group (1996–2008). |
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| Amy Gutmann |
| Born 1949. Trustee Since June 2006. Principal |
Independent Trustees | Occupation(s) During the Past Five Years: President of |
| the University of Pennsylvania; Christopher H. Browne |
| Distinguished Professor of Political Science in the School |
Charles D. Ellis | of Arts and Sciences with Secondary Appointments |
Born 1937. Trustee Since January 2001. Principal | at the Annenberg School for Communication and the |
Occupation(s) During the Past Five Years: Applecore | Graduate School of Education of the University of |
Partners (pro bono ventures in education); Senior | Pennsylvania; Director of Carnegie Corporation of |
Advisor to Greenwich Associates (international business | New York, Schuylkill River Development Corporation, |
strategy consulting); Successor Trustee of Yale University; | and Greater Philadelphia Chamber of Commerce; |
Overseer of the Stern School of Business at New York | Trustee of the National Constitution Center. |
University; Trustee of the Whitehead Institute for |
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Biomedical Research. |
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| JoAnn Heffernan Heisen |
| Born 1950. Trustee Since July 1998. Principal |
Emerson U. Fullwood | Occupation(s) During the Past Five Years: Retired |
Born 1948. Trustee Since January 2008. Principal | Corporate Vice President, Chief Global Diversity Officer, |
Occupation(s) During the Past Five Years: Retired | and Member of the Executive Committee of Johnson & |
Executive Chief Staff and Marketing Officer for North | Johnson (pharmaceuticals/consumer products); Vice |
America and Corporate Vice President of Xerox | President and Chief Information Officer (1997–2005) |
Corporation (photocopiers and printers); Director of | of Johnson & Johnson; Director of the University |
SPX Corporation (multi-industry manufacturing), the | Medical Center at Princeton and Women’s Research |
United Way of Rochester, the Boy Scouts of America, | and Education Institute. |
Amerigroup Corporation (direct health and medical |
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insurance carriers), and Monroe Community College |
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Foundation. |
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André F. Perold | F. William McNabb III1 |
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Born 1952. Trustee Since December 2004. Principal | Born 1957. Chief Executive Officer Since August 2008. | |
Occupation(s) During the Past Five Years: George Gund | President Since March 2008. Principal Occupation(s) | |
Professor of Finance and Banking, Senior Associate | During the Past Five Years: Director of The Vanguard | |
Dean, and Director of Faculty Recruiting, Harvard | Group, Inc., since 2008; Chief Executive Officer and | |
Business School; Director and Chairman of UNX, Inc. | President of The Vanguard Group and of each of the | |
(equities trading firm); Chair of the Investment | investment companies served by The Vanguard Group | |
Committee of HighVista Strategies LLC (private | since 2008; Director of Vanguard Marketing Corporation; | |
investment firm). | Managing Director of The Vanguard Group (1995–2008). | |
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Alfred M. Rankin, Jr. | Heidi Stam1 |
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Born 1941. Trustee Since January 1993. Principal | Born 1956. Secretary Since July 2005. Principal | |
Occupation(s) During the Past Five Years: Chairman, | Occupation(s) During the Past Five Years: Managing | |
President, Chief Executive Officer, and Director of | Director of The Vanguard Group, Inc., since 2006; | |
NACCO Industries, Inc. (forklift trucks/housewares/ | General Counsel of The Vanguard Group since 2005; | |
lignite); Director of Goodrich Corporation (industrial | Secretary of The Vanguard Group and of each of the | |
products/aircraft systems and services). | investment companies served by The Vanguard Group | |
| since 2005; Director and Senior Vice President of | |
| Vanguard Marketing Corporation since 2005; Principal | |
J. Lawrence Wilson | of The Vanguard Group (1997–2006). | |
Born 1936. Trustee Since April 1985. Principal |
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Occupation(s) During the Past Five Years: Retired |
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Chairman and Chief Executive Officer of Rohm and | Vanguard Senior Management Team | |
Haas Co. (chemicals); Director of Cummins Inc. (diesel |
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engines) and AmerisourceBergen Corp. (pharmaceutical |
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distribution); Trustee of Vanderbilt University and of | R. Gregory Barton | Michael S. Miller |
Culver Educational Foundation. | Mortimer J. Buckley | James M. Norris |
| Kathleen C. Gubanich | Glenn W. Reed |
| Paul A. Heller | George U. Sauter |
Executive Officers |
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| Founder |
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Thomas J. Higgins1 |
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Born 1957. Chief Financial Officer Since September |
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2008. Principal Occupation(s) During the Past Five | John C. Bogle |
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Years: Principal of The Vanguard Group, Inc.; Chief | Chairman and Chief Executive Officer, 1974–1996 | |
Financial Officer of each of the investment companies |
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served by The Vanguard Group since 2008; Treasurer |
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of each of the investment companies served by The |
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Vanguard Group (1998–2008). |
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Kathryn J. Hyatt1 |
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Born 1955. Treasurer Since November 2008. Principal |
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Occupation(s) During the Past Five Years: Principal of |
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The Vanguard Group, Inc.; Treasurer of each of the |
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investment companies served by The Vanguard |
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Group since 2008; Assistant Treasurer of each of the |
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investment companies served by The Vanguard Group |
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(1988–2008). |
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1 These individuals 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.
| |
| P.O. Box 2600 |
| Valley Forge, PA 19482-2600 |
Connect with Vanguard® > www.vanguard.com
Fund Information > 800-662-7447 | CFA® is a trademark owned by CFA Institute. |
|
|
Direct Investor Account Services > 800-662-2739 |
|
| The funds or securities referred to herein are not |
Institutional Investor Services > 800-523-1036 | sponsored, endorsed, or promoted by MSCI, and MSCI |
| bears no liability with respect to any such funds or |
Text Telephone for People | securities. For any such funds or securities, the |
With Hearing Impairment > 800-952-3335 | prospectus or the Statement of Additional Information |
| contains a more detailed description of the limited |
This material may be used in conjunction | relationship MSCI has with The Vanguard Group and |
with the offering of shares of any Vanguard | any related funds. |
fund only if preceded or accompanied by |
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the fund’s current prospectus. | Russell is a trademark of The Frank Russell Company. |
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All comparative mutual fund data are from Lipper Inc. or |
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Morningstar, Inc., unless otherwise noted. |
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You can obtain a free copy of Vanguard’s proxy voting |
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guidelines by visiting our website, www.vanguard.com, |
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and searching for “proxy voting guidelines,” or by calling |
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Vanguard at 800-662-2739. The guidelines are also |
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available from the SEC’s website, www.sec.gov. In |
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addition, you may obtain a free report on how your fund |
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voted the proxies for securities it owned during the 12 |
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months ended June 30. To get the report, visit either |
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www.vanguard.com or www.sec.gov. |
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You can review and copy information about your fund at |
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the SEC’s Public Reference Room in Washington, D.C. To |
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find out more about this public service, call the SEC at |
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202-551-8090. Information about your fund is also |
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available on the SEC’s website, and you can receive |
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copies of this information, for a fee, by sending a |
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request in either of two ways: via e-mail addressed to |
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publicinfo@sec.gov or via regular mail addressed to the | © 2009 The Vanguard Group, Inc. |
Public Reference Section, Securities and Exchange | All rights reserved. |
Commission, Washington, DC 20549-0102. | Vanguard Marketing Corporation, Distributor. |
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| Q812 042009 |
> | During the fiscal half-year ended February 28, 2009, Vanguard FTSE Social Index Fund returned about –47%. |
> | The fund’s performance closely tracked that of its target benchmark, but lagged the average return for large-capitalization growth funds. |
> | Large stakes in financials, information technology, and health care weighed heavily on the fund’s return. |
Contents |
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Your Fund’s Total Returns | 1 |
President’s Letter | 2 |
Fund Profile | 6 |
Performance Summary | 7 |
Financial Statements | 8 |
About Your Fund’s Expenses | 19 |
Glossary | 21 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
Your Fund’s Total Returns
Six Months Ended February 28, 2009 |
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| Ticker | Total |
| Symbol | Returns |
Vanguard FTSE Social Index Fund |
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Investor Shares | VFTSX | –46.64% |
Institutional Shares1 | VFTNX | –46.59 |
FTSE Good US Select Index |
| –46.65 |
Average Large-Cap Growth Fund2 |
| –40.13 |
Your Fund’s Performance at a Glance |
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| |
August 31, 2008–February 28, 2009 |
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| Distributions Per Share | |
| Starting | Ending | Income | Capital |
| Share Price | Share Price | Dividends | Gains |
FTSE Social Index Fund |
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Investor Shares | $7.76 | $4.04 | $0.118 | $0.000 |
Institutional Shares | 7.77 | 4.04 | 0.129 | 0.000 |
1 This class of shares carries lower expenses and is available for a minimum initial investment of $5 million.
2 Derived from data provided by Lipper Inc.
1
President’s Letter
Dear Shareholder,
U.S. stocks were down across the board during the six months ended February 28, 2009. Vanguard FTSE Social Index Fund returned about –47% for the period, staying on track with its target benchmark, the FTSE4Good US Select Index. However, the fund lagged behind the average return of large-cap growth funds and the return of the broad U.S. stock market.
Stocks fell steeply and broadly amid credit woes and slow growth
Stocks began the fiscal half-year inauspiciously and continued to decline as tight credit maintained its grip on business and major economies slipped into recession. Neither landmark programs to bolster financial institutions nor the $787 billion economic stimulus package signed into law in February served to boost investor confidence, which was already badly shaken after the U.S. stock market suffered its second-worst calendar-year performance ever.
For the six months ended February 28, U.S. equities overall returned about –42%. International stocks returned about –45%; emerging markets, which had boomed in recent years, were hit especially hard. The declines across the globe were notable for their speed, breadth, and magnitude. Volatility also increased dramatically, to levels not seen since the 1930s. For example, the period encompassed not only four of the worst
2
but also two of the best U.S. trading days since 1928 (based on percentage losses and gains).
Investors sought refuge in low-yield, but liquid, Treasuries
In the wake of the September collapse of Lehman Brothers, a leading Wall Street investment bank, credit markets deteriorated globally—a painful reminder of how intertwined markets have become and of how important trust is to keep them functioning. Lacking confidence, investors continued to seek the relative safety and liquidity of U.S. Treasury securities, driving prices up and yields down—even briefly into negative territory for very short-term Treasury securities. This flight to quality led corporate bonds to experience two of their worst months ever in terms of real returns, in September and October.
After several aggressive actions by the Federal Reserve Board and the Treasury—including lowering the target for the federal funds rate to a range of 0% to 0.25%—signs of a thaw began to emerge. January and February, for example, were the most active months for the issuance of investment-grade corporate bonds since 1995. Against this backdrop, the broad taxable bond market returned almost 2% for the six-month period, while tax-exempt bonds were about flat.
Market Barometer |
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| Total Returns |
| Periods Ended February 28, 2009 | ||
| Six Months | One Year | Five Years1 |
Stocks |
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Russell 1000 Index (Large-caps) | –42.25% | –43.62% | –6.38% |
Russell 2000 Index (Small-caps) | –46.91 | –42.38 | –6.68 |
Dow Jones Wilshire 5000 Index (Entire market) | –42.27 | –43.15 | –6.04 |
MSCI All Country World Index ex USA (International) | –45.36 | –51.27 | –1.65 |
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Bonds |
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Barclays Capital U.S. Aggregate Bond Index |
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(Broad taxable market) | 1.88% | 2.06% | 4.00% |
Barclays Capital Municipal Bond Index | 0.05 | 5.18 | 3.13 |
Citigroup 3-Month Treasury Bill Index | 0.42 | 1.31 | 3.07 |
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CPI |
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Consumer Price Index | –3.15% | 0.24% | 2.65% |
1 Annualized.
3
The fund’s tendencies worked against it in a brutal market
During the six-month period covered in this report, the downward trend for stocks affected all corners of the market. The FTSE Social Index Fund was down about –47% for the period, and posted negative returns in all ten sectors.
Given the fund’s socially conscious mandate—which favors companies that work to protect the environment, maintain fair hiring and promotion practices for women and minorities, and institute safe and healthy workplace policies—the fund is typically heavily weighted in the financial, information technology, consumer discretionary, and health care sectors. These areas of the market usually consist of more companies that meet the social and environmental screening criteria established by FTSE, the fund’s index provider. Over the six-month period, stocks in these sectors were some of the market’s weakest performers.
Continued trouble in the financial sector—which accounted for about 28% of the portfolio’s holdings on average during the period—took the biggest toll on the fund. In September 2008, the financial crisis intensified when several big banks failed, creating a ripple effect throughout the financial industry. Together, the fund’s financial holdings subtracted more than 20 percentage points from its total return.
Information technology stocks also weighed heavily on fund performance. Technology companies—including computer, software,
Expense Ratios1 |
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Your Fund Compared With Its Peer Group |
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| Average |
| Investor | Institutional | Large-Cap |
| Shares | Shares | Growth Fund |
FTSE Social Index Fund | 0.31% | 0.18% | 1.34% |
1 The fund expense ratios shown are from the prospectuses dated December 29, 2008 and represent estimated costs for the current fiscal year based on the fund’s current net assets. For the six months ended February 28, 2009, the annualized expense ratios were 0.29% for Investor Shares and 0.16% for Institutional Shares. The peer-group expense ratio is derived from data provided by Lipper Inc. and captures information through year-end 2008.
4
and semiconductor companies—saw their stocks plummet as the global economic downturn led to slower sales of PCs and other tech products.
Although it was hard to identify the bright spots during the period, the fund did hold a few stocks that contributed positive results. In the consumer discretionary sector, for example, educational services companies and a handful of retailers finished up for the period.
During troubling times, stay focused on the future
The six months ended February 28, 2009, represented a chaotic time for the U.S. stock market. As the recession deepened, it affected all areas of the market, leaving investors with nowhere to hide.
During times like these, investors’ first impulse is often to want to do something—anything—to stop the pain. However, we urge shareholders to take a deep breath before making rash changes to their portfolios. Although the market’s volatility can be jarring, it’s important not to let short-term extremes blind us to the long-term case for equities. The stock market’s occasionally steep declines are an unavoidable tradeoff for its potential to produce superior returns in the long term.
To manage this risk, while maintaining exposure to stocks, we encourage investors to build a carefully constructed portfolio that contains an appropriate mix of stocks, bonds, and money market funds consistent with their long-term goals and tolerance for ups and downs in the portfolio’s value. A well-balanced portfolio can provide you with some protection from extreme market swings while also giving you an opportunity for long-term growth.
We believe that the FTSE Social Index Fund can be an excellent addition to a well-balanced, long-term investment portfolio. The fund provides investors with the opportunity to own a low-cost portfolio made up of companies that pass the index provider’s stringent social and environmental screens.
Thank you for entrusting your assets to Vanguard.
Sincerely,
F. William McNabb III
President and Chief Executive Officer
March 12, 2009
5
FTSE Social Index Fund
Fund Profile
As of February 28, 2009
Portfolio Characteristics |
|
| |
|
| Target | Broad |
| Fund | Index1 | Index2 |
Number of Stocks | 301 | 304 | 4,524 |
Median Market Cap | $14.6B | $14.6B | $20.9B |
Price/Earnings Ratio | 13.4x | 13.4x | 12.4x |
Price/Book Ratio | 1.5x | 1.5x | 1.5x |
Yield3 |
| 2.2% | 3.1% |
Investor Shares | 1.8% |
|
|
Institutional Shares | 2.0% |
|
|
Return on Equity | 20.0% | 19.9% | 20.8% |
Earnings Growth Rate | 21.2% | 21.1% | 17.6% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 41%4 | — | — |
Expense Ratio5 |
| — | — |
Investor Shares | 0.31% |
|
|
Institutional Shares | 0.18% |
|
|
Short-Term Reserves | 0.0% | — | — |
Sector Diversification (% of equity exposure) | |||
|
| Target | Broad |
| Fund | Index1 | Index2 |
Consumer Discretionary | 13.0% | 13.0% | 9.0% |
Consumer Staples | 7.6 | 7.6 | 11.7 |
Energy | 3.7 | 3.7 | 13.0 |
Financials | 22.9 | 22.9 | 12.3 |
Health Care | 19.2 | 19.2 | 15.3 |
Industrials | 4.0 | 4.0 | 9.9 |
Information Technology | 26.4 | 26.2 | 17.1 |
Materials | 0.8 | 0.8 | 3.4 |
Telecommunication |
|
|
|
Services | 1.5 | 1.5 | 3.7 |
Utilities | 0.9 | 1.1 | 4.6 |
Volatility Measures6 |
| |
| Fund Versus | Fund Versus |
| Target Index1 | Broad Index2 |
R-Squared | 1.00 | 0.96 |
Beta | 1.00 | 1.10 |
Ten Largest Holdings7 (% of total net assets) | ||
|
|
|
JPMorgan Chase & Co. | diversified financial |
|
| services | 4.1% |
Google Inc. | internet software |
|
| and services | 3.9 |
Apple Inc. | computer hardware | 3.8 |
Intel Corp. | semiconductors | 3.4 |
McDonald’s Corp. | restaurants | 2.8 |
QUALCOMM Inc. | communications |
|
| equipment | 2.7 |
Amgen Inc. | biotechnology | 2.5 |
Gilead Sciences, Inc. | biotechnology | 2.0 |
CVS Caremark Corp. | drug retail | 1.8 |
Medtronic, Inc. | health care |
|
| equipment | 1.6 |
Top Ten |
| 28.6% |
Investment Focus
1 FTSE4Good US Select Index.
2 Dow Jones Wilshire 5000 Index.
3 30-day SEC yield for the fund; annualized dividend yield for the indexes. See the Glossary.
4 Annualized.
5 The expense ratios shown are from the prospectuses dated December 29, 2008 and represent estimated costs for the current fiscal year based on the fund’s current net assets. For the six months ended February 28, 2009, the annualized expense ratios were 0.29% for Investor Shares and 0.16% for Institutional Shares.
6 For an explanation of R-squared, beta, and other terms used here, see the Glossary.
7 The holdings listed exclude any temporary cash investments and equity index products.
6
FTSE Social 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/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): May 31, 2000–February 28, 2009
Average Annual Total Returns: Periods ended December 31, 2008
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 | Five Years | Inception |
Investor Shares3 | 5/31/2000 | –42.39% | –6.43% | –6.64% |
Institutional Shares | 1/14/2003 | –42.33 | –6.30 | –2.08 |
1 Six months ended February 28, 2009.
2 Calvert Social Index through December 16, 2005; FTSE4Good US Select Index thereafter.
3 Total returns do not include the account service fee that may be applicable to certain accounts with balances below $10,000.
Note: See Financial Highlights tables for dividend and capital gains information.
7
FTSE Social Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2009
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).
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
Common Stocks (99.9%) |
|
| |
Consumer Discretionary (13.0%) |
|
| |
| McDonald’s Corp. | 147,318 | 7,697 |
| Lowe’s Cos., Inc. | 193,341 | 3,063 |
| Target Corp. | 99,771 | 2,825 |
* | Amazon.com, Inc. | 42,195 | 2,734 |
| Best Buy Co., Inc. | 54,378 | 1,567 |
* | Apollo Group, Inc. Class A | 20,854 | 1,512 |
| Staples, Inc. | 93,437 | 1,490 |
* | Kohl’s Corp. | 40,230 | 1,414 |
| TJX Cos., Inc. | 55,477 | 1,235 |
| Carnival Corp. | 61,710 | 1,207 |
| H & R Block, Inc. | 44,701 | 854 |
* | AutoZone Inc. | 5,776 | 822 |
| The Gap, Inc. | 70,541 | 761 |
* | Bed Bath & Beyond, Inc. | 34,193 | 728 |
* | Coach, Inc. | 43,230 | 604 |
| Genuine Parts Co. | 20,913 | 589 |
* | GameStop Corp. Class A | 21,595 | 581 |
| Ross Stores, Inc. | 17,315 | 511 |
* | Dollar Tree, Inc. | 11,874 | 461 |
| Macy’s Inc. | 55,566 | 437 |
| Nordstrom, Inc. | 28,657 | 386 |
| Limited Brands, Inc. | 44,990 | 346 |
| PetSmart, Inc. | 16,673 | 334 |
| Harley-Davidson, Inc. | 30,745 | 311 |
| Pulte Homes, Inc. | 33,698 | 309 |
* | Career Education Corp. | 11,717 | 289 |
| Scripps Networks Interactive | 12,380 | 246 |
* | Mohawk Industries, Inc. | 9,010 | 204 |
| American Eagle |
|
|
| Outfitters, Inc. | 19,894 | 194 |
| Foot Locker, Inc. | 21,177 | 176 |
| Hillenbrand Inc. | 8,484 | 142 |
| RadioShack Corp. | 17,026 | 125 |
| Royal Caribbean |
|
|
| Cruises, Ltd. | 20,791 | 125 |
| Lennar Corp. Class A | 17,540 | 117 |
| KB Home | 12,238 | 109 |
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
* | Chico’s FAS, Inc. | 23,979 | 109 |
| Gannett Co., Inc. | 29,622 | 96 |
| Weight Watchers |
|
|
| International, Inc. | 5,238 | 95 |
| Wyndham Worldwide Corp. | 24,582 | 91 |
| WABCO Holdings Inc. | 8,913 | 90 |
| New York Times Co. Class A | 19,713 | 81 |
* | Lamar Advertising Co. |
|
|
| Class A | 10,391 | 72 |
* | Liberty Media Corp.– |
|
|
| Capital Series A | 12,593 | 65 |
* | Ascent Media Corp. | 2,001 | 47 |
* | Office Depot, Inc. | 37,457 | 39 |
* | Ticketmaster |
|
|
| Entertainment Inc. | 7,680 | 38 |
* | HSN, Inc. | 7,880 | 34 |
* | Interval Leisure Group, Inc. | 7,980 | 32 |
| E.W. Scripps Co. Class A | 3,893 | 4 |
|
|
| 35,398 |
Consumer Staples (7.6%) |
|
| |
| CVS Caremark Corp. | 188,946 | 4,864 |
| Walgreen Co. | 131,691 | 3,142 |
| Costco Wholesale Corp. | 57,054 | 2,416 |
| General Mills, Inc. | 44,367 | 2,329 |
| Sysco Corp. | 79,718 | 1,714 |
| Kellogg Co. | 37,519 | 1,460 |
| Safeway, Inc. | 56,720 | 1,049 |
| The Hershey Co. | 22,140 | 746 |
| McCormick & Co., Inc. | 15,514 | 486 |
* | Dr. Pepper |
|
|
| Snapple Group, Inc. | 33,370 | 469 |
| Hormel Foods Corp. | 13,288 | 423 |
* | Dean Foods Co. | 20,304 | 415 |
| The Estee Lauder Cos. Inc. |
|
|
| Class A | 15,634 | 354 |
| Alberto-Culver Co. | 12,737 | 282 |
| Whole Foods Market, Inc. | 18,102 | 220 |
| PepsiAmericas, Inc. | 12,459 | 207 |
|
|
| 20,576 |
8
FTSE Social Index Fund
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
Energy (3.6%) |
|
| |
| Apache Corp. | 43,925 | 2,595 |
| Devon Energy Corp. | 58,569 | 2,558 |
| Spectra Energy Corp. | 81,150 | 1,055 |
| Williams Cos., Inc. | 76,042 | 859 |
| Peabody Energy Corp. | 35,096 | 831 |
* | Ultra Petroleum Corp. | 20,008 | 703 |
| CONSOL Energy, Inc. | 24,130 | 657 |
* | Newfield Exploration Co. | 17,421 | 337 |
| Pioneer Natural |
|
|
| Resources Co. | 15,914 | 232 |
| Teekay Shipping Corp. | 7,389 | 117 |
|
|
| 9,944 |
Financials (22.9%) |
|
| |
| JPMorgan Chase & Co. | 493,475 | 11,276 |
| Bank of America Corp. | 837,110 | 3,307 |
| U.S. Bancorp | 230,215 | 3,294 |
| The Travelers Cos., Inc. | 77,222 | 2,792 |
| MetLife, Inc. | 104,865 | 1,936 |
| Charles Schwab Corp. | 152,304 | 1,936 |
| American Express Co. | 154,429 | 1,862 |
| The Chubb Corp. | 46,980 | 1,834 |
| Northern Trust Corp. | 29,454 | 1,636 |
| CME Group, Inc. | 8,836 | 1,612 |
| Ace Ltd. | 43,926 | 1,604 |
| PNC Financial |
|
|
| Services Group | 56,190 | 1,536 |
| State Street Corp. | 57,061 | 1,442 |
| BB&T Corp. | 72,902 | 1,176 |
| Franklin Resources Corp. | 23,208 | 1,063 |
| Progressive Corp. of Ohio | 89,484 | 1,035 |
| AFLAC Inc. | 61,459 | 1,030 |
| Simon Property |
|
|
| Group, Inc. REIT | 30,551 | 1,011 |
| Prudential Financial, Inc. | 55,947 | 918 |
| People’s United Financial Inc. | 45,713 | 796 |
| T. Rowe Price Group Inc. | 34,282 | 780 |
| Hudson City Bancorp, Inc. | 68,842 | 714 |
| HCP, Inc. REIT | 33,422 | 611 |
| NYSE Euronext | 34,831 | 588 |
| Plum Creek |
|
|
| Timber Co. Inc. REIT | 22,002 | 577 |
| Moody’s Corp. | 31,552 | 566 |
| SunTrust Banks, Inc. | 46,759 | 562 |
| M & T Bank Corp. | 14,523 | 531 |
| Willis Group Holdings Ltd. | 22,045 | 483 |
| KeyCorp | 65,432 | 459 |
| Ameriprise Financial, Inc. | 28,475 | 454 |
| New York Community |
|
|
| Bancorp, Inc. | 45,480 | 448 |
| W.R. Berkley Corp. | 21,464 | 447 |
| Unum Group | 43,798 | 446 |
| PartnerRe Ltd. | 7,198 | 445 |
| Cincinnati Financial Corp. | 21,505 | 442 |
* | Intercontinental Exchange Inc. | 7,230 | 410 |
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
| RenaissanceRe Holdings Ltd. | 8,194 | 369 |
| Discover Financial Services | 63,349 | 363 |
| Commerce Bancshares, Inc. | 10,014 | 348 |
* | Markel Corp. | 1,297 | 345 |
* | Leucadia National Corp. | 23,552 | 345 |
| Assurant, Inc. | 15,506 | 316 |
| Regions Financial Corp. | 91,872 | 314 |
| Brown & Brown, Inc. | 18,576 | 313 |
| Kimco Realty Corp. REIT | 35,185 | 311 |
| Lincoln National Corp. | 33,851 | 291 |
* | SLM Corp. | 61,684 | 284 |
| First American Corp. | 12,217 | 283 |
| Old Republic |
|
|
| International Corp. | 30,542 | 277 |
| The Principal |
|
|
| Financial Group, Inc. | 34,579 | 276 |
| White Mountains |
|
|
| Insurance Group Inc. | 1,375 | 272 |
| Host Hotels & |
|
|
| Resorts Inc. REIT | 69,267 | 256 |
| Regency Centers Corp. REIT | 9,207 | 248 |
| The Hartford Financial |
|
|
| Services Group Inc. | 39,834 | 243 |
| Associated Banc-Corp. | 16,558 | 239 |
| Legg Mason Inc. | 18,477 | 237 |
| Liberty Property Trust REIT | 12,900 | 236 |
| First Horizon National Corp. | 25,524 | 234 |
* | The St. Joe Co. | 12,061 | 222 |
| SEI Investments Co. | 18,688 | 221 |
| TCF Financial Corp. | 17,099 | 210 |
| City National Corp. | 6,438 | 206 |
| ProLogis REIT | 35,097 | 203 |
| Valley National Bancorp | 17,716 | 202 |
| Federated Investors, Inc. | 10,266 | 194 |
| Marshall & Ilsley Corp. | 35,307 | 162 |
| AMB Property Corp. REIT | 13,404 | 160 |
| XL Capital Ltd. Class A | 45,095 | 149 |
| Synovus Financial Corp. | 42,411 | 148 |
| Fulton Financial Corp. | 23,576 | 147 |
| Zions Bancorp | 14,376 | 135 |
| Duke Realty Corp. REIT | 19,122 | 132 |
| CIT Group Inc. | 51,185 | 125 |
| The Macerich Co. REIT | 10,384 | 119 |
* | MBIA, Inc. | 37,227 | 102 |
| Janus Capital Group Inc. | 21,487 | 95 |
| Popular, Inc. | 38,415 | 86 |
| Erie Indemnity Co. Class A | 2,876 | 86 |
* | Tri-Continental Corp. | 8,800 | 75 |
| Huntington Bancshares Inc. | 49,836 | 73 |
| Genworth Financial Inc. | 58,911 | 71 |
| Unitrin, Inc. | 6,472 | 70 |
* | E*TRADE Financial Corp. | 73,147 | 58 |
| Forest City Enterprise |
|
|
| Class A | 11,137 | 56 |
| Wesco Financial Corp. | 201 | 49 |
9
FTSE Social Index Fund
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
* | Forestar Real Estate |
|
|
| Group, Inc. | 4,848 | 36 |
| Protective Life Corp. | 9,514 | 36 |
| Allied Capital Corp. | 24,867 | 27 |
| iStar Financial Inc. REIT | 16,264 | 23 |
| Ambac Financial Group, Inc. | 34,269 | 20 |
| Student Loan Corp. | 494 | 19 |
| Colonial BancGroup, Inc. | 28,099 | 13 |
| The PMI Group Inc. | 9,714 | 5 |
|
|
| 62,194 |
Health Care (19.2%) |
|
| |
* | Amgen Inc. | 139,810 | 6,841 |
* | Gilead Sciences, Inc. | 120,372 | 5,393 |
| Medtronic, Inc. | 148,400 | 4,391 |
| UnitedHealth Group Inc. | 159,575 | 3,136 |
* | Celgene Corp. | 60,126 | 2,689 |
* | Medco Health Solutions, Inc. | 65,822 | 2,671 |
* | WellPoint Inc. | 67,579 | 2,292 |
* | Genzyme Corp. | 35,740 | 2,178 |
| Covidien Ltd. | 66,326 | 2,100 |
* | Biogen Idec Inc. | 38,638 | 1,779 |
* | Express Scripts Inc. | 32,598 | 1,640 |
| Allergan, Inc. | 40,628 | 1,574 |
| Cardinal Health, Inc. | 47,061 | 1,527 |
* | St. Jude Medical, Inc. | 45,465 | 1,508 |
* | Boston Scientific Corp. | 197,043 | 1,383 |
| Stryker Corp. | 40,038 | 1,348 |
| Alcon, Inc. | 11,774 | 970 |
| Quest Diagnostics, Inc. | 19,269 | 883 |
| AmerisourceBergen Corp. | 20,936 | 665 |
* | DaVita, Inc. | 13,779 | 646 |
* | Cephalon, Inc. | 8,983 | 589 |
| CIGNA Corp. | 35,771 | 564 |
* | Humana Inc. | 22,007 | 521 |
* | Mylan Inc. | 39,963 | 497 |
* | Hospira, Inc. | 21,019 | 488 |
* | Waters Corp. | 12,991 | 457 |
* | Henry Schein, Inc. | 11,801 | 433 |
* | Millipore Corp. | 7,358 | 405 |
| Omnicare, Inc. | 15,600 | 404 |
* | Watson Pharmaceuticals, Inc. | 13,714 | 388 |
| Beckman Coulter, Inc. | 8,210 | 368 |
* | Patterson Companies, Inc. | 15,932 | 288 |
* | King Pharmaceuticals, Inc. | 32,277 | 237 |
| Universal Health |
|
|
| Services Class B | 6,142 | 226 |
* | Coventry Health Care Inc. | 19,237 | 222 |
* | Sepracor Inc. | 14,168 | 212 |
* | Health Net Inc. | 14,072 | 186 |
* | Kinetic Concepts, Inc. | 6,945 | 151 |
|
|
| 52,250 |
Industrials (4.0%) |
|
| |
| Norfolk Southern Corp. | 48,953 | 1,553 |
| Deere & Co. | 56,394 | 1,550 |
| PACCAR, Inc. | 48,252 | 1,210 |
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
| Republic Services, Inc. |
|
|
| Class A | 50,004 | 995 |
| C.H. Robinson |
|
|
| Worldwide Inc. | 22,382 | 926 |
| W.W. Grainger, Inc. | 10,117 | 669 |
| Fastenal Co. | 20,016 | 603 |
| Southwest Airlines Co. | 97,060 | 572 |
* | Jacobs Engineering |
|
|
| Group Inc. | 16,194 | 546 |
| Pitney Bowes, Inc. | 27,359 | 528 |
* | Iron Mountain, Inc. | 26,562 | 494 |
| Equifax, Inc. | 16,638 | 358 |
| Cintas Corp. | 15,190 | 308 |
| Manpower Inc. | 10,194 | 284 |
| J.B. Hunt Transport |
|
|
| Services, Inc. | 12,361 | 252 |
* | Terex Corp. | 13,059 | 116 |
|
|
| 10,964 |
Information Technology (26.4%) |
|
| |
* | Google Inc. | 31,180 | 10,539 |
* | Apple Inc. | 116,530 | 10,407 |
| Intel Corp. | 734,646 | 9,359 |
| QUALCOMM Inc. | 216,914 | 7,251 |
| Automatic Data |
|
|
| Processing, Inc. | 67,201 | 2,295 |
* | Dell Inc. | 258,901 | 2,208 |
| MasterCard, Inc. Class A | 13,011 | 2,056 |
| Applied Materials, Inc. | 178,883 | 1,648 |
* | Symantec Corp. | 110,432 | 1,527 |
* | eBay Inc. | 126,579 | 1,376 |
* | Adobe Systems, Inc. | 70,261 | 1,173 |
| Paychex, Inc. | 48,014 | 1,059 |
| Western Union Co. | 94,543 | 1,055 |
* | Juniper Networks, Inc. | 69,797 | 992 |
* | Broadcom Corp. | 58,966 | 970 |
* | Intuit, Inc. | 42,410 | 967 |
| CA, Inc. | 51,143 | 867 |
* | BMC Software, Inc. | 24,794 | 735 |
* | Cognizant Technology |
|
|
| Solutions Corp. | 38,098 | 701 |
* | Fiserv, Inc. | 21,187 | 691 |
| Xilinx, Inc. | 36,360 | 643 |
| Linear Technology Corp. | 29,014 | 633 |
* | Check Point Software |
|
|
| Technologies Ltd. | 28,203 | 620 |
* | NVIDIA Corp. | 73,410 | 608 |
| Altera Corp. | 39,586 | 607 |
| Tyco Electronics Ltd. | 62,426 | 592 |
* | NetApp, Inc. | 43,562 | 586 |
* | McAfee Inc. | 19,946 | 558 |
* | VeriSign, Inc. | 25,693 | 497 |
* | Citrix Systems, Inc. | 23,976 | 493 |
* | Marvell Technology Group Ltd. | 60,544 | 455 |
| Microchip Technology, Inc. | 23,999 | 450 |
* | Akamai Technologies, Inc. | 22,104 | 400 |
10
FTSE Social Index Fund
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
| KLA-Tencor Corp. | 22,262 | 384 |
* | Autodesk, Inc. | 29,563 | 375 |
* | Teradata Corp. | 23,237 | 359 |
* | Synopsys, Inc. | 19,063 | 355 |
| National Semiconductor Corp. | 30,132 | 328 |
| Total System Services, Inc. | 26,005 | 327 |
| Lender Processing |
|
|
| Services, Inc. | 12,483 | 327 |
* | Micron Technology, Inc. | 100,796 | 325 |
* | LAM Research Corp. | 16,572 | 324 |
| Broadridge Financial |
|
|
| Solutions LLC | 18,450 | 295 |
| Seagate Technology | 63,543 | 273 |
* | SanDisk Corp. | 29,667 | 264 |
* | Arrow Electronics, Inc. | 15,713 | 261 |
* | IAC/InterActiveCorp | 16,501 | 246 |
* | LSI Corp. | 84,645 | 245 |
* | Flextronics International Ltd. | 106,435 | 219 |
* | Metavante Technologies | 12,080 | 203 |
| Diebold, Inc. | 8,919 | 197 |
* | Compuware Corp. | 32,055 | 189 |
* | DST Systems, Inc. | 6,375 | 188 |
* | Advanced Micro |
|
|
| Devices, Inc. | 82,066 | 179 |
* | Novellus Systems, Inc. | 13,298 | 170 |
* | Cadence Design |
|
|
| Systems, Inc. | 35,155 | 148 |
| Jabil Circuit, Inc. | 28,496 | 118 |
* | Convergys Corp. | 16,585 | 107 |
* | Teradyne, Inc. | 23,027 | 95 |
* | EchoStar Corp. | 5,740 | 94 |
* | JDS Uniphase Corp. | 29,187 | 81 |
|
|
| 71,694 |
Materials (0.8%) |
|
| |
| Vulcan Materials Co. | 14,479 | 600 |
| Sigma-Aldrich Corp. | 16,612 | 593 |
| Southern Copper Corp. |
|
|
| (U.S. Shares) | 34,505 | 473 |
* | Pactiv Corp. | 17,192 | 272 |
| Sealed Air Corp. | 20,750 | 231 |
|
|
| 2,169 |
Telecommunication Services (1.5%) |
|
| |
* | Sprint Nextel Corp. | 366,667 | 1,206 |
| Embarq Corp. | 18,826 | 658 |
| Millicom International |
|
|
| Cellular SA | 14,281 | 562 |
* | Crown Castle |
|
|
| International Corp. | 28,607 | 502 |
| CenturyTel, Inc. | 13,215 | 348 |
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
| Frontier |
|
|
| Communications Corp. | 41,033 | 296 |
* | NII Holdings Inc. | 21,854 | 280 |
| Telephone & Data |
|
|
| Systems, Inc. | 6,873 | 203 |
|
|
| 4,055 |
Utilities (0.9%) |
|
| |
| Questar Corp. | 22,892 | 660 |
* | NRG Energy, Inc. | 30,749 | 581 |
| EQT Corp. | 17,000 | 523 |
| Pepco Holdings, Inc. | 28,580 | 428 |
| TECO Energy, Inc. | 28,024 | 269 |
|
|
| 2,461 |
Total Common Stocks |
|
| |
(Cost $471,640) |
| 271,705 | |
Other Assets and Liabilities (0.1%) |
|
| |
Other Assets |
| 2,472 | |
Liabilities |
| (2,243) | |
|
|
| 229 |
Net Assets (100%) |
| 271,934 |
At February 28, 2009, net assets consisted of: | |
| Amount |
| ($000) |
Paid-in Capital | 551,152 |
Overdistributed Net Investment Income | (318) |
Accumulated Net Realized Losses | (78,965) |
Unrealized Appreciation (Depreciation) | (199,935) |
Net Assets | 271,934 |
|
|
Investor Shares—Net Assets |
|
Applicable to 49,076,453 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 198,264 |
Net Asset Value Per Share— |
|
Investor Shares | $4.04 |
|
|
Institutional Shares—Net Assets |
|
Applicable to 18,232,304 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 73,670 |
Net Asset Value Per Share— |
|
Institutional Shares | $4.04 |
• | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
REIT—Real Estate Investment Trust.
See accompanying Notes, which are an integral part of the Financial Statements.
11
FTSE Social Index Fund
Statement of Operations
| Six Months Ended |
| February 28, 2009 |
| ($000) |
Investment Income |
|
Income |
|
Dividends | 3,847 |
Interest1 | 3 |
Security Lending | 58 |
Total Income | 3,908 |
Expenses |
|
The Vanguard Group—Note B |
|
Investment Advisory Services | 47 |
Management and Administrative—Investor Shares | 274 |
Management and Administrative—Institutional Shares | 37 |
Marketing and Distribution—Investor Shares | 52 |
Marketing and Distribution—Institutional Shares | 19 |
Custodian Fees | 21 |
Auditing Fees | 1 |
Shareholders’ Reports—Investor Shares | 2 |
Shareholders’ Reports—Institutional Shares | 2 |
Total Expenses | 455 |
Net Investment Income | 3,453 |
Realized Net Gain (Loss) on Investment Securities Sold | (70,393) |
Change in Unrealized Appreciation (Depreciation) of Investment Securities | (179,069) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (246,009) |
1 Interest income from an affiliated company of the fund was $3,000.
See accompanying Notes, which are an integral part of the Financial Statements.
12
FTSE Social Index Fund
Statement of Changes in Net Assets
| Six Months Ended | Year Ended |
| February 28, | August 31, |
| 2009 | 2008 |
| ($000) | ($000) |
Increase (Decrease) in Net Assets |
|
|
Operations |
|
|
Net Investment Income | 3,453 | 8,845 |
Realized Net Gain (Loss) | (70,393) | (6,921) |
Change in Unrealized Appreciation (Depreciation) | (179,069) | (99,890) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (246,009) | (97,966) |
Distributions |
|
|
Net Investment Income |
|
|
Investor Shares | (5,643) | (7,812) |
Institutional Shares | (2,622) | (2,061) |
Realized Capital Gain |
|
|
Investor Shares | — | — |
Institutional Shares | — | — |
Total Distributions | (8,265) | (9,873) |
Capital Share Transactions |
|
|
Investor Shares | (12,164) | (60,224) |
Institutional Shares | 4,384 | 51,023 |
Net Increase (Decrease) from Capital Share Transactions | (7,780) | (9,201) |
Total Increase (Decrease) | (262,054) | (117,040) |
Net Assets |
|
|
Beginning of Period | 533,988 | 651,028 |
End of Period1 | 271,934 | 533,988 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of ($318,000) and $4,494,000.
See accompanying Notes, which are an integral part of the Financial Statements.
13
FTSE Social Index Fund
Financial Highlights
Investor Shares |
|
| ||||
| Six Months |
| ||||
| Ended |
| ||||
For a Share Outstanding | February 28, | Year Ended August 31, | ||||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 |
Net Asset Value, Beginning of Period | $7.76 | $9.30 | $8.51 | $8.03 | $7.40 | $6.87 |
Investment Operations |
|
|
|
|
|
|
Net Investment Income | .050 | .125 | .130 | .110 | .130 | .080 |
Net Realized and Unrealized Gain (Loss) |
|
|
|
|
|
|
on Investments | (3.652) | (1.525) | .780 | .470 | .620 | .520 |
Total from Investment Operations | (3.602) | (1.400) | .910 | .580 | .750 | .600 |
Distributions |
|
|
|
|
|
|
Dividends from Net Investment Income | (.118) | (.140) | (.120) | (.100) | (.120) | (.070) |
Distributions from Realized Capital Gains | — | — | — | — | — | — |
Total Distributions | (.118) | (.140) | (.120) | (.100) | (.120) | (.070) |
Net Asset Value, End of Period | $4.04 | $7.76 | $9.30 | $8.51 | $8.03 | $7.40 |
|
|
|
|
|
|
|
Total Return1 | –46.64% | –15.26% | 10.70% | 7.25% | 10.16% | 8.75% |
|
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
|
Net Assets, End of Period (Millions) | $198 | $395 | $540 | $405 | $361 | $274 |
Ratio of Total Expenses to |
|
|
|
|
|
|
Average Net Assets | 0.29%2 | 0.24% | 0.24% | 0.25% | 0.25% | 0.25% |
Ratio of Net Investment Income to |
|
|
|
|
|
|
Average Net Assets | 1.86%2 | 1.48% | 1.48% | 1.41% | 1.74% | 1.17% |
Portfolio Turnover Rate | 41%2 | 41% | 20% | 51%3 | 12% | 8% |
1 Total returns do not include the account service fee that may be applicable to certain accounts with balances below $10,000.
2 Annualized.
3 Includes activity related to a change in the fund’s target index.
See accompanying Notes, which are an integral part of the Financial Statements.
14
FTSE Social Index Fund
Financial Highlights
Institutional Shares |
|
|
|
|
|
|
| Six Months |
|
|
|
|
|
| Ended |
|
|
|
|
|
For a Share Outstanding | February 28, | Year Ended August 31, | ||||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 |
Net Asset Value, Beginning of Period | $7.77 | $9.32 | $8.52 | $8.04 | $7.41 | $6.88 |
Investment Operations |
|
|
|
|
|
|
Net Investment Income | .054 | .137 | .152 | .120 | .138 | .084 |
Net Realized and Unrealized Gain (Loss) |
|
|
|
|
|
|
on Investments | (3.655) | (1.535) | .780 | .470 | .620 | .522 |
Total from Investment Operations | (3.601) | (1.398) | .932 | .590 | .758 | .606 |
Distributions |
|
|
|
|
|
|
Dividends from Net Investment Income | (.129) | (.152) | (.132) | (.110) | (.128) | (.076) |
Distributions from Realized Capital Gains | — | — | — | — | — | — |
Total Distributions | (.129) | (.152) | (.132) | (.110) | (.128) | (.076) |
Net Asset Value, End of Period | $4.04 | $7.77 | $9.32 | $8.52 | $8.04 | $7.41 |
|
|
|
|
|
|
|
Total Return | –46.59% | –15.22% | 10.95% | 7.37% | 10.26% | 8.83% |
|
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
|
Net Assets, End of Period (Millions) | $74 | $139 | $111 | $87 | $27 | $13 |
Ratio of Total Expenses to |
|
|
|
|
|
|
Average Net Assets | 0.16%1 | 0.11% | 0.11% | 0.12% | 0.12% | 0.12% |
Ratio of Net Investment Income to |
|
|
|
|
|
|
Average Net Assets | 1.99%1 | 1.61% | 1.61% | 1.54% | 1.83% | 1.30% |
Portfolio Turnover Rate | 41%1 | 41% | 20% | 51%2 | 12% | 8% |
1 Annualized.
2 Includes activity related to a change in the fund’s target index.
See accompanying Notes, which are an integral part of the Financial Statements.
15
FTSE Social Index Fund
Notes to Financial Statements
Vanguard FTSE Social Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Investor Shares and 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 service 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 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. Management has analyzed the fund’s tax positions taken on federal income tax returns for all open tax years (tax years ended August 31, 2005–2008) and for the period ended February 28, 2009, and has concluded that no provision for federal income tax is required in the fund’s 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.
16
FTSE Social Index Fund
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, 2009, the fund had contributed capital of $81,000 to Vanguard (included in Other Assets), representing 0.03% of the fund’s net assets and 0.03% 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, 2008, the fund had available realized losses of $4,064,000 to offset future net capital gains of $79,000 through August 31, 2012, $985,000 through August 21, 2013, $367,000 through August 31, 2014, $2,136,000 through August 31, 2016, and $497,000 through August 31, 2017. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2009; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balances above.
At February 28, 2009, the cost of investment securities for tax purposes was $471,640,000. Net unrealized depreciation of investment securities for tax purposes was $199,935,000, consisting of unrealized gains of $9,877,000 on securities that had risen in value since their purchase and $209,812,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2009, the fund purchased $78,360,000 of investment securities and sold $89,931,000 of investment securities, other than temporary cash investments.
E. Capital share transactions for each class of shares were:
| Six Months Ended | Year Ended | ||
| February 28, 2009 | August 31, 2008 | ||
| Amount | Shares | Amount | Shares |
| ($000) | (000) | ($000) | (000) |
Investor Shares |
|
|
|
|
Issued | 36,040 | 6,922 | 89,674 | 10,639 |
Issued in Lieu of Cash Distributions | 5,331 | 1,125 | 7,393 | 821 |
Redeemed | (53,535) | (9,818) | (157,291) | (18,620) |
Net Increase (Decrease)—Investor Shares | (12,164) | (1,771) | (60,224) | (7,160) |
Institutional Shares |
|
|
|
|
Issued | 19,973 | 3,635 | 75,608 | 8,817 |
Issued in Lieu of Cash Distributions | 2,022 | 427 | 1,715 | 190 |
Redeemed | (17,611) | (3,754) | (26,300) | (3,027) |
Net Increase (Decrease)—Institutional Shares | 4,384 | 308 | 51,023 | 5,980 |
17
FTSE Social Index Fund
F. In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157 (“FAS 157”), “Fair Value Measurements.” FAS 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements in financial statements.
The various inputs that may be used to determine the value of the fund’s investments are summarized in three broad levels. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At February 28, 2009, 100% of the fund’s investments were valued based on Level 1 inputs.
18
About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table illustrates your fund’s costs in two ways:
• Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading “Expenses Paid During Period.”
• Based on hypothetical 5% yearly return. This section is intended to help you compare your fund’s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Six Months Ended February 28, 2009 |
|
|
|
| Beginning | Ending | Expenses |
| Account Value | Account Value | Paid During |
FTSE Social Index Fund | 8/31/2008 | 2/28/2009 | Period1 |
Based on Actual Fund Return |
|
|
|
Investor Shares | $1,000.00 | $533.58 | $1.10 |
Institutional Shares | 1,000.00 | 534.10 | 0.61 |
Based on Hypothetical 5% Yearly Return |
|
|
|
Investor Shares | $1,000.00 | $1,023.36 | $1.45 |
Institutional Shares | 1,000.00 | 1,024.00 | 0.80 |
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 0.29% for Investor Shares and 0.16% 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.
19
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include the account service fee described in the prospectus. If such a 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 your fund’s current prospectus.
20
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%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.
Expense Ratio. 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 represented by stocks or depositary receipts of companies based outside the United States.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.
Price/Earnings Ratio. The ratio of a stock’s current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company’s future growth.
R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0. For this report, R-squared is based on returns over the past 36 months for both the fund and the index.
Return on Equity. The annual average rate of return generated by a company during the past five years for each dollar of shareholder’s equity (net income divided by shareholder’s equity). For a fund, the weighted average return on equity for the companies whose stocks it holds.
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
21
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 fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (in the case of bonds) or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.
22
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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’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 157 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at www.vanguard.com.
Chairman of the Board and Interested Trustee | Rajiv L. Gupta |
| Born 1945. Trustee Since December 2001.2 Principal |
| Occupation(s) During the Past Five Years: Chairman |
John J. Brennan1 | and Chief Executive Officer of Rohm and Haas Co. |
Born 1954. Trustee Since May 1987. Chairman of | (chemicals); President of Rohm and Haas Co. |
the Board. Principal Occupation(s) During the Past Five | (2006–2008); Board Member of American Chemistry |
Years: Chairman of the Board and Director/Trustee of | Council; Director of Tyco International, Ltd. (diversified |
The Vanguard Group, Inc., and of each of the investment | manufacturing and services) and Hewlett-Packard Co. |
companies served by The Vanguard Group; Chief | (electronic computer manufacturing); Trustee of The |
Executive Officer and President of The Vanguard Group | Conference Board. |
and of each of the investment companies served by The |
|
Vanguard Group (1996–2008). |
|
| Amy Gutmann |
| Born 1949. Trustee Since June 2006. Principal |
Independent Trustees | Occupation(s) During the Past Five Years: President of |
| the University of Pennsylvania; Christopher H. Browne |
| Distinguished Professor of Political Science in the School |
Charles D. Ellis | of Arts and Sciences with Secondary Appointments |
Born 1937. Trustee Since January 2001. Principal | at the Annenberg School for Communication and the |
Occupation(s) During the Past Five Years: Applecore | Graduate School of Education of the University of |
Partners (pro bono ventures in education); Senior | Pennsylvania; Director of Carnegie Corporation of |
Advisor to Greenwich Associates (international business | New York, Schuylkill River Development Corporation, |
strategy consulting); Successor Trustee of Yale University; | and Greater Philadelphia Chamber of Commerce; |
Overseer of the Stern School of Business at New York | Trustee of the National Constitution Center. |
University; Trustee of the Whitehead Institute for |
|
Biomedical Research. |
|
| JoAnn Heffernan Heisen |
| Born 1950. Trustee Since July 1998. Principal |
Emerson U. Fullwood | Occupation(s) During the Past Five Years: Retired |
Born 1948. Trustee Since January 2008. Principal | Corporate Vice President, Chief Global Diversity Officer, |
Occupation(s) During the Past Five Years: Retired | and Member of the Executive Committee of Johnson & |
Executive Chief Staff and Marketing Officer for North | Johnson (pharmaceuticals/consumer products); Vice |
America and Corporate Vice President of Xerox | President and Chief Information Officer (1997–2005) |
Corporation (photocopiers and printers); Director of | of Johnson & Johnson; Director of the University |
SPX Corporation (multi-industry manufacturing), the | Medical Center at Princeton and Women’s Research |
United Way of Rochester, the Boy Scouts of America, | and Education Institute. |
Amerigroup Corporation (direct health and medical |
|
insurance carriers), and Monroe Community College |
|
Foundation. |
|
André F. Perold | F. William McNabb III1 |
|
Born 1952. Trustee Since December 2004. Principal | Born 1957. Chief Executive Officer Since August 2008. | |
Occupation(s) During the Past Five Years: George Gund | President Since March 2008. Principal Occupation(s) | |
Professor of Finance and Banking, Senior Associate | During the Past Five Years: Director of The Vanguard | |
Dean, and Director of Faculty Recruiting, Harvard | Group, Inc., since 2008; Chief Executive Officer and | |
Business School; Director and Chairman of UNX, Inc. | President of The Vanguard Group and of each of the | |
(equities trading firm); Chair of the Investment | investment companies served by The Vanguard Group | |
Committee of HighVista Strategies LLC (private | since 2008; Director of Vanguard Marketing Corporation; | |
investment firm). | Managing Director of The Vanguard Group (1995–2008). | |
|
|
|
|
|
|
Alfred M. Rankin, Jr. | Heidi Stam1 |
|
Born 1941. Trustee Since January 1993. Principal | Born 1956. Secretary Since July 2005. Principal | |
Occupation(s) During the Past Five Years: Chairman, | Occupation(s) During the Past Five Years: Managing | |
President, Chief Executive Officer, and Director of | Director of The Vanguard Group, Inc., since 2006; | |
NACCO Industries, Inc. (forklift trucks/housewares/ | General Counsel of The Vanguard Group since 2005; | |
lignite); Director of Goodrich Corporation (industrial | Secretary of The Vanguard Group and of each of the | |
products/aircraft systems and services). | investment companies served by The Vanguard Group | |
| since 2005; Director and Senior Vice President of | |
| Vanguard Marketing Corporation since 2005; Principal | |
J. Lawrence Wilson | of The Vanguard Group (1997–2006). | |
Born 1936. Trustee Since April 1985. Principal |
|
|
Occupation(s) During the Past Five Years: Retired |
|
|
Chairman and Chief Executive Officer of Rohm and | Vanguard Senior Management Team | |
Haas Co. (chemicals); Director of Cummins Inc. (diesel |
|
|
engines) and AmerisourceBergen Corp. (pharmaceutical |
|
|
distribution); Trustee of Vanderbilt University and of | R. Gregory Barton | Michael S. Miller |
Culver Educational Foundation. | Mortimer J. Buckley | James M. Norris |
| Kathleen C. Gubanich | Glenn W. Reed |
| Paul A. Heller | George U. Sauter |
Executive Officers |
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|
|
|
|
| Founder |
|
Thomas J. Higgins1 |
|
|
Born 1957. Chief Financial Officer Since September |
|
|
2008. Principal Occupation(s) During the Past Five | John C. Bogle |
|
Years: Principal of The Vanguard Group, Inc.; Chief | Chairman and Chief Executive Officer, 1974–1996 | |
Financial Officer of each of the investment companies |
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served by The Vanguard Group since 2008; Treasurer |
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of each of the investment companies served by The |
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Vanguard Group (1998–2008). |
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Kathryn J. Hyatt1 |
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Born 1955. Treasurer Since November 2008. Principal |
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Occupation(s) During the Past Five Years: Principal of |
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The Vanguard Group, Inc.; Treasurer of each of the |
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investment companies served by The Vanguard |
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Group since 2008; Assistant Treasurer of each of the |
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investment companies served by The Vanguard Group |
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(1988–2008). |
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1 These individuals 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.
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| Q2132 042009 |
> As credit market turmoil intensified and economic growth slowed, the broad U.S. stock market had a dismal return of about –42% for the six months ended February 28.
> Declines were steep and broad across all market sectors, producing returns for the Vanguard U.S. Sector Index Funds that ranged from about –27% for consumer staples stocks to about –59% for financials.
> Relative to the broad market, the performance of the U.S. Sector Index Funds was evenly divided: Five funds returned less and five returned more than the market.
Contents |
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Your Fund’s Total Returns | 1 |
President’s Letter | 2 |
Consumer Discretionary Index Fund | 7 |
Consumer Staples Index Fund | 16 |
Energy Index Fund | 24 |
Financials Index Fund | 32 |
Health Care Index Fund | 42 |
Industrials Index Fund | 51 |
Information Technology Index Fund | 60 |
Materials Index Fund | 69 |
Telecommunication Services Index Fund | 77 |
Utilities Index Fund | 84 |
About Your Fund’s Expenses | 91 |
Glossary | 93 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
Your Fund’s Total Returns
Six Months Ended February 28, 2009
Admiral™ Shares1 and ETF Shares2 |
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| Ticker | Total |
| Symbol | Returns |
Vanguard Consumer |
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Discretionary Index Fund | VCDAX | –43.22% |
Vanguard Consumer |
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Discretionary ETF | VCR |
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Market Price |
| –43.23 |
Net Asset Value |
| –43.24 |
MSCI® US IMI/Consumer Discretionary | –43.27 | |
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Vanguard Consumer Staples |
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Index Fund | VCSAX | –26.71% |
Vanguard Consumer Staples ETF | VDC |
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Market Price |
| –26.71 |
Net Asset Value |
| –26.70 |
MSCI US IMI/Consumer Staples |
| –26.56 |
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Vanguard Energy Index Fund | VENAX | –46.20% |
Vanguard Energy ETF | VDE |
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Market Price |
| –46.08 |
Net Asset Value |
| –46.19 |
MSCI US IMI/Energy |
| –43.01 |
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Vanguard Financials Index Fund | VFAIX | –58.71% |
Vanguard Financials ETF | VFH |
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Market Price |
| –58.61 |
Net Asset Value |
| –58.70 |
MSCI US IMI/Financials |
| –58.78 |
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Vanguard Health Care Index Fund | VHCIX | –29.66% |
Vanguard Health Care ETF | VHT |
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Market Price |
| –29.64 |
Net Asset Value |
| –29.65 |
MSCI US IMI/Health Care |
| –29.61 |
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Vanguard Industrials Index Fund | VINAX | –51.99% |
Vanguard Industrials ETF | VIS |
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Market Price |
| –51.96 |
Net Asset Value |
| –51.99 |
MSCI US IMI/Industrials |
| –51.97 |
| Ticker | Total |
| Symbol | Returns |
Vanguard Information |
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Technology Index Fund | VITAX | –40.23% |
Vanguard Information |
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Technology ETF | VGT |
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Market Price |
| –40.14 |
Net Asset Value |
| –40.23 |
MSCI US IMI/Information Technology | –40.21 | |
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Vanguard Materials Index Fund | VMIAX | –52.79% |
Vanguard Materials ETF | VAW |
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Market Price |
| –52.74 |
Net Asset Value |
| –52.77 |
MSCI US IMI/Materials |
| –52.86 |
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Vanguard Telecommunication |
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Services Index Fund | VTCAX | –32.25% |
Vanguard Telecommunication |
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Services ETF | VOX |
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Market Price |
| –32.08 |
Net Asset Value |
| –32.25 |
MSCI US IMI/Telecommunication Services | –27.67 | |
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Vanguard Utilities Index Fund | VUIAX | –31.41% |
Vanguard Utilities ETF | VPU |
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Market Price |
| –31.45 |
Net Asset Value |
| –31.39 |
MSCI US IMI/Utilities |
| –31.35 |
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MSCI US IMI/2500 |
| –42.37% |
1 A lower-cost class of shares available to many longtime shareholders and to those with significant investments in the fund.
2 Vanguard ETF™ Shares are traded on the NYSE Arca exchange and are available only through brokers. The table shows the ETF returns based on both the NYSE Arca market price and the net asset value for a share. U.S. Pat. No. 6,879,964 B2; 7,337,138.
Note: MSCI US IMI/2500 is the Morgan Stanley Capital International US Investable Market 2500 Index.
1
1
President’s Letter
Dear Shareholder,
The broad bear market retreat that began late in 2007 continued in the six months ended February 28, punctuated by intermittent and short-lived rallies. Good news was hard to find. Conditions in the credit markets deteriorated further at the start of the period, and global economies stalled, dimming companies’ growth prospects and sapping investors’ confidence.
All of the ten Vanguard U.S. Sector Index Funds posted steep losses, with wide-ranging returns that reflected the disparate nature of the business activities conducted in each sector. Five funds with relatively less exposure to the contracting economy were ahead of the broad market’s return of about –42%, and five fell behind.
The hallmark of a successful index fund is to closely track the performance of its target index. Your fund’s advisor—Vanguard Quantitative Equity Group—accomplished this, during a period of historically high equity volatility, in all sectors except energy and telecommunication services. As we have noted in previous letters, these two sectors are impacted by regulations that limited the percentage of fund assets that can be invested in any single stock, sometimes precluding the advisor from fully replicating the composition of the target index. When the performance of a dominant stock (such as ExxonMobil or AT&T) diverges notably from the returns of other stocks in a target index, it can be difficult for the corresponding (and less concentrated) sector fund to track the index’s return.
Stocks fell steeply and broadly amid credit woes and slow growth
Stocks began the fiscal half-year inauspiciously and continued to decline as tight credit maintained its grip on business and major economies slipped into recession. Neither landmark programs to bolster financial institutions nor the $787 billion economic stimulus package signed into law in February served to boost investor confidence, which was already badly shaken after the U.S. stock market suffered its second-worst calendar-year performance ever.
For the six months ended February 28, U.S. equities overall returned about –42%. International stocks returned about –45%; emerging markets, which had boomed in recent years, were hit especially hard. The declines across the globe were notable for their speed, breadth, and extraordinary magnitude. Volatility also increased dramatically, to levels not seen since the 1930s. For example, the period encompassed not only four of the worst but also two of the best U.S. trading days since 1928 (based on percentage losses and gains).
Market Barometer |
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| Total Returns | ||
| Periods Ended February 28, 2009 | ||
| Six Months | One Year | Five Years1 |
Stocks |
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Russell 1000 Index (Large-caps) | –42.25% | –43.62% | –6.38% |
Russell 2000 Index (Small-caps) | –46.91 | –42.38 | –6.68 |
Dow Jones Wilshire 5000 Index (Entire market) | –42.27 | –43.15 | –6.04 |
MSCI All Country World Index ex USA (International) | –45.36 | –51.27 | –1.65 |
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Bonds |
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Barclays Capital U.S. Aggregate Bond Index (Broad taxable market) | 1.88% | 2.06% | 4.00% |
Barclays Capital Municipal Bond Index | 0.05 | 5.18 | 3.13 |
Citigroup 3-Month Treasury Bill Index | 0.42 | 1.31 | 3.07 |
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CPI |
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Consumer Price Index | –3.15% | 0.24% | 2.65% |
1 Annualized.
2
Investors sought refuge in low-yield, but liquid, Treasuries
In the wake of the September collapse of Lehman Brothers, a leading Wall Street investment bank, credit markets deteriorated globally—a painful reminder of how intertwined markets have become and of how important trust is to keep them functioning. Lacking confidence, investors continued to seek the relative safety and liquidity of U.S. Treasury securities, driving prices up and yields down—even briefly, driving the shortest-term yields into negative territory. This flight to quality led corporate bonds to experience two of their worst months ever in terms of real returns, in September and October.
After several aggressive actions by the Federal Reserve Board and the Treasury—including lowering the target for the federal funds rate to a range of 0% to 0.25%—signs of a thaw began to emerge. January and February, for example, were the most active months for the issuance of investment-grade corporate bonds since 1995. Against this backdrop, the broad taxable bond market returned almost 2% for the six-month period, while tax-exempt bonds were about flat.
No relief for stocks from financial and economic woes
Conventional wisdom holds that, during periods of economic stress, companies that meet everyday household needs are likely to be more resilient. This was evident in the five U.S. Sector Index Funds that performed better than the overall market: Consumer Staples, Health Care, Information Technology, Utilities, and Telecommunication Services. Even so, during the past six months, relative resiliency simply meant somewhat more modest losses.
The two strongest performers in the bear market were the Consumer Staples Index Fund (–26.71%) and the Health Care Index Fund (–29.66%). (Please note: In this discussion, returns refer to the Admiral Shares of the respective funds; ETF returns are detailed in the tables.) To be sure, companies in both sectors struggled. However, cost-conscious consumers favored discount retailing giants such as Wal-Mart Stores, while some health care service providers, biotechnology firms, and large pharmaceutical companies also held up relatively well.
Many technology companies suffered from weak retail and commercial demand, especially from major customers in the troubled financial services arena. Still, the Information Technology Index Fund (–40.23%) kept a step ahead of the market, thanks to the index’s sizable weightings in some of the companies that were more successful in riding out the storm.
The Utilities Index Fund (–31.41%) and the Telecommunication Services Index Fund (–32.25%) invest in two of the smallest sectors of the market. The companies in these sectors tend to be recession-resistant because they provide essentials such as electricity, natural gas, telephone service, and wireless communications. The telecom sector is dominated by AT&T and Verizon Communications; together, they represented more than three-quarters of the target index, on average, during the half-year, and a significant—but smaller—slice of the less-concentrated Telecommunication Services Index Fund.
In contrast, the funds that invest in financials, as well as commodity-oriented and more economically sensitive companies, lagged the broad market. Not surprisingly, the poorest performer was the Financials Index Fund (–58.71%). Despite unprecedented rescue programs, the beleaguered financial sector continued to grapple with troubled assets, tight credit, and bank failures. The Materials Index Fund (–52.79%) and the Energy Index Fund (–46.20%) declined in tandem with the dramatic turnaround in the prices of oil and other commodities, which had soared to record highs until midsummer 2008.
With holdings that are typically more susceptible to business cycles, the Industrials Index Fund (–51.99%) and the Consumer Discretionary Index Fund (–43.22%) also trailed the overall market. A wide range of companies representing the nuts and bolts of the U.S. economy—including airlines, construction and engineering firms, machinery manufacturers, and railroads—were hit hard by the economic slump. Also affected were the stocks of companies that compete for consumers’ recreational and leisure spending dollars, including hotels, cruise lines, movie and other entertainment enterprises, publishers, and specialty retailers.
Diversification and balance are still the way to go
For more than a year, global financial markets have been reeling from an unnerving confluence of events—including record-high and then steeply falling commodity prices, credit market gridlock, and the slide into recession of major economies. This was reflected in varying degrees in the six-month returns of the U.S. Sector Index Funds. Portfolios that were balanced and diversified across asset classes tended to suffer
much less, and our experience suggests that these time-tested fundamentals—plus low costs—can help put investors in a better position to benefit from the eventual recovery in financial markets.
