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, 2016 – August 31, 2017 | ||
Item 1: Reports to Shareholders |
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/usgrowthfundx1x1.jpg)
Annual Report | August 31, 2017
Vanguard U.S. Growth Fund
Vanguard’s Principles for Investing Success
We want to give you the best chance of investment success. These principles, grounded in Vanguard’s research and experience, can put you on the right path.
Goals. Create clear, appropriate investment goals.
Balance. Develop a suitable asset allocation using broadly diversified funds. Cost. Minimize cost.
Discipline. Maintain perspective and long-term discipline.
A single theme unites these principles: Focus on the things you can control.
We believe there is no wiser course for any investor.
Contents | |
Your Fund’s Performance at a Glance. | 1 |
Chairman’s Perspective. | 3 |
Advisors’ Report. | 7 |
Fund Profile. | 13 |
Performance Summary. | 15 |
Financial Statements. | 17 |
Your Fund’s After-Tax Returns. | 33 |
About Your Fund’s Expenses. | 34 |
Glossary. | 36 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
About the cover: Nautical images have been part of Vanguard’s rich heritage since its start in 1975. For an incoming ship, a lighthouse offers a beacon and safe path to shore. You can similarly depend on Vanguard to put you first––and light the way––as you strive to meet your financial goals. Our client focus and low costs, stemming from our unique ownership structure, assure that your interests are paramount.
Your Fund’s Performance at a Glance
• Vanguard U.S. Growth Fund returned about 19% for the 12 months ended August 31, 2017. It trailed its benchmark’s 20.82% result and the 19.84% average return of its peers.
• Information technology stocks, which made up nearly half the portfolio’s assets at the end of the period, returned nearly 35%. The advisors’ heavy exposure to the sector and stock holdings within it also boosted relative performance.
• Financial, health care, and consumer discretionary stocks also made significant contributions to the fund’s return, although the advisors’ holdings hurt relative performance in the three sectors.
• The fund’s average annual return over the past ten years trailed that of its benchmark index but surpassed that of its peer group.
Total Returns: Fiscal Year Ended August 31, 2017 | |
Total | |
Returns | |
Vanguard U.S. Growth Fund | |
Investor Shares | 19.24% |
Admiral™ Shares | 19.42 |
Russell 1000 Growth Index | 20.82 |
Large-Cap Growth Funds Average | 19.84 |
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, 2017 | |
Average | |
Annual Return | |
U.S. Growth Fund Investor Shares | 8.62% |
Russell 1000 Growth Index | 9.39 |
Large-Cap Growth Funds Average | 7.74 |
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.
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Expense Ratios
Your Fund Compared With Its Peer Group
Investor | Admiral | Peer Group | |
Shares | Shares | Average | |
U.S. Growth Fund | 0.46% | 0.32% | 1.14% |
The fund expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal
year. For the fiscal year ended August 31, 2017, the expense ratios were 0.43% for Investor Shares and 0.30% 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 2016.
Peer group: Large-Cap Growth Funds.
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Chairman’s Perspective
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/usgrowthfundx5x1.jpg)
Bill McNabb
Chairman and Chief Executive Officer
Dear Shareholder,
Since mid-August we’ve been reaching out to you about the proposals put forth by the Vanguard funds that, if approved, will enable us to manage the funds more efficiently and effectively. As the November deadline for voting approaches, I’d like to offer some perspective on a few of the proposals that I believe are important to the way Vanguard operates and manages your investments. I hope you consider this information and promptly cast your ballot.
Your biggest advocate
The main driver for this proxy solicitation is to ask all our fund shareholders to elect a full slate of trustees who oversee each U.S.-based Vanguard mutual fund. These trustees serve an important role, making sure your funds are managed in your best interests. This includes monitoring fund performance, approving advisory agreements, and ensuring that we’re keeping your investment costs as low as possible. Simply put, they are your biggest advocate.
Each trustee brings a variety of skills and professional experiences that contribute to the board’s strength and diversity. Of the 12 nominees, nine currently serve on the board, and three are new. If elected, the new board would include ten independent members, meaning they have no affiliation with Vanguard or the funds apart from any investments they may choose to make as private individuals.
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These are the proposed new trustees:
• Sarah Bloom Raskin is a former member of the Federal Reserve Board of Governors and former deputy secretary of the U.S. Treasury Department. She is an expert in cybersecurity—a critically important issue at Vanguard, as we place a premium on protecting clients’ assets and sensitive data.
• Deanna Mulligan is chief executive officer of The Guardian Life Insurance Company of America. It’s rare to find a CEO such as Deanna who leads a company with a mutual ownership structure similar to Vanguard’s.
• Tim Buckley is president and a director of Vanguard and will succeed me in January as CEO. (I’ll remain chairman for a period to be determined by the board.) I interviewed Tim when he applied for his first job here in 1991 and again when he was graduating from Harvard Business School. I was thrilled he picked Vanguard as a place to build his career, and I’ve been delighted to see him take on several leadership positions, including as head of our Retail Investor Group, chief information officer, and chief investment officer. I can think of no one better prepared to succeed me.
Market Barometer | |||
Average Annual Total Returns | |||
Periods Ended August 31, 2017 | |||
One Year | Three Years | Five Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 16.16% | 9.21% | 14.37% |
Russell 2000 Index (Small-caps) | 14.91 | 7.67 | 13.15 |
Russell 3000 Index (Broad U.S. market) | 16.06 | 9.08 | 14.27 |
FTSE All-World ex US Index (International) | 18.74 | 2.80 | 7.76 |
Bonds | |||
Bloomberg Barclays U.S. Aggregate Bond Index | |||
(Broad taxable market) | 0.49% | 2.64% | 2.19% |
Bloomberg Barclays Municipal Bond Index | |||
(Broad tax-exempt market) | 0.88 | 3.40 | 3.23 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.58 | 0.25 | 0.16 |
CPI | |||
Consumer Price Index | 1.94% | 1.06% | 1.28% |
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Vanguard believes that diversity of thought, background, and experience, as well as diversity of personal characteristics, meaningfully contributes to the board’s ability to effectively serve shareholders. If Sarah and Deanna are elected, women will account for 40% of the board’s independent trustees.
I should note that even as Vanguard is nominating three new board members, we’re saying goodbye to trustee Rajiv Gupta. Rajiv was a legendary CEO of Rohm and Haas Co., and Vanguard and our clients have benefited greatly from his expertise. I wish him a happy retirement.
Summarizing the proposals
Among the trustees’ leading responsibilities is overseeing the funds’ internal and external investment advisory agreements. The trustees, in consultation with our Global Investment Committee and our Portfolio Review Department, choose the investment advisors that manage client assets. Over decades, we have built a strong track record of picking advisors whose portfolio management strategies have served clients well.
Two proposals in the proxy focus on this oversight responsibility. Shareholders of 48 Vanguard funds have already voted to allow the board to make external advisor changes without obtaining prior shareholder approval. The new proposals would extend that policy across our entire U.S.-based fund lineup and expand it to include internal advisory agreements with Vanguard subsidiaries. Eliminating the need for shareholder approval removes a step that is costly and time-consuming if done frequently or on an individual fund basis. Although there are no current plans to employ the policy on any Vanguard-managed funds, standardizing it enables the trustees to retain an advisory firm to diversify a fund’s management team or ensure management continuity should a contingency arise.
I also encourage shareholders of several specific Vanguard index funds to read the proxy proposals that affect those funds. One proposal would change the investment objective of Vanguard REIT Index Fund and Vanguard Variable Insurance Fund REIT Index Portfolio to include real estate-related securities, aligning the funds with updated industry-sector classification methodology. Another proposal seeks to change the diversification status of the REIT Index Fund to enable it to better track its benchmark. Finally, we seek your approval of the Funds’ Service Agreement for Vanguard Institutional Index Fund and Vanguard Institutional Total Stock Market Index Fund. If approved, this arrangement would then be standardized across Vanguard’s entire publicly available U.S. mutual fund lineup. It should also reduce costs and minimum initial investment requirements in select share classes.
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At the ballot box
We hope you’ll make it a priority to cast your ballot. We want to avoid the added time and cost of soliciting sufficient votes should we not obtain a quorum by the shareholder meeting on November 15, when voting concludes. Ultimately, we believe the proposals I’ve discussed are in your best interest as Vanguard fund shareholders, and the trustees recommend that you vote in favor of them. For more information, visit vanguard.com and enter the search term “proxy.”
As always, thank you for investing with Vanguard.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/usgrowthfundx8x1.jpg)
F. William McNabb III
Chairman and Chief Executive Officer
September 14, 2017
Advisors’ Report
For the 12 months ended August 31, 2017, Vanguard U.S. Growth Fund returned about 19%. It trailed its benchmark, the Russell 1000 Growth Index, and 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 12 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 21, 2017.
Jackson Square Partners, LLC
Portfolio Managers:
Jeffrey S. Van Harte, CFA,
Chairman and Chief Investment Officer
Christopher J. Bonavico, CFA,
Equity Analyst
Christopher M. Ericksen, CFA,
Equity Analyst
Daniel J. Prislin, CFA,
Equity Analyst
As you would expect from our fundamental, bottom-up approach, stock selection is the primary driver of the portfolio’s performance.
TripAdvisor was the largest detractor from performance during the period because of its continued struggles in monetizing its hotel offerings and the underwhelming reviews of its mobile application. The company’s monetization plans have been executed more slowly than investors might have expected or hoped. But we still believe that the company has an undervalued asset of 400 million travelers interested in reviews, hotels, restaurants, and activities and that this asset is worth more than recognized at the current depressed valuation.
The top contributor was PayPal Holdings. PayPal has increasing business momentum and sees significant growth in total payment volume and active users. Venmo, PayPal’s peer-to-peer payment offering, has grown significantly, with $8 billion in transaction volume during the second quarter of 2017, up 103% year over year. We believe that PayPal’s core payment product will continue to perform as it expands its reach into physical merchants via Venmo and infrastructure offerings via Braintree.
Regardless of policy outcomes or macro-investor confidence, we remain consistent in our long-term investment philosophy: We want to own what we view as strong secular-growth companies with solid
business models and competitive positions that we believe can grow market share 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 aim for our portion of the fund to outperform growth benchmarks and, in the longer term, the broader market. We employ proprietary fundamental research and a rigorous valuation discipline to invest in large-capitalization companies with attractive growth characteristics.
Our investment approach is based on identifying companies with a clear competitive advantage that will enable them to sustain above-average growth.
Weak security selection in the industrial, consumer discretionary, and information technology sectors weighed on our portion of the fund over the last 12 months. Our selection within health care and financials also detracted from relative results. Our selection was stronger in consumer staples and real estate, helping to partially offset negative performance. Overweight exposure to information technology and underweight exposure to consumer staples (a fallout of our bottom-up stock selection) also aided performance.
The largest detractors from relative performance included Uber Technologies, a privately held transportation and ride-sharing company; Under Armour, a maker of athletic apparel; and O’Reilly Automotive, a parts retailer.
Netflix, a video-streaming company, was the leading contributor during the period. Other contributors included Alibaba, a Chinese e-commerce company, and ServiceNow, a provider of cloud-based services.
At the period’s close, we were most overweight in information technology, financials, and industrials. We reduced our exposure to consumer discretionary, where we are now underweight. We also remained underweight in materials, health care, and consumer staples as of the end of the period.
In this environment of moderate global growth and elevated uncertainty, we have maintained 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.
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William Blair Investment
Management, LLC
Portfolio Managers:
James Golan, CFA,
Partner
David Ricci, CFA,
Partner
While large-cap growth stocks advanced significantly over the year, the impact of style factors on our portfolio was largely neutral. Our higher growth bias, and resulting lower dividend yield exposure, was a tailwind, while our emphasis on companies with more durable business models was a headwind as companies with more volatile fundamentals outperformed.
Stock selection in consumer discretionary detracted from performance, in part because of positions in O’Reilly Automotive, Chipotle Mexican Grill, and Starbucks. O’Reilly Automotive was the top detractor in the sector because of weaker-than-expected sales and investor concerns about online competition potentially disrupting the aftermarket auto parts industry. Other notable detractors included grocery retailer Kroger and Cerner, a health care technology company. In addition, not owning Apple, the largest position in the benchmark, detracted meaningfully from relative returns.
Top contributors were software company Adobe Systems and health insurer UnitedHealth Group. Adobe reported strong financial results driven by its dominance in creative software. UnitedHealth was a beneficiary of the secular shift to managed care and value-based medicine. Other top contributors were information technology holdings Red Hat, Mastercard, and Microsoft.
As bottom-up, fundamental stock pickers, we maintain our focus on identifying businesses with idiosyncratic growth drivers that should power through a variety of economic or market scenarios and whose stocks present attractive risk/ reward opportunities. We believe that if we can identify and invest in high-quality companies with more durable growth opportunities than the market expects, investors in the stocks of those companies should be rewarded.
Jennison Associates LLC
Portfolio Managers:
Kathleen A. McCarragher,
Managing Director
Blair A. Boyer,
Managing Director
The unconventional U.S. presidential election and the new administration’s shaky start contributed to market volatility during the period. The initial favorable
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market response to the election reflected anticipation of lower corporate tax rates, a less onerous regulatory environment, and increased spending on infrastructure. With legislative accomplishments elusive and factionalism impeding cooperation, market expectations moderated. Solid U.S. economic fundamentals included moderate GDP expansion, robust employment, and accelerating corporate profit growth.
Technology holdings were strong contributors to performance. Apple’s strength reflected the continued proliferation of its platform across the mobile phone, tablet, and personal computer landscape as well as the financial power related to Apple’s attractive margin profile regarding the profitability of its hardware products. Alibaba, with its dominant market share in important Chinese online businesses, saw significant revenue synergies and deeper engagement of buyers, merchants, advertisers, and cloud customers. Graphics chipmaker Nvidia benefited from its strength in key high-growth markets where developers have coalesced around its architecture and platform. Tencent gained from its dominant position in China’s online gaming and instant messaging markets and its advertising and payment service efforts.
In consumer discretionary, Netflix posted strong subscriber growth and international profits. Tesla rose on the introduction of its lower-cost electric vehicle, which targets the mainstream automotive market.
Health care holdings advanced but lagged the benchmark sector. Alexion Pharmaceuticals declined on news of an investigation into its sales practices and management shakeups. Allergan experienced challenges as it transitions to a future more dependent on volume growth than drug price increases. Shire was hurt by increased competition for its hemophilia drugs.
Baillie Gifford Overseas Ltd.
Portfolio Managers:
Tom Slater, Investment Manager, Partner Gary Robinson, Investment Manager
The U.S. market offers great long-term growth opportunities. A small number of outstanding growth companies in America are driving innovation and changing the world. In our view, their valuations continue to vastly underestimate their future potential. We are obsessed with capturing the long-term asymmetry of the U.S. equity market.
Notable contributors to performance included Tesla, which delivered its first mass-market Model 3 electric cars in July; Wayfair, the online furnishing company, which accelerated revenue growth as investments in distribution took hold; Netflix, which added subscribers as it invested heavily in original content; and Vertex Pharmaceuticals, which announced excellent clinical trial results for its cystic fibrosis drugs.
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Among the main detractors were TripAdvisor, Under Armour, and Now, the global industrial distributor. TripAdvisor has struggled to expand from just search and price comparison to include direct booking. We continue to monitor progress and consider the growth potential of this bold move to change the business; other holdings have benefited from similarly aggressive strategic shifts in the past.
We focus on finding and holding exceptional growth companies, as defined by their culture, growth opportunity, and competitive edge. Competition for capital in the portfolio remains high; turnover is very low. We are, however, sufficiently excited by HEICO (generic aircraft parts), Redfin (web-based realty agent), and Shopify (innovative e-commerce platform) to have added them to the portfolio. Funding came from the complete sales of M&T Bank, Harley-Davidson, and Bristol-Myers Squibb.
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Vanguard U.S. Growth Fund Investment Advisors | |||
Fund Assets Managed | |||
Investment Advisor | % | $ Million | Investment Strategy |
Jackson Square Partners, LLC | 36 | 2,844 | 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 | 2,835 | 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 | 12 | 972 | Uses a fundamental investment approach in pursuit |
Management, LLC | of superior long-term investment results from | ||
growth-oriented companies with leadership positions | |||
and strong market presence. | |||
Jennison Associates LLC | 7 | 524 | Uses a research-driven, fundamental investment |
approach that relies on in-depth company knowledge | |||
gleaned through meetings with management, | |||
customers, and suppliers. | |||
Baillie Gifford Overseas Ltd. | 6 | 501 | Uses a long-term, active, bottom-up investment |
approach to identify companies that can generate | |||
above-average growth in earnings and cash flow. | |||
Cash Investments | 3 | 228 | These short-term reserves are invested by Vanguard |
in equity index products to simulate investment in | |||
stocks. Each advisor may also maintain a modest | |||
cash position. |
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U.S. Growth Fund
Fund Profile
As of August 31, 2017
Share-Class Characteristics | ||
Investor | Admiral | |
Shares | Shares | |
Ticker Symbol | VWUSX | VWUAX |
Expense Ratio1 | 0.46% | 0.32% |
30-Day SEC Yield | 0.31% | 0.43% |
Portfolio Characteristics | |||
DJ | |||
U.S. | |||
Russell | Total | ||
1000 | Market | ||
Growth | FA | ||
Fund | Index | Index | |
Number of Stocks | 151 | 552 | 3,769 |
Median Market Cap | $66.9B | $86.8B | $63.1B |
Price/Earnings Ratio | 27.8x | 26.2x | 21.6x |
Price/Book Ratio | 5.3x | 6.3x | 2.8x |
Return on Equity | 16.7% | 21.8% | 15.1% |
Earnings Growth | |||
Rate | 14.4% | 12.6% | 9.4% |
Dividend Yield | 0.7% | 1.3% | 1.8% |
Foreign Holdings | 1.4% | 0.0% | 0.0% |
Turnover Rate | 27% | — | — |
Short-Term Reserves | 0.9% | — | — |
Volatility Measures | ||
DJ | ||
U.S. Total | ||
Russell 1000 | Market | |
Growth Index | FA Index | |
R-Squared | 0.92 | 0.77 |
Beta | 1.01 | 0.96 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months. | ||
Ten Largest Holdings (% of total net assets) | ||
Alphabet Inc. | Internet Software & | |
Services | 5.7% | |
Facebook Inc. | Internet Software & | |
Services | 4.2 | |
Microsoft Corp. | Systems Software | 4.0 |
Mastercard Inc. | Data Processing & | |
Outsourced Services | 3.4 | |
PayPal Holdings Inc. | Data Processing & | |
Outsourced Services | 3.2 | |
Visa Inc. | Data Processing & | |
Outsourced Services | 3.1 | |
Apple Inc. | Technology | |
Hardware, Storage & | ||
Peripherals | 2.9 | |
Celgene Corp. | Biotechnology | 2.8 |
Amazon.com Inc. | Internet & Direct | |
Marketing Retail | 2.5 | |
eBay Inc. | Internet Software & | |
Services | 2.2 | |
Top Ten | 34.0% | |
The holdings listed exclude any temporary cash investments and equity index products. | ||
Investment Focus
1 The expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2017, the expense ratios were 0.43% for Investor Shares and 0.30% for Admiral Shares.
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U.S. Growth Fund
Sector Diversification (% of equity exposure) | |||
Russell | DJ | ||
1000 | U.S. Total | ||
Growth | Market | ||
Fund | Index | FA Index | |
Consumer Discretionary 14.6% | 17.8% | 12.4% | |
Consumer Staples | 3.0 | 6.9 | 7.6 |
Energy | 0.2 | 0.8 | 5.3 |
Financials | 7.2 | 3.3 | 14.7 |
Health Care | 14.4 | 13.8 | 14.1 |
Industrials | 8.9 | 12.1 | 10.7 |
Information Technology | 45.6 | 37.9 | 22.6 |
Materials | 0.7 | 3.7 | 3.3 |
Other | 1.5 | 0.0 | 0.0 |
Real Estate | 3.7 | 2.7 | 4.1 |
Telecommunication | |||
Services | 0.1 | 1.0 | 1.9 |
Utilities | 0.1 | 0.0 | 3.3 |
Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” category (if applicable), which includes securities that have not been provided a GICS
classification as of the effective reporting period.
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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, 2007, Through August 31, 2017
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/usgrowthfundx17x1.jpg)
Average Annual Total Returns | |||||
Periods Ended August 31, 2017 | |||||
Final Value | |||||
One | Five | Ten | of a $10,000 | ||
Year | Years | Years | Investment | ||
U.S. Growth Fund Investor Shares | 19.24% | 15.70% | 8.62% | $22,868 | |
• • • • • • • • | Russell 1000 Growth Index | 20.82 | 15.41 | 9.39 | 24,535 |
– – – – | Large-Cap Growth Funds Average | 19.84 | 13.99 | 7.74 | 21,065 |
Dow Jones U.S. Total Stock Market | |||||
Float Adjusted Index | 16.05 | 14.19 | 7.76 | 21,122 | |
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 | 19.42% | 15.87% | 8.79% | $116,077 |
Russell 1000 Growth Index | 20.82 | 15.41 | 9.39 | 122,677 |
Dow Jones U.S. Total Stock Market Float | ||||
Adjusted Index | 16.05 | 14.19 | 7.76 | 105,609 |
See Financial Highlights for dividend and capital gains information.
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U.S. Growth Fund
Fiscal-Year Total Returns (%): August 31, 2007, Through August 31, 2017
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/usgrowthfundx18x1.jpg)
Average Annual Total Returns: Periods Ended June 30, 2017
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 | 18.93% | 15.35% | 8.08% |
Admiral Shares | 8/13/2001 | 19.08 | 15.51 | 8.24 |
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U.S. Growth Fund
Financial Statements
Statement of Net Assets
As of August 31, 2017
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Market | |||
Value• | |||
Shares | ($000) | ||
Common Stocks (94.9%)1 | |||
Consumer Discretionary (14.1%) | |||
* | Amazon.com Inc. | 197,949 | 194,109 |
* | Netflix Inc. | 623,314 | 108,899 |
* | Liberty Interactive Corp. | ||
QVC Group Class A | 4,592,892 | 101,595 | |
Home Depot Inc. | 603,494 | 90,446 | |
* | Liberty Global plc | 2,411,723 | 79,659 |
* | TripAdvisor Inc. | 1,704,531 | 72,835 |
Dollar General Corp. | 760,698 | 55,196 | |
^ | Tesla Inc. | 141,254 | 50,272 |
* | Priceline Group Inc. | 26,556 | 49,184 |
* | O’Reilly Automotive Inc. | 206,305 | 40,462 |
Starbucks Corp. | 665,700 | 36,520 | |
Hilton Worldwide | |||
Holdings Inc. | 409,574 | 26,348 | |
Ross Stores Inc. | 385,212 | 22,516 | |
* | Liberty Global plc Class A | 650,579 | 22,120 |
Las Vegas Sands Corp. | 337,648 | 21,005 | |
Wayfair Inc. | 239,189 | 16,985 | |
*,^ | Chipotle Mexican Grill Inc. | ||
Class A | 48,290 | 15,294 | |
* | AutoZone Inc. | 27,527 | 14,546 |
Charter Communications | |||
Inc. Class A | 33,440 | 13,327 | |
*,^ | Under Armour Inc. | 778,128 | 11,750 |
adidas AG | 51,679 | 11,607 | |
Marriott International Inc. | |||
Class A | 105,194 | 10,896 | |
Vail Resorts Inc. | 46,100 | 10,508 | |
NIKE Inc. Class B | 187,660 | 9,910 | |
McDonald’s Corp. | 61,817 | 9,889 | |
Industria de Diseno Textil | |||
SA ADR | 495,625 | 9,447 | |
CarMax Inc. | 89,514 | 6,011 | |
Expedia Inc. | 13,804 | 2,048 | |
1,113,384 |
Market | |||
Value• | |||
Shares | ($000) | ||
Consumer Staples (2.7%) | |||
* | Monster Beverage Corp. | 1,516,881 | 84,673 |
Estee Lauder Cos. Inc. | |||
Class A | 575,437 | 61,566 | |
Constellation Brands Inc. | |||
Class A | 209,016 | 41,824 | |
PepsiCo Inc. | 145,790 | 16,872 | |
Costco Wholesale Corp. | 32,245 | 5,054 | |
Brown-Forman Corp. | |||
Class B | 80,411 | 4,265 | |
214,254 | |||
Energy (0.1%) | |||
Schlumberger Ltd. | 114,900 | 7,297 | |
Financials (6.8%) | |||
Intercontinental | |||
Exchange Inc. | 2,426,984 | 156,953 | |
Charles Schwab Corp. | 1,834,349 | 73,191 | |
MarketAxess Holdings | |||
Inc. | 264,575 | 51,050 | |
* | Markel Corp. | 42,686 | 44,905 |
Marsh & McLennan | |||
Cos. Inc. | 437,864 | 34,188 | |
Progressive Corp. | 636,000 | 29,561 | |
TD Ameritrade Holding | |||
Corp. | 616,224 | 26,695 | |
MSCI Inc. Class A | 218,663 | 25,061 | |
Affiliated Managers | |||
Group Inc. | 121,600 | 21,485 | |
First Republic Bank | 221,016 | 21,450 | |
Bank of America Corp. | 766,273 | 18,306 | |
American Express Co. | 104,261 | 8,977 | |
Morgan Stanley | 174,403 | 7,935 | |
Goldman Sachs Group Inc. | 34,029 | 7,614 | |
Interactive Brokers Group | |||
Inc. | 162,552 | 6,816 | |
534,187 |
17
U.S. Growth Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Health Care (13.9%) | |||
* | Celgene Corp. | 1,589,961 | 220,893 |
* | Biogen Inc. | 432,474 | 136,904 |
* | Quintiles IMS | ||
Holdings Inc. | 1,006,115 | 96,617 | |
Allergan plc | 391,319 | 89,800 | |
UnitedHealth Group Inc. | 437,206 | 86,960 | |
Bristol-Myers Squibb Co. | 1,241,057 | 75,059 | |
Dentsply Sirona Inc. | 1,254,358 | 70,959 | |
* | Edwards Lifesciences | ||
Corp. | 416,041 | 47,287 | |
Zoetis Inc. | 605,500 | 37,965 | |
* | ABIOMED Inc. | 218,707 | 32,981 |
Thermo Fisher Scientific | |||
Inc. | 160,894 | 30,110 | |
* | Vertex Pharmaceuticals | ||
Inc. | 185,649 | 29,804 | |
Illumina Inc. | 139,019 | 28,424 | |
* | Regeneron | ||
Pharmaceuticals Inc. | 48,288 | 23,994 | |
Danaher Corp. | 280,900 | 23,433 | |
* | Cerner Corp. | 234,500 | 15,894 |
* | DexCom Inc. | 204,719 | 15,274 |
BioMarin Pharmaceutical | |||
Inc. | 120,546 | 10,872 | |
Waters Corp. | 55,868 | 10,251 | |
Juno Therapeutics Inc. | 135,822 | 5,605 | |
Alnylam Pharmaceuticals | |||
Inc. | 58,026 | 4,975 | |
Boston Scientific Corp. | 173,132 | 4,770 | |
Seattle Genetics Inc. | 45,430 | 2,387 | |
1,101,218 | |||
Industrials (8.5%) | |||
FedEx Corp. | 455,957 | 97,748 | |
Nielsen Holdings plc | 1,385,263 | 53,818 | |
* | Verisk Analytics Inc. | ||
Class A | 619,165 | 50,183 | |
* | TransUnion | 914,489 | 43,768 |
AMETEK Inc. | 629,824 | 39,836 | |
Fastenal Co. | 893,796 | 38,138 | |
Lockheed Martin Corp. | 121,810 | 37,200 | |
* | IHS Markit Ltd. | 759,136 | 35,558 |
Equifax Inc. | 246,698 | 35,147 | |
Union Pacific Corp. | 316,200 | 33,296 | |
Fortive Corp. | 454,266 | 29,514 | |
TransDigm Group Inc. | 106,976 | 27,884 | |
Northrop Grumman Corp. | 95,682 | 26,046 | |
Fortune Brands Home & | |||
Security Inc. | 342,001 | 21,385 | |
JB Hunt Transport | |||
Services Inc. | 211,180 | 20,884 | |
Snap-on Inc. | 99,127 | 14,628 | |
Raytheon Co. | 78,300 | 14,251 | |
Watsco Inc. | 92,794 | 13,674 |
Market | |||
Value• | |||
Shares | ($000) | ||
Boeing Co. | 56,451 | 13,529 | |
Parker-Hannifin Corp. | 55,838 | 8,984 | |
^ | Wabtec Corp. | 101,519 | 7,164 |
CSX Corp. | 137,776 | 6,916 | |
NOW Inc. | 307,754 | 3,588 | |
HEICO Corp. Class A | 31,130 | 2,262 | |
675,401 | |||
Information Technology (44.6%) | |||
* | Facebook Inc. Class A | 1,922,773 | 330,659 |
Microsoft Corp. | 4,226,982 | 316,051 | |
* | Alphabet Inc. Class C | 298,842 | 280,711 |
Mastercard Inc. Class A | 2,042,608 | 272,280 | |
* | PayPal Holdings Inc. | 4,082,898 | 251,833 |
Visa Inc. Class A | 2,384,043 | 246,796 | |
Apple Inc. | 1,380,159 | 226,346 | |
* | eBay Inc. | 4,786,912 | 172,951 |
* | Alphabet Inc. Class A | 177,194 | 169,263 |
NVIDIA Corp. | 628,018 | 106,411 | |
* | Adobe Systems Inc. | 594,235 | 92,202 |
* | Electronic Arts Inc. | 699,961 | 85,045 |
Symantec Corp. | 2,774,025 | 83,165 | |
Intuit Inc. | 565,677 | 80,015 | |
* | Alibaba Group Holding | ||
Ltd. ADR | 403,088 | 69,226 | |
* | Take-Two Interactive | ||
Software Inc. | 696,747 | 68,135 | |
ASML Holding NV | 386,679 | 60,442 | |
* | salesforce.com Inc. | 573,002 | 54,716 |
* | FleetCor Technologies | ||
Inc. | 372,831 | 53,602 | |
* | ServiceNow Inc. | 446,583 | 51,889 |
* | Autodesk Inc. | 421,303 | 48,222 |
* | Workday Inc. Class A | 419,581 | 46,024 |
* | Red Hat Inc. | 410,556 | 44,135 |
Global Payments Inc. | 406,827 | 38,848 | |
CDW Corp. | 577,625 | 36,633 | |
Alliance Data Systems | |||
Corp. | 144,593 | 32,606 | |
Accenture plc Class A | 242,700 | 31,736 | |
Texas Instruments Inc. | 349,500 | 28,946 | |
Microchip Technology Inc. | 276,516 | 24,002 | |
GrubHub Inc. | 364,128 | 20,788 | |
* | Zillow Group Inc. | 477,621 | 18,923 |
Tencent Holdings Ltd. | 430,849 | 18,130 | |
Activision Blizzard Inc. | 208,386 | 13,662 | |
Tableau Software Inc. | |||
Class A | 124,316 | 9,010 | |
Ellie Mae Inc. | 107,895 | 8,953 | |
CoStar Group Inc. | 29,335 | 8,408 | |
Shopify Inc. Class A | 70,196 | 7,786 | |
Broadcom Ltd. | 30,095 | 7,586 | |
Splunk Inc. | 78,349 | 5,256 | |
3,521,392 |
18
U.S. Growth Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Materials (0.6%) | |||
Sherwin-Williams Co. | 62,232 | 21,114 | |
PPG Industries Inc. | 159,100 | 16,597 | |
Martin Marietta Materials | |||
Inc. | 39,310 | 8,333 | |
46,044 | |||
Other (0.1%) | |||
*,2 | Cloudera Inc. | 300,088 | 5,239 |
*,2,3WeWork Class A PP | 52,398 | 2,715 | |
4 | Vanguard Growth ETF | 3,100 | 409 |
8,363 | |||
Real Estate (3.5%) | |||
Crown Castle | |||
International Corp. | 1,229,362 | 133,312 | |
Equinix Inc. | 139,136 | 65,173 | |
American Tower Corp. | 354,448 | 52,476 | |
* | SBA Communications | ||
Corp. Class A | 164,500 | 25,259 | |
^ | Redfin Corp. | 98,140 | 2,187 |
278,407 | |||
Total Common Stocks | |||
(Cost $4,761,310) | 7,499,947 | ||
Preferred Stocks (1.3%) | |||
*,2,3Uber Technologies PP | 1,408,784 | 58,408 | |
*,2,3WeWork Pfd. D1 PP | 260,418 | 13,492 | |
*,2,3Airbnb Inc. | 128,123 | 13,453 | |
*,2,3Pinterest Prf G PP | 1,596,475 | 11,461 | |
*,2,3WeWork Pfd. D2 PP | 204,614 | 10,601 | |
Total Preferred Stocks | |||
(Cost $52,987) | 107,415 |
Market | |||
Value• | |||
Shares | ($000) | ||
Temporary Cash Investments (4.0%)1 | |||
Money Market Fund (3.6%) | |||
5,6 | Vanguard Market | ||
Liquidity Fund, | |||
1.224% | 2,865,761 | 286,634 | |
Face | |||
Amount | |||
($000) | |||
Repurchase Agreement (0.3%) | |||
Bank of America Securities, | |||
LLC 1.060%, 9/1/17 | |||
(Dated 8/31/17, | |||
Repurchase Value | |||
$20,001,000, | |||
collateralized by | |||
Government National | |||
Mortgage Assn. | |||
3.167%–4.056%, | |||
10/20/65–7/20/67, with | |||
a value of $20,400,000) | 20,000 | 20,000 | |
U. S. Government and Agency Obligations (0.1%) | |||
7 | United States Treasury | ||
Bill, 0.980%, 10/5/17 | 6,000 | 5,994 | |
7 | United States Treasury | ||
Bill, 1.028%, 11/2/17 | 1,000 | 998 | |
7 | United States Treasury | ||
Bill, 1.107%, 12/28/17 | 2,100 | 2,093 | |
9,085 | |||
Total Temporary Cash Investments | |||
(Cost $315,684) | 315,719 | ||
Total Investments (100.2%) | |||
(Cost $5,129,981) | 7,923,081 |
19
U.S. Growth Fund
Amount | |
($000) | |
Other Assets and Liabilities (-0.2%) | |
Other Assets | |
Investment in Vanguard | 496 |
Receivables for Investment Securities Sold 17,701 | |
Receivables for Accrued Income | 9,055 |
Receivables for Capital Shares Issued | 3,927 |
Variation Margin Receivable – | |
Futures Contracts | 1,458 |
Other Assets | 49 |
Total Other Assets | 32,686 |
Liabilities | |
Payables for Investment Securities | |
Purchased | (16,380) |
Collateral for Securities on Loan | (15,903) |
Payables to Investment Advisor | (3,475) |
Payables for Capital Shares Redeemed | (3,781) |
Payables to Vanguard | (12,128) |
Total Liabilities | (51,667) |
Net Assets (100%) | 7,904,100 |
At August 31, 2017, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 4,809,846 |
Undistributed Net Investment Income | 12,569 |
Accumulated Net Realized Gains | 286,741 |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 2,793,100 |
Futures Contracts | 1,843 |
Foreign Currencies | 1 |
Net Assets | 7,904,100 |
Amount | |
($000) | |
Investor Shares—Net Assets | |
Applicable to 115,465,470 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 4,113,172 |
Net Asset Value Per Share— | |
Investor Shares | $35.62 |
Admiral Shares—Net Assets | |
Applicable to 41,099,606 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 3,790,928 |
Net Asset Value Per Share— | |
Admiral Shares | $92.24 |
• 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 $15,439,000.
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 97.8% and 1.1%,
respectively, of net assets.
2 Restricted securities totaling $115,370,000, representing 1.5%
of net assets.
3 Security value determined using significant unobservable inputs.
4 Considered an affiliated company of the fund as the issuer is
another member of The Vanguard Group.
5 Affiliated money market fund available only to Vanguard funds
and certain trusts and accounts managed by Vanguard. Rate
shown is the 7-day yield.
6 Includes $15,903,000 of collateral received for securities on loan.
7 Securities with a value of $8,136,000 have been segregated as
initial margin for open futures contracts.
ADR—American Depositary Receipt.
PP—Private Placement.
20
U.S. Growth Fund | ||||
Derivative Financial Instruments Outstanding as of Period End | ||||
Futures Contracts | ||||
($000) | ||||
Value and | ||||
Number of | Unrealized | |||
Long (Short) | Notional | Appreciation | ||
Expiration | Contracts | Amount | (Depreciation) | |
Long Futures Contracts | ||||
E-mini S&P 500 Index | September 2017 | 1,497 | 184,887 | 2,562 |
E-mini S&P Mid-Cap 400 Index | September 2017 | 262 | 45,336 | (719) |
1,843 |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
See accompanying Notes, which are an integral part of the Financial Statements.
21
U.S. Growth Fund | |
Statement of Operations | |
Year Ended | |
August 31,2017 | |
($000) | |
Investment Income | |
Income | |
Dividends1,2 | 61,231 |
Interest1 | 2,108 |
Securities Lending—Net | 413 |
Total Income | 63,752 |
Expenses | |
Investment Advisory Fees—Note B | |
Basic Fee | 12,311 |
Performance Adjustment | (553) |
The Vanguard Group—Note C | |
Management and Administrative—Investor Shares | 9,061 |
Management and Administrative—Admiral Shares | 3,825 |
Marketing and Distribution—Investor Shares | 567 |
Marketing and Distribution—Admiral Shares | 254 |
Custodian Fees | 81 |
Auditing Fees | 40 |
Shareholders’ Reports and Proxy—Investor Shares | 295 |
Shareholders’ Reports and Proxy—Admiral Shares | 45 |
Trustees’ Fees and Expenses | 17 |
Total Expenses | 25,943 |
Expenses Paid Indirectly | (212) |
Net Expenses | 25,731 |
Net Investment Income | 38,021 |
Realized Net Gain (Loss) | |
Investment Securities Sold1 | 357,326 |
Futures Contracts | 19,375 |
Realized Net Gain (Loss) | 376,701 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | 862,232 |
Futures Contracts | 941 |
Foreign Currencies | 1 |
Change in Unrealized Appreciation (Depreciation) | 863,174 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 1,277,896 |
1 Dividend income, interest income, and realized net gain (loss) from affiliated companies of the fund were $5,000, $1,944,000, and $1,000, respectively.
2 Dividends are net of foreign withholding taxes of $120,000.
See accompanying Notes, which are an integral part of the Financial Statements.
22
U.S. Growth Fund | ||
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2017 | 2016 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 38,021 | 38,023 |
Realized Net Gain (Loss) | 376,701 | 71,168 |
Change in Unrealized Appreciation (Depreciation) | 863,174 | 333,653 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 1,277,896 | 442,844 |
Distributions | ||
Net Investment Income | ||
Investor Shares | (14,717) | (19,111) |
Admiral Shares | (16,728) | (16,735) |
Realized Capital Gain1 | ||
Investor Shares | (38,970) | (327,359) |
Admiral Shares | (32,022) | (218,490) |
Total Distributions | (102,437) | (581,695) |
Capital Share Transactions | ||
Investor Shares | (313,395) | (96,179) |
Admiral Shares | 181,650 | 699,217 |
Net Increase (Decrease) from Capital Share Transactions | (131,745) | 603,038 |
Total Increase (Decrease) | 1,043,714 | 464,187 |
Net Assets | ||
Beginning of Period | 6,860,386 | 6,396,199 |
End of Period2 | 7,904,100 | 6,860,386 |
1 Includes fiscal 2017 and 2016 short-term gain distributions totaling $0 and $0, respectively. Short-term gain distributions are treated as ordinary income dividends for tax purposes.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $12,569,000 and $7,918,000.
See accompanying Notes, which are an integral part of the Financial Statements.
23
U.S. Growth Fund | |||||
Financial Highlights | |||||
Investor Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 |
Net Asset Value, Beginning of Period | $30.32 | $30.89 | $31.03 | $24.67 | $20.79 |
Investment Operations | |||||
Net Investment Income | .1511 | .151 | .169 | .168 | .134 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 5.590 | 1.944 | 2.168 | 6.303 | 3.861 |
Total from Investment Operations | 5.741 | 2.095 | 2.337 | 6.471 | 3.995 |
Distributions | |||||
Dividends from Net Investment Income | (.121) | (.147) | (.194) | (.111) | (.115) |
Distributions from Realized Capital Gains | (.320) | (2.518) | (2.283) | — | — |
Total Distributions | (.441) | (2.665) | (2.477) | (.111) | (.115) |
Net Asset Value, End of Period | $35.62 | $30.32 | $30.89 | $31.03 | $24.67 |
Total Return2 | 19.24% | 6.89% | 7.96% | 26.29% | 19.31% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $4,113 | $3,794 | $3,975 | $4,038 | $3,137 |
Ratio of Total Expenses to Average Net Assets3 | 0.43% | 0.46% | 0.47% | 0.44% | 0.45% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 0.47% | 0.50% | 0.53% | 0.59% | 0.59% |
Portfolio Turnover Rate | 27% | 32% | 38% | 36% | 38% |
1 Calculated based on average shares outstanding.
2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
3 Includes performance-based investment advisory fee increases (decreases) of (0.01%), 0.02%, 0.03%, (0.01%), and (0.01%).
See accompanying Notes, which are an integral part of the Financial Statements.
24
U.S. Growth Fund | |||||
Financial Highlights | |||||
Admiral Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 |
Net Asset Value, Beginning of Period | $78.52 | $80.01 | $80.37 | $63.91 | $53.85 |
Investment Operations | |||||
Net Investment Income | . 5021 | .506 | .563 | .557 | .440 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 14.480 | 5.018 | 5.607 | 16.293 | 10.002 |
Total from Investment Operations | 14.982 | 5.524 | 6.170 | 16.850 | 10.442 |
Distributions | |||||
Dividends from Net Investment Income | (. 433) | (. 499) | (. 623) | (. 390) | (. 382) |
Distributions from Realized Capital Gains | (.829) | (6.515) | (5.907) | — | — |
Total Distributions | (1.262) | (7.014) | (6.530) | (.390) | (.382) |
Net Asset Value, End of Period | $92.24 | $78.52 | $80.01 | $80.37 | $63.91 |
Total Return2 | 19.42% | 7.03% | 8.12% | 26.44% | 19.51% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $3,791 | $3,066 | $2,421 | $1,868 | $1,141 |
Ratio of Total Expenses to Average Net Assets3 | 0.30% | 0.32% | 0.33% | 0.30% | 0.31% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 0.60% | 0.64% | 0.67% | 0.73% | 0.73% |
Portfolio Turnover Rate | 27% | 32% | 38% | 36% | 38% |
1 Calculated based on average shares outstanding.
2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
3 Includes performance-based investment advisory fee increases (decreases) of (0.01%), 0.02%, 0.03%, (0.01%), and (0.01%).
See accompanying Notes, which are an integral part of the Financial Statements.
25
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 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.
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.
26
U.S. Growth Fund
Futures contracts are valued at their quoted daily settlement prices. The 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 futures gains (losses).
During the year ended August 31, 2017, the fund’s average investments in long and short futures contracts represented 2% and 0% of net assets, respectively, based on the average of the notional amounts 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 counterparty’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, 2014–2017), 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 event 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.
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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 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, 2017, or at any time during the period then ended.
9. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses), shareholder reporting, and the proxy. 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 Jackson Square Partners, LLC, Wellington Management Company LLP, William Blair Investment Management, LLC, Jennison Associates LLC, and Baillie Gifford Overseas Ltd. each provide investment advisory services to a portion of the fund for a fee calculated at an annual percentage rate of average net assets managed by the advisor. The basic fees of Jackson Square Partners, LLC, Wellington Management Company LLP, and Jennison Associates LLC are subject to quarterly adjustments based on performance relative to the Russell 1000 Growth Index for the preceding three years. The basic fee of William Blair Investment Management, LLC, is subject to quarterly adjustments based on performance relative to the Russell 1000 Growth Index for the preceding five years. The basic fee of Baillie Gifford Overseas Ltd. is subject to quarterly adjustments based on performance relative to the S&P 500 Index for the preceding three years.
Vanguard manages the cash reserves of the fund as described below.
For the year ended August 31, 2017, the aggregate investment advisory fee represented an effective annual basic rate of 0.17% of the fund’s average net assets, before a net decrease of $553,000 (0.01%) 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
28
U.S. Growth Fund
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, 2017, the fund had contributed to Vanguard capital in the amount of $496,000, representing 0.01% of the fund’s net assets and 0.20% 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, 2017, these arrangements reduced the fund’s expenses by $212,000 (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). Any investments valued with significant unobservable inputs are
noted on the Statement of Net Assets.
The following table summarizes the market value of the fund’s investments as of August 31, 2017, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 7,462,256 | 34,976 | 2,715 |
Preferred Stocks | — | — | 107,415 |
Temporary Cash Investments | 286,634 | 29,085 | — |
Futures Contracts—Assets1 | 1,458 | — | — |
Total | 7,750,348 | 64,061 | 110,130 |
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.
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U.S. Growth Fund
The following table summarizes changes in investments valued based on Level 3 inputs during the year ended August 31, 2017. Transfers into or out of Level 3 are recognized based on values as of the date of transfer.
Investments | Investments | |
in Common | in Preferred | |
Stocks | Stocks | |
Amount Valued Based on Level 3 Inputs | ($000) | ($000) |
Balance as of August 31, 2016 | 2,630 | 121,065 |
Transfers Out of Level 3 | — | (4,369) |
Change in Unrealized Appreciation (Depreciation) | 85 | (9,281) |
Balance as of August 31, 2017 | 2,715 | 107,415 |
Net change in unrealized appreciation (depreciation) from investments still held as of August 31, 2017 was ($8,412,000). |
The following table provides quantitative information about the significant unobservable inputs used in fair value measurement as of August 31, 2017:
Fair Value | ||||
at 8/31/2017 | Amount or Range/ | |||
Security Type | ($000) | Valuation Technique | Unobservable Input | Weighted Avg. |
Common Stocks | 2,715 | Recent Market | Transaction Price | $51.81 |
Transaction | ||||
Preferred Stocks | 49,007 | Recent Market | Transaction Price | $7.18– |
Transaction1 | $105.00/$55.97 | |||
58,408 | Recent Market | Transaction Price | $48.77 | |
Transaction with | ||||
Uncertainty Discount | ||||
Uncertainty Discount | 15% | |||
1 During the period ended August 31, 2017, the valuation technique was changed from Comparable Companies to Recent Market Transaction. This was considered to be a more relevant measure of fair value for this investment. | ||||
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. 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.
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U.S. Growth Fund
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 $1,925,000 from undistributed net investment income, and $18,975,000 from accumulated net realized gains to paid-in capital.
For tax purposes, at August 31, 2017, the fund had $30,691,000 of ordinary income and $282,078,000 of long-term capital gains available for distribution.
At August 31, 2017, the cost of investment securities for tax purposes was $5,130,201,000. Net unrealized appreciation of investment securities for tax purposes was $2,792,880,000, consisting of unrealized gains of $2,920,859,000 on securities that had risen in value since their purchase and $127,979,000 in unrealized losses on securities that had fallen in value since their purchase.
G. During the year ended August 31, 2017, the fund purchased $1,853,135,000 of investment securities and sold $2,113,031,000 of investment securities, other than temporary cash investments.
H. Capital share transactions for each class of shares were: | ||||
Year Ended August 31, | ||||
2017 | 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
Investor Shares | ||||
Issued | 285,406 | 8,912 | 566,832 | 18,852 |
Issued in Lieu of Cash Distributions | 52,776 | 1,792 | 340,874 | 11,389 |
Redeemed | (651,577) | (20,372) | (1,003,885) | (33,788) |
Net Increase (Decrease)—Investor Shares | (313,395) | (9,668) | (96,179) | (3,547) |
Admiral Shares | ||||
Issued | 701,009 | 8,412 | 1,021,665 | 13,128 |
Issued in Lieu of Cash Distributions | 46,252 | 607 | 223,265 | 2,883 |
Redeemed | (565,611) | (6,971) | (545,713) | (7,215) |
Net Increase (Decrease)—Admiral Shares | 181,650 | 2,048 | 699,217 | 8,796 |
I. Management has determined that no material events or transactions occurred subsequent to August 31, 2017, that would require recognition or disclosure in these financial statements.
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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”) as of August 31, 2017, 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 as of August 31, 2017 by correspondence with the custodians 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 17, 2017
Special 2017 tax information (unaudited) for Vanguard U.S. Growth Fund
This information for the fiscal year ended August 31, 2017, is included pursuant to provisions of the Internal Revenue Code.
The fund distributed $89,542,000 as capital gain dividends (20% rate gain distributions) to shareholders during the fiscal year.
The fund distributed $31,445,000 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.
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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 2017. (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, 2017 | |||
One | Five | Ten | |
Year | Years | Years | |
Returns Before Taxes | 19.24% | 15.70% | 8.62% |
Returns After Taxes on Distributions | 18.82 | 14.69 | 8.10 |
Returns After Taxes on Distributions and Sale of Fund Shares | 11.13 | 12.51 | 6.97 |
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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, 2017 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
U.S. Growth Fund | 2/28/2017 | 8/31/2017 | Period |
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $1,138.38 | $2.37 |
Admiral Shares | 1,000.00 | 1,139.33 | 1.67 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,022.99 | $2.24 |
Admiral Shares | 1,000.00 | 1,023.64 | 1.58 |
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 0.44% for Investor Shares and 0.31% for Admiral Shares. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period (184/365).
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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.
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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 Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party involved in making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
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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 195 Vanguard funds.
Information for each trustee and executive officer of the fund appears below. 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.
Interested Trustee1
F. William McNabb III
Born 1957. Trustee Since July 2009. Chairman of the Board. Principal Occupation(s) During the Past Five Years and Other Experience: Chairman of the Board of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group, since January 2010; Chief Executive Officer and Director of The Vanguard Group and President and Chief Executive Officer of each of the investment companies served by The Vanguard Group, since 2008; Director of Vanguard Marketing Corporation; President of The Vanguard Group (2008–2017); Managing Director of The Vanguard Group (1995–2008).
Independent Trustees
Emerson U. Fullwood
Born 1948. Trustee Since January 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Executive Chief Staff and Marketing Officer for North America and Corporate Vice President (retired 2008) of Xerox Corporation (document management products and services); Executive in Residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology; 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; Trustee of the University of Rochester.
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 Arconic Inc. (diversified manufacturer), 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
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.
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.
JoAnn Heffernan Heisen
Born 1950. Trustee Since July 1998. Principal Occupation(s) During the Past Five Years and Other Experience: Corporate Vice President and Member of the Executive Committee (1997–2008), Chief Global Diversity Officer (retired 2008), Vice President and Chief Information Officer (1997–2006), Controller (1995–1997), Treasurer (1991–1995), and Assistant Treasurer (1989–1991) 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), Oxfam America, and the Lumina Foundation for Education; Director of the V Foundation for Cancer Research; Member of the Advisory Council for the College of Arts and Letters and Chair 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, the Board of Catholic Investment Services, Inc. (investment advisor), and the Board of Superintendence of the Institute for the Works of Religion; Chairman of the Board of TIFF Advisory Services, Inc. (investment advisor).
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 Co-Managing Partner of HighVista Strategies LLC (private investment firm); 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 Board of Hypertherm, Inc. (industrial cutting systems, software, and consumables).
Executive Officers
Glenn Booraem
Born 1967. Investment Stewardship Officer Since February 2017. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Treasurer (2015–2017), Controller (2010–2015), and Assistant Controller (2001–2010) of each of the investment companies served by The Vanguard Group.
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: Principal of 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).
Anne E. Robinson
Born 1970. Secretary Since September 2016. 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; Managing Director and General Counsel of Global Cards and Consumer Services at Citigroup (2014–2016); Counsel at American Express (2003–2014).
Michael Rollings
Born 1963. Treasurer Since February 2017. Principal Occupation(s) During the Past Five Years and Other Experience: Managing Director of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group; Director of Vanguard Marketing Corporation; Executive Vice President and Chief Financial Officer of MassMutual Financial Group (2006–2016).
Vanguard Senior Management Team | |
Mortimer J. Buckley | Chris D. McIsaac |
Gregory Davis | James M. Norris |
John James | Thomas M. Rampulla |
Martha G. King | Karin A. Risi |
John T. Marcante | |
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 |
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Q230 102017 |
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/internationalgrowthx1x1.jpg)
Annual Report | August 31, 2017
Vanguard International Growth Fund
Vanguard’s Principles for Investing Success
We want to give you the best chance of investment success. These principles, grounded in Vanguard’s research and experience, can put you on the right path.
Goals. Create clear, appropriate investment goals.
Balance. Develop a suitable asset allocation using broadly diversified funds. Cost. Minimize cost.
Discipline. Maintain perspective and long-term discipline.
A single theme unites these principles: Focus on the things you can control.
We believe there is no wiser course for any investor.
Contents | |
Your Fund’s Performance at a Glance. | 1 |
Chairman’s Perspective. | 3 |
Advisors’ Report. | 7 |
Fund Profile. | 11 |
Performance Summary. | 13 |
Financial Statements. | 15 |
Your Fund’s After-Tax Returns. | 35 |
About Your Fund’s Expenses. | 36 |
Glossary. | 38 |
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: Nautical images have been part of Vanguard’s rich heritage since its start in 1975. For an incoming ship, a lighthouse offers a beacon and safe path to shore. You can similarly depend on Vanguard to put you first––and light the way––as you strive to meet your financial goals. Our client focus and low costs, stemming from our unique ownership structure, assure that your interests are paramount.
Your Fund’s Performance at a Glance
• Amid stronger and more synchronized global growth, Vanguard International Growth Fund returned more than 28% for the 12 months ended August 31, 2017. That result was significantly better than its benchmark’s and the average return of its peers.
• The fund’s advisors added value in every region. Among emerging markets, stock selection in and an overweighting of China made that country the fund’s largest relative contributor.
• In Europe, positioning in Italy, the Netherlands, and the United Kingdom helped the most.
• In the Pacific region, a boost from the fund’s positioning in Japan was more than offset by weak selection in other countries, particularly South Korea.
• The fund outperformed its benchmark in a majority of sectors, but the biggest contributors were consumer discretionary and information technology, with each adding nearly 4 percentage points to the fund’s relative return.
Total Returns: Fiscal Year Ended August 31, 2017 | |
Total | |
Returns | |
Vanguard International Growth Fund | |
Investor Shares | 28.43% |
Admiral™ Shares | 28.57 |
MSCI All Country World Index ex USA | 18.88 |
International Funds Average | 17.59 |
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. |
Total Returns: Ten Years Ended August 31, 2017 | |
Average | |
Annual Return | |
International Growth Fund Investor Shares | 4.50% |
Spliced International Index | 0.90 |
International Funds Average | 1.52 |
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.
1
Expense Ratios | |||
Your Fund Compared With Its Peer Group | |||
Investor | Admiral | Peer Group | |
Shares | Shares | Average | |
International Growth Fund | 0.46% | 0.33% | 1.34% |
The fund expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2017, the fund’s expense ratios were 0.45% 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 2016.
Peer group: International Funds.
2
Chairman’s Perspective
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/internationalgrowthx5x1.jpg)
Bill McNabb
Chairman and Chief Executive Officer
Dear Shareholder,
Since mid-August we’ve been reaching out to you about the proposals put forth by the Vanguard funds that, if approved, will enable us to manage the funds more efficiently and effectively. As the November deadline for voting approaches, I’d like to offer some perspective on a few of the proposals that I believe are important to the way Vanguard operates and manages your investments. I hope you consider this information and promptly cast your ballot.
Your biggest advocate
The main driver for this proxy solicitation is to ask all our fund shareholders to elect a full slate of trustees who oversee each U.S.-based Vanguard mutual fund. These trustees serve an important role, making sure your funds are managed in your best interests. This includes monitoring fund performance, approving advisory agreements, and ensuring that we’re keeping your investment costs as low as possible. Simply put, they are your biggest advocate.
Each trustee brings a variety of skills and professional experiences that contribute to the board’s strength and diversity. Of the 12 nominees, nine currently serve on the board, and three are new. If elected, the new board would include ten independent members, meaning they have no affiliation with Vanguard or the funds apart from any investments they may choose to make as private individuals.
3
These are the proposed new trustees:
• Sarah Bloom Raskin is a former member of the Federal Reserve Board of Governors and former deputy secretary of the U.S. Treasury Department. She is an expert in cybersecurity—a critically important issue at Vanguard, as we place a premium on protecting clients’ assets and sensitive data.
• Deanna Mulligan is chief executive officer of The Guardian Life Insurance Company of America. It’s rare to find a CEO such as Deanna who leads a company with a mutual ownership structure similar to Vanguard’s.
• Tim Buckley is president and a director of Vanguard and will succeed me in January as CEO. (I’ll remain chairman for a period to be determined by the board.) I interviewed Tim when he applied for his first job here in 1991 and again when he was graduating from Harvard Business School. I was thrilled he picked Vanguard as a place to build his career, and I’ve been delighted to see him take on several leadership positions, including as head of our Retail Investor Group, chief information officer, and chief investment officer. I can think of no one better prepared to succeed me.
Market Barometer | |||
Average Annual Total Returns | |||
Periods Ended August 31, 2017 | |||
One Year | Three Years | Five Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 16.16% | 9.21% | 14.37% |
Russell 2000 Index (Small-caps) | 14.91 | 7.67 | 13.15 |
Russell 3000 Index (Broad U.S. market) | 16.06 | 9.08 | 14.27 |
FTSE All-World ex US Index (International) | 18.74 | 2.80 | 7.76 |
Bonds | |||
Bloomberg Barclays U.S. Aggregate Bond Index | |||
(Broad taxable market) | 0.49% | 2.64% | 2.19% |
Bloomberg Barclays Municipal Bond Index | |||
(Broad tax-exempt market) | 0.88 | 3.40 | 3.23 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.58 | 0.25 | 0.16 |
CPI | |||
Consumer Price Index | 1.94% | 1.06% | 1.28% |
4
Vanguard believes that diversity of thought, background, and experience, as well as diversity of personal characteristics, meaningfully contributes to the board’s ability to effectively serve shareholders. If Sarah and Deanna are elected, women will account for 40% of the board’s independent trustees.
I should note that even as Vanguard is nominating three new board members, we’re saying goodbye to trustee Rajiv Gupta. Rajiv was a legendary CEO of Rohm and Haas Co., and Vanguard and our clients have benefited greatly from his expertise. I wish him a happy retirement.
Summarizing the proposals
Among the trustees’ leading responsibilities is overseeing the funds’ internal and external investment advisory agreements. The trustees, in consultation with our Global Investment Committee and our Portfolio Review Department, choose the investment advisors that manage client assets. Over decades, we have built a strong track record of picking advisors whose portfolio management strategies have served clients well.
Two proposals in the proxy focus on this oversight responsibility. Shareholders of 48 Vanguard funds have already voted to allow the board to make external advisor changes without obtaining prior shareholder approval. The new proposals would extend that policy across our entire U.S.-based fund lineup and expand it to include internal advisory agreements with Vanguard subsidiaries. Eliminating the need for shareholder approval removes a step that is costly and time-consuming if done frequently or on an individual fund basis. Although there are no current plans to employ the policy on any Vanguard-managed funds, standardizing it enables the trustees to retain an advisory firm to diversify a fund’s management team or ensure management continuity should a contingency arise.
I also encourage shareholders of several specific Vanguard index funds to read the proxy proposals that affect those funds. One proposal would change the investment objective of Vanguard REIT Index Fund and Vanguard Variable Insurance Fund REIT Index Portfolio to include real estate-related securities, aligning the funds with updated industry-sector classification methodology. Another proposal seeks to change the diversification status of the REIT Index Fund to enable it to better track its benchmark. Finally, we seek your approval of the Funds’ Service Agreement for Vanguard Institutional Index Fund and Vanguard Institutional Total Stock Market Index Fund. If approved, this arrangement would then be standardized across Vanguard’s entire publicly available U.S. mutual fund lineup. It should also reduce costs and minimum initial investment requirements in select share classes.
5
At the ballot box
We hope you’ll make it a priority to cast your ballot. We want to avoid the added time and cost of soliciting sufficient votes should we not obtain a quorum by the shareholder meeting on November 15, when voting concludes. Ultimately, we believe the proposals I’ve discussed are in your best interest as Vanguard fund shareholders, and the trustees recommend that you vote in favor of them. For more information, visit vanguard.com and enter the search term “proxy.”
As always, thank you for investing with Vanguard.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/internationalgrowthx8x1.jpg)
F. William McNabb III
Chairman and Chief Executive Officer
September 14, 2017
6
Advisors’ Report
For the 12 months ended August 31, 2017, Vanguard International Growth Fund returned 28.43% for Investor Shares and 28.57% for Admiral Shares. Those results were well ahead of the return of its benchmark index (+18.88%) and the average return of peer funds (+17.59%). 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 advisors to have different views about individual securities or the broader investment environment.
The advisors, the amount and percentage of fund assets each manages, and brief descriptions of their investment strategies are presented in the table below. The advisors have also prepared a discussion of the investment environment that existed during the fiscal year and of how the portfolio’s positioning reflects this assessment. These comments were prepared on September 25, 2017.
Vanguard International Growth Fund Investment Advisors
Fund Assets Managed | |||
Investment Advisor | % | $ Million | Investment Strategy |
Baillie Gifford Overseas Ltd. | 60 | 18,452 | 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 | 12,047 | 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 | 333 | These short-term reserves are invested by |
Vanguard in equity index products to simulate | |||
investment in stocks. Each advisor may also | |||
maintain a modest cash position. |
7
Baillie Gifford Overseas Ltd.
Portfolio Managers:
James K. Anderson, Head of Global Equities
Thomas Coutts, Head of European Equities
We invest in companies that we believe can grow significantly faster than the market for many years, possibly decades. These opportunities are quite rare, and owning these companies requires patience. But we think it pays to back our convictions, so our portion of the portfolio has become a little more concentrated over the last 12 months. We need to be supportive to long-term shareholders and encourage great growth-oriented companies to put long-term goals before the market’s toxic obsession with short-term targets.
A new breed of company has emerged in recent years that has little need of capital and that benefits from the effects of having a large network. In Tencent, Alibaba, and Amazon.com, we own companies that exemplify these traits and are now capable of dominating across different parts of the economy. Although these companies have contributed strongly to returns over many years, we believe that the prospects for patient shareholders remain fantastic.
One area we are particularly excited about is Chinese education. The one-child policy introduced in 1979 led to “4-2-1” family structures, with four grandparents, two parents, and a child. As a result, families invest heavily in their children’s education, to increase the chances of admission to universities and, ultimately, of finding a good job. TAL Education and New Oriental are two education providers that have been growing quickly and have contributed to returns. We believe these companies can continue to grow significantly faster than the market over the long term as both expand into new tier-two cities and beyond their core offering.
The notable detractor over the last 12 months was Banco Popular, as Santander acquired the Spanish bank in June for a nominal sum of €1. We have owned Popular since 2013, attracted by its small to medium-sized business lending franchise, a strong culture, and a consolidating Spanish banking industry. Since that time, the small to medium enterprise business has proved its worth, but rising debt levels and management changes have taken their toll.
In the weeks leading up to the bank’s sale, we were aware of the increasing challenges it faced, but we concluded that the probability of a good outcome remained large enough for us to retain a small holding. Although misplaced on this occasion, this focus on the
8
upside and acceptance that things can go wrong is an integral part of our investment approach.
One of the great advantages of long-term investing is that you need only a handful of new ideas to complement your existing holdings. Over the past year, the only new purchases in our portfolio have been Nidec, a Japanese electric motor company, and Delivery Hero, a German online food delivery company. We have also added to existing holdings, such as car manufacturers Ferrari and Tesla, Swedish bank Svenska Handelsbanken, and Dutch semiconductor company ASML. These additions were funded partly by the sale of holdings in Norwegian media company Schibsted and British life insurer Prudential. Several of the companies we held found buyers, including ARM, Syngenta, Mobileye, and Skyscanner.
Schroder Investment Management North America Inc.
Portfolio Manager:
Simon Webber, CFA
International equities enjoyed one of their strongest performance periods in years, against a supportive backdrop. The pace of economic growth improved in a majority of European and Asian economies, and monetary policy remained accommodative. Corporate earnings growth momentum has been broadening across regions and sectors in 2017, and that, along with
strengthening international currency markets, bodes well for prolonged better performance by international equities.
Within the portfolio, technology contributed most strongly to results, helped by an overweighting of the sector and stock choices within it. Our consumer and health care holdings also performed well, while our industrial ones detracted.
Among our tech holdings, the growth over this year of Chinese e-commerce platform Alibaba has been exceptional for a company of its size. Alibaba has delivered a succession of extremely strong results, most recently showcasing the strength of its underlying business model in delivering year-over-year revenue growth of 56%. The company’s scale, reach, and differentiation continue to drive greater earnings growth than the market expects. Although e-commerce has historically been its core, Alibaba is increasingly using its scale to expand into wider markets such as logistics, cloud-computing platforms, online video, and financial payments.
Our weakest holding was Germany’s GEA Group. The company, which supplies manufacturing equipment to the food and dairy industries, has been hurt by weaker capital investment plans by its customers and cost overruns from the implementation of a new IT system. Although management credibility has clearly been damaged, we believe that
9
much of the shortfall is due to cyclical issues, and we still see plenty of scope for management to improve profitability. We continue to engage with management and monitor the holding closely.
We see a number of structural trends, including online disruption and the energy transition, as important to the outlook for equities. Regarding the first trend, social media and online platforms are becoming disruptive to the profit pool of a growing list of industries. Retail, traditional media, and distribution businesses are among them, and we remain cautious about any traditional business that is not staying well-invested in technology to fend off the new competition.
Regarding the energy transition, a powerful combination is coming together of truly competitive renewable energy, improving battery-storage costs, and compelling electric powertrain vehicle products. This is set to transform the energy and automotive industries over the next two decades. There is now a viable path toward decarbonizing the energy and transportation industries, and we do not expect the transition to be linear. We believe our portfolio is well-positioned in companies that will grow faster than the market expects, as they supply the products and services needed to make this energy transition happen.
Overall, we believe that innovation is at the heart of sustainability. For companies to make their earnings more durable over the long term, they will require elements of innovative optimization (doing the same things better) or innovative transformation (changing existing paradigms) or both. We believe that well-managed companies with cultures that support ongoing innovation, performance, and accountability to their stakeholders will be best-placed to deliver outsized growth independent of the economic cycle.
10
International Growth Fund
Fund Profile
As of August 31, 2017
Share-Class Characteristics | ||
Investor | Admiral | |
Shares | Shares | |
Ticker Symbol | VWIGX | VWILX |
Expense Ratio1 | 0.46% | 0.33% |
Portfolio Characteristics | ||
MSCI AC | ||
World Index | ||
Fund | ex USA | |
Number of Stocks | 126 | 1,860 |
Median Market Cap | $50.4B | $35.0B |
Price/Earnings Ratio | 22.9x | 15.9x |
Price/Book Ratio | 3.1x | 1.7x |
Return on Equity | 16.5% | 12.3% |
Earnings Growth Rate | 14.7% | 7.0% |
Dividend Yield | 1.5% | 2.8% |
Turnover Rate | 15% | — |
Short-Term Reserves | 0.7% | — |
Sector Diversification (% of equity exposure) | ||
MSCI AC | ||
World Index | ||
Fund | ex USA | |
Consumer Discretionary | 22.2% | 11.1% |
Consumer Staples | 6.6 | 9.8 |
Energy | 1.0 | 6.3 |
Financials | 17.7 | 23.4 |
Health Care | 8.8 | 7.9 |
Industrials | 10.0 | 11.6 |
Information Technology | 24.1 | 11.0 |
Materials | 5.0 | 8.0 |
Other | 1.2 | 0.0 |
Real Estate | 0.0 | 3.3 |
Telecommunication Services | 3.4 | 4.4 |
Utilities | 0.0 | 3.2 |
Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” category (if applicable), which includes securities that have not been provided a GICS classification as of the effective reporting period.
Volatility Measures | |
MSCI AC | |
World | |
Index | |
ex USA | |
R-Squared | 0.91 |
Beta | 1.10 |
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 | 5.5% | |
Alibaba Group Holding | Internet Software & | |
Ltd. | Services | 5.5 |
Baidu Inc. | Internet Software & | |
Services | 3.4 | |
ASML Holding NV | Semiconductor | |
Equipment | 3.2 | |
AIA Group Ltd. | Life & Health | |
Insurance | 3.0 | |
Amazon.com Inc. | Internet & Direct | |
Marketing Retail | 2.6 | |
Industria de Diseno | ||
Textil SA | Apparel Retail | 2.5 |
Banco Bilbao Vizcaya | ||
Argentaria SA | Diversified Banks | 1.9 |
Svenska Handelsbanken | ||
AB | Diversified Banks | 1.8 |
Illumina Inc. | Life Sciences Tools | |
& Services | 1.8 | |
Top Ten | 31.2% | |
The holdings listed exclude any temporary cash investments and equity index products. | ||
Allocation by Region (% of equity exposure)
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/internationalgrowthx13x1.jpg)
1 The expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2017, the expense ratios were 0.45% for Investor Shares and 0.32% for Admiral Shares.
11
International Growth Fund
Market Diversification (% of equity exposure) | ||
MSCI AC | ||
World | ||
Index | ||
Fund | ex USA | |
Europe | ||
Germany | 9.3% | 6.5% |
United Kingdom | 7.1 | 12.2 |
Sweden | 5.4 | 2.0 |
France | 5.1 | 7.3 |
Spain | 4.8 | 2.4 |
Italy | 3.9 | 1.7 |
Netherlands | 3.3 | 2.5 |
Switzerland | 3.2 | 5.7 |
Denmark | 2.9 | 1.3 |
Other | 2.0 | 2.7 |
Subtotal | 47.0% | 44.3% |
Pacific | ||
Japan | 11.2% | 16.0% |
Hong Kong | 4.1 | 2.5 |
South Korea | 1.5 | 3.6 |
Other | 0.9 | 5.9 |
Subtotal | 17.7% | 28.0% |
Emerging Markets | ||
China | 18.4% | 7.2% |
India | 2.3 | 2.1 |
Taiwan | 1.1 | 2.9 |
Other | 2.5 | 8.6 |
Subtotal | 24.3% | 20.8% |
North America | ||
United States | 8.0% | 0.0% |
Canada | 1.8 | 6.6 |
Subtotal | 9.8% | 6.6% |
Middle East | ||
Israel | 1.2% | 0.3% |
12
International Growth Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Cumulative Performance: August 31, 2007, Through August 31, 2017
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/internationalgrowthx15x1.jpg)
Average Annual Total Returns | |||||
Periods Ended August 31, 2017 | |||||
Final Value | |||||
One | Five | Ten | of a $10,000 | ||
Year | Years | Years | Investment | ||
International Growth Fund Investor | |||||
Shares | 28.43% | 11.73% | 4.50% | $15,535 | |
• • • • • • • • | Spliced International Index | 18.88 | 7.36 | 0.90 | 10,939 |
– – – – | International Funds Average | 17.59 | 7.99 | 1.52 | 11,632 |
MSCI All Country World Index ex | |||||
USA | 18.88 | 7.36 | 1.74 | 11,880 | |
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 | 28.57% | 11.87% | 4.65% | $78,788 |
Spliced International Index | 18.88 | 7.36 | 0.90 | 54,693 |
MSCI All Country World Index ex USA | 18.88 | 7.36 | 1.74 | 59,400 |
See Financial Highlights for dividend and capital gains information.
13
International Growth Fund
Fiscal-Year Total Returns (%): August 31, 2007, Through August 31, 2017
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/internationalgrowthx16x1.jpg)
For a benchmark description, see the Glossary.
Average Annual Total Returns: Periods Ended June 30, 2017
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 | 28.29% | 10.71% | 3.48% |
Admiral Shares | 8/13/2001 | 28.44 | 10.86 | 3.63 |
International Growth Fund
Financial Statements
Statement of Net Assets
As of August 31, 2017
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 (97.3%)1 | |||
Australia (0.4%) | |||
Brambles Ltd. | 16,807,705 | 124,681 | |
Belgium (0.3%) | |||
^ | Umicore SA | 1,378,918 | 102,954 |
Brazil (0.9%) | |||
Raia Drogasil SA | 4,171,949 | 91,912 | |
B3 SA - Brasil Bolsa | |||
Balcao | 12,626,800 | 88,729 | |
Telefonica Brasil SA | |||
Preference Shares | 5,633,500 | 87,405 | |
268,046 | |||
Canada (1.6%) | |||
Toronto-Dominion Bank | 4,987,367 | 267,830 | |
Canadian Pacific | |||
Railway Ltd. | 653,705 | 101,719 | |
Goldcorp Inc. | 4,611,738 | 63,373 | |
Potash Corp. of | |||
Saskatchewan Inc. | 2,925,069 | 50,900 | |
483,822 | |||
China (18.2%) | |||
Tencent Holdings Ltd. | 40,096,300 | 1,687,239 | |
* | Alibaba Group Holding | ||
Ltd. ADR | 9,806,413 | 1,684,153 | |
* | Baidu Inc. ADR | 4,566,825 | 1,041,465 |
* | Ctrip.com International | ||
Ltd. ADR | 7,999,063 | 411,552 | |
TAL Education Group | |||
ADR | 11,945,226 | 363,493 | |
* | New Oriental Education | ||
& Technology Group | |||
Inc. ADR | 3,750,739 | 306,623 | |
China Pacific Insurance | |||
Group Co. Ltd. | 26,267,000 | 124,186 | |
5,618,711 |
Market | |||
Value• | |||
Shares | ($000) | ||
Denmark (2.9%) | |||
* | Genmab A/S | 2,065,568 | 483,649 |
Novozymes A/S | 3,575,387 | 181,985 | |
Chr Hansen Holding A/S 1,658,818 | 142,904 | ||
Vestas Wind Systems | |||
A/S | 740,067 | 67,448 | |
875,986 | |||
France (4.9%) | |||
L’Oreal SA | 2,169,893 | 458,417 | |
Kering | 1,108,608 | 415,873 | |
Schneider Electric SE | 3,307,736 | 266,742 | |
Essilor International SA | 1,698,545 | 214,531 | |
LVMH Moet Hennessy | |||
Louis Vuitton SE | 572,591 | 150,404 | |
1,505,967 | |||
Germany (8.7%) | |||
*,2 | Zalando SE | 10,683,180 | 506,536 |
BASF SE | 4,033,048 | 391,199 | |
Bayer AG | 2,600,780 | 333,355 | |
Bayerische Motoren | |||
Werke AG | 2,869,194 | 266,818 | |
SAP SE | 2,249,411 | 236,082 | |
Continental AG | 807,192 | 182,248 | |
Deutsche Telekom AG | 9,998,748 | 180,829 | |
HeidelbergCement AG | 1,515,976 | 145,590 | |
adidas AG | 489,488 | 109,937 | |
GEA Group AG | 1,739,634 | 76,670 | |
Infineon Technologies | |||
AG | 3,254,564 | 75,161 | |
^,*,2 | Rocket Internet SE | 2,762,933 | 63,556 |
^,* | MorphoSys AG | 664,989 | 47,352 |
*,2 | Delivery Hero AG | 1,113,598 | 39,903 |
* | AIXTRON SE | 3,130,112 | 30,347 |
2,685,583 |
15
International Growth Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
Hong Kong (4.0%) | |||
AIA Group Ltd. | 119,722,800 | 922,081 | |
Jardine Matheson | |||
Holdings Ltd. | 2,885,925 | 189,816 | |
Hong Kong Exchanges | |||
& Clearing Ltd. | 4,767,930 | 130,389 | |
1,242,286 | |||
India (2.1%) | |||
Housing Development | |||
Finance Corp. Ltd. | 7,874,012 | 218,951 | |
HDFC Bank Ltd. | 7,671,932 | 213,507 | |
Zee Entertainment | |||
Enterprises Ltd. | 14,589,980 | 118,812 | |
Idea Cellular Ltd. | 43,733,919 | 62,193 | |
*,3,4 | ANI Technologies | 166,185 | 35,150 |
648,613 | |||
Indonesia (0.4%) | |||
Bank Central Asia | |||
Tbk PT | 46,070,500 | 65,445 | |
Bank Mandiri | |||
Persero Tbk PT | 54,110,000 | 53,230 | |
118,675 | |||
Ireland (0.3%) | |||
Kerry Group plc | |||
Class A | 1,077,081 | 100,200 | |
Israel (1.2%) | |||
* | Check Point Software | ||
Technologies Ltd. | 3,226,745 | 360,976 | |
Italy (3.8%) | |||
Ferrari NV | 4,824,304 | 552,590 | |
Intesa Sanpaolo SPA | |||
(Registered) | 62,098,961 | 210,239 | |
EXOR NV | 3,262,980 | 209,696 | |
* | Fiat Chrysler | ||
Automobiles NV | 13,737,294 | 207,544 | |
* | GEDI Gruppo | ||
Editoriale SPA | 664,885 | 569 | |
1,180,638 | |||
Japan (10.9%) | |||
SoftBank Group Corp. | 6,366,800 | 518,329 | |
SMC Corp. | 1,472,900 | 505,594 | |
^ | M3 Inc. | 13,418,200 | 349,295 |
Bridgestone Corp. | 4,636,900 | 198,922 | |
Kubota Corp. | 11,172,900 | 193,276 | |
Recruit Holdings Co. | |||
Ltd. | 9,352,400 | 186,389 | |
Sekisui Chemical Co. | |||
Ltd. | 9,224,500 | 172,242 |
Market | ||
Value• | ||
Shares | ($000) | |
KDDI Corp. | 6,119,500 | 165,094 |
ORIX Corp. | 9,347,200 | 149,807 |
Keyence Corp. | 281,100 | 146,554 |
Rakuten Inc. | 11,374,400 | 135,081 |
Pigeon Corp. | 3,300,800 | 127,948 |
Shiseido Co. Ltd. | 2,447,000 | 101,387 |
Sumitomo Mitsui | ||
Financial Group Inc. | 2,539,500 | 94,554 |
Suzuki Motor Corp. | 1,731,000 | 86,920 |
Nidec Corp. | 617,500 | 70,036 |
SBI Holdings Inc. | 4,470,400 | 62,175 |
Suntory Beverage & | ||
Food Ltd. | 1,296,300 | 59,918 |
Subaru Corp. | 545,900 | 19,080 |
3,342,601 | ||
Luxembourg (0.3%) | ||
*,3,4Spotify Technology SA | 26,474 | 84,717 |
Mexico (0.4%) | ||
Grupo Financiero | ||
Banorte SAB de CV | 16,217,682 | 110,590 |
Netherlands (3.2%) | ||
ASML Holding NV | 6,354,808 | 992,154 |
Norway (0.8%) | ||
Norsk Hydro ASA | 18,962,221 | 136,908 |
DNB ASA | 6,025,388 | 117,692 |
254,600 | ||
Other (0.2%) | ||
5 Vanguard FTSE | ||
All-World ex-US ETF | 1,128,434 | 58,735 |
Peru (0.2%) | ||
Credicorp Ltd. | 348,088 | 70,606 |
Portugal (0.2%) | ||
Jeronimo Martins | ||
SGPS SA | 3,627,182 | 72,416 |
Singapore (0.3%) | ||
Oversea-Chinese | ||
Banking Corp. Ltd. | 11,282,600 | 93,069 |
South Korea (1.4%) | ||
NAVER Corp. | 343,879 | 230,653 |
^,* Celltrion Inc. | 2,049,099 | 209,820 |
440,473 | ||
Spain (4.7%) | ||
Industria de Diseno | ||
Textil SA | 20,350,848 | 774,120 |
16
International Growth Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
Banco Bilbao Vizcaya | |||
Argentaria SA | 66,976,582 | 592,668 | |
^ | Distribuidora | ||
Internacional de | |||
Alimentacion SA | 12,745,795 | 80,738 | |
1,447,526 | |||
Sweden (5.4%) | |||
Svenska | |||
Handelsbanken AB | |||
Class A | 37,410,456 | 560,009 | |
Atlas Copco AB | |||
Class A | 12,605,874 | 494,556 | |
Kinnevik AB | 8,819,732 | 265,493 | |
Assa Abloy AB | |||
Class B | 6,942,525 | 150,070 | |
SKF AB | 5,688,381 | 113,705 | |
^ | Elekta AB Class B | 6,427,670 | 66,618 |
1,650,451 | |||
Switzerland (3.1%) | |||
Nestle SA | 3,330,064 | 282,309 | |
Lonza Group AG | 814,428 | 206,481 | |
Roche Holding AG | 765,228 | 194,422 | |
UBS Group AG | 9,267,137 | 152,694 | |
Cie Financiere | |||
Richemont SA | 1,475,303 | 131,883 | |
967,789 | |||
Taiwan (1.1%) | |||
Taiwan Semiconductor | |||
Manufacturing Co. | |||
Ltd. | 47,863,000 | 344,494 | |
Thailand (0.5%) | |||
Kasikornbank PCL | |||
(Foreign) | 23,874,556 | 152,010 | |
United Kingdom (7.0%) | |||
Rolls-Royce Holdings | |||
plc | 38,179,418 | 450,927 | |
Diageo plc | 8,833,861 | 295,477 | |
Royal Dutch Shell plc | |||
Class A | 10,487,939 | 289,468 | |
Burberry Group plc | 9,044,609 | 210,247 | |
Reckitt Benckiser | |||
Group plc | 2,114,520 | 200,518 | |
BHP Billiton plc | 9,654,506 | 183,801 | |
* | Standard Chartered | ||
plc | 16,490,296 | 164,249 | |
Aviva plc | 19,260,065 | 130,243 | |
Lloyds Banking Group | |||
plc | 115,765,271 | 95,425 | |
Antofagasta plc | 6,931,315 | 92,925 | |
^,* | Ocado Group plc | 12,833,540 | 51,416 |
2,164,696 |
Market | ||||
Value• | ||||
Shares | ($000) | |||
United States (7.9%) | ||||
* | Amazon.com Inc. | 807,252 | 791,591 | |
* | Illumina Inc. | 2,734,956 | 559,189 | |
MercadoLibre Inc. | 1,574,407 | 406,937 | ||
Philip Morris | ||||
International Inc. | 732,949 | 85,704 | ||
* | Priceline Group Inc. | 58,052 | 107,517 | |
^,* Tesla Inc. | 1,356,844 | 482,901 | ||
2,433,839 | ||||
Total Common Stocks | ||||
(Cost $19,634,696) | 29,997,904 | |||
Preferred Stocks (1.0%) | ||||
*,3,4 | Internet Plus | |||
Holdings Ltd. | 18,638,108 | 86,295 | ||
*,3,4,6You & Mr. Jones | 44,800,000 | 50,982 | ||
*,3,4,6HOME 24AG | 23,630 | 50,404 | ||
*,2,3,4 Flipkart G Series | 338,176 | 40,500 | ||
*,3,4 HELLOFRESH | 2,476,051 | 38,997 | ||
*,3,4 CureVac GmbH | 12,600 | 32,023 | ||
*,2,3,4Flipkart H Series | 135,569 | 19,283 | ||
Total Preferred Stocks | ||||
(Cost $325,126) | 318,484 | |||
Temporary Cash Investments (2.8%)1 | ||||
Money Market Fund (2.7%) | ||||
7,8 | Vanguard Market | |||
Liquidity Fund, | ||||
1.224% | 8,306,240 | 830,790 | ||
Face | ||||
Amount | ||||
($000) | ||||
U.S. Government and Agency Obligations (0.1%) | ||||
United States Treasury Bill, | ||||
0.963%–0.982%, 9/7/17 | 6,000 | 5,999 | ||
United States Treasury Bill, | ||||
0.929%, 9/21/17 | 2,000 | 1,999 | ||
9 | United States Treasury Bill, | |||
0.978%–0.979%, 10/5/17 | 4,200 | 4,196 | ||
9 | United States Treasury Bill, | |||
0.949%, 10/19/17 | 5,000 | 4,993 | ||
9 | United States Treasury Bill, | |||
1.044%–1.056%, 11/24/17 | 4,350 | 4,340 | ||
21,527 | ||||
Total Temporary Cash Investments | ||||
(Cost $852,231) | 852,317 | |||
Total Investments (101.1%) | ||||
(Cost $20,812,053) | 31,168,705 |
17
International Growth Fund
Amount | |
($000) | |
Other Assets and Liabilities (-1.1%) | |
Other Assets | |
Investment in Vanguard | 1,899 |
Receivables for Investment | |
Securities Sold | 135,952 |
Receivables for Accrued Income | 45,213 |
Receivables for Capital Shares Issued | 25,851 |
Variation Margin Receivable — | |
Futures Contracts | 1,642 |
Unrealized Appreciation — | |
Forward Currency Contracts | 27,515 |
Other Assets10 | 3,148 |
Total Other Assets | 241,220 |
Liabilities | |
Payables for Investment Securities | |
Purchased | (100,506) |
Collateral for Securities on Loan | (394,343) |
Payables for Capital Shares Redeemed | (11,845) |
Payables to Investment Advisor | (12,596) |
Payables to Vanguard | (40,695) |
Unrealized Depreciation — | |
Forward Currency Contracts | (17,918) |
Total Liabilities | (577,903) |
Net Assets (100%) | 30,832,022 |
At August 31, 2017, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 20,825,769 |
Undistributed Net Investment Income | 187,387 |
Accumulated Net Realized Losses | (546,725) |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 10,356,652 |
Futures Contracts | (894) |
Forward Currency Contracts | 9,597 |
Foreign Currencies | 236 |
Net Assets | 30,832,022 |
Investor Shares—Net Assets | |
Applicable to 272,450,419 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 7,731,374 |
Net Asset Value Per Share— | |
Investor Shares | $28.38 |
Amount | |
($000) | |
Admiral Shares—Net Assets | |
Applicable to 255,981,892 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 23,100,648 |
Net Asset Value Per Share— | |
Admiral Shares | $90.24 |
• 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 $382,618,000.
