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: | Anne E. Robinson, 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, 2015 – August 31, 2016 | ||
Item 1: Reports to Shareholders |
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/internationalgrowthx1x1.jpg)
Annual Report | August 31, 2016
Vanguard International Growth Fund
A new format, unwavering commitment
As you begin reading this report, you’ll notice that we’ve made some improvements to the opening sections—based on feedback from you, our clients.
Page 1 starts with a new ”Your Fund’s Performance at a Glance,” a concise, handy summary of how your fund performed during the period.
In the renamed ”Chairman’s Perspective,” Bill McNabb will focus on enduring principles and investment insights.
We’ve modified some tables, and eliminated some redundancy, but we haven’t removed any information.
At Vanguard, we’re always looking for better ways to communicate and to help you make sound investment decisions. Thank you for entrusting your assets to us.
Contents | |
Your Fund’s Performance at a Glance. | 1 |
Chairman’s Perspective. | 3 |
Advisors’ Report. | 6 |
Fund Profile. | 10 |
Performance Summary. | 12 |
Financial Statements. | 14 |
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: No matter what language you speak, Vanguard has one consistent message and set of principles. Our primary
focus is on you, our clients. We conduct our business with integrity as a faithful steward of your assets. This message is shown
translated into seven languages, reflecting our expanding global presence.
Your Fund’s Performance at a Glance
• Vanguard International Growth Fund returned about 9% for the 12 months ended August 31, 2016, well ahead of its benchmark and the average return of its peers.
• The fund’s advisors added value in Europe, emerging markets, and the Pacific region.
In Europe, the fund outperformed its benchmark in France, Germany, and the United Kingdom, the region’s three largest markets. Stock selection in China largely drove the fund’s outperformance in emerging markets.
• In the Pacific region, the fund’s local currency returns in Japan were negative; a stronger yen compared to the U.S. dollar, however, meant that returns for U.S. investors were positive. The opposite was true in Europe, where returns were, on average, positive in local currencies but negative for U.S. investors, thanks to the relative strength of the dollar.
• Performance was mixed across industry sectors. Information technology was the strongest-performing sector, while financials turned in the weakest returns.
Total Returns: Fiscal Year Ended August 31, 2016 | |
Total | |
Returns | |
Vanguard International Growth Fund | |
Investor Shares | 8.95% |
Admiral™ Shares | 9.07 |
MSCI All Country World Index ex USA | 2.92 |
International Funds Average | 1.35 |
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. |
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Total Returns: Ten Years Ended August 31, 2016 | |
Average | |
Annual Return | |
International Growth Fund Investor Shares | 3.87% |
Spliced International Index | 0.89 |
International Funds Average | 1.69 |
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.
Expense Ratios | |||
Your Fund Compared With Its Peer Group | |||
Investor | Admiral | Peer Group | |
Shares | Shares | Average | |
International Growth Fund | 0.47% | 0.34% | 1.37% |
The fund expense ratios shown are from the prospectus dated December 22, 2015, and represent estimated costs for the current fiscal year.
For the fiscal year ended August 31, 2016, the fund’s expense ratios were 0.46% 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
2015.
Peer group: International Funds.
2
Chairman’s Perspective
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/internationalgrowthx5x1.jpg)
Bill McNabb
Chairman and Chief Executive Officer
Dear Shareholder,
Even as the global economy continued to expand at a slow but sustained pace over the 12 months ended August 31, 2016, a series of disquieting developments highlighted the importance for investors of remaining disciplined.
Chief among them was “Brexit”—the British public’s vote to exit the European Union—but plenty of others moved the markets as well. We saw sharp ups and downs in the prices of oil and other commodities, choppy U.S. job numbers, shifting expectations about when the Federal Reserve might raise interest rates again, and decreases in already negative yields for European and Japanese government bonds.
Beyond being the end of the fiscal period, August marked a milestone: 40 years since Vanguard introduced the first index mutual fund. In ways that are perhaps still not fully appreciated, indexing has vastly improved investing for individuals, advisors, and institutions all over the world. Later in this letter, I’ll discuss the revolution wrought by what was initially a little-heralded new fund from a fledgling outfit in Valley Forge, Pennsylvania.
Brexit added another layer of uncertainty for investors
I think it’s fair to say that the momentous June 23 Brexit vote caught even the British off guard. Although we saw some market jitters in the run-up to the referendum, the unexpected outcome triggered a spike in
3
volatility worldwide. Stocks around the world lost 5%–10% in U.S. dollar terms in the first two trading sessions following the vote, with U.K. and European markets among the hardest hit; global bonds, though, headed in the other direction. It was a textbook illustration of the value of having a diversified portfolio.
That kind of volatility can push investors to “do something.” But some of the worst days in the stock markets are sometimes followed by some of the best—as happened at the end of June. Investors who scrambled to protect their portfolios by shedding stocks amid headlines warning of a global market meltdown may well have ended up locking in post-Brexit losses, then missing out on the strong rebound that took place just days later. Those headlines were noise that investors would have been better off tuning out. I’m pleased to say that Vanguard investors on the whole did just that—we continued to see cash flows into our funds in the days after the vote.
For the 12 months, stocks generally finished higher, with U.S. stocks up more than 11% and international stocks about 3% for U.S.-based investors.
In a surprise, bonds turned in a solid performance that few would have predicted a year ago. It seemed as if rates had fallen so far that they couldn’t go any lower, but many did. Central banks in a number of European countries and Japan set key monetary policy rates below zero.
Market Barometer | |||
Average Annual Total Returns | |||
Periods Ended August 31, 2016 | |||
One | Three | Five | |
Year | Years | Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 11.69% | 12.02% | 14.60% |
Russell 2000 Index (Small-caps) | 8.59 | 8.53 | 12.85 |
Russell 3000 Index (Broad U.S. market) | 11.44 | 11.74 | 14.46 |
FTSE All-World ex US Index (International) | 3.37 | 2.59 | 3.72 |
Bonds | |||
Barclays U.S. Aggregate Bond Index (Broad taxable market) | 5.97% | 4.37% | 3.24% |
Barclays Municipal Bond Index (Broad tax-exempt market) | 6.88 | 6.47 | 4.80 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.18 | 0.05 | 0.06 |
CPI | |||
Consumer Price Index | 1.06% | 0.98% | 1.23% |
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These policies held down short-term rates, while more muted expectations for global growth and inflation weighed on longer-term rates.
Yields in the United States weren’t quite as low as in many developed countries. The Fed raised the federal funds target rate only once, in December, to a slim 0.25%–0.5%. Further out on the maturity spectrum, the bellwether 10-year U.S. Treasury yield dropped in early July to a record low 1.36%, before moving back up a little to end the period at 1.58%. Over the 12 months, U.S bonds returned about 6%, and international bonds returned even more—about 11%—for U.S.-based investors, again underscoring the markets’ unpredictability and the merits of diversification.
Over the years, many investors have embraced the pluses of indexing
Market upsets like Brexit aren’t rare occurrences. Fortunately, indexing has proved to be a durable behavioral tool to help keep investors from making bad financial decisions when upsets happen. In fact, this is one of indexing’s less appreciated benefits: Holding index funds as part of a broadly diversified portfolio can counterbalance that tendency to react to news headlines. When times are volatile, you’ll know you might have some exposure to a part of the market that has dropped, but also to other parts that may be holding up better.
Vanguard’s launch of the First Index Investment Trust, now Vanguard 500 Index Fund, initially met with a frosty reception. Its mandate to track the performance of a broadly diversified benchmark at a low cost seemed underwhelming to an investing public accustomed to funds that offered the chance to outperform. Investors have since come around, as experience has demonstrated the benefits of low costs and broad diversification.
Indexing accounted for about 30% of U.S. mutual fund and exchange-traded fund (ETF) assets at the end of 2015, according to the Investment Company Institute. Some now even proclaim the “triumph of indexing,” implying that it’s the only way to invest.
In our view, the rise of indexing has served to underscore an investment principle that long predates 1976: A long-term, low-cost, diversified approach gives investors the best chance for success. That’s true whether the investments you choose are indexed or actively managed—or both.
As always, thank you for investing with Vanguard.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/internationalgrowthx7x1.jpg)
F. William McNabb III
Chairman and Chief Executive Officer
September 9, 2016
5
Advisors’ Report
For the fiscal year ended August 31, 2016, Vanguard International Growth Fund returned 8.95% for Investor Shares (9.07% for Admiral Shares), well ahead of its benchmark index and the average return of peer funds. Your fund is managed by two 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.
Please note that shortly after the end of the period, Schroder Investment Management North America Inc. will mark its 35th anniversary as an advisor to the fund.
Also, as was previously announced, M&G Investment Management Limited is no longer an advisor to the International Growth Fund. The assets formerly managed by M&G have been allocated between Baillie Gifford Overseas Ltd. and Schroder Investment Management North America Inc.
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 22, 2016.
Vanguard International Growth Fund Investment Advisors | |||
Fund Assets Managed | |||
Investment Advisor | % | $ Million | Investment Strategy |
Baillie Gifford Overseas Ltd. | 60 | 13,543 | 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 | 39 | 8,708 | 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. | |||
Cash Investments | 1 | 153 | These short-term reserves are invested by Vanguard in |
equity index products to simulate investment in stocks. | |||
Each advisor may also maintain a modest cash | |||
position. |
6
Baillie Gifford Overseas Ltd.
Portfolio Managers:
James K. Anderson,
Head of Global Equities
Kave Sigaroudinia,
Head of EAFE Alpha Research
Over the last 12 months, sluggish economic growth and political uncertainty have made international investors gloomy. We prefer, however, to focus on areas of clear and significant progress that is driven by innovation. As long-term investors, we aim to stay the course. Indeed, we took the opportunity during the year to add holdings with exciting growth potential.
Political turmoil in Britain has little direct impact on your portfolio, and we have not reacted to it. But the Brexit vote has revealed some fault lines that may run across national borders. The political sustainability of rising inequality within developed countries has been intensely debated in recent years. Globalization greatly benefits developing countries, and over the past decade we have invested in many companies that have benefited from catch-up growth in these emerging markets.
However, globalization has also increased wage competition for the less fortunate of the Western world’s workforce. The burden of austerity measures has exacerbated this imbalance. To avoid instability that might threaten long-term investment success, action must be taken to support those most affected by the downsides of twenty-first-century progress. We can play a small part ourselves, by continuing to encourage companies to invest for the long term and providing capital to those who have a chance of attaining successful and scalable innovation.
Many of our holdings are reaping the benefits of investment. Tencent, Alibaba, and Baidu continue to lead the way in internet-based commerce in China, and they contributed strongly to performance. Mobile internet platforms have given these companies direct access to a huge and emerging consumer base, and they are expanding beyond their core businesses and disrupting industries ranging from retail and advertising to travel and banking.
As with Amazon in the United States, this allows for sustained growth rates unimaginable for most large companies. Similar e-commerce opportunities exist in other countries and Naver (South Korea), MercadoLibre (Latin America), and Zalando (Europe) have also performed well during the year.
Three of our health-care holdings performed strongly; each has the potential to improve this huge industry in different ways.
M3, which uses the internet to connect physicians, patients and pharmaceutical companies more efficiently, is growing rapidly outside its Japanese base. Genmab, a Danish biotechnology company that is developing antibody therapies for cancer and other diseases, has delivered promising data in the trial of its treatment for multiple myeloma. Celltrion, a South Korean pharmaceuticals company offering
7
generic versions of biological drugs, is expanding the markets where it enjoys regulatory approval.
Our European bank holdings again performed weakly. Continued low interest rates are hindering their profitability, and uncertainty about economic growth has reignited concerns about their financial solidity. We have sold the portfolio’s holdings in Bank of Ireland, UniCredit, and Banco Santander as a result.
We have also sold food retailers BIM and Magnit, as the deteriorating political and economic situation in their home countries (Turkey and Russia, respectively) is reducing their growth prospects. We have reinvested the proceeds in TAL Education, a Chinese K-12 after-school tutoring company; Pigeon, a Japanese consumer goods company expanding in Asia; and Banco Bilbao Vizcaya Argentaria, a Spanish bank whose focus on technology should strongly differentiate it from competitors over the next decade. We have also added a new holding: Mobileye, an Israeli company that is a leader in the exciting area of advanced driver assistance systems.
Schroder Investment Management
North America Inc.
Portfolio Manager:
Simon Webber, CFA
International equity markets made modest gains over the last 12 months. Worries about the health of the Chinese economy caused a sell-off at the start of 2016, but this environment presented some excellent buying opportunities.
Some of our top contributors have come from emerging markets. Chip maker Taiwan Semiconductor Manufacturing was the standout performer, as its scale and lead in manufacturing delivered market share gains despite a period of de-stocking and global weakness in smartphone sales.
We also benefited from our positions in two Brazilian companies: drugstore chain Raia Drogasil and stock exchange BM&F Bovespa. Although the economic situation in Brazil remains very tough, the new government is acting fast to improve confidence in the national finances. These two companies have proven to be excellent businesses that have thrived throughout one of the most severe recessions in a major economy for decades.
Chinese e-commerce giant Alibaba was another key performer. Our conviction here has strengthened, and we do not believe that the market is adequately recognizing the growth potential of its cloud computing and payments businesses.
The technology sector as a whole is home to many exceptionally strong and disruptive companies at present, and we have increased our exposure by purchasing Keyence and Naver. Japanese company Keyence is growing rapidly by offering manufacturing businesses customized automation solutions that use sensors and monitoring equipment to improve productivity. Naver is dominant in online
8
search and e-commerce within its home country, South Korea; more recently, it has developed a powerful messaging platform, Line, which has become the main consumer messaging platform in Japan and Taiwan.
Among financials, a number of the banks we held suffered, buffeted by concerns about rising credit provisions for commodity sector loans and negative interest rates in the European Union and Japan. We have reduced exposure to the sector somewhat and focused on holding only banks where we feel the capital generation and capital position is strong. Deutsche Bank and HSBC left the portfolio as a result.
Our largest detractor was Indian telecom provider Idea Cellular; a disruptive new entrant to the Indian market has put increased pressure on industry profitability, and the company’s stock declined as a result. While its operating environment has turned less favorable, Idea Cellular is well-run, and we expect that there will be enough long-term growth in India’s mobile connectivity to support good long-term returns for the four major operators.
One concern is the extent of recent investor preference for “low volatility” stocks as the era of very low interest rates continues, forcing investors to look for alternatives to bond-like income streams. This group of defensive businesses is now valued at a premium to more economically sensitive industries that is hard to justify by fundamentals, and the companies will be vulnerable to any increase in global interest rates. We continue to avoid utility and real estate stocks on this basis.
There are of course considerable political and economic uncertainties—but this is always the case. We could not be more confident that, in the long run, well-governed companies that invest to drive growth and maintain a sustainable competitive advantage will outperform. And we remain intensely focused on seeking out these companies.
9
International Growth Fund
Fund Profile
As of August 31, 2016
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 | 132 | 1,846 |
Median Market Cap | $34.4B | $29.6B |
Price/Earnings Ratio | 28.7x | 21.2x |
Price/Book Ratio | 2.7x | 1.6x |
Return on Equity | 17.7% | 15.1% |
Earnings Growth | ||
Rate | 11.2% | 7.1% |
Dividend Yield | 1.6% | 3.1% |
Turnover Rate | 29% | — |
Short-Term Reserves | 0.4% | — |
Sector Diversification (% of equity exposure) | ||
MSCI AC | ||
World Index | ||
Fund | ex USA | |
Consumer Discretionary | 21.8% | 11.5% |
Consumer Staples | 6.5 | 11.1 |
Energy | 1.4 | 6.4 |
Financials | 17.3 | 25.2 |
Health Care | 9.8 | 8.7 |
Industrials | 10.8 | 11.8 |
Information Technology | 22.4 | 9.4 |
Materials | 4.1 | 7.4 |
Other | 2.0 | 0.0 |
Telecommunication Services | 3.9 | 5.1 |
Utilities | 0.0 | 3.4 |
Volatility Measures | |
MSCI AC | |
World | |
Index | |
ex USA | |
R-Squared | 0.95 |
Beta | 1.05 |
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 | 4.9% | |
Alibaba Group Holding | Internet Software & | |
Ltd. | Services | 4.2 |
AIA Group Ltd. | Life & Health | |
Insurance | 3.3 | |
Industria de Diseno | ||
Textil SA | Apparel Retail | 3.2 |
Amazon.com Inc. | Internet Retail | 3.2 |
Baidu Inc. | Internet Software & | |
Services | 3.1 | |
ARM Holdings plc | Semiconductors | 2.1 |
SMC Corp. | Industrial Machinery | 1.9 |
SoftBank Group Corp. | Wireless | |
Telecommunication | ||
Services | 1.9 | |
Zalando SE | Internet Retail | 1.8 |
Top Ten | 29.6% | |
The holdings listed exclude any temporary cash investments and equity index products. |
Allocation by Region (% of equity exposure)
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/internationalgrowthx12x1.jpg)
1 The expense ratios shown are from the prospectus dated December 22, 2015, and represent estimated costs for the current fiscal year. For the
fiscal year ended August 31, 2016, the expense ratios were 0.46% for Investor Shares and 0.33% for Admiral Shares.
10
International Growth Fund
Market Diversification (% of equity exposure) | ||
MSCI AC | ||
World | ||
Index | ||
Fund | ex USA | |
Europe | ||
United Kingdom | 11.4% | 13.4% |
Germany | 9.2 | 6.4 |
Spain | 5.2 | 2.1 |
Sweden | 5.1 | 2.0 |
France | 4.2 | 6.8 |
Switzerland | 3.2 | 6.3 |
Italy | 2.6 | 1.4 |
Denmark | 2.5 | 1.3 |
Netherlands | 1.7 | 2.4 |
Norway | 1.3 | 0.5 |
Other | 1.1 | 2.0 |
Subtotal | 47.5% | 44.6% |
Pacific | ||
Japan | 12.2% | 16.9% |
Hong Kong | 4.6 | 2.4 |
South Korea | 2.2 | 3.4 |
Other | 0.5 | 6.1 |
Subtotal | 19.5% | 28.8% |
Emerging Markets | ||
China | 16.2% | 6.1% |
India | 2.6 | 1.9 |
Taiwan | 1.1 | 2.8 |
Brazil | 1.0 | 1.7 |
Other | 1.3 | 6.9 |
Subtotal | 22.2% | 19.4% |
North America | ||
United States | 7.2% | 0.0% |
Canada | 1.8 | 6.7 |
Subtotal | 9.0% | 6.7% |
Middle East | ||
Israel | 1.8% | 0.5% |
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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, 2006, Through August 31, 2016
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/internationalgrowthx14x1.jpg)
Average Annual Total Returns | |||||
Periods Ended August 31, 2016 | |||||
Final Value | |||||
One | Five | Ten | of a $10,000 | ||
Year | Years | Years | Investment | ||
International Growth Fund Investor | |||||
Shares | 8.95% | 6.04% | 3.87% | $14,621 | |
•••••••• | Spliced International Index | 2.92 | 3.31 | 0.89 | 10,923 |
– – – – | MSCI International All Country Funds World Average Index ex USA | 2.92 1.35 | 3.31 4.36 | 2.04 1.69 | 12,243 11,829 |
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 | 9.07% | 6.17% | 4.03% | $74,215 |
Spliced International Index | 2.92 | 3.31 | 0.89 | 54,615 |
MSCI All Country World Index ex USA | 2.92 | 3.31 | 2.04 | 61,215 |
See Financial Highlights for dividend and capital gains information.
12
International Growth Fund
Fiscal-Year Total Returns (%): August 31, 2006, Through August 31, 2016
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/internationalgrowthx15x1.jpg)
For a benchmark description, see the Glossary.
Average Annual Total Returns: Periods Ended June 30, 2016
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 | -8.31% | 2.31% | 3.50% |
Admiral Shares | 8/13/2001 | -8.22 | 2.44 | 3.66 |
13
International Growth Fund
Financial Statements
Statement of Net Assets
As of August 31, 2016
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Market | |||
Value• | |||
Shares | ($000) | ||
Common Stocks (98.6%)1 | |||
Australia (0.4%) | |||
Brambles Ltd. | 10,296,636 | 95,175 | |
Belgium (0.1%) | |||
Umicore SA | 356,808 | 21,090 | |
Brazil (1.0%) | |||
Raia Drogasil SA | 4,689,149 | 86,662 | |
Telefonica Brasil SA | |||
Preference Shares | 4,806,200 | 72,468 | |
BM&FBovespa SA - | |||
Bolsa de Valores | |||
Mercadorias e Futuros | 12,949,700 | 71,822 | |
230,952 | |||
Canada (1.8%) | |||
Toronto-Dominion Bank | 5,579,439 | 248,977 | |
Canadian Pacific Railway | |||
Ltd. | 701,426 | 107,428 | |
Goldcorp Inc. | 3,095,213 | 47,111 | |
403,516 | |||
China (15.4%) | |||
Tencent Holdings Ltd. | 42,018,500 | 1,088,904 | |
^,* | Alibaba Group Holding | ||
Ltd. ADR | 9,619,022 | 934,873 | |
* | Baidu Inc. ADR | 4,087,784 | 699,297 |
* | Ctrip.com International | ||
Ltd. ADR | 6,438,702 | 304,872 | |
New Oriental Education | |||
& Technology Group | |||
Inc. ADR | 3,301,491 | 130,343 | |
* | JD.com Inc. ADR | 4,724,625 | 120,053 |
China Pacific Insurance | |||
Group Co. Ltd. | 24,886,600 | 87,189 | |
* | TAL Education Group | ||
ADR | 1,408,560 | 84,176 | |
3,449,707 |
Denmark (2.5%) | |||
* | Genmab A/S | 1,158,948 | 185,126 |
Novozymes A/S | 3,575,387 | 155,111 | |
Chr Hansen Holding A/S | 1,658,818 | 100,649 | |
Novo Nordisk A/S Class B | 1,871,763 | 87,600 | |
Vestas Wind Systems A/S | 323,537 | 26,855 | |
555,341 | |||
France (4.2%) | |||
Essilor International SA | 1,561,734 | 198,936 | |
L’Oreal SA | 1,047,567 | 198,360 | |
Danone SA | 2,488,548 | 189,449 | |
Kering | 983,955 | 186,969 | |
Schneider Electric SE | 2,310,059 | 157,597 | |
931,311 | |||
Germany (9.1%) | |||
*,2 | Zalando SE | 10,683,180 | 407,927 |
BASF SE | 3,196,432 | 259,283 | |
SAP SE | 2,781,128 | 244,241 | |
Bayerische Motoren | |||
Werke AG | 2,189,088 | 190,218 | |
GEA Group AG | 2,615,420 | 140,128 | |
HeidelbergCement AG | 1,257,100 | 116,659 | |
Fresenius Medical Care | |||
AG & Co. KGaA | 1,306,342 | 115,476 | |
Continental AG | 523,515 | 109,533 | |
Bayer AG | 1,005,132 | 107,300 | |
adidas AG | 457,713 | 76,077 | |
^,*,2Rocket Internet SE | 2,762,933 | 58,836 | |
Deutsche Telekom AG | 3,284,057 | 54,783 | |
*,3 | HelloFresh | 2,151,234 | 49,984 |
*,3,4 Home 24AG | 23,630 | 38,841 | |
*,3 | CureVac GmbH | 12,600 | 30,005 |
* | MorphoSys AG | 664,989 | 28,309 |
* | AIXTRON SE | 3,130,112 | 19,305 |
2,046,905 |
14
International Growth Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Hong Kong (4.6%) | |||
AIA Group Ltd. | 115,947,800 | 730,259 | |
Jardine Matheson | |||
Holdings Ltd. | 3,023,525 | 180,844 | |
Hong Kong Exchanges | |||
and Clearing Ltd. | 4,767,930 | 116,326 | |
1,027,429 | |||
India (2.6%) | |||
Housing Development | |||
Finance Corp. Ltd. | 7,874,012 | 165,097 | |
HDFC Bank Ltd. | 6,999,918 | 134,583 | |
Zee Entertainment | |||
Enterprises Ltd. | 12,596,830 | 101,386 | |
Idea Cellular Ltd. | 52,437,143 | 73,137 | |
*,3 | ANI Technologies | 1,231 | 51,423 |
*,2,3 Flipkart G Series | 338,176 | 34,714 | |
*,2,3 Flipkart H Series | 135,569 | 14,462 | |
574,802 | |||
Indonesia (0.3%) | |||
Bank Mandiri Persero | |||
Tbk PT | 90,616,100 | 76,665 | |
Ireland (0.4%) | |||
Kerry Group plc Class A | 1,064,490 | 90,519 | |
Israel (1.8%) | |||
* | Check Point Software | ||
Technologies Ltd. | 2,921,261 | 224,178 | |
Teva Pharmaceutical | |||
Industries Ltd. ADR | 2,713,605 | 136,739 | |
* | Mobileye NV | 957,588 | 46,816 |
407,733 | |||
Italy (2.6%) | |||
Ferrari NV | 3,949,250 | 190,493 | |
^ | Fiat Chrysler | ||
Automobiles NV | 22,804,460 | 157,725 | |
EXOR SPA | 3,262,980 | 134,170 | |
Intesa Sanpaolo SPA | |||
(Registered) | 43,388,106 | 103,098 | |
585,486 | |||
Japan (12.0%) | |||
SMC Corp. | 1,483,400 | 418,351 | |
SoftBank Group Corp. | 6,366,800 | 415,334 | |
M3 Inc. | 11,432,500 | 342,349 | |
Rakuten Inc. | 20,963,900 | 264,664 | |
Bridgestone Corp. | 5,760,700 | 198,128 | |
Sumitomo Mitsui | |||
Financial Group Inc. | 5,147,400 | 180,067 | |
Kubota Corp. | 8,718,700 | 128,188 | |
Sekisui Chemical Co. Ltd. | 8,991,100 | 125,892 | |
KDDI Corp. | 3,646,700 | 106,610 | |
ORIX Corp. | 6,853,200 | 98,761 | |
Pigeon Corp. | 3,300,800 | 87,793 | |
Keyence Corp. | 122,400 | 85,894 |
Suzuki Motor Corp. | 2,105,400 | 70,022 | |
Suntory Beverage & | |||
Food Ltd. | 1,542,100 | 61,266 | |
FANUC Corp. | 313,800 | 53,471 | |
SBI Holdings Inc. | 4,470,400 | 53,166 | |
2,689,956 | |||
Luxembourg (0.3%) | |||
*,3 | Spotify Technology SA | 26,474 | 59,000 |
Mexico (0.3%) | |||
Grupo Financiero Banorte | |||
SAB de CV | 13,899,786 | 74,803 | |
Netherlands (1.7%) | |||
ASML Holding NV | 3,210,688 | 342,745 | |
Akzo Nobel NV | 524,531 | 35,358 | |
378,103 | |||
Norway (1.3%) | |||
Statoil ASA | 6,559,592 | 102,906 | |
Schibsted ASA Class A | 2,449,459 | 77,617 | |
DNB ASA | 4,683,937 | 56,803 | |
Schibsted ASA Class B | 1,760,994 | 50,870 | |
288,196 | |||
Other (0.2%) | |||
5 | Vanguard FTSE All-World | ||
ex-US ETF | 1,128,434 | 50,757 | |
Peru (0.1%) | |||
Credicorp Ltd. | 153,844 | 24,104 | |
Portugal (0.3%) | |||
Jeronimo Martins SGPS | |||
SA | 3,627,182 | 58,647 | |
South Korea (2.2%) | |||
NAVER Corp. | 396,411 | 299,962 | |
^,* | Celltrion Inc. | 1,951,528 | 186,768 |
486,730 | |||
Spain (5.2%) | |||
Industria de Diseno | |||
Textil SA | 20,350,848 | 721,347 | |
Banco Bilbao Vizcaya | |||
Argentaria SA | 40,351,250 | 250,779 | |
* | Banco Popular Espanol | ||
SA | 76,855,408 | 103,990 | |
Distribuidora | |||
Internacional de | |||
Alimentacion SA | 12,745,795 | 77,850 | |
1,153,966 | |||
Sweden (5.1%) | |||
Atlas Copco AB Class A | 12,605,874 | 357,287 | |
Svenska Handelsbanken | |||
AB Class A | 23,952,706 | 308,693 | |
* | Kinnevik AB | 8,819,732 | 216,840 |
15
International Growth Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Assa Abloy AB Class B | 6,766,973 | 136,873 | |
^ | Elekta AB Class B | 8,222,417 | 70,252 |
Alfa Laval AB | 3,319,503 | 51,540 | |
1,141,485 | |||
Switzerland (3.2%) | |||
Nestle SA | 3,706,668 | 295,395 | |
Roche Holding AG | 759,168 | 185,313 | |
Cie Financiere | |||
Richemont SA | 2,061,828 | 118,845 | |
Lonza Group AG | 479,367 | 90,952 | |
Syngenta AG | 73,881 | 32,254 | |
722,759 | |||
Taiwan (1.1%) | |||
Taiwan Semiconductor | |||
Manufacturing Co. Ltd. | 42,714,000 | 237,207 | |
Thailand (0.6%) | |||
Kasikornbank PCL | |||
(Foreign) | 23,270,756 | 132,971 | |
United Kingdom (11.2%) | |||
ARM Holdings plc | 21,115,690 | 470,348 | |
Rolls-Royce Holdings plc | 36,783,215 | 371,912 | |
Prudential plc | 13,053,677 | 234,825 | |
Royal Dutch Shell plc | |||
Class A | 8,041,129 | 197,180 | |
Vodafone Group plc | 48,779,444 | 147,201 | |
Reckitt Benckiser | |||
Group plc | 1,513,380 | 146,192 | |
Diageo plc | 5,093,683 | 141,173 | |
Burberry Group plc | 8,083,030 | 138,511 | |
BHP Billiton plc | 10,200,829 | 132,684 | |
Lloyds Banking Group | |||
plc | 133,065,759 | 103,714 | |
Aggreko plc | 7,374,149 | 98,696 | |
Capita plc | 5,799,519 | 78,874 | |
^,* | Ocado Group plc | 12,833,540 | 51,367 |
*,3 | Skyscanner | 366,415 | 49,112 |
* | Standard Chartered plc | 5,325,132 | 44,885 |
GlaxoSmithKline plc | 1,999,118 | 43,032 | |
Barclays plc | 18,758,231 | 42,395 | |
Aviva plc | 4,685,940 | 26,445 | |
2,518,546 | |||
United States (7.0%) | |||
* | Amazon.com Inc. | 927,102 | 713,090 |
* | Illumina Inc. | 2,297,583 | 386,775 |
MercadoLibre Inc. | 1,288,232 | 221,576 | |
* | Tesla Motors Inc. | 1,178,679 | 249,892 |
1,571,333 | |||
Total Common Stocks | |||
(Cost $18,094,143) | 22,085,194 |
Market | |||
Value• | |||
Shares | ($000) | ||
Preferred Stocks (0.5%) | |||
*,3 | Internet Plus Holdings | ||
Ltd. | 18,638,108 | 71,956 | |
*,3,4 You & Mr. Jones | 44,800,000 | 44,800 | |
Total Preferred Stocks | |||
(Cost $116,756) | 116,756 | ||
Temporary Cash Investments (2.6%)1 | |||
Money Market Fund (2.5%) | |||
6,7 | Vanguard Market | ||
Liquidity Fund, 0.612% | 5,649,805 | 565,037 | |
Face | |||
Amount | |||
($000) | |||
U.S. Government and Agency Obligations (0.1%) | |||
8,9 | Federal Home Loan Bank | ||
Discount Notes, | |||
0.340%, 9/7/16 | 4,100 | 4,100 | |
8 | Federal Home Loan Bank | ||
Discount Notes, | |||
0.400%, 9/16/16 | 2,400 | 2,400 | |
8,9 | Federal Home Loan Bank | ||
Discount Notes, | |||
0.390%, 9/21/16 | 2,400 | 2,400 | |
8,9 | Federal Home Loan Bank | ||
Discount Notes, | |||
0.375%, 9/30/16 | 2,000 | 1,999 | |
8,9 | Federal Home Loan Bank | ||
Discount Notes, | |||
0.370%–0.400%, 10/7/16 3,800 | 3,799 | ||
8 | Federal Home Loan Bank | ||
Discount Notes, | |||
0.511%, 10/12/16 | 1,100 | 1,100 | |
8,9 | Federal Home Loan Bank | ||
Discount Notes, | |||
0.400%, 10/19/16 | 500 | 500 | |
8,10 Federal Home Loan Bank | |||
Discount Notes, | |||
0.379%, 10/21/16 | 6,600 | 6,597 | |
10 | United States Treasury Bill, | ||
0.318%, 10/20/16 | 5,300 | 5,298 | |
28,193 | |||
Total Temporary Cash Investments | |||
(Cost $593,184) | 593,230 | ||
Total Investments (101.7%) | |||
(Cost $18,804,083) | 22,795,180 |
16
International Growth Fund
Amount | |
($000) | |
Other Assets and Liabilities (-1.7%) | |
Other Assets | |
Investment in Vanguard | 1,889 |
Receivables for Investment | |
Securities Sold | 64,189 |
Receivables for Accrued Income | 56,243 |
Receivables for Capital Shares Issued | 8,990 |
Other Assets7 | 18,046 |
Total Other Assets | 149,357 |
Liabilities | |
Payables for Investment | |
Securities Purchased | (76,435) |
Collateral for Securities on Loan | (400,650) |
Payables for Capital Shares Redeemed | (7,481) |
Payables to Investment Advisor | (9,494) |
Payables to Vanguard | (39,810) |
Other Liabilities | (7,066) |
Total Liabilities | (540,936) |
Net Assets (100%) | 22,403,601 |
At August 31, 2016, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 18,679,978 |
Undistributed Net Investment Income | 225,153 |
Accumulated Net Realized Losses | (492,026) |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 3,991,097 |
Futures Contracts | 1,166 |
Forward Currency Contracts | 758 |
Foreign Currencies | (2,525) |
Net Assets | 22,403,601 |
Investor Shares—Net Assets | |
Applicable to 299,363,249 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 6,699,874 |
Net Asset Value Per Share— | |
Investor Shares | $22.38 |
Admiral Shares—Net Assets | |
Applicable to 220,586,059 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 15,703,727 |
Net Asset Value Per Share— | |
Admiral Shares | $71.19 |
• 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 $386,245,000.
* Non-income-producing security.
1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to
futures investments, the fund’s effective common stock and temporary cash investment positions represent 99.1% and 2.1%,
respectively, of net assets.
2 Security exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be sold in transactions exempt
from registration, normally to qualified institutional buyers. At August 31, 2016, the aggregate value of these securities was
$515,939,000, representing 2.3% of net assets.
3 Restricted securities totaling $444,297,000, representing 2.0% of net assets.
4 Considered an affiliated company of the fund as the fund owns more than 5% of the outstanding voting securities of such company.
5 Considered an affiliated company of the fund as the issuer is another member of The Vanguard Group.
6 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is
the 7-day yield.
7 Includes $400,650,000 of collateral received for securities on loan.
8 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.
9 Securities with a value of $3,528,000 have been segregated as collateral for open forward currency contracts. The fund posted
additional collateral of $982,000 on the next business day.
10 Securities with a value of $7,797,000 have been segregated as initial margin for open futures contracts.
ADR—American Depositary Receipt.
See accompanying Notes, which are an integral part of the Financial Statements.
17
International Growth Fund
Statement of Operations
Year Ended | |
August 31, 2016 | |
($000) | |
Investment Income | |
Income | |
Dividends1 | 378,072 |
Interest | 1,281 |
Securities Lending—Net | 28,385 |
Total Income | 407,738 |
Expenses | |
Investment Advisory Fees—Note B | |
Basic Fee | 30,775 |
Performance Adjustment | 7,402 |
The Vanguard Group—Note C | |
Management and Administrative—Investor Shares | 16,759 |
Management and Administrative—Admiral Shares | 18,478 |
Marketing and Distribution—Investor Shares | 1,240 |
Marketing and Distribution—Admiral Shares | 1,244 |
Custodian Fees | 2,998 |
Auditing Fees | 46 |
Shareholders’ Reports—Investor Shares | 88 |
Shareholders’ Reports—Admiral Shares | 78 |
Trustees’ Fees and Expenses | 33 |
Total Expenses | 79,141 |
Net Investment Income | 328,597 |
Realized Net Gain (Loss) | |
Investment Securities Sold | (228,710) |
Futures Contracts | (18,852) |
Foreign Currencies and Forward Currency Contracts | (2,462) |
Realized Net Gain (Loss) | (250,024) |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | 1,768,049 |
Futures Contracts | 13,366 |
Foreign Currencies and Forward Currency Contracts | 3,826 |
Change in Unrealized Appreciation (Depreciation) | 1,785,241 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 1,863,814 |
1 Dividends are net of foreign withholding taxes of $26,719,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
18
International Growth Fund
Statement of Changes in Net Assets
Year Ended August 31, | ||
2016 | 2015 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 328,597 | 319,044 |
Realized Net Gain (Loss) | (250,024) | 58,537 |
Change in Unrealized Appreciation (Depreciation) | 1,785,241 | (2,815,756) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 1,863,814 | (2,438,175) |
Distributions | ||
Net Investment Income | ||
Investor Shares | (98,317) | (176,911) |
Admiral Shares | (219,641) | (320,446) |
Realized Capital Gain | ||
Investor Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (317,958) | (497,357) |
Capital Share Transactions | ||
Investor Shares | (951,188) | (771,120) |
Admiral Shares | 885,360 | 1,238,862 |
Net Increase (Decrease) from Capital Share Transactions | (65,828) | 467,742 |
Total Increase (Decrease) | 1,480,028 | (2,467,790) |
Net Assets | ||
Beginning of Period | 20,923,573 | 23,391,363 |
End of Period1 | 22,403,601 | 20,923,573 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $225,153,000 and $218,767,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
19
International Growth Fund
Financial Highlights
Investor Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $20.83 | $23.79 | $20.42 | $17.69 | $18.27 |
Investment Operations | |||||
Net Investment Income | . 304 | . 308 | . 4711 | .336 | .361 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 1.539 | (2.774) | 3.235 | 2.741 | (.607) |
Total from Investment Operations | 1.843 | (2.466) | 3.706 | 3.077 | (.246) |
Distributions | |||||
Dividends from Net Investment Income | (. 293) | (. 494) | (. 336) | (. 347) | (. 334) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (. 293) | (. 494) | (. 336) | (. 347) | (. 334) |
Net Asset Value, End of Period | $22.38 | $20.83 | $23.79 | $20.42 | $17.69 |
Total Return2 | 8.95% | -10.46% | 18.26% | 17.54% | -1.14% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $6,700 | $7,172 | $8,976 | $9,056 | $9,115 |
Ratio of Total Expenses to Average Net Assets3 | 0.46% | 0.47% | 0.47% | 0.48% | 0.49% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.47% | 1.34% | 2.08%1 | 1.71% | 2.04% |
Portfolio Turnover Rate | 29% | 29% | 21% | 31% | 30% |
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 0.04%, 0.03%, 0.03%, 0.03%, and 0.04%.
See accompanying Notes, which are an integral part of the Financial Statements.
20
International Growth Fund
Financial Highlights
Admiral Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $66.28 | $75.70 | $64.98 | $56.31 | $58.17 |
Investment Operations | |||||
Net Investment Income | 1.062 | 1.088 | 1.6131 | 1.157 | 1.229 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 4.877 | (8.821) | 10.277 | 8.697 | (1.945) |
Total from Investment Operations | 5.939 | (7.733) | 11.890 | 9.854 | (.716) |
Distributions | |||||
Dividends from Net Investment Income | (1.029) | (1.687) | (1.170) | (1.184) | (1.144) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.029) | (1.687) | (1.170) | (1.184) | (1.144) |
Net Asset Value, End of Period | $71.19 | $66.28 | $75.70 | $64.98 | $56.31 |
Total Return2 | 9.07% | -10.32% | 18.42% | 17.66% | -1.01% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $15,704 | $13,752 | $14,415 | $10,556 | $7,523 |
Ratio of Total Expenses to Average Net Assets3 | 0.33% | 0.34% | 0.34% | 0.35% | 0.36% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.60% | 1.47% | 2.21%1 | 1.84% | 2.17% |
Portfolio Turnover Rate | 29% | 29% | 21% | 31% | 30% |
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 0.04%, 0.03%, 0.03%, 0.03%, and 0.04%.
See accompanying Notes, which are an integral part of the Financial Statements.
21
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
22
International Growth Fund
clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.
The fund enters into forward currency contracts to provide the appropriate currency exposure related to any open futures contracts or to protect the value of securities and related receivables and payables against changes in foreign exchange rates. The fund’s risks in using these contracts include movement in the values of the foreign currencies relative to the U.S. dollar and the ability of the counterparties to fulfill their obligations under the contracts. The fund mitigates its counterparty risk by entering into forward currency contracts only with a diverse group of prequalified counterparties, monitoring their financial strength, entering into master netting arrangements with its counterparties, and requiring its counterparties to transfer collateral as security for their performance. In the absence of a default, the collateral pledged or received by the fund cannot be repledged, resold or rehypothecated. 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, 2016, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of aggregate settlement values at each quarter-end during the period. The fund’s average investment in forward currency contracts represented 3% 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, 2013–2016), 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 subject to termination by the fund at any time, and 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
23
International Growth Fund
of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
7. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at August 31, 2016, 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. and Schroder Investment Management North America Inc. 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. and Schroder Investment Management North America Inc. are subject to quarterly adjustments based on performance relative to the MSCI All Country World Index ex USA for the preceding three years. Until June 2016, a portion of the portfolio was
24
International Growth Fund
managed by M&G Investment Management Limited. The basic fee paid to M&G Investment Management Limited was 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, 2016, 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 $7,402,000 (0.04%) 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 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, 2016, the fund had contributed to Vanguard capital in the amount of $1,889,000, representing 0.01% of the fund’s net assets and 0.76% 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, 2016, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks—North and South America | 2,304,708 | — | — |
Common Stocks—Other | 2,732,104 | 16,720,841 | 327,541 |
Preferred Stocks | — | — | 116,756 |
Temporary Cash Investments | 565,037 | 28,193 | — |
Futures Contracts—Assets1 | 355 | — | — |
Futures Contracts—Liabilities1 | (324) | — | — |
Forward Currency Contracts—Assets | — | 6,003 | — |
Forward Currency Contracts—Liabilities | — | (5,245) | — |
Total | 5,601,880 | 16,749,792 | 444,297 |
1 Represents variation margin on the last day of the reporting period. |
25
International Growth Fund
The determination of Level 3 fair value measurements is governed by documented policies and procedures adopted by the board of trustees. The board has designated a pricing review committee, as an agent of the board, to ensure the timely analysis and valuation of Level 3 securities held by the fund in accordance with established policies and procedures. The pricing review committee employs various methods for calibrating valuation approaches, including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity. All valuation decisions made by the pricing review committee are reported to the board on a quarterly basis for review and ratification. The board reviews the adequacy of the fair value measurement policies and procedures in place on an annual basis.
The following table summarizes changes in investments valued based on Level 3 inputs during the year ended August 31, 2016. Transfers into or out of Level 3 are recognized based on values as of the date of transfer.
Investments in | Investments in | |
Common Stocks | Preferred Stocks | |
Amount valued based on Level 3 Inputs | ($000) | ($000) |
Balance as of August 31, 2015 | 192,068 | — |
Purchases | 189,063 | 116,756 |
Change in Unrealized Appreciation (Depreciation) | (53,590) | — |
Balance as of August 31, 2016 | 327,541 | 116,756 |
Net change in unrealized appreciation (depreciation) from investments still held as of August 31, 2016, was (53,590,000). |
The following table provides quantitative information about the significant unobservable inputs used in fair value measurement as of August 31, 2016:
Fair Value | ||||
Security Type | ($000) | Valuation Technique | Unobservable Input | Amount |
Common Stocks | 327,541 | Market Approach | Purchase Price | $41,773.540 |
Purchase Price | 2,381.354 | |||
Purchase Price | 2,228.610 | |||
Recent Market Transaction | 1,643.710 | |||
Purchase Price | 134.035 | |||
Discounted Purchase Price | 106.680 | |||
Discounted Recent Market | ||||
Transaction | 102.650 | |||
Purchase Price | 23.235 | |||
Preferred Stocks | 116,756 | Market Approach | Purchase Price | 3.861 |
Purchase Price | 1.000 |
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.
26
International Growth Fund
E. At August 31, 2016, 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 | 355 | 6,003 | 6,358 |
Other Liabilities | (324) | (5,245) | (5,569) |
Realized net gain (loss) and the change in unrealized appreciation (depreciation) on derivatives for the | |||
year ended August 31, 2016, were: |
Foreign | |||
Equity | Exchange | ||
Contracts | Contracts | Total | |
Realized Net Gain (Loss) on Derivatives | ($000) | ($000) | ($000) |
Futures Contracts | (18,852) | — | (18,852) |
Forward Currency Contracts | — | 1,791 | 1,791 |
Realized Net Gain (Loss) on Derivatives | (18,852) | 1,791 | (17,061) |
Change in Unrealized Appreciation (Depreciation) on Derivatives | |||
Futures Contracts | 13,366 | — | 13,366 |
Forward Currency Contracts | — | 4,074 | 4,074 |
Change in Unrealized Appreciation (Depreciation) on Derivatives | 13,366 | 4,074 | 17,440 |
At August 31, 2016, 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 2016 | 1,349 | 45,525 | 1,052 |
Topix Index | September 2016 | 215 | 27,656 | (97) |
FTSE 100 Index | September 2016 | 247 | 21,952 | 354 |
S&P ASX 200 Index | September 2016 | 159 | 16,162 | (143) |
1,166 |
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.
27
International Growth Fund
At August 31, 2016, 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 | 9/21/16 | EUR | 68,650 | USD | 75,762 | 888 |
Barclays Bank PLC | 9/21/16 | EUR | 54,243 | USD | 60,274 | 289 |
JPMorgan Chase Bank N.A. | 9/21/16 | GBP | 40,034 | USD | 54,749 | (2,150) |
JPMorgan Chase Bank N.A. | 9/13/16 | JPY | 4,954,282 | USD | 46,740 | 1,174 |
Citibank, N.A. | 9/21/16 | EUR | 37,068 | USD | 41,479 | (92) |
Citibank, N.A. | 9/13/16 | JPY | 2,902,250 | USD | 27,952 | 115 |
BNP Paribas | 9/13/16 | JPY | 2,830,526 | USD | 26,524 | 850 |
Goldman Sachs International | 9/20/16 | AUD | 26,773 | USD | 20,055 | 56 |
JPMorgan Chase Bank N.A. | 9/13/16 | JPY | 1,879,195 | USD | 18,316 | (142) |
BNP Paribas | 9/21/16 | EUR | 15,002 | USD | 16,877 | (127) |
Deutsche Bank AG | 9/20/16 | AUD | 23,087 | USD | 16,819 | 523 |
UBS AG | 9/20/16 | AUD | 19,821 | USD | 14,725 | 165 |
Morgan Stanley Capital Services LLC | 9/21/16 | GBP | 7,924 | USD | 11,178 | (767) |
Citibank, N.A. | 9/21/16 | GBP | 7,255 | USD | 9,568 | (36) |
Goldman Sachs International | 9/21/16 | GBP | 5,949 | USD | 7,993 | (177) |
JPMorgan Chase Bank N.A. | 9/20/16 | AUD | 9,546 | USD | 7,119 | 52 |
BNP Paribas | 9/20/16 | AUD | 9,655 | USD | 7,082 | 170 |
JPMorgan Chase Bank N.A. | 9/21/16 | EUR | 5,459 | USD | 6,000 | 96 |
Goldman Sachs International | 9/21/16 | GBP | 3,897 | USD | 5,098 | 22 |
Barclays Bank PLC | 9/21/16 | GBP | 2,330 | USD | 3,054 | 7 |
Goldman Sachs International | 9/13/16 | JPY | 244,300 | USD | 2,387 | (24) |
Citibank, N.A. | 9/20/16 | AUD | 3,153 | USD | 2,357 | 11 |
Goldman Sachs International | 9/21/16 | USD | 90,020 | EUR | 81,080 | (507) |
BNP Paribas | 9/21/16 | USD | 53,474 | GBP | 40,495 | 270 |
UBS AG | 9/13/16 | USD | 53,388 | JPY | 5,572,560 | (505) |
Barclays Bank PLC | 9/20/16 | USD | 32,394 | AUD | 43,171 | (34) |
Barclays Bank PLC | 9/21/16 | USD | 29,837 | EUR | 26,841 | (131) |
Barclays Bank PLC | 9/21/16 | USD | 27,538 | EUR | 24,575 | 98 |
Morgan Stanley Capital Services LLC | 9/21/16 | USD | 17,180 | EUR | 15,392 | (5) |
Barclays Bank PLC | 9/13/16 | USD | 16,477 | JPY | 1,683,480 | 196 |
UBS AG | 9/13/16 | USD | 13,713 | JPY | 1,388,100 | 289 |
Barclays Bank PLC | 9/21/16 | USD | 9,516 | GBP | 7,372 | (170) |
UBS AG | 9/20/16 | USD | 7,338 | AUD | 9,599 | 128 |
BNP Paribas | 9/13/16 | USD | 6,572 | JPY | 662,500 | 165 |
Barclays Bank PLC | 9/13/16 | USD | 6,540 | JPY | 695,130 | (183) |
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International Growth Fund
Unrealized | ||||||
Contract | Appreciation | |||||
Settlement | Contract Amount (000) | (Depreciation) | ||||
Counterparty | Date | Receive | Deliver | ($000) | ||
Citibank, N.A. | 9/20/16 | USD | 5,993 | AUD | 8,023 | (33) |
JPMorgan Chase Bank N.A. | 9/20/16 | USD | 5,071 | AUD | 6,858 | (80) |
Goldman Sachs International | 9/21/16 | USD | 4,857 | GBP | 3,747 | (65) |
BNP Paribas | 9/20/16 | USD | 3,889 | AUD | 5,055 | 92 |
Goldman Sachs International | 9/21/16 | USD | 2,125 | GBP | 1,501 | 153 |
Barclays Bank PLC | 9/21/16 | USD | 1,978 | GBP | 1,358 | 194 |
UBS AG | 9/20/16 | USD | 759 | AUD | 1,023 | (10) |
Goldman Sachs International | 9/13/16 | USD | 716 | JPY | 74,700 | (7) |
758 | ||||||
AUD—Australian dollar. | ||||||
EUR—Euro. | ||||||
GBP—British pound. | ||||||
JPY—Japanese yen. | ||||||
USD—U.S. dollar. |
At August 31, 2016, the counterparties had deposited in segregated accounts securities and cash with a value of $4,521,000 in connection with 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.
During the year ended August 31, 2016, the fund realized net foreign currency losses of $4,253,000, which decreased distributable net income for tax purposes; accordingly, such losses have been reclassified from accumulated net realized losses to undistributed net investment income.
For tax purposes, at August 31, 2016, the fund had $266,817,000 of ordinary income available for distribution. At August 31, 2016, the fund had available capital losses totaling $491,209,000 to offset future net capital gains. Of this amount, $212,308,000 is subject to expiration on August 31, 2018. Capital losses of $278,901,000 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, 2016, the cost of investment securities for tax purposes was $18,806,108,000. Net unrealized appreciation of investment securities for tax purposes was $3,989,072,000, consisting of unrealized gains of $5,544,309,000 on securities that had risen in value since their purchase and $1,555,237,000 in unrealized losses on securities that had fallen in value since their purchase.
G. During the year ended August 31, 2016, the fund purchased $6,138,987,000 of investment securities and sold $6,071,100,000 of investment securities, other than temporary cash investments.
29
International Growth Fund
H. Capital share transactions for each class of shares were: |
Year Ended August 31, | ||||
2016 | 2015 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
Investor Shares | ||||
Issued | 586,228 | 28,784 | 1,067,412 | 47,577 |
Issued in Lieu of Cash Distributions | 95,657 | 4,579 | 172,517 | 7,892 |
Redeemed | (1,633,073) | (78,218) | (2,011,049) | (88,589) |
Net Increase (Decrease)—Investor Shares | (951,188) | (44,855) | (771,120) | (33,120) |
Admiral Shares | ||||
Issued | 2,523,382 | 38,141 | 2,585,487 | 35,811 |
Issued in Lieu of Cash Distributions | 202,133 | 3,045 | 298,739 | 4,300 |
Redeemed | (1,840,155) | (28,076) | (1,645,364) | (23,053) |
Net Increase (Decrease)—Admiral Shares | 885,360 | 13,110 | 1,238,862 | 17,058 |
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, | ||||
2015 | from | Capital Gain | 2016 | |||
Market | Purchases | Securities | Distributions | Market | ||
Value | at Cost | Sold1 | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
Home 24AG | 67,499 | — | — | — | — | 38,841 |
Vanguard FTSE All-World ex-US | ||||||
ETF | — | 47,801 | — | 1,143 | — | 50,757 |
Vanguard Market Liquidity Fund | 558,678 | NA2 | NA 2 | 1,201 | — | 565,037 |
You & Mr. Jones | — | 44,800 | — | — | — | 44,800 |
Total | 626,177 | 2,344 | — | 699,435 | ||
1 Includes net realized gain (loss) on affiliated investment securities sold of $47,000. | ||||||
2 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, 2016, 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 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, 2016, 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, 2016 by correspondence with the custodian and brokers and by agreement to the underlying ownership records of the transfer agent, provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
October 18, 2016
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/internationalgrowthx33x1.jpg)
Special 2016 tax information (unaudited) for Vanguard International Growth Fund
This information for the fiscal year ended August 31, 2016, is included pursuant to provisions of the
Internal Revenue Code.
The fund distributed $278,023,000 of qualified dividend income to shareholders during the fiscal year.
The fund designates to shareholders foreign source income of $333,728,000 and foreign taxes paid
of $25,631,000. Shareholders will receive more detailed information with their Form 1099-DIV in
January 2017 to determine the calendar-year amounts to be included on their 2016 tax returns.
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 2016. (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, 2016 | |||
One | Five | Ten | |
Year | Years | Years | |
Returns Before Taxes | 8.95% | 6.04% | 3.87% |
Returns After Taxes on Distributions | 8.61 | 5.66 | 3.05 |
Returns After Taxes on Distributions and Sale of Fund Shares | 5.35 | 4.74 | 3.07 |
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, 2016 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
International Growth Fund | 2/29/2016 | 8/31/2016 | Period |
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $1,168.67 | $2.56 |
Admiral Shares | 1,000.00 | 1,169.35 | 1.85 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,022.77 | $2.39 |
Admiral Shares | 1,000.00 | 1,023.43 | 1.73 |
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 0.34% for Admiral Shares. The dollar amounts shown as “Expenses Paid” are equal to the
annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent
six-month period, then divided by the number of days in the most recent 12-month period (184/366).
34
Glossary
Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Dividend Yield. Dividend income earned by stocks, expressed as a percentage of the aggregate market value (or of net asset value, for a fund). The yield is determined by dividing the amount of the annual dividends by the aggregate value (or net asset value) at the end of the period. For a fund, the dividend yield is based solely on stock holdings and does not include any income produced by other investments.
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.
Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.
Price/Earnings Ratio. The ratio of a stock’s current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company’s future growth.
R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0. For this report, R-squared is based on returns over the past 36 months for both the fund and the index.
35
Return on Equity. The annual average rate of return generated by a company during the past five years for each dollar of shareholder’s equity (net income divided by shareholder’s equity). For a fund, the weighted average return on equity for the companies whose stocks it holds.
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
Turnover Rate. An indication of the fund’s trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to investors). The turnover rate excludes in-kind transactions, which have minimal impact on costs.
Benchmark Information
Spliced International Index: MSCI EAFE Index through May 31, 2010; MSCI All Country World Index ex USA thereafter.
36
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The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 198 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482. 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 manage- |
ment products and services); Executive in Residence |
and 2009–2010 Distinguished Minett Professor at |
the Rochester Institute of Technology; Lead Director |
of SPX FLOW, Inc. (multi-industry manufacturing); |
Director of the United Way of Rochester, the University |
of Rochester Medical Center, Monroe Community |
College Foundation, North Carolina A&T University, |
and Roberts Wesleyan College. |
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), HP Inc. (printer and personal 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) and the Robert Wood |
Johnson Foundation; 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, the Board of Advisors |
for Spruceview Capital Partners, and the Investment |
Advisory Committee of Major League Baseball; Board |
Member of TIFF Advisory Services, Inc., and Catholic |
Investment Services, Inc. (investment advisors). |
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); Chairman of the |
Board of Trustees of Colby-Sawyer College; |
Member of the Advisory Board of the Norris |
Cotton Cancer Center. |
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 ManagementTeam | |
Mortimer J. Buckley | James M. Norris |
Kathleen C. Gubanich | Thomas M. Rampulla |
Martha G. King | Glenn W. Reed |
John T. Marcante | Karin A. Risi |
Chris D. McIsaac | Michael Rollings |
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. | |
© 2016 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q810 102016 |
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_part1x1x1.jpg)
Annual Report | August 31, 2016
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
A new format, unwavering commitment
As you begin reading this report, you’ll notice that we’ve made some improvements to the opening sections—based on feedback from you, our clients.
Page 1 starts with a new “Your Fund’s Performance at a Glance,” a concise, handy summary of how your fund performed during the period.
In the renamed “Chairman’s Perspective,” Bill McNabb will focus on enduring principles and investment insights.
We’ve modified some tables, and eliminated some redundancy, but we haven’t removed any information.
At Vanguard, we’re always looking for better ways to communicate and to help you make sound investment decisions. Thank you for entrusting your assets to us.
Contents | |
Your Fund’s Performance at a Glance | 1 |
Chairman’s Perspective | 4 |
Consumer Discretionary Index Fund | 7 |
Consumer Staples Index Fund | 18 |
Energy Index Fund | 28 |
Financials Index Fund | 38 |
Health Care Index Fund | 51 |
Industrials Index Fund | 62 |
Information Technology Index Fund | 74 |
Materials Index Fund | 85 |
Telecommunication Services Index Fund | 95 |
Utilities Index Fund | 106 |
Your Fund’s After-Tax Returns | 117 |
About Your Fund’s Expenses | 119 |
Trustees Approve Advisory Arrangements | 121 |
Glossary | 122 |
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_part1x2x1.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: No matter what language you speak, Vanguard has one consistent message and set of principles. Our primary focus is on you, our clients. We conduct our business with integrity as a faithful steward of your assets. This message is shown translated into seven languages, reflecting our expanding global presence.
Your Fund’s Performance at a Glance
• For the 12 months ended August 31, 2016, returns for the Vanguard U.S. Sector Index
Funds ranged from nearly 3% for Vanguard Health Care Index Fund to about 21% for
Vanguard Utilities Index Fund. Each fund surpassed the average return of its peer group.
• Nine of the ten sector funds closely tracked their benchmark indexes after expenses.
Vanguard Energy Index Fund’s return diverged from its benchmark in part because of
changes in the index amid exceptional volatility in oil- and gas-related stocks during the
fiscal year.
• Six of the funds outpaced the broad U.S. stock market. Among the top performers
were the Utilities Index Fund, Vanguard Telecommunication Services Index Fund, and
Vanguard Information Technology Index Fund.
• The funds with the smallest gains were the Health Care Index Fund, Vanguard Energy
Index Fund, and Vanguard Consumer Discretionary Index Fund.
Total Returns: Fiscal Year Ended August 31, 2016 | |
ETF Shares1 and Admiral™ Shares2 | |
Total | |
Returns | |
Vanguard Consumer Discretionary ETF | |
Market Price | 6.82% |
Net Asset Value | 6.84 |
Vanguard Consumer Discretionary Index Fund | 6.83 |
MSCI US IMI/Consumer Discretionary 25/50 | 6.92 |
Consumer Services Funds Average3 | 3.87 |
Vanguard Consumer Staples ETF | |
Market Price | 17.34% |
Net Asset Value | 17.36 |
Vanguard Consumer Staples Index Fund | 17.37 |
MSCI US IMI/Consumer Staples 25/50 | 17.42 |
Consumer Goods Funds Average3 | 12.46 |
Vanguard Energy ETF | |
Market Price | 5.80% |
Net Asset Value | 5.82 |
Vanguard Energy Index Fund | 5.83 |
MSCI US IMI/Energy 25/50 | 6.31 |
Natural Resources Funds Average3 | 1.82 |
Vanguard Financials ETF | |
Market Price | 8.89% |
Net Asset Value | 8.93 |
Vanguard Financials Index Fund | 8.96 |
MSCI US IMI/Financials 25/50 | 9.04 |
Financial Services Funds Average3 | 6.23 |
Total | |
Returns | |
Vanguard Health Care ETF | |
Market Price | 2.58% |
Net Asset Value | 2.61 |
Vanguard Health Care Index Fund | 2.61 |
MSCI US IMI/Health Care 25/50 | 2.62 |
Health/Biotechnology Funds Average3 | -7.98 |
Vanguard Industrials ETF | |
Market Price | 15.79% |
Net Asset Value | 15.78 |
Vanguard Industrials Index Fund | 15.77 |
MSCI US IMI/Industrials 25/50 | 15.81 |
Industrials Funds Average3 | 9.69 |
Vanguard Information Technology ETF | |
Market Price | 17.49% |
Net Asset Value | 17.48 |
Vanguard Information Technology Index Fund | 17.49 |
MSCI US IMI/Information Technology 25/50 | 17.59 |
Science and Technology Funds Average3 | 14.81 |
Vanguard Materials ETF | |
Market Price | 15.84% |
Net Asset Value | 15.83 |
Vanguard Materials Index Fund | 15.80 |
MSCI US IMI/Materials 25/50 | 15.90 |
Basic Materials Funds Average3 | 12.06 |
Total | |
Returns | |
Vanguard Telecommunication Services ETF | |
Market Price | 19.09% |
Net Asset Value | 19.14 |
Vanguard Telecommunication Services | |
Index Fund | 19.14 |
MSCI US IMI/Telecommunication | |
Services 25/50 | 19.08 |
Telecommunication Funds Average3 | 10.69 |
Vanguard Utilities ETF | |
Market Price | 21.37% |
Net Asset Value | 21.40 |
Vanguard Utilities Index Fund | 21.42 |
MSCI US IMI/Utilities 25/50 | 21.46 |
Utility Funds Average3 | 12.60 |
MSCI US IMI/2500 | 11.48% |
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
Total Returns: Ten Years Ended August 31, 2016 | |
Average | |
Annual Return | |
Consumer Discretionary Index Fund ETF Shares Net Asset Value | 10.67% |
Spliced US IMI/Consumer Discretionary 25/50 | 10.79 |
Consumer Services Funds Average | 8.24 |
Consumer Services Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Consumer Staples Index Fund ETF Shares Net Asset Value | 11.05% |
Spliced US IMI/Consumer Staples 25/50 | 11.13 |
Consumer Goods Funds Average | 9.38 |
Consumer Goods Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Energy Index Fund ETF Shares Net Asset Value | 3.48% |
Spliced US IMI/Energy 25/50 | 3.58 |
Natural Resources Funds Average | 1.28 |
Natural Resources Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Financials Index Fund ETF Shares Net Asset Value | 0.59% |
Spliced US IMI/Financials 25/50 | 0.63 |
Financial Services Funds Average | 0.84 |
Financial Services Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Health Care Index Fund ETF Shares Net Asset Value | 10.80% |
Spliced US IMI/Health Care 25/50 | 10.95 |
Health/Biotechnology Funds Average | 11.46 |
Health/Biotechnology Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Industrials Index Fund ETF Shares Net Asset Value | 8.29% |
Spliced US IMI/Industrials 25/50 | 8.42 |
Industrials Funds Average | 6.83 |
Industrials Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Information Technology Index Fund ETF Shares Net Asset Value | 10.44% |
Spliced US IMI/Information Technology 25/50 | 10.60 |
Science and Technology Funds Average | 9.37 |
Science and Technology Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Materials Index Fund ETF Shares Net Asset Value | 7.69% |
Spliced US IMI/Materials 25/50 | 7.78 |
Basic Materials Funds Average | 3.56 |
Basic Materials Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Telecommunication Services Index Fund ETF Shares Net Asset Value | 7.04% |
Spliced US IMI/Telecommunication Services 25/50 | 6.75 |
Telecommunication Funds Average | 4.43 |
Telecommunication Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Utilities Index Fund ETF Shares Net Asset Value | 7.71% |
Spliced US IMI/Utilities 25/50 | 7.89 |
Utility Funds Average | 5.85 |
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.
2
Expense Ratios | |||
Your Fund Compared With Its Peer Group | |||
ETF | Admiral | Peer Group | |
Shares | Shares | Average | |
Consumer Discretionary Index Fund | 0.10% | 0.09% | 1.41% |
Consumer Staples Index Fund | 0.10 | 0.10 | 1.45 |
Energy Index Fund | 0.10 | 0.10 | 1.64 |
Financials Index Fund | 0.10 | 0.10 | 1.60 |
Health Care Index Fund | 0.09 | 0.10 | 1.44 |
Industrials Index Fund | 0.10 | 0.10 | 1.37 |
Information Technology Index Fund | 0.10 | 0.10 | 1.49 |
Materials Index Fund | 0.10 | 0.10 | 1.31 |
Telecommunication Services Index Fund | 0.10 | 0.10 | 1.54 |
Utilities Index Fund | 0.10 | 0.10 | 1.26 |
The fund expense ratios shown are from the prospectus dated December 22, 2015, and represent estimated costs for the current fiscal
year. For the fiscal year ended August 31, 2016, the fund expense ratios were: for the Consumer Discretionary Index Fund, 0.10% for ETF
Shares and 0.10% 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, 0.10% 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; 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 2015.
Peer groups are: for the Consumer Discretionary Index Fund, Consumer Services Funds; for the Consumer Staples Index Fund, Consumer
Goods Funds; for the Energy Index Fund, Natural Resources Funds; for the Financials Index Fund, Financial Services Funds; for the Health
Care Index Fund, Health/Biotechnology Funds; for the Industrials Index Fund, Industrials Funds; for the Information Technology Index
Fund, Science and Technology Funds; for the Materials Index Fund, Basic Materials Funds; for the Telecommunication Services Index
Fund, Telecommunication Funds; for the Utilities Index Fund, Utility Funds.
3
Chairman’s Perspective
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_part1x6x1.jpg)
Bill McNabb
Chairman and Chief Executive Officer
Dear Shareholder,
Even as the global economy continued to expand at a slow but sustained pace over the 12 months ended August 31, 2016, a series of disquieting developments highlighted the importance for investors of remaining disciplined.
Chief among them was “Brexit”—the British public’s vote to exit the European Union—but plenty of others moved the markets as well. We saw sharp ups and downs in the prices of oil and other commodities, choppy U.S. job numbers, shifting expectations about when the Federal Reserve might raise interest rates again, and decreases in already negative yields for European and Japanese government bonds.
Beyond being the end of the fiscal period, August marked a milestone: 40 years since Vanguard introduced the first index mutual fund. In ways that are perhaps still not fully appreciated, indexing has vastly improved investing for individuals, advisors, and institutions all over the world. Later in this letter, I’ll discuss the revolution wrought by what was initially a little-heralded new fund from a fledgling outfit in Valley Forge, Pennsylvania.
Brexit added another layer of uncertainty for investors
I think it’s fair to say that the momentous June 23 Brexit vote caught even the British off guard. Although we saw some market jitters in the run-up to the referendum, the unexpected outcome triggered a spike in volatility worldwide. Stocks around the world lost 5%–10% in U.S. dollar terms in the first two trading sessions following the vote, with U.K. and European markets among the hardest hit; global bonds, though, headed in the other direction. It was a textbook illustration of the value of having a diversified portfolio.
That kind of volatility can push investors to “do something.” But some of the worst days in the stock markets are sometimes followed by some of the best—as happened at the end of June. Investors who scrambled to protect their portfolios by shedding stocks amid headlines warning of a global market meltdown may well have ended up locking in post-Brexit losses, then missing out on the strong rebound that took place just days later. Those headlines were noise that investors would have been better off tuning out. I’m pleased to say that Vanguard investors on the whole did just that—we continued to see cash flows into our funds in the days after the vote.
Market Barometer | |||
Average Annual Total Returns | |||
Periods Ended August 31, 2016 | |||
One | Three | Five | |
Year | Years | Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 11.69% | 12.02% | 14.60% |
Russell 2000 Index (Small-caps) | 8.59 | 8.53 | 12.85 |
Russell 3000 Index (Broad U.S. market) | 11.44 | 11.74 | 14.46 |
FTSE All-World ex US Index (International) | 3.37 | 2.59 | 3.72 |
Bonds | |||
Barclays U.S. Aggregate Bond Index (Broad taxable market) | 5.97% | 4.37% | 3.24% |
Barclays Municipal Bond Index (Broad tax-exempt market) | 6.88 | 6.47 | 4.80 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.18 | 0.05 | 0.06 |
CPI | |||
Consumer Price Index | 1.06% | 0.98% | 1.23% |
4
For the 12 months, stocks generally finished higher, with U.S. stocks up more than 11% and international stocksabout 3% for U.S.-based investors.
In a surprise, bonds turned in a solid performance that few would have predicted a year ago. It seemed as if rates had fallen so far that they couldn’t go any lower, but many did. Central banks in a number of European countries andJapan set key monetary policy rates belowzero. These policies held down short-term rates, while more muted expectations forglobal growth and inflation weighed on longer-term rates.
Yields in the United States weren’t quite as low as in many developed countries. The Fed raised the federal funds target rate only once, in December, to a slim 0.25%---0.5%. Further out on the maturityspectrum, the bellwether 10-year U.S. Treasuryyield dropped in early July to a record low 1.36%, before moving back up a little to endthe period at 1.58%. Over the 12 months, U.S. bonds returned about 6%, and international bonds returned even more-----about11%-----for U.S.-based investors, again underscoring the markets’ unpredictability and the merits of diversification.
Over the years, many investors have embraced the pluses of indexing
Market upsets like Brexit aren’t rare occurrences. Fortunately, indexing has proved to be a durable behavioral tool to help keep investors from making bad financial decisions when upsets happen. In fact, this is one of indexing’s less appreciated benefits: Holding indexfunds as part of a broadly diversified portfolio can counterbalance that tendency to react to news headlines. When times arevolatile, you’ll know you might have some exposure to a part of the market that hasdropped, but also to other parts that may be holding up better.
Vanguard’s launch of the First Index Investment Trust, now Vanguard 500 Index Fund, initially met with a frosty reception. Its mandate to track the performance of a broadly diversified benchmark at a lowcost seemed underwhelming to aninvesting
public accustomed to funds thatoffered the chance to outperform. Investors have since come around, as experience has demonstrated the benefits of lowcosts and broad diversification.
When being ‘average’ is a lot better than average |
Not only did Vanguard founder John C. Bogle launch the first index mutual fund in 1976, but |
he also was among the first to clearly explain to the investing public the benefits of what was |
then a novel, unproven strategy. |
Back in 1977, in the first annual report for what was later renamed Vanguard 500 Index Fund, |
Mr. Bogle wrote that an index fund ‘‘represents a tough and demanding ‘par.’ And if there |
are some professionals who can ‘beat par’ more often than not-----in investing or in golf-----they |
do not seem to be in the majority.’’ |
Mr. Bogle’s analogy has been borne out by historical returns. As you can see in the chart |
below, out of 1,238 actively managed large-capitalization funds, a clear majority-----65%------ |
trailed the Standard & Poor’s 500 Index in average annual return over the decade ended |
December 31, 2015. And 518 funds, or about 42% of the total number, trailed by more than |
1 percentage point. |
The track record looks even more discouraging when you consider that of the 35% of funds |
that outperformed the index, only 119-----or about 10% in all-----did so by more than 1 |
percentage point. The 315 others also took on risk to try to outperform the index (and likely |
experienced greater volatility) but came out ahead by less than 1 percentage point in average |
annual return. |
Over a decade, a majority of active large-cap funds lagged the S&P 500 Index |
Based on average annual returns, 2006---2015 |
Notes: Data based on average annual returns of all 1,238 existing actively managed large-cap funds over the decade ended December 31, |
2015. Note that index funds seek to track the performance of a benchmark index but typically won't ‘‘match’’ the benchmark's returns because |
of the costs of passive indexing. |
Sources: Vanguard calculations, using data from Standard & Poor’s. |
Past performance is not a guarantee of future results. The performance of an index is not an exact representation of any particular investment, |
as you cannot invest directly in an index. |
5
Indexing accounted for about 30% of U.S. mutual fund and exchange-traded fund (ETF) assets at the end of 2015, according to the Investment Company Institute. Some now even proclaim the “triumph of indexing,” implying that it’s the only way to invest.
In our view, the rise of indexing has served to underscore an investment principle that long predates 1976: A long-term, low-cost, diversified approach gives investors the best chance for success. That’s true whether the investments you choose are indexed or actively managed—or both.
As always, thank you for investing with Vanguard.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_part3x1x1.jpg)
F. William McNabb III
Chairman and Chief Executive Officer
September 9, 2016
6
Consumer Discretionary Index Fund
Fund Profile
As of August 31, 2016
Share-Class Characteristics | ||
ETF | Admiral | |
Shares | Shares | |
Ticker Symbol | VCR | VCDAX |
Expense Ratio1 | 0.10% | 0.09% |
30-Day SEC Yield | 1.35% | 1.36% |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | |||
Consumer | MSCI | ||
Discretionary | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 386 | 385 | 2,476 |
Median Market Cap $41.7B | $41.7B | $51.2B | |
Price/Earnings Ratio | 22.9x | 22.9x | 23.4x |
Price/Book Ratio | 4.3x | 4.4x | 2.8x |
Return on Equity | 21.4% | 21.4% | 16.7% |
Earnings Growth Rate 13.1% | 13.1% | 7.4% | |
Dividend Yield | 1.5% | 1.5% | 2.0% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 7% | — | — |
Short-Term Reserves | -0.1% | — | — |
Volatility Measures | ||
MSCI US | ||
IMI/Consumer | ||
Discretionary | MSCI US | |
25/50 | IMI/2500 | |
R-Squared | 1.00 | 0.87 |
Beta | 1.00 | 1.11 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months. |
Subindustry Diversification | |
(% of equity exposure) | |
Advertising | 1.1% |
Apparel Retail | 4.7 |
Apparel, Accessories & Luxury Goods | 3.4 |
Auto Parts & Equipment | 3.3 |
Automobile Manufacturers | 4.1 |
Automotive Retail | 3.1 |
Broadcasting | 1.7 |
Cable & Satellite | 10.0 |
Casinos & Gaming | 1.6 |
Department Stores | 1.0 |
Distributors | 1.1 |
Footwear | 2.9 |
General Merchandise Stores | 2.8 |
Home Improvement Retail | 8.0 |
Homebuilding | 1.8 |
Hotels, Resorts & Cruise Lines | 3.3 |
Internet Retail | 15.8 |
Leisure Products | 1.3 |
Movies & Entertainment | 9.4 |
Restaurants | 10.3 |
Specialty Stores | 2.4 |
Other Consumer Discretionary | 6.9 |
Ten Largest Holdings (% of total net assets) | ||
Amazon.com Inc. | Internet Retail | 10.4% |
Home Depot Inc. | Home Improvement Retail | 5.6 |
Comcast Corp. | Cable & Satellite | 5.3 |
Walt Disney Co. | Movies & Entertainment | 4.9 |
McDonald’s Corp. | Restaurants | 3.4 |
Starbucks Corp. | Restaurants | 2.8 |
NIKE Inc. | Footwear | 2.6 |
Priceline Group Inc. Internet Retail | 2.4 | |
Lowe’s Cos. Inc. | Home Improvement Retail | 2.3 |
Time Warner Inc. | Movies & Entertainment | 2.1 |
Top Ten | 41.8% | |
The holdings listed exclude any temporary cash investments and equity index products. |
1 The expense ratios shown are from the prospectus dated December 22, 2015, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2016, the expense ratios were 0.10% for ETF Shares and 0.10% for Admiral Shares.
7
Consumer Discretionary Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at 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, 2006–August 31, 2016
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_part3x3x1.jpg)
Average Annual Total Returns | Final Value | |||
Periods Ended August 31, 2016 | of a $10,000 | |||
One Year | Five Years | Ten Years | Investment | |
Consumer Discretionary Index Fund | ||||
ETF Shares Net Asset Value | 6.84% | 17.61% | 10.67% | $27,561 |
Consumer Discretionary Index Fund | ||||
ETF Shares Market Price | 6.82 | 17.61 | 10.62 | 27,428 |
Spliced US IMI/Consumer Discretionary 25/50 | 6.92 | 17.74 | 10.79 | 27,871 |
Consumer Services Funds Average | 3.87 | 14.25 | 8.24 | 22,071 |
MSCI US IMI/2500 | 11.48 | 14.51 | 7.80 | 21,187 |
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 | 6.83% | 17.61% | 10.66% | $275,320 |
Spliced US IMI/Consumer Discretionary 25/50 | 6.92 | 17.74 | 10.79 | 278,712 |
MSCI US IMI/2500 | 11.48 | 14.51 | 7.80 | 211,866 |
See Financial Highlights for dividend and capital gains information.
8
Consumer Discretionary Index Fund
Fiscal-Year Total Returns (%): August 31, 2006--August 31, 2016
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2006--August 31, 2016 | |||
One Year | Five Years | Ten Years | |
Consumer Discretionary Index Fund ETF Shares Market Price | 6.82% | 124.99% | 174.28% |
Consumer Discretionary Index Fund ETF Shares Net Asset Value | 6.84 | 125.00 | 175.61 |
Spliced US IMI/Consumer Discretionary 25/50 | 6.92 | 126.23 | 178.71 |
Average Annual Total Returns: Periods Ended June 30, 2016
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 | 0.11% | 14.88% | 10.06% | |
Net Asset Value | 0.16 | 14.89 | 10.07 | |
Admiral Shares | 7/14/2005 | 0.16 | 14.90 | 10.06 |
See Financial Highlights for dividend and capital gains information.