Vanguard’s U.S. Sector Index Funds can be valuable tools, helping investors to round out a balanced and diversified portfolio. Vanguard Quantitative Equity Group has developed and continually refined sophisticated indexing strategies, distinguishing itself as a global leader in index fund management. Across both bull and bear markets, indexing offers many advantages, including simplicity, diversification, tax efficiency, and low costs that help investors keep more of a fund’s return.
Thank you for entrusting your assets to Vanguard.
Sincerely,
F. William McNabb III
President and Chief Executive Officer
March 13, 2009
3
Your Fund’s Performance at a Glance |
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August 31, 2008–February 28, 2009 |
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| Distributions Per Share | |
| Starting | Ending | Income | Capital |
| Share Price | Share Price | Dividends | Gains |
Consumer Discretionary Index Fund |
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Admiral Shares | $25.03 | $13.88 | $0.395 | $0.000 |
ETF Shares | 48.38 | 26.78 | 0.786 | 0.000 |
Consumer Staples Index Fund |
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Admiral Shares | $34.06 | $24.46 | $0.569 | $0.000 |
ETF Shares | 69.04 | 49.57 | 1.173 | 0.000 |
Energy Index Fund |
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Admiral Shares | $54.66 | $28.91 | $0.563 | $0.000 |
ETF Shares | 109.54 | 57.86 | 1.183 | 0.000 |
Financials Index Fund |
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Admiral Shares | $20.38 | $8.21 | $0.364 | $0.000 |
ETF Shares | 40.66 | 16.38 | 0.731 | 0.000 |
Health Care Index Fund |
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Admiral Shares | $28.68 | $19.85 | $0.364 | $0.000 |
ETF Shares | 57.36 | 39.68 | 0.754 | 0.000 |
Industrials Index Fund |
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Admiral Shares | $34.20 | $16.00 | $0.557 | $0.000 |
ETF Shares | 66.65 | 31.15 | 1.111 | 0.000 |
Information Technology Index Fund |
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Admiral Shares | $27.28 | $16.16 | $0.156 | $0.000 |
ETF Shares | 53.32 | 31.56 | 0.326 | 0.000 |
Materials Index Fund |
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Admiral Shares | $42.85 | $19.55 | $0.796 | $0.000 |
ETF Shares | 84.27 | 38.38 | 1.599 | 0.000 |
Telecommunication Services Index Fund |
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Admiral Shares | $31.58 | $20.76 | $0.673 | $0.000 |
ETF Shares | 62.05 | 40.74 | 1.373 | 0.000 |
Utilities Index Fund |
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Admiral Shares | $39.26 | $26.41 | $0.632 | $0.000 |
ETF Shares | 78.22 | 52.62 | 1.271 | 0.000 |
4
ETF Premium/Discount Record
The extent to which the funds’ ETF Shares have traded at a premium or a discount to net asset value (NAV) since inception. Market prices for ETF Shares, and for exchange-traded funds in general, can deviate from the NAV of the underlying securities.
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| Market Price |
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| Above or Equal to |
| Market Price Below |
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| Net Asset Value |
| Net Asset Value |
| Basis Point | Number | Percentage of | Number | Percentage of |
| Differential1 | of Days | Total Days | of Days | Total Days |
February 29, 2004–February 28, 2009 |
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Consumer Discretionary ETF | 0–24.9 | 637 | 50.55% | 565 | 44.84% |
| 25–49.9 | 35 | 2.78 | 9 | 0.71 |
| 50–74.9 | 3 | 0.24 | 2 | 0.16 |
| 75–100.0 | 2 | 0.16 | 0 | 0.00 |
| >100.0 | 2 | 0.16 | 5 | 0.40 |
| Total | 679 | 53.89% | 581 | 46.11% |
February 29, 2004–February 28, 2009 |
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Consumer Staples ETF | 0–24.9 | 658 | 52.22% | 570 | 45.24% |
| 25–49.9 | 18 | 1.43 | 8 | 0.63 |
| 50–74.9 | 1 | 0.08 | 1 | 0.08 |
| 75–100.0 | 0 | 0.00 | 2 | 0.16 |
| >100.0 | 2 | 0.16 | 0 | 0.00 |
| Total | 679 | 53.89% | 581 | 46.11% |
September 23, 20042–February 28, 2009 |
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Energy ETF | 0–24.9 | 558 | 49.95% | 521 | 46.64% |
| 25–49.9 | 22 | 1.97 | 8 | 0.72 |
| 50–74.9 | 2 | 0.18 | 2 | 0.18 |
| 75–100.0 | 1 | 0.09 | 2 | 0.18 |
| >100.0 | 1 | 0.09 | 0 | 0.00 |
| Total | 584 | 52.28% | 533 | 47.72% |
February 29, 2004–February 28, 2009 |
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Financials ETF | 0–24.9 | 679 | 53.88% | 482 | 38.25% |
| 25–49.9 | 56 | 4.44 | 15 | 1.19 |
| 50–74.9 | 5 | 0.40 | 4 | 0.32 |
| 75–100.0 | 5 | 0.40 | 3 | 0.24 |
| > 100.0 | 5 | 0.40 | 6 | 0.48 |
| Total | 750 | 59.52% | 510 | 40.48% |
February 29, 2004–February 28, 2009 |
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Health Care ETF | 0–24.9 | 724 | 57.46% | 513 | 40.71% |
| 25–49.9 | 12 | 0.95 | 6 | 0.48 |
| 50–74.9 | 1 | 0.08 | 1 | 0.08 |
| 75–100.0 | 0 | 0.00 | 0 | 0.00 |
| >100.0 | 3 | 0.24 | 0 | 0.00 |
| Total | 740 | 58.73% | 520 | 41.27% |
September 23, 20042–February 28, 2009 |
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Industrials ETF | 0–24.9 | 549 | 49.15% | 512 | 45.83% |
| 25–49.9 | 37 | 3.31 | 8 | 0.72 |
| 50–74.9 | 2 | 0.18 | 0 | 0.00 |
| 75–100.0 | 4 | 0.36 | 1 | 0.09 |
| >100.0 | 2 | 0.18 | 2 | 0.18 |
| Total | 594 | 53.18% | 523 | 46.82% |
1 One basis point equals 1/100 of a percentage point. 2 Inception.
5
5
ETF Premium/Discount Record (continued) | |||||
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| Market Price |
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| Above or Equal to |
| Market Price Below |
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| Net Asset Value |
| Net Asset Value |
| Basis Point | Number | Percentage of | Number | Percentage of |
| Differential1 | of Days | Total Days | of Days | Total Days |
February 29, 2004–February 28, 2009 |
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Information Technology ETF | 0–24.9 | 682 | 54.12% | 517 | 41.02% |
| 25–49.9 | 20 | 1.59 | 16 | 1.27 |
| 50–74.9 | 6 | 0.48 | 4 | 0.32 |
| 75–100.0 | 0 | 0.00 | 2 | 0.16 |
| >100.0 | 6 | 0.48 | 7 | 0.56 |
| Total | 714 | 56.67% | 546 | 43.33% |
February 29, 2004–February 28, 2009 |
|
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Materials ETF | 0–24.9 | 584 | 46.34% | 648 | 51.43% |
| 25–49.9 | 6 | 0.48 | 9 | 0.71 |
| 50–74.9 | 2 | 0.16 | 7 | 0.56 |
| 75–100.0 | 0 | 0.00 | 1 | 0.08 |
| >100.0 | 3 | 0.24 | 0 | 0.00 |
| Total | 595 | 47.22% | 665 | 52.78% |
September 23, 20042–February 28, 2009 |
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Telecommunication Services ETF | 0–24.9 | 495 | 44.31% | 534 | 47.80% |
| 25–49.9 | 43 | 3.85 | 17 | 1.52 |
| 50–74.9 | 1 | 0.09 | 7 | 0.63 |
| 75–100.0 | 4 | 0.36 | 3 | 0.27 |
| >100.0 | 6 | 0.54 | 7 | 0.63 |
| Total | 549 | 49.15% | 568 | 50.85% |
February 29, 2004–February 28, 2009 |
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Utilities ETF | 0–24.9 | 614 | 48.72% | 623 | 49.45% |
| 25–49.9 | 7 | 0.56 | 10 | 0.79 |
| 50–74.9 | 0 | 0.00 | 0 | 0.00 |
| 75–100.0 | 2 | 0.16 | 0 | 0.00 |
| >100.0 | 1 | 0.08 | 3 | 0.24 |
| Total | 624 | 49.52% | 636 | 50.48% |
1 One basis point equals 1/100 of a percentage point.
2 Inception.
6
Consumer Discretionary Index Fund
Fund Profile
As of February 28, 2009
Portfolio Characteristics |
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| |
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| Target | Broad |
| Fund | Index1 | Index2 |
Number of Stocks | 390 | 390 | 2,474 |
Median Market Cap | $9.7B | $9.7B | $21.7B |
Price/Earnings Ratio | 20.3x | 20.2x | 12.1x |
Price/Book Ratio | 1.4x | 1.4x | 1.5x |
Yield3 |
| 2.1% | 3.1% |
Admiral Shares | 2.1% |
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ETF Shares | 2.1% |
|
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Return on Equity | 18.0% | 17.9% | 21.0% |
Earnings Growth Rate | 13.2% | 13.1% | 17.8% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate4 | 4% | — | — |
Expense Ratio5 |
| — | — |
Admiral Shares | 0.28% |
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ETF Shares | 0.25% |
|
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Short-Term Reserves | 0.1% | — | — |
Volatility Measures6 |
| |
| Fund Versus | Fund Versus |
| Target Index1 | Broad Index2 |
R-Squared | 1.00 | 0.84 |
Beta | 1.00 | 1.10 |
Industry Diversification (% of equity exposure) | |
|
|
Advertising | 1.5% |
Apparel Retail | 5.5 |
Apparel, Accessories & Luxury Goods | 2.5 |
Auto Parts & Equipment | 1.8 |
Automotive Retail | 2.6 |
Broadcasting & Cable TV | 1.0 |
Cable & Satellite | 9.8 |
Casinos & Gaming | 1.5 |
Computer & Electronics Retail | 2.2 |
Department Stores | 3.1 |
Education Services | 3.6 |
Footwear | 2.6 |
General Merchandise Stores | 4.1 |
Home Improvement Retail | 8.9 |
Homebuilding | 1.7 |
Homefurnishing Retail | 1.2 |
Hotels, Resorts & Cruise Lines | 2.5 |
Housewares & Specialties | 1.0 |
Internet Retail | 4.3 |
Leisure Products | 1.4 |
Movies & Entertainment | 11.7 |
Publishing | 1.9 |
Restaurants | 14.0 |
Specialized Consumer Services | 1.9 |
Specialty Stores | 3.0 |
Other Consumer Discretionary | 4.7 |
Ten Largest Holdings7 (% of total net assets) | |
|
|
McDonald’s Corp. | 8.1% |
Home Depot, Inc. | 5.0 |
Comcast Corp. | 4.9 |
The Walt Disney Co. | 4.1 |
Time Warner, Inc. | 3.8 |
Lowe’s Cos., Inc. | 3.2 |
Amazon.com, Inc. | 3.1 |
Target Corp. | 2.8 |
NIKE, Inc. Class B | 2.2 |
News Corp. | 1.8 |
Top Ten | 39.0% |
1 MSCI US IMI/Consumer Discretionary.
2 MSCI US IMI/2500.
3 30-day SEC yield for the fund; annualized dividend yield for the indexes. See the Glossary.
4 Annualized.
5 The expense ratios shown are from the prospectuses dated December 29, 2008, and represent estimated costs for the current fiscal year based on the fund’s current net assets. For the six months ended February 28, 2009, the annualized expense ratios were 0.26% for the Admiral Shares and 0.23% for the ETF Shares.
6 For an explanation of R-squared, beta, and other terms used here, see the Glossary.
7 The holdings listed exclude any temporary cash investments and equity index products.
7
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/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): January 26, 2004–February 28, 2009
Average Annual Total Returns: Periods Ended December 31, 2008
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 |
ETF Shares | 1/26/2004 |
|
|
Market Price |
| –37.94% | –7.57% |
Net Asset Value |
| –38.00 | –7.58 |
Admiral Shares2 | 7/14/2005 | –38.01 | –13.04 |
1 Six months ended February 28, 2009.
2 Total returns do not reflect the 2% fee assessed on redemptions of shares held for less than one year. Note: See Financial Highlights tables for dividend and capital gains information.
8
Consumer Discretionary Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2009
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).
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
Common Stocks (99.9%) |
|
| |
Auto Components (2.0%) |
|
| |
| Johnson Controls, Inc. | 47,164 | 537 |
| BorgWarner, Inc. | 9,161 | 158 |
| Gentex Corp. | 11,205 | 90 |
| Autoliv, Inc. | 5,673 | 84 |
* | The Goodyear Tire & |
|
|
| Rubber Co. | 18,069 | 80 |
| WABCO Holdings Inc. | 4,631 | 47 |
* | Exide Technologies | 6,014 | 20 |
| Cooper Tire & Rubber Co. | 4,272 | 19 |
* | Fuel Systems Solutions, Inc. | 965 | 19 |
| Superior Industries |
|
|
| International, Inc. | 1,841 | 19 |
* | TRW Automotive |
|
|
| Holdings Corp. | 4,420 | 11 |
* | Drew Industries, Inc. | 1,568 | 10 |
* | Raser Technologies, Inc. | 2,589 | 9 |
* | Tenneco Automotive, Inc. | 3,745 | 5 |
| ArvinMeritor, Inc. | 5,582 | 3 |
| American Axle & |
|
|
| Manufacturing Holdings, Inc. | 3,663 | 3 |
* | Lear Corp. | 5,249 | 3 |
* | Dana Holding Corp. | 8,512 | 3 |
| Modine Manufacturing Co. | 2,435 | 3 |
* | Visteon Corp. | 10,441 | 1 |
|
|
| 1,124 |
Automobiles (1.1%) |
|
| |
* | Ford Motor Co. | 156,226 | 312 |
| Harley-Davidson, Inc. | 18,554 | 187 |
| General Motors Corp. | 38,693 | 87 |
| Thor Industries, Inc. | 2,860 | 31 |
| Winnebago Industries, Inc. | 2,221 | 9 |
|
|
| 626 |
Distributors (0.9%) |
|
| |
| Genuine Parts Co. | 12,762 | 359 |
* | LKQ Corp. | 9,987 | 135 |
* | Core-Mark Holding Co., Inc. | 744 | 13 |
|
|
| 507 |
Diversified Consumer Services (5.5%) |
|
| |
* | Apollo Group, Inc. Class A | 10,697 | 775 |
| H & R Block, Inc. | 26,841 | 513 |
* | ITT Educational Services, Inc. | 3,058 | 347 |
| DeVry, Inc. | 5,070 | 263 | |
| Strayer Education, Inc. | 1,126 | 191 | |
* | Career Education Corp. | 7,063 | 174 | |
* | Corinthian Colleges, Inc. | 6,732 | 133 | |
| Matthews International Corp. | 2,439 | 85 | |
| Hillenbrand Inc. | 4,931 | 83 | |
* | Brink’s Home |
|
| |
| Security Holdings, Inc. | 3,533 | 74 | |
| Service Corp. International | 20,301 | 69 | |
* | Coinstar, Inc. | 2,241 | 59 | |
* | Capella Education Co. | 986 | 55 | |
| Weight Watchers |
|
| |
| International, Inc. | 2,793 | 50 | |
* | American Public |
|
| |
| Education, Inc. | 1,343 | 50 | |
| Regis Corp. | 3,263 | 41 | |
| Sotheby’s | 5,372 | 36 | |
* | Steiner Leisure Ltd. | 1,234 | 31 | |
* | Pre-Paid Legal Services, Inc. | 689 | 22 | |
* | Universal Technical |
|
| |
| Institute Inc. | 1,680 | 18 | |
| Jackson Hewitt Tax |
|
| |
| Service Inc. | 2,251 | 17 | |
| Stewart Enterprises, Inc. |
|
| |
| Class A | 6,498 | 15 | |
* | K12 Inc. | 776 | 13 | |
* | Lincoln Educational Services | 539 | 8 | |
|
|
| 3,122 | |
Hotels, Restaurants & Leisure (18.3%) |
| |||
| McDonald’s Corp. | 88,468 | 4,622 | |
| Yum! Brands, Inc. | 36,968 | 972 | |
| Carnival Corp. | 34,688 | 678 | |
* | Starbucks Corp. | 58,206 | 533 | |
| Tim Hortons, Inc. | 14,438 | 341 | |
| Marriott International, Inc. |
|
| |
| Class A | 22,198 | 314 | |
| Darden Restaurants Inc. | 10,455 | 284 | |
| International Game |
|
| |
| Technology | 23,413 | 206 | |
| Starwood Hotels & |
|
| |
| Resorts Worldwide, Inc. | 14,723 | 171 | |
| Burger King Holdings Inc. | 7,472 | 161 | |
| Wendy’s/Arby’s Group, Inc. | 31,489 | 143 | |
* | Penn National Gaming, Inc. | 5,736 | 109 | |
* | Wynn Resorts Ltd. | 4,861 | 102 | |
* | Panera Bread Co. | 2,293 | 101 | |
| Brinker International, Inc. | 8,007 | 88 | |
* | Jack in the Box Inc. | 4,474 | 87 | |
* | Bally Technologies Inc. | 3,893 | 72 | |
* | WMS Industries, Inc. | 3,955 | 72 | |
* | Chipotle Mexican Grill, Inc. |
|
| |
| Class B | 1,394 | 70 | |
| Choice Hotels |
|
| |
| International, Inc. | 2,716 | 67 | |
| Royal Caribbean Cruises, Ltd. | 10,961 | 66 | |
* | Chipotle Mexican Grill, Inc. | 1,146 | 63 | |
* | Scientific Games Corp. | 5,501 | 58 | |
* | Las Vegas Sands Corp. | 24,604 | 56 | |
| Wyndham Worldwide Corp. | 14,019 | 52 | |
| Bob Evans Farms, Inc. | 2,467 | 46 | ||
| International Speedway Corp. | 2,216 | 43 | ||
* | CEC Entertainment Inc. | 1,783 | 42 | ||
* | Sonic Corp. | 4,510 | 41 | ||
* | Buffalo Wild Wings Inc. | 1,288 | 40 | ||
* | Vail Resorts Inc. | 2,104 | 40 | ||
| Cracker Barrel Old |
|
| ||
| Country Store Inc. | 1,763 | 39 | ||
* | The Cheesecake Factory Inc. | 4,835 | 39 | ||
* | Papa John’s International, Inc. | 1,737 | 38 | ||
* | P.F. Chang’s China Bistro, Inc. | 1,862 | 37 | ||
* | Pinnacle Entertainment, Inc. | 4,829 | 36 | ||
* | Texas Roadhouse, Inc. | 4,197 | 34 | ||
*,^ | MGM Mirage, Inc. | 7,606 | 27 | ||
| CKE Restaurants Inc. | 3,737 | 26 | ||
* | Peet’s Coffee & Tea Inc. | 1,065 | 23 | ||
* | Life Time Fitness, Inc. | 2,666 | 23 | ||
* | Domino’s Pizza, Inc. | 3,289 | 22 | ||
| Churchill Downs, Inc. | 740 | 22 | ||
* | Gaylord Entertainment Co. | 3,257 | 21 | ||
| Ameristar Casinos, Inc. | 2,029 | 20 | ||
| Boyd Gaming Corp. | 4,485 | 19 | ||
* | California Pizza Kitchen, Inc. | 1,769 | 18 | ||
* | Red Robin Gourmet |
|
| ||
| Burgers, Inc. | 1,280 | 18 | ||
* | BJ’s Restaurants Inc. | 1,366 | 17 | ||
| Orient-Express Hotel Ltd. | 4,095 | 16 | ||
| Speedway Motorsports, Inc. | 1,191 | 14 | ||
| The Marcus Corp. | 1,705 | 14 | ||
* | Steak n Shake Co. | 2,076 | 13 | ||
* | Interval Leisure Group, Inc. | 3,088 | 12 | ||
* | Denny’s Corp. | 7,563 | 12 | ||
* | Shuffle Master, Inc. | 3,982 | 12 | ||
| Ambassadors Group, Inc. | 1,299 | 10 | ||
| DineEquity, Inc. | 1,272 | 9 | ||
* | AFC Enterprises, Inc. | 1,961 | 8 | ||
* | Krispy Kreme Doughnuts, Inc. | 4,446 | 6 | ||
* | Monarch Casino & Resort, Inc. | 760 | 6 | ||
| Landry’s Restaurants, Inc. | 953 | 5 | ||
* | Morgans Hotel Group | 2,114 | 5 | ||
* | Ruby Tuesday, Inc. | 4,054 | 5 | ||
* | Isle of Capri Casinos, Inc. | 1,418 | 4 | ||
| O’Charley’s Inc. | 1,771 | 4 | ||
| Dover Downs Gaming & |
|
| ||
| Entertainment, Inc. | 1,243 | 3 | ||
* | MTR Gaming Group Inc. | 1,722 | 2 | ||
* | Town Sports International |
|
| ||
| Holdings, Inc. | 845 | 2 | ||
|
|
| 10,381 | ||
Household Durables (4.6%) |
|
| |||
| Fortune Brands, Inc. | 11,822 | 281 | ||
| D. R. Horton, Inc. | 22,476 | 190 | ||
* | Toll Brothers, Inc. | 10,640 | 169 | ||
| Pulte Homes, Inc. | 17,257 | 158 | ||
| Garmin Ltd. | 8,992 | 154 | ||
| The Stanley Works | 5,579 | 149 | ||
| Leggett & Platt, Inc. | 12,678 | 145 | ||
| Whirlpool Corp. | 5,871 | 131 | ||
| Newell Rubbermaid, Inc. | 21,855 | 123 | ||
| Black & Decker Corp. | 4,731 | 112 |
* | NVR, Inc. | 322 | 107 |
| Snap-On Inc. | 4,526 | 107 |
* | Mohawk Industries, Inc. | 4,590 | 104 |
| MDC Holdings, Inc. | 2,926 | 74 |
9
Consumer Discretionary Index Fund
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
| Tupperware Brands Corp. | 4,904 | 70 |
| Lennar Corp. Class A | 10,218 | 68 |
* | Jarden Corp. | 6,078 | 62 |
| Centex Corp. | 9,754 | 61 |
| KB Home | 6,022 | 54 |
| Ryland Group, Inc. | 3,346 | 47 |
| Harman International |
|
|
| Industries, Inc. | 4,338 | 46 |
| Tempur-Pedic |
|
|
| International Inc. | 5,585 | 34 |
* | Helen of Troy Ltd. | 2,220 | 22 |
* | Meritage Corp. | 2,219 | 22 |
| National Presto Industries, Inc. | 348 | 21 |
| Ethan Allen Interiors, Inc. | 2,174 | 21 |
* | Universal Electronics, Inc. | 1,053 | 16 |
| American Greetings Corp. |
|
|
| Class A | 3,606 | 13 |
* | Blyth, Inc. | 517 | 11 |
* | iRobot Corp. | 1,315 | 10 |
* | Standard Pacific Corp. | 9,895 | 9 |
| CSS Industries, Inc. | 505 | 7 |
| M/I Homes, Inc. | 960 | 6 |
| Furniture Brands |
|
|
| International Inc. | 3,749 | 5 |
| La-Z-Boy Inc. | 4,201 | 4 |
* | Hovnanian Enterprises Inc. |
|
|
| Class A | 4,150 | 4 |
* | Sealy Corp. | 3,520 | 3 |
| Brookfield Homes Corp. | 794 | 2 |
* | Champion Enterprises, Inc. | 6,121 | 2 |
* | Beazer Homes USA, Inc. | 2,903 | 1 |
|
|
| 2,625 |
Internet & Catalog Retail (4.5%) |
|
| |
* | Amazon.com, Inc. | 27,202 | 1,762 |
* | Priceline.com, Inc. | 3,058 | 260 |
* | Liberty Media Corp.– |
|
|
| Interactive Series A | 44,506 | 144 |
* | Netflix.com, Inc. | 3,842 | 139 |
* | Expedia, Inc. | 15,436 | 123 |
| NutriSystem, Inc. | 2,181 | 28 |
* | PetMed Express, Inc. | 1,823 | 25 |
* | Blue Nile Inc. | 1,006 | 24 |
* | Ticketmaster |
|
|
| Entertainment Inc. | 3,080 | 15 |
* | HSN, Inc. | 3,088 | 13 |
* | Stamps.com Inc. | 1,212 | 10 |
* | Overstock.com, Inc. | 1,211 | 10 |
* | Shutterfly, Inc. | 1,193 | 10 |
* | Orbitz Worldwide, Inc. | 2,819 | 7 | |
* | Gaiam, Inc. | 1,277 | 4 | |
* | 1-800-FLOWERS.COM, Inc. | 2,185 | 3 | |
|
|
| 2,577 | |
Leisure Equipment & Products (1.5%) |
|
| ||
| Mattel, Inc. | 28,428 | 337 | |
| Hasbro, Inc. | 10,009 | 229 | |
| Eastman Kodak Co. | 22,738 | 72 | |
| Pool Corp. | 3,768 | 50 | |
| Polaris Industries, Inc. | 2,552 | 47 | |
| Callaway Golf Co. | 4,843 | 33 | |
* | JAKKS Pacific, Inc. | 2,049 | 26 | |
| Brunswick Corp. | 6,966 | 21 | |
* | Smith & Wesson |
|
| |
| Holding Corp. | 3,185 | 12 | |
* | RC2 Corp. | 1,230 | 6 | |
* | Leapfrog Enterprises, Inc. | 2,778 | 4 | |
| Marine Products Corp. | 1,004 | 4 | |
|
|
| 841 | |
Media (26.0%) |
|
| ||
| The Walt Disney Co. | 139,580 | 2,341 | |
| Time Warner, Inc. | 284,449 | 2,170 | |
| Comcast Corp. Class A | 124,213 | 1,622 | |
| Comcast Corp. Special |
|
| |
| Class A | 95,444 | 1,160 | |
* | DIRECTV Group, Inc. | 41,638 | 830 | |
| News Corp., Class A | 144,070 | 801 | |
* | Liberty Media Corp. | 39,153 | 678 | |
* | Viacom Inc. Class B | 42,225 | 650 | |
| Omnicom Group Inc. | 24,643 | 592 | |
| The McGraw-Hill Cos., Inc. | 25,046 | 494 | |
* | Time Warner Cable, Inc. | 14,229 | 259 | |
| Cablevision Systems |
|
| |
| NY Group Class A | 18,425 | 239 | |
| News Corp., Class B | 34,630 | 217 | |
| CBS Corp. | 46,590 | 199 | |
* | DISH Network Corp. | 16,688 | 188 | |
| Washington Post Co. |
|
| |
| Class B | 481 | 173 | |
* | Discovery |
|
| |
| Communications Inc. |
|
| |
| Class A | 10,568 | 164 | |
* | Discovery |
|
| |
| Communications Inc. |
|
| |
| Class C | 11,092 | 163 | |
* | Liberty Global, Inc. Class A | 11,778 | 145 | |
* | Interpublic Group of |
|
| |
| Cos., Inc. | 37,582 | 143 | |
| Scripps Networks Interactive | 6,999 | 139 | |
* | Liberty Global, Inc. Series C | 11,184 | 133 | |
| John Wiley & Sons Class A | 3,505 | 110 | |
| Virgin Media Inc. | 22,008 | 105 | |
* | DreamWorks |
|
| |
| Animation SKG, Inc. | 5,400 | 104 | |
* | Marvel Entertainment, Inc. | 4,017 | 104 | |
| Interactive Data Corp. | 2,965 | 67 | |
| Regal Entertainment Group |
|
| |
| Class A | 6,156 | 63 | |
| Gannett Co., Inc. | 18,009 | 58 | |
* | Lions Gate |
|
| |
| Entertainment Corp. | 9,236 | 47 | |
| New York Times Co. |
|
| |
| Class A | 10,685 | 44 | |
* | Liberty Media Corp.– |
|
| |
| Capital Series A | 8,560 | 44 | |
* | Sirius XM Radio Inc. | 264,935 | 42 | |
* | Lamar Advertising Co. |
|
| |
| Class A | 5,672 | 39 | |
| Meredith Corp. | 2,834 | 36 | |
| National CineMedia Inc. | 3,289 | 36 | |
* | Morningstar, Inc. | 1,278 | 36 | |
| Scholastic Corp. | 2,562 | 28 | |
| Arbitron Inc. | 2,041 | 26 | |
* | Ascent Media Corp. | 1,020 | 24 | |
* | Live Nation, Inc. | 5,730 | 20 | |
| Cinemark Holdings Inc. | 2,579 | 20 | |
| Harte-Hanks, Inc. | 3,256 | 18 | |
| World Wrestling |
|
| |
| Entertainment, Inc. | 1,771 | 17 | |
* | Mediacom |
|
| |
| Communications Corp. | 3,256 | 13 | |
* | RCN Corp. | 2,935 | 13 | |
* | CTC Media, Inc. | 3,653 | 13 | |
* | CKX, Inc. | 3,511 | 12 | |
* | Dolan Media Co. | 1,891 | 11 | |
* | Clear Channel Outdoor |
|
| |
| Holdings, Inc. Class A | 3,278 | 11 | |
* | Cox Radio, Inc. | 1,818 | 10 | |
* | Knology, Inc. | 2,363 | 9 | |
| Belo Corp. Class A | 7,171 | 6 | |
| Fisher Communications, Inc. | 575 | 6 | |
* | Warner Music Group Corp. | 3,081 | 5 | |
* | Valassis Communications, Inc. | 3,836 | 5 | |
| Sinclair Broadcast Group, Inc. | 4,060 | 5 | |
* | Martha Stewart Living |
|
| |
| Omnimedia, Inc. | 1,989 | 4 | |
| Hearst-Argyle Television Inc. | 2,071 | 4 | |
| Journal Communications, Inc. | 3,016 | 3 | |
| E.W. Scripps Co. Class A | 2,449 | 3 | |
* | RHI Entertainment, Inc. | 929 | 3 | |
| Media General, Inc. Class A | 1,630 | 3 | |
| Entercom |
|
| |
| Communications Corp. | 2,427 | 3 | |
| The McClatchy Co. Class A | 4,573 | 2 | |
* | Entravision |
|
| |
| Communications Corp. | 5,208 | 2 | |
* | Crown Media Holdings, Inc. | 1,099 | 2 | |
* | Lin TV Corp. | 2,221 | 1 | |
| Lee Enterprises, Inc. | 3,164 | 1 | |
* | Charter |
|
| |
| Communications, Inc. | 30,897 | 1 | |
|
|
| 14,739 | |
Multiline Retail (7.2%) |
|
| ||
| Target Corp. | 56,705 | 1,604 | |
* | Kohl’s Corp. | 22,983 | 808 | |
| Family Dollar Stores, Inc. | 10,464 | 287 | |
* | Dollar Tree, Inc. | 7,106 | 276 | |
| Macy’s Inc. | 33,160 | 261 | |
| J.C. Penney Co., Inc. |
|
|
| (Holding Co.) | 16,634 | 255 |
*,^ | Sears Holdings Corp. | 5,480 | 201 |
| Nordstrom, Inc. | 12,750 | 172 |
* | Big Lots Inc. | 6,441 | 100 |
* | 99 Cents Only Stores | 3,831 | 32 |
| Fred’s, Inc. | 3,033 | 28 |
* | Saks Inc. | 10,909 | 26 |
| Dillard’s Inc. | 4,854 | 17 |
* | Retail Ventures, Inc. | 2,195 | 4 |
|
|
| 4,071 |
Specialty Retail (23.2%) |
|
| |
| Home Depot, Inc. | 134,817 | 2,816 |
| Lowe’s Cos., Inc. | 116,215 | 1,841 |
| Staples, Inc. | 56,379 | 899 |
| Best Buy Co., Inc. | 27,820 | 802 |
| TJX Cos., Inc. | 33,073 | 737 |
* | AutoZone Inc. | 3,217 | 458 |
* | Bed Bath & Beyond, Inc. | 20,538 | 437 |
| The Gap, Inc. | 39,963 | 431 |
| Sherwin-Williams Co. | 7,869 | 362 |
* | O’Reilly Automotive, Inc. | 10,144 | 338 |
* | GameStop Corp. Class A | 12,350 | 332 |
| Ross Stores, Inc. | 10,476 | 309 |
| Advance Auto Parts, Inc. | 7,544 | 289 |
| PetSmart, Inc. | 10,039 | 201 |
| Tiffany & Co. | 9,932 | 189 |
| Limited Brands, Inc. | 24,154 | 186 |
* | CarMax, Inc. | 17,380 | 164 |
* | Urban Outfitters, Inc. | 9,233 | 154 |
| Abercrombie & Fitch Co. | 6,858 | 151 |
| American Eagle |
|
|
| Outfitters, Inc. | 14,612 | 143 |
* | Aeropostale, Inc. | 5,280 | 122 |
* | AutoNation, Inc. | 10,455 | 104 |
| Foot Locker, Inc. | 12,220 | 102 |
* | Rent-A-Center, Inc. | 5,266 | 92 |
* | Dick’s Sporting Goods, Inc. | 6,747 | 83 |
| Aaron Rents, Inc. | 3,378 | 81 |
* | Tractor Supply Co. | 2,588 | 81 |
| RadioShack Corp. | 9,822 | 72 |
| Guess ?, Inc. | 4,479 | 72 |
* | Chico’s FAS, Inc. | 13,881 | 63 |
| Williams-Sonoma, Inc. | 7,055 | 62 |
* | The Gymboree Corp. | 2,276 | 59 |
| Barnes & Noble, Inc. | 3,023 | 54 |
10
Consumer Discretionary Index Fund
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
* | Collective Brands, Inc. | 5,027 | 52 |
* | J. Crew Group, Inc. | 3,965 | 45 |
| The Buckle, Inc. | 1,817 | 43 |
| Men’s Wearhouse, Inc. | 3,851 | 41 |
* | The Dress Barn, Inc. | 3,859 | 38 |
* | The Children’s Place |
|
|
| Retail Stores, Inc. | 1,977 | 36 |
* | Jos. A. Bank Clothiers, Inc. | 1,442 | 33 |
| Cato Corp. Class A | 2,206 | 32 |
* | Hibbett Sports Inc. | 2,260 | 32 |
* | Hot Topic, Inc. | 3,487 | 31 |
| Monro Muffler Brake, Inc. | 1,310 | 31 |
* | AnnTaylor Stores Corp. | 4,411 | 29 |
* | Cabela’s Inc. | 3,341 | 28 |
* | Sally Beauty Co. Inc. | 6,556 | 25 |
| OfficeMax, Inc. | 6,058 | 23 |
* | Jo-Ann Stores, Inc. | 1,915 | 23 |
* | Office Depot, Inc. | 21,631 | 23 |
| Stage Stores, Inc. | 3,034 | 22 |
| Genesco, Inc. | 1,491 | 21 |
| Group 1 Automotive, Inc. | 1,832 | 20 |
| Penske Automotive Group Inc. | 3,456 | 20 |
* | The Wet Seal, Inc. Class A | 7,003 | 17 |
| Finish Line, Inc. | 3,791 | 16 |
* | Citi Trends Inc. | 1,136 | 14 |
| The Pep Boys |
|
|
| (Manny, Moe & Jack) | 4,036 | 13 |
* | hhgregg, Inc. | 1,194 | 12 |
* | Zumiez Inc. | 1,518 | 12 |
| Brown Shoe Co., Inc. | 3,158 | 11 |
| Christopher & Banks Corp. | 2,833 | 11 |
* | Conn’s, Inc. | 879 | 11 |
| bebe stores, inc. | 2,065 | 11 |
* | Ulta Salon, Cosmetics & |
|
|
| Fragrance, Inc. | 1,803 | 10 |
* | DSW Inc. Class A | 1,105 | 10 |
| Big 5 Sporting Goods Corp. | 1,735 | 9 |
* | Charlotte Russe Holding Inc. | 1,681 | 9 |
* | Coldwater Creek Inc. | 4,928 | 8 |
* | Pacific Sunwear of |
|
|
| California, Inc. | 5,845 | 8 |
| Systemax Inc. | 856 | 8 |
* | Blockbuster Inc. Class A | 7,866 | 8 |
* | Lumber Liquidators, Inc. | 808 | 8 |
| Asbury Automotive |
|
|
| Group, Inc. | 2,492 | 7 |
* | Charming Shoppes, Inc. | 8,888 | 6 |
| Talbots Inc. | 2,074 | 5 |
* | New York & Co., Inc. | 2,012 | 4 |
* | Blockbuster Inc. Class B | 6,121 | 4 |
* | Build-A-Bear-Workshop, Inc. | 1,080 | 4 |
* | Zale Corp. | 2,822 | 4 |
| Sonic Automotive, Inc. | 2,339 | 3 |
* | Borders Group, Inc. | 4,831 | 3 |
* | Tween Brands, Inc. | 1,988 | 2 |
* | Stein Mart, Inc. | 1,889 | 2 |
* | Pier 1 Imports Inc. | 6,882 | 1 | |
|
|
| 13,185 | |
Textiles, Apparel & Luxury Goods (5.1%) |
|
| ||
| NIKE, Inc. Class B | 29,531 | 1,226 | |
* | Coach, Inc. | 26,564 | 371 | |
| VF Corp. | 6,990 | 363 | |
| Polo Ralph Lauren Corp. | 4,453 | 154 | |
* | The Warnaco Group, Inc. | 3,638 | 79 | |
* | Carter’s, Inc. | 4,436 | 72 | |
| Phillips-Van Heusen Corp. | 4,053 | 67 | |
| Wolverine World Wide, Inc. | 3,874 | 59 | |
* | Hanesbrands Inc. | 7,412 | 52 | |
* | Fossil, Inc. | 3,728 | 47 | |
* | Timberland Co. | 3,707 | 42 | |
* | Deckers Outdoor Corp. | 976 | 40 | |
* | Iconix Brand Group Inc. | 4,125 | 33 | |
* | Under Armour, Inc. | 2,314 | 33 | |
| Columbia Sportswear Co. | 1,103 | 30 | |
| UniFirst Corp. | 1,077 | 26 | |
| K-Swiss, Inc. | 2,110 | 21 | |
| Liz Claiborne, Inc. | 7,529 | 21 | |
* | Steven Madden, Ltd. | 1,224 | 20 | |
| Jones Apparel Group, Inc. | 6,557 | 18 | |
* | True Religion Apparel, Inc. | 1,707 | 17 | |
* | Lululemon Athletica, Inc. | 2,978 | 17 | |
* | Skechers U.S.A., Inc. | 2,635 | 17 | |
| Weyco Group, Inc. | 596 | 13 | |
* | Quiksilver, Inc. | 10,102 | 13 | |
* | Volcom, Inc. | 1,200 | 10 | |
| Movado Group, Inc. | 1,444 | 8 | |
* | Crocs, Inc. | 6,112 | 8 | |
| Kenneth Cole |
|
| |
| Productions, Inc. | 719 | 5 | |
| Oxford Industries, Inc. | 1,040 | 5 | |
* | American Apparel, Inc. | 2,553 | 4 | |
* | Unifi, Inc. | 3,934 | 2 | |
|
|
| 2,893 | |
Total Common Stocks |
|
| ||
(Cost $131,479) |
| 56,691 | ||
Temporary Cash Investment (0.4%) |
|
| ||
1,2 | Vanguard Market |
|
| |
| Liquidity Fund, 0.663% |
|
| |
| (Cost $212) | 211,693 | 212 | |
Total Investments (100.3%) |
|
| ||
(Cost $131,691) |
| 56,903 | ||
Other Assets and Liabilities (–0.3%) |
|
| ||
Other Assets |
| 432 | ||
Liabilities2 |
| (602) | ||
|
|
| (170) | |
Net Assets (100%) |
| 56,733 | ||
At February 28, 2009, net assets consisted of: | |
| Amount |
| ($000) |
Paid-in Capital | 141,763 |
Undistributed Net Investment Income | 115 |
Accumulated Net Realized Losses | (10,357) |
Unrealized Appreciation (Depreciation) | (74,788) |
Net Assets | 56,733 |
|
|
|
|
Admiral Shares—Net Assets |
|
Applicable to 30,702 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 426 |
Net Asset Value Per Share— |
|
Admiral Shares | $13.88 |
|
|
|
|
ETF Shares—Net Assets |
|
Applicable to 2,102,208 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 56,307 |
Net Asset Value Per Share— |
|
ETF Shares | $26.78 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Part of security position is on loan to broker-dealers. The total value of securities on loan is $119,000.
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 Includes $128,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
11
11
Consumer Discretionary Index Fund
Statement of Operations
| Six Months Ended |
| February 28, 2009 |
| ($000) |
Investment Income |
|
Income |
|
Dividends | 1,202 |
Interest1 | 1 |
Security Lending | 142 |
Total Income | 1,345 |
Expenses |
|
The Vanguard Group—Note B |
|
Investment Advisory Services | 23 |
Management and Administrative— |
|
Admiral Shares | 1 |
Management and Administrative— |
|
ETF Shares | 76 |
Marketing and Distribution— |
|
Admiral Shares | — |
Marketing and Distribution— |
|
ETF Shares | 26 |
Custodian Fees | 10 |
Auditing Fees | 1 |
Shareholders’ Reports—Admiral Shares | — |
Shareholders’ Reports—ETF Shares | 13 |
Total Expenses | 150 |
Net Investment Income | 1,195 |
Realized Net Gain (Loss) on |
|
Investment Securities Sold | (58,336) |
Change in Unrealized Appreciation |
|
(Depreciation) of Investment Securities | (38,781) |
Net Increase (Decrease) in Net Assets |
|
Resulting from Operations | (95,922) |
Statement of Changes in Net Assets
| Six Months Ended |
| Year Ended |
| February 28, |
| August 31, |
| 2009 |
| 2008 |
| ($000) |
| ($000) |
Increase (Decrease) in Net Assets |
|
|
|
Operations |
|
|
|
Net Investment Income | 1,195 |
| 1,962 |
Realized Net Gain (Loss) | (58,336) |
| 2,340 |
Change in Unrealized Appreciation (Depreciation) | (38,781) |
| (33,599) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (95,922) |
| (29,297) |
Distributions |
|
|
|
Net Investment Income |
|
|
|
Admiral Shares | (11) |
| (4) |
ETF Shares | (2,360) |
| (1,197) |
Realized Capital Gain |
|
|
|
Admiral Shares | — |
| — |
ETF Shares | — |
| — |
Total Distributions | (2,371) |
| (1,201) |
Capital Share Transactions |
|
|
|
Admiral Shares | 38 |
| (123) |
ETF Shares | (102,218) |
| 172,810 |
Net Increase (Decrease) from Capital Share Transactions | (102,180) |
| 172,687 |
Total Increase (Decrease) | (200,473) |
| 142,189 |
Net Assets |
|
|
|
Beginning of Period | 257,206 |
| 115,017 |
End of Period2 | 56,733 |
| 257,206 |
1 Interest income from an affiliated company of the fund was $1,000.
2 Net Assets—End of Period includes undistributed net investment income of $115,000 and $1,291,000. See accompanying Notes, which are an integral part of the Financial Statements.
12
Consumer Discretionary Index Fund
Financial Highlights
Admiral Shares |
|
|
|
|
|
|
|
|
|
|
|
| Six Months |
|
|
| July 14, |
| Ended |
| 20051 to | ||
For a Share Outstanding | February 28, | Year Ended August 31, | Aug. 31, | ||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 |
Net Asset Value, Beginning of Period | $25.03 | $31.02 | $27.03 | $27.75 | $28.29 |
Investment Operations |
|
|
|
|
|
Net Investment Income | .1742 | .2852 | .217 | .2452 | .1602 |
Net Realized and Unrealized Gain (Loss) |
|
|
|
|
|
on Investments | (10.929) | (6.075) | 4.015 | (.808) | (.700) |
Total from Investment Operations | (10.755) | (5.790) | 4.232 | (.563) | (.540) |
Distributions |
|
|
|
|
|
Dividends from Net Investment Income | (.395) | (.200) | (.242) | (.157) | — |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (.395) | (.200) | (.242) | (.157) | — |
Net Asset Value, End of Period | $13.88 | $25.03 | $31.02 | $27.03 | $27.75 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Return3 | –43.22% | –18.74% | 15.64% | –2.03% | –1.91% |
|
|
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
Net Assets, End of Period (Millions) | $0.4 | $0.7 | $1.0 | $0.6 | $0.1 |
Ratio of Total Expenses to |
|
|
|
|
|
Average Net Assets | 0.26%4 | 0.25% | 0.27% | 0.28% | 0.28%4 |
Ratio of Net Investment Income to |
|
|
|
|
|
Average Net Assets | 1.79%4 | 1.11% | 0.84% | 0.89% | 0.67%4 |
Portfolio Turnover Rate5 | 4%4 | 12% | 8% | 10% | 13% |
ETF Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months |
|
|
|
| Jan. 26, |
| Ended |
|
| 20041 to | ||
For a Share Outstanding | February 28, | Year Ended August 31, | Aug. 31, | |||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 |
Net Asset Value, Beginning of Period | $48.38 | $60.02 | $52.28 | $53.65 | $46.99 | $50.09 |
Investment Operations |
|
|
|
|
|
|
Net Investment Income | .3432 | .5922 | .450 | .4942 | .3502 | .200 |
Net Realized and Unrealized Gain (Loss) |
|
|
|
|
|
|
on Investments | (21.157) | (11.772) | 7.760 | (1.556) | 6.660 | (3.300) |
Total from Investment Operations | (20.814) | (11.180) | 8.210 | (1.062) | 7.010 | (3.100) |
Distributions |
|
|
|
|
|
|
Dividends from Net Investment Income | (.786) | (.460) | (.470) | (.308) | (.350) | — |
Distributions from Realized Capital Gains | — | — | — | — | — | — |
Total Distributions | (.786) | (.460) | (.470) | (.308) | (.350) | — |
Net Asset Value, End of Period | $26.78 | $48.38 | $60.02 | $52.28 | $53.65 | $46.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return | –43.24% | –18.70% | 15.69% | –1.99% | 14.91% | –6.19% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
|
Net Assets, End of Period (Millions) | $56 | $257 | $114 | $47 | $32 | $19 |
Ratio of Total Expenses to |
|
|
|
|
|
|
Average Net Assets | 0.23%4 | 0.20% | 0.22% | 0.25% | 0.26% | 0.28%4 |
Ratio of Net Investment Income to |
|
|
|
|
|
|
Average Net Assets | 1.82%4 | 1.16% | 0.89% | 0.92% | 0.69% | 0.68%4 |
Portfolio Turnover Rate5 | 4%4 | 12% | 8% | 10% | 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 ETF Creation Units. See accompanying Notes, which are an integral part of the Financial Statements.
13
13
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 offers two classes of shares, Admiral Shares and ETF Shares. Admiral Shares are available to any investor who meets the fund’s minimum purchase requirements. ETF Shares are listed for trading on the NYSE Arca, Inc.; 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 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. Management has analyzed the fund’s tax positions taken on federal income tax returns for all open tax years (tax years ended August 31, 2005–2008) and for the period ended February 28, 2009, and has concluded that no provision for federal income tax is required in the fund’ s 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 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. 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, 2009, the fund had contributed capital of $24,000 to Vanguard (included in Other Assets), representing 0.04% 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.
14
Consumer Discretionary Index Fund
During the six months ended February 28, 2009, the fund realized $54,302,000 of net capital losses resulting from in-kind redemptions—in which shareholders exchanged fund shares for securities held by the fund rather than for cash. Because such losses are not taxable losses to the fund, they have been reclassified from accumulated net realized losses 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, 2008, the fund had available realized losses of $6,213,000 to offset future net capital gains of $36,000 through August 31, 2013, $86,000 through August 31, 2014, $178,000 through August 31, 2015, $1,527,000 through August 31, 2016, and $4,386,000 through August 31, 2017. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2009; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balances above.
At February 28, 2009, the cost of investment securities for tax purposes was $131,691,000. Net unrealized depreciation of investment securities for tax purposes was $74,788,000, consisting of unrealized gains of $105,000 on securities that had risen in value since their purchase and $74,893,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2009, the fund purchased $51,645,000 of investment securities and sold $155,045,000 of investment securities, other than temporary cash investments.
E. Capital share transactions for each class of shares were:
| Six Months Ended | Year Ended | |||
| February 28, 2009 | August 31, 2008 | |||
| Amount | Shares |
| Amount | Shares |
| ($000) | (000) |
| ($000) | (000) |
Admiral Shares |
|
|
|
|
|
Issued | 100 | 6 |
| 414 | 16 |
Issued in Lieu of Cash Distributions | 10 | 1 |
| 4 | — |
Redeemed1 | (72) | (4) |
| (541) | (19) |
Net Increase (Decrease)—Admiral Shares | 38 | 3 |
| (123) | (3) |
ETF Shares |
|
|
|
|
|
Issued | 48,922 | 1,200 |
| 252,012 | 5,002 |
Issued in Lieu of Cash Distributions | — | — |
| — | — |
Redeemed1 | (151,140) | (4,400) |
| (79,202) | (1,600) |
Net Increase (Decrease)—ETF Shares | (102,218) | (3,200) |
| 172,810 | 3,402 |
1 Net of redemption fees for fiscal 2009 and 2008 of $0 and $7,000, respectively (fund totals).
F. In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157 (“FAS 157”), “Fair Value Measurements.” FAS 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements in financial statements.
The various inputs that may be used to determine the value of the fund’s investments are summarized in three broad levels. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At February 28, 2009, 100% of the fund’s investments were valued based on Level 1 inputs.
15
15
Consumer Staples Index Fund
Fund Profile
As of February 28, 2009
Portfolio Characteristics |
|
| |
|
| Target | Broad |
| Fund | Index1 | Index2 |
Number of Stocks | 105 | 105 | 2,474 |
Median Market Cap | $33.5B | $70.6B | $21.7B |
Price/Earnings Ratio | 12.8x | 12.7x | 12.1x |
Price/Book Ratio | 2.3x | 2.6x | 1.5x |
Yield3 |
| 3.5% | 3.1% |
Admiral Shares | 3.2% |
|
|
ETF Shares | 3.2% |
|
|
Return on Equity | 23.0% | 24.1% | 21.0% |
Earnings Growth Rate | 9.5% | 9.6% | 17.8% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate4 | 27% | — | — |
Expense Ratio5 |
| — | — |
Admiral Shares | 0.28% |
|
|
ETF Shares | 0.25% |
|
|
Short-Term Reserves | 0.2% | — | — |
Volatility Measures6 |
| |
| Fund Versus | Fund Versus |
| Target Index1 | Broad Index2 |
R-Squared | 1.00 | 0.74 |
Beta | 1.00 | 0.62 |
Industry Diversification (% of equity exposure) | |
|
|
Agricultural Products | 2.9% |
Drug Retail | 6.9 |
Food Distributors | 2.0 |
Food Retail | 4.3 |
Household Products | 21.3 |
Hypermarkets & Supercenters | 13.5 |
Packaged Foods & Meats | 16.7 |
Personal Products | 3.0 |
Soft Drinks | 16.1 |
Tobacco | 11.8 |
Other Consumer Staples | 1.5 |
Ten Largest Holdings7 (% of total net assets) | |
|
|
The Procter & Gamble Co. | 13.8% |
Wal-Mart Stores, Inc. | 11.0 |
The Coca-Cola Co. | 7.5 |
PepsiCo, Inc. | 6.5 |
Philip Morris International Inc. | 5.7 |
CVS Caremark Corp. | 4.1 |
Kraft Foods Inc. | 3.7 |
Altria Group, Inc. | 3.6 |
Colgate-Palmolive Co. | 3.4 |
Walgreen Co. | 2.7 |
Top Ten | 62.0% |
1 MSCI US IMI/Consumer Staples.
2 MSCI US IMI/2500.
3 30-day SEC yield for the fund; annualized dividend yield for the indexes. See the Glossary.
4 Annualized.
5 The expense ratios shown are from the prospectuses dated December 29, 2008, and represent estimated costs for the current fiscal year based on the fund’s current net assets. For the six months ended February 28, 2009, the annualized expense ratios were 0.27% for the Admiral Shares and 0.24% for the ETF Shares.
6 For an explanation of R-squared, beta, and other terms used here, see the Glossary.
7 The holdings listed exclude 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/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): January 26, 2004–February 28, 2009
Average Annual Total Returns: Periods Ended December 31, 2008
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 |
ETF Shares | 1/26/2004 |
|
|
Market Price |
| –16.76% | 4.39% |
Net Asset Value |
| –16.95 | 4.36 |
Admiral Shares2 | 1/30/2004 | –17.00 | 4.43 |
1 Six months ended February 28, 2009.
2 Total returns do not reflect the 2% fee assessed on redemptions of shares held for less than one year. Note: See Financial Highlights tables for dividend and capital gains information.
17
17
Consumer Staples Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2009
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).
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
Common Stocks (99.9%) |
|
| |
Beverages (17.6%) |
|
| |
| The Coca-Cola Co. | 924,954 | 37,784 |
| PepsiCo, Inc. | 688,200 | 33,130 |
| Molson Coors Brewing Co. |
|
|
| Class B | 80,733 | 2,844 |
* | Dr. Pepper |
|
|
| Snapple Group, Inc. | 174,426 | 2,451 |
| Coca-Cola Enterprises, Inc. | 205,921 | 2,364 |
| Brown-Forman Corp. |
|
|
| Class B | 47,628 | 2,047 |
* | Hansen Natural Corp. | 56,608 | 1,884 |
| The Pepsi Bottling |
|
|
| Group, Inc. | 101,111 | 1,871 |
* | Constellation Brands, Inc. |
|
|
| Class A | 140,219 | 1,830 |
| PepsiAmericas, Inc. | 61,618 | 1,023 |
| Coca-Cola Bottling Co. | 16,858 | 738 |
* | Boston Beer Co., Inc. |
|
|
| Class A | 22,619 | 542 |
* | National Beverage Corp. | 64,691 | 529 |
* | Central European |
|
|
| Distribution Corp. | 51,660 | 345 |
|
|
| 89,382 |
Food & Staples Retailing (26.6%) |
| ||
| Wal-Mart Stores, Inc. | 1,129,499 | 55,616 |
| CVS Caremark Corp. | 811,682 | 20,893 |
| Walgreen Co. | 568,758 | 13,570 |
| Costco Wholesale Corp. | 246,480 | 10,436 |
| Sysco Corp. | 353,480 | 7,600 |
| The Kroger Co. | 360,663 | 7,455 |
| Safeway, Inc. | 259,885 | 4,808 |
| SUPERVALU Inc. | 157,794 | 2,463 |
| Whole Foods Market, Inc. | 128,644 | 1,563 |
* | BJ's Wholesale Club, Inc. | 50,257 | 1,502 |
| Casey's General Stores, Inc. | 50,883 | 1,013 |
| Ruddick Corp. | 42,098 | 913 |
* | United Natural Foods, Inc. | 51,565 | 767 |
| Nash-Finch Co. | 20,612 | 718 |
| Weis Markets, Inc. | 25,198 | 699 |
* | Winn-Dixie Stores, Inc. | 70,938 | 686 |
| Village Super Market Inc. |
|
|
| Class A | 23,123 | 605 |
* | The Pantry, Inc. | 38,562 | 596 | |
| Spartan Stores, Inc. | 37,706 | 577 | |
| PriceSmart, Inc. | 33,011 | 552 | |
| Ingles Markets, Inc. | 38,739 | 526 | |
* | Rite Aid Corp. | 1,727,543 | 484 | |
| The Andersons, Inc. | 37,161 | 459 | |
* | The Great Atlantic & |
|
| |
| Pacific Tea Co., Inc. | 108,253 | 441 | |
|
|
| 134,942 | |
Food Products (19.6%) |
|
| ||
| Kraft Foods Inc. | 824,195 | 18,775 | |
| General Mills, Inc. | 191,137 | 10,031 | |
| Archer-Daniels-Midland Co. | 334,381 | 8,915 | |
| Kellogg Co. | 157,864 | 6,144 | |
| H.J. Heinz Co. | 184,475 | 6,027 | |
| ConAgra Foods, Inc. | 284,348 | 4,288 | |
| Campbell Soup Co. | 138,124 | 3,698 | |
| Bunge Ltd. | 77,759 | 3,645 | |
| Sara Lee Corp. | 451,577 | 3,482 | |
| The Hershey Co. | 102,546 | 3,455 | |
| J.M. Smucker Co. | 76,760 | 2,849 | |
| McCormick & Co., Inc. | 82,102 | 2,574 | |
* | Ralcorp Holdings, Inc. | 40,407 | 2,449 | |
* | Dean Foods Co. | 115,060 | 2,353 | |
| Tyson Foods, Inc. | 228,297 | 1,925 | |
| Hormel Foods Corp. | 60,363 | 1,921 | |
| Flowers Foods, Inc. | 67,310 | 1,502 | |
| Del Monte Foods Co. | 185,481 | 1,326 | |
| Corn Products |
|
| |
| International, Inc. | 58,646 | 1,183 | |
| Lancaster Colony Corp. | 27,947 | 1,087 | |
* | TreeHouse Foods Inc. | 38,741 | 1,034 | |
*, ^ | Green Mountain |
|
| |
| Coffee Roasters, Inc. | 26,509 | 990 | |
| Lance, Inc. | 42,421 | 925 | |
* | Smithfield Foods, Inc. | 115,681 | 908 | |
| Sanderson Farms, Inc. | 25,848 | 893 | |
| J & J Snack Foods Corp. | 27,859 | 879 | |
| Diamond Foods, Inc. | 37,178 | 797 | |
| Tootsie Roll Industries, Inc. | 34,895 | 747 | |
* | Hain Celestial Group, Inc. | 52,550 | 740 | |
* | Smart Balance Inc. | 121,675 | 713 | |
* | Darling International, Inc. | 145,086 | 628 | |
| Cal-Maine Foods, Inc. | 26,194 | 584 | |
| Farmer Brothers, Inc. | 31,430 | 540 | |
| B&G Foods Inc. | 141,147 | 536 | |
| Alico, Inc. | 15,912 | 413 | |
* | Chiquita Brands |
|
| |
| International, Inc. | 63,407 | 312 | |
|
|
| 99,268 | |
Household Products (21.3%) |
|
| ||
| The Procter & Gamble Co. | 1,447,270 | 69,715 | |
| Colgate-Palmolive Co. | 287,391 | 17,295 | |
| Kimberly-Clark Corp. | 236,446 | 11,139 | |
| The Clorox Co. | 84,967 | 4,129 | |
| Church & Dwight, Inc. | 46,357 | 2,268 | |
* | Energizer Holdings, Inc. | 41,077 | 1,733 | |
| WD-40 Co. | 30,781 | 757 | |
* | Central Garden & Pet Co. |
|
| |
| Class A | 93,023 | 695 |
* | Central Garden and Pet Co. | 45,190 | 332 |
|
|
| 108,063 |
Personal Products (3.0%) |
|
| |
| Avon Products, Inc. | 254,689 | 4,480 |
| The Estee Lauder Cos. Inc. |
|
|
| Class A | 75,127 | 1,702 |
| Alberto-Culver Co. | 70,372 | 1,558 |
* | Chattem, Inc. | 16,956 | 1,076 |
* | NBTY, Inc. | 68,448 | 1,018 |
^ | Mannatech, Inc. | 258,484 | 902 |
| Nu Skin Enterprises, Inc. | 88,846 | 835 |
| Herbalife Ltd. | 54,028 | 737 |
* | Bare Escentuals, Inc. | 152,748 | 483 |
*, ^ | USANA Health |
|
|
| Sciences, Inc. | 23,143 | 464 |
* | American Oriental |
|
|
| Bioengineering, Inc. | 122,884 | 453 |
* | Prestige Brands |
|
|
| Holdings Inc. | 77,370 | 423 |
| Inter Parfums, Inc. | 77,482 | 423 |
* | Elizabeth Arden, Inc. | 60,878 | 337 |
* | Revlon, Inc. | 88,805 | 276 |
|
|
| 15,167 |
Tobacco (11.8%) |
|
| |
| Philip Morris |
|
|
| International Inc. | 865,608 | 28,972 |
| Altria Group, Inc. | 1,174,501 | 18,134 |
| Lorillard, Inc. | 104,351 | 6,098 |
| Reynolds American Inc. | 109,695 | 3,684 |
* | Alliance One |
|
|
| International, Inc. | 266,226 | 921 |
| Universal Corp. (VA) | 31,188 | 896 |
| Vector Group Ltd. | 67,336 | 836 |
|
|
| 59,541 |
Total Common Stocks |
|
| |
(Cost $672,858) |
| 506,363 | |
Temporary Cash Investment (0.4%) |
|
| |
1,2 | Vanguard Market |
|
|
| Liquidity Fund, 0.663% |
|
|
| (Cost $2,201) | 2,200,716 | 2,201 |
Total Investments (100.3%) |
|
| |
(Cost $675,059) |
| 508,564 | |
Other Assets and Liabilities (–0.3%) |
|
| |
Other Assets |
| 1,882 | |
Liabilities2 |
| (3,590) | |
|
|
| (1,708) |
Net Assets (100%) |
| 506,856 |
18
Consumer Staples Index Fund
At February 28, 2009, net assets consisted of: | |
| Amount |
| ($000) |
Paid-in Capital | 682,424 |
Undistributed Net Investment Income | 1,229 |
Accumulated Net Realized Losses | (10,302) |
Unrealized Appreciation (Depreciation) | (166,495) |
Net Assets | 506,856 |
|
|
|
|
Admiral Shares—Net Assets |
|
Applicable to 862,712 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 21,098 |
Net Asset Value Per Share— |
|
Admiral Shares | $24.46 |
|
|
|
|
ETF Shares—Net Assets |
|
Applicable to 9,800,000 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 485,758 |
Net Asset Value Per Share— |
|
ETF Shares | $49.57 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Part of security position is on loan to broker-dealers. The total value of securities on loan is $1,039,000.
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 Includes $1,144,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
19
19
Consumer Staples Index Fund
Statement of Operations
| Six Months Ended |
| February 28, 2009 |
| ($000) |
Investment Income |
|
Income |
|
Dividends | 7,807 |
Interest1 | 10 |
Security Lending | 120 |
Total Income | 7,937 |
Expenses |
|
The Vanguard Group—Note B |
|
Investment Advisory Services | 42 |
Management and Administrative— |
|
Admiral Shares | 22 |
Management and Administrative— |
|
ETF Shares | 477 |
Marketing and Distribution— |
|
Admiral Shares | 2 |
Marketing and Distribution— |
|
ETF Shares | 79 |
Custodian Fees | 13 |
Auditing Fees | 1 |
Shareholders’ Reports—Admiral Shares | — |
Shareholders’ Reports—ETF Shares | 24 |
Total Expenses | 660 |
Net Investment Income | 7,277 |
Realized Net Gain (Loss) |
|
on Investment Securities Sold | 6,462 |
Change in Unrealized Appreciation |
|
(Depreciation) of Investment Securities | (177,479) |
Net Increase (Decrease) in Net Assets |
|
Resulting from Operations | (163,740) |
Statement of Changes in Net Assets
| Six Months Ended |
| Year Ended |
| February 28, |
| August 31, |
| 2009 |
| 2008 |
| ($000) |
| ($000) |
Increase (Decrease) in Net Assets |
|
|
|
Operations |
|
|
|
Net Investment Income | 7,277 |
| 8,312 |
Realized Net Gain (Loss) | 6,462 |
| 21,737 |
Change in Unrealized Appreciation (Depreciation) | (177,479) |
| (19,968) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (163,740) |
| 10,081 |
Distributions |
|
|
|
Net Investment Income |
|
|
|
Admiral Shares | (425) |
| (184) |
ETF Shares | (11,495) |
| (6,259) |
Realized Capital Gain |
|
|
|
Admiral Shares | — |
| — |
ETF Shares | — |
| — |
Total Distributions | (11,920) |
| (6,443) |
Capital Share Transactions |
|
|
|
Admiral Shares | 9,423 |
| 9,079 |
ETF Shares | 137,026 |
| 204,450 |
Net Increase (Decrease) from Capital Share Transactions | 146,449 |
| 213,529 |
Total Increase (Decrease) | (29,211) |
| 217,167 |
Net Assets |
|
|
|
Beginning of Period | 536,067 |
| 318,900 |
End of Period2 | 506,856 |
| 536,067 |
1 Interest income from an affiliated company of the fund was $10,000.
2 Net Assets—End of Period includes undistributed net investment income of $1,229,000 and $5,872,000. See accompanying Notes, which are an integral part of the Financial Statements.
20
Consumer Staples Index Fund
Financial Highlights
Admiral Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months |
|
|
|
| Jan. 30, |
| Ended |
|
| 20041 to | ||
For a Share Outstanding | February 28, | Year Ended August 31, | Aug. 31, | |||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 |
Net Asset Value, Beginning of Period | $34.06 | $33.22 | $30.56 | $27.64 | $25.82 | $25.00 |
Investment Operations |
|
|
|
|
|
|
Net Investment Income | .3662 | .6342 | .662 | .5472 | .4272 | .240 |
Net Realized and Unrealized |
|
|
|
|
|
|
Gain (Loss)on Investments | (9.397) | .766 | 2.460 | 2.716 | 1.952 | .580 |
Total from Investment Operations | (9.031) | 1.400 | 3.122 | 3.263 | 2.379 | .820 |
Distributions |
|
|
|
|
|
|
Dividends from Net Investment Income | (.569) | (.560) | (.462) | (.343) | (.440) | — |
Distributions from Realized Capital Gains | — | — | — | — | (.119) | — |
Total Distributions | (.569) | (.560) | (.462) | (.343) | (.559) | — |
Net Asset Value, End of Period | $24.46 | $34.06 | $33.22 | $30.56 | $27.64 | $25.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return3 | –26.71% | 4.15% | 10.30% | 11.92% | 9.29% | 3.28% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
|
Net Assets, End of Period (Millions) | $21 | $18 | $9 | $6 | $4 | $1 |
Ratio of Total Expenses to |
|
|
|
|
|
|
Average Net Assets | 0.27%4 | 0.25% | 0.26% | 0.28% | 0.28% | 0.28%4 |
Ratio of Net Investment Income |
|
|
|
|
|
|
to Average Net Assets | 2.61%4 | 1.88% | 2.16% | 1.90% | 1.69% | 1.51%4 |
Portfolio Turnover Rate5 | 27%4 | 13% | 12% | 14% | 7% | 20% |
ETF Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months |
|
|
|
| Jan. 26, |
| Ended |
|
| 20041 to | ||
For a Share Outstanding | February 28, | Year Ended August 31, | Aug. 31, | |||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 |
Net Asset Value, Beginning of Period | $69.04 | $67.35 | $61.94 | $56.03 | $52.28 | $50.84 |
Investment Operations |
|
|
|
|
|
|
Net Investment Income | .7692 | 1.3272 | 1.370 | 1.0902 | .9502 | .470 |
Net Realized and Unrealized |
|
|
|
|
|
|
Gain (Loss)on Investments | (19.066) | 1.522 | 5.000 | 5.523 | 3.894 | .970 |
Total from Investment Operations | (18.297) | 2.849 | 6.370 | 6.613 | 4.844 | 1.440 |
Distributions |
|
|
|
|
|
|
Dividends from Net Investment Income | (1.173) | (1.159) | (.960) | (.703) | (.853) | — |
Distributions from Realized Capital Gains | — | — | — | — | (.241) | — |
Total Distributions | (1.173) | (1.159) | (.960) | (.703) | (1.094) | — |
Net Asset Value, End of Period | $49.57 | $69.04 | $67.35 | $61.94 | $56.03 | $52.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return | –26.70% | 4.18% | 10.38% | 11.91% | 9.33% | 2.83% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
|
Net Assets, End of Period (Millions) | $486 | $518 | $310 | $211 | $73 | $21 |
Ratio of Total Expenses to |
|
|
|
|
|
|
Average Net Assets | 0.24%4 | 0.20% | 0.22% | 0.25% | 0.26% | 0.28%4 |
Ratio of Net Investment Income |
|
|
|
|
|
|
to Average Net Assets | 2.64%4 | 1.93% | 2.20% | 1.93% | 1.71% | 1.51%4 |
Portfolio Turnover Rate5 | 27%4 | 13% | 12% | 14% | 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 ETF Creation Units. See accompanying Notes, which are an integral part of the Financial Statements.
