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: 811-03916
Name of Registrant: | Vanguard Specialized Funds |
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: January 31
Date of reporting period: February 1, 2020—July 31, 2020
Item 1: Reports to Shareholders
Semiannual Report | July 31, 2020
Vanguard Energy Fund
See the inside front cover for important information about access to your fund’s annual and semiannual shareholder reports.
Important information about access to shareholder reports
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your fund’s annual and semiannual shareholder reports will no longer be sent to you by mail, unless you specifically request them. Instead, you will be notified by mail each time a report is posted on the website and will be provided with a link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. You may elect to receive shareholder reports and other communications from the fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with the fund, by calling Vanguard at one of the phone numbers on the back cover of this report or by logging on to vanguard.com.
You may elect to receive paper copies of all future shareholder reports free of charge. If you invest through a financial intermediary, you can contact the intermediary to request that you continue to receive paper copies. If you invest directly with the fund, you can call Vanguard at one of the phone numbers on the back cover of this report or log on to vanguard.com. Your election to receive paper copies will apply to all the funds you hold through an intermediary or directly with Vanguard.
Contents | |
About Your Fund’s Expenses | 1 |
Financial Statements | 4 |
Trustees Approve Advisory Arrangements | 20 |
Liquidity Risk Management | 22 |
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.
1
Six Months Ended July 31, 2020 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
Energy Fund | 1/31/2020 | 7/31/2020 | Period |
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $743.66 | $1.52 |
Admiral™ Shares | 1,000.00 | 743.94 | 1.17 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,023.19 | $1.76 |
Admiral Shares | 1,000.00 | 1,023.59 | 1.36 |
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 0.35% for Investor Shares and 0.27% 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 (182/366).
2
Energy Fund
Fund Allocation
As of July 31, 2020
Integrated Oil & Gas | 40.3 | % |
Oil & Gas Drilling | 0.1 | |
Oil & Gas Equipment & Services | 3.4 | |
Oil & Gas Exploration & Production | 19.2 | |
Oil & Gas Refining & Marketing | 9.5 | |
Oil & Gas Storage & Transportation | 10.0 | |
Utilities | 15.7 | |
Other | 1.8 |
The table reflects the fund’s investments, except for short-term investments and derivatives. 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.
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.
3
Energy Fund
Financial Statements (unaudited)
Schedule of Investments
As of July 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | |||
Value• | |||
Shares | ($000) | ||
Common Stocks (98.1%) | |||
United States (40.2%) | |||
Electric Utilities (7.0%) | |||
Exelon Corp. | 2,676,169 | 103,327 | |
Duke Energy Corp. | 963,501 | 81,647 | |
Avangrid Inc. | 1,246,345 | 62,056 | |
FirstEnergy Corp. | 1,609,711 | 46,682 | |
Edison International | 418,923 | 23,321 | |
317,033 | |||
Energy Equipment & Services (2.1%) | |||
Schlumberger Ltd. | 5,276,347 | 95,713 | |
Halliburton Co. | 68,151 | 976 | |
Baker Hughes Co. Class A | 47,181 | 731 | |
97,420 | |||
Oil, Gas & Consumable Fuels (30.8%) | |||
Integrated Oil & Gas (7.1%) | |||
Chevron Corp. | 2,327,587 | 195,378 | |
Exxon Mobil Corp. | 3,055,066 | 128,557 | |
Occidental Petroleum Corp. | 36,840 | 580 | |
* | Occidental Petroleum Corp. Warrants Exp. 08/03/2027 | 4,605 | 26 |
324,541 | |||
Oil & Gas Exploration & Production (15.4%) | |||
ConocoPhillips | 4,054,056 | 151,581 | |
Pioneer Natural Resources Co. | 1,288,426 | 124,874 | |
EOG Resources Inc. | 1,902,624 | 89,138 | |
Diamondback Energy Inc. | 2,045,243 | 81,523 | |
Hess Corp. | 1,618,243 | 79,634 | |
Concho Resources Inc. | 1,205,039 | 63,313 | |
Cabot Oil & Gas Corp. | 3,073,174 | 57,468 | |
Noble Energy Inc. | 3,125,443 | 31,223 | |
Viper Energy Partners LP | 1,880,618 | 19,446 | |
Devon Energy Corp. | 151,292 | 1,587 | |
Apache Corp. | 69,481 | 1,067 | |
Cimarex Energy Co. | 33,771 | 826 | |
Ovintiv Inc. | 1 | — | |
701,680 | |||
Oil & Gas Refining & Marketing (5.8%) | |||
Marathon Petroleum Corp. | 4,749,383 | 181,426 | |
Valero Energy Corp. | 1,348,858 | 75,846 | |
Phillips 66 | 40,407 | 2,506 | |
HollyFrontier Corp. | 53,879 | 1,482 | |
261,260 | |||
Oil & Gas Storage & Transportation (2.5%) | |||
Williams Cos. Inc. | 5,451,298 | 104,283 | |
Kinder Morgan Inc. | 290,316 | 4,094 | |
* | Cheniere Energy Inc. | 51,320 | 2,539 |
ONEOK Inc. | 13,807 | 385 | |
111,301 | |||
Other (0.3%) | |||
1 | Vanguard Energy ETF | 253,000 | 12,192 |
1,410,974 | |||
Total United States | 1,825,427 | ||
International (57.9%) | |||
Australia (0.1%) | |||
Beach Energy Ltd. | 1,277,459 | 1,280 | |
Santos Ltd. | 265,399 | 991 | |
Woodside Petroleum Ltd. | 45,580 | 649 | |
APA Group | 67,444 | 528 | |
3,448 | |||
Austria (0.8%) | |||
* | OMV AG | 1,139,164 | 35,977 |
Brazil (0.9%) | |||
Petroleo Brasileiro SA ADR | 4,082,233 | 35,393 | |
Petroleo Brasileiro SA Preference Shares | 934,894 | 3,978 | |
Petroleo Brasileiro SA | 365,601 | 1,591 | |
40,962 |
4
Energy Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Canada (8.4%) | |||
Enbridge Inc. (XTSE) | 4,762,786 | 152,436 | |
TC Energy Corp. (XNYS) | 2,614,381 | 119,216 | |
* | Parex Resources Inc. | 3,294,314 | 39,843 |
Enbridge Inc. (XNYS) | 1,063,054 | 34,018 | |
TC Energy Corp. (XTSE) | 725,862 | 33,084 | |
Suncor Energy Inc. (XTSE) | 125,041 | 1,967 | |
Canadian Natural Resources Ltd. | 78,587 | 1,386 | |
Pembina Pipeline Corp. | 22,174 | 539 | |
382,489 | |||
China (2.9%) | |||
CNOOC Ltd. ADR | 796,045 | 84,102 | |
ENN Energy Holdings Ltd. | 2,743,800 | 33,260 | |
CNOOC Ltd. | 4,009,974 | 4,232 | |
China Longyuan Power Group Corp. Ltd. Class H | 2,395,000 | 1,716 | |
Kunlun Energy Co. Ltd. | 2,006,000 | 1,681 | |
Xinyi Solar Holdings Ltd. | 1,209,000 | 1,327 | |
* | Xinjiang Goldwind Science & Technology Co. Ltd. Class H | 1,273,800 | 1,282 |
China Oilfield Services Ltd. Class H | 1,490,000 | 1,163 | |
CIMC Enric Holdings Ltd. | 2,390,000 | 1,037 | |
China Petroleum & Chemical Corp. Class H | 906,485 | 386 | |
130,186 | |||
Colombia (0.0%) | |||
Ecopetrol SA ADR | 131,056 | 1,525 | |
Denmark (0.0%) | |||
Vestas Wind Systems A/S | 13,059 | 1,674 | |
Finland (0.0%) | |||
Neste Oyj | 20,384 | 936 | |
France (10.0%) | |||
^ | Total SA ADR | 5,990,557 | 225,604 |
TOTAL SE | 3,626,318 | 137,234 | |
* | Engie SA | 6,906,822 | 92,007 |
454,845 | |||
Hungary (0.0%) | |||
* | MOL Hungarian Oil & Gas plc | 162,817 | 959 |
India (4.7%) | |||
Reliance Industries Ltd. | 5,653,156 | 156,341 | |
Power Grid Corp. of India Ltd. | 21,922,258 | 52,171 | |
Bharat Petroleum Corp. Ltd. | 335,914 | 1,853 | |
Oil & Natural Gas Corp. Ltd. | 1,482,326 | 1,550 | |
Oil India Ltd. | 931,383 | 1,203 | |
Indian Oil Corp. Ltd. | 1,013,509 | 1,197 | |
Hindustan Petroleum Corp. Ltd. | 409,352 | 1,176 | |
215,491 | |||
Israel (0.0%) | |||
Oil Refineries Ltd. | 4,405,701 | 822 | |
Paz Oil Co. Ltd. | 2,834 | 225 | |
* | Delek Group Ltd. | 2,975 | 66 |
1,113 | |||
Italy (4.5%) | |||
^ | Eni SPA ADR | 4,084,546 | 71,970 |
Enel SPA | 6,722,861 | 61,585 | |
Tenaris SA | 5,845,689 | 34,452 | |
Tenaris SA ADR | 1,561,050 | 18,264 | |
Eni SPA | 1,742,280 | 15,520 | |
Saipem SPA | 522,100 | 1,118 | |
Snam SPA | 26,389 | 141 | |
203,050 | |||
Japan (0.1%) | |||
ENEOS Holdings Inc. | 679,100 | 2,381 | |
Cosmo Energy Holdings Co. Ltd. | 86,300 | 1,251 | |
Japan Petroleum Exploration Co. Ltd. | 65,200 | 1,059 | |
4,691 | |||
Norway (2.4%) | |||
Equinor ASA | 5,887,196 | 88,268 | |
^ | Equinor ASA ADR | 1,235,663 | 18,424 |
Aker BP ASA | 75,792 | 1,443 | |
108,135 | |||
Poland (0.1%) | |||
Polski Koncern Naftowy ORLEN SA | 107,642 | 1,532 | |
Polskie Gornictwo Naftowe i Gazownictwo SA | 601,150 | 820 | |
Grupa Lotos SA | 49,615 | 641 | |
2,993 |
5
Energy Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Portugal (1.6%) | |||
Galp Energia SGPS SA | 6,726,524 | 70,432 | |
Russia (4.5%) | |||
Lukoil PJSC ADR | 1,722,747 | 116,863 | |
Gazprom PJSC ADR | 15,340,961 | 74,160 | |
Gazprom PJSC | 1,425,301 | 3,505 | |
Rosneft Oil Co. PJSC | 387,655 | 1,869 | |
Lukoil PJSC | 23,865 | 1,639 | |
* | AK Transneft OAO Preference Shares | 804 | 1,462 |
Tatneft PJSC | 188,034 | 1,403 | |
Surgutneftegas PJSC | 2,455,421 | 1,234 | |
Surgutneftegas OAO Preference Shares | 1,683,325 | 850 | |
Tatneft PAO Preference Shares | 83,506 | 607 | |
Novatek PJSC GDR | 4,101 | 598 | |
Tatneft PJSC ADR | 12,925 | 575 | |
Novatek PJSC | 7,422 | 110 | |
204,875 | |||
Saudi Arabia (0.0%) | |||
2 | Saudi Arabian Oil Co. | 51,212 | 450 |
South Korea (0.0%) | |||
GS Holdings Corp. | 33,365 | 982 | |
Spain (3.2%) | |||
* | Iberdrola SA | 6,914,077 | 89,367 |
* | Repsol SA | 6,840,178 | 53,940 |
* | Iberdrola SA-INT | 157,138 | 2,021 |
Enagas SA | 74,705 | 1,885 | |
147,213 | |||
Sweden (0.6%) | |||
Lundin Energy AB | 1,196,563 | 27,911 | |
Thailand (0.0%) | |||
PTT PCL (Foreign) | 790,200 | 991 | |
Turkey (0.1%) | |||
KOC Holding AS | 580,445 | 1,345 | |
* | Tupras Turkiye Petrol Rafinerileri AS | 78,117 | 926 |
2,271 | |||
United Kingdom (13.0%) | |||
BP plc ADR | 7,266,045 | 160,143 | |
BP plc | 36,884,017 | 133,576 | |
^ | Royal Dutch Shell plc ADR | 4,355,619 | 129,841 |
Royal Dutch Shell plc Class A (XLON) | 6,607,711 | 96,576 | |
National Grid plc | 4,953,145 | 58,110 | |
Royal Dutch Shell plc Class B | 546,265 | 7,668 | |
Royal Dutch Shell plc Class A (XAMS) | 212,482 | 3,166 | |
John Wood Group plc | 511,091 | 1,270 | |
Petrofac Ltd. | 308,868 | 563 | |
590,913 | |||
Total International | 2,634,512 | ||
Total Common Stocks (Cost $4,921,991) | 4,459,939 | ||
Temporary Cash Investments (3.5%) | |||
Money Market Fund (2.3%) | |||
3,4 | Vanguard Market Liquidity Fund, 0.194% | 1,033,615 | 103,362 |
Face | |||
Amount | |||
($000) | |||
Repurchase Agreements (1.1%) | |||
RBS Securities, Inc. 0.070%, 8/3/20 (Dated 7/31/20, Repurchase Value $36,200,000, collateralized by U.S. Treasury Note/Bond, 3.000% 5/15/47, with a value of $36,924,000) | 36,200 | 36,200 | |
Societe Generale 0.070%, 8/3/20 (Dated 7/31/20, Repurchase Value $11,800,000, collateralized by U.S. Treasury Note/Bond, 0.000%–4.375%, 8/4/20–8/15/46, Federal National Mortgage Assn. 2.500%–4.500%, 12/1/47–7/1/50, and Government National Mortgage Assn. 2.500%–3.125%, 12/20/26–11/20/49, with a value of $12,036,000) | 11,800 | 11,800 | |
48,000 |
6
Energy Fund
Face | Market | ||
Amount | Value• | ||
($000) | ($000) | ||
U.S. Government and Agency Obligations (0.1%) | |||
5 | United States Cash Management Bill, 0.140%, 10/13/20 | 3,000 | 2,999 |
5 | United States Cash Management Bill, 0.135%, 10/20/20 | 2,500 | 2,500 |
5 | United States Cash Management Bill, 0.145%,12/15/20 | 1,500 | 1,499 |
6,998 | |||
Total Temporary Cash Investments (Cost $158,272) | 158,360 | ||
Total Investments (101.6%) (Cost $5,080,263) | 4,618,299 | ||
Other Assets and Liabilities— Net (-1.6%) | (71,028) | ||
Net Assets (100%) | 4,547,271 |
Cost is in $000.
• | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
^ | Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $64,996,000. |
1 | Considered an affiliated company of the fund as the issuer is another member of The Vanguard Group. |
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 July 31, 2020, the value of this security represented less than 0.01% of net assets. |
3 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
4 | Collateral of $69,758,000 was received for securities on loan, of which $69,739,000 is held in Vanguard Market Liquidity Fund and $19,000 is held in cash. |
5 | Securities with a value of $3,549,000 have been segregated as initial margin for open futures contracts. |
ADR—American Depositary Receipt.
GDR—Global Depositary Receipt.
7
Energy 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 2020 | 246 | 40,141 | 1,582 |
See accompanying Notes, which are an integral part of the Financial Statements.
8
Energy Fund
Statement of Assets and Liabilities | ||
As of July 31, 2020 | ||
($000s, except shares and per-share amounts) | Amount | |
Assets | ||
Investments in Securities, at Value | ||
Unaffiliated Issuers (Cost $4,953,061) | 4,502,745 | |
Affiliated Issuers (Cost $127,202) | 115,554 | |
Total Investment in Securities | 4,618,299 | |
Investment in Vanguard | 207 | |
Cash | 662 | |
Foreign Currency, at Value (Cost $268) | 265 | |
Receivables for Accrued Income | 11,289 | |
Receivables for Capital Shares Issued | 5,602 | |
Variation Margin Receivable—Futures Contracts | 216 | |
Total Assets | 4,636,540 | |
Liabilities | ||
Payables for Investment Securities Purchased | 10 | |
Collateral for Securities on Loan | 69,758 | |
Payables to Investment Advisor | 1,462 | |
Payables for Capital Shares Redeemed | 7,984 | |
Payables to Vanguard | 400 | |
Other Liabilities | 9,655 | |
Total Liabilities | 89,269 | |
Net Assets | 4,547,271 | |
At July 31, 2020, net assets consisted of: | ||
Paid-in Capital | 5,121,603 | |
Total Distributable Earnings (Loss) | (574,332 | ) |
Net Assets | 4,547,271 | |
Investor Shares—Net Assets | ||
Applicable to 43,775,127 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 1,406,281 | |
Net Asset Value Per Share—Investor Shares | $32.13 | |
Admiral Shares—Net Assets | ||
Applicable to 52,115,482 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 3,140,990 | |
Net Asset Value Per Share—Admiral Shares | $60.27 |
See accompanying Notes, which are an integral part of the Financial Statements.
9
Energy Fund
Statement of Operations
Six Months Ended | ||
July 31, 2020 | ||
($000 | ) | |
Investment Income | ||
Income | ||
Dividends—Unaffiliated Issuers1 | 131,322 | |
Dividends—Affiliated Issuers | 332 | |
Interest—Unaffiliated Issuers | 206 | |
Interest—Affiliated Issuers | 322 | |
Securities Lending—Net | 894 | |
Total Income | 133,076 | |
Expenses | ||
Investment Advisory Fees—Note B | ||
Basic Fee | 3,488 | |
Performance Adjustment | (889 | ) |
The Vanguard Group—Note C | ||
Management and Administrative—Investor Shares | 1,501 | |
Management and Administrative—Admiral Shares | 2,353 | |
Marketing and Distribution—Investor Shares | 78 | |
Marketing and Distribution—Admiral Shares | 101 | |
Custodian Fees | 121 | |
Shareholders’ Reports—Investor Shares | 50 | |
Shareholders’ Reports—Admiral Shares | 31 | |
Trustees’ Fees and Expenses | 6 | |
Total Expenses | 6,840 | |
Net Investment Income | 126,236 | |
Realized Net Gain (Loss) | ||
Investment Securities Sold—Unaffiliated Issuers | (155,695 | ) |
Investment Securities Sold—Affiliated Issuers | (32 | ) |
Futures Contracts | (4,257 | ) |
Foreign Currencies | (57 | ) |
Realized Net Gain (Loss) | (160,041 | ) |
Change in Unrealized Appreciation (Depreciation) | ||
Investment Securities—Unaffiliated Issuers2 | (1,491,321 | ) |
Investment Securities—Affiliated Issuers | (5,914 | ) |
Futures Contracts | 1,615 | |
Foreign Currencies | (42 | ) |
Change in Unrealized Appreciation (Depreciation) | (1,495,662 | ) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (1,529,467 | ) |
1 | Dividends are net of foreign withholding taxes of $10,082,000. |
2 | The change in unrealized appreciation (depreciation) is net of the change in deferred foreign capital gains taxes of ($5,718,000). |
See accompanying Notes, which are an integral part of the Financial Statements.
10
Energy Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | ||
July 31, | January 31, | ||
2020 | 2020 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 126,236 | 236,477 | |
Realized Net Gain (Loss) | (160,041) | 660,643 | |
Change in Unrealized Appreciation (Depreciation) | (1,495,662) | (1,330,389) | |
Net Increase (Decrease) in Net Assets Resulting from Operations | (1,529,467) | (433,269) | |
Distributions1 | |||
Investor Shares | (1,959) | (64,161) | |
Admiral Shares | (5,595) | (160,906) | |
Total Distributions | (7,554) | (225,067) | |
Capital Share Transactions | |||
Investor Shares | 51,800 | (280,012) | |
Admiral Shares | (147,868) | (752,371) | |
Net Increase (Decrease) from Capital Share Transactions | (96,068) | (1,032,383) | |
Total Increase (Decrease) | (1,633,089) | (1,690,719) | |
Net Assets | |||
Beginning of Period | 6,180,360 | 7,871,079 | |
End of Period | 4,547,271 | 6,180,360 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
11
Energy Fund
Financial Highlights
Investor Shares
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | July 31, | Year Ended January 31, | |||||
Throughout Each Period | 2020 | 2020 | 2019 | 2018 | 2017 | 2016 | |
Net Asset Value, Beginning of Period | $43.28 | $47.85 | $55.62 | $52.70 | $40.43 | $51.53 | |
Investment Operations | |||||||
Net Investment Income | .8661 | 1.5191 | 1.3001 | 1.4771,2 | .982 | 1.096 | |
Net Realized and Unrealized Gain (Loss) on Investments | (11.970) | (4.524) | (7.788) | 3.035 | 12.275 | (11.118) | |
Total from Investment Operations | (11.104) | (3.005) | (6.488) | 4.512 | 13.257 | (10.022) | |
Distributions | |||||||
Dividends from Net Investment Income | (.046) | (1.565) | (1.282) | (1.592) | (.987) | (1.078) | |
Distributions from Realized Capital Gains | — | — | — | — | — | — | |
Total Distributions | (.046) | (1.565) | (1.282) | (1.592) | (.987) | (1.078) | |
Net Asset Value, End of Period | $32.13 | $43.28 | $47.85 | $55.62 | $52.70 | $40.43 | |
Total Return3 | -25.63% | -6.55% | -11.48% | 8.75% | 32.73% | -19.53% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $1,406 | $1,793 | $2,265 | $2,968 | $3,452 | $2,693 | |
Ratio of Total Expenses to Average Net Assets4 | 0.35% | 0.32% | 0.37% | 0.38% | 0.41% | 0.37% | |
Ratio of Net Investment Income to Average Net Assets | 5.28% | 3.20% | 2.42% | 2.86%2 | 1.97% | 2.20% | |
Portfolio Turnover Rate | 16% | 48% | 31% | 24% | 29% | 23% |
The expense ratio and net investment income ratio for the current period have been annualized.
1 | Calculated based on average shares outstanding. |
2 | Net investment income per share and the ratio of net investment income to average net assets include $.342 and 0.67%, respectively, from income received as a result of the 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 | Includes performance-based investment advisory fee increases (decreases) of (0.04%), (0.06%), (0.01%), 0.00%, 0.03%, and 0.03%. |
See accompanying Notes, which are an integral part of the Financial Statements.
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Energy Fund
Financial Highlights
Admiral Shares
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | July 31, | Year Ended January 31, | |||||
Throughout Each Period | 2020 | 2020 | 2019 | 2018 | 2017 | 2016 | |
Net Asset Value, Beginning of Period | $81.18 | $89.77 | $104.35 | $98.88 | $75.85 | $96.69 | |
Investment Operations | |||||||
Net Investment Income | 1.6471 | 2.9261 | 2.5111 | 2.8151,2 | 1.918 | 2.113 | |
Net Realized and Unrealized Gain (Loss) on Investments | (22.455) | (8.512) | (14.600) | 5.730 | 23.035 | (20.872) | |
Total from Investment Operations | (20.808) | (5.586) | (12.089) | 8.545 | 24.953 | (18.759) | |
Distributions | |||||||
Dividends from Net Investment Income | (.102) | (3.004) | (2.491) | (3.075) | (1.923) | (2.081) | |
Distributions from Realized Capital Gains | — | — | — | — | — | — | |
Total Distributions | (.102) | (3.004) | (2.491) | (3.075) | (1.923) | (2.081) | |
Net Asset Value, End of Period | $60.27 | $81.18 | $89.77 | $104.35 | $98.88 | $75.85 | |
Total Return3 | -25.61% | -6.50% | -11.40% | 8.84% | 32.83% | -19.48% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $3,141 | $4,388 | $5,606 | $6,796 | $7,231 | $5,428 | |
Ratio of Total Expenses to Average Net Assets4 | 0.27% | 0.24% | 0.29% | 0.30% | 0.33% | 0.31% | |
Ratio of Net Investment Income to Average Net Assets | 5.35% | 3.28% | 2.50% | 2.94%2 | 2.05% | 2.26% | |
Portfolio Turnover Rate | 16% | 48% | 31% | 24% | 29% | 23% |
The expense ratio and net investment income ratio for the current period have been annualized.
1 | Calculated based on average shares outstanding. |
2 | Net investment income per share and the ratio of net investment income to average net assets include $.643 and 0.67%, respectively, from income received as a result of the 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 | Includes performance-based investment advisory fee increases (decreases) of (0.04%), (0.06%), (0.01%), 0.00%, 0.03%, and 0.03%. |
See accompanying Notes, which are an integral part of the Financial Statements.
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Energy Fund
Notes to Financial Statements
Vanguard Energy 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. Each of the share classes has different eligibility and minimum purchase requirements, and is designed for different types of investors.
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. Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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
14
Energy Fund
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. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. 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 gains (losses) on futures contracts.
During the six months ended July 31, 2020, 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 (January 31, 2017–2020), and for the period ended July 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
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 before the opening of the market 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,
15
Energy Fund
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. Collateral investments in Vanguard Market Liquidity Fund are subject to market appreciation or depreciation. 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.
8. Credit Facilities and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be utilized for temporary or emergency purposes, subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn committed 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 either facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread, except that borrowings under the uncommitted credit facility may bear interest based upon an alternative rate agreed to by the fund and Vanguard.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended July 31, 2020, the fund did not utilize the credit facilities or the Interfund Lending Program.
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 are amortized and accreted, respectively, to interest income over the lives of the respective securities, except for premiums on certain callable debt securities that are amortized to the earliest call date. 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.