9
Consumer Discretionary Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2016
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 | |||
Auto Components (3.7%) | |||
Johnson Controls Inc. | 459,083 | 20,145 | |
Delphi Automotive plc | 193,217 | 13,653 | |
^ | Autoliv Inc. | 62,121 | 6,596 |
Lear Corp. | 52,554 | 6,111 | |
Goodyear Tire & Rubber | |||
Co. | 188,401 | 5,530 | |
BorgWarner Inc. | 153,447 | 5,277 | |
Gentex Corp. | 204,186 | 3,632 | |
* | Tenneco Inc. | 40,581 | 2,266 |
Visteon Corp. | 23,991 | 1,696 | |
Drew Industries Inc. | 16,434 | 1,674 | |
Dana Inc. | 105,659 | 1,524 | |
* | Dorman Products Inc. | 22,165 | 1,398 |
Cooper Tire & Rubber Co. | 39,042 | 1,327 | |
* | Cooper-Standard Holding | ||
Inc. | 9,282 | 919 | |
* | American Axle & | ||
Manufacturing Holdings | |||
Inc. | 51,082 | 876 | |
* | Gentherm Inc. | 25,652 | 846 |
Standard Motor Products | |||
Inc. | 14,642 | 656 | |
Superior Industries | |||
International Inc. | 16,305 | 475 | |
* | Motorcar Parts of America | ||
Inc. | 13,724 | 390 | |
Tower International Inc. | 15,545 | 378 | |
* | Modine Manufacturing Co. | 34,410 | 368 |
* | Fox Factory Holding Corp. | 16,917 | 351 |
* | Stoneridge Inc. | 20,214 | 350 |
* | Federal-Mogul Holdings | ||
Corp. | 25,201 | 230 | |
Metaldyne Performance | |||
Group Inc. | 11,982 | 190 | |
76,858 | |||
Automobiles (4.4%) | |||
Ford Motor Co. | 2,624,758 | 33,072 | |
General Motors Co. | 981,314 | 31,323 | |
* | Tesla Motors Inc. | 82,603 | 17,513 |
Harley-Davidson Inc. | 128,134 | 6,752 | |
Thor Industries Inc. | 35,081 | 2,847 | |
Winnebago Industries Inc. | 20,062 | 483 | |
91,990 | |||
Distributors (1.1%) | |||
Genuine Parts Co. | 105,958 | 10,894 | |
* | LKQ Corp. | 217,200 | 7,839 |
Pool Corp. | 29,610 | 2,987 | |
Core-Mark Holding Co. Inc. | 33,033 | 1,260 | |
22,980 | |||
Diversified Consumer Services (1.1%) | |||
Service Corp. International | 137,635 | 3,639 | |
* | ServiceMaster Global | ||
Holdings Inc. | 95,855 | 3,576 | |
H&R Block Inc. | 158,892 | 3,442 | |
* | Bright Horizons Family | ||
Solutions Inc. | 32,844 | 2,239 |
Class B | 3,127 | 1,533 | ||
* | Grand Canyon Education | |||
Inc. | 31,718 | 1,317 | ||
Sotheby’s | 33,164 | 1,315 | ||
* | Houghton Mifflin Harcourt | |||
Co. | 75,596 | 1,206 | ||
* | LifeLock Inc. | 61,399 | 1,022 | |
DeVry Education Group Inc. | 43,085 | 993 | ||
* | Apollo Education Group Inc. | 72,131 | 640 | |
Capella Education Co. | 8,403 | 495 | ||
* | Strayer Education Inc. | 7,523 | 366 | |
* | Regis Corp. | 26,561 | 334 | |
* | K12 Inc. | 26,673 | 319 | |
* | Career Education Corp. | 48,476 | 317 | |
Carriage Services Inc. | ||||
Class A | 11,753 | 275 | ||
* | Chegg Inc. | 40,349 | 272 | |
* | American Public Education | |||
Inc. | 11,126 | 230 | ||
^,* | Weight Watchers | |||
International Inc. | 20,393 | 214 | ||
* | Ascent Capital Group Inc. | |||
Class A | 6,678 | 155 | ||
* | Bridgepoint Education Inc. | 12,862 | 93 | |
23,992 | ||||
Hotels, Restaurants & Leisure (15.6%) | ||||
McDonald’s Corp. | 621,566 | 71,890 | ||
Starbucks Corp. | 1,036,531 | 58,284 | ||
Yum! Brands Inc. | 288,498 | 26,170 | ||
Las Vegas Sands Corp. | 309,539 | 15,542 | ||
Carnival Corp. | 258,810 | 12,371 | ||
^ | Marriott International Inc. | |||
Class A | 144,035 | 10,274 | ||
Starwood Hotels & | ||||
Resorts Worldwide Inc. | 119,496 | 9,256 | ||
Hilton Worldwide Holdings | ||||
Inc. | 385,476 | 9,201 | ||
Royal Caribbean Cruises | ||||
Ltd. | 122,045 | 8,679 | ||
* | Chipotle Mexican Grill Inc. | |||
Class A | 20,675 | 8,554 | ||
* | MGM Resorts | |||
International | 318,065 | 7,599 | ||
Aramark | 163,342 | 6,196 | ||
Wyndham Worldwide | ||||
Corp. | 78,877 | 5,584 | ||
Domino’s Pizza Inc. | 35,232 | 5,270 | ||
Darden Restaurants Inc. | 85,464 | 5,268 | ||
Wynn Resorts Ltd. | 57,343 | 5,122 | ||
Vail Resorts Inc. | 25,560 | 4,049 | ||
* | Norwegian Cruise Line | |||
Holdings Ltd. | 112,539 | 4,039 | ||
* | Panera Bread Co. Class A | 16,133 | 3,503 | |
Dunkin’ Brands Group Inc. | 64,900 | 3,177 | ||
Six Flags Entertainment | ||||
Corp. | 52,527 | 2,562 | ||
Jack in the Box Inc. | 22,994 | 2,287 |
Brinker International Inc. | 40,201 | 2,159 | |
* | Buffalo Wild Wings Inc. | 13,213 | 2,143 |
Texas Roadhouse Inc. | |||
Class A | 46,891 | 2,076 | |
Cracker Barrel Old Country | |||
Store Inc. | 13,551 | 2,061 | |
Cheesecake Factory Inc. | 32,466 | 1,669 | |
Bloomin’ Brands Inc. | 83,970 | 1,641 | |
Wendy’s Co. | 153,143 | 1,561 | |
Papa John’s International | |||
Inc. | 19,905 | 1,489 | |
Interval Leisure Group Inc. | 83,178 | 1,447 | |
Churchill Downs Inc. | 9,395 | 1,403 | |
Marriott Vacations | |||
Worldwide Corp. | 17,252 | 1,330 | |
Choice Hotels International | |||
Inc. | 26,116 | 1,266 | |
* | Boyd Gaming Corp. | 59,867 | 1,167 |
* | Dave & Buster’s | ||
Entertainment Inc. | 22,171 | 1,030 | |
Sonic Corp. | 34,572 | 992 | |
* | Hyatt Hotels Corp. Class A | 18,319 | 980 |
DineEquity Inc. | 11,926 | 930 | |
^,* | Diamond Resorts | ||
International Inc. | 29,442 | 889 | |
* | Popeyes Louisiana Kitchen | ||
Inc. | 15,875 | 866 | |
Extended Stay America Inc. | 59,332 | 840 | |
* | La Quinta Holdings Inc. | 65,939 | 762 |
* | Belmond Ltd. Class A | 65,166 | 728 |
* | Penn National Gaming Inc. | 51,233 | 726 |
ClubCorp Holdings Inc. | 47,078 | 676 | |
International Speedway | |||
Corp. Class A | 19,568 | 651 | |
SeaWorld Entertainment Inc. | 46,560 | 606 | |
* | Denny’s Corp. | 55,669 | 582 |
Bob Evans Farms Inc. | 13,882 | 569 | |
* | BJ’s Restaurants Inc. | 13,657 | 542 |
* | Red Robin Gourmet | ||
Burgers Inc. | 10,257 | 515 | |
* | Pinnacle Entertainment Inc. | 42,580 | 513 |
* | Fiesta Restaurant Group Inc. | 20,090 | 507 |
Wingstop Inc. | 16,180 | 490 | |
* | Caesars Acquisition Co. | ||
Class A | 34,032 | 414 | |
* | Planet Fitness Inc. Class A | 18,449 | 399 |
^,* | Zoe’s Kitchen Inc. | 13,785 | 375 |
Ruth’s Hospitality Group Inc. | 24,548 | 367 | |
* | Chuy’s Holdings Inc. | 12,063 | 365 |
* | Biglari Holdings Inc. | 804 | 354 |
^,* | Shake Shack Inc. Class A | 9,545 | 337 |
* | Scientific Games Corp. | ||
Class A | 38,978 | 322 | |
* | Isle of Capri Casinos Inc. | 17,192 | 298 |
Marcus Corp. | 12,395 | 292 | |
* | Del Taco Restaurants Inc. | 24,556 | 276 |
* | Del Frisco’s Restaurant | ||
Group Inc. | 16,793 | 253 | |
* | Eldorado Resorts Inc. | 16,465 | 230 |
^,* | Caesars Entertainment | ||
Corp. | 35,676 | 225 | |
* | El Pollo Loco Holdings Inc. | 16,198 | 221 |
* | Potbelly Corp. | 13,961 | 181 |
* | Intrawest Resorts Holdings | ||
Inc. | 11,730 | 175 | |
Speedway Motorsports Inc. | 9,644 | 173 |
10
Consumer Discretionary Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
* | Lindblad Expeditions | ||
Holdings Inc. | 14,330 | 135 | |
* | Ruby Tuesday Inc. | 43,593 | 133 |
* | Habit Restaurants Inc. | ||
Class A | 8,448 | 129 | |
* | Bojangles’ Inc. | 7,965 | 129 |
* | Fogo De Chao Inc. | 5,993 | 74 |
* | Noodles & Co. Class A | 4,428 | 29 |
326,569 | |||
Household Durables (4.7%) | |||
Newell Brands Inc. | 313,466 | 16,639 | |
Whirlpool Corp. | 53,739 | 9,600 | |
* | Mohawk Industries Inc. | 44,597 | 9,489 |
DR Horton Inc. | 249,505 | 7,999 | |
Lennar Corp. Class A | 129,889 | 6,144 | |
Leggett & Platt Inc. | 95,142 | 4,993 | |
PulteGroup Inc. | 221,822 | 4,740 | |
* | NVR Inc. | 2,608 | 4,399 |
Harman International | |||
Industries Inc. | 50,307 | 4,260 | |
Garmin Ltd. | 79,859 | 3,919 | |
* | Toll Brothers Inc. | 114,234 | 3,552 |
* | Tempur Sealy International | ||
Inc. | 43,124 | 3,382 | |
Tupperware Brands Corp. | 35,258 | 2,310 | |
CalAtlantic Group Inc. | 55,487 | 2,025 | |
* | Helen of Troy Ltd. | 19,954 | 1,803 |
* | TRI Pointe Group Inc. | 108,843 | 1,476 |
* | Meritage Homes Corp. | 27,267 | 979 |
La-Z-Boy Inc. | 35,688 | 952 | |
* | TopBuild Corp. | 27,068 | 924 |
^,* | GoPro Inc. Class A | 60,074 | 880 |
KB Home | 53,731 | 844 | |
* | Universal Electronics Inc. | 10,273 | 760 |
MDC Holdings Inc. | 28,410 | 742 | |
* | iRobot Corp. | 17,427 | 695 |
* | Cavco Industries Inc. | 6,021 | 630 |
Ethan Allen Interiors Inc. | 17,764 | 594 | |
* | Installed Building Products | ||
Inc. | 13,398 | 447 | |
* | Taylor Morrison Home | ||
Corp. Class A | 24,045 | 424 | |
^,* | LGI Homes Inc. | 10,973 | 422 |
* | M/I Homes Inc. | 17,810 | 412 |
* | William Lyon Homes | ||
Class A | 17,615 | 304 | |
* | WCI Communities Inc. | 15,802 | 297 |
Libbey Inc. | 16,221 | 288 | |
* | Beazer Homes USA Inc. | 22,245 | 250 |
* | Century Communities Inc. | 11,823 | 233 |
NACCO Industries Inc. | |||
Class A | 2,922 | 194 | |
* | Hovnanian Enterprises Inc. | ||
Class A | 84,026 | 153 | |
98,154 | |||
Internet & Catalog Retail (15.8%) | |||
* | Amazon.com Inc. | 283,976 | 218,423 |
* | Priceline Group Inc. | 35,149 | 49,796 |
* | Netflix Inc. | 303,294 | 29,556 |
Expedia Inc. | 87,016 | 9,495 | |
* | Liberty Interactive Corp. | ||
QVC Group Class A | 305,440 | 6,454 | |
* | TripAdvisor Inc. | 83,947 | 5,121 |
* | Liberty Ventures Class A | 95,323 | 3,674 |
* | Groupon Inc. Class A | 306,739 | 1,635 |
* | Shutterfly Inc. | 23,308 | 1,170 |
* | Liberty TripAdvisor | ||
Holdings Inc. Class A | 49,437 | 1,029 | |
HSN Inc. | 24,360 | 1,018 | |
^,* | Wayfair Inc. | 19,562 | 753 |
* | Etsy Inc. | 45,536 | 613 |
Nutrisystem Inc. | 20,677 | 596 | |
^,* | Duluth Holdings Inc. | 13,397 | 406 |
* | FTD Cos. Inc. | 14,077 | 331 |
Blue Nile Inc. | 8,235 | 284 | |
^,* | Lands’ End Inc. | 12,635 | 222 |
* | Overstock.com Inc. | 12,243 | 189 |
* | 1-800-Flowers.com Inc. | ||
Class A | 18,581 | 172 | |
330,937 | |||
Leisure Products (1.2%) | |||
Mattel Inc. | 241,111 | 7,988 | |
Hasbro Inc. | 79,210 | 6,475 | |
^ | Polaris Industries Inc. | 43,604 | 3,778 |
Brunswick Corp. | 64,492 | 2,966 | |
* | Vista Outdoor Inc. | 42,827 | 1,705 |
* | Smith & Wesson Holding | ||
Corp. | 39,085 | 1,100 | |
Sturm Ruger & Co. Inc. | 13,624 | 835 | |
Callaway Golf Co. | 65,154 | 744 | |
* | Nautilus Inc. | 20,708 | 482 |
Arctic Cat Inc. | 10,314 | 146 | |
26,219 | |||
Media (22.8%) | |||
Comcast Corp. Class A | 1,711,314 | 111,680 | |
Walt Disney Co. | 1,091,375 | 103,091 | |
Time Warner Inc. | 556,915 | 43,668 | |
* | Charter Communications | ||
Inc. Class A | 150,932 | 38,821 | |
Twenty-First Century Fox | |||
Inc. Class A | 775,866 | 19,040 | |
CBS Corp. Class B | 294,022 | 15,004 | |
Omnicom Group Inc. | 168,066 | 14,475 | |
* | Liberty Global plc | 440,410 | 13,578 |
Viacom Inc. Class B | 245,431 | 9,901 | |
* | DISH Network Corp. | ||
Class A | 160,222 | 8,048 | |
Twenty-First Century Fox | |||
Inc. | 309,279 | 7,686 | |
Interpublic Group of Cos. | |||
Inc. | 284,999 | 6,595 | |
* | Liberty Global plc Class A | 200,775 | 6,354 |
* | Sirius XM Holdings Inc. | 1,404,294 | 5,814 |
* | Liberty Broadband Corp. | 75,788 | 5,194 |
News Corp. Class A | 349,476 | 4,914 | |
* | Liberty SiriusXM Group | ||
Class C | 141,394 | 4,698 | |
* | Discovery | ||
Communications Inc. | 168,650 | 4,186 | |
Scripps Networks | |||
Interactive Inc. Class A | 56,594 | 3,586 | |
TEGNA Inc. | 147,495 | 2,988 | |
Cinemark Holdings Inc. | 73,699 | 2,848 | |
* | Discovery Communications | ||
Inc. Class A | 106,295 | 2,712 | |
* | Live Nation Entertainment | ||
Inc. | 92,302 | 2,466 | |
* | Madison Square Garden | ||
Co. Class A | 13,468 | 2,433 | |
* | AMC Networks Inc. | ||
Class A | 43,099 | 2,342 | |
* | Liberty Global PLC LiLAC | 77,467 | 2,212 |
* | Liberty SiriusXM Group | ||
Class A | 65,408 | 2,192 | |
Tribune Media Co. Class A | 55,243 | 2,104 | |
Cable One Inc. | 3,531 | 1,911 | |
John Wiley & Sons Inc. | |||
Class A | 32,693 | 1,900 | |
* | Starz | 60,793 | 1,896 |
Lions Gate Entertainment | |||
Corp. | 74,106 | 1,553 |
^ | Regal Entertainment Group | ||
Class A | 70,019 | 1,497 | |
Meredith Corp. | 26,858 | 1,425 | |
Sinclair Broadcast Group Inc. | |||
Class A | 48,440 | 1,380 | |
* | IMAX Corp. | 44,349 | 1,352 |
* | Liberty Broadband Corp. | ||
Class A | 18,437 | 1,244 | |
New York Times Co. | |||
Class A | 90,598 | 1,172 | |
^ | Nexstar Broadcasting | ||
Group Inc. Class A | 22,108 | 1,166 | |
* | Media General Inc. | 63,310 | 1,119 |
Time Inc. | 73,763 | 1,040 | |
Gannett Co. Inc. | 78,769 | 940 | |
* | Liberty Media Group LLC | 36,171 | 769 |
* | MSG Networks Inc. | 43,169 | 755 |
Scholastic Corp. | 18,510 | 745 | |
* | EW Scripps Co. Class A | 39,183 | 666 |
National CineMedia Inc. | 44,380 | 663 | |
* | Carmike Cinemas Inc. | 17,373 | 557 |
* | Gray Television Inc. | 47,921 | 538 |
New Media Investment | |||
Group Inc. | 31,570 | 504 | |
^ | World Wrestling | ||
Entertainment Inc. Class A | 23,541 | 489 | |
AMC Entertainment | |||
Holdings Inc. | 15,804 | 481 | |
MDC Partners Inc. Class A | 35,155 | 434 | |
* | Liberty Braves Group | 25,068 | 413 |
* | Liberty Media Group LLC | ||
Class A | 17,338 | 371 | |
* | Loral Space & | ||
Communications Inc. | 9,839 | 359 | |
Entravision Communications | |||
Corp. Class A | 42,624 | 321 | |
* | Global Eagle Entertainment | ||
Inc. | 33,212 | 276 | |
* | tronc Inc. | 15,759 | 267 |
Entercom Communications | |||
Corp. Class A | 17,699 | 243 | |
* | Liberty Braves Group | ||
Class A | 8,237 | 138 | |
^,* | Hemisphere Media Group | ||
Inc. Class A | 7,911 | 105 | |
Harte-Hanks Inc. | 46,395 | 75 | |
News Corp. Class B | 4,064 | 59 | |
* | Liberty Global PLC LiLAC | ||
Class A | 75 | 2 | |
477,455 | |||
Multiline Retail (3.9%) | |||
Target Corp. | 396,351 | 27,820 | |
Dollar General Corp. | 200,874 | 14,746 | |
* | Dollar Tree Inc. | 166,860 | 13,799 |
Macy’s Inc. | 218,422 | 7,903 | |
Kohl’s Corp. | 131,083 | 5,817 | |
^ | Nordstrom Inc. | 91,302 | 4,607 |
* | JC Penney Co. Inc. | 215,207 | 2,029 |
Big Lots Inc. | 35,012 | 1,727 | |
Dillard’s Inc. Class A | 14,975 | 902 | |
* | Ollie’s Bargain Outlet | ||
Holdings Inc. | 23,309 | 593 | |
Fred’s Inc. Class A | 26,896 | 304 | |
* | Sears Holdings Corp. | 18,950 | 261 |
* | Tuesday Morning Corp. | 33,238 | 222 |
80,730 | |||
Specialty Retail (19.2%) | |||
Home Depot Inc. | 880,828 | 118,137 | |
Lowe’s Cos. Inc. | 627,399 | 48,034 | |
TJX Cos. Inc. | 468,041 | 36,245 | |
* | O’Reilly Automotive Inc. | 68,300 | 19,121 |
11
Consumer Discretionary Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Ross Stores Inc. | 284,557 | 17,711 | |
* | AutoZone Inc. | 20,880 | 15,489 |
L Brands Inc. | 172,517 | 13,148 | |
* | Ulta Salon Cosmetics & | ||
Fragrance Inc. | 42,131 | 10,415 | |
Advance Auto Parts Inc. | 52,091 | 8,198 | |
* | CarMax Inc. | 137,372 | 8,098 |
Best Buy Co. Inc. | 206,540 | 7,948 | |
Tractor Supply Co. | 94,486 | 7,932 | |
Tiffany & Co. | 89,208 | 6,367 | |
Foot Locker Inc. | 96,337 | 6,324 | |
Bed Bath & Beyond Inc. | 110,291 | 5,114 | |
Signet Jewelers Ltd. | 53,191 | 4,361 | |
Gap Inc. | 169,839 | 4,224 | |
* | Burlington Stores Inc. | 50,560 | 4,106 |
Staples Inc. | 454,274 | 3,889 | |
Dick’s Sporting Goods Inc. | 63,811 | 3,739 | |
Williams-Sonoma Inc. | 60,085 | 3,163 | |
* | Sally Beauty Holdings Inc. | 102,517 | 2,790 |
CST Brands Inc. | 53,419 | 2,554 | |
* | AutoNation Inc. | 51,056 | 2,417 |
* | Urban Outfitters Inc. | 62,937 | 2,256 |
American Eagle Outfitters | |||
Inc. | 121,645 | 2,255 | |
GameStop Corp. Class A | 72,842 | 2,068 | |
* | Murphy USA Inc. | 27,848 | 2,036 |
* | Michaels Cos. Inc. | 72,483 | 1,737 |
* | Five Below Inc. | 38,576 | 1,719 |
* | Cabela’s Inc. | 31,516 | 1,544 |
Lithia Motors Inc. Class A | 16,600 | 1,374 | |
Penske Automotive Group | |||
Inc. | 30,134 | 1,365 | |
Office Depot Inc. | 370,088 | 1,362 | |
Monro Muffler Brake Inc. | 23,038 | 1,300 | |
DSW Inc. Class A | 49,698 | 1,190 | |
Chico’s FAS Inc. | 89,195 | 1,131 | |
Aaron’s Inc. | 46,318 | 1,128 | |
Children’s Place Inc. | 13,365 | 1,088 | |
* | Genesco Inc. | 14,766 | 1,073 |
GNC Holdings Inc. Class A | 48,374 | 1,017 | |
Group 1 Automotive Inc. | 16,346 | 970 | |
* | Ascena Retail Group Inc. | 110,517 | 900 |
* | Select Comfort Corp. | 32,990 | 866 |
* | Restoration Hardware | ||
Holdings Inc. | 25,551 | 862 | |
Abercrombie & Fitch Co. | 48,512 | 861 | |
* | Mattress Firm Holding Corp. | 12,513 | 800 |
Caleres Inc. | 30,795 | 799 | |
Finish Line Inc. Class A | 31,701 | 763 | |
Guess? Inc. | 45,710 | 760 | |
* | Asbury Automotive Group | ||
Inc. | 14,056 | 755 | |
Cato Corp. Class A | 19,108 | 655 | |
^ | Outerwall Inc. | 12,182 | 633 |
* | Express Inc. | 53,169 | 629 |
* | Hibbett Sports Inc. | 16,188 | 621 |
^ | Buckle Inc. | 21,596 | 557 |
Barnes & Noble Inc. | 44,112 | 506 | |
Rent-A-Center Inc. | 39,256 | 480 |
* | Vitamin Shoppe Inc. | 16,284 | 451 |
* | Francesca’s Holdings Corp. | 29,966 | 409 |
Tailored Brands Inc. | 30,592 | 403 | |
* | Party City Holdco Inc. | 22,327 | 389 |
* | Tile Shop Holdings Inc. | 23,551 | 366 |
* | MarineMax Inc. | 18,215 | 361 |
Sonic Automotive Inc. | |||
Class A | 20,293 | 346 | |
* | Barnes & Noble Education | ||
Inc. | 28,885 | 323 | |
Shoe Carnival Inc. | 10,732 | 318 | |
* | Lumber Liquidators | ||
Holdings Inc. | 19,092 | 301 | |
Pier 1 Imports Inc. | 58,699 | 271 | |
Haverty Furniture Cos. Inc. | 13,290 | 266 | |
* | America’s Car-Mart Inc. | 6,757 | 264 |
* | Zumiez Inc. | 14,323 | 239 |
Winmark Corp. | 1,901 | 197 | |
Stein Mart Inc. | 22,690 | 182 | |
* | Kirkland’s Inc. | 12,457 | 156 |
* | Boot Barn Holdings Inc. | 10,946 | 135 |
Stage Stores Inc. | 21,264 | 114 | |
* | Container Store Group Inc. | 11,640 | 62 |
* | Conn’s Inc. | 8,542 | 58 |
403,195 | |||
Textiles, Apparel & Luxury Goods (6.4%) | |||
NIKE Inc. Class B | 942,701 | 54,337 | |
VF Corp. | 236,191 | 14,656 | |
Coach Inc. | 196,886 | 7,517 | |
Hanesbrands Inc. | 267,273 | 7,093 | |
PVH Corp. | 57,316 | 6,176 | |
* | Michael Kors Holdings Ltd. | 125,856 | 6,161 |
* | lululemon athletica Inc. | 77,754 | 5,949 |
^,* | Under Armour Inc. Class A | 129,708 | 5,140 |
* | Under Armour Inc. | 130,977 | 4,669 |
Ralph Lauren Corp. Class A | 40,705 | 4,218 | |
Carter’s Inc. | 36,081 | 3,438 | |
* | Skechers U.S.A. Inc. | ||
Class A | 92,310 | 2,244 | |
* | Kate Spade & Co. | 91,147 | 1,701 |
Wolverine World Wide Inc. | 70,408 | 1,684 | |
* | Deckers Outdoor Corp. | 21,693 | 1,418 |
* | Steven Madden Ltd. | 39,622 | 1,390 |
Columbia Sportswear Co. | 19,687 | 1,106 | |
* | G-III Apparel Group Ltd. | 29,011 | 916 |
* | Fossil Group Inc. | 30,448 | 870 |
Oxford Industries Inc. | 10,520 | 657 | |
* | Crocs Inc. | 53,396 | 461 |
* | Unifi Inc. | 11,615 | 302 |
^,* | Sequential Brands Group | ||
Inc. | 38,309 | 279 | |
Movado Group Inc. | 11,285 | 256 | |
* | Iconix Brand Group Inc. | 29,270 | 246 |
* | Vera Bradley Inc. | 15,959 | 239 |
133,123 | |||
Total Common Stocks | |||
(Cost $2,019,579) | 2,092,202 |
Temporary Cash Investment (1.1%)1 | ||
Money Market Fund (1.1%) | ||
2,3 Vanguard Market | ||
Liquidity Fund, 0.612% | ||
(Cost $24,050) | 240,495 | 24,052 |
Total Investments (101.0%) | ||
(Cost $2,043,629) | 2,116,254 | |
Amount | ||
($000) | ||
Other Assets and Liabilities (-1.0%) | ||
Other Assets | ||
Investment in Vanguard | 164 | |
Receivables for Investment Securities Sold | 10,755 | |
Receivables for Accrued Income | 3,163 | |
Receivables for Capital Shares Issued | 45 | |
Other Assets4 | 203 | |
Total Other Assets | 14,330 | |
Liabilities | ||
Payables for Investment Securities | ||
Purchased | (12,099) | |
Collateral for Securities on Loan | (22,508) | |
Payables for Capital Shares Redeemed | (357) | |
Payables to Vanguard | (740) | |
Other Liabilities | (11) | |
Total Liabilities | (35,715) | |
Net Assets (100%) | 2,094,869 | |
At August 31, 2016, net assets consisted of: | ||
Amount | ||
($000) | ||
Paid-in Capital | 2,051,099 | |
Undistributed Net Investment Income | 5,697 | |
Accumulated Net Realized Losses | (34,542) | |
Unrealized Appreciation (Depreciation) | ||
Investment Securities | 72,625 | |
Futures Contracts | (10) | |
Net Assets | 2,094,869 | |
ETF Shares—Net Assets | ||
Applicable to 15,227,548 outstanding | ||
$.001 par value shares of beneficial | ||
interest (unlimited authorization) | 1,925,509 | |
Net Asset Value Per Share— | ||
ETF Shares | $126.45 | |
Admiral Shares—Net Assets | ||
Applicable to 2,587,464 outstanding | ||
$.001 par value shares of beneficial | ||
interest (unlimited authorization) | 169,360 | |
Net Asset Value Per Share— | ||
Admiral Shares | $65.45 |
• 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 $21,601,000.
* Non-income-producing security.
1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures investments, the fund’s effective common stock and temporary cash
investment positions represent 100.1% and 0.9%, 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 Includes $22,508,000 of collateral received for securities on loan.
4 Cash of $203,000 has been segregated as initial margin for open futures contracts.
See accompanying Notes, which are an integral part of the Financial Statements.
12
Consumer Discretionary Index Fund
Statement of Operations
Year Ended | |
August 31, 2016 | |
($000) | |
Investment Income | |
Income | |
Dividends | 32,982 |
Interest1 | 5 |
Securities Lending—Net | 648 |
Total Income | 33,635 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 346 |
Management and Administrative— | |
ETF Shares | 1,248 |
Management and Administrative— | |
Admiral Shares | 118 |
Marketing and Distribution— | |
ETF Shares | 147 |
Marketing and Distribution— | |
Admiral Shares | 17 |
Custodian Fees | 30 |
Auditing Fees | 35 |
Shareholders’ Reports—ETF Shares | 102 |
Shareholders’ Reports—Admiral Shares | 3 |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 2,047 |
Net Investment Income | 31,588 |
Realized Net Gain (Loss) | |
Investment Securities Sold1 | 104,475 |
Futures Contracts | 18 |
Realized Net Gain (Loss) | 104,493 |
Change in Unrealized Appreciation | |
(Depreciation) | |
Investment Securities | (20,576) |
Futures Contracts | (10) |
Change in Unrealized Appreciation | |
(Depreciation) | (20,586) |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 115,495 |
1 Interest income and realized net gain (loss) from an affiliated | |
company of the fund were $5,000 and $0, respectively. |
Statement of Changes in Net Assets
Year Ended August 31, | ||
2016 | 2015 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 31,588 | 23,243 |
Realized Net Gain (Loss) | 104,493 | 212,893 |
Change in Unrealized Appreciation (Depreciation) | (20,586) | (129,396) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 115,495 | 106,740 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (38,225) | (16,913) |
Admiral Shares | (3,309) | (1,093) |
Realized Capital Gain | ||
ETF Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (41,534) | (18,006) |
Capital Share Transactions | ||
ETF Shares | 15,097 | 461,236 |
Admiral Shares | 24,861 | 50,120 |
Net Increase (Decrease) from Capital Share Transactions | 39,958 | 511,356 |
Total Increase (Decrease) | 113,919 | 600,090 |
Net Assets | ||
Beginning of Period | 1,980,950 | 1,380,860 |
End of Period1 | 2,094,869 | 1,980,950 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $5,697,000 and $15,643,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
13
Consumer Discretionary Index Fund
Financial Highlights
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $120.80 | $111.79 | $93.38 | $72.65 | $60.29 |
Investment Operations | |||||
Net Investment Income | 1.875 | 1.542 | 1.251 | 1.111 | .936 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 6.259 | 8.900 | 18.072 | 20.771 | 12.277 |
Total from Investment Operations | 8.134 | 10.442 | 19.323 | 21.882 | 13.213 |
Distributions | |||||
Dividends from Net Investment Income | (2.484) | (1.432) | (.913) | (1.152) | (. 853) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (2.484) | (1.432) | (.913) | (1.152) | (. 853) |
Net Asset Value, End of Period | $126.45 | $120.80 | $111.79 | $93.38 | $72.65 |
Total Return | 6.84% | 9.41% | 20.75% | 30.47% | 22.18% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $1,926 | $1,842 | $1,298 | $1,018 | $531 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.12% | 0.14% | 0.14% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.54% | 1.31% | 1.26% | 1.44% | 1.48% |
Portfolio Turnover Rate1 | 7% | 6% | 7% | 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 | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $62.53 | $57.87 | $48.34 | $37.62 | $31.22 |
Investment Operations | |||||
Net Investment Income | .971 | .805 | .648 | . 579 | .483 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 3.239 | 4.595 | 9.361 | 10.741 | 6.356 |
Total from Investment Operations | 4.210 | 5.400 | 10.009 | 11.320 | 6.839 |
Distributions | |||||
Dividends from Net Investment Income | (1.290) | (.740) | (.479) | (. 600) | (. 439) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.290) | (.740) | (.479) | (. 600) | (. 439) |
Net Asset Value, End of Period | $65.45 | $62.53 | $57.87 | $48.34 | $37.62 |
Total Return1 | 6.83% | 9.43% | 20.77% | 30.45% | 22.17% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $169 | $139 | $83 | $63 | $19 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.09% | 0.12% | 0.14% | 0.14% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.54% | 1.32% | 1.26% | 1.44% | 1.48% |
Portfolio Turnover Rate2 | 7% | 6% | 7% | 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.
14
Consumer Discretionary Index Fund
Notes to Financial Statements
Vanguard Consumer Discretionary Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund 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, 2016, 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, 2013–2016), 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 subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income
15
Consumer Discretionary Index Fund
represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
6. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at August 31, 2016, 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, 2016, the fund had contributed to Vanguard capital in the amount of $164,000, 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, 2016, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
16
Consumer Discretionary Index Fund
D. At August 31, 2016, 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 2016 | 40 | 4,339 | (10) |
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, 2016, the fund realized $128,365,000 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, 2016, the fund had $6,300,000 of ordinary income available for distribution. At August 31, 2016, the fund had available capital losses totaling $34,552,000 to offset future net capital gains. Of this amount, $9,625,000 is subject to expiration dates; $858,000 may be used to offset future net capital gains through August 31, 2017, $7,274,000 through August 31, 2018, and $1,493,000 through August 31, 2019. Capital losses of $24,927,000 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, 2016, the cost of investment securities for tax purposes was $2,043,629,000. Net unrealized appreciation of investment securities for tax purposes was $72,625,000, consisting of unrealized gains of $239,049,000 on securities that had risen in value since their purchase and $166,424,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the year ended August 31, 2016, the fund purchased $688,989,000 of investment securities and sold $660,514,000 of investment securities, other than temporary cash investments. Purchases and sales include $479,316,000 and $510,639,000, 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, | ||||
2016 | 2015 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 526,973 | 4,227 | 1,115,504 | 9,265 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (511,876) | (4,250) | (654,268) | (5,625) |
Net Increase (Decrease)—ETF Shares | 15,097 | (23) | 461,236 | 3,640 |
Admiral Shares | ||||
Issued | 129,244 | 2,037 | 80,718 | 1,285 |
Issued in Lieu of Cash Distributions | 2,970 | 47 | 1,007 | 17 |
Redeemed | (107,353) | (1,715) | (31,605) | (517) |
Net Increase (Decrease) —Admiral Shares | 24,861 | 369 | 50,120 | 785 |
H. Management has determined that no material events or transactions occurred subsequent to August 31, 2016, that would require recognition or disclosure in these financial statements.
17
Consumer Staples Index Fund
Fund Profile
As of August 31, 2016
Share-Class Characteristics | ||
ETF | Admiral | |
Shares | Shares | |
Ticker Symbol | VDC | VCSAX |
Expense Ratio1 | 0.10% | 0.10% |
30-Day SEC Yield | 2.35% | 2.37% |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | |||
Consumer | MSCI | ||
Staples | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 100 | 100 | 2,476 |
Median Market Cap $100.3B | $100.3B | $51.2B | |
Price/Earnings Ratio | 24.1x | 24.2x | 23.4x |
Price/Book Ratio | 5.0x | 5.1x | 2.8x |
Return on Equity | 20.3% | 20.3% | 16.7% |
Earnings Growth Rate | 3.1% | 3.1% | 7.4% |
Dividend Yield | 2.5% | 2.5% | 2.0% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 6% | — | — |
Short-Term Reserves | -0.1% | — | — |
Volatility Measures | ||
MSCI US | ||
IMI/Consumer | MSCI US | |
Staples 25/50 | IMI/2500 | |
R-Squared | 1.00 | 0.52 |
Beta | 1.00 | 0.66 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months. | ||
Subindustry Diversification | |
(% of equity exposure) | |
Agricultural Products | 2.7% |
Brewers | 1.1 |
Distillers & Vintners | 2.0 |
Drug Retail | 8.2 |
Food Distributors | 1.8 |
Food Retail | 2.9 |
Household Products | 18.7 |
Hypermarkets & Super Centers | 8.6 |
Packaged Foods & Meats | 19.4 |
Personal Products | 2.5 |
Soft Drinks | 17.1 |
Tobacco | 15.0 |
Ten Largest Holdings (% of total net assets) | ||
Procter | ||
& Gamble Co. | Household Products | 10.9% |
Coca-Cola Co. | Soft Drinks | 8.1 |
PepsiCo Inc. | Soft Drinks | 7.0 |
Philip Morris | ||
International Inc. | Tobacco | 7.0 |
Altria Group Inc. | Tobacco | 5.7 |
Wal-Mart | Hypermarkets & | |
Stores Inc. | Super Centers | 5.0 |
CVS Health Corp. | Drug Retail | 4.3 |
Costco | Hypermarkets & | |
Wholesale Corp. | Super Centers | 3.5 |
Mondelez | Packaged Foods & | |
International Inc. | Meats | 3.5 |
Walgreens Boots | ||
Alliance Inc. | Drug Retail | 3.4 |
Top Ten | 58.4% | |
The holdings listed exclude any temporary cash investments and | ||
equity index products. |
1 The expense ratios shown are from the prospectus dated December 22, 2015, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2016, the expense ratios were 0.10% for
ETF Shares and 0.10% for Admiral Shares.
18
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.
Cumulative Performance: August 31, 2006–August 31, 2016
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_par5x10x1.jpg)
Average Annual Total Returns | Final Value | |||
Periods Ended August 31, 2016 | of a $10,000 | |||
One Year | Five Years | Ten Years | Investment | |
Consumer Staples Index Fund | ||||
ETF Shares Net Asset Value | 17.36% | 15.07% | 11.05% | $28,521 |
Consumer Staples Index Fund | ||||
ETF Shares Market Price | 17.34 | 15.07 | 11.04 | 28,450 |
Spliced US IMI/Consumer Staples 25/50 | 17.42 | 15.21 | 11.13 | 28,721 |
Consumer Goods Funds Average | 12.46 | 12.25 | 9.38 | 24,502 |
MSCI US IMI/2500 | 11.48 | 14.51 | 7.80 | 21,187 |
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 | 17.37% | 15.09% | 11.04% | $285,058 |
Spliced US IMI/Consumer Staples 25/50 | 17.42 | 15.21 | 11.13 | 287,207 |
MSCI US IMI/2500 | 11.48 | 14.51 | 7.80 | 211,866 |
See Financial Highlights for dividend and capital gains information.
19
Consumer Staples Index Fund
Fiscal-Year Total Returns (%): August 31, 2006--August 31, 2016
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_par6x1x1.jpg)
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2006--August 31, 2016 | |||
One Year | Five Years | Ten Years | |
Consumer Staples Index Fund ETF Shares Market Price | 17.34% | 101.77% | 184.90% |
Consumer Staples Index Fund ETF Shares Net Asset Value | 17.36 | 101.75 | 185.21 |
Spliced US IMI/Consumer Staples 25/50 | 17.42 | 103.00 | 187.21 |
Average Annual Total Returns: Periods Ended June 30, 2016
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 | 17.22% | 15.00% | 11.69% | |
Net Asset Value | 17.24 | 15.00 | 11.73 | |
Admiral Shares | 1/30/2004 | 17.24 | 15.02 | 11.72 |
See Financial Highlights for dividend and capital gains information.
20
Consumer Staples Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2016
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 | |||
Beverages (20.2%) | |||
Coca-Cola Co. | 7,953,000 | 345,399 | |
PepsiCo Inc. | 2,771,064 | 295,811 | |
Constellation Brands Inc. | |||
Class A | 365,778 | 60,006 | |
* | Monster Beverage Corp. | 287,996 | 44,320 |
Molson Coors Brewing | |||
Co. Class B | 404,784 | 41,417 | |
Dr Pepper Snapple | |||
Group Inc. | 411,794 | 38,585 | |
Brown-Forman Corp. | |||
Class B | 510,085 | 24,765 | |
* | Boston Beer Co. Inc. | ||
Class A | 27,464 | 5,016 | |
Coca-Cola Bottling Co. | |||
Consolidated | 20,190 | 3,035 | |
858,354 | |||
Food & Staples Retailing (21.4%) | |||
Wal-Mart Stores Inc. | 2,952,647 | 210,937 | |
CVS Health Corp. | 1,950,381 | 182,166 | |
Costco Wholesale Corp. | 912,652 | 147,932 | |
Walgreens Boots Alliance | |||
Inc. | 1,814,181 | 146,423 | |
Kroger Co. | 1,959,730 | 62,692 | |
Sysco Corp. | 1,163,270 | 60,327 | |
Whole Foods Market Inc. | 757,716 | 23,019 | |
* | Rite Aid Corp. | 2,312,501 | 17,413 |
Casey’s General Stores | |||
Inc. | 95,865 | 12,588 | |
* | Sprouts Farmers Market | ||
Inc. | 374,481 | 8,437 | |
* | United Natural Foods Inc. | 144,533 | 6,591 |
SpartanNash Co. | 159,148 | 5,096 | |
PriceSmart Inc. | 59,491 | 4,969 | |
Andersons Inc. | 110,226 | 4,073 | |
* | SUPERVALU Inc. | 693,244 | 3,799 |
Weis Markets Inc. | 68,828 | 3,506 | |
Village Super Market Inc. | |||
Class A | 85,644 | 2,740 | |
Ingles Markets Inc. | |||
Class A | 58,194 | 2,201 | |
* | Smart & Final Stores Inc. | 168,166 | 2,149 |
* | Chefs’ Warehouse Inc. | 138,412 | 1,525 |
* | Natural Grocers by | ||
Vitamin Cottage Inc. | 111,774 | 1,380 | |
* | Performance Food Group | ||
Co. | 10,928 | 281 | |
910,244 | |||
Food Products (22.0%) | |||
Mondelez International | |||
Inc. Class A | 3,278,317 | 147,590 | |
Kraft Heinz Co. | 1,254,297 | 112,247 | |
General Mills Inc. | 1,261,716 | 89,355 |
Archer-Daniels-Midland | |||
Co. | 1,284,325 | 56,202 | |
Tyson Foods Inc. Class A | 660,140 | 49,887 | |
Kellogg Co. | 571,057 | 46,947 | |
ConAgra Foods Inc. | 921,251 | 42,939 | |
Mead Johnson Nutrition | |||
Co. | 421,412 | 35,850 | |
JM Smucker Co. | 248,085 | 35,176 | |
Hershey Co. | 326,673 | 32,631 | |
McCormick & Co. Inc. | 259,489 | 26,457 | |
Campbell Soup Co. | 417,608 | 25,357 | |
Hormel Foods Corp. | 647,533 | 24,775 | |
Ingredion Inc. | 165,267 | 22,635 | |
* | WhiteWave Foods Co. | ||
Class A | 405,675 | 22,487 | |
Bunge Ltd. | 322,298 | 20,595 | |
Pinnacle Foods Inc. | 270,242 | 13,688 | |
* | TreeHouse Foods Inc. | 139,580 | 13,222 |
* | Post Holdings Inc. | 152,211 | 12,904 |
* | Hain Celestial Group Inc. | 251,872 | 9,256 |
B&G Foods Inc. | 193,690 | 9,196 | |
Snyder’s-Lance Inc. | 240,170 | 8,488 | |
Lancaster Colony Corp. | 55,462 | 7,461 | |
* | Darling Ingredients Inc. | 516,031 | 7,266 |
Flowers Foods Inc. | 465,590 | 6,942 | |
Fresh Del Monte Produce | |||
Inc. | 111,771 | 6,502 | |
Sanderson Farms Inc. | 66,876 | 6,435 | |
J&J Snack Foods Corp. | 46,632 | 5,689 | |
^ | Pilgrim’s Pride Corp. | 222,972 | 5,146 |
Dean Foods Co. | 291,868 | 5,023 | |
^ | Cal-Maine Foods Inc. | 96,267 | 4,422 |
^ | Tootsie Roll Industries Inc. | 99,161 | 3,777 |
Calavo Growers Inc. | 63,910 | 3,767 | |
* | Farmer Brothers Co. | 80,376 | 2,574 |
*,^ | Freshpet Inc. | 244,556 | 2,570 |
* | Landec Corp. | 198,191 | 2,569 |
* | Seneca Foods Corp. | ||
Class A | 80,459 | 2,374 | |
^ | Limoneira Co. | 140,441 | 2,333 |
* | Amplify Snack Brands Inc. | 21,273 | 360 |
* | Blue Buffalo Pet Products | ||
Inc. | 11,972 | 309 | |
John B Sanfilippo & Son | |||
Inc. | 5,638 | 290 | |
933,693 | |||
Household Products (18.8%) | |||
Procter & Gamble Co. | 5,301,923 | 462,911 | |
Colgate-Palmolive Co. | 1,781,157 | 132,411 | |
Kimberly-Clark Corp. | 762,242 | 97,613 | |
Clorox Co. | 278,504 | 36,495 | |
Church & Dwight Co. Inc. | 289,673 | 28,799 | |
Spectrum Brands Holdings | |||
Inc. | 74,379 | 9,982 | |
Energizer Holdings Inc. | 181,142 | 8,952 | |
WD-40 Co. | 48,221 | 5,707 |
* | HRG Group Inc. | 318,711 | 5,154 |
* | Central Garden & Pet Co. | ||
Class A | 181,784 | 4,408 | |
* | Central Garden & Pet Co. | 132,997 | 3,415 |
795,847 | |||
Personal Products (2.5%) | |||
Estee Lauder Cos. Inc. | |||
Class A | 484,824 | 43,261 | |
* | Edgewell Personal Care Co. 150,001 | 12,002 | |
*,^ | Herbalife Ltd. | 173,907 | 10,565 |
Nu Skin Enterprises Inc. | |||
Class A | 165,341 | 9,570 | |
Avon Products Inc. | 1,415,038 | 8,066 | |
^ | Coty Inc. Class A | 201,443 | 5,429 |
* | USANA Health Sciences | ||
Inc. | 25,875 | 3,538 | |
Inter Parfums Inc. | 102,163 | 3,491 | |
* | Revlon Inc. Class A | 93,283 | 3,376 |
* | Elizabeth Arden Inc. | 221,086 | 3,086 |
Medifast Inc. | 77,029 | 2,832 | |
^ | Natural Health Trends Corp. 8,256 | 265 | |
105,481 | |||
Tobacco (15.0%) | |||
Philip Morris International | |||
Inc. | 2,953,955 | 295,189 | |
Altria Group Inc. | 3,660,953 | 241,952 | |
Reynolds American Inc. | 1,799,369 | 89,195 | |
Vector Group Ltd. | 262,648 | 5,860 | |
Universal Corp. | 76,654 | 4,612 | |
636,808 | |||
Total Common Stocks | |||
(Cost $3,589,872) | 4,240,427 | ||
Temporary Cash Investment (0.4%)1 | |||
Money Market Fund (0.4%) | |||
2,3 | Vanguard Market Liquidity | ||
Fund, 0.612% | |||
(Cost $19,882) | 198,812 | 19,883 | |
Total Investments (100.3%) | |||
(Cost $3,609,754) | 4,260,310 |
21
Consumer Staples Index Fund
Amount | |
($000) | |
Other Assets and Liabilities (-0.3%) | |
Other Assets | |
Investment in Vanguard | 327 |
Receivables for Investment Securities Sold | 6,752 |
Receivables for Accrued Income | 7,328 |
Receivables for Capital Shares Issued | 1,450 |
Other Assets4 | 191 |
Total Other Assets | 16,048 |
Liabilities | |
Payables for Investment Securities | |
Purchased | (11,473) |
Collateral for Securities on Loan | (17,106) |
Payables for Capital Shares Redeemed | (734) |
Payables to Vanguard | (1,382) |
Other Liabilities | (17) |
Total Liabilities | (30,712) |
Net Assets (100%) | 4,245,646 |
At August 31, 2016, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 3,601,856 |
Undistributed Net Investment Income | 17,643 |
Accumulated Net Realized Losses | (24,381) |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 650,556 |
Futures Contracts | (28) |
Net Assets | 4,245,646 |
ETF Shares—Net Assets | |
Applicable to 25,130,613 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 3,517,644 |
Net Asset Value Per Share— | |
ETF Shares | $139.97 |
Admiral Shares—Net Assets | |
Applicable to 10,548,031 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 728,002 |
Net Asset Value Per Share— | |
Admiral Shares | $69.02 |
• 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 $16,446,000.
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 0.3%, 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 Includes $17,106,000 of collateral received for securities on loan.
4 Cash of $190,000 has been segregated as initial margin for open futures contracts.
See accompanying Notes, which are an integral part of the Financial Statements.
22
Consumer Staples Index Fund
Statement of Operations
Year Ended | |
August 31, 2016 | |
($000) | |
Investment Income | |
Income | |
Dividends | 87,469 |
Interest1 | 12 |
Securities Lending—Net | 762 |
Total Income | 88,243 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 595 |
Management and Administrative— | |
ETF Shares | 1,984 |
Management and Administrative— | |
Admiral Shares | 328 |
Marketing and Distribution— | |
ETF Shares | 203 |
Marketing and Distribution— | |
Admiral Shares | 53 |
Custodian Fees | 47 |
Auditing Fees | 35 |
Shareholders’ Reports—ETF Shares | 133 |
Shareholders’ Reports—Admiral Shares | 13 |
Trustees’ Fees and Expenses | 2 |
Total Expenses | 3,393 |
Net Investment Income | 84,850 |
Realized Net Gain (Loss) | |
Investment Securities Sold1 | 117,351 |
Futures Contracts | 167 |
Realized Net Gain (Loss) | 117,518 |
Change in Unrealized Appreciation | |
(Depreciation) | |
Investment Securities | 319,214 |
Futures Contracts | (28) |
Change in Unrealized Appreciation | |
(Depreciation) | 319,186 |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 521,554 |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $12,000 and $0, respectively. |
Statement of Changes in Net Assets
Year Ended August 31, | ||
2016 | 2015 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 84,850 | 68,851 |
Realized Net Gain (Loss) | 117,518 | 208,091 |
Change in Unrealized Appreciation (Depreciation) | 319,186 | (107,728) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 521,554 | 169,214 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (98,108) | (47,684) |
Admiral Shares | (14,792) | (4,833) |
Realized Capital Gain | ||
ETF Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (112,900) | (52,517) |
Capital Share Transactions | ||
ETF Shares | 774,804 | 351,469 |
Admiral Shares | 349,687 | 90,822 |
Net Increase (Decrease) from Capital Share Transactions | 1,124,491 | 442,291 |
Total Increase (Decrease) | 1,533,145 | 558,988 |
Net Assets | ||
Beginning of Period | 2,712,501 | 2,153,513 |
End of Period1 | 4,245,646 | 2,712,501 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $17,643,000 and $45,693,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
23
Consumer Staples Index Fund
Financial Highlights
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $123.72 | $117.12 | $101.97 | $90.12 | $78.96 |
Investment Operations | |||||
Net Investment Income | 3.189 | 2.903 | 2.602 | 2.606 | 2.180 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 17.752 | 6.114 | 14.976 | 11.835 | 10.874 |
Total from Investment Operations | 20.941 | 9.017 | 17.578 | 14.441 | 13.054 |
Distributions | |||||
Dividends from Net Investment Income | (4.691) | (2.417) | (2.428) | (2.591) | (1.894) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (4.691) | (2.417) | (2.428) | (2.591) | (1.894) |
Net Asset Value, End of Period | $139.97 | $123.72 | $117.12 | $101.97 | $90.12 |
Total Return | 17.36% | 7.67% | 17.42% | 16.43% | 16.80% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $3,518 | $2,393 | $1,936 | $1,481 | $1,110 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.12% | 0.14% | 0.14% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.50% | 2.53% | 2.52% | 2.80% | 2.80% |
Portfolio Turnover Rate1 | 6% | 6% | 5% | 10% | 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 | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $61.01 | $57.74 | $50.28 | $44.44 | $38.94 |
Investment Operations | |||||
Net Investment Income | 1.575 | 1.431 | 1.281 | 1.287 | 1.077 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 8.752 | 3.025 | 7.379 | 5.832 | 5.357 |
Total from Investment Operations | 10.327 | 4.456 | 8.660 | 7.119 | 6.434 |
Distributions | |||||
Dividends from Net Investment Income | (2.317) | (1.186) | (1.200) | (1.279) | (. 934) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (2.317) | (1.186) | (1.200) | (1.279) | (. 934) |
Net Asset Value, End of Period | $69.02 | $61.01 | $57.74 | $50.28 | $44.44 |
Total Return1 | 17.37% | 7.73% | 17.41% | 16.44% | 16.81% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $728 | $319 | $218 | $175 | $105 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.12% | 0.14% | 0.14% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.50% | 2.53% | 2.52% | 2.80% | 2.80% |
Portfolio Turnover Rate2 | 6% | 6% | 5% | 10% | 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.
24
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. 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, 2016, 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, 2013–2016), 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 subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy),
25
Consumer Staples Index Fund
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. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
6. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at August 31, 2016, 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, 2016, the fund had contributed to Vanguard capital in the amount of $327,000, 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, 2016, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
26
Consumer Staples Index Fund
D. At August 31, 2016, 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 2016 | 60 | 6,509 | (28) |
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, 2016, the fund realized $126,348,000 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, 2016, the fund had $18,777,000 of ordinary income available for distribution. At August 31, 2016, the fund had available capital losses totaling $24,410,000 to offset future net capital gains. Of this amount, $5,537,000 is subject to expiration on August 31, 2018. Capital losses of $18,873,000 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, 2016, the cost of investment securities for tax purposes was $3,609,754,000. Net unrealized appreciation of investment securities for tax purposes was $650,556,000, consisting of unrealized gains of $669,622,000 on securities that had risen in value since their purchase and $19,066,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the year ended August 31, 2016, the fund purchased $1,629,576,000 of investment securities and sold $540,199,000 of investment securities, other than temporary cash investments. Purchases and sales include $999,209,000 and $324,386,000, 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, | ||||
2016 | 2015 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 1,104,521 | 8,312 | 900,144 | 7,240 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (329,717) | (2,525) | (548,675) | (4,425) |
Net Increase (Decrease)—ETF Shares | 774,804 | 5,787 | 351,469 | 2,815 |
Admiral Shares | ||||
Issued | 482,450 | 7,328 | 154,546 | 2,488 |
Issued in Lieu of Cash Distributions | 13,091 | 207 | 4,224 | 70 |
Redeemed | (145,854) | (2,219) | (67,948) | (1,096) |
Net Increase (Decrease) —Admiral Shares | 349,687 | 5,316 | 90,822 | 1,462 |
H. Management has determined that no material events or transactions occurred subsequent to August 31, 2016, that would require recognition or disclosure in these financial statements.
27
Energy Index Fund
Fund Profile
As of August 31, 2016
Share-Class Characteristics | ||
ETF | Admiral | |
Shares | Shares | |
Ticker Symbol | VDE | VENAX |
Expense Ratio1 | 0.10% | 0.10% |
30-Day SEC Yield | 2.42% | 2.43% |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | MSCI | ||
Energy | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 135 | 134 | 2,476 |
Median Market Cap | $48.8B | $48.8B | $51.2B |
Price/Earnings Ratio | -564.0x | -403.4x | 23.4x |
Price/Book Ratio | 1.9x | 1.9x | 2.8x |
Return on Equity | 9.4% | 9.2% | 16.7% |
Earnings Growth Rate | -15.6% | -15.5% | 7.4% |
Dividend Yield | 2.6% | 2.5% | 2.0% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 15% | — | — |
Short-Term Reserves | 0.0% | — | — |
Volatility Measures | ||
MSCI US | ||
IMI/Energy | MSCI US | |
25/50 | IMI/2500 | |
R-Squared | 1.00 | 0.37 |
Beta | 0.99 | 1.09 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months. |
Subindustry Diversification | |
(% of equity exposure) | |
Integrated Oil & Gas | 39.1% |
Oil & Gas Drilling | 1.7 |
Oil & Gas Equipment & Services | 15.4 |
Oil & Gas Exploration & Production | 27.4 |
Oil & Gas Refining & Marketing | 7.8 |
Oil & Gas Storage & Transportation | 8.3 |
Other Energy | 0.3 |
Ten Largest Holdings (% of total net assets) | ||
Exxon Mobil Corp. | Integrated Oil & Gas | 22.7% |
Chevron Corp. | Integrated Oil & Gas | 12.6 |
Schlumberger Ltd. | Oil & Gas Equipment | |
& Services | 7.4 | |
Occidental | Integrated Oil | |
Petroleum Corp. | & Gas | 3.9 |
ConocoPhillips | Oil & Gas Exploration | |
& Production | 3.4 | |
EOG Resources | Oil & Gas Exploration | |
Inc. | & Production | 3.3 |
Kinder Morgan Inc. | Oil & Gas Storage | |
& Transportation | 2.8 | |
Phillips 66 | Oil & Gas Refining | |
& Marketing | 2.5 | |
Halliburton Co. | Oil & Gas Equipment | |
& Services | 2.5 | |
Pioneer Natural | Oil & Gas Exploration | |
Resources Co. | & Production | 2.0 |
Top Ten | 63.1% | |
The holdings listed exclude any temporary cash investments and equity index products. |
1 The expense ratios shown are from the prospectus dated December 22, 2015, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2016, the expense ratios were 0.10% for ETF Shares and 0.10% for Admiral Shares.
28
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.
Cumulative Performance: August 31, 2006–August 31, 2016
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_par7x9x1.jpg)
Average Annual Total Returns | Final Value | |||
Periods Ended August 31, 2016 | of a $10,000 | |||
One Year | Five Years | Ten Years | Investment | |
Energy Index Fund ETF Shares | ||||
Net Asset Value | 5.82% | 1.24% | 3.48% | $14,082 |
Energy Index Fund ETF Shares | ||||
Market Price | 5.80 | 1.24 | 3.48 | 14,074 |
Spliced US IMI/Energy 25/50 | 6.31 | 1.41 | 3.58 | 14,214 |
Natural Resources Funds Average | 1.82 | -1.22 | 1.28 | 11,361 |
MSCI US IMI/2500 | 11.48 | 14.51 | 7.80 | 21,187 |
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 | 5.83% | 1.26% | 3.48% | $140,818 |
Spliced US IMI/Energy 25/50 | 6.31 | 1.41 | 3.58 | 142,144 |
MSCI US IMI/2500 | 11.48 | 14.51 | 7.80 | 211,866 |
See Financial Highlights for dividend and capital gains information.
29
Energy Index Fund
Fiscal-Year Total Returns (%): August 31, 2006--August 31, 2016
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_par8x1x1.jpg)
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2006--August 31, 2016 | |||
One Year | Five Years | Ten Years | |
Energy Index Fund ETF Shares Market Price | 5.80% | 6.37% | 40.74% |
Energy Index Fund ETF Shares Net Asset Value | 5.82 | 6.35 | 40.82 |
Spliced US IMI/Energy 25/50 | 6.31 | 7.26 | 42.14 |
Average Annual Total Returns: Periods Ended June 30, 2016
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 | -7.10% | -0.69% | 3.35% | |
Net Asset Value | -7.05 | -0.69 | 3.36 | |
Admiral Shares | 10/7/2004 | -7.04 | -0.68 | 3.35 |
See Financial Highlights for dividend and capital gains information.
30
Energy Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2016
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Market | |||
Value• | |||
Shares | ($000) | ||
Common Stocks (100.1%) | |||
Energy Equipment & Services (17.1%) | |||
Oil & Gas Drilling (1.7%) | |||
^ | Helmerich & Payne Inc. | 372,212 | 22,504 |
Patterson-UTI Energy Inc. | 538,484 | 10,495 | |
Nabors Industries Ltd. | 1,038,685 | 10,325 | |
Ensco plc Class A | 1,130,025 | 8,577 | |
Rowan Cos. plc Class A | 480,101 | 5,982 | |
Noble Corp. plc | 962,242 | 5,542 | |
Diamond Offshore Drilling | |||
Inc. | 286,276 | 5,287 | |
* | Unit Corp. | 236,764 | 4,046 |
^ | Atwood Oceanics Inc. | 345,678 | 2,731 |
* | Parker Drilling Co. | 945,670 | 2,033 |
Transocean Partners LLC | 166,477 | 1,873 | |
* | Pioneer Energy Services | ||
Corp. | 542,889 | 1,808 | |
* | Transocean Ltd. | 11,735 | 114 |
Oil & Gas Equipment & Services (15.4%) | |||
Schlumberger Ltd. | 4,501,638 | 355,629 | |
Halliburton Co. | 2,786,363 | 119,841 | |
Baker Hughes Inc. | 1,384,224 | 68,007 | |
National Oilwell Varco Inc. | 1,253,829 | 42,053 | |
* | FMC Technologies Inc. | 782,212 | 22,058 |
* | Weatherford International | ||
plc | 3,086,765 | 16,885 | |
Core Laboratories NV | 149,952 | 16,762 | |
Oceaneering International | |||
Inc. | 365,522 | 9,694 | |
Superior Energy Services | |||
Inc. | 562,738 | 9,471 | |
US Silica Holdings Inc. | 237,552 | 9,324 | |
* | Dril-Quip Inc. | 144,403 | 8,024 |
* | Oil States International Inc. | 204,287 | 6,337 |
* | McDermott International | ||
Inc. | 1,012,250 | 5,294 | |
* | Forum Energy | ||
Technologies Inc. | 258,996 | 4,551 | |
^,* | RPC Inc. | 288,132 | 4,417 |
* | SEACOR Holdings Inc. | 73,444 | 4,317 |
* | Helix Energy Solutions | ||
Group Inc. | 487,736 | 3,658 | |
Archrock Inc. | 317,841 | 3,503 | |
^,* | Fairmount Santrol | ||
Holdings Inc. | 461,312 | 3,427 | |
* | Newpark Resources Inc. | 432,126 | 3,051 |
* | TETRA Technologies Inc. | 482,122 | 2,917 |
* | Matrix Service Co. | 156,697 | 2,897 |
* | Exterran Corp. | 194,699 | 2,751 |
^ | Frank’s International NV | 226,437 | 2,602 |
Bristow Group Inc. | 205,094 | 2,340 | |
Tesco Corp. | 311,305 | 2,120 | |
^ | CARBO Ceramics Inc. | 152,013 | 1,905 |
* | PHI Inc. | 97,939 | 1,825 |
* | RigNet Inc. | 138,691 | 1,750 |
* | Era Group Inc. | 219,096 | 1,597 |
* | Hornbeck Offshore | |||
Services Inc. | 291,162 | 1,593 | ||
^ | Tidewater Inc. | 425,010 | 1,390 | |
^,* | Gulfmark Offshore Inc. | 530,125 | 1,140 | |
824,447 | ||||
Oil, Gas & Consumable Fuels (83.0%) | ||||
Coal & Consumable Fuels (0.3%) | ||||
CONSOL Energy Inc. | 665,258 | 12,134 | ||
* | Westmoreland Coal Co. | 187,658 | 1,440 | |
Integrated Oil & Gas (39.2%) | ||||
Exxon Mobil Corp. | 12,628,495 | 1,100,447 | ||
Chevron Corp. | 6,045,497 | 608,056 | ||
Occidental Petroleum | ||||
Corp. | 2,467,355 | 189,616 | ||
Oil & Gas Exploration & Production (27.4%) | ||||
ConocoPhillips | 3,998,694 | 164,146 | ||
EOG Resources Inc. | 1,782,061 | 157,695 | ||
Pioneer Natural | ||||
Resources Co. | 529,414 | 94,792 | ||
Anadarko Petroleum | ||||
Corp. | 1,668,640 | 89,222 | ||
Devon Energy Corp. | 1,547,686 | 67,061 | ||
Apache Corp. | 1,249,057 | 62,078 | ||
* | Concho Resources Inc. | 468,197 | 60,491 | |
Hess Corp. | 931,075 | 50,557 | ||
Noble Energy Inc. | 1,421,036 | 48,997 | ||
Marathon Oil Corp. | 2,811,967 | 42,236 | ||
Cimarex Energy Co. | 319,060 | 42,173 | ||
EQT Corp. | 577,284 | 41,276 | ||
Cabot Oil & Gas Corp. | 1,541,952 | 37,978 | ||
* | Newfield Exploration Co. | 675,935 | 29,309 | |
* | Diamondback Energy Inc. | 264,787 | 25,221 | |
* | Southwestern Energy Co. | 1,648,916 | 22,936 | |
Range Resources Corp. | 584,628 | 22,549 | ||
Energen Corp. | 338,313 | 19,453 | ||
* | Parsley Energy Inc. | |||
Class A | 493,891 | 16,718 | ||
QEP Resources Inc. | 834,030 | 15,930 | ||
* | Continental Resources | |||
Inc. | 330,355 | 15,844 | ||
Murphy Oil Corp. | 575,705 | 15,383 | ||
* | WPX Energy Inc. | 1,167,995 | 14,016 | |
* | Chesapeake Energy Corp. | 2,200,839 | 13,975 | |
* | Gulfport Energy Corp. | 452,205 | 12,933 | |
SM Energy Co. | 307,449 | 11,646 | ||
* | Rice Energy Inc. | 427,818 | 11,252 | |
* | PDC Energy Inc. | 168,661 | 11,199 | |
* | RSP Permian Inc. | 262,914 | 10,267 | |
* | Antero Resources Corp. | 328,635 | 8,400 | |
* | Carrizo Oil & Gas Inc. | 214,562 | 8,216 | |
* | Matador Resources Co. | 324,185 | 7,440 | |
^,* | Laredo Petroleum Inc. | 603,611 | 7,412 | |
* | Callon Petroleum Co. | 478,100 | 6,956 | |
* | Oasis Petroleum Inc. | 653,748 | 6,198 | |
* | Whiting Petroleum Corp. | 803,255 | 5,856 |
* | Synergy Resources Corp. | 777,791 | 5,095 |
* | Memorial Resource | ||
Development Corp. | 348,133 | 5,013 | |
* | Denbury Resources Inc. | 1,531,165 | 4,716 |
^,* | Kosmos Energy Ltd. | 713,871 | 4,433 |
^,* | Gran Tierra Energy Inc. | 1,368,304 | 3,790 |
^,* | Sanchez Energy Corp. | 325,797 | 2,799 |
^,* | Clayton Williams Energy | ||
Inc. | 37,825 | 2,387 | |
* | Ring Energy Inc. | 238,694 | 2,368 |
* | Bill Barrett Corp. | 352,121 | 2,338 |
^,* | California Resources Corp. | 219,598 | 2,181 |
* | Eclipse Resources Corp. | 632,278 | 2,156 |
* | Cobalt International Energy | ||
Inc. | 1,670,708 | 2,005 | |
* | Contango Oil & Gas Co. | 205,306 | 1,983 |
^,* | Northern Oil and Gas Inc. | 537,367 | 1,741 |
^,* | Jones Energy Inc. Class A | 587,986 | 1,629 |
^,* | EXCO Resources Inc. | 1,534,703 | 1,565 |
^,* | W&T Offshore Inc. | 765,916 | 1,310 |
^,* | Bonanza Creek Energy Inc. | 781,460 | 797 |
Oil & Gas Refining & Marketing (7.8%) | |||
Phillips 66 | 1,562,970 | 122,615 | |
Valero Energy Corp. | 1,558,869 | 86,283 | |
Marathon Petroleum Corp. 1,752,927 | 74,517 | ||
Tesoro Corp. | 404,724 | 30,524 | |
HollyFrontier Corp. | 594,242 | 15,379 | |
World Fuel Services Corp. | 257,922 | 11,498 | |
Western Refining Inc. | 334,214 | 8,409 | |
PBF Energy Inc. Class A | 364,897 | 7,991 | |
Green Plains Inc. | 167,657 | 4,071 | |
Delek US Holdings Inc. | 230,282 | 4,041 | |
* | REX American Resources | ||
Corp. | 32,823 | 2,640 | |
* | Clean Energy Fuels Corp. | 561,789 | 2,455 |
* | Renewable Energy Group | ||
Inc. | 248,105 | 2,226 | |
Alon USA Energy Inc. | 231,237 | 1,892 | |
^ | CVR Energy Inc. | 120,727 | 1,761 |
* | Par Pacific Holdings Inc. | 123,098 | 1,507 |
* | Par Pacific Holdings Inc. | ||
Rights Expire 9/14/2016 | 123,098 | 5 | |
Oil & Gas Storage & Transportation (8.3%) | |||
Kinder Morgan Inc. | 6,158,803 | 134,570 | |
Spectra Energy Corp. | 2,201,213 | 78,407 | |
Williams Cos. Inc. | 2,374,341 | 66,339 | |
ONEOK Inc. | 712,473 | 33,408 | |
* | Cheniere Energy Inc. | 682,065 | 29,261 |
Targa Resources Corp. | 552,555 | 24,080 | |
Plains GP Holdings LP | |||
Class A | 931,412 | 10,599 | |
SemGroup Corp. Class A | 206,426 | 6,420 | |
* | Enbridge Energy | ||
Management LLC | 259,274 | 5,901 | |
^ | Tallgrass Energy GP LP | 197,666 | 4,600 |
^ | EnLink Midstream LLC | 245,341 | 4,085 |
31
Energy Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
* | Gener8 Maritime Inc. | 361,703 | 1,812 |
* | Overseas Shipholding | ||
Group Inc. Class A | 11,005 | 119 | |
4,015,225 | |||
Total Common Stocks | |||
(Cost $5,551,889) | 4,839,672 | ||
Temporary Cash Investment (0.8%) | |||
Money Market Fund (0.8%) | |||
1,2 | Vanguard Market Liquidity | ||
Fund, 0.612% | |||
(Cost $40,012) | 400,114 | 40,016 | |
Total Investments (100.9%) | |||
(Cost $5,591,901) | 4,879,688 | ||
Amount | |||
($000) | |||
Other Assets and Liabilities (-0.9%) | |||
Other Assets | |||
Investment in Vanguard | 370 | ||
Receivables for Investment Securities Sold | 59,780 | ||
Receivables for Accrued Income | 21,161 | ||
Receivables for Capital Shares Issued | 457 | ||
Total Other Assets | 81,768 | ||
Liabilities | |||
Payables for Investment Securities | |||
Purchased | (60,561) | ||
Collateral for Securities on Loan | (40,011) | ||
Payables for Capital Shares Redeemed | (224) | ||
Payables to Vanguard | (2,279) | ||
Other Liabilities | (20,550) | ||
Total Liabilities | (123,625) | ||
Net Assets (100%) | 4,837,831 |
At August 31, 2016, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 5,934,613 |
Undistributed Net Investment Income | 23,603 |
Accumulated Net Realized Losses | (408,172) |
Unrealized Appreciation (Depreciation) | (712,213) |
Net Assets | 4,837,831 |
ETF Shares—Net Assets | |
Applicable to 41,487,192 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 3,943,734 |
Net Asset Value Per Share— | |
ETF Shares | $95.06 |
Admiral Shares—Net Assets | |
Applicable to 18,829,002 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 894,097 |
Net Asset Value Per Share— | |
Admiral Shares | $47.49 |
• 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 $36,425,000.
* 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 $40,011,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
32
Energy Index Fund
Statement of Operations
Year Ended | |
August 31, 2016 | |
($000) | |
Investment Income | |
Income | |
Dividends | 131,841 |
Interest1 | 11 |
Securities Lending—Net | 2,506 |
Total Income | 134,358 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 797 |
Management and Administrative— | |
ETF Shares | 2,459 |
Management and Administrative— | |
Admiral Shares | 538 |
Marketing and Distribution— | |
ETF Shares | 301 |
Marketing and Distribution— | |
Admiral Shares | 88 |
Custodian Fees | 53 |
Auditing Fees | 35 |
Shareholders’ Reports��ETF Shares | 268 |
Shareholders’ Reports—Admiral Shares | 19 |
Trustees’ Fees and Expenses | 3 |
Total Expenses | 4,561 |
Net Investment Income | 129,797 |
Realized Net Gain (Loss) | |
Investment Securities Sold1 | (151,425) |
Futures Contracts | (604) |
Realized Net Gain (Loss) | (152,029) |
Change in Unrealized Appreciation | |
(Depreciation) of Investment Securities | 275,863 |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 253,631 |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $11,000 and $0, respectively. |
Statement of Changes in Net Assets
Year Ended August 31, | ||
2016 | 2015 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 129,797 | 114,645 |
Realized Net Gain (Loss) | (152,029) | 170,018 |
Change in Unrealized Appreciation (Depreciation) | 275,863 | (1,906,933) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 253,631 | (1,622,270) |
Distributions | ||
Net Investment Income | ||
ETF Shares | (161,400) | (62,233) |
Admiral Shares | (32,917) | (10,925) |
Realized Capital Gain | ||
ETF Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (194,317) | (73,158) |
Capital Share Transactions | ||
ETF Shares | 192,098 | 1,710,890 |
Admiral Shares | 117,493 | 411,258 |
Net Increase (Decrease) from Capital Share Transactions | 309,591 | 2,122,148 |
Total Increase (Decrease) | 368,905 | 426,720 |
Net Assets | ||
Beginning of Period | 4,468,926 | 4,042,206 |
End of Period1 | 4,837,831 | 4,468,926 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $23,603,000 and $88,123,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
33
Energy Index Fund
Financial Highlights
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $93.86 | $142.26 | $116.47 | $103.35 | $100.41 |
Investment Operations | |||||
Net Investment Income | 2.470 | 2.9531 | 2.329 | 2.215 | 1.827 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 2.587 | (49.144) | 25.655 | 12.899 | 2.731 |
Total from Investment Operations | 5.057 | (46.191) | 27.984 | 15.114 | 4.558 |
Distributions | |||||
Dividends from Net Investment Income | (3.857) | (2.209) | (2.194) | (1.994) | (1.618) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (3.857) | (2.209) | (2.194) | (1.994) | (1.618) |
Net Asset Value, End of Period | $95.06 | $93.86 | $142.26 | $116.47 | $103.35 |
Total Return | 5.82% | -32.70% | 24.31% | 14.85% | 4.60% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $3,944 | $3,736 | $3,467 | $2,255 | $1,917 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.12% | 0.14% | 0.14% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.86% | 2.65% | 1.98% | 2.02% | 1.81% |
Portfolio Turnover Rate2 | 15% | 4% | 4% | 9% | 12% |
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 | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $46.89 | $71.06 | $58.18 | $51.63 | $50.17 |
Investment Operations | |||||
Net Investment Income | 1.234 | 1.4951 | 1.164 | 1.108 | .913 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 1.293 | (24.561) | 12.815 | 6.439 | 1.358 |
Total from Investment Operations | 2.527 | (23.066) | 13.979 | 7.547 | 2.271 |
Distributions | |||||
Dividends from Net Investment Income | (1.927) | (1.104) | (1.099) | (. 997) | (.811) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.927) | (1.104) | (1.099) | (. 997) | (.811) |
Net Asset Value, End of Period | $47.49 | $46.89 | $71.06 | $58.18 | $51.63 |
Total Return2 | 5.83% | -32.66% | 24.32% | 14.86% | 4.61% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $894 | $733 | $575 | $460 | $254 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.12% | 0.14% | 0.14% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.86% | 2.65% | 1.98% | 2.02% | 1.81% |
Portfolio Turnover Rate3 | 15% | 4% | 4% | 9% | 12% |
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
34
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, 2016, 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. The fund had no open futures contracts at August 31, 2016.
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, 2013–2016), 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 subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal
35
Energy Index Fund
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. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
6. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at August 31, 2016, 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, 2016, the fund had contributed to Vanguard capital in the amount of $370,000, representing 0.01% of the fund’s net assets and 0.15% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and 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, 2016, 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.
36
Energy Index Fund
During the year ended August 31, 2016, the fund realized $139,888,000 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, 2016, the fund had $25,565,000 of ordinary income available for distribution. At August 31, 2016, the fund had available capital losses totaling $408,172,000 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 $339,888,000 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, 2016, the cost of investment securities for tax purposes was $5,591,901,000. Net unrealized depreciation of investment securities for tax purposes was $712,213,000, consisting of unrealized gains of $131,735,000 on securities that had risen in value since their purchase and $843,948,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2016, the fund purchased $1,969,990,000 of investment securities and sold $1,721,300,000 of investment securities, other than temporary cash investments. Purchases and sales include $1,099,645,000 and $1,046,239,000, 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, | ||||
2016 | 2015 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 1,239,731 | 14,359 | 2,405,860 | 21,906 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (1,047,633) | (12,675) | (694,970) | (6,475) |
Net Increase (Decrease)—ETF Shares | 192,098 | 1,684 | 1,710,890 | 15,431 |
Admiral Shares | ||||
Issued | 385,314 | 9,176 | 563,402 | 10,293 |
Issued in Lieu of Cash Distributions | 30,038 | 689 | 9,612 | 178 |
Redeemed | (297,859) | (6,669) | (161,756) | (2,931) |
Net Increase (Decrease) —Admiral Shares | 117,493 | 3,196 | 411,258 | 7,540 |
G. Management has determined that no material events or transactions occurred subsequent to
August 31, 2016, that would require recognition or disclosure in these financial statements.
37
Financials Index Fund
Fund Profile
As of August 31, 2016
Share-Class Characteristics | ||
ETF | Admiral | |
Shares | Shares | |
Ticker Symbol | VFH | VFAIX |
Expense Ratio1 | 0.10% | 0.10% |
30-Day SEC Yield | 2.38% | 2.39% |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | MSCI | ||
Financials | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 561 | 560 | 2,476 |
Median Market Cap | $44.9B | $31.3B | $51.2B |
Price/Earnings Ratio | 14.9x | 17.4x | 23.4x |
Price/Book Ratio | 1.2x | 1.4x | 2.8x |
Return on Equity | 10.6% | 10.2% | 16.7% |
Earnings Growth Rate | 9.0% | 10.8% | 7.4% |
Dividend Yield | 2.2% | 2.5% | 2.0% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 21% | — | — |
Short-Term Reserves | -0.1% | — | — |
Volatility Measures | ||
MSCI US | ||
IMI/Financials | MSCI US | |
25/50 | IMI/2500 | |
R-Squared | 1.00 | 0.83 |
Beta | 1.00 | 1.00 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months. |
Subindustry Diversification | |
(% of equity exposure) | |
Asset Management & Custody Banks | 7.7% |
Consumer Finance | 5.6 |
Diversified Banks | 31.3 |
Insurance Brokers | 3.1 |
Investment Banking & Brokerage | 6.2 |
Life & Health Insurance | 5.3 |
Multi-line Insurance | 3.7 |
Multi-Sector Holdings | 6.2 |
Property & Casualty Insurance | 8.7 |
Regional Banks | 14.0 |
Reinsurance | 1.4 |
Specialized Finance | 5.3 |
Thrifts & Mortgage Finance | 1.3 |
Other Financials | 0.2 |
Ten Largest Holdings (% of total net assets) | ||
JPMorgan Chase | ||
& Co. | Diversified Banks | 8.2% |
Wells Fargo & Co. | Diversified Banks | 8.2 |
Berkshire | ||
Hathaway Inc. | Multi-Sector Holdings | 6.0 |
Bank of America | ||
Corp. | Diversified Banks | 5.5 |
Citigroup Inc. | Diversified Banks | 4.7 |
US Bancorp | Diversified Banks | 2.5 |
American | ||
International | Multi-line | |
Group Inc. | Insurance | 2.2 |
Goldman Sachs | Investment Banking | |
Group Inc. | & Brokerage | 2.1 |
Chubb Ltd. | Property | |
& Casualty Insurance | 2.0 | |
American | ||
Express Co. | Consumer Finance | 1.8 |
Top Ten | 43.2% | |
The holdings listed exclude any temporary cash investments and equity index products. |
1 The expense ratios shown are from the prospectus dated December 22, 2015, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2016, the expense ratios were 0.10% for ETF Shares and 0.10% for Admiral Shares.
38
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.
Cumulative Performance: August 31, 2006–August 31, 2016
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_par9x9x1.jpg)
Average Annual Total Returns | Final Value | |||
Periods Ended August 31, 2016 | of a $10,000 | |||
One Year | Five Years | Ten Years | Investment | |
Financials Index Fund ETF Shares | ||||
Net Asset Value | 8.93% | 14.82% | 0.59% | $10,603 |
Financials Index Fund ETF Shares | ||||
Market Price | 8.89 | 14.81 | 0.55 | 10,564 |
Spliced US IMI/Financials 25/50 | 9.04 | 14.92 | 0.63 | 10,646 |
Financial Services Funds Average | 6.23 | 13.79 | 0.84 | 10,871 |
MSCI US IMI/2500 | 11.48 | 14.51 | 7.80 | 21,187 |
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 | 8.96% | 14.82% | 0.58% | $105,932 |
Spliced US IMI/Financials 25/50 | 9.04 | 14.92 | 0.63 | 106,460 |
MSCI US IMI/2500 | 11.48 | 14.51 | 7.80 | 211,866 |
See Financial Highlights for dividend and capital gains information.
39
Financials Index Fund
Fiscal-Year Total Returns (%): August 31, 2006--August 31, 2016
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_par10x1x1.jpg)
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2006--August 31, 2016 | |||
One Year | Five Years | Ten Years | |
Financials Index Fund ETF Shares Market Price | 8.89% | 99.46% | 5.64 |
Financials Index Fund ETF Shares Net Asset Value | 8.93 | 99.55 | 6.03 |
Spliced US IMI/Financials 25/50 | 9.04 | 100.47 | 6.46 |
Average Annual Total Returns: Periods Ended June 30, 2016
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 | -2.45% | 10.36% | 0.21% | |
Net Asset Value | -2.41 | 10.36 | 0.21 | |
Admiral Shares | 2/4/2004 | -2.36 | 10.36 | 0.20 |
See Financial Highlights for dividend and capital gains information.