21
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 offers two classes of shares, Admiral Shares and ETF Shares. Admiral Shares are available to any investor who meets the fund’s minimum purchase requirements. ETF Shares are listed for trading on the NYSE Arca, Inc.; 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 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. Management has analyzed the fund’s tax positions taken on federal income tax returns for all open tax years (tax years ended August 31, 2005–2008) and for the period ended February 28, 2009, and has concluded that no provision for federal income tax is required in the fund’s 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 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. 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, 2009, the fund had contributed capital of $150,000 to Vanguard (included in Other Assets), representing 0.03% of the fund’s net assets and 0.06% 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, 2009, the fund realized $10,223,000 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 losses to paid-in capital.
22
Consumer Staples Index Fund
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, 2008, the fund had available realized losses of $6,539,000 to offset future net capital gains of $276,000 through August 31, 2014, $773,000 through August 31, 2015, $2,261,000 through August 31, 2016, and $3,229,000 through August 31, 2017. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2009; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balances above.
At February 28, 2009, the cost of investment securities for tax purposes was $675,059,000. Net unrealized depreciation of investment securities for tax purposes was $166,495,000, consisting of unrealized gains of $1,306,000 on securities that had risen in value since their purchase and $167,801,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2009, the fund purchased $317,040,000 of investment securities and sold $175,467,000 of investment securities, other than temporary cash investments.
E. Capital share transactions for each class of shares were:
| Six Months Ended | Year Ended |
| |||
| February 28, 2009 | August 31, 2008 |
| |||
| Amount | Shares |
| Amount | Shares | |
| ($000) | (000) |
| ($000) | (000) | |
Admiral Shares |
|
|
|
|
| |
Issued | 13,030 | 454 |
| 12,663 | 371 | |
Issued in Lieu of Cash Distributions | 400 | 14 |
| 172 | 5 | |
Redeemed1 | (4,007) | (142) |
| (3,756) | (113) | |
Net Increase (Decrease)—Admiral Shares | 9,423 | 326 |
| 9,079 | 263 | |
ETF Shares |
|
|
|
|
| |
Issued | 237,596 | 4,000 |
| 327,325 | 4,700 | |
Issued in Lieu of Cash Distributions | — | — |
| — | — | |
Redeemed1 | (100,570) | (1,700) |
| (122,875) | (1,800) | |
Net Increase (Decrease)—ETF Shares | 137,026 | 2,300 |
| 204,450 | 2,900 | |
1 Net of redemption fees of $39,000 and $35,000, respectively (fund totals). | ||||||
F. In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157 (“FAS 157”), “Fair Value Measurements.” FAS 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements in financial statements.
The various inputs that may be used to determine the value of the fund’s investments are summarized in three broad levels. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At February 28, 2009, 100% of the fund’s investments were valued based on Level 1 inputs.
23
23
Energy Index Fund
Fund Profile
As of February 28, 2009
Portfolio Characteristics |
|
| |
|
| Target | Broad |
| Fund | Index1 | Index2 |
Number of Stocks | 165 | 165 | 2,474 |
Median Market Cap | $42.6B | $57.6B | $21.7B |
Price/Earnings Ratio | 9.5x | 8.7x | 12.1x |
Price/Book Ratio | 1.2x | 1.4x | 1.5x |
Yield3 |
| 2.4% | 3.1% |
Admiral Shares | 2.0% |
|
|
ETF Shares | 2.1% |
|
|
Return on Equity | 28.0% | 29.9% | 21.0% |
Earnings Growth Rate | 35.3% | 34.3% | 17.8% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate4 | 34% | — | — |
Expense Ratio5 |
| — | — |
Admiral Shares | 0.28% |
|
|
ETF Shares | 0.25% |
|
|
Short-Term Reserves | 0.0% | — | — |
Volatility Measures6 |
| |
| Fund Versus | Fund Versus |
| Target Index1 | Broad Index2 |
R-Squared | 1.00 | 0.47 |
Beta | 1.04 | 1.01 |
Industry Diversification (% of equity exposure) | |
|
|
Coal & Consumable Fuels | 2.6% |
Integrated Oil & Gas | 51.5 |
Oil & Gas Drilling | 5.6 |
Oil & Gas Equipment & Services | 15.0 |
Oil & Gas Exploration & Production | 19.2 |
Oil & Gas Refining & Marketing | 3.0 |
Oil & Gas Storage & Transportation | 3.1 |
Ten Largest Holdings7 (% of total net assets) | |
|
|
ExxonMobil Corp. | 19.4% |
Chevron Corp. | 15.6 |
ConocoPhillips Co. | 8.0 |
Schlumberger Ltd. | 4.5 |
Occidental Petroleum Corp. | 4.3 |
Apache Corp. | 2.0 |
Transocean Ltd. | 2.0 |
Devon Energy Corp. | 1.9 |
XTO Energy, Inc. | 1.8 |
Marathon Oil Corp. | 1.7 |
Top Ten | 61.2% |
1 MSCI US IMI/Energy.
2 MSCI US IMI/2500.
3 30-day SEC yield for the fund; annualized dividend yield for the indexes. See the Glossary.
4 Annualized.
5 The expense ratios shown are from the prospectuses dated December 29, 2008, and represent estimated costs for the current fiscal year based on the fund’s current net assets. For the six months ended February 28, 2009, the annualized expense ratios were 0.27% for the Admiral Shares and 0.24% for the ETF Shares.
6 For an explanation of R-squared, beta, and other terms used here, see the Glossary.
7 The holdings listed exclude any temporary cash investments and equity index products.
24
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/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): September 23, 2004–February 28, 2009
Average Annual Total Returns: Periods Ended December 31, 2008
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 |
ETF Shares | 9/23/2004 |
|
|
Market Price |
| –39.29% | 9.02% |
Net Asset Value |
| –39.31 | 9.03 |
Admiral Shares2 | 10/7/2004 | –39.34 | 7.66 |
1 Six months ended February 28, 2009.
2 Total returns do not reflect the 2% fee assessed on redemptions of shares held for less than one year.
Note: See Financial Highlights tables for dividend and capital gains information.
25
25
Energy Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2009
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).
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
Common Stocks (100.0%) |
|
| |
Energy Equipment & Services (20.6%) |
|
| |
| Oil & Gas Drilling (5.6%) |
|
|
* | Transocean Ltd. | 197,086 | 11,780 |
| Noble Corp. | 178,437 | 4,388 |
| Diamond Offshore |
|
|
| Drilling, Inc. | 47,656 | 2,985 |
| ENSCO International, Inc. | 100,461 | 2,469 |
* | Pride International, Inc. | 129,238 | 2,228 |
* | Nabors Industries, Inc. | 202,649 | 1,968 |
| Helmerich & Payne, Inc. | 82,200 | 1,945 |
| Rowan Cos., Inc. | 98,335 | 1,191 |
| Patterson-UTI Energy, Inc. | 135,391 | 1,163 |
* | Unit Corp. | 45,276 | 968 |
* | Atwood Oceanics, Inc. | 58,213 | 889 |
* | Bronco Drilling Co., Inc. | 104,584 | 425 |
* | Pioneer Drilling Co. | 105,564 | 405 |
* | Parker Drilling Co. | 218,298 | 349 |
* | Hercules Offshore, Inc. | 139,525 | 201 |
|
|
|
|
| Oil & Gas Equipment & Services (15.0%) |
| |
| Schlumberger Ltd. | 711,459 | 27,078 |
| Halliburton Co. | 548,897 | 8,953 |
* | National Oilwell Varco Inc. | 266,703 | 7,129 |
| Baker Hughes Inc. | 198,237 | 5,810 |
* | Weatherford |
|
|
| International Ltd. | 445,503 | 4,754 |
| Smith International, Inc. | 148,950 | 3,199 |
* | Cameron International Corp. | 152,180 | 2,934 |
* | FMC Technologies Inc. | 94,359 | 2,500 |
| BJ Services Co. | 216,238 | 2,091 |
* | Oceaneering |
|
|
| International, Inc. | 48,393 | 1,537 |
| Core Laboratories N.V. | 19,931 | 1,503 |
* | Dresser Rand Group, Inc. | 70,582 | 1,483 |
| Tidewater Inc. | 41,336 | 1,460 |
* | IHS Inc. Class A | 34,748 | 1,415 |
* | SEACOR Holdings Inc. | 18,799 | 1,126 |
* | Exterran Holdings, Inc. | 58,150 | 1,053 |
* | Superior Energy |
|
| |
| Services, Inc. | 79,714 | 1,051 | |
* | Dril-Quip, Inc. | 39,042 | 821 | |
| CARBO Ceramics Inc. | 23,563 | 819 | |
* | Bristow Group, Inc. | 40,041 | 811 | |
* | Oil States International, Inc. | 54,054 | 720 | |
* | NATCO Group Inc. | 36,432 | 648 | |
| Lufkin Industries, Inc. | 18,955 | 623 | |
* | Tesco Corp. | 80,356 | 616 | |
* | Gulfmark Offshore, Inc. | 28,772 | 601 | |
* | Global Industries Ltd. | 186,695 | 590 | |
* | Hornbeck Offshore |
|
| |
| Services, Inc. | 44,718 | 586 | |
* | Cal Dive International, Inc. | 111,137 | 561 | |
* | Willbros Group, Inc. | 71,930 | 516 | |
* | Newpark Resources, Inc. | 172,697 | 513 | |
* | T-3 Energy Services, Inc. | 44,186 | 487 | |
* | Matrix Service Co. | 66,739 | 465 | |
* | Key Energy Services, Inc. | 172,869 | 462 | |
* | PHI Inc. Non-Voting Shares | 51,955 | 453 | |
* | TETRA Technologies, Inc. | 135,786 | 388 | |
| RPC Inc. | 66,365 | 387 | |
*, ^ | Trico Marine Services, Inc. | 118,295 | 387 | |
| Gulf Island Fabrication, Inc. | 41,310 | 366 | |
* | Helix Energy Solutions |
|
| |
| Group, Inc. | 116,116 | 361 | |
* | Dawson Geophysical Co. | 28,586 | 349 | |
* | Basic Energy Services Inc. | 50,308 | 317 | |
* | OYO Geospace Corp. | 27,311 | 307 | |
* | Superior Well Services, Inc. | 52,645 | 303 | |
*, ^ | SulphCo, Inc. | 382,027 | 290 | |
* | Complete Production |
|
| |
| Services, Inc. | 90,133 | 275 | |
* | ION Geophysical Corp. | 197,222 | 211 | |
* | Allis-Chalmers Energy Inc. | 93,682 | 183 | |
|
|
| 122,846 | |
Oil, Gas & Consumable Fuels (79.4%) |
|
| ||
| Coal & Consumable Fuels (2.6%) |
|
| |
| Peabody Energy Corp. | 179,801 | 4,256 | |
| CONSOL Energy, Inc. | 123,216 | 3,358 | |
| Arch Coal, Inc. | 112,742 | 1,567 | |
* | Alpha Natural |
|
| |
| Resources, Inc. | 66,093 | 1,216 | |
| Walter Industries, Inc. | 60,902 | 1,106 | |
| Massey Energy Co. | 85,117 | 983 | |
| Foundation Coal |
|
| |
| Holdings, Inc. | 56,831 | 914 | |
* | USEC Inc. | 150,020 | 755 | |
* | James River Coal Co. | 50,126 | 551 | |
* | International Coal |
|
| |
| Group, Inc. | 246,713 | 402 | |
* | Patriot Coal Corp. | 108,450 | 396 | |
|
|
|
| |
| Integrated Oil & Gas (51.5%) |
|
| |
| ExxonMobil Corp. | 1,709,838 | 116,098 | |
| Chevron Corp. | 1,532,791 | 93,056 | |
| ConocoPhillips Co. | 1,284,393 | 47,972 | |
| Occidental Petroleum Corp. | 491,532 | 25,496 | |
| Marathon Oil Corp. | 438,132 | 10,195 | |
| Hess Corp. | 183,518 | 10,036 |
| Murphy Oil Corp. | 118,026 | 4,935 |
|
|
|
|
| Oil & Gas Exploration & Production (19.2%) |
| |
| Apache Corp. | 205,012 | 12,114 |
| Devon Energy Corp. | 256,867 | 11,217 |
| XTO Energy, Inc. | 337,076 | 10,672 |
| Anadarko Petroleum Corp. | 289,878 | 10,131 |
| EOG Resources, Inc. | 153,530 | 7,683 |
* | Southwestern Energy Co. | 219,968 | 6,328 |
| Chesapeake Energy Corp. | 351,907 | 5,504 |
| Noble Energy, Inc. | 112,057 | 5,103 |
| Range Resources Corp. | 103,848 | 3,694 |
* | Ultra Petroleum Corp. | 102,073 | 3,587 |
* | Petrohawk Energy Corp. | 183,164 | 3,117 |
* | Denbury Resources, Inc. | 188,896 | 2,433 |
* | Newfield Exploration Co. | 102,011 | 1,972 |
* | Plains Exploration & |
|
|
| Production Co. | 87,476 | 1,674 |
| Cabot Oil & Gas Corp. | 78,852 | 1,606 |
* | EXCO Resources, Inc. | 156,422 | 1,425 |
| Pioneer Natural |
|
|
| Resources Co. | 94,363 | 1,377 |
| Cimarex Energy Co. | 65,744 | 1,292 |
* | Comstock Resources, Inc. | 36,955 | 1,125 |
* | Concho Resources, Inc. | 55,264 | 1,103 |
* | Forest Oil Corp. | 71,495 | 1,014 |
* | Encore Acquisition Co. | 49,942 | 1,003 |
* | Whiting Petroleum Corp. | 41,833 | 975 |
* | Mariner Energy Inc. | 93,437 | 864 |
* | Continental Resources, Inc. | 52,939 | 841 |
| St. Mary Land & |
|
|
| Exploration Co. | 59,725 | 811 |
* | Bill Barrett Corp. | 41,740 | 807 |
* | Arena Resources, Inc. | 37,469 | 803 |
* | Quicksilver Resources, Inc. | 132,789 | 797 |
* | SandRidge Energy, Inc. | 117,086 | 791 |
* | CNX Gas Corp. | 32,378 | 706 |
* | Contango Oil & Gas Co. | 18,553 | 676 |
* | Vaalco Energy, Inc. | 107,052 | 610 |
* | Goodrich Petroleum Corp. | 30,061 | 596 |
| Atlas America, Inc. | 56,277 | 566 |
| Penn Virginia Corp. | 40,567 | 562 |
* | Veneco Inc. | 172,907 | 529 |
* | Carrizo Oil & Gas, Inc. | 45,194 | 481 |
* | Rosetta Resources, Inc. | 90,313 | 460 |
*, ^ | GeoGlobal Resources Inc. | 413,386 | 434 |
* | Oilsands Quest, Inc. | 555,117 | 433 |
| W&T Offshore, Inc. | 52,986 | 427 |
* | GMX Resources Inc. | 24,388 | 421 |
* | BPZ Energy, Inc. | 117,671 | 405 |
| Berry Petroleum Class A | 60,273 | 401 |
| APCO Argentina Inc. | 23,461 | 375 |
* | Approach Resources Inc. | 55,612 | 374 |
* | Clayton Williams |
|
|
| Energy, Inc. | 14,858 | 372 |
* | Petroleum |
|
|
| Development Corp. | 28,895 | 350 |
* | PetroQuest Energy, Inc. | 104,656 | 339 |
* | McMoRan Exploration Co. | 69,558 | 319 |
* | TXCO Resources Inc. | 207,405 | 317 |
* | Gulfport Energy Corp. | 138,280 | 308 |
* | Harvest Natural |
|
|
| Resources, Inc. | 93,000 | 293 |
* | Swift Energy Co. | 40,215 | 289 |
* | ATP Oil & Gas Corp. | 76,719 | 268 |
* | Parallel Petroleum Corp. | 204,347 | 247 |
*, ^ | Delta Petroleum Corp. | 109,302 | 225 |
* | Brigham Exploration Co. | 145,002 | 193 |
* | Stone Energy Corp. | 47,477 | 188 |
26
Energy Index Fund
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
* | Rex Energy Corp. | 102,067 | 150 |
* | Warren Resources Inc. | 177,146 | 115 |
* | Energy Partners, Ltd. | 165,917 | 45 |
|
|
|
|
| Oil & Gas Refining & Marketing (3.0%) |
|
|
| Valero Energy Corp. | 329,165 | 6,379 |
| Sunoco, Inc. | 81,834 | 2,737 |
| Tesoro Corp. | 113,685 | 1,678 |
| Frontier Oil Corp. | 100,845 | 1,377 |
| Holly Corp. | 47,573 | 1,109 |
| World Fuel Services Corp. | 30,205 | 876 |
| Western Refining, Inc. | 66,765 | 758 |
* | CVR Energy, Inc. | 128,581 | 607 |
| Delek US Holdings, Inc. | 88,088 | 599 |
| Alon USA Energy, Inc. | 50,920 | 558 |
* | Rentech, Inc. | 825,407 | 503 |
* | Clean Energy Fuels Corp. | 83,221 | 473 |
* | Aventine Renewable |
|
|
| Energy Holdings, Inc. | 870,861 | 192 |
|
|
|
|
| Oil & Gas Storage & Transportation (3.1%) |
| |
| Spectra Energy Corp. | 393,680 | 5,118 |
| Williams Cos., Inc. | 372,515 | 4,209 |
| El Paso Corp. | 483,003 | 3,260 |
* | Kinder Morgan |
|
|
| Management, LLC | 53,241 | 2,221 |
| Southern Union Co. | 104,540 | 1,402 |
| Overseas Shipholding |
|
|
| Group Inc. | 27,984 | 720 |
* | Enbridge Energy |
|
|
| Management LLC | 25,885 | 709 |
* | General Maritime Corp. | 75,415 | 694 |
| Crosstex Energy, Inc. | 166,561 | 373 |
|
|
| 474,181 |
Total Common Stocks |
|
| |
(Cost $874,003) |
| 597,027 | |
Temporary Cash Investment (0.1%) |
|
| |
1,2 | Vanguard Market |
|
|
| Liquidity Fund, 0.663% |
|
|
| (Cost $569) | 568,802 | 569 |
Total Investments (100.1%) |
|
| |
(Cost $874,572) |
| 597,596 | |
Other Assets and Liabilities (–0.1%) |
|
| |
Other Assets |
| 7,694 | |
Liabilities2 |
| (8,132) | |
|
|
| (438) |
Net Assets (100%) |
| 597,158 |
At February 28, 2009, net assets consisted of: | |
| Amount |
| ($000) |
Paid-in Capital | 915,970 |
Undistributed Net Investment Income | 2,211 |
Accumulated Net Realized Losses | (44,047) |
Unrealized Appreciation (Depreciation) | (276,976) |
Net Assets | 597,158 |
|
|
|
|
Admiral Shares—Net Assets |
|
Applicable to 2,597,098 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 75,088 |
Net Asset Value Per Share— |
|
Admiral Shares | $28.91 |
|
|
|
|
ETF Shares—Net Assets |
|
Applicable to 9,022,459 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 522,070 |
Net Asset Value Per Share— |
|
ETF Shares | $57.86 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Part of security position is on loan to broker-dealers. The total value of securities on loan is $422,000.
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 Includes $569,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
27
27
Energy Index Fund
Statement of Operations
| Six Months Ended |
| February 28, 2009 |
| ($000) |
Investment Income |
|
Income |
|
Dividends | 6,570 |
Interest1 | 4 |
Security Lending | 55 |
Total Income | 6,629 |
Expenses |
|
The Vanguard Group—Note B |
|
Investment Advisory Services | 52 |
Management and Administrative— |
|
Admiral Shares | 94 |
Management and Administrative— |
|
ETF Shares | 484 |
Marketing and Distribution— |
|
Admiral Shares | 16 |
Marketing and Distribution— |
|
ETF Shares | 111 |
Custodian Fees | 7 |
Auditing Fees | 1 |
Shareholders’ Reports—Admiral Shares | 1 |
Shareholders’ Reports—ETF Shares | 39 |
Total Expenses | 805 |
Net Investment Income | 5,824 |
Realized Net Gain (Loss) |
|
on Investment Securities Sold | (4,977) |
Change in Unrealized Appreciation |
|
(Depreciation) of Investment Securities | (457,289) |
Net Increase (Decrease) in Net Assets |
|
Resulting from Operations | (456,442) |
Statement of Changes in Net Assets
| Six Months Ended |
| Year Ended |
| February 28, |
| August 31, |
| 2009 |
| 2008 |
| ($000) |
| ($000) |
Increase (Decrease) in Net Assets |
|
|
|
Operations |
|
|
|
Net Investment Income | 5,824 |
| 9,456 |
Realized Net Gain (Loss) | (4,977) |
| 52,425 |
Change in Unrealized Appreciation (Depreciation) | (457,289) |
| 11,906 |
Net Increase (Decrease) in Net Assets Resulting from Operations | (456,442) |
| 73,787 |
Distributions |
|
|
|
Net Investment Income |
|
|
|
Admiral Shares | (1,381) |
| (1,147) |
ETF Shares | (9,252) |
| (6,303) |
Realized Capital Gain |
|
|
|
Admiral Shares | — |
| — |
ETF Shares | — |
| — |
Total Distributions | (10,633) |
| (7,450) |
Capital Share Transactions |
|
|
|
Admiral Shares | (5,494) |
| 24,896 |
ETF Shares | 76,610 |
| 130,701 |
Net Increase (Decrease) from Capital Share Transactions | 71,116 |
| 155,597 |
Total Increase (Decrease) | (395,959) |
| 221,934 |
Net Assets |
|
|
|
Beginning of Period | 993,117 |
| 771,183 |
End of Period2 | 597,158 |
| 993,117 |
1 Interest income from an affiliated company of the fund was $4,000.
2 Net Assets—End of Period includes undistributed net investment income of $2,211,000 and $7,020,000.
See accompanying Notes, which are an integral part of the Financial Statements.
28
Energy Index Fund
Financial Highlights
Admiral Shares |
|
|
|
|
|
|
|
|
|
|
|
| Six Months |
|
|
| Oct. 7, |
| Ended |
| 20041 to | ||
For a Share Outstanding | February 28, | Year Ended August 31, | Aug. 31, | ||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 |
Net Asset Value, Beginning of Period | $54.66 | $50.36 | $40.36 | $36.29 | $25.98 |
Investment Operations |
|
|
|
|
|
Net Investment Income | .299 | .504 | .5012 | .4602 | .5882,3 |
Net Realized and Unrealized Gain (Loss) |
|
|
|
|
|
on Investments | (25.486) | 4.246 | 9.944 | 3.960 | 9.833 |
Total from Investment Operations | (25.187) | 4.750 | 10.445 | 4.420 | 10.421 |
Distributions |
|
|
|
|
|
Dividends from Net Investment Income | (.563) | (.450) | (.445) | (.350) | (.111) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (.563) | (.450) | (.445) | (.350) | (.111) |
Net Asset Value, End of Period | $28.91 | $54.66 | $50.36 | $40.36 | $36.29 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Return4 | –46.20% | 9.42% | 26.03% | 12.27% | 40.27% |
|
|
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
Net Assets, End of Period (Millions) | $75 | $148 | $115 | $83 | $60 |
Ratio of Total Expenses to |
|
|
|
|
|
Average Net Assets | 0.27%5 | 0.25% | 0.26% | 0.28% | 0.28%5 |
Ratio of Net Investment Income to |
|
|
|
|
|
Average Net Assets | 1.72%5 | 0.99% | 1.16% | 1.20% | 1.95%3,5 |
Portfolio Turnover Rate6 | 34%5 | 11% | 15% | 21% | 16% |
ETF Shares |
|
|
|
|
|
|
|
|
|
|
|
| Six Months |
|
|
| Sept. 23, |
| Ended |
| 20041 to | ||
For a Share Outstanding | February 28, | Year Ended August 31, | Aug. 31, | ||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 |
Net Asset Value, Beginning of Period | $109.54 | $100.92 | $80.90 | $72.72 | $49.24 |
Investment Operations |
|
|
|
|
|
Net Investment Income | .618 | 1.059 | 1.0802 | .9662 | 1.1692,7 |
Net Realized and Unrealized Gain (Loss) |
|
|
|
|
|
on Investments | (51.115) | 8.501 | 19.869 | 7.915 | 22.527 |
Total from Investment Operations | (50.497) | 9.560 | 20.949 | 8.881 | 23.696 |
Distributions |
|
|
|
|
|
Dividends from Net Investment Income | (1.183) | (.940) | (.929) | (.701) | (.216) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.183) | (.940) | (.929) | (.701) | (.216) |
Net Asset Value, End of Period | $57.86 | $109.54 | $100.92 | $80.90 | $72.72 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Return | –46.19% | 9.47% | 26.09% | 12.31% | 48.29% |
|
|
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
Net Assets, End of Period (Millions) | $522 | $845 | $656 | $340 | $182 |
Ratio of Total Expenses to |
|
|
|
|
|
Average Net Assets | 0.24%5 | 0.20% | 0.22% | 0.25% | 0.26%5 |
Ratio of Net Investment Income to |
|
|
|
|
|
Average Net Assets | 1.75%5 | 1.04% | 1.20% | 1.23% | 1.97%7,5 |
Portfolio Turnover Rate6 | 34%5 | 11% | 15% | 21% | 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 ETF 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.
29
29
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 offers two classes of shares, Admiral Shares and ETF Shares. Admiral Shares are available to any investor who meets the fund’s minimum purchase requirements. ETF Shares are listed for trading on the NYSE Arca, Inc.; 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 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. Management has analyzed the fund’s tax positions taken on federal income tax returns for all open tax years (tax years ended August 31, 2005–2008) and for the period ended February 28, 2009, and has concluded that no provision for federal income tax is required in the fund’s 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 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. 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, 2009, the fund had contributed capital of $176,000 to Vanguard (included in Other Assets), representing 0.03% of the fund’s net assets and 0.07% 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.
30
Energy Index Fund
During the six months ended February 28, 2009, the fund realized $25,955,000 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 losses 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, 2008, the fund had available realized losses of $12,978,000 to offset future net capital gains of $5,000 through August 31, 2013, $789,000 through August 31, 2014, $461,000 through August 31, 2015, $1,694,000 through August 31, 2016, and $10,029,000 through August 31, 2017. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2009; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balances above.
At February 28, 2009, the cost of investment securities for tax purposes was $874,572,000. Net unrealized depreciation of investment securities for tax purposes was $276,976,000, consisting of unrealized gains of $1,787,000 on securities that had risen in value since their purchase and $278,763,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2009, the fund purchased $283,547,000 of investment securities and sold $209,884,000 of investment securities, other than temporary cash investments.
E. Capital share transactions for each class of shares were:
| Six Months Ended | Year Ended | |||
| February 28, 2009 | August 31, 2008 | |||
| Amount | Shares |
| Amount | Shares |
| ($000) | (000) |
| ($000) | (000) |
Admiral Shares |
|
|
|
|
|
Issued | 21,411 | 609 |
| 58,522 | 1,041 |
Issued in Lieu of Cash Distributions | 1,181 | 36 |
| 1,022 | 18 |
Redeemed1 | (28,086) | (757) |
| (34,648) | (630) |
Net Increase (Decrease)—Admiral Shares | (5,494) | (112) |
| 24,896 | 429 |
ETF Shares |
|
|
|
|
|
Issued | 163,268 | 2,308 |
| 261,143 | 2,311 |
Issued in Lieu of Cash Distributions | — | — |
| — | — |
Redeemed1 | (86,658) | (1,000) |
| (130,442) | (1,100) |
Net Increase (Decrease)—ETF Shares | 76,610 | 1,308 |
| 130,701 | 1,211 |
1 Net of redemption fees for fiscal 2009 and 2008 of $187,000 and $241,000, respectively (fund totals).
F. In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157 (“FAS 157”), “Fair Value Measurements.” FAS 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements in financial statements.
The various inputs that may be used to determine the value of the fund’s investments are summarized in three broad levels. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At February 28, 2009, 100% of the fund’s investments were valued based on Level 1 inputs.
31
31
Financials Index Fund
Fund Profile
As of February 28, 2009
Portfolio Characteristics |
|
| |
|
| Target | Broad |
| Fund | Index1 | Index2 |
Number of Stocks | 508 | 508 | 2,474 |
Median Market Cap | $9.3B | $9.3B | $21.7B |
Price/Earnings Ratio | 14.6x | 14.6x | 12.1x |
Price/Book Ratio | 0.8x | 0.8x | 1.5x |
Yield3 |
| 4.9% | 3.1% |
Admiral Shares | 4.6% |
|
|
ETF Shares | 4.7% |
|
|
Return on Equity | 14.4% | 14.4% | 21.0% |
Earnings Growth Rate | 4.9% | 4.9% | 17.8% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate4 | 14% | — | — |
Expense Ratio5 |
| — | — |
Admiral Shares | 0.28% |
|
|
ETF Shares | 0.25% |
|
|
Short-Term Reserves | 0.0% | — | — |
Volatility Measures6 |
| |
| Fund Versus | Fund Versus |
| Target Index1 | Broad Index2 |
R-Squared | 1.00 | 0.71 |
Beta | 1.00 | 1.29 |
Industry Diversification (% of equity exposure) | |
|
|
Asset Management & Custody Banks | 9.2% |
Consumer Finance | 2.7 |
Diversified Banks | 8.4 |
Diversified REITs | 1.0 |
Insurance Brokers | 2.9 |
Investment Banking & Brokerage | 9.0 |
Life & Health Insurance | 4.6 |
Mortgage REITs | 1.4 |
Multiline Insurance | 1.9 |
Office REITs | 1.9 |
Other Diversified Financial Services | 13.2 |
Property & Casualty Insurance | 14.9 |
Regional Banks | 10.2 |
Reinsurance | 2.5 |
Residential REITs | 1.9 |
Retail REITs | 2.7 |
Specialized Finance | 3.1 |
Specialized REITs | 4.2 |
Thrifts & Mortgage Finance | 3.0 |
Other Financials | 1.3 |
Ten Largest Holdings7 (% of total net assets) | |
|
|
JPMorgan Chase & Co. | 9.5% |
Wells Fargo & Co. | 5.3 |
The Goldman Sachs Group, Inc. | 4.0 |
Berkshire Hathaway Inc. Class B | 3.1 |
Bank of New York Mellon Corp. | 2.8 |
Bank of America Corp. | 2.8 |
U.S. Bancorp | 2.8 |
The Travelers Cos., Inc. | 2.4 |
Morgan Stanley | 2.1 |
MetLife, Inc. | 1.6 |
Top Ten | 36.4% |
1 MSCI US IMI/Financials.
2 MSCI US IMI/2500.
3 30-day SEC yield for the fund; annualized dividend yield for the indexes. See the Glossary.
4 Annualized.
5 The expense ratios shown are from the prospectuses dated December 29, 2008, and represent estimated costs for the current fiscal year based on the fund’s current net assets. For the six months ended February 28, 2009, the annualized expense ratios were 0.26% for the Admiral Shares and 0.23% for the ETF Shares.
6 For an explanation of R-squared, beta, and other terms used here, see the Glossary.
7 The holdings listed exclude any temporary cash investments and equity index products.
32
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/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): January 26, 2004–February 28, 2009
Average Annual Total Returns: Periods Ended December 31, 2008
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 |
ETF Shares | 1/26/2004 |
|
|
Market Price |
| –48.88% | –10.49% |
Net Asset Value |
| –49.09 | –10.53 |
Admiral Shares2 | 2/4/2004 | –49.12 | –10.30 |
1 Six months ended February 28, 2009.
2 Total returns do not reflect the 2% fee assessed on redemptions of shares held for less than one year. Note:
See Financial Highlights tables for dividend and capital gains information.
33
33
Financials Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2009
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).
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
Common Stocks (100.0%) |
|
| |
Capital Markets (18.2%) |
|
| |
| The Goldman |
|
|
| Sachs Group, Inc. | 123,267 | 11,227 |
| Bank of New York |
|
|
| Mellon Corp. | 355,517 | 7,882 |
| Morgan Stanley | 295,751 | 5,779 |
| Charles Schwab Corp. | 304,140 | 3,866 |
| Northern Trust Corp. | 62,193 | 3,455 |
| State Street Corp. | 133,725 | 3,379 |
| Franklin Resources Corp. | 50,433 | 2,310 |
| T. Rowe Price Group Inc. | 76,016 | 1,729 |
| Invesco, Ltd. | 119,145 | 1,362 |
| Ameriprise Financial, Inc. | 67,376 | 1,074 |
* | TD Ameritrade |
|
|
| Holding Corp. | 73,551 | 873 |
| Eaton Vance Corp. | 34,009 | 588 |
| Legg Mason Inc. | 43,417 | 557 |
| Federated Investors, Inc. | 28,204 | 532 |
| SEI Investments Co. | 41,557 | 492 |
* | Knight Capital Group, Inc. |
|
|
| Class A | 26,687 | 469 |
* | Affiliated Managers |
|
|
| Group, Inc. | 12,693 | 457 |
| Raymond James |
|
|
| Financial, Inc. | 29,719 | 415 |
| Waddell & Reed |
|
|
| Financial, Inc. | 25,284 | 357 |
| Greenhill & Co., Inc. | 5,437 | 351 |
| Jefferies Group, Inc. | 35,255 | 349 |
* | Investment Technology |
|
|
| Group, Inc. | 13,568 | 264 |
* | Stifel Financial Corp. | 6,664 | 220 |
| Janus Capital Group Inc. | 49,549 | 218 |
| Apollo Investment Corp. | 43,790 | 181 |
* | MF Global Ltd. | 32,035 | 139 |
* | thinkorswim Group, Inc. | 17,386 | 137 |
* | E*TRADE Financial Corp. | 165,862 | 133 |
* | KBW Inc. | 9,247 | 131 |
* | Piper Jaffray Cos., Inc. | 5,920 | 130 |
| optionsXpress Holdings Inc. | 12,997 | 128 |
| SWS Group, Inc. | 8,136 | 110 |
| Ares Capital Corp. | 30,291 | 109 | |
* | Riskmetrics Group Inc. | 9,332 | 103 | |
* | LaBranche & Co. Inc. | 17,525 | 101 | |
| American Capital Ltd. | 64,048 | 86 | |
| Prospect Energy Corp. | 9,094 | 74 | |
| BlackRock Kelso |
|
| |
| Capital Corp. | 16,808 | 63 | |
| Allied Capital Corp. | 55,596 | 59 | |
| Westwood Holdings |
|
| |
| Group, Inc. | 1,639 | 58 | |
| Capital Southwest Corp. | 869 | 57 | |
| MVC Capital, Inc. | 7,052 | 56 | |
* | TradeStation Group, Inc. | 9,563 | 51 | |
| GFI Group Inc. | 22,173 | 50 | |
| Gamco Investors Inc. |
|
| |
| Class A | 1,670 | 48 | |
| Hercules Technology |
|
| |
| Growth Capital, Inc. | 10,225 | 44 | |
| Cohen & Steers, Inc. | 4,658 | 42 | |
| NGP Capital Resources Co. | 6,759 | 41 | |
| BGC Partners, Inc. | 13,375 | 23 | |
| Calamos Asset |
|
| |
| Management, Inc. | 6,330 | 22 | |
* | Penson Worldwide, Inc. | 4,322 | 21 | |
* | FBR Capital Markets Corp. | 8,542 | 18 | |
* | FCStone Group, Inc. | 7,979 | 13 | |
* | Thomas Weisel Partners |
|
| |
| Group, Inc. | 2,645 | 8 | |
|
|
| 50,441 | |
Commercial Banks (18.5%) |
|
| ||
| Wells Fargo & Co. | 1,223,096 | 14,800 | |
| U.S. Bancorp | 543,246 | 7,774 | |
| PNC Financial |
|
| |
| Services Group | 132,491 | 3,622 | |
| BB&T Corp. | 170,876 | 2,756 | |
| SunTrust Banks, Inc. | 104,290 | 1,255 | |
| KeyCorp | 153,480 | 1,076 | |
| M & T Bank Corp. | 22,222 | 813 | |
| Regions Financial Corp. | 215,489 | 737 | |
| Cullen/Frost Bankers, Inc. | 16,505 | 710 | |
| Comerica, Inc. | 46,724 | 701 | |
| Commerce Bancshares, Inc. | 19,946 | 693 | |
| First Horizon National Corp. | 63,762 | 585 | |
| Associated Banc-Corp. | 37,556 | 543 | |
| Bank of Hawaii Corp. | 14,832 | 475 | |
| Valley National Bancorp | 39,735 | 454 | |
| TCF Financial Corp. | 36,592 | 449 | |
| BancorpSouth, Inc. | 22,988 | 428 | |
| City National Corp. | 12,626 | 405 | |
| FirstMerit Corp. | 25,102 | 369 | |
| Westamerica Bancorporation | 9,001 | 359 | |
| Fifth Third Bancorp | 161,107 | 340 | |
| UMB Financial Corp. | 8,880 | 337 | |
| Fulton Financial Corp. | 54,103 | 337 | |
| Marshall & Ilsley Corp. | 72,350 | 331 | |
| Prosperity Bancshares, Inc. | 12,863 | 328 | |
| Zions Bancorp | 33,555 | 314 | |
| Synovus Financial Corp. | 86,998 | 303 | |
| Glacier Bancorp, Inc. | 18,589 | 286 | |
* | Signature Bank | 10,818 | 271 | |
| Trustmark Corp. | 15,074 | 268 | |
| Old National Bancorp | 20,539 | 240 | |
| Susquehanna |
|
| |
| Bancshares, Inc. | 26,665 | 234 | |
| BOK Financial Corp. | 7,303 | 220 | |
| Whitney Holdings Corp. | 19,786 | 219 | |
| First Financial |
|
| |
| Bankshares, Inc. | 4,818 | 207 | |
| Hancock Holding Co. | 7,280 | 207 | |
| IBERIABANK Corp. | 4,585 | 198 | |
| United Bankshares, Inc. | 12,729 | 196 |
|
| First Commonwealth |
|
|
|
| Financial Corp. | 23,210 | 190 |
|
| Wilmington Trust Corp. | 20,818 | 187 |
|
| NBT Bancorp, Inc. | 9,462 | 186 |
|
| Popular, Inc. | 82,612 | 186 |
|
| Community Bank |
|
|
|
| System, Inc. | 10,034 | 172 |
|
| F.N.B. Corp. | 27,107 | 170 |
|
| International |
|
|
|
| Bancshares Corp. | 16,985 | 170 |
|
| Park National Corp. | 3,498 | 169 |
|
| S & T Bancorp, Inc. | 7,276 | 165 |
|
* | SVB Financial Group | 10,053 | 164 |
|
| National Penn |
|
|
|
| Bancshares Inc. | 22,131 | 164 |
|
| Umpqua Holdings Corp. | 18,600 | 158 |
|
| Huntington Bancshares Inc. | 107,637 | 157 |
|
| First Citizens BancShares |
|
|
|
| Class A | 1,399 | 150 |
|
| East West Bancorp, Inc. | 19,646 | 140 |
|
| CVB Financial Corp. | 19,288 | 135 |
|
| MB Financial, Inc. | 10,329 | 134 |
|
| City Holding Co. | 5,037 | 132 |
|
| Chemical Financial Corp. | 6,649 | 127 |
|
| Cathay General Bancorp | 13,011 | 127 |
|
| Sterling Bancshares, Inc. | 22,867 | 125 |
|
| WesBanco, Inc. | 6,980 | 124 |
|
| PrivateBancorp, Inc. | 9,401 | 117 |
|
| First Midwest Bancorp, Inc. | 14,981 | 113 |
|
| CapitalSource Inc. REIT | 59,846 | 112 |
|
| PacWest Bancorp | 8,123 | 111 |
|
* | Investors Bancorp, Inc. | 15,352 | 110 |
|
| Community Trust |
|
|
|
| Bancorp Inc. | 4,154 | 108 |
|
| First BanCorp Puerto Rico | 24,251 | 101 |
|
| First Financial Corp. (IN) | 3,045 | 99 |
|
| Pacific Capital Bancorp | 13,513 | 98 |
|
* | Pinnacle Financial |
|
|
|
| Partners, Inc. | 4,743 | 94 |
|
| Wintrust Financial Corp. | 7,303 | 91 |
|
| Simmons First National Corp. | 3,518 | 90 |
|
* | Texas Capital Bancshares, Inc. | 9,173 | 89 |
|
| StellarOne Corp. | 7,060 | 88 |
|
| TowneBank | 6,348 | 85 |
|
| S.Y. Bancorp, Inc. | 3,576 | 84 |
|
| Harleysville National Corp. | 12,524 | 84 |
|
| Tompkins Trustco, Inc. | 2,082 | 83 |
|
| Bank of the Ozarks, Inc. | 3,899 | 81 |
| Suffolk Bancorp | 2,973 | 77 |
| First Financial Bancorp | 9,835 | 76 |
| First Source Corp. | 4,163 | 74 |
| Arrow Financial Corp. | 3,135 | 74 |
| Home Bancshares Inc. | 3,997 | 73 |
| SCBT Financial Corp. | 3,565 | 71 |
| Independent Bank Corp. (MA) | 4,739 | 70 |
34
Financials Index Fund
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
| Renasant Corp. | 6,259 | 67 |
| Univest Corp. of Pennsylvania | 3,346 | 67 |
| BancFirst Corp. | 1,873 | 65 |
| Boston Private Financial |
|
|
| Holdings, Inc. | 18,673 | 65 |
| First Merchants Corp. | 6,377 | 64 |
| Washington Trust |
|
|
| Bancorp, Inc. | 4,497 | 64 |
| Northfield Bancorp, Inc. | 6,379 | 64 |
| Webster Financial Corp. | 16,258 | 63 |
| Provident Bankshares Corp. | 10,305 | 61 |
| Southside Bancshares, Inc. | 3,509 | 61 |
| Lakeland Financial Corp. | 3,397 | 59 |
| First Busey Corp. | 8,270 | 58 |
| UCBH Holdings, Inc. | 34,644 | 55 |
| TriCo Bancshares | 4,138 | 55 |
| Sandy Spring Bancorp, Inc. | 5,032 | 54 |
| Republic Bancorp, Inc. |
|
|
| Class A | 2,794 | 52 |
| Union Bankshares Corp. | 4,010 | 50 |
| Sterling Bancorp | 5,353 | 47 |
| Columbia Banking |
|
|
| System, Inc. | 5,664 | 44 |
| Southwest Bancorp, Inc. | 4,328 | 42 |
| United Community |
|
|
| Banks, Inc. | 11,758 | 41 |
| Heartland Financial USA, Inc. | 3,591 | 41 |
| Capital City Bank Group, Inc. | 3,270 | 40 |
| Central Pacific Financial Co. | 8,969 | 36 |
* | Western Alliance Bancorp | 6,961 | 35 |
| First Community |
|
|
| Bancshares, Inc. | 2,908 | 34 |
| Great Southern Bancorp, Inc. | 2,653 | 31 |
| Mainsource Financial |
|
|
| Group, Inc. | 5,254 | 29 |
| The South Financial |
|
|
| Group, Inc. | 22,825 | 29 |
| Greene County Bancshares | 3,910 | 28 |
| CoBiz Inc. | 5,768 | 27 |
| Colonial BancGroup, Inc. | 59,635 | 27 |
| Wilshire Bancorp Inc. | 5,441 | 26 |
* | Guaranty Bancorp | 16,552 | 26 |
* | Citizens Banking Corp. | 33,232 | 25 |
* | Virginia Commerce |
|
|
| Bancorp, Inc. | 6,234 | 25 |
| Old Second Bancorp, Inc. | 3,816 | 23 |
| Sterling Financial Corp. | 15,874 | 22 |
^ | Frontier Financial Corp. | 13,408 | 21 |
| Capitol Bancorp Ltd. | 4,442 | 19 |
| Nara Bancorp, Inc. | 7,136 | 19 |
| Seacoast Banking Corp. |
|
|
| of Florida | 4,413 | 17 |
| Hanmi Financial Corp. | 11,957 | 14 |
| Oriental Financial Group Inc. | 6,940 | 12 |
| Banner Corp. | 3,406 | 10 |
| Independent Bank Corp. (MI) | 6,354 | 8 |
| Amcore Financial, Inc. | 6,588 | 7 | |
| Taylor Capital Group, Inc. | 1,804 | 7 | |
| City Bank Lynnwood (WA) | 4,186 | 7 | |
| Cascade Bancorp | 6,926 | 6 | |
| First State Bancorporation | 6,151 | 6 | |
| West Coast Bancorp | 4,616 | 6 | |
| Integra Bank Corp. | 5,951 | 6 | |
|
|
| 51,492 | |
Consumer Finance (2.7%) |
|
| ||
| American Express Co. | 323,135 | 3,897 | |
| Capital One Financial Corp. | 121,335 | 1,462 | |
| Discover Financial Services | 133,893 | 767 | |
* | SLM Corp. | 145,095 | 667 | |
* | AmeriCredit Corp. | 36,232 | 140 | |
| Cash America |
|
| |
| International Inc. | 8,984 | 129 | |
* | First Cash Financial |
|
| |
| Services, Inc. | 8,122 | 111 | |
* | EZCORP, Inc. | 10,737 | 110 | |
* | World Acceptance Corp. | 4,521 | 66 | |
* | Credit Acceptance Corp. | 3,265 | 62 | |
| Student Loan Corp. | 1,267 | 48 | |
* | Dollar Financial Corp. | 7,595 | 46 | |
| Nelnet, Inc. | 8,951 | 46 | |
* | The First Marblehead Corp. | 19,887 | 19 | |
| Advance America, |
|
| |
| Cash Advance Centers, Inc. | 13,291 | 14 | |
* | CompuCredit Corp. | 4,386 | 9 | |
* | Cardtronics Inc. | 4,162 | 6 | |
| Advanta Corp. Class B | 9,949 | 5 | |
| Advanta Corp. Class A | 2,519 | 1 | |
|
|
| 7,605 | |
Diversified Financial Services (16.7%) |
|
| ||
| JPMorgan Chase & Co. | 1,155,586 | 26,405 | |
| Bank of America Corp. | 1,978,932 | 7,817 | |
| CME Group, Inc. | 18,619 | 3,396 | |
| Citigroup Inc. | 1,686,987 | 2,530 | |
| Moody's Corp. | 63,096 | 1,133 | |
* | Intercontinental |
|
| |
| Exchange Inc. | 17,943 | 1,019 | |
* | Nasdaq Stock Market Inc. | 43,435 | 908 | |
* | Leucadia National Corp. | 57,846 | 846 | |
| NYSE Euronext | 41,268 | 697 | |
* | MSCI, Inc.-Class A Shares | 22,431 | 353 | |
| CIT Group Inc. | 112,481 | 276 | |
* | Interactive Brokers |
|
| |
| Group, Inc. | 13,000 | 183 | |
* | PHH Corp. | 16,917 | 163 | |
| Financial Federal Corp. | 7,500 | 142 | |
* | PICO Holdings, Inc. | 5,248 | 115 | |
* | Portfolio Recovery |
|
| |
| Associates, Inc. | 4,722 | 107 | |
* | MarketAxess Holdings, Inc. | 9,171 | 72 | |
| Compass Diversified Trust | 6,850 | 60 | |
| Life Partners Holdings | 2,295 | 39 | |
* | Asset Acceptance |
|
| |
| Capital Corp. | 4,678 | 16 | |
* | NewStar Financial, Inc. | 11,271 | 15 | |
|
|
| 46,292 | |
Insurance (26.8%) |
|
| |
* | Berkshire Hathaway Inc. |
|
|
| Class B | 3,365 | 8,628 |
| The Travelers Cos., Inc. | 180,953 | 6,541 |
| MetLife, Inc. | 245,763 | 4,537 |
| The Chubb Corp. | 110,089 | 4,298 |
| Ace Ltd. | 103,261 | 3,770 |
| Aon Corp. | 75,138 | 2,873 |
| Marsh & McLennan |
|
|
| Cos., Inc. | 159,239 | 2,855 |
| The Allstate Corp. | 157,606 | 2,653 |
| AFLAC Inc. | 144,244 | 2,418 |
| Progressive Corp. of Ohio | 199,113 | 2,304 |
| Prudential Financial, Inc. | 130,607 | 2,143 |
| Loews Corp. | 101,704 | 2,019 |
| Everest Re Group, Ltd. | 19,076 | 1,242 |
| Willis Group Holdings Ltd. | 51,484 | 1,127 |
| PartnerRe Ltd. | 17,054 | 1,056 |
| Unum Group | 102,459 | 1,043 |
| Fidelity National |
|
|
| Financial, Inc. Class A | 62,349 | 1,033 |
| Cincinnati Financial Corp. | 47,869 | 983 |
| W.R. Berkley Corp. | 44,918 | 935 |
| Axis Capital Holdings Ltd. | 41,548 | 930 |
| RenaissanceRe |
|
|
| Holdings Ltd. | 18,071 | 814 |
| HCC Insurance |
|
|
| Holdings, Inc. | 35,591 | 781 |
* | Markel Corp. | 2,910 | 774 |
| Assurant, Inc. | 36,317 | 741 |
* | Arch Capital Group Ltd. | 13,060 | 705 |
| Lincoln National Corp. | 79,719 | 685 |
| The Principal Financial |
|
|
| Group, Inc. | 80,371 | 642 |
| Brown & Brown, Inc. | 37,086 | 626 |
| Old Republic |
|
|
| International Corp. | 67,992 | 617 |
| Reinsurance Group |
|
|
| of America, Inc. | 22,338 | 608 |
| The Hartford Financial |
|
|
| Services Group Inc. | 93,535 | 571 |
| First American Corp. | 24,432 | 566 |
| The Hanover Insurance |
|
|
| Group Inc. | 15,830 | 557 |
| Torchmark Corp. | 26,254 | 541 |
| Aspen Insurance |
|
|
| Holdings Ltd. | 23,874 | 520 |
| White Mountains |
|
|
| Insurance Group Inc. | 2,409 | 477 |
* | ProAssurance Corp. | 9,849 | 471 |
| Allied World Assurance |
|
|
| Holdings, Ltd. | 12,168 | 467 |
| Arthur J. Gallagher & Co. | 29,281 | 465 |
* | Alleghany Corp. | 1,683 | 442 |
| Platinum Underwriters |
|
|
| Holdings, Ltd. | 14,687 | 412 |
| IPC Holdings Ltd. | 14,403 | 366 |
| American Financial |
|
|
| Group, Inc. | 23,201 | 361 |
| Montpelier Re Holdings Ltd. | 26,923 | 342 |
| XL Capital Ltd. Class A | 102,451 | 339 |
| Endurance Specialty |
|
|
| Holdings Ltd. | 14,942 | 334 |
| American International |
|
|
| Group, Inc. | 750,785 | 315 |
| Erie Indemnity Co. Class A | 10,427 | 313 |
| Odyssey Re Holdings Corp. | 6,449 | 300 |
| R.L.I. Corp. | 5,629 | 276 |
| StanCorp Financial |
|
|
| Group, Inc. | 15,160 | 273 |
* | Argo Group |
|
|
| International Holdings | 9,513 | 269 |
| Zenith National |
|
|
| Insurance Corp. | 11,607 | 255 |
| Transatlantic Holdings, Inc. | 8,223 | 247 |
| Max Re Capital Ltd. | 14,147 | 233 |
| Tower Group, Inc. | 11,292 | 230 |
| Mercury General Corp. | 8,484 | 229 |
* | Navigators Group, Inc. | 4,132 | 216 |
| Selective Insurance Group | 16,443 | 198 |
* | MBIA, Inc. | 62,819 | 172 |
| Genworth Financial Inc. | 134,223 | 162 |
| Unitrin, Inc. | 14,714 | 159 |
| Infinity Property & |
|
|
| Casualty Corp. | 4,357 | 155 |
* | Hilltop Holdings Inc. | 14,000 | 152 |
| Employers Holdings, Inc. | 15,178 | 146 |
| Delphi Financial Group, Inc. | 12,722 | 138 |
| Safety Insurance Group, Inc. | 4,304 | 135 |
| Harleysville Group, Inc. | 4,446 | 132 |
35
Financials Index Fund
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
| American Physicians |
|
|
| Capital, Inc. | 2,697 | 114 |
| United Fire & Casualty Co. | 6,692 | 113 |
* | Enstar Group Ltd. | 2,457 | 113 |
* | FPIC Insurance Group, Inc. | 2,545 | 94 |
| Assured Guaranty Ltd. | 21,244 | 94 |
| Horace Mann |
|
|
| Educators Corp. | 12,050 | 93 |
* | Greenlight Capital Re. Ltd. | 6,095 | 88 |
* | Amerisafe Inc. | 5,828 | 84 |
* | eHealth, Inc. | 6,648 | 84 |
| National Western Life |
|
|
| Insurance Co. Class A | 799 | 81 |
| OneBeacon Insurance |
|
|
| Group Ltd. | 7,286 | 81 |
| Flagstone Reinsurance |
|
|
| Holdings Ltd. | 10,609 | 79 |
* | CNA Surety Corp. | 5,424 | 79 |
* | Citizens, Inc. | 12,071 | 78 |
| Stewart Information |
|
|
| Services Corp. | 5,326 | 78 |
| Protective Life Corp. | 20,464 | 77 |
| State Auto Financial Corp. | 4,244 | 71 |
| Amtrust Financial |
|
|
| Services Inc. | 8,448 | 71 |
* | Conseco, Inc. | 57,742 | 70 |
* | Seabright Insurance |
|
|
| Holdings, Inc. | 6,359 | 62 |
| American Equity Investment |
|
|
| Life Holding Co. | 14,999 | 58 |
| Donegal Group Inc. Class A | 3,749 | 53 |
| Ambac Financial Group, Inc. | 84,031 | 50 |
* | United America |
|
|
| Indemnity, Ltd. | 5,685 | 48 |
| Presidential Life Corp. | 7,037 | 46 |
| Baldwin & Lyons, Inc. |
|
|
| Class B | 2,400 | 41 |
| EMC Insurance Group, Inc. | 1,905 | 38 |
| Kansas City Life |
|
|
| Insurance Co. | 1,430 | 34 |
| National Financial |
|
|
| Partners Corp. | 11,803 | 29 |
| National Interstate Corp. | 1,740 | 29 |
* | Crawford & Co. Class B | 3,436 | 27 |
* | Crawford & Co. | 3,897 | 20 |
| The Phoenix Cos., Inc. | 34,340 | 16 |
* | First Acceptance Corp. | 5,555 | 14 |
| FBL Financial Group, Inc. |
|
|
| Class A | 4,531 | 14 |
|
|
| 74,538 |
Real Estate Investment Trusts (13.6%) |
|
| |
| Annaly Capital |
|
|
| Management Inc. REIT | 167,418 | 2,327 |
| Simon Property Group, Inc. |
|
|
| REIT | 69,940 | 2,315 |
| Public Storage, Inc. REIT | 39,530 | 2,193 |
| Equity Residential REIT | 84,172 | 1,481 |
| Vornado Realty Trust REIT | 43,782 | 1,433 |
| HCP, Inc. REIT | 78,163 | 1,428 |
| Boston Properties, Inc. REIT | 37,345 | 1,385 |
| Plum Creek Timber Co. Inc. |
|
|
| REIT | 51,593 | 1,353 |
| Avalonbay Communities, Inc. |
|
|
| REIT | 24,751 | 1,050 |
| Health Care Inc. REIT | 33,754 | 1,039 |
| Ventas, Inc. REIT | 44,365 | 957 |
| Federal Realty |
|
|
| Investment Trust REIT | 18,283 | 752 |
| Kimco Realty Corp. REIT | 74,158 | 656 |
| Rayonier Inc. REIT | 24,418 | 649 |
| Digital Realty Trust, Inc. REIT | 21,355 | 638 |
| Nationwide Health |
|
|
| Properties, Inc. REIT | 30,757 | 623 |
| Regency Centers Corp. |
|
|
| REIT | 21,702 | 585 |
| Host Hotels & Resorts Inc. |
|
|
| REIT | 153,143 | 567 |
| Realty Income Corp. REIT | 32,264 | 566 |
| Liberty Property Trust REIT | 30,435 | 556 |
| ProLogis REIT | 81,826 | 474 |
| Essex Property Trust, Inc. |
|
|
| REIT | 8,346 | 454 |
| Senior Housing |
|
|
| Properties Trust REIT | 35,548 | 449 |
| Corporate Office |
|
|
| Properties Trust, Inc. REIT | 15,931 | 398 |
| Alexandria Real Estate |
|
|
| Equities, Inc. REIT | 9,956 | 398 |
| Highwood Properties, Inc. |
|
|
| REIT | 19,764 | 373 |
| MFA Mortgage |
|
|
| Investments, Inc. REIT | 63,946 | 367 |
| UDR, Inc. REIT | 45,744 | 362 |
| AMB Property Corp. REIT | 30,375 | 362 |
| National Retail Properties |
|
|
| REIT | 24,315 | 349 |
| Mack-Cali Realty Corp. REIT | 20,390 | 348 |
| Hospitality Properties Trust |
|
|
| REIT | 29,269 | 334 |
| Omega Healthcare |
|
|
| Investors, Inc. REIT | 25,363 | 333 |
| Duke Realty Corp. REIT | 45,579 | 314 |
| Camden Property Trust REIT | 16,487 | 310 |
| BRE Properties Inc. Class A |
|
|
| REIT | 15,800 | 299 |
| Potlatch Corp. REIT | 12,263 | 279 |
| Washington REIT | 15,988 | 274 |
| Tanger Factory Outlet |
|
|
| Centers, Inc. REIT | 9,864 | 272 |
| Weingarten Realty Investors |
|
|
| REIT | 23,822 | 269 |
| The Macerich Co. REIT | 23,344 | 267 |
| Home Properties, Inc. REIT | 9,911 | 263 |
| Healthcare Realty Trust Inc. |
|
|
| REIT | 18,094 | 262 |
Hatteras Financial Corp. REIT | 10,898 | 260 |
Taubman Co. REIT | 16,538 | 259 |
Equity Lifestyle |
|
|
Properties, Inc. REIT | 7,249 | 242 |
HRPT Properties Trust REIT | 70,522 | 228 |
Douglas Emmett, Inc. REIT | 30,069 | 226 |
American Campus |
|
|
Communities, Inc. REIT | 13,109 | 224 |
Mid-America Apartment |
|
|
Communities, Inc. REIT | 8,627 | 223 |
Redwood Trust, Inc. REIT | 15,750 | 213 |
BioMed Realty Trust, Inc. |
|
|
REIT | 24,670 | 210 |
SL Green Realty Corp. REIT | 18,045 | 210 |
Franklin Street |
|
|
Properties Corp. REIT | 18,510 | 196 |
EastGroup Properties, Inc. |
|
|
REIT | 7,829 | 192 |
Kilroy Realty Corp. REIT | 10,109 | 188 |
National Health Investors |
|
|
REIT | 7,796 | 186 |
Anworth Mortgage |
|
|
Asset Corp. REIT | 30,804 | 186 |
Capstead Mortgage Corp. |
|
|
REIT | 17,768 | 178 |
Apartment Investment & |
|
|
Management Co. Class A |
|
|
REIT | 31,714 | 166 |
Investors Real Estate Trust |
|
|
REIT | 18,014 | 165 |
PS Business Parks, Inc. REIT | 4,765 | 164 |
DCT Industrial Trust Inc. REIT | 53,514 | 156 |
Extra Space Storage Inc. |
|
|
REIT | 24,491 | 154 |
Entertainment |
|
|
Properties Trust REIT | 10,234 | 153 |
Chimera Investment Corp. |
|
|
REIT | 49,817 | 149 |
Sovran Self Storage, Inc. |
|
|
REIT | 6,857 | 145 |
Inland Real Estate Corp. |
|
|
REIT | 18,414 | 144 |
Equity One, Inc. REIT | 12,818 | 143 |
Post Properties, Inc. REIT | 13,648 | 132 |
Brandywine Realty Trust REIT | 27,326 | 129 |
Saul Centers, Inc. REIT | 4,420 | 114 |
Developers Diversified |
|
|
Realty Corp. REIT | 37,300 | 110 |
Universal Health Realty |
|
|
Income REIT | 3,486 | 109 |
LTC Properties, Inc. REIT | 6,046 | 103 |
Acadia Realty Trust REIT | 9,829 | 99 |
Getty Realty Holding Corp. |
|
|
REIT | 5,742 | 96 |
Cousins Properties, Inc. REIT | 12,631 | 90 |
Alexander's, Inc. REIT | 627 | 88 |
DiamondRock Hospitality Co. |
|
|
REIT | 28,421 | 88 |
Medical Properties Trust Inc. |
|
|
REIT | 24,140 | 84 |
Lexington Realty Trust REIT | 22,617 | 73 |
LaSalle Hotel Properties REIT | 12,620 | 67 |
Cedar Shopping Centers, Inc. |
|
|
REIT | 13,953 | 66 |
Urstadt Biddle Properties |
|
|
Class A REIT | 5,266 | 64 |
First Potomac REIT | 8,506 | 62 |
CBL & Associates |
|
|
Properties, Inc. REIT | 19,558 | 61 |
DuPont Fabros |
|
|
Technology Inc. REIT | 11,160 | 59 |
iStar Financial Inc. REIT | 41,006 | 57 |
Parkway Properties Inc. REIT | 4,836 | 56 |
Colonial Properties Trust REIT | 14,005 | 53 |
American Capital |
|
|
Agency Corp. REIT | 3,248 | 52 |
Sun Communities, Inc. REIT | 5,207 | 46 |
General Growth |
|
|
Properties Inc. REIT | 74,957 | 44 |
NorthStar Realty |
|
|
Finance Corp. REIT | 19,277 | 39 |
U-Store-It Trust REIT | 15,412 | 39 |
Pennsylvania REIT | 12,409 | 38 |
Kite Realty Group Trust REIT | 10,292 | 35 |
Sunstone Hotel |
|
|
Investors, Inc. REIT | 15,766 | 35 |
Education Realty Trust, Inc. |
|
|
REIT | 9,059 | 33 |
Ashford Hospitality Trust |
|
|
REIT | 31,894 | 32 |
Winthrop Realty Trust REIT | 4,139 | 31 |
First Industrial Realty Trust |
|
|
REIT | 13,861 | 31 |
Ramco-Gershenson |
|
|
Properties Trust REIT | 5,785 | 30 |
36
Financials Index Fund
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
| Hersha Hospitality Trust REIT | 15,044 | 27 |
| CapLease, Inc. REIT | 13,276 | 26 |
| Strategic Hotels and |
|
|
| Resorts, Inc. REIT | 23,432 | 19 |
| Anthracite Capital Inc. REIT | 23,136 | 19 |
* | Maguire Properties, Inc. |
|
|
| REIT | 12,054 | 18 |
| Glimcher Realty Trust REIT | 11,991 | 17 |
| FelCor Lodging Trust, Inc. |
|
|
| REIT | 19,613 | 16 |
| RAIT Financial Trust REIT | 18,634 | 16 |
| Urstadt Biddle Properties |
|
|
| REIT | 1,000 | 13 |
| Gramercy Capital Corp. REIT | 13,515 | 10 |
| Capital Trust Class A REIT | 4,301 | 7 |
* | Friedman, Billings, |
|
|
| Ramsey Group, Inc. REIT | 46,759 | 7 |
| Newcastle Investment Corp. |
|
|
| REIT | 16,675 | 5 |
| Arbor Realty Trust, Inc. REIT | 6,050 | 3 |
* | Jer Investors Trust Inc. REIT | 1,378 | 3 |
|
|
| 37,874 |
Real Estate Management & Development (0.5%) |
| ||
* | The St. Joe Co. | 28,632 | 527 |
| Jones Lang LaSalle Inc. | 10,741 | 214 |
* | CB Richard Ellis Group, Inc. | 67,497 | 195 |
| Forest City Enterprise |
|
|
| Class A | 19,611 | 98 |
* | Forestar Real Estate |
|
|
| Group, Inc. | 11,185 | 84 |
* | Tejon Ranch Co. | 4,000 | 84 |
| Consolidated-Tomoka |
|
|
| Land Co. | 1,658 | 37 |
* | Avatar Holding, Inc. | 1,700 | 28 |
| Grubb & Ellis Co. | 13,439 | 8 |
|
|
| 1,275 |
Thrifts & Mortgage Finance (3.0%) |
|
| |
| People's United |
|
|
| Financial Inc. | 107,694 | 1,875 |
| Hudson City Bancorp, Inc. | 145,186 | 1,506 |
| New York Community |
|
|
| Bancorp, Inc. | 101,342 | 998 |
| First Niagara Financial |
|
|
| Group, Inc. | 34,721 | 403 |
| TFS Financial Corp. | 33,660 | 393 |
| NewAlliance |
|
|
| Bancshares, Inc. | 29,837 | 341 |
| Washington Federal Inc. | 27,361 | 312 |
| Capitol Federal Financial | 6,887 | 255 |
| Astoria Financial Corp. | 25,168 | 180 |
| Brookline Bancorp, Inc. | 18,017 | 158 |
| Provident Financial |
|
|
| Services Inc. | 16,704 | 156 |
| TrustCo Bank NY | 23,640 | 143 |
| Fannie Mae | 331,098 | 139 |
| Bank Mutual Corp. | 14,342 | 121 |
* | Ocwen Financial Corp. | 11,636 | 106 |
| Provident New York |
|
|
| Bancorp, Inc. | 11,179 | 96 |
| Northwest Bancorp, Inc. | 6,114 | 93 |
* | Beneficial Mutual |
|
|
| Bancorp, Inc. | 10,183 | 92 |
| MGIC Investment Corp. | 38,467 | 88 |
| Freddie Mac | 200,384 | 84 |
| Westfield Financial, Inc. | 8,739 | 82 |
| Berkshire Hills Bancorp, Inc. | 3,574 | 75 |
| Dime Community |
|
|
| Bancshares | 7,436 | 73 |
| Danvers Bancorp, Inc. | 5,634 | 72 |
| Kearny Financial Corp. | 6,651 | 66 |
| Abington Community |
|
|
| Bancorp Inc. | 7,637 | 55 |
| BankFinancial Corp. | 6,218 | 54 |
* | Oritani Financial Corp. | 4,414 | 48 |
| Radian Group, Inc. | 24,645 | 47 |
| ViewPoint Financial Group | 3,510 | 47 |
| WSFS Financial Corp. | 1,874 | 41 |
| Flushing Financial Corp. | 5,742 | 35 |
| Roma Financial Corp. | 2,962 | 33 |
| Clifton Savings Bancorp, Inc. | 3,363 | 32 |
| United Financial Bancorp, Inc. | 2,492 | 32 |
* | Meridian Interstate |
|
|
| Bancorp, Inc. | 3,268 | 24 |
| First Financial Holdings, Inc. | 3,456 | 20 |
| The PMI Group Inc. | 25,752 | 13 |
* | Flagstar Bancorp, Inc. | 14,469 | 11 |
* | Guaranty Financial |
|
|
| Group, Inc. | 19,851 | 9 |
* | Waterstone Financial, Inc. | 2,903 | 7 |
| Anchor Bancorp |
|
|
| Wisconsin Inc. | 5,339 | 4 |
| Corus Bankshares Inc. | 9,780 | 1 |
* | First Federal Financial Corp. | 4,340 | 1 |
|
|
| 8,421 |
Total Common Stocks |
|
| |
(Cost $854,077) |
| 277,938 | |
Temporary Cash Investment (0.0%) |
|
| |
1,2 | Vanguard Market |
|
|
| Liquidity Fund, 0.663% |
|
|
| (Cost $13) | 12,802 | 13 |
Total Investments (100.0%) |
|
| |
(Cost $854,090) |
| 277,951 | |
Other Assets and Liabilities (0.0%) |
|
| |
Other Assets |
| 2,807 | |
Liabilities2 |
| (2,912) | |
|
|
| (105) |
Net Assets (100%) |
| 277,846 |
At February 28, 2009, net assets consisted of: | |
| Amount |
| ($000) |
Paid-in Capital | 907,873 |
Undistributed Net Investment Income | 209 |
Accumulated Net Realized Losses | (54,097) |
Unrealized Appreciation (Depreciation) | (576,139) |
Net Assets | 277,846 |
|
|
|
|
Admiral Shares—Net Assets |
|
Applicable to 4,466,921 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 36,683 |
Net Asset Value Per Share— |
|
Admiral Shares | $8.21 |
|
|
|
|
ETF Shares—Net Assets |
|
Applicable to 14,719,008 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 241,163 |
Net Asset Value Per Share— |
|
ETF Shares | $16.38 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Part of security position is on loan to broker-dealers. The total value of securities on loan is $10,000.