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. Foreign capital gains tax is accrued daily based upon net unrealized gains. 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
16
Energy Fund
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.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. The investment advisory firm Wellington Management Company LLP provides investment advisory services to a portion of the fund for a fee calculated at an annual percentage rate of average net assets managed by the advisor. The basic fee is subject to quarterly adjustments based on performance relative to the MSCI ACWI Energy Index for the preceding three years. Vanguard provides investment advisory services to a portion of the fund as described below; the fund paid Vanguard advisory fees of $104,000 for the six months ended July 31, 2020.
For the six months ended July 31, 2020, the aggregate investment advisory fee paid to all advisors represented an effective annual basic rate of 0.15% of the fund’s average net assets, before a decrease of $889,000 (0.04%) based on performance.
In July 2020, the board of trustees approved the restructuring of the investment advisory team of the fund; effective August 17, 2020, Vanguard was removed as an investment advisor to the fund and Wellington Management Company LLP serves as the fund’s sole investment advisor. Additionally, in the fourth quarter of 2020, the fund will change its benchmark to a custom market-capitalization-weighted blend of the MSCI ACWI Energy Index and the MSCI ACWI Utilities Index (the “new benchmark”) to better reflect how Wellington intends to position the fund within the energy industry. At the same time, the new benchmark will begin to be phased in for the purpose of the quarterly performance-based adjustments to the basic fee.
C. 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 and are generally settled twice a month.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At July 31, 2020, the fund had contributed to Vanguard capital in the amount of $207,000, representing less than 0.01% of the fund’s net assets and 0.08% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
17
Energy Fund
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 Schedule of Investments.
The following table summarizes the market value of the fund’s investments and derivatives as of July 31, 2020, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | Total | |
($000) | ($000) | ($000) | ($000) | |
Investments | ||||
Assets | ||||
Common Stocks—United States | 1,825,427 | — | — | 1,825,427 |
Common Stocks—International | 1,133,326 | 1,501,186 | — | 2,634,512 |
Temporary Cash Investments | 103,362 | 54,998 | — | 158,360 |
Total | 3,062,115 | 1,556,184 | — | 4,618,299 |
Derivative Financial Instruments | ||||
Assets | ||||
Futures Contracts1 | 216 | — | — | 216 |
1 Represents variation margin on the last day of the reporting period.
E. As of July 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | |
($000) | |
Tax Cost | 5,080,690 |
Gross Unrealized Appreciation | 765,446 |
Gross Unrealized Depreciation | (1,235,910) |
Net Unrealized Appreciation (Depreciation) | (470,464) |
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at January 31, 2020, the fund had available capital losses totaling $101,333,000 that may be carried forward indefinitely to offset future net capital gains. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending January 31, 2021; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
F. During the six months ended July 31, 2020, the fund purchased $832,892,000 of investment securities and sold $748,476,000 of investment securities, other than temporary cash investments.
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Energy Fund
G. Capital share transactions for each class of shares were:
Six Months Ended | Year Ended | |||||||||
July 31, 2020 | January 31, 2020 | |||||||||
Amount | Shares | Amount | Shares | |||||||
($000 | ) | (000 | ) | ($000 | ) | (000 | ) | |||
Investor Shares | ||||||||||
Issued | 336,714 | 11,109 | 210,156 | 4,436 | ||||||
Issued in Lieu of Cash Distributions | 1,824 | 69 | 59,798 | 1,266 | ||||||
Redeemed | (286,738 | ) | (8,824 | ) | (549,966 | ) | (11,603 | ) | ||
Net Increase (Decrease)—Investor Shares | 51,800 | 2,354 | (280,012 | ) | (5,901 | ) | ||||
Admiral Shares | ||||||||||
Issued | 682,641 | 12,034 | 536,363 | 6,047 | ||||||
Issued in Lieu of Cash Distributions | 5,060 | 102 | 145,329 | 1,640 | ||||||
Redeemed | (835,569 | ) | (14,070 | ) | (1,434,063 | ) | (16,094 | ) | ||
Net Increase (Decrease)—Admiral Shares | (147,868 | ) | (1,934 | ) | (752,371 | ) | (8,407 | ) |
H. Transactions during the period in investments where the issuer is another member of The Vanguard Group were as follows:
Current Period Transactions | ||||||||
Jan. 31, | Proceeds | Realized | July 31, | |||||
2020 | from | Net | Change in | Capital Gain | 2020 | |||
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) | |
Vanguard Energy ETF | 18,183 | — | — | — | (5,991) | 332 | — | 12,192 |
Vanguard Market Liquidity Fund | 105,830 | NA1 | NA1 | (32) | 77 | 322 | — | 103,362 |
Total | 124,013 | — | — | (32) | (5,914) | 654 | — | 115,554 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
I. Management has determined that no other events or transactions occurred subsequent to July 31, 2020, that would require recognition or disclosure in these financial statements.
19
Trustees Approve Advisory Arrangements
At its March 2020 meeting, the board of trustees of Vanguard Energy Fund renewed the fund’s investment advisory arrangements with The Vanguard Group, Inc. (Vanguard), through its Quantitative Equity Group (QEG), and Wellington Management Company LLP (Wellington Management). The board determined that renewing the fund’s advisory arrangements was in the best interests of the fund and its shareholders.
At its July 2020 meeting, the board approved restructuring the fund’s investment team by removing QEG as an investment advisor to the fund, effective August 17, 2020. At the July meeting, the board also approved an amendment to the existing investment advisory agreement with Wellington Management (the Amended Agreement) to reflect a new compensation benchmark. Effective in the fourth quarter of 2020, Wellington Management’s compensation benchmark, the MSCI ACWI Energy Index, will be replaced with a custom market-capitalization-weighted blend of the MSCI ACWI Energy Index and the MSCI ACWI Utilities Index. In connection with its review of the Amended Agreement, the board noted that it most recently approved the renewal of the investment advisory agreement with Wellington Management at the March meeting and that, aside from the change to the compensation benchmark, the terms of the agreement remained the same. The board concluded that the new index is a more suitable index because it better reflects how Wellington Management intends to position the fund within the energy industry. The board determined that QEG’s termination and the Amended Agreement were in the best interests of the fund and its shareholders.
The board based its decisions upon an evaluation of each 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 advisors 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 during 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 the March meeting, the trustees were provided with a memo and materials that summarized the information they received over the course of the year. Prior to the July meeting, the board received information concerning the proposed updated investment strategy, new compensation benchmark, and proposed Amended Agreement. At the meetings, 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 decisions.
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 each advisor. The board considered the following:
20
Vanguard. Vanguard has been managing investments for more than four decades. The Quantitative Equity Group adheres to a sound, disciplined investment management process; the team has considerable experience, stability, and depth. Vanguard has managed a portion of the fund since 2005.
Wellington Management. Founded in 1928, Wellington Management is among the nation’s oldest and most respected institutional investment managers. The investment team uses a bottom-up approach in which stocks are selected based on the advisor’s estimates of fundamental investment value. Fundamental research focuses on the quality of a company’s assets, its internal reinvestment opportunities, and management quality. The firm has advised the fund since its inception in 1984.
At the March meeting, the board concluded that each advisor’s experience, stability, depth, and performance, among other factors, warranted the continuation of the advisory arrangements. At the July meeting, the board reviewed these factors in connection with a proposal to change the fund’s strategy, and concluded it was appropriate to approve the Amended Agreement with Wellington Management serving as the fund’s sole advisor.
Investment performance
The board considered the short- and long-term performance of the fund and each advisor, including any periods of outperformance or underperformance compared with a relevant benchmark index and peer group. At the March meeting, the board concluded that the performance was such that the advisory arrangements should continue. At the July meeting, the board determined that the Amended Agreement with Wellington Management should be approved with Wellington Management serving as the fund’s sole advisor.
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 expense rate was also well below the peer-group average. The board noted that the restructuring of the fund with Wellington Management as sole advisor under the Amended Agreement would cause a small expense ratio increase.
The board did not consider the profitability of Wellington Management in determining whether to approve the advisory fee because Wellington Management is independent of Vanguard and the advisory fee is the result of arm’s-length negotiations. The board does not conduct a profitability analysis of Vanguard because of Vanguard’s unique structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees.
The benefit of economies of scale
The board concluded that the fund’s shareholders benefit from economies of scale because of breakpoints in the fund’s advisory fee schedule for Wellington Management. The breakpoints reduce the effective rate of the fee as the fund’s assets managed by Wellington Management increase. The board also concluded that the fund’s arrangement with Vanguard ensures that the fund will realize economies of scale as it grows, with the cost to shareholders declining as fund assets managed by Vanguard increase.
The board will consider whether to renew Wellington Management’s advisory arrangement again after a one-year period.
21
Liquidity Risk Management
Vanguard funds (except for the money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining investors’ interests in the fund.
Assessment and management of a fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and limiting holdings of illiquid investments.
The board of trustees of Vanguard Specialized Funds approved the appointment of liquidity risk management program administrators responsible for administering Vanguard Energy Fund’s Program and for carrying out the specific responsibilities set forth in the Program, including reporting to the board on at least an annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for the past year (the “Program Administrator Report”). The board has reviewed the Program Administrator Report covering the period from December 1, 2018, through December 31, 2019 (the “Review Period”). The Program Administrator Report stated that during the Review Period the Program operated and was implemented effectively to manage the fund’s liquidity risk.
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Q512 092020 |
Semiannual Report | July 31, 2020
Vanguard Global Capital Cycles Fund
See the inside front cover for important information about access to your fund’s annual and semiannual shareholder reports.
Important information about access to shareholder reports
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your fund’s annual and semiannual shareholder reports will no longer be sent to you by mail, unless you specifically request them. Instead, you will be notified by mail each time a report is posted on the website and will be provided with a link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. You may elect to receive shareholder reports and other communications from the fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with the fund, by calling Vanguard at one of the phone numbers on the back cover of this report or by logging on to vanguard.com.
You may elect to receive paper copies of all future shareholder reports free of charge. If you invest through a financial intermediary, you can contact the intermediary to request that you continue to receive paper copies. If you invest directly with the fund, you can call Vanguard at one of the phone numbers on the back cover of this report or log on to vanguard.com. Your election to receive paper copies will apply to all the funds you hold through an intermediary or directly with Vanguard.
Contents | |
About Your Fund’s Expenses | 1 |
Financial Statements | 4 |
Trustees Approve Advisory Arrangement | 14 |
Liquidity Risk Management | 16 |
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.
1
Six Months Ended July 31, 2020 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
Global Capital Cycles Fund | 1/31/2020 | 7/31/2020 | Period |
Based on Actual Fund Return | $1,000.00 | $1,042.47 | $1.78 |
Based on Hypothetical 5% Yearly Return | 1,000.00 | 1,023.12 | 1.76 |
The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratio for that period is 0.35%. 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 (182/366).
2
Global Capital Cycles Fund
Fund Allocation
As of July 31, 2020
Aerospace & Defense | 5.1% |
Agricultural Products | 2.1 |
Asset Management & Custody Banks | 1.1 |
Building Products | 1.5 |
Coal & Consumable Fuels | 1.7 |
Construction Materials | 2.7 |
Data Processing & Outsourced Services | 2.2 |
Diversified Banks | 2.1 |
Diversified Metals & Mining | 16.6 |
Electric Utilities | 6.4 |
Fertilizers & Agricultural Chemicals | 2.6 |
Gas Utilities | 3.4 |
Gold | 15.2 |
Household Products | 3.7 |
Industrial Machinery | 2.8 |
Integrated Oil & Gas | 3.4 |
Integrated Telecommunication Services | 1.4 |
Internet & Direct Marketing Retail | 2.8 |
Multi-Utilities | 5.8 |
Oil & Gas Exploration & Production | 0.8 |
Pharmaceuticals | 1.4 |
Precious Metals & Minerals | 1.3 |
Property & Casualty Insurance | 4.5 |
Reinsurance | 1.1 |
Semiconductors | 3.2 |
Soft Drinks | 2.1 |
Specialty Chemicals | 1.2 |
Trading Companies & Distributors | 1.8 |
The table reflects the fund’s investments, except for short-term investments and derivatives. 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.
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.
