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: 811-01027
Name of Registrant: Vanguard World Fund
Address of Registrant:
P.O. Box 2600
Valley Forge, PA 19482
Name and address of agent for service:
Heidi Stam, Esquire
P.O. Box 876
Valley Forge, PA 19482
Registrant’s telephone number, including area code: (610) 669-1000
Date of fiscal year end: August 31
Date of reporting period: September 1, 2014 – February 28, 2015
Item 1: Reports to Shareholders
Semiannual Report | February 28, 2015
Vanguard U.S. Growth Fund
The mission continues
On May 1, 1975, Vanguard began operations, a fledgling company based on the simple but revolutionary idea that a mutual fund company should be managed solely in the interest of its investors.
Four decades later, that revolutionary spirit continues to animate the enterprise. Vanguard remains on a mission to give investors the best chance of investment success.
As we mark our 40th anniversary, we thank you for entrusting your assets to Vanguard and giving us the opportunity to help you reach your financial goals in the decades to come.
| |
| Contents | |
| Your Fund’s Total Returns. | 1 |
| Chairman’s Letter. | 2 |
| Advisors' Report. | 6 |
| Fund Profile. | 11 |
| Performance Summary. | 13 |
| Financial Statements. | 14 |
| About Your Fund’s Expenses. | 28 |
| Trustees Approve Advisory Arrangements. | 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.
About the cover: Since our founding, Vanguard has drawn inspiration from the enterprise and valor demonstrated by British naval hero Horatio Nelson and his command at the Battle of the Nile in 1798. The photograph displays a replica of a merchant ship from the same era as Nelson’s flagship, the HMS Vanguard.
| | | | |
| Your Fund’s Total Returns | | | | |
| |
| |
| |
| |
| Six Months Ended February 28, 2015 | | | | |
| | | | | Total |
| | | | | Returns |
| Vanguard U.S. Growth Fund | | | | |
| Investor Shares | | | | 10.19% |
| Admiral™ Shares | | | | 10.29 |
| Russell 1000 Growth Index | | | | 8.46 |
| Large-Cap Growth Funds Average | | | | 7.71 |
| Large-Cap Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | | |
| Admiral Shares carry lower expenses and are available to investors who meet certain account-balance requirements. | |
| |
| Your Fund’s Performance at a Glance | | | | |
| August 31, 2014, Through February 28, 2015 | | | | |
| | | | Distributions Per Share |
| | Starting | Ending | Income | Capital |
| | Share Price | Share Price | Dividends | Gains |
| Vanguard U.S. Growth Fund | | | | |
| Investor Shares | $31.03 | $31.53 | $0.194 | $2.283 |
| Admiral Shares | 80.37 | 81.62 | 0.623 | 5.907 |
1
Chairman’s Letter
Dear Shareholder,
Vanguard U.S. Growth Fund returned about 10% for the six months ended February 28, 2015, well ahead of its benchmark and the average return of its peers.
The fund was well-positioned during a period in which growth stocks handsomely outpaced their value counterparts and investors favored companies with above-average earnings potential.
Strong stock selection by the fund’s advisors also boosted results. Nine of the ten industry sectors posted positive returns. Health care, consumer staples, and energy contributed most to the fund’s outperformance.
A surge in February powered U.S. stocks
U.S. stocks performed solidly but unevenly over the six months. Despite declines in two of those months and flat returns in another, the broad U.S. stock market ended the period up about 6%.
Overall returns were powered by a robust advance in February, when the broad market recorded its largest monthly gain since October 2011. Investors were cheered by stabilization in oil prices and guidance from the Federal Reserve that it wouldn’t raise interest rates prematurely.
International stocks marched in the opposite direction, returning about –3% in U.S. dollar terms (although they did
2
rise when measured in local currencies). The dollar’s strength against many foreign currencies, along with various geopolitical issues, restrained results. Stocks in emerging markets and the developed markets of the Pacific region and Europe backtracked, with emerging markets faring the worst.
Bonds notched positive results despite early and late retreats
The broad U.S. taxable bond market returned 2.25%, although bond prices declined in the period’s first and final months. When the stock market turned volatile, investors favored the relative safety offered by bonds, which also benefited from various global stimulus programs.
Conversely, bond prices fell in February as the Fed suggested that a midyear interest rate increase was an option if the economy continued to perform well. The yield of the 10-year Treasury note ended February at 2.03%, down from 2.34% six months earlier. (Bond prices and yields move in opposite directions.)
Municipal bonds, which returned 2.21%, lost some steam toward the end of the period amid increased bond issuance and the prospect of higher interest rates.
International bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –9.54%, weighed down by the weakness of foreign currencies
| | | |
| Market Barometer | | | |
| |
| | | | Total Returns |
| | | Periods Ended February 28, 2015 |
| | Six | One | Five Years |
| | Months | Year | (Annualized) |
| Stocks | | | |
| Russell 1000 Index (Large-caps) | 6.00% | 14.88% | 16.39% |
| Russell 2000 Index (Small-caps) | 5.70 | 5.63 | 15.97 |
| Russell 3000 Index (Broad U.S. market) | 5.98 | 14.12 | 16.36 |
| FTSE All-World ex US Index (International) | -3.34 | 1.69 | 6.94 |
| |
| Bonds | | | |
| Barclays U.S. Aggregate Bond Index (Broad taxable market) | 2.25% | 5.05% | 4.29% |
| Barclays Municipal Bond Index (Broad tax-exempt market) | 2.21 | 6.49 | 5.00 |
| Citigroup Three-Month U.S. Treasury Bill Index | 0.00 | 0.03 | 0.06 |
| |
| CPI | | | |
| Consumer Price Index | -1.32% | -0.03% | 1.61% |
3
relative to the dollar. International bonds hedged to eliminate the effect of currency exchange rates produced positive returns.
Money market funds and savings accounts provided scant returns as the Fed’s target for short-term rates remained at 0%–0.25%.
The advisors’ stock choices propelled the fund’s results
The U.S. Growth Fund, Vanguard’s oldest growth fund, beat its comparative standards during the fiscal half year. As I mentioned earlier, its focus on earnings growth potential was a key advantage.
Results for the six months were largely driven by the advisors’ investments in health care, consumer staples, and energy stocks. In health care, some of the fund’s largest pharmaceutical and biotech holdings were bolstered by high-profile acquisitions designed to expand product pipelines. A sizable allocation to the sector also helped.
In consumer staples, drug retailers and soft drink manufacturers were bright spots. Again, the advisors notched gains with their selections.
On an absolute basis, the energy sector hurt both the fund and its benchmark. Declining oil prices weighed on energy stocks throughout the period. However, the fund’s slightly smaller exposure to oil and gas companies limited their negative impact.
Expense Ratios
Your Fund Compared With Its Peer Group
| | | |
| | Investor | Admiral | Peer Group |
| | Shares | Shares | Average |
| U.S. Growth Fund | 0.44% | 0.30% | 1.21% |
The fund expense ratios shown are from the prospectus dated December 23, 2014, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2015, the annualized expense ratios were 0.48% for Investor Shares and 0.34% for Admiral Shares. The peer-group expense ratio is derived from data provided by Lipper, a Thomson Reuters Company, and captures information through year-end 2014.
Peer group: Large-Cap Growth Funds.
4
The fund’s aerospace and defense and airline holdings performed poorly relative to the benchmark. For more about the advisors’ strategy and the fund’s positioning during the six months, please see the Advisors’ Report that follows this letter.
To build for the long term, start with a solid foundation
As the leader of a major investment firm, I get asked a lot of questions on all kinds of topics, from the outlook for global markets to the best fund choices for an IRA. But a topic that almost never comes up—and one that I consider perhaps the most important—is setting investment goals.
At Vanguard, we believe that following four timeless, straightforward principles can help put you on the right track toward investment success: • Goals. Create clear, appropriate investment goals.
• Balance. Develop a suitable asset allocation using broadly diversified funds. • Cost. Minimize cost.
• Discipline. Maintain perspective and long-term discipline.
All four are essential, and the order in which they’re listed is intentional. Every good investment plan begins with a clearly defined goal, which sets the foundation for building your portfolio. (You can read more about our principles in Vanguard’s Principles for Investing Success, available at vanguard.com/research.)
Setting an investment goal doesn’t have to be complicated. A goal can be as simple as saving for retirement or for a child’s college education. Being realistic about your goals—and how to meet them—can help you stick with your investment plan even when times get tough.
In many parts of the United States, it’s been an especially bitter and challenging winter, but spring is now upon us. The change of seasons can be an occasion for some financial spring cleaning. Consider taking time now to revisit your investment plan, ensuring that your objectives are clear and making any necessary adjustments to help you reach your long-term financial goals.
As always, thank you for investing with Vanguard.
Sincerely,
F. William McNabb III
Chairman and Chief Executive Officer
March 11, 2015
5
Advisors’ Report
For the six months ended February 28, 2015, Vanguard U.S. Growth Fund returned about 10%, ahead of its benchmark index and its peer-group average. Your fund is managed by five advisors. The use of multiple independent advisors enhances the fund’s diversification by providing exposure to distinct yet complementary investment approaches. It is not uncommon for different advisors to have different views about individual securities or the broader investment environment.
The table on page 10 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 17, 2015.
Wellington Management Company LLP
Portfolio Manager: Andrew J. Shilling, CFA, Senior Managing Director
We aim for our portion of the fund to outperform growth benchmarks and, in the longer term, the broader market. We employ proprietary fundamental research and a rigorous valuation discipline to invest in large-capitalization companies with attractive growth characteristics. Our investment approach is based on identifying companies with a clear competitive advantage that will enable them to sustain above-average growth. We take a long-term perspective because we believe that investors often underestimate the potential for growth.
In the past six months, our portfolio benefited from strong security selection in the information technology and consumer staples sectors. Our choices were weaker in industrials. Sector allocation, a result of bottom-up stock selection decisions, also aided relative performance, primarily because of a significantly underweight allocation to energy.
Uber Technologies, a privately held transportation and ride-sharing technology startup, was the portfolio’s largest contributor. Energy drink company Monster Beverage (consumer staples) also aided relative results. In our weakest-performing sector, industrials, positions in research and consulting services firm IHS and U.S.-based global car and equipment rental company Hertz detracted from relative returns. We eliminated our position in Hertz.
At the period’s close, we were most overweighted in the consumer discretionary sector after establishing a new position in Amazon.com and adding to our holdings of Las Vegas Sands. We were most underweighted in industrials and energy.
We continue to find attractively valued stocks with the characteristics we seek. Our focus is on populating the portfolio with strong, protected franchises that can compound earnings growth over many years.
6
Jackson Square Partners, LLC
Portfolio Managers:
Jeffrey S. Van Harte, CFA, Chairman and Chief Investment Officer
Christopher J. Bonavico, CFA, Equity Analyst
Christopher M. Ericksen, CFA, Equity Analyst
Daniel J. Prislin, CFA, Equity Analyst
As you would expect from our fundamental, bottom-up approach, stock selection was the primary driver of our portfolio’s performance.
The top contributor was Allergan, after the announcement that Actavis would acquire it at a premium to previous offers by Valeant Pharmaceuticals International. We are assessing the investment merits of a combined Actavis/Allergan entity.
The largest detractor was Discovery Communications. The stock declined based on recent weakness in industry-wide ratings trends, which we believe is transitory, and a small but growing U.S. trend toward “cord cutting.” We continue to believe in the strong secular growth of pay-TV services for a growing middle class outside the domestic market. Discovery Communications could be a key participant in that growth as it acquires non-U.S. brands and increases its global presence.
Regardless of the economic outcome, we remain consistent in our long-term investment philosophy. We want to own strong secular-growth companies with solid business models and competitive positions that we believe can grow market share and have the potential to deliver shareholder value in a variety of market environments.
William Blair & Company, L.L.C.
Portfolio Managers:
James Golan, CFA, Partner
David Ricci, CFA, Partner
During the past six months, the U.S. stock market advanced while volatility increased because of conflicting views in the economic and equity market outlooks. On one hand, substantial parts of the global economy appeared to be slowing. In addition, commodity prices, especially oil, collapsed, leading to fears of deflation and questions about the sustainability of economic growth and corporate earnings. On the other hand, the U.S. economy appeared to be quite healthy, as evidenced by robust economic growth in the second and third quarters of 2014. Improvement in the labor and housing markets and the drop in energy prices bolstered consumer confidence.
7
Stock selection drove our portion of the fund’s outperformance. The portfolio benefited from solid choices in information technology and consumer discretionary, including positions in Cognizant Technology Solutions, O’Reilly Automotive, and Home Depot. Other notable contributors included health care holdings IDEXX Laboratories and Zoetis. Our top detractors relative to the benchmark were energy holdings Schlumberger and Noble Energy; however, our relative performance in the sector was neutral. Other laggards included Precision Castparts (industrials), Gilead Sciences (health care), and Citigroup (financials).
We remain focused on identifying high-quality, structurally advantaged companies whose stocks trade at attractive valuations relative to the expected growth and consistency of the businesses. This discipline should enable us to add value over the long term.
Jennison Associates LLC
Portfolio Managers: Kathleen A. McCarragher, Managing Director
Blair A. Boyer,
Managing Director
Our portion of the portfolio made solid gains on the strength of individual company fundamentals. Health care positions added most to return. Scientific advances over the past decade have helped bring to market numerous drugs that have materially improved the lives of patients with serious, previously undertreated diseases. The fund’s biotech holdings profited from innovative drugs for neurodegenerative disorders (BioMarin Pharmaceutical), multiple sclerosis (Biogen Idec), cystic fibrosis (Vertex Pharmaceuticals), and cancer (Celgene).
Information technology stocks were also top contributors, although our sector returns modestly lagged those of the benchmark. Apple’s strong revenue and earnings reflected expanding global acceptance of its platform. We expect that product updates will sustain revenue growth. MasterCard continued to benefit from the shift from cash to electronic credit and debit transactions.
Technology holdings including VMware, a leader in desktop virtualization, and social media company Twitter detracted from results. The latter was hurt by a deceleration in user growth, in part because of slower-than-expected improvements in new-user onboarding and access. We still believe Twitter’s income-generation opportunities are substantial.
The portfolio’s consumer discretionary companies trailed those in the benchmark. Tesla Motors in particular was hurt by production challenges; however, we believe it is positioned to drive rapid growth in the adoption of electric autos. Offsetting Tesla’s decline were strong gains in stocks including athletic apparel company Nike and hotel operator Marriott International.
8
We conduct rigorous research to determine company, industry, and sector fundamentals and prospects over intermediate and longer terms and project how markets, industries, and businesses will evolve. With this long-term perspective, we build the portfolio through individual stock selection based on individual company fundamentals.
Baillie Gifford Overseas Ltd.
Portfolio Manager: Ian Tabberer, Investment Manager
The domestic economic recovery continues its steady progress. Despite a series of potentially destabilizing international developments, this was reflected in equity market gains during the last six months.
As we have noted elsewhere, although the news-flow carousel occupies airtime, we emphasize the enduring depth and breadth of the opportunities available to the long-term investor. Our portfolio activity underlines the point. We have initiated new positions in a diverse range of stocks with attractive and durable growth prospects, including craft beer producer Boston Beer Company, online real estate portal Zillow, and electronic bond-trading platform MarketAxess.
To fund the new holdings, we sold companies with less-attractive growth prospects. These included auto insurer Progressive, internet traffic management company F5 Networks, and consumer food and beverage supplier Kraft Foods Group.
In the long run, strong fundamentals should be reflected in share price, and we remain optimistic about the operating performance of and prospects for our holdings. Our research program is full, with many possibilities competing for space in the portfolio. In the coming months, we look forward to deepening our knowledge of existing holdings and uncovering fresh ideas for new ones.
9
| | | |
| Vanguard U.S. Growth Fund Investment Advisors | |
| |
| | Fund Assets Managed | |
| Investment Advisor | % | $ Million | Investment Strategy |
| Wellington Management | 36 | 2,330 | Employs proprietary fundamental research and a |
| Company LLP | | | rigorous valuation discipline in an effort to invest in |
| | | | high-quality, large-cap, sustainable-growth companies. |
| | | | The investment approach is based on the belief that |
| | | | stock prices often overreact to short-term trends and |
| | | | that bottom-up, intensive research focused on |
| | | | longer-term fundamentals can be used to identify |
| | | | stocks that will outperform the market over time. |
| Jackson Square Partners, LLC | 36 | 2,291 | Uses a bottom-up approach, seeking companies that |
| | | | have large end-market potential, dominant business |
| | | | models, and strong free cash flow generation that is |
| | | | attractively priced compared with the intrinsic value of |
| | | | the securities. |
| William Blair & Company, L.L.C. | 13 | 825 | Uses a fundamental investment approach in pursuit of |
| | | | superior long-term investment results from |
| | | | growth-oriented companies with leadership positions |
| | | | and strong market presence. |
| Jennison Associates LLC | 6 | 403 | Uses a research-driven, fundamental investment |
| | | | approach that relies on in-depth company knowledge |
| | | | gleaned through meetings with management, |
| | | | customers, and suppliers. |
| Baillie Gifford Overseas Ltd. | 6 | 402 | Uses a long-term, active, bottom-up investment |
| | | | approach to identify companies that can generate |
| | | | above-average growth in earnings and cash flow. |
| Cash Investments | 3 | 149 | These short-term reserves are invested by Vanguard in |
| | | | equity index products to simulate investment in stocks. |
| | | | Each advisor may also maintain a modest cash |
| | | | position. |
10
| | | |
| U.S. Growth Fund | | |
| |
| |
| Fund Profile | | | |
| As of February 28, 2015 | | | |
| |
| Share-Class Characteristics | | |
| | Investor | | Admiral |
| | Shares | | Shares |
| Ticker Symbol | VWUSX | | VWUAX |
| Expense Ratio1 | 0.44% | | 0.30% |
| 30-Day SEC Yield | 0.50% | | 0.64% |
| Portfolio Characteristics | | |
| | | | DJ |
| | | | U.S. |
| | | Russell | Total |
| | | 1000 | Market |
| | | Growth | FA |
| | Fund | Index | Index |
| Number of Stocks | 164 | 681 | 3,734 |
| Median Market Cap | $63.8B | $64.8B | $49.0B |
| Price/Earnings Ratio | 30.8x | 24.0x | 21.4x |
| Price/Book Ratio | 5.2x | 5.6x | 2.8x |
| Return on Equity | 21.2% | 23.5% | 17.6% |
| Earnings Growth | | | |
| Rate | 19.5% | 17.6% | 13.9% |
| Dividend Yield | 1.0% | 1.5% | 1.9% |
| Foreign Holdings | 4.8% | 0.0% | 0.0% |
| Turnover Rate | | | |
| (Annualized) | 37% | — | — |
| Short-Term Reserves | 1.6% | — | — |
| | | |
| Volatility Measures | | | |
| | | | DJ |
| | | U.S. Total |
| | Russell 1000 | | Market |
| | Growth Index | FA Index |
| R-Squared | 0.94 | | 0.87 |
| Beta | 1.11 | | 1.07 |
| These measures show the degree and timing of the fund’s | |
| fluctuations compared with the indexes over 36 months. | |
| |
| Ten Largest Holdings (% of total net assets) |
| Apple Inc. | Technology | | |
| | Hardware, Storage & | |
| | Peripherals | | 4.2% |
| Google Inc. | Internet Software & | |
| | Services | | 3.5 |
| MasterCard Inc. | Data Processing & | |
| | Outsourced Services | 3.3 |
| Celgene Corp. | Biotechnology | | 2.7 |
| Visa Inc. | Data Processing & | |
| | Outsourced Services | 2.4 |
| Priceline Group Inc. | Internet Retail | | 2.1 |
| Microsoft Corp. | Systems Software | 2.1 |
| Allergan Inc. | Pharmaceuticals | 2.0 |
| eBay Inc. | Internet Software & | |
| | Services | | 1.8 |
| Walgreens Boots | | | |
| Alliance Inc. | Drug Retail | | 1.8 |
| Top Ten | | | 25.9% |
| 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 23, 2014, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2015, the annualized expense ratios were 0.48% for Investor Shares and 0.34% for Admiral Shares.
11
U.S. Growth Fund
Sector Diversification (% of equity exposure)
| | | |
| | | | DJ |
| | | | U.S. |
| | | Russell | Total |
| | | 1000 | Market |
| | | Growth | FA |
| | Fund | Index | Index |
| Consumer | | | |
| Discretionary | 22.2% | 18.8% | 13.2% |
| Consumer Staples | 6.7 | 10.6 | 8.5 |
| Energy | 3.7 | 4.4 | 7.4 |
| Financials | 7.3 | 5.1 | 17.4 |
| Health Care | 17.5 | 14.3 | 14.3 |
| Industrials | 5.9 | 11.8 | 11.2 |
| Information | | | |
| Technology | 34.6 | 28.7 | 19.3 |
| Materials | 1.5 | 4.0 | 3.6 |
| Telecommunication | | | |
| Services | 0.5 | 2.2 | 2.1 |
| Utilities | 0.1 | 0.1 | 3.0 |
12
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 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, 2004, Through February 28, 2015
U.S. Growth Fund Investor Shares
Russell 1000 Growth Index
Note: For 2015, performance data reflect the six months ended February 28, 2015.
Average Annual Total Returns: Periods Ended December 31, 2014
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
| | | | |
| | Inception | One | Five | Ten |
| | Date | Year | Years | Years |
| Investor Shares | 1/6/1959 | 13.06% | 14.98% | 7.71% |
| Admiral Shares | 8/13/2001 | 13.20 | 15.15 | 7.90 |
See Financial Highlights for dividend and capital gains information.
13
U.S. Growth Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the 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 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 (96.1%)1 | | |
| Consumer Discretionary (21.5%) | |
| * | Priceline Group Inc. | 110,600 | 136,865 |
| | Home Depot Inc. | 973,668 | 111,728 |
| * | Liberty Interactive Corp. | | |
| | Class A | 3,094,641 | 91,385 |
| * | Amazon.com Inc. | 219,197 | 83,330 |
| | L Brands Inc. | 818,500 | 75,187 |
| | NIKE Inc. Class B | 660,262 | 64,125 |
| | Harley-Davidson Inc. | 896,193 | 56,971 |
| * | TripAdvisor Inc. | 567,012 | 50,606 |
| | Lowe’s Cos. Inc. | 671,359 | 49,741 |
| * | Discovery | | |
| | Communications Inc. | 1,619,378 | 49,407 |
| | Wynn Resorts Ltd. | 326,764 | 46,564 |
| * | O’Reilly Automotive Inc. | 206,570 | 42,994 |
| | Lennar Corp. Class A | 840,034 | 42,178 |
| | Ross Stores Inc. | 394,993 | 41,794 |
| | DR Horton Inc. | 1,458,625 | 39,835 |
| * | AutoZone Inc. | 61,169 | 39,312 |
| * | Netflix Inc. | 81,095 | 38,513 |
| | Las Vegas Sands Corp. | 623,889 | 35,499 |
| * | Sally Beauty Holdings Inc. | 1,044,370 | 35,007 |
| | Harman International | | |
| | Industries Inc. | 232,712 | 32,112 |
| * | Dollar General Corp. | 417,500 | 30,319 |
| | Comcast Corp. Class A | 489,839 | 29,087 |
| | Dunkin’ Brands Group Inc. | 579,003 | 27,132 |
| | Starbucks Corp. | 257,749 | 24,096 |
| | Wyndham Worldwide Corp. 211,380 | 19,337 |
| * | Discovery Communications | | |
| | Inc. Class A | 598,567 | 19,334 |
| | BorgWarner Inc. | 273,100 | 16,785 |
| *,^ | Tesla Motors Inc. | 69,749 | 14,183 |
| | VF Corp. | 112,900 | 8,655 |
| | Marriott International Inc. | | |
| | Class A | 98,259 | 8,165 |
| | Inditex SA ADR | 497,405 | 7,809 |
| | | |
| | | | Market |
| | | | Value |
| | | Shares | ($000) |
| | CarMax Inc. | 96,382 | 6,468 |
| | Vipshop Holdings Ltd. ADR | 116,400 | 2,846 |
| | | | 1,377,369 |
| Consumer Staples (6.4%) | | |
| | Walgreens Boots Alliance | | |
| | Inc. | 1,352,317 | 112,351 |
| * | Monster Beverage Corp. | 358,709 | 50,621 |
| | CVS Health Corp. | 384,946 | 39,984 |
| | Mondelez International Inc. | | |
| | Class A | 1,033,417 | 38,169 |
| | Anheuser-Busch InBev | | |
| | NV ADR | 224,623 | 28,451 |
| | Estee Lauder Cos. Inc. | | |
| | Class A | 339,536 | 28,070 |
| | Keurig Green Mountain Inc. 163,692 | 20,884 |
| | Whole Foods Market Inc. | 352,240 | 19,898 |
| | Altria Group Inc. | 331,660 | 18,669 |
| | PepsiCo Inc. | 168,893 | 16,717 |
| | Mead Johnson Nutrition Co. 128,800 | 13,493 |
| | Costco Wholesale Corp. | 58,248 | 8,560 |
| | Colgate-Palmolive Co. | 61,283 | 4,340 |
| | Boston Beer Co. Inc. | | |
| | Class A | 15,972 | 4,274 |
| | Brown-Forman Corp. | | |
| | Class B | 44,236 | 4,056 |
| | | | 408,537 |
| Energy (3.5%) | | |
| | Williams Cos. Inc. | 1,184,650 | 58,095 |
| | Kinder Morgan Inc. | 1,267,100 | 51,964 |
| | EOG Resources Inc. | 567,425 | 50,909 |
| | Schlumberger Ltd. | 308,077 | 25,928 |
| | Pioneer Natural Resources | | |
| | Co. | 105,814 | 16,139 |
| | Noble Energy Inc. | 167,200 | 7,897 |
| * | Cobalt International Energy | | |
| | Inc. | 662,380 | 6,783 |
| | Apache Corp. | 88,345 | 5,816 |
| | Ultra Petroleum Corp. | 43,741 | 712 |
| | | | 224,243 |
14
| | | |
| U.S. Growth Fund | | |
| |
| |
| |
| | | | Market |
| | | | Value |
| | | Shares | ($000) |
| Financials (6.8%) | | |
| | Crown Castle International | | |
| | Corp. | 1,055,736 | 91,121 |
| | Intercontinental Exchange | | |
| | Inc. | 286,100 | 67,337 |
| * | Markel Corp. | 51,791 | 38,607 |
| | American Tower | | |
| | Corporation | 359,208 | 35,612 |
| | BlackRock Inc. | 93,043 | 34,558 |
| * | Affiliated Managers Group | | |
| | Inc. | 142,100 | 30,753 |
| | TD Ameritrade Holding | | |
| | Corp. | 750,078 | 27,205 |
| | Citigroup Inc. | 416,300 | 21,822 |
| | First Republic Bank | 278,994 | 15,903 |
| | Fairfax Financial Holdings | | |
| | Ltd. | 28,979 | 15,207 |
| | Berkshire Hathaway Inc. | | |
| | Class B | 85,803 | 12,648 |
| | M&T Bank Corp. | 104,258 | 12,615 |
| | Morgan Stanley | 222,902 | 7,978 |
| | US Bancorp | 177,764 | 7,930 |
| | Waddell & Reed Financial | | |
| | Inc. Class A | 134,067 | 6,631 |
| | MarketAxess Holdings Inc. | 50,718 | 4,037 |
| | American Express Co. | 43,845 | 3,577 |
| | | | 433,541 |
| Health Care (16.9%) | | |
| * | Celgene Corp. | 1,428,425 | 173,596 |
| | Allergan Inc. | 559,366 | 130,187 |
| * | Gilead Sciences Inc. | 864,814 | 89,534 |
| | Bristol-Myers Squibb Co. | 1,450,177 | 88,345 |
| * | Biogen Idec Inc. | 172,081 | 70,483 |
| | Novo Nordisk A/S ADR | 1,408,330 | 67,248 |
| * | Valeant Pharmaceuticals | | |
| | International Inc. | 319,900 | 63,174 |
| * | Actavis plc | 184,077 | 53,633 |
| | Perrigo Co. plc | 279,175 | 43,124 |
| * | Vertex Pharmaceuticals | | |
| | Inc. | 268,620 | 32,081 |
| * | IDEXX Laboratories Inc. | 202,986 | 31,834 |
| * | Regeneron | | |
| | Pharmaceuticals Inc. | 73,661 | 30,484 |
| | Merck & Co. Inc. | 460,279 | 26,945 |
| | Anthem Inc. | 167,346 | 24,508 |
| * | Medivation Inc. | 207,260 | 24,359 |
| | Zoetis Inc. | 446,000 | 20,556 |
| * | IMS Health Holdings Inc. | 733,397 | 19,303 |
| * | Illumina Inc. | 94,835 | 18,536 |
| * | Cerner Corp. | 225,800 | 16,271 |
| | AstraZeneca plc ADR | 220,110 | 15,166 |
| | BioMarin Pharmaceutical | | |
| | Inc. | 119,723 | 12,819 |
| | Alexion Pharmaceuticals | | |
| | Inc. | 40,068 | 7,227 |
| | | |
| | | | Market |
| | | | Value |
| | | Shares | ($000) |
| | McKesson Corp. | 28,640 | 6,550 |
| | Shire plc ADR | 25,811 | 6,244 |
| | Genomic Health Inc. | 203,823 | 6,196 |
| | Seattle Genetics Inc. | 45,430 | 1,647 |
| | | | 1,080,050 |
| Industrials (5.5%) | | |
| | Equifax Inc. | 617,356 | 57,642 |
| * | Stericycle Inc. | 327,056 | 44,143 |
| ^ | Nielsen NV | 701,074 | 31,695 |
| * | IHS Inc. Class A | 240,955 | 28,319 |
| | TransDigm Group Inc. | 127,564 | 27,663 |
| | AMETEK Inc. | 500,392 | 26,591 |
| | Kansas City Southern | 217,324 | 25,175 |
| | Union Pacific Corp. | 191,500 | 23,030 |
| | Watsco Inc. | 181,141 | 21,237 |
| | Precision Castparts Corp. | 71,900 | 15,552 |
| | JB Hunt Transport Services | | |
| | Inc. | 133,650 | 11,427 |
| | Pall Corp. | 91,485 | 9,223 |
| | Boeing Co. | 53,905 | 8,132 |
| | Canadian Pacific Railway | | |
| | Ltd. | 36,814 | 6,907 |
| | Danaher Corp. | 77,603 | 6,773 |
| ^ | NOW Inc. | 305,725 | 6,497 |
| | United Parcel Service Inc. | | |
| | Class B | 59,421 | 6,045 |
| | | | 356,051 |
| Information Technology (33.6%) | |
| | Apple Inc. | 2,105,723 | 270,501 |
| | MasterCard Inc. Class A | 2,345,496 | 211,400 |
| | Visa Inc. Class A | 562,795 | 152,692 |
| * | Google Inc. Class C | 260,354 | 145,382 |
| | Microsoft Corp. | 3,010,530 | 132,012 |
| * | eBay Inc. | 2,023,055 | 117,155 |
| | QUALCOMM Inc. | 1,487,550 | 107,862 |
| * | Facebook Inc. Class A | 1,236,106 | 97,615 |
| * | Adobe Systems Inc. | 1,214,325 | 96,053 |
| * | Equinix Inc. | 401,505 | 90,007 |
| * | Google Inc. Class A | 135,988 | 76,511 |
| * | Baidu Inc. ADR | 332,495 | 67,746 |
| * | Electronic Arts Inc. | 1,132,275 | 64,743 |
| * | Cognizant Technology | | |
| | Solutions Corp. Class A | 1,012,778 | 63,283 |
| | Intuit Inc. | 613,624 | 59,908 |
| * | salesforce.com inc | 633,179 | 43,930 |
| * | Yelp Inc. Class A | 871,589 | 41,836 |
| * | FleetCor Technologies Inc. | 239,620 | 36,765 |
| * | Alliance Data Systems | | |
| | Corp. | 124,993 | 34,812 |
| * | Alibaba Group Holding Ltd. | | |
| | ADR | 367,530 | 31,284 |
| * | Red Hat Inc. | 443,605 | 30,662 |
| * | Twitter Inc. | 599,444 | 28,821 |
| | CDW Corp. | 718,065 | 27,021 |
15
| | | |
| U.S. Growth Fund | | |
| |
| |
| |
| | | | Market |
| | | | Value |
| | | Shares | ($000) |
| | Texas Instruments Inc. | 403,700 | 23,738 |
| * | ServiceNow Inc. | 255,505 | 19,485 |
| * | Gartner Inc. | 227,700 | 18,924 |
| * | Akamai Technologies Inc. | 214,600 | 14,917 |
| | Oracle Corp. | 285,215 | 12,498 |
| | LinkedIn Corp. Class A | 41,934 | 11,205 |
| | Workday Inc. Class A | 84,954 | 7,264 |
| | Splunk Inc. | 72,034 | 4,844 |
| | FireEye Inc. | 84,064 | 3,721 |
| | Altera Corp. | 60,404 | 2,236 |
| | Zillow Group Inc. Class A | 19,304 | 2,215 |
| | Xilinx Inc. | 24,957 | 1,057 |
| | LendingClub Corp. | 8,078 | 165 |
| | | | 2,150,270 |
| Materials (1.4%) | | |
| | Sherwin-Williams Co. | 109,153 | 31,130 |
| | Eagle Materials Inc. | 263,256 | 20,666 |
| | Monsanto Co. | 149,474 | 18,001 |
| | Martin Marietta Materials | | |
| | Inc. | 79,472 | 11,311 |
| | Vulcan Materials Co. | 91,816 | 7,621 |
| | | | 88,729 |
| Other (0.0%) | | |
| *,2,3 WeWork Class A PP | 52,398 | 872 |
| 4 | Vanguard Growth ETF | 3,100 | 339 |
| | | | 1,211 |
| Telecommunication Services (0.5%) | |
| * | SBA Communications Corp. | |
| | Class A | 251,659 | 31,384 |
| Total Common Stocks | | |
| (Cost $4,097,454) | | 6,151,385 |
| Preferred Stocks (1.0%) | | |
| *,3 | Cloudera, Inc. Pfd. | 300,088 | 9,903 |
| *,3 | Uber Technologies PP | 1,408,784 | 46,938 |
| *,2,3 WeWork Pfd. D1 PP | 260,418 | 4,336 |
| *,2,3 WeWork Pfd. D2 PP | 204,614 | 3,407 |
| Total Preferred Stocks | | |
| (Cost $33,967) | | 64,584 |
| | | | |
| | | | | Market |
| | | | | Value |
| | | | Shares | ($000) |
| Temporary Cash Investments (4.3%)1 | |
| Money Market Fund (3.3%) | | |
| 5,6 | Vanguard Market | | | |
| | Liquidity Fund, | | | |
| | 0.134% | 210,031,741 | 210,032 |
| |
| | | | Face | |
| | | | Amount | |
| | | | ($000) | |
| Repurchase Agreement (0.8%) | | |
| | Bank of America Securities, | | |
| | LLC 0.070%, 3/2/15 | | |
| | (Dated 2/27/15, Repurchase | | |
| | Value $52,700,000, | | |
| | collateralized by Federal | | |
| | National Mortgage Assn. | | |
| | 0.000%–1.550%, | | | |
| | 5/15/15–10/29/19, and | | |
| | Federal Home Loan | | |
| | Mortgage Corp. 0.000%, | | |
| | 12/17/29, with a value of | | |
| | $53,755,000) | | 52,700 | 52,700 |
| |
| U.S. Government and Agency Obligations (0.2%) |
| 7,8 | Fannie Mae Discount | | |
| | Notes, 0.130%, 4/27/15 | 3,000 | 2,999 |
| 8,9 | Federal Home Loan Bank | | |
| | Discount Notes, 0.100%, | | |
| | 3/4/15 | | 3,000 | 3,000 |
| 8,9 | Federal Home Loan Bank | | |
| | Discount Notes, 0.100%, | | |
| | 4/17/15 | | 1,100 | 1,100 |
| 8,9 | Federal Home Loan Bank | | |
| | Discount Notes, 0.100%, | | |
| | 4/24/15 | | 1,300 | 1,300 |
| | | | | 8,399 |
| Total Temporary Cash Investments | |
| (Cost $271,131) | | | 271,131 |
| Total Investments (101.4%) | | |
| (Cost $4,402,552) | | | 6,487,100 |
| Other Assets and Liabilities (-1.4%) | |
| Other Assets | | | 36,511 |
| Liabilities6 | | | (123,093) |
| | | | | (86,582) |
| Net Assets (100%) | | | 6,400,518 |
16
U.S. Growth Fund
| |
| At February 28, 2015, net assets consisted of: |
| | Amount |
| | ($000) |
| Paid-in Capital | 4,114,214 |
| Overdistributed Net Investment Income | (5,563) |
| Accumulated Net Realized Gains | 197,870 |
| Unrealized Appreciation (Depreciation) | |
| Investment Securities | 2,084,548 |
| Futures Contracts | 9,452 |
| Foreign Currencies | (3) |
| Net Assets | 6,400,518 |
| |
| |
| Investor Shares—Net Assets | |
| Applicable to 134,663,870 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 4,246,575 |
| Net Asset Value Per Share— | |
| Investor Shares | $31.53 |
| |
| |
| Admiral Shares—Net Assets | |
| Applicable to 26,389,878 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 2,153,943 |
| Net Asset Value Per Share— | |
| Admiral Shares | $81.62 |
See Note A in Notes to Financial Statements. * Non-income-producing security.
^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $21,601,000.
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 98.5% and 1.9%, respectively, of net assets.
2 Security exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At February 28, 2015, the aggregate value of these securities was $8,615,000, representing 0.1% of net assets.
3 Restricted securities totaling $65,456,000, representing 1.0% of net assets.
4 Considered an affiliated company of the fund as the issuer is another member of The Vanguard Group.
5 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
6 Includes $22,472,000 of collateral received for securities on loan.
7 The issuer was placed under federal conservatorship in September 2008; since that time, its daily operations have been managed by the Federal Housing Finance Agency and it receives capital from the U.S. Treasury, as needed to maintain a positive net worth, in exchange for senior preferred stock.
8 Securities with a value of $6,499,000 have been segregated as initial margin for open futures contracts.
9 The issuer operates under a congressional charter; its securities are generally neither guaranteed by the U.S. Treasury nor backed by the full faith and credit of the U.S. government.
ADR—American Depositary Receipt.
See accompanying Notes, which are an integral part of the Financial Statements.
17
| |
| U.S. Growth Fund | |
| |
| |
| Statement of Operations | |
| |
| | Six Months Ended |
| | February 28, 2015 |
| | ($000) |
| Investment Income | |
| Income | |
| Dividends1,2 | 31,449 |
| Interest1 | 132 |
| Securities Lending | 90 |
| Total Income | 31,671 |
| Expenses | |
| Investment Advisory Fees—Note B | |
| Basic Fee | 5,318 |
| Performance Adjustment | 645 |
| The Vanguard Group—Note C | |
| Management and Administrative—Investor Shares | 5,271 |
| Management and Administrative—Admiral Shares | 1,214 |
| Marketing and Distribution—Investor Shares | 274 |
| Marketing and Distribution—Admiral Shares | 130 |
| Custodian Fees | 46 |
| Shareholders’ Reports—Investor Shares | 20 |
| Shareholders’ Reports—Admiral Shares | 4 |
| Trustees’ Fees and Expenses | 7 |
| Total Expenses | 12,929 |
| Expenses Paid Indirectly | (84) |
| Net Expenses | 12,845 |
| Net Investment Income | 18,826 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold1 | 310,105 |
| Futures Contracts | 2,700 |
| Foreign Currencies | 15 |
| Realized Net Gain (Loss) | 312,820 |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities | 258,716 |
| Futures Contracts | 5,768 |
| Foreign Currencies | (3) |
| Change in Unrealized Appreciation (Depreciation) | 264,481 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 596,127 |
1 Dividend income, interest income, and realized net gain (loss) from affiliated companies of the fund were $2,000, $124,000, and $0, respectively.
2 Dividends are net of foreign withholding taxes of $150,000.
See accompanying Notes, which are an integral part of the Financial Statements.
18
| | |
| U.S. Growth Fund | | |
| |
| |
| Statement of Changes in Net Assets | | |
| |
| | Six Months Ended | Year Ended |
| | February 28, | August 31, |
| | 2015 | 2014 |
| | ($000) | ($000) |
| Increase (Decrease) in Net Assets | | |
| Operations | | |
| Net Investment Income | 18,826 | 32,663 |
| Realized Net Gain (Loss) | 312,820 | 470,927 |
| Change in Unrealized Appreciation (Depreciation) | 264,481 | 634,032 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 596,127 | 1,137,622 |
| Distributions | | |
| Net Investment Income | | |
| Investor Shares | (24,620) | (13,264) |
| Admiral Shares | (15,003) | (7,331) |
| Realized Capital Gain1 | | |
| Investor Shares | (289,725) | — |
| Admiral Shares | (142,252) | — |
| Total Distributions | (471,600) | (20,595) |
| Capital Share Transactions | | |
| Investor Shares | 129,554 | 107,698 |
| Admiral Shares | 240,804 | 403,334 |
| Net Increase (Decrease) from Capital Share Transactions | 370,358 | 511,032 |
| Total Increase (Decrease) | 494,885 | 1,628,059 |
| Net Assets | | |
| Beginning of Period | 5,905,633 | 4,277,574 |
| End of Period2 | 6,400,518 | 5,905,633 |
1 Includes fiscal 2015 short-term gain distributions totaling $568,000. 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 ($5,563,000) and $15,219,000.
See accompanying Notes, which are an integral part of the Financial Statements.
19
| | | | | | | |
| U.S. Growth Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| |
| Investor Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $31.03 | $24.67 | $20.79 | $18.12 | $14.75 | $14.83 |
| Investment Operations | | | | | | | |
| Net Investment Income | | .094 | .168 | .134 | .068 | .1081 | .105 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | 2.883 | 6.303 | 3.861 | 2.679 | 3.370 | (.099) |
| Total from Investment Operations | 2.977 | 6.471 | 3.995 | 2.747 | 3.478 | .006 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (.194) | (.111) | (.115) | (. 077) | (.108) | (. 086) |
| Distributions from Realized Capital Gains | (2.283) | — | — | — | — | — |
| Total Distributions | | (2.477) | (.111) | (.115) | (. 077) | (.108) | (. 086) |
| Net Asset Value, End of Period | $31.53 | $31.03 | $24.67 | $20.79 | $18.12 | $14.75 |
| |
| Total Return2 | | 10.19% | 26.29% | 19.31% | 15.22% | 23.58% | -0.02% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $4,247 | $4,038 | $3,137 | $2,975 | $2,893 | $2,796 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets3 | | 0.48% | 0.44% | 0.45% | 0.45% | 0.44% | 0.45% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 0.58% | 0.59% | 0.59% | 0.35% | 0.61%1 | 0.66% |
| Portfolio Turnover Rate | | 37% | 36% | 38% | 43% | 89% | 74% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Net investment income per share and the ratio of net investment income to average net assets include $.016 and 0.09%, respectively, resulting from a special dividend from VeriSign Inc. in December 2010.
2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
3 Includes performance-based investment advisory fee increases (decreases) of 0.02%, (0.01%), (0.01%), (0.01%), (0.01%), and (0.03%).
See accompanying Notes, which are an integral part of the Financial Statements.
20
| | | | | | | |
| U.S. Growth Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| |
| Admiral Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $80.37 | $63.91 | $53.85 | $46.94 | $38.20 | $38.41 |
| Investment Operations | | | | | | | |
| Net Investment Income | | .303 | .557 | .440 | .258 | .3451 | .338 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | 7.477 | 16.293 | 10.002 | 6.924 | 8.734 | (.256) |
| Total from Investment Operations | 7.780 | 16.850 | 10.442 | 7.182 | 9.079 | .082 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (. 623) | (. 390) | (. 382) | (. 272) | (. 339) | (. 292) |
| Distributions from Realized Capital Gains | (5.907) | — | — | — | — | — |
| Total Distributions | | (6.530) | (. 390) | (. 382) | (. 272) | (. 339) | (. 292) |
| Net Asset Value, End of Period | $81.62 | $80.37 | $63.91 | $53.85 | $46.94 | $38.20 |
| |
| Total Return2 | | 10.29% | 26.44% | 19.51% | 15.38% | 23.77% | 0.13% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $2,154 | $1,868 | $1,141 | $869 | $678 | $737 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets3 | | 0.34% | 0.30% | 0.31% | 0.31% | 0.30% | 0.29% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 0.72% | 0.73% | 0.73% | 0.49% | 0.75%1 | 0.82% |
| Portfolio Turnover Rate | | 37% | 36% | 38% | 43% | 89% | 74% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Net investment income per share and the ratio of net investment income to average net assets include $.041 and 0.09%, respectively, resulting from a special dividend from VeriSign Inc. in December 2010.
2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
3 Includes performance-based investment advisory fee increases (decreases) of 0.02%, (0.01%), (0.01%), (0.01%), (0.01%), and (0.03%).
See accompanying Notes, which are an integral part of the Financial Statements.
21
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, and account-size criteria.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued at their fair values calculated according to procedures adopted by the board of trustees. These procedures include obtaining quotations from an independent pricing service, monitoring news to identify significant market- or security-specific events, and evaluating changes in the values of foreign market proxies (for example, ADRs, futures contracts, or exchange-traded funds), between the time the foreign markets close and the fund’s pricing time. When fair-value pricing is employed, the prices of securities used by a fund to calculate its net asset value may differ from quoted or published prices for the same securities. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Temporary cash investments acquired over 60 days to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments are valued at amortized cost, which approximates market value.
2. Foreign Currency: Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates obtained from an independent third party as of the fund’s pricing time on the valuation date. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the assets or liabilities are settled in cash, at which time they are recorded as realized foreign currency gains (losses).
3. Futures Contracts: The fund uses index futures contracts to a limited extent, with the objective of maintaining full exposure to the stock market while maintaining liquidity. The fund may purchase or sell futures contracts to achieve a desired level of investment, whether to accommodate portfolio turnover or cash flows from capital share transactions. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has
22
U.S. Growth Fund
entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.
Futures contracts are valued at their quoted daily settlement prices. The aggregate settlement values 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).
During the six months ended February 28, 2015, the fund’s average investments in long and short futures contracts represented 3% and 0% of net assets, respectively, based on the average of aggregate settlement values at each quarter-end during the period.
4. Repurchase Agreements: The fund enters into repurchase agreements with institutional counterparties. Securities pledged as collateral to the fund under repurchase agreements are held by a custodian bank until the agreements mature. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal. The fund further mitigates its counterparty risk by entering into repurchase agreements only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master repurchase agreements with its counterparties. The master repurchase agreements provide that, in the event of a counter-party’s default (including bankruptcy), the fund may terminate any repurchase agreements with that counterparty, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund. Such action may be subject to legal proceedings, which may delay or limit the disposition of collateral.
5. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (August 31, 2011–2014), and for the period ended February 28, 2015, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
6. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
7. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability
23
U.S. Growth Fund
in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
8. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $2.89 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2015, or at any time during the period then ended.
9. 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. 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.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. Wellington Management Company LLP, Jackson Square Partners, LLC, William Blair & Company, L.L.C., Jennison Associates LLC, and Baillie Gifford Overseas Ltd. each provide investment advisory services to a portion of the fund for a fee calculated at an annual percentage rate of average net assets managed by the advisor. The basic fee of Wellington Management Company LLP and Jackson Square Partners, LLC, are subject to quarterly adjustments based on performance for the preceding three years relative to the Russell 1000 Growth Index. The basic fee of William Blair & Company, L.L.C., is subject to quarterly adjustments based on performance for the preceding five years relative to the Russell 1000 Growth Index. In accordance with the advisory contracts entered into with Jennison Associates LLC and Baillie Gifford Overseas Ltd., beginning March 1, 2015, the investment advisory fees will be subject to quarterly adjustments based on performance since February 28, 2014, relative to the Russell 1000 Growth Index and the S&P 500 Index, respectively.
The Vanguard Group manages the cash reserves of the fund on an at-cost basis.
For the six months ended February 28, 2015, the aggregate investment advisory fee represented an effective annual basic rate of 0.18% of the fund’s average net assets, before an increase of $645,000 (0.02%) based on performance.
24
U.S. 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 based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At February 28, 2015, the fund had contributed capital of $566,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.23% 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, 2015, these arrangements reduced the fund’s expenses by $84,000 (an annual rate of 0.00% of average net assets).
E. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
The following table summarizes the market value of the fund’s investments as of February 28, 2015, based on the inputs used to value them:
| | | |
| | Level 1 | Level 2 | Level 3 |
| Investments | ($000) | ($000) | ($000) |
| Common Stocks | 6,150,513 | — | 872 |
| Preferred Stocks | — | — | 64,584 |
| Temporary Cash Investments | 210,032 | 61,099 | — |
| Futures Contracts—Liabilities1 | (507) | — | — |
| Total | 6,360,038 | 61,099 | 65,456 |
| 1 Represents variation margin on the last day of the reporting period. | | | |
The determination of Level 3 fair value measurements is governed by documented policies and procedures adopted by the board of trustees. The board has designated a pricing review committee, as an agent of the board, to ensure the timely analysis and valuation of Level 3 securities held by the fund in accordance with established policies and procedures. The pricing review committee employs various methods for calibrating valuation approaches, including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity. All valuation decisions made by the pricing review committee are reported to the board on a quarterly basis for review and ratification. The board reviews the adequacy of the fair value measurement policies and procedures in place on an annual basis.
25
U.S. Growth Fund
The following table summarizes changes in investments valued based on Level 3 inputs during the six months ended February 28, 2015. Transfers into or out of Level 3 are recognized based on values as of the date of transfer.
| |
| | Investments in |
| | Common Stocks and |
| | Preferred Stocks |
| Amount Valued Based on Level 3 Inputs | ($000) |
| Balance as of August 31, 2014 | 28,672 |
| Purchases | 8,616 |
| Change in Unrealized Appreciation (Depreciation) | 28,168 |
| Balance as of February 28, 2015 | 65,456 |
| Net change in unrealized appreciation (depreciation) from investments still held as of February 28, 2015 was $28,168,000. |
The following table provides quantitative information about the significant unobservable inputs used in fair value measurement as of February 28, 2015:
| | | | |
| | Fair Value | | | |
| Security Type | ($000) | Valuation Technique | Unobservable Input | Amount |
| Common Stocks | 872 | Market Approach | Purchase Price | $16.651 |
| Preferred Stocks | 64,584 | Market Approach | Purchase Price | 33.318 |
| | | | Purchase Price | 16.651 |
| | | | Recent Market Transaction | 33.000 |
Significant increases or decreases in the significant unobservable inputs used in the fair value measurement of the fund’s Level 3 securities, in isolation, could result in a significantly higher or lower fair value measurement.
F. At February 28, 2015, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were:
| | | | |
| | | | | ($000) |
| | | | Aggregate | |
| | | Number of | Settlement | Unrealized |
| | | Long (Short) | Value | Appreciation |
| Futures Contracts | Expiration | Contracts | Long (Short) | (Depreciation) |
| S&P 500 Index | March 2015 | 247 | 129,848 | 8,469 |
| E-mini S&P Mid-Cap 400 Index | March 2015 | 94 | 14,143 | 988 |
| E-mini S&P 500 Index | March 2015 | 33 | 3,470 | (5) |
| | | | | 9,452 |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
26
U.S. Growth Fund
G. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year.
At February 28, 2015, the cost of investment securities for tax purposes was $4,402,552,000. Net unrealized appreciation of investment securities for tax purposes was $2,084,548,000, consisting of unrealized gains of $2,156,296,000 on securities that had risen in value since their purchase and $71,748,000 in unrealized losses on securities that had fallen in value since their purchase.
H. During the six months ended February 28, 2015, the fund purchased $1,081,825,000 of investment securities and sold $1,153,367,000 of investment securities, other than temporary cash investments.
| | | | |
| I. Capital share transactions for each class of shares were: | | | |
| | Six Months Ended | | Year Ended |
| | February 28, 2015 | August 31, 2014 |
| | Amount | Shares | Amount | Shares |
| | ($000) | (000) | ($000) | (000) |
| Investor Shares | | | | |
| Issued | 230,510 | 7,400 | 198,913 | 6,949 |
| Issued in Connection with Acquisition of | | | | |
| Vanguard Growth Equity Fund | — | — | 799,108 | 27,203 |
| Issued in Lieu of Cash Distributions | 309,765 | 10,561 | 13,072 | 475 |
| Redeemed | (410,721) | (13,433) | (903,395) | (31,625) |
| Net Increase (Decrease)—Investor Shares | 129,554 | 4,528 | 107,698 | 3,002 |
| Admiral Shares | | | | |
| Issued | 224,329 | 2,847 | 621,315 | 8,329 |
| Issued in Lieu of Cash Distributions | 149,006 | 1,963 | 6,850 | 96 |
| Redeemed | (132,531) | (1,659) | (224,831) | (3,034) |
| Net Increase (Decrease)—Admiral Shares | 240,804 | 3,151 | 403,334 | 5,391 |
J. Management has determined that no material events or transactions occurred subsequent to February 28, 2015, that would require recognition or disclosure in these financial statements.
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 any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.
28
| | | |
| Six Months Ended February 28, 2015 | | | |
| | Beginning | Ending | Expenses |
| | Account Value | Account Value | Paid During |
| U.S. Growth Fund | 8/31/2014 | 2/28/2015 | Period |
| Based on Actual Fund Return | | | |
| Investor Shares | $1,000.00 | $1,101.93 | $2.50 |
| Admiral Shares | 1,000.00 | 1,102.93 | 1.77 |
| Based on Hypothetical 5% Yearly Return | | | |
| Investor Shares | $1,000.00 | $1,022.41 | $2.41 |
| Admiral Shares | 1,000.00 | 1,023.11 | 1.71 |
The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios for that period are 0.48% for Investor Shares and 0.34% for Admiral Shares. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period.
29
Trustees Approve Advisory Arrangements
The board of trustees of Vanguard U.S. Growth Fund has renewed the fund’s investment advisory arrangements with Baillie Gifford Overseas Ltd. (Baillie Gifford), Jackson Square Partners, LLC (Jackson Square), Jennison Associates LLC (Jennison), Wellington Management Company LLP (Wellington Management), and William Blair & Company, L.L.C. (William Blair). The board determined that renewing the fund’s advisory arrangements was in the best interests of the fund and its shareholders.
Nature, extent, and quality of services
The board considered the quality of the fund’s investment management services over both the short and long term, and took into account the organizational depth and stability of each advisor. The board noted the following:
Baillie Gifford. Baillie Gifford is a unit of Baillie Gifford & Co., which was founded in 1908 and is among the largest independently owned investment management firms in the United Kingdom. Baillie Gifford’s investment approach is based on long-term investment in well-researched and well-managed businesses that enjoy sustainable competitive advantages within their industry. The firm employs a fundamental bottom-up approach to identify attractively valued growth companies with strong financial productivity, earnings growth, and balance sheets. Baillie Gifford began managing a portion of the fund in 2014.
Jackson Square. Founded in February 2014, Jackson Square invests primarily in common stocks of large-capitalization, growth-oriented companies that it believes have long-term capital appreciation potential and are expected to grow faster than the U.S. economy. Jackson Square uses a bottom-up approach, seeking companies that have large-end market potential, dominant business models, and strong free cash flow generation that is attractively priced compared to the intrinsic value of the securities. Jackson Square was founded by the same investment team that has managed a portion of the fund since 2010, previously as a part of Delaware Investments.
Jennison. Jennison, founded in 1969, is an indirect, wholly owned subsidiary of Prudential Financial Inc. Jennison utilizes internal fundamental research and a highly interactive stock selection process to identify companies that exhibit above-average growth in units, revenues, earnings, and cash flows. When analyzing a company for purchase or sale, Jennison focuses on the duration of the company’s growth opportunity and seeks to capture inflection points in the company’s growth trajectory. Jennison began managing a portion of the fund in 2014.
Wellington Management. Wellington Management which was founded in 1928, is among the nation’s oldest and most respected institutional managers. The firm employs a traditional, bottom-up fundamental research approach to identify companies with sustainable growth advantages and reasonable valuations. Wellington Management identifies companies that have demonstrated above-average growth in the past and follows up with a thorough review of each company’s business model and an assessment of its valuation. The goal of this review is to identify companies with high returns on capital, superior business management, and high-quality balance sheets. Wellington Management has managed a portion of the fund since 2010.
William Blair. Founded in 1935, William Blair is an independently owned full-service investment firm. The firm uses an investment process that relies on thorough fundamental research. Based on this process, it invests in quality companies that it believes will grow faster or sustain an above-average growth rate for longer than the market expects. In selecting stocks, William Blair considers
30
each company’s leadership position within the company’s market, the quality of products or services it provides, its return on equity, its accounting policies, and the quality of the management team. William Blair has advised a portion of the fund since 2004.
The board concluded that each advisor’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangements.
Investment performance
The board considered the short- and long-term performance of the fund and each advisor, including any periods of outperformance or underperformance relative to a benchmark index and peer group. The board concluded that the performance was such that each advisory arrangement should continue. 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 below the average expense ratio charged by funds in its peer group and that the fund’s advisory fee rate was also well below its peer-group average. Information about the fund’s expenses appears in the About Your Fund’s Expenses section of this report as well as in the Financial Statements section, which also includes information about the fund’s advisory fee rate.
The board did not consider the profitability of Baillie Gifford, Jackson Square, Jennison, Wellington Management, or William Blair in determining whether to approve the advisory fees, because the advisors are independent of Vanguard, and the advisory fees are the result of arm’s-length negotiations.
The benefit of economies of scale
The board concluded that the fund’s shareholders benefit from economies of scale because of breakpoints in the advisory fee schedule for Baillie Gifford, Jackson Square, Jennison, Wellington Management, and William Blair. The breakpoints reduce the effective rate of the fees as the fund’s assets managed by each advisor increase.
The board will consider whether to renew the advisory arrangement again after a one-year period.
31
Glossary
30-Day SEC Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (for bonds), its actual income (for asset-backed securities), or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.
Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Dividend Yield. Dividend income earned by stocks, expressed as a percentage of the aggregate market value (or of net asset value, for a fund). The yield is determined by dividing the amount of the annual dividends by the aggregate value (or net asset value) at the end of the period. For a fund, the dividend yield is based solely on stock holdings and does not include any income produced by other investments.
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.
Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.
Foreign Holdings. The percentage of a fund represented by securities or depositary receipts of companies based outside the United States.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.
32
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.
33
This page intentionally left blank.
This page intentionally left blank.
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 178 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
InterestedTrustee1
F. William McNabb III
Born 1957. Trustee Since July 2009. Chairman of the Board. Principal Occupation(s) During the Past Five Years and Other Experience: Chairman of the Board of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group, since January 2010; Director of The Vanguard Group 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).
IndependentTrustees
Emerson U. Fullwood
Born 1948. Trustee Since January 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Executive Chief Staff and Marketing Officer for North America and Corporate Vice President (retired 2008) of Xerox Corporation (document management products and services); Executive in Residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology; Director of SPX Corporation (multi-industry manufacturing), the United Way of Rochester, Amerigroup Corporation (managed health care), the University of Rochester Medical Center, Monroe Community College Foundation, and North Carolina A&T University.
Rajiv L. Gupta
Born 1945. Trustee Since December 2001.2 Principal Occupation(s) During the Past Five Years and Other Experience: Chairman and Chief Executive Officer (retired 2009) and President (2006–2008) of Rohm and Haas Co. (chemicals); Director of Tyco International PLC (diversified manufacturing and services), Hewlett-Packard Co. (electronic computer manufacturing), and Delphi Automotive PLC (automotive components); Senior Advisor at New Mountain Capital.
Amy Gutmann
Born 1949. Trustee Since June 2006. Principal Occupation(s) During the Past Five Years and Other Experience: President of the University of Pennsylvania; Christopher H. Browne Distinguished Professor of Political Science, School of Arts and Sciences, and Professor of Communication, Annenberg School for Communication, with secondary faculty appointments in the Department of Philosophy, School of Arts and Sciences, and at the Graduate School of Education, University of Pennsylvania; Trustee of the National Constitution Center; Chair of the Presidential Commission for the Study of Bioethical Issues.
JoAnn Heffernan Heisen
Born 1950. Trustee Since July 1998. Principal Occupation(s) During the Past Five Years and Other Experience: Corporate Vice President and Chief Global Diversity Officer (retired 2008) and Member of the Executive Committee (1997–2008) of Johnson & Johnson (pharmaceuticals/medical devices/ consumer products); Director of Skytop Lodge Corporation (hotels), the University Medical Center at Princeton, the Robert Wood Johnson Foundation, and the Center for Talent Innovation; Member of the Advisory Board of the Institute for Women’s Leadership at Rutgers University.
F. Joseph Loughrey
Born 1949. Trustee Since October 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2009) of Cummins Inc. (industrial machinery); Chairman of the Board of Hillenbrand, Inc. (specialized consumer services), and of Oxfam America; Director of SKF AB (industrial machinery), Hyster-Yale Materials Handling, Inc. (forklift trucks), the Lumina Foundation for Education, and the V Foundation for Cancer Research; Member of the Advisory Council for the College of Arts and Letters and of the Advisory Board to the Kellogg Institute for International Studies, both at the University of Notre Dame.
Mark Loughridge
Born 1953. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Senior Vice President and Chief Financial Officer (retired 2013) at IBM (information technology services); Fiduciary Member of IBM’s Retirement Plan Committee (2004–2013); Director of the Dow Chemical Company; Member of the Council on Chicago Booth.
Scott C. Malpass
Born 1962. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Chief Investment Officer and Vice President at the University of Notre Dame; Assistant Professor of Finance at the Mendoza College of Business at Notre Dame; Member of the Notre Dame 403(b) Investment Committee; Board Member of TIFF Advisory Services, Inc., and Catholic Investment Services, Inc. (investment advisors); Member of the Investment Advisory Committee of Major League Baseball.
André F. Perold
Born 1952. Trustee Since December 2004. Principal Occupation(s) During the Past Five Years and Other Experience: George Gund Professor of Finance and Banking, Emeritus at the Harvard Business School (retired 2011); Chief Investment Officer and Managing Partner of HighVista Strategies LLC (private investment firm); Director of Rand Merchant Bank; Overseer of the Museum of Fine Arts Boston.
Peter F. Volanakis
Born 1955. Trustee Since July 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2010) of Corning Incorporated (communications equipment); Trustee of Colby-Sawyer College; Member of the Advisory Board of the Norris Cotton Cancer Center and of the Advisory Board of the Parthenon Group (strategy consulting).
Executive Officers
Glenn Booraem
Born 1967. Controller Since July 2010. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Controller of each of the investment companies served by The Vanguard Group; Assistant Controller of each of the investment companies served by The Vanguard Group (2001–2010).
Thomas J. Higgins
Born 1957. Chief Financial Officer Since September 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Chief Financial Officer of each of the investment companies served by The Vanguard Group; Treasurer of each of the investment companies served by The Vanguard Group (1998–2008).
Kathryn J. Hyatt
Born 1955. Treasurer Since November 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group; Assistant Treasurer of each of the investment companies served by The Vanguard Group (1988–2008).
Heidi Stam
Born 1956. Secretary Since July 2005. Principal Occupation(s) During the Past Five Years and Other Experience: Managing Director of The Vanguard Group, Inc.; General Counsel of The Vanguard Group; Secretary of The Vanguard Group and of each of the investment companies served by The Vanguard Group; Director and Senior Vice President of Vanguard Marketing Corporation.
Vanguard Senior Management Team
| |
Mortimer J. Buckley Kathleen C. Gubanich Paul A. Heller Martha G. King John T. Marcante | Chris D. McIsaac Michael S. Miller James M. Norris Glenn W. Reed |
Chairman Emeritus and Senior Advisor
John J. Brennan
Chairman, 1996–2009
Chief Executive Officer and President, 1996–2008
Founder
John C. Bogle
Chairman and Chief Executive Officer, 1974–1996
1 Mr. McNabb is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the Vanguard funds.
2 December 2002 for Vanguard Equity Income Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.
P.O. Box 2600
Valley Forge, PA 19482-2600
Connect with Vanguard® > vanguard.com
| |
| Fund Information > 800-662-7447 | CFA® is a registered trademark owned by CFA Institute. |
| Direct Investor Account Services > 800-662-2739 | |
| Institutional Investor Services > 800-523-1036 | |
| Text Telephone for People | |
| With Hearing Impairment > 800-749-7273 | |
| |
| This material may be used in conjunction | |
| with the offering of shares of any Vanguard | |
| fund only if preceded or accompanied by | |
| the fund’s current prospectus. | |
| |
| All comparative mutual fund data are from Lipper, a | |
| Thomson Reuters Company, or Morningstar, Inc., unless | |
| otherwise noted. | |
| |
| You can obtain a free copy of Vanguard’s proxy voting | |
| guidelines by visiting vanguard.com/proxyreporting or by | |
| calling Vanguard at 800-662-2739. The guidelines are | |
| also available from the SEC’s website, sec.gov. In | |
| addition, you may obtain a free report on how your fund | |
| voted the proxies for securities it owned during the 12 | |
| months ended June 30. To get the report, visit either | |
| vanguard.com/proxyreporting or sec.gov. | |
| |
| You can review and copy information about your fund at | |
| the SEC’s Public Reference Room in Washington, D.C. To | |
| find out more about this public service, call the SEC at | |
| 202-551-8090. Information about your fund is also | |
| available on the SEC’s website, and you can receive | |
| copies of this information, for a fee, by sending a | |
| request in either of two ways: via e-mail addressed to | |
| publicinfo@sec.gov or via regular mail addressed to the | |
| Public Reference Section, Securities and Exchange | |
| Commission, Washington, DC 20549-1520. | |
| |
| | © 2015 The Vanguard Group, Inc. |
| | All rights reserved. |
| | Vanguard Marketing Corporation, Distributor. |
| |
| | Q232 042015 |
Semiannual Report | February 28, 2015
Vanguard International Growth Fund
The mission continues
On May 1, 1975, Vanguard began operations, a fledgling company based on the simple but revolutionary idea that a mutual fund company should be managed solely in the interest of its investors.
Four decades later, that revolutionary spirit continues to animate the enterprise. Vanguard remains on a mission to give investors the best chance of investment success.
As we mark our 40th anniversary, we thank you for entrusting your assets to Vanguard and giving us the opportunity to help you reach your financial goals in the decades to come.
| |
| Contents | |
| Your Fund’s Total Returns. | 1 |
| Chairman’s Letter. | 2 |
| Advisors’ Report. | 7 |
| Fund Profile. | 12 |
| Performance Summary. | 14 |
| Financial Statements. | 15 |
| About Your Fund’s Expenses. | 31 |
| Trustees Approve Advisory Arrangements. | 33 |
| Glossary. | 35 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
About the cover: Since our founding, Vanguard has drawn inspiration from the enterprise and valor demonstrated by British naval hero Horatio Nelson and his command at the Battle of the Nile in 1798. The photograph displays a replica of a merchant ship from the same era as Nelson’s flagship, the HMS Vanguard.
| | | | |
| Your Fund’s Total Returns | | | | |
| |
| |
| |
| |
| Six Months Ended February 28, 2015 | | | | |
| | | | | Total |
| | | | | Returns |
| Vanguard International Growth Fund | | | | |
| Investor Shares | | | | -1.69% |
| Admiral™ Shares | | | | -1.62 |
| MSCI All Country World Index ex USA | | | | -3.78 |
| International Funds Average | | | | -1.86 |
| International Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | | |
| Admiral Shares carry lower expenses and are available to investors who meet certain account-balance requirements. | |
| |
| Your Fund’s Performance at a Glance | | | | |
| August 31, 2014, Through February 28, 2015 | | | | |
| | | | Distributions Per Share |
| | Starting | Ending | Income | Capital |
| | Share Price | Share Price | Dividends | Gains |
| Vanguard International Growth Fund | | | | |
| Investor Shares | $23.79 | $22.87 | $0.494 | $0.000 |
| Admiral Shares | 75.70 | 72.71 | 1.687 | 0.000 |
1
Chairman’s Letter
Dear Shareholder,
Vanguard International Growth Fund returned –1.69% for Investor Shares (–1.62% for Admiral Shares) in the six months ended February 28, 2015. These results placed it ahead of its benchmark index and the average return of international peer funds.
Foreign currency translation effects again played a significant role in the performance of international stocks for U.S. dollar-based investors. In local currencies, the MSCI All Country World Index ex USA posted a healthy six-month return of more than 8%, outpacing the broad U.S. stock market. But the continued weakening of major currencies—including the euro, the pound sterling, and the yen—against the dollar trimmed nearly 12 percentage points off the index’s local-currency return when translated into dollars.
Your advisors added value compared with the benchmark across both developed and emerging markets, in dollar terms. In many cases, this meant that the fund’s holdings in a given country declined less than those in the benchmark.
A surge in February powered U.S. stocks for the period
U.S. stocks performed solidly but unevenly over the six months. Despite declines in two of those months and flat returns in another, the broad U.S. stock market ended the period up about 6%.
2
The overall return was propelled by a robust advance in February, when the broad market recorded its largest monthly gain since October 2011. Investors were cheered by stabilization in oil prices and guidance from the Federal Reserve that it wouldn’t raise interest rates prematurely.
After some ups and downs, international stocks returned about –3% in dollar terms. In addition to the dollar’s strength, various geopolitical issues restrained results. Stocks in emerging and developed markets backtracked, with emerging markets faring worse. As I mentioned, however, the broad international market rose in local currency terms.
Bonds notched positive results despite early and late retreats
The broad U.S. taxable bond market returned 2.25%, although bond prices declined over the period’s first and final months. When the stock market turned volatile, investors favored the relative safety offered by bonds, which also benefited from various global stimulus programs.
Bond prices fell in February as the Fed suggested that a midyear interest rate increase was an option if the economy continued to perform well. Still, the yield of the 10-year Treasury note ended February at 2.03%, down from 2.34% six months earlier. (Bond prices and yields move in opposite directions.)
| | | |
| Market Barometer | | | |
| |
| | | | Total Returns |
| | | Periods Ended February 28, 2015 |
| | Six | One | Five Years |
| | Months | Year | (Annualized) |
| Stocks | | | |
| Russell 1000 Index (Large-caps) | 6.00% | 14.88% | 16.39% |
| Russell 2000 Index (Small-caps) | 5.70 | 5.63 | 15.97 |
| Russell 3000 Index (Broad U.S. market) | 5.98 | 14.12 | 16.36 |
| FTSE All-World ex US Index (International) | -3.34 | 1.69 | 6.94 |
| |
| Bonds | | | |
| Barclays U.S. Aggregate Bond Index (Broad taxable market) | 2.25% | 5.05% | 4.29% |
| Barclays Municipal Bond Index (Broad tax-exempt market) | 2.21 | 6.49 | 5.00 |
| Citigroup Three-Month U.S. Treasury Bill Index | 0.00 | 0.03 | 0.06 |
| |
| CPI | | | |
| Consumer Price Index | -1.32% | -0.03% | 1.61% |
3
Municipal bonds, which returned 2.21%, lost some steam toward the end of the period amid increased bond issuance and the prospect of higher interest rates.
International bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –9.54% for dollar-based investors, weighed down by the weakness of foreign currencies relative to the dollar. International bonds that were hedged to eliminate the effect of currency exchange rates produced positive returns.
Money market funds and savings accounts provided scant returns as the Fed’s target for short-term rates remained at 0%–0.25%.
Foreign-currency weakness masked non-U.S. stocks’ underlying strength
The first six months of your fund’s fiscal year were punctuated by volatility. Both the fund and its index returned about –5% in September. After several ups and downs, an advance of nearly 6% in February—similar to the U.S. market’s gain—wasn’t enough to pull the fund and its index into the black in U.S. dollar terms.
Flare-ups in geopolitical risk, including concerns about the outcome and impact of Greece’s January elections, contributed to stock market volatility. So, too, did economic growth trends and central bank policies that were on divergent paths in the United States as compared with many other countries.
| | | |
| Expense Ratios | | | |
| Your Fund Compared With Its Peer Group | | | |
| | Investor | Admiral | Peer Group |
| | Shares | Shares | Average |
| International Growth Fund | 0.47% | 0.34% | 1.39% |
The fund expense ratios shown are from the prospectus dated December 23, 2014, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2015, the fund’s annualized expense ratios were 0.48% for Investor Shares and 0.35% for Admiral Shares. The peer-group expense ratio is derived from data provided by Lipper, a Thomson Reuters Company, and captures information through year-end 2014.
Peer group: International Funds.
4
While the U.S. economy continued to grow, albeit at a moderate pace later in 2014, growth slowed in Europe, China, Japan, and elsewhere. And as the Fed wrapped up its bond-buying program in October, other major central banks, including in China and Japan, stepped up efforts to stimulate their economies. The European Central Bank’s long-awaited announcement that it would begin (in March) monthly bond purchases was a boon for Eurozone stock and bond markets—but it further weakened the euro. Adding to the complex picture of winners and losers, global oil prices tumbled, benefiting consumers and oil-importing nations but hurting energy companies and oil exporters.
Against this backdrop, developed markets in Europe, which continued to represent more than half of fund assets, drove results. In both larger and smaller countries, your fund posted mostly negative returns in U.S. dollars. The picture looked quite different in local currencies, however. Instead of a modest decline, developed Europe notched a double-digit gain in the fund, with advances in countries across the region. In the developed Pacific region, the fund’s modest gain in dollars also was a double-digit advance in local currencies.
Emerging markets as a whole declined in both dollars and local currencies. As a major oil exporter, Brazil bore some of the brunt of lower oil prices, but India was a bright spot, with a double-digit advance by both currency measures.
The holdings of your fund’s advisors outperformed the benchmark across all regions. In Europe, which was a disappointment in the previous fiscal year, the combination of a higher-than-benchmark commitment and advantageous stock selection was beneficial.
Reflecting the steep drop in global oil prices, the energy sector was the worst performer. The materials sector also struggled, as other natural resource prices slid. Your advisors’ selections among consumer discretionary stocks gave the sector a notable boost over the benchmark, as did their relatively light stake in energy stocks.
For more about the advisors’ strategies and the fund’s positioning during the six months, see the Advisors’ Report that follows this letter.
To build for the long term, start with a solid foundation
As the leader of a major investment firm, I get asked a lot of questions on all kinds of topics, from the outlook for global markets to the best fund choices for an IRA. But a topic that almost never comes up—and one that I consider perhaps the most important—is setting investment goals.
5
At Vanguard, we believe that following four timeless, straightforward principles can help put you on the right track toward investment success:
• Goals. Create clear, appropriate investment goals.
• Balance. Develop a suitable asset allocation using broadly diversified funds.
• Cost. Minimize cost.
• Discipline. Maintain perspective and long-term discipline.
All four are essential, and the order in which they’re listed is intentional. Every good investment plan begins with a clearly defined goal, which sets the foundation for building your portfolio. (You can read more about our principles in Vanguard’s Principles for Investing Success, available at vanguard.com/research.)
Setting an investment goal doesn’t have to be complicated. A goal can be as simple as saving for retirement or for a child’s college education. Being realistic about your goals—and how to meet them—can help you stick with your investment plan even when times get tough.
In many parts of the United States, it’s been an especially bitter and challenging winter, but spring is now upon us. The change of seasons can be an occasion for some financial spring cleaning. Consider taking time now to revisit your investment plan, ensuring that your objectives are clear, and making any necessary adjustments to help you reach your long-term financial goals.
As always, thank you for entrusting your assets to Vanguard.
Sincerely,
F. William McNabb III
Chairman and Chief Executive Officer
March 12, 2015
6
Advisors’ Report
For the six months ended February 28, 2015, Vanguard International Growth Fund returned –1.69%, ahead of its benchmark index and the average return of peer funds. Your fund is managed by three independent advisors, a strategy that enhances the fund’s diversification by providing exposure to distinct yet complementary investment approaches. It is not uncommon for different advisors to have different views about individual securities or the broader investment environment.
The advisors, the amount and 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 year and of how the portfolio’s positioning reflects this assessment. These comments were prepared on March 12, 2015.
Vanguard International Growth Fund Investment Advisors
| | | |
| | Fund Assets Managed | |
| Investment Advisor | % | $ Million | Investment Strategy |
| Baillie Gifford Overseas Ltd. | 53 | 11,815 | The advisor seeks stocks that can generate |
| | | | above-average growth in earnings and cash flow, |
| | | | producing a bottom-up, stock-driven approach to |
| | | | country and asset allocation. An in-depth view on each |
| | | | company is measured against the consensus view, |
| | | | leading to discrepancies and potential opportunities to |
| | | | add value. |
| Schroder Investment | 34 | 7,520 | Equity analysts located around the world and an |
| Management North America Inc. | | | international team of global sector specialists help to |
| | | | identify reasonably priced companies with strong |
| | | | growth prospects and a sustainable competitive |
| | | | advantage. |
| M&G Investment Management | 12 | 2,775 | The advisor constructs a portfolio using a long-term, |
| Limited | | | bottom-up investment approach focusing on |
| | | | attractively valued quality companies with ”economic |
| | | | moats” to protect their profitability and positive internal |
| | | | and external dynamics helping to grow the value of the |
| | | | business. |
| Cash Investments | 1 | 217 | These short-term reserves are invested by Vanguard in |
| | | | equity index products to simulate investment in stocks. |
| | | | Each advisor may also maintain a modest cash |
| | | | position. |
7
Baillie Gifford Overseas Ltd.
Portfolio Managers: James K. Anderson, Head of Global Equities Kave Sigaroudinia, Head of EAFE Alpha Research
Over the past six months, we have witnessed dramatic events such as cyber-terrorism, Russia’s currency collapse, and plunging oil prices. Our approach during turbulent periods is to remember that the long-term value of equities is rarely altered by a single event and that the market tends to overreact to dramatic headlines. Indeed, we often view such periods as an opportunity to add to companies we already hold and admire.
We remain enthusiastic about the opportunity for international growth investment and believe that many of the long-term trends reflected in our portion of the portfolio are highly durable: the growth of a productive, competitive China; the emergence of a consuming and saving middle class in Asia; reform and recovery in Europe; and the vital force of technological change. In seeking beneficiaries of such trends, we focus on finding innovative companies that have a good chance of becoming much larger, as well as companies with durable growth opportunities where we believe special cultures and management are strongly embedded.
These characteristics are reflected in some of our strongest contributions to performance during the period. Internet-related holdings, such as Tencent, Rakuten, and Amazon, contributed strongly as the global reach of technology continues to expand and disrupt industries. Italian car maker Fiat Chrysler Automobiles also performed well, with falling gasoline prices driving demand in the United States for its profitable Jeep and Ram brands. Fiat has announced plans to spin off Ferrari, and we continue to admire the ambition of the company, which is led by Sergio Marchionne.
Our most significant weakness came from European bank holdings Banco Popular, Banco Santander, and UniCredit, all of which we believe remain well placed over the long term to benefit from the dramatic consolidation in their respective home markets. SoftBank, the Japanese internet and telecom company with a substantial stake in China’s Alibaba, was also weak, and we took the opportunity to add to the holding.
Over the last six months, we participated in the initial public offerings of two exciting founder-driven online companies, Alibaba and Berlin-based Rocket Internet. We have also taken a new holding in German antibody research company MorphoSys. These purchases were funded by the sale of several long-term holdings, including Porsche, Taiwan Semiconductor Manufacturing Company, and British American Tobacco—businesses we consider increasingly mature.
8
Schroder Investment Management North America Inc.
Portfolio Manager: Simon Webber, CFA
The period was dominated by the weakening of almost all currencies against the U.S. dollar, which has dramatically improved the competitiveness of highly developed regions such as Japan and the Eurozone compared with the United States and China. The Eurozone in particular is showing signs of improvement, with consumer spending and corporate confidence responding well to the more favorable conditions.
The energy industry is struggling from overinvestment and a dramatic reduction in cash flow from lower oil prices. We reduced our already low exposure to the sector by trimming our position in BG Group, as we have become concerned that delays in its Brazilian project will hold back future growth. Our view has been that commodity prices will be weaker for some time. For that reason, we have been cautious in the energy and materials sectors, with only select investments where we believe there is a strong “self-help” story, such as the dramatic cost-cutting under way at BHP Billiton.
We benefited from relatively solid performance across our holdings. China Pacific Insurance was particularly strong; it has done an excellent job of improving the quality of its agents to take advantage of China’s underpenetrated life insurance market, which should grow strongly for the next 10 to 20 years.
There are several other exciting growth themes in international equity markets. Connectivity of people and machines to the internet is supporting growth for a range of technology and consumer-related businesses that are well-represented in the portfolio. The pharmaceutical industry continues to see heightened innovation and new product development, which has lifted many companies back into the growth category.
Lower commodity prices act as a large tax cut for consumers around the world, and we believe markets have been underestimating the stimulatory effects this will have on growth in 2015. The portfolio is well represented in stocks that will benefit from this extra consumer spending, such as Burberry, Diageo, and BMW.
India continues to be a very strong investment story, with a reforming and business-friendly government, growing labor force, and vibrant private sector. Although we did not change our portfolio much in the period, companies such as HDFC Bank and telecom firm Idea Cellular are core holdings to capture India’s expected long-term growth.
9
M&G Investment Management Limited
Portfolio Manager: Charles Anniss, CFA
Plummeting oil prices, geopolitical issues, the end of the U.S. Federal Reserve’s asset-buying program, and concerns over global growth prospects all contributed to bouts of risk aversion and widespread sell-offs in international markets during the six months. But there also were encouraging economic data from the United States and improving numbers from Europe, as well as increasing merger-and-acquisition activity, particularly in health care. Some central bank actions also helped keep sentiment buoyant.
The European Central Bank’s decision to undertake an extensive asset-buying program particularly lifted markets, though this did not make up for previous losses.
Stock picking in the oil and gas sector weighed heavily on our performance. Canadian global energy services firm ShawCor, Norwegian oil and gas producer Statoil, and Chinese oil company CNOOC all declined amid tumbling oil prices. The most significant laggard was Brazilian oil company Petroleo Brasileiro (Petrobras), which additionally has faced a corruption scandal, ratings agency downgrades, and general malaise in the Brazilian market.
Canadian metals and mining firm First Quantum Minerals also dragged down returns amid reduced demand for copper. U.K.-listed bank Standard Chartered, which generates most of its revenues in Asia and Africa, was hurt by currency weakness and other difficulties in some of these markets.
On the positive side, we were pleased to see the ongoing success of Japanese engineering components distributor Misumi. The company is made up of a well-established industrial components business and a newer B2B distribution business. During the period, Misumi published numbers that pleased investors; its shares have risen accordingly.
Other beneficial holdings included cruise ship operator Carnival, whose increased bookings along with lower oil prices enhanced its profitability, and Germany-based dialysis group Fresenius Medical Care, whose steady growth and operational successes helped boost its share price.
In October 2014, after we changed portfolio managers, portfolio turnover was slightly higher than usual. During the half year, we closed 14 positions, some on valuation grounds and others to pursue better opportunities. We sold Atlas Copco, a Swedish manufacturer of air compressors and mining equipment, believing its valuation had become stretched.
10
Examples of sales based on our decreased confidence in the investment thesis included lender Banco do Brasil and Brazilian iron ore miner Vale, and specialist steel pipe maker Vallourec. In light of declining iron ore pricing, as well as new capacity coming into operation to further increase supply, we were not confident in Vale’s long-term dynamics. Vale also is affected by Brazilian politics, and that uncertainty made it additionally difficult to justify maintaining the position; it was a similar case for Banco do Brasil. Vallourec has suffered from a number of difficulties, and we lost faith in its ability to effectively manage operations.
We added seven holdings that we believe have business models that are well-protected from competition and have positive end-market dynamics, including Brazilian lender Banco Bradesco, German chemical and pharmaceutical company Bayer, Japanese insurer Tokio Marine, and Dutch financial group ING.
11
International Growth Fund
Fund Profile
As of February 28, 2015
| | |
| Share-Class Characteristics | |
| | Investor | Admiral |
| | Shares | Shares |
| Ticker Symbol | VWIGX | VWILX |
| Expense Ratio1 | 0.47% | 0.34% |
| |
| |
| Portfolio Characteristics | |
| | | MSCI AC |
| | | World Index |
| | Fund | ex USA |
| Number of Stocks | 174 | 1,830 |
| Median Market Cap | $34.3B | $32.8B |
| Price/Earnings Ratio | 21.0x | 18.5x |
| Price/Book Ratio | 2.3x | 1.8x |
| Return on Equity | 17.1% | 14.9% |
| Earnings Growth | | |
| Rate | 18.2% | 11.9% |
| Dividend Yield | 1.8% | 2.7% |
| Turnover Rate | | |
| (Annualized) | 28% | — |
| Short-Term Reserves | 0.7% | — |
Sector Diversification (% of equity exposure)
| | |
| | | MSCI AC |
| | | World Index |
| | Fund | ex USA |
| Consumer Discretionary | 18.8% | 11.5% |
| Consumer Staples | 5.9 | 10.1 |
| Energy | 2.9 | 7.2 |
| Financials | 24.6 | 27.0 |
| Health Care | 8.3 | 8.9 |
| Industrials | 13.5 | 11.1 |
| Information Technology | 15.4 | 7.5 |
| Materials | 5.7 | 7.9 |
| Other | 0.5 | 0.0 |
| Telecommunication Services | 4.1 | 5.4 |
| Utilities | 0.3 | 3.4 |
| | |
| Volatility Measures | | |
| | MSCI AC |
| | | World |
| | | Index |
| | | ex USA |
| R-Squared | | 0.95 |
| Beta | | 1.03 |
| These measures show the degree and timing of the fund’s | |
| fluctuations compared with the indexes over 36 months. | |
| |
| Ten Largest Holdings (% of total net assets) |
| Tencent Holdings Ltd. | Internet Software & | |
| | Services | 3.0% |
| AIA Group Ltd. | Life & Health | |
| | Insurance | 2.8 |
| Fiat Chrysler | Automobile | |
| Automobiles NV | Manufacturers | 2.5 |
| Baidu Inc. | Internet Software & | |
| | Services | 2.3 |
| SoftBank Corp. | Wireless | |
| | Telecommunication | |
| | Services | 2.1 |
| ARM Holdings plc | Semiconductors | 2.1 |
| Inditex SA | Apparel Retail | 2.0 |
| Amazon.com Inc. | Internet Retail | 1.8 |
| SMC Corp. | Industrial Machinery | 1.7 |
| Atlas Copco AB | Industrial Machinery | 1.6 |
| Top Ten | | 21.9% |
| 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 23, 2014, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2015, the annualized expense ratios were 0.48% for Investor Shares and 0.35% for Admiral Shares.
