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 – August 31, 2015
Item 1: Reports to Shareholders
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/usgrowthfundx1x1.jpg)
Annual Report | August 31, 2015
Vanguard U.S. Growth Fund
Vanguard’s Principles for Investing Success
We want to give you the best chance of investment success. These principles, grounded in Vanguard’s research and experience, can put you on the right path.
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.
A single theme unites these principles: Focus on the things you can control.
We believe there is no wiser course for any investor.
Contents | |
Your Fund’s Total Returns. | 1 |
Chairman’s Letter. | 2 |
Advisors’ Report. | 7 |
Fund Profile. | 12 |
Performance Summary. | 14 |
Financial Statements. | 16 |
Your Fund’s After-Tax Returns. | 32 |
About Your Fund’s Expenses. | 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: Pictured is a sailing block on the Brilliant, a 1932 schooner docked in Mystic, Connecticut. A type of pulley, the sailing block helps coordinate the setting of the sails. At Vanguard, the intricate coordination of technology and people allows us to help millions of clients around the world reach their financial goals.
Your Fund’s Total Returns | ||||
Fiscal Year Ended August 31, 2015 | ||||
Total | ||||
Returns | ||||
Vanguard U.S. Growth Fund | ||||
Investor Shares | 7.96% | |||
Admiral™ Shares | 8.12 | |||
Russell 1000 Growth Index | 4.26 | |||
Large-Cap Growth Funds Average | 3.53 | |||
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 August 31, 2015 | ||||
Distributions Per Share | ||||
Starting | Ending | |||
Share | Share | Income | Capital | |
Price | Price | Dividends | Gains | |
Vanguard U.S. Growth Fund | ||||
Investor Shares | $31.03 | $30.89 | $0.194 | $2.283 |
Admiral Shares | 80.37 | 80.01 | 0.623 | 5.907 |
1
Chairman’s Letter
Dear Shareholder,
Returns for U.S. stocks, which had been mostly strong over the last few years, turned weak in recent months and declined in August’s downturn. Still, growth stocks handily eclipsed their value counterparts for the 12 months ended August 31, 2015, and large-capitalization stocks finished near small- and mid-caps.
Vanguard U.S. Growth Fund’s holdings were among the best of the large-cap growth bunch, returning about 8% for the fiscal year. The fund surpassed its benchmark and the average return of its peers by about 4 percentage points and the broad U.S. stock market by almost 8 percentage points.
Sizable holdings in the information technology and health care sectors boosted results, but a modest exposure to hard-hit energy stocks hurt.
If you hold shares of your fund in a taxable account, you may wish to review the information on after-tax returns that appears later in this report. Please note that as of August 31, the U.S. Growth Fund had realized long-term capital gains equal to about 8% of fund assets. Gains will be distributed in December.
On another note, we announced on May 5 that Gary Robinson would become the portfolio manager of Baillie Gifford Overseas Ltd.’s portion of the fund, replacing Ian Tabberer. Baillie Gifford is one of the fund’s five advisors, along with
2
Wellington Management Company llp; William Blair Investment Management, LLC; Jennison Associates LLC; and Jackson Square Partners, LLC.
August’s moody markets led to flat 12-month returns
U.S. stocks generally moved in opposite directions over the two halves of the fiscal year ended August 31. A first-half advance of about 6% was followed by a second-half retreat of about –5%. Ultimately, the ride ended about where it started, with the market returning less than 1%.
Much of the decline came in August, when stocks tumbled over fears about the global impact of China’s economic deceleration.
Greece’s debt crisis, the strong U.S. dollar, perceived high valuations, and speculation about when the Federal Reserve might raise short-term interest rates also played a part. (Shortly after the close of the reporting period, the Fed announced at its September meeting that it would leave rates unchanged for the time being.)
For U.S. investors, international stocks returned about –12%, a result that would have been a bit better if not for the dollar’s strength against many foreign currencies. China’s troubles buffeted emerging markets, which produced lower returns than the developed markets of Europe and the Pacific region.
Market Barometer | |||
Average Annual Total Returns | |||
Periods Ended August 31, 2015 | |||
One | Three | Five | |
Year | Years | Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 0.40% | 14.68% | 16.07% |
Russell 2000 Index (Small-caps) | 0.03 | 14.12 | 15.55 |
Russell 3000 Index (Broad U.S. market) | 0.36 | 14.63 | 16.03 |
FTSE All-World ex US Index (International) | -11.50 | 5.79 | 5.17 |
Bonds | |||
Barclays U.S. Aggregate Bond Index (Broad taxable market) | 1.56% | 1.53% | 2.98% |
Barclays Municipal Bond Index (Broad tax-exempt market) | 2.52 | 2.83 | 3.96 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.02 | 0.03 | 0.05 |
CPI | |||
Consumer Price Index | 0.20% | 1.14% | 1.77% |
3
Bonds notched muted results as the Fed weighed rate-hike timing
The broad U.S. taxable bond market returned 1.56%. Bond prices fell slightly but received some support from global investors looking for higher yields than those available in many other developed markets. Buyers seeking shelter from stock market volatility also helped. The yield of the 10-year Treasury note ended August at 2.18%, down from 2.34% a year earlier.
Limited by the dollar’s strength, international bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –11.97%. Without this currency effect, they returned about 3%.
The Fed’s 0%–0.25% target for short-term interest rates continued to restrain money market fund and savings account returns.
Health care and technology holdings drove commendable fund returns
With five advisors managing separate pieces of the portfolio, the U.S. Growth Fund combines diverse strategies under a central theme. Each advisor brings its own approach to the investment process, but the overall emphasis is on holding stocks of high-quality companies with long-term growth potential. Research is central to each advisor’s strategy, leading to portfolios that can be characterized by relatively low turnover and high concentration.
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 fiscal year ended August 31, 2015, the expense ratios were 0.47% for Investor Shares and 0.33% 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 past fiscal year was solid for the fund. As I mentioned earlier, much of its contributions and outperformance came from two traditional growth sectors—health care and information technology.
An allocation of about 34% on average to information technology was a distinct advantage. Although the sector had cooled off a bit from previous periods, the fund’s technology stocks returned more than 7%, about 2 percentage points more than the benchmark’s. Electronic-payment corporations continued to boost the fund as credit card enrollment increased worldwide. Strength in that industry, and to a lesser degree in software, offset weaker results from internet firms.
The fund’s health care stocks returned about 19%, more than 5 percentage points ahead of those in the benchmark. Pharmaceutical companies, lifted by productive pipelines and mergers-and-acquisition activity, powered results and more than overcame otherwise muted returns from the sector.
Consumer discretionary was the only sector to restrain results relative to the benchmark. Of the seven remaining sectors, which accounted for only about one-quarter of fund assets, energy stocks were a weak spot for both the fund and its benchmark. Consumer staples was a pocket of strength, and the fund’s financial stocks significantly outpaced those in the benchmark.
Total Returns | |
Ten Years Ended August 31, 2015 | |
Average | |
Annual Return | |
U.S. Growth Fund Investor Shares | 7.67% |
Russell 1000 Growth Index | 8.41 |
Large-Cap Growth Funds Average | 6.98 |
Large-Cap Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. |
The figures shown represent past performance, which is not a guarantee of future results. (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.
5
For more about the advisors’ strategy and the fund’s positioning during the 12 months, please see the Advisors’ Report that follows this letter.
The fund’s long-term record paints a picture of progress
The U.S. Growth Fund fell behind its benchmark for the first half of the last decade; in the second half, it made up a lot of that lost ground. For the ten years ended August 31, 2015, it recorded an average annual return of 7.67% for Investor Shares. This compares with a result of 8.41% for the benchmark and 6.98% for the average return of its peers.
The fund struggled mightily for most of 2000-2010, a period that included two severe bear markets. But in the last five years, it outpaced its benchmark by about 1 percentage point on an average annual basis. Much of this progress has coincided with advisor management changes. We’re encouraged by recent performance and confident that the fund can continue to generate competitive long-term results.
When the markets are volatile, maintaining perspective is key Volatility returned to the stock market with a vengeance in the final weeks of August as investors worried that a slowdown in China’s economic growth could affect world markets.
This turmoil may have evoked painful memories of previous financial setbacks—memories that had been receding after more than six years of strong U.S. stock performance. Inevitably, that sort of upheaval can lead some investors to make rash moves with their portfolios.
During periods of market adversity, however, it’s more important than ever to keep sight of one of Vanguard’s key principles: Maintain perspective and long-term discipline. Whether you’re investing for yourself or on behalf of clients, your success is affected greatly by how you react—or don’t react—when the markets turn turbulent. (You can read more in Vanguard’s Principles for Investing Success at vanguard.com/research.)
As I’ve written in the past, the best course for long-term investors generally is to ignore daily market moves and not make decisions based on emotion. This is also a good time to evaluate your portfolio and make sure your asset allocation is aligned with your time horizon, goals, and risk tolerance.
The markets are unpredictable and often confounding. Keeping long-term plans clearly in focus can help you weather these periodic storms.
As always, thank you for investing with Vanguard.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/usgrowthfundx8x1.jpg)
F. William McNabb III
Chairman and Chief Executive Officer
September 17, 2015
6
Advisors’ Report
For the 12 months ended August 31, 2015, Vanguard U.S. Growth Fund returned about 8%, surpassing its benchmark index and the average return of large-capitalization growth funds. Your fund is managed by five 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 table on page 11 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 year and of how the portfolio’s positioning reflects this assessment. These reports were prepared on September 17, 2015.
Please note that William Blair & Company, L.L.C., underwent an internal restructuring. As a result, the name of the firm managing a portion of the U.S. Growth Fund’s assets is now William Blair Investment Management, LLC.
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.
Over the past 12 months, our portfolio benefited from strong security selection, particularly in the information technology sector. Selection in consumer discretionary also was positive. Our choices in energy were weaker and detracted modestly. Sector allocation, a result of bottom-up stock selection decisions, further boosted relative results, thanks in part to our underweighted exposure to lagging energy stocks.
In information technology, privately held transportation and ride-sharing startup Uber Technologies was a notable contributor. In consumer discretionary, Amazon.com and Netflix aided relative performance.
In energy, on the other hand, U.S.-based exploration and production company Continental Resources weighed on results. Wynn Resorts, an owner and operator of casinos, also detracted.
At the fiscal year’s close, we were most overweighted in consumer discretionary after establishing a new position in Amazon.com and adding to our holdings in Las Vegas Sands. We reduced our exposure to consumer staples, now the portfolio’s greatest underweighting, and still did not hold any telecommunication services stocks.
7
We believe our access to Wellington’s vast research resources and specialized expertise gives us certain advantages. We are able to identify companies with high cash-flow returns on investment, strong balance sheets, proven management teams, and the ability to maintain above-average growth over a three-to-five-year horizon. Based on our analysis, we invest in those companies that meet our valuation criteria and––in our view––offer superior long-term appreciation potential for Vanguard U.S. Growth Fund shareholders.
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
Our portfolio’s strong stock selection in the financial services and health care sectors was partially offset by weak relative performance in consumer discretionary and technology. The top contributors were holdings in Allergan, Walgreens Boots Alliance, and L Brands. The largest detractors were QUALCOMM, EOG Resources, and Discovery Communications. We sold our position in EOG Resources.
We believe the ever-changing market sentiment demonstrates that more than just fundamental factors are affecting stock prices. A lack of confidence in the fundamental outlook suggests that many investors are struggling to accurately predict the pace of global economic recovery. They appear to be assessing external factors that threaten economic fundamentals (for example, global central bank actions and fiscal policy debates). In such a tenuous environment, the quality of a company’s business model, competitive position, and management may prove to be of utmost importance.
Regardless of the economic outcome, we remain consistent in our long-term investment philosophy. We want to own what we view as strong secular-growth companies with solid business models and competitive positions that we believe can grow market share. These stocks should have the potential to deliver shareholder value in a variety of market environments.
William Blair Investment Management, LLC
Portfolio Managers:
James Golan, CFA, Partner
David Ricci, CFA, Partner
The U.S. stock market advanced modestly during the 12 months, as strong performance through late July was somewhat offset by a retreat in August. U.S. economic
8
strength buoyed the market for much of the period. But this was overshadowed later by concerns about China’s growth trajectory and uncertainty regarding the timing of potential changes in U.S. monetary policy.
The portfolio’s performance was driven by stock selection and a boost to our investment style as our higher growth bias relative to the benchmark was rewarded. Information technology and consumer discretionary stocks were areas of strength. Top contributors included Cognizant Technology Solutions and MasterCard in information technology and O’Reilly Automotive, Home Depot, and Amazon.com in consumer discretionary. The biggest laggards were Keurig Green Mountain (consumer staples), BorgWarner (consumer discretionary), and Affiliated Managers Group (financials). Energy holdings Schlumberger and Noble Energy were notable detractors on an absolute basis because of the significant decline in oil prices. However, on a relative basis, the aggregate effect of the portfolio’s energy stocks was neutral.
Despite recent market uncertainty, we remain optimistic about our portfolio. Our investment style leads us to durable business models that can produce sustainable, above-average earnings growth over the long run.
Jennison Associates LLC
Portfolio Managers: Kathleen A. McCarragher, Managing Director
Blair A. Boyer, Managing Director
Weak energy prices, a strong U.S. dollar, and slowing economic growth in China all influenced the global economic landscape during the fiscal year. These challenges, combined with uncertainty about the timing of anticipated monetary tightening in the United States, contributed to continued volatility in global financial markets.
The portfolio’s performance was boosted by broadly favorable stock selection. In consumer discretionary, Netflix’s strong subscriber growth reflected the appeal of the company’s original programming. Amazon.com benefited from investors’ appreciation of its strong execution, long-term revenue growth, margin-expansion potential, and cloud infrastructure opportunities.
Health care holdings reported strong sales of innovative drugs for neurometabolic degenerative disorders (BioMarin Pharmaceutical), cystic fibrosis (Vertex Pharmaceuticals), and cancer (Celgene and Bristol-Myers Squibb).
9
Information technology positions lagged their counterparts in the benchmark index; declines in high-multiple stocks Twitter and Workday moderated advances in Apple and MasterCard. Social media company Twitter’s user growth and revenue generation lacked consistency. Cloud-computing software company Workday was affected by slower corporate IT spending, but we believe its underlying fundamentals remain strong. Apple’s performance reflected expanding global acceptance of its platform, and we expect new products and updates to sustain the company’s attractive revenue growth. MasterCard continued to benefit from the long-term shift from cash to electronic credit and debit transactions.
Energy stocks lost ground but surpassed those in the benchmark. Oil equipment and services provider Schlumberger was pressured by falling energy prices that caused its customers to curtail spending.
Baillie Gifford Overseas Ltd.
Portfolio Manager:
Gary Robinson, Investment Manager
The U.S. economy has continued its recovery as financial headlines have been dominated by events overseas. These include China’s efforts to prop up its equity market, weak oil prices’ effect on energy-exporting nations, and Greece’s position in the euro zone. Such issues abroad, along with the prospect of an increase in the Federal Reserve’s short-term interest rate, have contributed to the dollar’s ongoing rise. Partly as a result of these influences, the stock market has stagnated in recent months. In this context, your fund’s domestic bias has been helpful.
The portfolio has concentrated on buying into outstanding long-term growth franchises such as Amazon.com, Chipotle Mexican Grill, online food delivery platform GrubHub, and analytical instrument and software company Waters. We have sold stocks with less exciting prospects, including Johnson & Johnson, Progressive, and tobacco corporation Altria. We also eliminated semiconductor maker Altera as our conviction in its market position waned and its shares rose strongly in response to rumors of a bid from Intel.
We continue to closely monitor the fundamentals of all of our holdings; we believe that they are the key to long-term share price performance. Although short-term events further afield are causing some volatility, we have confidence in the companies in our portfolio.
10
Vanguard U.S. Growth Fund Investment Advisors | |||
Fund Assets Managed | |||
Investment Advisor | % | $ Million | Investment Strategy |
Wellington Management | 36 | 2,310 | 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 | 35 | 2,265 | 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 Investment | 13 | 805 | Uses a fundamental investment approach in pursuit of |
Management, LLC | superior long-term investment results from | ||
growth-oriented companies with leadership positions | |||
and strong market presence. | |||
Jennison Associates LLC | 6 | 404 | 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 | 399 | 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 | 4 | 213 | 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. |
11
U.S. Growth Fund | |||
Fund Profile | |||
As of August 31, 2015 | |||
Share-Class Characteristics | |||
Investor | Admiral | ||
Shares | Shares | ||
Ticker Symbol | VWUSX | VWUAX | |
Expense Ratio1 | 0.44% | 0.30% | |
30-Day SEC Yield | 0.41% | 0.55% | |
Portfolio Characteristics | |||
DJ | |||
U.S. | |||
Russell | Total | ||
1000 | Market | ||
Growth | FA | ||
Fund | Index | Index | |
Number of Stocks | 165 | 643 | 3,828 |
Median Market Cap | $61.6B | $61.8B | $47.2B |
Price/Earnings Ratio | 29.6x | 23.6x | 20.8x |
Price/Book Ratio | 4.8x | 5.4x | 2.6x |
Return on Equity | 20.3% | 23.0% | 17.1% |
Earnings Growth | |||
Rate | 17.4% | 15.1% | 10.2% |
Dividend Yield | 0.9% | 1.6% | 2.1% |
Foreign Holdings | 5.0% | 0.0% | 0.0% |
Turnover Rate | 38% | — | — |
Short-Term | |||
Reserves | 1.1% | — | — |
Volatility Measures | ||
DJ | ||
U.S. Total | ||
Russell 1000 | Market | |
Growth Index | FA Index | |
R-Squared | 0.94 | 0.86 |
Beta | 1.06 | 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)
Google Inc. | Internet Software & | |
Services | 4.7% | |
Apple Inc. | Technology | |
Hardware, Storage & | ||
Peripherals | 3.4 | |
MasterCard Inc. | Data Processing & | |
Outsourced Services | 3.3 | |
Visa Inc. | Data Processing & | |
Outsourced Services | 2.8 | |
Celgene Corp. | Biotechnology | 2.6 |
Allergan plc | Pharmaceuticals | 2.6 |
Facebook Inc. | Internet Software & | |
Services | 2.5 | |
Amazon.com Inc. | Internet Retail | 2.5 |
QUALCOMM Inc. | Communications | |
Equipment | 2.0 | |
Biogen Inc. | Biotechnology | 1.9 |
Top Ten | 28.3% |
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 fiscal year ended August 31, 2015, the expense ratios were 0.47% for Investor Shares and 0.33% for Admiral Shares.
12
U.S. Growth Fund
Sector Diversification (% of equity exposure)
DJ | |||
U.S. | |||
Russell | Total | ||
1000 | Market | ||
Growth | FA | ||
Fund | Index | Index | |
Consumer Discretionary 21.5% | 21.1% | 13.5% | |
Consumer Staples | 6.3 | 10.9 | 8.4 |
Energy | 0.7 | 0.8 | 6.6 |
Financials | 9.2 | 5.4 | 18.2 |
Health Care | 19.9 | 17.7 | 15.0 |
Industrials | 6.2 | 11.0 | 10.7 |
Information Technology 34.1 | 27.3 | 19.1 | |
Materials | 1.5 | 3.7 | 3.3 |
Telecommunication | |||
Services | 0.5 | 2.1 | 2.2 |
Utilities | 0.1 | 0.0 | 3.0 |
13
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.
Cumulative Performance: August 31, 2005, Through August 31, 2015
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/usgrowthfundx16x1.jpg)
See Financial Highlights for dividend and capital gains information.
14
Average Annual Total Returns | |||||
Periods Ended August 31, 2015 | |||||
Final Value | |||||
One | Five | Ten | of a $10,000 | ||
Year | Years | Years | Investment | ||
U.S. Growth Fund*Investor Shares | 7.96% | 18.29% | 7.67% | $20,938 | |
•••••••• | Russell 1000 Growth Index | 4.26 | 17.40 | 8.41 | 22,418 |
– – – – | Large-Cap Growth Funds Average | 3.53 | 15.68 | 6.98 | 19,642 |
Dow Jones U.S. Total Stock Market | |||||
Float Adjusted Index | 0.29 | 16.01 | 7.46 | 20,543 | |
Large-Cap Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |||||
Final Value | |||||
One | Five | Ten | of a $50,000 | ||
Year | Years | Years | Investment | ||
U.S. Growth Fund Admiral Shares | 8.12% | 18.47% | 7.86% | $106,512 | |
Russell 1000 Growth Index | 4.26 | 17.40 | 8.41 | 112,092 | |
Dow Jones U.S. Total Stock Market Float | |||||
Adjusted Index | 0.29 | 16.01 | 7.46 | 102,713 |
U.S. Growth Fund
Fiscal-Year Total Returns (%): August 31, 2005, Through August 31, 2015
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/usgrowthfundx17x1.jpg)
U.S. Growth Fund Investor Shares
Russell 1000 Growth Index
Average Annual Total Returns: Periods Ended June 30, 2015
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 | 13.42% | 19.00% | 8.41% |
Admiral Shares | 8/13/2001 | 13.58 | 19.17 | 8.60 |
15
U.S. Growth Fund
Financial Statements
Statement of Net Assets
As of August 31, 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 (94.0%)1 | |||
Consumer Discretionary (20.5%) | |||
* | Amazon.com Inc. | 308,047 | 157,994 |
Home Depot Inc. | 951,624 | 110,826 | |
* | Liberty Interactive Corp. | ||
QVC Group Class A | 3,630,266 | 98,162 | |
NIKE Inc. Class B | 669,862 | 74,857 | |
* | TripAdvisor Inc. | 982,779 | 68,696 |
L Brands Inc. | 799,375 | 67,068 | |
Starbucks Corp. | 829,215 | 45,366 | |
Lowe’s Cos. Inc. | 652,344 | 45,123 | |
DR Horton Inc. | 1,410,708 | 42,843 | |
* | AutoZone Inc. | 58,981 | 42,230 |
Harley-Davidson Inc. | 732,848 | 41,076 | |
Lennar Corp. Class A | 792,010 | 40,313 | |
Ross Stores Inc. | 767,217 | 37,302 | |
* | O’Reilly Automotive Inc. | 151,470 | 36,363 |
Dollar General Corp. | 475,500 | 35,420 | |
* | Chipotle Mexican | ||
Grill Inc. Class A | 49,629 | 35,237 | |
* | Netflix Inc. | 301,722 | 34,707 |
Wynn Resorts Ltd. | 413,594 | 31,040 | |
Dunkin’ Brands Group Inc. | 573,733 | 28,779 | |
Harman International | |||
Industries Inc. | 292,395 | 28,579 | |
* | Discovery | ||
Communications Inc. | 1,100,603 | 27,911 | |
Las Vegas Sands Corp. | 513,059 | 23,719 | |
* | Priceline Group Inc. | 17,912 | 22,366 |
*,^ | Tesla Motors Inc. | 67,684 | 16,857 |
* | Discovery Communications Inc. |
Class A | 613,067 | 16,308 | |
Wyndham Worldwide Corp. | 211,380 | 16,166 | |
BorgWarner Inc. | 317,600 | 13,860 | |
* | Sally Beauty Holdings Inc. | 518,031 | 13,541 |
VF Corp. | 182,300 | 13,204 | |
Under Armour Inc. Class A | 98,941 | 9,452 |
Market | |||
Value• | |||
Shares | ($000) | ||
Industria de Diseno | |||
Textil SA ADR | 497,405 | 8,292 | |
Walt Disney Co. | 78,865 | 8,035 | |
Marriott International Inc. | |||
Class A | 98,259 | 6,943 | |
CarMax Inc. | 96,382 | 5,879 | |
JD.com Inc. ADR | 97,474 | 2,523 | |
^ | Shake Shack Inc. Class A | 50,013 | 2,498 |
1,309,535 | |||
Consumer Staples (5.8%) | |||
Walgreens Boots | |||
Alliance Inc. | 1,240,452 | 107,361 | |
* | Monster Beverage Corp. | 388,359 | 53,772 |
Estee Lauder Cos. Inc. | |||
Class A | 587,890 | 46,896 | |
Mondelez International | |||
Inc. Class A | 997,478 | 42,253 | |
CVS Health Corp. | 371,558 | 38,048 | |
Anheuser-Busch InBev | |||
SA ADR | 222,579 | 24,241 | |
PepsiCo Inc. | 168,893 | 15,695 | |
Mead Johnson Nutrition Co. | 178,200 | 13,960 | |
Keurig Green Mountain Inc. | 163,892 | 9,276 | |
Costco Wholesale Corp. | 58,248 | 8,158 | |
Brown-Forman Corp. | |||
Class B | 44,236 | 4,340 | |
Colgate-Palmolive Co. | 61,283 | 3,849 | |
Boston Beer Co. Inc. | |||
Class A | 15,972 | 3,276 | |
371,125 | |||
Energy (0.4%) | |||
Schlumberger Ltd. | 215,600 | 16,681 | |
* | Cobalt International | ||
Energy Inc. | 662,380 | 5,306 | |
^ | Ultra Petroleum Corp. | 224,601 | 1,914 |
Williams Cos. Inc. | 34,369 | 1,656 | |
Apache Corp. | 33,175 | 1,501 | |
27,058 |
16
U.S. Growth Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
Financials (8.4%) | |||
Equinix Inc. | 406,230 | 109,589 | |
Crown Castle | |||
International Corp. | 1,180,861 | 98,472 | |
Intercontinental | |||
Exchange Inc. | 305,218 | 69,715 | |
* | Markel Corp. | 53,012 | 43,669 |
American Tower | |||
Corporation | 353,497 | 32,589 | |
BlackRock Inc. | 91,564 | 27,695 | |
* | Affiliated Managers | ||
Group Inc. | 142,900 | 26,642 | |
Citigroup Inc. | 417,200 | 22,312 | |
Moody’s Corp. | 172,900 | 17,689 | |
First Republic Bank | 278,994 | 16,826 | |
M&T Bank Corp. | 136,638 | 16,156 | |
Berkshire Hathaway Inc. | |||
Class B | 85,803 | 11,501 | |
MarketAxess Holdings Inc. | 118,808 | 10,743 | |
Fairfax Financial | |||
Holdings Ltd. | 20,128 | 9,360 | |
Morgan Stanley | 222,902 | 7,679 | |
US Bancorp | 177,764 | 7,528 | |
TD Ameritrade | |||
Holding Corp. | 187,930 | 6,288 | |
American Express Co. | 43,845 | 3,364 | |
537,817 | |||
Health Care (18.9%) | |||
* | Celgene Corp. | 1,416,065 | 167,209 |
* | Allergan plc | 541,020 | 164,329 |
* | Biogen Inc. | 413,871 | 123,044 |
* | Valeant Pharmaceuticals | ||
International Inc. | 431,203 | 99,435 | |
Novo Nordisk A/S ADR | 1,525,268 | 84,302 | |
Bristol-Myers Squibb Co. | 1,399,406 | 83,223 | |
Gilead Sciences Inc. | 752,051 | 79,018 | |
* | Cerner Corp. | 797,090 | 49,228 |
* | Edwards Lifesciences | ||
Corp. | 266,917 | 37,603 | |
* | Regeneron | ||
Pharmaceuticals Inc. | 72,514 | 37,236 | |
* | Illumina Inc. | 178,381 | 35,250 |
* | IDEXX Laboratories Inc. | 411,272 | 29,394 |
* | Vertex Pharmaceuticals Inc. | 211,403 | 26,958 |
* | IMS Health Holdings Inc. | 892,458 | 26,658 |
Merck & Co. Inc. | 455,244 | 24,515 | |
Medtronic plc | 299,870 | 21,678 | |
UnitedHealth Group Inc. | 176,800 | 20,456 | |
* | Medivation Inc. | 207,260 | 18,251 |
Zoetis Inc. | 355,600 | 15,956 | |
BioMarin | |||
Pharmaceutical Inc. | 111,613 | 14,425 | |
Anthem Inc. | 76,207 | 10,749 | |
Alexion Pharmaceuticals Inc. | 50,416 | 8,681 |
Market | |||
Value• | |||
Shares | ($000) | ||
Shire plc ADR | 33,817 | 7,845 | |
Waters Corp. | 61,715 | 7,491 | |
McKesson Corp. | 28,640 | 5,659 | |
Genomic Health Inc. | 203,823 | 5,609 | |
Seattle Genetics Inc. | 45,430 | 1,829 | |
1,206,031 | |||
Industrials (5.7%) | |||
* | Verisk Analytics Inc. | ||
Class A | 585,526 | 42,790 | |
*,^ | Nielsen Holdings plc | 782,482 | 35,392 |
Equifax Inc. | 319,620 | 31,291 | |
* | TransDigm Group Inc. | 127,031 | 29,196 |
* | IHS Inc. Class A | 242,707 | 28,159 |
Fortune Brands | |||
Home & Security Inc. | 576,113 | 27,567 | |
AMETEK Inc. | 495,838 | 26,686 | |
Union Pacific Corp. | 305,900 | 26,228 | |
* | Stericycle Inc. | 181,921 | 25,676 |
Watsco Inc. | 181,141 | 22,182 | |
Kansas City Southern | 217,324 | 20,155 | |
* | TransUnion | 393,300 | 10,171 |
JB Hunt Transport | |||
Services Inc. | 133,650 | 9,727 | |
^ | NOW Inc. | 436,642 | 7,449 |
Boeing Co. | 53,905 | 7,044 | |
Danaher Corp. | 77,603 | 6,753 | |
United Parcel Service | |||
Inc. Class B | 59,421 | 5,802 | |
362,268 | |||
Information Technology (32.6%) | |||
Apple Inc. | 1,933,222 | 217,990 | |
MasterCard Inc. Class A | 2,312,985 | 213,650 | |
* | Google Inc. Class C | 297,674 | 184,037 |
Visa Inc. Class A | 2,512,193 | 179,119 | |
* | Facebook Inc. Class A | 1,813,837 | 162,211 |
QUALCOMM Inc. | 2,302,808 | 130,293 | |
* | Google Inc. Class A | 184,114 | 119,273 |
* | PayPal Holdings Inc. | 2,550,858 | 89,280 |
* | eBay Inc. | 3,022,933 | 81,952 |
Microsoft Corp. | 1,867,733 | 81,284 | |
* | Electronic Arts Inc. | 1,221,025 | 80,771 |
* | Adobe Systems Inc. | 708,077 | 55,634 |
* | Baidu Inc. ADR | 377,368 | 55,567 |
Intuit Inc. | 589,326 | 50,535 | |
* | salesforce.com inc | 632,039 | 43,838 |
* | Cognizant Technology | ||
Solutions Corp. Class A | 564,814 | 35,549 | |
* | Red Hat Inc. | 444,905 | 32,127 |
* | FleetCor Technologies Inc. | 211,271 | 31,513 |
* | Alliance Data Systems Corp. | 121,391 | 31,220 |
CDW Corp. | 780,975 | 31,044 | |
* | Workday Inc. Class A | 352,371 | 24,758 |
* | Alibaba Group | ||
Holding Ltd. ADR | 331,771 | 21,937 |
17
U.S. Growth Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
Texas Instruments Inc. | 452,500 | 21,648 | |
* | ServiceNow Inc. | 255,505 | 18,131 |
* | Akamai Technologies Inc. | 249,700 | 17,806 |
*,^ | Zillow Group Inc. | 534,158 | 13,172 |
* | Yelp Inc. Class A | 447,350 | 10,862 |
Oracle Corp. | 285,215 | 10,579 | |
LinkedIn Corp. Class A | 41,934 | 7,573 | |
*,^ | Zillow Group Inc. Class A | 267,079 | 6,778 |
Tencent Holdings Ltd. | 339,157 | 5,765 | |
GrubHub Inc. | 174,800 | 4,623 | |
Splunk Inc. | 72,034 | 4,464 | |
Twitter Inc. | 136,669 | 3,798 | |
FireEye Inc. | 84,064 | 3,176 | |
Xilinx Inc. | 24,957 | 1,045 | |
2,083,002 | |||
Materials (1.3%) | |||
Sherwin-Williams Co. | 117,260 | 29,996 | |
Eagle Materials Inc. | 263,256 | 21,542 | |
Martin Marietta | |||
Materials Inc. | 100,741 | 16,904 | |
Monsanto Co. | 95,919 | 9,367 | |
Vulcan Materials Co. | 91,816 | 8,596 | |
86,405 | |||
Other (0.0%) | |||
*,2 | WeWork Class A PP | 52,398 | 1,723 |
3 | Vanguard Growth ETF | 3,100 | 321 |
2,044 | |||
Telecommunication Services (0.4%) | |||
* | SBA Communications | ||
Corp. Class A | 217,259 | 25,680 | |
Total Common Stocks | |||
(Cost $4,448,799) | 6,010,965 | ||
Preferred Stocks (1.6%) | |||
*,2 | Uber Technologies PP | 1,408,784 | 55,842 |
*,2 | Airbnb Inc. | 128,123 | 11,928 |
*,2 | Pinterest Prf G PP | 319,295 | 11,461 |
*,2 | Cloudera, Inc. Pfd. | 300,088 | 9,786 |
*,2 | WeWork Pfd. D1 PP | 260,418 | 8,565 |
*,2 | WeWork Pfd. D2 PP | 204,614 | 6,730 |
Total Preferred Stocks | |||
(Cost $57,356) | 104,312 | ||
Temporary Cash Investments (4.7%)1 | |||
Money Market Fund (4.4%) | |||
4,5 | Vanguard Market | ||
Liquidity Fund, | |||
0.168% | 283,578,199 | 283,578 |
Face | Market | ||
Amount | Value• | ||
($000) | ($000) | ||
Repurchase Agreement (0.1%) | |||
Bank of America Securities, | |||
LLC 0.130%, 9/1/15 (Dated | |||
8/31/15, Repurchase Value | |||
$6,600,000, collateralized | |||
by Federal Home Loan | |||
Mortgage Corp. 0.000%, | |||
5/4/37, with a value of | |||
$6,732,000) | 6,600 | 6,600 | |
U.S. Government and Agency Obligations (0.2%) | |||
6,7 | Federal Home Loan | ||
Bank Discount Notes, | |||
0.095%, 10/21/15 | 2,700 | 2,699 | |
6,7 | Federal Home Loan | ||
Bank Discount Notes, | |||
0.100%, 10/23/15 | 2,000 | 2,000 | |
6,7 | Federal Home Loan | ||
Bank Discount Notes, | |||
0.170%, 11/4/15 | 1,000 | 1,000 | |
6,7 | Federal Home Loan | ||
Bank Discount Notes, | |||
0.170%, 11/19/15 | 5,000 | 4,998 | |
10,697 | |||
Total Temporary Cash Investments | |||
(Cost $300,875) | 300,875 | ||
Total Investments (100.3%) | |||
(Cost $4,807,030) | 6,416,152 | ||
Amount | |||
($000) | |||
Other Assets and Liabilities (-0.3%) | |||
Other Assets | |||
Investment in Vanguard | 604 | ||
Receivables for Investment Securities Sold 25,152 | |||
Receivables for Accrued Income | 5,545 | ||
Receivables for Capital Shares Issued | 6,421 | ||
Total Other Assets | 37,722 | ||
Liabilities | |||
Payables for Investment Securities | |||
Purchased | (16,854) | ||
Collateral for Securities on Loan | (19,278) | ||
Payables to Investment Advisor | (3,527) | ||
Payables for Capital Shares Redeemed | (3,704) | ||
Payables to Vanguard | (12,116) | ||
Other Liabilities | (2,196) | ||
Total Liabilities | (57,675) | ||
Net Assets (100%) | 6,396,199 |
18
U.S. Growth Fund
At August 31, 2015, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 4,292,085 |
Undistributed Net Investment Income | 9,444 |
Accumulated Net Realized Gains | 496,553 |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 1,609,122 |
Futures Contracts | (11,005) |
Net Assets | 6,396,199 |
Investor Shares—Net Assets | |
Applicable to 128,680,443 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 3,975,301 |
Net Asset Value Per Share— | |
Investor Shares | $30.89 |
Admiral Shares—Net Assets | |
Applicable to 30,255,648 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 2,420,898 |
Net Asset Value Per Share— | |
Admiral Shares | $80.01 |
• 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 $18,623,000.
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 97.3% and 1.4%, respectively, of net assets.
2 Restricted securities totaling $106,035,000 represents 1.7% of net assets.
3 Considered an affiliated company of the fund as the issuer is another member of The Vanguard Group.
4 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
5 Includes $19,278,000 of collateral received for securities on loan.
6 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.
7 Securities with a value of $9,897,000 have been segregated as initial margin for open futures contracts. ADR—American Depositary Receipt.
PP—Private Placement.
See accompanying Notes, which are an integral part of the Financial Statements.
19
U.S. Growth Fund | |
Statement of Operations | |
Year Ended | |
August 31, 2015 | |
($000) | |
Investment Income | |
Income | |
Dividends1,2 | 62,237 |
Interest1 | 304 |
Securities Lending | 298 |
Total Income | 62,839 |
Expenses | |
Investment Advisory Fees—Note B | |
Basic Fee | 11,031 |
Performance Adjustment | 1,795 |
The Vanguard Group—Note C | |
Management and Administrative—Investor Shares | 10,407 |
Management and Administrative—Admiral Shares | 2,476 |
Marketing and Distribution—Investor Shares | 567 |
Marketing and Distribution—Admiral Shares | 222 |
Custodian Fees | 102 |
Auditing Fees | 35 |
Shareholders’ Reports—Investor Shares | 43 |
Shareholders’ Reports—Admiral Shares | 8 |
Trustees’ Fees and Expenses | 13 |
Total Expenses | 26,699 |
Expenses Paid Indirectly | (170) |
Net Expenses | 26,529 |
Net Investment Income | 36,310 |
Realized Net Gain (Loss) | |
Investment Securities Sold1 | 645,109 |
Futures Contracts | 11,038 |
Foreign Currencies | 18 |
Realized Net Gain (Loss) | 656,165 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | (216,710) |
Futures Contracts | (14,689) |
Change in Unrealized Appreciation (Depreciation) | (231,399) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 461,076 |
1 Dividend income, interest income, and realized net gain (loss) from affiliated companies of the fund were $4,000, $283,000, and $0, respectively.
2 Dividends are net of foreign withholding taxes of $486,000.
See accompanying Notes, which are an integral part of the Financial Statements.
20
U.S. Growth Fund | ||
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2015 | 2014 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 36,310 | 32,663 |
Realized Net Gain (Loss) | 656,165 | 470,927 |
Change in Unrealized Appreciation (Depreciation) | (231,399) | 634,032 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 461,076 | 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 | (60,674) | 107,698 |
Admiral Shares | 561,764 | 403,334 |
Net Increase (Decrease) from Capital Share Transactions | 501,090 | 511,032 |
Total Increase (Decrease) | 490,566 | 1,628,059 |
Net Assets | ||
Beginning of Period | 5,905,633 | 4,277,574 |
End of Period2 | 6,396,199 | 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 $9,444,000 and $15,219,000.
See accompanying Notes, which are an integral part of the Financial Statements.
21
U.S. Growth Fund | |||||
Financial Highlights | |||||
Investor Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $31.03 | $24.67 | $20.79 | $18.12 | $14.75 |
Investment Operations | |||||
Net Investment Income | .169 | .168 | .134 | .068 | .1081 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 2.168 | 6.303 | 3.861 | 2.679 | 3.370 |
Total from Investment Operations | 2.337 | 6.471 | 3.995 | 2.747 | 3.478 |
Distributions | |||||
Dividends from Net Investment Income | (.194) | (.111) | (.115) | (. 077) | (.108) |
Distributions from Realized Capital Gains | (2.283) | — | — | — | — |
Total Distributions | (2.477) | (.111) | (.115) | (. 077) | (.108) |
Net Asset Value, End of Period | $30.89 | $31.03 | $24.67 | $20.79 | $18.12 |
Total Return2 | 7.96% | 26.29% | 19.31% | 15.22% | 23.58% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $3,975 | $4,038 | $3,137 | $2,975 | $2,893 |
Ratio of Total Expenses to | |||||
Average Net Assets3 | 0.47% | 0.44% | 0.45% | 0.45% | 0.44% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 0.53% | 0.59% | 0.59% | 0.35% | 0.61%1 |
Portfolio Turnover Rate | 38% | 36% | 38% | 43% | 89% |
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 0.03%, (0.01%), (0.01%), (0.01%), and (0.01%).
See accompanying Notes, which are an integral part of the Financial Statements.
22
U.S. Growth Fund | |||||
Financial Highlights | |||||
Admiral Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $80.37 | $63.91 | $53.85 | $46.94 | $38.20 |
Investment Operations | |||||
Net Investment Income | . 563 | . 557 | .440 | .258 | .3451 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 5.607 | 16.293 | 10.002 | 6.924 | 8.734 |
Total from Investment Operations | 6.170 | 16.850 | 10.442 | 7.182 | 9.079 |
Distributions | |||||
Dividends from Net Investment Income | (. 623) | (. 390) | (. 382) | (. 272) | (. 339) |
Distributions from Realized Capital Gains | (5.907) | — | — | — | — |
Total Distributions | (6.530) | (.390) | (.382) | (. 272) | (. 339) |
Net Asset Value, End of Period | $80.01 | $80.37 | $63.91 | $53.85 | $46.94 |
Total Return2 | 8.12% | 26.44% | 19.51% | 15.38% | 23.77% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $2,421 | $1,868 | $1,141 | $869 | $678 |
Ratio of Total Expenses to | |||||
Average Net Assets3 | 0.33% | 0.30% | 0.31% | 0.31% | 0.30% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 0.67% | 0.73% | 0.73% | 0.49% | 0.75%1 |
Portfolio Turnover Rate | 38% | 36% | 38% | 43% | 89% |
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 0.03%, (0.01%), (0.01%), (0.01%), and (0.01%).
See accompanying Notes, which are an integral part of the Financial Statements.
23
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 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.
24
U.S. Growth Fund
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 year ended August 31, 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 counter-parties. 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, 2012–2015), 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 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 counter-party 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.
8. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3 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
25
U.S. Growth Fund
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 August 31, 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. The investment advisory firms Wellington Management Company llp, Jackson Square Partners, LLC, William Blair Investment Management, LLC, 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 fees of Wellington Management Company llp and Jackson Square Partners, LLC, are subject to quarterly adjustments based on performance relative to the Russell 1000 Growth Index for the preceding three years. The basic fee of William Blair Investment Management, LLC, is subject to quarterly adjustments based on performance relative to the Russell 1000 Growth Index for the preceding five years. In accordance with the advisory contracts entered into with Jennison Associates LLC and Baillie Gifford Overseas Ltd., beginning March 1, 2015, the basic fees are subject to quarterly adjustments based on performance relative to the Russell 1000 Growth Index and the S&P 500 Index, respectively, since February 28, 2014.
Vanguard manages the cash reserves of the fund as described below.
For the year ended August 31, 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 $1,795,000 (0.03%) based on performance.
C. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund corporate management, administrative, marketing, distribution and cash management services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain cost of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets.
26
U.S. Growth Fund
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At August 31, 2015, the fund had contributed to Vanguard capital in the amount of $604,000, representing 0.01% of the fund’s net assets and 0.24% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and employees, respectively, 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 year ended August 31, 2015, these arrangements reduced the fund’s expenses by $170,000 (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 August 31, 2015, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 6,003,477 | 5,765 | 1,723 |
Preferred Stocks | — | — | 104,312 |
Temporary Cash Investments | 283,578 | 17,297 | — |
Futures Contracts—Liabilities1 | (2,181) | — | — |
Total | 6,284,874 | 23,062 | 106,035 |
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 backtesting 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.
27
U.S. Growth Fund
The following table summarizes changes in investments valued based on Level 3 inputs during the year ended August 31, 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 | 32,005 |
Change in Unrealized Appreciation (Depreciation) | 45,358 |
Balance as of August 31, 2015 | 106,035 |
Net change in unrealized appreciation (depreciation) from investments still held as of August 31, 2015, was $45,358,000. |
The following table provides quantitative information about the significant unobservable inputs used in fair value measurement as of August 31, 2015:
Fair Value | ||||
Security Type | ($000) | Valuation Technique | Unobservable Input | Amount |
Common Stocks | 1,723 | Market Approach | Recent Market Transaction | $32.890 |
Preferred Stocks | 104,312 | Market Approach | Purchase Price | 93.094 |
Recent Market Transaction | 39.639 | |||
Purchase Price | 35.895 | |||
Recent Market Transaction | 32.890 | |||
Comparable Company Approach | 32.610 |
Significant increases or decreases in the significant unobservable inputs used in the fair value measurement of the portfolio’s Level 3 securities, in isolation, could result in a significantly higher or lower fair value measurement.
F. At August 31, 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 | September 2015 | 262 | 128,983 | (7,450) |
E-mini S&P 500 Index | September 2015 | 705 | 69,414 | (2,545) |
E-mini S&P Mid-Cap 400 Index | September 2015 | 94 | 13,296 | (1,010) |
(11,005) |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
28
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.
During the year ended August 31, 2015, the fund realized net foreign currency gains of $18,000, which increased distributable net income for tax purposes; accordingly, such gains have been reclassified from accumulated net realized gains to undistributed net investment income.
The fund used a tax accounting practice to treat a portion of the price of capital shares redeemed during the year as distributions from net investment income and realized capital gains. Accordingly, the fund has reclassified $2,480,000 from undistributed net investment income, and $44,659,000 from accumulated net realized gains, to paid-in capital.
For tax purposes, at August 31, 2015, the fund had $20,026,000 of ordinary income and $487,848,000 of long-term capital gains available for distribution.
At August 31, 2015, the cost of investment securities for tax purposes was $4,808,080,000. Net unrealized appreciation of investment securities for tax purposes was $1,608,072,000, consisting of unrealized gains of $1,812,034,000 on securities that had risen in value since their purchase and $203,962,000 in unrealized losses on securities that had fallen in value since their purchase.
H. During the year ended August 31, 2015, the fund purchased $2,318,437,000 of investment securities and sold $2,350,153,000 of investment securities, other than temporary cash investments.
I. Capital share transactions for each class of shares were: | ||||
Year Ended August 31, | ||||
2015 | 2014 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
Investor Shares | ||||
Issued | 478,396 | 15,147 | 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 | (848,835) | (27,163) | (903,395) | (31,625) |
Net Increase (Decrease)—Investor Shares | (60,674) | (1,455) | 107,698 | 3,002 |
Admiral Shares | ||||
Issued | 698,022 | 8,572 | 621,315 | 8,329 |
Issued in Lieu of Cash Distributions | 149,006 | 1,963 | 6,850 | 96 |
Redeemed | (285,264) | (3,519) | (224,831) | (3,034) |
Net Increase (Decrease) —Admiral Shares | 561,764 | 7,016 | 403,334 | 5,391 |
29
U.S. Growth Fund
J. On February 21, 2014, the fund acquired all the net assets of Vanguard Growth Equity Fund pursuant to a plan of reorganization approved by the funds’ board of trustees on September 26, 2013. The purpose of the transaction was to combine two funds with comparable investment objectives. The acquisition was accomplished by a tax-free exchange of 27,203,000 of the U.S. Growth Fund’s capital shares for the 48,088,000 shares of Growth Equity Fund outstanding on February 21, 2014. Investor shares of Growth Equity Fund were exchanged for Investor shares of U.S. Growth Fund. Growth Equity Fund’s net assets of $799,108,000, including $212,286,000 of unrealized appreciation, were combined with U.S. Growth Fund’s net assets of $4,939,397,000, resulting in combined net assets of $5,738,505,000 on February 21, 2014.
K. Management has determined that no material events or transactions occurred subsequent to August 31, 2015, that would require recognition or disclosure in these financial statements.
30
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of Vanguard World Fund and the Shareholders of Vanguard U.S. Growth Fund: In our opinion, the accompanying statement of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Vanguard U.S. Growth Fund (constituting a separate portfolio of Vanguard World Fund, hereafter referred to as the “Fund”) at August 31, 2015, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2015 by correspondence with the custodian and brokers, by agreement to the underlying ownership records of the transfer agent and the application of alternative auditing procedures where securities purchased had not been received, provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
October 12, 2015
Special 2015 tax information (unaudited) for Vanguard U.S. Growth Fund
This information for the fiscal year ended August 31, 2015, is included pursuant to provisions of the Internal Revenue Code.
The fund distributed $476,997,000 as capital gain dividends (20% rate gain distributions) to shareholders during the fiscal year.
For nonresident alien shareholders, 100% of shortterm capital gain dividends distributed by the fund are qualified shortterm capital gains.
The fund distributed $40,190,000 of qualified dividend income to shareholders during the fiscal year.
For corporate shareholders, 100% of investment income (dividend income plus shortterm gains, if any) qualifies for the dividendsreceived deduction.
31
Your Fund’s After-Tax Returns
This table presents returns for your fund both before and after taxes. The after-tax returns are shown in two ways: (1) assuming that an investor owned the fund during the entire period and paid taxes on the fund’s distributions, and (2) assuming that an investor paid taxes on the fund’s distributions and sold all shares at the end of each period.
Calculations are based on the highest individual federal income tax and capital gains tax rates in effect at the times of the distributions and the hypothetical sales. State and local taxes were not considered. After-tax returns reflect any qualified dividend income, using actual prior-year figures and estimates for 2015. (In the example, returns after the sale of fund shares may be higher than those assuming no sale. This occurs when the sale would have produced a capital loss. The calculation assumes that the investor received a tax deduction for the loss.)
The table shows returns for Investor Shares only; returns for other share classes will differ. Please note that your actual after-tax returns will depend on your tax situation and may differ from those shown. Also note that if you own the fund in a tax-deferred account, such as an individual retirement account or a 401(k) plan, this information does not apply to you. Such accounts are not subject to current taxes.
Finally, keep in mind that a fund’s performance—whether before or after taxes—does not guarantee future results.
Average Annual Total Returns: U.S. Growth Fund Investor Shares
Periods Ended August 31, 2015
One | Five | Ten | |
Year | Years | Years | |
Returns Before Taxes | 7.96% | 18.29% | 7.67% |
Returns After Taxes on Distributions | 5.96 | 17.77 | 7.39 |
Returns After Taxes on Distributions and Sale of Fund Shares | 6.01 | 14.87 | 6.23 |
32
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.
33
Six Months Ended August 31, 2015 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
U.S. Growth Fund | 2/28/2015 | 8/31/2015 | Period |
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $979.70 | $2.35 |
Admiral Shares | 1,000.00 | 980.27 | 1.65 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,022.84 | $2.40 |
Admiral Shares | 1,000.00 | 1,023.54 | 1.68 |
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 0.47% for Investor Shares and 0.33% 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 (184/365).
34
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.
35
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.
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 194 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. Treasurer Since May 2015. 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; Controller of each of the investment companies served by The Vanguard Group (2010–2015); 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).
Peter Mahoney
Born 1974. Controller Since May 2015. Principal Occupation(s) During the Past Five Years and Other Experience: Head of Global Fund Accounting at The Vanguard Group, Inc.; Controller of each of the investment companies served by The Vanguard Group; Head of International Fund Services at The Vanguard Group (2008–2014).
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
James M. Norris
Thomas M. Rampulla
Glenn W. Reed
Karin A. Risi
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 email 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. | |
Q230 102015 |
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/internationalgrowthfundx1x1.jpg)
Annual Report | August 31, 2015
Vanguard International Growth Fund
Vanguard’s Principles for Investing Success
We want to give you the best chance of investment success. These principles, grounded in Vanguard’s research and experience, can put you on the right path.
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.
A single theme unites these principles: Focus on the things you can control.
We believe there is no wiser course for any investor.
Contents | |
Your Fund’s Total Returns. | 1 |
Chairman’s Letter. | 2 |
Advisors’ Report. | 7 |
Fund Profile. | 11 |
Performance Summary. | 13 |
Financial Statements. | 15 |
Your Fund’s After-Tax Returns. | 33 |
About Your Fund’s Expenses. | 34 |
Glossary. | 36 |
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: Pictured is a sailing block on the Brilliant, a 1932 schooner docked in Mystic, Connecticut. A type of pulley, the sailing block helps coordinate the setting of the sails. At Vanguard, the intricate coordination of technology and people allows us to help millions of clients around the world reach their financial goals.
Your Fund’s Total Returns | ||||
Fiscal Year Ended August 31, 2015 | ||||
Total | ||||
Returns | ||||
Vanguard International Growth Fund | ||||
Investor Shares | -10.46% | |||
Admiral™ Shares | -10.32 | |||
MSCI All Country World Index ex USA | -12.35 | |||
International Funds Average | -8.00 | |||
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 August 31, 2015 | ||||
Distributions Per Share | ||||
Starting | Ending | |||
Share | Share | Income | Capital | |
Price | Price | Dividends | Gains | |
Vanguard International Growth Fund | ||||
Investor Shares | $23.79 | $20.83 | $0.494 | $0.000 |
Admiral Shares | 75.70 | 66.28 | 1.687 | 0.000 |
1
Chairman’s Letter
Dear Shareholder,
After strong double-digit gains in the prior fiscal year, stock market returns globally lost steam in the 12 months ended August 31, 2015, especially late in the period. And for U.S. dollar-based investors, the muted returns of many international markets were further eroded by the dollar’s strength against many foreign currencies.
In this environment, Vanguard International Growth Fund returned about –10%, ahead of its benchmark index but behind the average return of international peer funds. Your advisors’ positioning in Brazil and Canada helped avoid some of the significant downdrafts in those two markets, which were hit hard by lower commodity prices, especially for oil.
If you invest in the fund through a taxable account, you may wish to review information about the fund’s after-tax performance provided later in this report.
August stock market anxiety led to disappointing returns
U.S. stocks rode a roller coaster to ultimately end about where they started, returning 0.36% for the 12 months. Several months of broad-market gains were nearly erased in August, when stocks tumbled over fears about the global impact of China’s economic deceleration. Greece’s debt crisis, the strong U.S. dollar, perceived high stock valuations, and speculation over when the Federal Reserve might begin to raise short-term interest rates also contributed
2
to investor concerns during the fiscal year. (Shortly after the close of your fund’s reporting period, the Fed announced at its September meeting that it would leave rates unchanged for the time being.)
For dollar-based investors, international stocks returned about –12%. Heightened fears about the slower growth in China, the world’s second-largest economy, cast doubt on the investment outlook for emerging markets in particular.
Bond results were muted as the Fed weighed a rate hike
The broad U.S. taxable bond market returned 1.56% for the 12 months, outpacing the broad U.S. stock market.
Even as yields remained relatively low, bonds benefited at times from demand by investors seeking shelter from stock market volatility. The yield of the 10-year Treasury note, which dipped to 1.75% at the end of January, closed the period at 2.18%, down from 2.34% a year earlier. (Bond prices and yields move in opposite directions.)
The Fed’s 0%–0.25% target for short-term interest rates continued to restrain returns for money market funds and savings accounts. Since wrapping up its bond-buying program in October 2014, the Fed has been weighing when to raise rates for the first time in nearly a decade.
Market Barometer | |||
Average Annual Total Returns | |||
Periods Ended August 31, 2015 | |||
One | Three | Five | |
Year | Years | Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 0.40% | 14.68% | 16.07% |
Russell 2000 Index (Small-caps) | 0.03 | 14.12 | 15.55 |
Russell 3000 Index (Broad U.S. market) | 0.36 | 14.63 | 16.03 |
FTSE All-World ex US Index (International) | -11.50 | 5.79 | 5.17 |
Bonds | |||
Barclays U.S. Aggregate Bond Index (Broad taxable market) | 1.56% | 1.53% | 2.98% |
Barclays Municipal Bond Index (Broad tax-exempt market) | 2.52 | 2.83 | 3.96 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.02 | 0.03 | 0.05 |
CPI | |||
Consumer Price Index | 0.20% | 1.14% | 1.77% |
3
Limited by the dollar’s strength, international bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –11.97%. Without this currency effect, international bonds returned about 3%.
Emerging markets struggled more than developed countries
In my last report to you, I noted that foreign currency weakness masked the underlying strength of many international stocks. That held true for the fiscal year as a whole, even though some major currencies recovered some ground later in the period. Measured in local currencies, the returns of your fund and its index were modestly positive overall—and ahead of the broad U.S. market.
The dampening effect of foreign currency translation was more evident in developed markets. In Europe, which constitutes more than half the assets of the fund, a local-currency gain of about 4% became a return of about –8% when expressed in dollars (both figures are as measured by the MSCI Europe Index). And in the developed Pacific region, which constitutes about one-fifth of fund assets, the MSCI Japan Index posted an exceptional return of more than 21% in yen but only about 4% in dollars. Of course, when the tide turns and foreign currencies strengthen, U.S. investor returns are lifted. But either way, it’s important to keep in mind the role of currency effects and the diversification benefit of owning both U.S. and international stocks.
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 fiscal year ended August 31, 2015, the fund’s expense ratios were 0.47% 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: International Funds.
4
Exchange rates reflect differences in interest rates and other factors across countries, and the fiscal year brought several significant developments on those fronts. Notably, the European Central Bank embarked in March on a stimulative bond-buying program that led to negative rates on some European sovereign bonds and a weaker euro. This program, and a generally brighter economic outlook, helped European stock markets. Your advisors maintained a higher-than-benchmark stake in developed Europe, and their holdings performed in line with those in the index. (The fund had no holdings in beleaguered Greece.)
The more upbeat tone in Europe was counterbalanced by a less sanguine outlook for growth in China and its domino effect on emerging markets whose economies depend on exporting commodities to China and other countries. Emerging markets declined in local currencies and in dollars, except for India, which advanced slightly in the fund. Your advisors added value relative to the benchmark, in part with a lighter stake in Brazil and with their selections in India.
Another source of outperformance was Canada, whose economy is oriented toward natural resources; a below-benchmark stake in Canadian stocks proved helpful as oil and other resource prices sank.
Among industry sectors, energy was the worst performer in both your fund and its index amid the steep drop in oil prices. Health care stocks stood out as one of
Total Returns | |
Ten Years Ended August 31, 2015 | |
Average | |
Annual Return | |
International Growth Fund Investor Shares | 5.29% |
Spliced International Index | 2.81 |
International Funds Average | 3.62 |
For a benchmark description, see the Glossary.
International Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.
The figures shown represent past performance, which is not a guarantee of future results. (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.
5
the few industry groups that advanced. Compared with the benchmark, the fund modestly outperformed in energy but lagged a bit in health care.
For more about the advisors’ strategies and the fund’s positioning during the 12 months, see the Advisors’ Report that follows this letter.
Long-term results slipped, but the fund continued to outperform
For the decade ended August 31, 2015, the average annual return of your fund’s Investor Shares was 5.29%. Even though the ten-year track records of the fund and its comparative standards were tempered by the weak results for the most recent fiscal year, the fund slightly widened its long-term lead over its index. Your advisors’ disciplined investment strategies have helped the fund navigate in choppy waters. And Vanguard’s low costs have helped you keep more of the fund’s returns.
When the markets are volatile, maintaining perspective is key
As I noted earlier, volatility returned to the stock market with a vengeance in the final weeks of August. Stocks were unsettled as investors grew more worried that the slowdown in China’s growth could affect markets across the globe.
This turmoil may have evoked painful memories of previous financial setbacks—memories that had been receding after more than six years of strong U.S. stock performance. And inevitably, that sort of upheaval can lead some investors to make rash moves with their portfolios.
During periods of market adversity, however, it’s more important than ever to keep sight of one of Vanguard’s key principles: Maintain perspective and long-term discipline. Whether you’re investing for yourself or on behalf of clients, your success is affected greatly by how you react—or don’t react—when the markets turn turbulent. (You can read Vanguard’s Principles for Investing Success at vanguard.com/research.)
As I’ve written in the past, the best course for long-term investors generally is to ignore daily market moves and not make decisions based on emotion. This is also a good time to evaluate your portfolio and make sure your asset allocation is aligned with your time horizon, goals, and risk tolerance.
The markets are unpredictable and often confounding. Keeping our long-term plans clearly in focus can be key as we weather these periodic storms.
As always, thank you for entrusting your assets to Vanguard.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/internationalgrowthfundx8x1.jpg)
F. William McNabb III
Chairman and Chief Executive Officer
September 18, 2015
6
Advisors’ Report
For the fiscal year ended August 31, 2015, Vanguard International Growth Fund returned –10.46% for Investor Shares (–10.32% for Admiral Shares), ahead of its benchmark index but behind 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 September 18, 2015.
Vanguard International Growth Fund Investment Advisors
Fund Assets Managed | |||
Investment Advisor | % | $ Million | Investment Strategy |
Baillie Gifford Overseas Ltd. | 54 | 11,275 | 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 | 33 | 6,846 | 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 | 2,539 | 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 | 264 | 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 12 months, we have seen dramatic political and economic events. We ended the period concerned about the direction of China’s economy and the substantial influence it exerts over its tributary countries and sectors. During such times of turbulence, we aim to remain on a steady course and have taken the opportunity to add to holdings with appealing long-term growth characteristics. The dominant theme in our portion of the fund’s portfolio remains the vital force of technological change, whose reach we perceive to be ever widening and more powerful.
Two of our larger holdings performed especially well: Amazon, whose web services business is expanding strongly with increasingly attractive returns; and Fiat, where the coming listing of Ferrari and relaunch of Alfa Romeo have injected some glamour into the share price. Two of our health care companies appreciated strongly: M3 after international expansion and Celltrion after drug approvals. Jet engine manufacturer Rolls-Royce had a difficult year as results weakened in its marine and oil-related operations, and Chinese search engine Baidu slid as it continued to invest heavily for growth.
During the period, we invested in three unlisted companies—music-streaming service Spotify, online retailer Home24, and Indian e-commerce site Flipkart—and are excited by the dynamic growth opportunities these companies represent. We also built new positions in two Ameri-can growth companies, Tesla and Illumina, that are globally important and have no close parallels in international markets.
We added new holdings in German chemical titan BASF, based on our admiration for its culture of research and long-term investment, and ASML, a Dutch semiconductor-equipment manufacturer at the heart of electronics innovation. Over the year, we also accumulated a substantial holding in Chinese e-commerce giant Alibaba.
To fund these new investments, we sold several holdings for which our growth expectations were waning, including Sandvik, ABB, and Yaskawa Electric. We also sold our remaining Brazilian companies, Itau Unibanco, BM&F Bovespa, and Vale, reflecting unease about Brazil’s economic prospects.
Schroder Investment Management North America Inc.
Portfolio Manager: Simon Webber, CFA
International equity markets ended the volatile 12-month period in negative territory, though this was mostly because of a 15% rise in the trade-weighted dollar; in local currency terms, international
8
equities performed better. Investors’ main concern in the last few months has been the Greater China region. This has spilled over into the rest of the emerging world, where equities and currencies have performed poorly. With their compressed valuations, we believe that some of these stocks are now priced to offer good long-term returns. As a result, we have been using recent weakness to add to positions in high-conviction holdings such as China Pacific Insurance Group, Indian media group Zee Entertainment, and Taiwan Semiconductor Manufacturing.
Our positioning has served us well; stock selection in emerging markets was the biggest contributor to our performance, with Zee particularly strong. Other notable performers included Check Point Software Technologies, an Israeli internet security firm, and Essilor International, a France-based ophthalmic lens manufacturer.
Cyclical commodity stocks have also been hurt by concerns about China’s growth (and about excess supply in oil markets). Although our positioning in commodity-linked sectors has been conservative, losses have been unavoidable. However, with cost-cutting under way among the better-managed companies, we have begun to dip our toes back into the water, adding to holdings such as U.K.-based Royal Dutch Shell.
Elsewhere in the United Kingdom, we took advantage of market weakness in the run-up to May’s general election as fears that voters would not elect a strong or stable government put pressure on the equity market. This gave us a good opportunity to build positions in stable domestic franchises such as Lloyds Banking Group and outsourcing services group Capita.
The outlook for equity markets is finely balanced. We are encouraged by the growth momentum and reform in Europe, earnings momentum in Japan, and consumer confidence in the United States. Although a number of factors globally concern us, recent weakness has improved valuations and the volatility has created some attractive entry points for companies with solid fundamentals. A disorderly slowdown in Chinese growth remains a significant risk to equity markets, but our central case is that the transition to a more consumption-led economy can be managed.
M&G Investment Management Limited
Portfolio Manager: Charles Anniss, CFA
The fiscal year offered a mixed bag for international equity markets. Ebullient investor sentiment followed the introduction of the European Central Bank’s quantitative easing program. Other major central banks’ accommodative policies, some good corporate earnings, and stabilization of the oil price reinforced optimism. The atmosphere was then overshadowed by Greece’s debt crisis and by China’s slowdown and extreme volatility in its stock markets. Risk assets came under pressure, and those earlier equity gains were wiped out.
9
Energy and materials were particularly hard hit. Our combined underweight exposure to these commodity-linked sectors proved beneficial (though stock selection dragged on returns). Health care and consumer discretionary were standouts, and our overweight in both sectors helped. Cruise ship operator Carnival was our strongest performer, boosted by increasing consumer demand and lower oil prices.
Our overweight in industrials also helped, as did stock picking, particularly among capital goods companies. One of our stronger performers was Airbus Group, which has been recovering from a period of weakness last year.
Engineering components distributor Misumi also boosted returns. It was aided by relatively buoyant markets in Japan, as was insurer Tokio Marine Holdings, which agreed to acquire HCC Insurance Holdings to build on its U.S. business. Our addition of Japan Tobacco was a plus.
Stock selection in energy and materials weighed on our returns. Our largest detractor was Canada’s First Quantum Minerals. Sharply lower metal prices hurt its realized selling price of copper in particular; sales volumes also fell amid reduced demand.
In energy, Brazil’s Petroleo Brasileiro (Petrobras) faced setbacks beyond the declining oil price, including a corruption scandal, credit-rating downgrades, and general malaise in the Brazilian market. We eliminated our position. Canadian energy services firm ShawCor reported lower profits in light of a pullback in North American oilfield activity and reduced Asia-Pacific operations.
Other energy stocks that weighed on performance included Norwegian oil and gas producer Statoil; South Africa’s Sasol, which produces liquid fuels from coal and gas; and Chinese oil company CNOOC.
We eliminated 16 positions, some on valuation grounds and others because better opportunities existed elsewhere. We sold Atlas Copco, a Swedish maker of air compressors and mining equipment that we still think is a good business, because we thought the valuation had become stretched. We sold lender Banco do Brasil, Brazilian miner Vale, and French pipe maker Vallourec because of decreased confidence in their investment theses.
We added nine attractively valued quality companies with “economic moats” to protect their profitability. Those included Netherlands-listed ING, which is transforming from a sprawling financial conglomerate into a more focused core banking business.
10
International Growth Fund
Fund Profile
As of August 31, 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 | 169 | 1,830 |
Median Market Cap | $30.6B | $29.9B |
Price/Earnings Ratio | 20.4x | 17.0x |
Price/Book Ratio | 2.2x | 1.6x |
Return on Equity | 16.9% | 15.0% |
Earnings Growth | ||
Rate | 15.0% | 11.1% |
Dividend Yield | 1.8% | 3.1% |
Turnover Rate | 29% | — |
Short-Term Reserves | 0.5% | — |
Sector Diversification (% of equity exposure) | ||
MSCI AC | ||
World Index | ||
Fund | ex USA | |
Consumer Discretionary | 21.4% | 11.8% |
Consumer Staples | 6.9 | 10.4 |
Energy | 2.5 | 6.5 |
Financials | 23.5 | 27.2 |
Health Care | 9.0 | 9.8 |
Industrials | 11.6 | 11.3 |
Information Technology | 15.1 | 7.1 |
Materials | 5.2 | 7.0 |
Other | 1.1 | 0.0 |
Telecommunication Services 3.6 | 5.4 | |
Utilities | 0.1 | 3.5 |
Volatility Measures | ||
MSCI AC | ||
World | ||
Index | ||
ex USA | ||
R-Squared | 0.94 | |
Beta | 1.06 | |
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 | 3.2% | |
AIA Group Ltd. | Life & Health | |
Insurance | 3.1 | |
Industria de Diseno | ||
Textil SA | Apparel Retail | 2.8 |
Amazon.com Inc. | Internet Retail | 2.6 |
Baidu Inc. | Internet Software & | |
Services | 2.5 | |
Fiat Chrysler | Automobile | |
Automobiles NV | Manufacturers | 2.5 |
SoftBank Group Corp. | Wireless | |
Telecommunication | ||
Services | 2.1 | |
Alibaba Group Holding | Internet Software & | |
Ltd. | Services | 2.0 |
Rolls-Royce Holdings plc Aerospace & | ||
Defense | 1.8 | |
Svenska Handelsbanken | ||
AB | Diversified Banks | 1.6 |
Top Ten | 24.2% | |
The holdings listed exclude any temporary cash investments and equity index products. | ||
Allocation by Region (% of equity exposure)
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/internationalgrowthfundx13x1.jpg)
1 The expense ratios shown are from the prospectus dated December 23, 2014, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2015, the expense ratios were 0.47% for Investor Shares and 0.34% for Admiral Shares.
11
International Growth Fund
Market Diversification (% of equity exposure)
MSCI AC | ||
World | ||
Index | ||
Fund | ex USA | |
Europe | ||
United Kingdom | 15.4% | 14.8% |
Germany | 7.3 | 6.6 |
France | 5.6 | 7.3 |
Spain | 5.4 | 2.6 |
Switzerland | 5.3 | 7.1 |
Sweden | 5.2 | 2.2 |
Italy | 4.4 | 1.9 |
Denmark | 1.5 | 1.3 |
Netherlands | 1.4 | 2.1 |
Norway | 1.4 | 0.4 |
Ireland | 1.2 | 0.3 |
Other | 0.6 | 1.9 |
Subtotal | 54.7% | 48.5% |
Pacific | ||
Japan | 12.5% | 16.5% |
Hong Kong | 4.8 | 2.2 |
South Korea | 1.7 | 3.0 |
Australia | 1.2 | 4.7 |
Other | 0.2 | 1.0 |
Subtotal | 20.4% | 27.4% |
Emerging Markets | ||
China | 9.6% | 4.7% |
India | 2.7 | 1.7 |
Other | 4.7 | 10.8 |
Subtotal | 17.0% | 17.2% |
North America | ||
United States | 5.2% | 0.0% |
Canada | 1.9 | 6.4 |
Subtotal | 7.1% | 6.4% |
Middle East | 0.8% | 0.5% |
12
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.
Cumulative Performance: August 31, 2005, Through August 31, 2015
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/internationalgrowthfundx15x1.jpg)
Average Annual Total Returns | |||||
Periods Ended August 31, 2015 | |||||
Final Value | |||||
One | Five | Ten | of a $10,000 | ||
Year | Years | Years | Investment | ||
International Growth Fund*Investor | |||||
Shares | -10.46% | 7.02% | 5.29% | $16,747 | |
•••••••• | Spliced International Index | -12.35 | 4.76 | 2.81 | 13,189 |
– – – – | MSCI International All Country Funds World Average Index ex USA | -12.35 -8.00 | 4.76 6.26 | 4.04 3.62 | 14,862 14,270 |
For a benchmark description, see the Glossary. | |||||
International Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |||||
Final Value | |||||
One | Five | Ten | of a $50,000 | ||
Year | Years | Years | Investment | ||
International Growth Fund Admiral Shares | -10.32% | 7.16% | 5.46% | $85,074 | |
Spliced International Index | -12.35 | 4.76 | 2.81 | 65,946 | |
MSCI All Country World Index ex USA | -12.35 | 4.76 | 4.04 | 74,311 |
See Financial Highlights for dividend and capital gains information.
13
International Growth Fund
Fiscal-Year Total Returns (%): August 31, 2005, Through August 31, 2015
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/internationalgrowthfundx16x1.jpg)
International Growth Fund Investor Shares
Spliced International Index
For a benchmark description, see the Glossary.