40
Financials Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2016
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 (100.2%)1 | |||
Banks (43.4%) | |||
JPMorgan Chase & Co. | 4,847,964 | 327,238 | |
Wells Fargo & Co. | 6,394,505 | 324,841 | |
Bank of America Corp. | 13,618,409 | 219,801 | |
Citigroup Inc. | 3,891,153 | 185,764 | |
US Bancorp | 2,288,972 | 101,058 | |
PNC Financial Services | |||
Group Inc. | 662,054 | 59,651 | |
BB&T Corp. | 1,094,667 | 42,145 | |
SunTrust Banks Inc. | 663,061 | 29,221 | |
M&T Bank Corp. | 189,429 | 22,415 | |
Fifth Third Bancorp | 1,015,896 | 20,480 | |
KeyCorp | 1,432,803 | 17,996 | |
Citizens Financial Group | |||
Inc. | 699,897 | 17,336 | |
Regions Financial Corp. | 1,676,154 | 16,711 | |
First Republic Bank | 193,932 | 14,925 | |
Huntington Bancshares | |||
Inc. | 1,435,888 | 14,373 | |
Comerica Inc. | 231,798 | 10,962 | |
CIT Group Inc. | 266,897 | 9,843 | |
* | Signature Bank | 71,054 | 8,669 |
Zions Bancorporation | 270,776 | 8,283 | |
* | SVB Financial Group | 68,542 | 7,612 |
East West Bancorp Inc. | 190,683 | 7,082 | |
People’s United Financial | |||
Inc. | 411,335 | 6,684 | |
PacWest Bancorp | 151,104 | 6,544 | |
Commerce Bancshares | |||
Inc. | 114,978 | 5,827 | |
Synovus Financial Corp. | 166,058 | 5,493 | |
Popular Inc. | 137,243 | 5,395 | |
Cullen/Frost Bankers Inc. | 73,852 | 5,384 | |
Bank of the Ozarks Inc. | 136,209 | 5,337 | |
Investors Bancorp Inc. | 422,319 | 5,173 | |
Prosperity Bancshares Inc. | 87,520 | 4,855 | |
Umpqua Holdings Corp. | 291,756 | 4,791 | |
First Horizon National | |||
Corp. | 307,773 | 4,734 | |
* | Western Alliance Bancorp | 123,334 | 4,714 |
Webster Financial Corp. | 121,352 | 4,688 | |
PrivateBancorp Inc. | 99,806 | 4,586 | |
BankUnited Inc. | 137,867 | 4,432 | |
Bank of Hawaii Corp. | 57,044 | 4,109 | |
Associated Banc-Corp | 198,650 | 3,941 | |
Home BancShares Inc. | 167,224 | 3,913 | |
Wintrust Financial Corp. | 68,327 | 3,798 | |
IBERIABANK Corp. | 54,580 | 3,753 | |
United Bankshares Inc. | 92,333 | 3,638 | |
MB Financial Inc. | 92,678 | 3,631 | |
FNB Corp. | 277,629 | 3,468 | |
UMB Financial Corp. | 55,739 | 3,389 | |
Hancock Holding Co. | 102,649 | 3,349 | |
Fulton Financial Corp. | 229,557 | 3,319 | |
Pinnacle Financial | |||
Partners Inc. | 57,581 | 3,264 |
* | Texas Capital | ||
Bancshares Inc. | 60,744 | 3,190 | |
TCF Financial Corp. | 215,087 | 3,151 | |
Cathay General Bancorp | 99,124 | 3,114 | |
Valley National Bancorp | 319,801 | 3,086 | |
Glacier Bancorp Inc. | 100,787 | 3,018 | |
Sterling Bancorp | 164,140 | 2,930 | |
* | Hope Bancorp Inc. | 169,800 | 2,921 |
BancorpSouth Inc. | 112,518 | 2,802 | |
Community Bank System | |||
Inc. | 58,375 | 2,770 | |
First Citizens BancShares | |||
Inc. Class A | 9,469 | 2,698 | |
Chemical Financial Corp. | 57,838 | 2,674 | |
Great Western Bancorp Inc. | 77,671 | 2,659 | |
First Financial Bankshares | |||
Inc. | 69,983 | 2,563 | |
Trustmark Corp. | 89,550 | 2,540 | |
Columbia Banking System | |||
Inc. | 76,829 | 2,538 | |
South State Corp. | 32,086 | 2,438 | |
CVB Financial Corp. | 135,600 | 2,412 | |
Old National Bancorp | 169,729 | 2,403 | |
* | Hilltop Holdings Inc. | 104,356 | 2,363 |
International Bancshares | |||
Corp. | 74,253 | 2,202 | |
First Midwest Bancorp Inc. | 107,666 | 2,107 | |
* | Eagle Bancorp Inc. | 40,016 | 2,071 |
Renasant Corp. | 55,689 | 1,974 | |
United Community Banks | |||
Inc. | 88,442 | 1,855 | |
Independent Bank Corp. | 34,865 | 1,847 | |
NBT Bancorp Inc. | 56,939 | 1,839 | |
Simmons First National | |||
Corp. Class A | 36,269 | 1,820 | |
LegacyTexas Financial | |||
Group Inc. | 59,905 | 1,817 | |
BOK Financial Corp. | 26,297 | 1,816 | |
First Financial Bancorp | 81,854 | 1,784 | |
Towne Bank | 74,089 | 1,763 | |
^ | Westamerica | ||
Bancorporation | 33,785 | 1,718 | |
Talmer Bancorp Inc. | |||
Class A | 73,479 | 1,709 | |
* | FCB Financial Holdings Inc. | ||
Class A | 44,380 | 1,700 | |
WesBanco Inc. | 50,819 | 1,663 | |
Park National Corp. | 17,272 | 1,652 | |
Union Bankshares Corp. | 57,916 | 1,612 | |
ServisFirst Bancshares Inc. | 29,520 | 1,547 | |
Ameris Bancorp | 43,791 | 1,525 | |
Yadkin Financial Corp. | 57,236 | 1,494 | |
BNC Bancorp | 60,048 | 1,475 | |
Boston Private Financial | |||
Holdings Inc. | 109,772 | 1,414 | |
First Merchants Corp. | 51,254 | 1,392 | |
S&T Bancorp Inc. | 46,273 | 1,330 | |
Tompkins Financial Corp. | 16,901 | 1,249 |
Banc of California Inc. | 55,326 | 1,235 | |
First Commonwealth | |||
Financial Corp. | 117,727 | 1,202 | |
Lakeland Financial Corp. | 33,146 | 1,188 | |
Berkshire Hills Bancorp Inc. | 41,312 | 1,152 | |
Cardinal Financial Corp. | 42,888 | 1,152 | |
Hanmi Financial Corp. | 42,688 | 1,120 | |
Brookline Bancorp Inc. | 93,189 | 1,113 | |
Opus Bank | 31,705 | 1,107 | |
Southside Bancshares Inc. | 33,541 | 1,102 | |
CenterState Banks Inc. | 60,367 | 1,085 | |
State Bank Financial Corp. | 46,365 | 1,069 | |
Central Pacific Financial | |||
Corp. | 41,183 | 1,054 | |
City Holding Co. | 19,902 | 1,007 | |
Sandy Spring Bancorp Inc. | 31,606 | 997 | |
Capital Bank Financial Corp. | 31,795 | 995 | |
Banner Corp. | 21,864 | 968 | |
First Busey Corp. | 40,475 | 945 | |
Heartland Financial USA Inc. | 26,009 | 945 | |
National Bank Holdings | |||
Corp. Class A | 38,318 | 917 | |
* | Customers Bancorp Inc. | 34,055 | 911 |
Stock Yards Bancorp Inc. | 28,141 | 898 | |
Flushing Financial Corp. | 36,489 | 846 | |
Enterprise Financial | |||
Services Corp. | 26,514 | 817 | |
First Interstate BancSystem | |||
Inc. Class A | 26,466 | 814 | |
Washington Trust Bancorp | |||
Inc. | 19,286 | 813 | |
1st Source Corp. | 22,263 | 788 | |
Univest Corp. of | |||
Pennsylvania | 33,353 | 778 | |
* | First BanCorp. | 157,988 | 774 |
Community Trust | |||
Bancorp Inc. | 20,950 | 772 | |
Lakeland Bancorp Inc. | 55,752 | 761 | |
TriCo Bancshares | 27,157 | 734 | |
Heritage Financial Corp. | 39,695 | 734 | |
MainSource Financial | |||
Group Inc. | 30,206 | 729 | |
ConnectOne Bancorp Inc. | 37,994 | 676 | |
CoBiz Financial Inc. | 49,335 | 648 | |
BancFirst Corp. | 9,311 | 639 | |
OFG Bancorp | 58,199 | 635 | |
* | Seacoast Banking Corp. of | ||
Florida | 37,689 | 620 | |
First of Long Island Corp. | 18,648 | 612 | |
Bryn Mawr Bank Corp. | 17,376 | 559 | |
Independent Bank Group | |||
Inc. | 12,608 | 554 | |
German American Bancorp | |||
Inc. | 13,573 | 500 | |
Great Southern Bancorp Inc. | 10,734 | 452 | |
Blue Hills Bancorp Inc. | 30,220 | 446 | |
First Financial Corp. | 10,711 | 438 | |
Southwest Bancorp Inc. | 21,744 | 426 |
41
Financials Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Arrow Financial Corp. | 12,685 | 411 | |
Financial Institutions Inc. | 14,950 | 402 | |
First Bancorp | 19,457 | 390 | |
Republic Bancorp Inc. | |||
Class A | 11,693 | 374 | |
^ | Live Oak Bancshares Inc. | 19,719 | 279 |
Sun Bancorp Inc. | 10,840 | 248 | |
* | First NBC Bank Holding Co. | 17,209 | 225 |
1,726,316 | |||
Capital Markets (14.0%) | |||
Goldman Sachs Group Inc. | 495,711 | 84,003 | |
Morgan Stanley | 1,926,160 | 61,753 | |
BlackRock Inc. | 162,456 | 60,565 | |
Bank of New York Mellon | |||
Corp. | 1,428,070 | 59,508 | |
Charles Schwab Corp. | 1,577,220 | 49,619 | |
State Street Corp. | 524,987 | 36,875 | |
T. Rowe Price Group Inc. | 328,449 | 22,840 | |
Ameriprise Financial Inc. | 219,455 | 22,183 | |
Northern Trust Corp. | 286,823 | 20,247 | |
Franklin Resources Inc. | 503,109 | 18,364 | |
Invesco Ltd. | 552,155 | 17,222 | |
TD Ameritrade Holding | |||
Corp. | 349,968 | 11,502 | |
* | Affiliated Managers Group | ||
Inc. | 71,271 | 10,124 | |
Raymond James Financial | |||
Inc. | 168,605 | 9,808 | |
* | E*TRADE Financial Corp. | 368,858 | 9,730 |
SEI Investments Co. | 182,258 | 8,402 | |
Eaton Vance Corp. | 150,169 | 6,011 | |
Legg Mason Inc. | 125,621 | 4,345 | |
Federated Investors Inc. | |||
Class B | 123,835 | 4,000 | |
* | Stifel Financial Corp. | 88,052 | 3,465 |
LPL Financial Holdings Inc. | 100,195 | 2,979 | |
NorthStar Asset | |||
Management Group Inc. | 237,676 | 2,954 | |
Janus Capital Group Inc. | 195,504 | 2,907 | |
Interactive Brokers Group | |||
Inc. | 80,490 | 2,888 | |
Evercore Partners Inc. | |||
Class A | 52,582 | 2,694 | |
Financial Engines Inc. | 74,959 | 2,396 | |
BGC Partners Inc. Class A | 269,352 | 2,362 | |
Waddell & Reed Financial | |||
Inc. Class A | 107,833 | 2,006 | |
^ | WisdomTree Investments | ||
Inc. | 153,527 | 1,612 | |
Artisan Partners Asset | |||
Management Inc. Class A | 51,918 | 1,358 | |
* | KCG Holdings Inc. Class A | 86,868 | 1,255 |
Cohen & Steers Inc. | 27,361 | 1,153 | |
* | Piper Jaffray Cos. | 21,326 | 946 |
Greenhill & Co. Inc. | 37,568 | 862 | |
Diamond Hill Investment | |||
Group Inc. | 4,114 | 779 | |
* | INTL. FCStone Inc. | 20,988 | 756 |
OM Asset Management plc | 55,712 | 752 | |
Virtu Financial Inc. Class A | 45,610 | 744 | |
Moelis & Co. Class A | 27,071 | 730 | |
Virtus Investment Partners | |||
Inc. | 7,633 | 696 | |
Investment Technology | |||
Group Inc. | 39,899 | 614 | |
* | Cowen Group Inc. Class A | 127,793 | 479 |
PJT Partners Inc. | 18,665 | 460 | |
Westwood Holdings | |||
Group Inc. | 7,856 | 393 |
Arlington Asset Investment | |||
Corp. Class A | 25,134 | 374 | |
Houlihan Lokey Inc. | 13,438 | 333 | |
* | Safeguard Scientifics Inc. | 23,379 | 330 |
* | Ladenburg Thalmann | ||
Financial Services Inc. | 109,494 | 251 | |
Associated Capital Group | |||
Inc. Class A | 4,738 | 156 | |
GAMCO Investors Inc. | |||
Class A | 4,833 | 148 | |
Pzena Investment | |||
Management Inc. Class A | 13,688 | 106 | |
Fifth Street Asset | |||
Management Inc. | 6,552 | 40 | |
557,079 | |||
Consumer Finance (5.6%) | |||
American Express Co. | 1,071,795 | 70,288 | |
Capital One Financial | |||
Corp. | 679,002 | 48,617 | |
Discover Financial | |||
Services | 545,468 | 32,728 | |
Synchrony Financial | 1,103,402 | 30,708 | |
Ally Financial Inc. | 576,058 | 11,544 | |
Navient Corp. | 437,374 | 6,289 | |
* | SLM Corp. | 470,763 | 3,491 |
* | OneMain Holdings Inc. | ||
Class A | 80,294 | 2,490 | |
First Cash Financial | |||
Services Inc. | 40,949 | 2,118 | |
* | Santander Consumer | ||
USA Holdings Inc. | 165,881 | 2,087 | |
* | PRA Group Inc. | 61,367 | 1,963 |
*,^ | Credit Acceptance Corp. | 9,413 | 1,879 |
*,^ | LendingClub Corp. | 316,609 | 1,713 |
* | Green Dot Corp. Class A | 60,018 | 1,392 |
Cash America | |||
International Inc. | 31,822 | 1,385 | |
Nelnet Inc. Class A | 30,846 | 1,092 | |
* | EZCORP Inc. Class A | 67,993 | 704 |
* | Encore Capital Group Inc. | 32,156 | 693 |
* | World Acceptance Corp. | 8,989 | 432 |
* | Enova International Inc. | 27,462 | 263 |
221,876 | |||
Diversified Financial Services (11.7%) | |||
* | Berkshire Hathaway Inc. | ||
Class B | 1,581,504 | 238,000 | |
CME Group Inc. | 449,088 | 48,659 | |
• | Intercontinental Exchange | ||
Inc. | 157,849 | 44,517 | |
S&P Global Inc. | 350,872 | 43,347 | |
Moody’s Corp. | 231,400 | 25,151 | |
MSCI Inc. Class A | 121,313 | 10,933 | |
Nasdaq Inc. | 152,404 | 10,853 | |
FactSet Research | |||
Systems Inc. | 54,158 | 9,642 | |
MarketAxess Holdings Inc. | 49,782 | 8,390 | |
Leucadia National Corp. | 431,519 | 8,264 | |
Voya Financial Inc. | 269,961 | 7,894 | |
CBOE Holdings Inc. | 107,780 | 7,403 | |
Morningstar Inc. | 25,634 | 2,129 | |
Texas Pacific Land Trust | 10,767 | 1,902 | |
* | PICO Holdings Inc. | 24,183 | 266 |
* | NewStar Financial Inc. | 23,441 | 264 |
* | On Deck Capital Inc. | 30,451 | 193 |
467,807 | |||
Insurance (22.2%) | |||
American International | |||
Group Inc. | 1,483,688 | 88,769 | |
Chubb Ltd. | 615,846 | 78,169 |
MetLife Inc. | 1,238,200 | 53,738 | |
Marsh & McLennan Cos. | |||
Inc. | 691,146 | 46,742 | |
Prudential Financial Inc. | 586,091 | 46,524 | |
Travelers Cos. Inc. | 387,736 | 46,028 | |
Aflac Inc. | 548,995 | 40,724 | |
Aon plc | 351,263 | 39,113 | |
Allstate Corp. | 495,434 | 34,165 | |
Progressive Corp. | 771,449 | 25,118 | |
Willis Towers Watson plc | 174,059 | 21,585 | |
Hartford Financial | |||
Services Group Inc. | 520,541 | 21,379 | |
Principal Financial Group | |||
Inc. | 383,599 | 18,823 | |
* | Markel Corp. | 18,481 | 17,208 |
Loews Corp. | 381,330 | 15,962 | |
Cincinnati Financial Corp. | 206,639 | 15,934 | |
Lincoln National Corp. | 316,320 | 15,193 | |
* | Arch Capital Group Ltd. | 161,627 | 13,082 |
* | XL Group Ltd. | 375,039 | 12,838 |
FNF Group | 326,368 | 12,301 | |
Arthur J Gallagher & Co. | 234,091 | 11,566 | |
Unum Group | 314,619 | 11,204 | |
* | Alleghany Corp. | 20,435 | 10,957 |
Everest Re Group Ltd. | 56,056 | 10,840 | |
Torchmark Corp. | 151,731 | 9,814 | |
Reinsurance Group of | |||
America Inc. Class A | 84,819 | 9,103 | |
WR Berkley Corp. | 129,837 | 7,708 | |
Assurant Inc. | 82,029 | 7,346 | |
Axis Capital Holdings Ltd. | 122,955 | 6,992 | |
American Financial Group | |||
Inc. | 91,789 | 6,898 | |
RenaissanceRe Holdings | |||
Ltd. | 57,066 | 6,831 | |
Old Republic International | |||
Corp. | 329,624 | 6,339 | |
First American Financial | |||
Corp. | 145,070 | 6,251 | |
Brown & Brown Inc. | 157,476 | 5,901 | |
Endurance Specialty | |||
Holdings Ltd. | 84,769 | 5,582 | |
White Mountains | |||
Insurance Group Ltd. | 6,710 | 5,529 | |
Validus Holdings Ltd. | 107,927 | 5,482 | |
Assured Guaranty Ltd. | 177,853 | 4,939 | |
Allied World Assurance | |||
Co. Holdings AG | 118,683 | 4,814 | |
Hanover Insurance Group | |||
Inc. | 56,877 | 4,448 | |
ProAssurance Corp. | 70,391 | 3,873 | |
CNO Financial Group Inc. | 237,010 | 3,851 | |
Aspen Insurance Holdings | |||
Ltd. | 80,362 | 3,693 | |
RLI Corp. | 51,999 | 3,691 | |
^ | Primerica Inc. | 62,309 | 3,547 |
Erie Indemnity Co. | |||
Class A | 33,624 | 3,431 | |
* | Genworth Financial Inc. | ||
Class A | 659,595 | 3,120 | |
AmTrust Financial | |||
Services Inc. | 115,076 | 3,048 | |
Selective Insurance | |||
Group Inc. | 76,276 | 3,043 | |
* | Enstar Group Ltd. | 14,032 | 2,338 |
Argo Group International | |||
Holdings Ltd. | 40,202 | 2,281 | |
Kemper Corp. | 54,151 | 2,028 | |
Mercury General Corp. | 36,582 | 1,986 |
42
Financials Index Fund
Market | ||||
Value• | ||||
Shares | ($000) | |||
Horace Mann Educators | ||||
Corp. | 53,141 | 1,942 | ||
American Equity | ||||
Investment Life Holding | ||||
Co. | 108,964 | 1,920 | ||
National General Holdings | ||||
Corp. | 76,941 | 1,754 | ||
Navigators Group Inc. | 16,408 | 1,542 | ||
AMERISAFE Inc. | 25,438 | 1,527 | ||
* | MBIA Inc. | 172,594 | 1,391 | |
Stewart Information | ||||
Services Corp. | 29,444 | 1,348 | ||
Employers Holdings Inc. | 42,982 | 1,310 | ||
Safety Insurance Group Inc. | 19,147 | 1,272 | ||
American National | ||||
Insurance Co. | 10,731 | 1,254 | ||
Infinity Property & Casualty | ||||
Corp. | 14,658 | 1,235 | ||
United Fire Group Inc. | 28,539 | 1,233 | ||
* | FNFV Group | 91,022 | 1,173 | |
Universal Insurance | ||||
Holdings Inc. | 44,419 | 1,101 | ||
Maiden Holdings Ltd. | 78,367 | 1,082 | ||
* | Third Point Reinsurance Ltd. | 77,386 | 1,008 | |
FBL Financial Group Inc. | ||||
Class A | 14,833 | 981 | ||
* | Ambac Financial Group Inc. | 50,251 | 912 | |
* | Greenlight Capital Re Ltd. | |||
Class A | 41,033 | 880 | ||
James River Group | ||||
Holdings Ltd. | 19,225 | 702 | ||
*,^ | Citizens Inc. Class A | 61,718 | 672 | |
National Western | ||||
Life Group Inc. Class A | 2,739 | 531 | ||
State Auto Financial Corp. | 18,555 | 426 | ||
Heritage Insurance | ||||
Holdings Inc. | 28,686 | 394 | ||
^ | Fidelity & Guaranty Life | 14,357 | 342 | |
State National Cos. Inc. | 33,581 | 342 | ||
HCI Group Inc. | 10,199 | 324 | ||
OneBeacon Insurance | ||||
Group Ltd. Class A | 22,867 | 324 | ||
National Interstate Corp. | 9,144 | 297 | ||
United Insurance Holdings | ||||
Corp. | 18,633 | 293 | ||
* | Global Indemnity plc | 9,645 | 278 | |
EMC Insurance Group Inc. | 9,279 | 258 | ||
Baldwin & Lyons Inc. | 9,495 | 240 | ||
*,^ | Trupanion Inc. | 15,460 | 232 | |
Donegal Group Inc. Class A | 11,861 | 191 | ||
Crawford & Co. Class B | 11,704 | 133 | ||
* | Patriot National Inc. | 10,160 | 90 | |
882,803 | ||||
Real Estate Investment Trusts (REITs) (2.0%) | ||||
Annaly Capital | ||||
Management Inc. | 1,347,462 | 14,431 | ||
American Capital Agency | ||||
Corp. | 438,066 | 8,459 | ||
Starwood Property Trust | ||||
Inc. | 314,526 | 7,203 | ||
New Residential | ||||
Investment Corp. | 331,460 | 4,756 | ||
Two Harbors Investment | ||||
Corp. | 459,909 | 4,093 | ||
Chimera Investment Corp. | 236,051 | 3,892 | ||
MFA Financial Inc. | 490,990 | 3,790 | ||
Blackstone Mortgage Trust | ||||
Inc. Class A | 124,276 | 3,706 | ||
Colony Capital Inc. Class A | 149,847 | 2,768 |
Invesco Mortgage Capital | |||
Inc. | 147,709 | 2,325 | |
CYS Investments Inc. | 200,574 | 1,767 | |
Redwood Trust Inc. | 101,914 | 1,508 | |
Apollo Commercial Real | |||
Estate Finance Inc. | 89,197 | 1,454 | |
PennyMac Mortgage | |||
Investment Trust | 86,323 | 1,316 | |
Hannon Armstrong | |||
Sustainable Infrastructure | |||
Capital Inc. | 53,733 | 1,288 | |
Capstead Mortgage Corp. | 126,989 | 1,260 | |
ARMOUR Residential REIT | |||
Inc. | 48,664 | 1,082 | |
* | iStar Inc. | 99,796 | 1,079 |
American Capital Mortgage | |||
Investment Corp. | 57,566 | 982 | |
New York Mortgage Trust | |||
Inc. | 144,795 | 875 | |
Ladder Capital Corp. | 62,712 | 833 | |
Altisource Residential Corp. | 72,414 | 794 | |
AG Mortgage Investment | |||
Trust Inc. | 37,341 | 591 | |
Apollo Residential | |||
Mortgage Inc. | 42,214 | 576 | |
Anworth Mortgage Asset | |||
Corp. | 113,134 | 553 | |
Western Asset Mortgage | |||
Capital Corp. | 47,240 | 500 | |
Resource Capital Corp. | 34,578 | 459 | |
Dynex Capital Inc. | 51,031 | 375 | |
Ares Commercial Real | |||
Estate Corp. | 29,648 | 373 | |
Arbor Realty Trust Inc. | 43,532 | 339 | |
Newcastle Investment | |||
Corp. | 69,762 | 324 | |
Simon Property Group Inc. | 1,274 | 274 | |
* | ESCROW WINTHROP | ||
REALTYTRUST | 23,515 | 199 | |
American Tower | |||
Corporation | 1,742 | 197 | |
Public Storage | 611 | 137 | |
Crown Castle International | |||
Corp. | 1,378 | 131 | |
Prologis Inc. | 2,158 | 115 | |
Welltower Inc. | 1,456 | 112 | |
Equinix Inc. | 286 | 105 | |
Weyerhaeuser Co. | 3,250 | 103 | |
Ventas Inc. | 1,378 | 100 | |
AvalonBay Communities Inc. | 559 | 98 | |
Equity Residential | 1,508 | 98 | |
^ | United Development | ||
Funding IV | 29,897 | 96 | |
Boston Properties Inc. | 637 | 89 | |
HCP Inc. | 1,911 | 75 | |
Vornado Realty Trust | 702 | 72 | |
General Growth Properties | |||
Inc. | 2,353 | 69 | |
Realty Income Corp. | 1,027 | 67 | |
Essex Property Trust Inc. | 273 | 62 | |
Digital Realty Trust Inc. | 611 | 61 | |
Host Hotels & Resorts Inc. | 3,094 | 55 | |
Kimco Realty Corp. | 1,703 | 51 | |
SL Green Realty Corp. | 416 | 49 | |
Federal Realty Investment | |||
Trust | 286 | 45 | |
Macerich Co. | 520 | 43 | |
VEREIT Inc. | 3,965 | 41 | |
Extra Space Storage Inc. | 507 | 41 | |
Iron Mountain Inc. | 1,040 | 40 |
Duke Realty Corp. | 1,417 | 40 | |
UDR Inc. | 1,079 | 39 | |
Brixmor Property Group Inc. | 1,248 | 36 | |
Alexandria Real Estate | |||
Equities Inc. | 299 | 33 | |
Regency Centers Corp. | 403 | 32 | |
Camden Property Trust | 364 | 32 | |
Apartment Investment & | |||
Management Co. | 650 | 29 | |
Mid-America Apartment | |||
Communities Inc. | 312 | 29 | |
National Retail Properties Inc. | 585 | 29 | |
Omega Healthcare Investors | |||
Inc. | 780 | 28 | |
Kilroy Realty Corp. | 377 | 27 | |
WP Carey Inc. | 403 | 27 | |
American Campus | |||
Communities Inc. | 533 | 27 | |
Spirit Realty Capital Inc. | 1,950 | 26 | |
Equity LifeStyle Properties | |||
Inc. | 325 | 25 | |
Liberty Property Trust | 598 | 25 | |
DDR Corp. | 1,274 | 24 | |
Forest City Realty Trust Inc. | |||
Class A | 988 | 23 | |
* | Life Storage Inc. | 252 | 23 |
Senior Housing Properties | |||
Trust | 975 | 22 | |
Douglas Emmett Inc. | 572 | 21 | |
Lamar Advertising Co. | |||
Class A | 338 | 21 | |
Highwoods Properties Inc. | 390 | 21 | |
EPR Properties | 260 | 20 | |
Hospitality Properties Trust | 663 | 20 | |
CubeSmart | 728 | 20 | |
Weingarten Realty Investors | 481 | 20 | |
Communications Sales & | |||
Leasing Inc. | 624 | 19 | |
Taubman Centers Inc. | 247 | 19 | |
Sun Communities Inc. | 247 | 19 | |
STORE Capital Corp. | 624 | 18 | |
Healthcare Trust of America | |||
Inc. Class A | 533 | 18 | |
DCT Industrial Trust Inc. | 364 | 18 | |
Gramercy Property Trust | 1,729 | 17 | |
Retail Properties of America | |||
Inc. | 975 | 17 | |
Healthcare Realty Trust Inc. | 468 | 16 | |
Tanger Factory Outlet | |||
Centers Inc. | 390 | 16 | |
* | Equity Commonwealth | 494 | 15 |
American Homes 4 Rent | |||
Class A | 702 | 15 | |
Medical Properties Trust Inc. | 975 | 15 | |
Hudson Pacific Properties Inc. | 442 | 15 | |
Post Properties Inc. | 221 | 15 | |
CyrusOne Inc. | 286 | 15 | |
Rayonier Inc. | 507 | 14 | |
First Industrial Realty Trust Inc. | 481 | 14 | |
Apple Hospitality REIT Inc. | 676 | 13 | |
LaSalle Hotel Properties | 468 | 13 | |
Piedmont Office Realty Trust | |||
Inc. Class A | 598 | 13 | |
Outfront Media Inc. | 572 | 13 | |
DuPont Fabros Technology Inc. | 299 | 13 | |
Paramount Group Inc. | 702 | 13 | |
National Health Investors Inc. | 156 | 13 | |
Sunstone Hotel Investors Inc. | 884 | 12 | |
Acadia Realty Trust | 325 | 12 | |
RLJ Lodging Trust | 507 | 12 |
43
Financials Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Education Realty Trust Inc. | 260 | 12 | |
Equity One Inc. | 377 | 12 | |
Urban Edge Properties | 403 | 12 | |
Brandywine Realty Trust | 715 | 12 | |
Physicians Realty Trust | 533 | 11 | |
Columbia Property Trust Inc. | 481 | 11 | |
Corporate Office Properties | |||
Trust | 390 | 11 | |
Empire State Realty Trust Inc. | 494 | 11 | |
QTS Realty Trust Inc. Class A | 195 | 11 | |
* | Washington Prime Group Inc. | 767 | 11 |
Care Capital Properties Inc. | 351 | 11 | |
Ryman Hospitality Properties | |||
Inc. | 195 | 10 | |
CoreSite Realty Corp. | 130 | 10 | |
NorthStar Realty Finance | |||
Corp. | 754 | 10 | |
CBL & Associates Properties | |||
Inc. | 702 | 10 | |
Retail Opportunity | |||
Investments Corp. | 442 | 10 | |
Kite Realty Group Trust | 338 | 10 | |
Mack-Cali Realty Corp. | 351 | 10 | |
Washington REIT | 299 | 10 | |
EastGroup Properties Inc. | 130 | 10 | |
Lexington Realty Trust | 871 | 9 | |
Cousins Properties Inc. | 832 | 9 | |
Pebblebrook Hotel Trust | 299 | 9 | |
DiamondRock Hospitality Co. | 832 | 9 | |
PS Business Parks Inc. | 78 | 9 | |
LTC Properties Inc. | 156 | 8 | |
Corrections Corp. of America | 481 | 8 | |
Xenia Hotels & Resorts Inc. | 455 | 8 | |
Select Income REIT | 273 | 7 | |
Pennsylvania REIT | 286 | 7 | |
STAG Industrial Inc. | 286 | 7 | |
Government Properties | |||
Income Trust | 299 | 7 | |
Sabra Health Care REIT Inc. | 273 | 7 | |
Monogram Residential Trust | |||
Inc. | 650 | 7 | |
New York REIT Inc. | 676 | 7 | |
Potlatch Corp. | 169 | 6 | |
American Assets Trust Inc. | 143 | 6 | |
Ramco-Gershenson | |||
Properties Trust | 325 | 6 | |
Chesapeake Lodging Trust | 247 | 6 | |
GEO Group Inc. | 312 | 6 | |
Parkway Properties Inc. | 338 | 6 | |
Rexford Industrial Realty Inc. | 260 | 6 | |
Global Net Lease Inc. | 689 | 6 | |
Alexander’s Inc. | 13 | 6 | |
Colony Starwood Homes | 169 | 5 | |
Franklin Street Properties | |||
Corp. | 416 | 5 | |
Summit Hotel Properties Inc. | 351 | 5 | |
Terreno Realty Corp. | 182 | 5 | |
Four Corners Property Trust | |||
Inc. | 234 | 5 | |
Agree Realty Corp. | 91 | 4 | |
New Senior Investment | |||
Group Inc. | 325 | 4 | |
FelCor Lodging Trust Inc. | 546 | 4 | |
Hersha Hospitality Trust | |||
Class A | 182 | 4 | |
CareTrust REIT Inc. | 234 | 3 | |
Saul Centers Inc. | 52 | 3 | |
Investors Real Estate Trust | 507 | 3 |
Monmouth Real Estate | ||||
Investment Corp. | 234 | 3 | ||
Chatham Lodging Trust | 156 | 3 | ||
Universal Health Realty | ||||
Income Trust | 52 | 3 | ||
Tier REIT Inc. | 195 | 3 | ||
InfraREIT Inc. | 156 | 3 | ||
National Storage Affiliates | ||||
Trust | 143 | 3 | ||
Silver Bay Realty Trust Corp. | 143 | 3 | ||
Ashford Hospitality Trust Inc. | 390 | 3 | ||
NorthStar Realty Europe Corp. | 260 | 3 | ||
Urstadt Biddle Properties Inc. | ||||
Class A | 117 | 3 | ||
Cedar Realty Trust Inc. | 351 | 3 | ||
Easterly Government | ||||
Properties Inc. | 130 | 3 | ||
Getty Realty Corp. | 104 | 2 | ||
First Potomac Realty Trust | 234 | 2 | ||
CatchMark Timber Trust Inc. | ||||
Class A | 156 | 2 | ||
Ashford Hospitality Prime Inc. | 104 | 2 | ||
One Liberty Properties Inc. | 52 | 1 | ||
RAIT Financial Trust | 377 | 1 | ||
78,000 | ||||
Real Estate Management & Development (0.0%) | ||||
* | CBRE Group Inc. Class A | 1,235 | 37 | |
* | FRP Holdings Inc. | 804 | 27 | |
Jones Lang LaSalle Inc. | 182 | 21 | ||
* | Howard Hughes Corp. | 143 | 17 | |
Realogy Holdings Corp. | 598 | 16 | ||
Kennedy-Wilson Holdings | ||||
Inc. | 403 | 9 | ||
Alexander & Baldwin Inc. | 182 | 7 | ||
* | St. Joe Co. | 221 | 4 | |
HFF Inc. Class A | 143 | 4 | ||
RE/MAX Holdings Inc. | ||||
Class A | 78 | 3 | ||
* | Tejon Ranch Co. | 78 | 2 | |
* | Altisource Portfolio Solutions | |||
SA | 52 | 2 | ||
* | Marcus & Millichap Inc. | 65 | 2 | |
* | Forestar Group Inc. | 117 | 1 | |
RMR Group Inc. Class A | 26 | 1 | ||
153 | ||||
Thrifts & Mortgage Finance (1.3%) | ||||
New York Community | ||||
Bancorp Inc. | 644,427 | 9,737 | ||
Radian Group Inc. | 283,469 | 3,886 | ||
* | MGIC Investment Corp. | 449,376 | 3,636 | |
Washington Federal Inc. | 120,544 | 3,194 | ||
Capitol Federal Financial | ||||
Inc. | 172,503 | 2,481 | ||
* | Essent Group Ltd. | 86,264 | 2,293 | |
EverBank Financial Corp. | 116,065 | 2,227 | ||
Northwest Bancshares Inc. | 128,088 | 1,988 | ||
Astoria Financial Corp. | 120,807 | 1,848 | ||
TFS Financial Corp. | 94,901 | 1,722 | ||
Provident Financial | ||||
Services Inc. | 78,793 | 1,700 | ||
Kearny Financial Corp. | 123,815 | 1,695 | ||
*,^ | BofI Holding Inc. | 75,101 | 1,615 | |
Beneficial Bancorp Inc. | 99,830 | 1,506 | ||
WSFS Financial Corp. | 37,199 | 1,447 | ||
* | PHH Corp. | 70,864 | 1,084 | |
Meridian Bancorp Inc. | 65,910 | 1,030 | ||
*,^ | LendingTree Inc. | 10,311 | 1,000 | |
* | Walker & Dunlop Inc. | 36,833 | 976 |
Northfield Bancorp Inc. | 57,672 | 916 | |
TrustCo Bank Corp. | 126,401 | 903 | |
United Financial Bancorp | |||
Inc. | 63,091 | 883 | |
*,^ | Nationstar Mortgage | ||
Holdings Inc. | 54,480 | 865 | |
* | Flagstar Bancorp Inc. | 29,961 | 841 |
Oritani Financial Corp. | 50,745 | 816 | |
Dime Community | |||
Bancshares Inc. | 42,323 | 747 | |
Federal Agricultural | |||
Mortgage Corp. | 11,923 | 489 | |
* | NMI Holdings Inc. Class A | 55,581 | 441 |
Waterstone Financial Inc. | 25,757 | 435 | |
* | Ocwen Financial Corp. | 114,292 | 407 |
Clifton Bancorp Inc. | 24,664 | 366 | |
* | PennyMac Financial | ||
Services Inc. Class A | 21,652 | 358 | |
* | Walter Investment | ||
Management Corp. | 20,728 | 78 | |
53,610 | |||
Total Common Stocks | |||
(Cost $3,951,971) | 3,987,644 | ||
Temporary Cash Investment (0.1%)1 | |||
Money Market Fund (0.1%) | |||
2,3 | Vanguard Market Liquidity | ||
Fund, 0.612% | |||
(Cost $4,359) | 43,594 | 4,360 | |
Total Investments (100.3%) | |||
(Cost $3,956,330) | 3,992,004 | ||
Other Assets and Liabilities (-0.3%) | |||
Other Assets4 | 650,741 | ||
Liabilities3 | (663,704) | ||
(12,963) | |||
Net Assets (100%) | 3,979,041 | ||
Amount | |||
($000) | |||
Statement of Assets and Liabilities | |||
Assets | |||
Investments in Securities, at Value | |||
Unaffiliated Issuers | 3,987,644 | ||
Affiliated Vanguard Funds | 4,360 | ||
Total Investments in Securities | 3,992,004 | ||
Investment in Vanguard | 298 | ||
Receivables for Investment | |||
Securities Sold | 611,361 | ||
Receivables for Accrued Income | 6,644 | ||
Receivables for Capital Shares Issued | 32,422 | ||
Other Assets4 | 16 | ||
Total Assets | 4,642,745 | ||
Liabilities | |||
Payables for Investment Securities | |||
Purchased | 650,852 | ||
Collateral for Securities on Loan | 4,359 | ||
Payables for Capital Shares Redeemed | 6,585 | ||
Payables to Vanguard | 1,372 | ||
Other Liabilities | 536 | ||
Total Liabilities | 663,704 | ||
Net Assets | 3,979,041 |
44
Financials Index Fund
At August 31, 2016, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 4,081,321 |
Undistributed Net Investment Income | 19,461 |
Accumulated Net Realized Losses | (157,408) |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 35,674 |
Futures Contracts | (7) |
Net Assets | 3,979,041 |
ETF Shares—Net Assets | |
Applicable to 73,502,016 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 3,734,695 |
Net Asset Value Per Share— | |
ETF Shares | $50.81 |
Admiral Shares—Net Assets | |
Applicable to 9,595,306 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 244,346 |
Net Asset Value Per Share— | |
Admiral Shares | $25.47 |
• 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 $4,128,000.
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 100.3% 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 Includes $4,359,000 of collateral received for securities on loan.
4 Cash of $16,000 has 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.
45
Financials Index Fund
Statement of Operations
Year Ended | |
August 31, 2016 | |
($000) | |
Investment Income | |
Income | |
Dividends | 87,921 |
Interest1 | 3 |
Securities Lending—Net | 365 |
Total Income | 88,289 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 604 |
Management and Administrative— | |
ETF Shares | 2,236 |
Management and Administrative— | |
Admiral Shares | 138 |
Marketing and Distribution— | |
ETF Shares | 256 |
Marketing and Distribution— | |
Admiral Shares | 23 |
Custodian Fees | 118 |
Auditing Fees | 36 |
Shareholders’ Reports—ETF Shares | 121 |
Shareholders’ Reports—Admiral Shares | 4 |
Trustees’ Fees and Expenses | 2 |
Total Expenses | 3,538 |
Net Investment Income | 84,751 |
Realized Net Gain (Loss) | |
Investment Securities Sold1 | 247,688 |
Futures Contracts | 88 |
Realized Net Gain (Loss) | 247,776 |
Change in Unrealized Appreciation | |
(Depreciation) | |
Investment Securities | 11,905 |
Futures Contracts | (7) |
Change in Unrealized Appreciation | |
(Depreciation) | 11,898 |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 344,425 |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $3,000 and $0, respectively. |
Statement of Changes in Net Assets
Year Ended August 31, | ||
2016 | 2015 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 84,751 | 57,404 |
Realized Net Gain (Loss) | 247,776 | 249,955 |
Change in Unrealized Appreciation (Depreciation) | 11,898 | (293,584) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 344,425 | 13,775 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (74,919) | (48,665) |
Admiral Shares | (4,706) | (3,179) |
Realized Capital Gain | ||
ETF Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (79,625) | (51,844) |
Capital Share Transactions | ||
ETF Shares | 403,306 | 927,131 |
Admiral Shares | 26,082 | 49,405 |
Net Increase (Decrease) from Capital Share Transactions | 429,388 | 976,536 |
Total Increase (Decrease) | 694,188 | 938,467 |
Net Assets | ||
Beginning of Period | 3,284,853 | 2,346,386 |
End of Period1 | 3,979,041 | 3,284,853 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $19,461,000 and $14,335,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
46
Financials Index Fund
Financial Highlights
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $47.70 | $47.32 | $39.80 | $32.03 | $28.25 |
Investment Operations | |||||
Net Investment Income | 1.108 | .917 | . 876 | . 825 | .639 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 3.070 | .349 | 7.494 | 7.747 | 3.747 |
Total from Investment Operations | 4.178 | 1.266 | 8.370 | 8.572 | 4.386 |
Distributions | |||||
Dividends from Net Investment Income | (1.068) | (. 886) | (.850) | (.802) | (. 606) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.068) | (. 886) | (.850) | (.802) | (. 606) |
Net Asset Value, End of Period | $50.81 | $47.70 | $47.32 | $39.80 | $32.03 |
Total Return | 8.93% | 2.63% | 21.20% | 27.10% | 15.87% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $3,735 | $3,081 | $2,191 | $1,464 | $768 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.12% | 0.14% | 0.14% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.39% | 1.99% | 2.00% | 2.26% | 2.16% |
Portfolio Turnover Rate1 | 21% | 4% | 5% | 9% | 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 | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $23.91 | $23.72 | $19.95 | $16.05 | $14.16 |
Investment Operations | |||||
Net Investment Income | 0.556 | .460 | .438 | .414 | . 320 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 1.539 | .174 | 3.758 | 3.888 | 1.874 |
Total from Investment Operations | 2.095 | .634 | 4.196 | 4.302 | 2.194 |
Distributions | |||||
Dividends from Net Investment Income | (. 535) | (.444) | (. 426) | (. 402) | (. 304) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (. 535) | (.444) | (. 426) | (. 402) | (. 304) |
Net Asset Value, End of Period | $25.47 | $23.91 | $23.72 | $19.95 | $16.05 |
Total Return1 | 8.96% | 2.64% | 21.19% | 27.13% | 15.84% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $244 | $204 | $155 | $132 | $73 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.12% | 0.14% | 0.14% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.39% | 1.99% | 2.00% | 2.26% | 2.16% |
Portfolio Turnover Rate2 | 21% | 4% | 5% | 9% | 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.
47
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. 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, 2016, 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, 2013–2016), 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 subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income
48
Financials Index Fund
represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
6. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at August 31, 2016, 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, 2016, the fund had contributed to Vanguard capital in the amount of $298,000, representing 0.01% of the fund’s net assets and 0.12% 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, 2016, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 3,987,349 | — | 295 |
Temporary Cash Investments | 4,360 | — | — |
Futures Contracts—Liabilities1 | (7) | — | — |
Total | 3,991,702 | — | 295 |
1 Represents variation margin on the last day of the reporting period. |
49
Financials Index Fund
D. At August 31, 2016, 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 2016 | 24 | 2,603 | (7) |
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, 2016, the fund realized $255,436,000 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, 2016 the fund had $20,578,000 of ordinary income available for distribution. At August 31, 2016, the fund had available capital losses totaling $157,415,000 to offset future net capital gains. Of this amount, $144,329,000 is subject to expiration dates; $76,963,000 may be used to offset future net capital gains through August 31, 2018 and $67,366,000 through August 31, 2019. Capital losses of $13,086,000 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, 2016, the cost of investment securities for tax purposes was $3,956,330,000. Net unrealized appreciation of investment securities for tax purposes was $35,674,000, consisting of unrealized gains of $196,719,000 on securities that had risen in value since their purchase and $161,045,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the year ended August 31, 2016, the fund purchased $2,422,347,000 of investment securities and sold $1,966,729,000 of investment securities, other than temporary cash investments. Purchases and sales include $1,511,400,000 and $1,205,796,000, 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, | ||||
2016 | 2015 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 1,621,931 | 34,106 | 1,583,939 | 31,943 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (1,218,625) | (25,200) | (656,808) | (13,650) |
Net Increase (Decrease)—ETF Shares | 403,306 | 8,906 | 927,131 | 18,293 |
Admiral Shares | ||||
Issued | 110,433 | 4,670 | 96,095 | 3,886 |
Issued in Lieu of Cash Distributions | 4,147 | 175 | 2,813 | 114 |
Redeemed | (88,498) | (3,771) | (49,503) | (2,020) |
Net Increase (Decrease) —Admiral Shares | 26,082 | 1,074 | 49,405 | 1,980 |
At August 31, 2016, one shareholder was the record or beneficial owner of 35% 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, 2016, that would require recognition or disclosure in these financial statements.
50
Health Care Index Fund
Fund Profile
As of August 31, 2016
Share-Class Characteristics | ||
ETF | Admiral | |
Shares | Shares | |
Ticker Symbol | VHT | VHCIX |
Expense Ratio1 | 0.09% | 0.10% |
30-Day SEC Yield | 1.36% | 1.36% |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | |||
Health | MSCI | ||
Care | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 351 | 346 | 2,476 |
Median Market Cap | $82.7B | $82.7B | $51.2B |
Price/Earnings Ratio | 24.5x | 24.5x | 23.4x |
Price/Book Ratio | 3.8x | 3.8x | 2.8x |
Return on Equity | 15.7% | 15.7% | 16.7% |
Earnings Growth Rate | 9.1% | 9.1% | 7.4% |
Dividend Yield | 1.5% | 1.5% | 2.0% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 7% | — | — |
Short-Term Reserves | 0.0% | — | — |
Volatility Measures | ||
MSCI US | ||
IMI/Health Care | MSCI US | |
25/50 | IMI/2500 | |
R-Squared | 1.00 | 0.63 |
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) | |
Biotechnology | 22.4% |
Health Care Distributors | 3.2 |
Health Care Equipment | 18.2 |
Health Care Facilities | 2.1 |
Health Care Services | 3.4 |
Health Care Supplies | 1.8 |
Health Care Technology | 1.4 |
Life Sciences Tools & Services | 5.1 |
Managed Health Care | 8.8 |
Pharmaceuticals | 33.6 |
Ten Largest Holdings (% of total net assets) | ||
Johnson & Johnson | Pharmaceuticals | 10.2% |
Pfizer Inc. | Pharmaceuticals | 6.5 |
Merck & Co. Inc. | Pharmaceuticals | 5.4 |
UnitedHealth | Managed | |
Group Inc. | Health Care | 4.0 |
Amgen Inc. | Biotechnology | 4.0 |
Medtronic | Health Care | |
Equipment | 3.8 | |
Gilead Sciences Inc. | Biotechnology | 3.2 |
AbbVie Inc. | Biotechnology | 3.2 |
Bristol-Myers | ||
Squibb Co. | Pharmaceuticals | 3.0 |
Allergan plc | Pharmaceuticals | 2.9 |
Top Ten | 46.2% | |
The holdings listed exclude any temporary cash investments and equity index products. |
1 The expense ratios shown are from the prospectus dated December 22, 2015, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2016, the expense ratios were 0.10% for ETF Shares and 0.10% for Admiral Shares.
51
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.
Cumulative Performance: August 31, 2006–August 31, 2016
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_par11x12x1.jpg)
Average Annual Total Returns | Final Value | |||
Periods Ended August 31, 2016 | of a $10,000 | |||
One Year | Five Years | Ten Years | Investment | |
Health Care Index Fund ETF Shares | ||||
Net Asset Value | 2.61% | 19.21% | 10.80% | $27,888 |
Health Care Index Fund ETF Shares | ||||
Market Price | 2.58 | 19.21 | 10.79 | 27,873 |
Spliced US IMI/Health Care 25/50 | 2.62 | 19.31 | 10.95 | 28,268 |
Health/Biotechnology Funds Average | -7.98 | 19.45 | 11.46 | 29,592 |
MSCI US IMI/2500 | 11.48 | 14.51 | 7.80 | 21,187 |
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 | 2.61% | 19.22% | 10.79% | $278,654 |
Spliced US IMI/Health Care 25/50 | 2.62 | 19.31 | 10.95 | 282,678 |
MSCI US IMI/2500 | 11.48 | 14.51 | 7.80 | 211,866 |
See Financial Highlights for dividend and capital gains information.
52
Health Care Index Fund
Fiscal-Year Total Returns (%): August 31, 2006--August 31, 2016
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_par12x1x1.jpg)
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2006--August 31, 2016 | |||
One Year | Five Years | Ten Years | |
Health Care Index Fund ETF Shares Market Price | 2.58% | 140.75% | 178.73% |
Health Care Index Fund ETF Shares Net Asset Value | 2.61 | 140.75 | 178.88 |
Spliced US IMI/Health Care 25/50 | 2.62 | 141.73 | 182.68 |
Average Annual Total Returns: Periods Ended June 30, 2016
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 | -5.08% | 16.96% | 11.31% | |
Net Asset Value | -5.02 | 16.97 | 11.32 | |
Admiral Shares | 2/5/2004 | -5.02 | 16.97 | 11.31 |
See Financial Highlights for dividend and capital gains information.
53
Health Care Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2016
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Market | |||
Value• | |||
Shares | ($000) | ||
Common Stocks (100.0%) | |||
Biotechnology (22.4%) | |||
Amgen Inc. | 1,512,833 | 257,272 | |
Gilead Sciences Inc. | 2,681,998 | 210,215 | |
AbbVie Inc. | 3,257,101 | 208,780 | |
* | Celgene Corp. | 1,560,126 | 166,528 |
* | Biogen Inc. | 441,218 | 134,849 |
* | Regeneron | ||
Pharmaceuticals Inc. | 155,850 | 61,179 | |
* | Alexion Pharmaceuticals | ||
Inc. | 451,173 | 56,785 | |
* | Vertex Pharmaceuticals | ||
Inc. | 498,215 | 47,086 | |
* | BioMarin Pharmaceutical | ||
Inc. | 327,006 | 30,703 | |
* | Incyte Corp. | 340,182 | 27,589 |
* | Medivation Inc. | 331,649 | 26,718 |
* | Alkermes plc | 304,481 | 13,327 |
* | United Therapeutics Corp. | 89,717 | 10,971 |
* | Alnylam Pharmaceuticals | ||
Inc. | 155,165 | 10,838 | |
* | Seattle Genetics Inc. | 211,794 | 9,435 |
* | Neurocrine Biosciences | ||
Inc. | 174,569 | 8,460 | |
* | Ionis Pharmaceuticals Inc. | 242,281 | 7,184 |
*,^ | ACADIA Pharmaceuticals | ||
Inc. | 192,615 | 6,189 | |
*,^ | OPKO Health Inc. | 672,934 | 6,124 |
* | TESARO Inc. | 71,077 | 6,020 |
*,^ | Intercept Pharmaceuticals | ||
Inc. | 34,681 | 5,144 | |
* | Exelixis Inc. | 460,758 | 5,137 |
* | Cepheid | 146,005 | 5,011 |
* | Ultragenyx | ||
Pharmaceutical Inc. | 74,569 | 4,916 | |
*,^ | Kite Pharma Inc. | 79,175 | 4,562 |
* | Ligand Pharmaceuticals | ||
Inc. | 39,875 | 4,119 | |
* | Exact Sciences Corp. | 214,046 | 3,953 |
*,^ | Novavax Inc. | 540,976 | 3,700 |
* | Bluebird Bio Inc. | 73,863 | 3,644 |
* | ARIAD Pharmaceuticals | ||
Inc. | 347,127 | 3,589 | |
* | Radius Health Inc. | 60,311 | 3,307 |
* | Puma Biotechnology Inc. | 55,453 | 3,280 |
* | Ironwood | ||
Pharmaceuticals Inc. | |||
Class A | 245,850 | 3,280 | |
* | Intrexon Corp. | 119,051 | 3,005 |
* | Prothena Corp. plc | 58,830 | 2,940 |
* | Myriad Genetics Inc. | 142,641 | 2,904 |
* | Juno Therapeutics Inc. | 95,736 | 2,832 |
* | Ophthotech Corp. | 53,004 | 2,799 |
* | Alder Biopharmaceuticals | ||
Inc. | 80,529 | 2,655 | |
* | Spark Therapeutics Inc. | 45,057 | 2,549 |
* | Portola Pharmaceuticals | ||
Inc. | 113,800 | 2,317 | |
* | Sarepta Therapeutics Inc. | 87,275 | 2,275 |
* | Five Prime Therapeutics | ||
Inc. | 51,165 | 2,250 | |
* | Acorda Therapeutics Inc. | 91,515 | 2,204 |
* | Halozyme Therapeutics Inc. 219,631 | 2,152 | |
* | Repligen Corp. | 67,799 | 2,101 |
*,^ | Agios Pharmaceuticals Inc. | 56,705 | 2,089 |
* | Sage Therapeutics Inc. | 51,206 | 1,903 |
* | Emergent BioSolutions Inc. | 68,670 | 1,830 |
* | Achillion Pharmaceuticals | ||
Inc. | 218,002 | 1,801 | |
* | FibroGen Inc. | 99,251 | 1,718 |
*,^ | Clovis Oncology Inc. | 69,182 | 1,714 |
* | Acceleron Pharma Inc. | 55,765 | 1,674 |
* | AMAG Pharmaceuticals Inc. | 69,935 | 1,667 |
* | MacroGenics Inc. | 55,081 | 1,642 |
* | Momenta Pharmaceuticals | ||
Inc. | 131,548 | 1,581 | |
* | Insmed Inc. | 117,668 | 1,524 |
*,^ | MiMedx Group Inc. | 209,691 | 1,518 |
* | Amicus Therapeutics Inc. | 226,230 | 1,513 |
* | Coherus Biosciences Inc. | 46,902 | 1,396 |
* | Xencor Inc. | 64,719 | 1,368 |
*,^ | Lexicon Pharmaceuticals | ||
Inc. | 93,272 | 1,295 | |
*,^ | Inovio Pharmaceuticals Inc. | 138,929 | 1,274 |
* | Raptor Pharmaceutical | ||
Corp. | 164,756 | 1,227 | |
* | Vanda Pharmaceuticals Inc. | 77,776 | 1,196 |
*,^ | Heron Therapeutics Inc. | 61,903 | 1,151 |
* | Dynavax Technologies | ||
Corp. | 73,085 | 1,145 | |
* | Merrimack Pharmaceuticals | ||
Inc. | 244,455 | 1,129 | |
*,^ | Eagle Pharmaceuticals Inc. | 18,873 | 1,128 |
*,^ | ZIOPHARM Oncology Inc. | 211,093 | 1,070 |
* | Retrophin Inc. | 62,060 | 994 |
* | Blueprint Medicines Corp. | 35,578 | 992 |
* | Genomic Health Inc. | 36,395 | 963 |
PDL BioPharma Inc. | 310,000 | 902 | |
* | Progenics Pharmaceuticals | ||
Inc. | 138,362 | 869 | |
*,^ | Geron Corp. | 313,509 | 843 |
* | Array BioPharma Inc. | 243,938 | 837 |
* | Arrowhead | ||
Pharmaceuticals Inc. | 119,882 | 831 | |
*,^ | Axovant Sciences Ltd. | 50,625 | 831 |
* | Arena Pharmaceuticals Inc. | 483,902 | 750 |
* | Spectrum Pharmaceuticals | ||
Inc. | 138,242 | 734 | |
*,^ | Advaxis Inc. | 62,370 | 719 |
* | Global Blood Therapeutics | ||
Inc. | 40,671 | 691 | |
* | Otonomy Inc. | 41,855 | 689 |
*,^ | Organovo Holdings Inc. | 175,144 | 676 |
* | Atara Biotherapeutics Inc. | 34,283 | 670 |
* | Celldex Therapeutics Inc. | 196,819 | 653 |
*,^ | Keryx Biopharmaceuticals | ||
Inc. | 159,064 | 652 | |
*,^ | Aduro Biotech Inc. | 44,683 | 630 |
* | Enanta Pharmaceuticals | ||
Inc. | 28,520 | 627 | |
*,^ | Insys Therapeutics Inc. | 42,983 | 613 |
* | Loxo Oncology Inc. | 21,435 | 590 |
* | Epizyme Inc. | 80,753 | 590 |
* | Sangamo BioSciences Inc. | 133,958 | 575 |
*,^ | Foundation Medicine Inc. | 27,671 | 568 |
*,^ | Bellicum Pharmaceuticals | ||
Inc. | 32,522 | 560 | |
* | Aimmune Therapeutics Inc. 37,678 | 557 | |
*,^ | TG Therapeutics Inc. | 84,001 | 533 |
* | PTC Therapeutics Inc. | 61,835 | 508 |
*,^ | Immunomedics Inc. | 180,775 | 501 |
* | ImmunoGen Inc. | 174,476 | 490 |
* | BioCryst Pharmaceuticals | ||
Inc. | 117,040 | 481 | |
* | Versartis Inc. | 38,697 | 480 |
* | Trevena Inc. | 68,271 | 463 |
*,^ | MannKind Corp. | 574,193 | 460 |
*,^ | XBiotech Inc. | 35,247 | 458 |
* | Natera Inc. | 45,338 | 451 |
* | NewLink Genetics Corp. | 44,237 | 450 |
* | Karyopharm Therapeutics | ||
Inc. | 42,978 | 428 | |
* | REGENXBIO Inc. | 36,498 | 427 |
* | OncoMed Pharmaceuticals | ||
Inc. | 39,953 | 399 | |
* | Chimerix Inc. | 82,868 | 399 |
*,^ | NantKwest Inc. | 48,283 | 391 |
*,^ | CytomX Therapeutics Inc. | 32,169 | 377 |
* | OvaScience Inc. | 58,550 | 357 |
*,^ | Sorrento Therapeutics Inc. | 45,987 | 306 |
* | Esperion Therapeutics Inc. | 27,153 | 292 |
*,^ | Seres Therapeutics Inc. | 27,459 | 288 |
* | Arbutus Biopharma Corp. | 74,294 | 283 |
* | Voyager Therapeutics Inc. | 21,595 | 263 |
* | Cara Therapeutics Inc. | 38,288 | 208 |
* | Regulus Therapeutics Inc. | 63,458 | 201 |
* | Adverum Biotechnologies | ||
Inc. | 53,804 | 193 | |
^ | Osiris Therapeutics Inc. | 36,550 | 183 |
* | Infinity Pharmaceuticals | ||
Inc. | 89,043 | 135 | |
* | Immune Design Corp. | 16,412 | 116 |
* | Zafgen Inc. | 38,276 | 114 |
* | Aegerion Pharmaceuticals | ||
Inc. | 57,002 | 93 | |
* | Dicerna Pharmaceuticals | ||
Inc. | 24,916 | 78 | |
1,458,842 | |||
Health Care Equipment & Supplies (19.9%) | |||
Medtronic plc | 2,821,439 | 245,550 | |
Abbott Laboratories | 2,959,231 | 124,347 | |
Danaher Corp. | 1,248,530 | 101,643 |
54
Health Care Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Stryker Corp. | 677,978 | 78,415 | |
Becton Dickinson and Co. | 427,481 | 75,754 | |
* | Boston Scientific Corp. | 2,733,056 | 65,101 |
* | Intuitive Surgical Inc. | 76,667 | 52,626 |
Zimmer Biomet Holdings | |||
Inc. | 402,215 | 52,131 | |
* | Edwards Lifesciences | ||
Corp. | 426,480 | 49,113 | |
Baxter International Inc. | 993,229 | 46,414 | |
St. Jude Medical Inc. | 572,630 | 44,619 | |
CR Bard Inc. | 147,911 | 32,665 | |
Dentsply Sirona Inc. | 471,761 | 28,994 | |
* | IDEXX Laboratories Inc. | 180,363 | 20,323 |
* | Hologic Inc. | 505,389 | 19,417 |
ResMed Inc. | 282,899 | 18,867 | |
* | Varian Medical Systems | ||
Inc. | 191,773 | 18,435 | |
Cooper Cos. Inc. | 97,498 | 18,127 | |
Teleflex Inc. | 87,820 | 16,079 | |
* | DexCom Inc. | 168,055 | 15,308 |
* | Align Technology Inc. | 145,418 | 13,509 |
STERIS plc | 173,254 | 12,246 | |
West Pharmaceutical | |||
Services Inc. | 147,194 | 12,045 | |
* | ABIOMED Inc. | 81,823 | 9,650 |
Hill-Rom Holdings Inc. | 131,721 | 7,812 | |
* | Alere Inc. | 173,994 | 6,808 |
* | NuVasive Inc. | 100,420 | 6,575 |
Cantel Medical Corp. | 75,605 | 5,717 | |
* | Masimo Corp. | 94,588 | 5,594 |
* | LivaNova plc | 88,947 | 5,339 |
* | Integra LifeSciences | ||
Holdings Corp. | 60,028 | 5,188 | |
* | Insulet Corp. | 114,532 | 4,848 |
* | Wright Medical Group NV | 186,062 | 4,607 |
* | Neogen Corp. | 75,662 | 4,469 |
* | Nevro Corp. | 42,860 | 4,047 |
* | ICU Medical Inc. | 30,674 | 3,827 |
* | Haemonetics Corp. | 102,216 | 3,798 |
* | Penumbra Inc. | 52,646 | 3,715 |
* | Halyard Health Inc. | 93,968 | 3,425 |
* | Globus Medical Inc. | 143,413 | 3,332 |
* | NxStage Medical Inc. | 129,736 | 2,966 |
*,^ | Zeltiq Aesthetics Inc. | 71,612 | 2,730 |
* | Natus Medical Inc. | 66,689 | 2,595 |
* | Cynosure Inc. Class A | 47,457 | 2,472 |
Abaxis Inc. | 45,342 | 2,274 | |
Analogic Corp. | 24,763 | 2,204 | |
* | Merit Medical Systems Inc. | 88,623 | 2,148 |
* | Spectranetics Corp. | 86,243 | 2,122 |
CONMED Corp. | 47,234 | 1,927 | |
* | Inogen Inc. | 32,182 | 1,867 |
* | Endologix Inc. | 148,469 | 1,805 |
* | Orthofix International NV | 37,845 | 1,707 |
* | Vascular Solutions Inc. | 34,788 | 1,676 |
Meridian Bioscience Inc. | 84,217 | 1,638 | |
* | Cardiovascular Systems Inc. | 65,558 | 1,604 |
* | Anika Therapeutics Inc. | 30,161 | 1,425 |
Atrion Corp. | 2,938 | 1,328 | |
* | Integer Holdings Corp. | 54,863 | 1,328 |
*,^ | Cerus Corp. | 194,689 | 1,232 |
* | Quidel Corp. | 54,808 | 1,193 |
* | AtriCure Inc. | 64,660 | 995 |
* | OraSure Technologies Inc. | 113,899 | 976 |
* | AngioDynamics Inc. | 58,489 | 967 |
* | Accuray Inc. | 161,188 | 859 |
* | K2M Group Holdings Inc. | 53,714 | 855 |
Invacare Corp. | 60,284 | 716 | |
*,^ | Rockwell Medical Inc. | 97,050 | 705 |
*,^ | GenMark Diagnostics Inc. | 82,424 | 702 |
* | Glaukos Corp. | 22,834 | 681 |
*,^ | Novocure Ltd. | 82,842 | 636 |
* | STAAR Surgical Co. | 58,682 | 515 |
* | ConforMIS Inc. | 44,807 | 359 |
* | Tandem Diabetes Care Inc. | 36,499 | 260 |
* | Wright Medical Group Inc. | ||
CVR | 14,554 | 20 | |
1,297,966 | |||
Health Care Providers & Services (17.5%) | |||
UnitedHealth Group Inc. | 1,914,720 | 260,498 | |
* | Express Scripts Holding | ||
Co. | 1,273,931 | 92,615 | |
McKesson Corp. | 453,151 | 83,661 | |
Aetna Inc. | 706,176 | 82,707 | |
Cigna Corp. | 516,740 | 66,277 | |
Anthem Inc. | 529,712 | 66,256 | |
Humana Inc. | 300,207 | 53,650 | |
Cardinal Health Inc. | 656,187 | 52,278 | |
* | HCA Holdings Inc. | 630,102 | 47,604 |
AmerisourceBergen | |||
Corp. Class A | 369,476 | 32,133 | |
* | Laboratory Corp. of | ||
America Holdings | 206,302 | 28,249 | |
* | Henry Schein Inc. | 165,366 | 27,085 |
Quest Diagnostics Inc. | 284,907 | 23,596 | |
* | Centene Corp. | 343,407 | 23,451 |
Universal Health Services | |||
Inc. Class B | 181,487 | 21,875 | |
* | DaVita HealthCare | ||
Partners Inc. | 332,730 | 21,504 | |
* | MEDNAX Inc. | 188,468 | 12,396 |
* | VCA Inc. | 162,770 | 11,526 |
* | WellCare Health Plans Inc. | 89,188 | 10,052 |
* | Envision Healthcare | ||
Holdings Inc. | 375,795 | 8,065 | |
Patterson Cos. Inc. | 169,807 | 7,811 | |
* | Acadia Healthcare Co. Inc. | 149,682 | 7,662 |
HealthSouth Corp. | 181,333 | 7,382 | |
* | Amsurg Corp. | 110,382 | 7,166 |
* | Brookdale Senior Living | ||
Inc. | 374,292 | 6,442 | |
* | Team Health Holdings Inc. | 148,968 | 4,961 |
* | LifePoint Health Inc. | 86,851 | 4,916 |
* | Tenet Healthcare Corp. | 200,090 | 4,782 |
Chemed Corp. | 33,988 | 4,586 | |
Owens & Minor Inc. | 126,173 | 4,337 | |
* | Molina Healthcare Inc. | 79,784 | 4,293 |
* | AMN Healthcare Services | ||
Inc. | 96,793 | 3,507 | |
* | Premier Inc. Class A | 91,767 | 2,904 |
* | HealthEquity Inc. | 87,559 | 2,851 |
* | Magellan Health Inc. | 47,013 | 2,685 |
* | Amedisys Inc. | 53,966 | 2,597 |
* | Air Methods Corp. | 73,691 | 2,592 |
* | Diplomat Pharmacy Inc. | 79,797 | 2,497 |
* | Select Medical Holdings | ||
Corp. | 209,992 | 2,495 | |
* | Community Health | ||
Systems Inc. | 229,175 | 2,448 | |
* | Surgical Care Affiliates Inc. | 55,711 | 2,298 |
Kindred Healthcare Inc. | 171,647 | 1,895 | |
Ensign Group Inc. | 96,374 | 1,811 | |
* | Healthways Inc. | 66,270 | 1,657 |
US Physical Therapy Inc. | 25,022 | 1,578 | |
* | PharMerica Corp. | 61,612 | 1,556 |
*,^ | Adeptus Health Inc. | ||
Class A | 30,546 | 1,300 |
National HealthCare Corp. | 19,645 | 1,277 | |
* | Providence Service Corp. | 26,352 | 1,242 |
Aceto Corp. | 59,730 | 1,206 | |
* | LHC Group Inc. | 30,665 | 1,090 |
* | Triple-S Management Corp. | ||
Class B | 47,963 | 1,050 | |
Landauer Inc. | 19,366 | 920 | |
* | Capital Senior Living Corp. | 53,076 | 912 |
* | CorVel Corp. | 21,309 | 819 |
* | Surgery Partners Inc. | 38,170 | 735 |
Universal American Corp. | 97,729 | 700 | |
*,^ | Teladoc Inc. | 34,288 | 611 |
* | Civitas Solutions Inc. | 30,462 | 554 |
* | Quorum Health Corp. | 58,940 | 363 |
*,^ | AAC Holdings Inc. | 18,461 | 361 |
1,138,327 | |||
Health Care Technology (1.4%) | |||
* | Cerner Corp. | 614,214 | 39,642 |
* | IMS Health Holdings Inc. | 331,144 | 9,875 |
* | athenahealth Inc. | 79,090 | 9,683 |
* | Veeva Systems Inc. | ||
Class A | 174,861 | 7,155 | |
* | Medidata Solutions Inc. | 115,437 | 6,245 |
* | Allscripts Healthcare | ||
Solutions Inc. | 360,135 | 4,649 | |
* | HMS Holdings Corp. | 172,674 | 3,766 |
* | Omnicell Inc. | 71,768 | 2,697 |
*,^ | Inovalon Holdings Inc. | ||
Class A | 134,810 | 2,117 | |
* | Press Ganey Holdings Inc. | 42,599 | 1,716 |
* | HealthStream Inc. | 51,185 | 1,361 |
Quality Systems Inc. | 91,928 | 1,082 | |
* | Evolent Health Inc. Class A | 34,141 | 849 |
Computer Programs & | |||
Systems Inc. | 21,885 | 565 | |
* | Castlight Health Inc. | ||
Class B | 83,477 | 349 | |
91,751 | |||
Life Sciences Tools & Services (5.1%) | |||
Thermo Fisher Scientific | |||
Inc. | 792,556 | 120,619 | |
* | Illumina Inc. | 296,518 | 49,916 |
Agilent Technologies Inc. | 660,262 | 31,019 | |
* | Waters Corp. | 163,066 | 25,652 |
* | Mettler-Toledo | ||
International Inc. | 53,894 | 21,723 | |
* | Quintiles Transnational | ||
Holdings Inc. | 180,748 | 13,972 | |
PerkinElmer Inc. | 219,588 | 11,693 | |
* | Charles River Laboratories | ||
International Inc. | 95,079 | 7,912 | |
Bio-Techne Corp. | 74,703 | 7,870 | |
* | PAREXEL International | ||
Corp. | 106,497 | 7,245 | |
* | Bio-Rad Laboratories Inc. | ||
Class A | 41,432 | 6,165 | |
* | VWR Corp. | 184,571 | 5,151 |
Bruker Corp. | 228,941 | 5,119 | |
* | INC Research Holdings Inc. | ||
Class A | 107,143 | 4,675 | |
* | PRA Health Sciences Inc. | 67,210 | 3,397 |
* | Cambrex Corp. | 63,661 | 2,727 |
* | Luminex Corp. | 77,872 | 1,641 |
* | Pacific Biosciences of | ||
California Inc. | 166,870 | 1,390 | |
*,^ | Accelerate Diagnostics Inc. | 61,304 | 1,341 |
*,^ | Albany Molecular Research | ||
Inc. | 54,052 | 801 |
55
Health Care Index Fund
Market | ||||
Value• | ||||
Shares | ($000) | |||
* | Sequenom Inc. | 241,019 | 576 | |
* | Fluidigm Corp. | 52,091 | 475 | |
331,079 | ||||
Other (0.0%)1 | ||||
* | Dyax Corp CVR Expire | |||
12/31/2019 | 299,743 | 333 | ||
* | Durata Therapeutics Inc | |||
CVR Expire 12/31/2018 | 48 | — | ||
* | Clinical Data CVR | 8,685 | — | |
* | Cubist Pharmaceuticals, | |||
Inc. CVR | 31,107 | — | ||
333 | ||||
Pharmaceuticals (33.7%) | ||||
Johnson & Johnson | 5,539,273 | 661,057 | ||
Pfizer Inc. | 12,213,262 | 425,021 | ||
Merck & Co. Inc. | 5,574,278 | 350,009 | ||
Bristol-Myers Squibb Co. | 3,362,315 | 192,963 | ||
* | Allergan plc | 796,730 | 186,865 | |
Eli Lilly & Co. | 2,001,037 | 155,581 | ||
Zoetis Inc. | 949,361 | 48,512 | ||
* | Mylan NV | 918,721 | 38,917 | |
Perrigo Co. plc | 288,467 | 26,248 | ||
* | Mallinckrodt plc | 220,171 | 16,412 | |
* | Jazz Pharmaceuticals plc | 121,665 | 15,066 | |
* | Endo International plc | 426,081 | 8,820 | |
* | Medicines Co. | 141,210 | 5,531 | |
* | Horizon Pharma plc | 289,313 | 5,439 | |
* | Catalent Inc. | 213,526 | 5,387 | |
* | Prestige Brands Holdings | |||
Inc. | 105,605 | 5,083 | ||
* | Nektar Therapeutics | 274,478 | 4,899 | |
* | Akorn Inc. | 144,408 | 3,887 | |
* | Impax Laboratories Inc. | 126,420 | 3,058 | |
* | Pacira Pharmaceuticals Inc. | 74,624 | 2,957 | |
* | Intra-Cellular Therapies Inc. | |||
Class A | 64,890 | 2,618 | ||
* | Depomed Inc. | 121,483 | 2,465 | |
*,^ | TherapeuticsMD Inc. | 314,100 | 2,161 | |
* | Theravance Biopharma Inc. | 71,765 | 2,035 | |
* | Lannett Co. Inc. | 58,615 | 1,985 | |
* | Relypsa Inc. | 60,590 | 1,938 | |
*,^ | Innoviva Inc. | 159,906 | 1,773 | |
*,^ | Cempra Inc. | 78,178 | 1,715 | |
* | Supernus Pharmaceuticals | |||
Inc. | 78,214 | 1,672 | ||
* | Dermira Inc. | 44,962 | 1,396 | |
* | Amphastar | |||
Pharmaceuticals Inc. | 72,151 | 1,371 | ||
* | SciClone Pharmaceuticals | |||
Inc. | 94,203 | 949 | ||
* | Aerie Pharmaceuticals Inc. | 47,510 | 920 |
Phibro Animal Health Corp. | |||
Class A | 36,973 | 897 | |
*,^ Omeros Corp. | 81,557 | 876 | |
* | Intersect ENT Inc. | 42,354 | 667 |
* | Aratana Therapeutics Inc. | 62,913 | 558 |
* | Revance Therapeutics Inc. | 39,551 | 556 |
* | Teligent Inc. | 74,600 | 554 |
* | MyoKardia Inc. | 24,601 | 538 |
* | Sucampo Pharmaceuticals | ||
Inc. Class A | 45,913 | 503 | |
* | Aclaris Therapeutics Inc. | 21,963 | 443 |
* | Tetraphase Pharmaceuticals | ||
Inc. | 66,057 | 251 | |
*,^ | BioDelivery Sciences | ||
International Inc. | 99,833 | 244 | |
*,^ | Collegium Pharmaceutical | ||
Inc. | 27,095 | 226 | |
*,^ Ocular Therapeutix Inc. | 27,313 | 175 | |
2,191,198 | |||
Total Common Stocks | |||
(Cost $5,896,026) | 6,509,496 | ||
Temporary Cash Investment (0.4%) | |||
Money Market Fund (0.4%) | |||
2,3 | Vanguard Market Liquidity | ||
Fund, 0.612% | |||
(Cost $25,726) | 257,253 | 25,728 | |
Total Investments (100.4%) | |||
(Cost $5,921,752) | 6,535,224 | ||
Amount | |||
($000) | |||
Other Assets and Liabilities (-0.4%) | |||
Other Assets | |||
Investment in Vanguard | 517 | ||
Receivables for Investment Securities Sold | 28,142 | ||
Receivables for Accrued Income | 11,461 | ||
Receivables for Capital Shares Issued | 407 | ||
Other Assets3 | 161 | ||
Total Other Assets | 40,688 | ||
Liabilities | |||
Payables for Investment Securities | |||
Purchased | (25,736) | ||
Collateral for Securities on Loan | (25,888) | ||
Payables for Capital Shares Redeemed | (636) | ||
Payables to Vanguard | (2,238) | ||
Other Liabilities | (13,617) | ||
Total Liabilities | (68,115) | ||
Net Assets (100%) | 6,507,797 |
At August 31, 2016, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 5,966,645 |
Undistributed Net Investment Income | 16,826 |
Accumulated Net Realized Losses | (89,146) |
Unrealized Appreciation (Depreciation) | 613,472 |
Net Assets | 6,507,797 |
ETF Shares—Net Assets | |
Applicable to 42,833,208 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 5,707,546 |
Net Asset Value Per Share— | |
ETF Shares | $133.25 |
Admiral Shares—Net Assets | |
Applicable to 12,006,099 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 800,251 |
Net Asset Value Per Share— | |
Admiral Shares | $66.65 |
• 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 $23,983,000.
1 “Other” represents securities that are not classified by the fund’s benchmark index.
2 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
3 Includes $25,888,000 of collateral received for securities on loan.
CVR—Contingent Value Rights.
See accompanying Notes, which are an integral part of the Financial Statements.
56
Health Care Index Fund
Statement of Operations
Year Ended | |
August 31, 2016 | |
($000) | |
Investment Income | |
Income | |
Dividends | 92,590 |
Interest1 | 8 |
Securities Lending—Net | 1,974 |
Total Income | 94,572 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 1,056 |
Management and Administrative— | |
ETF Shares | 3,738 |
Management and Administrative— | |
Admiral Shares | 566 |
Marketing and Distribution— | |
ETF Shares | 405 |
Marketing and Distribution— | |
Admiral Shares | 83 |
Custodian Fees | 90 |
Auditing Fees | 35 |
Shareholders’ Reports—ETF Shares | 338 |
Shareholders’ Reports—Admiral Shares | 7 |
Trustees’ Fees and Expenses | 4 |
Total Expenses | 6,322 |
Net Investment Income | 88,250 |
Realized Net Gain (Loss) | |
Investment Securities Sold1 | 245,885 |
Futures Contracts | 157 |
Realized Net Gain (Loss) | 246,042 |
Change in Unrealized Appreciation | |
(Depreciation) | |
Investment Securities | (201,540) |
Futures Contracts | (301) |
Change in Unrealized Appreciation | |
(Depreciation) | (201,841) |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 132,451 |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $6,000 and $0, respectively. |
Statement of Changes in Net Assets
Year Ended August 31, | ||
2016 | 2015 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 88,250 | 68,860 |
Realized Net Gain (Loss) | 246,042 | 629,725 |
Change in Unrealized Appreciation (Depreciation) | (201,841) | (169,193) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 132,451 | 529,392 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (106,021) | (43,207) |
Admiral Shares | (15,301) | (5,312) |
Realized Capital Gain | ||
ETF Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (121,322) | (48,519) |
Capital Share Transactions | ||
ETF Shares | (126,109) | 2,078,687 |
Admiral Shares | (27,942) | 359,341 |
Net Increase (Decrease) from Capital Share Transactions | (154,051) | 2,438,028 |
Total Increase (Decrease) | (142,922) | 2,918,901 |
Net Assets | ||
Beginning of Period | 6,650,719 | 3,731,818 |
End of Period1 | 6,507,797 | 6,650,719 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $16,826,000 and $49,898,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
57
Health Care Index Fund
Financial Highlights
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $132.34 | $117.17 | $89.94 | $70.32 | $59.58 |
Investment Operations | |||||
Net Investment Income | 1.795 | 1.350 | 1.333 | 1.155 | 1.197 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 1.559 | 15.105 | 27.033 | 19.663 | 10.592 |
Total from Investment Operations | 3.354 | 16.455 | 28.366 | 20.818 | 11.789 |
Distributions | |||||
Dividends from Net Investment Income | (2.444) | (1.285) | (1.136) | (1.198) | (1.049) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (2.444) | (1.285) | (1.136) | (1.198) | (1.049) |
Net Asset Value, End of Period | $133.25 | $132.34 | $117.17 | $89.94 | $70.32 |
Total Return | 2.61% | 14.08% | 31.76% | 30.01% | 20.07% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $5,708 | $5,826 | $3,319 | $1,918 | $894 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.09% | 0.12% | 0.14% | 0.14% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.40% | 1.25% | 1.40% | 1.69% | 1.92% |
Portfolio Turnover Rate1 | 7% | 4% | 5% | 5% | 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 | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $66.20 | $58.61 | $44.99 | $35.18 | $29.81 |
Investment Operations | |||||
Net Investment Income | .898 | . 676 | .666 | .580 | .599 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | .774 | 7.557 | 13.523 | 9.831 | 5.298 |
Total from Investment Operations | 1.672 | 8.233 | 14.189 | 10.411 | 5.897 |
Distributions | |||||
Dividends from Net Investment Income | (1.222) | (. 643) | (. 569) | (.601) | (. 527) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.222) | (. 643) | (. 569) | (.601) | (. 527) |
Net Asset Value, End of Period | $66.65 | $66.20 | $58.61 | $44.99 | $35.18 |
Total Return1 | 2.61% | 14.11% | 31.77% | 30.00% | 20.08% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $800 | $824 | $413 | $247 | $98 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.12% | 0.14% | 0.14% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.40% | 1.24% | 1.40% | 1.69% | 1.92% |
Portfolio Turnover Rate2 | 7% | 4% | 5% | 5% | 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 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.