12
International Growth Fund
Market Diversification (% of equity exposure)
| | |
| | | MSCI AC |
| | | World |
| | | Index |
| | Fund | ex USA |
| Europe | | |
| United Kingdom | 15.7% | 14.9% |
| France | 6.6 | 7.0 |
| Germany | 6.4 | 6.7 |
| Sweden | 5.9 | 2.3 |
| Switzerland | 5.7 | 6.6 |
| Spain | 5.5 | 2.4 |
| Italy | 4.9 | 1.7 |
| Denmark | 1.9 | 1.1 |
| Norway | 1.3 | 0.5 |
| Other | 2.0 | 4.2 |
| Subtotal | 55.9% | 47.4% |
| Pacific | | |
| Japan | 12.2% | 15.5% |
| Hong Kong | 4.5 | 2.2 |
| South Korea | 2.0 | 3.1 |
| Australia | 1.6 | 5.3 |
| Other | 0.4 | 1.1 |
| Subtotal | 20.7% | 27.2% |
| Emerging Markets | | |
| China | 8.6% | 4.8% |
| India | 2.7 | 1.6 |
| Taiwan | 1.2 | 2.7 |
| Brazil | 1.1 | 1.8 |
| Other | 3.8 | 7.2 |
| Subtotal | 17.4% | 18.1% |
| North America | | |
| United States | 2.9% | 0.0% |
| Canada | 2.0 | 6.9 |
| Subtotal | 4.9% | 6.9% |
| Middle East | | |
| Israel | 1.1% | 0.4% |
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 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, 2004, Through February 28, 2015
Average Annual Total Returns: Periods Ended December 31, 2014
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
| | | | |
| | Inception | One | Five | Ten |
| | Date | Year | Years | Years |
| Investor Shares | 9/30/1981 | -5.63% | 6.81% | 6.18% |
| Admiral Shares | 8/13/2001 | -5.51 | 6.95 | 6.35 |
See Financial Highlights for dividend and capital gains information.
14
International Growth Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the 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 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 (98.6%)1 | | |
| Australia (1.5%) | | |
| | James Hardie Industries | | |
| | plc | 6,196,069 | 73,173 |
| ^ | Fortescue Metals Group | | |
| | Ltd. | 37,171,012 | 72,067 |
| | Orica Ltd. | 3,443,000 | 53,246 |
| | Cochlear Ltd. | 743,560 | 52,476 |
| | Brambles Ltd. | 5,639,977 | 48,869 |
| | Amcor Ltd. | 2,980,552 | 31,775 |
| | | | 331,606 |
| Brazil (1.1%) | | |
| | Raia Drogasil SA | 6,997,349 | 70,401 |
| | Banco Bradesco SA | | |
| | Preference Shares | 3,975,000 | 52,858 |
| | Ambev SA | 8,075,800 | 52,223 |
| | Vale SA Class B ADR | 6,764,400 | 43,766 |
| | Petroleo Brasileiro SA | | |
| | Preference Shares | 5,751,000 | 19,462 |
| | | | 238,710 |
| Canada (2.0%) | | |
| | Toronto-Dominion Bank | 5,223,191 | 228,967 |
| | Suncor Energy Inc. | 2,745,991 | 82,439 |
| | Bank of Nova Scotia | 990,000 | 52,909 |
| | First Quantum Minerals | | |
| | Ltd. | 3,580,000 | 45,391 |
| | ShawCor Ltd. | 1,165,000 | 33,279 |
| | | | 442,985 |
| Chile (0.3%) | | |
| | Sociedad Quimica y | | |
| | Minera de Chile SA ADR | 2,334,900 | 60,007 |
| |
| China (8.5%) | | |
| * | Tencent Holdings Ltd. | 38,496,100 | 671,670 |
| * | Baidu Inc. ADR | 2,548,500 | 519,257 |
| * | Alibaba Group Holding | | |
| | Ltd. ADR | 3,074,601 | 261,710 |
| | CNOOC Ltd. | 68,337,000 | 97,770 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| * | New Oriental Education | | |
| | & Technology Group Inc. | |
| | ADR | 3,663,200 | 70,187 |
| | China Pacific Insurance | | |
| | Group Co. Ltd. | 11,275,800 | 58,858 |
| | Beijing Enterprises | | |
| | Holdings Ltd. | 7,574,500 | 56,234 |
| * | JD.com Inc. ADR | 1,930,100 | 53,406 |
| | Mindray Medical | | |
| | International Ltd. ADR | 1,455,000 | 41,118 |
| | Shandong Weigao Group | | |
| | Medical Polymer Co. | | |
| | Ltd. | 44,588,000 | 36,731 |
| * | Youku Tudou Inc. ADR | 2,077,149 | 34,044 |
| | | | 1,900,985 |
| Denmark (1.9%) | | |
| | Novo Nordisk A/S | | |
| | Class B | 4,218,199 | 201,860 |
| ^ | Novozymes A/S | 3,172,000 | 153,943 |
| | Chr Hansen Holding A/S | 1,508,200 | 67,526 |
| | | | 423,329 |
| Finland (0.6%) | | |
| | Nokia Oyj | 18,149,983 | 145,857 |
| |
| France (6.5%) | | |
| | Kering | 1,161,398 | 236,206 |
| | Schneider Electric SE | 2,789,298 | 224,120 |
| | Essilor International SA | 1,913,417 | 223,289 |
| | L’Oreal SA | 1,165,858 | 211,303 |
| | Sanofi | 1,212,757 | 118,618 |
| | Safran SA | 1,062,003 | 74,661 |
| | Airbus Group NV | 1,090,000 | 67,234 |
| | Societe Generale SA | 1,435,000 | 66,120 |
| | Publicis Groupe SA | 780,000 | 63,539 |
| | Total SA | 1,038,000 | 55,767 |
| | Suez Environnement Co. | 2,890,513 | 51,481 |
| | BNP Paribas SA | 867,142 | 50,398 |
| | | | 1,442,736 |
15
| | | |
| International Growth Fund | | |
| |
| |
| |
| | | | Market |
| | | | Value |
| | | Shares | ($000) |
| Germany (6.3%) | | |
| | SAP SE | 2,786,417 | 195,924 |
| | Bayer AG | 1,299,040 | 192,142 |
| | HeidelbergCement AG | 2,280,298 | 181,534 |
| | Volkswagen AG | 483,893 | 119,929 |
| | Continental AG | 486,172 | 116,028 |
| | GEA Group AG | 2,194,351 | 108,443 |
| | Bayerische Motoren | | |
| | Werke AG | 758,767 | 95,904 |
| *,2 | Rocket Internet AG - | | |
| | Private Placement | 1,400,656 | 71,831 |
| *,3 | Rocket Internet AG | 1,157,559 | 65,773 |
| | Fresenius Medical Care | | |
| | AG & Co. KGaA | 775,000 | 63,435 |
| | adidas AG | 745,000 | 57,943 |
| | MTU Aero Engines AG | 548,000 | 52,115 |
| * | MorphoSys AG | 604,515 | 50,475 |
| ^,* | AIXTRON SE | 3,130,112 | 25,066 |
| ^,* | SMA Solar Technology | | |
| | AG | 719,595 | 9,622 |
| | | | 1,406,164 |
| Hong Kong (4.5%) | | |
| | AIA Group Ltd. | 104,724,600 | 615,884 |
| | Jardine Matheson | | |
| | Holdings Ltd. | 2,879,147 | 185,727 |
| | Hong Kong Exchanges | | |
| | and Clearing Ltd. | 4,582,630 | 105,834 |
| | Techtronic Industries | | |
| | Co. Ltd. | 15,725,000 | 54,398 |
| | Hang Lung Properties | | |
| | Ltd. | 14,455,000 | 40,992 |
| | | | 1,002,835 |
| India (2.6%) | | |
| | Housing Development | | |
| | Finance Corp. Ltd. | 7,692,900 | 167,613 |
| | Idea Cellular Ltd. | 60,645,242 | 152,004 |
| | HDFC Bank Ltd. | 5,258,469 | 89,855 |
| | Zee Entertainment | | |
| | Enterprises Ltd. | 14,434,499 | 81,485 |
| | Tata Motors Ltd. | 4,396,667 | 40,993 |
| *,2 | Flipkart | 338,176 | 40,500 |
| | Larsen & Toubro Ltd. | 685,229 | 19,487 |
| | | | 591,937 |
| Indonesia (0.3%) | | |
| | Bank Mandiri Persero | | |
| | Tbk PT | 73,214,100 | 67,903 |
| |
| Ireland (0.8%) | | |
| * | Bank of Ireland | | |
| | (Dublin Shares) | 182,335,677 | 69,234 |
| | Kerry Group plc | | |
| | Class A | 910,000 | 66,141 |
| | |
| | | Market |
| | | Value |
| | Shares | ($000) |
| * Bank of Ireland | | |
| (London Shares) | 127,016,431 | 48,209 |
| | | 183,584 |
| Israel (1.1%) | | |
| * Check Point Software | | |
| Technologies Ltd. | 3,044,096 | 254,152 |
| |
| Italy (4.8%) | | |
| * Fiat Chrysler | | |
| Automobiles NV | 36,834,156 | 568,629 |
| UniCredit SPA | 46,869,744 | 311,680 |
| EXOR SPA | 3,114,856 | 138,597 |
| Intesa Sanpaolo SPA | | |
| (Registered) | 16,801,369 | 56,063 |
| | | 1,074,969 |
| Japan (11.9%) | | |
| SoftBank Corp. | 7,665,200 | 473,407 |
| SMC Corp. | 1,363,400 | 379,370 |
| Rakuten Inc. | 19,991,600 | 333,294 |
| Sumitomo Mitsui | | |
| Financial Group Inc. | 5,783,500 | 230,435 |
| Bridgestone Corp. | 4,786,900 | 183,630 |
| Astellas Pharma Inc. | 10,476,540 | 166,659 |
| M3 Inc. | 5,243,500 | 116,475 |
| Sekisui Chemical Co. Ltd. | 8,557,000 | 109,781 |
| Suzuki Motor Corp. | 3,048,300 | 96,459 |
| Kubota Corp. | 5,469,000 | 89,153 |
| Toyota Motor Corp. | 1,165,000 | 78,747 |
| Tokio Marine Holdings | | |
| Inc. | 2,075,000 | 75,591 |
| FANUC Corp. | 371,500 | 71,361 |
| Hitachi Ltd. | 10,348,000 | 70,849 |
| MISUMI Group Inc. | 1,670,000 | 66,982 |
| SBI Holdings Inc. | 4,470,400 | 55,822 |
| Daikin Industries Ltd. | 824,700 | 53,797 |
| | | 2,651,812 |
| Mexico (0.3%) | | |
| Grupo Financiero Banorte | | |
| SAB de CV | 11,693,119 | 63,598 |
| |
| Netherlands (0.3%) | | |
| * ING Groep NV | 4,450,000 | 66,008 |
| |
| Norway (1.3%) | | |
| Statoil ASA | 6,583,021 | 123,663 |
| Schibsted ASA | 1,760,994 | 105,041 |
| DNB ASA | 4,295,247 | 69,852 |
| | | 298,556 |
| Peru (0.8%) | | |
| Credicorp Ltd. | 1,191,679 | 173,056 |
| |
| Portugal (0.2%) | | |
| Jeronimo Martins | | |
| SGPS SA | 3,627,182 | 42,820 |
16
| | | |
| International Growth Fund | | |
| |
| |
| |
| | | | Market |
| | | | Value |
| | | Shares | ($000) |
| Russia (0.4%) | | |
| | Magnit PJSC GDR | 1,205,245 | 57,225 |
| * | Mail.ru Group Ltd. GDR | 1,266,000 | 23,954 |
| | | | 81,179 |
| Singapore (0.4%) | | |
| | DBS Group Holdings Ltd. | 3,690,748 | 52,921 |
| | Singapore Exchange Ltd. | 6,541,000 | 39,265 |
| | | | 92,186 |
| South Africa (0.1%) | | |
| | Sasol Ltd. | 650,000 | 23,464 |
| |
| South Korea (2.0%) | | |
| | NAVER Corp. | 222,208 | 133,714 |
| ^,* | Celltrion Inc. | 1,894,689 | 112,915 |
| | Hyundai Motor Co. | 514,782 | 75,259 |
| | Samsung Electronics Co. | | |
| | Ltd. | 51,500 | 63,695 |
| | Hankook Tire Co. Ltd. | 1,180,000 | 51,662 |
| | | | 437,245 |
| Spain (5.5%) | | |
| | Inditex SA | 14,235,782 | 446,506 |
| * | Banco Popular Espanol | | |
| | SA | 64,998,029 | 298,192 |
| * | Banco Santander SA | 27,573,835 | 201,610 |
| | Distribuidora | | |
| | Internacional de | | |
| | Alimentacion SA | 12,745,795 | 96,795 |
| | Telefonica SA | 5,929,393 | 92,115 |
| | Banco Bilbao Vizcaya | | |
| | Argentaria SA | 8,917,716 | 89,213 |
| | | | 1,224,431 |
| Sweden (5.9%) | | |
| | Atlas Copco AB Class A | 10,782,649 | 347,474 |
| | Svenska Handelsbanken | | |
| | AB Class A | 6,023,752 | 303,200 |
| | Investment AB Kinnevik | 8,819,732 | 296,549 |
| | Alfa Laval AB | 5,199,985 | 104,337 |
| | Sandvik AB | 8,283,298 | 92,843 |
| | Elekta AB Class B | 8,638,260 | 90,158 |
| | Volvo AB Class B | 6,810,975 | 82,121 |
| | | | 1,316,682 |
| Switzerland (5.7%) | | |
| | Nestle SA | 3,808,945 | 297,684 |
| | Syngenta AG | 656,488 | 231,989 |
| | Roche Holding AG | 841,279 | 229,240 |
| | Cie Financiere Richemont | | |
| | SA | 1,577,725 | 139,017 |
| | Credit Suisse Group AG | 3,344,882 | 81,588 |
| * | Novartis AG | 760,000 | 77,728 |
| | Lonza Group AG | 493,804 | 60,902 |
| | Holcim Ltd. | 770,000 | 59,402 |
| | | |
| | | | Market |
| | | | Value |
| | | Shares | ($000) |
| | Zurich Insurance Group | | |
| | AG | 160,000 | 51,169 |
| | Swatch Group AG | | |
| | (Bearer) | 96,145 | 43,887 |
| | | | 1,272,606 |
| Taiwan (1.1%) | | |
| | Taiwan Semiconductor | | |
| | Manufacturing Co. Ltd. | 44,974,000 | 214,575 |
| | MediaTek Inc. | 2,810,000 | 42,192 |
| | | | 256,767 |
| Thailand (0.7%) | | |
| | Kasikornbank PCL | | |
| | (Foreign) | 22,601,256 | 151,658 |
| |
| Turkey (0.9%) | | |
| | Turkiye Garanti Bankasi | | |
| | AS | 37,457,981 | 134,134 |
| | BIM Birlesik Magazalar | | |
| | AS | 3,235,727 | 60,633 |
| | | | 194,767 |
| United Kingdom (15.5%) | | |
| | ARM Holdings plc | 26,260,669 | 467,329 |
| | Prudential plc | 13,654,055 | 342,666 |
| | Rolls-Royce Holdings plc | 21,766,592 | 317,995 |
| | Aggreko plc | 6,818,283 | 179,364 |
| | Vodafone Group plc | 49,959,731 | 172,927 |
| | Standard Chartered plc | 10,983,167 | 167,746 |
| | BHP Billiton plc | 6,700,345 | 167,224 |
| ^ | Royal Dutch Shell plc | | |
| | Class A | 4,427,203 | 144,551 |
| | HSBC Holdings plc | 15,105,690 | 134,655 |
| | WPP plc | 4,673,271 | 110,413 |
| | Meggitt plc | 12,650,582 | 106,209 |
| | Burberry Group plc | 3,524,868 | 101,607 |
| | Diageo plc | 3,338,820 | 99,662 |
| | Reckitt Benckiser Group | | |
| | plc | 1,063,331 | 95,979 |
| * | Lloyds Banking Group | | |
| | plc | 78,161,660 | 95,211 |
| | Capita plc | 4,538,665 | 83,106 |
| | Imperial Tobacco Group | | |
| | plc | 1,490,845 | 73,368 |
| | G4S plc | 14,450,000 | 66,367 |
| | Inchcape plc | 5,580,000 | 63,277 |
| | Barclays plc | 15,813,096 | 62,617 |
| | Unilever plc | 1,385,000 | 61,088 |
| * | Ocado Group plc | 10,696,869 | 60,752 |
| ^,* | ASOS plc | 1,191,500 | 59,421 |
| | Ultra Electronics | | |
| | Holdings plc | 2,080,000 | 57,704 |
| | Spectris plc | 1,470,000 | 49,361 |
| | Carnival plc | 1,090,000 | 49,068 |
17
| | |
| International Growth Fund | | |
| |
| |
| |
| | | Market |
| | | Value |
| | Shares | ($000) |
| BG Group plc | 2,762,683 | 40,674 |
| Intertek Group plc | 1,025,000 | 39,964 |
| | | 3,470,305 |
| United States (2.8%) | | |
| * Amazon.com Inc. | 1,071,200 | 407,227 |
| MercadoLibre Inc. | 1,215,300 | 159,168 |
| Samsonite International | | |
| SA | 22,315,000 | 70,269 |
| | | 636,664 |
| Total Common Stocks | | |
| (Cost $17,821,090) | | 22,021,563 |
| Preferred Stock (0.0%) | | |
| Zee Entertainment | | |
| Enterprises Ltd. Pfd. | | |
| (Cost $732) | 55,114,719 | 784 |
| Temporary Cash Investments (2.9%)1 | |
| Money Market Fund (2.8%) | | |
| 4,5 Vanguard Market | | |
| Liquidity Fund, | | |
| 0.134% | 622,498,299 | 622,498 |
| | | |
| | | Face | Market |
| | | Amount | Value |
| | | ($000) | ($000) |
| U.S. Government and Agency Obligations (0.1%) |
| 6,7,8 Fannie Mae | | |
| | Discount Notes, | | |
| | 0.170%, 6/17/15 | 8,200 | 8,197 |
| 7,8,9 Federal Home Loan | | |
| | Bank Discount Notes, | | |
| | 0.105%, 3/4/15 | 2,000 | 2,000 |
| 7,8,9 Federal Home Loan | | |
| | Bank Discount Notes, | | |
| | 0.135%, 3/20/15 | 9,000 | 9,000 |
| 7,9 | Federal Home Loan | | |
| | Bank Discount Notes, | | |
| | 0.063%, 4/29/15 | 1,000 | 1,000 |
| 9 | Federal Home Loan | | |
| | Bank Discount Notes, | | |
| | 0.060%, 5/1/15 | 4,000 | 3,999 |
| 8,9 | Federal Home Loan | | |
| | Bank Discount Notes, | | |
| | 0.160%, 5/29/15 | 3,000 | 2,999 |
| 6,7 | Freddie Mac | | |
| | Discount Notes, | | |
| | 0.131%, 6/8/15 | 1,000 | 1,000 |
| | | | 28,195 |
| Total Temporary Cash Investments | |
| (Cost $650,691) | | 650,693 |
| Total Investments (101.5%) | | |
| (Cost $18,472,513) | | 22,673,040 |
| Other Assets and Liabilities (-1.5%) | |
| Other Assets | | 108,656 |
| Liabilities4 | | (454,127) |
| | | | (345,471) |
| Net Assets (100%) | | 22,327,569 |
18
International Growth Fund
| |
| At February 28, 2015, net assets consisted of: |
| | Amount |
| | ($000) |
| Paid-in Capital | 18,106,809 |
| Overdistributed Net Investment Income | (42,204) |
| Accumulated Net Realized Gains | 56,262 |
| Unrealized Appreciation (Depreciation) | |
| Investment Securities | 4,200,527 |
| Futures Contracts | 17,570 |
| Forward Currency Contracts | (9,188) |
| Foreign Currencies | (2,207) |
| Net Assets | 22,327,569 |
| |
| |
| Investor Shares—Net Assets | |
| Applicable to 356,043,055 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 8,143,040 |
| Net Asset Value Per Share— | |
| Investor Shares | $22.87 |
| |
| |
| Admiral Shares—Net Assets | |
| Applicable to 195,071,137 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 14,184,529 |
| Net Asset Value Per Share— | |
| Admiral Shares | $72.71 |
See Note A in Notes to Financial Statements.
^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $281,866,000.
* Non-income-producing security.
1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures investments, the fund’s effective common stock and temporary cash investment positions represent 99.5% and 2.0%, respectively, of net assets.
2 Restricted securities totaling $112,331,000, representing 0.5% of net assets.
3 Security exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At February 28, 2015, the value of this security represented 0.3% of net assets.
4 Includes $298,471,000 of collateral received for securities on loan.
5 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
6 The issuer was placed under federal conservatorship in September 2008; since that time, its daily operations have been managed by the Federal Housing Finance Agency and it receives capital from the U.S. Treasury, as needed to maintain a positive net worth, in exchange for senior preferred stock.
7 Securities with a value of $11,798,000 have been segregated as initial margin for open futures contracts.
8 Securities with a value of $10,768,000 have been segregated as collateral for open forward currency contracts.
9 The issuer operates under a congressional charter; its securities are generally neither guaranteed by the U.S. Treasury nor backed by the full faith and credit of the U.S. government.
ADR—American Depositary Receipt.
GDR—Global Depositary Receipt.
See accompanying Notes, which are an integral part of the Financial Statements.
19
| |
| International Growth Fund | |
| |
| |
| Statement of Operations | |
| |
| | Six Months Ended |
| | February 28, 2015 |
| | ($000) |
| Investment Income | |
| Income | |
| Dividends1 | 92,664 |
| Interest2 | 205 |
| Securities Lending | 5,511 |
| Total Income | 98,380 |
| Expenses | |
| Investment Advisory Fees—Note B | |
| Basic Fee | 15,945 |
| Performance Adjustment | 3,419 |
| The Vanguard Group—Note C | |
| Management and Administrative—Investor Shares | 10,602 |
| Management and Administrative—Admiral Shares | 8,895 |
| Marketing and Distribution—Investor Shares | 677 |
| Marketing and Distribution—Admiral Shares | 1,176 |
| Custodian Fees | 2,106 |
| Shareholders’ Reports—Investor Shares | 42 |
| Shareholders’ Reports—Admiral Shares | 31 |
| Trustees’ Fees and Expenses | 24 |
| Total Expenses | 42,917 |
| Net Investment Income | 55,463 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold | 389,267 |
| Futures Contracts | (71) |
| Foreign Currencies and Forward Currency Contracts | (25,534) |
| Realized Net Gain (Loss) | 363,662 |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities | (823,904) |
| Futures Contracts | 16,625 |
| Foreign Currencies and Forward Currency Contracts | (7,030) |
| Change in Unrealized Appreciation (Depreciation) | (814,309) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (395,184) |
| 1 Dividends are net of foreign withholding taxes of $7,317,000. | |
| 2 Interest income from an affiliated company of the fund was $193,000. | |
See accompanying Notes, which are an integral part of the Financial Statements.
20
| | |
| International Growth Fund | | |
| |
| |
| Statement of Changes in Net Assets | | |
| |
| | Six Months Ended | Year Ended |
| | February 28, | August 31, |
| | 2015 | 2014 |
| | ($000) | ($000) |
| Increase (Decrease) in Net Assets | | |
| Operations | | |
| Net Investment Income | 55,463 | 484,780 |
| Realized Net Gain (Loss) | 363,662 | 1,319,768 |
| Change in Unrealized Appreciation (Depreciation) | (814,309) | 1,803,465 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (395,184) | 3,608,013 |
| Distributions | | |
| Net Investment Income | | |
| Investor Shares | (176,910) | (139,508) |
| Admiral Shares | (320,445) | (202,880) |
| Realized Capital Gain | | |
| Investor Shares | — | — |
| Admiral Shares | — | — |
| Total Distributions | (497,355) | (342,388) |
| Capital Share Transactions | | |
| Investor Shares | (486,609) | (1,529,987) |
| Admiral Shares | 315,354 | 2,043,639 |
| Net Increase (Decrease) from Capital Share Transactions | (171,255) | 513,652 |
| Total Increase (Decrease) | (1,063,794) | 3,779,277 |
| Net Assets | | |
| Beginning of Period | 23,391,363 | 19,612,086 |
| End of Period1 | 22,327,569 | 23,391,363 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of ($42,204,000) and $407,022,000.
See accompanying Notes, which are an integral part of the Financial Statements.
21
| | | | | | | |
| International Growth Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| |
| Investor Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $23.79 | $20.42 | $17.69 | $18.27 | $16.27 | $15.73 |
| Investment Operations | | | | | | | |
| Net Investment Income | | . 052 | . 4711 | .336 | .361 | .351 | .291 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | (.478) | 3.235 | 2.741 | (.607) | 1.954 | .535 |
| Total from Investment Operations | (.426) | 3.706 | 3.077 | (.246) | 2.305 | .826 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (. 494) | (. 336) | (. 347) | (. 334) | (. 305) | (. 286) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | | (. 494) | (. 336) | (. 347) | (. 334) | (. 305) | (. 286) |
| Net Asset Value, End of Period | $22.87 | $23.79 | $20.42 | $17.69 | $18.27 | $16.27 |
| |
| Total Return2 | | -1.69% | 18.26% | 17.54% | -1.14% | 14.10% | 5.19% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $8,143 | $8,976 | $9,056 | $9,115 | $10,878 | $10,493 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets3 | | 0.48% | 0.47% | 0.48% | 0.49% | 0.47% | 0.49% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 0.43% | 2.08%1 | 1.71% | 2.04% | 1.85% | 1.74% |
| Portfolio Turnover Rate | | 28% | 21% | 31% | 30% | 43% | 44% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Net investment income per share and the ratio of net investment income to average net assets include $.080 and 0.35%, respectively, resulting from income received from Vodafone Group plc in the form of cash and shares in Verizon Communications Inc. in February 2014.
2 Total returns do not include transaction or account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable transaction and account service fees.
3 Includes performance-based investment advisory fee increases (decreases) of 0.03%, 0.03%, 0.03%, 0.04%, 0.03%, and 0.03%.
See accompanying Notes, which are an integral part of the Financial Statements.
22
| | | | | | | |
| International Growth Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| |
| Admiral Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $75.70 | $64.98 | $56.31 | $58.17 | $51.81 | $50.08 |
| Investment Operations | | | | | | | |
| Net Investment Income | | . 221 | 1.6131 | 1.157 | 1.229 | 1.192 | 1.009 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | (1.524) | 10.277 | 8.697 | (1.945) | 6.209 | 1.708 |
| Total from Investment Operations | (1.303) | 11.890 | 9.854 | (.716) | 7.401 | 2.717 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (1.687) | (1.170) | (1.184) | (1.144) | (1.041) | (.987) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | | (1.687) | (1.170) | (1.184) | (1.144) | (1.041) | (.987) |
| Net Asset Value, End of Period | $72.71 | $75.70 | $64.98 | $56.31 | $58.17 | $51.81 |
| |
| Total Return2 | | -1.62% | 18.42% | 17.66% | -1.01% | 14.21% | 5.36% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $14,185 | $14,415 | $10,556 | $7,523 | $6,487 | $4,353 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets3 | | 0.35% | 0.34% | 0.35% | 0.36% | 0.34% | 0.33% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 0.56% | 2.21%1 | 1.84% | 2.17% | 1.98% | 1.90% |
| Portfolio Turnover Rate | | 28% | 21% | 31% | 30% | 43% | 44% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Net investment income per share and the ratio of net investment income to average net assets include $.255 and 0.35%, respectively, resulting from income received from Vodafone Group plc in the form of cash and shares in Verizon Communications Inc. in February 2014.
2 Total returns do not include transaction or account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable transaction and account service fees.
3 Includes performance-based investment advisory fee increases (decreases) of 0.03%, 0.03%, 0.03%, 0.04%, 0.03%, and 0.03%.
See accompanying Notes, which are an integral part of the Financial Statements.
23
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 U.S. 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, and account-size criteria.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. 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 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. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and
24
International Growth Fund
clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.
The fund enters 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 fund’s risks in using these contracts include movement in the values of the foreign currencies relative to the U.S. dollar and the ability of the counterparties to fulfill their obligations under the contracts. The fund mitigates its counterparty risk by entering into forward currency contracts only with a diverse group of prequalified counterparties, monitoring their financial strength, entering into master netting arrangements with its counterparties, and requiring its counterparties to transfer collateral as security for their performance. The master netting arrangements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate the forward currency contracts, determine the net amount owed by either party in accordance with its master netting arrangements, and sell or retain any collateral held up to the net amount owed to the fund under the master netting arrangements. The forward currency contracts contain provisions whereby a counterparty may terminate open contracts if the fund’s net assets decline below a certain level, triggering a payment by the fund if the fund is in a net liability position at the time of the termination. The payment amount would be reduced by any collateral the fund has pledged. Any assets pledged as collateral for open contracts are noted in the Statement of Net Assets. The value of collateral received or pledged is compared daily to the value of the forward currency contracts exposure with each counterparty, and any difference, if in excess of a specified minimum transfer amount, is adjusted and settled within two business days.
Futures contracts are valued at their quoted daily settlement prices. Forward currency contracts are valued at their quoted daily prices obtained from an independent third party, adjusted for currency risk based on the expiration date of each contract. The aggregate settlement values and notional 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.
During the six months ended February 28, 2015, the fund’s average investments in long and short futures contracts represented 1% and 0% of net assets, respectively, based on the average of aggregate settlement values at each quarter-end during the period. The fund’s average investment in forward currency contracts represented 2% of net assets, based on the average of notional amounts at each quarter-end during the period.
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 for all open federal income tax years (August 31, 2011–2014), and for the period ended February 28, 2015, 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. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of
25
International Growth Fund
loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
7. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $2.89 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2015, or at any time during the period then ended.
8. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. 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.
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. Baillie Gifford Overseas Ltd., Schroder Investment Management North America Inc., and M&G Investment Management Limited 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 Baillie Gifford Overseas Ltd., Schroder Investment Management North America Inc., and M&G Investment Management Limited are subject to quarterly adjustments based on performance for the preceding three years relative to the MSCI All Country World Index ex USA.
26
International Growth Fund
The Vanguard Group manages the cash reserves of the fund on an at-cost basis.
For the six months ended February 28, 2015, the aggregate investment advisory fee represented an effective annual basic rate of 0.15% of the fund’s average net assets, before an increase of $3,419,000 (0.03%) based on performance.
C. The Vanguard Group furnishes at cost corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the fund based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At February 28, 2015, the fund had contributed capital of $1,985,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.79% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
D. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
The following table summarizes the market value of the fund’s investments as of February 28, 2015, based on the inputs used to value them:
| | | |
| | Level 1 | Level 2 | Level 3 |
| Investments | ($000) | ($000) | ($000) |
| Common Stocks—North and South America | 1,349,807 | 265,213 | — |
| Common Stocks—Other | 1,233,874 | 19,132,169 | 40,500 |
| Preferred Stock | — | 784 | — |
| Temporary Cash Investments | 622,498 | 28,195 | — |
| Futures Contracts—Assets1 | 608 | — | — |
| Forward Currency Contracts—Assets | — | 915 | — |
| Forward Currency Contracts—Liabilities | — | (10,103) | — |
| Total | 3,206,787 | 19,417,173 | 40,500 |
| 1 Represents variation margin on the last day of the reporting period. | | | |
Securities in certain countries may transfer between Level 1 and Level 2 because of differences in stock market closure times that may result from transitions between standard and daylight saving time in those countries and the United States. Based on values on the date of transfer, securities valued at $219,499,000 based on Level 2 inputs were transferred from Level 1 during the fiscal period.
27
International Growth Fund
E. At February 28, 2015, the fair values of derivatives were reflected in the Statement of Net Assets as follows:
| | | |
| | | Foreign | |
| | Equity | Exchange | |
| | Contracts | Contracts | Total |
| Statement of Net Assets Caption | ($000) | ($000) | ($000) |
| Other Assets | 608 | 915 | 1,523 |
| Liabilities | — | (10,103) | (10,103) |
Realized net gain (loss) and the change in unrealized appreciation (depreciation) on derivatives for the six months ended February 28, 2015, were:
| | | |
| | | Foreign | |
| | Equity | Exchange | |
| | Contracts | Contracts | Total |
| Realized Net Gain (Loss) on Derivatives | ($000) | ($000) | ($000) |
| Futures Contracts | (71) | — | (71) |
| Forward Currency Contracts | — | (21,461) | (21,461) |
| Realized Net Gain (Loss) on Derivatives | (71) | (21,461) | (21,532) |
| |
| Change in Unrealized Appreciation (Depreciation) on Derivatives | | | |
| Futures Contracts | 16,625 | — | 16,625 |
| Forward Currency Contracts | — | (3,849) | (3,849) |
| Change in Unrealized Appreciation (Depreciation) on Derivatives | 16,625 | (3,849) | 12,776 |
At February 28, 2015, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were:
| | | | |
| | | | | ($000) |
| | | | Aggregate | |
| | | Number of | Settlement | Unrealized |
| | | Long (Short) | Value | Appreciation |
| Futures Contracts | Expiration | Contracts | Long (Short) | (Depreciation) |
| Dow Jones EURO STOXX 50 Index | March 2015 | 1,663 | 66,965 | 7,125 |
| FTSE 100 Index | March 2015 | 548 | 58,604 | 3,589 |
| Topix Index | March 2015 | 419 | 53,468 | 4,095 |
| S&P ASX 200 Index | March 2015 | 223 | 25,808 | 2,761 |
| | | | | 17,570 |
Unrealized appreciation (depreciation) on open FTSE 100 Index and Dow Jones EURO STOXX 50 Index futures contracts is required to be treated as realized gain (loss) for tax purposes.
28
International Growth Fund
At February 28, 2015, the fund had open forward currency contracts to receive and deliver currencies as follows. Unrealized appreciation (depreciation) on open forward currency contracts is treated as realized gain (loss) for tax purposes.
| | | | | | |
| | | | | | | Unrealized |
| | Contract | | | | | Appreciation |
| | Settlement | | | Contract Amount (000) | (Depreciation) |
| Counterparty | Date | | Receive | | Deliver | ($000) |
| Bank of America, N.A. | 3/17/15 | JPY | 11,431,531 | USD | 96,105 | (520) |
| Bank of America, N.A. | 3/25/15 | EUR | 42,307 | USD | 52,958 | (5,599) |
| UBS AG | 3/25/15 | GBP | 23,011 | USD | 36,170 | (652) |
| Morgan Stanley Capital Services LLC | 3/25/15 | EUR | 22,193 | USD | 26,793 | (1,949) |
| Goldman Sachs International | 3/24/15 | AUD | 28,261 | USD | 22,967 | (918) |
| Morgan Stanley Capital Services LLC | 3/25/15 | GBP | 6,728 | USD | 10,505 | (120) |
| BNP Paribas | 3/25/15 | GBP | 4,364 | USD | 6,824 | (88) |
| Morgan Stanley Capital Services LLC | 3/25/15 | GBP | 3,716 | USD | 5,680 | 56 |
| Morgan Stanley Capital Services LLC | 3/17/15 | JPY | 652,050 | USD | 5,555 | (103) |
| Morgan Stanley Capital Services LLC | 3/24/15 | AUD | 2,715 | USD | 2,109 | 9 |
| UBS AG | 3/17/15 | JPY | 155,692 | USD | 1,306 | (5) |
| BNP Paribas | 3/24/15 | AUD | 278 | USD | 227 | (10) |
| BNP Paribas | 3/17/15 | USD | 53,553 | JPY | 6,374,949 | 248 |
| BNP Paribas | 3/25/15 | USD | 8,837 | EUR | 7,803 | 103 |
| UBS AG | 3/25/15 | USD | 7,670 | EUR | 6,475 | 422 |
| Bank of America, N.A. | 3/25/15 | USD | 6,200 | GBP | 4,107 | (139) |
| UBS AG | 3/24/15 | USD | 2,710 | AUD | 3,375 | 77 |
| | | | | | | (9,188) |
| AUD—Australian dollar. | | | | | | |
| EUR—Euro. | | | | | | |
| GBP—British pound. | | | | | | |
| JPY—Japanese yen. | | | | | | |
| USD—U.S. dollar. | | | | | | |
F. 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, 2015, the fund realized net foreign currency losses of $4,073,000, which decreased distributable net income for tax purposes; accordingly, such losses have been reclassified from accumulated net realized gains to overdistributed net investment income.
29
International Growth Fund
The fund realized gains on the sale of securities that were subject to capital gains tax in certain foreign countries. Capital gains taxes reduce realized gains for financial statement purposes but are treated as an expense for tax purposes. Accordingly, $3,261,000 of capital gains tax has been reclassified from accumulated net realized gains to overdistributed net investment income.
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at August 31, 2014, the fund had available capital losses totaling $322,464,000 to offset future net capital gains through August 31, 2018. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2015; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2015, the cost of investment securities for tax purposes was $18,472,513,000. Net unrealized appreciation of investment securities for tax purposes was $4,200,527,000, consisting of unrealized gains of $5,511,446,000 on securities that had risen in value since their purchase and $1,310,919,000 in unrealized losses on securities that had fallen in value since their purchase.
G. During the six months ended February 28, 2015, the fund purchased $3,064,203,000 of investment securities and sold $3,548,974,000 of investment securities, other than temporary cash investments.
| | | | |
| H. Capital share transactions for each class of shares were: | | | |
| | Six Months Ended | | Year Ended |
| | February 28, 2015 | August 31, 2014 |
| | Amount | Shares | Amount | Shares |
| | ($000) | (000) | ($000) | (000) |
| Investor Shares | | | | |
| Issued | 421,128 | 19,023 | 785,767 | 34,263 |
| Issued in Lieu of Cash Distributions | 172,517 | 7,892 | 136,274 | 6,114 |
| Redeemed | (1,080,254) | (48,210) | (2,452,028) | (106,599) |
| Net Increase (Decrease)—Investor Shares | (486,609) | (21,295) | (1,529,987) | (66,222) |
| Admiral Shares | | | | |
| Issued | 1,075,097 | 15,224 | 2,923,386 | 39,888 |
| Issued in Lieu of Cash Distributions | 298,738 | 4,300 | 189,998 | 2,681 |
| Redeemed | (1,058,481) | (14,871) | (1,069,745) | (14,599) |
| Net Increase (Decrease)—Admiral Shares | 315,354 | 4,653 | 2,043,639 | 27,970 |
I. Management has determined that no material events or transactions occurred subsequent to February 28, 2015, that would require recognition or disclosure in these financial statements.
30
About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table illustrates your fund’s costs in two ways:
• Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund‘s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading ”Expenses Paid During Period.“
• Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.
31
| | | |
| Six Months Ended February 28, 2015 | | | |
| | Beginning | Ending | Expenses |
| | Account Value | Account Value | Paid During |
| International Growth Fund | 8/31/2014 | 2/28/2015 | Period |
| Based on Actual Fund Return | | | |
| Investor Shares | $1,000.00 | $983.05 | $2.36 |
| Admiral Shares | 1,000.00 | 983.82 | 1.72 |
| Based on Hypothetical 5% Yearly Return | | | |
| Investor Shares | $1,000.00 | $1,022.41 | $2.41 |
| Admiral Shares | 1,000.00 | 1,023.06 | 1.76 |
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 0.48% for Investor Shares and 0.35% 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.
32
Trustees Approve Advisory Arrangements
The board of trustees of Vanguard International Growth Fund has renewed the fund’s investment advisory arrangements with Baillie Gifford Overseas Ltd. (Baillie Gifford), M&G Investment Management Limited (M&G), and Schroder Investment Management North America Inc. (Schroder Inc.), as well as the sub-advisory agreement with Schroder Investment Management North America Ltd. (Schroder Ltd.). The board determined that renewing the fund’s advisory arrangements was in the best interests of the fund and its shareholders.
The board based its decision upon an evaluation of each advisor’s investment staff, portfolio management process, and performance. The trustees considered the factors discussed below, among others. However, no single factor determined whether the board approved the arrangements. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of services
The board considered the quality of the fund’s investment management services over both the short and long term, and took into account the organizational depth and stability of each advisor. The board noted the following:
Baillie Gifford. Baillie Gifford, a unit of Baillie Gifford & Co., founded in 1908, is among the largest independently owned investment management firms in the United Kingdom. Baillie Gifford uses fundamental research to make long-term investments in companies that have above-average growth potential resulting from sustainable competitive advantages, special cultures and management, or competitive strength in underestimated technology shifts. Baillie Gifford believes that equities’ asymmetrical return pattern means that alpha is generated by focusing on the upside and the potential to earn exponential returns rather than being overly concerned with avoiding losing investments. The firm takes a bottom-up, stock-driven approach to sector and country allocation. Baillie Gifford has advised a portion of the International Growth Fund since 2003.
M&G. 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. M&G constructs a portfolio using a long-term, bottom-up investment approach that focuses on identifying underappreciated, quality companies with high return and growth potential. At the core of the firm’s approach is the identification of companies with “scarce assets” that are difficult to replicate and should provide the company with a sustainable competitive advantage that supports high returns on capital for prolonged periods. These higher returns on capital should allow companies to reinvest in their business and compound value over time, ultimately increasing the company’s share price. The firm has advised a portion of the fund since 2008.
Schroder. Schroders plc. the parent company of Schroder Inc. and Schroder Ltd. (collectively, Schroder), founded in 1804, specializes in global equity and fixed income management. Schroder leverages fundamental research to identify quality growth stocks with sustainable competitive advantages selling at attractive valuations. Bottom-up research is conducted within the context of key structural trends shaping the global economy or a given industry that will drive a company’s future growth prospects. The portfolio’s holdings are classified as either “core” or “opportunistic.” Core holdings generally represent two-thirds of the portfolio and tend to be longer-term holdings due to competitive advantages that can support above-average growth rates for an extended period of time. Opportunistic holdings are shorter-term oriented and tend to be more cyclical in nature. Schroder Inc. has advised the fund since its inception in 1981, and its affiliate Schroder Ltd. has advised the fund since 2003.
33
The board concluded that each advisor’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangements.
Investment performance
The board considered the short- and long-term performance of the fund and each advisor, including any periods of outperformance or underperformance relative to a benchmark index and peer group. The board concluded that the performance was such that each advisory arrangement should continue. Information about the fund’s most recent performance can be found in the Performance Summary section of this report.
Cost
The board concluded that the fund’s expense ratio was well below the average expense ratio charged by funds in its peer group and that the fund’s advisory fee rate was also well below its peer-group average. Information about the fund’s expenses appears in the About Your Fund’s Expenses section of this report as well as in the Financial Statements section, which also includes information about the fund’s advisory fee rate.
The board did not consider profitability of Baillie Gifford, M&G, or Schroder in determining whether to approve the advisory fees, because the firms are independent of Vanguard, and the advisory fees are the result of arm’s-length negotiations.
The 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 schedule for Baillie Gifford, M&G, and Schroder. The breakpoints reduce the effective rate of the fee as the fund’s assets managed by each advisor increase.
The board will consider whether to renew the advisory arrangements again after a one-year period.
34
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. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.
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.
35
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.
Benchmark Information
Spliced International Index: MSCI EAFE Index through May 31, 2010; MSCI All Country World Index ex USA thereafter.
36
This page intentionally left blank.
This page intentionally left blank.
This page intentionally left blank.
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 178 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
InterestedTrustee1
F. William McNabb III
Born 1957. Trustee Since July 2009. Chairman of the Board. Principal Occupation(s) During the Past Five Years and Other Experience: Chairman of the Board of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group, since January 2010; Director of The Vanguard Group 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).
IndependentTrustees
Emerson U. Fullwood
Born 1948. Trustee Since January 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Executive Chief Staff and Marketing Officer for North America and Corporate Vice President (retired 2008) of Xerox Corporation (document management products and services); Executive in Residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology; Director of SPX Corporation (multi-industry manufacturing), the United Way of Rochester, Amerigroup Corporation (managed health care), the University of Rochester Medical Center, Monroe Community College Foundation, and North Carolina A&T University.
Rajiv L. Gupta
Born 1945. Trustee Since December 2001.2 Principal Occupation(s) During the Past Five Years and Other Experience: Chairman and Chief Executive Officer (retired 2009) and President (2006–2008) of Rohm and Haas Co. (chemicals); Director of Tyco International PLC (diversified manufacturing and services), Hewlett-Packard Co. (electronic computer manufacturing), and Delphi Automotive PLC (automotive components); Senior Advisor at New Mountain Capital.
Amy Gutmann
Born 1949. Trustee Since June 2006. Principal Occupation(s) During the Past Five Years and Other Experience: President of the University of Pennsylvania; Christopher H. Browne Distinguished Professor of Political Science, School of Arts and Sciences, and Professor of Communication, Annenberg School for Communication, with secondary faculty appointments in the Department of Philosophy, School of Arts and Sciences, and at the Graduate School of Education, University of Pennsylvania; Trustee of the National Constitution Center; Chair of the Presidential Commission for the Study of Bioethical Issues.
JoAnn Heffernan Heisen
Born 1950. Trustee Since July 1998. Principal Occupation(s) During the Past Five Years and Other Experience: Corporate Vice President and Chief Global Diversity Officer (retired 2008) and Member of the Executive Committee (1997–2008) of Johnson & Johnson (pharmaceuticals/medical devices/ consumer products); Director of Skytop Lodge Corporation (hotels), the University Medical Center at Princeton, the Robert Wood Johnson Foundation, and the Center for Talent Innovation; Member of the Advisory Board of the Institute for Women’s Leadership at Rutgers University.
F. Joseph Loughrey
Born 1949. Trustee Since October 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2009) of Cummins Inc. (industrial machinery); Chairman of the Board of Hillenbrand, Inc. (specialized consumer services), and of Oxfam America; Director of SKF AB (industrial machinery), Hyster-Yale Materials Handling, Inc. (forklift trucks), the Lumina Foundation for Education, and the V Foundation for Cancer Research; Member of the Advisory Council for the College of Arts and Letters and of the Advisory Board to the Kellogg Institute for International Studies, both at the University of Notre Dame.
Mark Loughridge
Born 1953. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Senior Vice President and Chief Financial Officer (retired 2013) at IBM (information technology services); Fiduciary Member of IBM’s Retirement Plan Committee (2004–2013); Director of the Dow Chemical Company; Member of the Council on Chicago Booth.
Scott C. Malpass
Born 1962. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Chief Investment Officer and Vice President at the University of Notre Dame; Assistant Professor of Finance at the Mendoza College of Business at Notre Dame; Member of the Notre Dame 403(b) Investment Committee; Board Member of TIFF Advisory Services, Inc., and Catholic Investment Services, Inc. (investment advisors); Member of the Investment Advisory Committee of Major League Baseball.
André F. Perold
Born 1952. Trustee Since December 2004. Principal Occupation(s) During the Past Five Years and Other Experience: George Gund Professor of Finance and Banking, Emeritus at the Harvard Business School (retired 2011); Chief Investment Officer and Managing Partner of HighVista Strategies LLC (private investment firm); Director of Rand Merchant Bank; Overseer of the Museum of Fine Arts Boston.
Peter F. Volanakis
Born 1955. Trustee Since July 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2010) of Corning Incorporated (communications equipment); Trustee of Colby-Sawyer College; Member of the Advisory Board of the Norris Cotton Cancer Center and of the Advisory Board of the Parthenon Group (strategy consulting).
Executive Officers
Glenn Booraem
Born 1967. Controller Since July 2010. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Controller of each of the investment companies served by The Vanguard Group; Assistant Controller of each of the investment companies served by The Vanguard Group (2001–2010).
Thomas J. Higgins
Born 1957. Chief Financial Officer Since September 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Chief Financial Officer of each of the investment companies served by The Vanguard Group; Treasurer of each of the investment companies served by The Vanguard Group (1998–2008).
Kathryn J. Hyatt
Born 1955. Treasurer Since November 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group; Assistant Treasurer of each of the investment companies served by The Vanguard Group (1988–2008).
Heidi Stam
Born 1956. Secretary Since July 2005. Principal Occupation(s) During the Past Five Years and Other Experience: Managing Director of The Vanguard Group, Inc.; General Counsel of The Vanguard Group; Secretary of The Vanguard Group and of each of the investment companies served by The Vanguard Group; Director and Senior Vice President of Vanguard Marketing Corporation.
Vanguard Senior Management Team
| |
Mortimer J. Buckley Kathleen C. Gubanich Paul A. Heller Martha G. King John T. Marcante | Chris D. McIsaac Michael S. Miller James M. Norris Glenn W. Reed |
Chairman Emeritus and Senior Advisor
John J. Brennan
Chairman, 1996–2009
Chief Executive Officer and President, 1996–2008
Founder
John C. Bogle
Chairman and Chief Executive Officer, 1974–1996
1 Mr. McNabb is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the Vanguard funds.
2 December 2002 for Vanguard Equity Income Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.
P.O. Box 2600
Valley Forge, PA 19482-2600
Connect with Vanguard® > vanguard.com
| |
| Fund Information > 800-662-7447 | CFA® is a registered trademark owned by CFA Institute. |
| Direct Investor Account Services > 800-662-2739 | |
| Institutional Investor Services > 800-523-1036 | |
| Text Telephone for People | |
| Who Are Deaf or Hard of Hearing> 800-749-7273 | |
| |
| This material may be used in conjunction | |
| with the offering of shares of any Vanguard | |
| fund only if preceded or accompanied by | |
| the fund’s current prospectus. | |
| |
| All comparative mutual fund data are from Lipper, a | |
| Thomson Reuters Company, or Morningstar, Inc., unless | |
| otherwise noted. | |
| |
| You can obtain a free copy of Vanguard’s proxy voting | |
| guidelines by visiting vanguard.com/proxyreporting or by | |
| calling Vanguard at 800-662-2739. The guidelines are | |
| also available from the SEC’s website, sec.gov. In | |
| addition, you may obtain a free report on how your fund | |
| voted the proxies for securities it owned during the 12 | |
| months ended June 30. To get the report, visit either | |
| vanguard.com/proxyreporting or sec.gov. | |
| |
| You can review and copy information about your fund at | |
| the SEC’s Public Reference Room in Washington, D.C. To | |
| find out more about this public service, call the SEC at | |
| 202-551-8090. Information about your fund is also | |
| available on the SEC’s website, and you can receive | |
| copies of this information, for a fee, by sending a | |
| request in either of two ways: via e-mail addressed to | |
| publicinfo@sec.gov or via regular mail addressed to the | |
| Public Reference Section, Securities and Exchange | |
| Commission, Washington, DC 20549-1520. | |
| |
| | © 2015 The Vanguard Group, Inc. |
| | All rights reserved. |
| | Vanguard Marketing Corporation, Distributor. |
| |
| | Q812 042015 |
Semiannual Report | February 28, 2015
Vanguard FTSE Social Index Fund
The mission continues
On May 1, 1975, Vanguard began operations, a fledgling company based on the simple but revolutionary idea that a mutual fund company should be managed solely in the interest of its investors.
Four decades later, that revolutionary spirit continues to animate the enterprise. Vanguard remains on a mission to give investors the best chance of investment success.
As we mark our 40th anniversary, we thank you for entrusting your assets to Vanguard and giving us the opportunity to help you reach your financial goals in the decades to come.
| |
| Contents | |
| Your Fund’s Total Returns. | 1 |
| Chairman’s Letter. | 2 |
| Fund Profile. | 7 |
| Performance Summary. | 8 |
| Financial Statements. | 9 |
| About Your Fund’s Expenses. | 22 |
| Glossary. | 24 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
About the cover: Since our founding, Vanguard has drawn inspiration from the enterprise and valor demonstrated by British naval hero Horatio Nelson and his command at the Battle of the Nile in 1798. The photograph displays a replica of a merchant ship from the same era as Nelson’s flagship, the HMS Vanguard.
| |
| Your Fund’s Total Returns | |
| |
| |
| |
| |
| Six Months Ended February 28, 2015 | |
| | Total |
| | Returns |
| Vanguard FTSE Social Index Fund | |
| Investor Shares | 8.42% |
| Institutional Shares | 8.51 |
| FTSE4Good US Select Index | 8.59 |
| Large-Cap Growth Funds Average | 7.71 |
| Large-Cap Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
| Institutional Shares are available to certain institutional investors who meet specific administrative, service, and account-size criteria. |
| | | | |
| Your Fund’s Performance at a Glance | | | | |
| August 31, 2014, Through February 28, 2015 | | | | |
| | | | Distributions Per Share |
| | Starting | Ending | Income | Capital |
| | Share Price | Share Price | Dividends | Gains |
| Vanguard FTSE Social Index Fund | | | | |
| Investor Shares | $12.74 | $13.64 | $0.164 | $0.000 |
| Institutional Shares | 12.75 | 13.65 | 0.176 | 0.000 |
1
Chairman’s Letter
Dear Shareholder,
Like all index funds, Vanguard FTSE Social Index Fund has as its goal to closely track the performance of its benchmark index. What’s a bit out of the ordinary is the benchmark: It’s made up of large- and mid-capitalization firms that the index provider has identified as meeting strict environmental, social, and governance standards.
For the six months ended February 28, 2015, your fund met its goal, returning 8.42% for Investor Shares and 8.51% for Institutional Shares while its expense-free benchmark, the FTSE4Good US Select Index, returned 8.59%. The fund’s result was higher than that of the broad U.S. stock market and the average return of large-cap growth fund peers.
Returns varied widely by sector. Seven of the ten industry groups turned in positive performances for the fund, with consumer services, health care, and industrials posting double-digit returns. Utilities and telecommunications dipped into negative territory, while oil and gas recorded a sharp drop. Relative to the broad stock market, the fund’s large allocation to health care and its slim holdings in oil and gas contributed the most to its outperformance.
2
On a separate note, your fund and 23 others in our lineup will begin paying a dividend each quarter rather than once a year. The change, which will take effect in the third quarter of 2015, should align distributions more closely with those of the other Vanguard stock index funds and help the funds operate more efficiently.
A surge in February powered U.S. stocks’ six-month results
U.S. stocks performed solidly but unevenly over the six months. Despite declines in two of those months and flat returns in another, the broad U.S. stock market ended the period up about 6%.
The overall return was propelled by a robust advance in February, when the broad market recorded its largest monthly gain since October 2011. Investors were cheered by stabilization in oil prices and guidance from the Federal Reserve that it wouldn’t raise interest rates prematurely.
After some ups and downs, international stocks returned about –3% in dollar terms. The dollar’s strength against many foreign currencies, along with various geopolitical issues, restrained results. Stocks in emerging markets and the developed markets of the Pacific region and Europe backtracked, with emerging markets faring the worst. In local currency terms, though, international stocks rose.
| | | |
| Market Barometer | | | |
| |
| | | | Total Returns |
| | | Periods Ended February 28, 2015 |
| | Six | One | Five Years |
| | Months | Year | (Annualized) |
| Stocks | | | |
| Russell 1000 Index (Large-caps) | 6.00% | 14.88% | 16.39% |
| Russell 2000 Index (Small-caps) | 5.70 | 5.63 | 15.97 |
| Russell 3000 Index (Broad U.S. market) | 5.98 | 14.12 | 16.36 |
| FTSE All-World ex US Index (International) | -3.34 | 1.69 | 6.94 |
| |
| Bonds | | | |
| Barclays U.S. Aggregate Bond Index (Broad taxable market) | 2.25% | 5.05% | 4.29% |
| Barclays Municipal Bond Index (Broad tax-exempt market) | 2.21 | 6.49 | 5.00 |
| Citigroup Three-Month U.S. Treasury Bill Index | 0.00 | 0.03 | 0.06 |
| |
| CPI | | | |
| Consumer Price Index | -1.32% | -0.03% | 1.61% |
3
Bonds notched positive results despite early and late retreats
The broad U.S. taxable bond market returned 2.25%, although bond prices declined over the period’s first and final months. When the stock market turned volatile, investors favored the relative safety offered by bonds, which also benefited from various global stimulus programs.
Conversely, bond prices fell in February as the Fed suggested that a midyear interest rate increase was an option if the economy continued to perform well. The yield of the 10-year Treasury note ended February at
2.03%, down from 2.34% six months earlier. (Bond prices and yields move in opposite directions.)
Municipal bonds, which returned 2.21%, lost some steam toward the end of the period amid increased bond issuance and the prospect of higher interest rates.
International bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –9.54%, weighed down by the weakness of foreign currencies relative to the dollar. International bonds hedged to eliminate the effects of currency exchange rates produced positive returns.
| | | |
| Expense Ratios | | | |
| Your Fund Compared With Its Peer Group | | | |
| | Investor | Institutional | Peer Group |
| | Shares | Shares | Average |
| FTSE Social Index Fund | 0.27% | 0.16% | 1.21% |
The fund expense ratios shown are from the prospectus dated December 23, 2014, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2015, the fund’s annualized expense ratios were 0.27% for Investor Shares and 0.16% for Institutional Shares. The peer-group expense ratio is derived from data provided by Lipper, a Thomson Reuters Company, and captures information through year-end 2014.
Peer group: Large-Cap Growth Funds.
4
Money market funds and savings accounts provided scant returns as the Fed’s target for short-term rates remained at 0%–0.25%.
The fund’s sector weightings worked to its advantage
The FTSE Social Index Fund is passively managed; its portfolio of more than 400 stocks is the end result of a screening process carried out by its benchmark index provider. Companies whose business involves tobacco, alcohol, gambling, weapons, adult entertainment, and nuclear power, for example, are not included in the index, and thus are not among the fund’s holdings. Neither are those deemed by the index provider to have fallen short in their record on the environment, human rights, or labor practices.
While those restrictions still leave the fund with broad-based exposure to more than half the market capitalization of the U.S. stock market, its sector weightings tend to differ substantially from those of the broad market. Most notably, the fund has greater exposure to financials and health care than the broad market and smaller allocations to oil and gas and industrials. Taken together, these sector biases added to the performance of the fund over the six months under review. It’s important to keep in mind, however, that this won’t always be the case—at times these differences will hinder, not help, the fund’s performance compared with the broad market.
Health care stocks, which represented roughly one-fifth of the fund’s assets, returned more than 15% for the period.
Merger and acquisition activity was strong as many biotechnology and pharmaceutical companies looked for opportunities to grow faster and become more efficient. Their product pipelines continued to fill out as well. Health care providers and supply companies also did well, benefiting from expectations that as more people become insured under the Affordable Care Act, use of health care services should increase.
Consumer services turned in a similarly strong performance. Growing consumer confidence helped push up the stocks of many food, drug, clothing, and specialty retailers. Industrials rounded out the top three sectors, gaining just over 11% on solid returns from transportation, construction, and support services.
Consumer goods, technology, basic materials, and financials (the fund’s largest sector, accounting for about a quarter of its assets) produced results in the single digits.
At the other end of the performance spectrum was the oil and gas sector. Although the fund had far less exposure to this sector than the broad market did, its holdings also suffered from the plummeting price of oil; they tumbled roughly –25%. Utilities and telecommunications, both very small components of the fund, were down modestly.
To build for the long term, start with a solid foundation
As the leader of a major investment firm, I get asked a lot of questions on all kinds of topics, from the outlook for global markets to the best fund choices for an IRA. But a
5
topic that almost never comes up—and one that I consider perhaps the most important—is setting investment goals.
At Vanguard, we believe that following four timeless, straightforward principles can help put you on the right track toward investment success:
• Goals. Create clear, appropriate investment goals.
• Balance. Develop a suitable asset allocation using broadly diversified funds.
• Cost. Minimize cost.
• Discipline. Maintain perspective and long-term discipline.
All four are essential, and the order in which they’re listed is intentional. Every good investment plan begins with a clearly defined goal, which sets the foundation for building your portfolio. (You can read more about our principles in Vanguard’s Principles for Investing Success, available at vanguard.com/research.)
Setting an investment goal doesn’t have to be complicated. A goal can be as simple as saving for retirement or for a child’s college education. Being realistic about your goals—and how to meet them—can help you stick with your investment plan even when times get tough.
In many parts of the United States, it’s been an especially bitter and challenging winter, but spring is now upon us. The change of seasons can be an occasion for some financial spring cleaning. Consider taking time now to revisit your investment plan, ensuring that your objectives are clear, and making any necessary adjustments to help you reach your long-term financial goals.
As always, thank you for investing with Vanguard.
Sincerely,
F. William McNabb III
Chairman and Chief Executive Officer
March 11, 2015
6
FTSE Social Index Fund
Fund Profile
As of February 28, 2015
| | | |
| Share-Class Characteristics | | |
| | Investor | Institutional |
| | Shares | | Shares |
| Ticker Symbol | VFTSX | | VFTNX |
| Expense Ratio1 | 0.27% | | 0.16% |
| 30-Day SEC Yield | 1.52% | | 1.56% |
| Portfolio Characteristics | | |
| | | | DJ |
| | | | U.S. |
| | | FTSE | Total |
| | | 4Good | Market |
| | | US Select | FA |
| | Fund | Index | Index |
| Number of Stocks | 419 | 419 | 3,734 |
| Median Market Cap | $70.4B | $70.6B | $49.0B |
| Price/Earnings Ratio | 21.3x | 21.2x | 21.4x |
| Price/Book Ratio | 2.8x | 2.8x | 2.8x |
| Return on Equity | 19.3% | 19.3% | 17.6% |
| Earnings Growth | | | |
| Rate | 14.4% | 14.3% | 13.9% |
| Dividend Yield | 1.8% | 1.8% | 1.9% |
| Foreign Holdings | 0.0% | 0.0% | 0.0% |
| Turnover Rate | | | |
| (Annualized) | 20% | — | — |
| Short-Term Reserves | 0.0% | — | — |
Sector Diversification (% of equity exposure)
| | | |
| | | | DJ |
| | | | U.S. |
| | | FTSE | Total |
| | | 4Good | Market |
| | | US Select | FA |
| | Fund | Index | Index |
| Basic Materials | 2.1% | 2.1% | 2.8% |
| Consumer Goods | 10.8 | 10.8 | 10.0 |
| Consumer Services | 11.5 | 11.5 | 14.1 |
| Financials | 23.6 | 23.6 | 18.5 |
| Health Care | 19.7 | 19.7 | 13.5 |
| Industrials | 6.6 | 6.6 | 12.7 |
| Oil & Gas | 2.8 | 2.8 | 7.2 |
| Technology | 21.6 | 21.6 | 16.0 |
| Telecommunications | 0.2 | 0.2 | 2.1 |
| Utilities | 1.1 | 1.1 | 3.1 |
| | | |
| Volatility Measures | | | |
| | FTSE | | DJ |
| | 4Good | U.S. Total |
| | US Select | | Market |
| | Index | | FA Index |
| R-Squared | 1.00 | | 0.97 |
| Beta | 1.00 | | 1.04 |
| These measures show the degree and timing of the fund’s |
| fluctuations compared with the indexes over 36 months. | |
| |
| Ten Largest Holdings (% of total net assets) |
| Apple Inc. | Computer Hardware | 5.9% |
| Microsoft Corp. | Software | | 2.6 |
| Google Inc. | Internet | | 2.5 |
| Wells Fargo & Co. | Banks | | 2.2 |
| Johnson & Johnson | Pharmaceuticals | 2.2 |
| Procter & Gamble Co. | Nondurable | | |
| | Household Products | 1.8 |
| JPMorgan Chase & Co. | Banks | | 1.8 |
| Pfizer Inc. | Pharmaceuticals | 1.7 |
| Walt Disney Co. | Broadcasting & | |
| | Entertainment | | 1.4 |
| Bank of America Corp. | Banks | | 1.3 |
| Top Ten | | | 23.4% |
| 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 23, 2014, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2015, the annualized expense ratios were 0.27% for Investor Shares and 0.16% for Institutional Shares.
7
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 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, 2004, Through February 28, 2015
FTSE Social Index Fund Investor Shares
Spliced Social Index
For a benchmark description, see the Glossary.
Note: For 2015, performance data reflect the six months ended February 28, 2015.
Average Annual Total Returns: Periods Ended December 31, 2014
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
| | | | |
| | Inception | One | Five | Ten |
| | Date | Year | Years | Years |
| Investor Shares | 5/31/2000 | 15.75% | 16.21% | 6.61% |
| Institutional Shares | 1/14/2003 | 15.85 | 16.36 | 6.75 |
See Financial Highlights for dividend and capital gains information.
8
FTSE Social Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the 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 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%) | | |
| Basic Materials (2.1%) | | |
| | Praxair Inc. | 38,799 | 4,962 |
| | Air Products & | | |
| | Chemicals Inc. | 28,173 | 4,399 |
| | PPG Industries Inc. | 18,409 | 4,333 |
| | Ecolab Inc. | 36,073 | 4,168 |
| | Mosaic Co. | 45,289 | 2,412 |
| | Alcoa Inc. | 155,510 | 2,300 |
| | Sigma-Aldrich Corp. | 15,821 | 2,184 |
| | Nucor Corp. | 42,030 | 1,977 |
| | Newmont Mining Corp. | 66,091 | 1,740 |
| | International Flavors & | | |
| | Fragrances Inc. | 10,861 | 1,324 |
| | Ashland Inc. | 9,232 | 1,178 |
| | FMC Corp. | 17,692 | 1,122 |
| | CONSOL Energy Inc. | 30,427 | 980 |
| | Airgas Inc. | 7,452 | 873 |
| | Avery Dennison Corp. | 12,184 | 652 |
| | United States Steel Corp. | 19,147 | 459 |
| | Westlake Chemical Corp. | 5,285 | 353 |
| * | Veritiv Corp. | 998 | 51 |
| | | | 35,467 |
| Consumer Goods (10.8%) | | |
| | Procter & Gamble Co. | 361,147 | 30,744 |
| | PepsiCo Inc. | 196,947 | 19,494 |
| | Colgate-Palmolive Co. | 121,292 | 8,590 |
| | Ford Motor Co. | 506,013 | 8,268 |
| | Mondelez International Inc. | | |
| | Class A | 223,335 | 8,249 |
| | NIKE Inc. Class B | 75,274 | 7,311 |
| | General Motors Co. | 173,098 | 6,458 |
| | Kimberly-Clark Corp. | 49,449 | 5,423 |
| | Kraft Foods Group Inc. | 78,277 | 5,014 |
| | Johnson Controls Inc. | 88,201 | 4,481 |
| | General Mills Inc. | 80,145 | 4,311 |
| | VF Corp. | 45,194 | 3,465 |
| | Delphi Automotive plc | 39,389 | 3,105 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | Mead Johnson Nutrition Co. | 26,819 | 2,810 |
| | Estee Lauder Cos. Inc. | | |
| | Class A | 29,456 | 2,435 |
| * | Electronic Arts Inc. | 39,796 | 2,275 |
| | Hershey Co. | 21,330 | 2,214 |
| | Whirlpool Corp. | 10,271 | 2,177 |
| | Keurig Green Mountain Inc. | 16,825 | 2,146 |
| | Kellogg Co. | 32,736 | 2,111 |
| | Dr Pepper Snapple | | |
| | Group Inc. | 25,867 | 2,038 |
| | Stanley Black & Decker Inc. | 20,643 | 2,030 |
| | ConAgra Foods Inc. | 56,205 | 1,966 |
| | Genuine Parts Co. | 20,458 | 1,966 |
| | Clorox Co. | 17,264 | 1,876 |
| | BorgWarner Inc. | 30,339 | 1,865 |
| | Harley-Davidson Inc. | 28,510 | 1,812 |
| * | Michael Kors Holdings Ltd. | 26,473 | 1,785 |
| | Hanesbrands Inc. | 13,207 | 1,684 |
| | Tyson Foods Inc. Class A | 40,566 | 1,676 |
| | Coach Inc. | 36,368 | 1,584 |
| | Bunge Ltd. | 19,322 | 1,580 |
| * | TRW Automotive Holdings | | |
| | Corp. | 14,570 | 1,519 |
| | Church & Dwight Co. Inc. | 17,737 | 1,510 |
| | JM Smucker Co. | 12,980 | 1,497 |
| * | Mohawk Industries Inc. | 8,069 | 1,487 |
| | Coca-Cola Enterprises Inc. | 32,050 | 1,481 |
| | Newell Rubbermaid Inc. | 35,958 | 1,413 |
| | Autoliv Inc. | 12,023 | 1,353 |
| | Polaris Industries Inc. | 8,171 | 1,253 |
| | Harman International | | |
| | Industries Inc. | 9,028 | 1,246 |
| | DR Horton Inc. | 44,605 | 1,218 |
| | Mattel Inc. | 44,778 | 1,179 |
| | McCormick & Co. Inc. | 15,597 | 1,176 |
| | Lennar Corp. Class A | 23,080 | 1,159 |
| | Campbell Soup Co. | 24,031 | 1,120 |
| | Ralph Lauren Corp. Class A | 8,082 | 1,111 |
| | Energizer Holdings Inc. | 8,268 | 1,106 |
9
| | | |
| FTSE Social Index Fund | | |
| |
| |
| |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | PVH Corp. | 10,372 | 1,105 |
| | Hormel Foods Corp. | 18,158 | 1,062 |
| | PulteGroup Inc. | 40,178 | 906 |
| | Leggett & Platt Inc. | 18,276 | 823 |
| * | Toll Brothers Inc. | 21,375 | 819 |
| * | lululemon athletica Inc. | 11,093 | 759 |
| * | Fossil Group Inc. | 6,259 | 538 |
| | Avon Products Inc. | 57,569 | 490 |
| * | Herbalife Ltd. | 12,329 | 382 |
| | Nu Skin Enterprises Inc. | | |
| | Class A | 6,756 | 366 |
| | | | 181,021 |
| Consumer Services (11.5%) | | |
| | Walt Disney Co. | 225,338 | 23,453 |
| | Home Depot Inc. | 175,099 | 20,093 |
| | CVS Health Corp. | 149,589 | 15,538 |
| | McDonald’s Corp. | 129,312 | 12,789 |
| | Lowe’s Cos. Inc. | 131,086 | 9,712 |
| | Time Warner Inc. | 111,371 | 9,117 |
| | Starbucks Corp. | 96,087 | 8,983 |
| * | Priceline Group Inc. | 6,928 | 8,573 |
| | McKesson Corp. | 30,612 | 7,001 |
| | Target Corp. | 83,779 | 6,437 |
| | TJX Cos. Inc. | 92,084 | 6,321 |
| | Cardinal Health Inc. | 43,935 | 3,866 |
| | Viacom Inc. Class B | 47,801 | 3,343 |
| | AmerisourceBergen Corp. | | |
| | Class A | 30,000 | 3,083 |
| | Macy’s Inc. | 46,943 | 2,991 |
| | Ross Stores Inc. | 27,899 | 2,952 |
| * | O’Reilly Automotive Inc. | 13,475 | 2,805 |
| * | Chipotle Mexican Grill Inc. | | |
| | Class A | 4,126 | 2,744 |
| * | AutoZone Inc. | 4,251 | 2,732 |
| * | Dollar General Corp. | 37,562 | 2,728 |
| | L Brands Inc. | 28,993 | 2,663 |
| | Omnicom Group Inc. | 32,925 | 2,619 |
| * | Dollar Tree Inc. | 27,258 | 2,172 |
| | Nielsen NV | 43,518 | 1,967 |
| * | CarMax Inc. | 28,716 | 1,927 |
| | Kohl’s Corp. | 25,262 | 1,864 |
| * | Bed Bath & Beyond Inc. | 24,563 | 1,834 |
| | Staples Inc. | 85,965 | 1,441 |
| | Best Buy Co. Inc. | 36,734 | 1,400 |
| * | Hertz Global Holdings Inc. | 59,477 | 1,372 |
| | Gap Inc. | 32,834 | 1,366 |
| | Signet Jewelers Ltd. | 10,793 | 1,294 |
| | H&R Block Inc. | 36,647 | 1,251 |
| | Interpublic Group of Cos. Inc. | 55,387 | 1,235 |
| | Expedia Inc. | 13,410 | 1,230 |
| | Tractor Supply Co. | 13,691 | 1,206 |
| * | Discovery Communications | | |
| | Inc. | 36,725 | 1,120 |
| | Darden Restaurants Inc. | 17,489 | 1,119 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | PetSmart Inc. | 13,121 | 1,088 |
| | Foot Locker Inc. | 19,209 | 1,079 |
| | Gannett Co. Inc. | 30,052 | 1,064 |
| * | IHS Inc. Class A | 8,917 | 1,048 |
| | Scripps Networks | | |
| | Interactive Inc. Class A | 10,224 | 739 |
| * | Discovery | | |
| | Communications Inc. | | |
| | Class A | 19,649 | 635 |
| | Dun & Bradstreet Corp. | 4,748 | 629 |
| * | AutoNation Inc. | 9,684 | 596 |
| * | Urban Outfitters Inc. | 13,327 | 519 |
| | | | 191,738 |
| Financials (23.6%) | | |
| | Wells Fargo & Co. | 686,920 | 37,636 |
| | JPMorgan Chase & Co. | 493,561 | 30,245 |
| | Bank of America Corp. | 1,404,052 | 22,198 |
| | Citigroup Inc. | 404,359 | 21,196 |
| | Visa Inc. Class A | 65,530 | 17,779 |
| | MasterCard Inc. Class A | 133,185 | 12,004 |
| | US Bancorp | 239,448 | 10,682 |
| | Goldman Sachs Group Inc. | 54,367 | 10,318 |
| | American International | | |
| | Group Inc. | 185,911 | 10,286 |
| | American Express Co. | 119,622 | 9,760 |
| | Morgan Stanley | 186,469 | 6,674 |
| | PNC Financial Services | | |
| | Group Inc. | 69,889 | 6,427 |
| | BlackRock Inc. | 16,610 | 6,169 |
| | MetLife Inc. | 120,568 | 6,128 |
| | Bank of New York Mellon | | |
| | Corp. | 150,754 | 5,901 |
| | Capital One Financial Corp. | 67,140 | 5,285 |
| | American Tower | | |
| | Corporation | 52,794 | 5,234 |
| | ACE Ltd. | 44,063 | 5,024 |
| | Prudential Financial Inc. | 60,802 | 4,916 |
| | Travelers Cos. Inc. | 44,004 | 4,728 |
| | Charles Schwab Corp. | 146,716 | 4,305 |
| | State Street Corp. | 55,479 | 4,130 |
| | Marsh & McLennan | | |
| | Cos. Inc. | 72,350 | 4,116 |
| | CME Group Inc. | 42,398 | 4,067 |
| | Allstate Corp. | 55,807 | 3,940 |
| | Public Storage | 19,287 | 3,804 |
| | Aon plc | 37,860 | 3,800 |
| | McGraw Hill Financial Inc. | 35,983 | 3,710 |
| | Discover Financial Services | 60,214 | 3,672 |
| | Equity Residential | 47,351 | 3,647 |
| | BB&T Corp. | 95,393 | 3,630 |
| | Aflac Inc. | 58,031 | 3,612 |
| | Intercontinental | | |
| | Exchange Inc. | 14,952 | 3,519 |
| | Health Care REIT Inc. | 43,569 | 3,360 |
10
| | | |
| FTSE Social Index Fund | | |
| |
| |
| |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | Ameriprise Financial Inc. | 24,484 | 3,272 |
| | Ventas Inc. | 42,461 | 3,162 |
| | Chubb Corp. | 31,282 | 3,142 |
| | AvalonBay Communities Inc. | 17,461 | 2,939 |
| | Franklin Resources Inc. | 54,268 | 2,921 |
| | SunTrust Banks Inc. | 69,308 | 2,842 |
| | Prologis Inc. | 66,200 | 2,827 |
| | Boston Properties Inc. | 20,171 | 2,772 |
| | T. Rowe Price Group Inc. | 33,134 | 2,737 |
| | Moody’s Corp. | 27,754 | 2,690 |
| | HCP Inc. | 60,873 | 2,579 |
| | Weyerhaeuser Co. | 69,393 | 2,436 |
| | Hartford Financial Services | | |
| | Group Inc. | 57,317 | 2,348 |
| | Invesco Ltd. | 57,570 | 2,318 |
| | Northern Trust Corp. | 31,559 | 2,204 |
| | Fifth Third Bancorp | 109,469 | 2,119 |
| | Principal Financial Group Inc. | 39,167 | 2,004 |
| | Lincoln National Corp. | 34,704 | 2,000 |
| | General Growth Properties | | |
| | Inc. | 66,973 | 1,943 |
| | Progressive Corp. | 72,621 | 1,935 |
| | M&T Bank Corp. | 15,435 | 1,868 |
| | Regions Financial Corp. | 182,617 | 1,755 |
| | Macerich Co. | 20,959 | 1,753 |
| * | Equinix Inc. | 7,234 | 1,622 |
| | Loews Corp. | 39,173 | 1,606 |
| | KeyCorp | 114,913 | 1,601 |
| | Equifax Inc. | 16,148 | 1,508 |
| | Realty Income Corp. | 29,476 | 1,476 |
| | Kimco Realty Corp. | 54,599 | 1,435 |
| | Western Union Co. | 69,223 | 1,351 |
| | Annaly Capital Management | | |
| | Inc. | 126,042 | 1,339 |
| * | Ally Financial Inc. | 64,050 | 1,331 |
| * | CBRE Group Inc. Class A | 37,611 | 1,289 |
| * | Markel Corp. | 1,708 | 1,273 |
| | XL Group plc Class A | 34,354 | 1,244 |
| | Digital Realty Trust Inc. | 18,091 | 1,201 |
| | Huntington Bancshares Inc. | 108,273 | 1,185 |
| | Voya Financial Inc. | 26,490 | 1,171 |
| | Navient Corp. | 54,507 | 1,166 |
| | CIT Group Inc. | 24,366 | 1,127 |
| | Willis Group Holdings plc | 23,541 | 1,123 |
| | Unum Group | 33,447 | 1,122 |
| | Comerica Inc. | 23,929 | 1,095 |
| | TD Ameritrade Holding Corp. | 28,593 | 1,037 |
| | Plum Creek Timber Co. Inc. | 23,522 | 1,022 |
| | American Capital Agency | | |
| | Corp. | 47,093 | 1,009 |
| * | Alleghany Corp. | 2,133 | 1,008 |
| | Arthur J Gallagher & Co. | 21,375 | 1,004 |
| | Cincinnati Financial Corp. | 18,894 | 997 |
| | Duke Realty Corp. | 45,222 | 966 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| * | Arch Capital Group Ltd. | 15,884 | 940 |
| * | Iron Mountain Inc. | 24,408 | 897 |
| | Torchmark Corp. | 16,141 | 860 |
| | Regency Centers Corp. | 12,342 | 810 |
| | Legg Mason Inc. | 13,687 | 784 |
| | PartnerRe Ltd. | 6,512 | 746 |
| | Liberty Property Trust | 19,601 | 730 |
| * | Liberty Ventures Class A | 17,848 | 717 |
| | Zions Bancorporation | 26,758 | 715 |
| | WR Berkley Corp. | 13,908 | 694 |
| | Axis Capital Holdings Ltd. | 12,745 | 661 |
| | People’s United Financial Inc. | 41,310 | 625 |
| | Assurant Inc. | 9,391 | 575 |
| * | Synchrony Financial | 17,746 | 567 |
| | SLM Corp. | 56,128 | 532 |
| | Weingarten Realty Investors | 14,606 | 529 |
| * | Genworth Financial Inc. |
| | | |
| | Class A | 65,491 | 508 |
| | Commerce Bancshares Inc. | 12,122 | 503 |
| | RenaissanceRe Holdings Ltd. | 4,823 | 494 |
| | Rayonier Inc. | 16,576 | 454 |
| * | Liberty TripAdvisor Holdings | | |
| | Inc. Class A | 9,281 | 307 |
| | | | 395,424 |
| Health Care (19.7%) | | |
| | Johnson & Johnson | 364,900 | 37,406 |
| | Pfizer Inc. | 837,088 | 28,729 |
| | Merck & Co. Inc. | 378,788 | 22,174 |
| | Amgen Inc. | 100,465 | 15,845 |
| * | Medtronic plc | 187,650 | 14,560 |
| | UnitedHealth Group Inc. | 127,481 | 14,486 |
| | Bristol-Myers Squibb Co. | 219,316 | 13,361 |
| * | Celgene Corp. | 106,355 | 12,925 |
| * | Biogen Idec Inc. | 31,409 | 12,865 |
| | AbbVie Inc. | 212,138 | 12,834 |
| * | Actavis plc | 34,914 | 10,173 |
| | Abbott Laboratories | 199,597 | 9,455 |
| | Eli Lilly & Co. | 132,231 | 9,279 |
| | Allergan Inc. | 39,585 | 9,213 |
| * | Express Scripts Holding Co. | 97,520 | 8,269 |
| | Thermo Fisher Scientific Inc. | 52,727 | 6,854 |
| * | Anthem Inc. | 35,911 | 5,259 |
| | Baxter International Inc. | 72,025 | 4,981 |
| * | Alexion Pharmaceuticals Inc. | 26,290 | 4,742 |
| | Aetna Inc. | 46,714 | 4,650 |
| * | Regeneron Pharmaceuticals | | |
| | Inc. | 10,400 | 4,304 |
| | Cigna Corp. | 35,031 | 4,261 |
| * | Vertex Pharmaceuticals Inc. | 31,953 | 3,816 |
| | Becton Dickinson and Co. | 25,540 | 3,747 |
| | Stryker Corp. | 37,611 | 3,564 |
| | Humana Inc. | 20,504 | 3,370 |
| * | HCA Holdings Inc. | 44,018 | 3,149 |
| | Zoetis Inc. | 66,444 | 3,062 |
11
| | | |
| FTSE Social Index Fund | | |
| |
| |
| |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| * | Boston Scientific Corp. | 175,860 | 2,972 |
| * | Mylan Inc. | 49,341 | 2,828 |
| | Perrigo Co. plc | 17,444 | 2,695 |
| | Zimmer Holdings Inc. | 22,330 | 2,688 |
| | St. Jude Medical Inc. | 37,734 | 2,516 |
| * | Intuitive Surgical Inc. | 4,785 | 2,392 |
| * | DaVita HealthCare Partners | | |
| | Inc. | 28,511 | 2,127 |
| * | BioMarin Pharmaceutical Inc. | 19,173 | 2,053 |
| * | Hospira Inc. | 22,510 | 1,970 |
| * | Edwards Lifesciences Corp. | 14,250 | 1,896 |
| * | Endo International plc | 22,004 | 1,884 |
| | CR Bard Inc. | 9,924 | 1,679 |
| * | Laboratory Corp. of America | | |
| | Holdings | 13,383 | 1,646 |
| * | CareFusion Corp. | 26,878 | 1,615 |
| * | Henry Schein Inc. | 11,293 | 1,582 |
| * | Incyte Corp. | 17,595 | 1,511 |
| | Universal Health Services | | |
| | Inc. Class B | 12,182 | 1,381 |
| | Quest Diagnostics Inc. | 19,438 | 1,363 |
| * | Waters Corp. | 10,582 | 1,274 |
| * | Varian Medical Systems Inc. | 13,237 | 1,231 |
| * | Jazz Pharmaceuticals plc | 7,228 | 1,229 |
| | DENTSPLY International Inc. | 18,767 | 995 |
| | Patterson Cos. Inc. | 11,073 | 554 |
| * | Halyard Health Inc. | 6,321 | 291 |
| | | | 329,705 |
| Industrials (6.6%) | | |
| | Union Pacific Corp. | 119,250 | 14,341 |
| | Danaher Corp. | 79,133 | 6,907 |
| | FedEx Corp. | 35,511 | 6,285 |
| | Automatic Data Processing | | |
| | Inc. | 63,953 | 5,682 |
| | Illinois Tool Works Inc. | 46,733 | 4,620 |
| | CSX Corp. | 133,894 | 4,594 |
| | Norfolk Southern Corp. | 41,012 | 4,477 |
| | Eaton Corp. plc | 62,798 | 4,459 |
| | Deere & Co. | 44,725 | 4,052 |
| | Cummins Inc. | 24,487 | 3,483 |
| | Waste Management Inc. | 60,884 | 3,317 |
| | PACCAR Inc. | 46,928 | 3,006 |
| | Sherwin-Williams Co. | 10,456 | 2,982 |
| * | Fiserv Inc. | 32,429 | 2,532 |
| | Ingersoll-Rand plc | 35,382 | 2,377 |
| | Rockwell Automation Inc. | 18,326 | 2,145 |
| | Xerox Corp. | 151,649 | 2,070 |
| | WW Grainger Inc. | 7,852 | 1,860 |
| | Agilent Technologies Inc. | 43,941 | 1,855 |
| | AMETEK Inc. | 32,366 | 1,720 |
| | Kansas City Southern | 14,632 | 1,695 |
| | Pentair plc | 24,808 | 1,649 |
| | Fastenal Co. | 35,974 | 1,495 |
| | CH Robinson Worldwide Inc. | 19,394 | 1,441 |
| | Vulcan Materials Co. | 17,358 | 1,441 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | Sealed Air Corp. | 28,072 | 1,323 |
| | Towers Watson & Co. | | |
| | Class A | 9,425 | 1,239 |
| | Expeditors International | | |
| | of Washington Inc. | 25,652 | 1,239 |
| | MeadWestvaco Corp. | 22,313 | 1,184 |
| * | United Rentals Inc. | 11,885 | 1,106 |
| | Robert Half International Inc. | 17,285 | 1,071 |
| | JB Hunt Transport Services | | |
| | Inc. | 12,263 | 1,048 |
| | Fortune Brands Home & | | |
| | Security Inc. | 20,972 | 971 |
| * | Flextronics International Ltd. | 76,592 | 933 |
| | ADT Corp. | 23,093 | 906 |
| * | Trimble Navigation Ltd. | 34,463 | 901 |
| | Xylem Inc. | 24,191 | 864 |
| | Broadridge Financial | | |
| | Solutions Inc. | 16,066 | 855 |
| | ManpowerGroup Inc. | 10,504 | 845 |
| | Avnet Inc. | 18,279 | 837 |
| * | Keysight Technologies Inc. | 21,982 | 825 |
| * | Arrow Electronics Inc. | 12,837 | 795 |
| | Allegion plc | 12,648 | 730 |
| | Ryder System Inc. | 7,113 | 669 |
| | Bemis Co. Inc. | 13,269 | 647 |
| | MDU Resources Group Inc. | 25,681 | 573 |
| * | Owens-Illinois Inc. | 21,880 | 572 |
| | Jabil Circuit Inc. | 23,781 | 522 |
| | | | 111,140 |
| Oil & Gas (2.8%) | | |
| | Kinder Morgan Inc. | 237,456 | 9,738 |
| | Occidental Petroleum Corp. | 103,024 | 8,024 |
| | Anadarko Petroleum Corp. | 66,635 | 5,613 |
| | Williams Cos. Inc. | 99,238 | 4,867 |
| | Devon Energy Corp. | 54,444 | 3,353 |
| | Marathon Oil Corp. | 89,769 | 2,501 |
| | EQT Corp. | 20,186 | 1,611 |
| | Chesapeake Energy Corp. | 88,547 | 1,477 |
| * | FMC Technologies Inc. | 31,225 | 1,247 |
| * | Southwestern Energy Co. | 46,577 | 1,168 |
| | Range Resources Corp. | 22,332 | 1,106 |
| | Helmerich & Payne Inc. | 13,493 | 905 |
| | Ensco plc Class A | 30,820 | 754 |
| | Core Laboratories NV | 5,856 | 644 |
| * | Newfield Exploration Co. | 17,976 | 594 |
| | Noble Corp. plc | 33,426 | 556 |
| | QEP Resources Inc. | 23,934 | 514 |
| | Denbury Resources Inc. | 46,239 | 388 |
| | Rowan Cos. plc Class A | 16,363 | 354 |
| * | NOW Inc. | 14,188 | 301 |
| * | California Resources Corp. | 41,457 | 297 |
| * | WPX Energy Inc. | 26,648 | 287 |
| * | Seventy Seven Energy Inc. | 7,083 | 34 |
| | Paragon Offshore plc | 12,338 | 25 |
| | | | 46,358 |
12
| | | |
| FTSE Social Index Fund | | |
| |
| |
| |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| Technology (21.6%) | | |
| | Apple Inc. | 773,900 | 99,415 |
| | Microsoft Corp. | 980,934 | 43,014 |
| * | Google Inc. Class A | 37,649 | 21,183 |
| * | Google Inc. Class C | 37,504 | 20,942 |
| | Intel Corp. | 629,291 | 20,924 |
| | Cisco Systems Inc. | 684,440 | 20,198 |
| | Oracle Corp. | 453,405 | 19,868 |
| | QUALCOMM Inc. | 220,893 | 16,017 |
| | Texas Instruments Inc. | 140,296 | 8,249 |
| | EMC Corp. | 271,807 | 7,866 |
| * | salesforce.com inc | 76,199 | 5,287 |
| * | Adobe Systems Inc. | 66,671 | 5,274 |
| * | Cognizant Technology | | |
| | Solutions Corp. Class A | 80,117 | 5,006 |
| * | Micron Technology Inc. | 142,211 | 4,362 |
| | Avago Technologies Ltd. | | |
| | Class A | 33,430 | 4,266 |
| | Corning Inc. | 171,613 | 4,187 |
| | Applied Materials Inc. | 161,761 | 4,052 |
| | Intuit Inc. | 35,226 | 3,439 |
| | Broadcom Corp. Class A | 71,890 | 3,252 |
| | Western Digital Corp. | 29,550 | 3,161 |
| * | Cerner Corp. | 39,197 | 2,825 |
| * | NXP Semiconductors NV | 30,420 | 2,583 |
| | Seagate Technology plc | 41,556 | 2,540 |
| | SanDisk Corp. | 29,318 | 2,343 |
| | Symantec Corp. | 92,117 | 2,318 |
| * | Autodesk Inc. | 30,195 | 1,940 |
| * | Red Hat Inc. | 25,185 | 1,741 |
| | Lam Research Corp. | 21,076 | 1,738 |
| * | Check Point Software | | |
| | Technologies Ltd. | 19,174 | 1,601 |
| * | Akamai Technologies Inc. | 22,546 | 1,567 |
| | NVIDIA Corp. | 69,146 | 1,525 |
| | Xilinx Inc. | 35,432 | 1,501 |
| | Altera Corp. | 40,412 | 1,496 |
| | CA Inc. | 44,475 | 1,446 |
| | KLA-Tencor Corp. | 22,113 | 1,436 |
| | Juniper Networks Inc. | 57,295 | 1,370 |
| * | Citrix Systems Inc. | 21,411 | 1,363 |
| | Maxim Integrated Products | | |
| | Inc. | 37,898 | 1,304 |
| * | F5 Networks Inc. | 9,823 | 1,160 |
| * | Workday Inc. Class A | 12,588 | 1,076 |
| * | VeriSign Inc. | 16,189 | 1,036 |
| | CDK Global Inc. | 21,251 | 995 |
| * | Synopsys Inc. | 20,661 | 959 |
| * | Teradata Corp. | 20,264 | 902 |
| * | VMware Inc. Class A | 9,872 | 840 |
| * | Cree Inc. | 14,639 | 575 |
| * | Yandex NV Class A | 30,568 | 503 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | DST Systems Inc. | 4,561 | 485 |
| * | ServiceNow Inc. | 5,941 | 453 |
| * | Mobileye NV | 3,835 | 136 |
| | | | 361,719 |
| Telecommunications (0.2%) | | |
| * | T-Mobile US Inc. | 33,942 | 1,121 |
| | Frontier Communications | | |
| | Corp. | 133,254 | 1,063 |
| | Windstream Holdings Inc. | 79,458 | 627 |
| * | Sprint Corp. | 109,699 | 562 |
| | | | 3,373 |
| Utilities (1.1%) | | |
| | Spectra Energy Corp. | 88,471 | 3,140 |
| | Consolidated Edison Inc. | 38,610 | 2,438 |
| | Eversource Energy | 41,938 | 2,170 |
| | NiSource Inc. | 41,710 | 1,790 |
| | Wisconsin Energy Corp. | 30,207 | 1,540 |
| | CMS Energy Corp. | 36,790 | 1,292 |
| | American Water Works Co. | | |
| | Inc. | 23,844 | 1,290 |
| | ONEOK Inc. | 27,688 | 1,225 |
| | CenterPoint Energy Inc. | 56,613 | 1,177 |
| | Alliant Energy Corp. | 14,623 | 930 |
| | Pepco Holdings Inc. | 33,222 | 902 |
| | TECO Energy Inc. | 30,861 | 606 |
| | Questar Corp. | 23,501 | 549 |
| | | | 19,049 |
| Total Common Stocks | | |
| (Cost $1,261,137) | | 1,674,994 |
| Temporary Cash Investment (0.0%) | |
| Money Market Fund (0.0%) | | |
| 1 | Vanguard Market Liquidity | | |
| | Fund, 0.134% | | |
| | (Cost $204) | 203,762 | 204 |
| Total Investments (100.0%) | | |
| (Cost $1,261,341) | | 1,675,198 |
| Other Assets and Liabilities (0.0%) | |
| Other Assets | | 4,731 |
| Liabilities | | (4,220) |
| | | | 511 |
| Net Assets (100%) | | 1,675,709 |
13
FTSE Social Index Fund
| |
| At February 28, 2015, net assets consisted of: |
| | Amount |
| | ($000) |
| Paid-in Capital | 1,265,363 |
| Undistributed Net Investment Income | 1,855 |
| Accumulated Net Realized Losses | (5,366) |
| Unrealized Appreciation (Depreciation) | 413,857 |
| Net Assets | 1,675,709 |
| |
| |
| Investor Shares—Net Assets | |
| Applicable to 78,930,651 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 1,076,683 |
| Net Asset Value Per Share— | |
| Investor Shares | $13.64 |
| |
| |
| Institutional Shares—Net Assets | |
| Applicable to 43,881,420 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 599,026 |
| Net Asset Value Per Share— | |
| Institutional Shares | $13.65 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
1 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
REIT—Real Estate Investment Trust.