3
Global Capital Cycles Fund
Financial Statements (unaudited)
Schedule of Investments
As of July 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | |||
Value· | |||
Shares | ($000) | ||
Common Stocks (95.2%) | |||
Aerospace & Defense (4.8%) | |||
BWX Technologies Inc. | 606,806 | 33,083 | |
Lockheed Martin Corp. | 50,749 | 19,232 | |
52,315 | |||
Agricultural Products (2.0%) | |||
Archer-Daniels-Midland Co. | 505,515 | 21,651 | |
Asset Management & Custody Banks (1.1%) | |||
BlackRock Inc. | 19,864 | 11,422 | |
Building Products (1.4%) | |||
* | Cie de Saint-Gobain | 405,437 | 14,999 |
Coal & Consumable Fuels (1.6%) | |||
1 | NAC Kazatomprom JSC | 935,375 | 13,601 |
JSC National Atomic Company Kazatomprom GDR | 274,369 | 3,989 | |
17,590 | |||
Construction Materials (2.6%) | |||
LafargeHolcim Ltd. (XPAR) | 380,459 | 17,759 | |
LafargeHolcim Ltd. (XVTX) | 218,500 | 10,337 | |
28,096 | |||
Data Processing & Outsourced Services (2.1%) | |||
Edenred | 225,586 | 11,190 | |
*,1 | Network International Holdings plc | 2,110,057 | 11,138 |
22,328 | |||
Diversified Banks (2.0%) | |||
Bank of America Corp. | 876,888 | 21,817 | |
Diversified Metals & Mining (15.9%) | |||
BHP Group plc ADR | 1,353,433 | 59,159 | |
Anglo American plc | 2,048,420 | 49,588 | |
Rio Tinto plc ADR | 658,838 | 40,215 | |
BHP Group Ltd. | 855,544 | 22,526 | |
171,488 | |||
Electric Utilities (6.0%) | |||
Power Grid Corp. of India Ltd. | 16,270,602 | 38,721 | |
Avangrid Inc. | 533,888 | 26,582 | |
65,303 | |||
Fertilizers & Agricultural Chemicals (2.5%) | |||
Nutrien Ltd. | 428,359 | 13,960 | |
Mosaic Co. | 932,571 | 12,562 | |
26,522 | |||
Gas Utilities (3.2%) | |||
^ | Rubis SCA | 731,394 | 34,501 |
Gold (14.4%) | |||
Barrick Gold Corp. | 2,529,781 | 73,136 | |
Gold Fields Ltd. ADR | 2,856,492 | 37,392 | |
Agnico Eagle Mines Ltd. | 440,017 | 34,977 | |
Newmont Corp. | 152,691 | 10,566 | |
156,071 | |||
Household Products (3.5%) | |||
Procter & Gamble Co. | 286,849 | 37,612 | |
Industrial Machinery (2.6%) | |||
Fortive Corp. | 402,900 | 28,280 | |
Integrated Oil & Gas (3.2%) | |||
TOTAL SE | 914,242 | 34,598 | |
Integrated Telecommunication Services (1.4%) | |||
China Unicom Hong Kong Ltd. | 26,660,000 | 14,829 | |
Internet & Direct Marketing Retail (2.7%) | |||
* | Alibaba Group Holding Ltd. | 919,400 | 28,847 |
Multi-Utilities (5.5%) | |||
* | Engie SA | 3,796,914 | 50,579 |
National Grid plc | 779,541 | 9,146 | |
59,725 |
4
Global Capital Cycles Fund
Market | |||
Value· | |||
Shares | ($000) | ||
Oil & Gas Exploration & Production (0.8%) | |||
^ | Viper Energy Partners LP | 828,676 | 8,568 |
Pharmaceuticals (1.4%) | |||
Bristol-Myers Squibb Co. | 252,393 | 14,805 | |
Precious Metals & Minerals (1.3%) | |||
Fresnillo plc | 852,053 | 13,838 | |
Property & Casualty Insurance (4.3%) | |||
Intact Financial Corp. | 422,543 | 46,133 | |
Reinsurance (1.0%) | |||
* | Enstar Group Ltd. | 66,827 | 11,224 |
Semiconductors (3.0%) | |||
Taiwan Semiconductor Manufacturing Co. Ltd. ADR | 285,030 | 22,486 | |
Marvell Technology Group Ltd. | 282,122 | 10,289 | |
32,775 | |||
Soft Drinks (2.0%) | |||
Coca-Cola European Partners plc | 525,847 | 21,649 | |
Specialty Chemicals (1.2%) | |||
*,^ | Livent Corp. | 2,046,095 | 12,829 |
Trading Companies & Distributors (1.7%) | |||
Brenntag AG | 292,611 | 18,058 | |
Total Common Stocks (Cost $944,637) | 1,027,873 | ||
Temporary Cash Investment (5.2%) | |||
Money Market Fund (5.2%) | |||
2,3 | Vanguard Market Liquidity Fund, 0.194% (Cost $56,126) | 561,307 | 56,131 |
Total Investments (100.4%) (Cost $1,000,763) | 1,084,004 | ||
Other Assets and Liabilities—Net (-0.4%) | (3,785) | ||
Net Assets (100%) | 1,080,219 |
Cost is in $000.
· | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
^ | Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $3,305,000. |
1 | 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 July 31, 2020, the aggregate value of these securities was $24,739,000, representing 2.3% 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 | Collateral of $3,680,000 was received for securities on loan. |
ADR—American Depositary Receipt.
GDR—Global Depositary Receipt.
See accompanying Notes, which are an integral part of the Financial Statements.
5
Global Capital Cycles Fund
Statement of Assets and Liabilities
As of July 31, 2020
($000s, except shares and per-share amounts) | Amount |
Assets | |
Investments in Securities, at Value | |
Unaffiliated Issuers (Cost $944,637) | 1,027,873 |
Affiliated Issuers (Cost $56,126) | 56,131 |
Total Investments in Securities | 1,084,004 |
Investment in Vanguard | 45 |
Receivables for Investment Securities Sold | 9,179 |
Receivables for Accrued Income | 1,083 |
Receivables for Capital Shares Issued | 687 |
Total Assets | 1,094,998 |
Liabilities | |
Foreign Currency Due to Custodian, at Value (Proceeds $9,465) | 9,392 |
Payables for Investment Securities Purchased | 5 |
Collateral for Securities on Loan | 3,680 |
Payables to Investment Advisor | 299 |
Payables for Capital Shares Redeemed | 1,283 |
Payables to Vanguard | 120 |
Total Liabilities | 14,779 |
Net Assets | 1,080,219 |
At July 31, 2020, net assets consisted of:
Paid-in Capital | 3,418,911 |
Total Distributable Earnings (Loss) | (2,338,692) |
Net Assets | 1,080,219 |
Net Assets | |
Applicable to 130,302,137 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 1,080,219 |
Net Asset Value Per Share | $8.29 |
See accompanying Notes, which are an integral part of the Financial Statements.
6
Global Capital Cycles Fund
Statement of Operations
Six Months Ended | |
July 31, 2020 | |
($000) | |
Investment Income | |
Income | |
Dividends1 | 18,619 |
Interest2 | 145 |
Securities Lending—Net | 100 |
Total Income | 18,864 |
Expenses | |
Investment Advisory Fees—Note B | |
Basic Fee | 736 |
Performance Adjustment | (122) |
The Vanguard Group—Note C | |
Management and Administrative | 1,024 |
Marketing and Distribution | 45 |
Custodian Fees | 57 |
Shareholders’ Reports | 32 |
Trustees’ Fees and Expenses | 2 |
Total Expenses | 1,774 |
Net Investment Income | 17,090 |
Realized Net Gain (Loss) | |
Investment Securities Sold2 | (36,939) |
Foreign Currencies | 225 |
Realized Net Gain (Loss) | (36,714) |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities2 | 42,430 |
Foreign Currencies | 106 |
Change in Unrealized Appreciation (Depreciation) | 42,536 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 22,912 |
1 | Dividends are net of foreign withholding taxes of $998,000. |
2 | Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $146,000, $1,000, and $3,000, respectively. Purchases and sales are for temporary cash investment purposes. |
See accompanying Notes, which are an integral part of the Financial Statements.
7
Global Capital Cycles Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | ||
July 31, | January 31, | ||
2020 | 2020 | ||
($000 | ) | ($000) | |
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 17,090 | 35,453 | |
Realized Net Gain (Loss) | (36,714 | ) | (37,364) |
Change in Unrealized Appreciation (Depreciation) | 42,536 | 95,274 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | 22,912 | 93,363 | |
Distributions1 | |||
Total Distributions | (1,953 | ) | (30,515) |
Capital Share Transactions | |||
Issued | 84,433 | 171,647 | |
Issued in Lieu of Cash Distributions | 1,720 | 26,951 | |
Redeemed | (239,311 | ) | (448,234) |
Net Increase (Decrease) from Capital Share Transactions | (153,158 | ) | (249,636) |
Total Increase (Decrease) | (132,199 | ) | (186,788) |
Net Assets | |||
Beginning of Period | 1,212,418 | 1,399,206 | |
End of Period | 1,080,219 | 1,212,418 |
1 | Certain prior period numbers have been reclassified to conform with current period presentation. |
See accompanying Notes, which are an integral part of the Financial Statements.
8
Global Capital Cycles Fund
Financial Highlights
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | July 31, | Year Ended January 31, | |||||
Throughout Each Period | 2020 | 2020 | 2019 | 2018 | 2017 | 2016 | |
Net Asset Value, Beginning of Period | $7.97 | $7.62 | $10.57 | $10.74 | $6.22 | $9.59 | |
Investment Operations | |||||||
Net Investment Income1 | .123 | .212 | .122 | .049 | .0662 | .1753 | |
Net Realized and Unrealized Gain (Loss) on Investments | .211 | .337 | (2.858) | (.217) | 4.615 | (3.397) | |
Total from Investment Operations | .334 | .549 | (2.736) | (.168) | 4.681 | (3.222) | |
Distributions | |||||||
Dividends from Net Investment Income | (.014 | ) | (.199) | (.214) | (.002) | (.161) | (.148) |
Distributions from Realized Capital Gains | — | — | — | — | — | — | |
Total Distributions | (.014 | ) | (.199) | (.214) | (.002) | (.161) | (.148) |
Net Asset Value, End of Period | $8.29 | $7.97 | $7.62 | $10.57 | $10.74 | $6.22 | |
Total Return4 | 4.25% | 7.11% | -26.17% | -1.56% | 75.99% | -34.07% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $1,080 | $1,212 | $1,399 | $2,568 | $2,612 | $1,465 | |
Ratio of Total Expenses to Average Net Assets5 | 0.35% | 0.38% | 0.33% | 0.36% | 0.43% | 0.35% | |
Ratio of Net Investment Income to Average Net Assets | 3.39% | 2.68% | 1.38% | 0.47% | 0.65%2 | 2.22%3 | |
Portfolio Turnover Rate | 29% | 56% | 110% | 35% | 29% | 8% |
The expense ratio and net investment income ratio for the current period have been annualized.
1 | Calculated based on average shares outstanding. |
2 | Net investment income per share and the ratio of net investment income to average net assets include $.012 and 0.12%, respectively, resulting from a special dividend from Lucara Diamond Corp. in September 2016. |
3 | Net investment income per share and the ratio of net investment income to average net assets include $.037 and 0.47%, respectively, resulting from a spin-off from BHP Billiton plc in May 2015. |
4 | 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. |
5 | Includes performance-based investment advisory fee increases (decreases) of (0.02%), 0.00%, (0.04%), 0.00%, 0.06%, and (0.02%). |
See accompanying Notes, which are an integral part of the Financial Statements.
9
Global Capital Cycles Fund
Notes to Financial Statements
Vanguard Global Capital Cycles 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. Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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.
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. 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 (January 31, 2017–2020), and for the period ended July 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
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.
10
Global Capital Cycles Fund
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 before the opening of the market 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 Assets and Liabilities for the return of the collateral, during the period the securities are on loan. Collateral investments in Vanguard Market Liquidity Fund are subject to market appreciation or depreciation. 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 Facilities and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be utilized for temporary or emergency purposes, subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn committed 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 either facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread, except that borrowings under the uncommitted credit facility may bear interest based upon an alternative rate agreed to by the fund and Vanguard.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended July 31, 2020, the fund did not utilize the credit facilities or the Interfund Lending Program.
11
Global Capital Cycles Fund
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.
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.
B. Wellington Management Company LLP provides investment advisory services to the fund for a fee calculated at an annual percentage rate of average net assets. In accordance with the advisory contract entered into with Wellington Management Company LLP, beginning February 1, 2020, the investment advisory fee will be subject to quarterly adjustments based on performance relative to the Custom Global Capital Cycles Index since January 31, 2019. For the six months ended July 31, 2020, the investment advisory fee represented an effective annual basic rate of 0.15% of the fund’s average net assets, before a decrease of $122,000 (0.02%) based on performance.
C. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund corporate management, administrative, marketing, 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 and are generally settled twice a month.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At July 31, 2020, the fund had contributed to Vanguard capital in the amount of $45,000, representing less than 0.01% of the fund’s net assets and 0.02% of Vanguard’s capital received pursuant to the FSA. 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 Schedule of Investments.
12
Global Capital Cycles Fund
The following table summarizes the market value of the fund’s investments as of July 31, 2020, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | Total | |
($000) | ($000) | ($000) | ($000) | |
Investments | ||||
Assets | ||||
Common Stocks | 629,629 | 398,244 | — | 1,027,873 |
Temporary Cash Investments | 56,131 | — | — | 56,131 |
Total | 685,760 | 398,244 | — | 1,084,004 |
E. As of July 31, 2020, gross unrealized appreciation and depreciation for investments based on cost for U.S. federal income tax purposes were as follows:
Amount | |
($000) | |
Tax Cost | 1,000,763 |
Gross Unrealized Appreciation | 176,895 |
Gross Unrealized Depreciation | (93,654) |
Net Unrealized Appreciation (Depreciation) | 83,241 |
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at January 31, 2020, the fund had available capital losses totaling $2,399,475,000 that may be carried forward indefinitely to offset future net capital gains. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending January 31, 2021; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
F. During the six months ended July 31, 2020, the fund purchased $289,553,000 of investment securities and sold $436,336,000 of investment securities, other than temporary cash investments.
G. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | ||
July 31, 2020 | January 31, 2020 | ||
Shares | Shares | ||
(000) | (000) | ||
Issued | 11,640 | 21,681 | |
Issued in Lieu of Cash Distributions | 278 | 3,259 | |
Redeemed | (33,654) | (56,526) | |
Net Increase (Decrease) in Shares Outstanding | (21,736) | (31,586) |
H. Management has determined that no events or transactions occurred subsequent to July 31, 2020, that would require recognition or disclosure in these financial statements.
13
Trustees Approve Advisory Arrangement
The board of trustees of Vanguard Global Capital Cycles Fund (formerly known as Vanguard Precious Metals and Mining Fund) has renewed the fund’s investment advisory arrangement with Wellington Management Company LLP (Wellington Management). The board determined that renewing the fund’s investment advisory arrangement 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 during 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 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 investment management services provided to the fund since Wellington Management began managing the fund in September 2018 and took into account the organizational depth and stability of the advisor. The board considered that Wellington Management, founded in 1928, is among the nation’s oldest and most respected institutional investment managers. The advisor follows a global equity strategy that seeks to provide investors with uncorrelated returns to other asset classes through a blend of capital cycle and enduring assets. Identification of potential investments begins with the capital cycles framework, which seeks companies that are positioned to succeed through unique and superior business models and healthy balance sheets in sectors and industries where there is capital destruction, consolidation, or retrenchment of investment. Valuation and quality factors such as discount to intrinsic value, cash generation, capital expenditure, and future capital deployment opportunities are considered.
The board concluded that the advisor’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangement.
Investment performance
The board considered the performance of Wellington Management since it began managing the fund in 2018, including any periods of outperformance or underperformance compared with a relevant benchmark index and peer group. The board concluded that the performance was such that the advisory arrangement should continue.
14
Cost
The board concluded that the fund’s expense ratio was well below the average expense ratio charged by funds in its peer group and that the fund’s advisory fee rate was also well below the peer-group average.
The board did not consider the profitability of Wellington Management in determining whether to approve the advisory fee because Wellington Management is independent of Vanguard and the advisory fee is the result of arm’s-length negotiations.
The benefit of economies of scale
The board concluded that the fund’s shareholders benefit from economies of scale because of breakpoints in the advisory fee schedule for Wellington Management. The breakpoints reduce the effective rate of the fee as the fund’s assets increase.
The board will consider whether to renew the advisory arrangement again after a one-year period.
15
Liquidity Risk Management
Vanguard funds (except for the money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining investors’ interests in the fund.
Assessment and management of a fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and limiting holdings of illiquid investments.
The board of trustees of Vanguard Specialized Funds approved the appointment of liquidity risk management program administrators responsible for administering Vanguard Global Capital Cycles Fund’s Program and for carrying out the specific responsibilities set forth in the Program, including reporting to the board on at least an annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for the past year (the “Program Administrator Report”). The board has reviewed the Program Administrator Report covering the period from December 1, 2018, through December 31, 2019 (the “Review Period”). The Program Administrator Report stated that during the Review Period the Program operated and was implemented effectively to manage the fund’s liquidity risk.
16
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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, www.sec.gov. In addition, you may obtain a free report on how your fund voted the proxies for securities it owned during the 12 months ended June 30. To get the report, visit either vanguard.com/proxyreporting or www.sec.gov.
You can review information about your fund on the SEC’s website, and you can receive copies of this information, for a fee, by sending a request via email addressed to publicinfo@sec.gov.
© 2020 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q532 092020 |
Semiannual Report | July 31, 2020
Vanguard Health Care Fund
|
See the inside front cover for important information about access to your fund’s annual and semiannual shareholder reports.
|
Important information about access to shareholder reports
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your fund’s annual and semiannual shareholder reports will no longer be sent to you by mail, unless you specifically request them. Instead, you will be notified by mail each time a report is posted on the website and will be provided with a link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. You may elect to receive shareholder reports and other communications from the fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with the fund, by calling Vanguard at one of the phone numbers on the back cover of this report or by logging on to vanguard.com.
You may elect to receive paper copies of all future shareholder reports free of charge. If you invest through a financial intermediary, you can contact the intermediary to request that you continue to receive paper copies. If you invest directly with the fund, you can call Vanguard at one of the phone numbers on the back cover of this report or log on to vanguard.com. Your election to receive paper copies will apply to all the funds you hold through an intermediary or directly with Vanguard.
Contents | |
About Your Fund’s Expenses | 1 |
Financial Statements | 4 |
Trustees Approve Advisory Arrangement | 19 |
Liquidity Risk Management | 21 |
About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table illustrates your fund’s costs in two ways:
● Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading “Expenses Paid During Period.”
● Based on hypothetical 5% yearly return. This section is intended to help you compare your fund’s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.
1
Six Months Ended July 31, 2020 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
Health Care Fund | 1/31/2020 | 7/31/2020 | Period |
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $1,091.39 | $1.61 |
Admiral™ Shares | 1,000.00 | 1,091.66 | 1.35 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,023.32 | $1.56 |
Admiral Shares | 1,000.00 | 1,023.57 | 1.31 |
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 0.31% for Investor Shares and 0.26% 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 (182/366).
2
Health Care Fund
Fund Allocation
As of July 31, 2020
Biotechnology | 18.2% |
Health Care Distributors | 0.5 |
Health Care Equipment | 17.8 |
Health Care Facilities | 3.1 |
Health Care Services | 0.5 |
Health Care Supplies | 0.4 |
Health Care Technology | 1.5 |
Life Sciences Tools & Services | 5.4 |
Managed Health Care | 11.5 |
Pharmaceuticals | 40.9 |
Real Estate | 0.2 |
The table reflects the fund’s investments, except for short-term investments and derivatives. 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.
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.
3
Health Care Fund
Financial Statements (unaudited)
Schedule of Investments
As of July 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | |||
Value· | |||
Shares | ($000) | ||
Common Stocks (97.1%) | |||
United States (68.6%) | |||
Biotechnology (14.5%) | |||
* | Regeneron Pharmaceuticals Inc. | 2,556,310 | 1,615,767 |
*,1 | Alnylam Pharmaceuticals Inc. | 8,117,856 | 1,183,259 |
* | Incyte Corp. | 10,484,320 | 1,035,431 |
* | Biogen Inc. | 3,714,536 | 1,020,346 |
* | Vertex Pharmaceuticals Inc. | 3,180,526 | 865,103 |
*,1 | Bluebird Bio Inc. | 5,338,722 | 324,060 |
*,1 | Agios Pharmaceuticals Inc. | 6,435,516 | 291,658 |
* | Seattle Genetics Inc. | 1,535,007 | 255,226 |
*,1 | Alkermes plc | 13,605,397 | 245,033 |
*,1 | Ironwood Pharmaceuticals Inc. Class A | 10,902,066 | 99,972 |
* | Sarepta Therapeutics Inc. | 463,410 | 71,143 |
* | Mirati Therapeutics Inc. | 500,588 | 60,726 |
* | PTC Therapeutics Inc. | 868,354 | 40,231 |
7,107,955 | |||
Equity Real Estate Investment Trusts (REITs) (0.2%) | |||
Alexandria Real Estate Equities Inc. | 439,900 | 78,104 | |
Health Care Equipment & Supplies (15.1%) | |||
Abbott Laboratories | 14,700,393 | 1,479,448 | |
* | Boston Scientific Corp. | 36,684,218 | 1,414,910 |
Danaher Corp. | 5,640,599 | 1,149,554 | |
Medtronic plc | 7,966,321 | 768,591 | |
* | Edwards Lifesciences Corp. | 9,400,502 | 737,093 |
Baxter International Inc. | 6,195,573 | 535,174 | |
Stryker Corp. | 2,649,219 | 512,094 | |
Teleflex Inc. | 608,837 | 227,157 | |
* | Intuitive Surgical Inc. | 291,269 | 199,647 |
* | Hologic Inc. | 1,827,072 | 127,493 |
* | Envista Holdings Corp. | 4,293,456 | 93,898 |
* | Penumbra Inc. | 414,598 | 92,004 |
Hill-Rom Holdings Inc. | 618,200 | 60,101 | |
7,397,164 | |||
Health Care Providers & Services (15.0%) | |||
UnitedHealth Group Inc. | 9,095,277 | 2,753,868 | |
Anthem Inc. | 4,679,915 | 1,281,361 | |
HCA Healthcare Inc. | 7,140,216 | 904,237 | |
Humana Inc. | 1,655,355 | 649,644 | |
* | Centene Corp. | 9,573,772 | 624,689 |
Universal Health Services Inc. Class B | 3,564,112 | 391,696 | |
McKesson Corp. | 1,671,201 | 250,948 | |
* | Laboratory Corp. of America Holdings | 1,113,189 | 214,756 |
* | Acadia Healthcare Co. Inc. | 4,337,455 | 129,299 |
* | Molina Healthcare Inc. | 657,961 | 121,525 |
Encompass Health Corp. | 568,400 | 38,697 | |
7,360,720 | |||
Health Care Technology (1.5%) | |||
Cerner Corp. | 9,158,457 | 636,055 | |
*,1 | Allscripts Healthcare Solutions Inc. | 9,845,231 | 88,607 |
724,662 | |||
Life Sciences Tools & Services (4.6%) | |||
Thermo Fisher Scientific Inc. | 3,347,387 | 1,385,651 | |
Agilent Technologies Inc. | 3,049,141 | 293,724 | |
* | Illumina Inc. | 449,450 | 171,762 |
* | IQVIA Holdings Inc. | 950,511 | 150,551 |
* | PRA Health Sciences Inc. | 1,412,629 | 150,530 |
* | PPD Inc. | 3,307,722 | 97,148 |
* | Syneos Health Inc. | 475,600 | 29,672 |
2,279,038 | |||
Pharmaceuticals (17.7%) | |||
Pfizer Inc. | 72,260,247 | 2,780,574 | |
Bristol-Myers Squibb Co. | 34,778,476 | 2,040,105 | |
Eli Lilly and Co. | 10,711,173 | 1,609,782 |
4
Health Care Fund
Market | |||
Value· | |||
Shares | ($000) | ||
*,1 | Mylan NV | 50,185,811 | 808,494 |
Merck & Co. Inc. | 5,732,246 | 459,956 | |
* | Elanco Animal Health Inc. | 15,310,149 | 361,779 |
*,1 | Nektar Therapeutics Class A | 13,392,612 | 296,780 |
* | Reata Pharmaceuticals Inc. Class A | 930,096 | 137,375 |
* | Royalty Pharma plc Class A | 3,053,455 | 131,451 |
* | Amneal Pharmaceuticals Inc. | 9,306,210 | 40,296 |
8,666,592 | |||
Total United States | 33,614,235 | ||
International (28.5%) | |||
Belgium (3.7%) | |||
1 | UCB SA | 10,327,935 | 1,327,059 |
*,^ | Argenx SE | 1,276,356 | 294,522 |
* | Galapagos NV | 984,983 | 182,932 |
1,804,513 | |||
Brazil (0.0%) | |||
Notre Dame Intermedica Participacoes SA | 1,699,100 | 21,744 | |