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 Includes $13,000 of collateral received for securities on loan. REIT—Real Estate Investment Trust.
See accompanying Notes, which are an integral part of the Financial Statements.
37
37
Financials Index Fund
Statement of Operations
| Six Months Ended |
| February 28, 2009 |
| ($000) |
Investment Income |
|
Income |
|
Dividends | 9,391 |
Interest1 | 65 |
Security Lending | 176 |
Total Income | 9,632 |
Expenses |
|
The Vanguard Group—Note B |
|
Investment Advisory Services | 45 |
Management and Administrative— |
|
Admiral Shares | 53 |
Management and Administrative— |
|
ETF Shares | 316 |
Marketing and Distribution— |
|
Admiral Shares | 10 |
Marketing and Distribution— |
|
ETF Shares | 84 |
Custodian Fees | 31 |
Shareholders’ Reports—Admiral Shares | 1 |
Shareholders’ Reports—ETF Shares | 27 |
Total Expenses | 567 |
Net Investment Income | 9,065 |
Realized Net Gain (Loss) on |
|
Investment Securities Sold | (64,836) |
Change in Unrealized Appreciation |
|
(Depreciation) of Investment Securities | (381,021) |
Net Increase (Decrease) in Net Assets |
|
Resulting from Operations | (436,792) |
Statement of Changes in Net Assets
| Six Months Ended |
| Year Ended |
| February 28, |
| August 31, |
| 2009 |
| 2008 |
| ($000) |
| ($000) |
Increase (Decrease) in Net Assets |
|
|
|
Operations |
|
|
|
Net Investment Income | 9,065 |
| 15,734 |
Realized Net Gain (Loss) | (64,836) |
| (5,892) |
Change in Unrealized Appreciation (Depreciation) | (381,021) |
| (183,247) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (436,792) |
| (173,405) |
Distributions |
|
|
|
Net Investment Income |
|
|
|
Admiral Shares | (1,536) |
| (1,097) |
ETF Shares | (11,221) |
| (12,437) |
Realized Capital Gain |
|
|
|
Admiral Shares | — |
| — |
ETF Shares | — |
| — |
Total Distributions | (12,757) |
| (13,534) |
Capital Share Transactions |
|
|
|
Admiral Shares | 8,081 |
| 78,669 |
ETF Shares | (13,398) |
| 540,089 |
Net Increase (Decrease) from Capital Share Transactions | (5,317) |
| 618,758 |
Total Increase (Decrease) | (454,866) |
| 431,819 |
Net Assets |
|
|
|
Beginning of Period | 732,712 |
| 300,893 |
End of Period2 | 277,846 |
| 732,712 |
1 Interest income from an affiliated company of the fund was $3,000.
2 Net Assets—End of Period includes undistributed net investment income of $209,000 and $3,901,000.
See accompanying Notes, which are an integral part of the Financial Statements.
38
Financials Index Fund
Financial Highlights
Admiral Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months |
|
|
|
| Feb. 4, |
| Ended |
|
| 20041 to | ||
For a Share Outstanding | February 28, | Year Ended August 31, | Aug. 31, | |||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 |
Net Asset Value, Beginning of Period | $20.38 | $30.10 | $29.86 | $26.36 | $25.35 | $24.90 |
Investment Operations |
|
|
|
|
|
|
Net Investment Income | .263 | .7002 | .7702 | .7162 | .6602 | .310 |
Net Realized and Unrealized Gain (Loss) |
|
|
|
|
|
|
on Investments3 | (12.069) | (9.699) | .145 | 3.392 | 1.086 | .140 |
Total from Investment Operations | (11.806) | (8.999) | .915 | 4.108 | 1.746 | .450 |
Distributions |
|
|
|
|
|
|
Dividends from Net Investment Income | (.364) | (.721) | (.675) | (.608) | (.736) | — |
Distributions from Realized Capital Gains | — | — | — | — | — | — |
Total Distributions | (.364) | (.721) | (.675) | (.608) | (.736) | — |
Net Asset Value, End of Period | $8.21 | $20.38 | $30.10 | $29.86 | $26.36 | $25.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return4 | –58.71% | –30.36% | 2.95% | 15.76% | 6.88% | 1.81% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
|
Net Assets, End of Period (Millions) | $37 | $81 | $19 | $8 | $3 | $1 |
Ratio of Total Expenses to |
|
|
|
|
|
|
Average Net Assets | 0.26%5 | 0.25% | 0.26% | 0.28% | 0.28% | 0.28%5 |
Ratio of Net Investment Income to |
|
|
|
|
|
|
Average Net Assets | 4.08%5 | 3.06% | 2.37% | 2.49% | 2.59% | 2.38%5 |
Portfolio Turnover Rate6 | 14%5 | 10% | 12% | 6% | 6% | 9% |
ETF Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months |
|
|
|
| Jan. 26, |
| Ended |
|
| 20041 to | ||
For a Share Outstanding | February 28, | Year Ended August 31, | Aug. 31, | |||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 |
Net Asset Value, Beginning of Period | $40.66 | $60.04 | $59.57 | $52.57 | $50.57 | $50.51 |
Investment Operations |
|
|
|
|
|
|
Net Investment Income | .526 | 1.4492 | 1.5572 | 1.4302 | 1.3162 | .700 |
Net Realized and Unrealized Gain (Loss) |
|
|
|
|
|
|
on Investments7 | (24.075) | (19.368) | .282 | 6.800 | 2.160 | (.640) |
Total from Investment Operations | (23.549) | (17.919) | 1.839 | 8.230 | 3.476 | .060 |
Distributions |
|
|
|
|
|
|
Dividends from Net Investment Income | (.731) | (1.461) | (1.369) | (1.230) | (1.476) | — |
Distributions from Realized Capital Gains | — | — | — | — | — | — |
Total Distributions | (.731) | (1.461) | (1.369) | (1.230) | (1.476) | — |
Net Asset Value, End of Period | $16.38 | $40.66 | $60.04 | $59.57 | $52.57 | $50.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return | –58.70% | –30.30% | 2.97% | 15.82% | 6.85% | 0.12% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
|
Net Assets, End of Period (Millions) | $241 | $651 | $282 | $125 | $53 | $20 |
Ratio of Total Expenses to |
|
|
|
|
|
|
Average Net Assets | 0.23%5 | 0.20% | 0.22% | 0.25% | 0.26% | 0.28%5 |
Ratio of Net Investment Income to |
|
|
|
|
|
|
Average Net Assets | 4.11%5 | 3.11% | 2.41% | 2.52% | 2.61% | 2.38%5 |
Portfolio Turnover Rate6 | 14%5 | 10% | 12% | 6% | 6% | 9% |
1 Inception.
2 Calculated based on average shares outstanding.
3 Includes increases from redemption fees of $.01, $.00, $.00, $.01, $.00, and $.00.
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 ETF Creation Units.
7 Includes increases from redemption fees of $.02, $.01, $.01, $.01, $.00, and $.00. See accompanying Notes, which are an integral part of the Financial Statements.
39
39
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 offers two classes of shares, Admiral Shares and ETF Shares. Admiral Shares are available to any investor who meets the fund’s minimum purchase requirements. ETF Shares are listed for trading on the NYSE Arca, Inc.; 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 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. Management has analyzed the fund’s tax positions taken on federal income tax returns for all open tax years (tax years ended August 31, 2005–2008) and for the period ended February 28, 2009, and has concluded that no provision for federal income tax is required in the fund’s 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 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. 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, 2009, the fund had contributed capital of $91,000 to Vanguard (included in Other Assets), representing 0.03% 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.
40
Financials Index Fund
During the six months ended February 28, 2009, the fund realized $24,659,000 of net capital losses resulting from in-kind redemptions—in which shareholders exchanged fund shares for securities held by the fund rather than for cash. Because such losses are not taxable losses to the fund, they have been reclassified from accumulated net realized losses 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, 2008, the fund had available realized losses of $9,066,000 to offset future net capital gains of $85,000 through August 31, 2014, $11,000 through August 31, 2015, $1,312,000 through August 31, 2016, and $7,658,000 through August 31, 2017. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2009; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balances above.
At February 28, 2009, the cost of investment securities for tax purposes was $854,090,000. Net unrealized depreciation of investment securities for tax purposes was $576,139,000, consisting of unrealized gains of $125,000 on securities that had risen in value since their purchase and $576,264,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2009, the fund purchased $205,911,000 of investment securities and sold $212,121,000 of investment securities, other than temporary cash investments.
E. Capital share transactions for each class of shares were:
| Six Months Ended | Year Ended | |||
| February 28, 2009 | August 31, 2008 | |||
| Amount | Shares |
| Amount | Shares |
| ($000) | (000) |
| ($000) | (000) |
Admiral Shares |
|
|
|
|
|
Issued | 23,320 | 1,618 |
| 96,727 | 4,152 |
Issued in Lieu of Cash Distributions | 1,436 | 98 |
| 889 | 39 |
Redeemed1 | (16,675) | (1,244) |
| (18,947) | (817) |
Net Increase (Decrease)—Admiral Shares | 8,081 | 472 |
| 78,669 | 3,374 |
ETF Shares |
|
|
|
|
|
Issued | 165,197 | 5,703 |
| 592,724 | 12,516 |
Issued in Lieu of Cash Distributions | — | — |
| — | — |
Redeemed1 | (178,595) | (7,000) |
| (52,635) | (1,200) |
Net Increase (Decrease)—ETF Shares | (13,398) | (1,297) |
| 540,089 | 11,316 |
1 Net of redemption fees for fiscal 2009 and 2008 of $285,000 and $200,000, respectively (fund totals).
F. In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157 (“FAS 157”), “Fair Value Measurements.” FAS 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements in financial statements.
The various inputs that may be used to determine the value of the fund’s investments are summarized in three broad levels. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At February 28, 2009, 100% of the fund’s investments were valued based on Level 1 inputs.
41
Health Care Index Fund
Fund Profile
As of February 28, 2009
Portfolio Characteristics |
|
| |
|
| Target | Broad |
| Fund | Index1 | Index2 |
Number of Stocks | 291 | 291 | 2,474 |
Median Market Cap | $33.4B | $33.4B | $21.7B |
Price/Earnings Ratio | 13.8x | 13.8x | 12.1x |
Price/Book Ratio | 2.3x | 2.3x | 1.5x |
Yield3 |
| 2.5% | 3.1% |
Admiral Shares | 2.2% |
|
|
ETF Shares | 2.2% |
|
|
Return on Equity | 20.5% | 20.6% | 21.0% |
Earnings Growth Rate | 13.7% | 13.7% | 17.8% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate4 | 6% | — | — |
Expense Ratio5 |
| — | — |
Admiral Shares | 0.28% |
|
|
ETF Shares | 0.25% |
|
|
Short-Term Reserves | 0.0% | — | — |
Volatility Measures6 |
|
|
| Fund Versus | Fund Versus |
| Target Index1 | Broad Index2 |
R-Squared | 1.00 | 0.68 |
Beta | 1.00 | 0.74 |
Industry Diversification (% of equity exposure) | |
|
|
Biotechnology | 18.8% |
Health Care Distributors | 3.0 |
Health Care Equipment | 15.7 |
Health Care Facilities | 1.0 |
Health Care Services | 5.3 |
Health Care Supplies | 1.0 |
Life Sciences Tools & Services | 4.0 |
Managed Health Care | 5.7 |
Pharmaceuticals | 44.8 |
Other Health Care | 0.7 |
Ten Largest Holdings7 (% of total net assets) | |
|
|
Johnson & Johnson | 11.6% |
Pfizer Inc. | 6.9 |
Abbott Laboratories | 6.1 |
Wyeth | 4.5 |
Amgen Inc. | 4.3 |
Merck & Co., Inc. | 4.3 |
Gilead Sciences, Inc. | 3.4 |
Genentech, Inc. | 3.4 |
Bristol-Myers Squibb Co. | 3.0 |
Medtronic, Inc. | 2.8 |
Top Ten | 50.3% |
1 MSCI US IMI/Health Care.
2 MSCI US IMI/2500.
3 30-day SEC yield for the fund; annualized dividend yield for the indexes. See the Glossary.
4 Annualized.
5 The expense ratios shown are from the prospectuses dated December 29, 2008, and represent estimated costs for the current fiscal year based on the fund’s current net assets. For the six months ended February 28, 2009, the annualized expense ratios were 0.27% for the Admiral Shares and 0.24% for the ETF Shares.
6 For an explanation of R-squared, beta, and other terms used here, see the Glossary.
7 The holdings listed exclude any temporary cash investments and equity index products.
42
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/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): January 26, 2004–February 28, 2009
Average Annual Total Returns: Periods Ended December 31, 2008
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 |
ETF Shares | 1/26/2004 |
|
|
Market Price |
| –23.33% | –1.05% |
Net Asset Value |
| –23.50 | –1.07 |
Admiral Shares2 | 2/5/2004 | –23.53 | –1.13 |
1 Six months ended February 28, 2009.
2 Total returns do not reflect the 2% fee assessed on redemptions of shares held for less than one year.
Note: See Financial Highlights tables for dividend and capital gains information.
43
43
Health Care Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2009
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).
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
Common Stocks (99.9%) |
|
| |
Biotechnology (18.8%) |
|
| |
* | Amgen Inc. | 515,590 | 25,228 |
* | Gilead Sciences, Inc. | 442,942 | 19,844 |
* | Genentech, Inc. | 230,280 | 19,700 |
* | Celgene Corp. | 222,974 | 9,974 |
* | Genzyme Corp. | 131,733 | 8,026 |
* | Biogen Idec Inc. | 142,031 | 6,539 |
* | Vertex Pharmaceuticals, Inc. | 78,412 | 2,370 |
* | Cephalon, Inc. | 33,389 | 2,190 |
* | Myriad Genetics, Inc. | 22,636 | 1,785 |
* | Alexion Pharmaceuticals, Inc. | 36,127 | 1,236 |
* | OSI Pharmaceuticals, Inc. | 27,952 | 953 |
* | Onyx Pharmaceuticals, Inc. | 27,213 | 816 |
* | United Therapeutics Corp. | 11,393 | 765 |
* | Amylin Pharmaceuticals, Inc. | 66,443 | 607 |
* | Isis Pharmaceuticals, Inc. | 46,309 | 595 |
* | BioMarin Pharmaceutical Inc. | 48,238 | 579 |
* | CV Therapeutics, Inc. | 29,529 | 472 |
* | Alkermes, Inc. | 45,909 | 463 |
* | Regeneron |
|
|
| Pharmaceuticals, Inc. | 29,953 | 427 |
* | Cubist Pharmaceuticals, Inc. | 27,402 | 389 |
* | Acorda Therapeutics Inc. | 17,070 | 375 |
| PDL BioPharma Inc. | 57,973 | 340 |
* | Theravance, Inc. | 22,737 | 317 |
| Martek Biosciences Corp. | 15,937 | 298 |
* | Alnylam Pharmaceuticals Inc. | 16,053 | 296 |
* | Seattle Genetics, Inc. | 33,134 | 266 |
* | InterMune Inc. | 16,894 | 254 |
* | Celera Corp. | 38,598 | 248 |
* | Medarex, Inc. | 58,767 | 230 |
* | Abraxis BioScience | 3,893 | 228 |
* | Cougar Biotechnology Inc. | 8,038 | 201 |
* | Geron Corp. | 42,000 | 193 |
* | Cepheid, Inc. | 27,716 | 185 |
* | Allos Therapeutics Inc. | 27,297 | 154 |
* | Arena Pharmaceuticals, Inc. | 35,578 | 148 |
* | Halozyme Therapeutics Inc. | 33,111 | 147 |
* | Ligand Pharmaceuticals Inc. |
|
|
| Class B | 51,731 | 140 |
* | Momenta |
|
|
| Pharmaceuticals, Inc. | 14,596 | 140 | |
* | Osiris Therapeutics, Inc. | 7,764 | 139 | |
* | Dendreon Corp. | 45,345 | 138 | |
* | Genomic Health, Inc. | 6,843 | 135 | |
* | Emergent BioSolutions Inc. | 6,640 | 128 | |
* | Human Genome |
|
| |
| Sciences, Inc. | 62,328 | 118 | |
* | Savient Pharmaceuticals Inc. | 25,993 | 112 | |
* | NPS Pharmaceuticals Inc. | 23,066 | 105 | |
* | Incyte Corp. | 41,720 | 96 | |
* | Nabi Biopharmaceuticals | 25,125 | 95 | |
* | Rigel Pharmaceuticals, Inc. | 17,507 | 92 | |
* | Progenics |
|
| |
| Pharmaceuticals, Inc. | 13,001 | 84 | |
* | Zymogenetics, Inc. | 19,910 | 83 | |
* | Pharmasset, Inc. | 8,425 | 80 | |
* | Facet Biotech Corp. | 11,517 | 75 | |
* | Array BioPharma Inc. | 21,809 | 68 | |
* | GTx, Inc. | 7,269 | 68 | |
* | Affymax Inc. | 5,171 | 68 | |
*,^ | MannKind Corp. | 28,968 | 63 | |
* | Neurocrine Biosciences, Inc. | 18,805 | 62 | |
* | Sangamo BioSciences, Inc. | 17,060 | 61 | |
* | Opko Health, Inc. | 39,096 | 44 | |
* | Idenix Pharmaceuticals Inc. | 10,990 | 41 | |
* | Lexicon Pharmaceuticals Inc. | 36,531 | 34 | |
* | Orexigen Therapeutics Inc. | 8,321 | 33 | |
* | XOMA Ltd. | 64,051 | 33 | |
* | Amicus Therapeutics, Inc. | 3,836 | 31 | |
* | Senomyx, Inc. | 14,981 | 28 | |
|
|
| 109,232 | |
Health Care Equipment & Supplies (16.6%) |
| |||
| Medtronic, Inc. | 549,099 | 16,248 | |
| Baxter International, Inc. | 301,667 | 15,358 | |
| Covidien Ltd. | 245,056 | 7,761 | |
| Becton, Dickinson & Co. | 118,407 | 7,328 | |
* | St. Jude Medical, Inc. | 167,517 | 5,555 | |
| Stryker Corp. | 137,380 | 4,626 | |
* | Boston Scientific Corp. | 656,064 | 4,606 | |
| C.R. Bard, Inc. | 48,284 | 3,875 | |
* | Zimmer Holdings, Inc. | 109,427 | 3,832 | |
* | Varian Medical Systems, Inc. | 60,568 | 1,848 | |
* | Hospira, Inc. | 77,477 | 1,797 | |
* | Intuitive Surgical, Inc. | 19,085 | 1,736 | |
| DENTSPLY International Inc. | 68,517 | 1,584 | |
* | Edwards Lifesciences Corp. | 26,995 | 1,501 | |
* | Hologic, Inc. | 124,251 | 1,407 | |
| Beckman Coulter, Inc. | 30,527 | 1,369 | |
* | ResMed Inc. | 36,725 | 1,354 | |
* | Gen-Probe Inc. | 26,270 | 1,066 | |
| Teleflex Inc. | 19,245 | 914 | |
* | IDEXX Laboratories, Inc. | 28,839 | 868 | |
* | Inverness Medical |
|
| |
| Innovations, Inc. | 35,881 | 806 | |
* | Immucor Inc. | 34,016 | 763 | |
| STERIS Corp. | 28,628 | 660 | |
* | Haemonetics Corp. | 12,355 | 659 | |
* | Thoratec Corp. | 27,305 | 624 | |
* | Masimo Corp. | 23,471 | 587 | |
* | Kinetic Concepts, Inc. | 26,357 | 574 | |
* | Nuvasive, Inc. | 17,352 | 492 | |
| West Pharmaceutical |
|
| |
| Services, Inc. | 15,724 | 483 | |
| Cooper Cos., Inc. | 21,924 | 482 | |
| Meridian Bioscience Inc. | 19,476 | 391 | |
* | American Medical Systems |
|
| |
| Holdings, Inc. | 35,260 | 365 | |
* | Volcano Corp. | 19,178 | 287 | |
| Hill-Rom Holdings, Inc. | 28,844 | 283 | |
* | Wright Medical Group, Inc. | 18,285 | 267 | |
* | Integra LifeSciences Holdings | 10,007 | 261 | |
| Invacare Corp. | 14,379 | 231 | |
* | Greatbatch, Inc. | 10,977 | 214 | |
* | ICU Medical, Inc. | 6,224 | 196 | |
* | Align Technology, Inc. | 27,602 | 189 | |
* | CONMED Corp. | 13,876 | 189 | |
| Analogic Corp. | 6,506 | 184 | |
* | Cyberonics, Inc. | 13,267 | 178 | |
* | Abaxis, Inc. | 10,560 | 165 | |
* | ev3 Inc. | 28,034 | 165 | |
* | Conceptus, Inc. | 14,588 | 164 | |
* | Quidel Corp. | 14,303 | 158 | |
* | SonoSite, Inc. | 8,183 | 151 | |
* | Neogen Corp. | 6,778 | 144 | |
* | Merit Medical Systems, Inc. | 12,660 | 141 | |
* | Zoll Medical Corp. | 10,071 | 138 | |
* | AngioDynamics, Inc. | 11,277 | 134 | |
* | SurModics, Inc. | 7,534 | 132 | |
* | VNUS Medical |
|
| |
| Technologies, Inc. | 6,624 | 126 | |
* | Orthofix International N.V. | 7,419 | 118 | |
* | Sirona Dental Systems Inc. | 9,318 | 104 | |
* | ABIOMED, Inc. | 14,935 | 102 | |
* | Natus Medical Inc. | 12,680 | 99 | |
* | Kensey Nash Corp. | 5,099 | 97 | |
* | Accuray Inc. | 20,211 | 94 | |
* | Symmetry Medical Inc. | 17,224 | 92 | |
* | IRIS International, Inc. | 8,985 | 85 | |
* | CryoLife Inc. | 12,962 | 65 | |
* | Palomar Medical |
|
| |
| Technologies, Inc. | 8,578 | 63 | |
* | RTI Biologics, Inc. | 22,113 | 62 | |
* | OraSure Technologies, Inc. | 22,769 | 58 | |
* | Insulet Corp. | 8,419 | 52 | |
* | Stereotaxis Inc. | 13,653 | 43 | |
* | TomoTherapy, Inc. | 15,558 | 38 | |
* | Cynosure Inc. | 4,674 | 26 | |
* | Hansen Medical Inc. | 6,107 | 24 | |
|
|
| 96,838 | |
Health Care Providers & Services (15.0%) |
|
| ||
| UnitedHealth Group Inc. | 587,591 | 11,546 | |
* | Medco Health |
|
| |
| Solutions, Inc. | 242,202 | 9,829 | |
* | WellPoint Inc. | 247,662 | 8,401 | |
| Cardinal Health, Inc. | 174,991 | 5,678 | |
| McKesson Corp. | 133,051 | 5,458 | |
| Aetna Inc. | 224,254 | 5,353 | |
* | Express Scripts Inc. | 102,390 | 5,150 | |
| Quest Diagnostics, Inc. | 80,911 | 3,708 |
* | Laboratory Corp. of |
|
|
| America Holdings | 52,442 | 2,885 |
| AmerisourceBergen Corp. | 75,876 | 2,410 |
* | DaVita, Inc. | 50,500 | 2,369 |
| CIGNA Corp. | 132,135 | 2,082 |
* | Humana Inc. | 82,056 | 1,942 |
* | Henry Schein, Inc. | 43,511 | 1,596 |
44
Health Care Index Fund
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
| Omnicare, Inc. | 57,310 | 1,486 |
* | VCA Antech, Inc. | 41,001 | 852 |
| Universal Health Services |
|
|
| Class B | 22,923 | 844 |
* | Coventry Health Care Inc. | 71,757 | 827 |
* | Patterson Companies, Inc. | 44,341 | 801 |
* | Lincare Holdings, Inc. | 35,700 | 752 |
* | Community Health |
|
|
| Systems, Inc. | 45,289 | 741 |
| Owens & Minor, Inc. | 20,074 | 677 |
* | Health Net Inc. | 50,332 | 664 |
* | MEDNAX, Inc. | 22,085 | 654 |
* | Magellan Health |
|
|
| Services, Inc. | 19,672 | 652 |
* | AMERIGROUP Corp. | 25,763 | 638 |
* | LifePoint Hospitals, Inc. | 24,526 | 516 |
* | Psychiatric Solutions, Inc. | 26,942 | 456 |
* | PSS World Medical, Inc. | 30,178 | 436 |
| Chemed Corp. | 10,787 | 429 |
*,^ | Amedisys Inc. | 13,039 | 427 |
* | Centene Corp. | 20,983 | 356 |
* | Catalyst Health |
|
|
| Solutions, Inc. | 16,841 | 355 |
* | HMS Holdings Corp. | 11,496 | 349 |
* | HealthSouth Corp. | 42,655 | 335 |
* | Tenet Healthcare Corp. | 232,658 | 258 |
* | Health Management |
|
|
| Associates Class A | 117,706 | 253 |
* | PharMerica Corp. | 14,725 | 247 |
* | AmSurg Corp. | 15,400 | 241 |
* | Gentiva Health Services, Inc. | 13,150 | 228 |
| Landauer, Inc. | 4,503 | 225 |
* | Kindred Healthcare, Inc. | 15,094 | 217 |
* | Hanger Orthopedic Group, Inc. | 14,882 | 198 |
* | Healthspring, Inc. | 24,152 | 196 |
* | WellCare Health Plans Inc. | 20,267 | 183 |
* | Sun Healthcare Group Inc. | 18,907 | 169 |
* | Odyssey Healthcare, Inc. | 15,917 | 165 |
* | inVentiv Health, Inc. | 15,987 | 162 |
* | LHC Group Inc. | 7,641 | 152 |
* | Res-Care, Inc. | 12,058 | 148 |
* | Healthways, Inc. | 16,128 | 147 |
* | Genoptix, Inc. | 4,422 | 134 |
* | MWI Veterinary Supply Inc. | 5,314 | 134 |
* | Bio-Reference |
|
|
| Laboratories, Inc. | 5,771 | 134 |
* | Universal American Corp. | 19,717 | 132 |
* | Emergency Medical |
|
|
| Services LP Class A | 4,313 | 132 |
| National Healthcare Corp. | 3,130 | 130 |
* | RehabCare Group, Inc. | 8,788 | 129 |
* | Molina Healthcare Inc. | 6,592 | 124 |
* | AMN Healthcare |
|
|
| Services, Inc. | 16,642 | 108 |
* | Cross Country |
|
|
| Healthcare, Inc. | 14,422 | 107 |
* | Alliance HealthCare |
|
| |
| Services Inc. | 12,390 | 102 | |
* | IPC The Hospitalist Co. | 6,284 | 101 | |
* | Triple-S Management Corp. | 7,866 | 91 | |
* | Air Methods Corp. | 5,321 | 89 | |
* | Skilled Healthcare Group Inc. | 9,382 | 79 | |
* | CorVel Corp. | 4,050 | 76 | |
* | Assisted Living Concepts Inc. | 25,285 | 75 | |
* | Emeritus Corp. | 10,472 | 70 | |
* | MedCath Corp. | 7,961 | 64 | |
| Brookdale Senior Living Inc. | 17,416 | 64 | |
* | Almost Family Inc. | 2,967 | 60 | |
| Ensign Group Inc. | 4,037 | 53 | |
* | Nighthawk Radiology |
|
| |
| Holdings, Inc. | 9,718 | 26 | |
* | Chindex International, Inc. | 5,495 | 23 | |
* | Virtual Radiologic Corp. | 3,585 | 22 | |
* | Sunrise Senior Living, Inc. | 22,085 | 15 | |
|
|
| 87,117 | |
Health Care Technology (0.7%) |
|
| ||
* | Cerner Corp. | 33,435 | 1,224 | |
| IMS Health, Inc. | 88,422 | 1,107 | |
* | HLTH Corp. | 47,030 | 514 | |
* | Phase Forward Inc. | 19,847 | 275 | |
| Allscripts Healthcare |
|
| |
| Solutions, Inc. | 27,613 | 240 | |
* | AthenaHealth Inc. | 8,677 | 221 | |
* | MedAssets, Inc. | 14,436 | 213 | |
* | Eclipsys Corp. | 23,516 | 187 | |
| Computer Programs and |
|
| |
| Systems, Inc. | 4,481 | 120 | |
* | Omnicell, Inc. | 14,881 | 107 | |
* | Vital Images, Inc. | 7,226 | 71 | |
|
|
| 4,279 | |
Life Sciences Tools & Services (4.0%) |
|
| ||
* | Thermo Fisher Scientific, Inc. | 204,557 | 7,417 | |
* | Life Technologies Corp. | 84,393 | 2,460 | |
* | Illumina, Inc. | 60,302 | 1,889 | |
* | Waters Corp. | 48,099 | 1,694 | |
* | Millipore Corp. | 26,856 | 1,479 | |
| Pharmaceutical Product |
|
| |
| Development, Inc. | 52,035 | 1,248 | |
* | Covance, Inc. | 30,632 | 1,163 | |
| Techne Corp. | 17,525 | 856 | |
* | Charles River |
|
| |
| Laboratories, Inc. | 33,018 | 819 | |
| PerkinElmer, Inc. | 57,907 | 746 | |
* | Bio-Rad Laboratories, Inc. |
|
| |
| Class A | 9,086 | 506 | |
* | Dionex Corp. | 8,858 | 415 | |
* | Sequenom, Inc. | 28,084 | 411 | |
* | Varian, Inc. | 14,263 | 323 | |
* | Luminex Corp. | 18,889 | 314 | |
* | PAREXEL International Corp. | 26,645 | 244 | |
* | AMAG Pharmaceuticals, Inc. | 8,294 | 224 | |
* | Exelixis, Inc. | 50,989 | 220 | |
* | Medivation Inc. | 12,432 | 207 | |
* | Nektar Therapeutics | 44,943 | 202 | |
* | Kendle International Inc. | 6,397 | 120 | |
* | Bruker BioSciences Corp. | 27,674 | 117 | |
* | Albany Molecular |
|
| |
| Research, Inc. | 11,807 | 102 | |
* | eResearch Technology, Inc. | 19,669 | 95 | |
* | Affymetrix, Inc. | 33,585 | 72 | |
* | Enzo Biochem, Inc. | 16,145 | 59 | |
* | Clinical Data, Inc. | 5,638 | 47 | |
* | Cambrex Corp. | 14,280 | 31 | |
* | Life Sciences Research, Inc. | 4,908 | 25 | |
|
|
| 23,505 | |
Pharmaceuticals (44.8%) |
|
| ||
| Johnson & Johnson | 1,349,862 | 67,493 | |
| Pfizer Inc. | 3,281,137 | 40,391 | |
| Abbott Laboratories | 755,145 | 35,748 | |
| Wyeth | 647,749 | 26,441 | |
| Merck & Co., Inc. | 1,028,469 | 24,889 | |
| Bristol-Myers Squibb Co. | 963,315 | 17,735 | |
| Eli Lilly & Co. | 497,986 | 14,631 | |
| Schering-Plough Corp. | 791,400 | 13,762 | |
| Allergan, Inc. | 147,901 | 5,730 | |
* | Forest Laboratories, Inc. | 146,580 | 3,143 | |
* | Mylan Inc. | 147,998 | 1,840 | |
* | Watson |
|
| |
| Pharmaceuticals, Inc. | 48,109 | 1,360 | |
* | Endo Pharmaceuticals |
|
| |
| Holdings, Inc. | 65,085 | 1,235 | |
* | King Pharmaceuticals, Inc. | 119,435 | 877 | |
* | Sepracor Inc. | 52,766 | 790 | |
| Perrigo Co. | 38,424 | 772 | |
* | Valeant Pharmaceuticals |
|
| |
| International | 39,529 | 688 | |
* | Auxilium |
|
| |
| Pharmaceuticals, Inc. | 19,247 | 529 | |
* | Warner Chilcott Ltd. | 48,573 | 527 | |
| Medicis |
|
| |
| Pharmaceutical Corp. | 27,573 | 311 | |
* | The Medicines Co. | 25,093 | 308 | |
* | Xenoport Inc. | 10,954 | 229 | |
* | Par Pharmaceutical Cos. Inc. | 16,850 | 224 | |
* | Salix Pharmaceuticals, Ltd. | 23,175 | 173 | |
* | ViroPharma Inc. | 38,394 | 159 | |
* | Cypress Bioscience, Inc. | 18,160 | 153 | |
* | Questcor |
|
| |
| Pharmaceuticals, Inc. | 28,604 | 139 | |
* | Vivus, Inc. | 32,006 | 129 | |
* | Noven Pharmaceuticals, Inc. | 12,061 | 98 | |
* | Pain Therapeutics, Inc. | 17,197 | 78 | |
* | Pozen Inc. | 12,324 | 73 | |
* | Durect Corp. | 33,857 | 67 | |
* | Cadence |
|
| |
| Pharmaceuticals, Inc. | 10,126 | 65 | |
* | Akorn, Inc. | 25,806 | 36 | |
* | Caraco Pharmaceutical |
|
| |
| Laboratories, Ltd. | 4,589 | 19 | |
* | Sucampo |
|
| |
| Pharmaceuticals Inc. | 3,434 | 17 | |
* | K-V Pharmaceutical Co. |
|
| |
| Class A | 16,384 | 11 | |
* | MAP Pharmaceuticals Inc. | 3,524 | 8 | |
|
|
| 260,878 |
Total Common Stocks |
|
| |
(Cost $839,513) |
| 581,849 | |
Temporary Cash Investment (0.1%) |
|
| |
1,2 | Vanguard Market |
|
|
| Liquidity Fund, 0.663% |
|
|
| (Cost $290) | 289,801 | 290 |
Total Investments (100.0%) |
|
| |
(Cost $839,803) |
| 582,139 | |
Other Assets and Liabilities (0.0%) |
|
| |
Other Assets |
| 4,327 | |
Liabilities2 |
| (4,259) | |
|
|
| 68 |
Net Assets (100%) |
| 582,207 |
45
Health Care Index Fund
At February 28, 2009, net assets consisted of: | |
| Amount |
| ($000) |
Paid-in Capital | 854,601 |
Undistributed Net Investment Income | 2,159 |
Accumulated Net Realized Losses | (16,889) |
Unrealized Appreciation (Depreciation) | (257,664) |
Net Assets | 582,207 |
|
|
|
|
Admiral Shares—Net Assets |
|
Applicable to 4,536,743 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 90,044 |
Net Asset Value Per Share— |
|
Admiral Shares | $19.85 |
|
|
|
|
ETF Shares—Net Assets |
|
Applicable to 12,402,626 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 492,163 |
Net Asset Value Per Share— |
|
ETF Shares | $39.68 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Part of security position is on loan to broker-dealers. The total value of securities on loan is $244,000.
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 Includes $290,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
46
Health Care Index Fund
Statement of Operations
| Six Months Ended |
| February 28, 2009 |
| ($000) |
Investment Income |
|
Income |
|
Dividends | 6,769 |
Interest1 | 3 |
Security Lending | 33 |
Total Income | 6,805 |
Expenses |
|
The Vanguard Group—Note B |
|
Investment Advisory Services | 50 |
Management and Administrative— |
|
Admiral Shares | 114 |
Management and Administrative— |
|
ETF Shares | 466 |
Marketing and Distribution— |
|
Admiral Shares | 13 |
Marketing and Distribution— |
|
ETF Shares | 83 |
Custodian Fees | 9 |
Auditing Fees | 1 |
Shareholders’ Reports—Admiral Shares | 1 |
Shareholders’ Reports—ETF Shares | 32 |
Total Expenses | 769 |
Net Investment Income | 6,036 |
Realized Net Gain (Loss) |
|
on Investment Securities Sold | 4,915 |
Change in Unrealized Appreciation |
|
(Depreciation) of Investment Securities | (239,035) |
Net Increase (Decrease) in Net Assets |
|
Resulting from Operations | (228,084) |
Statement of Changes in Net Assets
| Six Months Ended |
| Year Ended |
| February 28, |
| August 31, |
| 2009 |
| 2008 |
| ($000) |
| ($000) |
Increase (Decrease) in Net Assets |
|
|
|
Operations |
|
|
|
Net Investment Income | 6,036 |
| 9,098 |
Realized Net Gain (Loss) | 4,915 |
| 3,694 |
Change in Unrealized Appreciation (Depreciation) | (239,035) |
| (35,268) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (228,084) |
| (22,476) |
Distributions |
|
|
|
Net Investment Income |
|
|
|
Admiral Shares | (1,658) |
| (1,807) |
ETF Shares | (8,673) |
| (6,890) |
Realized Capital Gain |
|
|
|
Admiral Shares | — |
| — |
ETF Shares | — |
| — |
Total Distributions | (10,331) |
| (8,697) |
Capital Share Transactions |
|
|
|
Admiral Shares | (4,687) |
| 10,131 |
ETF Shares | 74,965 |
| 162,011 |
Net Increase (Decrease) from Capital Share Transactions | 70,278 |
| 172,142 |
Total Increase (Decrease) | (168,137) |
| 140,969 |
Net Assets |
|
|
|
Beginning of Period | 750,344 |
| 609,375 |
End of Period2 | 582,207 |
| 750,344 |
1 Interest income from an affiliated company of the fund was $3,000.
2 Net Assets—End of Period includes undistributed net investment income of $2,159,000 and $6,454,000.
See accompanying Notes, which are an integral part of the Financial Statements.
47
47
Health Care Index Fund
Financial Highlights
Admiral Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months |
|
|
|
| Feb. 5, |
| Ended |
|
| 20041 to | ||
For a Share Outstanding | February 28, | Year Ended August 31, | Aug. 31, | |||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 |
Net Asset Value, Beginning of Period | $28.68 | $29.82 | $27.99 | $26.92 | $23.97 | $25.33 |
Investment Operations |
|
|
|
|
|
|
Net Investment Income | .2162 | .345 | .392 | .3042 | .2742 | .130 |
Net Realized and Unrealized Gain |
|
|
|
|
|
|
(Loss) on Investments | (8.682) | (1.090) | 1.736 | .951 | 2.762 | (1.490) |
Total from Investment Operations | (8.466) | (.745) | 2.128 | 1.255 | 3.036 | (1.360) |
Distributions |
|
|
|
|
|
|
Dividends from Net Investment Income | (.364) | (.395) | (.298) | (.185) | (.086) | — |
Distributions from Realized Capital Gains | — | — | — | — | — | — |
Total Distributions | (.364) | (.395) | (.298) | (.185) | (.086) | — |
Net Asset Value, End of Period | $19.85 | $28.68 | $29.82 | $27.99 | $26.92 | $23.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return3 | –29.66% | –2.59% | 7.65% | 4.68% | 12.70% | –5.37% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
|
Net Assets, End of Period (Millions) | $90 | $136 | $132 | $108 | $73 | $11 |
Ratio of Total Expenses to |
|
|
|
|
|
|
Average Net Assets | 0.27%4 | 0.25% | 0.26% | 0.28% | 0.28% | 0.28%4 |
Ratio of Net Investment Income to |
|
|
|
|
|
|
Average Net Assets | 1.88%4 | 1.36% | 1.42% | 1.12% | 1.11% | 1.09%4 |
Portfolio Turnover Rate5 | 6%4 | 8% | 10% | 11% | 9% | 8% |
ETF Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months |
|
|
|
| Jan. 26, |
| Ended |
|
| 20041 to | ||
For a Share Outstanding | February 28, | Year Ended August 31, | Aug. 31, | |||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 |
Net Asset Value, Beginning of Period | $57.36 | $59.65 | $55.99 | $53.85 | $47.90 | $50.55 |
Investment Operations |
|
|
|
|
|
|
Net Investment Income | .4442 | .720 | .809 | .6222 | .5972 | .230 |
Net Realized and Unrealized Gain (Loss) |
|
|
|
|
|
|
on Investments | (17.370) | (2.190) | 3.466 | 1.905 | 5.486 | (2.880) |
Total from Investment Operations | (16.926) | (1.470) | 4.275 | 2.527 | 6.083 | (2.650) |
Distributions |
|
|
|
|
|
|
Dividends from Net Investment Income | (.754) | (.820) | (.615) | (.387) | (.133) | — |
Distributions from Realized Capital Gains | — | — | — | — | — | — |
Total Distributions | (.754) | (.820) | (.615) | (.387) | (.133) | — |
Net Asset Value, End of Period | $39.68 | $57.36 | $59.65 | $55.99 | $53.85 | $47.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return | –29.65% | –2.55% | 7.69% | 4.71% | 12.72% | –5.24% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
|
Net Assets, End of Period (Millions) | $492 | $614 | $477 | $364 | $205 | $19 |
Ratio of Total Expenses to |
|
|
|
|
|
|
Average Net Assets | 0.24%4 | 0.20% | 0.22% | 0.25% | 0.26% | 0.28%4 |
Ratio of Net Investment Income to |
|
|
|
|
|
|
Average Net Assets | 1.91%4 | 1.41% | 1.46% | 1.15% | 1.13% | 1.09%4 |
Portfolio Turnover Rate5 | 6%4 | 8% | 10% | 11% | 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 ETF Creation Units. See accompanying Notes, which are an integral part of the Financial Statements.
48
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 offers two classes of shares, Admiral Shares and ETF Shares. Admiral Shares are available to any investor who meets the fund’s minimum purchase requirements. ETF Shares are listed for trading on the NYSE Arca, Inc.; 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 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. Management has analyzed the fund’s tax positions taken on federal income tax returns for all open tax years (tax years ended August 31, 2005–2008) and for the period ended February 28, 2009, and has concluded that no provision for federal income tax is required in the fund’s 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 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. 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, 2009, the fund had contributed capital of $177,000 to Vanguard (included in Other Assets), representing 0.03% of the fund’s net assets and 0.07% 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.
49
49
Health Care Index Fund
During the six months ended February 28, 2009, the fund realized $11,145,000 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 losses 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, 2008, the fund had available realized losses of $10,277,000 to offset future net capital gains of $207,000 through August 31, 2014, $343,000 through August 31, 2015, $3,126,000 through August 31, 2016, and $6,601,000 through August 31, 2017. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2009; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balances above.
At February 28, 2009, the cost of investment securities for tax purposes was $839,803,000. Net unrealized depreciation of investment securities for tax purposes was $257,664,000, consisting of unrealized gains of $4,014,000 on securities that had risen in value since their purchase and $261,678,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2009, the fund purchased $174,651,000 of investment securities and sold $108,181,000 of investment securities, other than temporary cash investments.
E. Capital share transactions for each class of shares were:
| Six Months Ended | Year Ended | |||
| February 28, 2009 | August 31, 2008 | |||
| Amount | Shares |
| Amount | Shares |
| ($000) | (000) |
| ($000) | (000) |
Admiral Shares |
|
|
|
|
|
Issued | 7,268 | 314 |
| 26,987 | 923 |
Issued in Lieu of Cash Distributions | 758 | 34 |
| 847 | 28 |
Redeemed1 | (12,713) | (567) |
| (17,703) | (622) |
Net Increase (Decrease)—Admiral Shares | (4,687) | (219) |
| 10,131 | 329 |
ETF Shares |
|
|
|
|
|
Issued | 154,723 | 3,300 |
| 222,891 | 3,800 |
Issued in Lieu of Cash Distributions | — | — |
| — | — |
Redeemed1 | (79,758) | (1,600) |
| (60,880) | (1,100) |
Net Increase (Decrease)—ETF Shares | 74,965 | 1,700 |
| 162,011 | 2,700 |
1 Net of redemption fees for fiscal 2009 and 2008 of $57,000 and $106,000, respectively (fund totals).
F. In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157 (“FAS 157”), “Fair Value Measurements.” FAS 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements in financial statements.
The various inputs that may be used to determine the value of the fund’s investments are summarized in three broad levels. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At February 28, 2009, 100% of the fund’s investments were valued based on Level 1 inputs.
50
Industrials Index Fund
Fund Profile
As of February 28, 2009
Portfolio Characteristics |
|
| |
|
| Target | Broad |
| Fund | Index1 | Index2 |
Number of Stocks | 362 | 362 | 2,474 |
Median Market Cap | $13.2B | $13.2B | $21.7B |
Price/Earnings Ratio | 8.3x | 8.3x | 12.1x |
Price/Book Ratio | 1.5x | 1.5x | 1.5x |
Yield3 |
| 4.4% | 3.1% |
Admiral Shares | 4.0% |
|
|
ETF Shares | 4.0% |
|
|
Return on Equity | 20.5% | 20.5% | 21.0% |
Earnings Growth Rate | 18.2% | 18.2% | 17.8% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate4 | 9% | — | — |
Expense Ratio5 |
| — | — |
Admiral Shares | 0.28% |
|
|
ETF Shares | 0.25% |
|
|
Short-Term Reserves | 0.0% | — | — |
Volatility Measures6 |
| |
| Fund Versus | Fund Versus |
| Target Index1 | Broad Index2 |
R-Squared | 1.00 | 0.89 |
Beta | 1.00 | 1.18 |
Industry Diversification (% of equity exposure) | |
|
|
Aerospace & Defense | 23.1% |
Air Freight & Logistics | 7.1 |
Airlines | 1.8 |
Construction & Engineering | 3.6 |
Construction & Farm Machinery & Heavy Trucks | 6.6 |
Diversified Support Services | 1.4 |
Electrical Components & Equipment | 6.8 |
Environmental & Facilities Services | 4.2 |
Human Resource & Employment Services | 1.3 |
Industrial Conglomerates | 17.2 |
Industrial Machinery | 10.7 |
Office Services & Supplies | 1.2 |
Railroads | 8.0 |
Research & Consulting Services | 1.7 |
Trading Companies & Distributors | 1.9 |
Trucking | 1.2 |
Other Industrials | 2.2 |
Ten Largest Holdings7 (% of total net assets) | |
|
|
General Electric Co. | 11.4% |
United Technologies Corp. | 4.7 |
3M Co. | 3.8 |
United Parcel Service, Inc. | 3.5 |
The Boeing Co. | 2.8 |
Lockheed Martin Corp. | 2.7 |
Emerson Electric Co. | 2.6 |
Burlington Northern Santa Fe Corp. | 2.6 |
Union Pacific Corp. | 2.4 |
Honeywell International Inc. | 2.3 |
Top Ten | 38.8% |
1 MSCI US IMI/Industrials.
2 MSCI US IMI/2500.
3 30-day SEC yield for the fund; annualized dividend yield for the indexes. See the Glossary.
4 Annualized.
5 The expense ratios shown are from the prospectuses dated December 29, 2008, and represent estimated costs for the current fiscal year based on the fund’s current net assets. For the six months ended February 28, 2009, the annualized expense ratios were 0.26% for the Admiral Shares and 0.24% for the ETF Shares.
6 For an explanation of R-squared, beta, and other terms used here, see the Glossary.
7 The holdings listed exclude any temporary cash investments and equity index products.
51
51
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/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): September 23, 2004–February 28, 2009
Average Annual Total Returns: Periods Ended December 31, 2008
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 |
ETF Shares | 9/23/2004 |
|
|
Market Price |
| –39.89% | –1.54% |
Net Asset Value |
| –40.01 | –1.56 |
Admiral Shares2 | 5/8/2006 | –40.03 | –13.70 |
1 Six months ended February 28, 2009.
2 Total returns do not reflect the 2% fee assessed on redemptions of shares held for less than one year. Note: See Financial Highlights tables for dividend and capital gains information.
52
Industrials Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2009
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).
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
Common Stocks (100.0%) |
|
| |
Aerospace & Defense (23.1%) |
|
| |
| United Technologies Corp. | 187,531 | 7,657 |
| The Boeing Co. | 144,568 | 4,545 |
| Lockheed Martin Corp. | 70,711 | 4,463 |
| Honeywell International Inc. | 143,277 | 3,844 |
| Raytheon Co. | 85,984 | 3,437 |
| General Dynamics Corp. | 68,811 | 3,015 |
| Northrop Grumman Corp. | 64,421 | 2,407 |
| L-3 Communications |
|
|
| Holdings, Inc. | 24,764 | 1,675 |
| Precision Castparts Corp. | 28,952 | 1,605 |
| Rockwell Collins, Inc. | 32,988 | 1,029 |
| Goodrich Corp. | 25,532 | 846 |
* | Alliant Techsystems, Inc. | 6,819 | 482 |
* | TransDigm Group, Inc. | 8,085 | 286 |
| Curtiss-Wright Corp. | 9,324 | 248 |
* | Spirit Aerosystems |
|
|
| Holdings Inc. | 21,369 | 212 |
* | Moog Inc. | 7,968 | 185 |
* | Orbital Sciences Corp. | 12,106 | 171 |
* | Teledyne Technologies, Inc. | 6,992 | 160 |
* | Esterline Technologies Corp. | 6,098 | 155 |
* | BE Aerospace, Inc. | 20,600 | 154 |
| Triumph Group, Inc. | 3,416 | 123 |
* | Hexcel Corp. | 19,794 | 123 |
| American Science & |
|
|
| Engineering, Inc. | 1,822 | 111 |
* | AAR Corp. | 8,056 | 106 |
* | Stanley Inc. | 2,925 | 91 |
* | Ceradyne, Inc. | 5,210 | 89 |
| Cubic Corp. | 3,352 | 87 |
* | Aerovironment Inc. | 2,577 | 80 |
* | Axsys Technologies, Inc. | 1,966 | 65 |
* | DynCorp International Inc. |
|
|
| Class A | 5,254 | 64 |
| HEICO Corp. Class A | 2,764 | 55 |
* | Taser International Inc. | 12,036 | 52 |
* | Argon ST, Inc. | 2,677 | 46 |
| HEICO Corp. | 1,095 | 27 |
* | GenCorp, Inc. | 9,367 | 24 |
* | Ladish Co., Inc. | 3,014 | 21 |
|
|
| 37,740 |
Air Freight & Logistics (7.1%) |
|
| |
| United Parcel Service, Inc. | 140,691 | 5,794 |
| FedEx Corp. | 61,400 | 2,653 |
| C.H. Robinson Worldwide Inc. | 35,157 | 1,455 |
| Expeditors International of |
|
|
| Washington, Inc. | 44,087 | 1,214 |
| UTI Worldwide, Inc. | 18,626 | 229 |
* | Hub Group, Inc. | 7,616 | 137 |
| Forward Air Corp. | 6,028 | 100 |
* | Atlas Air Worldwide |
|
|
| Holdings, Inc. | 2,917 | 41 |
| Pacer International, Inc. | 7,190 | 21 |
|
|
| 11,644 |
Airlines (1.8%) |
|
| |
| Southwest Airlines Co. | 153,429 | 904 |
* | Delta Air Lines Inc. | 129,134 | 649 |
* | AMR Corp. | 57,818 | 236 |
* | Continental Airlines, Inc. |
|
|
| Class B | 22,758 | 228 |
* | Alaska Air Group, Inc. | 7,445 | 163 |
* | JetBlue Airways Corp. | 42,175 | 161 |
* | UAL Corp. | 26,333 | 129 |
| Skywest, Inc. | 11,739 | 120 |
* | Allegiant Travel Co. | 2,552 | 88 |
* | AirTran Holdings, Inc. | 24,481 | 73 |
* | US Airways Group Inc. | 21,624 | 62 |
* | Republic Airways Holdings Inc. | 6,299 | 44 |
* | Hawaiian Holdings, Inc. | 8,966 | 28 |
|
|
| 2,885 |
Building Products (0.9%) |
|
| |
| Masco Corp. | 76,312 | 393 |
| Lennox International Inc. | 9,742 | 252 |
* | Owens Corning Inc. | 15,997 | 134 |
| Simpson Manufacturing Co. | 8,035 | 125 |
* | USG Corp. | 15,526 | 90 |
| Ameron International Corp. | 1,806 | 88 |
* | Griffon Corp. | 11,036 | 80 |
| Universal Forest Products, Inc. | 3,303 | 72 |
| Apogee Enterprises, Inc. | 5,985 | 57 |
| Quanex Building |
|
|
| Products Corp. | 7,734 | 54 |
| Armstrong Worldwide |
|
|
| Industries, Inc. | 4,139 | 53 |
| AAON, Inc. | 2,711 | 42 |
| Gibraltar Industries Inc. | 4,960 | 33 |
| American Woodmark Corp. | 2,057 | 30 |
* | NCI Building Systems, Inc. | 4,055 | 20 |
* | Builders FirstSource, Inc. | 3,712 | 7 |
* | China Architectural |
|
|
| Engineering Inc. | 3,175 | 3 |
|
|
| 1,533 |
Commercial Services & Supplies (7.7%) |
|
| |
| Waste Management, Inc. | 101,870 | 2,750 |
| Republic Services, Inc. |
|
|
| Class A | 74,419 | 1,481 |
* | Stericycle, Inc. | 17,769 | 853 |
| Pitney Bowes, Inc. | 42,988 | 829 |
* | Iron Mountain, Inc. | 39,785 | 739 |
| Cintas Corp. | 28,622 | 581 |
| Avery Dennison Corp. | 19,834 | 400 |
* | Copart, Inc. | 14,691 | 397 |
* | Waste Connections, Inc. | 16,554 | 395 |
* | Covanta Holding Corp. | 25,541 | 389 |
| R.R. Donnelley & Sons Co. | 43,454 | 338 |
* | Tetra Tech, Inc. | 12,434 | 279 |
* | Corrections Corp. of America | 25,953 | 276 |
| The Brink's Co. | 9,296 | 222 |
* | Clean Harbors Inc. | 4,435 | 215 |
| Rollins, Inc. | 9,349 | 148 |
| Healthcare Services |
|
|
| Group, Inc. | 8,481 | 130 |
* | Geo Group Inc. | 10,516 | 124 |
| Herman Miller, Inc. | 11,588 | 117 |
| ABM Industries Inc. | 9,464 | 116 |
| Mine Safety Appliances Co. | 6,332 | 116 |
* | Sykes Enterprises, Inc. | 6,883 | 110 |
* | United Stationers, Inc. | 4,865 | 106 |
| EnergySolutions | 14,630 | 94 |
| Deluxe Corp. | 10,755 | 83 |
| HNI Corp. | 8,305 | 81 |
* | GeoEye Inc. | 3,539 | 80 |
| Comfort Systems USA, Inc. | 8,111 | 77 |
| McGrath RentCorp | 4,695 | 73 |
* | Mobile Mini, Inc. | 7,136 | 70 |
| G & K Services, Inc. Class A | 3,870 | 69 |
| Knoll, Inc. | 9,723 | 64 |
| Viad Corp. | 4,078 | 57 |
| American Ecology Corp. | 3,399 | 53 |
| Steelcase Inc. | 12,557 | 51 |
* | Team, Inc. | 3,647 | 48 |
* | ATC Technology Corp. | 4,271 | 44 |
* | Cornell Cos., Inc. | 2,866 | 44 |
| Ennis, Inc. | 5,327 | 44 |
* | Fuel-Tech N.V. | 3,897 | 36 |
* | EnerNOC Inc. | 2,849 | 32 |
* | Standard Parking Corp. | 1,869 | 30 |
* | Cenveo Inc. | 10,596 | 30 |
| Kimball International, Inc. |
|
|
| Class B | 4,919 | 29 |
* | American Reprographics Co. | 7,557 | 29 |
| Courier Corp. | 2,156 | 29 |
* | Consolidated Graphics, Inc. | 2,052 | 28 |
* | Waste Services, Inc. | 6,269 | 27 |
* | M&F Worldwide Corp. | 2,571 | 27 |
| Schawk, Inc. | 3,059 | 24 |
| Interface, Inc. | 10,418 | 23 |
* | Innerworkings, Inc. | 6,518 | 14 |
* | Acco Brands Corp. | 11,336 | 11 |
| The Standard Register Co. | 1,990 | 10 |
| Bowne & Co., Inc. | 5,637 | 9 |
* | Metalico, Inc. | 4,207 | 8 |
|
|
| 12,539 |
Construction & Engineering (3.6%) |
|
| |
| Fluor Corp. | 37,647 | 1,252 |
* | Jacobs Engineering Group Inc. | 25,514 | 861 |
* | Quanta Services, Inc. | 39,613 | 697 |
* | URS Corp. | 17,473 | 540 |
| KBR Inc. | 33,506 | 422 |
* | Aecom Technology Corp. | 17,011 | 417 |
* | Foster Wheeler AG | 27,742 | 417 |
* | Shaw Group, Inc. | 17,271 | 403 |
| Granite Construction Co. | 6,717 | 239 |
* | EMCOR Group, Inc. | 13,478 | 208 |
* | Mastec Inc. | 9,832 | 93 |
53
Industrials Index Fund
|
|
| Market | |
|
|
| Value• | |
|
| Shares | ($000) | |
* | Insituform Technologies Inc. |
|
| |
| Class A | 7,601 | 93 | |
* | Perini Corp. | 5,748 | 88 | |
* | Layne Christensen Co. | 3,971 | 65 | |
* | Northwest Pipe Co. | 1,930 | 53 | |
* | Dycom Industries, Inc. | 8,301 | 38 | |
* | Pike Electric Corp. | 3,731 | 30 | |
* | Furmanite Corp. | 7,389 | 23 | |
| Great Lakes Dredge & |
|
| |
| Dock Co. | 8,223 | 20 | |
|
|
| 5,959 | |
Electrical Equipment (6.8%) |
|
| ||
| Emerson Electric Co. | 159,285 | 4,261 | |
* | First Solar, Inc. | 8,410 | 889 | |
| Roper Industries Inc. | 18,630 | 770 | |
| Cooper Industries, Inc. |
|
| |
| Class A | 36,004 | 759 | |
| Ametek, Inc. | 22,082 | 584 | |
| Rockwell Automation, Inc. | 27,881 | 560 | |
* | Thomas & Betts Corp. | 11,962 | 274 | |
| Hubbell Inc. Class B | 10,155 | 267 | |
* | SunPower Corp. Class A | 8,621 | 241 | |
| Woodward Governor Co. | 12,499 | 215 | |
* | SunPower Corp. Class B | 8,680 | 215 | |
*,^ | Energy Conversion |
|
| |
| Devices, Inc. | 9,436 | 207 | |
| Acuity Brands, Inc. | 8,382 | 192 | |
| Regal-Beloit Corp. | 6,655 | 191 | |
| Brady Corp. Class A | 10,390 | 178 | |
* | General Cable Corp. | 10,980 | 170 | |
* | GrafTech International Ltd. | 24,811 | 140 | |
* | American |
|
| |
| Superconductor Corp. | 8,425 | 113 | |
| Baldor Electric Co. | 8,667 | 106 | |
| A.O. Smith Corp. | 4,103 | 105 | |
| Belden Inc. | 9,654 | 103 | |
* | EnerSys | 8,958 | 96 | |
* | II-VI, Inc. | 5,241 | 94 | |
| Franklin Electric, Inc. | 3,834 | 84 | |
| Encore Wire Corp. | 3,551 | 64 | |
* | Powell Industries, Inc. | 1,637 | 49 | |
* | AZZ Inc. | 2,409 | 49 | |
* | Evergreen Solar, Inc. | 30,347 | 37 | |
* | FuelCell Energy, Inc. | 12,661 | 35 | |
* | Ener1, Inc. | 8,490 | 27 | |
* | Polypore International Inc. | 5,045 | 25 | |
| Vicor Corp. | 4,019 | 19 | |
* | Plug Power, Inc. | 15,839 | 15 | |
* | Orion Energy Systems Inc. | 3,587 | 15 | |
* | Fushi Copperweld, Inc. | 2,594 | 13 | |
* | Power-One, Inc. | 13,429 | 10 | |
* | Valence Technology Inc. | 5,969 | 10 | |
|
|
| 11,182 | |
Industrial Conglomerates (17.2%) |
|
| ||
| General Electric Co. | 2,184,985 | 18,594 | |
| 3M Co. | 136,701 | 6,214 | |
| Tyco International, Ltd. | 98,252 | 1,970 | ||
* | McDermott International, Inc. | 47,334 | 558 | ||
| Textron, Inc. | 51,435 | 291 | ||
| Carlisle Co., Inc. | 12,591 | 250 | ||
| Otter Tail Corp. | 6,981 | 122 | ||
| Tredegar Corp. | 5,281 | 88 | ||
| Seaboard Corp. | 75 | 66 | ||
| Raven Industries, Inc. | 3,326 | 60 | ||
| Standex International Corp. | 2,482 | 27 | ||
|
|
| 28,240 | ||
Machinery (17.3%) |
|
| |||
| Caterpillar, Inc. | 125,265 | 3,083 | ||
| Danaher Corp. | 53,034 | 2,692 | ||
| Deere & Co. | 88,566 | 2,435 | ||
| Illinois Tool Works, Inc. | 84,817 | 2,358 | ||
| PACCAR, Inc. | 71,427 | 1,791 | ||
| ITT Industries, Inc. | 35,823 | 1,338 | ||
| Eaton Corp. | 32,673 | 1,181 | ||
| Parker Hannifin Corp. | 33,425 | 1,115 | ||
| Dover Corp. | 38,869 | 969 | ||
| Ingersoll-Rand Co. | 66,198 | 939 | ||
| Cummins Inc. | 39,848 | 829 | ||
| Flowserve Corp. | 11,874 | 599 | ||
| Pall Corp. | 24,807 | 590 | ||
| SPX Corp. | 11,302 | 500 | ||
| Pentair, Inc. | 19,444 | 406 | ||
| Joy Global Inc. | 22,412 | 391 | ||
* | Navistar International Corp. | 13,288 | 375 | ||
| Harsco Corp. | 17,444 | 360 | ||
| Donaldson Co., Inc. | 14,543 | 355 | ||
| IDEX Corp. | 17,088 | 330 | ||
* | AGCO Corp. | 18,980 | 325 | ||
| Lincoln Electric Holdings, Inc. | 8,867 | 272 | ||
| CLARCOR Inc. | 10,005 | 264 | ||
| Wabtec Corp. | 9,545 | 255 | ||
| Kennametal, Inc. | 15,164 | 247 | ||
| Graco, Inc. | 12,387 | 210 | ||
* | Gardner Denver Inc. | 10,987 | 208 | ||
| The Timken Co. | 17,049 | 208 | ||
| Bucyrus International, Inc. | 15,426 | 192 | ||
* | Terex Corp. | 20,250 | 181 | ||
| Kaydon Corp. | 7,105 | 178 | ||
* | ESCO Technologies Inc. | 5,412 | 176 | ||
| The Toro Co. | 7,742 | 169 | ||
| Valmont Industries, Inc. | 3,782 | 165 | ||
| Nordson Corp. | 6,381 | 159 | ||
| Crane Co. | 9,955 | 150 | ||
| Mueller Industries Inc. | 7,650 | 138 | ||
| Briggs & Stratton Corp. | 10,259 | 125 | ||
| Trinity Industries, Inc. | 16,820 | 124 | ||
| Actuant Corp. | 11,510 | 118 | ||
| The Manitowoc Co., Inc. | 26,770 | 110 | ||
| Watts Water Technologies, Inc. | 6,079 | 103 | ||
| Robbins & Myers, Inc. | 6,136 | 99 | ||
| Oshkosh Truck Corp. | 15,361 | 96 | ||
| Barnes Group, Inc. | 9,664 | 90 | ||
* | Astec Industries, Inc. | 3,749 | 83 | ||
* | The Middleby Corp. | 3,593 | 78 | ||
| CIRCOR International, Inc. | 3,311 | 74 | ||
* | Force Protection, Inc. | 14,131 | 73 |
* | EnPro Industries, Inc. | 4,125 | 68 |
* | RBC Bearings Inc. | 4,458 | 67 |
| Badger Meter, Inc. | 2,570 | 65 |
| Federal Signal Corp. | 9,954 | 63 |
* | Blount International, Inc. | 8,341 | 61 |
| Lindsay Manufacturing Co. | 2,379 | 58 |
| Gorman-Rupp Co. | 3,078 | 54 |
* | Colfax Corp. | 7,381 | 54 |
| Mueller Water Products, Inc. |
|
|
| Class A | 23,638 | 51 |
| Albany International Corp. | 5,479 | 47 |
* | L.B. Foster Co. Class A | 2,175 | 46 |
| Freightcar America Inc. | 2,457 | 40 |
* | Energy Recovery Inc. | 6,093 | 38 |
* | Chart Industries, Inc. | 5,866 | 38 |
| Titan International, Inc. | 6,748 | 37 |
| Sun Hydraulics Corp. | 2,558 | 34 |
| Tennant Co. | 3,394 | 33 |
* | Columbus McKinnon Corp. | 3,698 | 32 |
| Cascade Corp. | 1,681 | 28 |
| Dynamic Materials Corp. | 2,634 | 25 |
| NACCO Industries, Inc. |
|
|
| Class A | 1,172 | 24 |
| Ampco-Pittsburgh Corp. | 1,780 | 19 |
* | 3D Systems Corp. | 3,470 | 18 |
| American Railcar |
|
|
| Industries, Inc. | 2,207 | 17 |
* | Tecumseh Products Co. |
|
|
| Class A | 2,778 | 15 |
| Sauer-Danfoss, Inc. | 2,496 | 15 |
| Wabash National Corp. | 6,292 | 13 |
| The Greenbrier Cos., Inc. | 3,224 | 12 |
* | TriMas Corp. | 3,526 | 4 |
* | Tecumseh Products Co. |
|
|
| Class B | 618 | 4 |
|
|
| 28,386 |
Marine (0.4%) |
|
| |
* | Kirby Corp. | 10,588 | 233 |
| Alexander & Baldwin, Inc. | 8,607 | 162 |
| Genco Shipping and |
|
|
| Trading Ltd. | 5,533 | 68 |
| Eagle Bulk Shipping Inc. | 9,574 | 36 |
* | American Commercial |
|
|
| Lines Inc. | 8,360 | 28 |
| Horizon Lines Inc. | 5,958 | 20 |
* | TBS International Ltd. | 2,661 | 17 |
| Paragon Shipping, Inc. | 4,182 | 16 |
| Safe Bulkers, Inc. | 2,219 | 8 |
|
|
| 588 |
Professional Services (3.0%) |
|
| |
| The Dun & Bradstreet Corp. | 11,292 | 835 |
| Equifax, Inc. | 26,540 | 571 |
| Robert Half International, Inc. | 30,647 | 471 |
| Manpower Inc. | 16,429 | 458 |
| Watson Wyatt & Co. Holdings | 8,949 | 440 |
* | FTI Consulting, Inc. | 10,471 | 383 |
* | Huron Consulting Group Inc. | 4,071 | 168 |
* | Monster Worldwide Inc. | 23,554 | 155 |
* | Navigant Consulting, Inc. | 10,044 | 130 |
* | Resources Connection, Inc. | 8,906 | 122 |
| The Corporate Executive |
|
|
| Board Co. | 7,080 | 106 |
* | CoStar Group, Inc. | 3,883 | 99 |
* | MPS Group, Inc. | 19,379 | 96 |
| Administaff, Inc. | 4,855 | 95 |
* | Korn/Ferry International | 9,704 | 90 |
* | Exponent, Inc. | 2,933 | 66 |
* | CBIZ Inc. | 9,455 | 65 |
* | TrueBlue, Inc. | 8,883 | 62 |
* | School Specialty, Inc. | 3,847 | 54 |
| Heidrick & Struggles |
|
|
| International, Inc. | 3,373 | 54 |
* | The Advisory Board Co. | 3,553 | 53 |
* | CRA International Inc. | 2,187 | 48 |
* | Kforce Inc. | 7,145 | 46 |
| Kelly Services, Inc. Class A | 5,170 | 39 |
* | ICF International, Inc. | 1,503 | 36 |
* | Duff & Phelps Corp. | 2,218 | 31 |
* | Volt Information Sciences Inc. | 2,955 | 23 |
| CDI Corp. | 2,912 | 22 |
* | First Advantage Corp. Class A | 1,925 | 20 |
* | Hill International Inc. | 5,054 | 16 |
* | LECG Corp. | 5,027 | 14 |
* | Spherion Corp. | 10,702 | 13 |
* | Hudson Highland Group, Inc. | 5,192 | 6 |
|
|
| 4,887 |
Road & Rail (9.2%) |
|
| |
| Burlington Northern |
|
|
| Santa Fe Corp. | 71,086 | 4,178 |
54
Industrials Index Fund
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
| Union Pacific Corp. | 105,163 | 3,946 |
| Norfolk Southern Corp. | 76,800 | 2,436 |
| CSX Corp. | 81,818 | 2,019 |
| Landstar System, Inc. | 10,957 | 347 |
| J.B. Hunt Transport |
|
|
| Services, Inc. | 16,896 | 344 |
* | Kansas City Southern | 18,816 | 333 |
| Ryder System, Inc. | 11,689 | 267 |
| Knight Transportation, Inc. | 12,348 | 160 |
| Heartland Express, Inc. | 12,867 | 159 |
| Con-way, Inc. | 9,441 | 143 |
* | Genesee & Wyoming Inc. |
|
|
| Class A | 6,567 | 137 |
| Werner Enterprises, Inc. | 9,505 | 129 |
* | Old Dominion |
|
|
| Freight Line, Inc. | 5,764 | 126 |
* | Hertz Global Holdings Inc. | 29,927 | 95 |
| Arkansas Best Corp. | 5,014 | 87 |
* | Marten Transport, Ltd. | 3,393 | 56 |
* | Amerco, Inc. | 1,395 | 40 |
* | YRC Worldwide, Inc. | 11,824 | 26 |
* | Universal Truckload |
|
|
| Services, Inc. | 1,321 | 16 |
* | Avis Budget Group, Inc. | 20,940 | 8 |
|
|
| 15,052 |
Trading Companies & Distributors (1.9%) |
| ||
| W.W. Grainger, Inc. | 13,409 | 887 |
| Fastenal Co. | 26,126 | 787 |
| MSC Industrial |
|
|
| Direct Co., Inc. Class A | 9,229 | 282 |
| GATX Corp. | 10,043 | 184 |
| Watsco, Inc. | 5,111 | 175 |
* | WESCO International, Inc. | 8,707 | 145 |
| Applied Industrial |
|
|
| Technology, Inc. | 7,918 | 128 |
* | Beacon Roofing Supply, Inc. | 9,237 | 101 |
| Kaman Corp. Class A | 5,309 | 62 |
* | RSC Holdings Inc. | 11,632 | 54 |
* | Interline Brands, Inc. | 6,035 | 48 |
* | Rush Enterprises, Inc. |
|
|
| Class A | 5,420 | 44 |
* | United Rentals, Inc. | 9,821 | 40 |
| Aircastle Ltd. | 9,841 | 32 |
* | Titan Machinery, Inc. | 2,741 | 25 |
| TAL International Group, Inc. | 3,348 | 25 |
* | H&E Equipment Services, Inc. | 4,312 | 22 |
| Houston Wire & Cable Co. | 3,394 | 20 |
| Lawson Products, Inc. | 907 | 16 |
| Textainer Group Holdings Ltd. | 2,512 | 15 |
* | Rush Enterprises, Inc. Class B | 1,779 | 14 |
|
|
| 3,106 |
Transportation Infrastructure (0.0%) |
|
| |
| Macquarie |
|
|
| Infrastructure Co. LLC | 8,954 | 12 |
Total Common Stocks |
|
| |
(Cost $349,280) |
| 163,753 |
Temporary Cash Investment (0.1%) |
|
| |
1,2 | Vanguard Market |
|
|
| Liquidity Fund, 0.663% |
|
|
| (Cost $113) | 112,801 | 113 |
Total Investments (100.1%) |
|
| |
(Cost $349,393) |
| 163,866 | |
Other Assets and Liabilities (–0.1%) |
|
| |
Other Assets |
| 2,103 | |
Liabilities2 |
| (2,199) | |
|
|
| (96) |
Net Assets (100%) |
| 163,770 |
At February 28, 2009, net assets consisted of: | |
| Amount |
| ($000) |
Paid-in Capital | 359,847 |
Undistributed Net Investment Income | 1,108 |
Accumulated Net Realized Losses | (11,658) |
Unrealized Appreciation (Depreciation) | (185,527) |
Net Assets | 163,770 |
|
|
|
|
Admiral Shares—Net Assets |
|
Applicable to 302,692 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 4,843 |
Net Asset Value Per Share— |
|
Admiral Shares | $16.00 |
|
|
|
|
ETF Shares—Net Assets |
|
Applicable to 5,101,305 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 158,927 |
Net Asset Value Per Share— |
|
ETF Shares | $31.15 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Part of security position is on loan to broker-dealers. The total value of securities on loan is $103,000.