58
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.
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, 2016, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of aggregate settlement values at each quarter-end during the period. The fund had no open futures contracts at August 31, 2016.
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, 2013–2016), 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 subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral
59
Health Care Index Fund
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. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
6. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at August 31, 2016, 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, 2016, the fund had contributed to Vanguard capital in the amount of $517,000, representing 0.01% of the fund’s net assets and 0.21% 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).
60
Health Care Index Fund
The following table summarizes the market value of the fund’s investments as of August 31, 2016, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 6,509,163 | — | 333 |
Temporary Cash Investments | 25,728 | — | — |
Total | 6,534,891 | — | 333 |
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, 2016, the fund realized $328,168,000 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, 2016, the fund had $18,803,000 of ordinary income available for distribution. The fund had available capital losses totaling $89,253,000 that may be carried forward indefinitely to offset future net capital gains.
At August 31, 2016, the cost of investment securities for tax purposes was $5,921,819,000. Net unrealized appreciation of investment securities for tax purposes was $613,405,000, consisting of unrealized gains of $864,440,000 on securities that had risen in value since their purchase and $251,035,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2016, the fund purchased $1,116,005,000 of investment securities and sold $1,293,636,000 of investment securities, other than temporary cash investments. Purchases and sales include $519,220,000 and $869,863,000, 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, | ||||
2016 | 2015 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 754,915 | 5,758 | 3,421,822 | 25,827 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (881,024) | (6,950) | (1,343,135) | (10,125) |
Net Increase (Decrease)—ETF Shares | (126,109) | (1,192) | 2,078,687 | 15,702 |
Admiral Shares | ||||
Issued | 239,770 | 3,728 | 495,307 | 7,460 |
Issued in Lieu of Cash Distributions | 14,078 | 219 | 4,851 | 78 |
Redeemed | (281,790) | (4,393) | (140,817) | (2,134) |
Net Increase (Decrease) —Admiral Shares | (27,942) | (446) | 359,341 | 5,404 |
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2016, that would require recognition or disclosure in these financial statements.
61
Industrials Index Fund
Fund Profile
As of August 31, 2016
Share-Class Characteristics | ||
ETF | Admiral | |
Shares | Shares | |
Ticker Symbol | VIS | VINAX |
Expense Ratio1 | 0.10% | 0.10% |
30-Day SEC Yield | 1.89% | 1.89% |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | MSCI | ||
Industrials | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 346 | 345 | 2,476 |
Median Market Cap | $28.4B | $28.4B | $51.2B |
Price/Earnings Ratio | 22.4x | 22.4x | 23.4x |
Price/Book Ratio | 3.7x | 3.7x | 2.8x |
Return on Equity | 17.5% | 17.5% | 16.7% |
Earnings Growth Rate | 5.0% | 5.0% | 7.4% |
Dividend Yield | 2.0% | 2.0% | 2.0% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 8% | — | — |
Short-Term Reserves | -0.1% | — | — |
Volatility Measures | ||
MSCI US | ||
IMI/Industrials | MSCI US | |
25/50 | IMI/2500 | |
R-Squared | 1.00 | 0.90 |
Beta | 1.00 | 1.09 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months. | ||
Subindustry Diversification | |
(% of equity exposure) | |
Aerospace & Defense | 22.3% |
Agricultural & Farm Machinery | 1.3 |
Air Freight & Logistics | 6.1 |
Airlines | 4.7 |
Building Products | 3.1 |
Construction & Engineering | 1.9 |
Construction Machinery & Heavy Trucks | 5.3 |
Diversified Support Services | 1.4 |
Electrical Components & Equipment | 5.4 |
Environmental & Facilities Services | 3.1 |
Industrial Conglomerates | 17.6 |
Industrial Machinery | 10.3 |
Railroads | 6.2 |
Research & Consulting Services | 3.4 |
Trading Companies & Distributors | 3.0 |
Trucking | 1.5 |
Other Industrials | 3.4 |
Ten Largest Holdings (% of total net assets) | ||
General Electric | ||
Co. | Industrial Conglomerates | 12.0% |
3M Co. | Industrial Conglomerates | 4.5 |
United | ||
Technologies Corp. Aerospace & Defense | 3.5 | |
Honeywell | ||
International Inc. | Industrial Conglomerates | 3.5 |
Union Pacific Corp. | Railroads | 3.3 |
Boeing Co. | Aerospace & Defense | 3.3 |
United Parcel | ||
Service Inc. | Air Freight & Logistics | 3.1 |
Lockheed Martin | ||
Corp. | Aerospace & Defense | 2.7 |
Caterpillar Inc. | Construction Machinery | |
& Heavy Trucks | 2.0 | |
FedEx Corp. | Air Freight & Logistics | 1.8 |
Top Ten | 39.7% | |
The holdings listed exclude any temporary cash investments and equity index products. |
1 The expense ratios shown are from the prospectus dated December 22, 2015, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2016, the expense ratios were 0.10% for ETF Shares and 0.10% for Admiral Shares.
62
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.
Cumulative Performance: August 31, 2006–August 31, 2016
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_par13x10x1.jpg)
Average Annual Total Returns | Final Value | |||
Periods Ended August 31, 2016 | of a $10,000 | |||
One Year | Five Years | Ten Years | Investment | |
Industrials Index Fund ETF Shares | ||||
Net Asset Value | 15.78% | 15.35% | 8.29% | $22,185 |
Industrials Index Fund ETF Shares | ||||
Market Price | 15.79 | 15.36 | 8.29 | 22,178 |
Spliced US IMI/Industrials 25/50 | 15.81 | 15.47 | 8.42 | 22,437 |
Industrials Funds Average | 9.69 | 12.09 | 6.83 | 19,353 |
MSCI US IMI/2500 | 11.48 | 14.51 | 7.80 | 21,187 |
For a benchmark description, see the Glossary. | ||||
Industrials 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 | |
Industrials Index Fund Admiral Shares | 15.77% | 15.36% | 8.29% | $221,851 |
Spliced US IMI/Industrials 25/50 | 15.81 | 15.47 | 8.42 | 224,374 |
MSCI US IMI/2500 | 11.48 | 14.51 | 7.80 | 211,866 |
See Financial Highlights for dividend and capital gains information.
63
Industrials Index Fund
Fiscal-Year Total Returns (%): August 31, 2006--August 31, 2016
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_par14x1x1.jpg)
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2006--August 31, 2016 | |||
One Year | Five Years | Ten Years | |
Industrials Index Fund ETF Shares Market Price | 15.79% | 104.26% | 121.78% |
Industrials Index Fund ETF Shares Net Asset Value | 15.78 | 104.25 | 121.85 |
Spliced US IMI/Industrials 25/50 | 15.81 | 105.31 | 124.37 |
Average Annual Total Returns: Periods Ended June 30, 2016
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 | 4.61% | 11.00% | 7.28% | |
Net Asset Value | 4.55 | 11.01 | 7.29 | |
Admiral Shares | 5/8/2006 | 4.61 | 11.02 | 7.27 |
See Financial Highlights for dividend and capital gains information.
64
Industrials Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2016
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 | |||
Aerospace & Defense (22.4%) | |||
United Technologies Corp. | 800,175 | 85,163 | |
Honeywell International Inc. | 728,757 | 85,053 | |
Boeing Co. | 609,258 | 78,868 | |
Lockheed Martin Corp. | 265,771 | 64,574 | |
Raytheon Co. | 298,799 | 41,871 | |
General Dynamics Corp. | 261,515 | 39,808 | |
Northrop Grumman Corp. | 172,542 | 36,591 | |
* | TransDigm Group Inc. | 53,434 | 15,239 |
L-3 Communications | |||
Holdings Inc. | 77,772 | 11,574 | |
Textron Inc. | 270,992 | 11,070 | |
Rockwell Collins Inc. | 131,044 | 10,967 | |
Huntington Ingalls | |||
Industries Inc. | 47,326 | 7,817 | |
* | Spirit AeroSystems | ||
Holdings Inc. Class A | 133,255 | 6,106 | |
B/E Aerospace Inc. | 102,867 | 5,200 | |
Orbital ATK Inc. | 58,486 | 4,412 | |
Hexcel Corp. | 92,936 | 4,168 | |
Curtiss-Wright Corp. | 42,134 | 3,788 | |
BWX Technologies Inc. | 93,880 | 3,643 | |
* | Teledyne Technologies Inc. | 32,596 | 3,492 |
* | Esterline Technologies Corp. | 28,181 | 2,169 |
HEICO Corp. Class A | 38,035 | 2,163 | |
* | KLX Inc. | 52,923 | 1,976 |
* | Moog Inc. Class A | 33,402 | 1,970 |
* | DigitalGlobe Inc. | 64,037 | 1,735 |
Triumph Group Inc. | 47,112 | 1,501 | |
* | TASER International Inc. | 53,810 | 1,457 |
HEICO Corp. | 20,224 | 1,374 | |
Cubic Corp. | 22,971 | 1,076 | |
* | Aerojet Rocketdyne | ||
Holdings Inc. | 51,651 | 928 | |
* | Mercury Systems Inc. | 39,422 | 894 |
AAR Corp. | 32,730 | 806 | |
* | Astronics Corp. | 17,384 | 779 |
* | Engility Holdings Inc. | 19,749 | 592 |
* | Aerovironment Inc. | 20,834 | 515 |
National Presto Industries | |||
Inc. | 4,890 | 427 | |
* | KEYW Holding Corp. | 36,029 | 359 |
* | Kratos Defense & Security | ||
Solutions Inc. | 48,934 | 342 | |
American Science & | |||
Engineering Inc. | 6,919 | 255 | |
* | Astronics Corp. Class B | 2,203 | 99 |
540,821 | |||
Air Freight & Logistics (6.1%) | |||
United Parcel Service Inc. | |||
Class B | 694,931 | 75,900 | |
FedEx Corp. | 256,703 | 42,338 | |
CH Robinson Worldwide | |||
Inc. | 143,199 | 9,941 | |
Expeditors International of | |||
Washington Inc. | 183,240 | 9,281 |
*,^ | XPO Logistics Inc. | 109,571 | 3,923 |
* | Hub Group Inc. Class A | 34,765 | 1,417 |
Forward Air Corp. | 30,626 | 1,411 | |
* | Atlas Air Worldwide | ||
Holdings Inc. | 24,688 | 917 | |
* | Air Transport Services | ||
Group Inc. | 50,693 | 734 | |
* | Echo Global Logistics Inc. | 27,109 | 699 |
Park-Ohio Holdings Corp. | 8,508 | 314 | |
146,875 | |||
Airlines (4.7%) | |||
Delta Air Lines Inc. | 777,995 | 28,591 | |
Southwest Airlines Co. | 642,830 | 23,708 | |
American Airlines Group | |||
Inc. | 582,094 | 21,130 | |
* | United Continental | ||
Holdings Inc. | 339,165 | 17,097 | |
Alaska Air Group Inc. | 124,733 | 8,423 | |
* | JetBlue Airways Corp. | 324,240 | 5,172 |
* | Spirit Airlines Inc. | 71,174 | 2,846 |
* | Hawaiian Holdings Inc. | 50,753 | 2,384 |
Allegiant Travel Co. | |||
Class A | 13,483 | 1,864 | |
SkyWest Inc. | 51,281 | 1,448 | |
* | Virgin America Inc. | 20,073 | 1,118 |
113,781 | |||
Building Products (3.1%) | |||
Masco Corp. | 333,707 | 11,840 | |
Fortune Brands Home & | |||
Security Inc. | 154,400 | 9,814 | |
AO Smith Corp. | 74,791 | 7,216 | |
Allegion plc | 95,831 | 6,825 | |
Owens Corning | 116,245 | 6,384 | |
Lennox International Inc. | 39,274 | 6,326 | |
* | USG Corp. | 94,909 | 2,603 |
Universal Forest Products | |||
Inc. | 20,173 | 2,202 | |
* | Trex Co. Inc. | 29,668 | 1,838 |
* | Armstrong World | ||
Industries Inc. | 41,675 | 1,812 | |
Simpson Manufacturing | |||
Co. Inc. | 41,141 | 1,805 | |
* | Masonite International | ||
Corp. | 25,958 | 1,732 | |
Apogee Enterprises Inc. | 28,953 | 1,401 | |
* | American Woodmark Corp. | 14,697 | 1,279 |
* | Builders FirstSource Inc. | 88,328 | 1,214 |
AAON Inc. | 42,195 | 1,194 | |
* | Gibraltar Industries Inc. | 29,824 | 1,138 |
Advanced Drainage | |||
Systems Inc. | 40,246 | 931 | |
* | Continental Building | ||
Products Inc. | 40,857 | 907 | |
* | Patrick Industries Inc. | 13,313 | 852 |
* | Nortek Inc. | 9,800 | 842 |
Insteel Industries Inc. | 17,712 | 590 |
Quanex Building Products | |||
Corp. | 30,080 | 582 | |
* | PGT Inc. | 47,596 | 567 |
* | NCI Building Systems Inc. | 35,291 | 534 |
Griffon Corp. | 31,028 | 531 | |
* | CSW Industrials Inc. | 15,636 | 505 |
* | Armstrong Flooring Inc. | 18,679 | 385 |
* | Ply Gem Holdings Inc. | 23,274 | 325 |
74,174 | |||
Commercial Services & Supplies (6.5%) | |||
Waste Management Inc. | 447,151 | 28,591 | |
Tyco International plc | 428,252 | 18,706 | |
Waste Connections Inc. | 176,162 | 13,464 | |
Republic Services Inc. | |||
Class A | 242,298 | 12,241 | |
Cintas Corp. | 86,463 | 10,160 | |
* | Stericycle Inc. | 85,464 | 7,348 |
KAR Auction Services Inc. | 138,229 | 5,844 | |
* | Copart Inc. | 99,096 | 5,056 |
RR Donnelley & Sons Co. | 210,755 | 3,604 | |
Pitney Bowes Inc. | 190,676 | 3,577 | |
Deluxe Corp. | 48,709 | 3,321 | |
Healthcare Services | |||
Group Inc. | 71,773 | 2,898 | |
Rollins Inc. | 97,840 | 2,788 | |
* | Clean Harbors Inc. | 54,398 | 2,600 |
HNI Corp. | 45,662 | 2,550 | |
Herman Miller Inc. | 60,003 | 2,164 | |
Tetra Tech Inc. | 58,755 | 2,074 | |
ABM Industries Inc. | 53,255 | 2,047 | |
Matthews International | |||
Corp. Class A | 33,087 | 2,035 | |
UniFirst Corp. | 15,324 | 1,967 | |
G&K Services Inc. Class A | 19,959 | 1,943 | |
MSA Safety Inc. | 31,861 | 1,856 | |
Covanta Holding Corp. | 117,415 | 1,748 | |
Brink’s Co. | 44,211 | 1,614 | |
Brady Corp. Class A | 46,842 | 1,569 | |
Steelcase Inc. Class A | 90,990 | 1,359 | |
Mobile Mini Inc. | 44,977 | 1,345 | |
Knoll Inc. | 49,275 | 1,304 | |
Interface Inc. Class A | 66,049 | 1,168 | |
West Corp. | 46,245 | 1,084 | |
* | ACCO Brands Corp. | 105,979 | 1,060 |
US Ecology Inc. | 21,825 | 979 | |
* | Team Inc. | 28,716 | 912 |
Multi-Color Corp. | 13,562 | 906 | |
Quad/Graphics Inc. | 28,840 | 781 | |
McGrath RentCorp | 22,720 | 726 | |
Essendant Inc. | 37,398 | 724 | |
Viad Corp. | 19,805 | 708 | |
Ennis Inc. | 25,365 | 421 | |
* | SP Plus Corp. | 16,711 | 418 |
Kimball International Inc. | |||
Class B | 30,756 | 383 | |
* | InnerWorkings Inc. | 39,567 | 351 |
65
Industrials Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
CECO Environmental | |||
Corp. | 28,291 | 311 | |
* | ARC Document Solutions | ||
Inc. | 42,570 | 144 | |
* | Civeo Corp. | 113,141 | 130 |
156,979 | |||
Construction & Engineering (1.9%) | |||
Fluor Corp. | 140,129 | 7,273 | |
* | Jacobs Engineering | ||
Group Inc. | 122,636 | 6,462 | |
* | AECOM | 154,356 | 4,759 |
* | Quanta Services Inc. | 151,623 | 3,901 |
EMCOR Group Inc. | 60,765 | 3,479 | |
Chicago Bridge & Iron Co. | |||
NV | 104,683 | 3,118 | |
Valmont Industries Inc. | 22,843 | 2,980 | |
* | Dycom Industries Inc. | 31,559 | 2,560 |
KBR Inc. | 142,355 | 2,090 | |
* | MasTec Inc. | 66,219 | 1,950 |
Granite Construction Inc. | 39,478 | 1,895 | |
Comfort Systems USA Inc. | 37,434 | 1,063 | |
* | Tutor Perini Corp. | 38,649 | 896 |
Primoris Services Corp. | 41,783 | 803 | |
* | Aegion Corp. Class A | 36,363 | 673 |
Argan Inc. | 13,038 | 623 | |
* | MYR Group Inc. | 18,362 | 533 |
* | Great Lakes Dredge & | ||
Dock Corp. | 58,362 | 225 | |
* | Ameresco Inc. Class A | 12,918 | 62 |
45,345 | |||
Electrical Equipment (5.4%) | |||
Emerson Electric Co. | 647,521 | 34,111 | |
Eaton Corp. plc | 460,979 | 30,674 | |
Rockwell Automation Inc. | 131,339 | 15,226 | |
Acuity Brands Inc. | 44,113 | 12,136 | |
AMETEK Inc. | 235,383 | 11,475 | |
* | Sensata Technologies | ||
Holding NV | 171,674 | 6,537 | |
Hubbell Inc. Class B | 52,908 | 5,731 | |
EnerSys | 43,497 | 3,061 | |
Regal Beloit Corp. | 44,711 | 2,742 | |
* | Generac Holdings Inc. | 66,495 | 2,480 |
AZZ Inc. | 25,925 | 1,722 | |
* | SolarCity Corp. | 70,567 | 1,458 |
General Cable Corp. | 49,712 | 802 | |
* | Babcock & Wilcox | ||
Enterprises Inc. | 47,190 | 772 | |
Encore Wire Corp. | 19,729 | 764 | |
* | Thermon Group Holdings | ||
Inc. | 32,304 | 608 | |
Powell Industries Inc. | 9,033 | 359 | |
*,^ | Sunrun Inc. | 54,573 | 332 |
*,^ | Plug Power Inc. | 172,999 | 268 |
* | Vicor Corp. | 18,384 | 201 |
Allied Motion Technologies | |||
Inc. | 6,170 | 139 | |
*,^ | FuelCell Energy Inc. | 25,228 | 130 |
* | Power Solutions | ||
International Inc. | 4,253 | 50 | |
131,778 | |||
Industrial Conglomerates (17.5%) | |||
General Electric Co. | 9,256,249 | 289,165 | |
3M Co. | 610,437 | 109,415 | |
Roper Technologies Inc. | 101,859 | 18,085 | |
Carlisle Cos. Inc. | 64,607 | 6,775 | |
Raven Industries Inc. | 36,851 | 904 | |
424,344 |
Machinery (16.9%) | |||
Caterpillar Inc. | 587,668 | 48,159 | |
Illinois Tool Works Inc. | 325,558 | 38,693 | |
Deere & Co. | 268,857 | 22,732 | |
PACCAR Inc. | 352,747 | 21,108 | |
Cummins Inc. | 162,916 | 20,464 | |
Stanley Black & Decker Inc. | 151,107 | 18,699 | |
Ingersoll-Rand plc | 259,134 | 17,618 | |
Parker-Hannifin Corp. | 135,558 | 16,610 | |
Fortive Corp. | 311,227 | 16,392 | |
Dover Corp. | 156,155 | 11,321 | |
Pentair plc | 172,794 | 11,067 | |
Xylem Inc. | 180,055 | 9,158 | |
Snap-on Inc. | 58,523 | 8,971 | |
* | Middleby Corp. | 57,911 | 7,421 |
IDEX Corp. | 75,961 | 7,098 | |
Wabtec Corp. | 90,702 | 6,949 | |
Flowserve Corp. | 131,210 | 6,347 | |
* | WABCO Holdings Inc. | 53,798 | 5,743 |
Nordson Corp. | 54,554 | 5,386 | |
Toro Co. | 54,729 | 5,317 | |
Donaldson Co. Inc. | 127,109 | 4,773 | |
Graco Inc. | 55,974 | 4,124 | |
Allison Transmission | |||
Holdings Inc. | 145,020 | 4,023 | |
Lincoln Electric Holdings | |||
Inc. | 62,337 | 3,962 | |
Oshkosh Corp. | 73,240 | 3,950 | |
Trinity Industries Inc. | 153,028 | 3,737 | |
Woodward Inc. | 55,432 | 3,477 | |
ITT Inc. | 89,649 | 3,243 | |
AGCO Corp. | 65,617 | 3,185 | |
CLARCOR Inc. | 48,236 | 3,158 | |
Crane Co. | 46,676 | 3,002 | |
* | Colfax Corp. | 92,166 | 2,735 |
Joy Global Inc. | 97,934 | 2,672 | |
Terex Corp. | 108,693 | 2,639 | |
Timken Co. | 72,150 | 2,444 | |
* | Rexnord Corp. | 101,562 | 2,246 |
Kennametal Inc. | 79,727 | 2,229 | |
Barnes Group Inc. | 51,281 | 2,120 | |
* | Manitowoc Foodservice Inc. 130,127 | 2,099 | |
Hillenbrand Inc. | 63,173 | 2,031 | |
John Bean Technologies | |||
Corp. | 29,234 | 2,008 | |
Mueller Water Products | |||
Inc. Class A | 161,637 | 1,954 | |
* | RBC Bearings Inc. | 24,203 | 1,914 |
Mueller Industries Inc. | 54,468 | 1,882 | |
Watts Water Technologies | |||
Inc. Class A | 26,456 | 1,704 | |
Franklin Electric Co. Inc. | 39,501 | 1,511 | |
Actuant Corp. Class A | 59,084 | 1,408 | |
* | Proto Labs Inc. | 24,981 | 1,367 |
* | SPX FLOW Inc. | 41,754 | 1,228 |
Albany International Corp. | 28,875 | 1,222 | |
EnPro Industries Inc. | 21,995 | 1,186 | |
ESCO Technologies Inc. | 25,912 | 1,169 | |
Tennant Co. | 16,799 | 1,087 | |
Standex International Corp. | 12,883 | 1,085 | |
Astec Industries Inc. | 18,433 | 1,084 | |
Greenbrier Cos. Inc. | 28,801 | 976 | |
* | Meritor Inc. | 87,156 | 972 |
* | Chart Industries Inc. | 30,665 | 924 |
* | Wabash National Corp. | 64,851 | 905 |
* | TriMas Corp. | 45,631 | 875 |
* | Lydall Inc. | 17,279 | 830 |
CIRCOR International Inc. | 14,041 | 829 | |
Federal Signal Corp. | 62,614 | 821 | |
Briggs & Stratton Corp. | 42,791 | 813 |
* | SPX Corp. | 42,259 | 800 |
^ | Lindsay Corp. | 11,025 | 793 |
Harsco Corp. | 78,885 | 785 | |
Altra Industrial Motion Corp. | 25,960 | 732 | |
Douglas Dynamics Inc. | 22,679 | 728 | |
Sun Hydraulics Corp. | 22,875 | 705 | |
Manitowoc Co. Inc. | 130,119 | 638 | |
Alamo Group Inc. | 9,729 | 631 | |
* | Navistar International Corp. | 44,736 | 628 |
Global Brass & Copper | |||
Holdings Inc. | 21,050 | 591 | |
Kadant Inc. | 10,914 | 585 | |
Gorman-Rupp Co. | 19,146 | 520 | |
NN Inc. | 25,672 | 456 | |
Hyster-Yale Materials | |||
Handling Inc. | 8,695 | 450 | |
Titan International Inc. | 45,401 | 417 | |
* | Energy Recovery Inc. | 33,030 | 399 |
American Railcar Industries | |||
Inc. | 8,913 | 370 | |
Columbus McKinnon Corp. | 19,062 | 335 | |
* | Milacron Holdings Corp. | 16,897 | 292 |
FreightCar America Inc. | 11,557 | 166 | |
407,877 | |||
Marine (0.2%) | |||
* | Kirby Corp. | 53,558 | 2,790 |
Matson Inc. | 43,567 | 1,681 | |
4,471 | |||
Professional Services (4.2%) | |||
Nielsen Holdings plc | 363,155 | 19,349 | |
Equifax Inc. | 119,784 | 15,799 | |
* | IHS Markit Ltd. | 361,180 | 13,479 |
* | Verisk Analytics Inc. | ||
Class A | 160,792 | 13,354 | |
ManpowerGroup Inc. | 72,068 | 5,150 | |
Robert Half International | |||
Inc. | 132,168 | 5,066 | |
Dun & Bradstreet Corp. | 36,495 | 5,023 | |
* | TransUnion | 73,298 | 2,418 |
* | WageWorks Inc. | 36,013 | 2,225 |
CEB Inc. | 32,758 | 1,972 | |
* | On Assignment Inc. | 50,326 | 1,898 |
* | FTI Consulting Inc. | 41,336 | 1,831 |
* | Advisory Board Co. | 41,959 | 1,769 |
* | Huron Consulting Group | ||
Inc. | 21,627 | 1,359 | |
Exponent Inc. | 25,815 | 1,302 | |
Korn/Ferry International | 51,851 | 1,236 | |
Insperity Inc. | 14,916 | 978 | |
* | Navigant Consulting Inc. | 47,847 | 940 |
* | TrueBlue Inc. | 42,382 | 926 |
* | TriNet Group Inc. | 42,237 | 887 |
* | ICF International Inc. | 18,471 | 773 |
Kelly Services Inc. Class A | 30,439 | 582 | |
* | CBIZ Inc. | 49,158 | 556 |
Resources Connection Inc. | 36,175 | 546 | |
* | RPX Corp. | 51,739 | 542 |
Kforce Inc. | 24,944 | 483 | |
* | Mistras Group Inc. | 17,436 | 409 |
Heidrick & Struggles | |||
International Inc. | 17,782 | 332 | |
* | GP Strategies Corp. | 12,859 | 307 |
Acacia Research Corp. | 50,780 | 304 | |
101,795 | |||
Road & Rail (7.7%) | |||
Union Pacific Corp. | 846,527 | 80,869 | |
Norfolk Southern Corp. | 298,000 | 27,982 | |
CSX Corp. | 962,512 | 27,220 | |
Kansas City Southern | 108,426 | 10,487 |
66
Industrials Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
JB Hunt Transport Services | |||
Inc. | 90,273 | 7,167 | |
* | Old Dominion Freight Line | ||
Inc. | 62,618 | 4,454 | |
* | Genesee & Wyoming Inc. | ||
Class A | 57,526 | 3,911 | |
* | Hertz Global Holdings Inc. | 72,283 | 3,561 |
Ryder System Inc. | 54,052 | 3,541 | |
* | Avis Budget Group Inc. | 85,896 | 3,103 |
Landstar System Inc. | 42,190 | 2,921 | |
AMERCO | 6,820 | 2,344 | |
Knight Transportation Inc. | 64,948 | 1,825 | |
* | Swift Transportation Co. | 85,880 | 1,598 |
Werner Enterprises Inc. | 46,965 | 1,084 | |
Heartland Express Inc. | 46,170 | 879 | |
* | Saia Inc. | 25,259 | 769 |
Marten Transport Ltd. | 24,553 | 529 | |
ArcBest Corp. | 24,803 | 454 | |
* | YRC Worldwide Inc. | 27,099 | 314 |
* | Roadrunner Transportation | ||
Systems Inc. | 30,347 | 253 | |
Celadon Group Inc. | 26,716 | 209 | |
185,474 | |||
Trading Companies & Distributors (2.9%) | |||
WW Grainger Inc. | 58,606 | 13,518 | |
Fastenal Co. | 290,755 | 12,535 | |
* | United Rentals Inc. | 89,093 | 7,333 |
* | HD Supply Holdings Inc. | 200,720 | 7,248 |
Watsco Inc. | 25,671 | 3,796 | |
^ | MSC Industrial Direct Co. | ||
Inc. Class A | 44,296 | 3,235 | |
Air Lease Corp. Class A | 97,670 | 2,870 | |
* | WESCO International Inc. | 42,275 | 2,628 |
* | Beacon Roofing Supply Inc. | 50,487 | 2,321 |
* | NOW Inc. | 107,529 | 2,219 |
Applied Industrial | |||
Technologies Inc. | 37,381 | 1,776 | |
GATX Corp. | 40,160 | 1,761 | |
* | Univar Inc. | 75,851 | 1,569 |
* | MRC Global Inc. | 101,692 | 1,492 |
Aircastle Ltd. | 59,102 | 1,280 | |
* | BMC Stock Holdings Inc. | 55,836 | 1,113 |
Kaman Corp. | 24,449 | 1,098 | |
* | Herc Holdings Inc. | 24,290 | 821 |
* | Rush Enterprises Inc. | ||
Class A | 29,670 | 706 | |
* | Triton International Ltd./ | ||
Bermuda | 40,985 | 624 |
H&E Equipment Services | |||
Inc. | 31,521 | 502 | |
* | Veritiv Corp. | 8,597 | 441 |
* | DXP Enterprises Inc. | 12,989 | 365 |
* | CAI International Inc. | 15,695 | 125 |
71,376 | |||
Transportation Infrastructure (0.3%) | |||
Macquarie Infrastructure | |||
Corp. | 76,815 | 6,141 | |
* | Wesco Aircraft Holdings | ||
Inc. | 59,329 | 815 | |
6,956 | |||
Total Common Stocks | |||
(Cost $2,225,660) | 2,412,046 | ||
Temporary Cash Investment (0.1%)1 | |||
Money Market Fund (0.1%) | |||
2,3 | Vanguard Market Liquidity | ||
Fund, 0.612% | |||
(Cost $1,693) | 16,928 | 1,693 | |
Total Investments (99.9%) | |||
(Cost $2,227,353) | 2,413,739 | ||
Amount | |||
($000) | |||
Other Assets and Liabilities (0.1%) | |||
Other Assets | |||
Investment in Vanguard | 183 | ||
Receivables for Investment Securities Sold | 9,621 | ||
Receivables for Accrued Income | 5,879 | ||
Receivables for Capital Shares Issued | 53 | ||
Other Assets4 | 51 | ||
Total Other Assets | 15,787 | ||
Liabilities | |||
Payables for Investment Securities | |||
Purchased | (8,036) | ||
Collateral for Securities on Loan | (1,691) | ||
Payables for Capital Shares Redeemed | (442) | ||
Payables to Vanguard | (832) | ||
Other Liabilities | (3,553) | ||
Total Liabilities | (14,554) | ||
Net Assets (100%) | 2,414,972 |
At August 31, 2016, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 2,236,422 |
Undistributed Net Investment Income | 8,799 |
Accumulated Net Realized Losses | (16,630) |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 186,386 |
Futures Contracts | (5) |
Net Assets | 2,414,972 |
ETF Shares—Net Assets | |
Applicable to 20,952,095 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 2,337,622 |
Net Asset Value Per Share— | |
ETF Shares | $111.57 |
Admiral Shares—Net Assets | |
Applicable to 1,349,404 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 77,350 |
Net Asset Value Per Share— | |
Admiral Shares | $57.32 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $1,581,000.
1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures investments, the fund’s effective common stock and temporary cash investment positions represent 99.9% 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 Includes $1,691,000 of collateral received for securities on loan.
4 Cash of $51,000 has been segregated as initial margin for open futures contracts.
See accompanying Notes, which are an integral part of the Financial Statements.
67
Industrials Index Fund
Statement of Operations
Year Ended | |
August 31, 2016 | |
($000) | |
Investment Income | |
Income | |
Dividends | 45,867 |
Interest1 | 2 |
Securities Lending—Net | 548 |
Total Income | 46,417 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 376 |
Management and Administrative— | |
ETF Shares | 1,387 |
Management and Administrative— | |
Admiral Shares | 45 |
Marketing and Distribution— | |
ETF Shares | 142 |
Marketing and Distribution— | |
Admiral Shares | 7 |
Custodian Fees | 73 |
Auditing Fees | 35 |
Shareholders’ Reports—ETF Shares | 58 |
Shareholders’ Reports—Admiral Shares | 1 |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 2,125 |
Net Investment Income | 44,292 |
Realized Net Gain (Loss) | |
Investment Securities Sold1 | 57,185 |
Futures Contracts | 42 |
Realized Net Gain (Loss) | 57,227 |
Change in Unrealized Appreciation | |
(Depreciation) | |
Investment Securities | 201,274 |
Futures Contracts | (5) |
Change in Unrealized Appreciation | |
(Depreciation) | 201,269 |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 302,788 |
1 Interest income and realized net gain (loss) from an affiliated | |
company of the fund were $2,000 and $1,000, respectively. |
Statement of Changes in Net Assets
Year Ended August 31, | ||
2016 | 2015 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 44,292 | 37,956 |
Realized Net Gain (Loss) | 57,227 | 78,038 |
Change in Unrealized Appreciation (Depreciation) | 201,269 | (202,127) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 302,788 | (86,133) |
Distributions | ||
Net Investment Income | ||
ETF Shares | (58,676) | (30,975) |
Admiral Shares | (1,953) | (1,196) |
Realized Capital Gain | ||
ETF Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (60,629) | (32,171) |
Capital Share Transactions | ||
ETF Shares | 205,564 | 130,360 |
Admiral Shares | 3,504 | (1,970) |
Net Increase (Decrease) from Capital Share Transactions | 209,068 | 128,390 |
Total Increase (Decrease) | 451,227 | 10,086 |
Net Assets | ||
Beginning of Period | 1,963,745 | 1,953,659 |
End of Period1 | 2,414,972 | 1,963,745 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $8,799,000 and $25,088,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
68
Industrials Index Fund
Financial Highlights
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $99.23 | $103.95 | $84.17 | $67.82 | $60.12 |
Investment Operations | |||||
Net Investment Income | 2.083 | 1.914 | 1.508 | 1.5171 | 1.360 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 13.204 | (4.961) | 19.332 | 16.321 | 7.557 |
Total from Investment Operations | 15.287 | (3.047) | 20.840 | 17.838 | 8.917 |
Distributions | |||||
Dividends from Net Investment Income | (2.947) | (1.673) | (1.060) | (1.488) | (1.217) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (2.947) | (1.673) | (1.060) | (1.488) | (1.217) |
Net Asset Value, End of Period | $111.57 | $99.23 | $103.95 | $84.17 | $67.82 |
Total Return | 15.78% | -3.03% | 24.83% | 26.69% | 15.04% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $2,338 | $1,898 | $1,883 | $1,104 | $482 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.12% | 0.14% | 0.14% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.08% | 1.83% | 1.69% | 1.97% | 1.99% |
Portfolio Turnover Rate2 | 8% | 4% | 5% | 6% | 6% |
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 | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $50.98 | $53.40 | $43.24 | $34.84 | $30.89 |
Investment Operations | |||||
Net Investment Income | 1.069 | .982 | .780 | .7801 | .699 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 6.783 | (2.541) | 9.922 | 8.382 | 3.878 |
Total from Investment Operations | 7.852 | (1.559) | 10.702 | 9.162 | 4.577 |
Distributions | |||||
Dividends from Net Investment Income | (1.512) | (.861) | (. 542) | (.762) | (. 627) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.512) | (.861) | (. 542) | (.762) | (. 627) |
Net Asset Value, End of Period | $57.32 | $50.98 | $53.40 | $43.24 | $34.84 |
Total Return2 | 15.77% | -2.98% | 24.84% | 26.70% | 15.03% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $77 | $66 | $71 | $18 | $14 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.12% | 0.14% | 0.14% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.08% | 1.83% | 1.69% | 1.97% | 1.99% |
Portfolio Turnover Rate3 | 8% | 4% | 5% | 6% | 6% |
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.
69
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. 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, 2016, 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, 2013–2016), 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 subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income
70
Industrials Index Fund
represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
6. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at August 31, 2016, 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, 2016, the fund had contributed to Vanguard capital in the amount of $183,000, 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, 2016, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
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Industrials Index Fund
D. At August 31, 2016, 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 2016 | 21 | 2,278 | (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.
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, 2016, the fund realized gains on the sale of passive foreign investment companies of $48,000, 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, 2016, had unrealized appreciation of $157,000, of which all has been distributed and is reflected in the balance of undistributed net investment income.
During the year ended August 31, 2016, the fund realized $50,475,000 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, 2016, the fund had $9,644,000 of ordinary income available for distribution. The fund used capital loss carryforwards of $6,556,000 to offset taxable capital gains realized during the year ended August 31, 2016. At August 31, 2016, the fund had available capital losses totaling $16,635,000 to offset future net capital gains of $11,504,000 through August 31, 2018, and $5,131,000 through August 31, 2019.
At August 31, 2016, the cost of investment securities for tax purposes was $2,227,510,000. Net unrealized appreciation of investment securities for tax purposes was $186,229,000, consisting of unrealized gains of $285,959,000 on securities that had risen in value since their purchase and $99,730,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the year ended August 31, 2016, the fund purchased $607,597,000 of investment securities and sold $416,771,000 of investment securities, other than temporary cash investments. Purchases and sales include $387,164,000 and $239,225,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
The fund purchased securities from and sold securities to other Vanguard funds or accounts managed by Vanguard or its affiliates, in accordance with procedures adopted by the board of trustees in compliance with Rule 17a-7 of the Investment Company Act of 1940. For the year ended August 31, 2016, such purchases and sales were $4,422,000 and $45,832,000, respectively; these amounts are included in the purchases and sales of investment securities noted above.
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Industrials Index Fund
G. Capital share transactions for each class of shares were:
Year Ended August 31, | ||||
2016 | 2015 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 445,652 | 4,225 | 463,647 | 4,388 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (240,088) | (2,400) | (333,287) | (3,375) |
Net Increase (Decrease)—ETF Shares | 205,564 | 1,825 | 130,360 | 1,013 |
Admiral Shares | ||||
Issued | 32,083 | 601 | 33,169 | 609 |
Issued in Lieu of Cash Distributions | 1,846 | 36 | 1,104 | 21 |
Redeemed | (30,425) | (578) | (36,243) | (664) |
Net Increase (Decrease) —Admiral Shares | 3,504 | 59 | (1,970) | (34) |
At August 31, 2016, one shareholder was the record or beneficial owner of 56% of the fund’s net assets. If the shareholder were to redeem its investment in the fund, the redemption might result in an increase in the fund’s expense ratio.
H. Management has determined that no material events or transactions occurred subsequent to August 31, 2016, that would require recognition or disclosure in these financial statements.
73
Information Technology Index Fund
Fund Profile
As of August 31, 2016
Share-Class Characteristics | ||
ETF | Admiral | |
Shares | Shares | |
Ticker Symbol | VGT | VITAX |
Expense Ratio1 | 0.10% | 0.10% |
30-Day SEC Yield | 1.27% | 1.27% |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | |||
Information | MSCI | ||
Technology | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 377 | 377 | 2,476 |
Median Market Cap $158.1B | $158.1B | $51.2B | |
Price/Earnings Ratio | 25.3x | 25.3x | 23.4x |
Price/Book Ratio | 4.3x | 4.3x | 2.8x |
Return on Equity | 22.3% | 22.3% | 16.7% |
Earnings Growth Rate | 9.4% | 9.4% | 7.4% |
Dividend Yield | 1.4% | 1.4% | 2.0% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 5% | — | — |
Short-Term Reserves | 0.0% | — | — |
Volatility Measures | ||
MSCI US | ||
IMI/Information | ||
Technology | MSCI US | |
25/50 | IMI/2500 | |
R-Squared | 1.00 | 0.83 |
Beta | 1.00 | 1.17 |
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 | 5.6 |
Data Processing & Outsourced Services | 11.5 |
Electronic Components | 1.3 |
Electronic Manufacturing Services | 1.1 |
Home Entertainment Software | 1.2 |
Internet Software & Services | 20.4 |
IT Consulting & Other Services | 6.4 |
Semiconductor Equipment | 1.7 |
Semiconductors | 13.1 |
Systems Software | 13.9 |
Technology Hardware, Storage & Peripherals | 16.1 |
Other Information Technology | 1.5 |
Ten Largest Holdings (% of total net assets) | ||
Apple Inc. | Technology Hardware, | |
Storage & Peripherals | 12.5% | |
Alphabet Inc. | Internet Software | |
& Services | 10.1 | |
Microsoft Corp. | Systems Software | 9.2 |
Facebook Inc. | Internet Software | |
& Services | 6.3 | |
Intel Corp. | Semiconductors | 3.6 |
Cisco Systems Inc. | Communications | |
Equipment | 3.4 | |
Visa Inc. | Data Processing | |
& Outsourced Services | 3.3 | |
International | ||
Business Machines | IT Consulting | |
Corp. | & Other Services | 3.1 |
Oracle Corp. | Systems Software | 2.8 |
MasterCard Inc. | Data Processing | |
& Outsourced Services | 2.0 | |
Top Ten Total | 56.3% | |
The holdings listed exclude any temporary cash investments and equity index products. |
1 The expense ratios shown are from the prospectus dated December 22, 2015, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2016, the expense ratios were 0.10% for ETF Shares and 0.10% for Admiral Shares.
74
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, 2006–August 31, 2016
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_par15x11x1.jpg)
Average Annual Total Returns | Final Value | |||
Periods Ended August 31, 2016 | of a $10,000 | |||
One Year | Five Years | Ten Years | Investment | |
Information Technology Index Fund | ||||
ETF Shares Net Asset Value | 17.48% | 16.20% | 10.44% | $26,987 |
Information Technology Index Fund | ||||
ETF Shares Market Price | 17.49 | 16.20 | 10.41 | 26,918 |
Spliced US IMI/Information Technology 25/50 | 17.59 | 16.35 | 10.60 | 27,398 |
Science and Technology Funds Average | 14.81 | 14.29 | 9.37 | 24,479 |
MSCI US IMI/2500 | 11.48 | 14.51 | 7.80 | 21,187 |
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 | 17.49% | 16.21% | 10.43% | $269,575 |
Spliced US IMI/Information Technology 25/50 | 17.59 | 16.35 | 10.60 | 273,981 |
MSCI US IMI/2500 | 11.48 | 14.51 | 7.80 | 211,866 |
See Financial Highlights for dividend and capital gains information.
75
Information Technology Index Fund
Fiscal-Year Total Returns (%): August 31, 2006--August 31, 2016
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_par16x1x1.jpg)
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2006--August 31, 2016 | |||
One Year | Five Years | Ten Years | |
Information Technology Index Fund ETF Shares Market Price | 17.49% | 111.85% | 169.18% |
Information Technology Index Fund ETF Shares Net Asset Value | 17.48 | 111.87 | 169.87 |
Spliced US IMI/Information Technology 25/50 | 17.59 | 113.21 | 173.98 |
Average Annual Total Returns: Periods Ended June 30, 2016
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 | 2.76% | 12.45% | 9.73% | |
Net Asset Value | 2.84 | 12.46 | 9.74 | |
Admiral Shares | 3/25/2004 | 2.85 | 12.47 | 9.74 |
See Financial Highlights for dividend and capital gains information.
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Information Technology Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2016
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 (5.6%) | |||
Cisco Systems Inc. | 10,663,534 | 335,261 | |
Motorola Solutions Inc. | 333,227 | 25,655 | |
* | Palo Alto Networks Inc. | 189,972 | 25,299 |
Harris Corp. | 264,514 | 24,594 | |
* | F5 Networks Inc. | 141,950 | 17,422 |
Juniper Networks Inc. | 732,612 | 16,909 | |
* | ARRIS International plc | 380,245 | 10,673 |
* | CommScope Holding | ||
Co. Inc. | 346,971 | 10,260 | |
Brocade Communications | |||
Systems Inc. | 990,266 | 8,893 | |
* | ViaSat Inc. | 97,893 | 7,346 |
*,^ | Arista Networks Inc. | 86,212 | 6,869 |
* | Ciena Corp. | 289,044 | 6,200 |
InterDigital Inc. | 74,182 | 5,297 | |
* | NetScout Systems Inc. | 178,825 | 5,290 |
* | Finisar Corp. | 225,618 | 4,779 |
* | NETGEAR Inc. | 68,232 | 3,889 |
* | Viavi Solutions Inc. | 492,275 | 3,830 |
* | EchoStar Corp. Class A | 96,158 | 3,727 |
Plantronics Inc. | 71,274 | 3,610 | |
* | Lumentum Holdings Inc. | 100,442 | 3,528 |
* | Polycom Inc. | 267,025 | 3,322 |
*,^ | Ubiquiti Networks Inc. | 61,500 | 3,161 |
* | Infinera Corp. | 298,624 | 2,562 |
ADTRAN Inc. | 105,326 | 1,936 | |
* | Ixia | 120,847 | 1,393 |
* | Mitel Networks Corp. | 189,416 | 1,383 |
* | ShoreTel Inc. | 142,001 | 1,139 |
* | CalAmp Corp. | 75,922 | 1,107 |
* | Sonus Networks Inc. | 105,079 | 906 |
* | Harmonic Inc. | 169,831 | 737 |
* | Calix Inc. | 95,300 | 709 |
Comtech | |||
Telecommunications | |||
Corp. | 49,130 | 633 | |
Black Box Corp. | 32,939 | 459 | |
548,778 | |||
Electronic Equipment, Instruments | |||
& Components (4.0%) | |||
Corning Inc. | 2,279,893 | 51,731 | |
TE Connectivity Ltd. | 758,179 | 48,197 | |
Amphenol Corp. Class A | 652,877 | 40,681 | |
* | Flextronics International | ||
Ltd. | 1,157,434 | 15,324 | |
* | Trimble Navigation Ltd. | 530,211 | 14,528 |
CDW Corp. | 315,964 | 14,108 | |
* | Arrow Electronics Inc. | 194,316 | 12,792 |
Avnet Inc. | 272,397 | 11,353 | |
* | Keysight Technologies | ||
Inc. | 361,815 | 11,010 | |
Ingram Micro Inc. | 313,458 | 10,958 | |
FEI Co. | 86,224 | 9,180 | |
FLIR Systems Inc. | 290,359 | 8,952 | |
Cognex Corp. | 170,435 | 8,481 | |
* | Zebra Technologies Corp. | 109,782 | 7,680 |
Jabil Circuit Inc. | 361,227 | 7,654 |
* | IPG Photonics Corp. | 78,369 | 6,817 |
National Instruments Corp. | 241,912 | 6,759 | |
SYNNEX Corp. | 62,671 | 6,654 | |
Belden Inc. | 88,320 | 6,588 | |
Littelfuse Inc. | 47,465 | 6,019 | |
Dolby Laboratories Inc. | |||
Class A | 113,637 | 5,561 | |
* | Tech Data Corp. | 74,035 | 5,496 |
* | Coherent Inc. | 50,990 | 5,363 |
* | Universal Display Corp. | 88,863 | 5,118 |
* | VeriFone Systems Inc. | 231,571 | 4,599 |
* | Sanmina Corp. | 156,082 | 4,102 |
*,^ | Fitbit Inc. Class A | 263,245 | 4,075 |
Vishay Intertechnology Inc. | 285,093 | 4,037 | |
* | Anixter International Inc. | 62,737 | 4,011 |
* | Itron Inc. | 75,661 | 3,604 |
* | Plexus Corp. | 70,210 | 3,240 |
Methode Electronics Inc. | 76,997 | 2,822 | |
* | Knowles Corp. | 187,743 | 2,610 |
* | Benchmark Electronics Inc. | 107,309 | 2,588 |
* | OSI Systems Inc. | 37,994 | 2,548 |
* | Fabrinet | 64,397 | 2,500 |
* | II-VI Inc. | 116,122 | 2,461 |
* | Insight Enterprises Inc. | 77,968 | 2,386 |
* | Rogers Corp. | 38,079 | 2,129 |
Badger Meter Inc. | 31,029 | 2,048 | |
* | ScanSource Inc. | 54,767 | 1,874 |
* | Rofin-Sinar Technologies | ||
Inc. | 56,625 | 1,813 | |
MTS Systems Corp. | 34,287 | 1,706 | |
* | TTM Technologies Inc. | 137,835 | 1,479 |
AVX Corp. | 105,032 | 1,443 | |
* | ePlus Inc. | 14,840 | 1,343 |
* | InvenSense Inc. | 175,568 | 1,306 |
CTS Corp. | 65,699 | 1,267 | |
DTS Inc. | 36,705 | 1,228 | |
* | Novanta Inc. | 69,895 | 1,180 |
* | FARO Technologies Inc. | 34,605 | 1,128 |
Daktronics Inc. | 78,087 | 744 | |
* | Kimball Electronics Inc. | 61,214 | 742 |
PC Connection Inc. | 25,517 | 665 | |
Park Electrochemical Corp. | 39,317 | 650 | |
Systemax Inc. | 30,721 | 249 | |
395,581 | |||
Internet Software & Services (20.5%) | |||
* | Facebook Inc. Class A | 4,901,384 | 618,163 |
* | Alphabet Inc. Class C | 655,311 | 502,656 |
* | Alphabet Inc. Class A | 622,616 | 491,773 |
* | Yahoo! Inc. | 1,913,253 | 81,792 |
* | eBay Inc. | 2,314,077 | 74,421 |
* | LinkedIn Corp. Class A | 250,171 | 48,220 |
* | Twitter Inc. | 1,190,515 | 22,870 |
* | Akamai Technologies Inc. | 372,837 | 20,469 |
* | VeriSign Inc. | 207,804 | 15,471 |
* | CoStar Group Inc. | 68,580 | 14,213 |
MercadoLibre Inc. | 69,919 | 12,026 | |
IAC/InterActiveCorp | 155,618 | 9,136 | |
*,^ | Zillow Group Inc. | 239,208 | 8,097 |
* | Rackspace Hosting Inc. | 213,201 | 6,705 |
j2 Global Inc. | 97,907 | 6,674 | |
* | Pandora Media Inc. | 458,427 | 6,418 |
* | GrubHub Inc. | 142,325 | 5,774 |
* | Yelp Inc. Class A | 142,544 | 5,485 |
*,^ | Cimpress NV | 49,387 | 4,903 |
* | Cornerstone OnDemand | ||
Inc. | 109,522 | 4,810 | |
LogMeIn Inc. | 53,085 | 4,433 | |
* | WebMD Health Corp. | 82,052 | 4,231 |
*,^ | Zillow Group Inc. Class A | 107,686 | 3,643 |
*,^ | Stamps.com Inc. | 35,210 | 3,406 |
* | Envestnet Inc. | 79,412 | 3,138 |
NIC Inc. | 131,589 | 3,024 | |
* | GoDaddy Inc. Class A | 92,225 | 2,986 |
* | comScore Inc. | 95,506 | 2,946 |
* | 2U Inc. | 72,158 | 2,550 |
* | Shutterstock Inc. | 41,355 | 2,398 |
* | SPS Commerce Inc. | 35,888 | 2,343 |
* | Cvent Inc. | 66,313 | 2,167 |
* | New Relic Inc. | 52,219 | 1,916 |
*,^ | Quotient Technology Inc. | 140,566 | 1,822 |
* | inContact Inc. | 122,584 | 1,703 |
* | Web.com Group Inc. | 89,383 | 1,561 |
* | Q2 Holdings Inc. | 53,681 | 1,520 |
*,^ | Gogo Inc. | 118,423 | 1,448 |
EarthLink Holdings Corp. | 220,569 | 1,405 | |
*,^ | Box Inc. | 97,213 | 1,336 |
*,^ | Match Group Inc. | 80,529 | 1,304 |
* | GTT Communications Inc. | 55,219 | 1,172 |
* | Benefitfocus Inc. | 27,519 | 1,112 |
* | Endurance International | ||
Group Holdings Inc. | 139,743 | 1,111 | |
* | XO Group Inc. | 53,060 | 989 |
* | TrueCar Inc. | 96,113 | 928 |
* | Bankrate Inc. | 115,580 | 906 |
* | LivePerson Inc. | 113,913 | 887 |
* | Intralinks Holdings Inc. | 91,422 | 872 |
* | Blucora Inc. | 84,262 | 872 |
* | CommerceHub Inc. | 56,428 | 831 |
* | Angie’s List Inc. | 78,793 | 801 |
* | RetailMeNot Inc. | 68,855 | 779 |
* | Actua Corp. | 76,239 | 776 |
* | DHI Group Inc. | 96,428 | 746 |
*,^ | Alarm.com Holdings Inc. | 24,384 | 669 |
* | Monster Worldwide Inc. | 176,275 | 645 |
* | Bazaarvoice Inc. | 147,657 | 591 |
* | Hortonworks Inc. | 67,864 | 541 |
* | Instructure Inc. | 20,366 | 487 |
* | CommerceHub Inc. | ||
Class A | 28,189 | 417 | |
* | Everyday Health Inc. | 49,705 | 381 |
* | MINDBODY Inc. Class A | 15,622 | 271 |
* | Internap Corp. | 94,079 | 225 |
* | Rocket Fuel Inc. | 54,359 | 163 |
* | Appfolio Inc. | 8,544 | 157 |
2,028,685 |
77
Information Technology Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
IT Services (17.8%) | |||
Visa Inc. Class A | 4,038,335 | 326,701 | |
International Business | |||
Machines Corp. | 1,933,467 | 307,189 | |
MasterCard Inc. Class A | 2,057,533 | 198,819 | |
Accenture plc Class A | 1,331,295 | 153,099 | |
Automatic Data | |||
Processing Inc. | 965,974 | 86,754 | |
* | PayPal Holdings Inc. | 2,312,613 | 85,914 |
* | Cognizant Technology | ||
Solutions Corp. Class A | 1,285,762 | 73,854 | |
Fidelity National | |||
Information Services Inc. | 657,502 | 52,160 | |
* | Fiserv Inc. | 470,722 | 48,508 |
Paychex Inc. | 686,199 | 41,632 | |
* | FleetCor Technologies Inc. | 196,298 | 32,232 |
* | Alliance Data Systems | ||
Corp. | 125,075 | 25,588 | |
Global Payments Inc. | 327,017 | 24,837 | |
Western Union Co. | 1,041,266 | 22,408 | |
Xerox Corp. | 1,815,364 | 17,881 | |
* | Vantiv Inc. Class A | 331,465 | 17,813 |
Broadridge Financial | |||
Solutions Inc. | 251,167 | 17,406 | |
Total System Services Inc. | 350,424 | 17,258 | |
* | Gartner Inc. | 174,962 | 15,922 |
Jack Henry & Associates | |||
Inc. | 166,461 | 14,527 | |
Computer Sciences Corp. | 294,053 | 13,832 | |
Sabre Corp. | 440,661 | 12,405 | |
Leidos Holdings Inc. | 284,795 | 11,537 | |
CSRA Inc. | 342,734 | 8,702 | |
* | Teradata Corp. | 272,645 | 8,651 |
Booz Allen Hamilton | |||
Holding Corp. Class A | 281,759 | 8,554 | |
* | First Data Corp. Class A | 613,859 | 8,545 |
DST Systems Inc. | 67,363 | 8,185 | |
* | Euronet Worldwide Inc. | 104,738 | 8,129 |
* | WEX Inc. | 81,421 | 8,086 |
MAXIMUS Inc. | 136,841 | 8,049 | |
* | CoreLogic Inc. | 188,398 | 7,728 |
* | EPAM Systems Inc. | 95,342 | 6,503 |
Convergys Corp. | 204,522 | 6,101 | |
Science Applications | |||
International Corp. | 90,906 | 5,801 | |
* | CACI International Inc. | ||
Class A | 50,999 | 5,067 | |
* | Cardtronics plc Class A | 95,635 | 4,295 |
* | Acxiom Corp. | 165,044 | 4,290 |
* | Blackhawk Network | ||
Holdings Inc. | 119,109 | 4,080 | |
* | ExlService Holdings Inc. | 70,054 | 3,585 |
Travelport Worldwide Ltd. | 248,907 | 3,418 | |
* | Syntel Inc. | 71,264 | 3,290 |
CSG Systems | |||
International Inc. | 67,687 | 2,959 | |
* | NeuStar Inc. Class A | 111,691 | 2,838 |
* | Sykes Enterprises Inc. | 80,526 | 2,354 |
EVERTEC Inc. | 133,388 | 2,276 | |
ManTech International | |||
Corp. Class A | 52,203 | 2,090 | |
* | Black Knight Financial | ||
Services Inc. Class A | 50,572 | 1,973 | |
* | Virtusa Corp. | 58,812 | 1,543 |
* | Perficient Inc. | 73,474 | 1,467 |
Cass Information | |||
Systems Inc. | 24,312 | 1,392 | |
TeleTech Holdings Inc. | 35,922 | 1,018 | |
* | Unisys Corp. | 98,510 | 995 |
* | Net 1 UEPS Technologies | |||
Inc. | 100,194 | 979 | ||
Forrester Research Inc. | 19,275 | 790 | ||
* | MoneyGram International | |||
Inc. | 62,065 | 451 | ||
* | Everi Holdings Inc. | 141,347 | 298 | |
1,762,758 | ||||
Semiconductors & Semiconductor | ||||
Equipment (14.8%) | ||||
Intel Corp. | 10,011,088 | 359,298 | ||
QUALCOMM Inc. | 3,114,274 | 196,417 | ||
Texas Instruments Inc. | 2,129,132 | 148,060 | ||
Broadcom Ltd. | 827,862 | 146,051 | ||
NVIDIA Corp. | 1,132,122 | 69,444 | ||
Applied Materials Inc. | 2,309,112 | 68,904 | ||
Analog Devices Inc. | 651,571 | 40,762 | ||
* | Micron Technology Inc. | 2,198,665 | 36,256 | |
Lam Research Corp. | 338,379 | 31,578 | ||
Skyworks Solutions Inc. | 403,302 | 30,191 | ||
Linear Technology Corp. | 505,747 | 29,455 | ||
Xilinx Inc. | 537,836 | 29,156 | ||
Microchip Technology Inc. | 455,483 | 28,199 | ||
Maxim Integrated | ||||
Products Inc. | 604,797 | 24,627 | ||
KLA-Tencor Corp. | 330,205 | 22,870 | ||
* | Qorvo Inc. | 270,326 | 15,525 | |
Marvell Technology Group | ||||
Ltd. | 929,433 | 11,525 | ||
* | Advanced Micro Devices | |||
Inc. | 1,424,765 | 10,543 | ||
* | Microsemi Corp. | 239,868 | 9,585 | |
* | ON Semiconductor Corp. | 872,371 | 9,422 | |
Teradyne Inc. | 431,074 | 9,078 | ||
Cypress Semiconductor | ||||
Corp. | 661,022 | 7,886 | ||
* | Cavium Inc. | 138,847 | 7,731 | |
* | Cirrus Logic Inc. | 133,136 | 6,757 | |
Monolithic Power | ||||
Systems Inc. | 81,246 | 6,233 | ||
* | First Solar Inc. | 160,875 | 6,084 | |
* | Integrated Device | |||
Technology Inc. | 284,677 | 5,719 | ||
Intersil Corp. Class A | 286,221 | 5,650 | ||
MKS Instruments Inc. | 112,117 | 5,465 | ||
* | Cree Inc. | 214,063 | 5,140 | |
* | Entegris Inc. | 295,706 | 5,039 | |
*,^ | Ambarella Inc. | 69,643 | 5,017 | |
* | Silicon Laboratories Inc. | 83,323 | 4,774 | |
* | Fairchild Semiconductor | |||
International Inc. Class A | 239,424 | 4,765 | ||
* | Synaptics Inc. | 77,311 | 4,404 | |
* | Mellanox Technologies Ltd. 89,901 | 3,941 | ||
* | Advanced Energy | |||
Industries Inc. | 84,047 | 3,694 | ||
* | Semtech Corp. | 137,928 | 3,669 | |
Power Integrations Inc. | 60,920 | 3,558 | ||
Tessera Technologies Inc. | 105,839 | 3,550 | ||
* | Inphi Corp. | 77,095 | 3,320 | |
* | Rambus Inc. | 230,919 | 3,191 | |
Cabot Microelectronics | ||||
Corp. | 51,345 | 2,553 | ||
* | MACOM Technology | |||
Solutions Holdings Inc. | 61,385 | 2,529 | ||
* | MaxLinear Inc. | 117,127 | 2,245 | |
* | Amkor Technology Inc. | 225,931 | 2,056 | |
* | Kulicke & Soffa Industries | |||
Inc. | 150,015 | 1,835 | ||
Brooks Automation Inc. | 145,266 | 1,832 | ||
* | Diodes Inc. | 86,580 | 1,783 | |
* | Veeco Instruments Inc. | 85,064 | 1,673 |
* | Lattice Semiconductor | |||
Corp. | 248,088 | 1,526 | ||
* | FormFactor Inc. | 136,992 | 1,418 | |
* | CEVA Inc. | 43,757 | 1,377 | |
* | Photronics Inc. | 139,614 | 1,335 | |
* | Ultratech Inc. | 52,526 | 1,314 | |
*,^ | SunPower Corp. Class A | 129,398 | 1,289 | |
* | Applied Micro Circuits | |||
Corp. | 160,873 | 1,123 | ||
* | Rudolph Technologies Inc. | 62,812 | 1,102 | |
* | SunEdison Semiconductor | |||
Ltd. | 88,347 | 1,015 | ||
* | Nanometrics Inc. | 48,088 | 978 | |
* | PDF Solutions Inc. | 57,452 | 962 | |
* | Exar Corp. | 87,584 | 797 | |
*,^ | SolarEdge Technologies | |||
Inc. | 46,618 | 793 | ||
* | Xcerra Corp. | 114,500 | 671 | |
IXYS Corp. | 53,689 | 624 | ||
1,465,363 | ||||
Software (21.2%) | ||||
Microsoft Corp. | 15,831,772 | 909,694 | ||
Oracle Corp. | 6,598,674 | 271,997 | ||
* | Adobe Systems Inc. | 1,060,510 | 108,501 | |
* | salesforce.com Inc. | 1,364,525 | 108,371 | |
Intuit Inc. | 514,923 | 57,388 | ||
* | Electronic Arts Inc. | 639,446 | 51,942 | |
Activision Blizzard Inc. | 1,252,122 | 51,800 | ||
Symantec Corp. | 1,298,154 | 31,324 | ||
* | Autodesk Inc. | 428,533 | 28,883 | |
* | Citrix Systems Inc. | 328,911 | 28,681 | |
* | Red Hat Inc. | 385,458 | 28,131 | |
* | ServiceNow Inc. | 345,339 | 25,096 | |
CA Inc. | 660,214 | 22,388 | ||
* | Workday Inc. Class A | 250,325 | 21,225 | |
* | Synopsys Inc. | 321,919 | 19,087 | |
* | ANSYS Inc. | 186,094 | 17,696 | |
* | Splunk Inc. | 281,018 | 16,366 | |
* | Cadence Design | |||
Systems Inc. | 640,275 | 16,289 | ||
CDK Global Inc. | 278,392 | 16,141 | ||
SS&C Technologies | ||||
Holdings Inc. | 375,707 | 12,379 | ||
* | Ultimate Software Group | |||
Inc. | 58,157 | 12,151 | ||
* | Tyler Technologies Inc. | 72,816 | 11,938 | |
*,^ | VMware Inc. Class A | 158,119 | 11,595 | |
* | Fortinet Inc. | 308,470 | 11,148 | |
* | PTC Inc. | 241,944 | 10,324 | |
* | Guidewire Software Inc. | 152,797 | 9,402 | |
* | Manhattan Associates Inc. | 154,508 | 9,351 | |
* | NetSuite Inc. | 85,332 | 9,293 | |
Fair Isaac Corp. | 66,270 | 8,479 | ||
* | Aspen Technology Inc. | 175,596 | 7,983 | |
* | Take-Two Interactive | |||
Software Inc. | 179,576 | 7,806 | ||
* | Nuance Communications | |||
Inc. | 532,764 | 7,768 | ||
* | Ellie Mae Inc. | 69,471 | 6,799 | |
Blackbaud Inc. | 100,768 | 6,789 | ||
* | Tableau Software Inc. | |||
Class A | 115,855 | 6,723 | ||
* | Proofpoint Inc. | 82,508 | 6,349 | |
* | Fleetmatics Group plc | 82,085 | 4,914 | |
* | ACI Worldwide Inc. | 251,233 | 4,799 | |
* | Zendesk Inc. | 155,699 | 4,755 | |
* | CommVault Systems Inc. | 90,387 | 4,658 | |
Mentor Graphics Corp. | 192,653 | 4,626 | ||
* | FireEye Inc. | 314,107 | 4,511 | |
* | Verint Systems Inc. | 131,348 | 4,482 |
78
Information Technology Index Fund
Market | ||||
Value• | ||||
Shares | ($000) | |||
* | Paycom Software Inc. | 87,252 | 4,479 | |
* | Zynga Inc. Class A | 1,532,825 | 4,185 | |
* | Rovi Corp. | 175,372 | 3,590 | |
* | Synchronoss | |||
Technologies Inc. | 84,378 | 3,523 | ||
* | MicroStrategy Inc. Class A | 19,718 | 3,289 | |
^ | Ebix Inc. | 56,087 | 3,197 | |
* | RealPage Inc. | 115,876 | 2,983 | |
* | Progress Software Corp. | 97,415 | 2,826 | |
* | BroadSoft Inc. | 60,884 | 2,783 | |
* | Imperva Inc. | 61,470 | 2,767 | |
* | HubSpot Inc. | 47,513 | 2,648 | |
* | Gigamon Inc. | 57,988 | 2,563 | |
* | Infoblox Inc. | 118,850 | 2,550 | |
* | 8x8 Inc. | 185,991 | 2,468 | |
* | RingCentral Inc. Class A | 105,243 | 2,310 | |
* | Callidus Software Inc. | 118,897 | 2,297 | |
* | TiVo Inc. | 208,367 | 2,211 | |
* | Paylocity Holding Corp. | 48,271 | 2,174 | |
* | Interactive Intelligence | |||
Group Inc. | 36,209 | 2,167 | ||
Pegasystems Inc. | 79,587 | 2,049 | ||
* | Qualys Inc. | 57,984 | 1,995 | |
* | Bottomline Technologies | |||
de Inc. | 85,639 | 1,977 | ||
Monotype Imaging | ||||
Holdings Inc. | 84,826 | 1,790 | ||
* | Barracuda Networks Inc. | 50,264 | 1,166 | |
* | VASCO Data Security | |||
International Inc. | 63,517 | 1,158 | ||
* | PROS Holdings Inc. | 52,868 | 1,040 | |
* | Silver Spring Networks Inc. | 68,674 | 937 | |
* | Workiva Inc. | 43,676 | 780 | |
* | Varonis Systems Inc. | 25,365 | 749 | |
Epiq Systems Inc. | 44,076 | 724 | ||
* | Glu Mobile Inc. | 247,070 | 581 | |
* | Tangoe Inc. | 60,980 | 566 | |
*,^ | Rapid7 Inc. | 31,389 | 564 | |
* | Rubicon Project Inc. | 66,047 | 561 | |
* | Jive Software Inc. | 88,223 | 372 | |
*,^ | TubeMogul Inc. | 34,925 | 317 | |
* | EnerNOC Inc. | 55,279 | 316 | |
* | MobileIron Inc. | 75,825 | 228 | |
2,092,902 | ||||
Technology Hardware, Storage & | ||||
Peripherals (16.1%) | ||||
Apple Inc. | 11,612,838 | 1,232,122 | ||
EMC Corp. | 4,140,986 | 120,047 | ||
Hewlett Packard | ||||
Enterprise Co. | 3,655,036 | 78,510 | ||
HP Inc. | 3,682,474 | 52,917 |
Western Digital Corp. | 595,315 | 27,783 | |
Seagate Technology plc | 632,816 | 21,351 | |
NetApp Inc. | 612,821 | 21,198 | |
* | NCR Corp. | 262,692 | 8,892 |
Lexmark International Inc. | |||
Class A | 131,200 | 4,698 | |
* | Electronics For Imaging | ||
Inc. | 99,788 | 4,698 | |
Diebold Inc. | 150,308 | 4,218 | |
*,^ | 3D Systems Corp. | 226,191 | 3,280 |
* | Cray Inc. | 87,023 | 1,993 |
* | Super Micro Computer Inc. | 79,613 | 1,722 |
*,^ | Pure Storage Inc. Class A | 85,319 | 999 |
* | Nimble Storage Inc. | 120,241 | 989 |
* | Eastman Kodak Co. | 44,752 | 693 |
* | Avid Technology Inc. | 60,765 | 546 |
^ | CPI Card Group Inc. | 40,949 | 226 |
1,586,882 | |||
Total Common Stocks | |||
(Cost $7,607,836) | 9,880,949 | ||
Temporary Cash Investment (0.2%) | |||
Money Market Fund (0.2%) | |||
1,2 | Vanguard Market Liquidity | ||
Fund, 0.612% | |||
(Cost $21,401) | 214,007 | 21,403 | |
Total Investments (100.2%) | |||
(Cost $7,629,237) | 9,902,352 | ||
Amount | |||
($000) | |||
Other Assets and Liabilities (-0.2%) | |||
Other Assets | |||
Investment in Vanguard | 741 | ||
Receivables for Investment Securities Sold | 38,086 | ||
Receivables for Accrued Income | 15,860 | ||
Receivables for Capital Shares Issued | 861 | ||
Total Other Assets | 55,548 | ||
Liabilities | |||
Payables for Investment Securities | |||
Purchased | (37,568) | ||
Collateral for Securities on Loan | (21,399) | ||
Payables for Capital Shares Redeemed | (47) | ||
Payables to Vanguard | (2,913) | ||
Other Liabilities | (11,245) | ||
Total Liabilities | (73,172) | ||
Net Assets (100%) | 9,884,728 |
At August 31, 2016, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 7,664,359 |
Undistributed Net Investment Income | 29,986 |
Accumulated Net Realized Losses | (82,732) |
Unrealized Appreciation (Depreciation) | 2,273,115 |
Net Assets | 9,884,728 |
ETF Shares—Net Assets | |
Applicable to 80,032,912 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 9,429,219 |
Net Asset Value Per Share— | |
ETF Shares | $117.82 |
Admiral Shares—Net Assets | |
Applicable to 7,550,109 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 455,509 |
Net Asset Value Per Share— | |
Admiral Shares | $60.33 |
• 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 $20,453,000.
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 $21,399,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
79
Information Technology Index Fund
Statement of Operations
Year Ended | |
August 31, 2016 | |
($000) | |
Investment Income | |
Income | |
Dividends | 136,390 |
Interest1 | 10 |
Securities Lending—Net | 1,023 |
Total Income | 137,423 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 1,390 |
Management and Administrative— | |
ETF Shares | 5,905 |
Management and Administrative— | |
Admiral Shares | 276 |
Marketing and Distribution— | |
ETF Shares | 515 |
Marketing and Distribution— | |
Admiral Shares | 41 |
Custodian Fees | 74 |
Auditing Fees | 35 |
Shareholders’ Reports—ETF Shares | 308 |
Shareholders’ Reports—Admiral Shares | 7 |
Trustees’ Fees and Expenses | 4 |
Total Expenses | 8,555 |
Net Investment Income | 128,868 |
Realized Net Gain (Loss) on | |
Investment Securities Sold1 | 338,452 |
Change in Unrealized Appreciation | |
(Depreciation) of Investment Securities | 916,055 |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 1,383,375 |
1 Interest income and realized net gain (loss) from an affiliated | |
company of the fund were $9,000 and $1,000, respectively. |
Statement of Changes in Net Assets |
Year Ended August 31, | ||
2016 | 2015 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 128,868 | 98,802 |
Realized Net Gain (Loss) | 338,452 | 349,583 |
Change in Unrealized Appreciation (Depreciation) | 916,055 | (347,429) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 1,383,375 | 100,956 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (160,757) | (76,164) |
Admiral Shares | (7,596) | (3,231) |
Realized Capital Gain | ||
ETF Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (168,353) | (79,395) |
Capital Share Transactions | ||
ETF Shares | 1,010,938 | 1,361,928 |
Admiral Shares | 58,361 | 100,499 |
Net Increase (Decrease) from Capital Share Transactions | 1,069,299 | 1,462,427 |
Total Increase (Decrease) | 2,284,321 | 1,483,988 |
Net Assets | ||
Beginning of Period | 7,600,407 | 6,116,419 |
End of Period1 | 9,884,728 | 7,600,407 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $29,986,000 and $69,471,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
80
Information Technology Index Fund
Financial Highlights
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $102.35 | $101.41 | $77.63 | $72.58 | $59.17 |
Investment Operations | |||||
Net Investment Income | 1.566 | 1.277 | 1.135 | 1.011 | .628 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 16.049 | .834 | 23.589 | 4.872 | 13.267 |
Total from Investment Operations | 17.615 | 2.111 | 24.724 | 5.883 | 13.895 |
Distributions | |||||
Dividends from Net Investment Income | (2.145) | (1.171) | (. 944) | (. 833) | (. 485) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (2.145) | (1.171) | (. 944) | (. 833) | (. 485) |
Net Asset Value, End of Period | $117.82 | $102.35 | $101.41 | $77.63 | $72.58 |
Total Return | 17.48% | 2.05% | 32.04% | 8.23% | 23.65% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $9,429 | $7,259 | $5,876 | $3,497 | $2,536 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.12% | 0.14% | 0.14% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.50% | 1.35% | 1.38% | 1.53% | 1.01% |
Portfolio Turnover Rate1 | 5% | 3% | 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 | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $52.41 | $51.93 | $39.75 | $37.17 | $30.30 |
Investment Operations | |||||
Net Investment Income | .802 | .655 | .580 | .521 | . 320 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 8.216 | . 426 | 12.079 | 2.493 | 6.797 |
Total from Investment Operations | 9.018 | 1.081 | 12.659 | 3.014 | 7.117 |
Distributions | |||||
Dividends from Net Investment Income | (1.098) | (.601) | (.479) | (. 434) | (.247) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.098) | (.601) | (.479) | (. 434) | (.247) |
Net Asset Value, End of Period | $60.33 | $52.41 | $51.93 | $39.75 | $37.17 |
Total Return1 | 17.49% | 2.09% | 32.05% | 8.24% | 23.63% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $456 | $342 | $241 | $152 | $95 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.12% | 0.14% | 0.14% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.50% | 1.35% | 1.38% | 1.53% | 1.01% |
Portfolio Turnover Rate2 | 5% | 3% | 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.
81
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, 2013–2016), 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 subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
5. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at August 31, 2016, 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.
82
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, 2016, the fund had contributed to Vanguard capital in the amount of $741,000, representing 0.01% of the fund’s net assets and 0.30% 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, 2016, 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, 2016, the fund realized $366,030,000 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, 2016, the fund had $32,307,000 of ordinary income available for distribution. The fund used capital loss carryforwards of $7,164,000 to offset taxable capital gains realized during the year ended August 31, 2016. At August 31, 2016, the fund had available capital losses totaling $82,732,000 to offset future net capital gains. Of this amount, $47,958,000 is subject to expiration dates; $7,582,000 through August 31, 2017, $20,048,000 through August 31, 2018, and $20,328,000 through August 31, 2019. Capital losses of $34,774,000 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, 2016, the cost of investment securities for tax purposes was $7,629,237,000. Net unrealized appreciation of investment securities for tax purposes was $2,273,115,000, consisting of unrealized gains of $2,430,436,000 on securities that had risen in value since their purchase and $157,321,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2016, the fund purchased $2,215,052,000 of investment securities and sold $1,186,057,000 of investment securities, other than temporary cash investments. Purchases and sales include $1,616,420,000 and $757,379,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
83
Information Technology Index Fund
F. Capital share transactions for each class of shares were:
Year Ended August 31, | ||||
2016 | 2015 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 1,784,206 | 16,565 | 2,042,645 | 19,526 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (773,268) | (7,450) | (680,717) | (6,550) |
Net Increase (Decrease)—ETF Shares | 1,010,938 | 9,115 | 1,361,928 | 12,976 |
Admiral Shares | ||||
Issued | 172,599 | 3,127 | 171,683 | 3,201 |
Issued in Lieu of Cash Distributions | 7,052 | 131 | 3,022 | 58 |
Redeemed | (121,290) | (2,228) | (74,206) | (1,375) |
Net Increase (Decrease) —Admiral Shares | 58,361 | 1,030 | 100,499 | 1,884 |
At August 31, 2016, one shareholder was the record or beneficial owner of 35% 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, 2016, that would require recognition or disclosure in these financial statements.
84
Materials Index Fund
Fund Profile
As of August 31, 2016
Share-Class Characteristics | ||
ETF | Admiral | |
Shares | Shares | |
Ticker Symbol | VAW | VMIAX |
Expense Ratio1 | 0.10% | 0.10% |
30-Day SEC Yield | 1.88% | 1.88% |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | MSCI | ||
Materials | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 120 | 120 | 2,476 |
Median Market Cap | $19.9B | $19.9B | $51.2B |
Price/Earnings Ratio | 21.0x | 21.0x | 23.4x |
Price/Book Ratio | 3.3x | 3.3x | 2.8x |
Return on Equity | 16.2% | 16.2% | 16.7% |
Earnings Growth Rate | 6.4% | 6.4% | 7.4% |
Dividend Yield | 2.0% | 2.0% | 2.0% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 6% | — | — |
Short-Term Reserves | 0.2% | — | — |
Volatility Measures | ||
MSCI US | ||
IMI/Materials | MSCI US | |
25/50 | IMI/2500 | |
R-Squared | 1.00 | 0.75 |
Beta | 1.00 | 1.33 |
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 | 5.6 |
Construction Materials | 4.5 |
Diversified Chemicals | 18.1 |
Diversified Metals & Mining | 2.0 |
Fertilizers & Agricultural Chemicals | 9.7 |
Gold | 3.4 |
Industrial Gases | 8.8 |
Metal & Glass Containers | 4.9 |
Paper Packaging | 9.2 |
Paper Products | 1.2 |
Specialty Chemicals | 23.9 |
Steel | 5.4 |
Other Materials | 1.3 |
Ten Largest Holdings (% of total net assets) | ||
EI du Pont de | ||
Nemours & Co. | Diversified Chemicals | 8.0% |
Dow Chemical Co. | Diversified Chemicals | 7.9 |
Monsanto Co. | Fertilizers | |
& Agricultural Chemicals | 6.1 | |
Praxair Inc. | Industrial Gases | 4.6 |
Ecolab Inc. | Specialty Chemicals | 4.3 |
Air Products | ||
& Chemicals Inc. | Industrial Gases | 4.2 |
LyondellBasell | ||
Industries NV | Commodity Chemicals | 3.8 |
PPG Industries Inc. | Specialty Chemicals | 3.7 |
Sherwin-Williams | ||
Co. | Specialty Chemicals | 2.9 |
Newmont Mining | ||
Corp. | Gold | 2.7 |
Top Ten Total | 48.2% | |
The holdings listed exclude any temporary cash investments and equity index products. |
1 The expense ratios shown are from the prospectus dated December 22, 2015, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2016, the expense ratios were 0.10% for ETF Shares and 0.10% for Admiral Shares.