China (0.8%) | |||
*,2 | Wuxi Biologics Cayman Inc. | 6,344,000 | 130,965 |
2 | WuXi AppTec Co. Ltd. Class H | 8,198,680 | 123,619 |
Shanghai Fosun Pharmaceutical Group Co. Ltd. Class H | 14,799,500 | 70,100 | |
Shandong Weigao Group Medical Polymer Co. Ltd. Class H | 22,904,000 | 58,327 | |
*,2 | Shanghai Henlius Biotech Inc. Class H | 112,117 | 867 |
383,878 | |||
Denmark (1.8%) | |||
* | Genmab A/S | 1,881,023 | 647,460 |
* | Ascendis Pharma A/S ADR | 942,809 | 129,740 |
* | Genmab A/S ADR | 3,150,246 | 107,707 |
884,907 | |||
Hong Kong (0.4%) | |||
*,^ | BeiGene Ltd. ADR | 950,885 | 198,735 |
Ireland (0.1%) | |||
* | ICON plc | 170,300 | 31,584 |
Japan (9.9%) | |||
1 | Eisai Co. Ltd. | 17,856,177 | 1,441,111 |
Chugai Pharmaceutical Co. Ltd. | 16,417,400 | 741,233 | |
Daiichi Sankyo Co. Ltd. | 7,667,130 | 678,438 | |
Astellas Pharma Inc. | 35,657,000 | 556,177 | |
Ono Pharmaceutical Co. Ltd. | 19,628,460 | 551,705 | |
Takeda Pharmaceutical Co. Ltd. | 9,943,216 | 360,609 | |
Terumo Corp. | 7,859,400 | 297,329 | |
Nippon Shinyaku Co. Ltd. | 1,977,800 | 153,011 | |
Sysmex Corp. | 817,300 | 62,848 | |
4,842,461 | |||
Netherlands (0.9%) | |||
Koninklijke Philips NV | 8,996,518 | 464,859 | |
Switzerland (4.6%) | |||
Novartis AG | 19,912,128 | 1,640,108 | |
Roche Holding AG | 979,798 | 339,360 | |
* | Alcon Inc. | 2,550,401 | 154,144 |
Roche Holding AG (Bearer) | 376,066 | 129,624 | |
2,263,236 | |||
United Kingdom (6.3%) | |||
AstraZeneca plc | 23,927,688 | 2,643,530 | |
Smith & Nephew plc | 13,455,498 | 265,578 | |
Hikma Pharmaceuticals plc | 6,910,934 | 193,652 | |
*,§ | NMC Health plc | 4,851,584 | — |
3,102,760 | |||
Total International | 13,998,677 | ||
Total Common Stocks (Cost $28,893,429) | 47,612,912 | ||
Temporary Cash Investments (2.8%) | |||
Money Market Fund (0.0%) | |||
3,4 | Vanguard Market Liquidity Fund, 0.194% | 153,808 | 15,381 |
5
Health Care Fund
Face | Market | ||
Amount | Value· | ||
($000) | ($000) | ||
Repurchase Agreements (2.8%) | |||
Bank of America Securities, LLC 0.100%, 8/3/20 (Dated 7/31/20, Repurchase Value $28,200,000, collateralized by Government National Mortgage Assn. 2.500%, 7/20/50, with a value of $28,764,000) | 28,200 | 28,200 | |
Bank of Nova Scotia 0.070%, 8/3/20 (Dated 7/31/20, Repurchase Value $410,102,000, collateralized by U.S. Treasury Note/Bond 0.000%–7.875%, 8/31/20–5/15/48, with a value of $418,304,000) | 410,100 | 410,100 | |
Barclays Capital Inc. 0.070%, 8/3/20 (Dated 7/31/20, Repurchase Value $9,100,000, collateralized by U.S. Treasury Note/Bond 2.000%, 5/31/24, with a value of $9,282,000) | 9,100 | 9,100 | |
BNP Paribas Securities Corp. 0.090%, 8/3/20 (Dated 7/31/20, Repurchase Value $119,901,000, collateralized by Federal Home Loan Mortgage Corp. 3.000%–8.000%, 8/1/32–4/1/50, Federal National Mortgage Assn. 2.500%–7.000%, 9/1/26–7/1/50, and Government National Mortgage Assn. 3.000%–6.500%, 11/15/32–4/20/50, with a value of $122,298,000) | 119,900 | 119,900 | |
Credit Agricole Securities 0.070%, 8/3/20 (Dated 7/31/20, Repurchase Value $10,300,000, collateralized by U.S. Treasury Note/Bond 1.125%, 1/15/21, with a value of $10,506,000) | 10,300 | 10,300 | |
HSBC Bank USA 0.090%, 8/3/20 (Dated 7/31/20, Repurchase Value $93,401,000, collateralized by Federal Home Loan Mortgage Corp. 5.500%, 6/1/40, and Federal National Mortgage Assn. 2.500%–7.500%, 5/1/23–8/1/49, with a value of $95,268,000) | 93,400 | 93,400 | |
HSBC Bank USA 0.070%, 8/3/20 (Dated 7/31/20, Repurchase Value $41,600,000, collateralized by U.S. Treasury Note/Bond 0.000%–4.375%, 11/12/20–8/15/41, with a value of $42,432,000) | 41,600 | 41,600 | |
Natixis SA 0.070%, 8/3/20 (Dated 7/31/20, Repurchase Value $160,801,000, collateralized by Federal Home Loan Mortgage Corp. 0.000%, 3/15/29–3/15/31, Federal National Mortgage Assn. 0.000%, 5/15/25–5/15/30, and U.S. Treasury Note/Bond 0.000%–6.625%, 4/15/21–2/15/47, with a value of $164,016,000) | 160,800 | 160,800 |
6
Health Care Fund
Face | Market | ||
Amount | Value· | ||
($000) | ($000) | ||
Nomura International PLC 0.070%, 8/3/20 (Dated 7/31/20, Repurchase Value $203,501,000, collateralized by U.S. Treasury Note/Bond 0.000%–6.875%, 8/27/20–5/15/43, with a value of $207,570,000) | 203,500 | 203,500 | |
RBC Capital Markets LLC 0.080%, 8/3/20 (Dated 7/31/20, Repurchase Value $78,201,000, collateralized by Federal National Mortgage Assn. 2.500%–5.500%, 7/1/28–6/1/50, and Federal Home Loan Mortgage Corp. 3.000%–4.500%, 7/1/42–6/1/50, with a value of $79,764,000) | 78,200 | 78,200 | |
Wells Fargo & Co. 0.100%, 8/3/20 (Dated 7/31/20, Repurchase Value $185,302,000, collateralized by U.S. Treasury Note/Bond. 2.000%–6.250%, 8/15/23–2/15/50, with a value of $189,006,000) | 185,300 | 185,300 | |
1,340,400 | |||
Total Temporary Cash Investments (Cost $1,355,781) | 1,355,781 | ||
Total Investments (99.9%) (Cost $30,249,210) | 48,968,693 |
Amount | |
($000) | |
Other Assets and Liabilities—Net (0.1%) | 33,786 |
Net Assets (100%) | 49,002,479 |
Cost is in $000.
· | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
^ | Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $14,225,000. |
§ | Security value determined using significant unobservable inputs. |
1 | Considered an affiliated company of the fund as the fund owns more than 5% of the outstanding voting securities of such company. |
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 July 31, 2020, the aggregate value of these securities was $255,451,000, representing 0.5% of net assets. |
3 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
4 | Collateral of $15,285,000 was received for securities on loan. |
ADR—American Depositary Receipt.
See accompanying Notes, which are an integral part of the Financial Statements.
7
Health Care Fund
Statement of Assets and Liabilities
As of July 31, 2020
($000s, except shares and per-share amounts) | Amount |
Assets | |
Investments in Securities, at Value | |
Unaffiliated Issuers (Cost $24,110,330) | 42,847,279 |
Affiliated Issuers (Cost $6,138,880) | 6,121,414 |
Total Investments in Securities | 48,968,693 |
Investment in Vanguard | 2,112 |
Cash | 1,810 |
Receivables for Investment Securities Sold | 176,565 |
Receivables for Accrued Income | 106,704 |
Receivables for Capital Shares Issued | 8,636 |
Total Assets | 49,264,520 |
Liabilities | |
Payables for Investment Securities Purchased | 210,862 |
Collateral for Securities on Loan | 15,285 |
Payables to Investment Advisor | 14,284 |
Payables for Capital Shares Redeemed | 17,986 |
Payables to Vanguard | 3,624 |
Total Liabilities | 262,041 |
Net Assets | 49,002,479 |
At July 31, 2020, net assets consisted of: |
Paid-in Capital | 28,253,922 |
Total Distributable Earnings (Loss) | 20,748,557 |
Net Assets | 49,002,479 |
Investor Shares—Net Assets | |
Applicable to 41,933,937 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 9,101,829 |
Net Asset Value Per Share—Investor Shares | $217.05 |
Admiral Shares—Net Assets | |
Applicable to 435,891,440 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 39,900,650 |
Net Asset Value Per Share—Admiral Shares | $91.54 |
See accompanying Notes, which are an integral part of the Financial Statements.
8
Health Care Fund
Statement of Operations
Six Months Ended | |
July 31, 2020 | |
($000) | |
Investment Income | |
Income | |
Dividends—Unaffiliated Issuers1 | 333,566 |
Dividends—Affiliated Issuers2 | 25,010 |
Interest | 2,649 |
Securities Lending—Net | 3,104 |
Total Income | 364,329 |
Expenses | |
Investment Advisory Fees—Note B | |
Basic Fee | 33,126 |
Performance Adjustment | (5,087) |
The Vanguard Group—Note C | |
Management and Administrative—Investor Shares | 7,548 |
Management and Administrative—Admiral Shares | 25,031 |
Marketing and Distribution—Investor Shares | 342 |
Marketing and Distribution—Admiral Shares | 586 |
Custodian Fees | 356 |
Shareholders’ Reports—Investor Shares | 125 |
Shareholders’ Reports—Admiral Shares | 92 |
Trustees’ Fees and Expenses | 38 |
Total Expenses | 62,157 |
Net Investment Income | 302,172 |
Realized Net Gain (Loss) | |
Investment Securities Sold—Unaffiliated Issuers | 1,827,790 |
Investment Securities Sold—Affiliated Issuers | 5,180 |
Foreign Currencies | (1,105) |
Realized Net Gain (Loss) | 1,831,865 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities—Unaffiliated Issuers | 1,416,646 |
Investment Securities—Affiliated Issuers | 466,230 |
Foreign Currencies | 2,479 |
Change in Unrealized Appreciation (Depreciation) | 1,885,355 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 4,019,392 |
1 | Dividends are net of foreign withholding taxes of $13,205,000. |
2 | Dividends are net of foreign withholding taxes of $5,805,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
9
Health Care Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | ||
July 31, | January 31, | ||
2020 | 2020 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 302,172 | 587,650 | |
Realized Net Gain (Loss) | 1,831,865 | 4,235,291 | |
Change in Unrealized Appreciation (Depreciation) | 1,885,355 | 793,607 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | 4,019,392 | 5,616,548 | |
Distributions1 | |||
Investor Shares | (206,987) | (1,020,974) | |
Admiral Shares | (910,658) | (4,439,397) | |
Total Distributions | (1,117,645) | (5,460,371) | |
Capital Share Transactions | |||
Investor Shares | (170,567) | (145,595) | |
Admiral Shares | (584,204) | 107,728 | |
Net Increase (Decrease) from Capital Share Transactions | (754,771) | (37,867) | |
Total Increase (Decrease) | 2,146,976 | 118,310 | |
Net Assets | |||
Beginning of Period | 46,855,503 | 46,737,193 | |
End of Period | 49,002,479 | 46,855,503 |
1 | Certain prior period numbers have been reclassified to conform with current period presentation. |
See accompanying Notes, which are an integral part of the Financial Statements.
10
Health Care Fund
Financial Highlights
Investor Shares
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | July 31, | Year Ended January 31, | |||||
Throughout Each Period | 2020 | 2020 | 2019 | 2018 | 2017 | 2016 | |
Net Asset Value, Beginning of Period | $204.57 | $203.34 | $215.96 | $189.88 | $200.67 | $216.14 | |
Investment Operations | |||||||
Net Investment Income | 1.2871 | 2.5061 | 2.3751 | 2.1621 | 2.039 | 1.934 | |
Net Realized and Unrealized Gain (Loss) on Investments | 16.166 | 23.326 | 2.489 | 38.929 | 2.951 | .566 | |
Total from Investment Operations | 17.453 | 25.832 | 4.864 | 41.091 | 4.990 | 2.500 | |
Distributions | |||||||
Dividends from Net Investment Income | (.096) | (2.428) | (2.323) | (2.059) | (1.854) | (2.611) | |
Distributions from Realized Capital Gains | (4.877) | (22.174) | (15.161) | (12.952) | (13.926) | (15.359) | |
Total Distributions | (4.973) | (24.602) | (17.484) | (15.011) | (15.780) | (17.970) | |
Net Asset Value, End of Period | $217.05 | $204.57 | $203.34 | $215.96 | $189.88 | $200.67 | |
Total Return2 | 9.14% | 13.16% | 2.76% | 22.29% | 2.71% | 0.49% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $9,102 | $8,729 | $8,850 | $9,853 | $9,636 | $10,916 | |
Ratio of Total Expenses to Average Net Assets3 | 0.31% | 0.32% | 0.34% | 0.38% | 0.37% | 0.36% | |
Ratio of Net Investment Income to Average Net Assets | 1.28% | 1.25% | 1.12% | 1.02% | 0.98% | 0.84% | |
Portfolio Turnover Rate | 12% | 18% | 16% | 11% | 12% | 18% |
The expense ratio and net investment income ratio for the current period have been annualized.
1 | Calculated based on average shares outstanding. |
2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
3 | Includes performance-based investment advisory fee increases (decreases) of (0.02%), (0.02%), 0.00%, 0.04%, 0.04%, and 0.02%. |
See accompanying Notes, which are an integral part of the Financial Statements.