See accompanying Notes, which are an integral part of the Financial Statements.
14
| |
| FTSE Social Index Fund | |
| |
| |
| Statement of Operations | |
| |
| | Six Months Ended |
| | February 28, 2015 |
| | ($000) |
| Investment Income | |
| Income | |
| Dividends | 13,465 |
| Interest1 | 3 |
| Securities Lending | 7 |
| Total Income | 13,475 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 112 |
| Management and Administrative—Investor Shares | 1,023 |
| Management and Administrative—Institutional Shares | 271 |
| Marketing and Distribution—Investor Shares | 92 |
| Marketing and Distribution—Institutional Shares | 53 |
| Custodian Fees | 66 |
| Shareholders’ Reports—Investor Shares | 1 |
| Shareholders’ Reports—Institutional Shares | 6 |
| Trustees’ Fees and Expenses | 1 |
| Total Expenses | 1,625 |
| Net Investment Income | 11,850 |
| Realized Net Gain (Loss) on Investment Securities Sold | 32,594 |
| Change in Unrealized Appreciation (Depreciation) of Investment Securities | 80,723 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 125,167 |
| 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
| | |
| FTSE Social Index Fund | | |
| |
| |
| Statement of Changes in Net Assets | | |
| |
| | Six Months Ended | Year Ended |
| | February 28, | August 31, |
| | 2015 | 2014 |
| | ($000) | ($000) |
| Increase (Decrease) in Net Assets | | |
| Operations | | |
| Net Investment Income | 11,850 | 15,983 |
| Realized Net Gain (Loss) | 32,594 | 34,417 |
| Change in Unrealized Appreciation (Depreciation) | 80,723 | 177,518 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 125,167 | 227,918 |
| Distributions | | |
| Net Investment Income | | |
| Investor Shares | (12,803) | (8,211) |
| Institutional Shares | (7,027) | (4,672) |
| Realized Capital Gain | | |
| Investor Shares | — | — |
| Institutional Shares | — | — |
| Total Distributions | (19,830) | (12,883) |
| Capital Share Transactions | | |
| Investor Shares | 208,427 | 103,700 |
| Institutional Shares | 133,189 | 80,439 |
| Net Increase (Decrease) from Capital Share Transactions | 341,616 | 184,139 |
| Total Increase (Decrease) | 446,953 | 399,174 |
| Net Assets | | |
| Beginning of Period | 1,228,756 | 829,582 |
| End of Period1 | 1,675,709 | 1,228,756 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $1,855,000 and $9,835,000.
See accompanying Notes, which are an integral part of the Financial Statements.
16
| | | | | | | |
| FTSE Social Index Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| |
| Investor Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $12.74 | $10.28 | $8.30 | $7.31 | $6.27 | $6.20 |
| Investment Operations | | | | | | | |
| Net Investment Income | | .1061 | .167 | .153 | .117 | .084 | .061 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | .958 | 2.442 | 1.969 | .962 | 1.016 | .077 |
| Total from Investment Operations | 1.064 | 2.609 | 2.122 | 1.079 | 1.100 | .138 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (.164) | (.149) | (.142) | (.089) | (.060) | (.068) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | | (.164) | (.149) | (.142) | (. 089) | (. 060) | (. 068) |
| Net Asset Value, End of Period | $13.64 | $12.74 | $10.28 | $8.30 | $7.31 | $6.27 |
| |
| Total Return2 | | 8.42% | 25.58% | 25.90% | 14.94% | 17.52% | 2.18% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $1,077 | $800 | $553 | $379 | $344 | $306 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.27% | 0.27% | 0.28% | 0.29% | 0.29% | 0.29% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 1.67% | 1.51% | 1.63% | 1.50% | 1.10% | 0.91% |
| Portfolio Turnover Rate | | 20% | 14% | 29% | 45% | 11% | 35% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized. 1 Calculated based on average shares outstanding.
2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
See accompanying Notes, which are an integral part of the Financial Statements.
17
| | | | | | | |
| FTSE Social Index Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| |
| Institutional Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $12.75 | $10.29 | $8.31 | $7.32 | $6.27 | $6.20 |
| Investment Operations | | | | | | | |
| Net Investment Income | | .1131 | .180 | .163 | .128 | .095 | .070 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | .963 | 2.440 | 1.971 | .960 | 1.025 | .075 |
| Total from Investment Operations | 1.076 | 2.620 | 2.134 | 1.088 | 1.120 | .145 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (.176) | (.160) | (.154) | (.098) | (.070) | (.075) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | | (.176) | (.160) | (.154) | (. 098) | (. 070) | (. 075) |
| Net Asset Value, End of Period | $13.65 | $12.75 | $10.29 | $8.31 | $7.32 | $6.27 |
| |
| Total Return | | 8.51% | 25.68% | 26.05% | 15.06% | 17.84% | 2.29% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $599 | $429 | $276 | $202 | $155 | $128 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.16% | 0.16% | 0.16% | 0.16% | 0.16% | 0.16% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 1.78% | 1.62% | 1.75% | 1.63% | 1.23% | 1.04% |
| Portfolio Turnover Rate | | 20% | 14% | 29% | 45% | 11% | 35% |
| The expense ratio, net income ratio, and turnover rate for the current period have been annualized. | | |
| 1 Calculated based on average shares outstanding. | | | | | | |
See accompanying Notes, which are an integral part of the Financial Statements.
18
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, service, and account-size criteria.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. 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 for all open federal income tax years (August 31, 2011–2014), and for the period ended February 28, 2015, 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. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
5. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $2.89 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of
19
FTSE Social Index Fund
trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2015, or at any time during the period then ended.
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 based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At February 28, 2015, the fund had contributed capital of $147,000 to Vanguard (included in Other Assets), representing 0.01% 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. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At February 28, 2015, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
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.
20
FTSE Social Index Fund
During the six months ended February 28, 2015, the fund realized $34,311,000 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, 2014, the fund had available capital losses totaling $3,592,000 to offset future net capital gains through August 31, 2019. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2015; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2015, the cost of investment securities for tax purposes was $1,261,341,000. Net unrealized appreciation of investment securities for tax purposes was $413,857,000, consisting of unrealized gains of $439,097,000 on securities that had risen in value since their purchase and $25,240,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the six months ended February 28, 2015, the fund purchased $681,486,000 of investment securities and sold $346,785,000 of investment securities, other than temporary cash investments. Purchases and sales include $73,235,000 and $80,091,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
| | | | |
| F. Capital share transactions for each class of shares were: | | | |
| | Six Months Ended | | Year Ended |
| | February 28, 2015 | August 31, 2014 |
| | Amount | Shares | Amount | Shares |
| | ($000) | (000) | ($000) | (000) |
| Investor Shares | | | | |
| Issued | 348,109 | 26,727 | 300,900 | 26,084 |
| Issued in Lieu of Cash Distributions | 11,902 | 917 | 7,650 | 685 |
| Redeemed | (151,584) | (11,500) | (204,850) | (17,767) |
| Net Increase (Decrease)—Investor Shares | 208,427 | 16,144 | 103,700 | 9,002 |
| Institutional Shares | | | | |
| Issued | 144,742 | 11,140 | 136,554 | 11,664 |
| Issued in Lieu of Cash Distributions | 7,027 | 541 | 4,672 | 418 |
| Redeemed | (18,580) | (1,445) | (60,787) | (5,293) |
| Net Increase (Decrease)—Institutional Shares | 133,189 | 10,236 | 80,439 | 6,789 |
G. Management has determined that no material events or transactions occurred subsequent to February 28, 2015, that would require recognition or disclosure in these financial statements.
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 any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.
22
| | | |
| Six Months Ended February 28, 2015 | | | |
| | Beginning | Ending | Expenses |
| | Account Value | Account Value | Paid During |
| FTSE Social Index Fund | 8/31/2014 | 2/28/2015 | Period |
| Based on Actual Fund Return | | | |
| Investor Shares | $1,000.00 | $1,084.17 | $1.40 |
| Institutional Shares | 1,000.00 | 1,085.10 | 0.83 |
| Based on Hypothetical 5% Yearly Return | | | |
| Investor Shares | $1,000.00 | $1,023.46 | $1.35 |
| Institutional Shares | 1,000.00 | 1,024.00 | 0.80 |
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 0.27% 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.
23
Glossary
30-Day SEC Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (for bonds), its actual income (for asset-backed securities), or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.
Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Dividend Yield. Dividend income earned by stocks, expressed as a percentage of the aggregate market value (or of net asset value, for a fund). The yield is determined by dividing the amount of the annual dividends by the aggregate value (or net asset value) at the end of the period. For a fund, the dividend yield is based solely on stock holdings and does not include any income produced by other investments.
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.
Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.
Foreign Holdings. The percentage of a fund represented by securities or depositary receipts of companies based outside the United States.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.
24
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.
Benchmark Information
Spliced Social Index: Calvert Social Index through December 16, 2005; FTSE4Good US Select Index thereafter.
25
This page intentionally left blank.
This page intentionally left blank.
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 178 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
InterestedTrustee1
F. William McNabb III
Born 1957. Trustee Since July 2009. Chairman of the Board. Principal Occupation(s) During the Past Five Years and Other Experience: Chairman of the Board of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group, since January 2010; Director of The Vanguard Group 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).
IndependentTrustees
Emerson U. Fullwood
Born 1948. Trustee Since January 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Executive Chief Staff and Marketing Officer for North America and Corporate Vice President (retired 2008) of Xerox Corporation (document management products and services); Executive in Residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology; Director of SPX Corporation (multi-industry manufacturing), the United Way of Rochester, Amerigroup Corporation (managed health care), the University of Rochester Medical Center, Monroe Community College Foundation, and North Carolina A&T University.
Rajiv L. Gupta
Born 1945. Trustee Since December 2001.2 Principal Occupation(s) During the Past Five Years and Other Experience: Chairman and Chief Executive Officer (retired 2009) and President (2006–2008) of Rohm and Haas Co. (chemicals); Director of Tyco International PLC (diversified manufacturing and services), Hewlett-Packard Co. (electronic computer manufacturing), and Delphi Automotive PLC (automotive components); Senior Advisor at New Mountain Capital.
Amy Gutmann
Born 1949. Trustee Since June 2006. Principal Occupation(s) During the Past Five Years and Other Experience: President of the University of Pennsylvania; Christopher H. Browne Distinguished Professor of Political Science, School of Arts and Sciences, and Professor of Communication, Annenberg School for Communication, with secondary faculty appointments in the Department of Philosophy, School of Arts and Sciences, and at the Graduate School of Education, University of Pennsylvania; Trustee of the National Constitution Center; Chair of the Presidential Commission for the Study of Bioethical Issues.
JoAnn Heffernan Heisen
Born 1950. Trustee Since July 1998. Principal Occupation(s) During the Past Five Years and Other Experience: Corporate Vice President and Chief Global Diversity Officer (retired 2008) and Member of the Executive Committee (1997–2008) of Johnson & Johnson (pharmaceuticals/medical devices/ consumer products); Director of Skytop Lodge Corporation (hotels), the University Medical Center at Princeton, the Robert Wood Johnson Foundation, and the Center for Talent Innovation; Member of the Advisory Board of the Institute for Women’s Leadership at Rutgers University.
F. Joseph Loughrey
Born 1949. Trustee Since October 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2009) of Cummins Inc. (industrial machinery); Chairman of the Board of Hillenbrand, Inc. (specialized consumer services), and of Oxfam America; Director of SKF AB (industrial machinery), Hyster-Yale Materials Handling, Inc. (forklift trucks), the Lumina Foundation for Education, and the V Foundation for Cancer Research; Member of the Advisory Council for the College of Arts and Letters and of the Advisory Board to the Kellogg Institute for International Studies, both at the University of Notre Dame.
Mark Loughridge
Born 1953. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Senior Vice President and Chief Financial Officer (retired 2013) at IBM (information technology services); Fiduciary Member of IBM’s Retirement Plan Committee (2004–2013); Director of the Dow Chemical Company; Member of the Council on Chicago Booth.
Scott C. Malpass
Born 1962. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Chief Investment Officer and Vice President at the University of Notre Dame; Assistant Professor of Finance at the Mendoza College of Business at Notre Dame; Member of the Notre Dame 403(b) Investment Committee; Board Member of TIFF Advisory Services, Inc., and Catholic Investment Services, Inc. (investment advisors); Member of the Investment Advisory Committee of Major League Baseball.
André F. Perold
Born 1952. Trustee Since December 2004. Principal Occupation(s) During the Past Five Years and Other Experience: George Gund Professor of Finance and Banking, Emeritus at the Harvard Business School (retired 2011); Chief Investment Officer and Managing Partner of HighVista Strategies LLC (private investment firm); Director of Rand Merchant Bank; Overseer of the Museum of Fine Arts Boston.
Peter F. Volanakis
Born 1955. Trustee Since July 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2010) of Corning Incorporated (communications equipment); Trustee of Colby-Sawyer College; Member of the Advisory Board of the Norris Cotton Cancer Center and of the Advisory Board of the Parthenon Group (strategy consulting).
Executive Officers
Glenn Booraem
Born 1967. Controller Since July 2010. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Controller of each of the investment companies served by The Vanguard Group; Assistant Controller of each of the investment companies served by The Vanguard Group (2001–2010).
Thomas J. Higgins
Born 1957. Chief Financial Officer Since September 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Chief Financial Officer of each of the investment companies served by The Vanguard Group; Treasurer of each of the investment companies served by The Vanguard Group (1998–2008).
Kathryn J. Hyatt
Born 1955. Treasurer Since November 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group; Assistant Treasurer of each of the investment companies served by The Vanguard Group (1988–2008).
Heidi Stam
Born 1956. Secretary Since July 2005. Principal Occupation(s) During the Past Five Years and Other Experience: Managing Director of The Vanguard Group, Inc.; General Counsel of The Vanguard Group; Secretary of The Vanguard Group and of each of the investment companies served by The Vanguard Group; Director and Senior Vice President of Vanguard Marketing Corporation.
Vanguard Senior Management Team
| |
Mortimer J. Buckley Kathleen C. Gubanich Paul A. Heller Martha G. King John T. Marcante | Chris D. McIsaac Michael S. Miller James M. Norris Glenn W. Reed |
Chairman Emeritus and Senior Advisor
John J. Brennan
Chairman, 1996–2009
Chief Executive Officer and President, 1996–2008
Founder
John C. Bogle
Chairman and Chief Executive Officer, 1974–1996
1 Mr. McNabb is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the Vanguard funds.
2 December 2002 for Vanguard Equity Income Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.
P.O. Box 2600
Valley Forge, PA 19482-2600
Connect with Vanguard® > vanguard.com
| |
| Fund Information > 800-662-7447 | All rights in a FTSE index (the “Index”) vest in FTSE |
| Direct Investor Account Services > 800-662-2739 | International Limited (“FTSE”). “FTSE®” is a trademark |
| | of London Stock Exchange Group companies and is |
| Institutional Investor Services > 800-523-1036 | used by FTSE under licence. The Vanguard fund (the |
| Text Telephone for People | “Product”) has been developed solely by Vanguard. The |
| With Hearing Impairment > 800-749-7273 | Index is calculated by FTSE or its agent. FTSE and its |
| | licensors are not connected to and do not sponsor, |
| This material may be used in conjunction | advise, recommend, endorse, or promote the Product |
| with the offering of shares of any Vanguard | and do not accept any liability whatsoever to any |
| fund only if preceded or accompanied by | person arising out of (a) the use of, reliance on, or any |
| | error in the Index or (b) investment in or operation of |
| the fund’s current prospectus. | the Product. FTSE makes no claim, prediction, warranty, |
| All comparative mutual fund data are from Lipper, a | or representation either as to the results to be obtained |
| Thomson Reuters Company, or Morningstar, Inc., unless | from the Product or the suitability of the Index for the |
| otherwise noted. | purpose to which it is being put by Vanguard. |
| |
| You can obtain a free copy of Vanguard’s proxy voting | |
| guidelines by visiting vanguard.com/proxyreporting or by | |
| calling Vanguard at 800-662-2739. The guidelines are | |
| also available from the SEC’s website, sec.gov. In | |
| addition, you may obtain a free report on how your fund | |
| voted the proxies for securities it owned during the 12 | |
| months ended June 30. To get the report, visit either | |
| vanguard.com/proxyreporting or sec.gov. | |
| |
| You can review and copy information about your fund at | |
| the SEC’s Public Reference Room in Washington, D.C. To | |
| find out more about this public service, call the SEC at | |
| 202-551-8090. Information about your fund is also | |
| available on the SEC’s website, and you can receive | |
| copies of this information, for a fee, by sending a | |
| request in either of two ways: via e-mail addressed to | |
| publicinfo@sec.gov or via regular mail addressed to the | |
| Public Reference Section, Securities and Exchange | |
| Commission, Washington, DC 20549-1520. | |
| |
| | © 2015 The Vanguard Group, Inc. |
| | All rights reserved. |
| | Vanguard Marketing Corporation, Distributor. |
| |
| | Q2132 042015 |
Vanguard U.S. Sector Index Funds
Vanguard Consumer Discretionary Index Fund
Vanguard Consumer Staples Index Fund
Vanguard Energy Index Fund
Vanguard Financials Index Fund
Vanguard Health Care Index Fund
Vanguard Industrials Index Fund
Vanguard Information Technology Index Fund
Vanguard Materials Index Fund
Vanguard Telecommunication Services Index Fund
Vanguard Utilities Index Fund
The mission continues
On May 1, 1975, Vanguard began operations, a fledgling company based on the simple but revolutionary idea that a mutual fund company should be managed solely in the interest of its investors.
Four decades later, that revolutionary spirit continues to animate the enterprise. Vanguard remains on a mission to give investors the best chance of investment success.
As we mark our 40th anniversary, we thank you for entrusting your assets to Vanguard and giving us the opportunity to help you reach your financial goals in the decades to come.
| |
| Contents | |
| |
| Your Fund’s Total Returns | 1 |
| Chairman’s Letter | 2 |
| Consumer Discretionary Index Fund | 6 |
| Consumer Staples Index Fund | 17 |
| Energy Index Fund | 27 |
| Financials Index Fund | 37 |
| Health Care Index Fund | 49 |
| Industrials Index Fund | 60 |
| Information Technology Index Fund | 71 |
| Materials Index Fund | 82 |
| Telecommunication Services Index Fund | 92 |
| Utilities Index Fund | 102 |
| About Your Fund’s Expenses | 111 |
| Glossary | 113 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
About the cover: Since our founding, Vanguard has drawn inspiration from the enterprise and valor demonstrated by British naval hero Horatio Nelson and his command at the Battle of the Nile in 1798. The photograph displays a replica of a merchant ship from the same era as Nelson’s flagship, the HMS Vanguard.
Your Fund’s Total Returns
Six Months Ended February 28, 2015
| |
| Admiral™ Shares1 and ETF Shares2 | |
| |
| | Total |
| | Returns |
| Vanguard Consumer Discretionary | |
| Index Fund | 10.97% |
| Vanguard Consumer Discretionary ETF | |
| Market Price | 11.07 |
| Net Asset Value | 10.95 |
| MSCI US IMI/Consumer Discretionary 25/50 | 11.03 |
| Consumer Services Funds Average3 | 9.41 |
| |
| Vanguard Consumer Staples Index Fund | 12.04% |
| Vanguard Consumer Staples ETF | |
| Market Price | 12.02 |
| Net Asset Value | 11.98 |
| MSCI US IMI/Consumer Staples 25/50 | 12.09 |
| Consumer Goods Funds Average3 | 6.89 |
| |
| Vanguard Energy Index Fund | –20.11% |
| Vanguard Energy ETF | |
| Market Price | –20.09 |
| Net Asset Value | –20.14 |
| MSCI US IMI/Energy 25/50 | –20.08 |
| Natural Resources Funds Average3 | –24.24 |
| |
| Vanguard Financials Index Fund | 5.45% |
| Vanguard Financials ETF | |
| Market Price | 5.42 |
| Net Asset Value | 5.46 |
| MSCI US IMI/Financials 25/50 | 5.51 |
| Financial Services Funds Average3 | 3.46 |
| |
| Vanguard Health Care Index Fund | 15.16% |
| Vanguard Health Care ETF | |
| Market Price | 15.19 |
| Net Asset Value | 15.14 |
| MSCI US IMI/Health Care 25/50 | 15.13 |
| Health/Biotechnology Funds Average3 | 18.73 |
| |
| Vanguard Industrials Index Fund | 6.51% |
| Vanguard Industrials ETF | |
| Market Price | 6.50 |
| Net Asset Value | 6.46 |
| MSCI US IMI/Industrials 25/50 | 6.56 |
| Industrials Funds Average3 | 5.14 |
| |
| | Total |
| | Returns |
| Vanguard Information Technology | |
| Index Fund | 8.86% |
| Vanguard Information Technology ETF | |
| Market Price | 8.89 |
| Net Asset Value | 8.82 |
| MSCI US IMI/Information Technology 25/50 | 8.92 |
| Science and Technology Funds Average3 | 8.00 |
| |
| Vanguard Materials Index Fund | 1.09% |
| Vanguard Materials ETF | |
| Market Price | 1.05 |
| Net Asset Value | 1.05 |
| MSCI US IMI/Materials 25/50 | 1.14 |
| Basic Materials Funds Average3 | –7.50 |
| |
| Vanguard Telecommunication | |
| Services Index Fund | 2.81% |
| Vanguard Telecommunication Services ETF | |
| Market Price | 2.87 |
| Net Asset Value | 2.76 |
| MSCI US IMI/Telecommunication | |
| Services 25/50 | 3.08 |
| Telecommunication Funds Average3 | 4.38 |
| |
| Vanguard Utilities Index Fund | 5.70% |
| Vanguard Utilities ETF | |
| Market Price | 5.74 |
| Net Asset Value | 5.70 |
| MSCI US IMI/Utilities 25/50 | 5.77 |
| Utility Funds Average3 | 1.22 |
| |
| MSCI US IMI/2500 | 6.05% |
1 Admiral Shares carry lower expenses and are available to investors who meet certain account-balance requirements.
2 The Vanguard ETF® Shares shown are traded on the NYSE Arca exchange and are available only through brokers. The table provides ETF returns based on both the NYSE Arca market price and the net asset value for a share. U.S. Pat. Nos. 6,879,964; 7,337,138; 7,720,749; 7,925,573; 8,090,646; and 8,417,623.
3 Derived from data provided by Lipper, a Thomson Reuters Company.
For the ETF Shares, the market price is determined by the midpoint of the bid-offer spread as of the closing time of the New York Stock Exchange (generally 4 p.m., Eastern time). The net asset value is also determined as of the NYSE closing time. For more information about how the ETF Shares’ market prices have compared with their net asset value, visit vanguard.com, select your ETF, and then select the Price and Performance tab. The ETF premium/discount analysis there shows the percentages of days on which the ETF Shares’ market price was above or below the NAV.
Note: MSCI US IMI/2500 is the MSCI® US Investable Market 2500 Index.
1
Chairman’s Letter
Dear Shareholder,
Stocks produced impressive returns for the six months ended February 28, 2015, but there was significant divergence among the ten sectors that represent slices of the U.S. stock market. The economy affects each industry differently, of course, and investors are attracted, or not, to sectors and styles that move in and out of favor. Still, even for a six-month stretch––a short span in which inconsistencies can appear magnified––the deviations were notable.
Six of the ten Vanguard U.S. Sector Index Funds posted results that exceeded or nearly equaled the broad market’s outcome of about 6%; the Health Care Index Fund, which climbed about 15%, led the way. Of the four laggards, three still managed positive returns. The lone exception was the Energy Index Fund, which slid about –20% as plunging oil prices buffeted the industry.
Most important, all ten funds met their objective of closely tracking their benchmark indexes. All but two exceeded the average return of their industry peers.
As we announced earlier, eight of the sector index funds and 16 other funds in Vanguard’s lineup will begin paying a dividend each quarter rather than once a year. The Financials and Utilities Index Funds were already on a quarterly schedule. The change, which will take effect in the third quarter of 2015, should align distributions more closely with shareholders’ need for income and help the funds operate more efficiently.
A surge in February powered U.S. stocks for the period
U.S. stocks performed solidly but unevenly over the six months, ending about 6% higher despite declines in two of the months and flat returns in another.
Overall returns were powered by a robust advance in February, when the broad market recorded its largest monthly gain since October 2011. Investors were cheered by stabilization in oil prices and guidance from the Federal Reserve that it wouldn’t raise interest rates prematurely.
After some ups and downs, international stocks returned about –3% in dollar terms. The dollar’s strength against many foreign currencies, along with various geopolitical issues, restrained results. Stocks in emerging markets and the developed markets of the Pacific region and Europe backtracked, with emerging markets faring the worst. In local currency terms, though, international stocks rose.
| | | |
| Market Barometer | | | |
| | | | Total Returns |
| | | Periods Ended February 28, 2015 |
| | Six | One | Five Years |
| | Months | Year | (Annualized) |
| Stocks | | | |
| Russell 1000 Index (Large-caps) | 6.00% | 14.88% | 16.39% |
| Russell 2000 Index (Small-caps) | 5.70 | 5.63 | 15.97 |
| Russell 3000 Index (Broad U.S. market) | 5.98 | 14.12 | 16.36 |
| FTSE All-World ex US Index (International) | –3.34 | 1.69 | 6.94 |
| |
| Bonds | | | |
| Barclays U.S. Aggregate Bond Index (Broad taxable market) | 2.25% | 5.05% | 4.29% |
| Barclays Municipal Bond Index (Broad tax-exempt market) | 2.21 | 6.49 | 5.00 |
| Citigroup Three-Month U.S. Treasury Bill Index | 0.00 | 0.03 | 0.06 |
| |
| CPI | | | |
| Consumer Price Index | –1.32% | –0.03% | 1.61% |
2
Bonds notched positive results despite early and late retreats
The broad U.S. taxable bond market returned 2.25%, although bond prices declined over the period’s first and final months. When the stock market turned volatile, investors favored the relative safety offered by bonds, which also benefited from various global stimulus programs.
Bond prices then fell in February as the Fed suggested that a midyear interest rate increase was an option if the economy continued to perform well. The yield of the 10-year Treasury note ended February at 2.03%, down from 2.34% six months earlier. (Bond prices and yields move in opposite directions.)
Municipal bonds, which returned 2.21%, lost some steam toward the end of the period amid increased bond issuance and the prospect of higher interest rates.
International bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –9.54%, weighed down by the weakness of foreign currencies relative to the dollar. International bonds that were hedged to eliminate the effect of currency exchange rates produced positive returns.
Money market funds and savings accounts provided scant returns as the Fed’s target for short-term rates remained at 0%–0.25%.
The health care industry surged, while the energy sector slumped
Results for the ten Vanguard U.S. Sector Index Funds reflected economic and financial market themes. Although the Energy Index Fund was the only negative performer, the effect of declining oil prices on the sector and the broader economy was a prominent story over the period.
Oil-price changes hurt some segments of the economy and helped others. Most of the energy sector was pummeled. With their profits cut, producers scaled back on the projects that are the lifeblood of service firms, drillers, and equipment providers. Not every subsector suffered, however.
| | | |
| Expense Ratios | | | |
| Your Fund Compared With Its Peer Group | | | |
| |
| | Admiral | ETF | Peer Group |
| | Shares | Shares | Average |
| Consumer Discretionary Index Fund | 0.12% | 0.12% | 1.50% |
| Consumer Staples Index Fund | 0.12 | 0.12 | 1.51 |
| Energy Index Fund | 0.12 | 0.12 | 1.61 |
| Financials Index Fund | 0.12 | 0.12 | 1.64 |
| Health Care Index Fund | 0.12 | 0.12 | 1.50 |
| Industrials Index Fund | 0.12 | 0.12 | 1.45 |
| Information Technology Index Fund | 0.12 | 0.12 | 1.54 |
| Materials Index Fund | 0.12 | 0.12 | 1.44 |
| Telecommunication Services Index Fund | 0.12 | 0.12 | 1.56 |
| Utilities Index Fund | 0.12 | 0.12 | 1.29 |
The fund expense ratios shown are from the prospectus dated December 23, 2014, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2015, the fund’s annualized expense ratios were: for the Consumer Discretionary Index Fund, 0.12% for Admiral Shares and 0.12% for ETF Shares; for the Consumer Staples Index Fund, 0.12% for Admiral Shares and 0.12% for ETF Shares; for the Energy Index Fund, 0.12% for Admiral Shares and 0.12% for ETF Shares; for the Financials Index Fund, 0.12% for Admiral Shares and 0.12% for ETF Shares; for the Health Care Index Fund, 0.12% for Admiral Shares and 0.12% for ETF Shares; for the Industrials Index Fund, 0.12% for Admiral Shares and 0.12% for ETF Shares; for the Information Technology Index Fund, 0.12% for Admiral Shares and 0.12% for ETF Shares; for the Materials Index Fund, 0.12% for Admiral Shares and 0.12% for ETF Shares; for the Telecommunication Services Index Fund, 0.12% for Admiral Shares and 0.12% for ETF Shares; for the Utilities Index Fund, 0.12% for Admiral Shares and 0.12% for ETF Shares. Peer-group expense ratios are derived from data provided by Lipper, a Thomson Reuters Company, and capture information through year-end 2014.
Peer groups are: for the Consumer Discretionary Index Fund, Consumer Services Funds; for the Consumer Staples Index Fund, Consumer Goods Funds; for the Energy Index Fund, Natural Resources Funds; for the Financials Index Fund, Financial Services Funds; for the Health Care Index Fund, Health/Biotechnology Funds; for the Industrials Index Fund, Industrials Funds; for the Information Technology Index Fund, Science and Technology Funds; for the Materials Index Fund, Basic Materials Funds; for the Telecommunication Services Index Fund, Telecommunication Funds; for the Utilities Index Fund, Utility Funds.
Many companies that refine crude oil into other products did well, benefiting from lower prices for their primary raw material.
On the opposite end of the performance spectrum was the Health Care Index Fund, which flourished in recent years behind several long-term developments: the aging population, more accessibility to health care worldwide, and the expectation that more Americans would be insured under the Affordable Care Act. New product development, mergers and acquisitions, and strategic alliances boosted pharmaceutical and biotechnology companies. Innovative products and therapies helped medical equipment firms, and health care providers with diverse membership bases and business lines thrived.
Next in line was the Consumer Staples Index Fund, which returned about 12%, and the Consumer Discretionary Index Fund, which returned about 11%. Both sectors benefited from the slide in oil prices, which allowed consumers to spend money they’d previously earmarked for the gas pump. Consumer confidence also grew as the economy and labor market improved, and shoppers pursued a wide variety of goods and services. Entertainment companies, home builders, and hotels and restaurants were among the most productive consumer discretionary stocks; in consumer staples, food and drug retailers and supercenters stood out.
Also surpassing or performing in line with the broad market were the information technology, industrials, and utilities sectors. The Information Technology Fund returned almost 9% as demand swelled for smart-phones, other mobile technologies, and cloud computing.
Strength in the aerospace and defense industry helped the Industrials Index Fund return more than 6%. Airline stocks, boosted by lower fuel prices, also helped. The Utilities Index Fund returned nearly 6% as several major electric utilities excelled in fast-growing markets and favorable regulatory environments.
3
The Financials Index Fund returned more than 5%. Diversified financial services firms, asset managers, banks, and insurers decelerated a bit despite being largely profitable. As a group, consumer finance firms stumbled.
The telecommunication services and materials sectors, while advancing, lagged well behind the broad market. The Telecommunication Services Index Fund returned almost 3% as slower growth in data services cut into phone revenue for some of the industry’s largest firms. The traditionally cyclical Materials Index Fund returned about 1%, as lower commodity prices plagued the metals and mining industry and as many chemical companies slumped.
Both ETFs and mutual funds offer the chance for long-term success
The popularity of exchange-traded funds (ETFs), most of which seek to track an index, has surged over the past decade. We see this as an indication that our message is taking hold: Broad diversification and low costs are keys to long-term success, and indexing is a great way to implement strategies based on those tenets.
As you probably know, ETFs combine the investment characteristics of mutual funds with the trading characteristics of stocks. As with stocks, ETF prices change throughout the day. In contrast, traditional open-end mutual funds are priced once a day, shortly after the market’s close.
Some say ETFs are more of a trading tool than an investment tool. We don’t think this has to be the case. In fact, we’re seeing much greater use of ETFs as part of long-term plans. Certainly, they are easy to trade. But they are also easy to hold. And, unlike with traditional mutual funds, the investor doing the trading is the one who pays the transaction costs—not the other fund shareholders.
Vanguard ETFs are simply another share class of our traditional mutual funds. Clients select the share class that best meets their needs. The portfolios are identical. Vanguard research has shown that ETFs and mutual funds perform essentially the same investment function, and that investors can use both to create a low-cost, well-diversified portfolio of stocks and bonds. You can read more in
Buying on the FACTS: Investors’ Choices Between ETFs and Mutual Funds, available at vanguard.com/research.
As always, thank you for investing with Vanguard.
Sincerely,
F. William McNabb III
Chairman and Chief Executive Officer March 18, 2015
4
| | | | |
| Your Fund’s Performance at a Glance | | | | |
| August 31, 2014, Through February 28, 2015 | | | | |
| | | | Distributions Per Share |
| | Starting | Ending | Income | Capital |
| | Share Price | Share Price | Dividends | Gains |
| Consumer Discretionary Index Fund | | | | |
| Admiral Shares | $57.87 | $63.41 | $0.740 | $0.000 |
| ETF Shares | 111.79 | 122.50 | 1.432 | 0.000 |
| Consumer Staples Index Fund | | | | |
| Admiral Shares | $57.74 | $63.45 | $1.186 | $0.000 |
| ETF Shares | 117.12 | 128.67 | 2.417 | 0.000 |
| Energy Index Fund | | | | |
| Admiral Shares | $71.06 | $55.63 | $1.104 | $0.000 |
| ETF Shares | 142.26 | 111.37 | 2.209 | 0.000 |
| Financials Index Fund | | | | |
| Admiral Shares | $23.72 | $24.72 | $0.287 | $0.000 |
| ETF Shares | 47.32 | 49.32 | 0.572 | 0.000 |
| Health Care Index Fund | | | | |
| Admiral Shares | $58.61 | $66.81 | $0.643 | $0.000 |
| ETF Shares | 117.17 | 133.57 | 1.285 | 0.000 |
| Industrials Index Fund | | | | |
| Admiral Shares | $53.40 | $55.97 | $0.861 | $0.000 |
| ETF Shares | 103.95 | 108.94 | 1.673 | 0.000 |
| Information Technology Index Fund | | | | |
| Admiral Shares | $51.93 | $55.89 | $0.601 | $0.000 |
| ETF Shares | 101.41 | 109.14 | 1.171 | 0.000 |
| Materials Index Fund | | | | |
| Admiral Shares | $57.84 | $57.43 | $0.962 | $0.000 |
| ETF Shares | 113.50 | 112.69 | 1.892 | 0.000 |
| Telecommunication Services Index Fund | | | | |
| Admiral Shares | $45.07 | $45.11 | $1.142 | $0.000 |
| ETF Shares | 88.44 | 88.52 | 2.251 | 0.000 |
| Utilities Index Fund | | | | |
| Admiral Shares | $47.47 | $49.34 | $0.811 | $0.000 |
| ETF Shares | 94.61 | 98.35 | 1.615 | 0.000 |
5
Consumer Discretionary Index Fund
| | | |
| Fund Profile | | |
| As of February 28, 2015 | | |
| |
| Share-Class Characteristics | |
| | | Admiral | ETF |
| | | Shares | Shares |
| Ticker Symbol | | VCDAX | VCR |
| Expense Ratio1 | | 0.12% | 0.12% |
| 30-Day SEC Yield | | 1.22% | 1.22% |
| |
| |
| Portfolio Characteristics | | |
| | | MSCI | |
| | | US IMI/ | |
| | | Consumer | MSCI |
| | | Discretionary | US IMI/ |
| | Fund | 25/50 | 2500 |
| Number of Stocks | 380 | 380 | 2,481 |
| Median Market Cap | $34.4B | $34.4B | $49.1B |
| Price/Earnings Ratio | 24.7x | 24.7x | 21.3x |
| Price/Book Ratio | 4.7x | 4.7x | 2.9x |
| Return on Equity | 20.1% | 20.1% | 17.7% |
| Earnings Growth Rate | 16.6% | 16.6% | 13.9% |
| Dividend Yield | 1.3% | 1.3% | 1.9% |
| Foreign Holdings | 0.0% | 0.0% | 0.0% |
| Turnover Rate | | | |
| (Annualized) | 5% | — | — |
| Short-Term Reserves | 0.1% | — | — |
| |
| |
| Volatility Measures | | | |
| | MSCI US | |
| | IMI/Consumer | |
| | Discretionary | MSCI US |
| | | 25/50 | IMI/2500 |
| R-Squared | | 1.00 | 0.84 |
| Beta | | 1.00 | 1.12 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
| |
| Subindustry Diversification | |
| (% of equity exposure) | |
| |
| Advertising | 1.0% |
| Apparel Retail | 4.7 |
| Apparel, Accessories & Luxury Goods | 4.1 |
| Auto Parts & Equipment | 4.2 |
| Automobile Manufacturers | 4.2 |
| Automotive Retail | 3.0 |
| Broadcasting | 2.1 |
| Cable & Satellite | 11.2 |
| Casinos & Gaming | 1.8 |
| Department Stores | 1.8 |
| Footwear | 2.6 |
| General Merchandise Stores | 3.3 |
| Home Improvement Retail | 7.4 |
| Homebuilding | 1.7 |
| Homefurnishing Retail | 1.0 |
| Hotels, Resorts & Cruise Lines | 3.4 |
| Internet Retail | 9.2 |
| Leisure Products | 1.2 |
| Movies & Entertainment | 11.1 |
| Publishing | 1.0 |
| Restaurants | 9.6 |
| Specialty Stores | 2.9 |
| Other Consumer Discretionary | 7.5 |
Ten Largest Holdings (% of total net assets)
| | |
| Walt Disney Co. | Movies & Entertainment | 5.5% |
| Comcast Corp. | Cable & Satellite | 5.0 |
| Home Depot Inc. | Home Improvement Retail | 5.0 |
| Amazon.com Inc. | Internet Retail | 4.9 |
| McDonald’s Corp. | Restaurants | 3.2 |
| Lowe’s Cos. Inc. | Home Improvement Retail | 2.4 |
| Starbucks Corp. | Restaurants | 2.3 |
| Time Warner Inc. | Movies & Entertainment | 2.3 |
| NIKE Inc. | Footwear | 2.2 |
| Priceline Group Inc. Internet Retail | 2.1 |
| Top Ten | | 34.9% |
The holdings listed exclude any temporary cash investments and equity index products.
1 The expense ratios shown are from the prospectus dated December 23, 2014, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2015, the annualized expense ratios were 0.12% for Admiral Shares and 0.12% for ETF Shares.
6
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 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, 2004–February 28, 2015
Average Annual Total Returns: Periods Ended December 31, 2014
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
| | | | |
| | Inception Date | One Year | Five Years | Ten Years |
| ETF Shares | 1/26/2004 | | | |
| Market Price | | 9.39% | 21.55% | 9.05% |
| Net Asset Value | | 9.39 | 21.54 | 9.05 |
| Admiral Shares | 7/14/2005 | 9.42 | 21.55 | 9.661 |
1 Return since inception.
See Financial Highlights for dividend and capital gains information.
7
Consumer Discretionary Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the 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 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%) | | |
| Auto Components (4.5%) | | |
| | Johnson Controls Inc. | | 379,958 | 19,306 |
| | Delphi Automotive plc | | 168,913 | 13,317 |
| | BorgWarner Inc. | | 129,507 | 7,960 |
| * | TRW Automotive | | | |
| | Holdings Corp. | | 63,057 | 6,573 |
| | Autoliv Inc. | | 51,552 | 5,800 |
| | Lear Corp. | | 45,111 | 4,913 |
| | Goodyear Tire & Rubber Co. | 156,402 | 4,181 |
| | Gentex Corp. | | 166,739 | 2,938 |
| * | Visteon Corp. | | 24,006 | 2,413 |
| | Dana Holding Corp. | | 96,360 | 2,105 |
| * | Tenneco Inc. | | 34,824 | 2,028 |
| | Cooper Tire & Rubber Co. | 31,437 | 1,196 |
| * | American Axle & | | | |
| | Manufacturing | | | |
| | Holdings Inc. | | 38,824 | 968 |
| * | Gentherm Inc. | | 19,144 | 889 |
| * | Dorman Products Inc. | | 17,355 | 766 |
| * | Drew Industries Inc. | | 12,645 | 746 |
| * | Cooper-Standard Holding Inc. | 9,619 | 521 |
| | Standard Motor Products Inc. | 11,467 | 481 |
| | Remy International Inc. | 16,277 | 372 |
| * | Modine Manufacturing Co. | 28,165 | 365 |
| * | Tower International Inc. | 11,571 | 313 |
| | Superior Industries | | | |
| | International Inc. | | 12,436 | 242 |
| * | Federal-Mogul Holdings Corp. | 16,704 | 218 |
| * | Stoneridge Inc. | | 14,288 | 165 |
| * | Fox Factory Holding Corp. | 10,307 | 154 |
| | | | | 78,930 |
| Automobiles (4.6%) | | | |
| | Ford Motor Co. | 2,046,203 | 33,435 |
| | General Motors Co. | | 732,826 | 27,342 |
| *,^ | Tesla Motors Inc. | | 50,113 | 10,190 |
| | Harley-Davidson Inc. | | 122,003 | 7,756 |
| | Thor Industries Inc. | | 27,472 | 1,694 |
| | Winnebago Industries Inc. | 15,313 | 355 |
| | | | | 80,772 |
| Distributors (0.9%) | | | |
| | Genuine Parts Co. | | 87,032 | 8,362 |
| * | LKQ Corp. | | 172,598 | 4,242 |
| | Pool Corp. | | 25,061 | 1,733 |
| | Core-Mark Holding Co. Inc. | 13,230 | 930 |
| | | | | 15,267 |
| Diversified Consumer Services (1.4%) | |
| | H&R Block Inc. | | 156,699 | 5,351 |
| | Service Corp. International | 118,220 | 2,938 |
| | Graham Holdings Co. | | | |
| | Class B | | 2,601 | 2,566 |
| * | Houghton Mifflin | | | |
| | Harcourt Co. | | 80,559 | 1,593 |
| * | ServiceMaster Global | | | |
| | Holdings Inc. | | 45,562 | 1,576 |
| * | Apollo Education Group Inc. | 55,353 | 1,531 |
| | Sotheby’s | | 33,446 | 1,470 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | DeVry Education Group Inc. | 32,722 | 1,196 |
| * | Grand Canyon Education Inc. | 25,273 | 1,159 |
| * | Bright Horizons Family | | |
| | Solutions Inc. | 20,853 | 1,057 |
| * | Regis Corp. | 32,357 | 519 |
| | Capella Education Co. | 6,415 | 416 |
| * | LifeLock Inc. | 26,671 | 373 |
| * | Strayer Education Inc. | 6,112 | 372 |
| * | Steiner Leisure Ltd. | 7,814 | 360 |
| * | K12 Inc. | 19,283 | 327 |
| * | American Public | | |
| | Education Inc. | 9,824 | 318 |
| * | Ascent Capital Group Inc. | | |
| | Class A | 6,836 | 301 |
| * | Chegg Inc. | 30,323 | 246 |
| | Carriage Services Inc. | | |
| | Class A | 9,193 | 211 |
| * | 2U Inc. | 10,206 | 189 |
| * | Career Education Corp. | 34,147 | 182 |
| *,^ | Weight Watchers | | |
| | International Inc. | 15,544 | 176 |
| * | Bridgepoint Education Inc. | 8,610 | 87 |
| * | ITT Educational Services Inc. | 9,374 | 69 |
| | | | 24,583 |
| Hotels, Restaurants & Leisure (15.1%) | |
| | McDonald’s Corp. | 554,930 | 54,883 |
| | Starbucks Corp. | 426,674 | 39,888 |
| | Yum! Brands Inc. | 249,482 | 20,235 |
| | Las Vegas Sands Corp. | 228,378 | 12,995 |
| * | Chipotle Mexican Grill Inc. | | |
| | Class A | 17,709 | 11,776 |
| | Marriott International Inc. | | |
| | Class A | 129,399 | 10,753 |
| | Carnival Corp. | 219,351 | 9,649 |
| | Starwood Hotels & Resorts | | |
| | Worldwide Inc. | 101,718 | 8,171 |
| | Royal Caribbean Cruises Ltd. | 95,130 | 7,270 |
| | Wynn Resorts Ltd. | 46,255 | 6,591 |
| | Wyndham Worldwide Corp. | 70,490 | 6,448 |
| * | Hilton Worldwide | | |
| | Holdings Inc. | 224,220 | 6,339 |
| * | MGM Resorts International | 223,735 | 4,862 |
| | Darden Restaurants Inc. | 75,580 | 4,837 |
| | Domino’s Pizza Inc. | 31,401 | 3,188 |
| | Dunkin’ Brands Group Inc. | 59,585 | 2,792 |
| | Aramark | 87,747 | 2,777 |
| * | Norwegian Cruise Line | | |
| | Holdings Ltd. | 52,527 | 2,591 |
| | International Game | | |
| | Technology | 140,929 | 2,514 |
| * | Panera Bread Co. Class A | 14,606 | 2,358 |
| | Brinker International Inc. | 36,385 | 2,163 |
| | Jack in the Box Inc. | 22,295 | 2,156 |
| * | Buffalo Wild Wings Inc. | 10,851 | 2,074 |
| | Vail Resorts Inc. | 20,621 | 1,811 |
| | Wendy’s Co. | 155,960 | 1,730 |
| | Six Flags | | |
| | Entertainment Corp. | 37,936 | 1,718 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | Cracker Barrel Old Country | | |
| | Store Inc. | 10,925 | 1,650 |
| * | Bloomin’ Brands Inc. | 57,249 | 1,475 |
| | Texas Roadhouse Inc. | | |
| | Class A | 37,630 | 1,416 |
| * | Hyatt Hotels Corp. Class A | 22,261 | 1,348 |
| | Cheesecake Factory Inc. | 26,911 | 1,279 |
| * | Life Time Fitness Inc. | 21,236 | 1,227 |
| | Marriott Vacations | | |
| | Worldwide Corp. | 15,979 | 1,215 |
| | Choice Hotels | | |
| | International Inc. | 18,225 | 1,157 |
| | Papa John’s International Inc. | 17,149 | 1,060 |
| | DineEquity Inc. | 9,705 | 1,053 |
| * | Fiesta Restaurant Group Inc. | 14,554 | 946 |
| * | La Quinta Holdings Inc. | 41,013 | 911 |
| | Sonic Corp. | 28,598 | 909 |
| * | Pinnacle Entertainment Inc. | 34,160 | 879 |
| | Churchill Downs Inc. | 7,484 | 822 |
| * | Popeyes Louisiana | | |
| | Kitchen Inc. | 13,514 | 811 |
| * | Krispy Kreme Doughnuts Inc. | 36,747 | 802 |
| | Bob Evans Farms Inc. | 13,650 | 800 |
| | SeaWorld Entertainment Inc. | 40,588 | 761 |
| * | BJ’s Restaurants Inc. | 13,277 | 693 |
| | Extended Stay America Inc. | 35,814 | 691 |
| * | Diamond Resorts | | |
| | International Inc. | 19,880 | 689 |
| * | Penn National Gaming Inc. | 40,707 | 663 |
| * | Belmond Ltd. Class A | 52,656 | 644 |
| * | Red Robin Gourmet | | |
| | Burgers Inc. | 7,683 | 641 |
| | Interval Leisure Group Inc. | 22,500 | 607 |
| * | Boyd Gaming Corp. | 43,806 | 605 |
| * | Denny’s Corp. | 49,403 | 569 |
| | International Speedway | | |
| | Corp. Class A | 14,916 | 463 |
| * | Biglari Holdings Inc. | 983 | 428 |
| * | Scientific Games Corp. | | |
| | Class A | 29,445 | 398 |
| * | Caesars Entertainment | | |
| | Corp. | 32,434 | 344 |
| * | Zoe’s Kitchen Inc. | 9,766 | 335 |
| | ClubCorp Holdings Inc. | 18,094 | 322 |
| | Ruth’s Hospitality Group Inc. | 19,512 | 298 |
| * | Del Frisco’s Restaurant | | |
| | Group Inc. | 12,796 | 257 |
| * | Ruby Tuesday Inc. | 34,477 | 227 |
| * | Chuy’s Holdings Inc. | 8,803 | 198 |
| * | Caesars Acquisition Co. | | |
| | Class A | 26,541 | 196 |
| * | Noodles & Co. Class A | 10,310 | 188 |
| | Marcus Corp. | 9,567 | 186 |
| | Speedway Motorsports Inc. | 7,172 | 170 |
| * | Potbelly Corp. | 8,165 | 110 |
| * | Intrawest Resorts | | |
| | Holdings Inc. | 10,155 | 96 |
| | | | 263,108 |
Consumer Discretionary Index Fund
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| Household Durables (4.5%) | | |
| | Whirlpool Corp. | 44,337 | 9,397 |
| * | Mohawk Industries Inc. | 35,279 | 6,504 |
| | Newell Rubbermaid Inc. | 154,488 | 6,070 |
| * | Jarden Corp. | 104,043 | 5,522 |
| | Harman International | | |
| | Industries Inc. | 39,028 | 5,385 |
| | DR Horton Inc. | 186,878 | 5,104 |
| | Lennar Corp. Class A | 99,059 | 4,974 |
| | PulteGroup Inc. | 191,348 | 4,317 |
| * | Toll Brothers Inc. | 96,223 | 3,686 |
| | Leggett & Platt Inc. | 78,360 | 3,530 |
| | Garmin Ltd. | 65,155 | 3,234 |
| * | NVR Inc. | 2,212 | 2,946 |
| | Tupperware Brands Corp. | 28,718 | 2,050 |
| * | Tempur Sealy | | |
| | International Inc. | 34,489 | 1,983 |
| * | TRI Pointe Homes Inc. | 82,712 | 1,313 |
| * | Helen of Troy Ltd. | 16,194 | 1,241 |
| | Ryland Group Inc. | 26,862 | 1,222 |
| * | Meritage Homes Corp. | 21,236 | 945 |
| * | Standard Pacific Corp. | 89,528 | 782 |
| *,^ | GoPro Inc. Class A | 17,748 | 745 |
| | La-Z-Boy Inc. | 29,389 | 733 |
| | KB Home | 47,081 | 657 |
| | MDC Holdings Inc. | 22,142 | 602 |
| * | iRobot Corp. | 16,224 | 533 |
| * | Universal Electronics Inc. | 9,087 | 514 |
| | Libbey Inc. | 12,023 | 457 |
| | Ethan Allen Interiors Inc. | 14,767 | 396 |
| * | Taylor Morrison Home Corp. | | |
| | Class A | 18,303 | 353 |
| * | Cavco Industries Inc. | 4,508 | 323 |
| * | M/I Homes Inc. | 14,362 | 313 |
| * | Beazer Homes USA Inc. | 15,258 | 260 |
| * | Hovnanian Enterprises Inc. | | |
| | Class A | 67,214 | 251 |
| * | WCI Communities Inc. | 10,148 | 243 |
| * | William Lyon Homes Class A | 9,315 | 211 |
| * | Installed Building | | |
| | Products Inc. | 10,761 | 188 |
| * | Century Communities Inc. | 9,083 | 169 |
| | NACCO Industries Inc. | | |
| | Class A | 2,626 | 147 |
| * | LGI Homes Inc. | 8,878 | 126 |
| | | | 77,426 |
| Internet & Catalog Retail (9.7%) | |
| * | Amazon.com Inc. | 224,373 | 85,298 |
| * | Priceline Group Inc. | 29,856 | 36,946 |
| * | Netflix Inc. | 32,657 | 15,509 |
| * | Liberty Interactive Corp. | | |
| | Class A | 254,470 | 7,514 |
| * | TripAdvisor Inc. | 66,680 | 5,951 |
| | Expedia Inc. | 58,368 | 5,355 |
| * | Liberty Ventures Class A | 76,495 | 3,074 |
| * | Groupon Inc. Class A | 246,613 | 2,017 |
| * | Liberty TripAdvisor Holdings | | |
| | Inc. Class A | 40,371 | 1,333 |
| | HSN Inc. | 19,223 | 1,299 |
| * | Shutterfly Inc. | 22,054 | 1,059 |
| * | Orbitz Worldwide Inc. | 51,887 | 601 |
| * | zulily Inc. Class A | 33,176 | 465 |
| * | Lands’ End Inc. | 9,924 | 364 |
| * | FTD Cos. Inc. | 10,450 | 364 |
| | Nutrisystem Inc. | 16,171 | 278 |
| * | Overstock.com Inc. | 8,961 | 204 |
| * | Blue Nile Inc. | 6,347 | 190 |
| * | 1-800-Flowers.com Inc. | | |
| | Class A | 13,788 | 172 |
| | | | 167,993 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| Leisure Products (1.2%) | | |
| | Polaris Industries Inc. | 35,927 | 5,509 |
| | Mattel Inc. | 192,974 | 5,079 |
| | Hasbro Inc. | 64,315 | 4,008 |
| | Brunswick Corp. | 52,974 | 2,873 |
| * | Vista Outdoor Inc. | 36,368 | 1,588 |
| | Sturm Ruger & Co. Inc. | 10,775 | 560 |
| * | Smith & Wesson Holding | | |
| | Corp. | 30,494 | 413 |
| | Callaway Golf Co. | 43,867 | 394 |
| | Arctic Cat Inc. | 7,654 | 279 |
| * | LeapFrog Enterprises Inc. | 35,413 | 91 |
| | | | 20,794 |
| Media (26.7%) | | |
| | Walt Disney Co. | 918,501 | 95,598 |
| | Comcast Corp. Class A | 1,163,279 | 69,076 |
| | Time Warner Inc. | 478,145 | 39,141 |
| | Twenty-First Century Fox | | |
| | Inc. Class A | 842,545 | 29,489 |
| | Time Warner Cable Inc. | 160,007 | 24,649 |
| * | DIRECTV | 272,093 | 24,107 |
| * | Liberty Global plc | 362,645 | 18,919 |
| | Comcast Corp. | 300,140 | 17,692 |
| | CBS Corp. Class B | 274,063 | 16,197 |
| | Viacom Inc. Class B | 205,222 | 14,353 |
| | Omnicom Group Inc. | 141,651 | 11,267 |
| * | DISH Network Corp. | | |
| | Class A | 126,676 | 9,506 |
| * | Charter Communications | | |
| | Inc. Class A | 43,623 | 7,878 |
| * | Liberty Global plc Class A | 141,156 | 7,631 |
| | Twenty-First Century | | |
| | Fox Inc. | 181,998 | 6,195 |
| * | Sirius XM Holdings Inc. | 1,408,052 | 5,477 |
| | Interpublic Group of | | |
| | Cos. Inc. | 238,289 | 5,314 |
| * | Discovery | | |
| | Communications Inc. | 155,354 | 4,740 |
| | Gannett Co. Inc. | 128,587 | 4,552 |
| * | Liberty Media Corp. | 117,259 | 4,526 |
| * | News Corp. Class A | 223,414 | 3,859 |
| | Scripps Networks | | |
| | Interactive Inc. Class A | 43,889 | 3,173 |
| * | Madison Square Garden | | |
| | Co. Class A | 36,450 | 2,856 |
| * | Discovery Communications | | |
| | Inc. Class A | 84,590 | 2,732 |
| * | AMC Networks Inc. | | |
| | Class A | 34,559 | 2,489 |
| | Cinemark Holdings Inc. | 59,762 | 2,434 |
| | Cablevision Systems Corp. | | |
| | Class A | 112,534 | 2,113 |
| * | Liberty Media Corp. | | |
| | Class A | 53,411 | 2,060 |
| * | Live Nation | | |
| | Entertainment Inc. | 79,609 | 2,037 |
| * | Liberty Broadband Corp. | 37,836 | 1,970 |
| | John Wiley & Sons Inc. | | |
| | Class A | 26,894 | 1,739 |
| | Lions Gate Entertainment | | |
| | Corp. | 47,842 | 1,559 |
| * | Starz | 45,738 | 1,520 |
| | Time Inc. | 62,123 | 1,472 |
| | Regal Entertainment Group | | |
| | Class A | 49,018 | 1,159 |
| | Meredith Corp. | 20,966 | 1,125 |
| | New York Times Co. | | |
| | Class A | 76,615 | 1,072 |
| | Sinclair Broadcast Group | | |
| | Inc. Class A | 38,150 | 1,048 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | Nexstar Broadcasting Group | | |
| | Inc. Class A | 17,706 | 966 |
| * | News Corp. Class B | 55,738 | 938 |
| | Morningstar Inc. | 11,479 | 857 |
| * | DreamWorks Animation SKG | | |
| | Inc. Class A | 39,686 | 850 |
| * | Liberty Broadband Corp. | | |
| | Class A | 13,297 | 690 |
| * | Media General Inc. | 40,279 | 601 |
| | Scholastic Corp. | 15,710 | 581 |
| | New Media Investment | | |
| | Group Inc. | 22,566 | 557 |
| * | Loral Space & | | |
| | Communications Inc. | 7,402 | 527 |
| | National CineMedia Inc. | 33,917 | 517 |
| | AMC Entertainment | | |
| | Holdings Inc. | 12,058 | 415 |
| * | Carmike Cinemas Inc. | 13,246 | 414 |
| * | EW Scripps Co. Class A | 17,574 | 405 |
| * | Cumulus Media Inc. Class A | 81,827 | 326 |
| | World Wrestling | | |
| | Entertainment Inc. Class A | 19,411 | 319 |
| * | Gray Television Inc. | 28,124 | 308 |
| * | Rentrak Corp. | 5,549 | 304 |
| * | Global Eagle | | |
| | Entertainment Inc. | 21,750 | 289 |
| * | Journal Communications | | |
| | Inc. Class A | 21,496 | 255 |
| | Entravision Communications | | |
| | Corp. Class A | 34,399 | 236 |
| | Clear Channel Outdoor | | |
| | Holdings Inc. Class A | 21,762 | 212 |
| | Harte-Hanks Inc. | 25,613 | 198 |
| * | Entercom Communications | | |
| | Corp. Class A | 13,911 | 158 |
| * | SFX Entertainment Inc. | 27,172 | 129 |
| | | | 463,776 |
| Multiline Retail (5.1%) | | |
| | Target Corp. | 345,065 | 26,511 |
| | Macy’s Inc. | 197,500 | 12,585 |
| * | Dollar General Corp. | 172,788 | 12,548 |
| * | Dollar Tree Inc. | 117,107 | 9,331 |
| | Kohl’s Corp. | 116,500 | 8,598 |
| | Nordstrom Inc. | 81,236 | 6,534 |
| | Family Dollar Stores Inc. | 58,640 | 4,617 |
| * | Burlington Stores Inc. | 36,289 | 2,017 |
| | Dillard’s Inc. Class A | 13,678 | 1,780 |
| | Big Lots Inc. | 31,985 | 1,526 |
| * | JC Penney Co. Inc. | 173,698 | 1,476 |
| *,^ | Sears Holdings Corp. | 17,900 | 673 |
| * | Tuesday Morning Corp. | 24,243 | 460 |
| | Fred’s Inc. Class A | 20,355 | 380 |
| | | | 89,036 |
| Specialty Retail (19.6%) | | |
| | Home Depot Inc. | 751,474 | 86,232 |
| | Lowe’s Cos. Inc. | 562,785 | 41,697 |
| | TJX Cos. Inc. | 395,065 | 27,117 |
| | L Brands Inc. | 141,899 | 13,035 |
| | Ross Stores Inc. | 119,567 | 12,651 |
| * | O’Reilly Automotive Inc. | 57,912 | 12,053 |
| * | AutoZone Inc. | 18,297 | 11,759 |
| * | CarMax Inc. | 122,625 | 8,229 |
| * | Bed Bath & Beyond Inc. | 105,538 | 7,879 |
| | Tractor Supply Co. | 77,388 | 6,819 |
| | Tiffany & Co. | 73,656 | 6,498 |
| | Advance Auto Parts Inc. | 41,644 | 6,452 |
| | Best Buy Co. Inc. | 169,272 | 6,449 |
| | Staples Inc. | 365,085 | 6,121 |
| | Gap Inc. | 136,214 | 5,667 |
| | Signet Jewelers Ltd. | 43,432 | 5,207 |
9
Consumer Discretionary Index Fund
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| * | Ulta Salon Cosmetics & | | |
| | Fragrance Inc. | 34,844 | 4,905 |
| | Foot Locker Inc. | 82,168 | 4,615 |
| | PetSmart Inc. | 53,775 | 4,458 |
| | Williams-Sonoma Inc. | 50,531 | 4,065 |
| * | Sally Beauty Holdings Inc. | 88,384 | 2,963 |
| | Dick’s Sporting Goods Inc. | 53,862 | 2,913 |
| * | Office Depot Inc. | 291,341 | 2,730 |
| * | AutoNation Inc. | 41,875 | 2,575 |
| | GNC Holdings Inc. Class A | 50,910 | 2,448 |
| ^ | GameStop Corp. Class A | 64,563 | 2,387 |
| * | Urban Outfitters Inc. | 61,230 | 2,386 |
| * | Murphy USA Inc. | 26,106 | 1,853 |
| | CST Brands Inc. | 44,261 | 1,843 |
| | DSW Inc. Class A | 41,868 | 1,578 |
| * | Restoration Hardware | | |
| | Holdings Inc. | 17,854 | 1,573 |
| * | Cabela’s Inc. | 28,303 | 1,541 |
| | Chico’s FAS Inc. | 82,785 | 1,509 |
| | American Eagle | | |
| | Outfitters Inc. | 99,654 | 1,492 |
| | Penske Automotive | | |
| | Group Inc. | 26,121 | 1,289 |
| | Lithia Motors Inc. Class A | 13,521 | 1,277 |
| * | Asbury Automotive | | |
| | Group Inc. | 15,489 | 1,219 |
| | Men’s Wearhouse Inc. | 23,259 | 1,167 |
| | Aaron’s Inc. | 37,270 | 1,111 |
| | Monro Muffler Brake Inc. | 17,032 | 1,077 |
| * | Ascena Retail Group Inc. | 78,918 | 1,058 |
| | Group 1 Automotive Inc. | 12,549 | 1,021 |
| | Abercrombie & Fitch Co. | 40,777 | 1,009 |
| * | Genesco Inc. | 13,692 | 1,005 |
| * | Select Comfort Corp. | 30,517 | 980 |
| * | ANN Inc. | 26,061 | 936 |
| | Buckle Inc. | 16,609 | 835 |
| | Rent-A-Center Inc. | 30,202 | 834 |
| *,^ | Lumber Liquidators | | |
| | Holdings Inc. | 15,467 | 802 |
| * | Five Below Inc. | 24,767 | 786 |
| * | Vitamin Shoppe Inc. | 17,655 | 749 |
| | Children’s Place Inc. | 12,578 | 717 |
| | Brown Shoe Co. Inc. | 23,707 | 711 |
| * | Hibbett Sports Inc. | 14,439 | 706 |
| | Guess? Inc. | 36,480 | 661 |
| * | Express Inc. | 47,764 | 660 |
| | Finish Line Inc. Class A | 26,948 | 660 |
| | Cato Corp. Class A | 14,743 | 654 |
| | Pier 1 Imports Inc. | 50,214 | 606 |
| | Outerwall Inc. | 9,074 | 585 |
| * | Mattress Firm Holding Corp. | 8,986 | 547 |
| * | Barnes & Noble Inc. | 21,740 | 541 |
| * | Zumiez Inc. | 12,474 | 484 |
| | Sonic Automotive Inc. | | |
| | Class A | 19,152 | 474 |
| * | Conn’s Inc. | 15,121 | 391 |
| | Stage Stores Inc. | 18,129 | 388 |
| * | Francesca’s Holdings Corp. | 24,268 | 364 |
| * | MarineMax Inc. | 13,766 | 349 |
| | Stein Mart Inc. | 16,921 | 278 |
| | Haverty Furniture Cos. Inc. | 11,384 | 262 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| * | Pep Boys-Manny Moe | | |
| | & Jack | 27,282 | 242 |
| * | America’s Car-Mart Inc. | 4,444 | 236 |
| | Shoe Carnival Inc. | 8,599 | 211 |
| *,^ | Container Store Group Inc. | 10,700 | 197 |
| * | Kirkland’s Inc. | 8,273 | 197 |
| * | Tile Shop Holdings Inc. | 14,685 | 162 |
| | Winmark Corp. | 1,653 | 136 |
| * | Systemax Inc. | 8,776 | 106 |
| * | Sears Hometown and | | |
| | Outlet Stores Inc. | 7,102 | 94 |
| | | | 340,473 |
| Textiles, Apparel & Luxury Goods (6.7%) | |
| | NIKE Inc. Class B | 389,981 | 37,875 |
| | VF Corp. | 196,789 | 15,086 |
| * | Michael Kors Holdings Ltd. | 117,305 | 7,908 |
| * | Under Armour Inc. Class A | 95,266 | 7,336 |
| | Hanesbrands Inc. | 56,907 | 7,258 |
| | Coach Inc. | 156,927 | 6,834 |
| | PVH Corp. | 46,918 | 4,998 |
| | Ralph Lauren Corp. Class A | 35,051 | 4,816 |
| * | lululemon athletica Inc. | 61,727 | 4,225 |
| | Carter’s Inc. | 30,004 | 2,663 |
| * | Kate Spade & Co. | 72,072 | 2,483 |
| * | Fossil Group Inc. | 26,133 | 2,248 |
| | Wolverine World Wide Inc. | 57,453 | 1,756 |
| * | Skechers U.S.A. Inc. | | |
| | Class A | 23,659 | 1,612 |
| * | Deckers Outdoor Corp. | 19,743 | 1,466 |
| * | Steven Madden Ltd. | 33,455 | 1,221 |
| * | G-III Apparel Group Ltd. | 11,484 | 1,209 |
| | Columbia Sportswear Co. | 15,995 | 894 |
| * | Iconix Brand Group Inc. | 25,749 | 870 |
| * | Tumi Holdings Inc. | 32,440 | 759 |
| * | Crocs Inc. | 49,378 | 551 |
| | Oxford Industries Inc. | 8,512 | 468 |
| * | Unifi Inc. | 9,331 | 302 |
| | Movado Group Inc. | 10,738 | 276 |
| * | Vera Bradley Inc. | 12,176 | 243 |
| * | Vince Holding Corp. | 9,258 | 210 |
| * | Sequential Brands Group Inc. 16,131 | 163 |
| * | Quiksilver Inc. | 72,045 | 151 |
| | | | 115,881 |
| Total Common Stocks | | |
| (Cost $1,478,665) | | 1,738,039 |
| Temporary Cash Investment (0.4%) | |
| Money Market Fund (0.4%) | | |
| 1,2 | Vanguard Market Liquidity | | |
| | Fund, 0.134% | | |
| | (Cost $6,862) | 6,862,203 | 6,862 |
| Total Investments (100.4%) | | |
| (Cost $1,485,527) | | 1,744,901 |
| Other Assets and Liabilities (–0.4%) | |
| Other Assets | | 9,996 |
| Liabilities2 | | (16,965) |
| | | | (6,969) |
| Net Assets (100%) | | 1,737,932 |
At February 28, 2015, net assets consisted of:
Amount ($000)
| |
| Paid-in Capital | 1,489,968 |
| Undistributed Net Investment Income | 2,360 |
| Accumulated Net Realized Losses | (13,770) |
| Unrealized Appreciation (Depreciation) | 259,374 |
| Net Assets | 1,737,932 |
| |
| |
| Admiral Shares—Net Assets | |
| Applicable to 1,597,028 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 101,270 |
| Net Asset Value Per Share— | |
| Admiral Shares | $63.41 |
| |
| |
| ETF Shares—Net Assets | |
| Applicable to 13,360,827 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 1,636,662 |
| Net Asset Value Per Share— | |
| ETF Shares | $122.50 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $5,473,000.
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 $5,730,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
10
| |
| Consumer Discretionary Index Fund | |
| |
| |
| Statement of Operations |
| |
| Six Months Ended |
| February 28, 2015 |
| | ($000) |
| Investment Income | |
| Income | |
| Dividends | 10,685 |
| Interest1 | 1 |
| Securities Lending | 104 |
| Total Income | 10,790 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 112 |
| Management and Administrative— | |
| Admiral Shares | 36 |
| Management and Administrative— | |
| ETF Shares | 487 |
| Marketing and Distribution— | |
| Admiral Shares | 6 |
| Marketing and Distribution— | |
| ETF Shares | 126 |
| Custodian Fees | 9 |
| Shareholders’ Reports—Admiral Shares | — |
| Shareholders’ Reports—ETF Shares | 53 |
| Trustees’ Fees and Expenses | 1 |
| Total Expenses | 830 |
| Net Investment Income | 9,960 |
| Realized Net Gain (Loss) on | |
| Investment Securities Sold | 97,782 |
| Change in Unrealized Appreciation | |
| (Depreciation) of Investment Securities | 36,777 |
| Net Increase (Decrease) in Net Assets | |
| Resulting from Operations | 144,519 |
| | |
| Statement of Changes in Net Assets | | |
| |
| | Six Months Ended | Year Ended |
| | February 28, | August 31, |
| | 2015 | 2014 |
| | ($000) | ($000) |
| Increase (Decrease) in Net Assets | | |
| Operations | | |
| Net Investment Income | 9,960 | 16,799 |
| Realized Net Gain (Loss) | 97,782 | 209,902 |
| Change in Unrealized Appreciation (Depreciation) | 36,777 | 703 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 144,519 | 227,404 |
| Distributions | | |
| Net Investment Income | | |
| Admiral Shares | (1,093) | (822) |
| ETF Shares | (16,913) | (11,421) |
| Realized Capital Gain | | |
| Admiral Shares | — | — |
| ETF Shares | — | — |
| Total Distributions | (18,006) | (12,243) |
| Capital Share Transactions | | |
| Admiral Shares | 10,005 | 7,048 |
| ETF Shares | 220,554 | 77,692 |
| Net Increase (Decrease) from Capital Share Transactions | 230,559 | 84,740 |
| Total Increase (Decrease) | 357,072 | 299,901 |
| Net Assets | | |
| Beginning of Period | 1,380,860 | 1,080,959 |
| End of Period2 | 1,737,932 | 1,380,860 |
1 Interest income from an affiliated company of the fund was $1,000.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $2,360,000 and $10,406,000.
See accompanying Notes, which are an integral part of the Financial Statements.
11
| | | | | | | |
| Consumer Discretionary Index Fund | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| Admiral Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $57.87 | $48.34 | $37.62 | $31.22 | $24.76 | $21.43 |
| Investment Operations | | | | | | | |
| Net Investment Income | | . 392 | .648 | . 579 | .483 | .363 | . 307 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | 5.888 | 9.361 | 10.741 | 6.356 | 6.414 | 3.251 |
| Total from Investment Operations | 6.280 | 10.009 | 11.320 | 6.839 | 6.777 | 3.558 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (.740) | (.479) | (. 600) | (. 439) | (.317) | (. 228) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | | (.740) | (.479) | (. 600) | (. 439) | (.317) | (. 228) |
| Net Asset Value, End of Period | $63.41 | $57.87 | $48.34 | $37.62 | $31.22 | $24.76 |
| |
| Total Return1 | | 10.97% | 20.77% | 30.45% | 22.17% | 27.36% | 16.62% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $101 | $83 | $63 | $19 | $11.0 | $5.3 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.12% | 0.12% | 0.14% | 0.14% | 0.19% | 0.24% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 1.39% | 1.26% | 1.44% | 1.48% | 1.25% | 1.28% |
| Portfolio Turnover Rate2 | | 5% | 7% | 6% | 6% | 7% | 7% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Total returns do not include transaction or account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable transaction and account service fees.
2 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.
12
| | | | | | | |
| Consumer Discretionary Index Fund | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| ETF Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $111.79 | $93.38 | $72.65 | $60.29 | $47.80 | $41.37 |
| Investment Operations | | | | | | | |
| Net Investment Income | | .755 | 1.251 | 1.111 | .936 | .698 | . 581 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | 11.387 | 18.072 | 20.771 | 12.277 | 12.392 | 6.286 |
| Total from Investment Operations | 12.142 | 19.323 | 21.882 | 13.213 | 13.090 | 6.867 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (1.432) | (.913) | (1.152) | (. 853) | (. 600) | (. 437) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | | (1.432) | (.913) | (1.152) | (. 853) | (. 600) | (. 437) |
| Net Asset Value, End of Period | $122.50 | $111.79 | $93.38 | $72.65 | $60.29 | $47.80 |
| |
| Total Return | | 10.95% | 20.75% | 30.47% | 22.18% | 27.37% | 16.62% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $1,637 | $1,298 | $1,018 | $531 | $332 | $234 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.12% | 0.12% | 0.14% | 0.14% | 0.19% | 0.24% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 1.39% | 1.26% | 1.44% | 1.48% | 1.25% | 1.28% |
| Portfolio Turnover Rate1 | | 5% | 7% | 6% | 6% | 7% | 7% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 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
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 designed for investors who meet certain administrative, service, and account-size criteria. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. 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 for all open federal income tax years (August 31, 2011–2014), and for the period ended February 28, 2015, 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. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counter-parties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
5. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $2.89 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2015, or at any time during the period then ended.
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.
14
Consumer Discretionary Index Fund
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 based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At February 28, 2015, the fund had contributed capital of $146,000 to Vanguard (included in Other Assets), representing 0.01% 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. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At February 28, 2015, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
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, 2015, the fund realized $97,830,000 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, 2014, the fund had available capital losses totaling $13,722,000 to offset future net capital gains. Of this amount, $13,539,000 is subject to expiration dates; $216,000 may be used to offset future net capital gains through August 31, 2016, $4,557,000 through August 31, 2017, $7,273,000 through August 31, 2018, and $1,493,000 through August 31, 2019. Capital losses of $183,000 realized beginning in fiscal 2012 may be carried forward indefinitely under the Regulated Investment Company Modernization Act of 2010, but must be used before any expiring loss carryfor-wards. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2015; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2015, the cost of investment securities for tax purposes was $1,485,527,000. Net unrealized appreciation of investment securities for tax purposes was $259,374,000, consisting of unrealized gains of $292,714,000 on securities that had risen in value since their purchase and $33,340,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the six months ended February 28, 2015, the fund purchased $543,846,000 of investment securities and sold $319,958,000 of investment securities, other than temporary cash investments. Purchases and sales include $492,389,000 and $283,231,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
15
| | | | |
| Consumer Discretionary Index Fund | | | | |
| |
| |
| |
| |
| F. Capital share transactions for each class of shares were: | | | |
| | Six Months Ended | | Year Ended |
| | February 28, 2015 | August 31, 2014 |
| | Amount | Shares | Amount | Shares |
| | ($000) | (000) | ($000) | (000) |
| Admiral Shares | | | | |
| Issued | 21,575 | 364 | 55,198 | 1,022 |
| Issued in Lieu of Cash Distributions | 1,007 | 17 | 772 | 14 |
| Redeemed | (12,577) | (217) | (48,922) | (902) |
| Net Increase (Decrease) —Admiral Shares | 10,005 | 164 | 7,048 | 134 |
| ETF Shares | | | | |
| Issued | 503,883 | 4,350 | 529,357 | 5,007 |
| Issued in Lieu of Cash Distributions | — | — | — | — |
| Redeemed | (283,329) | (2,600) | (451,665) | (4,300) |
| Net Increase (Decrease)—ETF Shares | 220,554 | 1,750 | 77,692 | 707 |
G. Management has determined that no material events or transactions occurred subsequent to February 28, 2015, that would require recognition or disclosure in these financial statements.
16
Consumer Staples Index Fund
Fund Profile
As of February 28, 2015
| | | |
| Share-Class Characteristics | | |
| | Admiral | ETF |
| | Shares | Shares |
| Ticker Symbol | VCSAX | VDC |
| Expense Ratio1 | | 0.12% | 0.12% |
| 30-Day SEC Yield | | 2.31% | 2.31% |
| |
| |
| Portfolio Characteristics | | |
| | | MSCI | |
| | | US IMI/ | |
| | | Consumer | MSCI |
| | | Staples | US IMI/ |
| | Fund | 25/50 | 2500 |
| Number of Stocks | 98 | 98 | 2,481 |
| Median Market Cap | $90.6B | $90.6B | $49.1B |
| Price/Earnings Ratio | 24.0x | 24.0x | 21.3x |
| Price/Book Ratio | 5.1x | 5.1x | 2.9x |
| Return on Equity | 21.0% | 21.0% | 17.7% |
| Earnings Growth Rate | 6.8% | 6.8% | 13.9% |
| Dividend Yield | 2.4% | 2.4% | 1.9% |
| Foreign Holdings | 0.0% | 0.0% | 0.0% |
| Turnover Rate | | | |
| (Annualized) | 3% | — | — |
| Short-Term Reserves | 0.0% | — | — |
| | |
| Volatility Measures | | |
| MSCI US | |
| IMI/Consumer | MSCI US |
| Staples 25/50 | IMI/2500 |
| R-Squared | 1.00 | 0.60 |
| Beta | 1.00 | 0.79 |
| These measures show the degree and timing of the fund’s |
| fluctuations compared with the indexes over 36 months. |
| |
| Subindustry Diversification | | |
| (% of equity exposure) | | |
| |
| Agricultural Products | | 2.9% |
| Distillers & Vintners | | 1.6 |
| Drug Retail | | 9.8 |
| Food Distributors | | 1.8 |
| Food Retail | | 4.0 |
| Household Products | | 18.9 |
| Hypermarkets & Super Centers | | 9.7 |
| Packaged Foods & Meats | | 17.2 |
| Personal Products | | 2.1 |
| Soft Drinks | | 17.8 |
| Tobacco | | 13.4 |
| Other Consumer Staples | | 0.8 |
| | |
| Ten Largest Holdings (% of total net assets) |
| |
| Procter & Gamble Co. | Household Products | 11.1% |
| Coca-Cola Co. | Soft Drinks | 8.1 |
| PepsiCo Inc. | Soft Drinks | 7.0 |
| Wal-Mart Stores Inc. | Hypermarkets | |
| | & Super Centers | 6.3 |
| Philip Morris | | |
| International Inc. | Tobacco | 6.0 |
| CVS Health Corp. | Drug Retail | 5.5 |
| Altria Group Inc. | Tobacco | 4.5 |
| Walgreens Boots | | |
| Alliance Inc. | Drug Retail | 3.8 |
| Colgate-Palmolive Co. | Household Products | 3.3 |
| Costco Wholesale Corp. | Hypermarkets | |
| | & Super Centers | 3.3 |
| Top Ten | | 58.9% |
| The holdings listed exclude any temporary cash investments and |
| equity index products. | | |
1 The expense ratios shown are from the prospectus dated December 23, 2014, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2015, the annualized expense ratios were 0.12% for Admiral Shares and 0.12% for ETF Shares.
17
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 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, 2004–February 28, 2015
Average Annual Total Returns: Periods Ended December 31, 2014
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
| | | | |
| | Inception Date | One Year | Five Years | Ten Years |
| ETF Shares | 1/26/2004 | | | |
| Market Price | | 15.78% | 16.45% | 10.95% |
| Net Asset Value | | 15.79 | 16.44 | 10.95 |
| Admiral Shares | 1/30/2004 | 15.85 | 16.46 | 10.93 |
See Financial Highlights for dividend and capital gains information.
18
Consumer Staples Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the 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 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).