* 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 98.1% and 2.0%, 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, 2017, the aggregate value
of these securities was $669,778,000, representing 2.2%
of net assets.
3 Security value determined using significant unobservable
inputs.
4 Restricted securities totaling $438,351,000, representing
1.4% of net assets.
5 Considered an affiliated company of the fund as the issuer
is another member of The Vanguard Group.
6 Considered an affiliated company of the fund as the fund
owns more than 5% of the outstanding voting securities
of such company.
7 Affiliated money market fund available only to Vanguard
funds and certain trusts and accounts managed by Vanguard.
Rate shown is the 7-day yield.
8 Includes $394,343,000 of collateral received for securities
on loan.
9 Securities with a value of $12,729,000 have been segregated
as initial margin for open futures contracts.
10 Cash of $2,660,000 has been segregated as collateral for
open forward currency contracts.
ADR—American Depositary Receipt.
18
International Growth Fund | ||||
Derivative Financial Instruments Outstanding as of Period End | ||||
Futures Contracts | ||||
($000) | ||||
Value and | ||||
Number of | Unrealized | |||
Long (Short) | Notional | Appreciation | ||
Expiration | Contracts | Amount | (Depreciation) | |
Long Futures Contracts | ||||
Dow Jones EURO STOXX 50 Index | September 2017 | 2,670 | 108,691 | (1,094) |
Topix Index | September 2017 | 480 | 70,696 | 271 |
S&P ASX 200 Index | September 2017 | 461 | 51,994 | (158) |
FTSE 100 Index | September 2017 | 252 | 24,135 | 87 |
(894) |
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.
Forward Currency Contracts | ||||||
Unrealized | ||||||
Contract | Appreciation | |||||
Settlement | Contract Amount (000) | (Depreciation) | ||||
Counterparty | Date | Receive | Deliver | ($000) | ||
Goldman Sachs International | 9/20/17 | EUR | 150,390 | USD | 170,939 | 8,287 |
Barclays Bank plc | 9/20/17 | EUR | 99,694 | USD | 114,002 | 4,810 |
BNP Paribas | 9/20/17 | EUR | 95,991 | USD | 112,136 | 2,263 |
Morgan Stanley Capital Services LLC | 9/12/17 | JPY | 11,025,971 | USD | 101,046 | (694) |
Toronto-Dominion Bank | 9/26/17 | AUD | 94,128 | USD | 71,625 | 3,179 |
BNP Paribas | 9/12/17 | JPY | 5,538,470 | USD | 50,014 | 394 |
Citibank, N.A. | 9/20/17 | EUR | 42,393 | USD | 49,686 | 833 |
Barclays Bank plc | 9/26/17 | AUD | 59,640 | USD | 46,227 | 1,169 |
Goldman Sachs International | 9/12/17 | JPY | 3,911,000 | USD | 35,023 | 573 |
BNP Paribas | 9/26/17 | AUD | 33,603 | USD | 26,105 | 600 |
Citibank, N.A. | 9/12/17 | JPY | 2,894,880 | USD | 26,022 | 326 |
JPMorgan Chase Bank, N.A. | 9/26/17 | AUD | 32,746 | USD | 25,794 | 230 |
JPMorgan Chase Bank, N.A. | 9/26/17 | AUD | 31,033 | USD | 24,768 | (107) |
JPMorgan Chase Bank, N.A. | 9/12/17 | JPY | 2,633,972 | USD | 24,053 | (81) |
Barclays Bank plc | 9/12/17 | JPY | 2,655,180 | USD | 23,813 | 352 |
JPMorgan Chase Bank, N.A. | 9/12/17 | JPY | 2,441,980 | USD | 21,670 | 555 |
JPMorgan Chase Bank, N.A. | 9/20/17 | GBP | 16,215 | USD | 21,187 | (205) |
Morgan Stanley Capital Services LLC | 9/20/17 | GBP | 14,824 | USD | 18,946 | 237 |
Goldman Sachs International | 9/12/17 | JPY | 1,950,755 | USD | 17,838 | (85) |
UBS AG | 9/26/17 | AUD | 19,669 | USD | 15,175 | 455 |
19
International Growth Fund | ||||||
Forward Currency Contracts (continued) | ||||||
Unrealized | ||||||
Contract | Appreciation | |||||
Settlement | Contract Amount (000) | (Depreciation) | ||||
Counterparty | Date | Receive | Deliver | ($000) | ||
Bank of America, N.A. | 9/20/17 | GBP | 11,735 | USD | 15,004 | 182 |
UBS AG | 9/20/17 | EUR | 12,214 | USD | 13,957 | 599 |
Citibank, N.A. | 9/12/17 | JPY | 1,459,305 | USD | 13,321 | (38) |
Citibank, N.A. | 9/26/17 | AUD | 16,439 | USD | 12,698 | 367 |
Barclays Bank plc | 9/12/17 | JPY | 1,362,780 | USD | 12,426 | (23) |
Goldman Sachs International | 9/26/17 | AUD | 15,330 | USD | 11,893 | 289 |
BNP Paribas | 9/12/17 | JPY | 1,214,860 | USD | 11,130 | (73) |
UBS AG | 9/12/17 | JPY | 1,217,645 | USD | 10,842 | 240 |
Credit Suisse International | 9/20/17 | EUR | 7,614 | USD | 8,993 | 81 |
Barclays Bank plc | 9/20/17 | GBP | 6,730 | USD | 8,738 | (29) |
Goldman Sachs International | 9/20/17 | EUR | 6,502 | USD | 7,788 | (39) |
Credit Suisse International | 9/20/17 | GBP | 5,893 | USD | 7,719 | (95) |
Citibank, N.A. | 9/20/17 | GBP | 3,971 | USD | 5,182 | (43) |
Goldman Sachs International | 9/26/17 | AUD | 6,373 | USD | 5,068 | (3) |
Morgan Stanley Capital Services LLC | 9/20/17 | GBP | 3,728 | USD | 4,869 | (44) |
JPMorgan Chase Bank, N.A. | 9/20/17 | EUR | 3,479 | USD | 4,155 | (9) |
Citibank, N.A. | 9/20/17 | GBP | 3,152 | USD | 4,054 | 24 |
BNP Paribas | 9/20/17 | GBP | 3,108 | USD | 3,975 | 47 |
JPMorgan Chase Bank, N.A. | 9/20/17 | GBP | 2,809 | USD | 3,598 | 38 |
Deutsche Bank AG | 9/20/17 | GBP | 2,347 | USD | 3,032 | 4 |
Barclays Bank plc | 9/20/17 | GBP | 1,775 | USD | 2,273 | 25 |
Goldman Sachs International | 9/20/17 | GBP | 1,625 | USD | 2,095 | 8 |
Deutsche Bank AG | 9/20/17 | GBP | 1,104 | USD | 1,433 | (4) |
BNP Paribas | 9/26/17 | AUD | 1,275 | USD | 1,014 | (1) |
BNP Paribas | 9/20/17 | GBP | 730 | USD | 959 | (14) |
Barclays Bank plc | 9/12/17 | USD | 123,511 | JPY | 13,762,095 | (1,744) |
BNP Paribas | 9/20/17 | USD | 108,532 | EUR | 91,549 | (572) |
BNP Paribas | 9/12/17 | USD | 105,175 | JPY | 11,520,015 | 326 |
BNP Paribas | 9/26/17 | USD | 95,315 | AUD | 122,895 | (2,351) |
Deutsche Bank AG | 9/20/17 | USD | 93,657 | EUR | 79,583 | (1,187) |
Barclays Bank plc | 9/20/17 | USD | 84,803 | EUR | 75,118 | (4,718) |
Goldman Sachs International | 9/20/17 | USD | 77,370 | EUR | 67,315 | (2,853) |
BNP Paribas | 9/26/17 | USD | 49,409 | AUD | 61,705 | 371 |
BNP Paribas | 9/12/17 | USD | 37,392 | JPY | 4,148,640 | (366) |
Goldman Sachs International | 9/26/17 | USD | 37,123 | AUD | 49,092 | (1,891) |
Barclays Bank plc | 9/20/17 | USD | 29,114 | GBP | 22,718 | (282) |
Credit Suisse International | 9/20/17 | USD | 22,115 | GBP | 16,772 | 413 |
20
International Growth Fund | ||||||
Forward Currency Contracts (continued) | ||||||
Unrealized | ||||||
Contract | Appreciation | |||||
Settlement | Contract Amount (000) | (Depreciation) | ||||
Counterparty | Date | Receive | Deliver | ($000) | ||
Morgan Stanley Capital Services LLC | 9/20/17 | USD | 15,777 | GBP | 12,281 | (114) |
Citibank, N.A. | 9/20/17 | USD | 10,067 | EUR | 8,496 | (59) |
Citibank, N.A. | 9/26/17 | USD | 7,448 | AUD | 9,531 | (126) |
Citibank, N.A. | 9/12/17 | USD | 6,675 | JPY | 728,100 | 48 |
BNP Paribas | 9/20/17 | USD | 5,954 | GBP | 4,500 | 131 |
Goldman Sachs International | 9/20/17 | USD | 3,761 | GBP | 2,867 | 51 |
JPMorgan Chase Bank, N.A. | 9/12/17 | USD | 2,761 | JPY | 308,085 | (43) |
Citibank, N.A. | 9/20/17 | USD | 1,915 | GBP | 1,474 | 8 |
Goldman Sachs International | 9/12/17 | USD | 1,458 | JPY | 162,950 | (25) |
9,597 |
AUD—Australian dollar.
EUR—Euro.
GBP—British pound.
JPY—Japanese yen.
USD—U.S. dollar.
Unrealized appreciation (depreciation) on open forward currency contracts is treated as realized gain (loss) for tax purposes.
At August 31, 2017, the counterparties had deposited in segregated accounts securities and cash with a value of $13,087,000 in connection with open forward currency contracts.
See accompanying Notes, which are an integral part of the Financial Statements.
21
International Growth Fund | |
Statement of Operations | |
Year Ended | |
August 31, 2017 | |
($000) | |
Investment Income | |
Income | |
Dividends1 | 338,064 |
Interest | 3,509 |
Securities Lending—Net | 20,704 |
Total Income | 362,277 |
Expenses | |
Investment Advisory Fees—Note B | |
Basic Fee | 35,732 |
Performance Adjustment | 6,650 |
The Vanguard Group—Note C | |
Management and Administrative—Investor Shares | 16,805 |
Management and Administrative—Admiral Shares | 23,044 |
Marketing and Distribution—Investor Shares | 972 |
Marketing and Distribution—Admiral Shares | 1,289 |
Custodian Fees | 3,081 |
Auditing Fees | 48 |
Shareholders’ Reports and Proxy—Investor Shares | 446 |
Shareholders’ Reports and Proxy—Admiral Shares | 219 |
Trustees’ Fees and Expenses | 54 |
Total Expenses | 88,340 |
Net Investment Income | 273,937 |
Realized Net Gain (Loss) | |
Investment Securities Sold | (87,962) |
Futures Contracts | 27,666 |
Foreign Currencies and Forward Currency Contracts | (13,600) |
Realized Net Gain (Loss) | (73,896) |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | 6,365,555 |
Futures Contracts | (2,060) |
Foreign Currencies and Forward Currency Contracts | 11,600 |
Change in Unrealized Appreciation (Depreciation) | 6,375,095 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 6,575,136 |
1 Dividends are net of foreign withholding taxes of $26,174,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
22
International Growth Fund | ||
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2017 | 2016 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 273,937 | 328,597 |
Realized Net Gain (Loss) | (73,896) | (250,024) |
Change in Unrealized Appreciation (Depreciation) | 6,375,095 | 1,785,241 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 6,575,136 | 1,863,814 |
Distributions | ||
Net Investment Income | ||
Investor Shares | (77,643) | (98,317) |
Admiral Shares | (214,863) | (219,641) |
Realized Capital Gain | ||
Investor Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (292,506) | (317,958) |
Capital Share Transactions | ||
Investor Shares | (656,313) | (951,188) |
Admiral Shares | 2,802,104 | 885,360 |
Net Increase (Decrease) from Capital Share Transactions | 2,145,791 | (65,828) |
Total Increase (Decrease) | 8,428,421 | 1,480,028 |
Net Assets | ||
Beginning of Period | 22,403,601 | 20,923,573 |
End of Period1 | 30,832,022 | 22,403,601 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $187,387,000 and $225,153,000.
See accompanying Notes, which are an integral part of the Financial Statements.
23
International Growth Fund | |||||
Financial Highlights | |||||
Investor Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 |
Net Asset Value, Beginning of Period | $22.38 | $20.83 | $23.79 | $20.42 | $17.69 |
Investment Operations | |||||
Net Investment Income | . 2401 | .304 | .308 | .4712 | .336 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 6.028 | 1.539 | (2.774) | 3.235 | 2.741 |
Total from Investment Operations | 6.268 | 1.843 | (2.466) | 3.706 | 3.077 |
Distributions | |||||
Dividends from Net Investment Income | (.268) | (.293) | (.494) | (.336) | (.347) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (.268) | (.293) | (.494) | (.336) | (.347) |
Net Asset Value, End of Period | $28.38 | $22.38 | $20.83 | $23.79 | $20.42 |
Total Return 3 | 28.43% | 8.95% | -10.46% | 18.26% | 17.54% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $7,731 | $6,700 | $7,172 | $8,976 | $9,056 |
Ratio of Total Expenses to | |||||
Average Net Assets4 | 0.45% | 0.46% | 0.47% | 0.47% | 0.48% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.01% | 1.47% | 1.34% | 2.08%2 | 1.71% |
Portfolio Turnover Rate | 15% | 29% | 29% | 21% | 31% |
1 Calculated based on average shares outstanding.
2 Net investment income per share and the ratio of net investment income to average net assets include $.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.
3 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.
4 Includes performance-based investment advisory fee increases (decreases) of 0.03%, 0.04%, 0.03%, 0.03%, and 0.03%.
See accompanying Notes, which are an integral part of the Financial Statements.
24
International Growth Fund | |||||
Financial Highlights | |||||
Admiral Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 |
Net Asset Value, Beginning of Period | $71.19 | $66.28 | $75.70 | $64.98 | $56.31 |
Investment Operations | |||||
Net Investment Income | . 8791 | 1.062 | 1.088 | 1.6132 | 1.157 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 19.127 | 4.877 | (8.821) | 10.277 | 8.697 |
Total from Investment Operations | 20.006 | 5.939 | (7.733) | 11.890 | 9.854 |
Distributions | |||||
Dividends from Net Investment Income | (.956) | (1.029) | (1.687) | (1.170) | (1.184) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (.956) | (1.029) | (1.687) | (1.170) | (1.184) |
Net Asset Value, End of Period | $90.24 | $71.19 | $66.28 | $75.70 | $64.98 |
Total Return 3 | 28.57% | 9.07% | -10.32% | 18.42% | 17.66% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $23,101 | $15,704 | $13,752 | $14,415 | $10,556 |
Ratio of Total Expenses to | |||||
Average Net Assets4 | 0.32% | 0.33% | 0.34% | 0.34% | 0.35% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.14% | 1.60% | 1.47% | 2.21%2 | 1.84% |
Portfolio Turnover Rate | 15% | 29% | 29% | 21% | 31% |
1 Calculated based on average shares outstanding.
2 Net investment income per share and the ratio of net investment income to average net assets include $.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.
3 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.
4 Includes performance-based investment advisory fee increases (decreases) of 0.03%, 0.04%, 0.03%, 0.03%, and 0.03%.
See accompanying Notes, which are an integral part of the Financial Statements.
25
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 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.
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 clearinghouse, and has entered into clearing agreements with its clearing
26
International Growth Fund
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 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, 2017, 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 the notional amounts at each quarter-end during the period. The fund’s average investment in forward currency contracts represented 4% of net assets, based on the average of the 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, 2014–2017), 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
27
International Growth Fund
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 event 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, 2017, 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.
Withholding taxes on foreign dividends and capital gains have been provided for in accordance with the fund’s understanding of the applicable countries’ tax rules and rates. The fund has filed tax reclaims for previously withheld taxes on dividends earned in certain European Union countries. These filings are subject to various administrative and judicial proceedings within these countries. Such tax reclaims received during the year, if any, are included in dividend income. No other amounts for additional tax reclaims are reflected in the financial statements due to the uncertainty as to the ultimate resolution of proceedings, the likelihood of receipt of these reclaims, and the potential timing of payment.
28
International Growth 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), shareholder reporting, and the proxy. 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. Vanguard manages the cash reserves of the fund as described below.
For the year ended August 31, 2017, the aggregate investment advisory fee represented an effective annual basic rate of 0.14% of the fund’s average net assets, before an increase of $6,650,000 (0.03%) based on performance.
C. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund corporate management, administrative, marketing, distribution, and cash management services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain 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, 2017, the fund had contributed to Vanguard capital in the amount of $1,899,000, 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). Any investments valued with significant unobservable inputs are
noted on the Statement of Net Assets.
29
International Growth Fund
The following table summarizes the market value of the fund’s investments as of August 31, 2017, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks—North and South America | 3,366,903 | — | — |
Common Stocks—Other | 4,226,997 | 22,284,137 | 119,867 |
Preferred Stocks | — | — | 318,484 |
Temporary Cash Investments | 830,790 | 21,527 | — |
Futures Contracts—Assets1 | 1,642 | — | — |
Forward Currency Contracts—Assets | — | 27,515 | — |
Forward Currency Contracts—Liabilities | — | (17,918) | — |
Total | 8,426,332 | 22,315,261 | 438,351 |
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, 2017. 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, 2016 | 159,535 | 284,762 |
Purchases | — | 339 |
Sales | (67,484) | — |
Net Realized Gain (Loss) | 11,589 | — |
Change in Unrealized Appreciation (Depreciation) | 16,227 | 33,383 |
Balance as of August 31, 2017 | 119,867 | 318,484 |
Net change in unrealized appreciation (depreciation) from investments still held as of August 31, 2017, was $42,827,000.
30
International Growth Fund
The following table provides quantitative information about the significant unobservable inputs used in fair value measurement as of August 31, 2017:
Fair Value | Amount or Range/ | |||
Security Type | ($000) | Valuation Technique | Unobservable Input | Weighted Avg. |
Common Stocks | 119,867 | Recent Market | Transaction Price | $211.51- |
Transaction1 | 3,200.00/2,323.65 | |||
Preferred Stocks | 178,101 | Recent Market | Transaction Price | $4.10- |
Transaction 2 | 2,541.47/488.52 | |||
50,982 | Comparable Companies | EV/Revenue | 2.50x | |
and Valuation of | ||||
Underlying Holdings 3 | EV/EBIT | 15.00x | ||
Liquidity Discount | 10% | |||
50,404 | Recent Market | Scenario Probability | 50% | |
Transaction | Transaction Price | $1,235.70 | ||
38,997 | Comparable | EV/Revenue | 1.30x-4.77x | |
Companies 4 | Scenario Probability | 25%-75% | ||
Transaction Price | $18.75 | |||
Liquidity Discount | 10% |
1 During the period ended August 31, 2017, the valuation technique was changed from Purchase Price to Recent Market Transaction.
This was considered to be a more relevant measure of fair value for these investments.
2 During the period ended August 31, 2017, the valuation techniques were changed from Purchase Price, Discounted Purchase Price,
and Discounted Recent Market Transaction to Recent Market Transaction. This was considered to be a more relevant measure of
fair value for these investments.
3 During the period ended August 31, 2017, the valuation technique was changed from Purchase Price to Comparable Companies
and Valuation of Underlying Holdings. This was considered to be a more relevant measure of fair value for this investment.
4 During the period ended August 31, 2017, the valuation technique was changed from Purchase Price to Comparable Companies.
This was considered to be a more relevant measure of fair value for this investment.
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.
E. At August 31, 2017, 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) |
Variation Margin Receivable — Futures Contracts | 1,642 | — | 1,642 |
Unrealized Appreciation — Forward Currency Contracts | — | 27,515 | 27,515 |
Unrealized Depreciation — Forward Currency Contracts | — | (17,918) | (17,918) |
31
International Growth Fund
Realized net gain (loss) and the change in unrealized appreciation (depreciation) on derivatives for the year ended August 31, 2017, were:
Foreign | |||
Equity | Exchange | ||
Contracts | Contracts | Total | |
Realized Net Gain (Loss) on Derivatives | ($000) | ($000) | ($000) |
Futures Contracts | 27,666 | — | 27,666 |
Forward Currency Contracts | — | 5,597 | 5,597 |
Realized Net Gain (Loss) on Derivatives | 27,666 | 5,597 | 33,263 |
Change in Unrealized Appreciation (Depreciation) on Derivatives | |||
Futures Contracts | (2,060) | — | (2,060) |
Forward Currency Contracts | — | 8,839 | 8,839 |
Change in Unrealized Appreciation (Depreciation) on Derivatives | (2,060) | 8,839 | 6,779 |
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, 2017, the fund realized net foreign currency losses of $19,197,000, 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, 2017, the fund had $234,450,000 of ordinary income available for distribution. The fund used capital loss carryforwards of $57,837,000 to offset taxable capital gains realized during the year ended August 31, 2017. At August 31, 2017, the fund had available capital losses totaling $538,520,000 to offset future net capital gains. Of this amount, $154,471,000 is subject to expiration on August 31, 2018. Capital losses of $384,049,000 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, 2017, the cost of investment securities for tax purposes was $20,820,710,000. Net unrealized appreciation of investment securities for tax purposes was $10,347,995,000, consisting of unrealized gains of $10,859,220,000 on securities that had risen in value since their purchase and $511,225,000 in unrealized losses on securities that had fallen in value since their purchase.
G. During the year ended August 31, 2017, the fund purchased $5,540,786,000 of investment securities and sold $3,703,656,000 of investment securities, other than temporary cash investments.
32
International Growth Fund
H. Capital share transactions for each class of shares were: | ||||
Year Ended August 31, | ||||
2017 | 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
Investor Shares | ||||
Issued | 1,133,334 | 45,828 | 586,228 | 28,784 |
Issued in Lieu of Cash Distributions | 75,179 | 3,578 | 95,657 | 4,579 |
Redeemed | (1,864,826) | (76,319) | (1,633,073) | (78,218) |
Net Increase (Decrease)—Investor Shares | (656,313) | (26,913) | (951,188) | (44,855) |
Admiral Shares | ||||
Issued | 4,361,979 | 55,736 | 2,523,382 | 38,141 |
Issued in Lieu of Cash Distributions | 197,992 | 2,966 | 202,133 | 3,045 |
Redeemed | (1,757,867) | (23,306) | (1,840,155) | (28,076) |
Net Increase (Decrease)—Admiral Shares | 2,802,104 | 35,396 | 885,360 | 13,110 |
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 | ||||||||
August 31, | Proceeds | Net | Change | August 31, | ||||
2016 | from | Realized | in Net | Capital Gain | 2017 | |||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||
Value | at Cost | Sold | (Loss) | App. (Dep.) | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
Home 24AG | 38,841 | — | — | — | 11,563 | — | — | 50,404 |
Vanguard FTSE | ||||||||
All-World ex-US | ||||||||
ETF | 50,757 | — | — | — | 7,978 | 1,494 | — | 58,735 |
Vanguard Market | ||||||||
Liquidity Fund | 565,037 | NA1 | NA1 | 71 | 43 | 3,378 | — | 830,790 |
You & Mr. Jones | 44,800 | — | — | — | 6,182 | — | — | 50,982 |
Total | 699,435 | 71 | 25,766 | 4,872 | — | 990,911 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
J. Management has determined that no material events or transactions occurred subsequent to August 31, 2017, that would require recognition or disclosure in these financial statements.
33
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”) as of August 31, 2017, 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 as of August 31, 2017 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 17, 2017
Special 2017 tax information (unaudited) for Vanguard International Growth Fund
This information for the fiscal year ended August 31, 2017, is included pursuant to provisions of the Internal Revenue Code.
The fund distributed $264,162,000 of qualified dividend income to shareholders during the fiscal year.
The fund designates to shareholders foreign source income of $291,279,000 and foreign taxes paid of $26,659,000. Shareholders will receive more detailed information with their Form 1099-DIV in January 2018 to determine the calendar-year amounts to be included on their 2017 tax returns.
34
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 2017. (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, 2017 | |||
One | Five | Ten | |
Year | Years | Years | |
Returns Before Taxes | 28.43% | 11.73% | 4.50% |
Returns After Taxes on Distributions | 28.09 | 11.34 | 3.86 |
Returns After Taxes on Distributions and Sale of Fund Shares | 16.31 | 9.29 | 3.47 |
35
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.
36
Six Months Ended August 31, 2017 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
International Growth Fund | 2/28/2017 | 8/31/2017 | Period |
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $1,236.60 | $2.54 |
Admiral Shares | 1,000.00 | 1,237.35 | 1.80 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,022.94 | $2.29 |
Admiral Shares | 1,000.00 | 1,023.59 | 1.63 |
The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios for that period are 0.45% for Investor Shares and 0.32% for Admiral Shares. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period (184/365).
37
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.
38
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.
39
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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 195 Vanguard funds.
Information for each trustee and executive officer of the fund appears below. 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.
Interested Trustee1
F. William McNabb III
Born 1957. Trustee Since July 2009. Chairman of the Board. Principal Occupation(s) During the Past Five Years and Other Experience: Chairman of the Board of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group, since January 2010; Chief Executive Officer and Director of The Vanguard Group and President and Chief Executive Officer of each of the investment companies served by The Vanguard Group, since 2008; Director of Vanguard Marketing Corporation; President of The Vanguard Group (2008–2017); Managing Director of The Vanguard Group (1995–2008).
Independent Trustees
Emerson U. Fullwood
Born 1948. Trustee Since January 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Executive Chief Staff and Marketing Officer for North America and Corporate Vice President (retired 2008) of Xerox Corporation (document management products and services); Executive in Residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology; 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; Trustee of the University of Rochester.
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 Arconic Inc. (diversified manufacturer), 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
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.
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.
JoAnn Heffernan Heisen
Born 1950. Trustee Since July 1998. Principal Occupation(s) During the Past Five Years and Other Experience: Corporate Vice President and Member of the Executive Committee (1997–2008), Chief Global Diversity Officer (retired 2008), Vice President and Chief Information Officer (1997–2006), Controller (1995–1997), Treasurer (1991–1995), and Assistant Treasurer (1989–1991) 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), Oxfam America, and the Lumina Foundation for Education; Director of the V Foundation for Cancer Research; Member of the Advisory Council for the College of Arts and Letters and Chair 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, the Board of Catholic Investment Services, Inc. (investment advisor), and the Board of Superintendence of the Institute for the Works of Religion; Chairman of the Board of TIFF Advisory Services, Inc. (investment advisor).
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 Co-Managing Partner of HighVista Strategies LLC (private investment firm); 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 Board of Hypertherm, Inc. (industrial cutting systems, software, and consumables).
Executive Officers
Glenn Booraem
Born 1967. Investment Stewardship Officer Since February 2017. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Treasurer (2015–2017), Controller (2010–2015), and Assistant Controller (2001–2010) of each of the investment companies served by The Vanguard Group.
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: Principal of 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).
Anne E. Robinson
Born 1970. Secretary Since September 2016. 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; Managing Director and General Counsel of Global Cards and Consumer Services at Citigroup (2014–2016); Counsel at American Express (2003–2014).
Michael Rollings
Born 1963. Treasurer Since February 2017. Principal Occupation(s) During the Past Five Years and Other Experience: Managing Director of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group; Director of Vanguard Marketing Corporation; Executive Vice President and Chief Financial Officer of MassMutual Financial Group (2006–2016).
Vanguard Senior Management Team | |
Mortimer J. Buckley | Chris D. McIsaac |
Gregory Davis | James M. Norris |
John James | Thomas M. Rampulla |
Martha G. King | Karin A. Risi |
John T. Marcante | |
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 |
![]() | |
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. | |
© 2017 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q810 102017 |
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ftsesocialindexx1x1.jpg)
Annual Report | August 31, 2017
Vanguard FTSE Social Index Fund
Vanguard’s Principles for Investing Success
We want to give you the best chance of investment success. These principles, grounded in Vanguard’s research and experience, can put you on the right path.
Goals. Create clear, appropriate investment goals.
Balance. Develop a suitable asset allocation using broadly diversified funds. Cost. Minimize cost.
Discipline. Maintain perspective and long-term discipline.
A single theme unites these principles: Focus on the things you can control.
We believe there is no wiser course for any investor.
Contents | |
Your Fund’s Performance at a Glance. | 1 |
Chairman’s Perspective. | 3 |
Fund Profile. | 7 |
Performance Summary. | 8 |
Financial Statements. | 10 |
Your Fund’s After-Tax Returns. | 26 |
About Your Fund’s Expenses. | 27 |
Trustees Approve Advisory Arrangement. | 29 |
Glossary. | 31 |
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: Nautical images have been part of Vanguard’s rich heritage since its start in 1975. For an incoming ship, a lighthouse offers a beacon and safe path to shore. You can similarly depend on Vanguard to put you first––and light the way––as you strive to meet your financial goals. Our client focus and low costs, stemming from our unique ownership structure, assure that your interests are paramount.
Your Fund’s Performance at a Glance
• Vanguard FTSE Social Index Fund returned more than 17% for the 12 months ended August 31, 2017, closely tracking its target benchmark, the FTSE4Good US Select Index, but trailing the average return of its large-capitalization growth fund peers.
• In tracking its socially conscious benchmark, 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.
• Nine of ten sectors advanced. Of the fund’s two largest sectors, technology (+33%) posted the highest return and contributed most to performance. Financials returned 23%.
• Health care (+15%) and industrials (+21%) were the other top contributors. The only sector that lost ground was oil and gas, which returned –12%.
• The fund’s ten-year average annual return was in line with that of its benchmark and modestly trailed its large-cap growth fund peers.
Total Returns: Fiscal Year Ended August 31, 2017 | |
Total | |
Returns | |
Vanguard FTSE Social Index Fund | |
Investor Shares | 17.61% |
Institutional Shares | 17.72 |
FTSE4Good US Select Index | 17.82 |
Large-Cap Growth Funds Average | 19.84 |
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, 2017 | |
Average | |
Annual Return | |
FTSE Social Index Fund Investor Shares | 7.29% |
FTSE4Good US Select Index | 7.51 |
Large-Cap Growth Funds Average | 7.74 |
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 | 0.22% | 0.12% | 1.14% |
The fund expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2017, the fund’s expense ratios were 0.20% 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 2016.
Peer group: Large-Cap Growth Funds.
2
Chairman’s Perspective
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ftsesocialindexx5x1.jpg)
Bill McNabb
Chairman and Chief Executive Officer
Dear Shareholder,
Since mid-August we’ve been reaching out to you about the proposals put forth by the Vanguard funds that, if approved, will enable us to manage the funds more efficiently and effectively. As the November deadline for voting approaches, I’d like to offer some perspective on a few of the proposals that I believe are important to the way Vanguard operates and manages your investments. I hope you consider this information and promptly cast your ballot.
Your biggest advocate
The main driver for this proxy solicitation is to ask all our fund shareholders to elect a full slate of trustees who oversee each U.S.-based Vanguard mutual fund. These trustees serve an important role, making sure your funds are managed in your best interests. This includes monitoring fund performance, approving advisory agreements, and ensuring that we’re keeping your investment costs as low as possible. Simply put, they are your biggest advocate.
Each trustee brings a variety of skills and professional experiences that contribute to the board’s strength and diversity.
Of the 12 nominees, nine currently serve on the board, and three are new. If elected, the new board would include ten independent members, meaning they have no affiliation with Vanguard or the funds apart from any investments they may choose to make as private individuals.
3
These are the proposed new trustees:
• Sarah Bloom Raskin is a former member of the Federal Reserve Board of Governors and former deputy secretary of the U.S. Treasury Department. She is an expert in cybersecurity—a critically important issue at Vanguard, as we place a premium on protecting clients’ assets and sensitive data.
• Deanna Mulligan is chief executive officer of The Guardian Life Insurance Company of America. It’s rare to find a CEO such as Deanna who leads a company with a mutual ownership structure similar to Vanguard’s.
• Tim Buckley is president and a director of Vanguard and will succeed me in January as CEO. (I’ll remain chairman for a period to be determined by the board.) I interviewed Tim when he applied for his first job here in 1991 and again when he was graduating from Harvard Business School. I was thrilled he picked Vanguard as a place to build his career, and I’ve been delighted to see him take on several leadership positions, including as head of our Retail Investor Group, chief information officer, and chief investment officer. I can think of no one better prepared to succeed me.
Market Barometer | |||
Average Annual Total Returns | |||
Periods Ended August 31, 2017 | |||
One Year | Three Years | Five Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 16.16% | 9.21% | 14.37% |
Russell 2000 Index (Small-caps) | 14.91 | 7.67 | 13.15 |
Russell 3000 Index (Broad U.S. market) | 16.06 | 9.08 | 14.27 |
FTSE All-World ex US Index (International) | 18.74 | 2.80 | 7.76 |
Bonds | |||
Bloomberg Barclays U.S. Aggregate Bond Index | |||
(Broad taxable market) | 0.49% | 2.64% | 2.19% |
Bloomberg Barclays Municipal Bond Index | |||
(Broad tax-exempt market) | 0.88 | 3.40 | 3.23 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.58 | 0.25 | 0.16 |
CPI | |||
Consumer Price Index | 1.94% | 1.06% | 1.28% |
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Vanguard believes that diversity of thought, background, and experience, as well as diversity of personal characteristics, meaningfully contributes to the board’s ability to effectively serve shareholders. If Sarah and Deanna are elected, women will account for 40% of the board’s independent trustees.
I should note that even as Vanguard is nominating three new board members, we’re saying goodbye to trustee Rajiv Gupta. Rajiv was a legendary CEO of Rohm and Haas Co., and Vanguard and our clients have benefited greatly from his expertise. I wish him a happy retirement.
Summarizing the proposals
Among the trustees’ leading responsibilities is overseeing the funds’ internal and external investment advisory agreements. The trustees, in consultation with our Global Investment Committee and our Portfolio Review Department, choose the investment advisors that manage client assets. Over decades, we have built a strong track record of picking advisors whose portfolio management strategies have served clients well.
Two proposals in the proxy focus on this oversight responsibility. Shareholders of 48 Vanguard funds have already voted to allow the board to make external advisor changes without obtaining prior shareholder approval. The new proposals would extend that policy across our entire U.S.-based fund lineup and expand it to include internal advisory agreements with Vanguard subsidiaries. Eliminating the need for shareholder approval removes a step that is costly and time-consuming if done frequently or on an individual fund basis. Although there are no current plans to employ the policy on any Vanguard-managed funds, standardizing it enables the trustees to retain an advisory firm to diversify a fund’s management team or ensure management continuity should a contingency arise.
I also encourage shareholders of several specific Vanguard index funds to read the proxy proposals that affect those funds. One proposal would change the investment objective of Vanguard REIT Index Fund and Vanguard Variable Insurance Fund REIT Index Portfolio to include real estate-related securities, aligning the funds with updated industry-sector classification methodology. Another proposal seeks to change the diversification status of the REIT Index Fund to enable it to better track its benchmark. Finally, we seek your approval of the Funds’ Service Agreement for Vanguard Institutional Index Fund and Vanguard Institutional Total Stock Market Index Fund. If approved, this arrangement would then be standardized across Vanguard’s entire publicly available U.S. mutual fund lineup. It should also reduce costs and minimum initial investment requirements in select share classes.
5
At the ballot box
We hope you’ll make it a priority to cast your ballot. We want to avoid the added time and cost of soliciting sufficient votes should we not obtain a quorum by the shareholder meeting on November 15, when voting concludes. Ultimately, we believe the proposals I’ve discussed are in your best interest as Vanguard fund shareholders, and the trustees recommend that you vote in favor of them. For more information, visit vanguard.com and enter the search term “proxy.”
As always, thank you for investing with Vanguard.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ftsesocialindexx8x1.jpg)
F. William McNabb III
Chairman and Chief Executive Officer
September 14, 2017
6
FTSE Social Index Fund
Fund Profile
As of August 31, 2017
Share-Class Characteristics
Investor | Institutional | |
Shares | Shares | |
Ticker Symbol | VFTSX | VFTNX |
Expense Ratio1 | 0.22% | 0.12% |
30-Day SEC Yield | 1.68% | 1.69% |
Portfolio Characteristics
DJ | |||
U.S. | |||
FTSE | Total | ||
4Good | Market | ||
US Select | FA | ||
Fund | Index | Index | |
Number of Stocks | 431 | 434 | 3,769 |
Median Market Cap | $80.8B | $80.8B | $63.1B |
Price/Earnings Ratio | 21.5x | 21.6x | 21.6x |
Price/Book Ratio | 3.0x | 3.0x | 2.8x |
Return on Equity | 16.1% | 16.1% | 15.1% |
Earnings Growth Rate | 9.2% | 9.2% | 9.4% |
Dividend Yield | 1.7% | 1.7% | 1.8% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 11% | — | — |
Short-Term Reserves | -0.3% | — | — |
Sector Diversification (% of equity exposure)
FTSE | DJ | ||
4Good | U.S. Total | ||
US Select | Market | ||
Fund | Index | FA Index | |
Basic Materials | 1.8% | 1.8% | 2.6% |
Consumer Goods | 9.5 | 9.5 | 9.3 |
Consumer Services | 8.8 | 8.8 | 12.8 |
Financials | 24.0 | 24.0 | 20.2 |
Health Care | 17.6 | 17.6 | 13.2 |
Industrials | 8.1 | 8.1 | 12.9 |
Oil & Gas | 3.2 | 3.2 | 5.2 |
Technology | 26.3 | 26.3 | 18.5 |
Telecommunications | 0.3 | 0.3 | 2.0 |
Utilities | 0.4 | 0.4 | 3.3 |
Sector categories are based on the Industry Classification Benchmark (“ICB”), except for the “Other” category (if applicable), which includes securities that have not been provided an ICB classification as of the effective reporting period.
Volatility Measures
FTSE | DJ | |
4Good | U.S. Total | |
US Select | Market | |
Index | FA Index | |
R-Squared | 1.00 | 0.98 |
Beta | 1.00 | 1.03 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
| ||
Ten Largest Holdings (% of total net assets) | ||
Apple Inc. | Computer Hardware | 5.6% |
Alphabet Inc. | Internet | 3.7 |
Microsoft Corp. | Software | 3.6 |
Facebook Inc. | Internet | 2.6 |
Johnson & Johnson | Pharmaceuticals | 2.3 |
JPMorgan Chase & Co. | Banks | 2.1 |
Bank of America Corp. | Banks | 1.5 |
Procter & Gamble Co. | Nondurable | |
Household Products | 1.5 | |
Wells Fargo & Co. | Banks | 1.5 |
Pfizer Inc. | Pharmaceuticals | 1.3 |
Top Ten | 25.7% |
The holdings listed exclude any temporary cash investments and equity index products.
Investment Focus
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ftsesocialindexx9x1.jpg)
1 The expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2017, the expense ratios were 0.20% 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, 2007, Through August 31, 2017
Initial Investment of $10,000
Average Annual Total Returns | |||||
Periods Ended August 31, 2017 | |||||
Final Value | |||||
One | Five | Ten | of a $10,000 | ||
Year | Years | Years | Investment | ||
FTSE Social Index Fund Investor Shares | 17.61% | 16.12% | 7.29% | $20,219 | |
• • • • • • • • | FTSE4Good US Select Index | 17.82 | 16.38 | 7.51 | 20,630 |
– – – – | Large-Cap Growth Funds Average | 19.84 | 13.99 | 7.74 | 21,065 |
Dow Jones U.S. Total Stock Market | |||||
Float Adjusted Index | 16.05 | 14.19 | 7.76 | 21,122 | |
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 | 17.72% | 16.23% | 7.41% | $10,223,540 |
FTSE4Good US Select Index | 17.82 | 16.38 | 7.51 | 10,314,805 |
Dow Jones U.S. Total Stock Market Float | ||||
Adjusted Index | 16.05 | 14.19 | 7.76 | 10,503,448 |
See Financial Highlights for dividend and capital gains information.
8
FTSE Social Index Fund
Fiscal-Year Total Returns (%): August 31, 2007, Through August 31, 2017
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ftsesocialindexx11x1.jpg)
Average Annual Total Returns: Periods Ended June 30, 2017
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 | 21.37% | 16.39% | 6.66% |
Institutional Shares | 1/14/2003 | 21.47 | 16.51 | 6.78 |
9
FTSE Social Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2017
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 | |||
Basic Materials (1.8%) | |||
Praxair Inc. | 63,045 | 8,293 | |
Ecolab Inc. | 56,089 | 7,477 | |
Air Products & Chemicals | |||
Inc. | 47,433 | 6,895 | |
LyondellBasell Industries | |||
NV Class A | 73,169 | 6,628 | |
PPG Industries Inc. | 56,800 | 5,925 | |
Newmont Mining Corp. | 118,173 | 4,531 | |
Nucor Corp. | 71,150 | 3,921 | |
Albemarle Corp. | 24,451 | 2,843 | |
FMC Corp. | 29,398 | 2,535 | |
International Flavors & | |||
Fragrances Inc. | 17,498 | 2,394 | |
Arconic Inc. | 86,367 | 2,200 | |
* | Alcoa Corp. | 42,175 | 1,851 |
Avery Dennison Corp. | 19,189 | 1,809 | |
Mosaic Co. | 80,426 | 1,607 | |
CF Industries Holdings Inc. | 52,066 | 1,509 | |
Ashland Global Holdings | |||
Inc. | 14,259 | 885 | |
61,303 | |||
Consumer Goods (9.5%) | |||
Procter & Gamble Co. | 564,597 | 52,095 | |
PepsiCo Inc. | 314,295 | 36,373 | |
NIKE Inc. Class B | 292,918 | 15,469 | |
Colgate-Palmolive Co. | 190,972 | 13,681 | |
Mondelez International | |||
Inc. Class A | 323,232 | 13,143 | |
General Motors Co. | 303,518 | 11,091 | |
Activision Blizzard Inc. | 163,362 | 10,710 | |
Kraft Heinz Co. | 131,783 | 10,641 | |
* | Tesla Inc. | 28,707 | 10,217 |
Kimberly-Clark Corp. | 78,255 | 9,648 | |
Ford Motor Co. | 869,323 | 9,589 | |
* | Electronic Arts Inc. | 66,066 | 8,027 |
General Mills Inc. | 128,317 | 6,834 |
Market | |||
Value• | |||
Shares | ($000) | ||
Delphi Automotive plc | 58,700 | 5,659 | |
Estee Lauder Cos. Inc. | |||
Class A | 48,239 | 5,161 | |
Newell Brands Inc. | 106,150 | 5,125 | |
* | Monster Beverage Corp. | 91,468 | 5,106 |
Stanley Black & Decker | |||
Inc. | 33,839 | 4,873 | |
VF Corp. | 74,446 | 4,680 | |
Clorox Co. | 28,269 | 3,916 | |
Dr Pepper Snapple Group | |||
Inc. | 40,922 | 3,726 | |
Kellogg Co. | 55,247 | 3,616 | |
* | Mohawk Industries Inc. | 13,491 | 3,415 |
Hershey Co. | 30,505 | 3,201 | |
Conagra Brands Inc. | 90,260 | 2,930 | |
Whirlpool Corp. | 16,092 | 2,762 | |
DR Horton Inc. | 76,157 | 2,753 | |
Church & Dwight Co. Inc. | 54,603 | 2,739 | |
Genuine Parts Co. | 32,421 | 2,685 | |
Coach Inc. | 63,390 | 2,643 | |
JM Smucker Co. | 25,186 | 2,638 | |
McCormick & Co. Inc. | 25,237 | 2,401 | |
* | LKQ Corp. | 68,345 | 2,368 |
Bunge Ltd. | 31,083 | 2,320 | |
Lear Corp. | 15,025 | 2,247 | |
PVH Corp. | 17,534 | 2,207 | |
Coca-Cola European | |||
Partners plc | 51,271 | 2,205 | |
BorgWarner Inc. | 46,163 | 2,142 | |
Autoliv Inc. | 19,503 | 2,118 | |
Hanesbrands Inc. | 82,390 | 1,999 | |
Ingredion Inc. | 15,838 | 1,961 | |
Snap-on Inc. | 12,995 | 1,918 | |
Harley-Davidson Inc. | 39,761 | 1,869 | |
Campbell Soup Co. | 39,672 | 1,833 | |
Hormel Foods Corp. | 59,483 | 1,829 | |
PulteGroup Inc. | 66,114 | 1,707 | |
Goodyear Tire & Rubber | |||
Co. | 55,841 | 1,692 |
10
FTSE Social Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
* | Michael Kors Holdings Ltd. | 36,296 | 1,532 |
Lamb Weston Holdings Inc. | 32,019 | 1,456 | |
Adient plc | 20,483 | 1,448 | |
^ | Polaris Industries Inc. | 14,527 | 1,354 |
* | Lululemon Athletica Inc. | 23,023 | 1,325 |
Toll Brothers Inc. | 33,771 | 1,316 | |
Ralph Lauren Corp. | |||
Class A | 14,698 | 1,292 | |
Gentex Corp. | 63,369 | 1,158 | |
* | Herbalife Ltd. | 15,521 | 1,071 |
* | Edgewell Personal Care | ||
Co. | 13,044 | 991 | |
* | Under Armour Inc. Class A | 36,372 | 587 |
Mattel Inc. | 21,752 | 353 | |
321,845 | |||
Consumer Services (8.8%) | |||
Home Depot Inc. | 264,866 | 39,696 | |
Walt Disney Co. | 345,311 | 34,946 | |
McDonald’s Corp. | 179,878 | 28,775 | |
* | Priceline Group Inc. | 10,817 | 20,034 |
CVS Health Corp. | 225,319 | 17,426 | |
Time Warner Inc. | 170,136 | 17,201 | |
Starbucks Corp. | 312,505 | 17,144 | |
Lowe’s Cos. Inc. | 189,603 | 14,010 | |
TJX Cos. Inc. | 142,075 | 10,272 | |
McKesson Corp. | 47,025 | 7,021 | |
Sysco Corp. | 108,441 | 5,712 | |
Ross Stores Inc. | 84,875 | 4,961 | |
Cardinal Health Inc. | 70,308 | 4,743 | |
Dollar General Corp. | 62,189 | 4,512 | |
* | Dollar Tree Inc. | 52,747 | 4,201 |
Expedia Inc. | 26,835 | 3,981 | |
* | O’Reilly Automotive Inc. | 19,848 | 3,893 |
Omnicom Group Inc. | 51,096 | 3,698 | |
* | AutoZone Inc. | 6,376 | 3,369 |
Best Buy Co. Inc. | 58,039 | 3,149 | |
Nielsen Holdings plc | 79,868 | 3,103 | |
* | Yum China Holdings Inc. | 81,763 | 2,891 |
* | Ulta Beauty Inc. | 13,072 | 2,889 |
AmerisourceBergen Corp. | |||
Class A | 35,321 | 2,835 | |
* | CarMax Inc. | 41,001 | 2,753 |
Darden Restaurants Inc. | 27,734 | 2,277 | |
Viacom Inc. Class B | 78,495 | 2,245 | |
Tiffany & Co. | 23,723 | 2,168 | |
L Brands Inc. | 54,947 | 1,990 | |
Alaska Air Group Inc. | 26,237 | 1,959 | |
* | Liberty Media Corp- | ||
Liberty SiriusXM Class C | 41,442 | 1,849 | |
Interpublic Group of Cos. | |||
Inc. | 88,087 | 1,774 | |
Tractor Supply Co. | 29,419 | 1,751 | |
Kohl’s Corp. | 42,038 | 1,672 |
Market | |||
Value• | |||
Shares | ($000) | ||
Scripps Networks | |||
Interactive Inc. Class A | 19,124 | 1,638 | |
Advance Auto Parts Inc. | 16,250 | 1,591 | |
Staples Inc. | 144,874 | 1,480 | |
Gap Inc. | 55,662 | 1,315 | |
H&R Block Inc. | 46,349 | 1,239 | |
Nordstrom Inc. | 27,282 | 1,217 | |
* | TripAdvisor Inc. | 25,134 | 1,074 |
Foot Locker Inc. | 29,977 | 1,056 | |
* | Chipotle Mexican Grill Inc. | ||
Class A | 3,309 | 1,048 | |
Signet Jewelers Ltd. | 16,187 | 1,021 | |
Bed Bath & Beyond Inc. | 36,278 | 1,001 | |
Dun & Bradstreet Corp. | 8,723 | 972 | |
* | Liberty Media Corp- | ||
Liberty SiriusXM Class A | 17,383 | 777 | |
* | AutoNation Inc. | 16,145 | 733 |
TEGNA Inc. | 53,192 | 671 | |
Macy’s Inc. | 23,325 | 484 | |
* | Cars.com Inc. | 16,441 | 425 |
298,642 | |||
Financials (23.9%) | |||
JPMorgan Chase & Co. | 780,335 | 70,925 | |
Bank of America Corp. | 2,199,177 | 52,538 | |
Wells Fargo & Co. | 992,620 | 50,693 | |
Visa Inc. Class A | 407,570 | 42,192 | |
Citigroup Inc. | 608,296 | 41,382 | |
Mastercard Inc. Class A | 207,075 | 27,603 | |
Goldman Sachs Group Inc. | 81,192 | 18,166 | |
US Bancorp | 347,659 | 17,817 | |
Chubb Ltd. | 102,233 | 14,458 | |
American Express Co. | 162,123 | 13,959 | |
American Tower Corp. | 92,809 | 13,740 | |
PNC Financial Services | |||
Group Inc. | 105,892 | 13,280 | |
Morgan Stanley | 291,837 | 13,279 | |
American International | |||
Group Inc. | 204,651 | 12,377 | |
Bank of New York | |||
Mellon Corp. | 222,450 | 11,630 | |
BlackRock Inc. | 27,433 | 11,495 | |
Simon Property Group Inc. | 68,855 | 10,800 | |
Charles Schwab Corp. | 261,252 | 10,424 | |
Prudential Financial Inc. | 94,660 | 9,663 | |
Crown Castle International | |||
Corp. | 88,464 | 9,593 | |
MetLife Inc. | 202,496 | 9,483 | |
CME Group Inc. | 74,997 | 9,435 | |
Marsh & McLennan Cos. | |||
Inc. | 112,934 | 8,818 | |
S&P Global Inc. | 56,677 | 8,747 | |
Capital One Financial Corp. | 106,457 | 8,475 | |
Intercontinental Exchange | |||
Inc. | 128,881 | 8,335 |
11
FTSE Social Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
BB&T Corp. | 178,776 | 8,240 | |
Equinix Inc. | 17,031 | 7,977 | |
Aon plc | 57,033 | 7,937 | |
State Street Corp. | 82,480 | 7,629 | |
Travelers Cos. Inc. | 61,863 | 7,497 | |
Prologis Inc. | 115,276 | 7,304 | |
Allstate Corp. | 79,477 | 7,193 | |
Aflac Inc. | 85,676 | 7,073 | |
Public Storage | 32,581 | 6,690 | |
SunTrust Banks Inc. | 107,274 | 5,911 | |
Welltower Inc. | 80,503 | 5,894 | |
Progressive Corp. | 126,078 | 5,860 | |
AvalonBay Communities | |||
Inc. | 29,927 | 5,618 | |
Synchrony Financial | 180,389 | 5,554 | |
Ventas Inc. | 78,239 | 5,355 | |
Weyerhaeuser Co. | 163,676 | 5,337 | |
Equity Residential | 78,053 | 5,241 | |
Discover Financial Services | 84,377 | 4,974 | |
Moody’s Corp. | 36,755 | 4,926 | |
M&T Bank Corp. | 31,611 | 4,674 | |
Ameriprise Financial Inc. | 33,571 | 4,650 | |
T. Rowe Price Group Inc. | 52,055 | 4,391 | |
Fifth Third Bancorp | 167,065 | 4,365 | |
Hartford Financial Services | |||
Group Inc. | 79,780 | 4,314 | |
KeyCorp | 241,052 | 4,148 | |
Digital Realty Trust Inc. | 35,054 | 4,148 | |
Willis Towers Watson plc | 27,824 | 4,131 | |
Boston Properties Inc. | 33,961 | 4,096 | |
Northern Trust Corp. | 46,179 | 4,087 | |
* | SBA Communications Corp. | ||
Class A | 26,395 | 4,053 | |
Regions Financial Corp. | 267,041 | 3,768 | |
Citizens Financial Group | |||
Inc. | 112,426 | 3,725 | |
Equifax Inc. | 26,072 | 3,714 | |
Principal Financial Group | |||
Inc. | 57,954 | 3,623 | |
Realty Income Corp. | 61,106 | 3,517 | |
Lincoln National Corp. | 49,277 | 3,344 | |
First Republic Bank | 34,017 | 3,301 | |
HCP Inc. | 104,701 | 3,121 | |
* | Markel Corp. | 2,964 | 3,118 |
Huntington Bancshares | |||
Inc. | 239,968 | 3,021 | |
Annaly Capital | |||
Management Inc. | 240,333 | 3,004 | |
Invesco Ltd. | 90,240 | 2,958 | |
GGP Inc. | 138,261 | 2,869 | |
Vornado Realty Trust | 38,059 | 2,835 | |
Loews Corp. | 60,505 | 2,818 | |
* | Arch Capital Group Ltd. | 27,786 | 2,705 |
Cincinnati Financial Corp. | 34,540 | 2,654 |
Market | |||
Value• | |||
Shares | ($000) | ||
Comerica Inc. | 38,356 | 2,618 | |
* | E*TRADE Financial Corp. | 60,481 | 2,480 |
TD Ameritrade Holding | |||
Corp. | 56,064 | 2,429 | |
Unum Group | 50,066 | 2,412 | |
Ally Financial Inc. | 104,368 | 2,359 | |
* | CBRE Group Inc. Class A | 64,752 | 2,336 |
Duke Realty Corp. | 78,494 | 2,333 | |
XL Group Ltd. | 56,470 | 2,313 | |
Iron Mountain Inc. | 58,058 | 2,289 | |
Everest Re Group Ltd. | 8,993 | 2,271 | |
Arthur J Gallagher & Co. | 38,622 | 2,236 | |
UDR Inc. | 57,484 | 2,231 | |
Regency Centers Corp. | 33,403 | 2,148 | |
SL Green Realty Corp. | 22,211 | 2,141 | |
Western Union Co. | 107,590 | 2,036 | |
Torchmark Corp. | 25,516 | 1,964 | |
Zions Bancorporation | 44,065 | 1,924 | |
Nasdaq Inc. | 25,448 | 1,918 | |
VEREIT Inc. | 223,196 | 1,884 | |
Kimco Realty Corp. | 95,350 | 1,871 | |
* | Alleghany Corp. | 3,251 | 1,830 |
AGNC Investment Corp. | 79,624 | 1,715 | |
SEI Investments Co. | 28,929 | 1,691 | |
Macerich Co. | 31,025 | 1,637 | |
Voya Financial Inc. | 41,434 | 1,584 | |
CIT Group Inc. | 32,498 | 1,458 | |
People’s United Financial | |||
Inc. | 84,377 | 1,409 | |
WR Berkley Corp. | 20,646 | 1,376 | |
New York Community | |||
Bancorp Inc. | 114,117 | 1,375 | |
Liberty Property Trust | 31,794 | 1,354 | |
RenaissanceRe Holdings | |||
Ltd. | 8,679 | 1,208 | |
Assurant Inc. | 12,200 | 1,155 | |
Axis Capital Holdings Ltd. | 18,725 | 1,128 | |
* | Brighthouse Financial Inc. | 19,226 | 1,097 |
Commerce Bancshares | |||
Inc. | 19,364 | 1,065 | |
Hospitality Properties | |||
Trust | 36,185 | 990 | |
Weingarten Realty | |||
Investors | 30,264 | 970 | |
Navient Corp. | 69,082 | 912 | |
* | JBG SMITH Properties | 18,429 | 603 |
811,419 | |||
Health Care (17.5%) | |||
Johnson & Johnson | 595,048 | 78,766 | |
Pfizer Inc. | 1,305,667 | 44,288 | |
UnitedHealth Group Inc. | 211,286 | 42,025 | |
Merck & Co. Inc. | 604,395 | 38,597 | |
Amgen Inc. | 162,356 | 28,862 | |
AbbVie Inc. | 351,097 | 26,438 |
12
FTSE Social Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Medtronic plc | 302,840 | 24,415 | |
* | Celgene Corp. | 170,808 | 23,730 |
Bristol-Myers Squibb Co. | 363,919 | 22,010 | |
Abbott Laboratories | 373,313 | 19,017 | |
Eli Lilly & Co. | 215,743 | 17,538 | |
Allergan plc | 74,166 | 17,020 | |
* | Biogen Inc. | 46,819 | 14,821 |
Anthem Inc. | 58,344 | 11,438 | |
Aetna Inc. | 71,281 | 11,241 | |
Stryker Corp. | 74,580 | 10,543 | |
Cigna Corp. | 54,561 | 9,933 | |
Becton Dickinson and Co. | 49,676 | 9,907 | |
* | Vertex Pharmaceuticals | ||
Inc. | 54,789 | 8,796 | |
* | Regeneron | ||
Pharmaceuticals Inc. | 17,288 | 8,590 | |
* | Express Scripts Holding | ||
Co. | 133,470 | 8,385 | |
* | Boston Scientific Corp. | 301,205 | 8,298 |
Humana Inc. | 31,815 | 8,196 | |
* | Intuitive Surgical Inc. | 8,026 | 8,063 |
* | Alexion Pharmaceuticals | ||
Inc. | 48,013 | 6,838 | |
Baxter International Inc. | 109,547 | 6,796 | |
Zoetis Inc. | 108,024 | 6,773 | |
* | Edwards Lifesciences | ||
Corp. | 46,258 | 5,258 | |
* | HCA Healthcare Inc. | 65,699 | 5,168 |
Zimmer Biomet Holdings | |||
Inc. | 44,861 | 5,126 | |
* | Incyte Corp. | 37,194 | 5,111 |
CR Bard Inc. | 15,822 | 5,076 | |
* | Mylan NV | 118,529 | 3,731 |
* | Laboratory Corp. of | ||
America Holdings | 22,516 | 3,532 | |
* | BioMarin Pharmaceutical | ||
Inc. | 38,728 | 3,493 | |
* | Centene Corp. | 37,729 | 3,352 |
Quest Diagnostics Inc. | 29,771 | 3,226 | |
* | Waters Corp. | 16,789 | 3,080 |
* | Henry Schein Inc. | 17,409 | 3,024 |
Dentsply Sirona Inc. | 50,135 | 2,836 | |
* | Quintiles IMS Holdings | ||
Inc. | 28,094 | 2,698 | |
Perrigo Co. plc | 30,668 | 2,422 | |
ResMed Inc. | 31,068 | 2,410 | |
* | Hologic Inc. | 62,089 | 2,397 |
* | Varian Medical Systems | ||
Inc. | 20,335 | 2,161 | |
Universal Health Services | |||
Inc. Class B | 19,635 | 2,123 | |
* | DaVita Inc. | 34,882 | 2,043 |
* | Jazz Pharmaceuticals plc | 13,176 | 1,968 |
* | Bioverativ Inc. | 23,622 | 1,339 |
Market | |||
Value• | |||
Shares | ($000) | ||
* | Mallinckrodt plc | 23,736 | 975 |
Patterson Cos. Inc. | 19,337 | 744 | |
* | Endo International plc | 51,574 | 453 |
595,070 | |||
Industrials (8.0%) | |||
Union Pacific Corp. | 178,132 | 18,757 | |
Accenture plc Class A | 136,801 | 17,888 | |
United Parcel Service Inc. | |||
Class B | 152,074 | 17,391 | |
* | PayPal Holdings Inc. | 249,616 | 15,396 |
FedEx Corp. | 54,651 | 11,716 | |
Automatic Data | |||
Processing Inc. | 98,950 | 10,535 | |
Illinois Tool Works Inc. | 76,014 | 10,453 | |
CSX Corp. | 192,939 | 9,686 | |
Johnson Controls | |||
International plc | 207,090 | 8,199 | |
Deere & Co. | 70,156 | 8,133 | |
Norfolk Southern Corp. | 63,650 | 7,671 | |
Waste Management Inc. | 96,267 | 7,423 | |
Eaton Corp. plc | 99,179 | 7,117 | |
Sherwin-Williams Co. | 18,115 | 6,146 | |
* | Fiserv Inc. | 46,137 | 5,708 |
Cummins Inc. | 35,026 | 5,582 | |
PACCAR Inc. | 76,123 | 5,049 | |
Parker-Hannifin Corp. | 29,272 | 4,710 | |
Agilent Technologies Inc. | 71,126 | 4,603 | |
Rockwell Automation Inc. | 27,973 | 4,589 | |
Fortive Corp. | 67,366 | 4,377 | |
Vulcan Materials Co. | 29,297 | 3,553 | |
Republic Services Inc. | |||
Class A | 50,010 | 3,263 | |
Global Payments Inc. | 33,546 | 3,203 | |
AMETEK Inc. | 49,392 | 3,124 | |
WestRock Co. | 54,862 | 3,122 | |
Ball Corp. | 75,741 | 3,029 | |
Martin Marietta Materials | |||
Inc. | 13,890 | 2,945 | |
Dover Corp. | 34,682 | 2,944 | |
Fastenal Co. | 65,093 | 2,778 | |
Total System Services Inc. | 39,709 | 2,745 | |
* | Verisk Analytics Inc. | ||
Class A | 33,166 | 2,688 | |
Masco Corp. | 70,632 | 2,597 | |
* | Vantiv Inc. Class A | 35,951 | 2,541 |
Xylem Inc. | 39,918 | 2,478 | |
Alliance Data Systems | |||
Corp. | 10,772 | 2,429 | |
Kansas City Southern | 23,254 | 2,405 | |
CH Robinson Worldwide | |||
Inc. | 31,782 | 2,245 | |
* | United Rentals Inc. | 18,872 | 2,228 |
Expeditors International of | |||
Washington Inc. | 39,442 | 2,213 |
13
FTSE Social Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Fortune Brands Home & | |||
Security Inc. | 33,436 | 2,091 | |
Broadridge Financial | |||
Solutions Inc. | 25,950 | 2,028 | |
WW Grainger Inc. | 12,354 | 2,008 | |
* | Flex Ltd. | 119,758 | 1,948 |
Sealed Air Corp. | 43,723 | 1,940 | |
JB Hunt Transport | |||
Services Inc. | 18,884 | 1,867 | |
Acuity Brands Inc. | 9,910 | 1,752 | |
* | Sensata Technologies | ||
Holding NV | 38,044 | 1,699 | |
Xerox Corp. | 51,788 | 1,671 | |
* | Keysight Technologies | ||
Inc. | 40,183 | 1,642 | |
ManpowerGroup Inc. | 14,625 | 1,631 | |
Allegion plc | 20,612 | 1,622 | |
* | Arrow Electronics Inc. | 19,434 | 1,544 |
* | Stericycle Inc. | 18,620 | 1,339 |
Robert Half International | |||
Inc. | 27,236 | 1,234 | |
Jabil Inc. | 38,816 | 1,217 | |
MDU Resources Group | |||
Inc. | 42,200 | 1,141 | |
Avnet Inc. | 28,761 | 1,109 | |
Bemis Co. Inc. | 21,080 | 898 | |
274,040 | |||
Oil & Gas (3.2%) | |||
Schlumberger Ltd. | 315,609 | 20,044 | |
ConocoPhillips | 277,264 | 12,105 | |
EOG Resources Inc. | 130,127 | 11,059 | |
Occidental Petroleum | |||
Corp. | 172,423 | 10,294 | |
Kinder Morgan Inc. | 430,644 | 8,324 | |
Valero Energy Corp. | 99,482 | 6,775 | |
Williams Cos. Inc. | 185,472 | 5,514 | |
Anadarko Petroleum | |||
Corp. | 127,473 | 5,217 | |
Pioneer Natural | |||
Resources Co. | 38,014 | 4,929 | |
Devon Energy Corp. | 120,788 | 3,793 | |
Andeavor | 34,375 | 3,443 | |
Apache Corp. | 86,435 | 3,357 | |
EQT Corp. | 39,398 | 2,456 | |
Marathon Oil Corp. | 199,866 | 2,222 | |
Baker Hughes a GE Co. | 64,049 | 2,171 | |
Helmerich & Payne Inc. | 32,138 | 1,361 | |
* | Newfield Exploration Co. | 50,629 | 1,323 |
Cimarex Energy Co. | 12,045 | 1,201 | |
^ | Core Laboratories NV | 12,381 | 1,092 |
Murphy Oil Corp. | 44,745 | 1,014 | |
* | Transocean Ltd. | 1,847 | 15 |
107,709 |
Market | |||
Value• | |||
Shares | ($000) | ||
Technology (26.2%) | |||
Apple Inc. | 1,152,244 | 188,968 | |
Microsoft Corp. | 1,655,842 | 123,807 | |
* | Facebook Inc. Class A | 515,143 | 88,589 |
* | Alphabet Inc. Class C | 66,812 | 62,759 |
* | Alphabet Inc. Class A | 65,663 | 62,724 |
Intel Corp. | 1,041,451 | 36,524 | |
Cisco Systems Inc. | 1,108,659 | 35,710 | |
Oracle Corp. | 634,438 | 31,931 | |
Broadcom Ltd. | 88,089 | 22,205 | |
NVIDIA Corp. | 125,319 | 21,234 | |
Texas Instruments Inc. | 217,652 | 18,026 | |
QUALCOMM Inc. | 327,136 | 17,099 | |
* | Adobe Systems Inc. | 108,136 | 16,778 |
* | salesforce.com Inc. | 149,212 | 14,248 |
Applied Materials Inc. | 237,396 | 10,711 | |
Cognizant Technology | |||
Solutions Corp. Class A | 128,859 | 9,119 | |
* | NXP Semiconductors NV | 72,980 | 8,244 |
* | Micron Technology Inc. | 243,645 | 7,789 |
Intuit Inc. | 53,315 | 7,541 | |
HP Inc. | 375,094 | 7,157 | |
Lam Research Corp. | 35,375 | 5,872 | |
Corning Inc. | 200,581 | 5,769 | |
Western Digital Corp. | 64,568 | 5,699 | |
* | Autodesk Inc. | 45,913 | 5,255 |
* | Cerner Corp. | 63,948 | 4,334 |
* | ServiceNow Inc. | 36,981 | 4,297 |
Skyworks Solutions Inc. | 40,522 | 4,269 | |
* | Red Hat Inc. | 38,947 | 4,187 |
Symantec Corp. | 136,759 | 4,100 | |
Xilinx Inc. | 55,004 | 3,634 | |
* | Dell Technologies Inc. | ||
Class V | 45,151 | 3,383 | |
KLA-Tencor Corp. | 34,573 | 3,239 | |
* | Workday Inc. Class A | 29,026 | 3,184 |
* | Check Point Software | ||
Technologies Ltd. | 27,076 | 3,029 | |
Maxim Integrated | |||
Products Inc. | 62,229 | 2,904 | |
* | Citrix Systems Inc. | 33,715 | 2,637 |
* | Synopsys Inc. | 32,620 | 2,623 |
* | Twitter Inc. | 148,198 | 2,506 |
CA Inc. | 70,960 | 2,354 | |
NetApp Inc. | 60,752 | 2,349 | |
Juniper Networks Inc. | 83,625 | 2,319 | |
Seagate Technology plc | 66,068 | 2,083 | |
* | Splunk Inc. | 30,759 | 2,064 |
Amdocs Ltd. | 31,452 | 2,038 | |
* | VeriSign Inc. | 19,266 | 1,999 |
CDK Global Inc. | 29,627 | 1,911 | |
* | Akamai Technologies Inc. | 38,197 | 1,801 |
* | F5 Networks Inc. | 14,677 | 1,752 |
* | VMware Inc. Class A | 15,657 | 1,693 |
14
FTSE Social Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
* | Yandex NV Class A | 54,477 | 1,635 |
Marvell Technology Group | |||
Ltd. | 89,523 | 1,603 | |
CSRA Inc. | 35,857 | 1,130 | |
888,815 | |||
Telecommunications (0.3%) | |||
* | T-Mobile US Inc. | 65,297 | 4,226 |
* | Level 3 Communications | ||
Inc. | 66,035 | 3,594 | |
* | Sprint Corp. | 141,585 | 1,168 |
8,988 | |||
Utilities (0.4%) | |||
ONEOK Inc. | 89,374 | 4,841 | |
American Water Works | |||
Co. Inc. | 38,752 | 3,135 | |
CenterPoint Energy Inc. | 93,839 | 2,780 | |
NiSource Inc. | 71,536 | 1,922 | |
* | Calpine Corp. | 81,794 | 1,202 |
Avangrid Inc. | 12,381 | 604 | |
14,484 | |||
Total Common Stocks | |||
(Cost $2,515,942) | 3,382,315 | ||
Temporary Cash Investments (0.1%)1 | |||
Money Market Fund (0.1%) | |||
2,3 | Vanguard Market Liquidity | ||
Fund, 1.224% | 36,245 | 3,625 | |
Face | |||
Amount | |||
($000) | |||
U. S. Government and Agency Obligations (0.0%) | |||
4 | United States Treasury | ||
Bill, 0.980%, 10/5/17 | 600 | 600 | |
Total Temporary Cash Investments | |||
(Cost $4,224) | 4,225 | ||
Total Investments (99.7%) | |||
(Cost $2,520,166) | 3,386,540 |
Amount | |
($000) | |
Other Assets and Liabilities (0.3%) | |
Other Assets | |
Investment in Vanguard | 211 |
Receivables for Investment Securities Sold 2,525 | |
Receivables for Accrued Income | 6,081 |
Receivables for Capital Shares Issued | 4,115 |
Variation Margin Receivable – | |
Futures Contracts | 64 |
Total Other Assets | 12,996 |
Liabilities | |
Payables for Investment Securities | |
Purchased | (12) |
Collateral for Securities on Loan | (910) |
Payables for Capital Shares Redeemed | (1,930) |
Payables to Vanguard | (1,337) |
Total Liabilities | (4,189) |
Net Assets (100%) | 3,395,347 |
At August 31, 2017, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 2,542,109 |
Undistributed Net Investment Income | 12,919 |
Accumulated Net Realized Losses | (26,168) |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 866,374 |
Futures Contracts | 113 |
Net Assets | 3,395,347 |
15
FTSE Social Index Fund
Amount | |
($000 | |
Investor Shares—Net Assets | |
Applicable to 120,990,830 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 1,952,210 |
Net Asset Value Per Share— | |
Investor Shares | $16.14 |
Institutional Shares—Net Assets | |
Applicable to 89,375,273 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 1,443,137 |
Net Asset Value Per Share— | |
Institutional Shares | $16.15 |
• 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 $892,000.
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 $910,000 of collateral received for securities on loan.
4 Securities with a value of $599,000 have been segregated as
initial margin for open futures contracts.
Derivative Financial Instruments Outstanding as of Period End | ||||
Futures Contracts | ||||
($000) | ||||
Value and | ||||
Number of | Unrealized | |||
Long (Short) | Notional | Appreciation | ||
Expiration | Contracts | Amount | (Depreciation) | |
Long Futures Contracts | ||||
E-mini S&P 500 Index | September 2017 | 110 | 13,586 | 113 |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
See accompanying Notes, which are an integral part of the Financial Statements.
16
FTSE Social Index Fund
Statement of Operations
Year Ended | |
August 31,2017 | |
($000) | |
Investment Income | |
Income | |
Dividends | 52,946 |
Interest1 | 79 |
Securities Lending—Net | 68 |
Total Income | 53,093 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 574 |
Management and Administrative—Investor Shares | 2,521 |
Management and Administrative—Institutional Shares | 982 |
Marketing and Distribution—Investor Shares | 318 |
Marketing and Distribution—Institutional Shares | 53 |
Custodian Fees | 95 |
Auditing Fees | 32 |
Shareholders’ Reports and Proxy—Investor Shares | 68 |
Shareholders’ Reports and Proxy—Institutional Shares | 29 |
Trustees’ Fees and Expenses | 3 |
Total Expenses | 4,675 |
Net Investment Income | 48,418 |
Realized Net Gain (Loss) | |
Investment Securities Sold1 | (4,162) |
Futures Contracts | 306 |
Realized Net Gain (Loss) | (3,856) |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | 404,747 |
Futures Contracts | 113 |
Change in Unrealized Appreciation (Depreciation) | 404,860 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 449,422 |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $75,000 and $3,000, respectively.
See accompanying Notes, which are an integral part of the Financial Statements.
17
FTSE Social Index Fund
Statement of Changes in Net Assets
Year Ended August 31, | ||
2017 | 2016 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 48,418 | 38,816 |
Realized Net Gain (Loss) | (3,856) | 2,858 |
Change in Unrealized Appreciation (Depreciation) | 404,860 | 159,803 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 449,422 | 201,477 |
Distributions | ||
Net Investment Income | ||
Investor Shares | (26,127) | (28,370) |
Institutional Shares | (18,289) | (18,570) |
Realized Capital Gain | ||
Investor Shares | — | — |
Institutional Shares | — | — |
Total Distributions | (44,416) | (46,940) |
Capital Share Transactions | ||
Investor Shares | 274,057 | 208,652 |
Institutional Shares | 404,904 | 111,431 |
Net Increase (Decrease) from Capital Share Transactions | 678,961 | 320,083 |
Total Increase (Decrease) | 1,083,967 | 474,620 |
Net Assets | ||
Beginning of Period | 2,311,380 | 1,836,760 |
End of Period1 | 3,395,347 | 2,311,380 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $12,919,000 and $8,917,000.
See accompanying Notes, which are an integral part of the Financial Statements.
18
FTSE Social Index Fund
Financial Highlights
Investor Shares
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 |
Net Asset Value, Beginning of Period | $13.95 | $12.99 | $12.74 | $10.28 | $8.30 |
Investment Operations | |||||
Net Investment Income | . 2561 | .241 | .183 | .167 | .153 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 2.175 | 1.025 | .231 | 2.442 | 1.969 |
Total from Investment Operations | 2.431 | 1.266 | .414 | 2.609 | 2.122 |
Distributions | |||||
Dividends from Net Investment Income | (. 241) | (. 306) | (.164) | (.149) | (.142) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (. 241) | (. 306) | (.164) | (.149) | (.142) |
Net Asset Value, End of Period | $16.14 | $13.95 | $12.99 | $12.74 | $10.28 |
Total Return2 | 17.61% | 9.95% | 3.25% | 25.58% | 25.90% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $1,952 | $1,435 | $1,131 | $800 | $553 |
Ratio of Total Expenses to | |||||
Average Net Assets | 0.20% | 0.22% | 0.25% | 0.27% | 0.28% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.71% | 1.87% | 1.63% | 1.51% | 1.63% |
Portfolio Turnover Rate 3 | 11% | 16% | 20% | 14% | 29% |
1 Calculated based on average shares outstanding.
2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information
about any applicable account service fees.
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.
See accompanying Notes, which are an integral part of the Financial Statements.
19
FTSE Social Index Fund
Financial Highlights
Institutional Shares
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 |
Net Asset Value, Beginning of Period | $13.96 | $13.00 | $12.75 | $10.29 | $8.31 |
Investment Operations | |||||
Net Investment Income | . 2711 | .254 | .193 | .180 | .163 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 2.175 | 1.029 | .233 | 2.440 | 1.971 |
Total from Investment Operations | 2.446 | 1.283 | .426 | 2.620 | 2.134 |
Distributions | |||||
Dividends from Net Investment Income | (. 256) | (. 323) | (.176) | (.160) | (.154) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (. 256) | (. 323) | (.176) | (.160) | (.154) |
Net Asset Value, End of Period | $16.15 | $13.96 | $13.00 | $12.75 | $10.29 |
Total Return | 17.72% | 10.09% | 3.34% | 25.68% | 26.05% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $1,443 | $876 | $706 | $429 | $276 |
Ratio of Total Expenses to | |||||
Average Net Assets | 0.12% | 0.12% | 0.15% | 0.16% | 0.16% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.79% | 1.97% | 1.73% | 1.62% | 1.75% |
Portfolio Turnover Rate2 | 11% | 16% | 20% | 14% | 29% |
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.