85
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.
Cumulative Performance: August 31, 2006–August 31, 2016
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_par17x10x1.jpg)
Average Annual Total Returns | Final Value | |||
Periods Ended August 31, 2016 | of a $10,000 | |||
One Year | Five Years | Ten Years | Investment | |
Materials Index Fund ETF Shares | ||||
Net Asset Value | 15.83% | 9.21% | 7.69% | $20,972 |
Materials Index Fund ETF Shares | ||||
Market Price | 15.84 | 9.20 | 7.68 | 20,951 |
Spliced US IMI/Materials 25/50 | 15.90 | 9.33 | 7.78 | 21,153 |
Basic Materials Funds Average | 12.06 | -0.53 | 3.56 | 14,188 |
MSCI US IMI/2500 | 11.48 | 14.51 | 7.80 | 21,187 |
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 | 15.80% | 9.22% | 7.68% | $209,523 |
Spliced US IMI/Materials 25/50 | 15.90 | 9.33 | 7.78 | 211,528 |
MSCI US IMI/2500 | 11.48 | 14.51 | 7.80 | 211,866 |
See Financial Highlights for dividend and capital gains information.
86
Materials Index Fund
Fiscal-Year Total Returns (%): August 31, 2006--August 31, 2016
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_par18x1x1.jpg)
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2006--August 31, 2016 | |||
One Year | Five Years | Ten Years | |
Materials Index Fund ETF Shares Market Price | 15.84% | 55.29% | 109.51% |
Materials Index Fund ETF Shares Net Asset Value | 15.83 | 55.32 | 109.72 |
Spliced US IMI/Materials 25/50 | 15.90 | 56.19 | 111.53 |
Average Annual Total Returns: Periods Ended June 30, 2016
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 | -1.65% | 5.81% | 6.97% | |
Net Asset Value | -1.65 | 5.80 | 6.96 | |
Admiral Shares | 2/11/2004 | -1.67 | 5.81 | 6.95 |
See Financial Highlights for dividend and capital gains information.
87
Materials Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2016
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 (66.0%) | |||
EI du Pont de Nemours | |||
& Co. | 1,939,261 | 134,973 | |
Dow Chemical Co. | 2,492,697 | 133,708 | |
Monsanto Co. | 969,711 | 103,274 | |
Praxair Inc. | 633,306 | 77,289 | |
Ecolab Inc. | 586,009 | 72,108 | |
Air Products & Chemicals | |||
Inc. | 455,808 | 70,933 | |
LyondellBasell Industries | |||
NV Class A | 805,210 | 63,523 | |
PPG Industries Inc. | 590,581 | 62,531 | |
Sherwin-Williams Co. | 174,549 | 49,521 | |
International Flavors & | |||
Fragrances Inc. | 176,929 | 24,519 | |
Eastman Chemical Co. | 330,057 | 22,408 | |
Mosaic Co. | 737,755 | 22,184 | |
Celanese Corp. Class A | 327,412 | 21,095 | |
Albemarle Corp. | 249,353 | 19,941 | |
Valspar Corp. | 167,176 | 17,622 | |
Ashland Inc. | 137,737 | 16,126 | |
RPM International Inc. | 294,382 | 16,053 | |
FMC Corp. | 296,147 | 13,901 | |
* | Axalta Coating Systems | ||
Ltd. | 476,856 | 13,648 | |
CF Industries Holdings | |||
Inc. | 516,462 | 13,428 | |
WR Grace & Co. | 156,292 | 12,211 | |
NewMarket Corp. | 21,011 | 9,118 | |
Scotts Miracle-Gro Co. | |||
Class A | 102,089 | 8,453 | |
Olin Corp. | 365,859 | 7,917 | |
Huntsman Corp. | 449,435 | 7,771 | |
Sensient Technologies | |||
Corp. | 99,644 | 7,297 | |
Cabot Corp. | 138,185 | 6,890 | |
PolyOne Corp. | 186,542 | 6,430 | |
Minerals Technologies | |||
Inc. | 77,296 | 5,455 | |
Chemours Co. | 402,026 | 5,303 | |
HB Fuller Co. | 110,449 | 5,244 | |
Balchem Corp. | 69,670 | 4,879 | |
Trinseo SA | 82,361 | 4,765 | |
* | GCP Applied | ||
Technologies Inc. | 155,868 | 4,561 | |
Westlake Chemical Corp. | 86,625 | 4,489 | |
* | Ingevity Corp. | 93,449 | 4,147 |
* | Chemtura Corp. | 134,875 | 4,045 |
Innospec Inc. | 53,215 | 3,155 | |
Stepan Co. | 44,312 | 3,113 | |
* | Platform Specialty | ||
Products Corp. | 329,328 | 2,980 | |
Quaker Chemical Corp. | 29,243 | 2,924 |
* | Kraton Performance | ||
Polymers Inc. | 67,685 | 2,441 | |
* | Ferro Corp. | 165,420 | 2,207 |
Innophos Holdings Inc. | 42,588 | 1,798 | |
* | Flotek Industries Inc. | 111,984 | 1,736 |
A Schulman Inc. | 64,551 | 1,646 | |
Calgon Carbon Corp. | 112,274 | 1,628 | |
* | Koppers Holdings Inc. | 45,476 | 1,484 |
Tronox Ltd. Class A | 142,656 | 1,302 | |
Rayonier Advanced | |||
Materials Inc. | 94,403 | 1,161 | |
American Vanguard Corp. | 57,687 | 972 | |
Hawkins Inc. | 20,770 | 907 | |
Tredegar Corp. | 46,672 | 879 | |
FutureFuel Corp. | 52,580 | 615 | |
* | LSB Industries Inc. | 45,382 | 545 |
^ | Kronos Worldwide Inc. | 51,156 | 455 |
*,^ | TerraVia Holdings Inc. | 151,467 | 401 |
* | AgroFresh Solutions Inc. | 49,533 | 301 |
* | Intrepid Potash Inc. | 120,542 | 166 |
1,110,576 | |||
Construction Materials (4.5%) | |||
Vulcan Materials Co. | 295,726 | 33,674 | |
Martin Marietta Materials | |||
Inc. | 133,929 | 24,513 | |
Eagle Materials Inc. | 107,134 | 8,611 | |
* | Summit Materials Inc. | ||
Class A | 167,253 | 3,302 | |
* | Headwaters Inc. | 163,472 | 2,964 |
* | US Concrete Inc. | 32,051 | 1,699 |
United States Lime & | |||
Minerals Inc. | 5,041 | 323 | |
75,086 | |||
Containers & Packaging (14.1%) | |||
International Paper Co. | 867,229 | 42,052 | |
Ball Corp. | 367,111 | 29,071 | |
WestRock Co. | 563,558 | 26,994 | |
Sealed Air Corp. | 437,726 | 20,630 | |
* | Crown Holdings Inc. | 309,401 | 16,779 |
Packaging Corp. of | |||
America | 208,898 | 16,426 | |
Avery Dennison Corp. | 198,211 | 15,349 | |
* | Berry Plastics Group Inc. | 268,455 | 12,185 |
Sonoco Products Co. | 223,674 | 11,528 | |
Bemis Co. Inc. | 209,884 | 11,040 | |
AptarGroup Inc. | 139,710 | 10,895 | |
Graphic Packaging Holding | |||
Co. | 715,765 | 10,264 | |
* | Owens-Illinois Inc. | 338,942 | 6,077 |
Silgan Holdings Inc. | 93,716 | 4,510 | |
Greif Inc. Class A | 56,642 | 2,415 | |
* | Multi Packaging Solutions | ||
International Ltd. | 68,306 | 958 | |
Myers Industries Inc. | 53,059 | 761 | |
237,934 |
Metals & Mining (13.6%) | |||
Newmont Mining Corp. | 1,177,076 | 45,011 | |
Nucor Corp. | 705,817 | 34,239 | |
Alcoa Inc. | 2,919,572 | 29,429 | |
Freeport-McMoRan Inc. | 2,640,828 | 27,174 | |
Steel Dynamics Inc. | 539,338 | 13,278 | |
Reliance Steel & | |||
Aluminum Co. | 160,624 | 11,578 | |
Royal Gold Inc. | 144,597 | 10,602 | |
United States Steel Corp. | 367,029 | 7,135 | |
Compass Minerals | |||
International Inc. | 74,777 | 5,573 | |
Hecla Mining Co. | 852,590 | 4,757 | |
Worthington Industries Inc. | 104,765 | 4,494 | |
* | Coeur Mining Inc. | 338,262 | 4,309 |
^ | Allegheny Technologies | ||
Inc. | 241,371 | 4,118 | |
Commercial Metals Co. | 255,344 | 3,963 | |
Carpenter Technology | |||
Corp. | 103,827 | 3,767 | |
Kaiser Aluminum Corp. | 39,769 | 3,390 | |
* | Stillwater Mining Co. | 267,476 | 3,384 |
*,^ | Cliffs Natural Resources | ||
Inc. | 480,702 | 2,740 | |
* | AK Steel Holding Corp. | 528,815 | 2,359 |
^ | McEwen Mining Inc. | 496,670 | 1,704 |
Materion Corp. | 44,232 | 1,298 | |
Schnitzer Steel Industries | |||
Inc. | 58,531 | 1,099 | |
Haynes International Inc. | 27,383 | 1,010 | |
SunCoke Energy Inc. | 133,688 | 872 | |
* | TimkenSteel Corp. | 82,998 | 818 |
* | Century Aluminum Co. | 114,681 | 720 |
228,821 | |||
Paper & Forest Products (1.8%) | |||
* | Louisiana-Pacific Corp. | 317,276 | 6,181 |
Domtar Corp. | 138,853 | 5,182 | |
KapStone Paper and | |||
Packaging Corp. | 202,928 | 3,553 | |
Neenah Paper Inc. | 37,079 | 2,982 | |
Schweitzer-Mauduit | |||
International Inc. | 67,526 | 2,652 | |
* | Clearwater Paper Corp. | 37,934 | 2,355 |
* | Boise Cascade Co. | 85,567 | 2,245 |
PH Glatfelter Co. | 96,063 | 2,130 | |
Deltic Timber Corp. | 24,679 | 1,750 | |
Mercer International Inc. | 99,514 | 827 | |
* | Resolute Forest Products | ||
Inc. | 136,859 | 794 | |
30,651 | |||
Total Common Stocks | |||
(Cost $1,698,390) | 1,683,068 |
88
Materials Index Fund
Market | ||
Value• | ||
Shares | ($000) | |
Temporary Cash Investment (0.4%) | ||
Money Market Fund (0.4%) | ||
1,2 Vanguard Market Liquidity | ||
Fund, 0.612% | ||
(Cost $6,266) | 62,654 | 6,266 |
Total Investments (100.4%) | ||
(Cost $1,704,656) | 1,689,334 | |
Amount | ||
($000) | ||
Other Assets and Liabilities (-0.4%) | ||
Other Assets | ||
Investment in Vanguard | 130 | |
Receivables for Investment Securities Sold | 3,783 | |
Receivables for Accrued Income | 3,218 | |
Receivables for Capital Shares Issued | 417 | |
Other Assets | 299 | |
Total Other Assets | 7,847 | |
Liabilities | ||
Payables for Investment Securities | ||
Purchased | (9,374) | |
Collateral for Securities on Loan | (3,500) | |
Payables for Capital Shares Redeemed | (280) | |
Payables to Vanguard | (821) | |
Other Liabilities | (2) | |
Total Liabilities | (13,977) | |
Net Assets (100%) | 1,683,204 |
At August 31, 2016, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 1,755,666 |
Undistributed Net Investment Income | 6,122 |
Accumulated Net Realized Losses | (63,262) |
Unrealized Appreciation (Depreciation) | (15,322) |
Net Assets | 1,683,204 |
ETF Shares—Net Assets | |
Applicable to 13,387,563 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 1,447,974 |
Net Asset Value Per Share— | |
ETF Shares | $108.16 |
Admiral Shares—Net Assets | |
Applicable to 4,268,344 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 235,230 |
Net Asset Value Per Share— | |
Admiral Shares | $55.11 |
• 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 $3,178,000.
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 $3,500,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
89
Materials Index Fund
Statement of Operations
Year Ended | |
August 31, 2016 | |
($000) | |
Investment Income | |
Income | |
Dividends | 28,275 |
Interest1 | 4 |
Securities Lending—Net | 274 |
Total Income | 28,553 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 244 |
Management and Administrative— | |
ETF Shares | 723 |
Management and Administrative— | |
Admiral Shares | 127 |
Marketing and Distribution— | |
ETF Shares | 81 |
Marketing and Distribution— | |
Admiral Shares | 22 |
Custodian Fees | 8 |
Auditing Fees | 35 |
Shareholders’ Reports—ETF Shares | 71 |
Shareholders’ Reports—Admiral Shares | 3 |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 1,315 |
Net Investment Income | 27,238 |
Realized Net Gain (Loss) on | |
Investment Securities Sold1 | 49,519 |
Change in Unrealized Appreciation | |
(Depreciation) of Investment Securities | 121,531 |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 198,288 |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $4,000 and $0, respectively. |
Statement of Changes in Net Assets
Year Ended August 31, | ||
2016 | 2015 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 27,238 | 27,276 |
Realized Net Gain (Loss) | 49,519 | 143,930 |
Change in Unrealized Appreciation (Depreciation) | 121,531 | (391,920) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 198,288 | (220,714) |
Distributions | ||
Net Investment Income | ||
ETF Shares | (32,837) | (22,046) |
Admiral Shares | (5,856) | (2,938) |
Realized Capital Gain | ||
ETF Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (38,693) | (24,984) |
Capital Share Transactions | ||
ETF Shares | 290,064 | (86,050) |
Admiral Shares | 18,673 | 49,594 |
Net Increase (Decrease) from Capital Share Transactions | 308,737 | (36,456) |
Total Increase (Decrease) | 468,332 | (282,154) |
Net Assets | ||
Beginning of Period | 1,214,872 | 1,497,026 |
End of Period1 | 1,683,204 | 1,214,872 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $6,122,000 and $17,577,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
90
Materials Index Fund
Financial Highlights
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $96.39 | $113.50 | $90.94 | $79.81 | $77.59 |
Investment Operations | |||||
Net Investment Income | 1.980 | 2.126 | 1.847 | 1.993 | 1.537 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 12.770 | (17.344) | 22.612 | 10.708 | 2.259 |
Total from Investment Operations | 14.750 | (15.218) | 24.459 | 12.701 | 3.796 |
Distributions | |||||
Dividends from Net Investment Income | (2.980) | (1.892) | (1.899) | (1.571) | (1.576) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (2.980) | (1.892) | (1.899) | (1.571) | (1.576) |
Net Asset Value, End of Period | $108.16 | $96.39 | $113.50 | $90.94 | $79.81 |
Total Return | 15.83% | -13.56% | 27.17% | 16.08% | 5.09% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $1,448 | $1,022 | $1,323 | $796 | $642 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.12% | 0.14% | 0.14% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.06% | 1.86% | 1.88% | 2.32% | 1.93% |
Portfolio Turnover Rate1 | 6% | 4% | 4% | 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 | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $49.12 | $57.84 | $46.34 | $40.66 | $39.53 |
Investment Operations | |||||
Net Investment Income | 1.008 | 1.088 | .936 | 1.014 | .783 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 6.505 | (8.846) | 11.528 | 5.464 | 1.151 |
Total from Investment Operations | 7.513 | (7.758) | 12.464 | 6.478 | 1.934 |
Distributions | |||||
Dividends from Net Investment Income | (1.523) | (. 962) | (. 964) | (.798) | (. 804) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.523) | (. 962) | (. 964) | (.798) | (. 804) |
Net Asset Value, End of Period | $55.11 | $49.12 | $57.84 | $46.34 | $40.66 |
Total Return1 | 15.80% | -13.54% | 27.18% | 16.12% | 5.10% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $235 | $193 | $175 | $139 | $123 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.12% | 0.14% | 0.14% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.06% | 1.86% | 1.88% | 2.32% | 1.93% |
Portfolio Turnover Rate2 | 6% | 4% | 4% | 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.
91
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, 2013–2016), 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 subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
5. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at August 31, 2016, 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.
92
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, 2016, the fund had contributed to Vanguard capital in the amount of $130,000, 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, 2016, 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, 2016, the fund realized $56,915,000 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, 2016, the fund had $6,842,000 of ordinary income available for distribution. At August 31, 2016, the fund had available capital losses totaling $63,262,000 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 $23,972,000 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, 2016, the cost of investment securities for tax purposes was $1,704,656,000. Net unrealized depreciation of investment securities for tax purposes was $15,322,000, consisting of unrealized gains of $177,672,000 on securities that had risen in value since their purchase and $192,994,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2016, the fund purchased $576,196,000 of investment securities and sold $278,372,000 of investment securities, other than temporary cash investments. Purchases and sales include $455,868,000 and $194,055,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
93
Materials Index Fund
F. Capital share transactions for each class of shares were:
Year Ended August 31, | ||||
2016 | 2015 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 490,113 | 4,832 | 383,741 | 3,553 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (200,049) | (2,050) | (469,791) | (4,600) |
Net Increase (Decrease)—ETF Shares | 290,064 | 2,782 | (86,050) | (1,047) |
Admiral Shares | ||||
Issued | 86,862 | 1,723 | 83,611 | 1,523 |
Issued in Lieu of Cash Distributions | 5,125 | 107 | 2,371 | 45 |
Redeemed | (73,314) | (1,482) | (36,388) | (665) |
Net Increase (Decrease) —Admiral Shares | 18,673 | 348 | 49,594 | 903 |
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2016, that would require recognition or disclosure in these financial statements.
94
Telecommunication Services Index Fund
Fund Profile
As of August 31, 2016
Share-Class Characteristics | ||
ETF | Admiral | |
Shares | Shares | |
Ticker Symbol | VOX | VTCAX |
Expense Ratio1 | 0.10% | 0.10% |
30-Day SEC Yield | 3.09% | 3.09% |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | |||
Telecom | MSCI | ||
Services | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 31 | 29 | 2,476 |
Median Market Cap | $24.6B | $38.1B | $51.2B |
Price/Earnings Ratio | 23.4x | 23.2x | 23.4x |
Price/Book Ratio | 2.5x | 2.5x | 2.8x |
Return on Equity | 20.5% | 20.4% | 16.7% |
Earnings Growth Rate | 5.4% | 5.5% | 7.4% |
Dividend Yield | 3.1% | 3.2% | 2.0% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 20% | — | — |
Short-Term Reserves | -0.4% | — | — |
Volatility Measures | ||
MSCI US | ||
IMI/Telecom | ||
Services | MSCI US | |
25/50 | IMI/2500 | |
R-Squared | 1.00 | 0.33 |
Beta | 1.00 | 0.61 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months. |
Subindustry Diversification | |
(% of equity exposure) | |
Alternative Carriers | 18.6% |
Integrated Telecommunication Services | 66.5 |
Wireless Telecommunication Services | 14.8 |
Other Telecommunication Services | 0.1 |
Ten Largest Holdings (% of total net assets) | ||
AT&T Inc. | Integrated | |
Telecommunication | ||
Services | 22.4% | |
Verizon | Integrated | |
Communications | Telecommunication | |
Inc. | Services | 22.4 |
SBA | Integrated | |
Communications | Telecommunication | |
Corp. | Services | 4.2 |
T-Mobile US Inc. | Wireless | |
Telecommunication | ||
Services | 4.1 | |
Level 3 | ||
Communications Inc. | Alternative Carriers | 4.1 |
CenturyLink Inc. | Integrated | |
Telecommunication | ||
Services | 4.0 | |
Sprint Corp. | Wireless | |
Telecommunication | ||
Services | 2.9 | |
Frontier | Integrated | |
Communications | Telecommunication | |
Corp. | Services | 2.3 |
Telephone | Wireless | |
& Data Systems | Telecommunication | |
Inc. | Services | 1.9 |
Zayo Group | ||
Holdings Inc. | Alternative Carriers | 1.9 |
Top Ten Total | 70.2% | |
The holdings listed exclude any temporary cash investments and equity index products. |
1 The expense ratios shown are from the prospectus dated December 22, 2015, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2016, the expense ratios were 0.10% for ETF Shares and 0.10% for Admiral Shares.
95
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.
Cumulative Performance: August 31, 2006–August 31, 2016
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_par19x9x1.jpg)
Average Annual Total Returns | Final Value | |||
Periods Ended August 31, 2016 | of a $10,000 | |||
One Year | Five Years | Ten Years | Investment | |
Telecommunication Services Index Fund | ||||
ETF Shares Net Asset Value | 19.14% | 11.84% | 7.04% | $19,753 |
Telecommunication Services Index Fund | ||||
ETF Shares Market Price | 19.09 | 11.80 | 7.01 | 19,683 |
Spliced US IMI/Telecommunication | ||||
Services 25/50 | 19.08 | 11.86 | 6.75 | 19,210 |
Telecommunication Funds Average | 10.69 | 9.71 | 4.43 | 15,430 |
MSCI US IMI/2500 | 11.48 | 14.51 | 7.80 | 21,187 |
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 | 19.14% | 11.86% | 7.05% | $197,568 |
Spliced US IMI/Telecommunication Services 25/50 | 19.08 | 11.86 | 6.75 | 192,097 |
MSCI US IMI/2500 | 11.48 | 14.51 | 7.80 | 211,866 |
See Financial Highlights for dividend and capital gains information.
96
Telecommunication Services Index Fund
Fiscal-Year Total Returns (%): August 31, 2006--August 31, 2016
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_par20x1x1.jpg)
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2006--August 31, 2016
One Year | Five Years | Ten Years | |
Telecommunication Services Index Fund ETF Shares Market Price | 19.09% | 74.67% | 96.83% |
Telecommunication Services Index Fund ETF Shares Net Asset Value | 19.14 | 74.96 | 97.53 |
Spliced US IMI/Telecommunication Services 25/50 | 19.08 | 75.15 | 92.10 |
Average Annual Total Returns: Periods Ended June 30, 2016
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 | 18.69% | 10.56% | 7.98% | |
Net Asset Value | 18.75 | 10.54 | 7.96 | |
Admiral Shares | 3/11/2005 | 18.76 | 10.57 | 7.96 |
See Financial Highlights for dividend and capital gains information.
97
Telecommunication Services Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2016
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Market | |||
Value• | |||
Shares | ($000) | ||
Common Stocks (99.6%)1 | |||
Diversified Telecommunication Services (84.7%) | |||
Alternative Carriers (18.5%) | |||
* | Level 3 Communications | ||
Inc. | 1,264,989 | 62,782 | |
* | Zayo Group Holdings Inc. | 1,020,042 | 29,592 |
* | Vonage Holdings Corp. | 4,531,303 | 26,327 |
* | ORBCOMM Inc. | 2,644,296 | 26,311 |
Cogent Communications | |||
Holdings Inc. | 708,528 | 25,181 | |
*,2 | Lumos Networks Corp. | 1,770,994 | 24,351 |
*,^ | Iridium Communications | ||
Inc. | 2,879,530 | 23,987 | |
*,^ | Globalstar Inc. | 15,268,188 | 23,818 |
*,^,2pdvWireless Inc. | 881,682 | 22,562 | |
Inteliquent Inc. | 1,338,785 | 22,277 | |
Integrated Telecommunication Services (66.2%) | |||
AT&T Inc. | 8,475,585 | 346,482 | |
Verizon Communications | |||
Inc. | 6,613,641 | 346,092 | |
* | SBA Communications | ||
Corp. Class A | 569,375 | 64,994 | |
CenturyLink Inc. | 2,211,000 | 61,466 | |
Frontier Communications | |||
Corp. | 7,646,982 | 35,176 | |
* | Cincinnati Bell Inc. | 6,684,362 | 27,940 |
^ | Windstream Holdings Inc. | 3,193,049 | 27,173 |
Consolidated | |||
Communications | |||
Holdings Inc. | 1,085,812 | 26,114 | |
IDT Corp. Class B | 1,611,272 | 23,992 | |
ATN International Inc. | 341,243 | 22,297 | |
* | General Communication | ||
Inc. Class A | 1,588,018 | 22,073 | |
*,2 | FairPoint | ||
Communications Inc. | 1,510,902 | 21,062 | |
1,312,049 | |||
Other (0.1%)3 | |||
* | Leap Wireless | ||
International Inc CVR | 577,114 | 1,454 |
Software (0.1%) | |||
Application Software (0.1%) | |||
* | 8x8 Inc. | 63,473 | 842 |
Wireless Telecommunication Services (14.7%) | |||
* | T-Mobile US Inc. | 1,369,684 | 63,471 |
*,^ Sprint Corp. | 7,146,830 | 44,167 | |
Telephone & Data | |||
Systems Inc. | 1,074,228 | 29,939 | |
*,^,2NII Holdings Inc. | 7,541,426 | 25,113 | |
Shenandoah | |||
Telecommunications Co. | 905,166 | 23,281 | |
* | United States Cellular | ||
Corp. | 566,484 | 21,085 | |
2 | Spok Holdings Inc. | 1,269,207 | 21,005 |
228,061 | |||
Total Common Stocks | |||
(Cost $1,513,010) | 1,542,406 | ||
Temporary Cash Investments (4.7%)1 | |||
Money Market Fund (4.7%) | |||
4,5 | Vanguard Market Liquidity | ||
Fund, 0.612% | 717,410 | 71,748 | |
Face | |||
Amount | |||
($000) | |||
U.S. Government and Agency Obligations (0.0%) | |||
6,7 | Federal Home Loan Bank | ||
Discount Notes, 0.465%, | |||
10/28/16 | 500 | 500 | |
Total Temporary Cash Investments | |||
(Cost $72,242) | 72,248 | ||
Total Investments (104.3%) | |||
(Cost $1,585,252) | 1,614,654 | ||
Other Assets and Liabilities (-4.3%) | |||
Other Assets | 38,982 | ||
Liabilities5 | (105,616) | ||
(66,634) | |||
Net Assets (100%) | 1,548,020 |
Amount | |
($000) | |
Statement of Assets and Liabilities | |
Assets | |
Investments in Securities, at Value | |
Unaffiliated Issuers | 1,428,813 |
Affiliated Vanguard Funds | 71,748 |
Other Affiliated Issuers | 114,093 |
Total Investments in Securities | 1,614,654 |
Investment in Vanguard | 145 |
Receivables for Investment Securities Sold | 36,972 |
Receivables for Accrued Income | 1,835 |
Receivables for Capital Shares Issued | 30 |
Total Assets | 1,653,636 |
Liabilities | |
Payables for Investment Securities | |
Purchased | 31,929 |
Collateral for Securities on Loan | 71,740 |
Payables for Capital Shares Redeemed | 47 |
Payables to Vanguard | 491 |
Other Liabilities | 1,409 |
Total Liabilities | 105,616 |
Net Assets | 1,548,020 |
At August 31, 2016, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 1,584,737 |
Undistributed Net Investment Income | 11,581 |
Accumulated Net Realized Losses | (77,700) |
Unrealized Appreciation (Depreciation) | 29,402 |
Net Assets | 1,548,020 |
ETF Shares—Net Assets | |
Applicable to 15,587,498 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 1,483,306 |
Net Asset Value Per Share— | |
ETF Shares | $95.16 |
Admiral Shares—Net Assets | |
Applicable to 1,334,443 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 64,714 |
Net Asset Value Per Share— | |
Admiral Shares | $48.50 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $64,065,000.
1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures investments, the fund’s effective common stock and temporary cash
investment positions represent 100.1% and 4.2%, respectively, of net assets.
2 Considered an affiliated company of the fund as the fund owns more than 5% of the outstanding voting securities of such company.
3 “Other” represents securities that are not classified by the fund’s benchmark index.
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 $71,740,000 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 After August 31, 2016, the fund posted collateral of $300,000 in connection with open futures contracts as of August 31, 2016.
CVR—Contingent Value Rights.
See accompanying Notes, which are an integral part of the Financial Statements.
98
Telecommunication Services Index Fund
Statement of Operations
Year Ended | |
August 31, 2016 | |
($000) | |
Investment Income | |
Income | |
Dividends | 38,420 |
Interest | 11 |
Securities Lending—Net | 952 |
Total Income | 39,383 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 226 |
Management and Administrative— | |
ETF Shares | 747 |
Management and Administrative— | |
Admiral Shares | 26 |
Marketing and Distribution— | |
ETF Shares | 99 |
Marketing and Distribution— | |
Admiral Shares | 4 |
Custodian Fees | 1 |
Auditing Fees | 35 |
Shareholders’ Reports—ETF Shares | 102 |
Shareholders’ Reports—Admiral Shares | 1 |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 1,242 |
Net Investment Income | 38,141 |
Realized Net Gain (Loss) | |
Investment Securities Sold | 87,106 |
Futures Contracts | 916 |
Realized Net Gain (Loss) | 88,022 |
Change in Unrealized Appreciation | |
(Depreciation) | |
Investment Securities | 78,559 |
Futures Contracts | 5 |
Change in Unrealized Appreciation | |
(Depreciation) | 78,564 |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 204,727 |
Statement of Changes in Net Assets
Year Ended August 31, | ||
2016 | 2015 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 38,141 | 29,082 |
Realized Net Gain (Loss) | 88,022 | 42,731 |
Change in Unrealized Appreciation (Depreciation) | 78,564 | (100,588) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 204,727 | (28,775) |
Distributions | ||
Net Investment Income | ||
ETF Shares | (46,291) | (21,393) |
Admiral Shares | (1,424) | (655) |
Realized Capital Gain | ||
ETF Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (47,715) | (22,048) |
Capital Share Transactions | ||
ETF Shares | 535,585 | 101,293 |
Admiral Shares | 35,852 | 301 |
Net Increase (Decrease) from Capital Share Transactions | 571,437 | 101,594 |
Total Increase (Decrease) | 728,449 | 50,771 |
Net Assets | ||
Beginning of Period | 819,571 | 768,800 |
End of Period1 | 1,548,020 | 819,571 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $11,581,000 and $21,155,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
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Telecommunication Services Index Fund
Financial Highlights
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $83.80 | $88.44 | $78.54 | $70.82 | $65.11 |
Investment Operations | |||||
Net Investment Income | 2.622 | 2.789 | 2.394 | 3.7341 | 2.1052 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 12.811 | (5.178) | 10.749 | 6.455 | 5.614 |
Total from Investment Operations | 15.433 | (2.389) | 13.143 | 10.189 | 7.719 |
Distributions | |||||
Dividends from Net Investment Income | (4.073) | (2.251) | (3.243) | (2.469) | (2.009) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (4.073) | (2.251) | (3.243) | (2.469) | (2.009) |
Net Asset Value, End of Period | $95.16 | $83.80 | $88.44 | $78.54 | $70.82 |
Total Return | 19.14% | -2.72% | 17.08% | 14.78% | 12.33% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $1,483 | $795 | $743 | $511 | $524 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.12% | 0.14% | 0.14% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 3.10% | 3.20% | 3.29% | 4.56%1 | 3.24% |
Portfolio Turnover Rate3 | 20% | 18% | 19% | 19% | 28% |
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.
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Telecommunication Services Index Fund
Financial Highlights
Admiral Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $42.71 | $45.07 | $40.02 | $36.09 | $33.18 |
Investment Operations | |||||
Net Investment Income | 1.337 | 1.419 | 1.217 | 1.9061 | 1.0822 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 6.529 | (2.637) | 5.486 | 3.284 | 2.845 |
Total from Investment Operations | 7.866 | (1.218) | 6.703 | 5.190 | 3.927 |
Distributions | |||||
Dividends from Net Investment Income | (2.076) | (1.142) | (1.653) | (1.260) | (1.017) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (2.076) | (1.142) | (1.653) | (1.260) | (1.017) |
Net Asset Value, End of Period | $48.50 | $42.71 | $45.07 | $40.02 | $36.09 |
Total Return 3 | 19.14% | -2.66% | 17.13% | 14.80% | 12.33% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $65 | $24 | $26 | $21 | $19 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.12% | 0.14% | 0.14% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 3.10% | 3.20% | 3.29% | 4.56%1 | 3.24% |
Portfolio Turnover Rate4 | 20% | 18% | 19% | 19% | 28% |
1 Net investment income per share and the ratio of net investment income to average net assets include $0.359 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
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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, 2016, 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, 2013–2016), 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 subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities
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Telecommunication Services Index Fund
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. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
6. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at August 31, 2016, 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, 2016, the fund had contributed to Vanguard capital in the amount of $145,000, representing 0.01% of the fund’s net assets and 0.06% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and 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).
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Telecommunication Services Index Fund
The following table summarizes the market value of the fund’s investments as of August 31, 2016, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 1,540,952 | — | 1,454 |
Temporary Cash Investments | 71,748 | 500 | — |
Total | 1,612,700 | 500 | 1,454 |
D. At August 31, 2016, 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 2016 | 64 | 6,942 | — |
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, 2016, the fund realized $76,433,000 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, 2016, the fund had $11,992,000 of ordinary income available for distribution. The fund used capital loss carryforwards of $11,568,000 to offset taxable capital gains realized during the year ended August 31, 2016. At August 31, 2016, the fund had available capital losses totaling $77,701,000 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 $32,416,000 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, 2016, the cost of investment securities for tax purposes was $1,585,252,000. Net unrealized appreciation of investment securities for tax purposes was $29,402,000, consisting of unrealized gains of $85,293,000 on securities that had risen in value since their purchase and $55,891,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the year ended August 31, 2016, the fund purchased $1,223,405,000 of investment securities and sold $667,294,000 of investment securities, other than temporary cash investments. Purchases and sales include $912,852,000 and $420,633,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
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Telecommunication Services Index Fund
G. Capital share transactions for each class of shares were: |
Year Ended August 31, | ||||
2016 | 2015 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 956,306 | 10,625 | 463,270 | 5,334 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (420,721) | (4,525) | (361,977) | (4,250) |
Net Increase (Decrease)—ETF Shares | 535,585 | 6,100 | 101,293 | 1,084 |
Admiral Shares | ||||
Issued | 55,638 | 1,179 | 13,873 | 310 |
Issued in Lieu of Cash Distributions | 1,210 | 28 | 527 | 13 |
Redeemed | (20,996) | (446) | (14,099) | (317) |
Net Increase (Decrease) —Admiral Shares | 35,852 | 761 | 301 | 6 |
At August 31, 2016, one shareholder was the record or beneficial owner of 33% 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. 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, | ||||
2015 | from | Capital Gain | 2016 | |||
Market | Purchases | Securities | Distributions | Market | ||
Value | at Cost | Sold1 | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
FairPoint Communications Inc. | NA 2 | 20,414 | 6,448 | — | — | 21,062 |
Lumos Networks Corp. | NA 2 | 19,197 | 7,222 | — | — | 24,351 |
NII Holdings Inc. | — | 28,783 | 2,280 | — | — | 25,113 |
pdvWireless Inc. | — | 33,284 | 7,577 | — | — | 22,562 |
Spok Holdings Inc. | NA 2 | 16,432 | 6,864 | 656 | — | 21,005 |
Vanguard Market Liquidity Fund | 8,004 | NA 3 | NA 3 | 10 | — | 71,748 |
Total | 8,004 | 666 | — | 185,841 |
1 Includes net realized gain (loss) on affiliated investment securities sold of $659,000.
2 Not applicable—at August 31, 2015, the issuer was not an affiliated company of the fund.
3 Not applicable—purchases and sales are for temporary cash investment purposes.
I. Management has determined that no material events or transactions occurred subsequent to August 31, 2016, that would require recognition or disclosure in these financial statements.
105
Utilities Index Fund
Fund Profile
As of August 31, 2016
Share-Class Characteristics | ||
ETF | Admiral | |
Shares | Shares | |
Ticker Symbol | VPU | VUIAX |
Expense Ratio1 | 0.10% | 0.10% |
30-Day SEC Yield | 3.33% | 3.33% |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | MSCI | ||
Utilities | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 80 | 80 | 2,476 |
Median Market Cap | $22.9B | $22.9B | $51.2B |
Price/Earnings Ratio | 21.9x | 21.9x | 23.4x |
Price/Book Ratio | 1.9x | 1.9x | 2.8x |
Return on Equity | 9.9% | 9.9% | 16.7% |
Earnings Growth Rate | 1.9% | `1.9% | 7.4% |
Dividend Yield | 3.4% | 3.4% | 2.0% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 3% | — | — |
Short-Term Reserves | 0.0% | — | — |
Volatility Measures | ||
MSCI US | ||
IMI/Utilities | MSCI US | |
25/50 | IMI/2500 | |
R-Squared | 1.00 | 0.05 |
Beta | 1.00 | 0.27 |
These measures show the degree and timing of the fund’s |
Subindustry Diversification | |
(% of equity exposure) | |
Electric Utilities | 57.8% |
Gas Utilities | 6.6 |
Independent Power Producers | |
& Energy Traders | 2.6 |
Multi-Utilities | 29.1 |
Water Utilities | 3.1 |
Other Utilities | 0.8 |
Ten Largest Holdings (% of total net assets) | ||
NextEra Energy Inc. | Electric Utilities | 7.5% |
Duke Energy Corp. | Electric Utilities | 7.3 |
Southern Co. | Electric Utilities | 6.4 |
Dominion Resources Inc. | Multi-Utilities | 6.1 |
American Electric | ||
Power Co. Inc. | Electric Utilities | 4.2 |
Exelon Corp. | Electric Utilities | 4.2 |
PG&E Corp. | Electric Utilities | 4.1 |
Sempra Energy | Multi-Utilities | 3.3 |
Edison International | Electric Utilities | 3.2 |
PPL Corp. | Electric Utilities | 3.1 |
Top Ten | 49.4% | |
The holdings listed exclude any temporary cash investments and equity index products. |
1 The expense ratios shown are from the prospectus dated December 22, 2015, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2016, the expense ratios were 0.10% for ETF Shares and 0.10% for Admiral Shares.
106
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, 2006–August 31, 2016
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_par21x10x1.jpg)
Average Annual Total Returns | Final Value | |||
Periods Ended August 31, 2016 | of a $10,000 | |||
One Year | Five Years | Ten Years | Investment | |
Utilities Index Fund | ||||
ETF Shares Net Asset Value | 21.40% | 12.11% | 7.71% | $21,014 |
Utilities Index Fund | ||||
ETF Shares Market Price | 21.37 | 12.10 | 7.70 | 21,006 |
Spliced US IMI/Utilities 25/50 | 21.46 | 12.24 | 7.89 | 21,362 |
Utility Funds Average | 12.60 | 9.31 | 5.85 | 17,660 |
MSCI US IMI/2500 | 11.48 | 14.51 | 7.80 | 21,187 |
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 | 21.42% | 12.12% | 7.71% | $210,068 |
Spliced US IMI/Utilities 25/50 | 21.46 | 12.24 | 7.89 | 213,617 |
MSCI US IMI/2500 | 11.48 | 14.51 | 7.80 | 211,866 |
See Financial Highlights for dividend and capital gains information.
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Utilities Index Fund
Fiscal-Year Total Returns (%): August 31, 2006--August 31, 2016
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_par22x1x1.jpg)
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2006--August 31, 2016 | |||
One Year | Five Years | Ten Years | |
Utilities Index Fund ETF Shares Market Price | 21.37% | 77.05% | 110.06% |
Utilities Index Fund ETF Shares Net Asset Value | 21.40 | 77.07 | 110.14 |
Spliced US IMI/Utilities 25/50 | 21.46 | 78.16 | 113.62 |
Average Annual Total Returns: Periods Ended June 30, 2016
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 | 31.68% | 13.72% | 9.22% | |
Net Asset Value | 31.72 | 13.72 | 9.21 | |
Admiral Shares | 4/28/2004 | 31.71 | 13.74 | 9.20 |
See Financial Highlights for dividend and capital gains information.
108
Utilities Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2016
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 (57.8%) | ||
NextEra Energy Inc. | 1,821,533 | 220,296 |
Duke Energy Corp. | 2,714,496 | 216,237 |
Southern Co. | 3,698,254 | 189,831 |
American Electric Power | ||
Co. Inc. | 1,941,464 | 125,360 |
Exelon Corp. | 3,631,640 | 123,476 |
PG&E Corp. | 1,954,544 | 121,064 |
Edison International | 1,283,708 | 93,351 |
PPL Corp. | 2,667,313 | 92,769 |
Xcel Energy Inc. | 2,001,424 | 82,779 |
Eversource Energy | 1,253,764 | 67,666 |
Entergy Corp. | 704,193 | 55,068 |
FirstEnergy Corp. | 1,673,411 | 54,771 |
Alliant Energy Corp. | 894,014 | 33,928 |
Pinnacle West Capital | ||
Corp. | 437,797 | 32,852 |
Westar Energy Inc. | ||
Class A | 558,639 | 30,692 |
ITC Holdings Corp. | 602,847 | 27,261 |
OGE Energy Corp. | 787,405 | 24,512 |
Great Plains Energy Inc. | 611,541 | 16,609 |
IDACORP Inc. | 198,740 | 15,118 |
Portland General Electric | ||
Co. | 350,478 | 14,759 |
Hawaiian Electric | ||
Industries Inc. | 424,982 | 12,754 |
ALLETE Inc. | 184,251 | 10,926 |
Avangrid Inc. | 243,692 | 10,138 |
PNM Resources Inc. | 314,083 | 9,985 |
MGE Energy Inc. | 136,616 | 7,506 |
El Paso Electric Co. | 159,576 | 7,291 |
Empire District Electric | ||
Co. | 164,326 | 5,557 |
Otter Tail Corp. | 135,060 | 4,624 |
Spark Energy Inc. Class A | 19,863 | 576 |
1,707,756 | ||
Gas Utilities (6.6%) | ||
UGI Corp. | 680,830 | 30,964 |
Atmos Energy Corp. | 402,711 | 29,680 |
Piedmont Natural Gas | ||
Co. Inc. | 319,690 | 19,213 |
Questar Corp. | 691,632 | 17,298 |
National Fuel Gas Co. | 284,619 | 16,240 |
Southwest Gas Corp. | 187,119 | 13,065 |
ONE Gas Inc. | 205,589 | 12,588 |
WGL Holdings Inc. | 197,920 | 12,437 |
Spire Inc. | 179,951 | 11,643 |
New Jersey Resources | ||
Corp. | 339,235 | 11,412 |
South Jersey Industries Inc. | 313,433 | 9,303 | |
Northwest Natural Gas Co. | 108,212 | 6,463 | |
Chesapeake Utilities Corp. | 60,592 | 3,857 | |
194,163 | |||
Independent Power and Renewable | |||
Electricity Producers (3.4%) | |||
AES Corp. | 2,596,374 | 31,338 | |
* | Calpine Corp. | 1,344,115 | 16,775 |
NRG Energy Inc. | 1,243,395 | 15,057 | |
Ormat Technologies Inc. | 146,353 | 7,083 | |
Pattern Energy Group Inc. | |||
Class A | 271,470 | 6,461 | |
* | Dynegy Inc. | 393,354 | 4,984 |
^ | NextEra Energy Partners | ||
LP | 162,597 | 4,736 | |
NRG Yield Inc. | 247,192 | 4,163 | |
* | Talen Energy Corp. | 252,913 | 3,493 |
TerraForm Power Inc. | |||
Class A | 190,057 | 2,440 | |
NRG Yield Inc. Class A | 136,889 | 2,203 | |
^ | 8Point3 Energy Partners LP 78,825 | 1,227 | |
TerraForm Global Inc. | |||
Class A | 320,405 | 1,160 | |
*,^ | Vivint Solar Inc. | 83,732 | 266 |
101,386 | |||
Multi-Utilities (29.1%) | |||
Dominion Resources Inc. | 2,428,116 | 180,069 | |
Sempra Energy | 933,848 | 97,708 | |
Consolidated Edison Inc. | 1,193,211 | 89,789 | |
Public Service Enterprise | |||
Group Inc. | 1,993,435 | 85,239 | |
WEC Energy Group Inc. | 1,243,664 | 74,471 | |
DTE Energy Co. | 706,909 | 65,672 | |
Ameren Corp. | 955,952 | 47,243 | |
CMS Energy Corp. | 1,103,083 | 46,296 | |
SCANA Corp. | 534,913 | 37,792 | |
CenterPoint Energy Inc. | 1,611,806 | 36,217 | |
NiSource Inc. | 1,268,988 | 30,379 | |
MDU Resources Group | |||
Inc. | 731,601 | 17,244 | |
Vectren Corp. | 326,436 | 15,966 | |
Black Hills Corp. | 202,985 | 11,877 | |
NorthWestern Corp. | 190,295 | 11,003 | |
Avista Corp. | 249,356 | 10,129 | |
Unitil Corp. | 52,673 | 2,083 | |
859,177 | |||
Water Utilities (3.1%) | |||
American Water Works | |||
Co. Inc. | 702,354 | 51,967 | |
Aqua America Inc. | 700,987 | 21,317 |
California Water Service | ||
Group | 188,912 | 5,760 |
American States Water Co. | 143,881 | 5,608 |
SJW Corp. | 60,644 | 2,589 |
Middlesex Water Co. | 64,084 | 2,139 |
Connecticut Water Service | ||
Inc. | 43,924 | 2,037 |
91,417 | ||
Total Common Stocks | ||
(Cost $2,827,569) | 2,953,899 | |
Temporary Cash Investment (0.1%) | ||
Money Market Fund (0.1%) | ||
1,2 Vanguard Market Liquidity | ||
Fund, 0.612% | ||
(Cost $948) | 9,485 | 948 |
Total Investments (100.1%) | ||
(Cost $2,828,517) | 2,954,847 | |
Amount | ||
($000) | ||
Other Assets and Liabilities (-0.1%) | ||
Other Assets | ||
Investment in Vanguard | 246 | |
Receivables for Investment Securities Sold | 12,550 | |
Receivables for Accrued Income | 15,246 | |
Receivables for Capital Shares Issued | 662 | |
Total Other Assets | 28,704 | |
Liabilities | ||
Payables for Investment Securities | ||
Purchased | (11,671) | |
Collateral for Securities on Loan | (948) | |
Payables for Capital Shares Redeemed | (2,295) | |
Payables to Vanguard | (1,251) | |
Other Liabilities | (14,371) | |
Total Liabilities | (30,536) | |
Net Assets (100%) | 2,953,015 |
109
Utilities Index Fund
At August 31, 2016, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 2,828,395 |
Undistributed Net Investment Income | 18,926 |
Accumulated Net Realized Losses | (20,636) |
Unrealized Appreciation (Depreciation) | 126,330 |
Net Assets | 2,953,015 |
ETF Shares—Net Assets | |
Applicable to 20,949,814 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 2,249,024 |
Net Asset Value Per Share— | |
ETF Shares | $107.35 |
Admiral Shares—Net Assets | |
Applicable to 13,070,881 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 703,991 |
Net Asset Value Per Share— | |
Admiral Shares | $53.86 |
• 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 $836,000.
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 $948,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
110
Utilities Index Fund
Statement of Operations
Year Ended | |
August 31, 2016 | |
($000) | |
Investment Income | |
Income | |
Dividends | 90,746 |
Interest1 | 12 |
Securities Lending—Net | 19 |
Total Income | 90,777 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 477 |
Management and Administrative— | |
ETF Shares | 1,353 |
Management and Administrative— | |
Admiral Shares | 397 |
Marketing and Distribution— | |
ETF Shares | 160 |
Marketing and Distribution— | |
Admiral Shares | 52 |
Custodian Fees | 35 |
Auditing Fees | 35 |
Shareholders’ Reports—ETF Shares | 100 |
Shareholders’ Reports—Admiral Shares | 5 |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 2,615 |
Net Investment Income | 88,162 |
Realized Net Gain (Loss) on | |
Investment Securities Sold1 | 206,278 |
Change in Unrealized Appreciation | |
(Depreciation) of Investment Securities | 183,126 |
Net Increase (Decrease) in Net Assets | |
Resulting from Operations | 477,566 |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $12,000 and $0, respectively. |
Statement of Changes in Net Assets
Year Ended August 31, | ||
2016 | 2015 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 88,162 | 78,150 |
Realized Net Gain (Loss) | 206,278 | 124,697 |
Change in Unrealized Appreciation (Depreciation) | 183,126 | (229,003) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 477,566 | (26,156) |
Distributions | ||
Net Investment Income | ||
ETF Shares | (65,440) | (61,341) |
Admiral Shares | (17,938) | (15,775) |
Realized Capital Gain | ||
ETF Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (83,378) | (77,116) |
Capital Share Transactions | ||
ETF Shares | 357,214 | (42,512) |
Admiral Shares | 172,991 | 21,845 |
Net Increase (Decrease) from Capital Share Transactions | 530,205 | (20,667) |
Total Increase (Decrease) | 924,393 | (123,939) |
Net Assets | ||
Beginning of Period | 2,028,622 | 2,152,561 |
End of Period1 | 2,953,015 | 2,028,622 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $18,926,000 and $14,142,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
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Utilities Index Fund
Financial Highlights
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $91.41 | $94.61 | $81.32 | $77.69 | $72.52 |
Investment Operations | |||||
Net Investment Income | 3.355 | 3.337 | 3.127 | 3.043 | 2.880 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 15.889 | (3.261) | 13.261 | 3.675 | 5.080 |
Total from Investment Operations | 19.244 | . 076 | 16.388 | 6.718 | 7.960 |
Distributions | |||||
Dividends from Net Investment Income | (3.304) | (3.276) | (3.098) | (3.088) | (2.790) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (3.304) | (3.276) | (3.098) | (3.088) | (2.790) |
Net Asset Value, End of Period | $107.35 | $91.41 | $94.61 | $81.32 | $77.69 |
Total Return | 21.40% | -0.02% | 20.55% | 8.82% | 11.20% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $2,249 | $1,581 | $1,711 | $1,356 | $1,154 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.12% | 0.14% | 0.14% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 3.38% | 3.39% | 3.59% | 3.72% | 3.93% |
Portfolio Turnover Rate1 | 3% | 7% | 7% | 7% | 5% |
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 | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $45.86 | $47.47 | $40.80 | $38.99 | $36.40 |
Investment Operations | |||||
Net Investment Income | 1.683 | 1.676 | 1.569 | 1.529 | 1.452 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 7.974 | (1.641) | 6.656 | 1.838 | 2.539 |
Total from Investment Operations | 9.657 | .035 | 8.225 | 3.367 | 3.991 |
Distributions | |||||
Dividends from Net Investment Income | (1.657) | (1.645) | (1.555) | (1.557) | (1.401) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.657) | (1.645) | (1.555) | (1.557) | (1.401) |
Net Asset Value, End of Period | $53.86 | $45.86 | $47.47 | $40.80 | $38.99 |
Total Return1 | 21.42% | -0.01% | 20.58% | 8.83% | 11.22% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $704 | $447 | $442 | $347 | $310 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.12% | 0.14% | 0.14% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 3.38% | 3.39% | 3.59% | 3.72% | 3.93% |
Portfolio Turnover Rate2 | 3% | 7% | 7% | 7% | 5% |
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.
112
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.
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, 2013–2016), 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 subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
5. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at August 31, 2016, 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
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Utilities Index Fund
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, 2016, the fund had contributed to Vanguard capital in the amount of $246,000, representing 0.01% of the fund’s net assets and 0.10% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and 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, 2016, 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, 2016, the fund realized $213,915,000 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, 2016, the fund had $20,012,000 of ordinary income available for distribution. At August 31, 2016, the fund had available capital losses totaling $20,636,000 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 $14,618,000 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, 2016, the cost of investment securities for tax purposes was $2,828,517,000. Net unrealized appreciation of investment securities for tax purposes was $126,330,000, consisting of unrealized gains of $238,530,000 on securities that had risen in value since their purchase and $112,200,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2016, the fund purchased $1,430,325,000 of investment securities and sold $894,030,000 of investment securities, other than temporary cash investments. Purchases and sales include $1,109,489,000 and $814,764,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
114
Utilities Index Fund
F. Capital share transactions for each class of shares were:
Year Ended August 31, | ||||
2016 | 2015 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 1,178,906 | 11,352 | 546,663 | 5,367 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (821,692) | (7,700) | (589,175) | (6,150) |
Net Increase (Decrease)—ETF Shares | 357,214 | 3,652 | (42,512) | (783) |
Admiral Shares | ||||
Issued | 305,428 | 5,854 | 137,456 | 2,802 |
Issued in Lieu of Cash Distributions | 13,618 | 273 | 11,811 | 248 |
Redeemed | (146,055) | (2,814) | (127,422) | (2,601) |
Net Increase (Decrease) —Admiral Shares | 172,991 | 3,313 | 21,845 | 449 |
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2016, that would require recognition or disclosure in these financial statements.
115
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 statements of assets and liabilities, 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, 2016, 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, 2016 by correspondence with the custodian and brokers and by agreement to the underlying ownership records of the transfer agent, provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
October 12, 2016
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ussectorindex_par23x8x1.jpg)
Special 2016 tax information (unaudited) for Vanguard U.S. Sector Index Funds
This information for the fiscal year ended August 31, 2016, is included pursuant to provisions of the Internal Revenue Code.
The funds distributed qualified dividend income to shareholders during the fiscal year as follows:
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 | ($000) |
Consumer Discretionary Index Fund | 41,534 |
Consumer Staples Index Fund | 112,900 |
Energy Index Fund | 194,317 |
Financials Index Fund | 52,754 |
Health Care Index Fund | 121,322 |
Industrials Index Fund | 60,629 |
Information Technology Index Fund | 168,353 |
Materials Index Fund | 38,693 |
Telecommunication Services Index Fund | 47,715 |
Utilities Index Fund | 83,378 |
Fund | Percentage |
Consumer Discretionary Index Fund | 99.7% |
Consumer Staples Index Fund | 100.0 |
Energy Index Fund | 93.9 |
Financials Index Fund | 61.3 |
Health Care Index Fund | 100.0 |
Industrials Index Fund | 97.6 |
Information Technology Index Fund | 100.0 |
Materials Index Fund | 93.8 |
Telecommunication Services Index Fund | 98.7 |
Utilities Index Fund | 100.0 |
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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 2016. (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, 2016 | |||
One Year | Five Years | Ten Years | |
Consumer Discretionary Index Fund ETF Shares | |||
Returns Before Taxes | 6.84% | 17.61% | 10.67% |
Returns After Taxes on Distributions | 6.32 | 17.28 | 10.41 |
Returns After Taxes on Distributions and Sale of Fund Shares | 4.26 | 14.29 | 8.81 |
One Year | Five Years | Ten Years | |
Consumer Staples Index Fund ETF Shares | |||
Returns Before Taxes | 17.36% | 15.07% | 11.05% |
Returns After Taxes on Distributions | 16.34 | 14.47 | 10.59 |
Returns After Taxes on Distributions and Sale of Fund Shares | 10.52 | 12.10 | 9.12 |
One Year | Five Years | Ten Years | |
Energy Index Fund ETF Shares | |||
Returns Before Taxes | 5.82% | 1.24% | 3.48% |
Returns After Taxes on Distributions | 4.73 | 0.75 | 3.13 |
Returns After Taxes on Distributions and Sale of Fund Shares | 4.05 | 1.02 | 2.80 |
One Year | Five Years | Ten Years | |
Financials Index Fund ETF Shares | |||
Returns Before Taxes | 8.93% | 14.82% | 0.59% |
Returns After Taxes on Distributions | 8.20 | 14.17 | 0.09 |
Returns After Taxes on Distributions and Sale of Fund Shares | 5.32 | 11.74 | 0.36 |
One Year | Five Years | Ten Years | |
Health Care Index Fund ETF Shares | |||
Returns Before Taxes | 2.61% | 19.21% | 10.80% |
Returns After Taxes on Distributions | 2.15 | 18.86 | 10.50 |
Returns After Taxes on Distributions and Sale of Fund Shares | 1.83 | 15.65 | 8.92 |
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Average Annual Total Returns: U.S. Sector Index Funds | |||
Periods Ended August 31, 2016 | |||
One Year | Five Years | Ten Years | |
Industrials Index Fund ETF Shares | |||
Returns Before Taxes | 15.78% | 15.35% | 8.29% |
Returns After Taxes on Distributions | 14.98 | 14.91 | 7.96 |
Returns After Taxes on Distributions and Sale of Fund Shares | 9.47 | 12.36 | 6.74 |
One Year | Five Years | Ten Years | |
Information Technology Index Fund ETF Shares | |||
Returns Before Taxes | 17.48% | 16.20% | 10.44% |
Returns After Taxes on Distributions | 16.92 | 15.90 | 10.25 |
Returns After Taxes on Distributions and Sale of Fund Shares | 10.27 | 13.08 | 8.63 |
One Year | Five Years | Ten Years | |
Materials Index Fund ETF Shares | |||
Returns Before Taxes | 15.83% | 9.21% | 7.69% |
Returns After Taxes on Distributions | 14.96 | 8.72 | 7.29 |
Returns After Taxes on Distributions and Sale of Fund Shares | 9.50 | 7.26 | 6.24 |
One Year | Five Years | Ten Years | |
Telecommunication Services Index Fund ETF Shares | |||
Returns Before Taxes | 19.14% | 11.84% | 7.04% |
Returns After Taxes on Distributions | 17.79 | 11.02 | 6.46 |
Returns After Taxes on Distributions and Sale of Fund Shares | 11.70 | 9.38 | 5.66 |
One Year | Five Years | Ten Years | |
Utilities Index Fund ETF Shares | |||
Returns Before Taxes | 21.40% | 12.11% | 7.71% |
Returns After Taxes on Distributions | 20.45 | 11.27 | 7.03 |
Returns After Taxes on Distributions and Sale of Fund Shares | 12.78 | 9.58 | 6.20 |
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About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The 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.
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Six Months Ended August 31, 2016 | ||||
Beginning | Ending | Expenses | ||
Account Value | Account Value | Paid During | ||
Index Fund | Share Class | 2/29/2016 | 8/31/2016 | Period1 |
Based on Actual Fund Return | ||||
Consumer Discretionary | ETF | $1,000.00 | $1,092.16 | $0.63 |
Admiral | 1,000.00 | 1,092.16 | 0.58 | |
Consumer Staples | ETF | $1,000.00 | $1,091.45 | $0.58 |
Admiral | 1,000.00 | 1,091.61 | 0.58 | |
Energy | ETF | $1,000.00 | $1,231.80 | $0.67 |
Admiral | 1,000.00 | 1,231.91 | 0.62 | |
Financials | ETF | $1,000.00 | $1,185.44 | $0.60 |
Admiral | 1,000.00 | 1,185.73 | 0.60 | |
Health Care | ETF | $1,000.00 | $1,118.88 | $0.64 |
Admiral | 1,000.00 | $1,118.92 | 0.64 | |
Industrials | ETF | $1,000.00 | $1,146.86 | $0.59 |
Admiral | 1,000.00 | 1,146.79 | 0.59 | |
Information Technology | ETF | $1,000.00 | $1,174.61 | $0.60 |
Admiral | 1,000.00 | 1,174.45 | 0.60 | |
Materials | ETF | $1,000.00 | $1,207.53 | $0.61 |
Admiral | 1,000.00 | 1,207.37 | 0.61 | |
Telecommunication Services | ETF | $1,000.00 | $1,090.27 | $0.58 |
Admiral | 1,000.00 | 1,090.53 | 0.58 | |
Utilities | ETF | $1,000.00 | $1,088.36 | $0.68 |
Admiral | 1,000.00 | 1,088.39 | 0.68 | |
Based on Hypothetical 5% Yearly Return | ||||
Consumer Discretionary | ETF | $1,000.00 | $1,024.53 | $0.61 |
Admiral | 1,000.00 | 1,024.58 | 0.56 | |
Consumer Staples | ETF | $1,000.00 | $1,024.58 | $0.56 |
Admiral | 1,000.00 | 1,024.58 | 0.56 | |
Energy | ETF | $1,000.00 | $1,024.53 | $0.61 |
Admiral | 1,000.00 | 1,024.58 | 0.56 | |
Financials | ETF | $1,000.00 | $1,024.58 | $0.56 |
Admiral | 1,000.00 | 1,024.58 | 0.56 | |
Health Care | ETF | $1,000.00 | $1,024.53 | $0.61 |
Admiral | 1,000.00 | 1,024.53 | 0.61 | |
Industrials | ETF | $1,000.00 | $1,024.58 | $0.56 |
Admiral | 1,000.00 | 1,024.58 | 0.56 | |
Information Technology | ETF | $1,000.00 | $1,024.58 | $0.56 |
Admiral | 1,000.00 | 1,024.58 | 0.56 | |
Materials | ETF | $1,000.00 | $1,024.58 | $0.56 |
Admiral | 1,000.00 | 1,024.58 | 0.56 | |
Telecommunication Services | ETF | $1,000.00 | $1,024.58 | $0.56 |
Admiral | 1,000.00 | 1,024.58 | 0.56 | |
Utilities | ETF | $1,000.00 | $1,024.48 | $0.66 |
Admiral | 1,000.00 | 1,024.48 | 0.66 |
1 The calculations are based on expenses incurred in the most recent six-month period. The funds’ annualized six-month expense ratios for
that period are 0.12% for the Consumer Discretionary Index Fund ETF Shares and 0.11% for the Admiral Shares; 0.11% for the Consumer
Staples Index Fund ETF Shares and 0.11% for the Admiral Shares; 0.12% for the Energy Index Fund ETF Shares and 0.11% for the Admiral
Shares; 0.11% for the Financials Index Fund ETF Shares and 0.11% for the Admiral Shares; 0.12% for the Health Care Index Fund ETF
Shares and 0.12% for the Admiral Shares; 0.11% for the Industrials Index Fund ETF Shares and 0.11% for the Admiral Shares; 0.11% for
the Information Technology Index Fund ETF Shares and 0.11% for the Admiral Shares; 0.11% for the Materials Index Fund ETF Shares and
0.11% for the Admiral Shares; 0.11% for the Telecommunication Services Index Fund ETF Shares and 0.11% for the Admiral Shares; 0.13%
for the Utilities Index Fund ETF Shares and 0.13% 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 (184/366).
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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. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department, which is responsible for fund and advisor oversight and product management. The Portfolio Review Department met regularly with the advisor and made monthly presentations to the board during the fiscal year directing the board’s focus to relevant information and topics.
The board, or an investment committee made up of board members, also received information throughout the year through advisor presentations. For each advisor presentation, the board was provided with letters and reports that included information about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.
In addition, the board received monthly reports, which included a Market and Economic Report, a Fund Dashboard Monthly Summary, and a Fund Performance Report.
Prior to their meeting, the trustees were provided with a memo and materials that summarized the information they had received over the course of the year. They also 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 its target index and peer group. The board concluded that the performance was such that each advisory arrangement should continue. Information about each fund’s 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 peer group and that each fund’s advisory expenses were 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.
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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.
122
Benchmark Information
Spliced US IMI/Consumer Discretionary 25/50. MSCI US IMI/Consumer Discretionary
through February 26, 2010; MSCI US IMI/Consumer Discretionary 25/50 thereafter.
Spliced US IMI/Consumer Staples 25/50. MSCI US IMI/Consumer Staples through
February 26, 2010; MSCI US IMI/Consumer Staples 25/50 thereafter.
Spliced US IMI/Energy 25/50. MSCI US IMI/Energy through February 26, 2010;
MSCI US IMI/Energy 25/50 thereafter.
Spliced US IMI/Financials 25/50. MSCI US IMI/Financials through February 26, 2010;
MSCI US IMI/Financials 25/50 thereafter.
Spliced US IMI/Health Care 25/50. MSCI US IMI/Health Care through February 26, 2010;
MSCI US IMI/Health Care 25/50 thereafter.
Spliced US IMI/Industrials 25/50. MSCI US IMI/Industrials through February 26, 2010;
MSCI US IMI/Industrials 25/50 thereafter.
Spliced US IMI/Information Technology 25/50. MSCI US IMI/Information Technology Index
through February 26, 2010; MSCI US IMI/Information Technology 25/50 Index thereafter.
Spliced US IMI/Materials 25/50. MSCI US IMI/Materials through February 26, 2010;
MSCI US IMI/Materials 25/50 thereafter.
Spliced US IMI/Telecommunication Services 25/50. MSCI US IMI/Telecommunication
Services through February 26, 2010; MSCI US IMI/Telecommunication Services 25/50
thereafter.
Spliced US IMI/Utilities 25/50. MSCI US IMI/Utilities through February 26, 2010;
MSCI US IMI/Utilities 25/50 thereafter.
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The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals.
The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 198 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482. 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 manage- |
ment products and services); Executive in Residence |
and 2009–2010 Distinguished Minett Professor at |
the Rochester Institute of Technology; Lead Director |
of SPX FLOW, Inc. (multi-industry manufacturing); |
Director of the United Way of Rochester, the University |
of Rochester Medical Center, Monroe Community |
College Foundation, North Carolina A&T University, |
and Roberts Wesleyan College. |
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), HP Inc. (printer and personal 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) and the Robert Wood |
Johnson Foundation; 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, the Board of Advisors |
for Spruceview Capital Partners, and the Investment |
Advisory Committee of Major League Baseball; Board |
Member of TIFF Advisory Services, Inc., and Catholic |
Investment Services, Inc. (investment advisors). |
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); Chairman of the |
Board of Trustees of Colby-Sawyer College; | |
Member of the Advisory Board of the Norris | |
Cotton Cancer Center. | |
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 ManagementTeam | |
Mortimer J. Buckley | James M. Norris |
Kathleen C. Gubanich | Thomas M. Rampulla |
Martha G. King | Glenn W. Reed |
John T. Marcante | Karin A. Risi |
Chris D. McIsaac | Michael Rollings |
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. |
The funds or securities referred to herein are not |
sponsored, endorsed, or promoted by MSCI, and MSCI |
bears no liability with respect to any such funds or |
securities. The prospectus or the Statement of Additional |
Information contains a more detailed description of the |
limited relationship MSCI has with Vanguard and any |
related funds. |
All comparative mutual fund data are from Lipper Inc., a |
Thomson Reuters Company, or Morningstar, Inc., unless |
otherwise noted. |
You can obtain a free copy of Vanguard’s proxy voting |
guidelines by visiting vanguard.com/proxyreporting or |
by calling Vanguard at 800-662-2739. The guidelines |
are also available from the SEC’s website, sec.gov. |
In addition, you may obtain a free report on how your |
fund voted the proxies for securities it owned during |
the 12 months ended June 30. To get the report, visit |
either vanguard.com/proxyreporting or sec.gov. |
You can review and copy information about your fund |
at the SEC’s Public Reference Room in Washington, D.C. |
To find out more about this public service, call the SEC |
at 202-551-8090. Information about your fund is also |
available on the SEC’s website, and you can receive |
copies of this information, for a fee, by sending a |
request in either of two ways: via e-mail addressed to |
publicinfo@sec.gov or via regular mail addressed to the |
Public Reference Section, Securities and Exchange |
Commission, Washington, DC 20549-1520. |
© 2016 The Vanguard Group, Inc. |
All rights reserved. |
Vanguard Marketing Corporation, Distributor. |
Q4830 102016 |
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ftsesocial_part1x1x1.jpg)
Annual Report | August 31, 2016
Vanguard FTSE Social Index Fund
A new format, unwavering commitment
As you begin reading this report, you’ll notice that we’ve made some improvements to the opening sections—based on feedback from you, our clients.
Page 1 starts with a new ”Your Fund’s Performance at a Glance,” a concise, handy summary of how your fund performed during the period.
In the renamed ”Chairman’s Perspective,” Bill McNabb will focus on enduring principles and investment insights.
We’ve modified some tables, and eliminated some redundancy, but we haven’t removed any information.
At Vanguard, we’re always looking for better ways to communicate and to help you make sound investment decisions. Thank you for entrusting your assets to us.
Contents | |
Your Fund’s Performance at a Glance. | 1 |
Chairman’s Perspective. | 3 |
Fund Profile. | 7 |
Performance Summary. | 8 |
Financial Statements. | 10 |
Your Fund’s After-Tax Returns. | 25 |
About Your Fund’s Expenses. | 26 |
Trustees Approve Advisory Arrangement. | 28 |
Glossary. | 30 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice.
Also, please keep in mind that the information and opinions cover the period through the date on the 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: No matter what language you speak, Vanguard has one consistent message and set of principles. Our primary
focus is on you, our clients. We conduct our business with integrity as a faithful steward of your assets. This message is shown
translated into seven languages, reflecting our expanding global presence.
Your Fund’s Performance at a Glance
• Vanguard FTSE Social Index Fund returned about 10% for the 12 months ended August 31, 2016, closely tracking its target benchmark, the FTSE4Good US Select Index, and outpacing the average return of its large-capitalization growth fund peers.
• In keeping with its socially conscious approach, the fund tends to have greater exposure to sectors where companies are more likely to meet the index’s environmental, social, and governance criteria, such as the financial, technology, and health care sectors. It has less exposure to sectors where companies may fall short of the index’s requirements, such as oil and gas and industrials.
• The fund’s composition was an advantage for the most recent fiscal period. Technology (+18%) was the top contributor, followed by consumer goods (+15%), financials (+7%), and health care (+7%). Limited exposure to oil and gas (–17%), the only sector to produce a negative return, also helped.
Total Returns: Fiscal Year Ended August 31, 2016 | |
Total | |
Returns | |
Vanguard FTSE Social Index Fund | |
Investor Shares | 9.95% |
Institutional Shares | 10.09 |
FTSE4Good US Select Index | 10.12 |
Large-Cap Growth Funds Average | 6.69 |
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. |
Total Returns: Ten Years Ended August 31, 2016 | |
Average | |
Annual Return | |
FTSE Social Index Fund Investor Shares | 6.65% |
FTSE4Good US Select Index | 6.87 |
Large-Cap Growth Funds Average | 7.47 |
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.
1
Expense Ratios | |||
Your Fund Compared With Its Peer Group | |||
Investor | Institutional | Peer Group | |
Shares | Shares | Average | |
FTSE Social Index Fund | 0.25% | 0.15% | 1.17% |
The fund expense ratios shown are from the prospectus dated December 22, 2015, and represent estimated costs for the current fiscal year.
For the fiscal year ended August 31, 2016, the fund’s expense ratios were 0.22% for Investor Shares and 0.12% 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
2015.
Peer group: Large-Cap Growth Funds.
2
Chairman’s Perspective
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ftsesocial_part1x5x1.jpg)
Bill McNabb
Chairman and Chief Executive Officer
Dear Shareholder,
Even as the global economy continued to expand at a slow but sustained pace over the 12 months ended August 31, 2016, a series of disquieting developments highlighted the importance for investors of remaining disciplined.
Chief among them was “Brexit”—the British public’s vote to exit the European Union—but plenty of others moved the markets as well. We saw sharp ups and downs in the prices of oil and other commodities, choppy U.S. job numbers, shifting expectations about when the Federal Reserve might raise interest rates again, and decreases in already negative yields for European and Japanese government bonds.
Beyond being the end of the fiscal period, August marked a milestone: 40 years since Vanguard introduced the first index mutual fund. In ways that are perhaps still not fully appreciated, indexing has vastly improved investing for individuals, advisors, and institutions all over the world. Later in this letter, I’ll discuss the revolution wrought by what was initially a little-heralded new fund from a fledgling outfit in Valley Forge, Pennsylvania.
Brexit added another layer of uncertainty for investors
I think it’s fair to say that the momentous June 23 Brexit vote caught even the British off guard. Although we saw some market jitters in the run-up to the referendum, the unexpected outcome triggered a spike in
3
volatility worldwide. Stocks around the world lost 5%–10% in U.S. dollar terms in the first two trading sessions following the vote, with U.K. and European markets among the hardest hit; global bonds, though, headed in the other direction. It was a textbook illustration of the value of having a diversified portfolio.
That kind of volatility can push investors to “do something.” But some of the worst days in the stock markets are sometimes followed by some of the best—as happened at the end of June. Investors who scrambled to protect their portfolios by shedding stocks amid headlines warning of a global market meltdown may well have ended up locking in post-Brexit losses, then missing out on the strong rebound that took place
just days later. Those headlines were noise that investors would have been better off tuning out. I’m pleased to say that Vanguard investors on the whole did just that—we continued to see cash flows into our funds in the days after the vote.
For the 12 months, stocks generally finished higher, with U.S. stocks up more than 11% and international stocks about 3% for U.S.-based investors.
In a surprise, bonds turned in a solid performance that few would have predicted a year ago. It seemed as if rates had fallen so far that they couldn’t go any lower, but many did. Central banks in a number of European countries and Japan set key monetary policy rates below zero.
Market Barometer | |||
Average Annual Total Returns | |||
Periods Ended August 31, 2016 | |||
One | Three | Five | |
Year | Years | Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 11.69% | 12.02% | 14.60% |
Russell 2000 Index (Small-caps) | 8.59 | 8.53 | 12.85 |
Russell 3000 Index (Broad U.S. market) | 11.44 | 11.74 | 14.46 |
FTSE All-World ex US Index (International) | 3.37 | 2.59 | 3.72 |
Bonds | |||
Barclays U.S. Aggregate Bond Index (Broad taxable market) | 5.97% | 4.37% | 3.24% |
Barclays Municipal Bond Index (Broad tax-exempt market) | 6.88 | 6.47 | 4.80 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.18 | 0.05 | 0.06 |
CPI | |||
Consumer Price Index | 1.06% | 0.98% | 1.23% |
4
When being ‘average’ is a lot better than average |
Not only did Vanguard founder John C. Bogle launch the first index mutual fund in 1976, but |
he also was among the first to clearly explain to the investing public the benefits of what was |
then a novel, unproven strategy. |
Back in 1977, in the first annual report for what was later renamed Vanguard 500 Index Fund, |
Mr. Bogle wrote that an index fund ‘‘represents a tough and demanding ‘par.’ And if there |
are some professionals who can ‘beat par’ more often than not------in investing or in golf------they |
do not seem to be in the majority.’’ |
Mr. Bogle’s analogy has been borne out by historical returns. As you can see in the chart |
below, out of 1,238 actively managed large-capitalization funds, a clear majority-----65%----- |
trailed the Standard & Poor’s 500 Index in average annual return over the decade ended |
December 31, 2015. And 518 funds, or about 42% of the total number, trailed by more than |
1 percentage point. |
The track record looks even more discouraging when you consider that of the 35% of funds |
that outperformed the index, only 119------or about 10% in all------did so by more than 1 percentage |
point. The 315 others also took on risk to try to outperform the index (and likely experienced |
greater volatility) but came out ahead by less than 1 percentage point in average annual return. |
Over a decade, a majority of active large-cap funds lagged the S&P 500 Index |
Based on average annual returns, 2006---2015 |
Notes: Data based on average annual returns of all 1,238 existing actively managed large-cap funds over the decade ended December 31, |
2015. Note that index funds seek to track the performance of a benchmark index but typically won't ‘‘match’’ the benchmark's returns because |
of the costs of passive indexing. |
Sources: Vanguard calculations, using data from Standard & Poor’s. |
Past performance is not a guarantee of future results. The performance of an index is not an exact representation of any particular investment, |
as you cannot invest directly in an index. |
5
These policies held down short-term rates, while more muted expectations for global growth and inflation weighed on longer-term rates.
Yields in the United States weren’t quite as low as in many developed countries. The Fed raised the federal funds target rate only once, in December, to a slim 0.25%–0.5%. Further out on the maturity spectrum, the bellwether 10-year U.S. Treasury yield dropped in early July to a record low 1.36%, before moving back up a little to end the period at 1.58%. Over the 12 months, U.S. bonds returned about 6%, and international bonds returned even more—about 11%—for U.S.-based investors, again underscoring the markets’ unpredictability and the merits of diversification.
Over the years, many investors have embraced the pluses of indexing
Market upsets like Brexit aren’t rare occurrences. Fortunately, indexing has proved to be a durable behavioral tool to help keep investors from making bad financial decisions when upsets happen. In fact, this is one of indexing’s less appreciated benefits: Holding index funds as part of a broadly diversified portfolio can counterbalance that tendency to react to news headlines. When times are volatile, you’ll know you might have some exposure to a part of the market that has dropped, but also to other parts that may be holding up better.
Vanguard’s launch of the First Index Investment Trust, now Vanguard 500 Index Fund, initially met with a frosty reception. Its mandate to track the performance of a broadly diversified benchmark at a low cost seemed underwhelming to an investing public accustomed to funds that offered the chance to outperform. Investors have since come around, as experience has demonstrated the benefits of low costs and broad diversification.
Indexing accounted for about 30% of U.S. mutual fund and exchange-traded fund (ETF) assets at the end of 2015, according to the Investment Company Institute. Some now even proclaim the “triumph of indexing,” implying that it’s the only way to invest.
In our view, the rise of indexing has served to underscore an investment principle that long predates 1976: A long-term, low-cost, diversified approach gives investors the best chance for success. That’s true whether the investments you choose are indexed or actively managed—or both.
As always, thank you for investing with Vanguard.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ftsesocial_part3x1x1.jpg)
F. William McNabb III
Chairman and Chief Executive Officer September 9, 2016
6
FTSE Social Index Fund
Fund Profile
As of August 31, 2016
Share-Class Characteristics | ||
Investor | Institutional | |
Shares | Shares | |
Ticker Symbol | VFTSX | VFTNX |
Expense Ratio1 | 0.25% | 0.15% |
30-Day SEC Yield | 1.75% | 1.85% |
Portfolio Characteristics | |||
DJ | |||
U.S. | |||
FTSE | Total | ||
4Good | Market | ||
US Select | FA | ||
Fund | Index | Index | |
Number of Stocks | 413 | 413 | 3,817 |
Median Market Cap | $69.8B | $69.8B | $51.2B |
Price/Earnings Ratio | 21.0x | 21.0x | 23.5x |
Price/Book Ratio | 2.8x | 2.8x | 2.8x |
Return on Equity | 18.2% | 18.2% | 16.6% |
Earnings Growth Rate | 8.8% | 8.8% | 7.5% |
Dividend Yield | 1.9% | 1.9% | 2.0% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 16% | — | — |
Short-Term Reserves | 0.0% | — | — |
Sector Diversification (% of equity exposure) | |||
DJ | |||
U.S. | |||
FTSE | Total | ||
4Good | Market | ||
US Select | FA | ||
Fund | Index | Index | |
Basic Materials | 2.0% | 2.0% | 2.5% |
Consumer Goods | 10.9 | 10.9 | 10.4 |
Consumer Services | 10.4 | 10.4 | 13.4 |
Financials | 23.7 | 23.6 | 19.3 |
Health Care | 18.9 | 18.9 | 13.2 |
Industrials | 6.9 | 7.0 | 12.6 |
Oil & Gas | 3.0 | 3.0 | 6.4 |
Technology | 23.4 | 23.4 | 16.6 |
Telecommunications | 0.2 | 0.2 | 2.4 |
Utilities | 0.6 | 0.6 | 3.2 |
Volatility Measures | ||
FTSE | DJ | |
4Good | U.S. Total | |
US Select | Market | |
Index | FA Index | |
R-Squared | 1.00 | 0.98 |
Beta | 1.00 | 1.02 |
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 | 4.4% |
Alphabet Inc. | Internet | 3.5 |
Microsoft Corp. | Software | 3.3 |
Johnson & Johnson | Pharmaceuticals | 2.5 |
Facebook Inc. | Internet | 2.1 |
Wells Fargo & Co. | Banks | 2.0 |
JPMorgan Chase & Co. | Banks | 1.9 |
Procter & Gamble Co. | Nondurable | |
Household Products | 1.8 | |
Pfizer Inc. | Pharmaceuticals | 1.6 |
Merck & Co. Inc. | Pharmaceuticals | 1.3 |
Top Ten | 24.4% | |
The holdings listed exclude any temporary cash investments and equity index products. |
Investment Focus
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ftsesocial_part3x2x1.jpg)
1 The expense ratios shown are from the prospectus dated December 22, 2015, and represent estimated costs for the current fiscal year. For the
fiscal year ended August 31, 2016, the expense ratios were 0.22% for Investor Shares and 0.12% for Institutional Shares.