19
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| Common Stocks (99.9%) | | |
| Beverages (20.2%) | | |
| | Coca-Cola Co. | 5,555,572 | 240,556 |
| | PepsiCo Inc. | 2,093,462 | 207,211 |
| * | Monster Beverage Corp. | 228,049 | 32,182 |
| * | Constellation Brands Inc. | | |
| | Class A | 265,504 | 30,459 |
| | Dr Pepper Snapple | | |
| | Group Inc. | 324,190 | 25,543 |
| | Coca-Cola Enterprises Inc. | 416,526 | 19,243 |
| | Molson Coors Brewing Co. | | |
| | Class B | 243,971 | 18,515 |
| | Brown-Forman Corp. | | |
| | Class B | 195,655 | 17,940 |
| * | Boston Beer Co. Inc. | | |
| | Class A | 18,439 | 4,934 |
| | Coca-Cola Bottling Co. | | |
| | Consolidated | 20,412 | 2,131 |
| | | | 598,714 |
| Food & Staples Retailing (25.2%) | |
| | Wal-Mart Stores Inc. | 2,237,895 | 187,827 |
| | CVS Health Corp. | 1,571,874 | 163,271 |
| | Walgreens Boots | | |
| | Alliance Inc. | 1,360,680 | 113,045 |
| | Costco Wholesale Corp. | 664,516 | 97,657 |
| | Kroger Co. | 739,750 | 52,633 |
| | Sysco Corp. | 908,043 | 35,405 |
| | Whole Foods Market Inc. | 568,719 | 32,127 |
| * | Rite Aid Corp. | 1,673,229 | 13,352 |
| * | Sprouts Farmers | | |
| | Market Inc. | 228,340 | 8,405 |
| * | United Natural Foods Inc. | 89,736 | 7,452 |
| | Casey’s General Stores Inc. | 71,477 | 6,272 |
| * | SUPERVALU Inc. | 465,475 | 4,599 |
| | SpartanNash Co. | 155,193 | 4,120 |
| * | Pantry Inc. | 95,977 | 3,522 |
| * | Fresh Market Inc. | 89,699 | 3,414 |
| | PriceSmart Inc. | 41,377 | 3,287 |
| | Andersons Inc. | 64,681 | 2,863 |
| | Ingles Markets Inc. Class A | 57,799 | 2,499 |
| * | Natural Grocers by Vitamin | | |
| | Cottage Inc. | 73,297 | 2,159 |
| * | Chefs’ Warehouse Inc. | 103,041 | 2,088 |
| | Weis Markets Inc. | 43,592 | 2,056 |
| | Village Super Market Inc. | | |
| | Class A | 54,644 | 1,510 |
| | | | 749,563 |
| Food Products (20.1%) | | |
| | Mondelez International | | |
| | Inc. Class A | 2,553,715 | 94,321 |
| | Kraft Foods Group Inc. | 908,539 | 58,201 |
| | General Mills Inc. | 953,650 | 51,297 |
| | Archer-Daniels-Midland Co. | 992,281 | 47,510 |
| | | | |
| | | | | Market |
| | | | | Value• |
| | | | Shares | ($000) |
| | Mead Johnson | | | |
| | Nutrition Co. | | 313,351 | 32,827 |
| | Kellogg Co. | | 421,888 | 27,203 |
| | Keurig Green Mountain Inc. | 196,688 | 25,093 |
| | Hershey Co. | | 241,295 | 25,042 |
| | ConAgra Foods Inc. | | 667,926 | 23,364 |
| | Tyson Foods Inc. Class A | | 520,109 | 21,486 |
| | JM Smucker Co. | | 169,289 | 19,527 |
| | Bunge Ltd. | | 231,247 | 18,911 |
| | Campbell Soup Co. | | 331,032 | 15,423 |
| | McCormick & Co. Inc. | | 191,840 | 14,461 |
| | Hormel Foods Corp. | | 237,712 | 13,909 |
| * | WhiteWave Foods Co. | | | |
| | Class A | | 298,498 | 12,223 |
| * | Hain Celestial Group Inc. | | 171,765 | 10,740 |
| | Ingredion Inc. | | 125,814 | 10,343 |
| | Flowers Foods Inc. | | 341,253 | 7,385 |
| | Pinnacle Foods Inc. | | 184,326 | 6,691 |
| * | TreeHouse Foods Inc. | | 77,043 | 6,438 |
| * | Post Holdings Inc. | | 113,570 | 5,619 |
| * | Darling Ingredients Inc. | | 306,905 | 5,346 |
| ^ | Pilgrim’s Pride Corp. | | 172,028 | 4,719 |
| ^ | Sanderson Farms Inc. | | 45,020 | 3,836 |
| | Lancaster Colony Corp. | | 40,916 | 3,740 |
| | Fresh Del Monte | | | |
| | Produce Inc. | | 100,386 | 3,535 |
| | B&G Foods Inc. | | 120,393 | 3,449 |
| | Snyder’s-Lance Inc. | | 111,405 | 3,437 |
| | J&J Snack Foods Corp. | | 33,833 | 3,424 |
| | Dean Foods Co. | | 207,378 | 3,343 |
| | Cal-Maine Foods Inc. | | 82,190 | 3,093 |
| | Tootsie Roll Industries Inc. | | 70,004 | 2,309 |
| * | Boulder Brands Inc. | | 203,703 | 2,100 |
| * | Diamond Foods Inc. | | 75,753 | 2,042 |
| | Calavo Growers Inc. | | 48,454 | 2,033 |
| * | Seneca Foods Corp. Class A | 53,745 | 1,453 |
| | Limoneira Co. | | 61,448 | 1,284 |
| * | Landec Corp. | | 11,301 | 158 |
| | | | | 597,315 |
| Household Products (18.9%) | | | |
| | Procter & Gamble Co. | 3,882,773 | 330,540 |
| | Colgate-Palmolive Co. | 1,395,467 | 98,827 |
| | Kimberly-Clark Corp. | | 575,243 | 63,081 |
| | Clorox Co. | | 204,316 | 22,197 |
| | Church & Dwight Co. Inc. | | 217,220 | 18,494 |
| | Energizer Holdings Inc. | | 101,599 | 13,597 |
| | Spectrum Brands | | | |
| | Holdings Inc. | | 49,687 | 4,655 |
| * | Harbinger Group Inc. | | 255,276 | 3,145 |
| | WD-40 Co. | | 38,221 | 3,104 |
| * | Central Garden and Pet Co. | | |
| | Class A | | 186,982 | 1,810 |
| * | Central Garden and Pet Co. | 166,993 | 1,513 |
| | | | | 560,963 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| Personal Products (2.1%) | | |
| | Estee Lauder Cos. Inc. | | |
| | Class A | 364,021 | 30,093 |
| | Avon Products Inc. | 771,286 | 6,564 |
| | Nu Skin Enterprises Inc. | | |
| | Class A | 111,977 | 6,067 |
| *,^ | Herbalife Ltd. | 147,567 | 4,576 |
| | Coty Inc. Class A | 173,794 | 3,928 |
| * | USANA Health Sciences Inc. 24,694 | 2,470 |
| | Inter Parfums Inc. | 69,739 | 1,983 |
| * | Revlon Inc. Class A | 56,821 | 1,918 |
| * | Medifast Inc. | 57,568 | 1,821 |
| * | Elizabeth Arden Inc. | 98,187 | 1,645 |
| | | | 61,065 |
| Tobacco (13.4%) | | |
| | Philip Morris | | |
| | International Inc. | 2,147,374 | 178,146 |
| | Altria Group Inc. | 2,395,324 | 134,833 |
| | Lorillard Inc. | 584,309 | 39,978 |
| | Reynolds American Inc. | 508,747 | 38,472 |
| | Vector Group Ltd. | 171,753 | 3,959 |
| | Universal Corp. | 64,190 | 3,075 |
| | | | 398,463 |
| Total Common Stocks | | |
| (Cost $2,314,335) | | 2,966,083 |
| Temporary Cash Investment (0.2%) | |
| Money Market Fund (0.2%) | | |
| 1,2 | Vanguard Market Liquidity | | |
| | Fund, 0.134% | | |
| | (Cost $6,114) | 6,114,000 | 6,114 |
| Total Investments (100.1%) | | |
| (Cost $2,320,449) | | 2,972,197 |
| Other Assets and Liabilities (–0.1%) | |
| Other Assets | | 6,297 |
| Liabilities2 | | (10,246) |
| | | | (3,949) |
| Net Assets (100%) | | 2,968,248 |
Consumer Staples Index Fund
| |
| At February 28, 2015, net assets consisted of: |
| | Amount |
| | ($000) |
| Paid-in Capital | 2,311,493 |
| Undistributed Net Investment Income | 9,923 |
| Accumulated Net Realized Losses | (4,916) |
| Unrealized Appreciation (Depreciation) | 651,748 |
| Net Assets | 2,968,248 |
| |
| |
| Admiral Shares—Net Assets | |
| Applicable to 4,741,284 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 300,818 |
| Net Asset Value Per Share— | |
| Admiral Shares | $63.45 |
| |
| |
| ETF Shares—Net Assets | |
| Applicable to 20,731,183 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 2,667,430 |
| Net Asset Value Per Share— | |
| ETF Shares | $128.67 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $4,392,000.
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 $4,745,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
20
| |
| Consumer Staples Index Fund | |
| |
| |
| Statement of Operations |
| |
| Six Months Ended |
| February 28, 2015 |
| | ($000) |
| Investment Income | |
| Income | |
| Dividends | 34,537 |
| Interest1 | 1 |
| Securities Lending | 30 |
| Total Income | 34,568 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 204 |
| Management and Administrative— | |
| Admiral Shares | 104 |
| Management and Administrative— | |
| ETF Shares | 880 |
| Marketing and Distribution— | |
| Admiral Shares | 18 |
| Marketing and Distribution— | |
| ETF Shares | 205 |
| Custodian Fees | 14 |
| Shareholders’ Reports—Admiral Shares | 1 |
| Shareholders’ Reports—ETF Shares | 60 |
| Trustees’ Fees and Expenses | 1 |
| Total Expenses | 1,487 |
| Net Investment Income | 33,081 |
| Realized Net Gain (Loss) on | |
| Investment Securities Sold | 47,180 |
| Change in Unrealized Appreciation | |
| (Depreciation) of Investment Securities | 212,678 |
| Net Increase (Decrease) in Net Assets | |
| Resulting from Operations | 292,939 |
| | |
| Statement of Changes in Net Assets | | |
| |
| | Six Months Ended | Year Ended |
| | February 28, | August 31, |
| | 2015 | 2014 |
| | ($000) | ($000) |
| Increase (Decrease) in Net Assets | | |
| Operations | | |
| Net Investment Income | 33,081 | 47,830 |
| Realized Net Gain (Loss) | 47,180 | 105,124 |
| Change in Unrealized Appreciation (Depreciation) | 212,678 | 140,426 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 292,939 | 293,380 |
| Distributions | | |
| Net Investment Income | | |
| Admiral Shares | (4,833) | (4,382) |
| ETF Shares | (47,684) | (37,204) |
| Realized Capital Gain | | |
| Admiral Shares | — | — |
| ETF Shares | — | — |
| Total Distributions | (52,517) | (41,586) |
| Capital Share Transactions | | |
| Admiral Shares | 59,800 | 15,610 |
| ETF Shares | 514,513 | 229,831 |
| Net Increase (Decrease) from Capital Share Transactions | 574,313 | 245,441 |
| Total Increase (Decrease) | 814,735 | 497,235 |
| Net Assets | | |
| Beginning of Period | 2,153,513 | 1,656,278 |
| End of Period2 | 2,968,248 | 2,153,513 |
1 Interest income from an affiliated company of the fund was $1,000.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $9,923,000 and $29,359,000.
See accompanying Notes, which are an integral part of the Financial Statements.
21
| | | | | | | |
| Consumer Staples Index Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| Admiral Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $57.74 | $50.28 | $44.44 | $38.94 | $32.92 | $30.62 |
| Investment Operations | | | | | | | |
| Net Investment Income | | .7771 | 1.281 | 1.287 | 1.077 | .956 | .8601 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | 6.119 | 7.379 | 5.832 | 5.357 | 6.013 | 2.290 |
| Total from Investment Operations | 6.896 | 8.660 | 7.119 | 6.434 | 6.969 | 3.150 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (1.186) | (1.200) | (1.279) | (. 934) | (. 949) | (.850) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | | (1.186) | (1.200) | (1.279) | (. 934) | (. 949) | (.850) |
| Net Asset Value, End of Period | $63.45 | $57.74 | $50.28 | $44.44 | $38.94 | $32.92 |
| |
| Total Return2 | | 12.04% | 17.41% | 16.44% | 16.81% | 21.39% | 10.34% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $301 | $218 | $175 | $105 | $57 | $30 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.12% | 0.12% | 0.14% | 0.14% | 0.19% | 0.24% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 2.59% | 2.52% | 2.80% | 2.80% | 2.74% | 2.61% |
| Portfolio Turnover Rate3 | | 3% | 5% | 10% | 7% | 7% | 7% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Calculated based on average shares outstanding.
2 Total returns do not include transaction or account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable transaction and account service fees.
3 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
22
| | | | | | | |
| Consumer Staples Index Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| ETF Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $117.12 | $101.97 | $90.12 | $78.96 | $66.72 | $62.07 |
| Investment Operations | | | | | | | |
| Net Investment Income | | 1.5911 | 2.602 | 2.606 | 2.180 | 1.933 | 1.7531 |
| Net Realized and Unrealized Gain | | | | | | |
| (Loss) on Investments | | 12.376 | 14.976 | 11.835 | 10.874 | 12.213 | 4.635 |
| Total from Investment Operations | 13.967 | 17.578 | 14.441 | 13.054 | 14.146 | 6.388 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (2.417) | (2.428) | (2.591) | (1.894) | (1.906) | (1.738) |
| Distributions from Realized Capital Gains — | — | — | — | — | — |
| Total Distributions | | (2.417) | (2.428) | (2.591) | (1.894) | (1.906) | (1.738) |
| Net Asset Value, End of Period | $128.67 | $117.12 | $101.97 | $90.12 | $78.96 | $66.72 |
| |
| Total Return | | 11.98% | 17.42% | 16.43% | 16.80% | 21.41% | 10.33% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $2,667 | $1,936 | $1,481 | $1,110 | $782 | $547 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.12% | 0.12% | 0.14% | 0.14% | 0.19% | 0.24% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 2.59% | 2.52% | 2.80% | 2.80% | 2.74% | 2.61% |
| Portfolio Turnover Rate2 | | 3% | 5% | 10% | 7% | 7% | 7% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Calculated based on average shares outstanding.
2 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.
23
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 designed for investors who meet certain administrative, service, and account-size criteria. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. 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 for all open federal income tax years (August 31, 2011–2014), and for the period ended February 28, 2015, 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. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counter-parties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
5. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $2.89 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2015, or at any time during the period then ended.
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.
24
Consumer Staples Index Fund
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 based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At February 28, 2015, the fund had contributed capital of $265,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.11% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At February 28, 2015, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
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, 2015, the fund realized $46,377,000 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, 2014, the fund had available capital losses totaling $5,537,000 to offset future net capital gains through August 31, 2018. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2015; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2015, the cost of investment securities for tax purposes was $2,320,449,000. Net unrealized appreciation of investment securities for tax purposes was $651,748,000, consisting of unrealized gains of $666,084,000 on securities that had risen in value since their purchase and $14,336,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the six months ended February 28, 2015, the fund purchased $714,594,000 of investment securities and sold $160,655,000 of investment securities, other than temporary cash investments. Purchases and sales include $585,256,000 and $117,655,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
25
| | | | |
| Consumer Staples Index Fund | | | | |
| |
| |
| |
| |
| F. Capital share transactions for each class of shares were: | | | |
| | Six Months Ended | | Year Ended |
| | February 28, 2015 | August 31, 2014 |
| | Amount | Shares | Amount | Shares |
| | ($000) | (000) | ($000) | (000) |
| Admiral Shares | | | | |
| Issued | 78,451 | 1,275 | 69,898 | 1,286 |
| Issued in Lieu of Cash Distributions | 4,224 | 70 | 3,879 | 73 |
| Redeemed | (22,875) | (375) | (58,167) | (1,074) |
| Net Increase (Decrease) —Admiral Shares | 59,800 | 970 | 15,610 | 285 |
| ETF Shares | | | | |
| Issued | 636,615 | 5,178 | 476,843 | 4,205 |
| Issued in Lieu of Cash Distributions | — | — | — | — |
| Redeemed | (122,102) | (975) | (247,012) | (2,200) |
| Net Increase (Decrease)—ETF Shares | 514,513 | 4,203 | 229,831 | 2,005 |
G. Management has determined that no material events or transactions occurred subsequent to February 28, 2015, that would require recognition or disclosure in these financial statements.
26
| | | |
| Energy Index Fund | |
| |
| |
| Fund Profile | | | |
| As of February 28, 2015 | | |
| |
| Share-Class Characteristics | | |
| | Admiral | ETF |
| | Shares | Shares |
| Ticker Symbol | VENAX | VDE |
| Expense Ratio1 | | 0.12% | 0.12% |
| 30-Day SEC Yield | | 2.52% | 2.52% |
| |
| |
| Portfolio Characteristics | | |
| | | MSCI | |
| | | US IMI/ | MSCI |
| | | Energy | US IMI/ |
| | Fund | 25/50 | 2500 |
| Number of Stocks | 163 | 162 | 2,481 |
| Median Market Cap | $61.2B | $61.2B | $49.1B |
| Price/Earnings Ratio | 16.3x | 16.3x | 21.3x |
| Price/Book Ratio | 1.8x | 1.8x | 2.9x |
| Return on Equity | 16.2% | 16.2% | 17.7% |
| Earnings Growth Rate | 13.6% | 13.6% | 13.9% |
| Dividend Yield | 2.7% | 2.7% | 1.9% |
| Foreign Holdings | 0.0% | 0.0% | 0.0% |
| Turnover Rate | | | |
| (Annualized) | 4% | — | — |
| Short-Term Reserves | 0.0% | — | — |
| | |
| Volatility Measures | | |
| MSCI US | |
| IMI/Energy | MSCI US |
| | 25/50 | IMI/2500 |
| R-Squared | 1.00 | 0.53 |
| Beta | 1.00 | 1.16 |
| These measures show the degree and timing of the fund’s |
| fluctuations compared with the indexes over 36 months. |
| |
| Subindustry Diversification | | |
| (% of equity exposure) | | |
| |
| Coal & Consumable Fuels | | 0.6% |
| Integrated Oil & Gas | | 38.1 |
| Oil & Gas Drilling | | 1.9 |
| Oil & Gas Equipment & Services | | 15.6 |
| Oil & Gas Exploration & Production | 25.4 |
| Oil & Gas Refining & Marketing | | 8.1 |
| Oil & Gas Storage & Transportation | 10.3 |
| | |
| Ten Largest Holdings (% of total net assets) |
| |
| Exxon Mobil Corp. | Integrated Oil & Gas | 21.7% |
| Chevron Corp. | Integrated Oil & Gas | 11.7 |
| Schlumberger Ltd. | Oil & Gas Equipment | |
| | & Services | 6.3 |
| ConocoPhillips | Oil & Gas Exploration | |
| | & Production | 4.7 |
| Kinder Morgan Inc. | Oil & Gas Storage | |
| | & Transportation | 4.3 |
| Occidental | Integrated Oil | |
| Petroleum Corp. | & Gas | 3.5 |
| EOG Resources | Oil & Gas Exploration | |
| Inc. | & Production | 2.9 |
| Phillips 66 | Oil & Gas Refining | |
| | & Marketing | 2.5 |
| Anadarko | Oil & Gas Exploration | |
| Petroleum Corp. | & Production | 2.5 |
| Halliburton Co. | Oil & Gas Equipment | |
| | & Services | 2.1 |
| Top Ten | | 62.2% |
| The holdings listed exclude any temporary cash investments and |
| equity index products. | | |
1 The expense ratios shown are from the prospectus dated December 23, 2014, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2015, the annualized expense ratios were 0.12% for Admiral Shares and 0.12% for ETF Shares.
27
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 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, 2015
Average Annual Total Returns: Periods Ended December 31, 2014
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
| | | | |
| | Inception Date | One Year | Five Years | Ten Years |
| ETF Shares | 9/23/2004 | | | |
| Market Price | | –9.91% | 7.86% | 9.45% |
| Net Asset Value | | –9.92 | 7.85 | 9.45 |
| Admiral Shares | 10/7/2004 | –9.88 | 7.87 | 9.44 |
See Financial Highlights for dividend and capital gains information.
28
Energy Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the 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 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 (100.1%) | | |
| Energy Equipment & Services (17.5%) | |
| | Oil & Gas Drilling (1.9%) | | |
| | Helmerich & Payne Inc. | 279,725 | 18,758 |
| | Ensco plc Class A | 605,279 | 14,811 |
| | Noble Corp. plc | 651,534 | 10,842 |
| | Nabors Industries Ltd. | 672,354 | 8,613 |
| | Patterson-UTI Energy Inc. | 378,881 | 7,080 |
| | Rowan Cos. plc Class A | 305,422 | 6,600 |
| ^ | Diamond Offshore | | |
| | Drilling Inc. | 176,892 | 5,383 |
| | Atwood Oceanics Inc. | 157,734 | 4,891 |
| * | Unit Corp. | 115,132 | 3,516 |
| * | Parker Drilling Co. | 315,101 | 974 |
| * | Pioneer Energy | | |
| | Services Corp. | 164,676 | 876 |
| | Transocean Partners LLC | 39,542 | 541 |
| | Paragon Offshore plc | 218,873 | 451 |
| * | Vantage Drilling Co. | 635,953 | 235 |
| * | Hercules Offshore Inc. | 415,669 | 187 |
| |
| | Oil & Gas Equipment & Services (15.6%) |
| | Schlumberger Ltd. | 3,323,723 | 279,724 |
| | Halliburton Co. | 2,188,983 | 93,995 |
| | Baker Hughes Inc. | 1,117,649 | 69,864 |
| | National Oilwell Varco Inc. | 1,112,160 | 60,446 |
| * | Weatherford | | |
| | International plc | 1,998,827 | 25,365 |
| * | FMC Technologies Inc. | 604,080 | 24,121 |
| * | Cameron International Corp. 510,038 | 24,013 |
| * | Dresser-Rand Group Inc. | 198,049 | 16,119 |
| | Oceaneering | | |
| | International Inc. | 271,337 | 14,796 |
| | Core Laboratories NV | 113,154 | 12,438 |
| | Superior Energy | | |
| | Services Inc. | 392,754 | 8,790 |
| * | Dril-Quip Inc. | 102,121 | 7,420 |
| | Bristow Group Inc. | 90,704 | 5,618 |
| * | Oil States International Inc. | 123,409 | 5,366 |
| | Exterran Holdings Inc. | 159,003 | 5,163 |
| ^ | US Silica Holdings Inc. | 139,055 | 4,507 |
| * | Helix Energy Solutions | | |
| | Group Inc. | 258,694 | 3,994 |
| | Tidewater Inc. | 128,248 | 3,617 |
| * | SEACOR Holdings Inc. | 45,522 | 3,301 |
| * | Forum Energy | | |
| | Technologies Inc. | 157,841 | 3,083 |
| | RPC Inc. | 169,189 | 2,274 |
| * | Newpark Resources Inc. | 216,793 | 2,053 |
| ^ | CARBO Ceramics Inc. | 53,616 | 1,954 |
| | Frank’s International NV | 99,526 | 1,767 |
| * | Hornbeck Offshore | | |
| | Services Inc. | 84,363 | 1,760 |
| * | C&J Energy Services Inc. | 114,236 | 1,557 |
| * | McDermott | | |
| | International Inc. | 613,450 | 1,534 |
| | | | |
| | | | | Market |
| | | | | Value• |
| | | | Shares | ($000) |
| * | Matrix Service Co. | | 68,437 | 1,273 |
| * | TETRA Technologies Inc. | 205,466 | 1,227 |
| * | Era Group Inc. | | 50,521 | 1,114 |
| * | RigNet Inc. | | 34,081 | 1,078 |
| | Gulfmark Offshore Inc. | 64,599 | 1,062 |
| * | PHI Inc. | | 32,015 | 1,031 |
| | Tesco Corp. | | 86,941 | 924 |
| * | ION Geophysical Corp. | 344,972 | 786 |
| * | Willbros Group Inc. | | 115,524 | 732 |
| * | Key Energy Services Inc. | 356,685 | 731 |
| * | Natural Gas Services | | | |
| | Group Inc. | | 34,437 | 664 |
| * | Basic Energy Services Inc. | 89,194 | 664 |
| * | Geospace | | | |
| | Technologies Corp. | | 33,894 | 631 |
| * | Seventy Seven Energy Inc. | 108,063 | 519 |
| * | CHC Group Ltd. | | 85,738 | 211 |
| | | | | 781,044 |
| Oil, Gas & Consumable Fuels (82.6%) | |
| | Coal & Consumable Fuels (0.6%) | |
| | CONSOL Energy Inc. | 594,562 | 19,145 |
| ^ | Peabody Energy Corp. | 700,460 | 5,534 |
| * | Cloud Peak Energy Inc. | 157,489 | 1,305 |
| *,^ | Alpha Natural | | | |
| | Resources Inc. | | 572,223 | 727 |
| *,^ | Arch Coal Inc. | | 548,337 | 718 |
| *,^ | Solazyme Inc. | | 153,505 | 410 |
| |
| | Integrated Oil & Gas (38.1%) | |
| | Exxon Mobil Corp. | 10,937,585 | 968,414 |
| | Chevron Corp. | | 4,882,927 | 520,911 |
| | Occidental Petroleum | | |
| | Corp. | | 2,013,755 | 156,831 |
| | Hess Corp. | | 695,006 | 52,181 |
| |
| | Oil & Gas Exploration & Production (25.5%) |
| | ConocoPhillips | | 3,179,473 | 207,302 |
| | EOG Resources Inc. | | 1,415,570 | 127,005 |
| | Anadarko Petroleum Corp. 1,308,227 | 110,192 |
| | Apache Corp. | | 972,480 | 64,028 |
| | Devon Energy Corp. | | 1,003,948 | 61,833 |
| | Pioneer Natural | | | |
| | Resources Co. | | 384,662 | 58,669 |
| | Marathon Oil Corp. | | 1,743,319 | 48,569 |
| | Noble Energy Inc. | | 999,011 | 47,183 |
| * | Concho Resources Inc. | 307,680 | 33,512 |
| | EQT Corp. | | 391,420 | 31,239 |
| | Cabot Oil & Gas Corp. | 1,066,920 | 30,941 |
| | Cimarex Energy Co. | | 225,459 | 24,728 |
| * | Southwestern Energy Co. | 983,109 | 24,656 |
| | Chesapeake Energy Corp. | 1,374,436 | 22,926 |
| | Murphy Oil Corp. | | 435,568 | 22,166 |
| | Range Resources Corp. | 435,781 | 21,589 |
| * | Whiting Petroleum Corp. | 429,866 | 14,542 |
| * | Newfield Exploration Co. | 411,933 | 13,606 |
| | Energen Corp. | | 189,187 | 12,229 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| * | Continental Resources Inc. | 240,556 | 10,702 |
| * | Gulfport Energy Corp. | 220,663 | 10,109 |
| | QEP Resources Inc. | 441,615 | 9,486 |
| * | Diamondback Energy Inc. | 124,458 | 8,863 |
| | SM Energy Co. | 173,910 | 8,438 |
| | Denbury Resources Inc. | 909,702 | 7,641 |
| * | Cobalt International | | |
| | Energy Inc. | 745,143 | 7,630 |
| *,^ | Ultra Petroleum Corp. | 395,289 | 6,431 |
| * | California Resources Corp. | 804,679 | 5,761 |
| * | WPX Energy Inc. | 498,539 | 5,374 |
| * | Carrizo Oil & Gas Inc. | 112,923 | 5,374 |
| * | Antero Resources Corp. | 135,222 | 5,334 |
| * | PDC Energy Inc. | 92,558 | 4,783 |
| * | Matador Resources Co. | 179,817 | 3,895 |
| * | Oasis Petroleum Inc. | 261,492 | 3,747 |
| ^ | LinnCo LLC | 331,631 | 3,658 |
| * | Bonanza Creek Energy Inc. | 105,858 | 2,853 |
| * | Rice Energy Inc. | 144,059 | 2,821 |
| * | Rosetta Resources Inc. | 158,628 | 2,812 |
| * | RSP Permian Inc. | 99,887 | 2,713 |
| * | Kosmos Energy Ltd. | 299,570 | 2,690 |
| * | Memorial Resource | | |
| | Development Corp. | 131,062 | 2,688 |
| * | Synergy Resources Corp. | 223,252 | 2,668 |
| * | Stone Energy Corp. | 144,876 | 2,454 |
| * | Parsley Energy Inc. Class A | 158,004 | 2,353 |
| *,^ | Laredo Petroleum Inc. | 185,397 | 2,212 |
| * | Gran Tierra Energy Inc. | 738,727 | 1,869 |
| * | Sanchez Energy Corp. | 136,094 | 1,824 |
| *,^ | SandRidge Energy Inc. | 956,263 | 1,693 |
| * | EP Energy Corp. Class A | 126,416 | 1,422 |
| * | Northern Oil and Gas Inc. | 149,495 | 1,289 |
| * | Bill Barrett Corp. | 128,133 | 1,286 |
| *,^ | Halcon Resources Corp. | 654,292 | 1,256 |
| * | Penn Virginia Corp. | 188,029 | 1,249 |
| *,^ | Magnum Hunter Resources | | |
| | Corp. | 413,089 | 1,091 |
| ^ | Energy XXI Ltd. | 218,062 | 1,036 |
| * | Contango Oil & Gas Co. | 42,516 | 1,000 |
| ^ | EXCO Resources Inc. | 424,250 | 891 |
| *,^ | Triangle Petroleum Corp. | 166,992 | 828 |
| * | Clayton Williams Energy Inc. | 15,691 | 770 |
| *,^ | Approach Resources Inc. | 96,989 | 750 |
| * | VAALCO Energy Inc. | 141,668 | 686 |
| *,^ | Rex Energy Corp. | 125,768 | 616 |
| ^ | Comstock Resources Inc. | 117,372 | 610 |
| * | Eclipse Resources Corp. | 82,111 | 589 |
| | W&T Offshore Inc. | 97,758 | 584 |
| * | Jones Energy Inc. Class A | 61,758 | 527 |
| * | Ring Energy Inc. | 50,477 | 480 |
| | Evolution Petroleum Corp. | 67,972 | 464 |
| *,^ | Goodrich Petroleum Corp. | 91,788 | 411 |
| *,^ | Swift Energy Co. | 113,344 | 355 |
| * | Resolute Energy Corp. | 130,874 | 139 |
29
| | | | |
| Energy Index Fund | | | |
| |
| |
| |
| |
| | | | | Market |
| | | | | Value• |
| | | | Shares | ($000) |
| | Oil & Gas Refining & Marketing (8.1%) |
| | Phillips 66 | | 1,429,724 | 112,176 |
| | Valero Energy Corp. | | 1,346,356 | 83,057 |
| | Marathon Petroleum Corp. | 723,806 | 75,999 |
| | Tesoro Corp. | | 326,178 | 29,956 |
| | HollyFrontier Corp. | | 480,377 | 21,132 |
| | World Fuel Services Corp. | 185,916 | 10,179 |
| | Western Refining Inc. | 203,845 | 9,601 |
| | PBF Energy Inc. Class A | 215,757 | 6,725 |
| | Delek US Holdings Inc. | 140,566 | 5,240 |
| | Green Plains Inc. | | 87,272 | 2,029 |
| | CVR Energy Inc. | | 44,741 | 1,879 |
| *,^ | Clean Energy Fuels Corp. | 186,003 | 1,118 |
| | Alon USA Energy Inc. | 71,858 | 1,002 |
| * | Renewable Energy | | | |
| | Group Inc. | | 86,898 | 775 |
| |
| | Oil & Gas Storage & Transportation (10.3%) |
| | Kinder Morgan Inc. | | 4,650,622 | 190,722 |
| | Williams Cos. Inc. | | 1,834,156 | 89,947 |
| | Spectra Energy Corp. | 1,733,204 | 61,511 |
| * | Cheniere Energy Inc. | 581,184 | 46,861 |
| | ONEOK Inc. | | 537,873 | 23,806 |
| | Plains GP Holdings LP | | |
| | Class A | | 529,900 | 15,176 |
| | Targa Resources Corp. | 126,457 | 12,593 |
| | SemGroup Corp. Class A | 112,272 | 8,680 |
| * | Enbridge Energy | | | |
| | Management LLC | | 133,275 | 4,969 |
| | EnLink Midstream LLC | 130,690 | 3,528 |
| | | | | 3,678,957 |
| Total Common Stocks | | | |
| (Cost $4,519,972) | | | 4,460,001 |
| Temporary Cash Investment (0.3%) | |
| Money Market Fund (0.3%) | | |
| 1,2 | Vanguard Market Liquidity | | |
| | Fund, 0.134% | | | |
| | (Cost $12,297) | 12,296,802 | 12,297 |
| Total Investments (100.4%) | | |
| (Cost $4,532,269) | | | 4,472,298 |
| Other Assets and Liabilities (–0.4%) | |
| Other Assets | | | 62,646 |
| Liabilities2 | | | (79,720) |
| | | | | (17,074) |
| Net Assets (100%) | | | 4,455,224 |
| |
| At February 28, 2015, net assets consisted of: |
| | Amount |
| | ($000) |
| Paid-in Capital | 4,574,388 |
| Undistributed Net Investment Income | 19,853 |
| Accumulated Net Realized Losses | (79,046) |
| Unrealized Appreciation (Depreciation) | (59,971) |
| Net Assets | 4,455,224 |
| |
| |
| Admiral Shares—Net Assets | |
| Applicable to 12,973,599 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 721,748 |
| Net Asset Value Per Share— | |
| Admiral Shares | $55.63 |
| |
| |
| ETF Shares—Net Assets | |
| Applicable to 33,523,423 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 3,733,476 |
| Net Asset Value Per Share— | |
| ETF Shares | $111.37 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $11,405,000.
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 $12,297,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
30
| |
| Energy Index Fund | |
| |
| |
| Statement of Operations |
| |
| Six Months Ended |
| February 28, 2015 |
| | ($000) |
| Investment Income | |
| Income | |
| Dividends | 48,014 |
| Interest1 | 3 |
| Securities Lending | 560 |
| Total Income | 48,577 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 304 |
| Management and Administrative— | |
| Admiral Shares | 228 |
| Management and Administrative— | |
| ETF Shares | 1,186 |
| Marketing and Distribution— | |
| Admiral Shares | 55 |
| Marketing and Distribution— | |
| ETF Shares | 312 |
| Custodian Fees | 20 |
| Shareholders’ Reports—Admiral Shares | 4 |
| Shareholders’ Reports—ETF Shares | 92 |
| Trustees’ Fees and Expenses | 1 |
| Total Expenses | 2,202 |
| Net Investment Income | 46,375 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold | 123,716 |
| Futures Contracts | 6 |
| Realized Net Gain (Loss) | 123,722 |
| Change in Unrealized Appreciation | |
| (Depreciation) of Investment Securities | (978,828) |
| Net Increase (Decrease) in Net Assets | |
| Resulting from Operations | (808,731) |
| | |
| Statement of Changes in Net Assets | | |
| |
| | Six Months Ended | Year Ended |
| | February 28, | August 31, |
| | 2015 | 2014 |
| | ($000) | ($000) |
| Increase (Decrease) in Net Assets | | |
| Operations | | |
| Net Investment Income | 46,375 | 65,317 |
| Realized Net Gain (Loss) | 123,722 | 145,782 |
| Change in Unrealized Appreciation (Depreciation) | (978,828) | 485,296 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (808,731) | 696,395 |
| Distributions | | |
| Net Investment Income | | |
| Admiral Shares | (10,925) | (9,355) |
| ETF Shares | (62,233) | (44,452) |
| Realized Capital Gain | | |
| Admiral Shares | — | — |
| ETF Shares | — | — |
| Total Distributions | (73,158) | (53,807) |
| Capital Share Transactions | | |
| Admiral Shares | 274,115 | 20,148 |
| ETF Shares | 1,020,792 | 664,185 |
| Net Increase (Decrease) from Capital Share Transactions | 1,294,907 | 684,333 |
| Total Increase (Decrease) | 413,018 | 1,326,921 |
| Net Assets | | |
| Beginning of Period | 4,042,206 | 2,715,285 |
| End of Period2 | 4,455,224 | 4,042,206 |
1 Interest income from an affiliated company of the fund was $3,000.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $19,853,000 and $46,636,000.
See accompanying Notes, which are an integral part of the Financial Statements.
31
| | | | | | | |
| Energy Index Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| Admiral Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $71.06 | $58.18 | $51.63 | $50.17 | $37.58 | $37.34 |
| Investment Operations | | | | | | | |
| Net Investment Income | | .7201 | 1.164 | 1.108 | .913 | .708 | .654 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | (15.046) | 12.815 | 6.439 | 1.358 | 12.508 | .166 |
| Total from Investment Operations | (14.326) | 13.979 | 7.547 | 2.271 | 13.216 | . 820 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (1.104) | (1.099) | (. 997) | (.811) | (. 626) | (. 580) |
| Distributions from Realized Capital Gains — | — | — | — | — | — |
| Total Distributions | | (1.104) | (1.099) | (. 997) | (.811) | (. 626) | (. 580) |
| Net Asset Value, End of Period | $55.63 | $71.06 | $58.18 | $51.63 | $50.17 | $37.58 |
| |
| Total Return2 | | –20.11% | 24.32% | 14.86% | 4.61% | 35.21% | 2.05% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $722 | $575 | $460 | $254 | $237 | $131 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.12% | 0.12% | 0.14% | 0.14% | 0.19% | 0.24% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 2.45% | 1.98% | 2.02% | 1.81% | 1.48% | 1.71% |
| Portfolio Turnover Rate3 | | 4% | 4% | 9% | 12% | 11% | 16% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Calculated based on average shares outstanding.
2 Total returns do not include transaction or account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable transaction and account service fees.
3 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
32
| | | | | | | |
| Energy Index Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| ETF Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $142.26 | $116.47 | $103.35 | $100.41 | $75.20 | $74.74 |
| Investment Operations | | | | | | | |
| Net Investment Income | | 1.4181 | 2.329 | 2.215 | 1.827 | 1.417 | 1.312 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | (30.099) | 25.655 | 12.899 | 2.731 | 25.040 | .341 |
| Total from Investment Operations | (28.681) | 27.984 | 15.114 | 4.558 | 26.457 | 1.653 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (2.209) | (2.194) | (1.994) | (1.618) | (1.247) | (1.193) |
| Distributions from Realized Capital Gains — | — | — | — | — | — |
| Total Distributions | | (2.209) | (2.194) | (1.994) | (1.618) | (1.247) | (1.193) |
| Net Asset Value, End of Period | $111.37 | $142.26 | $116.47 | $103.35 | $100.41 | $75.20 |
| |
| Total Return | | –20.14% | 24.31% | 14.85% | 4.60% | 35.22% | 2.05% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $3,733 | $3,467 | $2,255 | $1,917 | $1,782 | $1,041 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.12% | 0.12% | 0.14% | 0.14% | 0.19% | 0.24% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 2.45% | 1.98% | 2.02% | 1.81% | 1.48% | 1.71% |
| Portfolio Turnover Rate2 | | 4% | 4% | 9% | 12% | 11% | 16% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Calculated based on average shares outstanding.
2 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.
33
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 designed for investors who meet certain administrative, service, and account-size criteria. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. 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. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.
Futures contracts are valued at their quoted daily settlement prices. The aggregate settlement values 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).
During the six months ended February 28, 2015, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on quarterly average aggregate settlement values. The fund had no open futures contracts at February 28, 2015.
3. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (August 31, 2011–2014), and for the period ended February 28, 2015, 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. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counter-parties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
34
Energy Index Fund
6. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $2.89 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2015, or at any time during the period then ended.
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.
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 based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At February 28, 2015, the fund had contributed capital of $377,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.15% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At February 28, 2015, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
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, 2015, the fund realized $129,051,000 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, 2014, the fund had available capital losses totaling $73,716,000 to offset future net capital gains. Of this amount, $68,284,000 is subject to expiration dates; $37,585,000 may be used to offset future net capital gains through August 31, 2018 and $30,699,000 through August 31, 2019. Capital losses of $5,432,000 realized beginning in fiscal 2012 may be carried forward indefinitely under the Regulated Investment Company Modernization Act of 2010, but must be used before any expiring loss carryforwards. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2015; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
35
Energy Index Fund
At February 28, 2015, the cost of investment securities for tax purposes was $4,532,269,000. Net unrealized depreciation of investment securities for tax purposes was $59,971,000, consisting of unrealized gains of $271,172,000 on securities that had risen in value since their purchase and $331,143,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the six months ended February 28, 2015, the fund purchased $1,699,176,000 of investment securities and sold $426,334,000 of investment securities, other than temporary cash investments. Purchases and sales include $1,213,333,000 and $340,911,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
| | | | |
| F. Capital share transactions for each class of shares were: | | | |
| | Six Months Ended | | Year Ended |
| | February 28, 2015 | August 31, 2014 |
| | Amount | Shares | Amount | Shares |
| | ($000) | (000) | ($000) | (000) |
| Admiral Shares | | | | |
| Issued | 344,874 | 6,081 | 202,436 | 3,067 |
| Issued in Lieu of Cash Distributions | 9,612 | 178 | 8,197 | 133 |
| Redeemed | (80,371) | (1,378) | (190,485) | (3,018) |
| Net Increase (Decrease) —Admiral Shares | 274,115 | 4,881 | 20,148 | 182 |
| ETF Shares | | | | |
| Issued | 1,366,578 | 12,052 | 995,909 | 7,611 |
| Issued in Lieu of Cash Distributions | — | — | — | — |
| Redeemed | (345,786) | (2,900) | (331,724) | (2,600) |
| Net Increase (Decrease)—ETF Shares | 1,020,792 | 9,152 | 664,185 | 5,011 |
G. Management has determined that no material events or transactions occurred subsequent to February 28, 2015, that would require recognition or disclosure in these financial statements.
36
Financials Index Fund
Fund Profile
As of February 28, 2015
| | | |
| Share-Class Characteristics | | |
| | Admiral | ETF |
| | Shares | Shares |
| Ticker Symbol | | VFAIX | VFH |
| Expense Ratio1 | | 0.12% | 0.12% |
| 30-Day SEC Yield | | 2.07% | 2.08% |
| |
| |
| Portfolio Characteristics | | |
| | | MSCI | |
| | | US IMI/ | MSCI |
| | | Financials | US IMI/ |
| | Fund | 25/50 | 2500 |
| Number of Stocks | 557 | 556 | 2,481 |
| Median Market Cap | $31.3B | $31.3B | $49.1B |
| Price/Earnings Ratio | 17.5x | 17.5x | 21.3x |
| Price/Book Ratio | 1.5x | 1.5x | 2.9x |
| Return on Equity | 10.0% | 10.0% | 17.7% |
| Earnings Growth Rate | 19.0% | 19.0% | 13.9% |
| Dividend Yield | 2.2% | 2.2% | 1.9% |
| Foreign Holdings | 0.0% | 0.0% | 0.0% |
| Turnover Rate | | | |
| (Annualized) | 4% | — | — |
| Short-Term Reserves | 0.0% | — | — |
| |
| |
| Volatility Measures | | | |
| | MSCI US | |
| | IMI/Financials | MSCI US |
| | | 25/50 | IMI/2500 |
| R-Squared | | 1.00 | 0.82 |
| Beta | | 1.00 | 1.09 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
| |
| Subindustry Diversification | |
| (% of equity exposure) | |
| |
| Asset Management & Custody Banks | 7.1% |
| Consumer Finance | 4.8 |
| Diversified Banks | 23.5 |
| Diversified REITs | 1.3 |
| Health Care REITs | 2.5 |
| Hotel & Resort REITs | 1.4 |
| Insurance Brokers | 2.0 |
| Investment Banking & Brokerage | 5.2 |
| Life & Health Insurance | 4.5 |
| Mortgage REITs | 1.6 |
| Multi-line Insurance | 3.3 |
| Multi-Sector Holdings | 4.6 |
| Office REITs | 3.0 |
| Property & Casualty Insurance | 6.3 |
| Regional Banks | 9.4 |
| Reinsurance | 1.1 |
| Residential REITs | 3.0 |
| Retail REITs | 4.6 |
| Specialized Finance | 3.2 |
| Specialized REITs | 4.4 |
| Thrifts & Mortgage Finance | 1.2 |
| Other Financials | 2.0 |
Ten Largest Holdings (% of total net assets)
| | |
| Wells Fargo & Co. | Diversified Banks | 6.9% |
| JPMorgan Chase | | |
| & Co. | Diversified Banks | 5.9 |
| Berkshire | Multi-Sector | |
| Hathaway Inc. | Holdings | 4.4 |
| Bank of America | | |
| Corp. | Diversified Banks | 4.3 |
| Citigroup Inc. | Diversified Banks | 4.1 |
| US Bancorp | Diversified Banks | 2.0 |
| American | | |
| International | Multi-line | |
| Group Inc. | Insurance | 2.0 |
| American | Consumer | |
| Express Co. | Finance | 1.9 |
| Goldman Sachs | Investment Banking | |
| Group Inc. | & Brokerage | 1.9 |
| Simon Property | | |
| Group Inc. | Retail REITs | 1.5 |
| Top Ten | | 34.9% |
The holdings listed exclude any temporary cash investments and equity index products.
1 The expense ratios shown are from the prospectus dated December 23, 2014, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2015, the annualized expense ratios were 0.12% for Admiral Shares and 0.12% for ETF Shares.
37
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 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, 2004–February 28, 2015
Financials Index Fund ETF Shares Net Asset Value
Spliced US IMI/Financials 25/50
For a benchmark description, see the Glossary.
Note: For 2015, performance data reflect the six months ended February 28, 2015.
Average Annual Total Returns: Periods Ended December 31, 2014
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
| | | | |
| | Inception Date | One Year | Five Years | Ten Years |
| ETF Shares | 1/26/2004 | | | |
| Market Price | | 13.97% | 13.46% | 1.38% |
| Net Asset Value | | 13.95 | 13.46 | 1.39 |
| Admiral Shares | 2/4/2004 | 13.95 | 13.47 | 1.37 |
See Financial Highlights for dividend and capital gains information.
38
Financials Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the 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 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%) | | |
| Banks (32.7%) | | |
| | Wells Fargo & Co. | 3,412,622 | 186,978 |
| | JPMorgan Chase & Co. | 2,588,559 | 158,627 |
| | Bank of America Corp. | 7,282,207 | 115,132 |
| | Citigroup Inc. | 2,097,882 | 109,971 |
| | US Bancorp | 1,239,090 | 55,276 |
| | PNC Financial Services | | |
| | Group Inc. | 364,400 | 33,510 |
| | BB&T Corp. | 498,806 | 18,980 |
| | SunTrust Banks Inc. | 361,065 | 14,804 |
| | Fifth Third Bancorp | 575,532 | 11,142 |
| | M&T Bank Corp. | 82,394 | 9,970 |
| | Regions Financial Corp. | 951,551 | 9,144 |
| | KeyCorp | 604,056 | 8,414 |
| | Huntington Bancshares Inc. | 563,459 | 6,164 |
| | CIT Group Inc. | 128,062 | 5,923 |
| | Comerica Inc. | 124,689 | 5,708 |
| | First Republic Bank | 90,451 | 5,156 |
| * | SVB Financial Group | 35,326 | 4,342 |
| * | Signature Bank | 34,838 | 4,297 |
| | East West Bancorp Inc. | 99,102 | 3,959 |
| | Zions Bancorporation | 139,513 | 3,730 |
| | City National Corp. | 34,300 | 3,100 |
| | PacWest Bancorp | 67,055 | 3,073 |
| | Investors Bancorp Inc. | 247,365 | 2,840 |
| | Synovus Financial Corp. | 95,520 | 2,674 |
| | Cullen/Frost Bankers Inc. | 38,984 | 2,643 |
| | Umpqua Holdings Corp. | 150,680 | 2,492 |
| | Commerce Bancshares Inc. | 59,504 | 2,471 |
| * | Popular Inc. | 71,081 | 2,453 |
| | Citizens Financial Group Inc. 96,319 | 2,393 |
| | Prosperity Bancshares Inc. | 45,474 | 2,352 |
| | First Horizon National Corp. | 164,249 | 2,347 |
| | First Niagara Financial | | |
| | Group Inc. | 243,990 | 2,162 |
| | BankUnited Inc. | 66,266 | 2,148 |
| | Webster Financial Corp. | 62,130 | 2,145 |
| | FirstMerit Corp. | 113,458 | 2,059 |
| | Associated Banc-Corp | 106,342 | 1,982 |
| | Bank of the Ozarks Inc. | 53,624 | 1,963 |
| | Bank of Hawaii Corp. | 30,810 | 1,857 |
| | PrivateBancorp Inc. | 51,348 | 1,783 |
| | Susquehanna | | |
| | Bancshares Inc. | 129,049 | 1,731 |
| | TCF Financial Corp. | 108,817 | 1,707 |
| | Hancock Holding Co. | 56,114 | 1,642 |
| | United Bankshares Inc. | 42,729 | 1,600 |
| | Fulton Financial Corp. | 128,854 | 1,559 |
| * | Western Alliance Bancorp | 54,074 | 1,535 |
| | FNB Corp. | 113,690 | 1,459 |
| * | Texas Capital | | |
| | Bancshares Inc. | 31,357 | 1,456 |
| | Valley National Bancorp | 151,261 | 1,452 |
| | Wintrust Financial Corp. | 30,323 | 1,428 |
| | Iberiabank Corp. | 21,828 | 1,378 |
| | MB Financial Inc. | 44,096 | 1,375 |
| | UMB Financial Corp. | 26,472 | 1,364 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | Cathay General Bancorp | 51,790 | 1,338 |
| | BancorpSouth Inc. | 59,116 | 1,324 |
| | Glacier Bancorp Inc. | 51,167 | 1,243 |
| | First Citizens BancShares | | |
| | Inc. Class A | 4,927 | 1,243 |
| | Old National Bancorp | 81,591 | 1,150 |
| | South State Corp. | 16,596 | 1,121 |
| | Home BancShares Inc. | 34,310 | 1,086 |
| | Columbia Banking | | |
| | System Inc. | 37,045 | 1,044 |
| | CVB Financial Corp. | 65,260 | 1,021 |
| | Trustmark Corp. | 44,037 | 1,015 |
| | Pinnacle Financial | | |
| | Partners Inc. | 23,767 | 998 |
| | Community Bank | | |
| | System Inc. | 27,942 | 992 |
| | BOK Financial Corp. | 16,687 | 984 |
| | International Bancshares | | |
| | Corp. | 39,282 | 973 |
| * | Hilltop Holdings Inc. | 51,447 | 957 |
| | National Penn | | |
| | Bancshares Inc. | 86,214 | 925 |
| | First Financial | | |
| | Bankshares Inc. | 35,207 | 925 |
| | First Midwest Bancorp Inc. | 51,524 | 881 |
| | Sterling Bancorp | 58,949 | 809 |
| | WesBanco Inc. | 23,850 | 781 |
| | Westamerica | | |
| | Bancorporation | 17,777 | 766 |
| | First Financial Bancorp | 42,742 | 745 |
| | NBT Bancorp Inc. | 30,175 | 724 |
| | Boston Private Financial | | |
| | Holdings Inc. | 57,581 | 723 |
| | Independent Bank Corp. | 17,089 | 715 |
| | BBCN Bancorp Inc. | 51,687 | 711 |
| * | Eagle Bancorp Inc. | 18,579 | 690 |
| | Park National Corp. | 7,968 | 678 |
| | Chemical Financial Corp. | 22,313 | 673 |
| | Union Bankshares Corp. | 29,752 | 651 |
| | LegacyTexas Financial | | |
| | Group Inc. | 26,109 | 600 |
| | Banner Corp. | 13,411 | 585 |
| | Renasant Corp. | 20,418 | 581 |
| | S&T Bancorp Inc. | 20,446 | 579 |
| | Talmer Bancorp Inc. | | |
| | Class A | 40,956 | 579 |
| | First Commonwealth | | |
| | Financial Corp. | 64,883 | 550 |
| | OFG Bancorp | 31,435 | 549 |
| | First Merchants Corp. | 23,394 | 528 |
| * | First BanCorp | 76,163 | 502 |
| * | Capital Bank Financial Corp. | 18,883 | 501 |
| | National Bank Holdings | | |
| | Corp. Class A | 26,803 | 500 |
| | City Holding Co. | 10,772 | 497 |
| | Ameris Bancorp | 18,437 | 482 |
| | Tompkins Financial Corp. | 9,197 | 478 |
| | Simmons First National | | |
| | Corp. Class A | 11,299 | 463 |
39
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | Wilshire Bancorp Inc. | 48,353 | 460 |
| | Lakeland Financial Corp. | 11,764 | 459 |
| | State Bank Financial Corp. | 22,063 | 450 |
| | Sandy Spring Bancorp Inc. | 17,298 | 446 |
| | Towne Bank | 28,766 | 446 |
| | Southside Bancshares Inc. | 14,936 | 429 |
| | Hanmi Financial Corp. | 21,728 | 429 |
| | Cardinal Financial Corp. | 20,728 | 406 |
| | United Community | | |
| | Banks Inc. | 20,844 | 396 |
| | Flushing Financial Corp. | 19,555 | 383 |
| * | Customers Bancorp Inc. | 16,847 | 373 |
| | Washington Trust | | |
| | Bancorp Inc. | 9,722 | 365 |
| | Centerstate Banks Inc. | 30,803 | 361 |
| | First Interstate BancSystem | | |
| | Inc. Class A | 13,563 | 358 |
| * | Square 1 Financial Inc. | | |
| | Class A | 12,746 | 353 |
| | Community Trust | | |
| | Bancorp Inc. | 10,720 | 350 |
| | Central Pacific Financial Corp. | 14,707 | 337 |
| * | First NBC Bank Holding Co. | 10,279 | 336 |
| | Trico Bancshares | 13,986 | 334 |
| | First Busey Corp. | 51,706 | 327 |
| | Stock Yards Bancorp Inc. | 9,568 | 318 |
| | Heartland Financial USA Inc. | 10,196 | 313 |
| | Opus Bank | 10,483 | 305 |
| | BancFirst Corp. | 4,759 | 283 |
| | CoBiz Financial Inc. | 24,982 | 282 |
| | Lakeland Bancorp Inc. | 25,937 | 282 |
| | Hudson Valley Holding Corp. | 10,213 | 265 |
| | Bryn Mawr Bank Corp. | 8,689 | 260 |
| | Enterprise Financial Services | | |
| | Corp. | 12,858 | 259 |
| | 1st Source Corp. | 8,315 | 257 |
| | MainSource Financial | | |
| | Group Inc. | 13,439 | 251 |
| | German American | | |
| | Bancorp Inc. | 8,669 | 249 |
| | First Financial Corp. | 7,333 | 247 |
| | Great Southern Bancorp Inc. | 6,556 | 245 |
| | Arrow Financial Corp. | 8,687 | 232 |
| * | Bancorp Inc. | 24,697 | 231 |
| | Independent Bank Group Inc. | 6,242 | 225 |
| | Southwest Bancorp Inc. | 12,788 | 213 |
| | First Bancorp | 12,101 | 213 |
| | Univest Corp. of | | |
| | Pennsylvania | 11,113 | 211 |
| | First of Long Island Corp. | 8,444 | 207 |
| * | HomeTrust Bancshares Inc. | 13,109 | 207 |
| | Financial Institutions Inc. | 9,146 | 206 |
| | First Community | | |
| | Bancshares Inc. | 11,128 | 179 |
| | Republic Bancorp Inc. | | |
| | Class A | 7,115 | 170 |
| * | Sun Bancorp Inc. | 8,078 | 150 |
| | | | 885,768 |
| | | |
| Financials Index Fund | | |
| |
| |
| |
| |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| Capital Markets (12.4%) | | |
| | Goldman Sachs Group Inc. | 271,372 | 51,504 |
| | Morgan Stanley | 1,015,735 | 36,353 |
| | BlackRock Inc. | 91,619 | 34,029 |
| | Bank of New York Mellon | | |
| | Corp. | 780,842 | 30,562 |
| | Charles Schwab Corp. | 813,859 | 23,879 |
| | State Street Corp. | 289,093 | 21,523 |
| | Ameriprise Financial Inc. | 127,772 | 17,074 |
| | Franklin Resources Inc. | 280,511 | 15,100 |
| | T. Rowe Price Group Inc. | 179,533 | 14,829 |
| | Invesco Ltd. | 297,773 | 11,991 |
| | Northern Trust Corp. | 155,025 | 10,825 |
| * | Affiliated Managers | | |
| | Group Inc. | 38,365 | 8,303 |
| | TD Ameritrade Holding Corp. 188,629 | 6,842 |
| * | E*TRADE Financial Corp. | 199,248 | 5,187 |
| | Raymond James | | |
| | Financial Inc. | 87,783 | 5,015 |
| | SEI Investments Co. | 98,544 | 4,241 |
| | Legg Mason Inc. | 72,027 | 4,125 |
| | Eaton Vance Corp. | 81,830 | 3,445 |
| | NorthStar Asset | | |
| | Management Group Inc. | 129,587 | 3,145 |
| | Waddell & Reed Financial | | |
| | Inc. Class A | 58,557 | 2,896 |
| | LPL Financial Holdings Inc. | 55,626 | 2,495 |
| * | Stifel Financial Corp. | 42,971 | 2,354 |
| | Federated Investors Inc. | | |
| | Class B | 64,798 | 2,134 |
| | Janus Capital Group Inc. | 103,228 | 1,701 |
| | Financial Engines Inc. | 35,743 | 1,440 |
| | WisdomTree | | |
| | Investments Inc. | 73,103 | 1,366 |
| | Evercore Partners Inc. | | |
| | Class A | 23,708 | 1,215 |
| | Artisan Partners Asset | | |
| | Management Inc. Class A | 23,749 | 1,152 |
| | BGC Partners Inc. Class A | 119,944 | 1,089 |
| | HFF Inc. Class A | 23,289 | 829 |
| | Greenhill & Co. Inc. | 18,364 | 711 |
| | Virtus Investment | | |
| | Partners Inc. | 5,081 | 671 |
| * | KCG Holdings Inc. Class A | 52,704 | 663 |
| * | Piper Jaffray Cos. | 11,096 | 608 |
| | Cohen & Steers Inc. | 13,722 | 572 |
| * | Investment Technology | | |
| | Group Inc. | 24,143 | 544 |
| *,^ | Walter Investment | | |
| | Management Corp. | 25,750 | 429 |
| | Moelis & Co. Class A | 11,899 | 383 |
| | Arlington Asset Investment | | |
| | Corp. Class A | 15,252 | 381 |
| * | Cowen Group Inc. Class A | 71,255 | 377 |
| | Westwood Holdings | | |
| | Group Inc. | 4,904 | 306 |
| | Diamond Hill Investment | | |
| | Group Inc. | 2,128 | 300 |
| * | INTL. FCStone Inc. | 10,358 | 282 |
| * | Ladenburg Thalmann | | |
| | Financial Services Inc. | 70,262 | 271 |
| * | Safeguard Scientifics Inc. | 13,991 | 258 |
| | RCS Capital Corp. Class A | 22,313 | 254 |
| | GAMCO Investors Inc. | 3,207 | 242 |
| | Oppenheimer Holdings Inc. | | |
| | Class A | 7,342 | 155 |
| | Pzena Investment | | |
| | Management Inc. Class A | 8,784 | 73 |
| | FXCM Inc. Class A | 23,840 | 50 |
| | | | 334,173 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| Consumer Finance (4.8%) | | |
| | American Express Co. | 644,745 | 52,605 |
| | Capital One Financial Corp. | 384,963 | 30,300 |
| | Discover Financial Services | 313,974 | 19,146 |
| * | Ally Financial Inc. | 298,081 | 6,194 |
| | Navient Corp. | 283,978 | 6,077 |
| * | Synchrony Financial | 115,245 | 3,682 |
| | SLM Corp. | 290,742 | 2,753 |
| * | PRA Group Inc. | 34,793 | 1,743 |
| | Santander Consumer USA | | |
| | Holdings Inc. | 60,896 | 1,372 |
| * | Credit Acceptance Corp. | 5,063 | 928 |
| * | First Cash Financial | | |
| | Services Inc. | 18,499 | 891 |
| | Nelnet Inc. Class A | 17,938 | 836 |
| * | Springleaf Holdings Inc. | 19,718 | 758 |
| * | Encore Capital Group Inc. | 16,743 | 669 |
| * | World Acceptance Corp. | 5,243 | 431 |
| * | Enova International Inc. | 18,137 | 419 |
| | Cash America | | |
| | International Inc. | 19,257 | 416 |
| * | Ezcorp Inc. Class A | 35,192 | 367 |
| * | Green Dot Corp. Class A | 22,808 | 354 |
| | | | 129,941 |
| Diversified Financial Services (8.3%) | |
| * | Berkshire Hathaway Inc. | | |
| | Class B | 799,885 | 117,911 |
| | CME Group Inc. | 221,645 | 21,262 |
| | McGraw Hill Financial Inc. | 188,022 | 19,385 |
| | Intercontinental | | |
| | Exchange Inc. | 78,277 | 18,423 |
| | Moody’s Corp. | 130,998 | 12,699 |
| | FNF Group | 173,283 | 6,363 |
| | Voya Financial Inc. | 141,718 | 6,262 |
| | Leucadia National Corp. | 216,142 | 5,129 |
| | MSCI Inc. Class A | 73,651 | 4,133 |
| | NASDAQ OMX Group Inc. | 81,692 | 4,098 |
| | CBOE Holdings Inc. | 58,820 | 3,531 |
| | MarketAxess Holdings Inc. | 26,070 | 2,075 |
| | Interactive Brokers | | |
| | Group Inc. | 36,538 | 1,164 |
| * | PHH Corp. | 37,343 | 907 |
| * | FNFV Group | 56,993 | 849 |
| * | PICO Holdings Inc. | 15,601 | 268 |
| * | NewStar Financial Inc. | 15,237 | 152 |
| | | | 224,611 |
| Insurance (17.0%) | | |
| | American International | | |
| | Group Inc. | 969,380 | 53,636 |
| | MetLife Inc. | 668,665 | 33,988 |
| | ACE Ltd. | 229,673 | 26,185 |
| | Prudential Financial Inc. | 315,862 | 25,538 |
| | Travelers Cos. Inc. | 229,419 | 24,649 |
| | Marsh & McLennan | | |
| | Cos. Inc. | 375,554 | 21,365 |
| | Allstate Corp. | 290,386 | 20,501 |
| | Aflac Inc. | 312,599 | 19,459 |
| | Aon plc | 187,575 | 18,825 |
| | Chubb Corp. | 163,249 | 16,398 |
| | Hartford Financial Services | | |
| | Group Inc. | 298,722 | 12,236 |
| | Principal Financial | | |
| | Group Inc. | 202,841 | 10,379 |
| | Lincoln National Corp. | 180,002 | 10,375 |
| | Progressive Corp. | 387,268 | 10,321 |
| | Loews Corp. | 233,171 | 9,562 |
| * | Markel Corp. | 9,677 | 7,214 |
| | XL Group plc Class A | 178,700 | 6,469 |
| | Unum Group | 175,725 | 5,897 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | Cincinnati Financial Corp. | 107,232 | 5,658 |
| | Everest Re Group Ltd. | 31,382 | 5,568 |
| * | Alleghany Corp. | 11,305 | 5,342 |
| * | Arch Capital Group Ltd. | 89,358 | 5,286 |
| | Willis Group Holdings plc | 110,744 | 5,285 |
| | Arthur J Gallagher & Co. | 111,819 | 5,254 |
| | Torchmark Corp. | 90,164 | 4,801 |
| | Reinsurance Group of | | |
| | America Inc. Class A | 47,303 | 4,225 |
| | HCC Insurance Holdings Inc. | 66,987 | 3,743 |
| | WR Berkley Corp. | 74,869 | 3,737 |
| | Axis Capital Holdings Ltd. | 69,110 | 3,582 |
| | PartnerRe Ltd. | 30,972 | 3,546 |
| | American Financial Group Inc. | 52,549 | 3,311 |
| | Assurant Inc. | 49,361 | 3,024 |
| | Assured Guaranty Ltd. | 106,460 | 2,823 |
| | White Mountains Insurance | | |
| | Group Ltd. | 4,218 | 2,814 |
| | Brown & Brown Inc. | 85,087 | 2,735 |
| | RenaissanceRe Holdings Ltd. | 26,649 | 2,732 |
| | Allied World Assurance Co. | | |
| | Holdings AG | 67,153 | 2,716 |
| * | Genworth Financial Inc. | | |
| | Class A | 344,045 | 2,666 |
| | Old Republic | | |
| | International Corp. | 171,729 | 2,603 |
| | First American Financial | | |
| | Corp. | 74,277 | 2,602 |
| | Validus Holdings Ltd. | 57,451 | 2,392 |
| | CNO Financial Group Inc. | 138,710 | 2,255 |
| | Hanover Insurance | | |
| | Group Inc. | 30,313 | 2,129 |
| | Aspen Insurance | | |
| | Holdings Ltd. | 44,898 | 2,059 |
| | Primerica Inc. | 37,264 | 1,965 |
| | Endurance Specialty | | |
| | Holdings Ltd. | 30,688 | 1,951 |
| | StanCorp Financial Group Inc. | 29,412 | 1,946 |
| | ProAssurance Corp. | 39,979 | 1,799 |
| | Erie Indemnity Co. Class A | 17,525 | 1,523 |
| | American Equity Investment | | |
| | Life Holding Co. | 48,809 | 1,391 |
| | Platinum Underwriters | | |
| | Holdings Ltd. | 18,159 | 1,386 |
| | RLI Corp. | 26,587 | 1,287 |
| | AmTrust Financial | | |
| | Services Inc. | 23,363 | 1,259 |
| | Symetra Financial Corp. | 55,613 | 1,256 |
| * | Enstar Group Ltd. | 8,083 | 1,124 |
| | Kemper Corp. | 28,913 | 1,064 |
| | Selective Insurance | | |
| | Group Inc. | 38,508 | 1,049 |
| | Mercury General Corp. | 18,948 | 1,033 |
| | Montpelier Re Holdings Ltd. | 28,196 | 1,016 |
| | Argo Group International | | |
| | Holdings Ltd. | 19,560 | 937 |
| | Horace Mann | | |
| | Educators Corp. | 28,703 | 925 |
| * | MBIA Inc. | 99,465 | 895 |
| * | Ambac Financial Group Inc. | 30,931 | 770 |
| * | Greenlight Capital Re Ltd. | | |
| | Class A | 21,163 | 693 |
| | Infinity Property & Casualty | | |
| | Corp. | 7,948 | 616 |
| | Stewart Information | | |
| | Services Corp. | 15,321 | 577 |
| * | Third Point Reinsurance Ltd. | 39,070 | 549 |
| * | Navigators Group Inc. | 7,288 | 545 |
| | Maiden Holdings Ltd. | 37,523 | 537 |
| | AMERISAFE Inc. | 12,782 | 531 |
Financials Index Fund
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | Employers Holdings Inc. | 21,711 | 512 |
| | Safety Insurance Group Inc. | 8,660 | 507 |
| | National General Holdings | | |
| | Corp. | 25,544 | 475 |
| | FBL Financial Group Inc. | | |
| | Class A | 7,654 | 443 |
| | United Fire Group Inc. | 14,857 | 429 |
| | National Western Life | | |
| | Insurance Co. Class A | 1,646 | 414 |
| * | Heritage Insurance | | |
| | Holdings Inc. | 17,578 | 350 |
| | HCI Group Inc. | 6,521 | 309 |
| | United Insurance Holdings | | |
| | Corp. | 12,119 | 296 |
| | Meadowbrook Insurance | | |
| | Group Inc. | 32,523 | 272 |
| | State Auto Financial Corp. | 11,225 | 266 |
| | OneBeacon Insurance Group | | |
| | Ltd. Class A | 14,768 | 222 |
| * | Citizens Inc. Class A | 29,018 | 212 |
| | Fidelity & Guaranty Life | 8,053 | 167 |
| * | Global Indemnity plc | 5,967 | 161 |
| | National Interstate Corp. | 5,355 | 143 |
| | Baldwin & Lyons Inc. | 5,817 | 135 |
| | Kansas City Life Insurance Co. 2,603 | 122 |
| | EMC Insurance Group Inc. | 3,730 | 117 |
| | Donegal Group Inc. Class A | 6,483 | 99 |
| * | eHealth Inc. | 10,900 | 99 |
| | Crawford & Co. Class A | 10,283 | 77 |
| | Crawford & Co. Class B | 7,382 | 67 |
| | | | 460,403 |
| Real Estate Investment Trusts (REITs) (22.6%) |
| | Simon Property Group Inc. | 215,204 | 40,966 |
| | American Tower | | |
| | Corporation | 289,200 | 28,671 |
| | Public Storage | 101,727 | 20,063 |
| | Crown Castle International | | |
| | Corp. | 231,204 | 19,955 |
| | Health Care REIT Inc. | 239,870 | 18,496 |
| | Equity Residential | 238,478 | 18,370 |
| | Ventas Inc. | 224,254 | 16,700 |
| | AvalonBay Communities Inc. | 91,414 | 15,389 |
| | Prologis Inc. | 346,335 | 14,792 |
| | Boston Properties Inc. | 106,103 | 14,580 |
| | HCP Inc. | 318,078 | 13,474 |
| | Vornado Realty Trust | 117,086 | 12,884 |
| | Weyerhaeuser Co. | 364,747 | 12,806 |
| | Host Hotels & Resorts Inc. | 524,574 | 11,016 |
| | General Growth | | |
| | Properties Inc. | 367,464 | 10,660 |
| | Essex Property Trust Inc. | 44,280 | 9,849 |
| | SL Green Realty Corp. | 66,839 | 8,484 |
| | Macerich Co. | 97,554 | 8,160 |
| | Realty Income Corp. | 154,329 | 7,726 |
| | Kimco Realty Corp. | 284,971 | 7,489 |
| | Annaly Capital | | |
| | Management Inc. | 656,392 | 6,971 |
| | Federal Realty | | |
| | Investment Trust | 47,204 | 6,704 |
| | Digital Realty Trust Inc. | 93,961 | 6,237 |
| | American Realty Capital | | |
| | Properties Inc. | 626,119 | 6,142 |
| | UDR Inc. | 176,778 | 5,646 |
| | Plum Creek Timber Co. Inc. | 122,200 | 5,308 |
| | American Capital Agency | | |
| | Corp. | 243,404 | 5,217 |
| | Extra Space Storage Inc. | 76,590 | 5,038 |
| | Duke Realty Corp. | 235,503 | 5,030 |
| | Alexandria Real Estate | | |
| | Equities Inc. | 49,971 | 4,793 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | WP Carey Inc. | 64,819 | 4,445 |
| | Camden Property Trust | 59,899 | 4,360 |
| | Kilroy Realty Corp. | 58,267 | 4,310 |
| | Regency Centers Corp. | 64,642 | 4,242 |
| * | Iron Mountain Inc. | 113,473 | 4,170 |
| | Apartment Investment & | | |
| | Management Co. | 107,350 | 4,045 |
| | DDR Corp. | 211,115 | 3,999 |
| | Liberty Property Trust | 102,491 | 3,815 |
| | Omega Healthcare | | |
| | Investors Inc. | 94,565 | 3,788 |
| | Mid-America Apartment | | |
| | Communities Inc. | 51,963 | 3,766 |
| | Starwood Property | | |
| | Trust Inc. | 153,667 | 3,749 |
| | National Retail | | |
| | Properties Inc. | 90,879 | 3,657 |
| | Senior Housing Properties | | |
| | Trust | 159,072 | 3,555 |
| | Spirit Realty Capital Inc. | 275,847 | 3,379 |
| | Lamar Advertising Co. | | |
| | Class A | 55,884 | 3,247 |
| | Corrections Corp. of | | |
| | America | 80,643 | 3,217 |
| | Hospitality Properties Trust | 103,591 | 3,192 |
| | Taubman Centers Inc. | 43,884 | 3,175 |
| | BioMed Realty Trust Inc. | 136,862 | 3,044 |
| | LaSalle Hotel Properties | 77,229 | 3,006 |
| | American Campus | | |
| | Communities Inc. | 72,628 | 2,997 |
| | Equity LifeStyle | | |
| | Properties Inc. | 55,222 | 2,975 |
| | NorthStar Realty | | |
| | Finance Corp. | 154,695 | 2,973 |
| | Weingarten Realty Investors | 80,382 | 2,911 |
| | RLJ Lodging Trust | 90,758 | 2,887 |
| | Highwoods Properties Inc. | 62,575 | 2,854 |
| | Douglas Emmett Inc. | 94,308 | 2,723 |
| | Home Properties Inc. | 39,737 | 2,653 |
| | Two Harbors Investment | | |
| | Corp. | 251,346 | 2,624 |
| | CubeSmart | 112,843 | 2,618 |
| | Brixmor Property Group Inc. | 102,212 | 2,596 |
| | Retail Properties of | | |
| | America Inc. | 163,870 | 2,594 |
| * | Outfront Media Inc. | 83,079 | 2,488 |
| | Sunstone Hotel | | |
| | Investors Inc. | 142,430 | 2,485 |
| | Pebblebrook Hotel Trust | 49,552 | 2,407 |
| | Rayonier Inc. | 87,672 | 2,403 |
| | EPR Properties | 39,308 | 2,398 |
| | Healthcare Trust of | | |
| | America Inc. Class A | 85,663 | 2,377 |
| | CBL & Associates | | |
| | Properties Inc. | 117,007 | 2,342 |
| | Tanger Factory Outlet | | |
| | Centers Inc. | 65,846 | 2,334 |
| * | Strategic Hotels & | | |
| | Resorts Inc. | 174,348 | 2,287 |
| | Chimera Investment Corp. | 705,963 | 2,266 |
| | Columbia Property Trust Inc. | 85,811 | 2,222 |
| | Geo Group Inc. | 51,450 | 2,220 |
| | DCT Industrial Trust Inc. | 60,987 | 2,200 |
| * | WP GLIMCHER Inc. | 126,442 | 2,191 |
| | Sovran Self Storage Inc. | 23,437 | 2,157 |
| | Sun Communities Inc. | 31,696 | 2,142 |
| | Post Properties Inc. | 37,368 | 2,125 |
| | Medical Properties | | |
| | Trust Inc. | 139,793 | 2,116 |
| * | Equity Commonwealth | 79,687 | 2,108 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | Gaming and Leisure | | |
| | Properties Inc. | 61,935 | 2,097 |
| | MFA Financial Inc. | 254,841 | 2,029 |
| | Brandywine Realty Trust | 124,124 | 1,967 |
| | Healthcare Realty Trust Inc. | 68,158 | 1,945 |
| | DiamondRock Hospitality Co. 134,255 | 1,944 |
| | Piedmont Office Realty | | |
| | Trust Inc. Class A | 105,978 | 1,943 |
| | Ryman Hospitality | | |
| | Properties Inc. | 31,931 | 1,919 |
| | Colony Financial Inc. | 75,239 | 1,897 |
| | Corporate Office Properties | | |
| | Trust | 63,816 | 1,876 |
| | American Homes 4 Rent | | |
| | Class A | 109,745 | 1,832 |
| | National Health | | |
| | Investors Inc. | 22,825 | 1,625 |
| | Kite Realty Group Trust | 57,258 | 1,622 |
| | First Industrial Realty | | |
| | Trust Inc. | 75,713 | 1,611 |
| | Acadia Realty Trust | 46,600 | 1,592 |
| | Lexington Realty Trust | 142,814 | 1,547 |
| | Cousins Properties Inc. | 144,068 | 1,546 |
| | Hudson Pacific | | |
| | Properties Inc. | 48,343 | 1,545 |
| | New Residential | | |
| | Investment Corp. | 96,791 | 1,463 |
| | DuPont Fabros | | |
| | Technology Inc. | 45,125 | 1,413 |
| * | Urban Edge Properties | 58,055 | 1,390 |
| | EastGroup Properties Inc. | 21,703 | 1,367 |
| | Invesco Mortgage Capital Inc. | 84,546 | 1,350 |
| | Chambers Street Properties | 162,711 | 1,333 |
| | Chesapeake Lodging Trust | 37,380 | 1,329 |
| | Washington REIT | 45,847 | 1,299 |
| | Equity One Inc. | 47,354 | 1,268 |
| | Sabra Health Care REIT Inc. | 37,912 | 1,239 |
| | Hatteras Financial Corp. | 66,737 | 1,225 |
| | Empire State Realty | | |
| | Trust Inc. | 66,958 | 1,185 |
| | Education Realty Trust Inc. | 33,004 | 1,157 |
| | New York REIT Inc. | 110,937 | 1,153 |
| | PS Business Parks Inc. | 13,853 | 1,152 |
| | Government Properties | | |
| | Income Trust | 48,339 | 1,131 |
| | Potlatch Corp. | 27,864 | 1,113 |
| | Redwood Trust Inc. | 57,994 | 1,109 |
| | Blackstone Mortgage | | |
| | Trust Inc. Class A | 38,059 | 1,100 |
| | STAG Industrial Inc. | 43,846 | 1,094 |
| | PennyMac Mortgage | | |
| | Investment Trust | 51,008 | 1,094 |
| | Pennsylvania REIT | 48,003 | 1,094 |
| | Mack-Cali Realty Corp. | 57,855 | 1,088 |
| | Retail Opportunity | | |
| | Investments Corp. | 64,544 | 1,081 |
| | LTC Properties Inc. | 23,948 | 1,069 |
| | American Assets Trust Inc. | 25,399 | 1,042 |
| | CYS Investments Inc. | 111,118 | 1,010 |
| | Ramco-Gershenson | | |
| | Properties Trust | 52,908 | 990 |
| | Associated Estates | | |
| | Realty Corp. | 39,609 | 949 |
| | Parkway Properties Inc. | 52,843 | 931 |
| | Hersha Hospitality Trust | | |
| | Class A | 137,778 | 924 |
| | New Senior Investment | | |
| | Group Inc. | 50,619 | 852 |
| | FelCor Lodging Trust Inc. | 77,245 | 832 |
| | Altisource Residential Corp. | 38,946 | 804 |
| | Capstead Mortgage Corp. | 65,799 | 788 |
41
Financials Index Fund
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | ARMOUR Residential | | |
| | REIT Inc. | 245,812 | 782 |
| | Franklin Street | | |
| | Properties Corp. | 61,870 | 781 |
| | Summit Hotel Properties Inc. | 58,560 | 769 |
| | Chatham Lodging Trust | 25,985 | 754 |
| | CyrusOne Inc. | 25,247 | 750 |
| * | iStar Financial Inc. | 55,509 | 736 |
| | CoreSite Realty Corp. | 15,357 | 729 |
| | Ashford Hospitality Trust Inc. | 68,108 | 725 |
| | Alexander’s Inc. | 1,592 | 701 |
| | Select Income REIT | 27,413 | 677 |
| | Starwood Waypoint | | |
| | Residential Trust | 26,713 | 673 |
| | Inland Real Estate Corp. | 61,902 | 662 |
| | American Capital Mortgage | | |
| | Investment Corp. | 35,016 | 646 |
| | Aviv REIT Inc. | 17,796 | 640 |
| | Terreno Realty Corp. | 28,399 | 626 |
| | Investors Real Estate Trust | 78,658 | 603 |
| | Rexford Industrial Realty Inc. | 36,963 | 593 |
| | Excel Trust Inc. | 41,949 | 575 |
| | New York Mortgage | | |
| | Trust Inc. | 71,424 | 564 |
| | QTS Realty Trust Inc. | | |
| | Class A | 15,605 | 559 |
| | Apollo Commercial Real | | |
| | Estate Finance Inc. | 31,897 | 545 |
| | First Potomac Realty Trust | 40,405 | 483 |
| | Saul Centers Inc. | 8,520 | 459 |
| | Resource Capital Corp. | 90,456 | 455 |
| | Universal Health Realty | | |
| | Income Trust | 8,910 | 453 |
| | Anworth Mortgage | | |
| | Asset Corp. | 83,460 | 437 |
| ^ | Western Asset Mortgage | | |
| | Capital Corp. | 28,702 | 431 |
| | Monmouth Real Estate | | |
| | Investment Corp. | 36,967 | 417 |
| | RAIT Financial Trust | 56,315 | 415 |
| | Silver Bay Realty Trust Corp. | 25,569 | 413 |
| | Urstadt Biddle Properties | | |
| | Inc. Class A | 18,006 | 409 |
| | Rouse Properties Inc. | 23,545 | 407 |
| | Agree Realty Corp. | 11,901 | 391 |
| | Winthrop Realty Trust | 23,503 | 378 |
| | Cedar Realty Trust Inc. | 49,228 | 368 |
| * | American Residential | | |
| | Properties Inc. | 21,199 | 368 |
| | AG Mortgage Investment | | |
| | Trust Inc. | 19,507 | 367 |
| | United Development | | |
| | Funding IV | 20,982 | 354 |
| | Apollo Residential | | |
| | Mortgage Inc. | 22,254 | 353 |
| | Campus Crest | | |
| | Communities Inc. | 44,264 | 345 |
| | Getty Realty Corp. | 18,511 | 334 |
| | Dynex Capital Inc. | 35,975 | 300 |
| | Ashford Hospitality | | |
| | Prime Inc. | 17,377 | 283 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | CatchMark Timber Trust Inc. | | |
| | Class A | 22,615 | 274 |
| | CareTrust REIT Inc. | 20,032 | 255 |
| | Whitestone REIT | 15,612 | 246 |
| | Ares Commercial Real Estate | | |
| | Corp. | 18,932 | 227 |
| | Newcastle Investment Corp. | 44,982 | 218 |
| | One Liberty Properties Inc. | 8,925 | 211 |
| | Arbor Realty Trust Inc. | 27,594 | 198 |
| | | | 612,744 |
| Real Estate Management & Development (1.0%) |
| * | CBRE Group Inc. Class A | 207,515 | 7,110 |
| | Jones Lang LaSalle Inc. | 30,886 | 4,980 |
| * | Realogy Holdings Corp. | 100,891 | 4,641 |
| * | Howard Hughes Corp. | 24,537 | 3,676 |
| * | Forest City Enterprises Inc. | | |
| | Class A | 106,449 | 2,688 |
| | Kennedy-Wilson | | |
| | Holdings Inc. | 48,948 | 1,310 |
| | Alexander & Baldwin Inc. | 31,842 | 1,287 |
| * | St. Joe Co. | 47,481 | 807 |
| * | Forestar Group Inc. | 23,849 | 343 |
| * | Tejon Ranch Co. | 10,668 | 262 |
| | RE/MAX Holdings Inc. | 7,947 | 260 |
| *,^ | Altisource Portfolio | | |
| | Solutions SA | 10,443 | 210 |
| * | Altisource Asset | | |
| | Management Corp. | 1,063 | 188 |
| * | Marcus & Millichap Inc. | 5,013 | 185 |
| * | FRP Holdings Inc. | 4,322 | 132 |
| * | Tejon Ranch Co. Warrants | | |
| | Exp. 08/31/2016 | 1,227 | 1 |
| | | | 28,080 |
| Thrifts & Mortgage Finance (1.2%) | |
| | New York Community | | |
| | Bancorp Inc. | 305,632 | 5,077 |
| | People’s United | | |
| | Financial Inc. | 213,282 | 3,227 |
| | Hudson City Bancorp Inc. | 329,426 | 3,215 |
| | Radian Group Inc. | 131,253 | 2,075 |
| * | MGIC Investment Corp. | 220,739 | 2,015 |
| | Washington Federal Inc. | 68,303 | 1,443 |
| | Capitol Federal Financial Inc. | 93,066 | 1,155 |
| | EverBank Financial Corp. | 54,912 | 987 |
| | Home Loan Servicing | | |
| | Solutions Ltd. | 48,722 | 897 |
| * | Essent Group Ltd. | 38,308 | 890 |
| | TFS Financial Corp. | 62,483 | 881 |
| | Astoria Financial Corp. | 61,147 | 802 |
| * | BofI Holding Inc. | 8,566 | 757 |
| | Provident Financial | | |
| | Services Inc. | 40,351 | 734 |
| | Northwest Bancshares Inc. | 61,597 | 728 |
| * | Beneficial Bancorp Inc. | 56,833 | 643 |
| * | Ocwen Financial Corp. | 76,337 | 621 |
| | Northfield Bancorp Inc. | 35,351 | 512 |
| | Brookline Bancorp Inc. | 48,517 | 470 |
| | Berkshire Hills Bancorp Inc. | 17,163 | 458 |
| | WSFS Financial Corp. | 5,851 | 455 |
| * | Ladder Capital Corp. | 24,254 | 446 |
| | TrustCo Bank Corp. NY | 64,838 | 438 |
| | United Financial Bancorp Inc. | 34,665 | 430 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| *,^ | Nationstar Mortgage | | |
| | Holdings Inc. | 15,579 | 415 |
| | Oritani Financial Corp. | 26,633 | 381 |
| | Dime Community | | |
| | Bancshares Inc. | 20,447 | 318 |
| | Waterstone Financial Inc. | 23,634 | 304 |
| * | NMI Holdings Inc. Class A | 35,935 | 262 |
| * | Walker & Dunlop Inc. | 14,257 | 229 |
| * | Flagstar Bancorp Inc. | 15,379 | 227 |
| * | LendingTree Inc. | 4,259 | 226 |
| * | PennyMac Financial | | |
| | Services Inc. Class A | 12,196 | 213 |
| | Federal Agricultural | | |
| | Mortgage Corp. | 6,445 | 206 |
| * | Meridian Bancorp Inc. | 15,002 | 186 |
| * | Stonegate Mortgage Corp. | 10,642 | 107 |
| | | | 32,430 |
| Total Common Stocks | | |
| (Cost $2,416,696) | | 2,708,150 |
| Temporary Cash Investment (0.1%) | |
| Money Market Fund (0.1%) | | |
| 1,2 | Vanguard Market Liquidity | | |
| | Fund, 0.134% | | |
| | (Cost $708) | 708,201 | 708 |
| Total Investments (100.1%) | | |
| (Cost $2,417,404) | | 2,708,858 |
| Other Assets and Liabilities (–0.1%) | |
| Other Assets | | 12,071 |
| Liabilities2 | | (13,477) |
| | | | (1,406) |
| Net Assets (100%) | | 2,707,452 |
At February 28, 2015, net assets consisted of:
| |
| | Amount |
| | ($000) |
| Paid-in Capital | 2,588,962 |
| Overdistributed Net Investment Income | (481) |
| Accumulated Net Realized Losses | (172,483) |
| Unrealized Appreciation (Depreciation) | 291,454 |
| Net Assets | 2,707,452 |
| |
| |
| Admiral Shares—Net Assets | |
| Applicable to 7,125,578 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 176,114 |
| Net Asset Value Per Share— | |
| Admiral Shares | $24.72 |
| |
| |
| ETF Shares—Net Assets | |
| Applicable to 51,328,393 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 2,531,338 |
| Net Asset Value Per Share— | |
| ETF Shares | $49.32 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $664,000.
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 $708,000 of collateral received for securities on loan.
REIT—Real Estate Investment Trust.
See accompanying Notes, which are an integral part of the Financial Statements.
42
| |
| Financials Index Fund | |
| |
| |
| Statement of Operations |
| |
| Six Months Ended |
| February 28, 2015 |
| | ($000) |
| Investment Income | |
| Income | |
| Dividends | 23,130 |
| Securities Lending | 36 |
| Total Income | 23,166 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 208 |
| Management and Administrative— | |
| Admiral Shares | 67 |
| Management and Administrative— | |
| ETF Shares | 870 |
| Marketing and Distribution— | |
| Admiral Shares | 12 |
| Marketing and Distribution— | |
| ETF Shares | 225 |
| Custodian Fees | 37 |
| Shareholders’ Reports—Admiral Shares | 1 |
| Shareholders’ Reports—ETF Shares | 58 |
| Trustees’ Fees and Expenses | 1 |
| Total Expenses | 1,479 |
| Net Investment Income | 21,687 |
| Realized Net Gain (Loss) on | |
| Investment Securities Sold | 128,164 |
| Change in Unrealized Appreciation | |
| (Depreciation) of Investment Securities | (25,899) |
| Net Increase (Decrease) in Net Assets | |
| Resulting from Operations | 123,952 |
| | |
| Statement of Changes in Net Assets | | |
| |
| | Six Months Ended | Year Ended |
| | February 28, | August 31, |
| | 2015 | 2014 |
| | ($000) | ($000) |
| Increase (Decrease) in Net Assets | | |
| Operations | | |
| Net Investment Income | 21,687 | 40,051 |
| Realized Net Gain (Loss) | 128,164 | 63,848 |
| Change in Unrealized Appreciation (Depreciation) | (25,899) | 265,041 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 123,952 | 368,940 |
| Distributions | | |
| Net Investment Income | | |
| Admiral Shares | (1,949) | (2,781) |
| ETF Shares | (28,992) | (34,583) |
| Realized Capital Gain | | |
| Admiral Shares | — | — |
| ETF Shares | — | — |
| Total Distributions | (30,941) | (37,364) |
| Capital Share Transactions | | |
| Admiral Shares | 14,107 | (901) |
| ETF Shares | 253,948 | 420,150 |
| Net Increase (Decrease) from Capital Share Transactions | 268,055 | 419,249 |
| Total Increase (Decrease) | 361,066 | 750,825 |
| Net Assets | | |
| Beginning of Period | 2,346,386 | 1,595,561 |
| End of Period1 | 2,707,452 | 2,346,386 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of ($481,000) and $8,766,000.