Average Annual Total Returns: Periods Ended June 30, 2015
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 | -1.64% | 10.48% | 7.03% |
Admiral Shares | 8/13/2001 | -1.48 | 10.64 | 7.21 |
14
International Growth Fund
Financial Statements
Statement of Net Assets
As of August 31, 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 (98.4%)1 | |||
Australia (1.1%) | |||
James Hardie | |||
Industries plc | 5,467,480 | 67,951 | |
Brambles Ltd. | 6,679,724 | 46,576 | |
Cochlear Ltd. | 743,560 | 45,081 | |
^ | Orica Ltd. | 3,443,000 | 38,633 |
Amcor Ltd. | 3,483,977 | 33,998 | |
232,239 | |||
Brazil (0.7%) | |||
Raia Drogasil SA | 6,555,949 | 71,766 | |
BM&FBovespa SA - | |||
Bolsa de Valores | |||
Mercadorias e Futuros | 12,798,400 | 38,043 | |
Banco Bradesco SA | |||
Preference Shares | 4,770,000 | 30,317 | |
140,126 | |||
Canada (1.9%) | |||
Toronto-Dominion Bank | 5,680,732 | 226,607 | |
Suncor Energy Inc. | 2,745,991 | 77,771 | |
Bank of Nova Scotia | 990,000 | 45,316 | |
ShawCor Ltd. | 1,165,000 | 25,946 | |
^ | First Quantum | ||
Minerals Ltd. | 4,030,000 | 21,014 | |
396,654 | |||
China (9.6%) | |||
Tencent Holdings Ltd. | 39,564,500 | 672,496 | |
* | Baidu Inc. ADR | 3,535,900 | 520,661 |
* | Alibaba Group | ||
Holding Ltd. ADR | 6,476,709 | 428,240 | |
* | New Oriental | ||
Education & Technology | |||
Group Inc. ADR | 4,963,100 | 101,694 | |
China Pacific Insurance | |||
Group Co. Ltd. | 20,926,200 | 76,082 | |
* | JD.com Inc. ADR | 1,930,100 | 49,951 |
Beijing Enterprises | |||
Holdings Ltd. | 7,574,500 | 44,067 |
Market | |||
Value• | |||
Shares | ($000) | ||
Mindray Medical | |||
International Ltd. ADR | 1,455,000 | 35,240 | |
CNOOC Ltd. | 27,813,000 | 34,912 | |
* | Youku Tudou Inc. ADR | 2,077,149 | 34,501 |
1,997,844 | |||
Denmark (1.5%) | |||
Novozymes A/S | 3,172,000 | 137,926 | |
Novo Nordisk A/S Class B | 1,871,763 | 103,482 | |
Chr Hansen Holding A/S | 1,508,200 | 75,681 | |
317,089 | |||
Finland (0.4%) | |||
Nokia Oyj | 13,042,906 | 81,106 | |
France (5.3%) | |||
Essilor International SA | 1,722,144 | 204,447 | |
Kering | 983,955 | 167,899 | |
L’Oreal SA | 978,915 | 166,846 | |
Sanofi | 1,282,234 | 126,090 | |
Safran SA | 1,007,789 | 78,326 | |
Schneider Electric SE | 1,244,118 | 78,216 | |
Accor SA | 1,530,376 | 72,270 | |
Societe Generale SA | 1,292,000 | 62,590 | |
Airbus Group SE | 950,000 | 61,478 | |
Publicis Groupe SA | 780,000 | 55,388 | |
TOTAL SA | 995,001 | 45,268 | |
1,118,818 | |||
Germany (7.1%) | |||
SAP SE | 2,786,417 | 187,565 | |
*,2 | Zalando SE | 4,617,975 | 151,311 |
Fresenius Medical Care | |||
AG & Co. KGaA | 1,783,456 | 136,642 | |
BASF SE | 1,582,450 | 127,538 | |
Bayerische Motoren | |||
Werke AG | 1,272,320 | 117,498 | |
HeidelbergCement AG | 1,367,052 | 103,332 | |
Continental AG | 387,131 | 82,323 | |
GEA Group AG | 2,036,178 | 79,579 | |
Bayer AG | 559,000 | 75,872 | |
Deutsche Bank AG | 2,299,064 | 67,820 |
15
International Growth Fund
Market | |||
Value• | |||
Shares | ($000) | ||
*,3,† Home 24AG | 23,630 | 67,499 | |
Volkswagen AG | 302,003 | 56,480 | |
adidas AG | 665,000 | 49,788 | |
MTU Aero Engines AG | 548,000 | 49,134 | |
* | MorphoSys AG | 604,515 | 42,697 |
*,3 | Rocket Internet SE | 1,400,656 | 35,485 |
*,2 | Rocket Internet SE - | ||
Private Placement | 1,157,559 | 32,588 | |
^,* | AIXTRON SE | 3,130,112 | 20,039 |
1,483,190 | |||
Hong Kong (4.8%) | |||
AIA Group Ltd. | 119,022,400 | 655,657 | |
Jardine Matheson | |||
Holdings Ltd. | 2,928,925 | 146,332 | |
Hong Kong Exchanges | |||
and Clearing Ltd. | 4,582,630 | 107,184 | |
Techtronic Industries | |||
Co. Ltd. | 15,725,000 | 56,948 | |
Hang Lung | |||
Properties Ltd. | 14,455,000 | 32,632 | |
998,753 | |||
India (2.7%) | |||
Idea Cellular Ltd. | 61,660,100 | 144,180 | |
Housing Development | |||
Finance Corp. Ltd. | 7,692,900 | 136,927 | |
HDFC Bank Ltd. | 5,907,291 | 91,126 | |
Zee Entertainment | |||
Enterprises Ltd. | 15,605,650 | 90,016 | |
*,2,3 Flipkart G Series | 338,176 | 46,286 | |
* | Larsen & Toubro Ltd. | 1,430,473 | 34,391 |
*,2,3 Flipkart H Series | 135,569 | 19,283 | |
562,209 | |||
Indonesia (0.2%) | |||
Bank Mandiri | |||
Persero Tbk PT | 80,150,800 | 51,799 | |
Ireland (1.2%) | |||
Kerry Group plc Class A | 1,864,917 | 138,417 | |
* | Bank of Ireland | ||
(Dublin Shares) | 182,335,677 | 72,555 | |
* | Bank of Ireland | ||
(London Shares) | 127,016,431 | 49,371 | |
260,343 | |||
Israel (0.8%) | |||
* | Check Point Software | ||
Technologies Ltd. | 2,252,778 | 175,739 | |
Italy (4.4%) | |||
* | Fiat Chrysler | ||
Automobiles NV | 36,834,156 | 516,068 | |
^ | UniCredit SPA | 29,652,179 | 193,754 |
EXOR SPA | 3,114,856 | 142,524 | |
Intesa Sanpaolo SPA | |||
(Registered) | 16,801,369 | 61,276 | |
913,622 |
Market | ||
Value• | ||
Shares | ($000) | |
Japan (12.1%) | ||
SoftBank Group Corp. | 7,665,200 | 444,896 |
SMC Corp. | 1,363,400 | 330,299 |
Rakuten Inc. | 19,991,600 | 285,078 |
Sumitomo Mitsui | ||
Financial Group Inc. | 5,263,900 | 214,673 |
M3 Inc. | 8,800,200 | 203,062 |
Bridgestone Corp. | 4,786,900 | 160,080 |
Astellas Pharma Inc. | 10,007,540 | 148,098 |
Kubota Corp. | 6,483,000 | 101,175 |
Sekisui Chemical Co. Ltd. | 7,970,000 | 87,673 |
Suzuki Motor Corp. | 2,547,600 | 86,466 |
Tokio Marine | ||
Holdings Inc. | 2,075,000 | 83,336 |
Toyota Motor Corp. | 1,165,000 | 68,882 |
ORIX Corp. | 4,974,200 | 67,259 |
Japan Tobacco Inc. | 1,770,000 | 62,975 |
SBI Holdings Inc. | 4,470,400 | 54,135 |
Daikin Industries Ltd. | 824,700 | 49,029 |
MISUMI Group Inc. | 4,100,000 | 47,448 |
FANUC Corp. | 263,600 | 42,692 |
2,537,256 | ||
Mexico (0.3%) | ||
Grupo Financiero Banorte | ||
SAB de CV | 11,693,119 | 56,276 |
Netherlands (1.3%) | ||
ASML Holding NV | 1,559,169 | 142,479 |
ING Groep NV | 4,450,000 | 67,704 |
Akzo Nobel NV | 979,995 | 66,178 |
276,361 | ||
Norway (1.4%) | ||
Statoil ASA | 7,741,701 | 117,509 |
DNB ASA | 4,178,253 | 59,628 |
Schibsted ASA Class A | 1,760,994 | 57,471 |
* Schibsted ASA Class B | 1,760,994 | 54,818 |
289,426 | ||
Peru (0.5%) | ||
Credicorp Ltd. | 1,001,927 | 110,192 |
Portugal (0.2%) | ||
Jeronimo Martins | ||
SGPS SA | 3,627,182 | 50,125 |
Russia (0.7%) | ||
Magnit PJSC GDR | 2,339,737 | 115,869 |
* Mail.Ru Group Ltd. GDR | 1,266,000 | 23,194 |
139,063 | ||
Singapore (0.2%) | ||
DBS Group Holdings Ltd. | 3,690,748 | 46,093 |
South Africa (0.2%) | ||
Sasol Ltd. | 1,150,000 | 36,888 |
16
International Growth Fund | ||
Market | ||
Value• | ||
Shares | ($000) | |
South Korea (1.7%) | ||
^,* Celltrion Inc. | 1,894,689 | 113,619 |
NAVER Corp. | 222,208 | 92,710 |
Hyundai Motor Co. | 434,315 | 54,374 |
Samsung Electronics | ||
Co. Ltd. | 51,500 | 47,385 |
Hankook Tire Co. Ltd. | 1,180,000 | 36,849 |
344,937 | ||
Spain (5.3%) | ||
Industria de Diseno | ||
Textil SA | 17,650,315 | 587,977 |
Banco Popular | ||
Espanol SA | 70,317,553 | 301,121 |
Banco Bilbao Vizcaya | ||
Argentaria SA | 9,108,396 | 84,350 |
Distribuidora Internacional | ||
de Alimentacion SA | 12,745,795 | 76,663 |
Banco Santander SA | 10,842,422 | 65,968 |
1,116,079 | ||
Sweden (5.2%) |
* | Svenska Handelsbanken |
AB Class A | 22,936,064 | 341,156 | |
* | Atlas Copco AB Class A | 11,656,141 | 292,432 |
Investment AB Kinnevik | 8,819,732 | 248,095 | |
* | Assa Abloy AB Class B | 5,097,202 | 97,174 |
Alfa Laval AB | 3,483,662 | 59,104 | |
* | Elekta AB Class B | 8,638,260 | 53,761 |
1,091,722 | |||
Switzerland (5.3%) | |||
Nestle SA | 4,003,967 | 294,175 | |
Roche Holding AG | 841,279 | 228,220 | |
Syngenta AG | 656,488 | 227,163 | |
Cie Financiere | |||
Richemont SA | 1,577,725 | 117,456 | |
Novartis AG | 760,000 | 74,286 | |
Lonza Group AG | 493,804 | 67,422 | |
LafargeHolcim Ltd. | 870,000 | 55,101 | |
Zurich Insurance | |||
Group AG | 160,000 | 43,899 | |
1,107,722 | |||
Taiwan (0.9%) | |||
Taiwan Semiconductor | |||
Manufacturing Co. Ltd. | 47,868,000 | 187,866 | |
Thailand (0.6%) | |||
Kasikornbank PCL | |||
(Foreign) | 25,755,756 | 129,692 | |
Turkey (0.6%) | |||
BIM Birlesik | |||
Magazalar AS | 7,035,103 | 121,881 |
Market | |||
Value• | |||
Shares | ($000) | ||
United Kingdom (15.0%) | |||
Rolls-Royce Holdings plc | 32,389,110 | 368,257 | |
ARM Holdings plc | 22,249,681 | 313,456 | |
Prudential plc | 12,845,749 | 276,780 | |
Royal Dutch Shell plc | |||
Class A | 6,333,251 | 164,603 | |
HSBC Holdings plc | 20,607,103 | 162,475 | |
Vodafone Group plc | 42,451,503 | 146,491 | |
Standard Chartered plc | 11,116,676 | 129,000 | |
Capita plc | 6,334,614 | 119,188 | |
BHP Billiton plc | 6,700,345 | 115,031 | |
Aggreko plc | 6,818,283 | 110,478 | |
Carnival plc | 2,111,684 | 106,653 | |
Burberry Group plc | 4,837,643 | 104,093 | |
Reckitt Benckiser | |||
Group plc | 1,174,220 | 102,996 | |
Lloyds Banking | |||
Group plc | 87,452,223 | 102,812 | |
Diageo plc | 3,794,350 | 100,803 | |
WPP plc | 4,673,271 | 96,581 | |
^,* | Ocado Group plc | 12,833,540 | 67,328 |
*,3 | Spotify Ltd. | 26,474 | 59,000 |
Imperial Tobacco | |||
Group plc | 1,214,036 | 58,325 | |
Barclays plc | 14,169,132 | 56,623 | |
G4Splc | 14,450,000 | 56,474 | |
Ultra Electronics | |||
Holdings plc | 2,080,000 | 55,999 | |
Unilever plc | 1,385,000 | 55,421 | |
Inchcape plc | 4,900,000 | 54,441 | |
* | ASOS plc | 1,191,500 | 54,230 |
Spectris plc | 1,650,000 | 45,818 | |
Intertek Group plc | 1,170,000 | 45,423 | |
3,128,779 | |||
United States (5.2%) | |||
* | Amazon.com Inc. | 1,071,200 | 549,408 |
* | Illumina Inc. | 725,346 | 143,336 |
MercadoLibre Inc. | 1,215,300 | 133,744 | |
ResMed Inc. | 765,000 | 39,734 | |
Samsonite | |||
International SA | 22,315,000 | 69,241 | |
^,* | Tesla Motors Inc. | 640,268 | 159,465 |
1,094,928 | |||
Total Common Stocks | |||
(Cost $18,371,768) | 20,594,817 | ||
Temporary Cash Investments (2.9%)1 | |||
Money Market Fund (2.7%) | |||
4,5 | Vanguard Market | ||
Liquidity Fund, | |||
0.168% | 558,677,677 | 558,678 |
17
International Growth Fund | ||
Face | Market | |
Amount | Value• | |
($000) | ($000) |
U.S. Government and Agency Obligations (0.2%)
6,7 | Federal Home Loan Bank | ||
Discount Notes, | |||
0.088%, 9/4/15 | 3,000 | 3,000 | |
6 | Federal Home Loan Bank | ||
Discount Notes, | |||
0.090%–0.091%, 9/11/15 | 1,800 | 1,800 | |
6,7 | Federal Home Loan Bank | ||
Discount Notes, | |||
0.090%, 9/18/15 | 2,400 | 2,400 | |
6,8 | Federal Home Loan Bank | ||
Discount Notes, | |||
0.095%, 10/7/15 | 1,000 | 1,000 | |
6 | Federal Home Loan Bank | ||
Discount Notes, | |||
0.090%, 10/14/15 | 400 | 400 | |
6,7 | Federal Home Loan Bank | ||
Discount Notes, | |||
0.120%, 10/30/15 | 1,700 | 1,699 | |
6,7,8 Federal Home Loan Bank | |||
Discount Notes, | |||
0.105%, 11/2/15 | 3,000 | 2,999 | |
6,7 | Federal Home Loan Bank | ||
Discount Notes, | |||
0.180%, 11/17/15 | 600 | 600 | |
6,8 | Federal Home Loan Bank | ||
Discount Notes, | |||
0.170%, 11/18/15 | 1,500 | 1,499 | |
6,7 | Federal Home Loan Bank | ||
Discount Notes, | |||
0.182%, 11/25/15 | 10,000 | 9,996 | |
6 | Federal Home Loan Bank | ||
Discount Notes, | |||
0.192%, 11/27/15 | 3,000 | 2,999 | |
6,7 | Federal Home Loan Bank | ||
Discount Notes, | |||
0.140%, 12/4/15 | 3,000 | 2,999 | |
7,9 | Freddie Mac Discount | ||
Notes, 0.125%, 10/30/15 | 10,000 | 9,997 | |
41,388 | |||
Total Temporary Cash Investments | |||
(Cost $600,067) | 600,066 | ||
Total Investments (101.3%) | |||
(Cost $18,971,835) | 21,194,883 |
Amount | |
($000) | |
Other Assets and Liabilities (-1.3%) | |
Other Assets | |
Investment in Vanguard | 2,033 |
Receivables for Investment | |
Securities Sold | 43,749 |
Receivables for Accrued Income | 45,129 |
Receivables for Capital Shares Issued | 7,996 |
Other Assets | 3,798 |
Total Other Assets | 102,705 |
Liabilities | |
Payables for Investment | |
Securities Purchased | (101,470) |
Collateral for Securities on Loan | (191,524) |
Payables to Investment Advisor | (9,897) |
Payables for Capital Shares Redeemed | (20,307) |
Payables for Distributions | — |
Payables to Vanguard | (41,624) |
Other Liabilities | (9,193) |
Total Liabilities | (374,015) |
Net Assets (100%) | 20,923,573 |
At August 31, 2015, net assets consisted of:
Amount | |
($000) | |
Paid-in Capital | 18,745,806 |
Undistributed Net Investment Income | 218,767 |
Accumulated Net Realized Losses | (246,255) |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 2,223,048 |
Futures Contracts | (12,200) |
Forward Currency Contracts | (3,316) |
Foreign Currencies | (2,277) |
Net Assets | 20,923,573 |
18
International Growth Fund | |
Amount | |
($000) | |
Investor Shares—Net Assets | |
Applicable to 344,218,375 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 7,171,524 |
Net Asset Value Per Share— | |
Investor Shares | $20.83 |
Admiral Shares—Net Assets | |
Applicable to 207,475,931 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 13,752,049 |
Net Asset Value Per Share— | |
Admiral Shares | $66.28 |
- 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 $182,754,000.
- Non-income-producing security.
- Considered an affiliated company of the fund as the fund owns more than 5% of the outstanding voting securities of such company.
- 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 99.7% and 1.6%, respectively, of net assets.
- 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 August 31, 2015, the aggregate value of these securities was $249,468,000, representing 1.2% of net assets.
- Restricted securities totaling $227,553,000, representing 1.1% of net assets.
- Includes $191,524,000 of collateral received for securities on loan.
- Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
- 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.
- Securities with a value of $26,992,000 have been segregated as initial margin for open futures contracts.
- Securities with a value of $3,409,000 have been segregated as collateral for open forward currency contracts.
- 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.
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 | |
Year Ended | |
August 31, 2015 | |
($000) | |
Investment Income | |
Income | |
Dividends1 | 386,062 |
Interest | 518 |
Securities Lending | 17,981 |
Total Income | 404,561 |
Expenses | |
Investment Advisory Fees—Note B | |
Basic Fee | 32,711 |
Performance Adjustment | 6,444 |
The Vanguard Group—Note C | |
Management and Administrative—Investor Shares | 20,931 |
Management and Administrative—Admiral Shares | 18,416 |
Marketing and Distribution—Investor Shares | 1,291 |
Marketing and Distribution—Admiral Shares | 1,949 |
Custodian Fees | 3,602 |
Auditing Fees | 45 |
Shareholders’ Reports—Investor Shares | 35 |
Shareholders’ Reports—Admiral Shares | 48 |
Trustees’ Fees and Expenses | 45 |
Total Expenses | 85,517 |
Net Investment Income | 319,044 |
Realized Net Gain (Loss) | |
Investment Securities Sold | 80,754 |
Futures Contracts | 14,201 |
Foreign Currencies and Forward Currency Contracts | (36,418) |
Realized Net Gain (Loss) | 58,537 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | (2,801,383) |
Futures Contracts | (13,145) |
Foreign Currencies and Forward Currency Contracts | (1,228) |
Change in Unrealized Appreciation (Depreciation) | (2,815,756) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (2,438,175) |
1 Dividends are net of foreign withholding taxes of $19,499,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
20
International Growth Fund | ||
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2015 | 2014 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 319,044 | 484,780 |
Realized Net Gain (Loss) | 58,537 | 1,319,768 |
Change in Unrealized Appreciation (Depreciation) | (2,815,756) | 1,803,465 |
Net Increase (Decrease) in Net Assets Resulting from Operations | (2,438,175) | 3,608,013 |
Distributions | ||
Net Investment Income | ||
Investor Shares | (176,911) | (139,508) |
Admiral Shares | (320,446) | (202,880) |
Realized Capital Gain | ||
Investor Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (497,357) | (342,388) |
Capital Share Transactions | ||
Investor Shares | (771,120) | (1,529,987) |
Admiral Shares | 1,238,862 | 2,043,639 |
Net Increase (Decrease) from Capital Share Transactions | 467,742 | 513,652 |
Total Increase (Decrease) | (2,467,790) | 3,779,277 |
Net Assets | ||
Beginning of Period | 23,391,363 | 19,612,086 |
End of Period1 | 20,923,573 | 23,391,363 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $218,767,000 and $407,022,000.
See accompanying Notes, which are an integral part of the Financial Statements.
21
International Growth Fund | |||||
Financial Highlights | |||||
Investor Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $23.79 | $20.42 | $17.69 | $18.27 | $16.27 |
Investment Operations | |||||
Net Investment Income | . 308 | .4711 | .336 | .361 | .351 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | (2.774) | 3.235 | 2.741 | (.607) | 1.954 |
Total from Investment Operations | (2.466) | 3.706 | 3.077 | (. 246) | 2.305 |
Distributions | |||||
Dividends from Net Investment Income | (.494) | (. 336) | (. 347) | (.334) | (.305) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (.494) | (. 336) | (. 347) | (.334) | (.305) |
Net Asset Value, End of Period | $20.83 | $23.79 | $20.42 | $17.69 | $18.27 |
Total Return2 | -10.46% | 18.26% | 17.54% | -1.14% | 14.10% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $7,172 | $8,976 | $9,056 | $9,115 | $10,878 |
Ratio of Total Expenses to Average Net Assets3 | 0.47% | 0.47% | 0.48% | 0.49% | 0.47% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.34% | 2.08%1 | 1.71% | 2.04% | 1.85% |
Portfolio Turnover Rate | 29% | 21% | 31% | 30% | 43% |
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%, and 0.03%.
See accompanying Notes, which are an integral part of the Financial Statements.
22
International Growth Fund | |||||
Financial Highlights | |||||
Admiral Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $75.70 | $64.98 | $56.31 | $58.17 | $51.81 |
Investment Operations | |||||
Net Investment Income | 1.088 | 1.6131 | 1.157 | 1.229 | 1.192 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | (8.821) | 10.277 | 8.697 | (1.945) | 6.209 |
Total from Investment Operations | (7.733) | 11.890 | 9.854 | (.716) | 7.401 |
Distributions | |||||
Dividends from Net Investment Income | (1.687) | (1.170) | (1.184) | (1.144) | (1.041) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.687) | (1.170) | (1.184) | (1.144) | (1.041) |
Net Asset Value, End of Period | $66.28 | $75.70 | $64.98 | $56.31 | $58.17 |
Total Return2 | -10.32% | 18.42% | 17.66% | -1.01% | 14.21% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $13,752 | $14,415 | $10,556 | $7,523 | $6,487 |
Ratio of Total Expenses to Average Net Assets3 | 0.34% | 0.34% | 0.35% | 0.36% | 0.34% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.47% | 2.21%1 | 1.84% | 2.17% | 1.98% |
Portfolio Turnover Rate | 29% | 21% | 31% | 30% | 43% |
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%, 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 clearing-
24
International Growth Fund
house, 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 year ended August 31, 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, 2012–2015), 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 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-
25
International Growth Fund
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 counter-party 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 (“Vanguard”) participate in a $3 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 August 31, 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. The investment advisory firms 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 relative to the MSCI All Country World Index ex USA for the preceding three years.
Vanguard manages the cash reserves of the fund as described below.
For the year ended August 31, 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 $6,444,000 (0.03%) based on performance.
26
International Growth Fund
C. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund corporate management, administrative, marketing, distribution and cash management services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At August 31, 2015, the fund had contributed to Vanguard capital in the amount of $2,033,000, representing 0.01% of the fund’s net assets and 0.81% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and employees, respectively, 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 August 31, 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 | 1,728,935 | 69,241 | — |
Common Stocks—Other | 1,346,026 | 17,258,547 | 192,068 |
Temporary Cash Investments | 558,678 | 41,388 | — |
Futures Contracts—Liabilities1 | (1,547) | — | — |
Forward Currency Contracts—Assets | — | 1,280 | — |
Forward Currency Contracts—Liabilities | — | (4,596) | — |
Total | 3,632,092 | 17,365,860 | 192,068 |
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 year. Additionally, based on values on the date of transfer, securities valued at $153,821,000 based on Level 1 inputs were transferred from Level 2 during the fiscal year.
27
International Growth Fund
E. At August 31, 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 | — | 1,280 | 1,280 |
Liabilities | (1,547) | (4,596) | (6,143) |
Realized net gain (loss) and the change in unrealized appreciation (depreciation) on derivatives for the year ended August 31, 2015, were:
Foreign | |||
Equity | Exchange | ||
Contracts | Contracts | Total | |
Realized Net Gain (Loss) on Derivatives | ($000) | ($000) | ($000) |
Futures Contracts | 14,201 | — | 14,201 |
Forward Currency Contracts | — | (30,478) | (30,478) |
Realized Net Gain (Loss) on Derivatives | 14,201 | (30,478) | (16,277) |
Change in Unrealized Appreciation (Depreciation) on Derivatives | |||
Futures Contracts | (13,145) | — | (13,145) |
Forward Currency Contracts | — | 2,023 | 2,023 |
Change in Unrealized Appreciation (Depreciation) on Derivatives | (13,145) | 2,023 | (11,122) |
At August 31, 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 | September 2015 | 3,402 | 124,614 | (4,958) |
Topix Index | September 2015 | 502 | 63,524 | (3,241) |
FTSE 100 Index | September 2015 | 590 | 56,415 | (3,026) |
S&P ASX 200 Index | September 2015 | 294 | 26,924 | (975) |
(12,200) |
Unrealized appreciation (depreciation) on open Dow Jones EURO STOXX 50 Index and FTSE 100 Index futures contracts is required to be treated as realized gain (loss) for tax purposes.
28
International Growth Fund
At August 31, 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) | ||
BNP Paribas | 9/23/15 | EUR | 89,813 | USD | 101,154 | (336) |
Bank of America, N.A. | 9/15/15 | JPY | 6,985,362 | USD | 56,975 | 659 |
Citibank, N.A. | 9/23/15 | GBP | 31,557 | USD | 49,505 | (1,086) |
The Toronto-Dominion Bank | 9/22/15 | AUD | 31,956 | USD | 24,674 | (1,959) |
Bank of America, N.A. | 9/23/15 | EUR | 14,407 | USD | 16,529 | (357) |
BNP Paribas | 9/23/15 | GBP | 6,440 | USD | 10,148 | (268) |
Bank of America, N.A. | 9/23/15 | EUR | 8,642 | USD | 9,645 | 55 |
Morgan Stanley Capital Services LLC | 9/23/15 | EUR | 8,801 | USD | 9,604 | 275 |
Citibank, N.A. | 9/15/15 | JPY | 1,017,720 | USD | 8,488 | (92) |
Brown Brothers Harriman & Co. | 9/22/15 | AUD | 8,063 | USD | 5,802 | (70) |
BNP Paribas | 9/22/15 | AUD | 7,656 | USD | 5,777 | (334) |
Morgan Stanley Capital Services LLC | 9/15/15 | JPY | 563,720 | USD | 4,538 | 113 |
UBS AG | 9/23/15 | GBP | 2,793 | USD | 4,366 | (82) |
UBS AG | 9/15/15 | JPY | 397,746 | USD | 3,249 | 33 |
BNP Paribas | 9/23/15 | USD | 7,223 | EUR | 6,433 | 1 |
BNP Paribas | 9/15/15 | USD | 6,271 | JPY | 757,050 | 24 |
BNP Paribas | 9/22/15 | USD | 3,387 | AUD | 4,750 | 10 |
BNP Paribas | 9/23/15 | USD | 3,129 | GBP | 2,037 | 4 |
Brown Brothers Harriman & Co. | 9/22/15 | USD | 2,550 | AUD | 3,438 | 106 |
BNP Paribas | 9/15/15 | USD | 894 | JPY | 109,842 | (12) |
(3,316) | ||||||
AUD—Australian dollar. | ||||||
EUR—Euro. | ||||||
GBP—British pound. | ||||||
JPY—Japanese yen. | ||||||
USD—U.S. dollar. |
At August 31, 2015, the counterparty had deposited in segregated accounts securities with a value of $1,557,000 in connection with amounts due to the fund for open forward currency contracts.
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.
29
International Growth Fund
During the year ended August 31, 2015, the fund realized net foreign currency losses of $5,940,000, which decreased distributable net income for tax purposes; accordingly, such losses have been reclassified from accumulated net realized losses to undistributed net investment income.
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, $4,002,000 of capital gains tax has been reclassified from accumulated net realized losses to undistributed net investment income.
For tax purposes, at August 31, 2015, the fund had $260,856,000 of ordinary income available for distribution. The fund used capital loss carryforwards of $63,561,000 to offset taxable capital gains realized during the year ended August 31, 2015. At August 31, 2015, the fund had available capital losses totaling $258,903,000 to offset future net capital gains. Of this amount, $212,308,000 is subject to expiration on August 31, 2018. Capital losses of $46,595,000 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.
At August 31, 2015, the cost of investment securities for tax purposes was $18,971,835,000. Net unrealized appreciation of investment securities for tax purposes was $2,223,048,000, consisting of unrealized gains of $4,055,009,000 on securities that had risen in value since their purchase and $1,831,961,000 in unrealized losses on securities that had fallen in value since their purchase.
G. During the year ended August 31, 2015, the fund purchased $6,687,162,000 of investment securities and sold $6,314,215,000 of investment securities, other than temporary cash investments.
H. Capital share transactions for each class of shares were: | ||||
Year Ended August 31, | ||||
2015 | 2014 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
Investor Shares | ||||
Issued | 1,067,412 | 47,577 | 785,767 | 34,263 |
Issued in Lieu of Cash Distributions | 172,517 | 7,892 | 136,274 | 6,114 |
Redeemed | (2,011,049) | (88,589) | (2,452,028) | (106,599) |
Net Increase (Decrease)—Investor Shares | (771,120) | (33,120) | (1,529,987) | (66,222) |
Admiral Shares | ||||
Issued | 2,585,487 | 35,811 | 2,923,386 | 39,888 |
Issued in Lieu of Cash Distributions | 298,739 | 4,300 | 189,998 | 2,681 |
Redeemed | (1,645,364) | (23,053) | (1,069,745) | (14,599) |
Net Increase (Decrease)—Admiral Shares | 1,238,862 | 17,058 | 2,043,639 | 27,970 |
30
International Growth Fund
I. Certain of the fund’s investments are in companies that are considered to be affiliated companies of the fund because the fund owns more than 5% of the outstanding voting securities of the company or the issuer is another member of The Vanguard Group. Transactions during the period in securities of these companies were as follows:
Current Period Transactions | ||||||
Aug. 31, | Proceeds | Aug. 31, | ||||
2014 | from | Capital Gain | 2015 | |||
Market | Purchases | Securities | Distributions | Market | ||
Value | at Cost | Sold | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
Home 24AG | — | 66,827 | — | — | — | 67,499 |
Vanguard Market Liquidity | 632,180 | NA1 | NA1 | 486 | — | 558,678 |
Total | 632,180 | 486 | — | 626,177 | ||
1 Not applicable—purchases and sales are for temporary cash investment purposes. |
J. Management has determined that no material events or transactions occurred subsequent to August 31, 2015, that would require recognition or disclosure in these financial statements.
31
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of Vanguard World Fund and the Shareholders of Vanguard International Growth Fund:
In our opinion, the accompanying statement of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Vanguard International Growth Fund (constituting a separate portfolio of Vanguard World Fund, hereafter referred to as the “Fund”) at August 31, 2015, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2015 by correspondence with the custodian and brokers, by agreement to the underlying ownership records of the transfer agent and the application of alternative auditing procedures where securities purchased had not been received, provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
October 15, 2015
Special 2015 tax information (unaudited) for Vanguard International Growth Fund
This information for the fiscal year ended August 31, 2015, is included pursuant to provisions of the Internal Revenue Code.
The fund distributed $354,118,000 of qualified dividend income to shareholders during the fiscal year.
The fund designates to shareholders foreign source income of $322,723,000 and foreign taxes paid of $24,562,000. Shareholders will receive more detailed information with their Form 1099-DIV in January 2016 to determine the calendar-year amounts to be included on their 2015 tax returns.
32
Your Fund’s After-Tax Returns
This table presents returns for your fund both before and after taxes. The after-tax returns are shown in two ways: (1) assuming that an investor owned the fund during the entire period and paid taxes on the fund’s distributions, and (2) assuming that an investor paid taxes on the fund’s distributions and sold all shares at the end of each period.
Calculations are based on the highest individual federal income tax and capital gains tax rates in effect at the times of the distributions and the hypothetical sales. State and local taxes were not considered. After-tax returns reflect any qualified dividend income, using actual prior-year figures and estimates for 2015. (In the example, returns after the sale of fund shares may be higher than those assuming no sale. This occurs when the sale would have produced a capital loss. The calculation assumes that the investor received a tax deduction for the loss.)
The table shows returns for Investor Shares only; returns for other share classes will differ. Please note that your actual after-tax returns will depend on your tax situation and may differ from those shown. Also note that if you own the fund in a tax-deferred account, such as an individual retirement account or a 401(k) plan, this information does not apply to you. Such accounts are not subject to current taxes.
Finally, keep in mind that a fund’s performance—whether before or after taxes—does not guarantee future results.
Average Annual Total Returns: International Growth Fund Investor Shares
Periods Ended August 31, 2015
One | Five | Ten | |
Year | Years | Years | |
Returns Before Taxes | -10.46% | 7.02% | 5.29% |
Returns After Taxes on Distributions | -10.99 | 6.65 | 4.43 |
Returns After Taxes on Distributions and Sale of Fund Shares | -5.56 | 5.57 | 4.29 |
33
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.
34
Six Months Ended August 31, 2015 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
International Growth Fund | 2/28/2015 | 8/31/2015 | Period |
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $910.80 | $2.17 |
Admiral Shares | 1,000.00 | 911.57 | 1.54 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,022.94 | $2.29 |
Admiral Shares | 1,000.00 | 1,023.59 | 1.63 |
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 0.45% for Investor Shares and 0.32% 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 (184/365).
35
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.
36
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.
37
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 194 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. Treasurer Since May 2015. 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; Controller of each of the investment companies served by The Vanguard Group (2010–2015); 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).
Peter Mahoney
Born 1974. Controller Since May 2015. Principal Occupation(s) During the Past Five Years and Other Experience: Head of Global Fund Accounting at The Vanguard Group, Inc.; Controller of each of the investment companies served by The Vanguard Group; Head of International Fund Services at The Vanguard Group (2008–2014).
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
James M. Norris
Thomas M. Rampulla
Glenn W. Reed
Karin A. Risi
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 email 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. | |
Q810 102015 |
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ftsesocialindexfundx1x1.jpg)
Annual Report | August 31, 2015
Vanguard FTSE Social Index Fund
Vanguard’s Principles for Investing Success
We want to give you the best chance of investment success. These principles, grounded in Vanguard’s research and experience, can put you on the right path.
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.
A single theme unites these principles: Focus on the things you can control.
We believe there is no wiser course for any investor.
Contents | |
Your Fund’s Total Returns. | 1 |
Chairman’s Letter. | 2 |
Fund Profile. | 8 |
Performance Summary. | 9 |
Financial Statements. | 11 |
Your Fund’s After-Tax Returns. | 25 |
About Your Fund’s Expenses. | 26 |
Trustees Approve Advisory Arrangement. | 28 |
Glossary. | 29 |
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: Pictured is a sailing block on the Brilliant, a 1932 schooner docked in Mystic, Connecticut. A type of pulley, the sailing block helps coordinate the setting of the sails. At Vanguard, the intricate coordination of technology and people allows us to help millions of clients around the world reach their financial goals.
Your Fund’s Total Returns | |
Fiscal Year Ended August 31, 2015 | |
Total | |
Returns | |
Vanguard FTSE Social Index Fund | |
Investor Shares | 3.25% |
Institutional Shares | 3.34 |
FTSE4Good US Select Index | 3.52 |
Large-Cap Growth Funds Average | 3.53 |
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 August 31, 2015 | ||||
Distributions Per Share | ||||
Starting | Ending | |||
Share | Share | Income | Capital | |
Price | Price | Dividends | Gains | |
Vanguard FTSE Social Index Fund | ||||
Investor Shares | $12.74 | $12.99 | $0.164 | $0.000 |
Institutional Shares | 12.75 | 13.00 | 0.176 | 0.000 |
1
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ftsesocialindexfundx4x1.jpg)
Chairman’s Letter
Dear Shareholder,
For the 12 months ended August 31, 2015, Vanguard FTSE Social Index Fund returned more than 3%, in line with its benchmark, the FTSE4Good US Select Index. The fund finished a bit behind the average return of large-capitalization growth funds, but outpaced the return of the broad U.S. stock market.
Your fund invests in large- and mid-capitalization firms that the index provider has identified as meeting strict environmental, social, and governance standards. These standards give the fund a much different profile from that of the overall stock market. For example, the fund has greater exposure to financial and health care stocks than the broad market, and smaller allocations to the oil and gas and industrial sectors.
During the most recent fiscal year, these sector biases worked in the fund’s favor. It’s important to keep in mind, however, that this won’t always be the case—in other market environments, the fund’s differences may hinder its performance relative to the broad market.
If you hold shares of the fund in a taxable account, you may wish to review the information on the fund’s after-tax returns that appears later in this report.
August’s moody markets led to flat 12-month returns
U.S. stocks generally moved in opposite directions over the two halves of the fiscal year ended August 31. Ultimately, the ride ended about where it started, with the
2
market returning less than 1%. The broad stock market’s first-half advance of about 6% was followed by a second-half retreat of about –5%.
Much of the decline came in August, when stocks tumbled over fears about the global impact of China’s economic deceleration. Greece’s debt crisis, the strong U.S. dollar, perceived high valuations, and speculation over when the Federal Reserve might raise short-term interest rates also weighed on the market at times.
For U.S. investors, international stocks returned about –12%, a result that would have been better if not for the dollar’s strength against many foreign currencies.
China’s troubles buffeted emerging markets, which produced lower returns than the developed markets of Europe and the Pacific region.
Bonds notched muted results as Fed weighed rate-hike timing
The broad U.S. taxable bond market returned 1.56%. Bond prices, which generally fell slightly, received periodic support from global investors looking for higher yields than those available in many other developed markets, as well as from investors seeking shelter from stock market volatility. The yield of the 10-year Treasury note ended August at 2.18%, down from 2.34% a year earlier.
Market Barometer | |||
Average Annual Total Returns | |||
Periods Ended August 31, 2015 | |||
One | Three | Five | |
Year | Years | Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 0.40% | 14.68% | 16.07% |
Russell 2000 Index (Small-caps) | 0.03 | 14.12 | 15.55 |
Russell 3000 Index (Broad U.S. market) | 0.36 | 14.63 | 16.03 |
FTSE All-World ex US Index (International) | -11.50 | 5.79 | 5.17 |
Bonds | |||
Barclays U.S. Aggregate Bond Index (Broad taxable market) | 1.56% | 1.53% | 2.98% |
Barclays Municipal Bond Index (Broad tax-exempt market) | 2.52 | 2.83 | 3.96 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.02 | 0.03 | 0.05 |
CPI | |||
Consumer Price Index | 0.20% | 1.14% | 1.77% |
3
Limited by the dollar’s strength, international bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –11.97%. International bonds returned about 3% without this currency effect.
The Fed’s 0%–0.25% target for short-term interest rates continued to restrain money market fund and savings account returns.
A socially conscious approach bested broad market investing
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.
As I mentioned, because of these standards, the fund typically has greater exposure to health care and financial stocks, which added to performance over the most recent fiscal period. Health care was the market’s top performer, posting double-digit results. The trends favoring this industry are familiar ones: The aging population requires more health care in all forms, health care is more accessible across
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 fiscal year ended August 31, 2015, the fund’s expense ratios were 0.25% for Investor Shares and 0.15% 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
the globe, and the Affordable Care Act has provided insurance coverage for more people in the United States.
Pharmaceutical and biotechnology companies produced the bulk of the sector’s returns, benefiting from both merger-and-acquisition activity and promising developments in the industry’s pipeline. Health care services and medical equipment companies also performed strongly.
The financial sector—the index’s largest, at more than 24% of holdings—contributed to performance as well, albeit with more muted returns. While the sector has benefited from the long bull market, it has also been restrained by the toughened regulatory environment and exceptionally low interest rates.
Consumer services, which accounts for a much smaller portion of the index, was another top contributor. The sector posted strong results for the period amid increased consumer confidence and continued growth in the housing market. Stocks of home improvement companies and specialty retailers did particularly well. The fund’s holdings in the consumer goods sector also added to results.
The fund’s exposure to oil and gas stocks, although smaller than the broad market’s, weighed most on returns. The sector,
Total Returns | |
Ten Years Ended August 31, 2015 | |
Average | |
Annual Return | |
FTSE Social Index Fund Investor Shares | 6.38% |
Spliced Social Index | 6.61 |
Large-Cap Growth Funds Average | 6.98 |
For a benchmark description, see the Glossary.
Large-Cap Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.
The figures shown represent past performance, which is not a guarantee of future results. (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.
5
which accounted for about 3% of the index’s holdings on average over the period, was hit hard by the plummeting price of oil. Stocks of technology, basic materials, and industrial companies also hindered results.
A long record of success in tracking the benchmark
For the ten years ended August 31, 2015, Vanguard FTSE Social Index Fund’s Investor Shares produced an average annual return of 6.38%. The fund closely tracked its benchmark during that period, as it has since its inception in 2000.
The fund’s success in tracking its index is a tribute to Vanguard Equity Index Group, the fund’s advisor. The group has kept the fund on target with sophisticated portfolio management techniques refined over the decades. Low expenses—which allow you to keep more of the fund’s return—have helped the group’s efforts.
The fund slightly lagged the 6.98% average annual return of its large-cap growth peers—a shortfall that can be explained largely by the allocation tilts in its socially conscious approach to investing. Because of the fund’s heavy exposure to the financial
An indexing benefit that’s worth keeping in mind
As a Vanguard investor, you’re probably familiar with the cost and diversification benefits that index funds typically offer. But there’s a lesser-known—yet important—advantage to indexing as well: relative predictability.
Simply put, index funds help you capture the market’s return more predictably than actively managed funds.
By definition, an index fund is built and managed to track the return of its designated broad market or market segment. Some do so more closely than others. But what’s key is that you know what to expect: whatever the market returns—good or bad—minus the fund’s costs. Active managers, in contrast, seek to beat the market—and do so with varying degrees of success at different times.
The relative predictability of indexing can help you stay on course with your investment goals, by reducing the likelihood of particular surprises—such as being out of step with market performance. The confidence of knowing that you’ll earn a market-like return can reduce the temptation to trade based on emotions.
We recognize that some investors want the opportunity to outperform the market. That’s why Vanguard also offers low-cost active funds managed by carefully selected, world-class advisors, so you can choose an investment strategy that aligns with both your goals and your risk appetite.
6
sector, for example, it took a more severe hit during the financial crisis than did many of its large-cap growth peers, which tend to have less exposure to those stocks. In other periods, of course, these sector biases may prove an advantage.
When the markets are volatile, maintaining perspective is key Volatility returned to the stock market with a vengeance in the final weeks of August. Stocks were unsettled as investors became more worried that a slowdown in China’s economic growth could affect markets across the globe.
This turmoil may have evoked painful memories of previous financial setbacks—memories that had been receding after more than six years of strong U.S. stock performance. And inevitably, that sort of upheaval can lead some investors to make rash moves with their portfolios.
During periods of market adversity, however, it’s more important than ever to keep sight of one of Vanguard’s key principles: Maintain perspective and long-term discipline. Whether you’re investing for yourself or on behalf of clients, your success is affected greatly by how you react—or don’t react—when the markets turn turbulent. (You can read Vanguard’s Principles for Investing Success at vanguard.com/research.)
As I’ve written in the past, the best course for long-term investors generally is to ignore daily market moves and not make decisions based on emotion. This is also a good time to evaluate your portfolio and make sure your asset allocation is aligned with your time horizon, goals, and risk tolerance.
The markets are unpredictable and often confounding. Keeping our long-term plans clearly in focus can be key as we weather these periodic storms.
As always, thank you for investing with Vanguard.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ftsesocialindexfundx9x1.jpg)
F. William McNabb III
Chairman and Chief Executive Officer
September 11, 2015
7
FTSE Social Index Fund
Fund Profile
As of August 31, 2015
Share-Class Characteristics | |||
Investor | Institutional | ||
Shares | Shares | ||
Ticker Symbol | VFTSX | VFTNX | |
Expense Ratio1 | 0.27% | 0.16% | |
30-Day SEC Yield | 1.64% | 1.83% | |
Portfolio Characteristics | |||
DJ | |||
U.S. | |||
FTSE | Total | ||
4Good | Market | ||
US Select | FA | ||
Fund | Index | Index | |
Number of Stocks | 404 | 410 | 3,828 |
Median Market Cap | $68.9B | $68.9B | $47.2B |
Price/Earnings Ratio | 20.1x | 20.2x | 20.8x |
Price/Book Ratio | 2.6x | 2.6x | 2.6x |
Return on Equity | 18.6% | 18.6% | 17.1% |
Earnings Growth | |||
Rate | 10.6% | 10.5% | 10.2% |
Dividend Yield | 2.0% | 2.0% | 2.1% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 20% | — | — |
Short-Term Reserves | 0.1% | — | — |
Sector Diversification (% of equity exposure)
DJ | |||
U.S. | |||
FTSE | Total | ||
4Good | Market | ||
US Select | FA | ||
Fund | Index | Index | |
Basic Materials | 1.9% | 1.9% | 2.4% |
Consumer Goods | 10.6 | 10.6 | 10.0 |
Consumer Services | 11.7 | 11.7 | 14.2 |
Financials | 24.6 | 24.6 | 19.4 |
Health Care | 20.4 | 20.4 | 14.2 |
Industrials | 6.1 | 6.1 | 12.3 |
Oil & Gas | 2.6 | 2.6 | 6.6 |
Technology | 21.0 | 21.0 | 15.7 |
Telecommunications | 0.2 | 0.2 | 2.2 |
Utilities | 0.9 | 0.9 | 3.0 |
Volatility Measures | ||
FTSE | DJ | |
4Good | U.S. Total | |
US Select | Market | |
Index | FA Index | |
R-Squared | 1.00 | 0.98 |
Beta | 1.00 | 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)
Apple Inc. | Computer Hardware | 5.5% |
Google Inc. | Internet | 3.1 |
Microsoft Corp. | Software | 2.7 |
Wells Fargo & Co. | Banks | 2.3 |
Johnson & Johnson | Pharmaceuticals | 2.2 |
JPMorgan Chase & Co. | Banks | 2.0 |
Pfizer Inc. | Pharmaceuticals | 1.7 |
Procter & Gamble Co. | Nondurable | |
Household Products | 1.6 | |
Bank of America Corp. | Banks | 1.5 |
Walt Disney Co. | Broadcasting & | |
Entertainment | 1.5 | |
Top Ten | 24.1% |
The holdings listed exclude any temporary cash investments and equity index products.
Investment Focus
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ftsesocialindexfundx10x1.jpg)
1 The expense ratios shown are from the prospectus dated December 23, 2014, and represent estimated costs for the current fiscal year. For the 8 fiscal year ended August 31, 2015, the expense ratios were 0.25% for Investor Shares and 0.15% for Institutional Shares.
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.
Cumulative Performance: August 31, 2005, Through August 31, 2015
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ftsesocialindexfundx11x1.jpg)
Average Annual Total Returns | |||||
Periods Ended August 31, 2015 | |||||
Final Value | |||||
One | Five | Ten | of a $10,000 | ||
Year | Years | Years | Investment | ||
FTSE Social Index Fund*Investor | |||||
Shares | 3.25% | 17.14% | 6.38% | $18,563 | |
•••••••• | Spliced Social Index | 3.52 | 17.45 | 6.61 | 18,963 |
– – – – | Dow Large-Cap Jones Growth U.S. Total Funds Stock Average Market | 3.53 | 15.68 | 6.98 | 19,642 |
Float Adjusted Index | 0.29 | 16.01 | 7.46 | 20,543 | |
For a benchmark description, see the Glossary. | |||||
Large-Cap Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |||||
Final Value | |||||
One | Five | Ten | of a $5,000,000 | ||
Year | Years | Years | Investment | ||
FTSE Social Index Fund Institutional Shares | 3.34% | 17.29% | 6.51% | $9,397,389 | |
Spliced Social Index | 3.52 | 17.45 | 6.61 | 9,481,363 | |
Dow Jones U.S. Total Stock Market Float | |||||
Adjusted Index | 0.29 | 16.01 | 7.46 | 10,271,315 |
9
FTSE Social Index Fund
Fiscal-Year Total Returns (%): August 31, 2005, Through August 31, 2015
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ftsesocialindexfundx12x1.jpg)
FTSE Social Index Fund Investor Shares
Spliced Social Index
For a benchmark description, see the Glossary.
Average Annual Total Returns: Periods Ended June 30, 2015
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 | 10.65% | 18.03% | 7.18% |
Institutional Shares | 1/14/2003 | 10.74 | 18.19 | 7.31 |
10
FTSE Social Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 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%) | ||
Basic Materials (1.9%) | ||
Praxair Inc. | 45,023 | 4,761 |
Air Products & | ||
Chemicals Inc. | 33,468 | 4,670 |
Ecolab Inc. | 41,817 | 4,564 |
PPG Industries Inc. | 43,753 | 4,169 |
Sigma-Aldrich Corp. | 16,507 | 2,301 |
Mosaic Co. | 55,356 | 2,260 |
Nucor Corp. | 49,527 | 2,144 |
Alcoa Inc. | 215,247 | 2,034 |
International Flavors & | ||
Fragrances Inc. | 12,683 | 1,390 |
Newmont Mining Corp. | 80,915 | 1,381 |
Ashland Inc. | 10,830 | 1,137 |
FMC Corp. | 22,865 | 968 |
Airgas Inc. | 8,798 | 849 |
Avery Dennison Corp. | 13,797 | 801 |
Westlake Chemical Corp. | 7,647 | 422 |
United States Steel Corp. | 25,308 | 415 |
34,266 | ||
Consumer Goods (10.6%) | ||
Procter & Gamble Co. | 424,547 | 30,003 |
PepsiCo Inc. | 230,529 | 21,423 |
Mondelez International Inc. | ||
Class A | 253,279 | 10,729 |
NIKE Inc. Class B | 86,039 | 9,615 |
Colgate-Palmolive Co. | 141,818 | 8,908 |
Ford Motor Co. | 609,097 | 8,448 |
General Motors Co. | 229,399 | 6,754 |
Kraft Heinz Co. | 91,514 | 6,649 |
Kimberly-Clark Corp. | 56,901 | 6,062 |
General Mills Inc. | 91,275 | 5,181 |
Johnson Controls Inc. | 103,372 | 4,253 |
VF Corp. | 51,973 | 3,764 |
Delphi Automotive plc | 45,011 | 3,399 |
* Electronic Arts Inc. | 45,909 | 3,037 |
Estee Lauder Cos. Inc. | ||
Class A | 35,644 | 2,843 |
Market | |||
Value• | |||
Shares | ($000) | ||
ConAgra Foods Inc. | 66,596 | 2,776 | |
Mead Johnson Nutrition Co. | 31,526 | 2,470 | |
Stanley Black & Decker Inc. | 24,195 | 2,456 | |
Kellogg Co. | 37,000 | 2,452 | |
Dr Pepper Snapple | |||
Group Inc. | 29,984 | 2,301 | |
Hershey Co. | 24,778 | 2,218 | |
Clorox Co. | 19,539 | 2,172 | |
Whirlpool Corp. | 12,336 | 2,074 | |
Tyson Foods Inc. Class A | 48,374 | 2,045 | |
Genuine Parts Co. | 23,411 | 1,955 | |
JM Smucker Co. | 16,285 | 1,917 | |
Coca-Cola Enterprises Inc. | 37,027 | 1,907 | |
Hanesbrands Inc. | 62,744 | 1,889 | |
* | Mohawk Industries Inc. | 9,311 | 1,834 |
Harley-Davidson Inc. | 32,511 | 1,822 | |
Newell Rubbermaid Inc. | 41,399 | 1,744 | |
Church & Dwight Co. Inc. | 19,612 | 1,692 | |
Bunge Ltd. | 22,985 | 1,665 | |
BorgWarner Inc. | 37,422 | 1,633 | |
DR Horton Inc. | 52,285 | 1,588 | |
PVH Corp. | 12,497 | 1,487 | |
Autoliv Inc. | 13,739 | 1,403 | |
McCormick & Co. Inc. | 17,586 | 1,394 | |
Lennar Corp. Class A | 27,014 | 1,375 | |
* | Michael Kors Holdings Ltd. | 31,087 | 1,351 |
Coach Inc. | 43,606 | 1,319 | |
Mattel Inc. | 55,454 | 1,299 | |
Campbell Soup Co. | 26,957 | 1,294 | |
Hormel Foods Corp. | 20,927 | 1,279 | |
Polaris Industries Inc. | 9,513 | 1,235 | |
Harman International | |||
Industries Inc. | 11,560 | 1,130 | |
Keurig Green Mountain Inc. | 19,310 | 1,093 | |
Ralph Lauren Corp. Class A | 9,824 | 1,092 | |
* | lululemon athletica Inc. | 15,896 | 1,018 |
PulteGroup Inc. | 46,792 | 968 | |
* | Edgewell Personal Care Co. | 10,709 | 943 |
Leggett & Platt Inc. | 20,745 | 922 | |
* | Toll Brothers Inc. | 24,922 | 921 |
11
FTSE Social Index Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
* | Herbalife Ltd. | 14,341 | 826 |
* | Fossil Group Inc. | 7,217 | 444 |
Energizer Holdings Inc. | 9,609 | 401 | |
194,872 | |||
Consumer Services (11.7%) | |||
Walt Disney Co. | 263,816 | 26,878 | |
Home Depot Inc. | 200,657 | 23,369 | |
CVS Health Corp. | 175,313 | 17,952 | |
McDonald’s Corp. | 148,595 | 14,119 | |
Starbucks Corp. | 223,591 | 12,233 | |
* | Priceline Group Inc. | 8,148 | 10,174 |
Lowe’s Cos. Inc. | 144,894 | 10,022 | |
Time Warner Inc. | 129,182 | 9,185 | |
Target Corp. | 99,468 | 7,730 | |
TJX Cos. Inc. | 106,031 | 7,456 | |
McKesson Corp. | 36,101 | 7,133 | |
Cardinal Health Inc. | 51,418 | 4,230 | |
* | O’Reilly Automotive Inc. | 15,248 | 3,661 |
* | AutoZone Inc. | 5,000 | 3,580 |
* | Chipotle Mexican Grill Inc. | ||
Class A | 4,846 | 3,441 | |
AmerisourceBergen Corp. | |||
Class A | 33,790 | 3,380 | |
Dollar General Corp. | 44,092 | 3,284 | |
Ross Stores Inc. | 64,997 | 3,160 | |
Macy’s Inc. | 53,916 | 3,160 | |
L Brands Inc. | 34,084 | 2,860 | |
* | Dollar Tree Inc. | 34,361 | 2,620 |
Omnicom Group Inc. | 37,791 | 2,531 | |
* | Nielsen Holdings plc | 55,577 | 2,514 |
Viacom Inc. Class B | 55,069 | 2,245 | |
* | CarMax Inc. | 33,315 | 2,032 |
Expedia Inc. | 15,714 | 1,807 | |
Signet Jewelers Ltd. | 12,616 | 1,741 | |
* | Bed Bath & Beyond Inc. | 26,699 | 1,658 |
Best Buy Co. Inc. | 43,964 | 1,615 | |
Foot Locker Inc. | 21,875 | 1,549 | |
Kohl’s Corp. | 29,882 | 1,525 | |
H&R Block Inc. | 42,884 | 1,459 | |
Staples Inc. | 102,653 | 1,459 | |
Tractor Supply Co. | 16,092 | 1,373 | |
* | Hertz Global Holdings Inc. | 73,439 | 1,353 |
Darden Restaurants Inc. | 19,269 | 1,310 | |
Gap Inc. | 39,003 | 1,280 | |
* | IHS Inc. Class A | 10,652 | 1,236 |
Interpublic Group of | |||
Cos. Inc. | 64,292 | 1,214 | |
* | Discovery | ||
Communications Inc. | 41,173 | 1,044 | |
* | TEGNA Inc. | 37,136 | 883 |
* | AutoNation Inc. | 11,914 | 713 |
* | Discovery Communications | ||
Inc. Class A | 26,007 | 692 | |
Scripps Networks | |||
Interactive Inc. Class A | 11,957 | 635 |
Market | |||
Value• | |||
Shares | ($000) | ||
Dun & Bradstreet Corp. | 5,614 | 595 | |
* | Urban Outfitters Inc. | 15,432 | 476 |
* | Gannett Co. Inc. | 19,518 | 256 |
214,822 | |||
Financials (24.6%) | |||
Wells Fargo & Co. | 800,575 | 42,695 | |
JPMorgan Chase & Co. | 579,508 | 37,146 | |
Bank of America Corp. | 1,656,544 | 27,068 | |
Citigroup Inc. | 476,449 | 25,481 | |
Visa Inc. Class A | 306,860 | 21,879 | |
MasterCard Inc. Class A | 155,185 | 14,334 | |
American International | |||
Group Inc. | 202,536 | 12,221 | |
Goldman Sachs Group Inc. | 64,425 | 12,151 | |
US Bancorp | 273,552 | 11,585 | |
American Express Co. | 137,343 | 10,537 | |
Morgan Stanley | 223,026 | 7,683 | |
PNC Financial Services | |||
Group Inc. | 80,894 | 7,371 | |
MetLife Inc. | 143,204 | 7,175 | |
Bank of New York | |||
Mellon Corp. | 175,081 | 6,968 | |
American Tower | |||
Corporation | 65,990 | 6,084 | |
Capital One Financial Corp. | 76,870 | 5,977 | |
Prudential Financial Inc. | 71,869 | 5,800 | |
BlackRock Inc. | 19,082 | 5,772 | |
Charles Schwab Corp. | 174,048 | 5,288 | |
ACE Ltd. | 51,051 | 5,215 | |
Travelers Cos. Inc. | 50,197 | 4,997 | |
CME Group Inc. | 49,493 | 4,674 | |
State Street Corp. | 64,685 | 4,652 | |
Public Storage | 21,948 | 4,417 | |
BB&T Corp. | 119,406 | 4,408 | |
Chubb Corp. | 35,662 | 4,308 | |
Marsh & McLennan | |||
Cos. Inc. | 80,036 | 4,300 | |
McGraw Hill Financial Inc. | 42,421 | 4,114 | |
Aon plc | 43,090 | 4,026 | |
Equity Residential | 55,606 | 3,962 | |
Intercontinental | |||
Exchange Inc. | 17,196 | 3,928 | |
Aflac Inc. | 65,133 | 3,817 | |
Allstate Corp. | 63,816 | 3,719 | |
Discover Financial Services | 69,191 | 3,718 | |
Health Care REIT Inc. | 54,834 | 3,474 | |
SunTrust Banks Inc. | 80,514 | 3,250 | |
AvalonBay | |||
Communities Inc. | 19,636 | 3,241 | |
Ameriprise Financial Inc. | 28,311 | 3,190 | |
Prologis Inc. | 81,899 | 3,112 | |
Moody’s Corp. | 30,010 | 3,070 | |
Hartford Financial | |||
Services Group Inc. | 65,515 | 3,010 | |
Ventas Inc. | 51,745 | 2,847 |
12
FTSE Social Index Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
Boston Properties Inc. | 23,924 | 2,713 | |
T. Rowe Price Group Inc. | 37,596 | 2,702 | |
HCP Inc. | 72,335 | 2,681 | |
Franklin Resources Inc. | 63,883 | 2,592 | |
Fifth Third Bancorp | 126,494 | 2,520 | |
Northern Trust Corp. | 36,036 | 2,517 | |
Progressive Corp. | 82,897 | 2,484 | |
Equinix Inc. | 8,800 | 2,374 | |
Invesco Ltd. | 68,656 | 2,342 | |
Principal Financial Group Inc. | 46,085 | 2,320 | |
Weyerhaeuser Co. | 80,998 | 2,263 | |
M&T Bank Corp. | 18,124 | 2,143 | |
Lincoln National Corp. | 40,762 | 2,070 | |
Regions Financial Corp. | 215,035 | 2,062 | |
General Growth | |||
Properties Inc. | 78,591 | 1,995 | |
Macerich Co. | 24,608 | 1,875 | |
KeyCorp | 134,202 | 1,844 | |
Loews Corp. | 49,190 | 1,793 | |
XL Group plc Class A | 47,896 | 1,786 | |
Equifax Inc. | 18,034 | 1,766 | |
* | Ally Financial Inc. | 77,690 | 1,698 |
* | Markel Corp. | 2,006 | 1,652 |
Realty Income Corp. | 36,254 | 1,620 | |
Voya Financial Inc. | 37,272 | 1,606 | |
Annaly Capital | |||
Management Inc. | 156,336 | 1,573 | |
Western Union Co. | 80,729 | 1,489 | |
Kimco Realty Corp. | 64,206 | 1,480 | |
* | CBRE Group Inc. Class A | 44,240 | 1,417 |
CIT Group Inc. | 32,600 | 1,416 | |
Huntington Bancshares Inc. | 125,900 | 1,374 | |
Digital Realty Trust Inc. | 21,162 | 1,340 | |
Unum Group | 39,506 | 1,325 | |
Comerica Inc. | 28,459 | 1,252 | |
* | Alleghany Corp. | 2,518 | 1,183 |
Cincinnati Financial Corp. | 22,158 | 1,160 | |
American Capital | |||
Agency Corp. | 57,752 | 1,105 | |
TD Ameritrade Holding Corp. | 32,990 | 1,104 | |
Arthur J Gallagher & Co. | 25,214 | 1,102 | |
Torchmark Corp. | 18,726 | 1,095 | |
Willis Group Holdings plc | 25,371 | 1,093 | |
* | Arch Capital Group Ltd. | 15,674 | 1,070 |
Plum Creek Timber Co. Inc. | 26,253 | 1,010 | |
PartnerRe Ltd. | 7,166 | 992 | |
Duke Realty Corp. | 53,792 | 971 | |
Zions Bancorporation | 33,064 | 959 | |
Regency Centers Corp. | 14,653 | 869 | |
WR Berkley Corp. | 15,811 | 858 | |
* | Liberty Ventures Class A | 21,019 | 835 |
Axis Capital Holdings Ltd. | 14,854 | 832 | |
Iron Mountain Inc. | 28,632 | 811 | |
Navient Corp. | 62,435 | 799 | |
Assurant Inc. | 10,626 | 790 |
Market | |||
Value• | |||
Shares | ($000) | ||
People’s United | |||
Financial Inc. | 48,613 | 754 | |
Legg Mason Inc. | 16,690 | 740 | |
Liberty Property Trust | 23,258 | 715 | |
RenaissanceRe | |||
Holdings Ltd. | 6,781 | 691 | |
Commerce Bancshares Inc. | 13,635 | 611 | |
* | Synchrony Financial | 18,519 | 610 |
* | SLM Corp. | 66,323 | 562 |
Weingarten Realty Investors | 17,299 | 547 | |
Rayonier Inc. | 19,555 | 450 |
* | Genworth Financial Inc. |
Class A | 82,819 | 429 | |
* | Care Capital Properties Inc. | 12,886 | 410 |
Communications Sales & | |||
Leasing Inc. | 20,216 | 406 | |
452,311 | |||
Health Care (20.3%) | |||
Johnson & Johnson | 427,673 | 40,193 | |
Pfizer Inc. | 953,526 | 30,723 | |
Merck & Co. Inc. | 444,761 | 23,950 | |
* | Allergan plc | 60,913 | 18,502 |
Amgen Inc. | 117,942 | 17,901 | |
UnitedHealth Group Inc. | 149,263 | 17,270 | |
AbbVie Inc. | 268,092 | 16,732 | |
Medtronic plc | 218,900 | 15,824 | |
Bristol-Myers Squibb Co. | 256,937 | 15,280 | |
* | Celgene Corp. | 124,689 | 14,723 |
Eli Lilly & Co. | 155,080 | 12,771 | |
* | Biogen Inc. | 36,803 | 10,942 |
Abbott Laboratories | 233,661 | 10,582 | |
* | Express Scripts | ||
Holding Co. | 105,218 | 8,796 | |
Thermo Fisher | |||
Scientific Inc. | 61,747 | 7,741 | |
* | Regeneron | ||
Pharmaceuticals Inc. | 12,314 | 6,323 | |
Aetna Inc. | 54,978 | 6,296 | |
* | Alexion Pharmaceuticals Inc. | 34,979 | 6,023 |
Anthem Inc. | 41,259 | 5,820 | |
Cigna Corp. | 40,085 | 5,644 | |
* | Vertex Pharmaceuticals Inc. | 38,020 | 4,848 |
Becton Dickinson and Co. | 31,660 | 4,465 | |
* | HCA Holdings Inc. | 49,818 | 4,315 |
Stryker Corp. | 43,441 | 4,285 | |
Humana Inc. | 23,391 | 4,276 | |
Perrigo Co. plc | 21,234 | 3,885 | |
* | Boston Scientific Corp. | 209,577 | 3,508 |
Zoetis Inc. | 78,066 | 3,503 | |
Baxter International Inc. | 85,507 | 3,288 | |
* | Mylan NV | 64,247 | 3,186 |
* | BioMarin | ||
Pharmaceutical Inc. | 24,378 | 3,151 | |
St. Jude Medical Inc. | 43,963 | 3,113 | |
Baxalta Inc. | 84,707 | 2,977 |
13
FTSE Social Index Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
* | Intuitive Surgical Inc. | 5,720 | 2,923 |
Zimmer Biomet | |||
Holdings Inc. | 27,567 | 2,855 | |
* | Incyte Corp. | 21,924 | 2,547 |
* | DaVita HealthCare | ||
Partners Inc. | 32,706 | 2,474 | |
* | Endo International plc | 32,110 | 2,472 |
* | Edwards Lifesciences Corp. | 16,548 | 2,331 |
CR Bard Inc. | 11,353 | 2,200 | |
* | Hospira Inc. | 24,046 | 2,163 |
Universal Health | |||
Services Inc. Class B | 14,394 | 1,974 | |
* | Laboratory Corp. of | ||
America Holdings | 15,687 | 1,848 | |
* | Henry Schein Inc. | 12,613 | 1,726 |
Quest Diagnostics Inc. | 22,401 | 1,519 | |
* | Jazz Pharmaceuticals plc | 8,775 | 1,481 |
* | Waters Corp. | 11,507 | 1,397 |
* | Varian Medical Systems Inc. | 15,641 | 1,271 |
DENTSPLY International Inc. | 21,833 | 1,144 | |
Patterson Cos. Inc. | 13,192 | 605 | |
373,766 | |||
Industrials (6.1%) | |||
Union Pacific Corp. | 137,007 | 11,747 | |
Danaher Corp. | 88,963 | 7,742 | |
FedEx Corp. | 41,356 | 6,229 | |
Automatic Data | |||
Processing Inc. | 73,304 | 5,668 | |
Illinois Tool Works Inc. | 51,716 | 4,371 | |
CSX Corp. | 154,747 | 4,237 | |
Eaton Corp. plc | 73,451 | 4,191 | |
Deere & Co. | 49,325 | 4,034 | |
Norfolk Southern Corp. | 47,620 | 3,710 | |
Waste Management Inc. | 70,946 | 3,552 | |
Cummins Inc. | 28,314 | 3,447 | |
PACCAR Inc. | 55,190 | 3,255 | |
* | Fiserv Inc. | 37,002 | 3,155 |
Sherwin-Williams Co. | 11,933 | 3,053 | |
WestRock Co. | 40,548 | 2,406 | |
Rockwell Automation Inc. | 21,196 | 2,370 | |
Ingersoll-Rand plc | 41,428 | 2,291 | |
AMETEK Inc. | 37,635 | 2,025 | |
WW Grainger Inc. | 8,967 | 2,004 | |
Vulcan Materials Co. | 20,731 | 1,941 | |
Agilent Technologies Inc. | 53,320 | 1,936 | |
Xerox Corp. | 177,494 | 1,805 | |
Sealed Air Corp. | 32,069 | 1,650 | |
Fastenal Co. | 42,415 | 1,635 | |
Kansas City Southern | 17,127 | 1,588 | |
Pentair plc | 28,636 | 1,583 | |
CH Robinson Worldwide Inc. | 22,854 | 1,541 | |
Expeditors International of | |||
Washington Inc. | 28,967 | 1,418 | |
Towers Watson & Co. | |||
Class A | 10,858 | 1,289 |
Market | |||
Value• | |||
Shares | ($000) | ||
Fortune Brands | |||
Home & Security Inc. | 24,820 | 1,188 | |
ManpowerGroup Inc. | 12,229 | 1,063 | |
Robert Half | |||
International Inc. | 19,962 | 1,019 | |
JB Hunt Transport | |||
Services Inc. | 13,875 | 1,010 | |
Broadridge Financial | |||
Solutions Inc. | 18,951 | 1,000 | |
* | United Rentals Inc. | 14,202 | 985 |
* | Flextronics | ||
International Ltd. | 89,344 | 939 | |
ADT Corp. | 28,529 | 935 | |
Xylem Inc. | 28,416 | 922 | |
Avnet Inc. | 21,149 | 897 | |
* | Arrow Electronics Inc. | 15,446 | 864 |
Allegion plc | 14,457 | 862 | |
* | Keysight Technologies Inc. | 26,222 | 840 |
* | Trimble Navigation Ltd. | 40,714 | 769 |
Ryder System Inc. | 8,362 | 685 | |
Bemis Co. Inc. | 15,176 | 644 | |
MDU Resources Group Inc. | 31,896 | 571 | |
Jabil Circuit Inc. | 29,111 | 563 | |
* | Owens-Illinois Inc. | 26,826 | 559 |
112,188 | |||
Oil & Gas (2.6%) | |||
Kinder Morgan Inc. | 294,093 | 9,532 | |
Occidental Petroleum Corp. | 125,782 | 9,183 | |
Anadarko Petroleum Corp. | 82,749 | 5,923 | |
Williams Cos. Inc. | 118,423 | 5,708 | |
Spectra Energy Corp. | 115,934 | 3,370 | |
Devon Energy Corp. | 77,053 | 3,287 | |
EQT Corp. | 25,441 | 1,980 | |
Helmerich & Payne Inc. | 24,695 | 1,457 | |
* | FMC Technologies Inc. | 41,604 | 1,447 |
Columbia Pipeline | |||
Group Inc. | 53,809 | 1,365 | |
* | Southwestern Energy Co. | 70,809 | 1,150 |
Range Resources Corp. | 29,571 | 1,142 | |
* | Newfield Exploration Co. | 30,620 | 1,020 |
Core Laboratories NV | 8,315 | 962 | |
QEP Resources Inc. | 42,465 | 596 | |
48,122 | |||
Technology (21.0%) | |||
Apple Inc. | 887,790 | 100,107 | |
Microsoft Corp. | 1,120,671 | 48,772 | |
* | Google Inc. Class A | 44,325 | 28,715 |
* | Google Inc. Class C | 45,036 | 27,844 |
Intel Corp. | 737,361 | 21,044 | |
Cisco Systems Inc. | 789,676 | 20,437 | |
Oracle Corp. | 523,389 | 19,413 | |
QUALCOMM Inc. | 244,834 | 13,853 | |
Texas Instruments Inc. | 161,401 | 7,721 | |
EMC Corp. | 304,450 | 7,572 | |
* | salesforce.com inc | 92,828 | 6,439 |
14
FTSE Social Index Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
* | Adobe Systems Inc. | 77,591 | 6,096 |
* | Cognizant Technology | ||
Solutions Corp. Class A | 94,933 | 5,975 | |
Avago Technologies Ltd. | |||
Class A | 39,686 | 4,999 | |
Broadcom Corp. Class A | 85,164 | 4,400 | |
Intuit Inc. | 40,180 | 3,445 | |
Corning Inc. | 199,010 | 3,425 | |
Applied Materials Inc. | 191,897 | 3,087 | |
* | NXP Semiconductors NV | 35,602 | 3,014 |
Western Digital Corp. | 34,740 | 2,847 | |
* | Cerner Corp. | 45,915 | 2,836 |
* | Micron Technology Inc. | 170,876 | 2,804 |
Seagate Technology plc | 48,265 | 2,481 | |
Altera Corp. | 46,324 | 2,249 | |
Symantec Corp. | 107,964 | 2,212 | |
* | Red Hat Inc. | 28,210 | 2,037 |
* | Akamai Technologies Inc. | 26,583 | 1,896 |
NVIDIA Corp. | 81,349 | 1,829 | |
SanDisk Corp. | 33,119 | 1,807 | |
Lam Research Corp. | 24,824 | 1,806 | |
* | Citrix Systems Inc. | 25,157 | 1,713 |
* | Check Point Software | ||
Technologies Ltd. | 21,542 | 1,680 | |
* | Autodesk Inc. | 35,477 | 1,659 |
Xilinx Inc. | 39,585 | 1,658 | |
Juniper Networks Inc. | 61,717 | 1,587 | |
* | Mobileye NV | 27,467 | 1,554 |
Maxim Integrated | |||
Products Inc. | 44,425 | 1,496 | |
CA Inc. | 51,757 | 1,412 | |
* | F5 Networks Inc. | 11,254 | 1,366 |
KLA-Tencor Corp. | 25,060 | 1,256 | |
* | VeriSign Inc. | 17,977 | 1,239 |
CDK Global Inc. | 24,997 | 1,238 | |
* | Workday Inc. Class A | 17,086 | 1,200 |
* | Synopsys Inc. | 22,614 | 1,061 |
* | VMware Inc. Class A | 11,304 | 895 |
* | Teradata Corp. | 23,128 | 676 |
* | ServiceNow Inc. | 7,597 | 539 |
DST Systems Inc. | 5,129 | 525 | |
* | Yandex NV Class A | 38,252 | 467 |
* | Cree Inc. | 16,743 | 456 |
384,839 | |||
Telecommunications (0.2%) | |||
* | T-Mobile US Inc. | 44,794 | 1,774 |
Frontier | |||
Communications Corp. | 185,551 | 941 | |
Windstream Holdings Inc. | 19,147 | 138 | |
* | Sprint Corp. | 16,710 | 84 |
2,937 |
Market | ||
Value• | ||
Shares | ($000) | |
Utilities (0.9%) | ||
Consolidated Edison Inc. | 44,732 | 2,814 |
WEC Energy Group Inc. | 48,989 | 2,334 |
Eversource Energy | 49,338 | 2,331 |
American Water | ||
Works Co. Inc. | 27,973 | 1,453 |
CMS Energy Corp. | 43,126 | 1,414 |
ONEOK Inc. | 38,689 | 1,393 |
CenterPoint Energy Inc. | 66,504 | 1,238 |
Alliant Energy Corp. | 17,615 | 998 |
Pepco Holdings Inc. | 39,282 | 903 |
NiSource Inc. | 51,009 | 856 |
TECO Energy Inc. | 36,238 | 764 |
Questar Corp. | 27,433 | 530 |
17,028 | ||
Total Common Stocks | ||
(Cost $1,533,327) | 1,835,151 | |
Temporary Cash Investment (0.1%) | ||
Money Market Fund (0.1%) | ||
1 Vanguard Market | ||
Liquidity Fund, 0.168% | ||
(Cost $1,889) | 1,888,779 | 1,889 |
Total Investments (100.0%) | ||
(Cost $1,535,216) | 1,837,040 | |
Amount | ||
($000) | ||
Other Assets and Liabilities (0.00%) | ||
Other Assets | ||
Investment in Vanguard | 173 | |
Receivables for Investment | ||
Securities Sold | 9,450 | |
Receivables for Accrued Income | 3,322 | |
Receivables for Capital Shares Issued | 5,043 | |
Other Assets | 10 | |
Total Other Assets | 17,998 | |
Liabilities | ||
Payables for Investment | ||
Securities Purchased | (3,522) | |
Payables for Capital Shares Redeemed | (13,701) | |
Payables to Vanguard | (1,055) | |
Total Liabilities | (18,278) | |
Net Assets (100%) | 1,836,760 |
15
FTSE Social Index Fund
At August 31, 2015, net assets consisted of:
Amount
($000)
Paid-in Capital | 1,525,239 |
Undistributed Net Investment Income | 17,041 |
Accumulated Net Realized Losses | (7,344) |
Unrealized Appreciation (Depreciation) | 301,824 |
Net Assets | 1,836,760 |
Investor Shares—Net Assets | |
Applicable to 87,050,596 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 1,130,749 |
Net Asset Value Per Share— | |
Investor Shares | $12.99 |
Institutional Shares—Net Assets | |
Applicable to 54,287,908 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 706,011 |
Net Asset Value Per Share— | |
Institutional Shares | $13.00 |
- See Note A in Notes to Financial Statements.
- Non-income-producing security.
- 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.
16
FTSE Social Index Fund | |
Statement of Operations | |
Year Ended | |
August 31, 2015 | |
($000) | |
Investment Income | |
Income | |
Dividends | 30,453 |
Interest1 | 8 |
Securities Lending | 13 |
Total Income | 30,474 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 278 |
Management and Administrative—Investor Shares | 2,054 |
Management and Administrative—Institutional Shares | 623 |
Marketing and Distribution—Investor Shares | 211 |
Marketing and Distribution—Institutional Shares | 82 |
Custodian Fees | 126 |
Auditing Fees | 32 |
Shareholders’ Reports—Investor Shares | 13 |
Shareholders’ Reports—Institutional Shares | 18 |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 3,438 |
Net Investment Income | 27,036 |
Realized Net Gain (Loss) on Investment Securities Sold | 35,673 |
Change in Unrealized Appreciation (Depreciation) of Investment Securities | (31,310) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 31,399 |
1 Interest income from an affiliated company of the fund was $8,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
17
FTSE Social Index Fund | ||
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2015 | 2014 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 27,036 | 15,983 |
Realized Net Gain (Loss) | 35,673 | 34,417 |
Change in Unrealized Appreciation (Depreciation) | (31,310) | 177,518 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 31,399 | 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 | 319,681 | 103,700 |
Institutional Shares | 276,754 | 80,439 |
Net Increase (Decrease) from Capital Share Transactions | 596,435 | 184,139 |
Total Increase (Decrease) | 608,004 | 399,174 |
Net Assets | ||
Beginning of Period | 1,228,756 | 829,582 |
End of Period1 | 1,836,760 | 1,228,756 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $17,041,000 and $9,835,000.
See accompanying Notes, which are an integral part of the Financial Statements.
18
FTSE Social Index Fund | |||||
Financial Highlights | |||||
Investor Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $12.74 | $10.28 | $8.30 | $7.31 | $6.27 |
Investment Operations | |||||
Net Investment Income | .183 | .167 | .153 | .117 | .084 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | . 231 | 2.442 | 1.969 | .962 | 1.016 |
Total from Investment Operations | .414 | 2.609 | 2.122 | 1.079 | 1.100 |
Distributions | |||||
Dividends from Net Investment Income | (.164) | (.149) | (.142) | (. 089) | (.060) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (.164) | (.149) | (.142) | (. 089) | (.060) |
Net Asset Value, End of Period | $12.99 | $12.74 | $10.28 | $8.30 | $7.31 |
Total Return1 | 3.25% | 25.58% | 25.90% | 14.94% | 17.52% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $1,131 | $800 | $553 | $379 | $344 |
Ratio of Total Expenses to Average Net Assets | 0.25% | 0.27% | 0.28% | 0.29% | 0.29% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.63% | 1.51% | 1.63% | 1.50% | 1.10% |
Portfolio Turnover Rate | 20% | 14% | 29% | 45% | 11% |
1 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.
19
FTSE Social Index Fund | |||||
Financial Highlights | |||||
Institutional Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $12.75 | $10.29 | $8.31 | $7.32 | $6.27 |
Investment Operations | |||||
Net Investment Income | .193 | .180 | .163 | .128 | .095 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | . 233 | 2.440 | 1.971 | .960 | 1.025 |
Total from Investment Operations | .426 | 2.620 | 2.134 | 1.088 | 1.120 |
Distributions | |||||
Dividends from Net Investment Income | (.176) | (.160) | (.154) | (.098) | (.070) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (.176) | (.160) | (.154) | (.098) | (.070) |
Net Asset Value, End of Period | $13.00 | $12.75 | $10.29 | $8.31 | $7.32 |
Total Return | 3.34% | 25.68% | 26.05% | 15.06% | 17.84% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $706 | $429 | $276 | $202 | $155 |
Ratio of Total Expenses to Average Net Assets | 0.15% | 0.16% | 0.16% | 0.16% | 0.16% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.73% | 1.62% | 1.75% | 1.63% | 1.23% |
Portfolio Turnover Rate | 20% | 14% | 29% | 45% | 11% |
See accompanying Notes, which are an integral part of the Financial Statements.
20
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, 2012–2015), 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 counter-party 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 (“Vanguard”) participate in a $3 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
21
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 August 31, 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At August 31, 2015, the fund had contributed to Vanguard capital in the amount of $173,000, 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 employees, respectively, 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 August 31, 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.
22
FTSE Social Index Fund
During the year ended August 31, 2015, the fund realized $39,368,000 of net capital gains resulting from in-kind redemptions—in which shareholders exchanged fund shares for securities held by the fund rather than for cash. Because such gains are not taxable to the fund, and are not distributed to shareholders, they have been reclassified from accumulated net realized losses to paid-in capital.
For tax purposes, at August 31, 2015, the fund had $17,972,000 of ordinary income available for distribution. At August 31, 2015, the fund had available capital losses totaling $4,080,000 to offset future net capital gains. Of this amount, $394,000 is subject to expiration on August 31, 2019. Capital losses of $3,686,000 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.
At August 31, 2015, the cost of investment securities for tax purposes was $1,538,459,000. Net unrealized appreciation of investment securities for tax purposes was $298,581,000, consisting of unrealized gains of $345,462,000 on securities that had risen in value since their purchase and $46,881,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2015, the fund purchased $1,013,875,000 of investment securities and sold $409,608,000 of investment securities, other than temporary cash investments. Purchases and sales include $73,235,000 and $93,189,000, 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: | ||||
Year Ended August 31, | ||||
2015 | 2014 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
Investor Shares | ||||
Issued | 588,757 | 44,361 | 300,900 | 26,084 |
Issued in Lieu of Cash Distributions | 11,902 | 917 | 7,650 | 685 |
Redeemed | (280,978) | (21,014) | (204,850) | (17,767) |
Net Increase (Decrease)—Investor Shares | 319,681 | 24,264 | 103,700 | 9,002 |
Institutional Shares | ||||
Issued | 324,758 | 24,282 | 136,554 | 11,664 |
Issued in Lieu of Cash Distributions | 7,027 | 541 | 4,672 | 418 |
Redeemed | (55,031) | (4,181) | (60,787) | (5,293) |
Net Increase (Decrease) —Institutional Shares | 276,754 | 20,642 | 80,439 | 6,789 |
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2015, that would require recognition or disclosure in these financial statements.
23
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of Vanguard World Fund and the Shareholders of Vanguard FTSE Social Index Fund: In our opinion, the accompanying statement of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Vanguard FTSE Social Index Fund (constituting a separate portfolio of Vanguard World Fund, hereafter referred to as the “Fund”) at August 31, 2015, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2015 by correspondence with the custodian and brokers, by agreement to the underlying ownership records of the transfer agent and the application of alternative auditing procedures where securities purchased had not been received, provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
October 12, 2015
Special 2015 tax information (unaudited) for Vanguard FTSE Social Index Fund
This information for the fiscal year ended August 31, 2015, is included pursuant to provisions of the Internal Revenue Code.
The fund distributed $19,830,000 of qualified dividend income to shareholders during the fiscal year.
For corporate shareholders, 99% of investment income (dividend income plus short-term gains, if any) qualifies for the dividends-received deduction.
24
Your Fund’s After-Tax Returns
This table presents returns for your fund both before and after taxes. The after-tax returns are shown in two ways: (1) assuming that an investor owned the fund during the entire period and paid taxes on the fund’s distributions, and (2) assuming that an investor paid taxes on the fund’s distributions and sold all shares at the end of each period.
Calculations are based on the highest individual federal income tax and capital gains tax rates in effect at the times of the distributions and the hypothetical sales. State and local taxes were not considered. After-tax returns reflect any qualified dividend income, using actual prior-year figures and estimates for 2015. (In the example, returns after the sale of fund shares may be higher than those assuming no sale. This occurs when the sale would have produced a capital loss. The calculation assumes that the investor received a tax deduction for the loss.)
The table shows returns for Investor Shares only; returns for other share classes will differ. Please note that your actual after-tax returns will depend on your tax situation and may differ from those shown. Also note that if you own the fund in a tax-deferred account, such as an individual retirement account or a 401(k) plan, this information does not apply to you. Such accounts are not subject to current taxes.
Finally, keep in mind that a fund’s performance—whether before or after taxes—does not guarantee future results.
Average Annual Total Returns: FTSE Social Index Fund Investor Shares
Periods Ended August 31, 2015
One | Five | Ten | |
Year | Years | Years | |
Returns Before Taxes | 3.25% | 17.14% | 6.38% |
Returns After Taxes on Distributions | 2.94 | 16.87 | 6.14 |
Returns After Taxes on Distributions and Sale of Fund Shares | 2.09 | 13.91 | 5.14 |
25
About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The 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.
26
Six Months Ended August 31, 2015 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
FTSE Social Index Fund | 2/28/2015 | 8/31/2015 | Period |
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $952.35 | $1.13 |
Institutional Shares | 1,000.00 | 952.38 | 0.69 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,024.05 | $1.17 |
Institutional Shares | 1,000.00 | 1,024.50 | 0.71 |
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 0.23% for Investor Shares and 0.14% 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 (184/365).
27
Trustees Approve Advisory Arrangement
The board of trustees of Vanguard FTSE Social Index Fund has renewed the fund’s investment advisory arrangement with The Vanguard Group, Inc. (Vanguard). Vanguard—through its Equity Index Group—serves as the investment advisor to the fund. The board determined that continuing the fund’s internalized management structure was in the best interests of the fund and its shareholders.
The board based its decision upon an evaluation of the 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 arrangement. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of services
The board reviewed 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 the advisor. The board considered that Vanguard has been managing investments for more than three decades. The Equity Index Group adheres to a sound, disciplined investment management process; the team has considerable experience, stability, and depth.
The board concluded that Vanguard’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangement.
Investment performance
The board considered the short- and long-term performance of the fund, including any periods of outperformance or underperformance relative to a target index and peer group. The board concluded that the performance was such that the 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.
The board does not conduct a profitability analysis of Vanguard because of Vanguard’s unique “at-cost” structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees and produces “profits” only in the form of reduced expenses for fund shareholders.
The benefit of economies of scale
The board concluded that the fund’s at-cost arrangement with Vanguard ensures that the fund will realize economies of scale as it grows, with the cost to shareholders declining as fund assets increase.
The board will consider whether to renew the advisory arrangement again after a one-year period.
28
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.
29
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.
30
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 194 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. Treasurer Since May 2015. 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; Controller of each of the investment companies served by The Vanguard Group (2010–2015); 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).
Peter Mahoney
Born 1974. Controller Since May 2015. Principal Occupation(s) During the Past Five Years and Other Experience: Head of Global Fund Accounting at The Vanguard Group, Inc.; Controller of each of the investment companies served by The Vanguard Group; Head of International Fund Services at The Vanguard Group (2008–2014).