See accompanying Notes, which are an integral part of the Financial Statements.
20
FTSE Social Index Fund
Notes to Financial Statements
Vanguard FTSE Social Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Investor Shares and Institutional Shares. Investor Shares are available to any investor who meets the fund’s minimum purchase requirements. Institutional Shares are designed for investors who meet certain administrative, service, and account-size criteria.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Temporary cash investments 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.
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 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 futures gains (losses).
During the year ended August 31, 2017, 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 notional amounts at each quarter-end during the period.
21
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, 2014–2017), 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 event 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, 2017, 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.
22
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), shareholder reporting, and the proxy. 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, 2017, the fund had contributed to Vanguard capital in the amount of $211,000, representing 0.01% of the fund’s net assets and 0.08% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). Any investments valued with significant unobservable inputs are noted on the Statement of Net Assets.
The following table summarizes the market value of the fund’s investments as of August 31, 2017, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 3,382,315 | — | — |
Temporary Cash Investments | 3,625 | 600 | — |
Futures Contracts—Assets1 | 64 | — | — |
Total | 3,386,004 | 600 | — |
1 Represents variation margin on the last day of the reporting period. |
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
23
FTSE Social Index Fund
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.
For tax purposes, at August 31, 2017, the fund had $14,029,000 of ordinary income available for distribution. At August 31, 2017, the fund had available capital losses totaling $26,035,000 to offset future net capital gains. Of this amount, $394,000 is subject to expiration on August 31, 2019. Capital losses of $25,641,000 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, 2017, the cost of investment securities for tax purposes was $2,520,166,000. Net unrealized appreciation of investment securities for tax purposes was $866,374,000, consisting of unrealized gains of $919,069,000 on securities that had risen in value since their purchase and $52,695,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2017, the fund purchased $982,698,000 of investment securities and sold $308,823,000 of investment securities, other than temporary cash investments.
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, 2017, such purchases and sales were $31,936,000 and $31,702,000, respectively; these amounts are included in the purchases and sales of investment securities noted above.
F. Capital share transactions for each class of shares were: | ||||
Year Ended August 31, | ||||
2017 | 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
Investor Shares | ||||
Issued | 569,817 | 37,790 | 495,860 | 38,032 |
Issued in Lieu of Cash Distributions | 23,412 | 1,593 | 25,725 | 1,988 |
Redeemed | (319,172) | (21,307) | (312,933) | (24,156) |
Net Increase (Decrease)—Investor Shares | 274,057 | 18,076 | 208,652 | 15,864 |
Institutional Shares | ||||
Issued | 500,495 | 33,070 | 206,714 | 15,806 |
Issued in Lieu of Cash Distributions | 17,987 | 1,217 | 18,514 | 1,430 |
Redeemed | (113,578) | (7,688) | (113,797) | (8,748) |
Net Increase (Decrease)—Institutional Shares | 404,904 | 26,599 | 111,431 | 8,488 |
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2017, that would require recognition or disclosure in these financial statements.
24
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”) as of August 31, 2017, 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 as of August 31, 2017 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 13, 2017
Special 2017 tax information (unaudited) for Vanguard FTSE Social Index Fund
This information for the fiscal year ended August 31, 2017, is included pursuant to provisions of the Internal Revenue Code.
The fund distributed $44,416,000 of qualified dividend income to shareholders during the fiscal year.
For corporate shareholders, 96.2% of investment income (dividend income plus short-term gains, if any) qualifies for the dividends-received deduction.
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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 2017. (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, 2017 | |||
One | Five | Ten | |
Year | Years | Years | |
Returns Before Taxes | 17.61% | 16.12% | 7.29% |
Returns After Taxes on Distributions | 17.15 | 15.70 | 6.99 |
Returns After Taxes on Distributions and Sale of Fund Shares | 10.28 | 12.98 | 5.86 |
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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, 2017 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
FTSE Social Index Fund | 2/28/2017 | 8/31/2017 | Period |
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $1,063.71 | $0.94 |
Institutional Shares | 1,000.00 | 1,063.45 | 0.62 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,024.30 | $0.92 |
Institutional Shares | 1,000.00 | 1,024.60 | 0.61 |
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 0.18% for Investor Shares and 0.12% for Institutional Shares. The dollar amounts shown as “Expenses Paid” are equal to
the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent
six-month period, then divided by the number of days in the most recent 12-month period (184/365).
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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), through its Equity Index Group. 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 that directed 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 compared with 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.
29
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.
30
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.
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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 195 Vanguard funds.
Information for each trustee and executive officer of the fund appears below. 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.
Interested Trustee1
F. William McNabb III
Born 1957. Trustee Since July 2009. Chairman of the Board. Principal Occupation(s) During the Past Five Years and Other Experience: Chairman of the Board of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group, since January 2010; Chief Executive Officer and Director of The Vanguard Group and President and Chief Executive Officer of each of the investment companies served by The Vanguard Group, since 2008; Director of Vanguard Marketing Corporation; President of The Vanguard Group (2008–2017); Managing Director of The Vanguard Group (1995–2008).
Independent Trustees
Emerson U. Fullwood
Born 1948. Trustee Since January 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Executive Chief Staff and Marketing Officer for North America and Corporate Vice President (retired 2008) of Xerox Corporation (document management products and services); Executive in Residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology; 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; Trustee of the University of Rochester.
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 Arconic Inc. (diversified manufacturer), 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
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.
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.
JoAnn Heffernan Heisen
Born 1950. Trustee Since July 1998. Principal Occupation(s) During the Past Five Years and Other Experience: Corporate Vice President and Member of the Executive Committee (1997–2008), Chief Global Diversity Officer (retired 2008), Vice President and Chief Information Officer (1997–2006), Controller (1995–1997), Treasurer (1991–1995), and Assistant Treasurer (1989–1991) 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), Oxfam America, and the Lumina Foundation for Education; Director of the V Foundation for Cancer Research; Member of the Advisory Council for the College of Arts and Letters and Chair 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, the Board of Catholic Investment Services, Inc. (investment advisor), and the Board of Superintendence of the Institute for the Works of Religion; Chairman of the Board of TIFF Advisory Services, Inc. (investment advisor).
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 Co-Managing Partner of HighVista Strategies LLC (private investment firm); 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 Board of Hypertherm, Inc. (industrial cutting systems, software, and consumables).
Executive Officers
Glenn Booraem
Born 1967. Investment Stewardship Officer Since February 2017. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Treasurer (2015–2017), Controller (2010–2015), and Assistant Controller (2001–2010) of each of the investment companies served by The Vanguard Group.
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: Principal of 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).
Anne E. Robinson
Born 1970. Secretary Since September 2016. 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; Managing Director and General Counsel of Global Cards and Consumer Services at Citigroup (2014–2016); Counsel at American Express (2003–2014).
Michael Rollings
Born 1963. Treasurer Since February 2017. Principal Occupation(s) During the Past Five Years and Other Experience: Managing Director of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group; Director of Vanguard Marketing Corporation; Executive Vice President and Chief Financial Officer of MassMutual Financial Group (2006–2016).
Vanguard Senior Management Team | |
Mortimer J. Buckley | Chris D. McIsaac |
Gregory Davis | James M. Norris |
John James | Thomas M. Rampulla |
Martha G. King | Karin A. Risi |
John T. Marcante | |
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 |
![]() | |
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 |
Direct Investor Account Services > 800-662-2739 | FTSE International Limited ("FTSE"), Frank Russell |
Company ("Russell"), MTS Next Limited ("MTS"), and | |
Institutional Investor Services > 800-523-1036 | FTSE TMX Global Debt Capital Markets Inc. ("FTSE |
Text Telephone for People | TMX"). All rights reserved. "FTSE®", “Russell®", |
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This material may be used in conjunction | Russell indexes are trademarks of the London Stock |
with the offering of shares of any Vanguard | Exchange Group companies and are used by FTSE, |
fund only if preceded or accompanied by | MTS, FTSE TMX and Russell under licence. All |
information is provided for information purposes only. | |
the fund’s current prospectus. | No responsibility or liability can be accepted by the |
All comparative mutual fund data are from Lipper, a | London Stock Exchange Group companies nor its |
Thomson Reuters Company, or Morningstar, Inc., unless | licensors for any errors or for any loss from use of this |
otherwise noted. | publication. Neither the London Stock Exchange |
Group companies nor any of its licensors make any | |
You can obtain a free copy of Vanguard’s proxy voting | claim, prediction, warranty or representation |
guidelines by visiting vanguard.com/proxyreporting or by | whatsoever, expressly or impliedly, either as to the |
calling Vanguard at 800-662-2739. The guidelines are | results to be obtained from the use of the FTSE4Good |
also available from the SEC’s website, sec.gov. In | US Select Index or the fitness or suitability of the |
addition, you may obtain a free report on how your fund | FTSE4Good US Select Index for any particular purpose |
voted the proxies for securities it owned during the 12 | to which it might be put. |
months ended June 30. To get the report, visit either | |
vanguard.com/proxyreporting or sec.gov. | |
The Industry Classification Benchmark ("ICB") is | |
You can review and copy information about your fund at | owned by FTSE. FTSE does not accept any liability to |
the SEC’s Public Reference Room in Washington, D.C. To | any person for any loss or damage arising out of any |
find out more about this public service, call the SEC at | error or omission in the ICB. |
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. | |
© 2017 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q2130 102017 |
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Annual Report | August 31, 2017
Vanguard U.S. Sector Index Funds
Vanguard Consumer Discretionary Index Fund
Vanguard Consumer Staples Index Fund
Vanguard Energy Index Fund
Vanguard Financials Index Fund
Vanguard Health Care Index Fund
Vanguard Industrials Index Fund
Vanguard Information Technology Index Fund
Vanguard Materials Index Fund
Vanguard Telecommunication Services Index Fund
Vanguard Utilities Index Fund
Vanguard’s Principles for Investing Success
We want to give you the best chance of investment success. These principles, grounded in Vanguard’s research and experience, can put you on the right path.
Goals. Create clear, appropriate investment goals.
Balance. Develop a suitable asset allocation using broadly diversified funds. Cost. Minimize cost.
Discipline. Maintain perspective and long-term discipline.
A single theme unites these principles: Focus on the things you can control.
We believe there is no wiser course for any investor.
Contents | |
Your Fund’s Performance at a Glance | 1 |
Chairman’s Perspective | 4 |
Consumer Discretionary Index Fund | 6 |
Consumer Staples Index Fund | 17 |
Energy Index Fund | 27 |
Financials Index Fund | 37 |
Health Care Index Fund | 49 |
Industrials Index Fund | 61 |
Information Technology Index Fund | 72 |
Materials Index Fund | 83 |
Telecommunication Services Index Fund | 93 |
Utilities Index Fund | 105 |
Your Fund’s After-Tax Returns | 116 |
About Your Fund’s Expenses | 118 |
Trustees Approve Advisory Arrangements | 120 |
Glossary | 121 |
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ussectorindexx2x1.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: Nautical images have been part of Vanguard’s rich heritage since its start in 1975. For an incoming ship, a lighthouse offers a beacon and safe path to shore. You can similarly depend on Vanguard to put you first––and light the way––as you strive to meet your financial goals. Our client focus and low costs, stemming from our unique ownership structure, assure that your interests are paramount.
Your Fund’s Performance at a Glance
• For the 12 months ended August 31, 2017, returns for the Vanguard U.S. Sector Index Funds ranged from about –7.6% to almost 30%. All ten funds closely tracked their target indexes. Compared with their peer groups, results were mixed.
• Seven of the ten funds produced double-digit returns.
• Vanguard Information Technology Index Fund posted the best performance as strong corporate earnings in that sector continued to attract investors. Vanguard Financials Index Fund returned close to 25%, with rising interest rates and a more favorable operating environment likely to boost profitability.
• Some sectors that have traditionally been considered defensive posted modest gains. Among them were Vanguard Consumer Staples Index Fund and Vanguard Telecommunication Services Index Fund. With oil supply and demand remaining out of sync, Vanguard Energy Index Fund was in negative territory.
Total Returns: Fiscal Year Ended August 31, 2017 | ||
ETF Shares1 and Admiral™ Shares2 | ||
Total | ||
Returns | ||
Vanguard Consumer Discretionary ETF | ||
Market Price | 13.79% | |
Net Asset Value | 13.81 | |
Vanguard Consumer Discretionary Index Fund 13.81 | ||
MSCI US IMI/Consumer Discretionary 25/50 | 13.86 | |
Consumer Services Funds Average3 | 8.00 | |
Vanguard Consumer Staples ETF | ||
Market Price | 2.83% | |
Net Asset Value | 2.83 | |
Vanguard Consumer Staples Index Fund | 2.81 | |
MSCI US IMI/Consumer Staples 25/50 | 2.90 | |
Consumer Goods Funds Average3 | 7.45 | |
Vanguard Energy ETF | ||
Market Price | -7.58% | |
Net Asset Value | -7.55 | |
Vanguard Energy Index Fund | -7.56 | |
MSCI US IMI/Energy 25/50 | -7.50 | |
Natural Resources Funds Average3 | -9.67 | |
Vanguard Financials ETF | ||
Market Price | 24.67% | |
Net Asset Value | 24.65 | |
Vanguard Financials Index Fund | 24.62 | |
MSCI US IMI/Financials 25/50 | 24.77 | |
Financial Services Funds Average3 | 19.79 |
Total | ||
Returns | ||
Vanguard Health Care ETF | ||
Market Price | 15.05% | |
Net Asset Value | 15.06 | |
Vanguard Health Care Index Fund | 15.07 | |
MSCI US IMI/Health Care 25/50 | 15.15 | |
Health/Biotechnology Funds Average3 | 18.00 | |
Vanguard Industrials ETF | ||
Market Price | 17.52% | |
Net Asset Value | 17.55 | |
Vanguard Industrials Index Fund | 17.55 | |
MSCI US IMI/Industrials 25/50 | 17.58 | |
Industrials Funds Average3 | 17.96 | |
Vanguard Information Technology ETF | ||
Market Price | 29.93% | |
Net Asset Value | 29.93 | |
Vanguard Information Technology Index Fund | 29.94 | |
MSCI US IMI/Information Technology 25/50 | 30.05 | |
Science and Technology Funds Average3 | 29.57 | |
Vanguard Materials ETF | ||
Market Price | 17.00% | |
Net Asset Value | 17.06 | |
Vanguard Materials Index Fund | 17.06 | |
MSCI US IMI/Materials 25/50 | 17.16 | |
Basic Materials Funds Average3 | 23.40 |
Total | ||
Returns | ||
Vanguard Telecommunication Services ETF | ||
Market Price | 1.71% | |
Net Asset Value | 1.62 | |
Vanguard Telecommunication Services | ||
Index Fund | 1.61 | |
MSCI US IMI/Telecommunication | ||
Services 25/50 | 1.52 | |
Telecommunication Funds Average3 | 11.12 | |
Vanguard Utilities ETF | ||
Market Price | 16.27% | |
Net Asset Value | 16.27 | |
Vanguard Utilities Index Fund | 16.24 | |
MSCI US IMI/Utilities 25/50 | 16.32 | |
Utility Funds Average3 | 14.94 | |
MSCI US IMI/2500 | 16.06% |
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, 2017 | |
Average | |
Annual Return | |
Consumer Discretionary Index Fund ETF Shares Net Asset Value | 10.49% |
Spliced US IMI/Consumer Discretionary 25/50 | 10.60 |
Consumer Services Funds Average | 7.58 |
Consumer Services Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Consumer Staples Index Fund ETF Shares Net Asset Value | 10.27% |
Spliced US IMI/Consumer Staples 25/50 | 10.40 |
Consumer Goods Funds Average | 8.79 |
Consumer Goods Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Energy Index Fund ETF Shares Net Asset Value | 0.32% |
Spliced US IMI/Energy 25/50 | 0.36 |
Natural Resources Funds Average | -1.88 |
Natural Resources Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Financials Index Fund ETF Shares Net Asset Value | 2.53% |
Spliced US IMI/Financials 25/50 | 2.56 |
Financial Services Funds Average | 2.54 |
Financial Services Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Health Care Index Fund ETF Shares Net Asset Value | 11.54% |
Spliced US IMI/Health Care 25/50 | 11.67 |
Health/Biotechnology Funds Average | 12.44 |
Health/Biotechnology Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Industrials Index Fund ETF Shares Net Asset Value | 7.64% |
Spliced US IMI/Industrials 25/50 | 7.76 |
Industrials Funds Average | 6.71 |
Industrials Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Information Technology Index Fund ETF Shares Net Asset Value | 11.03% |
Spliced US IMI/Information Technology 25/50 | 11.19 |
Science and Technology Funds Average | 9.99 |
Science and Technology Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Materials Index Fund ETF Shares Net Asset Value | 6.48% |
Spliced US IMI/Materials 25/50 | 6.57 |
Basic Materials Funds Average | 2.71 |
Basic Materials Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Telecommunication Services Index Fund ETF Shares Net Asset Value | 4.87% |
Spliced US IMI/Telecommunication Services 25/50 | 4.37 |
Telecommunication Funds Average | 2.85 |
Telecommunication Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Utilities Index Fund ETF Shares Net Asset Value | 7.89% |
Spliced US IMI/Utilities 25/50 | 8.05 |
Utility Funds Average | 5.44 |
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% | 0.10% | 1.36% |
Consumer Staples Index Fund | 0.10 | 0.10 | 1.41 |
Energy Index Fund | 0.10 | 0.10 | 1.66 |
Financials Index Fund | 0.10 | 0.10 | 1.53 |
Health Care Index Fund | 0.10 | 0.10 | 1.39 |
Industrials Index Fund | 0.10 | 0.10 | 1.32 |
Information Technology Index Fund | 0.10 | 0.10 | 1.48 |
Materials Index Fund | 0.10 | 0.10 | 1.24 |
Telecommunication Services Index Fund | 0.10 | 0.10 | 1.49 |
Utilities Index Fund | 0.10 | 0.10 | 1.25 |
The fund expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal
year. For the fiscal year ended August 31, 2017, 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 2016.
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/0000932471-17-005535/ussectorindexx6x1.jpg)
Bill McNabb
Chairman and Chief Executive Officer
Dear Shareholder,
Since mid-August we’ve been reaching out to you about the proposals put forth by the Vanguard funds that, if approved, will enable us to manage the funds more efficiently and effectively. As the November deadline for voting approaches, I’d like to offer some perspective on a few of the proposals that I believe are important to the way Vanguard operates and manages your investments. I hope you consider this information and promptly cast your ballot.
Your biggest advocate
The main driver for this proxy solicitation is to ask all our fund shareholders to elect a full slate of trustees who oversee each U.S.-based Vanguard mutual fund. These trustees serve an important role, making sure your funds are managed in your best interests. This includes monitoring fund performance, approving advisory agreements, and ensuring that we’re keeping your investment costs as low as possible. Simply put, they are your biggest advocate.
Each trustee brings a variety of skills and professional experiences that contribute to the board’s strength and diversity. Of the 12 nominees, nine currently serve on the board, and three are new. If elected, the new board would include ten independent members, meaning they have no affiliation with Vanguard or the funds apart from any investments they may choose to make as private individuals.
These are the proposed new trustees:
• Sarah Bloom Raskin is a former member of the Federal Reserve Board of Governors and former deputy secretary of the U.S. Treasury Department. She is an expert in cybersecurity—a critically important issue at Vanguard, as we place a premium on protecting clients’ assets and sensitive data.
• Deanna Mulligan is chief executive officer of The Guardian Life Insurance Company of America. It’s rare to find a CEO such as Deanna who leads a company with a mutual ownership structure similar to Vanguard’s.
Market Barometer | |||
Average Annual Total Returns | |||
Periods Ended August 31, 2017 | |||
One | Three | Five | |
Year | Years | Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 16.16% | 9.21% | 14.37% |
Russell 2000 Index (Small-caps) | 14.91 | 7.67 | 13.15 |
Russell 3000 Index (Broad U.S. market) | 16.06 | 9.08 | 14.27 |
FTSE All-World ex US Index (International) | 18.74 | 2.80 | 7.76 |
Bonds | |||
Bloomberg Barclays U.S. Aggregate Bond Index | |||
(Broad taxable market) | 0.49% | 2.64% | 2.19% |
Bloomberg Barclays Municipal Bond Index | |||
(Broad tax-exempt market) | 0.88 | 3.40 | 3.23 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.58 | 0.25 | 0.16 |
CPI | |||
Consumer Price Index | 1.94% | 1.06% | 1.28% |
4
• Tim Buckley is president and a director of Vanguard and will succeed me in January as CEO. (I’ll remain chairman for a period to be determined by the board.) I interviewed Tim when he applied for his first job here in 1991 and again when he was graduating from Harvard Business School. I was thrilled he picked Vanguard as a place to build his career, and I’ve been delighted to see him take on several leadership positions, including as head of our Retail Investor Group, chief information officer, and chief investment officer. I can think of no one better prepared to succeed me.
Vanguard believes that diversity of thought, background, and experience, as well as diversity of personal characteristics, meaningfully contributes to the board’s ability to effectively serve shareholders. If Sarah and Deanna are elected, women will account for 40% of the board’s independent trustees.
I should note that even as Vanguard is nominating three new board members, we’re saying goodbye to trustee Rajiv Gupta. Rajiv was a legendary CEO of Rohm and Haas Co., and Vanguard and our clients have benefited greatly from his expertise. I wish him a happy retirement.
Summarizing the proposals
Among the trustees’ leading responsibilities is overseeing the funds’ internal and external investment advisory agreements. The trustees, in consultation with our Global Investment Committee and our Portfolio Review Department, choose the investment advisors that manage client assets. Over decades, we have built a strong track record of picking advisors whose portfolio management strategies have served clients well.
Two proposals in the proxy focus on this oversight responsibility. Shareholders of 48 Vanguard funds have already voted to allow the board to make external advisor changes without obtaining prior shareholder approval. The new proposals would extend that policy across our entire U.S.-based fund lineup and expand it to include internal advisory agreements with Vanguard subsidiaries. Eliminating the need for shareholder approval removes a step that is costly and time-consuming if done frequently or on an individual fund basis. Although there are no current plans to employ the policy on any Vanguard-managed funds, standardizing it enables the trustees to retain an advisory firm to diversify a fund’s management team or ensure management continuity should a contingency arise.
I also encourage shareholders of several specific Vanguard index funds to read the proxy proposals that affect those funds. One proposal would change the investment objective of Vanguard REIT Index Fund and Vanguard Variable Insurance Fund REIT Index Portfolio to include real estate-related securities, aligning the funds with updated industry-sector classification methodology. Another proposal seeks to change the diversification status of the REIT Index Fund to enable it to better track its benchmark. Finally, we seek your approval of the Funds’ Service Agreement for Vanguard Institutional Index Fund and Vanguard Institutional Total Stock Market Index Fund. If approved, this arrangement would then be standardized across Vanguard’s entire publicly available U.S. mutual fund lineup. It should also reduce costs and minimum initial investment requirements in select share classes.
At the ballot box
We hope you’ll make it a priority to cast your ballot. We want to avoid the added time and cost of soliciting sufficient votes should we not obtain a quorum by the shareholder meeting on November 15, when voting concludes. Ultimately, we believe the proposals I’ve discussed are in your best interest as Vanguard fund shareholders, and the trustees recommend that you vote in favor of them. For more information, visit vanguard.com and enter the search term “proxy.”
As always, thank you for investing with Vanguard.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ussectorindexx7x1.jpg)
F. William McNabb III
Chairman and Chief Executive Officer
September 14, 2017
5
Consumer Discretionary Index Fund
Fund Profile
As of August 31, 2017
Share-Class Characteristics | ||
ETF | Admiral | |
Shares | Shares | |
Ticker Symbol | VCR | VCDAX |
Expense Ratio1 | 0.10% | 0.10% |
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 | 375 | 375 | 2,482 |
Median Market Cap $61.9B | $61.9B | $63.1B | |
Price/Earnings Ratio 22.3x | 22.3x | 22.0x | |
Price/Book Ratio | 4.1x | 4.1x | 2.9x |
Return on Equity | 17.2% | 17.2% | 15.1% |
Earnings Growth Rate 13.2% | 13.2% | 9.4% | |
Dividend Yield | 1.4% | 1.4% | 1.8% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 6.0% | — | —- |
Short-Term Reserves | 0.0% | —- | —- |
Volatility Measures | ||
MSCI US | ||
IMI/Consumer | ||
Discretionary | MSCI US | |
25/50 | IMI/2500 | |
R-Squared | 1.00 | 0.84 |
Beta | 1.00 | 1.04 |
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 | 0.8% |
Apparel Retail | 3.4 |
Apparel, Accessories & Luxury Goods | 2.6 |
Auto Parts & Equipment | 2.8 |
Automobile Manufacturers | 4.5 |
Automotive Retail | 2.1 |
Broadcasting | 1.7 |
Cable & Satellite | 11.3 |
Casinos & Gaming | 2.0 |
Computer & Electronics Retail | 0.6 |
Consumer Electronics | 0.3 |
Department Stores | 0.7 |
Distributors | 0.9 |
Education Services | 0.6 |
Footwear | 2.5 |
General Merchandise Stores | 2.3 |
Home Furnishings | 0.8 |
Home Improvement Retail | 7.6 |
Homebuilding | 2.0 |
Homefurnishing Retail | 0.5 |
Hotels, Resorts & Cruise Lines | 4.2 |
Household Appliances | 0.6 |
Housewares & Specialties | 0.8 |
Internet & Direct Marketing Retail | 19.3 |
Leisure Facilities | 0.6 |
Leisure Products | 1.0 |
Motorcycle Manufacturers | 0.3 |
Movies & Entertainment | 10.0 |
Publishing | 0.6 |
Restaurants | 9.7 |
Specialized Consumer Services | 0.7 |
Specialty Stores | 1.9 |
Tires & Rubber | 0.3 |
Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” category (if applicable), which includes securities that have not been provided a GICS classification as of the effective reporting period. | |
Ten Largest Holdings (% of total net assets) | ||
Amazon.com Inc. | Internet Retail | 12.5% |
Comcast Corp. | Cable & Satellite | 6.0 |
Home Depot Inc. | Home Improvement Retail | 5.6 |
Walt Disney Co. | Movies & Entertainment | 5.0 |
McDonald’s Corp. | Restaurants | 4.1 |
Priceline Group Inc. Internet & Direct | ||
Marketing Retail | 2.8 | |
Charter | ||
Communications | ||
Inc. | Cable & Satellite | 2.7 |
Starbucks Corp. | Restaurants | 2.5 |
Time Warner Inc. | Movies & Entertainment | 2.5 |
Netflix Inc. | Internet & Direct | |
Marketing Retail | 2.4 | |
Top Ten | 46.1% | |
The holdings listed exclude any temporary cash investments and equity index products. | ||
1 The expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2017, the expense ratios were 0.10% for
ETF Shares and 0.10% for Admiral Shares.
6
Consumer Discretionary Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Cumulative Performance: August 31, 2007–August 31, 2017
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ussectorindexx9x1.jpg)
Average Annual Total Returns | Final Value | ||||
Periods Ended August 31, 2017 | of a $10,000 | ||||
One Year | Five Years | Ten Years | Investment | ||
Consumer Discretionary Index Fund | |||||
ETF Shares Net Asset Value | 13.81% | 15.95% | 10.49% | $27,114 | |
Consumer Discretionary Index Fund | |||||
ETF Shares Market Price | 13.79 | 15.93 | 10.51 | 27,174 | |
Spliced US IMI/Consumer Discretionary 25/50 | 13.86 | 16.06 | 10.60 | 27,384 | |
Consumer Services Funds Average | 8.00 | 12.06 | 7.58 | 20,765 | |
MSCI US IMI/2500 | 16.06 | 14.29 | 7.84 | 21,281 | |
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 | 13.81% | 15.95% | 10.48% | $270,960 |
Spliced US IMI/Consumer Discretionary 25/50 | 13.86 | 16.06 | 10.60 | 273,843 |
MSCI US IMI/2500 | 16.06 | 14.29 | 7.84 | 212,807 |
See Financial Highlights for dividend and capital gains information.
7
Consumer Discretionary Index Fund
Fiscal-Year Total Returns (%): August 31, 2007–August 31, 2017
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ussectorindexx10x1.jpg)
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2007–August 31, 2017 | |||
One Year | Five Years | Ten Years | |
Consumer Discretionary Index Fund ETF Shares Market Price | 13.79% | 109.44% | 171.74% |
Consumer Discretionary Index Fund ETF Shares Net Asset Value | 13.81 | 109.60 | 171.14 |
Spliced US IMI/Consumer Discretionary 25/50 | 13.86 | 110.57 | 173.84 |
Average Annual Total Returns: Periods Ended June 30, 2017
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 | 18.24% | 17.06% | 9.90% | ||
Net Asset Value | 18.23 | 17.05 | 9.90 | ||
Admiral Shares | 7/14/2005 | 18.23 | 17.06 | 9.89 |
See Financial Highlights for dividend and capital gains information.
8
Consumer Discretionary Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2017
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%) | |||
Auto Components (3.1%) | |||
Delphi Automotive plc | 201,303 | 19,406 | |
Lear Corp. | 51,698 | 7,731 | |
BorgWarner Inc. | 159,284 | 7,392 | |
^ | Autoliv Inc. | 66,420 | 7,215 |
Goodyear Tire & Rubber Co. | 189,275 | 5,735 | |
Adient plc | 70,300 | 4,969 | |
Gentex Corp. | 215,956 | 3,946 | |
* | Visteon Corp. | 23,830 | 2,751 |
Dana Inc. | 108,706 | 2,617 | |
Tenneco Inc. | 40,705 | 2,206 | |
LCI Industries | 18,786 | 1,856 | |
* | Dorman Products Inc. | 23,276 | 1,546 |
* | Cooper-Standard Holdings | ||
Inc. | 13,434 | 1,351 | |
Cooper Tire & Rubber Co. | 39,838 | 1,339 | |
* | Fox Factory Holding Corp. | 26,630 | 1,065 |
* | American Axle & | ||
Manufacturing Holdings Inc. | 62,451 | 912 | |
* | Gentherm Inc. | 27,289 | 850 |
Standard Motor Products Inc. | 15,204 | 670 | |
* | Modine Manufacturing Co. | 37,343 | 603 |
* | Motorcar Parts of America | ||
Inc. | 13,885 | 365 | |
Tower International Inc. | 14,926 | 335 | |
* | Stoneridge Inc. | 19,610 | 325 |
Superior Industries | |||
International Inc. | 17,168 | 251 | |
75,436 | |||
Automobiles (4.8%) | |||
General Motors Co. | 1,020,943 | 37,305 | |
^,* | Tesla Inc. | 98,788 | 35,159 |
Ford Motor Co. | 2,792,990 | 30,807 | |
Harley-Davidson Inc. | 131,562 | 6,185 | |
Thor Industries Inc. | 39,491 | 4,290 | |
Winnebago Industries Inc. | 22,442 | 811 | |
114,557 | |||
Distributors (0.9%) | |||
Genuine Parts Co. | 110,780 | 9,176 | |
* | LKQ Corp. | 231,773 | 8,031 |
Pool Corp. | 31,165 | 3,107 | |
Core-Mark Holding Co. Inc. | 34,887 | 944 | |
21,258 | |||
Diversified Consumer Services (1.3%) | |||
Service Corp. International | 141,196 | 4,990 | |
* | ServiceMaster Global | ||
Holdings Inc. | 100,835 | 4,751 | |
H&R Block Inc. | 155,288 | 4,152 | |
* | Bright Horizons Family | ||
Solutions Inc. | 36,071 | 2,883 | |
* | Grand Canyon Education | ||
Inc. | 34,269 | 2,812 | |
Graham Holdings Co. | |||
Class B | 3,482 | 2,045 | |
* | Adtalem Global Education | ||
Inc. | 44,781 | 1,531 | |
* | Sotheby’s | 27,685 | 1,242 |
Market | ||||
Value• | ||||
Shares | ($000) | |||
* | Weight Watchers | |||
International Inc. | 21,782 | 1,020 | ||
* | Chegg Inc. | 67,480 | 958 | |
* | Houghton Mifflin | |||
Harcourt Co. | 77,941 | 795 | ||
Strayer Education Inc. | 8,050 | 644 | ||
Capella Education Co. | 8,647 | 582 | ||
* | Career Education Corp. | 48,484 | 466 | |
* | K12 Inc. | 25,743 | 461 | |
* | Regis Corp. | 26,738 | 355 | |
Carriage Services Inc. | ||||
Class A | 11,092 | 272 | ||
* | American Public | |||
Education Inc. | 12,065 | 223 | ||
* | Bridgepoint Education Inc. | 12,924 | 114 | |
30,296 | ||||
Hotels, Restaurants & Leisure (16.5%) | ||||
McDonald’s Corp. | 612,622 | 98,001 | ||
Starbucks Corp. | 1,088,476 | 59,714 | ||
Marriott International Inc. | ||||
Class A | 242,009 | 25,067 | ||
Yum! Brands Inc. | 248,651 | 19,101 | ||
Las Vegas Sands Corp. | 297,817 | 18,527 | ||
Carnival Corp. | 261,864 | 18,194 | ||
Royal Caribbean Cruises | ||||
Ltd. | 129,361 | 16,100 | ||
MGM Resorts International 345,690 | 11,394 | |||
Hilton Worldwide Holdings | ||||
Inc. | 148,352 | 9,544 | ||
Wynn Resorts Ltd. | 61,631 | 8,566 | ||
* | Norwegian Cruise Line | |||
Holdings Ltd. | 137,278 | 8,163 | ||
Wyndham Worldwide | ||||
Corp. | 78,521 | 7,827 | ||
Darden Restaurants Inc. | 93,467 | 7,673 | ||
Aramark | 183,493 | 7,466 | ||
Vail Resorts Inc. | 30,063 | 6,853 | ||
Domino’s Pizza Inc. | 36,153 | 6,589 | ||
* | Chipotle Mexican Grill Inc. | |||
Class A | 19,365 | 6,133 | ||
Dunkin’ Brands Group Inc. | 69,324 | 3,574 | ||
Six Flags Entertainment | ||||
Corp. | 54,413 | 2,969 | ||
Extended Stay America Inc. 144,928 | 2,839 | |||
Texas Roadhouse Inc. | ||||
Class A | 50,729 | 2,407 | ||
ILG Inc. | 84,343 | 2,227 | ||
Wendy’s Co. | 147,538 | 2,201 | ||
Cracker Barrel Old Country | ||||
Store Inc. | 14,522 | 2,159 | ||
Jack in the Box Inc. | 22,033 | 2,063 | ||
Churchill Downs Inc. | 10,518 | 2,055 | ||
Marriott Vacations | ||||
Worldwide Corp. | 17,420 | 2,027 | ||
* | Hyatt Hotels Corp. Class A | 33,864 | 2,015 | |
* | Hilton Grand Vacations Inc. | 51,806 | 1,878 | |
* | Dave & Buster’s | |||
Entertainment Inc. | 31,666 | 1,851 |
Market | |||
Value• | |||
Shares | ($000) | ||
Choice Hotels International | |||
Inc. | 27,645 | 1,715 | |
Boyd Gaming Corp. | 63,860 | 1,689 | |
Papa John’s International Inc. | 20,799 | 1,556 | |
* | Penn National Gaming Inc. | 64,387 | 1,429 |
Cheesecake Factory Inc. | 34,334 | 1,423 | |
* | Scientific Games Corp. | ||
Class A | 39,654 | 1,396 | |
Planet Fitness Inc. Class A | 54,445 | 1,381 | |
Bloomin’ Brands Inc. | 75,328 | 1,281 | |
* | Buffalo Wild Wings Inc. | 11,513 | 1,183 |
Red Rock Resorts Inc. | |||
Class A | 50,999 | 1,153 | |
Brinker International Inc. | 36,854 | 1,151 | |
Bob Evans Farms Inc. | 14,016 | 964 | |
* | La Quinta Holdings Inc. | 60,935 | 963 |
* | Eldorado Resorts Inc. | 37,434 | 861 |
ClubCorp Holdings Inc. | 49,436 | 841 | |
* | Belmond Ltd. Class A | 64,403 | 821 |
* | Pinnacle Entertainment Inc. | 41,026 | 800 |
^ | Sonic Corp. | 31,880 | 746 |
Wingstop Inc. | 21,881 | 709 | |
International Speedway | |||
Corp. Class A | 19,146 | 683 | |
^ | SeaWorld Entertainment | ||
Inc. | 50,688 | 658 | |
* | Denny’s Corp. | 52,686 | 630 |
* | Red Robin Gourmet | ||
Burgers Inc. | 9,588 | 547 | |
DineEquity Inc. | 12,863 | 511 | |
* | Shake Shack Inc. Class A | 15,496 | 479 |
Ruth’s Hospitality Group | |||
Inc. | 22,525 | 440 | |
* | Caesars Entertainment Corp. | 37,952 | 440 |
* | BJ’s Restaurants Inc. | 13,728 | 413 |
* | Del Taco Restaurants Inc. | 26,057 | 367 |
Marcus Corp. | 13,454 | 335 | |
* | Fiesta Restaurant Group Inc. | 18,953 | 330 |
* | Carrols Restaurant Group Inc. | 25,630 | 279 |
* | Chuy’s Holdings Inc. | 12,524 | 236 |
* | Del Frisco’s Restaurant | ||
Group Inc. | 16,364 | 229 | |
* | Biglari Holdings Inc. | 767 | 228 |
* | Potbelly Corp. | 17,871 | 215 |
Speedway Motorsports Inc. | 9,485 | 197 | |
* | El Pollo Loco Holdings Inc. | 17,085 | 194 |
* | Lindblad Expeditions | ||
Holdings Inc. | 17,182 | 191 | |
* | Habit Restaurants Inc. | ||
Class A | 14,319 | 186 | |
* | Bojangles’ Inc. | 13,691 | 183 |
* | Zoe’s Kitchen Inc. | 13,828 | 178 |
* | Fogo De Chao Inc. | 8,449 | 107 |
* | Ruby Tuesday Inc. | 43,810 | 94 |
^,* | Noodles & Co. Class A | 9,318 | 36 |
395,625 | |||
Household Durables (4.5%) | |||
Newell Brands Inc. | 363,157 | 17,533 | |
* | Mohawk Industries Inc. | 47,491 | 12,021 |
DR Horton Inc. | 268,268 | 9,698 | |
Whirlpool Corp. | 55,514 | 9,527 | |
Lennar Corp. Class A | 152,760 | 7,907 | |
* | NVR Inc. | 2,680 | 7,292 |
PulteGroup Inc. | 213,420 | 5,511 | |
Garmin Ltd. | 91,834 | 4,729 | |
Leggett & Platt Inc. | 99,400 | 4,569 |
9
Consumer Discretionary Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Toll Brothers Inc. | 116,199 | 4,527 | |
Tupperware Brands Corp. | 38,130 | 2,207 | |
* | Tempur Sealy International | ||
Inc. | 34,464 | 2,133 | |
CalAtlantic Group Inc. | 58,861 | 2,045 | |
* | iRobot Corp. | 20,658 | 1,971 |
* | Helen of Troy Ltd. | 20,361 | 1,839 |
* | TopBuild Corp. | 27,803 | 1,650 |
* | TRI Pointe Group Inc. | 119,366 | 1,521 |
KB Home | 57,593 | 1,233 | |
* | Meritage Homes Corp. | 28,497 | 1,160 |
* | Taylor Morrison Home Corp. | ||
Class A | 54,117 | 1,094 | |
* | Installed Building Products | ||
Inc. | 16,611 | 958 | |
MDC Holdings Inc. | 28,736 | 898 | |
La-Z-Boy Inc. | 36,352 | 867 | |
* | Cavco Industries Inc. | 6,350 | 854 |
^,* | GoPro Inc. Class A | 76,532 | 705 |
* | Universal Electronics Inc. | 10,828 | 634 |
* | LGI Homes Inc. | 13,885 | 591 |
Ethan Allen Interiors Inc. | 19,611 | 574 | |
* | M/I Homes Inc. | 18,500 | 455 |
^,* | William Lyon Homes | ||
Class A | 18,592 | 446 | |
* | Beazer Homes USA Inc. | 23,252 | 347 |
* | Century Communities Inc. | 13,942 | 314 |
* | PICO Holdings Inc. | 17,201 | 280 |
NACCO Industries Inc. | |||
Class A | 2,253 | 163 | |
* | Hovnanian Enterprises Inc. | ||
Class A | 84,429 | 154 | |
Libbey Inc. | 16,300 | 133 | |
* | Green Brick Partners Inc. | 10,945 | 103 |
108,643 | |||
Internet & Direct Marketing Retail (19.3%) | |||
* | Amazon.com Inc. | 305,398 | 299,473 |
* | Priceline Group Inc. | 36,942 | 68,420 |
* | Netflix Inc. | 324,063 | 56,617 |
Expedia Inc. | 93,472 | 13,868 | |
* | Liberty Interactive Corp. | ||
QVC Group Class A | 316,786 | 7,007 | |
* | Liberty Ventures Class A | 61,037 | 3,757 |
* | TripAdvisor Inc. | 86,799 | 3,709 |
* | Liberty Expedia Holdings | ||
Inc. Class A | 40,892 | 2,236 | |
* | Wayfair Inc. | 27,273 | 1,937 |
* | Groupon Inc. Class A | 314,089 | 1,395 |
Nutrisystem Inc. | 22,480 | 1,221 | |
* | Shutterfly Inc. | 22,553 | 1,028 |
HSN Inc. | 25,872 | 949 | |
* | Liberty TripAdvisor | ||
Holdings Inc. Class A | 53,818 | 718 | |
PetMed Express Inc. | 15,292 | 555 | |
^,* | Duluth Holdings Inc. | 13,970 | 274 |
* | Overstock.com Inc. | 12,399 | 272 |
* | FTD Cos. Inc. | 12,720 | 170 |
* | 1-800-Flowers.com Inc. | ||
Class A | 18,872 | 170 | |
* | Lands’ End Inc. | 9,459 | 115 |
463,891 | |||
Leisure Products (1.0%) | |||
Hasbro Inc. | 84,636 | 8,316 | |
^ | Polaris Industries Inc. | 45,018 | 4,197 |
Mattel Inc. | 257,573 | 4,178 | |
Brunswick Corp. | 67,206 | 3,527 | |
Callaway Golf Co. | 70,500 | 983 | |
* | Vista Outdoor Inc. | 42,483 | 871 |
* | American Outdoor Brands | ||
Corp. | 41,586 | 679 | |
Sturm Ruger & Co. Inc. | 13,413 | 614 |
Market | |||
Value• | |||
Shares | ($000) | ||
* | Nautilus Inc. | 22,892 | 374 |
Acushnet Holdings Corp. | 16,572 | 272 | |
24,011 | |||
Media (24.4%) | |||
Comcast Corp. Class A | 3,558,142 | 144,496 | |
Walt Disney Co. | 1,176,219 | 119,033 | |
* | Charter Communications | ||
Inc. Class A | 162,128 | 64,615 | |
Time Warner Inc. | 583,026 | 58,944 | |
Twenty-First Century Fox | |||
Inc. Class A | 791,066 | 21,826 | |
CBS Corp. Class B | 276,795 | 17,731 | |
* | Liberty Global plc | 434,840 | 14,363 |
Omnicom Group Inc. | 174,917 | 12,660 | |
* | DISH Network Corp. | ||
Class A | 171,009 | 9,797 | |
Twenty-First Century Fox | |||
Inc. | 330,183 | 8,948 | |
* | Liberty Broadband Corp. | 80,562 | 8,179 |
Viacom Inc. Class B | 264,857 | 7,575 | |
^ | Sirius XM Holdings Inc. | 1,227,198 | 7,056 |
* | Liberty Media Corp-Liberty | ||
SiriusXM | 134,188 | 5,986 | |
Interpublic Group of Cos. | |||
Inc. | 297,015 | 5,982 | |
Scripps Networks | |||
Interactive Inc. Class A | 64,965 | 5,564 | |
* | Liberty Global plc Class A | 160,336 | 5,451 |
News Corp. Class A | 373,541 | 4,994 | |
* | Liberty Media Corp-Liberty | ||
Formula One | 126,474 | 4,970 | |
* | Live Nation Entertainment | ||
Inc. | 100,547 | 4,018 | |
* | Discovery Communications | ||
Inc. | 160,137 | 3,364 | |
* | Liberty Media Corp-Liberty | ||
SiriusXM | 69,410 | 3,103 | |
* | Madison Square Garden | ||
Co. Class A | 14,283 | 3,035 | |
Cinemark Holdings Inc. | 78,682 | 2,619 | |
* | Discovery Communications | ||
Inc. Class A | 115,613 | 2,568 | |
* | AMC Networks Inc. Class A | 41,352 | 2,513 |
Cable One Inc. | 3,228 | 2,449 | |
* | Liberty Global PLC LiLAC | 90,711 | 2,339 |
Tribune Media Co. Class A | 55,319 | 2,217 | |
* | Lions Gate Entertainment | ||
Corp. Class B | 76,269 | 2,141 | |
Nexstar Media Group Inc. | |||
Class A | 33,730 | 2,031 | |
* | Liberty Broadband Corp. | ||
Class A | 19,834 | 2,012 | |
TEGNA Inc. | 152,945 | 1,930 | |
John Wiley & Sons Inc. | |||
Class A | 34,454 | 1,859 | |
New York Times Co. | |||
Class A | 96,753 | 1,804 | |
Sinclair Broadcast Group | |||
Inc. Class A | 57,914 | 1,752 | |
Meredith Corp. | 29,522 | 1,605 | |
Regal Entertainment Group | |||
Class A | 84,975 | 1,255 | |
Lions Gate Entertainment | |||
Corp. Class A | 39,358 | 1,170 | |
* | MSG Networks Inc. | 46,295 | 993 |
Time Inc. | 74,802 | 984 | |
* | Liberty Global PLC LiLAC | ||
Class A | 35,474 | 923 | |
Scholastic Corp. | 22,538 | 889 | |
* | IMAX Corp. | 44,656 | 833 |
* | EW Scripps Co. Class A | 39,403 | 705 |
Market | |||
Value• | |||
Shares | ($000) | ||
* | Gray Television Inc. | 49,046 | 701 |
Gannett Co. Inc. | 82,321 | 699 | |
* | Liberty Media Corp-Liberty | ||
Formula One Class A | 17,419 | 661 | |
* | Liberty Media Corp-Liberty | ||
Braves | 25,298 | 619 | |
World Wrestling | |||
Entertainment Inc. Class A | 27,084 | 590 | |
New Media Investment | |||
Group Inc. | 39,914 | 550 | |
^ | AMC Entertainment | ||
Holdings Inc. Class A | 38,330 | 514 | |
* | MDC Partners Inc. Class A | 42,884 | 437 |
* | Loral Space & | ||
Communications Inc. | 9,505 | 432 | |
Entravision Communications | |||
Corp. Class A | 48,786 | 271 | |
National CineMedia Inc. | 46,698 | 253 | |
* | Liberty Media Corp-Liberty | ||
Braves | 7,650 | 187 | |
Entercom Communications | |||
Corp. Class A | 17,174 | 177 | |
* | tronc Inc. | 11,663 | 169 |
* | Hemisphere Media Group | ||
Inc. Class A | 12,773 | 165 | |
* | Global Eagle Entertainment | ||
Inc. | 38,135 | 118 | |
News Corp. Class B | 3,542 | 49 | |
585,873 | |||
Multiline Retail (2.9%) | |||
Target Corp. | 393,882 | 21,478 | |
Dollar General Corp. | 206,049 | 14,951 | |
* | Dollar Tree Inc. | 177,976 | 14,174 |
Kohl’s Corp. | 129,500 | 5,152 | |
Macy’s Inc. | 228,956 | 4,755 | |
Nordstrom Inc. | 93,609 | 4,177 | |
Big Lots Inc. | 33,681 | 1,603 | |
* | Ollie’s Bargain Outlet | ||
Holdings Inc. | 36,741 | 1,538 | |
^,* | JC Penney Co. Inc. | 233,390 | 903 |
Dillard’s Inc. Class A | 12,200 | 742 | |
^,* | Sears Holdings Corp. | 19,046 | 156 |
^ | Fred’s Inc. Class A | 26,225 | 155 |
^,* | Tuesday Morning Corp. | 33,703 | 76 |
69,860 | |||
Other (0.0%) | |||
*,1 Media General Inc. CVR | 69,182 | 3 | |
Specialty Retail (16.0%) | |||
Home Depot Inc. | 898,601 | 134,673 | |
Lowe’s Cos. Inc. | 641,119 | 47,372 | |
TJX Cos. Inc. | 483,519 | 34,958 | |
Ross Stores Inc. | 294,809 | 17,232 | |
* | O’Reilly Automotive Inc. | 68,402 | 13,416 |
Best Buy Co. Inc. | 207,959 | 11,284 | |
* | AutoZone Inc. | 21,161 | 11,182 |
* | Ulta Beauty Inc. | 44,298 | 9,790 |
* | CarMax Inc. | 139,197 | 9,347 |
Tiffany & Co. | 93,726 | 8,567 | |
L Brands Inc. | 181,679 | 6,580 | |
Tractor Supply Co. | 96,581 | 5,748 | |
Advance Auto Parts Inc. | 55,544 | 5,438 | |
Staples Inc. | 491,032 | 5,016 | |
* | Burlington Stores Inc. | 52,435 | 4,569 |
Gap Inc. | 178,559 | 4,218 | |
Foot Locker Inc. | 98,564 | 3,472 | |
Bed Bath & Beyond Inc. | 108,260 | 2,987 | |
^ | Signet Jewelers Ltd. | 46,235 | 2,916 |
^ | Williams-Sonoma Inc. | 61,982 | 2,851 |
^,* | AutoNation Inc. | 49,519 | 2,247 |
Aaron’s Inc. | 47,746 | 2,114 |
10
Consumer Discretionary Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
* | Michaels Cos. Inc. | 92,186 | 2,070 |
* | Five Below Inc. | 41,475 | 1,973 |
* | Cabela’s Inc. | 36,315 | 1,950 |
Lithia Motors Inc. Class A | 17,892 | 1,932 | |
* | Sally Beauty Holdings Inc. | 103,284 | 1,920 |
Dick’s Sporting Goods Inc. | 65,700 | 1,732 | |
* | Murphy USA Inc. | 26,355 | 1,699 |
Office Depot Inc. | 388,284 | 1,666 | |
American Eagle Outfitters | |||
Inc. | 126,357 | 1,510 | |
Children’s Place Inc. | 13,249 | 1,406 | |
GameStop Corp. Class A | 75,915 | 1,404 | |
* | Urban Outfitters Inc. | 61,272 | 1,252 |
Penske Automotive Group | |||
Inc. | 29,171 | 1,236 | |
Monro Inc. | 24,350 | 1,161 | |
* | RH | 23,623 | 1,105 |
* | Select Comfort Corp. | 31,282 | 924 |
Group 1 Automotive Inc. | 15,144 | 909 | |
DSW Inc. Class A | 48,469 | 898 | |
Caleres Inc. | 32,451 | 875 | |
* | Lumber Liquidators | ||
Holdings Inc. | 21,073 | 791 | |
* | Asbury Automotive Group | ||
Inc. | 14,148 | 762 | |
Chico’s FAS Inc. | 96,335 | 740 | |
Guess? Inc. | 46,833 | 730 | |
Abercrombie & Fitch Co. | 50,043 | 638 | |
Camping World Holdings | |||
Inc. Class A | 16,611 | 610 | |
Rent-A-Center Inc. | 39,624 | 479 | |
GNC Holdings Inc. Class A | 50,731 | 421 | |
Tailored Brands Inc. | 32,355 | 382 | |
* | Express Inc. | 58,485 | 373 |
Tile Shop Holdings Inc. | 24,682 | 371 | |
Sonic Automotive Inc. | |||
Class A | 19,528 | 353 | |
Barnes & Noble Inc. | 42,906 | 332 | |
* | At Home Group Inc. | 13,497 | 331 |
* | Genesco Inc. | 15,161 | 321 |
Haverty Furniture Cos. Inc. | 13,546 | 318 | |
* | Party City Holdco Inc. | 22,547 | 314 |
* | MarineMax Inc. | 19,089 | 308 |
^ | Buckle Inc. | 21,601 | 306 |
^,* | Conn’s Inc. | 14,966 | 260 |
Winmark Corp. | 1,905 | 251 | |
Finish Line Inc. Class A | 29,858 | 249 | |
Cato Corp. Class A | 18,496 | 243 | |
* | Ascena Retail Group Inc. | 115,056 | 235 |
Pier 1 Imports Inc. | 55,657 | 233 | |
* | America’s Car-Mart Inc. | 5,686 | 218 |
* | Francesca’s Holdings Corp. | 27,937 | 203 |
* | Hibbett Sports Inc. | 16,256 | 200 |
Shoe Carnival Inc. | 9,009 | 181 | |
* | Zumiez Inc. | 13,682 | 170 |
* | Barnes & Noble Education | ||
Inc. | 27,354 | 142 | |
* | Kirkland’s Inc. | 11,381 | 131 |
Market | |||
Value• | |||
Shares | ($000) | ||
* | Sportsman’s Warehouse | ||
Holdings Inc. | 28,098 | 117 | |
* | Vitamin Shoppe Inc. | 16,380 | 88 |
* | Boot Barn Holdings Inc. | 10,582 | 86 |
* | Container Store Group Inc. | 12,711 | 52 |
^ | Stage Stores Inc. | 21,513 | 39 |
^ | Stein Mart Inc. | 22,955 | 29 |
385,606 | |||
Textiles, Apparel & Luxury Goods (5.2%) | |||
NIKE Inc. Class B | 993,419 | 52,462 | |
VF Corp. | 255,816 | 16,083 | |
Coach Inc. | 211,359 | 8,814 | |
PVH Corp. | 58,620 | 7,380 | |
Hanesbrands Inc. | 273,696 | 6,640 | |
* | Michael Kors Holdings Ltd. | 117,126 | 4,945 |
* | Lululemon Athletica Inc. | 77,079 | 4,436 |
Ralph Lauren Corp. Class A | 41,384 | 3,637 | |
Carter’s Inc. | 36,374 | 3,154 | |
* | Skechers U.S.A. Inc. | ||
Class A | 100,580 | 2,658 | |
^,* | Under Armour Inc. Class A | 138,843 | 2,242 |
^,* | Under Armour Inc. | 141,337 | 2,134 |
Wolverine World Wide Inc. | 72,762 | 1,914 | |
* | Steven Madden Ltd. | 40,135 | 1,702 |
* | Deckers Outdoor Corp. | 23,880 | 1,526 |
Columbia Sportswear Co. | 20,973 | 1,201 | |
* | G-III Apparel Group Ltd. | 32,708 | 899 |
Oxford Industries Inc. | 11,462 | 663 | |
* | Crocs Inc. | 55,757 | 498 |
* | Unifi Inc. | 11,481 | 357 |
Movado Group Inc. | 11,338 | 315 | |
* | Fossil Group Inc. | 31,792 | 263 |
Culp Inc. | 8,264 | 240 | |
* | Iconix Brand Group Inc. | 35,974 | 201 |
* | Vera Bradley Inc. | 14,129 | 128 |
* | Sequential Brands Group | ||
Inc. | 30,222 | 92 | |
124,584 | |||
Total Common Stocks | |||
(Cost $2,138,892) | 2,399,643 | ||
Temporary Cash Investment (1.0%) | |||
Money Market Fund (1.0%) | |||
2,3 Vanguard Market | |||
Liquidity Fund, 1.224% | |||
(Cost $22,813) | 228,114 | 22,816 | |
Total Investments (100.9%) | |||
(Cost $2,161,705) | 2,422,459 |
Amount | |
($000) | |
Other Assets and Liabilities (-0.9%) | |
Other Assets | |
Investment in Vanguard | 157 |
Receivables for Investment Securities Sold 11,831 | |
Receivables for Accrued Income | 3,458 |
Receivables for Capital Shares Issued | 54 |
Total Other Assets | 15,500 |
Liabilities | |
Payables for Investment Securities | |
Purchased | (11,428) |
Collateral for Securities on Loan | (22,812) |
Payables for Capital Shares Redeemed | (50) |
Payables to Vanguard | (824) |
Other Liabilities | (1,269) |
Total Liabilities | (36,383) |
Net Assets (100%) | 2,401,576 |
At August 31, 2017, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 2,182,649 |
Undistributed Net Investment Income | 6,218 |
Accumulated Net Realized Losses | (48,045) |
Unrealized Appreciation (Depreciation) | 260,754 |
Net Assets | 2,401,576 |
ETF Shares—Net Assets | |
Applicable to 15,506,029 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 2,197,755 |
Net Asset Value Per Share— | |
ETF Shares | $141.74 |
Admiral Shares—Net Assets | |
Applicable to 2,778,228 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 203,821 |
Net Asset Value Per Share— | |
Admiral Shares | $73.36 |
• 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 $22,175,000.
* Non-income-producing security.
1 Security value determined using significant unobservable inputs.
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 $22,812,000 of collateral received for securities on loan.
CVR—Contingent Value Rights.
See accompanying Notes, which are an integral part of the Financial Statements.
11
Consumer Discretionary Index Fund
Statement of Operations | |||
Year Ended | |||
August 31, 2017 | |||
($000) | |||
Investment Income | |||
Income | |||
Dividends | 36,429 | ||
Interest1 | 6 | ||
Securities Lending—Net | 955 | ||
Total Income | 37,390 | ||
Expenses | |||
The Vanguard Group—Note B | |||
Investment Advisory Services | 465 | ||
Management and Administrative— | |||
ETF Shares | 1,329 | ||
Management and Administrative— | |||
Admiral Shares | 119 | ||
Marketing and Distribution— | |||
ETF Shares | 124 | ||
Marketing and Distribution— | |||
Admiral Shares | 19 | ||
Custodian Fees | 29 | ||
Auditing Fees | 34 | ||
Shareholders’ Reports and Proxy— | |||
ETF Shares | 175 | ||
Shareholders’ Reports and Proxy— | |||
Admiral Shares | 7 | ||
Trustees’ Fees and Expenses | 2 | ||
Total Expenses | 2,303 | ||
Net Investment Income | 35,087 | ||
Realized Net Gain (Loss) | |||
Investment Securities Sold1 | 66,131 | ||
Futures Contracts | (4) | ||
Realized Net Gain (Loss) | 66,127 | ||
Change in Unrealized Appreciation | |||
(Depreciation) | |||
Investment Securities | 188,129 | ||
Futures Contracts | 10 | ||
Change in Unrealized Appreciation | |||
(Depreciation) | 188,139 | ||
Net Increase (Decrease) in Net Assets | |||
Resulting from Operations | 289,353 | ||
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $6,000 and $1,000, respectively. | |||
Statement of Changes in Net Assets | |||
Year Ended August 31, | |||
2017 | 2016 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 35,087 | 31,588 | |
Realized Net Gain (Loss) | 66,127 | 104,493 | |
Change in Unrealized Appreciation (Depreciation) | 188,139 | (20,586) | |
Net Increase (Decrease) in Net Assets Resulting from Operations | 289,353 | 115,495 | |
Distributions | |||
Net Investment Income | |||
ETF Shares | (31,760) | (38,225) | |
Admiral Shares | (2,806) | (3,309) | |
Realized Capital Gain | |||
ETF Shares | — | — | |
Admiral Shares | — | — | |
Total Distributions | (34,566) | (41,534) | |
Capital Share Transactions | |||
ETF Shares | 38,353 | 15,097 | |
Admiral Shares | 13,567 | 24,861 | |
Net Increase (Decrease) from Capital Share Transactions | 51,920 | 39,958 | |
Total Increase (Decrease) | 306,707 | 113,919 | |
Net Assets | |||
Beginning of Period | 2,094,869 | 1,980,950 | |
End of Period1 | 2,401,576 | 2,094,869 | |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $6,218,000 and $5,697,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
12
Consumer Discretionary Index Fund | ||||||
Financial Highlights | ||||||
ETF Shares | ||||||
For a Share Outstanding | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | |
Net Asset Value, Beginning of Period | $126.45 | $120.80 | $111.79 | $93.38 | $72.65 | |
Investment Operations | ||||||
Net Investment Income | 2.0681 | 1.875 | 1.542 | 1.251 | 1.111 | |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | 15.248 | 6.259 | 8.900 | 18.072 | 20.771 | |
Total from Investment Operations | 17.316 | 8.134 | 10.442 | 19.323 | 21.882 | |
Distributions | ||||||
Dividends from Net Investment Income | (2.026) | (2.484) | (1.432) | (.913) | (1.152) | |
Distributions from Realized Capital Gains | — | — | — | — | — | |
Total Distributions | (2.026) | (2.484) | (1.432) | (.913) | (1.152) | |
Net Asset Value, End of Period | $141.74 | $126.45 | $120.80 | $111.79 | $93.38 | |
Total Return | 13.81% | 6.84% | 9.41% | 20.75% | 30.47% | |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $2,198 | $1,926 | $1,842 | $1,298 | $1,018 | |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.12% | 0.14% | |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 1.53% | 1.54% | 1.31% | 1.26% | 1.44% | |
Portfolio Turnover Rate2 | 6% | 7% | 6% | 7% | 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 | 2017 | 2016 | 2015 | 2014 | 2013 | |
Net Asset Value, Beginning of Period | $65.45 | $62.53 | $57.87 | $48.34 | $37.62 | |
Investment Operations | ||||||
Net Investment Income | 1.0711 | .971 | .805 | .648 | .579 | |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | 7.890 | 3.239 | 4.595 | 9.361 | 10.741 | |
Total from Investment Operations | 8.961 | 4.210 | 5.400 | 10.009 | 11.320 | |
Distributions | ||||||
Dividends from Net Investment Income | (1.051) | (1.290) | (.740) | (.479) | (.600) | |
Distributions from Realized Capital Gains | — | — | — | — | — | |
Total Distributions | (1.051) | (1.290) | (.740) | (.479) | (.600) | |
Net Asset Value, End of Period | $73.36 | $65.45 | $62.53 | $57.87 | $48.34 | |
Total Return 2 | 13.81% | 6.83% | 9.43% | 20.77% | 30.45% | |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $204 | $169 | $139 | $83 | $63 | |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.09% | 0.12% | 0.14% | |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 1.53% | 1.54% | 1.32% | 1.26% | 1.44% | |
Portfolio Turnover Rate3 | 6% | 7% | 6% | 7% | 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.
13
Consumer Discretionary Index Fund
Notes to Financial Statements
Vanguard Consumer Discretionary Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: ETF Shares and Admiral Shares. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker. Admiral Shares are designed for investors who meet certain administrative, service, and account-size criteria.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value.
2. 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 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 futures gains (losses).
During the year ended August 31, 2017, 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 the notional amounts at each quarter-end during the period. The fund had no open futures contracts at August 31, 2017.
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, 2014–2017), 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 event 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
14
Consumer Discretionary Index Fund
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, 2017, 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. Fees assessed on redemptions of capital shares are credited to paid-in capital.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses), shareholder reporting, and the proxy. 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, 2017, the fund had contributed to Vanguard capital in the amount of $157,000, 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). Any investments valued with significant unobservable inputs are noted
on the Statement of Net Assets.
The following table summarizes the market value of the fund’s investments as of August 31, 2017, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 2,399,640 | — | 3 |
Temporary Cash Investments | 22,816 | — | — |
Total | 2,422,456 | — | 3 |
15
Consumer Discretionary Index Fund
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
During the year ended August 31, 2017, the fund realized $80,488,000 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, 2017, the fund had $6,924,000 of ordinary income available for distribution. At August 31, 2017, the fund had available capital losses totaling $48,045,000 to offset future net capital gains. Of this amount, $8,767,000 is subject to expiration dates; $7,274,000 may be used to offset future net capital gains through August 31, 2018, and $1,493,000 through August 31, 2019. Capital losses of $39,278,000 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, 2017, the cost of investment securities for tax purposes was $2,161,705,000. Net unrealized appreciation of investment securities for tax purposes was $260,754,000, consisting of unrealized gains of $462,756,000 on securities that had risen in value since their purchase and $202,002,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2017, the fund purchased $453,842,000 of investment securities and sold $400,258,000 of investment securities, other than temporary cash investments. Purchases and sales include $272,889,000 and $266,441,000, 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, | ||||
2017 | 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 306,903 | 2,278 | 526,973 | 4,227 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (268,550) | (2,000) | (511,876) | (4,250) |
Net Increase (Decrease)—ETF Shares | 38,353 | 278 | 15,097 | (23) |
Admiral Shares | ||||
Issued | 78,882 | 1,127 | 129,244 | 2,037 |
Issued in Lieu of Cash Distributions | 2,502 | 36 | 2,970 | 47 |
Redeemed | (67,817) | (972) | (107,353) | (1,715) |
Net Increase (Decrease)—Admiral Shares | 13,567 | 191 | 24,861 | 369 |
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2017, that would require recognition or disclosure in these financial statements.
16
Consumer Staples Index Fund
Fund Profile
As of August 31, 2017
Share-Class Characteristics | ||
ETF | Admiral | |
Shares | Shares | |
Ticker Symbol | VDC | VCSAX |
Expense Ratio1 | 0.10% | 0.10% |
30-Day SEC Yield | 2.52% | 2.52% |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | |||
Consumer | MSCI | ||
Staples | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 101 | 101 | 2,482 |
Median Market Cap $98.4B | $98.4B | $63.1B | |
Price/Earnings Ratio | 21.6x | 21.5x | 22.0x |
Price/Book Ratio | 4.1x | 4.1x | 2.9x |
Return on Equity | 21.5% | 21.5% | 15.1% |
Earnings Growth Rate | 3.7% | 3.6% | 9.4% |
Dividend Yield | 2.54% | 2.54% | 1.84% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 5% | — | — |
Short-Term Reserves | 0.0% | — | — |
Volatility Measures | ||
MSCI US | ||
IMI/Consumer | MSCI US | |
Staples 25/50 | IMI/2500 | |
R-Squared | 1.00 | 0.34 |
Beta | 1.00 | 0.53 |
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 | 2.8% |
Brewers | 1.0 |
Distillers & Vintners | 2.5 |
Drug Retail | 8.0 |
Food Distributors | 2.1 |
Food Retail | 1.7 |
Household Products | 19.7 |
Hypermarkets & Super Centers | 8.1 |
Packaged Foods & Meats | 16.8 |
Personal Products | 3.0 |
Soft Drinks | 19.3 |
Tobacco | 15.0 |
Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” category (if applicable), which includes securities that have | |
not been provided a GICS classification as of the effective reporting period. | |
Ten Largest Holdings (% of total net assets) | ||
Procter | ||
& Gamble Co. | Household Products | 11.7% |
Coca-Cola Co. | Soft Drinks | 9.1 |
Philip Morris | ||
International Inc. | Tobacco | 8.9 |
PepsiCo Inc. | Soft Drinks | 8.0 |
Altria Group Inc. | Tobacco | 5.9 |
Wal-Mart | Hypermarkets & | |
Stores Inc. | Super Centers | 4.5 |
CVS Health Corp. | Drug Retail | 4.0 |
Walgreens Boots | ||
Alliance Inc. | Drug Retail | 3.8 |
Costco Wholesale | Hypermarkets & | |
Corp. | Super Centers | 3.5 |
Mondelez | ||
International Inc. | Packaged Foods & Meats | 3.3 |
Top Ten | 62.7% | |
The holdings listed exclude any temporary cash investments and equity index products. | ||
1 The expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2017, the expense ratios were 0.10% for
ETF Shares and 0.10% for Admiral Shares.
17
Consumer Staples Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Cumulative Performance: August 31, 2007–August 31, 2017
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ussectorindexx20x1.jpg)
Average Annual Total Returns | Final Value | ||||
Periods Ended August 31, 2017 | of a $10,000 | ||||
One Year | Five Years | Ten Years | Investment | ||
Consumer Staples Index Fund | |||||
ETF Shares Net Asset Value | 2.83% | 12.18% | 10.27% | $26,571 | |
Consumer Staples Index Fund | |||||
ETF Shares Market Price | 2.83 | 12.16 | 10.28 | 26,615 | |
Spliced US IMI/Consumer Staples 25/50 | 2.90 | 12.30 | 10.40 | 26,905 | |
Consumer Goods Funds Average | 7.45 | 11.32 | 8.79 | 23,223 | |
MSCI US IMI/2500 | 16.06 | 14.29 | 7.84 | 21,281 | |
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 | 2.81% | 12.19% | 10.27% | $265,705 |
Spliced US IMI/Consumer Staples 25/50 | 2.90 | 12.30 | 10.40 | 269,054 |
MSCI US IMI/2500 | 16.06 | 14.29 | 7.84 | 212,807 |
See Financial Highlights for dividend and capital gains information.
18
Consumer Staples Index Fund
Fiscal-Year Total Returns (%): August 31, 2007–August 31, 2017
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ussectorindexx21x1.jpg)
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2007–August 31, 2017 | |||
One Year | Five Years | Ten Years | |
Consumer Staples Index Fund ETF Shares Market Price | 2.83% | 77.50% | 166.15% |
Consumer Staples Index Fund ETF Shares Net Asset Value | 2.83 | 77.63 | 165.71 |
Spliced US IMI/Consumer Staples 25/50 | 2.90 | 78.61 | 169.05 |
Average Annual Total Returns: Periods Ended June 30, 2017 | |||||
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 | 2.60% | 12.80% | 10.33% | ||
Net Asset Value | 2.57 | 12.78 | 10.32 | ||
Admiral Shares | 1/30/2004 | 2.56 | 12.79 | 10.31 |
See Financial Highlights for dividend and capital gains information.
19
Consumer Staples Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2017
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%) | |||
Beverages (22.8%) | |||
Coca-Cola Co. | 8,988,190 | 409,412 | |
PepsiCo Inc. | 3,145,563 | 364,036 | |
Constellation Brands Inc. | |||
Class A | 409,658 | 81,973 | |
* | Monster Beverage Corp. | 967,529 | 54,007 |
Dr Pepper Snapple Group | |||
Inc. | 461,181 | 41,990 | |
Molson Coors Brewing | |||
Co. Class B | 453,781 | 40,727 | |
Brown-Forman Corp. | |||
Class B | 569,521 | 30,207 | |
Coca-Cola Bottling Co. | |||
Consolidated | 22,472 | 4,800 | |
* | Boston Beer Co. Inc. | ||
Class A | 30,838 | 4,595 | |
National Beverage Corp. | 5,237 | 609 | |
MGP Ingredients Inc. | 5,678 | 319 | |
1,032,675 | |||
Food & Staples Retailing (19.9%) | |||
Wal-Mart Stores Inc. | 2,585,822 | 201,875 | |
CVS Health Corp. | 2,354,227 | 182,076 | |
Walgreens Boots | |||
Alliance Inc. | 2,104,721 | 171,535 | |
Costco Wholesale Corp. | 1,022,014 | 160,191 | |
Sysco Corp. | 1,279,525 | 67,393 | |
Kroger Co. | 2,195,062 | 48,006 | |
Casey’s General Stores | |||
Inc. | 107,297 | 11,311 | |
* | Sprouts Farmers Market | ||
Inc. | 420,050 | 8,376 | |
* | US Foods Holding Corp. | 266,056 | 7,303 |
* | Rite Aid Corp. | 2,591,298 | 6,271 |
* | United Natural Foods Inc. | 161,705 | 5,619 |
PriceSmart Inc. | 66,502 | 5,403 | |
SpartanNash Co. | 178,707 | 4,404 | |
Andersons Inc. | 123,709 | 3,940 | |
Weis Markets Inc. | 77,654 | 3,433 | |
* | Performance Food Group | ||
Co. | 120,287 | 3,344 | |
* | Chefs’ Warehouse Inc. | 157,004 | 2,708 |
Village Super Market Inc. | |||
Class A | 95,990 | 2,220 | |
* | SUPERVALU Inc. | 109,904 | 2,197 |
Ingles Markets Inc. | |||
Class A | 64,421 | 1,414 | |
* | Smart & Final Stores Inc. | 186,563 | 1,315 |
*,^ Natural Grocers by | |||
Vitamin Cottage Inc. | 125,045 | 703 | |
901,037 |
Market | |||
Value• | |||
Shares | ($000) | ||
Food Products (19.6%) | |||
Mondelez International | |||
Inc. Class A | 3,670,626 | 149,248 | |
Kraft Heinz Co. | 1,404,648 | 113,425 | |
General Mills Inc. | 1,412,867 | 75,249 | |
Archer-Daniels-Midland | |||
Co. | 1,422,435 | 58,775 | |
Tyson Foods Inc. Class A | 736,177 | 46,600 | |
Kellogg Co. | 639,761 | 41,879 | |
Hershey Co. | 365,939 | 38,394 | |
Conagra Brands Inc. | 1,030,802 | 33,460 | |
JM Smucker Co. | 277,833 | 29,106 | |
McCormick & Co. Inc./MD | 290,381 | 27,624 | |
Bunge Ltd. | 360,912 | 26,935 | |
Ingredion Inc. | 184,855 | 22,889 | |
Hormel Foods Corp. | 724,583 | 22,274 | |
Campbell Soup Co. | 467,822 | 21,613 | |
Pinnacle Foods Inc. | 302,740 | 17,956 | |
Lamb Weston Holdings | |||
Inc. | 343,676 | 15,630 | |
* | Post Holdings Inc. | 170,591 | 14,522 |
* | Hain Celestial Group Inc. | 282,251 | 11,352 |
Sanderson Farms Inc. | 74,832 | 11,039 | |
* | TreeHouse Foods Inc. | 156,208 | 10,464 |
* | Darling Ingredients Inc. | 577,749 | 10,053 |
Snyder’s-Lance Inc. | 269,063 | 9,557 | |
Flowers Foods Inc. | 520,957 | 9,049 | |
*,^ Pilgrim’s Pride Corp. | 249,769 | 7,356 | |
Lancaster Colony Corp. | 62,009 | 7,222 | |
J&J Snack Foods Corp. | 52,254 | 6,662 | |
^ | B&G Foods Inc. | 216,570 | 6,605 |
Fresh Del Monte Produce | |||
Inc. | 125,027 | 5,875 | |
^ | Calavo Growers Inc. | 71,571 | 4,806 |
* | Freshpet Inc. | 274,328 | 4,348 |
^ | Tootsie Roll Industries Inc. | 113,890 | 4,254 |
*,^ Cal-Maine Foods Inc. | 107,714 | 3,926 | |
* | Blue Buffalo Pet Products | ||
Inc. | 143,244 | 3,690 | |
Dean Foods Co. | 328,062 | 3,609 | |
* | Landec Corp. | 224,479 | 2,918 |
* | Farmer Brothers Co. | 88,595 | 2,884 |
* | Seneca Foods Corp. | ||
Class A | 89,578 | 2,670 | |
John B Sanfilippo & Son | |||
Inc. | 6,178 | 383 | |
Omega Protein Corp. | 12,437 | 197 | |
* | Amplify Snack Brands Inc. | 24,735 | 178 |
* | Hostess Brands Inc. | ||
Class A | 11,891 | 159 | |
884,835 |
Market | |||
Value• | |||
Shares | ($000) | ||
Household Products (19.7%) | |||
Procter & Gamble Co. | 5,722,570 | 528,022 | |
Colgate-Palmolive Co. | 1,994,639 | 142,896 | |
Kimberly-Clark Corp. | 853,614 | 105,242 | |
Clorox Co. | 311,825 | 43,197 | |
Church & Dwight Co. Inc. | 648,725 | 32,546 | |
^ | Spectrum Brands Holdings | ||
Inc. | 83,173 | 9,146 | |
Energizer Holdings Inc. | 202,434 | 8,937 | |
* | Central Garden & Pet Co. | ||
Class A | 193,721 | 6,604 | |
WD-40 Co. | 54,040 | 5,888 | |
* | HRG Group Inc. | 356,449 | 5,628 |
* | Central Garden & Pet Co. | 133,333 | 4,700 |
892,806 | |||
Personal Products (3.0%) | |||
Estee Lauder Cos. Inc. | |||
Class A | 542,957 | 58,091 | |
Coty Inc. Class A | 1,210,981 | 20,078 | |
*,^ Herbalife Ltd. | 194,819 | 13,444 | |
* | Edgewell Personal Care | ||
Co. | 168,098 | 12,765 | |
Nu Skin Enterprises Inc. | |||
Class A | 185,343 | 11,274 | |
Medifast Inc. | 86,303 | 4,887 | |
Inter Parfums Inc. | 114,239 | 4,507 | |
* | Avon Products Inc. | 1,591,023 | 3,962 |
* | USANA Health Sciences | ||
Inc. | 57,457 | 3,401 | |
* | Revlon Inc. Class A | 104,643 | 1,769 |
Natural Health Trends Corp. | 9,654 | 195 | |
* | elf Beauty Inc. | 7,838 | 162 |
134,535 | |||
Tobacco (15.0%) | |||
Philip Morris International | |||
Inc. | 3,433,246 | 401,449 | |
Altria Group Inc. | 4,176,798 | 264,809 | |
Vector Group Ltd. | 308,412 | 6,662 | |
Universal Corp./VA | 85,624 | 4,898 | |
677,818 | |||
Total Common Stocks | |||
(Cost $4,093,020) | 4,523,706 | ||
Temporary Cash Investment (0.4%) | |||
Money Market Fund (0.4%) | |||
1,2 Vanguard Market | |||
Liquidity Fund, 1.224% | |||
(Cost $15,740) | 157,394 | 15,743 | |
Total Investments (100.4%) | |||
(Cost $4,108,760) | 4,539,449 |
20
Consumer Staples Index Fund
Amount | ||
($000) | ||
Other Assets and Liabilities (-0.4%) | ||
Other Assets | ||
Investment in Vanguard | 289 | |
Receivables for Investment Securities Sold | 46,452 | |
Receivables for Accrued Income | 9,186 | |
Receivables for Capital Shares Issued | 382 | |
Total Other Assets | 56,309 | |
Liabilities | ||
Payables for Investment Securities | ||
Purchased | (50,304) | |
Collateral for Securities on Loan | (15,738) | |
Payables for Capital Shares Redeemed | (991) | |
Payables to Vanguard | (1,543) | |
Other Liabilities | (4,979) | |
Total Liabilities | (73,555) | |
Net Assets (100%) | 4,522,203 |
At August 31, 2017, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 4,098,008 |
Undistributed Net Investment Income | 16,264 |
Accumulated Net Realized Losses | (22,758) |
Unrealized Appreciation (Depreciation) | 430,689 |
Net Assets | 4,522,203 |
ETF Shares—Net Assets | |
Applicable to 26,969,802 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 3,779,879 |
Net Asset Value Per Share— | |
ETF Shares | $140.15 |
Admiral Shares—Net Assets | |
Applicable to 10,742,424 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 742,324 |
Net Asset Value Per Share— | |
Admiral Shares | $69.10 |
• 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 $15,367,000.
1 Affiliated money market fund available only to Vanguard funds
and certain trusts and accounts managed by Vanguard. Rate
shown is the 7-day yield.