See accompanying Notes, which are an integral part of the Financial Statements.
43
| | | | | | | |
| Financials Index Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| Admiral Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $23.72 | $19.95 | $16.05 | $14.16 | $13.99 | $14.72 |
| Investment Operations | | | | | | | |
| Net Investment Income | | .194 | .438 | .414 | . 320 | . 263 | . 209 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | 1.093 | 3.758 | 3.888 | 1.874 | .150 | (.715) |
| Total from Investment Operations | 1.287 | 4.196 | 4.302 | 2.194 | .413 | (. 506) |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (. 287) | (. 426) | (. 402) | (. 304) | (. 243) | (. 224) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | | (. 287) | (. 426) | (. 402) | (. 304) | (. 243) | (. 224) |
| Net Asset Value, End of Period | $24.72 | $23.72 | $19.95 | $16.05 | $14.16 | $13.99 |
| |
| Total Return1 | | 5.45% | 21.19% | 27.13% | 15.84% | 2.79% | –3.52% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $176 | $155 | $132 | $73 | $62 | $65 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.12% | 0.12% | 0.14% | 0.14% | 0.19% | 0.24% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 2.01% | 2.00% | 2.26% | 2.16% | 1.63% | 1.36% |
| Portfolio Turnover Rate2 | | 4% | 5% | 9% | 7% | 10% | 11% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Total returns do not include transaction or account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable transaction and account service fees.
2 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.
44
| | | | | | | |
| Financials Index Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| ETF Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $47.32 | $39.80 | $32.03 | $28.25 | $27.92 | $29.38 |
| Investment Operations | | | | | | | |
| Net Investment Income | | .386 | . 876 | . 825 | .639 | . 526 | .417 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | 2.186 | 7.494 | 7.747 | 3.747 | . 287 | (1.425) |
| Total from Investment Operations | 2.572 | 8.370 | 8.572 | 4.386 | .813 | (1.008) |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (. 572) | (.850) | (.802) | (. 606) | (.483) | (. 452) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | | (. 572) | (.850) | (.802) | (. 606) | (.483) | (. 452) |
| Net Asset Value, End of Period | $49.32 | $47.32 | $39.80 | $32.03 | $28.25 | $27.92 |
| |
| Total Return | | 5.46% | 21.20% | 27.10% | 15.87% | 2.73% | –3.51% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $2,531 | $2,191 | $1,464 | $768 | $544 | $464 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.12% | 0.12% | 0.14% | 0.14% | 0.19% | 0.24% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 2.01% | 2.00% | 2.26% | 2.16% | 1.63% | 1.36% |
| Portfolio Turnover Rate1 | | 4% | 5% | 9% | 7% | 10% | 11% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 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.
45
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 designed for investors who meet certain administrative, service, and account-size criteria. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. 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 for all open federal income tax years (August 31, 2011–2014), and for the period ended February 28, 2015, 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. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counter-parties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
5. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $2.89 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2015, or at any time during the period then ended.
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.
46
Financials Index Fund
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 based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At February 28, 2015, the fund had contributed capital of $240,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.10% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At February 28, 2015, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
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, 2015, the fund realized $108,376,000 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, 2014, the fund had available capital losses totaling $192,264,000 to offset future net capital gains of $124,898,000 through August 31, 2018, and $67,366,000 through August 31, 2019. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2015; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2015, the cost of investment securities for tax purposes was $2,417,405,000. Net unrealized appreciation of investment securities for tax purposes was $291,453,000, consisting of unrealized gains of $370,494,000 on securities that had risen in value since their purchase and $79,041,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the six months ended February 28, 2015, the fund purchased $632,192,000 of investment securities and sold $366,141,000 of investment securities, other than temporary cash investments. Purchases and sales include $550,836,000 and $320,559,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
47
| | | | |
| Financials Index Fund | | | | |
| |
| |
| |
| |
| F. Capital share transactions for each class of shares were: | | | |
| | Six Months Ended | | Year Ended |
| | February 28, 2015 | August 31, 2014 |
| | Amount | Shares | Amount | Shares |
| | ($000) | (000) | ($000) | (000) |
| Admiral Shares | | | | |
| Issued | 33,407 | 1,388 | 41,610 | 1,878 |
| Issued in Lieu of Cash Distributions | 1,743 | 72 | 2,528 | 114 |
| Redeemed | (21,043) | (875) | (45,039) | (2,045) |
| Net Increase (Decrease) —Admiral Shares | 14,107 | 585 | (901) | (53) |
| ETF Shares | | | | |
| Issued | 575,826 | 11,825 | 510,779 | 11,516 |
| Issued in Lieu of Cash Distributions | — | — | — | — |
| Redeemed | (321,878) | (6,800) | (90,629) | (2,000) |
| Net Increase (Decrease)—ETF Shares | 253,948 | 5,025 | 420,150 | 9,516 |
At February 28, 2015, one shareholder was the record or beneficial owner of 40% of the fund’s net assets. If the shareholder were to redeem its investment in the fund, the redemption might result in an increase in the fund’s expense ratio.
G. Management has determined that no material events or transactions occurred subsequent to February 28, 2015, that would require recognition or disclosure in these financial statements.
48
| | | |
| Health Care Index Fund | |
| |
| |
| Fund Profile | | | |
| As of February 28, 2015 | | |
| |
| Share-Class Characteristics | | |
| | Admiral | ETF |
| | Shares | Shares |
| Ticker Symbol | | VHCIX | VHT |
| Expense Ratio1 | | 0.12% | 0.12% |
| 30-Day SEC Yield | | 1.24% | 1.24% |
| |
| |
| Portfolio Characteristics | | |
| | | MSCI | |
| | | US IMI/ | |
| | | Health | MSCI |
| | | Care | US IMI/ |
| | Fund | 25/50 | 2500 |
| Number of Stocks | 319 | 315 | 2,481 |
| Median Market Cap | $77.1B | $77.1B | $49.1B |
| Price/Earnings Ratio | 30.1x | 30.1x | 21.3x |
| Price/Book Ratio | 4.5x | 4.5x | 2.9x |
| Return on Equity | 16.6% | 16.6% | 17.7% |
| Earnings Growth Rate | 8.5% | 8.0% | 13.9% |
| Dividend Yield | 1.3% | 1.3% | 1.9% |
| Foreign Holdings | 0.0% | 0.0% | 0.0% |
| Turnover Rate | | | |
| (Annualized) | 3% | — | — |
| Short-Term Reserves | 0.0% | — | — |
| | |
| Volatility Measures | | |
| MSCI US | |
| IMI/Health Care | MSCI US |
| | 25/50 | IMI/2500 |
| R-Squared | 1.00 | 0.70 |
| Beta | 1.00 | 0.88 |
| These measures show the degree and timing of the fund’s |
| fluctuations compared with the indexes over 36 months. |
| |
| Subindustry Diversification | | |
| (% of equity exposure) | | |
| |
| Biotechnology | | 22.9% |
| Health Care Distributors | | 3.7 |
| Health Care Equipment | | 14.7 |
| Health Care Facilities | | 2.2 |
| Health Care Services | | 4.1 |
| Health Care Supplies | | 1.3 |
| Health Care Technology | | 1.2 |
| Life Sciences Tools & Services | | 4.3 |
| Managed Health Care | | 7.9 |
| Pharmaceuticals | | 37.7 |
| | |
| Ten Largest Holdings (% of total net assets) |
| |
| Johnson & Johnson | Pharmaceuticals | 8.7% |
| Pfizer Inc. | Pharmaceuticals | 6.5 |
| Merck & Co. Inc. | Pharmaceuticals | 5.0 |
| Gilead Sciences Inc. | Biotechnology | 4.7 |
| Amgen Inc. | Biotechnology | 3.6 |
| Medtronic plc | Health Care | |
| | Equipment | 3.3 |
| UnitedHealth Group Inc. | Managed Health | |
| | Care | 3.3 |
| Bristol-Myers Squibb Co. | Pharmaceuticals | 3.1 |
| Celgene Corp. | Biotechnology | 2.9 |
| Biogen Idec Inc. | Biotechnology | 2.9 |
| Top Ten | | 44.0% |
| The holdings listed exclude any temporary cash investments and |
| equity index products. | | |
1 The expense ratios shown are from the prospectus dated December 23, 2014, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2015, the annualized expense ratios were 0.12% for Admiral Shares and 0.12% for ETF Shares.
49
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 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, 2004–February 28, 2015
Average Annual Total Returns: Periods Ended December 31, 2014
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
| | | | |
| | Inception Date | One Year | Five Years | Ten Years |
| ETF Shares | 1/26/2004 | | | |
| Market Price | | 25.41% | 20.03% | 11.20% |
| Net Asset Value | | 25.38 | 20.02 | 11.21 |
| Admiral Shares | 2/5/2004 | 25.42 | 20.04 | 11.19 |
See Financial Highlights for dividend and capital gains information.
50
Health Care Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the 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 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%) | | |
| Biotechnology (22.9%) | | |
| * | Gilead Sciences Inc. | 2,531,102 | 262,045 |
| | Amgen Inc. | 1,276,250 | 201,290 |
| * | Celgene Corp. | 1,340,019 | 162,853 |
| * | Biogen Idec Inc. | 396,201 | 162,280 |
| * | Alexion Pharmaceuticals | | |
| | Inc. | 332,721 | 60,013 |
| * | Regeneron | | |
| | Pharmaceuticals Inc. | 133,793 | 55,369 |
| * | Vertex Pharmaceuticals | | |
| | Inc. | 403,516 | 48,192 |
| * | BioMarin Pharmaceutical | | |
| | Inc. | 261,599 | 28,009 |
| * | Pharmacyclics Inc. | 107,712 | 23,258 |
| * | Incyte Corp. | 255,135 | 21,903 |
| * | Alkermes plc | 245,364 | 17,237 |
| * | Medivation Inc. | 130,299 | 15,314 |
| * | Isis Pharmaceuticals Inc. | 198,250 | 13,592 |
| * | Alnylam Pharmaceuticals | | |
| | Inc. | 124,884 | 12,679 |
| * | United Therapeutics Corp. | 79,765 | 12,368 |
| * | Puma Biotechnology Inc. | 45,525 | 9,697 |
| * | Cepheid | 118,292 | 6,724 |
| * | Seattle Genetics Inc. | 176,767 | 6,408 |
| *,^ | OPKO Health Inc. | 400,626 | 5,833 |
| * | Neurocrine Biosciences Inc. | 140,730 | 5,496 |
| * | Receptos Inc. | 41,457 | 5,250 |
| * | Intercept Pharmaceuticals | | |
| | Inc. | 23,292 | 5,156 |
| * | ACADIA Pharmaceuticals | | |
| | Inc. | 133,965 | 5,087 |
| * | Bluebird Bio Inc. | 44,816 | 4,272 |
| * | Synageva BioPharma Corp. | 42,574 | 4,203 |
| *,^ | Myriad Genetics Inc. | 121,845 | 4,151 |
| * | Celldex Therapeutics Inc. | 162,494 | 4,150 |
| * | Agios Pharmaceuticals Inc. | 37,112 | 3,981 |
| * | Novavax Inc. | 399,926 | 3,659 |
| * | Dyax Corp. | 228,937 | 3,459 |
| * | Kite Pharma Inc. | 49,154 | 3,217 |
| * | Exact Sciences Corp. | 141,386 | 3,177 |
| * | Ironwood Pharmaceuticals | | |
| | Inc. Class A | 197,177 | 3,046 |
| * | Clovis Oncology Inc. | 37,245 | 2,848 |
| *,^ | Intrexon Corp. | 67,293 | 2,763 |
| * | Halozyme Therapeutics Inc. | 177,957 | 2,682 |
| * | Anacor Pharmaceuticals Inc. 61,256 | 2,665 |
| * | PTC Therapeutics Inc. | 36,730 | 2,620 |
| * | Portola Pharmaceuticals Inc. 65,283 | 2,486 |
| *,^ | MannKind Corp. | 374,433 | 2,441 |
| * | ARIAD Pharmaceuticals Inc. | 298,123 | 2,424 |
| * | Acorda Therapeutics Inc. | 66,216 | 2,241 |
| * | AMAG Pharmaceuticals Inc. | 44,725 | 2,202 |
| *,^ | Keryx Biopharmaceuticals | | |
| | Inc. | 170,192 | 2,070 |
| * | Auspex Pharmaceuticals | | |
| | Inc. | 30,659 | 2,062 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| * | Ultragenyx Pharmaceutical | | |
| | Inc. | 37,973 | 2,061 |
| * | Chimerix Inc. | 50,137 | 2,030 |
| * | Achillion Pharmaceuticals | | |
| | Inc. | 159,405 | 1,935 |
| * | Sangamo BioSciences Inc. | 114,238 | 1,922 |
| * | Arena Pharmaceuticals Inc. | 407,138 | 1,836 |
| * | TESARO Inc. | 33,246 | 1,773 |
| | PDL BioPharma Inc. | 253,760 | 1,771 |
| * | Merrimack Pharmaceuticals | | |
| | Inc. | 160,025 | 1,715 |
| * | Emergent Biosolutions Inc. | 53,565 | 1,605 |
| * | Array BioPharma Inc. | 200,487 | 1,596 |
| * | Ligand Pharmaceuticals Inc. | 27,606 | 1,520 |
| * | MiMedx Group Inc. | 143,612 | 1,486 |
| * | Insmed Inc. | 79,212 | 1,469 |
| * | OvaScience Inc. | 31,382 | 1,428 |
| * | Ophthotech Corp. | 25,058 | 1,347 |
| * | Repligen Corp. | 51,609 | 1,327 |
| *,^ | NewLink Genetics Corp. | 30,148 | 1,299 |
| * | Prothena Corp. plc | 46,393 | 1,233 |
| * | Insys Therapeutics Inc. | 20,144 | 1,210 |
| * | Aegerion Pharmaceuticals | | |
| | Inc. | 44,326 | 1,206 |
| * | MacroGenics Inc. | 32,400 | 1,120 |
| * | Infinity Pharmaceuticals Inc. | 72,714 | 1,105 |
| * | Momenta Pharmaceuticals | | |
| | Inc. | 80,635 | 1,101 |
| * | ImmunoGen Inc. | 144,246 | 1,096 |
| * | Radius Health Inc. | 24,666 | 1,052 |
| *,^ | Orexigen Therapeutics Inc. | 184,410 | 1,040 |
| * | KYTHERA | | |
| | Biopharmaceuticals Inc. | 24,648 | 1,024 |
| * | Foundation Medicine Inc. | 21,439 | 1,024 |
| * | Acceleron Pharma Inc. | 24,189 | 983 |
| * | Raptor Pharmaceutical Corp. 105,819 | 981 |
| *,^ | BioCryst Pharmaceuticals | | |
| | Inc. | 95,653 | 976 |
| *,^ | Exelixis Inc. | 323,936 | 949 |
| * | Zafgen Inc. | 24,449 | 945 |
| * | Sarepta Therapeutics Inc. | 66,208 | 920 |
| *,^ | Karyopharm Therapeutics | | |
| | Inc. | 33,151 | 904 |
| *,^ | Genomic Health Inc. | 26,522 | 806 |
| * | Dynavax Technologies Corp. | 44,091 | 776 |
| * | TG Therapeutics Inc. | 51,650 | 749 |
| * | Regulus Therapeutics Inc. | 40,394 | 748 |
| * | Xencor Inc. | 45,841 | 715 |
| * | Spectrum Pharmaceuticals | | |
| | Inc. | 109,461 | 682 |
| *,^ | Inovio Pharmaceuticals Inc. | 96,010 | 679 |
| * | Alder Biopharmaceuticals | | |
| | Inc. | 25,107 | 675 |
| *,^ | Organovo Holdings Inc. | 107,006 | 633 |
| * | Vital Therapies Inc. | 28,228 | 625 |
| * | Immunomedics Inc. | 149,129 | 608 |
| * | XOMA Corp. | 157,224 | 580 |
| * | Versartis Inc. | 28,524 | 565 |
| | | | |
| | | | | Market |
| | | | | Value• |
| | | | Shares | ($000) |
| * | Osiris Therapeutics Inc. | | 29,147 | 503 |
| * | Lexicon Pharmaceuticals | | | |
| | Inc. | | 490,191 | 461 |
| * | Hyperion Therapeutics Inc. | | 15,574 | 460 |
| * | Epizyme Inc. | | 17,850 | 420 |
| * | Enanta Pharmaceuticals Inc. | 11,137 | 399 |
| * | OncoMed Pharmaceuticals | | | |
| | Inc. | | 15,573 | 389 |
| * | Synta Pharmaceuticals Corp. | 105,172 | 252 |
| * | Akebia Therapeutics Inc. | | 16,692 | 155 |
| * | Ardelyx Inc. | | 8,487 | 134 |
| | | | | 1,271,875 |
| Health Care Equipment & Supplies (16.0%) |
| * | Medtronic plc | 2,376,202 | 184,369 |
| | Abbott Laboratories | 2,526,240 | 119,668 |
| | Baxter International Inc. | | 909,308 | 62,879 |
| | Stryker Corp. | | 571,324 | 54,133 |
| | Becton Dickinson and Co. | | 322,088 | 47,257 |
| * | Boston Scientific Corp. | 2,225,467 | 37,610 |
| | Zimmer Holdings Inc. | | 284,135 | 34,207 |
| | St. Jude Medical Inc. | | 479,689 | 31,986 |
| * | Intuitive Surgical Inc. | | 60,819 | 30,409 |
| * | Edwards Lifesciences Corp. | 179,497 | 23,877 |
| | CR Bard Inc. | | 125,727 | 21,265 |
| * | CareFusion Corp. | | 342,144 | 20,556 |
| * | Varian Medical Systems Inc. 167,633 | 15,585 |
| | ResMed Inc. | | 233,879 | 15,052 |
| | Cooper Cos. Inc. | | 80,997 | 13,281 |
| | DENTSPLY International Inc. 237,331 | 12,581 |
| * | IDEXX Laboratories Inc. | | 79,992 | 12,545 |
| * | Hologic Inc. | | 374,035 | 12,111 |
| * | Sirona Dental Systems Inc. | | 92,877 | 8,435 |
| | Teleflex Inc. | | 69,312 | 8,435 |
| * | DexCom Inc. | | 128,501 | 7,805 |
| * | Align Technology Inc. | | 115,152 | 6,604 |
| | West Pharmaceutical | | | |
| | Services Inc. | | 119,259 | 6,526 |
| | STERIS Corp. | | 99,514 | 6,421 |
| * | Alere Inc. | | 133,229 | 6,058 |
| | Hill-Rom Holdings Inc. | | 96,608 | 4,629 |
| * | ABIOMED Inc. | | 65,226 | 3,965 |
| * | Haemonetics Corp. | | 86,202 | 3,833 |
| * | Thoratec Corp. | | 92,173 | 3,753 |
| * | Halyard Health Inc. | | 78,677 | 3,622 |
| * | NuVasive Inc. | | 78,600 | 3,596 |
| * | Neogen Corp. | | 61,732 | 3,158 |
| * | Cyberonics Inc. | | 44,627 | 3,057 |
| * | Insulet Corp. | | 94,128 | 2,987 |
| | Cantel Medical Corp. | | 58,894 | 2,674 |
| * | Integra LifeSciences | | | |
| | Holdings Corp. | | 43,678 | 2,621 |
| * | Masimo Corp. | | 83,489 | 2,460 |
| * | Spectranetics Corp. | | 69,886 | 2,363 |
| | CONMED Corp. | | 45,793 | 2,349 |
| * | HeartWare International Inc. | 27,009 | 2,302 |
| * | Greatbatch Inc. | | 41,818 | 2,222 |
| | Abaxis Inc. | | 35,721 | 2,176 |
| * | ICU Medical Inc. | | 23,210 | 2,064 |
51
Health Care Index Fund
| | | | |
| | | | | Market |
| | | | | Value• |
| | | | Shares | ($000) |
| * | Wright Medical Group Inc. | | 81,511 | 2,008 |
| * | Natus Medical Inc. | | 54,867 | 1,964 |
| * | Globus Medical Inc. | | 76,116 | 1,848 |
| * | Cardiovascular Systems Inc. | 47,587 | 1,794 |
| | Analogic Corp. | | 20,706 | 1,794 |
| * | Endologix Inc. | | 111,248 | 1,754 |
| * | Zeltiq Aesthetics Inc. | | 50,872 | 1,698 |
| * | NxStage Medical Inc. | | 98,402 | 1,691 |
| * | Tornier NV | | 61,274 | 1,498 |
| | Meridian Bioscience Inc. | | 69,712 | 1,380 |
| * | Merit Medical Systems Inc. | 69,201 | 1,357 |
| * | Quidel Corp. | | 49,511 | 1,271 |
| * | Accuray Inc. | | 129,490 | 1,163 |
| * | Orthofix International NV | | 31,262 | 1,014 |
| * | Cynosure Inc. Class A | | 32,828 | 999 |
| * | Anika Therapeutics Inc. | | 24,205 | 966 |
| | Invacare Corp. | | 49,654 | 942 |
| | Atrion Corp. | | 2,607 | 847 |
| * | GenMark Diagnostics Inc. | | 66,579 | 846 |
| * | AngioDynamics Inc. | | 44,613 | 830 |
| *,^ | Rockwell Medical Inc. | | 79,509 | 795 |
| * | LDR Holding Corp. | | 19,587 | 766 |
| * | Unilife Corp. | | 183,203 | 724 |
| * | K2M Group Holdings Inc. | | 32,959 | 675 |
| * | OraSure Technologies Inc. | | 93,106 | 667 |
| * | SurModics Inc. | | 23,165 | 557 |
| * | Inogen Inc. | | 14,452 | 481 |
| * | STAAR Surgical Co. | | 53,180 | 365 |
| * | Tandem Diabetes Care Inc. | | 29,164 | 341 |
| * | Wright Medical Group Inc. | | | |
| | CVR | | 14,554 | 61 |
| | | | | 886,582 |
| Health Care Providers & Services (17.9%) | |
| | UnitedHealth Group Inc. | 1,610,237 | 182,971 |
| * | Express Scripts | | | |
| | Holding Co. | 1,231,163 | 104,390 |
| | McKesson Corp. | | 388,998 | 88,964 |
| * | Anthem Inc. | | 452,776 | 66,309 |
| | Aetna Inc. | | 589,925 | 58,727 |
| | Cigna Corp. | | 438,725 | 53,362 |
| | Cardinal Health Inc. | | 555,172 | 48,850 |
| | Humana Inc. | | 257,202 | 42,279 |
| | AmerisourceBergen Corp. | | | |
| | Class A | | 366,797 | 37,692 |
| * | HCA Holdings Inc. | | 509,223 | 36,430 |
| * | DaVita HealthCare | | | |
| | Partners Inc. | | 288,362 | 21,512 |
| * | Laboratory Corp. of | | | |
| | America Holdings | | 167,282 | 20,581 |
| * | Henry Schein Inc. | | 141,203 | 19,775 |
| | Universal Health | | | |
| | Services Inc. Class B | | 153,726 | 17,425 |
| | Quest Diagnostics Inc. | | 242,557 | 17,013 |
| | Omnicare Inc. | | 164,091 | 12,592 |
| * | MEDNAX Inc. | | 168,536 | 12,045 |
| * | Brookdale Senior Living Inc. | | 307,755 | 11,544 |
| * | Centene Corp. | | 187,060 | 11,497 |
| * | Community Health | | | |
| | Systems Inc. | | 195,208 | 9,471 |
| * | Envision Healthcare | | | |
| | Holdings Inc. | | 230,966 | 8,458 |
| * | Tenet Healthcare Corp. | | 164,919 | 7,636 |
| * | Health Net Inc. | | 130,724 | 7,497 |
| * | VCA Inc. | | 134,006 | 7,140 |
| * | Team Health Holdings Inc. | | 119,303 | 7,071 |
| | Patterson Cos. Inc. | | 139,991 | 7,010 |
| * | WellCare Health Plans Inc. | | 73,674 | 6,690 |
| | HealthSouth Corp. | | 147,572 | 6,413 |
| * | LifePoint Hospitals Inc. | | 76,049 | 5,472 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| * | Acadia Healthcare Co. Inc. | 80,145 | 5,068 |
| * | Amsurg Corp. | 80,489 | 4,837 |
| | Owens & Minor Inc. | 106,143 | 3,785 |
| | Chemed Corp. | 28,917 | 3,368 |
| * | Molina Healthcare Inc. | 52,828 | 3,365 |
| * | Air Methods Corp. | 62,334 | 3,303 |
| * | Magellan Health Inc. | 46,338 | 2,969 |
| | Kindred Healthcare Inc. | 132,247 | 2,806 |
| * | ExamWorks Group Inc. | 63,837 | 2,579 |
| * | Premier Inc. Class A | 62,197 | 2,280 |
| | Select Medical Holdings | | |
| | Corp. | 141,397 | 1,917 |
| * | AMN Healthcare | | |
| | Services Inc. | 78,583 | 1,773 |
| | Ensign Group Inc. | 39,951 | 1,761 |
| * | Hanger Inc. | 59,349 | 1,537 |
| * | Bio-Reference | | |
| | Laboratories Inc. | 41,810 | 1,461 |
| * | Amedisys Inc. | 47,947 | 1,447 |
| * | PharMerica Corp. | 54,901 | 1,373 |
| * | IPC Healthcare Inc. | 28,694 | 1,241 |
| * | Healthways Inc. | 53,757 | 1,203 |
| * | Capital Senior Living Corp. | 46,275 | 1,157 |
| * | Providence Service Corp. | 22,621 | 1,041 |
| | Aceto Corp. | 46,238 | 990 |
| | National HealthCare Corp. | 15,425 | 972 |
| | US Physical Therapy Inc. | 20,655 | 876 |
| * | Surgical Care Affiliates Inc. | 22,676 | 736 |
| * | LHC Group Inc. | 20,988 | 709 |
| * | Triple-S Management Corp. | | |
| | Class B | 37,224 | 702 |
| * | BioScrip Inc. | 114,668 | 701 |
| * | CorVel Corp. | 19,428 | 688 |
| | Landauer Inc. | 16,293 | 621 |
| * | Universal American Corp. | 65,011 | 602 |
| * | Adeptus Health Inc. Class A | 10,218 | 453 |
| | National Research Corp. | | |
| | Class A | 18,247 | 254 |
| | National Research Corp. | | |
| | Class B | 3,173 | 104 |
| | | | 995,495 |
| Health Care Technology (1.2%) | | |
| * | Cerner Corp. | 515,559 | 37,151 |
| * | athenahealth Inc. | 63,930 | 8,124 |
| * | Medidata Solutions Inc. | 86,562 | 4,164 |
| * | Allscripts Healthcare | | |
| | Solutions Inc. | 286,763 | 3,443 |
| * | IMS Health Holdings Inc. | 111,871 | 2,944 |
| * | Veeva Systems Inc. Class A | 87,220 | 2,692 |
| * | HMS Holdings Corp. | 147,766 | 2,592 |
| * | Omnicell Inc. | 60,187 | 2,110 |
| * | MedAssets Inc. | 100,676 | 1,934 |
| | Quality Systems Inc. | 74,969 | 1,303 |
| * | HealthStream Inc. | 37,182 | 962 |
| | Computer Programs & | | |
| | Systems Inc. | 17,938 | 944 |
| * | Castlight Health Inc. | | |
| | Class B | 51,474 | 375 |
| | | | 68,738 |
| Life Sciences Tools & Services (4.3%) | |
| | Thermo Fisher | | |
| | Scientific Inc. | 671,072 | 87,239 |
| * | Illumina Inc. | 238,226 | 46,564 |
| | Agilent Technologies Inc. | 559,052 | 23,598 |
| * | Waters Corp. | 139,682 | 16,815 |
| * | Mettler-Toledo | | |
| | International Inc. | 47,880 | 15,042 |
| | PerkinElmer Inc. | 189,841 | 8,923 |
| | | | |
| | | | | Market |
| | | | | Value• |
| | | | Shares | ($000) |
| * | Quintiles Transnational | | |
| | Holdings Inc. | | 113,778 | 7,393 |
| | Bio-Techne Corp. | | 62,084 | 6,055 |
| * | Charles River Laboratories | | |
| | International Inc. | | 78,786 | 6,040 |
| * | PAREXEL International Corp. 92,330 | 5,952 |
| * | Bio-Rad Laboratories Inc. | | |
| | Class A | | 33,887 | 4,310 |
| * | Bruker Corp. | | 196,868 | 3,746 |
| * | Fluidigm Corp. | | 47,063 | 2,080 |
| * | Cambrex Corp. | | 51,760 | 1,773 |
| * | Affymetrix Inc. | | 122,140 | 1,429 |
| * | Luminex Corp. | | 64,829 | 1,020 |
| *,^ | Accelerate Diagnostics Inc. | 40,721 | 814 |
| * | Sequenom Inc. | | 195,685 | 685 |
| * | Albany Molecular | | | |
| | Research Inc. | | 41,101 | 667 |
| * | Pacific Biosciences of | | |
| | California Inc. | | 94,866 | 598 |
| | | | | 240,743 |
| Other (0.0%)1 | | | |
| * | Cubist Pharmaceuticals, | | |
| | Inc. CVR | | 31,107 | 4 |
| * | Durata Therapeutics Inc. | | |
| | CVR Exp. 12/31/2018 | 48 | — |
| | | | | 4 |
| Pharmaceuticals (37.7%) | | |
| | Johnson & Johnson | | 4,696,026 | 481,390 |
| | Pfizer Inc. | 10,570,549 | 362,781 |
| | Merck & Co. Inc. | | 4,782,893 | 279,990 |
| | Bristol-Myers Squibb Co. | 2,782,949 | 169,537 |
| | AbbVie Inc. | | 2,673,084 | 161,722 |
| * | Actavis plc | | 444,693 | 129,566 |
| | Eli Lilly & Co. | | 1,681,262 | 117,974 |
| | Allergan Inc. | | 499,781 | 116,319 |
| | Zoetis Inc. | | 840,593 | 38,743 |
| | Perrigo Co. plc | | 236,108 | 36,472 |
| * | Mylan Inc. | | 627,941 | 35,997 |
| * | Hospira Inc. | | 283,932 | 24,855 |
| * | Endo International plc | 289,404 | 24,773 |
| * | Mallinckrodt plc | | 195,134 | 22,776 |
| * | Jazz Pharmaceuticals plc | 101,558 | 17,274 |
| * | Salix Pharmaceuticals Ltd. | 106,968 | 16,815 |
| * | Akorn Inc. | | 135,692 | 7,302 |
| * | Pacira Pharmaceuticals Inc. | 57,513 | 6,601 |
| * | Impax Laboratories Inc. | 113,586 | 4,576 |
| * | Prestige Brands Holdings | | |
| | Inc. | | 87,604 | 3,376 |
| * | Medicines Co. | | 109,093 | 3,138 |
| * | Nektar Therapeutics | | 215,593 | 2,818 |
| * | Horizon Pharma plc | | 129,532 | 2,659 |
| * | Lannett Co. Inc. | | 41,954 | 2,618 |
| ^ | Theravance Inc. | | 144,717 | 2,614 |
| * | Depomed Inc. | | 99,071 | 2,175 |
| * | Cempra Inc. | | 49,463 | 1,638 |
| * | Relypsa Inc. | | 40,720 | 1,580 |
| *,^ | Omeros Corp. | | 58,935 | 1,230 |
| * | BioDelivery Sciences | | |
| | International Inc. | | 77,503 | 1,162 |
| * | TherapeuticsMD Inc. | | 198,644 | 1,007 |
| * | Sagent Pharmaceuticals Inc. 34,475 | 937 |
| * | Aratana Therapeutics Inc. | 47,049 | 906 |
| | Phibro Animal Health Corp. | | |
| | Class A | | 24,944 | 905 |
| * | Theravance Biopharma Inc. | 40,752 | 885 |
| * | ZS Pharma Inc. | | 17,497 | 866 |
| * | Intra-Cellular Therapies Inc. | 32,590 | 810 |
| * | XenoPort Inc. | | 104,863 | 718 |
52
| | | | |
| Health Care Index Fund | | |
| |
| |
| |
| |
| | | | | Market |
| | | | | Value• |
| | | | Shares | ($000) |
| * | Amphastar Pharmaceuticals | | |
| | Inc. | | 48,725 | 682 |
| * | Aerie Pharmaceuticals Inc. | 24,214 | 681 |
| * | SciClone Pharmaceuticals | | |
| | Inc. | | 76,755 | 592 |
| * | IGI Laboratories Inc. | | 43,766 | 504 |
| * | AcelRx Pharmaceuticals Inc. | 48,051 | 426 |
| * | Revance Therapeutics Inc. | 26,142 | 420 |
| * | VIVUS Inc. | | 160,246 | 418 |
| | | | | 2,091,228 |
| Total Common Stocks | | | |
| (Cost $4,175,729) | | | 5,554,665 |
| Temporary Cash Investment (0.2%) | |
| Money Market Fund (0.2%) | | |
| 2,3 | Vanguard Market Liquidity | | |
| | Fund, 0.134% | | | |
| | (Cost $12,593) | 12,593,301 | 12,593 |
| Total Investments (100.2%) | | |
| (Cost $4,188,322) | | | 5,567,258 |
| Other Assets and Liabilities (–0.2%) | |
| Other Assets | | | 33,465 |
| Liabilities3 | | | (46,118) |
| | | | | (12,653) |
| Net Assets (100%) | | | 5,554,605 |
At February 28, 2015, net assets consisted of:
Amount ($000)
| |
| Paid-in Capital | 4,148,808 |
| Undistributed Net Investment Income | 9,554 |
| Accumulated Net Realized Gains | 17,307 |
| Unrealized Appreciation (Depreciation) | 1,378,936 |
| Net Assets | 5,554,605 |
| |
| |
| Admiral Shares—Net Assets | |
| Applicable to 9,614,740 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 642,409 |
| Net Asset Value Per Share— | |
| Admiral Shares | $66.81 |
| |
| |
| ETF Shares—Net Assets | |
| Applicable to 36,775,714 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 4,912,196 |
| Net Asset Value Per Share— | |
| ETF Shares | $133.57 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $11,734,000.
1 “Other” represents securities that are not classified by the fund’s benchmark index.
2 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
3 Includes $12,593,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
53
| |
| Health Care Index Fund | |
| |
| |
| Statement of Operations |
| |
| Six Months Ended |
| February 28, 2015 |
| | ($000) |
| Investment Income | |
| Income | |
| Dividends | 30,784 |
| Interest1 | 3 |
| Securities Lending | 354 |
| Total Income | 31,141 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 354 |
| Management and Administrative— | |
| Admiral Shares | 219 |
| Management and Administrative— | |
| ETF Shares | 1,507 |
| Marketing and Distribution— | |
| Admiral Shares | 31 |
| Marketing and Distribution— | |
| ETF Shares | 352 |
| Custodian Fees | 28 |
| Shareholders’ Reports—Admiral Shares | 1 |
| Shareholders’ Reports—ETF Shares | 131 |
| Trustees’ Fees and Expenses | 2 |
| Total Expenses | 2,625 |
| Net Investment Income | 28,516 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold | 230,099 |
| Futures Contracts | (42) |
| Realized Net Gain (Loss) | 230,057 |
| Change in Unrealized Appreciation | |
| (Depreciation) of Investment Securities | 394,430 |
| Net Increase (Decrease) in Net Assets | |
| Resulting from Operations | 653,003 |
| | |
| Statement of Changes in Net Assets | | |
| |
| | Six Months Ended | Year Ended |
| | February 28, | August 31, |
| | 2015 | 2014 |
| | ($000) | ($000) |
| Increase (Decrease) in Net Assets | | |
| Operations | | |
| Net Investment Income | 28,516 | 42,167 |
| Realized Net Gain (Loss) | 230,057 | 177,371 |
| Change in Unrealized Appreciation (Depreciation) | 394,430 | 563,963 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 653,003 | 783,501 |
| Distributions | | |
| Net Investment Income | | |
| Admiral Shares | (5,312) | (3,382) |
| ETF Shares | (43,207) | (26,834) |
| Realized Capital Gain | | |
| Admiral Shares | — | — |
| ETF Shares | — | — |
| Total Distributions | (48,519) | (30,216) |
| Capital Share Transactions | | |
| Admiral Shares | 160,989 | 81,482 |
| ETF Shares | 1,057,314 | 732,487 |
| Net Increase (Decrease) from Capital Share Transactions | 1,218,303 | 813,969 |
| Total Increase (Decrease) | 1,822,787 | 1,567,254 |
| Net Assets | | |
| Beginning of Period | 3,731,818 | 2,164,564 |
| End of Period2 | 5,554,605 | 3,731,818 |
1 Interest income from an affiliated company of the fund was $2,000.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $9,554,000 and $29,557,000.
See accompanying Notes, which are an integral part of the Financial Statements.
54
| | | | | | | |
| Health Care Index Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| Admiral Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $58.61 | $44.99 | $35.18 | $29.81 | $24.87 | $25.19 |
| Investment Operations | | | | | | | |
| Net Investment Income | | .3891 | .666 | .580 | .599 | .533 | .7292 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | 8.454 | 13.523 | 9.831 | 5.298 | 4.888 | (.312) |
| Total from Investment Operations | 8.843 | 14.189 | 10.411 | 5.897 | 5.421 | .417 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (. 643) | (. 569) | (.601) | (. 527) | (.481) | (.737) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | | (. 643) | (. 569) | (.601) | (. 527) | (.481) | (.737) |
| Net Asset Value, End of Period | $66.81 | $58.61 | $44.99 | $35.18 | $29.81 | $24.87 |
| |
| Total Return 3 | | 15.16% | 31.77% | 30.00% | 20.08% | 21.90% | 1.41% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $642 | $413 | $247 | $98 | $75 | $54 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.12% | 0.12% | 0.14% | 0.14% | 0.19% | 0.24% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 1.24% | 1.40% | 1.69% | 1.92% | 1.74% | 2.74%2 |
| Portfolio Turnover Rate4 | | 3% | 5% | 5% | 9% | 9% | 10% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Calculated based on average shares outstanding.
2 Net investment income per share and the ratio of net investment income to average net assets include $.30 and 1.17%, respectively, resulting from a cash payment received in connection with the merger of Schering-Plough Corp. and Merck & Co., Inc., in November 2009.
3 Total returns do not include transaction or account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable transaction and account service fees.
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.
55
| | | | | | | |
| Health Care Index Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| ETF Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $117.17 | $89.94 | $70.32 | $59.58 | $49.72 | $50.37 |
| Investment Operations | | | | | | | |
| Net Investment Income | | .7801 | 1.333 | 1.155 | 1.197 | 1.057 | 1.4832 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | 16.905 | 27.033 | 19.663 | 10.592 | 9.782 | (. 646) |
| Total from Investment Operations | 17.685 | 28.366 | 20.818 | 11.789 | 10.839 | . 837 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (1.285) | (1.136) | (1.198) | (1.049) | (. 979) | (1.487) |
| Distributions from Realized Capital Gains — | — | — | — | — | — |
| Total Distributions | | (1.285) | (1.136) | (1.198) | (1.049) | (. 979) | (1.487) |
| Net Asset Value, End of Period | $133.57 | $117.17 | $89.94 | $70.32 | $59.58 | $49.72 |
| |
| Total Return | | 15.14% | 31.76% | 30.01% | 20.07% | 21.90% | 1.40% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $4,912 | $3,319 | $1,918 | $894 | $692 | $558 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.12% | 0.12% | 0.14% | 0.14% | 0.19% | 0.24% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 1.24% | 1.40% | 1.69% | 1.92% | 1.74% | 2.74%2 |
| Portfolio Turnover Rate3 | | 3% | 5% | 5% | 9% | 9% | 10% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Calculated based on average shares outstanding.
2 Net investment income per share and the ratio of net investment income to average net assets include $.62 and 1.17%, respectively, resulting from a cash payment received in connection with the merger of Schering-Plough Corp. and Merck & Co., Inc., in November 2009.
3 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
56
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 designed for investors who meet certain administrative, service, and account-size criteria. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. 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. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.
Futures contracts are valued at their quoted daily settlement prices. The aggregate settlement values 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).
During the six months ended February 28, 2015, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of aggregate settlement values at each quarter-end during the period. The fund had no open futures contracts at February 28, 2015.
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 for all open federal income tax years (August 31, 2011–2014), and for the period ended February 28, 2015, 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. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counter-parties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund,
57
Health Care Index Fund
and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
6. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $2.89 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2015, or at any time during the period then ended.
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. 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.
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 based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At February 28, 2015, the fund had contributed capital of $485,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.19% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
The following table summarizes the market value of the fund’s investments as of February 28, 2015, based on the inputs used to value them:
| | | |
| | Level 1 | Level 2 | Level 3 |
| Investments | ($000) | ($000) | ($000) |
| Common Stocks | 5,554,661 | — | 4 |
| Temporary Cash Investments | 12,593 | — | — |
| Total | 5,567,254 | — | 4 |
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.
58
Health Care Index Fund
During the six months ended February 28, 2015, the fund realized $201,257,000 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, 2014, the fund had available capital losses totaling $10,370,000 to offset future net capital gains through August 31, 2019. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2015; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2015, the cost of investment securities for tax purposes was $4,188,322,000. Net unrealized appreciation of investment securities for tax purposes was $1,378,936,000, consisting of unrealized gains of $1,386,064,000 on securities that had risen in value since their purchase and $7,128,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the six months ended February 28, 2015, the fund purchased $1,679,252,000 of investment securities and sold $479,574,000 of investment securities, other than temporary cash investments. Purchases and sales include $1,346,957,000 and $414,740,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
| | | | |
| F. Capital share transactions for each class of shares were: | | | |
| | Six Months Ended | | Year Ended |
| | February 28, 2015 | August 31, 2014 |
| | Amount | Shares | Amount | Shares |
| | ($000) | (000) | ($000) | (000) |
| Admiral Shares | | | | |
| Issued | 203,771 | 3,258 | 174,189 | 3,337 |
| Issued in Lieu of Cash Distributions | 4,851 | 78 | 3,071 | 62 |
| Redeemed | (47,633) | (770) | (95,778) | (1,836) |
| Net Increase (Decrease) —Admiral Shares | 160,989 | 2,566 | 81,482 | 1,563 |
| ETF Shares | | | | |
| Issued | 1,495,223 | 11,952 | 1,080,801 | 10,301 |
| Issued in Lieu of Cash Distributions | — | — | — | — |
| Redeemed | (437,909) | (3,500) | (348,314) | (3,300) |
| Net Increase (Decrease)—ETF Shares | 1,057,314 | 8,452 | 732,487 | 7,001 |
G. Management has determined that no material events or transactions occurred subsequent to February 28, 2015, that would require recognition or disclosure in these financial statements.
59
Industrials Index Fund
Fund Profile
As of February 28, 2015
| | | |
| Share-Class Characteristics | | |
| | Admiral | ETF |
| | Shares | Shares |
| Ticker Symbol | | VINAX | VIS |
| Expense Ratio1 | | 0.12% | 0.12% |
| 30-Day SEC Yield | | 1.71% | 1.72% |
| |
| |
| Portfolio Characteristics | | |
| | | MSCI | |
| | | US IMI/ | MSCI |
| | | Industrials | US IMI/ |
| | Fund | 25/50 | 2500 |
| Number of Stocks | 349 | 349 | 2,481 |
| Median Market Cap | $33.9B | $33.9B | $49.1B |
| Price/Earnings Ratio | 19.9x | 19.9x | 21.3x |
| Price/Book Ratio | 3.4x | 3.4x | 2.9x |
| Return on Equity | 19.2% | 19.2% | 17.7% |
| Earnings Growth Rate | 16.1% | 16.1% | 13.9% |
| Dividend Yield | 1.8% | 1.8% | 1.9% |
| Foreign Holdings | 0.0% | 0.0% | 0.0% |
| Turnover Rate | | | |
| (Annualized) | 3% | — | — |
| Short-Term Reserves | 0.0% | — | — |
| |
| |
| Volatility Measures | | | |
| | MSCI US | |
| | IMI/Industrials | MSCI US |
| | | 25/50 | IMI/2500 |
| R-Squared | | 1.00 | 0.85 |
| Beta | | 1.00 | 1.07 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
| |
| Subindustry Diversification | |
| (% of equity exposure) | |
| |
| Aerospace & Defense | 22.5% |
| Agricultural & Farm Machinery | 1.6 |
| Air Freight & Logistics | 5.8 |
| Airlines | 5.8 |
| Building Products | 2.1 |
| Construction & Engineering | 1.7 |
| Construction & Farm Machinery | |
| & Heavy Trucks | 5.6 |
| Diversified Support Services | 1.1 |
| Electrical Components & Equipment | 5.6 |
| Environmental & Facilities Services | 2.6 |
| Human Resource & Employment Services | 1.4 |
| Industrial Conglomerates | 17.2 |
| Industrial Machinery | 9.4 |
| Railroads | 7.5 |
| Research & Consulting Services | 2.5 |
| Security & Alarm Services | 1.0 |
| Trading Companies & Distributors | 2.7 |
| Trucking | 2.1 |
| Other Industrials | 1.8 |
Ten Largest Holdings (% of total net assets)
| | |
| General Electric Co. | Industrial | |
| | Conglomerates | 10.1% |
| Union Pacific Corp. | Railroads | 4.2 |
| United Technologies | Aerospace | |
| Corp. | & Defense | 4.1 |
| 3M Co. | Industrial Conglomerates | 4.0 |
| Boeing Co. | Aerospace & Defense | 4.0 |
| Honeywell | | |
| International Inc. | Aerospace & Defense | 3.0 |
| United Parcel | | |
| Service Inc. | Air Freight & Logistics | 2.8 |
| Danaher Corp. | Industrial Conglomerates | 2.1 |
| Lockheed Martin | | |
| Corp. | Aerospace & Defense | 2.1 |
| Caterpillar Inc. | Construction Machinery | |
| | & Heavy Trucks | 1.9 |
| Top Ten | | 38.3% |
The holdings listed exclude any temporary cash investments and equity index products.
1 The expense ratios shown are from the prospectus dated December 23, 2014, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2015, the annualized expense ratios were 0.12% for Admiral Shares and 0.12% for ETF Shares.
60
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 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, 2015
Average Annual Total Returns: Periods Ended December 31, 2014
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
| | | | |
| | Inception Date | One Year | Five Years | Ten Years |
| ETF Shares | 9/23/2004 | | | |
| Market Price | | 8.50% | 17.53% | 8.51% |
| Net Asset Value | | 8.51 | 17.52 | 8.52 |
| Admiral Shares | 5/8/2006 | 8.55 | 17.53 | 7.421 |
1 Since inception.
See Financial Highlights for dividend and capital gains information.
61
Industrials Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the 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 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 (22.6%) | | |
| | United Technologies Corp. | 713,456 | 86,977 |
| | Boeing Co. | 557,933 | 84,164 |
| | Honeywell International Inc. | 612,621 | 62,965 |
| | Lockheed Martin Corp. | 221,215 | 44,254 |
| | General Dynamics Corp. | 231,967 | 32,192 |
| | Raytheon Co. | 254,264 | 27,656 |
| | Northrop Grumman Corp. | 158,058 | 26,192 |
| | Precision Castparts Corp. | 117,429 | 25,400 |
| | Textron Inc. | 228,583 | 10,129 |
| | L-3 Communications | | |
| | Holdings Inc. | 70,652 | 9,145 |
| | TransDigm Group Inc. | 41,054 | 8,903 |
| | Rockwell Collins Inc. | 98,543 | 8,778 |
| * | Spirit AeroSystems | | |
| | Holdings Inc. Class A | 116,280 | 5,722 |
| | Huntington Ingalls | | |
| | Industries Inc. | 39,786 | 5,623 |
| * | B/E Aerospace Inc. | 86,749 | 5,512 |
| | Hexcel Corp. | 78,845 | 3,751 |
| | Exelis Inc. | 154,010 | 3,727 |
| * | Orbital ATK Inc. | 48,769 | 3,232 |
| * | Esterline Technologies Corp. | 26,197 | 3,087 |
| * | Teledyne Technologies Inc. | 29,303 | 2,955 |
| | Curtiss-Wright Corp. | 35,508 | 2,577 |
| | Triumph Group Inc. | 41,906 | 2,506 |
| * | Moog Inc. Class A | 30,543 | 2,305 |
| * | DigitalGlobe Inc. | 58,632 | 1,950 |
| * | KLX Inc. | 42,923 | 1,714 |
| | HEICO Corp. Class A | 30,932 | 1,412 |
| * | TASER International Inc. | 43,400 | 1,019 |
| | HEICO Corp. | 16,628 | 985 |
| | Cubic Corp. | 18,827 | 984 |
| | AAR Corp. | 32,779 | 964 |
| * | Astronics Corp. | 12,118 | 843 |
| * | GenCorp Inc. | 37,924 | 732 |
| * | Engility Holdings Inc. | 15,032 | 543 |
| * | Aerovironment Inc. | 17,292 | 474 |
| | American Science & | | |
| | Engineering Inc. | 6,335 | 331 |
| | National Presto | | |
| | Industries Inc. | 3,890 | 236 |
| * | Kratos Defense & Security | | |
| | Solutions Inc. | 36,768 | 212 |
| *,^ | KEYW Holding Corp. | 23,819 | 208 |
| | | | 480,359 |
| Air Freight & Logistics (5.8%) | | |
| | United Parcel Service Inc. | | |
| | Class B | 578,577 | 58,859 |
| | FedEx Corp. | 221,582 | 39,216 |
| | CH Robinson | | |
| | Worldwide Inc. | 120,619 | 8,962 |
| | Expeditors International of | | |
| | Washington Inc. | 159,573 | 7,707 |
| * | XPO Logistics Inc. | 53,671 | 2,370 |
| | Forward Air Corp. | 25,244 | 1,350 |
| * | Hub Group Inc. Class A | 30,326 | 1,224 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| * | UTi Worldwide Inc. | 78,166 | 1,022 |
| * | Atlas Air Worldwide | | |
| | Holdings Inc. | 20,909 | 948 |
| * | Echo Global Logistics Inc. | 14,210 | 413 |
| | Park-Ohio Holdings Corp. | 6,486 | 375 |
| * | Air Transport Services | | |
| | Group Inc. | 41,262 | 371 |
| | | | 122,817 |
| Airlines (5.8%) | | |
| | Delta Air Lines Inc. | 689,718 | 30,706 |
| | American Airlines Group Inc. | 590,654 | 28,292 |
| | Southwest Airlines Co. | 558,965 | 24,170 |
| * | United Continental | | |
| | Holdings Inc. | 303,943 | 19,811 |
| | Alaska Air Group Inc. | 110,358 | 7,024 |
| * | Spirit Airlines Inc. | 59,944 | 4,662 |
| * | JetBlue Airways Corp. | 203,697 | 3,502 |
| | Allegiant Travel Co. Class A | 11,643 | 2,138 |
| * | Hawaiian Holdings Inc. | 37,753 | 699 |
| | SkyWest Inc. | 41,211 | 603 |
| * | Republic Airways | | |
| | Holdings Inc. | 41,727 | 537 |
| | | | 122,144 |
| Building Products (2.1%) | | |
| | Masco Corp. | 293,480 | 7,686 |
| | Fortune Brands Home & | | |
| | Security Inc. | 129,735 | 6,009 |
| | Allegion plc | 78,739 | 4,546 |
| | AO Smith Corp. | 63,048 | 3,974 |
| | Lennox International Inc. | 37,847 | 3,946 |
| | Owens Corning | 86,943 | 3,448 |
| * | USG Corp. | 76,769 | 2,164 |
| * | Armstrong World | | |
| | Industries Inc. | 38,403 | 2,144 |
| * | Trex Co. Inc. | 24,875 | 1,252 |
| | Simpson Manufacturing | | |
| | Co. Inc. | 33,915 | 1,228 |
| | Apogee Enterprises Inc. | 23,847 | 1,093 |
| * | Masonite International Corp. | 14,794 | 907 |
| | Universal Forest | | |
| | Products Inc. | 16,558 | 895 |
| | AAON Inc. | 35,516 | 800 |
| | Quanex Building Products | | |
| | Corp. | 31,331 | 614 |
| * | Nortek Inc. | 7,757 | 602 |
| * | American Woodmark Corp. | 10,026 | 528 |
| | Griffon Corp. | 30,837 | 503 |
| * | NCI Building Systems Inc. | 23,700 | 399 |
| * | Continental Building | | |
| | Products Inc. | 17,873 | 373 |
| * | PGT Inc. | 36,445 | 371 |
| * | Patrick Industries Inc. | 6,438 | 356 |
| * | Gibraltar Industries Inc. | 23,548 | 345 |
| | Insteel Industries Inc. | 14,006 | 304 |
| * | Builders FirstSource Inc. | 39,445 | 238 |
| * | Ply Gem Holdings Inc. | 15,851 | 218 |
| | | | 44,943 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| Commercial Services & Supplies (5.8%) | |
| | Waste Management Inc. | 358,280 | 19,519 |
| | Tyco International plc | 344,773 | 14,556 |
| | Republic Services Inc. | | |
| | Class A | 234,309 | 9,588 |
| * | Stericycle Inc. | 69,959 | 9,442 |
| | Cintas Corp. | 81,875 | 6,835 |
| | ADT Corp. | 143,772 | 5,639 |
| | Waste Connections Inc. | 97,186 | 4,565 |
| | KAR Auction Services Inc. | 116,028 | 4,231 |
| | Pitney Bowes Inc. | 166,112 | 3,849 |
| * | Copart Inc. | 93,666 | 3,505 |
| | RR Donnelley & Sons Co. | 163,733 | 3,122 |
| | Deluxe Corp. | 40,961 | 2,726 |
| * | Clean Harbors Inc. | 47,333 | 2,636 |
| | Covanta Holding Corp. | 96,869 | 2,099 |
| | HNI Corp. | 36,911 | 1,882 |
| | Healthcare Services | | |
| | Group Inc. | 55,370 | 1,859 |
| | Rollins Inc. | 53,787 | 1,804 |
| | Mobile Mini Inc. | 38,275 | 1,588 |
| | Herman Miller Inc. | 48,440 | 1,500 |
| | UniFirst Corp. | 12,474 | 1,482 |
| | Steelcase Inc. Class A | 74,728 | 1,399 |
| | ABM Industries Inc. | 43,673 | 1,358 |
| | Tetra Tech Inc. | 52,350 | 1,331 |
| | MSA Safety Inc. | 25,949 | 1,312 |
| | United Stationers Inc. | 31,903 | 1,289 |
| | G&K Services Inc. Class A | 16,429 | 1,183 |
| | Matthews International | | |
| | Corp. Class A | 24,272 | 1,174 |
| | Interface Inc. Class A | 53,904 | 1,088 |
| | Brink’s Co. | 38,172 | 1,074 |
| | Brady Corp. Class A | 39,135 | 1,055 |
| | US Ecology Inc. | 17,057 | 833 |
| | Knoll Inc. | 38,946 | 827 |
| | Multi-Color Corp. | 10,989 | 750 |
| * | ACCO Brands Corp. | 94,375 | 718 |
| | West Corp. | 20,260 | 692 |
| | McGrath RentCorp | 19,846 | 635 |
| * | Team Inc. | 16,192 | 622 |
| | Quad/Graphics Inc. | 20,357 | 477 |
| | Viad Corp. | 16,373 | 435 |
| * | SP Plus Corp. | 16,797 | 380 |
| | Civeo Corp. | 78,310 | 309 |
| | Ennis Inc. | 20,783 | 290 |
| | Ceco Environmental Corp. | 15,696 | 223 |
| | Kimball International Inc. | | |
| | Class B | 23,315 | 223 |
| * | InnerWorkings Inc. | 28,921 | 184 |
| * | Performant Financial Corp. | 25,310 | 133 |
| * | Heritage-Crystal Clean Inc. | 8,176 | 101 |
| | | | 122,522 |
| Construction & Engineering (1.7%) | |
| | Fluor Corp. | 128,786 | 7,469 |
| * | Quanta Services Inc. | 175,024 | 5,037 |
| * | Jacobs Engineering | | |
| | Group Inc. | 109,085 | 4,837 |
62
| | | | |
| Industrials Index Fund | | | |
| |
| |
| |
| |
| | | | | Market |
| | | | | Value• |
| | | | Shares | ($000) |
| | Chicago Bridge & Iron | | | |
| | Co. NV | | 80,372 | 3,710 |
| * | AECOM | | 120,308 | 3,616 |
| | EMCOR Group Inc. | | 55,006 | 2,422 |
| | KBR Inc. | | 119,262 | 1,943 |
| * | Dycom Industries Inc. | | 28,133 | 1,248 |
| * | MasTec Inc. | | 53,357 | 1,178 |
| | Granite Construction Inc. | 30,555 | 1,012 |
| * | Tutor Perini Corp. | | 31,344 | 729 |
| | Primoris Services Corp. | 31,182 | 644 |
| | Comfort Systems USA Inc. | 30,303 | 567 |
| * | Aegion Corp. Class A | | 30,562 | 553 |
| * | MYR Group Inc. | | 17,038 | 471 |
| | Argan Inc. | | 9,370 | 304 |
| * | Great Lakes Dredge & | | |
| | Dock Corp. | | 48,121 | 293 |
| * | Northwest Pipe Co. | | 8,097 | 196 |
| * | Ameresco Inc. Class A | 14,228 | 89 |
| | | | | 36,318 |
| Electrical Equipment (5.8%) | | |
| | Emerson Electric Co. | | 571,045 | 33,075 |
| | Eaton Corp. plc | | 390,823 | 27,752 |
| | Rockwell Automation Inc. | 111,818 | 13,087 |
| | AMETEK Inc. | | 202,595 | 10,766 |
| * | Sensata Technologies | | | |
| | Holding NV | | 132,062 | 7,097 |
| | Acuity Brands Inc. | | 35,727 | 5,662 |
| | Hubbell Inc. Class B | | 42,560 | 4,843 |
| | Regal-Beloit Corp. | | 37,018 | 2,885 |
| * | Generac Holdings Inc. | | 56,532 | 2,787 |
| | Babcock & Wilcox Co. | 87,968 | 2,731 |
| | EnerSys | | 37,917 | 2,476 |
| *,^ | SolarCity Corp. | | 47,415 | 2,435 |
| * | Polypore International Inc. | 36,848 | 2,185 |
| | Franklin Electric Co. Inc. | 33,361 | 1,217 |
| | AZZ Inc. | | 21,108 | 959 |
| * | Thermon Group Holdings Inc. | 25,660 | 629 |
| | General Cable Corp. | | 39,640 | 596 |
| | Encore Wire Corp. | | 15,849 | 591 |
| *,^ | Plug Power Inc. | | 128,681 | 396 |
| * | GrafTech International Ltd. | 98,295 | 383 |
| * | Enphase Energy Inc. | | 19,157 | 264 |
| | Powell Industries Inc. | | 7,729 | 261 |
| * | Power Solutions | | | |
| | International Inc. | | 3,836 | 217 |
| * | Vicor Corp. | | 14,499 | 191 |
| | | | | 123,485 |
| Industrial Conglomerates (17.2%) | |
| | General Electric Co. | 8,272,555 | 215,004 |
| | 3M Co. | | 501,500 | 84,578 |
| | Danaher Corp. | | 520,757 | 45,452 |
| | Roper Industries Inc. | | 82,475 | 13,820 |
| | Carlisle Cos. Inc. | | 52,859 | 4,920 |
| | Raven Industries Inc. | | 31,340 | 653 |
| | | | | 364,427 |
| Machinery (16.5%) | | | |
| | Caterpillar Inc. | | 473,746 | 39,274 |
| | Illinois Tool Works Inc. | 305,862 | 30,238 |
| | Deere & Co. | | 280,389 | 25,403 |
| | Cummins Inc. | | 142,951 | 20,332 |
| | PACCAR Inc. | | 291,597 | 18,677 |
| | Parker-Hannifin Corp. | | 122,402 | 15,018 |
| | Ingersoll-Rand plc | | 218,788 | 14,700 |
| | Stanley Black & Decker Inc. | 122,544 | 12,051 |
| | Pentair plc | | 153,857 | 10,227 |
| | Dover Corp. | | 136,335 | 9,823 |
| | Pall Corp. | | 88,009 | 8,872 |
| | Wabtec Corp. | | 79,293 | 7,524 |
| | Snap-on Inc. | | 47,869 | 7,048 |
| | Flowserve Corp. | | 112,288 | 6,976 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| * | WABCO Holdings Inc. | 46,493 | 5,432 |
| | Xylem Inc. | 149,590 | 5,340 |
| | IDEX Corp. | 65,589 | 5,067 |
| * | Middleby Corp. | 47,211 | 5,033 |
| | Trinity Industries Inc. | 128,211 | 4,310 |
| | Lincoln Electric Holdings Inc. | 60,778 | 4,196 |
| | Donaldson Co. Inc. | 107,456 | 3,980 |
| | Allison Transmission | | |
| | Holdings Inc. | 124,308 | 3,955 |
| | Nordson Corp. | 49,354 | 3,797 |
| * | Colfax Corp. | 70,963 | 3,738 |
| | Graco Inc. | 49,301 | 3,736 |
| | Joy Global Inc. | 81,848 | 3,628 |
| | AGCO Corp. | 72,719 | 3,617 |
| | Oshkosh Corp. | 65,750 | 3,208 |
| | Toro Co. | 45,737 | 3,094 |
| | ITT Corp. | 75,225 | 3,089 |
| | CLARCOR Inc. | 41,374 | 2,723 |
| | SPX Corp. | 29,618 | 2,640 |
| | Crane Co. | 38,890 | 2,599 |
| | Timken Co. | 59,706 | 2,536 |
| | Terex Corp. | 89,801 | 2,461 |
| | Manitowoc Co. Inc. | 111,204 | 2,461 |
| | Valmont Industries Inc. | 19,259 | 2,401 |
| | Woodward Inc. | 48,241 | 2,342 |
| * | Rexnord Corp. | 83,700 | 2,308 |
| | Kennametal Inc. | 64,636 | 2,262 |
| | Hillenbrand Inc. | 51,483 | 1,632 |
| | Mueller Industries Inc. | 46,462 | 1,617 |
| | Barnes Group Inc. | 37,836 | 1,514 |
| | Actuant Corp. Class A | 53,455 | 1,360 |
| | EnPro Industries Inc. | 19,554 | 1,286 |
| * | Proto Labs Inc. | 17,892 | 1,272 |
| | Greenbrier Cos. Inc. | 21,368 | 1,256 |
| | Watts Water Technologies | | |
| | Inc. Class A | 22,359 | 1,229 |
| | Mueller Water Products Inc. | | |
| | Class A | 131,291 | 1,203 |
| | RBC Bearings Inc. | 19,122 | 1,187 |
| * | Navistar International Corp. | 39,955 | 1,163 |
| * | TriMas Corp. | 37,201 | 1,115 |
| | Harsco Corp. | 66,359 | 1,094 |
| * | Meritor Inc. | 76,540 | 1,094 |
| | Tennant Co. | 14,140 | 924 |
| | Lindsay Corp. | 10,401 | 911 |
| | Albany International Corp. | 23,607 | 890 |
| * | Chart Industries Inc. | 24,860 | 869 |
| | Federal Signal Corp. | 52,134 | 860 |
| | John Bean Technologies | | |
| | Corp. | 24,127 | 834 |
| | ESCO Technologies Inc. | 21,328 | 822 |
| * | Wabash National Corp. | 55,765 | 817 |
| | Briggs & Stratton Corp. | 38,054 | 793 |
| | Standex International Corp. | 10,271 | 745 |
| | Sun Hydraulics Corp. | 18,708 | 724 |
| | CIRCOR International Inc. | 13,108 | 704 |
| | Astec Industries Inc. | 15,652 | 669 |
| | Altra Industrial Motion Corp. | 21,773 | 594 |
| * | Blount International Inc. | 33,750 | 560 |
| | Hyster-Yale Materials | | |
| | Handling Inc. | 7,473 | 494 |
| | Gorman-Rupp Co. | 16,922 | 486 |
| * | Lydall Inc. | 13,844 | 441 |
| | American Railcar | | |
| | Industries Inc. | 7,735 | 434 |
| | Titan International Inc. | 43,163 | 431 |
| | Columbus McKinnon Corp. | 15,106 | 401 |
| | Douglas Dynamics Inc. | 17,795 | 401 |
| | Kadant Inc. | 8,968 | 397 |
| | LB Foster Co. Class A | 7,893 | 387 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | Alamo Group Inc. | 7,374 | 370 |
| | FreightCar America Inc. | 9,513 | 298 |
| | Global Brass & Copper | | |
| | Holdings Inc. | 16,706 | 235 |
| *,^ | ExOne Co. | 8,688 | 131 |
| | | | 350,760 |
| Marine (0.2%) | | |
| * | Kirby Corp. | 42,304 | 3,261 |
| | Matson Inc. | 35,425 | 1,398 |
| | | | 4,659 |
| Professional Services (3.9%) | | |
| | Nielsen NV | 282,417 | 12,768 |
| | Equifax Inc. | 99,586 | 9,298 |
| * | Verisk Analytics Inc. | | |
| | Class A | 122,504 | 8,797 |
| | Towers Watson & Co. | | |
| | Class A | 57,488 | 7,560 |
| | Robert Half International Inc. | 112,104 | 6,946 |
| * | IHS Inc. Class A | 56,159 | 6,600 |
| | ManpowerGroup Inc. | 65,119 | 5,239 |
| | Dun & Bradstreet Corp. | 29,769 | 3,944 |
| | Corporate Executive | | |
| | Board Co. | 27,766 | 2,172 |
| * | Advisory Board Co. | 34,442 | 1,864 |
| * | WageWorks Inc. | 27,666 | 1,589 |
| * | On Assignment Inc. | 40,100 | 1,532 |
| * | Huron Consulting Group Inc. | 19,153 | 1,277 |
| * | Korn/Ferry International | 40,913 | 1,252 |
| * | FTI Consulting Inc. | 33,460 | 1,234 |
| * | TriNet Group Inc. | 31,533 | 1,146 |
| | Insperity Inc. | 18,550 | 961 |
| | Exponent Inc. | 10,808 | 935 |
| * | TrueBlue Inc. | 35,185 | 810 |
| * | ICF International Inc. | 14,308 | 599 |
| | Resources Connection Inc. | 31,421 | 557 |
| * | Navigant Consulting Inc. | 39,523 | 553 |
| * | RPX Corp. | 37,886 | 552 |
| | Kforce Inc. | 23,181 | 547 |
| | Acacia Research Corp. | 41,535 | 521 |
| * | Paylocity Holding Corp. | 14,406 | 431 |
| | Kelly Services Inc. Class A | 23,273 | 403 |
| * | GP Strategies Corp. | 11,036 | 394 |
| * | CBIZ Inc. | 35,511 | 314 |
| | Heidrick & Struggles | | |
| | International Inc. | 12,969 | 310 |
| * | Mistras Group Inc. | 13,722 | 259 |
| | CDI Corp. | 11,450 | 211 |
| * | Franklin Covey Co. | 10,169 | 182 |
| * | Pendrell Corp. | 94,131 | 107 |
| | | | 81,864 |
| Road & Rail (9.6%) | | |
| | Union Pacific Corp. | 732,422 | 88,081 |
| | CSX Corp. | 819,988 | 28,134 |
| | Norfolk Southern Corp. | 254,812 | 27,815 |
| | Kansas City Southern | 90,878 | 10,527 |
| * | Hertz Global Holdings Inc. | 368,801 | 8,508 |
| | JB Hunt Transport | | |
| | Services Inc. | 77,174 | 6,598 |
| * | Avis Budget Group Inc. | 87,470 | 5,302 |
| * | Genesee & Wyoming Inc. | | |
| | Class A | 43,517 | 4,487 |
| * | Old Dominion Freight | | |
| | Line Inc. | 53,236 | 4,159 |
| | Ryder System Inc. | 43,566 | 4,095 |
| | Landstar System Inc. | 36,625 | 2,572 |
| * | Swift Transportation Co. | 74,738 | 2,114 |
| | Con-way Inc. | 47,714 | 2,107 |
| * | AMERCO | 6,412 | 2,096 |
| | Knight Transportation Inc. | 49,786 | 1,646 |
| | Werner Enterprises Inc. | 38,126 | 1,223 |
| |
| |
| | | | 63 |
| | | | |
| Industrials Index Fund | | | |
| |
| |
| |
| |
| | | | | Market |
| | | | | Value• |
| | | | Shares | ($000) |
| | Heartland Express Inc. | 39,815 | 1,002 |
| * | Saia Inc. | | 20,221 | 931 |
| | ArcBest Corp. | | 20,371 | 853 |
| * | Roadrunner Transportation | | |
| | Systems Inc. | | 23,754 | 610 |
| | Celadon Group Inc. | | 18,976 | 498 |
| | Marten Transport Ltd. | | 20,110 | 466 |
| * | YRC Worldwide Inc. | | 13,904 | 274 |
| * | Quality Distribution Inc. | 21,712 | 239 |
| | | | | 204,337 |
| Trading Companies & Distributors (2.7%) |
| | WW Grainger Inc. | | 50,552 | 11,976 |
| | Fastenal Co. | | 231,993 | 9,639 |
| * | United Rentals Inc. | | 82,161 | 7,646 |
| * | HD Supply Holdings Inc. | 136,820 | 4,037 |
| | Air Lease Corp. Class A | 79,905 | 3,056 |
| | MSC Industrial Direct Co. | | |
| | Inc. Class A | | 39,977 | 2,918 |
| * | WESCO International Inc. | 36,678 | 2,546 |
| | Watsco Inc. | | 21,047 | 2,467 |
| | GATX Corp. | | 34,840 | 2,169 |
| *,^ | NOW Inc. | | 87,981 | 1,870 |
| | Applied Industrial | | | |
| | Technologies Inc. | | 32,106 | 1,407 |
| | Aircastle Ltd. | | 53,488 | 1,234 |
| * | Beacon Roofing Supply Inc. | 40,547 | 1,217 |
| | TAL International Group Inc. | 26,567 | 1,109 |
| * | MRC Global Inc. | | 83,143 | 1,070 |
| | Kaman Corp. | | 20,105 | 834 |
| * | Rush Enterprises Inc. | | | |
| | Class A | | 24,018 | 671 |
| | H&E Equipment | | | |
| | Services Inc. | | 25,527 | 625 |
| * | DXP Enterprises Inc. | | 8,901 | 408 |
| * | CAI International Inc. | | 14,313 | 347 |
| * | Titan Machinery Inc. | | 14,390 | 207 |
| * | Stock Building Supply | | | |
| | Holdings Inc. | | 11,627 | 181 |
| | | | | 57,634 |
| Transportation Infrastructure (0.3%) | |
| | Macquarie Infrastructure | | |
| | Co. LLC | | 59,833 | 4,703 |
| * | Wesco Aircraft Holdings Inc. | 55,884 | 839 |
| | | | | 5,542 |
| Total Common Stocks | | | |
| (Cost $1,882,143) | | | 2,121,811 |
| Temporary Cash Investment (0.1%) | |
| Money Market Fund (0.1%) | | |
| 1,2 | Vanguard Market Liquidity | | |
| | Fund, 0.134% | | | |
| | (Cost $1,837) | 1,837,200 | 1,837 |
| Total Investments (100.1%) | | |
| (Cost $1,883,980) | | | 2,123,648 |
| Other Assets and Liabilities (–0.1%) | |
| Other Assets | | | 13,280 |
| Liabilities2 | | | (14,997) |
| | | | | (1,717) |
| Net Assets (100%) | | | 2,121,931 |
| |
| At February 28, 2015, net assets consisted of: |
| | Amount |
| | ($000) |
| Paid-in Capital | 1,897,634 |
| Undistributed Net Investment Income | 6,800 |
| Accumulated Net Realized Losses | (22,171) |
| Unrealized Appreciation (Depreciation) | 239,668 |
| Net Assets | 2,121,931 |
| |
| |
| Admiral Shares—Net Assets | |
| Applicable to 1,339,482 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 74,970 |
| Net Asset Value Per Share— | |
| Admiral Shares | $55.97 |
| |
| |
| ETF Shares—Net Assets | |
| Applicable to 18,789,450 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 2,046,961 |
| Net Asset Value Per Share— | |
| ETF Shares | $108.94 |
• See Note A in Notes to Financial Statements. * Non-income-producing security.
^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $1,712,000.
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 $1,837,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
64
| |
| Industrials Index Fund | |
| |
| |
| Statement of Operations |
| |
| Six Months Ended |
| February 28, 2015 |
| | ($000) |
| Investment Income | |
| Income | |
| Dividends | 20,742 |
| Interest1 | 2 |
| Securities Lending | 101 |
| Total Income | 20,845 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 163 |
| Management and Administrative— | |
| Admiral Shares | 29 |
| Management and Administrative— | |
| ETF Shares | 686 |
| Marketing and Distribution— | |
| Admiral Shares | 6 |
| Marketing and Distribution— | |
| ETF Shares | 186 |
| Custodian Fees | 27 |
| Shareholders’ Reports—Admiral Shares | — |
| Shareholders’ Reports—ETF Shares | 49 |
| Trustees’ Fees and Expenses | 1 |
| Total Expenses | 1,147 |
| Net Investment Income | 19,698 |
| Realized Net Gain (Loss) on | |
| Investment Securities Sold | 48,442 |
| Change in Unrealized Appreciation | |
| (Depreciation) of Investment Securities | 52,429 |
| Net Increase (Decrease) in Net Assets | |
| Resulting from Operations | 120,569 |
| | |
| Statement of Changes in Net Assets | | |
| |
| | Six Months Ended | Year Ended |
| | February 28, | August 31, |
| | 2015 | 2014 |
| | ($000) | ($000) |
| Increase (Decrease) in Net Assets | | |
| Operations | | |
| Net Investment Income | 19,698 | 27,750 |
| Realized Net Gain (Loss) | 48,442 | 192,518 |
| Change in Unrealized Appreciation (Depreciation) | 52,429 | 93,349 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 120,569 | 313,617 |
| Distributions | | |
| Net Investment Income | | |
| Admiral Shares | (1,196) | (288) |
| ETF Shares | (30,975) | (15,915) |
| Realized Capital Gain | | |
| Admiral Shares | — | — |
| ETF Shares | — | — |
| Total Distributions | (32,171) | (16,203) |
| Capital Share Transactions | | |
| Admiral Shares | 636 | 44,859 |
| ETF Shares | 79,238 | 489,396 |
| Net Increase (Decrease) from Capital Share Transactions | 79,874 | 534,255 |
| Total Increase (Decrease) | 168,272 | 831,669 |
| Net Assets | | |
| Beginning of Period | 1,953,659 | 1,121,990 |
| End of Period2 | 2,121,931 | 1,953,659 |
1 Interest income from an affiliated company of the fund was $2,000.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $6,800,000 and $19,247,000.
See accompanying Notes, which are an integral part of the Financial Statements.
65
| | | | | | | |
| Industrials Index Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| Admiral Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $53.40 | $43.24 | $34.84 | $30.89 | $26.57 | $23.85 |
| Investment Operations | | | | | | | |
| Net Investment Income | | .512 | .780 | .7801 | .699 | .511 | .4461 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | 2.919 | 9.922 | 8.382 | 3.878 | 4.248 | 2.619 |
| Total from Investment Operations | 3.431 | 10.702 | 9.162 | 4.577 | 4.759 | 3.065 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (.861) | (. 542) | (.762) | (. 627) | (. 439) | (. 345) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | | (.861) | (. 542) | (.762) | (. 627) | (. 439) | (. 345) |
| Net Asset Value, End of Period | $55.97 | $53.40 | $43.24 | $34.84 | $30.89 | $26.57 |
| |
| Total Return2 | | 6.51% | 24.84% | 26.70% | 15.03% | 17.79% | 12.85% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $75 | $71 | $18 | $14 | $14 | $7 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.12% | 0.12% | 0.14% | 0.14% | 0.19% | 0.24% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 2.01% | 1.69% | 1.97% | 1.99% | 1.66% | 1.69% |
| Portfolio Turnover Rate3 | | 3% | 5% | 6% | 6% | 5% | 10% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Calculated based on average shares outstanding.
2 Total returns do not include transaction or account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable transaction and account service fees.
3 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
66
| | | | | | | |
| Industrials Index Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| ETF Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $103.95 | $84.17 | $67.82 | $60.12 | $51.71 | $46.45 |
| Investment Operations | | | | | | | |
| Net Investment Income | | . 997 | 1.508 | 1.5171 | 1.360 | .992 | .9101 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | 5.666 | 19.332 | 16.321 | 7.557 | 8.269 | 5.065 |
| Total from Investment Operations | 6.663 | 20.840 | 17.838 | 8.917 | 9.261 | 5.975 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (1.673) | (1.060) | (1.488) | (1.217) | (.851) | (.715) |
| Distributions from Realized Capital Gains — | — | — | — | — | — |
| Total Distributions | | (1.673) | (1.060) | (1.488) | (1.217) | (.851) | (.715) |
| Net Asset Value, End of Period | $108.94 | $103.95 | $84.17 | $67.82 | $60.12 | $51.71 |
| |
| Total Return | | 6.46% | 24.83% | 26.69% | 15.04% | 17.79% | 12.85% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $2,047 | $1,883 | $1,104 | $482 | $451 | $295 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.12% | 0.12% | 0.14% | 0.14% | 0.19% | 0.24% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 2.01% | 1.69% | 1.97% | 1.99% | 1.66% | 1.69% |
| Portfolio Turnover Rate2 | | 3% | 5% | 6% | 6% | 5% | 10% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Calculated based on average shares outstanding.
2 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.
67
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 designed for investors who meet certain administrative, service, and account-size criteria. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. 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 for all open federal income tax years (August 31, 2011–2014), and for the period ended February 28, 2015, 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. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counter-parties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
5. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $2.89 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2015, or at any time during the period then ended.
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.
68
Industrials Index Fund
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 based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At February 28, 2015, the fund had contributed capital of $187,000 to Vanguard (included in Other Assets), representing 0.01% 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. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At February 28, 2015, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
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, 2015, the fund realized $48,736,000 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, 2014, the fund had available capital losses totaling $21,875,000 to offset future net capital gains. Of this amount, $21,658,000 is subject to expiration dates; $3,382,000 may be used to offset future net capital gains through August 31, 2017, $13,144,000 through August 31, 2018, and $5,132,000 through August 31, 2019. Capital losses of $217,000 realized beginning in fiscal 2012 may be carried forward indefinitely under the Regulated Investment Company Modernization Act of 2010, but must be used before any expiring loss carryforwards. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2015; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2015, the cost of investment securities for tax purposes was $1,884,075,000. Net unrealized appreciation of investment securities for tax purposes was $239,573,000, consisting of unrealized gains of $304,693,000 on securities that had risen in value since their purchase and $65,120,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the six months ended February 28, 2015, the fund purchased $279,290,000 of investment securities and sold $210,502,000 of investment securities, other than temporary cash investments. Purchases and sales include $233,767,000 and $182,890,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
69
| | | | |
| Industrials Index Fund | | | | |
| |
| |
| |
| |
| F. Capital share transactions for each class of shares were: | | | |
| | Six Months Ended | | Year Ended |
| | February 28, 2015 | August 31, 2014 |
| | Amount | Shares | Amount | Shares |
| | ($000) | (000) | ($000) | (000) |
| Admiral Shares | | | | |
| Issued | 15,376 | 285 | 63,885 | 1,275 |
| Issued in Lieu of Cash Distributions | 1,104 | 21 | 266 | 5 |
| Redeemed | (15,844) | (291) | (19,292) | (376) |
| Net Increase (Decrease) —Admiral Shares | 636 | 15 | 44,859 | 904 |
| ETF Shares | | | | |
| Issued | 265,344 | 2,525 | 1,042,334 | 10,600 |
| Issued in Lieu of Cash Distributions | — | — | — | — |
| Redeemed | (186,106) | (1,850) | (552,938) | (5,600) |
| Net Increase (Decrease)—ETF Shares | 79,238 | 675 | 489,396 | 5,000 |
At February 28, 2015, one shareholder was the record or beneficial owner of 50% of the fund’s net assets. If the shareholder were to redeem its investment in the fund, the redemption might result in an increase in the fund’s expense ratio.
G. Management has determined that no material events or transactions occurred subsequent to February 28, 2015, that would require recognition or disclosure in these financial statements.
70
Information Technology Index Fund
| | | |
| Fund Profile | | | |
| As of February 28, 2015 | | |
| |
| Share-Class Characteristics | | |
| | Admiral | ETF |
| | Shares | Shares |
| Ticker Symbol | | VITAX | VGT |
| Expense Ratio1 | | 0.12% | 0.12% |
| 30-Day SEC Yield | | 1.21% | 1.22% |
| |
| |
| Portfolio Characteristics | | |
| | | MSCI | |
| | | US IMI/ | |
| | | Information | MSCI |
| | | Technology | US IMI/ |
| | Fund | 25/50 | 2500 |
| Number of Stocks | 390 | 390 | 2,481 |
| Median Market Cap $151.2B | $151.2B | $49.1B |
| Price/Earnings Ratio | 21.5x | 21.5x | 21.3x |
| Price/Book Ratio | 4.2x | 4.2x | 2.9x |
| Return on Equity | 25.3% | 25.3% | 17.7% |
| Earnings Growth Rate | 16.7% | 16.7% | 13.9% |
| Dividend Yield | 1.3% | 1.3% | 1.9% |
| Foreign Holdings | 0.0% | 0.0% | 0.0% |
| Turnover Rate | | | |
| (Annualized) | 3% | — | — |
| Short-Term Reserves | 0.0% | — | — |
| | |
| Volatility Measures | | |
| MSCI US | |
| IMI/Information | |
| Technology | MSCI US |
| | 25/50 | IMI/2500 |
| R-Squared | 1.00 | 0.77 |
| Beta | 1.00 | 1.08 |
| These measures show the degree and timing of the fund’s |
| fluctuations compared with the indexes over 36 months. |
| |
| Subindustry Diversification | | |
| (% of equity exposure) | | |
| |
| Application Software | | 5.8% |
| Communications Equipment | | 8.3 |
| Data Processing & Outsourced Services | 10.2 |
| Electronic Components | | 1.5 |
| Electronic Manufacturing Services | 1.3 |
| Internet Software & Services | | 16.6 |
| IT Consulting & Other Services | | 6.3 |
| Semiconductor Equipment | | 1.8 |
| Semiconductors | | 11.2 |
| Systems Software | | 13.1 |
| Technology Hardware, Storage & Peripherals 21.7 |
| Other Information Technology | | 2.2 |
| | |
| Ten Largest Holdings (% of total net assets) |
| |
| Apple Inc. | Computer Hardware | 16.8% |
| Microsoft Corp. | Systems Software | 7.7 |
| Google Inc. | Internet Software | |
| | & Services | 7.2 |
| Intel Corp. | Semiconductors | 3.6 |
| Facebook Inc. | Internet Software | |
| | & Services | 3.5 |
| Oracle Corp. | Systems Software | 3.5 |
| International | | |
| Business | IT Consulting | |
| Machines Corp. | & Other Services | 3.4 |
| Cisco Systems Inc. | Communications | |
| | Equipment | 3.4 |
| Visa Inc. | Data Processing | |
| | & Outsourced Services | 3.0 |
| QUALCOMM Inc. | Communications | |
| | Equipment | 2.7 |
| Top Ten Total | | 54.8% |
| The holdings listed exclude any temporary cash investments and |
| equity index products. | | |
1 The expense ratios shown are from the prospectus dated December 23, 2014, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2015, the annualized expense ratios were 0.12% for Admiral Shares and 0.12% for ETF Shares.
71
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 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, 2004–February 28, 2015
Average Annual Total Returns: Periods Ended December 31, 2014
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
| | | | |
| | Inception Date | One Year | Five Years | Ten Years |
| ETF Shares | 1/26/2004 | | | |
| Market Price | | 18.03% | 14.82% | 9.07% |
| Net Asset Value | | 18.01 | 14.83 | 9.06 |
| Admiral Shares | 3/25/2004 | 18.05 | 14.84 | 9.04 |
See Financial Highlights for dividend and capital gains information.