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
James M. Norris
Thomas M. Rampulla
Glenn W. Reed
Karin A. Risi
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 | London Stock Exchange Group companies include FTSE |
Direct Investor Account Services > 800-662-2739 | International Limited ("FTSE"), Frank Russell Company |
("Russell"), MTS Next Limited ("MTS"), and FTSE TMX | |
Institutional Investor Services > 800-523-1036 | Global Debt Capital Markets Inc. ("FTSE TMX"). All |
Text Telephone for People | rights reserved. "FTSE®", “Russell®", "MTS®", "FTSE |
Who Are Deaf or Hard of Hearing> 800-749-7273 | TMX®" and "FTSE Russell" and other service marks and |
trademarks related to the FTSE or Russell indexes are | |
This material may be used in conjunction | trademarks of the London Stock Exchange Group |
with the offering of shares of any Vanguard | companies and are used by FTSE, MTS, FTSE TMX and |
fund only if preceded or accompanied by | Russell under licence. All information is provided for |
information purposes only. No responsibility or liability | |
the fund’s current prospectus. | can be accepted by the London Stock Exchange Group |
All comparative mutual fund data are from Lipper, a | companies nor its licensors for any errors or for any |
Thomson Reuters Company, or Morningstar, Inc., unless | loss from use of this publication. Neither the London |
otherwise noted. | Stock Exchange Group companies nor any of its |
licensors make any claim, prediction, warranty or | |
You can obtain a free copy of Vanguard’s proxy voting | representation whatsoever, expressly or impliedly, |
guidelines by visiting vanguard.com/proxyreporting or by | either as to the results to be obtained from the use of |
calling Vanguard at 800-662-2739. The guidelines are | the FTSE4Good US Select Index or the fitness or |
also available from the SEC’s website, sec.gov. In | suitability of the FTSE4Good US Select Index for any |
addition, you may obtain a free report on how your fund | particular purpose to which it might be put. |
voted the proxies for securities it owned during the 12 | |
months ended June 30. To get the report, visit either | The Industry Classification Benchmark ("ICB") is owned |
vanguard.com/proxyreporting or sec.gov. | by FTSE. FTSE does not accept any liability to any |
person for any loss or damage arising out of any error | |
You can review and copy information about your fund at | or omission in the ICB. |
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 email 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. | |
Q2130 102015 |
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx1x1.jpg)
Annual Report | August 31, 2015
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
Vanguard’s Principles for Investing Success
We want to give you the best chance of investment success. These principles, grounded in Vanguard’s research and experience, can put you on the right path.
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.
A single theme unites these principles: Focus on the things you can control.
We believe there is no wiser course for any investor.
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 | 50 |
Industrials Index Fund | 61 |
Information Technology Index Fund | 72 |
Materials Index Fund | 83 |
Telecommunication Services Index Fund | 93 |
Utilities Index Fund | 104 |
Your Fund’s After-Tax Returns | 115 |
About Your Fund’s Expenses | 117 |
Trustees Approve Advisory Arrangements | 119 |
Glossary | 120 |
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx2x1.jpg)
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: Pictured is a sailing block on the Brilliant, a 1932 schooner docked in Mystic, Connecticut. A type of pulley, the sailing block helps coordinate the setting of the sails.
At Vanguard, the intricate coordination of technology and people allows us to help millions of clients around the world reach their financial goals.
Your Fund’s Total Returns
Fiscal Year Ended August 31, 2015
ETF Shares1 and Admiral™ Shares2 | |
Total | |
Returns | |
Vanguard Consumer Discretionary ETF | |
Market Price | 9.47% |
Net Asset Value | 9.41 |
Vanguard Consumer Discretionary | |
Index Fund | 9.43 |
MSCI US IMI/Consumer Discretionary 25/50 | 9.54 |
Consumer Services Funds Average3 | 5.41 |
Vanguard Consumer Staples ETF | |
Market Price | 7.70% |
Net Asset Value | 7.67 |
Vanguard Consumer Staples Index Fund | 7.73 |
MSCI US IMI/Consumer Staples 25/50 | 7.83 |
Consumer Goods Funds Average3 | 1.28 |
Vanguard Energy ETF | |
Market Price | -32.67% |
Net Asset Value | -32.70 |
Vanguard Energy Index Fund | -32.66 |
MSCI US IMI/Energy 25/50 | -32.63 |
Natural Resources Funds Average3 | -35.73 |
Vanguard Financials ETF | |
Market Price | 2.61% |
Net Asset Value | 2.63 |
Vanguard Financials Index Fund | 2.64 |
MSCI US IMI/Financials 25/50 | 2.70 |
Financial Services Funds Average3 | 2.43 |
Vanguard Health Care ETF | |
Market Price | 14.08% |
Net Asset Value | 14.08 |
Vanguard Health Care Index Fund | 14.11 |
MSCI US IMI/Health Care 25/50 | 14.12 |
Health/Biotechnology Funds Average3 | 20.28 |
Vanguard Industrials ETF | |
Market Price | -3.02% |
Net Asset Value | -3.03 |
Vanguard Industrials Index Fund | -2.98 |
MSCI US IMI/Industrials 25/50 | -2.90 |
Industrials Funds Average3 | -3.82 |
Total | |
Returns | |
Vanguard Information Technology ETF | |
Market Price | 2.07% |
Net Asset Value | 2.05 |
Vanguard Information Technology | |
Index Fund | 2.09 |
MSCI US IMI/Information Technology 25/50 | 2.18 |
Science and Technology Funds Average3 | 1.28 |
Vanguard Materials ETF | |
Market Price | -13.58% |
Net Asset Value | -13.56 |
Vanguard Materials Index Fund | -13.54 |
MSCI US IMI/Materials 25/50 | -13.45 |
Basic Materials Funds Average3 | -23.61 |
Vanguard Telecommunication Services ETF | |
Market Price | -2.76% |
Net Asset Value | -2.72 |
Vanguard Telecommunication Services | |
Index Fund | -2.66 |
MSCI US IMI/Telecommunication | |
Services 25/50 | -2.44 |
Telecommunication Funds Average3 | -1.24 |
Vanguard Utilities ETF | |
Market Price | 0.00% |
Net Asset Value | -0.02 |
Vanguard Utilities Index Fund | -0.01 |
MSCI US IMI/Utilities 25/50 | 0.10 |
Utility Funds Average3 | -6.05 |
MSCI US IMI/2500 | 0.44% |
1 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.
2 Admiral Shares carry lower expenses and are available to investors who meet certain account-balance requirements.
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
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx4x1.jpg)
Chairman’s Letter
Dear Shareholder,
The fiscal year ended August 31, 2015, was a bumpy one for domestic equities; the broad U.S. stock market returned less than 1%. Results for the ten industry sectors varied dramatically. Half of them notched gains—health care posted double-digit returns—but the energy sector fell sharply amid tumbling oil prices.
In this environment, returns for the Vanguard U.S. Sector Index Funds ranged from about 14% for Vanguard Health Care Index Fund to about –33% for Vanguard Energy Index Fund.
Each of the ten funds met its primary objective of closely tracking its target index, and eight surpassed the average return of their industry peers.
If you hold fund shares in a taxable account, you may wish to review the after-tax returns that appear later in this report.
August’s moody markets led to flat 12-month returns
U.S. stocks generally moved in opposite directions over the two halves of the fiscal year ended August 31. A first-half advance of about 6% was followed by a second-half retreat of about –5%. Ultimately, the ride ended about where it started, with the market returning less than 1%.
Much of the decline came in August, when stocks tumbled over fears about the global impact of China’s economic deceleration. Greece’s debt crisis, the strong U.S. dollar, perceived high valuations, and speculation over when the Federal Reserve might raise short-term interest rates also played a part. (Shortly after the close of the reporting period, the Fed announced at its September meeting that it would leave rates unchanged for the time being.)
For U.S. investors, international stocks returned about –12%, a result that would have been better if not for the dollar’s strength against many foreign currencies. China’s troubles buffeted emerging markets, which produced lower returns than the developed markets of Europe and the Pacific region.
Bond results were somewhat muted as the Fed weighed rate-hike timing
The broad U.S. taxable bond market returned 1.56%. Bond prices, which generally fell slightly, received periodic support from global investors looking for higher yields than those available in many other developed markets. Buyers seeking
Market Barometer | |||
Average Annual Total Returns | |||
Periods Ended August 31, 2015 | |||
One Year | Three Years | Five Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 0.40% | 14.68% | 16.07% |
Russell 2000 Index (Small-caps) | 0.03 | 14.12 | 15.55 |
Russell 3000 Index (Broad U.S. market) | 0.36 | 14.63 | 16.03 |
FTSE All-World ex US Index (International) | -11.50 | 5.79 | 5.17 |
Bonds | |||
Barclays U.S. Aggregate Bond Index (Broad taxable market) | 1.56% | 1.53% | 2.98% |
Barclays Municipal Bond Index (Broad tax-exempt market) | 2.52 | 2.83 | 3.96 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.02 | 0.03 | 0.05 |
CPI | |||
Consumer Price Index | 0.20% | 1.14% | 1.77% |
2
shelter from stock market volatility also helped. The yield of the 10-year Treasury note ended August at 2.18%, down from 2.34% a year earlier.
Limited by the dollar’s strength, international bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –11.97%. International bonds returned about 3% without this currency effect.
The Fed’s 0%–0.25% target for short-term interest rates continued to restrain money market fund and savings account returns.
Health care stocks led the way as energy companies tanked
As I mentioned earlier, performances for the market’s ten industry sectors varied greatly. Five of them outpaced the broad market’s result.
Health care did best, returning about 14% for the period. The trends favoring the industry are familiar. The aging population requires more health care, such care is increasingly accessible worldwide, and the Affordable Care Act has provided insurance coverage for more people in the United States.
Pharmaceutical and biotechnology companies produced the bulk of the sector’s returns, benefiting from both merger-and-acquisition activity and promising developments in their pipelines. Managed health care and health care equipment firms further boosted results.
The consumer discretionary and consumer staples sectors were strong as well, with returns of more than 9% and nearly 8%. Consumer discretionary stocks rose amid increased consumer confidence and continued growth in the housing market. Internet retailers, restaurants, home improvement stores, and footwear companies stood out. Consumer staples has long been viewed by investors as a defensive sector—during downturns in the market, stocks in this category tend to outperform. Drug retailers and packaged food providers did best.
Expense Ratios | |||
Your Fund Compared With Its Peer Group | |||
ETF | Admiral | 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 fiscal year ended August 31, 2015, the fund expense ratios were: for the Consumer Discretionary Index Fund, 0.10% for ETF Shares and 0.09% for Admiral Shares; for the Consumer Staples Index Fund, 0.10% for ETF Shares and 0.10% for Admiral Shares; for the Energy Index Fund, 0.10% for ETF Shares and 0.10% for Admiral Shares; for the Financials Index Fund, 0.10% for ETF Shares and 0.10% for Admiral Shares; for the Health Care Index Fund, 0.09% for ETF Shares and 0.10% for Admiral Shares; for the Industrials Index Fund, 0.10% for ETF Shares and 0.10% for Admiral Shares; for the Information Technology Index Fund, 0.10% for ETF Shares and 0.10% for Admiral Shares; for the Materials Index Fund, 0.10% for ETF Shares and 0.10% for Admiral Shares; for the Telecommunication Services Index Fund, 0.10% for ETF Shares and 0.10% for Admiral Shares; and for the Utilities Index Fund, 0.10% for ETF Shares and 0.10% for Admiral 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; and for the Utilities Index Fund, Utility Funds.
An indexing benefit that’s worth keeping in mind
As a Vanguard investor, you’re probably familiar with the cost and diversification benefits that index funds typically offer. But there’s a lesser-known—yet important—advantage to indexing as well: relative predictability.
Simply put, index funds help you capture the market’s return more predictably than actively managed funds.
By definition, an index fund is built and managed to track the return of its designated broad market or market segment. Some do so more closely than others. But what’s key is that you know what to expect: whatever the market returns—good or bad—minus the fund’s costs. Active managers, in contrast, seek to beat the market—and do so with varying degrees of success at different times.
The relative predictability of indexing can help you stay on course with your investment goals, by reducing the likelihood of particular surprises—such as being out of step with market performance. The confidence of knowing that you’ll earn a market-like return can reduce the temptation to trade based on emotions.
We recognize that some investors want the opportunity to outperform the market. That’s why Vanguard also offers low-cost active funds managed by carefully selected, world-class advisors, so you can choose an investment strategy that aligns with both your goals and your risk appetite.
3
Total Returns | |
Ten Years Ended August 31, 2015 | |
Average | |
Annual Return | |
Consumer Discretionary Index Fund ETF Shares Net Asset Value | 9.72% |
Spliced US IMI/Consumer Discretionary 25/50 | 9.86 |
Consumer Services Funds Average | 8.13 |
Consumer Services Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Consumer Staples Index Fund ETF Shares Net Asset Value | 10.52% |
Spliced US IMI/Consumer Staples 25/50 | 10.64 |
Consumer Goods Funds Average | 8.80 |
Consumer Goods Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Energy Index Fund ETF Shares Net Asset Value | 4.10% |
Spliced US IMI/Energy 25/50 | 4.16 |
Natural Resources Funds Average | 2.67 |
Natural Resources Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Financials Index Fund ETF Shares Net Asset Value | 1.21% |
Spliced US IMI/Financials 25/50 | 1.26 |
Financial Services Funds Average | 1.40 |
Financial Services Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Health Care Index Fund ETF Shares Net Asset Value | 11.02% |
Spliced US IMI/Health Care 25/50 | 11.20 |
Health/Biotechnology Funds Average | 12.75 |
Health/Biotechnology Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Industrials Index Fund ETF Shares Net Asset Value | 7.85% |
Spliced US IMI/Industrials 25/50 | 7.93 |
Industrials Funds Average | 6.89 |
Industrials Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Information Technology Index Fund ETF Shares Net Asset Value | 8.90% |
Spliced US IMI/Information Technology 25/50 | 9.08 |
Science and Technology Funds Average | 8.29 |
Science and Technology Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Materials Index Fund ETF Shares Net Asset Value | 7.71% |
Spliced US IMI/Materials 25/50 | 7.83 |
Basic Materials Funds Average | 3.89 |
Basic Materials Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Telecommunication Services Index Fund ETF Shares Net Asset Value | 7.25% |
Spliced US IMI/Telecommunication Services 25/50 | 6.90 |
Telecommunication Funds Average | 4.20 |
Telecommunication Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Utilities Index Fund ETF Shares Net Asset Value | 6.70% |
Spliced US IMI/Utilities 25/50 | 6.89 |
Utility Funds Average | 5.87 |
Utility Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. For a benchmark description, see the Glossary.
The figures shown represent past performance, which is not a guarantee of future results. (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.
Financials and information technology ended the fiscal year on a positive note, albeit with more muted results. The financial industry has benefited from the long bull market, but it has been restrained by the toughened regulatory environment and exceptionally low interest rates. Banks and insurance companies were bright spots for the sector, which returned nearly 3%.
Although their hot streak cooled a bit, technology stocks bested the broad market with a return of more than 2%. IT services firms and companies that specialize in computer storage and peripherals contributed most.
The five remaining sectors—energy, materials, industrials, telecommunication services, and utilities—trailed the broad market.
Energy stocks returned about –33% as they declined across the board amid tumbling oil and gas prices. Materials were hurt by the same commodity crunch, which put pressure on metals and mining prices, and ended with a return of about –14%.
Industrials and telecommunication services also finished in negative territory, returning about –3% each. The utilities sector returned about 0%.
When the markets are volatile, maintaining perspective is key
Volatility returned to the stock market with a vengeance in the final weeks of August as investors worried that a slowdown in China’s economic growth could affect world markets.
This turmoil may have evoked painful memories of previous financial setbacks—memories that had been receding after more than six years of strong U.S. stock performance. Inevitably, that sort of upheaval can lead some investors to make rash moves with their portfolios.
4
During periods of market adversity, however, it’s more important than ever to keep sight of one of Vanguard’s key principles: Maintain perspective and long-term discipline. Whether you’re investing for yourself or on behalf of clients, your success is affected greatly by how you react––or don’t react––when the markets turn turbulent. (You can read more in Vanguard’s Principles for Investing Success at vanguard.com/research.)
As I’ve written in the past, the best course for long-term investors generally is to ignore daily market moves and not make decisions based on emotion. This is also a good time to evaluate your portfolio and make sure your asset allocation is aligned with your time horizon, goals, and risk tolerance.
The markets are unpredictable and often confounding. Keeping our long-term plans clearly in focus can be crucial as we weather these periodic storms.
As always, thank you for investing with Vanguard.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx7x1.jpg)
F. William McNabb III
Chairman and Chief Executive Officer
September 17, 2015
Your Fund’s Performance at a Glance | ||||
August 31, 2014, Through August 31, 2015 | ||||
Distributions Per Share | ||||
Starting | Ending | Income | Capital | |
Share Price | Share Price | Dividends | Gains | |
Consumer Discretionary Index Fund | ||||
ETF Shares | $111.79 | $120.80 | $1.432 | $0.000 |
Admiral Shares | 57.87 | 62.53 | 0.740 | 0.000 |
Consumer Staples Index Fund | ||||
ETF Shares | $117.12 | $123.72 | $2.417 | $0.000 |
Admiral Shares | 57.74 | 61.01 | 1.186 | 0.000 |
Energy Index Fund | ||||
ETF Shares | $142.26 | $93.86 | $2.209 | $0.000 |
Admiral Shares | 71.06 | 46.89 | 1.104 | 0.000 |
Financials Index Fund | ||||
ETF Shares | $47.32 | $47.70 | $0.886 | $0.000 |
Admiral Shares | 23.72 | 23.91 | 0.444 | 0.000 |
Health Care Index Fund | ||||
ETF Shares | $117.17 | $132.34 | $1.285 | $0.000 |
Admiral Shares | 58.61 | 66.20 | 0.643 | 0.000 |
Industrials Index Fund | ||||
ETF Shares | $103.95 | $99.23 | $1.673 | $0.000 |
Admiral Shares | 53.40 | 50.98 | 0.861 | 0.000 |
Information Technology Index Fund | ||||
ETF Shares | $101.41 | $102.35 | $1.171 | $0.000 |
Admiral Shares | 51.93 | 52.41 | 0.601 | 0.000 |
Materials Index Fund | ||||
ETF Shares | $113.50 | $96.39 | $1.892 | $0.000 |
Admiral Shares | 57.84 | 49.12 | 0.962 | 0.000 |
Telecommunication Services Index Fund | ||||
ETF Shares | $88.44 | $83.80 | $2.251 | $0.000 |
Admiral Shares | 45.07 | 42.71 | 1.142 | 0.000 |
Utilities Index Fund | ||||
ETF Shares | $94.61 | $91.41 | $3.276 | $0.000 |
Admiral Shares | 47.47 | 45.86 | 1.645 | 0.000 |
5
Consumer Discretionary Index Fund
Fund Profile | |||
As of August 31, 2015 | |||
Share-Class Characteristics | |||
ETF | Admiral | ||
Shares | Shares | ||
Ticker Symbol | VCR | VCDAX | |
Expense Ratio1 | 0.12% | 0.12% | |
30-Day SEC Yield | 1.34% | 1.34% | |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | |||
Consumer | MSCI | ||
Discretionary | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 385 | 385 | 2,491 |
Median Market Cap $39.2B | $39.2B | $47.3B | |
Price/Earnings Ratio | 23.0x | 23.1x | 20.7x |
Price/Book Ratio | 4.4x | 4.4x | 2.6x |
Return on Equity | 20.1% | 20.1% | 17.2% |
Earnings Growth Rate 13.6% | 13.6% | 10.2% | |
Dividend Yield | 1.4% | 1.4% | 2.1% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 6% | — | — |
Short-Term Reserves | 0.5% | — | — |
Volatility Measures | |||
MSCI US | |||
IMI/Consumer | |||
Discretionary | MSCI US | ||
25/50 | IMI/2500 | ||
R-Squared | 1.00 | 0.86 | |
Beta | 1.00 | 1.14 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
Subindustry Diversification | |
(% of equity exposure) | |
Apparel Retail | 4.7% |
Apparel, Accessories & Luxury Goods | 3.9 |
Auto Parts & Equipment | 3.5 |
Automobile Manufacturers | 4.1 |
Automotive Retail | 3.2 |
Broadcasting | 2.1 |
Cable & Satellite | 10.1 |
Casinos & Gaming | 1.4 |
Department Stores | 1.6 |
Footwear | 3.1 |
General Merchandise Stores | 3.2 |
Home Improvement Retail | 7.4 |
Homebuilding | 1.8 |
Hotels, Resorts & Cruise Lines | 3.6 |
Internet Retail | 12.0 |
Leisure Products | 1.2 |
Movies & Entertainment | 10.4 |
Restaurants | 10.2 |
Specialty Stores | 2.7 |
Other Consumer Discretionary | 9.8 |
Ten Largest Holdings (% of total net assets)
Amazon.com Inc. | Internet Retail | 6.9% |
Walt Disney Co. | Movies & Entertainment | 5.6 |
Home Depot Inc. | Home Improvement Retail | 5.2 |
Comcast Corp. | Cable & Satellite | 4.9 |
McDonald’s Corp. | Restaurants | 3.1 |
Starbucks Corp. | Restaurants | 2.8 |
NIKE Inc. | Footwear | 2.6 |
Lowe’s Cos. Inc. | Home Improvement Retail | 2.2 |
Priceline | ||
Group Inc. | Internet Retail | 2.2 |
Time Warner Inc. | Movies & Entertainment | 2.0 |
Top Ten | 37.5% |
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 fiscal year ended August 31, 2015, the expense ratios were 0.10% for ETF Shares and 0.09% for Admiral 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.
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx9x1.jpg)
Average Annual Total Returns | Final Value | |||
Periods Ended August 31, 2015 | of a $10,000 | |||
One Year | Five Years | Ten Years | Investment | |
Consumer Discretionary Index Fund | ||||
ETF Shares Net Asset Value | 9.41% | 21.82% | 9.72% | $25,286 |
Consumer Discretionary Index Fund | ||||
ETF Shares Market Price | 9.47 | 21.85 | 9.72 | 25,287 |
Spliced US IMI/Consumer Discretionary 25/50 | 9.54 | 21.96 | 9.86 | 25,599 |
Consumer Services Funds Average | 5.41 | 18.63 | 8.13 | 21,858 |
MSCI US IMI/2500 | 0.44 | 16.11 | 7.55 | 20,698 |
For a benchmark description, see the Glossary. | ||||
Consumer Services Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | ||||
Final Value | ||||
of a $100,000 | ||||
One Year | Five Years | Ten Years | Investment | |
Consumer Discretionary Index Fund Admiral Shares | 9.43% | 21.82% | 9.70% | $252,467 |
Spliced US IMI/Consumer Discretionary 25/50 | 9.54 | 21.96 | 9.86 | 255,991 |
MSCI US IMI/2500 | 0.44 | 16.11 | 7.55 | 206,975 |
See Financial Highlights for dividend and capital gains information.
7
Consumer Discretionary Index Fund
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx10x1.jpg)
Consumer Discretionary Index Fund ETF Shares Net Asset Value Spliced US IMI/Consumer Discretionary 25/50
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2005–August 31, 2015 | |||
One Year | Five Years | Ten Years | |
Consumer Discretionary Index Fund ETF Shares Market Price | 9.47% | 168.66% | 152.87% |
Consumer Discretionary Index Fund ETF Shares Net Asset Value | 9.41 | 168.25 | 152.86 |
Spliced US IMI/Consumer Discretionary 25/50 | 9.54 | 169.84 | 155.99 |
Average Annual Total Returns: Periods Ended June 30, 2015
This table presents total returns through the latest calendar quarter—rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information.
Inception Date | One Year | Five Years | Ten Years | |
ETF Shares | 1/26/2004 | |||
Market Price | 15.24% | 23.22% | 10.16% | |
Net Asset Value | 15.17 | 23.19 | 10.16 | |
Admiral Shares | 7/14/2005 | 15.19 | 23.20 | 9.841 |
1 Return since inception.
See Financial Highlights for dividend and capital gains information.
8
Consumer Discretionary Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 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 (3.8%) | |||
Johnson Controls Inc. | 442,768 | 18,215 | |
Delphi Automotive plc | 195,233 | 14,744 | |
BorgWarner Inc. | 152,724 | 6,665 | |
Autoliv Inc. | 59,614 | 6,090 | |
Goodyear Tire & Rubber Co. | 182,595 | 5,436 | |
Lear Corp. | 52,530 | 5,400 | |
Gentex Corp. | 199,384 | 3,090 | |
* | Visteon Corp. | 30,054 | 2,995 |
* | Tenneco Inc. | 41,373 | 1,947 |
Dana Holding Corp. | 110,452 | 1,937 | |
Cooper Tire & Rubber Co. | 36,977 | 1,427 | |
* | Dorman Products Inc. | 21,894 | 1,102 |
* | Gentherm Inc. | 22,735 | 1,036 |
* | American Axle & | ||
Manufacturing Holdings | |||
Inc. | 46,182 | 933 | |
Drew Industries Inc. | 15,746 | 870 | |
* | Cooper-Standard Holding | ||
Inc. | 11,768 | 676 | |
Remy International Inc. | 19,833 | 581 | |
Standard Motor Products | |||
Inc. | 14,094 | 499 | |
* | Motorcar Parts of America | ||
Inc. | 11,902 | 380 | |
* | Tower International Inc. | 14,431 | 353 |
* | Modine Manufacturing Co. | 32,274 | 287 |
Superior Industries | |||
International Inc. | 14,249 | 272 | |
* | Stoneridge Inc. | 18,567 | 227 |
* | Federal-Mogul Holdings | ||
Corp. | 22,335 | 205 | |
* | Fox Factory Holding Corp. | 11,960 | 180 |
Metaldyne Performance | |||
Group Inc. | 6,667 | 126 | |
75,673 | |||
Automobiles (4.5%) | |||
Ford Motor Co. | 2,507,751 | 34,783 | |
General Motors Co. | 978,024 | 28,793 | |
*,^ | Tesla Motors Inc. | 64,121 | 15,970 |
Harley-Davidson Inc. | 141,038 | 7,905 | |
Thor Industries Inc. | 32,734 | 1,787 | |
Winnebago Industries Inc. | 17,595 | 360 | |
89,598 | |||
Distributors (0.9%) | |||
Genuine Parts Co. | 102,986 | 8,598 | |
* | LKQ Corp. | 205,336 | 6,158 |
Pool Corp. | 29,322 | 2,043 | |
Core-Mark Holding Co. Inc. | 15,664 | 942 | |
17,741 | |||
Diversified Consumer Services (1.4%) | |||
H&R Block Inc. | 186,273 | 6,337 | |
Service Corp. International | 136,346 | 4,043 | |
* | ServiceMaster Global | ||
Holdings Inc. | 68,830 | 2,421 | |
* | Houghton Mifflin Harcourt | ||
Co. | 103,859 | 2,345 |
Market | |||
Value• | |||
Shares | ($000) | ||
Graham Holdings Co. | |||
Class B | 3,116 | 2,061 | |
* | Bright Horizons Family | ||
Solutions Inc. | 25,105 | 1,534 | |
Sotheby’s | 39,912 | 1,405 | |
* | Grand Canyon Education Inc. | 29,818 | 1,102 |
DeVry Education Group Inc. | 41,162 | 1,077 | |
* | Apollo Education Group Inc. | 65,942 | 733 |
* | Steiner Leisure Ltd. | 8,141 | 518 |
* | LifeLock Inc. | 52,951 | 447 |
* | 2U Inc. | 12,759 | 446 |
* | Strayer Education Inc. | 7,669 | 401 |
Capella Education Co. | 7,959 | 388 | |
* | Regis Corp. | 29,194 | 317 |
* | K12 Inc. | 22,084 | 292 |
* | American Public Education | ||
Inc. | 11,303 | 248 | |
Carriage Services Inc. | |||
Class A | 10,672 | 245 | |
* | Ascent Capital Group Inc. | ||
Class A | 7,880 | 221 | |
* | Chegg Inc. | 27,742 | 206 |
* | Career Education Corp. | 39,387 | 146 |
*,^ | Weight Watchers | ||
International Inc. | 17,960 | 111 | |
* | Bridgepoint Education Inc. | 13,109 | 106 |
27,150 | |||
Hotels, Restaurants & Leisure (15.6%) | |||
McDonald’s Corp. | 648,074 | 61,580 | |
Starbucks Corp. | 1,013,962 | 55,474 | |
Yum! Brands Inc. | 292,351 | 23,321 | |
* | Chipotle Mexican Grill Inc. | ||
Class A | 21,009 | 14,917 | |
Carnival Corp. | 281,092 | 13,838 | |
Las Vegas Sands Corp. | 270,217 | 12,492 | |
Marriott International Inc. | |||
Class A | 148,881 | 10,520 | |
Royal Caribbean Cruises | |||
Ltd. | 118,780 | 10,472 | |
Hilton Worldwide Holdings | |||
Inc. | 333,962 | 8,292 | |
Starwood Hotels & | |||
Resorts Worldwide Inc. | 115,325 | 8,242 | |
* | Norwegian Cruise Line | ||
Holdings Ltd. | 108,477 | 6,248 | |
Wyndham Worldwide Corp. | 81,270 | 6,216 | |
* | MGM Resorts International | 303,647 | 6,204 |
Darden Restaurants Inc. | 76,496 | 5,203 | |
Aramark | 154,188 | 4,832 | |
Wynn Resorts Ltd. | 55,044 | 4,131 | |
Domino’s Pizza Inc. | 37,409 | 3,963 | |
Dunkin’ Brands Group Inc. | 64,926 | 3,257 | |
* | Panera Bread Co. Class A | 17,168 | 3,061 |
Vail Resorts Inc. | 24,462 | 2,640 | |
* | Buffalo Wild Wings Inc. | 12,904 | 2,448 |
Six Flags Entertainment | |||
Corp. | 51,294 | 2,307 | |
Brinker International Inc. | 41,186 | 2,188 |
Market | |||
Value• | |||
Shares | ($000) | ||
Jack in the Box Inc. | 25,166 | 1,967 | |
Cracker Barrel Old Country | |||
Store Inc. | 13,011 | 1,876 | |
Bloomin’ Brands Inc. | 83,868 | 1,736 | |
Cheesecake Factory Inc. | 31,223 | 1,694 | |
Wendy’s Co. | 185,275 | 1,688 | |
Texas Roadhouse Inc. | |||
Class A | 42,316 | 1,523 | |
* | Pinnacle Entertainment Inc. | 38,635 | 1,459 |
Papa John’s International Inc. 20,289 | 1,364 | ||
Marriott Vacations | |||
Worldwide Corp. | 18,415 | 1,308 | |
Choice Hotels International | |||
Inc. | 25,331 | 1,292 | |
* | Hyatt Hotels Corp. Class A | 23,136 | 1,185 |
Churchill Downs Inc. | 8,848 | 1,176 | |
* | La Quinta Holdings Inc. | 61,776 | 1,164 |
DineEquity Inc. | 11,717 | 1,119 | |
* | Fiesta Restaurant Group Inc. | 18,383 | 949 |
Sonic Corp. | 34,068 | 920 | |
* | Boyd Gaming Corp. | 56,070 | 903 |
* | Penn National Gaming Inc. | 48,469 | 880 |
SeaWorld Entertainment Inc. | 48,407 | 862 | |
* | Popeyes Louisiana Kitchen | ||
Inc. | 14,980 | 833 | |
* | Diamond Resorts | ||
International Inc. | 32,701 | 830 | |
ClubCorp Holdings Inc. | 36,755 | 827 | |
Extended Stay America Inc. | 41,141 | 772 | |
* | Krispy Kreme Doughnuts Inc. | 43,947 | 753 |
* | Red Robin Gourmet Burgers | ||
Inc. | 9,401 | 741 | |
* | Belmond Ltd. Class A | 63,153 | 718 |
Bob Evans Farms Inc. | 14,722 | 665 | |
* | Denny’s Corp. | 56,717 | 637 |
International Speedway Corp. | |||
Class A | 18,165 | 583 | |
* | Dave & Buster’s | ||
Entertainment Inc. | 16,324 | 562 | |
* | BJ’s Restaurants Inc. | 13,017 | 560 |
Interval Leisure Group Inc. | 27,113 | 544 | |
*,^ | Zoe’s Kitchen Inc. | 12,200 | 421 |
Ruth’s Hospitality Group Inc. | 24,540 | 395 | |
*,^ | Caesars Entertainment Corp. | 40,713 | 389 |
*,^ | Scientific Games Corp. | ||
Class A | 33,848 | 373 | |
* | Chuy’s Holdings Inc. | 11,382 | 349 |
* | Ruby Tuesday Inc. | 39,791 | 262 |
* | Biglari Holdings Inc. | 697 | 260 |
* | Del Frisco’s Restaurant | ||
Group Inc. | 14,884 | 221 | |
* | Caesars Acquisition Co. | ||
Class A | 30,650 | 218 | |
Marcus Corp. | 11,046 | 214 | |
* | Habit Restaurants Inc. | ||
Class A | 7,404 | 185 | |
Speedway Motorsports Inc. | 8,213 | 159 | |
*,^ | Noodles & Co. Class A | 11,911 | 142 |
* | El Pollo Loco Holdings Inc. | 9,869 | 128 |
9
Consumer Discretionary Index Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
* | Intrawest Resorts Holdings | ||
Inc. | 11,651 | 105 | |
* | Potbelly Corp. | 9,496 | 100 |
309,857 | |||
Household Durables (4.6%) | |||
Whirlpool Corp. | 53,153 | 8,935 | |
* | Mohawk Industries Inc. | 42,036 | 8,280 |
Newell Rubbermaid Inc. | 182,083 | 7,671 | |
* | Jarden Corp. | 134,227 | 6,891 |
DR Horton Inc. | 222,794 | 6,766 | |
Lennar Corp. Class A | 117,466 | 5,979 | |
Harman International | |||
Industries Inc. | 48,035 | 4,695 | |
PulteGroup Inc. | 221,486 | 4,583 | |
* | Toll Brothers Inc. | 112,666 | 4,165 |
Leggett & Platt Inc. | 93,025 | 4,132 | |
* | NVR Inc. | 2,610 | 3,967 |
* | Tempur Sealy International | ||
Inc. | 41,212 | 3,009 | |
Garmin Ltd. | 77,937 | 2,931 | |
* | GoPro Inc. Class A | 45,138 | 2,103 |
Tupperware Brands Corp. | 33,401 | 1,711 | |
* | Helen of Troy Ltd. | 18,176 | 1,548 |
* | TRI Pointe Group Inc. | 103,566 | 1,438 |
Ryland Group Inc. | 31,494 | 1,362 | |
* | Meritage Homes Corp. | 25,145 | 1,060 |
La-Z-Boy Inc. | 35,043 | 968 | |
* | Standard Pacific Corp. | 103,096 | 871 |
KB Home | 56,021 | 821 | |
* | TopBuild Corp. | 25,821 | 819 |
MDC Holdings Inc. | 26,503 | 755 | |
* | iRobot Corp. | 18,625 | 546 |
Ethan Allen Interiors Inc. | 18,062 | 537 | |
Libbey Inc. | 14,737 | 519 | |
* | Universal Electronics Inc. | 10,479 | 478 |
* | Taylor Morrison Home Corp. | ||
Class A | 22,607 | 451 | |
* | M/I Homes Inc. | 16,537 | 413 |
* | Cavco Industries Inc. | 5,204 | 372 |
* | William Lyon Homes | ||
Class A | 14,951 | 339 | |
* | Installed Building Products | ||
Inc. | 12,347 | 330 | |
* | WCI Communities Inc. | 13,178 | 328 |
* | Beazer Homes USA Inc. | 19,294 | 322 |
* | LGI Homes Inc. | 10,270 | 267 |
* | Century Communities Inc. | 10,475 | 230 |
NACCO Industries Inc. | |||
Class A | 2,974 | 157 | |
* | Hovnanian Enterprises Inc. | ||
Class A | 77,358 | 145 | |
90,894 | |||
Internet & Catalog Retail (12.5%) | |||
* | Amazon.com Inc. | 267,621 | 137,260 |
* | Priceline Group Inc. | 35,045 | 43,759 |
* | Netflix Inc. | 272,580 | 31,355 |
* | Liberty Interactive Corp. | ||
QVC Group Class A | 299,176 | 8,090 | |
Expedia Inc. | 69,748 | 8,020 | |
* | TripAdvisor Inc. | 79,445 | 5,553 |
* | Liberty Ventures Class A | 91,303 | 3,627 |
* | Groupon Inc. Class A | 317,546 | 1,429 |
HSN Inc. | 23,114 | 1,406 | |
* | Liberty TripAdvisor | ||
Holdings Inc. Class A | 48,556 | 1,232 | |
* | Shutterfly Inc. | 25,593 | 995 |
Travelport Worldwide Ltd. | 66,408 | 880 | |
* | Orbitz Worldwide Inc. | 65,118 | 747 |
* | zulily Inc. Class A | 38,339 | 680 |
Market | |||
Value• | |||
Shares | ($000) | ||
Nutrisystem Inc. | 19,646 | 550 | |
* | Wayfair Inc. | 14,324 | 534 |
* | FTD Cos. Inc. | 13,203 | 395 |
* | Lands’ End Inc. | 11,490 | 292 |
* | Blue Nile Inc. | 8,391 | 286 |
* | Overstock.com Inc. | 10,353 | 203 |
* | 1-800-Flowers.com Inc. | ||
Class A | 15,896 | 133 | |
247,426 | |||
Leisure Products (1.2%) | |||
Hasbro Inc. | 75,709 | 5,647 | |
Polaris Industries Inc. | 42,647 | 5,539 | |
Mattel Inc. | 228,428 | 5,352 | |
Brunswick Corp. | 62,807 | 3,122 | |
* | Vista Outdoor Inc. | 43,252 | 2,023 |
Sturm Ruger & Co. Inc. | 12,853 | 808 | |
* | Smith & Wesson Holding | ||
Corp. | 37,025 | 670 | |
Callaway Golf Co. | 53,944 | 477 | |
Arctic Cat Inc. | 8,785 | 232 | |
23,870 | |||
Media (24.1%) | |||
Walt Disney Co. | 1,089,847 | 111,034 | |
Comcast Corp. Class A | 1,405,997 | 79,200 | |
Time Warner Inc. | 557,624 | 39,647 | |
Time Warner Cable Inc. | 191,233 | 35,573 | |
Twenty-First Century Fox | |||
Inc. Class A | 966,685 | 26,477 | |
* | Liberty Global plc | 418,818 | 18,792 |
Comcast Corp. Special | |||
Class A | 300,140 | 17,180 | |
CBS Corp. Class B | 307,374 | 13,906 | |
Omnicom Group Inc. | 165,400 | 11,078 | |
*,^ | Charter Communications | ||
Inc. Class A | 56,751 | 10,307 | |
Viacom Inc. Class B | 234,784 | 9,572 | |
* | DISH Network Corp. | ||
Class A | 151,462 | 8,977 | |
* | Liberty Global plc Class A | 170,204 | 8,190 |
* | Sirius XM Holdings Inc. | 1,662,555 | 6,343 |
Interpublic Group of | |||
Cos. Inc. | 278,754 | 5,263 | |
Twenty-First Century Fox | |||
Inc. | 181,998 | 5,034 | |
* | Liberty Media Corp. | 137,549 | 4,982 |
* | Discovery Communications | ||
Inc. | 185,115 | 4,694 | |
* | News Corp. Class A | 284,033 | 3,871 |
* | TEGNA Inc. | 146,243 | 3,479 |
Cablevision Systems Corp. | |||
Class A | 134,957 | 3,397 | |
* | AMC Networks Inc. | ||
Class A | 41,099 | 2,975 | |
* | Discovery Communications | ||
Inc. Class A | 101,458 | 2,699 | |
Scripps Networks | |||
Interactive Inc. Class A | 50,817 | 2,698 | |
* | Madison Square Garden Co. | ||
Class A | 37,784 | 2,661 | |
Lions Gate Entertainment | |||
Corp. | 69,768 | 2,560 | |
* | Live Nation Entertainment | ||
Inc. | 102,289 | 2,518 | |
Cinemark Holdings Inc. | 70,360 | 2,501 | |
* | Liberty Broadband Corp. | 45,382 | 2,429 |
* | Liberty Media Corp. Class A 64,061 | 2,386 | |
* | Starz | 59,157 | 2,225 |
Tribune Media Co. Class A | 51,397 | 2,053 |
Market | |||
Value• | |||
Shares | ($000) | ||
John Wiley & Sons Inc. | |||
Class A | 31,516 | 1,625 | |
Time Inc. | 74,331 | 1,544 | |
* | Cable One Inc. | 3,146 | 1,307 |
Sinclair Broadcast Group Inc. | |||
Class A | 45,019 | 1,206 | |
Meredith Corp. | 25,375 | 1,198 | |
Regal Entertainment Group | |||
Class A | 57,772 | 1,099 | |
New York Times Co. Class A | 89,958 | 1,094 | |
Morningstar Inc. | 13,587 | 1,084 | |
* | DreamWorks Animation SKG | ||
Inc. Class A | 50,244 | 1,002 | |
Nexstar Broadcasting Group | |||
Inc. Class A | 20,968 | 975 | |
* | Gannett Co. Inc. | 72,026 | 944 |
* | Liberty Broadband Corp. | ||
Class A | 15,985 | 871 | |
* | News Corp. Class B | 55,738 | 771 |
* | Liberty Global PLC LiLAC | 20,940 | 696 |
Scholastic Corp. | 16,094 | 695 | |
* | Media General Inc. | 56,019 | 658 |
EW Scripps Co. Class A | 36,634 | 642 | |
National CineMedia Inc. | 41,127 | 541 | |
* | Loral Space & | ||
Communications Inc. | 9,320 | 505 | |
* | Gray Television Inc. | 43,195 | 501 |
World Wrestling | |||
Entertainment Inc. Class A | 22,272 | 447 | |
AMC Entertainment | |||
Holdings Inc. | 15,072 | 437 | |
New Media Investment | |||
Group Inc. | 28,008 | 418 | |
* | Carmike Cinemas Inc. | 16,321 | 389 |
Entravision Communications | |||
Corp. Class A | 43,575 | 351 | |
* | Rentrak Corp. | 6,919 | 316 |
* | Global Eagle Entertainment | ||
Inc. | 25,014 | 294 | |
* | Liberty Global PLC LiLAC | ||
Class A | 8,177 | 281 | |
* | Clear Channel Outdoor | ||
Holdings Inc. Class A | 27,672 | 226 | |
* | Entercom Communications | ||
Corp. Class A | 15,800 | 174 | |
Tribune Publishing Co. | 13,476 | 159 | |
* | Cumulus Media Inc. Class A | 93,830 | 134 |
Harte-Hanks Inc. | 29,635 | 114 | |
* | SFX Entertainment Inc. | 31,540 | 32 |
477,431 | |||
Multiline Retail (4.8%) | |||
Target Corp. | 410,177 | 31,875 | |
Dollar General Corp. | 205,569 | 15,313 | |
Macy’s Inc. | 228,386 | 13,386 | |
* | Dollar Tree Inc. | 150,861 | 11,505 |
Nordstrom Inc. | 96,752 | 7,051 | |
Kohl’s Corp. | 136,910 | 6,986 | |
* | Burlington Stores Inc. | 51,154 | 2,716 |
* | JC Penney Co. Inc. | 194,903 | 1,776 |
Big Lots Inc. | 36,726 | 1,762 | |
Dillard’s Inc. Class A | 15,899 | 1,471 | |
*,^ | Sears Holdings Corp. | 17,468 | 466 |
Fred’s Inc. Class A | 23,335 | 306 | |
* | Tuesday Morning Corp. | 29,804 | 236 |
94,849 | |||
Specialty Retail (19.6%) | |||
Home Depot Inc. | 878,458 | 102,305 | |
Lowe’s Cos. Inc. | 640,471 | 44,301 | |
TJX Cos. Inc. | 460,025 | 32,349 |
10
Consumer Discretionary Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
* | O’Reilly Automotive Inc. | 68,289 | 16,394 |
* | AutoZone Inc. | 21,464 | 15,368 |
L Brands Inc. | 168,271 | 14,118 | |
Ross Stores Inc. | 280,077 | 13,617 | |
Advance Auto Parts Inc. | 49,437 | 8,664 | |
* | CarMax Inc. | 141,455 | 8,629 |
Best Buy Co. Inc. | 214,030 | 7,864 | |
Tractor Supply Co. | 92,148 | 7,861 | |
* | Bed Bath & Beyond Inc. | 115,700 | 7,186 |
Tiffany & Co. | 87,215 | 7,173 | |
Signet Jewelers Ltd. | 51,486 | 7,105 | |
Foot Locker Inc. | 94,369 | 6,680 | |
* | Ulta Salon Cosmetics & | ||
Fragrance Inc. | 41,293 | 6,528 | |
Staples Inc. | 432,460 | 6,145 | |
Gap Inc. | 170,592 | 5,597 | |
Williams-Sonoma Inc. | 58,723 | 4,465 | |
Dick’s Sporting Goods Inc. | 63,057 | 3,161 | |
GameStop Corp. Class A | 72,272 | 3,070 | |
* | AutoNation Inc. | 50,326 | 3,012 |
* | Sally Beauty Holdings Inc. | 106,810 | 2,792 |
GNC Holdings Inc. Class A | 58,406 | 2,733 | |
* | Office Depot Inc. | 331,817 | 2,631 |
* | Restoration Hardware | ||
Holdings Inc. | 25,690 | 2,376 | |
* | Urban Outfitters Inc. | 71,553 | 2,208 |
American Eagle Outfitters | |||
Inc. | 125,716 | 2,140 | |
CST Brands Inc. | 51,683 | 1,794 | |
Lithia Motors Inc. Class A | 16,209 | 1,728 | |
Aaron’s Inc. | 43,770 | 1,648 | |
* | Cabela’s Inc. | 36,634 | 1,647 |
DSW Inc. Class A | 54,278 | 1,612 | |
Men’s Wearhouse Inc. | 27,959 | 1,578 | |
* | Murphy USA Inc. | 30,541 | 1,561 |
Penske Automotive Group | |||
Inc. | 30,630 | 1,550 | |
* | Michaels Cos. Inc. | 56,645 | 1,485 |
* | Five Below Inc. | 36,885 | 1,426 |
* | Ascena Retail Group Inc. | 117,828 | 1,422 |
Group 1 Automotive Inc. | 15,702 | 1,372 | |
Chico’s FAS Inc. | 91,950 | 1,371 | |
Monro Muffler Brake Inc. | 21,446 | 1,360 | |
* | Asbury Automotive Group | ||
Inc. | 15,877 | 1,279 | |
* | Express Inc. | 51,796 | 1,057 |
* | Genesco Inc. | 16,213 | 971 |
Rent-A-Center Inc. | 35,881 | 965 | |
Guess? Inc. | 43,364 | 959 | |
Caleres Inc. | 28,291 | 942 | |
Abercrombie & Fitch Co. | 47,100 | 935 | |
* | Select Comfort Corp. | 35,161 | 856 |
Finish Line Inc. Class A | 31,970 | 843 | |
Buckle Inc. | 19,765 | 834 | |
Children’s Place Inc. | 13,838 | 829 | |
Outerwall Inc. | 12,627 | 778 | |
* | Vitamin Shoppe Inc. | 20,298 | 727 |
* | Mattress Firm Holding Corp. | 10,878 | 654 |
* | Hibbett Sports Inc. | 16,547 | 654 |
Cato Corp. Class A | 17,738 | 623 |
Market | |||
Value• | |||
Shares | ($000) | ||
Pier 1 Imports Inc. | 60,186 | 613 | |
Barnes & Noble Inc. | 32,443 | 506 | |
Sonic Automotive Inc. | |||
Class A | 21,978 | 473 | |
* | Pep Boys-Manny Moe | ||
& Jack | 34,048 | 412 | |
* | Conn’s Inc. | 11,923 | 356 |
* | Zumiez Inc. | 14,318 | 334 |
* | Francesca’s Holdings Corp. | 27,957 | 314 |
Haverty Furniture Cos. Inc. | 13,237 | 306 | |
Shoe Carnival Inc. | 10,940 | 283 | |
* | MarineMax Inc. | 17,176 | 280 |
*,^ | Lumber Liquidators Holdings | ||
Inc. | 17,749 | 268 | |
* | Barnes & Noble Education | ||
Inc. | 18,925 | 244 | |
Kirkland’s Inc. | 10,665 | 238 | |
* | Tile Shop Holdings Inc. | 19,200 | 229 |
Stage Stores Inc. | 20,913 | 225 | |
* | America’s Car-Mart Inc. | 5,840 | 209 |
Stein Mart Inc. | 19,422 | 209 | |
*,^ | Container Store Group Inc. | 12,286 | 208 |
* | Boot Barn Holdings Inc. | 7,660 | 167 |
Winmark Corp. | 1,527 | 151 | |
* | Systemax Inc. | 10,081 | 92 |
388,049 | |||
Textiles, Apparel & Luxury Goods (7.0%) | |||
NIKE Inc. Class B | 461,279 | 51,548 | |
VF Corp. | 229,993 | 16,658 | |
* | Under Armour Inc. Class A | 121,145 | 11,573 |
Hanesbrands Inc. | 271,129 | 8,164 | |
PVH Corp. | 55,802 | 6,639 | |
* | Michael Kors Holdings Ltd. | 134,068 | 5,827 |
Coach Inc. | 186,550 | 5,643 | |
* | lululemon athletica Inc. | 76,698 | 4,909 |
Ralph Lauren Corp. Class A | 40,978 | 4,556 | |
* | Skechers U.S.A. Inc. Class A | 28,443 | 4,003 |
Carter’s Inc. | 35,451 | 3,485 | |
* | G-III Apparel Group Ltd. | 27,465 | 1,904 |
Wolverine World Wide Inc. | 69,746 | 1,880 | |
* | Fossil Group Inc. | 29,984 | 1,846 |
* | Kate Spade & Co. | 87,038 | 1,650 |
* | Steven Madden Ltd. | 38,435 | 1,571 |
* | Deckers Outdoor Corp. | 22,456 | 1,446 |
Columbia Sportswear Co. | 18,864 | 1,158 | |
Oxford Industries Inc. | 10,217 | 860 | |
* | Tumi Holdings Inc. | 38,719 | 764 |
* | Crocs Inc. | 51,814 | 763 |
* | Iconix Brand Group Inc. | 30,581 | 425 |
Movado Group Inc. | 11,491 | 325 | |
* | Unifi Inc. | 10,723 | 311 |
* | Sequential Brands Group Inc. | 16,693 | 273 |
* | Vera Bradley Inc. | 14,045 | 152 |
* | Vince Holding Corp. | 12,711 | 117 |
138,450 | |||
Total Common Stocks | |||
(Cost $1,887,787) | 1,980,988 |
Market | ||
Value• | ||
Shares | ($000) | |
Temporary Cash Investment (0.6%) | ||
Money Market Fund (0.6%) | ||
1,2 Vanguard Market | ||
Liquidity Fund 0.168%, | ||
(Cost $11,255) | 11,254,613 | 11,255 |
Total Investments (100.6%) | ||
(Cost $1,899,042) | 1,992,243 | |
Amount | ||
($000) | ||
Other Assets and Liabilities (-0.6%) | ||
Other Assets | ||
Investment in Vanguard | 194 | |
Receivables for Investment Securities Sold | 7,199 | |
Receivables for Accrued Income | 2,397 | |
Receivables for Capital Shares Issued | 394 | |
Other Assets | 10 | |
Total Other Assets | 10,194 | |
Liabilities | ||
Payables for Investment Securities | ||
Purchased | (11,922) | |
Collateral for Securities on Loan | (8,981) | |
Payables for Capital Shares Redeemed | (3) | |
Payables to Vanguard | (581) | |
Total Liabilities | (21,487) | |
Net Assets (100%) | 1,980,950 |
At August 31, 2015, net assets consisted of:
Amount | |
($000) | |
Paid-in Capital | 1,882,776 |
Undistributed Net Investment Income | 15,643 |
Accumulated Net Realized Losses | (10,670) |
Unrealized Appreciation (Depreciation) | 93,201 |
Net Assets | 1,980,950 |
ETF Shares—Net Assets | |
Applicable to 15,250,884 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 1,842,252 |
Net Asset Value Per Share— | |
ETF Shares | $120.80 |
Admiral Shares—Net Assets | |
Applicable to 2,218,031 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 138,698 |
Net Asset Value Per Share— | |
Admiral Shares | $62.53 |
- 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 $8,728,000.
- Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
- Includes $8,981,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
11
Consumer Discretionary Index Fund | |
Statement of Operations | |
Year Ended | |
August 31, 2015 | |
($000) | |
Investment Income | |
Income | |
Dividends | 24,743 |
Interest1 | 1 |
Securities Lending | 180 |
Total Income | 24,924 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 300 |
Management and Administrative— | |
ETF Shares | 939 |
Management and Administrative— | |
Admiral Shares | 67 |
Marketing and Distribution— | |
ETF Shares | 224 |
Marketing and Distribution— | |
Admiral Shares | 9 |
Custodian Fees | 18 |
Auditing Fees | 33 |
Shareholders’ Reports—ETF Shares | 89 |
Shareholders’ Reports—Admiral Shares | 1 |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 1,681 |
Net Investment Income | 23,243 |
Realized Net Gain (Loss) on | |
Investment Securities Sold | 212,893 |
Change in Unrealized Appreciation | |
(Depreciation) of Investment Securities | (129,396) |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 106,740 |
1 Interest income from an affiliated company of the fund was | |
$1,000. |
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2015 | 2014 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 23,243 | 16,799 |
Realized Net Gain (Loss) | 212,893 | 209,902 |
Change in Unrealized Appreciation (Depreciation) | (129,396) | 703 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 106,740 | 227,404 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (16,913) | (11,421) |
Admiral Shares | (1,093) | (822) |
Realized Capital Gain | ||
ETF Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (18,006) | (12,243) |
Capital Share Transactions | ||
ETF Shares | 461,236 | 77,692 |
Admiral Shares | 50,120 | 7,048 |
Net Increase (Decrease) from Capital Share Transactions | 511,356 | 84,740 |
Total Increase (Decrease) | 600,090 | 299,901 |
Net Assets | ||
Beginning of Period | 1,380,860 | 1,080,959 |
End of Period1 | 1,980,950 | 1,380,860 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $15,643,000 and $10,406,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
12
Consumer Discretionary Index Fund | |||||
Financial Highlights | |||||
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $111.79 | $93.38 | $72.65 | $60.29 | $47.80 |
Investment Operations | |||||
Net Investment Income | 1.542 | 1.251 | 1.111 | .936 | .698 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 8.900 | 18.072 | 20.771 | 12.277 | 12.392 |
Total from Investment Operations | 10.442 | 19.323 | 21.882 | 13.213 | 13.090 |
Distributions | |||||
Dividends from Net Investment Income | (1.432) | (.913) | (1.152) | (. 853) | (. 600) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.432) | (.913) | (1.152) | (. 853) | (. 600) |
Net Asset Value, End of Period | $120.80 | $111.79 | $93.38 | $72.65 | $60.29 |
Total Return | 9.41% | 20.75% | 30.47% | 22.18% | 27.37% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $1,842 | $1,298 | $1,018 | $531 | $332 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.12% | 0.14% | 0.14% | 0.19% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.31% | 1.26% | 1.44% | 1.48% | 1.25% |
Portfolio Turnover Rate1 | 6% | 7% | 6% | 6% | 7% |
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.
Admiral Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $57.87 | $48.34 | $37.62 | $31.22 | $24.76 |
Investment Operations | |||||
Net Investment Income | .805 | .648 | . 579 | .483 | .363 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 4.595 | 9.361 | 10.741 | 6.356 | 6.414 |
Total from Investment Operations | 5.400 | 10.009 | 11.320 | 6.839 | 6.777 |
Distributions | |||||
Dividends from Net Investment Income | (.740) | (.479) | (. 600) | (. 439) | (.317) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (.740) | (.479) | (. 600) | (. 439) | (.317) |
Net Asset Value, End of Period | $62.53 | $57.87 | $48.34 | $37.62 | $31.22 |
Total Return1 | 9.43% | 20.77% | 30.45% | 22.17% | 27.36% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $139 | $83 | $63 | $19 | $11 |
Ratio of Total Expenses to Average Net Assets | 0.09% | 0.12% | 0.14% | 0.14% | 0.19% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.32% | 1.26% | 1.44% | 1.48% | 1.25% |
Portfolio Turnover Rate2 | 6% | 7% | 6% | 6% | 7% |
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.
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: ETF Shares and Admiral Shares. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker. 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 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, 2012–2015), 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 (”Vanguard”) participate in a $3 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 August 31, 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At August 31, 2015, the fund had contributed to Vanguard capital in the amount of $194,000, representing 0.01% of the fund’s net assets and 0.08% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and employees, respectively, 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 August 31, 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 year ended August 31, 2015, the fund realized $209,841,000 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.
For tax purposes, at August 31, 2015, the fund had $16,188,000 of ordinary income available for distribution. The fund used capital loss carryforwards of $3,777,000 to offset taxable capital gains realized during the year ended August 31, 2015. At August 31, 2015, the fund had available capital losses totaling $9,945,000 to offset future net capital gains of $1,179,000 through August 31, 2017, $7,273,000 through August 31, 2018, and $1,493,000 through August 31, 2019.
At August 31, 2015, the cost of investment securities for tax purposes was $1,899,766,000.
Net unrealized appreciation of investment securities for tax purposes was $92,477,000, consisting of unrealized gains of $214,516,000 on securities that had risen in value since their purchase and $122,039,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2015, the fund purchased $1,269,325,000 of investment securities and sold $751,425,000 of investment securities, other than temporary cash investments. Purchases and sales include $1,101,848,000 and $648,499,000, 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: | ||||
Year Ended August 31, | ||||
2015 | 2014 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 1,115,504 | 9,265 | 529,357 | 5,007 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (654,268) | (5,625) | (451,665) | (4,300) |
Net Increase (Decrease)—ETF Shares | 461,236 | 3,640 | 77,692 | 707 |
Admiral Shares | ||||
Issued | 80,718 | 1,285 | 55,198 | 1,022 |
Issued in Lieu of Cash Distributions | 1,007 | 17 | 772 | 14 |
Redeemed | (31,605) | (517) | (48,922) | (902) |
Net Increase (Decrease) —Admiral Shares | 50,120 | 785 | 7,048 | 134 |
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2015, that would require recognition or disclosure in these financial statements.
16
Consumer Staples Index Fund
Fund Profile | |||
As of August 31, 2015 | |||
Share-Class Characteristics | |||
ETF | Admiral | ||
Shares | Shares | ||
Ticker Symbol | VDC | VCSAX | |
Expense Ratio1 | 0.12% | 0.12% | |
30-Day SEC Yield | 2.53% | 2.53% | |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | |||
Consumer | MSCI | ||
Staples | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 100 | 100 | 2,491 |
Median Market Cap | $88.1B | $88.1B | $47.3B |
Price/Earnings Ratio | 23.1x | 23.3x | 20.7x |
Price/Book Ratio | 4.4x | 4.4x | 2.6x |
Return on Equity | 20.8% | 20.7% | 17.2% |
Earnings Growth Rate | 4.8% | 4.8% | 10.2% |
Dividend Yield | 2.6% | 2.6% | 2.1% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 6% | — | — |
Short-Term Reserves | 0.2% | — | — |
Volatility Measures | |||
MSCI US | |||
IMI/Consumer | MSCI US | ||
Staples 25/50 | IMI/2500 | ||
R-Squared | 1.00 | 0.69 | |
Beta | 1.00 | 0.93 |
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 | 3.1% |
Distillers & Vintners | 2.0 |
Drug Retail | 10.1 |
Food Distributors | 1.9 |
Food Retail | 3.7 |
Household Products | 17.2 |
Hypermarkets & Super Centers | 8.4 |
Packaged Foods & Meats | 19.8 |
Personal Products | 2.6 |
Soft Drinks | 17.4 |
Tobacco | 13.0 |
Other Consumer Staples | 0.8 |
Ten Largest Holdings (% of total net assets)
Procter & | ||
Gamble Co. | Household Products | 9.6% |
Coca-Cola Co. | Soft Drinks | 8.0 |
PepsiCo Inc. | Soft Drinks | 6.6 |
Philip Morris | ||
International Inc. | Tobacco | 5.8 |
CVS Health Corp. | Drug Retail | 5.4 |
Altria Group Inc. | Tobacco | 4.8 |
Wal-Mart | Hypermarkets & | |
Stores Inc. | Super Centers | 4.8 |
Walgreens Boots | ||
Alliance Inc. | Drug Retail | 4.2 |
Mondelez | ||
International Inc. | Packaged Foods & Meats | 3.9 |
Costco | Hypermarkets & | |
Wholesale Corp. | Super Centers | 3.4 |
Top Ten | 56.5% |
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 fiscal year ended August 31, 2015, the expense ratios were 0.10% for ETF Shares and 0.10% for Admiral 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.
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx20x1.jpg)
Average Annual Total Returns | Final Value | |||
Periods Ended August 31, 2015 | of a $10,000 | |||
One Year | Five Years | Ten Years | Investment | |
Consumer Staples Index Fund | ||||
ETF Shares Net Asset Value | 7.67% | 15.86% | 10.52% | $27,199 |
Consumer Staples Index Fund | ||||
ETF Shares Market Price | 7.70 | 15.88 | 10.54 | 27,228 |
Spliced US IMI/Consumer Staples 25/50 | 7.83 | 16.02 | 10.64 | 27,479 |
Consumer Goods Funds Average | 1.28 | 13.50 | 8.80 | 23,235 |
MSCI US IMI/2500 | 0.44 | 16.11 | 7.55 | 20,698 |
For a benchmark description, see the Glossary. | ||||
Consumer Goods Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | ||||
Final Value | ||||
of a $100,000 | ||||
One Year | Five Years | Ten Years | Investment | |
Consumer Staples Index Fund Admiral Shares | 7.73% | 15.87% | 10.52% | $271,815 |
Spliced US IMI/Consumer Staples 25/50 | 7.83 | 16.02 | 10.64 | 274,787 |
MSCI US IMI/2500 | 0.44 | 16.11 | 7.55 | 206,975 |
See Financial Highlights for dividend and capital gains information.
18
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx21x1.jpg)
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx21x2.jpg)
Average Annual Total Returns: Periods Ended June 30, 2015
This table presents total returns through the latest calendar quarter—rather than through the end of the fiscal
period. Securities and Exchange Commission rules require that we provide this information.
Inception Date | One Year | Five Years | Ten Years | |
ETF Shares | 1/26/2004 | |||
Market Price | 9.85% | 17.09% | 10.79% | |
Net Asset Value | 9.81 | 17.08 | 10.80 | |
Admiral Shares | 1/30/2004 | 9.84 | 17.10 | 10.79 |
See Financial Highlights for dividend and capital gains information.
19
Consumer Staples Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 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%) | ||
Beverages (20.2%) | ||
Coca-Cola Co. | 5,502,181 | 216,346 |
PepsiCo Inc. | 1,917,659 | 178,208 |
Constellation Brands Inc. | ||
Class A | 269,883 | 34,545 |
* | Monster Beverage Corp. 226,006 31,293 |
Dr Pepper Snapple Group | |||
Inc. | 309,362 | 23,737 | |
Brown-Forman Corp. | |||
Class B | 196,611 | 19,288 | |
Coca-Cola Enterprises Inc. | 368,207 | 18,959 | |
Molson Coors Brewing Co. | |||
Class B | 255,668 | 17,408 | |
* | Boston Beer Co. Inc. | ||
Class A | 22,821 | 4,680 | |
Coca-Cola Bottling Co. | |||
Consolidated | 20,195 | 3,115 | |
547,579 | |||
Food & Staples Retailing (24.1%) | |||
CVS Health Corp. | 1,429,584 | 146,389 | |
Wal-Mart Stores Inc. | 2,005,026 | 129,785 | |
Walgreens Boots Alliance | |||
Inc. | 1,319,013 | 114,161 | |
Costco Wholesale Corp. | 667,467 | 93,479 | |
Kroger Co. | 1,438,097 | 49,614 | |
Sysco Corp. | 928,952 | 37,037 | |
Whole Foods Market Inc. | 590,253 | 19,337 | |
* | Rite Aid Corp. | 1,705,003 | 14,066 |
Casey’s General Stores | |||
Inc. | 75,736 | 8,017 | |
* | Sprouts Farmers Market | ||
Inc. | 308,863 | 6,292 | |
* | United Natural Foods Inc. | 113,326 | 5,457 |
* | SUPERVALU Inc. | 544,160 | 4,484 |
PriceSmart Inc. | 51,525 | 4,380 | |
Andersons Inc. | 98,083 | 3,470 | |
* | Fresh Market Inc. | 159,441 | 3,433 |
SpartanNash Co. | 119,172 | 3,373 | |
Ingles Markets Inc. Class A | 54,696 | 2,718 | |
Weis Markets Inc. | 52,584 | 2,138 | |
* | Chefs’ Warehouse Inc. | 138,649 | 2,099 |
* | Natural Grocers by Vitamin | ||
Cottage Inc. | 78,809 | 1,913 | |
Village Super Market Inc. | |||
Class A | 64,877 | 1,803 | |
* | Smart & Final Stores Inc. | 76,007 | 1,239 |
654,684 | |||
Food Products (22.9%) | |||
Mondelez International Inc. | |||
Class A | 2,484,386 | 105,239 | |
Kraft Heinz Co. | 911,065 | 66,198 | |
General Mills Inc. | 923,286 | 52,406 | |
Archer-Daniels-Midland Co. | 970,644 | 43,669 | |
ConAgra Foods Inc. | 679,842 | 28,336 |
Market | |||
Value• | |||
Shares | ($000) | ||
Kellogg Co. | 421,322 | 27,925 | |
Mead Johnson Nutrition Co. | 325,239 | 25,479 | |
Hershey Co. | 245,144 | 21,945 | |
Tyson Foods Inc. Class A | 497,727 | 21,044 | |
JM Smucker Co. | 168,259 | 19,807 | |
Bunge Ltd. | 239,932 | 17,383 | |
McCormick & Co. Inc. | 196,187 | 15,554 | |
Campbell Soup Co. | 317,584 | 15,241 | |
Hormel Foods Corp. | 246,978 | 15,090 | |
* | WhiteWave Foods Co. | ||
Class A | 303,692 | 14,012 | |
Keurig Green Mountain Inc. | 206,850 | 11,708 | |
* | Hain Celestial Group Inc. | 183,162 | 11,147 |
Ingredion Inc. | 128,185 | 11,068 | |
Pinnacle Foods Inc. | 206,873 | 9,276 | |
Flowers Foods Inc. | 363,487 | 8,437 | |
* | Post Holdings Inc. | 128,939 | 8,417 |
* | TreeHouse Foods Inc. | 88,215 | 7,002 |
* | Darling Ingredients Inc. | 379,759 | 4,876 |
Lancaster Colony Corp. | 48,423 | 4,592 | |
B&G Foods Inc. | 150,997 | 4,589 | |
^ | Cal-Maine Foods Inc. | 84,025 | 4,463 |
J&J Snack Foods Corp. | 39,044 | 4,449 | |
Snyder’s-Lance Inc. | 128,923 | 4,354 | |
Dean Foods Co. | 257,244 | 4,234 | |
Fresh Del Monte Produce | |||
Inc. | 100,403 | 3,975 | |
Sanderson Farms Inc. | 57,088 | 3,941 | |
^ | Pilgrim’s Pride Corp. | 187,184 | 3,926 |
Calavo Growers Inc. | 54,981 | 3,203 | |
* | Diamond Foods Inc. | 105,370 | 3,179 |
Tootsie Roll Industries Inc. | 88,701 | 2,757 | |
* | Boulder Brands Inc. | 323,264 | 2,651 |
*,^ | Freshpet Inc. | 179,085 | 2,326 |
* | Seneca Foods Corp. | ||
Class A | 73,023 | 2,153 | |
Limoneira Co. | 97,219 | 1,845 | |
* | Landec Corp. | 128,502 | 1,709 |
* | Farmer Bros Co. | 48,804 | 1,116 |
620,721 | |||
Household Products (17.2%) | |||
Procter & Gamble Co. | 3,670,032 | 259,361 | |
Colgate-Palmolive Co. | 1,307,052 | 82,096 | |
Kimberly-Clark Corp. | 558,641 | 59,512 | |
Clorox Co. | 212,015 | 23,570 | |
Church & Dwight Co. Inc. | 216,492 | 18,679 | |
Spectrum Brands Holdings | |||
Inc. | 59,066 | 5,805 | |
Energizer Holdings Inc. | 129,710 | 5,417 | |
WD-40 Co. | 44,447 | 3,722 | |
* | HRG Group Inc. | 285,605 | 3,678 |
* | Central Garden & Pet Co. | ||
Class A | 196,998 | 2,492 | |
* | Central Garden & Pet Co. | 173,001 | 2,121 |
466,453 |
Market | |||
Value• | |||
Shares | ($000) | ||
Personal Products (2.7%) | |||
Estee Lauder Cos. Inc. | |||
Class A | 367,248 | 29,295 | |
* | Edgewell Personal Care Co. | 114,410 | 10,075 |
*,^ | Herbalife Ltd. | 136,963 | 7,885 |
Nu Skin Enterprises Inc. | |||
Class A | 131,212 | 5,994 | |
Coty Inc. Class A | 176,032 | 5,335 | |
* | USANA Health Sciences | ||
Inc. | 21,314 | 3,122 | |
* | Revlon Inc. Class A | 77,300 | 2,577 |
Inter Parfums Inc. | 97,771 | 2,513 | |
* | Medifast Inc. | 78,927 | 2,192 |
*,^ | Elizabeth Arden Inc. | 165,819 | 1,829 |
Avon Products Inc. | 182,015 | 945 | |
71,762 | |||
Tobacco (13.0%) | |||
Philip Morris International | |||
Inc. | 1,982,735 | 158,222 | |
Altria Group Inc. | 2,445,481 | 131,029 | |
Reynolds American Inc. | 663,605 | 55,577 | |
Vector Group Ltd. | 210,076 | 5,006 | |
Universal Corp. | 71,009 | 3,495 | |
353,329 | |||
Total Common Stocks | |||
(Cost $2,383,186) | 2,714,528 | ||
Temporary Cash Investment (0.3%) | |||
Money Market Fund (0.3%) | |||
1,2 | Vanguard Market | ||
Liquidity Fund, 0.168% | |||
(Cost $10,093) | 10,093,499 | 10,093 | |
Total Investments (100.4%) | |||
(Cost $2,393,279) | 2,724,621 | ||
Amount | |||
($000) | |||
Other Assets and Liabilities (-0.4%) | |||
Other Assets | |||
Investment in Vanguard | 266 | ||
Receivables for Investment Securities Sold | 70,083 | ||
Receivables for Accrued Income | 3,185 | ||
Receivables for Capital Shares Issued | 850 | ||
Total Other Assets | 74,384 | ||
Liabilities | |||
Payables for Investment Securities | |||
Purchased | (78,550) | ||
Collateral for Securities on Loan | (6,642) | ||
Payables for Capital Shares Redeemed | (125) | ||
Payables to Vanguard | (1,111) | ||
Other Liabilities | (76) | ||
Total Liabilities | (86,504) | ||
Net Assets (100%) | 2,712,501 |
20
Consumer Staples Index Fund
At August 31, 2015, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 2,351,017 |
Undistributed Net Investment Income | 45,693 |
Accumulated Net Realized Losses | (15,551) |
Unrealized Appreciation (Depreciation) | 331,342 |
Net Assets | 2,712,501 |
ETF Shares—Net Assets | |
Applicable to 19,343,657 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 2,393,280 |
Net Asset Value Per Share— | |
ETF Shares | $123.72 |
Admiral Shares—Net Assets | |
Applicable to 5,232,394 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 319,221 |
Net Asset Value Per Share— | |
Admiral Shares | $61.01 |
• 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 $6,458,000.
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 $6,642,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
21
Consumer Staples Index Fund | |
Statement of Operations | |
Year Ended | |
August 31, 2015 | |
($000) | |
Investment Income | |
Income | |
Dividends | 71,338 |
Interest1 | 3 |
Securities Lending | 130 |
Total Income | 71,471 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 477 |
Management and Administrative— | |
ETF Shares | 1,402 |
Management and Administrative— | |
Admiral Shares | 173 |
Marketing and Distribution— | |
ETF Shares | 352 |
Marketing and Distribution— | |
Admiral Shares | 36 |
Custodian Fees | 29 |
Auditing Fees | 33 |
Shareholders’ Reports—ETF Shares | 112 |
Shareholders’ Reports—Admiral Shares | 4 |
Trustees’ Fees and Expenses | 2 |
Total Expenses | 2,620 |
Net Investment Income | 68,851 |
Realized Net Gain (Loss) on | |
Investment Securities Sold | 208,091 |
Change in Unrealized Appreciation | |
(Depreciation) of Investment Securities | (107,728) |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 169,214 |
1 Interest income from an affiliated company of the fund was | |
$3,000. |
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2015 | 2014 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 68,851 | 47,830 |
Realized Net Gain (Loss) | 208,091 | 105,124 |
Change in Unrealized Appreciation (Depreciation) | (107,728) | 140,426 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 169,214 | 293,380 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (47,684) | (37,204) |
Admiral Shares | (4,833) | (4,382) |
Realized Capital Gain | ||
ETF Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (52,517) | (41,586) |
Capital Share Transactions | ||
ETF Shares | 351,469 | 229,831 |
Admiral Shares | 90,822 | 15,610 |
Net Increase (Decrease) from Capital Share Transactions | 442,291 | 245,441 |
Total Increase (Decrease) | 558,988 | 497,235 |
Net Assets | ||
Beginning of Period | 2,153,513 | 1,656,278 |
End of Period1 | 2,712,501 | 2,153,513 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $45,693,000 and $29,359,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
22
Consumer Staples Index Fund | |||||
Financial Highlights | |||||
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $117.12 | $101.97 | $90.12 | $78.96 | $66.72 |
Investment Operations | |||||
Net Investment Income | 2.903 | 2.602 | 2.606 | 2.180 | 1.933 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 6.114 | 14.976 | 11.835 | 10.874 | 12.213 |
Total from Investment Operations | 9.017 | 17.578 | 14.441 | 13.054 | 14.146 |
Distributions | |||||
Dividends from Net Investment Income | (2.417) | (2.428) | (2.591) | (1.894) | (1.906) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (2.417) | (2.428) | (2.591) | (1.894) | (1.906) |
Net Asset Value, End of Period | $123.72 | $117.12 | $101.97 | $90.12 | $78.96 |
Total Return | 7.67% | 17.42% | 16.43% | 16.80% | 21.41% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $2,393 | $1,936 | $1,481 | $1,110 | $782 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.12% | 0.14% | 0.14% | 0.19% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.53% | 2.52% | 2.80% | 2.80% | 2.74% |
Portfolio Turnover Rate1 | 6% | 5% | 10% | 7% | 7% |
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.
Admiral Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $57.74 | $50.28 | $44.44 | $38.94 | $32.92 |
Investment Operations | |||||
Net Investment Income | 1.431 | 1.281 | 1.287 | 1.077 | .956 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 3.025 | 7.379 | 5.832 | 5.357 | 6.013 |
Total from Investment Operations | 4.456 | 8.660 | 7.119 | 6.434 | 6.969 |
Distributions | |||||
Dividends from Net Investment Income | (1.186) | (1.200) | (1.279) | (. 934) | (. 949) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.186) | (1.200) | (1.279) | (. 934) | (. 949) |
Net Asset Value, End of Period | $61.01 | $57.74 | $50.28 | $44.44 | $38.94 |
Total Return1 | 7.73% | 17.41% | 16.44% | 16.81% | 21.39% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $319 | $218 | $175 | $105 | $57 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.12% | 0.14% | 0.14% | 0.19% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.53% | 2.52% | 2.80% | 2.80% | 2.74% |
Portfolio Turnover Rate2 | 6% | 5% | 10% | 7% | 7% |
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.
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: ETF Shares and Admiral Shares. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker. 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 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, 2012–2015), 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 (”Vanguard”) participate in a $3 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 August 31, 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At August 31, 2015, the fund had contributed to Vanguard capital in the amount of $266,000, 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 employees, respectively, 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 August 31, 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 year ended August 31, 2015, the fund realized $217,923,000 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.
For tax purposes, at August 31, 2015, the fund had $46,753,000 of ordinary income available for distribution. At August 31, 2015, the fund had available capital losses totaling $13,321,000 to offset future net capital gains. Of this amount, $5,537,000 is subject to expiration on August 31, 2018. Capital losses of $7,784,000 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.
At August 31, 2015, the cost of investment securities for tax purposes was $2,395,508,000.
Net unrealized appreciation of investment securities for tax purposes was $329,113,000, consisting of unrealized gains of $402,409,000 on securities that had risen in value since their purchase and $73,296,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2015, the fund purchased $1,161,112,000 of investment securities and sold $699,233,000 of investment securities, other than temporary cash investments. Purchases and sales include $832,277,000 and $542,800,000, 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: | ||||
Year Ended August 31, | ||||
2015 | 2014 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 900,144 | 7,240 | 476,843 | 4,205 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (548,675) | (4,425) | (247,012) | (2,200) |
Net Increase (Decrease)—ETF Shares | 351,469 | 2,815 | 229,831 | 2,005 |
Admiral Shares | ||||
Issued | 154,546 | 2,488 | 69,898 | 1,286 |
Issued in Lieu of Cash Distributions | 4,224 | 70 | 3,879 | 73 |
Redeemed | (67,948) | (1,096) | (58,167) | (1,074) |
Net Increase (Decrease) —Admiral Shares | 90,822 | 1,462 | 15,610 | 285 |
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2015, that would require recognition or disclosure in these financial statements.
26
Energy Index Fund | |||
Fund Profile | |||
As of August 31, 2015 | |||
Share-Class Characteristics | |||
ETF | Admiral | ||
Shares | Shares | ||
Ticker Symbol | VDE | VENAX | |
Expense Ratio1 | 0.12% | 0.12% | |
30-Day SEC Yield | 3.15% | 3.15% | |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | MSCI | ||
Energy | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 150 | 149 | 2,491 |
Median Market Cap | $56.1B | $56.1B | $47.3B |
Price/Earnings Ratio | 21.5x | 21.5x | 20.7x |
Price/Book Ratio | 1.6x | 1.6x | 2.6x |
Return on Equity | 14.6% | 14.6% | 17.2% |
Earnings Growth Rate | -0.2% | -0.2% | 10.2% |
Dividend Yield | 3.2% | 3.2% | 2.1% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 4% | — | — |
Short-Term Reserves | 0.5% | — | — |
Volatility Measures | ||
MSCI US | ||
IMI/Energy | MSCI US | |
25/50 | IMI/2500 | |
R-Squared | 1.00 | 0.36 |
Beta | 1.00 | 0.97 |
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 | 0.3% | |
Integrated Oil & Gas | 36.3 | |
Oil & Gas Drilling | 1.8 | |
Oil & Gas Equipment & Services | 16.2 | |
Oil & Gas Exploration & Production | 25.3 | |
Oil & Gas Refining & Marketing | 9.2 | |
Oil & Gas Storage & Transportation | 10.9 |
Ten Largest Holdings (% of total net assets) | ||
Exxon Mobil Corp. | Integrated Oil & Gas | 21.9% |
Chevron Corp. | Integrated Oil & Gas | 10.6 |
Schlumberger Ltd. | Oil & Gas Equipment | |
& Services | 6.8 | |
ConocoPhillips | Oil & Gas Exploration | |
& Production | 4.2 | |
Kinder Morgan Inc. | Oil & Gas Storage | |
& Transportation | 4.2 | |
Occidental | ||
Petroleum Corp. | Integrated Oil & Gas | 3.9 |
EOG Resources | Oil & Gas Exploration | |
Inc. | & Production | 3.0 |
Phillips 66 | Oil & Gas Refining | |
& Marketing | 3.0 | |
Anadarko | Oil & Gas Exploration | |
Petroleum Corp. | & Production | 2.5 |
Williams Cos. Inc. | Oil & Gas Storage | |
& Transportation | 2.4 | |
Top Ten | 62.5% | |
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 fiscal year ended August 31, 2015, the expense ratios were 0.10% for ETF Shares and 0.10% for Admiral 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.