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 Includes $113,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
55
55
Industrials Index Fund
Statement of Operations
| Six Months Ended |
| February 28, 2009 |
| ($000) |
Investment Income |
|
Income |
|
Dividends | 3,828 |
Interest1 | 2 |
Security Lending | 4 |
Total Income | 3,834 |
Expenses |
|
The Vanguard Group—Note B |
|
Investment Advisory Services | 29 |
Management and Administrative— |
|
Admiral Shares | 6 |
Management and Administrative— |
|
ETF Shares | 139 |
Marketing and Distribution— |
|
Admiral Shares | 1 |
Marketing and Distribution— |
|
ETF Shares | 40 |
Custodian Fees | 23 |
Auditing Fees | 1 |
Shareholders’ Reports—Admiral Shares | — |
Shareholders’ Reports—ETF Shares | 14 |
Total Expenses | 253 |
Net Investment Income | 3,581 |
Realized Net Gain (Loss) |
|
on Investment Securities Sold | (5,707) |
Change in Unrealized Appreciation |
|
(Depreciation) of Investment Securities | (164,088) |
Net Increase (Decrease) in Net Assets |
|
Resulting from Operations | (166,214) |
Statement of Changes in Net Assets
| Six Months Ended |
| Year Ended |
| February 28, |
| August 31, |
| 2009 |
| 2008 |
| ($000) |
| ($000) |
Increase (Decrease) in Net Assets |
|
|
|
Operations |
|
|
|
Net Investment Income | 3,581 |
| 4,411 |
Realized Net Gain (Loss) | (5,707) |
| 18,166 |
Change in Unrealized Appreciation (Depreciation) | (164,088) |
| (46,076) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (166,214) |
| (23,499) |
Distributions |
|
|
|
Net Investment Income |
|
|
|
Admiral Shares | (158) |
| (67) |
ETF Shares | (5,112) |
| (3,337) |
Realized Capital Gain |
|
|
|
Admiral Shares | — |
| — |
ETF Shares | — |
| — |
Total Distributions | (5,270) |
| (3,404) |
Capital Share Transactions |
|
|
|
Admiral Shares | (427) |
| 7,721 |
ETF Shares | (21,840) |
| 143,649 |
Net Increase (Decrease) from Capital Share Transactions | (22,267) |
| 151,370 |
Total Increase (Decrease) | (193,751) |
| 124,467 |
Net Assets |
|
|
|
Beginning of Period | 357,521 |
| 233,054 |
End of Period2 | 163,770 |
| 357,521 |
1 Interest income from an affiliated company of the fund was $2,000.
2 Net Assets—End of Period includes undistributed net investment income of $1,108,000 and $2,797,000.
See accompanying Notes, which are an integral part of the Financial Statements.
56
Industrials Index Fund
Financial Highlights
Admiral Shares |
|
|
|
|
|
|
|
|
|
| Six Months |
|
| May 8, |
| Ended | Year Ended | 20061 to | |
| February 28, | August 31, | Aug. 31, | |
For a Share Outstanding Throughout Each Period | 2009 | 2008 | 2007 | 2006 |
Net Asset Value, Beginning of Period | $34.20 | $37.94 | $30.72 | $34.10 |
Investment Operations |
|
|
|
|
Net Investment Income | .406 | .5762 | .5102 | .1642 |
Net Realized and Unrealized Gain (Loss) |
|
|
|
|
on Investments | (18.049) | (3.816) | 7.090 | (3.544) |
Total from Investment Operations | (17.643) | (3.240) | 7.600 | (3.380) |
Distributions |
|
|
|
|
Dividends from Net Investment Income | (.557) | (.500) | (.380) | — |
Distributions from Realized Capital Gains | — | — | — | — |
Total Distributions | (.557) | (.500) | (.380) | — |
Net Asset Value, End of Period | $16.00 | $34.20 | $37.94 | $30.72 |
|
|
|
|
|
|
|
|
|
|
Total Return3 | –51.99% | –8.67% | 24.90% | –9.91% |
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
Net Assets, End of Period (Millions) | $5 | $11 | $4 | $0.2 |
Ratio of Total Expenses to |
|
|
|
|
Average Net Assets | 0.26%4 | 0.25% | 0.26% | 0.28%4 |
Ratio of Net Investment Income to |
|
|
|
|
Average Net Assets | 3.33%4 | 1.63% | 1.46% | 1.35%4 |
Portfolio Turnover Rate5 | 9%4 | 7% | 13% | 9% |
ETF Shares |
|
|
|
|
|
|
|
|
|
|
|
| Six Months |
|
|
| Sept. 23, |
| Ended |
| 20041 to | ||
For a Share Outstanding | February 28, | Year Ended August 31, | Aug. 31, | ||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 |
Net Asset Value, Beginning of Period | $66.65 | $73.94 | $59.85 | $54.30 | $48.79 |
Investment Operations |
|
|
|
|
|
Net Investment Income | .800 | 1.1572 | 1.0262 | .8422 | .650 |
Net Realized and Unrealized Gain (Loss) |
|
|
|
|
|
on Investments | (35.189) | (7.466) | 13.808 | 5.160 | 5.180 |
Total from Investment Operations | (34.389) | (6.309) | 14.834 | 6.002 | 5.830 |
Distributions |
|
|
|
|
|
Dividends from Net Investment Income | (1.111) | (.981) | (.744) | (.452) | (.320) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.111) | (.981) | (.744) | (.452) | (.320) |
Net Asset Value, End of Period | $31.15 | $66.65 | $73.94 | $59.85 | $54.30 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Return | –51.99% | –8.65% | 24.95% | 11.08% | 11.94% |
|
|
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
Net Assets, End of Period (Millions) | $159 | $347 | $229 | $120 | $16 |
Ratio of Total Expenses to |
|
|
|
|
|
Average Net Assets | 0.24%4 | 0.20% | 0.22% | 0.25% | 0.26%4 |
Ratio of Net Investment Income to |
|
|
|
|
|
Average Net Assets | 3.35%4 | 1.68% | 1.50% | 1.38% | 1.30%4 |
Portfolio Turnover Rate5 | 9%4 | 7% | 13% | 9% | 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 ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
57
57
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 offers two classes of shares, Admiral Shares and ETF Shares. Admiral Shares are available to any investor who meets the fund’s minimum purchase requirements. ETF Shares are listed for trading on the NYSE Arca, Inc.; 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 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. Management has analyzed the fund’s tax positions taken on federal income tax returns for all open tax years (tax years ended August 31, 2005–2008) and for the period ended February 28, 2009, and has concluded that no provision for federal income tax is required in the fund’s 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 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. 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, 2009, the fund had contributed capital of $49,000 to Vanguard (included in Other Assets), representing 0.03% 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.
58
Industrials Index Fund
During the six months ended February 28, 2009, the fund realized $1,912,000 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 losses 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, 2008, the fund had available realized losses of $3,935,000 to offset future net capital gains of $18,000 through August 31, 2014, $283,000 through August 31, 2015, $552,000 through August 31, 2016, and $3,082,000 through August 31, 2017. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2009; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balances above.
At February 28, 2009, the cost of investment securities for tax purposes was $349,393,000. Net unrealized depreciation of investment securities for tax purposes was $185,527,000, consisting of unrealized gains of $120,000 on securities that had risen in value since their purchase and $185,647,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2009, the fund purchased $70,398,000 of investment securities and sold $94,215,000 of investment securities, other than temporary cash investments.
E. Capital share transactions for each class of shares were:
| Six Months Ended | Year Ended | |||
| February 28, 2009 | August 31, 2008 | |||
| Amount | Shares |
| Amount | Shares |
| ($000) | (000) |
| ($000) | (000) |
Admiral Shares |
|
|
|
|
|
Issued | 1,623 | 77 |
| 9,334 | 262 |
Issued in Lieu of Cash Distributions | 128 | 6 |
| 56 | 2 |
Redeemed1 | (2,178) | (97) |
| (1,669) | (48) |
Net Increase (Decrease)—Admiral Shares | (427) | (14) |
| 7,721 | 216 |
ETF Shares |
|
|
|
|
|
Issued | 60,175 | 1,500 |
| 250,498 | 3,601 |
Issued in Lieu of Cash Distributions | — | — |
| — | — |
Redeemed1 | (82,015) | (1,600) |
| (106,849) | (1,500) |
Net Increase (Decrease)—ETF Shares | (21,840) | (100) |
| 143,649 | 2,101 |
1 Net of redemption fees for fiscal 2009 and 2008 of $23,000 and $25,000, respectively (fund totals).
F. In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157 (“FAS 157”), “Fair Value Measurements.” FAS 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements in financial statements.
The various inputs that may be used to determine the value of the fund’s investments are summarized in three broad levels. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At February 28, 2009, 100% of the fund’s investments were valued based on Level 1 inputs.
59
Information Technology Index Fund
Fund Profile
As of February 28, 2009
Portfolio Characteristics |
|
| |
|
| Target | Broad |
| Fund | Index1 | Index2 |
Number of Stocks | 409 | 409 | 2,474 |
Median Market Cap | $71.6B | $71.6B | $21.7B |
Price/Earnings Ratio | 13.4x | 13.4x | 12.1x |
Price/Book Ratio | 2.2x | 2.2x | 1.5x |
Yield3 |
| 1.3% | 3.1% |
Admiral Shares | 1.0% |
|
|
ETF Shares | 1.0% |
|
|
Return on Equity | 22.7% | 22.7% | 21.0% |
Earnings Growth Rate | 29.2% | 29.1% | 17.8% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate4 | 21% | — | — |
Expense Ratio5 |
| — | — |
Admiral Shares | 0.28% |
|
|
ETF Shares | 0.25% |
|
|
Short-Term Reserves | 0.0% | — | — |
Volatility Measures6 |
| |
| Fund Versus | Fund Versus |
| Target Index1 | Broad Index2 |
R-Squared | 1.00 | 0.80 |
Beta | 1.00 | 1.10 |
Industry Diversification (% of equity exposure) | |
|
|
Application Software | 3.9% |
Communications Equipment | 14.7 |
Computer Hardware | 22.0 |
Computer Storage & Peripherals | 2.9 |
Data Processing & Outsourced Services | 8.3 |
Electronic Equipment & Instruments | 1.2 |
Internet Software & Services | 9.9 |
IT Consulting & Other Services | 2.5 |
Semiconductor Equipment | 2.2 |
Semiconductors | 11.6 |
Systems Software | 17.3 |
Other Information Technology | 3.5 |
Ten Largest Holdings7 (% of total net assets) | |
|
|
Microsoft Corp. | 9.5% |
International Business Machines Corp. | 9.1 |
Cisco Systems, Inc. | 6.3 |
Google Inc. | 6.0 |
Apple Inc. | 5.8 |
Hewlett-Packard Co. | 5.2 |
Intel Corp. | 5.2 |
Oracle Corp. | 4.7 |
QUALCOMM Inc. | 4.1 |
Visa Inc. | 1.9 |
Top Ten | 57.8% |
1 MSCI US IMI/Information Technology.
2 MSCI US IMI/2500.
3 30-day SEC yield for the fund; annualized dividend yield for the indexes. See the Glossary.
4 Annualized.
5 The expense ratios shown are from the prospectuses dated December 29, 2008, and represent estimated costs for the current fiscal year based on the fund’s current net assets. For the six months ended February 28, 2009, the annualized expense ratios were 0.26% for the Admiral Shares and 0.24% for the ETF Shares.
6 For an explanation of R-squared, beta, and other terms used here, see the Glossary.
7 The holdings listed exclude any temporary cash investments and equity index products.
60
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/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): January 26, 2004–February 28, 2009
Average Annual Total Returns: Periods Ended December 31, 2008
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 |
ETF Shares | 1/26/2004 |
|
|
Market Price |
| –42.84% | –7.27% |
Net Asset Value |
| –42.83 | –7.25 |
Admiral Shares2 | 3/25/2004 | –42.86 | –5.40 |
1 Six months ended February 28, 2009.
2 Total returns do not reflect the 2% fee assessed on redemptions of shares held for less than one year.
Note: See Financial Highlights tables for dividend and capital gains information.
61
Information Technology Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2009
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).
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
Common Stocks (99.9%) |
|
| |
Communications Equipment (14.7%) |
|
| |
* | Cisco Systems, Inc. | 1,366,818 | 19,915 |
| QUALCOMM Inc. | 386,388 | 12,917 |
| Corning, Inc. | 362,866 | 3,828 |
| Motorola, Inc. | 529,010 | 1,862 |
* | Juniper Networks, Inc. | 123,270 | 1,752 |
| Harris Corp. | 31,416 | 1,171 |
* | F5 Networks, Inc. | 18,670 | 373 |
* | Tellabs, Inc. | 87,439 | 332 |
* | InterDigital, Inc. | 10,355 | 304 |
* | Polycom, Inc. | 19,697 | 262 |
* | Brocade Communications |
|
|
| Systems, Inc. | 86,089 | 239 |
* | Comtech |
|
|
| Telecommunications Corp. | 5,768 | 218 |
* | 3Com Corp. | 94,445 | 209 |
| ADTRAN Inc. | 13,224 | 191 |
* | Arris Group Inc. | 28,363 | 174 |
* | Tekelec | 13,816 | 169 |
* | EchoStar Corp. | 9,754 | 160 |
* | Starent Networks Corp. | 9,206 | 146 |
* | CommScope, Inc. | 16,246 | 145 |
* | JDS Uniphase Corp. | 50,038 | 138 |
* | Riverbed Technology, Inc. | 12,530 | 131 |
* | Infinera Corp. | 17,436 | 126 |
* | Avocent Corp. | 10,329 | 124 |
* | Harmonic, Inc. | 21,914 | 119 |
* | ViaSat, Inc. | 6,461 | 118 |
* | Sycamore Networks, Inc. | 45,917 | 116 |
* | Ciena Corp. | 20,853 | 112 |
* | Emulex Corp. | 19,766 | 104 |
* | Neutral Tandem, Inc. | 5,028 | 100 |
* | Blue Coat Systems, Inc. | 9,021 | 99 |
| Plantronics, Inc. | 11,259 | 97 |
* | NETGEAR, Inc. | 8,269 | 91 |
| Black Box Corp. | 4,087 | 81 |
* | Sonus Networks, Inc. | 63,309 | 79 |
* | ADC |
|
|
| Telecommunications, Inc. | 27,070 | 77 |
* | EMS Technologies, Inc. | 3,670 | 74 |
* | DG FastChannel Inc. | 3,650 | 57 |
* | Ixia | 8,884 | 44 |
* | Cogo Group, Inc. | 6,244 | 39 |
* | Aruba Networks, Inc. | 12,568 | 35 |
* | Loral Space and |
|
|
| Communications Ltd. | 2,838 | 34 |
* | Airvana, Inc. | 5,321 | 29 |
* | Extreme Networks, Inc. | 19,577 | 28 |
* | UTStarcom, Inc. | 24,931 | 25 |
* | BigBand Networks Inc. | 4,482 | 24 |
* | Acme Packet, Inc. | 5,456 | 24 |
* | Hughes |
|
|
| Communications Inc. | 2,260 | 24 |
* | Harris Stratex |
|
|
| Networks, Inc. Class A | 5,969 | 23 |
* | Finisar Corp. | 88,791 | 22 |
| Bel Fuse, Inc. Class B | 1,966 | 18 |
* | Orbcomm, Inc. | 5,968 | 12 |
* | MRV Communications Inc. | 36,681 | 11 |
* | Powerwave Technologies, Inc. | 30,671 | 10 |
* | OpNext, Inc. | 5,064 | 8 |
| Bel Fuse, Inc. Class A | 529 | 5 |
|
|
| 46,625 |
Computers & Peripherals (24.9%) |
|
| |
| International Business |
|
|
| Machines Corp. | 313,617 | 28,862 |
* | Apple Inc. | 207,489 | 18,531 |
| Hewlett-Packard Co. | 571,711 | 16,597 |
* | EMC Corp. | 476,422 | 5,002 |
* | Dell Inc. | 411,538 | 3,510 |
* | NetApp, Inc. | 76,417 | 1,027 |
* | Sun Microsystems, Inc. | 172,434 | 807 |
* | Western Digital Corp. | 51,454 | 703 |
* | Teradata Corp. | 41,382 | 640 |
| Seagate Technology | 113,151 | 487 |
* | SanDisk Corp. | 52,757 | 470 |
| Diebold, Inc. | 15,429 | 341 |
* | Lexmark International, Inc. | 18,322 | 314 |
* | NCR Corp. | 37,937 | 300 |
* | QLogic Corp. | 30,368 | 280 |
* | Palm, Inc. | 24,098 | 174 |
* | Synaptics Inc. | 7,457 | 155 |
* | Intermec, Inc. | 11,413 | 115 |
* | Electronics for Imaging, Inc. | 12,254 | 109 |
* | Data Domain, Inc. | 8,362 | 109 |
* | Avid Technology, Inc. | 8,649 | 86 |
* | Adaptec, Inc. | 28,105 | 66 |
| Imation Corp. | 7,468 | 60 |
* | Netezza Corp. | 7,644 | 44 |
* | 3PAR, Inc. | 6,369 | 43 |
* | Stratasys, Inc. | 4,658 | 42 |
* | Compellent Technologies, Inc. | 3,144 | 41 |
* | Novatel Wireless, Inc. | 7,395 | 40 |
* | STEC Inc. | 6,576 | 37 |
* | Rackable Systems Inc. | 6,942 | 26 |
* | Quantum Corp. | 48,385 | 18 |
* | Isilon Systems Inc. | 5,204 | 12 |
* | Hutchinson Technology, Inc. | 5,394 | 10 |
|
|
| 79,058 |
Electronic Equipment, Instruments |
|
| |
& Components (3.3%) |
|
| |
* | Agilent Technologies, Inc. | 83,565 | 1,159 |
| Amphenol Corp. | 41,050 | 1,044 |
| Tyco Electronics Ltd. | 106,853 | 1,013 |
* | FLIR Systems, Inc. | 30,652 | 626 |
* | Avnet, Inc. | 34,961 | 604 |
* | Arrow Electronics, Inc. | 27,743 | 461 |
* | Mettler-Toledo |
|
|
| International Inc. | 7,924 | 422 |
* | Trimble Navigation Ltd. | 28,043 | 395 |
* | Flextronics International Ltd. | 189,017 | 389 |
* | Ingram Micro, Inc. Class A | 34,625 | 377 |
* | Itron, Inc. | 7,955 | 355 |
* | Dolby Laboratories Inc. | 12,027 | 337 |
| National Instruments Corp. | 13,654 | 235 |
* | Tech Data Corp. | 12,227 | 211 |
* | Anixter International Inc. | 6,920 | 204 |
| Molex, Inc. Class A | 17,338 | 182 |
| Jabil Circuit, Inc. | 41,331 | 171 |
| Molex, Inc. | 14,782 | 168 |
* | Benchmark Electronics, Inc. | 15,367 | 150 |
* | Plexus Corp. | 9,081 | 117 |
* | Cogent Inc. | 10,282 | 107 |
| AVX Corp. | 11,964 | 102 |
| Cognex Corp. | 9,210 | 101 |
* | Vishay Intertechnology, Inc. | 39,653 | 101 |
* | Rofin-Sinar Technologies Inc. | 6,745 | 99 |
* | ScanSource, Inc. | 6,141 | 97 |
* | L-1 Identity Solutions Inc. | 19,072 | 88 |
* | Coherent, Inc. | 5,549 | 85 |
| MTS Systems Corp. | 3,568 | 84 |
* | Rogers Corp. | 4,151 | 76 |
| Park Electrochemical Corp. | 4,536 | 71 |
* | DTS Inc. | 4,242 | 70 |
* | Checkpoint Systems, Inc. | 9,015 | 70 |
* | SYNNEX Corp. | 4,113 | 61 |
* | OSI Systems Inc. | 3,742 | 59 |
* | Littelfuse, Inc. | 5,063 | 58 |
| Daktronics, Inc. | 8,031 | 55 |
* | Brightpoint, Inc. | 12,384 | 49 |
* | TTM Technologies, Inc. | 9,976 | 46 |
* | Universal Display Corp. | 7,563 | 46 |
* | IPG Photonics Corp. | 5,220 | 44 |
* | FARO Technologies, Inc. | 3,702 | 44 |
* | Echelon Corp. | 6,654 | 40 |
| Electro Rent Corp. | 4,569 | 35 |
* | Electro Scientific |
|
|
| Industries, Inc. | 6,348 | 34 |
* | Multi-Fineline Electronix, Inc. | 2,331 | 33 |
| Methode Electronics, Inc. |
|
|
| Class A | 8,902 | 32 |
* | Sanmina-SCI Corp. | 123,920 | 31 |
* | Newport Corp. | 7,583 | 31 |
* | Insight Enterprises, Inc. | 10,634 | 28 |
| CTS Corp. | 7,868 | 25 |
| Agilysys, Inc. | 5,038 | 18 |
* | Comverge Inc. | 3,450 | 15 |
* | ICx Technologies, Inc. | 2,812 | 13 |
| Technitrol, Inc. | 9,091 | 12 |
* | Smart Modular |
|
|
| Technologies Inc. | 8,583 | 10 |
* | GSI Group, Inc. | 8,756 | 8 |
|
|
| 10,598 |
Internet Software & Services (9.9%) |
|
| |
* | Google Inc. | 55,912 | 18,898 |
* | Yahoo! Inc. | 307,722 | 4,071 |
* | eBay Inc. | 253,401 | 2,754 |
62
Information Technology Index Fund
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
* | VeriSign, Inc. | 45,289 | 875 |
* | Akamai Technologies, Inc. | 39,476 | 714 |
* | Equinix, Inc. | 7,760 | 360 |
* | IAC/InterActiveCorp | 22,336 | 333 |
* | Sohu.com Inc. | 6,221 | 307 |
* | SINA.com | 12,276 | 264 |
* | VistaPrint Ltd. | 9,730 | 238 |
* | Digital River, Inc. | 8,550 | 205 |
* | j2 Global |
|
|
| Communications, Inc. | 10,122 | 190 |
* | Interwoven Inc. | 10,691 | 172 |
* | Omniture, Inc. | 14,644 | 166 |
* | EarthLink, Inc. | 25,611 | 161 |
* | ValueClick, Inc. | 20,223 | 127 |
* | Websense, Inc. | 10,377 | 116 |
* | Mercadolibre Inc. | 6,648 | 111 |
* | DealerTrack Holdings Inc. | 8,652 | 91 |
* | AsiaInfo Holdings, Inc. | 7,003 | 85 |
| United Online, Inc. | 18,013 | 84 |
* | S1 Corp. | 13,079 | 75 |
* | Vocus, Inc. | 4,171 | 69 |
* | Bankrate, Inc. | 3,036 | 68 |
* | Art Technology Group, Inc. | 30,124 | 66 |
* | GSI Commerce, Inc. | 4,981 | 55 |
* | SonicWALL, Inc. | 12,450 | 55 |
* | Move, Inc. | 33,736 | 55 |
* | RealNetworks, Inc. | 23,304 | 54 |
* | SAVVIS, Inc. | 8,718 | 49 |
| NIC Inc. | 9,497 | 47 |
* | WebMD Health Corp. |
|
|
| Class A | 2,009 | 47 |
* | InfoSpace, Inc. | 8,066 | 43 |
* | The Knot, Inc. | 6,745 | 42 |
* | Vignette Corp. | 5,551 | 37 |
* | Internet Capital Group Inc. | 9,036 | 37 |
* | ComScore Inc. | 4,046 | 36 |
* | LoopNet, Inc. | 6,225 | 36 |
* | Constant Contact, Inc. | 2,623 | 36 |
* | Internap Network |
|
|
| Services Corp. | 11,723 | 36 |
* | Internet Brands Inc. | 6,658 | 32 |
* | Switch and Data Inc. | 4,428 | 27 |
* | Terremark Worldwide, Inc. | 9,671 | 27 |
* | Perficient, Inc. | 7,124 | 25 |
| Marchex, Inc. | 5,960 | 24 |
* | Limelight Networks Inc. | 8,717 | 23 |
* | DivX, Inc. | 4,462 | 21 |
* | ModusLink Global |
|
|
| Solutions, Inc. | 10,873 | 21 |
* | Liquidity Services, Inc. | 3,589 | 17 |
* | Chordiant Software, Inc. | 7,101 | 15 |
* | Dice Holdings Inc. | 5,072 | 12 |
* | TechTarget | 2,422 | 6 |
|
|
| 31,515 |
IT Services (10.9%) |
|
| |
| Visa Inc. | 104,798 | 5,943 |
| Accenture Ltd. | 143,006 | 4,174 |
| Automatic Data |
|
|
| Processing, Inc. | 118,573 | 4,049 |
| MasterCard, Inc. Class A | 20,669 | 3,266 |
| Western Union Co. | 167,061 | 1,865 |
| Paychex, Inc. | 75,796 | 1,672 |
* | Cognizant Technology |
|
|
| Solutions Corp. | 67,968 | 1,251 |
* | Computer Sciences Corp. | 35,358 | 1,228 |
* | Fiserv, Inc. | 37,392 | 1,220 |
* | Affiliated Computer |
|
|
| Services, Inc. Class A | 21,229 | 990 |
* | SAIC, Inc. | 44,908 | 849 |
| Fidelity National Information |
|
|
| Services, Inc. | 44,347 | 776 |
* | Hewitt Associates, Inc. | 19,803 | 584 |
| Lender Processing |
|
|
| Services, Inc. | 22,237 | 583 |
| Global Payments Inc. | 18,718 | 574 |
| Broadridge Financial |
|
|
| Solutions LLC | 33,002 | 527 |
| Total System Services, Inc. | 38,956 | 490 |
* | Alliance Data |
|
|
| Systems Corp. | 15,071 | 446 |
* | Metavante Technologies | 20,769 | 349 |
* | CACI International, Inc. | 7,007 | 300 |
* | NeuStar, Inc. Class A | 18,233 | 283 |
* | ManTech |
|
|
| International Corp. | 5,007 | 261 |
* | DST Systems, Inc. | 8,689 | 256 |
* | Perot Systems Corp. | 20,808 | 237 |
* | CyberSource Corp. | 15,291 | 188 |
* | Convergys Corp. | 28,205 | 182 |
| MAXIMUS, Inc. | 4,315 | 159 |
* | Gartner, Inc. Class A | 15,220 | 154 |
| Acxiom Corp. | 17,047 | 141 |
* | Genpact, Ltd. | 17,308 | 137 |
* | SRA International, Inc. | 9,879 | 134 |
* | Wright Express Corp. | 8,966 | 131 |
| Syntel, Inc. | 5,818 | 118 |
* | CSG Systems |
|
|
| International, Inc. | 8,049 | 109 |
* | Euronet Worldwide, Inc. | 9,740 | 95 |
* | Sapient Corp. | 22,668 | 87 |
* | TeleTech Holdings, Inc. | 9,817 | 85 |
* | Forrester Research, Inc. | 3,786 | 70 |
* | VeriFone Holdings, Inc. | 15,734 | 68 |
* | NCI, Inc. | 1,625 | 44 |
| Cass Information |
|
|
| Systems, Inc. | 1,708 | 44 |
* | Ciber, Inc. | 15,014 | 39 |
* | RightNow Technologies Inc. | 4,707 | 38 |
* | TNS Inc. | 5,241 | 35 |
* | Integral Systems, Inc. | 3,600 | 33 |
* | Global Cash Access, Inc. | 10,780 | 30 |
* | Unisys Corp. | 83,933 | 30 |
| Heartland Payment |
|
|
| Systems, Inc. | 5,253 | 29 |
* | ExlService Holdings, Inc. | 3,365 | 27 |
* | Ness Technologies Inc. | 8,244 | 24 |
* | infoGROUP, Inc. | 7,962 | 24 |
* | China Information Security |
|
|
| Technology, Inc. | 6,055 | 16 |
| iGATE Corp. | 5,033 | 15 |
| Gevity HR, Inc. | 5,564 | 12 |
|
|
| 34,471 |
Office Electronics (0.4%) |
|
| |
| Xerox Corp. | 202,469 | 1,049 |
* | Zebra Technologies Corp. |
|
|
| Class A | 15,095 | 265 |
|
|
| 1,314 |
Semiconductors & |
|
| |
Semiconductor Equipment (13.8%) |
|
| |
| Intel Corp. | 1,298,424 | 16,542 |
| Texas Instruments, Inc. | 302,645 | 4,343 |
| Applied Materials, Inc. | 313,202 | 2,885 |
* | Broadcom Corp. | 104,255 | 1,715 |
| Analog Devices, Inc. | 67,969 | 1,267 |
| Xilinx, Inc. | 64,182 | 1,135 |
| Linear Technology Corp. | 51,754 | 1,128 |
| Altera Corp. | 69,844 | 1,071 |
* | NVIDIA Corp. | 123,417 | 1,022 |
* | Marvell Technology |
|
|
| Group Ltd. | 121,201 | 910 |
| Microchip Technology, Inc. | 42,776 | 803 |
* | MEMC Electronic |
|
|
| Materials, Inc. | 52,481 | 788 |
| KLA-Tencor Corp. | 39,425 | 680 |
| National |
|
|
| Semiconductor Corp. | 53,568 | 584 |
* | Micron Technology, Inc. | 178,263 | 574 |
* | LAM Research Corp. | 29,075 | 569 |
* | LSI Corp. | 149,241 | 433 |
* | Cree, Inc. | 18,447 | 362 |
* | Atmel Corp. | 98,134 | 350 |
* | ON Semiconductor Corp. | 90,455 | 331 |
* | Varian Semiconductor |
|
|
| Equipment Associates, Inc. | 16,812 | 307 |
* | Advanced Micro Devices, Inc. | 140,570 | 306 |
* | Novellus Systems, Inc. | 22,955 | 293 |
| Intersil Corp. | 28,631 | 289 |
* | PMC Sierra Inc. | 51,663 | 264 |
* | Skyworks Solutions, Inc. | 38,403 | 250 |
* | Silicon Laboratories Inc. | 10,516 | 230 |
* | International Rectifier Corp. | 16,835 | 211 |
* | Cypress Semiconductor Corp. | 35,046 | 195 |
* | Microsemi Corp. | 18,918 | 191 |
* | Rambus Inc. | 21,881 | 187 |
* | Integrated Device |
|
|
| Technology Inc. | 39,296 | 176 |
* | Semtech Corp. | 14,514 | 171 |
* | Atheros |
|
|
| Communications, Inc. | 13,990 | 169 |
* | Teradyne, Inc. | 39,060 | 161 |
* | FormFactor Inc. | 10,745 | 155 |
* | Cymer, Inc. | 6,913 | 128 |
* | MKS Instruments, Inc. | 9,676 | 122 |
* | FEI Co. | 8,503 | 122 |
* | Tessera Technologies, Inc. | 11,194 | 121 |
* | Cabot Microelectronics Corp. | 5,437 | 112 |
* | Hittite Microwave Corp. | 3,979 | 110 |
* | Fairchild Semiconductor |
|
|
| International, Inc. | 29,160 | 102 |
* | ATMI, Inc. | 7,300 | 97 |
* | Verigy Ltd. | 13,964 | 96 |
* | Netlogic Microsystems Inc. | 4,009 | 95 |
* | Monolithic Power Systems | 6,682 | 86 |
* | Sigma Designs, Inc. | 6,203 | 85 |
| Micrel, Inc. | 12,335 | 82 |
* | OmniVision Technologies, Inc. | 11,960 | 81 |
* | Standard Microsystem Corp. | 5,195 | 81 |
* | TriQuint Semiconductor, Inc. | 33,815 | 79 |
* | Brooks Automation, Inc. | 14,860 | 64 |
* | Zoran Corp. | 12,123 | 63 |
* | Ultratech, Inc. | 5,205 | 57 |
* | Supertex, Inc. | 2,698 | 56 |
* | Diodes Inc. | 7,152 | 56 |
* | Applied Micro Circuits Corp. | 15,161 | 55 |
* | Actel Corp. | 6,020 | 55 |
* | Cavium Networks, Inc. | 5,721 | 54 |
* | RF Micro Devices, Inc. | 58,029 | 53 |
* | Advanced Energy |
|
|
| Industries, Inc. | 7,802 | 53 |
* | Exar Corp. | 8,475 | 50 |
* | Cirrus Logic, Inc. | 13,640 | 48 |
* | Amkor Technology, Inc. | 27,793 | 47 |
| Cohu, Inc. | 5,148 | 44 |
* | Silicon Image, Inc. | 17,186 | 40 |
* | DSP Group Inc. | 6,471 | 36 |
* | Lattice Semiconductor Corp. | 26,940 | 35 |
63
Information Technology Index Fund
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
* | Advanced Analogic |
|
|
| Technologies, Inc. | 10,143 | 32 |
* | Silicon Storage |
|
|
| Technology, Inc. | 20,981 | 31 |
* | Veeco Instruments, Inc. | 7,132 | 30 |
* | ANADIGICS, Inc. | 14,750 | 24 |
* | Rudolph Technologies, Inc. | 6,791 | 18 |
* | Trident Microsystems, Inc. | 14,239 | 18 |
* | Kulicke & Soffa Industries, Inc. | 12,512 | 17 |
* | Entegris Inc. | 26,316 | 16 |
* | Rubicon Technology, Inc. | 2,843 | 11 |
* | EMCORE Corp. | 14,506 | 10 |
* | Mattson Technology, Inc. | 11,544 | 7 |
* | Conexant Systems, Inc. | 11,088 | 5 |
* | Spansion Inc. Class A | 28,137 | 1 |
|
|
| 43,732 |
Software (22.0%) |
|
| |
| Microsoft Corp. | 1,869,256 | 30,188 |
* | Oracle Corp. | 962,540 | 14,958 |
* | Symantec Corp. | 195,142 | 2,699 |
* | Adobe Systems, Inc. | 123,935 | 2,070 |
| CA, Inc. | 96,780 | 1,640 |
* | Intuit, Inc. | 71,519 | 1,630 |
* | Activision Blizzard, Inc. | 139,107 | 1,395 |
* | BMC Software, Inc. | 44,111 | 1,307 |
* | Electronic Arts Inc. | 74,896 | 1,222 |
* | McAfee Inc. | 35,627 | 996 |
* | Citrix Systems, Inc. | 42,356 | 872 |
* | salesforce.com, inc. | 24,204 | 678 |
* | Autodesk, Inc. | 52,806 | 670 |
* | Synopsys, Inc. | 33,632 | 627 |
* | Red Hat, Inc. | 44,757 | 613 |
* | Sybase, Inc. | 18,918 | 514 |
^ | FactSet Research |
|
|
| Systems Inc. | 10,574 | 408 |
* | ANSYS, Inc. | 19,889 | 401 |
* | Macrovision Solutions Corp. | 23,831 | 375 |
* | Nuance |
|
|
| Communications, Inc. | 42,222 | 374 |
* | Compuware Corp. | 59,010 | 349 |
* | Solera Holdings, Inc. | 15,271 | 317 |
* | MICROS Systems, Inc. | 18,854 | 303 |
| Jack Henry & Associates Inc. | 17,934 | 286 |
* | Informatica Corp. | 20,607 | 266 |
* | Novell, Inc. | 81,924 | 259 |
* | Cadence Design |
|
|
| Systems, Inc. | 60,303 | 253 |
* | Parametric Technology Corp. | 26,706 | 217 |
* | VMware Inc. | 10,261 | 213 |
* | TIBCO Software Inc. | 42,668 | 206 |
* | Concur Technologies, Inc. | 9,717 | 204 |
* | Blackboard Inc. | 6,893 | 189 |
* | Ariba, Inc. | 19,879 | 174 |
* | Quest Software, Inc. | 15,343 | 173 |
| Quality Systems, Inc. | 4,294 | 166 |
* | TiVo Inc. | 22,420 | 159 |
* | Progress Software Corp. | 9,497 | 151 | |
* | ACI Worldwide, Inc. | 7,944 | 142 | |
* | Net 1 UEPS |
|
| |
| Technologies, Inc. | 9,368 | 136 | |
| Fair Isaac, Inc. | 11,313 | 124 | |
* | Wind River Systems Inc. | 16,180 | 122 | |
*,^ | Advent Software, Inc. | 4,381 | 119 | |
* | EPIQ Systems, Inc. | 6,969 | 118 | |
* | Lawson Software, Inc. | 30,486 | 117 | |
* | Tyler Technologies, Inc. | 8,541 | 116 | |
| Take-Two Interactive |
|
| |
| Software, Inc. | 18,054 | 112 | |
* | SPSS, Inc. | 4,229 | 106 | |
| Blackbaud, Inc. | 10,180 | 104 | |
* | Commvault Systems, Inc. | 9,303 | 102 | |
* | Mentor Graphics Corp. | 21,188 | 94 | |
* | Manhattan Associates, Inc. | 5,723 | 85 | |
* | MicroStrategy Inc. | 2,124 | 78 | |
* | The Ultimate Software |
|
| |
| Group, Inc. | 5,765 | 75 | |
* | NetScout Systems, Inc. | 5,488 | 72 | |
* | Telecommunication |
|
| |
| Systems, Inc. | 8,291 | 68 | |
* | JDA Software Group, Inc. | 6,857 | 66 | |
* | Taleo Corp. Class A | 5,631 | 51 | |
| Pegasystems Inc. | 3,389 | 49 | |
* | MSC Software Corp. | 10,485 | 48 | |
* | Synchronoss Technologies, Inc. | 4,761 | 45 | |
* | ArcSight, Inc. | 4,350 | 41 | |
* | THQ Inc. | 15,579 | 39 | |
* | SuccessFactors Inc. | 7,162 | 36 | |
* | Epicor Software Corp. | 12,530 | 35 | |
* | VASCO Data Security |
|
| |
| International, Inc. | 6,791 | 34 | |
* | NetSuite Inc. | 3,522 | 32 | |
* | Symyx Technologies, Inc. | 7,501 | 28 | |
* | Kenexa Corp. | 4,738 | 22 | |
* | FalconStor Software, Inc. | 6,907 | 17 | |
* | Radiant Systems, Inc. | 6,048 | 17 | |
| Renaissance Learning, Inc. | 1,700 | 12 | |
* | Monotype Imaging |
|
| |
| Holdings Inc. | 4,438 | 11 | |
* | Magma Design |
|
| |
| Automation, Inc. | 9,313 | 10 | |
* | Deltek, Inc. | 2,516 | 9 | |
|
|
| 70,014 | |
Total Common Stocks |
|
| ||
(Cost $549,496) |
| 317,327 | ||
Temporary Cash Investment (0.1%) |
|
| ||
1,2 | Vanguard Market |
|
| |
| Liquidity Fund, 0.663% |
|
| |
| (Cost $255) | 254,801 | 255 | |
Total Investments (100.0%) |
|
| ||
(Cost $549,751) |
| 317,582 | ||
Other Assets and Liabilities (0.0%) |
|
| ||
Other Assets |
| 2,196 | ||
Liabilities2 |
| (2,252) | ||
|
|
| (56) | |
Net Assets (100%) |
| 317,526 | ||
At February 28, 2009, net assets consisted of: |
| |
| Amount | |
| ($000) | |
Paid-in Capital | 583,789 | |
Undistributed Net Investment Income | 356 | |
Accumulated Net Realized Losses | (34,450) | |
Unrealized Appreciation (Depreciation) | (232,169) | |
Net Assets | 317,526 | |
|
| |
|
| |
Admiral Shares—Net Assets |
| |
Applicable to 873,622 outstanding |
| |
$.001 par value shares of beneficial |
| |
interest (unlimited authorization) | 14,115 | |
Net Asset Value Per Share— |
| |
Admiral Shares | $16.16 | |
|
| |
|
| |
ETF Shares—Net Assets |
| |
Applicable to 9,614,517 outstanding |
| |
$.001 par value shares of beneficial |
| |
interest (unlimited authorization) | 303,411 | |
Net Asset Value Per Share— |
| |
ETF Shares | $31.56 | |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Part of security position is on loan to broker-dealers. The total value of securities on loan is $246,000.
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 Includes $255,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
64
Information Technology Index Fund
Statement of Operations
| Six Months Ended |
| February 28, 2009 |
| ($000) |
Investment Income |
|
Income |
|
Dividends | 1,983 |
Interest1 | 2 |
Security Lending | 10 |
Total Income | 1,995 |
Expenses |
|
The Vanguard Group—Note B |
|
Investment Advisory Services | 41 |
Management and Administrative— |
|
Admiral Shares | 15 |
Management and Administrative— |
|
ETF Shares | 252 |
Marketing and Distribution— |
|
Admiral Shares | 3 |
Marketing and Distribution— |
|
ETF Shares | 64 |
Custodian Fees | 21 |
Auditing Fees | 1 |
Shareholders’ Reports—Admiral Shares | — |
Shareholders’ Reports—ETF Shares | 26 |
Total Expenses | 423 |
Net Investment Income | 1,572 |
Realized Net Gain (Loss) |
|
on Investment Securities Sold | (26,175) |
Change in Unrealized Appreciation |
|
(Depreciation) of Investment Securities | (180,950) |
Net Increase (Decrease) in Net Assets |
|
Resulting from Operations | (205,553) |
Statement of Changes in Net Assets
| Six Months Ended |
| Year Ended |
| February 28, |
| August 31, |
| 2009 |
| 2008 |
| ($000) |
| ($000) |
Increase (Decrease) in Net Assets |
|
|
|
Operations |
|
|
|
Net Investment Income | 1,572 |
| 2,711 |
Realized Net Gain (Loss) | (26,175) |
| 32,592 |
Change in Unrealized Appreciation (Depreciation) | (180,950) |
| (98,555) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (205,553) |
| (63,252) |
Distributions |
|
|
|
Net Investment Income |
|
|
|
Admiral Shares | (133) |
| (64) |
ETF Shares | (3,037) |
| (1,663) |
Realized Capital Gain |
|
|
|
Admiral Shares | — |
| — |
ETF Shares | — |
| — |
Total Distributions | (3,170) |
| (1,727) |
Capital Share Transactions |
|
|
|
Admiral Shares | (2,130) |
| 16,473 |
ETF Shares | 5,656 |
| 119,838 |
Net Increase (Decrease) from Capital Share Transactions | 3,526 |
| 136,311 |
Total Increase (Decrease) | (205,197) |
| 71,332 |
Net Assets |
|
|
|
Beginning of Period | 522,723 |
| 451,391 |
End of Period2 | 317,526 |
| 522,723 |
1 Interest income from an affiliated company of the fund was $2,000.
2 Net Assets—End of Period includes undistributed net investment income of $356,000 and $1,954,000.
See accompanying Notes, which are an integral part of the Financial Statements.
65
65
Information Technology Index Fund
Financial Highlights
Admiral Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months |
|
|
|
| Mar. 25, |
| Ended |
|
| 20041 to | ||
For a Share Outstanding | February 28, | Year Ended August 31, | Aug. 31, | |||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 |
Net Asset Value, Beginning of Period | $27.28 | $29.95 | $24.40 | $23.93 | $20.72 | $23.40 |
Investment Operations |
|
|
|
|
|
|
Net Investment Income | .079 | .121 | .1102 | .0842 | .3513 | .010 |
Net Realized and Unrealized Gain (Loss) |
|
|
|
|
|
|
on Investments | (11.043) | (2.706) | 5.500 | .424 | 3.182 | (2.690) |
Total from Investment Operations | (10.964) | (2.585) | 5.610 | .508 | 3.533 | (2.680) |
Distributions |
|
|
|
|
|
|
Dividends from Net Investment Income | (.156) | (.085) | (.060) | (.038) | (.323) | — |
Distributions from Realized Capital Gains | — | — | — | — | — | — |
Total Distributions | (.156) | (.085) | (.060) | (.038) | (.323) | — |
Net Asset Value, End of Period | $16.16 | $27.28 | $29.95 | $24.40 | $23.93 | $20.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return4 | –40.23% | –8.67% | 23.02% | 2.12% | 17.05% | –11.45% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
|
Net Assets, End of Period (Millions) | $14 | $26 | $12 | $5 | $2 | $0.2 |
Ratio of Total Expenses to |
|
|
|
|
|
|
Average Net Assets | 0.26%5 | 0.25% | 0.26% | 0.28% | 0.28% | 0.28%5 |
Ratio of Net Investment Income to |
|
|
|
|
|
|
Average Net Assets | 0.87%5 | 0.46% | 0.38% | 0.33% | 1.26%3 | 0.12%5 |
Portfolio Turnover Rate6 | 21%5 | 11% | 8% | 8% | 7% | 9% |
ETF Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months |
|
|
|
| Jan. 26, |
| Ended |
|
| 20041 to | ||
For a Share Outstanding | February 28, | Year Ended August 31, | Aug. 31, | |||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 |
Net Asset Value, Beginning of Period | $53.32 | $58.52 | $47.66 | $46.76 | $40.46 | $50.89 |
Investment Operations |
|
|
|
|
|
|
Net Investment Income | .162 | .249 | .2312 | .1752 | .6707 | .030 |
Net Realized and Unrealized Gain (Loss) |
|
|
|
|
|
|
on Investments | (21.596) | (5.274) | 10.765 | .816 | 6.239 | (10.460) |
Total from Investment Operations | (21.434) | (5.025) | 10.996 | .991 | 6.909 | (10.430) |
Distributions |
|
|
|
|
|
|
Dividends from Net Investment Income | (.326) | (.175) | (.136) | (.091) | (.609) | — |
Distributions from Realized Capital Gains | — | — | — | — | — | — |
Total Distributions | (.326) | (.175) | (.136) | (.091) | (.609) | — |
Net Asset Value, End of Period | $31.56 | $53.32 | $58.52 | $47.66 | $46.76 | $40.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return | –40.23% | –8.62% | 23.10% | 2.11% | 17.07% | –20.50% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
|
Net Assets, End of Period (Millions) | $303 | $497 | $439 | $172 | $51 | $16 |
Ratio of Total Expenses to |
|
|
|
|
|
|
Average Net Assets | 0.24%5 | 0.20% | 0.22% | 0.25% | 0.26% | 0.28%5 |
Ratio of Net Investment Income to |
|
|
|
|
|
|
Average Net Assets | 0.89%5 | 0.51% | 0.42% | 0.36% | 1.28%7 | 0.12%5 |
Portfolio Turnover Rate6 | 21%5 | 11% | 8% | 8% | 7% | 9% |
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 $.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 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 ETF 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.
66
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 offers two classes of shares, Admiral Shares and ETF Shares. Admiral Shares are available to any investor who meets the fund’s minimum purchase requirements. ETF Shares are listed for trading on the NYSE Arca, Inc.; 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 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. Management has analyzed the fund’s tax positions taken on federal income tax returns for all open tax years (tax years ended August 31, 2005–2008) and for the period ended February 28, 2009, and has concluded that no provision for federal income tax is required in the fund’s 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 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. 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, 2009, the fund had contributed capital of $86,000 to Vanguard (included in Other Assets), representing 0.03% of the fund’s net assets and 0.03% 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.
67
67
Information Technology Index Fund
During the six months ended February 28, 2009, the fund realized $1,583,000 of net capital losses resulting from in-kind redemptions—in which shareholders exchanged fund shares for securities held by the fund rather than for cash. Because such losses are not taxable losses to the fund, they have been reclassified from accumulated net realized losses 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, 2008, the fund had available realized losses of $9,645,000 to offset future net capital gains of $63,000 through August 31, 2013, $188,000 through August 31, 2014, $612,000 through August 31, 2015, $218,000 through August 31, 2016, and $8,564,000 through August 31, 2017. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2009; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balances above.
At February 28, 2009, the cost of investment securities for tax purposes was $549,751,000. Net unrealized depreciation of investment securities for tax purposes was $232,169,000, consisting of unrealized gains of $162,000 on securities that had risen in value since their purchase and $232,331,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2009, the fund purchased $142,835,000 of investment securities and sold $141,246,000 of investment securities, other than temporary cash investments.
E. Capital share transactions for each class of shares were:
| Six Months Ended | Year Ended | |||
| February 28, 2009 | August 31, 2008 | |||
| Amount | Shares |
| Amount | Shares |
| ($000) | (000) |
| ($000) | (000) |
Admiral Shares |
|
|
|
|
|
Issued | 2,508 | 142 |
| 22,099 | 752 |
Issued in Lieu of Cash Distributions | 116 | 7 |
| 58 | 2 |
Redeemed1 | (4,754) | (232) |
| (5,684) | (206) |
Net Increase (Decrease)—Admiral Shares | (2,130) | (83) |
| 16,473 | 548 |
ETF Shares |
|
|
|
|
|
Issued | 103,764 | 2,900 |
| 344,646 | 6,010 |
Issued in Lieu of Cash Distributions | — | — |
| — | — |
Redeemed1 | (98,108) | (2,600) |
| (224,808) | (4,200) |
Net Increase (Decrease)—ETF Shares | 5,656 | 300 |
| 119,838 | 1,810 |
1 Net of redemption fees for fiscal 2009 and 2008 of $60,000 and $70,000, respectively (fund totals).
F. In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157 (“FAS 157”), “Fair Value Measurements.” FAS 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements in financial statements.
The various inputs that may be used to determine the value of the fund’s investments are summarized in three broad levels. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At February 28, 2009, 100% of the fund’s investments were valued based on Level 1 inputs.
68
Materials Index Fund
Fund Profile
As of February 28, 2009
Portfolio Characteristics |
|
| |
|
| Target | Broad |
| Fund | Index1 | Index2 |
Number of Stocks | 119 | 119 | 2,474 |
Median Market Cap | $9.7B | $9.7B | $21.7B |
Price/Earnings Ratio | 12.4x | 12.5x | 12.1x |
Price/Book Ratio | 1.4x | 1.4x | 1.5x |
Yield3 |
| 3.3% | 3.1% |
Admiral Shares | 3.0% |
|
|
ETF Shares | 3.1% |
|
|
Return on Equity | 18.2% | 18.3% | 21.0% |
Earnings Growth Rate | 19.3% | 19.4% | 17.8% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate4 | 11% | — | — |
Expense Ratio5 |
| — | — |
Admiral Shares | 0.28% |
|
|
ETF Shares | 0.25% |
|
|
Short-Term Reserves | 0.0% | — | — |
Volatility Measures6 |
| |
| Fund Versus | Fund Versus |
| Target Index1 | Broad Index2 |
R-Squared | 1.00 | 0.82 |
Beta | 1.00 | 1.24 |
Industry Diversification (% of equity exposure) | |
|
|
Aluminum | 2.0% |
Commodity Chemicals | 1.0 |
Construction Materials | 3.4 |
Diversified Chemicals | 13.3 |
Diversified Metals & Mining | 5.5 |
Fertilizers & Agricultural Chemicals | 21.1 |
Forest Products | 2.1 |
Gold | 7.8 |
Industrial Gases | 11.0 |
Metal & Glass Containers | 5.8 |
Paper Packaging | 3.1 |
Paper Products | 2.0 |
Specialty Chemicals | 13.0 |
Steel | 8.6 |
Other Materials | 0.3 |
Ten Largest Holdings7 (% of total net assets) | |
|
|
Monsanto Co. | 15.6% |
Newmont Mining Corp. (Holding Co.) | 7.3 |
Praxair, Inc. | 6.5 |
E.I. du Pont de Nemours & Co. | 6.3 |
Freeport-McMoRan Copper & Gold, Inc. Class B | 4.3 |
Nucor Corp. | 3.9 |
Air Products & Chemicals, Inc. | 3.6 |
Ecolab, Inc. | 2.8 |
The Mosaic Co. | 2.5 |
Rohm & Haas Co. | 2.5 |
Top Ten | 55.3% |
1 MSCI US IMI/Materials.
2 MSCI US IMI/2500.
3 30-day SEC yield for the fund; annualized dividend yield for the indexes. See the Glossary.
4 Annualized.
5 The expense ratios shown are from the prospectuses dated December 29, 2008, and represent estimated costs for the current fiscal year based on the fund’s current net assets. For the six months ended February 28, 2009, the annualized expense ratios were 0.26% for the Admiral Shares and 0.24% for the ETF Shares.
6 For an explanation of R-squared, beta, and other terms used here, see the Glossary.
7 The holdings listed exclude any temporary cash investments and equity index products.
69
69
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/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): January 26, 2004–February 28, 2009
Average Annual Total Returns: Periods Ended December 31, 2008
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 |
ETF Shares | 1/26/2004 |
|
|
Market Price |
| –46.46% | 0.25% |
Net Asset Value |
| –46.55 | 0.24 |
Admiral Shares2 | 2/11/2004 | –46.57 | –0.55 |
1 Six months ended February 28, 2009.
2 Total returns do not reflect the 2% fee assessed on redemptions of shares held for less than one year. Note: See Financial Highlights tables for dividend and capital gains information.
70
Materials Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2009
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).
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
Common Stocks (100.0%) |
|
| |
Chemicals (59.4%) |
|
| |
| Monsanto Co. | 415,936 | 31,723 |
| Praxair, Inc. | 233,980 | 13,278 |
| E.I. du Pont de |
|
|
| Nemours & Co. | 684,783 | 12,847 |
| Air Products & |
|
|
| Chemicals, Inc. | 158,941 | 7,351 |
| Ecolab, Inc. | 180,183 | 5,726 |
| The Mosaic Co. | 117,646 | 5,065 |
| Rohm & Haas Co. | 96,344 | 5,017 |
| Dow Chemical Co. | 699,862 | 5,011 |
| PPG Industries, Inc. | 124,299 | 3,861 |
| Sigma-Aldrich Corp. | 95,419 | 3,406 |
| CF Industries Holdings, Inc. | 40,649 | 2,615 |
| FMC Corp. | 53,694 | 2,171 |
| Terra Industries, Inc. | 77,578 | 2,001 |
| Airgas, Inc. | 55,254 | 1,701 |
| Lubrizol Corp. | 51,205 | 1,408 |
| International Flavors & |
|
|
| Fragrances, Inc. | 53,464 | 1,407 |
| Valspar Corp. | 72,095 | 1,204 |
| Nalco Holding Co. | 105,777 | 1,203 |
| Eastman Chemical Co. | 55,005 | 1,130 |
| Albemarle Corp. | 54,927 | 1,063 |
| RPM International, Inc. | 97,068 | 1,052 |
| Scotts Miracle-Gro Co. | 34,053 | 951 |
| Celanese Corp. Series A | 108,784 | 929 |
| Sensient Technologies Corp. | 34,704 | 701 |
* | Intrepid Potash, Inc. | 28,379 | 637 |
| Olin Corp. | 56,629 | 591 |
| Cytec Industries, Inc. | 34,750 | 535 |
| Cabot Corp. | 49,381 | 518 |
* | Calgon Carbon Corp. | 35,294 | 517 |
| Minerals Technologies, Inc. | 14,318 | 428 |
| H.B. Fuller Co. | 36,656 | 418 |
* | OM Group, Inc. | 22,975 | 356 |
| NewMarket Corp. | 10,151 | 351 |
| Arch Chemicals, Inc. | 18,980 | 341 |
| Huntsman Corp. | 124,426 | 329 |
* | W.R. Grace & Co. | 55,210 | 309 |
| Ashland, Inc. | 51,785 | 306 |
| Balchem Corp. | 13,896 | 288 |
* | Solutia Inc. | 72,264 | 271 |
| A. Schulman Inc. | 18,146 | 259 |
| American Vanguard Corp. | 15,431 | 213 |
| Koppers Holdings, Inc. | 15,559 | 208 |
* | Rockwood Holdings, Inc. | 34,010 | 200 |
| Westlake Chemical Corp. | 15,008 | 187 |
| Stepan Co. | 5,526 | 157 |
| Innophos Holdings Inc. | 13,623 | 145 |
| Zep, Inc. | 16,077 | 127 |
* | Zoltek Cos., Inc. | 21,122 | 121 |
* | PolyOne Corp. | 67,899 | 109 |
| Innospec, Inc. | 17,987 | 73 |
| NL Industries, Inc. | 7,429 | 69 |
| Chemtura Corp. | 185,704 | 63 |
| Spartech Corp. | 23,461 | 58 |
| Ferro Corp. | 33,432 | 49 |
* | Flotek Industries, Inc. | 17,106 | 34 |
| Georgia Gulf Corp. | 25,112 | 17 |
|
|
| 121,105 |
Construction Materials (3.3%) |
|
| |
| Vulcan Materials Co. | 83,650 | 3,464 |
| Martin Marietta |
|
|
| Materials, Inc. | 31,198 | 2,389 |
| Eagle Materials, Inc. | 33,262 | 634 |
| Texas Industries, Inc. | 17,341 | 279 |
* | Headwaters Inc. | 32,253 | 64 |
|
|
| 6,830 |
Containers & Packaging (8.9%) |
|
| |
| Ball Corp. | 68,107 | 2,744 |
* | Crown Holdings, Inc. | 121,690 | 2,565 |
* | Owens-Illinois, Inc. | 126,127 | 1,945 |
* | Pactiv Corp. | 98,978 | 1,567 |
| Sonoco Products Co. | 75,045 | 1,446 |
| AptarGroup Inc. | 51,259 | 1,438 |
| Bemis Co., Inc. | 75,491 | 1,402 |
| Sealed Air Corp. | 119,659 | 1,335 |
| Silgan Holdings, Inc. | 19,774 | 970 |
| Packaging Corp. of America | 77,729 | 823 |
| Rock-Tenn Co. | 27,191 | 751 |
| Greif Inc. Class A | 18,099 | 557 |
| Temple-Inland Inc. | 81,409 | 387 |
| Myers Industries, Inc. | 21,606 | 85 |
* | Graphic Packaging |
|
|
| Holding Co. | 91,898 | 74 |
|
|
| 18,089 |
Metals & Mining (24.3%) |
|
| |
| Newmont Mining Corp. |
|
|
| (Holding Co.) | 358,993 | 14,945 |
| Freeport-McMoRan Copper |
|
|
| & Gold, Inc. Class B | 286,569 | 8,717 |
| Nucor Corp. | 238,159 | 8,014 |
| Alcoa Inc. | 607,249 | 3,783 |
| United States Steel Corp. | 89,094 | 1,752 |
| Cliffs Natural Resources Inc. | 86,199 | 1,330 |
| Allegheny Technologies Inc. | 65,755 | 1,293 |
| Compass Minerals |
|
|
| International, Inc. | 24,644 | 1,287 |
| Reliance Steel & |
|
|
| Aluminum Co. | 49,609 | 1,180 |
| Steel Dynamics, Inc. | 117,164 | 978 |
| Royal Gold, Inc. | 22,864 | 925 |
| Commercial Metals Co. | 86,022 | 878 |
| AK Steel Holding Corp. | 84,831 | 524 |
| Titanium Metals Corp. | 87,736 | 512 |
| Schnitzer Steel |
|
|
| Industries, Inc. Class A | 16,579 | 475 |
| Carpenter Technology Corp. | 32,041 | 439 |
| Worthington Industries, Inc. | 51,326 | 421 |
* | Coeur d'Alene Mines Corp. | 380,615 | 289 |
| Kaiser Aluminum Corp. | 11,845 | 261 |
* | Hecla Mining Co. | 160,193 | 244 |
| AMCOL International Corp. | 17,306 | 209 |
* | Brush Engineered |
|
|
| Materials Inc. | 15,544 | 193 |
* | RTI International Metals, Inc. | 17,697 | 192 |
* | Haynes International, Inc. | 9,063 | 122 |
* | Stillwater Mining Co. | 35,611 | 113 |
* | Horsehead Holding Corp. | 26,973 | 103 |
| A.M. Castle & Co. | 12,998 | 95 |
| Olympic Steel, Inc. | 7,015 | 87 |
* | Century Aluminum Co. | 36,300 | 81 |
* | General Moly, Inc. | 42,186 | 32 |
|
|
| 49,474 |
Paper & Forest Products (4.1%) |
|
| |
| Weyerhaeuser Co. | 159,968 | 3,865 |
| International Paper Co. | 307,105 | 1,747 |
| MeadWestvaco Corp. | 129,196 | 1,207 |
* | Domtar Corp. | 385,445 | 304 |
| Deltic Timber Corp. | 8,036 | 252 |
| Glatfelter | 34,770 | 216 |
| Wausau Paper Corp. | 35,517 | 197 |
| Schweitzer-Mauduit |
|
|
| International, Inc. | 11,401 | 173 |
| Louisiana-Pacific Corp. | 79,087 | 128 |
* | Clearwater Paper Corp. | 8,478 | 84 |
* | Buckeye Technology, Inc. | 29,936 | 68 |
| Neenah Paper Inc. | 11,197 | 59 |
* | AbitibiBowater, Inc. | 40,099 | 18 |
|
|
| 8,318 |
Total Investments (100.0%) |
|
| |
(Cost $423,318) |
| 203,816 | |
Other Assets and Liabilities (0.0%) |
|
| |
Other Assets |
| 1,635 | |
Liabilities |
| (1,597) | |
|
|
| 38 |
Net Assets (100%) |
| 203,854 |
71
Materials Index Fund
At February 28, 2009, net assets consisted of: | |
| Amount |
| ($000) |
Paid-in Capital | 453,525 |
Undistributed Net Investment Income | 843 |
Accumulated Net Realized Losses | (31,012) |
Unrealized Appreciation (Depreciation) | (219,502) |
Net Assets | 203,854 |
|
|
|
|
Admiral Shares—Net Assets |
|
Applicable to 2,322,347 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 45,408 |
Net Asset Value Per Share— |
|
Admiral Shares | $19.55 |
|
|
|
|
ETF Shares—Net Assets |
|
Applicable to 4,128,753 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 158,446 |
Net Asset Value Per Share— |
|
ETF Shares | $38.38 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
See accompanying Notes, which are an integral part of the Financial Statements.