72
Information Technology Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the 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 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 (8.3%) | |
| | Cisco Systems Inc. | 8,744,561 | 258,052 |
| | QUALCOMM Inc. | 2,843,190 | 206,160 |
| | Motorola Solutions Inc. | 384,851 | 26,147 |
| * | Palo Alto Networks Inc. | 117,160 | 16,663 |
| | Juniper Networks Inc. | 665,836 | 15,920 |
| * | F5 Networks Inc. | 126,168 | 14,902 |
| | Harris Corp. | 178,873 | 13,895 |
| | Brocade Communications | | |
| | Systems Inc. | 739,614 | 9,164 |
| * | ARRIS Group Inc. | 208,940 | 6,139 |
| * | JDS Uniphase Corp. | 393,572 | 5,419 |
| * | Riverbed Technology Inc. | 252,009 | 5,277 |
| * | ViaSat Inc. | 75,413 | 4,927 |
| * | CommScope Holding | | |
| | Co. Inc. | 143,242 | 4,512 |
| * | Aruba Networks Inc. | 175,809 | 4,362 |
| * | EchoStar Corp. Class A | 74,213 | 4,033 |
| * | Ciena Corp. | 179,725 | 3,760 |
| | Plantronics Inc. | 73,114 | 3,688 |
| * | Infinera Corp. | 212,254 | 3,619 |
| * | Finisar Corp. | 170,915 | 3,591 |
| | InterDigital Inc. | 63,573 | 3,361 |
| * | Polycom Inc. | 233,798 | 3,231 |
| | ADTRAN Inc. | 92,386 | 1,989 |
| * | NETGEAR Inc. | 61,163 | 1,972 |
| * | Ruckus Wireless Inc. | 106,633 | 1,350 |
| * | Sonus Networks Inc. | 75,057 | 1,280 |
| * | Harmonic Inc. | 154,560 | 1,207 |
| * | Mitel Networks Corp. | 116,089 | 1,179 |
| | Ubiquiti Networks Inc. | 36,949 | 1,169 |
| * | CalAmp Corp. | 56,930 | 1,090 |
| * | Ixia | 89,498 | 1,019 |
| | Comtech | | |
| | Telecommunications Corp. 26,670 | 953 |
| * | Emulex Corp. | 106,883 | 850 |
| * | ShoreTel Inc. | 109,934 | 819 |
| | Black Box Corp. | 26,439 | 581 |
| * | Extreme Networks Inc. | 160,768 | 571 |
| * | Calix Inc. | 63,228 | 553 |
| | | | 633,404 |
| Electronic Equipment, Instruments | |
| & Components (4.3%) | | |
| | Corning Inc. | 2,192,038 | 53,486 |
| | TE Connectivity Ltd. | 695,411 | 50,160 |
| | Amphenol Corp. Class A | 529,222 | 29,880 |
| * | Flextronics | | |
| | International Ltd. | 990,100 | 12,059 |
| * | Trimble Navigation Ltd. | 443,980 | 11,606 |
| | Avnet Inc. | 235,791 | 10,802 |
| * | Keysight Technologies Inc. | 284,493 | 10,680 |
| * | Arrow Electronics Inc. | 165,682 | 10,266 |
| * | Zebra Technologies Corp. | 86,730 | 7,897 |
| | FLIR Systems Inc. | 241,556 | 7,797 |
| | CDW Corp. | 205,912 | 7,748 |
| * | Ingram Micro Inc. | 265,294 | 6,555 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | Belden Inc. | 73,755 | 6,548 |
| | Jabil Circuit Inc. | 297,652 | 6,539 |
| * | Cognex Corp. | 140,997 | 6,301 |
| | FEI Co. | 71,682 | 5,662 |
| * | IPG Photonics Corp. | 58,100 | 5,572 |
| | National Instruments Corp. | 172,925 | 5,385 |
| * | Tech Data Corp. | 64,817 | 3,857 |
| | SYNNEX Corp. | 50,376 | 3,841 |
| | Littelfuse Inc. | 38,237 | 3,836 |
| * | Anixter International Inc. | 47,710 | 3,764 |
| | Dolby Laboratories Inc. | | |
| | Class A | 86,929 | 3,518 |
| | Vishay Intertechnology Inc. | 230,907 | 3,288 |
| * | Sanmina Corp. | 141,010 | 3,201 |
| * | Knowles Corp. | 145,203 | 2,781 |
| * | Coherent Inc. | 42,560 | 2,734 |
| * | Universal Display Corp. | 71,961 | 2,475 |
| * | Itron Inc. | 67,159 | 2,450 |
| * | Rogers Corp. | 31,103 | 2,435 |
| | Methode Electronics Inc. | 61,171 | 2,379 |
| * | OSI Systems Inc. | 31,758 | 2,301 |
| * | Plexus Corp. | 56,974 | 2,293 |
| * | Benchmark Electronics Inc. | 92,301 | 2,165 |
| *,^ | InvenSense Inc. | 129,854 | 2,165 |
| | MTS Systems Corp. | 25,699 | 1,862 |
| * | Insight Enterprises Inc. | 69,465 | 1,827 |
| * | ScanSource Inc. | 49,334 | 1,794 |
| * | FARO Technologies Inc. | 28,957 | 1,736 |
| * | II-VI Inc. | 89,256 | 1,561 |
| * | Newport Corp. | 68,797 | 1,373 |
| | Badger Meter Inc. | 22,979 | 1,342 |
| | AVX Corp. | 84,701 | 1,207 |
| * | Rofin-Sinar | | |
| | Technologies Inc. | 47,260 | 1,133 |
| * | RealD Inc. | 78,656 | 1,027 |
| * | Mercury Systems Inc. | 55,710 | 948 |
| * | Checkpoint Systems Inc. | 69,600 | 940 |
| * | Fabrinet | 50,161 | 900 |
| | CTS Corp. | 50,981 | 890 |
| * | DTS Inc. | 29,580 | 872 |
| * | TTM Technologies Inc. | 90,087 | 794 |
| | Park Electrochemical Corp. | 33,293 | 723 |
| * | GSI Group Inc. | 51,436 | 676 |
| | Daktronics Inc. | 61,590 | 630 |
| * | Kimball Electronics Inc. | 47,346 | 593 |
| | PC Connection Inc. | 17,548 | 450 |
| | Electro Rent Corp. | 29,984 | 387 |
| * | Maxwell Technologies Inc. | 47,346 | 357 |
| * | Control4 Corp. | 19,088 | 248 |
| | | | 328,696 |
| Internet Software & Services (16.6%) | |
| * | Google Inc. Class C | 493,227 | 275,418 |
| * | Google Inc. Class A | 487,031 | 274,018 |
| * | Facebook Inc. Class A | 3,422,406 | 270,267 |
| * | eBay Inc. | 1,912,091 | 110,729 |
| * | Yahoo! Inc. | 1,539,535 | 68,171 |
| * | LinkedIn Corp. Class A | 185,226 | 49,492 |
| * | Twitter Inc. | 650,884 | 31,295 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| * | Akamai Technologies Inc. | 303,862 | 21,121 |
| * | Equinix Inc. | 93,918 | 21,054 |
| * | VeriSign Inc. | 196,700 | 12,593 |
| * | CoStar Group Inc. | 55,120 | 10,978 |
| * | Rackspace Hosting Inc. | 207,528 | 10,308 |
| * | Zillow Group Inc. Class A | 83,349 | 9,564 |
| | IAC/InterActiveCorp | 132,643 | 8,943 |
| | MercadoLibre Inc. | 56,599 | 7,413 |
| * | AOL Inc. | 134,278 | 5,444 |
| | j2 Global Inc. | 77,270 | 5,196 |
| * | Yelp Inc. Class A | 106,998 | 5,136 |
| * | Pandora Media Inc. | 334,877 | 4,956 |
| * | HomeAway Inc. | 151,908 | 4,708 |
| * | Cimpress NV | 49,873 | 4,164 |
| * | Dealertrack | | |
| | Technologies Inc. | 86,873 | 3,455 |
| * | Demandware Inc. | 52,389 | 3,310 |
| * | GrubHub Inc. | 75,777 | 3,183 |
| * | comScore Inc. | 52,964 | 2,732 |
| * | Envestnet Inc. | 49,355 | 2,659 |
| * | Cornerstone | | |
| | OnDemand Inc. | 82,290 | 2,630 |
| * | LendingClub Corp. | 122,229 | 2,490 |
| * | WebMD Health Corp. | 54,281 | 2,391 |
| * | Constant Contact Inc. | 54,594 | 2,256 |
| * | LogMeIn Inc. | 39,831 | 2,099 |
| * | SPS Commerce Inc. | 27,994 | 1,923 |
| | NIC Inc. | 106,607 | 1,866 |
| *,^ | Gogo Inc. | 87,206 | 1,568 |
| *,^ | TrueCar Inc. | 77,878 | 1,550 |
| * | Web.com Group Inc. | 84,594 | 1,510 |
| *,^ | Endurance International | | |
| | Group Holdings Inc. | 78,668 | 1,465 |
| * | Stamps.com Inc. | 24,318 | 1,363 |
| * | Bankrate Inc. | 98,549 | 1,258 |
| * | Shutterstock Inc. | 20,703 | 1,171 |
| * | Perficient Inc. | 58,795 | 1,169 |
| * | Actua Corp. | 66,093 | 1,108 |
| * | LivePerson Inc. | 86,330 | 996 |
| * | Blucora Inc. | 67,140 | 995 |
| * | Monster Worldwide Inc. | 141,192 | 949 |
| *,^ | Textura Corp. | 32,756 | 924 |
| *,^ | Coupons.com Inc. | 91,998 | 897 |
| * | Marketo Inc. | 31,465 | 879 |
| * | RetailMeNot Inc. | 50,271 | 876 |
| * | Bazaarvoice Inc. | 88,988 | 823 |
| * | SciQuest Inc. | 45,326 | 789 |
| * | Cvent Inc. | 25,781 | 746 |
| * | Internap Corp. | 77,224 | 735 |
| | EarthLink Holdings Corp. | 171,505 | 732 |
| * | Intralinks Holdings Inc. | 65,840 | 683 |
| * | XO Group Inc. | 42,638 | 662 |
| * | Xoom Corp. | 37,925 | 647 |
| * | Q2 Holdings Inc. | 31,108 | 616 |
| * | Benefitfocus Inc. | 17,193 | 560 |
| * | Dice Holdings Inc. | 63,595 | 557 |
| * | Angie’s List Inc. | 73,426 | 495 |
| * | Liquidity Services Inc. | 45,796 | 453 |
73
| | | |
| Information Technology Index Fund | |
| |
| |
| |
| |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| *,^ | OPOWER Inc. | 29,145 | 438 |
| *,^ | Rocket Fuel Inc. | 35,264 | 345 |
| * | ChannelAdvisor Corp. | 32,629 | 323 |
| * | Everyday Health Inc. | 20,519 | 293 |
| * | Marin Software Inc. | 33,371 | 220 |
| * | Amber Road Inc. | 19,162 | 163 |
| | | | 1,270,920 |
| IT Services (16.4%) | | |
| | International Business | | |
| | Machines Corp. | 1,607,731 | 260,356 |
| | Visa Inc. Class A | 843,404 | 228,824 |
| | MasterCard Inc. Class A | 1,712,878 | 154,382 |
| | Accenture plc Class A | 1,073,042 | 96,606 |
| | Automatic Data | | |
| | Processing Inc. | 824,387 | 73,239 |
| * | Cognizant Technology | | |
| | Solutions Corp. Class A | 1,041,279 | 65,064 |
| | Fidelity National | | |
| | Information Services Inc. | 485,170 | 32,793 |
| * | Fiserv Inc. | 417,211 | 32,572 |
| * | Alliance Data Systems | | |
| | Corp. | 109,170 | 30,405 |
| | Paychex Inc. | 557,128 | 27,764 |
| | Xerox Corp. | 1,854,584 | 25,315 |
| * | FleetCor Technologies Inc. | 132,792 | 20,374 |
| | Western Union Co. | 893,781 | 17,447 |
| | Computer Sciences Corp. | 240,938 | 17,087 |
| * | Gartner Inc. | 150,537 | 12,511 |
| * | Teradata Corp. | 261,615 | 11,647 |
| | Total System Services Inc. | 284,442 | 10,866 |
| | Broadridge Financial | | |
| | Solutions Inc. | 203,587 | 10,837 |
| | Global Payments Inc. | 116,434 | 10,696 |
| * | Vantiv Inc. Class A | 248,882 | 9,206 |
| | Jack Henry & | | |
| | Associates Inc. | 140,503 | 9,203 |
| * | WEX Inc. | 66,273 | 7,091 |
| * | VeriFone Systems Inc. | 191,102 | 6,725 |
| | MAXIMUS Inc. | 112,630 | 6,671 |
| | DST Systems Inc. | 58,889 | 6,259 |
| | Booz Allen Hamilton | | |
| | Holding Corp. Class A | 176,113 | 5,241 |
| * | CoreLogic Inc. | 147,364 | 4,913 |
| | Leidos Holdings Inc. | 108,824 | 4,899 |
| * | Euronet Worldwide Inc. | 84,647 | 4,783 |
| | Science Applications | | |
| | International Corp. | 73,880 | 4,040 |
| * | EPAM Systems Inc. | 64,674 | 3,989 |
| | Convergys Corp. | 171,985 | 3,844 |
| * | CACI International Inc. | | |
| | Class A | 36,065 | 3,148 |
| | Heartland Payment | | |
| | Systems Inc. | 61,159 | 2,999 |
| | Sabre Corp. | 136,724 | 2,975 |
| * | Syntel Inc. | 57,466 | 2,839 |
| * | Cardtronics Inc. | 76,004 | 2,781 |
| * | Acxiom Corp. | 131,332 | 2,627 |
| * | IGATE Corp. | 60,464 | 2,588 |
| *,^ | NeuStar Inc. Class A | 94,768 | 2,513 |
| * | Blackhawk Network | | |
| | Holdings Inc. Class B | 67,786 | 2,486 |
| | EVERTEC Inc. | 114,102 | 2,379 |
| * | Unisys Corp. | 85,699 | 1,940 |
| * | Virtusa Corp. | 47,971 | 1,888 |
| * | ExlService Holdings Inc. | 52,448 | 1,830 |
| | CSG Systems | | |
| | International Inc. | 59,487 | 1,779 |
| * | Sykes Enterprises Inc. | 66,478 | 1,546 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | ManTech International Corp. | |
| | Class A | 41,673 | 1,379 |
| * | Net 1 UEPS | | |
| | Technologies Inc. | 71,510 | 977 |
| * | TeleTech Holdings Inc. | 33,561 | 815 |
| * | Blackhawk Network | | |
| | Holdings Inc. | 21,380 | 792 |
| * | Global Cash Access | | |
| | Holdings Inc. | 109,933 | 782 |
| | Cass Information | | |
| | Systems Inc. | 15,349 | 770 |
| | Forrester Research Inc. | 16,746 | 630 |
| * | MoneyGram | | |
| | International Inc. | 50,139 | 426 |
| | | | 1,258,538 |
| Semiconductors & Semiconductor | |
| Equipment (13.0%) | | |
| | Intel Corp. | 8,269,318 | 274,955 |
| | Texas Instruments Inc. | 1,806,359 | 106,214 |
| * | Micron Technology Inc. | 1,835,690 | 56,301 |
| | Avago Technologies Ltd. | | |
| | Class A | 432,509 | 55,197 |
| | Applied Materials Inc. | 2,083,581 | 52,194 |
| | Broadcom Corp. Class A | 926,866 | 41,922 |
| | Analog Devices Inc. | 536,431 | 31,403 |
| | Skyworks Solutions Inc. | 326,061 | 28,612 |
| | Lam Research Corp. | 271,818 | 22,414 |
| | NVIDIA Corp. | 925,102 | 20,408 |
| | Linear Technology Corp. | 406,859 | 19,604 |
| | Altera Corp. | 521,246 | 19,291 |
| | Xilinx Inc. | 452,194 | 19,159 |
| | KLA-Tencor Corp. | 281,929 | 18,313 |
| | Microchip Technology Inc. | 343,740 | 17,624 |
| * | Qorvo Inc. | 250,837 | 17,408 |
| | Maxim Integrated | | |
| | Products Inc. | 484,772 | 16,674 |
| | Marvell Technology | | |
| | Group Ltd. | 659,716 | 10,635 |
| * | SunEdison Inc. | 435,942 | 9,652 |
| * | ON Semiconductor Corp. | 745,333 | 9,503 |
| * | Cree Inc. | 204,749 | 8,038 |
| * | First Solar Inc. | 128,170 | 7,658 |
| | Teradyne Inc. | 370,148 | 7,151 |
| * | Freescale | | |
| | Semiconductor Ltd. | 181,394 | 6,550 |
| * | Cavium Inc. | 91,101 | 6,239 |
| * | Atmel Corp. | 714,576 | 5,960 |
| * | Synaptics Inc. | 62,463 | 5,369 |
| * | Microsemi Corp. | 162,973 | 5,254 |
| * | Integrated Device | | |
| | Technology Inc. | 241,804 | 4,991 |
| ^ | Cypress Semiconductor | | |
| | Corp. | 257,062 | 3,792 |
| * | Fairchild Semiconductor | | |
| | International Inc. Class A | 206,198 | 3,596 |
| * | Silicon Laboratories Inc. | 70,635 | 3,577 |
| | Intersil Corp. Class A | 221,685 | 3,456 |
| * | Advanced Micro | | |
| | Devices Inc. | 1,109,440 | 3,450 |
| * | Spansion Inc. Class A | 93,280 | 3,366 |
| * | Semtech Corp. | 114,746 | 3,320 |
| | Monolithic Power | | |
| | Systems Inc. | 62,281 | 3,284 |
| | Tessera Technologies Inc. | 81,159 | 3,251 |
| | MKS Instruments Inc. | 91,066 | 3,220 |
| * | Cirrus Logic Inc. | 106,680 | 3,212 |
| * | Entegris Inc. | 237,493 | 3,185 |
| * | PMC-Sierra Inc. | 333,096 | 3,164 |
| * | Mellanox Technologies Ltd. 65,569 | 3,124 |
| | | | | |
| | | | | | Market |
| | | | | | Value• |
| | | | | Shares | ($000) |
| | Power Integrations Inc. | | 50,884 | 2,791 |
| * | OmniVision | | | | |
| | Technologies Inc. | | | 97,962 | 2,626 |
| * | SunPower Corp. Class A | | 78,975 | 2,579 |
| * | Amkor Technology Inc. | | 244,385 | 2,378 |
| * | Rambus Inc. | | | 185,523 | 2,226 |
| *,^ | Ambarella Inc. | | | 37,053 | 2,126 |
| * | Cabot Microelectronics | | | |
| | Corp. | | | 41,015 | 2,125 |
| * | Kulicke & Soffa | | | | |
| | Industries Inc. | | | 131,839 | 2,109 |
| * | Veeco Instruments Inc. | | 68,496 | 2,088 |
| * | Diodes Inc. | | | 64,880 | 1,848 |
| * | Advanced Energy | | | | |
| | Industries Inc. | | | 65,393 | 1,741 |
| | Brooks Automation Inc. | | 115,673 | 1,388 |
| * | Lattice Semiconductor Corp. | 203,576 | 1,368 |
| | Micrel Inc. | | | 80,950 | 1,209 |
| * | M/A-COM Technology | | | |
| | Solutions Holdings Inc. | | 35,689 | 1,203 |
| * | FormFactor Inc. | | | 97,781 | 960 |
| * | Silicon Image Inc. | | | 130,373 | 950 |
| | Integrated Silicon | | | | |
| | Solution Inc. | | | 53,318 | 877 |
| * | Photronics Inc. | | | 103,544 | 860 |
| * | Ultratech Inc. | | | 47,104 | 850 |
| * | PDF Solutions Inc. | | | 46,190 | 838 |
| * | Inphi Corp. | | | 44,296 | 826 |
| * | Xcerra Corp. | | | 89,501 | 813 |
| * | CEVA Inc. | | | 36,796 | 733 |
| * | Exar Corp. | | | 67,610 | 725 |
| * | Nanometrics Inc. | | | 40,532 | 725 |
| * | Applied Micro Circuits Corp. | 131,895 | 717 |
| * | Rudolph Technologies Inc. | | 55,406 | 683 |
| | IXYS Corp. | | | 42,018 | 503 |
| * | Magnachip Semiconductor | | | |
| | Corp. | | | 52,698 | 301 |
| | | | | | 992,856 |
| Software (19.6%) | | | | |
| | Microsoft Corp. | 13,390,707 | 587,182 |
| | Oracle Corp. | | 6,062,269 | 265,649 |
| * | salesforce.com inc | | 1,024,962 | 71,112 |
| * | Adobe Systems Inc. | | | 810,250 | 64,091 |
| | Intuit Inc. | | | 463,929 | 45,293 |
| * | Electronic Arts Inc. | | | 532,934 | 30,473 |
| | Symantec Corp. | | 1,178,593 | 29,653 |
| * | Autodesk Inc. | | | 388,599 | 24,964 |
| * | Red Hat Inc. | | | 322,587 | 22,297 |
| | Activision Blizzard Inc. | | 856,868 | 19,982 |
| | CA Inc. | | | 569,302 | 18,514 |
| * | Citrix Systems Inc. | | | 275,297 | 17,530 |
| * | ServiceNow Inc. | | | 228,304 | 17,410 |
| * | Workday Inc. Class A | | 169,112 | 14,459 |
| * | ANSYS Inc. | | | 157,130 | 13,508 |
| * | Splunk Inc. | | | 194,787 | 13,099 |
| | CDK Global Inc. | | | 273,691 | 12,817 |
| * | Synopsys Inc. | | | 265,594 | 12,326 |
| * | VMware Inc. Class A | | 144,502 | 12,293 |
| | FactSet Research | | | | |
| | Systems Inc. | | | 68,086 | 10,591 |
| * | Cadence Design | | | | |
| | Systems Inc. | | | 500,564 | 9,188 |
| * | Fortinet Inc. | | | 238,017 | 8,000 |
| * | Informatica Corp. | | | 185,834 | 7,981 |
| * | Ultimate Software Group Inc. | 45,887 | 7,555 |
| | SS&C Technologies | | | | |
| | Holdings Inc. | | | 121,395 | 7,366 |
| * | PTC Inc. | | | 200,091 | 6,934 |
Information Technology Index Fund
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| * | Tableau Software Inc. | | |
| | Class A | 72,535 | 6,819 |
| * | Guidewire Software Inc. | 118,934 | 6,620 |
| | Solera Holdings Inc. | 116,369 | 6,486 |
| * | Manhattan Associates Inc. | 128,157 | 6,389 |
| * | Tyler Technologies Inc. | 53,158 | 6,345 |
| * | Verint Systems Inc. | 103,743 | 6,315 |
| * | Nuance | | |
| | Communications Inc. | 437,442 | 6,255 |
| * | FireEye Inc. | 140,147 | 6,204 |
| * | Aspen Technology Inc. | 155,974 | 6,021 |
| * | SolarWinds Inc. | 115,795 | 5,874 |
| * | NetSuite Inc. | 58,869 | 5,676 |
| * | Qlik Technologies Inc. | 153,240 | 4,971 |
| | Fair Isaac Corp. | 55,095 | 4,690 |
| * | Rovi Corp. | 161,689 | 4,023 |
| | Mentor Graphics Corp. | 165,762 | 3,889 |
| * | ACI Worldwide Inc. | 195,673 | 3,884 |
| * | Take-Two Interactive | | |
| | Software Inc. | 141,923 | 3,760 |
| | Blackbaud Inc. | 78,747 | 3,575 |
| * | CommVault Systems Inc. | 73,960 | 3,570 |
| | Advent Software Inc. | 74,173 | 3,276 |
| * | Proofpoint Inc. | 50,906 | 2,883 |
| * | MicroStrategy Inc. Class A | 15,706 | 2,801 |
| * | NetScout Systems Inc. | 67,211 | 2,710 |
| * | Zynga Inc. Class A | 1,152,978 | 2,652 |
| * | Fleetmatics Group plc | 63,406 | 2,613 |
| * | Synchronoss | | |
| | Technologies Inc. | 57,561 | 2,548 |
| * | Ellie Mae Inc. | 45,675 | 2,414 |
| | Monotype Imaging | | |
| | Holdings Inc. | 67,422 | 2,158 |
| * | Progress Software Corp. | 77,785 | 2,127 |
| * | Infoblox Inc. | 89,047 | 2,070 |
| * | TiVo Inc. | 175,495 | 1,962 |
| * | RealPage Inc. | 94,854 | 1,919 |
| * | Bottomline Technologies | | |
| | de Inc. | 67,502 | 1,787 |
| * | Imperva Inc. | 34,014 | 1,568 |
| * | BroadSoft Inc. | 49,508 | 1,558 |
| * | Zendesk Inc. | 62,033 | 1,533 |
| * | Qualys Inc. | 31,275 | 1,440 |
| ^ | Ebix Inc. | 51,588 | 1,356 |
| *,^ | VASCO Data Security | | |
| | International Inc. | 51,472 | 1,319 |
| * | Interactive Intelligence | | |
| | Group Inc. | 28,417 | 1,206 |
| | Pegasystems Inc. | 57,633 | 1,141 |
| * | Callidus Software Inc. | 77,173 | 1,103 |
| * | PROS Holdings Inc. | 42,324 | 1,036 |
| | Epiq Systems Inc. | 50,939 | 897 |
| * | ePlus Inc. | 10,332 | 859 |
| | | | |
| | | | | Market |
| | | | | Value• |
| | | | Shares | ($000) |
| * | Tangoe Inc. | | 57,871 | 718 |
| * | Comverse Inc. | | 35,436 | 636 |
| * | EnerNOC Inc. | | 45,689 | 616 |
| * | Rubicon Project Inc. | | 27,240 | 513 |
| * | MobileIron Inc. | | 51,831 | 463 |
| * | Varonis Systems Inc. | 12,422 | 384 |
| * | Gigamon Inc. | | 18,336 | 368 |
| * | Silver Spring Networks Inc. | 36,163 | 356 |
| * | Mavenir Systems Inc. | 24,209 | 353 |
| * | Jive Software Inc. | | 64,676 | 327 |
| | | | | 1,505,303 |
| Technology Hardware, Storage & | |
| Peripherals (21.7%) | | | |
| | Apple Inc. | 10,030,472 | 1,288,514 |
| | Hewlett-Packard Co. | | 3,193,142 | 111,249 |
| | EMC Corp. | | 3,479,677 | 100,702 |
| | Western Digital Corp. | 377,267 | 40,360 |
| | Seagate Technology plc | 559,031 | 34,168 |
| | SanDisk Corp. | | 377,347 | 30,161 |
| | NetApp Inc. | | 533,081 | 20,604 |
| * | NCR Corp. | | 287,027 | 8,442 |
| *,^ | 3D Systems Corp. | | 177,901 | 5,421 |
| | Lexmark International Inc. | | |
| | Class A | | 100,179 | 4,274 |
| | Diebold Inc. | | 105,302 | 3,759 |
| * | Electronics For Imaging Inc. 79,938 | 3,246 |
| * | Super Micro Computer Inc. | 60,932 | 2,448 |
| * | QLogic Corp. | | 150,061 | 2,252 |
| * | Cray Inc. | | 66,165 | 1,976 |
| *,^ | Nimble Storage Inc. | | 55,780 | 1,409 |
| * | Eastman Kodak Co. | | 31,087 | 586 |
| * | Silicon Graphics | | | |
| | International Corp. | | 54,590 | 504 |
| | | | | 1,660,075 |
| Total Common Stocks | | | |
| (Cost $5,560,850) | | | 7,649,792 |
| Temporary Cash Investment (0.1%) | |
| Money Market Fund (0.1%) | | |
| 1,2 | Vanguard Market Liquidity | | |
| | Fund, 0.134% | | | |
| | (Cost $8,710) | | 8,710,201 | 8,710 |
| Total Investments (100.0%) | | |
| (Cost $5,569,560) | | | 7,658,502 |
| Other Assets and Liabilities (0.0%) | |
| Other Assets | | | 38,159 |
| Liabilities2 | | | (40,588) |
| | | | | (2,429) |
| Net Assets (100%) | | | 7,656,073 |
At February 28, 2015, net assets consisted of:
Amount ($000)
| |
| Paid-in Capital | 5,609,051 |
| Undistributed Net Investment Income | 16,356 |
| Accumulated Net Realized Losses | (58,276) |
| Unrealized Appreciation (Depreciation) | 2,088,942 |
| Net Assets | 7,656,073 |
| |
| |
| Admiral Shares—Net Assets | |
| Applicable to 5,969,573 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 333,627 |
| Net Asset Value Per Share— | |
| Admiral Shares | $55.89 |
| |
| |
| ETF Shares—Net Assets | |
| Applicable to 67,092,244 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 7,322,446 |
| Net Asset Value Per Share— | |
| ETF Shares | $109.14 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $8,288,000.
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 $8,710,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
75
| |
| Information Technology Index Fund | |
| |
| |
| Statement of Operations |
| |
| Six Months Ended |
| February 28, 2015 |
| | ($000) |
| Investment Income | |
| Income | |
| Dividends | 49,308 |
| Interest1 | 2 |
| Securities Lending | 279 |
| Total Income | 49,589 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 543 |
| Management and Administrative— | |
| Admiral Shares | 113 |
| Management and Administrative— | |
| ETF Shares | 2,435 |
| Marketing and Distribution— | |
| Admiral Shares | 22 |
| Marketing and Distribution— | |
| ETF Shares | 604 |
| Custodian Fees | 30 |
| Shareholders’ Reports—Admiral Shares | 2 |
| Shareholders’ Reports—ETF Shares | 151 |
| Trustees’ Fees and Expenses | 2 |
| Total Expenses | 3,902 |
| Net Investment Income | 45,687 |
| Realized Net Gain (Loss) on | |
| Investment Securities Sold | 183,337 |
| Change in Unrealized Appreciation | |
| (Depreciation) of Investment Securities | 384,453 |
| Net Increase (Decrease) in Net Assets | |
| Resulting from Operations | 613,477 |
| | |
| Statement of Changes in Net Assets | | |
| |
| | Six Months Ended | Year Ended |
| | February 28, | August 31, |
| | 2015 | 2014 |
| | ($000) | ($000) |
| Increase (Decrease) in Net Assets | | |
| Operations | | |
| Net Investment Income | 45,687 | 68,518 |
| Realized Net Gain (Loss) | 183,337 | 216,537 |
| Change in Unrealized Appreciation (Depreciation) | 384,453 | 1,053,464 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 613,477 | 1,338,519 |
| Distributions | | |
| Net Investment Income | | |
| Admiral Shares | (3,231) | (1,907) |
| ETF Shares | (76,164) | (46,579) |
| Realized Capital Gain | | |
| Admiral Shares | — | — |
| ETF Shares | — | — |
| Total Distributions | (79,395) | (48,486) |
| Capital Share Transactions | | |
| Admiral Shares | 69,887 | 37,646 |
| ETF Shares | 935,685 | 1,139,818 |
| Net Increase (Decrease) from Capital Share Transactions | 1,005,572 | 1,177,464 |
| Total Increase (Decrease) | 1,539,654 | 2,467,497 |
| Net Assets | | |
| Beginning of Period | 6,116,419 | 3,648,922 |
| End of Period2 | 7,656,073 | 6,116,419 |
1 Interest income from an affiliated company of the fund was $2,000.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $16,356,000 and $50,064,000.
See accompanying Notes, which are an integral part of the Financial Statements.
76
| | | | | | | |
| Information Technology Index Fund | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| Admiral Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $51.93 | $39.75 | $37.17 | $30.30 | $25.30 | $24.39 |
| Investment Operations | | | | | | | |
| Net Investment Income | | . 3591 | .580 | .521 | . 320 | . 238 | .146 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | 4.202 | 12.079 | 2.493 | 6.797 | 4.947 | .882 |
| Total from Investment Operations | 4.561 | 12.659 | 3.014 | 7.117 | 5.185 | 1.028 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (.601) | (.479) | (. 434) | (.247) | (.185) | (.118) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | | (.601) | (.479) | (. 434) | (.247) | (.185) | (.118) |
| Net Asset Value, End of Period | $55.89 | $51.93 | $39.75 | $37.17 | $30.30 | $25.30 |
| |
| Total Return2 | | 8.86% | 32.05% | 8.24% | 23.63% | 20.46% | 4.17% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $334 | $241 | $152 | $95 | $60 | $46 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.12% | 0.12% | 0.14% | 0.14% | 0.19% | 0.24% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 1.36% | 1.38% | 1.53% | 1.01% | 0.79% | 0.69% |
| Portfolio Turnover Rate3 | | 3% | 6% | 6% | 6% | 6% | 9% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Calculated based on average shares outstanding.
2 Total returns do not include transaction or account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable transaction and account service fees.
3 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
77
| | | | | | | |
| Information Technology Index Fund | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| ETF Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $101.41 | $77.63 | $72.58 | $59.17 | $49.40 | $47.64 |
| Investment Operations | | | | | | | |
| Net Investment Income | | .6941 | 1.135 | 1.011 | .628 | .464 | . 296 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | 8.207 | 23.589 | 4.872 | 13.267 | 9.668 | 1.714 |
| Total from Investment Operations | 8.901 | 24.724 | 5.883 | 13.895 | 10.132 | 2.010 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (1.171) | (. 944) | (. 833) | (. 485) | (. 362) | (. 250) |
| Distributions from Realized Capital Gains — | — | — | — | — | — |
| Total Distributions | | (1.171) | (. 944) | (. 833) | (. 485) | (. 362) | (. 250) |
| Net Asset Value, End of Period | $109.14 | $101.41 | $77.63 | $72.58 | $59.17 | $49.40 |
| |
| Total Return | | 8.82% | 32.04% | 8.23% | 23.65% | 20.48% | 4.17% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $7,322 | $5,876 | $3,497 | $2,536 | $1,730 | $1,137 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.12% | 0.12% | 0.14% | 0.14% | 0.19% | 0.24% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 1.36% | 1.38% | 1.53% | 1.01% | 0.79% | 0.69% |
| Portfolio Turnover Rate2 | | 3% | 6% | 6% | 6% | 6% | 9% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Calculated based on average shares outstanding.
2 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.
78
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 designed for investors who meet certain administrative, service, and account-size criteria. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. 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 for all open federal income tax years (August 31, 2011–2014), and for the period ended February 28, 2015, 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. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counter-parties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
5. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $2.89 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2015, or at any time during the period then ended.
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.
79
Information Technology Index Fund
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 based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At February 28, 2015, the fund had contributed capital of $671,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.27% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At February 28, 2015, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
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, 2015, the fund realized $185,049,000 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, 2014, the fund had available capital losses totaling $56,558,000 to offset future net capital gains. Of this amount, $55,219,000 is subject to expiration dates; $612,000 may be used to offset future net capital gains through August 31, 2015, $218,000 through August 31, 2016, $14,013,000 through August 31, 2017, $20,048,000 through August 31, 2018, and $20,328,000 through August 31, 2019. Capital losses of $1,339,000 realized beginning in fiscal 2012 may be carried forward indefinitely under the Regulated Investment Company Modernization Act of 2010, but must be used before any expiring loss carryforwards. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2015; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2015, the cost of investment securities for tax purposes was $5,569,560,000. Net unrealized appreciation of investment securities for tax purposes was $2,088,942,000, consisting of unrealized gains of $2,145,176,000 on securities that had risen in value since their purchase and $56,234,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the six months ended February 28, 2015, the fund purchased $1,412,269,000 of investment securities and sold $444,849,000 of investment securities, other than temporary cash investments. Purchases and sales include $1,205,927,000 and $345,637,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
80
| | | | |
| Information Technology Index Fund | | | | |
| |
| |
| |
| |
| F. Capital share transactions for each class of shares were: | | | |
| | Six Months Ended | | Year Ended |
| | February 28, 2015 | August 31, 2014 |
| | Amount | Shares | Amount | Shares |
| | ($000) | (000) | ($000) | (000) |
| Admiral Shares | | | | |
| Issued | 91,329 | 1,742 | 74,157 | 1,605 |
| Issued in Lieu of Cash Distributions | 3,022 | 58 | 1,800 | 41 |
| Redeemed | (24,464) | (467) | (38,311) | (835) |
| Net Increase (Decrease) —Admiral Shares | 69,887 | 1,333 | 37,646 | 811 |
| ETF Shares | | | | |
| Issued | 1,290,114 | 12,575 | 1,543,974 | 17,400 |
| Issued in Lieu of Cash Distributions | — | — | — | — |
| Redeemed | (354,429) | (3,425) | (404,156) | (4,500) |
| Net Increase (Decrease)—ETF Shares | 935,685 | 9,150 | 1,139,818 | 12,900 |
At February 28, 2015, one shareholder was the record or beneficial owner of 32% of the fund’s net assets. If the shareholder were to redeem its investment in the fund, the redemption might result in an increase in the fund’s expense ratio.
G. Management has determined that no material events or transactions occurred subsequent to February 28, 2015, that would require recognition or disclosure in these financial statements.
81
Materials Index Fund
Fund Profile
As of February 28, 2015
| | | |
| Share-Class Characteristics | | |
| | Admiral | ETF |
| | Shares | Shares |
| Ticker Symbol | VMIAX | VAW |
| Expense Ratio1 | | 0.12% | 0.12% |
| 30-Day SEC Yield | | 1.81% | 1.82% |
| |
| |
| Portfolio Characteristics | | |
| | | MSCI | |
| | | US IMI/ | MSCI |
| | | Materials | US IMI/ |
| | Fund | 25/50 | 2500 |
| Number of Stocks | 125 | 125 | 2,481 |
| Median Market Cap | $22.5B | $22.5B | $49.1B |
| Price/Earnings Ratio | 23.8x | 23.8x | 21.3x |
| Price/Book Ratio | 3.2x | 3.2x | 2.9x |
| Return on Equity | 18.9% | 18.9% | 17.7% |
| Earnings Growth Rate | 17.2% | 17.2% | 13.9% |
| Dividend Yield | 1.9% | 1.9% | 1.9% |
| Foreign Holdings | 0.0% | 0.0% | 0.0% |
| Turnover Rate | | | |
| (Annualized) | 4% | — | — |
| Short-Term Reserves | 0.0% | — | — |
| |
| |
| Volatility Measures | | | |
| | MSCI US | |
| | IMI/Materials | MSCI US |
| | | 25/50 | IMI/2500 |
| R-Squared | | 1.00 | 0.80 |
| Beta | | 1.00 | 1.10 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
| |
| Subindustry Diversification | |
| (% of equity exposure) | |
| |
| Aluminum | 2.4% |
| Commodity Chemicals | 5.9 |
| Construction Materials | 2.9 |
| Diversified Chemicals | 18.5 |
| Diversified Metals & Mining | 3.5 |
| Fertilizers & Agricultural Chemicals | 11.3 |
| Gold | 2.2 |
| Industrial Gases | 9.4 |
| Metal & Glass Containers | 4.0 |
| Paper Packaging | 6.6 |
| Paper Products | 4.2 |
| Specialty Chemicals | 23.2 |
| Steel | 4.9 |
| Other Materials | 1.0 |
Ten Largest Holdings (% of total net assets)
| | |
| EI du Pont de | | |
| Nemours & Co. | Diversified Chemicals | 8.4% |
| Monsanto Co. | Fertilizers & | |
| | Agricultural Chemicals | 7.0 |
| Dow Chemical Co. | Diversified Chemicals | 6.9 |
| Praxair Inc. | Industrial Gases | 4.4 |
| LyondellBasell | | |
| Industries NV | | |
| Class A | Commodity Chemicals | 4.4 |
| Air Products | | |
| & Chemicals Inc. | Industrial Gases | 4.0 |
| PPG Industries Inc. | Specialty Chemicals | 3.9 |
| Ecolab Inc. | Specialty Chemicals | 3.7 |
| Sherwin-Williams | | |
| Co. | Specialty Chemicals | 2.8 |
| International Paper | | |
| Co. | Paper Products | 2.7 |
| Top Ten | | 48.2% |
The holdings listed exclude any temporary cash investments and equity index products.
1 The expense ratios shown are from the prospectus dated December 23, 2014, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2015, the annualized expense ratios were 0.12% for Admiral Shares and 0.12% for ETF Shares.
82
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 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, 2004–February 28, 2015
Average Annual Total Returns: Periods Ended December 31, 2014
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
| | | | |
| | Inception Date | One Year | Five Years | Ten Years |
| ETF Shares | 1/26/2004 | | | |
| Market Price | | 5.89% | 11.80% | 8.28% |
| Net Asset Value | | 5.90 | 11.80 | 8.29 |
| Admiral Shares | 2/11/2004 | 5.93 | 11.81 | 8.28 |
See Financial Highlights for dividend and capital gains information.
83
Materials Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the 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 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 (100.1%) | | | |
| Chemicals (68.5%) | | | |
| | EI du Pont de Nemours | | | |
| | & Co. | 1,636,286 | 127,385 |
| | Monsanto Co. | | 874,691 | 105,339 |
| | Dow Chemical Co. | 2,128,735 | 104,819 |
| | Praxair Inc. | | 526,279 | 67,311 |
| | LyondellBasell Industries | | | |
| | NV Class A | | 768,742 | 66,043 |
| | Air Products & | | | |
| | Chemicals Inc. | | 386,058 | 60,279 |
| | PPG Industries Inc. | | 247,869 | 58,343 |
| | Ecolab Inc. | | 487,910 | 56,373 |
| | Sherwin-Williams Co. | | 147,394 | 42,037 |
| | Mosaic Co. | | 578,237 | 30,797 |
| | Sigma-Aldrich Corp. | | 215,046 | 29,689 |
| | CF Industries Holdings Inc. | | 89,832 | 27,509 |
| | Eastman Chemical Co. | | 268,281 | 19,976 |
| | International Flavors & | | | |
| | Fragrances Inc. | | 146,179 | 17,824 |
| | Celanese Corp. Class A | | 277,526 | 15,850 |
| | FMC Corp. | | 240,595 | 15,256 |
| | Ashland Inc. | | 119,187 | 15,211 |
| | Airgas Inc. | | 121,393 | 14,230 |
| * | WR Grace & Co. | | 126,775 | 12,570 |
| | Valspar Corp. | | 142,199 | 12,322 |
| | RPM International Inc. | | 240,992 | 12,182 |
| | Albemarle Corp. | | 203,069 | 11,488 |
| | NewMarket Corp. | | 18,127 | 8,540 |
| | Huntsman Corp. | | 374,639 | 8,414 |
| | PolyOne Corp. | | 164,001 | 6,517 |
| | Cytec Industries Inc. | | 123,611 | 6,493 |
| | Axiall Corp. | | 126,739 | 5,869 |
| | Westlake Chemical Corp. | | 84,135 | 5,617 |
| | Sensient Technologies Corp. | 87,014 | 5,535 |
| * | Platform Specialty | | | |
| | Products Corp. | | 213,472 | 5,503 |
| | Scotts Miracle-Gro Co. | | | |
| | Class A | | 82,553 | 5,408 |
| | Cabot Corp. | | 115,539 | 5,213 |
| | Minerals Technologies Inc. | | 62,336 | 4,565 |
| | HB Fuller Co. | | 90,842 | 4,061 |
| | Olin Corp. | | 141,148 | 3,958 |
| * | Chemtura Corp. | | 133,001 | 3,491 |
| | Balchem Corp. | | 55,502 | 3,270 |
| * | Axalta Coating Systems Ltd. | 103,698 | 2,945 |
| | Tronox Ltd. Class A | | 114,883 | 2,486 |
| | A Schulman Inc. | | 52,638 | 2,241 |
| | Innophos Holdings Inc. | | 39,294 | 2,206 |
| | Innospec Inc. | | 44,112 | 1,948 |
| | Quaker Chemical Corp. | | 23,998 | 1,948 |
| * | Ferro Corp. | | 141,346 | 1,802 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| * | Calgon Carbon Corp. | 86,500 | 1,785 |
| | OM Group Inc. | 55,579 | 1,600 |
| * | Flotek Industries Inc. | 92,229 | 1,575 |
| | Stepan Co. | 35,980 | 1,478 |
| * | Intrepid Potash Inc. | 102,582 | 1,448 |
| | Rayonier Advanced | | |
| | Materials Inc. | 76,986 | 1,429 |
| * | LSB Industries Inc. | 34,700 | 1,304 |
| * | Kraton Performance | | |
| | Polymers Inc. | 59,068 | 1,192 |
| | Tredegar Corp. | 40,938 | 842 |
| | Hawkins Inc. | 17,333 | 676 |
| | Koppers Holdings Inc. | 37,037 | 597 |
| | Zep Inc. | 35,473 | 590 |
| * | Rentech Inc. | 413,368 | 566 |
| | FutureFuel Corp. | 43,908 | 540 |
| | American Vanguard Corp. | 47,324 | 533 |
| | Kronos Worldwide Inc. | 41,495 | 509 |
| * | Trinseo SA | 22,255 | 404 |
| | | | 1,037,931 |
| Construction Materials (2.9%) | |
| | Vulcan Materials Co. | 237,910 | 19,746 |
| | Martin Marietta | | |
| | Materials Inc. | 103,292 | 14,702 |
| | Eagle Materials Inc. | 86,226 | 6,769 |
| * | Headwaters Inc. | 133,152 | 2,186 |
| | United States Lime & | | |
| | Minerals Inc. | 3,950 | 267 |
| | | | 43,670 |
| Containers & Packaging (10.6%) | |
| | Rock-Tenn Co. Class A | 253,019 | 17,367 |
| | Sealed Air Corp. | 362,170 | 17,069 |
| | Ball Corp. | 234,847 | 16,841 |
| | MeadWestvaco Corp. | 301,228 | 15,983 |
| | Packaging Corp. of America | 177,664 | 14,721 |
| * | Crown Holdings Inc. | 250,815 | 13,293 |
| * | Graphic Packaging | | |
| | Holding Co. | 590,272 | 8,907 |
| | Avery Dennison Corp. | 164,419 | 8,805 |
| | Bemis Co. Inc. | 180,304 | 8,799 |
| | Sonoco Products Co. | 182,826 | 8,562 |
| * | Owens-Illinois Inc. | 297,705 | 7,788 |
| | AptarGroup Inc. | 116,910 | 7,701 |
| * | Berry Plastics Group Inc. | 213,419 | 7,322 |
| | Silgan Holdings Inc. | 79,904 | 4,587 |
| | Greif Inc. Class A | 46,124 | 2,029 |
| | Myers Industries Inc. | 48,065 | 957 |
| | | | 160,731 |
| Metals & Mining (13.3%) | | |
| | Freeport-McMoRan Inc. | 1,876,722 | 40,594 |
| | Alcoa Inc. | 2,129,129 | 31,490 |
| | Nucor Corp. | 576,229 | 27,100 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | Newmont Mining Corp. | 900,909 | 23,721 |
| | Royal Gold Inc. | 117,684 | 8,485 |
| | Reliance Steel & | | |
| | Aluminum Co. | 141,013 | 8,039 |
| | Steel Dynamics Inc. | 433,943 | 7,906 |
| | Allegheny Technologies Inc. | 196,219 | 6,605 |
| | United States Steel Corp. | 262,589 | 6,289 |
| | Compass Minerals | | |
| | International Inc. | 60,665 | 5,500 |
| | Carpenter Technology Corp. | 96,177 | 4,074 |
| * | Stillwater Mining Co. | 217,001 | 3,147 |
| | Commercial Metals Co. | 202,670 | 3,050 |
| | Worthington Industries Inc. | 92,764 | 2,505 |
| | Kaiser Aluminum Corp. | 32,169 | 2,430 |
| | Hecla Mining Co. | 662,917 | 2,201 |
| | SunCoke Energy Inc. | 119,504 | 2,181 |
| | TimkenSteel Corp. | 65,932 | 1,982 |
| * | Century Aluminum Co. | 96,385 | 1,828 |
| ^ | Cliffs Natural Resources Inc. | 262,683 | 1,797 |
| | Globe Specialty Metals Inc. | 106,488 | 1,773 |
| * | RTI International Metals Inc. | 52,975 | 1,476 |
| * | AK Steel Holding Corp. | 319,642 | 1,413 |
| * | Horsehead Holding Corp. | 100,856 | 1,295 |
| | Materion Corp. | 34,529 | 1,264 |
| * | Coeur Mining Inc. | 185,599 | 1,084 |
| | Haynes International Inc. | 22,256 | 899 |
| | Schnitzer Steel | | |
| | Industries Inc. | 47,710 | 749 |
| * | McEwen Mining Inc. | 400,460 | 453 |
| *,^ | Molycorp Inc. | 355,199 | 333 |
| | | | 201,663 |
| Paper & Forest Products (4.8%) | | |
| | International Paper Co. | 726,889 | 41,004 |
| | KapStone Paper and | | |
| | Packaging Corp. | 156,019 | 5,376 |
| | Domtar Corp. | 116,317 | 5,258 |
| * | Louisiana-Pacific Corp. | 256,765 | 4,321 |
| | Schweitzer-Mauduit | | |
| | International Inc. | 55,083 | 2,579 |
| * | Resolute Forest | | |
| | Products Inc. | 119,593 | 2,181 |
| * | Boise Cascade Co. | 60,480 | 2,154 |
| * | Clearwater Paper Corp. | 35,200 | 2,149 |
| | PH Glatfelter Co. | 77,571 | 1,901 |
| | Neenah Paper Inc. | 29,939 | 1,809 |
| | Deltic Timber Corp. | 20,505 | 1,357 |
| * | Mercer International Inc. | 87,027 | 1,242 |
| | Wausau Paper Corp. | 76,053 | 714 |
| | | | 72,045 |
| Total Common Stocks | | |
| (Cost $1,370,348) | | 1,516,040 |
84
| | |
| Materials Index Fund | | |
| |
| |
| |
| |
| | | Market |
| | | Value• |
| | Shares | ($000) |
| Temporary Cash Investment (0.0%) | |
| Money Market Fund (0.0%) | |
| 1,2 Vanguard Market Liquidity | |
| Fund, 0.134% | | |
| (Cost $741) | 740,801 | 741 |
| Total Investments (100.1%) | |
| (Cost $1,371,089) | | 1,516,781 |
| Other Assets and Liabilities (–0.1%) | |
| Other Assets | | 8,662 |
| Liabilities2 | | (10,402) |
| | | (1,740) |
| Net Assets (100%) | | 1,515,041 |
At February 28, 2015, net assets consisted of:
| |
| | Amount |
| | ($000) |
| Paid-in Capital | 1,414,051 |
| Undistributed Net Investment Income | 3,541 |
| Accumulated Net Realized Losses | (48,243) |
| Unrealized Appreciation (Depreciation) | 145,692 |
| Net Assets | 1,515,041 |
| |
| |
| Admiral Shares—Net Assets | |
| Applicable to 3,468,735 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 199,192 |
| Net Asset Value Per Share— | |
| Admiral Shares | $57.43 |
| |
| |
| ETF Shares—Net Assets | |
| Applicable to 11,677,042 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 1,315,849 |
| Net Asset Value Per Share— | |
| ETF Shares | $112.69 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $711,000.
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 $741,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
85
| |
| Materials Index Fund | |
| |
| |
| Statement of Operations |
| |
| Six Months Ended |
| February 28, 2015 |
| | ($000) |
| Investment Income | |
| Income | |
| Dividends | 13,983 |
| Interest1 | 1 |
| Securities Lending | 100 |
| Total Income | 14,084 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 122 |
| Management and Administrative— | |
| Admiral Shares | 73 |
| Management and Administrative— | |
| ETF Shares | 452 |
| Marketing and Distribution— | |
| Admiral Shares | 13 |
| Marketing and Distribution— | |
| ETF Shares | 130 |
| Custodian Fees | 6 |
| Shareholders’ Reports—Admiral Shares | 1 |
| Shareholders’ Reports—ETF Shares | 46 |
| Trustees’ Fees and Expenses | 1 |
| Total Expenses | 844 |
| Net Investment Income | 13,240 |
| Realized Net Gain (Loss) on | |
| Investment Securities Sold | 106,896 |
| Change in Unrealized Appreciation | |
| (Depreciation) of Investment Securities | (109,375) |
| Net Increase (Decrease) in Net | |
| Assets Resulting from Operations | 10,761 |
| | |
| Statement of Changes in Net Assets | | |
| |
| | Six Months Ended | Year Ended |
| | February 28, | August 31, |
| | 2015 | 2014 |
| | ($000) | ($000) |
| Increase (Decrease) in Net Assets | | |
| Operations | | |
| Net Investment Income | 13,240 | 23,381 |
| Realized Net Gain (Loss) | 106,896 | 46,571 |
| Change in Unrealized Appreciation (Depreciation) | (109,375) | 215,169 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 10,761 | 285,121 |
| Distributions | | |
| Net Investment Income | | |
| Admiral Shares | (2,938) | (2,782) |
| ETF Shares | (22,046) | (17,757) |
| Realized Capital Gain | | |
| Admiral Shares | — | — |
| ETF Shares | — | — |
| Total Distributions | (24,984) | (20,539) |
| Capital Share Transactions | | |
| Admiral Shares | 24,492 | 1,431 |
| ETF Shares | 7,746 | 296,361 |
| Net Increase (Decrease) from Capital Share Transactions | 32,238 | 297,792 |
| Total Increase (Decrease) | 18,015 | 562,374 |
| Net Assets | | |
| Beginning of Period | 1,497,026 | 934,652 |
| End of Period2 | 1,515,041 | 1,497,026 |
1 Interest income from an affiliated company of the fund was $1,000.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $3,541,000 and $15,285,000.
See accompanying Notes, which are an integral part of the Financial Statements.
86
| | | | | | | |
| Materials Index Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| Admiral Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $57.84 | $46.34 | $40.66 | $39.53 | $33.32 | $30.68 |
| Investment Operations | | | | | | | |
| Net Investment Income | | .509 | .936 | 1.014 | .783 | . 579 | .9711 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | .043 | 11.528 | 5.464 | 1.151 | 6.551 | 2.128 |
| Total from Investment Operations | . 552 | 12.464 | 6.478 | 1.934 | 7.130 | 3.099 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (. 962) | (. 964) | (.798) | (. 804) | (. 920) | (. 459) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | | (. 962) | (. 964) | (.798) | (. 804) | (. 920) | (. 459) |
| Net Asset Value, End of Period | $57.43 | $57.84 | $46.34 | $40.66 | $39.53 | $33.32 |
| |
| Total Return2 | | 1.09% | 27.18% | 16.12% | 5.10% | 21.26% | 10.07% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $199 | $175 | $139 | $123 | $138 | $97 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.12% | 0.12% | 0.14% | 0.14% | 0.19% | 0.24% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 1.83% | 1.88% | 2.32% | 1.93% | 1.63% | 2.81%1 |
| Portfolio Turnover Rate3 | | 4% | 4% | 7% | 7% | 14% | 10% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Net investment income per share and the ratio of net investment income to average net assets include $.417 and 1.14%, respectively, resulting from a special dividend from Weyerhaeuser Co. in July 2010.
2 Total returns do not include transaction or account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable transaction and account service fees.
3 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
87
| | | | | | | |
| Materials Index Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| ETF Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $113.50 | $90.94 | $79.81 | $77.59 | $65.40 | $60.23 |
| Investment Operations | | | | | | | |
| Net Investment Income | | .996 | 1.847 | 1.993 | 1.537 | 1.142 | 1.9071 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | .086 | 22.612 | 10.708 | 2.259 | 12.852 | 4.186 |
| Total from Investment Operations | 1.082 | 24.459 | 12.701 | 3.796 | 13.994 | 6.093 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (1.892) | (1.899) | (1.571) | (1.576) | (1.804) | (. 923) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | | (1.892) | (1.899) | (1.571) | (1.576) | (1.804) | (. 923) |
| Net Asset Value, End of Period | $112.69 | $113.50 | $90.94 | $79.81 | $77.59 | $65.40 |
| |
| Total Return | | 1.05% | 27.17% | 16.08% | 5.09% | 21.26% | 10.07% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $1,316 | $1,323 | $796 | $642 | $593 | $415 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.12% | 0.12% | 0.14% | 0.14% | 0.19% | 0.24% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 1.83% | 1.88% | 2.32% | 1.93% | 1.63% | 2.81%1 |
| Portfolio Turnover Rate2 | | 4% | 4% | 7% | 7% | 14% | 10% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Net investment income per share and the ratio of net investment income to average net assets include $.819 and 1.14%, respectively, resulting from a special dividend from Weyerhaeuser Co. in July 2010.
2 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.
88
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 designed for investors who meet certain administrative, service, and account-size criteria. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. 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 for all open federal income tax years (August 31, 2011–2014), and for the period ended February 28, 2015, 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. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counter-parties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
5. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $2.89 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2015, or at any time during the period then ended.
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.
89
Materials Index Fund
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 based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At February 28, 2015, the fund had contributed capital of $132,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.05% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At February 28, 2015, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
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, 2015, the fund realized $114,866,000 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, 2014, the fund had available capital losses totaling $40,272,000 to offset future net capital gains. Of this amount, $39,879,000 is subject to expiration dates; $18,746,000 may be used to offset future net capital gains through August 31, 2018, and $21,133,000 through August 31, 2019. Capital losses of $393,000 realized beginning in fiscal 2012 may be carried forward indefinitely under the Regulated Investment Company Modernization Act of 2010, but must be used before any expiring loss carryforwards. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2015; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2015, the cost of investment securities for tax purposes was $1,371,089,000. Net unrealized appreciation of investment securities for tax purposes was $145,692,000, consisting of unrealized gains of $286,170,000 on securities that had risen in value since their purchase and $140,478,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the six months ended February 28, 2015, the fund purchased $361,206,000 of investment securities and sold $339,646,000 of investment securities, other than temporary cash investments. Purchases and sales include $295,274,000 and $308,560,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
90
| | | | |
| Materials Index Fund | | | | |
| |
| |
| |
| |
| F. Capital share transactions for each class of shares were: | | | |
| | Six Months Ended | | Year Ended |
| | February 28, 2015 | August 31, 2014 |
| | Amount | Shares | Amount | Shares |
| | ($000) | (000) | ($000) | (000) |
| Admiral Shares | | | | |
| Issued | 37,770 | 691 | 37,288 | 704 |
| Issued in Lieu of Cash Distributions | 2,371 | 45 | 2,322 | 46 |
| Redeemed | (15,649) | (285) | (38,179) | (729) |
| Net Increase (Decrease) —Admiral Shares | 24,492 | 451 | 1,431 | 21 |
| ETF Shares | | | | |
| Issued | 316,757 | 2,950 | 411,198 | 4,001 |
| Issued in Lieu of Cash Distributions | — | — | — | — |
| Redeemed | (309,011) | (2,925) | (114,837) | (1,100) |
| Net Increase (Decrease)—ETF Shares | 7,746 | 25 | 296,361 | 2,901 |
G. Management has determined that no material events or transactions occurred subsequent to February 28, 2015, that would require recognition or disclosure in these financial statements.
91
Telecommunication Services Index Fund
| | | |
| Fund Profile | | | |
| As of February 28, 2015 | | |
| |
| Share-Class Characteristics | | |
| | Admiral | ETF |
| | Shares | Shares |
| Ticker Symbol | VTCAX | VOX |
| Expense Ratio1 | | 0.12% | 0.12% |
| 30-Day SEC Yield | | 3.21% | 3.21% |
| |
| |
| Portfolio Characteristics | | |
| | | MSCI | |
| | | US IMI/ | |
| | | Telecom | MSCI |
| | | Services | US IMI/ |
| | Fund | 25/50 | 2500 |
| Number of Stocks | 29 | 28 | 2,481 |
| Median Market Cap | $21.7B | $21.7B | $49.1B |
| Price/Earnings Ratio | 34.0x | 34.1x | 21.3x |
| Price/Book Ratio | 2.9x | 2.9x | 2.9x |
| Return on Equity | 12.0% | 12.0% | 17.7% |
| Earnings Growth Rate | 0.8% | 0.7% | 13.9% |
| Dividend Yield | 3.4% | 3.4% | 1.9% |
| Foreign Holdings | 0.0% | 0.0% | 0.0% |
| Turnover Rate | | | |
| (Annualized) | 17% | — | — |
| Short-Term Reserves | 0.0% | — | — |
| | |
| Volatility Measures | | |
| | MSCI US | |
| | IMI/Telecom | |
| | Services | MSCI US |
| | 25/50 | IMI/2500 |
| R-Squared | 1.00 | 0.30 |
| Beta | 1.00 | 0.64 |
| These measures show the degree and timing of the fund’s |
| fluctuations compared with the indexes over 36 months. |
| |
| Subindustry Diversification | |
| (% of equity exposure) | | |
| |
| Alternative Carriers | | 18.7% |
| Integrated Telecommunication Services | 62.4 |
| Wireless Telecommunication Services | 18.9 |
| | |
| Ten Largest Holdings (% of total net assets) |
| |
| AT&T Inc. | Integrated | �� |
| | Telecommunication | |
| | Services | 22.2% |
| Verizon | Integrated | |
| Communications | Telecommunication | |
| Inc. | Services | 22.1 |
| SBA | Wireless | |
| Communications | Telecommunication | |
| Corp. Class A | Services | 4.7 |
| Level 3 | | |
| Communications Inc. | Alternative Carriers | 4.5 |
| CenturyLink Inc. | Integrated | |
| | Telecommunication | |
| | Services | 4.4 |
| T-Mobile US Inc. | Wireless | |
| | Telecommunication | |
| | Services | 3.2 |
| Frontier | Integrated | |
| Communications | Telecommunication | |
| Corp. | Services | 3.2 |
| Sprint Corp. | Wireless | |
| | Telecommunication | |
| | Services | 2.3 |
| Windstream | Integrated | |
| Holdings Inc. | Telecommunication | |
| | Services | 2.1 |
| inContact Inc. | Alternative Carriers | 1.9 |
| Top Ten Total | | 70.6% |
| The holdings listed exclude any temporary cash investments and |
| equity index products. | | |
1 The expense ratios shown are from the prospectus dated December 23, 2014, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2015, the annualized expense ratios were 0.12% for Admiral Shares and 0.12% for ETF Shares.
92
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 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, 2015
Average Annual Total Returns: Periods Ended December 31, 2014
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
| | | | |
| | Inception Date | One Year | Five Years | Ten Years |
| ETF Shares | 9/23/2004 | | | |
| Market Price | | 4.03% | 11.99% | 7.46% |
| Net Asset Value | | 3.98 | 12.00 | 7.45 |
| Admiral Shares | 3/11/2005 | 4.04 | 12.03 | 8.091 |
1 Since inception.
See Financial Highlights for dividend and capital gains information.
93
Telecommunication Services Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the 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 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 (99.6%)1 | | |
| Diversified Telecommunication Services (80.8%) |
| | Alternative Carriers (18.6%) | |
| * | Level 3 Communications | | |
| | Inc. | 820,795 | 44,208 |
| * | inContact Inc. | 1,582,660 | 18,533 |
| * | Vonage Holdings Corp. | 3,907,226 | 17,739 |
| | Cogent Communications | | |
| | Holdings Inc. | 467,419 | 17,164 |
| * | Iridium Communications | | |
| | Inc. | 1,749,176 | 16,757 |
| | Lumos Networks Corp. | 898,406 | 15,471 |
| * | 8x8 Inc. | 2,006,807 | 14,870 |
| *,^ | Globalstar Inc. | 5,732,051 | 14,789 |
| * | Premiere Global Services | | |
| | Inc. | 1,338,733 | 13,039 |
| | Inteliquent Inc. | 791,879 | 11,680 |
| |
| | Integrated Telecommunication Services (62.2%) |
| | AT&T Inc. | 6,350,665 | 219,479 |
| | Verizon Communications | | |
| | Inc. | 4,427,552 | 218,943 |
| | CenturyLink Inc. | 1,150,540 | 43,560 |
| | Frontier Communications | | |
| | Corp. | 3,952,788 | 31,543 |
| | Windstream Holdings Inc. | 2,614,061 | 20,625 |
| | Atlantic Tele-Network Inc. | 254,152 | 17,493 |
| | IDT Corp. Class B | 803,577 | 16,915 |
| * | General Communication | | |
| | Inc. Class A | 1,190,367 | 16,510 |
| | Consolidated | | |
| | Communications | | |
| | Holdings Inc. | 736,311 | 15,669 |
| * | Cincinnati Bell Inc. | 4,273,790 | 14,317 |
| | | | 799,304 |
| Other (0.1%)2 | | |
| * | Leap Wireless | | |
| | International Inc CVR | 577,114 | 1,454 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| Wireless Telecommunication Services (18.7%) |
| * | SBA Communications | | |
| | Corp. Class A | 370,335 | 46,184 |
| * | T-Mobile US Inc. | 967,403 | 31,953 |
| * | Sprint Corp. | 4,389,512 | 22,474 |
| | Telephone & Data | | |
| | Systems Inc. | 717,994 | 18,266 |
| | Spok Holdings Inc. | 961,549 | 17,875 |
| * | RingCentral Inc. Class A | 1,078,649 | 17,010 |
| | Shenandoah | | |
| | Telecommunications Co. | 561,275 | 16,328 |
| * | United States Cellular Corp. | 381,138 | 14,457 |
| | | | 184,547 |
| Total Common Stocks | | |
| (Cost $935,110) | | 985,305 |
| Temporary Cash Investment (1.0%)1 | |
| Money Market Fund (1.0%) | | |
| 3,4 | Vanguard Market Liquidity | | |
| | Fund, 0.134% | | |
| | (Cost $9,797) | 9,797,136 | 9,797 |
| Total Investments (100.6%) | | |
| (Cost $944,907) | | 995,102 |
| Other Assets and Liabilities (–0.6%) | |
| Other Assets | | 20,052 |
| Liabilities4 | | (25,895) |
| | | | (5,843) |
| Net Assets (100%) | | 989,259 |
| |
| At February 28, 2015, net assets consisted of: |
| | Amount |
| | ($000) |
| Paid-in Capital | 1,018,432 |
| Undistributed Net Investment Income | 4,625 |
| Accumulated Net Realized Losses | (83,988) |
| Unrealized Appreciation (Depreciation) | |
| Investment Securities | 50,195 |
| Futures Contracts | (5) |
| Net Assets | 989,259 |
| |
| |
| Admiral Shares—Net Assets | |
| Applicable to 582,176 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 26,263 |
| Net Asset Value Per Share— | |
| Admiral Shares | $45.11 |
| |
| |
| ETF Shares—Net Assets | |
| Applicable to 10,878,838 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 962,996 |
| Net Asset Value Per Share— | |
| ETF Shares | $88.52 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $8,052,000.
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 100.1% and 0.5%, respectively, of net assets.
2 “Other” represents securities that are not classified by the fund’s benchmark index.
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 $9,362,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
94
| |
| Telecommunication Services Index Fund | |
| |
| |
| Statement of Operations |
| |
| Six Months Ended |
| February 28, 2015 |
| | ($000) |
| Investment Income | |
| Income | |
| Dividends | 12,979 |
| Interest1 | 1 |
| Securities Lending | 54 |
| Total Income | 13,034 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 67 |
| Management and Administrative— | |
| Admiral Shares | 13 |
| Management and Administrative— | |
| ETF Shares | 268 |
| Marketing and Distribution— | |
| Admiral Shares | — |
| Marketing and Distribution— | |
| ETF Shares | 77 |
| Custodian Fees | 5 |
| Shareholders’ Reports—Admiral Shares | — |
| Shareholders’ Reports—ETF Shares | 52 |
| Total Expenses | 482 |
| Net Investment Income | 12,552 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold | 16,280 |
| Futures Contracts | 78 |
| Realized Net Gain (Loss) | 16,358 |
| Change in Unrealized Appreciation | |
| (Depreciation) | |
| Investment Securities | (1,231) |
| Futures Contracts | (5) |
| Change in Unrealized Appreciation | |
| (Depreciation) | (1,236) |
| Net Increase (Decrease) in Net Assets | |
| Resulting from Operations | 27,674 |
| | |
| Statement of Changes in Net Assets | | |
| |
| | Six Months Ended | Year Ended |
| | February 28, | August 31, |
| | 2015 | 2014 |
| | ($000) | ($000) |
| Increase (Decrease) in Net Assets | | |
| Operations | | |
| Net Investment Income | 12,552 | 21,331 |
| Realized Net Gain (Loss) | 16,358 | 471 |
| Change in Unrealized Appreciation (Depreciation) | (1,236) | 74,722 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 27,674 | 96,524 |
| Distributions | | |
| Net Investment Income | | |
| Admiral Shares | (655) | (927) |
| ETF Shares | (21,393) | (23,038) |
| Realized Capital Gain | | |
| Admiral Shares | — | — |
| ETF Shares | — | — |
| Total Distributions | (22,048) | (23,965) |
| Capital Share Transactions | | |
| Admiral Shares | 633 | 1,775 |
| ETF Shares | 214,200 | 162,554 |
| Net Increase (Decrease) from Capital Share Transactions | 214,833 | 164,329 |
| Total Increase (Decrease) | 220,459 | 236,888 |
| Net Assets | | |
| Beginning of Period | 768,800 | 531,912 |
| End of Period2 | 989,259 | 768,800 |
1 Interest income from an affiliated company of the fund was $1,000.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $4,625,000 and $14,121,000.
See accompanying Notes, which are an integral part of the Financial Statements.
95
| | | | | | | |
| Telecommunication Services Index Fund | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| Admiral Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $45.07 | $40.02 | $36.09 | $33.18 | $29.22 | $25.77 |
| Investment Operations | | | | | | | |
| Net Investment Income | | .682 2 | 1.217 | 1.9061 | 1.0822 | 1.077 | 1.0242 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | .500 | 5.486 | 3.284 | 2.845 | 3.853 | 3.183 |
| Total from Investment Operations | 1.182 | 6.703 | 5.190 | 3.927 | 4.930 | 4.207 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (1.142) | (1.653) | (1.260) | (1.017) | (. 970) | (.757) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | | (1.142) | (1.653) | (1.260) | (1.017) | (. 970) | (.757) |
| Net Asset Value, End of Period | $45.11 | $45.07 | $40.02 | $36.09 | $33.18 | $29.22 |
| |
| Total Return 3 | | 2.81% | 17.13% | 14.80% | 12.33% | 16.87% | 16.40% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $26 | $26 | $21 | $19 | $20 | $14 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.12% | 0.12% | 0.14% | 0.14% | 0.19% | 0.24% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 3.03% | 3.29% | 4.56%1 | 3.24% | 3.60% | 3.60% |
| Portfolio Turnover Rate4 | | 17% | 19% | 19% | 28% | 21% | 23% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Net investment income per share and the ratio of net investment income to average net assets include $.359 and 0.89%, respectively, resulting from a special dividend received in connection with the merger of T-Mobile US Inc. and MetroPCS Communications Inc. in May 2013.
2 Calculated based on average shares outstanding.
3 Total returns do not include transaction or account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable transaction and account service fees.
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.
96
| | | | | | | |
| Telecommunication Services Index Fund | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| ETF Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $88.44 | $78.54 | $70.82 | $65.11 | $57.34 | $50.58 |
| Investment Operations | | | | | | | |
| Net Investment Income | | 1.2862 | 2.394 | 3.7341 | 2.1052 | 2.118 | 1.9812 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | 1.045 | 10.749 | 6.455 | 5.614 | 7.557 | 6.290 |
| Total from Investment Operations | 2.331 | 13.143 | 10.189 | 7.719 | 9.675 | 8.271 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (2.251) | (3.243) | (2.469) | (2.009) | (1.905) | (1.511) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | | (2.251) | (3.243) | (2.469) | (2.009) | (1.905) | (1.511) |
| Net Asset Value, End of Period | $88.52 | $88.44 | $78.54 | $70.82 | $65.11 | $57.34 |
| |
| Total Return | | 2.76% | 17.08% | 14.78% | 12.33% | 16.87% | 16.39% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $963 | $743 | $511 | $524 | $391 | $241 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.12% | 0.12% | 0.14% | 0.14% | 0.19% | 0.24% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 3.03% | 3.29% | 4.56%1 | 3.24% | 3.60% | 3.60% |
| Portfolio Turnover Rate3 | | 17% | 19% | 19% | 28% | 21% | 23% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Net investment income per share and the ratio of net investment income to average net assets include $.704 and 0.89%, respectively, resulting from a special dividend received in connection with the merger of T-Mobile US Inc. and MetroPCS Communications Inc. in May 2013.
2 Calculated based on average shares outstanding.
3 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
97
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 designed for investors who meet certain administrative, service, and account-size criteria. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. 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 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. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.
Futures contracts are valued at their quoted daily settlement prices. The aggregate settlement values 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).
During the six months ended February 28, 2015, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of aggregate settlement values at each quarter-end during the period.
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 for all open federal income tax years (August 31, 2011–2014), and for the period ended February 28, 2015, 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. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of
98
Telecommunication Services Index Fund
loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counter-parties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
6. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $2.89 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2015, or at any time during the period then ended.
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. 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.
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 based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At February 28, 2015, the fund had contributed capital of $84,000 to Vanguard (included in Other Assets), representing 0.01% 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. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
99
Telecommunication Services Index Fund
The following table summarizes the market value of the fund’s investments as of February 28, 2015, based on the inputs used to value them:
| | | |
| | Level 1 | Level 2 | Level 3 |
| Investments | ($000) | ($000) | ($000) |
| Common Stocks | 983,851 | — | 1,454 |
| Temporary Cash Investments | 9,797 | — | — |
| Futures Contracts—Liabilities1 | (5) | — | — |
| Total | 993,643 | — | 1,454 |
| 1 Represents variation margin on the last day of the reporting period. | | | |
D. At February 28, 2015, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were:
| | | | |
| | | | | ($000) |
| | | | Aggregate | |
| | | Number of | Settlement | Unrealized |
| | | Long (Short) | Value | Appreciation |
| Futures Contracts | Expiration | Contracts | Long (Short) | (Depreciation) |
| E-mini S&P 500 Index | March 2015 | 43 | 4,521 | (5) |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
E. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
During the six months ended February 28, 2015, the fund realized $29,095,000 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, 2014, the fund had available capital losses totaling $71,251,000 to offset future net capital gains. Of this amount, $45,285,000 is subject to expiration dates; $7,492,000 may be used to offset future net capital gains through August 31, 2017, $26,335,000 through August 31, 2018, and $11,458,000 through August 31, 2019. Capital losses of $25,966,000 realized beginning in fiscal 2012 may be carried forward indefinitely under the Regulated Investment Company Modernization Act of 2010, but must be used before any expiring loss carryforwards. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2015; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2015, the cost of investment securities for tax purposes was $944,907,000. Net unrealized appreciation of investment securities for tax purposes was $50,195,000, consisting of unrealized gains of $84,577,000 on securities that had risen in value since their purchase and $34,382,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the six months ended February 28, 2015, the fund purchased $368,415,000 of investment securities and sold $165,864,000 of investment securities, other than temporary cash investments. Purchases and sales include $260,661,000 and $93,097,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
100
| | | | |
| Telecommunication Services Index Fund | | | | |
| |
| |
| |
| |
| G. Capital share transactions for each class of shares were: | | | |
| | Six Months Ended | | Year Ended |
| | February 28, 2015 | August 31, 2014 |
| | Amount | Shares | Amount | Shares |
| | ($000) | (000) | ($000) | (000) |
| Admiral Shares | | | | |
| Issued | 4,101 | 92 | 7,745 | 180 |
| Issued in Lieu of Cash Distributions | 527 | 13 | 809 | 20 |
| Redeemed | (3,995) | (90) | (6,779) | (160) |
| Net Increase (Decrease) —Admiral Shares | 633 | 15 | 1,775 | 40 |
| ETF Shares | | | | |
| Issued | 312,848 | 3,600 | 253,552 | 3,000 |
| Issued in Lieu of Cash Distributions | — | — | — | — |
| Redeemed | (98,648) | (1,125) | (90,998) | (1,100) |
| Net Increase (Decrease)—ETF Shares | 214,200 | 2,475 | 162,554 | 1,900 |
At February 28, 2015, one shareholder was the record or beneficial owner of 39% of the fund’s net assets. If the shareholder were to redeem its investment in the fund, the redemption might result in an increase in the fund’s expense ratio.
H. Management has determined that no material events or transactions occurred subsequent to February 28, 2015, that would require recognition or disclosure in these financial statements.
101
| | | |
| Utilities Index Fund | |
| |
| |
| Fund Profile | | | |
| As of February 28, 2015 | | |
| |
| Share-Class Characteristics | | |
| | Admiral | ETF |
| | Shares | Shares |
| Ticker Symbol | | VUIAX | VPU |
| Expense Ratio1 | | 0.12% | 0.12% |
| 30-Day SEC Yield | | 3.40% | 3.39% |
| |
| |
| Portfolio Characteristics | | |
| | | MSCI | |
| | | US IMI/ | MSCI |
| | | Utilities | US IMI/ |
| | Fund | 25/50 | 2500 |
| Number of Stocks | 78 | 78 | 2,481 |
| Median Market Cap | $20.9B | $20.9B | $49.1B |
| Price/Earnings Ratio | 18.4x | 18.4x | 21.3x |
| Price/Book Ratio | 1.8x | 1.8x | 2.9x |
| Return on Equity | 10.5% | 10.5% | 17.7% |
| Earnings Growth Rate | 2.5% | 2.5% | 13.9% |
| Dividend Yield | 3.5% | 3.5% | 1.9% |
| Foreign Holdings | 0.0% | 0.0% | 0.0% |
| Turnover Rate | | | |
| (Annualized) | 9% | — | — |
| Short-Term Reserves | 0.0% | — | — |
| | |
| Volatility Measures | | |
| | MSCI US | |
| | IMI/Utilities | MSCI US |
| | 25/50 | IMI/2500 |
| R-Squared | 1.00 | 0.06 |
| Beta | 1.00 | 0.34 |
| These measures show the degree and timing of the fund’s |
| fluctuations compared with the indexes over 36 months. |
| |
| Subindustry Diversification | |
| (% of equity exposure) | | |
| |
| Electric Utilities | | 52.5% |
| Gas Utilities | | 6.4 |
| Independent Power and Renewable | |
| Electricity Producers | | 4.2 |
| Multi-Utilities | | 34.3 |
| Water Utilities | | 2.6 |
| | |
| Ten Largest Holdings (% of total net assets) |
| |
| Duke Energy Corp. | Electric Utilities | 7.9% |
| NextEra Energy Inc. | Electric Utilities | 6.4 |
| Dominion Resources Inc. | Multi-Utilities | 6.0 |
| Southern Co. | Electric Utilities | 5.9 |
| Exelon Corp. | Electric Utilities | 4.2 |
| American Electric | | |
| Power Co. Inc. | Electric Utilities | 4.0 |
| PG&E Corp. | Multi-Utilities | 3.6 |
| Sempra Energy | Multi-Utilities | 3.6 |
| PPL Corp. | Electric Utilities | 3.2 |
| Public Service | | |
| Enterprise Group Inc. | Multi-Utilities | 3.0 |
| Top Ten | | 47.8% |
| The holdings listed exclude any temporary cash investments and |
| equity index products. | | |
1 The expense ratios shown are from the prospectus dated December 23, 2014, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2015, the annualized expense ratios were 0.12% for Admiral Shares and 0.12% for ETF Shares.
102
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 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, 2004–February 28, 2015
Average Annual Total Returns: Periods Ended December 31, 2014
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
| | | | |
| | Inception Date | One Year | Five Years | Ten Years |
| ETF Shares | 1/26/2004 | | | |
| Market Price | | 27.00% | 13.59% | 9.49% |
| Net Asset Value | | 26.92 | 13.59 | 9.50 |
| Admiral Shares | 4/28/2004 | 26.94 | 13.61 | 9.49 |
See Financial Highlights for dividend and capital gains information.
103
Utilities Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the 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 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 (52.5%) | | |
| Duke Energy Corp. | 2,409,576 | 189,272 |
| NextEra Energy Inc. | 1,486,980 | 153,843 |
| Southern Co. | 3,065,453 | 140,367 |
| Exelon Corp. | 2,927,998 | 99,318 |
| American Electric Power | | |
| Co. Inc. | 1,666,744 | 95,971 |
| PPL Corp. | 2,265,714 | 77,261 |
| Edison International | 1,054,487 | 67,751 |
| Xcel Energy Inc. | 1,722,747 | 60,778 |
| Eversource Energy | 1,079,232 | 55,850 |
| FirstEnergy Corp. | 1,433,547 | 50,145 |
| Entergy Corp. | 614,933 | 48,893 |
| Pinnacle West Capital | | |
| Corp. | 376,327 | 24,115 |
| Pepco Holdings Inc. | 858,202 | 23,292 |
| OGE Energy Corp. | 679,116 | 22,078 |
| ITC Holdings Corp. | 530,585 | 20,550 |
| Westar Energy Inc. | | |
| Class A | 445,567 | 17,310 |
| Great Plains Energy Inc. | 524,713 | 13,963 |
| Hawaiian Electric | | |
| Industries Inc. | 349,630 | 11,555 |
| Cleco Corp. | 205,830 | 11,203 |
| IDACORP Inc. | 171,134 | 10,716 |
| Portland General | | |
| Electric Co. | 266,279 | 9,930 |
| UIL Holdings Corp. | 192,645 | 9,738 |
| ALLETE Inc. | 143,939 | 7,894 |
| PNM Resources Inc. | 271,383 | 7,748 |
| NRG Yield Inc. Class A | 117,740 | 6,041 |
| El Paso Electric Co. | 137,301 | 5,193 |
| MGE Energy Inc. | 118,014 | 5,085 |
| Empire District | | |
| Electric Co. | 147,874 | 3,749 |
| Otter Tail Corp. | 112,761 | 3,690 |
| Unitil Corp. | 44,900 | 1,526 |
| | | 1,254,825 |
| Gas Utilities (6.4%) | | |
| AGL Resources Inc. | 407,404 | 20,008 |
| UGI Corp. | 587,608 | 19,973 |
| Atmos Energy Corp. | 342,086 | 18,144 |
| National Fuel Gas Co. | 243,791 | 15,703 |
| Questar Corp. | 597,308 | 13,965 |
| Piedmont Natural Gas | | |
| Co. Inc. | 266,726 | 9,949 |
| Southwest Gas Corp. | 158,668 | 9,085 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | WGL Holdings Inc. | 169,136 | 9,023 |
| | New Jersey Resources | | |
| | Corp. | 143,839 | 9,001 |
| | Laclede Group Inc. | 147,114 | 7,615 |
| | ONE Gas Inc. | 177,101 | 7,369 |
| | South Jersey Industries Inc. | 114,574 | 6,494 |
| | Northwest Natural Gas Co. | 92,437 | 4,368 |
| | Chesapeake Utilities Corp. | 49,686 | 2,345 |
| | | | 153,042 |
| Independent Power and Renewable | |
| Electricity Producers (4.2%) | | |
| | AES Corp. | 2,307,620 | 29,930 |
| | NRG Energy Inc. | 1,151,847 | 27,621 |
| * | Calpine Corp. | 1,127,967 | 23,913 |
| * | Dynegy Inc. | 293,099 | 8,169 |
| | Pattern Energy Group Inc. | | |
| | Class A | 176,158 | 4,901 |
| | Ormat Technologies Inc. | 124,297 | 4,238 |
| | NextEra Energy Partners LP | 63,534 | 2,506 |
| | | | 101,278 |
| Multi-Utilities (34.3%) | | |
| | Dominion Resources Inc. | 1,989,264 | 143,406 |
| | PG&E Corp. | 1,618,524 | 86,963 |
| | Sempra Energy | 796,913 | 86,226 |
| | Public Service Enterprise | | |
| | Group Inc. | 1,724,017 | 72,512 |
| | Consolidated Edison Inc. | 997,777 | 63,000 |
| | DTE Energy Co. | 603,027 | 49,466 |
| | NiSource Inc. | 1,075,506 | 46,150 |
| | Wisconsin Energy Corp. | 768,268 | 39,166 |
| | Ameren Corp. | 826,574 | 35,055 |
| | CMS Energy Corp. | 940,781 | 33,050 |
| | CenterPoint Energy Inc. | 1,390,967 | 28,918 |
| | SCANA Corp. | 461,371 | 26,275 |
| | Alliant Energy Corp. | 377,943 | 24,037 |
| | Integrys Energy Group Inc. | 272,430 | 20,359 |
| | TECO Energy Inc. | 799,851 | 15,701 |
| | MDU Resources Group Inc. | 628,348 | 14,012 |
| | Vectren Corp. | 281,401 | 12,565 |
| | NorthWestern Corp. | 156,167 | 8,463 |
| | Black Hills Corp. | 151,901 | 7,721 |
| | Avista Corp. | 211,788 | 7,222 |
| | | | 820,267 |
| Water Utilities (2.6%) | | |
| | American Water Works | | |
| | Co. Inc. | 610,865 | 33,036 |
| | Aqua America Inc. | 601,944 | 15,915 |
| | American States Water Co. | 130,654 | 5,243 |
| | |
| | | Market |
| | | Value• |
| | Shares | ($000) |
| California Water Service | | |
| Group | 162,448 | 4,131 |
| SJW Corp. | 51,441 | 1,710 |
| Connecticut Water | | |
| Service Inc. | 37,695 | 1,399 |
| Middlesex Water Co. | 54,907 | 1,277 |
| | | 62,711 |
| Total Investments (100.0%) | | |
| (Cost $2,247,361) | | 2,392,123 |
| Other Assets and Liabilities (0.0%) | |
| Other Assets | | 17,226 |
| Liabilities | | (17,757) |
| | | (531) |
| Net Assets (100%) | | 2,391,592 |
| |
| |
| At February 28, 2015, net assets consisted of: |
| | | Amount |
| | | ($000) |
| Paid-in Capital | | 2,240,103 |
| Undistributed Net Investment Income | 14,658 |
| Accumulated Net Realized Losses | (7,931) |
| Unrealized Appreciation (Depreciation) | 144,762 |
| Net Assets | | 2,391,592 |
| |
| |
| Admiral Shares—Net Assets | | |
| Applicable to 9,872,986 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 487,156 |
| Net Asset Value Per Share— | | |
| Admiral Shares | | $49.34 |
| |
| |
| ETF Shares—Net Assets | | |
| Applicable to 19,363,672 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 1,904,436 |
| Net Asset Value Per Share— | | |
| ETF Shares | | $98.35 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
See accompanying Notes, which are an integral part of the Financial Statements.
104
| |
| Utilities Index Fund | |
| |
| |
| Statement of Operations |
| |
| Six Months Ended |
| February 28, 2015 |
| | ($000) |
| Investment Income | |
| Income | |
| Dividends | 40,684 |
| Securities Lending | 17 |
| Total Income | 40,701 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 187 |
| Management and Administrative— | |
| Admiral Shares | 205 |
| Management and Administrative— | |
| ETF Shares | 700 |
| Marketing and Distribution— | |
| Admiral Shares | 30 |
| Marketing and Distribution— | |
| ETF Shares | 179 |
| Custodian Fees | 17 |
| Shareholders’ Reports—Admiral Shares | 1 |
| Shareholders’ Reports—ETF Shares | 50 |
| Trustees’ Fees and Expenses | 1 |
| Total Expenses | 1,370 |
| Net Investment Income | 39,331 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold | 87,343 |
| Futures Contracts | 20 |
| Realized Net Gain (Loss) | 87,363 |
| Change in Unrealized Appreciation | |
| (Depreciation) of Investment Securities | (27,445) |
| Net Increase (Decrease) in Net Assets | |
| Resulting from Operations | 99,249 |
| | |
| Statement of Changes in Net Assets | | |
| |
| | Six Months Ended | Year Ended |
| | February 28, | August 31, |
| | 2015 | 2014 |
| | ($000) | ($000) |
| Increase (Decrease) in Net Assets | | |
| Operations | | |
| Net Investment Income | 39,331 | 67,825 |
| Realized Net Gain (Loss) | 87,363 | 118,085 |
| Change in Unrealized Appreciation (Depreciation) | (27,445) | 154,281 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 99,249 | 340,191 |
| Distributions | | |
| Net Investment Income | | |
| Admiral Shares | (7,755) | (13,546) |
| ETF Shares | (30,026) | (52,639) |
| Realized Capital Gain | | |
| Admiral Shares | — | — |
| ETF Shares | — | — |
| Total Distributions | (37,781) | (66,185) |
| Capital Share Transactions | | |
| Admiral Shares | 27,741 | 36,462 |
| ETF Shares | 149,822 | 138,918 |
| Net Increase (Decrease) from Capital Share Transactions | 177,563 | 175,380 |
| Total Increase (Decrease) | 239,031 | 449,386 |
| Net Assets | | |
| Beginning of Period | 2,152,561 | 1,703,175 |
| End of Period1 | 2,391,592 | 2,152,561 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $14,658,000 and $13,108,000.
See accompanying Notes, which are an integral part of the Financial Statements.
105
| | | | | | | |
| Utilities Index Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| Admiral Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $47.47 | $40.80 | $38.99 | $36.40 | $32.60 | $30.73 |
| Investment Operations | | | | | | | |
| Net Investment Income | | . 824 | 1.569 | 1.529 | 1.452 | 1.344 | 1.2931 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | 1.857 | 6.656 | 1.838 | 2.539 | 3.783 | 1.782 |
| Total from Investment Operations | 2.681 | 8.225 | 3.367 | 3.991 | 5.127 | 3.075 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (.811) | (1.555) | (1.557) | (1.401) | (1.327) | (1.205) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | | (.811) | (1.555) | (1.557) | (1.401) | (1.327) | (1.205) |
| Net Asset Value, End of Period | $49.34 | $47.47 | $40.80 | $38.99 | $36.40 | $32.60 |
| |
| Total Return2 | | 5.70% | 20.58% | 8.83% | 11.22% | 16.09% | 10.20% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $487 | $442 | $347 | $310 | $218 | $153 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.12% | 0.12% | 0.14% | 0.14% | 0.19% | 0.24% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 3.34% | 3.59% | 3.72% | 3.93% | 3.99% | 4.07% |
| Portfolio Turnover Rate3 | | 9% | 7% | 7% | 5% | 6% | 8% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Calculated based on average shares outstanding.