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx30x1.jpg)
Average Annual Total Returns | Final Value | |||
Periods Ended August 31, 2015 | of a $10,000 | |||
One Year | Five Years | Ten Years | Investment | |
Energy Index Fund | ||||
ETF Shares Net Asset Value | -32.70% | 6.33% | 4.10% | $14,944 |
Energy Index Fund | ||||
ETF Shares Market Price | -32.67 | 6.36 | 4.12 | 14,969 |
Spliced US IMI/Energy 25/50 | -32.63 | 6.44 | 4.16 | 15,033 |
Natural Resources Funds Average | -35.73 | 4.00 | 2.67 | 13,020 |
MSCI US IMI/2500 | 0.44 | 16.11 | 7.55 | 20,698 |
For a benchmark description, see the Glossary. | ||||
Natural Resources Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | ||||
Final Value | ||||
of a $100,000 | ||||
One Year | Five Years | Ten Years | Investment | |
Energy Index Fund Admiral Shares | -32.66% | 6.34% | 4.09% | $149,311 |
Spliced US IMI/Energy 25/50 | -32.63 | 6.44 | 4.16 | 150,332 |
MSCI US IMI/2500 | 0.44 | 16.11 | 7.55 | 206,975 |
See Financial Highlights for dividend and capital gains information.
28
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx31x1.jpg)
Average Annual Total Returns: Periods Ended June 30, 2015
This table presents total returns through the latest calendar quarter—rather than through the end of the fiscal
period. Securities and Exchange Commission rules require that we provide this information.
Inception Date | One Year | Five Years | Ten Years | |
ETF Shares | 9/23/2004 | |||
Market Price | -24.18% | 9.87% | 6.88% | |
Net Asset Value | -24.21 | 9.85 | 6.87 | |
Admiral Shares | 10/7/2004 | -24.18 | 9.87 | 6.86 |
See Financial Highlights for dividend and capital gains information.
29
Cumulative Returns: ETF Shares, August 31, 2005–August 31, 2015 | |||
One Year | Five Years | Ten Years | |
Energy Index Fund ETF Shares Market Price | -32.67% | 36.10% | 49.69% |
Energy Index Fund ETF Shares Net Asset Value | -32.70 | 35.90 | 49.44 |
Spliced US IMI/Energy 25/50 | -32.63 | 36.64 | 50.33 |
Energy Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 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%) | |||
Energy Equipment & Services (18.0%) | |||
Oil & Gas Drilling (1.8%) | |||
Helmerich & Payne Inc. | 334,479 | 19,738 | |
Ensco plc Class A | 727,413 | 13,173 | |
Nabors Industries Ltd. | 905,087 | 10,445 | |
Noble Corp. plc | 750,581 | 9,772 | |
Patterson-UTI Energy Inc. | 456,179 | 7,427 | |
Rowan Cos. plc Class A | 367,972 | 6,612 | |
^ | Diamond Offshore Drilling | ||
Inc. | 213,179 | 5,054 | |
Atwood Oceanics Inc. | 190,301 | 3,637 | |
* | Unit Corp. | 148,648 | 2,259 |
* | Parker Drilling Co. | 378,001 | 1,274 |
Transocean Partners LLC | 63,504 | 698 | |
* | Pioneer Energy Services | ||
Corp. | 202,610 | 671 | |
Oil & Gas Equipment & Services (16.2%) | |||
Schlumberger Ltd. | 3,944,598 | 305,194 | |
Halliburton Co. | 2,643,191 | 104,010 | |
Baker Hughes Inc. | 1,350,306 | 75,617 | |
National Oilwell Varco Inc. | 1,205,556 | 51,031 | |
* | Cameron International | ||
Corp. | 594,733 | 39,704 | |
* | FMC Technologies Inc. | 717,543 | 24,956 |
* | Weatherford International | ||
plc | 2,406,661 | 24,428 | |
Core Laboratories NV | 133,113 | 15,399 | |
Oceaneering International | |||
Inc. | 306,457 | 13,429 | |
* | Dril-Quip Inc. | 120,965 | 8,339 |
Superior Energy Services | |||
Inc. | 467,067 | 7,431 | |
Exterran Holdings Inc. | 205,051 | 4,577 | |
* | Oil States International Inc. | 152,215 | 4,318 |
Bristow Group Inc. | 108,473 | 4,020 | |
* | McDermott International | ||
Inc. | 740,944 | 3,764 | |
* | SEACOR Holdings Inc. | 53,654 | 3,461 |
US Silica Holdings Inc. | 165,445 | 3,325 | |
* | Forum Energy | ||
Technologies Inc. | 196,105 | 3,083 | |
^ | Tidewater Inc. | 146,716 | 2,631 |
RPC Inc. | 203,337 | 2,363 | |
* | Helix Energy Solutions | ||
Group Inc. | 311,260 | 2,163 | |
* | Hornbeck Offshore | ||
Services Inc. | 99,169 | 1,959 | |
^ | Frank’s International NV | 120,082 | 1,959 |
* | TETRA Technologies Inc. | 248,693 | 1,912 |
* | Newpark Resources Inc. | 260,884 | 1,912 |
CARBO Ceramics Inc. | 64,706 | 1,774 | |
* | Matrix Service Co. | 83,456 | 1,669 |
* | RigNet Inc. | 41,230 | 1,189 |
* | Era Group Inc. | 60,444 | 1,021 |
* | PHI Inc. | 37,617 | 954 |
Market | |||
Value• | |||
Shares | ($000) | ||
Tesco Corp. | 110,245 | 936 | |
* | Natural Gas Services Group | ||
Inc. | 39,797 | 863 | |
* | C&J Energy Services Ltd. | 146,733 | 813 |
^ | Gulfmark Offshore Inc. | 75,751 | 684 |
^,* | Fairmount Santrol Holdings | ||
Inc. | 122,608 | 614 | |
* | Basic Energy Services Inc. | 113,978 | 594 |
* | Key Energy Services Inc. | 424,234 | 302 |
* | ION Geophysical Corp. | 394,135 | 205 |
803,363 | |||
Oil, Gas & Consumable Fuels (82.0%) | |||
Coal & Consumable Fuels (0.3%) | |||
CONSOL Energy Inc. | 710,254 | 10,817 | |
^ | Peabody Energy Corp. | 860,773 | 2,324 |
* | Cloud Peak Energy Inc. | 186,649 | 892 |
* | Westmoreland Coal Co. | 46,399 | 705 |
^,* | Solazyme Inc. | 186,785 | 495 |
Integrated Oil & Gas (36.4%) | |||
Exxon Mobil Corp. | 12,988,737 | 977,273 | |
Chevron Corp. | 5,841,639 | 473,114 | |
Occidental Petroleum | |||
Corp. | 2,386,224 | 174,218 | |
Oil & Gas Exploration & Production (25.3%) | |||
ConocoPhillips | 3,830,093 | 188,249 | |
EOG Resources Inc. | 1,705,263 | 133,539 | |
Anadarko Petroleum Corp. 1,577,872 | 112,944 | ||
Pioneer Natural Resources | |||
Co. | 463,834 | 57,079 | |
Apache Corp. | 1,171,497 | 52,998 | |
Devon Energy Corp. | 1,213,208 | 51,755 | |
Hess Corp. | 803,433 | 47,764 | |
Noble Energy Inc. | 1,331,753 | 44,494 | |
* | Concho Resources Inc. | 372,815 | 40,324 |
EQT Corp. | 473,322 | 36,834 | |
Marathon Oil Corp. | 2,096,802 | 36,254 | |
Cimarex Energy Co. | 291,039 | 32,163 | |
Cabot Oil & Gas Corp. | 1,284,942 | 30,415 | |
Range Resources Corp. | 525,529 | 20,296 | |
* | Southwestern Energy Co. 1,195,333 | 19,412 | |
* | Newfield Exploration Co. | 505,349 | 16,833 |
Murphy Oil Corp. | 524,828 | 16,270 | |
^ | Chesapeake Energy Corp. 1,858,529 | 14,515 | |
* | Diamondback Energy Inc. | 195,767 | 13,369 |
Energen Corp. | 244,772 | 12,728 | |
* | Whiting Petroleum Corp. | 633,951 | 12,254 |
* | Gulfport Energy Corp. | 331,511 | 11,878 |
* | Continental Resources Inc. | 289,528 | 9,294 |
QEP Resources Inc. | 548,174 | 7,696 | |
SM Energy Co. | 209,412 | 7,685 | |
* | Cobalt International Energy | ||
Inc. | 900,455 | 7,213 | |
* | PDC Energy Inc. | 124,310 | 6,984 |
^,* | Antero Resources Corp. | 257,529 | 6,655 |
* | Carrizo Oil & Gas Inc. | 151,711 | 5,527 |
Market | |||
Value• | |||
Shares | ($000) | ||
* | Matador Resources Co. | 238,433 | 5,462 |
* | WPX Energy Inc. | 730,512 | 5,340 |
* | Memorial Resource | ||
Development Corp. | 266,431 | 5,171 | |
^,* | Laredo Petroleum Inc. | 497,822 | 5,073 |
Denbury Resources Inc. | 1,110,191 | 4,818 | |
* | Oasis Petroleum Inc. | 388,813 | 4,339 |
* | Rice Energy Inc. | 211,151 | 4,107 |
* | Parsley Energy Inc. | ||
Class A | 236,896 | 4,075 | |
* | RSP Permian Inc. | 170,128 | 4,073 |
^,* | Ultra Petroleum Corp. | 477,119 | 4,065 |
California Resources Corp. | 962,373 | 3,734 | |
* | Synergy Resources Corp. | 275,821 | 2,962 |
* | Kosmos Energy Ltd. | 419,396 | 2,936 |
* | Gran Tierra Energy Inc. | 887,207 | 2,209 |
* | Callon Petroleum Co. | 194,289 | 1,782 |
^,* | Halcon Resources Corp. | 1,094,418 | 1,259 |
^ | LinnCo LLC | 401,529 | 1,225 |
^,* | Sanchez Energy Corp. | 171,121 | 1,102 |
* | Stone Energy Corp. | 177,525 | 1,007 |
* | Bonanza Creek Energy Inc. | 130,922 | 1,002 |
^,* | Northern Oil and Gas Inc. | 163,610 | 987 |
* | Clayton Williams Energy Inc. 18,871 | 960 | |
* | Bill Barrett Corp. | 156,404 | 855 |
^,* | Triangle Petroleum Corp. | 210,173 | 849 |
* | Ring Energy Inc. | 78,790 | 808 |
* | Eclipse Resources Corp. | 169,641 | 653 |
^,* | SandRidge Energy Inc. | 1,179,710 | 629 |
* | Abraxas Petroleum Corp. | 307,429 | 599 |
^ | Energy XXI Ltd. | 295,234 | 561 |
* | Jones Energy Inc. Class A | 87,328 | 518 |
* | Contango Oil & Gas Co. | 52,282 | 487 |
^ | EXCO Resources Inc. | 542,344 | 453 |
* | Magnum Hunter Resources | ||
Corp. | 550,455 | 440 | |
W&T Offshore Inc. | 121,327 | 433 | |
^,* | Approach Resources Inc. | 117,732 | 301 |
^,* | Penn Virginia Corp. | 217,300 | 267 |
Oil & Gas Refining & Marketing (9.2%) | |||
Phillips 66 | 1,684,761 | 133,214 | |
Valero Energy Corp. | 1,580,207 | 93,769 | |
Marathon Petroleum Corp. 1,687,787 | 79,849 | ||
Tesoro Corp. | 390,953 | 35,972 | |
HollyFrontier Corp. | 574,753 | 26,933 | |
Western Refining Inc. | 237,407 | 10,213 | |
World Fuel Services Corp. | 224,516 | 8,678 | |
PBF Energy Inc. Class A | 267,390 | 8,000 | |
Delek US Holdings Inc. | 167,028 | 5,138 | |
Green Plains Inc. | 111,549 | 2,372 | |
CVR Energy Inc. | 53,965 | 2,170 | |
Alon USA Energy Inc. | 87,568 | 1,624 | |
^,* | Clean Energy Fuels Corp. | 226,730 | 1,206 |
* | REX American Resources | ||
Corp. | 20,971 | 1,124 | |
* | Renewable Energy Group | ||
Inc. | 95,491 | 804 |
30
Energy Index Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
Oil & Gas Storage & Transportation (10.8%) | |||
Kinder Morgan Inc. | 5,724,109 | 185,518 | |
Williams Cos. Inc. | 2,210,453 | 106,544 | |
Spectra Energy Corp. | 2,085,465 | 60,625 | |
* | Cheniere Energy Inc. | 698,171 | 43,391 |
Columbia Pipeline Group | |||
Inc. | 986,138 | 25,008 | |
ONEOK Inc. | 648,871 | 23,366 | |
Plains GP Holdings LP | |||
Class A | 694,379 | 13,603 | |
Targa Resources Corp. | 165,235 | 10,915 | |
SemGroup Corp. Class A | 136,300 | 7,497 | |
* | Enbridge Energy | ||
Management LLC | 167,389 | 4,712 | |
EnLink Midstream LLC | 152,745 | 3,645 | |
3,664,690 | |||
Other (0.0%) | |||
* | Magnum Hunter Resources | ||
Corp. Warrants Expire | |||
4/15/2016 | 24,925 | — | |
Total Common Stocks | |||
(Cost $5,456,129) | 4,468,053 | ||
Temporary Cash Investment (0.5%) | |||
Money Market Fund (0.5%) | |||
1,2 | Vanguard Market | ||
Liquidity Fund, 0.168% | |||
(Cost $22,964) | 22,964,000 | 22,964 | |
Total Investments (100.5%) | |||
(Cost $5,479,093) | 4,491,017 | ||
Amount | |||
($000) | |||
Other Assets and Liabilities (-0.5%) | |||
Other Assets | |||
Investment in Vanguard | 403 | ||
Receivables for Investment Securities Sold | 10,911 | ||
Receivables for Accrued Income | 25,302 | ||
Receivables for Capital Shares Issued | 532 | ||
Total Other Assets | 37,148 | ||
Liabilities | |||
Payables for Investment Securities | |||
Purchased | (15,848) | ||
Collateral for Securities on Loan | (22,964) | ||
Payables for Capital Shares Redeemed | (101) | ||
Payables to Vanguard | (2,011) | ||
Other Liabilities | (18,315) | ||
Total Liabilities | (59,239) | ||
Net Assets (100%) | 4,468,926 |
At August 31, 2015, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 5,485,134 |
Undistributed Net Investment Income | 88,123 |
Accumulated Net Realized Losses | (116,255) |
Unrealized Appreciation (Depreciation) | (988,076) |
Net Assets | 4,468,926 |
ETF Shares—Net Assets | |
Applicable to 39,803,145 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 3,735,954 |
Net Asset Value Per Share— | |
ETF Shares | $93.86 |
Admiral Shares—Net Assets | |
Applicable to 15,633,036 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 732,972 |
Net Asset Value Per Share— | |
Admiral Shares | $46.89 |
• 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 $21,294,000.
* 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 Includes $22,964,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
31
Energy Index Fund | |
Statement of Operations | |
Year Ended | |
August 31, 2015 | |
($000) | |
Investment Income | |
Income | |
Dividends | 117,330 |
Interest1 | 6 |
Securities Lending | 1,435 |
Total Income | 118,771 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 752 |
Management and Administrative— | |
ETF Shares | 2,038 |
Management and Administrative— | |
Admiral Shares | 390 |
Marketing and Distribution— | |
ETF Shares | 533 |
Marketing and Distribution— | |
Admiral Shares | 104 |
Custodian Fees | 46 |
Auditing Fees | 33 |
Shareholders’ Reports—ETF Shares | 213 |
Shareholders’ Reports—Admiral Shares | 14 |
Trustees’ Fees and Expenses | 3 |
Total Expenses | 4,126 |
Net Investment Income | 114,645 |
Realized Net Gain (Loss) | |
Investment Securities Sold | 170,012 |
Futures Contracts | 6 |
Realized Net Gain (Loss) | 170,018 |
Change in Unrealized Appreciation | |
(Depreciation) of Investment Securities | (1,906,933) |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | (1,622,270) |
1 Interest income from an affiliated company of the fund was $6,000. | |
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2015 | 2014 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 114,645 | 65,317 |
Realized Net Gain (Loss) | 170,018 | 145,782 |
Change in Unrealized Appreciation (Depreciation) | (1,906,933) | 485,296 |
Net Increase (Decrease) in Net Assets Resulting from Operations | (1,622,270) | 696,395 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (62,233) | (44,452) |
Admiral Shares | (10,925) | (9,355) |
Realized Capital Gain | ||
ETF Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (73,158) | (53,807) |
Capital Share Transactions | ||
ETF Shares | 1,710,890 | 664,185 |
Admiral Shares | 411,258 | 20,148 |
Net Increase (Decrease) from Capital Share Transactions | 2,122,148 | 684,333 |
Total Increase (Decrease) | 426,720 | 1,326,921 |
Net Assets | ||
Beginning of Period | 4,042,206 | 2,715,285 |
End of Period1 | 4,468,926 | 4,042,206 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $88,123,000 and $46,636,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
32
Energy Index Fund | |||||
Financial Highlights | |||||
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $142.26 | $116.47 | $103.35 | $100.41 | $75.20 |
Investment Operations | |||||
Net Investment Income | 2.9531 | 2.329 | 2.215 | 1.827 | 1.417 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | (49.144) | 25.655 | 12.899 | 2.731 | 25.040 |
Total from Investment Operations | (46.191) | 27.984 | 15.114 | 4.558 | 26.457 |
Distributions | |||||
Dividends from Net Investment Income | (2.209) | (2.194) | (1.994) | (1.618) | (1.247) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (2.209) | (2.194) | (1.994) | (1.618) | (1.247) |
Net Asset Value, End of Period | $93.86 | $142.26 | $116.47 | $103.35 | $100.41 |
Total Return | -32.70% | 24.31% | 14.85% | 4.60% | 35.22% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $3,736 | $3,467 | $2,255 | $1,917 | $1,782 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.12% | 0.14% | 0.14% | 0.19% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.65% | 1.98% | 2.02% | 1.81% | 1.48% |
Portfolio Turnover Rate2 | 4% | 4% | 9% | 12% | 11% |
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.
Admiral Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $71.06 | $58.18 | $51.63 | $50.17 | $37.58 |
Investment Operations | |||||
Net Investment Income | 1.4951 | 1.164 | 1.108 | .913 | .708 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | (24.561) | 12.815 | 6.439 | 1.358 | 12.508 |
Total from Investment Operations | (23.066) | 13.979 | 7.547 | 2.271 | 13.216 |
Distributions | |||||
Dividends from Net Investment Income | (1.104) | (1.099) | (. 997) | (.811) | (. 626) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.104) | (1.099) | (. 997) | (.811) | (. 626) |
Net Asset Value, End of Period | $46.89 | $71.06 | $58.18 | $51.63 | $50.17 |
Total Return 2 | -32.66% | 24.32% | 14.86% | 4.61% | 35.21% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $733 | $575 | $460 | $254 | $237 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.12% | 0.14% | 0.14% | 0.19% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.65% | 1.98% | 2.02% | 1.81% | 1.48% |
Portfolio Turnover Rate3 | 4% | 4% | 9% | 12% | 11% |
1 Calculated based on average shares outstanding.
2 Total returns do not include transaction and 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.
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: ETF Shares and Admiral Shares. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker. 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 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 year ended August 31, 2015, the fund’s average investments in long and short futures contracts each represented 0% of net assets, based on the average of aggregate settlement values at each quarter-end during the period. The fund had no open futures contracts at August 31, 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, 2012–2015), 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
34
Energy 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 (“Vanguard”) participate in a $3 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 August 31, 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At August 31, 2015, the fund had contributed to Vanguard capital in the amount of $403,000, representing 0.01% of the fund’s net assets and 0.16% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and employees, respectively, 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 August 31, 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.
35
Energy Index Fund
During the year ended August 31, 2015, the fund realized $212,556,000 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.
For tax purposes, at August 31, 2015, the fund had $90,056,000 of ordinary income available for distribution. At August 31, 2015, the fund had available capital losses totaling $116,246,000 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 $47,962,000 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.
At August 31, 2015, the cost of investment securities for tax purposes was $5,479,102,000.
Net unrealized depreciation of investment securities for tax purposes was $988,085,000, consisting of unrealized gains of $122,661,000 on securities that had risen in value since their purchase and $1,110,746,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2015, the fund purchased $3,032,621,000 of investment securities and sold $869,908,000 of investment securities, other than temporary cash investments. Purchases and sales include $2,251,951,000 and $689,238,000, 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: | ||||
Year Ended August 31, | ||||
2015 | 2014 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 2,405,860 | 21,906 | 995,909 | 7,611 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (694,970) | (6,475) | (331,724) | (2,600) |
Net Increase (Decrease)—ETF Shares | 1,710,890 | 15,431 | 664,185 | 5,011 |
Admiral Shares | ||||
Issued | 563,402 | 10,293 | 202,436 | 3,067 |
Issued in Lieu of Cash Distributions | 9,612 | 178 | 8,197 | 133 |
Redeemed | (161,756) | (2,931) | (190,485) | (3,018) |
Net Increase (Decrease) —Admiral Shares | 411,258 | 7,540 | 20,148 | 182 |
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2015, that would require recognition or disclosure in these financial statements.
36
Financials Index Fund
Fund Profile
As of August 31, 2015
Share-Class Characteristics | |||
ETF | Admiral | ||
Shares | Shares | ||
Ticker Symbol | VFH | VFAIX | |
Expense Ratio1 | 0.12% | 0.12% | |
30-Day SEC Yield | 2.37% | 2.37% | |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | MSCI | ||
Financials | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 561 | 560 | 2,491 |
Median Market Cap | $28.9B | $28.9B | $47.3B |
Price/Earnings Ratio | 15.9x | 15.9x | 20.7x |
Price/Book Ratio | 1.4x | 1.4x | 2.6x |
Return on Equity | 10.1% | 10.1% | 17.2% |
Earnings Growth Rate | 13.9% | 13.9% | 10.2% |
Dividend Yield | 2.4% | 2.4% | 2.1% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 4% | — | — |
Short-Term Reserves | 0.1% | — | — |
Volatility Measures | |||
MSCI US | |||
IMI/Financials | MSCI US | ||
25/50 | IMI/2500 | ||
R-Squared | 1.00 | 0.81 | |
Beta | 1.00 | 0.99 |
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 | 6.4% |
Consumer Finance | 4.6 |
Diversified Banks | 24.0 |
Diversified REITs | 1.3 |
Health Care REITs | 2.2 |
Hotel & Resort REITs | 1.2 |
Insurance Brokers | 1.9 |
Investment Banking & Brokerage | 5.3 |
Life & Health Insurance | 4.5 |
Mortgage REITs | 1.5 |
Multi-line Insurance | 3.5 |
Multi-Sector Holdings | 4.3 |
Office REITs | 2.4 |
Property & Casualty Insurance | 6.5 |
Regional Banks | 10.3 |
Reinsurance | 1.2 |
Residential REITs | 3.0 |
Retail REITs | 4.3 |
Specialized Finance | 3.2 |
Specialized REITs | 5.1 |
Thrifts & Mortgage Finance | 1.1 |
Other Financials | 2.2 |
Ten Largest Holdings (% of total net assets)
Wells Fargo & Co. | Diversified Banks | 6.8% |
JPMorgan Chase | ||
& Co. | Diversified Banks | 6.2 |
Bank of America | ||
Corp. | Diversified Banks | 4.5 |
Citigroup Inc. | Diversified Banks | 4.3 |
Berkshire | ||
Hathaway Inc. | Multi-Sector Holdings | 4.1 |
American | ||
International | ||
Group Inc. | Multi-line Insurance | 2.1 |
US Bancorp | Diversified Banks | 2.0 |
Goldman Sachs | Investment Banking | |
Group Inc. | & Brokerage | 1.9 |
American | ||
Express Co. | Consumer Finance | 1.8 |
Simon Property | ||
Group Inc. | Retail REITs | 1.5 |
Top Ten | 35.2% |
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 fiscal year ended August 31, 2015, the expense ratios were 0.10% for ETF Shares and 0.10% for Admiral 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.
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx40x1.jpg)
Average Annual Total Returns | Final Value | |||
Periods Ended August 31, 2015 | of a $10,000 | |||
One Year | Five Years | Ten Years | Investment | |
Financials Index Fund | ||||
ETF Shares Net Asset Value | 2.63% | 13.48% | 1.21% | $11,273 |
Financials Index Fund | ||||
ETF Shares Market Price | 2.61 | 13.52 | 1.23 | 11,300 |
Spliced US IMI/Financials 25/50 | 2.70 | 13.59 | 1.26 | 11,330 |
Financial Services Funds Average | 2.43 | 13.10 | 1.40 | 11,490 |
MSCI US IMI/2500 | 0.44 | 16.11 | 7.55 | 20,698 |
For a benchmark description, see the Glossary. | ||||
Financial Services Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | ||||
Final Value | ||||
of a $100,000 | ||||
One Year | Five Years | Ten Years | Investment | |
Financials Index Fund Admiral Shares | 2.64% | 13.49% | 1.19% | $112,542 |
Spliced US IMI/Financials 25/50 | 2.70 | 13.59 | 1.26 | 113,297 |
MSCI US IMI/2500 | 0.44 | 16.11 | 7.55 | 206,975 |
See Financial Highlights for dividend and capital gains information.
38
Financials Index Fund
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx41x1.jpg)
Financials Index Fund ETF Shares Net Asset Value Spliced US IMI/Financials 25/50
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2005–August 31, 2015 | |||
One Year | Five Years | Ten Years | |
Financials Index Fund ETF Shares Market Price | 2.61% | 88.49% | 13.00% |
Financials Index Fund ETF Shares Net Asset Value | 2.63 | 88.19 | 12.73 |
Spliced US IMI/Financials 25/50 | 2.70 | 89.11 | 13.30 |
Average Annual Total Returns: Periods Ended June 30, 2015
This table presents total returns through the latest calendar quarter—rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information.
Inception Date | One Year | Five Years | Ten Years | |
ETF Shares | 1/26/2004 | |||
Market Price | 9.06% | 14.16% | 1.62% | |
Net Asset Value | 8.97 | 14.16 | 1.61 | |
Admiral Shares | 2/4/2004 | 8.96 | 14.16 | 1.60 |
See Financial Highlights for dividend and capital gains information.
39
Financials Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 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 (34.3%) | |||
Wells Fargo & Co. | 4,217,633 | 224,926 | |
JPMorgan Chase & Co. | 3,199,697 | 205,101 | |
Bank of America Corp. | 9,054,963 | 147,958 | |
Citigroup Inc. | 2,616,107 | 139,909 | |
US Bancorp | 1,528,726 | 64,742 | |
PNC Financial Services | |||
Group Inc. | 446,546 | 40,689 | |
BB&T Corp. | 672,019 | 24,811 | |
SunTrust Banks Inc. | 445,028 | 17,966 | |
Fifth Third Bancorp | 698,368 | 13,911 | |
M&T Bank Corp. | 103,012 | 12,180 | |
Regions Financial Corp. | 1,155,589 | 11,082 | |
KeyCorp | 731,371 | 10,049 | |
Citizens Financial Group Inc. | 370,972 | 9,208 | |
Huntington Bancshares Inc. | 698,339 | 7,619 | |
First Republic Bank | 122,729 | 7,402 | |
Comerica Inc. | 153,869 | 6,770 | |
CIT Group Inc. | 150,194 | 6,524 | |
* | Signature Bank | 43,294 | 5,779 |
* | SVB Financial Group | 43,982 | 5,501 |
Zions Bancorporation | 174,525 | 5,061 | |
East West Bancorp Inc. | 123,522 | 4,992 | |
People’s United Financial | |||
Inc. | 265,012 | 4,108 | |
City National Corp. | 43,156 | 3,788 | |
PacWest Bancorp | 84,360 | 3,597 | |
Investors Bancorp Inc. | 300,627 | 3,541 | |
Synovus Financial Corp. | 114,776 | 3,493 | |
Commerce Bancshares Inc. | 74,636 | 3,344 | |
BankUnited Inc. | 89,210 | 3,179 | |
Umpqua Holdings Corp. | 189,548 | 3,167 | |
Cullen/Frost Bankers Inc. | 48,972 | 3,167 | |
Prosperity Bancshares Inc. | 57,310 | 2,961 | |
First Horizon National Corp. | 202,287 | 2,939 | |
Bank of the Ozarks Inc. | 67,442 | 2,819 | |
First Niagara Financial | |||
Group Inc. | 304,290 | 2,815 | |
Webster Financial Corp. | 78,034 | 2,761 | |
* | Popular Inc. | 88,963 | 2,612 |
FirstMerit Corp. | 142,990 | 2,568 | |
PrivateBancorp Inc. | 64,516 | 2,442 | |
Associated Banc-Corp | 131,593 | 2,416 | |
Bank of Hawaii Corp. | 37,934 | 2,354 | |
* | Western Alliance Bancorp | 74,566 | 2,276 |
United Bankshares Inc. | 60,013 | 2,246 | |
MB Financial Inc. | 65,198 | 2,148 | |
TCF Financial Corp. | 137,817 | 2,139 | |
* | Texas Capital Bancshares | ||
Inc. | 39,681 | 2,137 | |
IBERIABANK Corp. | 33,005 | 2,010 | |
Home BancShares Inc. | 52,662 | 2,007 | |
Wintrust Financial Corp. | 38,647 | 1,971 | |
Cathay General Bancorp | 65,174 | 1,931 | |
Valley National Bancorp | 201,193 | 1,903 | |
FNB Corp. | 150,472 | 1,890 | |
Hancock Holding Co. | 67,098 | 1,884 |
Market | |||
Value• | |||
Shares | ($000) | ||
Fulton Financial Corp. | 152,326 | 1,852 | |
BancorpSouth Inc. | 74,248 | 1,764 | |
UMB Financial Corp. | 33,664 | 1,688 | |
Glacier Bancorp Inc. | 64,629 | 1,681 | |
South State Corp. | 20,724 | 1,557 | |
Columbia Banking System | |||
Inc. | 49,849 | 1,511 | |
First Citizens BancShares | |||
Inc. Class A | 6,169 | 1,463 | |
National Penn Bancshares | |||
Inc. | 119,690 | 1,438 | |
Sterling Bancorp | 101,121 | 1,419 | |
CVB Financial Corp. | 86,082 | 1,399 | |
Pinnacle Financial Partners | |||
Inc. | 29,443 | 1,396 | |
Old National Bancorp | 100,793 | 1,391 | |
^ | First Financial Bankshares | ||
Inc. | 44,263 | 1,378 | |
* | Hilltop Holdings Inc. | 65,007 | 1,342 |
BOK Financial Corp. | 20,815 | 1,317 | |
Trustmark Corp. | 55,457 | 1,277 | |
Community Bank System | |||
Inc. | 35,350 | 1,261 | |
International Bancshares | |||
Corp. | 48,570 | 1,246 | |
Great Western Bancorp Inc. | 47,316 | 1,191 | |
First Midwest Bancorp Inc. | 66,694 | 1,176 | |
LegacyTexas Financial | |||
Group Inc. | 38,665 | 1,095 | |
* | Eagle Bancorp Inc. | 25,823 | 1,082 |
Simmons First National | |||
Corp. Class A | 24,479 | 1,074 | |
Renasant Corp. | 32,786 | 1,028 | |
NBT Bancorp Inc. | 38,399 | 995 | |
Westamerica | |||
Bancorporation | 21,905 | 989 | |
BBCN Bancorp Inc. | 67,903 | 988 | |
Independent Bank Corp. | 21,485 | 973 | |
First Financial Bancorp | 52,546 | 969 | |
Park National Corp. | 11,232 | 946 | |
Talmer Bancorp Inc. | |||
Class A | 56,899 | 925 | |
WesBanco Inc. | 29,526 | 909 | |
Union Bankshares Corp. | 38,476 | 908 | |
Chemical Financial Corp. | 28,373 | 906 | |
* | FCB Financial Holdings Inc. | ||
Class A | 27,198 | 897 | |
S&T Bancorp Inc. | 28,490 | 852 | |
Boston Private Financial | |||
Holdings Inc. | 70,997 | 845 | |
Banner Corp. | 18,292 | 812 | |
United Community Banks | |||
Inc. | 40,806 | 799 | |
First Merchants Corp. | 30,570 | 795 | |
Ameris Bancorp | 27,781 | 758 | |
* | Capital Bank Financial Corp. | 23,615 | 727 |
ServisFirst Bancshares Inc. | 18,850 | 707 |
Market | |||
Value• | |||
Shares | ($000) | ||
First Commonwealth | |||
Financial Corp. | 76,647 | 678 | |
Berkshire Hills Bancorp Inc. | 24,239 | 678 | |
Hanmi Financial Corp. | 27,888 | 676 | |
Towne Bank | 35,474 | 651 | |
Wilshire Bancorp Inc. | 59,705 | 638 | |
Tompkins Financial Corp. | 11,761 | 617 | |
City Holding Co. | 12,952 | 617 | |
Cardinal Financial Corp. | 27,388 | 611 | |
State Bank Financial Corp. | 30,055 | 607 | |
Lakeland Financial Corp. | 14,344 | 589 | |
Central Pacific Financial | |||
Corp. | 26,883 | 558 | |
Sandy Spring Bancorp Inc. | 21,426 | 550 | |
* | Customers Bancorp Inc. | 22,075 | 541 |
CenterState Banks Inc. | 39,127 | 541 | |
National Bank Holdings | |||
Corp. Class A | 26,018 | 525 | |
Heartland Financial USA Inc. | 13,976 | 508 | |
Southside Bancshares Inc. | 19,318 | 503 | |
Flushing Financial Corp. | 24,199 | 483 | |
Washington Trust Bancorp | |||
Inc. | 12,486 | 482 | |
Opus Bank | 13,063 | 481 | |
* | First NBC Bank Holding Co. | 13,659 | 478 |
First Interstate BancSystem | |||
Inc. Class A | 17,891 | 477 | |
Community Trust Bancorp | |||
Inc. | 13,300 | 467 | |
* | Square 1 Financial Inc. | ||
Class A | 18,474 | 466 | |
ConnectOne Bancorp Inc. | 24,104 | 462 | |
Stock Yards Bancorp Inc. | 12,332 | 435 | |
TriCo Bancshares | 18,182 | 432 | |
First Busey Corp. | 63,574 | 407 | |
* | First BanCorp | 100,103 | 401 |
Enterprise Financial | |||
Services Corp. | 15,754 | 377 | |
CoBiz Financial Inc. | 29,142 | 375 | |
BancFirst Corp. | 6,191 | 374 | |
Independent Bank Group | |||
Inc. | 8,790 | 373 | |
MainSource Financial Group | |||
Inc. | 17,867 | 370 | |
Lakeland Bancorp Inc. | 31,997 | 354 | |
Blue Hills Bancorp Inc. | 24,313 | 344 | |
1st Source Corp. | 11,440 | 343 | |
OFG Bancorp | 38,659 | 334 | |
Univest Corp. of | |||
Pennsylvania | 17,125 | 331 | |
Great Southern Bancorp Inc. | 8,104 | 326 | |
Bryn Mawr Bank Corp. | 10,653 | 316 | |
German American Bancorp | |||
Inc. | 10,733 | 311 | |
Financial Institutions Inc. | 11,210 | 278 | |
First of Long Island Corp. | 10,508 | 268 | |
Arrow Financial Corp. | 9,651 | 266 | |
Southwest Bancorp Inc. | 15,884 | 265 |
40
Financials Index Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
Metro Bancorp Inc. | 9,074 | 260 | |
First Bancorp | 15,197 | 259 | |
First Financial Corp. | 7,681 | 253 | |
* | Bancorp Inc. | 30,373 | 223 |
Republic Bancorp Inc. | |||
Class A | 8,663 | 216 | |
* | Sun Bancorp Inc. | 8,710 | 173 |
1,127,067 | |||
Capital Markets (11.7%) | |||
Goldman Sachs Group Inc. | 335,244 | 63,227 | |
Morgan Stanley | 1,273,951 | 43,888 | |
Bank of New York Mellon | |||
Corp. | 966,958 | 38,485 | |
BlackRock Inc. | 106,445 | 32,196 | |
Charles Schwab Corp. | 1,019,334 | 30,967 | |
State Street Corp. | 354,895 | 25,524 | |
Ameriprise Financial Inc. | 156,368 | 17,618 | |
T. Rowe Price Group Inc. | 224,699 | 16,151 | |
Franklin Resources Inc. | 346,933 | 14,079 | |
Northern Trust Corp. | 191,311 | 13,361 | |
Invesco Ltd. | 371,371 | 12,667 | |
* | Affiliated Managers Group | ||
Inc. | 47,101 | 8,782 | |
TD Ameritrade Holding | |||
Corp. | 234,240 | 7,838 | |
* | E*TRADE Financial Corp. | 249,999 | 6,572 |
SEI Investments Co. | 121,718 | 6,157 | |
Raymond James Financial | |||
Inc. | 111,623 | 5,915 | |
Legg Mason Inc. | 85,939 | 3,810 | |
Eaton Vance Corp. | 101,422 | 3,516 | |
LPL Financial Holdings Inc. | 74,790 | 3,008 | |
Waddell & Reed Financial | |||
Inc. Class A | 72,673 | 2,839 | |
NorthStar Asset | |||
Management Group Inc. | 166,189 | 2,792 | |
* | Stifel Financial Corp. | 55,691 | 2,595 |
Federated Investors Inc. | |||
Class B | 81,077 | 2,513 | |
Janus Capital Group Inc. | 128,880 | 1,918 | |
Interactive Brokers Group | |||
Inc. | 48,010 | 1,917 | |
WisdomTree Investments | |||
Inc. | 100,511 | 1,885 | |
Evercore Partners Inc. | |||
Class A | 29,984 | 1,571 | |
BGC Partners Inc. Class A | 173,134 | 1,518 | |
Financial Engines Inc. | 44,699 | 1,451 | |
Artisan Partners Asset | |||
Management Inc. Class A | 30,025 | 1,227 | |
HFF Inc. Class A | 28,965 | 1,052 | |
Greenhill & Co. Inc. | 23,378 | 821 | |
Virtus Investment Partners | |||
Inc. | 6,113 | 703 | |
OM Asset Management plc | 36,182 | 598 | |
* | Piper Jaffray Cos. | 14,276 | 598 |
Cohen & Steers Inc. | 17,518 | 525 | |
*,^ | Walter Investment | ||
Management Corp. | 31,942 | 525 | |
Diamond Hill Investment | |||
Group Inc. | 2,544 | 495 | |
* | Cowen Group Inc. Class A | 87,821 | 465 |
Investment Technology | |||
Group Inc. | 26,687 | 438 | |
Moelis & Co. Class A | 15,511 | 423 | |
* | KCG Holdings Inc. Class A | 36,359 | 418 |
Westwood Holdings Group | |||
Inc. | 6,436 | 357 | |
* | INTL. FCStone Inc. | 12,938 | 342 |
Market | |||
Value• | |||
Shares | ($000) | ||
Arlington Asset | |||
Investment Corp. | |||
Class A | 20,164 | 336 | |
* | Safeguard Scientifics Inc. | 17,087 | 299 |
GAMCO Investors Inc. | 4,123 | 241 | |
* | Ladenburg Thalmann | ||
Financial Services Inc. | 86,774 | 227 | |
Oppenheimer Holdings Inc. | |||
Class A | 8,890 | 177 | |
Pzena Investment | |||
Management Inc. | |||
Class A | 10,848 | 110 | |
*,^ | RCS Capital Corp. Class A | 30,805 | 63 |
Fifth Street Asset | |||
Management Inc. | 5,138 | 43 | |
385,243 | |||
Consumer Finance (4.7%) | |||
American Express Co. | 788,168 | 60,468 | |
Capital One Financial Corp. | 471,104 | 36,628 | |
Discover Financial Services | 381,452 | 20,495 | |
* | Ally Financial Inc. | 373,797 | 8,171 |
* | Synchrony Financial | 144,109 | 4,748 |
Navient Corp. | 335,416 | 4,290 | |
* | SLM Corp. | 364,790 | 3,094 |
* | PRA Group Inc. | 41,817 | 2,229 |
* | Springleaf Holdings Inc. | ||
Class A | 46,514 | 2,082 | |
* | Santander Consumer USA | ||
Holdings Inc. | 90,575 | 2,034 | |
* | LendingClub Corp. | 159,924 | 2,007 |
* | Credit Acceptance Corp. | 6,215 | 1,267 |
* | First Cash Financial | ||
Services Inc. | 24,259 | 1,001 | |
Nelnet Inc. Class A | 22,766 | 857 | |
* | Encore Capital Group Inc. | 20,871 | 848 |
Cash America International | |||
Inc. | 23,687 | 654 | |
* | Green Dot Corp. Class A | 32,832 | 581 |
* | Enova International Inc. | 22,265 | 290 |
* | Ezcorp Inc. Class A | 43,301 | 274 |
* | World Acceptance Corp. | 5,675 | 213 |
152,231 | |||
Diversified Financial Services (7.8%) | |||
* | Berkshire Hathaway Inc. | ||
Class B | 1,005,387 | 134,762 | |
CME Group Inc. | 276,515 | 26,114 | |
McGraw Hill Financial Inc. | 236,052 | 22,895 | |
Intercontinental Exchange | |||
Inc. | 95,971 | 21,921 | |
Moody’s Corp. | 156,978 | 16,060 | |
Voya Financial Inc. | 197,468 | 8,507 | |
Leucadia National Corp. | 285,040 | 6,117 | |
MSCI Inc. Class A | 87,231 | 5,279 | |
NASDAQ OMX Group Inc. | 102,084 | 5,226 | |
CBOE Holdings Inc. | 71,920 | 4,549 | |
MarketAxess Holdings Inc. | 32,262 | 2,917 | |
* | PHH Corp. | 43,715 | 708 |
* | PICO Holdings Inc. | 19,213 | 249 |
* | NewStar Financial Inc. | 18,849 | 215 |
255,519 | |||
Insurance (17.6%) | |||
American International | |||
Group Inc. | 1,149,769 | 69,377 | |
MetLife Inc. | 817,717 | 40,968 | |
Prudential Financial Inc. | 390,518 | 31,515 | |
ACE Ltd. | 281,523 | 28,760 | |
Travelers Cos. Inc. | 274,742 | 27,351 | |
Marsh & McLennan Cos. | |||
Inc. | 464,366 | 24,950 |
Market | |||
Value• | |||
Shares | ($000) | ||
Chubb Corp. | 198,055 | 23,927 | |
Aon plc | 242,952 | 22,701 | |
Aflac Inc. | 374,097 | 21,922 | |
Allstate Corp. | 352,620 | 20,551 | |
Hartford Financial Services | |||
Group Inc. | 362,028 | 16,635 | |
Progressive Corp. | 505,826 | 15,155 | |
Principal Financial Group | |||
Inc. | 254,083 | 12,793 | |
Lincoln National Corp. | 218,136 | 11,079 | |
* | Markel Corp. | 12,011 | 9,894 |
XL Group plc Class A | 264,385 | 9,859 | |
Loews Corp. | 256,161 | 9,337 | |
FNF Group | 217,247 | 7,910 | |
* | Arch Capital Group Ltd. | 106,860 | 7,296 |
Unum Group | 215,116 | 7,215 | |
Cincinnati Financial Corp. | 134,416 | 7,034 | |
Everest Re Group Ltd. | 38,406 | 6,752 | |
* | Alleghany Corp. | 13,825 | 6,495 |
HCC Insurance Holdings Inc. | 82,483 | 6,373 | |
Torchmark Corp. | 108,688 | 6,354 | |
Arthur J Gallagher & Co. | 144,821 | 6,332 | |
Willis Group Holdings plc | 139,016 | 5,990 | |
PartnerRe Ltd. | 41,228 | 5,706 | |
Reinsurance Group of | |||
America Inc. Class A | 57,009 | 5,181 | |
Axis Capital Holdings Ltd. | 86,835 | 4,863 | |
WR Berkley Corp. | 86,027 | 4,670 | |
Assurant Inc. | 58,508 | 4,350 | |
American Financial Group | |||
Inc. | 60,369 | 4,169 | |
StanCorp Financial Group | |||
Inc. | 36,420 | 4,141 | |
RenaissanceRe Holdings | |||
Ltd. | 39,526 | 4,030 | |
White Mountains Insurance | |||
Group Ltd. | 5,170 | 3,719 | |
First American Financial | |||
Corp. | 93,521 | 3,634 | |
Endurance Specialty | |||
Holdings Ltd. | 53,849 | 3,433 | |
Old Republic International | |||
Corp. | 213,531 | 3,355 | |
Brown & Brown Inc. | 103,225 | 3,309 | |
Allied World Assurance Co. | |||
Holdings AG | 82,533 | 3,296 | |
Assured Guaranty Ltd. | 130,040 | 3,285 | |
Validus Holdings Ltd. | 72,967 | 3,231 | |
CNO Financial Group Inc. | 169,761 | 3,037 | |
Hanover Insurance Group | |||
Inc. | 38,337 | 3,025 | |
Aspen Insurance Holdings | |||
Ltd. | 53,072 | 2,437 | |
ProAssurance Corp. | 47,421 | 2,287 | |
* | Genworth Financial Inc. | ||
Class A | 428,239 | 2,218 | |
Symetra Financial Corp. | 70,183 | 2,209 | |
Primerica Inc. | 44,204 | 1,878 | |
AmTrust Financial Services | |||
Inc. | 32,039 | 1,863 | |
Erie Indemnity Co. Class A | 21,953 | 1,800 | |
RLI Corp. | 33,279 | 1,734 | |
American Equity Investment | |||
Life Holding Co. | 70,239 | 1,704 | |
Selective Insurance Group | |||
Inc. | 48,696 | 1,476 | |
Argo Group International | |||
Holdings Ltd. | 24,204 | 1,355 | |
* | Enstar Group Ltd. | 8,954 | 1,308 |
41
Financials Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Kemper Corp. | 36,321 | 1,287 | |
Mercury General Corp. | 23,592 | 1,200 | |
Horace Mann Educators | |||
Corp. | 34,911 | 1,160 | |
* | FNFV Group | 68,233 | 987 |
* | MBIA Inc. | 132,368 | 929 |
Infinity Property & Casualty | |||
Corp. | 10,012 | 774 | |
AMERISAFE Inc. | 16,478 | 770 | |
* | Navigators Group Inc. | 9,868 | 750 |
National General Holdings | |||
Corp. | 40,196 | 737 | |
* | Third Point Reinsurance Ltd. | 50,158 | 702 |
* | Greenlight Capital Re Ltd. | ||
Class A | 27,223 | 694 | |
Maiden Holdings Ltd. | 47,695 | 683 | |
Stewart Information Services | |||
Corp. | 17,501 | 678 | |
Universal Insurance Holdings | |||
Inc. | 27,136 | 668 | |
* | Ambac Financial Group Inc. | 38,155 | 620 |
United Fire Group Inc. | 18,469 | 613 | |
Employers Holdings Inc. | 26,871 | 593 | |
Safety Insurance Group Inc. | 11,224 | 590 | |
FBL Financial Group Inc. | |||
Class A | 9,766 | 557 | |
National Western Life | |||
Insurance Co. Class A | 2,022 | 460 | |
* | Heritage Insurance Holdings | ||
Inc. | 21,706 | 381 | |
HCI Group Inc. | 8,069 | 321 | |
State Auto Financial Corp. | 13,805 | 302 | |
James River Group Holdings | |||
Ltd. | 9,802 | 271 | |
OneBeacon Insurance Group | |||
Ltd. Class A | 18,380 | 266 | |
*,^ | Citizens Inc. Class A | 40,590 | 255 |
State National Cos. Inc. | 26,481 | 252 | |
Fidelity & Guaranty Life | 10,117 | 250 | |
* | Global Indemnity plc | 7,515 | 202 |
United Insurance Holdings | |||
Corp. | 15,083 | 198 | |
National Interstate Corp. | 6,387 | 177 | |
Baldwin & Lyons Inc. | 7,365 | 169 | |
EMC Insurance Group Inc. | 7,143 | 163 | |
Kansas City Life Insurance | |||
Co. | 3,119 | 144 | |
Donegal Group Inc. Class A | 8,031 | 115 | |
Crawford & Co. Class B | 9,270 | 59 | |
576,205 | |||
Real Estate Investment Trusts (REITs) (21.8%) | |||
Simon Property Group Inc. | 268,358 | 48,122 | |
American Tower | |||
Corporation | 364,783 | 33,629 | |
Public Storage | 126,713 | 25,504 | |
Crown Castle International | |||
Corp. | 287,762 | 23,996 | |
Equity Residential | 313,780 | 22,357 | |
Health Care REIT Inc. | 302,349 | 19,154 | |
AvalonBay Communities | |||
Inc. | 113,940 | 18,807 | |
Prologis Inc. | 451,869 | 17,171 | |
Ventas Inc. | 285,338 | 15,699 | |
Boston Properties Inc. | 132,071 | 14,974 | |
HCP Inc. | 398,152 | 14,756 | |
Equinix Inc. | 49,090 | 13,243 | |
Vornado Realty Trust | 146,134 | 12,741 | |
General Growth Properties | |||
Inc. | 496,146 | 12,592 | |
Weyerhaeuser Co. | 446,367 | 12,471 |
Market | |||
Value• | |||
Shares | ($000) | ||
Essex Property Trust Inc. | 56,352 | 12,094 | |
Host Hotels & Resorts Inc. | 653,263 | 11,582 | |
Realty Income Corp. | 200,535 | 8,962 | |
SL Green Realty Corp. | 85,951 | 8,897 | |
Macerich Co. | 115,894 | 8,829 | |
Annaly Capital Management | |||
Inc. | 817,242 | 8,221 | |
Kimco Realty Corp. | 355,305 | 8,190 | |
Federal Realty Investment | |||
Trust | 59,276 | 7,651 | |
Digital Realty Trust Inc. | 117,003 | 7,409 | |
UDR Inc. | 223,330 | 7,214 | |
Extra Space Storage Inc. | 95,450 | 7,014 | |
* | VEREIT Inc. | 781,727 | 6,363 |
Plum Creek Timber Co. Inc. | 151,812 | 5,843 | |
American Capital Agency | |||
Corp. | 304,534 | 5,826 | |
Camden Property Trust | 74,631 | 5,376 | |
Duke Realty Corp. | 297,161 | 5,367 | |
Alexandria Real Estate | |||
Equities Inc. | 62,106 | 5,341 | |
Mid-America Apartment | |||
Communities Inc. | 65,047 | 5,112 | |
Kilroy Realty Corp. | 75,927 | 4,925 | |
WP Carey Inc. | 85,559 | 4,917 | |
Iron Mountain Inc. | 172,235 | 4,881 | |
Apartment Investment & | |||
Management Co. | 134,786 | 4,856 | |
Regency Centers Corp. | 80,992 | 4,804 | |
Omega Healthcare Investors | |||
Inc. | 141,172 | 4,769 | |
Starwood Property Trust | |||
Inc. | 205,383 | 4,371 | |
NorthStar Realty Finance | |||
Corp. | 299,014 | 4,201 | |
DDR Corp. | 264,089 | 4,038 | |
National Retail Properties | |||
Inc. | 115,545 | 4,015 | |
Liberty Property Trust | 128,238 | 3,942 | |
Equity LifeStyle Properties | |||
Inc. | 69,122 | 3,854 | |
Lamar Advertising Co. | |||
Class A | 70,516 | 3,761 | |
Home Properties Inc. | 49,825 | 3,698 | |
Taubman Centers Inc. | 53,204 | 3,671 | |
Spirit Realty Capital Inc. | 380,677 | 3,655 | |
CubeSmart | 142,691 | 3,609 | |
Brixmor Property Group Inc. | 153,948 | 3,513 | |
Hospitality Properties Trust | 129,743 | 3,337 | |
American Campus | |||
Communities Inc. | 96,520 | 3,306 | |
Douglas Emmett Inc. | 119,396 | 3,299 | |
BioMed Realty Trust Inc. | 175,318 | 3,243 | |
Weingarten Realty Investors | 101,528 | 3,212 | |
Senior Housing Properties | |||
Trust | 202,071 | 3,173 | |
RLJ Lodging Trust | 113,372 | 3,122 | |
Highwoods Properties Inc. | 81,139 | 3,078 | |
LaSalle Hotel Properties | 97,275 | 3,060 | |
* | Strategic Hotels & Resorts | ||
Inc. | 224,987 | 3,035 | |
Two Harbors Investment | |||
Corp. | 315,513 | 2,985 | |
Corrections Corp. of | |||
America | 100,589 | 2,955 | |
Sun Communities Inc. | 43,784 | 2,855 | |
New Residential Investment | |||
Corp. | 198,827 | 2,815 | |
Retail Properties of America | |||
Inc. | 204,258 | 2,788 |
Market | |||
Value• | |||
Shares | ($000) | ||
Sovran Self Storage Inc. | 30,513 | 2,738 | |
* | Equity Commonwealth | 106,440 | 2,734 |
Outfront Media Inc. | 118,047 | 2,671 | |
Post Properties Inc. | 47,140 | 2,610 | |
Tanger Factory Outlet | |||
Centers Inc. | 82,126 | 2,598 | |
Healthcare Trust of America | |||
Inc. Class A | 107,887 | 2,590 | |
Rayonier Inc. | 109,312 | 2,514 | |
EPR Properties | 49,096 | 2,499 | |
Sunstone Hotel Investors | |||
Inc. | 179,856 | 2,487 | |
Gaming and Leisure | |||
Properties Inc. | 79,969 | 2,474 | |
DCT Industrial Trust Inc. | 76,235 | 2,448 | |
Pebblebrook Hotel Trust | 62,123 | 2,364 | |
Chimera Investment Corp. | 168,387 | 2,359 | |
Medical Properties Trust | |||
Inc. | 201,423 | 2,351 | |
American Homes 4 Rent | |||
Class A | 145,641 | 2,327 | |
* | Care Capital Properties Inc. | 71,187 | 2,263 |
MFA Financial Inc. | 318,187 | 2,262 | |
Paramount Group Inc. | 137,099 | 2,254 | |
Piedmont Office Realty | |||
Trust Inc. Class A | 132,716 | 2,251 | |
Columbia Property Trust Inc. | 102,371 | 2,189 | |
CBL & Associates Properties | |||
Inc. | 146,225 | 2,176 | |
Blackstone Mortgage Trust | |||
Inc. Class A | 75,321 | 2,086 | |
Communications Sales & | |||
Leasing Inc. | 103,202 | 2,074 | |
Colony Capital Inc. Class A | 95,487 | 2,073 | |
DiamondRock Hospitality | |||
Co. | 173,279 | 2,038 | |
Ryman Hospitality Properties | |||
Inc. | 39,663 | 2,032 | |
Healthcare Realty Trust Inc. | 86,654 | 1,984 | |
WP GLIMCHER Inc. | 159,870 | 1,936 | |
GEO Group Inc. | 64,018 | 1,922 | |
Brandywine Realty Trust | 155,022 | 1,879 | |
Hudson Pacific Properties | |||
Inc. | 65,500 | 1,860 | |
First Industrial Realty Trust | |||
Inc. | 94,973 | 1,842 | |
Urban Edge Properties | 85,915 | 1,796 | |
Acadia Realty Trust | 59,036 | 1,745 | |
Corporate Office Properties | |||
Trust | 81,580 | 1,716 | |
National Health Investors Inc. | 30,917 | 1,704 | |
Kite Realty Group Trust | 71,574 | 1,683 | |
CyrusOne Inc. | 52,772 | 1,671 | |
Cousins Properties Inc. | 177,562 | 1,628 | |
Equity One Inc. | 67,056 | 1,576 | |
DuPont Fabros Technology | |||
Inc. | 56,761 | 1,517 | |
EastGroup Properties Inc. | 27,863 | 1,505 | |
Empire State Realty Trust | |||
Inc. | 91,388 | 1,481 | |
Lexington Realty Trust | 182,416 | 1,472 | |
Chesapeake Lodging Trust | 50,758 | 1,467 | |
Invesco Mortgage Capital | |||
Inc. | 106,285 | 1,445 | |
Washington REIT | 58,683 | 1,444 | |
Chambers Street Properties | 204,565 | 1,385 | |
Mack-Cali Realty Corp. | 73,265 | 1,372 | |
Hatteras Financial Corp. | 83,757 | 1,359 | |
Retail Opportunity | |||
Investments Corp. | 84,980 | 1,354 |
42
Financials Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Sabra Health Care REIT Inc. | 55,994 | 1,342 | |
New York REIT Inc. | 139,653 | 1,338 | |
PS Business Parks Inc. | 17,349 | 1,266 | |
LTC Properties Inc. | 30,924 | 1,261 | |
Monogram Residential Trust | |||
Inc. | 135,144 | 1,251 | |
Education Realty Trust Inc. | 41,542 | 1,215 | |
QTS Realty Trust Inc. | |||
Class A | 29,916 | 1,202 | |
Pennsylvania REIT | 59,355 | 1,178 | |
Potlatch Corp. | 35,372 | 1,168 | |
Parkway Properties Inc. | 71,175 | 1,127 | |
CoreSite Realty Corp. | 23,121 | 1,126 | |
American Assets Trust Inc. | 28,427 | 1,095 | |
Gramercy Property Trust Inc. | 49,425 | 1,093 | |
CYS Investments Inc. | 136,334 | 1,065 | |
Select Income REIT | 56,693 | 1,052 | |
Redwood Trust Inc. | 71,410 | 1,042 | |
Ramco-Gershenson | |||
Properties Trust | 66,878 | 1,037 | |
PennyMac Mortgage | |||
Investment Trust | 64,276 | 969 | |
Government Properties | |||
Income Trust | 61,091 | 968 | |
STAG Industrial Inc. | 55,266 | 943 | |
Hersha Hospitality Trust | |||
Class A | 38,165 | 933 | |
FelCor Lodging Trust Inc. | 114,390 | 923 | |
* | iStar Inc. | 72,785 | 908 |
Summit Hotel Properties Inc. | 74,392 | 902 | |
Physicians Realty Trust | 60,672 | 880 | |
STORE Capital Corp. | 43,277 | 872 | |
Capstead Mortgage Corp. | 83,579 | 871 | |
Apollo Commercial Real | |||
Estate Finance Inc. | 50,437 | 826 | |
New Senior Investment | |||
Group Inc. | 72,160 | 822 | |
Franklin Street Properties | |||
Corp. | 78,518 | 817 | |
ARMOUR Residential REIT | |||
Inc. | 37,967 | 811 | |
Starwood Waypoint | |||
Residential Trust | 32,905 | 793 | |
Chatham Lodging Trust | 33,177 | 761 | |
Altisource Residential Corp. | 49,434 | 755 | |
Terreno Realty Corp. | 36,607 | 745 | |
Alexander’s Inc. | 2,008 | 729 | |
Investors Real Estate Trust | 102,798 | 688 | |
American Capital Mortgage | |||
Investment Corp. | 44,972 | 687 | |
Ashford Hospitality Trust Inc. | 84,104 | 651 | |
Inland Real Estate Corp. | 77,150 | 649 | |
Rexford Industrial Realty Inc. | 47,735 | 617 | |
New York Mortgage Trust | |||
Inc. | 91,752 | 600 | |
Rouse Properties Inc. | 34,585 | 537 | |
First Potomac Realty Trust | 50,223 | 528 | |
Saul Centers Inc. | 10,584 | 522 | |
Universal Health Realty | |||
Income Trust | 11,074 | 509 | |
Ladder Capital Corp. | 31,430 | 490 | |
Silver Bay Realty Trust | |||
Corp. | 29,645 | 464 | |
Anworth Mortgage Asset | |||
Corp. | 90,870 | 457 | |
United Development | |||
Funding IV | 26,142 | 457 | |
Western Asset Mortgage | |||
Capital Corp. | 35,410 | 453 |
Market | |||
Value• | |||
Shares | ($000) | ||
American Residential | |||
Properties Inc. | 26,359 | 447 | |
CareTrust REIT Inc. | 39,676 | 445 | |
Agree Realty Corp. | 15,567 | 443 | |
Monmouth Real Estate | |||
Investment Corp. | 45,607 | 434 | |
Urstadt Biddle Properties | |||
Inc. Class A | 23,534 | 422 | |
RAIT Financial Trust | 78,215 | 406 | |
AG Mortgage Investment | |||
Trust Inc. | 24,151 | 399 | |
Apollo Residential Mortgage | |||
Inc. | 27,414 | 383 | |
Cedar Realty Trust Inc. | 61,096 | 382 | |
Winthrop Realty Trust | 26,447 | 379 | |
Resource Capital Corp. | 112,182 | 363 | |
Getty Realty Corp. | 22,639 | 357 | |
Ashford Hospitality Prime | |||
Inc. | 24,897 | 344 | |
CatchMark Timber Trust | |||
Inc. Class A | 34,107 | 343 | |
Dynex Capital Inc. | 44,231 | 296 | |
Ares Commercial Real | |||
Estate Corp. | 23,575 | 295 | |
Campus Crest Communities | |||
Inc. | 54,714 | 283 | |
Newcastle Investment Corp. | 55,818 | 274 | |
One Liberty Properties Inc. | 10,989 | 240 | |
Arbor Realty Trust Inc. | 34,302 | 219 | |
716,004 | |||
Real Estate Management & Development (1.0%) | |||
* | CBRE Group Inc. Class A | 258,259 | 8,269 |
Jones Lang LaSalle Inc. | 38,710 | 5,763 | |
* | Realogy Holdings Corp. | 126,527 | 5,099 |
* | Forest City Enterprises Inc. | ||
Class A | 197,355 | 4,249 | |
* | Howard Hughes Corp. | 30,869 | 3,877 |
Kennedy-Wilson Holdings | |||
Inc. | 73,052 | 1,750 | |
Alexander & Baldwin Inc. | 39,660 | 1,342 | |
* | St. Joe Co. | 60,333 | 1,053 |
* | Marcus & Millichap Inc. | 12,797 | 543 |
* | Forestar Group Inc. | 29,393 | 380 |
RE/MAX Holdings Inc. | 10,011 | 367 | |
* | Altisource Portfolio | ||
Solutions SA | 12,739 | 343 | |
* | Tejon Ranch Co. | 13,248 | 313 |
* | FRP Holdings Inc. | 5,354 | 167 |
* | Altisource Asset | ||
Management Corp. | 1,081 | 42 | |
* | Tejon Ranch Co. | ||
Warrants Exp. 08/31/2016 | 1,227 | — | |
33,557 | |||
Thrifts & Mortgage Finance (1.1%) | |||
New York Community | |||
Bancorp Inc. | 382,046 | 6,747 | |
Hudson City Bancorp Inc. | 409,480 | 3,808 | |
* | MGIC Investment Corp. | 291,827 | 3,082 |
Radian Group Inc. | 165,213 | 2,971 | |
Washington Federal Inc. | 81,699 | 1,854 | |
* | Essent Group Ltd. | 51,722 | 1,386 |
Capitol Federal Financial Inc. | 114,738 | 1,383 | |
EverBank Financial Corp. | 69,212 | 1,369 | |
* | BofI Holding Inc. | 11,330 | 1,312 |
Astoria Financial Corp. | 77,595 | 1,255 | |
TFS Financial Corp. | 63,571 | 1,091 | |
Northwest Bancshares Inc. | 83,285 | 1,069 | |
Provident Financial Services | |||
Inc. | 50,153 | 950 |
Market | |||
Value• | |||
Shares | ($000) | ||
* | Beneficial Bancorp Inc. | 72,349 | 900 |
* | Ocwen Financial Corp. | 92,935 | 691 |
WSFS Financial Corp. | 23,118 | 636 | |
Brookline Bancorp Inc. | 59,869 | 632 | |
*,^ | Nationstar Mortgage | ||
Holdings Inc. | 37,223 | 622 | |
* | LendingTree Inc. | 5,491 | 582 |
* | Walker & Dunlop Inc. | 23,553 | 573 |
Northfield Bancorp Inc. | 37,159 | 556 | |
United Financial Bancorp Inc. | 40,541 | 509 | |
Oritani Financial Corp. | 32,825 | 495 | |
TrustCo Bank Corp. NY | 80,318 | 475 | |
Dime Community | |||
Bancshares Inc. | 26,823 | 457 | |
* | Flagstar Bancorp Inc. | 18,991 | 386 |
Waterstone Financial Inc. | 29,178 | 376 | |
* | NMI Holdings Inc. Class A | 44,761 | 372 |
* | PennyMac Financial Services | ||
Inc. Class A | 15,292 | 263 | |
* | Meridian Bancorp Inc. | 18,614 | 237 |
Federal Agricultural | |||
Mortgage Corp. | 7,993 | 189 | |
37,228 | |||
Total Common Stocks | |||
(Cost $3,259,285) | 3,283,054 | ||
Temporary Cash Investment (0.0%) | |||
Money Market Fund (0.0%) | |||
1,2 | Vanguard Market | ||
Liquidity Fund, 0.168% | |||
(Cost $1,152) | 1,151,802 | 1,152 | |
Total Investments (100.0%) | |||
(Cost $3,260,437) | 3,284,206 | ||
Amount | |||
($000) | |||
Other Assets and Liabilities (0.0%) | |||
Other Assets | |||
Investment in Vanguard | 320 | ||
Receivables for Investment Securities Sold | 10,256 | ||
Receivables for Accrued Income | 4,533 | ||
Receivables for Capital Shares Issued | 42 | ||
Total Other Assets | 15,151 | ||
Liabilities | |||
Payables for Investment Securities | |||
Purchased | (10,588) | ||
Collateral for Securities on Loan | (1,152) | ||
Payables for Capital Shares Redeemed | (142) | ||
Payables to Vanguard | (1,107) | ||
Other Liabilities | (1,515) | ||
Total Liabilities | (14,504) | ||
Net Assets (100%) | 3,284,853 |
43
Financials Index Fund
At August 31, 2015, net assets consisted of:
Amount
($000)
Paid-in Capital | 3,396,497 |
Undistributed Net Investment Income | 14,335 |
Accumulated Net Realized Losses | (149,748) |
Unrealized Appreciation (Depreciation) | 23,769 |
Net Assets | 3,284,853 |
ETF Shares—Net Assets | |
Applicable to 64,596,219 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 3,081,157 |
Net Asset Value Per Share— | |
ETF Shares | $47.70 |
Admiral Shares—Net Assets | |
Applicable to 8,520,993 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 203,696 |
Net Asset Value Per Share— | |
Admiral Shares | $23.91 |
- 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 $1,058,000.
- Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
- Includes $1,152,000 of collateral received for securities on loan. REIT—Real Estate Investment Trust.
See accompanying Notes, which are an integral part of the Financial Statements.
44
Financials Index Fund | |
Statement of Operations | |
Year Ended | |
August 31, 2015 | |
($000) | |
Investment Income | |
Income | |
Dividends | 60,060 |
Interest1 | 1 |
Securities Lending | 81 |
Total Income | 60,142 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 488 |
Management and Administrative— | |
ETF Shares | 1,517 |
Management and Administrative— | |
Admiral Shares | 108 |
Marketing and Distribution— | |
ETF Shares | 382 |
Marketing and Distribution— | |
Admiral Shares | 23 |
Custodian Fees | 87 |
Auditing Fees | 34 |
Shareholders’ Reports—ETF Shares | 94 |
Shareholders’ Reports—Admiral Shares | 3 |
Trustees’ Fees and Expenses | 2 |
Total Expenses | 2,738 |
Net Investment Income | 57,404 |
Realized Net Gain (Loss) on | |
Investment Securities Sold | 249,955 |
Change in Unrealized Appreciation | |
(Depreciation) of Investment Securities | (293,584) |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 13,775 |
1 Interest income from an affiliated company of the fund was $1,000. | |
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2015 | 2014 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 57,404 | 40,051 |
Realized Net Gain (Loss) | 249,955 | 63,848 |
Change in Unrealized Appreciation (Depreciation) | (293,584) | 265,041 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 13,775 | 368,940 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (48,665) | (34,583) |
Admiral Shares | (3,179) | (2,781) |
Realized Capital Gain | ||
ETF Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (51,844) | (37,364) |
Capital Share Transactions | ||
ETF Shares | 927,131 | 420,150 |
Admiral Shares | 49,405 | (901) |
Net Increase (Decrease) from Capital Share Transactions | 976,536 | 419,249 |
Total Increase (Decrease) | 938,467 | 750,825 |
Net Assets | ||
Beginning of Period | 2,346,386 | 1,595,561 |
End of Period1 | 3,284,853 | 2,346,386 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $14,335,000 and $8,766,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
45
Financials Index Fund | |||||
Financial Highlights | |||||
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $47.32 | $39.80 | $32.03 | $28.25 | $27.92 |
Investment Operations | |||||
Net Investment Income | .917 | . 876 | . 825 | .639 | . 526 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | .349 | 7.494 | 7.747 | 3.747 | . 287 |
Total from Investment Operations | 1.266 | 8.370 | 8.572 | 4.386 | .813 |
Distributions | |||||
Dividends from Net Investment Income | (. 886) | (.850) | (.802) | (. 606) | (.483) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (. 886) | (.850) | (.802) | (. 606) | (.483) |
Net Asset Value, End of Period | $47.70 | $47.32 | $39.80 | $32.03 | $28.25 |
Total Return | 2.63% | 21.20% | 27.10% | 15.87% | 2.73% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $3,081 | $2,191 | $1,464 | $768 | $544 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.12% | 0.14% | 0.14% | 0.19% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.99% | 2.00% | 2.26% | 2.16% | 1.63% |
Portfolio Turnover Rate1 | 4% | 5% | 9% | 7% | 10% |
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.
Admiral Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $23.72 | $19.95 | $16.05 | $14.16 | $13.99 |
Investment Operations | |||||
Net Investment Income | .460 | .438 | .414 | . 320 | . 263 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | .174 | 3.758 | 3.888 | 1.874 | .150 |
Total from Investment Operations | .634 | 4.196 | 4.302 | 2.194 | .413 |
Distributions | |||||
Dividends from Net Investment Income | (.444) | (. 426) | (. 402) | (. 304) | (. 243) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (.444) | (. 426) | (. 402) | (. 304) | (. 243) |
Net Asset Value, End of Period | $23.91 | $23.72 | $19.95 | $16.05 | $14.16 |
Total Return1 | 2.64% | 21.19% | 27.13% | 15.84% | 2.79% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $204 | $155 | $132 | $73 | $62 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.12% | 0.14% | 0.14% | 0.19% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.99% | 2.00% | 2.26% | 2.16% | 1.63% |
Portfolio Turnover Rate2 | 4% | 5% | 9% | 7% | 10% |
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.
46
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: ETF Shares and Admiral Shares. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker. 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 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, 2012–2015), 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 (“Vanguard”) participate in a $3 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 August 31, 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.
47
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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At August 31, 2015, the fund had contributed to Vanguard capital in the amount of $320,000, representing 0.01% of the fund’s net assets and 0.13% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and employees, respectively, 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 August 31, 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 year ended August 31, 2015, the fund realized $207,430,000 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.
For tax purposes, at August 31, 2015, the fund had $15,381,000 of ordinary income available for distribution. The fund used capital loss carryforwards of $42,516,000 to offset taxable capital gains realized during the year ended August 31, 2015. At August 31, 2015, the fund had available capital losses totaling $149,748,000 to offset future net capital gains of $82,382,000 through August 31, 2018, and $67,366,000 through August 31, 2019.
At August 31, 2015, the cost of investment securities for tax purposes was $3,260,437,000.
Net unrealized appreciation of investment securities for tax purposes was $23,769,000, consisting of unrealized gains of $183,996,000 on securities that had risen in value since their purchase and $160,227,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2015, the fund purchased $1,757,318,000 of investment securities and sold $768,158,000 of investment securities, other than temporary cash investments. Purchases and sales include $1,537,990,000 and $652,653,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
48
Financials Index Fund
F. Capital share transactions for each class of shares were: | ||||
Year Ended August 31, | ||||
2015 | 2014 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 1,583,939 | 31,943 | 510,779 | 11,516 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (656,808) | (13,650) | (90,629) | (2,000) |
Net Increase (Decrease)—ETF Shares | 927,131 | 18,293 | 420,150 | 9,516 |
Admiral Shares | ||||
Issued | 96,095 | 3,886 | 41,610 | 1,878 |
Issued in Lieu of Cash Distributions | 2,813 | 114 | 2,528 | 114 |
Redeemed | (49,503) | (2,020) | (45,039) | (2,045) |
Net Increase (Decrease) —Admiral Shares | 49,405 | 1,980 | (901) | (53) |
At August 31, 2015, one shareholder was the record or beneficial owner of 38% 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 August 31, 2015, that would require recognition or disclosure in these financial statements.
49
Health Care Index Fund | |||
Fund Profile | |||
As of August 31, 2015 | |||
Share-Class Characteristics | |||
ETF | Admiral | ||
Shares | Shares | ||
Ticker Symbol | VHT | VHCIX | |
Expense Ratio1 | 0.12% | 0.12% | |
30-Day SEC Yield | 1.31% | 1.31% | |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | |||
Health | MSCI | ||
Care | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 342 | 338 | 2,491 |
Median Market Cap | $91.4B | $69.9B | $47.3B |
Price/Earnings Ratio | 30.8x | 31.0x | 20.7x |
Price/Book Ratio | 4.0x | 4.0x | 2.6x |
Return on Equity | 15.4% | 15.4% | 17.2% |
Earnings Growth Rate | 8.8% | 8.9% | 10.2% |
Dividend Yield | 1.4% | 1.4% | 2.1% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 4% | — | — |
Short-Term Reserves | 0.0% | — | — |
Volatility Measures | ||
MSCI US | ||
IMI/Health Care | MSCI US | |
25/50 | IMI/2500 | |
R-Squared | 1.00 | 0.69 |
Beta | 1.00 | 0.98 |
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 | 23.0% | |
Health Care Distributors | 3.6 | |
Health Care Equipment | 14.2 | |
Health Care Facilities | 2.6 | |
Health Care Services | 4.2 | |
Health Care Supplies | 1.3 | |
Health Care Technology | 1.1 | |
Life Sciences Tools & Services | 4.6 | |
Managed Health Care | 8.4 | |
Pharmaceuticals | 37.0 |
Ten Largest Holdings (% of total net assets) | ||
Johnson & Johnson | Pharmaceuticals | 8.2% |
Pfizer Inc. | Pharmaceuticals | 6.3 |
Gilead Sciences Inc. | Biotechnology | 4.9 |
Merck & Co. Inc. | Pharmaceuticals | 4.8 |
Allergan plc | Pharmaceuticals | 3.8 |
Amgen Inc. | Biotechnology | 3.6 |
UnitedHealth Group Inc. | Managed | |
Health Care | 3.5 | |
AbbVie Inc. | Pharmaceuticals | 3.4 |
Medtronic plc | Health Care | |
Equipment | 3.2 | |
Bristol-Myers Squibb Co. | Pharmaceuticals | 3.1 |
Top Ten | 44.8% | |
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 fiscal year ended August 31, 2015, the expense ratios were 0.09% for ETF Shares and 0.10% for Admiral Shares.
50
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.
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx53x1.jpg)
Average Annual Total Returns | Final Value | |||
Periods Ended August 31, 2015 | of a $10,000 | |||
One Year | Five Years | Ten Years | Investment | |
Health Care Index Fund | ||||
ETF Shares Net Asset Value | 14.08% | 23.39% | 11.02% | $28,458 |
Health Care Index Fund | ||||
ETF Shares Market Price | 14.08 | 23.42 | 11.04 | 28,494 |
Spliced US IMI/Health Care 25/50 | 14.12 | 23.53 | 11.20 | 28,898 |
Health/Biotechnology Funds Average | 20.28 | 26.52 | 12.75 | 33,214 |
MSCI US IMI/2500 | 0.44 | 16.11 | 7.55 | 20,698 |
For a benchmark description, see the Glossary. | ||||
Health/Biotechnology Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | ||||
Final Value | ||||
of a $100,000 | ||||
One Year | Five Years | Ten Years | Investment | |
Health Care Index Fund Admiral Shares | 14.11% | 23.40% | 11.01% | $284,290 |
Spliced US IMI/Health Care 25/50 | 14.12 | 23.53 | 11.20 | 288,982 |
MSCI US IMI/2500 | 0.44 | 16.11 | 7.55 | 206,975 |
See Financial Highlights for dividend and capital gains information.
51
Health Care Index Fund
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx54x1.jpg)
Health Care Index Fund ETF Shares Net Asset Value Spliced US IMI/Health Care 25/50
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2005–August 31, 2015 | |||
One Year | Five Years | Ten Years | |
Health Care Index Fund ETF Shares Market Price | 14.08% | 186.37% | 184.94% |
Health Care Index Fund ETF Shares Net Asset Value | 14.08 | 186.01 | 184.58 |
Spliced US IMI/Health Care 25/50 | 14.12 | 187.62 | 188.98 |
Average Annual Total Returns: Periods Ended June 30, 2015
This table presents total returns through the latest calendar quarter—rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information.
Inception Date | One Year | Five Years | Ten Years | |
ETF Shares | 1/26/2004 | |||
Market Price | 26.73% | 24.55% | 11.96% | |
Net Asset Value | 26.67 | 24.55 | 11.96 | |
Admiral Shares | 2/5/2004 | 26.71 | 24.55 | 11.95 |
See Financial Highlights for dividend and capital gains information.