72
Materials Index Fund
Statement of Operations
| Six Months Ended |
| February 28, 2009 |
| ($000) |
Investment Income |
|
Income |
|
Dividends | 3,729 |
Interest1 | 2 |
Security Lending | 184 |
Total Income | 3,915 |
Expenses |
|
The Vanguard Group—Note B |
|
Investment Advisory Services | 38 |
Management and Administrative— |
|
Admiral Shares | 54 |
Management and Administrative— |
|
ETF Shares | 129 |
Marketing and Distribution— |
|
Admiral Shares | 12 |
Marketing and Distribution— |
|
ETF Shares | 43 |
Custodian Fees | 9 |
Auditing Fees | 1 |
Shareholders’ Reports—Admiral Shares | — |
Shareholders’ Reports—ETF Shares | 22 |
Total Expenses | 308 |
Net Investment Income | 3,607 |
Realized Net Gain (Loss) |
|
on Investment Securities Sold | (20,909) |
Change in Unrealized Appreciation |
|
(Depreciation) of Investment Securities | (207,954) |
Net Increase (Decrease) in Net Assets |
|
Resulting from Operations | (225,256) |
Statement of Changes in Net Assets
| Six Months Ended |
| Year Ended |
| February 28, |
| August 31, |
| 2009 |
| 2008 |
| ($000) |
| ($000) |
Increase (Decrease) in Net Assets |
|
|
|
Operations |
|
|
|
Net Investment Income | 3,607 |
| 7,970 |
Realized Net Gain (Loss) | (20,909) |
| 34,834 |
Change in Unrealized Appreciation (Depreciation) | (207,954) |
| (35,820) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (225,256) |
| 6,984 |
Distributions |
|
|
|
Net Investment Income |
|
|
|
Admiral Shares | (1,751) |
| (1,057) |
ETF Shares | (5,802) |
| (5,116) |
Realized Capital Gain |
|
|
|
Admiral Shares | — |
| — |
ETF Shares | — |
| — |
Total Distributions | (7,553) |
| (6,173) |
Capital Share Transactions |
|
|
|
Admiral Shares | (6,246) |
| 52,003 |
ETF Shares | (28,774) |
| 49,893 |
Net Increase (Decrease) from Capital Share Transactions | (35,020) |
| 101,896 |
Total Increase (Decrease) | (267,829) |
| 102,707 |
Net Assets |
|
|
|
Beginning of Period | 471,683 |
| 368,976 |
End of Period2 | 203,854 |
| 471,683 |
1 Interest income from an affiliated company of the fund was $2,000.
2 Net Assets—End of Period includes undistributed net investment income of $843,000 and $4,789,000.
See accompanying Notes, which are an integral part of the Financial Statements.
73
73
Materials Index Fund
Financial Highlights
Admiral Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months |
|
|
|
| Feb. 11, |
| Ended |
|
| 20041 to | ||
For a Share Outstanding | February 28, | Year Ended August 31, | Aug. 31, | |||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 |
Net Asset Value, Beginning of Period | $42.85 | $41.75 | $32.37 | $28.34 | $26.53 | $26.14 |
Investment Operations |
|
|
|
|
|
|
Net Investment Income | .452 | .732 | .7002 | .6722 | .480 | .240 |
Net Realized and Unrealized Gain (Loss) |
|
|
|
|
|
|
on Investments3 | (22.956) | 1.008 | 9.250 | 3.853 | 1.830 | .150 |
Total from Investment Operations | (22.504) | 1.740 | 9.950 | 4.525 | 2.310 | .390 |
Distributions |
|
|
|
|
|
|
Dividends from Net Investment Income | (.796) | (.640) | (.570) | (.495) | (.500) | — |
Distributions from Realized Capital Gains | — | — | — | — | — | — |
Total Distributions | (.796) | (.640) | (.570) | (.495) | (.500) | — |
Net Asset Value, End of Period | $19.55 | $42.85 | $41.75 | $32.37 | $28.34 | $26.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return4 | –52.79% | 4.09% | 31.00% | 16.08% | 8.61% | 1.49% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
|
Net Assets, End of Period (Millions) | $45 | $107 | $57 | $12 | $7 | $1 |
Ratio of Total Expenses to |
|
|
|
|
|
|
Average Net Assets | 0.26%5 | 0.25% | 0.26% | 0.28% | 0.28% | 0.28%5 |
Ratio of Net Investment Income to |
|
|
|
|
|
|
Average Net Assets | 2.82%5 | 1.74% | 1.80% | 2.13% | 1.81% | 1.93%5 |
Portfolio Turnover Rate6 | 11%5 | 10% | 6% | 13% | 12% | 8% |
ETF Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months |
|
|
|
| Jan. 26, |
| Ended |
|
| 20041 to | ||
For a Share Outstanding | February 28, | Year Ended August 31, | Aug. 31, | |||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 |
Net Asset Value, Beginning of Period | $84.27 | $82.10 | $63.65 | $55.70 | $52.13 | $49.48 |
Investment Operations |
|
|
|
|
|
|
Net Investment Income | .896 | 1.470 | 1.4182 | 1.3362 | .915 | .580 |
Net Realized and Unrealized Gain (Loss) |
|
|
|
|
|
|
on Investments7 | (45.187) | 1.977 | 18.168 | 7.582 | 3.630 | 2.070 |
Total from Investment Operations | (44.291) | 3.447 | 19.586 | 8.918 | 4.545 | 2.650 |
Distributions |
|
|
|
|
|
|
Dividends from Net Investment Income | (1.599) | (1.277) | (1.136) | (.968) | (.975) | — |
Distributions from Realized Capital Gains | — | — | — | — | — | — |
Total Distributions | (1.599) | (1.277) | (1.136) | (.968) | (.975) | — |
Net Asset Value, End of Period | $38.38 | $84.27 | $82.10 | $63.65 | $55.70 | $52.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return | –52.77% | 4.15% | 31.06% | 16.11% | 8.62% | 5.36% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
|
Net Assets, End of Period (Millions) | $158 | $365 | $312 | $95 | $50 | $21 |
Ratio of Total Expenses to |
|
|
|
|
|
|
Average Net Assets | 0.24%5 | 0.20% | 0.22% | 0.25% | 0.26% | 0.28%5 |
Ratio of Net Investment Income to |
|
|
|
|
|
|
Average Net Assets | 2.84%5 | 1.79% | 1.84% | 2.16% | 1.83% | 1.93%5 |
Portfolio Turnover Rate6 | 11%5 | 10% | 6% | 13% | 12% | 8% |
1 Inception.
2 Calculated based on average shares outstanding.
3 Includes increases from redemption fees of $.02, $.02, $.01, $.00, $.00, and $.01.
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 ETF Creation Units.
7 Includes increases from redemption fees of $.04, $.04, $.02, $.00, $.00, and $.02.
See accompanying Notes, which are an integral part of the Financial Statements.
74
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 offers two classes of shares, Admiral Shares and ETF Shares. Admiral Shares are available to any investor who meets the fund’s minimum purchase requirements. ETF Shares are listed for trading on the NYSE Arca, Inc.; 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 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. Management has analyzed the fund’s tax positions taken on federal income tax returns for all open tax years (tax years ended August 31, 2005–2008) and for the period ended February 28, 2009, and has concluded that no provision for federal income tax is required in the fund’s 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 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. 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, 2009, the fund had contributed capital of $58,000 to Vanguard (included in Other Assets), representing 0.03% 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.
75
75
Materials Index Fund
During the six months ended February 28, 2009, the fund realized $2,368,000 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 losses 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, 2008, the fund had available realized losses of $7,506,000 to offset future net capital gains of $6,000 through August 31, 2014, $698,000 through August 31, 2015, $1,458,000 through August 31, 2016, and $5,344,000 through August 31, 2017. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2009; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balances above.
At February 28, 2009, the cost of investment securities for tax purposes was $423,318,000. Net unrealized depreciation of investment securities for tax purposes was $219,502,000, consisting of unrealized gains of $338,000 on securities that had risen in value since their purchase and $219,840,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2009, the fund purchased $41,452,000 of investment securities and sold $80,629,000 of investment securities, other than temporary cash investments.
E. Capital share transactions for each class of shares were:
| Six Months Ended | Year Ended | |||
| February 28, 2009 | August 31, 2008 | |||
| Amount | Shares |
| Amount | Shares |
| ($000) | (000) |
| ($000) | (000) |
Admiral Shares |
|
|
|
|
|
Issued | 11,804 | 476 |
| 72,955 | 1,626 |
Issued in Lieu of Cash Distributions | 1,643 | 72 |
| 987 | 22 |
Redeemed1 | (19,693) | (724) |
| (21,939) | (507) |
Net Increase (Decrease)—Admiral Shares | (6,246) | (176) |
| 52,003 | 1,141 |
ETF Shares |
|
|
|
|
|
Issued | 27,215 | 602 |
| 200,303 | 2,323 |
Issued in Lieu of Cash Distributions | — | — |
| — | — |
Redeemed1 | (55,989) | (800) |
| (150,410) | (1,800) |
Net Increase (Decrease)—ETF Shares | (28,774) | (198) |
| 49,893 | 523 |
1 Net of redemption fees for fiscal 2009 and 2008 of $210,000 and $237,000, respectively (fund totals).
F. In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157 (“FAS 157”), “Fair Value Measurements.” FAS 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements in financial statements.
The various inputs that may be used to determine the value of the fund’s investments are summarized in three broad levels. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At February 28, 2009, 100% of the fund’s investments were valued based on Level 1 inputs.
76
Telecommunication Services Index Fund
Fund Profile
As of February 28, 2009
Portfolio Characteristics |
|
| |
|
| Target | Broad |
| Fund | Index1 | Index2 |
Number of Stocks | 42 | 42 | 2,474 |
Median Market Cap | $5.2B | $81.3B | $21.7B |
Price/Earnings Ratio | 22.4x | 14.6x | 12.1x |
Price/Book Ratio | 1.7x | 1.5x | 1.5x |
Yield3 |
| 6.0% | 3.1% |
Admiral Shares | 4.6% |
|
|
ETF Shares | 4.7% |
|
|
Return on Equity | 8.2% | 12.3% | 21.0% |
Earnings Growth Rate | 7.8% | 4.9% | 17.8% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate4 | 32% | — | — |
Expense Ratio5 |
| — | — |
Admiral Shares | 0.28% |
|
|
ETF Shares | 0.25% |
|
|
Short-Term Reserves | 0.0% | — | — |
Volatility Measures6 |
| |
| Fund Versus | Fund Versus |
| Target Index1 | Broad Index2 |
R-Squared | 0.92 | 0.70 |
Beta | 0.96 | 0.96 |
Industry Diversification (% of equity exposure) | |
|
|
Alternative Carriers | 8.5% |
Integrated Telecommunication Services | 60.4 |
Wireless Telecommunication Services | 31.1 |
Ten Largest Holdings7 (% of total net assets) | |
|
|
AT&T Inc. | 18.7% |
Verizon Communications Inc. | 18.4 |
American Tower Corp. Class A | 4.8 |
Sprint Nextel Corp. | 4.7 |
Crown Castle International Corp. | 2.9 |
Embarq Corp. | 2.9 |
Qwest Communications International Inc. | 2.9 |
SBA Communications Corp. | 2.2 |
MetroPCS Communications Inc. | 2.1 |
Windstream Corp. | 2.0 |
Top Ten | 61.6% |
1 MSCI US IMI/Telecommunication Services.
2 MSCI US IMI/2500.
3 30-day SEC yield for the fund; annualized dividend yield for the indexes. See the Glossary.
4 Annualized.
5 The expense ratios shown are from the prospectuses dated December 29, 2008, and represent estimated costs for the current fiscal year based on the fund’s current net assets. For the six months ended February 28, 2009, the annualized expense ratios were 0.27% for the Admiral Shares and 0.24% for the ETF Shares.
6 For an explanation of R-squared, beta, and other terms used here, see the Glossary.
7 The holdings listed exclude any temporary cash investments and equity index products.
77
77
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/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): September 23, 2004–February 28, 2009
Average Annual Total Returns: Periods Ended December 31, 2008
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 |
ETF Shares | 9/23/2004 |
|
|
Market Price |
| –38.63% | 0.15% |
Net Asset Value |
| –38.85 | 0.10 |
Admiral Shares2 | 3/11/2005 | –38.88 | –1.66 |
1 Six months ended February 28, 2009.
2 Total returns do not reflect the 2% fee assessed on redemptions of shares held for less than one year. Note: See Financial Highlights tables for dividend and capital gains information.
78
Telecommunication Services Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2009
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).
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
Common Stocks (99.7%) |
|
| |
Diversified Telecommunication Services (68.7%) |
| ||
Alternative Carriers (8.5%) |
|
| |
* | tw telecom inc. | 259,674 | 2,088 |
* | Cogent Communications |
|
|
| Group, Inc. | 291,699 | 1,931 |
* | Level 3 |
|
|
| Communications, Inc. | 2,284,484 | 1,828 |
* | Premiere Global |
|
|
| Services, Inc. | 205,260 | 1,716 |
* | PAETEC Holding Corp. | 1,109,072 | 1,630 |
* | Global Crossing Ltd. | 216,630 | 1,586 |
*,^ | Vonage Holdings Corp. | 1,407,174 | 492 |
|
|
|
|
Integrated Telecommunication Services (60.2%) |
| ||
| AT&T Inc. | 1,037,855 | 24,670 |
| Verizon |
|
|
| Communications Inc. | 850,803 | 24,273 |
| Embarq Corp. | 111,000 | 3,882 |
| Qwest Communications |
|
|
| International Inc. | 1,143,358 | 3,876 |
| Windstream Corp. | 361,714 | 2,698 |
| CenturyTel, Inc. | 99,219 | 2,612 |
| Frontier |
|
|
| Communications Corp. | 315,174 | 2,269 |
* | Cbeyond Inc. | 116,301 | 1,676 |
| Consolidated |
|
|
| Communications |
|
|
| Holdings, Inc. | 168,725 | 1,632 |
* | Cincinnati Bell Inc. | 872,728 | 1,449 |
| Atlantic Tele-Network, Inc. | 69,157 | 1,442 |
| Shenandoah |
|
|
| Telecommunications Co. | 67,725 | 1,432 |
| Iowa Telecommunications |
|
|
| Services Inc. | 104,391 | 1,416 |
| SureWest Communications | 122,925 | 1,346 |
| FairPoint |
|
|
| Communications, Inc. | 681,559 | 1,343 |
| NTELOS Holdings Corp. | 69,550 | 1,333 |
* | General |
|
|
| Communication, Inc. | 229,121 | 1,235 |
| Alaska Communications |
|
|
| Systems Holdings, Inc. | 164,193 | 1,033 |
|
|
| 90,888 |
Wireless Telecommunication Services (31.0%) |
| ||
* | American Tower Corp. |
|
|
| Class A | 219,099 | 6,380 |
* | Sprint Nextel Corp. | 1,908,479 | 6,279 |
* | Crown Castle |
|
|
| International Corp. | 222,123 | 3,896 |
* | SBA Communications Corp. | 141,626 | 2,943 |
* | MetroPCS |
|
|
| Communications Inc. | 192,320 | 2,789 |
* | Syniverse Holdings Inc. | 158,502 | 2,398 |
* | Leap Wireless |
|
|
| International, Inc. | 83,408 | 2,261 |
* | iPCS, Inc. | 271,290 | 2,238 |
* | NII Holdings Inc. | 161,130 | 2,064 |
* | TerreStar Corp. | 3,852,454 | 1,772 |
* | U.S. Cellular Corp. | 50,719 | 1,745 |
* | Centennial |
|
|
| Communications Corp. |
|
|
| Class A | 203,946 | 1,679 |
| Telephone & Data |
|
|
| Systems, Inc. | 47,975 | 1,415 |
| Telephone & Data |
|
|
| Systems, Inc. - Special |
|
|
| Common Shares | 46,749 | 1,286 |
| USA Mobility, Inc. | 139,326 | 1,273 |
* | Fibertower Corp. | 2,887,344 | 289 |
* | ICO Global |
|
|
| Communications |
|
|
| (Holdings) Ltd. | 1,129,522 | 282 |
|
|
| 40,989 |
Total Common Stocks |
|
| |
(Cost $207,058) |
| 131,877 | |
Temporary Cash Investment (0.5%) |
|
| |
1,2 | Vanguard Market |
|
|
| Liquidity Fund, 0.663% |
|
|
| (Cost $598) | 598,100 | 598 |
Total Investments (100.2%) |
|
| |
(Cost $207,656) |
| 132,475 | |
Other Assets and Liabilities (–0.2%) |
|
| |
Other Assets |
| 1,363 | |
Liabilities2 |
| (1,609) | |
|
|
| (246) |
Net Assets (100%) |
| 132,229 |
At February 28, 2009, net assets consisted of: | |
| Amount |
| ($000) |
Paid-in Capital | 247,455 |
Undistributed Net Investment Income | 619 |
Accumulated Net Realized Losses | (40,664) |
Unrealized Appreciation (Depreciation) | (75,181) |
Net Assets | 132,229 |
|
|
|
|
Admiral Shares—Net Assets |
|
Applicable to 477,549 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 9,914 |
Net Asset Value Per Share— |
|
Admiral Shares | $20.76 |
|
|
|
|
ETF Shares—Net Assets |
|
Applicable to 3,002,158 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 122,315 |
Net Asset Value Per Share— |
|
ETF Shares | $40.74 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Part of security position is on loan to broker-dealers. The total value of securities on loan is $209,000.
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 Includes $598,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
79
79
Telecommunication Services Index Fund
Statement of Operations
| Six Months Ended |
| February 28, 2009 |
| ($000) |
Investment Income |
|
Income |
|
Dividends | 2,385 |
Interest1 | 3 |
Security Lending | 35 |
Total Income | 2,423 |
Expenses |
|
The Vanguard Group—Note B |
|
Investment Advisory Services | 19 |
Management and Administrative— |
|
Admiral Shares | 11 |
Management and Administrative— |
|
ETF Shares | 96 |
Marketing and Distribution— |
|
Admiral Shares | 2 |
Marketing and Distribution— |
|
ETF Shares | 19 |
Auditing Fees | 1 |
Shareholders’ Reports—Admiral Shares | — |
Shareholders’ Reports—ETF Shares | 10 |
Total Expenses | 158 |
Net Investment Income | 2,265 |
Realized Net Gain (Loss) |
|
on Investment Securities Sold | (15,643) |
Change in Unrealized Appreciation |
|
(Depreciation) of Investment Securities | (33,724) |
Net Increase (Decrease) in Net Assets |
|
Resulting from Operations | (47,102) |
Statement of Changes in Net Assets
| Six Months Ended |
| Year Ended |
| February 28, |
| August 31, |
| 2009 |
| 2008 |
| ($000) |
| ($000) |
Increase (Decrease) in Net Assets |
|
|
|
Operations |
|
|
|
Net Investment Income | 2,265 |
| 5,535 |
Realized Net Gain (Loss) | (15,643) |
| (7,019) |
Change in Unrealized Appreciation (Depreciation) | (33,724) |
| (51,454) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (47,102) |
| (52,938) |
Distributions |
|
|
|
Net Investment Income |
|
|
|
Admiral Shares | (326) |
| (1,069) |
ETF Shares | (4,534) |
| (5,594) |
Realized Capital Gain |
|
|
|
Admiral Shares | — |
| — |
ETF Shares | — |
| — |
Total Distributions | (4,860) |
| (6,663) |
Capital Share Transactions |
|
|
|
Admiral Shares | (2,762) |
| (22,656) |
ETF Shares | 25,467 |
| (73,150) |
Net Increase (Decrease) from Capital Share Transactions | 22,705 |
| (95,806) |
Total Increase (Decrease) | (29,257) |
| (155,407) |
Net Assets |
|
|
|
Beginning of Period | 161,486 |
| 316,893 |
End of Period2 | 132,229 |
| 161,486 |
1 Interest income from an affiliated company of the fund was $3,000.
2 Net Assets—End of Period includes undistributed net investment income of $619,000 and $3,214,000.
See accompanying Notes, which are an integral part of the Financial Statements.
80
Telecommunication Services Index Fund
Financial Highlights
Admiral Shares |
|
|
|
|
|
|
|
|
|
|
|
| Six Months |
|
|
| Mar. 11, |
| Ended |
| 20051 to | ||
For a Share Outstanding | February 28, | Year Ended August 31, | Aug. 31, | ||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 |
Net Asset Value, Beginning of Period | $31.58 | $41.01 | $33.29 | $28.18 | $26.75 |
Investment Operations |
|
|
|
|
|
Net Investment Income | .4292 | .9082 | .8882 | .8612,3 | .3402 |
Net Realized and Unrealized Gain (Loss) |
|
|
|
|
|
on Investments4 | (10.576) | (9.338) | 7.308 | 5.041 | 1.090 |
Total from Investment Operations | (10.147) | (8.430) | 8.196 | 5.902 | 1.430 |
Distributions |
|
|
|
|
|
Dividends from Net Investment Income | (.673) | (1.000) | (.476) | (.792) | — |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (.673) | (1.000) | (.476) | (.792) | — |
Net Asset Value, End of Period | $20.76 | $31.58 | $41.01 | $33.29 | $28.18 |
|
|
|
|
|
|
Total Return5 | –32.25% | –20.98% | 24.77% | 21.47% | 5.35% |
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
Net Assets, End of Period (Millions) | $10 | $19 | $51 | $6 | $1 |
Ratio of Total Expenses to |
|
|
|
|
|
Average Net Assets | 0.27%6 | 0.25% | 0.27% | 0.28% | 0.28%6 |
Ratio of Net Investment Income to |
|
|
|
|
|
Average Net Assets | 3.76%6 | 2.50% | 2.17% | 3.28%3 | 2.70%6 |
Portfolio Turnover Rate7 | 32%6 | 28% | 17% | 32% | 41% |
ETF Shares |
|
|
|
|
|
|
|
|
|
|
|
| Six Months |
|
|
| Sept. 23, |
| Ended |
| 20041 to | ||
For a Share Outstanding | February 28, | Year Ended August 31, | Aug. 31, | ||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 |
Net Asset Value, Beginning of Period | $62.05 | $80.60 | $65.40 | $55.35 | $49.50 |
Investment Operations |
|
|
|
|
|
Net Investment Income | .7812 | 1.7642 | 1.7412 | 2.0402,8 1.3002 | |
Net Realized and Unrealized Gain (Loss) |
|
|
|
|
|
on Investments9 | (20.718) | (18.316) | 14.386 | 9.567 | 4.960 |
Total from Investment Operations | (19.937) | (16.552) | 16.127 | 11.607 | 6.260 |
Distributions |
|
|
|
|
|
Dividends from Net Investment Income | (1.373) | (1.998) | (.927) | (1.557) | (.410) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.373) | (1.998) | (.927) | (1.557) | (.410) |
Net Asset Value, End of Period | $40.74 | $62.05 | $80.60 | $65.40 | $55.35 |
|
|
|
|
|
|
Total Return | –32.25% | –20.94% | 24.81% | 21.49% | 12.65% |
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
Net Assets, End of Period (Millions) | $122 | $143 | $266 | $72 | $17 |
Ratio of Total Expenses to |
|
|
|
|
|
Average Net Assets | 0.24%6 | 0.20% | 0.23% | 0.25% | 0.26%6 |
Ratio of Net Investment Income to |
|
|
|
|
|
Average Net Assets | 3.79%6 | 2.55% | 2.21% | 3.31%8 | 2.72%6 |
Portfolio Turnover Rate7 | 32%6 | 28% | 17% | 32% | 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 $.112 and 0.38%, respectively, resulting from a special dividend from MCI in December 2005.
4 Includes increases from redemption fees of $.00, $.05, $.01, $.00, and $.00.
5 Total returns do not reflect the 2% fee assessed on redemptions of shares held for less than one year.
6 Annualized.
7 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 ETF Creation Units.
8 Net investment income per share and the ratio of net investment income to average net assets include $.219 and 0.38%, respectively, resulting from a special dividend from MCI in December 2005.
9 Includes increases from redemption fees of $.00, $.08, $.03, $.00, and $.00.
See accompanying Notes, which are an integral part of the Financial Statements.
81
81
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 offers two classes of shares, Admiral Shares and ETF Shares. Admiral Shares are available to any investor who meets the fund’s minimum purchase requirements. ETF Shares are listed for trading on the NYSE Arca, Inc.; 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 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. Management has analyzed the fund’s tax positions taken on federal income tax returns for all open tax years (tax years ended August 31, 2005–2008) and for the period ended February 28, 2009, and has concluded that no provision for federal income tax is required in the fund’s 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 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. 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, 2009, the fund had contributed capital of $37,000 to Vanguard (included in Other Assets), representing 0.03% 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, 2009, the fund realized $2,010,000 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 losses to paid-in capital.
82
Telecommunication Services Index Fund
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, 2008, the fund had available realized losses of $23,011,000 to offset future net capital gains of $29,000 through August 31, 2014, $819,000 through August 31, 2015, $4,154,000 through August 31, 2016, and $18,009,000 through August 31, 2017. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2009; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balances above.
At February 28, 2009, the cost of investment securities for tax purposes was $207,656,000. Net unrealized depreciation of investment securities for tax purposes was $75,181,000, consisting of unrealized gains of $669,000 on securities that had risen in value since their purchase and $75,850,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2009, the fund purchased $107,511,000 of investment securities and sold $88,484,000 of investment securities, other than temporary cash investments.
E. Capital share transactions for each class of shares were:
| Six Months Ended | Year Ended | |||
| February 28, 2009 | August 31, 2008 | |||
| Amount | Shares |
| Amount | Shares |
| ($000) | (000) |
| ($000) | (000) |
Admiral Shares |
|
|
|
|
|
Issued | 584 | 25 |
| 4,265 | 123 |
Issued in Lieu of Cash Distributions | 299 | 14 |
| 1,014 | 26 |
Redeemed1 | (3,645) | (156) |
| (27,935) | (796) |
Net Increase (Decrease)—Admiral Shares | (2,762) | (117) |
| (22,656) | (647) |
ETF Shares |
|
|
|
|
|
Issued | 86,886 | 2,002 |
| 93,859 | 1,400 |
Issued in Lieu of Cash Distributions | — | — |
| — | — |
Redeemed1 | (61,419) | (1,300) |
| (167,009) | (2,400) |
Net Increase (Decrease)—ETF Shares | 25,467 | 702 |
| (73,150) | (1,000) |
1 Net of redemption fees for fiscal 2009 and 2008 of $3,000 and $220,000, respectively (fund totals).
F. In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157 (“FAS 157”), “Fair Value Measurements.” FAS 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements in financial statements.
The various inputs that may be used to determine the value of the fund’s investments are summarized in three broad levels. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At February 28, 2009, 100% of the fund’s investments were valued based on Level 1 inputs.
83
83
Utilities Index Fund
Fund Profile
As of February 28, 2009
Portfolio Characteristics |
|
| |
|
| Target | Broad |
| Fund | Index1 | Index2 |
Number of Stocks | 83 | 83 | 2,474 |
Median Market Cap | $10.4B | $10.4B | $21.7B |
Price/Earnings Ratio | 11.1x | 11.0x | 12.1x |
Price/Book Ratio | 1.2x | 1.2x | 1.5x |
Yield3 |
| 5.0% | 3.1% |
Admiral Shares | 4.7% |
|
|
ETF Shares | 4.7% |
|
|
Return on Equity | 14.2% | 14.2% | 21.0% |
Earnings Growth Rate | 10.8% | 10.8% | 17.8% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate4 | 10% | — | — |
Expense Ratio5 |
| — | — |
Admiral Shares | 0.28% |
|
|
ETF Shares | 0.25% |
|
|
Short-Term Reserves | 0.0% | — | — |
Volatility Measures6 |
| |
| Fund Versus | Fund Versus |
| Target Index1 | Broad Index2 |
R-Squared | 1.00 | 0.50 |
Beta | 1.00 | 0.70 |
Industry Diversification (% of equity exposure) | |
|
|
Electric Utilities | 52.1% |
Gas Utilities | 8.9 |
Independent Power Producers |
|
& Energy Traders | 4.5 |
Multi-Utilities | 33.0 |
Water Utilities | 1.5 |
Ten Largest Holdings7 (% of total net assets) | |
|
|
Exelon Corp. | 8.7% |
Southern Co. | 6.6 |
FPL Group, Inc. | 4.9 |
Dominion Resources, Inc. | 4.9 |
Duke Energy Corp. | 4.8 |
Public Service Enterprise Group, Inc. | 3.9 |
PG&E Corp. | 3.9 |
FirstEnergy Corp. | 3.6 |
Entergy Corp. | 3.6 |
American Electric Power Co., Inc. | 3.2 |
Top Ten | 48.1% |
1 MSCI US IMI/Utilities.
2 MSCI US IMI/2500.
3 30-day SEC yield for the fund; annualized dividend yield for the indexes. See the Glossary.
4 Annualized.
5 The expense ratios shown are from the prospectuses dated December 29, 2008, and represent estimated costs for the current fiscal year based on the fund’s current net assets. For the six months ended February 28, 2009, the annualized expense ratios were 0.27% for the Admiral Shares and 0.24% for the ETF Shares.
6 For an explanation of R-squared, beta, and other terms used here, see the Glossary.
7 The holdings listed exclude any temporary cash investments and equity index products.
84
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/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): January 26, 2004–February 28, 2009
Average Annual Total Returns: Periods Ended December 31, 2008
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 |
ETF Shares | 1/26/2004 |
|
|
Market Price |
| –27.97% | 7.40% |
Net Asset Value |
| –28.06 | 7.39 |
Admiral Shares2 | 4/28/2004 | –28.09 | 7.69 |
1 Six months ended February 28, 2009.
2 Total returns do not reflect the 2% fee assessed on redemptions of shares held for less than one year.
Note: See Financial Highlights tables for dividend and capital gains information.
85
85
Utilities Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2009
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).
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
Common Stocks (100.0%) |
|
| |
Electric Utilities (52.1%) |
|
| |
| Exelon Corp. | 652,434 | 30,808 |
| Southern Co. | 768,119 | 23,282 |
| FPL Group, Inc. | 385,053 | 17,455 |
| Duke Energy Corp. | 1,254,735 | 16,901 |
| FirstEnergy Corp. | 302,293 | 12,866 |
| Entergy Corp. | 187,751 | 12,653 |
| American Electric |
|
|
| Power Co., Inc. | 400,190 | 11,225 |
| PPL Corp. | 371,454 | 10,360 |
| Progress Energy, Inc. | 273,289 | 9,680 |
| Edison International | 306,939 | 8,355 |
| Allegheny Energy, Inc. | 167,646 | 3,963 |
| Northeast Utilities | 154,402 | 3,383 |
| Pepco Holdings, Inc. | 214,408 | 3,216 |
| Pinnacle West Capital Corp. | 99,976 | 2,625 |
| DPL Inc. | 114,997 | 2,311 |
| NV Energy Inc. | 232,140 | 2,152 |
| ITC Holdings Corp. | 49,227 | 1,818 |
| Westar Energy, Inc. | 107,389 | 1,815 |
| Great Plains Energy, Inc. | 117,930 | 1,597 |
| Hawaiian Electric |
|
|
| Industries Inc. | 89,426 | 1,240 |
| Cleco Corp. | 59,744 | 1,226 |
| IDACORP, Inc. | 45,188 | 1,100 |
| Portland General Electric Co. | 62,073 | 1,019 |
| UniSource Energy Corp. | 35,220 | 885 |
| ALLETE, Inc. | 26,637 | 710 |
| MGE Energy, Inc. | 22,147 | 666 |
* | El Paso Electric Co. | 44,507 | 629 |
| UIL Holdings Corp. | 23,745 | 487 |
| Empire District Electric Co. | 33,679 | 465 |
|
|
| 184,892 |
Gas Utilities (8.9%) |
|
| |
| Questar Corp. | 171,990 | 4,958 |
| EQT Corp. | 123,199 | 3,788 |
| UGI Corp. Holding Co. | 106,992 | 2,567 |
| ONEOK, Inc. | 98,448 | 2,199 |
| National Fuel Gas Co. | 70,621 | 2,140 |
| AGL Resources Inc. | 76,141 | 2,112 |
| Atmos Energy Corp. | 90,379 | 1,973 |
| Energen Corp. | 67,557 | 1,811 | |
| Piedmont Natural Gas, Inc. | 72,664 | 1,754 | |
| WGL Holdings Inc. | 49,557 | 1,505 | |
| New Jersey Resources Corp. | 41,770 | 1,465 | |
| Nicor Inc. | 44,816 | 1,406 | |
| Northwest Natural Gas Co. | 26,252 | 1,075 | |
| South Jersey Industries, Inc. | 29,500 | 1,064 | |
| Southwest Gas Corp. | 43,550 | 849 | |
| The Laclede Group, Inc. | 20,834 | 825 | |
|
|
| 31,491 | |
Independent Power Producers |
|
| ||
& Energy Traders (4.5%) |
|
| ||
* | NRG Energy, Inc. | 219,550 | 4,150 | |
* | AES Corp. | 656,706 | 4,137 | |
| Constellation Energy |
|
| |
| Group, Inc. | 177,782 | 3,513 | |
* | Mirant Corp. | 155,274 | 1,899 | |
* | Reliant Energy, Inc. | 346,900 | 1,200 | |
* | Dynegy, Inc. | 497,879 | 647 | |
| Ormat Technologies Inc. | 20,198 | 519 | |
* | Synthesis Energy |
|
| |
| Systems, Inc. | 31,868 | 14 | |
|
|
| 16,079 | |
Multi-Utilities (33.0%) |
|
| ||
| Dominion Resources, Inc. | 576,492 | 17,398 | |
| Public Service Enterprise |
|
| |
| Group, Inc. | 501,874 | 13,696 | |
| PG&E Corp. | 357,974 | 13,682 | |
| Consolidated Edison Inc. | 271,349 | 9,825 | |
| Sempra Energy | 229,519 | 9,541 | |
| Xcel Energy, Inc. | 445,305 | 7,900 | |
| Ameren Corp. | 209,691 | 4,986 | |
| Wisconsin Energy Corp. | 115,945 | 4,617 | |
| DTE Energy Co. | 161,667 | 4,328 | |
| NSTAR | 105,918 | 3,407 | |
| CenterPoint Energy Inc. | 324,229 | 3,346 | |
| SCANA Corp. | 110,712 | 3,336 | |
| MDU Resources Group, Inc. | 173,025 | 2,620 | |
| Alliant Energy Corp. | 109,530 | 2,533 | |
| CMS Energy Corp. | 224,325 | 2,481 | |
| NiSource, Inc. | 271,959 | 2,380 | |
| TECO Energy, Inc. | 211,012 | 2,024 | |
| OGE Energy Corp. | 92,013 | 2,017 | |
| Integrys Energy Group, Inc. | 75,787 | 1,823 | |
| Vectren Corp. | 76,289 | 1,591 | |
| Avista Corp. | 53,927 | 772 | |
| NorthWestern Corp. | 35,577 | 729 | |
| Black Hills Corp. | 38,158 | 680 | |
| PNM Resources Inc. | 85,782 | 660 | |
| CH Energy Group, Inc. | 15,629 | 651 | |
|
|
| 117,023 | |
Water Utilities (1.5%) |
|
| ||
| Aqua America, Inc. | 134,039 | 2,466 | |
| American Water |
|
| |
| Works Co., Inc. | 63,468 | 1,177 | |
| California Water |
|
| |
| Service Group | 19,499 | 766 | |
| American States Water Co. | 17,146 | 575 | |
| SJW Corp. | 13,669 | 315 | |
|
|
| 5,299 |
Total Investments (100.0%) |
|
| |
(Cost $531,966) |
| 354,784 |
| Market |
| Value• |
| ($000) |
Other Assets and Liabilities (0.0%) |
|
Other Assets | 3,661 |
Liabilities | (3,554) |
| 107 |
Net Assets (100%) | 354,891 |
At February 28, 2009, net assets consisted of: | |
| Amount |
| ($000) |
Paid-in Capital | 537,894 |
Undistributed Net Investment Income | 2,942 |
Accumulated Net Realized Losses | (8,763) |
Unrealized Appreciation (Depreciation) | (177,182) |
Net Assets | 354,891 |
|
|
|
|
Admiral Shares—Net Assets |
|
Applicable to 2,601,431 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 68,707 |
Net Asset Value Per Share— |
|
Admiral Shares | $26.41 |
|
|
|
|
ETF Shares—Net Assets |
|
Applicable to 5,438,600 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 286,184 |
Net Asset Value Per Share— |
|
ETF Shares | $52.62 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
See accompanying Notes, which are an integral part of the Financial Statements.
86
Utilities Index Fund
Statement of Operations
| Six Months Ended |
| February 28, 2009 |
| ($000) |
Investment Income |
|
Income |
|
Dividends | 8,308 |
Interest1 | 1 |
Total Income | 8,309 |
Expenses |
|
The Vanguard Group—Note B |
|
Investment Advisory Services | 45 |
Management and Administrative— |
|
Admiral Shares | 79 |
Management and Administrative— |
|
ETF Shares | 233 |
Marketing and Distribution— |
|
Admiral Shares | 13 |
Marketing and Distribution— |
|
ETF Shares | 51 |
Custodian Fees | 14 |
Auditing Fees | 1 |
Shareholders’ Reports—Admiral Shares | 1 |
Shareholders’ Reports—ETF Shares | 22 |
Total Expenses | 459 |
Net Investment Income | 7,850 |
Realized Net Gain (Loss) |
|
on Investment Securities Sold | (5,681) |
Change in Unrealized Appreciation |
|
(Depreciation) of Investment Securities | (154,053) |
Net Increase (Decrease) in Net Assets |
|
Resulting from Operations | (151,884) |
Statement of Changes in Net Assets
| Six Months Ended |
| Year Ended |
| February 28, |
| August 31, |
| 2009 |
| 2008 |
| ($000) |
| ($000) |
Increase (Decrease) in Net Assets |
|
|
|
Operations |
|
|
|
Net Investment Income | 7,850 |
| 12,740 |
Realized Net Gain (Loss) | (5,681) |
| 3,952 |
Change in Unrealized Appreciation (Depreciation) | (154,053) |
| (26,543) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (151,884) |
| (9,851) |
Distributions |
|
|
|
Net Investment Income |
|
|
|
Admiral Shares | (1,691) |
| (3,122) |
ETF Shares | (5,962) |
| (9,062) |
Realized Capital Gain |
|
|
|
Admiral Shares | — |
| — |
ETF Shares | — |
| — |
Total Distributions | (7,653) |
| (12,184) |
Capital Share Transactions |
|
|
|
Admiral Shares | (5,590) |
| 6,878 |
ETF Shares | 40,212 |
| 102,404 |
Net Increase (Decrease) from Capital Share Transactions | 34,622 |
| 109,282 |
Total Increase (Decrease) | (124,915) |
| 87,247 |
Net Assets |
|
|
|
Beginning of Period | 479,806 |
| 392,559 |
End of Period2 | 354,891 |
| 479,806 |
1 Interest income from an affiliated company of the fund was $1,000.
2 Net Assets—End of Period includes undistributed net investment income of $2,942,000 and $2,745,000.
See accompanying Notes, which are an integral part of the Financial Statements.
87
87
Utilities Index Fund
Financial Highlights
Admiral Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months |
|
|
|
| Apr. 28, |
| Ended |
|
| 20041 to | ||
For a Share Outstanding | February 28, | Year Ended August 31, | Aug. 31, | |||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 |
Net Asset Value, Beginning of Period | $39.26 | $40.60 | $36.47 | $34.03 | $26.70 | $25.03 |
Investment Operations |
|
|
|
|
|
|
Net Investment Income | .627 | 1.126 | 1.080 | 1.0802 | .9722 | .360 |
Net Realized and Unrealized Gain |
|
|
|
|
|
|
(Loss)on Investments3 | (12.845) | (1.340) | 4.089 | 2.378 | 7.623 | 1.310 |
Total from Investment Operations | (12.218) | (.214) | 5.169 | 3.458 | 8.595 | 1.670 |
Distributions |
|
|
|
|
|
|
Dividends from Net Investment Income | (.632) | (1.126) | (1.039) | (1.018) | (1.265) | — |
Distributions from Realized Capital Gains | — | — | — | — | — | — |
Total Distributions | (.632) | (1.126) | (1.039) | (1.018) | (1.265) | — |
Net Asset Value, End of Period | $26.41 | $39.26 | $40.60 | $36.47 | $34.03 | $26.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return4 | –31.41% | –0.69% | 14.33% | 10.48% | 32.87% | 6.67% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
|
|
|
|
Net Assets, End of Period (Millions) | $69 | $109 | $108 | $52 | $30 | $1 |
Ratio of Total Expenses to |
|
|
|
|
|
|
Average Net Assets | 0.27%5 | 0.25% | 0.26% | 0.28% | 0.28% | 0.28%5 |
Ratio of Net Investment Income to |
|
|
|
|
|
|
Average Net Assets | 4.15%5 | 2.75% | 2.70% | 3.26% | 3.34% | 3.82%5 |
Portfolio Turnover Rate6 | 10%5 | 18% | 12% | 9% | 7% | 7% |
ETF Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months |
|
|
|
| Jan. 26, |
| Ended |
|
| 20041 to | ||
For a Share Outstanding | February 28, | Year Ended August 31, | Aug. 31, | |||
Throughout Each Period | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 |
Net Asset Value, Beginning of Period | $78.22 | $80.92 | $72.68 | $67.80 | $53.14 | $49.64 |
Investment Operations |
|
|
|
|
|
|
Net Investment Income | 1.259 | 2.285 | 2.180 | 2.2142 | 2.0362 | 1.110 |
Net Realized and Unrealized Gain |
|
|
|
|
|
|
(Loss)on Investments7 | (25.588) | (2.695) | 8.156 | 4.704 | 15.115 | 2.390 |
Total from Investment Operations | (24.329) | (.410) | 10.336 | 6.918 | 17.151 | 3.500 |
Distributions |
|
|
|
|
|
|
Dividends from Net Investment Income | (1.271) | (2.290) | (2.096) | (2.038) | (2.491) | — |
Distributions from Realized Capital Gains | — | — | — | — | — | — |
Total Distributions | (1.271) | (2.290) | (2.096) | (2.038) | (2.491) | — |
Net Asset Value, End of Period | $52.62 | $78.22 | $80.92 | $72.68 | $67.80 | $53.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return | –31.39% | –0.66% | 14.37% | 10.52% | 32.93% | 7.05% |
|
|
|
|
|
|
|
|
|
|
|
|
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Ratios/Supplemental Data |
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Net Assets, End of Period (Millions) | $286 | $371 | $285 | $183 | $95 | $43 |
Ratio of Total Expenses to |
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Average Net Assets | 0.24%5 | 0.20% | 0.22% | 0.25% | 0.26% | 0.28%5 |
Ratio of Net Investment Income to |
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Average Net Assets | 4.18%5 | 2.80% | 2.74% | 3.29% | 3.36% | 3.82%5 |
Portfolio Turnover Rate6 | 10%5 | 18% | 12% | 9% | 7% | 7% |
1 Inception.
2 Calculated based on average shares outstanding.
3 Includes increases from redemption fees of $.01, $.02, $.02, $.04, $.00, and $.00.
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 ETF Creation Units.
7 Includes increases from redemption fees of $.01, $.04, $.03, $.06, $.01, and $.00.
See accompanying Notes, which are an integral part of the Financial Statements.
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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 offers two classes of shares: Admiral Shares and ETF Shares. Admiral Shares are available to any investor who meets the fund’s minimum purchase requirements. ETF Shares are listed for trading on the NYSE Arca, Inc.; 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 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. Management has analyzed the fund’s tax positions taken on federal income tax returns for all open tax years (tax years ended August 31, 2005–2008) and for the period ended February 28, 2009, and has concluded that no provision for federal income tax is required in the fund’s 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 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. 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, 2009, the fund had contributed capital of $104,000 to Vanguard (included in Other Assets), representing 0.03% 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, 2009, the fund realized $500,000 of net capital losses resulting from in-kind redemptions—in which shareholders exchanged fund shares for securities held by the fund rather than for cash. Because such losses are not taxable losses to the fund, they have been reclassified from accumulated net realized losses 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, 2008, the fund had available realized losses of $2,410,000 to offset future net capital gains of $515,000 through August 31, 2015, and $1,895,000 through August 31, 2017. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2009; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balances above.
89
89
Utilities Index Fund
At February 28, 2009, the cost of investment securities for tax purposes was $531,966,000. Net unrealized depreciation of investment securities for tax purposes was $177,182,000, consisting of unrealized gains of $35,000 on securities that had risen in value since their purchase and $177,217,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2009, the fund purchased $128,574,000 of investment securities and sold $93,456,000 of investment securities, other than temporary cash investments.
E. Capital share transactions for each class of shares were:
| Six Months Ended | Year Ended | |||
| February 28, 2009 | August 31, 2008 | |||
| Amount | Shares |
| Amount | Shares |
| ($000) | (000) |
| ($000) | (000) |
Admiral Shares |
|
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|
|
|
Issued | 11,691 | 383 |
| 42,121 | 996 |
Issued in Lieu of Cash Distributions | 1,508 | 47 |
| 2,849 | 68 |
Redeemed1 | (18,789) | (612) |
| (38,092) | (935) |
Net Increase (Decrease)—Admiral Shares | (5,590) | (182) |
| 6,878 | 129 |
ETF Shares |
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Issued | 109,001 | 1,802 |
| 127,421 | 1,518 |
Issued in Lieu of Cash Distributions | — | — |
| — | — |
Redeemed1 | (68,789) | (1,100) |
| (25,017) | (300) |
Net Increase (Decrease)—ETF Shares | 40,212 | 702 |
| 102,404 | 1,218 |
1 Net of redemption fees for fiscal 2009 and 2008 of $93,000 and $228,000, respectively (fund totals).
F. In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157 (“FAS 157”), “Fair Value Measurements.” FAS 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements in financial statements.
The various inputs that may be used to determine the value of the fund’s investments are summarized in three broad levels. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At February 28, 2009, 100% of the fund’s investments were valued based on Level 1 inputs.
90
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 acompanying table illustrates your fund’s costs in two ways:
• Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading “Expenses Paid During Period.”
• Based on hypothetical 5% yearly return. This section is intended to help you compare your fund’s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include the 2% fee on redemptions of shares held for less than one year. If this fee 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 in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.
91
Six Months Ended February 28, 2009 |
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| Beginning | Ending | Expenses |
|
| Account Value | Account Value | Paid During |
Index Fund Share Class |
| 8/31/2008 | 2/28/2009 | Period1 |
Based on Actual Fund Return |
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|
Consumer Discretionary | Admiral | $1,000.00 | $567.79 | $1.01 |
| ETF | 1,000.00 | 567.59 | 0.89 |
Consumer Staples | Admiral | $1,000.00 | $732.85 | $1.16 |
| ETF | 1,000.00 | 732.97 | 1.03 |
Energy | Admiral | $1,000.00 | $538.05 | $1.03 |
| ETF | 1,000.00 | 538.11 | 0.92 |
Financials | Admiral | $1,000.00 | $412.95 | $0.91 |
| ETF | 1,000.00 | 412.97 | 0.81 |
Health Care | Admiral | $1,000.00 | $703.38 | $1.14 |
| ETF | 1,000.00 | 703.52 | 1.01 |
Industrials | Admiral | $1,000.00 | $480.06 | $0.95 |
| ETF | 1,000.00 | 480.10 | 0.88 |
Information Technology | Admiral | $1,000.00 | $597.67 | $1.03 |
| ETF | 1,000.00 | 597.69 | 0.95 |
Materials | Admiral | $1,000.00 | $472.11 | $0.95 |
| ETF | 1,000.00 | 472.29 | 0.88 |
Telecommunication Services | Admiral | $1,000.00 | $677.47 | $1.12 |
| ETF | 1,000.00 | 677.55 | 1.00 |
Utilities | Admiral | $1,000.00 | $685.94 | $1.13 |
| ETF | 1,000.00 | 686.12 | 1.00 |
Based on Hypothetical 5% Yearly Return |
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Consumer Discretionary | Admiral | $1,000.00 | $1,023.51 | $1.30 |
| ETF | 1,000.00 | 1,023.65 | 1.15 |
Consumer Staples | Admiral | $1,000.00 | $1,023.46 | $1.35 |
| ETF | 1,000.00 | 1,023.60 | 1.20 |
Energy | Admiral | $1,000.00 | $1,023.46 | $1.35 |
| ETF | 1,000.00 | 1,023.60 | 1.20 |
Financials | Admiral | $1,000.00 | $1,023.51 | $1.30 |
| ETF | 1,000.00 | 1,023.65 | 1.15 |
Health Care | Admiral | $1,000.00 | $1,023.46 | $1.35 |
| ETF | 1,000.00 | 1,023.60 | 1.20 |
Industrials | Admiral | $1,000.00 | $1,023.51 | $1.30 |
| ETF | 1,000.00 | 1,023.60 | 1.20 |
Information Technology | Admiral | $1,000.00 | $1,023.51 | $1.30 |
| ETF | 1,000.00 | 1,023.60 | 1.20 |
Materials | Admiral | $1,000.00 | $1,023.51 | $1.30 |
| ETF | 1,000.00 | 1,023.60 | 1.20 |
Telecommunication Services | Admiral | $1,000.00 | $1,023.46 | $1.35 |
| ETF | 1,000.00 | 1,023.60 | 1.20 |
Utilities | Admiral | $1,000.00 | $1,023.46 | $1.35 |
| ETF | 1,000.00 | 1,023.60 | 1.20 |
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 0.26% for the Consumer Discretionary Index Fund Admiral Shares and 0.23% for the ETF Shares; 0.27% for the Consumer Staples Index Fund Admiral Shares and 0.24% for the ETF Shares; 0.27% for the Energy Index Fund Admiral Shares and 0.24% for the ETF Shares; 0.26% for the Financials Index Fund Admiral Shares and 0.23% for the ETF Shares; 0.27% for the Health Care Index Fund Admiral Shares and 0.24% for the ETF Shares; 0.26% for the Industrials Index Fund Admiral Shares and 0.24% for the ETF Shares; 0.26% for the Information Technology Index Fund Admiral Shares and 0.24% for the ETF Shares; 0.26% for the Materials Index Fund Admiral Shares and 0.24% for the ETF Shares; 0.27% for the Telecommunication Services Index Fund Admiral Shares and 0.24% for the ETF Shares; 0.27% for the Utilities Index Fund Admiral Shares and 0.24% for the ETF 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.
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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%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.
Expense Ratio. 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 represented by stocks or depositary receipts of companies based outside the United States.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.
Price/Earnings Ratio. The ratio of a stock’s current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company’s future growth.
R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0. For this report, R-squared is based on returns over the past 36 months for both the fund and the index.
Return on Equity. The annual average rate of return generated by a company during the past five years for each dollar of shareholder’s equity (net income divided by shareholder’s equity). For a fund, the weighted average return on equity for the companies whose stocks it holds.
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
Turnover Rate. An indication of the fund’s trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to investors). The turnover rate excludes in-kind transactions, which have minimal impact on costs.
Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (in the case of bonds) or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.
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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’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 157 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at www.vanguard.com.
Chairman of the Board and Interested Trustee
John J. Brennan1
Born 1954. Trustee Since May 1987. Chairman of the Board. Principal Occupation(s) During the Past Five Years: Chairman of the Board and Director/Trustee of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group; Chief Executive Officer and President of The Vanguard Group and of each of the investment companies served by The Vanguard Group (1996–2008).
Independent Trustees
Charles D. Ellis
Born 1937. Trustee Since January 2001. 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.
Emerson U. Fullwood
Born 1948. Trustee Since January 2008. Principal Occupation(s) during the Past Five Years: Retired Executive Chief Staff and Marketing Officer for North America and Corporate Vice President of Xerox Corporation (photocopiers and printers); Director of SPX Corporation (multi-industry manufacturing), the United Way of Rochester, the Boy Scouts of America, Amerigroup Corporation (direct health and medical insurance carriers), and Monroe Community College Foundation.
Rajiv L. Gupta
Born 1945. Trustee Since December 20012 Principal Occupation(s) During the Past Five Years: Chairman and Chief Executive Officer of Rohm and Haas Co. (chemicals); President of Rohm and Haas Co. (2006–2008); Board Member of American Chemistry Council; Director of Tyco International, Ltd. (diversified manufacturing and services) and Hewlett-Packard Co. (electronic computer manufacturing); Trustee of The Conference Board.
Amy Gutmann
Born 1949. Trustee Since June 2006. Principal Occupation(s) During the Past Five Years: President of the University of Pennsylvania; Christopher H. Browne Distinguished Professor of Political Science in the School of Arts and Sciences with Secondary Appointments at the Annenberg School for Communication and the Graduate School of Education of the University of Pennsylvania; Director of Carnegie Corporation of New York, Schuylkill River Development Corporation, and Greater Philadelphia Chamber of Commerce; Trustee of the National Constitution Center.
JoAnn Heffernan Heisen
Born 1950. Trustee Since July 1998. Principal Occupation(s) During the Past Five Years: Retired Corporate Vice President, Chief Global Diversity Officer, and Member of the Executive Committee of Johnson & Johnson (pharmaceuticals/consumer products); Vice President and Chief Information Officer (1997–2005) of Johnson & Johnson; Director of the University Medical Center at Princeton and Women’s Research and Education Institute.
André F. Perold
Born 1952. Trustee Since December 2004. Principal Occupation(s) During the Past Five Years: George Gund Professor of Finance and Banking, Senior Associate Dean, and Director of Faculty Recruiting, Harvard Business School; Director and Chairman of UNX, Inc. (equities trading firm); Chair of the Investment Committee of HighVista Strategies LLC (private investment firm).
Alfred M. Rankin, Jr.
Born 1941. Trustee Since January 1993. 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).
J. Lawrence Wilson
Born 1936. Trustee Since April 1985. 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) and AmerisourceBergen Corp. (pharmaceutical distribution); Trustee of Vanderbilt University and of Culver Educational Foundation.
Executive Officers
Thomas J. Higgins1
Born 1957. Chief Financial Officer Since
September 2008. Principal Occupation(s) During the Past Five Years: Principal of The Vanguard Group, Inc.; Chief Financial Officer of each of the investment companies served by The Vanguard Group since 2008; Treasurer of each of the investment companies served by The Vanguard Group (1998–2008).
Kathryn J. Hyatt1
Born 1955. Treasurer Since November 2008. 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 since 2008; Assistant Treasurer of each of the investment companies served by The Vanguard Group (1988–2008).
F. William McNabb III1
Born 1957. Chief Executive Officer Since August 2008. President Since March 2008. Principal Occupation(s) During the Past Five Years: Director of The Vanguard Group, Inc., since 2008; Chief Executive Officer and President of The Vanguard Group and of each of the investment companies served by The Vanguard Group since 2008; Director of Vanguard Marketing Corporation; Managing Director of The Vanguard Group (1995–2008).
Heidi Stam1
Born 1956. Secretary Since July 2005. Principal Occupation(s) During the Past Five Years: Managing Director of The Vanguard Group, Inc., since 2006; General Counsel of The Vanguard Group since 2005; Secretary of The Vanguard Group and of each of the investment companies served by The Vanguard Group since 2005; Director and Senior Vice President of Vanguard Marketing Corporation since 2005; Principal of The Vanguard Group (1997–2006).
Vanguard Senior Management Team | |
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R. Gregory Barton | Michael S. Miller |
Mortimer J. Buckley | James M. Norris |
Kathleen C. Gubanich | Glenn W. Reed |
Paul A. Heller | George U. Sauter |
Founder
John C. Bogle
Chairman and Chief Executive Officer, 1974–1996
1 These individuals 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.
P. O. Box 2600
Valley Forge, PA 19482-2600
Connect with Vanguard® > www.vanguard.com
Fund Information > 800-662-7447 | The funds or securities referred to herein are not sponsored, |
| endorsed, or promoted by MSCI, and MSCI bears no liability |
Direct Investor Account Services > 800-662-2739 | with respect to any such funds or securities. For any such funds |
| or securities, the prospectus or the Statement of Additional |
Institutional Investor Services > 800-523-1036 | Information contains a more detailed description of the limited |
| relationship MSCI has with The Vanguard Group and any |
Text Telephone for People | related funds. |
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With Hearing Impairment > 800-952-3335 |
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| Russell is a trademark of The Frank Russell Company. |
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This material may be used in conjunction with | All comparative mutual fund data are from Lipper Inc. or Morningstar, |
the offering of shares of any Vanguard fund | Inc., unless otherwise noted. |
only if preceded or accompanied by the fund’s |
|
current prospectus. |
|
| 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. |
| The guidelines 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. |
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| © 2009 The Vanguard Group, Inc. |
| All rights reserved. |
| Vanguard Marketing Corporation, Distributor. |
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| Q4832 042009 |
> The fiscal half-year ended February 28, 2009, was a period of financial market turmoil, reflected in strong—sometimes extraordinary—demand for U.S. Treasury securities.
> The Institutional Shares of Vanguard Extended Duration Treasury Index Fund returned 16.91% for the six months. The ETF Shares, as measured by net asset value, returned a bit less.
> The fund’s return was greater than the 15.71% result for its benchmark index, the Barclays Capital U.S. Treasury Strips 20–30 Year Equal Par Bond Index.
Contents |
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Your Fund’s Total Returns | 1 |
President’s Letter | 2 |
Fund Profile | 6 |
Performance Summary | 7 |
Financial Statements | 8 |
About Your Fund’s Expenses | 19 |
Glossary | 21 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
Your Fund’s Total Returns
Six Months Ended February 28, 2009 |
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| Ticker | Total |
| Symbol | Returns |
Vanguard Extended Duration Treasury Index Fund |
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Institutional Shares1 | VEDTX | 16.91% |
ETF Shares2 | EDV |
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Market Price |
| 17.37 |
Net Asset Value |
| 16.84 |
Barclays Capital U.S. Treasury STRIPS 20–30 Year Equal Par Bond Index |
| 15.71 |
Your Fund’s Performance at a Glance |
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August 31, 2008–February 28, 2009 |
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| Distributions Per Share | |
| Starting | Ending | Income | Capital |
| Share Price | Share Price | Dividends | Gains |
Vanguard Extended Duration Treasury |
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Index Fund |
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Institutional Shares | $29.52 | $33.88 | $0.694 | $0.000 |
ETF Shares | 98.11 | 112.54 | 2.310 | 0.000 |
1 This class of shares carries low expenses and is available for a minimum initial investment of $5 million.
2 Vanguard ETF™ Shares are traded on the NYSE Arca exchange and are available only through brokers. The table shows ETF returns based on both the NYSE Arca market price and the net asset value for a share. U.S. Pat. No. 6,879,964 B2; 7,337,138.
1
President’s Letter
Dear Shareholder,
Returns for Vanguard Extended Duration Treasury Index Fund were boosted during the fiscal half-year ended February 28, 2009, by a frantic “flight to quality and liquidity,“ as many market participants focused solely on the credit safety of Treasury securities. The stampede to Treasuries came in reaction to a slumping economy and stock market, a massive restructuring of Wall Street, and a level of uncertainty in the financial markets not seen since the 1930s.
Investors sought refuge in low-yield, but liquid, Treasuries
In the wake of the September collapse of Lehman Brothers, a leading Wall Street investment bank, credit markets deteriorated globally—a painful reminder of how intertwined markets have become and of how important trust is to keep them functioning. Lacking confidence, investors continued to seek the relative safety and liquidity of U.S. Treasury securities, driving prices up and yields down. The yields on some Treasury bills, in fact, dropped briefly into negative territory. This flight to quality led corporate bonds to experience two of their worst months ever in terms of real returns, in September and October.
After several aggressive actions by the Federal Reserve Board and the Treasury—including lowering the target for the federal funds rate to a range of 0% to 0.25%—signs of a thaw began to emerge. January and February, for example, were the most
2
active months for the issuance of investment-grade corporate bonds since 1995. Against this backdrop, the broad taxable bond market returned almost 2% for the six-month period, while tax-exempt bonds were about flat.
Stocks fell steeply and broadly amid credit woes and slow growth
Stocks began the fiscal half-year inauspiciously and continued to decline as tight credit maintained its grip on business and major economies slipped into recession. Neither landmark programs to bolster financial institutions nor the $787 billion economic stimulus package signed into law in February served to boost investor confidence, which was already badly shaken after the U.S. stock market suffered its second-worst calendar-year performance ever.
For the six months ended February 28, U.S. equities overall returned about –42%. International stocks returned about –45%; emerging markets, which had boomed in recent years, were hit especially hard. The declines across the globe were notable for their speed, breadth, and magnitude. Volatility also increased dramatically, to levels not seen since the 1930s. For example, the period encompassed not only four of the worst but also two of the best U.S. trading days since 1928 (based on percentage losses and gains).
Market Barometer |
|
|
|
|
|
| Total Returns |
|
| Periods Ended February 28, 2009 | |
| Six Months | One Year | Five Years1 |
Bonds |
|
|
|
Barclays Capital U.S. Aggregate Bond Index |
|
|
|
(Broad taxable market) | 1.88% | 2.06% | 4.00% |
Barclays Capital Municipal Bond Index | 0.05 | 5.18 | 3.13 |
Citigroup 3-Month Treasury Bill Index | 0.42 | 1.31 | 3.07 |
|
|
|
|
|
|
|
|
Stocks |
|
|
|
Russell 1000 Index (Large-caps) | –42.25% | –43.62% | –6.38% |
Russell 2000 Index (Small-caps) | –46.91 | –42.38 | –6.68 |
Dow Jones Wilshire 5000 Index (Entire market) | –42.27 | –43.15 | –6.04 |
MSCI All Country World Index ex USA (International) | –45.36 | –51.27 | –1.65 |
|
|
|
|
|
|
|
|
CPI |
|
|
|
Consumer Price Index | –3.15% | 0.24% | 2.65% |
1 Annualized.
3
A time of investor angst bolsters the fund’s return
Because the Extended Duration Treasury Index Fund invests in very long-term zero-coupon Treasuries, the fund can be highly volatile in the short term. Further exacerbating the level of volatility during the six months were investor fears—and the resulting surge in demand for Treasury securities—that were stoked at the start of the fund’s fiscal year in September with a series of breathtaking Wall Street changes, such as the bankruptcy of Lehman Brothers.
Later, in November and December, prolonged congressional wrangling over a financial industry bailout further ratcheted up the level of uncertainty and demand for safe assets. For each of those months, the fund returned around 22%.