2 Includes $15,738,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
21
Consumer Staples Index Fund
Statement of Operations | |||
Year Ended | |||
August 31, 2017 | |||
($000) | |||
Investment Income | |||
Income | |||
Dividends | 115,446 | ||
Interest1 | 20 | ||
Securities Lending—Net | 678 | ||
Total Income | 116,144 | ||
Expenses | |||
The Vanguard Group—Note B | |||
Investment Advisory Services | 854 | ||
Management and Administrative— | |||
ETF Shares | 2,235 | ||
Management and Administrative— | |||
Admiral Shares | 449 | ||
Marketing and Distribution— | |||
ETF Shares | 194 | ||
Marketing and Distribution— | |||
Admiral Shares | 72 | ||
Custodian Fees | 75 | ||
Auditing Fees | 34 | ||
Shareholders’ Reports and Proxy— | |||
ETF Shares | 288 | ||
Shareholders’ Reports and Proxy— | |||
Admiral Shares | 37 | ||
Trustees’ Fees and Expenses | 4 | ||
Total Expenses | 4,242 | ||
Net Investment Income | 111,902 | ||
Realized Net Gain (Loss) | |||
Investment Securities Sold1 | 215,350 | ||
Futures Contracts | 19 | ||
Realized Net Gain (Loss) | 215,369 | ||
Change in Unrealized Appreciation | |||
(Depreciation) | |||
Investment Securities (219,867) | |||
Futures Contracts | 28 | ||
Change in Unrealized Appreciation | |||
(Depreciation) (219,839) | |||
Net Increase (Decrease) in Net Assets | |||
Resulting from Operations | 107,432 | ||
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $20,000 and ($2,000), respectively. | |||
Statement of Changes in Net Assets | |||
Year Ended August 31, | |||
2017 | 2016 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 111,902 | 84,850 | |
Realized Net Gain (Loss) | 215,369 | 117,518 | |
Change in Unrealized Appreciation (Depreciation) | (219,839) | 319,186 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | 107,432 | 521,554 | |
Distributions | |||
Net Investment Income | |||
ETF Shares | (94,086) | (98,108) | |
Admiral Shares | (19,195) | (14,792) | |
Realized Capital Gain | |||
ETF Shares | — | — | |
Admiral Shares | — | — | |
Total Distributions | (113,281) | (112,900) | |
Capital Share Transactions | |||
ETF Shares | 267,194 | 774,804 | |
Admiral Shares | 15,212 | 349,687 | |
Net Increase (Decrease) from Capital Share Transactions | 282,406 | 1,124,491 | |
Total Increase (Decrease) | 276,557 | 1,533,145 | |
Net Assets | |||
Beginning of Period | 4,245,646 | 2,712,501 | |
End of Period1 | 4,522,203 | 4,245,646 | |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $16,264,000 and $17,643,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
22
Consumer Staples Index Fund | ||||||
Financial Highlights | ||||||
ETF Shares | ||||||
For a Share Outstanding | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | |
Net Asset Value, Beginning of Period | $139.97 | $123.72 | $117.12 | $101.97 | $90.12 | |
Investment Operations | ||||||
Net Investment Income | 3.6511 | 3.189 | 2.903 | 2.602 | 2.606 | |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | 0.212 | 17.752 | 6.114 | 14.976 | 11.835 | |
Total from Investment Operations | 3.863 | 20.941 | 9.017 | 17.578 | 14.441 | |
Distributions | ||||||
Dividends from Net Investment Income | (3.683) | (4.691) | (2.417) | (2.428) | (2.591) | |
Distributions from Realized Capital Gains | — | — | — | — | — | |
Total Distributions | (3.683) | (4.691) | (2.417) | (2.428) | (2.591) | |
Net Asset Value, End of Period | $140.15 | $139.97 | $123.72 | $117.12 | $101.97 | |
Total Return | 2.83% | 17.36% | 7.67% | 17.42% | 16.43% | |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $3,780 | $3,518 | $2,393 | $1,936 | $1,481 | |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.12% | 0.14% | |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 2.63% | 2.50% | 2.53% | 2.52% | 2.80% | |
Portfolio Turnover Rate2 | 5% | 6% | 6% | 5% | 10% |
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 | 2017 | 2016 | 2015 | 2014 | 2013 | |
Net Asset Value, Beginning of Period | $69.02 | $61.01 | $57.74 | $50.28 | $44.44 | |
Investment Operations | ||||||
Net Investment Income | 1.7971 | 1.575 | 1.431 | 1.281 | 1.287 | |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | 0.101 | 8.752 | 3.025 | 7.379 | 5.832 | |
Total from Investment Operations | 1.898 | 10.327 | 4.456 | 8.660 | 7.119 | |
Distributions | ||||||
Dividends from Net Investment Income | (1.818) | (2.317) | (1.186) | (1.200) | (1.279) | |
Distributions from Realized Capital Gains | — | — | — | — | — | |
Total Distributions | (1.818) | (2.317) | (1.186) | (1.200) | (1.279) | |
Net Asset Value, End of Period | $69.10 | $69.02 | $61.01 | $57.74 | $50.28 | |
Total Return2 | 2.81% | 17.37% | 7.73% | 17.41% | 16.44% | |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $742 | $728 | $319 | $218 | $175 | |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.12% | 0.14% | |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 2.63% | 2.50% | 2.53% | 2.52% | 2.80% | |
Portfolio Turnover Rate3 | 5% | 6% | 6% | 5% | 10% |
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.
23
Consumer Staples Index Fund
Notes to Financial Statements
Vanguard Consumer Staples Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: ETF Shares and Admiral Shares. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker. Admiral Shares are designed for investors who meet certain administrative, service, and account-size criteria.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value.
2. 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 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 futures gains (losses).
During the year ended August 31, 2017, 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 the notional amounts at each quarter-end during the period. The fund had no open futures contracts at August 31, 2017.
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, 2014–2017), 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
24
Consumer Staples 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 event 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, 2017, 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), shareholder reporting, and the proxy. 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, 2017, the fund had contributed to Vanguard capital in the amount of $289,000, 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). Any investments valued with significant unobservable inputs are noted
on the Statement of Net Assets.
At August 31, 2017, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
25
Consumer Staples Index Fund
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
During the year ended August 31, 2017, the fund realized $213,746,000 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, 2017, the fund had $17,604,000 of ordinary income available for distribution. The fund used capital loss carryforwards of $1,652,000 to offset taxable capital gains realized during the year ended August 31, 2017. At August 31, 2017, the fund had available capital losses totaling $22,758,000 to offset future net capital gains. Of this amount, $5,537,000 is subject to expiration on August 31, 2018. Capital losses of $17,221,000 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, 2017, the cost of investment securities for tax purposes was $4,108,760,000. Net unrealized appreciation of investment securities for tax purposes was $430,689,000, consisting of unrealized gains of $507,954,000 on securities that had risen in value since their purchase and $77,265,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2017, the fund purchased $1,086,796,000 of investment securities and sold $798,960,000 of investment securities, other than temporary cash investments. Purchases and sales include $743,072,000 and $590,275,000, 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, | ||||
2017 | 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 867,405 | 6,164 | 1,104,521 | 8,312 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (600,211) | (4,325) | (329,717) | (2,525) |
Net Increase (Decrease)—ETF Shares | 267,194 | 1,839 | 774,804 | 5,787 |
Admiral Shares | ||||
Issued | 311,051 | 4,565 | 482,450 | 7,328 |
Issued in Lieu of Cash Distributions | 16,884 | 248 | 13,091 | 207 |
Redeemed | (312,723) | (4,619) | (145,854) | (2,219) |
Net Increase (Decrease)—Admiral Shares | 15,212 | 194 | 349,687 | 5,316 |
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2017, that would require recognition or disclosure in these financial statements.
26
Energy Index Fund
Fund Profile
As of August 31, 2017
Share-Class Characteristics | ||
ETF | Admiral | |
Shares | Shares | |
Ticker Symbol | VDE | VENAX |
Expense Ratio1 | 0.10% | 0.10% |
30-Day SEC Yield | 2.81% | 2.81% |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | MSCI | ||
Energy | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 133 | 133 | 2,482 |
Median Market Cap $49.1B | $49.1B | $63.1B | |
Price/Earnings Ratio | 33.3x | 33.1x | 22.0x |
Price/Book Ratio | 1.6x | 1.6x | 2.9x |
Return on Equity | 10.1% | 10.1% | 15.1% |
Earnings Growth Rate | -16.7% | -16.8% | 9.4% |
Dividend Yield | 2.9% | 2.9% | 1.8% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 11% | — | — |
Short-Term Reserves | 0.0% | — | — |
Volatility Measures | ||
MSCI US | ||
IMI/Energy | MSCI US | |
25/50 | IMI/2500 | |
R-Squared | 1.00 | 0.30 |
Beta | 0.99 | 1.05 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months. | ||
Subindustry Diversification | |
(% of equity exposure) | |
Integrated Oil & Gas | 40.9% |
Oil & Gas Drilling | 1.4 |
Oil & Gas Equipment & Services | 13.9 |
Oil & Gas Exploration & Production | 25.8 |
Oil & Gas Refining & Marketing | 9.5 |
Oil & Gas Storage & Transportation | 8.2 |
Other Energy | 0.3 |
Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” category (if applicable), which includes securities that have | |
not been provided a GICS classification as of the effective reporting period. | |
Ten Largest Holdings (% of total net assets) | ||
Exxon Mobil Corp. | Integrated Oil & Gas | 22.4% |
Chevron Corp. | Integrated Oil & Gas | 15.1 |
Schlumberger Ltd. | Oil & Gas Equipment | |
& Services | 6.6 | |
ConocoPhillips | Oil & Gas Exploration | |
& Production | 4.0 | |
EOG Resources | Oil & Gas Exploration | |
Inc. | & Production | 3.7 |
Occidental | Integrated Oil | |
Petroleum Corp. | & Gas | 3.4 |
Phillips 66 | Oil & Gas Refining | |
& Marketing | 2.9 | |
Kinder Morgan Inc. Oil & Gas Storage | ||
& Transportation | 2.9 | |
Halliburton Co. | Oil & Gas Equipment | |
& Services | 2.5 | |
Valero Energy | Oil & Gas Refining | |
Corp. | & Marketing | 2.3 |
Top Ten | 65.8% | |
The holdings listed exclude any temporary cash investments and equity index products | ||
. |
1 The expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2017, the expense ratios were 0.10% for ETF Shares and 0.10% for Admiral Shares.
27
Energy Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Cumulative Performance: August 31, 2007–August 31, 2017
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ussectorindexx30x1.jpg)
Average Annual Total Returns | Final Value | ||||
Periods Ended August 31, 2017 | of a $10,000 | ||||
One Year | Five Years | Ten Years | Investment | ||
Energy Index Fund ETF Shares | |||||
Net Asset Value | -7.55% | -1.23% | 0.32% | $10,325 | |
Energy Index Fund ETF Shares | |||||
Market Price | -7.58 | -1.24 | 0.33 | 10,332 | |
Spliced US IMI/Energy 25/50 | -7.50 | -1.06 | 0.36 | 10,366 | |
Natural Resources Funds Average | -9.67 | -3.28 | -1.88 | 8,268 | |
MSCI US IMI/2500 | 16.06 | 14.29 | 7.84 | 21,281 | |
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 | -7.56% | -1.22% | 0.32% | $103,228 |
Spliced US IMI/Energy 25/50 | -7.50 | -1.06 | 0.36 | 103,663 |
MSCI US IMI/2500 | 16.06 | 14.29 | 7.84 | 212,807 |
See Financial Highlights for dividend and capital gains information.
28
Energy Index Fund
Fiscal-Year Total Returns (%): August 31, 2007–August 31, 2017
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ussectorindexx31x1.jpg)
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2007–August 31, 2017
One Year | Five Years | Ten Years | |
Energy Index Fund ETF Shares Market Price | -7.58% | -6.06% | 3.32% |
Energy Index Fund ETF Shares Net Asset Value | -7.55 | -6.00 | 3.25 |
Spliced US IMI/Energy 25/50 | -7.50 | -5.19 | 3.66 |
Average Annual Total Returns: Periods Ended June 30, 2017
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 | -4.55% | 0.64% | 0.65% | |||
Net Asset Value | -4.58 | 0.62 | 0.63 | |||
Admiral Shares | 10/7/2004 | -4.60 | 0.63 | 0.63 |
See Financial Highlights for dividend and capital gains information.
29
Energy Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2017
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Market | |||
Value• | |||
Shares | ($000) | ||
Common Stocks (100.0%) | |||
Energy Equipment & Services (15.3%) | |||
Oil & Gas Drilling (1.4%) | |||
^ | Helmerich & Payne Inc. | 337,509 | 14,290 |
Patterson-UTI Energy Inc. | 669,695 | 10,695 | |
^,* | Transocean Ltd. | 1,221,334 | 9,966 |
Nabors Industries Ltd. | 895,720 | 5,867 | |
^ | Ensco plc Class A | 957,514 | 4,069 |
* | Rowan Cos. plc Class A | 379,303 | 3,698 |
* | Unit Corp. | 166,621 | 2,653 |
* | Noble Corp. plc | 789,540 | 2,574 |
^,* | Diamond Offshore Drilling | ||
Inc. | 223,165 | 2,535 | |
^,* | Atwood Oceanics Inc. | 253,883 | 1,668 |
* | Parker Drilling Co. | 524,232 | 577 |
Oil & Gas Equipment & Services (13.9%) | |||
Schlumberger Ltd. | 4,333,912 | 275,247 | |
Halliburton Co. | 2,692,713 | 104,935 | |
Baker Hughes a GE Co. | 1,250,781 | 42,401 | |
National Oilwell Varco Inc. | 1,177,637 | 36,118 | |
* | TechnipFMC plc | 1,381,541 | 35,685 |
^ | Core Laboratories NV | 138,181 | 12,185 |
* | Weatherford International | ||
plc | 2,910,810 | 11,148 | |
Oceaneering International | |||
Inc. | 308,320 | 6,953 | |
US Silica Holdings Inc. | 253,689 | 6,903 | |
* | McDermott International | ||
Inc. | 767,870 | 4,715 | |
* | Dril-Quip Inc. | 119,434 | 4,485 |
^ | RPC Inc. | 208,876 | 4,054 |
* | Superior Energy Services | ||
Inc. | 484,723 | 3,994 | |
* | Oil States International Inc. | 163,457 | 3,555 |
* | Exterran Corp. | 109,315 | 3,032 |
* | Helix Energy Solutions | ||
Group Inc. | 460,824 | 2,889 | |
* | Forum Energy | ||
Technologies Inc. | 216,433 | 2,511 | |
* | Newpark Resources Inc. | 283,841 | 2,285 |
Archrock Inc. | 209,145 | 2,133 | |
* | SEACOR Holdings Inc. | 53,078 | 2,037 |
^,* | Fairmount Santrol | ||
Holdings Inc. | 506,802 | 1,551 | |
* | Matrix Service Co. | 101,223 | 1,200 |
^ | Frank’s International NV | 189,977 | 1,193 |
* | Basic Energy Services Inc. | 72,380 | 1,031 |
^ | Bristow Group Inc. | 122,942 | 1,013 |
* | TETRA Technologies Inc. | 445,216 | 917 |
* | RigNet Inc. | 50,897 | 814 |
* | Tesco Corp. | 173,357 | 763 |
* | SEACOR Marine Holdings | ||
Inc. | 53,872 | 690 | |
* | Era Group Inc. | 77,174 | 680 |
* | PHI Inc. | 50,086 | 550 |
^,* | CARBO Ceramics Inc. | 83,272 | 546 |
Market | |||
Value• | |||
Shares | ($000) | ||
^,* | Hornbeck Offshore | ||
Services Inc. | 188,376 | 522 | |
^,* | Mammoth Energy | ||
Services Inc. | 33,225 | 458 | |
^,* | Key Energy Services Inc. | 31,471 | 401 |
* | Smart Sand Inc. | 42,185 | 252 |
638,438 | |||
Oil, Gas & Consumable Fuels (84.7%) | |||
Coal & Consumable Fuels (0.3%) | |||
* | CONSOL Energy Inc. | 575,108 | 8,368 |
^ | Arch Coal Inc. Class A | 71,357 | 5,699 |
Integrated Oil & Gas (40.9%) | |||
Exxon Mobil Corp. | 12,237,492 | 934,088 | |
Chevron Corp. | 5,880,351 | 632,843 | |
Occidental Petroleum | |||
Corp. | 2,380,410 | 142,110 | |
Oil & Gas Exploration & Production (25.8%) | |||
ConocoPhillips | 3,859,511 | 168,506 | |
EOG Resources Inc. | 1,795,632 | 152,611 | |
Anadarko Petroleum Corp. 1,740,891 | 71,255 | ||
Pioneer Natural | |||
Resources Co. | 528,639 | 68,538 | |
* | Concho Resources Inc. | 458,083 | 50,833 |
Devon Energy Corp. | 1,540,816 | 48,382 | |
Apache Corp. | 1,181,712 | 45,898 | |
Cabot Oil & Gas Corp. | 1,473,300 | 37,643 | |
Noble Energy Inc. | 1,456,515 | 34,621 | |
Hess Corp. | 888,453 | 34,561 | |
EQT Corp. | 538,845 | 33,592 | |
Cimarex Energy Co. | 296,148 | 29,523 | |
Marathon Oil Corp. | 2,641,537 | 29,374 | |
* | Diamondback Energy Inc. | 279,835 | 25,406 |
* | Parsley Energy Inc. | ||
Class A | 690,477 | 17,296 | |
* | Newfield Exploration Co. | 619,231 | 16,181 |
* | Energen Corp. | 302,759 | 15,525 |
* | Rice Energy Inc. | 504,428 | 13,801 |
* | Antero Resources Corp. | 686,639 | 13,520 |
Range Resources Corp. | 769,008 | 13,350 | |
* | WPX Energy Inc. | 1,234,100 | 12,329 |
* | RSP Permian Inc. | 372,445 | 11,687 |
Murphy Oil Corp. | 513,069 | 11,626 | |
^,* | Chesapeake Energy Corp. 2,786,585 | 10,143 | |
* | Continental Resources | ||
Inc. | 292,411 | 9,919 | |
* | Southwestern Energy Co. 1,556,389 | 8,482 | |
* | PDC Energy Inc. | 175,493 | 6,902 |
* | Matador Resources Co. | 282,593 | 6,664 |
* | Callon Petroleum Co. | 632,029 | 6,548 |
* | Gulfport Energy Corp. | 499,140 | 6,254 |
* | Laredo Petroleum Inc. | 496,499 | 6,167 |
* | QEP Resources Inc. | 752,587 | 5,682 |
* | Kosmos Energy Ltd. | 738,868 | 5,202 |
* | Oasis Petroleum Inc. | 709,352 | 5,178 |
Market | |||
Value• | |||
Shares | ($000) | ||
* | Centennial Resource | ||
Development Inc. | |||
Class A | 298,048 | 5,153 | |
^,* | Whiting Petroleum Corp. | 1,135,904 | 5,077 |
* | SRC Energy Inc. | 608,502 | 4,801 |
* | Extraction Oil & Gas Inc. | 327,168 | 4,299 |
SM Energy Co. | 316,155 | 4,224 | |
* | Carrizo Oil & Gas Inc. | 259,275 | 3,485 |
^,* | Gran Tierra Energy Inc. | 1,292,860 | 2,624 |
* | Ring Energy Inc. | 169,063 | 2,015 |
* | SandRidge Energy Inc. | 107,036 | 1,843 |
* | Resolute Energy Corp. | 56,422 | 1,667 |
* | Denbury Resources Inc. | 1,314,723 | 1,394 |
^,* | Sanchez Energy Corp. | 238,788 | 1,046 |
^,* | California Resources Corp. | 133,740 | 1,043 |
* | WildHorse Resource | ||
Development Corp. | 84,426 | 921 | |
* | Halcon Resources Corp. | 137,537 | 851 |
* | Bill Barrett Corp. | 274,830 | 822 |
* | Eclipse Resources Corp. | 345,928 | 806 |
^,* | Cobalt International | ||
Energy Inc. | 113,792 | 214 | |
* | Northern Oil and Gas Inc. | 238,595 | 203 |
^,* | Jones Energy Inc. Class A | 175,031 | 173 |
^ | EXCO Resources Inc. | 72,934 | 131 |
Oil & Gas Refining & Marketing (9.5%) | |||
Phillips 66 | 1,447,864 | 121,346 | |
Valero Energy Corp. | 1,409,995 | 96,021 | |
Marathon Petroleum Corp. 1,644,091 | 86,233 | ||
Andeavor | 469,074 | 46,978 | |
HollyFrontier Corp. | 525,237 | 16,445 | |
^ | PBF Energy Inc. Class A | 343,916 | 8,144 |
World Fuel Services Corp. | 220,010 | 7,599 | |
Delek US Holdings Inc. | 237,389 | 5,868 | |
Green Plains Inc. | 120,451 | 2,234 | |
* | REX American Resources | ||
Corp. | 18,782 | 1,627 | |
* | Renewable Energy Group | ||
Inc. | 119,212 | 1,442 | |
* | Par Pacific Holdings Inc. | 80,791 | 1,439 |
^ | CVR Energy Inc. | 62,067 | 1,329 |
* | Clean Energy Fuels Corp. | 429,670 | 1,023 |
Oil & Gas Storage & Transportation (8.2%) | |||
Kinder Morgan Inc. | 6,204,001 | 119,923 | |
Williams Cos. Inc. | 2,551,836 | 75,866 | |
ONEOK Inc. | 1,182,555 | 64,047 | |
Targa Resources Corp. | 668,855 | 29,811 | |
* | Cheniere Energy Inc. | 627,175 | 26,837 |
Plains GP Holdings LP | |||
Class A | 430,921 | 9,687 | |
SemGroup Corp. Class A | 208,148 | 5,349 | |
Tallgrass Energy GP LP | |||
Class A | 166,656 | 4,480 | |
^ | EnLink Midstream LLC | 202,659 | 3,455 |
30
Energy Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
* | Enbridge Energy | ||
Management LLC | 224,903 | 3,241 | |
* | International Seaways Inc. | 53,290 | 983 |
* | Gener8 Maritime Inc. | 159,433 | 718 |
3,541,224 | |||
Total Common Stocks | |||
(Cost $5,245,810) | 4,179,662 | ||
Temporary Cash Investment (0.8%) | |||
Money Market Fund (0.8%) | |||
1,2 Vanguard Market | |||
Liquidity Fund, 1.224% | |||
(Cost $33,592) | 335,908 | 33,598 | |
Total Investments (100.8%) | |||
(Cost $5,279,402) | 4,213,260 | ||
Amount | |||
($000) | |||
Other Assets and Liabilities (-0.8%) | |||
Other Assets | |||
Investment in Vanguard | 282 | ||
Receivables for Investment Securities Sold 1,031 | |||
Receivables for Accrued Income | 20,497 | ||
Receivables for Capital Shares Issued | 187 | ||
Other Assets2 | 1,510 | ||
Total Other Assets | 23,507 | ||
Liabilities | |||
Payables for Investment Securities | |||
Purchased | (1,038) | ||
Collateral for Securities on Loan | (35,103) | ||
Payables for Capital Shares Redeemed | (913) | ||
Payables to Vanguard | (2,322) | ||
Other Liabilities | (19,257) | ||
Total Liabilities | (58,633) | ||
Net Assets (100%) | 4,178,134 | ||
At August 31, 2017, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 5,835,731 |
Undistributed Net Investment Income | 45,127 |
Accumulated Net Realized Losses | (636,582) |
Unrealized Appreciation (Depreciation) | (1,066,142) |
Net Assets | 4,178,134 |
ETF Shares—Net Assets | |
Applicable to 42,647,870 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 3,655,556 |
Net Asset Value Per Share— | |
ETF Shares | $85.71 |
Admiral Shares—Net Assets | |
Applicable to 12,204,570 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 522,578 |
Net Asset Value Per Share— | |
Admiral Shares | $42.82 |
• 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 $33,264,000.
* 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 $35,103,000 of collateral received for securities on loan,
of which $33,593,000 is held in Vanguard Market Liquidity Fund
and $1,510,000 is held in cash.
CVR—Contingent Value Rights.
See accompanying Notes, which are an integral part of the Financial Statements.
31
Energy Index Fund
Statement of Operations | |||
Year Ended | |||
August 31, 2017 | |||
($000) | |||
Investment Income | |||
Income | |||
Dividends | 148,135 | ||
Interest1 | 13 | ||
Securities Lending—Net | 502 | ||
Total Income 148,650 | |||
Expenses | |||
The Vanguard Group—Note B | |||
Investment Advisory Services | 987 | ||
Management and Administrative— | |||
ETF Shares | 2,348 | ||
Management and Administrative— | |||
Admiral Shares | 560 | ||
Marketing and Distribution— | |||
ETF Shares | 251 | ||
Marketing and Distribution— | |||
Admiral Shares | 85 | ||
Custodian Fees | 90 | ||
Auditing Fees | 34 | ||
Shareholders’ Reports and Proxy— | |||
ETF Shares | 511 | ||
Shareholders’ Reports and Proxy— | |||
Admiral Shares | 27 | ||
Trustees’ Fees and Expenses | 4 | ||
Total Expenses | 4,897 | ||
Net Investment Income | 143,753 | ||
Realized Net Gain (Loss) | |||
Investment Securities Sold1 (157,369) | |||
Futures Contracts | 120 | ||
Realized Net Gain (Loss) (157,249) | |||
Change in Unrealized Appreciation | |||
(Depreciation) of Investment Securities (353,929) | |||
Net Increase (Decrease) in Net Assets | |||
Resulting from Operations (367,425) | |||
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $13,000 and $6,000, respectively. | |||
Statement of Changes in Net Assets | |||
Year Ended August 31, | |||
2017 | 2016 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 143,753 | 129,797 | |
Realized Net Gain (Loss) | (157,249) | (152,029) | |
Change in Unrealized Appreciation (Depreciation) | (353,929) | 275,863 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | (367,425) | 253,631 | |
Distributions | |||
Net Investment Income | |||
ETF Shares | (100,189) | (161,400) | |
Admiral Shares | (22,040) | (32,917) | |
Realized Capital Gain | |||
ETF Shares | — | — | |
Admiral Shares | — | — | |
Total Distributions | (122,229) | (194,317) | |
Capital Share Transactions | |||
ETF Shares | 126,143 | 192,098 | |
Admiral Shares | (296,186) | 117,493 | |
Net Increase (Decrease) from Capital Share Transactions | (170,043) | 309,591 | |
Total Increase (Decrease) | (659,697) | 368,905 | |
Net Assets | |||
Beginning of Period | 4,837,831 | 4,468,926 | |
End of Period1 | 4,178,134 | 4,837,831 | |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $45,127,000 and $23,603,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
32
Energy Index Fund | ||||||
Financial Highlights | ||||||
ETF Shares | ||||||
For a Share Outstanding | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | |
Net Asset Value, Beginning of Period | $95.06 | $93.86 | $142.26 | $116.47 | $103.35 | |
Investment Operations | ||||||
Net Investment Income | 2.8191,2 | 2.470 | 2.9531 | 2.329 | 2.215 | |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | (9.801) | 2.587 | (49.144) | 25.655 | 12.899 | |
Total from Investment Operations | (6.982) | 5.057 | (46.191) | 27.984 | 15.114 | |
Distributions | ||||||
Dividends from Net Investment Income | (2.368) | (3.857) | (2.209) | (2.194) | (1.994) | |
Distributions from Realized Capital Gains | — | — | — | — | — | |
Total Distributions | (2.368) | (3.857) | (2.209) | (2.194) | (1.994) | |
Net Asset Value, End of Period | $85.71 | $95.06 | $93.86 | $142.26 | $116.47 | |
Total Return | -7.55% | 5.82% | -32.70% | 24.31% | 14.85% | |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $3,656 | $3,944 | $3,736 | $3,467 | $2,255 | |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.12% | 0.14% | |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 2.93%2 | 2.86% | 2.65% | 1.98% | 2.02% | |
Portfolio Turnover Rate3 | 11% | 15% | 4% | 4% | 9% |
1 Calculated based on average shares outstanding.
2 Net investment income per share and the ratio of net investment income to average net assets include $.453 and 0.47%, respectively, from
income received as a result of General Electric Co. and Baker Hughes Inc. merger in July 2017.
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.
Admiral Shares | ||||||
For a Share Outstanding | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | |
Net Asset Value, Beginning of Period | $47.49 | $46.89 | $71.06 | $58.18 | $51.63 | |
Investment Operations | ||||||
Net Investment Income | 1.3751,2 | 1.234 | 1.4951 | 1.164 | 1.108 | |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | (4.863) | 1.293 | (24.561) | 12.815 | 6.439 | |
Total from Investment Operations | (3.488) | 2.527 | (23.066) | 13.979 | 7.547 | |
Distributions | ||||||
Dividends from Net Investment Income | (1.182) | (1.927) | (1.104) | (1.099) | (.997) | |
Distributions from Realized Capital Gains | — | — | — | — | — | |
Total Distributions | (1.182) | (1.927) | (1.104) | (1.099) | (.997) | |
Net Asset Value, End of Period | $42.82 | $47.49 | $46.89 | $71.06 | $58.18 | |
Total Return 3 | -7.56% | 5.83% | -32.66% | 24.32% | 14.86% | |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $523 | $894 | $733 | $575 | $460 | |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.12% | 0.14% | |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 2.93%2 | 2.86% | 2.65% | 1.98% | 2.02% | |
Portfolio Turnover Rate4 | 11% | 15% | 4% | 4% | 9% |
1 Calculated based on average shares outstanding.
2 Net investment income per share and the ratio of net investment income to average net assets include $.228 and 0.47%, respectively, from
income received as a result of General Electric Co. and Baker Hughes Inc. merger in July 2017.
3 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.
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.
33
Energy Index Fund
Notes to Financial Statements
Vanguard Energy Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: ETF Shares and Admiral Shares. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker. Admiral Shares are designed for investors who meet certain administrative, service, and account-size criteria.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value.
2. Futures Contracts: The fund uses index futures contracts to a limited extent, with the objectives of maintaining full exposure to the stock market, enhancing returns, maintaining liquidity, and minimizing transaction costs. The fund may purchase futures contracts to immediately invest incoming cash in the market, or sell futures in response to cash outflows, thereby simulating a fully invested position in the underlying index while maintaining a cash balance for liquidity. The fund may seek to enhance returns by using futures contracts instead of the underlying securities when futures are believed to be priced more attractively than the underlying securities. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.
Futures contracts are valued at their quoted daily settlement prices. The 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 futures gains (losses).
During the year ended August 31, 2017, 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 the notional amounts at each quarter-end during the period. The fund had no open futures contracts at August 31, 2017.
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, 2014–2017), 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
34
Energy Index Fund
proceedings. While collateral mitigates counterparty risk, in the event 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, 2017, 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), shareholder reporting, and the proxy. 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, 2017, the fund had contributed to Vanguard capital in the amount of $282,000, representing 0.01% of the fund’s net assets and 0.11% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). Any investments valued with significant unobservable inputs are noted
on the Statement of Net Assets.
At August 31, 2017, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
35
Energy Index Fund
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
During the year ended August 31, 2017, the fund realized $71,161,000 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, 2017, the fund had $47,244,000 of ordinary income available for distribution. At August 31, 2017, the fund had available capital losses totaling $636,582,000 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 $568,298,000 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, 2017, the cost of investment securities for tax purposes was $5,279,402,000. Net unrealized depreciation of investment securities for tax purposes was $1,066,142,000, consisting of unrealized gains of $89,532,000 on securities that had risen in value since their purchase and $1,155,674,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2017, the fund purchased $961,802,000 of investment securities and sold $1,108,892,000 of investment securities, other than temporary cash investments. Purchases and sales include $408,958,000 and $414,680,000, 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, | ||||
2017 | 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 541,520 | 5,586 | 1,239,731 | 14,359 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (415,377) | (4,425) | (1,047,633) | (12,675) |
Net Increase (Decrease)—ETF Shares | 126,143 | 1,161 | 192,098 | 1,684 |
Admiral Shares | ||||
Issued | 230,026 | 4,766 | 385,314 | 9,176 |
Issued in Lieu of Cash Distributions | 19,744 | 417 | 30,038 | 689 |
Redeemed | (545,956) | (11,807) | (297,859) | (6,669) |
Net Increase (Decrease)—Admiral Shares | (296,186) | (6,624) | 117,493 | 3,196 |
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2017, that would require recognition or disclosure in these financial statements.
36
Financials Index Fund
Fund Profile
As of August 31, 2017
Share-Class Characteristics | ||
ETF | Admiral | |
Shares | Shares | |
Ticker Symbol | VFH | VFAIX |
Expense Ratio1 | 0.10% | 0.10% |
30-Day SEC Yield | 1.94% | 1.94% |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | MSCI | ||
Financials | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 412 | 410 | 2,482 |
Median Market Cap $53.4B | $53.4B | $63.1B | |
Price/Earnings Ratio | 15.3x | 15.3x | 22.0x |
Price/Book Ratio | 1.4x | 1.4x | 2.9x |
Return on Equity | 9.4% | 9.4% | 15.1% |
Earnings Growth Rate | 10.7% | 10.7% | 9.4% |
Dividend Yield | 1.9% | 1.9% | 1.8% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 5% | — | — |
Short-Term Reserves | 0.0% | — | — |
Volatility Measures | ||
MSCI US | ||
IMI/Financials | MSCI US | |
25/50 | IMI/2500 | |
R-Squared | 1.00 | 0.64 |
Beta | 1.00 | 1.13 |
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 | 7.6% |
Consumer Finance | 5.1 |
Diversified Banks | 29.7 |
Financial Exchanges & Data | 5.2 |
Insurance Brokers | 3.1 |
Investment Banking & Brokerage | 6.8 |
Life & Health Insurance | 5.4 |
Mortgage REITs | 1.7 |
Multi-line Insurance | 3.0 |
Multi-Sector Holdings | 6.5 |
Property & Casualty Insurance | 8.1 |
Regional Banks | 15.1 |
Reinsurance | 1.2 |
Thrifts & Mortgage Finance | 1.3 |
Other Financials | 0.2 |
Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” category (if applicable), which includes securities that have | |
not been provided a GICS classification as of the effective reporting period. | |
Ten Largest Holdings (% of total net assets) | ||
JPMorgan Chase | ||
& Co. | Diversified Banks | 8.9% |
Wells Fargo & Co. | Diversified Banks | 6.7 |
Bank of America | ||
Corp. | Diversified Banks | 6.6 |
Berkshire | ||
Hathaway Inc. | Multi-Sector Holdings | 6.2 |
Citigroup Inc. | Diversified Banks | 5.2 |
US Bancorp | Diversified Banks | 2.4 |
Goldman Sachs | Investment Banking | |
Group Inc. | & Brokerage | 2.2 |
Chubb Ltd. | Property & Casualty | |
Insurance | 1.8 | |
American Express | ||
Co. | Consumer Finance | 1.8 |
Morgan Stanley | Investment Banking | |
& Brokerage | 1.7 | |
Top Ten | 43.5% | |
The holdings listed exclude any temporary cash investments and equity index products. | ||
1 The expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2017, the expense ratios were 0.10% for
ETF Shares and 0.10% for Admiral Shares.
37
Financials Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Cumulative Performance: August 31, 2007–August 31, 2017
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ussectorindexx40x1.jpg)
Average Annual Total Returns | Final Value | ||||
Periods Ended August 31, 2017 | of a $10,000 | ||||
One Year | Five Years | Ten Years | Investment | ||
Financials Index Fund ETF Shares | |||||
Net Asset Value | 24.65% | 16.51% | 2.53% | $12,836 | |
Financials Index Fund ETF Shares | |||||
Market Price | 24.67 | 16.50 | 2.56 | 12,872 | |
Spliced US IMI/Financials 25/50 | 24.77 | 16.61 | 2.56 | 12,877 | |
Financial Services Funds Average | 19.79 | 14.45 | 2.54 | 12,850 | |
MSCI US IMI/2500 | 16.06 | 14.29 | 7.84 | 21,281 | |
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 | 24.62% | 16.51% | 2.52% | $128,234 |
Spliced US IMI/Financials 25/50 | 24.77 | 16.61 | 2.56 | 128,770 |
MSCI US IMI/2500 | 16.06 | 14.29 | 7.84 | 212,807 |
See Financial Highlights for dividend and capital gains information.
38
Financials Index Fund
Fiscal-Year Total Returns (%): August 31, 2007–August 31, 2017
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ussectorindexx41x1.jpg)
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2007–August 31, 2017 | |||
One Year | Five Years | Ten Years | |
Financials Index Fund ETF Shares Market Price | 24.67% | 114.56% | 28.72 |
Financials Index Fund ETF Shares Net Asset Value | 24.65 | 114.68 | 28.36 |
Spliced US IMI/Financials 25/50 | 24.77 | 115.64 | 28.77 |
Average Annual Total Returns: Periods Ended June 30, 2017
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 | 34.30% | 17.32% | 1.94% | ||
Net Asset Value | 34.27 | 17.32 | 1.93 | ||
Admiral Shares | 2/4/2004 | 34.22 | 17.31 | 1.91 |
See Financial Highlights for dividend and capital gains information.
39
Financials Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2017
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Market | |||
Value• | |||
Shares | ($000) | ||
Common Stocks (100.0%) | |||
Banks (44.8%) | |||
JPMorgan Chase & Co. | 6,521,747 | 592,762 | |
Wells Fargo & Co. | 8,714,813 | 445,065 | |
Bank of America Corp. | 18,268,432 | 436,433 | |
Citigroup Inc. | 5,054,122 | 343,832 | |
US Bancorp | 3,093,778 | 158,556 | |
PNC Financial Services | |||
Group Inc. | 888,396 | 111,414 | |
BB&T Corp. | 1,489,556 | 68,654 | |
SunTrust Banks Inc. | 887,617 | 48,908 | |
M&T Bank Corp. | 254,320 | 37,604 | |
Fifth Third Bancorp | 1,377,572 | 35,996 | |
KeyCorp | 2,012,495 | 34,635 | |
Regions Financial Corp. | 2,205,951 | 31,126 | |
Citizens Financial Group | |||
Inc. | 930,039 | 30,812 | |
First Republic Bank | 288,841 | 28,032 | |
Huntington Bancshares | |||
Inc. | 1,996,086 | 25,131 | |
Comerica Inc. | 324,997 | 22,181 | |
* | SVB Financial Group | 96,312 | 16,309 |
Zions Bancorporation | 371,720 | 16,229 | |
East West Bancorp Inc. | 265,054 | 14,676 | |
* | Signature Bank | 100,859 | 12,944 |
CIT Group Inc. | 266,773 | 11,965 | |
People’s United | |||
Financial Inc. | 631,557 | 10,547 | |
PacWest Bancorp | 220,388 | 9,951 | |
Bank of the Ozarks | 223,614 | 9,606 | |
Synovus Financial Corp. | 224,602 | 9,460 | |
Cullen/Frost Bankers Inc. | 111,473 | 9,386 | |
Commerce Bancshares Inc. | 167,930 | 9,234 | |
* | Western Alliance Bancorp | 183,914 | 8,870 |
Pinnacle Financial Partners | |||
Inc. | 134,614 | 8,373 | |
Webster Financial Corp. | 169,117 | 7,894 | |
FNB Corp. | 593,249 | 7,528 | |
Popular Inc. | 186,983 | 7,462 | |
Wintrust Financial Corp. | 102,097 | 7,434 | |
First Horizon National Corp. | 429,475 | 7,391 | |
Prosperity Bancshares Inc. | 121,400 | 7,254 | |
IBERIABANK Corp. | 93,616 | 7,171 | |
Umpqua Holdings Corp. | 404,747 | 7,083 | |
Hancock Holding Co. | 155,222 | 6,822 | |
* | Texas Capital Bancshares | ||
Inc. | 91,018 | 6,758 | |
BankUnited Inc. | 195,964 | 6,522 | |
Investors Bancorp Inc. | 484,422 | 6,341 | |
United Bankshares Inc. | 182,973 | 6,139 | |
Bank of Hawaii Corp. | 78,474 | 6,131 | |
Associated Banc-Corp | 279,703 | 6,125 | |
Chemical Financial Corp. | 130,611 | 5,931 | |
MB Financial Inc. | 146,335 | 5,820 | |
Fulton Financial Corp. | 321,134 | 5,604 | |
Home BancShares Inc. | 236,783 | 5,519 | |
Valley National Bancorp | 484,880 | 5,426 | |
Sterling Bancorp | 236,641 | 5,313 |
Market | |||
Value• | |||
Shares | ($000) | ||
UMB Financial Corp. | 77,869 | 5,227 | |
Cathay General Bancorp | 139,332 | 4,914 | |
Community Bank System | |||
Inc. | 93,073 | 4,790 | |
Glacier Bancorp Inc. | 141,043 | 4,684 | |
TCF Financial Corp. | 298,853 | 4,641 | |
First Citizens BancShares | |||
Inc. Class A | 13,104 | 4,462 | |
BancorpSouth Inc. | 150,678 | 4,377 | |
South State Corp. | 51,246 | 4,215 | |
Old National Bancorp | 248,166 | 4,057 | |
Columbia Banking System | |||
Inc. | 107,243 | 3,986 | |
CVB Financial Corp. | 191,936 | 3,973 | |
First Financial Bankshares | |||
Inc. | 96,989 | 3,884 | |
Great Western Bancorp | |||
Inc. | 107,646 | 3,867 | |
Hope Bancorp Inc. | 235,226 | 3,797 | |
International Bancshares | |||
Corp. | 103,193 | 3,710 | |
* | Eagle Bancorp Inc. | 59,608 | 3,708 |
Trustmark Corp. | 124,128 | 3,677 | |
First Midwest Bancorp Inc. | 164,898 | 3,476 | |
Independent Bank Corp. | 50,087 | 3,471 | |
Hilltop Holdings Inc. | 144,647 | 3,424 | |
First Merchants Corp. | 86,612 | 3,401 | |
Towne Bank | 109,266 | 3,354 | |
Renasant Corp. | 81,656 | 3,252 | |
* | FCB Financial Holdings Inc. | ||
Class A | 74,280 | 3,239 | |
United Community Banks | |||
Inc. | 123,690 | 3,230 | |
Banner Corp. | 58,031 | 3,199 | |
WesBanco Inc. | 81,090 | 3,080 | |
Ameris Bancorp | 68,305 | 3,009 | |
BOK Financial Corp. | 35,977 | 2,895 | |
LegacyTexas Financial | |||
Group Inc. | 79,433 | 2,859 | |
ServisFirst Bancshares Inc. | 82,629 | 2,818 | |
First Hawaiian Inc. | 103,071 | 2,792 | |
First Financial Bancorp | 114,304 | 2,738 | |
Simmons First National | |||
Corp. Class A | 51,989 | 2,714 | |
NBT Bancorp Inc. | 80,170 | 2,632 | |
Union Bankshares Corp. | 80,116 | 2,510 | |
Westamerica | |||
Bancorporation | 48,370 | 2,493 | |
CenterState Banks Inc. | 101,682 | 2,488 | |
Park National Corp. | 25,309 | 2,445 | |
Berkshire Hills Bancorp Inc. | 70,678 | 2,389 | |
* | Pacific Premier Bancorp Inc. | 65,717 | 2,326 |
S&T Bancorp Inc. | 64,098 | 2,304 | |
Boston Private Financial | |||
Holdings Inc. | 154,822 | 2,276 | |
First Commonwealth | |||
Financial Corp. | 178,117 | 2,246 | |
First Busey Corp. | 70,673 | 2,039 |
Market | |||
Value• | |||
Shares | ($000) | ||
Brookline Bancorp Inc. | 140,891 | 2,022 | |
* | First BanCorp | 355,111 | 2,017 |
Lakeland Financial Corp. | 44,094 | 1,916 | |
Tompkins Financial Corp. | 25,113 | 1,907 | |
Heartland Financial USA Inc. | 41,822 | 1,903 | |
State Bank Financial Corp. | 67,994 | 1,827 | |
City Holding Co. | 28,749 | 1,821 | |
First Interstate BancSystem | |||
Inc. Class A | 49,024 | 1,726 | |
Capital Bank Financial Corp. | 45,597 | 1,714 | |
Sandy Spring Bancorp Inc. | 43,756 | 1,688 | |
Southside Bancshares Inc. | 51,153 | 1,671 | |
Enterprise Financial | |||
Services Corp. | 43,167 | 1,649 | |
BancFirst Corp. | 32,262 | 1,626 | |
Central Pacific Financial | |||
Corp. | 56,038 | 1,625 | |
National Bank Holdings | |||
Corp. Class A | 49,427 | 1,591 | |
Hanmi Financial Corp. | 59,178 | 1,580 | |
1st Source Corp. | 33,545 | 1,566 | |
MainSource Financial | |||
Group Inc. | 46,956 | 1,537 | |
Lakeland Bancorp Inc. | 82,619 | 1,528 | |
* | Seacoast Banking Corp. of | ||
Florida | 66,494 | 1,521 | |
* | Customers Bancorp Inc. | 53,631 | 1,511 |
Washington Trust Bancorp | |||
Inc. | 28,633 | 1,467 | |
Banc of California Inc. | 77,856 | 1,444 | |
Univest Corp. of | |||
Pennsylvania | 49,438 | 1,441 | |
Heritage Financial Corp. | 55,050 | 1,440 | |
Stock Yards Bancorp Inc. | 39,956 | 1,390 | |
Flushing Financial Corp. | 50,465 | 1,380 | |
TriCo Bancshares | 37,872 | 1,347 | |
First Bancorp | 43,521 | 1,347 | |
German American Bancorp | |||
Inc. | 40,250 | 1,310 | |
ConnectOne Bancorp Inc. | 56,251 | 1,283 | |
Bryn Mawr Bank Corp. | 31,311 | 1,282 | |
Preferred Bank | 23,745 | 1,277 | |
Independent Bank Group | |||
Inc. | 22,783 | 1,268 | |
Community Trust Bancorp | |||
Inc. | 29,395 | 1,251 | |
Stonegate Bank | 25,334 | 1,221 | |
CoBiz Financial Inc. | 68,995 | 1,176 | |
Guaranty Bancorp | 44,673 | 1,153 | |
* | CU Bancorp | 31,325 | 1,117 |
Camden National Corp. | 28,250 | 1,102 | |
Horizon Bancorp | 41,241 | 1,079 | |
First of Long Island Corp. | 40,337 | 1,079 | |
QCR Holdings Inc. | 23,121 | 1,010 | |
Park Sterling Corp. | 88,852 | 1,010 | |
Live Oak Bancshares Inc. | 44,240 | 989 | |
Great Southern Bancorp Inc. | 19,424 | 967 | |
Peoples Bancorp Inc. | 30,699 | 953 |
40
Financials Index Fund
Market | ||||
Value• | ||||
Shares | ($000) | |||
Pacific Continental Corp. | 40,093 | 952 | ||
Mercantile Bank Corp. | 30,744 | 934 | ||
* | Opus Bank | 41,155 | 922 | |
Carolina Financial Corp. | 26,710 | 909 | ||
Bridge Bancorp Inc. | 29,187 | 902 | ||
Heritage Commerce Corp. | 67,166 | 900 | ||
* | First Foundation Inc. | 52,860 | 896 | |
Fidelity Southern Corp. | 40,743 | 891 | ||
* | TriState Capital Holdings | |||
Inc. | 41,927 | 876 | ||
* | Atlantic Capital Bancshares | |||
Inc. | 47,014 | 844 | ||
Blue Hills Bancorp Inc. | 44,584 | 834 | ||
Southwest Bancorp Inc. | 32,521 | 821 | ||
Midland States Bancorp Inc. | 26,614 | 813 | ||
* | Green Bancorp Inc. | 40,503 | 812 | |
* | Veritex Holdings Inc. | 30,686 | 810 | |
* | Nicolet Bankshares Inc. | 14,493 | 792 | |
* | HomeTrust Bancshares Inc. | 33,347 | 774 | |
Arrow Financial Corp. | 22,160 | 716 | ||
OFG Bancorp | 80,171 | 697 | ||
First Financial Corp. | 16,051 | 697 | ||
First Community | ||||
Bancshares Inc. | 26,153 | 673 | ||
Republic Bancorp Inc. | ||||
Class A | 18,883 | 672 | ||
Access National Corp. | 25,730 | 661 | ||
MidWestOne Financial | ||||
Group Inc. | 19,955 | 656 | ||
Financial Institutions Inc. | 23,710 | 645 | ||
Sun Bancorp Inc. | 19,780 | 462 | ||
* | FB Financial Corp. | 13,118 | 456 | |
* | HarborOne Bancorp Inc. | 26,237 | 451 | |
Xenith Bankshares Inc. | 14,603 | 418 | ||
2,977,042 | ||||
Capital Markets (19.6%) | ||||
Goldman Sachs Group Inc. | 650,345 | 145,508 | ||
Morgan Stanley | 2,546,848 | 115,882 | ||
Bank of New York Mellon | ||||
Corp. | 1,909,037 | 99,804 | ||
BlackRock Inc. | 222,574 | 93,261 | ||
Charles Schwab Corp. | 2,209,235 | 88,149 | ||
CME Group Inc. | 623,856 | 78,481 | ||
S&P Global Inc. | 473,318 | 73,047 | ||
• | Intercontinental Exchange | |||
Inc. | 1,086,984 | 70,295 | ||
State Street Corp. | 690,791 | 63,891 | ||
Moody’s Corp. | 316,116 | 42,369 | ||
Ameriprise Financial Inc. | 279,972 | 38,779 | ||
T. Rowe Price Group Inc. | 443,025 | 37,374 | ||
Northern Trust Corp. | 400,532 | 35,447 | ||
Franklin Resources Inc. | 618,425 | 26,735 | ||
Invesco Ltd. | 747,105 | 24,490 | ||
TD Ameritrade Holding | ||||
Corp. | 484,874 | 21,005 | ||
* | E*TRADE Financial Corp. | 505,176 | 20,717 | |
MSCI Inc. Class A | 166,004 | 19,026 | ||
CBOE Holdings Inc. | 185,294 | 18,694 | ||
Raymond James Financial | ||||
Inc. | 238,131 | 18,650 | ||
Affiliated Managers Group | ||||
Inc. | 103,913 | 18,360 | ||
Nasdaq Inc. | 212,195 | 15,995 | ||
SEI Investments Co. | 247,488 | 14,468 | ||
MarketAxess Holdings Inc. | 68,982 | 13,310 | ||
Janus Henderson Group | ||||
plc | 349,455 | 12,077 | ||
FactSet Research Systems | ||||
Inc. | 72,553 | 11,404 |
Market | ||||
Value• | ||||
Shares | ($000) | |||
Eaton Vance Corp. | 211,139 | 10,046 | ||
LPL Financial Holdings Inc. | 149,326 | 6,994 | ||
Legg Mason Inc. | 158,153 | 6,040 | ||
Stifel Financial Corp. | 125,769 | 6,005 | ||
Evercore Inc. Class A | 75,439 | 5,692 | ||
BGC Partners Inc. Class A | 389,945 | 5,065 | ||
Interactive Brokers Group | ||||
Inc. | 118,331 | 4,962 | ||
Federated Investors Inc. | ||||
Class B | 168,551 | 4,603 | ||
Financial Engines Inc. | 116,273 | 3,843 | ||
Morningstar Inc. | 35,714 | 2,954 | ||
^ | Waddell & Reed Financial | |||
Inc. Class A | 154,071 | 2,867 | ||
Artisan Partners Asset | ||||
Management Inc. Class A | 86,253 | 2,648 | ||
Moelis & Co. Class A | 61,690 | 2,431 | ||
OM Asset Management | ||||
plc | 147,359 | 2,082 | ||
WisdomTree Investments | ||||
Inc. | 212,582 | 1,949 | ||
^ | Virtu Financial Inc. Class A | 88,892 | 1,596 | |
Piper Jaffray Cos. | 26,560 | 1,473 | ||
Houlihan Lokey Inc. | ||||
Class A | 40,410 | 1,457 | ||
Cohen & Steers Inc. | 38,076 | 1,441 | ||
Virtus Investment Partners | ||||
Inc. | 12,910 | 1,368 | ||
* | Donnelley Financial | |||
Solutions Inc. | 60,853 | 1,303 | ||
PJT Partners Inc. | 32,510 | 1,257 | ||
Investment Technology | ||||
Group Inc. | 58,554 | 1,176 | ||
Diamond Hill Investment | ||||
Group Inc. | 5,989 | 1,176 | ||
* | INTL. FCStone Inc. | 29,633 | 1,052 | |
Westwood Holdings | ||||
Group Inc. | 14,126 | 864 | ||
Greenhill & Co. Inc. | 52,488 | 790 | ||
* | Cowen Inc. Class A | 44,708 | 727 | |
^ | Arlington Asset Investment | |||
Corp. Class A | 43,484 | 562 | ||
* | Ladenburg Thalmann | |||
Financial Services Inc. | 197,434 | 507 | ||
* | Safeguard Scientifics Inc. | 37,444 | 457 | |
Associated Capital Group | ||||
Inc. Class A | 9,708 | 333 | ||
Pzena Investment | ||||
Management Inc. Class A | 28,074 | 278 | ||
GAMCO Investors Inc. | ||||
Class A | 8,803 | 259 | ||
Fifth Street Asset | ||||
Management Inc. | 13,358 | 55 | ||
1,303,530 | ||||
Consumer Finance (5.1%) | ||||
American Express Co. | 1,394,729 | 120,086 | ||
Capital One Financial | ||||
Corp. | 886,724 | 70,592 | ||
Synchrony Financial | 1,488,951 | 45,845 | ||
Discover Financial | ||||
Services | 698,035 | 41,149 | ||
Ally Financial Inc. | 843,275 | 19,058 | ||
Navient Corp. | 522,498 | 6,897 | ||
* | SLM Corp. | 609,675 | 6,200 | |
FirstCash Inc. | 88,882 | 5,217 | ||
* | Green Dot Corp. Class A | 72,909 | 3,513 | |
* | LendingClub Corp. | 555,597 | 3,439 | |
* | Credit Acceptance Corp. | 12,438 | 3,387 |
Market | |||
Value• | |||
Shares | ($000) | ||
* | Santander Consumer | ||
USA Holdings Inc. | 231,272 | 3,303 | |
* | OneMain Holdings Inc. | ||
Class A | 111,792 | 3,060 | |
* | PRA Group Inc. | 85,063 | 2,458 |
Nelnet Inc. Class A | 39,359 | 1,867 | |
* | Encore Capital Group Inc. | 44,806 | 1,808 |
* | World Acceptance Corp. | 12,294 | 920 |
* | EZCORP Inc. Class A | 93,713 | 848 |
* | Enova International Inc. | 48,549 | 578 |
340,225 | |||
Diversified Financial Services (6.8%) | |||
* | Berkshire Hathaway Inc. | ||
Class B | 2,290,605 | 414,966 | |
Leucadia National Corp. | 594,281 | 14,073 | |
Voya Financial Inc. | 341,614 | 13,060 | |
Texas Pacific Land Trust | 11,622 | 4,695 | |
NewStar Financial Inc. | 40,793 | 437 | |
* | On Deck Capital Inc. | 71,456 | 345 |
447,576 | |||
Insurance (20.7%) | |||
Chubb Ltd. | 857,229 | 121,229 | |
American International | |||
Group Inc. | 1,692,856 | 102,384 | |
Prudential Financial Inc. | 787,605 | 80,399 | |
MetLife Inc. | 1,678,965 | 78,626 | |
Marsh & McLennan Cos. | |||
Inc. | 946,061 | 73,868 | |
Aon plc | 481,596 | 67,019 | |
Travelers Cos. Inc. | 513,040 | 62,170 | |
Allstate Corp. | 669,226 | 60,565 | |
Aflac Inc. | 728,551 | 60,142 | |
Progressive Corp. | 1,066,560 | 49,574 | |
Hartford Financial | |||
Services Group Inc. | 674,647 | 36,478 | |
Willis Towers Watson plc | 235,840 | 35,015 | |
Principal Financial Group | |||
Inc. | 529,255 | 33,089 | |
Lincoln National Corp. | 411,584 | 27,930 | |
* | Markel Corp. | 25,611 | 26,943 |
Loews Corp. | 525,578 | 24,481 | |
* | Arch Capital Group Ltd. | 238,672 | 23,232 |
FNF Group | 475,059 | 22,917 | |
Cincinnati Financial Corp. | 287,385 | 22,083 | |
Unum Group | 419,200 | 20,197 | |
XL Group Ltd. | 480,124 | 19,666 | |
Arthur J Gallagher & Co. | 329,800 | 19,095 | |
Everest Re Group Ltd. | 75,421 | 19,042 | |
* | Alleghany Corp. | 28,297 | 15,925 |
Reinsurance Group of | |||
America Inc. Class A | 118,143 | 15,884 | |
Torchmark Corp. | 204,211 | 15,718 | |
American Financial Group | |||
Inc. | 136,714 | 13,919 | |
WR Berkley Corp. | 178,059 | 11,866 | |
* | Athene Holding Ltd. | ||
Class A | 196,134 | 10,495 | |
RenaissanceRe Holdings | |||
Ltd. | 74,725 | 10,399 | |
First American Financial | |||
Corp. | 202,736 | 9,946 | |
Brown & Brown Inc. | 218,762 | 9,836 | |
Assurant Inc. | 100,743 | 9,539 | |
Assured Guaranty Ltd. | 223,800 | 9,520 | |
Axis Capital Holdings Ltd. | 155,572 | 9,372 | |
* | Brighthouse Financial Inc. | 159,652 | 9,111 |
Old Republic International | |||
Corp. | 459,358 | 8,769 |
41
Financials Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Hanover Insurance Group | |||
Inc. | 78,107 | 7,669 | |
White Mountains Insurance | |||
Group Ltd. | 8,400 | 7,317 | |
Validus Holdings Ltd. | 145,417 | 7,293 | |
CNO Financial Group Inc. | 314,136 | 7,021 | |
Primerica Inc. | 83,509 | 6,393 | |
Erie Indemnity Co. Class A | 46,809 | 5,654 | |
Selective Insurance Group | |||
Inc. | 107,072 | 5,396 | |
ProAssurance Corp. | 98,080 | 5,223 | |
Aspen Insurance Holdings | |||
Ltd. | 110,253 | 4,983 | |
American Equity Investment | |||
Life Holding Co. | 154,973 | 4,302 | |
* | Enstar Group Ltd. | 19,668 | 4,082 |
RLI Corp. | 68,757 | 3,680 | |
Kemper Corp. | 75,419 | 3,613 | |
Argo Group International | |||
Holdings Ltd. | 55,557 | 3,345 | |
* | Genworth Financial Inc. | ||
Class A | 917,218 | 3,146 | |
Mercury General Corp. | 50,802 | 2,920 | |
American National | |||
Insurance Co. | 24,747 | 2,864 | |
Horace Mann Educators | |||
Corp. | 74,636 | 2,623 | |
Employers Holdings Inc. | 59,372 | 2,503 | |
Navigators Group Inc. | 43,365 | 2,420 | |
* | MBIA Inc. | 225,427 | 2,268 |
AmTrust Financial Services | |||
Inc. | 156,694 | 1,943 | |
AMERISAFE Inc. | 35,518 | 1,911 | |
Safety Insurance Group Inc. | 26,757 | 1,910 | |
* | FNFV Group | 109,931 | 1,852 |
Infinity Property & Casualty | |||
Corp. | 20,333 | 1,798 | |
National General Holdings | |||
Corp. | 97,649 | 1,677 | |
United Fire Group Inc. | 39,354 | 1,655 | |
James River Group | |||
Holdings Ltd. | 40,808 | 1,627 | |
* | Ambac Financial Group Inc. | 83,808 | 1,525 |
* | Third Point Reinsurance Ltd. | 107,061 | 1,504 |
National Western Life | |||
Group Inc. Class A | 4,419 | 1,478 | |
FBL Financial Group Inc. | |||
Class A | 20,708 | 1,408 | |
Kinsale Capital Group Inc. | 34,890 | 1,321 | |
Universal Insurance | |||
Holdings Inc. | 61,509 | 1,319 | |
* | Greenlight Capital Re Ltd. | ||
Class A | 54,688 | 1,217 | |
Stewart Information | |||
Services Corp. | 32,497 | 1,173 | |
State National Cos. Inc. | 50,699 | 1,053 | |
Maiden Holdings Ltd. | 134,758 | 977 | |
*,^ Trupanion Inc. | 36,024 | 788 | |
State Auto Financial Corp. | 31,353 | 776 | |
United Insurance Holdings | |||
Corp. | 47,078 | 741 | |
OneBeacon Insurance | |||
Group Ltd. Class A | 37,944 | 691 | |
Fidelity & Guaranty Life | 21,632 | 676 | |
* | Global Indemnity Ltd. | 16,275 | 658 |
*,^ Citizens Inc. Class A | 85,818 | 646 | |
^ | Heritage Insurance | ||
Holdings Inc. | 52,106 | 593 | |
HCI Group Inc. | 14,439 | 563 | |
EMC Insurance Group Inc. | 17,619 | 491 |
Market | ||||
Value• | ||||
Shares | ($000) | |||
* | WMIH Corp. | 373,880 | 467 | |
Baldwin & Lyons Inc. | 17,735 | 388 | ||
Donegal Group Inc. Class A | 22,926 | 352 | ||
Crawford & Co. Class B | 19,779 | 196 | ||
Fairfax Financial Holdings Ltd. 126 | 65 | |||
*,^ Patriot National Inc. | 16,200 | 24 | ||
1,376,621 | ||||
Mortgage Real Estate Investment | ||||
Trusts (REITs) (1.7%) | ||||
Annaly Capital | ||||
Management Inc. | 1,981,327 | 24,767 | ||
AGNC Investment Corp. | 652,492 | 14,055 | ||
Starwood Property Trust | ||||
Inc. | 477,459 | 10,604 | ||
New Residential | ||||
Investment Corp. | 564,188 | 9,298 | ||
Two Harbors Investment | ||||
Corp. | 641,887 | 6,566 | ||
MFA Financial Inc. | 721,375 | 6,334 | ||
Chimera Investment Corp. | 310,432 | 5,920 | ||
Blackstone Mortgage | ||||
Trust Inc. Class A | 165,716 | 5,195 | ||
Invesco Mortgage Capital | ||||
Inc. | 205,190 | 3,484 | ||
Apollo Commercial Real | ||||
Estate Finance Inc. | 190,754 | 3,451 | ||
CYS Investments Inc. | 279,950 | 2,461 | ||
Redwood Trust Inc. | 141,005 | 2,352 | ||
Hannon Armstrong | ||||
Sustainable Infrastructure | ||||
Capital Inc. | 95,144 | 2,207 | ||
PennyMac Mortgage | ||||
Investment Trust | 122,382 | 2,116 | ||
ARMOUR Residential | ||||
REIT Inc. | 75,354 | 1,990 | ||
Capstead Mortgage Corp. | 177,951 | 1,721 | ||
MTGE Investment Corp. | 84,469 | 1,622 | ||
Ladder Capital Corp. | ||||
Class A | 116,796 | 1,602 | ||
New York Mortgage | ||||
Trust Inc. | 203,678 | 1,275 | ||
Anworth Mortgage Asset | ||||
Corp. | 176,369 | 1,069 | ||
AG Mortgage Investment | ||||
Trust Inc. | 51,361 | 990 | ||
Western Asset Mortgage | ||||
Capital Corp. | 77,570 | 815 | ||
Arbor Realty Trust Inc. | 89,196 | 731 | ||
Ares Commercial Real | ||||
Estate Corp. | 50,369 | 664 | ||
Dynex Capital Inc. | 84,631 | 605 | ||
Resource Capital Corp. | 56,933 | 589 | ||
Sutherland Asset | ||||
Management Corp. | 30,467 | 465 | ||
112,948 | ||||
Other (0.0%)1 | ||||
2 | Winthrop Realty Trust | 23,515 | 176 | |
Thrifts & Mortgage Finance (1.3%) | ||||
New York Community | ||||
Bancorp Inc. | 896,969 | 10,808 | ||
* | MGIC Investment Corp. | 679,786 | 7,784 | |
Radian Group Inc. | 395,029 | 6,913 | ||
* | Essent Group Ltd. | 153,688 | 6,006 | |
Washington Federal Inc. | 164,302 | 5,134 | ||
Capitol Federal Financial Inc. 240,464 | 3,299 | |||
Astoria Financial Corp. | 168,309 | 3,297 | ||
* | LendingTree Inc. | 14,246 | 3,290 |
Market | |||
Value• | |||
Shares | ($000) | ||
Provident Financial | |||
Services Inc. | 116,542 | 2,896 | |
*,^ BofI Holding Inc. | 104,441 | 2,769 | |
Northwest Bancshares Inc. | 177,523 | 2,739 | |
* | Walker & Dunlop Inc. | 54,590 | 2,631 |
WSFS Financial Corp. | 58,055 | 2,595 | |
Kearny Financial Corp. | 150,458 | 2,129 | |
Beneficial Bancorp Inc. | 125,899 | 1,882 | |
Meridian Bancorp Inc. | 93,180 | 1,640 | |
United Financial Bancorp Inc. | 93,101 | 1,612 | |
TFS Financial Corp. | 104,329 | 1,605 | |
TrustCo Bank Corp. NY | 176,569 | 1,395 | |
* | PHH Corp. | 98,000 | 1,392 |
* | Flagstar Bancorp Inc. | 42,011 | 1,379 |
Northfield Bancorp Inc. | 80,238 | 1,293 | |
OceanFirst Financial Corp. | 51,073 | 1,275 | |
* | HomeStreet Inc. | 50,299 | 1,270 |
Oritani Financial Corp. | 71,842 | 1,153 | |
Meta Financial Group Inc. | 16,179 | 1,137 | |
Federal Agricultural | |||
Mortgage Corp. | 16,663 | 1,135 | |
Dime Community | |||
Bancshares Inc. | 59,552 | 1,129 | |
* | NMI Holdings Inc. Class A | 99,392 | 1,078 |
* | Nationstar Mortgage | ||
Holdings Inc. | 54,509 | 939 | |
First Defiance Financial Corp. | 18,928 | 927 | |
Waterstone Financial Inc. | 45,844 | 809 | |
* | PennyMac Financial | ||
Services Inc. Class A | 37,132 | 631 | |
Clifton Bancorp Inc. | 38,879 | 612 | |
* | Ocwen Financial Corp. | 182,450 | 535 |
87,118 | |||
Total Common Stocks | |||
(Cost $5,855,288) | 6,645,236 | ||
Temporary Cash Investment (0.0%) | |||
Money Market Fund (0.0%) | |||
3,4 Vanguard Market | |||
Liquidity Fund, 1.224% | |||
(Cost $3,029) | 30,294 | 3,030 | |
Total Investments (100.0%) | |||
(Cost $5,858,317) | 6,648,266 | ||
Amount | |||
($000) | |||
Other Assets and Liabilities (0.0%) | |||
Other Assets | |||
Investment in Vanguard | 426 | ||
Receivables for Investment Securities Sold 21,781 | |||
Receivables for Accrued Income | 12,549 | ||
Receivables for Capital Shares Issued | 564 | ||
Total Other Assets | 35,320 | ||
Liabilities | |||
Payables for Investment Securities | |||
Purchased | (27,580) | ||
Collateral for Securities on Loan | (3,029) | ||
Payables for Capital Shares Redeemed | (308) | ||
Payables to Vanguard | (1,670) | ||
Other Liabilities | (5,589) | ||
Total Liabilities | (38,176) | ||
Net Assets (100%) | 6,645,410 | ||
42
Financials Index Fund
At August 31, 2017, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 5,991,561 |
Undistributed Net Investment Income | 27,396 |
Accumulated Net Realized Losses | (163,496) |
Unrealized Appreciation (Depreciation) | 789,949 |
Net Assets | 6,645,410 |
ETF Shares—Net Assets | |
Applicable to 98,412,770 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 6,127,186 |
Net Asset Value Per Share— | |
ETF Shares | $62.26 |
Admiral Shares—Net Assets | |
Applicable to 16,608,582 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 518,224 |
Net Asset Value Per Share— | |
Admiral Shares | $31.20 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Includes partial security positions on loan to broker-dealers. The
total value of securities on loan is $2,879,000.
1 “Other” represents securities that are not classified by the fund’s
benchmark index.
2 Security value determined using significant unobservable inputs.
3 Affiliated money market fund available only to Vanguard funds
and certain trusts and accounts managed by Vanguard. Rate
shown is the 7-day yield.
4 Includes $3,029,000 of collateral received for securities on loan.
REIT—Real Estate Investment Trust.
See accompanying Notes, which are an integral part of the Financial Statements.
43
Financials Index Fund
Statement of Operations | |||
Year Ended | |||
August 31, 2017 | |||
($000) | |||
Investment Income | |||
Income | |||
Dividends | 102,192 | ||
Interest1 | 17 | ||
Securities Lending—Net | 191 | ||
Total Income 102,400 | |||
Expenses | |||
The Vanguard Group—Note B | |||
Investment Advisory Services | 1,185 | ||
Management and Administrative— | |||
ETF Shares | 3,270 | ||
Management and Administrative— | |||
Admiral Shares | 281 | ||
Marketing and Distribution— | |||
ETF Shares | 321 | ||
Marketing and Distribution— | |||
Admiral Shares | 42 | ||
Custodian Fees | 106 | ||
Auditing Fees | 35 | ||
Shareholders’ Reports and Proxy— | |||
ETF Shares | 290 | ||
Shareholders’ Reports and Proxy— | |||
Admiral Shares | 11 | ||
Trustees’ Fees and Expenses | 4 | ||
Total Expenses | 5,545 | ||
Net Investment Income | 96,855 | ||
Realized Net Gain (Loss) | |||
Investment Securities Sold1 | 151,581 | ||
Futures Contracts | (5) | ||
Realized Net Gain (Loss) | 151,576 | ||
Change in Unrealized Appreciation | |||
(Depreciation) | |||
Investment Securities 754,275 | |||
Futures Contracts | 7 | ||
Change in Unrealized Appreciation | |||
(Depreciation) | 754,282 | ||
Net Increase (Decrease) in Net Assets | |||
Resulting from Operations 1,002,713 | |||
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $17,000 and $0, respectively. | |||
Statement of Changes in Net Assets | |||
Year Ended August 31, | |||
2017 | 2016 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 96,855 | 84,751 | |
Realized Net Gain (Loss) | 151,576 | 247,776 | |
Change in Unrealized Appreciation (Depreciation) | 754,282 | 11,898 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | 1,002,713 | 344,425 | |
Distributions | |||
Net Investment Income | |||
ETF Shares | (82,225) | (74,919) | |
Admiral Shares | (6,782) | (4,706) | |
Realized Capital Gain | |||
ETF Shares | — | — | |
Admiral Shares | — | — | |
Total Distributions | (89,007) | (79,625) | |
Capital Share Transactions | |||
ETF Shares | 1,550,552 | 403,306 | |
Admiral Shares | 202,111 | 26,082 | |
Net Increase (Decrease) from Capital Share Transactions | 1,752,663 | 429,388 | |
Total Increase (Decrease) | 2,666,369 | 694,188 | |
Net Assets | |||
Beginning of Period | 3,979,041 | 3,284,853 | |
End of Period1 | 6,645,410 | 3,979,041 | |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $27,396,000 and $19,461,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
44
Financials Index Fund
Financial Highlights
ETF Shares | ||||||
For a Share Outstanding | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | |
Net Asset Value, Beginning of Period | $50.81 | $47.70 | $47.32 | $39.80 | $32.03 | |
Investment Operations | ||||||
Net Investment Income | 1.0351 | 1.108 | .917 | .876 | .825 | |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | 11.387 | 3.070 | .349 | 7.494 | 7.747 | |
Total from Investment Operations | 12.422 | 4.178 | 1.266 | 8.370 | 8.572 | |
Distributions | ||||||
Dividends from Net Investment Income | (.972) | (1.068) | (.886) | (.850) | (.802) | |
Distributions from Realized Capital Gains | — | — | — | — | — | |
Total Distributions | (.972) | (1.068) | (.886) | (.850) | (.802) | |
Net Asset Value, End of Period | $62.26 | $50.81 | $47.70 | $47.32 | $39.80 | |
Total Return | 24.65% | 8.93% | 2.63% | 21.20% | 27.10% | |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $6,127 | $3,735 | $3,081 | $2,191 | $1,464 | |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.12% | 0.14% | |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 1.75% | 2.39% | 1.99% | 2.00% | 2.26% | |
Portfolio Turnover Rate2 | 5% | 21% | 4% | 5% | 9% |
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 | 2017 | 2016 | 2015 | 2014 | 2013 | |
Net Asset Value, Beginning of Period | $25.47 | $23.91 | $23.72 | $19.95 | $16.05 | |
Investment Operations | ||||||
Net Investment Income | . 5141 | .556 | .460 | .438 | .414 | |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | 5.704 | 1.539 | .174 | 3.758 | 3.888 | |
Total from Investment Operations | 6.218 | 2.095 | .634 | 4.196 | 4.302 | |
Distributions | ||||||
Dividends from Net Investment Income | (.488) | (.535) | (.444) | (.426) | (.402) | |
Distributions from Realized Capital Gains | — | — | — | — | — | |
Total Distributions | (.488) | (.535) | (.444) | (.426) | (.402) | |
Net Asset Value, End of Period | $31.20 | $25.47 | $23.91 | $23.72 | $19.95 | |
Total Return 2 | 24.62% | 8.96% | 2.64% | 21.19% | 27.13% | |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $518 | $244 | $204 | $155 | $132 | |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.12% | 0.14% | |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 1.75% | 2.39% | 1.99% | 2.00% | 2.26% | |
Portfolio Turnover Rate3 | 5% | 21% | 4% | 5% | 9% |
1 Calculated based on average shares outstanding.
2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about
any applicable account service fees.
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.
45
Financials Index Fund
Notes to Financial Statements
Vanguard Financials Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: 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 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 futures gains (losses).
During the year ended August 31, 2017, 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 the notional amounts at each quarter-end during the period. The fund had no open futures contracts at August 31, 2017.
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, 2014–2017), 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 event 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
46
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, 2017, 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), shareholder reporting, and the proxy. 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, 2017, the fund had contributed to Vanguard capital in the amount of $426,000, representing 0.01% of the fund’s net assets and 0.17% 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). Any investments valued with significant unobservable inputs are noted
on the Statement of Net Assets.
The following table summarizes the market value of the fund’s investments as of August 31, 2017, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 6,645,060 | — | 176 |
Temporary Cash Investments | 3,030 | — | — |
Total | 6,648,090 | — | 176 |
47
Financials Index Fund
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
During the year ended August 31, 2017, the fund realized $157,664,000 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, 2017, the fund had $28,769,000 of ordinary income available for distribution. At August 31, 2017, the fund had available capital losses totaling $163,496,000 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 $19,167,000 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, 2017, the cost of investment securities for tax purposes was $5,858,317,000. Net unrealized appreciation of investment securities for tax purposes was $789,949,000, consisting of unrealized gains of $859,000,000 on securities that had risen in value since their purchase and $69,051,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2017, the fund purchased $2,797,439,000 of investment securities and sold $1,033,872,000 of investment securities, other than temporary cash investments. Purchases and sales include $2,258,542,000 and $786,590,000, 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, | ||||
2017 | 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 2,349,435 | 40,011 | 1,621,931 | 34,106 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (798,883) | (15,100) | (1,218,625) | (25,200) |
Net Increase (Decrease)—ETF Shares | 1,550,552 | 24,911 | 403,306 | 8,906 |
Admiral Shares | ||||
Issued | 449,363 | 15,226 | 110,433 | 4,670 |
Issued in Lieu of Cash Distributions | 5,964 | 207 | 4,147 | 175 |
Redeemed | (253,216) | (8,420) | (88,498) | (3,771) |
Net Increase (Decrease)—Admiral Shares | 202,111 | 7,013 | 26,082 | 1,074 |
At August 31, 2017, one shareholder was the record or beneficial owner of 26% 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, 2017, that would require recognition or disclosure in these financial statements.
48
Health Care Index Fund
Fund Profile
As of August 31, 2017
Share-Class Characteristics | ||
ETF | Admiral | |
Shares | Shares | |
Ticker Symbol | VHT | VHCIX |
Expense Ratio1 | 0.10% | 0.10% |
30-Day SEC Yield | 1.34% | 1.34% |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | |||
Health | MSCI | ||
Care | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 363 | 358 | 2,482 |
Median Market Cap $76.7B | $76.7B | $63.1B | |
Price/Earnings Ratio | 23.2x | 23.2x | 22.0x |
Price/Book Ratio | 3.9x | 4.0x | 2.9x |
Return on Equity | 16.9% | 16.9% | 15.1% |
Earnings Growth Rate | 7.3% | 7.3% | 9.4% |
Dividend Yield | 1.4% | 1.4% | 1.8% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 4% | — | — |
Short-Term Reserves | -0.1% | — | — |
Volatility Measures | ||
MSCI US | ||
IMI/Health Care | MSCI US | |
25/50 | IMI/2500 | |
R-Squared | 1.00 | 0.62 |
Beta | 1.00 | 1.02 |
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 | 24.0% |
Health Care Distributors | 2.4 |
Health Care Equipment | 17.9 |
Health Care Facilities | 1.7 |
Health Care Services | 2.9 |
Health Care Supplies | 1.9 |
Health Care Technology | 1.3 |
Life Sciences Tools & Services | 5.9 |
Managed Health Care | 11.4 |
Pharmaceuticals | 30.6 |
Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” category (if applicable), which includes securities that have not been provided a GICS classification as of the effective reporting period. | |
Ten Largest Holdings (% of total net assets) | ||
Johnson & Johnson | Pharmaceuticals | 9.9% |
Pfizer Inc. | Pharmaceuticals | 5.6 |
UnitedHealth Group Inc. | Managed Health | |
Care | 5.3 | |
Merck & Co. Inc. | Pharmaceuticals | 4.8 |
Amgen Inc. | Biotechnology | 3.6 |
AbbVie Inc. | Biotechnology | 3.3 |
Medtronic plc | Health Care | |
Equipment | 3.1 | |
Gilead Sciences Inc. | Biotechnology | 3.0 |
Celgene Corp. | Biotechnology | 3.0 |
Bristol-Myers Squibb Co. | Pharmaceuticals | 2.8 |
Top Ten | 44.4% | |
The holdings listed exclude any temporary cash investments and equity index products. | ||
1 The expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2017, the expense ratios were 0.10% for
ETF Shares and 0.10% for Admiral Shares.
49
Health Care Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Cumulative Performance: August 31, 2007–August 31, 2017
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ussectorindexx52x1.jpg)
Average Annual Total Returns | Final Value | ||||
Periods Ended August 31, 2017 | of a $10,000 | ||||
One Year | Five Years | Ten Years | Investment | ||
Health Care Index Fund ETF Shares | |||||
Net Asset Value | 15.06% | 18.20% | 11.54% | $29,798 | |
Health Care Index Fund ETF Shares | |||||
Market Price | 15.05 | 18.18 | 11.55 | 29,844 | |
Spliced US IMI/Health Care 25/50 | 15.15 | 18.28 | 11.67 | 30,161 | |
Health/Biotechnology Funds Average | 18.00 | 18.62 | 12.44 | 32,299 | |
MSCI US IMI/2500 | 16.06 | 14.29 | 7.84 | 21,281 | |
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 | 15.07% | 18.21% | 11.53% | $297,866 |
Spliced US IMI/Health Care 25/50 | 15.15 | 18.28 | 11.67 | 301,611 |
MSCI US IMI/2500 | 16.06 | 14.29 | 7.84 | 212,807 |
See Financial Highlights for dividend and capital gains information.
50
Health Care Index Fund
Fiscal-Year Total Returns (%): August 31, 2007–August 31, 2017
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ussectorindexx53x1.jpg)
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2007–August 31, 2017 | |||
One Year | Five Years | Ten Years | |
Health Care Index Fund ETF Shares Market Price | 15.05% | 130.52% | 198.44% |
Health Care Index Fund ETF Shares Net Asset Value | 15.06 | 130.71 | 197.98 |
Spliced US IMI/Health Care 25/50 | 15.15 | 131.55 | 201.61 |
Average Annual Total Returns: Periods Ended June 30, 2017 | |||||
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 | 14.70% | 18.12% | 11.13% | ||
Net Asset Value | 14.67 | 18.11 | 11.13 | ||
Admiral Shares | 2/5/2004 | 14.67 | 18.11 | 11.12 |
See Financial Highlights for dividend and capital gains information.