52
Health Care Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 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 | |||
Biotechnology (23.0%) | |||
Gilead Sciences Inc. | 3,092,781 | 324,959 | |
Amgen Inc. | 1,598,814 | 242,668 | |
* | Celgene Corp. | 1,668,989 | 197,074 |
* | Biogen Inc. | 340,138 | 101,123 |
* | Regeneron | ||
Pharmaceuticals Inc. | 159,752 | 82,033 | |
* | Alexion | ||
Pharmaceuticals Inc. | 471,399 | 81,170 | |
* | Vertex | ||
Pharmaceuticals Inc. | 512,501 | 65,354 | |
* | BioMarin | ||
Pharmaceutical Inc. | 337,215 | 43,582 | |
Baxalta Inc. | 1,141,340 | 40,118 | |
* | Incyte Corp. | 338,796 | 39,365 |
* | Alkermes plc | 312,883 | 18,635 |
* | Alnylam Pharmaceuticals | ||
Inc. | 158,962 | 16,359 | |
* | United Therapeutics Corp. | 97,333 | 14,660 |
* | Anacor Pharmaceuticals | ||
Inc. | 78,356 | 10,218 | |
* | Bluebird Bio Inc. | 67,724 | 9,012 |
* | Seattle Genetics Inc. | 210,102 | 8,461 |
* | Neurocrine Biosciences | ||
Inc. | 180,007 | 8,349 | |
* | Isis Pharmaceuticals Inc. | 155,753 | 7,816 |
* | Medivation Inc. | 88,542 | 7,797 |
*,^ | OPKO Health Inc. | 682,365 | 7,383 |
* | Cepheid | 151,315 | 7,375 |
* | Dyax Corp. | 307,136 | 7,070 |
* | Ultragenyx Pharmaceutical | ||
Inc. | 56,156 | 6,268 | |
* | ACADIA Pharmaceuticals | ||
Inc. | 168,799 | 6,183 | |
* | Novavax Inc. | 565,077 | 6,086 |
*,^ | Myriad Genetics Inc. | 147,087 | 5,525 |
* | Clovis Oncology Inc. | 63,484 | 4,943 |
* | AMAG Pharmaceuticals | ||
Inc. | 71,656 | 4,481 | |
*,^ | Exact Sciences Corp. | 201,745 | 4,461 |
* | Portola Pharmaceuticals | ||
Inc. Class A | 93,473 | 4,408 | |
* | Chimerix Inc. | 85,439 | 4,181 |
*,^ | Intrexon Corp. | 91,949 | 4,092 |
* | Agios Pharmaceuticals Inc. | 47,082 | 4,068 |
* | Halozyme Therapeutics Inc. | 227,470 | 3,972 |
* | Prothena Corp. plc | 65,882 | 3,790 |
* | Puma Biotechnology Inc. | 38,987 | 3,584 |
* | ARIAD Pharmaceuticals Inc. | 378,193 | 3,570 |
* | Radius Health Inc. | 57,359 | 3,491 |
* | Ligand Pharmaceuticals Inc. | 37,253 | 3,425 |
*,^ | Kite Pharma Inc. | 59,188 | 3,147 |
* | Celldex Therapeutics Inc. | 208,101 | 3,088 |
* | Amicus Therapeutics Inc. | 214,649 | 3,087 |
* | KYTHERA | ||
Biopharmaceuticals Inc. | 40,860 | 3,053 |
Market | |||
Value• | |||
Shares | ($000) | ||
* | Insmed Inc. | 123,538 | 3,019 |
*,^ | Sarepta Therapeutics Inc. | 82,901 | 2,960 |
* | Ironwood Pharmaceuticals | ||
Inc. Class A | 266,639 | 2,933 | |
* | Acorda Therapeutics Inc. | 90,678 | 2,899 |
* | TESARO Inc. | 54,714 | 2,817 |
*,^ | Exelixis Inc. | 467,449 | 2,781 |
* | Momenta Pharmaceuticals | ||
Inc. | 133,109 | 2,597 | |
* | Heron Therapeutics Inc. | 65,724 | 2,528 |
* | Intercept Pharmaceuticals | ||
Inc. | 12,999 | 2,467 | |
* | FibroGen Inc. | 100,006 | 2,450 |
* | ImmunoGen Inc. | 181,259 | 2,440 |
* | PTC Therapeutics Inc. | 60,519 | 2,311 |
* | Repligen Corp. | 65,647 | 2,237 |
* | Ophthotech Corp. | 50,491 | 2,223 |
* | Emergent BioSolutions Inc. | 65,015 | 2,164 |
* | Dynavax Technologies | ||
Corp. | 75,684 | 2,146 | |
*,^ | MannKind Corp. | 563,945 | 2,137 |
*,^ | ZIOPHARM Oncology Inc. | 244,685 | 2,131 |
* | Merrimack Pharmaceuticals | ||
Inc. | 209,607 | 2,115 | |
* | NewLink Genetics Corp. | 45,574 | 2,047 |
* | Raptor Pharmaceutical | ||
Corp. | 162,087 | 1,966 | |
*,^ | MiMedx Group Inc. | 196,250 | 1,906 |
* | Alder Biopharmaceuticals | ||
Inc. | 49,142 | 1,904 | |
PDL BioPharma Inc. | 329,603 | 1,862 | |
* | Retrophin Inc. | 66,849 | 1,833 |
* | Array BioPharma Inc. | 299,903 | 1,769 |
* | Insys Therapeutics Inc. | 53,088 | 1,721 |
* | Sage Therapeutics Inc. | 29,851 | 1,612 |
* | Achillion Pharmaceuticals | ||
Inc. | 212,370 | 1,569 | |
* | MacroGenics Inc. | 56,629 | 1,492 |
* | Atara Biotherapeutics Inc. | 35,358 | 1,433 |
* | BioCryst Pharmaceuticals | ||
Inc. | 122,042 | 1,421 | |
* | Eagle Pharmaceuticals Inc. | 18,017 | 1,415 |
* | Arena Pharmaceuticals Inc. | 514,968 | 1,396 |
* | Acceleron Pharma Inc. | 44,909 | 1,301 |
* | Esperion Therapeutics Inc. | 26,025 | 1,248 |
* | Zafgen Inc. | 31,170 | 1,138 |
* | Sangamo BioSciences Inc. | 148,884 | 1,126 |
*,^ | Inovio Pharmaceuticals Inc. | 146,265 | 1,096 |
*,^ | Vanda Pharmaceuticals Inc. | 89,310 | 1,053 |
* | Lexicon Pharmaceuticals | ||
Inc. | 87,998 | 1,051 | |
* | Spectrum Pharmaceuticals | ||
Inc. | 143,319 | 1,042 | |
* | Genomic Health Inc. | 37,350 | 1,028 |
* | Aegerion Pharmaceuticals | ||
Inc. | 57,292 | 1,013 | |
* | Xencor Inc. | 60,257 | 1,011 |
* | Coherus Biosciences Inc. | 35,748 | 987 |
Market | |||
Value• | |||
Shares | ($000) | ||
*,^ | Epizyme Inc. | 47,685 | 954 |
* | Advaxis Inc. | 63,784 | 944 |
* | TG Therapeutics Inc. | 75,199 | 923 |
* | Infinity Pharmaceuticals Inc. | 103,653 | 914 |
*,^ | OvaScience Inc. | 46,858 | 911 |
* | Enanta Pharmaceuticals Inc. | 22,057 | 861 |
* | Bellicum Pharmaceuticals | ||
Inc. | 45,369 | 774 | |
*,^ | Arrowhead Research Corp. | 128,131 | 760 |
*,^ | Orexigen Therapeutics Inc. | 243,473 | 674 |
* | Osiris Therapeutics Inc. | 37,180 | 669 |
* | Otonomy Inc. | 28,335 | 642 |
* | Karyopharm Therapeutics | ||
Inc. | 41,930 | 581 | |
* | Sorrento Therapeutics Inc. | 43,266 | 549 |
* | Foundation Medicine Inc. | 22,380 | 527 |
* | Regulus Therapeutics Inc. | 61,149 | 509 |
*,^ | Organovo Holdings Inc. | 184,864 | 505 |
* | Versartis Inc. | 37,198 | 482 |
* | OncoMed Pharmaceuticals | ||
Inc. | 22,355 | 438 | |
* | Immunomedics Inc. | 193,242 | 417 |
* | Synta Pharmaceuticals | ||
Corp. | 190,319 | 381 | |
* | Dicerna Pharmaceuticals | ||
Inc. | 26,588 | 292 | |
* | Immune Design Corp. | 17,074 | 272 |
*,^ | Keryx Biopharmaceuticals | ||
Inc. | 28,254 | 175 | |
*,^ | Vital Therapies Inc. | 39,565 | 148 |
* | XOMA Corp. | 56,584 | 47 |
* | Celladon Corp. | 33,006 | 37 |
* | Avalanche Biotechnologies | ||
Inc. | 941 | 10 | |
1,529,675 | |||
Health Care Equipment & Supplies (15.5%) | |||
Medtronic plc | 2,978,582 | 215,322 | |
Abbott Laboratories | 3,133,408 | 141,912 | |
Stryker Corp. | 716,294 | 70,662 | |
Becton Dickinson and Co. | 440,359 | 62,099 | |
* | Boston Scientific Corp. | 2,818,641 | 47,184 |
Baxter International Inc. | 1,142,945 | 43,946 | |
St. Jude Medical Inc. | 589,326 | 41,730 | |
* | Intuitive Surgical Inc. | 77,514 | 39,606 |
* | Edwards Lifesciences | ||
Corp. | 226,230 | 31,871 | |
CR Bard Inc. | 156,162 | 30,263 | |
Zimmer Biomet Holdings | |||
Inc. | 200,647 | 20,779 | |
* | Hologic Inc. | 502,235 | 19,492 |
* | Varian Medical Systems | ||
Inc. | 209,917 | 17,056 | |
Cooper Cos. Inc. | 101,702 | 16,518 | |
* | DexCom Inc. | 166,790 | 15,702 |
DENTSPLY International | |||
Inc. | 294,172 | 15,418 | |
ResMed Inc. | 296,319 | 15,391 | |
* | IDEXX Laboratories Inc. | 196,836 | 14,068 |
53
Health Care Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Teleflex Inc. | 87,328 | 11,422 | |
* | Sirona Dental Systems Inc. | 119,727 | 11,420 |
* | Alere Inc. | 170,383 | 8,855 |
West Pharmaceutical | |||
Services Inc. | 151,283 | 8,449 | |
* | Align Technology Inc. | 144,378 | 8,172 |
STERIS Corp. | 125,871 | 8,062 | |
* | ABIOMED Inc. | 83,603 | 8,018 |
* | Thoratec Corp. | 114,334 | 7,182 |
Hill-Rom Holdings Inc. | 119,192 | 6,298 | |
* | NuVasive Inc. | 101,686 | 5,361 |
* | Masimo Corp. | 104,512 | 4,246 |
* | Neogen Corp. | 78,191 | 4,038 |
* | Haemonetics Corp. | 108,773 | 3,928 |
Cantel Medical Corp. | 74,271 | 3,686 | |
* | Integra LifeSciences | ||
Holdings Corp. | 61,379 | 3,682 | |
* | Globus Medical Inc. | 149,458 | 3,650 |
* | Cyberonics Inc. | 54,751 | 3,577 |
* | Insulet Corp. | 119,895 | 3,562 |
* | ICU Medical Inc. | 29,885 | 3,393 |
* | Halyard Health Inc. | 97,882 | 3,077 |
* | Greatbatch Inc. | 53,959 | 3,066 |
* | HeartWare International Inc. | 34,542 | 2,957 |
* | Natus Medical Inc. | 69,642 | 2,833 |
CONMED Corp. | 52,633 | 2,793 | |
* | Wright Medical Group Inc. | 108,132 | 2,495 |
Analogic Corp. | 26,373 | 2,125 | |
Abaxis Inc. | 45,098 | 2,121 | |
* | Zeltiq Aesthetics Inc. | 65,429 | 2,111 |
* | LDR Holding Corp. | 54,836 | 2,046 |
* | Merit Medical Systems Inc. | 87,962 | 2,001 |
* | NxStage Medical Inc. | 114,189 | 1,983 |
* | Endologix Inc. | 134,799 | 1,750 |
* | Tornier NV | 78,182 | 1,739 |
Meridian Bioscience Inc. | 88,810 | 1,699 | |
* | Orthofix International NV | 39,862 | 1,494 |
* | Cardiovascular Systems Inc. | 60,055 | 1,446 |
* | Nevro Corp. | 30,872 | 1,390 |
* | AtriCure Inc. | 56,779 | 1,389 |
* | Cynosure Inc. Class A | 42,354 | 1,340 |
* | Inogen Inc. | 26,392 | 1,301 |
* | Quidel Corp. | 62,605 | 1,289 |
Atrion Corp. | 3,257 | 1,260 | |
* | Vascular Solutions Inc. | 36,383 | 1,257 |
* | Accuray Inc. | 169,154 | 1,165 |
*,^ | Rockwell Medical Inc. | 95,204 | 1,140 |
Invacare Corp. | 62,515 | 1,100 | |
* | Anika Therapeutics Inc. | 30,880 | 1,093 |
* | K2M Group Holdings Inc. | 51,054 | 1,084 |
* | GenMark Diagnostics Inc. | 86,304 | 892 |
* | AngioDynamics Inc. | 57,003 | 841 |
* | OraSure Technologies Inc. | 122,564 | 662 |
* | STAAR Surgical Co. | 65,822 | 526 |
* | Tandem Diabetes Care Inc. | 38,400 | 441 |
*,^ | Unilife Corp. | 257,692 | 314 |
* | Wright Medical Group Inc. | ||
CVR | 14,554 | 54 | |
* | Spectranetics Corp. | 1,720 | 29 |
1,032,323 | |||
Health Care Providers & Services (18.7%) | |||
UnitedHealth Group Inc. | 2,002,052 | 231,637 | |
* | Express Scripts Holding | ||
Co. | 1,532,438 | 128,112 | |
McKesson Corp. | 487,183 | 96,258 | |
Aetna Inc. | 734,384 | 84,102 | |
Cigna Corp. | 541,383 | 76,221 | |
Anthem Inc. | 433,172 | 61,099 |
Market | |||
Value• | |||
Shares | ($000) | ||
* | HCA Holdings Inc. | 697,716 | 60,436 |
Humana Inc. | 315,011 | 57,581 | |
Cardinal Health Inc. | 695,700 | 57,235 | |
AmerisourceBergen Corp. | |||
Class A | 438,912 | 43,909 | |
* | DaVita HealthCare | ||
Partners Inc. | 361,765 | 27,364 | |
Universal Health Services | |||
Inc. Class B | 193,092 | 26,481 | |
* | Laboratory Corp. of | ||
America Holdings | 211,188 | 24,880 | |
* | Henry Schein Inc. | 175,930 | 24,069 |
Quest Diagnostics Inc. | 302,182 | 20,488 | |
* | MEDNAX Inc. | 202,102 | 16,279 |
* | Envision Healthcare | ||
Holdings Inc. | 390,765 | 16,010 | |
* | Centene Corp. | 237,640 | 14,667 |
* | Community Health | ||
Systems Inc. | 248,478 | 13,343 | |
* | Health Net Inc. | 161,836 | 10,367 |
* | Tenet Healthcare Corp. | 208,664 | 10,272 |
* | VCA Inc. | 172,748 | 9,567 |
* | Team Health Holdings Inc. | 151,688 | 8,910 |
* | Acadia Healthcare Co. Inc. | 120,528 | 8,802 |
Patterson Cos. Inc. | 184,555 | 8,458 | |
* | WellCare Health Plans Inc. | 92,612 | 8,397 |
HealthSouth Corp. | 192,402 | 8,215 | |
* | Amsurg Corp. | 101,823 | 7,985 |
* | LifePoint Health Inc. | 92,945 | 7,262 |
* | Molina Healthcare Inc. | 87,036 | 6,492 |
Chemed Corp. | 35,999 | 4,908 | |
Owens & Minor Inc. | 132,746 | 4,512 | |
Kindred Healthcare Inc. | 176,183 | 3,538 | |
* | AMN Healthcare Services | ||
Inc. | 100,455 | 3,375 | |
* | Magellan Health Inc. | 57,744 | 3,234 |
* | Diplomat Pharmacy Inc. | 78,907 | 3,116 |
* | ExamWorks Group Inc. | 83,102 | 2,977 |
* | Air Methods Corp. | 78,508 | 2,940 |
* | IPC Healthcare Inc. | 36,633 | 2,909 |
* | Premier Inc. Class A | 79,406 | 2,831 |
* | Brookdale Senior Living Inc. | 102,142 | 2,801 |
Select Medical Holdings | |||
Corp. | 194,497 | 2,509 | |
* | Adeptus Health Inc. | ||
Class A | 25,090 | 2,500 | |
Ensign Group Inc. | 51,234 | 2,405 | |
* | Surgical Care Affiliates Inc. | 58,120 | 2,124 |
* | PharMerica Corp. | 63,921 | 2,091 |
* | Amedisys Inc. | 53,135 | 2,053 |
* | HealthEquity Inc. | 64,688 | 1,897 |
Aceto Corp. | 61,254 | 1,373 | |
* | Hanger Inc. | 74,254 | 1,331 |
* | Providence Service Corp. | 29,136 | 1,306 |
* | Capital Senior Living Corp. | 58,929 | 1,228 |
* | LHC Group Inc. | 28,355 | 1,228 |
US Physical Therapy Inc. | 26,505 | 1,218 | |
National HealthCare Corp. | 19,477 | 1,176 | |
* | Triple-S Management Corp. | ||
Class B | 51,556 | 1,085 | |
* | Healthways Inc. | 67,615 | 826 |
Landauer Inc. | 20,690 | 795 | |
* | Universal American Corp. | 102,849 | 735 |
* | CorVel Corp. | 23,708 | 712 |
* | Civitas Solutions Inc. | 27,285 | 662 |
*,^ | AAC Holdings Inc. | 19,087 | 451 |
* | BioScrip Inc. | 137,753 | 335 |
National Research Corp. | |||
Class A | 21,576 | 275 |
Market | |||
Value• | |||
Shares | ($000) | ||
National Research Corp. | |||
Class B | 3,627 | 119 | |
1,242,473 | |||
Health Care Technology (1.1%) | |||
* | Cerner Corp. | 442,848 | 27,350 |
* | athenahealth Inc. | 81,125 | 10,787 |
* | IMS Health Holdings Inc. | 345,474 | 10,319 |
* | Medidata Solutions Inc. | 116,695 | 5,604 |
* | Allscripts Healthcare | ||
Solutions Inc. | 361,403 | 4,977 | |
* | Veeva Systems Inc. | ||
Class A | 150,637 | 3,901 | |
* | MedAssets Inc. | 126,984 | 2,682 |
* | Omnicell Inc. | 76,237 | 2,591 |
* | HealthStream Inc. | 52,465 | 1,304 |
Quality Systems Inc. | 95,462 | 1,297 | |
Computer Programs & | |||
Systems Inc. | 22,639 | 1,042 | |
* | Castlight Health Inc. | ||
Class B | 76,977 | 407 | |
* | HMS Holdings Corp. | 2,457 | 26 |
72,287 | |||
Life Sciences Tools & Services (4.5%) | |||
Thermo Fisher Scientific | |||
Inc. | 836,956 | 104,929 | |
* | Illumina Inc. | 303,018 | 59,879 |
Agilent Technologies Inc. | 706,320 | 25,646 | |
* | Waters Corp. | 173,990 | 21,119 |
* | Mettler-Toledo International | ||
Inc. | 58,831 | 17,446 | |
* | Quintiles Transnational | ||
Holdings Inc. | 193,543 | 14,421 | |
PerkinElmer Inc. | 238,028 | 11,587 | |
* | PAREXEL International | ||
Corp. | 116,008 | 7,624 | |
Bio-Techne Corp. | 78,179 | 7,386 | |
* | Charles River Laboratories | ||
International Inc. | 99,647 | 6,865 | |
* | Bio-Rad Laboratories Inc. | ||
Class A | 43,059 | 5,999 | |
* | Bruker Corp. | 248,565 | 4,569 |
* | Cambrex Corp. | 65,855 | 3,149 |
* | VWR Corp. | 96,697 | 2,538 |
* | INC Research Holdings Inc. | ||
Class A | 55,883 | 2,292 | |
* | PRA Health Sciences Inc. | 44,373 | 1,670 |
* | Affymetrix Inc. | 164,515 | 1,535 |
* | Luminex Corp. | 81,700 | 1,489 |
* | Albany Molecular Research | ||
Inc. | 52,294 | 1,043 | |
*,^ | Accelerate Diagnostics Inc. | 51,785 | 1,016 |
* | Pacific Biosciences of | ||
California Inc. | 138,340 | 689 | |
* | Sequenom Inc. | 248,704 | 535 |
* | Fluidigm Corp. | 1,595 | 19 |
303,445 | |||
Other (0.0%)2 | |||
* | Cubist Pharmaceuticals, Inc. | ||
CVR | 31,107 | 4 | |
* | Durata Therapeutics Inc | ||
CVR Exp. 12/31/2018 | 48 | — | |
* | Clinical Data CVR | 8,685 | — |
4 | |||
Pharmaceuticals (37.1%) | |||
Johnson & Johnson | 5,832,596 | 548,147 | |
Pfizer Inc. | 12,946,400 | 417,133 | |
Merck & Co. Inc. | 5,943,024 | 320,032 | |
* | Allergan plc | 824,903 | 250,556 |
54
Health Care Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
AbbVie Inc. | 3,617,441 | 225,764 | |
Bristol-Myers Squibb Co. | 3,505,023 | 208,444 | |
Eli Lilly & Co. | 2,102,687 | 173,156 | |
Perrigo Co. plc | 307,538 | 56,270 | |
Zoetis Inc. | 998,988 | 44,825 | |
* | Mylan NV | 875,799 | 43,431 |
* | Endo International plc | 426,449 | 32,837 |
* | Hospira Inc. | 363,436 | 32,698 |
* | Jazz Pharmaceuticals plc | 128,683 | 21,724 |
* | Mallinckrodt plc | 151,514 | 13,067 |
* | Horizon Pharma plc | 276,278 | 8,073 |
* | Akorn Inc. | 168,447 | 6,702 |
* | Catalent Inc. | 196,093 | 6,234 |
* | Impax Laboratories Inc. | 143,723 | 5,887 |
* | Medicines Co. | 139,264 | 5,710 |
* | Prestige Brands Holdings | ||
Inc. | 110,066 | 5,120 | |
* | Depomed Inc. | 126,087 | 3,395 |
* | Nektar Therapeutics | 276,679 | 3,057 |
* | Lannett Co. Inc. | 57,217 | 2,744 |
* | Tetraphase | ||
Pharmaceuticals Inc. | 61,241 | 2,658 | |
^ | Theravance Inc. | 172,093 | 2,394 |
* | Cempra Inc. | 64,745 | 2,227 |
* | Pacira Pharmaceuticals Inc. | 29,628 | 1,705 |
* | ZS Pharma Inc. | 31,626 | 1,618 |
* | TherapeuticsMD Inc. | 257,438 | 1,578 |
* | Intra-Cellular Therapies Inc. | 52,172 | 1,398 |
* | Supernus Pharmaceuticals | ||
Inc. | 71,468 | 1,297 | |
* | Sucampo Pharmaceuticals | ||
Inc. Class A | 47,544 | 1,277 | |
* | Relypsa Inc. | 52,327 | 1,201 |
Phibro Animal Health Corp. | |||
Class A | 33,218 | 1,173 | |
* | Omeros Corp. | 75,638 | 1,066 |
* | Aratana Therapeutics Inc. | 58,771 | 1,038 |
* | Revance Therapeutics Inc. | 32,797 | 992 |
* | Intersect ENT Inc. | 37,504 | 955 |
* | Sagent Pharmaceuticals Inc. 47,422 | 947 | |
* | Amphastar Pharmaceuticals | ||
Inc. | 70,827 | 912 | |
* | XenoPort Inc. | 127,270 | 859 |
* | Theravance Biopharma Inc. | 54,713 | 797 |
* | Dermira Inc. | 30,932 | 795 |
* | SciClone Pharmaceuticals | ||
Inc. | 100,455 | 790 | |
* | BioDelivery Sciences | ||
International Inc. | 104,821 | 708 | |
* | Aerie Pharmaceuticals Inc. | 43,906 | 694 |
* | IGI Laboratories Inc. | 78,576 | 615 |
* | Ocular Therapeutix Inc. | 26,085 | 460 |
2,465,160 | |||
Total Common Stocks | |||
(Cost $5,830,355) | 6,645,367 |
Market | ||
Value• | ||
Shares | ($000) | |
Temporary Cash Investments (0.3%)1 | ||
Money Market Fund (0.3%) | ||
3,4 Vanguard Market | ||
Liquidity Fund, 0.168% | 19,636,301 | 19,636 |
Face | ||
Amount | ||
($000) | ||
U.S. Government and Agency Obligations (0.0%) | ||
5,6 Federal Home Loan | ||
Bank Discount Notes, | ||
0.182%, 11/25/15 | 500 | 500 |
Total Temporary Cash Investments | ||
(Cost $20,136) | 20,136 | |
Total Investments (100.2%) | ||
(Cost $5,850,491) | 6,665,503 | |
Amount | ||
($000) | ||
Other Assets and Liabilities (-0.2%) | ||
Other Assets | ||
Investment in Vanguard | 651 | |
Receivables for Accrued Income | 10,824 | |
Receivables for Capital Shares Issued | 1,461 | |
Other Assets | 12,613 | |
Total Other Assets | 25,549 | |
Liabilities | ||
Payables for Investment Securities | ||
Purchased | (4,559) | |
Collateral for Securities on Loan | (19,636) | |
Payables for Capital Shares Redeemed | (1,095) | |
Payables to Vanguard | (1,729) | |
Other Liabilities | (13,314) | |
Total Liabilities | (40,333) | |
Net Assets (100%) | 6,650,719 |
At August 31, 2015, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 5,792,528 |
Undistributed Net Investment Income | 49,898 |
Accumulated Net Realized Losses | (7,020) |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 815,012 |
Futures Contracts | 301 |
Net Assets | 6,650,719 |
ETF Shares—Net Assets | |
Applicable to 44,025,166 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 5,826,382 |
Net Asset Value Per Share— | |
ETF Shares | $132.34 |
Admiral Shares—Net Assets | |
Applicable to 12,452,406 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 824,337 |
Net Asset Value Per Share— | |
Admiral Shares | $66.20 |
• 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 $18,242,000.
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 100.0% and 0.2% 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 $19,636,000 of collateral received for securities on loan.
5 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.
6 Securities with a value of $300,000 have been segregated as initial margin for open futures contracts.
See accompanying Notes, which are an integral part of the Financial Statements.
55
Health Care Index Fund | |
Statement of Operations | |
Year Ended | |
August 31, 2015 | |
($000) | |
Investment Income | |
Income | |
Dividends | 72,938 |
Interest1 | 5 |
Securities Lending | 1,136 |
Total Income | 74,079 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 905 |
Management and Administrative— | |
ETF Shares | 2,828 |
Management and Administrative— | |
Admiral Shares | 420 |
Marketing and Distribution— | |
ETF Shares | 640 |
Marketing and Distribution— | |
Admiral Shares | 71 |
Custodian Fees | 67 |
Auditing Fees | 33 |
Shareholders’ Reports—ETF Shares | 248 |
Shareholders’ Reports—Admiral Shares | 3 |
Trustees’ Fees and Expenses | 4 |
Total Expenses | 5,219 |
Net Investment Income | 68,860 |
Realized Net Gain (Loss) | |
Investment Securities Sold | 629,552 |
Futures Contracts | 173 |
Realized Net Gain (Loss) | 629,725 |
Change in Unrealized Appreciation | |
(Depreciation) | |
Investment Securities | (169,494) |
Futures Contracts | 301 |
Change in Unrealized Appreciation | |
(Depreciation) | (169,193) |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 529,392 |
1 Interest income from an affiliated company of the fund was | |
$5,000. |
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2015 | 2014 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 68,860 | 42,167 |
Realized Net Gain (Loss) | 629,725 | 177,371 |
Change in Unrealized Appreciation (Depreciation) | (169,193) | 563,963 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 529,392 | 783,501 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (43,207) | (26,834) |
Admiral Shares | (5,312) | (3,382) |
Realized Capital Gain | ||
ETF Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (48,519) | (30,216) |
Capital Share Transactions | ||
ETF Shares | 2,078,687 | 732,487 |
Admiral Shares | 359,341 | 81,482 |
Net Increase (Decrease) from Capital Share Transactions | 2,438,028 | 813,969 |
Total Increase (Decrease) | 2,918,901 | 1,567,254 |
Net Assets | ||
Beginning of Period | 3,731,818 | 2,164,564 |
End of Period1 | 6,650,719 | 3,731,818 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $49,898,000 and $29,557,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
56
Health Care Index Fund | |||||
Financial Highlights | |||||
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $117.17 | $89.94 | $70.32 | $59.58 | $49.72 |
Investment Operations | |||||
Net Investment Income | 1.350 | 1.333 | 1.155 | 1.197 | 1.057 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 15.105 | 27.033 | 19.663 | 10.592 | 9.782 |
Total from Investment Operations | 16.455 | 28.366 | 20.818 | 11.789 | 10.839 |
Distributions | |||||
Dividends from Net Investment Income | (1.285) | (1.136) | (1.198) | (1.049) | (. 979) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.285) | (1.136) | (1.198) | (1.049) | (. 979) |
Net Asset Value, End of Period | $132.34 | $117.17 | $89.94 | $70.32 | $59.58 |
Total Return | 14.08% | 31.76% | 30.01% | 20.07% | 21.90% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $5,826 | $3,319 | $1,918 | $894 | $692 |
Ratio of Total Expenses to Average Net Assets | 0.09% | 0.12% | 0.14% | 0.14% | 0.19% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.25% | 1.40% | 1.69% | 1.92% | 1.74% |
Portfolio Turnover Rate1 | 4% | 5% | 5% | 9% | 9% |
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.
Admiral Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $58.61 | $44.99 | $35.18 | $29.81 | $24.87 |
Investment Operations | |||||
Net Investment Income | . 676 | .666 | .580 | .599 | .533 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 7.557 | 13.523 | 9.831 | 5.298 | 4.888 |
Total from Investment Operations | 8.233 | 14.189 | 10.411 | 5.897 | 5.421 |
Distributions | |||||
Dividends from Net Investment Income | (. 643) | (. 569) | (.601) | (. 527) | (.481) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (. 643) | (. 569) | (.601) | (. 527) | (.481) |
Net Asset Value, End of Period | $66.20 | $58.61 | $44.99 | $35.18 | $29.81 |
Total Return1 | 14.11% | 31.77% | 30.00% | 20.08% | 21.90% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $824 | $413 | $247 | $98 | $75 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.12% | 0.14% | 0.14% | 0.19% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.24% | 1.40% | 1.69% | 1.92% | 1.74% |
Portfolio Turnover Rate2 | 4% | 5% | 5% | 9% | 9% |
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.
57
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: ETF Shares and Admiral Shares. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker. 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 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 year ended August 31, 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, 2012–2015), 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
58
Health Care Index Fund
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 (“Vanguard”) participate in a $3 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 August 31, 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At August 31, 2015, the fund had contributed to Vanguard capital in the amount of $651,000, representing 0.01% of the fund’s net assets and 0.26% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and employees, respectively, 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 August 31, 2015, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 6,645,363 | — | 4 |
Temporary Cash Investments | 19,636 | 500 | — |
Futures Contracts—Liabilities1 | (62) | — | — |
Total | 6,664,937 | 500 | 4 |
1 Represents variation margin on the last day of the reporting period. |
59
Health Care Index Fund
D. At August 31, 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 | September 2015 | 60 | 5,908 | 301 |
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 year ended August 31, 2015, the fund realized $625,252,000 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.
For tax purposes, at August 31, 2015, the fund had $51,610,000 of ordinary income available for distribution. The fund used capital loss carryforwards of $10,370,000 to offset taxable capital gains realized during the year ended August 31, 2015. At August 31, 2015, the fund had available capital losses totaling $6,812,000 that may be carried forward indefinitely to offset future net capital gains.
At August 31, 2015, the cost of investment securities for tax purposes was $5,850,506,000.
Net unrealized appreciation of investment securities for tax purposes was $814,997,000, consisting of unrealized gains of $868,564,000 on securities that had risen in value since their purchase and $53,567,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the year ended August 31, 2015, the fund purchased $3,971,647,000 of investment securities and sold $1,516,696,000 of investment securities, other than temporary cash investments. Purchases and sales include $3,079,770,000 and $1,290,236,000, 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: | ||||
Year Ended August 31, | ||||
2015 | 2014 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 3,421,822 | 25,827 | 1,080,801 | 10,301 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (1,343,135) | (10,125) | (348,314) | (3,300) |
Net Increase (Decrease)—ETF Shares | 2,078,687 | 15,702 | 732,487 | 7,001 |
Admiral Shares | ||||
Issued | 495,307 | 7,460 | 174,189 | 3,337 |
Issued in Lieu of Cash Distributions | 4,851 | 78 | 3,071 | 62 |
Redeemed | (140,817) | (2,134) | (95,778) | (1,836) |
Net Increase (Decrease) —Admiral Shares | 359,341 | 5,404 | 81,482 | 1,563 |
H. Management has determined that no material events or transactions occurred subsequent to August 31, 2015, that would require recognition or disclosure in these financial statements.
60
Industrials Index Fund
Fund Profile
As of August 31, 2015
Share-Class Characteristics | |||
ETF | Admiral | ||
Shares | Shares | ||
Ticker Symbol | VIS | VINAX | |
Expense Ratio1 | 0.12% | 0.12% | |
30-Day SEC Yield | 1.99% | 2.00% | |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | MSCI | ||
Industrials | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 344 | 345 | 2,491 |
Median Market Cap | $27.3B | $27.3B | $47.3B |
Price/Earnings Ratio | 18.9x | 18.9x | 20.7x |
Price/Book Ratio | 3.3x | 3.3x | 2.6x |
Return on Equity | 17.7% | 17.7% | 17.2% |
Earnings Growth Rate | 10.6% | 10.6% | 10.2% |
Dividend Yield | 2.1% | 2.1% | 2.1% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 4% | — | — |
Short-Term Reserves | 0.7% | — | — |
Volatility Measures | |||
MSCI US | |||
IMI/Industrials | MSCI US | ||
25/50 | IMI/2500 | ||
R-Squared | 1.00 | 0.85 | |
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) | |
Aerospace & Defense | 22.8% |
Agricultural & Farm Machinery | 1.5 |
Air Freight & Logistics | 6.0 |
Airlines | 5.8 |
Building Products | 2.5 |
Construction & Engineering | 1.7 |
Construction Machinery & Heavy Trucks | 5.6 |
Diversified Support Services | 1.2 |
Electrical Components & Equipment | 5.4 |
Environmental & Facilities Services | 2.8 |
Human Resource & Employment Services | 1.4 |
Industrial Conglomerates | 18.2 |
Industrial Machinery | 8.6 |
Railroads | 6.1 |
Research & Consulting Services | 2.8 |
Security & Alarm Services | 1.0 |
Trading Companies & Distributors | 2.8 |
Trucking | 1.9 |
Other Industrials | 1.9 |
Ten Largest Holdings (% of total net assets)
General Electric | ||
Co. | Industrial Conglomerates | 10.9% |
3M Co. | Industrial Conglomerates | 3.9 |
Boeing Co. | Aerospace & Defense | 3.7 |
United | ||
Technologies Corp. Aerospace & Defense | 3.4 | |
Union Pacific Corp. | Railroads | 3.3 |
Honeywell | ||
International Inc. | Aerospace & Defense | 3.2 |
United Parcel | ||
Service Inc. | Air Freight & Logistics | 3.0 |
Lockheed Martin | ||
Corp. | Aerospace & Defense | 2.4 |
Danaher Corp. | Industrial Conglomerates | 2.3 |
Caterpillar Inc. | Construction Machinery | |
& Heavy Trucks | 1.9 | |
Top Ten | 38.0% |
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 fiscal year ended August 31, 2015, the expense ratios were 0.10% for ETF Shares and 0.10% for Admiral Shares.
61
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.
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx64x1.jpg)
Average Annual Total Returns | Final Value | |||
Periods Ended August 31, 2015 | of a $10,000 | |||
One Year | Five Years | Ten Years | Investment | |
Industrials Index Fund | ||||
ETF Shares Net Asset Value | -3.03% | 15.75% | 7.85% | $21,284 |
Industrials Index Fund | ||||
ETF Shares Market Price | -3.02 | 15.78 | 7.85 | 21,297 |
Spliced US IMI/Industrials 25/50 | -2.90 | 15.91 | 7.93 | 21,456 |
Industrials Funds Average | -3.82 | 12.99 | 6.89 | 19,476 |
MSCI US IMI/2500 | 0.44 | 16.11 | 7.55 | 20,698 |
For a benchmark description, see the Glossary. | ||||
Industrials Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | ||||
Since | Final Value | |||
Inception | of a $100,000 | |||
One Year | Five Years | (5/8/2006) | Investment | |
Industrials Index Fund Admiral Shares | -2.98% | 15.76% | 6.03% | $172,523 |
Spliced US IMI/Industrials 25/50 | -2.90 | 15.91 | 6.18 | 174,808 |
MSCI US IMI/2500 | 0.44 | 16.11 | 6.90 | 186,117 |
“Since Inception” performance is calculated from the Admiral Shares’ inception date for both the fund and its comparative standards. |
See Financial Highlights for dividend and capital gains information.
62
Industrials Index Fund
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx65x1.jpg)
Industrials Index Fund ETF Shares Net Asset Value Spliced US IMI/Industrials 25/50
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2005–August 31, 2015 | |||
One Year | Five Years | Ten Years | |
Industrials Index Fund ETF Shares Market Price | -3.02% | 108.01% | 112.97% |
Industrials Index Fund ETF Shares Net Asset Value | -3.03 | 107.80 | 112.84 |
Spliced US IMI/Industrials 25/50 | -2.90 | 109.21 | 114.56 |
Average Annual Total Returns: Periods Ended June 30, 2015
This table presents total returns through the latest calendar quarter—rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information.
Inception Date | One Year | Five Years | Ten Years | |
ETF Shares | 9/23/2004 | |||
Market Price | 2.03% | 17.39% | 8.73% | |
Net Asset Value | 1.97 | 17.37 | 8.72 | |
Admiral Shares1 | 5/8/2006 | 2.00 | 17.38 | 6.76 |
1 Return since inception.
See Financial Highlights for dividend and capital gains information.
63
Industrials Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 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%) | |||
Aerospace & Defense (22.7%) | |||
Boeing Co. | 563,168 | 73,595 | |
United Technologies Corp. | 724,977 | 66,415 | |
Honeywell International Inc. | 636,619 | 63,197 | |
Lockheed Martin Corp. | 230,466 | 46,365 | |
General Dynamics Corp. | 239,538 | 34,022 | |
Precision Castparts Corp. | 118,498 | 27,284 | |
Raytheon Co. | 261,586 | 26,828 | |
Northrop Grumman Corp. | 157,818 | 25,841 | |
* | TransDigm Group Inc. | 45,677 | 10,498 |
Rockwell Collins Inc. | 113,389 | 9,281 | |
Textron Inc. | 238,013 | 9,235 | |
L-3 Communications | |||
Holdings Inc. | 70,604 | 7,447 | |
* | Spirit AeroSystems Holdings | ||
Inc. Class A | 121,413 | 6,205 | |
Huntington Ingalls Industries | |||
Inc. | 41,742 | 4,699 | |
B/E Aerospace Inc. | 91,010 | 4,437 | |
Hexcel Corp. | 82,669 | 3,990 | |
Orbital ATK Inc. | 50,999 | 3,861 | |
* | Teledyne Technologies Inc. | 28,778 | 2,818 |
Curtiss-Wright Corp. | 38,593 | 2,536 | |
Triumph Group Inc. | 42,010 | 2,075 | |
* | Esterline Technologies Corp. | 25,283 | 2,066 |
* | Moog Inc. Class A | 30,041 | 1,896 |
* | KLX Inc. | 45,302 | 1,771 |
HEICO Corp. Class A | 32,142 | 1,404 | |
* | DigitalGlobe Inc. | 58,636 | 1,352 |
* | TASER International Inc. | 45,821 | 1,072 |
* | Aerojet Rocketdyne Holdings | ||
Inc. | 42,586 | 876 | |
HEICO Corp. | 17,022 | 866 | |
Cubic Corp. | 19,482 | 821 | |
* | Astronics Corp. | 14,702 | 760 |
AAR Corp. | 28,675 | 698 | |
* | Engility Holdings Inc. | 15,386 | 428 |
* | Aerovironment Inc. | 17,732 | 426 |
National Presto Industries Inc. 4,303 | 353 | ||
American Science & | |||
Engineering Inc. | 6,495 | 255 | |
*,^ | KEYW Holding Corp. | 27,190 | 228 |
* | Kratos Defense & Security | ||
Solutions Inc. | 41,484 | 192 | |
446,093 | |||
Air Freight & Logistics (6.0%) | |||
United Parcel Service Inc. | |||
Class B | 601,381 | 58,725 | |
FedEx Corp. | 231,091 | 34,805 | |
CH Robinson Worldwide | |||
Inc. | 125,020 | 8,430 | |
Expeditors International of | |||
Washington Inc. | 163,972 | 8,030 | |
*,^ | XPO Logistics Inc. | 68,307 | 2,398 |
Forward Air Corp. | 26,551 | 1,195 | |
* | Hub Group Inc. Class A | 31,109 | 1,172 |
Market | |||
Value• | |||
Shares | ($000) | ||
* | Atlas Air Worldwide Holdings | ||
Inc. | 21,547 | 890 | |
* | UTi Worldwide Inc. | 80,131 | 571 |
* | Echo Global Logistics Inc. | 20,813 | 484 |
* | Air Transport Services Group | ||
Inc. | 45,040 | 409 | |
Park-Ohio Holdings Corp. | 7,176 | 259 | |
117,368 | |||
Airlines (5.8%) | |||
Delta Air Lines Inc. | 699,778 | 30,636 | |
American Airlines Group Inc. 593,908 | 23,151 | ||
Southwest Airlines Co. | 572,903 | 21,026 | |
* | United Continental Holdings | ||
Inc. | 327,474 | 18,656 | |
Alaska Air Group Inc. | 111,131 | 8,319 | |
* | JetBlue Airways Corp. | 228,266 | 5,095 |
* | Spirit Airlines Inc. | 62,722 | 3,214 |
Allegiant Travel Co. Class A | 11,812 | 2,401 | |
* | Hawaiian Holdings Inc. | 42,758 | 969 |
SkyWest Inc. | 43,896 | 698 | |
* | Virgin America Inc. | 12,810 | 418 |
* | Republic Airways Holdings | ||
Inc. | 42,766 | 132 | |
114,715 | |||
Building Products (2.5%) | |||
Masco Corp. | 298,129 | 7,820 | |
Fortune Brands Home & | |||
Security Inc. | 136,665 | 6,540 | |
Allegion plc | 82,040 | 4,890 | |
Lennox International Inc. | 36,654 | 4,327 | |
Owens Corning | 96,096 | 4,256 | |
AO Smith Corp. | 65,192 | 4,206 | |
* | USG Corp. | 81,393 | 2,483 |
* | Armstrong World Industries | ||
Inc. | 33,303 | 1,852 | |
* | Masonite International Corp. | 22,133 | 1,462 |
Apogee Enterprises Inc. | 25,027 | 1,305 | |
Simpson Manufacturing Co. | |||
Inc. | 36,165 | 1,263 | |
* | Trex Co. Inc. | 27,240 | 1,057 |
Universal Forest Products | |||
Inc. | 17,395 | 1,045 | |
Advanced Drainage Systems | |||
Inc. | 29,380 | 835 | |
* | Builders FirstSource Inc. | 54,896 | 813 |
AAON Inc. | 37,535 | 776 | |
* | American Woodmark Corp. | 11,503 | 762 |
* | Nortek Inc. | 8,254 | 675 |
* | Continental Building | ||
Products Inc. | 27,431 | 548 | |
Quanex Building Products | |||
Corp. | 29,613 | 532 | |
* | PGT Inc. | 39,253 | 525 |
Griffon Corp. | 29,108 | 484 | |
* | Gibraltar Industries Inc. | 25,517 | 418 |
* | Patrick Industries Inc. | 9,865 | 373 |
* | NCI Building Systems Inc. | 25,911 | 270 |
Market | |||
Value• | |||
Shares | ($000) | ||
Insteel Industries Inc. | 14,358 | 249 | |
* | Ply Gem Holdings Inc. | 16,717 | 227 |
49,993 | |||
Commercial Services & Supplies (6.1%) | |||
Waste Management Inc. | 392,472 | 19,647 | |
Tyco International plc | 360,934 | 13,098 | |
* | Stericycle Inc. | 72,908 | 10,290 |
Republic Services Inc. | |||
Class A | 210,837 | 8,640 | |
Cintas Corp. | 83,357 | 7,084 | |
Waste Connections Inc. | 106,184 | 5,050 | |
ADT Corp. | 146,846 | 4,814 | |
KAR Auction Services Inc. | 121,534 | 4,502 | |
* | Copart Inc. | 98,127 | 3,436 |
Pitney Bowes Inc. | 172,895 | 3,425 | |
RR Donnelley & Sons Co. | 178,901 | 2,809 | |
Deluxe Corp. | 42,841 | 2,485 | |
Rollins Inc. | 84,554 | 2,361 | |
* | Clean Harbors Inc. | 42,573 | 2,091 |
Covanta Holding Corp. | 103,117 | 2,042 | |
Healthcare Services Group | |||
Inc. | 58,303 | 1,950 | |
HNI Corp. | 37,928 | 1,773 | |
ABM Industries Inc. | 45,600 | 1,460 | |
Matthews International Corp. | |||
Class A | 28,051 | 1,424 | |
UniFirst Corp. | 13,002 | 1,410 | |
Herman Miller Inc. | 51,473 | 1,395 | |
Interface Inc. Class A | 56,481 | 1,369 | |
Steelcase Inc. Class A | 76,746 | 1,353 | |
Mobile Mini Inc. | 39,255 | 1,335 | |
Tetra Tech Inc. | 51,375 | 1,335 | |
MSA Safety Inc. | 27,138 | 1,234 | |
G&K Services Inc. Class A | 17,202 | 1,163 | |
Brink’s Co. | 40,023 | 1,147 | |
Essendant Inc. | 32,723 | 1,129 | |
Knoll Inc. | 41,616 | 995 | |
West Corp. | 38,617 | 940 | |
US Ecology Inc. | 18,404 | 919 | |
Brady Corp. Class A | 41,137 | 903 | |
Multi-Color Corp. | 11,269 | 743 | |
* | ACCO Brands Corp. | 96,877 | 736 |
* | Team Inc. | 17,208 | 720 |
McGrath RentCorp | 21,087 | 541 | |
Viad Corp. | 16,964 | 464 | |
Ennis Inc. | 22,641 | 370 | |
Quad/Graphics Inc. | 22,096 | 319 | |
Kimball International Inc. | |||
Class B | 28,634 | 313 | |
* | SP Plus Corp. | 13,085 | 301 |
* | InnerWorkings Inc. | 33,640 | 244 |
* | ARC Document Solutions | ||
Inc. | 33,765 | 224 | |
CECO Environmental Corp. | 16,116 | 156 | |
* | Civeo Corp. | 72,623 | 142 |
120,281 |
64
Industrials Index Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
Construction & Engineering (1.7%) | |||
Fluor Corp. | 126,383 | 5,766 | |
* | Jacobs Engineering Group | ||
Inc. | 107,697 | 4,352 | |
* | Quanta Services Inc. | 175,308 | 4,250 |
^ | Chicago Bridge & Iron Co. | ||
NV | 83,961 | 3,718 | |
* | AECOM | 122,721 | 3,375 |
EMCOR Group Inc. | 53,535 | 2,467 | |
KBR Inc. | 123,124 | 2,147 | |
* | Dycom Industries Inc. | 29,220 | 2,077 |
Granite Construction Inc. | 34,064 | 1,175 | |
* | MasTec Inc. | 59,161 | 980 |
Comfort Systems USA Inc. | 32,158 | 891 | |
Primoris Services Corp. | 33,322 | 612 | |
* | Tutor Perini Corp. | 33,274 | 589 |
* | Aegion Corp. Class A | 31,384 | 577 |
* | MYR Group Inc. | 18,363 | 527 |
Argan Inc. | 10,508 | 411 | |
* | Great Lakes Dredge & | ||
Dock Corp. | 49,318 | 274 | |
* | Ameresco Inc. Class A | 16,884 | 96 |
34,284 | |||
Electrical Equipment (5.6%) | |||
Emerson Electric Co. | 572,910 | 27,339 | |
Eaton Corp. plc | 400,426 | 22,848 | |
Rockwell Automation Inc. | 115,366 | 12,901 | |
AMETEK Inc. | 207,046 | 11,143 | |
Acuity Brands Inc. | 37,232 | 7,255 | |
* | Sensata Technologies | ||
Holding NV | 145,579 | 6,901 | |
Hubbell Inc. Class B | 43,470 | 4,289 | |
Regal Beloit Corp. | 38,412 | 2,561 | |
*,^ | SolarCity Corp. | 50,039 | 2,416 |
BWX Technologies Inc. | 87,131 | 2,311 | |
EnerSys | 38,114 | 2,038 | |
* | Generac Holdings Inc. | 59,111 | 1,828 |
AZZ Inc. | 22,100 | 1,118 | |
Franklin Electric Co. Inc. | 35,077 | 1,027 | |
* | Babcock & Wilcox | ||
Enterprises Inc. | 43,130 | 796 | |
* | Thermon Group Holdings | ||
Inc. | 27,386 | 627 | |
General Cable Corp. | 41,579 | 605 | |
Encore Wire Corp. | 16,951 | 550 | |
Powell Industries Inc. | 8,605 | 253 | |
*,^ | Plug Power Inc. | 147,209 | 252 |
* | FuelCell Energy Inc. | 210,753 | 174 |
* | Vicor Corp. | 14,851 | 145 |
* | Power Solutions | ||
International Inc. | 3,936 | 124 | |
* | Enphase Energy Inc. | 19,647 | 90 |
Allied Motion Technologies | |||
Inc. | 4,697 | 89 | |
109,680 | |||
Industrial Conglomerates (18.2%) | |||
General Electric Co. | 8,637,670 | 214,387 | |
3M Co. | 543,794 | 77,295 | |
Danaher Corp. | 525,788 | 45,754 | |
Roper Technologies Inc. | 86,173 | 13,968 | |
Carlisle Cos. Inc. | 55,794 | 5,618 | |
Raven Industries Inc. | 32,130 | 582 | |
357,604 | |||
Machinery (15.7%) | |||
Caterpillar Inc. | 491,605 | 37,578 | |
Illinois Tool Works Inc. | 283,686 | 23,980 | |
Deere & Co. | 271,903 | 22,236 | |
Cummins Inc. | 147,660 | 17,978 | |
PACCAR Inc. | 304,153 | 17,936 |
Market | |||
Value• | |||
Shares | ($000) | ||
Stanley Black & Decker Inc. | 131,783 | 13,379 | |
Parker-Hannifin Corp. | 118,882 | 12,799 | |
Ingersoll-Rand plc | 226,933 | 12,547 | |
Pentair plc | 154,113 | 8,521 | |
Dover Corp. | 137,490 | 8,518 | |
Snap-on Inc. | 49,997 | 7,988 | |
Wabtec Corp. | 82,824 | 7,931 | |
* | WABCO Holdings Inc. | 47,766 | 5,508 |
* | Middleby Corp. | 49,145 | 5,335 |
Flowserve Corp. | 115,465 | 5,211 | |
Xylem Inc. | 155,762 | 5,054 | |
IDEX Corp. | 66,861 | 4,803 | |
Allison Transmission | |||
Holdings Inc. | 138,626 | 3,965 | |
Trinity Industries Inc. | 133,089 | 3,592 | |
Donaldson Co. Inc. | 111,389 | 3,488 | |
Graco Inc. | 50,154 | 3,460 | |
Lincoln Electric Holdings Inc. | 58,427 | 3,427 | |
Toro Co. | 47,607 | 3,394 | |
AGCO Corp. | 68,162 | 3,343 | |
Nordson Corp. | 50,154 | 3,336 | |
* | Colfax Corp. | 74,310 | 2,882 |
ITT Corp. | 76,731 | 2,871 | |
Oshkosh Corp. | 67,047 | 2,819 | |
CLARCOR Inc. | 43,126 | 2,431 | |
Woodward Inc. | 50,529 | 2,304 | |
Valmont Industries Inc. | 20,083 | 2,135 | |
Terex Corp. | 90,289 | 2,106 | |
Crane Co. | 39,596 | 2,080 | |
Kennametal Inc. | 67,729 | 2,066 | |
Joy Global Inc. | 83,124 | 2,013 | |
Timken Co. | 62,609 | 1,988 | |
Manitowoc Co. Inc. | 111,084 | 1,897 | |
SPX Corp. | 31,788 | 1,867 | |
* | Rexnord Corp. | 87,788 | 1,760 |
Barnes Group Inc. | 42,448 | 1,640 | |
* | Proto Labs Inc. | 20,148 | 1,467 |
Mueller Industries Inc. | 46,010 | 1,464 | |
Hillenbrand Inc. | 53,566 | 1,444 | |
Watts Water Technologies | |||
Inc. Class A | 22,950 | 1,259 | |
* | RBC Bearings Inc. | 19,887 | 1,230 |
Mueller Water Products Inc. | |||
Class A | 136,743 | 1,224 | |
Actuant Corp. Class A | 48,240 | 1,034 | |
* | Meritor Inc. | 79,758 | 1,009 |
EnPro Industries Inc. | 19,458 | 923 | |
Greenbrier Cos. Inc. | 21,403 | 892 | |
Standex International Corp. | 10,872 | 870 | |
Tennant Co. | 14,888 | 853 | |
John Bean Technologies | |||
Corp. | 24,747 | 820 | |
ESCO Technologies Inc. | 22,542 | 814 | |
Albany International Corp. | 24,993 | 797 | |
^ | Lindsay Corp. | 10,330 | 787 |
Harsco Corp. | 68,042 | 787 | |
Federal Signal Corp. | 53,444 | 756 | |
Briggs & Stratton Corp. | 37,765 | 755 | |
* | Navistar International Corp. | 41,562 | 741 |
* | Wabash National Corp. | 58,908 | 720 |
* | TriMas Corp. | 38,945 | 710 |
* | Chart Industries Inc. | 26,069 | 666 |
Astec Industries Inc. | 16,672 | 659 | |
Sun Hydraulics Corp. | 19,188 | 619 | |
CIRCOR International Inc. | 12,790 | 579 | |
Altra Industrial Motion Corp. | 22,333 | 559 | |
NN Inc. | 20,908 | 506 | |
Gorman-Rupp Co. | 20,105 | 486 | |
Hyster-Yale Materials | |||
Handling Inc. | 7,286 | 443 |
Market | |||
Value• | |||
Shares | ($000) | ||
Douglas Dynamics Inc. | 19,465 | 433 | |
Alamo Group Inc. | 8,182 | 421 | |
Kadant Inc. | 9,208 | 410 | |
* | Lydall Inc. | 14,153 | 384 |
Global Brass & Copper | |||
Holdings Inc. | 18,770 | 369 | |
Titan International Inc. | 38,894 | 357 | |
American Railcar Industries | |||
Inc. | 8,398 | 348 | |
Columbus McKinnon Corp. | 16,420 | 312 | |
* | Blount International Inc. | 36,787 | 253 |
FreightCar America Inc. | 10,843 | 234 | |
LB Foster Co. Class A | 8,067 | 145 | |
307,705 | |||
Marine (0.2%) | |||
* | Kirby Corp. | 47,827 | 3,373 |
Matson Inc. | 37,531 | 1,414 | |
4,787 | |||
Professional Services (4.2%) | |||
* | Nielsen Holdings plc | 299,743 | 13,557 |
Equifax Inc. | 102,303 | 10,015 | |
* | Verisk Analytics Inc. | ||
Class A | 136,906 | 10,005 | |
Towers Watson & Co. | |||
Class A | 59,427 | 7,056 | |
* | IHS Inc. Class A | 58,978 | 6,843 |
Robert Half International | |||
Inc. | 115,795 | 5,909 | |
ManpowerGroup Inc. | 67,059 | 5,827 | |
Dun & Bradstreet Corp. | 30,892 | 3,274 | |
CEB Inc. | 28,836 | 2,065 | |
* | Advisory Board Co. | 36,377 | 1,769 |
Korn/Ferry International | 43,520 | 1,483 | |
* | Huron Consulting Group Inc. | 19,855 | 1,437 |
* | On Assignment Inc. | 39,810 | 1,432 |
* | FTI Consulting Inc. | 35,661 | 1,421 |
* | WageWorks Inc. | 30,801 | 1,380 |
Exponent Inc. | 22,166 | 948 | |
* | TrueBlue Inc. | 36,360 | 873 |
* | Navigant Consulting Inc. | 42,082 | 665 |
Insperity Inc. | 14,021 | 622 | |
* | RPX Corp. | 43,859 | 604 |
Kforce Inc. | 21,792 | 584 | |
* | TriNet Group Inc. | 33,807 | 569 |
* | ICF International Inc. | 15,397 | 527 |
Resources Connection Inc. | 32,221 | 506 | |
Acacia Research Corp. | 42,553 | 405 | |
* | CBIZ Inc. | 39,066 | 381 |
Kelly Services Inc. Class A | 25,402 | 367 | |
Heidrick & Struggles | |||
International Inc. | 15,276 | 298 | |
* | GP Strategies Corp. | 12,064 | 296 |
* | Mistras Group Inc. | 14,082 | 206 |
* | Franklin Covey Co. | 10,419 | 174 |
* | Pendrell Corp. | 96,559 | 143 |
81,641 | |||
Road & Rail (8.1%) | |||
Union Pacific Corp. | 753,342 | 64,591 | |
CSX Corp. | 846,955 | 23,190 | |
Norfolk Southern Corp. | 261,335 | 20,361 | |
Kansas City Southern | 94,766 | 8,789 | |
* | Hertz Global Holdings Inc. | 333,593 | 6,148 |
JB Hunt Transport Services | |||
Inc. | 79,936 | 5,818 | |
* | Avis Budget Group Inc. | 90,716 | 4,003 |
Ryder System Inc. | 45,756 | 3,751 | |
* | Old Dominion Freight Line | ||
Inc. | 55,162 | 3,668 |
65
Industrials Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
* | Genesee & Wyoming Inc. | ||
Class A | 45,501 | 3,111 | |
AMERCO | 6,729 | 2,520 | |
Landstar System Inc. | 37,924 | 2,511 | |
Con-way Inc. | 49,610 | 1,746 | |
* | Swift Transportation Co. | 78,774 | 1,535 |
Knight Transportation Inc. | 52,900 | 1,439 | |
Werner Enterprises Inc. | 39,898 | 1,057 | |
Heartland Express Inc. | 44,808 | 907 | |
* | Saia Inc. | 21,343 | 801 |
ArcBest Corp. | 20,845 | 602 | |
* | Roadrunner Transportation | ||
Systems Inc. | 26,091 | 566 | |
Celadon Group Inc. | 22,352 | 427 | |
Marten Transport Ltd. | 21,646 | 401 | |
* | YRC Worldwide Inc. | 17,508 | 292 |
158,234 | |||
Trading Companies & Distributors (2.8%) | |||
WW Grainger Inc. | 51,632 | 11,537 | |
Fastenal Co. | 240,648 | 9,275 | |
* | United Rentals Inc. | 83,129 | 5,763 |
* | HD Supply Holdings Inc. | 171,031 | 5,644 |
MSC Industrial Direct Co. | |||
Inc. Class A | 41,669 | 2,821 | |
Watsco Inc. | 22,017 | 2,696 | |
Air Lease Corp. Class A | 83,540 | 2,687 | |
* | WESCO International Inc. | 37,909 | 2,122 |
GATX Corp. | 35,705 | 1,770 | |
* | NOW Inc. | 92,592 | 1,580 |
* | Beacon Roofing Supply Inc. | 42,811 | 1,552 |
Applied Industrial | |||
Technologies Inc. | 32,907 | 1,393 | |
Aircastle Ltd. | 56,067 | 1,165 | |
* | MRC Global Inc. | 89,013 | 1,156 |
Kaman Corp. | 21,271 | 826 | |
* | Rush Enterprises Inc. | ||
Class A | 25,576 | 653 | |
H&E Equipment Services | |||
Inc. | 27,209 | 563 | |
TAL International Group Inc. | 27,264 | 500 | |
* | DXP Enterprises Inc. | 11,072 | 329 |
* | Stock Building Supply | ||
Holdings Inc. | 13,357 | 252 | |
* | CAI International Inc. | 14,673 | 193 |
54,477 |
Market | |||
Value• | |||
Shares | ($000) | ||
Transportation Infrastructure (0.3%) | |||
Macquarie Infrastructure | |||
Corp. | 64,686 | 5,092 | |
* Wesco Aircraft Holdings Inc. | 58,905 | 827 | |
5,919 | |||
Total Common Stocks | |||
(Cost $1,977,669) | 1,962,781 | ||
Temporary Cash Investment (0.8%) | |||
Money Market Fund (0.8%) | |||
1,2 Vanguard Market | |||
Liquidity Fund, 0.168% | |||
(Cost $14,998) | 14,997,712 | 14,998 | |
Total Investments (100.7%) | |||
(Cost $1,992,667) | 1,977,779 | ||
Amount | |||
($000) | |||
Other Assets and Liabilities (-0.7%) | |||
Other Assets | |||
Investment in Vanguard | 194 | ||
Receivables for Investment Securities Sold | 18,805 | ||
Receivables for Accrued Income | 5,268 | ||
Receivables for Capital Shares Issued | 131 | ||
Other Assets | 102 | ||
Total Other Assets | 24,500 | ||
Liabilities | |||
Payables for Investment Securities | |||
Purchased | (20,091) | ||
Collateral for Securities on Loan | (4,961) | ||
Payables for Capital Shares Redeemed | (1,171) | ||
Payables to Vanguard | (692) | ||
Other Liabilities | (11,619) | ||
Total Liabilities | (38,534) | ||
Net Assets (100%) | 1,963,745 |
At August 31, 2015, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 1,976,879 |
Undistributed Net Investment Income | 25,088 |
Accumulated Net Realized Losses | (23,334) |
Unrealized Appreciation (Depreciation) | (14,888) |
Net Assets | 1,963,745 |
ETF Shares—Net Assets | |
Applicable to 19,127,095 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 1,897,974 |
Net Asset Value Per Share— | |
ETF Shares | $99.23 |
Admiral Shares—Net Assets | |
Applicable to 1,290,154 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 65,771 |
Net Asset Value Per Share— | |
Admiral Shares | $50.98 |
• 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 $4,789,000.
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 $4,961,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
66
Industrials Index Fund | |
Statement of Operations | |
Year Ended | |
August 31, 2015 | |
($000) | |
Investment Income | |
Income | |
Dividends | 39,711 |
Interest1 | 1 |
Securities Lending | 225 |
Total Income | 39,937 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 366 |
Management and Administrative— | |
ETF Shares | 1,095 |
Management and Administrative— | |
Admiral Shares | 46 |
Marketing and Distribution— | |
ETF Shares | 309 |
Marketing and Distribution— | |
Admiral Shares | 9 |
Custodian Fees | 49 |
Auditing Fees | 33 |
Shareholders’ Reports—ETF Shares | 72 |
Shareholders’ Reports—Admiral Shares | 1 |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 1,981 |
Net Investment Income | 37,956 |
Realized Net Gain (Loss) on | |
Investment Securities Sold | 78,038 |
Change in Unrealized Appreciation | |
(Depreciation) of Investment Securities | (202,127) |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | (86,133) |
1 Interest income from an affiliated company of the fund was | |
$1,000. |
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2015 | 2014 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 37,956 | 27,750 |
Realized Net Gain (Loss) | 78,038 | 192,518 |
Change in Unrealized Appreciation (Depreciation) | (202,127) | 93,349 |
Net Increase (Decrease) in Net Assets Resulting from Operations | (86,133) | 313,617 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (30,975) | (15,915) |
Admiral Shares | (1,196) | (288) |
Realized Capital Gain | ||
ETF Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (32,171) | (16,203) |
Capital Share Transactions | ||
ETF Shares | 130,360 | 489,396 |
Admiral Shares | (1,970) | 44,859 |
Net Increase (Decrease) from Capital Share Transactions | 128,390 | 534,255 |
Total Increase (Decrease) | 10,086 | 831,669 |
Net Assets | ||
Beginning of Period | 1,953,659 | 1,121,990 |
End of Period1 | 1,963,745 | 1,953,659 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $25,088,000 and $19,247,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
67
Industrials Index Fund | |||||
Financial Highlights | |||||
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $103.95 | $84.17 | $67.82 | $60.12 | $51.71 |
Investment Operations | |||||
Net Investment Income | 1.914 | 1.508 | 1.5171 | 1.360 | .992 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | (4.961) | 19.332 | 16.321 | 7.557 | 8.269 |
Total from Investment Operations | (3.047) | 20.840 | 17.838 | 8.917 | 9.261 |
Distributions | |||||
Dividends from Net Investment Income | (1.673) | (1.060) | (1.488) | (1.217) | (.851) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.673) | (1.060) | (1.488) | (1.217) | (.851) |
Net Asset Value, End of Period | $99.23 | $103.95 | $84.17 | $67.82 | $60.12 |
Total Return | -3.03% | 24.83% | 26.69% | 15.04% | 17.79% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $1,898 | $1,883 | $1,104 | $482 | $451 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.12% | 0.14% | 0.14% | 0.19% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.83% | 1.69% | 1.97% | 1.99% | 1.66% |
Portfolio Turnover Rate2 | 4% | 5% | 6% | 6% | 5% |
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.
Admiral Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $53.40 | $43.24 | $34.84 | $30.89 | $26.57 |
Investment Operations | |||||
Net Investment Income | .982 | .780 | .7801 | .699 | .511 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | (2.541) | 9.922 | 8.382 | 3.878 | 4.248 |
Total from Investment Operations | (1.559) | 10.702 | 9.162 | 4.577 | 4.759 |
Distributions | |||||
Dividends from Net Investment Income | (.861) | (. 542) | (.762) | (. 627) | (. 439) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (.861) | (. 542) | (.762) | (. 627) | (. 439) |
Net Asset Value, End of Period | $50.98 | $53.40 | $43.24 | $34.84 | $30.89 |
�� | |||||
Total Return 2 | -2.98% | 24.84% | 26.70% | 15.03% | 17.79% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $66 | $71 | $18 | $14 | $14 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.12% | 0.14% | 0.14% | 0.19% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.83% | 1.69% | 1.97% | 1.99% | 1.66% |
Portfolio Turnover Rate3 | 4% | 5% | 6% | 6% | 5% |
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.
68
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: ETF Shares and Admiral Shares. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker. 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 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, 2012–2015), 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 (“Vanguard”) participate in a $3 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 August 31, 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.
69
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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At August 31, 2015, the fund had contributed to Vanguard capital in the amount of $194,000, representing 0.01% of the fund’s net assets and 0.08% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and employees, respectively, 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 August 31, 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.
Certain of the fund’s investments are in securities considered to be passive foreign investment companies, for which any unrealized appreciation and/or realized gains are required to be included in distributable net income for tax purposes. During the year ended August 31, 2015, the fund realized gains on the sale of passive foreign investment companies of $56,000, which have been included in current and prior periods’ taxable income; accordingly, such gains have been reclassified from accumulated net realized losses to undistributed net investment income. Passive foreign investment companies held at August 31, 2015, had unrealized appreciation of $143,000, of which $95,000 has been distributed and is reflected in the balance of undistributed net investment income.
During the year ended August 31, 2015, the fund realized $79,439,000 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.
For tax purposes, at August 31, 2015, the fund had $25,886,000 of ordinary income available for distribution. At August 31, 2015, the fund had available capital losses totaling $23,191,000 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 $1,533,000 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.
At August 31, 2015, the cost of investment securities for tax purposes was $1,992,953,000.
Net unrealized depreciation of investment securities for tax purposes was $15,174,000, consisting of unrealized gains of $146,592,000 on securities that had risen in value since their purchase and $161,766,000 in unrealized losses on securities that had fallen in value since their purchase.
70
Industrials Index Fund
E. During the year ended August 31, 2015, the fund purchased $546,786,000 of investment securities and sold $412,285,000 of investment securities, other than temporary cash investments. Purchases and sales include $430,575,000 and $327,515,000, 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: | ||||
Year Ended August 31, | ||||
2015 | 2014 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 463,647 | 4,388 | 1,042,334 | 10,600 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (333,287) | (3,375) | (552,938) | (5,600) |
Net Increase (Decrease)—ETF Shares | 130,360 | 1,013 | 489,396 | 5,000 |
Admiral Shares | ||||
Issued | 33,169 | 609 | 63,885 | 1,275 |
Issued in Lieu of Cash Distributions | 1,104 | 21 | 266 | 5 |
Redeemed | (36,243) | (664) | (19,292) | (376) |
Net Increase (Decrease) —Admiral Shares | (1,970) | (34) | 44,859 | 904 |
At August 31, 2015, one shareholder was the record or beneficial owner of 59% 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 August 31, 2015, that would require recognition or disclosure in these financial statements.
71
Information Technology Index Fund
Fund Profile | |||
As of August 31, 2015 | |||
Share-Class Characteristics | |||
ETF | Admiral | ||
Shares | Shares | ||
Ticker Symbol | VGT | VITAX | |
Expense Ratio1 | 0.12% | 0.12% | |
30-Day SEC Yield | 1.40% | 1.40% | |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | |||
Information | MSCI | ||
Technology | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 383 | 382 | 2,491 |
Median Market Cap $135.4B | $135.4B | $47.3B | |
Price/Earnings Ratio | 20.9x | 20.9x | 20.7x |
Price/Book Ratio | 3.8x | 3.8x | 2.6x |
Return on Equity | 24.9% | 24.9% | 17.2% |
Earnings Growth Rate | 12.0% | 12.0% | 10.2% |
Dividend Yield | 1.5% | 1.5% | 2.1% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 3% | — | — |
Short-Term Reserves | 0.2% | — | — |
Volatility Measures | |||
MSCI US | |||
IMI/Information | |||
Technology | MSCI US | ||
25/50 | IMI/2500 | ||
R-Squared | 1.00 | 0.76 | |
Beta | 1.00 | 1.03 |
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 | 6.2% |
Communications Equipment | 7.7 |
Data Processing & Outsourced Services | 11.9 |
Electronic Components | 1.2 |
Electronic Manufacturing Services | 1.2 |
Home Entertainment Software | 1.0 |
Internet Software & Services | 18.0 |
IT Consulting & Other Services | 6.4 |
Semiconductor Equipment | 1.4 |
Semiconductors | 10.5 |
Systems Software | 13.2 |
Technology Hardware, Storage & Peripherals | 19.8 |
Other Information Technology | 1.5 |
Ten Largest Holdings (% of total net assets)
Apple Inc. | Technology Hardware, | |
Storage & Peripherals | 15.6% | |
Google Inc. | Internet Software | |
& Services | 9.1 | |
Microsoft Corp. | Systems Software | 8.1 |
Facebook Inc. | Internet Software | |
& Services | 4.6 | |
Visa Inc. | Data Processing | |
& Outsourced Services | 3.4 | |
International | ||
Business | IT Consulting | |
Machines Corp. | & Other Services | 3.3 |
Intel Corp. | Semiconductors | 3.3 |
Cisco Systems Inc. Communications | ||
Equipment | 3.2 | |
Oracle Corp. | Systems Software | 3.1 |
MasterCard Inc. | Data Processing | |
& Outsourced Services | 2.2 | |
Top Ten Total | 55.9% |
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 fiscal year ended August 31, 2015, the expense ratios were 0.10% for ETF Shares and 0.10% for Admiral Shares.
72
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.
Cumulative Performance: August 31, 2005–August 31, 2015
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx75x1.jpg)
Average Annual Total Returns | Final Value | |||
Periods Ended August 31, 2015 | of a $10,000 | |||
One Year | Five Years | Ten Years | Investment | |
Information Technology Index Fund | ||||
ETF Shares Net Asset Value | 2.05% | 16.79% | 8.90% | $23,456 |
Information Technology Index Fund | ||||
ETF Shares Market Price | 2.07 | 16.81 | 8.91 | 23,474 |
Spliced US IMI/Information Technology 25/50 | 2.18 | 16.95 | 9.08 | 23,851 |
Science and Technology Funds Average | 1.28 | 15.39 | 8.29 | 22,168 |
MSCI US IMI/2500 | 0.44 | 16.11 | 7.55 | 20,698 |
For a benchmark description, see the Glossary. | ||||
Science and Technology Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | ||||
Final Value | ||||
of a $100,000 | ||||
One Year | Five Years | Ten Years | Investment | |
Information Technology Index Fund Admiral Shares | 2.09% | 16.79% | 8.89% | $234,310 |
Spliced US IMI/Information Technology 25/50 | 2.18 | 16.95 | 9.08 | 238,510 |
MSCI US IMI/2500 | 0.44 | 16.11 | 7.55 | 206,975 |
See Financial Highlights for dividend and capital gains information.
73
Information Technology Index Fund
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx76x1.jpg)
Information Technology Index Fund ETF Shares Net Asset Value Spliced US IMI/Information Technology 25/50
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2005–August 31, 2015 | |||
One Year | Five Years | Ten Years | |
Information Technology Index Fund ETF Shares Market Price | 2.07% | 117.48% | 134.74% |
Information Technology Index Fund ETF Shares Net Asset Value | 2.05 | 117.27 | 134.56 |
Spliced US IMI/Information Technology 25/50 | 2.18 | 118.79 | 138.51 |
Average Annual Total Returns: Periods Ended June 30, 2015
This table presents total returns through the latest calendar quarter—rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information.
Inception Date | One Year | Five Years | Ten Years | |
ETF Shares | 1/26/2004 | |||
Market Price | 11.05% | 17.64% | 9.88% | |
Net Asset Value | 11.01 | 17.63 | 9.90 | |
Admiral Shares | 3/25/2004 | 11.03 | 17.64 | 9.89 |
See Financial Highlights for dividend and capital gains information.