By January and February, investors’ appetite for risk seemed to have returned somewhat. What had been moribund sales of new corporate bonds picked up and, as demand lessened somewhat for Treasury securities, the yields of Treasuries rose. The fund’s monthly returns dropped in January and February, to –21% and –3%, respectively. Treasury yields were further influenced by investor expectations that an enormous volume of new government bonds would be issued to fund the federal economic stimulus program, which became law in mid-February.
When the dust settled, the fund had outpaced its benchmark for the half-year. The fund’s outperformance was a result of small differences in weightings between its holdings and the corresponding issues in the benchmark, as is expected. Over
Expense Ratios1 |
|
|
| Institutional | ETF |
| Shares | Shares |
Extended Duration Treasury Index Fund | 0.11% | 0.14% |
1 The fund expense ratios shown are from the prospectuses dated December 29, 2008, and represent estimated costs for the current fiscal year based on the fund’s current net assets. For the six months ended February 28, 2009, the Extended Duration Treasury Index Fund’s annualized expense ratios were 0.11% for Institutional Shares and 0.14% for ETF Shares.
4
time, the difference should even out because of the indexing skills of the fund’s advisor, Vanguard Fixed Income Group, and its close attention to risk control.
A long-duration, low-cost fund offers several key benefits
The Vanguard Extended Duration Treasury Index Fund is an excellent tool for sponsors of defined-benefit plans who are seeking to manage the duration gap between plan assets and their plan’s pension obligations. The fund can accomplish this goal more straightforwardly and transparently than more complex, riskier derivative-based alternatives. And, the fund offers sponsors the benefits of a cost structure that’s among the lowest in the industry.
As remarkable as recent returns have been, please keep in mind that the fund’s returns can be volatile and can just as easily go in the other direction. That is why we view the Extended Duration Treasury Index Fund not as a total return vehicle but as a tool for pension plan management.
Indeed, we encourage clients to evaluate the fund’s utility by its success in helping pension plan managers offset changes in the value of their liabilities with changes in the value of their assets. In some periods, the offset will be a positive return, in others a negative one. As long as the offset works as expected, however, the fund will have served clients well.
As always, thank you for entrusting your assets to Vanguard.
Sincerely,
F. William McNabb III
President and Chief Executive Officer
March 12, 2009
Vanguard Extended Duration Treasury Index ETF
Premium/Discount: December 6, 20071–February 28, 2009
| Market Price Above or | Market Price Below | ||||
| Equal to Net Asset Value |
| Net Asset Value | |||
| Number | Percentage |
| Number | Percentage | |
Basis Point Differential2 | of Days | of Total Days |
| of Days | of Total Days | |
0–24.9 | 48 | 15.53% |
| 49 | 15.85% | |
25–49.9 | 32 | 10.36 |
| 34 | 11.00 | |
50–74.9 | 17 | 5.50 |
| 24 | 7.77 | |
75–100.0 | 13 | 4.21 |
| 16 | 5.18 | |
>100.0 | 27 | 8.74 |
| 49 | 15.86 | |
Total | 137 | 44.34% |
| 172 | 55.66% | |
1 Inception.
2 One basis point equals 1/100 of a percentage point.
5
Extended Duration Treasury Index Fund
Fund Profile
As of February 28, 2009
Financial Attributes |
|
|
|
| Target |
| Fund | Index1 |
Number of Issues | 47 | 47 |
Yield2 |
| 4.1% |
Institutional Shares | 4.0% |
|
ETF Shares | 3.9% |
|
Yield to Maturity | 4.0%3 | 4.1% |
Average Coupon | 0.0% | 0.0% |
Average Effective Maturity | 24.9 years | 24.4 years |
Average Quality4 | Aaa | Aaa |
Average Duration | 24.8 years | 24.4 years |
Expense Ratio5 |
| — |
Institutional Shares | 0.11% |
|
ETF Shares | 0.14% |
|
Short-Term Reserves | 0.0% | — |
Sector Diversification (% of portfolio) |
|
|
|
Treasury/Agency | 100.0% |
Distribution by Maturity (% of portfolio) |
|
|
|
20–30 Years | 100.0% |
Distribution by Credit Quality4 (% of portfolio) | |
|
|
Aaa | 100.0% |
Investment Focus
1 Barclays Capital U.S. Treasury STRIPS 20–30 Year Equal Par Bond Index.
2 30-day SEC yield for the fund; index yield assumes that all bonds are called or prepaid at the earliest possible date. See the Glossary.
3 Before expenses.
4 Moody’s Investors Service.
5 The expense ratios shown are from the prospectuses dated December 29, 2008, and represent estimated costs for the current fiscal year based on the fund’s current net assets. For the six months ended February 28, 2009, the annualized expense ratios were 0.11% for Institutional Shares and 0.14% for ETF Shares.
6
Extended Duration Treasury 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/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): November 28, 2007–February 28, 2009 | ||||
|
|
|
| |
| Institutional Shares | Barclays1 | ||
Fiscal | Capital | Income | Total | Total |
Year | Return | Return | Return | Return |
2008 | –1.6% | 2.0% | 0.4% | 0.8% |
20092 | 14.7 | 2.2 | 16.9 | 15.7 |
Average Annual Total Returns: Periods Ended December 31, 2008
This table presents 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 | |
| Inception Date | One Year | Capital | Income | Total |
Institutional Shares | 11/28/2007 | 55.52% | 43.00% | 5.13% | 48.13% |
ETF Shares | 12/6/2007 |
|
|
|
|
Market Price |
| 55.79 | — | — | 52.14 |
Net Asset Value |
| 55.40 | 46.65 | 5.26 | 51.91 |
1 Barclays Capital U.S. Treasury STRIPS 20–30 Year Equal Par Bond Index
2 Six months ended February 28, 2009.
7
Extended Duration Treasury Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2009
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).
|
|
| Face | Market |
|
| Maturity | Amount | Value• |
| Coupon | Date | ($000) | ($000) |
U.S. Government Obligations (100.0%) |
|
|
|
|
U.S. Treasury STRIPS | 0.00% | 5/15/29 | 10,100 | 4,350 |
U.S. Treasury STRIPS | 0.00% | 8/15/29 | 9,550 | 4,118 |
U.S. Treasury STRIPS | 0.00% | 8/15/29 | 10,650 | 4,527 |
U.S. Treasury STRIPS | 0.00% | 11/15/29 | 9,600 | 4,065 |
U.S. Treasury STRIPS | 0.00% | 2/15/30 | 11,200 | 4,663 |
U.S. Treasury STRIPS | 0.00% | 5/15/30 | 8,350 | 3,500 |
U.S. Treasury STRIPS | 0.00% | 5/15/30 | 13,200 | 5,430 |
U.S. Treasury STRIPS | 0.00% | 8/15/30 | 11,400 | 4,644 |
U.S. Treasury STRIPS | 0.00% | 11/15/30 | 8,725 | 3,532 |
U.S. Treasury STRIPS | 0.00% | 2/15/31 | 5,150 | 2,101 |
U.S. Treasury STRIPS | 0.00% | 2/15/31 | 15,850 | 6,346 |
U.S. Treasury STRIPS | 0.00% | 5/15/31 | 9,650 | 3,839 |
U.S. Treasury STRIPS | 0.00% | 8/15/31 | 10,650 | 4,195 |
U.S. Treasury STRIPS | 0.00% | 11/15/31 | 11,100 | 4,322 |
U.S. Treasury STRIPS | 0.00% | 2/15/32 | 10,850 | 4,209 |
U.S. Treasury STRIPS | 0.00% | 5/15/32 | 10,705 | 4,137 |
U.S. Treasury STRIPS | 0.00% | 8/15/32 | 11,350 | 4,350 |
U.S. Treasury STRIPS | 0.00% | 11/15/32 | 8,685 | 3,310 |
U.S. Treasury STRIPS | 0.00% | 2/15/33 | 10,300 | 3,906 |
U.S. Treasury STRIPS | 0.00% | 5/15/33 | 11,050 | 4,180 |
U.S. Treasury STRIPS | 0.00% | 8/15/33 | 11,750 | 4,399 |
U.S. Treasury STRIPS | 0.00% | 11/15/33 | 8,450 | 3,148 |
U.S. Treasury STRIPS | 0.00% | 2/15/34 | 9,800 | 3,623 |
U.S. Treasury STRIPS | 0.00% | 5/15/34 | 9,400 | 3,454 |
U.S. Treasury STRIPS | 0.00% | 8/15/34 | 11,300 | 4,114 |
U.S. Treasury STRIPS | 0.00% | 11/15/34 | 11,725 | 4,245 |
U.S. Treasury STRIPS | 0.00% | 2/15/35 | 9,300 | 3,333 |
U.S. Treasury STRIPS | 0.00% | 5/15/35 | 10,125 | 3,621 |
U.S. Treasury STRIPS | 0.00% | 8/15/35 | 9,650 | 3,411 |
U.S. Treasury STRIPS | 0.00% | 11/15/35 | 10,460 | 3,677 |
U.S. Treasury STRIPS | 0.00% | 2/15/36 | 10,300 | 3,710 |
U.S. Treasury STRIPS | 0.00% | 2/15/36 | 11,850 | 4,118 |
U.S. Treasury STRIPS | 0.00% | 5/15/36 | 10,760 | 3,749 |
U.S. Treasury STRIPS | 0.00% | 8/15/36 | 9,800 | 3,387 |
U.S. Treasury STRIPS | 0.00% | 11/15/36 | 11,930 | 4,082 |
U.S. Treasury STRIPS | 0.00% | 2/15/37 | 12,745 | 4,321 |
U.S. Treasury STRIPS | 0.00% | 2/15/37 | 8,700 | 3,059 |
U.S. Treasury STRIPS | 0.00% | 5/15/37 | 9,150 | 3,217 |
U.S. Treasury STRIPS | 0.00% | 5/15/37 | 10,200 | 3,443 |
8
Extended Duration Treasury Index Fund
|
|
| Face | Market |
|
| Maturity | Amount | Value• |
| Coupon | Date | ($000) | ($000) |
U.S. Treasury STRIPS | 0.00% | 8/15/37 | 11,945 | 4,030 |
U.S. Treasury STRIPS | 0.00% | 11/15/37 | 10,200 | 3,417 |
U.S. Treasury STRIPS | 0.00% | 2/15/38 | 12,850 | 4,465 |
U.S. Treasury STRIPS | 0.00% | 2/15/38 | 6,200 | 2,139 |
U.S. Treasury STRIPS | 0.00% | 5/15/38 | 16,995 | 5,983 |
U.S. Treasury STRIPS | 0.00% | 5/15/38 | 9,050 | 3,134 |
U.S. Treasury STRIPS | 0.00% | 2/15/39 | 22,000 | 7,643 |
U.S. Treasury STRIPS | 0.00% | 2/15/39 | 4,000 | 1,384 |
Total U.S. Government Obligations (Cost $164,948) |
|
|
| 186,030 |
|
|
|
|
|
|
|
|
|
|
|
|
| Shares |
|
Temporary Cash Investment (0.0%) |
|
|
|
|
1 Vanguard Market Liquidity Fund (Cost $43) | 0.663% |
| 42,913 | 43 |
Total Investments (100.0%) (Cost $164,991) |
|
|
| 186,073 |
Other Assets and Liabilities (0.0%) |
|
|
|
|
Other Assets |
|
|
| 10,530 |
Liabilities |
|
|
| (10,540) |
|
|
|
| (10) |
Net Assets (100%) |
|
|
| 186,063 |
|
|
|
|
|
|
|
|
|
|
Statement of Assets and Liabilities |
|
|
|
|
Assets |
|
|
|
|
Investments in Securities, at Value |
|
|
| 186,073 |
Receivables for Investment Securities Sold |
|
|
| 10,477 |
Other Assets |
|
|
| 53 |
Total Assets |
|
|
| 196,603 |
Liabilities |
|
|
|
|
Payables for Investment Securities Purchased |
|
|
| 10,430 |
Other Liabilities |
|
|
| 110 |
Total Liabilities |
|
|
| 10,540 |
Net Assets |
|
|
| 186,063 |
9
Extended Duration Treasury Index Fund
At February 28, 2009, net assets consisted of: |
|
| Amount |
| ($000) |
Paid-in Capital | 124,652 |
Undistributed Net Investment Income | 1,149 |
Accumulated Net Realized Gains | 39,180 |
Unrealized Appreciation (Depreciation) | 21,082 |
Net Assets | 186,063 |
|
|
|
|
Institutional Shares—Net Assets |
|
Applicable to 4,329,133 outstanding $.001 par value shares of |
|
beneficial interest (unlimited authorization) | 146,674 |
Net Asset Value Per Share—Institutional Shares | $33.88 |
|
|
|
|
ETF Shares—Net Assets |
|
Applicable to 350,000 outstanding $.001 par value shares of |
|
beneficial interest (unlimited authorization) | 39,389 |
Net Asset Value Per Share—ETF Shares | $112.54 |
• See Note A in Notes to Financial Statements.
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.
See accompanying Notes, which are an integral part of the Financial Statements.
10
Extended Duration Treasury Index Fund
Statement of Operations
| Six Months Ended |
| February 28, 2009 |
| ($000) |
Investment Income |
|
Income |
|
Interest1 | 5,225 |
Total Income | 5,225 |
Expenses |
|
The Vanguard Group—Note B |
|
Investment Advisory Services | 14 |
Management and Administrative—Institutional Shares | 65 |
Management and Administrative—ETF Shares | 16 |
Marketing and Distribution—Institutional Shares | 37 |
Marketing and Distribution—ETF Shares | 3 |
Custodian Fees | 19 |
Shareholders’ Reports—Institutional Shares | — |
Shareholders’ Reports—ETF Shares | 2 |
Total Expenses | 156 |
Expenses Paid Indirectly | (2) |
Net Expenses | 154 |
Net Investment Income | 5,071 |
Realized Net Gain (Loss) on Investment Securities Sold | 44,774 |
Change in Unrealized Appreciation (Depreciation) of Investment Securities | 20,858 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 70,703 |
1 Interest income from an affiliated company of the fund was $3,000.
See accompanying Notes, which are an integral part of the Financial Statements.
11
Extended Duration Treasury Index Fund
Statement of Changes in Net Assets
|
|
| November 28, |
| Six Months Ended, |
| 20071 to |
| February 28, |
| August 31, |
| 2009 |
| 2008 |
| ($000) |
| ($000) |
Increase (Decrease) in Net Assets |
|
|
|
Operations |
|
|
|
Net Investment Income | 5,071 |
| 4,313 |
Realized Net Gain (Loss) | 44,774 |
| (927) |
Change in Unrealized Appreciation (Depreciation) | 20,858 |
| 224 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 70,703 |
| 3,610 |
Distributions |
|
|
|
Net Investment Income |
|
|
|
Institutional Shares | (5,085) |
| (2,278) |
ETF Shares | (676) |
| (196) |
Realized Capital Gain |
|
|
|
Institutional Shares | — |
| — |
ETF Shares | — |
| — |
Total Distributions | (5,761) |
| (2,474) |
Capital Share Transactions |
|
|
|
Institutional Shares | (172,573) |
| 256,542 |
ETF Shares | 30,677 |
| 5,339 |
Net Increase (Decrease) from Capital Share Transactions | (141,896) |
| 261,881 |
Total Increase (Decrease) | (76,954) |
| 263,017 |
Net Assets |
|
|
|
Beginning of Period | 263,017 |
| — |
End of Period2 | 186,063 |
| 263,017 |
1 Inception.
2 Net Assets—End of Period includes undistributed net investment income of $1,149,000 and $1,839,000.
See accompanying Notes, which are an integral part of the Financial Statements.
12
Extended Duration Treasury Index Fund
Financial Highlights
Institutional Shares |
|
|
| Six Months November 28, | |
| Ended | 20071 to |
| February 28, | August 31, |
For a Share Outstanding Throughout Each Period | 2009 | 2008 |
Net Asset Value, Beginning of Period | $29.52 | $30.00 |
Investment Operations |
|
|
Net Investment Income | .6472 | 1.0232 |
Net Realized and Unrealized Gain (Loss) on Investments3 | 4.407 | (.928) |
Total from Investment Operations | 5.054 | .095 |
Distributions |
|
|
Dividends from Net Investment Income | (.694) | (.575) |
Distributions from Realized Capital Gains | — | — |
Total Distributions | (.694) | (.575) |
Net Asset Value, End of Period | $33.88 | $29.52 |
|
|
|
|
|
|
Total Return4 | 16.91% | 0.39% |
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
Net Assets, End of Period (Millions) | $147 | $258 |
Ratio of Total Expenses to Average Net Assets | 0.11%5 | 0.11%5 |
Ratio of Net Investment Income to Average Net Assets | 3.74%5 | 4.55%5 |
Portfolio Turnover Rate6 | 29%5 | 36% |
1 Inception.
2 Calculated based on average shares outstanding.
3 Includes increases from purchase fees of $.00 and $.03.
4 Total returns do not include a portfolio transaction fee that may apply to aggregate purchases of more than $20 million by a single investor.
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 ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
13
Extended Duration Treasury Index Fund
Financial Highlights
ETF Shares |
|
|
| Six Months December 6, | |
| Ended | 20071 to |
| February 28, | August 31, |
For a Share Outstanding Throughout Each Period | 2009 | 2008 |
Net Asset Value, Beginning of Period | $98.11 | $97.78 |
Investment Operations |
|
|
Net Investment Income | 2.0982 | 3.1662 |
Net Realized and Unrealized Gain (Loss) on Investments3 | 14.642 | (.983) |
Total from Investment Operations | 16.740 | 2.183 |
Distributions |
|
|
Dividends from Net Investment Income | (2.310) | (1.853) |
Distributions from Realized Capital Gains | — | — |
Total Distributions | (2.310) | (1.853) |
Net Asset Value, End of Period | $112.54 | $98.11 |
|
|
|
|
|
|
Total Return | 16.84% | 2.29% |
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
Net Assets, End of Period (Millions) | $39 | $5 |
Ratio of Total Expenses to Average Net Assets | 0.14%4 | 0.14%4 |
Ratio of Net Investment Income to Average Net Assets | 3.71%4 | 4.52%4 |
Portfolio Turnover Rate5 | 29%4 | 36% |
1 Inception.
2 Calculated based on average shares outstanding.
3 Includes increases from purchase fees of $.00 and $.11.
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 ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
14
Extended Duration Treasury Index Fund
Notes to Financial Statements
Vanguard Extended Duration Treasury Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers three classes of shares: Institutional Shares, Institutional Plus Shares, and ETF Shares. Institutional Shares are designed for investors who meet certain administrative and service criteria and invest a minimum of $5 million. Institutional Plus Shares are available to investors who invest a minimum of $100 million. The fund has not issued any Institutional Plus Shares through February 28, 2009. ETF Shares are listed for trading on the NYSE Arca, Inc.; 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: Bonds, and 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. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. 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 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. Management has analyzed the fund’s tax positions taken on federal income tax return for the open tax year ended August 31, 2008, and for the period ended February 28, 2009, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
3. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Other: Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. 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, if any, assessed on purchases of Institutional 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
15
Extended Duration Treasury Index Fund
net assets in capital contributions to Vanguard. At February 28, 2009, the fund had contributed capital of $54,000 to Vanguard (included in Other Assets), representing 0.03% 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. The fund’s custodian bank has 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, 2009, custodian fee offset arrangements reduced the fund’s expenses by $2,000 (an annual rate of 0.00% of average net assets).
D. 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, 2009, the fund realized $5,146,000 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, 2008, the fund had available realized losses of $435,000 to offset future net capital gains through August 31, 2017. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2009; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2009, the cost of investment securities for tax purposes was $164,991,000. Net unrealized appreciation of investment securities for tax purposes was $21,082,000, consisting of unrealized gains of $21,116,000 on securities that had risen in value since their purchase and $34,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the six months ended February 28, 2009, the fund purchased $88,998,000 of investment securities and sold $236,883,000 of investment securities, other than temporary cash investments.
16
Extended Duration Treasury Index Fund
F. Capital share transactions for each class of shares were:
| Six Months Ended | Inception1 to |
| |||
| February 28, 2009 | August 31, 2008 |
| |||
| Amount | Shares |
| Amount | Shares | |
| ($000) | (000) |
| ($000) | (000) | |
Institutional Shares |
|
|
|
|
| |
Issued2 | 4,156 | 129 |
| 256,993 | 8,769 | |
Issued in Lieu of Cash Distributions | 5,085 | 140 |
| 2,278 | 80 | |
Redeemed | (181,814) | (4,683) |
| (2,729) | (106) | |
Net Increase (Decrease)—Institutional Shares | (172,573) | (4,414) |
| 256,542 | 8,743 | |
ETF Shares |
|
|
|
|
| |
Issued2 | 50,155 | 450 |
| 14,691 | 150 | |
Issued in Lieu of Cash Distributions | — | — |
| — | — | |
Redeemed | (19,478) | (150) |
| (9,352) | (100) | |
Net Increase (Decrease)—ETF Shares | 30,677 | 300 |
| 5,339 | 50 | |
1 Inception was November 28, 2007, for Institutional Shares and December 6, 2007, for ETF Shares.
2 Includes purchase fees of $0 and $289,000 (fund totals).
G. In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157 (“FAS 157”), “Fair Value Measurements.” FAS 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements in financial statements.
The various inputs that may be used to determine the value of the fund’s investments are summarized in three broad levels. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
17
Extended Duration Treasury Index Fund
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
The following table summarizes the fund’s investments as of February 28, 2009, based on the inputs used to value them:
| Investments |
| in Securities |
Valuation Inputs | ($000) |
Level 1—Quoted prices | 43 |
Level 2—Other significant observable inputs | 186,030 |
Level 3—Significant unobservable inputs | — |
Total | 186,073 |
18
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, 2009 |
|
|
|
| Beginning | Ending | Expenses |
| Account Value | Account Value | Paid During |
Extended Duration Treasury Index Fund | 8/31/2008 | 2/28/2009 | Period1 |
Based on Actual Fund Return |
|
|
|
Institutional Shares | $1,000.00 | $1,169.07 | $0.59 |
ETF Shares | 1,000.00 | 1,168.38 | 0.75 |
Based on Hypothetical 5% Yearly Return |
|
|
|
Institutional Shares | $1,000.00 | $1,024.25 | $0.55 |
ETF Shares | 1,000.00 | 1,024.10 | 0.70 |
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 0.11% for Institutional Shares and 0.14% for ETF 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.
19
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Your fund does not carry a “sales load.”
The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.
20
Glossary
Average Coupon. The average interest rate paid on the fixed income securities held by a fund. It is expressed as a percentage of face value.
Average Duration. An estimate of how much the value of the bonds held by a fund will fluctuate in response to a change in interest rates. To see how the value could change, multiply the average duration by the change in rates. If interest rates rise by 1 percentage point, the value of the bonds in a fund with an average duration of five years would decline by about 5%. If rates decrease by a percentage point, the value would rise by 5%.
Average Effective Maturity. The average length of time until fixed income securities held by a fund reach maturity and are repaid, taking into consideration the possibility that the issuer may call the bond before its maturity date. The figure reflects the proportion of fund assets represented by each security; it also reflects any futures contracts held. In general, the longer the average effective maturity, the more a fund’s share price will fluctuate in response to changes in market interest rates.
Average Quality. An indicator of credit risk, this figure is the average of the ratings assigned to a fund’s fixed income holdings by credit-rating agencies. The agencies make their judgment after appraising an issuer’s ability to meet its obligations. Quality is graded on a scale, with Aaa or AAA indicating the most creditworthy bond issuers. U.S. Treasury securities are considered to have the highest credit quality.
Distribution by Coupon. A breakdown of the securities in a fund according to coupon rate—the interest rate that an issuer promises to pay, expressed as an annual percentage of face value. Securities with unusually high coupon rates may be subject to call risk, the possibility that they will be redeemed (or “called”) early by the issuer.
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.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (in the case of bonds) or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.
Yield to Maturity. The rate of return an investor would receive if the fixed income securities held by a fund were held to their maturity dates.
21
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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’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 157 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at www.vanguard.com.
Chairman of the Board and Interested Trustee
John J. Brennan1
Born 1954. Trustee Since May 1987. Chairman of the Board. Principal Occupation(s) During the Past Five Years: Chairman of the Board and Director/Trustee of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group; Chief Executive Officer and President of The Vanguard Group and of each of the investment companies served by The Vanguard Group (1996–2008).
Independent Trustees
Charles D. Ellis
Born 1937. Trustee Since January 2001. 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.
Emerson U. Fullwood
Born 1948. Trustee Since January 2008. Principal Occupation(s) During the Past Five Years: Retired Executive Chief Staff and Marketing Officer for North America and Corporate Vice President of Xerox Corporation (photocopiers and printers); Director of SPX Corporation (multi-industry manufacturing), the United Way of Rochester, the Boy Scouts of America, Amerigroup Corporation (direct health and medical insurance carriers), and Monroe Community College Foundation.
Rajiv L. Gupta
Born 1945. Trustee Since December 2001.2 Principal Occupation(s) During the Past Five Years: Chairman and Chief Executive Officer of Rohm and Haas Co. (chemicals); President of Rohm and Haas Co. (2006–2008); Board Member of American Chemistry Council; Director of Tyco International, Ltd. (diversified manufacturing and services) and Hewlett-Packard Co. (electronic computer manufacturing); Trustee of The Conference Board.
Amy Gutmann
Born 1949. Trustee Since June 2006. Principal
Occupation(s) During the Past Five Years: President of the University of Pennsylvania; Christopher H. Browne Distinguished Professor of Political Science in the School of Arts and Sciences with Secondary Appointments at the Annenberg School for Communication and the Graduate School of Education of the University of Pennsylvania; Director of Carnegie Corporation of New York, Schuylkill River Development Corporation, and Greater Philadelphia Chamber of Commerce; Trustee of the National Constitution Center.
JoAnn Heffernan Heisen
Born 1950. Trustee Since July 1998. Principal Occupation(s) During the Past Five Years: Retired Corporate Vice President, Chief Global Diversity Officer, and Member of the Executive Committee of Johnson & Johnson (pharmaceuticals/consumer products); Vice President and Chief Information Officer (1997–2005) of Johnson & Johnson; Director of the University Medical Center at Princeton and Women’s Research and Education Institute.
André F. Perold
Born 1952. Trustee Since December 2004. Principal Occupation(s) During the Past Five Years: George Gund Professor of Finance and Banking, Senior Associate Dean, and Director of Faculty Recruiting, Harvard Business School; Director and Chairman of UNX, Inc. (equities trading firm); Chair of the Investment Committee of HighVista Strategies LLC (private investment firm).
Alfred M. Rankin, Jr.
Born 1941. Trustee Since January 1993. 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).
J. Lawrence Wilson
Born 1936. Trustee Since April 1985. 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) and AmerisourceBergen Corp. (pharmaceutical distribution); Trustee of Vanderbilt University and of Culver Educational Foundation.
Executive Officers
Thomas J. Higgins1
Born 1957. Chief Financial Officer Since September 2008. Principal Occupation(s) During the Past Five Years: Principal of The Vanguard Group, Inc.; Chief Financial Officer of each of the investment companies served by The Vanguard Group since 2008; Treasurer of each of the investment companies served by The Vanguard Group (1998–2008).
Kathryn J. Hyatt1
Born 1955. Treasurer Since November 2008. 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 since 2008; Assistant Treasurer of each of the investment companies served by The Vanguard Group (1988–2008).
F. William McNabb III1
Born 1957. Chief Executive Officer Since August 2008. President Since March 2008. Principal Occupation(s) During the Past Five Years: Director of The Vanguard Group, Inc., since 2008; Chief Executive Officer and President of The Vanguard Group and of each of the investment companies served by The Vanguard Group since 2008; Director of Vanguard Marketing Corporation; Managing Director of The Vanguard Group (1995–2008).
Heidi Stam1
Born 1956. Secretary Since July 2005. Principal Occupation(s) During the Past Five Years: Managing Director of The Vanguard Group, Inc., since 2006; General Counsel of The Vanguard Group since 2005; Secretary of The Vanguard Group and of each of the investment companies served by The Vanguard Group since 2005; Director and Senior Vice President of Vanguard Marketing Corporation since 2005; Principal of The Vanguard Group (1997–2006).
Vanguard Senior Management Team | |
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|
|
|
R. Gregory Barton | Michael S. Miller |
Mortimer J. Buckley | James M. Norris |
Kathleen C. Gubanich | Glenn W. Reed |
Paul A. Heller | George U. Sauter |
Founder
John C. Bogle
Chairman and Chief Executive Officer, 1974–1996
1 These individuals 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.
P.O. Box 2600
Valley Forge, PA 19482-2600
Connect with Vanguard® > www.vanguard.com
Fund Information > 800-662-7447 | The funds or securities referred to herein are not |
| sponsored, endorsed, or promoted by MSCI, and MSCI |
Direct Investor Account Services > 800-662-2739 | bears no liability with respect to any such funds or |
| securities. For any such funds or securities, the |
Institutional Investor Services > 800-523-1036 | prospectus or the Statement of Additional Information |
| contains a more detailed description of the limited |
Text Telephone for People | relationship MSCI has with The Vanguard Group and |
With Hearing Impairment > 800-952-3335 | any related funds. |
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| Russell is a trademark of The Frank Russell Company. |
This material may be used in conjunction |
|
with the offering of shares of any Vanguard | All comparative mutual fund data are from Lipper Inc. |
fund only if preceded or accompanied by | or Morningstar, Inc., unless otherwise noted. |
the fund’s current prospectus. |
|
| You can obtain a free copy of Vanguard’s proxy voting |
| guidelines by visiting our website, www.vanguard.com, |
Vanguard Extended Duration Treasury ETF is not | and searching for “proxy voting guidelines,” or by |
sponsored, endorsed, sold, or promoted by Barclays | calling Vanguard at 800-662-2739. The guidelines are |
Capital. Barclays Capital makes no representation or | also available from the SEC’s website, www.sec.gov. |
warranty, express or implied, to the owners of Vanguard | In addition, you may obtain a free report on how your |
Extended Duration Treasury ETF or any member of the | fund voted the proxies for securities it owned during |
public regarding the advisability of investing in securities | the 12 months ended June 30. To get the report, visit |
generally or in Vanguard Extended Duration Treasury ETF | either www.vanguard.com or www.sec.gov. |
particularly or the ability of the Barclays Capital Index |
|
to track general bond market performance. Barclays |
|
Capital hereby expressly disclaims all warranties of | You can review and copy information about your fund |
merchantability and fitness for a particular purpose | at the SEC’s Public Reference Room in Washington, D.C. |
with respect to the Barclays Capital Index and any data | To find out more about this public service, call the SEC |
included therein. Barclays Capital’s only relationship to | at 202-551-8090. Information about your fund is also |
Vanguard and Vanguard Extended Duration Treasury | available on the SEC’s website, and you can receive |
ETF is the licensing of the Barclays Capital Index which | copies of this information, for a fee, by sending a |
is determined, composed, and calculated by Barclays | request in either of two ways: via e-mail addressed to |
Capital without regard to Vanguard or the Vanguard | publicinfo@sec.gov or via regular mail addressed to the |
Extended Duration Treasury ETF. Barclays Capital is | Public Reference Section, Securities and Exchange |
not responsible for, and has not participated in, the | Commission, Washington, DC 20549-0102. |
determination of the timing of, prices of, or quantities of |
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Vanguard Extended Duration Treasury ETF to be issued. |
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| © 2009 The Vanguard Group, Inc. |
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| All rights reserved. |
| Vanguard Marketing Corporation, Distributor. |
| Q12752 042009 |
> Vanguard’s Mega Cap 300 Index Funds posted returns ranging from about –43% to –39% for the six months ended February 28, 2009. Each fund closely tracked its target benchmark.
> The Mega Cap 300 Growth Index Fund performed better than its value counterpart during the fiscal half-year; however, all three funds reported losses in every sector.
> The broad U.S. stock market returned about –42% for the half-year.
Contents |
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|
|
Your Fund’s Total Returns | 1 |
President’s Letter | 2 |
Mega Cap 300 Index Fund | 8 |
Mega Cap 300 Growth Index Fund | 22 |
Mega Cap 300 Value Index Fund | 34 |
About Your Fund’s Expenses | 46 |
Glossary | 48 |
Mega Cap 300 Index Fund | |
Mega Cap 300 Growth Index Fund | |
Mega Cap 300 Value Index Fund |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
Your Fund’s Total Returns
Six Months Ended February 28, 2009 |
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| Ticker | Total |
| Symbol | Returns |
Vanguard Mega Cap 300 Index Fund |
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|
Institutional Shares1 | VMCTX | –40.91% |
ETF Shares2 | MGC |
|
Market Price |
| –40.87 |
Net Asset Value |
| –40.91 |
MSCI US Large Cap 300 Index |
| –40.92 |
Average Large-Cap Core Fund3 |
| –41.23 |
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Vanguard Mega Cap 300 Growth Index Fund |
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Institutional Shares1 | VMGAX | –39.11% |
ETF Shares2 | MGK |
|
Market Price |
| –39.12 |
Net Asset Value |
| –39.12 |
MSCI US Large Cap Growth Index |
| –39.14 |
Average Large-Cap Growth Fund3 |
| –40.13 |
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Vanguard Mega Cap 300 Value Index Fund |
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Institutional Shares1 | VMVLX | –42.72% |
ETF Shares2 | MGV |
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Market Price |
| –42.65 |
Net Asset Value |
| –42.71 |
MSCI US Large Cap Value Index |
| –42.78 |
Average Large-Cap Value Fund3 |
| –42.36 |
1 This class of shares carries low expenses and is available for a minimum investment of $5 million.
2 Vanguard ETF™ Shares are traded on the NYSE Arca exchange and are available only through brokers. The table shows ETF returns based on both the NYSE Arca market price and the net asset value for a share. U.S. Pat. No. 6,879,964 B2; 7,337,138.
3 Derived from data provided by Lipper Inc.
1
President’s Letter
Dear Shareholder,
For the fiscal half-year ended February 28, 2009, returns for Vanguard’s Mega Cap 300 Index Funds ranged from about –43% for the Mega Cap 300 Value Index Fund ETF to –39% for the Mega Cap 300 Growth Index Fund ETF.
As stocks reeled from the collapse of major banking institutions, weakness was widespread across all sectors. The funds’ returns were depressed by their stakes in financials, information technology, industrials, and energy. The Mega Cap 300 Growth Index Fund, which had very little exposure to the battered financial sector, performed better than its value and broad-market counterparts.
Although it may be cold comfort, the funds accomplished their objective of closely tracking their benchmark indexes. Two of the funds held up better than the average returns of their peer groups.
Stocks fell steeply and broadly amid credit woes and slow growth
Stocks began the fiscal half-year inauspiciously and continued to decline as tight credit maintained its grip on business and major economies slipped into recession. Neither landmark programs to bolster financial institutions nor the $787 billion economic stimulus package signed into law in February served to boost investor confidence, which was already badly shaken after the U.S. stock market suffered its second-worst calendar-year performance ever.
2
For the six months ended February 28, U.S. equities overall returned about –42%. International stocks returned about –45%; emerging markets, which had boomed in recent years, were hit especially hard. The declines across the globe were notable for their speed, breadth, and extraordinary magnitude. Volatility also increased dramatically, to levels not seen since the 1930s. For example, the period encompassed not only four of the worst but also two of the best U.S. trading days since 1928 (based on percentage losses and gains).
Investors sought refuge in low-yield, but liquid, Treasuries
In the wake of the September collapse of Lehman Brothers, a leading Wall Street investment bank, credit markets deteriorated globally—a painful reminder of how intertwined markets have become and of how important trust is to keep them functioning. Lacking confidence, investors continued to seek the relative safety and liquidity of U.S. Treasury securities, driving prices up and yields down—even briefly driving very short-term yields into negative territory. This flight to quality led corporate bonds to experience two of their worst months ever in terms of real returns, in September and October.
After several aggressive actions by the Federal Reserve Board and the Treasury—including lowering the target for the federal funds rate to a range of 0% to 0.25%—signs of a thaw began to emerge. January and February, for example, were the most active months for the issuance
Market Barometer |
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| Total Returns | ||
| Periods Ended February 28, 2009 | ||
| Six Months | One Year | Five Years1 |
Stocks |
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Russell 1000 Index (Large-caps) | –42.25% | –43.62% | –6.38% |
Russell 2000 Index (Small-caps) | –46.91 | –42.38 | –6.68 |
Dow Jones Wilshire 5000 Index (Entire market) | –42.27 | –43.15 | –6.04 |
MSCI All Country World Index ex USA (International) | –45.36 | –51.27 | –1.65 |
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Bonds |
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Barclays Capital U.S. Aggregate Bond Index |
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(Broad taxable market) | 1.88% | 2.06% | 4.00% |
Barclays Capital Municipal Bond Index | 0.05 | 5.18 | 3.13 |
Citigroup 3-Month Treasury Bill Index | 0.42 | 1.31 | 3.07 |
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CPI |
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Consumer Price Index | –3.15% | 0.24% | 2.65% |
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1 Annualized. |
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3
of investment-grade corporate bonds since 1995. Against this backdrop, the broad taxable bond market returned almost 2% for the six-month period, while tax-exempt bonds were about flat.
Fund holdings plummeted in a brutal stock market
Launched a little more than a year ago, Vanguard’s three Mega Cap 300 Index Funds are designed to give shareholders an opportunity to invest in the U.S. market’s largest stocks as a whole, or in distinct portfolios encompassing the large-cap market’s growth and value components.
During the fiscal half-year, the Mega Cap 300 Index Fund, which tracks a broadly diversified index of the largest U.S. companies, was clobbered as the U.S. stock market experienced an unusually tumultuous period. The fund’s large concentration in financial, information technology, and industrial stocks hurt its performance the most.
The Mega Cap 300 Value Index Fund, which is heavily weighted in the financial and energy sectors, was the weakest performer of the three Mega Cap 300 Index Funds for the period as the credit crunch undermined banks and brokerages and oil prices tumbled. The fund held large stakes in investment banks embroiled in the subprime-mortgage crisis.
The Mega Cap 300 Growth Index Fund, which has relatively modest exposure to financials, could not insulate itself from the ripple effects of the credit market
Expense Ratios1 |
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Your Fund Compared With Its Peer Group |
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| Institutional | ETF | Peer |
| Shares | Shares | Group |
Mega Cap 300 Index Fund | 0.11% | 0.13% | 1.26% |
Mega Cap 300 Growth Index Fund | 0.11 | 0.13 | 1.34 |
Mega Cap 300 Value Index Fund | 0.11 | 0.13 | 1.25 |
1 The fund expense ratios shown are from the prospectuses dated December 29, 2008 and represent estimated costs for the current fiscal year based on the fund’s current net assets. For the six months ended February 28, 2009, the annualized expense ratios were 0.10% for the Mega Cap 300 Index Fund Institutional Shares and 0.13% for the ETF Shares; 0.10% for the Mega Cap 300 Growth Index Fund Institutional Shares and 0.13% for the ETF Shares; and 0.10% for the Mega Cap 300 Value Index Fund Institutional Shares and 0.13% for the ETF Shares. Peer groups are: for the Mega Cap 300 Index Fund, the Average Large-Cap Core Fund, for the Mega Cap 300 Growth Index Fund, the Average Large-Cap Growth Fund, and for the Mega Cap 300 Value Index Fund, the Average Large-Cap Value Fund. The peer-group expense ratios are derived from data provided by Lipper Inc. and capture information through year-end 2008.
4
crisis. As the overall economy weakened, demand for consumer products such as computer hardware and software declined, which hurt the fund’s large holdings in information technology and consumer discretionary stocks. The decline in commodity prices, which pushed down the prices of industrial and energy stocks, also weighed heavily on the fund’s return.
All three funds reported losses in each of the ten market sectors for the six-month period. Among the sectors that lost least were utilities and telecommunication services.
Long-term view and diversification are key in turbulent markets
The stock market faced significant headwinds during the fiscal half-year.
Although such volatility may be jarring for some investors, it’s important not to let these short-term extremes blind us to the long-term case for equities. The stock market’s occasionally frightening declines are an unavoidable tradeoff for its potential to produce superior returns in the long term.
At Vanguard, we counsel you, the investor, to maintain a diversified portfolio of stock, bond, and money market funds that fit your goals, time horizon, and risk tolerance. Even such carefully considered portfolios have struggled recently, of course, but we believe that broad diversification among and within asset classes is the right long-term policy, and can position you to weather the occasional storm while benefiting from the inevitable return to better times.
Vanguard’s Mega Cap 300 Index Funds can play an important role in such a portfolio. They combine access to the largest stocks in the U.S. market with the benefits of Vanguard’s historically low costs and indexing expertise.
Thank you for investing your assets with Vanguard.
Sincerely,
F. William McNabb III
President and Chief Executive Officer
March 12, 2009
5
Vanguard Mega Cap 300 ETF |
|
|
|
| |||
Premium/Discount: December 17, 20071–February 28, 2009 |
|
| |||||
|
|
|
|
| |||
| Market Price Above or | Market Price Below | |||||
| Equal to Net Asset Value | Net Asset Value | |||||
| Number | Percentage |
| Number | Percentage | ||
Basis Point Differential2 | of Days | of Total Days |
| of Days | of Total Days | ||
0–24.9 | 148 | 49.01% |
| 134 | 44.38% | ||
25–49.9 | 9 | 2.98 |
| 3 | 0.99 | ||
50–74.9 | 3 | 0.99 |
| 1 | 0.33 | ||
75–100.0 | 1 | 0.33 |
| 1 | 0.33 | ||
>100.0 | 2 | 0.66 |
| 0 | 0.00 | ||
Total | 163 | 53.97% |
| 139 | 46.03% | ||
Vanguard Mega Cap 300 Growth ETF |
|
|
| |||||
Premium/Discount: December 17, 20071–February 28, 2009 |
|
| ||||||
|
|
|
|
| ||||
| Market Price Above or | Market Price Below | ||||||
| Equal to Net Asset Value | Net Asset Value | ||||||
| Number | Percentage |
| Number | Percentage | |||
Basis Point Differential2 | of Days | of Total Days |
| of Days | of Total Days | |||
0–24.9 | 141 | 46.69% |
| 142 | 47.03% | |||
25–49.9 | 6 | 1.99 |
| 4 | 1.32 | |||
50–74.9 | 1 | 0.33 |
| 2 | 0.66 | |||
75–100.0 | 1 | 0.33 |
| 0 | 0.00 | |||
>100.0 | 3 | 0.99 |
| 2 | 0.66 | |||
Total | 152 | 50.33% |
| 150 | 49.67% | |||
Vanguard Mega Cap 300 Value ETF |
|
|
| |||||||
Premium/Discount: December 17, 20071–February 28, 2009 |
|
| ||||||||
|
|
|
|
| ||||||
| Market Price Above or | Market Price Below | ||||||||
| Equal to Net Asset Value | Net Asset Value | ||||||||
| Number | Percentage |
| Number | Percentage | |||||
Basis Point Differential2 | of Days | of Total Days |
| of Days | of Total Days | |||||
0–24.9 | 153 | 50.66% |
| 115 | 38.08% | |||||
25–49.9 | 15 | 4.97 |
| 5 | 1.66 | |||||
50–74.9 | 5 | 1.66 |
| 2 | 0.66 | |||||
75–100.0 | 3 | 0.99 |
| 1 | 0.33 | |||||
>100.0 | 3 | 0.99 |
| 0 | 0.00 | |||||
Total | 179 | 59.27% |
| 123 | 40.73% | |||||
1 Inception.
2 One basis point equals 1/100 of a percentage point.
6
Your Fund’s Performance at a Glance |
|
|
|
|
August 31, 2008–February 28, 2009 |
|
|
|
|
|
|
| Distributions Per Share | |
| Starting | Ending | Income | Capital |
| Share Price | Share Price | Dividends | Gains |
Mega Cap 300 Index Fund |
|
|
|
|
Institutional Shares | $87.14 | $50.95 | $0.725 | $0.000 |
ETF Shares | 44.21 | 25.85 | 0.361 | 0.000 |
Mega Cap 300 Growth Index Fund |
|
|
|
|
Institutional Shares | $91.10 | $55.05 | $0.540 | $0.000 |
ETF Shares | 46.04 | 27.82 | 0.268 | 0.000 |
Mega Cap 300 Value Index Fund |
|
|
|
|
Institutional Shares | $83.69 | $47.15 | $1.139 | $0.000 |
ETF Shares | 42.21 | 23.78 | 0.569 | 0.000 |
7
Mega Cap 300 Index Fund
Fund Profile
As of February 28, 2009
Portfolio Characteristics |
|
| |
|
| Target | Broad |
| Fund | Index1 | Index2 |
Number of Stocks | 289 | 300 | 4,524 |
Median Market Cap | $41.9B | $41.9B | $20.9B |
Price/Earnings Ratio | 11.7x | 11.8x | 12.4x |
Price/Book Ratio | 1.7x | 1.7x | 1.5x |
Yield3 |
| 3.3% | 3.1% |
Institutional Shares | 3.2% |
|
|
ETF Shares | 3.2% |
|
|
Return on Equity | 22.4% | 22.4% | 20.8% |
Earnings Growth Rate | 18.1% | 18.1% | 17.6% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate4 | 8% | — | — |
Expense Ratio5 |
| — | — |
Institutional Shares | 0.11% |
|
|
ETF Shares | 0.13% |
|
|
Short-Term Reserves | 0.0% | — | — |
Sector Diversification (% of equity exposure) | |||
|
| Target | Broad |
| Fund | Index1 | Index2 |
Consumer Discretionary | 7.7% | 7.8% | 9.0% |
Consumer Staples | 13.9 | 13.8 | 11.7 |
Energy | 14.4 | 14.5 | 13.0 |
Financials | 9.9 | 9.9 | 12.3 |
Health Care | 16.4 | 16.3 | 15.3 |
Industrials | 8.7 | 8.7 | 9.9 |
Information Technology | 17.9 | 18.0 | 17.1 |
Materials | 3.0 | 3.0 | 3.4 |
Telecommunication |
|
|
|
Services | 4.2 | 4.1 | 3.7 |
Utilities | 3.9 | 3.9 | 4.6 |
Ten Largest Holdings6 (% of total net assets) | ||
|
|
|
ExxonMobil Corp. | integrated oil |
|
| and gas | 5.8% |
The Procter & Gamble Co. | household products | 2.4 |
AT&T Inc. | integrated |
|
| telecommunication |
|
| services | 2.4 |
Johnson & Johnson | pharmaceuticals | 2.3 |
Microsoft Corp. | systems software | 2.2 |
International Business |
|
|
Machines Corp. | computer hardware | 2.1 |
Chevron Corp. | integrated oil |
|
| and gas | 2.1 |
Wal-Mart Stores, Inc. | hypermarkets and |
|
| supercenters | 2.0 |
General Electric Co. | industrial |
|
| conglomerates | 1.5 |
Cisco Systems, Inc. | communications |
|
| equipment | 1.4 |
Top Ten |
| 24.2% |
Investment Focus
1 MSCI US Large Cap 300 Index.
2 Dow Jones Wilshire 5000 Index.
3 30-day SEC yield for the fund; annualized dividend yield for the indexes. See the Glossary.
4 Annualized.
5 The expense ratios shown are from the prospectuses dated December 29, 2008 and represent estimated costs for the current fiscal year based on the fund’s current net assets. For the six months ended February 28, 2009, the annualized expense ratios were 0.10% for the Institutional Shares and 0.13% for the ETF Shares.
6 The holdings listed exclude any temporary cash investments and equity index products.
8
Mega Cap 300 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/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal Year Total Returns (%): December 17, 2007–February 28, 2009
Average Annual Total Returns: Periods Ended December 31, 2008
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 |
ETF Shares | 12/17/2007 |
|
|
Market Price |
| –36.00% | –33.92% |
Net Asset Value |
| –36.08 | –34.03 |
Institutional Shares | 2/22/2008 | — | –30.80 |
1 Six months ended February 28, 2009.
Note: See Financial Highlights tables for dividend and capital gains information.
9
Mega Cap 300 Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2009
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).
|
|
| Market | |
|
|
| Value• | |
|
| Shares | ($000) | |
Common Stocks (99.9%) |
|
| ||
Consumer Discretionary (7.7%) |
|
| ||
| McDonald’s Corp. | 35,519 | 1,856 | |
| Home Depot, Inc. | 54,077 | 1,130 | |
| The Walt Disney Co. | 56,234 | 943 | |
| Time Warner, Inc. | 114,219 | 872 | |
| Comcast Corp. Class A | 58,772 | 768 | |
| Lowe’s Cos., Inc. | 46,665 | 739 | |
* | Amazon.com, Inc. | 10,923 | 708 | |
| Target Corp. | 22,769 | 645 | |
| NIKE, Inc. Class B | 11,805 | 490 | |
| Yum! Brands, Inc. | 14,815 | 389 | |
| Staples, Inc. | 22,639 | 361 | |
| Comcast Corp. Special |
|
| |
| Class A | 29,335 | 356 | |
* | DIRECTV Group, Inc. | 16,719 | 333 | |
* | Kohl’s Corp. | 9,196 | 323 | |
| News Corp., Class A | 57,776 | 321 | |
| Best Buy Co., Inc. | 11,074 | 319 | |
* | Apollo Group, Inc. Class A | 4,291 | 311 | |
| TJX Cos., Inc. | 13,302 | 296 | |
| Carnival Corp. | 13,790 | 270 | |
* | Liberty Media Corp. | 15,512 | 269 | |
* | Viacom Inc. Class B | 16,813 | 259 | |
| Omnicom Group Inc. | 10,008 | 241 | |
| Johnson Controls, Inc. | 18,639 | 212 | |
* | Starbucks Corp. | 22,898 | 210 | |
| The McGraw-Hill Cos., Inc. | 10,085 | 199 | |
| The Gap, Inc. | 16,095 | 174 | |
* | Bed Bath & Beyond, Inc. | 8,145 | 174 | |
* | Coach, Inc. | 10,653 | 149 | |
| Marriott International, Inc. |
|
| |
| Class A | 8,877 | 126 | |
* | Ford Motor Co. | 62,732 | 125 | |
| Fortune Brands, Inc. | 4,692 | 111 | |
| Macy’s Inc. | 13,216 | 104 | |
* | Time Warner Cable, Inc. | 5,666 | 103 | |
| J.C. Penney Co., Inc. |
|
| |
| (Holding Co.) | 6,722 | 103 | |
| News Corp., Class B | 13,888 | 87 | |
| International Game |
|
| |
| Technology | 9,519 | 84 | |
*,^ | Sears Holdings Corp. | 2,177 | 80 | |
| CBS Corp. | 18,546 | 79 |
* | DISH Network Corp. | 6,572 | 74 |
| Garmin Ltd. | 3,518 | 60 |
* | Liberty Global, Inc. Class A | 4,698 | 58 |
* | Liberty Global, Inc. Series C | 4,491 | 53 |
* | Las Vegas Sands Corp. | 9,797 | 22 |
|
|
| 14,586 |
Consumer Staples (13.8%) |
|
| |
| The Procter & Gamble Co. | 93,828 | 4,520 |
| Wal-Mart Stores, Inc. | 75,151 | 3,700 |
| The Coca-Cola Co. | 66,294 | 2,708 |
| PepsiCo, Inc. | 49,467 | 2,381 |
| Philip Morris |
|
|
| International Inc. | 64,410 | 2,156 |
| CVS Caremark Corp. | 45,728 | 1,177 |
| Kraft Foods Inc. | 46,775 | 1,065 |
| Altria Group, Inc. | 65,600 | 1,013 |
| Colgate-Palmolive Co. | 16,070 | 967 |
| Walgreen Co. | 31,490 | 751 |
| Kimberly-Clark Corp. | 13,134 | 619 |
| Costco Wholesale Corp. | 13,691 | 580 |
| General Mills, Inc. | 10,569 | 555 |
| Archer-Daniels-Midland Co. | 18,367 | 490 |
| Sysco Corp. | 19,042 | 409 |
| The Kroger Co. | 19,626 | 406 |
| Kellogg Co. | 8,419 | 328 |
| H.J. Heinz Co. | 10,012 | 327 |
| Lorillard, Inc. | 5,351 | 313 |
| Safeway, Inc. | 13,733 | 254 |
| Avon Products, Inc. | 13,344 | 235 |
| ConAgra Foods, Inc. | 14,332 | 216 |
| The Clorox Co. | 4,339 | 211 |
10
Mega Cap 300 Index Fund
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
| Campbell Soup Co. | 6,999 | 187 |
| Reynolds American Inc. | 5,508 | 185 |
| Sara Lee Corp. | 22,673 | 175 |
| The Hershey Co. | 4,937 | 166 |
|
|
| 26,094 |
Energy (14.4%) |
|
| |
| ExxonMobil Corp. | 161,950 | 10,996 |
| Chevron Corp. | 64,689 | 3,927 |
| ConocoPhillips Co. | 45,092 | 1,684 |
| Schlumberger Ltd. | 38,085 | 1,450 |
| Occidental Petroleum Corp. | 25,841 | 1,340 |
| Apache Corp. | 10,595 | 626 |
* | Transocean Ltd. | 10,163 | 608 |
| Devon Energy Corp. | 13,355 | 583 |
| XTO Energy, Inc. | 17,377 | 550 |
| Marathon Oil Corp. | 22,465 | 523 |
| Hess Corp. | 9,344 | 511 |
| Anadarko Petroleum Corp. | 14,615 | 511 |
| Halliburton Co. | 28,456 | 464 |
| EOG Resources, Inc. | 7,904 | 396 |
* | National Oilwell Varco Inc. | 13,198 | 353 |
| Valero Energy Corp. | 16,427 | 318 |
* | Southwestern Energy Co. | 10,966 | 316 |
| Baker Hughes Inc. | 9,786 | 287 |
| Chesapeake Energy Corp. | 18,313 | 286 |
| Spectra Energy Corp. | 19,304 | 251 |
| Murphy Oil Corp. | 5,678 | 237 |
* | Weatherford |
|
|
| International Ltd. | 21,598 | 231 |
| Williams Cos., Inc. | 18,092 | 204 |
| Peabody Energy Corp. | 8,523 | 202 |
| Smith International, Inc. | 6,925 | 149 |
| Diamond Offshore |
|
|
| Drilling, Inc. | 2,208 | 138 |
|
|
| 27,141 |
Financials (9.9%) |
|
| |
| JPMorgan Chase & Co. | 118,833 | 2,715 |
| Wells Fargo & Co. | 125,795 | 1,522 |
| The Goldman Sachs |
|
|
| Group, Inc. | 12,671 | 1,154 |
* | Berkshire Hathaway Inc. |
|
|
| Class B | 345 | 885 |
| Bank of New York |
|
|
| Mellon Corp. | 36,567 | 811 |
| Bank of America Corp. | 202,577 | 800 |
| U.S. Bancorp | 55,864 | 799 |
| The Travelers Cos., Inc. | 18,680 | 675 |
| Morgan Stanley | 30,430 | 595 |
| MetLife, Inc. | 25,267 | 466 |
| The Chubb Corp. | 11,419 | 446 |
| American Express Co. | 33,237 | 401 |
| Charles Schwab Corp. | 31,263 | 397 |
| Ace Ltd. | 10,510 | 384 |
| PNC Financial |
|
|
| Services Group | 13,461 | 368 |
| Northern Trust Corp. | 6,393 | 355 |
| CME Group, Inc. | 1,928 | 352 |
| State Street Corp. | 13,645 | 345 |
| Aon Corp. | 7,848 | 300 |
| Marsh & |
|
|
| McLennan Cos., Inc. | 16,200 | 290 |
| BB&T Corp. | 17,402 | 281 |
| The Allstate Corp. | 16,155 | 272 |
| Citigroup Inc. | 173,505 | 260 |
| AFLAC Inc. | 15,012 | 252 |
| Franklin Resources Corp. | 5,147 | 236 |
| Simon Property Group, Inc. |
|
|
| REIT | 7,072 | 234 |
| Progressive Corp. of Ohio | 20,135 | 233 |
| Public Storage, Inc. REIT | 3,991 | 221 |
| Prudential Financial, Inc. | 13,341 | 219 |
| Loews Corp. | 10,240 | 203 |
| T. Rowe Price Group Inc. | 7,762 | 177 |
| Hudson City Bancorp, Inc. | 14,685 | 152 |
| Capital One Financial Corp. | 12,470 | 150 |
| Equity Residential REIT | 8,493 | 149 |
| Vornado Realty Trust REIT | 4,416 | 145 |
| Boston Properties, Inc. REIT | 3,801 | 141 |
| Invesco, Ltd. | 12,053 | 138 |
| SunTrust Banks, Inc. | 10,525 | 127 |
| Moody’s Corp. | 6,596 | 118 |
| KeyCorp | 15,809 | 111 |
| Ameriprise Financial, Inc. | 6,776 | 108 |
* | Leucadia National Corp. | 5,851 | 86 |
| M & T Bank Corp. | 2,276 | 83 |
| Discover Financial Services | 13,479 | 77 |
| NYSE Euronext | 4,101 | 69 |
| Lincoln National Corp. | 7,972 | 68 |
* | SLM Corp. | 14,551 | 67 |
| The Principal Financial |
|
|
| Group, Inc. | 8,143 | 65 |
| The Hartford Financial |
|
|
| Services Group Inc. | 9,442 | 58 |
| American International |
|
|
| Group, Inc. | 75,698 | 32 |
|
|
| 18,592 |
Health Care (16.4%) |
|
| |
| Johnson & Johnson | 88,338 | 4,417 |
| Pfizer Inc. | 214,685 | 2,643 |
| Abbott Laboratories | 49,400 | 2,339 |
| Wyeth | 42,393 | 1,730 |
* | Amgen Inc. | 33,734 | 1,651 |
| Merck & Co., Inc. | 67,312 | 1,629 |
* | Gilead Sciences, Inc. | 29,083 | 1,303 |
* | Genentech, Inc. | 15,073 | 1,289 |
| Bristol-Myers Squibb Co. | 63,028 | 1,160 |
11
Mega Cap 300 Index Fund
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
| Medtronic, Inc. | 35,924 | 1,063 |
| Baxter International, Inc. | 19,789 | 1,007 |
| Eli Lilly & Co. | 32,579 | 957 |
| Schering-Plough Corp. | 51,777 | 900 |
| UnitedHealth Group Inc. | 38,398 | 755 |
* | Celgene Corp. | 14,588 | 653 |
* | Medco Health Solutions, Inc. | 15,856 | 643 |
* | WellPoint Inc. | 16,162 | 548 |
* | Genzyme Corp. | 8,613 | 525 |
| Covidien Ltd. | 16,034 | 508 |
* | Thermo Fisher Scientific, Inc. | 13,254 | 481 |
| Becton, Dickinson & Co. | 7,715 | 477 |
* | Biogen Idec Inc. | 9,205 | 424 |
| Allergan, Inc. | 9,639 | 373 |
| Cardinal Health, Inc. | 11,376 | 369 |
* | St. Jude Medical, Inc. | 10,825 | 359 |
| McKesson Corp. | 8,749 | 359 |
| Aetna Inc. | 14,680 | 350 |
* | Express Scripts Inc. | 6,671 | 336 |
| Stryker Corp. | 8,998 | 303 |
* | Boston Scientific Corp. | 42,783 | 300 |
| C.R. Bard, Inc. | 3,119 | 250 |
* | Zimmer Holdings, Inc. | 7,072 | 248 |
| Quest Diagnostics, Inc. | 5,211 | 239 |
* | Forest Laboratories, Inc. | 9,548 | 205 |
| CIGNA Corp. | 8,599 | 136 |
|
|
| 30,929 |
Industrials (8.7%) |
|
| |
| General Electric Co. | 335,010 | 2,851 |
| United Technologies Corp. | 28,752 | 1,174 |
| 3M Co. | 21,032 | 956 |
| United Parcel Service, Inc. | 21,527 | 886 |
| The Boeing Co. | 22,194 | 698 |
| Lockheed Martin Corp. | 10,842 | 684 |
| Emerson Electric Co. | 24,512 | 656 |
| Burlington Northern |
|
|
| Santa Fe Corp. | 10,884 | 640 |
| Union Pacific Corp. | 16,090 | 604 |
| Honeywell International Inc. | 21,967 | 589 |
| Raytheon Co. | 13,192 | 527 |
| Caterpillar, Inc. | 19,211 | 473 |
| General Dynamics Corp. | 10,550 | 462 |
| Waste Management, Inc. | 15,500 | 419 |
| Danaher Corp. | 8,096 | 411 |
| FedEx Corp. | 9,318 | 403 |
| Norfolk Southern Corp. | 11,879 | 377 |
| Deere & Co. | 13,645 | 375 |
| Northrop Grumman Corp. | 9,888 | 369 |
| Illinois Tool Works, Inc. | 13,144 | 365 |
| CSX Corp. | 12,559 | 310 |
| Tyco International, Ltd. | 14,909 | 299 |
| PACCAR, Inc. | 11,013 | 276 |
| L-3 Communications |
|
|
| Holdings, Inc. | 3,816 | 258 |
| Precision Castparts Corp. | 4,375 | 243 |
| Republic Services, Inc. |
|
|
| Class A | 11,258 | 224 |
| ITT Industries, Inc. | 5,421 | 202 |
| Eaton Corp. | 5,001 | 181 |
| Ingersoll-Rand Co. | 9,951 | 141 |
| Southwest Airlines Co. | 23,290 | 137 |
* | First Solar, Inc. | 1,263 | 134 |
|
|
| 16,324 |
Information Technology (17.9%) |
|
| |
| Microsoft Corp. | 254,899 | 4,117 |
| International Business |
|
|
| Machines Corp. | 42,792 | 3,938 |
* | Cisco Systems, Inc. | 186,608 | 2,719 |
* | Google Inc. | 7,627 | 2,578 |
* | Apple Inc. | 28,303 | 2,528 |
| Intel Corp. | 177,426 | 2,260 |
| Hewlett-Packard Co. | 77,863 | 2,260 |
* | Oracle Corp. | 131,288 | 2,040 |
| QUALCOMM Inc. | 52,708 | 1,762 |
| Visa Inc. | 14,295 | 811 |
* | EMC Corp. | 65,280 | 685 |
| Texas Instruments, Inc. | 41,453 | 595 |
| Accenture Ltd. | 19,510 | 570 |
* | Yahoo! Inc. | 41,974 | 555 |
| Automatic Data |
|
|
| Processing, Inc. | 16,170 | 552 |
| Corning, Inc. | 49,777 | 525 |
* | Dell Inc. | 56,115 | 479 |
| MasterCard, Inc. Class A | 2,810 | 444 |
| Applied Materials, Inc. | 42,888 | 395 |
* | eBay Inc. | 34,805 | 378 |
* | Symantec Corp. | 26,400 | 365 |
* | Adobe Systems, Inc. | 16,656 | 278 |
| Western Union Co. | 22,891 | 255 |
| Motorola, Inc. | 71,623 | 252 |
* | Juniper Networks, Inc. | 17,093 | 243 |
* | Broadcom Corp. | 13,965 | 230 |
| Paychex, Inc. | 10,170 | 224 |
| CA, Inc. | 13,146 | 223 |
* | Intuit, Inc. | 9,553 | 218 |
* | Activision Blizzard, Inc. | 18,885 | 189 |
| Analog Devices, Inc. | 9,092 | 170 |
* | Electronic Arts Inc. | 10,125 | 165 |
* | Agilent Technologies, Inc. | 11,454 | 159 |
| Xerox Corp. | 27,309 | 141 |
| Tyco Electronics Ltd. | 14,829 | 141 |
* | NetApp, Inc. | 10,267 | 138 |
* | NVIDIA Corp. | 16,657 | 138 |
* | VMware Inc. | 1,475 | 31 |
|
|
| 33,751 |
12
Mega Cap 300 Index Fund
|
|
| Market | |
|
|
| Value• | |
|
| Shares | ($000) | |
Materials (3.0%) |
|
| ||
| Monsanto Co. | 17,446 | 1,331 | |
| Newmont Mining Corp. |
|
| |
| (Holding Co.) | 14,963 | 623 | |
| Praxair, Inc. | 9,818 | 557 | |
| E.I. du Pont de |
|
| |
| Nemours & Co. | 28,730 | 539 | |
| Freeport-McMoRan |
|
| |
| Copper & Gold, Inc. |
|
| |
| Class B | 12,148 | 369 | |
| Nucor Corp. | 10,033 | 338 | |
| Air Products & |
|
| |
| Chemicals, Inc. | 6,654 | 308 | |
| Ecolab, Inc. | 7,549 | 240 | |
| The Mosaic Co. | 4,870 | 210 | |
| Rohm & Haas Co. | 4,013 | 209 | |
| Dow Chemical Co. | 29,038 | 208 | |
| Weyerhaeuser Co. | 6,718 | 162 | |
| PPG Industries, Inc. | 5,125 | 159 | |
| Alcoa Inc. | 25,455 | 158 | |
| United States Steel Corp. | 3,758 | 74 | |
| International Paper Co. | 12,654 | 72 | |
|
|
| 5,557 | |
Telecommunication Services (4.2%) |
|
| ||
| AT&T Inc. | 187,624 | 4,460 | |
| Verizon |
|
| |
| Communications Inc. | 90,437 | 2,580 | |
* | American Tower Corp. |
|
| |
| Class A | 12,631 | 368 | |
* | Sprint Nextel Corp. | 88,455 | 291 | |
| Qwest Communications |
|
| |
| International Inc. | 49,366 | 167 | |
|
|
| 7,866 | |
Utilities (3.9%) |
|
| ||
| Exelon Corp. | 20,948 | 989 | |
| Southern Co. | 24,662 | 747 | |
| Dominion Resources, Inc. | 18,509 | 559 | |
| FPL Group, Inc. | 12,277 | 557 | |
| Duke Energy Corp. | 39,945 | 538 | |
| PG&E Corp. | 11,530 | 441 | |
| Public Service Enterprise |
|
| |
| Group, Inc. | 16,053 | 438 | |
| FirstEnergy Corp. | 9,654 | 411 | |
| Entergy Corp. | 6,043 | 407 | |
| American Electric |
|
| |
| Power Co., Inc. | 12,753 | 358 | |
| PPL Corp. | 11,838 | 330 | |
| Consolidated Edison Inc. | 8,655 | 313 | |
| Progress Energy, Inc. | 8,657 | 307 | |
| Sempra Energy | 7,345 | 305 | |
| Edison International | 9,796 | 267 | |
| Ameren Corp. | 6,619 | 157 | |
* | AES Corp. | 20,999 | 132 | |
| Constellation Energy |
|
| |
| Group, Inc. | 5,608 | 111 | |
|
|
| 7,367 | |
Total Common Stocks |
|
| ||
(Cost $297,609) |
| 188,207 | |
Temporary Cash Investment (0.0%) |
|
| |
1,2 | Vanguard Market Liquidity |
|
|
| Fund, 0.663% |
|
|
| (Cost $74) | 74,002 | 74 |
Total Investments (99.9%) |
|
| |
(Cost $297,683) |
| 188,281 | |
Other Assets and Liabilities (0.1%) |
|
| |
Other Assets |
| 2,018 | |
Liabilities2 |
| (1,818) | |
|
|
| 200 |
Net Assets (100%) |
| 188,481 |
13
Mega Cap 300 Index Fund
At February 28, 2009, net assets consisted of: | |
| Amount |
| ($000) |
Paid-in Capital | 301,507 |
Undistributed Net Investment Income | 1,193 |
Accumulated Net Realized Losses | (4,817) |
Unrealized Appreciation (Depreciation) | (109,402) |
Net Assets | 188,481 |
|
|
|
|
Institutional Shares—Net Assets |
|
Applicable to 1,467,343 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 74,761 |
Net Asset Value Per Share— |
|
Institutional Shares | $50.95 |
|
|
|
|
ETF Shares—Net Assets |
|
Applicable to 4,400,000 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 113,720 |
Net Asset Value Per Share— |
|
ETF Shares | $25.85 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Part of security position is on loan to broker-dealers. The total value of securities on loan is $74,000.