51
Health Care Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2017
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Market | ||||
Value• | ||||
Shares | ($000) | |||
Common Stocks (99.9%)1 | ||||
Biotechnology (24.0%) | ||||
Amgen Inc. | 1,614,898 | 287,080 | ||
AbbVie Inc. | 3,494,879 | 263,164 | ||
Gilead Sciences Inc. | 2,869,491 | 240,205 | ||
* | Celgene Corp. | 1,714,662 | 238,218 | |
* | Biogen Inc. | 469,071 | 148,489 | |
* | Vertex Pharmaceuticals | |||
Inc. | 547,016 | 87,818 | ||
* | Regeneron | |||
Pharmaceuticals Inc. | 171,911 | 85,423 | ||
* | Alexion Pharmaceuticals | |||
Inc. | 493,135 | 70,227 | ||
* | Incyte Corp. | 382,230 | 52,522 | |
* | BioMarin Pharmaceutical | |||
Inc. | 383,233 | 34,564 | ||
* | Kite Pharma Inc. | 105,569 | 18,790 | |
* | Exelixis Inc. | 642,366 | 18,783 | |
* | Alkermes plc | 336,437 | 17,084 | |
* | Alnylam Pharmaceuticals | |||
Inc. | 180,858 | 15,505 | ||
* | Ionis Pharmaceuticals Inc. | 272,243 | 14,598 | |
* | United Therapeutics Corp. | 98,994 | 12,948 | |
* | Bioverativ Inc. | 225,721 | 12,796 | |
* | Bluebird Bio Inc. | 98,175 | 12,257 | |
* | Seattle Genetics Inc. | 219,431 | 11,527 | |
* | Neurocrine Biosciences | |||
Inc. | 193,423 | 10,948 | ||
* | Exact Sciences Corp. | 259,552 | 10,873 | |
* | TESARO Inc. | 82,860 | 10,701 | |
* | Portola Pharmaceuticals | |||
Inc. | 125,255 | 7,947 | ||
*,^ ACADIA Pharmaceuticals | ||||
Inc. | 214,419 | 7,636 | ||
* | Clovis Oncology Inc. | 100,329 | 7,632 | |
* | FibroGen Inc. | 147,442 | 7,107 | |
* | Puma Biotechnology Inc. | 65,005 | 6,013 | |
* | Ligand Pharmaceuticals Inc. | 45,924 | 5,918 | |
* | Juno Therapeutics Inc. | 139,284 | 5,748 | |
* | Sage Therapeutics Inc. | 69,495 | 5,716 | |
* | Agios Pharmaceuticals Inc. | 90,015 | 5,694 | |
* | Spark Therapeutics Inc. | 66,774 | 5,498 | |
* | Sarepta Therapeutics Inc. | 130,187 | 5,245 | |
* | Avexis Inc. | 55,165 | 5,150 | |
*,^ Prothena Corp. plc | 83,578 | 5,135 | ||
* | Ultragenyx Pharmaceutical | |||
Inc. | 88,349 | 5,041 | ||
*,^ OPKO Health Inc. | 732,353 | 4,687 | ||
* | Myriad Genetics Inc. | 149,228 | 4,550 | |
*,^ Intercept Pharmaceuticals | ||||
Inc. | 38,495 | 4,489 | ||
* | Ironwood Pharmaceuticals | |||
Inc. Class A | 279,755 | 4,462 | ||
*,^ Amicus Therapeutics Inc. | 317,349 | 4,424 | ||
*,^ MiMedx Group Inc. | 231,351 | 3,764 |
Market | |||
Value• | |||
Shares | ($000) | ||
* | Loxo Oncology Inc. | 44,752 | 3,732 |
* | Blueprint Medicines Corp. | 68,590 | 3,719 |
* | Halozyme Therapeutics Inc. | 275,570 | 3,585 |
* | Repligen Corp. | 80,603 | 3,520 |
* | Array BioPharma Inc. | 356,322 | 3,449 |
* | Emergent BioSolutions Inc. | 75,989 | 2,837 |
*,^ Radius Health Inc. | 70,661 | 2,659 | |
* | Acceleron Pharma Inc. | 67,885 | 2,631 |
* | Momenta Pharmaceuticals | ||
Inc. | 154,817 | 2,609 | |
*,^ Immunomedics Inc. | 205,700 | 2,600 | |
*,^ Intrexon Corp. | 130,660 | 2,578 | |
* | Sangamo Therapeutics Inc. | 178,897 | 2,388 |
* | Dynavax Technologies Corp. | 130,915 | 2,350 |
* | Esperion Therapeutics Inc. | 45,090 | 2,228 |
* | Global Blood Therapeutics | ||
Inc. | 71,886 | 2,185 | |
* | Five Prime Therapeutics Inc. | 63,111 | 2,141 |
* | Acorda Therapeutics Inc. | 101,985 | 2,121 |
* | Retrophin Inc. | 79,650 | 1,944 |
* | Arena Pharmaceuticals Inc. | 83,299 | 1,931 |
* | Xencor Inc. | 85,795 | 1,855 |
*,^ ZIOPHARM Oncology Inc. | 282,803 | 1,807 | |
* | PTC Therapeutics Inc. | 86,029 | 1,785 |
* | Spectrum Pharmaceuticals | ||
Inc. | 175,602 | 1,714 | |
* | Heron Therapeutics Inc. | 99,350 | 1,639 |
* | Insmed Inc. | 129,222 | 1,605 |
* | Vanda Pharmaceuticals Inc. | 93,039 | 1,600 |
* | Lexicon Pharmaceuticals | ||
Inc. | 103,202 | 1,563 | |
*,^ ImmunoGen Inc. | 186,460 | 1,559 | |
*,^ TG Therapeutics Inc. | 117,294 | 1,490 | |
*,^ Synergy Pharmaceuticals | |||
Inc. | 486,394 | 1,449 | |
* | Genomic Health Inc. | 45,290 | 1,436 |
* | Epizyme Inc. | 82,071 | 1,424 |
* | Axovant Sciences Ltd. | 70,008 | 1,400 |
* | MacroGenics Inc. | 72,246 | 1,366 |
* | Enanta Pharmaceuticals Inc. | 31,365 | 1,344 |
* | REGENXBIO Inc. | 57,572 | 1,310 |
* | La Jolla Pharmaceutical Co. | 38,317 | 1,309 |
* | Cytokinetics Inc. | 85,586 | 1,271 |
* | AMAG Pharmaceuticals Inc. | 75,757 | 1,265 |
* | Alder Biopharmaceuticals | ||
Inc. | 128,760 | 1,262 | |
* | Keryx Biopharmaceuticals | ||
Inc. | 174,361 | 1,257 | |
*,^ Foundation Medicine Inc. | 30,820 | 1,242 | |
*,^ Flexion Therapeutics Inc. | 48,214 | 1,239 | |
* | Editas Medicine Inc. | 54,555 | 1,152 |
* | Inovio Pharmaceuticals Inc. | 187,379 | 1,113 |
*,^ Achaogen Inc. | 57,898 | 1,085 | |
* | Aimmune Therapeutics Inc. | 49,779 | 1,070 |
Market | |||
Value• | |||
Shares | ($000) | ||
* | Achillion Pharmaceuticals | ||
Inc. | 208,533 | 1,066 | |
* | Coherus Biosciences Inc. | 73,236 | 1,058 |
* | PDL BioPharma Inc. | 338,923 | 1,057 |
* | Progenics Pharmaceuticals | ||
Inc. | 155,137 | 1,044 | |
* | Versartis Inc. | 53,122 | 1,009 |
* | Eagle Pharmaceuticals Inc. | 18,424 | 1,005 |
* | Aduro Biotech Inc. | 69,090 | 839 |
* | Karyopharm Therapeutics | ||
Inc. | 77,628 | 793 | |
*,^ Cara Therapeutics Inc. | 55,295 | 792 | |
* | CytomX Therapeutics Inc. | 43,676 | 755 |
*,^ Geron Corp. | 347,685 | 755 | |
* | BioCryst Pharmaceuticals | ||
Inc. | 144,882 | 739 | |
* | Agenus Inc. | 195,942 | 723 |
* | Natera Inc. | 57,154 | 706 |
* | Celldex Therapeutics Inc. | 266,543 | 656 |
* | Corbus Pharmaceuticals | ||
Holdings Inc. | 82,791 | 642 | |
*,^ Novavax Inc. | 606,009 | 636 | |
* | Seres Therapeutics Inc. | 44,067 | 618 |
* | Atara Biotherapeutics Inc. | 38,997 | 614 |
* | Intellia Therapeutics Inc. | 26,865 | 565 |
*,^ Bellicum Pharmaceuticals | |||
Inc. | 51,965 | 563 | |
*,^ Advaxis Inc. | 78,761 | 536 | |
*,^ Organovo Holdings Inc. | 216,565 | 450 | |
*,^ Insys Therapeutics Inc. | 47,833 | 437 | |
* | Chimerix Inc. | 87,999 | 419 |
* | Minerva Neurosciences Inc. | 68,338 | 413 |
*,^ Syros Pharmaceuticals Inc. | 19,780 | 387 | |
* | Arrowhead Pharmaceuticals | ||
Inc. | 136,215 | 381 | |
* | NewLink Genetics Corp. | 46,904 | 381 |
Merrimack Pharmaceuticals | |||
Inc. | 269,849 | 367 | |
* | Ardelyx Inc. | 69,292 | 357 |
* | CRISPR Therapeutics AG | 17,331 | 355 |
*,^ NantKwest Inc. | 55,772 | 347 | |
* | Arbutus Biopharma Corp. | 78,856 | 331 |
*,^ MannKind Corp. | 146,602 | 304 | |
* | Corvus Pharmaceuticals | ||
Inc. | 17,878 | 289 | |
* | Ra Pharmaceuticals Inc. | 17,180 | 258 |
* | Voyager Therapeutics Inc. | 26,506 | 256 |
* | Ophthotech Corp. | 77,854 | 241 |
* | Sorrento Therapeutics Inc. | 133,616 | 241 |
* | Immune Design Corp. | 22,108 | 240 |
* | OncoMed Pharmaceuticals | ||
Inc. | 45,526 | 226 | |
* | Trevena Inc. | 85,792 | 206 |
* | Otonomy Inc. | 52,698 | 190 |
52
Health Care Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
* | Regulus Therapeutics Inc. | 181,520 | 182 |
*,^ XBiotech Inc. | 33,706 | 173 | |
* | Infinity Pharmaceuticals Inc. | 94,570 | 90 |
*,^ OvaScience Inc. | 62,576 | 88 | |
1,901,974 | |||
Health Care Equipment & Supplies (19.8%) | |||
Medtronic plc | 3,005,832 | 242,330 | |
Abbott Laboratories | 3,810,499 | 194,107 | |
Danaher Corp. | 1,371,819 | 114,437 | |
Stryker Corp. | 738,713 | 104,432 | |
Becton Dickinson and Co. | 499,255 | 99,571 | |
* | Boston Scientific Corp. | 3,007,071 | 82,845 |
* | Intuitive Surgical Inc. | 80,898 | 81,276 |
Baxter International Inc. | 1,074,487 | 66,661 | |
* | Edwards Lifesciences | ||
Corp. | 460,629 | 52,355 | |
CR Bard Inc. | 159,022 | 51,016 | |
Zimmer Biomet Holdings | |||
Inc. | 442,806 | 50,599 | |
* | IDEXX Laboratories Inc. | 193,540 | 30,082 |
* | Align Technology Inc. | 167,590 | 29,620 |
Dentsply Sirona Inc. | 503,337 | 28,474 | |
Cooper Cos. Inc. | 107,464 | 26,955 | |
ResMed Inc. | 311,425 | 24,160 | |
* | Hologic Inc. | 614,896 | 23,735 |
* | Varian Medical Systems | ||
Inc. | 201,758 | 21,437 | |
Teleflex Inc. | 98,781 | 20,917 | |
STERIS plc | 186,717 | 16,274 | |
* | DexCom Inc. | 189,753 | 14,157 |
West Pharmaceutical | |||
Services Inc. | 161,533 | 14,060 | |
* | ABIOMED Inc. | 91,495 | 13,797 |
Hill-Rom Holdings Inc. | 144,435 | 11,116 | |
* | Alere Inc. | 191,117 | 9,453 |
* | Masimo Corp. | 106,785 | 9,011 |
* | Insulet Corp. | 127,200 | 7,385 |
* | NuVasive Inc. | 111,333 | 6,956 |
* | Integra LifeSciences | ||
Holdings Corp. | 132,926 | 6,778 | |
Cantel Medical Corp. | 82,502 | 6,703 | |
* | Wright Medical Group NV | 217,598 | 6,441 |
* | ICU Medical Inc. | 34,842 | 6,075 |
* | Neogen Corp. | 83,338 | 5,742 |
* | LivaNova plc | 89,875 | 5,624 |
* | Penumbra Inc. | 62,773 | 5,398 |
* | Haemonetics Corp. | 115,270 | 4,959 |
* | Globus Medical Inc. | 158,121 | 4,780 |
* | Halyard Health Inc. | 102,183 | 4,628 |
* | Merit Medical Systems Inc. | 109,642 | 4,528 |
* | Nevro Corp. | 51,325 | 4,423 |
* | NxStage Medical Inc. | 144,410 | 4,043 |
* | Inogen Inc. | 38,443 | 3,683 |
* | Integer Holdings Corp. | 61,941 | 2,846 |
CONMED Corp. | 54,684 | 2,712 | |
* | OraSure Technologies Inc. | 126,924 | 2,591 |
* | Varex Imaging Corp. | 82,935 | 2,532 |
* | Natus Medical Inc. | 71,771 | 2,411 |
Abaxis Inc. | 49,451 | 2,286 | |
* | Quidel Corp. | 62,070 | 2,169 |
* | Cardiovascular Systems Inc. | 71,244 | 2,092 |
Atrion Corp. | 3,195 | 1,988 | |
* | Novocure Ltd. | 96,836 | 1,985 |
Analogic Corp. | 27,262 | 1,951 | |
* | Orthofix International NV | 39,182 | 1,928 |
* | Anika Therapeutics Inc. | 32,306 | 1,735 |
Market | |||
Value• | |||
Shares | ($000) | ||
* | K2M Group Holdings Inc. | 73,781 | 1,725 |
* | AtriCure Inc. | 70,895 | 1,590 |
* | Heska Corp. | 13,907 | 1,415 |
* | CryoLife Inc. | 64,790 | 1,348 |
* | AngioDynamics Inc. | 78,023 | 1,329 |
* | Glaukos Corp. | 33,926 | 1,281 |
Meridian Bioscience Inc. | 92,076 | 1,280 | |
* | GenMark Diagnostics Inc. | 110,905 | 1,080 |
* | Lantheus Holdings Inc. | 61,107 | 1,069 |
* | AxoGen Inc. | 57,680 | 1,015 |
Invacare Corp. | 69,155 | 934 | |
* | iRhythm Technologies Inc. | 19,293 | 921 |
* | Accuray Inc. | 184,898 | 767 |
* | STAAR Surgical Co. | 62,048 | 741 |
* | Endologix Inc. | 171,548 | 726 |
*,^ Rockwell Medical Inc. | 107,249 | 678 | |
*,^ Cerus Corp. | 227,997 | 536 | |
*,^ Pulse Biosciences Inc. | 15,417 | 309 | |
* | ConforMIS Inc. | 61,725 | 228 |
* | Wright Medical Group Inc. | ||
CVR | 14,554 | 23 | |
1,569,244 | |||
Health Care Providers & Services (18.3%) | |||
UnitedHealth Group Inc. | 2,116,143 | 420,901 | |
Aetna Inc. | 728,330 | 114,858 | |
Anthem Inc. | 581,931 | 114,082 | |
Cigna Corp. | 562,111 | 102,338 | |
* | Express Scripts Holding | ||
Co. | 1,303,268 | 81,871 | |
Humana Inc. | 316,901 | 81,640 | |
McKesson Corp. | 463,025 | 69,134 | |
* | HCA Healthcare Inc. | 644,546 | 50,700 |
Cardinal Health Inc. | 693,689 | 46,796 | |
* | Laboratory Corp. of | ||
America Holdings | 224,729 | 35,253 | |
* | Centene Corp. | 378,334 | 33,615 |
Quest Diagnostics Inc. | 300,438 | 32,552 | |
* | Henry Schein Inc. | 174,262 | 30,266 |
AmerisourceBergen Corp. | |||
Class A | 359,708 | 28,867 | |
Universal Health Services | |||
Inc. Class B | 196,459 | 21,243 | |
* | DaVita Inc. | 341,908 | 20,022 |
* | WellCare Health Plans Inc. | 97,701 | 17,066 |
* | VCA Inc. | 178,550 | 16,598 |
* | Envision Healthcare Corp. | 258,141 | 13,529 |
* | MEDNAX Inc. | 204,172 | 9,157 |
HealthSouth Corp. | 196,596 | 8,994 | |
* | Acadia Healthcare Co. Inc. | 163,963 | 7,696 |
Patterson Cos. Inc. | 181,240 | 6,978 | |
Chemed Corp. | 35,309 | 6,966 | |
* | Molina Healthcare Inc. | 93,743 | 6,000 |
* | LifePoint Health Inc. | 88,662 | 5,138 |
* | Brookdale Senior Living | ||
Inc. | 407,337 | 4,941 | |
* | HealthEquity Inc. | 111,853 | 4,784 |
* | Select Medical Holdings | ||
Corp. | 232,324 | 4,321 | |
* | Magellan Health Inc. | 52,117 | 4,216 |
* | AMN Healthcare Services | ||
Inc. | 105,213 | 3,930 | |
* | Premier Inc. Class A | 113,669 | 3,808 |
*,^ Tenet Healthcare Corp. | 220,794 | 3,791 | |
Owens & Minor Inc. | 133,564 | 3,732 | |
* | Amedisys Inc. | 62,979 | 3,290 |
* | Tivity Health Inc. | 76,854 | 3,013 |
Market | |||
Value• | |||
Shares | ($000) | ||
* | Teladoc Inc. | 77,787 | 2,610 |
* | BioTelemetry Inc. | 68,221 | 2,534 |
* | LHC Group Inc. | 36,212 | 2,363 |
Ensign Group Inc. | 105,372 | 2,164 | |
* | PharMerica Corp. | 67,948 | 1,998 |
* | Community Health | ||
Systems Inc. | 251,922 | 1,925 | |
* | Diplomat Pharmacy Inc. | 101,899 | 1,707 |
US Physical Therapy Inc. | 27,621 | 1,654 | |
Kindred Healthcare Inc. | 185,898 | 1,506 | |
National HealthCare Corp. | 23,179 | 1,445 | |
* | Providence Service Corp. | 25,051 | 1,298 |
* | Almost Family Inc. | 26,065 | 1,269 |
* | Triple-S Management Corp. | ||
Class B | 50,958 | 1,259 | |
Landauer Inc. | 19,896 | 1,235 | |
* | CorVel Corp. | 22,962 | 1,192 |
* | Cross Country Healthcare Inc. | 79,013 | 978 |
Aceto Corp. | 65,605 | 696 | |
* | Capital Senior Living Corp. | 52,283 | 650 |
* | Civitas Solutions Inc. | 32,386 | 619 |
* | Surgery Partners Inc. | 42,130 | 411 |
* | American Renal Associates | ||
Holdings Inc. | 26,359 | 378 | |
* | Quorum Health Corp. | 62,785 | 275 |
* | AAC Holdings Inc. | 25,949 | 241 |
* | Genesis Healthcare Inc. | 95,390 | 99 |
1,452,592 | |||
Health Care Technology (1.3%) | |||
* | Cerner Corp. | 653,073 | 44,265 |
* | Veeva Systems Inc. | ||
Class A | 235,898 | 14,036 | |
* | athenahealth Inc. | 87,557 | 12,339 |
* | Medidata Solutions Inc. | 128,210 | 9,611 |
* | Allscripts Healthcare | ||
Solutions Inc. | 378,599 | 4,975 | |
* | Omnicell Inc. | 81,646 | 4,188 |
* | HMS Holdings Corp. | 183,426 | 3,250 |
* | Cotiviti Holdings Inc. | 90,906 | 3,248 |
* | Evolent Health Inc. | ||
Class A | 130,854 | 2,185 | |
*,^ Inovalon Holdings Inc. | |||
Class A | 124,990 | 1,694 | |
* | Quality Systems Inc. | 102,122 | 1,608 |
* | Vocera Communications | ||
Inc. | 55,855 | 1,556 | |
* | HealthStream Inc. | 58,941 | 1,385 |
Computer Programs & | |||
Systems Inc. | 25,117 | 756 | |
* | Castlight Health Inc. | ||
Class B | 142,267 | 555 | |
105,651 | |||
Life Sciences Tools & Services (5.9%) | |||
Thermo Fisher Scientific | |||
Inc. | 859,021 | 160,757 | |
* | Illumina Inc. | 320,633 | 65,557 |
Agilent Technologies Inc. | 707,790 | 45,808 | |
* | Mettler-Toledo | ||
International Inc. | 56,695 | 34,306 | |
* | Waters Corp. | 175,798 | 32,255 |
* | Quintiles IMS Holdings Inc. | 308,027 | 29,580 |
PerkinElmer Inc. | 241,678 | 16,190 | |
* | Charles River Laboratories | ||
International Inc. | 104,661 | 11,387 | |
Bio-Techne Corp. | 82,032 | 10,154 |
53
Health Care Index Fund
Market | ||||
Value• | ||||
Shares | ($000) | |||
* | Bio-Rad Laboratories Inc. | |||
Class A | 45,721 | 9,959 | ||
* | PAREXEL International | |||
Corp. | 111,439 | 9,794 | ||
* | PRA Health Sciences Inc. | 110,720 | 8,570 | |
* | INC Research Holdings Inc. | |||
Class A | 125,046 | 7,340 | ||
Bruker Corp. | 246,382 | 7,167 | ||
* | VWR Corp. | 201,883 | 6,666 | |
* | Cambrex Corp. | 71,519 | 3,726 | |
Luminex Corp. | 86,813 | 1,678 | ||
*,^ Accelerate Diagnostics Inc. 72,600 | 1,670 | |||
* | Albany Molecular Research | |||
Inc. | 61,308 | 1,333 | ||
* | NeoGenomics Inc. | 128,282 | 1,297 | |
* | Pacific Biosciences of | |||
California Inc. | 214,320 | 1,061 | ||
*,^ Patheon NV | 18,476 | 646 | ||
* | Medpace Holdings Inc. | 17,784 | 581 | |
467,482 | ||||
Other (0.0%)2 | ||||
*,3 Dyax Corp. CVR Exp. | ||||
12/31/2019 | 299,743 | 600 | ||
*,3 Durata Therapeutics Inc. | ||||
CVR Exp. 12/31/2018 | 48 | — | ||
*,3 Clinical Data CVR | 8,685 | — | ||
600 | ||||
Pharmaceuticals (30.6%) | ||||
Johnson & Johnson | 5,915,291 | 783,007 | ||
Pfizer Inc. | 13,104,651 | 444,510 | ||
Merck & Co. Inc. | 6,006,096 | 383,549 | ||
Bristol-Myers Squibb Co. | 3,617,562 | 218,790 | ||
Eli Lilly & Co. | 2,180,665 | 177,266 | ||
Allergan plc | 737,527 | 169,248 | ||
Zoetis Inc. | 1,077,814 | 67,579 | ||
* | Mylan NV | 1,000,409 | 31,493 | |
Perrigo Co. plc | 283,417 | 22,379 | ||
* | Jazz Pharmaceuticals plc | 131,889 | 19,699 | |
* | Catalent Inc. | 274,403 | 11,330 | |
* | Mallinckrodt plc | 218,128 | 8,961 | |
* | Nektar Therapeutics | |||
Class A | 340,780 | 7,167 | ||
* | Akorn Inc. | 205,659 | 6,766 | |
* | Prestige Brands Holdings | |||
Inc. | 116,111 | 5,888 | ||
*,^ Medicines Co. | 158,525 | 5,816 | ||
* | Supernus Pharmaceuticals | |||
Inc. | 109,926 | 5,035 | ||
* | Horizon Pharma plc | 356,242 | 4,873 | |
* | Endo International plc | 440,262 | 3,870 | |
* | Aerie Pharmaceuticals Inc. | 66,114 | 3,792 | |
* | Pacira Pharmaceuticals Inc. | 88,114 | 3,357 | |
* | Impax Laboratories Inc. | 152,959 | 3,312 |
Market | |||
Value• | |||
Shares | ($000) | ||
* | Corcept Therapeutics Inc. | 186,481 | 3,109 |
* | Theravance Biopharma Inc. | 93,755 | 3,063 |
* | Innoviva Inc. | 166,125 | 2,332 |
*,^ TherapeuticsMD Inc. | 358,235 | 2,149 | |
*,^ Omeros Corp. | 99,522 | 2,037 | |
* | MyoKardia Inc. | 45,987 | 1,994 |
* | Intersect ENT Inc. | 56,055 | 1,732 |
* | Dermira Inc. | 68,404 | 1,614 |
Phibro Animal Health Corp. | |||
Class A | 41,210 | 1,463 | |
* | Aclaris Therapeutics Inc. | 52,537 | 1,362 |
* | Intra-Cellular Therapies Inc. | ||
Class A | 71,219 | 1,314 | |
* | Amphastar Pharmaceuticals | ||
Inc. | 81,057 | 1,298 | |
* | Revance Therapeutics Inc. | 46,545 | 1,143 |
* | SciClone Pharmaceuticals | ||
Inc. | 100,100 | 1,101 | |
*,^ Lannett Co. Inc. | 60,761 | 1,066 | |
* | ANI Pharmaceuticals Inc. | 17,547 | 842 |
*,^ Reata Pharmaceuticals Inc. | |||
Class A | 25,799 | 780 | |
* | Assembly Biosciences Inc. | 28,163 | 764 |
* | Depomed Inc. | 121,786 | 740 |
* | Sucampo Pharmaceuticals | ||
Inc. Class A | 54,923 | 645 | |
* | Teligent Inc. | 92,688 | 640 |
* | WaVe Life Sciences Ltd. | 23,977 | 563 |
* | Aratana Therapeutics Inc. | 79,324 | 453 |
*,^ Collegium Pharmaceutical | |||
Inc. | 39,704 | 399 | |
*,^ BioDelivery Sciences | |||
International Inc. | 116,383 | 361 | |
* | Cempra Inc. | 102,835 | 314 |
*,^ Ocular Therapeutix Inc. | 46,236 | 289 | |
* | Clearside Biomedical Inc. | 40,007 | 280 |
2,421,534 | |||
Total Common Stocks | |||
(Cost $6,586,214) | 7,919,077 | ||
Temporary Cash Investment (0.3%)1 | |||
Money Market Fund (0.3%) | |||
4,5 Vanguard Market | |||
Liquidity Fund, 1.224% | |||
(Cost $24,514) | 245,119 | 24,517 | |
Total Investments (100.2%) | |||
(Cost $6,610,728) | 7,943,594 | ||
Amount | |
($000) | |
Other Assets and Liabilities (-0.2%) | |
Other Assets | |
Investment in Vanguard | 494 |
Receivables for Investment Securities Sold 27,855 | |
Receivables for Accrued Income | 13,574 |
Receivables for Capital Shares Issued | 1,290 |
Variation Margin Receivable— | |
Futures Contracts | 32 |
Other Assets6 | 189 |
Total Other Assets | 43,434 |
Liabilities | |
Payables for Investment Securities | |
Purchased | (30,060) |
Collateral for Securities on Loan | (24,511) |
Payables for Capital Shares Redeemed | (657) |
Payables to Vanguard | (2,493) |
Other Liabilities | (3,797) |
Total Liabilities | (61,518) |
Net Assets (100%) | 7,925,510 |
At August 31, 2017, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 6,678,491 |
Undistributed Net Investment Income | 18,438 |
Accumulated Net Realized Losses | (104,340) |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 1,332,866 |
Futures Contracts | 55 |
Net Assets | 7,925,510 |
54
Health Care Index Fund
Amount | |
($000) | |
ETF Shares—Net Assets | |
Applicable to 46,327,345 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 7,001,570 |
Net Asset Value Per Share— | |
ETF Shares | $151.13 |
Admiral Shares—Net Assets | |
Applicable to 12,221,525 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 923,940 |
Net Asset Value Per Share— | |
Admiral Shares | $75.60 |
• 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 $23,451,000.
1 The fund invests a portion of its cash reserves in equity markets
through the use of index futures contracts. After giving effect to
futures investments, the fund’s effective common stock and
temporary cash investment positions represent 100.0% and
0.2%, respectively, of net assets.
2 “Other” represents securities that are not classified by the fund’s
benchmark index.
3 Security value determined using significant unobservable inputs.
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 $24,511,000 of collateral received for securities on loan.
6 Cash of $189,000 has been segregated as initial margin for open
future contracts.
CVR—Contingent Value Rights.
Derivative Financial Instruments Outstanding as of Period End | ||||
Futures Contracts | ||||
($000) | ||||
Value and | ||||
Number of | Unrealized | |||
Long (Short) | Notional | Appreciation | ||
Expiration | Contracts | Amount | (Depreciation) | |
Long Futures Contracts | ||||
E-mini S&P 500 Index | September 2017 | 45 | 5,558 | 55 |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
See accompanying Notes, which are an integral part of the Financial Statements.
55
Health Care Index Fund
Statement of Operations | |||
Year Ended | |||
August 31, 2017 | |||
($000) | |||
Investment Income | |||
Income | |||
Dividends | 104,517 | ||
Interest1 | 12 | ||
Securities Lending—Net | 1,191 | ||
Total Income | 105,720 | ||
Expenses | |||
The Vanguard Group—Note B | |||
Investment Advisory Services | 1,372 | ||
Management and Administrative— | |||
ETF Shares | 3,804 | ||
Management and Administrative— | |||
Admiral Shares | 527 | ||
Marketing and Distribution— | |||
ETF Shares | 320 | ||
Marketing and Distribution— | |||
Admiral Shares | 79 | ||
Custodian Fees | 104 | ||
Auditing Fees | 34 | ||
Shareholders’ Reports and Proxy— | |||
ETF Shares | 518 | ||
Shareholders’ Reports and Proxy— | |||
Admiral Shares | 15 | ||
Trustees’ Fees and Expenses | 6 | ||
Total Expenses | 6,779 | ||
Net Investment Income | 98,941 | ||
Realized Net Gain (Loss) | |||
Investment Securities Sold1 | 170,135 | ||
Futures Contracts | 142 | ||
Realized Net Gain (Loss) | 170,277 | ||
Change in Unrealized Appreciation | |||
(Depreciation) | |||
Investment Securities | 719,394 | ||
Futures Contracts | 55 | ||
Change in Unrealized Appreciation | |||
(Depreciation) | 719,449 | ||
Net Increase (Decrease) in Net Assets | |||
Resulting from Operations | 988,667 | ||
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $12,000 and $1,000, respectively. | |||
Statement of Changes in Net Assets | |||
Year Ended August 31, | |||
2017 | 2016 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 98,941 | 88,250 | |
Realized Net Gain (Loss) | 170,277 | 246,042 | |
Change in Unrealized Appreciation (Depreciation) | 719,449 | (201,841) | |
Net Increase (Decrease) in Net Assets Resulting from Operations | 988,667 | 132,451 | |
Distributions | |||
Net Investment Income | |||
ETF Shares | (85,891) | (106,021) | |
Admiral Shares | (11,451) | (15,301) | |
Realized Capital Gain | |||
ETF Shares | — | — | |
Admiral Shares | — | — | |
Total Distributions | (97,342) | (121,322) | |
Capital Share Transactions | |||
ETF Shares | 504,061 | (126,109) | |
Admiral Shares | 22,327 | (27,942) | |
Net Increase (Decrease) from Capital Share Transactions | 526,388 | (154,051) | |
Total Increase (Decrease) | 1,417,713 | (142,922) | |
Net Assets | |||
Beginning of Period | 6,507,797 | 6,650,719 | |
End of Period1 | 7,925,510 | 6,507,797 | |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $18,438,000 and $16,826,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
56
Health Care Index Fund | ||||||
Financial Highlights | ||||||
ETF Shares | ||||||
For a Share Outstanding | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | |
Net Asset Value, Beginning of Period | $133.25 | $132.34 | $117.17 | $89.94 | $70.32 | |
Investment Operations | ||||||
Net Investment Income | 1.9941 | 1.795 | 1.350 | 1.333 | 1.155 | |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | 17.846 | 1.559 | 15.105 | 27.033 | 19.663 | |
Total from Investment Operations | 19.840 | 3.354 | 16.455 | 28.366 | 20.818 | |
Distributions | ||||||
Dividends from Net Investment Income | (1.960) | (2.444) | (1.285) | (1.136) | (1.198) | |
Distributions from Realized Capital Gains | — | — | — | — | — | |
Total Distributions | (1.960) | (2.444) | (1.285) | (1.136) | (1.198) | |
Net Asset Value, End of Period | $151.13 | $133.25 | $132.34 | $117.17 | $89.94 | |
Total Return | 15.06% | 2.61% | 14.08% | 31.76% | 30.01% | |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $7,002 | $5,708 | $5,826 | $3,319 | $1,918 | |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.09% | 0.12% | 0.14% | |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 1.46% | 1.40% | 1.25% | 1.40% | 1.69% | |
Portfolio Turnover Rate2 | 4% | 7% | 4% | 5% | 5% |
1 Calculated based on average shares outstanding.
2 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.
Admiral Shares | ||||||
For a Share Outstanding | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | |
Net Asset Value, Beginning of Period | $66.65 | $66.20 | $58.61 | $44.99 | $35.18 | |
Investment Operations | ||||||
Net Investment Income | . 9961 | .898 | .676 | .666 | .580 | |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | 8.934 | .774 | 7.557 | 13.523 | 9.831 | |
Total from Investment Operations | 9.930 | 1.672 | 8.233 | 14.189 | 10.411 | |
Distributions | ||||||
Dividends from Net Investment Income | (.980) | (1.222) | (.643) | (.569) | (.601) | |
Distributions from Realized Capital Gains | — | — | — | — | — | |
Total Distributions | (.980) | (1.222) | (.643) | (.569) | (.601) | |
Net Asset Value, End of Period | $75.60 | $66.65 | $66.20 | $58.61 | $44.99 | |
Total Return2 | 15.07% | 2.61% | 14.11% | 31.77% | 30.00% | |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $924 | $800 | $824 | $413 | $247 | |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.12% | 0.14% | |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 1.46% | 1.40% | 1.24% | 1.40% | 1.69% | |
Portfolio Turnover Rate3 | 4% | 7% | 4% | 5% | 5% |
1 Calculated based on average shares outstanding.
2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about
any applicable account service fees.
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.
57
Health Care Index Fund
Notes to Financial Statements
Vanguard Health Care Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: ETF Shares and Admiral Shares. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker. Admiral Shares are designed for investors who meet certain administrative, service, and account-size criteria.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value.
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 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 futures gains (losses).
During the year ended August 31, 2017, 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 the notional amounts 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, 2014–2017), 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 event 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
58
Health Care Index Fund
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, 2017, 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), shareholder reporting, and the proxy. 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, 2017, the fund had contributed to Vanguard capital in the amount of $494,000, representing 0.01% of the fund’s net assets and 0.20% 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). Any investments valued with significant unobservable inputs are noted
on the Statement of Net Assets.
The following table summarizes the market value of the fund’s investments as of August 31, 2017, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 7,918,477 | — | 600 |
Temporary Cash Investments | 24,517 | — | — |
Futures Contracts—Assets1 | 32 | — | — |
Total | 7,943,026 | — | 600 |
1 Represents variation margin on the last day of the reporting period. |
59
Health Care Index Fund
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
During the year ended August 31, 2017, the fund realized $185,458,000 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, 2017, the fund had $20,775,000 of ordinary income available for distribution. The fund had available capital losses totaling $104,392,000 that may be carried forward indefinitely to offset future net capital gains.
At August 31, 2017, the cost of investment securities for tax purposes was $6,610,843,000. Net unrealized appreciation of investment securities for tax purposes was $1,332,751,000, consisting of unrealized gains of $1,611,819,000 on securities that had risen in value since their purchase and $279,068,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2017, the fund purchased $1,324,423,000 of investment securities and sold $804,222,000 of investment securities, other than temporary cash investments. Purchases and sales include $931,635,000 and $512,168,000, 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, | ||||
2017 | 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 1,016,695 | 7,344 | 754,915 | 5,758 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (512,634) | (3,850) | (881,024) | (6,950) |
Net Increase (Decrease)—ETF Shares | 504,061 | 3,494 | (126,109) | (1,192) |
Admiral Shares | ||||
Issued | 304,504 | 4,456 | 239,770 | 3,728 |
Issued in Lieu of Cash Distributions | 10,353 | 152 | 14,078 | 219 |
Redeemed | (292,530) | (4,393) | (281,790) | (4,393) |
Net Increase (Decrease)—Admiral Shares | 22,327 | 215 | (27,942) | (446) |
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2017, that would require recognition or disclosure in these financial statements.
60
Industrials Index Fund
Fund Profile
As of August 31, 2017
Share-Class Characteristics | |||
ETF | Admiral | ||
Shares | Shares | ||
Ticker Symbol | VIS | VINAX | |
Expense Ratio1 | 0.10% | 0.10% | |
30-Day SEC Yield | 1.79% | 1.80% | |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | MSCI | ||
Industrials | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 342 | 341 | 2,482 |
Median Market Cap $36.9B | $36.9B | $63.1B | |
Price/Earnings Ratio | 22.4x | 22.4x | 22.0x |
Price/Book Ratio | 3.8x | 3.8x | 2.9x |
Return on Equity | 18.4% | 18.4% | 15.1% |
Earnings Growth Rate | 8.3% | 8.2% | 9.4% |
Dividend Yield | 1.8% | 1.8% | 1.8% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 5% | — | — |
Short-Term Reserves | 0.0% | — | — |
Volatility Measures | |||
MSCI US | |||
IMI/Industrials | MSCI US | ||
25/50 | IMI/2500 | ||
R-Squared | 1.00 | 0.86 | |
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 | 22.1% |
Agricultural & Farm Machinery | 1.6 |
Air Freight & Logistics | 6.1 |
Airlines | 4.9 |
Building Products | 4.2 |
Construction & Engineering | 1.7 |
Construction Machinery & Heavy Trucks | 5.9 |
Diversified Support Services | 1.3 |
Electrical Components & Equipment | 5.1 |
Environmental & Facilities Services | 3.3 |
Industrial Conglomerates | 17.1 |
Industrial Machinery | 10.4 |
Railroads | 6.7 |
Research & Consulting Services | 3.1 |
Trading Companies & Distributors | 2.7 |
Trucking | 1.4 |
Other Industrials | 2.4 |
Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other”
category (if applicable), which includes securities that have not been provided a GICS classification as of the effective
reporting period.
Ten Largest Holdings (% of total net assets)
General Electric | ||
Co. | Industrial Conglomerates | 7.8% |
Boeing Co. | Aerospace & Defense | 5.1 |
3M Co. | Industrial Conglomerates | 4.5 |
Honeywell | ||
International Inc. | Industrial Conglomerates | 3.7 |
United | ||
Technologies Corp. Aerospace & Defense | 3.4 | |
Union Pacific Corp. Road & Rail | 3.1 | |
Lockheed Martin | ||
Corp. | Aerospace & Defense | 2.9 |
United Parcel | ||
Service Inc. | ||
Class B | Air Freight & Logistics | 2.9 |
Caterpillar Inc. | Machinery | 2.5 |
FedEx Corp. | Air Freight & Logistics | 2.0 |
Top Ten | 37.9% |
The holdings listed exclude any temporary cash investments and equity index products.
1 The expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2017, the expense ratios were 0.10% for ETF Shares and 0.10% for Admiral Shares.
61
Industrials Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Cumulative Performance: August 31, 2007–August 31, 2017
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ussectorindexx64x1.jpg)
Average Annual Total Returns | Final Value | |||
Periods Ended August 31, 2017 | of a $10,000 | |||
One Year | Five Years | Ten Years | Investment | |
Industrials Index Fund ETF Shares | ||||
Net Asset Value | 17.55% | 15.85% | 7.64% | $20,872 |
Industrials Index Fund ETF Shares | ||||
Market Price | 17.52 | 15.84 | 7.66 | 20,912 |
Spliced US IMI/Industrials 25/50 | 17.58 | 15.95 | 7.76 | 21,113 |
Industrials Funds Average | 17.96 | 13.82 | 6.71 | 19,151 |
MSCI US IMI/2500 | 16.06 | 14.29 | 7.84 | 21,281 |
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 | 17.55% | 15.87% | 7.63% | $208,661 |
Spliced US IMI/Industrials 25/50 | 17.58 | 15.95 | 7.76 | 211,134 |
MSCI US IMI/2500 | 16.06 | 14.29 | 7.84 | 212,807 |
See Financial Highlights for dividend and capital gains information.
62
Industrials Index Fund
Fiscal-Year Total Returns (%): August 31, 2007–August 31, 2017
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ussectorindexx65x1.jpg)
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2007–August 31, 2017 | |||
One Year | Five Years | Ten Years | |
Industrials Index Fund ETF Shares Market Price | 17.52% | 108.57% | 109.12% |
Industrials Index Fund ETF Shares Net Asset Value | 17.55 | 108.72 | 108.72 |
Spliced US IMI/Industrials 25/50 | 17.58 | 109.58 | 111.13 |
Average Annual Total Returns: Periods Ended June 30, 2017
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 | 23.09% | 16.23% | 7.63% | ||
Net Asset Value | 23.04 | 16.21 | 7.62 | ||
Admiral Shares | 5/8/2006 | 23.02 | 16.23 | 7.61 |
See Financial Highlights for dividend and capital gains information.
63
Industrials Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2017
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Market | |||
Value• | |||
Shares | ($000) | ||
Common Stocks (99.9%) | |||
Aerospace & Defense (22.1%) | |||
Boeing Co. | 712,174 | 170,680 | |
United Technologies Corp. | 946,900 | 113,363 | |
Lockheed Martin Corp. | 323,173 | 98,694 | |
Raytheon Co. | 362,253 | 65,934 | |
General Dynamics Corp. | 318,283 | 64,086 | |
Northrop Grumman Corp. | 205,158 | 55,846 | |
Rockwell Collins Inc. | 200,958 | 26,335 | |
L3 Technologies Inc. | 96,308 | 17,478 | |
TransDigm Group Inc. | 65,435 | 17,056 | |
Textron Inc. | 334,323 | 16,412 | |
Arconic Inc. | 490,098 | 12,483 | |
Huntington Ingalls | |||
Industries Inc. | 56,941 | 12,183 | |
Spirit AeroSystems | |||
Holdings Inc. Class A | 150,747 | 11,231 | |
Orbital ATK Inc. | 71,396 | 7,966 | |
* | Teledyne Technologies Inc. | 41,410 | 6,214 |
Hexcel Corp. | 113,198 | 6,087 | |
BWX Technologies Inc. | 111,118 | 6,080 | |
Curtiss-Wright Corp. | 52,336 | 5,067 | |
HEICO Corp. Class A | 59,374 | 4,313 | |
* | KLX Inc. | 64,972 | 3,115 |
* | Moog Inc. Class A | 40,040 | 3,073 |
HEICO Corp. | 33,371 | 2,862 | |
* | Mercury Systems Inc. | 59,304 | 2,861 |
* | Esterline Technologies Corp. | 33,391 | 2,852 |
* | DigitalGlobe Inc. | 77,110 | 2,653 |
* | Aerojet Rocketdyne | ||
Holdings Inc. | 78,286 | 2,320 | |
AAR Corp. | 40,479 | 1,460 | |
*,^ Axon Enterprise Inc. | 66,101 | 1,435 | |
Cubic Corp. | 32,059 | 1,377 | |
* | Aerovironment Inc. | 26,084 | 1,279 |
* | Kratos Defense & Security | ||
Solutions Inc. | 91,238 | 1,221 | |
* | Engility Holdings Inc. | 25,551 | 794 |
National Presto Industries | |||
Inc. | 6,022 | 600 | |
* | Astronics Corp. | 22,407 | 589 |
Triumph Group Inc. | 21,402 | 563 | |
* | KeyW Holding Corp. | 55,080 | 394 |
* | Astronics Corp. Class B | 5,016 | 131 |
* | Wesco Aircraft Holdings Inc. | 1,379 | 11 |
747,098 | |||
Air Freight & Logistics (6.1%) | |||
United Parcel Service Inc. | |||
Class B | 852,478 | 97,489 | |
FedEx Corp. | 313,775 | 67,267 | |
Expeditors International of | |||
Washington Inc. | 223,091 | 12,515 | |
CH Robinson Worldwide | |||
Inc. | 175,033 | 12,363 | |
* | XPO Logistics Inc. | 138,216 | 8,459 |
* | Atlas Air Worldwide | ||
Holdings Inc. | 31,302 | 2,091 | |
Forward Air Corp. | 37,850 | 1,967 |
Market | ||||
Value• | ||||
Shares | ($000) | |||
* | Hub Group Inc. Class A | 41,774 | 1,606 | |
* | Air Transport Services | |||
Group Inc. | 69,853 | 1,604 | ||
* | Echo Global Logistics Inc. | 93 | 2 | |
205,363 | ||||
Airlines (4.9%) | ||||
Delta Air Lines Inc. | 909,231 | 42,907 | ||
Southwest Airlines Co. | 760,984 | 39,678 | ||
American Airlines Group | ||||
Inc. | 623,726 | 27,905 | ||
* | United Continental Holdings | |||
Inc. | 389,480 | 24,132 | ||
Alaska Air Group Inc. | 152,860 | 11,413 | ||
* | JetBlue Airways Corp. | 417,863 | 8,278 | |
* | Spirit Airlines Inc. | 86,296 | 2,938 | |
* | Hawaiian Holdings Inc. | 66,778 | 2,861 | |
SkyWest Inc. | 64,316 | 2,232 | ||
Allegiant Travel Co. Class A | 16,527 | 1,950 | ||
164,294 | ||||
Building Products (4.2%) | ||||
Johnson Controls | ||||
International plc | 1,161,053 | 45,966 | ||
Masco Corp. | 396,508 | 14,580 | ||
Fortune Brands Home & | ||||
Security Inc. | 191,142 | 11,952 | ||
Owens Corning | 139,347 | 10,330 | ||
AO Smith Corp. | 182,261 | 10,150 | ||
Allegion plc | 118,092 | 9,295 | ||
Lennox International Inc. | 47,868 | 7,933 | ||
* | USG Corp. | 118,458 | 3,554 | |
* | Trex Co. Inc. | 36,350 | 2,763 | |
* | Armstrong World | |||
Industries Inc. | 49,965 | 2,373 | ||
* | Masonite International Corp. | 37,216 | 2,356 | |
Universal Forest Products | ||||
Inc. | 25,459 | 2,220 | ||
Simpson Manufacturing Co. | ||||
Inc. | 50,521 | 2,212 | ||
* | Builders FirstSource Inc. | 125,970 | 2,051 | |
AAON Inc. | 52,358 | 1,707 | ||
Apogee Enterprises Inc. | 35,610 | 1,556 | ||
* | American Woodmark Corp. | 18,151 | 1,503 | |
* | Patrick Industries Inc. | 20,011 | 1,481 | |
* | Continental Building | |||
Products Inc. | 49,977 | 1,217 | ||
* | Gibraltar Industries Inc. | 37,468 | 1,096 | |
Advanced Drainage | ||||
Systems Inc. | 48,466 | 943 | ||
* | NCI Building Systems Inc. | 53,486 | 898 | |
* | CSW Industrials Inc. | 19,715 | 825 | |
* | PGT Innovations Inc. | 62,044 | 819 | |
Quanex Building Products | ||||
Corp. | 38,799 | 760 | ||
Griffon Corp. | 38,865 | 721 | ||
Insteel Industries Inc. | 22,400 | 561 | ||
* | Ply Gem Holdings Inc. | 30,355 | 472 | |
* | Armstrong Flooring Inc. | 27,001 | 403 | |
142,697 |
Market | |||
Value• | |||
Shares | ($000) | ||
Commercial Services & Supplies (5.6%) | |||
Waste Management Inc. | 545,755 | 42,083 | |
Waste Connections Inc. | 325,906 | 21,735 | |
Republic Services Inc. | |||
Class A | 293,726 | 19,163 | |
Cintas Corp. | 110,733 | 14,950 | |
* | Copart Inc. | 256,076 | 8,371 |
KAR Auction Services Inc. | 169,578 | 7,646 | |
* | Stericycle Inc. | 105,465 | 7,582 |
Rollins Inc. | 121,451 | 5,394 | |
Healthcare Services | |||
Group Inc. | 90,435 | 4,630 | |
Brink’s Co. | 56,137 | 4,404 | |
Deluxe Corp. | 60,102 | 4,168 | |
* | Clean Harbors Inc. | 67,352 | 3,643 |
MSA Safety Inc. | 42,328 | 3,084 | |
ABM Industries Inc. | 69,167 | 3,073 | |
Tetra Tech Inc. | 71,450 | 3,044 | |
Pitney Bowes Inc. | 231,071 | 2,969 | |
UniFirst Corp. | 19,119 | 2,745 | |
Herman Miller Inc. | 74,429 | 2,504 | |
Matthews International | |||
Corp. Class A | 40,228 | 2,424 | |
^ | Covanta Holding Corp. | 146,855 | 2,107 |
HNI Corp. | 54,940 | 2,014 | |
Brady Corp. Class A | 59,267 | 1,977 | |
Mobile Mini Inc. | 54,771 | 1,657 | |
Interface Inc. Class A | 80,570 | 1,531 | |
* | ACCO Brands Corp. | 136,709 | 1,497 |
Steelcase Inc. Class A | 109,241 | 1,442 | |
Multi-Color Corp. | 17,959 | 1,433 | |
Viad Corp. | 25,507 | 1,402 | |
US Ecology Inc. | 27,039 | 1,390 | |
West Corp. | 58,613 | 1,370 | |
McGrath RentCorp | 28,655 | 1,157 | |
Knoll Inc. | 62,072 | 1,120 | |
* | SP Plus Corp. | 28,088 | 1,036 |
* | Advanced Disposal Services | ||
Inc. | 38,798 | 925 | |
* | Casella Waste Systems Inc. | ||
Class A | 48,228 | 811 | |
Kimball International Inc. | |||
Class B | 46,351 | 786 | |
Quad/Graphics Inc. | 38,371 | 731 | |
* | InnerWorkings Inc. | 63,406 | 664 |
Ennis Inc. | 32,464 | 620 | |
LSC Communications Inc. | 21,473 | 346 | |
CECO Environmental Corp. | 36,486 | 273 | |
RR Donnelley & Sons Co. | 3,934 | 36 | |
* | Civeo Corp. | 13,490 | 29 |
* | Team Inc. | 102 | 1 |
Essendant Inc. | 88 | 1 | |
189,968 | |||
Construction & Engineering (1.7%) | |||
Jacobs Engineering Group | |||
Inc. | 150,190 | 8,184 | |
* | Quanta Services Inc. | 188,180 | 6,761 |
Fluor Corp. | 173,030 | 6,674 |
64
Industrials Index Fund
Market | ||||
Value• | ||||
Shares | ($000) | |||
* | AECOM | 192,605 | 6,452 | |
EMCOR Group Inc. | 73,844 | 4,877 | ||
Valmont Industries Inc. | 27,966 | 4,015 | ||
* | MasTec Inc. | 82,199 | 3,354 | |
* | Dycom Industries Inc. | 39,240 | 3,166 | |
Granite Construction Inc. | 49,402 | 2,728 | ||
KBR Inc. | 107,767 | 1,753 | ||
Comfort Systems USA Inc. | 46,725 | 1,591 | ||
Primoris Services Corp. | 51,753 | 1,481 | ||
* | Tutor Perini Corp. | 49,723 | 1,300 | |
Argan Inc. | 18,199 | 1,153 | ||
* | Aegion Corp. Class A | 42,440 | 920 | |
^ | Chicago Bridge & Iron Co. | |||
NV | 69,723 | 860 | ||
* | MYR Group Inc. | 20,440 | 528 | |
* | NV5 Global Inc. | 9,851 | 475 | |
56,272 | ||||
Electrical Equipment (5.1%) | ||||
Emerson Electric Co. | 797,855 | 47,105 | ||
Eaton Corp. plc | 556,217 | 39,914 | ||
Rockwell Automation Inc. | 159,209 | 26,120 | ||
AMETEK Inc. | 284,355 | 17,985 | ||
Acuity Brands Inc. | 54,548 | 9,644 | ||
* | Sensata Technologies | |||
Holding NV | 211,881 | 9,463 | ||
Hubbell Inc. Class B | 65,372 | 7,373 | ||
Regal Beloit Corp. | 55,474 | 4,183 | ||
EnerSys | 53,829 | 3,450 | ||
* | Generac Holdings Inc. | 77,671 | 3,136 | |
AZZ Inc. | 32,365 | 1,583 | ||
Encore Wire Corp. | 25,957 | 1,114 | ||
* | Thermon Group Holdings | |||
Inc. | 40,444 | 668 | ||
* | Atkore International Group | |||
Inc. | 39,192 | 653 | ||
* | Sunrun Inc. | 84,961 | 569 | |
* | Vicor Corp. | 22,190 | 432 | |
General Cable Corp. | 18,313 | 310 | ||
* | Vivint Solar Inc. | 38,568 | 183 | |
* | TPI Composites Inc. | 8,670 | 176 | |
*,^ Plug Power Inc. | 79,138 | 169 | ||
* | Babcock & Wilcox | |||
Enterprises Inc. | 774 | 2 | ||
Powell Industries Inc. | 20 | 1 | ||
174,233 | ||||
Industrial Conglomerates (17.1%) | ||||
General Electric Co. | 10,761,324 | 264,190 | ||
3M Co. | 737,777 | 150,743 | ||
Honeywell International | ||||
Inc. | 894,638 | 123,702 | ||
Roper Technologies Inc. | 126,115 | 29,090 | ||
Carlisle Cos. Inc. | 80,097 | 7,584 | ||
Raven Industries Inc. | 44,940 | 1,258 | ||
576,567 | ||||
Machinery (17.9%) | ||||
Caterpillar Inc. | 727,704 | 85,498 | ||
Illinois Tool Works Inc. | 385,772 | 53,047 | ||
Deere & Co. | 334,620 | 38,792 | ||
Cummins Inc. | 197,687 | 31,507 | ||
PACCAR Inc. | 434,113 | 28,795 | ||
Ingersoll-Rand plc | 321,138 | 27,422 | ||
Stanley Black & Decker Inc. 189,058 | 27,224 | |||
Parker-Hannifin Corp. | 165,013 | 26,549 | ||
Fortive Corp. | 385,496 | 25,046 | ||
Dover Corp. | 192,412 | 16,332 | ||
Xylem Inc. | 222,234 | 13,794 | ||
Pentair plc | 214,240 | 13,294 | ||
IDEX Corp. | 94,570 | 11,120 | ||
Snap-on Inc. | 71,860 | 10,604 | ||
* | WABCO Holdings Inc. | 64,158 | 9,214 | |
* | Middleby Corp. | 71,204 | 8,665 |
Market | |||
Value• | |||
Shares | ($000) | ||
Toro Co. | 133,408 | 8,229 | |
Graco Inc. | 69,478 | 8,025 | |
^ | Wabtec Corp. | 107,012 | 7,552 |
Donaldson Co. Inc. | 155,214 | 7,334 | |
Nordson Corp. | 64,159 | 7,013 | |
Oshkosh Corp. | 92,477 | 6,899 | |
Lincoln Electric Holdings | |||
Inc. | 73,226 | 6,359 | |
Flowserve Corp. | 161,840 | 6,357 | |
Allison Transmission | |||
Holdings Inc. | 181,021 | 6,287 | |
AGCO Corp. | 79,778 | 5,461 | |
Terex Corp. | 131,068 | 5,053 | |
Trinity Industries Inc. | 169,593 | 4,891 | |
Woodward Inc. | 68,400 | 4,802 | |
* | Colfax Corp. | 114,203 | 4,554 |
ITT Inc. | 110,085 | 4,443 | |
Crane Co. | 58,941 | 4,375 | |
Barnes Group Inc. | 63,361 | 3,961 | |
Timken Co. | 86,996 | 3,902 | |
Kennametal Inc. | 99,852 | 3,495 | |
John Bean Technologies | |||
Corp. | 39,065 | 3,465 | |
* | RBC Bearings Inc. | 29,870 | 3,294 |
* | Welbilt Inc. | 163,954 | 3,263 |
* | Rexnord Corp. | 128,099 | 3,059 |
Hillenbrand Inc. | 79,461 | 2,841 | |
Mueller Water Products Inc. | |||
Class A | 202,511 | 2,428 | |
* | Proto Labs Inc. | 31,331 | 2,250 |
* | Meritor Inc. | 104,096 | 2,067 |
Mueller Industries Inc. | 68,343 | 2,039 | |
Watts Water Technologies | |||
Inc. Class A | 32,759 | 2,021 | |
Albany International Corp. | 35,843 | 1,921 | |
* | Navistar International Corp. | 55,783 | 1,906 |
Franklin Electric Co. Inc. | 48,855 | 1,883 | |
EnPro Industries Inc. | 26,680 | 1,880 | |
Actuant Corp. Class A | 73,779 | 1,774 | |
ESCO Technologies Inc. | 31,965 | 1,740 | |
Altra Industrial Motion Corp. | 36,290 | 1,671 | |
Wabash National Corp. | 74,749 | 1,571 | |
Greenbrier Cos. Inc. | 35,552 | 1,525 | |
Standex International Corp. | 15,849 | 1,513 | |
Sun Hydraulics Corp. | 30,283 | 1,451 | |
Federal Signal Corp. | 74,861 | 1,399 | |
* | TriMas Corp. | 57,324 | 1,387 |
* | Manitowoc Co. Inc. | 167,923 | 1,382 |
Tennant Co. | 22,357 | 1,363 | |
* | SPX Corp. | 53,041 | 1,278 |
Astec Industries Inc. | 24,508 | 1,218 | |
Kadant Inc. | 13,791 | 1,198 | |
* | Milacron Holdings Corp. | 73,984 | 1,180 |
^ | Lindsay Corp. | 13,304 | 1,152 |
Alamo Group Inc. | 12,303 | 1,129 | |
Briggs & Stratton Corp. | 53,444 | 1,119 | |
* | Lydall Inc. | 21,527 | 1,012 |
Douglas Dynamics Inc. | 28,011 | 978 | |
CIRCOR International Inc. | 17,663 | 848 | |
NN Inc. | 33,086 | 844 | |
Columbus McKinnon Corp. | 25,117 | 830 | |
Global Brass & Copper | |||
Holdings Inc. | 27,060 | 808 | |
* | SPX FLOW Inc. | 23,448 | 785 |
Hyster-Yale Materials | |||
Handling Inc. | 10,512 | 748 | |
Gorman-Rupp Co. | 23,876 | 727 | |
* | Harsco Corp. | 33,057 | 565 |
Titan International Inc. | 62,631 | 537 | |
Park-Ohio Holdings Corp. | 10,133 | 404 |
Market | ||||
Value• | ||||
Shares | ($000) | |||
^ | American Railcar Industries | |||
Inc. | 10,337 | 372 | ||
* | Energy Recovery Inc. | 43,573 | 283 | |
* | Chart Industries Inc. | 6,072 | 205 | |
* | Blue Bird Corp. | 9,146 | 166 | |
605,374 | ||||
Marine (0.2%) | ||||
* | Kirby Corp. | 67,066 | 4,198 | |
Matson Inc. | 54,112 | 1,396 | ||
5,594 | ||||
Professional Services (4.0%) | ||||
* | IHS Markit Ltd. | 502,531 | 23,539 | |
Equifax Inc. | 148,500 | 21,157 | ||
Nielsen Holdings plc | 442,413 | 17,188 | ||
* | Verisk Analytics Inc. Class A | 195,631 | 15,856 | |
ManpowerGroup Inc. | 83,857 | 9,351 | ||
* | TransUnion | 191,647 | 9,172 | |
Robert Half International Inc. | 158,107 | 7,162 | ||
Dun & Bradstreet Corp. | 45,656 | 5,088 | ||
* | On Assignment Inc. | 62,740 | 2,993 | |
* | WageWorks Inc. | 49,294 | 2,906 | |
* | Advisory Board Co. | 50,306 | 2,679 | |
Korn/Ferry International | 67,577 | 2,252 | ||
Exponent Inc. | 32,206 | 2,193 | ||
Insperity Inc. | 23,479 | 1,885 | ||
* | TriNet Group Inc. | 51,676 | 1,846 | |
* | FTI Consulting Inc. | 51,665 | 1,752 | |
* | ICF International Inc. | 23,783 | 1,143 | |
* | TrueBlue Inc. | 52,724 | 1,078 | |
* | CBIZ Inc. | 65,231 | 988 | |
* | Navigant Consulting Inc. | 59,781 | 916 | |
Kelly Services Inc. Class A | 39,020 | 844 | ||
* | RPX Corp. | 56,694 | 740 | |
Kforce Inc. | 30,171 | 543 | ||
* | GP Strategies Corp. | 15,969 | 457 | |
Resources Connection Inc. | 35,408 | 452 | ||
Heidrick & Struggles | ||||
International Inc. | 24,366 | 445 | ||
* | Mistras Group Inc. | 21,465 | 406 | |
* | Huron Consulting Group Inc. | 75 | 2 | |
* | Acacia Research Corp. | 118 | — | |
135,033 | ||||
Road & Rail (8.1%) | ||||
Union Pacific Corp. | 1,005,550 | 105,884 | ||
CSX Corp. | 1,145,884 | 57,523 | ||
Norfolk Southern Corp. | 359,375 | 43,312 | ||
Kansas City Southern | 132,023 | 13,655 | ||
JB Hunt Transport | ||||
Services Inc. | 110,325 | 10,910 | ||
Old Dominion Freight | ||||
Line Inc. | 81,693 | 8,161 | ||
* | Genesee & Wyoming Inc. | |||
Class A | 76,115 | 5,218 | ||
Ryder System Inc. | 66,221 | 5,139 | ||
Landstar System Inc. | 51,997 | 4,854 | ||
* | Avis Budget Group Inc. | 96,291 | 3,489 | |
Knight Transportation Inc. | 84,709 | 3,308 | ||
AMERCO | 8,507 | 3,175 | ||
* | Swift Transportation Co. | 98,841 | 2,773 | |
Werner Enterprises Inc. | 58,240 | 1,928 | ||
* | Saia Inc. | 31,646 | 1,790 | |
Heartland Express Inc. | 56,840 | 1,260 | ||
ArcBest Corp. | 30,649 | 910 | ||
Marten Transport Ltd. | 50,850 | 872 | ||
* | YRC Worldwide Inc. | 19,518 | 261 | |
* | Roadrunner Transportation | |||
Systems Inc. | 5,146 | 38 | ||
* | Hertz Global Holdings Inc. | 1,044 | 23 | |
Celadon Group Inc. | 2,013 | 10 | ||
274,493 |
65
Industrials Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Trading Companies & Distributors (2.7%) | |||
Fastenal Co. | 358,146 | 15,282 | |
* | United Rentals Inc. | 104,434 | 12,330 |
WW Grainger Inc. | 69,238 | 11,256 | |
* | HD Supply Holdings Inc. | 249,915 | 8,322 |
Watsco Inc. | 37,593 | 5,540 | |
Air Lease Corp. Class A | 121,442 | 4,935 | |
MSC Industrial Direct Co. | |||
Inc. Class A | 55,953 | 3,854 | |
* | Univar Inc. | 130,569 | 3,683 |
* | Beacon Roofing Supply Inc. | 74,974 | 3,531 |
* | WESCO International Inc. | 60,283 | 3,041 |
^ | GATX Corp. | 46,496 | 2,817 |
Applied Industrial | |||
Technologies Inc. | 48,673 | 2,774 | |
* | SiteOne Landscape Supply | ||
Inc. | 49,296 | 2,477 | |
Triton International Ltd. | 55,348 | 2,044 | |
* | Rush Enterprises Inc. | ||
Class A | 37,728 | 1,547 | |
Aircastle Ltd. | 68,413 | 1,534 | |
* | BMC Stock Holdings Inc. | 74,635 | 1,515 |
Kaman Corp. | 28,716 | 1,408 | |
* | GMS Inc. | 35,992 | 1,158 |
H&E Equipment Services | |||
Inc. | 39,938 | 940 | |
* | MRC Global Inc. | 54,705 | 863 |
* | NOW Inc. | 68,561 | 799 |
* | Veritiv Corp. | 14,938 | 418 |
* | Rush Enterprises Inc. | ||
Class B | 6,363 | 245 | |
* | Nexeo Solutions Inc. | 34,114 | 245 |
* | Herc Holdings Inc. | 4,375 | 185 |
* | DXP Enterprises Inc. | 3,335 | 90 |
92,833 | |||
Transportation Infrastructure (0.2%) | |||
Macquarie Infrastructure | |||
Corp. | 96,885 | 7,216 | |
7,216 | |||
Total Common Stocks | |||
(Cost $2,897,037) | 3,377,035 | ||
Temporary Cash Investment (0.1%) | |||
Money Market Fund (0.1%) | |||
1,2 Vanguard Market | |||
Liquidity Fund, 1.224% | |||
(Cost $2,070) | 20,703 | 2,071 | |
Total Investments (100.0%) | |||
(Cost $2,899,107) | 3,379,106 | ||
Amount | |
($000) | |
Other Assets and Liabilities (0.0%) | |
Other Assets | |
Investment in Vanguard | 215 |
Receivables for Investment Securities Sold 2,639 | |
Receivables for Accrued Income | 9,346 |
Receivables for Capital Shares Issued | 624 |
Total Other Assets | 12,824 |
Liabilities | |
Payables for Investment Securities | |
Purchased | (4,384) |
Collateral for Securities on Loan | (2,069) |
Payables for Capital Shares Redeemed | (72) |
Payables to Vanguard | (970) |
Other Liabilities | (6,605) |
Total Liabilities | (14,100) |
Net Assets (100%) | 3,377,830 |
At August 31, 2017, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 2,939,104 |
Undistributed Net Investment Income | 12,296 |
Accumulated Net Realized Losses | (53,569) |
Unrealized Appreciation (Depreciation) | 479,999 |
Net Assets | 3,377,830 |
ETF Shares—Net Assets | |
Applicable to 24,879,608 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 3,202,122 |
Net Asset Value Per Share— | |
ETF Shares | $128.70 |
Admiral Shares—Net Assets | |
Applicable to 2,657,353 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 175,708 |
Net Asset Value Per Share— | |
Admiral Shares | $66.12 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Includes partial security positions on loan to broker-dealers. The
total value of securities on loan is $1,938,000.
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 $2,069,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
66
Industrials Index Fund
Statement of Operations | |||
Year Ended | |||
August 31, 2017 | |||
($000) | |||
Investment Income | |||
Income | |||
Dividends | 59,495 | ||
Interest1 | 9 | ||
Securities Lending—Net | 304 | ||
Total Income | 59,808 | ||
Expenses | |||
The Vanguard Group—Note B | |||
Investment Advisory Services | 598 | ||
Management and Administrative— | |||
ETF Shares | 1,816 | ||
Management and Administrative— | |||
Admiral Shares | 81 | ||
Marketing and Distribution— | |||
ETF Shares | 145 | ||
Marketing and Distribution— | |||
Admiral Shares | 14 | ||
Custodian Fees | 120 | ||
Auditing Fees | 34 | ||
Shareholders’ Reports and Proxy— | |||
ETF Shares | 116 | ||
Shareholders’ Reports and Proxy— | |||
Admiral Shares | 5 | ||
Trustees’ Fees and Expenses | 2 | ||
Total Expenses | 2,931 | ||
Net Investment Income | 56,877 | ||
Realized Net Gain (Loss) | |||
Investment Securities Sold1 | 92,030 | ||
Futures Contracts | (20) | ||
Realized Net Gain (Loss) | 92,010 | ||
Change in Unrealized Appreciation | |||
(Depreciation) | |||
Investment Securities | 293,613 | ||
Futures Contracts | 5 | ||
Change in Unrealized Appreciation | |||
(Depreciation) | 293,618 | ||
Net Increase (Decrease) in Net Assets | |||
Resulting from Operations | 442,505 | ||
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, | |||
2017 | 2016 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 56,877 | 44,292 | |
Realized Net Gain (Loss) | 92,010 | 57,227 | |
Change in Unrealized Appreciation (Depreciation) | 293,618 | 201,269 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | 442,505 | 302,788 | |
Distributions | |||
Net Investment Income | |||
ETF Shares | (51,022) | (58,676) | |
Admiral Shares | (2,396) | (1,953) | |
Realized Capital Gain | |||
ETF Shares | — | — | |
Admiral Shares | — | — | |
Total Distributions | (53,418) | (60,629) | |
Capital Share Transactions | |||
ETF Shares | 492,584 | 205,564 | |
Admiral Shares | 81,187 | 3,504 | |
Net Increase (Decrease) from Capital Share Transactions | 573,771 | 209,068 | |
Total Increase (Decrease) | 962,858 | 451,227 | |
Net Assets | |||
Beginning of Period | 2,414,972 | 1,963,745 | |
End of Period1 | 3,377,830 | 2,414,972 | |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $12,296,000 and $8,799,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
67
Industrials Index Fund | ||||||
Financial Highlights | ||||||
ETF Shares | ||||||
For a Share Outstanding | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | |
Net Asset Value, Beginning of Period | $111.57 | $99.23 | $103.95 | $84.17 | $67.82 | |
Investment Operations | ||||||
Net Investment Income | 2.3831 | 2.083 | 1.914 | 1.508 | 1.5171 | |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | 16.998 | 13.204 | (4.961) | 19.332 | 16.321 | |
Total from Investment Operations | 19.381 | 15.287 | (3.047) | 20.840 | 17.838 | |
Distributions | ||||||
Dividends from Net Investment Income | (2.251) | (2.947) | (1.673) | (1.060) | (1.488) | |
Distributions from Realized Capital Gains | — | — | — | — | — | |
Total Distributions | (2.251) | (2.947) | (1.673) | (1.060) | (1.488) | |
Net Asset Value, End of Period | $128.70 | $111.57 | $99.23 | $103.95 | $84.17 | |
Total Return | 17.55% | 15.78% | -3.03% | 24.83% | 26.69% | |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $3,202 | $2,338 | $1,898 | $1,883 | $1,104 | |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.12% | 0.14% | |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 1.95% | 2.08% | 1.83% | 1.69% | 1.97% | |
Portfolio Turnover Rate2 | 5% | 8% | 4% | 5% | 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 | 2017 | 2016 | 2015 | 2014 | 2013 | |
Net Asset Value, Beginning of Period | $57.32 | $50.98 | $53.40 | $43.24 | $34.84 | |
Investment Operations | ||||||
Net Investment Income | 1.2371 | 1.069 | .982 | .780 | .7801 | |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | 8.721 | 6.783 | (2.541) | 9.922 | 8.382 | |
Total from Investment Operations | 9.958 | 7.852 | (1.559) | 10.702 | 9.162 | |
Distributions | ||||||
Dividends from Net Investment Income | (1.158) | (1.512) | (.861) | (.542) | (.762) | |
Distributions from Realized Capital Gains | — | — | — | — | — | |
Total Distributions | (1.158) | (1.512) | (.861) | (.542) | (.762) | |
Net Asset Value, End of Period | $66.12 | $57.32 | $50.98 | $53.40 | $43.24 | |
Total Return 2 | 17.55% | 15.77% | -2.98% | 24.84% | 26.70% | |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $176 | $77 | $66 | $71 | $18 | |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.12% | 0.14% | |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 1.95% | 2.08% | 1.83% | 1.69% | 1.97% | |
Portfolio Turnover Rate3 | 5% | 8% | 4% | 5% | 6% |
1 Calculated based on average shares outstanding.
2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about
any applicable account service fees.
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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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. Temporary cash investments 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.
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 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 futures gains (losses).
During the year ended August 31, 2017, 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 the notional amounts each quarter-end during the period. The fund had no open futures contracts at August 31, 2017.
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, 2014–2017), 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 event of a default, the fund may
69
Industrials Index Fund
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, 2017, 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), shareholder reporting, and the proxy. 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, 2017, the fund had contributed to Vanguard capital in the amount of $215,000, representing 0.01% of the fund’s net assets and 0.09% 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). Any investments valued with significant unobservable inputs are noted
on the Statement of Net Assets.
At August 31, 2017, 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
70
Industrials Index Fund
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, 2017, the fund realized $128,911,000 of net capital gains resulting from in-kind redemptions—in which shareholders exchanged fund shares for securities held by the fund rather than for cash. Because such gains are not taxable to the fund, and are not distributed to shareholders, they have been reclassified from accumulated net realized losses to paid-in capital.
For tax purposes, at August 31, 2017, the fund had $13,262,000 of ordinary income available for distribution. At August 31, 2017, the fund had available capital losses totaling $53,569,000 to offset future net capital gains. Of this amount, $16,635,000 is subject to expiration dates; $11,504,000 may be used to offset future net capital gains through August 31, 2018, and $5,131,000 through August 31, 2019. Capital losses of $36,934,000 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, 2017, the cost of investment securities for tax purposes was $2,899,266,000. Net unrealized appreciation of investment securities for tax purposes was $479,840,000, consisting of unrealized gains of $591,159,000 on securities that had risen in value since their purchase and $111,319,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2017, the fund purchased $1,177,381,000 of investment securities and sold $597,788,000 of investment securities, other than temporary cash investments. Purchases and sales include $906,025,000 and $464,909,000, 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, | ||||
2017 | 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 957,768 | 7,878 | 445,652 | 4,225 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (465,184) | (3,950) | (240,088) | (2,400) |
Net Increase (Decrease)—ETF Shares | 492,584 | 3,928 | 205,564 | 1,825 |
Admiral Shares | ||||
Issued | 137,665 | 2,204 | 32,083 | 601 |
Issued in Lieu of Cash Distributions | 2,135 | 34 | 1,846 | 36 |
Redeemed | (58,613) | (930) | (30,425) | (578) |
Net Increase (Decrease)—Admiral Shares | 81,187 | 1,308 | 3,504 | 59 |
At August 31, 2017, one shareholder was the record or beneficial owner of 50% of the fund’s net assets. If the shareholder were to redeem its investment in the fund, the redemption might result in an increase in the fund’s expense ratio.
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2017, that would require recognition or disclosure in these financial statements.
71
Information Technology Index Fund
Fund Profile
As of August 31, 2017
Share-Class Characteristics | ||
ETF | Admiral | |
Shares | Shares | |
Ticker Symbol | VGT | VITAX |
Expense Ratio1 | 0.10% | 0.10% |
30-Day SEC Yield | 1.12% | 1.12% |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | |||
Information | MSCI | ||
Technology | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 364 | 362 | 2,482 |
Median Market Cap $164.8B | $164.8B | $63.1B | |
Price/Earnings Ratio | 24.8x | 24.8x | 22.0x |
Price/Book Ratio | 4.9x | 4.9x | 2.9x |
Return on Equity | 17.4% | 17.4% | 15.1% |
Earnings Growth Rate | 11.9% | 11.9% | 9.4% |
Dividend Yield | 1.2% | 1.2% | 1.8% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 6% | — | — |
Short-Term Reserves | 0.0% | — | — |
Volatility Measures | ||
MSCI US | ||
IMI/Information | ||
Technology | MSCI US | |
25/50 | IMI/2500 | |
R-Squared | 1.00 | 0.73 |
Beta | 1.00 | 1.16 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months. | ||
Subindustry Diversification | |
(% of equity exposure) | |
Application Software | 6.4% |
Communications Equipment | 4.9 |
Data Processing & Outsourced Services | 11.3 |
Electronic Components | 1.3 |
Electronic Equipment & Instruments | 1.0 |
Electronic Manufacturing Services | 1.0 |
Home Entertainment Software | 1.7 |
Internet Software & Services | 19.9 |
IT Consulting & Other Services | 5.6 |
Semiconductor Equipment | 2.2 |
Semiconductors | 13.0 |
Systems Software | 14.2 |
Technology Hardware, Storage & Peripherals | 16.9 |
Other Information Technology | 0.6 |
Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” category (if applicable), which includes securities that have | |
not been provided a GICS classification as of the effective reporting period. | |
Ten Largest Holdings (% of total net assets) | ||
Apple Inc. | Technology Hardware, | |
Storage & Peripherals | 14.8% | |
Alphabet Inc. | Internet Software | |
& Services | 10.0 | |
Microsoft Corp. | Systems Software | 9.5 |
Facebook Inc. | Internet Software | |
& Services | 7.0 | |
Visa Inc. | Data Processing | |
& Outsourced Services | 3.3 | |
Intel Corp. | Semiconductors | 2.8 |
Cisco Systems Inc. | Communications | |
Equipment | 2.8 | |
Oracle Corp. | Systems Software | 2.7 |
International | ||
Business Machines | IT Consulting & | |
Corp. | Other Services | 2.2 |
MasterCard Inc. | Data Processing | |
& Outsourced Services | 2.2 | |
Top Ten | 57.3% | |
The holdings listed exclude any temporary cash investments and equity index products. | ||
1 The expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2017, the expense ratios were 0.10% for
ETF Shares and 0.10% for Admiral Shares.
72
Information Technology Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Cumulative Performance: August 31, 2007–August 31, 2017
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ussectorindexx75x1.jpg)
Average Annual Total Returns | Final Value | |||
Periods Ended August 31, 2017 | of a $10,000 | |||
One Year | Five Years | Ten Years | Investment | |
Information Technology Index Fund | ||||
ETF Shares Net Asset Value | 29.93% | 17.36% | 11.03% | $28,484 |
Information Technology Index Fund | ||||
ETF Shares Market Price | 29.93 | 17.35 | 11.04 | 28,491 |
Spliced US IMI/Information Technology 25/50 | 30.05 | 17.49 | 11.19 | 28,889 |
Science and Technology Funds Average | 29.57 | 17.57 | 9.99 | 25,921 |
MSCI US IMI/2500 | 16.06 | 14.29 | 7.84 | 21,281 |
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 | 29.94% | 17.37% | 11.03% | $284,743 |
Spliced US IMI/Information Technology 25/50 | 30.05 | 17.49 | 11.19 | 288,888 |
MSCI US IMI/2500 | 16.06 | 14.29 | 7.84 | 212,807 |
See Financial Highlights for dividend and capital gains information.
73
Information Technology Index Fund
Fiscal-Year Total Returns (%): August 31, 2007–August 31, 2017
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ussectorindexx76x1.jpg)
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2007–August 31, 2017 | |||
One Year | Five Years | Ten Years | |
Information Technology Index Fund ETF Shares Market Price | 29.93% | 122.56% | 184.91% |
Information Technology Index Fund ETF Shares Net Asset Value | 29.93 | 122.63 | 184.84 |
Spliced US IMI/Information Technology 25/50 | 30.05 | 123.86 | 188.89 |
Average Annual Total Returns: Periods Ended June 30, 2017
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 | 33.28% | 16.98% | 10.44% | ||
Net Asset Value | 33.26 | 16.95 | 10.43 | ||
Admiral Shares | 3/25/2004 | 33.25 | 16.96 | 10.42 |
See Financial Highlights for dividend and capital gains information.