74
Information Technology Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 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%) | |||
Communications Equipment (7.7%) | |||
Cisco Systems Inc. | 9,303,820 | 240,783 | |
QUALCOMM Inc. | 2,982,056 | 168,725 | |
Motorola Solutions Inc. | 366,514 | 23,757 | |
* | Palo Alto Networks Inc. | 130,090 | 21,363 |
Harris Corp. | 225,910 | 17,354 | |
Juniper Networks Inc. | 650,051 | 16,713 | |
* | F5 Networks Inc. | 131,496 | 15,965 |
Brocade Communications | |||
Systems Inc. | 764,385 | 8,141 | |
* | CommScope Holding Co. | ||
Inc. | 242,920 | 7,858 | |
* | ARRIS Group Inc. | 239,500 | 6,328 |
* | Infinera Corp. | 254,107 | 5,545 |
* | Ciena Corp. | 225,837 | 5,050 |
*,^ | Arista Networks Inc. | 66,843 | 4,999 |
* | ViaSat Inc. | 82,365 | 4,841 |
Plantronics Inc. | 71,604 | 3,807 | |
* | EchoStar Corp. Class A | 80,668 | 3,598 |
InterDigital Inc. | 65,968 | 3,263 | |
* | Finisar Corp. | 188,163 | 2,903 |
* | Polycom Inc. | 247,389 | 2,662 |
* | Viavi Solutions Inc. | 424,601 | 2,280 |
^ | Ubiquiti Networks Inc. | 56,007 | 1,969 |
* | NETGEAR Inc. | 59,931 | 1,821 |
* | Lumentum Holdings Inc. | 84,919 | 1,676 |
* | Ruckus Wireless Inc. | 147,365 | 1,668 |
ADTRAN Inc. | 97,831 | 1,567 | |
* | Ixia | 100,175 | 1,550 |
* | Mitel Networks Corp. | 152,146 | 1,121 |
* | CalAmp Corp. | 65,892 | 1,095 |
* | Harmonic Inc. | 163,457 | 943 |
* | ShoreTel Inc. | 116,369 | 866 |
Comtech | |||
Telecommunications Corp. | 29,720 | 793 | |
* | Calix Inc. | 74,417 | 596 |
* | Sonus Networks Inc. | 79,512 | 560 |
Black Box Corp. | 27,924 | 430 | |
582,590 | |||
Electronic Equipment, Instruments | |||
& Components (4.0%) | |||
TE Connectivity Ltd. | 743,186 | 44,063 | |
Corning Inc. | 2,302,262 | 39,622 | |
Amphenol Corp. Class A | 565,046 | 29,586 | |
* | Flextronics International | ||
Ltd. | 1,031,679 | 10,843 | |
Avnet Inc. | 249,289 | 10,570 | |
CDW Corp. | 263,312 | 10,467 | |
* | Keysight Technologies Inc. | 308,420 | 9,882 |
* | Arrow Electronics Inc. | 174,855 | 9,778 |
* | Trimble Navigation Ltd. | 474,585 | 8,970 |
* | Zebra Technologies Corp. | 94,645 | 7,844 |
Ingram Micro Inc. | 285,004 | 7,712 | |
FLIR Systems Inc. | 255,984 | 7,329 | |
Jabil Circuit Inc. | 320,003 | 6,192 | |
FEI Co. | 76,504 | 5,774 | |
* | IPG Photonics Corp. | 67,497 | 5,698 |
National Instruments Corp. | 186,952 | 5,461 |
Market | |||
Value• | |||
Shares | ($000) | ||
Cognex Corp. | 151,871 | 5,400 | |
* | Tech Data Corp. | 67,001 | 4,371 |
SYNNEX Corp. | 54,046 | 4,280 | |
Belden Inc. | 77,945 | 3,928 | |
Littelfuse Inc. | 41,147 | 3,693 | |
* | Anixter International Inc. | 53,812 | 3,426 |
Dolby Laboratories Inc. | |||
Class A | 93,779 | 3,053 | |
* | Sanmina Corp. | 151,757 | 2,920 |
* | Universal Display Corp. | 75,386 | 2,777 |
*,^ | Knowles Corp. | 162,161 | 2,640 |
* | Coherent Inc. | 43,535 | 2,538 |
* | OSI Systems Inc. | 34,343 | 2,508 |
Vishay Intertechnology Inc. | 248,479 | 2,455 | |
* | Plexus Corp. | 61,733 | 2,350 |
*,^ | Fitbit Inc. | 66,470 | 2,293 |
* | Benchmark Electronics Inc. | 97,587 | 2,085 |
* | Itron Inc. | 69,511 | 2,085 |
* | ScanSource Inc. | 52,202 | 1,994 |
* | Rogers Corp. | 33,718 | 1,877 |
* | Insight Enterprises Inc. | 72,193 | 1,827 |
Methode Electronics Inc. | 66,001 | 1,754 | |
MTS Systems Corp. | 27,184 | 1,618 | |
* | II-VI Inc. | 94,536 | 1,597 |
Badger Meter Inc. | 26,396 | 1,539 | |
* | InvenSense Inc. | 147,900 | 1,510 |
* | Rofin-Sinar Technologies | ||
Inc. | 51,865 | 1,321 | |
* | FARO Technologies Inc. | 31,772 | 1,234 |
AVX Corp. | 93,416 | 1,220 | |
* | Newport Corp. | 72,744 | 1,113 |
* | Fabrinet | 55,800 | 1,109 |
CTS Corp. | 53,940 | 1,017 | |
* | Mercury Systems Inc. | 62,175 | 985 |
* | TTM Technologies Inc. | 116,685 | 796 |
* | DTS Inc. | 29,661 | 787 |
* | GSI Group Inc. | 54,571 | 709 |
* | RealD Inc. | 73,285 | 690 |
* | Kimball Electronics Inc. | 53,648 | 630 |
Park Electrochemical Corp. | 35,273 | 621 | |
Daktronics Inc. | 69,528 | 604 | |
Checkpoint Systems Inc. | 73,858 | 597 | |
PC Connection Inc. | 18,538 | 391 | |
300,133 | |||
Internet Software & Services (18.0%) | |||
* | Facebook Inc. Class A | 3,908,091 | 349,501 |
* | Google Inc. Class C | 564,107 | 348,759 |
* | Google Inc. Class A | 527,338 | 341,620 |
* | eBay Inc. | 2,000,130 | 54,224 |
* | Yahoo! Inc. | 1,630,962 | 52,582 |
* | LinkedIn Corp. Class A | 201,823 | 36,449 |
* | Twitter Inc. | 898,428 | 24,967 |
* | Akamai Technologies Inc. | 327,794 | 23,375 |
* | VeriSign Inc. | 192,203 | 13,250 |
* | CoStar Group Inc. | 59,770 | 10,582 |
IAC/InterActiveCorp | 139,463 | 9,735 | |
MercadoLibre Inc. | 60,699 | 6,680 | |
* | Pandora Media Inc. | 371,249 | 6,660 |
* | Rackspace Hosting Inc. | 209,277 | 6,364 |
Market | |||
Value• | |||
Shares | ($000) | ||
* | Dealertrack Technologies | ||
Inc. | 96,385 | 6,049 | |
j2 Global Inc. | 83,590 | 5,816 | |
* | HomeAway Inc. | 173,974 | 4,991 |
*,^ | Zillow Group Inc. | 178,998 | 4,414 |
* | Cimpress NV | 53,543 | 3,747 |
* | Demandware Inc. | 61,621 | 3,438 |
* | comScore Inc. | 62,567 | 3,267 |
* | Cornerstone OnDemand | ||
Inc. | 88,772 | 3,173 | |
* | GrubHub Inc. | 115,228 | 3,048 |
* | Yelp Inc. Class A | 118,162 | 2,869 |
* | LogMeIn Inc. | 44,538 | 2,776 |
* | WebMD Health Corp. | 58,816 | 2,419 |
*,^ | Zillow Group Inc. Class A | 91,519 | 2,323 |
* | Stamps.com Inc. | 27,103 | 2,232 |
NIC Inc. | 112,877 | 2,127 | |
* | SPS Commerce Inc. | 30,444 | 2,071 |
* | Envestnet Inc. | 63,619 | 1,987 |
* | Web.com Group Inc. | 80,284 | 1,728 |
* | Endurance International | ||
Group Holdings Inc. | 108,253 | 1,655 | |
* | Marketo Inc. | 58,256 | 1,632 |
EarthLink Holdings Corp. | 190,620 | 1,599 | |
* | Constant Contact Inc. | 60,026 | 1,486 |
* | Gogo Inc. | 92,321 | 1,467 |
* | Cvent Inc. | 41,251 | 1,301 |
* | Shutterstock Inc. | 35,711 | 1,197 |
* | Monster Worldwide Inc. | 158,332 | 1,151 |
* | Xoom Corp. | 46,232 | 1,148 |
* | Bankrate Inc. | 114,004 | 1,124 |
* | Benefitfocus Inc. | 29,007 | 1,064 |
* | Actua Corp. | 70,025 | 996 |
* | Blucora Inc. | 71,100 | 993 |
*,^ | Coupons.com Inc. | 99,914 | 933 |
* | LivePerson Inc. | 96,010 | 878 |
* | Q2 Holdings Inc. | 32,923 | 861 |
* | Textura Corp. | 32,539 | 841 |
* | Intralinks Holdings Inc. | 74,335 | 761 |
* | Internap Corp. | 81,747 | 652 |
* | DHI Group Inc. | 78,616 | 613 |
* | XO Group Inc. | 41,484 | 608 |
* | SciQuest Inc. | 51,231 | 563 |
* | Bazaarvoice Inc. | 103,194 | 536 |
* | Hortonworks Inc. | 21,476 | 510 |
* | RetailMeNot Inc. | 53,241 | 479 |
*,^ | TrueCar Inc. | 77,104 | 456 |
* | Angie’s List Inc. | 77,881 | 412 |
* | Everyday Health Inc. | 31,630 | 309 |
*,^ | OPOWER Inc. | 30,960 | 280 |
* | Rocket Fuel Inc. | 37,409 | 229 |
* | LendingClub Corp. | 138 | 2 |
1,369,959 | |||
IT Services (18.3%) | |||
Visa Inc. Class A | 3,580,776 | 255,309 | |
International Business | |||
Machines Corp. | 1,711,332 | 253,089 | |
MasterCard Inc. Class A | 1,837,593 | 169,738 | |
Accenture plc Class A | 1,145,564 | 107,992 |
75
Information Technology Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
* | Cognizant Technology | ||
Solutions Corp. Class A | 1,116,912 | 70,298 | |
* | PayPal Holdings Inc. | 1,993,230 | 69,763 |
Automatic Data Processing | |||
Inc. | 858,864 | 66,407 | |
* | Fiserv Inc. | 433,090 | 36,930 |
Fidelity National Information | |||
Services Inc. | 518,458 | 35,805 | |
* | Alliance Data Systems | ||
Corp. | 113,503 | 29,192 | |
Paychex Inc. | 597,280 | 26,675 | |
* | FleetCor Technologies Inc. | 142,675 | 21,281 |
Xerox Corp. | 1,915,369 | 19,479 | |
Western Union Co. | 944,504 | 17,417 | |
Computer Sciences Corp. | 253,854 | 15,736 | |
Total System Services Inc. | 304,172 | 13,940 | |
Global Payments Inc. | 121,499 | 13,534 | |
* | Gartner Inc. | 151,885 | 12,988 |
* | Vantiv Inc. Class A | 267,236 | 11,769 |
Broadridge Financial | |||
Solutions Inc. | 219,229 | 11,573 | |
Jack Henry & Associates | |||
Inc. | 149,553 | 10,164 | |
* | Teradata Corp. | 271,038 | 7,922 |
MAXIMUS Inc. | 120,917 | 7,322 | |
Sabre Corp. | 249,745 | 6,798 | |
* | WEX Inc. | 70,733 | 6,686 |
* | VeriFone Systems Inc. | 208,022 | 6,499 |
* | CoreLogic Inc. | 164,735 | 6,252 |
DST Systems Inc. | 60,346 | 6,181 | |
* | Euronet Worldwide Inc. | 90,041 | 5,805 |
* | EPAM Systems Inc. | 76,352 | 5,391 |
Booz Allen Hamilton | |||
Holding Corp. Class A | 190,234 | 5,079 | |
Leidos Holdings Inc. | 115,135 | 4,845 | |
Convergys Corp. | 182,003 | 4,113 | |
Heartland Payment | |||
Systems Inc. | 66,889 | 3,985 | |
* | Blackhawk Network | ||
Holdings Inc. | 93,761 | 3,705 | |
Science Applications | |||
International Corp. | 75,873 | 3,700 | |
* | CACI International Inc. | ||
Class A | 41,807 | 3,279 | |
* | Acxiom Corp. | 141,876 | 2,974 |
*,^ | NeuStar Inc. Class A | 102,145 | 2,855 |
* | Cardtronics Inc. | 81,848 | 2,824 |
* | Virtusa Corp. | 51,776 | 2,740 |
* | Syntel Inc. | 60,801 | 2,703 |
EVERTEC Inc. | 120,768 | 2,186 | |
* | ExlService Holdings Inc. | 57,083 | 2,065 |
CSG Systems International | |||
Inc. | 59,852 | 1,850 | |
* | Sykes Enterprises Inc. | 70,438 | 1,772 |
* | Net 1 UEPS Technologies | ||
Inc. | 76,264 | 1,570 | |
ManTech International Corp. | |||
Class A | 44,148 | 1,209 | |
* | Unisys Corp. | 90,719 | 1,195 |
* | Perficient Inc. | 65,360 | 1,082 |
Cass Information Systems | |||
Inc. | 17,339 | 836 | |
TeleTech Holdings Inc. | 30,647 | 829 | |
* | Everi Holdings Inc. | 116,533 | 602 |
Forrester Research Inc. | 17,736 | 561 | |
* | MoneyGram International | ||
Inc. | 53,217 | 465 | |
1,386,959 |
Market | |||
Value• | |||
Shares | ($000) | ||
Semiconductors & Semiconductor | |||
Equipment (11.9%) | |||
Intel Corp. | 8,678,374 | 247,681 | |
Texas Instruments Inc. | 1,903,104 | 91,045 | |
Avago Technologies Ltd. | |||
Class A | 474,830 | 59,814 | |
Broadcom Corp. Class A | 1,011,578 | 52,268 | |
Applied Materials Inc. | 2,253,059 | 36,240 | |
* | Micron Technology Inc. | 1,978,560 | 32,468 |
Analog Devices Inc. | 573,641 | 32,044 | |
Skyworks Solutions Inc. | 350,729 | 30,636 | |
Altera Corp. | 552,383 | 26,818 | |
NVIDIA Corp. | 984,186 | 22,125 | |
Lam Research Corp. | 289,558 | 21,071 | |
Xilinx Inc. | 473,186 | 19,822 | |
Linear Technology Corp. | 438,252 | 17,653 | |
Maxim Integrated Products | |||
Inc. | 522,015 | 17,576 | |
Microchip Technology Inc. | 386,291 | 16,417 | |
* | Qorvo Inc. | 273,384 | 15,176 |
KLA-Tencor Corp. | 292,535 | 14,659 | |
Marvell Technology Group | |||
Ltd. | 758,800 | 8,552 | |
* | ON Semiconductor Corp. | 789,128 | 7,540 |
Teradyne Inc. | 392,460 | 7,080 | |
* | Freescale Semiconductor | ||
Ltd. | 197,016 | 7,039 | |
* | Cavium Inc. | 100,843 | 6,859 |
* | First Solar Inc. | 137,860 | 6,595 |
Atmel Corp. | 762,655 | 6,231 | |
Cypress Semiconductor | |||
Corp. | 607,178 | 6,072 | |
* | Microsemi Corp. | 173,918 | 5,524 |
*,^ | Ambarella Inc. | 57,348 | 5,484 |
*,^ | Cree Inc. | 199,598 | 5,433 |
* | SunEdison Inc. | 500,033 | 5,200 |
* | Integrated Device | ||
Technology Inc. | 272,379 | 5,172 | |
* | Synaptics Inc. | 66,973 | 4,694 |
* | Cirrus Logic Inc. | 116,401 | 3,511 |
Monolithic Power Systems | |||
Inc. | 70,626 | 3,396 | |
* | Silicon Laboratories Inc. | 75,898 | 3,300 |
MKS Instruments Inc. | 97,796 | 3,296 | |
* | Entegris Inc. | 228,842 | 3,142 |
* | Mellanox Technologies Ltd. | 74,889 | 3,029 |
* | Fairchild Semiconductor | ||
International Inc. Class A | 212,988 | 2,897 | |
Tessera Technologies Inc. | 87,244 | 2,856 | |
* | Rambus Inc. | 209,672 | 2,816 |
* | OmniVision Technologies | ||
Inc. | 105,572 | 2,523 | |
Intersil Corp. Class A | 238,748 | 2,516 | |
* | SunPower Corp. Class A | 97,883 | 2,375 |
*,^ | Advanced Micro Devices | ||
Inc. | 1,196,656 | 2,166 | |
Power Integrations Inc. | 53,854 | 2,114 | |
* | PMC-Sierra Inc. | 331,326 | 2,084 |
* | Semtech Corp. | 121,411 | 2,058 |
* | Cabot Microelectronics | ||
Corp. | 47,290 | 2,051 | |
* | Advanced Energy | ||
Industries Inc. | 71,085 | 1,725 | |
* | Veeco Instruments Inc. | 74,321 | 1,715 |
* | Kulicke & Soffa Industries | ||
Inc. | 139,594 | 1,474 | |
* | Diodes Inc. | 68,675 | 1,352 |
Brooks Automation Inc. | 122,438 | 1,271 | |
* | Inphi Corp. | 52,933 | 1,257 |
Market | |||
Value• | |||
Shares | ($000) | ||
Integrated Silicon Solution | |||
Inc. | 56,356 | 1,238 | |
* | M/A-COM Technology | ||
Solutions Holdings Inc. | 37,834 | 1,116 | |
* | Photronics Inc. | 120,805 | 1,101 |
* | Amkor Technology Inc. | 194,301 | 1,049 |
* | Lattice Semiconductor | ||
Corp. | 215,445 | 901 | |
* | Ultratech Inc. | 49,809 | 857 |
* | Applied Micro Circuits | ||
Corp. | 129,580 | 758 | |
* | Rudolph Technologies Inc. | 58,609 | 748 |
* | CEVA Inc. | 36,176 | 696 |
* | FormFactor Inc. | 103,437 | 688 |
* | Xcerra Corp. | 100,346 | 628 |
* | Nanometrics Inc. | 42,842 | 595 |
* | PDF Solutions Inc. | 48,830 | 595 |
IXYS Corp. | 47,828 | 564 | |
* | Exar Corp. | 71,667 | 423 |
907,869 | |||
Software (20.3%) | |||
Microsoft Corp. | 14,058,741 | 611,836 | |
Oracle Corp. | 6,391,101 | 237,046 | |
* | salesforce.com inc | 1,139,299 | 79,022 |
* | Adobe Systems Inc. | 915,739 | 71,950 |
Intuit Inc. | 478,991 | 41,073 | |
* | Electronic Arts Inc. | 575,611 | 38,077 |
Activision Blizzard Inc. | 929,972 | 26,625 | |
Symantec Corp. | 1,245,253 | 25,515 | |
* | Red Hat Inc. | 335,781 | 24,247 |
* | Citrix Systems Inc. | 294,470 | 20,056 |
* | Autodesk Inc. | 416,487 | 19,471 |
* | ServiceNow Inc. | 266,921 | 18,941 |
CA Inc. | 603,169 | 16,460 | |
* | ANSYS Inc. | 164,173 | 14,546 |
* | Splunk Inc. | 228,922 | 14,186 |
* | Workday Inc. Class A | 195,714 | 13,751 |
* | Synopsys Inc. | 283,759 | 13,317 |
CDK Global Inc. | 249,803 | 12,375 | |
* | VMware Inc. Class A | 147,285 | 11,658 |
FactSet Research | |||
Systems Inc. | 72,546 | 11,456 | |
* | Fortinet Inc. | 263,869 | 11,119 |
* | Cadence Design Systems | ||
Inc. | 535,131 | 10,713 | |
SS&C Technologies | |||
Holdings Inc. | 152,148 | 10,307 | |
* | Ultimate Software Group | ||
Inc. | 49,824 | 8,779 | |
* | Tableau Software Inc. | ||
Class A | 91,248 | 8,593 | |
* | Tyler Technologies Inc. | 58,428 | 8,065 |
* | Manhattan Associates Inc. | 135,662 | 7,934 |
* | Nuance Communications | ||
Inc. | 459,276 | 7,564 | |
* | FireEye Inc. | 199,290 | 7,529 |
* | Guidewire Software Inc. | 130,132 | 7,276 |
* | PTC Inc. | 210,298 | 6,965 |
* | NetScout Systems Inc. | 179,027 | 6,543 |
* | NetSuite Inc. | 71,063 | 6,314 |
* | Qlik Technologies Inc. | 166,712 | 6,312 |
* | Verint Systems Inc. | 114,048 | 6,082 |
Solera Holdings Inc. | 123,302 | 5,939 | |
* | Aspen Technology Inc. | 156,152 | 5,913 |
* | SolarWinds Inc. | 126,202 | 5,017 |
Blackbaud Inc. | 87,267 | 4,986 | |
Fair Isaac Corp. | 56,798 | 4,860 | |
Mentor Graphics Corp. | 183,594 | 4,744 | |
* | ACI Worldwide Inc. | 214,220 | 4,569 |
76
Information Technology Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
* | Take-Two Interactive | ||
Software Inc. | 154,635 | 4,505 | |
* | Proofpoint Inc. | 69,801 | 3,933 |
* | Ellie Mae Inc. | 51,280 | 3,714 |
* | Zynga Inc. Class A | 1,463,092 | 3,702 |
* | MicroStrategy Inc. Class A | 16,996 | 3,377 |
* | Fleetmatics Group plc | 69,701 | 3,120 |
* | Imperva Inc. | 51,649 | 3,077 |
* | CommVault Systems Inc. | 78,912 | 2,828 |
* | Synchronoss Technologies | ||
Inc. | 66,498 | 2,686 | |
* | Progress Software Corp. | 84,105 | 2,278 |
* | Paycom Software Inc. | 53,018 | 2,043 |
* | Bottomline Technologies | ||
de Inc. | 75,251 | 2,012 | |
* | Infoblox Inc. | 98,424 | 1,894 |
* | Zendesk Inc. | 90,209 | 1,866 |
* | Rovi Corp. | 161,654 | 1,790 |
Pegasystems Inc. | 69,492 | 1,703 | |
* | Callidus Software Inc. | 105,458 | 1,663 |
* | TiVo Inc. | 177,590 | 1,616 |
* | BroadSoft Inc. | 50,081 | 1,581 |
Monotype Imaging | |||
Holdings Inc. | 73,782 | 1,563 | |
^ | Ebix Inc. | 52,858 | 1,501 |
* | RealPage Inc. | 78,985 | 1,454 |
* | HubSpot Inc. | 27,592 | 1,305 |
* | Qualys Inc. | 42,481 | 1,235 |
* | Interactive Intelligence | ||
Group Inc. | 31,202 | 1,092 | |
* | Paylocity Holding Corp. | 32,110 | 1,060 |
* | PROS Holdings Inc. | 44,799 | 991 |
*,^ | VASCO Data Security | ||
International Inc. | 54,442 | 910 | |
* | Glu Mobile Inc. | 196,652 | 903 |
* | ePlus Inc. | 11,692 | 885 |
* | Barracuda Networks Inc. | 33,353 | 877 |
* | Gigamon Inc. | 29,682 | 676 |
* | Comverse Inc. | 35,784 | 674 |
* | Silver Spring Networks Inc. | 57,665 | 669 |
* | Rubicon Project Inc. | 43,884 | 632 |
* | Tangoe Inc. | 69,130 | 518 |
* | EnerNOC Inc. | 49,650 | 464 |
Epiq Systems Inc. | 36,395 | 463 | |
* | Jive Software Inc. | 77,833 | 351 |
* | TubeMogul Inc. | 31,416 | 347 |
* | Varonis Systems Inc. | 15,714 | 311 |
* | Workiva Inc. | 20,766 | 298 |
* | MobileIron Inc. | 54,966 | 226 |
1,546,524 |
Market | |||
Value• | |||
Shares | ($000) | ||
Technology Hardware, Storage | |||
& Peripherals (19.8%) | |||
Apple Inc. | 10,538,939 | 1,188,371 | |
Hewlett-Packard Co. | 3,324,949 | 93,298 | |
EMC Corp. | 3,552,690 | 88,355 | |
Western Digital Corp. | 422,236 | 34,607 | |
Seagate Technology plc | 580,560 | 29,841 | |
SanDisk Corp. | 380,344 | 20,752 | |
NetApp Inc. | 570,501 | 18,233 | |
* | NCR Corp. | 313,111 | 7,856 |
* | Electronics For Imaging | ||
Inc. | 85,923 | 3,761 | |
Diebold Inc. | 113,039 | 3,518 | |
Lexmark International Inc. | |||
Class A | 112,216 | 3,364 | |
*,^ | 3D Systems Corp. | 191,793 | 2,633 |
* | Super Micro Computer Inc. | 68,370 | 1,870 |
* | Nimble Storage Inc. | 67,377 | 1,796 |
* | QLogic Corp. | 158,809 | 1,642 |
* | Cray Inc. | 74,322 | 1,575 |
* | Avid Technology Inc. | 71,219 | 592 |
* | Eastman Kodak Co. | 35,634 | 502 |
* | Silicon Graphics | ||
International Corp. | 64,887 | 324 | |
1,502,890 | |||
Wireless Telecommunication | |||
Services (0.0%) | |||
* | RingCentral Inc. Class A | 84,718 | 1,458 |
Total Common Stocks | |||
(Cost $6,241,322) | 7,598,382 | ||
Temporary Cash Investment (0.2%) | |||
Money Market Fund (0.2%) | |||
1,2 | Vanguard Market | ||
Liquidity Fund, 0.168% | |||
(Cost $15,347) | 15,347,002 | 15,347 | |
Total Investments (100.2%) | �� | ||
(Cost $6,256,669) | 7,613,729 |
Amount | |
($000) | |
Other Assets and Liabilities (-0.2%) | |
Other Assets | |
Investment in Vanguard | 720 |
Receivables for Investment Securities Sold | 40,991 |
Receivables for Accrued Income | 13.146 |
Receivables for Capital Shares Issued | 576 |
Total Other Assets | 55,433 |
Liabilities | |
Payables for Investment Securities | |
Purchased | (41,233) |
Collateral for Securities on Loan | (15,347) |
Payables for Capital Shares Redeemed | (336) |
Payables to Vanguard | (2,247) |
Other Liabilities | (9,592) |
Total Liabilities | (68,755) |
Net Assets (100%) | 7,600,407 |
At August 31, 2015, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 6,229,030 |
Undistributed Net Investment Income | 69,471 |
Accumulated Net Realized Losses | (55,154) |
Unrealized Appreciation (Depreciation) | 1,357,060 |
Net Assets | 7,600,407 |
ETF Shares—Net Assets | |
Applicable to 70,918,258 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 7,258,650 |
Net Asset Value Per Share— | |
ETF Shares | $102.35 |
Admiral Shares—Net Assets | |
Applicable to 6,520,577 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 341,757 |
Net Asset Value Per Share— | |
Admiral Shares | $52.41 |
• 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 $14,726,000.
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 $15,347,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
77
Information Technology Index Fund | |
Statement of Operations | |
Year Ended | |
August 31, 2015 | |
($000) | |
Investment Income | |
Income | |
Dividends | 105,174 |
Interest1 | 4 |
Securities Lending | 614 |
Total Income | 105,792 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 1,202 |
Management and Administrative— | |
ETF Shares | 4,176 |
Management and Administrative— | |
Admiral Shares | 197 |
Marketing and Distribution— | |
ETF Shares | 1,014 |
Marketing and Distribution— | |
Admiral Shares | 41 |
Custodian Fees | 57 |
Auditing Fees | 33 |
Shareholders’ Reports—ETF Shares | 260 |
Shareholders’ Reports—Admiral Shares | 5 |
Trustees’ Fees and Expenses | 5 |
Total Expenses | 6,990 |
Net Investment Income | 98,802 |
Realized Net Gain (Loss) on | |
Investment Securities Sold | 349,583 |
Change in Unrealized Appreciation | |
(Depreciation) of Investment Securities | (347,429) |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 100,956 |
1 Interest income from an affiliated company of the fund was $4,000. | |
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2015 | 2014 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 98,802 | 68,518 |
Realized Net Gain (Loss) | 349,583 | 216,537 |
Change in Unrealized Appreciation (Depreciation) | (347,429) | 1,053,464 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 100,956 | 1,338,519 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (76,164) | (46,579) |
Admiral Shares | (3,231) | (1,907) |
Realized Capital Gain | ||
ETF Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (79,395) | (48,486) |
Capital Share Transactions | ||
ETF Shares | 1,361,928 | 1,139,818 |
Admiral Shares | 100,499 | 37,646 |
Net Increase (Decrease) from Capital Share Transactions | 1,462,427 | 1,177,464 |
Total Increase (Decrease) | 1,483,988 | 2,467,497 |
Net Assets | ||
Beginning of Period | 6,116,419 | 3,648,922 |
End of Period1 | 7,600,407 | 6,116,419 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $69,471,000 and $50,064,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
78
Information Technology Index Fund | |||||
Financial Highlights | |||||
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $101.41 | $77.63 | $72.58 | $59.17 | $49.40 |
Investment Operations | |||||
Net Investment Income | 1.277 | 1.135 | 1.011 | .628 | .464 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | .834 | 23.589 | 4.872 | 13.267 | 9.668 |
Total from Investment Operations | 2.111 | 24.724 | 5.883 | 13.895 | 10.132 |
Distributions | |||||
Dividends from Net Investment Income | (1.171) | (. 944) | (. 833) | (. 485) | (. 362) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.171) | (. 944) | (. 833) | (. 485) | (. 362) |
Net Asset Value, End of Period | $102.35 | $101.41 | $77.63 | $72.58 | $59.17 |
Total Return | 2.05% | 32.04% | 8.23% | 23.65% | 20.48% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $7,259 | $5,876 | $3,497 | $2,536 | $1,730 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.12% | 0.14% | 0.14% | 0.19% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.35% | 1.38% | 1.53% | 1.01% | 0.79% |
Portfolio Turnover Rate1 | 3% | 6% | 6% | 6% | 6% |
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.
Admiral Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $51.93 | $39.75 | $37.17 | $30.30 | $25.30 |
Investment Operations | |||||
Net Investment Income | .655 | .580 | .521 | . 320 | . 238 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | . 426 | 12.079 | 2.493 | 6.797 | 4.947 |
Total from Investment Operations | 1.081 | 12.659 | 3.014 | 7.117 | 5.185 |
Distributions | |||||
Dividends from Net Investment Income | (.601) | (.479) | (. 434) | (.247) | (.185) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (.601) | (.479) | (. 434) | (.247) | (.185) |
Net Asset Value, End of Period | $52.41 | $51.93 | $39.75 | $37.17 | $30.30 |
Total Return1 | 2.09% | 32.05% | 8.24% | 23.63% | 20.46% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $342 | $241 | $152 | $95 | $60 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.12% | 0.14% | 0.14% | 0.19% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.35% | 1.38% | 1.53% | 1.01% | 0.79% |
Portfolio Turnover Rate2 | 3% | 6% | 6% | 6% | 6% |
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.
79
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: ETF Shares and Admiral Shares. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker. 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 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, 2012–2015), 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 (“Vanguard”) participate in a $3 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 August 31, 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.
80
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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At August 31, 2015, the fund had contributed to Vanguard capital in the amount of $720,000, representing 0.01% of the fund’s net assets and 0.29% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and employees, respectively, 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 August 31, 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 year ended August 31, 2015, the fund realized $348,785,000 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.
For tax purposes, at August 31, 2015, the fund had $71,578,000 of ordinary income available for distribution. The fund used capital loss carryforwards of $824,000 to offset taxable capital gains realized during the year ended August 31, 2015. At August 31, 2015, the fund had available capital losses totaling $55,122,000 to offset future net capital gains. Of this amount, $54,606,000 is subject to expiration dates; $217,000 may be used to offset future net capital gains 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 $516,000 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. Capital loss carryforwards of $612,000 expired on August 31, 2015; accordingly, such losses have been reclassified from accumulated net realized losses to paid-in capital At August 31, 2015, the cost of investment securities for tax purposes was $6,256,700,000. Net unrealized appreciation of investment securities for tax purposes was $1,357,029,000, consisting of unrealized gains of $1,597,199,000 on securities that had risen in value since their purchase and $240,170,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2015, the fund purchased $2,400,381,000 of investment securities and sold $918,451,000 of investment securities, other than temporary cash investments. Purchases and sales include $1,952,983,000 and $669,794,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
81
Information Technology Index Fund
F. Capital share transactions for each class of shares were: | ||||
Year Ended August 31, | ||||
2015 | 2014 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 2,042,645 | 19,526 | 1,543,974 | 17,400 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (680,717) | (6,550) | (404,156) | (4,500) |
Net Increase (Decrease)—ETF Shares | 1,361,928 | 12,976 | 1,139,818 | 12,900 |
Admiral Shares | ||||
Issued | 171,683 | 3,201 | 74,157 | 1,605 |
Issued in Lieu of Cash Distributions | 3,022 | 58 | 1,800 | 41 |
Redeemed | (74,206) | (1,375) | (38,311) | (835) |
Net Increase (Decrease) —Admiral Shares | 100,499 | 1,884 | 37,646 | 811 |
At August 31, 2015, one shareholder was the record or beneficial owner of 34% of the fund’s net assets. If the shareholder were to redeem its investment in the fund, the redemption might result in a increase in the fund’s expense ratio.
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2015, that would require recognition or disclosure in these financial statements.
82
Materials Index Fund
Fund Profile | |||
As of August 31, 2015 | |||
Share-Class Characteristics | |||
ETF | Admiral | ||
Shares | Shares | ||
Ticker Symbol | VAW | VMIAX | |
Expense Ratio1 | 0.12% | 0.12% | |
30-Day SEC Yield | 2.07% | 2.07% | |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | MSCI | ||
Materials | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 121 | 121 | 2,491 |
Median Market Cap | $15.5B | $15.5B | $47.3B |
Price/Earnings Ratio | 19.2x | 19.2x | 20.7x |
Price/Book Ratio | 2.8x | 2.8x | 2.6x |
Return on Equity | 18.6% | 18.6% | 17.2% |
Earnings Growth Rate | 10.7% | 10.6% | 10.2% |
Dividend Yield | 2.2% | 2.2% | 2.1% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 4% | — | — |
Short-Term Reserves | 0.2% | — | — |
Volatility Measures | |||
MSCI US | |||
IMI/Materials | MSCI US | ||
25/50 | IMI/2500 | ||
R-Squared | 1.00 | 0.70 | |
Beta | 1.00 | 1.05 |
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 | 2.0% |
Commodity Chemicals | 6.2 |
Construction Materials | 4.0 |
Diversified Chemicals | 16.2 |
Diversified Metals & Mining | 2.2 |
Fertilizers & Agricultural Chemicals | 11.7 |
Gold | 1.7 |
Industrial Gases | 9.3 |
Metal & Glass Containers | 4.3 |
Paper Packaging | 7.2 |
Paper Products | 3.8 |
Specialty Chemicals | 25.3 |
Steel | 5.1 |
Other Materials | 1.0 |
Ten Largest Holdings (% of total net assets)
Dow Chemical Co. | Diversified Chemicals | 7.1% |
EI du Pont de | ||
Nemours & Co. | Diversified Chemicals | 6.6 |
Monsanto Co. | Fertilizers & | |
Agricultural Chemicals | 6.6 | |
LyondellBasell | ||
Industries NV | Commodity Chemicals | 4.9 |
Praxair Inc. | Industrial Gases | 4.3 |
Ecolab Inc. | Specialty Chemicals | 4.1 |
Air Products & | ||
Chemicals Inc. | Industrial Gases | 4.0 |
PPG Industries Inc. | Specialty Chemicals | 3.7 |
Sherwin-Williams | ||
Co. | Specialty Chemicals | 2.9 |
International | ||
Paper Co. | Paper Products | 2.4 |
Top Ten Total | 46.6% |
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 fiscal year ended August 31, 2015, the expense ratios were 0.10% for ETF Shares and 0.10% for Admiral Shares.
83
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.
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx86x1.jpg)
Average Annual Total Returns | Final Value | |||
Periods Ended August 31, 2015 | of a $10,000 | |||
One Year | Five Years | Ten Years | Investment | |
Materials Index Fund | ||||
ETF Shares Net Asset Value | -13.56% | 10.21% | 7.71% | $21,022 |
Materials Index Fund | ||||
ETF Shares Market Price | -13.58 | 10.22 | 7.72 | 21,038 |
Spliced US IMI/Materials 25/50 | -13.45 | 10.35 | 7.83 | 21,254 |
Basic Materials Funds Average | -23.61 | 0.66 | 3.89 | 14,643 |
MSCI US IMI/2500 | 0.44 | 16.11 | 7.55 | 20,698 |
For a benchmark description, see the Glossary. | ||||
Basic Materials Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | ||||
Final Value | ||||
of a $100,000 | ||||
One Year | Five Years | Ten Years | Investment | |
Materials Index Fund Admiral Shares | -13.54% | 10.23% | 7.70% | $210,029 |
Spliced US IMI/Materials 25/50 | -13.45 | 10.35 | 7.83 | 212,537 |
MSCI US IMI/2500 | 0.44 | 16.11 | 7.55 | 206,975 |
See Financial Highlights for dividend and capital gains information.
84
Materials Index Fund
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx87x1.jpg)
Materials Index Fund ETF Shares Net Asset Value Spliced US IMI/Materials 25/50
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2005–August 31, 2015 | |||
One Year | Five Years | Ten Years | |
Materials Index Fund ETF Shares Market Price | -13.58% | 62.64% | 110.38% |
Materials Index Fund ETF Shares Net Asset Value | -13.56 | 62.59 | 110.22 |
Spliced US IMI/Materials 25/50 | -13.45 | 63.65 | 112.54 |
Average Annual Total Returns: Periods Ended June 30, 2015
This table presents total returns through the latest calendar quarter—rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information.
Inception Date | One Year | Five Years | Ten Years | |
ETF Shares | 1/26/2004 | |||
Market Price | -2.10% | 14.59% | 9.16% | |
Net Asset Value | -2.13 | 14.58 | 9.15 | |
Admiral Shares | 2/11/2004 | -2.09 | 14.60 | 9.14 |
See Financial Highlights for dividend and capital gains information.
85
Materials Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 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%) | |||
Chemicals (68.7%) | |||
Dow Chemical Co. | 1,977,951 | 86,555 | |
EI du Pont de Nemours | |||
& Co. | 1,553,314 | 79,996 | |
Monsanto Co. | 816,698 | 79,751 | |
LyondellBasell Industries | |||
NV Class A | 690,153 | 58,925 | |
Praxair Inc. | 494,770 | 52,322 | |
Ecolab Inc. | 459,768 | 50,179 | |
Air Products & Chemicals | |||
Inc. | 350,131 | 48,854 | |
PPG Industries Inc. | 468,180 | 44,613 | |
Sherwin-Williams Co. | 135,860 | 34,754 | |
Sigma-Aldrich Corp. | 205,404 | 28,635 | |
CF Industries Holdings Inc. | 403,594 | 23,158 | |
Mosaic Co. | 567,177 | 23,158 | |
Eastman Chemical Co. | 255,706 | 18,528 | |
Celanese Corp. Class A | 263,003 | 15,949 | |
International Flavors & | |||
Fragrances Inc. | 138,837 | 15,210 | |
* | WR Grace & Co. | 124,851 | 12,353 |
Ashland Inc. | 110,092 | 11,556 | |
Airgas Inc. | 116,631 | 11,257 | |
RPM International Inc. | 228,752 | 10,031 | |
Valspar Corp. | 132,348 | 9,701 | |
FMC Corp. | 229,138 | 9,695 | |
Albemarle Corp. | 192,530 | 8,704 | |
Cytec Industries Inc. | 116,420 | 8,638 | |
* | Axalta Coating Systems Ltd. 243,327 | 7,103 | |
NewMarket Corp. | 18,149 | 6,955 | |
Huntsman Corp. | 357,928 | 5,917 | |
Sensient Technologies Corp. 80,096 | 5,218 | ||
PolyOne Corp. | 153,142 | 4,973 | |
Scotts Miracle-Gro Co. | |||
Class A | 78,875 | 4,905 | |
* | Platform Specialty Products | ||
Corp. | 250,466 | 4,794 | |
Westlake Chemical Corp. | 79,832 | 4,409 | |
Cabot Corp. | 109,146 | 3,697 | |
Minerals Technologies Inc. | 59,649 | 3,209 | |
HB Fuller Co. | 86,587 | 3,138 | |
Balchem Corp. | 53,377 | 3,124 | |
Axiall Corp. | 120,295 | 3,039 | |
Chemours Co. | 310,272 | 3,000 | |
* | Chemtura Corp. | 103,662 | 2,820 |
Olin Corp. | 126,414 | 2,523 | |
Innospec Inc. | 41,386 | 2,032 | |
Quaker Chemical Corp. | 22,963 | 1,822 | |
* | Flotek Industries Inc. | 91,001 | 1,780 |
OM Group Inc. | 52,153 | 1,747 | |
Innophos Holdings Inc. | 35,803 | 1,721 | |
A Schulman Inc. | 49,984 | 1,716 | |
* | Ferro Corp. | 133,891 | 1,647 |
Market | |||
Value• | |||
Shares | ($000) | ||
Stepan Co. | 34,451 | 1,551 | |
Calgon Carbon Corp. | 90,513 | 1,472 | |
* | Kraton Performance | ||
Polymers Inc. | 53,582 | 1,131 | |
Tronox Ltd. Class A | 108,987 | 877 | |
* | Intrepid Potash Inc. | 96,978 | 767 |
* | LSB Industries Inc. | 30,900 | 739 |
Koppers Holdings Inc. | 34,620 | 720 | |
Hawkins Inc. | 16,357 | 622 | |
* | Trinseo SA | 21,092 | 615 |
American Vanguard Corp. | 44,692 | 597 | |
Tredegar Corp. | 38,622 | 560 | |
Rayonier Advanced | |||
Materials Inc. | 73,041 | 498 | |
FutureFuel Corp. | 40,375 | 407 | |
Kronos Worldwide Inc. | 39,390 | 292 | |
834,659 | |||
Construction Materials (4.0%) | |||
Vulcan Materials Co. | 227,717 | 21,319 | |
Martin Marietta Materials | |||
Inc. | 98,437 | 16,518 | |
Eagle Materials Inc. | 86,220 | 7,056 | |
* | Headwaters Inc. | 126,084 | 2,544 |
* | US Concrete Inc. | 23,831 | 1,234 |
United States Lime & | |||
Minerals Inc. | 3,805 | 187 | |
48,858 | |||
Containers & Packaging (11.5%) | |||
WestRock Co. | 448,327 | 26,608 | |
Sealed Air Corp. | 360,617 | 18,554 | |
Ball Corp. | 224,777 | 14,815 | |
* | Crown Holdings Inc. | 238,990 | 11,847 |
Packaging Corp. of America | 168,142 | 11,284 | |
Avery Dennison Corp. | 156,210 | 9,073 | |
Graphic Packaging Holding | |||
Co. | 564,546 | 7,960 | |
AptarGroup Inc. | 107,471 | 7,239 | |
Bemis Co. Inc. | 167,194 | 7,092 | |
Sonoco Products Co. | 173,211 | 6,811 | |
* | Berry Plastics Group Inc. | 204,957 | 6,067 |
* | Owens-Illinois Inc. | 276,133 | 5,757 |
Silgan Holdings Inc. | 77,748 | 4,071 | |
Greif Inc. Class A | 43,978 | 1,288 | |
Myers Industries Inc. | 43,085 | 614 | |
139,080 | |||
Metals & Mining (11.3%) | |||
Nucor Corp. | 547,662 | 23,708 | |
Alcoa Inc. | 2,247,177 | 21,236 | |
Freeport-McMoRan Inc. | 1,784,595 | 18,988 | |
Newmont Mining Corp. | 907,863 | 15,497 | |
Steel Dynamics Inc. | 414,968 | 8,084 | |
Reliance Steel & | |||
Aluminum Co. | 127,299 | 7,399 | |
Royal Gold Inc. | 111,871 | 5,383 |
Market | |||
Value• | |||
Shares | ($000) | ||
Compass Minerals | |||
International Inc. | 57,858 | 4,687 | |
United States Steel Corp. | 250,022 | 4,095 | |
Allegheny Technologies Inc. | 187,493 | 3,620 | |
Carpenter Technology Corp. | 86,328 | 3,367 | |
Commercial Metals Co. | 205,348 | 3,224 | |
Kaiser Aluminum Corp. | 29,337 | 2,452 | |
Worthington Industries Inc. | 84,025 | 2,150 | |
* | Stillwater Mining Co. | 206,190 | 1,969 |
Globe Specialty Metals Inc. | 113,678 | 1,562 | |
Hecla Mining Co. | 633,653 | 1,305 | |
SunCoke Energy Inc. | 111,815 | 1,284 | |
TimkenSteel Corp. | 62,006 | 1,108 | |
Materion Corp. | 32,729 | 1,013 | |
* | AK Steel Holding Corp. | 302,185 | 934 |
^ | Cliffs Natural Resources Inc. | 234,566 | 931 |
Haynes International Inc. | 21,250 | 812 | |
*,^ | Horsehead Holding Corp. | 96,683 | 791 |
* | Coeur Mining Inc. | 231,783 | 779 |
Schnitzer Steel Industries | |||
Inc. | 44,735 | 774 | |
* | Century Aluminum Co. | 91,592 | 513 |
137,665 | |||
Paper & Forest Products (4.5%) | |||
International Paper Co. | 689,374 | 29,740 | |
Domtar Corp. | 109,034 | 4,384 | |
* | Louisiana-Pacific Corp. | 243,672 | 4,006 |
KapStone Paper and | |||
Packaging Corp. | 148,719 | 3,241 | |
* | Boise Cascade Co. | 67,513 | 2,191 |
Schweitzer-Mauduit | |||
International Inc. | 52,299 | 1,848 | |
* | Clearwater Paper Corp. | 32,810 | 1,839 |
Neenah Paper Inc. | 28,793 | 1,662 | |
PH Glatfelter Co. | 73,383 | 1,325 | |
Deltic Timber Corp. | 19,471 | 1,209 | |
* | Resolute Forest Products | ||
Inc. | 113,015 | 1,140 | |
* | Mercer International Inc. | 82,573 | 945 |
Wausau Paper Corp. | 60,556 | 472 | |
54,002 | |||
Total Common Stocks | |||
(Cost $1,351,117) | 1,214,264 |
86
Materials Index Fund | ||
Market | ||
Value• | ||
Shares | ($000) | |
Temporary Cash Investment (0.0%) | ||
Money Market Fund (0.0%) | ||
1,2 Vanguard Market | ||
Liquidity Fund, 0.168% | ||
(Cost $528) | 528,001 | 528 |
Total Investments (100.0%) | ||
(Cost $1,351,645) | 1,214,792 | |
Amount | ||
($000) | ||
Other Assets and Liabilities (0.0%) | ||
Other Assets | ||
Investment in Vanguard | 126 | |
Receivables for Investment Securities Sold | 3,599 | |
Receivables for Accrued Income | 2,826 | |
Receivables for Capital Shares Issued | 386 | |
Total Other Assets | 6,937 | |
Liabilities | ||
Payables for Investment Securities | ||
Purchased | (3,901) | |
Collateral for Securities on Loan | (528) | |
Payables for Capital Shares Redeemed | (154) | |
Payables to Vanguard | (766) | |
Other Liabilities | (1,508) | |
Total Liabilities | (6,857) | |
Net Assets (100%) | 1,214,872 |
At August 31, 2015, net assets consisted of:
Amount ($000)
Paid-in Capital | 1,390,014 |
Undistributed Net Investment Income | 17,577 |
Accumulated Net Realized Losses | (55,866) |
Unrealized Appreciation (Depreciation) | (136,853) |
Net Assets | 1,214,872 |
ETF Shares—Net Assets | |
Applicable to 10,605,499 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 1,022,301 |
Net Asset Value Per Share— | |
ETF Shares | $96.39 |
Admiral Shares—Net Assets | |
Applicable to 3,920,337 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 192,571 |
Net Asset Value Per Share— | |
Admiral Shares | $49.12 |
- 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 $531,000.
- Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
- Includes $528,000 of collateral received for securities on loan. The fund received additional collateral of $104,000 on the next business day. See accompanying Notes, which are an integral part of the Financial Statements.
87
Materials Index Fund | |
Statement of Operations | |
Year Ended | |
August 31, 2015 | |
($000) | |
Investment Income | |
Income | |
Dividends | 28,497 |
Interest1 | 1 |
Securities Lending | 180 |
Total Income | 28,678 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 263 |
Management and Administrative— | |
ETF Shares | 671 |
Management and Administrative— | |
Admiral Shares | 113 |
Marketing and Distribution— | |
ETF Shares | 206 |
Marketing and Distribution— | |
Admiral Shares | 28 |
Custodian Fees | 12 |
Auditing Fees | 33 |
Shareholders’ Reports—ETF Shares | 74 |
Shareholders’ Reports—Admiral Shares | 1 |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 1,402 |
Net Investment Income | 27,276 |
Realized Net Gain (Loss) on | |
Investment Securities Sold | 143,930 |
Change in Unrealized Appreciation | |
(Depreciation) of Investment Securities | (391,920) |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | (220,714) |
1 Interest income from an affiliated company of the fund was $1,000. | |
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2015 | 2014 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 27,276 | 23,381 |
Realized Net Gain (Loss) | 143,930 | 46,571 |
Change in Unrealized Appreciation (Depreciation) | (391,920) | 215,169 |
Net Increase (Decrease) in Net Assets Resulting from Operations | (220,714) | 285,121 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (22,046) | (17,757) |
Admiral Shares | (2,938) | (2,782) |
Realized Capital Gain | ||
ETF Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (24,984) | (20,539) |
Capital Share Transactions | ||
ETF Shares | (86,050) | 296,361 |
Admiral Shares | 49,594 | 1,431 |
Net Increase (Decrease) from Capital Share Transactions | (36,456) | 297,792 |
Total Increase (Decrease) | (282,154) | 562,374 |
Net Assets | ||
Beginning of Period | 1,497,026 | 934,652 |
End of Period1 | 1,214,872 | 1,497,026 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $17,577,000 and $15,285,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
88
Materials Index Fund | |||||
Financial Highlights | |||||
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $113.50 | $90.94 | $79.81 | $77.59 | $65.40 |
Investment Operations | |||||
Net Investment Income | 2.126 | 1.847 | 1.993 | 1.537 | 1.142 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | (17.344) | 22.612 | 10.708 | 2.259 | 12.852 |
Total from Investment Operations | (15.218) | 24.459 | 12.701 | 3.796 | 13.994 |
Distributions | |||||
Dividends from Net Investment Income | (1.892) | (1.899) | (1.571) | (1.576) | (1.804) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.892) | (1.899) | (1.571) | (1.576) | (1.804) |
Net Asset Value, End of Period | $96.39 | $113.50 | $90.94 | $79.81 | $77.59 |
Total Return | -13.56% | 27.17% | 16.08% | 5.09% | 21.26% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $1,022 | $1,323 | $796 | $642 | $593 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.12% | 0.14% | 0.14% | 0.19% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.86% | 1.88% | 2.32% | 1.93% | 1.63% |
Portfolio Turnover Rate1 | 4% | 4% | 7% | 7% | 14% |
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.
Admiral Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $57.84 | $46.34 | $40.66 | $39.53 | $33.32 |
Investment Operations | |||||
Net Investment Income | 1.088 | .936 | 1.014 | .783 | . 579 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | (8.846) | 11.528 | 5.464 | 1.151 | 6.551 |
Total from Investment Operations | (7.758) | 12.464 | 6.478 | 1.934 | 7.130 |
Distributions | |||||
Dividends from Net Investment Income | (. 962) | (. 964) | (.798) | (. 804) | (. 920) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (. 962) | (. 964) | (.798) | (. 804) | (. 920) |
Net Asset Value, End of Period | $49.12 | $57.84 | $46.34 | $40.66 | $39.53 |
Total Return1 | -13.54% | 27.18% | 16.12% | 5.10% | 21.26% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $193 | $175 | $139 | $123 | $138 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.12% | 0.14% | 0.14% | 0.19% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.86% | 1.88% | 2.32% | 1.93% | 1.63% |
Portfolio Turnover Rate2 | 4% | 4% | 7% | 7% | 14% |
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.
89
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: ETF Shares and Admiral Shares. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker. 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 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, 2012–2015), 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 (“Vanguard”) participate in a $3 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 August 31, 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.
90
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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At August 31, 2015, the fund had contributed to Vanguard capital in the amount of $126,000, 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 employees, respectively, 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 August 31, 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 year ended August 31, 2015, the fund realized $159,523,000 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.
For tax purposes, at August 31, 2015, the fund had $18,320,000 of ordinary income available for distribution. The fund used capital loss carryforwards of $589,000 to offset taxable gains realized during the year ended August 31, 2015. At August 31, 2015, the fund had available capital losses totaling $55,866,000 to offset future net capital gains. Of this amount, $39,290,000 is subject to expiration dates; $18,156,000 may be used to offset future net capital gains through August 31, 2018, and $21,134,000 through August 31, 2019. Capital losses of $16,576,000 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.
At August 31, 2015, the cost of investment securities for tax purposes was $1,351,646,000.
Net unrealized depreciation of investment securities for tax purposes was $136,854,000, consisting of unrealized gains of $115,140,000 on securities that had risen in value since their purchase and $251,994,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2015, the fund purchased $492,091,000 of investment securities and sold $526,788,000 of investment securities, other than temporary cash investments. Purchases and sales include $361,882,000 and $469,305,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
91
Materials Index Fund
F. Capital share transactions for each class of shares were: | ||||
Year Ended August 31, | ||||
2015 | 2014 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 383,741 | 3,553 | 411,198 | 4,001 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (469,791) | (4,600) | (114,837) | (1,100) |
Net Increase (Decrease)—ETF Shares | (86,050) | (1,047) | 296,361 | 2,901 |
Admiral Shares | ||||
Issued | 83,611 | 1,523 | 37,288 | 704 |
Issued in Lieu of Cash Distributions | 2,371 | 45 | 2,322 | 46 |
Redeemed | (36,388) | (665) | (38,179) | (729) |
Net Increase (Decrease) —Admiral Shares | 49,594 | 903 | 1,431 | 21 |
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2015, that would require recognition or disclosure in these financial statements.
92
Telecommunication Services Index Fund
Fund Profile | |||
As of August 31, 2015 | |||
Share-Class Characteristics | |||
ETF | Admiral | ||
Shares | Shares | ||
Ticker Symbol | VOX | VTCAX | |
Expense Ratio1 | 0.12% | 0.12% | |
30-Day SEC Yield | 3.41% | 3.41% | |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | |||
Telecom | MSCI | ||
Services | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 32 | 30 | 2,491 |
Median Market Cap | $20.1B | $20.1B | $47.3B |
Price/Earnings Ratio | 30.9x | 30.2x | 20.7x |
Price/Book Ratio | 2.5x | 2.5x | 2.6x |
Return on Equity | 14.4% | 14.3% | 17.2% |
Earnings Growth Rate | 10.7% | 10.7% | 10.2% |
Dividend Yield | 3.4% | 3.5% | 2.1% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 18% | — | — |
Short-Term Reserves | 0.1% | — | — |
Volatility Measures | ||
MSCI US | ||
IMI/Telecom | ||
Services | MSCI US | |
25/50 | IMI/2500 | |
R-Squared | 1.00 | 0.33 |
Beta | 1.01 | 0.69 |
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 | 19.3% |
Integrated Telecommunication Services | 62.0 |
Wireless Telecommunication Services | 18.5 |
Other | 0.2 |
Ten Largest Holdings (% of total net assets)
Verizon | Integrated | |
Communications | Telecommunication | |
Inc. | Services | 22.7% |
AT&T Inc. | Integrated | |
Telecommunication | ||
Services | 22.5 | |
SBA | Wireless | |
Communications | Telecommunication | |
Corp. | Services | 4.5 |
CenturyLink Inc. | Integrated | |
Telecommunication | ||
Services | 4.4 | |
Level 3 | ||
Communications | ||
Inc. | Alternative Carriers | 4.0 |
T-Mobile US Inc. | Wireless | |
Telecommunication | ||
Services | 4.0 | |
Frontier | Integrated | |
Communications | Telecommunication | |
Corp. | Services | 2.4 |
Sprint Corp. | Wireless | |
Telecommunication | ||
Services | 2.3 | |
Vonage Holdings | ||
Corp. | Alternative Carriers | 2.0 |
Shenandoah | Wireless | |
Telecommunications | Telecommunication | |
Co. | Services | 2.0 |
Top Ten Total | 70.8% |
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 fiscal year ended August 31, 2015, the expense ratios were 0.10% for ETF Shares and 0.10% for Admiral Shares.
93
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.
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx96x1.jpg)
Average Annual Total Returns | Final Value | |||
Periods Ended August 31, 2015 | of a $10,000 | |||
One Year | Five Years | Ten Years | Investment | |
Telecommunication Services Index Fund | ||||
ETF Shares Net Asset Value | -2.72% | 11.41% | 7.25% | $20,144 |
Telecommunication Services Index Fund | ||||
ETF Shares Market Price | -2.76 | 11.41 | 7.27 | 20,183 |
Spliced US IMI/Telecommunication | ||||
Services 25/50 | -2.44 | 11.48 | 6.90 | 19,489 |
Telecommunication Funds Average | -1.24 | 10.44 | 4.20 | 15,091 |
MSCI US IMI/2500 | 0.44 | 16.11 | 7.55 | 20,698 |
For a benchmark description, see the Glossary. | ||||
Telecommunication Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | ||||
Final Value | ||||
of a $100,000 | ||||
One Year | Five Years | Ten Years | Investment | |
Telecommunication Services Index Fund | ||||
Admiral Shares | -2.66% | 11.43% | 7.25% | $201,426 |
Spliced US IMI/Telecommunication Services 25/50 | -2.44 | 11.48 | 6.90 | 194,893 |
MSCI US IMI/2500 | 0.44 | 16.11 | 7.55 | 206,975 |
See Financial Highlights for dividend and capital gains information.
94
Telecommunication Services Index Fund
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx97x1.jpg)
Telecommunication Services Index Fund ETF Shares Net Asset Value Spliced US IMI/Telecommunication Services 25/50
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2005–August 31, 2015 | |||
One Year | Five Years | Ten Years | |
Telecommunication Services Index Fund ETF Shares Market Price | -2.76% | 71.67% | 101.83% |
Telecommunication Services Index Fund ETF Shares Net Asset Value | -2.72 | 71.63 | 101.44 |
Spliced US IMI/Telecommunication Services 25/50 | -2.44 | 72.17 | 94.89 |
Average Annual Total Returns: Periods Ended June 30, 2015
This table presents total returns through the latest calendar quarter—rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information.
Inception Date | One Year | Five Years | Ten Years | |
ETF Shares | 9/23/2004 | |||
Market Price | 1.54% | 13.99% | 7.97% | |
Net Asset Value | 1.48 | 13.96 | 7.96 | |
Admiral Shares | 3/11/2005 | 1.53 | 14.00 | 7.95 |
See Financial Highlights for dividend and capital gains information.
95
Telecommunication Services Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 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 (100.3%)1 | |||
Diversified Telecommunication Services (81.5%) | |||
Alternative Carriers (19.4%) | |||
* | Level 3 Communications | ||
Inc. | 736,549 | 32,946 | |
* | Vonage Holdings Corp. | 3,013,231 | 16,724 |
* | 8x8 Inc. | 1,623,561 | 12,550 |
Inteliquent Inc. | 683,038 | 12,513 | |
* | Premiere Global Services | ||
Inc. | 1,157,724 | 12,480 | |
* | Zayo Group Holdings Inc. | 420,383 | 11,758 |
Cogent Communications | |||
Holdings Inc. | 411,702 | 11,433 | |
*,^ | Iridium Communications | ||
Inc. | 1,466,890 | 10,928 | |
* | inContact Inc. | 1,356,048 | 10,238 |
*,^ | Globalstar Inc. | 5,330,195 | 9,381 |
Lumos Networks Corp. | 769,311 | 9,032 | |
* | ORBCOMM Inc. | 1,450,696 | 8,835 |
Integrated Telecommunication Services (62.1%) | |||
Verizon Communications | |||
Inc. | 4,051,695 | 186,419 | |
AT&T Inc. | 5,545,363 | 184,106 | |
CenturyLink Inc. | 1,344,439 | 36,354 | |
Frontier Communications | |||
Corp. | 3,926,322 | 19,906 | |
Atlantic Tele-Network Inc. | 201,080 | 14,367 | |
* | General Communication | ||
Inc. Class A | 814,081 | 13,717 | |
* | Cincinnati Bell Inc. | 3,687,462 | 12,648 |
Consolidated | |||
Communications | |||
Holdings Inc. | 629,924 | 12,290 | |
* | FairPoint Communications | ||
Inc. | 618,083 | 10,112 | |
IDT Corp. Class B | 637,504 | 9,958 | |
^ | Windstream Holdings Inc. 1,323,679 | 9,517 | |
668,212 | |||
Other (0.2%)2 | |||
* | Leap Wireless International | ||
Inc CVR | 577,114 | 1,454 |
Market | |||
Value• | |||
Shares | ($000) | ||
Wireless Telecommunication Services (18.6%) | |||
* | SBA Communications Corp. | ||
Class A | 309,995 | 36,641 | |
* | T-Mobile US Inc. | 829,436 | 32,854 |
* | Sprint Corp. | 3,786,482 | 19,160 |
Shenandoah | |||
Telecommunications Co. | 430,109 | 16,641 | |
Telephone & Data | |||
Systems Inc. | 582,149 | 16,556 | |
Spok Holdings Inc. | 749,754 | 12,378 | |
* | United States Cellular Corp. 328,187 | 12,117 | |
* | RingCentral Inc. Class A | 356,060 | 6,128 |
152,475 | |||
Total Common Stocks | |||
(Cost $871,298) | 822,141 | ||
Temporary Cash Investment (1.0%)1 | |||
Money Market Fund (1.0%) | |||
3,4 | Vanguard Market | ||
Liquidity Fund, 0.168% | |||
(Cost $8,004) | 8,004,000 | 8,004 | |
Total Investments (101.3%) | |||
(Cost $879,302) | 830,145 | ||
Amount | |||
($000) | |||
Other Assets and Liabilities (-1.3%) | |||
Other Assets | |||
Investment in Vanguard | 85 | ||
Receivables for Investment Securities Sold | 33,368 | ||
Receivables for Accrued Income | 375 | ||
Total Other Assets | 33,828 | ||
Liabilities | |||
Payables for Investment Securities | |||
Purchased | (35,331) | ||
Collateral for Securities on Loan | (8,004) | ||
Payables for Capital Shares Redeemed | (337) | ||
Payables to Vanguard | (404) | ||
Other Liabilities | (326) | ||
Total Liabilities | (44,402) | ||
Net Assets (100%) | 819,571 |
At August 31, 2015, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 936,867 |
Undistributed Net Investment Income | 21,155 |
Accumulated Net Realized Losses | (89,289) |
Unrealized Appreciation (Depreciation) | |
Investment Securities | (49,157) |
Futures Contracts | (5) |
Net Assets | 819,571 |
ETF Shares—Net Assets | |
Applicable to 9,487,498 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 795,091 |
Net Asset Value Per Share— | |
ETF Shares | $83.80 |
Admiral Shares—Net Assets | |
Applicable to 573,178 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 24,480 |
Net Asset Value Per Share— | |
Admiral Shares | $42.71 |
• 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 $7,139,000.
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 100.0% and 1.3%, 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 $8,004,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
96
Telecommunication Services Index Fund | |
Statement of Operations | |
Year Ended | |
August 31, 2015 | |
($000) | |
Investment Income | |
Income | |
Dividends | 29,469 |
Interest1 | 1 |
Securities Lending | 482 |
Total Income | 29,952 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 161 |
Management and Administrative— | |
ETF Shares | 423 |
Management and Administrative— | |
Admiral Shares | 20 |
Marketing and Distribution— | |
ETF Shares | 131 |
Marketing and Distribution— | |
Admiral Shares | — |
Custodian Fees | 6 |
Auditing Fees | 33 |
Shareholders’ Reports—ETF Shares | 95 |
Shareholders’ Reports—Admiral Shares | — |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 870 |
Net Investment Income | 29,082 |
Realized Net Gain (Loss) | |
Investment Securities Sold | 42,766 |
Futures Contracts | (35) |
Realized Net Gain (Loss) | 42,731 |
Change in Unrealized Appreciation | |
(Depreciation) | |
Investment Securities | (100,583) |
Futures Contracts | (5) |
Change in Unrealized Appreciation | |
(Depreciation) | (100,588) |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | (28,775) |
1 Interest income from an affiliated company of the fund was $1,000. | |
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2015 | 2014 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 29,082 | 21,331 |
Realized Net Gain (Loss) | 42,731 | 471 |
Change in Unrealized Appreciation (Depreciation) | (100,588) | 74,722 |
Net Increase (Decrease) in Net Assets Resulting from Operations | (28,775) | 96,524 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (21,393) | (23,038) |
Admiral Shares | (655) | (927) |
Realized Capital Gain | ||
ETF Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (22,048) | (23,965) |
Capital Share Transactions | ||
ETF Shares | 101,293 | 162,554 |
Admiral Shares | 301 | 1,775 |
Net Increase (Decrease) from Capital Share Transactions | 101,594 | 164,329 |
Total Increase (Decrease) | 50,771 | 236,888 |
Net Assets | ||
Beginning of Period | 768,800 | 531,912 |
End of Period1 | 819,571 | 768,800 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $21,155,000 and $14,121,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
97
Telecommunication Services Index Fund | |||||
Financial Highlights | |||||
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $88.44 | $78.54 | $70.82 | $65.11 | $57.34 |
Investment Operations | |||||
Net Investment Income | 2.789 | 2.394 | 3.7341 | 2.1052 | 2.118 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | (5.178) | 10.749 | 6.455 | 5.614 | 7.557 |
Total from Investment Operations | (2.389) | 13.143 | 10.189 | 7.719 | 9.675 |
Distributions | |||||
Dividends from Net Investment Income | (2.251) | (3.243) | (2.469) | (2.009) | (1.905) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (2.251) | (3.243) | (2.469) | (2.009) | (1.905) |
Net Asset Value, End of Period | $83.80 | $88.44 | $78.54 | $70.82 | $65.11 |
Total Return | -2.72% | 17.08% | 14.78% | 12.33% | 16.87% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $795 | $743 | $511 | $524 | $391 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.12% | 0.14% | 0.14% | 0.19% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 3.20% | 3.29% | 4.56%1 | 3.24% | 3.60% |
Portfolio Turnover Rate3 | 18% | 19% | 19% | 28% | 21% |
1 Net investment income per share and the ratio of net investment income to average net assets include $0.704 and 0.89%, respectively, resulting from a special dividend received in connection with a merger between 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.
98
Telecommunication Services Index Fund | |||||
Financial Highlights | |||||
Admiral Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $45.07 | $40.02 | $36.09 | $33.18 | $29.22 |
Investment Operations | |||||
Net Investment Income | 1.419 | 1.217 | 1.9061 | 1.0822 | 1.077 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | (2.637) | 5.486 | 3.284 | 2.845 | 3.853 |
Total from Investment Operations | (1.218) | 6.703 | 5.190 | 3.927 | 4.930 |
Distributions | |||||
Dividends from Net Investment Income | (1.142) | (1.653) | (1.260) | (1.017) | (. 970) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.142) | (1.653) | (1.260) | (1.017) | (. 970) |
Net Asset Value, End of Period | $42.71 | $45.07 | $40.02 | $36.09 | $33.18 |
Total Return 3 | -2.66% | 17.13% | 14.80% | 12.33% | 16.87% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $24 | $26 | $21 | $19 | $20 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.12% | 0.14% | 0.14% | 0.19% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 3.20% | 3.29% | 4.56%1 | 3.24% | 3.60% |
Portfolio Turnover Rate4 | 18% | 19% | 19% | 28% | 21% |
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 a merger between 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.
99
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: ETF Shares and Admiral Shares. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker. 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 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 year ended August 31, 2015, the fund’s average investments in long and short futures contracts each represented less than 1% of net assets, 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, 2012–2015), 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
100
Telecommunication Services Index Fund
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 (“Vanguard”) participate in a $3 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 August 31, 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At August 31, 2015, the fund had contributed to Vanguard capital in the amount of $85,000, 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 employees, respectively, 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).
101
Telecommunication Services Index Fund
The following table summarizes the market value of the fund’s investments as of August 31, 2015, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 820,687 | — | 1,454 |
Temporary Cash Investments | 8,004 | — | — |
Futures Contracts—Liabilities1 | (5) | — | — |
Total | 828,686 | — | 1,454 |
1 Represents variation margin on the last day of the reporting period. |
D. At August 31, 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 | September 2015 | (25) | (2,462) | (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 year ended August 31, 2015, the fund realized $60,769,000 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.
For tax purposes, at August 31, 2015, the fund had $21,543,000 of ordinary income available for distribution. At August 31, 2015, the fund had available capital losses totaling $89,269,000 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 $43,984,000 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.
At August 31, 2015, the cost of investment securities for tax purposes was $879,327,000.
Net unrealized depreciation of investment securities for tax purposes was $49,182,000, consisting of unrealized gains of $36,222,000 on securities that had risen in value since their purchase and $85,404,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the year ended August 31, 2015, the fund purchased $628,720,000 of investment securities and sold $516,466,000 of investment securities, other than temporary cash investments. Purchases and sales include $339,394,000 and $356,068,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
102
Telecommunication Services Index Fund
G. Capital share transactions for each class of shares were: | ||||
Year Ended August 31, | ||||
2015 | 2014 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 463,270 | 5,334 | 253,552 | 3,000 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (361,977) | (4,250) | (90,998) | (1,100) |
Net Increase (Decrease)—ETF Shares | 101,293 | 1,084 | 162,554 | 1,900 |
Admiral Shares | ||||
Issued | 13,873 | 310 | 7,745 | 180 |
Issued in Lieu of Cash Distributions | 527 | 13 | 809 | 20 |
Redeemed | (14,099) | (317) | (6,779) | (160) |
Net Increase (Decrease) —Admiral Shares | 301 | 6 | 1,775 | 40 |
At August 31, 2015, one shareholder was the record or beneficial owner of 43% 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, cause the fund to incur higher transaction costs, or lead to the realization of taxable capital gains.
H. Management has determined that no material events or transactions occurred subsequent to August 31, 2015, that would require recognition or disclosure in these financial statements.
103
Utilities Index Fund | |||
Fund Profile | |||
As of August 31, 2015 | |||
Share-Class Characteristics | |||
ETF | Admiral | ||
Shares | Shares | ||
Ticker Symbol | VPU | VUIAX | |
Expense Ratio1 | 0.12% | 0.12% | |
30-Day SEC Yield | 3.75% | 3.74% | |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | MSCI | ||
Utilities | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 81 | 81 | 2,491 |
Median Market Cap | $19.1B | $19.1B | $47.3B |
Price/Earnings Ratio | 16.3x | 16.4x | 20.7x |
Price/Book Ratio | 1.6x | 1.6x | 2.6x |
Return on Equity | 10.5% | 10.5% | 17.2% |
Earnings Growth Rate | 2.7% | 2.6% | 10.2% |
Dividend Yield | 3.8% | 3.8% | 2.1% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 7% | — | — |
Short-Term Reserves | 0.5% | — | — |
Volatility Measures | ||
MSCI US | ||
IMI/Utilities | MSCI US | |
25/50 | IMI/2500 | |
R-Squared | 1.00 | 0.14 |
Beta | 1.00 | 0.55 |
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 | 52.2% | |
Gas Utilities | 7.0 | |
Independent Power Producers | ||
& Energy Traders | 3.9 | |
Multi-Utilities | 33.7 | |
Water Utilities | 2.7 | |
Other Utilities | 0.5 |
Ten Largest Holdings (% of total net assets) | ||
Duke Energy Corp. | Electric Utilities | 7.6% |
NextEra Energy Inc. | Electric Utilities | 6.8 |
Dominion Resources Inc. | Multi-Utilities | 6.4 |
Southern Co. | Electric Utilities | 6.1 |
American Electric | ||
Power Co. Inc. | Electric Utilities | 4.1 |
Exelon Corp. | Electric Utilities | 3.9 |
PG&E Corp. | Multi-Utilities | 3.7 |
Sempra Energy | Multi-Utilities | 3.5 |
PPL Corp. | Electric Utilities | 3.2 |
Public Service | ||
Enterprise Group Inc. | Multi-Utilities | 3.2 |
Top Ten | 48.5% | |
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 fiscal year ended August 31, 2015, the expense ratios were 0.10% for ETF Shares and 0.10% for Admiral Shares.
104
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.
Cumulative Performance: August 31, 2005–August 31, 2015
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx107x1.jpg)
Average Annual Total Returns | Final Value | |||
Periods Ended August 31, 2015 | of a $10,000 | |||
One Year | Five Years | Ten Years | Investment | |
Utilities Index Fund | ||||
ETF Shares Net Asset Value | -0.02% | 11.11% | 6.70% | $19,130 |
Utilities Index Fund | ||||
ETF Shares Market Price | 0.00 | 11.12 | 6.70 | 19,129 |
Spliced US IMI/Utilities 25/50 | 0.10 | 11.28 | 6.89 | 19,462 |
Utility Funds Average | -6.05 | 9.60 | 5.87 | 17,693 |
MSCI US IMI/2500 | 0.44 | 16.11 | 7.55 | 20,698 |
For a benchmark description, see the Glossary. | ||||
Utility Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | ||||
Final Value | ||||
of a $100,000 | ||||
One Year | Five Years | Ten Years | Investment | |
Utilities Index Fund Admiral Shares | -0.01% | 11.12% | 6.69% | $191,138 |
Spliced US IMI/Utilities 25/50 | 0.10 | 11.28 | 6.89 | 194,616 |
MSCI US IMI/2500 | 0.44 | 16.11 | 7.55 | 206,975 |
See Financial Highlights for dividend and capital gains information.
105
Utilities Index Fund
Fiscal-Year Total Returns (%): August 31, 2005–August 31, 2015
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/ussectorindexfundsx108x1.jpg)
Cumulative Returns: ETF Shares, August 31, 2005–August 31, 2015 | |||
One Year | Five Years | Ten Years | |
Utilities Index Fund ETF Shares Market Price | 0.00% | 69.38% | 91.29% |
Utilities Index Fund ETF Shares Net Asset Value | -0.02 | 69.31 | 91.30 |
Spliced US IMI/Utilities 25/50 | 0.10 | 70.61 | 94.62 |
Average Annual Total Returns: Periods Ended June 30, 2015
This table presents total returns through the latest calendar quarter—rather than through the end of the fiscal
period. Securities and Exchange Commission rules require that we provide this information.
Inception Date | One Year | Five Years | Ten Years | |
ETF Shares | 1/26/2004 | |||
Market Price | -3.81% | 12.53% | 6.85% | |
Net Asset Value | -3.84 | 12.53 | 6.84 | |
Admiral Shares | 4/28/2004 | -3.82 | 12.55 | 6.83 |
See Financial Highlights for dividend and capital gains information.
106
Utilities Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 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 (52.2%) | ||
Duke Energy Corp. | 2,179,401 | 154,541 |
NextEra Energy Inc. | 1,399,679 | 137,742 |
Southern Co. | 2,862,376 | 124,256 |
American Electric Power | ||
Co. Inc. | 1,544,126 | 83,831 |
Exelon Corp. | 2,602,751 | 80,061 |
PPL Corp. | 2,102,010 | 65,141 |
Edison International | 1,026,811 | 60,048 |
Xcel Energy Inc. | 1,597,616 | 53,888 |
Eversource Energy | 1,001,107 | 47,292 |
FirstEnergy Corp. | 1,242,977 | 39,726 |
Entergy Corp. | 565,823 | 36,965 |
Pinnacle West Capital | ||
Corp. | 349,096 | 20,782 |
Pepco Holdings Inc. | 797,561 | 18,328 |
OGE Energy Corp. | 629,003 | 17,637 |
ITC Holdings Corp. | 489,157 | 15,995 |
Westar Energy Inc. | ||
Class A | 416,825 | 15,235 |
Great Plains Energy Inc. | 486,250 | 12,117 |
Cleco Corp. | 190,609 | 10,213 |
Hawaiian Electric | ||
Industries Inc. | 338,576 | 9,572 |
IDACORP Inc. | 158,686 | 9,421 |
Portland General Electric | ||
Co. | 246,952 | 8,530 |
UIL Holdings Corp. | 178,497 | 8,127 |
ALLETE Inc. | 145,958 | 6,974 |
PNM Resources Inc. | 251,036 | 6,429 |
El Paso Electric Co. | 127,640 | 4,518 |
MGE Energy Inc. | 109,527 | 4,212 |
Empire District Electric Co. | 137,252 | 2,972 |
Otter Tail Corp. | 106,456 | 2,748 |
Unitil Corp. | 41,889 | 1,508 |
1,058,809 | ||
Gas Utilities (7.0%) | ||
AGL Resources Inc. | 378,022 | 23,056 |
UGI Corp. | 543,703 | 18,529 |
Atmos Energy Corp. | 318,456 | 17,448 |
National Fuel Gas Co. | 226,212 | 12,206 |
Questar Corp. | 553,754 | 10,693 |
Piedmont Natural Gas Co. | ||
Inc. | 248,340 | 9,581 |
WGL Holdings Inc. | 156,812 | 8,499 |
Southwest Gas Corp. | 147,709 | 8,137 |
New Jersey Resources | ||
Corp. | 269,775 | 7,627 |
Laclede Group Inc. | 136,552 | 7,229 |
ONE Gas Inc. | 165,798 | 7,124 |
Market | |||
Value• | |||
Shares | ($000) | ||
South Jersey Industries Inc. | 216,432 | 5,216 | |
Northwest Natural Gas Co. | 86,240 | 3,793 | |
Chesapeake Utilities Corp. | 47,975 | 2,364 | |
141,502 | |||
Independent Power and Renewable | |||
Electricity Producers (4.4%) | |||
AES Corp. | 2,150,750 | 25,809 | |
NRG Energy Inc. | 1,051,090 | 20,938 | |
* | Calpine Corp. | 1,114,808 | 17,770 |
* | Dynegy Inc. | 199,741 | 5,143 |
Ormat Technologies Inc. | 115,466 | 4,064 | |
* | Talen Energy Corp. | 262,911 | 3,747 |
NRG Yield Inc. | 186,815 | 3,000 | |
TerraForm Power Inc. | |||
Class A | 103,611 | 2,331 | |
Pattern Energy Group Inc. | |||
Class A | 85,164 | 1,931 | |
NextEra Energy Partners LP | 60,783 | 1,834 | |
NRG Yield Inc. Class A | 109,890 | 1,729 | |
* | Vivint Solar Inc. | 67,343 | 838 |
89,134 | |||
Multi-Utilities (33.7%) | |||
Dominion Resources Inc. | 1,870,384 | 130,459 | |
PG&E Corp. | 1,512,698 | 75,000 | |
Sempra Energy | 741,262 | 70,309 | |
Public Service Enterprise | |||
Group Inc. | 1,594,237 | 64,168 | |
Consolidated Edison Inc. | 923,091 | 58,072 | |
WEC Energy Group Inc. | 994,992 | 47,411 | |
DTE Energy Co. | 565,197 | 44,119 | |
Ameren Corp. | 764,670 | 30,809 | |
CMS Energy Corp. | 872,412 | 28,598 | |
CenterPoint Energy Inc. | 1,288,029 | 23,983 | |
SCANA Corp. | 427,942 | 22,634 | |
Alliant Energy Corp. | 356,076 | 20,179 | |
NiSource Inc. | 996,605 | 16,733 | |
TECO Energy Inc. | 741,017 | 15,613 | |
Vectren Corp. | 260,478 | 10,479 | |
MDU Resources Group Inc. | 450,617 | 8,070 | |
NorthWestern Corp. | 148,339 | 7,660 | |
Avista Corp. | 196,305 | 6,162 | |
Black Hills Corp. | 84,399 | 3,357 | |
683,815 | |||
Water Utilities (2.7%) | |||
American Water Works | |||
Co. Inc. | 567,178 | 29,459 | |
Aqua America Inc. | 558,114 | 14,154 | |
American States Water Co. | 119,225 | 4,501 | |
California Water Service | |||
Group | 151,862 | 3,133 | |
SJW Corp. | 48,698 | 1,399 |
Market | ||
Value• | ||
Shares | ($000) | |
Connecticut Water Service | ||
Inc. | 35,357 | 1,229 |
Middlesex Water Co. | 51,580 | 1,174 |
55,049 | ||
Total Common Stocks | ||
(Cost $2,085,105) | 2,028,309 | |
Temporary Cash Investment (0.0%) |
Face |
Amount |
($000) |
U.S. Government and Agency Obligations (0.0%) |
1 Federal Home Loan | ||
Bank Discount Notes, | ||
0.093%, 10/2/15 | 200 | 200 |
Total Temporary Cash Investment | ||
(Cost $200) | 200 | |
Total Investments (100.0%) | ||
(Cost $2,085,305) | 2,028,509 | |
Amount | ||
($000) | ||
Other Assets and Liabilities (0.0%) | ||
Other Assets | ||
Investment in Vanguard | 198 | |
Receivables for Investment Securities Sold | 4,786 | |
Receivables for Accrued Income | 11,634 | |
Receivables for Capital Shares Issued | 6,069 | |
Total Other Assets | 22,687 | |
Liabilities | ||
Payables for Investment Securities | ||
Purchased | (11,452) | |
Payables for Capital Shares Redeemed | (413) | |
Payables to Vanguard | (1,099) | |
Other Liabilities | (9,610) | |
Total Liabilities | (22,574) | |
Net Assets (100%) | 2,028,622 |
107
Utilities Index Fund
At August 31, 2015, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 2,084,275 |
Undistributed Net Investment Income | 14,142 |
Accumulated Net Realized Losses | (12,999) |
Unrealized Appreciation (Depreciation) | (56,796) |
Net Assets | 2,028,622 |
ETF Shares—Net Assets | |
Applicable to 17,297,783 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 1,581,143 |
Net Asset Value Per Share— | |
ETF Shares | $91.41 |
Admiral Shares—Net Assets | |
Applicable to 9,757,720 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 447,479 |
Net Asset Value Per Share— | |
Admiral Shares | $45.86 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
1 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.
See accompanying Notes, which are an integral part of the Financial Statements.
108
Utilities Index Fund | |
Statement of Operations | |
Year Ended | |
August 31, 2015 | |
($000) | |
Investment Income | |
Income | |
Dividends | 80,380 |
Securities Lending | 34 |
Total Income | 80,414 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 414 |
Management and Administrative— | |
ETF Shares | 1,030 |
Management and Administrative— | |
Admiral Shares | 296 |
Marketing and Distribution— | |
ETF Shares | 300 |
Marketing and Distribution— | |
Admiral Shares | 58 |
Custodian Fees | 34 |
Auditing Fees | 33 |
Shareholders’ Reports—ETF Shares | 95 |
Shareholders’ Reports—Admiral Shares | 2 |
Trustees’ Fees and Expenses | 2 |
Total Expenses | 2,264 |
Net Investment Income | 78,150 |
Realized Net Gain (Loss) | |
Investment Securities Sold | 124,641 |
Futures Contracts | 56 |
Realized Net Gain (Loss) | 124,697 |
Change in Unrealized Appreciation | |
(Depreciation) of Investment Securities | (229,003) |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | (26,156) |
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2015 | 2014 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 78,150 | 67,825 |
Realized Net Gain (Loss) | 124,697 | 118,085 |
Change in Unrealized Appreciation (Depreciation) | (229,003) | 154,281 |
Net Increase (Decrease) in Net Assets Resulting from Operations | (26,156) | 340,191 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (61,341) | (52,639) |
Admiral Shares | (15,775) | (13,546) |
Realized Capital Gain | ||
ETF Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (77,116) | (66,185) |
Capital Share Transactions | ||
ETF Shares | (42,512) | 138,918 |
Admiral Shares | 21,845 | 36,462 |
Net Increase (Decrease) from Capital Share Transactions | (20,667) | 175,380 |
Total Increase (Decrease) | (123,939) | 449,386 |
Net Assets | ||
Beginning of Period | 2,152,561 | 1,703,175 |
End of Period1 | 2,028,622 | 2,152,561 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $14,142,000 and $13,108,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
109
Utilities Index Fund | |||||
Financial Highlights | |||||
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $94.61 | $81.32 | $77.69 | $72.52 | $64.93 |
Investment Operations | |||||
Net Investment Income | 3.337 | 3.127 | 3.043 | 2.880 | 2.678 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | (3.261) | 13.261 | 3.675 | 5.080 | 7.551 |
Total from Investment Operations | . 076 | 16.388 | 6.718 | 7.960 | 10.229 |
Distributions | |||||
Dividends from Net Investment Income | (3.276) | (3.098) | (3.088) | (2.790) | (2.639) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (3.276) | (3.098) | (3.088) | (2.790) | (2.639) |
Net Asset Value, End of Period | $91.41 | $94.61 | $81.32 | $77.69 | $72.52 |
Total Return | -0.02% | 20.55% | 8.82% | 11.20% | 16.09% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $1,581 | $1,711 | $1,356 | $1,154 | $831 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.12% | 0.14% | 0.14% | 0.19% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 3.39% | 3.59% | 3.72% | 3.93% | 3.99% |
Portfolio Turnover Rate1 | 7% | 7% | 7% | 5% | 6% |
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.
Admiral Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $47.47 | $40.80 | $38.99 | $36.40 | $32.60 |
Investment Operations | |||||
Net Investment Income | 1.676 | 1.569 | 1.529 | 1.452 | 1.344 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | (1.641) | 6.656 | 1.838 | 2.539 | 3.783 |
Total from Investment Operations | .035 | 8.225 | 3.367 | 3.991 | 5.127 |
Distributions | |||||
Dividends from Net Investment Income | (1.645) | (1.555) | (1.557) | (1.401) | (1.327) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.645) | (1.555) | (1.557) | (1.401) | (1.327) |
Net Asset Value, End of Period | $45.86 | $47.47 | $40.80 | $38.99 | $36.40 |
Total Return1 | -0.01% | 20.58% | 8.83% | 11.22% | 16.09% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $447 | $442 | $347 | $310 | $218 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.12% | 0.14% | 0.14% | 0.19% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 3.39% | 3.59% | 3.72% | 3.93% | 3.99% |
Portfolio Turnover Rate2 | 7% | 7% | 7% | 5% | 6% |
1 Total returns do not include transaction and 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.
110
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: ETF Shares and Admiral Shares. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker. 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 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 year ended August 31, 2015, the fund’s average investments in long and short futures contracts each represented 0% of net assets, based on the average of aggregate settlement values at each quarter-end during the period. The fund had no open futures contracts at August 31, 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, 2012–2015), 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,
111
Utilities Index Fund
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 (“Vanguard”) participate in a $3 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 August 31, 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At August 31, 2015, the fund had contributed to Vanguard capital in the amount of $198,000, representing 0.01% of the fund’s net assets and 0.08% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and employees, respectively, 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 August 31, 2015, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 2,028,309 | — | — |
Temporary Cash Investments | — | 200 | — |
Total | 2,028,309 | 200 | — |
112
Utilities Index Fund
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 year ended August 31, 2015, the fund realized $131,116,000 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.
For tax purposes, at August 31, 2015, the fund had $15,206,000 of ordinary income available for distribution. The fund used capital loss carryforwards of $428,000 to offset taxable capital gains realized during the year ended August 31, 2015. At August 31, 2015, the fund had available capital losses totaling $9,496,000 to offset future net capital gains. Of this amount, $6,018,000 is subject to expiration dates; $2,655,000 may be used to offset future net capital gains through August 31, 2018, and $3,363,000 through August 31, 2019. Capital losses of $3,478,000 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.
At August 31, 2015, the cost of investment securities for tax purposes was $2,088,808,000.