11
Health Care Fund
Financial Highlights
Admiral Shares
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | July 31, | Year Ended January 31, | |||||
Throughout Each Period | 2020 | 2020 | 2019 | 2018 | 2017 | 2016 | |
Net Asset Value, Beginning of Period | $86.27 | $85.75 | $91.08 | $80.09 | $84.64 | $91.17 | |
Investment Operations | |||||||
Net Investment Income | .5641 | 1.0971 | 1.0361 | .9381 | .908 | .868 | |
Net Realized and Unrealized Gain (Loss) on Investments | 6.816 | 9.844 | 1.057 | 16.436 | 1.244 | .236 | |
Total from Investment Operations | 7.380 | 10.941 | 2.093 | 17.374 | 2.152 | 1.104 | |
Distributions | |||||||
Dividends from Net Investment Income | (.053) | (1.068) | (1.027) | (.920) | (.828) | (1.155) | |
Distributions from Realized Capital Gains | (2.057) | (9.353) | (6.396) | (5.464) | (5.874) | (6.479) | |
Total Distributions | (2.110) | (10.421) | (7.423) | (6.384) | (6.702) | (7.634) | |
Net Asset Value, End of Period | $91.54 | $86.27 | $85.75 | $91.08 | $80.09 | $84.64 | |
Total Return2 | 9.17% | 13.22% | 2.81% | 22.35% | 2.76% | 0.54% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $39,901 | $38,126 | $37,888 | $39,214 | $33,715 | $36,606 | |
Ratio of Total Expenses to Average Net Assets3 | 0.26% | 0.27% | 0.28% | 0.33% | 0.32% | 0.31% | |
Ratio of Net Investment Income to Average Net Assets | 1.33% | 1.30% | 1.18% | 1.07% | 1.03% | 0.89% | |
Portfolio Turnover Rate | 12% | 18% | 16% | 11% | 12% | 18% |
The expense ratio and net investment income ratio for the current period have been annualized.
1 | Calculated based on average shares outstanding. |
2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
3 | Includes performance-based investment advisory fee increases (decreases) of (0.02%), (0.02%), 0.00%, 0.04%, 0.04%, and 0.02%. |
See accompanying Notes, which are an integral part of the Financial Statements.
12
Health Care Fund
Notes to Financial Statements
Vanguard Health Care 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. Each of the share classes has different eligibility and minimum purchase requirements, and is designed for different types of investors.
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. Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. 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
13
Health Care Fund
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.
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 (January 31, 2017–2020), and for the period ended July 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
6. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled before the opening of the market 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 Assets and Liabilities for the return of the collateral, during the period the securities are on loan. Collateral investments in Vanguard Market Liquidity Fund are subject to market appreciation or depreciation. 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 Facilities and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be utilized for temporary or emergency purposes, subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility;
14
Health Care Fund
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 either facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread, except that borrowings under the uncommitted credit facility may bear interest based upon an alternative rate agreed to by the fund and Vanguard.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended July 31, 2020, the fund did not utilize the credit facilities or the Interfund Lending Program.
8. Other: Dividend income is recorded on the ex-dividend date. Premiums and discounts on debt securities are amortized and accreted, respectively, to interest income over the lives of the respective securities, except for premiums on certain callable debt securities that are amortized to the earliest call date. 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.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. Wellington Management Company LLP provides investment advisory services to the fund for a fee calculated at an annual percentage rate of average net assets. The basic fee is subject to quarterly adjustments based on the fund’s performance relative to the MSCI ACWI Health Care
15
Health Care Fund
Index for the preceding three years. For the six months ended July 31, 2020, the investment advisory fee represented an effective annual basic rate of 0.14% of the fund’s average net assets before a decrease of $5,087,000 (0.02%) based on performance.
C. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund corporate management, administrative, marketing, 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 and are generally settled twice a month.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At July 31, 2020, the fund had contributed to Vanguard capital in the amount of $2,112,000, representing less than 0.01% of the fund’s net assets and 0.84% of Vanguard’s capital received pursuant to the FSA. 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 Schedule of Investments.
The following table summarizes the market value of the fund’s investments as of July 31, 2020, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | �� | Total | ||||
($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | |
Investments | ||||||||
Assets | ||||||||
Common Stocks—United States | 33,614,235 | — | — | 33,614,235 | ||||
Common Stocks—International | 489,510 | 13,509,167 | — | 13,998,677 | ||||
Temporary Cash Investments | 15,381 | 1,340,400 | — | 1,355,781 | ||||
Total | 34,119,126 | 14,849,567 | — | 48,968,693 |
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Health Care Fund
E. As of July 31, 2020, gross unrealized appreciation and depreciation for investments based on cost for U.S. federal income tax purposes were as follows:
Amount | |||
($000 | ) | ||
Tax Cost | 30,329,119 | ||
Gross Unrealized Appreciation | 21,633,679 | ||
Gross Unrealized Depreciation | (2,994,105 | ) | |
Net Unrealized Appreciation (Depreciation) | 18,639,574 |
F. During the six months ended July 31, 2020, the fund purchased $5,432,922,000 of investment securities and sold $7,212,152,000 of investment securities, other than temporary cash investments.
G. Capital share transactions for each class of shares were:
Six Months Ended | Year Ended | ||||||||
July 31, 2020 | January 31, 2020 | ||||||||
Amount | Shares | Amount | Shares | ||||||
($000 | ) | (000) | ($000 | ) | (000 | ) | |||
Investor Shares | |||||||||
Issued | 547,938 | 2,770 | 597,477 | 2,991 | |||||
Issued in Lieu of Cash Distributions | 194,909 | 1,122 | 960,801 | 4,742 | |||||
Redeemed | (913,414 | ) | (4,631) | (1,703,873 | ) | (8,580 | ) | ||
Net Increase (Decrease)—Investor Shares | (170,567 | ) | (739) | (145,595 | ) | (847 | ) | ||
Admiral Shares | |||||||||
Issued | 1,065,524 | 12,703 | 1,115,698 | 13,215 | |||||
Issued in Lieu of Cash Distributions | 805,226 | 10,997 | 3,932,657 | 46,023 | |||||
Redeemed | (2,454,954 | ) | (29,770) | (4,940,627 | ) | (59,104 | ) | ||
Net Increase (Decrease)—Admiral Shares | (584,204 | ) | (6,070) | 107,728 | 134 |
17
Health Care Fund
H. Certain of the fund’s investments are in companies that are considered to be affiliated companies of the fund because the fund owns more than 5% of the outstanding voting securities of the company or the issuer is another member of The Vanguard Group. Transactions during the period in securities of these companies were as follows:
Current Period Transactions | ||||||||||
Jan. 31, | Proceeds | Realized | July 31, | |||||||
2020 | from | Net | Change in | Capital Gain | 2020 | |||||
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) | ||
Agios Pharmaceuticals Inc. | 313,603 | — | — | — | (21,945) | — | — | 291,658 | ||
Alkermes plc | 232,465 | 3,802 | — | — | 8,766 | — | — | 245,033 | ||
Allscripts Healthcare Solutions Inc. | 84,472 | — | — | — | 4,135 | — | — | 88,607 | ||
Alnylam Pharmaceuticals Inc. | 1,064,513 | — | 168,178 | 58,181 | 228,743 | — | — | 1,183,259 | ||
Bluebird Bio Inc. | 366,946 | 38,682 | — | — | (81,568) | — | — | 324,060 | ||
Eisai Co. Ltd. | 1,391,076 | — | 47,794 | (692) | 98,521 | 12,331 | — | 1,441,111 | ||
Ironwood Pharmaceuticals Inc. | 127,468 | 3,300 | — | — | (30,796) | — | — | 99,972 | ||
Mylan NV | 978,113 | 68,995 | — | — | (238,614) | — | — | 808,494 | ||
Nektar Therapeutics | 266,379 | — | — | — | 30,401 | — | — | 296,780 | ||
Portola Pharmaceuticals Inc. | NA1 | 8,333 | 84,216 | (78,477) | 108,272 | — | — | — | ||
UCB SA | 1,060,486 | — | 119,934 | 26,174 | 360,333 | 12,679 | — | 1,327,059 | ||
Vanguard Market Liquidity Fund | 115,658 | NA2 | NA2 | (6) | (18) | — | — | 15,381 | ||
Total | 6,001,179 | 5,180 | 466,230 | 25,010 | — | 6,121,414 |
1 | Not applicable—at January 31, 2020, the issuer was not an affiliated company of the fund. |
2 | Not applicable—purchases and sales are for temporary cash investment purposes. |
I. Management has determined that no events or transactions occurred subsequent to July 31, 2020, that would require recognition or disclosure in these financial statements.
18
Trustees Approve Advisory Arrangement
The board of trustees of Vanguard Health Care Fund has renewed the fund’s investment advisory arrangement with Wellington Management Company LLP (Wellington Management). The board determined that renewing the fund’s advisory arrangement 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 during 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 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 Wellington Management, founded in 1928, is among the nation’s oldest and most respected institutional investment managers. The portfolio manager is aided by a team of experienced Global Industry Analysts who cover health care industries. This health care team uses intensive fundamental analysis and deep knowledge of health care science and technology to identify companies with high-quality balance sheets, strong management, and the potential for new products that will lead to above-average growth in revenue and earnings. The advisor invests in stocks broadly representing the health care industry, seeking to maintain exposure across five primary subsectors: large-cap biotech/pharmaceuticals, mid-cap biotech/ pharmaceuticals, small-cap biotech/pharmaceuticals, health care services, and medical technology. Wellington Management has advised the fund since its inception in 1984.
The board concluded that the advisor’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 a relevant benchmark index and peer group. The board concluded that the performance was such that the advisory arrangement should continue.
19
Cost
The board concluded that the fund’s expense ratio was well below the average expense ratio charged by funds in its peer group and that the fund’s advisory fee rate was also well below the peer-group average.
The board did not consider the profitability of Wellington Management in determining whether to approve the advisory fee because Wellington Management is independent of Vanguard and the advisory fee is the result of arm’s-length negotiations.
The benefit of economies of scale
The board concluded that the fund’s shareholders benefit from economies of scale because of breakpoints in the fund’s advisory fee schedule for Wellington Management. The breakpoints reduce the effective rate of the fee as the fund’s assets increase.
The board will consider whether to renew the advisory arrangement again after a one-year period.
20
Liquidity Risk Management
Vanguard funds (except for the money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining investors’ interests in the fund.
Assessment and management of a fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and limiting holdings of illiquid investments.
The board of trustees of Vanguard Specialized Funds approved the appointment of liquidity risk management program administrators responsible for administering Vanguard Health Care Fund’s Program and for carrying out the specific responsibilities set forth in the Program, including reporting to the board on at least an annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for the past year (the “Program Administrator Report”). The board has reviewed the Program Administrator Report covering the period from December 1, 2018, through December 31, 2019 (the “Review Period”). The Program Administrator Report stated that during the Review Period the Program operated and was implemented effectively to manage the fund’s liquidity risk.