74
Information Technology Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2017
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 (4.9%) | ||||
Cisco Systems Inc. | 13,435,018 | 432,742 | ||
Harris Corp. | 327,287 | 40,224 | ||
Motorola Solutions Inc. | 438,900 | 38,676 | ||
* | Palo Alto Networks Inc. | 246,597 | 32,721 | |
Juniper Networks Inc. | 1,026,482 | 28,464 | ||
* | Arista Networks Inc. | 125,692 | 22,141 | |
* | F5 Networks Inc. | 173,775 | 20,745 | |
* | CommScope Holding Co. | |||
Inc. | 517,891 | 17,122 | ||
Brocade Communications | ||||
Systems Inc. | 1,101,965 | 13,642 | ||
* | ARRIS International plc | 478,978 | 13,344 | |
*,^ ViaSat Inc. | 147,106 | 9,357 | ||
* | Lumentum Holdings Inc. | 163,603 | 9,301 | |
* | Ciena Corp. | 379,337 | 8,198 | |
* | EchoStar Corp. Class A | 128,656 | 7,758 | |
* | NetScout Systems Inc. | 234,795 | 7,690 | |
* | Finisar Corp. | 300,660 | 7,261 | |
InterDigital Inc. | 93,608 | 6,679 | ||
* | Viavi Solutions Inc. | 609,417 | 6,119 | |
*,^ Ubiquiti Networks Inc. | 75,356 | 4,491 | ||
* | NETGEAR Inc. | 87,542 | 4,202 | |
Plantronics Inc. | 90,733 | 3,868 | ||
*,^ Oclaro Inc. | 450,113 | 3,785 | ||
* | Extreme Networks Inc. | 295,843 | 3,382 | |
* | Infinera Corp. | 393,623 | 3,330 | |
*,^ Applied Optoelectronics Inc. | 48,447 | 2,864 | ||
ADTRAN Inc. | 128,335 | 2,836 | ||
*,^ Acacia Communications Inc. | 45,876 | 2,240 | ||
* | Mitel Networks Corp. | 242,496 | 1,974 | |
* | CalAmp Corp. | 98,376 | 1,824 | |
* | ShoreTel Inc. | 186,864 | 1,392 | |
Comtech | ||||
Telecommunications Corp. | 65,831 | 1,288 | ||
* | Sonus Networks Inc. | 131,168 | 906 | |
* | Harmonic Inc. | 212,743 | 691 | |
* | Quantenna | |||
Communications Inc. | 36,120 | 671 | ||
* | Calix Inc. | 121,464 | 595 | |
762,523 | ||||
Electronic Equipment, Instruments | ||||
& Components (4.0%) | ||||
TE Connectivity Ltd. | 953,237 | 75,878 | ||
Corning Inc. | 2,470,899 | 71,063 | ||
Amphenol Corp. Class A | 820,609 | 66,420 | ||
CDW Corp. | 421,778 | 26,749 | ||
* | Trimble Inc. | 678,747 | 26,254 | |
Cognex Corp. | 232,557 | 25,342 | ||
* | Flex Ltd. | 1,422,846 | 23,150 | |
* | Keysight Technologies Inc. | 498,096 | 20,352 | |
* | Arrow Electronics Inc. | 238,965 | 18,981 | |
* | IPG Photonics Corp. | 100,814 | 17,722 | |
* | Coherent Inc. | 66,020 | 15,404 | |
* | Zebra Technologies Corp. | 142,182 | 14,658 | |
Universal Display Corp. | 114,043 | 14,495 | ||
FLIR Systems Inc. | 366,738 | 13,936 | ||
Jabil Inc. | 439,504 | 13,778 |
Market | |||
Value• | |||
Shares | ($000) | ||
Avnet Inc. | 335,660 | 12,946 | |
National Instruments Corp. | 313,441 | 12,660 | |
Littelfuse Inc. | 61,154 | 11,384 | |
* | Tech Data Corp. | 102,103 | 11,261 |
SYNNEX Corp. | 80,301 | 9,605 | |
Belden Inc. | 113,172 | 8,722 | |
Dolby Laboratories Inc. | |||
Class A | 155,742 | 7,859 | |
* | Sanmina Corp. | 202,851 | 7,597 |
* | Itron Inc. | 92,840 | 6,740 |
Vishay Intertechnology Inc. | 357,318 | 6,324 | |
* | VeriFone Systems Inc. | 300,371 | 5,938 |
* | Anixter International Inc. | 80,192 | 5,918 |
* | Rogers Corp. | 48,657 | 5,768 |
* | II-VI Inc. | 151,628 | 5,436 |
* | Plexus Corp. | 91,093 | 4,744 |
* | Benchmark Electronics Inc. | 133,332 | 4,333 |
* | OSI Systems Inc. | 47,636 | 3,957 |
* | Fabrinet | 100,766 | 3,914 |
* | Insight Enterprises Inc. | 97,177 | 3,895 |
Methode Electronics Inc. | 93,478 | 3,823 | |
Badger Meter Inc. | 78,441 | 3,600 | |
* | Novanta Inc. | 89,338 | 3,493 |
* | Knowles Corp. | 236,362 | 3,467 |
* | TTM Technologies Inc. | 234,137 | 3,334 |
* | ePlus Inc. | 37,644 | 3,151 |
* | ScanSource Inc. | 66,943 | 2,627 |
* | Fitbit Inc. Class A | 422,518 | 2,548 |
AVX Corp. | 136,146 | 2,376 | |
MTS Systems Corp. | 45,178 | 2,187 | |
CTS Corp. | 84,159 | 1,894 | |
* | FARO Technologies Inc. | 45,018 | 1,551 |
* | Kimball Electronics Inc. | 75,608 | 1,440 |
Mesa Laboratories Inc. | 9,003 | 1,230 | |
Park Electrochemical Corp. | 52,856 | 960 | |
Daktronics Inc. | 98,779 | 951 | |
PC Connection Inc. | 32,681 | 834 | |
622,649 | |||
Internet & Direct Marketing Retail (0.0%) | |||
* | Etsy Inc. | 217,556 | 3,561 |
Internet Software & Services (19.9%) | |||
* | Facebook Inc. Class A | 6,353,977 | 1,092,693 |
* | Alphabet Inc. Class C | 839,052 | 788,147 |
* | Alphabet Inc. Class A | 799,710 | 763,915 |
* | eBay Inc. | 2,763,753 | 99,854 |
MercadoLibre Inc. | 112,673 | 29,123 | |
* | Twitter Inc. | 1,667,959 | 28,205 |
* | VeriSign Inc. | 245,206 | 25,440 |
* | CoStar Group Inc. | 88,001 | 25,223 |
* | IAC/InterActiveCorp | 195,975 | 22,245 |
* | Akamai Technologies Inc. | 465,855 | 21,965 |
LogMeIn Inc. | 140,933 | 16,123 | |
* | GrubHub Inc. | 220,339 | 12,579 |
* | Zillow Group Inc. | 280,819 | 11,126 |
* | GoDaddy Inc. Class A | 225,522 | 10,108 |
j2 Global Inc. | 128,889 | 9,703 | |
* | Yelp Inc. Class A | 205,569 | 8,757 |
* | Stamps.com Inc. | 43,155 | 8,253 |
Market | |||
Value• | |||
Shares | ($000) | ||
* | WebMD Health Corp. | 100,818 | 6,698 |
* | 2U Inc. | 121,399 | 6,082 |
*,^ Cimpress NV | 63,032 | 5,827 | |
* | Pandora Media Inc. | 647,374 | 5,470 |
* | Zillow Group Inc. Class A | 132,696 | 5,297 |
* | Envestnet Inc. | 116,864 | 5,195 |
* | Cornerstone OnDemand | ||
Inc. | 138,439 | 4,843 | |
* | Cars.com Inc. | 184,624 | 4,774 |
* | Twilio Inc. Class A | 157,278 | 4,605 |
* | New Relic Inc. | 86,603 | 4,148 |
* | Box Inc. | 198,705 | 3,899 |
* | Trade Desk Inc. Class A | 70,160 | 3,716 |
* | Q2 Holdings Inc. | 83,194 | 3,378 |
* | TrueCar Inc. | 188,222 | 3,190 |
* | Quotient Technology Inc. | 194,524 | 2,918 |
* | SPS Commerce Inc. | 46,901 | 2,857 |
* | Match Group Inc. | 129,994 | 2,827 |
* | Web.com Group Inc. | 111,168 | 2,813 |
NIC Inc. | 168,413 | 2,754 | |
* | GTT Communications Inc. | 84,333 | 2,678 |
* | Five9 Inc. | 117,745 | 2,532 |
* | Blucora Inc. | 109,627 | 2,500 |
*,^ Gogo Inc. | 148,722 | 2,084 | |
* | Hortonworks Inc. | 119,910 | 2,037 |
* | Coupa Software Inc. | 66,777 | 2,034 |
*,^ Nutanix Inc. | 91,410 | 2,011 | |
* | Alarm.com Holdings Inc. | 42,724 | 1,919 |
* | Bankrate Inc. | 131,754 | 1,825 |
* | MINDBODY Inc. Class A | 76,401 | 1,807 |
* | LivePerson Inc. | 130,984 | 1,755 |
* | Shutterstock Inc. | 51,512 | 1,730 |
* | CommerceHub Inc. | 75,984 | 1,613 |
* | Endurance International | ||
Group Holdings Inc. | 170,048 | 1,309 | |
* | Benefitfocus Inc. | 40,848 | 1,260 |
* | XO Group Inc. | 66,988 | 1,247 |
* | Angie’s List Inc. | 101,580 | 1,235 |
*,^ Tucows Inc. Class A | 20,810 | 1,100 | |
* | Actua Corp. | 81,254 | 1,040 |
* | Instructure Inc. | 34,974 | 1,035 |
* | Bazaarvoice Inc. | 209,299 | 994 |
* | Apptio Inc. Class A | 53,005 | 944 |
* | CommerceHub Inc. | ||
Class A | 37,471 | 831 | |
* | Meet Group Inc. | 159,525 | 625 |
* | Internap Corp. | 105,851 | 473 |
* | Appfolio Inc. | 9,883 | 424 |
* | DHI Group Inc. | 119,455 | 233 |
* | Rocket Fuel Inc. | 285 | 1 |
3,094,026 | |||
IT Services (16.9%) | |||
Visa Inc. Class A | 4,960,798 | 513,542 | |
International Business | |||
Machines Corp. | 2,398,281 | 343,026 | |
Mastercard Inc. Class A | 2,548,723 | 339,745 | |
Accenture plc Class A | 1,666,227 | 217,876 | |
* | PayPal Holdings Inc. | 3,066,560 | 189,145 |
75
Information Technology Index Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Automatic Data | |||
Processing Inc. | 1,202,376 | 128,017 | |
Cognizant Technology | |||
Solutions Corp. Class A | 1,583,265 | 112,048 | |
Fidelity National | |||
Information Services Inc. | 887,667 | 82,482 | |
* | Fiserv Inc. | 571,095 | 70,650 |
DXC Technology Co. | 760,288 | 64,624 | |
Paychex Inc. | 869,076 | 49,563 | |
Global Payments Inc. | 409,745 | 39,126 | |
* | FleetCor Technologies Inc. | 247,792 | 35,625 |
Total System Services Inc. | 445,362 | 30,783 | |
* | Vantiv Inc. Class A | 435,095 | 30,757 |
Alliance Data Systems | |||
Corp. | 134,546 | 30,340 | |
* | Gartner Inc. | 243,242 | 29,333 |
Broadridge Financial | |||
Solutions Inc. | 315,675 | 24,664 | |
Western Union Co. | 1,265,485 | 23,943 | |
Leidos Holdings Inc. | 385,645 | 22,491 | |
Jack Henry & Associates | |||
Inc. | 208,330 | 21,473 | |
* | First Data Corp. Class A | 956,186 | 17,603 |
* | Square Inc. | 586,220 | 15,306 |
CSRA Inc. | 439,744 | 13,856 | |
Booz Allen Hamilton | |||
Holding Corp. Class A | 397,203 | 13,549 | |
* | Euronet Worldwide Inc. | 134,014 | 13,170 |
* | WEX Inc. | 104,189 | 11,371 |
* | Teradata Corp. | 351,574 | 11,222 |
* | EPAM Systems Inc. | 132,304 | 10,760 |
* | CoreLogic Inc. | 226,633 | 10,645 |
MAXIMUS Inc. | 173,472 | 10,544 | |
Sabre Corp. | 562,299 | 10,369 | |
Science Applications | |||
International Corp. | 118,045 | 8,721 | |
DST Systems Inc. | 165,806 | 8,511 | |
* | CACI International Inc. | ||
Class A | 65,556 | 8,509 | |
* | Conduent Inc. | 477,685 | 7,887 |
* | Blackhawk Network | ||
Holdings Inc. | 143,222 | 6,416 | |
Convergys Corp. | 252,944 | 5,944 | |
* | ExlService Holdings Inc. | 91,252 | 5,136 |
Travelport Worldwide Ltd. | 336,053 | 5,088 | |
* | Acxiom Corp. | 209,910 | 4,889 |
* | Black Knight Financial | ||
Services Inc. Class A | 83,733 | 3,567 | |
CSG Systems International | |||
Inc. | 91,105 | 3,527 | |
* | Cardtronics plc Class A | 124,242 | 3,228 |
EVERTEC Inc. | 164,943 | 3,035 | |
ManTech International | |||
Corp. Class A | 69,916 | 2,812 | |
* | Sykes Enterprises Inc. | 103,883 | 2,769 |
* | Virtusa Corp. | 75,442 | 2,740 |
Cass Information Systems | |||
Inc. | 29,493 | 1,806 | |
* | Perficient Inc. | 98,330 | 1,799 |
TeleTech Holdings Inc. | 44,335 | 1,760 | |
Syntel Inc. | 90,135 | 1,628 | |
* | Net 1 UEPS Technologies | ||
Inc. | 150,491 | 1,404 | |
* | MoneyGram International | ||
Inc. | 85,962 | 1,355 | |
* | Everi Holdings Inc. | 175,271 | 1,351 |
*,^ Unisys Corp. | 134,694 | 1,044 | |
Forrester Research Inc. | 25,273 | 1,030 | |
Hackett Group Inc. | 65,674 | 897 | |
2,634,501 |
Market | ||||
Value• | ||||
Shares | ($000) | |||
Semiconductors & Semiconductor | ||||
Equipment (15.1%) | ||||
Intel Corp. | 12,652,979 | 443,740 | ||
Broadcom Ltd. | 1,078,479 | 271,852 | ||
NVIDIA Corp. | 1,598,836 | 270,907 | ||
Texas Instruments Inc. | 2,677,198 | 221,726 | ||
QUALCOMM Inc. | 3,969,987 | 207,511 | ||
Applied Materials Inc. | 2,887,804 | 130,298 | ||
* | Micron Technology Inc. | 2,825,125 | 90,319 | |
Analog Devices Inc. | 986,595 | 82,548 | ||
Lam Research Corp. | 433,785 | 72,000 | ||
Microchip Technology Inc. | 615,754 | 53,447 | ||
Skyworks Solutions Inc. | 495,418 | 52,197 | ||
Xilinx Inc. | 665,942 | 43,992 | ||
KLA-Tencor Corp. | 421,483 | 39,489 | ||
Maxim Integrated | ||||
Products Inc. | 758,750 | 35,403 | ||
* | Advanced Micro Devices | |||
Inc. | 2,157,174 | 28,043 | ||
* | Qorvo Inc. | 341,956 | 25,038 | |
* | ON Semiconductor Corp. | 1,132,877 | 19,350 | |
Marvell Technology | ||||
Group Ltd. | 1,077,612 | 19,300 | ||
Teradyne Inc. | 534,147 | 19,021 | ||
* | Microsemi Corp. | 310,306 | 15,633 | |
Cypress Semiconductor | ||||
Corp. | 884,513 | 12,109 | ||
MKS Instruments Inc. | 145,277 | 11,964 | ||
* | Cavium Inc. | 182,331 | 11,543 | |
Versum Materials Inc. | 292,134 | 10,789 | ||
Monolithic Power | ||||
Systems Inc. | 105,673 | 10,707 | ||
* | Cirrus Logic Inc. | 172,491 | 10,001 | |
* | First Solar Inc. | 209,638 | 9,845 | |
* | Entegris Inc. | 379,307 | 9,653 | |
* | Integrated Device | |||
Technology Inc. | 360,152 | 8,899 | ||
* | Silicon Laboratories Inc. | 114,053 | 8,657 | |
* | Advanced Energy | |||
Industries Inc. | 106,862 | 7,859 | ||
* | Semtech Corp. | 176,696 | 6,644 | |
* | Cree Inc. | 263,191 | 6,403 | |
Power Integrations Inc. | 80,269 | 5,848 | ||
*,^ Mellanox Technologies Ltd. 120,810 | 5,672 | |||
* | MACOM Technology | |||
Solutions Holdings Inc. | 110,696 | 5,041 | ||
Brooks Automation Inc. | 187,783 | 4,895 | ||
Cabot Microelectronics | ||||
Corp. | 68,245 | 4,888 | ||
* | Ambarella Inc. | 89,622 | 4,875 | |
* | Synaptics Inc. | 94,399 | 3,924 | |
* | Inphi Corp. | 101,959 | 3,904 | |
* | Rambus Inc. | 300,806 | 3,901 | |
* | MaxLinear Inc. | 175,685 | 3,795 | |
Xperi Corp. | 134,081 | 3,654 | ||
* | Kulicke & Soffa Industries | |||
Inc. | 188,929 | 3,595 | ||
* | FormFactor Inc. | 196,277 | 2,964 | |
* | Diodes Inc. | 102,701 | 2,890 | |
* | Amkor Technology Inc. | 287,615 | 2,525 | |
* | Veeco Instruments Inc. | 129,423 | 2,446 | |
* | CEVA Inc. | 59,074 | 2,395 | |
* | SolarEdge Technologies | |||
Inc. | 71,248 | 1,906 | ||
* | Lattice Semiconductor | |||
Corp. | 320,489 | 1,811 | ||
* | Rudolph Technologies Inc. | 78,089 | 1,734 | |
*,^ Impinj Inc. | 43,631 | 1,668 | ||
* | Nanometrics Inc. | 64,333 | 1,659 | |
* | IXYS Corp. | 67,963 | 1,563 |
Market | ||||
Value• | ||||
Shares | ($000) | |||
*,^ SunPower Corp. Class A | 165,252 | 1,461 | ||
* | Photronics Inc. | 184,749 | 1,460 | |
* | Xcerra Corp. | 145,723 | 1,431 | |
* | Ichor Holdings Ltd. | 47,082 | 1,077 | |
* | PDF Solutions Inc. | 70,863 | 1,076 | |
* | Alpha & Omega | |||
Semiconductor Ltd. | 51,185 | 813 | ||
*,^ NeoPhotonics Corp. | 82,164 | 481 | ||
2,352,239 | ||||
Software (22.3%) | ||||
Microsoft Corp. | 19,707,144 | 1,473,503 | ||
Oracle Corp. | 8,292,125 | 417,343 | ||
* | Adobe Systems Inc. | 1,329,393 | 206,269 | |
* | salesforce.com Inc. | 1,818,136 | 173,614 | |
Activision Blizzard Inc. | 1,924,035 | 126,140 | ||
* | Electronic Arts Inc. | 833,328 | 101,249 | |
Intuit Inc. | 654,074 | 92,519 | ||
* | Autodesk Inc. | 532,602 | 60,962 | |
* | ServiceNow Inc. | 456,153 | 53,000 | |
* | Red Hat Inc. | 477,279 | 51,308 | |
Symantec Corp. | 1,633,304 | 48,966 | ||
* | Dell Technologies Inc. | |||
Class V | 549,257 | 41,156 | ||
* | Workday Inc. Class A | 351,951 | 38,606 | |
* | Synopsys Inc. | 404,451 | 32,526 | |
* | Citrix Systems Inc. | 405,896 | 31,745 | |
* | ANSYS Inc. | 229,628 | 29,581 | |
* | Cadence Design | |||
Systems Inc. | 752,382 | 29,561 | ||
CA Inc. | 841,496 | 27,921 | ||
* | Take-Two Interactive | |||
Software Inc. | 278,824 | 27,266 | ||
* | Splunk Inc. | 371,422 | 24,919 | |
CDK Global Inc. | 351,782 | 22,690 | ||
*,^ VMware Inc. Class A | 189,985 | 20,537 | ||
SS&C Technologies | ||||
Holdings Inc. | 466,172 | 18,046 | ||
* | PTC Inc. | 310,498 | 17,388 | |
* | Tyler Technologies Inc. | 94,910 | 16,400 | |
* | Fortinet Inc. | 401,114 | 15,323 | |
* | Ultimate Software Group | |||
Inc. | 75,910 | 15,250 | ||
* | Guidewire Software Inc. | 198,013 | 14,992 | |
* | Aspen Technology Inc. | 199,980 | 12,649 | |
* | Nuance Communications | |||
Inc. | 772,338 | 12,411 | ||
Fair Isaac Corp. | 83,630 | 11,772 | ||
* | Tableau Software Inc. | |||
Class A | 161,061 | 11,674 | ||
Blackbaud Inc. | 129,013 | 10,890 | ||
* | Proofpoint Inc. | 117,425 | 10,775 | |
* | Paycom Software Inc. | 128,008 | 9,551 | |
*,^ Snap Inc. | 552,262 | 8,013 | ||
* | Manhattan Associates Inc. | 186,426 | 7,839 | |
* | Zynga Inc. Class A | 2,066,276 | 7,749 | |
* | Ellie Mae Inc. | 91,539 | 7,596 | |
* | Zendesk Inc. | 265,731 | 7,281 | |
* | ACI Worldwide Inc. | 316,801 | 7,210 | |
* | CommVault Systems Inc. | 115,818 | 7,071 | |
* | RealPage Inc. | 155,382 | 6,697 | |
* | Verint Systems Inc. | 168,171 | 6,676 | |
* | HubSpot Inc. | 87,900 | 6,447 | |
* | FireEye Inc. | 431,640 | 6,375 | |
* | RingCentral Inc. Class A | 149,584 | 6,335 | |
Pegasystems Inc. | 103,328 | 5,947 | ||
TiVo Corp. | 323,716 | 5,924 | ||
* | Callidus Software Inc. | 174,268 | 4,487 | |
* | BroadSoft Inc. | 82,351 | 4,080 | |
* | Qualys Inc. | 84,506 | 4,014 | |
Progress Software Corp. | 116,303 | 3,905 |
76
Information Technology Index Fund
Market | ||||
Value• | ||||
Shares | ($000) | |||
* | Gigamon Inc. | 87,821 | 3,772 | |
* | Paylocity Holding Corp. | 75,121 | 3,691 | |
* | 8x8 Inc. | 247,849 | 3,507 | |
* | Imperva Inc. | 75,331 | 3,364 | |
* | Bottomline Technologies | |||
de Inc. | 107,381 | 3,255 | ||
Ebix Inc. | 56,018 | 3,232 | ||
* | MicroStrategy Inc. Class A | 25,016 | 3,227 | |
* | Barracuda Networks Inc. | 98,087 | 2,375 | |
Monotype Imaging | ||||
Holdings Inc. | 110,374 | 2,014 | ||
* | Synchronoss Technologies | |||
Inc. | 116,165 | 1,950 | ||
* | PROS Holdings Inc. | 72,751 | 1,916 | |
* | Varonis Systems Inc. | 39,324 | 1,526 | |
* | Silver Spring Networks Inc. 103,402 | 1,309 | ||
* | Workiva Inc. | 61,766 | 1,248 | |
* | Glu Mobile Inc. | 299,980 | 1,092 | |
* | Blackline Inc. | 33,883 | 1,046 | |
* | VASCO Data Security | |||
International Inc. | 81,196 | 1,019 | ||
QAD Inc. Class A | 28,754 | 969 | ||
* | A10 Networks Inc. | 124,785 | 817 | |
* | Rapid7 Inc. | 41,412 | 698 | |
* | Rubicon Project Inc. | 111,516 | 419 | |
* | MobileIron Inc. | 109,517 | 416 | |
3,465,010 | ||||
Technology Hardware, Storage & | ||||
Peripherals (16.9%) | ||||
Apple Inc. | 14,009,077 | 2,297,489 | ||
HP Inc. | 4,525,152 | 86,340 | ||
Hewlett Packard | ||||
Enterprise Co. | 4,419,758 | 79,821 | ||
Western Digital Corp. | 781,968 | 69,024 | ||
NetApp Inc. | 727,573 | 28,128 | ||
Seagate Technology plc | 797,433 | 25,143 | ||
Xerox Corp. | 581,668 | 18,771 | ||
* | NCR Corp. | 325,468 | 11,889 | |
* | Electronics For Imaging | |||
Inc. | 124,278 | 4,419 | ||
^ | Diebold Nixdorf Inc. | 180,253 | 3,686 | |
*,^ 3D Systems Corp. | 289,206 | 3,633 | ||
* | Pure Storage Inc. Class A | 212,228 | 3,160 | |
* | Super Micro Computer Inc. 103,663 | 2,760 | ||
* | Cray Inc. | 109,723 | 2,068 | |
* | Eastman Kodak Co. | 57,559 | 446 | |
* | Avid Technology Inc. | 83,498 | 368 | |
^ | CPI Card Group Inc. | 55,658 | 54 | |
2,637,199 | ||||
Total Common Stocks | ||||
(Cost $10,750,775) 15,571,708 | ||||
Temporary Cash Investment (0.2%) | ||||
Money Market Fund (0.2%) | ||||
1,2 Vanguard Market | ||||
Liquidity Fund, 1.224% | ||||
(Cost $35,316) | 353,136 | 35,321 | ||
Total Investments (100.2%) | ||||
(Cost $10,786,091) 15,607,029 |
Amount | |
($000) | |
Other Assets and Liabilities (-0.2%) | |
Other Assets | |
Investment in Vanguard | 943 |
Receivables for Investment Securities Sold 60,175 | |
Receivables for Accrued Income | 20,731 |
Receivables for Capital Shares Issued | 1,972 |
Other Assets2 | 2,959 |
Total Other Assets | 86,780 |
Liabilities | |
Payables for Investment Securities | |
Purchased | (65,346) |
Collateral for Securities on Loan | (38,270) |
Payables for Capital Shares Redeemed | (538) |
Payables to Vanguard | (3,559) |
Other Liabilities | (15,269) |
Total Liabilities | (122,982) |
Net Assets (100%) 15,570,827 | |
At August 31, 2017, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 10,832,885 |
Undistributed Net Investment Income | 35,471 |
Accumulated Net Realized Losses | (118,467) |
Unrealized Appreciation (Depreciation) | 4,820,938 |
Net Assets 15,570,827 | |
ETF Shares—Net Assets | |
Applicable to 96,816,758 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 14,637,829 |
Net Asset Value Per Share— | |
ETF Shares | $151.19 |
Admiral Shares—Net Assets | |
Applicable to 12,050,750 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 932,998 |
Net Asset Value Per Share— | |
Admiral Shares | $77.42 |
• 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 $36,415,000.
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 $38,270,000 of collateral received for securities on loan,
of which $35,311,000 is held in Vanguard Market Liquidity Fund
and $2,959,000 is held in cash.
See accompanying Notes, which are an integral part of the Financial Statements.
77
Information Technology Index Fund
Statement of Operations | |||
Year Ended | |||
August 31, 2017 | |||
($000) | |||
Investment Income | |||
Income | |||
Dividends 163,929 | |||
Interest1 | 45 | ||
Securities Lending—Net | 1,402 | ||
Total Income | 165,376 | ||
Expenses | |||
The Vanguard Group—Note B | |||
Investment Advisory Services | 2,077 | ||
Management and Administrative— | |||
ETF Shares | 8,529 | ||
Management and Administrative— | |||
Admiral Shares | 454 | ||
Marketing and Distribution— | |||
ETF Shares | 548 | ||
Marketing and Distribution— | |||
Admiral Shares | 67 | ||
Custodian Fees | 83 | ||
Auditing Fees | 34 | ||
Shareholders’ Reports and Proxy— | |||
ETF Shares | 551 | ||
Shareholders’ Reports and Proxy— | |||
Admiral Shares | 16 | ||
Trustees’ Fees and Expenses | 9 | ||
Total Expenses | 12,368 | ||
Net Investment Income | 153,008 | ||
Realized Net Gain (Loss) | |||
Investment Securities Sold1 568,027 | |||
Futures Contracts | 114 | ||
Realized Net Gain (Loss) | 568,141 | ||
Change in Unrealized Appreciation | |||
(Depreciation) of Investment Securities 2,547,823 | |||
Net Increase (Decrease) in Net Assets | |||
Resulting from Operations 3,268,972 |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $45,000 and $1,000, respectively.
Statement of Changes in Net Assets | |||
Year Ended August 31, | |||
2017 | 2016 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 153,008 | 128,868 | |
Realized Net Gain (Loss) | 568,141 | 338,452 | |
Change in Unrealized Appreciation (Depreciation) | 2,547,823 | 916,055 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | 3,268,972 | 1,383,375 | |
Distributions | |||
Net Investment Income | |||
ETF Shares | (139,774) | (160,757) | |
Admiral Shares | (7,749) | (7,596) | |
Realized Capital Gain | |||
ETF Shares | — | — | |
Admiral Shares | — | — | |
Total Distributions | (147,523) | (168,353) | |
Capital Share Transactions | |||
ETF Shares | 2,257,412 | 1,010,938 | |
Admiral Shares | 307,238 | 58,361 | |
Net Increase (Decrease) from Capital Share Transactions | 2,564,650 | 1,069,299 | |
Total Increase (Decrease) | 5,686,099 | 2,284,321 | |
Net Assets | |||
Beginning of Period | 9,884,728 | 7,600,407 | |
End of Period1 | 15,570,827 | 9,884,728 | |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $35,471,000 and $29,986,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
78
Information Technology Index Fund
Financial Highlights
ETF Shares | ||||||
For a Share Outstanding | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | |
Net Asset Value, Beginning of Period | $117.82 | $102.35 | $101.41 | $77.63 | $72.58 | |
Investment Operations | ||||||
Net Investment Income | 1.6461 | 1.566 | 1.277 | 1.135 | 1.011 | |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | 33.329 | 16.049 | .834 | 23.589 | 4.872 | |
Total from Investment Operations | 34.975 | 17.615 | 2.111 | 24.724 | 5.883 | |
Distributions | ||||||
Dividends from Net Investment Income | (1.605) | (2.145) | (1.171) | (.944) | (.833) | |
Distributions from Realized Capital Gains | — | — | — | — | — | |
Total Distributions | (1.605) | (2.145) | (1.171) | (.944) | (.833) | |
Net Asset Value, End of Period | $151.19 | $117.82 | $102.35 | $101.41 | $77.63 | |
Total Return | 29.93% | 17.48% | 2.05% | 32.04% | 8.23% | |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $14,638 | $9,429 | $7,259 | $5,876 | $3,497 | |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.12% | 0.14% | |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 1.24% | 1.50% | 1.35% | 1.38% | 1.53% | |
Portfolio Turnover Rate2 | 6% | 5% | 3% | 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 | 2017 | 2016 | 2015 | 2014 | 2013 | |
Net Asset Value, Beginning of Period | $60.33 | $52.41 | $51.93 | $39.75 | $37.17 | |
Investment Operations | ||||||
Net Investment Income | . 8501 | .802 | .655 | .580 | .521 | |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | 17.062 | 8.216 | .426 | 12.079 | 2.493 | |
Total from Investment Operations | 17.912 | 9.018 | 1.081 | 12.659 | 3.014 | |
Distributions | ||||||
Dividends from Net Investment Income | (.822) | (1.098) | (.601) | (.479) | (.434) | |
Distributions from Realized Capital Gains | — | — | — | — | — | |
Total Distributions | (.822) | (1.098) | (.601) | (.479) | (.434) | |
Net Asset Value, End of Period | $77.42 | $60.33 | $52.41 | $51.93 | $39.75 | |
Total Return 2 | 29.94% | 17.49% | 2.09% | 32.05% | 8.24% | |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $933 | $456 | $342 | $241 | $152 | |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.12% | 0.14% | |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 1.24% | 1.50% | 1.35% | 1.38% | 1.53% | |
Portfolio Turnover Rate3 | 6% | 5% | 3% | 6% | 6% |
1 Calculated based on average shares outstanding.
2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
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.
79
Information Technology Index Fund
Notes to Financial Statements
Vanguard Information Technology Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: ETF Shares and Admiral Shares. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker. Admiral Shares are designed for investors who meet certain administrative, service, and account-size criteria.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value.
2. 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 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 futures gains (losses).
During the year ended August 31, 2017, 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 the notional amounts at each quarter-end during the period. The fund had no open futures contracts at August 31, 2017.
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, 2014–2017), 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 event of a default, the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral
80
Information Technology 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, 2017, 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), shareholder reporting, and the proxy. 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, 2017, the fund had contributed to Vanguard capital in the amount of $943,000, representing 0.01% of the fund’s net assets and 0.38% 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). Any investments valued with significant unobservable inputs are noted
on the Statement of Net Assets.
At August 31, 2017, 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.
81
Information Technology Index Fund
During the year ended August 31, 2017, the fund realized $611,458,000 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, 2017, the fund had $38,361,000 of ordinary income available for distribution. At August 31, 2017, the fund had available capital losses totaling $118,467,000 to offset future net capital gains. Of this amount, $40,376,000 is subject to expiration dates; $20,048,000 may be used to offset future net capital gains through August 31, 2018, and $20,328,000 through August 31, 2019. Capital losses of $78,091,000 realized beginning in fiscal 2012 may be carried forward indefinitely under the Regulated Investment Company Modernization Act of 2010, but must be used before any expiring loss carryforwards. Capital loss carryforwards of $7,582,000 expired on August 31, 2017; accordingly, such losses have been reclassified from accumulated net realized losses to paid-in capital.
At August 31, 2017, the cost of investment securities for tax purposes was $10,786,091,000. Net unrealized appreciation of investment securities for tax purposes was $4,820,938,000, consisting of unrealized gains of $4,995,491,000 on securities that had risen in value since their purchase and $174,553,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2017, the fund purchased $4,464,202,000 of investment securities and sold $1,888,774,000 of investment securities, other than temporary cash investments. Purchases and sales include $3,283,381,000 and $1,162,433,000, 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, | ||||
2017 | 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 3,439,668 | 25,884 | 1,784,206 | 16,565 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (1,182,256) | (9,100) | (773,268) | (7,450) |
Net Increase (Decrease)—ETF Shares | 2,257,412 | 16,784 | 1,010,938 | 9,115 |
Admiral Shares | ||||
Issued | 580,247 | 8,420 | 172,599 | 3,127 |
Issued in Lieu of Cash Distributions | 7,094 | 107 | 7,052 | 131 |
Redeemed | (280,103) | (4,026) | (121,290) | (2,228) |
Net Increase (Decrease)—Admiral Shares | 307,238 | 4,501 | 58,361 | 1,030 |
At August 31, 2017, one shareholder was the record or beneficial owner of 31% 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, 2017, that would require recognition or disclosure in these financial statements.
82
Materials Index Fund
Fund Profile
As of August 31, 2017
Share-Class Characteristics | ||
ETF | Admiral | |
Shares | Shares | |
Ticker Symbol | VAW | VMIAX |
Expense Ratio1 | 0.10% | 0.10% |
30-Day SEC Yield | 1.72% | 1.71% |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | MSCI | ||
Materials | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 119 | 119 | 2,482 |
Median Market Cap $21.4B | $26.8B | $63.1B | |
Price/Earnings Ratio | 25.4x | 25.7x | 22.0x |
Price/Book Ratio | 3.5x | 3.4x | 2.9x |
Return on Equity | 17.8% | 17.8% | 15.1% |
Earnings Growth Rate | 5.8% | 7.9% | 9.4% |
Dividend Yield | 1.8% | 1.9% | 1.8% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 5% | — | — |
Short-Term Reserves | 0.0% | — | — |
Volatility Measures | ||
MSCI US | ||
IMI/Materials | MSCI US | |
25/50 | IMI/2500 | |
R-Squared | 1.00 | 0.71 |
Beta | 1.00 | 1.35 |
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 | 1.2% |
Commodity Chemicals | 6.4 |
Construction Materials | 4.5 |
Copper | 2.4 |
Diversified Chemicals | 21.1 |
Fertilizers & Agricultural Chemicals | 9.5 |
Gold | 3.2 |
Industrial Gases | 8.1 |
Metal & Glass Containers | 4.9 |
Paper Packaging | 8.8 |
Paper Products | 1.1 |
Specialty Chemicals | 21.5 |
Steel | 5.9 |
Other Materials | 1.4 |
Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” category (if applicable), which includes securities that have | |
not been provided a GICS classification as of the effective reporting period. | |
Ten Largest Holdings (% of total net assets) | ||
Dow Chemical Co. | Diversified Chemicals | 9.5% |
EI du Pont de | ||
Nemours & Co. | Diversified Chemicals | 8.4 |
Monsanto Co. | Fertilizers & | |
Agricultural Chemicals | 6.0 | |
Praxair Inc. | Industrial Gases | 4.4 |
Ecolab Inc. | Specialty Chemicals | 4.1 |
Air Products & | ||
Chemicals Inc. | Industrial Gases | 3.7 |
LyondellBasell | ||
Industries NV | Commodity Chemicals | 3.6 |
Sherwin-Williams | ||
Co. | Specialty Chemicals | 3.3 |
PPG Industries Inc. | Specialty Chemicals | 3.1 |
International Paper | ||
Co. | Paper Packaging | 2.5 |
Top Ten | 48.6% | |
The holdings listed exclude any temporary cash investments and equity index products. | ||
1 The expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2017, the expense ratios were 0.10% for
ETF Shares and 0.10% for Admiral Shares.
83
Materials Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Cumulative Performance: August 31, 2007–August 31, 2017
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ussectorindexx86x1.jpg)
Average Annual Total Returns | Final Value | ||||
Periods Ended August 31, 2017 | of a $10,000 | ||||
One Year | Five Years | Ten Years | Investment | ||
Materials Index Fund ETF Shares | |||||
Net Asset Value | 17.06% | 11.59% | 6.48% | $18,733 | |
Materials Index Fund ETF Shares | |||||
Market Price | 17.00 | 11.57 | 6.48 | 18,739 | |
Spliced US IMI/Materials 25/50 | 17.16 | 11.70 | 6.57 | 18,890 | |
Basic Materials Funds Average | 23.40 | 5.72 | 2.71 | 13,064 | |
MSCI US IMI/2500 | 16.06 | 14.29 | 7.84 | 21,281 | |
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 | 17.06% | 11.60% | 6.47% | $187,228 |
Spliced US IMI/Materials 25/50 | 17.16 | 11.70 | 6.57 | 188,904 |
MSCI US IMI/2500 | 16.06 | 14.29 | 7.84 | 212,807 |
See Financial Highlights for dividend and capital gains information.
84
Materials Index Fund
Fiscal-Year Total Returns (%): August 31, 2007–August 31, 2017
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ussectorindexx87x1.jpg)
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2007–August 31, 2017 | |||
One Year | Five Years | Ten Years | |
Materials Index Fund ETF Shares Market Price | 17.00% | 72.85% | 87.39% |
Materials Index Fund ETF Shares Net Asset Value | 17.06 | 73.01 | 87.33 |
Spliced US IMI/Materials 25/50 | 17.16 | 73.88 | 88.90 |
Average Annual Total Returns: Periods Ended June 30, 2017
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 | 20.98% | 11.69% | 5.95% | ||
Net Asset Value | 21.03 | 11.67 | 5.94 | ||
Admiral Shares | 2/11/2004 | 21.01 | 11.67 | 5.94 |
See Financial Highlights for dividend and capital gains information.
85
Materials Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2017
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 (66.6%) | |||
Dow Chemical Co. | 3,259,280 | 217,231 | |
EI du Pont de Nemours | |||
& Co. | 2,298,585 | 192,920 | |
Monsanto Co. | 1,167,254 | 136,802 | |
Praxair Inc. | 760,356 | 100,017 | |
Ecolab Inc. | 694,404 | 92,564 | |
Air Products & Chemicals | |||
Inc. | 579,142 | 84,190 | |
LyondellBasell Industries | |||
NV Class A | 910,709 | 82,501 | |
Sherwin-Williams Co. | 222,947 | 75,639 | |
PPG Industries Inc. | 681,523 | 71,096 | |
Celanese Corp. Class A | 371,021 | 35,996 | |
Albemarle Corp. | 294,697 | 34,261 | |
Eastman Chemical Co. | 387,963 | 33,442 | |
FMC Corp. | 356,500 | 30,737 | |
International Flavors & | |||
Fragrances Inc. | 210,079 | 28,749 | |
Chemours Co. | 490,707 | 24,079 | |
CF Industries Holdings Inc. | 620,384 | 17,985 | |
Mosaic Co. | 887,106 | 17,724 | |
RPM International Inc. | 355,412 | 17,405 | |
* | Axalta Coating Systems | ||
Ltd. | 579,716 | 17,113 | |
Huntsman Corp. | 542,202 | 14,406 | |
Olin Corp. | 441,377 | 14,226 | |
WR Grace & Co. | 181,739 | 12,991 | |
Valvoline Inc. | 544,189 | 11,586 | |
Scotts Miracle-Gro Co. | 118,761 | 11,352 | |
NewMarket Corp. | 25,235 | 10,561 | |
Ashland Global Holdings | |||
Inc. | 165,619 | 10,277 | |
Cabot Corp. | 166,003 | 8,745 | |
Sensient Technologies | |||
Corp. | 117,804 | 8,500 | |
Westlake Chemical Corp. | 103,089 | 7,929 | |
PolyOne Corp. | 217,597 | 7,864 | |
Trinseo SA | 117,097 | 7,834 | |
* | Platform Specialty | ||
Products Corp. | 608,043 | 7,102 | |
* | Ingevity Corp. | 111,922 | 7,048 |
HB Fuller Co. | 134,271 | 6,739 | |
Balchem Corp. | 84,736 | 6,352 | |
Minerals Technologies Inc. | 93,176 | 5,963 | |
* | GCP Applied Technologies | ||
Inc. | 189,789 | 5,362 | |
Quaker Chemical Corp. | 35,360 | 4,923 | |
Stepan Co. | 53,776 | 4,160 | |
* | Ferro Corp. | 211,017 | 4,066 |
Tronox Ltd. Class A | 175,999 | 3,641 | |
Innospec Inc. | 63,976 | 3,551 | |
* | Kraton Corp. | 82,932 | 2,723 |
* | AdvanSix Inc. | 81,103 | 2,590 |
Market | |||
Value• | |||
Shares | ($000) | ||
A Schulman Inc. | 78,539 | 2,388 | |
Innophos Holdings Inc. | 51,868 | 2,368 | |
* | Koppers Holdings Inc. | 55,294 | 2,168 |
Chase Corp. | 19,774 | 1,849 | |
Calgon Carbon Corp. | 135,161 | 1,649 | |
Rayonier Advanced | |||
Materials Inc. | 114,467 | 1,570 | |
American Vanguard Corp. | 71,190 | 1,442 | |
Kronos Worldwide Inc. | 61,617 | 1,290 | |
*,^ Intrepid Potash Inc. | 291,361 | 1,081 | |
Tredegar Corp. | 65,839 | 1,073 | |
FutureFuel Corp. | 68,948 | 929 | |
Hawkins Inc. | 25,433 | 907 | |
* | Flotek Industries Inc. | 137,222 | 711 |
* | AgroFresh Solutions Inc. | 58,794 | 419 |
*,^ LSB Industries Inc. | 66,793 | 407 | |
1,521,193 | |||
Construction Materials (4.5%) | |||
Vulcan Materials Co. | 351,618 | 42,637 | |
Martin Marietta Materials | |||
Inc. | 166,600 | 35,317 | |
Eagle Materials Inc. | 128,973 | 12,543 | |
* | Summit Materials Inc. | ||
Class A | 282,634 | 8,349 | |
*,^ US Concrete Inc. | 40,437 | 3,237 | |
United States Lime & | |||
Minerals Inc. | 6,009 | 480 | |
*,^ Forterra Inc. | 51,104 | 170 | |
102,733 | |||
Containers & Packaging (13.7%) | |||
International Paper Co. | 1,043,416 | 56,209 | |
WestRock Co. | 668,012 | 38,017 | |
Ball Corp. | 887,453 | 35,489 | |
Packaging Corp. of | |||
America | 250,628 | 28,173 | |
Sealed Air Corp. | 520,927 | 23,119 | |
Avery Dennison Corp. | 235,598 | 22,208 | |
* | Crown Holdings Inc. | 362,060 | 21,372 |
* | Berry Global Group Inc. | 344,563 | 19,378 |
AptarGroup Inc. | 166,122 | 13,890 | |
Sonoco Products Co. | 264,462 | 12,763 | |
Graphic Packaging | |||
Holding Co. | 826,223 | 10,782 | |
Bemis Co. Inc. | 244,722 | 10,428 | |
* | Owens-Illinois Inc. | 411,257 | 10,133 |
Silgan Holdings Inc. | 205,285 | 6,177 | |
Greif Inc. Class A | 68,454 | 4,138 | |
Myers Industries Inc. | 64,109 | 1,205 | |
313,481 | |||
Metals & Mining (13.5%) | |||
Newmont Mining Corp. | 1,418,397 | 54,381 | |
* | Freeport-McMoRan Inc. | 3,656,016 | 54,036 |
Nucor Corp. | 848,666 | 46,770 | |
Steel Dynamics Inc. | 643,213 | 22,159 | |
* | Alcoa Corp. | 490,162 | 21,508 |
Market | |||
Value• | |||
Shares | ($000) | ||
Royal Gold Inc. | 173,840 | 16,216 | |
Reliance Steel & | |||
Aluminum Co. | 193,737 | 14,031 | |
^ | United States Steel Corp. | 464,721 | 12,366 |
Worthington Industries Inc. | 126,887 | 6,339 | |
* | Cleveland-Cliffs Inc. | 747,830 | 6,252 |
*,^ Allegheny Technologies | |||
Inc. | 289,173 | 6,024 | |
^ | Compass Minerals | ||
International Inc. | 89,870 | 6,003 | |
Commercial Metals Co. | 308,077 | 5,820 | |
Hecla Mining Co. | 1,051,058 | 5,550 | |
Carpenter Technology | |||
Corp. | 124,346 | 5,040 | |
*,^ AK Steel Holding Corp. | 837,811 | 4,692 | |
Kaiser Aluminum Corp. | 45,711 | 4,403 | |
* | Coeur Mining Inc. | 482,436 | 4,221 |
* | Century Aluminum Co. | 139,352 | 2,720 |
Materion Corp. | 53,158 | 2,031 | |
Schnitzer Steel Industries | |||
Inc. | 70,977 | 1,909 | |
^ | McEwen Mining Inc. | 596,632 | 1,533 |
* | TimkenSteel Corp. | 99,549 | 1,476 |
* | SunCoke Energy Inc. | 153,220 | 1,428 |
Haynes International Inc. | 33,293 | 1,017 | |
* | Ryerson Holding Corp. | 43,408 | 373 |
308,298 | |||
Paper & Forest Products (1.7%) | |||
* | Louisiana-Pacific Corp. | 385,096 | 9,812 |
Domtar Corp. | 166,679 | 6,740 | |
KapStone Paper and | |||
Packaging Corp. | 231,352 | 5,175 | |
Neenah Paper Inc. | 44,591 | 3,445 | |
Schweitzer-Mauduit | |||
International Inc. | 81,400 | 3,088 | |
* | Boise Cascade Co. | 102,676 | 3,080 |
Deltic Timber Corp. | 29,199 | 2,279 | |
* | Clearwater Paper Corp. | 43,552 | 2,025 |
PH Glatfelter Co. | 116,007 | 2,009 | |
Mercer International Inc. | 120,055 | 1,327 | |
* | Resolute Forest Products | ||
Inc. | 154,170 | 763 | |
39,743 | |||
Total Common Stocks | |||
(Cost $2,155,844) | 2,285,448 | ||
Temporary Cash Investment (0.4%) | |||
Money Market Fund (0.4%) | |||
1,2 Vanguard Market | |||
Liquidity Fund, 1.224% | |||
(Cost $8,217) | 82,170 | 8,218 | |
Total Investments (100.4%) | |||
(Cost $2,164,061) | 2,293,666 |
86
Materials Index Fund
Amount | ||
($000) | ||
Other Assets and Liabilities (-0.4%) | ||
Other Assets | ||
Investment in Vanguard | 144 | |
Receivables for Investment Securities Sold | 4,831 | |
Receivables for Accrued Income | 4,550 | |
Receivables for Capital Shares Issued | 191 | |
Total Other Assets | 9,716 | |
Liabilities | ||
Payables for Investment Securities | ||
Purchased | (8,397) | |
Collateral for Securities on Loan | (8,216) | |
Payables for Capital Shares Redeemed | (662) | |
Payables to Vanguard | (886) | |
Other Liabilities | (330) | |
Total Liabilities | (18,491) | |
Net Assets (100%) | 2,284,891 |
At August 31, 2017, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 2,228,746 |
Undistributed Net Investment Income | 7,832 |
Accumulated Net Realized Losses | (81,292) |
Unrealized Appreciation (Depreciation) | 129,605 |
Net Assets | 2,284,891 |
ETF Shares—Net Assets | |
Applicable to 15,390,168 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 1,912,859 |
Net Asset Value Per Share— | |
ETF Shares | $124.29 |
Admiral Shares—Net Assets | |
Applicable to 5,874,609 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 372,032 |
Net Asset Value Per Share— | |
Admiral Shares | $63.33 |
• 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 $7,703,000.
1 Affiliated money market fund available only to Vanguard funds
and certain trusts and accounts managed by Vanguard. Rate
shown is the 7-day yield.
2 Includes $8,216,000 of collateral received for securities on loan.
See accompanying Notes, which are an integral part of the Financial Statements.
87
Materials Index Fund
Statement of Operations | |||
Year Ended | |||
August 31, 2017 | |||
($000) | |||
Investment Income | |||
Income | |||
Dividends | 40,732 | ||
Interest1 | 10 | ||
Securities Lending—Net | 145 | ||
Total Income | 40,887 | ||
Expenses | |||
The Vanguard Group—Note B | |||
Investment Advisory Services | 438 | ||
Management and Administrative— | |||
ETF Shares | 1,095 | ||
Management and Administrative— | |||
Admiral Shares | 188 | ||
Marketing and Distribution— | |||
ETF Shares | 107 | ||
Marketing and Distribution— | |||
Admiral Shares | 29 | ||
Custodian Fees | 28 | ||
Auditing Fees | 34 | ||
Shareholders’ Reports and Proxy— | |||
ETF Shares | 159 | ||
Shareholders’ Reports and Proxy— | |||
Admiral Shares | 8 | ||
Trustees’ Fees and Expenses | 2 | ||
Total Expenses | 2,088 | ||
Net Investment Income | 38,799 | ||
Realized Net Gain (Loss) | |||
Investment Securities Sold1 | 126,602 | ||
Futures Contracts | 12 | ||
Realized Net Gain (Loss) | 126,614 | ||
Change in Unrealized Appreciation | |||
(Depreciation) of Investment Securities | 144,927 | ||
Net Increase (Decrease) in Net Assets | |||
Resulting from Operations | 310,340 | ||
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $10,000 and $0, respectively. | |||
Statement of Changes in Net Assets | |||
Year Ended August 31, | |||
2017 | 2016 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 38,799 | 27,238 | |
Realized Net Gain (Loss) | 126,614 | 49,519 | |
Change in Unrealized Appreciation (Depreciation) | 144,927 | 121,531 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | 310,340 | 198,288 | |
Distributions | |||
Net Investment Income | |||
ETF Shares | (32,075) | (32,837) | |
Admiral Shares | (5,084) | (5,856) | |
Realized Capital Gain | |||
ETF Shares | — | — | |
Admiral Shares | — | — | |
Total Distributions | (37,159) | (38,693) | |
Capital Share Transactions | |||
ETF Shares | 231,525 | 290,064 | |
Admiral Shares | 96,981 | 18,673 | |
Net Increase (Decrease) from Capital Share Transactions | 328,506 | 308,737 | |
Total Increase (Decrease) | 601,687 | 468,332 | |
Net Assets | |||
Beginning of Period | 1,683,204 | 1,214,872 | |
End of Period1 | 2,284,891 | 1,683,204 | |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $7,832,000 and $6,122,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
88
Materials Index Fund | ||||||
Financial Highlights | ||||||
ETF Shares | ||||||
For a Share Outstanding | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | |
Net Asset Value, Beginning of Period | $108.16 | $96.39 | $113.50 | $90.94 | $79.81 | |
Investment Operations | ||||||
Net Investment Income | 2.1751 | 1.980 | 2.126 | 1.847 | 1.993 | |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | 16.072 | 12.770 | (17.344) | 22.612 | 10.708 | |
Total from Investment Operations | 18.247 | 14.750 | (15.218) | 24.459 | 12.701 | |
Distributions | ||||||
Dividends from Net Investment Income | (2.117) | (2.980) | (1.892) | (1.899) | (1.571) | |
Distributions from Realized Capital Gains | — | — | — | — | — | |
Total Distributions | (2.117) | (2.980) | (1.892) | (1.899) | (1.571) | |
Net Asset Value, End of Period | $124.29 | $108.16 | $96.39 | $113.50 | $90.94 | |
Total Return | 17.06% | 15.83% | -13.56% | 27.17% | 16.08% | |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $1,913 | $1,448 | $1,022 | $1,323 | $796 | |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.12% | 0.14% | |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 1.87% | 2.06% | 1.86% | 1.88% | 2.32% | |
Portfolio Turnover Rate2 | 5% | 6% | 4% | 4% | 7% |
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 | 2017 | 2016 | 2015 | 2014 | 2013 | |
Net Asset Value, Beginning of Period | $55.11 | $49.12 | $57.84 | $46.34 | $40.66 | |
Investment Operations | ||||||
Net Investment Income | 1.1041 | 1.008 | 1.088 | .936 | 1.014 | |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | 8.195 | 6.505 | (8.846) | 11.528 | 5.464 | |
Total from Investment Operations | 9.299 | 7.513 | (7.758) | 12.464 | 6.478 | |
Distributions | ||||||
Dividends from Net Investment Income | (1.079) | (1.523) | (.962) | (.964) | (.798) | |
Distributions from Realized Capital Gains | — | — | — | — | — | |
Total Distributions | (1.079) | (1.523) | (.962) | (.964) | (.798) | |
Net Asset Value, End of Period | $63.33 | $55.11 | $49.12 | $57.84 | $46.34 | |
Total Return2 | 17.06% | 15.80% | -13.54% | 27.18% | 16.12% | |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $372 | $235 | $193 | $175 | $139 | |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.12% | 0.14% | |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 1.87% | 2.06% | 1.86% | 1.88% | 2.32% | |
Portfolio Turnover Rate3 | 5% | 6% | 4% | 4% | 7% |
1 Calculated based on average shares outstanding.
2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about
any applicable account service fees.
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.
89
Materials Index Fund
Notes to Financial Statements
Vanguard Materials Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: ETF Shares and Admiral Shares. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker. Admiral Shares are designed for investors who meet certain administrative, service, and account-size criteria.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Temporary cash investments 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.
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 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 futures gains (losses).
During the year ended August 31, 2017, 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 the notional amounts at each quarter-end during the period. The fund had no open futures contracts at August 31, 2017.
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, 2014–2017), 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
90
Materials Index Fund
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 event 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, 2017, 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), shareholder reporting, and the proxy. 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, 2017, the fund had contributed to Vanguard capital in the amount of $144,000, 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). Any investments valued with significant unobservable inputs are noted
on the Statement of Net Assets.
At August 31, 2017, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
91
Materials Index Fund
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
During the year ended August 31, 2017, the fund realized $144,644,000 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, 2017, the fund had $8,616,000 of ordinary income available for distribution. At August 31, 2017, the fund had available capital losses totaling $81,292,000 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 $42,002,000 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, 2017, the cost of investment securities for tax purposes was $2,164,061,000. Net unrealized appreciation of investment securities for tax purposes was $129,605,000, consisting of unrealized gains of $283,652,000 on securities that had risen in value since their purchase and $154,047,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2017, the fund purchased $879,830,000 of investment securities and sold $548,909,000 of investment securities, other than temporary cash investments. Purchases and sales include $633,769,000 and $451,529,000, 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, | ||||
2017 | 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 683,681 | 5,853 | 490,113 | 4,832 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (452,156) | (3,850) | (200,049) | (2,050) |
Net Increase (Decrease)—ETF Shares | 231,525 | 2,003 | 290,064 | 2,782 |
Admiral Shares | ||||
Issued | 183,082 | 3,049 | 86,862 | 1,723 |
Issued in Lieu of Cash Distributions | 4,532 | 77 | 5,125 | 107 |
Redeemed | (90,633) | (1,520) | (73,314) | (1,482) |
Net Increase (Decrease)—Admiral Shares | 96,981 | 1,606 | 18,673 | 348 |
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2017, that would require recognition or disclosure in these financial statements.
92
Telecommunication Services Index Fund
Fund Profile
As of August 31, 2017
Share-Class Characteristics | ||
ETF | Admiral | |
Shares | Shares | |
Ticker Symbol | VOX | VTCAX |
Expense Ratio1 | 0.10% | 0.10% |
30-Day SEC Yield | 3.57% | 3.57% |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | |||
Telecom | MSCI | ||
Services | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 27 | 27 | 2,482 |
Median Market Cap $33.0B | $33.0B | $63.1B | |
Price/Earnings Ratio | 18.9x | 18.9x | 22.0x |
Price/Book Ratio | 1.9x | 2.1x | 2.9x |
Return on Equity | 11.5% | 11.5% | 15.1% |
Earnings Growth Rate | 22.1% | 22.3% | 9.4% |
Dividend Yield | 4.1% | 3.8% | 1.8% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 18% | — | — |
Short-Term Reserves | -0.1% | — | — |
Volatility Measures | ||
MSCI US | ||
IMI/Telecom | ||
Services | MSCI US | |
25/50 | IMI/2500 | |
R-Squared | 1.00 | 0.34 |
Beta | 1.00 | 0.68 |
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 | 24.1% |
Integrated Telecommunication Services | 60.3 |
Wireless Telecommunication Services | 15.6 |
Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other”
category (if applicable), which includes securities that have not been provided a GICS classification as of the effective reporting period.
Ten Largest Holdings (% of total net assets) | ||
AT&T Inc. | Integrated | |
Telecommunication | ||
Services | 22.2% | |
Verizon | Integrated | |
Communications | Telecommunication | |
Inc. | Services | 22.2 |
T-Mobile US Inc. | Wireless | |
Telecommunication | ||
Services | 4.6 | |
Level 3 | Alternative | |
Communications Inc. Carriers | 4.5 | |
CenturyLink Inc. | Integrated | |
Telecommunication | ||
Services | 3.4 | |
Sprint Corp. | Wireless | |
Telecommunication | ||
Services | 3.0 | |
Zayo Group | ||
Holdings Inc. | Alternative Carriers | 2.9 |
Vonage Holdings | ||
Corp. | Alternative Carriers | 2.4 |
Shenandoah | Wireless | |
Telecommunications Telecommunication | ||
Co. | Services | 2.3 |
General | Integrated | |
Communication Inc. | Telecommunication | |
Services | 2.3 | |
Top Ten | 69.8% | |
The holdings listed exclude any temporary cash investments and | ||
equity index products. |
1 The expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2017, the expense ratios were 0.10% for
ETF Shares and 0.10% for Admiral Shares.
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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, 2007–August 31, 2017
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ussectorindexx96x1.jpg)
Average Annual Total Returns | Final Value | |||
Periods Ended August 31, 2017 | of a $10,000 | |||
One Year | Five Years | Ten Years | Investment | |
Telecommunication Services Index Fund | ||||
ETF Shares Net Asset Value | 1.62% | 9.62% | 4.87% | $16,082 |
Telecommunication Services Index Fund | ||||
ETF Shares Market Price | 1.71 | 9.62 | 4.88 | 16,102 |
Spliced US IMI/Telecommunication | ||||
Services 25/50 | 1.52 | 9.61 | 4.37 | 15,341 |
Telecommunication Funds Average | 11.12 | 10.33 | 2.85 | 13,249 |
MSCI US IMI/2500 | 16.06 | 14.29 | 7.84 | 21,281 |
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 | 1.61% | 9.64% | 4.87% | $160,892 |
Spliced US IMI/Telecommunication Services 25/50 | 1.52 | 9.61 | 4.37 | 153,405 |
MSCI US IMI/2500 | 16.06 | 14.29 | 7.84 | 212,807 |
See Financial Highlights for dividend and capital gains information.
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Telecommunication Services Index Fund
Fiscal-Year Total Returns (%): August 31, 2007–August 31, 2017
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ussectorindexx97x1.jpg)
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2007–August 31, 2017 | |||
One Year | Five Years | Ten Years | |
Telecommunication Services Index Fund ETF Shares Market Price | 1.71% | 58.29% | 61.02% |
Telecommunication Services Index Fund ETF Shares Net Asset Value | 1.62 | 58.27 | 60.82 |
Spliced US IMI/Telecommunication Services 25/50 | 1.52 | 58.19 | 53.41 |
Average Annual Total Returns: Periods Ended June 30, 2017
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 | -3.43% | 10.16% | 4.42% | ||
Net Asset Value | -3.43 | 10.14 | 4.41 | ||
Admiral Shares | 3/11/2005 | -3.45 | 10.16 | 4.41 |
See Financial Highlights for dividend and capital gains information.
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Telecommunication Services Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2017
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 | |||
Diversified Telecommunication Services (84.2%) | |||
Alternative Carriers (24.0%) | |||
* | Level 3 Communications | ||
Inc. | 1,194,070 | 64,993 | |
* | Zayo Group Holdings Inc. | 1,203,596 | 41,127 |
* | Vonage Holdings Corp. | 4,124,069 | 34,230 |
Cogent Communications | |||
Holdings Inc. | 686,405 | 31,987 | |
*,^ Iridium Communications | |||
Inc. | 2,864,790 | 31,799 | |
* | ORBCOMM Inc. | 2,802,730 | 30,998 |
*,^,2 pdvWireless Inc. | 1,033,826 | 30,239 | |
*,2 Lumos Networks Corp. | 1,591,717 | 28,619 | |
*,^ Globalstar Inc. | 14,647,764 | 28,124 | |
* | Straight Path | ||
Communications Inc. | |||
Class B | 129,614 | 23,137 | |
Integrated Telecommunication Services (60.2%) | |||
AT&T Inc. | 8,532,925 | 319,643 | |
Verizon Communications | |||
Inc. | 6,659,810 | 319,471 | |
^ | CenturyLink Inc. | 2,506,148 | 49,421 |
* | General Communication | ||
Inc. Class A | 759,002 | 32,736 | |
Consolidated | |||
Communications | |||
Holdings Inc. | 1,735,531 | 32,021 | |
Cincinnati Bell Inc. | 1,287,907 | 27,110 | |
*,^ Frontier Communications | |||
Corp. | 1,663,175 | 22,403 | |
ATN International Inc. | 353,482 | 21,410 | |
IDT Corp. Class B | 1,408,347 | 20,717 | |
^,2 Windstream Holdings Inc. 9,798,865 | 20,284 | ||
1,210,469 | |||
Wireless Telecommunication Services (15.6%) | |||
* | T-Mobile US Inc. | 1,017,151 | 65,820 |
*,^ Sprint Corp. | 5,265,664 | 43,442 | |
Shenandoah | |||
Telecommunications Co. | 934,025 | 33,672 | |
Telephone & Data | |||
Systems Inc. | 1,018,357 | 29,848 | |
2 | Spok Holdings Inc. | 1,316,952 | 22,059 |
* | United States Cellular | ||
Corp. | 559,734 | 21,650 | |
*,^,2 NII Holdings Inc. | 12,167,374 | 8,079 | |
224,570 | |||
Total Common Stocks | |||
(Cost $1,527,666) | 1,435,039 | ||
Temporary Cash Investments (4.1%)1 | |||
Money Market Fund (4.1%) | |||
3,4 Vanguard Market | |||
Liquidity Fund, 1.224% | 592,556 | 59,268 |
Face | Market | |
Amount | Value• | |
($000) | ($000) | |
U.S. Government and Agency Obligations (0.0%) | ||
United States Treasury Bill, | ||
0.963%, 9/7/17 | 100 | 100 |
Total Temporary Cash Investments | ||
(Cost $59,361) | 59,368 | |
Total Investments (103.9%) | ||
(Cost $1,587,027) | 1,494,407 | |
Other Assets and Liabilities (-3.9%) | ||
Other Assets | 30,548 | |
Liabilities4 | (86,691) | |
(56,143) | ||
Net Assets (100%) | 1,438,264 | |
Amount | ||
($000) | ||
Statement of Assets and Liabilities | ||
Assets | ||
Investments in Securities, at Value | ||
Unaffiliated Issuers | 1,325,859 | |
Affiliated Vanguard Funds | 59,268 | |
Other Affiliated Issuers | 109,280 | |
Total Investments in Securities | 1,494,407 | |
Investment in Vanguard | 89 | |
Receivables for Investment Securities Sold 28,522 | ||
Receivables for Accrued Income | 1,827 | |
Receivables for Capital Shares Issued | 109 | |
Variation Margin Receivable— | ||
Futures Contracts | — | |
Other Assets | 1 | |
Total Assets | 1,524,955 | |
Liabilities | ||
Payables for Investment Securities | ||
Purchased | 27,666 | |
Collateral for Securities on Loan | 58,454 | |
Payables for Capital Shares Redeemed | 30 | |
Payables to Vanguard | 541 | |
Total Liabilities | 86,691 | |
Net Assets | 1,438,264 |
At August 31, 2017, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 1,578,374 |
Undistributed Net Investment Income | 10,993 |
Accumulated Net Realized Losses | (58,483) |
Unrealized Appreciation (Depreciation) | (92,620) |
Net Assets | 1,438,264 |
ETF Shares—Net Assets | |
Applicable to 14,839,812 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 1,388,125 |
Net Asset Value Per Share— | |
ETF Shares | $93.54 |
Admiral Shares—Net Assets | |
Applicable to 1,051,839 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 50,139 |
Net Asset Value Per Share— | |
Admiral Shares | $47.67 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Includes partial security positions on loan to broker-dealers. The
total value of securities on loan is $54,467,000.
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 4.0%,
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 Affiliated money market fund available only to Vanguard funds
and certain trusts and accounts managed by Vanguard. Rate
shown is the 7-day yield.
4 Includes $58,454,000 of collateral received for securities on loan.
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Telecommunication Services Index Fund
Derivative Financial Instruments Outstanding as of Period End | ||||
Futures Contracts | ||||
($000) | ||||
Value and | ||||
Number of | Unrealized | |||
Long (Short) | Notional | Appreciation | ||
Expiration | Contracts | Amount | (Depreciation) | |
Long Futures Contracts | ||||
E-mini S&P 500 Index | September 2017 | 20 | 2,470 | — |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
See accompanying Notes, which are an integral part of the Financial Statements.
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Telecommunication Services Index Fund
Statement of Operations | |||
Year Ended | |||
August 31, 2017 | |||
($000) | |||
Investment Income | |||
Income | |||
Dividends | 47,055 | ||
Interest | 9 | ||
Securities Lending—Net | 2,055 | ||
Total Income | 49,119 | ||
Expenses | |||
The Vanguard Group—Note B | |||
Investment Advisory Services | 291 | ||
Management and Administrative— | |||
ETF Shares | 780 | ||
Management and Administrative— | |||
Admiral Shares | 37 | ||
Marketing and Distribution— | |||
ETF Shares | 92 | ||
Marketing and Distribution— | |||
Admiral Shares | 6 | ||
Custodian Fees | 16 | ||
Auditing Fees | 34 | ||
Shareholders’ Reports and Proxy— | |||
ETF Shares | 199 | ||
Shareholders’ Reports and Proxy— | |||
Admiral Shares | 2 | ||
Trustees’ Fees and Expenses | 1 | ||
Total Expenses | 1,458 | ||
Net Investment Income | 47,661 | ||
Realized Net Gain (Loss) | |||
Investment Securities Sold | 89,137 | ||
Futures Contracts | 32 | ||
Realized Net Gain (Loss) | 89,169 | ||
Change in Unrealized Appreciation | |||
(Depreciation) (122,022) | |||
Net Increase (Decrease) in Net Assets | |||
Resulting from Operations | 14,808 |
Statement of Changes in Net Assets | |||
Year Ended August 31, | |||
2017 | 2016 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 47,661 | 38,141 | |
Realized Net Gain (Loss) | 89,169 | 88,022 | |
Change in Unrealized Appreciation (Depreciation) | (122,022) | 78,564 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | 14,808 | 204,727 | |
Distributions | |||
Net Investment Income | |||
ETF Shares | (46,292) | (46,291) | |
Admiral Shares | (1,957) | (1,424) | |
Realized Capital Gain | |||
ETF Shares | — | — | |
Admiral Shares | — | — | |
Total Distributions | (48,249) | (47,715) | |
Capital Share Transactions | |||
ETF Shares | (62,939) | 535,585 | |
Admiral Shares | (13,376) | 35,852 | |
Net Increase (Decrease) from Capital Share Transactions | (76,315) | 571,437 | |
Total Increase (Decrease) | (109,756) | 728,449 | |
Net Assets | |||
Beginning of Period | 1,548,020 | 819,571 | |
End of Period1 | 1,438,264 | 1,548,020 | |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $10,993,000 and $11,581,000. |
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 | 2017 | 2016 | 2015 | 2014 | 2013 | |
Net Asset Value, Beginning of Period | $95.16 | $83.80 | $88.44 | $78.54 | $70.82 | |
Investment Operations | ||||||
Net Investment Income | 3.1081 | 2.622 | 2.789 | 2.394 | 3.7342 | |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | (1.587) | 12.811 | (5.178) | 10.749 | 6.455 | |
Total from Investment Operations | 1.521 | 15.433 | (2.389) | 13.143 | 10.189 | |
Distributions | ||||||
Dividends from Net Investment Income | (3.141) | (4.073) | (2.251) | (3.243) | (2.469) | |
Distributions from Realized Capital Gains | — | — | — | — | — | |
Total Distributions | (3.141) | (4.073) | (2.251) | (3.243) | (2.469) | |
Net Asset Value, End of Period | $93.54 | $95.16 | $83.80 | $88.44 | $78.54 | |
Total Return | 1.62% | 19.14% | -2.72% | 17.08% | 14.78% | |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $1,388 | $1,483 | $795 | $743 | $511 | |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.12% | 0.14% | |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 3.26% | 3.10% | 3.20% | 3.29% | 4.56%2 | |
Portfolio Turnover Rate3 | 18% | 20% | 18% | 19% | 19% |
1 Calculated based on average shares outstanding.
2 Net investment income per share and the ratio of net investment income to average net assets include $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.
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 | 2017 | 2016 | 2015 | 2014 | 2013 | |
Net Asset Value, Beginning of Period | $48.50 | $42.71 | $45.07 | $40.02 | $36.09 | |
Investment Operations | ||||||
Net Investment Income | 1.6011 | 1.337 | 1.419 | 1.217 | 1.9062 | |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | (.829) | 6.529 | (2.637) | 5.486 | 3.284 | |
Total from Investment Operations | .772 | 7.866 | (1.218) | 6.703 | 5.190 | |
Distributions | ||||||
Dividends from Net Investment Income | (1.602) | (2.076) | (1.142) | (1.653) | (1.260) | |
Distributions from Realized Capital Gains | — | — | — | — | — | |
Total Distributions | (1.602) | (2.076) | (1.142) | (1.653) | (1.260) | |
Net Asset Value, End of Period | $47.67 | $48.50 | $42.71 | $45.07 | $40.02 | |
Total Return 3 | 1.61% | 19.14% | -2.66% | 17.13% | 14.80% | |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $50 | $65 | $24 | $26 | $21 | |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.12% | 0.14% | |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 3.26% | 3.10% | 3.20% | 3.29% | 4.56%2 | |
Portfolio Turnover Rate4 | 18% | 20% | 18% | 19% | 19% |
1 Calculated based on average shares outstanding.
2 Net investment income per share and the ratio of net investment income to average net assets include $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.
3 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.
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 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.
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 notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities 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, 2017, 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 the notional amounts 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, 2014–2017), 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
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Telecommunication Services Index Fund
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 event 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 Assets and Liabilities 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, 2017, 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), shareholder reporting, and the proxy. 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 Assets and Liabilities.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At August 31, 2017, the fund had contributed to Vanguard capital in the amount of $89,000, 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.
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Telecommunication Services Index Fund
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). Any investments valued with significant unobservable inputs are noted
on the Statement of Net Assets.
The following table summarizes the market value of the fund’s investments as of August 31, 2017, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 1,435,039 | — | — |
Temporary Cash Investments | 59,268 | 100 | — |
Futures Contracts—Assets1 | — | — | — |
Total | 1,494,307 | 100 | — |
1 Represents variation margin on the last day of the reporting period. |
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, 2017, the fund realized $77,444,000 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, 2017, the fund had $11,464,000 of ordinary income available for distribution. The fund used capital loss carryforwards of $11,726,000 to offset taxable capital gains realized during the year ended August 31, 2017. At August 31, 2017, the fund had available capital losses totaling $58,483,000 to offset future net capital gains. Of this amount, $37,793,000 is subject to expiration dates; $26,335,000 may be used to offset future net capital gains through August 31, 2018, and $11,458,000 through August 31, 2019. Capital losses of $20,690,000 realized beginning in fiscal 2012 may be carried forward indefinitely under the Regulated Investment Company Modernization Act of 2010, but must be used before any expiring loss carryforwards. Capital loss carryforwards of $7,492,000 expired on August 31, 2017; accordingly, such losses have been reclassified from accumulated net realized losses to paid-in capital.
At August 31, 2017, the cost of investment securities for tax purposes was $1,587,027,000. Net unrealized depreciation of investment securities for tax purposes was $92,620,000, consisting of unrealized gains of $114,347,000 on securities that had risen in value since their purchase and $206,967,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2017, the fund purchased $693,700,000 of investment securities and sold $766,530,000 of investment securities, other than temporary cash investments. Purchases and sales include $396,790,000 and $509,794,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
103
Telecommunication Services Index Fund
F. Capital share transactions for each class of shares were:
Year Ended August 31, | ||||
2017 | 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 449,451 | 4,627 | 956,306 | 10,625 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (512,390) | (5,375) | (420,721) | (4,525) |
Net Increase (Decrease)—ETF Shares | (62,939) | (748) | 535,585 | 6,100 |
Admiral Shares | ||||
Issued | 38,492 | 787 | 55,638 | 1,179 |
Issued in Lieu of Cash Distributions | 1,734 | 36 | 1,210 | 28 |
Redeemed | (53,602) | (1,106) | (20,996) | (446) |
Net Increase (Decrease)—Admiral Shares | (13,376) | (283) | 35,852 | 761 |
At August 31, 2017, one shareholder was the record or beneficial owner of 36% 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. 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 | Net | Change | Aug. 31, | ||||
2016 | from | Realized | in Net | Capital Gain | 2017 | |||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||
Value | at Cost | Sold | (Loss) | App. (Dep.) | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
FairPoint | ||||||||
Communications Inc. | 21,062 | 6,380 | 8,434 | 612 | 4,110 | — | — | NA1 |
Lumos Networks Corp. | 24,351 | 10,716 | 13,347 | 2,006 | 4,893 | — | — | 28,619 |
NII Holdings Inc. | 25,113 | 19,195 | 8,126 | (748) | (27,355) | — | — | 8,079 |
pdvWireless Inc. | 22,562 | 11,674 | 7,497 | (362) | 3,862 | — | — | 30,239 |
Spok Holdings Inc. | 21,005 | 9,384 | 8,229 | 878 | (979) | 933 | — | 22,059 |
Vanguard Market | ||||||||
Liquidity Fund | 71,748 | NA 2 | NA 2 | 5 | — | 9 | — | 59,268 |
Windstream Holdings | ||||||||
Inc. | NA3 | 42,222 | 10,055 | (932) | (38,124) | 2,581 | — | 20,284 |
Total | 185,841 | 1,459 | (53,593) | 3,523 | — | 168,548 |
1 Not applicable—in July 2017, FairPoint Communications Inc. merged into Consolidated Communications Holdings Inc.
2 Not applicable—purchases and sales are for temporary cash investment purposes.
3 Not applicable—at August 31, 2016, the issuer was not an affiliated company of the fund.
H. Management has determined that no material events or transactions occurred subsequent to August 31, 2017, that would require recognition or disclosure in these financial statements.
104
Utilities Index Fund
Fund Profile
As of August 31, 2017
Share-Class Characteristics | ||
ETF | Admiral | |
Shares | Shares | |
Ticker Symbol | VPU | VUIAX |
Expense Ratio1 | 0.10% | 0.10% |
30-Day SEC Yield | 3.14% | 3.15% |
Portfolio Characteristics | |||
MSCI | |||
US IMI/ | MSCI | ||
Utilities | US IMI/ | ||
Fund | 25/50 | 2500 | |
Number of Stocks | 75 | 75 | 2,482 |
Median Market Cap $26.1B | $26.1B | $63.1B | |
Price/Earnings Ratio | 23.0x | 23.0x | 22.0x |
Price/Book Ratio | 2.1x | 2.1x | 2.9x |
Return on Equity | 9.7% | 9.7% | 15.1% |
Earnings Growth Rate | 3.0% | 3.0% | 9.4% |
Dividend Yield | 3.2% | 3.2% | 1.8% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 4% | — | — |
Short-Term Reserves | 0.0% | — | — |
Volatility Measures | ||
MSCI US | ||
IMI/Utilities | MSCI US | |
25/50 | IMI/2500 | |
R-Squared | 1.00 | 0.02 |
Beta | 1.00 | 0.17 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months. | ||
Subindustry Diversification | |
(% of equity exposure) | |
Electric Utilities | 57.9% |
Gas Utilities | 5.7 |
Independent Power Producers & | |
Energy Traders | 2.8 |
Multi-Utilities | 29.5 |
Water Utilities | 3.1 |
Other Utilities | 1.0 |
Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” | |
category (if applicable), which includes securities that have not been provided a GICS classification as of the effective reporting period | |
. |
Ten Largest Holdings (% of total net assets) | ||
NextEra Energy Inc. | Electric Utilities | 8.4% |
Duke Energy Corp. | Electric Utilities | 7.3 |
Dominion Energy Inc. | Multi-Utilities | 5.9 |
Southern Co. | Electric Utilities | 5.8 |
American Electric | ||
Power Co. Inc. | Electric Utilities | 4.3 |
PG&E Corp. | Electric Utilities | 4.3 |
Exelon Corp. | Electric Utilities | 4.2 |
Sempra Energy | Multi-Utilities | 3.4 |
PPL Corp. | Electric Utilities | 3.2 |
Edison International | Electric Utilities | 3.1 |
Top Ten | 49.9% | |
The holdings listed exclude any temporary cash investments and equity index products. | ||
1 The expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2017, the expense ratios were 0.10% for
ETF Shares and 0.10% for Admiral Shares.
105
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, 2007–August 31, 2017
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ussectorindexx108x1.jpg)
Average Annual Total Returns | Final Value | ||||
Periods Ended August 31, 2017 | of a $10,000 | ||||
One Year | Five Years | Ten Years | Investment | ||
Utilities Index Fund | |||||
ETF Shares Net Asset Value | 16.27% | 13.11% | 7.89% | $21,363 | |
Utilities Index Fund | |||||
ETF Shares Market Price | 16.27 | 13.10 | 7.91 | 21,412 | |
Spliced US IMI/Utilities 25/50 | 16.32 | 13.22 | 8.05 | 21,685 | |
Utility Funds Average | 14.94 | 10.56 | 5.44 | 16,988 | |
MSCI US IMI/2500 | 16.06 | 14.29 | 7.84 | 21,281 | |
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 | 16.24% | 13.12% | 7.88% | $213,573 |
Spliced US IMI/Utilities 25/50 | 16.32 | 13.22 | 8.05 | 216,854 |
MSCI US IMI/2500 | 16.06 | 14.29 | 7.84 | 212,807 |
See Financial Highlights for dividend and capital gains information.
106
Utilities Index Fund
Fiscal-Year Total Returns (%): August 31, 2007–August 31, 2017
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/ussectorindexx109x1.jpg)
For a benchmark description, see the Glossary.
Cumulative Returns: ETF Shares, August 31, 2007–August 31, 2017 | |||
One Year | Five Years | Ten Years | |
Utilities Index Fund ETF Shares Market Price | 16.27% | 85.08% | 114.12% |
Utilities Index Fund ETF Shares Net Asset Value | 16.27 | 85.15 | 113.63 |
Spliced US IMI/Utilities 25/50 | 16.32 | 86.08 | 116.85 |
Average Annual Total Returns: Periods Ended June 30, 2017
This table presents total returns through the latest calendar quarter—rather than through the end of the fiscal
period. Securities and Exchange Commission rules require that we provide this information.
Inception Date | One Year | Five Years | Ten Years | ||
ETF Shares | 1/26/2004 | ||||
Market Price | 3.14% | 11.63% | 7.08% | ||
Net Asset Value | 3.14 | 11.63 | 7.08 | ||
Admiral Shares | 4/28/2004 | 3.13 | 11.64 | 7.07 |
See Financial Highlights for dividend and capital gains information.
107
Utilities Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2017
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 (57.9%) | |||
NextEra Energy Inc. | 1,982,998 | 298,461 | |
Duke Energy Corp. | 2,964,471 | 258,798 | |
Southern Co. | 4,212,715 | 203,306 | |
American Electric Power | |||
Co. Inc. | 2,082,734 | 153,352 | |
PG&E Corp. | 2,164,412 | 152,331 | |
Exelon Corp. | 3,922,600 | 148,549 | |
PPL Corp. | 2,893,710 | 113,549 | |
Edison International | 1,380,021 | 110,650 | |
Xcel Energy Inc. | 2,150,696 | 106,459 | |
Eversource Energy | 1,342,286 | 84,564 | |
FirstEnergy Corp. | 1,879,571 | 61,236 | |
Entergy Corp. | 760,202 | 60,185 | |
Pinnacle West Capital | |||
Corp. | 472,566 | 42,517 | |
Alliant Energy Corp. | 965,107 | 41,249 | |
Westar Energy Inc. | |||
Class A | 601,944 | 30,886 | |
OGE Energy Corp. | 845,983 | 30,218 | |
Great Plains Energy Inc. | 913,433 | 28,033 | |
IDACORP Inc. | 213,515 | 18,999 | |
Portland General Electric | |||
Co. | 377,200 | 17,921 | |
ALLETE Inc. | 215,655 | 16,677 | |
Hawaiian Electric | |||
Industries Inc. | 460,784 | 15,399 | |
PNM Resources Inc. | 337,474 | 14,309 | |
Avangrid Inc. | 262,025 | 12,792 | |
El Paso Electric Co. | 171,986 | 9,554 | |
MGE Energy Inc. | 146,967 | 9,347 | |
Otter Tail Corp. | 150,754 | 6,302 | |
Spark Energy Inc. Class A | 49,221 | 780 | |
2,046,423 | |||
Gas Utilities (5.7%) | |||
Atmos Energy Corp. | 446,048 | 39,270 | |
UGI Corp. | 733,380 | 36,236 | |
National Fuel Gas Co. | 317,629 | 18,416 | |
WGL Holdings Inc. | 216,985 | 18,283 | |
ONE Gas Inc. | 222,170 | 16,716 | |
Southwest Gas Holdings | |||
Inc. | 201,485 | 16,022 | |
New Jersey Resources | |||
Corp. | 366,031 | 15,977 | |
Spire Inc. | 204,536 | 15,647 | |
South Jersey Industries | |||
Inc. | 337,107 | 12,096 | |
Northwest Natural Gas | |||
Co. | 121,520 | 8,057 | |
Chesapeake Utilities Corp. | 65,792 | 5,227 | |
201,947 |
Market | |||
Value• | |||
Shares | ($000) | ||
Independent Power and Renewable | |||
Electricity Producers (3.7%) | |||
NRG Energy Inc. | 1,338,901 | 33,352 | |
AES Corp. | 2,796,418 | 30,872 | |
* | Calpine Corp. | 1,528,433 | 22,468 |
^ | NextEra Energy Partners | ||
LP | 229,753 | 9,526 | |
Ormat Technologies Inc. | 158,099 | 9,081 | |
Pattern Energy Group Inc. | |||
Class A | 297,237 | 7,467 | |
* | Dynegy Inc. | 529,459 | 4,987 |
NRG Yield Inc. | 267,946 | 4,957 | |
* | TerraForm Power Inc. | ||
Class A | 258,330 | 3,606 | |
NRG Yield Inc. Class A | 146,438 | 2,664 | |
8Point3 Energy Partners | |||
LP Class A | 119,944 | 1,730 | |
* | TerraForm Global Inc. | ||
Class A | 339,601 | 1,715 | |
132,425 | |||
Multi-Utilities (29.5%) | |||
Dominion Energy Inc. | 2,664,114 | 209,852 | |
Sempra Energy | 1,009,359 | 119,034 | |
Consolidated Edison Inc. | 1,293,476 | 109,001 | |
Public Service Enterprise | |||
Group Inc. | 2,142,732 | 100,366 | |
WEC Energy Group Inc. | 1,336,683 | 87,179 | |
DTE Energy Co. | 759,907 | 85,353 | |
Ameren Corp. | 1,027,829 | 61,659 | |
CMS Energy Corp. | 1,187,996 | 57,665 | |
CenterPoint Energy Inc. | 1,734,198 | 51,367 | |
NiSource Inc. | 1,370,082 | 36,814 | |
SCANA Corp. | 575,146 | 34,727 | |
Vectren Corp. | 351,432 | 23,057 | |
MDU Resources Group | |||
Inc. | 785,992 | 21,253 | |
Black Hills Corp. | 226,386 | 15,933 | |
Avista Corp. | 272,974 | 14,031 | |
NorthWestern Corp. | 205,247 | 12,381 | |
Unitil Corp. | 59,719 | 2,978 | |
1,042,650 | |||
Water Utilities (3.2%) | |||
American Water Works | |||
Co. Inc. | 754,858 | 61,068 | |
Aqua America Inc. | 752,643 | 25,138 | |
American States Water | |||
Co. | 155,178 | 7,650 | |
California Water Service | |||
Group | 203,671 | 7,627 | |
SJW Group | 65,200 | 3,619 |
Market | |||
Value• | |||
Shares | ($000) | ||
Connecticut Water Service | |||
Inc. | 48,941 | 2,655 | |
Middlesex Water Co. | 68,920 | 2,618 | |
* | AquaVenture Holdings Ltd. | 67,276 | 1,020 |
111,395 | |||
Total Common Stocks | |||
(Cost $3,158,911) | 3,534,840 | ||
Temporary Cash Investments (0.1%) | |||
Money Market Fund (0.1%) | |||
1,2 Vanguard Market | |||
Liquidity Fund, 1.224% | 17,153 | 1,715 | |
Total Temporary Cash Investments | |||
(Cost $1,715) | 1,715 | ||
Total Investments (100.1%) | |||
(Cost $3,160,626) | 3,536,555 | ||
Amount | |||
($000) | |||
Other Assets and Liabilities (-0.1%) | |||
Other Assets | |||
Investment in Vanguard | 213 | ||
Receivables for Investment Securities Sold 3,126 | |||
Receivables for Accrued Income | 17,147 | ||
Receivables for Capital Shares Issued | 471 | ||
Total Other Assets | 20,957 | ||
Liabilities | |||
Payables for Investment Securities | |||
Purchased | (6,778) | ||
Collateral for Securities on Loan | (1,714) | ||
Payables for Capital Shares Redeemed | (1,045) | ||
Payables to Vanguard | (1,366) | ||
Other Liabilities | (12,288) | ||
Total Liabilities | (23,191) | ||
Net Assets (100%) | 3,534,321 |
108
Utilities Index Fund
At August 31, 2017, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 3,153,451 |
Undistributed Net Investment Income | 20,494 |
Accumulated Net Realized Losses | (15,553) |
Unrealized Appreciation (Depreciation) | 375,929 |
Net Assets | 3,534,321 |
ETF Shares—Net Assets | |
Applicable to 22,269,059 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 2,689,061 |
Net Asset Value Per Share— | |
ETF Shares | $120.75 |
Admiral Shares—Net Assets | |
Applicable to 13,951,997 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 845,260 |
Net Asset Value Per Share— | |
Admiral Shares | $60.58 |
• 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 $1,733,000.