7
FTSE Social Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Cumulative Performance: August 31, 2006, Through August 31, 2016
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ftsesocial_part3x3x1.jpg)
Average Annual Total Returns | |||||
Periods Ended August 31, 2016 | |||||
Final Value | |||||
One | Five | Ten | of a $10,000 | ||
Year | Years | Years | Investment | ||
FTSE Social Index Fund Investor | |||||
Shares | 9.95% | 15.59% | 6.65% | $19,031 | |
•••••••• | FTSE4Good US Select Index | 10.12 | 15.86 | 6.87 | 19,436 |
– – – – | Dow Large-Cap Jones Growth U.S. Total Funds Stock Average Market | 6.69 | 12.88 | 7.47 | 20,544 |
Float Adjusted Index | 11.34 | 14.40 | 7.71 | 21,007 | |
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 | 10.09% | 15.71% | 6.78% | $9,635,772 |
FTSE4Good US Select Index | 10.12 | 15.86 | 6.87 | 9,717,849 |
Dow Jones U.S. Total Stock Market Float | ||||
Adjusted Index | 11.34 | 14.40 | 7.71 | 10,503,448 |
See Financial Highlights for dividend and capital gains information.
8
FTSE Social Index Fund
Fiscal-Year Total Returns (%): August 31, 2006, Through August 31, 2016
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/ftsesocial_part3x4x1.jpg)
Average Annual Total Returns: Periods Ended June 30, 2016
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 | -0.33% | 12.58% | 6.30% |
Institutional Shares | 1/14/2003 | -0.20 | 12.70 | 6.42 |
9
FTSE Social Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2016
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 (2.0%) | ||
Praxair Inc. | 50,634 | 6,179 |
Air Products & | ||
Chemicals Inc. | 37,990 | 5,912 |
Ecolab Inc. | 47,143 | 5,801 |
LyondellBasell Industries | ||
NV Class A | 63,203 | 4,986 |
PPG Industries Inc. | 47,090 | 4,986 |
Newmont Mining Corp. | 93,647 | 3,581 |
Nucor Corp. | 56,277 | 2,730 |
Alcoa Inc. | 233,428 | 2,353 |
International Flavors & | ||
Fragrances Inc. | 14,111 | 1,956 |
Mosaic Co. | 63,659 | 1,914 |
Ashland Inc. | 10,914 | 1,278 |
Avery Dennison Corp. | 15,975 | 1,237 |
FMC Corp. | 23,870 | 1,121 |
CF Industries Holdings Inc. | 43,004 | 1,118 |
Westlake Chemical Corp. | 8,495 | 440 |
45,592 | ||
Consumer Goods (10.8%) | ||
Procter & Gamble Co. | 475,054 | 41,477 |
PepsiCo Inc. | 259,942 | 27,749 |
Mondelez International | ||
Inc. Class A | 275,507 | 12,403 |
Colgate-Palmolive Co. | 161,600 | 12,013 |
NIKE Inc. Class B | 192,634 | 11,104 |
Kraft Heinz Co. | 106,173 | 9,502 |
Ford Motor Co. | 685,440 | 8,637 |
Kimberly-Clark Corp. | 64,057 | 8,203 |
General Motors Co. | 251,222 | 8,019 |
General Mills Inc. | 106,536 | 7,545 |
Activision Blizzard Inc. | 123,274 | 5,100 |
Johnson Controls Inc. | 115,681 | 5,076 |
Newell Brands Inc. | 87,291 | 4,633 |
* Electronic Arts Inc. | 52,799 | 4,289 |
VF Corp. | 60,234 | 3,738 |
ConAgra Foods Inc. | 76,900 | 3,584 |
Kellogg Co. | 42,018 | 3,454 |
Delphi Automotive plc | 47,995 | 3,391 | |
Estee Lauder Cos. Inc. | |||
Class A | 37,738 | 3,367 | |
Stanley Black & Decker Inc. | 26,370 | 3,263 | |
Dr Pepper Snapple | |||
Group Inc. | 32,832 | 3,076 | |
Clorox Co. | 23,147 | 3,033 | |
JM Smucker Co. | 20,628 | 2,925 | |
Mead Johnson Nutrition Co. | 32,784 | 2,789 | |
Hershey Co. | 27,081 | 2,705 | |
Genuine Parts Co. | 26,231 | 2,697 | |
Whirlpool Corp. | 13,380 | 2,390 | |
* | Mohawk Industries Inc. | 10,845 | 2,308 |
Church & Dwight Co. Inc. | 22,634 | 2,250 | |
McCormick & Co. Inc. | 20,555 | 2,096 | |
Mattel Inc. | 59,784 | 1,981 | |
Campbell Soup Co. | 31,907 | 1,937 | |
DR Horton Inc. | 59,189 | 1,898 | |
Coach Inc. | 49,307 | 1,883 | |
Hormel Foods Corp. | 48,477 | 1,855 | |
Hanesbrands Inc. | 68,807 | 1,826 | |
* | LKQ Corp. | 48,912 | 1,765 |
Harley-Davidson Inc. | 32,370 | 1,706 | |
Autoliv Inc. | 15,484 | 1,644 | |
Bunge Ltd. | 25,257 | 1,614 | |
* | Coca-Cola European | ||
Partners plc | 41,143 | 1,582 | |
PVH Corp. | 14,386 | 1,550 | |
* | Michael Kors Holdings Ltd. | 31,112 | 1,523 |
Snap-on Inc. | 9,737 | 1,493 | |
Lear Corp. | 12,831 | 1,492 | |
BorgWarner Inc. | 40,545 | 1,394 | |
* | lululemon athletica Inc. | 17,466 | 1,336 |
* | Under Armour Inc. | 35,460 | 1,264 |
Leggett & Platt Inc. | 23,315 | 1,224 | |
* | Under Armour Inc. Class A | 30,558 | 1,211 |
Harman International | |||
Industries Inc. | 13,062 | 1,106 | |
* | Herbalife Ltd. | 16,763 | 1,018 |
Ralph Lauren Corp. Class A | 9,544 | 989 |
10
FTSE Social Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Polaris Industries Inc. | 11,056 | 958 | |
* | Toll Brothers Inc. | 30,425 | 946 |
* | Edgewell Personal Care Co. | 10,980 | 879 |
250,890 | |||
Consumer Services (10.4%) | |||
Home Depot Inc. | 223,060 | 29,917 | |
Walt Disney Co. | 286,686 | 27,080 | |
CVS Health Corp. | 191,226 | 17,861 | |
McDonald’s Corp. | 152,350 | 17,621 | |
Starbucks Corp. | 250,635 | 14,093 | |
* | Priceline Group Inc. | 8,860 | 12,552 |
Lowe’s Cos. Inc. | 159,388 | 12,203 | |
Time Warner Inc. | 139,865 | 10,967 | |
TJX Cos. Inc. | 117,293 | 9,083 | |
McKesson Corp. | 39,962 | 7,378 | |
Sysco Corp. | 94,148 | 4,883 | |
* | O’Reilly Automotive Inc. | 17,080 | 4,782 |
Cardinal Health Inc. | 57,995 | 4,620 | |
Ross Stores Inc. | 71,314 | 4,439 | |
* | AutoZone Inc. | 5,275 | 3,913 |
Omnicom Group Inc. | 42,672 | 3,675 | |
Dollar General Corp. | 47,084 | 3,456 | |
Nielsen Holdings plc | 62,678 | 3,339 | |
* | Dollar Tree Inc. | 39,199 | 3,242 |
L Brands Inc. | 38,371 | 2,924 | |
AmerisourceBergen Corp. | |||
Class A | 32,587 | 2,834 | |
* | Ulta Salon Cosmetics & | ||
Fragrance Inc. | 10,663 | 2,636 | |
Viacom Inc. Class B | 61,071 | 2,464 | |
Expedia Inc. | 21,212 | 2,315 | |
* | Chipotle Mexican Grill Inc. | ||
Class A | 5,173 | 2,140 | |
* | CarMax Inc. | 34,965 | 2,061 |
Advance Auto Parts Inc. | 12,977 | 2,042 | |
Macy’s Inc. | 52,180 | 1,888 | |
Best Buy Co. Inc. | 46,416 | 1,786 | |
Interpublic Group of | |||
Cos. Inc. | 70,486 | 1,631 | |
Foot Locker Inc. | 24,831 | 1,630 | |
Tiffany & Co. | 22,021 | 1,572 | |
Tractor Supply Co. | 18,000 | 1,511 | |
Kohl’s Corp. | 32,498 | 1,442 | |
^ | Nordstrom Inc. | 27,492 | 1,387 |
Darden Restaurants Inc. | 22,232 | 1,370 | |
Bed Bath & Beyond Inc. | 29,512 | 1,368 | |
Signet Jewelers Ltd. | 14,217 | 1,166 | |
* | Discovery | ||
Communications Inc. | 42,824 | 1,063 | |
Staples Inc. | 119,637 | 1,024 | |
Gap Inc. | 38,189 | 950 | |
H&R Block Inc. | 41,078 | 890 | |
Dun & Bradstreet Corp. | 6,387 | 879 | |
Scripps Networks | |||
Interactive Inc. Class A | 12,724 | 806 |
TEGNA Inc. | 39,383 | 798 | |
* | Hertz Global Holdings Inc. | 14,422 | 710 |
* | Discovery Communications | ||
Inc. Class A | 27,007 | 689 | |
* | AutoNation Inc. | 13,217 | 626 |
* | Herc Holdings Inc. | 4,249 | 144 |
239,850 | |||
Financials (23.7%) | |||
Wells Fargo & Co. | 901,077 | 45,775 | |
JPMorgan Chase & Co. | 644,364 | 43,495 | |
Bank of America Corp. 1,827,143 | 29,490 | ||
Visa Inc. Class A | 336,144 | 27,194 | |
Citigroup Inc. | 521,774 | 24,909 | |
MasterCard Inc. Class A | 173,025 | 16,719 | |
US Bancorp | 308,610 | 13,625 | |
Simon Property Group Inc. | 55,462 | 11,950 | |
Goldman Sachs Group Inc. | 69,112 | 11,712 | |
American International | |||
Group Inc. | 189,640 | 11,346 | |
Chubb Ltd. | 83,105 | 10,549 | |
American Express Co. | 146,229 | 9,590 | |
American Tower Corporation | 75,654 | 8,578 | |
BlackRock Inc. | 22,129 | 8,250 | |
Bank of New York Mellon | |||
Corp. | 191,781 | 7,992 | |
PNC Financial Services | |||
Group Inc. | 88,477 | 7,972 | |
Morgan Stanley | 248,456 | 7,966 | |
MetLife Inc. | 157,422 | 6,832 | |
Marsh & McLennan | |||
Cos. Inc. | 94,442 | 6,387 | |
Travelers Cos. Inc. | 52,787 | 6,266 | |
Prudential Financial Inc. | 78,541 | 6,235 | |
Charles Schwab Corp. | 197,979 | 6,228 | |
CME Group Inc. | 56,869 | 6,162 | |
Intercontinental | |||
Exchange Inc. | 21,253 | 5,994 | |
S&P Global Inc. | 47,418 | 5,858 | |
Capital One Financial Corp. | 80,872 | 5,790 | |
Public Storage | 25,839 | 5,786 | |
BB&T Corp. | 142,784 | 5,497 | |
Aflac Inc. | 71,165 | 5,279 | |
Aon plc | 47,354 | 5,273 | |
Prologis Inc. | 93,640 | 4,973 | |
State Street Corp. | 70,033 | 4,919 | |
Welltower Inc. | 62,979 | 4,834 | |
Allstate Corp. | 67,035 | 4,623 | |
Equinix Inc. | 12,392 | 4,568 | |
Discover Financial Services | 73,122 | 4,387 | |
Ventas Inc. | 59,669 | 4,336 | |
AvalonBay | |||
Communities Inc. | 24,215 | 4,238 | |
Weyerhaeuser Co. | 132,360 | 4,216 | |
Equity Residential | 63,258 | 4,104 | |
Synchrony Financial | 146,900 | 4,088 |
11
FTSE Social Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
SunTrust Banks Inc. | 87,604 | 3,861 | |
Boston Properties Inc. | 27,266 | 3,821 | |
Moody’s Corp. | 34,317 | 3,730 | |
HCP Inc. | 82,848 | 3,258 | |
M&T Bank Corp. | 26,446 | 3,129 | |
Progressive Corp. | 94,676 | 3,083 | |
Realty Income Corp. | 46,051 | 3,027 | |
Willis Towers Watson plc | 24,332 | 3,017 | |
Ameriprise Financial Inc. | 29,449 | 2,977 | |
T. Rowe Price Group Inc. | 42,382 | 2,947 | |
Hartford Financial Services | |||
Group Inc. | 70,586 | 2,899 | |
Northern Trust Corp. | 40,063 | 2,828 | |
Digital Realty Trust Inc. | 28,379 | 2,812 | |
Equifax Inc. | 21,212 | 2,798 | |
Fifth Third Bancorp | 137,099 | 2,764 | |
General Growth | |||
Properties Inc. | 89,218 | 2,600 | |
Principal Financial Group Inc. | 52,715 | 2,587 | |
Franklin Resources Inc. | 68,026 | 2,483 | |
KeyCorp | 188,400 | 2,366 | |
Citizens Financial Group Inc. | 95,482 | 2,365 | |
Invesco Ltd. | 74,857 | 2,335 | |
Regions Financial Corp. | 230,976 | 2,303 | |
Kimco Realty Corp. | 75,304 | 2,263 | |
* | Markel Corp. | 2,323 | 2,163 |
Macerich Co. | 26,051 | 2,133 | |
Cincinnati Financial Corp. | 27,410 | 2,114 | |
Lincoln National Corp. | 43,236 | 2,077 | |
First Republic Bank | 26,206 | 2,017 | |
Loews Corp. | 46,434 | 1,944 | |
Annaly Capital | |||
Management Inc. | 180,749 | 1,936 | |
Huntington Bancshares Inc. | 191,141 | 1,913 | |
Western Union Co. | 85,926 | 1,849 | |
Duke Realty Corp. | 62,730 | 1,764 | |
Ally Financial Inc. | 87,824 | 1,760 | |
* | XL Group Ltd. | 51,409 | 1,760 |
VEREIT Inc. | 158,695 | 1,658 | |
Iron Mountain Inc. | 42,343 | 1,626 | |
* | Arch Capital Group Ltd. | 20,019 | 1,620 |
* | CBRE Group Inc. Class A | 52,106 | 1,557 |
Arthur J Gallagher & Co. | 31,418 | 1,552 | |
Unum Group | 43,535 | 1,550 | |
Comerica Inc. | 31,688 | 1,499 | |
Everest Re Group Ltd. | 7,669 | 1,483 | |
* | Alleghany Corp. | 2,748 | 1,473 |
Regency Centers Corp. | 17,337 | 1,396 | |
CIT Group Inc. | 37,025 | 1,365 | |
Torchmark Corp. | 19,851 | 1,284 | |
New York Community | |||
Bancorp Inc. | 83,564 | 1,263 | |
TD Ameritrade Holding Corp. | 36,574 | 1,202 | |
American Capital | |||
Agency Corp. | 61,469 | 1,187 |
Zions Bancorporation | 38,223 | 1,169 | ||
Voya Financial Inc. | 38,293 | 1,120 | ||
Liberty Property Trust | 25,504 | 1,052 | ||
WR Berkley Corp. | 16,885 | 1,002 | ||
Assurant Inc. | 10,868 | 973 | ||
Navient Corp. | 63,187 | 909 | ||
People’s United | ||||
Financial Inc. | 54,469 | 885 | ||
Axis Capital Holdings Ltd. | 15,231 | 866 | ||
RenaissanceRe Holdings Ltd. | 7,172 | 858 | ||
Hospitality Properties Trust | 27,260 | 831 | ||
Weingarten Realty Investors | 19,401 | 800 | ||
Commerce Bancshares Inc. | 15,441 | 783 | ||
Legg Mason Inc. | 19,680 | 681 | ||
* | Santander Consumer USA | |||
Holdings Inc. | 22,555 | 284 | ||
547,596 | ||||
Health Care (18.9%) | ||||
Johnson & Johnson | 489,959 | 58,472 | ||
Pfizer Inc. | 1,080,679 | 37,608 | ||
Merck & Co. Inc. | 494,820 | 31,070 | ||
UnitedHealth Group Inc. | 171,490 | 23,331 | ||
Amgen Inc. | 134,921 | 22,945 | ||
Medtronic plc | 251,939 | 21,926 | ||
AbbVie Inc. | 288,262 | 18,478 | ||
Bristol-Myers Squibb Co. | 296,895 | 17,039 | ||
* | Allergan plc | 70,350 | 16,500 | |
* | Celgene Corp. | 139,204 | 14,859 | |
Eli Lilly & Co. | 175,160 | 13,619 | ||
* | Biogen Inc. | 38,941 | 11,902 | |
Abbott Laboratories | 261,879 | 11,004 | ||
* | Express Scripts Holding Co. | 112,464 | 8,176 | |
Aetna Inc. | 62,364 | 7,304 | ||
Becton Dickinson and Co. | 37,628 | 6,668 | ||
Cigna Corp. | 45,688 | 5,860 | ||
Anthem Inc. | 46,653 | 5,835 | ||
Stryker Corp. | 49,995 | 5,782 | ||
* | Boston Scientific Corp. | 241,577 | 5,754 | |
* | Regeneron | |||
Pharmaceuticals Inc. | 14,429 | 5,664 | ||
* | Alexion Pharmaceuticals Inc. | 39,722 | 4,999 | |
Humana Inc. | 26,246 | 4,690 | ||
* | Intuitive Surgical Inc. | 6,808 | 4,673 | |
Baxter International Inc. | 98,353 | 4,596 | ||
Zoetis Inc. | 89,940 | 4,596 | ||
Zimmer Biomet Holdings Inc. | 35,302 | 4,575 | ||
* | Edwards Lifesciences Corp. | 37,650 | 4,336 | |
* | Vertex Pharmaceuticals Inc. | 43,532 | 4,114 | |
* | HCA Holdings Inc. | 53,243 | 4,023 | |
St. Jude Medical Inc. | 50,178 | 3,910 | ||
* | Mylan NV | 80,654 | 3,416 | |
CR Bard Inc. | 13,137 | 2,901 | ||
* | BioMarin Pharmaceutical Inc. | 28,141 | 2,642 | |
Dentsply Sirona Inc. | 41,541 | 2,553 |
12
FTSE Social Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
* | Laboratory Corp. of | ||
America Holdings | 18,235 | 2,497 | |
* | Henry Schein Inc. | 14,675 | 2,404 |
* | Incyte Corp. | 29,474 | 2,390 |
* | DaVita HealthCare | ||
Partners Inc. | 36,524 | 2,361 | |
* | Medivation Inc. | 27,855 | 2,244 |
* | Waters Corp. | 14,082 | 2,215 |
Perrigo Co. plc | 23,349 | 2,125 | |
Quest Diagnostics Inc. | 25,149 | 2,083 | |
* | Centene Corp. | 29,391 | 2,007 |
Universal Health Services | |||
Inc. Class B | 16,066 | 1,936 | |
* | Hologic Inc. | 49,619 | 1,906 |
* | Varian Medical Systems Inc. | 16,936 | 1,628 |
* | Mallinckrodt plc | 19,589 | 1,460 |
* | Jazz Pharmaceuticals plc | 10,260 | 1,270 |
* | Quintiles Transnational | ||
Holdings Inc. | 15,017 | 1,161 | |
* | Alnylam Pharmaceuticals Inc. | 13,313 | 930 |
* | Endo International plc | 39,019 | 808 |
Patterson Cos. Inc. | 14,490 | 667 | |
437,912 | |||
Industrials (6.9%) | |||
Union Pacific Corp. | 149,451 | 14,277 | |
United Parcel Service Inc. | |||
Class B | 123,799 | 13,521 | |
FedEx Corp. | 44,686 | 7,370 | |
Automatic Data | |||
Processing Inc. | 81,538 | 7,323 | |
* | PayPal Holdings Inc. | 195,404 | 7,259 |
Illinois Tool Works Inc. | 57,601 | 6,846 | |
Eaton Corp. plc | 80,833 | 5,379 | |
Waste Management Inc. | 80,363 | 5,138 | |
Norfolk Southern Corp. | 52,765 | 4,955 | |
CSX Corp. | 172,608 | 4,881 | |
Deere & Co. | 52,546 | 4,443 | |
* | Fiserv Inc. | 39,867 | 4,108 |
Sherwin-Williams Co. | 13,604 | 3,860 | |
Cummins Inc. | 30,320 | 3,809 | |
PACCAR Inc. | 63,361 | 3,792 | |
Tyco International plc | 74,727 | 3,264 | |
Parker-Hannifin Corp. | 24,252 | 2,972 | |
Agilent Technologies Inc. | 58,439 | 2,746 | |
Vulcan Materials Co. | 23,595 | 2,687 | |
Rockwell Automation Inc. | 23,072 | 2,675 | |
Ball Corp. | 30,859 | 2,444 | |
* | Verisk Analytics Inc. Class A | 27,705 | 2,301 |
WW Grainger Inc. | 9,464 | 2,183 | |
* | Alliance Data Systems Corp. | 10,622 | 2,173 |
Masco Corp. | 59,186 | 2,100 | |
Martin Marietta | |||
Materials Inc. | 11,229 | 2,055 | |
Fastenal Co. | 47,214 | 2,035 | |
AMETEK Inc. | 41,171 | 2,007 |
Dover Corp. | 27,576 | 1,999 | |
Kansas City Southern | 19,631 | 1,899 | |
Xerox Corp. | 181,648 | 1,789 | |
CH Robinson | |||
Worldwide Inc. | 25,273 | 1,754 | |
Fortune Brands Home | |||
& Security Inc. | 27,096 | 1,722 | |
Sealed Air Corp. | 34,726 | 1,637 | |
Expeditors International of | |||
Washington Inc. | 31,950 | 1,618 | |
Xylem Inc. | 31,448 | 1,599 | |
Broadridge Financial | |||
Solutions Inc. | 21,072 | 1,460 | |
Total System Services Inc. | 27,707 | 1,365 | |
JB Hunt Transport | |||
Services Inc. | 16,374 | 1,300 | |
* | Flextronics International Ltd. | 97,556 | 1,292 |
* | Trimble Navigation Ltd. | 44,711 | 1,225 |
Allegion plc | 17,056 | 1,215 | |
* | United Rentals Inc. | 14,565 | 1,199 |
* | Sensata Technologies | ||
Holding NV | 30,414 | 1,158 | |
* | Arrow Electronics Inc. | 16,427 | 1,081 |
Avnet Inc. | 23,617 | 984 | |
* | Keysight Technologies Inc. | 31,200 | 949 |
ManpowerGroup Inc. | 13,113 | 937 | |
Robert Half International Inc. | 23,205 | 889 | |
Bemis Co. Inc. | 16,849 | 886 | |
MDU Resources Group Inc. | 33,707 | 795 | |
Jabil Circuit Inc. | 33,288 | 705 | |
160,060 | |||
Oil & Gas (3.0%) | |||
Occidental Petroleum Corp. | 135,753 | 10,433 | |
EOG Resources Inc. | 97,470 | 8,625 | |
Kinder Morgan Inc. | 336,147 | 7,345 | |
Pioneer Natural | |||
Resources Co. | 29,035 | 5,199 | |
Anadarko Petroleum Corp. | 90,088 | 4,817 | |
Valero Energy Corp. | 83,152 | 4,603 | |
Spectra Energy Corp. | 118,681 | 4,227 | |
Devon Energy Corp. | 93,813 | 4,065 | |
Williams Cos. Inc. | 132,312 | 3,697 | |
Apache Corp. | 67,223 | 3,341 | |
Marathon Oil Corp. | 151,075 | 2,269 | |
EQT Corp. | 30,902 | 2,210 | |
Tesoro Corp. | 20,707 | 1,562 | |
* | Newfield Exploration Co. | 35,677 | 1,547 |
Helmerich & Payne Inc. | 21,935 | 1,326 | |
Range Resources Corp. | 29,458 | 1,136 | |
* | FMC Technologies Inc. | 34,481 | 972 |
Core Laboratories NV | 8,627 | 964 | |
Murphy Oil Corp. | 30,358 | 811 | |
* | First Solar Inc. | 12,965 | 490 |
Ensco plc Class A | 62,822 | 477 | |
70,116 |
13
FTSE Social Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Technology (23.4%) | |||
Apple Inc. | 959,804 | 101,835 | |
Microsoft Corp. | 1,347,203 | 77,410 | |
* | Facebook Inc. Class A | 391,640 | 49,394 |
* | Alphabet Inc. Class A | 52,979 | 41,845 |
* | Alphabet Inc. Class C | 51,329 | 39,372 |
Intel Corp. | 843,018 | 30,256 | |
Cisco Systems Inc. | 896,667 | 28,191 | |
Oracle Corp. | 569,878 | 23,490 | |
QUALCOMM Inc. | 261,057 | 16,465 | |
Texas Instruments Inc. | 178,900 | 12,441 | |
EMC Corp. | 345,556 | 10,018 | |
* | Adobe Systems Inc. | 89,435 | 9,150 |
* | salesforce.com Inc. | 110,055 | 8,741 |
* | Cognizant Technology | ||
Solutions Corp. Class A | 108,171 | 6,213 | |
Applied Materials Inc. | 202,397 | 6,039 | |
NVIDIA Corp. | 93,082 | 5,710 | |
Intuit Inc. | 42,602 | 4,748 | |
Corning Inc. | 189,887 | 4,309 | |
* | NXP Semiconductors NV | 48,371 | 4,258 |
* | Cerner Corp. | 51,552 | 3,327 |
* | Micron Technology Inc. | 182,283 | 3,006 |
Symantec Corp. | 115,502 | 2,787 | |
Lam Research Corp. | 28,940 | 2,701 | |
* | Autodesk Inc. | 39,618 | 2,670 |
Skyworks Solutions Inc. | 34,356 | 2,572 | |
Xilinx Inc. | 46,032 | 2,495 | |
* | Citrix Systems Inc. | 27,158 | 2,368 |
* | Red Hat Inc. | 31,866 | 2,326 |
Western Digital Corp. | 46,120 | 2,152 | |
Maxim Integrated | |||
Products Inc. | 51,816 | 2,110 | |
* | ServiceNow Inc. | 27,417 | 1,992 |
NetApp Inc. | 57,538 | 1,990 | |
KLA-Tencor Corp. | 28,227 | 1,955 | |
CA Inc. | 55,167 | 1,871 | |
* | Workday Inc. Class A | 21,094 | 1,789 |
* | Check Point Software | ||
Technologies Ltd. | 23,193 | 1,780 | |
Seagate Technology plc | 49,711 | 1,677 | |
* | Akamai Technologies Inc. | 30,479 | 1,673 |
Juniper Networks Inc. | 69,566 | 1,606 | |
* | Synopsys Inc. | 26,840 | 1,591 |
CDK Global Inc. | 27,302 | 1,583 | |
Amdocs Ltd. | 26,306 | 1,581 | |
*,^ | Mobileye NV | 31,745 | 1,552 |
* | F5 Networks Inc. | 12,117 | 1,487 |
* | VeriSign Inc. | 19,135 | 1,425 |
* | Splunk Inc. | 23,289 | 1,356 |
*,^ | VMware Inc. Class A | 13,091 | 960 |
* | Yandex NV Class A | 43,335 | 955 |
* | IMS Health Holdings Inc. | 28,119 | 838 |
* | Teradata Corp. | 24,422 | 775 |
CSRA Inc. | 29,682 | 754 | |
* | Rackspace Hosting Inc. | 18,619 | 586 |
540,175 | |||
Telecommunications (0.2%) | |||
* | T-Mobile US Inc. | 46,792 | 2,168 |
Frontier Communications | |||
Corp. | 209,959 | 966 | |
*,^ | Sprint Corp. | 150,404 | 930 |
4,064 | |||
Utilities (0.6%) | |||
Sempra Energy | 43,503 | 4,552 | |
American Water Works | |||
Co. Inc. | 35,309 | 2,612 | |
ONEOK Inc. | 37,260 | 1,747 | |
CenterPoint Energy Inc. | 76,091 | 1,710 | |
NiSource Inc. | 55,461 | 1,328 | |
Questar Corp. | 32,175 | 805 | |
* | Calpine Corp. | 59,341 | 740 |
13,494 | |||
Total Common Stocks | |||
(Cost $1,848,122) | 2,309,749 | ||
Temporary Cash Investments (0.2%) | |||
Money Market Fund (0.2%) | |||
1,2 | Vanguard Market Liquidity | ||
Fund, 0.612% | 32,300 | 3,230 | |
Face | |||
Amount | |||
($000) | |||
U.S. Government and Agency Obligations (0.0%) | |||
3 | Federal Home Loan Bank | ||
Discount Notes, | |||
0.365%, 10/5/16 | 100 | 100 | |
3 | Federal Home Loan Bank | ||
Discount Notes, | |||
0.339%, 11/14/16 | 100 | 100 | |
200 | |||
Total Temporary Cash Investments | |||
(Cost $3,430) | 3,430 | ||
Total Investments (100.1%) | |||
(Cost $1,851,552) | 2,313,179 |
14
FTSE Social Index Fund
Amount | |
($000) | |
Other Assets and Liabilities (-0.1%) | |
Other Assets | |
Investment in Vanguard | 176 |
Receivables for Accrued Income | 4,629 |
Receivables for Capital Shares Issued | 2,215 |
Total Other Assets | 7,020 |
Liabilities | |
Payables for Investment | |
Securities Purchased | (1,307) |
Collateral for Securities on Loan | (3,229) |
Payables for Capital Shares Redeemed | (613) |
Payables to Vanguard | (1,153) |
Other Liabilities | (2,517) |
Total Liabilities | (8,819) |
Net Assets (100%) | 2,311,380 |
At August 31, 2016, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 1,863,148 |
Undistributed Net Investment Income | 8,917 |
Accumulated Net Realized Losses | (22,312) |
Unrealized Appreciation (Depreciation) | 461,627 |
Net Assets | 2,311,380 |
Investor Shares—Net Assets | |
Applicable to 102,914,393 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 1,435,164 |
Net Asset Value Per Share— | |
Investor Shares | $13.95 |
Institutional Shares—Net Assets | |
Applicable to 62,776,071 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 876,216 |
Net Asset Value Per Share— | |
Institutional Shares | $13.96 |
• 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 $3,051,000.
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 $3,229,000 of collateral received for securities on loan.
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.
See accompanying Notes, which are an integral part of the Financial Statements.
15
FTSE Social Index Fund
Statement of Operations
Year Ended | |
August 31, 2016 | |
($000) | |
Investment Income | |
Income | |
Dividends | 42,401 |
Interest1 | 10 |
Securities Lending—Net | 101 |
Total Income | 42,512 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 348 |
Management and Administrative—Investor Shares | 2,118 |
Management and Administrative—Institutional Shares | 697 |
Marketing and Distribution—Investor Shares | 313 |
Marketing and Distribution—Institutional Shares | 22 |
Custodian Fees | 117 |
Auditing Fees | 34 |
Shareholders’ Reports—Investor Shares | 19 |
Shareholders’ Reports—Institutional Shares | 27 |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 3,696 |
Net Investment Income | 38,816 |
Realized Net Gain (Loss) | |
Investment Securities Sold1 | 2,853 |
Futures Contracts | 5 |
Realized Net Gain (Loss) | 2,858 |
Change in Unrealized Appreciation (Depreciation) of Investment Securities | 159,803 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 201,477 |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $9,000 and $1,000, respectively. |
See accompanying Notes, which are an integral part of the Financial Statements.
16
FTSE Social Index Fund
Statement of Changes in Net Assets
Year Ended August 31, | ||
2016 | 2015 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 38,816 | 27,036 |
Realized Net Gain (Loss) | 2,858 | 35,673 |
Change in Unrealized Appreciation (Depreciation) | 159,803 | (31,310) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 201,477 | 31,399 |
Distributions | ||
Net Investment Income | ||
Investor Shares | (28,370) | (12,803) |
Institutional Shares | (18,570) | (7,027) |
Realized Capital Gain | ||
Investor Shares | — | — |
Institutional Shares | — | — |
Total Distributions | (46,940) | (19,830) |
Capital Share Transactions | ||
Investor Shares | 208,652 | 319,681 |
Institutional Shares | 111,431 | 276,754 |
Net Increase (Decrease) from Capital Share Transactions | 320,083 | 596,435 |
Total Increase (Decrease) | 474,620 | 608,004 |
Net Assets | ||
Beginning of Period | 1,836,760 | 1,228,756 |
End of Period1 | 2,311,380 | 1,836,760 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $8,917,000 and $17,041,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
17
FTSE Social Index Fund
Financial Highlights
Investor Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $12.99 | $12.74 | $10.28 | $8.30 | $7.31 |
Investment Operations | |||||
Net Investment Income | . 241 | .183 | .167 | .153 | .117 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 1.025 | .231 | 2.442 | 1.969 | .962 |
Total from Investment Operations | 1.266 | .414 | 2.609 | 2.122 | 1.079 |
Distributions | |||||
Dividends from Net Investment Income | (.306) | (.164) | (.149) | (.142) | (. 089) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (.306) | (.164) | (.149) | (.142) | (. 089) |
Net Asset Value, End of Period | $13.95 | $12.99 | $12.74 | $10.28 | $8.30 |
Total Return1 | 9.95% | 3.25% | 25.58% | 25.90% | 14.94% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $1,435 | $1,131 | $800 | $553 | $379 |
Ratio of Total Expenses to Average Net Assets | 0.22% | 0.25% | 0.27% | 0.28% | 0.29% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.87% | 1.63% | 1.51% | 1.63% | 1.50% |
Portfolio Turnover Rate2 | 16% | 20% | 14% | 29% | 45% |
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.
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.
See accompanying Notes, which are an integral part of the Financial Statements.
18
FTSE Social Index Fund
Financial Highlights
Institutional Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $13.00 | $12.75 | $10.29 | $8.31 | $7.32 |
Investment Operations | |||||
Net Investment Income | . 254 | .193 | .180 | .163 | .128 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 1.029 | .233 | 2.440 | 1.971 | .960 |
Total from Investment Operations | 1.283 | .426 | 2.620 | 2.134 | 1.088 |
Distributions | |||||
Dividends from Net Investment Income | (.323) | (.176) | (.160) | (.154) | (.098) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (.323) | (.176) | (.160) | (.154) | (.098) |
Net Asset Value, End of Period | $13.96 | $13.00 | $12.75 | $10.29 | $8.31 |
Total Return | 10.09% | 3.34% | 25.68% | 26.05% | 15.06% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $876 | $706 | $429 | $276 | $202 |
Ratio of Total Expenses to Average Net Assets | 0.12% | 0.15% | 0.16% | 0.16% | 0.16% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.97% | 1.73% | 1.62% | 1.75% | 1.63% |
Portfolio Turnover Rate1 | 16% | 20% | 14% | 29% | 45% |
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. |
See accompanying Notes, which are an integral part of the Financial Statements.
19
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. 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, 2016, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of aggregate settlement values at each quarter-end during the period. The fund had no open futures contracts at August 31, 2016.
20
FTSE Social 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, 2013–2016), 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 subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
6. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at August 31, 2016, 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.
21
FTSE Social 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, 2016, the fund had contributed to Vanguard capital in the amount of $176,000, 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, 2016, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 2,309,749 | — | — |
Temporary Cash Investments | 3,230 | 200 | — |
Total | 2,312,979 | 200 | — |
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
22
FTSE Social Index Fund
During the year ended August 31, 2016, the fund realized $17,826,000 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, 2016, the fund had $9,883,000 of ordinary income available for distribution. At August 31, 2016, the fund had available capital losses totaling $22,292,000 to offset future net capital gains. Of this amount, $394,000 is subject to expiration on August 31, 2019. Capital losses of $21,898,000 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, 2016, the cost of investment securities for tax purposes was $1,851,552,000. Net unrealized appreciation of investment securities for tax purposes was $461,627,000, consisting of unrealized gains of $505,635,000 on securities that had risen in value since their purchase and $44,008,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2016, the fund purchased $699,567,000 of investment securities and sold $386,703,000 of investment securities, other than temporary cash investments. Purchases and sales include $0 and $53,291,000, 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, | ||||
2016 | 2015 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
Investor Shares | ||||
Issued | 495,860 | 38,032 | 588,757 | 44,361 |
Issued in Lieu of Cash Distributions | 25,725 | 1,988 | 11,902 | 917 |
Redeemed | (312,933) | (24,156) | (280,978) | (21,014) |
Net Increase (Decrease)—Investor Shares | 208,652 | 15,864 | 319,681 | 24,264 |
Institutional Shares | ||||
Issued | 206,714 | 15,806 | 324,758 | 24,282 |
Issued in Lieu of Cash Distributions | 18,514 | 1,430 | 7,027 | 541 |
Redeemed | (113,797) | (8,748) | (55,031) | (4,181) |
Net Increase (Decrease) —Institutional Shares | 111,431 | 8,488 | 276,754 | 20,642 |
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2016, 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, 2016, 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, 2016 by correspondence with the custodian and brokers and by agreement to the underlying ownership records of the transfer agent, provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
October 12, 2016
Special 2016 tax information (unaudited) for Vanguard FTSE Social Index Fund
This information for the fiscal year ended August 31, 2016, is included pursuant to provisions of the
Internal Revenue Code.
The fund distributed $46,940,000 of qualified dividend income to shareholders during the fiscal year.
For corporate shareholders, 96.9% 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 2016. (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, 2016 | |||
One | Five | Ten | |
Year | Years | Years | |
Returns Before Taxes | 9.95% | 15.59% | 6.65% |
Returns After Taxes on Distributions | 9.34 | 15.22 | 6.36 |
Returns After Taxes on Distributions and Sale of Fund Shares | 6.07 | 12.56 | 5.34 |
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, 2016 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
FTSE Social Index Fund | 2/29/2016 | 8/31/2016 | Period |
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $1,142.50 | $1.13 |
Institutional Shares | 1,000.00 | 1,142.82 | 0.59 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,024.08 | $1.07 |
Institutional Shares | 1,000.00 | 1,024.58 | 0.56 |
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 0.21% for Investor Shares and 0.11% 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 (184/366).
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. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department, which is responsible for fund and advisor oversight and product management. The Portfolio Review Department met regularly with the advisor and made monthly presentations to the board during the fiscal year directing the board’s focus to relevant information and topics.
The board, or an investment committee made up of board members, also received information throughout the year through advisor presentations. For each advisor presentation, the board was provided with letters and reports that included information about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.
In addition, the board received monthly reports, which included a Market and Economic Report, a Fund Dashboard Monthly Summary, and a Fund Performance Report.
Prior to their meeting, the trustees were provided with a memo and materials that summarized the information they had received over the course of the year. They also 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 its 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.
28
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 expenses were 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.
29
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.
30
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.
31
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 198 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482. 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 | Rajiv L. Gupta |
Born 1945. Trustee Since December 2001.2 Principal | |
F. William McNabb III | Occupation(s) During the Past Five Years and Other |
Born 1957. Trustee Since July 2009. Chairman of | Experience: Chairman and Chief Executive Officer |
the Board. Principal Occupation(s) During the Past | (retired 2009) and President (2006–2008) of |
Five Years and Other Experience: Chairman of the | Rohm and Haas Co. (chemicals); Director of Tyco |
Board of The Vanguard Group, Inc., and of each of | International plc (diversified manufacturing and |
the investment companies served by The Vanguard | services), HP Inc. (printer and personal computer |
Group, since January 2010; Director of The Vanguard | manufacturing), and Delphi Automotive plc |
Group since 2008; Chief Executive Officer and | (automotive components); Senior Advisor at |
President of The Vanguard Group, and of each of | New Mountain Capital. |
the investment companies served by The Vanguard | |
Group, since 2008; Director of Vanguard Marketing | Amy Gutmann |
Corporation; Managing Director of The Vanguard | Born 1949. Trustee Since June 2006. Principal |
Group (1995–2008). | Occupation(s) During the Past Five Years and |
Other Experience: President of the University of | |
IndependentTrustees | Pennsylvania; Christopher H. Browne Distinguished |
Professor of Political Science, School of Arts and | |
Emerson U. Fullwood | Sciences, and Professor of Communication, Annenberg |
Born 1948. Trustee Since January 2008. Principal | School for Communication, with secondary faculty |
Occupation(s) During the Past Five Years and Other | appointments in the Department of Philosophy, School |
Experience: Executive Chief Staff and Marketing | of Arts and Sciences, and at the Graduate School of |
Officer for North America and Corporate Vice President | Education, University of Pennsylvania; Trustee of the |
(retired 2008) of Xerox Corporation (document manage- | National Constitution Center; Chair of the Presidential |
ment products and services); Executive in Residence | Commission for the Study of Bioethical Issues. |
and 2009–2010 Distinguished Minett Professor at | |
the Rochester Institute of Technology; Lead Director | JoAnn Heffernan Heisen |
of SPX FLOW, Inc. (multi-industry manufacturing); | Born 1950. Trustee Since July 1998. Principal |
Director of the United Way of Rochester, the University | Occupation(s) During the Past Five Years and |
of Rochester Medical Center, Monroe Community | Other Experience: Corporate Vice President and |
College Foundation, North Carolina A&T University, | Chief Global Diversity Officer (retired 2008) and |
and Roberts Wesleyan College. | Member of the Executive Committee (1997–2008) |
of Johnson & Johnson (pharmaceuticals/medical | |
devices/consumer products); Director of Skytop | |
Lodge Corporation (hotels) and the Robert Wood | |
Johnson Foundation; Member of the Advisory | |
Board of the Institute for Women’s Leadership | |
at Rutgers University. |
F. Joseph Loughrey | Executive Officers | |
Born 1949. Trustee Since October 2009. Principal | ||
Occupation(s) During the Past Five Years and Other | Glenn Booraem | |
Experience: President and Chief Operating Officer | Born 1967. Treasurer Since May 2015. Principal | |
(retired 2009) of Cummins Inc. (industrial machinery); | Occupation(s) During the Past Five Years and | |
Chairman of the Board of Hillenbrand, Inc. (specialized | Other Experience: Principal of The Vanguard Group, | |
consumer services), and of Oxfam America; Director | Inc.; Treasurer of each of the investment companies | |
of SKF AB (industrial machinery), Hyster-Yale Materials | served by The Vanguard Group; Controller of each of | |
Handling, Inc. (forklift trucks), the Lumina Foundation | the investment companies served by The Vanguard | |
for Education, and the V Foundation for Cancer | Group (2010–2015); Assistant Controller of each of | |
Research; Member of the Advisory Council for the | the investment companies served by The Vanguard | |
College of Arts and Letters and of the Advisory Board | Group (2001–2010). | |
to the Kellogg Institute for International Studies, both | ||
at the University of Notre Dame. | Thomas J. Higgins | |
Born 1957. Chief Financial Officer Since September | ||
Mark Loughridge | 2008. Principal Occupation(s) During the Past Five | |
Born 1953. Trustee Since March 2012. Principal | Years and Other Experience: Principal of The Vanguard | |
Occupation(s) During the Past Five Years and Other | Group, Inc.; Chief Financial Officer of each of the | |
Experience: Senior Vice President and Chief Financial | investment companies served by The Vanguard Group; | |
Officer (retired 2013) at IBM (information technology | Treasurer of each of the investment companies served | |
services); Fiduciary Member of IBM’s Retirement Plan | by The Vanguard Group (1998–2008). | |
Committee (2004–2013); Director of the Dow Chemical | ||
Company; Member of the Council on Chicago Booth. | Peter Mahoney | |
Born 1974. Controller Since May 2015. Principal | ||
Scott C. Malpass | Occupation(s) During the Past Five Years and | |
Born 1962. Trustee Since March 2012. Principal | Other Experience: Head of Global Fund Accounting | |
Occupation(s) During the Past Five Years and Other | at The Vanguard Group, Inc.; Controller of each of the | |
Experience: Chief Investment Officer and Vice | investment companies served by The Vanguard Group; | |
President at the University of Notre Dame; Assistant | Head of International Fund Services at The Vanguard | |
Professor of Finance at the Mendoza College of | Group (2008–2014). | |
Business at Notre Dame; Member of the Notre Dame | ||
403(b) Investment Committee, the Board of Advisors | Heidi Stam | |
for Spruceview Capital Partners, and the Investment | Born 1956. Secretary Since July 2005. Principal | |
Advisory Committee of Major League Baseball; Board | Occupation(s) During the Past Five Years and Other | |
Member of TIFF Advisory Services, Inc., and Catholic | Experience: Managing Director of The Vanguard | |
Investment Services, Inc. (investment advisors). | Group, Inc.; General Counsel of The Vanguard Group; | |
Secretary of The Vanguard Group and of each of the | ||
André F. Perold | investment companies served by The Vanguard Group; | |
Born 1952. Trustee Since December 2004. Principal | Director and Senior Vice President of Vanguard | |
Occupation(s) During the Past Five Years and Other | Marketing Corporation. | |
Experience: George Gund Professor of Finance and | ||
Banking, Emeritus at the Harvard Business School | Vanguard Senior ManagementTeam | |
(retired 2011); Chief Investment Officer and Managing | Mortimer J. Buckley | James M. Norris |
Partner of HighVista Strategies LLC (private investment | Kathleen C. Gubanich | Thomas M. Rampulla |
firm); Director of Rand Merchant Bank; Overseer of | Martha G. King | Glenn W. Reed |
the Museum of Fine Arts Boston. | John T. Marcante | Karin A. Risi |
Chris D. McIsaac | Michael Rollings | |
Peter F. Volanakis | ||
Born 1955. Trustee Since July 2009. Principal | ||
Occupation(s) During the Past Five Years and | Chairman Emeritus and Senior Advisor | |
Other Experience: President and Chief Operating | ||
Officer (retired 2010) of Corning Incorporated | John J. Brennan | |
(communications equipment); Chairman of the | Chairman, 1996–2009 | |
Board of Trustees of Colby-Sawyer College; | Chief Executive Officer and President, 1996–2008 | |
Member of the Advisory Board of the Norris | ||
Cotton Cancer Center. | 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.
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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 |
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("Russell"), MTS Next Limited ("MTS"), and FTSE TMX | |
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Text Telephone for People | rights reserved. "FTSE®", “Russell®", "MTS®", "FTSE |
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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 | |
vanguard.com/proxyreporting or sec.gov. | The Industry Classification Benchmark ("ICB") is owned |
by FTSE. FTSE does not accept any liability to any | |
You can review and copy information about your fund at | person for any loss or damage arising out of any error |
the SEC’s Public Reference Room in Washington, D.C. To | or omission in the ICB. |
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. | |
© 2016 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q2130 102016 |
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/extendeduration_pt1x1x1.jpg)
Annual Report | August 31, 2016
Vanguard Extended Duration Treasury
Index Fund
A new format, unwavering commitment
As you begin reading this report, you’ll notice that we’ve made some improvements to the opening sections—based on feedback from you, our clients.
Page 1 starts with a new ”Your Fund’s Performance at a Glance,” a concise, handy summary of how your fund performed during the period.
In the renamed ”Chairman’s Perspective,” Bill McNabb will focus on enduring principles and investment insights.
We’ve modified some tables, and eliminated some redundancy, but we haven’t removed any information.
At Vanguard, we’re always looking for better ways to communicate and to help you make sound investment decisions. Thank you for entrusting your assets to us.
Contents | |
Your Fund’s Performance at a Glance. | 1 |
Chairman’s Perspective. | 3 |
Fund Profile. | 7 |
Performance Summary. | 8 |
Financial Statements. | 11 |
About Your Fund’s Expenses. | 24 |
Trustees Approve Advisory Arrangement. | 26 |
Glossary. | 28 |
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: No matter what language you speak, Vanguard has one consistent message and set of principles. Our primary
focus is on you, our clients. We conduct our business with integrity as a faithful steward of your assets. This message is shown
translated into seven languages, reflecting our expanding global presence.
Your Fund’s Performance at a Glance
• The fund returned a bit more than 25% for the 12 months ended August 31, 2016, very slightly ahead of its benchmark (+24.92%).
• The fund’s return surpassed that of its peer group by a large margin because the category includes a wide range of maturities across the broader Treasury market. Although Treasury prices rose across the maturity spectrum, longer-term Treasuries (a focus of the fund) rose the most.
• Longer-duration Treasuries did particularly well as global investors sought the higher yields offered by U.S.-backed bonds compared with those offered by sovereign bonds from other developed nations. Central banks in Europe and Japan have employed aggressive policies to stimulate their economies, which in some cases has caused prevailing interest rates to sink into negative territory.
• The popularity of Treasuries pushed up their prices and pushed down their yields.
The 30-day SEC yield of the fund’s ETF Shares began the fiscal year at 2.95% and ended it at 2.28%.
Total Returns: Fiscal Year Ended August 31, 2016 | ||||
30-Day SEC | Income | Capital | Total | |
Yields | Returns | Returns | Returns | |
Vanguard Extended Duration Treasury Index Fund | ||||
ETF Shares | 2.28% | |||
Market Price | 25.18% | |||
Net Asset Value | 25.30 | |||
Institutional Shares | 2.27 | 3.50% | 21.83% | 25.33 |
Institutional Plus Shares | 2.30 | 3.52 | 21.82 | 25.34 |
Barclays U.S. Treasury STRIPS 20–30 Year Equal Par | ||||
Bond Index | 24.92 | |||
General U.S. Treasury Funds Average | 8.89 |
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.
1
Total Returns: Inception Through August 31, 2016 | |
Average | |
Annual Return | |
Extended Duration Treasury Index Fund ETF Shares (Returns since inception: 12/6/2007) | 10.63% |
Barclays U.S. Treasury STRIPS 20–30 Year Equal Par Bond Index | 10.95 |
General U.S. Treasury Funds Average | 5.49 |
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.
Expense Ratios | ||||
Your Fund Compared With Its Peer Group | ||||
ETF | Institutional | Institutional | Peer Group | |
Shares | Shares | Plus Shares | Average | |
Extended Duration Treasury Index Fund | 0.10% | 0.08% | 0.06% | 0.46% |
The fund expense ratios shown are from the prospectus dated December 22, 2015, and represent estimated costs for the current fiscal year.
For the fiscal year ended August 31, 2016, the fund’s expense ratios were 0.07% for ETF Shares, 0.06% for Institutional Shares, and 0.04%
for Institutional Plus Shares.
Peer group: General U.S. Treasury Funds.
2
Chairman’s Perspective
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/extendeduration_pt1x5x1.jpg)
Bill McNabb
Chairman and Chief Executive Officer
Dear Shareholder,
Even as the global economy continued to expand at a slow but sustained pace over the 12 months ended August 31, 2016, a series of disquieting developments highlighted the importance for investors of remaining disciplined.
Chief among them was “Brexit”—the British public’s vote to exit the European Union—but plenty of others moved the markets as well. We saw sharp ups and downs in the prices of oil and other commodities, choppy U.S. job numbers, shifting expectations about when the Federal Reserve might raise interest rates again, and decreases in already negative yields for European and Japanese government bonds.
Beyond being the end of the fiscal period, August marked a milestone: 40 years since Vanguard introduced the first index mutual fund. In ways that are perhaps still not fully appreciated, indexing has vastly improved investing for individuals, advisors, and institutions all over the world. Later in this letter, I’ll discuss the revolution wrought by what was initially a little-heralded new fund from a fledgling outfit in Valley Forge, Pennsylvania.
Brexit added another layer of uncertainty for investors
I think it’s fair to say that the momentous June 23 Brexit vote caught even the British off guard. Although we saw some market jitters in the run-up to the referendum, the unexpected outcome triggered a spike in
3
volatility worldwide. Stocks around the world lost 5%–10% in U.S. dollar terms in the first two trading sessions following the vote, with U.K. and European markets among the hardest hit; global bonds, though, headed in the other direction. It was a textbook illustration of the value of having a diversified portfolio.
That kind of volatility can push investors to “do something.” But some of the worst days in the stock markets are sometimes followed by some of the best—as happened at the end of June. Investors who scrambled to protect their portfolios by shedding stocks amid headlines warning of a global market meltdown may well have ended up locking in post-Brexit losses, then missing out on the strong rebound that took place just days later. Those headlines were noise that investors would have been better off tuning out. I’m pleased to say that Vanguard investors on the whole did just that—we continued to see cash flows into our funds in the days after the vote.
For the 12 months, stocks generally finished higher, with U.S. stocks up more than 11% and international stocks about 3% for U.S.-based investors.
In a surprise, bonds turned in a solid performance that few would have predicted a year ago. It seemed as if rates had fallen so far that they couldn’t go any lower, but many did. Central banks in a number of European countries and Japan set key monetary policy rates below zero.
Market Barometer | |||
Average Annual Total Returns | |||
Periods Ended August 31, 2016 | |||
One | Three | Five | |
Year | Years | Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 11.69% | 12.02% | 14.60% |
Russell 2000 Index (Small-caps) | 8.59 | 8.53 | 12.85 |
Russell 3000 Index (Broad U.S. market) | 11.44 | 11.74 | 14.46 |
FTSE All-World ex US Index (International) | 3.37 | 2.59 | 3.72 |
Bonds | |||
Barclays U.S. Aggregate Bond Index (Broad taxable market) | 5.97% | 4.37% | 3.24% |
Barclays Municipal Bond Index (Broad tax-exempt market) | 6.88 | 6.47 | 4.80 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.18 | 0.05 | 0.06 |
CPI | |||
Consumer Price Index | 1.06% | 0.98% | 1.23% |
4
When being ‘average’ is a lot better than average |
Not only did Vanguard founder John C. Bogle launch the first index mutual fund in 1976, but |
he also was among the first to clearly explain to the investing public the benefits of what was |
then a novel, unproven strategy. |
Back in 1977, in the first annual report for what was later renamed Vanguard 500 Index Fund, |
Mr. Bogle wrote that an index fund ‘‘represents a tough and demanding ‘par.’ And if there |
are some professionals who can ‘beat par’ more often than not------in investing or in golf------they |
do not seem to be in the majority.’’ |
Mr. Bogle’s analogy has been borne out by historical returns. As you can see in the chart |
below, out of 1,238 actively managed large-capitalization funds, a clear majority-----65%----- |
trailed the Standard & Poor’s 500 Index in average annual return over the decade ended |
December 31, 2015. And 518 funds, or about 42% of the total number, trailed by more than |
1 percentage point. |
The track record looks even more discouraging when you consider that of the 35% of funds |
that outperformed the index, only 119------or about 10% in all------did so by more than 1 percentage |
point. The 315 others also took on risk to try to outperform the index (and likely experienced |
greater volatility) but came out ahead by less than 1 percentage point in average annual return. |
Over a decade, a majority of active large-cap funds lagged the S&P 500 Index |
Based on average annual returns, 2006---2015 |
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/extendeduration_pt2x1x1.jpg)
Notes: Data based on average annual returns of all 1,238 existing actively managed large-cap funds over the decade ended December 31, |
2015. Note that index funds seek to track the performance of a benchmark index but typically won't ‘‘match’’ the benchmark's returns because |
of the costs of passive indexing. |
Sources: Vanguard calculations, using data from Standard & Poor’s. |
Past performance is not a guarantee of future results. The performance of an index is not an exact representation of any particular investment, |
as you cannot invest directly in an index. |
5
These policies held down short-term rates, while more muted expectations for global growth and inflation weighed on longer-term rates.
Yields in the United States weren’t quite as low as in many developed countries. The Fed raised the federal funds target rate only once, in December, to a slim 0.25%–0.5%. Further out on the maturity spectrum, the bellwether 10-year U.S. Treasury yield dropped in early July to a record low 1.36%, before moving back up a little to end the period at 1.58%. Over the 12 months, U.S. bonds returned about 6%, and international bonds returned even more—about 11%—for U.S.-based investors, again underscoring the markets’ unpredictability and the merits of diversification.
Over the years, many investors have embraced the pluses of indexing
Market upsets like Brexit aren’t rare occurrences. Fortunately, indexing has proved to be a durable behavioral tool to help keep investors from making bad financial decisions when upsets happen. In fact, this is one of indexing’s less appreciated benefits: Holding index funds as part of a broadly diversified portfolio can counterbalance that tendency to react to news headlines. When times are volatile, you’ll know you might have some exposure to a part of the market that has dropped, but also to other parts that may be holding up better.
Vanguard’s launch of the First Index Investment Trust, now Vanguard 500 Index Fund, initially met with a frosty reception. Its mandate to track the performance of a broadly diversified benchmark at a low cost seemed underwhelming to an investing public accustomed to funds that offered the chance to outperform. Investors have since come around, as experience has demonstrated the benefits of low costs and broad diversification.
Indexing accounted for about 30% of U.S. mutual fund and exchange-traded fund (ETF) assets at the end of 2015, according to the Investment Company Institute. Some now even proclaim the “triumph of indexing,” implying that it’s the only way to invest.
In our view, the rise of indexing has served to underscore an investment principle that long predates 1976: A long-term, low-cost, diversified approach gives investors the best chance for success. That’s true whether the investments you choose are indexed or actively managed—or both.
As always, thank you for investing with Vanguard.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/extendeduration_pt3x1x1.jpg)
F. William McNabb III
Chairman and Chief Executive Officer
September 9, 2016
6
Extended Duration Treasury Index Fund
Fund Profile
As of August 31, 2016
Share-Class Characteristics | |||
Institutional | |||
ETF | Institutional | Plus | |
Shares | Shares | Shares | |
Ticker Symbol | EDV | VEDTX | VEDIX |
Expense Ratio1 | 0.10% | 0.08% | 0.06% |
30-Day SEC Yield | 2.28% | 2.27% | 2.30% |
Financial Attributes | ||
Barclays | ||
Treasury | ||
STRIPS | ||
20–30 Year | ||
Fund | Index | |
Number of Bonds | 76 | 74 |
Yield to Maturity | ||
(before expenses) | 2.3% | 2.3% |
Average Coupon | 0.0% | 0.0% |
Average Duration | 24.9 years | 24.6 years |
Average Effective | ||
Maturity | 25.1 years | 23.0 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 | 1.06 |
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. For more information about these ratings, see the
Glossary entry for Credit Quality.
Investment Focus
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/extendeduration_pt3x2x1.jpg)
1 The expense ratios shown are from the prospectus dated December 22, 2015, and represent estimated costs for the current fiscal year. For the
fiscal year ended August 31, 2016, the expense ratios were 0.07% for ETF Shares, 0.06% for Institutional Shares, and 0.04% for Institutional Plus
Shares.
7
Extended Duration Treasury Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Cumulative Performance: December 6, 2007, Through August 31, 2016
Initial Investment of $10,000
Average Annual Total Returns | |||||
Periods Ended August 31, 2016 | |||||
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 | 25.30% | 12.31% | 10.63% | $24,165 | |
Extended Duration Treasury Index | |||||
Fund ETF Shares Market Price | 25.18 | 12.39 | 10.68 | 24,264 | |
Barclays U.S. Treasury STRIPS 20–30 | |||||
•••••••• | Year Equal Par Bond Index | 24.92 | 12.34 | 10.95 | 24,785 |
– – – – | General U.S. Treasury Funds Average | 8.89 | 4.30 | 5.49 | 15,951 |
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 | 24.71% | 12.24% | 10.33% | $11,828,137 |
Barclays U.S. Treasury STRIPS 20–30 Year | ||||
Equal Par Bond Index | 24.92 | 12.34 | 10.63 | 12,110,311 |
"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.
8
Extended Duration Treasury Index Fund
Average Annual Total Returns | |||
Periods Ended August 31, 2016 | |||
Since | Final Value | ||
One | Inception | of a $100,000,000 | |
Year | (8/28/2013) | Investment | |
Extended Duration Treasury Index Fund | |||
Institutional Plus Shares | 24.71% | 18.45% | $166,429,500 |
Barclays U.S. Treasury STRIPS 20–30 Year | |||
Equal Par Bond Index | 24.92 | 18.90 | 168,345,886 |
"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, 2016 | |||
Since | |||
One | Five | Inception | |
Year | Years | (12/6/2007) | |
Extended Duration Treasury Index Fund ETF Shares | |||
Market Price | 25.18% | 79.36% | 142.64% |
Extended Duration Treasury Index Fund ETF Shares | |||
Net Asset Value | 25.30 | 78.73 | 141.65 |
Barclays U.S. Treasury STRIPS 20–30 Year Equal Par | |||
Bond Index | 24.92 | 78.90 | 147.85 |
"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, 2016 | ||
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 |
2016 | 25.30 | 24.92 |
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.
9
Extended Duration Treasury Index Fund
Average Annual Total Returns: Periods Ended June 30, 2016
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 | 30.40% | 16.65% | 10.65% | |||
Net Asset Value | 30.41 | 16.71 | 10.63 | |||
Institutional Shares | 11/28/2007 | 30.43 | 16.74 | 3.79% | 6.60% | 10.39 |
Fee-Adjusted Returns | 29.78 | 16.63 | 10.32 | |||
Institutional Plus Shares | 8/28/2013 | 30.46 | — | 3.84 | 15.29 | 19.13 |
Fee-Adjusted Returns | 29.81 | — | 18.92 |
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
Financial Statements
Statement of Net Assets
As of August 31, 2016
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% | 11/15/36 | 45,060 | 28,849 |
United States Treasury Strip Coupon | 0.000% | 2/15/37 | 49,340 | 31,350 |
United States Treasury Strip Coupon | 0.000% | 5/15/37 | 49,780 | 31,346 |
United States Treasury Strip Coupon | 0.000% | 8/15/37 | 33,295 | 20,835 |
United States Treasury Strip Coupon | 0.000% | 11/15/37 | 48,225 | 30,012 |
United States Treasury Strip Coupon | 0.000% | 2/15/38 | 44,560 | 27,579 |
United States Treasury Strip Coupon | 0.000% | 5/15/38 | 47,985 | 29,507 |
United States Treasury Strip Coupon | 0.000% | 8/15/38 | 41,970 | 25,674 |
United States Treasury Strip Coupon | 0.000% | 11/15/38 | 37,420 | 22,733 |
United States Treasury Strip Coupon | 0.000% | 2/15/39 | 29,860 | 18,030 |
United States Treasury Strip Coupon | 0.000% | 5/15/39 | 32,780 | 19,617 |
United States Treasury Strip Coupon | 0.000% | 8/15/39 | 28,340 | 16,811 |
United States Treasury Strip Coupon | 0.000% | 11/15/39 | 39,545 | 23,304 |
United States Treasury Strip Coupon | 0.000% | 2/15/40 | 26,080 | 15,245 |
United States Treasury Strip Coupon | 0.000% | 5/15/40 | 19,215 | 11,149 |
United States Treasury Strip Coupon | 0.000% | 8/15/40 | 29,750 | 17,132 |
United States Treasury Strip Coupon | 0.000% | 11/15/40 | 33,880 | 19,354 |
United States Treasury Strip Coupon | 0.000% | 2/15/41 | 46,770 | 26,524 |
United States Treasury Strip Coupon | 0.000% | 5/15/41 | 38,560 | 21,708 |
United States Treasury Strip Coupon | 0.000% | 8/15/41 | 50,010 | 27,924 |
United States Treasury Strip Coupon | 0.000% | 11/15/41 | 39,280 | 21,776 |
United States Treasury Strip Coupon | 0.000% | 2/15/42 | 52,385 | 28,889 |
United States Treasury Strip Coupon | 0.000% | 5/15/42 | 45,370 | 24,886 |
United States Treasury Strip Coupon | 0.000% | 8/15/42 | 42,080 | 22,940 |
United States Treasury Strip Coupon | 0.000% | 11/15/42 | 62,970 | 34,093 |
United States Treasury Strip Coupon | 0.000% | 2/15/43 | 52,945 | 28,479 |
United States Treasury Strip Coupon | 0.000% | 5/15/43 | 60,375 | 32,376 |
United States Treasury Strip Coupon | 0.000% | 8/15/43 | 38,290 | 20,288 |
United States Treasury Strip Coupon | 0.000% | 11/15/43 | 47,285 | 24,921 |
United States Treasury Strip Coupon | 0.000% | 2/15/44 | 49,775 | 26,101 |
United States Treasury Strip Coupon | 0.000% | 5/15/44 | 42,795 | 22,324 |
United States Treasury Strip Coupon | 0.000% | 8/15/44 | 42,020 | 21,732 |
United States Treasury Strip Coupon | 0.000% | 11/15/44 | 15,175 | 7,803 |
United States Treasury Strip Coupon | 0.000% | 2/15/45 | 15,770 | 8,091 |
United States Treasury Strip Coupon | 0.000% | 5/15/45 | 32,045 | 16,280 |
United States Treasury Strip Coupon | 0.000% | 8/15/45 | 23,950 | 12,108 |
United States Treasury Strip Coupon | 0.000% | 11/15/45 | 20,550 | 10,305 |
11
Extended Duration Treasury Index Fund | ||||
Face | Market | |||
Maturity | Amount | Value• | ||
Coupon | Date | ($000) | ($000) | |
United States Treasury Strip Coupon | 0.000% | 2/15/46 | 17,050 | 8,532 |
United States Treasury Strip Coupon | 0.000% | 5/15/46 | 5,050 | 2,524 |
United States Treasury Strip Coupon | 0.000% | 8/15/46 | 50 | 25 |
United States Treasury Strip Principal | 0.000% | 2/15/37 | 54,540 | 36,307 |
United States Treasury Strip Principal | 0.000% | 5/15/37 | 26,250 | 17,421 |
United States Treasury Strip Principal | 0.000% | 2/15/38 | 33,515 | 21,623 |
United States Treasury Strip Principal | 0.000% | 5/15/38 | 20,355 | 13,057 |
United States Treasury Strip Principal | 0.000% | 2/15/39 | 33,945 | 21,030 |
United States Treasury Strip Principal | 0.000% | 5/15/39 | 27,175 | 16,604 |
United States Treasury Strip Principal | 0.000% | 8/15/39 | 16,000 | 9,700 |
United States Treasury Strip Principal | 0.000% | 11/15/39 | 20,625 | 12,386 |
United States Treasury Strip Principal | 0.000% | 2/15/40 | 29,220 | 17,406 |
United States Treasury Strip Principal | 0.000% | 5/15/40 | 22,660 | 13,373 |
United States Treasury Strip Principal | 0.000% | 8/15/40 | 30,135 | 17,650 |
United States Treasury Strip Principal | 0.000% | 11/15/40 | 17,925 | 10,418 |
United States Treasury Strip Principal | 0.000% | 2/15/41 | 17,510 | 10,120 |
United States Treasury Strip Principal | 0.000% | 5/15/41 | 13,400 | 7,683 |
United States Treasury Strip Principal | 0.000% | 8/15/41 | 10,900 | 6,199 |
United States Treasury Strip Principal | 0.000% | 11/15/41 | 13,035 | 7,363 |
United States Treasury Strip Principal | 0.000% | 2/15/42 | 14,105 | 7,920 |
United States Treasury Strip Principal | 0.000% | 5/15/42 | 33,135 | 18,450 |
United States Treasury Strip Principal | 0.000% | 8/15/42 | 45,835 | 25,313 |
United States Treasury Strip Principal | 0.000% | 11/15/42 | 52,595 | 28,779 |
United States Treasury Strip Principal | 0.000% | 2/15/43 | 56,360 | 30,707 |
United States Treasury Strip Principal | 0.000% | 5/15/43 | 62,445 | 33,701 |
United States Treasury Strip Principal | 0.000% | 8/15/43 | 46,285 | 25,117 |
United States Treasury Strip Principal | 0.000% | 11/15/43 | 49,030 | 26,518 |
United States Treasury Strip Principal | 0.000% | 2/15/44 | 42,160 | 22,486 |
United States Treasury Strip Principal | 0.000% | 5/15/44 | 49,965 | 26,361 |
United States Treasury Strip Principal | 0.000% | 8/15/44 | 51,085 | 26,672 |
United States Treasury Strip Principal | 0.000% | 11/15/44 | 46,370 | 24,007 |
United States Treasury Strip Principal | 0.000% | 2/15/45 | 43,695 | 22,438 |
United States Treasury Strip Principal | 0.000% | 5/15/45 | 53,580 | 27,334 |
United States Treasury Strip Principal | 0.000% | 8/15/45 | 58,780 | 29,762 |
United States Treasury Strip Principal | 0.000% | 11/15/45 | 55,775 | 28,088 |
United States Treasury Strip Principal | 0.000% | 2/15/46 | 54,710 | 27,423 |
United States Treasury Strip Principal | 0.000% | 5/15/46 | 33,550 | 16,770 |
United States Treasury Strip Principal | 0.000% | 8/15/46 | 15,050 | 7,489 |
Total U.S. Government and Agency Obligations (Cost $1,230,676) | 1,532,831 | |||
Shares | ||||
Temporary Cash Investment (0.0%) | ||||
Money Market Fund (0.0%) | ||||
1 Vanguard Market Liquidity Fund (Cost $65) | 0.612% | 648 | 65 | |
Total Investments (100.0%) (Cost $1,230,741) | 1,532,896 |
12
Extended Duration Treasury Index Fund
Amount | |
($000) | |
Other Assets and Liabilities (0.0%) | |
Other Assets | |
Investment in Vanguard | 121 |
Receivables for Investment Securities Sold | 48,392 |
Receivables for Accrued Income | 31 |
Receivables for Capital Shares Issued | 1 |
Other Assets | 4 |
Total Other Assets | 48,549 |
Liabilities | |
Payables for Investment Securities Purchased | (45,939) |
Payables for Capital Shares Redeemed | (2,361) |
Payables to Vanguard | (455) |
Other Liabilities | (13) |
Total Liabilities | (48,768) |
Net Assets (100%) | 1,532,677 |
At August 31, 2016, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 1,196,728 |
Undistributed Net Investment Income | 7,600 |
Accumulated Net Realized Gains | 26,194 |
Unrealized Appreciation (Depreciation) | 302,155 |
Net Assets | 1,532,677 |
ETF Shares—Net Assets | |
Applicable to 4,400,000 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 614,996 |
Net Asset Value Per Share—ETF Shares | $139.77 |
Institutional Shares—Net Assets | |
Applicable to 15,644,563 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 660,158 |
Net Asset Value Per Share—Institutional Shares | $42.20 |
Institutional Plus Shares—Net Assets | |
Applicable to 2,431,045 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 257,523 |
Net Asset Value Per Share—Institutional Plus Shares | $105.93 |
• See Note A in Notes to Financial Statements.
1 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the
7-day yield.
See accompanying Notes, which are an integral part of the Financial Statements.
13
Extended Duration Treasury Index Fund
Statement of Operations
Year Ended | |
August 31, 2016 | |
($000) | |
Investment Income | |
Income | |
Interest1 | 36,011 |
Total Income | 36,011 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 34 |
Management and Administrative—ETF Shares | 254 |
Management and Administrative—Institutional Shares | 275 |
Management and Administrative—Institutional Plus Shares | 84 |
Marketing and Distribution—ETF Shares | 39 |
Marketing and Distribution—Institutional Shares | 11 |
Marketing and Distribution—Institutional Plus Shares | 3 |
Custodian Fees | 6 |
Auditing Fees | 38 |
Shareholders’ Reports—ETF Shares | 18 |
Shareholders’ Reports—Institutional Shares | — |
Shareholders’ Reports—Institutional Plus Shares | — |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 763 |
Net Investment Income | 35,248 |
Realized Net Gain (Loss) | |
Investment Securities Sold1 | 45,969 |
Futures Contracts | 1 |
Realized Net Gain (Loss) | 45,970 |
Change in Unrealized Appreciation (Depreciation) of Investment Securities | 212,836 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 294,054 |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $2,000 and $0, respectively. |
See accompanying Notes, which are an integral part of the Financial Statements.
14
Extended Duration Treasury Index Fund
Statement of Changes in Net Assets
Year Ended August 31, | ||
2016 | 2015 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 35,248 | 34,883 |
Realized Net Gain (Loss) | 45,970 | 99,753 |
Change in Unrealized Appreciation (Depreciation) | 212,836 | (72,584) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 294,054 | 62,052 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (12,598) | (11,618) |
Institutional Shares | (14,501) | (15,187) |
Institutional Plus Shares | (7,073) | (8,103) |
Realized Capital Gain1 | ||
ETF Shares | (4,079) | (1,465) |
Institutional Shares | (5,279) | (1,570) |
Institutional Plus Shares | (2,699) | (780) |
Total Distributions | (46,229) | (38,723) |
Capital Share Transactions | ||
ETF Shares | 154,937 | 114,108 |
Institutional Shares | 70,728 | (61,182) |
Institutional Plus Shares | (40,014) | (79,516) |
Net Increase (Decrease) from Capital Share Transactions | 185,651 | (26,590) |
Total Increase (Decrease) | 433,476 | (3,261) |
Net Assets | ||
Beginning of Period | 1,099,201 | 1,102,462 |
End of Period2 | 1,532,677 | 1,099,201 |
1 Includes fiscal 2016 and 2015 short-term gain distributions totaling $289,000 and $1,703,000, respectively. Short-term gain distributions are
treated as ordinary income dividends for tax purposes.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $7,600,000 and $6,524,000.
See accompanying Notes, which are an integral part of the Financial Statements.
15
Extended Duration Treasury Index Fund
Financial Highlights
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $116.00 | $113.24 | $95.57 | $131.02 | $100.09 |
Investment Operations | |||||
Net Investment Income | 3.420 | 3.524 | 3.311 | 3.695 | 3.566 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments1 | 25.019 | 3.113 | 18.824 | (30.430) | 33.594 |
Total from Investment Operations | 28.439 | 6.637 | 22.135 | (26.735) | 37.160 |
Distributions | |||||
Dividends from Net Investment Income | (3.414) | (3.506) | (3.236) | (3.779) | (3.628) |
Distributions from Realized Capital Gains | (1.255) | (. 371) | (1.229) | (4.936) | (2.602) |
Total Distributions | (4.669) | (3.877) | (4.465) | (8.715) | (6.230) |
Net Asset Value, End of Period | $139.77 | $116.00 | $113.24 | $95.57 | $131.02 |
Total Return | 25.30% | 5.90% | 24.17% | -21.34% | 37.90% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $615 | $365 | $249 | $158 | $203 |
Ratio of Total Expenses to | |||||
Average Net Assets | 0.07% | 0.10% | 0.12% | 0.12% | 0.12% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.77% | 2.93% | 3.59% | 3.15% | 3.06% |
Portfolio Turnover Rate 2 | 20% | 16% | 17% | 31% | 47% |
1 Includes increases from purchase and redemption fees of $0.06, $0.05, $0.19, $0.10, and $0.18. Effective May 23, 2012, the redemption fee was eliminated.
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.
16
Extended Duration Treasury Index Fund
Financial Highlights
Institutional Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $35.02 | $34.18 | $28.85 | $39.55 | $30.19 |
Investment Operations | |||||
Net Investment Income | 1.036 | 1.069 | 1.006 | 1.121 | 1.084 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments1 | 7.558 | .947 | 5.678 | (9.183) | 10.162 |
Total from Investment Operations | 8.594 | 2.016 | 6.684 | (8.062) | 11.246 |
Distributions | |||||
Dividends from Net Investment Income | (1.035) | (1.064) | (.983) | (1.148) | (1.101) |
Distributions from Realized Capital Gains | (.379) | (.112) | (. 371) | (1.490) | (.785) |
Total Distributions | (1.414) | (1.176) | (1.354) | (2.638) | (1.886) |
Net Asset Value, End of Period | $42.20 | $35.02 | $34.18 | $28.85 | $39.55 |
Total Return2 | 25.33% | 5.89% | 24.27% | -21.30% | 37.92% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $660 | $484 | $529 | $375 | $586 |
Ratio of Total Expenses to | |||||
Average Net Assets | 0.06% | 0.08% | 0.10% | 0.10% | 0.10% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.78% | 2.95% | 3.61% | 3.17% | 3.08% |
Portfolio Turnover Rate 3 | 20% | 16% | 17% | 31% | 47% |
1 Includes increases from purchase and redemption fees of $0.02, $0.01, $0.06, $0.03, and $0.05. Effective May 23, 2012, the redemption fee was eliminated.
2 Total returns do not include transaction fees that may have applied in the periods shown. Fund prospectuses provide information about any
applicable transaction 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.
17
Extended Duration Treasury Index Fund
Financial Highlights
Institutional Plus Shares | ||||
Aug. 28, | ||||
20131 to | ||||
Year Ended August 31, | Aug. 31, | |||
For a Share Outstanding Throughout Each Period | 2016 | 2015 | 2014 | 2013 |
Net Asset Value, Beginning of Period | $87.92 | $85.80 | $72.42 | $71.46 |
Investment Operations | ||||
Net Investment Income | 2.620 | 2.701 | 2.542 | — |
Net Realized and Unrealized Gain (Loss) on Investments2 | 18.958 | 2.389 | 14.260 | .960 |
Total from Investment Operations | 21.578 | 5.090 | 16.802 | .960 |
Distributions | ||||
Dividends from Net Investment Income | (2.616) | (2.688) | (2.491) | — |
Distributions from Realized Capital Gains | (.952) | (.282) | (. 931) | — |
Total Distributions | (3.568) | (2.970) | (3.422) | — |
Net Asset Value, End of Period | $105.93 | $87.92 | $85.80 | $72.42 |
Total Return3 | 25.34% | 5.93% | 24.31% | 1.34% |
Ratios/Supplemental Data | ||||
Net Assets, End of Period (Millions) | $258 | $250 | $324 | $25 |
Ratio of Total Expenses to Average Net Assets | 0.04% | 0.06% | 0.08% | 0.08%4 |
Ratio of Net Investment Income to Average Net Assets | 2.80% | 2.97% | 3.63% | 3.19%4 |
Portfolio Turnover Rate 5 | 20% | 16% | 17% | 31% |
1 Inception.
2 Includes increases from purchase fees of $0.05, $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.
18
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 Nasdaq 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. Futures Contracts: The fund uses futures contracts to invest in fixed income asset classes with greater efficiency and lower cost than is possible through direct investment, to add value when these instruments are attractively priced, or to adjust sensitivity to changes in interest rates. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of bonds 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, 2016, the fund’s average investments in long and short futures contracts represented less than 1% of net assets, respectively, based on the average of aggregate settlement values at each quarter-end during the period. The fund had no open futures contracts at August 31, 2016.
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, 2013–2016), 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.
19
Extended Duration Treasury Index Fund
5. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at August 31, 2016, or at any time during the period then ended.
6. 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.
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, 2016, the fund had contributed to Vanguard capital in the amount of $121,000, 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.
20
Extended Duration Treasury Index Fund
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
The following table summarizes the market value of the fund’s investments as of August 31, 2016, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
U.S. Government and Agency Obligations | — | 1,532,831 | — |
Temporary Cash Investments | 65 | — | — |
Total | 65 | 1,532,831 | — |
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, 2016, the fund realized $17,835,000 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 $1,443,000 from accumulated net realized gains to paid-in capital.
For tax purposes, at August 31, 2016, the fund had $8,178,000 of ordinary income and $26,045,000 of long-term capital gains available for distribution.