2 Total returns do not include transaction or account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable transaction and account service fees.
3 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
106
| | | | | | | |
| Utilities Index Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| ETF Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $94.61 | $81.32 | $77.69 | $72.52 | $64.93 | $61.24 |
| Investment Operations | | | | | | | |
| Net Investment Income | | 1.642 | 3.127 | 3.043 | 2.880 | 2.678 | 2.5541 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | 3.713 | 13.261 | 3.675 | 5.080 | 7.551 | 3.550 |
| Total from Investment Operations | 5.355 | 16.388 | 6.718 | 7.960 | 10.229 | 6.104 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (1.615) | (3.098) | (3.088) | (2.790) | (2.639) | (2.414) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | | (1.615) | (3.098) | (3.088) | (2.790) | (2.639) | (2.414) |
| Net Asset Value, End of Period | $98.35 | $94.61 | $81.32 | $77.69 | $72.52 | $64.93 |
| |
| Total Return | | 5.70% | 20.55% | 8.82% | 11.20% | 16.09% | 10.18% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $1,904 | $1,711 | $1,356 | $1,154 | $831 | $581 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.12% | 0.12% | 0.14% | 0.14% | 0.19% | 0.24% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 3.34% | 3.59% | 3.72% | 3.93% | 3.99% | 4.07% |
| Portfolio Turnover Rate2 | | 9% | 7% | 7% | 5% | 6% | 8% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Calculated based on average shares outstanding.
2 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.
107
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 designed for investors who meet certain administrative, service, and account-size criteria. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. 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. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.
Futures contracts are valued at their quoted daily settlement prices. The aggregate settlement values 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).
During the six months ended February 28, 2015, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on quarterly average aggregate settlement values. The fund had no open futures contracts at February 28, 2015.
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 for all open federal income tax years (August 31, 2011–2014), and for the period ended February 28, 2015, 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. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counter-parties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering
108
Utilities Index Fund
the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
6. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $2.89 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2015, or at any time during the period then ended.
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.
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 based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At February 28, 2015, the fund had contributed capital of $261,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.10% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
At February 28, 2015, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
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, 2015, the fund realized $88,714,000 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.
109
Utilities 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, 2014, the fund had available capital losses totaling $6,446,000 to offset future net capital gains of $3,083,000 through August 31, 2018, and $3,363,000 through August 31, 2019. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2015; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2015, the cost of investment securities for tax purposes was $2,247,361,000. Net unrealized appreciation of investment securities for tax purposes was $144,762,000, consisting of unrealized gains of $239,170,000 on securities that had risen in value since their purchase and $94,408,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the six months ended February 28, 2015, the fund purchased $581,749,000 of investment securities and sold $401,595,000 of investment securities, other than temporary cash investments. Purchases and sales include $475,248,000 and $354,754,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
| | | | |
| F. Capital share transactions for each class of shares were: | | | |
| | Six Months Ended | | Year Ended |
| | February 28, 2015 | August 31, 2014 |
| | Amount | Shares | Amount | Shares |
| | ($000) | (000) | ($000) | (000) |
| Admiral Shares | | | | |
| Issued | 84,648 | 1,689 | 112,297 | 2,523 |
| Issued in Lieu of Cash Distributions | 5,760 | 120 | 10,045 | 232 |
| Redeemed | (62,667) | (1,245) | (85,880) | (1,957) |
| Net Increase (Decrease) —Admiral Shares | 27,741 | 564 | 36,462 | 798 |
| ETF Shares | | | | |
| Issued | 504,892 | 4,933 | 568,143 | 6,306 |
| Issued in Lieu of Cash Distributions | — | — | — | — |
| Redeemed | (355,070) | (3,650) | (429,225) | (4,900) |
| Net Increase (Decrease)—ETF Shares | 149,822 | 1,283 | 138,918 | 1,406 |
G. Management has determined that no material events or transactions occurred subsequent to February 28, 2015, that would require recognition or disclosure in these financial statements.
110
About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table illustrates your fund’s costs in two ways:
• Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading “Expenses Paid During Period.”
• Based on hypothetical 5% yearly return. This section is intended to help you compare your fund’s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.” The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s expenses 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.
111
| | | | |
| Six Months Ended February 28, 2015 | | | | |
| | | Beginning | Ending | Expenses |
| | | Account Value | Account Value | Paid During |
| Index Fund | Share Class | 8/31/2014 | 2/28/2015 | Period1 |
| Based on Actual Fund Return | | | | |
| Consumer Discretionary | Admiral | $1,000.00 | $1,109.65 | $0.63 |
| | ETF | 1,000.00 | 1,109.53 | 0.63 |
| Consumer Staples | Admiral | $1,000.00 | $1,120.40 | $0.63 |
| | ETF | 1,000.00 | 1,119.80 | 0.63 |
| Energy | Admiral | $1,000.00 | $798.89 | $0.54 |
| | ETF | 1,000.00 | 798.56 | 0.54 |
| Financials | Admiral | $1,000.00 | $1,054.55 | $0.61 |
| | ETF | 1,000.00 | 1,054.57 | 0.61 |
| Health Care | Admiral | $1,000.00 | $1,151.62 | $0.64 |
| | ETF | 1,000.00 | 1,151.37 | 0.64 |
| Industrials | Admiral | $1,000.00 | $1,065.13 | $0.61 |
| | ETF | 1,000.00 | 1,064.57 | 0.61 |
| Information Technology | Admiral | $1,000.00 | $1,088.65 | $0.62 |
| | ETF | 1,000.00 | 1,088.23 | 0.62 |
| Materials | Admiral | $1,000.00 | $1,010.88 | $0.60 |
| | ETF | 1,000.00 | 1,010.52 | 0.60 |
| Telecommunication Services | Admiral | $1,000.00 | $1,028.10 | $0.60 |
| | ETF | 1,000.00 | 1,027.64 | 0.60 |
| Utilities | Admiral | $1,000.00 | $1,056.98 | $0.61 |
| | ETF | 1,000.00 | 1,057.01 | 0.61 |
| Based on Hypothetical 5% Yearly Return | | | |
| Consumer Discretionary | Admiral | $1,000.00 | $1,024.20 | $0.60 |
| | ETF | 1,000.00 | 1,024.20 | 0.60 |
| Consumer Staples | Admiral | $1,000.00 | $1,024.20 | $0.60 |
| | ETF | 1,000.00 | 1,024.20 | 0.60 |
| Energy | Admiral | $1,000.00 | $1,024.20 | $0.60 |
| | ETF | 1,000.00 | 1,024.20 | 0.60 |
| Financials | Admiral | $1,000.00 | $1,024.20 | $0.60 |
| | ETF | 1,000.00 | 1,024.20 | 0.60 |
| Health Care | Admiral | $1,000.00 | $1,024.20 | $0.60 |
| | ETF | 1,000.00 | 1,024.20 | 0.60 |
| Industrials | Admiral | $1,000.00 | $1,024.20 | $0.60 |
| | ETF | 1,000.00 | 1,024.20 | 0.60 |
| Information Technology | Admiral | $1,000.00 | $1,024.20 | $0.60 |
| | ETF | 1,000.00 | 1,024.20 | 0.60 |
| Materials | Admiral | $1,000.00 | $1,024.20 | $0.60 |
| | ETF | 1,000.00 | 1,024.20 | 0.60 |
| Telecommunication Services | Admiral | $1,000.00 | $1,024.20 | $0.60 |
| | ETF | 1,000.00 | 1,024.20 | 0.60 |
| Utilities | Admiral | $1,000.00 | $1,024.20 | $0.60 |
| | ETF | 1,000.00 | 1,024.20 | 0.60 |
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 0.12% for the Consumer Discretionary Index Fund Admiral Shares and 0.12% for the ETF Shares; 0.12% for the Consumer Staples Index Fund Admiral Shares and 0.12% for the ETF Shares; 0.12% for the Energy Index Fund Admiral Shares and 0.12% for the ETF Shares; 0.12% for the Financials Index Fund Admiral Shares and 0.12% for the ETF Shares; 0.12% for the Health Care Index Fund Admiral Shares and 0.12% for the ETF Shares; 0.12% for the Industrials Index Fund Admiral Shares and 0.12% for the ETF Shares; 0.12% for the Information Technology Index Fund Admiral Shares and 0.12% for the ETF Shares; 0.12% for the Materials Index Fund Admiral Shares and 0.12% for the ETF Shares; 0.12% for the Telecommunication Services Index Fund Admiral Shares and 0.12% for the ETF Shares; 0.12% for the Utilities Index Fund Admiral Shares and 0.12% 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.
112
Glossary
30-Day SEC Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (for bonds), its actual income (for asset-backed securities), or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.
Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition below). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.
Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.
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.
113
Benchmark Information
Spliced US IMI/Consumer Discretionary 25/50. MSCI US IMI/Consumer Discretionary
through February 26, 2010; MSCI US IMI/Consumer Discretionary 25/50 thereafter.
Spliced US IMI/Consumer Staples 25/50. MSCI US IMI/Consumer Staples through
February 26, 2010; MSCI US IMI/Consumer Staples 25/50 thereafter.
Spliced US IMI/Energy 25/50. MSCI US IMI/Energy through February 26, 2010;
MSCI US IMI/Energy 25/50 thereafter.
Spliced US IMI/Financials 25/50. MSCI US IMI/Financials through February 26, 2010;
MSCI US IMI/Financials 25/50 thereafter.
Spliced US IMI/Health Care 25/50. MSCI US IMI/Health Care through February 26, 2010;
MSCI US IMI/Health Care 25/50 thereafter.
Spliced US IMI/Industrials 25/50. MSCI US IMI/Industrials through February 26, 2010;
MSCI US IMI/Industrials 25/50 thereafter.
Spliced US IMI/Information Technology 25/50. MSCI US IMI/Information Technology Index
through February 26, 2010; MSCI US IMI/Information Technology 25/50 Index thereafter.
Spliced US IMI/Materials 25/50. MSCI US IMI/Materials through February 26, 2010;
MSCI US IMI/Materials 25/50 thereafter.
Spliced US IMI/Telecommunication Services 25/50. MSCI US IMI/Telecommunication
Services through February 26, 2010; MSCI US IMI/Telecommunication Services 25/50
thereafter.
Spliced US IMI/Utilities 25/50. MSCI US IMI/Utilities through February 26, 2010;
MSCI US IMI/Utilities 25/50 thereafter.
114
This page intentionally left blank.
This page intentionally left blank.
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 178 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
InterestedTrustee1 F. William McNabb III
Born 1957. Trustee Since July 2009. Chairman of the Board. Principal Occupation(s) During the Past Five Years and Other Experience: Chairman of the Board of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group, since January 2010; Director of The Vanguard Group 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).
IndependentTrustees Emerson U. Fullwood
Born 1948. Trustee Since January 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Executive Chief Staff and Marketing Officer for North America and Corporate Vice President (retired 2008) of Xerox Corporation (document management products and services); Executive in Residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology; Director of SPX Corporation (multi-industry manufacturing), the United Way of Rochester, Amerigroup Corporation (managed health care), the University of Rochester Medical Center, Monroe Community College Foundation, and North Carolina A&T University.
Rajiv L. Gupta
Born 1945. Trustee Since December 2001.2 Principal Occupation(s) During the Past Five Years and Other Experience: Chairman and Chief Executive Officer (retired 2009) and President (2006–2008) of Rohm and Haas Co. (chemicals); Director of Tyco International PLC (diversified manufacturing and services), Hewlett-Packard Co. (electronic computer manufacturing), and Delphi Automotive PLC (automotive components); Senior Advisor at New Mountain Capital.
Amy Gutmann
Born 1949. Trustee Since June 2006. Principal Occupation(s) During the Past Five Years and Other Experience: President of the University of Pennsylvania; Christopher H. Browne Distinguished Professor of Political Science, School of Arts and Sciences, and Professor of Communication, Annenberg School for Communication, with secondary faculty appointments in the Department of Philosophy, School of Arts and Sciences, and at the Graduate School of Education, University of Pennsylvania; Trustee of the National Constitution Center; Chair of the Presidential Commission for the Study of Bioethical Issues.
JoAnn Heffernan Heisen
Born 1950. Trustee Since July 1998. Principal Occupation(s) During the Past Five Years and Other Experience: Corporate Vice President and Chief
Global Diversity Officer (retired 2008) and Member of the Executive Committee (1997–2008) of Johnson & Johnson (pharmaceuticals/medical devices/ consumer products); Director of Skytop Lodge Corporation (hotels), the University Medical Center at Princeton, the Robert Wood Johnson Foundation, and the Center for Talent Innovation; Member of the Advisory Board of the Institute for Women’s Leadership at Rutgers University.
F. Joseph Loughrey
Born 1949. Trustee Since October 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2009) of Cummins Inc. (industrial machinery); Chairman of the Board of Hillenbrand, Inc. (specialized consumer services), and of Oxfam America; Director of SKF AB (industrial machinery), Hyster-Yale Materials Handling, Inc. (forklift trucks), the Lumina Foundation for Education, and the V Foundation for Cancer Research; Member of the Advisory Council for the College of Arts and Letters and of the Advisory Board to the Kellogg Institute for International Studies, both at the University of Notre Dame.
Mark Loughridge
Born 1953. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Senior Vice President and Chief Financial Officer (retired 2013) at IBM (information technology services); Fiduciary Member of IBM’s Retirement Plan Committee (2004–2013); Director of the Dow Chemical Company; Member of the Council on Chicago Booth.
Scott C. Malpass
Born 1962. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Chief Investment Officer and Vice President at the University of Notre Dame; Assistant Professor of Finance at the Mendoza College of Business at Notre Dame; Member of the Notre Dame 403(b) Investment Committee; Board Member of TIFF Advisory Services, Inc., and Catholic Investment Services, Inc. (investment advisors); Member of the Investment Advisory Committee of Major League Baseball.
André F. Perold
Born 1952. Trustee Since December 2004. Principal Occupation(s) During the Past Five Years and Other Experience: George Gund Professor of Finance and Banking, Emeritus at the Harvard Business School (retired 2011); Chief Investment Officer and Managing Partner of HighVista Strategies LLC (private investment firm); Director of Rand Merchant Bank; Overseer of the Museum of Fine Arts Boston.
Peter F. Volanakis
Born 1955. Trustee Since July 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2010) of Corning Incorporated (communications equipment); Trustee of Colby-Sawyer College;
Member of the Advisory Board of the Norris Cotton Cancer Center and of the Advisory Board of the Parthenon Group (strategy consulting).
Executive Officers Glenn Booraem
Born 1967. Controller Since July 2010. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Controller of each of the investment companies served by The Vanguard Group; Assistant Controller of each of the investment companies served by The Vanguard Group (2001–2010).
Thomas J. Higgins
Born 1957. Chief Financial Officer Since September 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Chief Financial Officer of each of the investment companies served by The Vanguard Group; Treasurer of each of the investment companies served by The Vanguard Group (1998–2008).
Kathryn J. Hyatt
Born 1955. Treasurer Since November 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group; Assistant Treasurer of each of the investment companies served by The Vanguard Group (1988–2008).
Heidi Stam
Born 1956. Secretary Since July 2005. Principal Occupation(s) During the Past Five Years and Other Experience: Managing Director of The Vanguard Group, Inc.; General Counsel of The Vanguard Group; Secretary of The Vanguard Group and of each of the investment companies served by The Vanguard Group; Director and Senior Vice President of Vanguard Marketing Corporation.
Vanguard Senior Management Team
| |
Mortimer J. Buckley Kathleen C. Gubanich Paul A. Heller Martha G. King John T. Marcante | Chris D. McIsaac Michael S. Miller James M. Norris Glenn W. Reed |
Chairman Emeritus and Senior Advisor John J. Brennan
Chairman, 1996–2009
Chief Executive Officer and President, 1996–2008
Founder John C. Bogle
Chairman and Chief Executive Officer, 1974–1996
1 Mr. McNabb is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the Vanguard funds.
2 December 2002 for Vanguard Equity Income Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.
P.O. Box 2600
Valley Forge, PA 19482-2600
Connect with Vanguard® > vanguard.com
| |
| Fund Information > 800-662-7447 | All comparative mutual fund data are from Lipper Inc., a |
| | Thomson Reuters Company, or Morningstar, Inc., unless |
| Direct Investor Account Services > 800-662-2739 | |
| otherwise noted. |
| |
| Institutional Investor Services > 800-523-1036 | You can obtain a free copy of Vanguard’s proxy voting |
| Text Telephone for People | guidelines by visiting vanguard.com/proxyreporting or |
| Who Are Deaf or Hard of Hearing > 800-749-7273 | by calling Vanguard at 800-662-2739. The guidelines |
| | are also available from the SEC’s website, sec.gov. |
| | In addition, you may obtain a free report on how your |
| |
| This material may be used in conjunction | fund voted the proxies for securities it owned during |
| | the 12 months ended June 30. To get the report, visit |
| with the offering of shares of any Vanguard | either vanguard.com/proxyreporting or sec.gov. |
| fund only if preceded or accompanied by the | |
| fund’s current prospectus. | You can review and copy information about your fund |
| | at the SEC’s Public Reference Room in Washington, D.C. |
| The funds or securities referred to herein are not | To find out more about this public service, call the SEC |
| sponsored, endorsed, or promoted by MSCI, and MSCI | at 202-551-8090. Information about your fund is also |
| bears no liability with respect to any such funds or | available on the SEC’s website, and you can receive |
| securities. The prospectus or the Statement of Additional | copies of this information, for a fee, by sending a |
| Information contains a more detailed description of the | request in either of two ways: via e-mail addressed to |
| limited relationship MSCI has with Vanguard and any | publicinfo@sec.gov or via regular mail addressed to the |
| related funds. | Public Reference Section, Securities and Exchange |
| | Commission, Washington, DC 20549-1520. |
| |
| |
| |
| |
| | © 2015 The Vanguard Group, Inc. |
| | All rights reserved. |
| | Vanguard Marketing Corporation, Distributor. |
| | Q4832 042015 |
Semiannual Report | February 28, 2015
Vanguard Extended Duration Treasury Index Fund
The mission continues
On May 1, 1975, Vanguard began operations, a fledgling company based on the simple but revolutionary idea that a mutual fund company should be managed solely in the interest of its investors.
Four decades later, that revolutionary spirit continues to animate the enterprise. Vanguard remains on a mission to give investors the best chance of investment success.
As we mark our 40th anniversary, we thank you for entrusting your assets to Vanguard and giving us the opportunity to help you reach your financial goals in the decades to come.
| |
| Contents | |
| Your Fund’s Total Returns. | 1 |
| Chairman’s Letter. | 2 |
| Fund Profile. | 7 |
| Performance Summary. | 8 |
| Financial Statements. | 9 |
| About Your Fund’s Expenses. | 20 |
| Glossary. | 22 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
About the cover: Since our founding, Vanguard has drawn inspiration from the enterprise and valor demonstrated by British naval hero Horatio Nelson and his command at the Battle of the Nile in 1798. The photograph displays a replica of a merchant ship from the same era as Nelson’s flagship, the HMS Vanguard.
| | | | |
| Your Fund’s Total Returns | | | | |
| |
| |
| |
| |
| Six Months Ended February 28, 2015 | | | | |
| | 30-Day SEC | Income | Capital | Total |
| | Yield | Returns | Returns | Returns |
| Vanguard Extended Duration Treasury Index Fund | | | | |
| Institutional Shares | 2.60% | 1.62% | 13.51% | 15.13% |
| Institutional Plus Shares | 2.62 | 1.63 | 13.52 | 15.15 |
| ETF Shares | 2.58 | | | |
| Market Price | | | | 15.28 |
| Net Asset Value | | | | 15.16 |
| Barclays U.S. Treasury STRIPS 20–30 Year Equal Par Bond Index | | | | 15.04 |
| General U.S. Treasury Funds Average | | | | 4.68 |
| General U.S. Treasury Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | | |
Institutional Shares and Institutional Plus Shares are available to certain institutional investors who meet specific administrative, service, and account-size criteria. The Vanguard ETF® Shares shown are traded on the NYSE Arca exchange and are available only through brokers. The table provides ETF returns based on both the NYSE Arca market price and the net asset value for a share. U.S. Pat. Nos. 6,879,964; 7,337,138; 7,720,749; 7,925,573; 8,090,646; and 8,417,623.
For the ETF Shares, the market price is determined by the midpoint of the bid-offer spread as of the closing time of the New York Stock Exchange (generally 4 p.m., Eastern time). The net asset value is also determined as of the NYSE closing time. For more information about how the ETF Shares' market prices have compared with their net asset value, visit vanguard.com, select your ETF, and then select the Price and Performance tab. The ETF premium/discount analysis there shows the percentages of days on which the ETF Shares' market price was above or below the NAV.
| | | | |
| Your Fund’s Performance at a Glance | | | | |
| August 31, 2014, Through February 28, 2015 | | | | |
| | | | Distributions Per Share |
| | Starting | Ending | Income | Capital |
| | Share Price | Share Price | Dividends | Gains |
| Vanguard Extended Duration Treasury Index | | | | |
| Fund | | | | |
| Institutional Shares | $34.18 | $38.61 | $0.559 | $0.112 |
| Institutional Plus Shares | 85.80 | 96.93 | 1.411 | 0.282 |
| ETF Shares | 113.24 | 127.92 | 1.852 | 0.371 |
1
Chairman’s Letter
Dear Shareholder,
Treasury bonds performed well across the maturity spectrum in the six months ended February 28, 2015. Longer-term Treasuries were the sweet spot, far outpacing the returns of short-to-intermediate-term Treasuries, most corporate bonds, and the broad U.S. stock market.
Vanguard Extended Duration Treasury Index Fund returned 15.16% for ETF Shares based on net asset value (and about the same for the Institutional offerings), with the lion’s share coming from higher bond prices. This marked the fund’s third-best fiscal first half since its inception in late 2007.
Your fund outpaced the average return of its general Treasury fund peers—which invest more broadly across the maturity spectrum—by more than 10 percentage points. The fund’s return was slightly higher than that of its benchmark index. Upward or downward divergences from the benchmark are not uncommon. These differences typically occur because the fund and the Barclays index value securities at slightly different times toward the end of the day and use different pricing models.
Bookended by losses in September and February, the half-year included exceptionally robust results in January, when the fund returned nearly 14%. However, much of January’s gain was erased in February, underscoring a point I’ve made in previous letters: Large swings in performance are not unusual for this
2
fund, because long-term bonds are highly sensitive to changes in interest rates. This sensitivity can make the fund well-suited for defined benefit plan portfolios, whose long-term liabilities are also very sensitive to interest rates.
Generally strong demand for long-term Treasuries helped push up their prices and pull down their yields to levels that were even lower than those reached during the previous fiscal year. (Bond prices and yields move in opposite directions.) The 30-day SEC yield on the fund’s Institutional Shares was 2.60% at the end of February, down from 3.13% at the start of the new fiscal year but up from the period’s 2.36% low at the end of January.
Bonds notched positive results despite early and late retreats
The broad U.S. taxable bond market returned 2.25%. When the stock market turned volatile, investors favored the relative safety offered by bonds, which also benefited from various global stimulus programs. Although bond prices then fell in February, the yield of the 10-year Treasury note ended February at 2.03%, down from 2.34% six months earlier.
Municipal bonds, which returned 2.21%, lost some steam toward the end of the period amid increased bond issuance and the prospect of higher interest rates.
| | | |
| Market Barometer | | | |
| | | | Total Returns |
| | | Periods Ended February 28, 2015 |
| | Six | One | Five Years |
| | Months | Year | (Annualized) |
| Bonds | | | |
| Barclays U.S. Aggregate Bond Index (Broad taxable | | | |
| market) | 2.25% | 5.05% | 4.29% |
| Barclays Municipal Bond Index (Broad tax-exempt market) | 2.21 | 6.49 | 5.00 |
| Citigroup Three-Month U.S. Treasury Bill Index | 0.00 | 0.03 | 0.06 |
| |
| Stocks | | | |
| Russell 1000 Index (Large-caps) | 6.00% | 14.88% | 16.39% |
| Russell 2000 Index (Small-caps) | 5.70 | 5.63 | 15.97 |
| Russell 3000 Index (Broad U.S. market) | 5.98 | 14.12 | 16.36 |
| FTSE All-World ex US Index (International) | -3.34 | 1.69 | 6.94 |
| |
| CPI | | | |
| Consumer Price Index | -1.32% | -0.03% | 1.61% |
3
International bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –9.54% for dollar-based investors, weighed down by the weakness of foreign currencies relative to the dollar. International bonds that were hedged to eliminate the effect of currency exchange rates produced positive returns.
Money market funds and savings accounts provided scant returns as the Fed’s target for short-term rates remained at 0%–0.25%.
A surge in February powered U.S. stocks for the period
U.S. stocks performed solidly but unevenly over the six months. Despite declines in two of those months and flat returns in another, the broad U.S. stock market ended the period up about 6%.
The overall return was powered by a robust advance in February, when the broad market recorded its largest monthly gain since October 2011. Investors were cheered by stabilization in oil prices and guidance from the Federal Reserve that it wouldn’t raise interest rates prematurely.
After some ups and downs, international stocks returned about –3% in dollar terms. The dollar’s strength against many foreign currencies, along with various geopolitical issues, restrained results. Stocks in emerging and developed markets backtracked, with emerging markets faring the worst. In local currency terms, though, international stocks rose.
| | | | |
| Expense Ratios | | | | |
| Your Fund Compared With Its Peer Group | | | | |
| |
| | Institutional | Institutional | ETF | Peer Group |
| | Shares | Plus Shares | Shares | Average |
| Extended Duration Treasury Index Fund | 0.10% | 0.08% | 0.12% | 0.51% |
The fund expense ratios shown are from the prospectus dated December 23, 2014, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2015, the annualized expense ratios were 0.10% for Institutional Shares, 0.08% for Institutional Plus Shares, and 0.12% for ETF Shares.
Peer group: General U.S. Treasury Funds.
4
Strong global demand pushed long-term rates even lower
The U.S. bond market continued to confound expectations. As the U.S. economy continued to grow and the Fed ended its bond-buying program in October, interest rates were expected to rise. Among the key questions on the minds of investors and analysts were “When?” and “How much?” The answers, for the most part, were “Not yet” (according to the Fed) and “Not much” (going by expectations in the marketplace).
Yields on short-term Treasuries (and short-term corporates) did creep up modestly, as they had earlier in 2014. For example, the yield on the 2-year Treasury rose 15 basis points, from 0.50% on August 31, 2014, to 0.65% at the end of February. (A basis point is one-hundredth of a percentage point.) But with intermediate- and longer-term bond yields still falling, the yield curve continued to flatten.
A combination of factors made longer-term Treasuries seem especially attractive during most of the six months. Investors seeking a haven from geopolitical conflicts, such as the one between Russia and Ukraine, and from stock-market volatility turned to the relative safety of Treasury bonds. Longer-term Treasuries were particularly popular, not only because of the added allure of their higher yields but also because short-term interest rates were expected to keep inching up (and thus hurt prices of shorter-term bonds).
Concerns about deflation and slower economic growth in Europe, China, Japan, and elsewhere added to Treasuries’ appeal. So, too, did uncertainty about Greece’s ability to meet its Eurozone debt bailout obligations and about the future of the European Union itself.
Many foreign investors flocked to longer-term Treasuries as the yields on short-to-intermediate-term sovereign bonds of several European countries turned negative. The relative strength of the U.S. dollar also contributed to strong foreign demand for Treasuries: An investor whose home currency is the euro, for example, can earn a currency return from a U.S. bond if the euro continues to weaken.
In February, however, signs of a less-gloomy outlook for European growth and a last-minute agreement on Greece that seemed to provide at least a temporary reprieve made investors less keen to duck for cover. A livelier debate about when the Fed might raise rates also hurt Treasury prices.
Compared with its general U.S. Treasury fund peer group, your fund has a considerably longer average duration—about 25 years versus about 10 years. (Duration is a measure of sensitivity to changes in interest rates.) When long-term rates fall, as they did during much of the past six months, your fund is likely to outperform its peer group. Of course, the flip side is that, during periods when rates rise,
5
your fund can be expected to lag funds with shorter durations. We saw this in February, when interest rates backed up and the fund fell behind.
Both ETFs and mutual funds offer opportunities for long-term success
The popularity of exchange-traded funds (ETFs), most of which seek to track an index, has surged over the past decade. We see this as an indication that our message is taking hold: Broad diversification and low costs are keys to long-term success, and indexing is a great way to implement strategies based on those tenets.
As you probably know, ETFs combine the investment characteristics of mutual funds with the trading characteristics of stocks. Like stocks, ETF prices change throughout the day. In contrast, traditional open-end mutual funds are priced once a day, shortly after the market’s close.
Some say that ETFs are more of a trading tool than an investment tool. We don’t think that this has to be the case. In fact, we’re seeing much greater use of ETFs as part of long-term plans. Certainly, ETFs are easy to trade. But they are also easy to hold. And, unlike with traditional mutual funds, the investor doing the trading is the one who pays the transaction costs—not the other fund shareholders.
Vanguard ETFs are simply another share class of our traditional mutual funds. Clients select the share class that best meets their needs. The portfolios are identical. Vanguard research has shown that ETFs and mutual funds perform essentially the same investment function, and that investors can use both to create a low-cost, well-diversified portfolio of stocks and bonds. You can read more in
Buying on the FACTS: Investors’ Choices Between ETFs and Mutual Funds at vanguard.com/research.
As always, thank you for investing with Vanguard.
Sincerely,
F. William McNabb III
Chairman and Chief Executive Officer
March 17, 2015
6
Extended Duration Treasury Index Fund
| | | |
| Fund Profile | | | |
| As of February 28, 2015 | | |
| |
| Share-Class Characteristics | | |
| | | Institutional | |
| Institutional | Plus | ETF |
| | Shares | Shares | Shares |
| Ticker Symbol | VEDTX | VEDIX | EDV |
| Expense Ratio1 | 0.10% | 0.08% | 0.12% |
| 30-Day SEC Yield | 2.60% | 2.62% | 2.58% |
| |
| Financial Attributes | | | |
| |
| | | | Barclays |
| | | | Treasury |
| | | | STRIPS |
| | | 20–30 Year |
| | | Fund | Index |
| Number of Bonds | | 71 | 69 |
| Yield to Maturity | | | |
| (before expenses) | | 2.7% | 2.7% |
| Average Coupon | | 0.0% | 0.0% |
| Average Duration | 25.0 years | 26.0 years |
| Average Effective | | | |
| Maturity | 25.3 years | 24.5 years |
| Short-Term | | | |
| Reserves | | 0.0% | — |
| |
| |
| Sector Diversification (% of portfolio) | |
| Treasury/Agency | | | 100.0% |
The agency and mortgage-backed securities sectors may include issues from government-sponsored enterprises; such issues are generally not backed by the full faith and credit of the U.S. government.
| |
| Volatility Measures | |
| | Barclays |
| | Treasury |
| | STRIPS |
| | 20–30 Year |
| | Index |
| R-Squared | 1.00 |
| Beta | 1.04 |
| These measures show the degree and timing of the fund’s |
| fluctuations compared with the index over 36 months. |
| |
| |
| Distribution by Effective Maturity | |
| (% of portfolio) | |
| |
| 20 - 30 Years | 100.0% |
| |
| |
| |
| Distribution by Credit Quality (% of portfolio) |
| |
| U.S. Government | 100.0% |
| |
| Credit-Quality ratings are obtained from Barclays and are from |
| Moody's, Fitch, and S&P. When ratings from all three agencies are |
| used, the median rating is shown. When ratings from two of the |
| agencies are used, the lower rating for each issue is shown. For |
| more information about these ratings, see the Glossary entry for |
| Credit Quality. | |
Investment Focus
1 The expense ratios shown are from the prospectus dated December 23, 2014, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2015, the annualized expense ratios were 0.10% for Institutional Shares, 0.08% for Institutional Plus Shares, and 0.12% for ETF Shares.
7
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 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 6, 2007, Through February 28, 2015 | |
| | | Barclays |
| | | Treasury |
| | | STRIPS |
| | | 20–30 Year |
| | ETF Shares Net Asset Value | Index |
| Fiscal Year | Total Returns | Total Returns |
| 2008 | 2.29% | 3.16% |
| 2009 | 7.98 | 8.39 |
| 2010 | 20.80 | 21.48 |
| 2011 | 1.33 | 1.99 |
| 2012 | 37.90 | 36.86 |
| 2013 | -21.34 | -20.48 |
| 2014 | 24.17 | 23.70 |
| 2015 | 15.16 | 15.04 |
| Note: For 2015, performance data reflect the six months ended February 28, 2015. | |
Average Annual Total Returns: Periods Ended December 31, 2014
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
| | | | | | |
| | | | | | Since Inception |
| | Inception Date | One Year | Five Years | Income | Capital | Total |
| Institutional Shares | 11/28/2007 | 45.66% | 15.37% | 3.92% | 6.25% | 10.17% |
| Fee-Adjusted Returns | | 44.93 | 15.26 | | | 10.10 |
| Institutional Plus Shares | 8/28/2013 | 45.69 | — | 4.74 | 23.61 | 28.35 |
| Fee-Adjusted Returns | | 44.96 | — | | | 27.87 |
| ETF Shares | 12/6/2007 | | | | | |
| Market Price | | 44.87 | 15.41 | | | 10.55 |
| Net Asset Value | | 45.64 | 15.34 | | | 10.47 |
Vanguard fund returns are adjusted to reflect the 0.50% fee on purchases of fund shares. The fee does not apply to the ETF Shares. The Fiscal-Year Total Returns table is not adjusted for fees.
See Financial Highlights for dividend and capital gains information.
8
Extended Duration Treasury Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the 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 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 and Agency Obligations (100.0%) | | | | |
| U.S. Government Securities (100.0%) | | | | |
| United States Treasury Strip Coupon | 0.000% | 5/15/35 | 42,685 | 25,074 |
| United States Treasury Strip Coupon | 0.000% | 8/15/35 | 39,335 | 22,946 |
| United States Treasury Strip Coupon | 0.000% | 11/15/35 | 42,135 | 24,409 |
| United States Treasury Strip Coupon | 0.000% | 2/15/36 | 35,945 | 20,724 |
| United States Treasury Strip Coupon | 0.000% | 5/15/36 | 39,195 | 22,356 |
| United States Treasury Strip Coupon | 0.000% | 8/15/36 | 35,200 | 19,943 |
| United States Treasury Strip Coupon | 0.000% | 11/15/36 | 39,245 | 22,054 |
| United States Treasury Strip Coupon | 0.000% | 2/15/37 | 46,280 | 25,801 |
| United States Treasury Strip Coupon | 0.000% | 5/15/37 | 34,830 | 19,276 |
| United States Treasury Strip Coupon | 0.000% | 8/15/37 | 37,790 | 20,740 |
| United States Treasury Strip Coupon | 0.000% | 11/15/37 | 44,355 | 24,187 |
| United States Treasury Strip Coupon | 0.000% | 2/15/38 | 40,560 | 21,960 |
| United States Treasury Strip Coupon | 0.000% | 5/15/38 | 44,990 | 24,302 |
| United States Treasury Strip Coupon | 0.000% | 8/15/38 | 40,095 | 21,420 |
| United States Treasury Strip Coupon | 0.000% | 11/15/38 | 37,920 | 20,133 |
| United States Treasury Strip Coupon | 0.000% | 2/15/39 | 35,160 | 18,536 |
| United States Treasury Strip Coupon | 0.000% | 5/15/39 | 28,880 | 15,094 |
| United States Treasury Strip Coupon | 0.000% | 8/15/39 | 30,410 | 15,754 |
| United States Treasury Strip Coupon | 0.000% | 11/15/39 | 37,840 | 19,455 |
| United States Treasury Strip Coupon | 0.000% | 2/15/40 | 33,080 | 16,889 |
| United States Treasury Strip Coupon | 0.000% | 5/15/40 | 36,805 | 18,658 |
| United States Treasury Strip Coupon | 0.000% | 8/15/40 | 36,250 | 18,247 |
| United States Treasury Strip Coupon | 0.000% | 11/15/40 | 42,330 | 21,155 |
| United States Treasury Strip Coupon | 0.000% | 2/15/41 | 36,470 | 18,087 |
| United States Treasury Strip Coupon | 0.000% | 5/15/41 | 35,860 | 17,734 |
| United States Treasury Strip Coupon | 0.000% | 8/15/41 | 35,160 | 17,204 |
| United States Treasury Strip Coupon | 0.000% | 11/15/41 | 39,420 | 19,171 |
| United States Treasury Strip Coupon | 0.000% | 2/15/42 | 62,095 | 29,893 |
| United States Treasury Strip Coupon | 0.000% | 5/15/42 | 45,355 | 21,671 |
| United States Treasury Strip Coupon | 0.000% | 8/15/42 | 42,080 | 19,952 |
| United States Treasury Strip Coupon | 0.000% | 11/15/42 | 54,985 | 25,899 |
| United States Treasury Strip Coupon | 0.000% | 2/15/43 | 61,430 | 28,742 |
| United States Treasury Strip Coupon | 0.000% | 5/15/43 | 51,910 | 24,126 |
| United States Treasury Strip Coupon | 0.000% | 8/15/43 | 46,490 | 21,530 |
| United States Treasury Strip Coupon | 0.000% | 11/15/43 | 47,450 | 21,842 |
| United States Treasury Strip Coupon | 0.000% | 2/15/44 | 40,165 | 18,335 |
| United States Treasury Strip Coupon | 0.000% | 5/15/44 | 37,050 | 16,803 |
9
| | | | |
| Extended Duration Treasury Index Fund | | | | |
| |
| |
| |
| | | | Face | Market |
| | | Maturity | Amount | Value• |
| | Coupon | Date | ($000) | ($000) |
| United States Treasury Strip Coupon | 0.000% | 8/15/44 | 21,050 | 9,553 |
| United States Treasury Strip Coupon | 0.000% | 11/15/44 | 50 | 22 |
| United States Treasury Strip Coupon | 0.000% | 2/15/45 | 50 | 22 |
| United States Treasury Strip Principal | 0.000% | 2/15/36 | 22,415 | 13,489 |
| United States Treasury Strip Principal | 0.000% | 2/15/37 | 31,850 | 18,354 |
| United States Treasury Strip Principal | 0.000% | 5/15/37 | 26,810 | 15,410 |
| United States Treasury Strip Principal | 0.000% | 2/15/38 | 36,140 | 19,930 |
| United States Treasury Strip Principal | 0.000% | 5/15/38 | 21,805 | 11,916 |
| United States Treasury Strip Principal | 0.000% | 2/15/39 | 36,805 | 19,668 |
| United States Treasury Strip Principal | 0.000% | 5/15/39 | 27,175 | 14,398 |
| United States Treasury Strip Principal | 0.000% | 8/15/39 | 15,505 | 8,144 |
| United States Treasury Strip Principal | 0.000% | 11/15/39 | 24,125 | 12,577 |
| United States Treasury Strip Principal | 0.000% | 2/15/40 | 29,700 | 15,361 |
| United States Treasury Strip Principal | 0.000% | 5/15/40 | 31,760 | 16,322 |
| United States Treasury Strip Principal | 0.000% | 8/15/40 | 40,660 | 20,762 |
| United States Treasury Strip Principal | 0.000% | 11/15/40 | 21,775 | 11,070 |
| United States Treasury Strip Principal | 0.000% | 2/15/41 | 12,760 | 6,476 |
| United States Treasury Strip Principal | 0.000% | 5/15/41 | 31,500 | 15,930 |
| United States Treasury Strip Principal | 0.000% | 8/15/41 | 26,880 | 13,446 |
| United States Treasury Strip Principal | 0.000% | 11/15/41 | 40,890 | 20,209 |
| United States Treasury Strip Principal | 0.000% | 2/15/42 | 34,505 | 16,867 |
| United States Treasury Strip Principal | 0.000% | 5/15/42 | 36,485 | 17,655 |
| United States Treasury Strip Principal | 0.000% | 8/15/42 | 46,095 | 22,100 |
| United States Treasury Strip Principal | 0.000% | 11/15/42 | 55,665 | 26,463 |
| United States Treasury Strip Principal | 0.000% | 2/15/43 | 56,005 | 26,475 |
| United States Treasury Strip Principal | 0.000% | 5/15/43 | 64,490 | 30,250 |
| United States Treasury Strip Principal | 0.000% | 8/15/43 | 46,150 | 21,593 |
| United States Treasury Strip Principal | 0.000% | 11/15/43 | 54,880 | 25,545 |
| United States Treasury Strip Principal | 0.000% | 2/15/44 | 41,900 | 19,284 |
| United States Treasury Strip Principal | 0.000% | 5/15/44 | 38,935 | 17,789 |
| United States Treasury Strip Principal | 0.000% | 8/15/44 | 31,870 | 14,486 |
| United States Treasury Strip Principal | 0.000% | 11/15/44 | 22,450 | 10,155 |
| United States Treasury Strip Principal | 0.000% | 2/15/45 | 5,050 | 2,272 |
| Total U.S. Government and Agency Obligations (Cost $1,064,734) | | | 1,294,095 |
| |
| | | | Shares | |
| Temporary Cash Investment (0.0%) | | | | |
| Money Market Fund (0.0%) | | | | |
| 1 Vanguard Market Liquidity Fund (Cost $528) | 0.134% | | 527,704 | 528 |
| Total Investments (100.0%) (Cost $1,065,262) | | | | 1,294,623 |
| Other Assets and Liabilities (0.0%) | | | | |
| Other Assets | | | | 37,544 |
| Liabilities | | | | (38,146) |
| | | | | (602) |
| Net Assets (100%) | | | | 1,294,021 |
10
| |
| Extended Duration Treasury Index Fund | |
| |
| |
| At February 28, 2015, net assets consisted of: | |
| | Amount |
| | ($000) |
| Paid-in Capital | 1,045,873 |
| Undistributed Net Investment Income | 5,349 |
| Accumulated Net Realized Gains | 13,438 |
| Unrealized Appreciation (Depreciation) | 229,361 |
| Net Assets | 1,294,021 |
| |
| Institutional Shares—Net Assets | |
| Applicable to 13,567,657 outstanding $.001 par value shares of | |
| beneficial interest (unlimited authorization) | 523,898 |
| Net Asset Value Per Share—Institutional Shares | $38.61 |
| |
| Institutional Plus Shares—Net Assets | |
| Applicable to 2,798,368 outstanding $.001 par value shares of | |
| beneficial interest (unlimited authorization) | 271,252 |
| Net Asset Value Per Share—Institutional Plus Shares | $96.93 |
| |
| ETF Shares—Net Assets | |
| Applicable to 3,900,000 outstanding $.001 par value shares of | |
| beneficial interest (unlimited authorization) | 498,871 |
| Net Asset Value Per Share—ETF Shares | $127.92 |
• 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.
11
| |
| Extended Duration Treasury Index Fund | |
| |
| |
| Statement of Operations | |
| |
| | Six Months Ended |
| | February 28, 2015 |
| | ($000) |
| Investment Income | |
| Income | |
| Interest1 | 18,151 |
| Total Income | 18,151 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 59 |
| Management and Administrative—Institutional Shares | 184 |
| Management and Administrative—Institutional Plus Shares | 64 |
| Management and Administrative—ETF Shares | 177 |
| Marketing and Distribution—Institutional Shares | 41 |
| Marketing and Distribution—Institutional Plus Shares | 30 |
| Marketing and Distribution—ETF Shares | 29 |
| Custodian Fees | 4 |
| Shareholders’ Reports—Institutional Shares | — |
| Shareholders’ Reports—Institutional Plus Shares | — |
| Shareholders’ Reports—ETF Shares | 6 |
| Total Expenses | 594 |
| Net Investment Income | 17,557 |
| Realized Net Gain (Loss) on Investment Securities Sold | 79,203 |
| Change in Unrealized Appreciation (Depreciation) of Investment Securities | 67,458 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 164,218 |
| 1 Interest income from an affiliated company of the fund was less than $1,000. | |
See accompanying Notes, which are an integral part of the Financial Statements.
12
| | |
| Extended Duration Treasury Index Fund | | |
| |
| |
| Statement of Changes in Net Assets | | |
| |
| | Six Months Ended | Year Ended |
| | February 28, | August 31, |
| | 2015 | 2014 |
| | ($000) | ($000) |
| Increase (Decrease) in Net Assets | | |
| Operations | | |
| Net Investment Income | 17,557 | 32,483 |
| Realized Net Gain (Loss) | 79,203 | 25,182 |
| Change in Unrealized Appreciation (Depreciation) | 67,458 | 165,532 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 164,218 | 223,197 |
| Distributions | | |
| Net Investment Income | | |
| Institutional Shares | (8,288) | (14,243) |
| Institutional Plus Shares | (4,518) | (9,409) |
| ETF Shares | (5,951) | (5,755) |
| Realized Capital Gain1 | | |
| Institutional Shares | (1,570) | (5,314) |
| Institutional Plus Shares | (780) | (3,511) |
| ETF Shares | (1,465) | (1,598) |
| Total Distributions | (22,572) | (39,830) |
| Capital Share Transactions | | |
| Institutional Shares | (69,781) | 70,804 |
| Institutional Plus Shares | (83,162) | 238,106 |
| ETF Shares | 202,856 | 52,609 |
| Net Increase (Decrease) from Capital Share Transactions | 49,913 | 361,519 |
| Total Increase (Decrease) | 191,559 | 544,886 |
| Net Assets | | |
| Beginning of Period | 1,102,462 | 557,576 |
| End of Period2 | 1,294,021 | 1,102,462 |
1 Includes fiscal 2015 and 2014 short-term gain distributions totaling $1,703,000 and $0, 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 $5,349,000 and $6,549,000.
See accompanying Notes, which are an integral part of the Financial Statements.
13
| | | | | | | |
| Extended Duration Treasury Index Fund | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| |
| Institutional Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $34.18 | $28.85 | $39.55 | $30.19 | $31.18 | $30.69 |
| Investment Operations | | | | | | | |
| Net Investment Income | | .516 | 1.006 | 1.121 | 1.084 | 1.1271 | 1.1731 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments 2 | | 4.585 | 5.678 | (9.183) | 10.162 | (.948) | 3.796 |
| Total from Investment Operations | 5.101 | 6.684 | (8.062) | 11.246 | .179 | 4.969 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (.559) | (.983) | (1.148) | (1.101) | (1.101) | (1.134) |
| Distributions from Realized Capital Gains | (.112) | (. 371) | (1.490) | (.785) | (. 068) | (3.345) |
| Total Distributions | | (.671) | (1.354) | (2.638) | (1.886) | (1.169) | (4.479) |
| Net Asset Value, End of Period | $38.61 | $34.18 | $28.85 | $39.55 | $30.19 | $31.18 |
| |
| Total Return3 | | 15.13% | 24.27% | -21.30% | 37.92% | 1.33% | 20.84% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $524 | $529 | $375 | $586 | $409 | $286 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.10% | 0.10% | 0.10% | 0.10% | 0.11% | 0.11% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 2.92% | 3.61% | 3.17% | 3.08% | 4.42% | 4.41% |
| Portfolio Turnover Rate 4 | | 14% | 17% | 31% | 47% | 22% | 24% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Calculated based on average shares outstanding.
2 Includes increases from purchase and redemption fees of $0.01, $0.06, $0.03, $0.05, $0.02, and $0.00. Effective May 23, 2012, the redemption fee was eliminated.
3 Total returns do not include transaction fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable transaction fees.
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.
14
| | | |
| Extended Duration Treasury Index Fund | | | |
| |
| |
| Financial Highlights | | | |
| |
| |
| Institutional Plus Shares | | | |
| | Six Months | Year | Aug. 28, |
| | Ended | Ended | 20131 to |
| | February 28, | Aug. 31, | Aug. 31, |
| For a Share Outstanding Throughout Each Period | 2015 | 2014 | 2013 |
| Net Asset Value, Beginning of Period | $85.80 | $72.42 | $71.46 |
| Investment Operations | | | |
| Net Investment Income | 1.302 | 2.542 | — |
| Net Realized and Unrealized Gain (Loss) on Investments2 | 11.521 | 14.260 | .960 |
| Total from Investment Operations | 12.823 | 16.802 | .960 |
| Distributions | | | |
| Dividends from Net Investment Income | (1.411) | (2.491) | — |
| Distributions from Realized Capital Gains | (.282) | (.931) | — |
| Total Distributions | (1.693) | (3.422) | — |
| Net Asset Value, End of Period | $96.93 | $85.80 | $72.42 |
| |
| Total Return3 | 15.15% | 24.31% | 1.34% |
| |
| Ratios/Supplemental Data | | | |
| Net Assets, End of Period (Millions) | $271 | $324 | $25 |
| Ratio of Total Expenses to Average Net Assets | 0.08% | 0.08% | 0.08%4 |
| Ratio of Net Investment Income to Average Net Assets | 2.94% | 3.63% | 3.19%4 |
| Portfolio Turnover Rate 5 | 14% | 17% | 31% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Inception.
2 Includes increases from purchase fees of $0.01, $0.15, and $0.07.
3 Total returns do not include transaction fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable transaction fees.
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.
15
| | | | | | | |
| Extended Duration Treasury Index Fund | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| |
| ETF Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $113.24 | $95.57 | $131.02 | $100.09 | $103.39 | $101.91 |
| Investment Operations | | | | | | | |
| Net Investment Income | | 1.708 | 3.311 | 3.695 | 3.566 | 3.7231 | 3.9211 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments 2 | | 15.195 | 18.824 | (30.430) | 33.594 | (3.168) | 12.419 |
| Total from Investment Operations | 16.903 | 22.135 | (26.735) | 37.160 | .555 | 16.340 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (1.852) | (3.236) | (3.779) | (3.628) | (3.630) | (3.752) |
| Distributions from Realized Capital Gains | (.371) | (1.229) | (4.936) | (2.602) | (.225) | (11.108) |
| Total Distributions | | (2.223) | (4.465) | (8.715) | (6.230) | (3.855) | (14.860) |
| Net Asset Value, End of Period | $127.92 | $113.24 | $95.57 | $131.02 | $100.09 | $103.39 |
| |
| Total Return | | 15.16% | 24.17% | -21.34% | 37.90% | 1.33% | 20.80% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $499 | $249 | $158 | $203 | $120 | $176 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.12% | 0.12% | 0.12% | 0.12% | 0.13% | 0.13% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 2.90% | 3.59% | 3.15% | 3.06% | 4.40% | 4.39% |
| Portfolio Turnover Rate 3 | | 14% | 17% | 31% | 47% | 22% | 24% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Calculated based on average shares outstanding.
2 Includes increases from purchase and redemption fees of $0.02, $0.19, $0.10, $0.18, $0.07, and $0.01. Effective May 23, 2012, the redemption fee was eliminated.
3 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
16
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 and Institutional Plus Shares are designed for investors who meet certain administrative, service, and account-size criteria. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. 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. 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. Other temporary cash investments are valued at amortized cost, which approximates market 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 for all open federal income tax years (August 31, 2011–2014), and for the period ended February 28, 2015, 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. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $2.89 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2015, or at any time during the period then ended.
5. 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 assessed on purchases of Institutional Shares and Institutional Plus Shares are credited to paid-in capital.
17
Extended Duration Treasury Index Fund
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 based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At February 28, 2015, the fund had contributed capital of $141,000 to Vanguard (included in Other Assets), representing 0.01% 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. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
The following table summarizes the market value of the fund’s investments as of February 28, 2015, based on the inputs used to value them:
| | | |
| | Level 1 | Level 2 | Level 3 |
| Investments | ($000) | ($000) | ($000) |
| U.S. Government and Agency Obligations | — | 1,294,095 | — |
| Temporary Cash Investments | 528 | — | — |
| Total | 528 | 1,294,095 | — |
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. 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, 2015, the fund realized $65,424,000 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.
18
Extended Duration Treasury Index Fund
At February 28, 2015, the cost of investment securities for tax purposes was $1,065,262,000. Net unrealized appreciation of investment securities for tax purposes was $229,361,000, consisting of unrealized gains of $229,717,000 on securities that had risen in value since their purchase and $356,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the six months ended February 28, 2015, the fund purchased $367,783,000 of investment securities and sold $341,395,000 of investment securities, other than temporary cash investments. Purchases and sales include $282,746,000 and $241,138,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
| | | | |
| F. Capital share transactions for each class of shares were: | | | |
| | Six Months Ended | | Year Ended |
| | February 28, 2015 | August 31, 2014 |
| | Amount | Shares | Amount | Shares |
| | ($000) | (000) | ($000) | (000) |
| Institutional Shares | | | | |
| Issued1 | 30,200 | 853 | 97,644 | 3,397 |
| Issued in Lieu of Cash Distributions | 9,858 | 282 | 18,970 | 674 |
| Redeemed | (109,839) | (3,046) | (45,810) | (1,581) |
| Net Increase (Decrease) —Institutional Shares | (69,781) | (1,911) | 70,804 | 2,490 |
| Institutional Plus Shares | | | | |
| Issued1 | 238,575 | 2,767 | 236,786 | 3,398 |
| Issued in Lieu of Cash Distributions | 5,299 | 61 | 12,920 | 183 |
| Redeemed | (327,036) | (3,809) | (11,600) | (150) |
| Net Increase (Decrease)—Institutional Plus Shares | (83,162) | (981) | 238,106 | 3,431 |
| ETF Shares | | | | |
| Issued1 | 444,183 | 3,650 | 193,623 | 2,000 |
| Issued in Lieu of Cash Distributions | — | — | — | — |
| Redeemed | (241,327) | (1,950) | (141,014) | (1,450) |
| Net Increase (Decrease)—ETF Shares | 202,856 | 1,700 | 52,609 | 550 |
| 1 Includes purchase fees for fiscal 2015 and 2014 of $167,000 and $1,885,000, respectively (fund totals). | | |
G. Management has determined that no material events or transactions occurred subsequent to February 28, 2015, that would require recognition or disclosure in these financial statements.
19
About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table illustrates your fund’s costs in two ways:
• Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund‘s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading ”Expenses Paid During Period.“
• Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.
20
| | | |
| Six Months Ended February 28, 2015 | | | |
| | Beginning | Ending | Expenses |
| | Account Value | Account Value | Paid During |
| Extended Duration Treasury Index Fund | 8/31/2014 | 2/28/2015 | Period |
| Based on Actual Fund Return | | | |
| Institutional Shares | $1,000.00 | $1,151.29 | $0.53 |
| Institutional Plus Shares | 1,000.00 | 1,151.51 | 0.43 |
| ETF Shares | 1,000.00 | 1,151.56 | 0.64 |
| Based on Hypothetical 5% Yearly Return | | | |
| Institutional Shares | $1,000.00 | $1,024.30 | $0.50 |
| Institutional Plus Shares | 1,000.00 | 1,024.40 | 0.40 |
| ETF Shares | 1,000.00 | 1,024.20 | 0.60 |
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 0.10% for Institutional Shares, 0.08% for Institutional Plus Shares, and 0.12% 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.
21
Glossary
30-Day SEC Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (for bonds), its actual income (for asset-backed securities), or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.
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.
Credit Quality. Credit-quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). “Not Rated” is used to classify securities for which a rating is not available. U.S. Treasury, U.S. Agency, and U.S. Agency mortgage-backed securities appear under “U.S. Government.” Credit-quality ratings are obtained from Barclays and are from Moody’s, Fitch, and S&P. When ratings from all three agencies are used, the median rating is shown. When ratings from two of the agencies are used, the lower rating for each issue is shown.
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. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.
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.
22
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.
23
Vanguard Extended Duration Treasury Index Fund is not sponsored, endorsed, issued, sold, or promoted by Barclays Capital Inc. or any of its affiliates (“Barclays”). Barclays makes no representation or warranty, express or implied, to the owners or purchasers of the fund or any member of the public regarding the advisability of investing in securities generally or in the fund particularly or the ability of the Barclays index to track general bond market performance. Barclays has not passed on the legality or suitability of the fund with respect to any person or entity. Barclays’ only relationship to Vanguard and the fund is the licensing of the Barclays index, which is determined, composed, and calculated by Barclays without regard to Vanguard or the fund or any owners or purchasers of the fund. Barclays has no obligation to take the needs of Vanguard, the fund, or the owners of the fund into consideration in determining, composing, or calculating the Barclays index. Barclays is not responsible for and has not participated in the determination of the timing of, prices at, or quantities of the fund to be issued. Barclays has no obligation or liability in connection with the administration, marketing, or trading of the fund.
Barclays shall have no liability to third parties for the quality, accuracy, and/or completeness of the index or any data included therein or for interruptions in the delivery of the index. Barclays makes no warranty, express or implied, as to results to be obtained by owners of the fund or any other person or entity from the use of the index or any data included therein in connection with the rights licensed hereunder or for any other use. Barclays reserves the right to change the methods of calculation or publication, or to cease the calculation or publication of the Barclays U.S. Treasury STRIPS 20–30 Year Equal Par Bond Index, and Barclays shall not be liable for any miscalculation of or any incorrect, delayed, or interrupted publication with respect to the index. Barclays makes no express or implied warranties, and hereby expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the index or any data included therein. Barclays shall not be liable for any damages, including, without limitation, any indirect or consequential damages resulting from the use of the index or any data included therein.
24
This page intentionally left blank.
This page intentionally left blank.
This page intentionally left blank.
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 178 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
InterestedTrustee1
F. William McNabb III
Born 1957. Trustee Since July 2009. Chairman of the Board. Principal Occupation(s) During the Past Five Years and Other Experience: Chairman of the Board of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group, since January 2010; Director of The Vanguard Group 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).
IndependentTrustees
Emerson U. Fullwood
Born 1948. Trustee Since January 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Executive Chief Staff and Marketing Officer for North America and Corporate Vice President (retired 2008) of Xerox Corporation (document management products and services); Executive in Residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology; Director of SPX Corporation (multi-industry manufacturing), the United Way of Rochester, Amerigroup Corporation (managed health care), the University of Rochester Medical Center, Monroe Community College Foundation, and North Carolina A&T University.
Rajiv L. Gupta
Born 1945. Trustee Since December 2001.2 Principal Occupation(s) During the Past Five Years and Other Experience: Chairman and Chief Executive Officer (retired 2009) and President (2006–2008) of Rohm and Haas Co. (chemicals); Director of Tyco International PLC (diversified manufacturing and services), Hewlett-Packard Co. (electronic computer manufacturing), and Delphi Automotive PLC (automotive components); Senior Advisor at New Mountain Capital.
Amy Gutmann
Born 1949. Trustee Since June 2006. Principal Occupation(s) During the Past Five Years and Other Experience: President of the University of Pennsylvania; Christopher H. Browne Distinguished Professor of Political Science, School of Arts and Sciences, and Professor of Communication, Annenberg School for Communication, with secondary faculty appointments in the Department of Philosophy, School of Arts and Sciences, and at the Graduate School of Education, University of Pennsylvania; Trustee of the National Constitution Center; Chair of the Presidential Commission for the Study of Bioethical Issues.
JoAnn Heffernan Heisen
Born 1950. Trustee Since July 1998. Principal Occupation(s) During the Past Five Years and Other Experience: Corporate Vice President and Chief Global Diversity Officer (retired 2008) and Member of the Executive Committee (1997–2008) of Johnson & Johnson (pharmaceuticals/medical devices/ consumer products); Director of Skytop Lodge Corporation (hotels), the University Medical Center at Princeton, the Robert Wood Johnson Foundation, and the Center for Talent Innovation; Member of the Advisory Board of the Institute for Women’s Leadership at Rutgers University.
F. Joseph Loughrey
Born 1949. Trustee Since October 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2009) of Cummins Inc. (industrial machinery); Chairman of the Board of Hillenbrand, Inc. (specialized consumer services), and of Oxfam America; Director of SKF AB (industrial machinery), Hyster-Yale Materials Handling, Inc. (forklift trucks), the Lumina Foundation for Education, and the V Foundation for Cancer Research; Member of the Advisory Council for the College of Arts and Letters and of the Advisory Board to the Kellogg Institute for International Studies, both at the University of Notre Dame.
Mark Loughridge
Born 1953. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Senior Vice President and Chief Financial Officer (retired 2013) at IBM (information technology services); Fiduciary Member of IBM’s Retirement Plan Committee (2004–2013); Director of the Dow Chemical Company; Member of the Council on Chicago Booth.
Scott C. Malpass
Born 1962. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Chief Investment Officer and Vice President at the University of Notre Dame; Assistant Professor of Finance at the Mendoza College of Business at Notre Dame; Member of the Notre Dame 403(b) Investment Committee; Board Member of TIFF Advisory Services, Inc., and Catholic Investment Services, Inc. (investment advisors); Member of the Investment Advisory Committee of Major League Baseball.
André F. Perold
Born 1952. Trustee Since December 2004. Principal Occupation(s) During the Past Five Years and Other Experience: George Gund Professor of Finance and Banking, Emeritus at the Harvard Business School (retired 2011); Chief Investment Officer and Managing Partner of HighVista Strategies LLC (private investment firm); Director of Rand Merchant Bank; Overseer of the Museum of Fine Arts Boston.
Peter F. Volanakis
Born 1955. Trustee Since July 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2010) of Corning Incorporated (communications equipment); Trustee of Colby-Sawyer College; Member of the Advisory Board of the Norris Cotton Cancer Center and of the Advisory Board of the Parthenon Group (strategy consulting).
Executive Officers
Glenn Booraem
Born 1967. Controller Since July 2010. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Controller of each of the investment companies served by The Vanguard Group; Assistant Controller of each of the investment companies served by The Vanguard Group (2001–2010).
Thomas J. Higgins
Born 1957. Chief Financial Officer Since September 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Chief Financial Officer of each of the investment companies served by The Vanguard Group; Treasurer of each of the investment companies served by The Vanguard Group (1998–2008).
Kathryn J. Hyatt
Born 1955. Treasurer Since November 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group; Assistant Treasurer of each of the investment companies served by The Vanguard Group (1988–2008).
Heidi Stam
Born 1956. Secretary Since July 2005. Principal Occupation(s) During the Past Five Years and Other Experience: Managing Director of The Vanguard Group, Inc.; General Counsel of The Vanguard Group; Secretary of The Vanguard Group and of each of the investment companies served by The Vanguard Group; Director and Senior Vice President of Vanguard Marketing Corporation.
Vanguard Senior Management Team
| |
Mortimer J. Buckley Kathleen C. Gubanich Paul A. Heller Martha G. King John T. Marcante | Chris D. McIsaac Michael S. Miller James M. Norris Glenn W. Reed |
Chairman Emeritus and Senior Advisor
John J. Brennan
Chairman, 1996–2009
Chief Executive Officer and President, 1996–2008
Founder
John C. Bogle
Chairman and Chief Executive Officer, 1974–1996
1 Mr. McNabb is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the Vanguard funds.
2 December 2002 for Vanguard Equity Income Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.
P.O. Box 2600
Valley Forge, PA 19482-2600
Connect with Vanguard® > vanguard.com
| |
| Fund Information > 800-662-7447 | |
| Direct Investor Account Services > 800-662-2739 | |
| Institutional Investor Services > 800-523-1036 | |
| Text Telephone for People | |
| Who Are Deaf or Hard of Hearing> 800-749-7273 | |
| |
| This material may be used in conjunction | |
| with the offering of shares of any Vanguard | |
| fund only if preceded or accompanied by | |
| the fund’s current prospectus. | |
| |
| All comparative mutual fund data are from Lipper, a | |
| Thomson Reuters Company, or Morningstar, Inc., unless | |
| otherwise noted. | |
| |
| You can obtain a free copy of Vanguard’s proxy voting | |
| guidelines by visiting vanguard.com/proxyreporting or by | |
| calling Vanguard at 800-662-2739. The guidelines are | |
| also available from the SEC’s website, sec.gov. In | |
| addition, you may obtain a free report on how your fund | |
| voted the proxies for securities it owned during the 12 | |
| months ended June 30. To get the report, visit either | |
| vanguard.com/proxyreporting or sec.gov. | |
| |
| You can review and copy information about your fund at | |
| the SEC’s Public Reference Room in Washington, D.C. To | |
| find out more about this public service, call the SEC at | |
| 202-551-8090. Information about your fund is also | |
| available on the SEC’s website, and you can receive | |
| copies of this information, for a fee, by sending a | |
| request in either of two ways: via e-mail addressed to | |
| publicinfo@sec.gov or via regular mail addressed to the | |
| Public Reference Section, Securities and Exchange | |
| Commission, Washington, DC 20549-1520. | |
| |
| | © 2015 The Vanguard Group, Inc. |
| | All rights reserved. |
| | Vanguard Marketing Corporation, Distributor. |
| |
| | Q12752 042015 |
Semiannual Report | February 28, 2015
Vanguard Mega Cap Index Funds
Vanguard Mega Cap Index Fund
Vanguard Mega Cap Growth Index Fund
Vanguard Mega Cap Value Index Fund
The mission continues
On May 1, 1975, Vanguard began operations, a fledgling company based on the simple but revolutionary idea that a mutual fund company should be managed solely in the interest of its investors.
Four decades later, that revolutionary spirit continues to animate the enterprise. Vanguard remains on a mission to give investors the best chance of investment success.
As we mark our 40th anniversary, we thank you for entrusting your assets to Vanguard and giving us the opportunity to help you reach your financial goals in the decades to come.
| |
| Contents | |
| Your Fund’s Total Returns. | 1 |
| Chairman’s Letter. | 2 |
| Mega Cap Index Fund. | 7 |
| Mega Cap Growth Index Fund. | 23 |
| Mega Cap Value Index Fund. | 36 |
| About Your Fund’s Expenses. | 49 |
| Glossary. | 51 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
About the cover: Since our founding, Vanguard has drawn inspiration from the enterprise and valor demonstrated by British naval hero Horatio Nelson and his command at the Battle of the Nile in 1798. The photograph displays a replica of a merchant ship from the same era as Nelson’s flagship, the HMS Vanguard.
| |
| Your Fund’s Total Returns | |
| |
| |
| |
| |
| Six Months Ended February 28, 2015 | |
| | Total |
| | Returns |
| Vanguard Mega Cap Index Fund | |
| Institutional Shares | 5.79% |
| ETF Shares | |
| Market Price | 5.79 |
| Net Asset Value | 5.75 |
| CRSP US Mega Cap Index | 5.82 |
| Large-Cap Core Funds Average | 4.96 |
| Large-Cap Core Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
| Vanguard Mega Cap Growth Index Fund | |
| Institutional Shares | 8.29% |
| ETF Shares | |
| Market Price | 8.32 |
| Net Asset Value | 8.27 |
| CRSP US Mega Cap Growth Index | 8.33 |
| Large-Cap Growth Funds Average | 7.71 |
| Large-Cap Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
| Vanguard Mega Cap Value Index Fund | |
| Institutional Shares | 3.81% |
| ETF Shares | |
| Market Price | 3.89 |
| Net Asset Value | 3.79 |
| CRSP US Mega Cap Value Index | 3.84 |
| Large-Cap Value Funds Average | 3.20 |
| Large-Cap Value Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Institutional Shares are available to certain institutional investors who meet specific administrative, service, and account-size criteria. The Vanguard ETF® Shares shown are traded on the NYSE Arca exchange and are available only through brokers. The table provides ETF returns based on both the NYSE Arca market price and the net asset value for a share. U.S. Pat. Nos. 6,879,964; 7,337,138; 7,720,749; 7,925,573; 8,090,646; and 8,417,623.
For the ETF Shares, the market price is determined by the midpoint of the bid-offer spread as of the closing time of the New York Stock Exchange (generally 4 p.m., Eastern time). The net asset value is also determined as of the NYSE closing time. For more information about how the ETF Shares' market prices have compared with their net asset value, visit vanguard.com, select your ETF, and then select the Price and Performance tab. The ETF premium/discount analysis there shows the percentages of days on which the ETF Shares' market price was above or below the NAV.
1
Chairman’s Letter
Dear Shareholder,
For the six months ended February 28, 2015, the three Vanguard Mega Cap Index Funds produced positive, albeit varied, results. As growth stocks trumped their value counterparts, the Mega Cap Growth Index Fund returned more than 8%, while the Mega Cap Value Index Fund was the laggard of the group, returning almost 4%. The Mega Cap Index Fund, which holds stocks of both growth and value companies, finished in the middle, at nearly 6%. (All returns are for the funds’ Institutional Shares.)
All three funds closely tracked their target CRSP indexes and surpassed the average return of their peers.
A surge in February powered U.S. stocks
U.S. stocks performed solidly but unevenly over the six months. Despite declines in two of those months and flat returns in another, the broad U.S. stock market ended the period up about 6%.
Overall returns were powered by a robust advance in February, when the broad market recorded its largest monthly gain since October 2011. Investors were cheered by stabilization in oil prices and guidance from the Federal Reserve that it wouldn’t raise interest rates prematurely.
International stocks marched in the opposite direction, returning about –3% in dollar terms. The dollar’s strength against many foreign currencies, along with various geopolitical issues, restrained results.
2
Stocks in emerging markets and the developed markets of the Pacific region and Europe backtracked, with emerging markets faring the worst. In local currency terms, though, international stocks rose.
Bonds notched positive results despite early and late retreats
The broad U.S. taxable bond market returned 2.25%, although bond prices declined over the period’s first and final months. When the stock market turned volatile, investors favored the relative safety offered by bonds, which also benefited from various global stimulus programs.
Conversely, bond prices fell in February as the Fed suggested that a midyear interest rate increase was an option if the economy continued to perform well. The yield of the 10-year Treasury note ended February at 2.03%, down from 2.34% six months earlier. (Bond prices and yields move in opposite directions.)
Municipal bonds, which returned 2.21%, lost some steam toward the end of the period amid increased bond issuance and the prospect of higher interest rates.
International bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –9.54%, weighed down by the weakness of foreign currencies relative to the dollar. However, international bonds that were hedged to eliminate the effect of currency exchange rates produced positive returns.
| | | |
| Market Barometer | | | |
| |
| | | | Total Returns |
| | | Periods Ended February 28, 2015 |
| | Six | One | Five Years |
| | Months | Year | (Annualized) |
| Stocks | | | |
| Russell 1000 Index (Large-caps) | 6.00% | 14.88% | 16.39% |
| Russell 2000 Index (Small-caps) | 5.70 | 5.63 | 15.97 |
| Russell 3000 Index (Broad U.S. market) | 5.98 | 14.12 | 16.36 |
| FTSE All-World ex US Index (International) | -3.34 | 1.69 | 6.94 |
| |
| Bonds | | | |
| Barclays U.S. Aggregate Bond Index (Broad taxable market) | 2.25% | 5.05% | 4.29% |
| Barclays Municipal Bond Index (Broad tax-exempt market) | 2.21 | 6.49 | 5.00 |
| Citigroup Three-Month U.S. Treasury Bill Index | 0.00 | 0.03 | 0.06 |
| |
| CPI | | | |
| Consumer Price Index | -1.32% | -0.03% | 1.61% |
3
Money market funds and savings accounts provided scant returns as the Fed’s target for short-term rates remained at 0%–0.25%.
Across all three funds, most sectors advanced
The Vanguard Mega Cap Index Funds provide exposure to the U.S. stock market’s largest companies. Investors may choose to invest in this market segment through the Mega Cap Index Fund or to focus specifically on its growth or value sector through the Mega Cap Growth Index or Value Index Fund.
As I mentioned, growth stocks outpaced value for the six months. Overall, most sectors gained. Consumer services, health care, and financial companies added significantly to the funds’ returns. Only oil and gas declined for all three funds. Hurt by tumbling oil prices, stocks in this sector detracted about 2 percentage points from each fund’s result.
Information technology was one of the period’s top performers and the biggest contributor to the Mega Cap Growth Index Fund. The sector benefited from increased corporate spending and a surge in mobile device sales. Tech stocks also boosted the Mega Cap Index Fund.
Health care holdings were a bright spot for all three funds and led the Mega Cap Index and Value Index Funds. Biotechnology and pharmaceutical companies profited from strong merger and acquisition activity and
| | | |
| Expense Ratios | | | |
| Your Fund Compared With Its Peer Group | | | |
| |
| | Institutional | ETF | Peer Group |
| | Shares | Shares | Average |
| Mega Cap Index Fund | 0.08% | 0.11% | 1.12% |
| Mega Cap Growth Index Fund | 0.10 | 0.11 | 1.21 |
| Mega Cap Value Index Fund | 0.08 | 0.11 | 1.13 |
The fund expense ratios shown are from the prospectus dated December 23, 2014, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2015, the annualized expense ratios were: for the Mega Cap Index Fund, 0.08% for Institutional Shares and 0.11% for ETF Shares; for the Mega Cap Growth Index Fund, 0.09% for Institutional Shares and 0.11% for ETF Shares; and for the Mega Cap Value Index Fund, 0.08% for Institutional Shares and 0.11% for ETF Shares. Peer-group expense ratios are derived from data provided by Lipper, a Thomson Reuters Company, and capture information through year-end 2014.
Peer groups: For the Mega Cap Index Fund, Large-Cap Core Funds; for the Mega Cap Growth Index Fund, Large-Cap Growth Funds; and for the Mega Cap Value Index Fund, Large-Cap Value Funds.
4
improved product pipelines. Health care providers and equipment companies also did well.
Consumer services and financial stocks lifted the returns of all three funds. Within consumer services, broadcasting and entertainment corporations and home improvement retailers benefited from an improving economy. Financial services firms and real estate investment trusts (REITs) were among the standouts in the financial sector.
Both ETFs and mutual funds offer the chance for long-term success
The popularity of exchange-traded funds (ETFs) has surged over the past decade. We see this as an indication that our message is taking hold: Both diversifying and keeping costs down matter, and indexing is a great way to achieve those goals.
As you probably know, ETFs combine the investment characteristics of index mutual funds with the trading characteristics of stocks. As with stocks, ETF prices change throughout the day. In contrast, traditional open-end mutual funds are priced once a day, as determined at the market’s close.
Some say ETFs are more of a trading tool than an investment tool. We don’t think this has to be the case. In fact, we’re seeing much greater use of ETFs as part of long-term plans. Certainly, they are easy to trade. But investors needn’t feel that they have to do so. And unlike with traditional mutual funds, the investor doing the trading is the one who pays the transaction costs—not the other fund shareholders.
Vanguard ETFs are simply another share class of our traditional mutual funds. We give clients the choice, but in terms of price, diversification, and quality, the portfolios are essentially identical. Vanguard research has shown that ETFs and mutual funds perform basically the same function, and that investors can use both to create a low-cost, well-diversified portfolio of stocks and bonds. You can read more in Buying on the FACTS: Investors’ Choices Between ETFs and Mutual Funds, available at vanguard.com/research.
As always, thank you for investing with Vanguard.
Sincerely,
F. William McNabb III
Chairman and Chief Executive Officer March 12, 2015
5
| | | | |
| Your Fund’s Performance at a Glance | | | | |
| August 31, 2014, Through February 28, 2015 | | | | |
| | | | Distributions Per Share |
| | Starting | Ending | Income | Capital |
| | Share Price | Share Price | Dividends | Gains |
| Vanguard Mega Cap Index Fund | | | | |
| Institutional Shares | $135.41 | $141.80 | $1.380 | $0.000 |
| ETF Shares | 68.69 | 71.92 | 0.691 | 0.000 |
| Vanguard Mega Cap Growth Index Fund | | | | |
| Institutional Shares | $157.21 | $169.04 | $1.113 | $0.000 |
| ETF Shares | 79.16 | 85.11 | 0.562 | 0.000 |
| Vanguard Mega Cap Value Index Fund | | | | |
| Institutional Shares | $118.18 | $121.13 | $1.508 | $0.000 |
| ETF Shares | 59.60 | 61.09 | 0.753 | 0.000 |
6
Mega Cap Index Fund
Fund Profile
As of February 28, 2015
| | | |
| Share-Class Characteristics | | |
| |
| | Institutional | | ETF |
| | Shares | | Shares |
| Ticker Symbol | VMCTX | | MGC |
| Expense Ratio1 | 0.08% | | 0.11% |
| 30-Day SEC Yield | 2.00% | | 1.97% |
| Portfolio Characteristics | | |
| | | | DJ |
| | | | U.S. |
| | | | Total |
| | CRSP US | Market |
| | Mega Cap | FA |
| | Fund | Index | Index |
| Number of Stocks | 298 | 300 | 3,734 |
| Median Market Cap | $101.0B | $97.8B | $49.0B |
| Price/Earnings Ratio | 19.7x | 19.7x | 21.4x |
| Price/Book Ratio | 2.9x | 2.9x | 2.8x |
| Return on Equity | 19.3% | 19.1% | 17.6% |
| Earnings Growth | | | |
| Rate | 13.6% | 13.4% | 13.9% |
| Dividend Yield | 2.0% | 2.0% | 1.9% |
| Foreign Holdings | 0.0% | 0.0% | 0.0% |
| Turnover Rate | | | |
| (Annualized) | 6% | — | — |
| Short-Term Reserves | -0.1% | — | — |
| Sector Diversification (% of equity exposure) |
| | | | DJ |
| | | | U.S. |
| | | | Total |
| | CRSP US | Market |
| | Mega Cap | FA |
| | Fund | Index | Index |
| Basic Materials | 2.3% | 2.3% | 2.8% |
| Consumer Goods | 9.4 | 9.4 | 10.0 |
| Consumer Services | 13.9 | 13.9 | 14.1 |
| Financials | 17.6 | 17.6 | 18.5 |
| Health Care | 14.7 | 14.7 | 13.5 |
| Industrials | 10.6 | 10.6 | 12.7 |
| Oil & Gas | 8.3 | 8.3 | 7.2 |
| Technology | 17.9 | 17.9 | 16.0 |
| Telecommunications | 2.6 | 2.6 | 2.1 |
| Utilities | 2.7 | 2.7 | 3.1 |
| | | |
| Volatility Measures | | | |
| | | | DJ |
| | Spliced | U.S. Total |
| | Mega Cap | | Market |
| | Index | FA Index |
| R-Squared | 1.00 | | 0.98 |
| Beta | 1.00 | | 0.96 |
| These measures show the degree and timing of the fund’s | |
| fluctuations compared with the indexes over 36 months. | |
| |
| Ten Largest Holdings (% of total net assets) |
| Apple Inc. | Computer Hardware | 4.6% |
| Exxon Mobil Corp. | Integrated Oil & Gas | 2.3 |
| Microsoft Corp. | Software | | 2.0 |
| Google Inc. | Internet | | 2.0 |
| Johnson & Johnson | Pharmaceuticals | | 1.7 |
| Wells Fargo & Co. | Banks | | 1.7 |
| Berkshire Hathaway Inc. Reinsurance | | 1.7 |
| General Electric Co. | Diversified Industrials | 1.6 |
| Procter & Gamble Co. | Nondurable | | |
| | Household Products | 1.4 |
| JPMorgan Chase & Co. | Banks | | 1.4 |
| Top Ten | | | 20.4% |
| 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 23, 2014, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2015, the annualized expense ratios were 0.08% for Institutional Shares and 0.11% for ETF Shares.
7
Mega Cap 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 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, Through February 28, 2015
Mega Cap Index Fund ETF Shares Net Asset Value
Spliced Mega Cap Index
For a benchmark description, see the Glossary.
Note: For 2015, performance data reflect the six months ended February 28, 2015.
Average Annual Total Returns: Periods Ended December 31, 2014
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
| | | | |
| | Inception | One | Five | Since |
| | Date | Year | Years | Inception |
| Institutional Shares | 2/22/2008 | 13.32% | 15.17% | 8.59% |
| ETF Shares | 12/17/2007 | | | |
| Market Price | | 13.29 | 15.14 | 7.36 |
| Net Asset Value | | 13.27 | 15.13 | 7.35 |
See Financial Highlights for dividend and capital gains information.