1 Affiliated money market fund available only to Vanguard funds
and certain trusts and accounts managed by Vanguard. Rate
shown is the 7-day yield.
2 Includes $1,714,000 of collateral received for securities on loan.
The fund received additional collateral of $84,000 on the next
business day.
See accompanying Notes, which are an integral part of the Financial Statements.
109
Utilities Index Fund
Statement of Operations | |||
Year Ended | |||
August 31, 2017 | |||
($000) | |||
Investment Income | |||
Income | |||
Dividends 105,634 | |||
Interest1 | 11 | ||
Securities Lending—Net | 95 | ||
Total Income | 105,740 | ||
Expenses | |||
The Vanguard Group—Note B | |||
Investment Advisory Services | 620 | ||
Management and Administrative— | |||
ETF Shares | 1,417 | ||
Management and Administrative— | |||
Admiral Shares | 469 | ||
Marketing and Distribution— | |||
ETF Shares | 153 | ||
Marketing and Distribution— | |||
Admiral Shares | 71 | ||
Custodian Fees | 57 | ||
Auditing Fees | 34 | ||
Shareholders’ Reports and Proxy— | |||
ETF Shares | 220 | ||
Shareholders’ Reports and Proxy— | |||
Admiral Shares | 17 | ||
Trustees’ Fees and Expenses | 3 | ||
Total Expenses | 3,061 | ||
Net Investment Income | 102,679 | ||
Realized Net Gain (Loss) | |||
Investment Securities Sold1 | 114,915 | ||
Futures Contracts | 25 | ||
Realized Net Gain (Loss) | 114,940 | ||
Change in Unrealized Appreciation | |||
(Depreciation) of Investment Securities | 249,599 | ||
Net Increase (Decrease) in Net Assets | |||
Resulting from Operations | 467,218 | ||
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $11,000 and $2,000, respectively. | |||
Statement of Changes in Net Assets | |||
Year Ended August 31, | |||
2017 | 2016 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 102,679 | 88,162 | |
Realized Net Gain (Loss) | 114,940 | 206,278 | |
Change in Unrealized Appreciation (Depreciation) | 249,599 | 183,126 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | 467,218 | 477,566 | |
Distributions | |||
Net Investment Income | |||
ETF Shares | (77,123) | (65,440) | |
Admiral Shares | (23,989) | (17,938) | |
Realized Capital Gain | |||
ETF Shares | — | — | |
Admiral Shares | — | — | |
Total Distributions | (101,112) | (83,378) | |
Capital Share Transactions | |||
ETF Shares | 161,163 | 357,214 | |
Admiral Shares | 54,037 | 172,991 | |
Net Increase (Decrease) from Capital Share Transactions | 215,200 | 530,205 | |
Total Increase (Decrease) | 581,306 | 924,393 | |
Net Assets | |||
Beginning of Period | 2,953,015 | 2,028,622 | |
End of Period1 | 3,534,321 | 2,953,015 | |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $20,494,000 and $18,926,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
110
Utilities Index Fund | ||||||
Financial Highlights | ||||||
ETF Shares | ||||||
For a Share Outstanding | Year Ended August 31, | |||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 | |
Net Asset Value, Beginning of Period | $107.35 | $91.41 | $94.61 | $81.32 | $77.69 | |
Investment Operations | ||||||
Net Investment Income | 3.6971 | 3.355 | 3.337 | 3.127 | 3.043 | |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | 13.374 | 15.889 | (3.261) | 13.261 | 3.675 | |
Total from Investment Operations | 17.071 | 19.244 | .076 | 16.388 | 6.718 | |
Distributions | ||||||
Dividends from Net Investment Income | (3.671) | (3.304) | (3.276) | (3.098) | (3.088) | |
Distributions from Realized Capital Gains | — | — | — | — | — | |
Total Distributions | (3.671) | (3.304) | (3.276) | (3.098) | (3.088) | |
Net Asset Value, End of Period | $120.75 | $107.35 | $91.41 | $94.61 | $81.32 | |
Total Return | 16.27% | 21.40% | -0.02% | 20.55% | 8.82% | |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $2,689 | $2,249 | $1,581 | $1,711 | $1,356 | |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.12% | 0.14% | |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 3.33% | 3.38% | 3.39% | 3.59% | 3.72% | |
Portfolio Turnover Rate2 | 4% | 3% | 7% | 7% | 7% |
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 | 2017 | 2016 | 2015 | 2014 | 2013 | |
Net Asset Value, Beginning of Period | $53.86 | $45.86 | $47.47 | $40.80 | $38.99 | |
Investment Operations | ||||||
Net Investment Income | 1.8631 | 1.683 | 1.676 | 1.569 | 1.529 | |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | 6.698 | 7.974 | (1.641) | 6.656 | 1.838 | |
Total from Investment Operations | 8.561 | 9.657 | .035 | 8.225 | 3.367 | |
Distributions | ||||||
Dividends from Net Investment Income | (1.841) | (1.657) | (1.645) | (1.555) | (1.557) | |
Distributions from Realized Capital Gains | — | — | — | — | — | |
Total Distributions | (1.841) | (1.657) | (1.645) | (1.555) | (1.557) | |
Net Asset Value, End of Period | $60.58 | $53.86 | $45.86 | $47.47 | $40.80 | |
Total Return2 | 16.24% | 21.42% | -0.01% | 20.58% | 8.83% | |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $845 | $704 | $447 | $442 | $347 | |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.12% | 0.14% | |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 3.33% | 3.38% | 3.39% | 3.59% | 3.72% | |
Portfolio Turnover Rate3 | 4% | 3% | 7% | 7% | 7% |
1 Calculated based on average shares outstanding.
2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
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.
111
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. 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 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 futures gains (losses).
During the year ended August 31, 2017, the fund’s average investments in long and short futures contracts each represented 0% of net assets, based on the average of notional amounts at each quarter-end during the period. The fund had no open futures contracts at August 31, 2017.
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, 2014–2017), 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 event of a default, the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral
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Utilities 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, 2017, 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), shareholder reporting, and the proxy. 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, 2017, the fund had contributed to Vanguard capital in the amount of $213,000, representing 0.01% of the fund’s net assets and 0.09% 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). Any investments valued with significant unobservable inputs are noted
on the Statement of Net Assets.
At August 31, 2017, 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.
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Utilities Index Fund
During the year ended August 31, 2017, the fund realized $109,857,000 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, 2017, the fund had $21,692,000 of ordinary income available for distribution. At August 31, 2017, the fund had available capital losses totaling $15,553,000 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 $9,535,000 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, 2017, the cost of investment securities for tax purposes was $3,160,626,000. Net unrealized appreciation of investment securities for tax purposes was $375,929,000, consisting of unrealized gains of $455,447,000 on securities that had risen in value since their purchase and $79,518,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2017, the fund purchased $853,525,000 of investment securities and sold $636,400,000 of investment securities, other than temporary cash investments. Purchases and sales include $599,691,000 and $505,261,000, 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, | ||||
2017 | 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 666,769 | 5,969 | 1,178,906 | 11,352 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (505,606) | (4,650) | (821,692) | (7,700) |
Net Increase (Decrease)—ETF Shares | 161,163 | 1,319 | 357,214 | 3,652 |
Admiral Shares | ||||
Issued | 244,803 | 4,399 | 305,428 | 5,854 |
Issued in Lieu of Cash Distributions | 19,033 | 342 | 13,618 | 273 |
Redeemed | (209,799) | (3,860) | (146,055) | (2,814) |
Net Increase (Decrease)—Admiral Shares | 54,037 | 881 | 172,991 | 3,313 |
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2017, that would require recognition or disclosure in these financial statements.
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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 statement of assets and liabilities of Vanguard Telecommunication Services Index Fund and statements of net assets 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”) 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 the Funds as of August 31, 2017, 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 as of August 31, 2017 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 13, 2017
Special 2017 tax information (unaudited) for Vanguard U.S. Sector Index Funds
This information for the fiscal year ended August 31, 2017, is included pursuant to provisions of the Internal Revenue Code.
The funds distributed qualified dividend income to shareholders during the fiscal year as follows:
Fund | ($000) |
Consumer Discretionary Index Fund | 33,299 |
Consumer Staples Index Fund | 113,281 |
Energy Index Fund | 122,229 |
Financials Index Fund | 79,602 |
Health Care Index Fund | 97,342 |
Industrials Index Fund | 53,418 |
Information Technology Index Fund | 147,523 |
Materials Index Fund | 37,159 |
Telecommunication Services Index Fund | 46,121 |
Utilities Index Fund | 101,112 |
For corporate shareholders, the percentage of investment income (dividend income plus short-term gains, if any) that qualifies for the dividends-received deduction is as follows:
Fund | Percentage |
Consumer Discretionary Index Fund | 90.4% |
Consumer Staples Index Fund | 100.0 |
Energy Index Fund | 95.6 |
Financials Index Fund | 100.0 |
Health Care Index Fund | 98.0 |
Industrials Index Fund | 97.9 |
Information Technology Index Fund | 100.0 |
Materials Index Fund | 95.6 |
Telecommunication Services Index Fund | 92.7 |
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 2017. (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, 2017 | |||
One Year | Five Years | Ten Years | |
Consumer Discretionary Index Fund ETF Shares | |||
Returns Before Taxes | 13.81% | 15.95% | 10.49% |
Returns After Taxes on Distributions | 13.39 | 15.58 | 10.20 |
Returns After Taxes on Distributions and Sale of Fund Shares | 8.11 | 12.85 | 8.63 |
One Year | Five Years | Ten Years | |
Consumer Staples Index Fund ETF Shares | |||
Returns Before Taxes | 2.83% | 12.18% | 10.27% |
Returns After Taxes on Distributions | 2.18 | 11.53 | 9.77 |
Returns After Taxes on Distributions and Sale of Fund Shares | 2.11 | 9.68 | 8.43 |
One Year | Five Years | Ten Years | |
Energy Index Fund ETF Shares | |||
Returns Before Taxes | -7.55% | -1.23% | 0.32% |
Returns After Taxes on Distributions | -8.10 | -1.78 | -0.06 |
Returns After Taxes on Distributions and Sale of Fund Shares | -3.75 | -0.85 | 0.33 |
One Year | Five Years | Ten Years | |
Financials Index Fund ETF Shares | |||
Returns Before Taxes | 24.65% | 16.51% | 2.53% |
Returns After Taxes on Distributions | 24.09 | 15.85 | 2.01 |
Returns After Taxes on Distributions and Sale of Fund Shares | 14.25 | 13.13 | 1.80 |
One Year | Five Years | Ten Years | |
Health Care Index Fund ETF Shares | |||
Returns Before Taxes | 15.06% | 18.20% | 11.54% |
Returns After Taxes on Distributions | 14.67 | 17.84 | 11.21 |
Returns After Taxes on Distributions and Sale of Fund Shares | 8.79 | 14.76 | 9.55 |
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Average Annual Total Returns: U.S. Sector Index Funds | |||
Periods Ended August 31, 2017 | |||
One Year | Five Years | Ten Years | |
Industrials Index Fund ETF Shares | |||
Returns Before Taxes | 17.55% | 15.85% | 7.64% |
Returns After Taxes on Distributions | 17.03 | 15.37 | 7.27 |
Returns After Taxes on Distributions and Sale of Fund Shares | 10.31 | 12.75 | 6.14 |
One Year | Five Years | Ten Years | |
Information Technology Index Fund ETF Shares | |||
Returns Before Taxes | 29.93% | 17.36% | 11.03% |
Returns After Taxes on Distributions | 29.55 | 17.01 | 10.82 |
Returns After Taxes on Distributions and Sale of Fund Shares | 17.17 | 14.01 | 9.12 |
One Year | Five Years | Ten Years | |
Materials Index Fund ETF Shares | |||
Returns Before Taxes | 17.06% | 11.59% | 6.48% |
Returns After Taxes on Distributions | 16.55 | 11.07 | 6.06 |
Returns After Taxes on Distributions and Sale of Fund Shares | 10.02 | 9.17 | 5.17 |
One Year | Five Years | Ten Years | |
Telecommunication Services Index Fund ETF Shares | |||
Returns Before Taxes | 1.62% | 9.62% | 4.87% |
Returns After Taxes on Distributions | 0.79 | 8.75 | 4.22 |
Returns After Taxes on Distributions and Sale of Fund Shares | 1.54 | 7.55 | 3.83 |
One Year | Five Years | Ten Years | |
Utilities Index Fund ETF Shares | |||
Returns Before Taxes | 16.27% | 13.11% | 7.89% |
Returns After Taxes on Distributions | 15.36 | 12.22 | 7.16 |
Returns After Taxes on Distributions and Sale of Fund Shares | 9.84 | 10.33 | 6.29 |
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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, 2017 | ||||
Beginning | Ending | Expenses | ||
Account Value | Account Value | Paid During | ||
Index Fund | Share Class | 2/28/2017 | 8/31/2017 | Period1 |
Based on Actual Fund Return | ||||
Consumer Discretionary | ETF | $1,000.00 | $1,138.15 | $0.54 |
Admiral | 1,000.00 | 1,138.13 | 0.54 | |
Consumer Staples | ETF | $1,000.00 | $1,028.28 | $0.51 |
Admiral | 1,000.00 | 1,028.13 | 0.51 | |
Energy | ETF | $1,000.00 | $882.78 | $0.47 |
Admiral | 1,000.00 | 882.88 | 0.47 | |
Financials | ETF | $1,000.00 | $1,006.17 | $0.51 |
Admiral | 1,000.00 | 1,006.23 | 0.51 | |
Health Care | ETF | $1,000.00 | $1,098.06 | $0.53 |
Admiral | 1,000.00 | $1,098.13 | 0.53 | |
Industrials | ETF | $1,000.00 | $1,038.38 | $0.51 |
Admiral | 1,000.00 | 1,038.50 | 0.51 | |
Information Technology | ETF | $1,000.00 | $1,143.07 | $0.54 |
Admiral | 1,000.00 | 1,143.04 | 0.49 | |
Materials | ETF | $1,000.00 | $1,053.64 | $0.52 |
Admiral | 1,000.00 | 1,053.56 | 0.52 | |
Telecommunication Services | ETF | $1,000.00 | $973.21 | $0.50 |
Admiral | 1,000.00 | 973.33 | 0.50 | |
Utilities | ETF | $1,000.00 | $1,079.99 | $0.52 |
Admiral | 1,000.00 | 1,080.01 | 0.52 | |
Based on Hypothetical 5% Yearly Return | ||||
Consumer Discretionary | ETF | $1,000.00 | $1,024.70 | $0.51 |
Admiral | 1,000.00 | 1,024.70 | 0.51 | |
Consumer Staples | ETF | $1,000.00 | $1,024.70 | $0.51 |
Admiral | 1,000.00 | 1,024.70 | 0.51 | |
Energy | ETF | $1,000.00 | $1,024.70 | $0.51 |
Admiral | 1,000.00 | 1,024.70 | 0.51 | |
Financials | ETF | $1,000.00 | $1,024.70 | $0.51 |
Admiral | 1,000.00 | 1,024.70 | 0.51 | |
Health Care | ETF | $1,000.00 | $1,024.70 | $0.51 |
Admiral | 1,000.00 | 1,024.70 | 0.51 | |
Industrials | ETF | $1,000.00 | $1,024.70 | $0.51 |
Admiral | 1,000.00 | 1,024.70 | 0.51 | |
Information Technology | ETF | $1,000.00 | $1,024.70 | $0.51 |
Admiral | 1,000.00 | 1,024.75 | 0.46 | |
Materials | ETF | $1,000.00 | $1,024.70 | $0.51 |
Admiral | 1,000.00 | 1,024.70 | 0.51 | |
Telecommunication Services | ETF | $1,000.00 | $1,024.70 | $0.51 |
Admiral | 1,000.00 | 1,024.70 | 0.51 | |
Utilities | ETF | $1,000.00 | $1,024.70 | $0.51 |
Admiral | 1,000.00 | 1,024.70 | 0.51 |
1 The calculations are based on expenses incurred in the most recent six-month period. The funds’ annualized six-month expense ratios for
that period are 0.10% for the Consumer Discretionary Index Fund ETF Shares and 0.10% for the Admiral Shares; 0.10% for the Consumer
Staples Index Fund ETF Shares and 0.10% for the Admiral Shares; 0.10% for the Energy Index Fund ETF Shares and 0.10% for the Admiral
Shares; 0.10% for the Financials Index Fund ETF Shares and 0.10% for the Admiral Shares; 0.10% for the Health Care Index Fund ETF
Shares and 0.10% for the Admiral Shares; 0.10% for the Industrials Index Fund ETF Shares and 0.10% for the Admiral Shares; 0.10% for
the Information Technology Index Fund ETF Shares and 0.09% for the Admiral Shares; 0.10% for the Materials Index Fund ETF Shares and
0.10% for the Admiral Shares; 0.10% for the Telecommunication Services Index Fund ETF Shares and 0.10% for the Admiral Shares; 0.10%
for the Utilities Index Fund ETF Shares and 0.10% for the Admiral Shares. The dollar amounts shown as “Expenses Paid” are equal to the
annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent
six-month period, then divided by the number of days in the most recent 12-month period (184/365).
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Trustees Approve Advisory Arrangements
The board of trustees 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 has renewed each fund’s investment advisory arrangement with The Vanguard Group, Inc. (Vanguard), through its Equity Index Group. The board determined that continuing each 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 that directed 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 compared with 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 the 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.
121
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.
122
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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 195 Vanguard funds.
Information for each trustee and executive officer of the fund appears below. 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.
Interested Trustee1
F. William McNabb III
Born 1957. Trustee Since July 2009. Chairman of the Board. Principal Occupation(s) During the Past Five Years and Other Experience: Chairman of the Board of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group, since January 2010; Chief Executive Officer and Director of The Vanguard Group and President and Chief Executive Officer of each of the investment companies served by The Vanguard Group, since 2008; Director of Vanguard Marketing Corporation; President of The Vanguard Group (2008–2017); Managing Director of The Vanguard Group (1995–2008).
Independent Trustees
Emerson U. Fullwood
Born 1948. Trustee Since January 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Executive Chief Staff and Marketing Officer for North America and Corporate Vice President (retired 2008) of Xerox Corporation (document management products and services); Executive in Residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology; 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; Trustee of the University of Rochester.
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 Arconic Inc. (diversified manufacturer), 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.
JoAnn Heffernan Heisen
Born 1950. Trustee Since July 1998. Principal Occupation(s) During the Past Five Years and Other Experience: Corporate Vice President and Member of the Executive Committee (1997–2008), Chief Global Diversity Officer (retired 2008), Vice President and Chief Information Officer (1997–2006), Controller (1995–1997), Treasurer (1991–1995), and Assistant Treasurer (1989–1991) 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), Oxfam America, and the Lumina Foundation for Education; Director of the V Foundation for Cancer Research; Member of the Advisory Council for the College of Arts and Letters and Chair 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, the Board of Catholic Investment Services, Inc. (investment advisor), and the Board of Superintendence of the Institute for the Works of Religion; Chairman of the Board of TIFF Advisory Services, Inc. (investment advisor).
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 Co-Managing Partner of HighVista Strategies LLC (private investment firm); Overseer of the Museum of Fine Arts Boston.
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.
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 Board of Hypertherm, Inc. (industrial cutting systems, software, and consumables).
Executive Officers
Glenn Booraem
Born 1967. Investment Stewardship Officer Since February 2017. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Treasurer (2015–2017), Controller (2010–2015), and Assistant Controller (2001–2010) of each of the investment companies served by The Vanguard Group.
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: Principal of 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).
Anne E. Robinson
Born 1970. Secretary Since September 2016. 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; Managing Director and General Counsel of Global Cards and Consumer Services at Citigroup (2014–2016); Counsel at American Express (2003–2014).
Michael Rollings
Born 1963. Treasurer Since February 2017. Principal Occupation(s) During the Past Five Years and Other Experience: Managing Director of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group; Director of Vanguard Marketing Corporation; Executive Vice President and Chief Financial Officer of MassMutual Financial Group (2006–2016).
Vanguard Senior Management Team | |
Mortimer J. Buckley | Chris D. McIsaac |
Gregory Davis | James M. Norris |
John James | Thomas M. Rampulla |
Martha G. King | Karin A. Risi |
John T. Marcante | |
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 |
![]() | |
P.O. Box 2600 | |
Valley Forge, PA 19482-2600 | |
Connect with Vanguard® > vanguard.com | |
Fund Information > 800-662-7447 | All comparative mutual fund data are from Lipper Inc., a |
Thomson Reuters Company, or Morningstar, Inc., unless | |
Direct Investor Account Services > 800-662-2739 | otherwise noted. |
Institutional Investor Services > 800-523-1036 | You can obtain a free copy of Vanguard’s proxy voting |
Text Telephone for People | guidelines by visiting vanguard.com/proxyreporting or |
Who Are Deaf or Hard of Hearing > 800-749-7273 | by calling Vanguard at 800-662-2739. The guidelines |
are also available from the SEC’s website, sec.gov. | |
In addition, you may obtain a free report on how your | |
This material may be used in conjunction | fund voted the proxies for securities it owned during |
the 12 months ended June 30. To get the report, visit | |
with the offering of shares of any Vanguard | either vanguard.com/proxyreporting or sec.gov. |
fund only if preceded or accompanied by the | |
fund’s current prospectus. | You can review and copy information about your fund |
at the SEC’s Public Reference Room in Washington, D.C. | |
The funds or securities referred to herein are not | To find out more about this public service, call the SEC |
sponsored, endorsed, or promoted by MSCI, and MSCI | at 202-551-8090. Information about your fund is also |
bears no liability with respect to any such funds or | available on the SEC’s website, and you can receive |
securities. The prospectus or the Statement of Additional | copies of this information, for a fee, by sending a |
Information contains a more detailed description of the | request in either of two ways: via email addressed to |
limited relationship MSCI has with Vanguard and any | publicinfo@sec.gov or via regular mail addressed to the |
related funds. | Public Reference Section, Securities and Exchange |
Commission, Washington, DC 20549-1520. | |
© 2017 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q4830 102017 |
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/extendeddurationtreasx1x1.jpg)
Annual Report | August 31, 2017
Vanguard Extended Duration Treasury
Index Fund
Vanguard’s Principles for Investing Success
We want to give you the best chance of investment success. These principles, grounded in Vanguard’s research and experience, can put you on the right path.
Goals. Create clear, appropriate investment goals.
Balance. Develop a suitable asset allocation using broadly diversified funds. Cost. Minimize cost.
Discipline. Maintain perspective and long-term discipline.
A single theme unites these principles: Focus on the things you can control.
We believe there is no wiser course for any investor.
Contents | |
Your Fund’s 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: Nautical images have been part of Vanguard’s rich heritage since its start in 1975. For an incoming ship, a lighthouse offers a beacon and safe path to shore. You can similarly depend on Vanguard to put you first––and light the way––as you strive to meet your financial goals. Our client focus and low costs, stemming from our unique ownership structure, assure that your interests are paramount.
Your Fund’s Performance at a Glance
• ETF shares of Vanguard Extended Duration Treasury Index Fund returned –8.86% for the 12 months ended August 31, 2017. This result was a bit better than that of the fund’s benchmark index (–9.20%).
• The fund’s return trailed the average return of general U.S. Treasury securities because the broader Treasury market includes a wider range of maturities. Although Treasury prices fell across the maturity spectrum, longer-term Treasuries (a focus of the fund) fared worse than their shorter-term counterparts.
• Treasury prices dropped as markets grew more optimistic about economic growth prospects, even as inflation readings remained modest. The bonds’ price declines raised their yields. The 30-day SEC yield of the fund’s ETF Shares began the fiscal year at 2.28% and ended it at 2.77%.
• The ETF Shares’ average annual return of 8.45% since their inception on December 6, 2007, tracked that of the benchmark and exceeded that of general funds investing in U.S. Treasuries.
Total Returns: Fiscal Year Ended August 31, 2017 | ||||
30-Day SEC | Income | Capital | Total | |
Yields | Returns | Returns | Returns | |
Vanguard Extended Duration Treasury Index Fund | ||||
ETF Shares | 2.77% | |||
Market Price | -8.97% | |||
Net Asset Value | -8.86 | |||
Institutional Shares | 2.78 | 2.62% | -11.48% | -8.86 |
Institutional Plus Shares | 2.80 | 2.63 | -11.47 | -8.84 |
Bloomberg Barclays U.S. Treasury STRIPS 20–30 Year | ||||
Equal Par Bond Index | -9.20 | |||
General U.S. Treasury Funds Average | -2.65 |
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, 2017 | |
Average | |
Annual Return | |
Extended Duration Treasury Index Fund ETF Shares (Returns since inception: 12/6/2007) | 8.45% |
Bloomberg Barclays U.S. Treasury STRIPS 20–30 Year Equal Par Bond Index | 8.69 |
General U.S. Treasury Funds Average | 4.62 |
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 | 0.07% | 0.06% | 0.04% | 0.42% |
The fund expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2017, 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
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Bill McNabb
Chairman and Chief Executive Officer
Dear Shareholder,
Since mid-August we’ve been reaching out to you about the proposals put forth by the Vanguard funds that, if approved, will enable us to manage the funds more efficiently and effectively. As the November deadline for voting approaches, I’d like to offer some perspective on a few of the proposals that I believe are important to the way Vanguard operates and manages your investments. I hope you consider this information and promptly cast your ballot.
Your biggest advocate
The main driver for this proxy solicitation is to ask all our fund shareholders to elect a full slate of trustees who oversee each U.S.-based Vanguard mutual fund. These trustees serve an important role, making sure your funds are managed in your best interests. This includes monitoring fund performance, approving advisory agreements, and ensuring that we’re keeping your investment costs as low as possible. Simply put, they are your biggest advocate.
Each trustee brings a variety of skills and professional experiences that contribute to the board’s strength and diversity. Of the 12 nominees, nine currently serve on the board, and three are new. If elected, the new board would include ten independent members, meaning they have no affiliation with Vanguard or the funds apart from any investments they may choose to make as private individuals.
3
These are the proposed new trustees:
• Sarah Bloom Raskin is a former member of the Federal Reserve Board of Governors and former deputy secretary of the U.S. Treasury Department. She is an expert in cybersecurity—a critically important issue at Vanguard, as we place a premium on protecting clients’ assets and sensitive data.
• Deanna Mulligan is chief executive officer of The Guardian Life Insurance Company of America. It’s rare to find a CEO such as Deanna who leads a company with a mutual ownership structure similar to Vanguard’s.
• Tim Buckley is president and a director of Vanguard and will succeed me in January as CEO. (I’ll remain chairman for a period to be determined by the board.) I interviewed Tim when he applied for his first job here in 1991 and again when he was graduating from Harvard Business School. I was thrilled he picked Vanguard as a place to build his career, and I’ve been delighted to see him take on several leadership positions, including as head of our Retail Investor Group, chief information officer, and chief investment officer. I can think of no one better prepared to succeed me.
Market Barometer | |||
Average Annual Total Returns | |||
Periods Ended August 31, 2017 | |||
One Year | Three Years | Five Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 16.16% | 9.21% | 14.37% |
Russell 2000 Index (Small-caps) | 14.91 | 7.67 | 13.15 |
Russell 3000 Index (Broad U.S. market) | 16.06 | 9.08 | 14.27 |
FTSE All-World ex US Index (International) | 18.74 | 2.80 | 7.76 |
Bonds | |||
Bloomberg Barclays U.S. Aggregate Bond Index | |||
(Broad taxable market) | 0.49% | 2.64% | 2.19% |
Bloomberg Barclays Municipal Bond Index | |||
(Broad tax-exempt market) | 0.88 | 3.40 | 3.23 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.58 | 0.25 | 0.16 |
CPI | |||
Consumer Price Index | 1.94% | 1.06% | 1.28% |
4
Vanguard believes that diversity of thought, background, and experience, as well as diversity of personal characteristics, meaningfully contributes to the board’s ability to effectively serve shareholders. If Sarah and Deanna are elected, women will account for 40% of the board’s independent trustees.
I should note that even as Vanguard is nominating three new board members, we’re saying goodbye to trustee Rajiv Gupta. Rajiv was a legendary CEO of Rohm and Haas Co., and Vanguard and our clients have benefited greatly from his expertise. I wish him a happy retirement.
Summarizing the proposals
Among the trustees’ leading responsibilities is overseeing the funds’ internal and external investment advisory agreements. The trustees, in consultation with our Global Investment Committee and our Portfolio Review Department, choose the investment advisors that manage client assets. Over decades, we have built a strong track record of picking advisors whose portfolio management strategies have served clients well.
Two proposals in the proxy focus on this oversight responsibility. Shareholders of 48 Vanguard funds have already voted to allow the board to make external advisor changes without obtaining prior shareholder approval. The new proposals would extend that policy across our entire U.S.-based fund lineup and expand it to include internal advisory agreements with Vanguard subsidiaries. Eliminating the need for shareholder approval removes a step that is costly and time-consuming if done frequently or on an individual fund basis. Although there are no current plans to employ the policy on any Vanguard-managed funds, standardizing it enables the trustees to retain an advisory firm to diversify a fund’s management team or ensure management continuity should a contingency arise.
I also encourage shareholders of several specific Vanguard index funds to read the proxy proposals that affect those funds. One proposal would change the investment objective of Vanguard REIT Index Fund and Vanguard Variable Insurance Fund REIT Index Portfolio to include real estate-related securities, aligning the funds with updated industry-sector classification methodology. Another proposal seeks to change the diversification status of the REIT Index Fund to enable it to better track its benchmark. Finally, we seek your approval of the Funds’ Service Agreement for Vanguard Institutional Index Fund and Vanguard Institutional Total Stock Market Index Fund. If approved, this arrangement would then be standardized across Vanguard’s entire publicly available U.S. mutual fund lineup. It should also reduce costs and minimum initial investment requirements in select share classes.
5
At the ballot box
We hope you’ll make it a priority to cast your ballot. We want to avoid the added time and cost of soliciting sufficient votes should we not obtain a quorum by the shareholder meeting on November 15, when voting concludes. Ultimately, we believe the proposals I’ve discussed are in your best interest as Vanguard fund shareholders, and the trustees recommend that you vote in favor of them. For more information, visit vanguard.com and enter the search term “proxy.”
As always, thank you for investing with Vanguard.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/extendeddurationtreasx8x1.jpg)
F. William McNabb III
Chairman and Chief Executive Officer
September 14, 2017
6
Extended Duration Treasury Index Fund
Fund Profile
As of August 31, 2017
Share-Class Characteristics | |||
Institutional | |||
ETF Institutional | Plus | ||
Shares | Shares | Shares | |
Ticker Symbol | EDV | VEDTX | VEDIX |
Expense Ratio1 | 0.07% | 0.06% | 0.04% |
30-Day SEC Yield | 2.77% | 2.78% | 2.80% |
Financial Attributes | ||
Bloomberg | ||
Barclays | ||
Treasury | ||
STRIPS | ||
20–30 Year | ||
Fund | Index | |
Number of Bonds | 79 | 76 |
Yield to Maturity (before | ||
expenses) | 2.8% | 2.8% |
Average Coupon | 0.0% | 0.0% |
Average Duration | 24.6 years | 25.8 years |
Average Effective | ||
Maturity | 25.0 years | 21.9 years |
Short-Term Reserves | 0.0% | — |
Sector Diversification (% of portfolio) | |
Treasury/Agency | 100.0% |
The agency and mortgage-backed securities sectors may include issues from government-sponsored enterprises; such issues are generally not backed by the full faith and credit of the U.S. government. | |
Volatility Measures | |
Bloomberg | |
Barclays | |
Treasury | |
STRIPS | |
20–30 Year | |
Index | |
R-Squared | 0.99 |
Beta | 1.05 |
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) | |
10 - 20 Years | 1.5% |
20 - 30 Years | 98.5 |
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
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1 The expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2017, 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, 2017
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/extendeddurationtreasx10x1.jpg)
Average Annual Total Returns | |||||
Periods Ended August 31, 2017 | |||||
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 | -8.86% | 3.39% | 8.45% | $22,023 | |
Extended Duration Treasury Index Fund | |||||
ETF Shares Market Price | -8.97 | 3.43 | 8.48 | 22,089 | |
Bloomberg Barclays U.S. Treasury | |||||
• • • • • • • • | STRIPS 20–30 Year Equal Par Bond | ||||
Index | -9.20 | 3.49 | 8.69 | 22,506 | |
– – – – | General U.S. Treasury Funds Average | -2.65 | 1.75 | 4.62 | 15,528 |
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 | -8.86% | 3.42% | 8.25% | $10,779,649 |
Bloomberg Barclays U.S. Treasury STRIPS | ||||
20–30 Year Equal Par Bond Index | -9.20 | 3.49 | 8.41 | 10,996,652 |
"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, 2017 | |||
Since | Final Value | ||
One | Inception | of a $100,000,000 | |
Year | (8/28/2013) | Investment | |
Extended Duration Treasury Index Fund | |||
Institutional Plus Shares | -8.84% | 11.10% | $151,719,063 |
Bloomberg Barclays U.S. Treasury STRIPS | |||
20–30 Year Equal Par Bond Index | -9.20 | 11.17 | 118,871,130 |
"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, 2017 | |||
Since | |||
One | Five | Inception | |
Year | Years | (12/6/2007) | |
Extended Duration Treasury Index Fund ETF Shares | |||
Market Price | -8.97% | 18.38% | 120.89% |
Extended Duration Treasury Index Fund ETF Shares | |||
Net Asset Value | -8.86 | 18.12 | 120.23 |
Bloomberg Barclays U.S. Treasury STRIPS 20–30 | |||
Year Equal Par Bond Index | -9.20 | 18.70 | 125.06 |
"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, 2017 | ||
Bloomberg | ||
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 |
2017 | -8.86 | -9.20 |
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, 2017
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 | -10.37% | 3.38% | 8.24% | |||
Net Asset Value | -10.35 | 3.37 | 8.22 | |||
Institutional Shares | 11/28/2007 | -10.33 | 3.40 | 3.64% | 4.38% | 8.02 |
Fee-Adjusted Returns | -10.78 | 3.30 | 7.96 | |||
Institutional Plus Shares | 8/28/2013 | -10.33 | — | 3.47 | 7.17 | 10.64 |
Fee-Adjusted Returns | -10.78 | — | 10.49 |
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, 2017
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% | 8/15/37 | 41,795 | 24,561 |
United States Treasury Strip Coupon | 0.000% | 11/15/37 | 66,670 | 38,851 |
United States Treasury Strip Coupon | 0.000% | 2/15/38 | 57,825 | 33,358 |
United States Treasury Strip Coupon | 0.000% | 5/15/38 | 68,290 | 39,085 |
United States Treasury Strip Coupon | 0.000% | 8/15/38 | 47,645 | 27,031 |
United States Treasury Strip Coupon | 0.000% | 11/15/38 | 39,595 | 22,275 |
United States Treasury Strip Coupon | 0.000% | 2/15/39 | 41,060 | 22,830 |
United States Treasury Strip Coupon | 0.000% | 5/15/39 | 39,955 | 22,041 |
United States Treasury Strip Coupon | 0.000% | 8/15/39 | 37,195 | 20,329 |
United States Treasury Strip Coupon | 0.000% | 11/15/39 | 50,960 | 27,626 |
United States Treasury Strip Coupon | 0.000% | 2/15/40 | 34,380 | 18,476 |
United States Treasury Strip Coupon | 0.000% | 5/15/40 | 24,200 | 12,896 |
United States Treasury Strip Coupon | 0.000% | 8/15/40 | 45,550 | 24,053 |
United States Treasury Strip Coupon | 0.000% | 11/15/40 | 50,610 | 26,507 |
United States Treasury Strip Coupon | 0.000% | 2/15/41 | 61,780 | 32,116 |
United States Treasury Strip Coupon | 0.000% | 5/15/41 | 49,735 | 25,664 |
United States Treasury Strip Coupon | 0.000% | 8/15/41 | 42,735 | 21,908 |
United States Treasury Strip Coupon | 0.000% | 11/15/41 | 46,304 | 23,521 |
United States Treasury Strip Coupon | 0.000% | 2/15/42 | 47,855 | 24,092 |
United States Treasury Strip Coupon | 0.000% | 5/15/42 | 47,330 | 23,624 |
United States Treasury Strip Coupon | 0.000% | 8/15/42 | 41,780 | 20,678 |
United States Treasury Strip Coupon | 0.000% | 11/15/42 | 63,500 | 31,170 |
United States Treasury Strip Coupon | 0.000% | 2/15/43 | 65,450 | 31,830 |
United States Treasury Strip Coupon | 0.000% | 5/15/43 | 59,115 | 28,500 |
United States Treasury Strip Coupon | 0.000% | 8/15/43 | 43,290 | 20,698 |
United States Treasury Strip Coupon | 0.000% | 11/15/43 | 53,545 | 25,392 |
United States Treasury Strip Coupon | 0.000% | 2/15/44 | 54,155 | 25,525 |
United States Treasury Strip Coupon | 0.000% | 5/15/44 | 50,745 | 23,751 |
United States Treasury Strip Coupon | 0.000% | 8/15/44 | 56,510 | 26,189 |
United States Treasury Strip Coupon | 0.000% | 11/15/44 | 32,650 | 15,073 |
United States Treasury Strip Coupon | 0.000% | 2/15/45 | 26,870 | 12,308 |
United States Treasury Strip Coupon | 0.000% | 5/15/45 | 37,990 | 17,288 |
United States Treasury Strip Coupon | 0.000% | 8/15/45 | 47,245 | 21,364 |
United States Treasury Strip Coupon | 0.000% | 11/15/45 | 39,895 | 17,925 |
United States Treasury Strip Coupon | 0.000% | 2/15/46 | 36,440 | 16,276 |
11
Extended Duration Treasury Index Fund | ||||
Face | Market | |||
Maturity | Amount | Value • | ||
Coupon | Date | ($000) | ($000) | |
United States Treasury Strip Coupon | 0.000% | 5/15/46 | 33,775 | 14,998 |
United States Treasury Strip Coupon | 0.000% | 8/15/46 | 22,225 | 9,793 |
United States Treasury Strip Coupon | 0.000% | 11/15/46 | 17,235 | 7,523 |
United States Treasury Strip Coupon | 0.000% | 2/15/47 | 11,150 | 4,823 |
United States Treasury Strip Coupon | 0.000% | 5/15/47 | 1,125 | 484 |
United States Treasury Strip Coupon | 0.000% | 8/15/47 | 50 | 21 |
United States Treasury Strip Principal | 0.000% | 2/15/38 | 34,020 | 20,133 |
United States Treasury Strip Principal | 0.000% | 5/15/38 | 41,005 | 24,046 |
United States Treasury Strip Principal | 0.000% | 2/15/39 | 34,325 | 19,522 |
United States Treasury Strip Principal | 0.000% | 5/15/39 | 27,175 | 15,280 |
United States Treasury Strip Principal | 0.000% | 8/15/39 | 21,270 | 11,848 |
United States Treasury Strip Principal | 0.000% | 11/15/39 | 31,125 | 17,163 |
United States Treasury Strip Principal | 0.000% | 2/15/40 | 30,280 | 16,566 |
United States Treasury Strip Principal | 0.000% | 5/15/40 | 23,860 | 12,924 |
United States Treasury Strip Principal | 0.000% | 8/15/40 | 35,830 | 19,228 |
United States Treasury Strip Principal | 0.000% | 11/15/40 | 37,855 | 20,149 |
United States Treasury Strip Principal | 0.000% | 2/15/41 | 22,510 | 11,897 |
United States Treasury Strip Principal | 0.000% | 5/15/41 | 25,400 | 13,301 |
United States Treasury Strip Principal | 0.000% | 8/15/41 | 30,075 | 15,620 |
United States Treasury Strip Principal | 0.000% | 11/15/41 | 22,985 | 11,834 |
United States Treasury Strip Principal | 0.000% | 2/15/42 | 24,925 | 12,727 |
United States Treasury Strip Principal | 0.000% | 5/15/42 | 34,755 | 17,581 |
United States Treasury Strip Principal | 0.000% | 8/15/42 | 39,965 | 20,039 |
United States Treasury Strip Principal | 0.000% | 11/15/42 | 47,160 | 23,425 |
United States Treasury Strip Principal | 0.000% | 2/15/43 | 54,815 | 26,975 |
United States Treasury Strip Principal | 0.000% | 5/15/43 | 59,960 | 29,254 |
United States Treasury Strip Principal | 0.000% | 8/15/43 | 44,185 | 21,392 |
United States Treasury Strip Principal | 0.000% | 11/15/43 | 43,420 | 20,892 |
United States Treasury Strip Principal | 0.000% | 2/15/44 | 36,340 | 17,358 |
United States Treasury Strip Principal | 0.000% | 5/15/44 | 40,320 | 19,058 |
United States Treasury Strip Principal | 0.000% | 8/15/44 | 50,415 | 23,715 |
United States Treasury Strip Principal | 0.000% | 11/15/44 | 48,780 | 22,751 |
United States Treasury Strip Principal | 0.000% | 2/15/45 | 51,005 | 23,550 |
United States Treasury Strip Principal | 0.000% | 5/15/45 | 55,545 | 25,451 |
United States Treasury Strip Principal | 0.000% | 8/15/45 | 64,095 | 29,108 |
United States Treasury Strip Principal | 0.000% | 11/15/45 | 63,220 | 28,488 |
United States Treasury Strip Principal | 0.000% | 2/15/46 | 54,775 | 24,516 |
United States Treasury Strip Principal | 0.000% | 5/15/46 | 60,910 | 27,053 |
United States Treasury Strip Principal | 0.000% | 8/15/46 | 54,345 | 23,997 |
United States Treasury Strip Principal | 0.000% | 11/15/46 | 78,940 | 34,518 |
United States Treasury Strip Principal | 0.000% | 2/15/47 | 88,025 | 38,236 |
United States Treasury Strip Principal | 0.000% | 5/15/47 | 76,900 | 33,181 |
United States Treasury Strip Principal | 0.000% | 8/15/47 | 39,250 | 16,871 |
Total U.S. Government and Agency Obligations (Cost $1,545,629) | 1,672,100 | |||
Shares | ||||
Temporary Cash Investment (0.0%) | ||||
1 Vanguard Market Liquidity Fund (Cost $198) | 1.224% | 1,975 | 198 | |
Total Investments (100.0%) (Cost $1,545,827) | 1,672,298 |
12
Extended Duration Treasury Index Fund | |
Amount | |
($000) | |
Other Assets and Liabilities (0.0%) | |
Other Assets | |
Investment in Vanguard | 102 |
Receivables for Investment Securities Sold | 38,784 |
Receivables for Accrued Income | 2 |
Other Assets | 1 |
Total Other Assets | 38,889 |
Liabilities | |
Payables for Investment Securities Purchased | (36,978) |
Payables for Capital Shares Redeemed | (2,010) |
Payables to Vanguard | (523) |
Other Liabilities | (1) |
Total Liabilities | (39,512) |
Net Assets (100%) | 1,671,675 |
At August 31, 2017, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 1,532,592 |
Undistributed Net Investment Income | 8,267 |
Accumulated Net Realized Gains | 4,345 |
Unrealized Appreciation (Depreciation) | 126,471 |
Net Assets | 1,671,675 |
ETF Shares—Net Assets | |
Applicable to 5,150,000 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 622,713 |
Net Asset Value Per Share—ETF Shares | $120.92 |
Institutional Shares—Net Assets | |
Applicable to 18,673,880 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 681,960 |
Net Asset Value Per Share—Institutional Shares | $36.52 |
Institutional Plus Shares—Net Assets | |
Applicable to 4,003,222 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 367,002 |
Net Asset Value Per Share—Institutional Plus Shares | $91.68 |
• 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 31,2017 | |
($000) | |
Investment Income | |
Income | |
Interest1 | 41,791 |
Total Income | 41,791 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 45 |
Management and Administrative—ETF Shares | 248 |
Management and Administrative—Institutional Shares | 305 |
Management and Administrative—Institutional Plus Shares | 101 |
Marketing and Distribution—ETF Shares | 32 |
Marketing and Distribution—Institutional Shares | 22 |
Marketing and Distribution—Institutional Plus Shares | 3 |
Custodian Fees | 10 |
Auditing Fees | 36 |
Shareholders’ Reports and Proxy —ETF Shares | 40 |
Shareholders’ Reports and Proxy —Institutional Shares | — |
Shareholders’ Reports and Proxy —Institutional Plus Shares | — |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 843 |
Expenses Paid Indirectly | (9) |
Net Expenses | 834 |
Net Investment Income | 40,957 |
Realized Net Gain (Loss) on Investment Securities Sold1 | 30,442 |
Change in Unrealized Appreciation (Depreciation) of Investment Securities | (175,684) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (104,285) |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $4,000 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, | ||
2017 | 2016 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 40,957 | 35,248 |
Realized Net Gain (Loss) | 30,442 | 45,970 |
Change in Unrealized Appreciation (Depreciation) | (175,684) | 212,836 |
Net Increase (Decrease) in Net Assets Resulting from Operations | (104,285) | 294,054 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (14,774) | (12,598) |
Institutional Shares | (17,360) | (14,501) |
Institutional Plus Shares | (8,156) | (7,073) |
Realized Capital Gain1 | ||
ETF Shares | (9,446) | (4,079) |
Institutional Shares | (12,810) | (5,279) |
Institutional Plus Shares | (4,467) | (2,699) |
Total Distributions | (67,013) | (46,229) |
Capital Share Transactions | ||
ETF Shares | 90,045 | 154,937 |
Institutional Shares | 94,096 | 70,728 |
Institutional Plus Shares | 126,155 | (40,014) |
Net Increase (Decrease) from Capital Share Transactions | 310,296 | 185,651 |
Total Increase (Decrease) | 138,998 | 433,476 |
Net Assets | ||
Beginning of Period | 1,532,677 | 1,099,201 |
End of Period2 | 1,671,675 | 1,532,677 |
1 Includes fiscal 2017 and 2016 short-term gain distributions totaling $372,000 and $289,000, 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 $8,267,000 and $7,600,000.
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 | 2017 | 2016 | 2015 | 2014 | 2013 |
Net Asset Value, Beginning of Period | $139.77 | $116.00 | $113.24 | $95.57 | $131.02 |
Investment Operations | |||||
Net Investment Income | 3.3831 | 3.420 | 3.524 | 3.311 | 3.695 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments 2 | (16.377) | 25.019 | 3.113 | 18.824 | (30.430) |
Total from Investment Operations | (12.994) | 28.439 | 6.637 | 22.135 | (26.735) |
Distributions | |||||
Dividends from Net Investment Income | (3.402) | (3.414) | (3.506) | (3.236) | (3.779) |
Distributions from Realized Capital Gains | (2.454) | (1.255) | (.371) | (1.229) | (4.936) |
Total Distributions | (5.856) | (4.669) | (3.877) | (4.465) | (8.715) |
Net Asset Value, End of Period | $120.92 | $139.77 | $116.00 | $113.24 | $95.57 |
Total Return | -8.86% | 25.30% | 5.90% | 24.17% | -21.34% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $623 | $615 | $365 | $249 | $158 |
Ratio of Total Expenses to Average Net Assets | 0.07% | 0.07% | 0.10% | 0.12% | 0.12% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.90% | 2.77% | 2.93% | 3.59% | 3.15% |
Portfolio Turnover Rate 3 | 18% | 20% | 16% | 17% | 31% |
1 Calculated based on average shares outstanding.
2 Includes increases from purchase fees of $0.16, $0.06, $0.05, $0.19, and $0.10.
3 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
16
Extended Duration Treasury Index Fund | |||||
Financial Highlights | |||||
Institutional Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 |
Net Asset Value, Beginning of Period | $42.20 | $35.02 | $34.18 | $28.85 | $39.55 |
Investment Operations | |||||
Net Investment Income | 1.0241 | 1.036 | 1.069 | 1.006 | 1.121 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments 2 | (4.934) | 7.558 | .947 | 5.678 | (9.183) |
Total from Investment Operations | (3.910) | 8.594 | 2.016 | 6.684 | (8.062) |
Distributions | |||||
Dividends from Net Investment Income | (1.030) | (1.035) | (1.064) | (.983) | (1.148) |
Distributions from Realized Capital Gains | (.740) | (. 379) | (.112) | (. 371) | (1.490) |
Total Distributions | (1.770) | (1.414) | (1.176) | (1.354) | (2.638) |
Net Asset Value, End of Period | $36.52 | $42.20 | $35.02 | $34.18 | $28.85 |
Total Return3 | -8.86% | 25.33% | 5.89% | 24.27% | -21.30% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $682 | $660 | $484 | $529 | $375 |
Ratio of Total Expenses to Average Net Assets | 0.06% | 0.06% | 0.08% | 0.10% | 0.10% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.91% | 2.78% | 2.95% | 3.61% | 3.17% |
Portfolio Turnover Rate 4 | 18% | 20% | 16% | 17% | 31% |
1 Calculated based on average shares outstanding.
2 Includes increases from purchase fees of $0.05, $0.02, $0.01, $0.06, and $0.03.
3 Total returns do not include transaction fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable transaction fees.
4 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
17
Extended Duration Treasury Index Fund | |||||
Financial Highlights | |||||
Institutional Plus Shares | |||||
Aug. 28, | |||||
20131 to | |||||
For a Share Outstanding | Year Ended August 31, | Aug. 31, | |||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 |
Net Asset Value, Beginning of Period | $105.93 | $87.92 | $85.80 | $72.42 | $71.46 |
Investment Operations | |||||
Net Investment Income | 2.588 2 | 2.620 | 2.701 | 2.542 | — |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments 3 | (12.375) | 18.958 | 2.389 | 14.260 | . 960 |
Total from Investment Operations | (9.787) | 21.578 | 5.090 | 16.802 | .960 |
Distributions | |||||
Dividends from Net Investment Income | (2.603) | (2.616) | (2.688) | (2.491) | — |
Distributions from Realized Capital Gains | (1.860) | (.952) | (.282) | (.931) | — |
Total Distributions | (4.463) | (3.568) | (2.970) | (3.422) | — |
Net Asset Value, End of Period | $91.68 | $105.93 | $87.92 | $85.80 | $72.42 |
Total Return4 | -8.84% | 25.34% | 5.93% | 24.31% | 1.34% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $367 | $258 | $250 | $324 | $25 |
Ratio of Total Expenses to Average Net Assets | 0.04% | 0.04% | 0.06% | 0.08% | 0.08%5 |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.93% | 2.80% | 2.97% | 3.63% | 3.19%5 |
Portfolio Turnover Rate 6 | 18% | 20% | 16% | 17% | 31% |
1 Inception.
2 Calculated based on average shares outstanding.
3 Includes increases from purchase fees of $0.12, $0.05, $0.04, $0.15, and $0.07.
4 Total returns do not include transaction fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable transaction fees.
5 Annualized.
6 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
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 NYSE Arca; they can be purchased and sold through a broker. Institutional Shares and Institutional Plus Shares are designed for investors who meet certain administrative, service, and account-size criteria.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Bonds and temporary cash investments are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value.
2. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (August 31, 2014–2017), and has concluded that no provision for federal income tax is required in the fund’s financial statements.
3. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 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, 2017, or at any time during the period then ended.
5. Other: Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold. Fees assessed on capital share transactions are credited to paid-in capital.
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Extended Duration Treasury Index Fund
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses), shareholder reporting, and the proxy. 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, 2017, the fund had contributed to Vanguard capital in the amount of $102,000, 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. The fund’s custodian bank has agreed to reduce its fees when the fund maintains cash on deposit in the non-interest-bearing custody account. For the year ended August 31, 2017, custodian fee offset arrangements reduced the fund’s expenses by $9,000 (an annual rate of 0.00% of average net assets).
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). Any investment valued with significant unobservable inputs are
noted on the Statement of Net Assets.
The following table summarizes the market value of the fund’s investments as of August 31, 2017, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
U.S. Government and Agency Obligations | — | 1,672,100 | — |
Temporary Cash Investments | 198 | — | — |
Total | 198 | 1,672,100 | — |
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
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Extended Duration Treasury Index Fund
their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
During the year ended August 31, 2017, the fund realized $24,919,000 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.
For tax purposes, at August 31, 2017, the fund had $8,519,000 of ordinary income and $4,568,000 of long-term capital gains available for distribution.
At August 31, 2017, the cost of investment securities for tax purposes was $1,545,827,000. Net unrealized appreciation of investment securities for tax purposes was $126,471,000, consisting of unrealized gains of $129,463,000 on securities that had risen in value since their purchase and $2,992,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the year ended August 31, 2017, the fund purchased $650,970,000 of investment securities and sold $408,227,000 of investment securities, other than temporary cash investments. Purchases and sales include $172,847,000 and $157,054,000, 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, | ||||
2017 | 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued1 | 247,808 | 2,050 | 241,630 | 1,950 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (157,763) | (1,300) | (86,693) | (700) |
Net Increase (Decrease)—ETF Shares | 90,045 | 750 | 154,937 | 1,250 |
Institutional Shares | ||||
Issued1 | 309,551 | 9,150 | 120,369 | 3,103 |
Issued in Lieu of Cash Distributions | 28,772 | 853 | 19,486 | 545 |
Redeemed | (244,227) | (6,974) | (69,127) | (1,832) |
Net Increase (Decrease) —Institutional Shares | 94,096 | 3,029 | 70,728 | 1,816 |
Institutional Plus Shares | ||||
Issued1 | 122,255 | 1,517 | — | — |
Issued in Lieu of Cash Distributions | 12,623 | 148 | 9,772 | 109 |
Redeemed | (8,723) | (93) | (49,786) | (516) |
Net Increase (Decrease)—Institutional Plus Shares | 126,155 | 1,572 | (40,014) | (407) |
1 Includes purchase fees for fiscal 2017 and 2016 of $2,236,000 and $653,000, respectively (fund totals).
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Extended Duration Treasury Index Fund
H. Management has determined that no material events or transactions occurred subsequent to August 31, 2017, that would require recognition or disclosure in these financial statements.
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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”) as of August 31, 2017, 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 as of August 31, 2017 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 13, 2017
Special 2017 tax information (unaudited) for Vanguard Extended Duration Treasury Index Fund
This information for the fiscal year ended August 31, 2017, is included pursuant to provisions of the Internal Revenue Code.
The fund distributed $27,001,000 as capital gain dividends (20% rate gain distributions) 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, 100% of income dividends are interest-related dividends.
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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, 2017 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
Extended Duration Treasury Index Fund | 2/28/2017 | 8/31/2017 | Period |
Based on Actual Fund Return | |||
ETF Shares | $1,000.00 | $1,090.60 | $0.37 |
Institutional Shares | 1,000.00 | 1,090.66 | 0.32 |
Institutional Plus Shares | 1,000.00 | 1,090.66 | 0.21 |
Based on Hypothetical 5% Yearly Return | |||
ETF Shares | $1,000.00 | $1,024.85 | $0.36 |
Institutional Shares | 1,000.00 | 1,024.90 | 0.31 |
Institutional Plus Shares | 1,000.00 | 1,025.00 | 0.20 |
The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios for that period are 0.07% for ETF Shares, 0.06% for Institutional Shares, and 0.04% for Institutional Plus Shares. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period (184/365).
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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), through its Fixed Income Group. 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 that directed 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 compared with 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.
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.
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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 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.
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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.
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.
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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.
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Vanguard Extended Duration Treasury Index Fund is not sponsored, endorsed, issued, sold, or promoted by Barclays Risk Analytics and Index Solutions Limited or any of its affiliates (“Barclays”). Barclays makes no representation or warranty, express or implied, to the owners or purchasers of Vanguard Extended Duration Treasury Index Fund or any member of the public regarding the advisability of investing in securities generally or in Vanguard Extended Duration Treasury Index 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 Vanguard Extended Duration Treasury Index Fund with respect to any person or entity. Barclays’ only relationship to Vanguard and Vanguard Extended Duration Treasury Index Fund is the licensing of the Barclays index, which is determined, composed, and calculated by Barclays without regard to Vanguard or Vanguard Extended Duration Treasury Index Fund or any owners or purchasers of Vanguard Extended Duration Treasury Index Fund. Barclays has no obligation to take the needs of Vanguard, Vanguard Extended Duration Treasury Index Fund, or the owners of Vanguard Extended Duration Treasury Index 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 Vanguard Extended Duration Treasury Index Fund to be issued. Barclays has no obligation or liability in connection with the administration, marketing, or trading of Vanguard Extended Duration Treasury Index 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 VANGUARD EXTENDED DURATION TREASURY INDEX FUND OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED HEREUNDER OR FOR ANY OTHER USE. BARCLAYS RESERVES THE RIGHT TO CHANGE THE METHODS OF CALCULATION OR PUBLICATION, OR TO CEASE THE CALCULATION OR PUBLICATION OF THE BLOOMBERG 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 BLOOMBERG BARCLAYS U.S. TREASURY STRIPS 20–30 YEAR EQUAL PAR BOND 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.
© 2017 Barclays. Used with Permission.
Source: Barclays Global Family of Indices. Copyright 2017, Barclays. All rights reserved.
30
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 195 Vanguard funds.
Information for each trustee and executive officer of the fund appears below. 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.
Interested Trustee1
F. William McNabb III
Born 1957. Trustee Since July 2009. Chairman of the Board. Principal Occupation(s) During the Past Five Years and Other Experience: Chairman of the Board of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group, since January 2010; Chief Executive Officer and Director of The Vanguard Group and President and Chief Executive Officer of each of the investment companies served by The Vanguard Group, since 2008; Director of Vanguard Marketing Corporation; President of The Vanguard Group (2008–2017); Managing Director of The Vanguard Group (1995–2008).
Independent Trustees
Emerson U. Fullwood
Born 1948. Trustee Since January 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Executive Chief Staff and Marketing Officer for North America and Corporate Vice President (retired 2008) of Xerox Corporation (document management products and services); Executive in Residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology; 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; Trustee of the University of Rochester.
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 Arconic Inc. (diversified manufacturer), 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
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.
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.
JoAnn Heffernan Heisen
Born 1950. Trustee Since July 1998. Principal Occupation(s) During the Past Five Years and Other Experience: Corporate Vice President and Member of the Executive Committee (1997–2008), Chief Global Diversity Officer (retired 2008), Vice President and Chief Information Officer (1997–2006), Controller (1995–1997), Treasurer (1991–1995), and Assistant Treasurer (1989–1991) 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), Oxfam America, and the Lumina Foundation for Education; Director of the V Foundation for Cancer Research; Member of the Advisory Council for the College of Arts and Letters and Chair 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, the Board of Catholic Investment Services, Inc. (investment advisor), and the Board of Superintendence of the Institute for the Works of Religion; Chairman of the Board of TIFF Advisory Services, Inc. (investment advisor).
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 Co-Managing Partner of HighVista Strategies LLC (private investment firm); 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 Board of Hypertherm, Inc. (industrial cutting systems, software, and consumables).
Executive Officers
Glenn Booraem
Born 1967. Investment Stewardship Officer Since February 2017. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Treasurer (2015–2017), Controller (2010–2015), and Assistant Controller (2001–2010) of each of the investment companies served by The Vanguard Group.
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: Principal of 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).
Anne E. Robinson
Born 1970. Secretary Since September 2016. 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; Managing Director and General Counsel of Global Cards and Consumer Services at Citigroup (2014–2016); Counsel at American Express (2003–2014).
Michael Rollings
Born 1963. Treasurer Since February 2017. Principal Occupation(s) During the Past Five Years and Other Experience: Managing Director of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group; Director of Vanguard Marketing Corporation; Executive Vice President and Chief Financial Officer of MassMutual Financial Group (2006–2016).
Vanguard Senior Management Team | |
Mortimer J. Buckley | Chris D. McIsaac |
Gregory Davis | James M. Norris |
John James | Thomas M. Rampulla |
Martha G. King | Karin A. Risi |
John T. Marcante | |
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 |
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P.O. Box 2600 | |
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Q12750 102017 |
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/megacapx1x1.jpg)
Annual Report | August 31, 2017
Vanguard Mega Cap Index Funds
Vanguard Mega Cap Index Fund
Vanguard Mega Cap Growth Index Fund
Vanguard Mega Cap Value Index Fund
Vanguard’s Principles for Investing Success
We want to give you the best chance of investment success. These principles, grounded in Vanguard’s research and experience, can put you on the right path.
Goals. Create clear, appropriate investment goals.
Balance. Develop a suitable asset allocation using broadly diversified funds. Cost. Minimize cost.
Discipline. Maintain perspective and long-term discipline.
A single theme unites these principles: Focus on the things you can control.
We believe there is no wiser course for any investor.
Contents | |
Your Fund’s Performance at a Glance. | 1 |
Chairman’s Perspective. | 4 |
Mega Cap Index Fund. | 8 |
Mega Cap Growth Index Fund. | 24 |
Mega Cap Value Index Fund. | 40 |
Your Fund’s After-Tax Returns. | 58 |
About Your Fund’s Expenses. | 59 |
Trustees Approve Advisory Arrangements. | 61 |
Glossary. | 63 |
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: Nautical images have been part of Vanguard’s rich heritage since its start in 1975. For an incoming ship, a lighthouse offers a beacon and safe path to shore. You can similarly depend on Vanguard to put you first––and light the way––as you strive to meet your financial goals. Our client focus and low costs, stemming from our unique ownership structure, assure that your interests are paramount.
Your Fund’s Performance at a Glance
• Growth stocks generally outperformed their value-oriented counterparts for the 12 months ended August 31, 2017. This broad market trend was reflected in the performance of the Vanguard Mega Cap Index Funds.
• Returns ranged from about 21% for the Growth Index Fund to more than 13% for the Value Index Fund. The Mega Cap Index Fund, which includes both growth and value stocks, returned about 17%.
• All three funds closely tracked their target indexes. The Mega Cap Index Fund and Growth Index Fund exceeded the average returns of their large-capitalization fund peers, while the Value Index Fund’s return was similar to that of its peers.
• The technology sector was the top contributor for the Mega Cap Index and Growth Index Funds; financials contributed the most to the Value Index Fund’s performance. All three funds registered negative results in the oil and gas sector.
Total Returns: Fiscal Year Ended August 31, 2017 | |
Total | |
Returns | |
Vanguard Mega Cap Index Fund | |
ETF Shares | |
Market Price | 16.97% |
Net Asset Value | 17.01 |
Institutional Shares | 17.02 |
CRSP US Mega Cap Index | 17.08 |
Large-Cap Core Funds Average | 14.85 |
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 | 21.16% |
Net Asset Value | 21.17 |
Institutional Shares | 21.20 |
CRSP US Mega Cap Growth Index | 21.26 |
Large-Cap Growth Funds Average | 19.84 |
Large-Cap Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. |
Total | |
Returns | |
Vanguard Mega Cap Value Index Fund | |
ETF Shares | |
Market Price | 13.38% |
Net Asset Value | 13.40 |
Institutional Shares | 13.41 |
CRSP US Mega Cap Value Index | 13.46 |
Large-Cap Value Funds Average | 13.34 |
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, 2017 | |
Average | |
Annual Return | |
Mega Cap Index Fund ETF Shares Net Asset Value (Returns since inception: 12/17/2007) | 7.96% |
Spliced Mega Cap Index | 8.04 |
Large-Cap Core Funds Average | 6.51 |
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) | 9.55% |
Spliced Mega Cap Growth Index | 9.65 |
Large-Cap Growth Funds Average | 7.59 |
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) | 6.46% |
Spliced Mega Cap Value Index | 6.51 |
Large-Cap Value Funds Average | 5.65 |
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 | 0.07% | 0.06% | 1.07% |
Mega Cap Growth Index Fund | 0.07 | 0.06 | 1.14 |
Mega Cap Value Index Fund | 0.07 | 0.06 | 1.09 |
The fund expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal
year. For the fiscal year ended August 31, 2017, 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 2016.
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/0000932471-17-005535/megacapx6x1.jpg)
Bill McNabb
Chairman and Chief Executive Officer
Dear Shareholder,
Since mid-August we’ve been reaching out to you about the proposals put forth by the Vanguard funds that, if approved, will enable us to manage the funds more efficiently and effectively. As the November deadline for voting approaches, I’d like to offer some perspective on a few of the proposals that I believe are important to the way Vanguard operates and manages your investments. I hope you consider this information and promptly cast your ballot.
Your biggest advocate
The main driver for this proxy solicitation is to ask all our fund shareholders to elect a full slate of trustees who oversee each U.S.-based Vanguard mutual fund. These trustees serve an important role, making sure your funds are managed in your best interests. This includes monitoring fund performance, approving advisory agreements, and ensuring that we’re keeping your investment costs as low as possible. Simply put, they are your biggest advocate.
Each trustee brings a variety of skills and professional experiences that contribute to the board’s strength and diversity. Of the 12 nominees, nine currently serve on the board, and three are new. If elected, the new board would include ten independent members, meaning they have no affiliation with Vanguard or the funds apart from any investments they may choose to make as private individuals.
4
These are the proposed new trustees:
• Sarah Bloom Raskin is a former member of the Federal Reserve Board of Governors and former deputy secretary of the U.S. Treasury Department. She is an expert in cybersecurity—a critically important issue at Vanguard, as we place a premium on protecting clients’ assets and sensitive data.
• Deanna Mulligan is chief executive officer of The Guardian Life Insurance Company of America. It’s rare to find a CEO such as Deanna who leads a company with a mutual ownership structure similar to Vanguard’s.
• Tim Buckley is president and a director of Vanguard and will succeed me in January as CEO. (I’ll remain chairman for a period to be determined by the board.) I interviewed Tim when he applied for his first job here in 1991 and again when he was graduating from Harvard Business School. I was thrilled he picked Vanguard as a place to build his career, and I’ve been delighted to see him take on several leadership positions, including as head of our Retail Investor Group, chief information officer, and chief investment officer. I can think of no one better prepared to succeed me.
Market Barometer | |||
Average Annual Total Returns | |||
Periods Ended August 31, 2017 | |||
One Year | Three Years | Five Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 16.16% | 9.21% | 14.37% |
Russell 2000 Index (Small-caps) | 14.91 | 7.67 | 13.15 |
Russell 3000 Index (Broad U.S. market) | 16.06 | 9.08 | 14.27 |
FTSE All-World ex US Index (International) | 18.74 | 2.80 | 7.76 |
Bonds | |||
Bloomberg Barclays U.S. Aggregate Bond Index | |||
(Broad taxable market) | 0.49% | 2.64% | 2.19% |
Bloomberg Barclays Municipal Bond Index | |||
(Broad tax-exempt market) | 0.88 | 3.40 | 3.23 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.58 | 0.25 | 0.16 |
CPI | |||
Consumer Price Index | 1.94% | 1.06% | 1.28% |
5
Vanguard believes that diversity of thought, background, and experience, as well as diversity of personal characteristics, meaningfully contributes to the board’s ability to effectively serve shareholders. If Sarah and Deanna are elected, women will account for 40% of the board’s independent trustees.
I should note that even as Vanguard is nominating three new board members, we’re saying goodbye to trustee Rajiv Gupta. Rajiv was a legendary CEO of Rohm and Haas Co., and Vanguard and our clients have benefited greatly from his expertise. I wish him a happy retirement.
Summarizing the proposals
Among the trustees’ leading responsibilities is overseeing the funds’ internal and external investment advisory agreements. The trustees, in consultation with our Global Investment Committee and our Portfolio Review Department, choose the investment advisors that manage client assets. Over decades, we have built a strong track record of picking advisors whose portfolio management strategies have served clients well.
Two proposals in the proxy focus on this oversight responsibility. Shareholders of 48 Vanguard funds have already voted to allow the board to make external advisor changes without obtaining prior shareholder approval. The new proposals would extend that policy across our entire U.S.-based fund lineup and expand it to include internal advisory agreements with Vanguard subsidiaries. Eliminating the need for shareholder approval removes a step that is costly and time-consuming if done frequently or on an individual fund basis. Although there are no current plans to employ the policy on any Vanguard-managed funds, standardizing it enables the trustees to retain an advisory firm to diversify a fund’s management team or ensure management continuity should a contingency arise.
I also encourage shareholders of several specific Vanguard index funds to read the proxy proposals that affect those funds. One proposal would change the investment objective of Vanguard REIT Index Fund and Vanguard Variable Insurance Fund REIT Index Portfolio to include real estate-related securities, aligning the funds with updated industry-sector classification methodology. Another proposal seeks to change the diversification status of the REIT Index Fund to enable it to better track its benchmark. Finally, we seek your approval of the Funds’ Service Agreement for Vanguard Institutional Index Fund and Vanguard Institutional Total Stock Market Index Fund. If approved, this arrangement would then be standardized across Vanguard’s entire publicly available U.S. mutual fund lineup. It should also reduce costs and minimum initial investment requirements in select share classes.
6
At the ballot box
We hope you’ll make it a priority to cast your ballot. We want to avoid the added time and cost of soliciting sufficient votes should we not obtain a quorum by the shareholder meeting on November 15, when voting concludes. Ultimately, we believe the proposals I’ve discussed are in your best interest as Vanguard fund shareholders, and the trustees recommend that you vote in favor of them. For more information, visit vanguard.com and enter the search term “proxy.”
As always, thank you for investing with Vanguard.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/megacapx9x1.jpg)
F. William McNabb III
Chairman and Chief Executive Officer
September 14, 2017
7
Mega Cap Index Fund
Fund Profile
As of August 31, 2017
Share-Class Characteristics | ||
ETF | Institutional | |
Shares | Shares | |
Ticker Symbol | MGC | VMCTX |
Expense Ratio1 | 0.07% | 0.06% |
30-Day SEC Yield | 1.99% | 1.99% |
Portfolio Characteristics | |||
DJ | |||
U.S. | |||
CRSP US | Total | ||
Mega Cap | Market | ||
Fund | Index FA Index | ||
Number of Stocks | 275 | 275 | 3,769 |
Median Market Cap | $120.0B | $120.0B | $63.1B |
Price/Earnings Ratio | 21.8x | 21.8x | 21.6x |
Price/Book Ratio | 3.1x | 3.1x | 2.8x |
Return on Equity | 16.0% | 16.0% | 15.1% |
Earnings Growth Rate | 9.0% | 9.0% | 9.4% |
Dividend Yield | 2.0% | 2.0% | 1.8% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 6% | — | — |
Short-Term Reserves | -0.2% | — | — |
Sector Diversification (% of equity exposure) | |||
DJ | |||
CRSP US | U.S. Total | ||
Mega Cap | Market | ||
Fund | Index | FA Index | |
Basic Materials | 1.9% | 1.9% | 2.6% |
Consumer Goods | 9.1 | 9.1 | 9.3 |
Consumer Services | 13.4 | 13.4 | 12.8 |
Financials | 18.6 | 18.6 | 20.2 |
Health Care | 14.5 | 14.5 | 13.2 |
Industrials | 11.0 | 11.0 | 12.9 |
Oil & Gas | 5.8 | 5.8 | 5.2 |
Technology | 20.5 | 20.5 | 18.5 |
Telecommunications | 2.5 | 2.5 | 2.0 |
Utilities | 2.7 | 2.7 | 3.3 |
Sector categories are based on the Industry Classification Benchmark (“ICB”), except for the “Other” category (if applicable),
which includes securities that have not been provided an ICB classification as of the effective reporting period.
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 | 4.2% |
Microsoft Corp. | Software | 3.2 |
Alphabet Inc. | Internet | 3.1 |
Facebook Inc. | Internet | 2.2 |
Amazon.com Inc. | Broadline Retailers | 2.2 |
Johnson & Johnson | Pharmaceuticals | 2.0 |
Berkshire Hathaway Inc. | Reinsurance | 1.9 |
Exxon Mobil Corp. | Integrated Oil & Gas | 1.8 |
JPMorgan Chase & Co. | Banks | 1.8 |
Bank of America Corp. | Banks | 1.3 |
Top Ten | 23.7% |
The holdings listed exclude any temporary cash investments and equity index products.
Investment Focus
1 The expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2017, the expense ratios were 0.07% for ETF Shares and 0.06% for Institutional Shares.
8
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, 2017
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/megacapx11x1.jpg)
Average Annual Total Returns | |||||
Periods Ended August 31, 2017 | |||||
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 | 17.01% | 14.25% | 7.96% | $21,031 | |
Mega Cap Index Fund*ETF Shares | |||||
Market Price | 16.97 | 14.21 | 7.96 | 21,022 | |
• • • • • • • • | Spliced Mega Cap Index | 17.08 | 14.33 | 8.04 | 21,187 |
– – – – | Large-Cap Core Funds Average | 14.85 | 12.70 | 6.51 | 18,444 |
Dow Jones U.S. Total Stock Market | |||||
Float Adjusted Index | 16.05 | 14.19 | 8.19 | 21,462 |
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 | 17.02% | 14.27% | 8.87% | $11,231,680 |
Spliced Mega Cap Index | 17.08 | 14.33 | 8.93 | 11,285,548 |
Dow Jones U.S. Total Stock Market Float Adjusted | ||||
Index | 16.05 | 14.19 | 9.03 | 11,386,349 |
"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.
9
Mega Cap Index Fund
Cumulative Returns of ETF Shares: December 17, 2007, Through August 31, 2017
Since | |||
One | Five | Inception | |
Year | Years | (12/17/2007) | |
Mega Cap Index Fund ETF Shares Market Price | 16.97% | 94.33% | 110.22% |
Mega Cap Index Fund ETF Shares Net Asset Value | 17.01 | 94.64 | 110.31 |
Spliced Mega Cap Index | 17.08 | 95.37 | 111.87 |
"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, 2017
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/megacapx12x1.jpg)
For a benchmark description, see the Glossary.