At August 31, 2016, the cost of investment securities for tax purposes was $1,230,741,000. Net unrealized appreciation of investment securities for tax purposes was $302,155,000, consisting of unrealized gains of $302,242,000 on securities that had risen in value since their purchase and $87,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2016, the fund purchased $472,725,000 of investment securities and sold $333,780,000 of investment securities, other than temporary cash investments. Purchases and sales include $203,083,000 and $86,227,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
21
Extended Duration Treasury Index Fund
F. Capital share transactions for each class of shares were:
Year Ended August 31, | ||||
2016 | 2015 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued1 | 241,630 | 1,950 | 444,240 | 3,650 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (86,693) | (700) | (330,132) | (2,700) |
Net Increase (Decrease)—ETF Shares | 154,937 | 1,250 | 114,108 | 950 |
Institutional Shares | ||||
Issued1 | 120,369 | 3,103 | 70,457 | 2,001 |
Issued in Lieu of Cash Distributions | 19,486 | 545 | 16,757 | 473 |
Redeemed | (69,127) | (1,832) | (148,396) | (4,124) |
Net Increase (Decrease) —Institutional Shares | 70,728 | 1,816 | (61,182) | (1,650) |
Institutional Plus Shares | ||||
Issued1 | — | — | 238,636 | 2,768 |
Issued in Lieu of Cash Distributions | 9,772 | 109 | 8,884 | 100 |
Redeemed | (49,786) | (516) | (327,036) | (3,809) |
Net Increase (Decrease) —Institutional Plus Shares | (40,014) | (407) | (79,516) | (941) |
1 Includes purchase fees for fiscal 2016 and 2015 of $653,000 and $458,000, respectively (fund totals). |
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2016, 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, 2016, 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, 2016 by correspondence with the custodian and brokers and by agreement to the underlying ownership records of the transfer agent, provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
October 12, 2016
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/extendeduration_pt3x18x1.jpg)
Special 2016 tax information (unaudited) for Vanguard Extended Duration Treasury Index Fund
This information for the fiscal year ended August 31, 2016, is included pursuant to provisions of
the Internal Revenue Code.
The fund distributed $13,203,000 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, 98.8% 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, 2016 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
Extended Duration Treasury Index Fund | 2/29/2016 | 8/31/2016 | Period |
Based on Actual Fund Return | |||
ETF Shares | $1,000.00 | $1,117.12 | $0.32 |
Institutional Shares | 1,000.00 | 1,117.35 | 0.27 |
Institutional Plus Shares | 1,000.00 | 1,117.34 | 0.16 |
Based on Hypothetical 5% Yearly Return | |||
ETF Shares | $1,000.00 | $1,024.84 | $0.31 |
Institutional Shares | 1,000.00 | 1,024.89 | 0.25 |
Institutional Plus Shares | 1,000.00 | 1,024.99 | 0.15 |
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 0.06% for ETF Shares, 0.05% for Institutional Shares, and 0.03% 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 (184/366).
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. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department, which is responsible for fund and advisor oversight and product management. The Portfolio Review Department met regularly with the advisor and made monthly presentations to the board during the fiscal year directing the board’s focus to relevant information and topics.
The board, or an investment committee made up of board members, also received information throughout the year through advisor presentations. For each advisor presentation, the board was provided with letters and reports that included information about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.
In addition, the board received monthly reports, which included a Market and Economic Report, a Fund Dashboard Monthly Summary, and a Fund Performance Report.
Prior to their meeting, the trustees were provided with a memo and materials that summarized the information they had received over the course of the year. They also 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 its 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.
26
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 expenses were 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.
27
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.
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.
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.
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.
28
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.
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.
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.
29
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 connec-
tion 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.
30
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The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’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 198 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482. 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 | Rajiv L. Gupta |
Born 1945. Trustee Since December 2001.2 Principal | |
F. William McNabb III | Occupation(s) During the Past Five Years and Other |
Born 1957. Trustee Since July 2009. Chairman of | Experience: Chairman and Chief Executive Officer |
the Board. Principal Occupation(s) During the Past | (retired 2009) and President (2006–2008) of |
Five Years and Other Experience: Chairman of the | Rohm and Haas Co. (chemicals); Director of Tyco |
Board of The Vanguard Group, Inc., and of each of | International plc (diversified manufacturing and |
the investment companies served by The Vanguard | services), HP Inc. (printer and personal computer |
Group, since January 2010; Director of The Vanguard | manufacturing), and Delphi Automotive plc |
Group since 2008; Chief Executive Officer and | (automotive components); Senior Advisor at |
President of The Vanguard Group, and of each of | New Mountain Capital. |
the investment companies served by The Vanguard | |
Group, since 2008; Director of Vanguard Marketing | Amy Gutmann |
Corporation; Managing Director of The Vanguard | Born 1949. Trustee Since June 2006. Principal |
Group (1995–2008). | Occupation(s) During the Past Five Years and |
Other Experience: President of the University of | |
IndependentTrustees | Pennsylvania; Christopher H. Browne Distinguished |
Professor of Political Science, School of Arts and | |
Emerson U. Fullwood | Sciences, and Professor of Communication, Annenberg |
Born 1948. Trustee Since January 2008. Principal | School for Communication, with secondary faculty |
Occupation(s) During the Past Five Years and Other | appointments in the Department of Philosophy, School |
Experience: Executive Chief Staff and Marketing | of Arts and Sciences, and at the Graduate School of |
Officer for North America and Corporate Vice President | Education, University of Pennsylvania; Trustee of the |
(retired 2008) of Xerox Corporation (document manage- | National Constitution Center; Chair of the Presidential |
ment products and services); Executive in Residence | Commission for the Study of Bioethical Issues. |
and 2009–2010 Distinguished Minett Professor at | |
the Rochester Institute of Technology; Lead Director | JoAnn Heffernan Heisen |
of SPX FLOW, Inc. (multi-industry manufacturing); | Born 1950. Trustee Since July 1998. Principal |
Director of the United Way of Rochester, the University | Occupation(s) During the Past Five Years and |
of Rochester Medical Center, Monroe Community | Other Experience: Corporate Vice President and |
College Foundation, North Carolina A&T University, | Chief Global Diversity Officer (retired 2008) and |
and Roberts Wesleyan College. | Member of the Executive Committee (1997–2008) |
of Johnson & Johnson (pharmaceuticals/medical | |
devices/consumer products); Director of Skytop | |
Lodge Corporation (hotels) and the Robert Wood | |
Johnson Foundation; Member of the Advisory | |
Board of the Institute for Women’s Leadership | |
at Rutgers University. |
F. Joseph Loughrey | Executive Officers | |
Born 1949. Trustee Since October 2009. Principal | ||
Occupation(s) During the Past Five Years and Other | Glenn Booraem | |
Experience: President and Chief Operating Officer | Born 1967. Treasurer Since May 2015. Principal | |
(retired 2009) of Cummins Inc. (industrial machinery); | Occupation(s) During the Past Five Years and | |
Chairman of the Board of Hillenbrand, Inc. (specialized | Other Experience: Principal of The Vanguard Group, | |
consumer services), and of Oxfam America; Director | Inc.; Treasurer of each of the investment companies | |
of SKF AB (industrial machinery), Hyster-Yale Materials | served by The Vanguard Group; Controller of each of | |
Handling, Inc. (forklift trucks), the Lumina Foundation | the investment companies served by The Vanguard | |
for Education, and the V Foundation for Cancer | Group (2010–2015); Assistant Controller of each of | |
Research; Member of the Advisory Council for the | the investment companies served by The Vanguard | |
College of Arts and Letters and of the Advisory Board | Group (2001–2010). | |
to the Kellogg Institute for International Studies, both | ||
at the University of Notre Dame. | Thomas J. Higgins | |
Born 1957. Chief Financial Officer Since September | ||
Mark Loughridge | 2008. Principal Occupation(s) During the Past Five | |
Born 1953. Trustee Since March 2012. Principal | Years and Other Experience: Principal of The Vanguard | |
Occupation(s) During the Past Five Years and Other | Group, Inc.; Chief Financial Officer of each of the | |
Experience: Senior Vice President and Chief Financial | investment companies served by The Vanguard Group; | |
Officer (retired 2013) at IBM (information technology | Treasurer of each of the investment companies served | |
services); Fiduciary Member of IBM’s Retirement Plan | by The Vanguard Group (1998–2008). | |
Committee (2004–2013); Director of the Dow Chemical | ||
Company; Member of the Council on Chicago Booth. | Peter Mahoney | |
Born 1974. Controller Since May 2015. Principal | ||
Scott C. Malpass | Occupation(s) During the Past Five Years and | |
Born 1962. Trustee Since March 2012. Principal | Other Experience: Head of Global Fund Accounting | |
Occupation(s) During the Past Five Years and Other | at The Vanguard Group, Inc.; Controller of each of the | |
Experience: Chief Investment Officer and Vice | investment companies served by The Vanguard Group; | |
President at the University of Notre Dame; Assistant | Head of International Fund Services at The Vanguard | |
Professor of Finance at the Mendoza College of | Group (2008–2014). | |
Business at Notre Dame; Member of the Notre Dame | ||
403(b) Investment Committee, the Board of Advisors | Heidi Stam | |
for Spruceview Capital Partners, and the Investment | Born 1956. Secretary Since July 2005. Principal | |
Advisory Committee of Major League Baseball; Board | Occupation(s) During the Past Five Years and Other | |
Member of TIFF Advisory Services, Inc., and Catholic | Experience: Managing Director of The Vanguard | |
Investment Services, Inc. (investment advisors). | Group, Inc.; General Counsel of The Vanguard Group; | |
Secretary of The Vanguard Group and of each of the | ||
André F. Perold | investment companies served by The Vanguard Group; | |
Born 1952. Trustee Since December 2004. Principal | Director and Senior Vice President of Vanguard | |
Occupation(s) During the Past Five Years and Other | Marketing Corporation. | |
Experience: George Gund Professor of Finance and | ||
Banking, Emeritus at the Harvard Business School | Vanguard Senior ManagementTeam | |
(retired 2011); Chief Investment Officer and Managing | Mortimer J. Buckley | James M. Norris |
Partner of HighVista Strategies LLC (private investment | Kathleen C. Gubanich | Thomas M. Rampulla |
firm); Director of Rand Merchant Bank; Overseer of | Martha G. King | Glenn W. Reed |
the Museum of Fine Arts Boston. | John T. Marcante | Karin A. Risi |
Chris D. McIsaac | Michael Rollings | |
Peter F. Volanakis | ||
Born 1955. Trustee Since July 2009. Principal | ||
Occupation(s) During the Past Five Years and | Chairman Emeritus and Senior Advisor | |
Other Experience: President and Chief Operating | ||
Officer (retired 2010) of Corning Incorporated | John J. Brennan | |
(communications equipment); Chairman of the | Chairman, 1996–2009 | |
Board of Trustees of Colby-Sawyer College; | Chief Executive Officer and President, 1996–2008 | |
Member of the Advisory Board of the Norris | ||
Cotton Cancer Center. | 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. | |
© 2016 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q12750 102016 |
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Annual Report | August 31, 2016
Vanguard U.S. Growth Fund
A new format, unwavering commitment
As you begin reading this report, you’ll notice that we’ve made some improvements to the opening sections—based on feedback from you, our clients.
Page 1 starts with a new ”Your Fund’s Performance at a Glance,” a concise, handy summary of how your fund performed during the period.
In the renamed ”Chairman’s Perspective,” Bill McNabb will focus on enduring principles and investment insights.
We’ve modified some tables, and eliminated some redundancy, but we haven’t removed any information.
At Vanguard, we’re always looking for better ways to communicate and to help you make sound investment decisions. Thank you for entrusting your assets to us.
Contents | |
Your Fund’s Performance at a Glance. | 1 |
Chairman’s Perspective. | 3 |
Advisors’ Report. | 6 |
Fund Profile. | 11 |
Performance Summary. | 13 |
Financial Statements. | 15 |
Your Fund’s After-Tax Returns. | 30 |
About Your Fund’s Expenses. | 31 |
Glossary. | 33 |
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: No matter what language you speak, Vanguard has one consistent message and set of principles. Our primary
focus is on you, our clients. We conduct our business with integrity as a faithful steward of your assets. This message is shown
translated into seven languages, reflecting our expanding global presence.
Your Fund’s Performance at a Glance
• The fund returned nearly 7% for the 12 months ended August 31, 2016. It trailed its benchmark’s 10.54% result but exceeded the 6.69% average return of its peers.
• Of the ten industry sectors in which the advisors invested, six posted positive returns.
Financial stocks led, returning about 23%. Real estate investment trusts (REITs) were one of the best-performing subsectors as investors favored their steady income.
• Information technology stocks, which made up more than one-third of the portfolio, returned a healthy 17%.
• Health care was the leading detractor, returning close to –12% as pharmaceutical companies were hit hard by regulatory and drug market issues. Energy and telecommunication services also lagged, although their impact was negligible because of their small representation in the fund.
• The fund’s average annual return trailed that of its benchmark index but outdistanced that of its fund peer group over the past ten years.
Total Returns: Fiscal Year Ended August 31, 2016 | |
Total | |
Returns | |
Vanguard U.S. Growth Fund | |
Investor Shares | 6.89% |
Admiral™ Shares | 7.03 |
Russell 1000 Growth Index | 10.54 |
Large-Cap Growth Funds Average | 6.69 |
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. |
Total Returns: Ten Years Ended August 31, 2016 | |
Average | |
Annual Return | |
U.S. Growth Fund Investor Shares | 8.18% |
Russell 1000 Growth Index | 9.11 |
Large-Cap Growth Funds Average | 7.47 |
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.
1
Expense Ratios | |||
Your Fund Compared With Its Peer Group | |||
Investor | Admiral | Peer Group | |
Shares | Shares | Average | |
U.S. Growth Fund | 0.47% | 0.33% | 1.17% |
The fund expense ratios shown are from the prospectus dated December 22, 2015, and represent estimated costs for the current fiscal year.
For the fiscal year ended August 31, 2016, the expense ratios were 0.46% for Investor Shares and 0.32% 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 2015.
Peer group: Large-Cap Growth Funds.
2
Chairman’s Perspective
Bill McNabb
Chairman and Chief Executive Officer
Dear Shareholder,
Even as the global economy continued to expand at a slow but sustained pace over the 12 months ended August 31, 2016, a series of disquieting developments highlighted the importance for investors of remaining disciplined.
Chief among them was “Brexit”—the British public’s vote to exit the European Union—but plenty of others moved the markets as well. We saw sharp ups and downs in the prices of oil and other commodities, choppy U.S. job numbers, shifting expectations about when the Federal Reserve might raise interest rates again, and decreases in already negative yields for European and Japanese government bonds.
Beyond being the end of the fiscal period, August marked a milestone: 40 years since Vanguard introduced the first index mutual fund. In ways that are perhaps still not fully appreciated, indexing has vastly improved investing for individuals, advisors, and institutions all over the world. Later in this letter, I’ll discuss the revolution wrought by what was initially a little-heralded new fund from a fledgling outfit in Valley Forge, Pennsylvania.
Brexit added another layer of uncertainty for investors
I think it’s fair to say that the momentous June 23 Brexit vote caught even the British off guard. Although we saw some market jitters in the run-up to the referendum, the unexpected outcome triggered a spike in
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volatility worldwide. Stocks around the world lost 5%–10% in U.S. dollar terms in the first two trading sessions following the vote, with U.K. and European markets among the hardest hit; global bonds, though, headed in the other direction. It was a textbook illustration of the value of having a diversified portfolio.
That kind of volatility can push investors to “do something.” But some of the worst days in the stock markets are sometimes followed by some of the best—as happened at the end of June. Investors who scrambled to protect their portfolios by shedding stocks amid headlines warning of a global market meltdown may well have ended up locking in post-Brexit losses, then missing out on the strong rebound that took place just days later. Those headlines were noise that investors would have been better off tuning out. I’m pleased to say that Vanguard investors on the whole did just that—we continued to see cash flows into our funds in the days after the vote.
For the 12 months, stocks generally finished higher, with U.S. stocks up more than 11% and international stocks about 3% for U.S.-based investors.
In a surprise, bonds turned in a solid performance that few would have predicted a year ago. It seemed as if rates had fallen so far that they couldn’t go any lower, but many did. Central banks in a number of European countries and Japan set key monetary policy rates below zero.
Market Barometer | |||
Average Annual Total Returns | |||
Periods Ended August 31, 2016 | |||
One | Three | Five | |
Year | Years | Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 11.69% | 12.02% | 14.60% |
Russell 2000 Index (Small-caps) | 8.59 | 8.53 | 12.85 |
Russell 3000 Index (Broad U.S. market) | 11.44 | 11.74 | 14.46 |
FTSE All-World ex US Index (International) | 3.37 | 2.59 | 3.72 |
Bonds | |||
Barclays U.S. Aggregate Bond Index (Broad taxable market) | 5.97% | 4.37% | 3.24% |
Barclays Municipal Bond Index (Broad tax-exempt market) | 6.88 | 6.47 | 4.80 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.18 | 0.05 | 0.06 |
CPI | |||
Consumer Price Index | 1.06% | 0.98% | 1.23% |
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These policies held down short-term rates, while more muted expectations for global growth and inflation weighed on longer-term rates.
Yields in the United States weren’t quite as low as in many developed countries. The Fed raised the federal funds target rate only once, in December, to a slim 0.25%–0.5%. Further out on the maturity spectrum, the bellwether 10-year U.S. Treasury yield dropped in early July to a record low 1.36%, before moving back up a little to end the period at 1.58%. Over the 12 months, U.S. bonds returned about 6%, and international bonds returned even more—about 11%—for U.S.-based investors, again underscoring the markets’ unpredictability and the merits of diversification.
Over the years, many investors have embraced the pluses of indexing
Market upsets like Brexit aren’t rare occurrences. Fortunately, indexing has proved to be a durable behavioral tool to help keep investors from making bad financial decisions when upsets happen. In fact, this is one of indexing’s less appreciated benefits: Holding index funds as part of a broadly diversified portfolio can counterbalance that tendency to react to news headlines. When times are volatile, you’ll know you might have some exposure to a part of the market that has dropped, but also to other parts that may be holding up better.
Vanguard’s launch of the First Index Investment Trust, now Vanguard 500 Index Fund, initially met with a frosty reception. Its mandate to track the performance of a broadly diversified benchmark at a low cost seemed underwhelming to an investing public accustomed to funds that offered the chance to outperform. Investors have since come around, as experience has demonstrated the benefits of low costs and broad diversification.
Indexing accounted for about 30% of U.S. mutual fund and exchange-traded fund (ETF) assets at the end of 2015, according to the Investment Company Institute. Some now even proclaim the “triumph of indexing,” implying that it’s the only way to invest.
In our view, the rise of indexing has served to underscore an investment principle that long predates 1976: A long-term, low-cost, diversified approach gives investors the best chance for success. That’s true whether the investments you choose are indexed or actively managed—or both.
As always, thank you for investing with Vanguard.
Sincerely,
F. William McNabb III
Chairman and Chief Executive Officer
September 9, 2016
5
Advisors’ Report
For the 12 months ended August 31, 2016, Vanguard U.S. Growth Fund returned nearly 7%. It trailed its benchmark, the Russell 1000 Growth Index, but finished ahead of the average return of its peers. Your fund is managed by five advisors. The use of multiple independent advisors enhances the fund’s diversification by providing exposure to distinct yet complementary investment approaches. It is not uncommon for different advisors to have different views about individual securities or the broader investment environment.
The table on page 10 presents the advisors, the percentage and amount of fund assets that each manages, and brief descriptions of their investment strategies. Each advisor has also prepared a discussion of the investment environment during the fiscal year and of how the portfolio’s positioning reflects this assessment. These reports were prepared on September 19, 2016.
Jackson Square Partners, LLC
Portfolio Managers:
Jeffrey S. Van Harte, CFA,
Chairman and Chief Investment Officer
Christopher J. Bonavico, CFA,
Equity Analyst
Christopher M. Ericksen, CFA,
Equity Analyst
Daniel J. Prislin, CFA,
Equity Analyst
As you would expect from our fundamental, bottomup approach, stock selection typically is the primary driver of our portion of the portfolio. However, during this period relative performance was significantly affected by systematic impacts, including sector and style factor exposures.
Valeant Pharmaceuticals was our largest detractor for several reasons, notably including questions about its ability to avoid a technical default on its debt obligations. Although the company did avoid technical default, we sold out of the position because of the negative change in its longterm fundamentals.
Our top contributor was Equinix. The company announced plans including additional data centers, the divestiture of others to Digital Realty, and a strategic partnership with Datang Telecom Group in China. Increased globalization, combined with the need for a secure and accessible network to meet the needs of clients’ geographically dispersed workforce, continued to create significant demand. We believe Equinix’s innovative product offerings are wellpositioned in a technologyspending environment focused on maintaining the highest level of network performance and quality of service for global users.
For many years, we have been concerned about a lack of demandoriented global economic growth, and the recent Brexit vote only reinforces that view. Regardless of the variety of potential outcomes, we remain consistent in our longterm investment philosophy. We want to own what we view as strong secular growth companies with solid business models
6
and competitive positions that we believe can grow market share and have the potential to deliver shareholder value in a variety of market environments.
Wellington Management Company llp
Portfolio Manager:
Andrew J. Shilling, CFA,
Senior Managing Director
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.
Weak security selection in the consumer staples and information technology sectors weighed on our portion of the portfolio over the last twelve months. An underweighted exposure to telecommunication services, the top performer during a period when investors favored low volatility, also hurt. Our selection was stronger in financials and industrials, helping to partially offset negative results.
The largest detractors from relative performance included Stericycle, a company that specializes in collecting and disposing of regulated substances, and biopharmaceutical companies Allergan and Regeneron Pharmaceuticals. Our decision to not own Microsoft—which did well in the benchmark—also weighed on relative returns. Amazon.com—our top contributor—and Microsoft both performed well amid the rapid growth of their cloud-computing businesses. We prefer to gain exposure to this secular growth trend through our investment in Amazon.com, the market leader in the space. Other standouts included medical device company Edwards Lifesciences and fixed income e-trading platform MarketAxess.
At the period’s close, we were most overweighted in the consumer discretionary sector, though we reduced our exposure over the 12 months. We increased our holdings in industrials and financials, which are now the portfolio’s second- and third-largest overweights. We meaningfully reduced our exposure to health care, where we are now underweighted. Consumer staples remained the most underweighted sector.
In this environment of low global growth and elevated uncertainty, we have continued to maintain the portfolio’s exposure to secular trends and long-cycle growth. We believe these durable growth drivers will yield attractive relative returns during a challenging period for investors. We remain true to our process, seeking to invest in companies with competitive advantages, strong balance sheets, experienced and proven management, and the ability to sustain above-average growth. We are confident that this time-tested process will continue to yield a portfolio of stocks well-positioned to outperform.
7
William Blair Investment
Management, LLC
Portfolio Managers:
James Golan, CFA,
Partner
David Ricci, CFA,
Partner
The U.S. stock market advanced over the past 12 months, supported by generally strong economic data in the face of more challenged global growth.
Our higher-growth bias worked against us as investors strongly favored high dividend-yielding stocks, particularly during the fear-driven flight to safety that characterized the market in early 2016. This more than offset our positive stock selection.
From a stock-specific standpoint, unfavorable selection in consumer staples (Kroger) and financials (Affiliated Managers Group and Citigroup) weighed on returns. Other underperformers included Apple (information technology) and BorgWarner (consumer discretionary). Conversely, strong stock selection in health care, including our position in IDEXX Laboratories and the liquidation of our holdings in Gilead Sciences in the fourth quarter of 2015, helped relative results. Other standouts included Texas Instruments and Adobe Systems in information technology and Amazon.com in consumer discretionary.
In aggregate, companies are near peak profit-margin levels, and many are returning capital to shareholders in the form of dividends and share buybacks. We believe those that can create value for shareholders by efficiently allocating capital will be increasingly rewarded by the market. As investors seek companies with sustainable, long-term growth opportunities, we believe we are well-positioned.
Baillie Gifford Overseas Ltd.
Portfolio Managers:
Tom Slater,
Investment Manager, Partner
Gary Robinson,
Investment Manager
The U.S. market experienced a turbulent but ultimately positive 12 months. Strong returns came from the low-cost bond trading platform MarketAxess, internet giant Amazon.com, and health care stock Abiomed. A health scare for Chipotle Mexican Grill and incidents of inappropriate lending by Lending Club contributed to weaker share prices for the two holdings. We continue to own Chipotle as we believe management is taking sensible steps to rebuild trust in the brand. However, we sold Lending Club as the news of questionable lending practices seriously undermined our confidence in the culture and sustainability of the business model.
We recently bought transformational growth companies in the health care sector. They included Juno Therapeutics (developers of cellular therapies for cancer), Alnylam Pharmaceuticals (gene-silencing specialists), and Celgene (a cancer biotech
8
company with a rich business partnership portfolio). We also purchased companies that reflect our belief in the power of new technologies to change existing industries. These included Interactive Brokers (a low-cost trading platform), Wayfair (which is breaking new ground in furniture and homeware e-commerce), and Tableau Software (a developer of powerful, user-friendly visualisation analytics software).
As part of our process, we review existing holdings to determine whether they meet our desired targets for growth, culture, and edge. We sold out of PepsiCo, Monsanto, PayPal, Zillow, Danaher, and eBay as they fell short of our expectations.
Jennison Associates LLC
Portfolio Managers:
Kathleen A. McCarragher,
Managing Director
Blair A. Boyer,
Managing Director
Market volatility during the period reflected decelerating economic growth in China, concerns that emerging economies might face balance-sheet risks, and the effect of lower energy prices on industrial sectors. Additional factors included fears of slowing economic growth in the United States, uncertainty about the course of Federal Reserve monetary tightening, and the Brexit vote. In this risk-averse environment, dividend-paying and other “safety” stocks outperformed, while stocks of higher-growth companies such as those held in the portfolio generally underperformed.
Health care stocks faced additional growing concerns about drug pricing. Companies that sell innovative, high-priced drugs, including BioMarin (neurometabolic degenerative diseases), Alexion Pharmaceuticals (blood and matabolic disorders), and Vertex Pharmaceuticals (cystic fibrosis), sold off. Allergan, in which acquired growth plays an important role, declined as regulatory changes threatened to remove tax benefits of mergers between U.S. and offshore companies.
In consumer discretionary, Netflix declined on slowing subscriber growth. Amazon.com benefited from continued strong execution, margin expansion, and development of its cloud infrastructure business.
In technology, LinkedIn’s decline reflected deceleration in previously high growth rates. Many other holdings in the sector made strong gains. Facebook rose on impressive revenue and margins, accelerating advertising revenue growth, and solid user growth and engagement. Alphabet continued to monetize search traffic at a meaningfully higher rate than its competitors. Tencent benefited from its dominant position in China’s online gaming and instant messaging markets and its advertising and payment service efforts.
In energy, Concho Resources rose on deals that consolidate its core acreage and shed noncore positions, improving its balance sheet and efficiency. In industrials, TransDigm Group, which makes highly engineered aircraft components, advanced on solid financial results.
9
Vanguard U.S. Growth Fund Investment Advisors | |||
Fund Assets Managed | |||
Investment Advisor | % | $ Million | Investment Strategy |
Jackson Square Partners, LLC | 36 | 2,471 | 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. | |||
Wellington Management | 36 | 2,465 | 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. | |||
William Blair Investment | 13 | 864 | 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. | |||
Baillie Gifford Overseas Ltd. | 7 | 448 | Uses a long-term, active, bottom-up investment |
approach to identify companies that can generate | |||
above-average growth in earnings and cash flow. | |||
Jennison Associates LLC | 6 | 442 | Uses a research-driven, fundamental investment |
approach that relies on in-depth company knowledge | |||
gleaned through meetings with management, | |||
customers, and suppliers. | |||
Cash Investments | 2 | 170 | These short-term reserves are invested by Vanguard in |
equity index products to simulate investment in stocks. | |||
Each advisor may also maintain a modest cash | |||
position. |
10
U.S. Growth Fund
Fund Profile
As of August 31, 2016
Share-Class Characteristics | ||
Investor | Admiral | |
Shares | Shares | |
Ticker Symbol | VWUSX | VWUAX |
Expense Ratio1 | 0.47% | 0.33% |
30-Day SEC Yield | 0.45% | 0.52% |
Portfolio Characteristics | |||
DJ | |||
U.S. | |||
Russell | Total | ||
1000 | Market | ||
Growth | FA | ||
Fund | Index | Index | |
Number of Stocks | 159 | 604 | 3,817 |
Median Market Cap | $51.2B | $70.3B | $51.2B |
Price/Earnings Ratio | 31.2x | 24.8x | 23.5x |
Price/Book Ratio | 5.0x | 5.7x | 2.8x |
Return on Equity | 19.4% | 22.0% | 16.6% |
Earnings Growth | |||
Rate | 15.9% | 11.9% | 7.5% |
Dividend Yield | 0.9% | 1.5% | 2.0% |
Foreign Holdings | 1.4% | 0.0% | 0.0% |
Turnover Rate | 32% | — | — |
Short-Term | |||
Reserves | 0.8% | — | — |
Volatility Measures | ||
DJ | ||
U.S. Total | ||
Russell 1000 | Market | |
Growth Index | FA Index | |
R-Squared | 0.94 | 0.87 |
Beta | 1.04 | 1.05 |
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) | ||
Alphabet Inc. | Internet Software & | |
Services | 5.8% | |
Facebook Inc. | Internet Software & | |
Services | 3.9 | |
Amazon.com Inc. | Internet Retail | 3.3 |
Visa Inc. | Data Processing & | |
Outsourced Services | 3.1 | |
MasterCard Inc. | Data Processing & | |
Outsourced Services | 3.0 | |
Microsoft Corp. | Systems Software | 2.6 |
Allergan plc | Pharmaceuticals | 2.4 |
Celgene Corp. | Biotechnology | 2.3 |
PayPal Holdings Inc. | Data Processing & | |
Outsourced Services | 2.0 | |
Biogen Inc. | Biotechnology | 2.0 |
Top Ten | 30.4% | |
The holdings listed exclude any temporary cash investments and equity index products. |
Investment Focus
1 The expense ratios shown are from the prospectus dated December 22, 2015, and represent estimated costs for the current fiscal year. For the
fiscal year ended August 31, 2016, the expense ratios were 0.46% for Investor Shares and 0.32% for Admiral Shares.
11
U.S. Growth Fund
Sector Diversification (% of equity exposure) | |||
DJ | |||
U.S. | |||
Russell | Total | ||
1000 | Market | ||
Growth | FA | ||
Fund | Index | Index | |
Consumer Discretionary | 19.2% | 20.7% | 12.9% |
Consumer Staples | 5.6 | 10.0 | 8.9 |
Energy | 0.5 | 0.6 | 6.4 |
Financials | 9.2 | 5.6 | 18.0 |
Health Care | 17.6 | 16.9 | 14.1 |
Industrials | 7.8 | 10.4 | 10.4 |
Information Technology | 36.8 | 30.9 | 20.3 |
Materials | 1.0 | 3.6 | 3.3 |
Other | 1.8 | 0.0 | 0.0 |
Telecommunication | |||
Services | 0.4 | 1.2 | 2.4 |
Utilities | 0.1 | 0.1 | 3.3 |
12
U.S. Growth Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Cumulative Performance: August 31, 2006, Through August 31, 2016
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/usgrowthfundx15x1.jpg)
Average Annual Total Returns | |||||
Periods Ended August 31, 2016 | |||||
Final Value | |||||
One | Five | Ten | of a $10,000 | ||
Year | Years | Years | Investment | ||
U.S. Growth Fund*Investor Shares | 6.89% | 14.91% | 8.18% | $21,959 | |
•••••••• | Russell 1000 Growth Index | 10.54 | 14.74 | 9.11 | 23,903 |
– – – – | Large-Cap Growth Funds Average | 6.69 | 12.88 | 7.47 | 20,544 |
Dow Jones U.S. Total Stock Market | |||||
Float Adjusted Index | 11.34 | 14.40 | 7.71 | 21,007 | |
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 | 7.03% | 15.07% | 8.36% | $111,589 |
Russell 1000 Growth Index | 10.54 | 14.74 | 9.11 | 119,516 |
Dow Jones U.S. Total Stock Market Float | ||||
Adjusted Index | 11.34 | 14.40 | 7.71 | 105,034 |
See Financial Highlights for dividend and capital gains information.
13
U.S. Growth Fund
Fiscal-Year Total Returns (%): August 31, 2006, Through August 31, 2016
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/usgrowthfundx16x1.jpg)
Average Annual Total Returns: Periods Ended June 30, 2016
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 | -0.99% | 12.05% | 7.76% |
Admiral Shares | 8/13/2001 | -0.87 | 12.20 | 7.94 |
14
U.S. Growth Fund
Financial Statements
Statement of Net Assets
As of August 31, 2016
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 (95.1%)1 | |||
Consumer Discretionary (18.7%) | |||
* | Amazon.com Inc. | 294,938 | 226,854 |
Home Depot Inc. | 901,684 | 120,934 | |
* | Liberty Interactive Corp. | ||
QVC Group Class A | 5,090,907 | 107,571 | |
* | TripAdvisor Inc. | 1,407,366 | 85,849 |
L Brands Inc. | 1,027,006 | 78,268 | |
* | O’Reilly Automotive Inc. | 182,523 | 51,097 |
Lowe’s Cos. Inc. | 616,312 | 47,185 | |
NIKE Inc. Class B | 776,811 | 44,775 | |
* | Liberty Global plc | 1,445,169 | 44,555 |
Starbucks Corp. | 721,928 | 40,594 | |
* | Netflix Inc. | 402,225 | 39,197 |
DR Horton Inc. | 1,210,973 | 38,824 | |
* | Priceline Group Inc. | 25,117 | 35,584 |
Lennar Corp. Class A | 717,515 | 33,938 | |
Tesla Motors Inc. | 139,447 | 29,564 | |
* | Chipotle Mexican Grill Inc. | ||
Class A | 67,575 | 27,958 | |
Ross Stores Inc. | 412,350 | 25,665 | |
Harman International | |||
Industries Inc. | 299,367 | 25,353 | |
* | Under Armour Inc. | 673,747 | 24,019 |
Las Vegas Sands Corp. | 435,852 | 21,884 | |
* | AutoZone Inc. | 29,355 | 21,776 |
VF Corp. | 239,200 | 14,842 | |
Dollar General Corp. | 172,200 | 12,641 | |
* | Liberty Global plc Class A | 375,771 | 11,893 |
Industria de Diseno Textil | |||
SA ADR | 626,288 | 11,107 | |
adidas AG | 64,693 | 10,753 | |
^ | Wayfair Inc. | 206,516 | 7,953 |
^ | Marriott International Inc. | ||
Class A | 107,564 | 7,673 | |
*,^ | Under Armour Inc. | ||
Class A | 185,482 | 7,351 | |
Harley-Davidson Inc. | 125,574 | 6,618 |
McDonald’s Corp. | 55,067 | 6,369 | |
CarMax Inc. | 96,382 | 5,682 | |
Walt Disney Co. | 43,942 | 4,151 | |
Ulta Salon Cosmetics | |||
& Fragrance Inc. | 13,690 | 3,384 | |
^ | Shake Shack Inc. Class A | 51,195 | 1,807 |
1,283,668 | |||
Consumer Staples (5.4%) | |||
Walgreens Boots | |||
Alliance Inc. | 1,212,186 | 97,836 | |
Estee Lauder Cos. Inc. | |||
Class A | 656,657 | 58,594 | |
* | Monster Beverage Corp. | 375,543 | 57,792 |
Mondelez International Inc. | |||
Class A | 985,659 | 44,374 | |
Kroger Co. | 933,100 | 29,850 | |
PepsiCo Inc. | 251,964 | 26,897 | |
Mead Johnson Nutrition Co. 268,200 | 22,816 | ||
Costco Wholesale Corp. | 139,601 | 22,628 | |
Colgate-Palmolive Co. | 61,283 | 4,556 | |
Brown-Forman Corp. | |||
Class B | 88,472 | 4,295 | |
369,638 | |||
Energy (0.3%) | |||
Schlumberger Ltd. | 214,600 | 16,953 | |
Concho Resources Inc. | 41,382 | 5,347 | |
Apache Corp. | 33,175 | 1,649 | |
23,949 | |||
Financials (8.7%) | |||
Intercontinental Exchange | |||
Inc. | 438,719 | 123,728 | |
Crown Castle International | |||
Corp. | 1,253,382 | 118,783 | |
Equinix Inc. | 159,505 | 58,802 | |
MarketAxess Holdings Inc. | 329,088 | 55,465 | |
* | Markel Corp. | 47,026 | 43,786 |
American Tower | |||
Corporation | 332,450 | 37,693 |
15
U.S. Growth Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Marsh & McLennan | |||
Cos. Inc. | 472,530 | 31,957 | |
MSCI Inc. Class A | 282,040 | 25,417 | |
First Republic Bank | 278,994 | 21,471 | |
Moody’s Corp. | 172,000 | 18,695 | |
* | Affiliated Managers Group | ||
Inc. | 114,500 | 16,265 | |
M&T Bank Corp. | 100,368 | 11,877 | |
Public Storage | 50,104 | 11,220 | |
American Express Co. | 116,856 | 7,663 | |
Morgan Stanley | 202,789 | 6,501 | |
TD Ameritrade Holding | |||
Corp. | 187,930 | 6,176 | |
Interactive Brokers Group | |||
Inc. | 112,900 | 4,051 | |
599,550 | |||
Health Care (17.1%) | |||
* | Allergan plc | 698,141 | 163,742 |
* | Celgene Corp. | 1,448,636 | 154,627 |
* | Biogen Inc. | 447,518 | 136,775 |
Bristol-Myers Squibb Co. | 1,531,036 | 87,866 | |
* | Cerner Corp. | 923,605 | 59,610 |
UnitedHealth Group Inc. | 433,280 | 58,948 | |
Dentsply Sirona Inc. | 922,709 | 56,710 | |
Novo Nordisk A/S ADR | 1,170,342 | 54,678 | |
* | Illumina Inc. | 303,486 | 51,089 |
* | Edwards Lifesciences | ||
Corp. | 388,188 | 44,704 | |
* | Quintiles Transnational | ||
Holdings Inc. | 504,634 | 39,008 | |
Medtronic plc | 437,004 | 38,033 | |
* | IMS Health Holdings Inc. | 1,203,221 | 35,880 |
* | Regeneron | ||
Pharmaceuticals Inc. | 91,019 | 35,730 | |
* | IDEXX Laboratories Inc. | 272,872 | 30,747 |
Zoetis Inc. | 538,000 | 27,492 | |
Gilead Sciences Inc. | 163,575 | 12,821 | |
ABIOMED Inc. | 98,510 | 11,618 | |
BioMarin Pharmaceutical | |||
Inc. | 122,739 | 11,524 | |
Alexion Pharmaceuticals | |||
Inc. | 78,806 | 9,919 | |
Waters Corp. | 61,715 | 9,708 | |
Shire plc ADR | 49,981 | 9,355 | |
Danaher Corp. | 114,000 | 9,281 | |
Genomic Health Inc. | 203,823 | 5,395 | |
Vertex Pharmaceuticals Inc. | 52,422 | 4,954 | |
Alnylam Pharmaceuticals | |||
Inc. | 62,926 | 4,395 | |
Juno Therapeutics Inc. | 146,900 | 4,345 | |
Cigna Corp. | 17,794 | 2,282 | |
Seattle Genetics Inc. | 45,430 | 2,024 | |
1,173,260 |
Industrials (7.5%) | |||
Nielsen Holdings plc | 1,907,282 | 101,620 | |
* | Verisk Analytics Inc. | ||
Class A | 549,698 | 45,652 | |
Fortune Brands Home | |||
& Security Inc. | 607,447 | 38,609 | |
Union Pacific Corp. | 394,100 | 37,648 | |
* | TransDigm Group Inc. | 125,327 | 35,742 |
Equifax Inc. | 260,481 | 34,357 | |
* | IHS Markit Ltd. | 815,340 | 30,429 |
* | TransUnion | 866,228 | 28,577 |
Lockheed Martin Corp. | 111,600 | 27,116 | |
AMETEK Inc. | 468,339 | 22,832 | |
Fortive Corp. | 394,976 | 20,803 | |
Watsco Inc. | 121,841 | 18,015 | |
* | Stericycle Inc. | 180,400 | 15,511 |
Kansas City Southern | 140,338 | 13,574 | |
JB Hunt Transport Services | |||
Inc. | 127,974 | 10,160 | |
Northrop Grumman Corp. | 46,232 | 9,804 | |
NOW Inc. | 436,642 | 9,012 | |
Wabtec Corp. | 111,300 | 8,527 | |
Boeing Co. | 65,630 | 8,496 | |
516,484 | |||
Information Technology (36.0%) | |||
* | Facebook Inc. Class A | 2,112,740 | 266,459 |
* | Alphabet Inc. Class C | 326,425 | 250,384 |
Visa Inc. Class A | 2,615,380 | 211,584 | |
MasterCard Inc. Class A | 2,115,901 | 204,459 | |
Microsoft Corp. | 3,130,578 | 179,883 | |
* | Alphabet Inc. Class A | 188,861 | 149,172 |
* | PayPal Holdings Inc. | 3,740,163 | 138,947 |
QUALCOMM Inc. | 1,905,326 | 120,169 | |
* | Electronic Arts Inc. | 1,338,965 | 108,764 |
* | eBay Inc. | 3,214,847 | 103,389 |
Apple Inc. | 967,630 | 102,666 | |
* | Adobe Systems Inc. | 669,727 | 68,520 |
Symantec Corp. | 2,278,259 | 54,974 | |
* | salesforce.com Inc. | 621,389 | 49,351 |
Intuit Inc. | 438,650 | 48,887 | |
* | Alibaba Group Holding Ltd. | ||
ADR | 409,793 | 39,828 | |
* | Workday Inc. Class A | 460,368 | 39,035 |
* | ServiceNow Inc. | 481,939 | 35,022 |
* | FleetCor Technologies Inc. | 212,333 | 34,865 |
CDW Corp. | 737,665 | 32,937 | |
Texas Instruments Inc. | 461,800 | 32,114 | |
Global Payments Inc. | 365,433 | 27,755 | |
* | Red Hat Inc. | 360,260 | 26,292 |
* | Alliance Data Systems | ||
Corp. | 119,766 | 24,502 | |
* | Cognizant Technology | ||
Solutions Corp. Class A | 409,511 | 23,522 | |
Accenture plc Class A | 151,200 | 17,388 |
16
U.S. Growth Fund
Market | |||
Value• | |||
Shares | ($000) | ||
GrubHub Inc. | 388,290 | 15,753 | |
*,^ | Zillow Group Inc. | 393,138 | 13,308 |
Tencent Holdings Ltd. | 478,302 | 12,395 | |
* | Twitter Inc. | 547,760 | 10,522 |
Tableau Software Inc. | |||
Class A | 136,500 | 7,921 | |
Palo Alto Networks Inc. | 39,993 | 5,326 | |
Splunk Inc. | 82,555 | 4,808 | |
Mobileye NV | 77,556 | 3,792 | |
* | Autodesk Inc. | 36,870 | 2,485 |
2,467,178 | |||
Materials (1.0%) | |||
Sherwin-Williams Co. | 119,749 | 33,974 | |
PPG Industries Inc. | 163,600 | 17,322 | |
Martin Marietta Materials | |||
Inc. | 82,694 | 15,135 | |
66,431 | |||
Other (0.0%) | |||
*,2 | WeWork Class A PP | 52,398 | 2,630 |
3 | Vanguard Growth ETF | 3,100 | 347 |
2,977 | |||
Telecommunication Services (0.4%) | |||
* | SBA Communications Corp. | ||
Class A | 222,659 | 25,417 | |
Total Common Stocks | |||
(Cost $4,661,409) | 6,528,552 | ||
Preferred Stocks (1.6%) | |||
*,2 | Uber Technologies PP | 1,408,784 | 68,709 |
*,2 | WeWork Pfd. D1 PP | 260,418 | 13,071 |
*,2 | Pinterest Prf G PP | 1,596,475 | 10,409 |
*,2 | WeWork Pfd. D2 PP | 204,614 | 10,270 |
*,2 | Cloudera, Inc. Pfd. | 300,088 | 5,153 |
Total Preferred Stocks | |||
(Cost $45,428) | 107,612 | ||
Convertible Preferred Stocks (0.2%) | |||
*,2 | Airbnb Inc. (Cost $11,927) | 128,123 | 13,453 |
Market | |||
Value• | |||
Shares | ($000) | ||
Temporary Cash Investments (3.5%)1 | |||
Money Market Fund (3.1%) | |||
4,5 | Vanguard Market | ||
Liquidity Fund, | |||
0.612% | 2,099,195 | 209,941 | |
Face | |||
Amount | |||
($000) | |||
Repurchase Agreement (0.2%) | |||
Bank of America Securities, | |||
LLC 0.330%, 9/1/16 (Dated | |||
8/31/16, Repurchase Value | |||
$15,100,000, collateralized | |||
by Government National | |||
Mortgage Assn. 4.500%, | |||
4/20/44, with a value of | |||
$15,402,000) | 15,100 | 15,100 | |
U.S. Government and Agency Obligations (0.2%) | |||
6,7 | Federal Home Loan | ||
Bank Discount Notes, | |||
0.370%, 10/21/16 | 1,300 | 1,299 | |
6,7 | Federal Home Loan | ||
Bank Discount Notes, | |||
0.431%, 1/25/17 | 6,200 | 6,189 | |
7 | United States Treasury | ||
Bill, 0.318%, 10/20/16 | 5,400 | 5,398 | |
12,886 | |||
Total Temporary Cash Investments | |||
(Cost $237,912) | 237,927 | ||
Total Investments (100.4%) | |||
(Cost $4,956,676) | 6,887,544 |
17
U.S. Growth Fund
Amount | |
($000) | |
Other Assets and Liabilities (-0.4%) | |
Other Assets | |
Investment in Vanguard | 543 |
Receivables for Investment | |
Securities Sold | 5,284 |
Receivables for Accrued Income | 7,542 |
Receivables for Capital Shares Issued | 1,243 |
Other Assets | 120 |
Total Other Assets | 14,732 |
Liabilities | |
Payables for Investment Securities | |
Purchased | (9,913) |
Collateral for Securities on Loan | (13,579) |
Payables to Investment Advisor | (3,116) |
Payables for Capital Shares Redeemed | (2,812) |
Payables to Vanguard | (11,969) |
Other Liabilities | (501) |
Total Liabilities | (41,890) |
Net Assets (100%) | 6,860,386 |
At August 31, 2016, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 4,920,691 |
Undistributed Net Investment Income | 7,918 |
Accumulated Net Realized Gains | 7 |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 1,930,868 |
Futures Contracts | 902 |
Net Assets | 6,860,386 |
Investor Shares—Net Assets | |
Applicable to 125,133,452 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 3,793,893 |
Net Asset Value Per Share— | |
Investor Shares | $30.32 |
Admiral Shares—Net Assets | |
Applicable to 39,052,085 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 3,066,493 |
Net Asset Value Per Share— | |
Admiral Shares | $78.52 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $13,002,000.
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 97.6% and 1.0%, respectively,
of net assets.
2 Restricted securities totaling $123,695,000, representing 1.8% 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 $13,579,000 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 $7,193,000 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.
18
U.S. Growth Fund
Statement of Operations
Year Ended | |
August 31, 2016 | |
($000) | |
Investment Income | |
Income | |
Dividends1,2 | 62,811 |
Interest1 | 979 |
Securities Lending—Net | 1,011 |
Total Income | 64,801 |
Expenses | |
Investment Advisory Fees—Note B | |
Basic Fee | 11,782 |
Performance Adjustment | 1,162 |
The Vanguard Group—Note C | |
Management and Administrative—Investor Shares | 9,574 |
Management and Administrative—Admiral Shares | 3,307 |
Marketing and Distribution—Investor Shares | 719 |
Marketing and Distribution—Admiral Shares | 216 |
Custodian Fees | 82 |
Auditing Fees | 37 |
Shareholders’ Reports—Investor Shares | 73 |
Shareholders’ Reports—Admiral Shares | 15 |
Trustees’ Fees and Expenses | 11 |
Total Expenses | 26,978 |
Expenses Paid Indirectly | (200) |
Net Expenses | 26,778 |
Net Investment Income | 38,023 |
Realized Net Gain (Loss) | |
Investment Securities Sold1 | 66,379 |
Futures Contracts | 4,734 |
Foreign Currencies | 55 |
Realized Net Gain (Loss) | 71,168 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | 321,746 |
Futures Contracts | 11,907 |
Change in Unrealized Appreciation (Depreciation) | 333,653 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 442,844 |
1 Dividend income, interest income, and realized net gain (loss) from affiliated companies of the fund were $4,000, $896,000, and $3,000, respectively. | |
2 Dividends are net of foreign withholding taxes of $319,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
19
U.S. Growth Fund
Statement of Changes in Net Assets
Year Ended August 31, | ||
2016 | 2015 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 38,023 | 36,310 |
Realized Net Gain (Loss) | 71,168 | 656,165 |
Change in Unrealized Appreciation (Depreciation) | 333,653 | (231,399) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 442,844 | 461,076 |
Distributions | ||
Net Investment Income | ||
Investor Shares | (19,111) | (24,620) |
Admiral Shares | (16,735) | (15,003) |
Realized Capital Gain1 | ||
Investor Shares | (327,359) | (289,725) |
Admiral Shares | (218,490) | (142,252) |
Total Distributions | (581,695) | (471,600) |
Capital Share Transactions | ||
Investor Shares | (96,179) | (60,674) |
Admiral Shares | 699,217 | 561,764 |
Net Increase (Decrease) from Capital Share Transactions | 603,038 | 501,090 |
Total Increase (Decrease) | 464,187 | 490,566 |
Net Assets | ||
Beginning of Period | 6,396,199 | 5,905,633 |
End of Period2 | 6,860,386 | 6,396,199 |
1 Includes fiscal 2016 and 2015 short-term gain distributions totaling $0 and $568,000, respectively. Short-term gain distributions are treated | ||
as ordinary income dividends for tax purposes. | ||
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $7,918,000 and $9,444,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
20
U.S. Growth Fund
Financial Highlights
Investor Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $30.89 | $31.03 | $24.67 | $20.79 | $18.12 |
Investment Operations | |||||
Net Investment Income | .151 | .169 | .168 | .134 | .068 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 1.944 | 2.168 | 6.303 | 3.861 | 2.679 |
Total from Investment Operations | 2.095 | 2.337 | 6.471 | 3.995 | 2.747 |
Distributions | |||||
Dividends from Net Investment Income | (.147) | (.194) | (.111) | (.115) | (. 077) |
Distributions from Realized Capital Gains | (2.518) | (2.283) | — | — | — |
Total Distributions | (2.665) | (2.477) | (.111) | (.115) | (.077) |
Net Asset Value, End of Period | $30.32 | $30.89 | $31.03 | $24.67 | $20.79 |
Total Return1 | 6.89% | 7.96% | 26.29% | 19.31% | 15.22% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $3,794 | $3,975 | $4,038 | $3,137 | $2,975 |
Ratio of Total Expenses to Average Net Assets2 | 0.46% | 0.47% | 0.44% | 0.45% | 0.45% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 0.50% | 0.53% | 0.59% | 0.59% | 0.35% |
Portfolio Turnover Rate | 32% | 38% | 36% | 38% | 43% |
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. | |||||
2 Includes performance-based investment advisory fee increases (decreases) of 0.02%, 0.03%, (0.01%), (0.01%), and (0.01%). |
See accompanying Notes, which are an integral part of the Financial Statements.
21
U.S. Growth Fund
Financial Highlights
Admiral Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $80.01 | $80.37 | $63.91 | $53.85 | $46.94 |
Investment Operations | |||||
Net Investment Income | .506 | .563 | .557 | .440 | . 258 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 5.018 | 5.607 | 16.293 | 10.002 | 6.924 |
Total from Investment Operations | 5.524 | 6.170 | 16.850 | 10.442 | 7.182 |
Distributions | |||||
Dividends from Net Investment Income | (. 499) | (. 623) | (. 390) | (. 382) | (. 272) |
Distributions from Realized Capital Gains | (6.515) | (5.907) | — | — | — |
Total Distributions | (7.014) | (6.530) | (.390) | (.382) | (.272) |
Net Asset Value, End of Period | $78.52 | $80.01 | $80.37 | $63.91 | $53.85 |
Total Return1 | 7.03% | 8.12% | 26.44% | 19.51% | 15.38% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $3,066 | $2,421 | $1,868 | $1,141 | $869 |
Ratio of Total Expenses to Average Net Assets2 | 0.32% | 0.33% | 0.30% | 0.31% | 0.31% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 0.64% | 0.67% | 0.73% | 0.73% | 0.49% |
Portfolio Turnover Rate | 32% | 38% | 36% | 38% | 43% |
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. | |||||
2 Includes performance-based investment advisory fee increases (decreases) of 0.02%, 0.03%, (0.01%), (0.01%), and (0.01%). |
See accompanying Notes, which are an integral part of the Financial Statements.
22
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.
23
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, 2016, the fund’s average investments in long and short futures contracts represented 3% and 0% of net assets, respectively, based on the average of aggregate settlement values at each quarter-end during the period.
4. Repurchase Agreements: The fund enters into repurchase agreements with institutional counterparties. Securities pledged as collateral to the fund under repurchase agreements are held by a custodian bank until the agreements mature, and in the absence of a default, such collateral cannot be repledged, resold or rehypothecated. 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, 2013–2016), 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 subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
24
U.S. Growth Fund
8. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 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 0.10% 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 based upon the higher of the onemonth London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreedupon spread.
The fund had no borrowings outstanding at August 31, 2016, or at any time during the period then ended.
9. Other: Dividend income is recorded on the exdividend 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 classspecific 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 nonclassspecific 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 Jackson Square Partners, LLC, Wellington Management Company llp, William Blair Investment Management, LLC, Baillie Gifford Overseas Ltd., and Jennison Associates LLC 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 Jackson Square Partners, LLC and Wellington Management Company llp 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. The basic fees of Baillie Gifford Overseas Ltd. and Jennison Associates LLC are subject to quarterly adjustments based on performance relative to the S&P 500 Index and the Russell 1000 Growth Index, respectively, since February 28, 2014.
Vanguard manages the cash reserves of the fund as described below.
For the year ended August 31, 2016, the aggregate investment advisory fee represented an effective annual basic rate of 0.18% of the fund’s average net assets, before a net increase of $1,162,000 (0.02%) 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).
25
U.S. Growth Fund
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, 2016, the fund had contributed to Vanguard capital in the amount of $543,000, representing 0.01% of the fund’s net assets and 0.22% 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, 2016, these arrangements reduced the fund’s expenses by $200,000 (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, 2016, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 6,502,774 | 23,148 | 2,630 |
Preferred Stocks | — | — | 107,612 |
Convertible Preferred Stocks | — | — | 13,453 |
Temporary Cash Investments | 209,941 | 27,986 | — |
Futures Contracts—Liabilities1 | (501) | — | — |
Total | 6,712,214 | 51,134 | 123,695 |
1 Represents variation margin on the last day of the reporting period. |
The determination of Level 3 fair value measurements is governed by documented policies and procedures adopted by the board of trustees. The board has designated a pricing review committee, as an agent of the board, to ensure the timely analysis and valuation of Level 3 securities held by the fund in accordance with established policies and procedures. The pricing review committee employs various methods for calibrating valuation approaches, including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity. All valuation decisions made by the pricing review committee are reported to the board on a quarterly basis for review and ratification. The board reviews the adequacy of the fair value measurement policies and procedures in place on an annual basis.
26
U.S. Growth Fund
The following table summarizes changes in investments valued based on Level 3 inputs during the year ended August 31, 2016. Transfers into or out of Level 3 are recognized based on values as of the date of transfer.
Investments in | |
Common Stocks, | |
Preferred Stocks, | |
and Convertible | |
Preferred Stocks | |
Amount Valued Based on Level 3 Inputs | ($000) |
Balance as of August 31, 2015 | 106,035 |
Change in Unrealized Appreciation (Depreciation) | 17,660 |
Balance as of August 31, 2016 | 123,695 |
Net change in unrealized appreciation (depreciation) from investments still held as of August 31, 2016, was $17,660,000. |
The following table provides quantitative information about the significant unobservable inputs used in fair value measurement as of August 31, 2016:
Fair Value | ||||
Security Type | ($000) | Valuation Technique | Unobservable Input | Amount |
Common Stocks | 2,630 | Market Approach | Recent Market Transaction | $50.192 |
Preferred Stocks | 107,612 | Market Approach | Recent Market Transaction | 50.192 |
Recent Market Transaction | 48.772 | |||
Comparable Company Approach | 6.520 | |||
Comparable Company Approach | 17.170 | |||
Convertible | ||||
Preferred Stocks | 13,453 | Market Approach | Target Event | 105.000 |
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, 2016, 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 2016 | 1,188 | 128,868 | 4 |
E-mini S&P Mid-Cap 400 Index | September 2016 | 262 | 40,972 | 898 |
902 |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
27
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, 2016, the fund realized net foreign currency gains of $55,000, 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 $3,758,000 from undistributed net investment income, and $21,810,000 from accumulated net realized gains, to paid-in capital.
For tax purposes, at August 31, 2016, the fund had $18,001,000 of ordinary income and $4,595,000 of long-term capital gains available for distribution.
At August 31, 2016, the cost of investment securities for tax purposes was $4,959,113,000. Net unrealized appreciation of investment securities for tax purposes was $1,928,431,000, consisting of unrealized gains of $2,059,435,000 on securities that had risen in value since their purchase and $131,004,000 in unrealized losses on securities that had fallen in value since their purchase.
H. During the year ended August 31, 2016, the fund purchased $2,205,670,000 of investment securities and sold $2,056,041,000 of investment securities, other than temporary cash investments.
I. Capital share transactions for each class of shares were:
Year Ended August 31, | ||||
2016 | 2015 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
Investor Shares | ||||
Issued | 566,832 | 18,852 | 478,396 | 15,147 |
Issued in Lieu of Cash Distributions | 340,874 | 11,389 | 309,765 | 10,561 |
Redeemed | (1,003,885) | (33,788) | (848,835) | (27,163) |
Net Increase (Decrease)—Investor Shares | (96,179) | (3,547) | (60,674) | (1,455) |
Admiral Shares | ||||
Issued | 1,021,665 | 13,128 | 698,022 | 8,572 |
Issued in Lieu of Cash Distributions | 223,265 | 2,883 | 149,006 | 1,963 |
Redeemed | (545,713) | (7,215) | (285,264) | (3,519) |
Net Increase (Decrease)—Admiral Shares | 699,217 | 8,796 | 561,764 | 7,016 |
J. Management has determined that no material events or transactions occurred subsequent to August 31, 2016, that would require recognition or disclosure in these financial statements.
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, 2016, 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, 2016 by correspondence with the custodian and brokers and by agreement to the underlying ownership records of the transfer agent, provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
October 12, 2016
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/usgrowthfundx31x1.jpg)
Special 2016 tax information (unaudited) for Vanguard U.S. Growth Fund
This information for the fiscal year ended August 31, 2016, is included pursuant to provisions of the
Internal Revenue Code.
The fund distributed $567,659,000 as capital gain dividends (20% rate gain distributions) to
shareholders during the fiscal year.
The fund distributed $35,846,000 of qualified dividend income to shareholders during the fiscal year.
For corporate shareholders, 100% of investment income (dividend income plus short-term gains,
if any) qualifies for the dividends-received deduction.
29
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 2016. (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, 2016 | |||
One | Five | Ten | |
Year | Years | Years | |
Returns Before Taxes | 6.89% | 14.91% | 8.18% |
Returns After Taxes on Distributions | 4.81 | 13.98 | 7.69 |
Returns After Taxes on Distributions and Sale of Fund Shares | 5.58 | 11.98 | 6.66 |
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About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The 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.
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Six Months Ended August 31, 2016 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
U.S. Growth Fund | 2/29/2016 | 8/31/2016 | Period |
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $1,105.76 | $2.43 |
Admiral Shares | 1,000.00 | 1,106.54 | 1.75 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,022.82 | $2.34 |
Admiral Shares | 1,000.00 | 1,023.48 | 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 0.46% 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 (184/366).
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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.
33
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.
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The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 198 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482. 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 manage- |
ment products and services); Executive in Residence |
and 2009–2010 Distinguished Minett Professor at |
the Rochester Institute of Technology; Lead Director |
of SPX FLOW, Inc. (multi-industry manufacturing); |
Director of the United Way of Rochester, the University |
of Rochester Medical Center, Monroe Community |
College Foundation, North Carolina A&T University, |
and Roberts Wesleyan College. |
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), HP Inc. (printer and personal 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) and the Robert Wood |
Johnson Foundation; 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, the Board of Advisors |
for Spruceview Capital Partners, and the Investment |
Advisory Committee of Major League Baseball; Board |
Member of TIFF Advisory Services, Inc., and Catholic |
Investment Services, Inc. (investment advisors). |
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); Chairman of the |
Board of Trustees of Colby-Sawyer College; |
Member of the Advisory Board of the Norris |
Cotton Cancer Center. |
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 ManagementTeam | |
Mortimer J. Buckley | James M. Norris |
Kathleen C. Gubanich | Thomas M. Rampulla |
Martha G. King | Glenn W. Reed |
John T. Marcante | Karin A. Risi |
Chris D. McIsaac | Michael Rollings |
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. | |
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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 | |
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© 2016 The Vanguard Group, Inc. | |
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Q230 102016 |
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/megacap_part1x1x1.jpg)
Annual Report | August 31, 2016
Vanguard Mega Cap Index Funds
Vanguard Mega Cap Index Fund
Vanguard Mega Cap Growth Index Fund
Vanguard Mega Cap Value Index Fund
A new format, unwavering commitment
As you begin reading this report, you’ll notice that we’ve made some improvements to the opening sections—based on feedback from you, our clients.
Page 1 starts with a new ”Your Fund’s Performance at a Glance,” a concise, handy summary of how your fund performed during the period.
In the renamed ”Chairman’s Perspective,” Bill McNabb will focus on enduring principles and investment insights.
We’ve modified some tables, and eliminated some redundancy, but we haven’t removed any information.
At Vanguard, we’re always looking for better ways to communicate and to help you make sound investment decisions. Thank you for entrusting your assets to us.
Contents | |
Your Fund’s Performance at a Glance. | 1 |
Chairman’s Perspective. | 4 |
Mega Cap Index Fund. | 8 |
Mega Cap Growth Index Fund. | 26 |
Mega Cap Value Index Fund. | 43 |
Your Fund’s After-Tax Returns. | 62 |
About Your Fund’s Expenses. | 63 |
Trustees Approve Advisory Arrangements. | 65 |
Glossary. | 67 |
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: No matter what language you speak, Vanguard has one consistent message and set of principles. Our primary
focus is on you, our clients. We conduct our business with integrity as a faithful steward of your assets. This message is shown
translated into seven languages, reflecting our expanding global presence.
Your Fund’s Performance at a Glance
• Value stocks generally outperformed their growth-oriented counterparts for the 12 months ended August 31, 2016. This broad market trend was mirrored in the performance of the Vanguard Mega Cap Index Funds.
• Returns ranged from almost 15% for the Value Index Fund to about 10% for the Growth Index Fund. The Mega Cap Index Fund, which includes both growth and value stocks, returned nearly 13%.
• All three funds closely tracked their target indexes and exceeded the average returns of their large-capitalization fund peers.
• The Mega Cap Index and Value Index Funds posted positive results in all ten market sectors; the Growth Index Fund advanced in eight sectors.
• Technology, industrials, and consumer goods were among the top contributors for all three funds. Health care and oil and gas lost ground in the Growth Index Fund.
Total Returns: Fiscal Year Ended August 31, 2016 | |
Total | |
Returns | |
Vanguard Mega Cap Index Fund | |
ETF Shares | |
Market Price | 12.58% |
Net Asset Value | 12.61 |
Institutional Shares | 12.63 |
CRSP US Mega Cap Index | 12.67 |
Large-Cap Core Funds Average | 9.22 |
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 | 10.24% |
Net Asset Value | 10.28 |
Institutional Shares | 10.28 |
CRSP US Mega Cap Growth Index | 10.32 |
Large-Cap Growth Funds Average | 6.69 |
Large-Cap Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. |
1
Total | |
Returns | |
Vanguard Mega Cap Value Index Fund | |
ETF Shares | |
Market Price | 14.67% |
Net Asset Value | 14.71 |
Institutional Shares | 14.72 |
CRSP US Mega Cap Value Index | 14.73 |
Large-Cap Value Funds Average | 8.66 |
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.
Total Returns: Inception Through August 31, 2016 | |
Average | |
Annual Return | |
Mega Cap Index Fund ETF Shares Net Asset Value (Returns since inception: 12/17/2007) | 6.97% |
Spliced Mega Cap Index | 7.05 |
Large-Cap Core Funds Average | 5.59 |
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) | 8.29% |
Spliced Mega Cap Growth Index | 8.39 |
Large-Cap Growth Funds Average | 6.26 |
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) | 5.69% |
Spliced Mega Cap Value Index | 5.74 |
Large-Cap Value Funds Average | 4.81 |
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.
2
Expense Ratios | |||
Your Fund Compared With Its Peer Group | |||
ETF | Institutional | Peer Group | |
Shares | Shares | Average | |
Mega Cap Index Fund | 0.09% | 0.06% | 1.11% |
Mega Cap Growth Index Fund | 0.09 | 0.08 | 1.17 |
Mega Cap Value Index Fund | 0.09 | 0.06 | 1.10 |
The fund expense ratios shown are from the prospectus dated December 22, 2015, and represent estimated costs for the current fiscal year.
For the fiscal year ended August 31, 2016, the expense ratios were: for the Mega Cap Index Fund, 0.07% for ETF Shares and 0.06% for
Institutional Shares; for the Mega Cap Growth Index Fund, 0.07% for ETF Shares and 0.06% for Institutional Shares; and for the Mega Cap
Value Index Fund, 0.07% 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 2015.
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.
3
Chairman’s Perspective
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/megacap_part1x6x1.jpg)
Bill McNabb
Chairman and Chief Executive Officer
Dear Shareholder,
Even as the global economy continued to expand at a slow but sustained pace over the 12 months ended August 31, 2016, a series of disquieting developments highlighted the importance for investors of remaining disciplined.
Chief among them was “Brexit”—the British public’s vote to exit the European Union—but plenty of others moved the markets as well. We saw sharp ups and downs in the prices of oil and other commodities, choppy U.S. job numbers, shifting expectations about when the Federal Reserve might raise interest rates again, and decreases in already negative yields for European and Japanese government bonds.
Beyond being the end of the fiscal period, August marked a milestone: 40 years since Vanguard introduced the first index mutual fund. In ways that are perhaps still not fully appreciated, indexing has vastly improved investing for individuals, advisors, and institutions all over the world. Later in this letter, I’ll discuss the revolution wrought by what was initially a little-heralded new fund from a fledgling outfit in Valley Forge, Pennsylvania.
Brexit added another layer of uncertainty for investors
I think it’s fair to say that the momentous June 23 Brexit vote caught even the British off guard. Although we saw some market jitters in the run-up to the referendum, the unexpected outcome triggered a spike in
4
volatility worldwide. Stocks around the world lost 5%–10% in U.S. dollar terms in the first two trading sessions following the vote, with U.K. and European markets among the hardest hit; global bonds, though, headed in the other direction. It was a textbook illustration of the value of having a diversified portfolio.
That kind of volatility can push investors to “do something.” But some of the worst days in the stock markets are sometimes followed by some of the best—as happened at the end of June. Investors who scrambled to protect their portfolios by shedding stocks amid headlines warning of a global market meltdown may well have ended up locking in post-Brexit losses, then missing out on the strong rebound that took place just days later. Those headlines were noise that investors would have been better off tuning out. I’m pleased to say that Vanguard investors on the whole did just that—we continued to see cash flows into our funds in the days after the vote.
For the 12 months, stocks generally finished higher, with U.S. stocks up more than 11% and international stocks about 3% for U.S.-based investors.
In a surprise, bonds turned in a solid performance that few would have predicted a year ago. It seemed as if rates had fallen so far that they couldn’t go any lower, but many did. Central banks in a number of European countries and Japan set key monetary policy rates below zero.
Market Barometer | |||
Average Annual Total Returns | |||
Periods Ended August 31, 2016 | |||
One | Three | Five | |
Year | Years | Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 11.69% | 12.02% | 14.60% |
Russell 2000 Index (Small-caps) | 8.59 | 8.53 | 12.85 |
Russell 3000 Index (Broad U.S. market) | 11.44 | 11.74 | 14.46 |
FTSE All-World ex US Index (International) | 3.37 | 2.59 | 3.72 |
Bonds | |||
Barclays U.S. Aggregate Bond Index (Broad taxable market) | 5.97% | 4.37% | 3.24% |
Barclays Municipal Bond Index (Broad tax-exempt market) | 6.88 | 6.47 | 4.80 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.18 | 0.05 | 0.06 |
CPI | |||
Consumer Price Index | 1.06% | 0.98% | 1.23% |
5
When being ‘average’ is a lot better than average |
Not only did Vanguard founder John C. Bogle launch the first index mutual fund in 1976, but |
he also was among the first to clearly explain to the investing public the benefits of what was |
then a novel, unproven strategy. |
Back in 1977, in the first annual report for what was later renamed Vanguard 500 Index Fund, |
Mr. Bogle wrote that an index fund ‘‘represents a tough and demanding ‘par.’ And if there |
are some professionals who can ‘beat par’ more often than not------in investing or in golf------they |
do not seem to be in the majority.’’ |
Mr. Bogle’s analogy has been borne out by historical returns. As you can see in the chart |
below, out of 1,238 actively managed large-capitalization funds, a clear majority-----65%----- |
trailed the Standard & Poor’s 500 Index in average annual return over the decade ended |
December 31, 2015. And 518 funds, or about 42% of the total number, trailed by more than |
1 percentage point. |
The track record looks even more discouraging when you consider that of the 35% of funds |
that outperformed the index, only 119------or about 10% in all------did so by more than 1 percentage |
point. The 315 others also took on risk to try to outperform the index (and likely experienced |
greater volatility) but came out ahead by less than 1 percentage point in average annual return. |
Over a decade, a majority of active large-cap funds lagged the S&P 500 Index |
Based on average annual returns, 2006---2015 |
Notes: Data based on average annual returns of all 1,238 existing actively managed large-cap funds over the decade ended December 31, |
2015. Note that index funds seek to track the performance of a benchmark index but typically won't ‘‘match’’ the benchmark's returns because |
of the costs of passive indexing. |
Sources: Vanguard calculations, using data from Standard & Poor’s. |
Past performance is not a guarantee of future results. The performance of an index is not an exact representation of any particular investment, |
as you cannot invest directly in an index. |
6
These policies held down short-term rates, while more muted expectations for global growth and inflation weighed on longer-term rates.
Yields in the United States weren’t quite as low as in many developed countries. The Fed raised the federal funds target rate only once, in December, to a slim 0.25%–0.5%. Further out on the maturity spectrum, the bellwether 10-year U.S. Treasury yield dropped in early July to a record low 1.36%, before moving back up a little to end the period at 1.58%. Over the 12 months, U.S. bonds returned about 6%, and international bonds returned even more—about 11%—for U.S.-based investors, again underscoring the markets’ unpredictability and the merits of diversification.
Over the years, many investors have embraced the pluses of indexing
Market upsets like Brexit aren’t rare occurrences. Fortunately, indexing has proved to be a durable behavioral tool to help keep investors from making bad financial decisions when upsets happen. In fact, this is one of indexing’s less appreciated benefits: Holding index funds as part of a broadly diversified portfolio can counterbalance that tendency to react to news headlines. When times are volatile, you’ll know you might have some exposure to a part of the market that has dropped, but also to other parts that may be holding up better.
Vanguard’s launch of the First Index Investment Trust, now Vanguard 500 Index Fund, initially met with a frosty reception. Its mandate to track the performance of a broadly diversified benchmark at a low cost seemed underwhelming to an investing public accustomed to funds that offered the chance to outperform. Investors have since come around, as experience has demonstrated the benefits of low costs and broad diversification.
Indexing accounted for about 30% of U.S. mutual fund and exchange-traded fund (ETF) assets at the end of 2015, according to the Investment Company Institute. Some now even proclaim the “triumph of indexing,” implying that it’s the only way to invest.
In our view, the rise of indexing has served to underscore an investment principle that long predates 1976: A long-term, low-cost, diversified approach gives investors the best chance for success. That’s true whether the investments you choose are indexed or actively managed—or both.
As always, thank you for investing with Vanguard.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/megacap_part3x1x1.jpg)
F. William McNabb III
Chairman and Chief Executive Officer
September 9, 2016
7
Mega Cap Index Fund
Fund Profile
As of August 31, 2016
Share-Class Characteristics | ||
ETF | Institutional | |
Shares | Shares | |
Ticker Symbol | MGC | VMCTX |
Expense Ratio1 | 0.09% | 0.06% |
30-Day SEC Yield | 2.12% | 2.06% |
Portfolio Characteristics | |||
DJ | |||
U.S. | |||
Total | |||
CRSP US | Market | ||
Mega Cap | FA | ||
Fund | Index | Index | |
Number of Stocks | 282 | 284 | 3,817 |
Median Market Cap | $103.7B | $103.7B | $51.2B |
Price/Earnings Ratio | 21.8x | 21.8x | 23.5x |
Price/Book Ratio | 2.9x | 2.9x | 2.8x |
Return on Equity | 18.1% | 17.9% | 16.6% |
Earnings Growth | |||
Rate | 6.8% | 6.8% | 7.5% |
Dividend Yield | 2.2% | 2.2% | 2.0% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 7% | — | — |
Short-Term | |||
Reserves | -1.2% | — | — |
Volatility Measures | ||
DJ | ||
CRSP US | 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 | 3.4% |
Alphabet Inc. | Internet | 2.8 |
Microsoft Corp. | Software | 2.6 |
Exxon Mobil Corp. | Integrated Oil & Gas | 2.2 |
Johnson & Johnson | Pharmaceuticals | 2.0 |
Amazon.com Inc. | Broadline Retailers | 1.9 |
Berkshire Hathaway Inc. Reinsurance | 1.8 | |
General Electric Co. | Diversified Industrials | 1.7 |
Facebook Inc. | Internet | 1.7 |
AT&T Inc. | Fixed Line | |
Telecommunications | 1.5 | |
Top Ten | 21.6% | |
The holdings listed exclude any temporary cash investments and equity index products. |
Investment Focus
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/megacap_part3x2x1.jpg)
1 The expense ratios shown are from the prospectus dated December 22, 2015, and represent estimated costs for the current fiscal year. For the
fiscal year ended August 31, 2016, the expense ratios were 0.07% for ETF Shares and 0.06% for Institutional Shares.
8
Mega Cap Index Fund
Sector Diversification (% of equity exposure) | |||
DJ | |||
U.S. | |||
Total | |||
CRSP US | Market | ||
Mega Cap | FA | ||
Fund | Index | Index | |
Basic Materials | 1.9% | 1.9% | 2.5% |
Consumer Goods | 10.2 | 10.2 | 10.4 |
Consumer Services | 13.6 | 13.6 | 13.4 |
Financials | 17.6 | 17.5 | 19.3 |
Health Care | 14.8 | 14.8 | 13.2 |
Industrials | 10.6 | 10.6 | 12.6 |
Oil & Gas | 7.1 | 7.2 | 6.4 |
Technology | 18.3 | 18.3 | 16.6 |
Telecommunications | 3.1 | 3.1 | 2.4 |
Utilities | 2.8 | 2.8 | 3.2 |
9
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, 2016
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/megacap_part3x4x1.jpg)
Average Annual Total Returns | |||||
Periods Ended August 31, 2016 | |||||
Since | Final Value | ||||
One | Five | Inception | of a $10,000 | ||
Year | Years | (12/17/2007) | Investment | ||
Mega Cap Index Fund*ETF Shares | |||||
Net Asset Value | 12.61% | 14.55% | 6.97% | $17,973 | |
Mega Cap Index Fund*ETF Shares | |||||
Market Price | 12.58 | 14.56 | 6.97 | 17,972 | |
•••••••• | Spliced Mega Cap Index | 12.67 | 14.65 | 7.05 | 18,096 |
– – – – | Large-Cap Core Funds Average | 9.22 | 12.72 | 5.59 | 16,060 |
Dow Jones U.S. Total Stock Market | |||||
Float Adjusted Index | 11.34 | 14.40 | 7.32 | 18,494 |
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 | 12.63% | 14.58% | 7.95% | $9,597,834 |
Spliced Mega Cap Index | 12.67 | 14.65 | 8.01 | 9,639,166 |
Dow Jones U.S. Total Stock Market Float | ||||
Adjusted Index | 11.34 | 14.40 | 8.23 | 9,811,905 |
"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.
10
Mega Cap Index Fund
Cumulative Returns of ETF Shares: December 17, 2007, Through August 31, 2016
Since | |||
One | Five | Inception | |
Year | Years | (12/17/2007) | |
Mega Cap Index Fund ETF Shares Market Price | 12.58% | 97.32% | 79.72% |
Mega Cap Index Fund ETF Shares Net Asset Value | 12.61 | 97.25 | 79.73 |
Spliced Mega Cap Index | 12.67 | 98.11 | 80.96 |
"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, 2016
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/megacap_part3x5x1.jpg)
For a benchmark description, see the Glossary.