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 Includes $74,000 of collateral received for securities on loan. REIT—Real Estate Investment Trust.
See accompanying Notes, which are an integral part of the Financial Statements.
14
Mega Cap 300 Index Fund
Statement of Operations
| Six Months Ended |
| February 28, 2009 |
| ($000) |
Investment Income |
|
Income |
|
Dividends | 3,043 |
Interest1 | 3 |
Security Lending | 8 |
Total Income | 3,054 |
Expenses |
|
The Vanguard Group—Note B |
|
Investment Advisory Services | 20 |
Management and Administrative—Institutional Shares | 12 |
Management and Administrative—ETF Shares | 28 |
Marketing and Distribution—Institutional Shares | 12 |
Marketing and Distribution—ETF Shares | 14 |
Custodian Fees | 21 |
Auditing Fees | 1 |
Shareholders’ Reports—Institutional Shares | — |
Shareholders’ Reports—ETF Shares | 7 |
Total Expenses | 115 |
Net Investment Income | 2,939 |
Realized Net Gain (Loss) |
|
Investment Securities Sold | 638 |
Futures Contracts | 111 |
Realized Net Gain (Loss) | 749 |
Change in Unrealized Appreciation (Depreciation) |
|
Investment Securities | (102,588) |
Futures Contracts | — |
Change in Unrealized Appreciation (Depreciation) | (102,588) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (98,900) |
1 Interest income from an affiliated company of the fund was $3,000.
See accompanying Notes, which are an integral part of the Financial Statements.
15
Mega Cap 300 Index Fund
Statement of Changes in Net Assets
|
|
| December 17, |
| Six Months Ended |
| 20071 to |
| February 28, |
| August 31, |
| 2009 |
| 2008 |
| ($000) |
| ($000) |
Increase (Decrease) in Net Assets |
|
|
|
Operations |
|
|
|
Net Investment Income | 2,939 |
| 1,004 |
Realized Net Gain (Loss) | 749 |
| 416 |
Change in Unrealized Appreciation (Depreciation) | (102,588) |
| (6,814) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (98,900) |
| (5,394) |
Distributions |
|
|
|
Net Investment Income |
|
|
|
Institutional Shares | (1,000) |
| (216) |
ETF Shares | (1,227) |
| (307) |
Realized Capital Gain |
|
|
|
Institutional Shares | — |
| — |
ETF Shares | — |
| — |
Total Distributions | (2,227) |
| (523) |
Capital Share Transactions |
|
|
|
Institutional Shares | 70,109 |
| 56,057 |
ETF Shares | 78,249 |
| 91,110 |
Net Increase (Decrease) from Capital Share Transactions | 148,358 |
| 147,167 |
Total Increase (Decrease) | 47,231 |
| 141,250 |
Net Assets |
|
|
|
Beginning of Period | 141,250 |
| — |
End of Period2 | 188,481 |
| 141,250 |
1 Inception.
2 Net Assets—End of Period includes undistributed net investment income of $1,193,000 and $481,000.
See accompanying Notes, which are an integral part of the Financial Statements.
16
Mega Cap 300 Index Fund
Financial Highlights
Institutional Shares |
|
|
| Six Months | Feb. 22, |
| Ended | 20081 to |
| February 28, | Aug. 31, |
For a Share Outstanding Throughout Each Period | 2009 | 2008 |
Net Asset Value, Beginning of Period | $87.14 | $91.07 |
Investment Operations |
|
|
Net Investment Income | .9832 | .685 |
Net Realized and Unrealized Gain (Loss) on Investments | (36.448) | (4.028) |
Total from Investment Operations | (35.465) | (3.343) |
Distributions |
|
|
Dividends from Net Investment Income | (.725) | (.587) |
Distributions from Realized Capital Gains | — | — |
Total Distributions | (.725) | (.587) |
Net Asset Value, End of Period | $50.95 | $87.14 |
|
|
|
|
|
|
Total Return | –40.91% | –3.69% |
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
Net Assets, End of Period (Millions) | $75 | $53 |
Ratio of Total Expenses to Average Net Assets | 0.10%3 | 0.08%3 |
Ratio of Net Investment Income to Average Net Assets | 2.98%3 | 2.14%3 |
Portfolio Turnover Rate4 | 8%3 | 30% |
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 ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
17
Mega Cap 300 Index Fund
Financial Highlights
ETF Shares |
|
|
| Six Months | Dec. 17, |
| Ended | 20071 to |
| February 28, | Aug. 31, |
For a Share Outstanding Throughout Each Period | 2009 | 2008 |
Net Asset Value, Beginning of Period | $44.21 | $49.24 |
Investment Operations |
|
|
Net Investment Income | .4822 | .441 |
Net Realized and Unrealized Gain (Loss) on Investments | (18.481) | (5.179) |
Total from Investment Operations | (17.999) | (4.738) |
Distributions |
|
|
Dividends from Net Investment Income | (.361) | (.292) |
Distributions from Realized Capital Gains | — | — |
Total Distributions | (.361) | (.292) |
Net Asset Value, End of Period | $25.85 | $44.21 |
|
|
|
|
|
|
Total Return | –40.91% | –9.64% |
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
Net Assets, End of Period (Millions) | $114 | $88 |
Ratio of Total Expenses to Average Net Assets | 0.13%3 | 0.13%3 |
Ratio of Net Investment Income to Average Net Assets | 2.95%3 | 2.09%3 |
Portfolio Turnover Rate4 | 8%3 | 30% |
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 ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
18
Mega Cap 300 Index Fund
Notes to Financial Statements
Vanguard Mega Cap 300 Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Institutional Shares and ETF Shares. Institutional Shares are designed for investors who meet certain administrative and service criteria and invest a minimum of $5 million. ETF Shares are listed for trading on the NYSE Arca, Inc.; 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 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. Futures Contracts: The fund uses index futures contracts to a limited extent, with the objectives of maintaining full exposure to the stock market, enhancing returns, maintaining liquidity, and minimizing transaction costs. The fund may purchase futures contracts to immediately invest incoming cash in the market, or sell futures in response to cash outflows, thereby simulating a fully invested position in the underlying index while maintaining a cash balance for liquidity. The fund may seek to enhance returns by using futures contracts instead of the underlying securities when futures are believed to be priced more attractively than the underlying securities. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market.
Futures contracts are valued at their quoted daily settlement prices. The aggregate principal amounts of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized futures gains (losses).
3. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken on its federal income tax return for the open tax year ended August 31, 2008, and for the period ended February 28, 2009, and has concluded that no provision for federal income tax is required in the fund’s 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.
19
Mega Cap 300 Index Fund
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. 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, 2009, the fund had contributed capital of $57,000 to Vanguard (included in Other Assets), representing 0.03% 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.
During the six months ended February 28, 2009, the fund realized $3,727,000 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 losses 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, 2008, the fund had available realized losses of $673,000 to offset future net capital gains through August 31, 2017. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2009; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2009, the cost of investment securities for tax purposes was $297,683,000. Net unrealized depreciation of investment securities for tax purposes was $109,402,000, consisting of unrealized gains of $42,000 on securities that had risen in value since their purchase and $109,444,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2009, the fund purchased $321,576,000 of investment securities and sold $172,541,000 of investment securities, other than temporary cash investments.
20
Mega Cap 300 Index Fund
E. Capital share transactions for each class of shares were:
| Six Months Ended | Inception1 to | ||
| February 28, 2009 | August 31, 2008 | ||
| Amount | Shares | Amount | Shares |
| ($000) | (000) | ($000) | (000) |
Institutional Shares |
|
|
|
|
Issued | 69,109 | 846 | 60,241 | 673 |
Issued in Lieu of Cash Distributions | 1,000 | 15 | 216 | 2 |
Redeemed | — | — | (6,200) | (69) |
Net Increase (Decrease)—Institutional Shares | 70,109 | 861 | 56,057 | 606 |
ETF Shares |
|
|
|
|
Issued | 242,635 | 6,700 | 117,638 | 2,600 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (164,386) | (4,300) | (26,528) | (600) |
Net Increase (Decrease)—ETF Shares | 78,249 | 2,400 | 91,110 | 2,000 |
1 Inception dates are February 22, 2008, for the Institutional Shares and December 17, 2007, for the ETF Shares. |
|
|
The amount of Institutional Shares issued during the six months ended February 28, 2009, includes $58,176,000 in purchases that were processed late and should have been recorded in the prior fiscal period. Vanguard, as transfer agent for the fund, offset any impact to the fund resulting from late processing of shareholder transactions. Accordingly, the purchases had no impact to the fund’s net asset values per share or total returns.
F. In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157 (“FAS 157”), “Fair Value Measurements.” FAS 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements in financial statements.
The various inputs that may be used to determine the value of the fund’s investments are summarized in three broad levels. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At February 28, 2009, 100% of the fund’s investments were valued based on Level 1 inputs.
21
Mega Cap 300 Growth Index Fund
Fund Profile
As of February 28, 2009
Portfolio Characteristics |
|
| |
|
| Target | Broad |
| Fund | Index1 | Index2 |
Number of Stocks | 168 | 172 | 4,524 |
Median Market Cap | $41.3B | $41.3B | $20.9B |
Price/Earnings Ratio | 11.7x | 11.7x | 12.4x |
Price/Book Ratio | 2.5x | 2.5x | 1.5x |
Yield3 |
| 1.9% | 3.1% |
Institutional Shares | 1.8% |
|
|
ETF Shares | 1.8% |
|
|
Return on Equity | 23.7% | 23.7% | 20.8% |
Earnings Growth Rate | 24.1% | 24.1% | 17.6% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate4 | 50% | — | — |
Expense Ratio5 |
| — | — |
Institutional Shares | 0.11% |
|
|
ETF Shares | 0.13% |
|
|
Short-Term Reserves | 0.0% | — | — |
Sector Diversification (% of equity exposure) | |||
|
| Target | Broad |
| Fund | Index1 | Index2 |
Consumer Discretionary | 9.5% | 9.6% | 9.0% |
Consumer Staples | 18.6 | 18.6 | 11.7 |
Energy | 5.6 | 5.6 | 13.0 |
Financials | 4.3 | 4.2 | 12.3 |
Health Care | 19.4 | 19.3 | 15.3 |
Industrials | 8.4 | 8.4 | 9.9 |
Information Technology | 30.5 | 30.6 | 17.1 |
Materials | 3.2 | 3.2 | 3.4 |
Telecommunication |
|
|
|
Services | 0.4 | 0.4 | 3.7 |
Utilities | 0.1 | 0.1 | 4.6 |
Ten Largest Holdings6 (% of total net assets) | ||
|
|
|
Microsoft Corp. | systems software | 4.1% |
International Business |
|
|
Machines Corp. | computer hardware | 3.9 |
Wal-Mart Stores, Inc. | hypermarkets and |
|
| supercenters | 3.7 |
The Procter & Gamble Co. | household products | 2.9 |
Cisco Systems, Inc. | communications |
|
| equipment | 2.7 |
Google Inc. | Internet software |
|
| and services | 2.6 |
Apple Inc. | computer hardware | 2.5 |
PepsiCo, Inc. | soft drinks | 2.4 |
Abbott Laboratories | pharmaceuticals | 2.3 |
Hewlett-Packard Co. | computer hardware | 2.3 |
Top Ten |
| 29.4% |
Investment Focus
1 MSCI US Large Cap Growth Index.
2 Dow Jones Wilshire 5000 Index.
3 30-day SEC yield for the fund; annualized dividend yield for the indexes. See the Glossary.
4 Annualized.
5 The expense ratios shown are from the prospectuses dated December 29, 2008 and represent estimated costs for the current fiscal year based on the fund’s current net assets. For the six months ended February 28, 2009, the annualized expense ratios were 0.10% for the Institutional Shares and 0.13% for the ETF Shares.
6 The holdings listed exclude any temporary cash investments and equity index products.
22
Mega Cap 300 Growth 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/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal Year Total Returns (%): December 17, 2007–February 28, 2009
Average Annual Total Returns: Periods Ended December 31, 2008
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 |
ETF Shares | 12/17/2007 |
|
|
Market Price |
| –36.43% | –34.14% |
Net Asset Value |
| –36.47 | –34.18 |
Institutional Shares | 4/03/2008 | — | –31.80 |
1 Six months ended February 28, 2009.
Note: See Financial Highlights tables for dividend and capital gains information.
23
Mega Cap 300 Growth Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2009
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).
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
Common Stocks (99.9%) |
|
| |
Consumer Discretionary (9.4%) |
|
| |
| McDonald’s Corp. | 99,552 | 5,202 |
| Comcast Corp. Class A | 162,317 | 2,120 |
| Lowe’s Cos., Inc. | 130,930 | 2,074 |
* | Amazon.com, Inc. | 30,666 | 1,987 |
| Target Corp. | 63,866 | 1,808 |
| NIKE, Inc. Class B | 33,010 | 1,371 |
| Yum! Brands, Inc. | 41,662 | 1,095 |
| Comcast Corp. Special |
|
|
| Class A | 84,851 | 1,031 |
| Staples, Inc. | 63,524 | 1,013 |
* | DIRECTV Group, Inc. | 46,835 | 934 |
* | Kohl’s Corp. | 25,916 | 911 |
| Best Buy Co., Inc. | 31,320 | 903 |
* | Apollo Group, Inc. Class A | 12,043 | 873 |
| TJX Cos., Inc. | 37,305 | 831 |
* | Viacom Inc. Class B | 47,355 | 729 |
| Omnicom Group Inc. | 27,756 | 667 |
* | Starbucks Corp. | 65,531 | 600 |
| The McGraw-Hill Cos., Inc. | 28,108 | 554 |
* | Bed Bath & Beyond, Inc. | 23,095 | 492 |
* | Coach, Inc. | 29,756 | 416 |
| Marriott International, Inc. |
|
|
| Class A | 24,874 | 352 |
| Garmin Ltd. | 10,021 | 171 |
* | Liberty Global, Inc. Class A | 13,237 | 162 |
* | Liberty Global, Inc. Series C | 12,589 | 150 |
* | DISH Network Corp. | 12,212 | 137 |
* | Las Vegas Sands Corp. | 27,403 | 62 |
|
|
| 26,645 |
Consumer Staples (18.6%) |
|
| |
| Wal-Mart Stores, Inc. | 210,846 | 10,382 |
| The Procter & Gamble Co. | 171,113 | 8,243 |
| PepsiCo, Inc. | 138,727 | 6,678 |
| Philip Morris |
|
|
| International Inc. | 180,682 | 6,047 |
| The Coca-Cola Co. | 93,002 | 3,799 |
| CVS Caremark Corp. | 128,298 | 3,302 |
| Colgate-Palmolive Co. | 45,100 | 2,714 |
| Walgreen Co. | 88,349 | 2,108 |
| Costco Wholesale Corp. | 38,630 | 1,636 |
| Sysco Corp. | 53,564 | 1,152 |
| The Kroger Co. | 55,404 | 1,145 |
| General Mills, Inc. | 19,409 | 1,019 |
| Kellogg Co. | 23,870 | 929 |
| Avon Products, Inc. | 37,873 | 666 |
| Kimberly-Clark Corp. | 12,895 | 607 |
| The Clorox Co. | 12,396 | 602 |
| H.J. Heinz Co. | 14,050 | 459 |
| Lorillard, Inc. | 7,504 | 439 |
| Campbell Soup Co. | 12,773 | 342 |
| The Hershey Co. | 6,961 | 235 |
|
|
| 52,504 |
Energy (5.6%) |
|
| |
| Schlumberger Ltd. | 106,850 | 4,067 |
* | Transocean Ltd. | 28,513 | 1,704 |
| Occidental Petroleum Corp. | 25,366 | 1,316 |
| EOG Resources, Inc. | 22,296 | 1,116 |
| XTO Energy, Inc. | 31,739 | 1,005 |
| Hess Corp. | 17,046 | 932 |
* | Southwestern Energy Co. | 30,778 | 885 |
| Halliburton Co. | 51,905 | 847 |
| Baker Hughes Inc. | 27,381 | 803 |
* | Weatherford |
|
|
| International Ltd. | 61,209 | 653 |
* | National Oilwell Varco Inc. | 24,110 | 644 |
| Murphy Oil Corp. | 10,524 | 440 |
| Smith International, Inc. | 19,427 | 417 |
| Diamond Offshore |
|
|
| Drilling, Inc. | 6,192 | 388 |
| Peabody Energy Corp. | 15,688 | 371 |
| Williams Cos., Inc. | 17,788 | 201 |
|
|
| 15,789 |
24
Mega Cap 300 Growth Index Fund
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
Financials (4.3%) |
|
| |
* | Berkshire Hathaway Inc. |
|
|
| Class B | 969 | 2,485 |
| The Goldman Sachs |
|
|
| Group, Inc. | 17,779 | 1,619 |
| Charles Schwab Corp. | 87,717 | 1,115 |
| Northern Trust Corp. | 17,937 | 996 |
| CME Group, Inc. | 5,385 | 982 |
| AFLAC Inc. | 42,198 | 707 |
| Franklin Resources Corp. | 14,577 | 668 |
| State Street Corp. | 25,090 | 634 |
| Public Storage, Inc. REIT | 11,354 | 630 |
| T. Rowe Price Group Inc. | 21,840 | 497 |
| Hudson City Bancorp, Inc. | 41,974 | 435 |
| Simon Property Group, Inc. |
|
|
| REIT | 10,108 | 335 |
| Moody’s Corp. | 18,297 | 328 |
| Aon Corp. | 7,734 | 296 |
| Progressive Corp. of Ohio | 19,994 | 231 |
| NYSE Euronext | 4,204 | 71 |
|
|
| 12,029 |
Health Care (19.3%) |
|
| |
| Abbott Laboratories | 138,611 | 6,562 |
| Johnson & Johnson | 123,997 | 6,200 |
* | Amgen Inc. | 94,648 | 4,631 |
* | Gilead Sciences, Inc. | 81,326 | 3,643 |
* | Genentech, Inc. | 42,289 | 3,618 |
| Medtronic, Inc. | 100,792 | 2,982 |
| Baxter International, Inc. | 55,393 | 2,820 |
| Schering-Plough Corp. | 145,271 | 2,526 |
| UnitedHealth Group Inc. | 108,139 | 2,125 |
* | Celgene Corp. | 40,933 | 1,831 |
* | Medco Health Solutions, Inc. | 44,480 | 1,805 |
* | WellPoint Inc. | 45,486 | 1,543 |
* | Genzyme Corp. | 24,168 | 1,473 |
* | Thermo Fisher Scientific, Inc. | 37,539 | 1,361 |
| Becton, Dickinson & Co. | 21,725 | 1,345 |
* | Biogen Idec Inc. | 26,064 | 1,200 |
| Allergan, Inc. | 27,163 | 1,052 |
* | St. Jude Medical, Inc. | 30,748 | 1,020 |
| McKesson Corp. | 24,512 | 1,005 |
| Aetna Inc. | 41,180 | 983 |
* | Express Scripts Inc. | 18,797 | 945 |
| Stryker Corp. | 25,240 | 850 |
| Covidien Ltd. | 22,501 | 713 |
| C.R. Bard, Inc. | 8,823 | 708 |
* | Zimmer Holdings, Inc. | 20,052 | 702 |
| Quest Diagnostics, Inc. | 14,859 | 681 |
* | Forest Laboratories, Inc. | 13,613 | 292 |
|
|
| 54,616 |
Industrials (8.4%) |
|
| |
| 3M Co. | 58,944 | 2,680 |
| The Boeing Co. | 62,450 | 1,963 |
| Lockheed Martin Corp. | 30,422 | 1,920 |
| Emerson Electric Co. | 68,808 | 1,841 |
| Burlington Northern |
|
|
| Santa Fe Corp. | 30,554 | 1,796 |
| Union Pacific Corp. | 45,253 | 1,698 |
| Raytheon Co. | 36,953 | 1,477 |
| Danaher Corp. | 22,842 | 1,159 |
| FedEx Corp. | 26,422 | 1,142 |
| United Parcel Service, Inc. | 21,242 | 875 |
| CSX Corp. | 35,225 | 869 |
| Caterpillar, Inc. | 35,203 | 866 |
| PACCAR, Inc. | 30,708 | 770 |
| L-3 Communications |
|
|
| Holdings, Inc. | 10,770 | 728 |
| Precision Castparts Corp. | 12,459 | 691 |
| Honeywell International Inc. | 21,566 | 579 |
| ITT Industries, Inc. | 15,323 | 572 |
| Deere & Co. | 19,062 | 524 |
| Waste Management, Inc. | 15,229 | 411 |
| Southwest Airlines Co. | 66,107 | 389 |
* | First Solar, Inc. | 3,624 | 383 |
| Tyco International, Ltd. | 14,705 | 295 |
|
|
| 23,628 |
Information Technology (30.6%) |
|
| |
| Microsoft Corp. | 714,983 | 11,547 |
| International Business |
|
|
| Machines Corp. | 119,999 | 11,043 |
* | Cisco Systems, Inc. | 522,983 | 7,620 |
* | Google Inc. | 21,398 | 7,232 |
* | Apple Inc. | 79,411 | 7,092 |
| Hewlett-Packard Co. | 218,976 | 6,357 |
* | Oracle Corp. | 368,348 | 5,724 |
| QUALCOMM Inc. | 147,895 | 4,944 |
| Visa Inc. | 40,108 | 2,274 |
* | EMC Corp. | 182,272 | 1,914 |
| Texas Instruments, Inc. | 116,224 | 1,668 |
| Accenture Ltd. | 54,749 | 1,598 |
* | Yahoo! Inc. | 117,767 | 1,558 |
| Automatic Data |
|
|
| Processing, Inc. | 45,358 | 1,549 |
| Corning, Inc. | 138,825 | 1,465 |
* | Dell Inc. | 157,394 | 1,343 |
| MasterCard, Inc. Class A | 7,914 | 1,251 |
| Applied Materials, Inc. | 120,171 | 1,107 |
* | eBay Inc. | 96,939 | 1,054 |
* | Symantec Corp. | 74,532 | 1,031 |
* | Adobe Systems, Inc. | 47,447 | 792 |
| Western Union Co. | 63,909 | 713 |
* | Juniper Networks, Inc. | 47,147 | 670 |
* | Broadcom Corp. | 39,910 | 656 |
| Paychex, Inc. | 28,882 | 637 |
* | Intuit, Inc. | 27,382 | 624 |
| CA, Inc. | 36,812 | 624 |
25
Mega Cap 300 Growth Index Fund
|
|
| Market | |
|
|
| Value• | |
|
| Shares | ($000) | |
* | Activision Blizzard, Inc. | 53,259 | 534 | |
* | Electronic Arts Inc. | 28,676 | 468 | |
* | Agilent Technologies, Inc. | 31,856 | 442 | |
* | NetApp, Inc. | 29,302 | 394 | |
* | NVIDIA Corp. | 47,129 | 390 | |
* | VMware Inc. | 4,029 | 84 | |
|
|
| 86,399 | |
Materials (3.2%) |
|
| ||
| Monsanto Co. | 48,963 | 3,734 | |
| Newmont Mining Corp. |
|
| |
| (Holding Co.) | 42,259 | 1,759 | |
| Praxair, Inc. | 27,542 | 1,563 | |
| Ecolab, Inc. | 21,285 | 677 | |
| The Mosaic Co. | 13,830 | 595 | |
| Rohm & Haas Co. | 11,339 | 591 | |
|
|
| 8,919 | |
Telecommunication Services (0.4%) |
|
| ||
* | American Tower Corp. |
|
| |
| Class A | 35,439 | 1,032 | |
|
|
|
| |
Utilities (0.1%) |
|
| ||
* | AES Corp. | 59,737 | 377 | |
Total Investments (99.9%) |
|
| ||
(Cost $374,676) |
| 281,938 | ||
Other Assets and Liabilities (0.1%) |
|
| ||
Other Assets |
| 5,063 | ||
Liabilities |
| (4,878) | ||
|
|
| 185 | |
Net Assets (100%) |
| 282,123 | ||
At February 28, 2009, net assets consisted of: | |
| Amount |
| ($000) |
Paid-in Capital | 398,523 |
Undistributed Net Investment Income | 832 |
Accumulated Net Realized Losses | (24,494) |
Unrealized Appreciation (Depreciation) | (92,738) |
Net Assets | 282,123 |
|
|
|
|
Institutional Shares—Net Assets |
|
Applicable to 829,769 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 45,679 |
Net Asset Value Per Share— |
|
Institutional Shares | $55.05 |
|
|
|
|
ETF Shares—Net Assets |
|
Applicable to 8,500,000 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 236,444 |
Net Asset Value Per Share— |
|
ETF Shares | $27.82 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
REIT—Real Estate Investment Trust.
See accompanying Notes, which are an integral part of the Financial Statements.
26
Mega Cap 300 Growth Index Fund
Statement of Operations
| Six Months Ended |
| February 28, 2009 |
| ($000) |
Investment Income |
|
Income |
|
Dividends | 1,980 |
Interest1 | 4 |
Security Lending | 12 |
Total Income | 1,996 |
Expenses |
|
The Vanguard Group—Note B |
|
Investment Advisory Services | 22 |
Management and Administrative—Institutional Shares | 4 |
Management and Administrative—ETF Shares | 65 |
Marketing and Distribution—Institutional Shares | 7 |
Marketing and Distribution—ETF Shares | 22 |
Custodian Fees | 15 |
Auditing Fees | 1 |
Shareholders’ Reports—Institutional Shares | — |
Shareholders’ Reports—ETF Shares | 3 |
Total Expenses | 139 |
Net Investment Income | 1,857 |
Realized Net Gain (Loss) on Investment Securities Sold | (35,311) |
Change in Unrealized Appreciation (Depreciation) of Investment Securities | (91,408) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (124,862) |
1 Interest income from an affiliated company of the fund was $4,000.
See accompanying Notes, which are an integral part of the Financial Statements.
27
Mega Cap 300 Growth Index Fund
Statement of Changes in Net Assets
|
|
| December 17, |
| Six Months Ended |
| 20071 to |
| February 28, |
| August 31, |
| 2009 |
| 2008 |
| ($000) |
| ($000) |
Increase (Decrease) in Net Assets |
|
|
|
Operations |
|
|
|
Net Investment Income | 1,857 |
| 833 |
Realized Net Gain (Loss) | (35,311) |
| (334) |
Change in Unrealized Appreciation (Depreciation) | (91,408) |
| (1,330) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (124,862) |
| (831) |
Distributions |
|
|
|
Net Investment Income |
|
|
|
Institutional Shares | (335) |
| (84) |
ETF Shares | (1,138) |
| (301) |
Realized Capital Gain |
|
|
|
Institutional Shares | — |
| — |
ETF Shares | — |
| — |
Total Distributions | (1,473) |
| (385) |
Capital Share Transactions |
|
|
|
Institutional Shares | (32,422) |
| 96,712 |
ETF Shares | 183,204 |
| 162,180 |
Net Increase (Decrease) from Capital Share Transactions | 150,782 |
| 258,892 |
Total Increase (Decrease) | 24,447 |
| 257,676 |
Net Assets |
|
|
|
Beginning of Period | 257,676 |
| — |
End of Period2 | 282,123 |
| 257,676 |
1 Inception.
2 Net Assets—End of Period includes undistributed net investment income of $832,000 and $448,000. See accompanying Notes, which are an integral part of the Financial Statements.
28
Mega Cap 300 Growth Index Fund
Financial Highlights
Institutional Shares |
|
|
| Six Months | April 3, |
| Ended | 20081 to |
| February 28, | Aug. 31, |
For a Share Outstanding Throughout Each Period | 2009 | 2008 |
Net Asset Value, Beginning of Period | $91.10 | $92.21 |
Investment Operations |
|
|
Net Investment Income | .4872 | .343 |
Net Realized and Unrealized Gain (Loss) on Investments | (35.997) | (1.250) |
Total from Investment Operations | (35.510) | (.907) |
Distributions |
|
|
Dividends from Net Investment Income | (.540) | (.203) |
Distributions from Realized Capital Gains | — | — |
Total Distributions | (.540) | (.203) |
Net Asset Value, End of Period | $55.05 | $91.10 |
|
|
|
|
|
|
Total Return | –39.11% | –0.99% |
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
Net Assets, End of Period (Millions) | $46 | $97 |
Ratio of Total Expenses to Average Net Assets | 0.10%3 | 0.08%3 |
Ratio of Net Investment Income to Average Net Assets | 1.69%3 | 1.16%3 |
Portfolio Turnover Rate4 | 50%3 | 9% |
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 ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
29
Mega Cap 300 Growth Index Fund
Financial Highlights
ETF Shares |
|
|
| Six Months | Dec. 17, |
| Ended | 20071 to |
| February 28, | Aug. 31, |
For a Share Outstanding Throughout Each Period | 2009 | 2008 |
Net Asset Value, Beginning of Period | $46.04 | $49.10 |
Investment Operations |
|
|
Net Investment Income | .2812 | .237 |
Net Realized and Unrealized Gain (Loss) on Investments | (18.233) | (3.139) |
Total from Investment Operations | (17.952) | (2.902) |
Distributions |
|
|
Dividends from Net Investment Income | (.268) | (.158) |
Distributions from Realized Capital Gains | — | — |
Total Distributions | (.268) | (.158) |
Net Asset Value, End of Period | $27.82 | $46.04 |
|
|
|
|
|
|
Total Return | –39.12% | –5.91% |
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
Net Assets, End of Period (Millions) | $236 | $161 |
Ratio of Total Expenses to Average Net Assets | 0.13%3 | 0.13%3 |
Ratio of Net Investment Income to Average Net Assets | 1.66%3 | 1.11%3 |
Portfolio Turnover Rate4 | 50%3 | 9% |
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 ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
30
Mega Cap 300 Growth Index Fund
Notes to Financial Statements
Vanguard Mega Cap 300 Growth Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Institutional Shares and ETF Shares. Institutional Shares are designed for investors who meet certain administrative and service criteria and invest a minimum of $5 million. ETF Shares are listed for trading on the NYSE Arca, Inc.; 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 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. Management has analyzed the fund’s tax positions taken on its federal income tax return for the open tax year ended August 31, 2008, and for the period ended February 28, 2009, and has concluded that no provision for federal income tax is required in the fund’s 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.
31
Mega Cap 300 Growth Index Fund
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, 2009, the fund had contributed capital of $78,000 to Vanguard (included in Other Assets), representing 0.03% of the fund’s net assets and 0.03% 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, 2009, the fund realized $11,635,000 of net capital losses resulting from in-kind redemptions—in which shareholders exchanged fund shares for securities held by the fund rather than for cash. Because such losses are not taxable losses to the fund, they have been reclassified from accumulated net realized losses 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, 2008, the fund had available realized losses of $551,000 to offset future net capital gains through August 31, 2017. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2009; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2009, the cost of investment securities for tax purposes was $374,676,000. Net unrealized depreciation of investment securities for tax purposes was $92,738,000, consisting of unrealized gains of $73,000 on securities that had risen in value since their purchase and $92,811,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2009, the fund purchased $521,756,000 of investment securities and sold $370,659,000 of investment securities, other than temporary cash investments.
32
Mega Cap 300 Growth Index Fund
E. Capital share transactions for each class of shares were:
| Six Months Ended | Inception1 to | |||
| February 28, 2009 | August 31, 2008 | |||
| Amount | Shares |
| Amount | Shares |
| ($000) | (000) |
| ($000) | (000) |
Institutional Shares |
|
|
|
|
|
Issued | (32,757) | (235) |
| 96,628 | 1,059 |
Issued in Lieu of Cash Distributions | 335 | 5 |
| 84 | 1 |
Redeemed | — | — |
| — | — |
Net Increase (Decrease)—Institutional Shares | (32,422) | (230) |
| 96,712 | 1,060 |
ETF Shares |
|
|
|
|
|
Issued | 466,098 | 14,200 |
| 167,115 | 3,600 |
Issued in Lieu of Cash Distributions | — | — |
| — | — |
Redeemed | (282,894) | (9,200) |
| (4,935) | (100) |
Net Increase (Decrease)—ETF Shares | 183,204 | 5,000 |
| 162,180 | 3,500 |
1 Inception dates are April 3, 2008, for the Institutional Shares and December 17, 2007, for the ETF Shares.
The amounts of Institutional Shares issued during the six months ended February 28, 2009, are negative because they reflect the cancellation of $58,176,000 of purchases recorded during the prior fiscal period that were determined to have been processed incorrectly. Vanguard, as transfer agent for the fund, offset any impact to the fund resulting from incorrectly processed shareholder transactions. Accordingly, the cancelled purchases had no impact to the fund’s net asset values per share or total returns.
F. In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157 (“FAS 157”), “Fair Value Measurements.” FAS 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements in financial statements.
The various inputs that may be used to determine the value of the fund’s investments are summarized in three broad levels. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At February 28, 2009, 100% of the fund’s investments were valued based on Level 1 inputs.
33
Mega Cap 300 Value Index Fund
Fund Profile
As of February 28, 2009
Portfolio Characteristics |
|
| |
|
| Target | Broad |
| Fund | Index1 | Index2 |
Number of Stocks | 153 | 161 | 4,524 |
Median Market Cap | $51.1B | $51.1B | $20.9B |
Price/Earnings Ratio | 11.7x | 11.8x | 12.4x |
Price/Book Ratio | 1.2x | 1.2x | 1.5x |
Yield3 |
| 4.8% | 3.1% |
Institutional Shares | 4.7% |
|
|
ETF Shares | 4.7% |
|
|
Return on Equity | 21.0% | 21.0% | 20.8% |
Earnings Growth Rate | 11.8% | 11.9% | 17.6% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate4 | 29% | — | — |
Expense Ratio5 |
| — | — |
Institutional Shares | 0.11% |
|
|
ETF Shares | 0.13% |
|
|
Short-Term Reserves | 0.0% | — | — |
Sector Diversification (% of equity exposure) | |||
|
| Target | Broad |
| Fund | Index1 | Index2 |
Consumer Discretionary | 5.8% | 5.9% | 9.0% |
Consumer Staples | 8.4 | 8.3 | 11.7 |
Energy | 24.5 | 24.6 | 13.0 |
Financials | 16.3 | 16.3 | 12.3 |
Health Care | 13.1 | 13.0 | 15.3 |
Industrials | 9.0 | 9.0 | 9.9 |
Information Technology | 3.4 | 3.6 | 17.1 |
Materials | 2.7 | 2.7 | 3.4 |
Telecommunication |
|
|
|
Services | 8.5 | 8.4 | 3.7 |
Utilities | 8.3 | 8.2 | 4.6 |
Ten Largest Holdings6 | (% of total net assets) | |
|
|
|
ExxonMobil Corp. | integrated oil |
|
| and gas | 12.5% |
AT&T Inc. | integrated |
|
| telecommunication |
|
| services | 5.1 |
Chevron Corp. | integrated oil |
|
| and gas | 4.5 |
General Electric Co. | industrial |
|
| conglomerates | 3.2 |
JPMorgan Chase & Co. | diversified financial |
|
| services | 3.1 |
Pfizer Inc. | pharmaceuticals | 3.0 |
Verizon | integrated |
|
Communications Inc. | telecommunication |
|
| services | 2.9 |
Intel Corp. | semiconductors | 2.6 |
Johnson & Johnson | pharmaceuticals | 2.5 |
Wyeth | pharmaceuticals | 2.0 |
Top Ten |
| 41.4% |
Investment Focus
1 MSCI US Large Cap Value Index.
2 Dow Jones Wilshire 5000 Index.
3 30-day SEC yield for the fund; annualized dividend yield for the indexes. See the Glossary.
4 Annualized.
5 The expense ratios shown are from the prospectuses dated December 29, 2008 and represent estimated costs for the current fiscal year based on the fund’s current net assets. For the six months ended February 28, 2009, the annualized expense ratios were 0.10% for the Institutional Shares and 0.13% for the ETF Shares.
6 The holdings listed exclude any temporary cash investments and equity index products.
Mega Cap 300 Value 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/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal Year Total Returns (%): December 17, 2007–February 28, 2009
Average Annual Total Returns: Periods Ended December 31, 2008
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 |
ETF Shares | 12/17/2007 |
|
|
Market Price |
| –35.61% | –33.89% |
Net Asset Value |
| –35.78 | –33.99 |
Institutional Shares | 3/05/2008 | — | –29.30 |
1 Six months ended February 28, 2009.
Note: See Financial Highlights tables for dividend and capital gains information.
35
Mega Cap 300 Value Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2009
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).
|
|
| Market | |
|
|
| Value• | |
|
| Shares | ($000) | |
Common Stocks (99.9%) |
|
| ||
Consumer Discretionary (5.8%) |
|
| ||
| Home Depot, Inc. | 85,688 | 1,790 | |
| The Walt Disney Co. | 88,939 | 1,492 | |
| Time Warner, Inc. | 181,168 | 1,382 | |
| News Corp., Class A | 91,834 | 511 | |
| Carnival Corp. | 22,158 | 433 | |
* | Liberty Media Corp. | 24,684 | 428 | |
| Johnson Controls, Inc. | 29,743 | 338 | |
| The Gap, Inc. | 25,407 | 274 | |
* | Ford Motor Co. | 99,238 | 198 | |
| Fortune Brands, Inc. | 7,497 | 178 | |
| Macy’s Inc. | 20,936 | 165 | |
* | Time Warner Cable, Inc. | 8,965 | 163 | |
| J.C. Penney Co., Inc. |
|
| |
| (Holding Co.) | 10,598 | 162 | |
| News Corp., Class B | 21,841 | 137 | |
| International Game |
|
| |
| Technology | 14,800 | 131 | |
*,^ | Sears Holdings Corp. | 3,480 | 128 | |
| CBS Corp. | 29,496 | 126 | |
* | DISH Network Corp. | 3,832 | 43 | |
|
|
| 8,079 | |
Consumer Staples (8.4%) |
|
| ||
| The Procter & Gamble Co. | 52,092 | 2,509 | |
| The Coca-Cola Co. | 52,505 | 2,145 | |
| Kraft Foods Inc. | 74,106 | 1,688 | |
| Altria Group, Inc. | 103,901 | 1,604 | |
| Archer-Daniels-Midland Co. | 29,157 | 777 | |
| Kimberly-Clark Corp. | 13,489 | 636 | |
| Safeway, Inc. | 21,757 | 403 | |
| ConAgra Foods, Inc. | 22,670 | 342 | |
| General Mills, Inc. | 5,891 | 309 | |
| Reynolds American Inc. | 8,803 | 296 | |
| Sara Lee Corp. | 35,356 | 273 | |
| H.J. Heinz Co. | 7,968 | 260 | |
| Lorillard, Inc. | 4,232 | 247 | |
| The Hershey Co. | 3,977 | 134 | |
| Campbell Soup Co. | 3,902 | 104 | |
|
|
| 11,727 | |
Energy (24.5%) |
|
| ||
| ExxonMobil Corp. | 256,752 | 17,433 | |
| Chevron Corp. | 102,576 | 6,227 | |
| ConocoPhillips Co. | 71,461 | 2,669 |
| Occidental Petroleum Corp. | 26,486 | 1,374 |
| Apache Corp. | 16,857 | 996 |
| Devon Energy Corp. | 21,053 | 919 |
| Marathon Oil Corp. | 35,645 | 829 |
| Anadarko Petroleum Corp. | 23,164 | 810 |
| Valero Energy Corp. | 26,150 | 507 |
| Chesapeake Energy Corp. | 28,970 | 453 |
| Spectra Energy Corp. | 30,809 | 401 |
| XTO Energy, Inc. | 9,625 | 305 |
| Hess Corp. | 5,122 | 280 |
| Halliburton Co. | 15,756 | 257 |
| Williams Cos., Inc. | 19,170 | 217 |
* | National Oilwell Varco Inc. | 7,309 | 195 |
| Murphy Oil Corp. | 3,183 | 133 |
| Peabody Energy Corp. | 4,723 | 112 |
|
|
| 34,117 |
Financials (16.3%) |
|
| |
| JPMorgan Chase & Co. | 188,350 | 4,304 |
| Wells Fargo & Co. | 199,493 | 2,414 |
| Bank of New York |
|
|
| Mellon Corp. | 58,010 | 1,286 |
| Bank of America Corp. | 322,895 | 1,275 |
| U.S. Bancorp | 88,571 | 1,268 |
| The Travelers Cos., Inc. | 29,468 | 1,065 |
| Morgan Stanley | 48,266 | 943 |
| The Goldman Sachs |
|
|
| Group, Inc. | 10,023 | 913 |
| MetLife, Inc. | 40,086 | 740 |
| The Chubb Corp. | 17,935 | 700 |
| American Express Co. | 52,746 | 636 |
36
Mega Cap 300 Value Index Fund
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
| Ace Ltd. | 16,802 | 613 |
| PNC Financial |
|
|
| Services Group | 21,403 | 585 |
| Marsh & |
|
|
| McLennan Cos., Inc. | 25,676 | 460 |
| BB&T Corp. | 27,827 | 449 |
| The Allstate Corp. | 25,718 | 433 |
| Citigroup Inc. | 275,398 | 413 |
| Prudential Financial, Inc. | 21,203 | 348 |
| Loews Corp. | 16,415 | 326 |
| Aon Corp. | 7,948 | 304 |
| Progressive Corp. of Ohio | 20,881 | 242 |
| Equity Residential REIT | 13,575 | 239 |
| Capital One Financial Corp. | 19,727 | 238 |
| Vornado Realty Trust REIT | 7,072 | 232 |
| Boston Properties, Inc. REIT | 5,992 | 222 |
| Invesco, Ltd. | 19,317 | 221 |
| SunTrust Banks, Inc. | 16,728 | 201 |
| State Street Corp. | 7,564 | 191 |
| Simon Property Group, Inc. |
|
|
| REIT | 5,636 | 187 |
| KeyCorp | 24,743 | 173 |
| Ameriprise Financial, Inc. | 10,817 | 172 |
* | Leucadia National Corp. | 9,277 | 136 |
| M & T Bank Corp. | 3,553 | 130 |
| Discover Financial Services | 21,444 | 123 |
| Lincoln National Corp. | 12,806 | 110 |
* | SLM Corp. | 23,425 | 108 |
| The Principal Financial |
|
|
| Group, Inc. | 12,901 | 103 |
| The Hartford Financial |
|
|
| Services Group Inc. | 15,024 | 92 |
| NYSE Euronext | 4,321 | 73 |
| American International |
|
|
| Group, Inc. | 119,497 | 50 |
|
|
| 22,718 |
Health Care (13.1%) |
|
| |
| Pfizer Inc. | 340,223 | 4,188 |
| Johnson & Johnson | 70,030 | 3,502 |
| Wyeth | 67,380 | 2,750 |
| Merck & Co., Inc. | 106,630 | 2,580 |
| Bristol-Myers Squibb Co. | 99,904 | 1,839 |
| Eli Lilly & Co. | 51,590 | 1,516 |
| Cardinal Health, Inc. | 18,153 | 589 |
* | Boston Scientific Corp. | 68,367 | 480 |
| Covidien Ltd. | 12,564 | 398 |
| CIGNA Corp. | 13,729 | 216 |
* | Forest Laboratories, Inc. | 7,630 | 164 |
|
|
| 18,222 |
Industrials (9.0%) |
|
| |
| General Electric Co. | 531,018 | 4,519 |
| United Technologies Corp. | 45,521 | 1,859 |
| United Parcel Service, Inc. | 22,197 | 914 |
| General Dynamics Corp. | 16,784 | 735 |
| Honeywell International Inc. | 22,662 | 608 |
| Norfolk Southern Corp. | 18,757 | 595 |
| Northrop Grumman Corp. | 15,643 | 584 |
| Illinois Tool Works, Inc. | 20,596 | 573 |
| Waste Management, Inc. | 16,137 | 436 |
| Republic Services, Inc. |
|
|
| Class A | 18,171 | 362 |
| Tyco International, Ltd. | 15,466 | 310 |
| Deere & Co. | 10,723 | 295 |
| Eaton Corp. | 7,897 | 285 |
| Caterpillar, Inc. | 10,684 | 263 |
| Ingersoll-Rand Co. | 15,952 | 226 |
|
|
| 12,564 |
Information Technology (3.4%) |
|
| |
| Intel Corp. | 280,589 | 3,575 |
| Motorola, Inc. | 115,444 | 406 |
| Analog Devices, Inc. | 14,834 | 277 |
| Xerox Corp. | 43,704 | 226 |
| Tyco Electronics Ltd. | 23,048 | 219 |
|
|
| 4,703 |
Materials (2.7%) |
|
| |
| E.I. du Pont de |
|
|
| Nemours & Co. | 45,609 | 856 |
| Freeport-McMoRan |
|
|
| Copper & Gold, Inc. |
|
|
| Class B | 19,168 | 583 |
| Nucor Corp. | 15,821 | 532 |
| Air Products & |
|
|
| Chemicals, Inc. | 10,536 | 487 |
| Dow Chemical Co. | 46,342 | 332 |
| Weyerhaeuser Co. | 10,581 | 256 |
| PPG Industries, Inc. | 8,216 | 255 |
| Alcoa Inc. | 40,513 | 253 |
| United States Steel Corp. | 5,859 | 115 |
| International Paper Co. | 20,234 | 115 |
|
|
| 3,784 |
Telecommunication Services (8.5%) |
|
| |
| AT&T Inc. | 297,407 | 7,069 |
| Verizon |
|
|
| Communications Inc. | 143,297 | 4,088 |
* | Sprint Nextel Corp. | 140,118 | 461 |
| Qwest Communications |
|
|
| International Inc. | 77,779 | 264 |
|
|
| 11,882 |
Utilities (8.2%) |
|
| |
| Exelon Corp. | 33,141 | 1,565 |
| Southern Co. | 39,095 | 1,185 |
| FPL Group, Inc. | 19,575 | 887 |
| Dominion Resources, Inc. | 29,339 | 886 |
| Duke Energy Corp. | 63,879 | 860 |
37
Mega Cap 300 Value Index Fund
|
|
| Market |
|
|
| Value• |
|
| Shares | ($000) |
| Public Service Enterprise |
|
|
| Group, Inc. | 25,567 | 698 |
| PG&E Corp. | 18,202 | 696 |
| FirstEnergy Corp. | 15,461 | 658 |
| Entergy Corp. | 9,541 | 643 |
| American Electric |
|
|
| Power Co., Inc. | 20,396 | 572 |
| PPL Corp. | 18,938 | 528 |
| Consolidated Edison Inc. | 13,816 | 500 |
| Progress Energy, Inc. | 13,915 | 493 |
| Sempra Energy | 11,652 | 484 |
| Edison International | 15,670 | 427 |
| Ameren Corp. | 10,527 | 250 |
| Constellation Energy |
|
|
| Group, Inc. | 8,885 | 176 |
|
|
| 11,508 |
Total Common Stocks |
|
| |
(Cost $221,329) |
| 139,304 | |
Temporary Cash Investment (0.1%) |
|
| |
1,2 | Vanguard Market Liquidity |
|
|
| Fund, 0.663% |
|
|
| (Cost $126) | 125,802 | 126 |
Total Investments (100.0%) |
|
| |
(Cost $221,455) |
| 139,430 | |
Other Assets and Liabilities (0.0%) |
|
| |
Other Assets |
| 2,418 | |
Liabilities2 |
| (2,463) | |
|
|
| (45) |
Net Assets (100%) |
| 139,385 |
At February 28, 2009, net assets consisted of: | |
| Amount |
| ($000) |
Paid-in Capital | 228,015 |
Undistributed Net Investment Income | 1,381 |
Accumulated Net Realized Losses | (7,986) |
Unrealized Appreciation (Depreciation) | (82,025) |
Net Assets | 139,385 |
|
|
|
|
Institutional Shares—Net Assets |
|
Applicable to 939,010 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 44,279 |
Net Asset Value Per Share— |
|
Institutional Shares | $47.15 |
|
|
|
|
ETF Shares—Net Assets |
|
Applicable to 4,000,000 outstanding |
|
$.001 par value shares of beneficial |
|
interest (unlimited authorization) | 95,106 |
Net Asset Value Per Share— |
|
ETF Shares | $23.78 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Part of security position is on loan to broker-dealers. The total value of securities on loan is $125,000.
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 Includes $126,000 of collateral received for securities on loan.
REIT—Real Estate Investment Trust.
See accompanying Notes, which are an integral part of the Financial Statements.
38
Mega Cap 300 Value Index Fund
Statement of Operations
| Six Months Ended |
| February 28, 2009 |
| ($000) |
Investment Income |
|
Income |
|
Dividends | 3,204 |
Interest1 | 4 |
Security Lending | 12 |
Total Income | 3,220 |
Expenses |
|
The Vanguard Group—Note B |
|
Investment Advisory Services | 14 |
Management and Administrative—Institutional Shares | 7 |
Management and Administrative—ETF Shares | 28 |
Marketing and Distribution—Institutional Shares | 7 |
Marketing and Distribution—ETF Shares | 13 |
Custodian Fees | 13 |
Auditing Fees | 1 |
Shareholders’ Reports—Institutional Shares | 1 |
Shareholders’ Reports—ETF Shares | 2 |
Total Expenses | 86 |
Net Investment Income | 3,134 |
Realized Net Gain (Loss) |
|
Investment Securities Sold | (5,468) |
Futures Contracts | 15 |
Realized Net Gain (Loss) | (5,453) |
Change in Unrealized Appreciation (Depreciation) |
|
Investment Securities | (75,682) |
Futures Contracts | — |
Change in Unrealized Appreciation (Depreciation) | (75,682) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (78,001) |
1 Interest income from an affiliated company of the fund was $3,000.
See accompanying Notes, which are an integral part of the Financial Statements.
39
Mega Cap 300 Value Index Fund
Statement of Changes in Net Assets
|
|
| December 17, |
| Six Months Ended |
| 20071 to |
| February 28, |
| August 31, |
| 2009 |
| 2008 |
| ($000) |
| ($000) |
Increase (Decrease) in Net Assets |
|
|
|
Operations |
|
|
|
Net Investment Income | 3,134 |
| 1,283 |
Realized Net Gain (Loss) | (5,453) |
| (340) |
Change in Unrealized Appreciation (Depreciation) | (75,682) |
| (6,343) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (78,001) |
| (5,400) |
Distributions |
|
|
|
Net Investment Income |
|
|
|
Institutional Shares | (873) |
| (127) |
ETF Shares | (1,541) |
| (495) |
Realized Capital Gain |
|
|
|
Institutional Shares | — |
| — |
ETF Shares | — |
| — |
Total Distributions | (2,414) |
| (622) |
Capital Share Transactions |
|
|
|
Institutional Shares | 19,628 |
| 53,693 |
ETF Shares | 49,838 |
| 102,663 |
Net Increase (Decrease) from Capital Share Transactions | 69,466 |
| 156,356 |
Total Increase (Decrease) | (10,949) |
| 150,334 |
Net Assets |
|
|
|
Beginning of Period | 150,334 |
| — |
End of Period2 | 139,385 |
| 150,334 |
1 Inception.
2 Net Assets—End of Period includes undistributed net investment income of $1,381,000 and $661,000. See accompanying Notes, which are an integral part of the Financial Statements.
40
Mega Cap 300 Value Index Fund
Financial Highlights
Institutional Shares |
|
|
| Six Months | March 5, |
| Ended | 20081 to |
| February 28, | Aug. 31, |
For a Share Outstanding Throughout Each Period | 2009 | 2008 |
Net Asset Value, Beginning of Period | $83.69 | $90.01 |
Investment Operations |
|
|
Net Investment Income | 1.3402 | 1.1242 |
Net Realized and Unrealized Gain (Loss) on Investments | (36.741) | (6.444) |
Total from Investment Operations | (35.401) | (5.320) |
Distributions |
|
|
Dividends from Net Investment Income | (1.139) | (1.000) |
Distributions from Realized Capital Gains | — | — |
Total Distributions | (1.139) | (1.000) |
Net Asset Value, End of Period | $47.15 | $83.69 |
|
|
|
|
|
|
Total Return | –42.72% | –5.96% |
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
Net Assets, End of Period (Millions) | $44 | $53 |
Ratio of Total Expenses to Average Net Assets | 0.10%3 | 0.08%3 |
Ratio of Net Investment Income to Average Net Assets | 4.39%3 | 3.19%3 |
Portfolio Turnover Rate4 | 29%3 | 12% |
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 ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
41
Mega Cap 300 Value Index Fund
Financial Highlights
ETF Shares |
|
|
| Six Months | Dec. 17, |
| Ended | 20071 to |
| February 28, | Aug. 31, |
For a Share Outstanding Throughout Each Period | 2009 | 2008 |
Net Asset Value, Beginning of Period | $42.21 | $49.38 |
Investment Operations |
|
|
Net Investment Income | .6602 | .8862 |
Net Realized and Unrealized Gain (Loss) on Investments | (18.521) | (7.560) |
Total from Investment Operations | (17.861) | (6.674) |
Distributions |
|
|
Dividends from Net Investment Income | (.569) | (.496) |
Distributions from Realized Capital Gains | — | — |
Total Distributions | (.569) | (.496) |
Net Asset Value, End of Period | $23.78 | $42.21 |
|
|
|
|
|
|
Total Return | –42.71% | –13.56% |
|
|
|
|
|
|
Ratios/Supplemental Data |
|
|
Net Assets, End of Period (Millions) | $95 | $97 |
Ratio of Total Expenses to Average Net Assets | 0.13%3 | 0.13%3 |
Ratio of Net Investment Income to Average Net Assets | 4.36%3 | 3.14%3 |
Portfolio Turnover Rate4 | 29%3 | 12% |
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 ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
42
Mega Cap 300 Value Index Fund
Notes to Financial Statements
Vanguard Mega Cap 300 Value Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Institutional Shares and ETF Shares. Institutional Shares are designed for investors who meet certain administrative and service criteria and invest a minimum of $5 million. ETF Shares are listed for trading on the NYSE Arca, Inc.; 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 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. Futures Contracts: The fund uses index futures contracts to a limited extent, with the objectives of maintaining full exposure to the stock market, enhancing returns, maintaining liquidity, and minimizing transaction costs. The fund may purchase futures contracts to immediately invest incoming cash in the market, or sell futures in response to cash outflows, thereby simulating a fully invested position in the underlying index while maintaining a cash balance for liquidity. The fund may seek to enhance returns by using futures contracts instead of the underlying securities when futures are believed to be priced more attractively than the underlying securities. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market.
Futures contracts are valued at their quoted daily settlement prices. The aggregate principal amounts of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized futures gains (losses).
3. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken on its federal income tax return for the open tax year ended August 31, 2008, and for the period ended February 28, 2009, and has concluded that no provision for federal income tax is required in the fund’s 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.
43
Mega Cap 300 Value Index Fund
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. 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, 2009, the fund had contributed capital of $45,000 to Vanguard (included in Other Assets), representing 0.03% 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.
During the six months ended February 28, 2009, the fund realized $2,193,000 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 losses 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, 2008, the fund had available realized losses of $220,000 to offset future net capital gains through August 31, 2017. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2009; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2009, the cost of investment securities for tax purposes was $221,455,000. Net unrealized depreciation of investment securities for tax purposes was $82,025,000, consisting of unrealized gains of $160,000 on securities that had risen in value since their purchase and $82,185,000 in unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 28, 2009, the fund purchased $128,494,000 of investment securities and sold $58,037,000 of investment securities, other than temporary cash investments.
44
Mega Cap 300 Value Index Fund
E. Capital share transactions for each class of shares were:
| Six Months Ended | Inception1 to | |||
| February 28, 2009 | August 31, 2008 | |||
| Amount | Shares |
| Amount | Shares |
| ($000) | (000) |
| ($000) | (000) |
Institutional Shares |
|
|
|
|
|
Issued | 22,294 | 351 |
| 53,949 | 639 |
Issued in Lieu of Cash Distributions | 873 | 13 |
| 127 | 1 |
Redeemed | (3,539) | (61) |
| (383) | (4) |
Net Increase (Decrease)—Institutional Shares | 19,628 | 303 |
| 53,693 | 636 |
ETF Shares |
|
|
|
|
|
Issued | 86,628 | 2,800 |
| 102,663 | 2,300 |
Issued in Lieu of Cash Distributions | — | — |
| — | — |
Redeemed | (36,790) | (1,100) |
| — | — |
Net Increase (Decrease)—ETF Shares | 49,838 | 1,700 |
| 102,663 | 2,300 |
1 Inception dates are March 5, 2008, for the Institutional Shares and December 17, 2007, for the ETF Shares.
F. In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157 (“FAS 157”), “Fair Value Measurements.” FAS 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements in financial statements.
The various inputs that may be used to determine the value of the fund’s investments are summarized in three broad levels. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At February 28, 2009, 100% of the fund’s investments were valued based on Level 1 inputs.
45
About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table illustrates your fund’s costs in two ways:
• Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading “Expenses Paid During Period.”
• Based on hypothetical 5% yearly return. This section is intended to help you compare your fund’s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. 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 your fund’s current prospectus.
46
Six Months Ended February 28, 2009 |
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| Beginning | Ending | Expenses |
| Account Value | Account Value | Paid During |
Index Fund | 8/31/2008 | 2/28/2009 | Period1 |
Based on Actual Fund Return |
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Mega Cap 300 |
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Institutional Shares | $1,000.00 | $590.93 | $0.39 |
ETF Shares | 1,000.00 | 590.91 | 0.51 |
Mega Cap 300 Growth |
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Institutional Shares | $1,000.00 | $608.91 | $0.40 |
ETF Shares | 1,000.00 | 608.83 | 0.52 |
Mega Cap 300 Value |
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Institutional Shares | $1,000.00 | $572.84 | $0.39 |
ETF Shares | 1,000.00 | 572.85 | 0.51 |
Based on Hypothetical 5% Yearly Return |
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Mega Cap 300 |
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Institutional Shares | $1,000.00 | $1,024.30 | $0.50 |
ETF Shares | 1,000.00 | 1,024.15 | 0.65 |
Mega Cap 300 Growth |
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Institutional Shares | $1,000.00 | $1,024.30 | $0.50 |
ETF Shares | 1,000.00 | 1,024.15 | 0.65 |
Mega Cap 300 Value |
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Institutional Shares | $1,000.00 | $1,024.30 | $0.50 |
ETF Shares | 1,000.00 | 1,024.15 | 0.65 |
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: 0.10% for the Mega Cap 300 Index Fund Institutional Shares, 0.13% for the ETF Shares; 0.10% for the Mega Cap 300 Growth Index Fund Institutional Shares, 0.13% for the ETF Shares; and 0.10% for the Mega Cap 300 Value Index Fund Institutional Shares, 0.13% for the ETF 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.
47
Glossary
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.
Expense Ratio. 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 represented by stocks or depositary receipts of companies based outside the United States.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.
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 fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (in the case of bonds) or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.
48
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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’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 157 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at www.vanguard.com.
Chairman of the Board and Interested Trustee
John J. Brennan1
Born 1954. Trustee Since May 1987. Chairman of the Board. Principal Occupation(s) During the Past Five Years: Chairman of the Board and Director/Trustee of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group; Chief Executive Officer and President of The Vanguard Group and of each of the investment companies served by The Vanguard Group (1996–2008).
Independent Trustees
Charles D. Ellis
Born 1937. Trustee Since January 2001. 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.
Emerson U. Fullwood
Born 1948. Trustee Since January 2008. Principal Occupation(s) During the Past Five Years: Retired Executive Chief Staff and Marketing Officer for North America and Corporate Vice President of Xerox Corporation (photocopiers and printers); Director of SPX Corporation (multi-industry manufacturing), the United Way of Rochester, the Boy Scouts of America, Amerigroup Corporation (direct health and medical insurance carriers), and Monroe Community College Foundation.
Rajiv L. Gupta
Born 1945. Trustee Since December 2001.2 Principal Occupation(s) During the Past Five Years: Chairman and Chief Executive Officer of Rohm and Haas Co. (chemicals); President of Rohm and Haas Co. (2006–2008); Board Member of American Chemistry Council; Director of Tyco International, Ltd. (diversified manufacturing and services) and Hewlett-Packard Co. (electronic computer manufacturing); Trustee of The Conference Board.
Amy Gutmann
Born 1949. Trustee Since June 2006. Principal
Occupation(s) During the Past Five Years: President of the University of Pennsylvania; Christopher H. Browne Distinguished Professor of Political Science in the School of Arts and Sciences with Secondary Appointments at the Annenberg School for Communication and the Graduate School of Education of the University of Pennsylvania; Director of Carnegie Corporation of New York, Schuylkill River Development Corporation, and Greater Philadelphia Chamber of Commerce; Trustee of the National Constitution Center.
JoAnn Heffernan Heisen
Born 1950. Trustee Since July 1998. Principal Occupation(s) During the Past Five Years: Retired Corporate Vice President, Chief Global Diversity Officer, and Member of the Executive Committee of Johnson & Johnson (pharmaceuticals/consumer products); Vice President and Chief Information Officer (1997–2005) of Johnson & Johnson; Director of the University Medical Center at Princeton and Women’s Research and Education Institute.
André F. Perold
Born 1952. Trustee Since December 2004. Principal Occupation(s) During the Past Five Years: George Gund Professor of Finance and Banking, Senior Associate Dean, and Director of Faculty Recruiting, Harvard Business School; Director and Chairman of UNX, Inc. (equities trading firm); Chair of the Investment Committee of HighVista Strategies LLC (private investment firm).
Alfred M. Rankin, Jr.
Born 1941. Trustee Since January 1993. 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).
J. Lawrence Wilson
Born 1936. Trustee Since April 1985. 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) and AmerisourceBergen Corp. (pharmaceutical distribution); Trustee of Vanderbilt University and of Culver Educational Foundation.
Executive Officers
Thomas J. Higgins1
Born 1957. Chief Financial Officer Since September 2008. Principal Occupation(s) During the Past Five Years: Principal of The Vanguard Group, Inc.; Chief Financial Officer of each of the investment companies served by The Vanguard Group since 2008; Treasurer of each of the investment companies served by The Vanguard Group (1998–2008).
Kathryn J. Hyatt1
Born 1955. Treasurer Since November 2008. 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 since 2008; Assistant Treasurer of each of the investment companies served by The Vanguard Group (1988–2008).
F. William McNabb III1
Born 1957. Chief Executive Officer Since August 2008. President Since March 2008. Principal Occupation(s) During the Past Five Years: Director of The Vanguard Group, Inc., since 2008; Chief Executive Officer and President of The Vanguard Group and of each of the investment companies served by The Vanguard Group since 2008; Director of Vanguard Marketing Corporation; Managing Director of The Vanguard Group (1995–2008).
Heidi Stam1
Born 1956. Secretary Since July 2005. Principal Occupation(s) During the Past Five Years: Managing Director of The Vanguard Group, Inc., since 2006; General Counsel of The Vanguard Group since 2005; Secretary of The Vanguard Group and of each of the investment companies served by The Vanguard Group since 2005; Director and Senior Vice President of Vanguard Marketing Corporation since 2005; Principal of The Vanguard Group (1997–2006).
Vanguard Senior Management Team | |
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R. Gregory Barton | Michael S. Miller |
Mortimer J. Buckley | James M. Norris |
Kathleen C. Gubanich | Glenn W. Reed |
Paul A. Heller | George U. Sauter |
Founder
John C. Bogle
Chairman and Chief Executive Officer, 1974–1996
1 These individuals 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.
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 |
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| You can obtain a free copy of Vanguard’s proxy voting |
Institutional Investor Services > 800-523-1036 | guidelines by visiting our website, www.vanguard.com, |
| and searching for “proxy voting guidelines,” or by |
Text Telephone for People | calling Vanguard at 800-662-2739. The guidelines are |
With Hearing Impairment > 800-952-3335 | 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 |
This material may be used in conjunction | either www.vanguard.com or www.sec.gov. |
with the offering of shares of any Vanguard |
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fund only if preceded or accompanied by |
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the fund’s current prospectus. |
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| 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 |
The funds or securities referred to herein are not | at 202-551-8090. Information about your fund is also |
sponsored, endorsed, or promoted by MSCI, and MSCI | available on the SEC’s website, and you can receive |
bears no liability with respect to any such funds or | copies of this information, for a fee, by sending a |
securities. For any such funds or securities, the | request in either of two ways: via e-mail addressed to |
prospectus or the Statement of Additional Information | publicinfo@sec.gov or via regular mail addressed to the |
contains a more detailed description of the limited | Public Reference Section, Securities and Exchange |
relationship MSCI has with The Vanguard Group and | Commission, Washington, DC 20549-0102. |
any related funds. |
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Russell is a trademark of The Frank Russell Company. |
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| © 2009 The Vanguard Group, Inc. |
| All rights reserved. |
| Vanguard Marketing Corporation, Distributor. |
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| Q8282 042009 |
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.
(a) Code of Ethics.
(b) 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 |
| /s/ F. WILLIAM MCNABB III* |
BY: | F. WILLIAM MCNABB III* |
| CHIEF EXECUTIVE OFFICER |
Date: April 20, 2009
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 |
| /s/ F. WILLIAM MCNABB III* |
BY: | F. WILLIAM MCNABB III* |
| CHIEF EXECUTIVE OFFICER |
Date: April 20, 2009
| VANGUARD WORLD FUNDS |
| /s/ THOMAS J. HIGGINS * |
BY: | THOMAS J. HIGGINS * |
| CHIEF FINANCIAL OFFICER |
Date: April 20, 2009
* By: /s/ Heidi Stam
Heidi Stam, pursuant to a Power of Attorney filed on January 18, 2008, see file Number
2-29601, Incorporated by Reference; and pursuant to a Power of Attorney filed on
September 26, 2008, see File Number 2-47371, Incorporated by Reference.