Net unrealized depreciation of investment securities for tax purposes was $60,299,000, consisting of unrealized gains of $94,336,000 on securities that had risen in value since their purchase and $154,635,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2015, the fund purchased $721,903,000 of investment securities and sold $741,289,000 of investment securities, other than temporary cash investments. Purchases and sales include $498,934,000 and $588,783,000, 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: | ||||
Year Ended August 31, | ||||
2015 | 2014 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 546,663 | 5,367 | 568,143 | 6,306 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (589,175) | (6,150) | (429,225) | (4,900) |
Net Increase (Decrease)—ETF Shares | (42,512) | (783) | 138,918 | 1,406 |
Admiral Shares | ||||
Issued | 137,456 | 2,802 | 112,297 | 2,523 |
Issued in Lieu of Cash Distributions | 11,811 | 248 | 10,045 | 232 |
Redeemed | (127,422) | (2,601) | (85,880) | (1,957) |
Net Increase (Decrease) —Admiral Shares | 21,845 | 449 | 36,462 | 798 |
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2015, that would require recognition or disclosure in these financial statements.
113
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of Vanguard World Fund and the Shareholders of 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 and Vanguard Utilities Index Fund: In our opinion, the accompanying statements of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of 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 and Vanguard Utilities Index Fund (constituting separate portfolios of Vanguard World Fund, hereafter referred to as the “Funds”) at August 31, 2015, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2015 by correspondence with the custodian and brokers, by agreement to the underlying ownership records of the transfer agent and the application of alternative auditing procedures where securities purchased had not been received, provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
October 12, 2015
Special 2015 tax information (unaudited) for Vanguard U.S. Sector Index Funds
This information for the fiscal year ended August 31, 2015, is included pursuant to provisions of the Internal Revenue Code.
The funds distributed qualified dividend income to shareholders during the fiscal year as follows:
Fund | ($000) |
Consumer Discretionary Index Fund | 18,006 |
Consumer Staples Index Fund | 52,517 |
Energy Index Fund | 73,158 |
Financials Index Fund | 34,682 |
Health Care Index Fund | 48,519 |
Industrials Index Fund | 32,171 |
Information Technology Index Fund | 79,395 |
Materials Index Fund | 24,984 |
Telecommunication Services Index Fund | 22,048 |
Utilities Index Fund | 77,116 |
For corporate shareholders, the percentage of investment income (dividend income plus short-term gains, if any) that qualifies for the dividends-received deduction is as follows:
Fund | Percentage |
Consumer Discretionary Index Fund | 100.0% |
Consumer Staples Index Fund | 100.0 |
Energy Index Fund | 93.6 |
Financials Index Fund | 64.2 |
Health Care Index Fund | 99.1 |
Industrials Index Fund | 97.6 |
Information Technology Index Fund | 100.0 |
Materials Index Fund | 94.6 |
Telecommunication Services Index Fund | 100.0 |
Utilities Index Fund | 100.0 |
114
Your Fund’s After-Tax Returns
This table presents returns for your fund both before and after taxes. The after-tax returns are shown in two ways: (1) assuming that an investor owned the fund during the entire period and paid taxes on the fund’s distributions, and (2) assuming that an investor paid taxes on the fund’s distributions and sold all shares at the end of each period.
Calculations are based on the highest individual federal income tax and capital gains tax rates in effect at the times of the distributions and the hypothetical sales. State and local taxes were not considered. After-tax returns reflect any qualified dividend income, using actual prior-year figures and estimates for 2015. (In the example, returns after the sale of fund shares may be higher than those assuming no sale. This occurs when the sale would have produced a capital loss. The calculation assumes that the investor received a tax deduction for the loss.) The table shows returns for one share class only; returns for other share classes will differ. Please note that your actual after-tax returns will depend on your tax situation and may differ from those shown. Also note that if you own the fund in a tax-deferred account, such as an individual retirement account or a 401(k) plan, this information does not apply to you. Such accounts are not subject to current taxes.
Finally, keep in mind that a fund’s performance—whether before or after taxes—does not guarantee future results.
Average Annual Total Returns: U.S. Sector Index Funds | |||
Periods Ended August 31, 2015 | |||
One Year | Five Years | Ten Years | |
Consumer Discretionary Index Fund ETF Shares | |||
Returns Before Taxes | 9.41% | 21.82% | 9.72% |
Returns After Taxes on Distributions | 9.09 | 21.56 | 9.51 |
Returns After Taxes on Distributions and Sale of Fund Shares | 5.57 | 17.92 | 7.99 |
One Year | Five Years | Ten Years | |
Consumer Staples Index Fund ETF Shares | |||
Returns Before Taxes | 7.67% | 15.86% | 10.52% |
Returns After Taxes on Distributions | 7.19 | 15.37 | 10.14 |
Returns After Taxes on Distributions and Sale of Fund Shares | 4.75 | 12.84 | 8.71 |
One Year | Five Years | Ten Years | |
Energy Index Fund ETF Shares | |||
Returns Before Taxes | -32.70% | 6.33% | 4.10% |
Returns After Taxes on Distributions | -33.01 | 5.99 | 3.84 |
Returns After Taxes on Distributions and Sale of Fund Shares | -18.17 | 5.09 | 3.34 |
One Year | Five Years | Ten Years | |
Financials Index Fund ETF Shares | |||
Returns Before Taxes | 2.63% | 13.48% | 1.21% |
Returns After Taxes on Distributions | 2.07 | 12.92 | 0.73 |
Returns After Taxes on Distributions and Sale of Fund Shares | 1.74 | 10.68 | 0.89 |
One Year | Five Years | Ten Years | |
Health Care Index Fund ETF Shares | |||
Returns Before Taxes | 14.08% | 23.39% | 11.02% |
Returns After Taxes on Distributions | 13.81 | 23.08 | 10.76 |
Returns After Taxes on Distributions and Sale of Fund Shares | 8.18 | 19.26 | 9.12 |
115
Average Annual Total Returns: U.S. Sector Index Funds | |||
Periods Ended August 31, 2015 | |||
One Year | Five Years | Ten Years | |
Industrials Index Fund ETF Shares | |||
Returns Before Taxes | -3.03% | 15.75% | 7.85% |
Returns After Taxes on Distributions | -3.39 | 15.42 | 7.58 |
Returns After Taxes on Distributions and Sale of Fund Shares | -1.39 | 12.76 | 6.40 |
One Year | Five Years | Ten Years | |
Information Technology Index Fund ETF Shares | |||
Returns Before Taxes | 2.05% | 16.79% | 8.90% |
Returns After Taxes on Distributions | 1.78 | 16.58 | 8.77 |
Returns After Taxes on Distributions and Sale of Fund Shares | 1.39 | 13.62 | 7.30 |
One Year | Five Years | Ten Years | |
Materials Index Fund ETF Shares | |||
Returns Before Taxes | -13.56% | 10.21% | 7.71% |
Returns After Taxes on Distributions | -13.92 | 9.82 | 7.37 |
Returns After Taxes on Distributions and Sale of Fund Shares | -7.33 | 8.18 | 6.32 |
One Year | Five Years | Ten Years | |
Telecommunication Services Index Fund ETF Shares | |||
Returns Before Taxes | -2.72% | 11.41% | 7.25% |
Returns After Taxes on Distributions | -3.32 | 10.75 | 6.74 |
Returns After Taxes on Distributions and Sale of Fund Shares | -1.04 | 9.16 | 5.92 |
One Year | Five Years | Ten Years | |
Utilities Index Fund ETF Shares | |||
Returns Before Taxes | -0.02% | 11.11% | 6.70% |
Returns After Taxes on Distributions | -0.83 | 10.32 | 6.06 |
Returns After Taxes on Distributions and Sale of Fund Shares | 0.69 | 8.89 | 5.44 |
116
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.
117
Six Months Ended August 31, 2015 | ||||
Beginning | Ending | Expenses | ||
Account Value | Account Value | Paid During | ||
Index Fund | Share Class | 2/28/2015 | 8/31/2015 | Period1 |
Based on Actual Fund Return | ||||
Consumer Discretionary | ETF | $1,000.00 | $986.12 | $0.40 |
Admiral | 1,000.00 | 986.12 | 0.40 | |
Consumer Staples | ETF | $1,000.00 | $961.53 | $0.40 |
Admiral | 1,000.00 | 961.54 | 0.40 | |
Energy | ETF | $1,000.00 | $842.78 | $0.37 |
Admiral | 1,000.00 | 842.89 | 0.37 | |
Financials | ETF | $1,000.00 | $973.21 | $0.40 |
Admiral | 1,000.00 | 973.27 | 0.40 | |
Health Care | ETF | $1,000.00 | $990.79 | $0.40 |
Admiral | 1,000.00 | $990.87 | 0.40 | |
Industrials | ETF | $1,000.00 | $910.87 | $0.39 |
Admiral | 1,000.00 | 910.85 | 0.39 | |
Information Technology | ETF | $1,000.00 | $937.79 | $0.39 |
Admiral | 1,000.00 | 937.73 | 0.39 | |
Materials | ETF | $1,000.00 | $855.36 | $0.37 |
Admiral | 1,000.00 | 855.30 | 0.33 | |
Telecommunication Services | ETF | $1,000.00 | $946.68 | $0.39 |
Admiral | 1,000.00 | 946.80 | 0.39 | |
Utilities | ETF | $1,000.00 | $945.91 | $0.39 |
Admiral | 1,000.00 | 946.00 | 0.39 | |
Based on Hypothetical 5% Yearly Return | ||||
Consumer Discretionary | ETF | $1,000.00 | $1,024.80 | $0.41 |
Admiral | 1,000.00 | 1,024.80 | 0.41 | |
Consumer Staples | ETF | $1,000.00 | $1,024.80 | $0.41 |
Admiral | 1,000.00 | 1,024.80 | 0.41 | |
Energy | ETF | $1,000.00 | $1,024.80 | $0.41 |
Admiral | 1,000.00 | 1,024.80 | 0.41 | |
Financials | ETF | $1,000.00 | $1,024.80 | $0.41 |
Admiral | 1,000.00 | 1,024.80 | 0.41 | |
Health Care | ETF | $1,000.00 | $1,024.80 | $0.41 |
Admiral | 1,000.00 | 1,024.80 | 0.41 | |
Industrials | ETF | $1,000.00 | $1,024.80 | $0.41 |
Admiral | 1,000.00 | 1,024.80 | 0.41 | |
Information Technology | ETF | $1,000.00 | $1,024.80 | $0.41 |
Admiral | 1,000.00 | 1,024.80 | 0.41 | |
Materials | ETF | $1,000.00 | $1,024.80 | $0.41 |
Admiral | 1,000.00 | 1,024.85 | 0.36 | |
Telecommunication Services | ETF | $1,000.00 | $1,024.80 | $0.41 |
Admiral | 1,000.00 | 1,024.80 | 0.41 | |
Utilities | ETF | $1,000.00 | $1,024.80 | $0.41 |
Admiral | 1,000.00 | 1,024.80 | 0.41 |
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 0.08% for the Consumer Discretionary Index Fund ETF Shares and 0.08% for the Admiral Shares; 0.08% for the Consumer Staples Index Fund ETF Shares and 0.08% for the Admiral Shares; 0.08% for the Energy Index Fund ETF Shares and 0.08% for the Admiral Shares; 0.08% for the Financials Index Fund ETF Shares and 0.08% for the Admiral Shares; 0.08% for the Health Care Index Fund ETF
Shares and 0.08% for the Admiral Shares; 0.08% for the Industrials Index Fund ETF Shares and 0.08% for the Admiral Shares; 0.08% for the Information Technology Index Fund ETF Shares and 0.08% for the Admiral Shares; 0.08% for the Materials Index Fund ETF Shares and 0.07% for the Admiral Shares; 0.08% for the Telecommunication Services Index Fund ETF Shares and 0.08% for the Admiral Shares; 0.08% for the Utilities Index Fund ETF Shares and 0.08% for the Admiral Shares. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period (184/365).
118
Trustees Approve Advisory Arrangements
The board of trustees of Vanguard Consumer Discretionary Index Fund, Consumer Staples Index Fund, Energy Index Fund, Financials Index Fund, Health Care Index Fund, Industrials Index Fund, Information Technology Index Fund, Materials Index Fund, Telecommunication Services Index Fund, and Utilities Index Fund has renewed each fund’s investment advisory arrangement with The Vanguard Group, Inc. (Vanguard). Vanguard—through its Equity Index Group—serves as the investment advisor for each fund. The board determined that continuing each fund’s internalized management structure was in the best interests of each fund and its shareholders.
The board based its decision upon an evaluation of the 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 reviewed the quality of each fund’s investment management services over both the short and long term and took into account the organizational depth and stability of the advisor. The board considered that Vanguard has been managing investments for more than three decades. The Equity Index Group adheres to a sound, disciplined investment management process; the team has considerable experience, stability, and depth.
The board concluded that Vanguard’s experience, stability, depth, and performance, among other factors, warranted continuation of each advisory arrangement.
Investment performance
The board considered the short- and long-term performance of each fund, including any periods of outperformance or underperformance relative to a target index and peer group. The board concluded that the performance was such that each advisory arrangement should continue. Information about the funds’ most recent performance can be found on the Performance Summary pages of this report.
Cost
The board concluded that each fund’s expense ratio was well below the average expense ratio charged by funds in its respective peer group and that each fund’s advisory fee rate was also well below its peer-group average. Information about the funds’ expenses appears in the About Your Fund’s Expenses section of this report as well as in the Financial Statements sections.
The board does not conduct a profitability analysis of Vanguard because of Vanguard’s unique “at-cost” structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees and produces “profits” only in the form of reduced expenses for fund shareholders.
The benefit of economies of scale
The board concluded that each fund’s at-cost arrangement with Vanguard ensures that the funds will realize economies of scale as they grow, with the cost to shareholders declining as fund assets increase.
The board will consider whether to renew the advisory arrangements again after a one-year period.
119
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.
120
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 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.
121
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 194 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.
Interested Trustee1
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).
Independent Trustees
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. Treasurer Since May 2015. 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; Controller of each of the investment companies served by The Vanguard Group (2010–2015); 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).
Peter Mahoney
Born 1974. Controller Since May 2015. Principal Occupation(s) During the Past Five Years and Other Experience: Head of Global Fund Accounting at The Vanguard Group, Inc.; Controller of each of the investment companies served by The Vanguard Group; Head of International Fund Services at The Vanguard Group (2008–2014).
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
James M. Norris
Thomas M. Rampulla
Glenn W. Reed
Karin A. Risi
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 |
With Hearing Impairment > 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. | |
Q4830 102015 |
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/extendeddurationtreasuryx1x1.jpg)
Annual Report | August 31, 2015
Vanguard Extended Duration Treasury Index Fund
Vanguard’s Principles for Investing Success
We want to give you the best chance of investment success. These principles, grounded in Vanguard’s research and experience, can put you on the right path.
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.
A single theme unites these principles: Focus on the things you can control.
We believe there is no wiser course for any investor.
Contents | |
Your Fund’s Total Returns. | 1 |
Chairman’s Letter. | 2 |
Fund Profile. | 8 |
Performance Summary. | 9 |
Financial Statements. | 12 |
About Your Fund’s Expenses. | 24 |
Trustees Approve Advisory Arrangement. | 26 |
Glossary. | 27 |
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: Pictured is a sailing block on the Brilliant, a 1932 schooner docked in Mystic, Connecticut. A type of pulley, the sailing block helps coordinate the setting of the sails. At Vanguard, the intricate coordination of technology and people allows us to help millions of clients around the world reach their financial goals.
Your Fund’s Total Returns | ||||
Fiscal Year Ended August 31, 2015 | ||||
30-Day SEC | Income | Capital | Total | |
Yields | Returns | Returns | Returns | |
Vanguard Extended Duration Treasury Index Fund | ||||
ETF Shares | 2.95% | |||
Market Price | 6.04% | |||
Net Asset Value | 5.90 | |||
Institutional Shares | 2.96 | 3.13% | 2.76% | 5.89 |
Institutional Plus Shares | 2.97 | 3.16 | 2.77 | 5.93 |
Barclays U.S. Treasury STRIPS 20–30 Year Equal | ||||
Par Bond Index | 6.38 | |||
General U.S. Treasury Funds Average | 3.02 |
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 August 31, 2015 | ||||
Distributions Per Share | ||||
Starting | Ending | |||
Share | Share | Income | Capital | |
Price | Price | Dividends | Gains | |
Vanguard Extended Duration Treasury Index Fund | ||||
ETF Shares | $113.24 | $116.00 | $3.506 | $0.371 |
Institutional Shares | 34.18 | 35.02 | 1.064 | 0.112 |
Institutional Plus Shares | 85.80 | 87.92 | 2.688 | 0.282 |
1
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/extendeddurationtreasuryx4x1.jpg)
Chairman’s Letter
Dear Shareholder,
Bolstered by a strong first half, Vanguard Extended Duration Treasury Index Fund returned about 6% for the 12 months ended August 31, 2015, a bit behind its benchmark because of pricing differences. Almost half the fund’s return came from higher bond prices, as interest income remained modest.
The fund outperformed the average return of general U.S. Treasury funds, many of which invest in shorter-term Treasuries as well. Longer-term Treasuries outperformed shorter ones for the fiscal year as a whole, though they struggled in the second half.
Bond results were muted as the Fed weighed a rate hike
The broad U.S. taxable bond market returned 1.56% for the 12 months, outpacing the broad U.S. stock market. Even as yields remained relatively low, bonds benefited at times from demand by investors seeking shelter from stock market volatility. The yield of the 10-year Treasury note, which dipped to 1.75% at the end of January, closed the period at 2.18%, down from 2.34% a year earlier. (Bond prices and yields move in opposite directions.)
The Federal Reserve’s 0%–0.25% target for short-term interest rates continued to restrain returns for money market funds and savings accounts. Since wrapping up its bond-buying program in October 2014, the Fed has been weighing when to raise rates for the first time in nearly a decade. (Shortly after the close of your fund’s
2
reporting period, the Fed announced at its September meeting that it would leave rates unchanged for the time being.)
Limited by the strength of the U.S. dollar, international bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –11.97%. Without this currency effect, international bonds returned about 3%.
August stock market anxiety led to disappointing returns
U.S. stocks rode a roller coaster to ultimately end the period about where they started, as the broad market returned 0.36%. Several months of gains were nearly erased in August, when stocks tumbled over fears about the global impact of China’s economic deceleration. Greece’s debt crisis, the strong dollar, perceived high stock valuations, and speculation about the Fed’s timetable for starting to raise short-term rates also contributed to investor concerns at times.
For U.S. investors, international stocks returned about –12%, a result that would have been better if not for the dollar’s strength against many foreign currencies. European and Pacific developed markets generally outpaced emerging markets. Heightened fears about slower growth in China, the world’s second-largest economy, cast doubt on the investment outlook for emerging markets—where many economies depend on China’s demand for commodities.
Market Barometer | |||
Average Annual Total Returns | |||
Periods Ended August 31, 2015 | |||
One | Three | Five | |
Year | Years | Years | |
Bonds | |||
Barclays U.S. Aggregate Bond Index (Broad taxable market) | 1.56% | 1.53% | 2.98% |
Barclays Municipal Bond Index (Broad tax-exempt market) | 2.52 | 2.83 | 3.96 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.02 | 0.03 | 0.05 |
Stocks | |||
Russell 1000 Index (Large-caps) | 0.40% | 14.68% | 16.07% |
Russell 2000 Index (Small-caps) | 0.03 | 14.12 | 15.55 |
Russell 3000 Index (Broad U.S. market) | 0.36 | 14.63 | 16.03 |
FTSE All-World ex US Index (International) | -11.50 | 5.79 | 5.17 |
CPI | |||
Consumer Price Index | 0.20% | 1.14% | 1.77% |
3
Longer-term Treasuries gave back much of their first-half gains
The two halves of the fund’s fiscal year were a tale of two notably different bond markets. On the heels of an especially robust return of more than 24% for the previous fiscal year, the fund advanced about 15% in the first half of the most recent one. But in the second half, it returned about –8%. Such swings in the fund’s returns are not unusual, as I explain in the box on page 6. The value of long-term financial liabilities, such as pensions, can experience similar swings, and that’s why this fund can be helpful to defined benefit plan sponsors.
Most of your fund’s first-half gain came from its double-digit return in January, which proved to be the period’s best month for both the fund and the broad bond market. As I noted in our last report, generally strong demand for long-term Treasuries helped push up their prices, and pull down their yields to levels below those reached in the previous fiscal year. A benign outlook for inflation also kept yields low.
In the second half of the latest period, heightened volatility amid a combination of economic and geopolitical developments ultimately led to higher yields and lower bond prices. For example, the yield of the 30-year Treasury bond retraced much of its earlier decline to close out August at 2.91%, up from 2.63% at the end of February but still below the 3.08% where it began the fiscal year.
Expense Ratios | ||||
Your Fund Compared With Its Peer Group | ||||
ETF | Institutional | Institutional | Peer Group | |
Shares | Shares | Plus Shares | Average | |
Extended Duration Treasury Index Fund | 0.12% | 0.10% | 0.08% | 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 fiscal year ended August 31, 2015, the fund’s expense ratios were 0.10% for ETF Shares, 0.08% for Institutional Shares, and 0.06% for Institutional Plus Shares.
Peer group: General U.S. Treasury Funds.
4
A brighter outlook for growth in the United States and Europe contributed to rising yields. After a weak first quarter of 2015 marked by severe winter weather in the Northeast and a West Coast port strike, the U.S. economy seemed to regain its footing, and second-quarter growth was revised upward to a better-than-expected annual rate of 3.7%. In Europe, concerns about deflation eased.
At the same time, other market-moving developments boosted demand for Treasury bonds in general and longer-term Treasuries in particular, pushing down their yields. As a Fed rate increase appeared to draw nearer, some investors favored longer-term bonds, expecting that rising short-term rates would hurt the prices of shorter-term bonds.
And when the European Central Bank began a major monthly bond-buying program in March, European sovereign bond yields dropped, making Treasuries more attractive. Later, though, as the yields on some European bonds began to recover, Treasury yields moved higher in tandem.
Safe-haven demand also played a role in moderating Treasury yields. Investors, who often turn to the relative safety of Treasury bonds, had ample reason to seek shelter during the second half of the fiscal year. Uncertainty about Greece’s debt negotiations and its future in the euro zone boosted Treasury demand. So did events in China—notably the surprise devaluation of China’s currency (the yuan) and the steep reversal in mainland Chinese stock markets.
Total Returns | |
Inception Through August 31, 2015 | |
Average | |
Annual Return | |
Extended Duration Treasury Index Fund ETF Shares (Returns since inception: 12/6/2007) | 8.86% |
Barclays U.S. Treasury STRIPS 20–30 Year Equal Par Bond Index | 9.26 |
General U.S. Treasury Funds Average | 5.06 |
General U.S. Treasury Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. |
The figures shown represent past performance, which is not a guarantee of future results. (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.
5
After various ups and downs, the 30-day SEC yield for the fund’s ETF Shares stood at 2.95%, down from 3.11% at the start of the fiscal year.
Since its inception, your fund has tracked its index
The hallmark of a successful index fund is its ability to closely track the return of its benchmark index over time, after allowing for normal operating expenses. By using sophisticated portfolio construction and trading strategies developed and refined over many years, Vanguard Fixed Income Group, which manages your fund, strives to meet that standard across different market cycles. Since their inception almost eight years ago, the ETF Shares have had an average annual return of 8.86%, compared with 9.26% for the benchmark.
When the markets are volatile, maintaining perspective is key
Volatility returned to the stock market with a vengeance in the final weeks of August. Stocks were unsettled as investors grew more worried that a slowdown in China’s economic growth could affect markets across the globe.
This turmoil may have evoked painful memories of previous financial setbacks—memories that had been receding after more than six years of strong U.S. stock performance. And inevitably, that sort of upheaval can lead some investors to make rash moves with their portfolios.
During periods of market adversity, however, it’s more important than ever to keep sight of one of Vanguard’s key
Your fund’s duration can be a benefit—and a risk
If you’ve been invested in Vanguard Extended Duration Treasury Index Fund for a while, you’ve experienced the seesaw pattern in its returns. The longer duration of the fund is a key reason why it has been more volatile than the broad bond market.
Duration measures the sensitivity of bond, and bond mutual fund, prices to changes in interest rates. It’s expressed as the number of years needed to recover the price of a bond, taking into account the present value of all coupon and principal payments that are due to you in the future.
Receiving periodic interest payments shortens the time it takes to recover a bond’s cost. For example, the duration of an interest-bearing bond with a stated maturity of 30 years is less than 30 years. But for a zero-coupon bond, such as the Treasury STRIPS held by the fund, the duration is the same as the stated maturity. (STRIPS stands for Separate Trading of Registered Interest and Principal of Securities.)
As this simplified bond math suggests, STRIPS can be well-suited to matching long-term liabilities to be funded in the future, such as pensions. But their greater sensitivity to interest rate changes means more day-to-day price risk than the broad bond market.
6
principles: Maintain perspective and long-term discipline. Whether you’re investing for yourself or on behalf of clients, your success is affected greatly by how you react––or don’t react––when the markets turn turbulent. (You can read Vanguard’s Principles for Investing Success at vanguard.com/research.)
As I’ve written in the past, the best course for long-term investors is to ignore daily market moves and not make decisions based on emotion. This is also a good time to evaluate your portfolio and make sure your asset allocation is aligned with your time horizon, goals, and risk tolerance.
The markets are unpredictable and often confounding. Keeping our long-term plans clearly in focus can be key as we weather these periodic storms.
As always, thank you for investing with Vanguard.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/extendeddurationtreasuryx9x1.jpg)
F. William McNabb III
Chairman and Chief Executive Officer
September 18, 2015
7
Extended Duration Treasury Index Fund
Fund Profile | |||
As of August 31, 2015 | |||
Share-Class Characteristics | |||
Institutional | |||
ETF Institutional | Plus | ||
Shares | Shares | Shares | |
Ticker Symbol | EDV | VEDTX | VEDIX |
Expense Ratio1 | 0.12% | 0.10% | 0.08% |
30-Day SEC Yield | 2.95% | 2.96% | 2.97% |
Financial Attributes | |||
Barclays | |||
Treasury | |||
STRIPS | |||
20–30 Year | |||
Fund | Index | ||
Number of Bonds | 73 | 71 | |
Yield to Maturity | |||
(before expenses) | 3.0% | 3.0% | |
Average Coupon | 0.0% | 0.0% | |
Average Duration | 24.8 years | 24.4 years | |
Average Effective | |||
Maturity | 25.2 years | 23.9 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 | 0.99 |
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. "Not Rated" is used to classify securities for which a rating is not available. Not rated securities include a fund's investment in Vanguard Market Liquidity Fund or Vanguard Municipal Cash Management Fund, each of which invests in high-quality money market instruments and may serve as a cash management vehicle for the Vanguard funds, trusts, and accounts. For more information about these ratings, see the Glossary entry for Credit Quality.
Investment Focus
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/extendeddurationtreasurx10x1.jpg)
1 The expense ratios shown are from the prospectus dated December 23, 2014, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2015, the expense ratios were 0.10% for ETF Shares, 0.08% for Institutional Shares, and 0.06% for Institutional Plus Shares.
8
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.
Cumulative Performance: December 6, 2007, Through August 31, 2015
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/extendeddurationtreasurx11x1.jpg)
Average Annual Total Returns | |||||
Periods Ended August 31, 2015 | |||||
Since | Final Value | ||||
One | Five | Inception | of a $10,000 | ||
Year | Years | (12/6/2007) | Investment | ||
Extended Duration Treasury Index | |||||
Fund ETF Shares Net Asset Value | 5.90% | 7.65% | 8.86% | $19,286 | |
Extended Duration Treasury Index | |||||
Fund ETF Shares Market Price | 6.04 | 7.66 | 8.93 | 19,384 | |
Barclays U.S. Treasury STRIPS 20–30 | |||||
•••••••• | Year Equal Par Bond Index | 6.38 | 7.87 | 9.26 | 19,840 |
– – – – | General U.S. Treasury Funds Average | 3.02 | 3.10 | 5.06 | 14,649 |
General U.S. Treasury Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.
"Since Inception" performance is calculated from the ETF Shares’ inception date for both the fund and its comparative standards.
Since | Final Value | |||
One | Five | Inception | of a $5,000,000 | |
Year | Years | (11/28/2007) | Investment | |
Extended Duration Treasury Index Fund | ||||
Institutional Shares | 5.36% | 7.57% | 8.53% | $9,437,302 |
Barclays U.S. Treasury STRIPS 20–30 Year | ||||
Equal Par Bond Index | 6.38 | 7.87 | 8.91 | 9,694,300 |
"Since Inception" performance is calculated from the Institutional Shares’ inception date for both the fund and its comparative standard. |
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.
9
Extended Duration Treasury Index Fund | |||
Average Annual Total Returns | |||
Periods Ended August 31, 2015 | |||
Since | Final Value | ||
One | Inception | of a $100,000,000 | |
Year | (8/28/2013) | Investment | |
Extended Duration Treasury Index Fund | |||
Institutional Plus Shares | 5.40% | 15.16% | $132,781,682 |
Barclays U.S. Treasury STRIPS 20–30 Year | |||
Equal Par Bond Index | 6.38 | 16.02 | 134,760,820 |
"Since Inception" performance is calculated from the Institutional Plus Shares’ inception date for both the fund and its comparative standard.
Cumulative Returns of ETF Shares: December 6, 2007, Through August 31, 2015 | |||
Since | |||
One | Five | Inception | |
Year | Years | (12/6/2007) | |
Extended Duration Treasury Index Fund ETF Shares | |||
Market Price | 6.04% | 44.63% | 93.84% |
Extended Duration Treasury Index Fund ETF Shares | |||
Net Asset Value | 5.90 | 44.54 | 92.86 |
Barclays U.S. Treasury STRIPS 20–30 Year Equal Par | |||
Bond Index | 6.38 | 46.07 | 98.40 |
"Since Inception" performance is calculated from the ETF Shares’ inception date for both the fund and its comparative standard.
Fiscal-Year Total Returns (%): December 6, 2007, Through August 31, 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 | 5.90 | 6.38 |
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.
10
Extended Duration Treasury Index Fund
Average Annual Total Returns: Periods Ended June 30, 2015
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 | |
ETF Shares | 12/6/2007 | |||||
Market Price | 8.48% | 8.52% | 8.28% | |||
Net Asset Value | 8.54 | 8.54 | 8.25 | |||
Institutional Shares | 11/28/2007 | 8.54 | 8.57 | 3.79% | 4.20% | 7.99 |
Fee-Adjusted Returns | 8.00 | 8.46 | 7.92 | |||
Institutional Plus Shares | 8/28/2013 | 8.56 | — | 3.91 | 9.49 | 13.40 |
Fee-Adjusted Returns | 8.02 | — | 13.09 |
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.
11
Extended Duration Treasury Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 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% | 11/15/35 | 43,990 | 24,215 |
United States Treasury Strip Coupon | 0.000% | 2/15/36 | 35,945 | 19,722 |
United States Treasury Strip Coupon | 0.000% | 5/15/36 | 34,790 | 18,860 |
United States Treasury Strip Coupon | 0.000% | 8/15/36 | 35,200 | 18,967 |
United States Treasury Strip Coupon | 0.000% | 11/15/36 | 35,095 | 18,735 |
United States Treasury Strip Coupon | 0.000% | 2/15/37 | 39,230 | 20,746 |
United States Treasury Strip Coupon | 0.000% | 5/15/37 | 34,830 | 18,307 |
United States Treasury Strip Coupon | 0.000% | 8/15/37 | 31,800 | 16,511 |
United States Treasury Strip Coupon | 0.000% | 11/15/37 | 41,250 | 21,208 |
United States Treasury Strip Coupon | 0.000% | 2/15/38 | 42,560 | 21,682 |
United States Treasury Strip Coupon | 0.000% | 5/15/38 | 40,520 | 20,526 |
United States Treasury Strip Coupon | 0.000% | 8/15/38 | 34,980 | 17,504 |
United States Treasury Strip Coupon | 0.000% | 11/15/38 | 37,920 | 18,753 |
United States Treasury Strip Coupon | 0.000% | 2/15/39 | 35,160 | 17,245 |
United States Treasury Strip Coupon | 0.000% | 5/15/39 | 28,880 | 14,013 |
United States Treasury Strip Coupon | 0.000% | 8/15/39 | 24,035 | 11,512 |
United States Treasury Strip Coupon | 0.000% | 11/15/39 | 33,280 | 15,798 |
United States Treasury Strip Coupon | 0.000% | 2/15/40 | 33,080 | 15,545 |
United States Treasury Strip Coupon | 0.000% | 5/15/40 | 13,355 | 6,222 |
United States Treasury Strip Coupon | 0.000% | 8/15/40 | 22,250 | 10,244 |
United States Treasury Strip Coupon | 0.000% | 11/15/40 | 35,945 | 16,406 |
United States Treasury Strip Coupon | 0.000% | 2/15/41 | 36,470 | 16,517 |
United States Treasury Strip Coupon | 0.000% | 5/15/41 | 35,860 | 16,098 |
United States Treasury Strip Coupon | 0.000% | 8/15/41 | 33,960 | 15,136 |
United States Treasury Strip Coupon | 0.000% | 11/15/41 | 33,785 | 14,923 |
United States Treasury Strip Coupon | 0.000% | 2/15/42 | 49,970 | 21,854 |
United States Treasury Strip Coupon | 0.000% | 5/15/42 | 38,155 | 16,553 |
United States Treasury Strip Coupon | 0.000% | 8/15/42 | 42,080 | 18,022 |
United States Treasury Strip Coupon | 0.000% | 11/15/42 | 51,800 | 22,027 |
United States Treasury Strip Coupon | 0.000% | 2/15/43 | 51,875 | 21,978 |
United States Treasury Strip Coupon | 0.000% | 5/15/43 | 53,505 | 22,384 |
United States Treasury Strip Coupon | 0.000% | 8/15/43 | 46,490 | 19,450 |
United States Treasury Strip Coupon | 0.000% | 11/15/43 | 42,135 | 17,506 |
United States Treasury Strip Coupon | 0.000% | 2/15/44 | 47,065 | 19,400 |
United States Treasury Strip Coupon | 0.000% | 5/15/44 | 32,735 | 13,352 |
12
Extended Duration Treasury Index Fund | ||||
Face | Market | |||
Maturity | Amount | Value• | ||
Coupon | Date | ($000) | ($000) | |
United States Treasury Strip Coupon | 0.000% | 8/15/44 | 36,020 | 14,605 |
United States Treasury Strip Coupon | 0.000% | 11/15/44 | 50 | 20 |
United States Treasury Strip Coupon | 0.000% | 2/15/45 | 50 | 20 |
United States Treasury Strip Coupon | 0.000% | 5/15/45 | 50 | 20 |
United States Treasury Strip Coupon | 0.000% | 8/15/45 | 1,000 | 390 |
United States Treasury Strip Principal | 0.000% | 2/15/36 | 19,595 | 11,146 |
United States Treasury Strip Principal | 0.000% | 2/15/37 | 38,550 | 21,070 |
United States Treasury Strip Principal | 0.000% | 5/15/37 | 20,930 | 11,431 |
United States Treasury Strip Principal | 0.000% | 2/15/38 | 28,325 | 14,747 |
United States Treasury Strip Principal | 0.000% | 5/15/38 | 21,805 | 11,253 |
United States Treasury Strip Principal | 0.000% | 2/15/39 | 31,085 | 15,448 |
United States Treasury Strip Principal | 0.000% | 5/15/39 | 27,175 | 13,331 |
United States Treasury Strip Principal | 0.000% | 8/15/39 | 11,330 | 5,500 |
United States Treasury Strip Principal | 0.000% | 11/15/39 | 24,125 | 11,601 |
United States Treasury Strip Principal | 0.000% | 2/15/40 | 26,690 | 12,692 |
United States Treasury Strip Principal | 0.000% | 5/15/40 | 32,260 | 15,202 |
United States Treasury Strip Principal | 0.000% | 8/15/40 | 28,565 | 13,310 |
United States Treasury Strip Principal | 0.000% | 11/15/40 | 16,215 | 7,497 |
United States Treasury Strip Principal | 0.000% | 2/15/41 | 12,760 | 5,864 |
United States Treasury Strip Principal | 0.000% | 5/15/41 | 27,500 | 12,600 |
United States Treasury Strip Principal | 0.000% | 8/15/41 | 23,480 | 10,665 |
United States Treasury Strip Principal | 0.000% | 11/15/41 | 35,605 | 15,978 |
United States Treasury Strip Principal | 0.000% | 2/15/42 | 34,505 | 15,301 |
United States Treasury Strip Principal | 0.000% | 5/15/42 | 36,485 | 15,959 |
United States Treasury Strip Principal | 0.000% | 8/15/42 | 40,175 | 17,357 |
United States Treasury Strip Principal | 0.000% | 11/15/42 | 47,810 | 20,461 |
United States Treasury Strip Principal | 0.000% | 2/15/43 | 52,145 | 22,162 |
United States Treasury Strip Principal | 0.000% | 5/15/43 | 58,680 | 24,802 |
United States Treasury Strip Principal | 0.000% | 8/15/43 | 42,290 | 17,864 |
United States Treasury Strip Principal | 0.000% | 11/15/43 | 48,680 | 20,521 |
United States Treasury Strip Principal | 0.000% | 2/15/44 | 37,695 | 15,658 |
United States Treasury Strip Principal | 0.000% | 5/15/44 | 47,705 | 19,499 |
United States Treasury Strip Principal | 0.000% | 8/15/44 | 49,585 | 20,159 |
United States Treasury Strip Principal | 0.000% | 11/15/44 | 44,030 | 17,698 |
United States Treasury Strip Principal | 0.000% | 2/15/45 | 24,810 | 9,930 |
United States Treasury Strip Principal | 0.000% | 5/15/45 | 33,700 | 13,477 |
United States Treasury Strip Principal | 0.000% | 8/15/45 | 15,000 | 5,953 |
Total U.S. Government and Agency Obligations (Cost $1,009,793) | 1,099,112 | |||
Shares | ||||
Temporary Cash Investment (0.0%) | ||||
Money Market Fund (0.0%) | ||||
1 Vanguard Market Liquidity Fund (Cost $24) | 0.168% | 24,005 | 24 | |
Total Investments (100.0%) (Cost $1,009,817) | 1,099,136 |
13
Extended Duration Treasury Index Fund | |
Amount | |
($000) | |
Other Assets and Liabilities (0.0%) | |
Other Assets | |
Investment in Vanguard | 100 |
Receivables for Investment Securities Sold | 31,987 |
Receivables for Accrued Income | 7 |
Receivables for Capital Shares Issued | 7 |
Other Assets | 6 |
Total Other Assets | 32,107 |
Liabilities | |
Payables for Investment Securities Purchased | (31,260) |
Payables for Capital Shares Redeemed | (352) |
Other Liabilities | (430) |
Total Liabilities | (32,042) |
Net Assets (100%) | 1,099,201 |
At August 31, 2015, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 991,799 |
Undistributed Net Investment Income | 6,524 |
Accumulated Net Realized Gains | 11,559 |
Unrealized Appreciation (Depreciation) | 89,319 |
Net Assets | 1,099,201 |
ETF Shares—Net Assets | |
Applicable to 3,150,000 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 365,388 |
Net Asset Value Per Share—ETF Shares | $116.00 |
Institutional Shares—Net Assets | |
Applicable to 13,828,464 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 484,300 |
Net Asset Value Per Share—Institutional Shares | $35.02 |
Institutional Plus Shares—Net Assets | |
Applicable to 2,838,001 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 249,513 |
Net Asset Value Per Share—Institutional Plus Shares | $87.92 |
- See Note A in Notes to Financial Statements.
- 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.
14
Extended Duration Treasury Index Fund | |
Statement of Operations | |
Year Ended | |
August 31, 2015 | |
($000) | |
Investment Income | |
Income | |
Interest1 | 35,843 |
Total Income | 35,843 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 97 |
Management and Administrative—ETF Shares | 275 |
Management and Administrative—Institutional Shares | 287 |
Management and Administrative—Institutional Plus Shares | 77 |
Marketing and Distribution—ETF Shares | 60 |
Marketing and Distribution—Institutional Shares | 60 |
Marketing and Distribution—Institutional Plus Shares | 45 |
Custodian Fees | 8 |
Auditing Fees | 36 |
Shareholders’ Reports—ETF Shares | 14 |
Shareholders’ Reports—Institutional Shares | — |
Shareholders’ Reports—Institutional Plus Shares | — |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 960 |
Net Investment Income | 34,883 |
Realized Net Gain (Loss) on Investment Securities Sold | 99,753 |
Change in Unrealized Appreciation (Depreciation) of Investment Securities | (72,584) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 62,052 |
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.
15
Extended Duration Treasury Index Fund | ||
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2015 | 2014 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 34,883 | 32,483 |
Realized Net Gain (Loss) | 99,753 | 25,182 |
Change in Unrealized Appreciation (Depreciation) | (72,584) | 165,532 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 62,052 | 223,197 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (11,618) | (5,755) |
Institutional Shares | (15,187) | (14,243) |
Institutional Plus Shares | (8,103) | (9,409) |
Realized Capital Gain1 | ||
ETF Shares | (1,465) | (1,598) |
Institutional Shares | (1,570) | (5,314) |
Institutional Plus Shares | (780) | (3,511) |
Total Distributions | (38,723) | (39,830) |
Capital Share Transactions | ||
ETF Shares | 114,108 | 52,609 |
Institutional Shares | (61,182) | 70,804 |
Institutional Plus Shares | (79,516) | 238,106 |
Net Increase (Decrease) from Capital Share Transactions | (26,590) | 361,519 |
Total Increase (Decrease) | (3,261) | 544,886 |
Net Assets | ||
Beginning of Period | 1,102,462 | 557,576 |
End of Period2 | 1,099,201 | 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 $6,524,000 and $6,549,000.
See accompanying Notes, which are an integral part of the Financial Statements.
16
Extended Duration Treasury Index Fund | |||||
Financial Highlights | |||||
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $113.24 | $95.57 | $131.02 | $100.09 | $103.39 |
Investment Operations | |||||
Net Investment Income | 3.524 | 3.311 | 3.695 | 3.566 | 3.7231 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments 2 | 3.113 | 18.824 | (30.430) | 33.594 | (3.168) |
Total from Investment Operations | 6.637 | 22.135 | (26.735) | 37.160 | .555 |
Distributions | |||||
Dividends from Net Investment Income | (3.506) | (3.236) | (3.779) | (3.628) | (3.630) |
Distributions from Realized Capital Gains | (.371) | (1.229) | (4.936) | (2.602) | (.225) |
Total Distributions | (3.877) | (4.465) | (8.715) | (6.230) | (3.855) |
Net Asset Value, End of Period | $116.00 | $113.24 | $95.57 | $131.02 | $100.09 |
Total Return | 5.90% | 24.17% | -21.34% | 37.90% | 1.33% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $365 | $249 | $158 | $203 | $120 |
Ratio of Total Expenses to | |||||
Average Net Assets | 0.10% | 0.12% | 0.12% | 0.12% | 0.13% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.93% | 3.59% | 3.15% | 3.06% | 4.40% |
Portfolio Turnover Rate 3 | 16% | 17% | 31% | 47% | 22% |
1 Calculated based on average shares outstanding.
2 Includes increases from purchase and redemption fees of $0.05, $0.19, $0.10, $0.18, and $0.07. 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.
17
Extended Duration Treasury Index Fund | |||||
Financial Highlights | |||||
Institutional Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $34.18 | $28.85 | $39.55 | $30.19 | $31.18 |
Investment Operations | |||||
Net Investment Income | 1.069 | 1.006 | 1.121 | 1.084 | 1.1271 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments 2 | .947 | 5.678 | (9.183) | 10.162 | (. 948) |
Total from Investment Operations | 2.016 | 6.684 | (8.062) | 11.246 | .179 |
Distributions | |||||
Dividends from Net Investment Income | (1.064) | (.983) | (1.148) | (1.101) | (1.101) |
Distributions from Realized Capital Gains | (.112) | (.371) | (1.490) | (.785) | (.068) |
Total Distributions | (1.176) | (1.354) | (2.638) | (1.886) | (1.169) |
Net Asset Value, End of Period | $35.02 | $34.18 | $28.85 | $39.55 | $30.19 |
Total Return3 | 5.89% | 24.27% | -21.30% | 37.92% | 1.33% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $484 | $529 | $375 | $586 | $409 |
Ratio of Total Expenses to | |||||
Average Net Assets | 0.08% | 0.10% | 0.10% | 0.10% | 0.11% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.95% | 3.61% | 3.17% | 3.08% | 4.42% |
Portfolio Turnover Rate 4 | 16% | 17% | 31% | 47% | 22% |
1 Calculated based on average shares outstanding.
2 Includes increases from purchase and redemption fees of $0.01, $0.06, $0.03, $0.05, and $0.02. 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.
18
Extended Duration Treasury Index Fund | |||
Financial Highlights | |||
Institutional Plus Shares | |||
Aug. 28, | |||
Year Ended | 20131 to | ||
August 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 | 2.701 | 2.542 | — |
Net Realized and Unrealized Gain (Loss) on Investments2 | 2.389 | 14.260 | .960 |
Total from Investment Operations | 5.090 | 16.802 | .960 |
Distributions | |||
Dividends from Net Investment Income | (2.688) | (2.491) | — |
Distributions from Realized Capital Gains | (.282) | (. 931) | — |
Total Distributions | (2.970) | (3.422) | — |
Net Asset Value, End of Period | $87.92 | $85.80 | $72.42 |
Total Return3 | 5.93% | 24.31% | 1.34% |
Ratios/Supplemental Data | |||
Net Assets, End of Period (Millions) | $250 | $324 | $25 |
Ratio of Total Expenses to Average Net Assets | 0.06% | 0.08% | 0.08%4 |
Ratio of Net Investment Income to Average Net Assets | 2.97% | 3.63% | 3.19%4 |
Portfolio Turnover Rate 5 | 16% | 17% | 31% |
1 | Inception. |
2 | Includes increases from purchase fees of $0.04, $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.
19
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: ETF Shares, Institutional Shares, and Institutional Plus Shares. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker. Institutional Shares and Institutional Plus 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. 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, 2012–2015), 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 (“Vanguard”) participate in a $3 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 August 31, 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.
20
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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At August 31, 2015, the fund had contributed to Vanguard capital in the amount of $100,000, 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 employees, respectively, 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 August 31, 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 | — | 1,099,112 | — |
Temporary Cash Investments | 24 | — | — |
Total | 24 | 1,099,112 | — |
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.
21
Extended Duration Treasury Index Fund
During the year ended August 31, 2015, the fund realized $82,704,000 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 used a tax accounting practice to treat a portion of the price of capital shares redeemed during the year as distributions from realized capital gains. Accordingly, the fund has reclassified $5,149,000 from accumulated net realized gains to paid-in capital.
For tax purposes, at August 31, 2015, the fund had $7,234,000 of ordinary income and $11,716,000 of long-term capital gains available for distribution.
At August 31, 2015, the cost of investment securities for tax purposes was $1,010,271,000. Net unrealized appreciation of investment securities for tax purposes was $88,865,000, consisting of unrealized gains of $101,926,000 on securities that had risen in value since their purchase and $13,061,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2015, the fund purchased $467,661,000 of investment securities and sold $534,402,000 of investment securities, other than temporary cash investments. Purchases and sales include $282,746,000 and $329,888,000, 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: | ||||
Year Ended August 31, | ||||
2015 | 2014 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued1 | 444,240 | 3,650 | 193,623 | 2,000 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (330,132) | (2,700) | (141,014) | (1,450) |
Net Increase (Decrease)—ETF Shares | 114,108 | 950 | 52,609 | 550 |
Institutional Shares | ||||
Issued1 | 70,457 | 2,001 | 97,644 | 3,397 |
Issued in Lieu of Cash Distributions | 16,757 | 473 | 18,970 | 674 |
Redeemed | (148,396) | (4,124) | (45,810) | (1,581) |
Net Increase (Decrease)—Institutional Shares | (61,182) | (1,650) | 70,804 | 2,490 |
Institutional Plus Shares | ||||
Issued1 | 238,636 | 2,768 | 236,786 | 3,398 |
Issued in Lieu of Cash Distributions | 8,884 | 100 | 12,920 | 183 |
Redeemed | (327,036) | (3,809) | (11,600) | (150) |
Net Increase (Decrease)—Institutional Plus Shares | (79,516) | (941) | 238,106 | 3,431 |
1 Includes purchase fees for fiscal 2015 and 2014 of $458,000 and $1,885,000, respectively (fund totals). |
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2015, that would require recognition or disclosure in these financial statements.
22
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of Vanguard World Fund and the Shareholders of Vanguard Extended Duration Treasury Index Fund: In our opinion, the accompanying statement of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Vanguard Extended Duration Treasury Index Fund (constituting a separate portfolio of Vanguard World Fund, hereafter referred to as the “Fund”) at August 31, 2015, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2015 by correspondence with the custodian and brokers, by agreement to the underlying ownership records of the transfer agent and the application of alternative auditing procedures where securities purchased had not been received, provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
October 12, 2015
Special 2015 tax information (unaudited) for Vanguard Extended Duration Treasury Index Fund
This information for the fiscal year ended August 31, 2015, is included pursuant to provisions of the Internal Revenue Code.
The fund distributed $7,054,000 as capital gain dividends (from net long-term capital gains) to shareholders during the fiscal year.
For nonresident alien shareholders, 100% of short-term capital gain dividends distributed by the fund are qualified short-term capital gains.
For nonresident alien shareholders, 99.2% of income dividends are interest-related dividends.
23
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.
24
Six Months Ended August 31, 2015 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
Extended Duration Treasury Index Fund | 2/28/2015 | 8/31/2015 | Period |
Based on Actual Fund Return | |||
ETF Shares | $1,000.00 | $919.66 | $0.39 |
Institutional Shares | 1,000.00 | 919.77 | 0.29 |
Institutional Plus Shares | 1,000.00 | 919.89 | 0.19 |
Based on Hypothetical 5% Yearly Return | |||
ETF Shares | $1,000.00 | $1,024.80 | $0.41 |
Institutional Shares | 1,000.00 | 1,024.90 | 0.31 |
Institutional Plus Shares | 1,000.00 | 1,025.00 | 0.20 |
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 0.08% for ETF Shares, 0.06% for Institutional Shares, and 0.04% for Institutional Plus 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 (184/365).
25
Trustees Approve Advisory Arrangement
The board of trustees of Vanguard Extended Duration Treasury Index Fund has renewed the fund’s investment advisory arrangement with The Vanguard Group, Inc. (Vanguard). Vanguard—through its Fixed Income Group—serves as the investment advisor to the fund. The board determined that continuing the fund’s internalized management structure was in the best interests of the fund and its shareholders.
The board based its decision upon an evaluation of the 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 arrangement. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of services
The board reviewed 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 the advisor. The board considered that Vanguard has been managing investments for more than three decades. The Fixed Income Group adheres to a sound, disciplined investment management process; the team has considerable experience, stability, and depth.
The board concluded that Vanguard’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangement.
Investment performance
The board considered the short- and long-term performance of the fund, including any periods of outperformance or underperformance relative to a target index and peer group. The board concluded that the performance was such that the 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.
The board does not conduct a profitability analysis of Vanguard, because of Vanguard’s unique “at-cost” structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees, and produces “profits” only in the form of reduced expenses for fund shareholders.
The benefit of economies of scale
The board concluded that the fund’s at-cost arrangement with Vanguard ensures that the fund will realize economies of scale as it grows, with the cost to shareholders declining as fund assets increase.
The board will consider whether to renew the advisory arrangement again after a one-year period.
26
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). 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. “Not Rated” is used to classify securities for which a rating is not available. Not rated securities include a fund’s investment in Vanguard Market Liquidity Fund or Vanguard Municipal Cash Management Fund, each of which invests in high-quality money market instruments and may serve as a cash management vehicle for the Vanguard funds, trusts, and accounts.
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.
27
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
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.
28
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.
29
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 194 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. Treasurer Since May 2015. 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; Controller of each of the investment companies served by The Vanguard Group (2010–2015); 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).
Peter Mahoney
Born 1974. Controller Since May 2015. Principal Occupation(s) During the Past Five Years and Other Experience: Head of Global Fund Accounting at The Vanguard Group, Inc.; Controller of each of the investment companies served by The Vanguard Group; Head of International Fund Services at The Vanguard Group (2008–2014).
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
James M. Norris
Thomas M. Rampulla
Glenn W. Reed
Karin A. Risi
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 email 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. | |
Q12750 102015 |
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/megacapindexfundsx1x1.jpg)
Annual Report | August 31, 2015
Vanguard Mega Cap Index Funds
Vanguard Mega Cap Index Fund
Vanguard Mega Cap Growth Index Fund
Vanguard Mega Cap Value Index Fund
Vanguard’s Principles for Investing Success
We want to give you the best chance of investment success. These principles, grounded in Vanguard’s research and experience, can put you on the right path.
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.
A single theme unites these principles: Focus on the things you can control.
We believe there is no wiser course for any investor.
Contents | |
Your Fund’s Total Returns. | 1 |
Chairman’s Letter. | 2 |
Mega Cap Index Fund. | 9 |
Mega Cap Growth Index Fund. | 26 |
Mega Cap Value Index Fund. | 41 |
Your Fund’s After-Tax Returns. | 58 |
About Your Fund’s Expenses. | 59 |
Trustees Approve Advisory Arrangements. | 61 |
Glossary. | 62 |
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: Pictured is a sailing block on the Brilliant, a 1932 schooner docked in Mystic, Connecticut. A type of pulley, the sailing block helps coordinate the setting of the sails. At Vanguard, the intricate coordination of technology and people allows us to help millions of clients around the world reach their financial goals.
Your Fund’s Total Returns | |
Fiscal Year Ended August 31, 2015 | |
Total | |
Returns | |
Vanguard Mega Cap Index Fund | |
ETF Shares | |
Market Price | -0.03% |
Net Asset Value | -0.05 |
Institutional Shares | -0.01 |
CRSP US Mega Cap Index | 0.05 |
Large-Cap Core Funds Average | -1.07 |
Large-Cap Core Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Vanguard Mega Cap Growth Index Fund | |
ETF Shares | |
Market Price | 2.74% |
Net Asset Value | 2.70 |
Institutional Shares | 2.71 |
CRSP US Mega Cap Growth Index | 2.81 |
Large-Cap Growth Funds Average | 3.53 |
Large-Cap Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Vanguard Mega Cap Value Index Fund | |
ETF Shares | |
Market Price | -2.14% |
Net Asset Value | -2.22 |
Institutional Shares | -2.19 |
CRSP US Mega Cap Value Index | -2.15 |
Large-Cap Value Funds Average | -3.71 |
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
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/megacapindexfundsx4x1.jpg)
Chairman’s Letter
Dear Shareholder,
The fiscal year ended August 31, 2015, was an uneven one for domestic equities. Growth stocks continued their positive trek, but their value counterparts slipped. Small-capitalization stocks slightly outpaced large- and mid-caps.
This investment environment was mirrored in the performance of the Vanguard Mega Cap Index Funds. Results ranged from 2.70% for the Mega Cap Growth Index Fund to –2.22% for the Mega Cap Value Index Fund. The Mega Cap Index Fund, which includes both growth and value stocks, returned –0.05%. (All returns are for the funds’ ETF Shares based on net asset value.)
All three funds closely tracked their target indexes. The Mega Cap Index Fund and Value Index Fund exceeded the average returns of their large-cap peers, but the Growth Index Fund lagged.
If you hold fund shares in a taxable account, you may wish to review the information on the funds’ after-tax returns that appears later in this report.
August’s moody markets led to flat 12-month returns
U.S. stocks generally moved in opposite directions over the two halves of the fiscal year ended August 31. A first-half advance of about 6% was followed by a second-half retreat of about –5%. Ultimately, the ride ended about where it started, with the market returning less than 1%.
2
Much of the decline came in August, when stocks tumbled over fears about the global impact of China’s economic deceleration. Greece’s debt crisis, the strong U.S. dollar, perceived high valuations, and speculation over when the Federal Reserve might raise short-term interest rates also played a part. (Shortly after the close of the reporting period, the Fed announced at its September meeting that it would leave rates unchanged for the time being.)
For U.S. investors, international stocks returned about –12%, a result that would have been a bit better if not for the dollar’s strength against many foreign currencies. China’s troubles buffeted emerging markets, which produced lower returns than the developed markets of Europe and the Pacific region.
Bonds notched more muted results as the Fed weighed rate-hike timing
The broad U.S. taxable bond market returned 1.56%. Bond prices generally fell slightly but received some support from global investors looking for higher yields than those available in many other developed markets. Buyers seeking shelter from stock market volatility also helped. The yield of the 10-year Treasury note ended August at 2.18%, down from 2.34% a year earlier.
Limited by the dollar’s strength, international bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –11.97%. International bonds returned about 3% without this currency effect.
Market Barometer | |||
Average Annual Total Returns | |||
Periods Ended August 31, 2015 | |||
One | Three | Five | |
Year | Years | Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 0.40% | 14.68% | 16.07% |
Russell 2000 Index (Small-caps) | 0.03 | 14.12 | 15.55 |
Russell 3000 Index (Broad U.S. market) | 0.36 | 14.63 | 16.03 |
FTSE All-World ex US Index (International) | -11.50 | 5.79 | 5.17 |
Bonds | |||
Barclays U.S. Aggregate Bond Index (Broad taxable market) | 1.56% | 1.53% | 2.98% |
Barclays Municipal Bond Index (Broad tax-exempt market) | 2.52 | 2.83 | 3.96 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.02 | 0.03 | 0.05 |
CPI | |||
Consumer Price Index | 0.20% | 1.14% | 1.77% |
3
The Fed’s 0%–0.25% target for short-term interest rates continued to restrain money market fund and savings account returns.
Health care led the pack; oil and gas brought up the rear
Vanguard’s three Mega Cap Index Funds provide exposure to the U.S. stock market’s largest companies. Investors may choose to invest in the overall mega-cap segment of the market through the Mega Cap Index Fund, or they may focus specifically on its growth or value sectors through the Growth Index Fund or Value Index Fund. As I mentioned, growth stocks outpaced their value counterparts for the most recent 12 months.
Health care stocks generated double-digit returns for all three funds. The trends favoring the sector are familiar: The aging population requires more health care in all forms, health care is increasingly accessible worldwide, and the Affordable Care Act has provided insurance coverage for more people. Pharmaceutical and biotechnology companies produced strong returns because of merger-and-acquisition activity and promising developments in the product pipeline. Health care providers and medical equipment companies further boosted results.
Expense Ratios | |||
Your Fund Compared With Its Peer Group | |||
ETF | Institutional | Peer Group | |
Shares | Shares | Average | |
Mega Cap Index Fund | 0.11% | 0.08% | 1.12% |
Mega Cap Growth Index Fund | 0.11 | 0.10 | 1.21 |
Mega Cap Value Index Fund | 0.11 | 0.08 | 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 fiscal year ended August 31, 2015, the expense ratios were: for the Mega Cap Index Fund, 0.09% for ETF Shares and 0.06% for Institutional Shares; for the Mega Cap Growth Index Fund, 0.09% for ETF Shares and 0.08% for Institutional Shares; and for the Mega Cap Value Index Fund, 0.09% for ETF Shares and 0.06% for Institutional 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
The consumer services sector was the leading contributor to the Mega Cap Index Fund and Growth Index Fund. Stocks rose amid increased consumer confidence and continued growth in the housing market. Internet retailers, home improvement stores, and restaurants did particularly well.
To a lesser degree, financials and consumer goods also added to returns for all three funds. Although the financial industry has benefited from the long bull market, it has been restrained by the toughened regulatory environment and exceptionally low interest rates. Banks and financial services companies were bright spots. Consumer goods has long been viewed by investors as a defensive category—during downturns in the market, its stocks tend to outperform. Food products, footwear, and tobacco companies led the group’s returns.
The oil and gas sector performed worst, posting double-digit losses for all of the funds as its stocks declined across the board amid tumbling prices. Basic materials
Total Returns | |
Inception Through August 31, 2015 | |
Average | |
Annual Return | |
Mega Cap Index Fund ETF Shares Net Asset Value (Returns since inception: 12/17/2007) | 6.26% |
Spliced Mega Cap Index | 6.34 |
Large-Cap Core Funds Average | 5.13 |
For a benchmark description, see the Glossary. | |
Large-Cap Core Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Mega Cap Growth Index Fund ETF Shares Net Asset Value (Returns since inception: 12/17/2007) | 8.04% |
Spliced Mega Cap Growth Index | 8.14 |
Large-Cap Growth Funds Average | 6.21 |
For a benchmark description, see the Glossary. | |
Large-Cap Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Mega Cap Value Index Fund ETF Shares Net Asset Value (Returns since inception: 12/17/2007) | 4.58% |
Spliced Mega Cap Value Index | 4.63 |
Large-Cap Value Funds Average | 4.31 |
For a benchmark description, see the Glossary. | |
Large-Cap Value Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. |
The figures shown represent past performance, which is not a guarantee of future results. (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.
5
were hurt by the same commodity crunch, which put pressure on metals and mining prices, as well as by weak results from chemical companies.
The funds have been successful at tightly tracking their indexes
For the period from their inception in December 2007 through August 31, 2015, the Mega Cap Index Funds posted average annual returns ranging from 8.04% for the Growth Index Fund to 4.58% for the Value Index Fund. The Mega Cap Index Fund returned 6.26%. Each fund outpaced the average result of its peers.
All three funds have met their objective of closely tracking their respective target indexes. Vanguard Equity Index Group, the funds’ advisor, is responsible for this success. The group has kept the funds on target with sophisticated portfolio and management techniques refined over the decades. Low expenses––which allow you to keep more of the funds’ returns––have helped in these efforts.
An indexing benefit that’s worth keeping in mind
As a Vanguard investor, you’re probably familiar with the cost and diversification benefits that index funds typically offer. But there’s a lesser-known—yet important—advantage to indexing as well: relative predictability.
Simply put, index funds help you capture the market’s return more predictably than actively managed funds.
By definition, an index fund is built and managed to track the return of its designated broad market or market segment. Some do so more closely than others. But what’s key is that you know what to expect: whatever the market returns—good or bad—minus the fund’s costs. Active managers, in contrast, seek to beat the market—and do so with varying degrees of success at different times.
The relative predictability of indexing can help you stay on course with your investment goals, by reducing the likelihood of particular surprises—such as being out of step with market performance. The confidence of knowing that you’ll earn a market-like return can reduce the temptation to trade based on emotions.
We recognize that some investors want the opportunity to outperform the market. That’s why Vanguard also offers low-cost active funds managed by carefully selected, world-class advisors, so you can choose an investment strategy that aligns with both your goals and your risk appetite.
6
When the markets are volatile, maintaining perspective is key
Volatility returned to the stock market with a vengeance in the final weeks of August as investors worried that a slowdown in China’s economic growth could affect world markets.
This turmoil may have evoked painful memories of previous financial setbacks—memories that had been receding after more than six years of strong U.S. stock performance. Inevitably, that sort of upheaval can lead some investors to make rash moves with their portfolios.
During periods of market adversity, however, it’s more important than ever to keep sight of one of Vanguard’s key principles: Maintain perspective and long-term discipline. Whether you’re investing for yourself or on behalf of clients, your success is affected greatly by how you react—or don’t react—when the markets turn turbulent. (You can read more in Vanguard’s Principles for Investing Success at vanguard.com/research.)
As I’ve written in the past, the best course for long-term investors generally is to ignore daily market moves and not make decisions based on emotion. This is also a good time to evaluate your portfolio and make sure your asset allocation is aligned with your time horizon, goals, and risk tolerance.
The markets are unpredictable and often confounding. Keeping long-term plans clearly in focus can help you weather these periodic storms.
As always, thank you for investing with Vanguard.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/megacapindexfundsx9x1.jpg)
F. William McNabb III
Chairman and Chief Executive Officer
September 17, 2015
7
Your Fund’s Performance at a Glance | ||||
August 31, 2014, Through August 31, 2015 | ||||
Distributions Per Share | ||||
Starting | Ending | Income | Capital | |
Share Price | Share Price | Dividends | Gains | |
Vanguard Mega Cap Index Fund | ||||
ETF Shares | $68.69 | $67.35 | $1.362 | $0.000 |
Institutional Shares | 135.41 | 132.77 | 2.721 | 0.000 |
Vanguard Mega Cap Growth Index Fund | ||||
ETF Shares | $79.16 | $80.22 | $1.101 | $0.000 |
Institutional Shares | 157.21 | 159.31 | 2.204 | 0.000 |
Vanguard Mega Cap Value Index Fund | ||||
ETF Shares | $59.60 | $56.89 | $1.461 | $0.000 |
Institutional Shares | 118.18 | 112.80 | 2.929 | 0.000 |
8
Mega Cap Index Fund
Fund Profile
As of August 31, 2015
Share-Class Characteristics | |||
ETF | Institutional | ||
Shares | Shares | ||
Ticker Symbol | MGC | VMCTX | |
Expense Ratio1 | 0.11% | 0.08% | |
30-Day SEC Yield | 2.21% | 2.24% | |
Portfolio Characteristics | |||
DJ | |||
U.S. | |||
Total | |||
CRSP US | Market | ||
Mega Cap | FA | ||
Fund | Index | Index | |
Number of Stocks | 301 | 303 | 3,828 |
Median Market Cap | $94.4B | $93.7B | $47.2B |
Price/Earnings Ratio | 19.1x | 19.2x | 20.8x |
Price/Book Ratio | 2.7x | 2.7x | 2.6x |
Return on Equity | 18.7% | 18.5% | 17.1% |
Earnings Growth | |||
Rate | 9.6% | 9.5% | 10.2% |
Dividend Yield | 2.3% | 2.3% | 2.1% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 8% | — | — |
Short-Term | |||
Reserves | 0.2% | — | — |
Volatility Measures | ||
DJ | ||
Spliced | U.S. Total | |
Mega Cap | Market | |
Index | FA Index | |
R-Squared | 1.00 | 0.98 |
Beta | 1.00 | 0.97 |
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 | 4.3% |
Google Inc. | Internet | 2.4 |
Microsoft Corp. | Software | 2.1 |
Exxon Mobil Corp. | Integrated Oil & Gas | 2.1 |
Johnson & Johnson | Pharmaceuticals | 1.7 |
General Electric Co. | Diversified Industrials | 1.6 |
Berkshire Hathaway Inc. Reinsurance | 1.6 | |
Wells Fargo & Co. | Banks | 1.6 |
JPMorgan Chase & Co. | Banks | 1.6 |
AT&T Inc. | Fixed Line | |
Telecommunications | 1.3 | |
Top Ten | 20.3% | |
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 fiscal year ended August 31, 2015, the expense ratios were 0.09% for ETF Shares and 0.06% for Institutional Shares.
9
Mega Cap Index Fund
Sector Diversification (% of equity exposure)
DJ | |||
U.S. | |||
Total | |||
CRSP US | Market | ||
Mega Cap | FA | ||
Fund | Index | Index | |
Basic Materials | 2.0% | 2.0% | 2.4% |
Consumer Goods | 9.4 | 9.4 | 10.0 |
Consumer Services | 14.1 | 14.1 | 14.2 |
Financials | 18.1 | 18.1 | 19.4 |
Health Care | 15.7 | 15.7 | 14.2 |
Industrials | 10.3 | 10.3 | 12.3 |
Oil & Gas | 7.5 | 7.5 | 6.6 |
Technology | 17.5 | 17.5 | 15.7 |
Telecommunications | 2.8 | 2.8 | 2.2 |
Utilities | 2.6 | 2.6 | 3.0 |
10
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.
Cumulative Performance: December 17, 2007, Through August 31, 2015
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/megacapindexfundsx13x1.jpg)
For a benchmark description, see the Glossary.
Large-Cap Core Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.
"Since Inception" performance is calculated from the ETF Shares’ inception date for both the fund and its comparative standards.
Since | Final Value | |||
One | Five | Inception | of a $5,000,000 | |
Year | Years | (2/22/2008) | Investment | |
Mega Cap Index Fund Institutional Shares | -0.01% | 15.73% | 7.35% | $8,521,453 |
Spliced Mega Cap Index | 0.05 | 15.81 | 7.40 | 8,555,360 |
Dow Jones U.S. Total Stock Market Float | ||||
Adjusted Index | 0.29 | 16.01 | 7.83 | 8,812,631 |
"Since Inception" performance is calculated from the Institutional Shares’ inception date for both the fund and its comparative standards.
See Financial Highlights for dividend and capital gains information.
11
Mega Cap Index Fund
Cumulative Returns of ETF Shares: December 17, 2007, Through August 31, 2015 | |||
Since | |||
One | Five | Inception | |
Year | Years | (12/17/2007) | |
Mega Cap Index Fund ETF Shares Market Price | -0.03% | 107.56% | 59.64% |
Mega Cap Index Fund ETF Shares Net Asset Value | -0.05 | 107.30 | 59.60 |
Spliced Mega Cap Index | 0.05 | 108.29 | 60.62 |
"Since Inception" performance is calculated from the ETF Shares’ inception date for both the fund and its comparative standards.
Fiscal-Year Total Returns (%): December 17, 2007, Through August 31, 2015
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/megacapindexfundsx14x1.jpg)
Mega Cap Index Fund ETF Shares Net Asset Value
Spliced Mega Cap Index
For a benchmark description, see the Glossary.