Average Annual Total Returns: Periods Ended June 30, 2016
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 | 3.91% | 12.05% | 6.64% | |
Net Asset Value | 3.96 | 12.05 | 6.64 | |
Institutional Shares | 2/22/2008 | 3.99 | 12.09 | 7.64 |
11
Mega Cap Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2016
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 (98.7%)1 | |||
Basic Materials (1.9%) | |||
EI du Pont de Nemours | |||
& Co. | 63,098 | 4,392 | |
Dow Chemical Co. | 81,123 | 4,352 | |
Praxair Inc. | 20,689 | 2,525 | |
Ecolab Inc. | 19,108 | 2,351 | |
Air Products & Chemicals | |||
Inc. | 14,872 | 2,314 | |
PPG Industries Inc. | 19,205 | 2,033 | |
LyondellBasell Industries | |||
NV Class A | 24,693 | 1,948 | |
International Paper Co. | 29,787 | 1,444 | |
Nucor Corp. | 23,006 | 1,116 | |
22,475 | |||
Consumer Goods (10.1%) | |||
Procter & Gamble Co. | 192,262 | 16,786 | |
Coca-Cola Co. | 281,270 | 12,216 | |
Philip Morris International | |||
Inc. | 112,056 | 11,198 | |
PepsiCo Inc. | 104,346 | 11,139 | |
Altria Group Inc. | 141,358 | 9,342 | |
NIKE Inc. Class B | 96,266 | 5,549 | |
Colgate-Palmolive Co. | 64,542 | 4,798 | |
Mondelez International Inc. | |||
Class A | 106,521 | 4,796 | |
Kraft Heinz Co. | 43,929 | 3,931 | |
Ford Motor Co. | 281,865 | 3,551 | |
Monsanto Co. | 31,571 | 3,362 | |
Kimberly-Clark Corp. | 26,079 | 3,340 | |
General Motors Co. | 100,141 | 3,197 | |
Reynolds American Inc. | 61,871 | 3,067 | |
General Mills Inc. | 42,954 | 3,042 | |
Johnson Controls Inc. | 46,922 | 2,059 | |
Constellation Brands Inc. | |||
Class A | 12,151 | 1,993 | |
Archer-Daniels-Midland Co. | 42,526 | 1,861 | |
* | Monster Beverage Corp. | 10,997 | 1,692 |
* | Tesla Motors Inc. | 7,895 | 1,674 |
Activision Blizzard Inc. | 39,870 | 1,649 | |
Kellogg Co. | 17,615 | 1,448 | |
Estee Lauder Cos. Inc. | |||
Class A | 16,180 | 1,444 | |
Stanley Black & Decker Inc. | 10,941 | 1,354 | |
VF Corp. | 19,598 | 1,216 | |
Mead Johnson Nutrition Co. | 13,536 | 1,152 | |
Hershey Co. | 9,929 | 992 | |
Campbell Soup Co. | 14,580 | 885 | |
Delphi Automotive plc | 9,995 | 706 | |
Brown-Forman Corp. | |||
Class B | 14,200 | 689 | |
120,128 | |||
Consumer Services (13.5%) | |||
* | Amazon.com Inc. | 28,966 | 22,280 |
Home Depot Inc. | 89,850 | 12,051 | |
Comcast Corp. Class A | 174,684 | 11,400 | |
Walt Disney Co. | 105,494 | 9,965 | |
McDonald’s Corp. | 63,483 | 7,342 | |
Wal-Mart Stores Inc. | 102,097 | 7,294 | |
CVS Health Corp. | 77,646 | 7,252 | |
Starbucks Corp. | 100,571 | 5,655 | |
Costco Wholesale Corp. | 31,751 | 5,147 | |
* | Priceline Group Inc. | 3,583 | 5,076 |
Walgreens Boots Alliance | |||
Inc. | 62,493 | 5,044 | |
Lowe’s Cos. Inc. | 64,881 | 4,967 | |
Time Warner Inc. | 54,084 | 4,241 | |
* | Charter Communications | ||
Inc. Class A | 14,437 | 3,713 | |
TJX Cos. Inc. | 45,527 | 3,526 | |
McKesson Corp. | 16,338 | 3,016 | |
Target Corp. | 42,623 | 2,992 | |
* | Netflix Inc. | 29,480 | 2,873 |
* | eBay Inc. | 78,896 | 2,537 |
Yum! Brands Inc. | 27,902 | 2,531 | |
Kroger Co. | 69,043 | 2,209 | |
Delta Air Lines Inc. | 55,762 | 2,049 | |
Twenty-First Century Fox | |||
Inc. Class A | 79,195 | 1,944 |
12
Mega Cap Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Sysco Corp. | 36,534 | 1,895 | |
Cardinal Health Inc. | 23,590 | 1,879 | |
* | O’Reilly Automotive Inc. | 6,639 | 1,859 |
Southwest Airlines Co. | 46,006 | 1,697 | |
* | AutoZone Inc. | 2,156 | 1,599 |
American Airlines Group Inc. | 41,826 | 1,518 | |
Omnicom Group Inc. | 17,245 | 1,485 | |
CBS Corp. Class B | 29,050 | 1,482 | |
Las Vegas Sands Corp. | 28,734 | 1,443 | |
Dollar General Corp. | 18,650 | 1,369 | |
Carnival Corp. | 28,534 | 1,364 | |
L Brands Inc. | 17,613 | 1,342 | |
Viacom Inc. Class B | 25,658 | 1,035 | |
Hilton Worldwide | |||
Holdings Inc. | 39,221 | 936 | |
* | DISH Network Corp. Class A | 15,539 | 781 |
Twenty-First Century Fox Inc. | 28,680 | 713 | |
AmerisourceBergen Corp. | |||
Class A | 6,576 | 572 | |
* | United Continental | ||
Holdings Inc. | 10,799 | 544 | |
* | Sirius XM Holdings Inc. | 124,743 | 516 |
Starwood Hotels & Resorts | |||
Worldwide Inc. | 6,107 | 473 | |
Macy’s Inc. | 11,040 | 399 | |
* | Liberty Interactive Corp. | ||
QVC Group Class A | 15,623 | 330 | |
160,335 | |||
Financials (17.3%) | |||
* | Berkshire Hathaway Inc. | ||
Class B | 137,187 | 20,645 | |
JPMorgan Chase & Co. | 264,125 | 17,828 | |
Wells Fargo & Co. | 330,071 | 16,768 | |
Bank of America Corp. | 741,972 | 11,975 | |
Visa Inc. Class A | 137,674 | 11,138 | |
Citigroup Inc. | 212,036 | 10,123 | |
MasterCard Inc. Class A | 70,130 | 6,777 | |
US Bancorp | 118,472 | 5,231 | |
Simon Property Group Inc. | 22,361 | 4,818 | |
American International | |||
Group Inc. | 76,869 | 4,599 | |
Goldman Sachs Group Inc. | 27,056 | 4,585 | |
Chubb Ltd. | 31,838 | 4,041 | |
American Express Co. | 58,430 | 3,832 | |
American Tower | |||
Corporation | 30,698 | 3,481 | |
Morgan Stanley | 104,943 | 3,364 | |
PNC Financial Services | |||
Group Inc. | 36,095 | 3,252 | |
Bank of New York Mellon | |||
Corp. | 73,966 | 3,082 | |
BlackRock Inc. | 7,679 | 2,863 | |
MetLife Inc. | 63,573 | 2,759 | |
Charles Schwab Corp. | 85,984 | 2,705 | |
Capital One Financial Corp. | 37,083 | 2,655 |
Marsh & McLennan Cos. | |||
Inc. | 37,689 | 2,549 | |
Prudential Financial Inc. | 31,951 | 2,536 | |
CME Group Inc. | 23,224 | 2,516 | |
Travelers Cos. Inc. | 21,132 | 2,509 | |
Public Storage | 10,647 | 2,384 | |
S&P Global Inc. | 19,153 | 2,366 | |
Intercontinental Exchange | |||
Inc. | 8,176 | 2,306 | |
Crown Castle International | |||
Corp. | 24,325 | 2,305 | |
BB&T Corp. | 58,740 | 2,261 | |
Aflac Inc. | 29,847 | 2,214 | |
Aon plc | 19,193 | 2,137 | |
Prologis Inc. | 37,849 | 2,010 | |
Welltower Inc. | 25,877 | 1,986 | |
State Street Corp. | 27,218 | 1,912 | |
Allstate Corp. | 27,031 | 1,864 | |
Discover Financial Services | 29,790 | 1,787 | |
Ventas Inc. | 24,336 | 1,769 | |
Weyerhaeuser Co. | 54,051 | 1,722 | |
Equity Residential | 26,441 | 1,715 | |
Synchrony Financial | 60,240 | 1,676 | |
SunTrust Banks Inc. | 36,136 | 1,593 | |
Boston Properties Inc. | 11,059 | 1,550 | |
HCP Inc. | 33,648 | 1,323 | |
Progressive Corp. | 40,038 | 1,304 | |
Vornado Realty Trust | 12,276 | 1,268 | |
Ameriprise Financial Inc. | 11,929 | 1,206 | |
General Growth Properties | |||
Inc. | 41,334 | 1,204 | |
T. Rowe Price Group Inc. | 17,080 | 1,188 | |
Fifth Third Bancorp | 55,134 | 1,112 | |
Northern Trust Corp. | 15,690 | 1,108 | |
Franklin Resources Inc. | 25,301 | 923 | |
AvalonBay Communities Inc. | 4,986 | 873 | |
Loews Corp. | 20,682 | 866 | |
TD Ameritrade Holding Corp. | 16,991 | 558 | |
Invesco Ltd. | 14,793 | 461 | |
* | Berkshire Hathaway Inc. | ||
Class A | 1 | 226 | |
205,808 | |||
Health Care (14.6%) | |||
Johnson & Johnson | 198,778 | 23,722 | |
Pfizer Inc. | 438,093 | 15,246 | |
Merck & Co. Inc. | 200,006 | 12,558 | |
UnitedHealth Group Inc. | 68,682 | 9,344 | |
Amgen Inc. | 54,255 | 9,227 | |
Medtronic plc | 101,191 | 8,807 | |
Gilead Sciences Inc. | 96,214 | 7,541 | |
AbbVie Inc. | 116,875 | 7,492 | |
Bristol-Myers Squibb Co. | 120,652 | 6,924 | |
* | Allergan plc | 28,579 | 6,703 |
* | Celgene Corp. | 55,986 | 5,976 |
Eli Lilly & Co. | 71,823 | 5,584 |
13
Mega Cap Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
* | Biogen Inc. | 15,824 | 4,836 |
Abbott Laboratories | 106,141 | 4,460 | |
Thermo Fisher Scientific | |||
Inc. | 28,433 | 4,327 | |
* | Express Scripts Holding Co. | 45,775 | 3,328 |
Aetna Inc. | 25,275 | 2,960 | |
Becton Dickinson and Co. | 15,296 | 2,711 | |
Stryker Corp. | 21,617 | 2,500 | |
Cigna Corp. | 18,621 | 2,388 | |
Anthem Inc. | 19,028 | 2,380 | |
* | Boston Scientific Corp. | 98,059 | 2,336 |
* | Regeneron Pharmaceuticals | ||
Inc. | 5,592 | 2,195 | |
* | Alexion Pharmaceuticals Inc. | 15,417 | 1,940 |
Humana Inc. | 10,763 | 1,923 | |
* | Intuitive Surgical Inc. | 2,757 | 1,893 |
Zimmer Biomet Holdings Inc. | 14,415 | 1,868 | |
Baxter International Inc. | 39,800 | 1,860 | |
Zoetis Inc. | 35,736 | 1,826 | |
* | HCA Holdings Inc. | 24,083 | 1,820 |
* | Illumina Inc. | 10,679 | 1,798 |
* | Vertex Pharmaceuticals Inc. | 17,883 | 1,690 |
St. Jude Medical Inc. | 19,470 | 1,517 | |
* | Mylan NV | 31,109 | 1,318 |
Perrigo Co. plc | 9,766 | 889 | |
173,887 | |||
Industrials (10.5%) | |||
General Electric Co. | 664,587 | 20,762 | |
3M Co. | 43,886 | 7,866 | |
Honeywell International Inc. | 55,052 | 6,425 | |
United Technologies Corp. | 57,437 | 6,113 | |
Union Pacific Corp. | 60,820 | 5,810 | |
Boeing Co. | 43,792 | 5,669 | |
United Parcel Service Inc. | |||
Class B | 49,930 | 5,453 | |
Accenture plc Class A | 45,100 | 5,187 | |
Lockheed Martin Corp. | 18,026 | 4,380 | |
Danaher Corp. | 44,854 | 3,652 | |
Caterpillar Inc. | 42,267 | 3,464 | |
* | PayPal Holdings Inc. | 83,249 | 3,093 |
Raytheon Co. | 21,526 | 3,016 | |
FedEx Corp. | 17,523 | 2,890 | |
General Dynamics Corp. | 18,828 | 2,866 | |
Automatic Data Processing | |||
Inc. | 31,211 | 2,803 | |
Northrop Grumman Corp. | 13,034 | 2,764 | |
Illinois Tool Works Inc. | 22,064 | 2,622 | |
Emerson Electric Co. | 46,496 | 2,449 | |
Eaton Corp. plc | 33,132 | 2,205 | |
Waste Management Inc. | 31,993 | 2,046 | |
Norfolk Southern Corp. | 21,356 | 2,005 | |
CSX Corp. | 68,926 | 1,949 | |
Deere & Co. | 20,440 | 1,728 | |
* | LinkedIn Corp. Class A | 8,596 | 1,657 |
TE Connectivity Ltd. | 25,831 | 1,642 |
Sherwin-Williams Co. | 5,659 | 1,606 | |
Cummins Inc. | 12,343 | 1,550 | |
PACCAR Inc. | 25,412 | 1,521 | |
Paychex Inc. | 23,441 | 1,422 | |
Tyco International plc | 30,585 | 1,336 | |
Ingersoll-Rand plc | 18,604 | 1,265 | |
Parker-Hannifin Corp. | 9,672 | 1,185 | |
Fortive Corp. | 22,335 | 1,176 | |
Agilent Technologies Inc. | 23,528 | 1,105 | |
Rockwell Automation Inc. | 9,426 | 1,093 | |
Republic Services Inc. | |||
Class A | 17,336 | 876 | |
124,651 | |||
Oil & Gas (7.0%) | |||
Exxon Mobil Corp. | 299,556 | 26,103 | |
Chevron Corp. | 136,220 | 13,701 | |
Schlumberger Ltd. | 100,563 | 7,944 | |
Occidental Petroleum Corp. | 55,245 | 4,246 | |
ConocoPhillips | 89,455 | 3,672 | |
EOG Resources Inc. | 39,807 | 3,522 | |
Kinder Morgan Inc. | 137,108 | 2,996 | |
Halliburton Co. | 59,071 | 2,541 | |
Phillips 66 | 32,343 | 2,537 | |
Pioneer Natural Resources | |||
Co. | 11,844 | 2,121 | |
Anadarko Petroleum Corp. | 36,745 | 1,965 | |
Valero Energy Corp. | 33,860 | 1,874 | |
Spectra Energy Corp. | 50,446 | 1,797 | |
Marathon Petroleum Corp. | 38,316 | 1,629 | |
Baker Hughes Inc. | 31,499 | 1,547 | |
Williams Cos. Inc. | 48,857 | 1,365 | |
Apache Corp. | 27,257 | 1,355 | |
Hess Corp. | 20,535 | 1,115 | |
Noble Energy Inc. | 30,950 | 1,067 | |
Devon Energy Corp. | 17,949 | 778 | |
* | Continental Resources Inc. | 3,454 | 166 |
84,041 | |||
Technology (18.0%) | |||
Apple Inc. | 376,034 | 39,897 | |
Microsoft Corp. | 539,633 | 31,007 | |
* | Facebook Inc. Class A | 158,686 | 20,014 |
* | Alphabet Inc. Class A | 21,221 | 16,761 |
* | Alphabet Inc. Class C | 21,095 | 16,181 |
Intel Corp. | 341,116 | 12,243 | |
Cisco Systems Inc. | 363,372 | 11,424 | |
International Business | |||
Machines Corp. | 62,493 | 9,929 | |
Oracle Corp. | 224,892 | 9,270 | |
QUALCOMM Inc. | 106,141 | 6,694 | |
Texas Instruments Inc. | 72,551 | 5,045 | |
Broadcom Ltd. | 28,220 | 4,979 | |
EMC Corp. | 141,114 | 4,091 | |
* | salesforce.com Inc. | 46,554 | 3,697 |
* | Adobe Systems Inc. | 36,066 | 3,690 |
14
Mega Cap Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Hewlett Packard Enterprise | |||
Co. | 124,067 | 2,665 | |
* | Yahoo! Inc. | 61,843 | 2,644 |
* | Cognizant Technology | ||
Solutions Corp. Class A | 43,842 | 2,518 | |
Applied Materials Inc. | 81,728 | 2,439 | |
Intuit Inc. | 17,634 | 1,965 | |
HP Inc. | 124,246 | 1,785 | |
Corning Inc. | 77,792 | 1,765 | |
Analog Devices Inc. | 22,207 | 1,389 | |
CA Inc. | 22,462 | 762 | |
* | Micron Technology Inc. | 37,567 | 620 |
Motorola Solutions Inc. | 5,947 | 458 | |
* | VMware Inc. Class A | 5,903 | 433 |
* | Twitter Inc. | 20,095 | 386 |
214,751 | |||
Telecommunications (3.0%) | |||
AT&T Inc. | 444,678 | 18,178 | |
Verizon Communications | |||
Inc. | 294,460 | 15,409 | |
CenturyLink Inc. | 39,350 | 1,094 | |
* | T-Mobile US Inc. | 20,707 | 960 |
*,^ | Sprint Corp. | 43,136 | 267 |
35,908 | |||
Utilities (2.8%) | |||
NextEra Energy Inc. | 33,419 | 4,042 | |
Duke Energy Corp. | 49,788 | 3,966 | |
Southern Co. | 67,707 | 3,475 | |
Dominion Resources Inc. | 44,567 | 3,305 | |
American Electric Power | |||
Co. Inc. | 35,390 | 2,285 | |
Exelon Corp. | 66,584 | 2,264 | |
PG&E Corp. | 35,865 | 2,222 | |
Sempra Energy | 17,193 | 1,799 | |
Edison International | 23,496 | 1,709 | |
PPL Corp. | 48,646 | 1,692 | |
Consolidated Edison Inc. | 21,911 | 1,649 | |
Public Service Enterprise | |||
Group Inc. | 36,468 | 1,559 | |
Xcel Energy Inc. | 36,734 | 1,519 | |
FirstEnergy Corp. | 30,583 | 1,001 | |
Entergy Corp. | 6,534 | 511 | |
32,998 | |||
Total Common Stocks | |||
(Cost $851,988) | 1,174,982 |
Market | |||
Value• | |||
Shares | ($000) | ||
Temporary Cash Investments (0.1%)1 | |||
Money Market Fund (0.0%) | |||
2,3 | Vanguard Market | ||
Liquidity Fund, | |||
0.612% | 2,382 | 238 | |
Face | |||
Amount | |||
($000) | |||
U.S. Government and Agency Obligations (0.1%) | |||
4,5 | Fannie Mae | ||
Discount Notes, | |||
0.390%, 10/19/16 | 100 | 100 | |
4,6 | Federal Home Loan | ||
Bank Discount Notes, | |||
0.582%, 9/9/16 | 100 | 100 | |
4,6 | Federal Home Loan | ||
Bank Discount Notes, | |||
0.360%, 10/28/16 | 200 | 200 | |
4,6 | Federal Home Loan | ||
Bank Discount Notes, | |||
0.481%, 2/17/17 | 100 | 100 | |
4,5 | Freddie Mac Discount | ||
Notes, 0.300%, 11/8/16 | 100 | 100 | |
600 | |||
Total Temporary Cash Investments | |||
(Cost $838) | 838 | ||
Total Investments (98.8%) | |||
(Cost $852,826) | 1,175,820 | ||
Amount | |||
($000) | |||
Other Assets and Liabilities (1.2%) | |||
Other Assets | |||
Investment in Vanguard | 95 | ||
Receivables for Investment Securities Sold 931 | |||
Receivables for Accrued Income | 2,878 | ||
Receivables for Capital Shares Issued | 31,641 | ||
Total Other Assets | 35,545 | ||
Liabilities | |||
Payables for Investment Securities Purchased (6) | |||
Collateral for Securities on Loan | (232) | ||
Payables for Capital Shares Redeemed | (945) | ||
Payables to Vanguard | (488) | ||
Other Liabilities | (19,352) | ||
Total Liabilities | (21,023) | ||
Net Assets (100%) | 1,190,342 |
15
Mega Cap Index Fund
At August 31, 2016, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 902,972 |
Undistributed Net Investment Income | 5,186 |
Accumulated Net Realized Losses | (41,032) |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 322,994 |
Futures Contracts | 222 |
Net Assets | 1,190,342 |
ETF Shares—Net Assets | |
Applicable to 14,250,000 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 1,057,218 |
Net Asset Value Per Share— | |
ETF Shares | $74.19 |
Institutional Shares—Net Assets | |
Applicable to 910,268 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 133,124 |
Net Asset Value Per Share— | |
Institutional Shares | $146.25 |
• 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 $205,000.
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 -1.2%, 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 Includes $232,000 of collateral received for securities on loan.
4 Securities with a value of $600,000 have been segregated as initial margin for open futures contracts.
5 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.
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.
See accompanying Notes, which are an integral part of the Financial Statements.
16
Mega Cap Index Fund | |
Statement of Operations | |
Year Ended | |
August 31, 2016 | |
($000) | |
Investment Income | |
Income | |
Dividends | 27,148 |
Interest1 | 13 |
Securities Lending-Net | 29 |
Total Income | 27,190 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 213 |
Management and Administrative—ETF Shares | 360 |
Management and Administrative—Institutional Shares | 65 |
Marketing and Distribution—ETF Shares | 63 |
Marketing and Distribution—Institutional Shares | 4 |
Custodian Fees | 39 |
Auditing Fees | 35 |
Shareholders’ Reports—ETF Shares | 31 |
Shareholders’ Reports—Institutional Shares | — |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 811 |
Net Investment Income | 26,379 |
Realized Net Gain (Loss) | |
Investment Securities Sold1 | 76,542 |
Futures Contracts | 157 |
Realized Net Gain (Loss) | 76,699 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | 33,933 |
Futures Contracts | 280 |
Change in Unrealized Appreciation (Depreciation) | 34,213 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 137,291 |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $12,000 and $1,000, respectively. |
See accompanying Notes, which are an integral part of the Financial Statements.
17
Mega Cap Index Fund | ||
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2016 | 2015 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 26,379 | 26,585 |
Realized Net Gain (Loss) | 76,699 | 35,979 |
Change in Unrealized Appreciation (Depreciation) | 34,213 | (61,312) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 137,291 | 1,252 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (21,835) | (18,569) |
Institutional Shares | (4,593) | (6,719) |
Realized Capital Gain | ||
ETF Shares | — | — |
Institutional Shares | — | — |
Total Distributions | (26,428) | (25,288) |
Capital Share Transactions | ||
ETF Shares | (10,659) | 179,275 |
Institutional Shares | (177,997) | (11,272) |
Net Increase (Decrease) from Capital Share Transactions | (188,656) | 168,003 |
Total Increase (Decrease) | (77,793) | 143,967 |
Net Assets | ||
Beginning of Period | 1,268,135 | 1,124,168 |
End of Period1 | 1,190,342 | 1,268,135 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $5,186,000 and $5,235,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
18
Mega Cap Index Fund | |||||
Financial Highlights | |||||
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $67.35 | $68.69 | $55.99 | $48.52 | $41.80 |
Investment Operations | |||||
Net Investment Income | 1.582 | 1.399 | 1.250 | 1.189 | 1.000 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 6.793 | (1.377) | 12.687 | 7.471 | 6.648 |
Total from Investment Operations | 8.375 | .022 | 13.937 | 8.660 | 7.648 |
Distributions | |||||
Dividends from Net Investment Income | (1.535) | (1.362) | (1.237) | (1.190) | (.928) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.535) | (1.362) | (1.237) | (1.190) | (.928) |
Net Asset Value, End of Period | $74.19 | $67.35 | $68.69 | $55.99 | $48.52 |
Total Return | 12.61% | -0.05% | 25.13% | 18.10% | 18.58% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $1,057 | $970 | $810 | $588 | $442 |
Ratio of Total Expenses to Average Net Assets | 0.07% | 0.09% | 0.11% | 0.11% | 0.12% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.23% | 2.02% | 2.00% | 2.26% | 2.24% |
Portfolio Turnover Rate1 | 7% | 8% | 6% | 10% | 19% |
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.
19
Mega Cap Index Fund | |||||
Financial Highlights | |||||
Institutional Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $132.77 | $135.41 | $110.38 | $95.66 | $82.40 |
Investment Operations | |||||
Net Investment Income | 3.117 | 2.798 | 2.498 | 2.373 | 2.000 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 13.419 | (2.717) | 25.000 | 14.727 | 13.113 |
Total from Investment Operations | 16.536 | .081 | 27.498 | 17.100 | 15.113 |
Distributions | |||||
Dividends from Net Investment Income | (3.056) | (2.721) | (2.468) | (2.380) | (1.853) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (3.056) | (2.721) | (2.468) | (2.380) | (1.853) |
Net Asset Value, End of Period | $146.25 | $132.77 | $135.41 | $110.38 | $95.66 |
Total Return | 12.63% | -0.01% | 25.15% | 18.13% | 18.63% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $133 | $298 | $314 | $339 | $250 |
Ratio of Total Expenses to Average Net Assets | 0.06% | 0.06% | 0.08% | 0.08% | 0.08% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.24% | 2.05% | 2.03% | 2.29% | 2.28% |
Portfolio Turnover Rate1 | 7% | 8% | 6% | 10% | 19% |
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
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, 2016, 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.
21
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, 2013–2016), 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 subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
6. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at August 31, 2016, 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
22
Mega Cap Index Fund
expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. 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, 2016, the fund had contributed to Vanguard capital in the amount of $95,000, 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, 2016, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 1,174,982 | — | — |
Temporary Cash Investments | 238 | 600 | — |
Futures Contracts—Liabilities1 | (39) | — | — |
Total | 1,175,181 | 600 | — |
1 Represents variation margin on the last day of the reporting period. |
23
Mega Cap Index Fund
D. At August 31, 2016, 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 2016 | 138 | 14,970 | 222 |
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, 2016, the fund realized $95,091,000 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, 2016, the fund had $5,642,000 of ordinary income available for distribution. At August 31, 2016, the fund had available capital losses totaling $40,810,000 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 $22,031,000 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, 2016, the cost of investment securities for tax purposes was $852,826,000. Net unrealized appreciation of investment securities for tax purposes was $322,994,000, consisting of unrealized gains of $339,938,000 on securities that had risen in value since their purchase and $16,944,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the year ended August 31, 2016, the fund purchased $166,272,000 of investment securities and sold $368,126,000 of investment securities, other than temporary cash investments. Purchases and sales include $83,445,000 and $210,445,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
24
Mega Cap Index Fund
G. Capital share transactions for each class of shares were: | ||||
Year Ended August 31, | ||||
2016 | 2015 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 205,540 | 2,975 | 266,566 | 3,825 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (216,199) | (3,125) | (87,291) | (1,225) |
Net Increase (Decrease)—ETF Shares | (10,659) | (150) | 179,275 | 2,600 |
Institutional Shares | ||||
Issued | 30,619 | 218 | 50,813 | 373 |
Issued in Lieu of Cash Distributions | 4,396 | 32 | 6,389 | 46 |
Redeemed | (213,012) | (1,587) | (68,474) | (488) |
Net Increase (Decrease) —Institutional Shares | (177,997) | (1,337) | (11,272) | (69) |
H. Management has determined that no material events or transactions occurred subsequent to August 31, 2016, that would require recognition or disclosure in these financial statements.
25
Mega Cap Growth Index Fund
Fund Profile
As of August 31, 2016
Share-Class Characteristics | ||
ETF | Institutional | |
Shares | Shares | |
Ticker Symbol | MGK | VMGAX |
Expense Ratio1 | 0.09% | 0.08% |
30-Day SEC Yield | 1.52% | 1.55% |
Portfolio Characteristics | |||
DJ | |||
U.S. | |||
CRSP US | Total | ||
Mega Cap | Market | ||
Growth | FA | ||
Fund | Index | Index | |
Number of Stocks | 144 | 144 | 3,817 |
Median Market Cap | $95.8B | $95.8B | $51.2B |
Price/Earnings Ratio | 26.2x | 26.2x | 23.5x |
Price/Book Ratio | 5.0x | 5.0x | 2.8x |
Return on Equity | 21.1% | 20.6% | 16.6% |
Earnings Growth | |||
Rate | 12.8% | 12.8% | 7.5% |
Dividend Yield | 1.6% | 1.6% | 2.0% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 12% | — | — |
Short-Term | |||
Reserves | -0.1% | — | — |
Volatility Measures | ||
CRSP US | DJ | |
Mega Cap | U.S. Total | |
Growth | Market | |
Index | FA Index | |
R-Squared | 1.00 | 0.95 |
Beta | 1.00 | 1.08 |
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 | 7.2% |
Alphabet Inc. | Internet | 6.0 |
Amazon.com Inc. | Broadline Retailers | 4.0 |
Facebook Inc. | Internet | 3.6 |
Coca-Cola Co. | Soft Drinks | 2.2 |
Home Depot Inc. | Home Improvement | |
Retailers | 2.2 | |
Comcast Corp. | Broadcasting & | |
Entertainment | 2.1 | |
Philip Morris | ||
International Inc. | Tobacco | 2.0 |
Visa Inc. | Consumer Finance | 2.0 |
Walt Disney Co. | Broadcasting & | |
Entertainment | 1.8 | |
Top Ten | 33.1% | |
The holdings listed exclude any temporary cash investments and equity index products. |
Investment Focus
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/megacap_part3x20x1.jpg)
1 The expense ratios shown are from the prospectus dated December 22, 2015, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2016, the expense ratios were 0.07% for ETF Shares and 0.06% 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 | 1.7% | 1.7% | 2.5% |
Consumer Goods | 11.5 | 11.6 | 10.4 |
Consumer Services | 22.8 | 22.8 | 13.4 |
Financials | 11.2 | 11.2 | 19.3 |
Health Care | 15.1 | 15.1 | 13.2 |
Industrials | 9.0 | 8.9 | 12.6 |
Oil & Gas | 3.0 | 3.0 | 6.4 |
Technology | 25.6 | 25.6 | 16.6 |
Telecommunications | 0.1 | 0.1 | 2.4 |
Utilities | 0.0 | 0.0 | 3.2 |
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, 2016
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/megacap_part3x22x1.jpg)
Average Annual Total Returns | |||||
Periods Ended August 31, 2016 | |||||
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 | 10.28% | 14.88% | 8.29% | $20,003 | |
Mega Cap Growth Index Fund*ETF | |||||
Shares Market Price | 10.24 | 14.87 | 8.29 | 20,004 | |
•••••••• | Spliced Mega Cap Growth Index | 10.32 | 14.99 | 8.39 | 20,160 |
– – – – | Large-Cap Growth Funds Average | 6.69 | 12.88 | 6.26 | 16,967 |
Dow Jones U.S. Total Stock Market | |||||
Float Adjusted Index | 11.34 | 14.40 | 7.32 | 18,494 |
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 | 10.28% | 14.89% | 9.27% | $10,537,288 |
Spliced Mega Cap Growth Index | 10.32 | 14.99 | 9.35 | 10,602,915 |
Dow Jones U.S. Total Stock Market Float | ||||
Adjusted Index | 11.34 | 14.40 | 8.18 | 9,689,133 |
"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, 2016 | |||
Since | |||
One | Five | Inception | |
Year | Years | (12/17/2007) | |
Mega Cap Growth Index Fund ETF Shares Market | |||
Price | 10.24% | 100.01% | 100.04% |
Mega Cap Growth Index Fund ETF Shares Net | |||
Asset Value | 10.28 | 100.09 | 100.03 |
Spliced Mega Cap Growth Index | 10.32 | 101.05 | 101.60 |
"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, 2016
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/megacap_part3x23x1.jpg)
For a benchmark description, see the Glossary.
Average Annual Total Returns: Periods Ended June 30, 2016
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 | 2.04% | 12.64% | 7.91% | |
Net Asset Value | 2.11 | 12.65 | 7.91 | |
Institutional Shares | 4/3/2008 | 2.11 | 12.66 | 8.89 |
29
Mega Cap Growth Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2016
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 (99.5%)1 | ||||
Basic Materials (1.7%) | ||||
Praxair Inc. | 85,163 | 10,393 | ||
Ecolab Inc. | 78,807 | 9,697 | ||
PPG Industries Inc. | 79,353 | 8,402 | ||
Air Products & Chemicals | ||||
Inc. | 30,659 | 4,771 | ||
Nucor Corp. | 94,875 | 4,603 | ||
37,866 | ||||
Consumer Goods (11.5%) | ||||
Coca-Cola Co. | 1,162,446 | 50,485 | ||
Philip Morris International | ||||
Inc. | 463,192 | 46,287 | ||
NIKE Inc. Class B | 397,531 | 22,914 | ||
Colgate-Palmolive Co. | 266,565 | 19,816 | ||
Altria Group Inc. | 292,015 | 19,299 | ||
Kraft Heinz Co. | 181,539 | 16,246 | ||
Monsanto Co. | 130,399 | 13,887 | ||
Reynolds American Inc. | 255,585 | 12,669 | ||
Constellation Brands Inc. | ||||
Class A | 49,994 | 8,202 | ||
* | Monster Beverage Corp. | 45,427 | 6,991 | |
* | Tesla Motors Inc. | 32,674 | 6,927 | |
Activision Blizzard Inc. | 165,083 | 6,829 | ||
Estee Lauder Cos. Inc. | ||||
Class A | 66,416 | 5,926 | ||
Stanley Black & Decker Inc. | 44,750 | 5,538 | ||
VF Corp. | 80,885 | 5,019 | ||
Mead Johnson Nutrition Co. | 55,634 | 4,733 | ||
Hershey Co. | 40,966 | 4,092 | ||
Delphi Automotive plc | 40,682 | 2,875 | ||
Brown-Forman Corp. | ||||
Class B | 58,826 | 2,856 | ||
261,591 | ||||
Consumer Services (22.7%) | ||||
* | Amazon.com Inc. | 119,738 | 92,098 | |
Home Depot Inc. | 371,448 | 49,819 | ||
Comcast Corp. Class A | 721,793 | 47,104 | ||
Walt Disney Co. | 435,965 | 41,181 |
McDonald’s Corp. | 262,177 | 30,323 | |
Starbucks Corp. | 415,503 | 23,364 | |
Costco Wholesale Corp. | 131,110 | 21,252 | |
* | Priceline Group Inc. | 14,814 | 20,987 |
Walgreens Boots Alliance | |||
Inc. | 258,065 | 20,828 | |
Lowe’s Cos. Inc. | 267,973 | 20,516 | |
Time Warner Inc. | 222,971 | 17,483 | |
* | Charter Communications | ||
Inc. Class A | 59,666 | 15,347 | |
TJX Cos. Inc. | 187,755 | 14,540 | |
* | Netflix Inc. | 121,458 | 11,836 |
Yum! Brands Inc. | 115,547 | 10,481 | |
Twenty-First Century Fox | |||
Inc. Class A | 327,065 | 8,026 | |
* | O’Reilly Automotive Inc. | 27,348 | 7,656 |
Southwest Airlines Co. | 190,646 | 7,031 | |
* | AutoZone Inc. | 8,912 | 6,611 |
American Airlines Group | |||
Inc. | 172,581 | 6,265 | |
CBS Corp. Class B | 119,821 | 6,115 | |
Las Vegas Sands Corp. | 118,574 | 5,954 | |
Dollar General Corp. | 77,059 | 5,657 | |
L Brands Inc. | 72,776 | 5,546 | |
Hilton Worldwide Holdings | |||
Inc. | 162,511 | 3,879 | |
* | DISH Network Corp. | ||
Class A | 64,150 | 3,222 | |
Twenty-First Century | |||
Fox Inc. | 119,157 | 2,961 | |
Carnival Corp. | 58,640 | 2,803 | |
AmerisourceBergen Corp. | |||
Class A | 27,294 | 2,374 | |
* | Sirius XM Holdings Inc. | 518,031 | 2,145 |
Starwood Hotels & Resorts | |||
Worldwide Inc. | 25,228 | 1,954 | |
* | Liberty Interactive Corp. | ||
QVC Group Class A | 63,994 | 1,352 | |
CBS Corp. Class A | 141 | 7 | |
516,717 |
30
Mega Cap Growth Index Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
Financials (11.1%) | |||
Visa Inc. Class A | 568,781 | 46,014 | |
MasterCard Inc. Class A | 289,625 | 27,987 | |
Simon Property Group Inc. | 92,379 | 19,905 | |
American Tower | |||
Corporation | 126,710 | 14,366 | |
BlackRock Inc. | 31,687 | 11,813 | |
Charles Schwab Corp. | 355,135 | 11,173 | |
Marsh & McLennan Cos. | |||
Inc. | 155,572 | 10,521 | |
Public Storage | 43,989 | 9,851 | |
S&P Global Inc. | 78,956 | 9,754 | |
Crown Castle International | |||
Corp. | 100,873 | 9,560 | |
Intercontinental Exchange | |||
Inc. | 33,751 | 9,518 | |
Aon plc | 79,208 | 8,820 | |
Prologis Inc. | 156,721 | 8,323 | |
Welltower Inc. | 106,615 | 8,183 | |
Ventas Inc. | 100,921 | 7,334 | |
Weyerhaeuser Co. | 223,030 | 7,104 | |
Boston Properties Inc. | 45,962 | 6,441 | |
Vornado Realty Trust | 50,709 | 5,239 | |
General Growth Properties | |||
Inc. | 171,470 | 4,997 | |
T. Rowe Price Group Inc. | 70,353 | 4,892 | |
AvalonBay Communities Inc. | 20,510 | 3,589 | |
Equity Residential | 54,513 | 3,536 | |
HCP Inc. | 69,675 | 2,740 | |
TD Ameritrade Holding Corp. | 70,975 | 2,333 | |
253,993 | |||
Health Care (15.0%) | |||
Amgen Inc. | 224,286 | 38,142 | |
Medtronic plc | 418,340 | 36,408 | |
Gilead Sciences Inc. | 397,492 | 31,155 | |
AbbVie Inc. | 482,966 | 30,958 | |
Bristol-Myers Squibb Co. | 498,513 | 28,610 | |
* | Allergan plc | 118,090 | 27,697 |
* | Celgene Corp. | 231,224 | 24,681 |
* | Biogen Inc. | 65,399 | 19,988 |
Thermo Fisher Scientific | |||
Inc. | 117,440 | 17,873 | |
Becton Dickinson and Co. | 63,346 | 11,226 | |
Stryker Corp. | 89,313 | 10,330 | |
* | Boston Scientific Corp. | 405,142 | 9,650 |
* | Regeneron Pharmaceuticals | ||
Inc. | 23,090 | 9,064 | |
* | Alexion Pharmaceuticals Inc. | 63,511 | 7,994 |
* | Intuitive Surgical Inc. | 11,369 | 7,804 |
Zoetis Inc. | 148,183 | 7,572 | |
* | Illumina Inc. | 44,053 | 7,416 |
* | Vertex Pharmaceuticals Inc. | 73,825 | 6,977 |
* | Mylan NV | 129,110 | 5,469 |
Perrigo Co. plc | 40,611 | 3,695 | |
342,709 |
Industrials (8.9%) | |||
3M Co. | 181,033 | 32,448 | |
Union Pacific Corp. | 251,125 | 23,990 | |
Boeing Co. | 180,594 | 23,378 | |
United Parcel Service Inc. | |||
Class B | 206,063 | 22,506 | |
Accenture plc Class A | 186,149 | 21,407 | |
Danaher Corp. | 185,041 | 15,064 | |
* | PayPal Holdings Inc. | 343,702 | 12,769 |
Automatic Data Processing | |||
Inc. | 129,180 | 11,602 | |
* | LinkedIn Corp. Class A | 35,236 | 6,792 |
Sherwin-Williams Co. | 23,486 | 6,663 | |
FedEx Corp. | 36,033 | 5,943 | |
Paychex Inc. | 96,670 | 5,865 | |
Fortive Corp. | 92,427 | 4,868 | |
Agilent Technologies Inc. | 97,828 | 4,596 | |
Rockwell Automation Inc. | 38,821 | 4,500 | |
202,391 | |||
Oil & Gas (3.0%) | |||
Schlumberger Ltd. | 207,738 | 16,411 | |
EOG Resources Inc. | 164,241 | 14,534 | |
Kinder Morgan Inc. | 566,247 | 12,373 | |
Pioneer Natural Resources | |||
Co. | 48,788 | 8,735 | |
Anadarko Petroleum Corp. | 152,341 | 8,146 | |
Noble Energy Inc. | 128,241 | 4,422 | |
Williams Cos. Inc. | 100,817 | 2,817 | |
* | Continental Resources Inc. | 13,833 | 663 |
68,101 | |||
Technology (25.5%) | |||
Apple Inc. | 1,553,524 | 164,829 | |
* | Facebook Inc. Class A | 655,692 | 82,696 |
* | Alphabet Inc. Class A | 87,673 | 69,248 |
* | Alphabet Inc. Class C | 87,159 | 66,855 |
Oracle Corp. | 929,159 | 38,300 | |
QUALCOMM Inc. | 438,556 | 27,660 | |
Texas Instruments Inc. | 299,810 | 20,849 | |
Broadcom Ltd. | 116,643 | 20,578 | |
* | Adobe Systems Inc. | 149,404 | 15,286 |
* | salesforce.com Inc. | 192,149 | 15,260 |
* | Yahoo! Inc. | 255,151 | 10,908 |
* | Cognizant Technology | ||
Solutions Corp. Class A | 180,795 | 10,385 | |
Applied Materials Inc. | 337,566 | 10,073 | |
EMC Corp. | 291,499 | 8,451 | |
Intuit Inc. | 72,695 | 8,102 | |
Analog Devices Inc. | 91,711 | 5,737 | |
* | Micron Technology Inc. | 154,737 | 2,552 |
*,^ | VMware Inc. Class A | 24,168 | 1,772 |
* | Twitter Inc. | 83,723 | 1,608 |
581,149 |
31
Mega Cap Growth Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Telecommunications (0.1%) | |||
* | T-Mobile US Inc. | 42,953 | 1,990 |
Total Common Stocks | |||
(Cost $1,766,497) | 2,266,507 | ||
Temporary Cash Investments (0.5%)1 | |||
Money Market Fund (0.5%) | |||
2,3 | Vanguard Market | ||
Liquidity Fund, | |||
0.612% | 99,440 | 9,945 | |
Face | |||
Amount | |||
($000) | |||
U.S. Government and Agency Obligations (0.0%) | |||
4,5 | Freddie Mac Discount | ||
Notes, 0.300%, 11/8/16 | 400 | 400 | |
5 | United States Treasury | ||
Bill, 0.318%, 12/1/16 | 100 | 100 | |
500 | |||
Total Temporary Cash Investments | |||
(Cost $10,444) | 10,445 | ||
Total Investments (100.0%) | |||
(Cost $1,776,941) | 2,276,952 |
Amount | |
($000) | |
Other Assets and Liabilities (0.0%) | |
Other Assets | |
Investment in Vanguard | 175 |
Receivables for Accrued Income | 2,354 |
Receivables for Capital Shares Issued | 1 |
Other Assets | 18 |
Total Other Assets | 2,548 |
Liabilities | |
Payables for Investment Securities Purchased (4) | |
Collateral for Securities on Loan | (889) |
Payables for Capital Shares Redeemed | (1) |
Payables to Vanguard | (701) |
Other Liabilities | (28) |
Total Liabilities | (1,623) |
Net Assets (100%) | 2,277,877 |
At August 31, 2016, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 1,817,389 |
Undistributed Net Investment Income | 6,411 |
Accumulated Net Realized Losses | (46,211) |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 500,011 |
Futures Contracts | 277 |
Net Assets | 2,277,877 |
32
Mega Cap Growth Index Fund | |
Amount | |
($000) | |
ETF Shares—Net Assets | |
Applicable to 25,789,005 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 2,247,389 |
Net Asset Value Per Share— | |
ETF Shares | $87.15 |
Institutional Shares—Net Assets | |
Applicable to 176,159 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 30,488 |
Net Asset Value Per Share— | |
Institutional Shares | $173.07 |
• 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 $858,000.
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 0.0%, 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 Includes $889,000 of collateral received for securities on loan.
4 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.
5 Securities with a value of $500,000 have been segregated as initial margin for open futures contracts.
See accompanying Notes, which are an integral part of the Financial Statements.
33
Mega Cap Growth Index Fund | |
Statement of Operations | |
Year Ended | |
August 31, 2016 | |
($000) | |
Investment Income | |
Income | |
Dividends | 34,124 |
Interest1 | 19 |
Securities Lending-Net | 89 |
Total Income | 34,232 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 364 |
Management and Administrative—ETF Shares | 849 |
Management and Administrative—Institutional Shares | 15 |
Marketing and Distribution—ETF Shares | 127 |
Marketing and Distribution—Institutional Shares | 1 |
Custodian Fees | 18 |
Auditing Fees | 35 |
Shareholders’ Reports—ETF Shares | 70 |
Shareholders’ Reports—Institutional Shares | — |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 1,480 |
Net Investment Income | 32,752 |
Realized Net Gain (Loss) | |
Investment Securities Sold1 | 52,598 |
Futures Contracts | (72) |
Realized Net Gain (Loss) | 52,526 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | 111,760 |
Futures Contracts | 414 |
Change in Unrealized Appreciation (Depreciation) | 112,174 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 197,452 |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $17,000 and $0, respectively. |
See accompanying Notes, which are an integral part of the Financial Statements.
34
Mega Cap Growth Index Fund | ||
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2016 | 2015 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 32,752 | 26,563 |
Realized Net Gain (Loss) | 52,526 | 76,496 |
Change in Unrealized Appreciation (Depreciation) | 112,174 | (64,270) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 197,452 | 38,789 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (31,000) | (24,235) |
Institutional Shares | (520) | (333) |
Realized Capital Gain | ||
ETF Shares | — | — |
Institutional Shares | — | — |
Total Distributions | (31,520) | (24,568) |
Capital Share Transactions | ||
ETF Shares | 155,971 | 393,456 |
Institutional Shares | (7,135) | 20,804 |
Net Increase (Decrease) from Capital Share Transactions | 148,836 | 414,260 |
Total Increase (Decrease) | 314,768 | 428,481 |
Net Assets | ||
Beginning of Period | 1,963,109 | 1,534,628 |
End of Period1 | 2,277,877 | 1,963,109 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $6,411,000 and $5,179,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
35
Mega Cap Growth Index Fund | |||||
Financial Highlights | |||||
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $80.22 | $79.16 | $62.69 | $55.92 | $46.87 |
Investment Operations | |||||
Net Investment Income | 1.269 | 1.148 | .994 | 1.006 | .7711 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 6.897 | 1.013 | 16.475 | 6.751 | 8.966 |
Total from Investment Operations | 8.166 | 2.161 | 17.469 | 7.757 | 9.737 |
Distributions | |||||
Dividends from Net Investment Income | (1.236) | (1.101) | (.999) | (.987) | (.687) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.236) | (1.101) | (.999) | (.987) | (.687) |
Net Asset Value, End of Period | $87.15 | $80.22 | $79.16 | $62.69 | $55.92 |
Total Return | 10.28% | 2.70% | 28.05% | 14.04% | 20.98% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $2,247 | $1,928 | $1,520 | $1,034 | $884 |
Ratio of Total Expenses to Average Net Assets | 0.07% | 0.09% | 0.11% | 0.11% | 0.12% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.55% | 1.43% | 1.40% | 1.69% | 1.49% |
Portfolio Turnover Rate 2 | 12% | 9% | 11% | 41% | 16% |
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 | |||||
Financial Highlights | |||||
Institutional Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $159.31 | $157.21 | $124.49 | $110.67 | $92.75 |
Investment Operations | |||||
Net Investment Income | 2.528 | 2.293 | 1.978 | 2.027 | 1.4531 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 13.693 | 2.011 | 32.732 | 13.374 | 17.831 |
Total from Investment Operations | 16.221 | 4.304 | 34.710 | 15.401 | 19.284 |
Distributions | |||||
Dividends from Net Investment Income | (2.461) | (2.204) | (1.990) | (1.581) | (1.364) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (2.461) | (2.204) | (1.990) | (1.581) | (1.364) |
Net Asset Value, End of Period | $173.07 | $159.31 | $157.21 | $124.49 | $110.67 |
Total Return | 10.28% | 2.71% | 28.07% | 14.05% | 21.00% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $30 | $35 | $15 | $21 | $0.2 |
Ratio of Total Expenses to Average Net Assets | 0.06% | 0.08% | 0.10% | 0.10% | 0.09% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.56% | 1.44% | 1.41% | 1.70% | 1.52% |
Portfolio Turnover Rate 2 | 12% | 9% | 11% | 41% | 16% |
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.
37
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, 2016, 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.
38
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, 2013–2016), 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 subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
6. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at August 31, 2016, 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
39
Mega Cap Growth Index Fund
expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. 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, 2016, the fund had contributed to Vanguard capital in the amount of $175,000, 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, 2016, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 2,266,507 | — | — |
Temporary Cash Investments | 9,945 | 500 | — |
Futures Contracts—Liabilities1 | (28) | — | — |
Total | 2,276,424 | 500 | — |
1 Represents variation margin on the last day of the reporting period. |
40
Mega Cap Growth Index Fund
D. At August 31, 2016, 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 2016 | 103 | 11,173 | 277 |
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, 2016, the fund realized $83,038,000 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, 2016, the fund had $7,063,000 of ordinary income available for distribution. At August 31, 2016, the fund had available capital losses totaling $45,935,000 to offset future net capital gains. Of this amount, $4,562,000 is subject to expiration on August 31, 2019. Capital losses of $41,373,000 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, 2016, the cost of investment securities for tax purposes was $1,776,941,000. Net unrealized appreciation of investment securities for tax purposes was $500,011,000, consisting of unrealized gains of $544,972,000 on securities that had risen in value since their purchase and $44,961,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the year ended August 31, 2016, the fund purchased $579,732,000 of investment securities and sold $436,226,000 of investment securities, other than temporary cash investments. Purchases and sales include $301,598,000 and $187,230,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
The fund purchased securities from and sold securities to other Vanguard funds or accounts managed by Vanguard or its affiliates, in accordance with procedures adopted by the board of trustees in compliance with Rule 17a-7 of the Investment Company Act of 1940. For the year ended August 31, 2016, such purchases and sales were $65,787,000 and $103,813,000, respectively; these amounts are included in the purchases and sales of investment securities noted above.
41
Mega Cap Growth Index Fund
G. Capital share transactions for each class of shares were:
Year Ended August 31, | ||||
2016 | 2015 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 345,671 | 4,100 | 590,060 | 7,189 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (189,700) | (2,350) | (196,604) | (2,350) |
Net Increase (Decrease)—ETF Shares | 155,971 | 1,750 | 393,456 | 4,839 |
Institutional Shares | ||||
Issued | 15,163 | 94 | 31,291 | 186 |
Issued in Lieu of Cash Distributions | 377 | 2 | 255 | 2 |
Redeemed | (22,675) | (137) | (10,742) | (64) |
Net Increase (Decrease) —Institutional Shares | (7,135) | (41) | 20,804 | 124 |
H. Management has determined that no material events or transactions occurred subsequent to August 31, 2016, that would require recognition or disclosure in these financial statements.
42
Mega Cap Value Index Fund
Fund Profile
As of August 31, 2016
Share-Class Characteristics | ||
ETF | Institutional | |
Shares | Shares | |
Ticker Symbol | MGV | VMVLX |
Expense Ratio1 | 0.09% | 0.06% |
30-Day SEC Yield | 2.68% | 2.65% |
Portfolio Characteristics | |||
DJ | |||
U.S. | |||
CRSP US | Total | ||
Mega Cap | Market | ||
Value | FA | ||
Fund | Index | Index | |
Number of Stocks | 156 | 150 | 3,817 |
Median Market Cap | $140.1B | $140.1B | $51.2B |
Price/Earnings Ratio | 19.0x | 19.0x | 23.5x |
Price/Book Ratio | 2.1x | 2.1x | 2.8x |
Return on Equity | 15.8% | 15.8% | 16.6% |
Earnings Growth | |||
Rate | 1.9% | 1.9% | 7.5% |
Dividend Yield | 2.7% | 2.7% | 2.0% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 8% | — | — |
Short-Term | |||
Reserves | -0.1% | — | — |
Volatility Measures | ||
CRSP US | DJ | |
Mega Cap | U.S. Total | |
Value | Market | |
Index | FA Index | |
R-Squared | 1.00 | 0.92 |
Beta | 1.00 | 0.88 |
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 | 4.9% |
Exxon Mobil Corp. | Integrated Oil & Gas | 4.2 |
Johnson & Johnson | Pharmaceuticals | 3.8 |
Berkshire Hathaway Inc. Reinsurance | 3.3 | |
General Electric Co. | Diversified Industrials | 3.3 |
AT&T Inc. | Fixed Line | |
Telecommunications | 2.9 | |
JPMorgan Chase & Co. | Banks | 2.8 |
Procter & Gamble Co. | Nondurable | |
Household Products | 2.7 | |
Wells Fargo & Co. | Banks | 2.7 |
Verizon Communications Fixed Line | ||
Inc. | Telecommunications | 2.5 |
Top Ten | 33.1% | |
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 22, 2015, and represent estimated costs for the current fiscal year. For the
fiscal year ended August 31, 2016, the expense ratios were 0.07% for ETF Shares and 0.06% for Institutional Shares.
43
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 | 2.1% | 2.1% | 2.5% |
Consumer Goods | 9.1 | 9.1 | 10.4 |
Consumer Services | 5.6 | 5.6 | 13.4 |
Financials | 23.0 | 23.0 | 19.3 |
Health Care | 14.5 | 14.5 | 13.2 |
Industrials | 12.1 | 12.1 | 12.6 |
Oil & Gas | 10.8 | 10.8 | 6.4 |
Technology | 11.8 | 11.8 | 16.6 |
Telecommunications | 5.7 | 5.7 | 2.4 |
Utilities | 5.3 | 5.3 | 3.2 |
44
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, 2016
Initial Investment of $10,000
Average Annual Total Returns | |||||
Periods Ended August 31, 2016 | |||||
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 | 14.71% | 14.34% | 5.69% | $16,193 | |
Mega Cap Value Index Fund*ETF | |||||
Shares Market Price | 14.67 | 14.34 | 5.69 | 16,194 | |
•••••••• | Spliced Mega Cap Value Index | 14.73 | 14.43 | 5.74 | 16,260 |
– – – – | Large-Cap Value Funds Average | 8.66 | 12.42 | 4.81 | 15,046 |
Dow Jones U.S. Total Stock Market | |||||
Float Adjusted Index | 11.34 | 14.40 | 7.32 | 18,494 |
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 | 14.72% | 14.37% | 6.93% | $8,827,497 |
Spliced Mega Cap Value Index | 14.73 | 14.43 | 6.94 | 8,839,545 |
Dow Jones U.S. Total Stock Market Float | ||||
Adjusted Index | 11.34 | 14.40 | 8.43 | 9,943,116 |
"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.
45
Mega Cap Value Index Fund
Cumulative Returns of ETF Shares: December 17, 2007, Through August 31, 2016 | |||
Since | |||
One | Five | Inception | |
Year | Years | (12/17/2007) | |
Mega Cap Value Index Fund ETF Shares Market | |||
Price | 14.67% | 95.45% | 61.94% |
Mega Cap Value Index Fund ETF Shares Net Asset | |||
Value | 14.71 | 95.40 | 61.93 |
Spliced Mega Cap Value Index | 14.73 | 96.22 | 62.60 |
"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, 2016
![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/megacap_part3x40x1.jpg)
For a benchmark description, see the Glossary.
Average Annual Total Returns: Periods Ended June 30, 2016
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 | 5.43% | 11.53% | 5.41% | |
Net Asset Value | 5.63 | 11.53 | 5.42 | |
Institutional Shares | 3/5/2008 | 5.65 | 11.57 | 6.66 |
46
Mega Cap Value Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2016
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 (2.1%) | ||
EI du Pont de Nemours & | ||
Co. | 153,860 | 10,709 |
Dow Chemical Co. | 197,915 | 10,616 |
LyondellBasell Industries | ||
NV Class A | 60,182 | 4,748 |
International Paper Co. | 72,559 | 3,518 |
Air Products & Chemicals | ||
Inc. | 18,044 | 2,808 |
32,399 | ||
Consumer Goods (9.1%) | ||
Procter & Gamble Co. | 469,077 | 40,955 |
PepsiCo Inc. | 254,500 | 27,168 |
Mondelez International Inc. | ||
Class A | 259,786 | 11,696 |
Altria Group Inc. | 172,326 | 11,389 |
Ford Motor Co. | 687,452 | 8,662 |
Kimberly-Clark Corp. | 63,456 | 8,126 |
General Motors Co. | 244,130 | 7,793 |
General Mills Inc. | 104,745 | 7,418 |
Johnson Controls Inc. | 114,423 | 5,021 |
Archer-Daniels-Midland Co. | 103,459 | 4,527 |
Kellogg Co. | 43,187 | 3,550 |
Campbell Soup Co. | 35,379 | 2,148 |
Kraft Heinz Co. | 110 | 10 |
138,463 | ||
Consumer Services (5.6%) | ||
Wal-Mart Stores Inc. | 248,976 | 17,787 |
CVS Health Corp. | 189,366 | 17,687 |
McKesson Corp. | 39,633 | 7,317 |
Target Corp. | 103,843 | 7,289 |
* eBay Inc. | 192,566 | 6,193 |
Kroger Co. | 167,974 | 5,373 |
Delta Air Lines Inc. | 136,138 | 5,003 |
Sysco Corp. | 89,328 | 4,633 |
Cardinal Health Inc. | 57,422 | 4,575 |
Omnicom Group Inc. | 41,965 | 3,614 |
Viacom Inc. Class B | 62,800 | 2,533 |
Carnival Corp. | 34,608 | 1,654 | |
* | United Continental Holdings | ||
Inc. | 26,487 | 1,335 | |
Macy’s Inc. | 27,130 | 982 | |
* | Liberty SiriusXM Group | ||
Class C | 16 | 1 | |
* | Liberty SiriusXM Group | ||
Class A | 8 | — | |
85,976 | |||
Financials (23.0%) | |||
* | Berkshire Hathaway Inc. | ||
Class B | 336,689 | 50,668 | |
JPMorgan Chase & Co. | 644,409 | 43,498 | |
Wells Fargo & Co. | 805,280 | 40,908 | |
Bank of America Corp. | 1,810,327 | 29,219 | |
Citigroup Inc. | 517,222 | 24,692 | |
US Bancorp | 288,999 | 12,759 | |
American International | |||
Group Inc. | 187,304 | 11,206 | |
Goldman Sachs Group Inc. | 65,892 | 11,166 | |
Chubb Ltd. | 77,761 | 9,870 | |
American Express Co. | 142,522 | 9,347 | |
Morgan Stanley | 256,250 | 8,215 | |
PNC Financial Services | |||
Group Inc. | 88,092 | 7,937 | |
Bank of New York Mellon | |||
Corp. | 180,286 | 7,513 | |
MetLife Inc. | 154,975 | 6,726 | |
Capital One Financial Corp. | 90,327 | 6,467 | |
Prudential Financial Inc. | 77,876 | 6,182 | |
CME Group Inc. | 56,760 | 6,150 | |
Travelers Cos. Inc. | 51,529 | 6,117 | |
BB&T Corp. | 143,287 | 5,517 | |
Aflac Inc. | 73,051 | 5,419 | |
State Street Corp. | 66,355 | 4,661 | |
Allstate Corp. | 66,088 | 4,557 | |
Discover Financial Services | 72,759 | 4,366 | |
Synchrony Financial | 147,231 | 4,097 | |
SunTrust Banks Inc. | 88,405 | 3,896 | |
Progressive Corp. | 97,832 | 3,185 |
47
Mega Cap Value Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Ameriprise Financial Inc. | 29,268 | 2,958 | |
Fifth Third Bancorp | 135,169 | 2,725 | |
Northern Trust Corp. | 38,250 | 2,700 | |
Franklin Resources Inc. | 62,047 | 2,265 | |
Loews Corp. | 50,780 | 2,126 | |
Equity Residential | 32,194 | 2,088 | |
HCP Inc. | 41,063 | 1,615 | |
Invesco Ltd. | 36,633 | 1,143 | |
* | Berkshire Hathaway Inc. | ||
Class A | 1 | 226 | |
Host Hotels & Resorts Inc. | 68 | 1 | |
352,185 | |||
Health Care (14.5%) | |||
Johnson & Johnson | 484,774 | 57,853 | |
Pfizer Inc. | 1,068,858 | 37,196 | |
Merck & Co. Inc. | 487,776 | 30,628 | |
UnitedHealth Group Inc. | 167,607 | 22,803 | |
Eli Lilly & Co. | 175,062 | 13,611 | |
Abbott Laboratories | 258,851 | 10,877 | |
* | Express Scripts Holding | ||
Co. | 111,552 | 8,110 | |
Aetna Inc. | 61,854 | 7,244 | |
Cigna Corp. | 45,259 | 5,805 | |
Anthem Inc. | 46,392 | 5,803 | |
Humana Inc. | 26,210 | 4,684 | |
Zimmer Biomet Holdings | |||
Inc. | 35,147 | 4,555 | |
Baxter International Inc. | 97,238 | 4,544 | |
* | HCA Holdings Inc. | 58,620 | 4,429 |
St. Jude Medical Inc. | 47,586 | 3,708 | |
Bristol-Myers Squibb Co. | 302 | 17 | |
221,867 | |||
Industrials (12.1%) | |||
General Electric Co. | 1,620,744 | 50,632 | |
Honeywell International | |||
Inc. | 134,319 | 15,676 | |
United Technologies Corp. | 140,018 | 14,902 | |
Lockheed Martin Corp. | 44,000 | 10,691 | |
Caterpillar Inc. | 102,991 | 8,440 | |
Raytheon Co. | 52,308 | 7,330 | |
General Dynamics Corp. | 45,805 | 6,972 | |
Northrop Grumman Corp. | 31,830 | 6,750 | |
Illinois Tool Works Inc. | 53,871 | 6,403 | |
Emerson Electric Co. | 113,397 | 5,974 | |
Eaton Corp. plc | 80,638 | 5,366 | |
Waste Management Inc. | 78,327 | 5,008 | |
Norfolk Southern Corp. | 52,084 | 4,891 | |
CSX Corp. | 168,562 | 4,767 | |
Deere & Co. | 49,910 | 4,220 | |
TE Connectivity Ltd. | 63,108 | 4,012 | |
Cummins Inc. | 30,033 | 3,772 | |
PACCAR Inc. | 61,828 | 3,700 | |
FedEx Corp. | 21,294 | 3,512 | |
Tyco International plc | 74,903 | 3,272 |
Ingersoll-Rand plc | 45,314 | 3,081 | |
Parker-Hannifin Corp. | 23,765 | 2,912 | |
Republic Services Inc. | |||
Class A | 42,410 | 2,142 | |
184,425 | |||
Oil & Gas (10.8%) | |||
Exxon Mobil Corp. | 730,840 | 63,685 | |
Chevron Corp. | 332,161 | 33,409 | |
Occidental Petroleum Corp. | 134,503 | 10,337 | |
Schlumberger Ltd. | 122,571 | 9,683 | |
ConocoPhillips | 218,325 | 8,962 | |
Halliburton Co. | 143,929 | 6,190 | |
Phillips 66 | 78,750 | 6,178 | |
Valero Energy Corp. | 82,764 | 4,581 | |
Spectra Energy Corp. | 123,731 | 4,407 | |
Marathon Petroleum Corp. | 93,482 | 3,974 | |
Baker Hughes Inc. | 77,125 | 3,789 | |
Apache Corp. | 66,797 | 3,320 | |
Hess Corp. | 50,271 | 2,730 | |
Devon Energy Corp. | 43,984 | 1,906 | |
Williams Cos. Inc. | 59,465 | 1,662 | |
National Oilwell Varco Inc. | 68 | 2 | |
164,815 | |||
Technology (11.8%) | |||
Microsoft Corp. | 1,316,123 | 75,624 | |
Intel Corp. | 832,223 | 29,868 | |
Cisco Systems Inc. | 886,387 | 27,868 | |
International Business | |||
Machines Corp. | 152,297 | 24,197 | |
Hewlett Packard | |||
Enterprise Co. | 302,782 | 6,504 | |
EMC Corp. | 172,259 | 4,994 | |
HP Inc. | 304,506 | 4,376 | |
Corning Inc. | 189,376 | 4,297 | |
CA Inc. | 55,241 | 1,873 | |
Motorola Solutions Inc. | 14,668 | 1,129 | |
Symantec Corp. | 118 | 3 | |
180,733 | |||
Telecommunications (5.6%) | |||
AT&T Inc. | 1,085,002 | 44,355 | |
Verizon Communications | |||
Inc. | 718,363 | 37,592 | |
CenturyLink Inc. | 96,443 | 2,681 | |
* | T-Mobile US Inc. | 25,214 | 1,169 |
*,^ | Sprint Corp. | 104,751 | 647 |
86,444 | |||
Utilities (5.3%) | |||
NextEra Energy Inc. | 81,290 | 9,831 | |
Duke Energy Corp. | 121,330 | 9,665 | |
Southern Co. | 165,138 | 8,477 | |
Dominion Resources Inc. | 108,693 | 8,061 | |
American Electric Power | |||
Co. Inc. | 86,580 | 5,591 | |
Exelon Corp. | 162,659 | 5,530 |
48
Mega Cap Value Index Fund
Market | ||
Value• | ||
Shares | ($000) | |
PG&E Corp. | 87,348 | 5,410 |
Sempra Energy | 41,752 | 4,369 |
Edison International | 57,440 | 4,177 |
PPL Corp. | 119,035 | 4,140 |
Consolidated Edison Inc. | 53,637 | 4,036 |
Public Service Enterprise | ||
Group Inc. | 89,251 | 3,816 |
Xcel Energy Inc. | 89,544 | 3,704 |
FirstEnergy Corp. | 74,777 | 2,447 |
Entergy Corp. | 15,829 | 1,238 |
80,492 | ||
Total Common Stocks | ||
(Cost $1,281,225) | 1,527,799 | |
Temporary Cash Investments (0.1%)1 | ||
Money Market Fund (0.1%) | ||
2,3 Vanguard Market | ||
Liquidity Fund, | ||
0.612% | 6,931 | 693 |
Face | ||
Amount | ||
($000) | ||
U.S. Government and Agency Obligations (0.0%) | ||
4,5 Federal Home Loan | ||
Bank Discount Notes, | ||
0.340%, 9/7/16 | 100 | 100 |
Total Temporary Cash Investments | ||
(Cost $793) | 793 | |
Total Investments (100.0%) | ||
(Cost $1,282,018) | 1,528,592 |
Amount | |
($000) | |
Other Assets and Liabilities (0.0%) | |
Other Assets | |
Investment in Vanguard | 117 |
Receivables for Accrued Income | 5,390 |
Receivables for Capital Shares Issued | 2 |
Total Other Assets | 5,509 |
Liabilities | |
Collateral for Securities on Loan | (693) |
Payables for Capital Shares Redeemed | (117) |
Payables to Vanguard | (474) |
Other Liabilities | (4,145) |
Total Liabilities | (5,429) |
Net Assets (100%) | 1,528,672 |
At August 31, 2016, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 1,295,020 |
Undistributed Net Investment Income | 8,482 |
Accumulated Net Realized Losses | (21,428) |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 246,574 |
Futures Contracts | 24 |
Net Assets | 1,528,672 |
49
Mega Cap Value Index Fund | |
Amount | |
($000) | |
ETF Shares—Net Assets | |
Applicable to 20,804,818 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 1,321,541 |
Net Asset Value Per Share— | |
ETF Shares | $63.52 |
Institutional Shares—Net Assets | |
Applicable to 1,644,709 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 207,131 |
Net Asset Value Per Share— | |
Institutional Shares | $125.94 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $612,000.
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 0.0%, 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 Includes $693,000 of collateral received for securities on loan.
4 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.
5 Securities with a value of $100,000 have been segregated as initial margin for open futures contracts.
See accompanying Notes, which are an integral part of the Financial Statements.
50
Mega Cap Value Index Fund | |
Statement of Operations | |
Year Ended | |
August 31, 2016 | |
($000) | |
Investment Income | |
Income | |
Dividends | 38,363 |
Interest1 | 4 |
Security Lending-Net | 29 |
Total Income | 38,396 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 232 |
Management and Administrative—ETF Shares | 433 |
Management and Administrative—Institutional Shares | 71 |
Marketing and Distribution—ETF Shares | 65 |
Marketing and Distribution—Institutional Shares | 6 |
Custodian Fees | 22 |
Auditing Fees | 35 |
Shareholders’ Reports—ETF Shares | 30 |
Shareholders’ Reports—Institutional Shares | 5 |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 900 |
Net Investment Income | 37,496 |
Realized Net Gain (Loss) | |
Investment Securities Sold1 | 18,659 |
Futures Contracts | (144) |
Realized Net Gain (Loss) | 18,515 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | 130,156 |
Futures Contracts | 169 |
Change in Unrealized Appreciation (Depreciation) | 130,325 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 186,336 |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $3,000 and $0, respectively. |
See accompanying Notes, which are an integral part of the Financial Statements.
51
Mega Cap Value Index Fund | ||
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2016 | 2015 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 37,496 | 29,438 |
Realized Net Gain (Loss) | 18,515 | 35,328 |
Change in Unrealized Appreciation (Depreciation) | 130,325 | (93,572) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 186,336 | (28,806) |
Distributions | ||
Net Investment Income | ||
ETF Shares | (29,412) | (22,866) |
Institutional Shares | (5,913) | (5,417) |
Realized Capital Gain | ||
ETF Shares | — | — |
Institutional Shares | — | — |
Total Distributions | (35,325) | (28,283) |
Capital Share Transactions | ||
ETF Shares | 237,968 | 133,373 |
Institutional Shares | (30,150) | 11,363 |
Net Increase (Decrease) from Capital Share Transactions | 207,818 | 144,736 |
Total Increase (Decrease) | 358,829 | 87,647 |
Net Assets | ||
Beginning of Period | 1,169,843 | 1,082,196 |
End of Period1 | 1,528,672 | 1,169,843 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $8,482,000 and $6,311,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
52
Mega Cap Value Index Fund | |||||
Financial Highlights | |||||
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $56.89 | $59.60 | $49.65 | $41.80 | $37.09 |
Investment Operations | |||||
Net Investment Income | 1.638 | 1.484 | 1.338 | 1.2721 | 1.164 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 6.583 | (2.733) | 9.911 | 7.809 | 4.689 |
Total from Investment Operations | 8.221 | (1.249) | 11.249 | 9.081 | 5.853 |
Distributions | |||||
Dividends from Net Investment Income | (1.591) | (1.461) | (1.299) | (1.231) | (1.143) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.591) | (1.461) | (1.299) | (1.231) | (1.143) |
Net Asset Value, End of Period | $63.52 | $56.89 | $59.60 | $49.65 | $41.80 |
Total Return | 14.71% | -2.22% | 22.92% | 22.05% | 16.13% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $1,322 | $957 | $870 | $611 | $414 |
Ratio of Total Expenses to Average Net Assets | 0.07% | 0.09% | 0.11% | 0.11% | 0.12% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.84% | 2.51% | 2.47% | 2.72% | 2.97% |
Portfolio Turnover Rate 2 | 8% | 5% | 8% | 34% | 17% |
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.
53
Mega Cap Value Index Fund | |||||
Financial Highlights | |||||
Institutional Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2016 | 2015 | 2014 | 2013 | 2012 |
Net Asset Value, Beginning of Period | $112.80 | $118.18 | $98.45 | $82.90 | $73.55 |
Investment Operations | |||||
Net Investment Income | 3.259 | 2.976 | 2.687 | 2.5311 | 2.339 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 13.063 | (5.427) | 19.649 | 15.493 | 9.303 |
Total from Investment Operations | 16.322 | (2.451) | 22.336 | 18.024 | 11.642 |
Distributions | |||||
Dividends from Net Investment Income | (3.182) | (2.929) | (2.606) | (2.474) | (2.292) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (3.182) | (2.929) | (2.606) | (2.474) | (2.292) |
Net Asset Value, End of Period | $125.94 | $112.80 | $118.18 | $98.45 | $82.90 |
Total Return | 14.72% | -2.19% | 22.95% | 22.07% | 16.19% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $207 | $213 | $212 | $164 | $110 |
Ratio of Total Expenses to Average Net Assets | 0.06% | 0.06% | 0.08% | 0.08% | 0.08% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.85% | 2.54% | 2.50% | 2.75% | 3.01% |
Portfolio Turnover Rate 2 | 8% | 5% | 8% | 34% | 17% |
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.
54
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, 2016, 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.
55
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, 2013–2016), 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 subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
6. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 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 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at August 31, 2016, 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
56
Mega Cap Value Index Fund
expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. 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, 2016, the fund had contributed to Vanguard capital in the amount of $117,000, 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, 2016, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 1,527,799 | — | — |
Temporary Cash Investments | 693 | 100 | — |
Futures Contracts—Liabilities1 | (3) | — | — |
Total | 1,528,489 | 100 | — |
1 Represents variation margin on the last day of the reporting period. |
57
Mega Cap Value Index Fund
D. At August 31, 2016, 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 2016 | 11 | 1,193 | 24 |
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, 2016, the fund realized $35,762,000 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, 2016, the fund had $8,919,000 of ordinary income available for distribution. At August 31, 2016, the fund had available capital losses totaling $21,404,000 to offset future net capital gains. Of this amount, $4,326,000 is subject to expiration on August 31, 2019. Capital losses of $17,078,000 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, 2016, the cost of investment securities for tax purposes was $1,282,018,000. Net unrealized appreciation of investment securities for tax purposes was $246,574,000, consisting of unrealized gains of $265,401,000 on securities that had risen in value since their purchase and $18,827,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the year ended August 31, 2016, the fund purchased $431,924,000 of investment securities and sold $219,525,000 of investment securities, other than temporary cash investments. Purchases and sales include $324,117,000 and $119,490,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
The fund purchased securities from and sold securities to other Vanguard funds or accounts managed by Vanguard or its affiliates, in accordance with procedures adopted by the board of trustees in compliance with Rule 17a-7 of the Investment Company Act of 1940. For the year ended August 31, 2016, such purchases and sales were $41,341,000 and $38,010,000, respectively; these amounts are included in the purchases and sales of investment securities noted above.
58
Mega Cap Value Index Fund |
G. Capital share transactions for each class of shares were:
Year Ended August 31, | ||||
2016 | 2015 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 364,263 | 6,137 | 223,753 | 3,715 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (126,295) | (2,150) | (90,380) | (1,500) |
Net Increase (Decrease) —ETF Shares | 237,968 | 3,987 | 133,373 | 2,215 |
Institutional Shares | ||||
Issued | 22,320 | 195 | 46,609 | 393 |
Issued in Lieu of Cash Distributions | 4,297 | 37 | 4,072 | 34 |
Redeemed | (56,767) | (477) | (39,318) | (330) |
Net Increase (Decrease) —Institutional Shares | (30,150) | (245) | 11,363 | 97 |
H. Management has determined that no material events or transactions occurred subsequent to August 31, 2016, that would require recognition or disclosure in these financial statements.
59
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, 2016, 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, 2016 by correspondence with the custodian and brokers and by agreement to the underlying ownership records of the transfer agent, provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
October 12, 2016
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![](https://capedge.com/proxy/N-CSR/0000932471-16-014605/megacap_part3x55x1.jpg)
Special 2016 tax information (unaudited) for Vanguard Mega Cap Index Funds
This information for the fiscal year ended August 31, 2016, 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 | 26,428 |
Mega Cap Growth Index Fund | 30,540 |
Mega Cap Value Index Fund | 35,325 |
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 | 96.3% |
Mega Cap Growth Index Fund | 88.8 |
Mega Cap Value Index Fund | 99.5 |
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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 2016. (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, 2016 | |||
Since | |||
One | Five | Inception | |
Year | Years | (12/17/2007) | |
Mega Cap Index Fund ETF Shares | |||
Returns Before Taxes | 12.61% | 14.55% | 6.97% |
Returns After Taxes on Distributions | 12.03 | 14.05 | 6.57 |
Returns After Taxes on Distributions and Sale of Fund Shares | 7.57 | 11.68 | 5.55 |
Since | |||
One | Five | Inception | |
Year | Years | (12/17/2007) | |
Mega Cap Growth Index FundETF Shares | |||
Returns Before Taxes | 10.28% | 14.88% | 8.29% |
Returns After Taxes on Distributions | 9.88 | 14.53 | 8.01 |
Returns After Taxes on Distributions and Sale of Fund Shares | 6.10 | 11.97 | 6.68 |
Since | |||
One | Five | Inception | |
Year | Years | (12/17/2007) | |
Mega Cap Value Index Fund ETF Shares | |||
Returns Before Taxes | 14.71% | 14.34% | 5.69% |
Returns After Taxes on Distributions | 13.97 | 13.71 | 5.18 |
Returns After Taxes on Distributions and Sale of Fund Shares | 8.84 | 11.48 | 4.48 |
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About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The 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.
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Six Months Ended August 31, 2016 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
2/29/2016 | 8/31/2016 | Period | |
Based on Actual Fund Return | |||
Mega Cap Index Fund | |||
ETF Shares | $1,000.00 | $1,134.17 | $0.32 |
Institutional Shares | 1,000.00 | 1,134.11 | 0.43 |
Mega Cap Growth Index Fund | |||
ETF Shares | $1,000.00 | $1,125.82 | $0.32 |
Institutional Shares | 1,000.00 | 1,125.89 | 0.27 |
Mega Cap Value Index Fund | |||
ETF Shares | $1,000.00 | $1,141.32 | $0.32 |
Institutional Shares | 1,000.00 | 1,141.39 | 0.38 |
Based on Hypothetical 5% Yearly Return | |||
Mega Cap Index Fund | |||
ETF Shares | $1,000.00 | $1,024.84 | $0.31 |
Institutional Shares | 1,000.00 | 1,024.73 | 0.41 |
Mega Cap Growth Index Fund | |||
ETF Shares | $1,000.00 | $1,024.84 | $0.31 |
Institutional Shares | 1,000.00 | 1,024.89 | 0.25 |
Mega Cap Value Index Fund | |||
ETF Shares | $1,000.00 | $1,024.84 | $0.31 |
Institutional Shares | 1,000.00 | 1,024.78 | 0.36 |
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, 0.06% for ETF Shares and 0.08% for Institutional Shares; for the Mega Cap Growth Index Fund,
0.06% for ETF Shares and 0.05% for Institutional Shares; and for the Mega Cap Value Index Fund, 0.06% for ETF Shares and 0.07% 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 (184/366).
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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. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department, which is responsible for fund and advisor oversight and product management. The Portfolio Review Department met regularly with the advisor and made monthly presentations to the board during the fiscal year directing the board’s focus to relevant information and topics.
The board, or an investment committee made up of board members, also received information throughout the year through advisor presentations. For each advisor presentation, the board was provided with letters and reports that included information about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.
In addition, the board received monthly reports, which included a Market and Economic Report, a Fund Dashboard Monthly Summary, and a Fund Performance Report.
Prior to their meeting, the trustees were provided with a memo and materials that summarized the information they had received over the course of the year. They also 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 its target index and peer group. The board concluded that the performance was such that each advisory arrangement should continue. Information about each fund’s 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 expenses were 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.
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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.
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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.
67
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.
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The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best
interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on
the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and
provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with
Vanguard or the funds they oversee, apart from the sizable personal investments they have made as
private individuals. The independent board members have distinguished backgrounds in business,
academia, and public service. Each of the trustees and executive officers oversees 198 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. The mailing
address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482. 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 manage- |
ment products and services); Executive in Residence |
and 2009–2010 Distinguished Minett Professor at |
the Rochester Institute of Technology; Lead Director |
of SPX FLOW, Inc. (multi-industry manufacturing); |
Director of the United Way of Rochester, the University |
of Rochester Medical Center, Monroe Community |
College Foundation, North Carolina A&T University, |
and Roberts Wesleyan College. |
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), HP Inc. (printer and personal 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) and the Robert Wood |
Johnson Foundation; 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, the Board of Advisors |
for Spruceview Capital Partners, and the Investment |
Advisory Committee of Major League Baseball; Board |
Member of TIFF Advisory Services, Inc., and Catholic |
Investment Services, Inc. (investment advisors). |
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); Chairman of the |
Board of Trustees of Colby-Sawyer College; |
Member of the Advisory Board of the Norris |
Cotton Cancer Center. |
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 ManagementTeam | |
Mortimer J. Buckley | James M. Norris |
Kathleen C. Gubanich | Thomas M. Rampulla |
Martha G. King | Glenn W. Reed |
John T. Marcante | Karin A. Risi |
Chris D. McIsaac | Michael Rollings |
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.
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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. | |
© 2016 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q8280 102016 |
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. All members of the Audit Committee have been determined by the Registrant’s Board of Trustees to be Audit Committee Financial Experts and to be independent: Rajiv L. Gupta, JoAnn Heffernan Heisen, F. Joseph Loughrey, Mark Loughridge, and Peter F. Volanakis.
Item 4: Principal Accountant Fees and Services.
(a) Audit Fees.
Audit Fees of the Registrant
Fiscal Year Ended August 31, 2016: $611,000
Fiscal Year Ended August 31, 2015: $578,000
Aggregate Audit Fees of Registered Investment Companies in the Vanguard Group.
Fiscal Year Ended August 31, 2016: $9,629,849
Fiscal Year Ended August 31, 2015: $7,000,200
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, 2016: $2,717,627
Fiscal Year Ended August 31, 2015: $2,899,096
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, 2016: $254,050
Fiscal Year Ended August 31, 2015: $353,389
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, 2016: $214,225
Fiscal Year Ended August 31, 2015: $202,313
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, 2016: $468,275
Fiscal Year Ended August 31, 2015: $555,702
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 17, 2016 |
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 17, 2016 | |
| VANGUARD WORLD FUND |
BY: | /s/ THOMAS J. HIGGINS* |
THOMAS J. HIGGINS | |
CHIEF FINANCIAL OFFICER | |
Date: October 17, 2016 |
* By: /s/ Anne E. Robinson
Anne E. Robinson, pursuant to a Power of Attorney filed on October 4, 2016 see file Number 33-32548, Incorporated by Reference.