8
Mega Cap Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the 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 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%)1 | | |
| Basic Materials (2.3%) | | |
| EI du Pont de Nemours & | | |
| Co. | 76,081 | 5,923 |
| Dow Chemical Co. | 98,973 | 4,873 |
| Praxair Inc. | 24,483 | 3,131 |
| LyondellBasell Industries NV | | |
| Class A | 33,637 | 2,890 |
| PPG Industries Inc. | 11,555 | 2,720 |
| Ecolab Inc. | 22,719 | 2,625 |
| Air Products & Chemicals | | |
| Inc. | 16,213 | 2,532 |
| International Paper Co. | 35,675 | 2,012 |
| Freeport-McMoRan Inc. | 87,536 | 1,893 |
| Mosaic Co. | 26,963 | 1,436 |
| Nucor Corp. | 26,711 | 1,256 |
| Newmont Mining Corp. | 21,029 | 554 |
| | | 31,845 |
| Consumer Goods (9.4%) | | |
| Procter & Gamble Co. | 227,320 | 19,352 |
| Coca-Cola Co. | 331,365 | 14,348 |
| PepsiCo Inc. | 125,922 | 12,464 |
| Philip Morris International | | |
| Inc. | 130,619 | 10,836 |
| Altria Group Inc. | 166,119 | 9,351 |
| NIKE Inc. Class B | 57,438 | 5,578 |
| Colgate-Palmolive Co. | 76,602 | 5,425 |
| Ford Motor Co. | 318,139 | 5,198 |
| Mondelez International Inc. | | |
| Class A | 134,149 | 4,955 |
| Monsanto Co. | 40,637 | 4,894 |
| General Motors Co. | 108,247 | 4,039 |
| Kimberly-Clark Corp. | 31,363 | 3,439 |
| Kraft Foods Group Inc. | 49,584 | 3,176 |
| Johnson Controls Inc. | 56,026 | 2,847 |
| General Mills Inc. | 50,722 | 2,728 |
| Archer-Daniels-Midland Co. | 54,034 | 2,587 |
| VF Corp. | 29,085 | 2,230 |
| Lorillard Inc. | 30,311 | 2,074 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | Reynolds American Inc. | 26,798 | 2,027 |
| | Mead Johnson Nutrition Co. | 16,950 | 1,776 |
| | Estee Lauder Cos. Inc. | | |
| | Class A | 19,499 | 1,612 |
| * | Tesla Motors Inc. | 7,370 | 1,499 |
| | Kellogg Co. | 21,019 | 1,355 |
| | Stanley Black & Decker Inc. | 13,276 | 1,306 |
| | Hershey Co. | 12,203 | 1,266 |
| * | Michael Kors Holdings Ltd. | 16,542 | 1,115 |
| | Activision Blizzard Inc. | 42,550 | 992 |
| | Campbell Soup Co. | 17,340 | 808 |
| | Brown-Forman Corp. | | |
| | Class B | 8,608 | 789 |
| | | | 130,066 |
| Consumer Services (13.9%) | | |
| | Walt Disney Co. | 128,463 | 13,370 |
| | Home Depot Inc. | 110,900 | 12,726 |
| * | Amazon.com Inc. | 31,135 | 11,836 |
| | Wal-Mart Stores Inc. | 135,412 | 11,365 |
| | Comcast Corp. Class A | 178,420 | 10,595 |
| | CVS Health Corp. | 96,506 | 10,024 |
| | McDonald’s Corp. | 81,786 | 8,089 |
| | Lowe’s Cos. Inc. | 82,942 | 6,145 |
| | Walgreens Boots Alliance | | |
| | Inc. | 71,470 | 5,938 |
| | Starbucks Corp. | 59,720 | 5,583 |
| | Time Warner Inc. | 66,897 | 5,476 |
| * | eBay Inc. | 93,971 | 5,442 |
| * | Priceline Group Inc. | 4,396 | 5,440 |
| | Costco Wholesale Corp. | 36,783 | 5,406 |
| | Twenty-First Century Fox | | |
| | Inc. Class A | 136,863 | 4,790 |
| | McKesson Corp. | 19,531 | 4,467 |
| | Target Corp. | 53,470 | 4,108 |
| | TJX Cos. Inc. | 55,277 | 3,794 |
| * | DIRECTV | 42,207 | 3,740 |
| | Time Warner Cable Inc. | 23,581 | 3,633 |
| | Delta Air Lines Inc. | 70,409 | 3,135 |
| | Yum! Brands Inc. | 36,793 | 2,984 |
| | American Airlines Group Inc. | 60,296 | 2,888 |
9
| | | |
| Mega Cap Index Fund | | |
| |
| |
| |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | Kroger Co. | 39,274 | 2,794 |
| | Southwest Airlines Co. | 57,155 | 2,471 |
| | Cardinal Health Inc. | 27,800 | 2,446 |
| | CBS Corp. Class B | 39,077 | 2,309 |
| * | Netflix Inc. | 4,828 | 2,293 |
| | Comcast Corp. | 37,325 | 2,200 |
| | Viacom Inc. Class B | 31,071 | 2,173 |
| | Sysco Corp. | 49,359 | 1,924 |
| | Las Vegas Sands Corp. | 33,624 | 1,913 |
| | Macy’s Inc. | 29,668 | 1,890 |
| * | AutoZone Inc. | 2,705 | 1,738 |
| | Whole Foods Market Inc. | 30,294 | 1,711 |
| | Omnicom Group Inc. | 20,902 | 1,663 |
| | Carnival Corp. | 35,065 | 1,543 |
| * | DISH Network Corp. Class A | 17,740 | 1,331 |
| | Starwood Hotels & Resorts | | |
| | Worldwide Inc. | 15,099 | 1,213 |
| | Kohl’s Corp. | 16,286 | 1,202 |
| * | Bed Bath & Beyond Inc. | 14,888 | 1,112 |
| | Wynn Resorts Ltd. | 6,839 | 975 |
| * | Hilton Worldwide Holdings | | |
| | Inc. | 33,373 | 943 |
| * | Dollar General Corp. | 12,717 | 924 |
| | Gap Inc. | 20,121 | 837 |
| * | Sirius XM Holdings Inc. | 186,015 | 724 |
| * | Liberty Media Corp. | 17,455 | 674 |
| * | Liberty Interactive Corp. | | |
| | Class A | 17,863 | 527 |
| | Twenty-First Century Fox | | |
| | Inc. | 14,166 | 482 |
| * | Liberty Media Corp. Class A | 8,037 | 310 |
| | | | 191,296 |
| Financials (17.6%) | | |
| | Wells Fargo & Co. | 436,340 | 23,907 |
| * | Berkshire Hathaway Inc. | | |
| | Class B | 153,333 | 22,603 |
| | JPMorgan Chase & Co. | 314,529 | 19,274 |
| | Bank of America Corp. | 884,108 | 13,978 |
| | Citigroup Inc. | 241,937 | 12,682 |
| | Visa Inc. Class A | 41,457 | 11,248 |
| | MasterCard Inc. Class A | 84,181 | 7,587 |
| | American Express Co. | 86,984 | 7,097 |
| | US Bancorp | 150,390 | 6,709 |
| | Goldman Sachs Group Inc. | 34,839 | 6,612 |
| | American International | | |
| | Group Inc. | 117,603 | 6,507 |
| | Simon Property Group Inc. | 26,468 | 5,038 |
| | Morgan Stanley | 123,646 | 4,425 |
| | PNC Financial Services | | |
| | Group Inc. | 44,343 | 4,078 |
| | MetLife Inc. | 76,511 | 3,889 |
| | Bank of New York Mellon | | |
| | Corp. | 94,799 | 3,710 |
| | Capital One Financial Corp. | 46,809 | 3,684 |
| | American Tower Corporation | 35,100 | 3,480 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | BlackRock Inc. | 9,039 | 3,357 |
| | Prudential Financial Inc. | 38,405 | 3,105 |
| | ACE Ltd. | 26,511 | 3,022 |
| | Travelers Cos. Inc. | 27,816 | 2,989 |
| | Charles Schwab Corp. | 98,975 | 2,904 |
| | Marsh & McLennan Cos. | | |
| | Inc. | 45,493 | 2,588 |
| | CME Group Inc. | 26,931 | 2,583 |
| | Allstate Corp. | 35,293 | 2,492 |
| | State Street Corp. | 33,281 | 2,478 |
| | Public Storage | 12,361 | 2,438 |
| | Crown Castle International | | |
| | Corp. | 28,029 | 2,419 |
| | Aon plc | 24,050 | 2,414 |
| | McGraw Hill Financial Inc. | 22,926 | 2,364 |
| | Equity Residential | 30,439 | 2,345 |
| | Discover Financial Services | 38,115 | 2,324 |
| | BB&T Corp. | 60,461 | 2,301 |
| | Intercontinental Exchange | | |
| | Inc. | 9,510 | 2,238 |
| | Aflac Inc. | 35,915 | 2,236 |
| | Ameriprise Financial Inc. | 15,578 | 2,082 |
| | Ventas Inc. | 27,279 | 2,031 |
| | Chubb Corp. | 19,819 | 1,991 |
| | Franklin Resources Inc. | 34,075 | 1,834 |
| | SunTrust Banks Inc. | 44,050 | 1,806 |
| | Prologis Inc. | 42,176 | 1,801 |
| | Boston Properties Inc. | 12,933 | 1,777 |
| | T. Rowe Price Group Inc. | 20,648 | 1,706 |
| | HCP Inc. | 38,821 | 1,644 |
| | Vornado Realty Trust | 14,255 | 1,569 |
| | Weyerhaeuser Co. | 44,225 | 1,553 |
| | Invesco Ltd. | 36,199 | 1,458 |
| | General Growth Properties | | |
| | Inc. | 48,581 | 1,409 |
| | Fifth Third Bancorp | 69,669 | 1,349 |
| | Host Hotels & Resorts Inc. | 63,979 | 1,344 |
| | Northern Trust Corp. | 18,771 | 1,311 |
| | Progressive Corp. | 47,018 | 1,253 |
| | Loews Corp. | 25,288 | 1,037 |
| | TD Ameritrade Holding Corp. | 20,504 | 744 |
| * | Synchrony Financial | 10,672 | 341 |
| * | Berkshire Hathaway Inc. | | |
| | Class A | 1 | 221 |
| | | | 243,366 |
| Health Care (14.6%) | | |
| | Johnson & Johnson | 235,478 | 24,139 |
| | Pfizer Inc. | 530,024 | 18,190 |
| | Merck & Co. Inc. | 239,647 | 14,029 |
| * | Gilead Sciences Inc. | 126,952 | 13,143 |
| | Amgen Inc. | 64,061 | 10,104 |
| * | Medtronic plc | 119,250 | 9,253 |
| | UnitedHealth Group Inc. | 80,732 | 9,174 |
| | Bristol-Myers Squibb Co. | 139,412 | 8,493 |
| * | Celgene Corp. | 67,175 | 8,164 |
10
| | | |
| Mega Cap Index Fund | | |
| |
| |
| |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| * | Biogen Idec Inc. | 19,853 | 8,132 |
| | AbbVie Inc. | 127,172 | 7,694 |
| * | Actavis plc | 22,279 | 6,491 |
| | Abbott Laboratories | 126,585 | 5,996 |
| | Eli Lilly & Co. | 84,168 | 5,906 |
| | Allergan Inc. | 25,039 | 5,828 |
| * | Express Scripts Holding Co. | 61,654 | 5,228 |
| | Thermo Fisher Scientific Inc. | 33,655 | 4,375 |
| * | Anthem Inc. | 22,642 | 3,316 |
| | Baxter International Inc. | 45,480 | 3,145 |
| * | Alexion Pharmaceuticals Inc. | 16,642 | 3,002 |
| | Aetna Inc. | 29,665 | 2,953 |
| | Cigna Corp. | 22,026 | 2,679 |
| * | Regeneron Pharmaceuticals | | |
| | Inc. | 6,296 | 2,605 |
| | Stryker Corp. | 27,025 | 2,561 |
| | Becton Dickinson and Co. | 16,167 | 2,372 |
| * | Illumina Inc. | 11,969 | 2,339 |
| | Humana Inc. | 12,878 | 2,117 |
| * | HCA Holdings Inc. | 27,310 | 1,954 |
| | Zoetis Inc. | 42,090 | 1,940 |
| | Zimmer Holdings Inc. | 14,225 | 1,712 |
| | St. Jude Medical Inc. | 24,068 | 1,605 |
| * | Intuitive Surgical Inc. | 3,054 | 1,527 |
| * | Vertex Pharmaceuticals Inc. | 10,184 | 1,216 |
| | Perrigo Co. plc | 5,920 | 914 |
| | | | 202,296 |
| Industrials (10.6%) | | |
| | General Electric Co. | 844,738 | 21,955 |
| | 3M Co. | 53,906 | 9,091 |
| | Union Pacific Corp. | 74,798 | 8,995 |
| | United Technologies Corp. | 72,831 | 8,879 |
| | Boeing Co. | 54,044 | 8,153 |
| | Honeywell International Inc. | 62,512 | 6,425 |
| | United Parcel Service Inc. | | |
| | Class B | 59,173 | 6,020 |
| | Accenture plc Class A | 52,725 | 4,747 |
| | Lockheed Martin Corp. | 22,564 | 4,514 |
| | Danaher Corp. | 50,316 | 4,392 |
| | Caterpillar Inc. | 50,835 | 4,214 |
| | FedEx Corp. | 22,638 | 4,006 |
| | Automatic Data Processing | | |
| | Inc. | 40,581 | 3,605 |
| | Emerson Electric Co. | 58,283 | 3,376 |
| | General Dynamics Corp. | 23,674 | 3,285 |
| | CSX Corp. | 84,102 | 2,886 |
| | Norfolk Southern Corp. | 26,029 | 2,841 |
| | Eaton Corp. plc | 39,873 | 2,831 |
| | Raytheon Co. | 25,936 | 2,821 |
| | Northrop Grumman Corp. | 17,016 | 2,820 |
| | Illinois Tool Works Inc. | 27,898 | 2,758 |
| | Deere & Co. | 30,092 | 2,726 |
| | Precision Castparts Corp. | 11,982 | 2,592 |
| | TE Connectivity Ltd. | 34,255 | 2,471 |
| * | LinkedIn Corp. Class A | 9,118 | 2,436 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | Cummins Inc. | 14,619 | 2,079 |
| | Waste Management Inc. | 36,500 | 1,989 |
| | PACCAR Inc. | 29,803 | 1,909 |
| | Parker-Hannifin Corp. | 12,544 | 1,539 |
| | Ingersoll-Rand plc | 22,399 | 1,505 |
| | Tyco International plc | 35,107 | 1,482 |
| | Paychex Inc. | 27,374 | 1,364 |
| | Rockwell Automation Inc. | 11,480 | 1,344 |
| | Agilent Technologies Inc. | 28,248 | 1,192 |
| | Dover Corp. | 13,977 | 1,007 |
| | Republic Services Inc. | | |
| | Class A | 21,070 | 862 |
| | Xerox Corp. | 45,513 | 621 |
| | | | 145,732 |
| Oil & Gas (8.3%) | | |
| | Exxon Mobil Corp. | 356,128 | 31,532 |
| | Chevron Corp. | 159,041 | 16,966 |
| | Schlumberger Ltd. | 108,170 | 9,104 |
| | ConocoPhillips | 103,430 | 6,744 |
| | Kinder Morgan Inc. | 142,448 | 5,842 |
| | Occidental Petroleum Corp. | 65,116 | 5,071 |
| | EOG Resources Inc. | 46,018 | 4,129 |
| | Phillips 66 | 46,533 | 3,651 |
| | Anadarko Petroleum Corp. | 42,681 | 3,595 |
| | Halliburton Co. | 67,605 | 2,903 |
| | Williams Cos. Inc. | 56,667 | 2,779 |
| | Valero Energy Corp. | 43,791 | 2,701 |
| | Marathon Petroleum Corp. | 23,614 | 2,479 |
| | Baker Hughes Inc. | 36,368 | 2,273 |
| | Apache Corp. | 31,615 | 2,082 |
| | Devon Energy Corp. | 32,760 | 2,018 |
| | National Oilwell Varco Inc. | 36,216 | 1,968 |
| | Pioneer Natural Resources | | |
| | Co. | 12,556 | 1,915 |
| | Hess Corp. | 22,709 | 1,705 |
| | Marathon Oil Corp. | 56,693 | 1,579 |
| | Noble Energy Inc. | 32,530 | 1,536 |
| | Chesapeake Energy Corp. | 50,604 | 844 |
| * | Southwestern Energy Co. | 16,170 | 406 |
| * | FMC Technologies Inc. | 9,844 | 393 |
| * | Cameron International Corp. | 8,345 | 393 |
| * | Continental Resources Inc. | 7,894 | 351 |
| | | | 114,959 |
| Technology (17.9%) | | |
| | Apple Inc. | 493,313 | 63,371 |
| | Microsoft Corp. | 624,056 | 27,365 |
| * | Facebook Inc. Class A | 177,587 | 14,024 |
| * | Google Inc. Class C | 24,246 | 13,539 |
| | Intel Corp. | 406,446 | 13,514 |
| | International Business | | |
| | Machines Corp. | 83,303 | 13,490 |
| * | Google Inc. Class A | 23,944 | 13,472 |
| | Cisco Systems Inc. | 429,882 | 12,686 |
| | Oracle Corp. | 279,328 | 12,240 |
| | QUALCOMM Inc. | 139,719 | 10,131 |
11
Mega Cap Index Fund
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | Hewlett-Packard Co. | 156,828 | 5,464 |
| | Texas Instruments Inc. | 88,941 | 5,230 |
| | EMC Corp. | 171,340 | 4,959 |
| * | salesforce.com inc | 50,302 | 3,490 |
| * | Cognizant Technology | | |
| | Solutions Corp. Class A | 51,219 | 3,200 |
| * | Yahoo! Inc. | 71,754 | 3,177 |
| * | Adobe Systems Inc. | 39,811 | 3,149 |
| * | Micron Technology Inc. | 90,363 | 2,771 |
| | Corning Inc. | 107,976 | 2,635 |
| | Applied Materials Inc. | 102,486 | 2,567 |
| | Intuit Inc. | 22,796 | 2,225 |
| | Broadcom Corp. Class A | 45,474 | 2,057 |
| * | Twitter Inc. | 42,661 | 2,051 |
| | Analog Devices Inc. | 26,384 | 1,544 |
| | Symantec Corp. | 57,986 | 1,459 |
| | Avago Technologies Ltd. | | |
| | Class A | 10,702 | 1,366 |
| | Motorola Solutions Inc. | 18,336 | 1,246 |
| | NetApp Inc. | 26,307 | 1,017 |
| | Western Digital Corp. | 9,344 | 1,000 |
| | CA Inc. | 26,417 | 859 |
| | SanDisk Corp. | 9,346 | 747 |
| * | VMware Inc. Class A | 7,156 | 609 |
| | | | 246,654 |
| Telecommunications (2.6%) | | |
| | Verizon Communications | | |
| | Inc. | 349,107 | 17,264 |
| | AT&T Inc. | 436,025 | 15,069 |
| | CenturyLink Inc. | 48,000 | 1,817 |
| * | T-Mobile US Inc. | 23,924 | 790 |
| * | Sprint Corp. | 67,004 | 343 |
| | | | 35,283 |
| Utilities (2.7%) | | |
| | Duke Energy Corp. | 59,557 | 4,678 |
| | NextEra Energy Inc. | 36,755 | 3,803 |
| | Dominion Resources Inc. | 48,999 | 3,532 |
| | Southern Co. | 75,747 | 3,469 |
| | Exelon Corp. | 72,313 | 2,453 |
| | American Electric Power | | |
| | Co. Inc. | 41,196 | 2,372 |
| | PG&E Corp. | 39,992 | 2,149 |
| | Sempra Energy | 19,699 | 2,131 |
| | Spectra Energy Corp. | 56,401 | 2,002 |
| | PPL Corp. | 55,866 | 1,905 |
| | Public Service Enterprise | | |
| | Group Inc. | 42,530 | 1,789 |
| | Edison International | 27,410 | 1,761 |
| | Consolidated Edison Inc. | 24,654 | 1,557 |
| | Xcel Energy Inc. | 42,727 | 1,507 |
| | FirstEnergy Corp. | 35,576 | 1,244 |
| | Entergy Corp. | 15,206 | 1,209 |
| | | | 37,561 |
| Total Common Stocks | | |
| (Cost $973,109) | | 1,379,058 |
| | |
| | | Market |
| | | Value• |
| | Shares | ($000) |
| Temporary Cash Investments (0.0%)1 | |
| Money Market Fund (0.0%) | | |
| 2 Vanguard Market | | |
| Liquidity Fund, 0.134% | 71,800 | 72 |
| |
| | Face | |
| | Amount | |
| | ($000) | |
| U.S. Government and Agency Obligations (0.0%) |
| 3,4 Federal Home Loan | | |
| Bank Discount Notes, | | |
| 0.133%, 7/31/15 | 100 | 100 |
| Total Temporary Cash Investments | |
| (Cost $171) | | 172 |
| Total Investments (99.9%) | | |
| (Cost $973,280) | | 1,379,230 |
| Other Assets and Liabilities (0.1%) | |
| Other Assets | | 3,155 |
| Liabilities | | (1,308) |
| | | 1,847 |
| Net Assets (100%) | | 1,381,077 |
12
Mega Cap Index Fund
| |
| At February 28, 2015, net assets consisted of: |
| | Amount |
| | ($000) |
| Paid-in Capital | 989,568 |
| Undistributed Net Investment Income | 4,370 |
| Accumulated Net Realized Losses | (18,924) |
| Unrealized Appreciation (Depreciation) | |
| Investment Securities | 405,950 |
| Futures Contracts | 113 |
| Net Assets | 1,381,077 |
| |
| |
| Institutional Shares—Net Assets | |
| Applicable to 2,638,544 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 374,134 |
| Net Asset Value Per Share— | |
| Institutional Shares | $141.80 |
| |
| |
| ETF Shares—Net Assets | |
| Applicable to 14,000,000 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 1,006,943 |
| Net Asset Value Per Share— | |
| ETF Shares | $71.92 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures investments, the fund’s effective common stock and temporary cash investment positions represent 99.9% and 0.0%, respectively, of net assets.
2 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
3 The issuer operates under a congressional charter; its securities are generally neither guaranteed by the U.S. Treasury nor backed by the full faith and credit of the U.S. government.
4 Securities with a value of $100,000 have been segregated as initial margin for open futures contracts.
See accompanying Notes, which are an integral part of the Financial Statements.
13
| |
| Mega Cap Index Fund | |
| |
| |
| Statement of Operations | |
| |
| | Six Months Ended |
| | February 28, 2015 |
| | ($000) |
| Investment Income | |
| Income | |
| Dividends | 13,224 |
| Interest1 | 2 |
| Securities Lending | 1 |
| Total Income | 13,227 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 100 |
| Management and Administrative—Institutional Shares | 83 |
| Management and Administrative—ETF Shares | 301 |
| Marketing and Distribution—Institutional Shares | 18 |
| Marketing and Distribution—ETF Shares | 80 |
| Custodian Fees | 15 |
| Shareholders’ Reports—Institutional Shares | — |
| Shareholders’ Reports—ETF Shares | 11 |
| Total Expenses | 608 |
| Net Investment Income | 12,619 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold | 6,097 |
| Futures Contracts | 140 |
| Realized Net Gain (Loss) | 6,237 |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities | 55,692 |
| Futures Contracts | 56 |
| Change in Unrealized Appreciation (Depreciation) | 55,748 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 74,604 |
| 1 Interest income from an affiliated company of the fund was $1,000. | |
See accompanying Notes, which are an integral part of the Financial Statements.
14
| | |
| Mega Cap Index Fund | | |
| |
| |
| Statement of Changes in Net Assets | | |
| |
| | Six Months Ended | Year Ended |
| | February 28, | August 31, |
| | 2015 | 2014 |
| | ($000) | ($000) |
| Increase (Decrease) in Net Assets | | |
| Operations | | |
| Net Investment Income | 12,619 | 19,872 |
| Realized Net Gain (Loss) | 6,237 | 44,877 |
| Change in Unrealized Appreciation (Depreciation) | 55,748 | 154,900 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 74,604 | 219,649 |
| Distributions | | |
| Net Investment Income | | |
| Institutional Shares | (3,450) | (6,371) |
| ETF Shares | (8,737) | (13,330) |
| Realized Capital Gain | | |
| Institutional Shares | — | — |
| ETF Shares | — | — |
| Total Distributions | (12,187) | (19,701) |
| Capital Share Transactions | | |
| Institutional Shares | 43,796 | (88,842) |
| ETF Shares | 150,696 | 85,731 |
| Net Increase (Decrease) from Capital Share Transactions | 194,492 | (3,111) |
| Total Increase (Decrease) | 256,909 | 196,837 |
| Net Assets | | |
| Beginning of Period | 1,124,168 | 927,331 |
| End of Period1 | 1,381,077 | 1,124,168 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $4,370,000 and $3,938,000.
See accompanying Notes, which are an integral part of the Financial Statements.
15
| | | | | | | |
| Mega Cap Index Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| |
| Institutional Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $135.41 | $110.38 | $95.66 | $82.40 | $71.03 | $69.95 |
| Investment Operations | | | | | | | |
| Net Investment Income | | 1.354 | 2.498 | 2.373 | 2.000 | 1.676 | 1.657 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | 6.416 | 25.000 | 14.729 | 13.113 | 11.379 | 1.033 |
| Total from Investment Operations | 7.770 | 27.498 | 17.100 | 15.113 | 13.055 | 2.690 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (1.380) | (2.468) | (2.380) | (1.853) | (1.685) | (1.610) |
| Distributions from Realized Capital Gains — | — | — | — | — | — |
| Total Distributions | | (1.380) | (2.468) | (2.380) | (1.853) | (1.685) | (1.610) |
| Net Asset Value, End of Period | $141.80 | $135.41 | $110.38 | $95.66 | $82.40 | $71.03 |
| |
| Total Return | | 5.79% | 25.15% | 18.13% | 18.63% | 18.38% | 3.74% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $374 | $314 | $339 | $250 | $152 | $92 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.08% | 0.08% | 0.08% | 0.08% | 0.10% | 0.11% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 2.07% | 2.03% | 2.29% | 2.28% | 2.01% | 2.24% |
| Portfolio Turnover Rate1 | | 6% | 6% | 10% | 19% | 8% | 7% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 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.
16
| | | | | | | |
| Mega Cap Index Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| |
| ETF Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $68.69 | $55.99 | $48.52 | $41.80 | $36.03 | $35.49 |
| Investment Operations | | | | | | | |
| Net Investment Income | | .678 | 1.250 | 1.189 | 1.000 | .842 | .834 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | 3.243 | 12.687 | 7.471 | 6.648 | 5.774 | .517 |
| Total from Investment Operations | 3.921 | 13.937 | 8.660 | 7.648 | 6.616 | 1.351 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (.691) | (1.237) | (1.190) | (.928) | (.846) | (.811) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | | (.691) | (1.237) | (1.190) | (.928) | (.846) | (.811) |
| Net Asset Value, End of Period | $71.92 | $68.69 | $55.99 | $48.52 | $41.80 | $36.03 |
| |
| Total Return | | 5.75% | 25.13% | 18.10% | 18.58% | 18.35% | 3.71% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $1,007 | $810 | $588 | $442 | $313 | $227 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.11% | 0.11% | 0.11% | 0.12% | 0.12% | 0.13% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 2.04% | 2.00% | 2.26% | 2.24% | 1.99% | 2.22% |
| Portfolio Turnover Rate1 | | 6% | 6% | 10% | 19% | 8% | 7% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 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 Index Fund
Notes to Financial Statements
Vanguard Mega Cap 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, service, and account-size criteria. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. 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 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. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.
Futures contracts are valued at their quoted daily settlement prices. The aggregate settlement values 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).
During the six months ended February 28, 2015, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of aggregate settlement values at each quarter-end during the period.
18
Mega Cap Index Fund
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 for all open federal income tax years (August 31, 2011–2014), and for the period ended February 28, 2015, 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. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
6. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $2.89 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2015, or at any time during the period then ended.
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. 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.
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
19
Mega Cap Index Fund
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 based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At February 28, 2015, the fund had contributed capital of $122,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.05% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
The following table summarizes the market value of the fund’s investments as of February 28, 2015, based on the inputs used to value them:
| | | |
| | Level 1 | Level 2 | Level 3 |
| Investments | ($000) | ($000) | ($000) |
| Common Stocks | 1,379,058 | — | — |
| Temporary Cash Investments | 72 | 100 | — |
| Futures Contracts—Liabilities1 | (7) | — | — |
| Total | 1,379,123 | 100 | — |
| 1 Represents variation margin on the last day of the reporting period. | | | |
D. At February 28, 2015, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were:
| | | | |
| | | | | ($000) |
| | | | Aggregate | |
| | | Number of | Settlement | Unrealized |
| | | Long (Short) | Value | Appreciation |
| Futures Contracts | Expiration | Contracts | Long (Short) | (Depreciation) |
| S&P 500 Index | March 2015 | 3 | 1,577 | 103 |
| E-mini S&P 500 Index | March 2015 | 5 | 526 | 10 |
| | | | | 113 |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
20
Mega Cap Index Fund
E. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
During the six months ended February 28, 2015, the fund realized $5,370,000 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, 2014, the fund had available capital losses totaling $19,735,000 to offset future net capital gains. Of this amount, $18,779,000 is subject to expiration dates; $12,576,000 may be used to offset futures net capital gains through August 31, 2018, and $6,203,000 through August 31, 2019. Capital losses of $956,000 realized beginning in fiscal 2012 may be carried forward indefinitely under the Regulated Investment Company Modernization Act of 2010, but must be used before any expiring loss carryforwards. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2015; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2015, the cost of investment securities for tax purposes was $973,280,000. Net unrealized appreciation of investment securities for tax purposes was $405,950,000, consisting of unrealized gains of $413,177,000 on securities that had risen in value since their purchase and $7,227,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the six months ended February 28, 2015, the fund purchased $244,387,000 of investment securities and sold $48,594,000 of investment securities, other than temporary cash investments. Purchases and sales include $164,649,000 and $10,685,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
21
Mega Cap Index Fund
| | | | |
| G. Capital share transactions for each class of shares were: | | | |
| | Six Months Ended | | Year Ended |
| | February 28, 2015 | August 31, 2014 |
| | Amount | Shares | Amount | Shares |
| | ($000) | (000) | ($000) | (000) |
| Institutional Shares | | | | |
| Issued | 50,417 | 369 | 2,207 | 18 |
| Issued in Lieu of Cash Distributions | 3,285 | 24 | 6,066 | 49 |
| Redeemed | (9,906) | (71) | (97,115) | (825) |
| Net Increase (Decrease)—Institutional Shares | 43,796 | 322 | (88,842) | (758) |
| ETF Shares | | | | |
| Issued | 164,734 | 2,400 | 186,602 | 3,000 |
| Issued in Lieu of Cash Distributions | — | — | — | — |
| Redeemed | (14,038) | (200) | (100,871) | (1,700) |
| Net Increase (Decrease)—ETF Shares | 150,696 | 2,200 | 85,731 | 1,300 |
H. Management has determined that no material events or transactions occurred subsequent to February 28, 2015, that would require recognition or disclosure in these financial statements.
22
Mega Cap Growth Index Fund
Fund Profile
As of February 28, 2015
| | | |
| Share-Class Characteristics | | |
| |
| | Institutional | | ETF |
| | Shares | | Shares |
| Ticker Symbol | VMGAX | | MGK |
| Expense Ratio1 | 0.10% | | 0.11% |
| 30-Day SEC Yield | 1.39% | | 1.37% |
| Portfolio Characteristics | | |
| | | | DJ |
| | | | U.S. |
| | CRSP US | Total |
| | Mega Cap | Market |
| | | Growth | FA |
| | Fund | Index | Index |
| Number of Stocks | 149 | 149 | 3,734 |
| Median Market Cap | $96.2B | $96.2B | $49.0B |
| Price/Earnings Ratio | 24.1x | 24.2x | 21.4x |
| Price/Book Ratio | 5.1x | 5.1x | 2.8x |
| Return on Equity | 23.2% | 22.7% | 17.6% |
| Earnings Growth | | | |
| Rate | 19.5% | 19.5% | 13.9% |
| Dividend Yield | 1.4% | 1.4% | 1.9% |
| Foreign Holdings | 0.0% | 0.0% | 0.0% |
| Turnover Rate | | | |
| (Annualized) | 8% | — | — |
| Short-Term Reserves | 0.6% | — | — |
| Sector Diversification (% of equity exposure) |
| | | | DJ |
| | | | U.S. |
| | CRSP US | Total |
| | Mega Cap | Market |
| | Growth | FA |
| | Fund | Index | Index |
| Basic Materials | 1.8% | 1.8% | 2.8% |
| Consumer Goods | 8.7 | 8.7 | 10.0 |
| Consumer Services | 21.6 | 21.6 | 14.1 |
| Financials | 12.2 | 12.2 | 18.5 |
| Health Care | 13.6 | 13.6 | 13.5 |
| Industrials | 10.3 | 10.3 | 12.7 |
| Oil & Gas | 5.5 | 5.5 | 7.2 |
| Technology | 26.3 | 26.3 | 16.0 |
| Telecommunications | 0.0 | 0.0 | 2.1 |
| Utilities | 0.0 | 0.0 | 3.1 |
| | |
| Volatility Measures | | |
| | Spliced | DJ |
| | Mega Cap | U.S. Total |
| | Growth | Market |
| | Index | FA Index |
| R-Squared | 1.00 | 0.90 |
| Beta | 1.00 | 0.98 |
| These measures show the degree and timing of the fund’s |
| fluctuations compared with the indexes over 36 months. | |
| |
| Ten Largest Holdings (% of total net assets) |
| Apple Inc. | Computer Hardware | 10.1% |
| Google Inc. | Internet | 4.3 |
| Coca-Cola Co. | Soft Drinks | 2.3 |
| Facebook Inc. | Internet | 2.2 |
| Walt Disney Co. | Broadcasting & | |
| | Entertainment | 2.1 |
| Gilead Sciences Inc. | Biotechnology | 2.1 |
| Comcast Corp. | Broadcasting & | |
| | Entertainment | 2.0 |
| Home Depot Inc. | Home Improvement | |
| | Retailers | 2.0 |
| Oracle Corp. | Software | 2.0 |
| Amazon.com Inc. | Broadline Retailers | 1.9 |
| Top Ten | | 31.0% |
| 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 23, 2014, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2015, the annualized expense ratios were 0.09% for Institutional Shares and 0.11% for ETF Shares.
23
Mega Cap 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 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, Through February 28, 2015
Mega Cap Growth Index Fund ETF Shares Net Asset Value
Spliced Mega Cap Growth Index
For a benchmark description, see the Glossary.
Note: For 2015, performance data reflect the six months ended February 28, 2015.
Average Annual Total Returns: Periods Ended December 31, 2014
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
| | | | |
| | Inception | One | Five | Since |
| | Date | Year | Years | Inception |
| Institutional Shares | 4/3/2008 | 13.67% | 15.85% | 10.18% |
| ETF Shares | 12/17/2007 | | | |
| Market Price | | 13.66 | 15.84 | 8.93 |
| Net Asset Value | | 13.66 | 15.84 | 8.93 |
See Financial Highlights for dividend and capital gains information.
24
Mega Cap Growth Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the 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 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%) | | |
| Basic Materials (1.8%) | | |
| | Praxair Inc. | 76,960 | 9,843 |
| | PPG Industries Inc. | 36,247 | 8,532 |
| | Ecolab Inc. | 71,401 | 8,250 |
| | Nucor Corp. | 84,323 | 3,966 |
| | Air Products & | | |
| | Chemicals Inc. | 25,396 | 3,965 |
| | | | 34,556 |
| Consumer Goods (8.7%) | | |
| | Coca-Cola Co. | 1,040,940 | 45,073 |
| | Philip Morris International | | |
| | Inc. | 410,296 | 34,038 |
| | NIKE Inc. Class B | 180,639 | 17,544 |
| | Colgate-Palmolive Co. | 240,721 | 17,048 |
| | Monsanto Co. | 127,824 | 15,394 |
| | VF Corp. | 91,263 | 6,996 |
| | Lorillard Inc. | 95,146 | 6,510 |
| | Mead Johnson Nutrition | | |
| | Co. | 53,138 | 5,567 |
| | Estee Lauder Cos. Inc. | | |
| | Class A | 61,189 | 5,058 |
| * | Tesla Motors Inc. | 23,176 | 4,713 |
| | Stanley Black & Decker | | |
| | Inc. | 41,375 | 4,069 |
| | Hershey Co. | 38,173 | 3,961 |
| * | Michael Kors Holdings Ltd. | 51,302 | 3,458 |
| | Brown-Forman Corp. | | |
| | Class B | 27,181 | 2,492 |
| | | | 171,921 |
| Consumer Services (21.6%) | | |
| | Walt Disney Co. | 403,080 | 41,953 |
| | Home Depot Inc. | 347,979 | 39,931 |
| | Comcast Corp. Class A | 630,218 | 37,422 |
| * | Amazon.com Inc. | 97,807 | 37,182 |
| | McDonald’s Corp. | 257,050 | 25,422 |
| | Lowe’s Cos. Inc. | 260,707 | 19,316 |
| | Starbucks Corp. | 187,719 | 17,549 |
| * | Priceline Group Inc. | 13,825 | 17,108 |
| * | eBay Inc. | 295,247 | 17,098 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | Costco Wholesale Corp. | 115,672 | 16,999 |
| | Twenty-First Century Fox | | |
| | Inc. Class A | 382,634 | 13,392 |
| | TJX Cos. Inc. | 173,912 | 11,937 |
| * | DIRECTV | 132,700 | 11,757 |
| | Time Warner Cable Inc. | 74,155 | 11,424 |
| | Yum! Brands Inc. | 115,537 | 9,371 |
| | American Airlines Group | | |
| | Inc. | 189,400 | 9,072 |
| | Time Warner Inc. | 105,183 | 8,610 |
| | Southwest Airlines Co. | 179,308 | 7,753 |
| | CBS Corp. Class B | 122,456 | 7,237 |
| * | Netflix Inc. | 15,113 | 7,177 |
| | Viacom Inc. Class B | 97,461 | 6,816 |
| | Las Vegas Sands Corp. | 105,899 | 6,026 |
| * | AutoZone Inc. | 8,463 | 5,439 |
| | Whole Foods Market Inc. | 95,052 | 5,370 |
| * | DISH Network Corp. | | |
| | Class A | 55,812 | 4,188 |
| | Starwood Hotels & Resorts | | |
| | Worldwide Inc. | 46,893 | 3,767 |
| * | Bed Bath & Beyond Inc. | 46,256 | 3,453 |
| | Twenty-First Century Fox | | |
| | Inc. | 91,820 | 3,126 |
| | Wynn Resorts Ltd. | 21,295 | 3,035 |
| * | Hilton Worldwide Holdings | | |
| | Inc. | 103,201 | 2,918 |
| * | Dollar General Corp. | 39,717 | 2,884 |
| | Comcast Corp. | 47,634 | 2,808 |
| | Gap Inc. | 62,695 | 2,608 |
| * | Sirius XM Holdings Inc. | 578,338 | 2,250 |
| * | Liberty Interactive Corp. | | |
| | Class A | 55,749 | 1,646 |
| | Viacom Inc. Class A | 216 | 15 |
| | CBS Corp. Class A | 141 | 9 |
| | | | 424,068 |
| Financials (12.2%) | | |
| | Visa Inc. Class A | 130,239 | 35,335 |
| | MasterCard Inc. Class A | 264,490 | 23,838 |
| | American Express Co. | 273,211 | 22,291 |
25
| | | |
| Mega Cap Growth Index Fund | | |
| |
| |
| |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | Simon Property Group Inc. | 83,009 | 15,802 |
| | American Tower | | |
| | Corporation | 110,306 | 10,936 |
| | BlackRock Inc. | 28,360 | 10,533 |
| | Charles Schwab Corp. | 310,396 | 9,107 |
| | Marsh & McLennan Cos. | | |
| | Inc. | 142,911 | 8,130 |
| | Public Storage | 38,805 | 7,653 |
| | Crown Castle International | | |
| | Corp. | 88,157 | 7,609 |
| | Aon plc | 75,298 | 7,557 |
| | McGraw Hill Financial Inc. | 71,733 | 7,396 |
| | Equity Residential | 95,701 | 7,372 |
| | Intercontinental Exchange | | |
| | Inc. | 29,767 | 7,006 |
| | Ventas Inc. | 85,651 | 6,378 |
| | Franklin Resources Inc. | 106,871 | 5,753 |
| | Prologis Inc. | 132,101 | 5,642 |
| | Boston Properties Inc. | 40,287 | 5,536 |
| | T. Rowe Price Group Inc. | 65,136 | 5,380 |
| | HCP Inc. | 121,287 | 5,138 |
| | Vornado Realty Trust | 44,616 | 4,910 |
| | Weyerhaeuser Co. | 138,485 | 4,862 |
| | Invesco Ltd. | 113,776 | 4,582 |
| | General Growth Properties | | |
| | Inc. | 151,816 | 4,404 |
| | Host Hotels & Resorts Inc. | 198,676 | 4,172 |
| | TD Ameritrade Holding | | |
| | Corp. | 64,147 | 2,327 |
| | | | 239,649 |
| Health Care (13.6%) | | |
| * | Gilead Sciences Inc. | 398,402 | 41,247 |
| | Amgen Inc. | 200,863 | 31,680 |
| * | Celgene Corp. | 210,989 | 25,641 |
| * | Biogen Idec Inc. | 62,364 | 25,544 |
| | AbbVie Inc. | 399,744 | 24,184 |
| * | Actavis plc | 69,998 | 20,395 |
| | Allergan Inc. | 78,664 | 18,308 |
| * | Express Scripts Holding | | |
| | Co. | 193,869 | 16,438 |
| | Thermo Fisher Scientific | | |
| | Inc. | 105,652 | 13,735 |
| * | Alexion Pharmaceuticals | | |
| | Inc. | 52,423 | 9,456 |
| * | Regeneron Pharmaceuticals | | |
| | Inc. | 19,745 | 8,171 |
| | Stryker Corp. | 84,976 | 8,051 |
| * | Illumina Inc. | 37,520 | 7,334 |
| | Zoetis Inc. | 132,450 | 6,105 |
| * | Intuitive Surgical Inc. | 9,576 | 4,788 |
| * | Vertex Pharmaceuticals Inc. | 31,805 | 3,798 |
| | Perrigo Co. plc | 18,391 | 2,841 |
| | | | 267,716 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| Industrials (10.3%) | | |
| | 3M Co. | 169,271 | 28,548 |
| | Union Pacific Corp. | 234,851 | 28,243 |
| | Boeing Co. | 169,445 | 25,561 |
| | United Parcel Service Inc. | | |
| | Class B | 185,482 | 18,869 |
| | Accenture plc Class A | 165,703 | 14,918 |
| | United Technologies Corp. | 114,426 | 13,950 |
| | Danaher Corp. | 157,770 | 13,770 |
| | Automatic Data | | |
| | Processing Inc. | 127,349 | 11,314 |
| | Precision Castparts Corp. | 37,637 | 8,141 |
| * | LinkedIn Corp. Class A | 28,608 | 7,644 |
| | Cummins Inc. | 45,908 | 6,529 |
| | FedEx Corp. | 35,590 | 6,299 |
| | PACCAR Inc. | 93,549 | 5,992 |
| | Paychex Inc. | 86,233 | 4,297 |
| | Rockwell Automation Inc. | 35,875 | 4,199 |
| | Agilent Technologies Inc. | 87,474 | 3,692 |
| | | | 201,966 |
| Oil & Gas (5.5%) | | |
| | Schlumberger Ltd. | 339,819 | 28,599 |
| | Kinder Morgan Inc. | 447,589 | 18,356 |
| | EOG Resources Inc. | 144,786 | 12,990 |
| | Anadarko Petroleum Corp. | 133,732 | 11,264 |
| | Halliburton Co. | 212,652 | 9,131 |
| | Williams Cos. Inc. | 177,726 | 8,716 |
| | Pioneer Natural Resources | | |
| | Co. | 39,342 | 6,000 |
| | Noble Energy Inc. | 102,139 | 4,824 |
| | National Oilwell Varco Inc. | 56,452 | 3,068 |
| * | Southwestern Energy Co. | 49,827 | 1,250 |
| * | FMC Technologies Inc. | 30,626 | 1,223 |
| * | Cameron International Corp. 25,872 | 1,218 |
| * | Continental Resources Inc. | 24,392 | 1,085 |
| | | | 107,724 |
| Technology (26.3%) | | |
| | Apple Inc. | 1,548,632 | 198,937 |
| * | Facebook Inc. Class A | 557,936 | 44,060 |
| * | Google Inc. Class C | 76,166 | 42,531 |
| * | Google Inc. Class A | 75,215 | 42,318 |
| | Oracle Corp. | 877,665 | 38,459 |
| | QUALCOMM Inc. | 439,026 | 31,834 |
| | Texas Instruments Inc. | 278,967 | 16,403 |
| | EMC Corp. | 537,383 | 15,552 |
| * | salesforce.com inc | 158,349 | 10,986 |
| * | Cognizant Technology | | |
| | Solutions Corp. Class A | 160,845 | 10,051 |
| * | Yahoo! Inc. | 225,175 | 9,971 |
| * | Adobe Systems Inc. | 125,168 | 9,901 |
| * | Micron Technology Inc. | 283,459 | 8,694 |
| | Applied Materials Inc. | 321,516 | 8,054 |
| | Intuit Inc. | 71,652 | 6,995 |
| * | Twitter Inc. | 133,952 | 6,441 |
26
| | |
| Mega Cap Growth Index Fund | |
| |
| |
| |
| | | Market |
| | | Value• |
| | Shares | ($000) |
| Analog Devices Inc. | 83,005 | 4,859 |
| Avago Technologies Ltd. | | |
| Class A | 33,302 | 4,250 |
| NetApp Inc. | 81,796 | 3,162 |
| SanDisk Corp. | 28,929 | 2,312 |
| * VMware Inc. Class A | 22,220 | 1,890 |
| | | 517,660 |
| Total Common Stocks | | |
| (Cost $1,394,691) | | 1,965,260 |
| Temporary Cash Investments (0.6%) | |
| Money Market Fund (0.6%) | | |
| 1 Vanguard Market | | |
| Liquidity Fund, | | |
| 0.134% | 12,220,444 | 12,220 |
| |
| | Face | |
| | Amount | |
| | ($000) | |
| U.S. Government and Agency Obligations (0.0%) |
| 2 Freddie Mac Discount Notes, | |
| 0.118%, 7/31/15 | 200 | 200 |
| Total Temporary Cash Investments | |
| (Cost $12,420) | | 12,420 |
| Total Investments (100.6%) | | |
| (Cost $1,407,111) | | 1,977,680 |
| Other Assets and Liabilities (-0.6%) | |
| Other Assets | | 2,007 |
| Liabilities | | (14,442) |
| | | (12,435) |
| Net Assets (100%) | | 1,965,245 |
| |
| At February 28, 2015, net assets consisted of: |
| | Amount |
| | ($000) |
| Paid-in Capital | 1,403,347 |
| Undistributed Net Investment Income | 3,321 |
| Accumulated Net Realized Losses | (11,992) |
| Unrealized Appreciation (Depreciation) | 570,569 |
| Net Assets | 1,965,245 |
| |
| |
| Institutional Shares—Net Assets | |
| Applicable to 146,554 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 24,773 |
| Net Asset Value Per Share— | |
| Institutional Shares | $169.04 |
| |
| |
| ETF Shares—Net Assets | |
| Applicable to 22,800,000 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 1,940,472 |
| Net Asset Value Per Share— | |
| ETF Shares | $85.11 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
1 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
2 The issuer was placed under federal conservatorship in September 2008; since that time, its daily operations have been managed by the
Federal Housing Finance Agency and it receives capital from the U.S. Treasury, as needed to maintain a positive net worth, in exchange for senior preferred stock.
See accompanying Notes, which are an integral part of the Financial Statements.
27
| |
| Mega Cap Growth Index Fund | |
| |
| |
| Statement of Operations | |
| |
| | Six Months Ended |
| | February 28, 2015 |
| | ($000) |
| Investment Income | |
| Income | |
| Dividends | 12,814 |
| Interest1 | 1 |
| Securities Lending | 5 |
| Total Income | 12,820 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 136 |
| Management and Administrative—Institutional Shares | 4 |
| Management and Administrative—ETF Shares | 577 |
| Marketing and Distribution—Institutional Shares | — |
| Marketing and Distribution—ETF Shares | 144 |
| Custodian Fees | 7 |
| Shareholders’ Reports—Institutional Shares | — |
| Shareholders’ Reports—ETF Shares | 28 |
| Trustees’ Fees and Expenses | 1 |
| Total Expenses | 897 |
| Net Investment Income | 11,923 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold | 15,048 |
| Futures Contracts | 90 |
| Realized Net Gain (Loss) | 15,138 |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities | 118,203 |
| Futures Contracts | (18) |
| Change in Unrealized Appreciation (Depreciation) | 118,185 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 145,246 |
| 1 Interest income from an affiliated company of the fund was $1,000. | |
See accompanying Notes, which are an integral part of the Financial Statements.
28
| | |
| Mega Cap Growth Index Fund | | |
| |
| |
| Statement of Changes in Net Assets | | |
| |
| | Six Months Ended | Year Ended |
| | February 28, | August 31, |
| | 2015 | 2014 |
| | ($000) | ($000) |
| Increase (Decrease) in Net Assets | | |
| Operations | | |
| Net Investment Income | 11,923 | 17,695 |
| Realized Net Gain (Loss) | 15,138 | 16,159 |
| Change in Unrealized Appreciation (Depreciation) | 118,185 | 271,004 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 145,246 | 304,858 |
| Distributions | | |
| Net Investment Income | | |
| Institutional Shares | (92) | (264) |
| ETF Shares | (11,694) | (17,090) |
| Realized Capital Gain | | |
| Institutional Shares | — | — |
| ETF Shares | — | — |
| Total Distributions | (11,786) | (17,354) |
| Capital Share Transactions | | |
| Institutional Shares | 9,055 | (10,714) |
| ETF Shares | 288,102 | 202,339 |
| Net Increase (Decrease) from Capital Share Transactions | 297,157 | 191,625 |
| Total Increase (Decrease) | 430,617 | 479,129 |
| Net Assets | | |
| Beginning of Period | 1,534,628 | 1,055,499 |
| End of Period1 | 1,965,245 | 1,534,628 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $3,321,000 and $3,184,000.
See accompanying Notes, which are an integral part of the Financial Statements.
29
| | | | | | | |
| Mega Cap Growth Index Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| |
| Institutional Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $157.21 | $124.49 | $110.67 | $92.75 | $76.74 | $74.21 |
| Investment Operations | | | | | | | |
| Net Investment Income | | 1.085 | 1.978 | 2.027 | 1.4531 | 1.227 | 1.180 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | 11.858 | 32.732 | 13.374 | 17.831 | 16.067 | 2.465 |
| Total from Investment Operations | 12.943 | 34.710 | 15.401 | 19.284 | 17.294 | 3.645 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (1.113) | (1.990) | (1.581) | (1.364) | (1.284) | (1.115) |
| Distributions from Realized Capital Gains — | — | — | — | — | — |
| Total Distributions | | (1.113) | (1.990) | (1.581) | (1.364) | (1.284) | (1.115) |
| Net Asset Value, End of Period | $169.04 | $157.21 | $124.49 | $110.67 | $92.75 | $76.74 |
| |
| Total Return | | 8.29% | 28.07% | 14.05% | 21.00% | 22.57% | 4.84% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $25 | $15 | $21 | $0.2 | $124 | $90 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.09% | 0.10% | 0.10% | 0.09% | 0.10% | 0.11% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 1.46% | 1.41% | 1.70% | 1.52% | 1.35% | 1.39% |
| Portfolio Turnover Rate 2 | | 8% | 11% | 41% | 16% | 26% | 21% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Calculated based on average shares outstanding.
2 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 Growth Index Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| |
| ETF Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $79.16 | $62.69 | $55.92 | $46.87 | $38.78 | $37.50 |
| Investment Operations | | | | | | | |
| Net Investment Income | | . 541 | . 994 | 1.006 | .7711 | .611 | . 586 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | 5.971 | 16.475 | 6.751 | 8.966 | 8.120 | 1.248 |
| Total from Investment Operations | 6.512 | 17.469 | 7.757 | 9.737 | 8.731 | 1.834 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (. 562) | (. 999) | (. 987) | (. 687) | (. 641) | (. 554) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | | (. 562) | (. 999) | (. 987) | (. 687) | (. 641) | (. 554) |
| Net Asset Value, End of Period | $85.11 | $79.16 | $62.69 | $55.92 | $46.87 | $38.78 |
| |
| Total Return | | 8.27% | 28.05% | 14.04% | 20.98% | 22.54% | 4.82% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $1,940 | $1,520 | $1,034 | $884 | $516 | $287 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.11% | 0.11% | 0.11% | 0.12% | 0.12% | 0.13% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 1.44% | 1.40% | 1.69% | 1.49% | 1.33% | 1.37% |
| Portfolio Turnover Rate 2 | | 8% | 11% | 41% | 16% | 26% | 21% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Calculated based on average shares outstanding.
2 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.
31
Mega Cap Growth Index Fund
Notes to Financial Statements
Vanguard Mega Cap 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, service, and account-size criteria. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. 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 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. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.
Futures contracts are valued at their quoted daily settlement prices. The aggregate settlement values 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).
During the six months ended February 28, 2015, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of aggregate settlement values at each quarter-end during the period. The fund had no open futures contracts at February 28, 2015.
32
Mega Cap Growth Index Fund
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 for all open federal income tax years (August 31, 2011–2014), and for the period ended February 28, 2015, 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. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
6. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $2.89 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2015, or at any time during the period then ended.
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. 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.
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
33
Mega Cap Growth Index Fund
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 based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At February 28, 2015, the fund had contributed capital of $168,000 to Vanguard (included in Other Assets), representing 0.01% 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. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
The following table summarizes the market value of the fund’s investments as of February 28, 2015, based on the inputs used to value them:
| | | |
| | Level 1 | Level 2 | Level 3 |
| Investments | ($000) | ($000) | ($000) |
| Common Stocks | 1,965,260 | — | — |
| Temporary Cash Investments | 12,220 | 200 | — |
| Total | 1,977,480 | 200 | — |
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, 2015, the fund realized $17,281,000 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, 2014, the fund had available capital losses totaling $9,831,000 to offset future net capital gains. Of this amount, $4,562,000 is subject to expiration on August 31, 2019. Capital losses of $5,269,000 realized beginning in fiscal 2012 may be carried forward indefinitely under the Regulated Investment Company Modernization Act of 2010, but must be used before any
34
Mega Cap Growth Index Fund
expiring loss carryforwards. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2015; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2015, the cost of investment securities for tax purposes was $1,407,111,000. Net unrealized appreciation of investment securities for tax purposes was $570,569,000, consisting of unrealized gains of $575,826,000 on securities that had risen in value since their purchase and $5,257,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the six months ended February 28, 2015, the fund purchased $416,886,000 of investment securities and sold $118,170,000 of investment securities, other than temporary cash investments. Purchases and sales include $319,184,000 and $47,246,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
| | | | |
| F. Capital share transactions for each class of shares were: | | | |
| | Six Months Ended | | Year Ended |
| | February 28, 2015 | August 31, 2014 |
| | Amount | Shares | Amount | Shares |
| | ($000) | (000) | ($000) | (000) |
| Institutional Shares | | | | |
| Issued | 12,383 | 73 | 244 | 1 |
| Issued in Lieu of Cash Distributions | 92 | 1 | 264 | 2 |
| Redeemed | (3,420) | (21) | (11,222) | (79) |
| Net Increase (Decrease) —Institutional Shares | 9,055 | 53 | (10,714) | (76) |
| ETF Shares | | | | |
| Issued | 335,677 | 4,200 | 272,056 | 3,700 |
| Issued in Lieu of Cash Distributions | — | — | — | — |
| Redeemed | (47,575) | (600) | (69,717) | (1,000) |
| Net Increase (Decrease)—ETF Shares | 288,102 | 3,600 | 202,339 | 2,700 |
G. Management has determined that no material events or transactions occurred subsequent to February 28, 2015, that would require recognition or disclosure in these financial statements.
35
Mega Cap Value Index Fund
Fund Profile
As of February 28, 2015
| | | |
| Share-Class Characteristics | | |
| |
| | Institutional | | ETF |
| | Shares | | Shares |
| Ticker Symbol | VMVLX | | MGV |
| Expense Ratio1 | 0.08% | | 0.11% |
| 30-Day SEC Yield | 2.50% | | 2.47% |
| Portfolio Characteristics | | |
| | | | DJ |
| | | | U.S. |
| | CRSP US | Total |
| | Mega Cap | Market |
| | | Value | FA |
| | Fund | Index | Index |
| Number of Stocks | 156 | 156 | 3,734 |
| Median Market Cap | $111.8B | $111.8B $49.0B |
| Price/Earnings Ratio | 17.1x | 17.1x | 21.4x |
| Price/Book Ratio | 2.1x | 2.2x | 2.8x |
| Return on Equity | 16.3% | 16.3% | 17.6% |
| Earnings Growth | | | |
| Rate | 9.1% | 8.7% | 13.9% |
| Dividend Yield | 2.5% | 2.5% | 1.9% |
| Foreign Holdings | 0.0% | 0.0% | 0.0% |
| Turnover Rate | | | |
| (Annualized) | 4% | — | — |
| Short-Term Reserves | -0.1% | — | — |
| Sector Diversification (% of equity exposure) |
| | | | DJ |
| | | | U.S. |
| | CRSP US | Total |
| | Mega Cap | Market |
| | | Value | FA |
| | Fund | Index | Index |
| Basic Materials | 2.8% | 2.8% | 2.8% |
| Consumer Goods | 10.0 | 10.0 | 10.0 |
| Consumer Services | 7.5 | 7.5 | 14.1 |
| Financials | 22.1 | 22.2 | 18.5 |
| Health Care | 15.5 | 15.5 | 13.5 |
| Industrials | 10.8 | 10.8 | 12.7 |
| Oil & Gas | 10.7 | 10.7 | 7.2 |
| Technology | 10.9 | 10.8 | 16.0 |
| Telecommunications | 4.7 | 4.7 | 2.1 |
| Utilities | 5.0 | 5.0 | 3.1 |
| | |
| Volatility Measures | | |
| | Spliced | DJ |
| | Mega Cap | U.S. Total |
| | Value | Market |
| | Index | FA Index |
| R-Squared | 1.00 | 0.90 |
| Beta | 1.00 | 0.94 |
| These measures show the degree and timing of the fund’s | |
| fluctuations compared with the indexes over 36 months. | |
| |
| Ten Largest Holdings (% of total net assets) |
| Exxon Mobil Corp. | Integrated Oil & Gas | 4.2% |
| Microsoft Corp. | Software | 3.6 |
| Johnson & Johnson | Pharmaceuticals | 3.2 |
| Wells Fargo & Co. | Banks | 3.2 |
| Berkshire Hathaway Inc. Reinsurance | 3.0 |
| General Electric Co. | Diversified Industrials | 2.9 |
| Procter & Gamble Co. | Nondurable | |
| | Household Products | 2.6 |
| JPMorgan Chase & Co. | Banks | 2.6 |
| Pfizer Inc. | Pharmaceuticals | 2.4 |
| Verizon Communications Fixed Line | |
| Inc. | Telecommunications | 2.3 |
| Top Ten | | 30.0% |
| 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 23, 2014, and represent estimated costs for the current fiscal year. For the six months ended February 28, 2015, the annualized expense ratios were 0.08% for Institutional Shares and 0.11% for ETF Shares.
36
Mega Cap 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 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, Through February 28, 2015
Mega Cap Value Index Fund ETF Shares Net Asset Value
Spliced Mega Cap Value Index
For a benchmark description, see the Glossary.
Note: For 2015, performance data reflect the six months ended February 28, 2015.
Average Annual Total Returns: Periods Ended December 31, 2014
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
| | | | |
| | Inception | One | Five | Since |
| | Date | Year | Years | Inception |
| Institutional Shares | 3/5/2008 | 13.02% | 14.52% | 7.35% |
| ETF Shares | 12/17/2007 | | | |
| Market Price | | 13.05 | 14.50 | 5.82 |
| Net Asset Value | | 12.97 | 14.49 | 5.81 |
See Financial Highlights for dividend and capital gains information.
37
Mega Cap Value Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of February 28, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the 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 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%)1 | | |
| Basic Materials (2.8%) | | |
| EI du Pont de Nemours & | | |
| Co. | 120,174 | 9,356 |
| Dow Chemical Co. | 156,250 | 7,694 |
| LyondellBasell Industries | | |
| NV Class A | 53,129 | 4,564 |
| International Paper Co. | 56,234 | 3,172 |
| Freeport-McMoRan Inc. | 137,648 | 2,977 |
| Mosaic Co. | 42,481 | 2,263 |
| Air Products & Chemicals | | |
| Inc. | 12,742 | 1,990 |
| Newmont Mining Corp. | 32,824 | 864 |
| | | 32,880 |
| Consumer Goods (10.0%) | | |
| Procter & Gamble Co. | 358,347 | 30,506 |
| PepsiCo Inc. | 198,451 | 19,643 |
| Altria Group Inc. | 262,053 | 14,751 |
| Ford Motor Co. | 500,847 | 8,184 |
| Mondelez International Inc. | | |
| Class A | 211,651 | 7,817 |
| General Motors Co. | 170,273 | 6,353 |
| Kimberly-Clark Corp. | 49,327 | 5,409 |
| Kraft Foods Group Inc. | 78,160 | 5,007 |
| Johnson Controls Inc. | 88,205 | 4,482 |
| General Mills Inc. | 80,071 | 4,307 |
| Archer-Daniels-Midland Co. | 85,233 | 4,081 |
| Reynolds American Inc. | 42,234 | 3,194 |
| Kellogg Co. | 32,943 | 2,124 |
| Activision Blizzard Inc. | 66,880 | 1,559 |
| Campbell Soup Co. | 27,081 | 1,262 |
| | | 118,679 |
| Consumer Services (7.5%) | | |
| Wal-Mart Stores Inc. | 213,630 | 17,930 |
| CVS Health Corp. | 152,082 | 15,797 |
| Walgreens Boots Alliance | | |
| Inc. | 112,903 | 9,380 |
| McKesson Corp. | 30,753 | 7,033 |
| Target Corp. | 84,560 | 6,497 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | Delta Air Lines Inc. | 110,997 | 4,941 |
| | Kroger Co. | 61,953 | 4,408 |
| | Time Warner Inc. | 52,880 | 4,329 |
| | Cardinal Health Inc. | 43,819 | 3,855 |
| | Sysco Corp. | 77,888 | 3,037 |
| | Macy’s Inc. | 46,877 | 2,987 |
| | Omnicom Group Inc. | 32,848 | 2,613 |
| | Carnival Corp. | 54,928 | 2,416 |
| | Kohl’s Corp. | 25,729 | 1,899 |
| * | Liberty Media Corp. | 27,202 | 1,050 |
| * | Liberty Media Corp. | | |
| | Class A | 12,570 | 485 |
| | | | 88,657 |
| Financials (22.1%) | | |
| | Wells Fargo & Co. | 687,851 | 37,687 |
| * | Berkshire Hathaway Inc. | | |
| | Class B | 242,496 | 35,746 |
| | JPMorgan Chase & Co. | 495,541 | 30,367 |
| | Bank of America Corp. | 1,393,886 | 22,037 |
| | Citigroup Inc. | 381,461 | 19,996 |
| | US Bancorp | 237,250 | 10,584 |
| | Goldman Sachs Group Inc. | 54,854 | 10,411 |
| | American International | | |
| | Group Inc. | 185,569 | 10,268 |
| | Morgan Stanley | 194,511 | 6,962 |
| | PNC Financial Services | | |
| | Group Inc. | 69,738 | 6,413 |
| | MetLife Inc. | 120,361 | 6,118 |
| | Bank of New York Mellon | | |
| | Corp. | 149,150 | 5,838 |
| | Capital One Financial Corp. | 73,676 | 5,799 |
| | Prudential Financial Inc. | 60,435 | 4,886 |
| | ACE Ltd. | 41,823 | 4,768 |
| | Travelers Cos. Inc. | 43,897 | 4,716 |
| | CME Group Inc. | 42,454 | 4,073 |
| | Allstate Corp. | 55,657 | 3,930 |
| | State Street Corp. | 52,624 | 3,918 |
| | Discover Financial Services | 60,033 | 3,661 |
| | BB&T Corp. | 95,330 | 3,627 |
| | Aflac Inc. | 56,663 | 3,527 |
38
| | | |
| Mega Cap Value Index Fund | | |
| |
| |
| |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | Ameriprise Financial Inc. | 24,433 | 3,265 |
| | Chubb Corp. | 31,253 | 3,139 |
| | SunTrust Banks Inc. | 68,982 | 2,828 |
| | Fifth Third Bancorp | 108,995 | 2,110 |
| | Northern Trust Corp. | 29,747 | 2,077 |
| | Progressive Corp. | 74,273 | 1,979 |
| | Loews Corp. | 39,719 | 1,629 |
| * | Synchrony Financial | 16,672 | 533 |
| * | Berkshire Hathaway Inc. | | |
| | Class A | 1 | 221 |
| | | | 263,113 |
| Health Care (15.5%) | | |
| | Johnson & Johnson | 371,065 | 38,038 |
| | Pfizer Inc. | 835,429 | 28,672 |
| | Merck & Co. Inc. | 377,900 | 22,122 |
| * | Medtronic plc | 187,936 | 14,582 |
| | UnitedHealth Group Inc. | 127,273 | 14,462 |
| | Bristol-Myers Squibb Co. | 219,962 | 13,400 |
| | Abbott Laboratories | 199,722 | 9,461 |
| | Eli Lilly & Co. | 132,856 | 9,322 |
| * | Anthem Inc. | 35,746 | 5,235 |
| | Baxter International Inc. | 71,925 | 4,974 |
| | Aetna Inc. | 46,723 | 4,651 |
| | Cigna Corp. | 34,626 | 4,212 |
| | Becton Dickinson and Co. | 25,427 | 3,731 |
| | Humana Inc. | 20,315 | 3,339 |
| * | HCA Holdings Inc. | 43,152 | 3,087 |
| | Zimmer Holdings Inc. | 22,409 | 2,698 |
| | St. Jude Medical Inc. | 37,901 | 2,527 |
| | | | 184,513 |
| Industrials (10.8%) | | |
| | General Electric Co. | 1,331,485 | 34,605 |
| | Honeywell International | | |
| | Inc. | 98,628 | 10,137 |
| | Lockheed Martin Corp. | 35,651 | 7,132 |
| | United Technologies Corp. | 57,448 | 7,003 |
| | Caterpillar Inc. | 80,201 | 6,649 |
| | Emerson Electric Co. | 91,846 | 5,320 |
| | General Dynamics Corp. | 37,366 | 5,186 |
| | CSX Corp. | 132,475 | 4,545 |
| | Norfolk Southern Corp. | 41,011 | 4,477 |
| | Eaton Corp. plc | 62,876 | 4,465 |
| | Raytheon Co. | 40,913 | 4,450 |
| | Northrop Grumman Corp. | 26,805 | 4,442 |
| | Illinois Tool Works Inc. | 44,141 | 4,364 |
| | Deere & Co. | 47,631 | 4,315 |
| | TE Connectivity Ltd. | 53,892 | 3,887 |
| | FedEx Corp. | 17,896 | 3,167 |
| | Waste Management Inc. | 57,743 | 3,146 |
| | Parker-Hannifin Corp. | 19,744 | 2,422 |
| | Ingersoll-Rand plc | 35,226 | 2,367 |
| | Tyco International plc | 55,416 | 2,340 |
| | Dover Corp. | 21,969 | 1,583 |
| | | |
| | | | Market |
| | | | Value• |
| | | Shares | ($000) |
| | Republic Services Inc. | | |
| | Class A | 32,990 | 1,350 |
| | Xerox Corp. | 71,829 | 980 |
| | | | 128,332 |
| Oil & Gas (10.7%) | | |
| | Exxon Mobil Corp. | 561,470 | 49,713 |
| | Chevron Corp. | 250,650 | 26,739 |
| | ConocoPhillips | 163,123 | 10,636 |
| | Occidental Petroleum Corp. | 102,921 | 8,015 |
| | Phillips 66 | 73,460 | 5,764 |
| | Valero Energy Corp. | 69,130 | 4,265 |
| | Marathon Petroleum Corp. | 37,137 | 3,899 |
| | Baker Hughes Inc. | 57,250 | 3,579 |
| | Apache Corp. | 49,957 | 3,289 |
| | Devon Energy Corp. | 51,444 | 3,168 |
| | Hess Corp. | 35,649 | 2,677 |
| | Marathon Oil Corp. | 89,398 | 2,491 |
| | National Oilwell Varco Inc. | 28,580 | 1,553 |
| | Chesapeake Energy Corp. | 79,048 | 1,318 |
| | | | 127,106 |
| Technology (10.8%) | | |
| | Microsoft Corp. | 983,598 | 43,131 |
| | Intel Corp. | 641,102 | 21,317 |
| | International Business | | |
| | Machines Corp. | 131,231 | 21,252 |
| | Cisco Systems Inc. | 678,043 | 20,009 |
| | Hewlett-Packard Co. | 247,459 | 8,621 |
| | Corning Inc. | 170,076 | 4,150 |
| | Broadcom Corp. Class A | 71,820 | 3,248 |
| | Symantec Corp. | 91,444 | 2,301 |
| | Motorola Solutions Inc. | 28,732 | 1,952 |
| | Western Digital Corp. | 14,623 | 1,564 |
| | CA Inc. | 41,120 | 1,337 |
| | | | 128,882 |
| Telecommunications (4.7%) | | |
| | Verizon Communications | | |
| | Inc. | 550,060 | 27,201 |
| | AT&T Inc. | 687,569 | 23,763 |
| | CenturyLink Inc. | 75,541 | 2,860 |
| * | T-Mobile US Inc. | 37,278 | 1,231 |
| * | Sprint Corp. | 103,778 | 531 |
| | | | 55,586 |
| Utilities (5.0%) | | |
| | Duke Energy Corp. | 93,768 | 7,365 |
| | NextEra Energy Inc. | 57,845 | 5,985 |
| | Dominion Resources Inc. | 77,360 | 5,577 |
| | Southern Co. | 119,335 | 5,464 |
| | Exelon Corp. | 113,970 | 3,866 |
| | American Electric Power | | |
| | Co. Inc. | 64,910 | 3,737 |
| | PG&E Corp. | 62,873 | 3,378 |
| | Sempra Energy | 31,040 | 3,358 |
| | Spectra Energy Corp. | 88,845 | 3,153 |
| | PPL Corp. | 88,026 | 3,002 |
39
| | |
| Mega Cap Value Index Fund | | |
| |
| |
| |
| | | Market |
| | | Value• |
| | Shares | ($000) |
| Public Service Enterprise | | |
| Group Inc. | 67,013 | 2,819 |
| Edison International | 43,155 | 2,773 |
| Consolidated Edison Inc. | 38,894 | 2,456 |
| Xcel Energy Inc. | 66,998 | 2,364 |
| FirstEnergy Corp. | 55,816 | 1,952 |
| Entergy Corp. | 24,019 | 1,910 |
| | | 59,159 |
| Total Common Stocks | | |
| (Cost $968,622) | | 1,186,907 |
| Temporary Cash Investment (0.0%)1 | |
| |
| | Face | |
| | Amount | |
| | ($000) | |
| U.S. Government and Agency Obligations (0.0%) |
| 2,3 Fannie Mae Discount Notes, | | |
| 0.130%, 4/27/15 | | |
| (Cost $300) | 300 | 300 |
| Total Investments (99.9%) | | |
| (Cost $968,922) | | 1,187,207 |
| Other Assets and Liabilities (0.1%) | |
| Other Assets | | 4,007 |
| Liabilities | | (2,837) |
| | | 1,170 |
| Net Assets (100%) | | 1,188,377 |
| |
| At February 28, 2015, net assets consisted of: |
| | Amount |
| | ($000) |
| Paid-in Capital | 968,824 |
| Undistributed Net Investment Income | 5,126 |
| Accumulated Net Realized Losses | (3,919) |
| Unrealized Appreciation (Depreciation) | |
| Investment Securities | 218,285 |
| Futures Contracts | 61 |
| Net Assets | 1,188,377 |
| |
| |
| Institutional Shares—Net Assets | |
| Applicable to 1,841,120 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 223,013 |
| Net Asset Value Per Share— | |
| Institutional Shares | $121.13 |
| |
| |
| ETF Shares—Net Assets | |
| Applicable to 15,802,369 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 965,364 |
| Net Asset Value Per Share— | |
| ETF Shares | $61.09 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures investments, the fund’s effective common stock and temporary cash investment positions represent 100.0% and -0.1%, respectively, of net assets.
2 The issuer was placed under federal conservatorship in September 2008; since that time, its daily operations have been managed by the
Federal Housing Finance Agency and it receives capital from the U.S. Treasury, as needed to maintain a positive net worth, in exchange for senior preferred stock.
3 Securities with a value of $200,000 have been segregated as initial margin for open futures contracts.
See accompanying Notes, which are an integral part of the Financial Statements.
40
| |
| Mega Cap Value Index Fund | |
| |
| |
| Statement of Operations | |
| |
| | Six Months Ended |
| | February 28, 2015 |
| | ($000) |
| Investment Income | |
| Income | |
| Dividends | 14,656 |
| Interest1 | 1 |
| Total Income | 14,657 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 93 |
| Management and Administrative—Institutional Shares | 40 |
| Management and Administrative—ETF Shares | 302 |
| Marketing and Distribution—Institutional Shares | 21 |
| Marketing and Distribution—ETF Shares | 83 |
| Custodian Fees | 13 |
| Shareholders’ Reports—Institutional Shares | 2 |
| Shareholders’ Reports—ETF Shares | 13 |
| Total Expenses | 567 |
| Net Investment Income | 14,090 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold | 21,101 |
| Futures Contracts | 93 |
| Realized Net Gain (Loss) | 21,194 |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities | 8,458 |
| Futures Contracts | 43 |
| Change in Unrealized Appreciation (Depreciation) | 8,501 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 43,785 |
| 1 Interest income from an affiliated company of the fund was $1,000. | |
See accompanying Notes, which are an integral part of the Financial Statements.
41
| | |
| Mega Cap Value Index Fund | | |
| |
| |
| Statement of Changes in Net Assets | | |
| |
| | Six Months Ended | Year Ended |
| | February 28, | August 31, |
| | 2015 | 2014 |
| | ($000) | ($000) |
| Increase (Decrease) in Net Assets | | |
| Operations | | |
| Net Investment Income | 14,090 | 22,431 |
| Realized Net Gain (Loss) | 21,194 | 66,443 |
| Change in Unrealized Appreciation (Depreciation) | 8,501 | 96,068 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 43,785 | 184,942 |
| Distributions | | |
| Net Investment Income | | |
| Institutional Shares | (2,729) | (4,526) |
| ETF Shares | (11,391) | (16,562) |
| Realized Capital Gain | | |
| Institutional Shares | — | — |
| ETF Shares | — | — |
| Total Distributions | (14,120) | (21,088) |
| Capital Share Transactions | | |
| Institutional Shares | 5,400 | 13,763 |
| ETF Shares | 71,116 | 130,154 |
| Net Increase (Decrease) from Capital Share Transactions | 76,516 | 143,917 |
| Total Increase (Decrease) | 106,181 | 307,771 |
| Net Assets | | |
| Beginning of Period | 1,082,196 | 774,425 |
| End of Period1 | 1,188,377 | 1,082,196 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $5,126,000 and $5,156,000.
See accompanying Notes, which are an integral part of the Financial Statements.
42
| | | | | | | |
| Mega Cap Value Index Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| |
| Institutional Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $118.18 | $98.45 | $82.90 | $73.55 | $65.97 | $66.02 |
| Investment Operations | | | | | | | |
| Net Investment Income | | 1.468 | 2.687 | 2.5311 | 2.339 | 1.965 | 1.932 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | 2.990 | 19.649 | 15.493 | 9.303 | 7.528 | (.075) |
| Total from Investment Operations | 4.458 | 22.336 | 18.024 | 11.642 | 9.493 | 1.857 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (1.508) | (2.606) | (2.474) | (2.292) | (1.913) | (1.907) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | | (1.508) | (2.606) | (2.474) | (2.292) | (1.913) | (1.907) |
| Net Asset Value, End of Period | $121.13 | $118.18 | $98.45 | $82.90 | $73.55 | $65.97 |
| |
| Total Return | | 3.81% | 22.95% | 22.07% | 16.19% | 14.33% | 2.69% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $223 | $212 | $164 | $110 | $105 | $76 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.08% | 0.08% | 0.08% | 0.08% | 0.10% | 0.11% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 2.53% | 2.50% | 2.75% | 3.01% | 2.65% | 2.88% |
| Portfolio Turnover Rate 2 | | 4% | 8% | 34% | 17% | 24% | 26% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Calculated based on average shares outstanding.
2 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.
43
| | | | | | | |
| Mega Cap Value Index Fund | | | | | | | |
| |
| |
| Financial Highlights | | | | | | |
| |
| |
| ETF Shares | | | | | | | |
| | Six Months | | | | | |
| | | Ended | | | | | |
| For a Share Outstanding | February 28, | | | | Year Ended August 31, |
| Throughout Each Period | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
| Net Asset Value, Beginning of Period | $59.60 | $49.65 | $41.80 | $37.09 | $33.26 | $33.29 |
| Investment Operations | | | | | | | |
| Net Investment Income | | .733 | 1.338 | 1.2721 | 1.164 | .983 | .969 |
| Net Realized and Unrealized Gain (Loss) | | | | | | |
| on Investments | | 1.510 | 9.911 | 7.809 | 4.689 | 3.805 | (.042) |
| Total from Investment Operations | 2.243 | 11.249 | 9.081 | 5.853 | 4.788 | .927 |
| Distributions | | | | | | | |
| Dividends from Net Investment Income | (.753) | (1.299) | (1.231) | (1.143) | (.958) | (.957) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | | (.753) | (1.299) | (1.231) | (1.143) | (.958) | (.957) |
| Net Asset Value, End of Period | $61.09 | $59.60 | $49.65 | $41.80 | $37.09 | $33.26 |
| |
| Total Return | | 3.79% | 22.92% | 22.05% | 16.13% | 14.32% | 2.68% |
| |
| Ratios/Supplemental Data | | | | | | | |
| Net Assets, End of Period (Millions) | $965 | $870 | $611 | $414 | $341 | $226 |
| Ratio of Total Expenses to | | | | | | | |
| Average Net Assets | | 0.11% | 0.11% | 0.11% | 0.12% | 0.12% | 0.13% |
| Ratio of Net Investment Income to | | | | | | |
| Average Net Assets | | 2.50% | 2.47% | 2.72% | 2.97% | 2.63% | 2.86% |
| Portfolio Turnover Rate 2 | | 4% | 8% | 34% | 17% | 24% | 26% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Calculated based on average shares outstanding.
2 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.
44
Mega Cap Value Index Fund
Notes to Financial Statements
Vanguard Mega Cap 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, service, and account-size criteria. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. 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 the 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 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. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.
Futures contracts are valued at their quoted daily settlement prices. The aggregate settlement values 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).
During the six months ended February 28, 2015, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of aggregate settlement values at each quarter-end during the period.
45
Mega Cap Value Index Fund
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 for all open federal income tax years (August 31, 2011–2014), and for the period ended February 28, 2015, 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. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $2.89 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at February 28, 2015, or at any time during the period then ended.
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. 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.
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 based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At February 28, 2015, the fund had contributed capital of $107,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.04% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
46
Mega Cap Value Index Fund
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
The following table summarizes the market value of the fund’s investments as of February 28, 2015, based on the inputs used to value them:
| | | |
| | Level 1 | Level 2 | Level 3 |
| Investments | ($000) | ($000) | ($000) |
| Common Stocks | 1,186,907 | — | — |
| Temporary Cash Investments | — | 300 | — |
| Futures Contracts—Liabilities1 | (5) | — | — |
| Total | 1,186,902 | 300 | — |
| 1 Represents variation margin on the last day of the reporting period. | | | |
D. At February 28, 2015, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were:
| | | | |
| | | | | ($000) |
| | | | Aggregate | |
| | | Number of | Settlement | Unrealized |
| | | Long (Short) | Value | Appreciation |
| Futures Contracts | Expiration | Contracts | Long (Short) | (Depreciation) |
| E-mini S&P 500 Index | March 2015 | 10 | 1,051 | 41 |
| S&P 500 Index | March 2015 | 1 | 526 | 20 |
| | | | | 61 |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
E. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
During the six months ended February 28, 2015, the fund realized $17,911,000 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.
47
Mega Cap Value 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, 2014, the fund had available capital losses totaling $7,184,000 to offset future net capital gains. Of this amount, $6,977,000 is subject to expiration on August 31, 2019. Capital losses of $207,000 realized beginning in fiscal 2012 may be carried forward indefinitely under the Regulated Investment Company Modernization Act of 2010, but must be used before any expiring loss carryforwards. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending August 31, 2015; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At February 28, 2015, the cost of investment securities for tax purposes was $968,922,000. Net unrealized appreciation of investment securities for tax purposes was $218,285,000, consisting of unrealized gains of $230,408,000 on securities that had risen in value since their purchase and $12,123,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the six months ended February 28, 2015, the fund purchased $147,676,000 of investment securities and sold $71,857,000 of investment securities, other than temporary cash investments. Purchases and sales include $101,063,000 and $46,521,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
| | | | |
| G. Capital share transactions for each class of shares were: | | | |
| | Six Months Ended | | Year Ended |
| | February 28, 2015 | August 31, 2014 |
| | Amount | Shares | Amount | Shares |
| | ($000) | (000) | ($000) | (000) |
| Institutional Shares | | | | |
| Issued | 17,371 | 149 | 41,244 | 382 |
| Issued in Lieu of Cash Distributions | 2,109 | 18 | 3,640 | 34 |
| Redeemed | (14,080) | (118) | (31,121) | (286) |
| Net Increase (Decrease)—Institutional Shares | 5,400 | 49 | 13,763 | 130 |
| ETF Shares | | | | |
| Issued | 119,151 | 2,000 | 319,267 | 5,602 |
| Issued in Lieu of Cash Distributions | — | — | — | — |
| Redeemed | (48,035) | (800) | (189,113) | (3,300) |
| Net Increase (Decrease)—ETF Shares | 71,116 | 1,200 | 130,154 | 2,302 |
H. Management has determined that no material events or transactions occurred subsequent to February 28, 2015, that would require recognition or disclosure in these financial statements.
48
About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table illustrates your fund’s costs in two ways:
• Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund‘s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading ”Expenses Paid During Period.“
• Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.
49
| | | |
| Six Months Ended February 28, 2015 | | | |
| | Beginning | Ending | Expenses |
| | Account Value | Account Value | Paid During |
| | 8/31/2014 | 2/28/2015 | Period |
| Based on Actual Fund Return | | | |
| Mega Cap Index Fund | | | |
| Institutional Shares | $1,000.00 | $1,057.90 | $0.41 |
| ETF Shares | 1,000.00 | 1,057.49 | 0.56 |
| Mega Cap Growth Index Fund | | | |
| Institutional Shares | $1,000.00 | $1,082.87 | $0.46 |
| ETF Shares | 1,000.00 | 1,082.74 | 0.57 |
| Mega Cap Value Index Fund | | | |
| Institutional Shares | $1,000.00 | $1,038.10 | $0.40 |
| ETF Shares | 1,000.00 | 1,037.87 | 0.56 |
| Based on Hypothetical 5% Yearly Return | | | |
| Mega Cap Index Fund | | | |
| Institutional Shares | $1,000.00 | $1,024.40 | $0.40 |
| ETF Shares | 1,000.00 | 1,024.25 | 0.55 |
| Mega Cap Growth Index Fund | | | |
| Institutional Shares | $1,000.00 | $1,024.35 | $0.45 |
| ETF Shares | 1,000.00 | 1,024.25 | 0.55 |
| Mega Cap Value Index Fund | | | |
| Institutional Shares | $1,000.00 | $1,024.40 | $0.40 |
| ETF Shares | 1,000.00 | 1,024.25 | 0.55 |
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: for the Mega Cap Index Fund, 0.08% for Institutional Shares and 0.11% for ETF Shares; for the Mega Cap Growth Index Fund, 0.09% for Institutional Shares and 0.11% for ETF Shares; and for the Mega Cap Value Index Fund, 0.08% for Institutional Shares and 0.11% 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.
50
Glossary
30-Day SEC Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (for bonds), its actual income (for asset-backed securities), or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.
Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Dividend Yield. Dividend income earned by stocks, expressed as a percentage of the aggregate market value (or of net asset value, for a fund). The yield is determined by dividing the amount of the annual dividends by the aggregate value (or net asset value) at the end of the period. For a fund, the dividend yield is based solely on stock holdings and does not include any income produced by other investments.
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.
Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.
Foreign Holdings. The percentage of a fund represented by securities or depositary receipts of companies based outside the United States.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.
51
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.
Benchmark Information
Spliced Mega Cap Growth Index: MSCI US Large Cap Growth Index through April 16, 2013; CRSP US Mega Cap Growth Index thereafter.
Spliced Mega Cap Index: MSCI US Large Cap 300 Index through January 30, 2013; CRSP US Mega Cap Index thereafter.
Spliced Mega Cap Value Index: MSCI US Large Cap Value Index through April 16, 2013; CRSP US
Mega Cap Value Index thereafter.
52
This page intentionally left blank.
This page intentionally left blank.
This page intentionally left blank.
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 178 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
InterestedTrustee1
F. William McNabb III
Born 1957. Trustee Since July 2009. Chairman of the Board. Principal Occupation(s) During the Past Five Years and Other Experience: Chairman of the Board of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group, since January 2010; Director of The Vanguard Group 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).
IndependentTrustees
Emerson U. Fullwood
Born 1948. Trustee Since January 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Executive Chief Staff and Marketing Officer for North America and Corporate Vice President (retired 2008) of Xerox Corporation (document management products and services); Executive in Residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology; Director of SPX Corporation (multi-industry manufacturing), the United Way of Rochester, Amerigroup Corporation (managed health care), the University of Rochester Medical Center, Monroe Community College Foundation, and North Carolina A&T University.
Rajiv L. Gupta
Born 1945. Trustee Since December 2001.2 Principal Occupation(s) During the Past Five Years and Other Experience: Chairman and Chief Executive Officer (retired 2009) and President (2006–2008) of Rohm and Haas Co. (chemicals); Director of Tyco International PLC (diversified manufacturing and services), Hewlett-Packard Co. (electronic computer manufacturing), and Delphi Automotive PLC (automotive components); Senior Advisor at New Mountain Capital.
Amy Gutmann
Born 1949. Trustee Since June 2006. Principal Occupation(s) During the Past Five Years and Other Experience: President of the University of Pennsylvania; Christopher H. Browne Distinguished Professor of Political Science, School of Arts and Sciences, and Professor of Communication, Annenberg School for Communication, with secondary faculty appointments in the Department of Philosophy, School of Arts and Sciences, and at the Graduate School of Education, University of Pennsylvania; Trustee of the National Constitution Center; Chair of the Presidential Commission for the Study of Bioethical Issues.
JoAnn Heffernan Heisen
Born 1950. Trustee Since July 1998. Principal Occupation(s) During the Past Five Years and Other Experience: Corporate Vice President and Chief Global Diversity Officer (retired 2008) and Member of the Executive Committee (1997–2008) of Johnson & Johnson (pharmaceuticals/medical devices/ consumer products); Director of Skytop Lodge Corporation (hotels), the University Medical Center at Princeton, the Robert Wood Johnson Foundation, and the Center for Talent Innovation; Member of the Advisory Board of the Institute for Women’s Leadership at Rutgers University.
F. Joseph Loughrey
Born 1949. Trustee Since October 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2009) of Cummins Inc. (industrial machinery); Chairman of the Board of Hillenbrand, Inc. (specialized consumer services), and of Oxfam America; Director of SKF AB (industrial machinery), Hyster-Yale Materials Handling, Inc. (forklift trucks), the Lumina Foundation for Education, and the V Foundation for Cancer Research; Member of the Advisory Council for the College of Arts and Letters and of the Advisory Board to the Kellogg Institute for International Studies, both at the University of Notre Dame.
Mark Loughridge
Born 1953. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Senior Vice President and Chief Financial Officer (retired 2013) at IBM (information technology services); Fiduciary Member of IBM’s Retirement Plan Committee (2004–2013); Director of the Dow Chemical Company; Member of the Council on Chicago Booth.
Scott C. Malpass
Born 1962. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Chief Investment Officer and Vice President at the University of Notre Dame; Assistant Professor of Finance at the Mendoza College of Business at Notre Dame; Member of the Notre Dame 403(b) Investment Committee; Board Member of TIFF Advisory Services, Inc., and Catholic Investment Services, Inc. (investment advisors); Member of the Investment Advisory Committee of Major League Baseball.
André F. Perold
Born 1952. Trustee Since December 2004. Principal Occupation(s) During the Past Five Years and Other Experience: George Gund Professor of Finance and Banking, Emeritus at the Harvard Business School (retired 2011); Chief Investment Officer and Managing Partner of HighVista Strategies LLC (private investment firm); Director of Rand Merchant Bank; Overseer of the Museum of Fine Arts Boston.
Peter F. Volanakis
Born 1955. Trustee Since July 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2010) of Corning Incorporated (communications equipment); Trustee of Colby-Sawyer College; Member of the Advisory Board of the Norris Cotton Cancer Center and of the Advisory Board of the Parthenon Group (strategy consulting).
Executive Officers
Glenn Booraem
Born 1967. Controller Since July 2010. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Controller of each of the investment companies served by The Vanguard Group; Assistant Controller of each of the investment companies served by The Vanguard Group (2001–2010).
Thomas J. Higgins
Born 1957. Chief Financial Officer Since September 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Chief Financial Officer of each of the investment companies served by The Vanguard Group; Treasurer of each of the investment companies served by The Vanguard Group (1998–2008).
Kathryn J. Hyatt
Born 1955. Treasurer Since November 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group; Assistant Treasurer of each of the investment companies served by The Vanguard Group (1988–2008).
Heidi Stam
Born 1956. Secretary Since July 2005. Principal Occupation(s) During the Past Five Years and Other Experience: Managing Director of The Vanguard Group, Inc.; General Counsel of The Vanguard Group; Secretary of The Vanguard Group and of each of the investment companies served by The Vanguard Group; Director and Senior Vice President of Vanguard Marketing Corporation.
Vanguard Senior Management Team
| |
Mortimer J. Buckley Kathleen C. Gubanich Paul A. Heller Martha G. King John T. Marcante | Chris D. McIsaac Michael S. Miller James M. Norris Glenn W. Reed |
Chairman Emeritus and Senior Advisor
John J. Brennan
Chairman, 1996–2009
Chief Executive Officer and President, 1996–2008
Founder
John C. Bogle
Chairman and Chief Executive Officer, 1974–1996
1 Mr. McNabb is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the Vanguard funds.
2 December 2002 for Vanguard Equity Income Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.
P.O. Box 2600
Valley Forge, PA 19482-2600
Connect with Vanguard® > vanguard.com
| |
| Fund Information > 800-662-7447 | |
| Direct Investor Account Services > 800-662-2739 | |
| Institutional Investor Services > 800-523-1036 | |
| Text Telephone for People | |
| Who Are Deaf or Hard of Hearing> 800-749-7273 | |
| |
| This material may be used in conjunction | |
| with the offering of shares of any Vanguard | |
| fund only if preceded or accompanied by | |
| the fund’s current prospectus. | |
| |
| All comparative mutual fund data are from Lipper, a | |
| Thomson Reuters Company, or Morningstar, Inc., unless | |
| otherwise noted. | |
| |
| You can obtain a free copy of Vanguard’s proxy voting | |
| guidelines by visiting vanguard.com/proxyreporting or by | |
| calling Vanguard at 800-662-2739. The guidelines are | |
| also available from the SEC’s website, sec.gov. In | |
| addition, you may obtain a free report on how your fund | |
| voted the proxies for securities it owned during the 12 | |
| months ended June 30. To get the report, visit either | |
| vanguard.com/proxyreporting or sec.gov. | |
| |
| You can review and copy information about your fund at | |
| the SEC’s Public Reference Room in Washington, D.C. To | |
| find out more about this public service, call the SEC at | |
| 202-551-8090. Information about your fund is also | |
| available on the SEC’s website, and you can receive | |
| copies of this information, for a fee, by sending a | |
| request in either of two ways: via e-mail addressed to | |
| publicinfo@sec.gov or via regular mail addressed to the | |
| Public Reference Section, Securities and Exchange | |
| Commission, Washington, DC 20549-1520. | |
| |
| | © 2015 The Vanguard Group, Inc. |
| | All rights reserved. |
| | Vanguard Marketing Corporation, Distributor. |
| |
| | Q8282 042015 |
Item 2: Code of Ethics.
Not Applicable.
Item 3: Audit Committee Financial Expert.
Not Applicable.
Item 4: Principal Accountant Fees and Services.
(a) Audit Fees.
Not Applicable.
Item 5: Audit Committee of Listed Registrants.
Not Applicable.
Item 6: Investments.
Not Applicable.
Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not Applicable.
Item 8: Portfolio Managers of Closed-End Management Investment Companies.
Not Applicable.
Item 9: Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not Applicable.
Item 10: Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 11: Controls and Procedures.
(a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.
(b) Internal Control Over Financial Reporting. There were no significant changes in Registrant’s Internal Control Over Financial Reporting or in other factors that could significantly affect this control subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Item 12: Exhibits.
(a) Certifications.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
| | VANGUARD WORLD FUND |
| |
| By: | /s/ F. WILLIAM MCNABB III* |
| | F. WILLIAM MCNABB III |
| | CHIEF EXECUTIVE OFFICER |
| |
| Date: April 16, 2015 |
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 FUND |
| |
| By: | /s/ F. WILLIAM MCNABB III* |
| | F. WILLIAM MCNABB III |
| | CHIEF EXECUTIVE OFFICER |
| |
| Date: April 16, 2015 |
| |
| | VANGUARD WORLD FUND |
| |
| By: | /s/ THOMAS J. HIGGINS* |
| | THOMAS J. HIGGINS |
| | CHIEF FINANCIAL OFFICER |
| |
| Date: April 16, 2015 |
* By: /s/ Heidi Stam
Heidi Stam, pursuant to a Power of Attorney filed on April 22, 2014 see file Number 2-17620, Incorporated by Reference.