Average Annual Total Returns: Periods Ended June 30, 2017
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 | 18.42% | 14.52% | 7.82% | |
Net Asset Value | 18.36 | 14.51 | 7.82 | |
Institutional Shares | 2/22/2008 | 18.36 | 14.54 | 8.74 |
10
Mega Cap Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2017
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 (99.7%)1 | |||
Basic Materials (1.9%) | |||
Dow Chemical Co. | 91,142 | 6,075 | |
EI du Pont de Nemours | |||
& Co. | 64,698 | 5,430 | |
Praxair Inc. | 21,337 | 2,807 | |
Ecolab Inc. | 19,523 | 2,602 | |
Air Products & Chemicals | |||
Inc. | 16,238 | 2,360 | |
LyondellBasell Industries | |||
NV Class A | 24,133 | 2,186 | |
PPG Industries Inc. | 19,129 | 1,996 | |
International Paper Co. | 30,733 | 1,656 | |
Nucor Corp. | 23,816 | 1,312 | |
26,424 | |||
Consumer Goods (9.1%) | |||
Procter & Gamble Co. | 190,971 | 17,621 | |
Philip Morris International | |||
Inc. | 115,978 | 13,561 | |
Coca-Cola Co. | 287,201 | 13,082 | |
PepsiCo Inc. | 106,679 | 12,346 | |
Altria Group Inc. | 144,252 | 9,146 | |
NIKE Inc. Class B | 98,628 | 5,208 | |
Colgate-Palmolive Co. | 65,946 | 4,724 | |
Mondelez International Inc. | |||
Class A | 107,612 | 4,375 | |
Monsanto Co. | 32,763 | 3,840 | |
Kraft Heinz Co. | 45,527 | 3,676 | |
Activision Blizzard Inc. | 53,462 | 3,505 | |
General Motors Co. | 95,754 | 3,499 | |
* | Tesla Inc. | 9,188 | 3,270 |
Kimberly-Clark Corp. | 26,495 | 3,267 | |
Ford Motor Co. | 292,485 | 3,226 | |
Constellation Brands Inc. | |||
Class A | 11,507 | 2,303 | |
General Mills Inc. | 43,132 | 2,297 | |
Estee Lauder Cos. Inc. | |||
Class A | 16,642 | 1,780 |
Market | |||
Value• | |||
Shares | ($000) | ||
* | Monster Beverage Corp. | 31,704 | 1,770 |
Archer-Daniels-Midland Co. | 42,673 | 1,763 | |
Stanley Black & Decker Inc. | 11,449 | 1,649 | |
* | Electronic Arts Inc. | 10,869 | 1,321 |
VF Corp. | 19,418 | 1,221 | |
Kellogg Co. | 18,201 | 1,191 | |
Hershey Co. | 10,177 | 1,068 | |
Delphi Automotive plc | 10,107 | 974 | |
Brown-Forman Corp. | |||
Class B | 13,536 | 718 | |
Tyson Foods Inc. Class A | 10,833 | 686 | |
Campbell Soup Co. | 14,650 | 677 | |
123,764 | |||
Consumer Services (13.4%) | |||
* | Amazon.com Inc. | 30,358 | 29,769 |
Comcast Corp. Class A | 353,396 | 14,351 | |
Home Depot Inc. | 89,287 | 13,382 | |
Walt Disney Co. | 111,049 | 11,238 | |
McDonald’s Corp. | 60,881 | 9,739 | |
Wal-Mart Stores Inc. | 113,198 | 8,837 | |
* | Priceline Group Inc. | 3,696 | 6,845 |
* | Charter Communications | ||
Inc. Class A | 15,006 | 5,981 | |
CVS Health Corp. | 76,087 | 5,885 | |
Starbucks Corp. | 102,719 | 5,635 | |
Walgreens Boots Alliance | |||
Inc. | 68,661 | 5,596 | |
Time Warner Inc. | 55,003 | 5,561 | |
* | Netflix Inc. | 30,580 | 5,343 |
Costco Wholesale Corp. | 32,754 | 5,134 | |
Lowe’s Cos. Inc. | 63,975 | 4,727 | |
TJX Cos. Inc. | 45,700 | 3,304 | |
* | eBay Inc. | 76,869 | 2,777 |
McKesson Corp. | 15,723 | 2,348 | |
Delta Air Lines Inc. | 49,658 | 2,343 | |
Target Corp. | 41,055 | 2,239 | |
Twenty-First Century Fox | |||
Inc. Class A | 80,161 | 2,212 |
11
Mega Cap Index Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
Marriott International Inc. | |||
Class A | 21,240 | 2,200 | |
Southwest Airlines Co. | 40,472 | 2,110 | |
Yum! Brands Inc. | 25,882 | 1,988 | |
Carnival Corp. | 28,119 | 1,954 | |
Sysco Corp. | 36,087 | 1,901 | |
Las Vegas Sands Corp. | 29,540 | 1,838 | |
CBS Corp. Class B | 26,324 | 1,686 | |
Cardinal Health Inc. | 23,499 | 1,585 | |
Kroger Co. | 68,871 | 1,506 | |
Dollar General Corp. | 20,562 | 1,492 | |
American Airlines Group | |||
Inc. | 32,964 | 1,475 | |
* | O’Reilly Automotive Inc. | 6,791 | 1,332 |
Omnicom Group Inc. | 17,276 | 1,250 | |
* | AutoZone Inc. | 2,137 | 1,129 |
Hilton Worldwide Holdings | |||
Inc. | 15,778 | 1,015 | |
* | DISH Network Corp. | ||
Class A | 16,141 | 925 | |
Ross Stores Inc. | 14,772 | 863 | |
Twenty-First Century Fox | |||
Inc. | 28,251 | 766 | |
L Brands Inc. | 17,897 | 648 | |
* | United Continental | ||
Holdings Inc. | 9,953 | 617 | |
Sirius XM Holdings Inc. | 104,761 | 602 | |
AmerisourceBergen Corp. | |||
Class A | 6,177 | 496 | |
Viacom Inc. Class B | 12,441 | 356 | |
* | Altice USA Inc. Class A | 4,479 | 137 |
^ | Viacom Inc. Class A | 1,100 | 42 |
CBS Corp. Class A | 300 | 19 | |
183,178 | |||
Financials (18.5%) | |||
* | Berkshire Hathaway Inc. | ||
Class B | 137,798 | 24,963 | |
JPMorgan Chase & Co. | 265,281 | 24,111 | |
Bank of America Corp. | 743,175 | 17,754 | |
Wells Fargo & Co. | 335,907 | 17,155 | |
Visa Inc. Class A | 137,882 | 14,274 | |
Citigroup Inc. | 205,615 | 13,988 | |
Mastercard Inc. Class A | 70,788 | 9,436 | |
US Bancorp | 119,675 | 6,133 | |
Goldman Sachs Group Inc. | 26,450 | 5,918 | |
American Express Co. | 56,825 | 4,893 | |
Morgan Stanley | 103,549 | 4,711 | |
American Tower Corp. | 31,775 | 4,704 | |
Chubb Ltd. | 33,107 | 4,682 | |
PNC Financial Services | |||
Group Inc. | 36,083 | 4,525 | |
American International | |||
Group Inc. | 68,815 | 4,162 |
Market | |||
Value• | |||
Shares | ($000) | ||
Bank of New York Mellon | |||
Corp. | 73,789 | 3,858 | |
BlackRock Inc. | 9,040 | 3,788 | |
Simon Property Group Inc. | 23,351 | 3,663 | |
Charles Schwab Corp. | 89,906 | 3,587 | |
Prudential Financial Inc. | 31,958 | 3,262 | |
Crown Castle International | |||
Corp. | 30,034 | 3,257 | |
CME Group Inc. | 24,058 | 3,026 | |
Marsh & McLennan | |||
Cos. Inc. | 38,490 | 3,005 | |
S&P Global Inc. | 19,300 | 2,979 | |
MetLife Inc. | 63,548 | 2,976 | |
Capital One Financial Corp. | 36,161 | 2,879 | |
Intercontinental Exchange | |||
Inc. | 44,187 | 2,858 | |
BB&T Corp. | 60,483 | 2,788 | |
Aon plc | 19,595 | 2,727 | |
Travelers Cos. Inc. | 20,809 | 2,522 | |
Prologis Inc. | 39,563 | 2,507 | |
State Street Corp. | 26,762 | 2,475 | |
Allstate Corp. | 27,200 | 2,462 | |
Aflac Inc. | 29,570 | 2,441 | |
Public Storage | 11,051 | 2,269 | |
Progressive Corp. | 43,488 | 2,021 | |
Welltower Inc. | 27,250 | 1,995 | |
SunTrust Banks Inc. | 36,090 | 1,989 | |
Synchrony Financial | 60,770 | 1,871 | |
Weyerhaeuser Co. | 56,432 | 1,840 | |
Equity Residential | 27,348 | 1,836 | |
Ventas Inc. | 26,547 | 1,817 | |
Discover Financial | |||
Services | 28,264 | 1,666 | |
Ameriprise Financial Inc. | 11,351 | 1,572 | |
Fifth Third Bancorp | 55,830 | 1,459 | |
Northern Trust Corp. | 16,240 | 1,437 | |
T. Rowe Price Group Inc. | 17,032 | 1,437 | |
Boston Properties Inc. | 11,454 | 1,381 | |
Equinix Inc. | 2,948 | 1,381 | |
* | Berkshire Hathaway Inc. | ||
Class A | 5 | 1,357 | |
Franklin Resources Inc. | 25,075 | 1,084 | |
HCP Inc. | 34,955 | 1,042 | |
Loews Corp. | 21,354 | 995 | |
AvalonBay Communities | |||
Inc. | 5,107 | 959 | |
GGP Inc. | 46,105 | 957 | |
Vornado Realty Trust | 12,659 | 943 | |
TD Ameritrade Holding | |||
Corp. | 19,832 | 859 | |
252,636 |
12
Mega Cap Index Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
Health Care (14.5%) | |||
Johnson & Johnson | 201,170 | 26,629 | |
Pfizer Inc. | 445,560 | 15,113 | |
UnitedHealth Group Inc. | 71,967 | 14,314 | |
Merck & Co. Inc. | 204,208 | 13,041 | |
Amgen Inc. | 54,906 | 9,761 | |
AbbVie Inc. | 118,834 | 8,948 | |
Medtronic plc | 102,226 | 8,241 | |
Gilead Sciences Inc. | 97,533 | 8,164 | |
* | Celgene Corp. | 58,344 | 8,106 |
Bristol-Myers Squibb Co. | 122,998 | 7,439 | |
Abbott Laboratories | 129,536 | 6,599 | |
Eli Lilly & Co. | 74,155 | 6,028 | |
Allergan plc | 25,136 | 5,768 | |
Thermo Fisher Scientific | |||
Inc. | 29,174 | 5,460 | |
* | Biogen Inc. | 15,810 | 5,005 |
Aetna Inc. | 24,734 | 3,901 | |
Anthem Inc. | 19,801 | 3,882 | |
Cigna Corp. | 19,134 | 3,484 | |
Becton Dickinson and Co. | 16,845 | 3,360 | |
Stryker Corp. | 22,328 | 3,156 | |
* | Vertex Pharmaceuticals | ||
Inc. | 18,553 | 2,978 | |
* | Regeneron | ||
Pharmaceuticals Inc. | 5,871 | 2,917 | |
* | Boston Scientific Corp. | 102,429 | 2,822 |
* | Express Scripts Holding | ||
Co. | 44,286 | 2,782 | |
Humana Inc. | 10,786 | 2,779 | |
* | Intuitive Surgical Inc. | 2,732 | 2,745 |
Zoetis Inc. | 36,719 | 2,302 | |
* | Alexion Pharmaceuticals | ||
Inc. | 15,899 | 2,264 | |
Baxter International Inc. | 36,438 | 2,261 | |
* | Illumina Inc. | 10,903 | 2,229 |
* | HCA Healthcare Inc. | 22,011 | 1,731 |
Zimmer Biomet Holdings | |||
Inc. | 15,085 | 1,724 | |
* | Mylan NV | 38,005 | 1,196 |
197,129 | |||
Industrials (10.9%) | |||
General Electric Co. | 648,382 | 15,918 | |
Boeing Co. | 42,859 | 10,271 | |
3M Co. | 44,630 | 9,119 | |
Honeywell International | |||
Inc. | 56,917 | 7,870 | |
United Technologies Corp. | 53,876 | 6,450 | |
Union Pacific Corp. | 60,323 | 6,352 | |
Accenture plc Class A | 46,289 | 6,053 | |
United Parcel Service Inc. | |||
Class B | 51,432 | 5,882 | |
Lockheed Martin Corp. | 18,323 | 5,596 |
Market | |||
Value• | |||
Shares | ($000) | ||
* | PayPal Holdings Inc. | 85,225 | 5,257 |
Caterpillar Inc. | 43,982 | 5,167 | |
Raytheon Co. | 21,734 | 3,956 | |
Danaher Corp. | 46,655 | 3,892 | |
General Dynamics Corp. | 19,162 | 3,858 | |
FedEx Corp. | 17,947 | 3,847 | |
Northrop Grumman Corp. | 13,056 | 3,554 | |
Automatic Data | |||
Processing Inc. | 31,781 | 3,384 | |
CSX Corp. | 65,547 | 3,290 | |
Emerson Electric Co. | 48,205 | 2,846 | |
Illinois Tool Works Inc. | 20,626 | 2,836 | |
Johnson Controls | |||
International plc | 70,128 | 2,776 | |
Deere & Co. | 23,791 | 2,758 | |
Norfolk Southern Corp. | 21,580 | 2,601 | |
Waste Management Inc. | 33,056 | 2,549 | |
Eaton Corp. plc | 33,428 | 2,399 | |
Fidelity National | |||
Information Services Inc. | 24,750 | 2,300 | |
Sherwin-Williams Co. | 6,277 | 2,130 | |
TE Connectivity Ltd. | 26,446 | 2,105 | |
Cummins Inc. | 12,525 | 1,996 | |
PACCAR Inc. | 26,270 | 1,742 | |
Ingersoll-Rand plc | 19,063 | 1,628 | |
Parker-Hannifin Corp. | 9,943 | 1,600 | |
Rockwell Automation Inc. | 9,613 | 1,577 | |
Agilent Technologies Inc. | 23,994 | 1,553 | |
Fortive Corp. | 23,237 | 1,510 | |
Paychex Inc. | 24,078 | 1,373 | |
Republic Services Inc. | |||
Class A | 17,673 | 1,153 | |
149,148 | |||
Oil & Gas (5.8%) | |||
Exxon Mobil Corp. | 316,322 | 24,145 | |
Chevron Corp. | 141,392 | 15,217 | |
Schlumberger Ltd. | 103,688 | 6,585 | |
ConocoPhillips | 92,344 | 4,032 | |
EOG Resources Inc. | 43,091 | 3,662 | |
Occidental Petroleum | |||
Corp. | 56,951 | 3,400 | |
Kinder Morgan Inc. | 141,803 | 2,741 | |
Phillips 66 | 32,654 | 2,737 | |
Halliburton Co. | 61,682 | 2,404 | |
Valero Energy Corp. | 33,465 | 2,279 | |
Marathon Petroleum Corp. | 38,596 | 2,024 | |
Williams Cos. Inc. | 61,469 | 1,828 | |
Anadarko Petroleum Corp. | 41,886 | 1,714 | |
Pioneer Natural Resources | |||
Co. | 12,734 | 1,651 | |
Apache Corp. | 28,331 | 1,100 | |
Baker Hughes a GE Co. | 31,787 | 1,078 | |
Hess Corp. | 22,489 | 875 |
13
Mega Cap Index Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
Devon Energy Corp. | 18,734 | 588 | |
Noble Energy Inc. | 16,412 | 390 | |
78,450 | |||
Technology (20.4%) | |||
Apple Inc. | 350,356 | 57,458 | |
Microsoft Corp. | 576,501 | 43,105 | |
* | Facebook Inc. Class A | 176,512 | 30,355 |
* | Alphabet Inc. Class A | 22,068 | 21,080 |
* | Alphabet Inc. Class C | 22,162 | 20,817 |
Intel Corp. | 351,595 | 12,330 | |
Cisco Systems Inc. | 373,307 | 12,024 | |
Oracle Corp. | 230,434 | 11,598 | |
International Business | |||
Machines Corp. | 66,598 | 9,526 | |
Broadcom Ltd. | 29,997 | 7,561 | |
NVIDIA Corp. | 42,163 | 7,144 | |
Texas Instruments Inc. | 74,327 | 6,156 | |
QUALCOMM Inc. | 110,293 | 5,765 | |
* | Adobe Systems Inc. | 36,960 | 5,735 |
* | salesforce.com Inc. | 50,562 | 4,828 |
Applied Materials Inc. | 80,567 | 3,635 | |
Cognizant Technology | |||
Solutions Corp. Class A | 43,967 | 3,112 | |
Intuit Inc. | 18,155 | 2,568 | |
* | Micron Technology Inc. | 78,535 | 2,511 |
HP Inc. | 126,530 | 2,414 | |
Analog Devices Inc. | 27,294 | 2,284 | |
Hewlett Packard Enterprise | |||
Co. | 124,040 | 2,240 | |
Corning Inc. | 68,933 | 1,983 | |
DXC Technology Co. | 21,225 | 1,804 | |
* | VMware Inc. Class A | 3,989 | 431 |
* | Snap Inc. | 17,662 | 256 |
278,720 | |||
Telecommunications (2.5%) | |||
AT&T Inc. | 459,085 | 17,197 | |
Verizon Communications | |||
Inc. | 304,684 | 14,616 | |
* | T-Mobile US Inc. | 21,614 | 1,399 |
* | Sprint Corp. | 44,224 | 365 |
33,577 | |||
Utilities (2.7%) | |||
NextEra Energy Inc. | 34,984 | 5,265 | |
Duke Energy Corp. | 52,194 | 4,557 | |
Dominion Energy Inc. | 47,076 | 3,708 | |
Southern Co. | 74,446 | 3,593 | |
American Electric Power | |||
Co. Inc. | 36,686 | 2,701 | |
PG&E Corp. | 38,263 | 2,693 | |
Exelon Corp. | 69,245 | 2,622 | |
Sempra Energy | 18,657 | 2,200 | |
PPL Corp. | 50,682 | 1,989 | |
Edison International | 24,421 | 1,958 |
Market | ||
Value• | ||
Shares | ($000) | |
Consolidated Edison Inc. | 22,766 | 1,919 |
Xcel Energy Inc. | 37,877 | 1,875 |
Public Service Enterprise | ||
Group Inc. | 37,625 | 1,762 |
FirstEnergy Corp. | 16,644 | 542 |
37,384 | ||
Total Common Stocks | ||
(Cost $925,462) | 1,360,410 | |
Temporary Cash Investments (0.1%)1 | ||
Money Market Fund (0.1%) | ||
2,3 Vanguard Market | ||
Liquidity Fund, | ||
1.224% | 9,485 | 948 |
Face | ||
Amount | ||
($000) | ||
U. S. Government and Agency Obligations (0.0%) | ||
4 United States Treasury | ||
Bill, 0.949%, 10/19/17 | 200 | 200 |
Total Temporary Cash Investments | ||
(Cost $1,148) | 1,148 | |
Total Investments (99.8%) | ||
(Cost $926,610) | 1,361,558 | |
Amount | ||
($000) | ||
Other Assets and Liabilities (0.2%) | ||
Other Assets | ||
Investment in Vanguard | 89 | |
Receivables for Accrued Income | 3,151 | |
Receivables for Capital Shares Issued | 220 | |
Variation Margin Receivable— | ||
Futures Contracts | 21 | |
Total Other Assets | 3,481 | |
Liabilities | ||
Payables for Investment Securities | ||
Purchased | (2) | |
Collateral for Securities on Loan | (39) | |
Payables to Vanguard | (529) | |
Other Liabilities | (159) | |
Total Liabilities | (729) | |
Net Assets (100%) | 1,364,310 |
14
Mega Cap Index Fund
At August 31, 2017, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 959,941 |
Undistributed Net Investment Income | 5,863 |
Accumulated Net Realized Losses | (36,502) |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 434,948 |
Futures Contracts | 60 |
Net Assets | 1,364,310 |
ETF Shares—Net Assets | |
Applicable to 14,500,000 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 1,232,768 |
Net Asset Value Per Share— | |
ETF Shares | $85.02 |
Amount | |
($000) | |
Institutional Shares—Net Assets | |
Applicable to 784,760 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 131,542 |
Net Asset Value Per Share— | |
Institutional Shares | $167.62 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Includes partial security positions on loan to broker-dealers.
The total value of securities on loan is $38,000.
1 The fund invests a portion of its cash reserves in equity markets
through the use of index futures contracts. After giving effect
to futures investments, the fund’s effective common stock and
temporary cash investment positions represent 100.0% and
-0.2%, respectively, of net assets.
2 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 $39,000 of collateral received for securities on loan.
4 Securities with a value of $200,000 have been segregated as
initial margin for open futures contracts.
Derivative Financial Instruments Outstanding as of Period End | ||||
Futures Contracts | ||||
($000) | ||||
Value and | ||||
Number of | Unrealized | |||
Long (Short) | Notional | Appreciation | ||
Expiration | Contracts | Amount | (Depreciation) | |
Long Futures Contracts | ||||
E-mini S&P 500 Index | September 2017 | 30 | 3,705 | 60 |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
See accompanying Notes, which are an integral part of the Financial Statements.
15
Mega Cap Index Fund | |
Statement of Operations | |
Year Ended | |
August 31,2017 | |
($000) | |
Investment Income | |
Income | |
Dividends | 27,527 |
Interest1 | 28 |
Securities Lending—Net | 67 |
Total Income | 27,622 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 253 |
Management and Administrative—ETF Shares | 350 |
Management and Administrative—Institutional Shares | 40 |
Marketing and Distribution—ETF Shares | 53 |
Marketing and Distribution—Institutional Shares | 5 |
Custodian Fees | 25 |
Auditing Fees | 34 |
Shareholders’ Reports and Proxy—ETF Shares | 110 |
Shareholders’ Reports and Proxy—Institutional Shares | — |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 871 |
Net Investment Income | 26,751 |
Realized Net Gain (Loss) | |
Investment Securities Sold1 | 58,506 |
Futures Contracts | 551 |
Realized Net Gain (Loss) | 59,057 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | 111,954 |
Futures Contracts | (162) |
Change in Unrealized Appreciation (Depreciation) | 111,792 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 197,600 |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $26,000 and $1,000, respectively.
See accompanying Notes, which are an integral part of the Financial Statements.
16
Mega Cap Index Fund | ||
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2017 | 2016 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 26,751 | 26,379 |
Realized Net Gain (Loss) | 59,057 | 76,699 |
Change in Unrealized Appreciation (Depreciation) | 111,792 | 34,213 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 197,600 | 137,291 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (23,592) | (21,835) |
Institutional Shares | (2,482) | (4,593) |
Realized Capital Gain | ||
ETF Shares | — | — |
Institutional Shares | — | — |
Total Distributions | (26,074) | (26,428) |
Capital Share Transactions | ||
ETF Shares | 20,632 | (10,659) |
Institutional Shares | (18,190) | (177,997) |
Net Increase (Decrease) from Capital Share Transactions | 2,442 | (188,656) |
Total Increase (Decrease) | 173,968 | (77,793) |
Net Assets | ||
Beginning of Period | 1,190,342 | 1,268,135 |
End of Period1 | 1,364,310 | 1,190,342 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $5,863,000 and $5,186,000.
See accompanying Notes, which are an integral part of the Financial Statements.
17
Mega Cap Index Fund | |||||
Financial Highlights | |||||
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 |
Net Asset Value, Beginning of Period | $74.19 | $67.35 | $68.69 | $55.99 | $48.52 |
Investment Operations | |||||
Net Investment Income | 1.6761 | 1.582 | 1.399 | 1.250 | 1.189 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 10.788 | 6.793 | (1.377) | 12.687 | 7.471 |
Total from Investment Operations | 12.464 | 8.375 | .022 | 13.937 | 8.660 |
Distributions | |||||
Dividends from Net Investment Income | (1.634) | (1.535) | (1.362) | (1.237) | (1.190) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.634) | (1.535) | (1.362) | (1.237) | (1.190) |
Net Asset Value, End of Period | $85.02 | $74.19 | $67.35 | $68.69 | $55.99 |
Total Return | 17.01% | 12.61% | -0.05% | 25.13% | 18.10% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $1,233 | $1,057 | $970 | $810 | $588 |
Ratio of Total Expenses to Average Net Assets | 0.07% | 0.07% | 0.09% | 0.11% | 0.11% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.12% | 2.23% | 2.02% | 2.00% | 2.26% |
Portfolio Turnover Rate2 | 6% | 7% | 8% | 6% | 10% |
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.
18
Mega Cap Index Fund | |||||
Financial Highlights | |||||
Institutional Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 |
Net Asset Value, Beginning of Period | $146.25 | $132.77 | $135.41 | $110.38 | $95.66 |
Investment Operations | |||||
Net Investment Income | 3.3621 | 3.117 | 2.798 | 2.498 | 2.373 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 21.220 | 13.419 | (2.717) | 25.000 | 14.727 |
Total from Investment Operations | 24.582 | 16.536 | .081 | 27.498 | 17.100 |
Distributions | |||||
Dividends from Net Investment Income | (3.212) | (3.056) | (2.721) | (2.468) | (2.380) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (3.212) | (3.056) | (2.721) | (2.468) | (2.380) |
Net Asset Value, End of Period | $167.62 | $146.25 | $132.77 | $135.41 | $110.38 |
Total Return | 17.02% | 12.63% | -0.01% | 25.15% | 18.13% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $132 | $133 | $298 | $314 | $339 |
Ratio of Total Expenses to Average Net Assets | 0.06% | 0.06% | 0.06% | 0.08% | 0.08% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.13% | 2.24% | 2.05% | 2.03% | 2.29% |
Portfolio Turnover Rate2 | 6% | 7% | 8% | 6% | 10% |
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.
19
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 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.
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 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 futures gains (losses).
During the year ended August 31, 2017, 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 the notional amounts at each quarter-end during the period.
20
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, 2014–2017), 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 event 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, 2017, 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
Mega Cap 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), shareholder reporting, and the proxy. 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, 2017, the fund had contributed to Vanguard capital in the amount of $89,000, 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). Any investments valued with significant unobservable inputs are
noted on the Statement of Net Assets.
The following table summarizes the market value of the fund’s investments as of August 31, 2017, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 1,360,410 | — | — |
Temporary Cash Investments | 948 | 200 | — |
Futures Contracts—Assets1 | 21 | — | — |
Total | 1,361,379 | 200 | — |
1 Represents variation margin on the last day of the reporting period.
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
22
Mega Cap Index Fund
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, 2017, the fund realized $54,527,000 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, 2017, the fund had $6,344,000 of ordinary income available for distribution. The fund used capital loss carryforwards of $4,369,000 to offset taxable capital gains realized during the year ended August 31, 2017. At August 31, 2017, the fund had available capital losses totaling $36,441,000 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 $17,662,000 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, 2017, the cost of investment securities for tax purposes was $926,610,000. Net unrealized appreciation of investment securities for tax purposes was $434,948,000, consisting of unrealized gains of $458,658,000 on securities that had risen in value since their purchase and $23,710,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2017, the fund purchased $195,100,000 of investment securities and sold $179,418,000 of investment securities, other than temporary cash investments. Purchases and sales include $60,408,000 and $106,748,000, 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, | ||||
2017 | 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 131,455 | 1,625 | 205,540 | 2,975 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (110,823) | (1,375) | (216,199) | (3,125) |
Net Increase (Decrease)—ETF Shares | 20,632 | 250 | (10,659) | (150) |
Institutional Shares | ||||
Issued | 58,691 | 359 | 30,619 | 218 |
Issued in Lieu of Cash Distributions | 2,482 | 16 | 4,396 | 32 |
Redeemed | (79,363) | (501) | (213,012) | (1,587) |
Net Increase (Decrease)—Institutional Shares | (18,190) | (126) | (177,997) | (1,337) |
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2017, that would require recognition or disclosure in these financial statements.
23
Mega Cap Growth Index Fund
Fund Profile | |||
As of August 31, 2017 | |||
Share-Class Characteristics | |||
ETF Institutional | |||
Shares | Shares | ||
Ticker Symbol | MGK | VMGAX | |
Expense Ratio1 | 0.07% | 0.06% | |
30-Day SEC Yield | 1.35% | 1.36% | |
Portfolio Characteristics | |||
DJ | |||
CRSP US | U.S. | ||
Mega Cap | Total | ||
Growth | Market | ||
Fund | Index | FA Index | |
Number of Stocks | 138 | 138 | 3,769 |
Median Market Cap | $108.7B | $108.7B | $63.1B |
Price/Earnings Ratio | 26.3x | 26.3x | 21.6x |
Price/Book Ratio | 5.4x | 5.4x | 2.8x |
Return on Equity | 17.4% | 17.4% | 15.1% |
Earnings Growth Rate | 14.3% | 14.3% | 9.4% |
Dividend Yield | 1.4% | 1.4% | 1.8% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 8% | — | — |
Short-Term Reserves | 0.2% | — | — |
Sector Diversification (% of equity exposure)
CRSP US | DJ | ||
Mega Cap | U.S. Total | ||
Growth | Market | ||
Fund | Index | FA Index | |
Basic Materials | 1.3% | 1.3% | 2.6% |
Consumer Goods | 11.0 | 11.0 | 9.3 |
Consumer Services | 22.6 | 22.6 | 12.8 |
Financials | 11.0 | 11.0 | 20.2 |
Health Care | 13.7 | 13.7 | 13.2 |
Industrials | 9.8 | 9.8 | 12.9 |
Oil & Gas | 2.5 | 2.5 | 5.2 |
Technology | 27.9 | 27.9 | 18.5 |
Telecommunications | 0.2 | 0.2 | 2.0 |
Utilities | 0.0 | 0.0 | 3.3 |
Sector categories are based on the Industry Classification
Benchmark (“ICB”), except for the “Other” category (if applicable),
which includes securities that have not been provided an ICB
classification as of the effective reporting period.
Volatility Measures | ||
CRSP US | DJ | |
Mega Cap | U.S. Total | |
Growth | Market | |
Index | FA Index | |
R-Squared | 1.00 | 0.88 |
Beta | 1.00 | 1.04 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
Ten Largest Holdings (% of total net assets) | ||
Apple Inc. | Computer Hardware | 8.8% |
Alphabet Inc. | Internet | 6.4 |
Facebook Inc. | Internet | 4.7 |
Amazon.com Inc. | Broadline Retailers | 4.6 |
Comcast Corp. | Broadcasting & | |
Entertainment | 2.2 | |
Visa Inc. | Consumer Finance | 2.2 |
Philip Morris | ||
International Inc. | Tobacco | 2.1 |
Home Depot Inc. | Home Improvement | |
Retailers | 2.0 | |
Coca-Cola Co. | Soft Drinks | 2.0 |
Walt Disney Co. | Broadcasting & | |
Entertainment | 1.7 | |
Top Ten | 36.7% |
The holdings listed exclude any temporary cash investments and equity index products.
Investment Focus
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/megacapx26x1.jpg)
1 The expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal year. For the
fiscal year ended August 31, 2017, the expense ratios were 0.07% for ETF Shares and 0.06% for Institutional Shares.
24
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, 2017
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/megacapx27x1.jpg)
Average Annual Total Returns | |||||
Periods Ended August 31, 2017 | |||||
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 | 21.17% | 14.92% | 9.55% | $24,238 | |
Mega Cap Growth Index Fund*ETF | |||||
Shares Market Price | 21.16 | 14.90 | 9.55 | 24,236 | |
• • • • • • • • | Spliced Mega Cap Growth Index | 21.26 | 15.02 | 9.65 | 24,446 |
– – – – | Large-Cap Growth Funds Average | 19.84 | 13.99 | 7.59 | 20,334 |
Dow Jones U.S. Total Stock Market | |||||
Float Adjusted Index | 16.05 | 14.19 | 8.19 | 21,462 |
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 | 21.20% | 14.93% | 10.48% | $12,770,927 |
Spliced Mega Cap Growth Index | 21.26 | 15.02 | 10.56 | 12,857,450 |
Dow Jones U.S. Total Stock Market Float Adjusted | ||||
Index | 16.05 | 14.19 | 8.99 | 11,243,877 |
"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.
25
Mega Cap Growth Index Fund
Cumulative Returns of ETF Shares: December 17, 2007, Through August 31, 2017
Since | |||
One | Five | Inception | |
Year | Years | (12/17/2007) | |
Mega Cap Growth Index Fund ETF Shares Market | |||
Price | 21.16% | 100.26% | 142.36% |
Mega Cap Growth Index Fund ETF Shares Net | |||
Asset Value | 21.17 | 100.40 | 142.38 |
Spliced Mega Cap Growth Index | 21.26 | 101.29 | 144.46 |
"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, 2017
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/megacapx28x1.jpg)
For a benchmark description, see the Glossary.
Average Annual Total Returns: Periods Ended June 30, 2017
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 | 21.68% | 15.14% | 9.28% | |
Net Asset Value | 21.60 | 15.13 | 9.27 | |
Institutional Shares | 4/3/2008 | 21.62 | 15.14 | 10.20 |
26
Mega Cap Growth Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2017
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Market | |||
Value• | |||
Shares | ($000) | ||
Common Stocks (99.8%)1 | |||
Basic Materials (1.3%) | |||
Praxair Inc. | 103,444 | 13,607 | |
Ecolab Inc. | 94,670 | 12,620 | |
PPG Industries Inc. | 92,987 | 9,700 | |
Nucor Corp. | 115,665 | 6,374 | |
42,301 | |||
Consumer Goods (11.0%) | |||
Philip Morris International | |||
Inc. | 562,979 | 65,829 | |
Coca-Cola Co. | 1,393,951 | 63,495 | |
Altria Group Inc. | 700,216 | 44,394 | |
NIKE Inc. Class B | 479,045 | 25,298 | |
Colgate-Palmolive Co. | 320,209 | 22,940 | |
Monsanto Co. | 159,097 | 18,646 | |
Kraft Heinz Co. | 220,647 | 17,817 | |
Activision Blizzard Inc. | 259,487 | 17,012 | |
^,* | Tesla Inc. | 44,611 | 15,877 |
Constellation Brands Inc. | |||
Class A | 55,949 | 11,196 | |
Estee Lauder Cos. Inc. | |||
Class A | 81,114 | 8,678 | |
* | Monster Beverage Corp. | 154,325 | 8,615 |
Stanley Black & Decker | |||
Inc. | 55,485 | 7,990 | |
* | Electronic Arts Inc. | 53,047 | 6,445 |
Hershey Co. | 49,676 | 5,212 | |
Delphi Automotive plc | 48,593 | 4,684 | |
Brown-Forman Corp. | |||
Class B | 66,087 | 3,505 | |
347,633 | |||
Consumer Services (22.5%) | |||
* | Amazon.com Inc. | 147,283 | 144,426 |
Comcast Corp. Class A | 1,715,878 | 69,682 | |
Home Depot Inc. | 433,339 | 64,944 | |
Walt Disney Co. | 538,916 | 54,538 | |
McDonald’s Corp. | 295,493 | 47,270 |
Market | |||
Value• | |||
Shares | ($000) | ||
* | Priceline Group Inc. | 17,799 | 32,965 |
* | Charter Communications | ||
Inc. Class A | 72,751 | 28,994 | |
Starbucks Corp. | 498,657 | 27,356 | |
Walgreens Boots Alliance | |||
Inc. | 333,052 | 27,144 | |
Time Warner Inc. | 267,051 | 26,999 | |
* | Netflix Inc. | 148,448 | 25,935 |
Costco Wholesale Corp. | 159,116 | 24,940 | |
Lowe’s Cos. Inc. | 310,806 | 22,965 | |
TJX Cos. Inc. | 221,944 | 16,047 | |
Marriott International Inc. | |||
Class A | 103,044 | 10,673 | |
Southwest Airlines Co. | 197,325 | 10,289 | |
Yum! Brands Inc. | 126,220 | 9,696 | |
Las Vegas Sands Corp. | 143,562 | 8,931 | |
CBS Corp. Class B | 128,747 | 8,248 | |
Dollar General Corp. | 99,586 | 7,226 | |
* | O’Reilly Automotive Inc. | 33,036 | 6,479 |
* | AutoZone Inc. | 10,271 | 5,428 |
Twenty-First Century Fox | |||
Inc. Class A | 190,465 | 5,255 | |
Hilton Worldwide | |||
Holdings Inc. | 76,716 | 4,935 | |
Carnival Corp. | 68,076 | 4,730 | |
* | DISH Network Corp. | ||
Class A | 78,408 | 4,492 | |
Ross Stores Inc. | 71,129 | 4,157 | |
^ | Sirius XM Holdings Inc. | 506,535 | 2,913 |
AmerisourceBergen Corp. | |||
Class A | 29,654 | 2,380 | |
Twenty-First Century Fox | |||
Inc. | 72,432 | 1,963 | |
L Brands Inc. | 43,858 | 1,589 | |
* | Altice USA Inc. Class A | 22,457 | 685 |
CBS Corp. Class A | 944 | 61 | |
714,335 |
27
Mega Cap Growth Index Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
Financials (11.0%) | |||
Visa Inc. Class A | 669,232 | 69,279 | |
Mastercard Inc. Class A | 343,806 | 45,829 | |
American Tower Corp. | 154,098 | 22,814 | |
BlackRock Inc. | 43,898 | 18,394 | |
Simon Property Group Inc. | 113,149 | 17,747 | |
Charles Schwab Corp. | 436,261 | 17,407 | |
Crown Castle | |||
International Corp. | 145,899 | 15,821 | |
Marsh & McLennan | |||
Cos. Inc. | 186,406 | 14,555 | |
S&P Global Inc. | 93,464 | 14,424 | |
Intercontinental Exchange | |||
Inc. | 214,677 | 13,883 | |
Aon plc | 95,054 | 13,228 | |
Prologis Inc. | 192,054 | 12,169 | |
Public Storage | 53,531 | 10,992 | |
Welltower Inc. | 132,716 | 9,717 | |
Weyerhaeuser Co. | 272,429 | 8,884 | |
Ventas Inc. | 128,632 | 8,804 | |
T. Rowe Price Group Inc. | 83,050 | 7,006 | |
Boston Properties Inc. | 55,793 | 6,729 | |
Equinix Inc. | 14,097 | 6,603 | |
AvalonBay Communities | |||
Inc. | 25,016 | 4,696 | |
Vornado Realty Trust | 61,771 | 4,601 | |
TD Ameritrade Holding | |||
Corp. | 95,750 | 4,148 | |
347,730 | |||
Health Care (13.7%) | |||
AbbVie Inc. | 576,907 | 43,441 | |
Medtronic plc | 496,188 | 40,003 | |
Gilead Sciences Inc. | 473,696 | 39,653 | |
* | Celgene Corp. | 282,996 | 39,317 |
Bristol-Myers Squibb Co. | 597,147 | 36,115 | |
Allergan plc | 121,796 | 27,950 | |
Thermo Fisher Scientific | |||
Inc. | 141,847 | 26,545 | |
* | Biogen Inc. | 76,909 | 24,346 |
Amgen Inc. | 133,346 | 23,705 | |
Becton Dickinson and Co. | 81,970 | 16,348 | |
Stryker Corp. | 108,390 | 15,323 | |
* | Vertex Pharmaceuticals | ||
Inc. | 90,344 | 14,504 | |
* | Regeneron | ||
Pharmaceuticals Inc. | 28,327 | 14,076 | |
* | Boston Scientific Corp. | 496,500 | 13,678 |
* | Intuitive Surgical Inc. | 13,335 | 13,397 |
Zoetis Inc. | 177,827 | 11,150 | |
* | Alexion Pharmaceuticals | ||
Inc. | 77,305 | 11,009 | |
* | Illumina Inc. | 52,936 | 10,823 |
Market | |||
Value• | |||
Shares | ($000) | ||
* | Mylan NV | 184,559 | 5,810 |
Baxter International Inc. | 88,666 | 5,501 | |
432,694 | |||
Industrials (9.7%) | |||
Boeing Co. | 207,895 | 49,824 | |
3M Co. | 216,523 | 44,240 | |
Union Pacific Corp. | 292,714 | 30,823 | |
Accenture plc Class A | 224,801 | 29,395 | |
United Parcel Service Inc. | |||
Class B | 249,663 | 28,551 | |
* | PayPal Holdings Inc. | 413,713 | 25,518 |
Automatic Data | |||
Processing Inc. | 154,030 | 16,400 | |
Illinois Tool Works Inc. | 100,145 | 13,771 | |
Fidelity National | |||
Information Services Inc. | 119,840 | 11,135 | |
Sherwin-Williams Co. | 30,335 | 10,292 | |
Danaher Corp. | 113,232 | 9,446 | |
FedEx Corp. | 43,651 | 9,358 | |
Rockwell Automation Inc. | 46,722 | 7,665 | |
Agilent Technologies Inc. | 116,843 | 7,562 | |
Fortive Corp. | 113,097 | 7,348 | |
Paychex Inc. | 117,214 | 6,685 | |
308,013 | |||
Oil & Gas (2.5%) | |||
Schlumberger Ltd. | 503,720 | 31,991 | |
EOG Resources Inc. | 209,330 | 17,791 | |
Anadarko Petroleum | |||
Corp. | 202,990 | 8,308 | |
Pioneer Natural | |||
Resources Co. | 61,654 | 7,993 | |
Halliburton Co. | 149,490 | 5,826 | |
Williams Cos. Inc. | 149,637 | 4,449 | |
Noble Energy Inc. | 79,279 | 1,885 | |
Devon Energy Corp. | 45,357 | 1,424 | |
79,667 | |||
Technology (27.9%) | |||
Apple Inc. | 1,700,981 | 278,961 | |
* | Facebook Inc. Class A | 857,187 | 147,411 |
* | Alphabet Inc. Class A | 107,916 | 103,086 |
* | Alphabet Inc. Class C | 106,890 | 100,405 |
Broadcom Ltd. | 145,500 | 36,676 | |
NVIDIA Corp. | 204,922 | 34,722 | |
Texas Instruments Inc. | 361,112 | 29,907 | |
Oracle Corp. | 559,357 | 28,152 | |
* | Adobe Systems Inc. | 179,307 | 27,821 |
* | salesforce.com Inc. | 245,279 | 23,422 |
Applied Materials Inc. | 391,431 | 17,661 | |
Cognizant Technology | |||
Solutions Corp. Class A | 213,519 | 15,111 | |
Intuit Inc. | 88,291 | 12,489 | |
* | Micron Technology Inc. | 381,013 | 12,181 |
28
Mega Cap Growth Index Fund
Market | ||
Value• | ||
Shares | ($000) | |
Analog Devices Inc. | 132,329 | 11,072 |
* VMware Inc. Class A | 19,621 | 2,121 |
^,* Snap Inc. | 86,690 | 1,258 |
882,456 | ||
Telecommunications (0.2%) | ||
* T-Mobile US Inc. | 105,442 | 6,823 |
Total Common Stocks | ||
(Cost $2,254,952) | 3,161,652 | |
Temporary Cash Investments (0.4%)1 | ||
Money Market Fund (0.4%) | ||
2,3 Vanguard Market | ||
Liquidity Fund, | ||
1.224% | 130,763 | 13,079 |
Face | ||
Amount | ||
($000) | ||
U. S. Government and Agency Obligations (0.0%) | ||
4 United States Treasury | ||
Bill, 1.044%–1.052%, | ||
11/24/17 | 450 | 449 |
Total Temporary Cash Investments | ||
(Cost $13,527) | 13,528 | |
Total Investments (100.2%) | ||
(Cost $2,268,479) | 3,175,180 | |
Amount | ||
($000) | ||
Other Assets and Liabilities (-0.2%) | ||
Other Assets | ||
Investment in Vanguard | 198 | |
Receivables for Accrued Income | 2,791 | |
Receivables for Capital Shares Issued | 2 | |
Variation Margin Receivable— | ||
Futures Contracts | 44 | |
Total Other Assets | 3,035 | |
Liabilities | ||
Payables for Investment Securities | ||
Purchased | (2,001) | |
Collateral for Securities on Loan | (5,573) | |
Payables for Capital Shares Redeemed | (69) | |
Payables to Vanguard | (861) | |
Other Liabilities | (117) | |
Total Liabilities | (8,621) | |
Net Assets (100%) | 3,169,594 |
At August 31, 2017, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 2,318,019 |
Undistributed Net Investment Income | 7,363 |
Accumulated Net Realized Losses | (62,569) |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 906,701 |
Futures Contracts | 80 |
Net Assets | 3,169,594 |
ETF Shares—Net Assets | |
Applicable to 30,114,005 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 3,134,632 |
Net Asset Value Per Share— | |
ETF Shares | $104.09 |
Institutional Shares—Net Assets | |
Applicable to 169,110 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 34,962 |
Net Asset Value Per Share— | |
Institutional Shares | $206.74 |
• 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 $5,456,000.
* 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 100.0% and
0.2%, 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 $5,573,000 of collateral received for securities on loan.
4 Securities with a value of $449,000 have been segregated as
initial margin for open futures contracts.
Mega Cap Growth Index Fund | ||||
Derivative Financial Instruments Outstanding as of Period End | ||||
Futures Contracts | ||||
($000) | ||||
Value and | ||||
Number of | Unrealized | |||
Long (Short) | Notional | Appreciation | ||
Expiration | Contracts | Amount | (Depreciation) | |
Long Futures Contracts | ||||
E-mini S&P 500 Index | September 2017 | 61 | 7,534 | 80 |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
See accompanying Notes, which are an integral part of the Financial Statements.
30
Mega Cap Growth Index Fund | |
Statement of Operations | |
Year Ended | |
August 31,2017 | |
($000) | |
Investment Income | |
Income | |
Dividends | 39,611 |
Interest1 | 46 |
Securities Lending—Net | 220 |
Total Income | 39,877 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 541 |
Management and Administrative—ETF Shares | 981 |
Management and Administrative—Institutional Shares | 11 |
Marketing and Distribution—ETF Shares | 121 |
Marketing and Distribution—Institutional Shares | 2 |
Custodian Fees | 14 |
Auditing Fees | 34 |
Shareholders’ Reports and Proxy—ETF Shares | 144 |
Shareholders’ Reports and Proxy—Institutional Shares | — |
Trustees’ Fees and Expenses | 2 |
Total Expenses | 1,850 |
Net Investment Income | 38,027 |
Realized Net Gain (Loss) | |
Investment Securities Sold1 | 74,487 |
Futures Contracts | 830 |
Realized Net Gain (Loss) | 75,317 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | 406,690 |
Futures Contracts | (197) |
Change in Unrealized Appreciation (Depreciation) | 406,493 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 519,837 |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $43,000 and $2,000, respectively.
See accompanying Notes, which are an integral part of the Financial Statements.
31
Mega Cap Growth Index Fund | ||
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2017 | 2016 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 38,027 | 32,752 |
Realized Net Gain (Loss) | 75,317 | 52,526 |
Change in Unrealized Appreciation (Depreciation) | 406,493 | 112,174 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 519,837 | 197,452 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (36,619) | (31,000) |
Institutional Shares | (456) | (520) |
Realized Capital Gain | ||
ETF Shares | — | — |
Institutional Shares | — | — |
Total Distributions | (37,075) | (31,520) |
Capital Share Transactions | ||
ETF Shares | 410,367 | 155,971 |
Institutional Shares | (1,412) | (7,135) |
Net Increase (Decrease) from Capital Share Transactions | 408,955 | 148,836 |
Total Increase (Decrease) | 891,717 | 314,768 |
Net Assets | ||
Beginning of Period | 2,277,877 | 1,963,109 |
End of Period1 | 3,169,594 | 2,277,877 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $7,363,000 and $6,411,000.
See accompanying Notes, which are an integral part of the Financial Statements.
32
Mega Cap Growth Index Fund | |||||
Financial Highlights | |||||
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 |
Net Asset Value, Beginning of Period | $87.15 | $80.22 | $79.16 | $62.69 | $55.92 |
Investment Operations | |||||
Net Investment Income | 1.3511 | 1.269 | 1.148 | .994 | 1.006 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 16.920 | 6.897 | 1.013 | 16.475 | 6.751 |
Total from Investment Operations | 18.271 | 8.166 | 2.161 | 17.469 | 7.757 |
Distributions | |||||
Dividends from Net Investment Income | (1.331) | (1.236) | (1.101) | (.999) | (.987) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.331) | (1.236) | (1.101) | (.999) | (.987) |
Net Asset Value, End of Period | $104.09 | $87.15 | $80.22 | $79.16 | $62.69 |
Total Return | 21.17% | 10.28% | 2.70% | 28.05% | 14.04% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $3,135 | $2,247 | $1,928 | $1,520 | $1,034 |
Ratio of Total Expenses to Average Net Assets | 0.07% | 0.07% | 0.09% | 0.11% | 0.11% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.43% | 1.55% | 1.43% | 1.40% | 1.69% |
Portfolio Turnover Rate2 | 8% | 12% | 9% | 11% | 41% |
1 Calculated based on average shares outstanding.
2 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital
shares, including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
33
Mega Cap Growth Index Fund | |||||
Financial Highlights | |||||
Institutional Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 |
Net Asset Value, Beginning of Period | $173.07 | $159.31 | $157.21 | $124.49 | $110.67 |
Investment Operations | |||||
Net Investment Income | 2.6991 | 2.528 | 2.293 | 1.978 | 2.027 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 33.622 | 13.693 | 2.011 | 32.732 | 13.374 |
Total from Investment Operations | 36.321 | 16.221 | 4.304 | 34.710 | 15.401 |
Distributions | |||||
Dividends from Net Investment Income | (2.651) | (2.461) | (2.204) | (1.990) | (1.581) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (2.651) | (2.461) | (2.204) | (1.990) | (1.581) |
Net Asset Value, End of Period | $206.74 | $173.07 | $159.31 | $157.21 | $124.49 |
Total Return | 21.20% | 10.28% | 2.71% | 28.07% | 14.05% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $35 | $30 | $35 | $15 | $21 |
Ratio of Total Expenses to Average Net Assets | 0.06% | 0.06% | 0.08% | 0.10% | 0.10% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.44% | 1.56% | 1.44% | 1.41% | 1.70% |
Portfolio Turnover Rate2 | 8% | 12% | 9% | 11% | 41% |
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.
34
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 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.
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 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 futures gains (losses).
During the year ended August 31, 2017, 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 the notional amounts at each quarter-end during the period.
35
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, 2014–2017), 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 event 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, 2017, 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.
36
Mega Cap Growth 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), shareholder reporting, and the proxy. 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, 2017, the fund had contributed to Vanguard capital in the amount of $198,000, representing 0.01% of the fund’s net assets and 0.08% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). Any investments valued with significant unobservable inputs are
noted on the Statement of Net Assets.
The following table summarizes the market value of the fund’s investments as of August 31, 2017, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 3,161,652 | — | — |
Temporary Cash Investments | 13,079 | 449 | — |
Futures Contracts—Assets1 | 44 | — | — |
Total | 3,174,775 | 449 | — |
1 Represents variation margin on the last day of the reporting period.
37
Mega Cap Growth Index Fund
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
During the year ended August 31, 2017, the fund realized $91,675,000 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, 2017, the fund had $8,117,000 of ordinary income available for distribution. At August 31, 2017, the fund had available capital losses totaling $62,489,000 to offset future net capital gains. Of this amount, $4,562,000 is subject to expiration on August 31, 2019. Capital losses of $57,927,000 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, 2017, the cost of investment securities for tax purposes was $2,268,479,000. Net unrealized appreciation of investment securities for tax purposes was $906,701,000, consisting of unrealized gains of $947,172,000 on securities that had risen in value since their purchase and $40,471,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2017, the fund purchased $826,069,000 of investment securities and sold $410,136,000 of investment securities, other than temporary cash investments. Purchases and sales include $565,410,000 and $187,480,000, 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, 2017, such purchases and sales were $76,696,000 and $103,249,000, respectively; these amounts are included in the purchases and sales of investment securities noted above.
38
Mega Cap Growth Index Fund
F. Capital share transactions for each class of shares were: | ||||
Year Ended August 31, | ||||
2017 | 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 601,999 | 6,300 | 345,671 | 4,100 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (191,632) | (1,975) | (189,700) | (2,350) |
Net Increase (Decrease)—ETF Shares | 410,367 | 4,325 | 155,971 | 1,750 |
Institutional Shares | ||||
Issued | 5,641 | 33 | 15,163 | 94 |
Issued in Lieu of Cash Distributions | 320 | 2 | 377 | 2 |
Redeemed | (7,373) | (42) | (22,675) | (137) |
Net Increase (Decrease)—Institutional Shares | (1,412) | (7) | (7,135) | (41) |
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2017, that would require recognition or disclosure in these financial statements.
39
Mega Cap Value Index Fund
Fund Profile
As of August 31, 2017
Share-Class Characteristics | ||
ETF | Institutional | |
Shares | Shares | |
Ticker Symbol | MGV | VMVLX |
Expense Ratio1 | 0.07% | 0.06% |
30-Day SEC Yield | 2.57% | 2.57% |
Portfolio Characteristics | |||
DJ | |||
CRSP US | U.S. | ||
Mega Cap | Total | ||
Value | Market | ||
Fund | Index | FA Index | |
Number of Stocks | 149 | 149 | 3,769 |
Median Market Cap | $164.8B | $164.8B | $63.1B |
Price/Earnings Ratio | 18.9x | 18.9x | 21.6x |
Price/Book Ratio | 2.2x | 2.2x | 2.8x |
Return on Equity | 14.6% | 14.6% | 15.1% |
Earnings Growth Rate | 4.4% | 4.4% | 9.4% |
Dividend Yield | 2.5% | 2.5% | 1.8% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 8% | — | — |
Short-Term Reserves | -0.2% | — | — |
Sector Diversification (% of equity exposure) | |||
CRSP US | DJ | ||
Mega Cap | U.S. Total | ||
Value | Market | ||
Fund | Index | FA Index | |
Basic Materials | 2.5% | 2.5% | 2.6% |
Consumer Goods | 7.4 | 7.4 | 9.3 |
Consumer Services | 5.1 | 5.1 | 12.8 |
Financials | 25.5 | 25.5 | 20.2 |
Health Care | 15.2 | 15.2 | 13.2 |
Industrials | 12.1 | 12.1 | 12.9 |
Oil & Gas | 8.7 | 8.7 | 5.2 |
Technology | 13.7 | 13.7 | 18.5 |
Telecommunications | 4.5 | 4.5 | 2.0 |
Utilities | 5.3 | 5.3 | 3.3 |
Sector categories are based on the Industry Classification
Benchmark (“ICB”), except for the “Other” category (if applicable),
which includes securities that have not been provided an ICB
classification as of the effective reporting period.
Volatility Measures | ||
CRSP US | DJ | |
Mega Cap | U.S. Total | |
Value | Market | |
Index | FA Index | |
R-Squared | 1.00 | 0.91 |
Beta | 1.00 | 0.91 |
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 | 6.1% |
Johnson & Johnson | Pharmaceuticals | 3.7 |
Berkshire Hathaway Inc. Reinsurance | 3.7 | |
Exxon Mobil Corp. | Integrated Oil & Gas | 3.4 |
JPMorgan Chase & Co. | Banks | 3.4 |
Bank of America Corp. | Banks | 2.5 |
Procter & Gamble Co. | Nondurable | |
Household Products | 2.5 | |
AT&T Inc. | Fixed Line | |
Telecommunications | 2.4 | |
Wells Fargo & Co. | Banks | 2.4 |
General Electric Co. | Diversified Industrials | 2.2 |
Top Ten | 32.3% |
The holdings listed exclude any temporary cash investments and equity index products.
Investment Focus
1 The expense ratios shown are from the prospectus dated December 22, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended August 31, 2017, the expense ratios were 0.07% for ETF Shares and 0.06% for Institutional Shares.
40
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, 2017
Initial Investment of $10,000
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/megacapx43x1.jpg)
Average Annual Total Returns | |||||
Periods Ended August 31, 2017 | |||||
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 | 13.40% | 13.79% | 6.46% | $18,362 | |
Mega Cap Value Index Fund*ETF | |||||
Shares Market Price | 13.38 | 13.77 | 6.46 | 18,360 | |
• • • • • • • • | Spliced Mega Cap Value Index | 13.46 | 13.87 | 6.51 | 18,449 |
– – – – | Large-Cap Value Funds Average | 13.34 | 12.17 | 5.65 | 17,053 |
Dow Jones U.S. Total Stock Market | |||||
Float Adjusted Index | 16.05 | 14.19 | 8.19 | 21,462 |
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 | 13.41% | 13.82% | 7.59% | $10,011,439 |
Spliced Mega Cap Value Index | 13.46 | 13.87 | 7.61 | 10,029,496 |
Dow Jones U.S. Total Stock Market Float Adjusted | ||||
Index | 16.05 | 14.19 | 9.21 | 11,538,616 |
"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.
41
Mega Cap Value Index Fund
Cumulative Returns of ETF Shares: December 17, 2007, Through August 31, 2017
Since | |||
One | Five | Inception | |
Year | Years | (12/17/2007) | |
Mega Cap Value Index Fund ETF Shares Market | |||
Price | 13.38% | 90.63% | 83.60% |
Mega Cap Value Index Fund ETF Shares Net Asset | |||
Value | 13.40 | 90.79 | 83.62 |
Spliced Mega Cap Value Index | 13.46 | 91.48 | 84.49 |
"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, 2017
![](https://capedge.com/proxy/N-CSR/0000932471-17-005535/megacapx44x1.jpg)
For a benchmark description, see the Glossary.
Average Annual Total Returns: Periods Ended June 30, 2017
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 | 15.71% | 14.10% | 6.45% | |
Net Asset Value | 15.58 | 14.08 | 6.44 | |
Institutional Shares | 3/5/2008 | 15.59 | 14.11 | 7.59 |
42
Mega Cap Value Index Fund
Financial Statements
Statement of Net Assets
As of August 31, 2017
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Market | ||
Value• | ||
Shares | ($000) | |
Common Stocks (99.8%)1 | ||
Basic Materials (2.5%) | ||
Dow Chemical Co. | 236,463 | 15,760 |
EI du Pont de Nemours | ||
& Co. | 167,819 | 14,085 |
Air Products & Chemicals | ||
Inc. | 42,181 | 6,132 |
LyondellBasell Industries | ||
NV Class A | 62,335 | 5,647 |
International Paper Co. | 80,057 | 4,313 |
45,937 | ||
Consumer Goods (7.3%) | ||
Procter & Gamble Co. | 495,084 | 45,681 |
PepsiCo Inc. | 276,456 | 31,994 |
Mondelez International | ||
Inc. Class A | 279,058 | 11,347 |
General Motors Co. | 248,189 | 9,069 |
Kimberly-Clark Corp. | 68,716 | 8,472 |
Ford Motor Co. | 757,664 | 8,357 |
General Mills Inc. | 111,485 | 5,938 |
Archer-Daniels-Midland | ||
Co. | 110,186 | 4,553 |
VF Corp. | 50,279 | 3,161 |
Kellogg Co. | 47,375 | 3,101 |
Campbell Soup Co. | 38,451 | 1,776 |
Tyson Foods Inc. Class A | 27,979 | 1,771 |
135,220 | ||
Consumer Services (5.1%) | ||
Wal-Mart Stores Inc. | 293,418 | 22,907 |
CVS Health Corp. | 197,206 | 15,252 |
* eBay Inc. | 198,843 | 7,184 |
McKesson Corp. | 40,824 | 6,096 |
Delta Air Lines Inc. | 128,187 | 6,049 |
Target Corp. | 106,786 | 5,823 |
Sysco Corp. | 93,371 | 4,918 |
Cardinal Health Inc. | 61,203 | 4,129 |
Kroger Co. | 178,972 | 3,914 |
American Airlines Group | ||
Inc. | 85,968 | 3,846 |
Market | |||
Value• | |||
Shares | ($000) | ||
Omnicom Group Inc. | 44,978 | 3,256 | |
Twenty-First Century Fox | |||
Inc. Class A | 102,034 | 2,815 | |
Carnival Corp. | 36,283 | 2,521 | |
* | United Continental | ||
Holdings Inc. | 25,858 | 1,602 | |
Twenty-First Century Fox | |||
Inc. | 38,425 | 1,041 | |
Viacom Inc. Class B | 34,584 | 989 | |
L Brands Inc. | 23,435 | 849 | |
Viacom Inc. Class A | 500 | 19 | |
93,210 | |||
Financials (25.5%) | |||
* | Berkshire Hathaway Inc. | ||
Class B | 374,307 | 67,809 | |
JPMorgan Chase & Co. | 687,669 | 62,502 | |
Bank of America Corp. | 1,926,317 | 46,020 | |
Wells Fargo & Co. | 870,667 | 44,465 | |
Citigroup Inc. | 532,888 | 36,252 | |
US Bancorp | 309,866 | 15,881 | |
Goldman Sachs Group | |||
Inc. | 68,625 | 15,354 | |
American Express Co. | 147,141 | 12,669 | |
Morgan Stanley | 268,542 | 12,219 | |
Chubb Ltd. | 85,897 | 12,148 | |
PNC Financial Services | |||
Group Inc. | 93,689 | 11,750 | |
American International | |||
Group Inc. | 178,395 | 10,789 | |
Bank of New York Mellon | |||
Corp. | 191,101 | 9,991 | |
Prudential Financial Inc. | 83,105 | 8,483 | |
CME Group Inc. | 62,527 | 7,866 | |
MetLife Inc. | 164,647 | 7,710 | |
Capital One Financial | |||
Corp. | 93,544 | 7,447 | |
BB&T Corp. | 157,169 | 7,244 | |
Travelers Cos. Inc. | 54,063 | 6,551 | |
State Street Corp. | 69,120 | 6,393 | |
Allstate Corp. | 70,497 | 6,380 |
43
Mega Cap Value Index Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
Aflac Inc. | 76,727 | 6,334 | |
Progressive Corp. | 112,399 | 5,224 | |
SunTrust Banks Inc. | 93,720 | 5,164 | |
Synchrony Financial | 157,177 | 4,839 | |
Equity Residential | 70,990 | 4,767 | |
Discover Financial | |||
Services | 73,512 | 4,334 | |
Ameriprise Financial Inc. | 29,498 | 4,086 | |
Fifth Third Bancorp | 145,061 | 3,790 | |
Northern Trust Corp. | 42,153 | 3,731 | |
Franklin Resources Inc. | 65,145 | 2,816 | |
HCP Inc. | 90,982 | 2,712 | |
Loews Corp. | 55,382 | 2,580 | |
GGP Inc. | 119,303 | 2,476 | |
* | Berkshire Hathaway Inc. | ||
Class A | 1 | 271 | |
469,047 | |||
Health Care (15.2%) | |||
Johnson & Johnson | 521,412 | 69,019 | |
Pfizer Inc. | 1,155,273 | 39,187 | |
UnitedHealth Group Inc. | 186,552 | 37,105 | |
Merck & Co. Inc. | 529,489 | 33,813 | |
Abbott Laboratories | 335,931 | 17,112 | |
Eli Lilly & Co. | 192,215 | 15,625 | |
Amgen Inc. | 71,160 | 12,650 | |
Aetna Inc. | 64,233 | 10,130 | |
Anthem Inc. | 51,343 | 10,065 | |
Cigna Corp. | 49,520 | 9,016 | |
* | Express Scripts Holding | ||
Co. | 114,807 | 7,212 | |
Humana Inc. | 27,934 | 7,197 | |
* | HCA Healthcare Inc. | 56,892 | 4,475 |
Zimmer Biomet Holdings | |||
Inc. | 38,984 | 4,455 | |
Baxter International Inc. | 47,345 | 2,937 | |
279,998 | |||
Industrials (12.1%) | |||
General Electric Co. | 1,681,066 | 41,270 | |
Honeywell International | |||
Inc. | 147,607 | 20,410 | |
United Technologies | |||
Corp. | 139,547 | 16,706 | |
Lockheed Martin Corp. | 47,575 | 14,529 | |
Caterpillar Inc. | 114,094 | 13,405 | |
Raytheon Co. | 56,386 | 10,263 | |
General Dynamics Corp. | 49,689 | 10,005 | |
Northrop Grumman Corp. | 33,795 | 9,199 | |
CSX Corp. | 169,719 | 8,520 | |
Emerson Electric Co. | 124,666 | 7,360 | |
Johnson Controls | |||
International plc | 181,407 | 7,182 | |
Deere & Co. | 61,570 | 7,138 | |
Norfolk Southern Corp. | 56,061 | 6,756 | |
Waste Management Inc. | 85,451 | 6,589 | |
Eaton Corp. plc | 86,651 | 6,218 |
Market | ||
Value• | ||
Shares | ($000) | |
TE Connectivity Ltd. | 68,782 | 5,475 |
Cummins Inc. | 32,486 | 5,178 |
Danaher Corp. | 60,573 | 5,053 |
FedEx Corp. | 23,294 | 4,994 |
PACCAR Inc. | 67,931 | 4,506 |
Ingersoll-Rand plc | 49,664 | 4,241 |
Parker-Hannifin Corp. | 25,787 | 4,149 |
Republic Services Inc. | ||
Class A | 45,828 | 2,990 |
222,136 | ||
Oil & Gas (8.7%) | ||
Exxon Mobil Corp. | 820,203 | 62,606 |
Chevron Corp. | 366,761 | 39,471 |
ConocoPhillips | 239,550 | 10,459 |
Occidental Petroleum | ||
Corp. | 148,032 | 8,837 |
Kinder Morgan Inc. | 367,112 | 7,096 |
Phillips 66 | 84,484 | 7,081 |
Valero Energy Corp. | 86,641 | 5,900 |
Marathon Petroleum | ||
Corp. | 100,532 | 5,273 |
Halliburton Co. | 79,691 | 3,106 |
Apache Corp. | 73,553 | 2,857 |
Baker Hughes a GE Co. | 82,339 | 2,791 |
Williams Cos. Inc. | 80,005 | 2,378 |
Hess Corp. | 58,359 | 2,270 |
Devon Energy Corp. | 23,977 | 753 |
160,878 | ||
Technology (13.6%) | ||
Microsoft Corp. | 1,494,497 | 111,743 |
Intel Corp. | 911,535 | 31,967 |
Cisco Systems Inc. | 967,981 | 31,179 |
International Business | ||
Machines Corp. | 172,731 | 24,706 |
Oracle Corp. | 298,669 | 15,032 |
QUALCOMM Inc. | 286,011 | 14,950 |
HP Inc. | 326,993 | 6,239 |
Hewlett Packard | ||
Enterprise Co. | 320,828 | 5,794 |
Corning Inc. | 178,032 | 5,120 |
DXC Technology Co. | 54,915 | 4,668 |
251,398 | ||
Telecommunications (4.5%) | ||
AT&T Inc. | 1,190,169 | 44,584 |
Verizon Communications | ||
Inc. | 789,721 | 37,883 |
* Sprint Corp. | 115,883 | 956 |
83,423 | ||
Utilities (5.3%) | ||
NextEra Energy Inc. | 90,640 | 13,642 |
Duke Energy Corp. | 135,461 | 11,826 |
Dominion Energy Inc. | 121,794 | 9,594 |
Southern Co. | 192,487 | 9,290 |
American Electric Power | ||
Co. Inc. | 95,219 | 7,011 |
44
Mega Cap Value Index Fund
Market | ||
Value• | ||
Shares | ($000) | |
PG&E Corp. | 98,838 | 6,956 |
Exelon Corp. | 179,068 | 6,781 |
Sempra Energy | 48,501 | 5,720 |
PPL Corp. | 131,967 | 5,178 |
Edison International | 63,020 | 5,053 |
Consolidated Edison Inc. | 59,082 | 4,979 |
Xcel Energy Inc. | 98,408 | 4,871 |
Public Service Enterprise | ||
Group Inc. | 98,038 | 4,592 |
FirstEnergy Corp. | 42,936 | 1,399 |
96,892 | ||
Total Common Stocks | ||
(Cost $1,462,871) | 1,838,139 | |
Temporary Cash Investments (0.0%)1 | ||
Money Market Fund (0.0%) | ||
2 Vanguard Market | ||
Liquidity Fund, | ||
1.224% | 10 | 1 |
Face | ||
Amount | ||
($000) | ||
U. S. Government and Agency Obligations (0.0%) | ||
3 United States Treasury | ||
Bill, 1.044%–1.052%, | ||
11/24/17 | 200 | 199 |
Total Temporary Cash Investments | ||
(Cost $200) | 200 | |
Total Investments (99.8%) | ||
(Cost $1,463,071) | 1,838,339 | |
Amount | ||
($000) | ||
Other Assets and Liabilities (0.2%) | ||
Other Assets | ||
Investment in Vanguard | 117 | |
Receivables for Accrued Income | 6,486 | |
Variation Margin Receivable— | ||
Futures Contracts | 23 | |
Total Other Assets | 6,626 | |
Liabilities | ||
Payables for Investment Securities | ||
Purchased | (1) | |
Payables for Capital Shares Redeemed | (33) | |
Other Liabilities | (2,298) | |
Payables to Vanguard | (566) | |
Total Liabilities | (2,898) | |
Net Assets (100%) | 1,842,067 |
At August 31, 2017, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 1,480,872 |
Undistributed Net Investment Income | 11,193 |
Accumulated Net Realized Losses | (25,338) |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 375,268 |
Futures Contracts | 72 |
Net Assets | 1,842,067 |
ETF Shares—Net Assets | |
Applicable to 24,454,818 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 1,716,579 |
Net Asset Value Per Share— | |
ETF Shares | $70.19 |
Institutional Shares—Net Assets | |
Applicable to 901,603 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 125,488 |
Net Asset Value Per Share— | |
Institutional Shares | $139.18 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
1 The fund invests a portion of its cash reserves in equity markets
through the use of index futures contracts. After giving effect
to futures investments, the fund’s effective common stock and
temporary cash investment positions represent 100.0% and
-0.2%, 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 Securities with a value of $199,000 have been segregated as
initial margin for open futures contracts.
45
Mega Cap Value Index Fund | ||||
Derivative Financial Instruments Outstanding as of Period End | ||||
Futures Contracts | ||||
($000) | ||||
Value and | ||||
Number of | Unrealized | |||
Long (Short) | Notional | Appreciation | ||
Expiration | Contracts | Amount | (Depreciation) | |
Long Futures Contracts | ||||
E-mini S&P 500 Index | September 2017 | 32 | 3,952 | 72 |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
See accompanying Notes, which are an integral part of the Financial Statements.
46
Mega Cap Value Index Fund | |
Statement of Operations | |
Year Ended | |
August 31,2017 | |
($000) | |
Investment Income | |
Income | |
Dividends | 47,362 |
Interest1 | 7 |
Securities Lending—Net | 46 |
Total Income | 47,415 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 342 |
Management and Administrative—ETF Shares | 572 |
Management and Administrative—Institutional Shares | 45 |
Marketing and Distribution—ETF Shares | 74 |
Marketing and Distribution—Institutional Shares | 6 |
Custodian Fees | 42 |
Auditing Fees | 34 |
Shareholders’ Reports and Proxy—ETF Shares | 59 |
Shareholders’ Reports and Proxy—Institutional Shares | 5 |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 1,180 |
Net Investment Income | 46,235 |
Realized Net Gain (Loss) | |
Investment Securities Sold1 | 34,091 |
Futures Contracts | 218 |
Realized Net Gain (Loss) | 34,309 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | 128,694 |
Futures Contracts | 48 |
Change in Unrealized Appreciation (Depreciation) | 128,742 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 209,286 |
1 Interest income and realized net gain (loss) from an affiliated company of the fund were $6,000 and $1,000 respectively.
See accompanying Notes, which are an integral part of the Financial Statements.
47
Mega Cap Value Index Fund | ||
Statement of Changes in Net Assets | ||
Year Ended August 31, | ||
2017 | 2016 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 46,235 | 37,496 |
Realized Net Gain (Loss) | 34,309 | 18,515 |
Change in Unrealized Appreciation (Depreciation) | 128,742 | 130,325 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 209,286 | 186,336 |
Distributions | ||
Net Investment Income | ||
ETF Shares | (39,383) | (29,412) |
Institutional Shares | (4,141) | (5,913) |
Realized Capital Gain | ||
ETF Shares | — | — |
Institutional Shares | — | — |
Total Distributions | (43,524) | (35,325) |
Capital Share Transactions | ||
ETF Shares | 244,910 | 237,968 |
Institutional Shares | (97,277) | (30,150) |
Net Increase (Decrease) from Capital Share Transactions | 147,633 | 207,818 |
Total Increase (Decrease) | 313,395 | 358,829 |
Net Assets | ||
Beginning of Period | 1,528,672 | 1,169,843 |
End of Period1 | 1,842,067 | 1,528,672 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $11,193,000 and $8,482,000.
See accompanying Notes, which are an integral part of the Financial Statements.
48
Mega Cap Value Index Fund | |||||
Financial Highlights | |||||
ETF Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 |
Net Asset Value, Beginning of Period | $63.52 | $56.89 | $59.60 | $49.65 | $41.80 |
Investment Operations | |||||
Net Investment Income | 1.8431 | 1.638 | 1.484 | 1.338 | 1.2721 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 6.557 | 6.583 | (2.733) | 9.911 | 7.809 |
Total from Investment Operations | 8.400 | 8.221 | (1.249) | 11.249 | 9.081 |
Distributions | |||||
Dividends from Net Investment Income | (1.730) | (1.591) | (1.461) | (1.299) | (1.231) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.730) | (1.591) | (1.461) | (1.299) | (1.231) |
Net Asset Value, End of Period | $70.19 | $63.52 | $56.89 | $59.60 | $49.65 |
Total Return | 13.40% | 14.71% | -2.22% | 22.92% | 22.05% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $1,717 | $1,322 | $957 | $870 | $611 |
Ratio of Total Expenses to Average Net Assets | 0.07% | 0.07% | 0.09% | 0.11% | 0.11% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.73% | 2.84% | 2.51% | 2.47% | 2.72% |
Portfolio Turnover Rate2 | 8% | 8% | 5% | 8% | 34% |
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.
49
Mega Cap Value Index Fund | |||||
Financial Highlights | |||||
Institutional Shares | |||||
For a Share Outstanding | Year Ended August 31, | ||||
Throughout Each Period | 2017 | 2016 | 2015 | 2014 | 2013 |
Net Asset Value, Beginning of Period | $125.94 | $112.80 | $118.18 | $98.45 | $82.90 |
Investment Operations | |||||
Net Investment Income | 3.5961 | 3.259 | 2.976 | 2.687 | 2.5311 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 13.077 | 13.063 | (5.427) | 19.649 | 15.493 |
Total from Investment Operations | 16.673 | 16.322 | (2.451) | 22.336 | 18.024 |
Distributions | |||||
Dividends from Net Investment Income | (3.433) | (3.182) | (2.929) | (2.606) | (2.474) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (3.433) | (3.182) | (2.929) | (2.606) | (2.474) |
Net Asset Value, End of Period | $139.18 | $125.94 | $112.80 | $118.18 | $98.45 |
Total Return | 13.41% | 14.72% | -2.19% | 22.95% | 22.07% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $125 | $207 | $213 | $212 | $164 |
Ratio of Total Expenses to Average Net Assets | 0.06% | 0.06% | 0.06% | 0.08% | 0.08% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.74% | 2.85% | 2.54% | 2.50% | 2.75% |
Portfolio Turnover Rate2 | 8% | 8% | 5% | 8% | 34% |
1 Calculated based on average shares outstanding.
2 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
50
Mega Cap Value Index Fund
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 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.
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 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 futures gains (losses).
During the year ended August 31, 2017, 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 the notional amounts at each quarter-end during the period.
51
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, 2014–2017), 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 event 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, 2017, 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.
52
Mega Cap Value 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), shareholder reporting, and the proxy. 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, 2017, 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). Any investments valued with significant unobservable inputs are
noted on the Statement of Net Assets.
The following table summarizes the market value of the fund’s investments as of August 31, 2017, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 1,838,139 | — | — |
Temporary Cash Investments | 1 | 199 | — |
Futures Contracts—Assets1 | 23 | — | — |
Total | 1,838,163 | 199 | — |
1 Represents variation margin on the last day of the reporting period. |
53
Mega Cap Value Index Fund
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
During the year ended August 31, 2017, the fund realized $38,219,000 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, 2017, the fund had $11,697,000 of ordinary income available for distribution. At August 31, 2017, the fund had available capital losses totaling $25,266,000 to offset future net capital gains. Of this amount, $4,326,000 is subject to expiration on August 31, 2019. Capital losses of $20,940,000 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, 2017, the cost of investment securities for tax purposes was $1,463,071,000. Net unrealized appreciation of investment securities for tax purposes was $375,268,000, consisting of unrealized gains of $412,749,000 on securities that had risen in value since their purchase and $37,481,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the year ended August 31, 2017, the fund purchased $438,879,000 of investment securities and sold $290,803,000 of investment securities, other than temporary cash investments. Purchases and sales include $307,725,000 and $101,768,000, 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, 2017, such purchases and sales were $43,725,000 and $35,301,000, respectively; these amounts are included in the purchases and sales of investment securities noted above.
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Mega Cap Value Index Fund
F. Capital share transactions for each class of shares were: | ||||
Year Ended August 31, | ||||
2017 | 2016 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
ETF Shares | ||||
Issued | 349,985 | 5,200 | 364,263 | 6,137 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (105,075) | (1,550) | (126,295) | (2,150) |
Net Increase (Decrease)—ETF Shares | 244,910 | 3,650 | 237,968 | 3,987 |
Institutional Shares | ||||
Issued | 16,316 | 124 | 22,320 | 195 |
Issued in Lieu of Cash Distributions | 2,661 | 20 | 4,297 | 37 |
Redeemed | (116,254) | (887) | (56,767) | (477) |
Net Increase (Decrease)—Institutional Shares | (97,277) | (743) | (30,150) | (245) |
G. Management has determined that no material events or transactions occurred subsequent to August 31, 2017, that would require recognition or disclosure in these financial statements.
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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”) as of August 31, 2017, 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 as of August 31, 2017 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 13, 2017
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Special 2017 tax information (unaudited) for Vanguard Mega Cap Index Funds
This information for the fiscal year ended August 31, 2017, 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 | 26,074 |
Mega Cap Growth Index Fund | 37,075 |
Mega Cap Value Index Fund | 43,524 |
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 | 95.8% |
Mega Cap Growth Index Fund | 91.1 |
Mega Cap Value Index Fund | 97.8 |
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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 2017. (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, 2017 | |||
Since | |||
One | Five | Inception | |
Year | Years | (12/17/2007) | |
Mega Cap Index Fund ETF Shares | |||
Returns Before Taxes | 17.01% | 14.25% | 7.96% |
Returns After Taxes on Distributions | 16.43 | 13.71 | 7.54 |
Returns After Taxes on Distributions and Sale of | |||
Fund Shares | 10.03 | 11.37 | 6.40 |
Since | |||
One | Five | Inception | |
Year | Years | (12/17/2007) | |
Mega Cap Growth Index FundETF Shares | |||
Returns Before Taxes | 21.17% | 14.92% | 9.55% |
Returns After Taxes on Distributions | 20.76 | 14.53 | 9.26 |
Returns After Taxes on Distributions and Sale of | |||
Fund Shares | 12.26 | 11.95 | 7.79 |
Since | |||
One | Five | Inception | |
Year | Years | (12/17/2007) | |
Mega Cap Value Index Fund ETF Shares | |||
Returns Before Taxes | 13.40% | 13.79% | 6.46% |
Returns After Taxes on Distributions | 12.70 | 13.13 | 5.94 |
Returns After Taxes on Distributions and Sale of | |||
Fund Shares | 8.10 | 10.98 | 5.12 |
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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, 2017 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
2/28/2017 | 8/31/2017 | Period | |
Based on Actual Fund Return | |||
Mega Cap Index Fund | |||
ETF Shares | $1,000.00 | $1,060.70 | $0.36 |
Institutional Shares | 1,000.00 | 1,060.68 | 0.31 |
Mega Cap Growth Index Fund | |||
ETF Shares | $1,000.00 | $1,107.92 | $0.37 |
Institutional Shares | 1,000.00 | 1,107.99 | 0.32 |
Mega Cap Value Index Fund | |||
ETF Shares | $1,000.00 | $1,019.90 | $0.36 |
Institutional Shares | 1,000.00 | 1,019.94 | 0.31 |
Based on Hypothetical 5% Yearly Return | |||
Mega Cap Index Fund | |||
ETF Shares | $1,000.00 | $1,024.85 | $0.36 |
Institutional Shares | 1,000.00 | 1,024.90 | 0.31 |
Mega Cap Growth Index Fund | |||
ETF Shares | $1,000.00 | $1,024.85 | $0.36 |
Institutional Shares | 1,000.00 | 1,024.90 | 0.31 |
Mega Cap Value Index Fund | |||
ETF Shares | $1,000.00 | $1,024.85 | $0.36 |
Institutional Shares | 1,000.00 | 1,024.90 | 0.31 |
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, 0.07% 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. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the
average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number
of days in the most recent 12-month period (184/365).
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Trustees Approve Advisory Arrangements
The board of trustees of Vanguard Mega Cap Index Fund, Vanguard Mega Cap Growth Index Fund, and Vanguard Mega Cap Value Index Fund has renewed each fund’s investment advisory arrangement with The Vanguard Group, Inc. (Vanguard), through its Equity Index Group. The board determined that continuing each 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 that directed 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 compared with 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.
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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. The board also concluded that the advisory expenses for the Mega Cap Index Fund and Mega Cap Growth Index Fund were well below the advisory expenses of funds in their peer groups, while the advisory expenses for the Mega Cap Value Index Fund were reasonable compared with the average advisory expenses for funds in its peer group. 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). 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.
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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 195 Vanguard funds.
Information for each trustee and executive officer of the fund appears below. 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.
Interested Trustee1
F. William McNabb III
Born 1957. Trustee Since July 2009. Chairman of the Board. Principal Occupation(s) During the Past Five Years and Other Experience: Chairman of the Board of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group, since January 2010; Chief Executive Officer and Director of The Vanguard Group and President and Chief Executive Officer of each of the investment companies served by The Vanguard Group, since 2008; Director of Vanguard Marketing Corporation; President of The Vanguard Group (2008–2017); Managing Director of The Vanguard Group (1995–2008).
Independent Trustees
Emerson U. Fullwood
Born 1948. Trustee Since January 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Executive Chief Staff and Marketing Officer for North America and Corporate Vice President (retired 2008) of Xerox Corporation (document management products and services); Executive in Residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology; 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; Trustee of the University of Rochester.
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 Arconic Inc. (diversified manufacturer), 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
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.
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.
JoAnn Heffernan Heisen
Born 1950. Trustee Since July 1998. Principal Occupation(s) During the Past Five Years and Other Experience: Corporate Vice President and Member of the Executive Committee (1997–2008), Chief Global Diversity Officer (retired 2008), Vice President and Chief Information Officer (1997–2006), Controller (1995–1997), Treasurer (1991–1995), and Assistant Treasurer (1989–1991) 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), Oxfam America, and the Lumina Foundation for Education; Director of the V Foundation for Cancer Research; Member of the Advisory Council for the College of Arts and Letters and Chair 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, the Board of Catholic Investment Services, Inc. (investment advisor), and the Board of Superintendence of the Institute for the Works of Religion; Chairman of the Board of TIFF Advisory Services, Inc. (investment advisor).
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 Co-Managing Partner of HighVista Strategies LLC (private investment firm); 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 Board of Hypertherm, Inc. (industrial cutting systems, software, and consumables).
Executive Officers
Glenn Booraem
Born 1967. Investment Stewardship Officer Since February 2017. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Treasurer (2015–2017), Controller (2010–2015), and Assistant Controller (2001–2010) of each of the investment companies served by The Vanguard Group.
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: Principal of 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).
Anne E. Robinson
Born 1970. Secretary Since September 2016. 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; Managing Director and General Counsel of Global Cards and Consumer Services at Citigroup (2014–2016); Counsel at American Express (2003–2014).
Michael Rollings
Born 1963. Treasurer Since February 2017. Principal Occupation(s) During the Past Five Years and Other Experience: Managing Director of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group; Director of Vanguard Marketing Corporation; Executive Vice President and Chief Financial Officer of MassMutual Financial Group (2006–2016).
Vanguard Senior Management Team | |
Mortimer J. Buckley | Chris D. McIsaac |
Gregory Davis | James M. Norris |
John James | Thomas M. Rampulla |
Martha G. King | Karin A. Risi |
John T. Marcante | |
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 |
![]() | |
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. | |
© 2017 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q8280 102017 |
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, 2017: $599,000
Fiscal Year Ended August 31, 2016: $611,000
Aggregate Audit Fees of Registered Investment Companies in the Vanguard Group.
Fiscal Year Ended August 31, 2017: $8,424,459
Fiscal Year Ended August 31, 2016: $9,629,849
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, 2017: $3,194,093
Fiscal Year Ended August 31, 2016: $2,717,627
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, 2017: $274,313
Fiscal Year Ended August 31, 2016: $254,050
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, 2017: $0
Fiscal Year Ended August 31, 2016: $214,225
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, 2017: $274,313
Fiscal Year Ended August 31, 2016: $468,275
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: Rajiv L. Gupta, JoAnn Heffernan Heisen, F. Joseph Loughrey, Mark Loughridge, 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: Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not Applicable.
Item 13: 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 18, 2017 |
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 18, 2017 | |
VANGUARD WORLD FUND | |
BY: | /s/ THOMAS J. HIGGINS* |
THOMAS J. HIGGINS | |
CHIEF FINANCIAL OFFICER |
Date: October 18, 2017
* 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.