Average Annual Total Returns: Periods Ended June 30, 2015
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 | |
ETF Shares | 12/17/2007 | |||
Market Price | 7.10% | 17.22% | 7.01% | |
Net Asset Value | 7.08 | 17.20 | 7.01 | |
Institutional Shares | 2/22/2008 | 7.13 | 17.24 | 8.15 |
12
Mega Cap Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 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 (2.0%) | ||
Dow Chemical Co. | 96,044 | 4,203 |
EI du Pont de | ||
Nemours & Co. | 75,376 | 3,882 |
LyondellBasell Industries | ||
NV Class A | 31,466 | 2,686 |
Praxair Inc. | 24,016 | 2,540 |
Ecolab Inc. | 22,339 | 2,438 |
Air Products & | ||
Chemicals Inc. | 16,094 | 2,246 |
PPG Industries Inc. | 22,590 | 2,153 |
International Paper Co. | 35,168 | 1,517 |
Nucor Corp. | 26,649 | 1,154 |
Mosaic Co. | 27,574 | 1,126 |
Freeport-McMoRan Inc. | 86,385 | 919 |
Newmont Mining Corp. | 21,811 | 372 |
25,236 | ||
Consumer Goods (9.4%) | ||
Procter & Gamble Co. | 225,981 | 15,970 |
Coca-Cola Co. | 326,614 | 12,842 |
PepsiCo Inc. | 122,915 | 11,423 |
Philip Morris | ||
International Inc. | 129,011 | 10,295 |
Altria Group Inc. | 163,799 | 8,776 |
NIKE Inc. Class B | 56,835 | 6,351 |
Mondelez International Inc. | ||
Class A | 128,540 | 5,445 |
Colgate-Palmolive Co. | 75,313 | 4,730 |
Ford Motor Co. | 324,669 | 4,503 |
Monsanto Co. | 39,653 | 3,872 |
Kraft Heinz Co. | 49,726 | 3,613 |
General Motors Co. | 120,480 | 3,547 |
Kimberly-Clark Corp. | 30,344 | 3,233 |
Reynolds American Inc. | 34,566 | 2,895 |
General Mills Inc. | 49,692 | 2,821 |
Archer-Daniels-Midland Co. | 51,556 | 2,320 |
Johnson Controls Inc. | 54,642 | 2,248 |
VF Corp. | 28,244 | 2,046 |
Market | |||
Value• | |||
Shares | ($000) | ||
* | Tesla Motors Inc. | 7,882 | 1,963 |
Estee Lauder Cos. Inc. | |||
Class A | 19,207 | 1,532 | |
Kellogg Co. | 20,629 | 1,367 | |
Mead Johnson Nutrition Co. | 16,940 | 1,327 | |
Stanley Black & Decker Inc. | 12,848 | 1,304 | |
Activision Blizzard Inc. | 42,261 | 1,210 | |
Hershey Co. | 11,865 | 1,062 | |
Delphi Automotive plc | 12,128 | 916 | |
Brown-Forman Corp. | |||
Class B | 8,948 | 878 | |
Campbell Soup Co. | 17,036 | 818 | |
* | Michael Kors Holdings Ltd. | 7,864 | 342 |
119,649 | |||
Consumer Services (14.1%) | |||
* | Amazon.com Inc. | 31,011 | 15,905 |
Walt Disney Co. | 127,116 | 12,951 | |
Home Depot Inc. | 108,198 | 12,601 | |
CVS Health Corp. | 93,955 | 9,621 | |
Comcast Corp. Class A | 169,543 | 9,550 | |
Wal-Mart Stores Inc. | 120,924 | 7,827 | |
McDonald’s Corp. | 79,943 | 7,596 | |
Starbucks Corp. | 118,750 | 6,497 | |
Walgreens Boots | |||
Alliance Inc. | 72,682 | 6,291 | |
Lowe’s Cos. Inc. | 79,235 | 5,481 | |
* | Priceline Group Inc. | 4,318 | 5,392 |
Costco Wholesale Corp. | 36,665 | 5,135 | |
Time Warner Inc. | 65,271 | 4,641 | |
Time Warner Cable Inc. | 23,599 | 4,390 | |
Target Corp. | 53,244 | 4,138 | |
* | Netflix Inc. | 33,575 | 3,862 |
McKesson Corp. | 19,281 | 3,810 | |
TJX Cos. Inc. | 53,976 | 3,796 | |
Twenty-First Century | |||
Fox Inc. Class A | 127,212 | 3,484 | |
Delta Air Lines Inc. | 68,116 | 2,982 | |
Yum! Brands Inc. | 35,993 | 2,871 | |
Kroger Co. | 77,654 | 2,679 |
13
Mega Cap Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
* | eBay Inc. | 91,127 | 2,470 |
Cardinal Health Inc. | 27,541 | 2,266 | |
American Airlines Group Inc. | 57,671 | 2,248 | |
Comcast Corp. Special | |||
Class A | 37,325 | 2,136 | |
Southwest Airlines Co. | 55,568 | 2,039 | |
Sysco Corp. | 49,298 | 1,966 | |
* | AutoZone Inc. | 2,647 | 1,895 |
L Brands Inc. | 20,760 | 1,742 | |
Carnival Corp. | 34,604 | 1,704 | |
Macy’s Inc. | 28,347 | 1,661 | |
CBS Corp. Class B | 36,442 | 1,649 | |
Las Vegas Sands Corp. | 33,200 | 1,535 | |
Omnicom Group Inc. | 20,316 | 1,361 | |
Viacom Inc. Class B | 28,178 | 1,149 | |
* | DISH Network Corp. | ||
Class A | 17,728 | 1,051 | |
Hilton Worldwide | |||
Holdings Inc. | 41,015 | 1,018 | |
Starwood Hotels & Resorts | |||
Worldwide Inc. | 14,194 | 1,014 | |
Whole Foods Market Inc. | 29,850 | 978 | |
Dollar General Corp. | 12,095 | 901 | |
* | United Continental | ||
Holdings Inc. | 15,801 | 900 | |
AmerisourceBergen Corp. | |||
Class A | 8,821 | 882 | |
* | Bed Bath & Beyond Inc. | 13,778 | 856 |
Kohl’s Corp. | 16,076 | 820 | |
* | Sirius XM Holdings Inc. | 180,863 | 690 |
Gap Inc. | 19,146 | 628 | |
* | Liberty Media Corp. | 15,861 | 574 |
* | Liberty Interactive Corp. | ||
QVC Group Class A | 18,343 | 496 | |
Twenty-First Century | |||
Fox Inc. | 14,166 | 392 | |
* | Liberty Media Corp. Class A | 7,677 | 286 |
Wynn Resorts Ltd. | 3,331 | 250 | |
179,057 | |||
Financials (18.1%) | |||
Wells Fargo & Co. | 385,965 | 20,583 | |
* | Berkshire Hathaway Inc. | ||
Class B | 152,223 | 20,404 | |
JPMorgan Chase & Co. | 308,997 | 19,807 | |
Bank of America Corp. | 874,554 | 14,290 | |
Citigroup Inc. | 239,971 | 12,834 | |
Visa Inc. Class A | 163,025 | 11,624 | |
MasterCard Inc. Class A | 83,672 | 7,729 | |
American International | |||
Group Inc. | 111,035 | 6,700 | |
Goldman Sachs Group Inc. | 32,361 | 6,103 | |
US Bancorp | 140,408 | 5,946 | |
American Express Co. | 71,891 | 5,515 | |
Simon Property Group Inc. | 25,916 | 4,647 |
Market | |||
Value• | |||
Shares | ($000) | ||
Morgan Stanley | 122,976 | 4,236 | |
PNC Financial Services | |||
Group Inc. | 43,182 | 3,935 | |
MetLife Inc. | 74,301 | 3,722 | |
Capital One Financial Corp. | 45,569 | 3,543 | |
Bank of New York | |||
Mellon Corp. | 84,098 | 3,347 | |
American Tower Corporation | 35,220 | 3,247 | |
Prudential Financial Inc. | 37,709 | 3,043 | |
Charles Schwab Corp. | 98,472 | 2,992 | |
BlackRock Inc. | 8,925 | 2,700 | |
ACE Ltd. | 25,853 | 2,641 | |
Travelers Cos. Inc. | 26,487 | 2,637 | |
CME Group Inc. | 26,670 | 2,519 | |
Public Storage | 12,224 | 2,460 | |
Marsh & McLennan Cos. Inc. | 44,636 | 2,398 | |
BB&T Corp. | 64,648 | 2,387 | |
State Street Corp. | 32,565 | 2,342 | |
Crown Castle International | |||
Corp. | 27,772 | 2,316 | |
Chubb Corp. | 19,135 | 2,312 | |
McGraw Hill Financial Inc. | 22,737 | 2,205 | |
Aon plc | 23,484 | 2,194 | |
Equity Residential | 30,293 | 2,158 | |
Intercontinental | |||
Exchange Inc. | 9,291 | 2,122 | |
Aflac Inc. | 34,224 | 2,006 | |
Allstate Corp. | 33,995 | 1,981 | |
Discover Financial Services | 36,833 | 1,979 | |
SunTrust Banks Inc. | 42,883 | 1,731 | |
Ameriprise Financial Inc. | 15,065 | 1,697 | |
Prologis Inc. | 43,643 | 1,658 | |
Ventas Inc. | 27,698 | 1,524 | |
T. Rowe Price Group Inc. | 20,651 | 1,484 | |
Boston Properties Inc. | 12,797 | 1,451 | |
HCP Inc. | 38,414 | 1,424 | |
Progressive Corp. | 46,566 | 1,395 | |
Franklin Resources Inc. | 33,357 | 1,354 | |
Fifth Third Bancorp | 67,347 | 1,342 | |
Northern Trust Corp. | 18,471 | 1,290 | |
Vornado Realty Trust | 14,125 | 1,232 | |
Invesco Ltd. | 35,787 | 1,221 | |
Weyerhaeuser Co. | 43,262 | 1,209 | |
General Growth | |||
Properties Inc. | 44,243 | 1,123 | |
Host Hotels & Resorts Inc. | 63,204 | 1,121 | |
Health Care REIT Inc. | 14,635 | 927 | |
Loews Corp. | 24,619 | 897 | |
TD Ameritrade Holding Corp. | 20,208 | 676 | |
* | Synchrony Financial | 10,626 | 350 |
* | Berkshire Hathaway Inc. | ||
Class A | 1 | 203 | |
228,913 |
14
Mega Cap Index Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
Health Care (15.6%) | |||
Johnson & Johnson | 230,851 | 21,695 | |
Pfizer Inc. | 512,645 | 16,517 | |
Gilead Sciences Inc. | 122,384 | 12,859 | |
Merck & Co. Inc. | 235,218 | 12,666 | |
* | Allergan plc | 32,678 | 9,926 |
Amgen Inc. | 63,294 | 9,607 | |
UnitedHealth Group Inc. | 79,266 | 9,171 | |
Medtronic plc | 118,646 | 8,577 | |
AbbVie Inc. | 136,169 | 8,498 | |
Bristol-Myers Squibb Co. | 138,718 | 8,250 | |
* | Celgene Corp. | 66,022 | 7,796 |
Eli Lilly & Co. | 83,112 | 6,844 | |
* | Biogen Inc. | 19,590 | 5,824 |
Abbott Laboratories | 123,862 | 5,610 | |
* | Express Scripts Holding Co. | 60,789 | 5,082 |
Thermo Fisher Scientific Inc. | 33,133 | 4,154 | |
* | Alexion Pharmaceuticals Inc. | 19,787 | 3,407 |
Aetna Inc. | 29,118 | 3,335 | |
* | Regeneron | ||
Pharmaceuticals Inc. | 6,328 | 3,249 | |
Anthem Inc. | 21,970 | 3,099 | |
Cigna Corp. | 21,452 | 3,020 | |
Stryker Corp. | 26,760 | 2,640 | |
* | Vertex Pharmaceuticals Inc. | 20,312 | 2,590 |
Becton Dickinson and Co. | 17,412 | 2,455 | |
* | Illumina Inc. | 12,063 | 2,384 |
Humana Inc. | 12,509 | 2,287 | |
* | HCA Holdings Inc. | 25,987 | 2,251 |
Perrigo Co. plc | 11,562 | 2,116 | |
Baxter International Inc. | 45,211 | 1,738 | |
* | Mylan NV | 34,682 | 1,720 |
Zoetis Inc. | 37,440 | 1,680 | |
St. Jude Medical Inc. | 23,403 | 1,657 | |
Baxalta Inc. | 45,411 | 1,596 | |
* | Intuitive Surgical Inc. | 3,060 | 1,564 |
Zimmer Biomet Holdings Inc. | 14,196 | 1,470 | |
* | Boston Scientific Corp. | 55,988 | 937 |
198,271 | |||
Industrials (10.3%) | |||
General Electric Co. | 839,246 | 20,830 | |
3M Co. | 52,801 | 7,505 | |
Boeing Co. | 51,855 | 6,776 | |
United Technologies Corp. | 70,441 | 6,453 | |
Union Pacific Corp. | 72,910 | 6,251 | |
Honeywell International Inc. | 61,833 | 6,138 | |
United Parcel Service Inc. | |||
Class B | 58,369 | 5,700 | |
Accenture plc Class A | 52,098 | 4,911 | |
Lockheed Martin Corp. | 22,270 | 4,480 | |
Danaher Corp. | 50,168 | 4,366 | |
Caterpillar Inc. | 50,298 | 3,845 | |
FedEx Corp. | 22,452 | 3,382 | |
General Dynamics Corp. | 23,300 | 3,309 | |
* | PayPal Holdings Inc. | 91,027 | 3,186 |
Market | |||
Value• | |||
Shares | ($000) | ||
Automatic Data | |||
Processing Inc. | 39,216 | 3,032 | |
Emerson Electric Co. | 55,526 | 2,650 | |
Northrop Grumman Corp. | 16,124 | 2,640 | |
Raytheon Co. | 25,372 | 2,602 | |
Precision Castparts Corp. | 10,946 | 2,520 | |
CSX Corp. | 82,063 | 2,247 | |
Eaton Corp. plc | 38,795 | 2,214 | |
Illinois Tool Works Inc. | 25,986 | 2,197 | |
Deere & Co. | 26,525 | 2,169 | |
TE Connectivity Ltd. | 33,829 | 2,006 | |
Norfolk Southern Corp. | 25,372 | 1,977 | |
Waste Management Inc. | 38,126 | 1,909 | |
Cummins Inc. | 15,083 | 1,836 | |
PACCAR Inc. | 29,454 | 1,737 | |
Sherwin-Williams Co. | 6,586 | 1,685 | |
* | LinkedIn Corp. Class A | 9,164 | 1,655 |
Tyco International plc | 34,989 | 1,270 | |
Rockwell Automation Inc. | 11,245 | 1,258 | |
Ingersoll-Rand plc | 22,017 | 1,217 | |
Paychex Inc. | 27,215 | 1,215 | |
Parker-Hannifin Corp. | 10,937 | 1,178 | |
Agilent Technologies Inc. | 27,986 | 1,016 | |
Republic Services Inc. | |||
Class A | 20,385 | 835 | |
Xerox Corp. | 45,654 | 464 | |
Dover Corp. | 6,674 | 413 | |
131,074 | |||
Oil & Gas (7.5%) | |||
Exxon Mobil Corp. | 348,089 | 26,190 | |
Chevron Corp. | 156,685 | 12,690 | |
Schlumberger Ltd. | 105,763 | 8,183 | |
ConocoPhillips | 102,560 | 5,041 | |
Kinder Morgan Inc. | 144,621 | 4,687 | |
Occidental Petroleum Corp. | 63,966 | 4,670 | |
EOG Resources Inc. | 45,751 | 3,583 | |
Phillips 66 | 45,203 | 3,574 | |
Anadarko Petroleum Corp. | 42,398 | 3,035 | |
Williams Cos. Inc. | 56,158 | 2,707 | |
Halliburton Co. | 67,145 | 2,642 | |
Valero Energy Corp. | 42,443 | 2,518 | |
Marathon Petroleum Corp. | 45,291 | 2,143 | |
Baker Hughes Inc. | 36,153 | 2,025 | |
Spectra Energy Corp. | 55,790 | 1,622 | |
Pioneer Natural | |||
Resources Co. | 12,419 | 1,528 | |
Apache Corp. | 31,375 | 1,419 | |
Devon Energy Corp. | 32,425 | 1,383 | |
National Oilwell Varco Inc. | 32,285 | 1,367 | |
Hess Corp. | 20,357 | 1,210 | |
Noble Energy Inc. | 35,647 | 1,191 | |
Marathon Oil Corp. | 56,088 | 970 | |
* | Continental Resources Inc. | 7,636 | 245 |
94,623 |
15
Mega Cap Index Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
Technology (17.5%) | |||
Apple Inc. | 479,745 | 54,096 | |
Microsoft Corp. | 606,397 | 26,390 | |
* | Facebook Inc. Class A | 177,956 | 15,915 |
* | Google Inc. Class A | 24,009 | 15,553 |
* | Google Inc. Class C | 24,176 | 14,947 |
Intel Corp. | 394,893 | 11,270 | |
Cisco Systems Inc. | 423,350 | 10,956 | |
International Business | |||
Machines Corp. | 73,769 | 10,910 | |
Oracle Corp. | 272,669 | 10,113 | |
QUALCOMM Inc. | 135,700 | 7,678 | |
Hewlett-Packard Co. | 151,352 | 4,247 | |
Texas Instruments Inc. | 86,629 | 4,144 | |
EMC Corp. | 161,547 | 4,018 | |
* | salesforce.com inc | 51,929 | 3,602 |
* | Cognizant Technology | ||
Solutions Corp. Class A | 50,882 | 3,203 | |
* | Adobe Systems Inc. | 39,519 | 3,105 |
Avago Technologies Ltd. | |||
Class A | 21,314 | 2,685 | |
Broadcom Corp. Class A | 45,598 | 2,356 | |
* | Yahoo! Inc. | 70,533 | 2,274 |
Intuit Inc. | 21,836 | 1,872 | |
Corning Inc. | 104,475 | 1,798 | |
Applied Materials Inc. | 102,281 | 1,645 | |
* | Micron Technology Inc. | 90,015 | 1,477 |
Analog Devices Inc. | 26,023 | 1,454 | |
* | Twitter Inc. | 46,319 | 1,287 |
Symantec Corp. | 56,411 | 1,156 | |
Motorola Solutions Inc. | 15,794 | 1,024 | |
Western Digital Corp. | 9,193 | 753 | |
CA Inc. | 25,560 | 698 | |
* | VMware Inc. Class A | 6,796 | 538 |
SanDisk Corp. | 8,706 | 475 | |
NetApp Inc. | 12,849 | 411 | |
222,050 | |||
Telecommunications (2.8%) | |||
AT&T Inc. | 511,658 | 16,987 | |
Verizon | |||
Communications Inc. | 339,494 | 15,620 | |
CenturyLink Inc. | 46,762 | 1,264 | |
* | T-Mobile US Inc. | 23,646 | 937 |
* | Sprint Corp. | 65,242 | 330 |
35,138 | |||
Utilities (2.6%) | |||
Duke Energy Corp. | 57,584 | 4,083 | |
NextEra Energy Inc. | 36,926 | 3,634 | |
Dominion Resources Inc. | 49,337 | 3,441 | |
Southern Co. | 75,728 | 3,287 |
Market | ||
Value• | ||
Shares | ($000) | |
Exelon Corp. | 71,883 | 2,211 |
American Electric | ||
Power Co. Inc. | 40,710 | 2,210 |
PG&E Corp. | 39,886 | 1,978 |
Sempra Energy | 19,599 | 1,859 |
PPL Corp. | 55,450 | 1,718 |
Public Service Enterprise | ||
Group Inc. | 42,048 | 1,692 |
Edison International | 27,051 | 1,582 |
Consolidated Edison Inc. | 24,384 | 1,534 |
Xcel Energy Inc. | 42,142 | 1,422 |
FirstEnergy Corp. | 35,156 | 1,124 |
Entergy Corp. | 14,984 | 979 |
32,754 | ||
Total Common Stocks | ||
(Cost $977,704) | 1,266,765 | |
Temporary Cash Investments (0.0%)1 |
Face | |||
Amount | |||
($000) | |||
U.S. Government and Agency Obligations (0.0%) | |||
2,3 | Federal Home Loan | ||
Bank Discount Notes, | |||
0.090%, 9/18/15 | 100 | 100 | |
2,3 | Federal Home Loan | ||
Bank Discount Notes, | |||
0.100%, 10/23/15 | 100 | 100 | |
Total Temporary Cash Investments | |||
(Cost $200) | 200 | ||
Total Investments (99.9%) | |||
(Cost $977,904) | 1,266,965 | ||
Amount | |||
($000) | |||
Other Assets and Liabilities (0.1%) | |||
Other Assets | |||
Investment in Vanguard | 122 | ||
Receivables for Accrued Income | 2,963 | ||
Total Other Assets | 3,085 | ||
Liabilities | |||
Payables to Vanguard | (473) | ||
Other Liabilities | (1,442) | ||
Total Liabilities | (1,915) | ||
Net Assets (100%) | 1,268,135 |
16
Mega Cap Index Fund
At August 31, 2015, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 996,537 |
Undistributed Net Investment Income | 5,235 |
Accumulated Net Realized Losses | (22,640) |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 289,061 |
Futures Contracts | (58) |
Net Assets | 1,268,135 |
ETF Shares—Net Assets | |
Applicable to 14,400,000 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 969,784 |
Net Asset Value Per Share— | |
ETF Shares | $67.35 |
Institutional Shares—Net Assets | |
Applicable to 2,247,051 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 298,351 |
Net Asset Value Per Share— | |
Institutional Shares | $132.77 |
• 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 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.
3 Securities with a value of $200,000 have been segregated as initial margin for open futures contracts. REIT—Real Estate Investment Trust.
See accompanying Notes, which are an integral part of the Financial Statements.
17
Mega Cap Index Fund | |
Statement of Operations | |
Year Ended | |
August 31, 2015 | |
($000) | |
Investment Income | |
Income | |
Dividends | 27,653 |
Interest1 | 1 |
Securities Lending | 2 |
Total Income | 27,656 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 232 |
Management and Administrative—ETF Shares | 490 |
Management and Administrative—Institutional Shares | 97 |
Marketing and Distribution—ETF Shares | 135 |
Marketing and Distribution—Institutional Shares | 28 |
Custodian Fees | 31 |
Auditing Fees | 33 |
Shareholders’ Reports—ETF Shares | 24 |
Shareholders’ Reports—Institutional Shares | — |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 1,071 |
Net Investment Income | 26,585 |
Realized Net Gain (Loss) | |
Investment Securities Sold | 35,669 |
Futures Contracts | 310 |
Realized Net Gain (Loss) | 35,979 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | (61,197) |
Futures Contracts | (115) |
Change in Unrealized Appreciation (Depreciation) | (61,312) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 1,252 |
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.
18
Mega Cap Index Fund | ||
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2015 | 2014 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 26,585 | 19,872 |
Realized Net Gain (Loss) | 35,979 | 44,877 |
Change in Unrealized Appreciation (Depreciation) | (61,312) | 154,900 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 1,252 | 219,649 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (18,569) | (13,330) |
Institutional Shares | (6,719) | (6,371) |
Realized Capital Gain | ||
ETF Shares | — | — |
Institutional Shares | — | — |
Total Distributions | (25,288) | (19,701) |
Capital Share Transactions | ||
ETF Shares | 179,275 | 85,731 |
Institutional Shares | (11,272) | (88,842) |
Net Increase (Decrease) from Capital Share Transactions | 168,003 | (3,111) |
Total Increase (Decrease) | 143,967 | 196,837 |
Net Assets | ||
Beginning of Period | 1,124,168 | 927,331 |
End of Period1 | 1,268,135 | 1,124,168 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $5,235,000 and $3,938,000.
See accompanying Notes, which are an integral part of the Financial Statements.
19
Mega Cap Index Fund | |||||
Financial Highlights | |||||
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $68.69 | $55.99 | $48.52 | $41.80 | $36.03 |
Investment Operations | |||||
Net Investment Income | 1.399 | 1.250 | 1.189 | 1.000 | .842 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | (1.377) | 12.687 | 7.471 | 6.648 | 5.774 |
Total from Investment Operations | .022 | 13.937 | 8.660 | 7.648 | 6.616 |
Distributions | |||||
Dividends from Net Investment Income | (1.362) | (1.237) | (1.190) | (.928) | (.846) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.362) | (1.237) | (1.190) | (.928) | (.846) |
Net Asset Value, End of Period | $67.35 | $68.69 | $55.99 | $48.52 | $41.80 |
Total Return | -0.05% | 25.13% | 18.10% | 18.58% | 18.35% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $970 | $810 | $588 | $442 | $313 |
Ratio of Total Expenses to | |||||
Average Net Assets | 0.09% | 0.11% | 0.11% | 0.12% | 0.12% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.02% | 2.00% | 2.26% | 2.24% | 1.99% |
Portfolio Turnover Rate1 | 8% | 6% | 10% | 19% | 8% |
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.
20
Mega Cap Index Fund | |||||
Financial Highlights | |||||
Institutional Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $135.41 | $110.38 | $95.66 | $82.40 | $71.03 |
Investment Operations | |||||
Net Investment Income | 2.798 | 2.498 | 2.373 | 2.000 | 1.676 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | (2.717) | 25.000 | 14.727 | 13.113 | 11.379 |
Total from Investment Operations | .081 | 27.498 | 17.100 | 15.113 | 13.055 |
Distributions | |||||
Dividends from Net Investment Income | (2.721) | (2.468) | (2.380) | (1.853) | (1.685) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (2.721) | (2.468) | (2.380) | (1.853) | (1.685) |
Net Asset Value, End of Period | $132.77 | $135.41 | $110.38 | $95.66 | $82.40 |
Total Return | -0.01% | 25.15% | 18.13% | 18.63% | 18.38% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $298 | $314 | $339 | $250 | $152 |
Ratio of Total Expenses to | |||||
Average Net Assets | 0.06% | 0.08% | 0.08% | 0.08% | 0.10% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.05% | 2.03% | 2.29% | 2.28% | 2.01% |
Portfolio Turnover Rate1 | 8% | 6% | 10% | 19% | 8% |
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.
21
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: ETF Shares and Institutional Shares. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker. 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. 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 year ended August 31, 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.
22
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, 2012–2015), 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 counter-party 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 (“Vanguard”) participate in a $3 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 August 31, 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.
23
Mega Cap Index Fund
B. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At August 31, 2015, the fund had contributed to Vanguard capital in the amount of $122,000, 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 employees, respectively, 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 August 31, 2015, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 1,266,765 | — | — |
Temporary Cash Investments | — | 200 | — |
Futures Contracts—Liabilities1 | (10) | — | — |
Total | 1,266,755 | 200 | — |
1 Represents variation margin on the last day of the reporting period. |
D. At August 31, 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 | September 2015 | 10 | 985 | (58) |
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
24
Mega Cap Index Fund
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 year ended August 31, 2015, the fund realized $38,828,000 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.
For tax purposes, at August 31, 2015, the fund had $5,690,000 of ordinary income available for distribution. At August 31, 2015, the fund had available capital losses totaling $22,698,000 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 future net capital gains through August 31, 2018, and $6,203,000 through August 31, 2019. Capital losses of $3,919,000 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.
At August 31, 2015, the cost of investment securities for tax purposes was $977,904,000. Net unrealized appreciation of investment securities for tax purposes was $289,061,000, consisting of unrealized gains of $319,463,000 on securities that had risen in value since their purchase and $30,402,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the year ended August 31, 2015, the fund purchased $353,666,000 of investment securities and sold $182,764,000 of investment securities, other than temporary cash investments. Purchases and sales include $229,909,000 and $77,463,000, 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: | ||||
Year Ended August 31, | ||||
2015 | 2014 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 266,566 | 3,825 | 186,602 | 3,000 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (87,291) | (1,225) | (100,871) | (1,700) |
Net Increase (Decrease)—ETF Shares | 179,275 | 2,600 | 85,731 | 1,300 |
Institutional Shares | ||||
Issued | 50,813 | 373 | 2,207 | 18 |
Issued in Lieu of Cash Distributions | 6,389 | 46 | 6,066 | 49 |
Redeemed | (68,474) | (488) | (97,115) | (825) |
Net Increase (Decrease) —Institutional Shares | (11,272) | (69) | (88,842) | (758) |
H. Management has determined that no material events or transactions occurred subsequent to August 31, 2015, that would require recognition or disclosure in these financial statements.
25
Mega Cap Growth Index Fund
Fund Profile
As of August 31, 2015
Share-Class Characteristics | |||
ETF | Institutional | ||
Shares | Shares | ||
Ticker Symbol | MGK | VMGAX | |
Expense Ratio1 | 0.11% | 0.10% | |
30-Day SEC Yield | 1.53% | 1.52% | |
Portfolio Characteristics | |||
DJ | |||
U.S. | |||
CRSP US | Total | ||
Mega Cap | Market | ||
Growth | FA | ||
Fund | Index | Index | |
Number of Stocks | 150 | 150 | 3,828 |
Median Market Cap | $90.4B | $90.4B | $47.2B |
Price/Earnings Ratio | 23.0x | 23.1x | 20.8x |
Price/Book Ratio | 4.6x | 4.6x | 2.6x |
Return on Equity | 22.3% | 21.9% | 17.1% |
Earnings Growth | |||
Rate | 16.7% | 16.6% | 10.2% |
Dividend Yield | 1.6% | 1.6% | 2.1% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 9% | — | — |
Short-Term | |||
Reserves | 0.1% | — | — |
Volatility Measures | ||
Spliced | DJ | |
Mega Cap | U.S. Total | |
Growth | Market | |
Index | FA Index | |
R-Squared | 1.00 | 0.90 |
Beta | 1.00 | 1.01 |
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 | 9.3% |
Google Inc. | Internet | 5.2 |
Facebook Inc. | Internet | 2.7 |
Amazon.com Inc. | Broadline Retailers | 2.7 |
Walt Disney Co. | Broadcasting & | |
Entertainment | 2.2 | |
Gilead Sciences Inc. | Biotechnology | 2.2 |
Coca-Cola Co. | Soft Drinks | 2.2 |
Home Depot Inc. | Home Improvement | |
Retailers | 2.2 | |
Comcast Corp. | Broadcasting & | |
Entertainment | 2.0 | |
Visa Inc. | Consumer Finance | 2.0 |
Top Ten | 32.7% | |
The holdings listed exclude any temporary cash investments and equity index products. | ||
Investment Focus
1 The expense ratios shown are from the prospectus dated December 23, 2014, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2015, the expense ratios were 0.09% for ETF Shares and 0.08% for Institutional Shares.
26
Mega Cap Growth Index Fund
Sector Diversification (% of equity exposure)
DJ | |||
U.S. | |||
CRSP US | Total | ||
Mega Cap | Market | ||
Growth | FA | ||
Fund | Index | Index | |
Basic Materials | 1.6% | 1.6% | 2.4% |
Consumer Goods | 8.5 | 8.5 | 10.0 |
Consumer Services | 22.7 | 22.7 | 14.2 |
Financials | 12.0 | 12.0 | 19.4 |
Health Care | 15.0 | 15.0 | 14.2 |
Industrials | 10.2 | 10.2 | 12.3 |
Oil & Gas | 4.3 | 4.3 | 6.6 |
Technology | 25.7 | 25.7 | 15.7 |
Telecommunications | 0.0 | 0.0 | 2.2 |
Utilities | 0.0 | 0.0 | 3.0 |
27
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.
Cumulative Performance: December 17, 2007, Through August 31, 2015
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/megacapindexfundsx30x1.jpg)
Average Annual Total Returns | |||||
Periods Ended August 31, 2015 | |||||
Since | Final Value | ||||
One | Five | Inception | of a $10,000 | ||
Year | Years | (12/17/2007) | Investment | ||
Mega Cap Growth Index Fund*ETF | |||||
Shares Net Asset Value | 2.70% | 17.33% | 8.04% | $18,139 | |
Mega Cap Growth Index Fund*ETF | |||||
Shares Market Price | 2.74 | 17.36 | 8.04 | 18,145 | |
•••••••• | Spliced Mega Cap Growth Index | 2.81 | 17.45 | 8.14 | 18,273 |
– – – – | Large-Cap Growth Funds Average | 3.53 | 15.68 | 6.21 | 15,903 |
Dow Jones U.S. Total Stock Market | |||||
Float Adjusted Index | 0.29 | 16.01 | 6.81 | 16,611 | |
For a benchmark description, see the Glossary. | |||||
Large-Cap Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |||||
"Since Inception" performance is calculated from the ETF Shares’ inception date for both the fund and its comparative standards. |
Since | Final Value | |||
One | Five | Inception | of a $5,000,000 | |
Year | Years | (4/3/2008) | Investment | |
Mega Cap Growth Index Fund Institutional | ||||
Shares | 2.71% | 17.35% | 9.13% | $9,555,243 |
Spliced Mega Cap Growth Index | 2.81 | 17.45 | 9.22 | 9,610,738 |
Dow Jones U.S. Total Stock Market Float | ||||
Adjusted Index | 0.29 | 16.01 | 7.77 | 8,702,363 |
"Since Inception" performance is calculated from the Institutional Shares’ inception date for both the fund and its comparative standards. | ||||
See Financial Highlights for dividend and capital gains information. |
28
Mega Cap Growth Index Fund
Cumulative Returns of ETF Shares: December 17, 2007, Through August 31, 2015 | |||
Since | |||
One | Five | Inception | |
Year | Years | (12/17/2007) | |
Mega Cap Growth Index Fund ETF Shares Market | |||
Price | 2.74% | 122.65% | 81.45% |
Mega Cap Growth Index Fund ETF Shares Net | |||
Asset Value | 2.70 | 122.34 | 81.39 |
Spliced Mega Cap Growth Index | 2.81 | 123.45 | 82.73 |
"Since Inception" performance is calculated from the ETF Shares’ inception date for both the fund and its comparative standards.
Fiscal-Year Total Returns (%): December 17, 2007, Through August 31, 2015
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/megacapindexfundsx31x1.jpg)
Mega Cap Growth Index Fund ETF Shares Net Asset Value
Spliced Mega Cap Growth Index
For a benchmark description, see the Glossary.
Average Annual Total Returns: Periods Ended June 30, 2015
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 | |
ETF Shares | 12/17/2007 | |||
Market Price | 9.57% | 18.65% | 8.71% | |
Net Asset Value | 9.53 | 18.64 | 8.71 | |
Institutional Shares | 4/3/2008 | 9.55 | 18.66 | 9.87 |
29
Mega Cap Growth Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 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 (99.8%)1 | ||||
Basic Materials (1.6%) | ||||
Praxair Inc. | 80,694 | 8,534 | ||
Ecolab Inc. | 74,878 | 8,172 | ||
PPG Industries Inc. | 75,961 | 7,238 | ||
Nucor Corp. | 89,286 | 3,865 | ||
Air Products & | ||||
Chemicals Inc. | 26,997 | 3,767 | ||
31,576 | ||||
Consumer Goods (8.4%) | ||||
Coca-Cola Co. | 1,096,912 | 43,131 | ||
Philip Morris | ||||
International Inc. | 433,188 | 34,568 | ||
NIKE Inc. Class B | 190,785 | 21,320 | ||
Colgate-Palmolive Co. | 253,052 | 15,894 | ||
Monsanto Co. | 133,216 | 13,009 | ||
VF Corp. | 94,972 | 6,879 | ||
* | Tesla Motors Inc. | 26,480 | 6,595 | |
Estee Lauder Cos. Inc. | ||||
Class A | 64,495 | 5,145 | ||
Mead Johnson Nutrition Co. | 56,689 | 4,441 | ||
Stanley Black & Decker Inc. | 43,065 | 4,372 | ||
Hershey Co. | 39,810 | 3,564 | ||
Delphi Automotive plc | 40,405 | 3,051 | ||
Brown-Forman Corp. | ||||
Class B | 30,075 | 2,950 | ||
* | Michael Kors Holdings Ltd. | 26,616 | 1,157 | |
166,076 | ||||
Consumer Services (22.7%) | ||||
* | Amazon.com Inc. | 104,168 | 53,427 | |
Walt Disney Co. | 426,986 | 43,501 | ||
Home Depot Inc. | 363,296 | 42,309 | ||
Comcast Corp. Class A | 647,306 | 36,463 | ||
McDonald’s Corp. | 268,016 | 25,467 | ||
Starbucks Corp. | 398,581 | 21,806 | ||
Lowe’s Cos. Inc. | 266,173 | 18,411 | ||
* | Priceline Group Inc. | 14,495 | 18,099 | |
Costco Wholesale Corp. | 123,091 | 17,239 | ||
Time Warner Inc. | 219,005 | 15,571 |
Market | |||
Value• | |||
Shares | ($000) | ||
Time Warner Cable Inc. | 79,117 | 14,717 | |
* | Netflix Inc. | 112,801 | 12,976 |
TJX Cos. Inc. | 181,242 | 12,745 | |
Walgreens Boots | |||
Alliance Inc. | 121,908 | 10,551 | |
Twenty-First Century | |||
Fox Inc. Class A | 383,119 | 10,494 | |
Yum! Brands Inc. | 120,815 | 9,637 | |
* | eBay Inc. | 305,432 | 8,280 |
American Airlines | |||
Group Inc. | 193,552 | 7,545 | |
Southwest Airlines Co. | 186,719 | 6,853 | |
* | AutoZone Inc. | 8,885 | 6,362 |
L Brands Inc. | 69,587 | 5,838 | |
CBS Corp. Class B | 122,503 | 5,542 | |
Las Vegas Sands Corp. | 111,497 | 5,155 | |
* | DISH Network Corp. | ||
Class A | 59,735 | 3,540 | |
Hilton Worldwide | |||
Holdings Inc. | 138,136 | 3,430 | |
Starwood Hotels & Resorts | |||
Worldwide Inc. | 47,929 | 3,425 | |
Whole Foods Market Inc. | 100,260 | 3,285 | |
Dollar General Corp. | 40,326 | 3,004 | |
AmerisourceBergen Corp. | |||
Class A | 29,202 | 2,921 | |
* | Bed Bath & Beyond Inc. | 46,040 | 2,860 |
Comcast Corp. Special | |||
Class A | 47,634 | 2,727 | |
Twenty-First Century | |||
Fox Inc. | 91,820 | 2,540 | |
* | Sirius XM Holdings Inc. | 612,591 | 2,337 |
Gap Inc. | 64,571 | 2,119 | |
Viacom Inc. Class B | 47,178 | 1,923 | |
* | Liberty Interactive Corp. | ||
QVC Group Class A | 62,102 | 1,679 | |
Wynn Resorts Ltd. | 11,327 | 850 | |
Viacom Inc. Class A | 216 | 9 | |
CBS Corp. Class A | 141 | 7 | |
445,644 |
30
Mega Cap Growth Index Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
Financials (12.0%) | |||
Visa Inc. Class A | 547,351 | 39,026 | |
MasterCard Inc. Class A | 280,965 | 25,953 | |
American Express Co. | 241,294 | 18,512 | |
Simon Property Group Inc. | 86,985 | 15,598 | |
American Tower | |||
Corporation | 118,348 | 10,910 | |
Charles Schwab Corp. | 330,238 | 10,033 | |
BlackRock Inc. | 29,896 | 9,043 | |
Public Storage | 41,063 | 8,265 | |
Marsh & McLennan | |||
Cos. Inc. | 149,942 | 8,056 | |
Crown Castle International | |||
Corp. | 93,195 | 7,772 | |
McGraw Hill Financial Inc. | 76,474 | 7,417 | |
Aon plc | 78,905 | 7,373 | |
Equity Residential | 101,659 | 7,243 | |
Intercontinental | |||
Exchange Inc. | 31,097 | 7,103 | |
Prologis Inc. | 146,762 | 5,577 | |
Ventas Inc. | 92,964 | 5,115 | |
T. Rowe Price Group Inc. | 69,121 | 4,968 | |
Boston Properties Inc. | 42,814 | 4,854 | |
Franklin Resources Inc. | 112,522 | 4,566 | |
Vornado Realty Trust | 47,282 | 4,123 | |
Invesco Ltd. | 120,289 | 4,103 | |
Weyerhaeuser Co. | 144,823 | 4,046 | |
General Growth | |||
Properties Inc. | 148,575 | 3,771 | |
Host Hotels & Resorts Inc. | 211,967 | 3,758 | |
Health Care REIT Inc. | 49,113 | 3,111 | |
HCP Inc. | 64,578 | 2,393 | |
TD Ameritrade Holding Corp. | 68,462 | 2,291 | |
234,980 | |||
Health Care (14.9%) | |||
Gilead Sciences Inc. | 410,917 | 43,175 | |
* | Allergan plc | 109,732 | 33,330 |
Amgen Inc. | 212,616 | 32,271 | |
AbbVie Inc. | 457,321 | 28,542 | |
* | Celgene Corp. | 221,802 | 26,190 |
* | Biogen Inc. | 65,785 | 19,558 |
* | Express Scripts Holding Co. | 203,891 | 17,045 |
Thermo Fisher Scientific Inc. | 111,376 | 13,963 | |
* | Alexion Pharmaceuticals Inc. | 66,425 | 11,438 |
* | Regeneron | ||
Pharmaceuticals Inc. | 21,258 | 10,916 | |
Stryker Corp. | 89,834 | 8,862 | |
* | Vertex Pharmaceuticals Inc. | 68,282 | 8,707 |
* | Illumina Inc. | 40,258 | 7,955 |
Perrigo Co. plc | 38,802 | 7,100 | |
* | Mylan NV | 116,310 | 5,768 |
Zoetis Inc. | 125,663 | 5,639 | |
* | Intuitive Surgical Inc. | 10,297 | 5,261 |
Becton Dickinson and Co. | 29,302 | 4,132 | |
* | Boston Scientific Corp. | 187,617 | 3,141 |
292,993 |
Market | |||
Value• | |||
Shares | ($000) | ||
Industrials (10.2%) | |||
3M Co. | 177,440 | 25,221 | |
Boeing Co. | 174,015 | 22,740 | |
Union Pacific Corp. | 244,778 | 20,987 | |
United Parcel Service Inc. | |||
Class B | 196,170 | 19,156 | |
Accenture plc Class A | 175,192 | 16,515 | |
Danaher Corp. | 168,184 | 14,635 | |
United Technologies Corp. | 118,136 | 10,823 | |
* | PayPal Holdings Inc. | 305,832 | 10,704 |
Automatic Data | |||
Processing Inc. | 131,193 | 10,144 | |
Precision Castparts Corp. | 36,730 | 8,457 | |
Cummins Inc. | 50,616 | 6,163 | |
PACCAR Inc. | 99,060 | 5,842 | |
FedEx Corp. | 37,789 | 5,691 | |
Sherwin-Williams Co. | 22,178 | 5,673 | |
* | LinkedIn Corp. Class A | 30,812 | 5,565 |
Rockwell Automation Inc. | 37,570 | 4,202 | |
Paychex Inc. | 91,474 | 4,085 | |
Agilent Technologies Inc. | 93,981 | 3,413 | |
200,016 | |||
Oil & Gas (4.3%) | |||
Schlumberger Ltd. | 354,934 | 27,461 | |
Kinder Morgan Inc. | 485,096 | 15,722 | |
EOG Resources Inc. | 153,360 | 12,009 | |
Anadarko Petroleum Corp. | 141,912 | 10,158 | |
Williams Cos. Inc. | 188,354 | 9,079 | |
Pioneer Natural | |||
Resources Co. | 41,779 | 5,141 | |
Noble Energy Inc. | 120,014 | 4,010 | |
* | Continental Resources Inc. | 26,259 | 843 |
84,423 | |||
Technology (25.7%) | |||
Apple Inc. | 1,610,858 | 181,640 | |
* | Facebook Inc. Class A | 597,466 | 53,432 |
* | Google Inc. Class A | 80,604 | 52,217 |
* | Google Inc. Class C | 81,213 | 50,210 |
Oracle Corp. | 915,601 | 33,960 | |
QUALCOMM Inc. | 455,781 | 25,788 | |
Texas Instruments Inc. | 290,927 | 13,918 | |
EMC Corp. | 542,635 | 13,495 | |
* | salesforce.com inc | 174,365 | 12,094 |
* | Cognizant Technology | ||
Solutions Corp. Class A | 170,555 | 10,735 | |
* | Adobe Systems Inc. | 132,902 | 10,442 |
Avago Technologies Ltd. | |||
Class A | 71,690 | 9,031 | |
* | Yahoo! Inc. | 235,991 | 7,608 |
Intuit Inc. | 73,175 | 6,275 | |
Applied Materials Inc. | 344,121 | 5,535 | |
* | Micron Technology Inc. | 302,991 | 4,972 |
Analog Devices Inc. | 87,550 | 4,891 | |
* | Twitter Inc. | 155,816 | 4,330 |
31
Mega Cap Growth Index Fund | ||
Market | ||
Value• | ||
Shares | ($000) | |
* VMware Inc. Class A | 22,480 | 1,779 |
SanDisk Corp. | 29,090 | 1,587 |
503,939 | ||
Total Common Stocks | ||
(Cost $1,571,396) | 1,959,647 | |
Temporary Cash Investments (0.1%)1 | ||
Money Market Fund (0.1%) | ||
2 Vanguard Market Liquidity | ||
Fund, 0.168% | 1,594,002 | 1,594 |
Face | ||
Amount | ||
($000) | ||
U.S. Government and Agency Obligations (0.0%) | ||
3,4 Federal Home Loan | ||
Bank Discount Notes, | ||
0.100%, 10/23/15 | 200 | 200 |
Total Temporary Cash Investments | ||
(Cost $1,794) | 1,794 | |
Total Investments (99.9%) | ||
(Cost $1,573,190) | 1,961,441 | |
Amount | ||
($000) | ||
Other Assets and Liabilities (0.1%) | ||
Other Assets | ||
Investment in Vanguard | 187 | |
Receivables for Accrued Income | 2,150 | |
Receivables for Capital Shares Issued | 9 | |
Total Other Assets | 2,346 | |
Liabilities | ||
Payables for Capital Shares Redeemed | (1) | |
Payables to Vanguard | (647) | |
Other Liabilities | (30) | |
Total Liabilities | (678) | |
Net Assets (100%) | 1,963,109 |
At August 31, 2015, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 1,585,515 |
Undistributed Net Investment Income | 5,179 |
Accumulated Net Realized Losses | (15,699) |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 388,251 |
Futures Contracts | (137) |
Net Assets | 1,963,109 |
ETF Shares—Net Assets | |
Applicable to 24,039,005 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 1,928,461 |
Net Asset Value Per Share— | |
ETF Shares | $80.22 |
Institutional Shares—Net Assets | |
Applicable to 217,481 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 34,648 |
Net Asset Value Per Share— | |
Institutional Shares | $159.31 |
• 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 $200,000 have been segregated as initial margin for open futures contracts. REIT—Real Estate Investment Trust.
See accompanying Notes, which are an integral part of the Financial Statements.
32
Mega Cap Growth Index Fund | |
Statement of Operations | |
Year Ended | |
August 31, 2015 | |
($000) | |
Investment Income | |
Income | |
Dividends | 28,207 |
Interest1 | 1 |
Securities Lending | 11 |
Total Income | 28,219 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 323 |
Management and Administrative—ETF Shares | 964 |
Management and Administrative—Institutional Shares | 16 |
Marketing and Distribution—ETF Shares | 241 |
Marketing and Distribution—Institutional Shares | — |
Custodian Fees | 20 |
Auditing Fees | 33 |
Shareholders’ Reports—ETF Shares | 58 |
Shareholders’ Reports—Institutional Shares | — |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 1,656 |
Net Investment Income | 26,563 |
Realized Net Gain (Loss) | |
Investment Securities Sold | 76,357 |
Futures Contracts | 139 |
Realized Net Gain (Loss) | 76,496 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | (64,115) |
Futures Contracts | (155) |
Change in Unrealized Appreciation (Depreciation) | (64,270) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 38,789 |
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.
33
Mega Cap Growth Index Fund | ||
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2015 | 2014 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 26,563 | 17,695 |
Realized Net Gain (Loss) | 76,496 | 16,159 |
Change in Unrealized Appreciation (Depreciation) | (64,270) | 271,004 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 38,789 | 304,858 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (24,235) | (17,090) |
Institutional Shares | (333) | (264) |
Realized Capital Gain | ||
ETF Shares | — | — |
Institutional Shares | — | — |
Total Distributions | (24,568) | (17,354) |
Capital Share Transactions | ||
ETF Shares | 393,456 | 202,339 |
Institutional Shares | 20,804 | (10,714) |
Net Increase (Decrease) from Capital Share Transactions | 414,260 | 191,625 |
Total Increase (Decrease) | 428,481 | 479,129 |
Net Assets | ||
Beginning of Period | 1,534,628 | 1,055,499 |
End of Period1 | 1,963,109 | 1,534,628 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $5,179,000 and $3,184,000.
See accompanying Notes, which are an integral part of the Financial Statements.
34
Mega Cap Growth Index Fund | |||||
Financial Highlights | |||||
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $79.16 | $62.69 | $55.92 | $46.87 | $38.78 |
Investment Operations | |||||
Net Investment Income | 1.148 | .994 | 1.006 | .7711 | .611 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 1.013 | 16.475 | 6.751 | 8.966 | 8.120 |
Total from Investment Operations | 2.161 | 17.469 | 7.757 | 9.737 | 8.731 |
Distributions | |||||
Dividends from Net Investment Income | (1.101) | (.999) | (.987) | (.687) | (.641) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.101) | (.999) | (.987) | (.687) | (.641) |
Net Asset Value, End of Period | $80.22 | $79.16 | $62.69 | $55.92 | $46.87 |
Total Return | 2.70% | 28.05% | 14.04% | 20.98% | 22.54% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $1,928 | $1,520 | $1,034 | $884 | $516 |
Ratio of Total Expenses to | |||||
Average Net Assets | 0.09% | 0.11% | 0.11% | 0.12% | 0.12% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.43% | 1.40% | 1.69% | 1.49% | 1.33% |
Portfolio Turnover Rate 2 | 9% | 11% | 41% | 16% | 26% |
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.
35
Mega Cap Growth Index Fund | |||||
Financial Highlights | |||||
Institutional Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $157.21 | $124.49 | $110.67 | $92.75 | $76.74 |
Investment Operations | |||||
Net Investment Income | 2.293 | 1.978 | 2.027 | 1.4531 | 1.227 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 2.011 | 32.732 | 13.374 | 17.831 | 16.067 |
Total from Investment Operations | 4.304 | 34.710 | 15.401 | 19.284 | 17.294 |
Distributions | |||||
Dividends from Net Investment Income | (2.204) | (1.990) | (1.581) | (1.364) | (1.284) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (2.204) | (1.990) | (1.581) | (1.364) | (1.284) |
Net Asset Value, End of Period | $159.31 | $157.21 | $124.49 | $110.67 | $92.75 |
Total Return | 2.71% | 28.07% | 14.05% | 21.00% | 22.57% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $35 | $15 | $21 | $0.2 | $124 |
Ratio of Total Expenses to | |||||
Average Net Assets | 0.08% | 0.10% | 0.10% | 0.09% | 0.10% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.44% | 1.41% | 1.70% | 1.52% | 1.35% |
Portfolio Turnover Rate 2 | 9% | 11% | 41% | 16% | 26% |
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.
36
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: ETF Shares and Institutional Shares. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker. 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. 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 year ended August 31, 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.
37
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, 2012–2015), 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 counter-party 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 (“Vanguard”) participate in a $3 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 August 31, 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.
38
Mega Cap Growth Index Fund
B. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At August 31, 2015, the fund had contributed to Vanguard capital in the amount of $187,000, 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 employees, respectively, 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 August 31, 2015, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 1,959,647 | — | — |
Temporary Cash Investments | 1,594 | 200 | — |
Futures Contracts—Liabilities1 | (26) | — | — |
Total | 1,961,215 | 200 | — |
1 Represents variation margin on the last day of the reporting period. |
D. At August 31, 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 | September 2015 | 4 | 1,969 | (106) |
E-mini S&P 500 Index | September 2015 | 5 | 492 | (31) |
(137) |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
39
Mega Cap Growth 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 year ended August 31, 2015, the fund realized $82,346,000 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.
For tax purposes, at August 31, 2015, the fund had $5,795,000 of ordinary income available for distribution. At August 31, 2015, the fund had available capital losses totaling $15,798,000 to offset future net capital gains. Of this amount, $4,562,000 is subject to expiration on August 31, 2019. Capital losses of $11,236,000 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.
At August 31, 2015, the cost of investment securities for tax purposes was $1,573,227,000. Net unrealized appreciation of investment securities for tax purposes was $388,214,000, consisting of unrealized gains of $431,411,000 on securities that had risen in value since their purchase and $43,197,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the year ended August 31, 2015, the fund purchased $763,589,000 of investment securities and sold $349,468,000 of investment securities, other than temporary cash investments. Purchases and sales include $541,941,000 and $179,762,000, 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: | ||||
Year Ended August 31, | ||||
2015 | 2014 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 590,060 | 7,189 | 272,056 | 3,700 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (196,604) | (2,350) | (69,717) | (1,000) |
Net Increase (Decrease) —ETF Shares | 393,456 | 4,839 | 202,339 | 2,700 |
Institutional Shares | ||||
Issued | 31,291 | 186 | 244 | 1 |
Issued in Lieu of Cash Distributions | 255 | 2 | 264 | 2 |
Redeemed | (10,742) | (64) | (11,222) | (79) |
Net Increase (Decrease) —Institutional Shares | 20,804 | 124 | (10,714) | (76) |
H. Management has determined that no material events or transactions occurred subsequent to August 31, 2015, that would require recognition or disclosure in these financial statements.
40
Mega Cap Value Index Fund
Fund Profile
As of August 31, 2015
Share-Class Characteristics | |||
ETF | Institutional | ||
Shares | Shares | ||
Ticker Symbol | MGV | VMVLX | |
Expense Ratio1 | 0.11% | 0.08% | |
30-Day SEC Yield | 2.78% | 2.82% | |
Portfolio Characteristics | |||
DJ | |||
U.S. | |||
CRSP US | Total | ||
Mega Cap | Market | ||
Value | FA | ||
Fund | Index | Index | |
Number of Stocks | 160 | 161 | 3,828 |
Median Market Cap | $110.1B | $105.4B | $47.2B |
Price/Earnings Ratio | 16.7x | 16.7x | 20.8x |
Price/Book Ratio | 2.0x | 2.0x | 2.6x |
Return on Equity | 15.9% | 15.9% | 17.1% |
Earnings Growth | |||
Rate | 4.1% | 3.9% | 10.2% |
Dividend Yield | 2.9% | 2.9% | 2.1% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 5% | — | — |
Short-Term | |||
Reserves | 0.1% | — | — |
Volatility Measures | ||
Spliced | DJ | |
Mega Cap | U.S. Total | |
Value | Market | |
Index | FA Index | |
R-Squared | 1.00 | 0.90 |
Beta | 1.00 | 0.95 |
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) | ||
Microsoft Corp. | Software | 3.9% |
Exxon Mobil Corp. | Integrated Oil & Gas | 3.8 |
Johnson & Johnson | Pharmaceuticals | 3.2 |
General Electric Co. | Diversified Industrials | 3.0 |
Berkshire Hathaway Inc. Reinsurance | 3.0 | |
Wells Fargo & Co. | Banks | 3.0 |
JPMorgan Chase & Co. | Banks | 2.9 |
AT&T Inc. | Fixed Line | |
Telecommunications | 2.5 | |
Pfizer Inc. | Pharmaceuticals | 2.4 |
Procter & Gamble Co. | Nondurable | |
Household Products | 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 fiscal year ended August 31, 2015, the expense ratios were 0.09% for ETF Shares and 0.06% for Institutional Shares.
41
Mega Cap Value Index Fund
Sector Diversification (% of equity exposure)
DJ | |||
U.S. | |||
CRSP US | Total | ||
Mega Cap | Market | ||
Value | FA | ||
Fund | Index | Index | |
Basic Materials | 2.3% | 2.3% | 2.4% |
Consumer Goods | 10.3 | 10.3 | 10.0 |
Consumer Services | 6.8 | 6.8 | 14.2 |
Financials | 23.2 | 23.3 | 19.4 |
Health Care | 16.2 | 16.2 | 14.2 |
Industrials | 10.5 | 10.5 | 12.3 |
Oil & Gas | 10.2 | 10.2 | 6.6 |
Technology | 10.6 | 10.5 | 15.7 |
Telecommunications | 5.1 | 5.1 | 2.2 |
Utilities | 4.8 | 4.8 | 3.0 |
42
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.
Cumulative Performance: December 17, 2007, Through August 31, 2015
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/megacapindexfundsx45x1.jpg)
Average Annual Total Returns | |||||
Periods Ended August 31, 2015 | |||||
Since | Final Value | ||||
One | Five | Inception | of a $10,000 | ||
Year | Years | (12/17/2007) | Investment | ||
Mega Cap Value Index Fund*ETF | |||||
Shares Net Asset Value | -2.22% | 14.26% | 4.58% | $14,117 | |
Mega Cap Value Index Fund*ETF | |||||
Shares Market Price | -2.14 | 14.29 | 4.58 | 14,122 | |
•••••••• | Spliced Mega Cap Value Index | -2.15 | 14.35 | 4.63 | 14,172 |
– – – – | Large-Cap Value Funds Average | -3.71 | 13.44 | 4.31 | 13,847 |
Dow Jones U.S. Total Stock Market | |||||
Float Adjusted Index | 0.29 | 16.01 | 6.81 | 16,611 | |
For a benchmark description, see the Glossary. | |||||
Large-Cap Value Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |||||
"Since Inception" performance is calculated from the ETF Shares’ inception date for both the fund and its comparative standards. |
Since | Final Value | |||
One | Five | Inception | of a $5,000,000 | |
Year | Years | (3/5/2008) | Investment | |
Mega Cap Value Index Fund Institutional | ||||
Shares | -2.19% | 14.29% | 5.93% | $7,694,592 |
Spliced Mega Cap Value Index | -2.15 | 14.35 | 5.94 | 7,704,814 |
Dow Jones U.S. Total Stock Market Float | ||||
Adjusted Index | 0.29 | 16.01 | 8.05 | 8,930,479 |
"Since Inception" performance is calculated from the Institutional Shares’ inception date for both the fund and its comparative standards.
See Financial Highlights for dividend and capital gains information.
43
Mega Cap Value Index Fund
Cumulative Returns of ETF Shares: December 17, 2007, Through August 31, 2015 | |||
Since | |||
One | Five | Inception | |
Year | Years | (12/17/2007) | |
Mega Cap Value Index Fund ETF Shares Market | |||
Price | -2.14% | 94.97% | 41.22% |
Mega Cap Value Index Fund ETF Shares Net Asset | |||
Value | -2.22 | 94.74 | 41.17 |
Spliced Mega Cap Value Index | -2.15 | 95.55 | 41.72 |
"Since Inception" performance is calculated from the ETF Shares’ inception date for both the fund and its comparative standards.
Fiscal-Year Total Returns (%): December 17, 2007, Through August 31, 2015
![](https://capedge.com/proxy/N-CSR/0000932471-15-007558/megacapindexfundsx46x1.jpg)
Mega Cap Value Index Fund ETF Shares Net Asset Value
Spliced Mega Cap Value Index
For a benchmark description, see the Glossary.
Average Annual Total Returns: Periods Ended June 30, 2015
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 | |
ETF Shares | 12/17/2007 | |||
Market Price | 5.33% | 15.97% | 5.41% | |
Net Asset Value | 5.17 | 15.92 | 5.39 | |
Institutional Shares | 3/5/2008 | 5.23 | 15.96 | 6.81 |
44
Mega Cap Value Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 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 (99.8%)1 | ||
Basic Materials (2.3%) | ||
Dow Chemical Co. | 164,002 | 7,177 |
EI du Pont de | ||
Nemours & Co. | 128,773 | 6,632 |
LyondellBasell Industries | ||
NV Class A | 53,928 | 4,605 |
International Paper Co. | 59,790 | 2,579 |
Air Products & | ||
Chemicals Inc. | 13,770 | 1,921 |
Mosaic Co. | 47,032 | 1,920 |
Freeport-McMoRan Inc. | 147,722 | 1,572 |
Newmont Mining Corp. | 37,675 | 643 |
27,049 | ||
Consumer Goods (10.3%) | ||
Procter & Gamble Co. | 385,761 | 27,262 |
PepsiCo Inc. | 210,017 | 19,517 |
Altria Group Inc. | 279,589 | 14,980 |
Mondelez International Inc. | ||
Class A | 219,664 | 9,305 |
Ford Motor Co. | 554,918 | 7,697 |
Kraft Heinz Co. | 84,800 | 6,161 |
General Motors Co. | 205,720 | 6,056 |
Kimberly-Clark Corp. | 51,811 | 5,519 |
Reynolds American Inc. | 58,973 | 4,939 |
General Mills Inc. | 84,701 | 4,808 |
Archer-Daniels-Midland Co. | 88,161 | 3,966 |
Johnson Controls Inc. | 93,093 | 3,830 |
Kellogg Co. | 35,166 | 2,331 |
Activision Blizzard Inc. | 72,267 | 2,069 |
Campbell Soup Co. | 28,810 | 1,383 |
119,823 | ||
Consumer Services (6.8%) | ||
CVS Health Corp. | 160,434 | 16,428 |
Wal-Mart Stores Inc. | 206,370 | 13,358 |
Target Corp. | 90,811 | 7,057 |
McKesson Corp. | 32,962 | 6,513 |
Walgreens Boots | ||
Alliance Inc. | 62,091 | 5,374 |
Delta Air Lines Inc. | 115,972 | 5,077 |
Market | |||
Value• | |||
Shares | ($000) | ||
Kroger Co. | 132,290 | 4,564 | |
Cardinal Health Inc. | 46,971 | 3,864 | |
Sysco Corp. | 84,547 | 3,371 | |
Carnival Corp. | 58,978 | 2,904 | |
Macy’s Inc. | 48,532 | 2,844 | |
Omnicom Group Inc. | 34,753 | 2,328 | |
* | United Continental | ||
Holdings Inc. | 27,184 | 1,549 | |
Kohl’s Corp. | 27,381 | 1,397 | |
* | Liberty Media Corp. | 27,429 | 994 |
Viacom Inc. Class B | 24,176 | 986 | |
* | Liberty Media Corp. Class A | 13,480 | 502 |
79,110 | |||
Financials (23.2%) | |||
Wells Fargo & Co. | 659,120 | 35,151 | |
* | Berkshire Hathaway Inc. | ||
Class B | 260,997 | 34,984 | |
JPMorgan Chase & Co. | 527,833 | 33,834 | |
Bank of America Corp. | 1,493,733 | 24,408 | |
Citigroup Inc. | 410,046 | 21,929 | |
American International | |||
Group Inc. | 189,691 | 11,446 | |
Goldman Sachs Group Inc. | 55,339 | 10,437 | |
US Bancorp | 239,588 | 10,147 | |
Morgan Stanley | 209,970 | 7,234 | |
PNC Financial Services | |||
Group Inc. | 73,759 | 6,721 | |
MetLife Inc. | 126,995 | 6,362 | |
Capital One Financial Corp. | 77,767 | 6,046 | |
Bank of New York | |||
Mellon Corp. | 143,575 | 5,714 | |
Prudential Financial Inc. | 64,496 | 5,205 | |
Travelers Cos. Inc. | 45,295 | 4,509 | |
ACE Ltd. | 44,073 | 4,503 | |
CME Group Inc. | 45,535 | 4,300 | |
BB&T Corp. | 110,430 | 4,077 | |
State Street Corp. | 55,577 | 3,997 | |
Chubb Corp. | 32,658 | 3,945 | |
Aflac Inc. | 58,535 | 3,430 | |
Allstate Corp. | 58,063 | 3,384 |
45
Mega Cap Value Index Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
Discover Financial Services | 62,842 | 3,377 | |
SunTrust Banks Inc. | 73,381 | 2,962 | |
Ameriprise Financial Inc. | 25,824 | 2,910 | |
Progressive Corp. | 79,221 | 2,373 | |
Fifth Third Bancorp | 115,056 | 2,292 | |
Northern Trust Corp. | 31,502 | 2,200 | |
Loews Corp. | 42,268 | 1,541 | |
HCP Inc. | 32,894 | 1,219 | |
* | Synchrony Financial | 17,889 | 589 |
* | Berkshire Hathaway Inc. | ||
Class A | 1 | 203 | |
271,429 | |||
Health Care (16.2%) | |||
Johnson & Johnson | 394,293 | 37,056 | |
Pfizer Inc. | 875,847 | 28,220 | |
Merck & Co. Inc. | 401,853 | 21,640 | |
UnitedHealth Group Inc. | 135,387 | 15,664 | |
Medtronic plc | 202,608 | 14,647 | |
Bristol-Myers Squibb Co. | 236,999 | 14,094 | |
Eli Lilly & Co. | 142,074 | 11,700 | |
Abbott Laboratories | 211,821 | 9,593 | |
Aetna Inc. | 49,615 | 5,682 | |
Anthem Inc. | 37,485 | 5,287 | |
Cigna Corp. | 36,607 | 5,154 | |
Humana Inc. | 21,267 | 3,887 | |
* | HCA Holdings Inc. | 44,308 | 3,838 |
Baxter International Inc. | 77,265 | 2,971 | |
St. Jude Medical Inc. | 39,939 | 2,828 | |
Baxalta Inc. | 77,265 | 2,716 | |
Zimmer Biomet | |||
Holdings Inc. | 24,212 | 2,507 | |
Becton Dickinson and Co. | 14,904 | 2,102 | |
189,586 | |||
Industrials (10.5%) | |||
General Electric Co. | 1,433,079 | 35,569 | |
Honeywell International Inc. | 105,570 | 10,480 | |
Lockheed Martin Corp. | 38,022 | 7,649 | |
Caterpillar Inc. | 85,946 | 6,570 | |
General Dynamics Corp. | 39,700 | 5,639 | |
United Technologies Corp. | 60,247 | 5,519 | |
Emerson Electric Co. | 94,998 | 4,533 | |
Northrop Grumman Corp. | 27,594 | 4,518 | |
Raytheon Co. | 43,416 | 4,453 | |
CSX Corp. | 140,437 | 3,845 | |
Eaton Corp. plc | 66,332 | 3,785 | |
Illinois Tool Works Inc. | 44,440 | 3,757 | |
Deere & Co. | 45,037 | 3,683 | |
TE Connectivity Ltd. | 57,739 | 3,423 | |
Norfolk Southern Corp. | 43,315 | 3,375 | |
Waste Management Inc. | 65,121 | 3,260 | |
FedEx Corp. | 19,172 | 2,888 | |
Tyco International plc | 59,855 | 2,172 | |
Ingersoll-Rand plc | 37,642 | 2,081 | |
Parker-Hannifin Corp. | 18,766 | 2,020 | |
Republic Services Inc. | |||
Class A | 34,996 | 1,434 |
Market | |||
Value• | |||
Shares | ($000) | ||
Xerox Corp. | 78,556 | 799 | |
Dover Corp. | 11,458 | 710 | |
122,162 | |||
Oil & Gas (10.1%) | |||
Exxon Mobil Corp. | 594,724 | 44,747 | |
Chevron Corp. | 267,412 | 21,658 | |
ConocoPhillips | 175,254 | 8,614 | |
Occidental Petroleum Corp. | 109,244 | 7,976 | |
Phillips 66 | 77,006 | 6,089 | |
Halliburton Co. | 114,801 | 4,517 | |
Valero Energy Corp. | 72,387 | 4,295 | |
Marathon Petroleum Corp. | 77,209 | 3,653 | |
Baker Hughes Inc. | 61,783 | 3,460 | |
Spectra Energy Corp. | 95,322 | 2,771 | |
Apache Corp. | 53,614 | 2,426 | |
Devon Energy Corp. | 55,490 | 2,367 | |
National Oilwell Varco Inc. | 55,098 | 2,332 | |
Hess Corp. | 34,775 | 2,067 | |
Marathon Oil Corp. | 95,896 | 1,658 | |
118,630 | |||
Technology (10.5%) | |||
Microsoft Corp. | 1,035,440 | 45,062 | |
Intel Corp. | 674,748 | 19,257 | |
Cisco Systems Inc. | 723,103 | 18,714 | |
International Business | |||
Machines Corp. | 126,067 | 18,644 | |
Hewlett-Packard Co. | 258,486 | 7,253 | |
Broadcom Corp. Class A | 77,958 | 4,028 | |
Corning Inc. | 178,756 | 3,077 | |
Symantec Corp. | 96,698 | 1,981 | |
Motorola Solutions Inc. | 27,015 | 1,751 | |
Western Digital Corp. | 15,537 | 1,274 | |
CA Inc. | 43,837 | 1,196 | |
NetApp Inc. | 22,214 | 710 | |
122,947 | |||
Telecommunications (5.1%) | |||
AT&T Inc. | 874,268 | 29,026 | |
Verizon | |||
Communications Inc. | 580,162 | 26,693 | |
CenturyLink Inc. | 80,130 | 2,167 | |
* | T-Mobile US Inc. | 40,424 | 1,601 |
* | Sprint Corp. | 113,339 | 573 |
60,060 | |||
Utilities (4.8%) | |||
Duke Energy Corp. | 98,363 | 6,975 | |
NextEra Energy Inc. | 63,232 | 6,223 | |
Dominion Resources Inc. | 84,476 | 5,892 | |
Southern Co. | 129,013 | 5,601 | |
American Electric | |||
Power Co. Inc. | 69,598 | 3,779 | |
Exelon Corp. | 122,273 | 3,761 | |
PG&E Corp. | 68,179 | 3,380 | |
Sempra Energy | 33,471 | 3,175 | |
PPL Corp. | 94,872 | 2,940 |
46
Mega Cap Value Index Fund | ||
Market | ||
Value• | ||
Shares | ($000) | |
Public Service Enterprise | ||
Group Inc. | 71,911 | 2,894 |
Edison International | 46,377 | 2,712 |
Consolidated Edison Inc. | 41,605 | 2,617 |
Xcel Energy Inc. | 72,099 | 2,432 |
FirstEnergy Corp. | 60,066 | 1,920 |
Entergy Corp. | 25,596 | 1,672 |
55,973 | ||
Total Common Stocks | ||
(Cost $1,050,351) | 1,166,769 | |
Temporary Cash Investments (0.0%)1 |
Face | ||
Amount | ||
($000) | ||
U.S. Government and Agency Obligations (0.0%) | ||
2,3 Federal Home Loan | ||
Bank Discount Notes, | ||
0.092%, 9/16/15 | ||
(Cost $300) | 300 | 300 |
Total Investments (99.8%) | ||
(Cost $1,050,651) | 1,167,069 | |
Amount | ||
($000) | ||
Other Assets and Liabilities (0.2%) | ||
Other Assets | ||
Investment in Vanguard | 111 | |
Receivables for Accrued Income | 3,978 | |
Receivables for Capital Shares Issued | 90 | |
Total Other Assets | 4,179 | |
Liabilities | ||
Payables for Capital Shares Redeemed | (65) | |
Payables to Vanguard | (431) | |
Other Liabilities | (909) | |
Total Liabilities | (1,405) | |
Net Assets (100%) | 1,169,843 |
At August 31, 2015, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 1,051,440 |
Undistributed Net Investment Income | 6,311 |
Accumulated Net Realized Losses | (4,181) |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 116,418 |
Futures Contracts | (145) |
Net Assets | 1,169,843 |
ETF Shares—Net Assets | |
Applicable to 16,817,638 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 956,724 |
Net Asset Value Per Share— | |
ETF Shares | $56.89 |
Institutional Shares—Net Assets | |
Applicable to 1,889,331 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 213,119 |
Net Asset Value Per Share— | |
Institutional Shares | $112.80 |
• 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 -0.2%, respectively,
of net assets.
2 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.
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.
47
Mega Cap Value Index Fund | |
Statement of Operations | |
Year Ended | |
August 31, 2015 | |
($000) | |
Investment Income | |
Income | |
Dividends | 30,421 |
Interest1 | 2 |
Total Income | 30,423 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 207 |
Management and Administrative—ETF Shares | 486 |
Management and Administrative—Institutional Shares | 43 |
Marketing and Distribution—ETF Shares | 134 |
Marketing and Distribution—Institutional Shares | 32 |
Custodian Fees | 22 |
Auditing Fees | 33 |
Shareholders’ Reports—ETF Shares | 23 |
Shareholders’ Reports—Institutional Shares | 4 |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 985 |
Net Investment Income | 29,438 |
Realized Net Gain (Loss) | |
Investment Securities Sold | 35,012 |
Futures Contracts | 316 |
Realized Net Gain (Loss) | 35,328 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | (93,409) |
Futures Contracts | (163) |
Change in Unrealized Appreciation (Depreciation) | (93,572) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (28,806) |
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.
48
Mega Cap Value Index Fund | ||
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2015 | 2014 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 29,438 | 22,431 |
Realized Net Gain (Loss) | 35,328 | 66,443 |
Change in Unrealized Appreciation (Depreciation) | (93,572) | 96,068 |
Net Increase (Decrease) in Net Assets Resulting from Operations | (28,806) | 184,942 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (22,866) | (16,562) |
Institutional Shares | (5,417) | (4,526) |
Realized Capital Gain | ||
ETF Shares | — | — |
Institutional Shares | — | — |
Total Distributions | (28,283) | (21,088) |
Capital Share Transactions | ||
ETF Shares | 133,373 | 130,154 |
Institutional Shares | 11,363 | 13,763 |
Net Increase (Decrease) from Capital Share Transactions | 144,736 | 143,917 |
Total Increase (Decrease) | 87,647 | 307,771 |
Net Assets | ||
Beginning of Period | 1,082,196 | 774,425 |
End of Period1 | 1,169,843 | 1,082,196 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $6,311,000 and $5,156,000.
See accompanying Notes, which are an integral part of the Financial Statements.
49
Mega Cap Value Index Fund | |||||
Financial Highlights | |||||
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $59.60 | $49.65 | $41.80 | $37.09 | $33.26 |
Investment Operations | |||||
Net Investment Income | 1.484 | 1.338 | 1.2721 | 1.164 | .983 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | (2.733) | 9.911 | 7.809 | 4.689 | 3.805 |
Total from Investment Operations | (1.249) | 11.249 | 9.081 | 5.853 | 4.788 |
Distributions | |||||
Dividends from Net Investment Income | (1.461) | (1.299) | (1.231) | (1.143) | (. 958) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.461) | (1.299) | (1.231) | (1.143) | (. 958) |
Net Asset Value, End of Period | $56.89 | $59.60 | $49.65 | $41.80 | $37.09 |
Total Return | -2.22% | 22.92% | 22.05% | 16.13% | 14.32% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $957 | $870 | $611 | $414 | $341 |
Ratio of Total Expenses to | |||||
Average Net Assets | 0.09% | 0.11% | 0.11% | 0.12% | 0.12% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.51% | 2.47% | 2.72% | 2.97% | 2.63% |
Portfolio Turnover Rate 2 | 5% | 8% | 34% | 17% | 24% |
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.
50
Mega Cap Value Index Fund | |||||
Financial Highlights | |||||
Institutional Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 |
Net Asset Value, Beginning of Period | $118.18 | $98.45 | $82.90 | $73.55 | $65.97 |
Investment Operations | |||||
Net Investment Income | 2.976 | 2.687 | 2.5311 | 2.339 | 1.965 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | (5.427) | 19.649 | 15.493 | 9.303 | 7.528 |
Total from Investment Operations | (2.451) | 22.336 | 18.024 | 11.642 | 9.493 |
Distributions | |||||
Dividends from Net Investment Income | (2.929) | (2.606) | (2.474) | (2.292) | (1.913) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (2.929) | (2.606) | (2.474) | (2.292) | (1.913) |
Net Asset Value, End of Period | $112.80 | $118.18 | $98.45 | $82.90 | $73.55 |
Total Return | -2.19% | 22.95% | 22.07% | 16.19% | 14.33% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $213 | $212 | $164 | $110 | $105 |
Ratio of Total Expenses to | |||||
Average Net Assets | 0.06% | 0.08% | 0.08% | 0.08% | 0.10% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.54% | 2.50% | 2.75% | 3.01% | 2.65% |
Portfolio Turnover Rate2 | 5% | 8% | 34% | 17% | 24% |
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.
51
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: ETF Shares and Institutional Shares. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker. 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. 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 year ended August 31, 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.
52
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, 2012–2015), 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 (“Vanguard”) participate in a $3 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 August 31, 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At August 31, 2015, the fund had contributed to Vanguard capital in the amount of $111,000, 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 employees, respectively, 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.
53
Mega Cap Value Index Fund
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
The following table summarizes the market value of the fund’s investments as of August 31, 2015, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 1,166,769 | — | — |
Temporary Cash Investments | — | 300 | — |
Futures Contracts—Liabilities1 | (29) | — | — |
Total | 1,166,740 | 300 | — |
1 Represents variation margin on the last day of the reporting period. |
D. At August 31, 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 | September 2015 | 28 | 2,757 | (145) |
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 year ended August 31, 2015, the fund realized $32,307,000 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.
For tax purposes, at August 31, 2015, the fund had $6,725,000 of ordinary income available for distribution. The fund used capital loss carryforwards of $2,858,000 to offset taxable capital gains realized during the year ended August 31, 2015. At August 31, 2015, the fund had available capital losses totaling $4,326,000 to offset future net capital gains through August 31, 2019.
54
Mega Cap Value Index Fund
At August 31, 2015, the cost of investment securities for tax purposes was $1,050,651,000. Net unrealized appreciation of investment securities for tax purposes was $116,418,000, consisting of unrealized gains of $167,351,000 on securities that had risen in value since their purchase and $50,933,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the year ended August 31, 2015, the fund purchased $286,145,000 of investment securities and sold $142,370,000 of investment securities, other than temporary cash investments. Purchases and sales include $183,610,000 and $84,380,000, 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: | ||||
Year Ended August 31, | ||||
2015 | 2014 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 223,753 | 3,715 | 319,267 | 5,602 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (90,380) | (1,500) | (189,113) | (3,300) |
Net Increase (Decrease)—ETF Shares | 133,373 | 2,215 | 130,154 | 2,302 |
Institutional Shares | ||||
Issued | 46,609 | 393 | 41,244 | 382 |
Issued in Lieu of Cash Distributions | 4,072 | 34 | 3,640 | 34 |
Redeemed | (39,318) | (330) | (31,121) | (286) |
Net Increase (Decrease) —Institutional Shares | 11,363 | 97 | 13,763 | 130 |
H. Management has determined that no material events or transactions occurred subsequent to August 31, 2015, that would require recognition or disclosure in these financial statements.
55
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of Vanguard World Fund and the Shareholders of Vanguard Mega Cap Index Fund, Vanguard Mega Cap Growth Index Fund and Vanguard Mega Cap Value Index Fund: In our opinion, the accompanying statements of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Vanguard Mega Cap Index Fund, Vanguard Mega Cap Growth Index Fund and Vanguard Mega Cap Value Index Fund (constituting separate portfolios of Vanguard World Fund, hereafter referred to as the “Funds”) at August 31, 2015, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2015 by correspondence with the custodian and brokers, by agreement to the underlying ownership records of the transfer agent and the application of alternative auditing procedures where securities purchased had not been received, provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
October 15, 2015
56
Special 2015 tax information (unaudited) for Vanguard Mega Cap Index Funds
This information for the fiscal year ended August 31, 2015, is included pursuant to provisions of the Internal Revenue Code.
The funds distributed qualified dividend income to shareholders during the fiscal year as follows:
Fund | ($000) |
Mega Cap Index Fund | 25,288 |
Mega Cap Growth Index Fund | 24,568 |
Mega Cap Value Index Fund | 28,283 |
For corporate shareholders, the percentage of investment income (dividend income plus short-term gains, if any) that qualifies for the dividends-received deduction is as follows:
Fund | Percentage |
Mega Cap Index Fund | 97.0% |
Mega Cap Growth Index Fund | 91.7 |
Mega Cap Value Index Fund | 100.0 |
57
Your Fund’s After-Tax Returns
This table presents returns for your fund both before and after taxes. The after-tax returns are shown in two ways: (1) assuming that an investor owned the fund during the entire period and paid taxes on the fund’s distributions, and (2) assuming that an investor paid taxes on the fund’s distributions and sold all shares at the end of each period.
Calculations are based on the highest individual federal income tax and capital gains tax rates in effect at the times of the distributions and the hypothetical sales. State and local taxes were not considered. After-tax returns reflect any qualified dividend income, using actual prior-year figures and estimates for 2015. (In the example, returns after the sale of fund shares may be higher than those assuming no sale. This occurs when the sale would have produced a capital loss. The calculation assumes that the investor received a tax deduction for the loss.)
The table shows returns for ETF Shares only; returns for other share classes will differ. Please note that your actual after-tax returns will depend on your tax situation and may differ from those shown. Also note that if you own the fund in a tax-deferred account, such as an individual retirement account or a 401(k) plan, this information does not apply to you. Such accounts are not subject to current taxes.
Finally, keep in mind that a fund’s performance—whether before or after taxes—does not guarantee future results.
Average Annual Total Returns: Mega Cap Index Funds
Periods Ended August 31, 2015
Since | |||
One | Five | Inception | |
Year | Years | (12/17/2007) | |
Mega Cap Index Fund ETF Shares | |||
Returns Before Taxes | -0.05% | 15.70% | 6.26% |
Returns After Taxes on Distributions | -0.50 | 15.24 | 5.88 |
Returns After Taxes on Distributions and Sale of Fund Shares | 0.38 | 12.69 | 4.96 |
Since | |||
One | Five | Inception | |
Year | Years | (12/17/2007) | |
Mega Cap Growth Index Fund ETF Shares | |||
Returns Before Taxes | 2.70% | 17.33% | 8.04% |
Returns After Taxes on Distributions | 2.37 | 17.01 | 7.77 |
Returns After Taxes on Distributions and Sale of Fund Shares | 1.81 | 14.07 | 6.44 |
Since | |||
One | Five | Inception | |
Year | Years | (12/17/2007) | |
Mega Cap Value Index Fund ETF Shares | |||
Returns Before Taxes | -2.22% | 14.26% | 4.58% |
Returns After Taxes on Distributions | -2.78 | 13.70 | 4.09 |
Returns After Taxes on Distributions and Sale of Fund Shares | -0.76 | 11.49 | 3.60 |
58
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.
59
Six Months Ended August 31, 2015 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
2/28/2015 | 8/31/2015 | Period | |
Based on Actual Fund Return | |||
Mega Cap Index Fund | |||
ETF Shares | $1,000.00 | $945.21 | $0.39 |
Institutional Shares | 1,000.00 | 945.21 | 0.20 |
Mega Cap Growth Index Fund | |||
ETF Shares | $1,000.00 | $948.52 | $0.39 |
Institutional Shares | 1,000.00 | 948.54 | 0.34 |
Mega Cap Value Index Fund | |||
ETF Shares | $1,000.00 | $942.08 | $0.39 |
Institutional Shares | 1,000.00 | 942.22 | 0.20 |
Based on Hypothetical 5% Yearly Return | |||
Mega Cap Index Fund | |||
ETF Shares | $1,000.00 | $1,024.80 | $0.41 |
Institutional Shares | 1,000.00 | 1,025.00 | 0.20 |
Mega Cap Growth Index Fund | |||
ETF Shares | $1,000.00 | $1,024.80 | $0.41 |
Institutional Shares | 1,000.00 | 1,024.85 | 0.36 |
Mega Cap Value Index Fund | |||
ETF Shares | $1,000.00 | $1,024.80 | $0.41 |
Institutional Shares | 1,000.00 | 1,025.00 | 0.20 |
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 ETF Shares and 0.04% for Institutional Shares; for the Mega Cap Growth Index Fund, 0.08% for ETF Shares and 0.07% for Institutional Shares; and for the Mega Cap Value Index Fund, 0.08% for ETF Shares and 0.04% 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 (184/365).
60
Trustees Approve Advisory Arrangements
The board of trustees of Vanguard Mega Cap Index Fund, Mega Cap Growth Index Fund, and Mega Cap Value Index Fund has renewed each fund’s investment advisory arrangement with The Vanguard Group, Inc. (Vanguard). Vanguard—through its Equity Index Group—serves as investment advisor for each fund. The board determined that continuing each fund’s internalized management structure was in the best interests of each fund and its shareholders.
The board based its decision upon an evaluation of the 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 reviewed the quality of each fund’s investment management services over both the short and long term and took into account the organizational depth and stability of the advisor. The board considered that Vanguard has been managing investments for more than three decades. The Equity Index Group adheres to a sound, disciplined investment management process; the team has considerable experience, stability, and depth.
The board concluded that Vanguard’s experience, stability, depth, and performance, among other factors, warranted continuation of each advisory arrangement.
Investment performance
The board considered the short- and long-term performance of each fund, including any periods of outperformance or underperformance relative to a target index and peer group. The board concluded that the performance was such that each advisory arrangement should continue. Information about the funds’ most recent performance can be found on the Performance Summary pages of this report.
Cost
The board concluded that each fund’s expense ratio was well below the average expense ratio charged by funds in its respective peer group and that each fund’s advisory fee rate was also well below its peer-group average. Information about the funds’ expenses appears in the About Your Fund’s Expenses section of this report as well as in the Financial Statements sections.
The board does not conduct a profitability analysis of Vanguard because of Vanguard’s unique “at-cost” structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees and produces “profits” only in the form of reduced expenses for fund shareholders.
The benefit of economies of scale
The board concluded that each fund’s at-cost arrangement with Vanguard ensures that the funds will realize economies of scale as they grow, with the cost to shareholders declining as fund assets increase.
The board will consider whether to renew the advisory arrangements again after a one-year period.
61
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.
62
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.
63
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 194 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. Treasurer Since May 2015. 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; Controller of each of the investment companies served by The Vanguard Group (2010–2015); 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).
Peter Mahoney
Born 1974. Controller Since May 2015. Principal Occupation(s) During the Past Five Years and Other Experience: Head of Global Fund Accounting at The Vanguard Group, Inc.; Controller of each of the investment companies served by The Vanguard Group; Head of International Fund Services at The Vanguard Group (2008–2014).
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
James M. Norris
Thomas M. Rampulla
Glenn W. Reed
Karin A. Risi
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 email 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. | |
Q8280 102015 |
Item 2: Code of Ethics. The Registrant has adopted a code of ethics that applies to the Registrant’s principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The Code of Ethics was amended during the reporting period covered by this report to make certain technical, non-material changes.
Item 3: Audit Committee Financial Expert. The following members of the Audit Committee have been determined by the Registrant’s Board of Trustees to be Audit Committee Financial Experts serving on its Audit Committee, and to be independent: Rajiv L. Gupta, Amy Gutmann, JoAnn Heffernan Heisen, F. Joseph Loughrey, Mark Loughridge, Scott C. Malpass, and André F. Perold.
Item 4: Principal Accountant Fees and Services.
(a) Audit Fees.
Audit Fees of the Registrant
Fiscal Year Ended August 31, 2015: $578,000 Fiscal Year Ended August 31, 2014: $562,000
Aggregate Audit Fees of Registered Investment Companies in the Vanguard Group.
Fiscal Year Ended August 31, 2015: $7,000,200
Fiscal Year Ended August 31, 2014: $6,605,127
Includes fees billed in connection with audits of the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc. and Vanguard Marketing Corporation.
(b) Audit-Related Fees.
Fiscal Year Ended August 31, 2015: $2,899,096
Fiscal Year Ended August 31, 2014: $2,176,479
Includes fees billed in connection with assurance and related services provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.
(c) Tax Fees.
Fiscal Year Ended August 31, 2015: $353,389
Fiscal Year Ended August 31, 2014: $316,869
Includes fees billed in connection with tax compliance, planning, and advice services provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.
(d) All Other Fees.
Fiscal Year Ended August 31, 2015: $202,313
Fiscal Year Ended August 31, 2014: $198,163
Includes fees billed for services related to tax reported information provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.
(e) (1) Pre-Approval Policies. The policy of the Registrant’s Audit Committee is to consider and, if appropriate, approve before the principal accountant is engaged for such services, all specific audit and non-audit services provided to: the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and entities controlled by The Vanguard Group, Inc. that provide ongoing services to the Registrant. In making a determination, the Audit Committee considers whether the services are consistent with maintaining the principal accountant’s independence.
In the event of a contingency situation in which the principal accountant is needed to provide services in between scheduled Audit Committee meetings, the Chairman of the Audit Committee would be called on to consider and, if appropriate, pre-approve audit or permitted non-audit services in an amount sufficient to complete services through the next Audit Committee meeting, and to determine if such services would be consistent with maintaining the accountant’s independence. At the next scheduled Audit Committee meeting, services and fees would be presented to the Audit Committee for formal consideration, and, if appropriate, approval by the entire Audit Committee. The Audit Committee would again consider whether such services and fees are consistent with maintaining the principal accountant’s independence.
The Registrant’s Audit Committee is informed at least annually of all audit and non-audit services provided by the principal accountant to the Vanguard complex, whether such services are provided to: the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., or other entities controlled by The Vanguard Group, Inc. that provide ongoing services to the Registrant.
(2) No percentage of the principal accountant’s fees or services were approved pursuant to the waiver provision of paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) For the most recent fiscal year, over 50% of the hours worked under the principal accountant’s engagement were not performed by persons other than full-time, permanent employees of the principal accountant.
(g) Aggregate Non-Audit Fees.
Fiscal Year Ended August 31, 2015: $555,702
Fiscal Year Ended August 31, 2014: $515,032
Includes fees billed for non-audit services provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.
(h) For the most recent fiscal year, the Audit Committee has determined that the provision of all non-audit services was consistent with maintaining the principal accountant’s independence.
Item 5: Audit Committee of Listed Registrants.
The Registrant is a listed issuer as defined in rule 10A-3 under the Securities Exchange Act of 1934 (“Exchange Act”). The Registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Registrant’s audit committee members are: Emerson U. Fullwood, Rajiv L. Gupta, Amy Gutmann, JoAnn Heffernan Heisen, F. Joseph Loughrey, Mark Loughridge, Scott C. Malpass, André F. Perold, and Peter F. Volanakis.
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) Code of Ethics.
(b) Certifications.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
VANGUARD WORLD FUND | |
By: | /s/ F. WILLIAM MCNABB III* |
F. WILLIAM MCNABB III | |
CHIEF EXECUTIVE OFFICER | |
Date: October 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: October 16, 2015 |
VANGUARD WORLD FUND | |
By: | /s/ THOMAS J. HIGGINS* |
THOMAS J. HIGGINS | |
CHIEF FINANCIAL OFFICER | |
Date: October 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.