21
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Q522 092020 |
![](https://capedge.com/proxy/N-CSRS/0001104659-20-109259/imge014a28e1.jpg)
Vanguard Real Estate Index Fund |
Vanguard Real Estate II Index Fund |
• | 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. |
• | Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds. |
Six Months Ended July 31, 2020 | |||
Beginning Account Value 1/31/2020 | Ending Account Value 7/31/2020 | Expenses Paid During Period | |
Based on Actual Fund Return | |||
Real Estate Index Fund | |||
Investor Shares | $1,000.00 | $881.10 | $1.22 |
ETF Shares | 1,000.00 | 881.30 | 0.56 |
AdmiralTM Shares | 1,000.00 | 881.70 | 0.56 |
Institutional Shares | 1,000.00 | 882.00 | 0.47 |
Real Estate II Index Fund | $1,000.00 | $881.90 | $0.37 |
Based on Hypothetical 5% Yearly Return | |||
Real Estate Index Fund | |||
Investor Shares | $1,000.00 | $1,023.57 | $1.31 |
ETF Shares | 1,000.00 | 1,024.27 | 0.60 |
Admiral Shares | 1,000.00 | 1,024.27 | 0.60 |
Institutional Shares | 1,000.00 | 1,024.37 | 0.50 |
Real Estate II Index Fund | $1,000.00 | $1,024.47 | $0.40 |
Diversified Real Estate Activities | 0.1% |
Diversified REITs | 3.5 |
Health Care REITs | 8.3 |
Hotel & Resort REITs | 2.2 |
Industrial REITs | 11.9 |
Office REITs | 7.9 |
Real Estate Development | 0.2 |
Real Estate Operating Companies | 0.2 |
Real Estate Services | 2.4 |
Residential REITs | 13.6 |
Retail REITs | 8.0 |
Specialized REITs | 41.7 |
Shares | Market Value• ($000) | |||||
Equity Real Estate Investment Trusts (REITs) (96.9%) | ||||||
Diversified REITs (3.0%) | ||||||
WP Carey Inc. | 7,692,257 | 548,996 | ||||
VEREIT Inc. | 48,029,316 | 312,671 | ||||
STORE Capital Corp. Class A | 10,340,574 | 244,968 | ||||
PS Business Parks Inc. | 917,760 | 126,605 | ||||
Washington REIT | 3,661,188 | 81,864 | ||||
Global Net Lease Inc. | 3,987,966 | 66,400 | ||||
Essential Properties Realty Trust Inc. | 4,097,660 | 65,972 | ||||
American Assets Trust Inc. | 2,276,364 | 61,462 | ||||
Empire State Realty Trust Inc. Class A | 6,824,509 | 45,042 | ||||
Colony Capital Inc. | 21,680,727 | 41,627 | ||||
iStar Inc. | 3,450,440 | 40,060 | ||||
Alexander & Baldwin Inc. | 3,057,804 | 36,143 | ||||
Gladstone Commercial Corp. | 1,514,348 | 27,561 | ||||
Armada Hoffler Properties Inc. | 2,515,674 | 24,251 | ||||
One Liberty Properties Inc. | 716,913 | 12,166 | ||||
1,735,788 | ||||||
Health Care REITs (7.3%) | ||||||
Welltower Inc. | 18,305,435 | 980,439 | ||||
Ventas Inc. | 16,622,129 | 637,625 | ||||
Healthpeak Properties Inc. | 22,567,491 | 615,867 | ||||
Medical Properties Trust Inc. | 23,225,064 | 467,521 | ||||
1 | Omega Healthcare Investors Inc. | 10,119,707 | 327,676 | |||
Healthcare Trust of America Inc. Class A | 9,662,092 | 266,770 | ||||
Healthcare Realty Trust Inc. | 6,006,244 | 175,983 | ||||
Physicians Realty Trust | 8,785,492 | 158,490 | ||||
Sabra Health Care REIT Inc. | 9,150,824 | 134,883 |
Shares | Market Value• ($000) | |||||
National Health Investors Inc. | 1,987,960 | 123,254 | ||||
CareTrust REIT Inc. | 4,255,423 | 76,683 | ||||
LTC Properties Inc. | 1,772,077 | 65,833 | ||||
Community Healthcare Trust Inc. | 917,292 | 41,948 | ||||
Diversified Healthcare Trust | 10,584,158 | 41,225 | ||||
Universal Health Realty Income Trust | 581,855 | 40,485 | ||||
Global Medical REIT Inc. | 1,837,049 | 21,842 | ||||
New Senior Investment Group Inc. | 3,699,740 | 12,579 | ||||
4,189,103 | ||||||
Hotel & Resort REITs (2.0%) | ||||||
Host Hotels & Resorts Inc. | 31,468,953 | 339,235 | ||||
MGM Growth Properties LLC Class A | 5,855,024 | 160,076 | ||||
Park Hotels & Resorts Inc. | 10,697,126 | 88,465 | ||||
Apple Hospitality REIT Inc. | 9,480,499 | 83,618 | ||||
Sunstone Hotel Investors Inc. | 10,034,761 | 75,060 | ||||
Ryman Hospitality Properties Inc. | 2,324,643 | 74,435 | ||||
Pebblebrook Hotel Trust | 5,837,313 | 61,876 | ||||
RLJ Lodging Trust | 7,514,099 | 60,188 | ||||
Service Properties Trust | 7,330,141 | 49,112 | ||||
DiamondRock Hospitality Co. | 8,935,251 | 41,281 | ||||
Xenia Hotels & Resorts Inc. | 5,018,963 | 39,951 | ||||
Summit Hotel Properties Inc. | 4,694,123 | 24,316 | ||||
Chatham Lodging Trust | 2,093,970 | 10,910 | ||||
CorePoint Lodging Inc. | 1,817,300 | 10,159 | ||||
Hersha Hospitality Trust Class A | 1,560,148 | 7,426 |
Shares | Market Value• ($000) | |||||
Braemar Hotels & Resorts Inc. | 1,337,057 | 3,262 | ||||
1 | Ashford Hospitality Trust Inc. | 440,887 | 1,728 | |||
1,131,098 | ||||||
Industrial REITs (10.4%) | ||||||
Prologis Inc. | 32,947,206 | 3,473,295 | ||||
Duke Realty Corp. | 16,423,740 | 660,070 | ||||
Americold Realty Trust | 8,929,433 | 360,303 | ||||
First Industrial Realty Trust Inc. | 5,664,243 | 248,774 | ||||
Rexford Industrial Realty Inc. | 5,080,629 | 238,434 | ||||
EastGroup Properties Inc. | 1,734,678 | 230,122 | ||||
STAG Industrial Inc. | 6,630,097 | 216,141 | ||||
Terreno Realty Corp. | 3,004,727 | 182,567 | ||||
Lexington Realty Trust | 11,367,523 | 131,863 | ||||
Innovative Industrial Properties Inc. | 949,459 | 98,962 | ||||
Industrial Logistics Properties Trust | 2,904,592 | 61,316 | ||||
Monmouth Real Estate Investment Corp. | 4,143,951 | 59,797 | ||||
5,961,644 | ||||||
Office REITs (6.9%) | ||||||
Alexandria Real Estate Equities Inc. | 5,472,539 | 971,649 | ||||
Boston Properties Inc. | 6,556,268 | 584,098 | ||||
Vornado Realty Trust | 7,249,508 | 250,253 | ||||
Kilroy Realty Corp. | 4,267,531 | 248,669 | ||||
Douglas Emmett Inc. | 7,428,990 | 216,481 | ||||
Cousins Properties Inc. | 6,543,683 | 201,022 | ||||
Highwoods Properties Inc. | 4,627,576 | 177,421 | ||||
Equity Commonwealth | 5,440,653 | 171,761 | ||||
Hudson Pacific Properties Inc. | 6,897,446 | 162,573 | ||||
SL Green Realty Corp. | 3,474,311 | 161,556 | ||||
JBG SMITH Properties | 5,413,217 | 157,037 | ||||
Corporate Office Properties Trust | 4,997,371 | 132,330 | ||||
Piedmont Office Realty Trust Inc. Class A | 5,613,175 | 90,990 | ||||
Brandywine Realty Trust | 7,866,929 | 85,199 | ||||
Easterly Government Properties Inc. | 3,346,813 | 81,830 | ||||
Columbia Property Trust Inc. | 5,134,696 | 61,411 | ||||
Mack-Cali Realty Corp. | 4,036,370 | 58,205 | ||||
Paramount Group Inc. | 8,109,413 | 57,820 | ||||
Office Properties Income Trust | 2,151,473 | 54,110 | ||||
Franklin Street Properties Corp. | 4,787,320 | 25,133 |
Shares | Market Value• ($000) | |||||
2 | City Office REIT Inc. | 2,436,092 | 21,072 | |||
*,3 | New York REIT Liquidating LLC | 1,208 | 15 | |||
3,970,635 | ||||||
Other (12.0%)4 | ||||||
5,6 | Vanguard Real Estate II Index Fund | 351,958,381 | 6,920,283 | |||
Residential REITs (11.9%) | ||||||
AvalonBay Communities Inc. | 6,274,667 | 960,777 | ||||
Equity Residential | 16,596,143 | 890,051 | ||||
Invitation Homes Inc. | 24,176,726 | 720,950 | ||||
Essex Property Trust Inc. | 2,950,339 | 651,258 | ||||
Sun Communities Inc. | 4,160,693 | 623,813 | ||||
Mid-America Apartment Communities Inc. | 5,095,557 | 607,339 | ||||
Equity LifeStyle Properties Inc. | 7,718,055 | 527,298 | ||||
UDR Inc. | 13,137,265 | 475,569 | ||||
Camden Property Trust | 4,340,631 | 394,173 | ||||
American Homes 4 Rent Class A | 12,042,566 | 349,234 | ||||
Apartment Investment & Management Co. Class A | 6,649,425 | 258,131 | ||||
American Campus Communities Inc. | 6,125,961 | 218,329 | ||||
1 | Independence Realty Trust Inc. | 4,575,645 | 52,620 | |||
Investors Real Estate Trust | 540,018 | 39,043 | ||||
NexPoint Residential Trust Inc. | 898,698 | 34,357 | ||||
UMH Properties Inc. | 1,640,812 | 20,182 | ||||
Front Yard Residential Corp. | 2,284,762 | 19,809 | ||||
Preferred Apartment Communities Inc. Class A | 2,072,063 | 14,981 | ||||
6,857,914 | ||||||
Retail REITs (7.0%) | ||||||
Realty Income Corp. | 14,877,579 | 893,399 | ||||
Simon Property Group Inc. | 13,691,469 | 853,663 | ||||
Regency Centers Corp. | 7,483,564 | 307,051 | ||||
1 | National Retail Properties Inc. | 7,654,694 | 271,359 | |||
Federal Realty Investment Trust | 3,208,781 | 244,830 | ||||
Kimco Realty Corp. | 19,281,422 | 214,988 | ||||
Spirit Realty Capital Inc. | 4,570,521 | 157,500 | ||||
Brixmor Property Group Inc. | 13,285,373 | 152,915 | ||||
Agree Realty Corp. | 2,032,000 | 136,083 | ||||
Taubman Centers Inc. | 2,729,904 | 105,702 |
Shares | Market Value• ($000) | |||||
Weingarten Realty Investors | 5,449,313 | 92,965 | ||||
Retail Properties of America Inc. Class A | 9,537,029 | 60,656 | ||||
Urban Edge Properties | 5,407,862 | 56,674 | ||||
Retail Opportunity Investments Corp. | 5,188,161 | 56,395 | ||||
SITE Centers Corp. | 6,911,627 | 50,662 | ||||
Getty Realty Corp. | 1,569,413 | 46,502 | ||||
Acadia Realty Trust | 3,656,758 | 44,027 | ||||
1 | Macerich Co. | 5,031,302 | 38,389 | |||
Kite Realty Group Trust | 3,748,161 | 36,994 | ||||
American Finance Trust Inc. Class A | 4,750,808 | 34,705 | ||||
1 | Tanger Factory Outlet Centers Inc. | 4,145,795 | 26,657 | |||
Alexander's Inc. | 102,590 | 25,831 | ||||
RPT Realty | 3,587,078 | 22,312 | ||||
Saul Centers Inc. | 618,596 | 18,997 | ||||
Urstadt Biddle Properties Inc. Class A | 1,337,328 | 13,119 | ||||
Whitestone REIT | 1,676,330 | 11,064 | ||||
*,1 | Seritage Growth Properties Class A | 1,165,056 | 10,847 | |||
Retail Value Inc. | 750,048 | 9,496 | ||||
1 | Washington Prime Group Inc. | 8,382,785 | 6,152 | |||
1 | Pennsylvania REIT | 2,957,175 | 3,489 | |||
Cedar Realty Trust Inc. | 3,939,568 | 3,205 | ||||
*,3 | Spirit MTA REIT | 2,071,263 | 1,590 | |||
Urstadt Biddle Properties Inc. | 16,033 | 136 | ||||
4,008,354 | ||||||
Specialized REITs (36.4%) | ||||||
American Tower Corp. | 19,752,430 | 5,163,088 | ||||
Crown Castle International Corp. | 18,542,034 | 3,090,957 | ||||
Equinix Inc. | 3,810,203 | 2,992,838 | ||||
1 | Digital Realty Trust Inc. | 11,080,576 | 1,778,876 | |||
SBA Communications Corp. Class A | 4,991,850 | 1,555,161 | ||||
Public Storage | 6,814,617 | 1,362,106 | ||||
Weyerhaeuser Co. | 33,236,059 | 924,295 | ||||
Extra Space Storage Inc. | 5,531,814 | 571,658 | ||||
CyrusOne Inc. | 5,127,620 | 427,746 | ||||
VICI Properties Inc. | 17,886,485 | 388,316 | ||||
1 | Iron Mountain Inc. | 12,829,154 | 361,654 | |||
Gaming & Leisure Properties Inc. | 9,285,270 | 336,220 | ||||
CubeSmart | 8,644,199 | 256,473 | ||||
Lamar Advertising Co. Class A | 3,838,165 | 252,282 | ||||
CoreSite Realty Corp. | 1,680,607 | 216,882 | ||||
Life Storage Inc. | 2,082,240 | 204,330 | ||||
QTS Realty Trust Inc. Class A | 2,594,466 | 186,672 |
Shares | Market Value• ($000) | |||||
Rayonier Inc. | 5,766,196 | 160,185 | ||||
PotlatchDeltic Corp. | 3,002,788 | 128,549 | ||||
EPR Properties | 3,502,805 | 100,285 | ||||
Outfront Media Inc. | 6,426,330 | 92,603 | ||||
National Storage Affiliates Trust | 2,660,550 | 81,998 | ||||
Uniti Group Inc. | 8,185,457 | 81,036 | ||||
Four Corners Property Trust Inc. | 3,121,177 | 78,654 | ||||
GEO Group Inc. | 5,403,577 | 57,440 | ||||
CoreCivic Inc. | 5,303,916 | 47,258 | ||||
Safehold Inc. | 533,175 | 26,888 | ||||
CatchMark Timber Trust Inc. Class A | 2,187,175 | 21,347 | ||||
Jernigan Capital Inc. | 1,036,961 | 14,528 | ||||
CorEnergy Infrastructure Trust Inc. | 612,228 | 5,363 | ||||
20,965,688 | ||||||
Total Equity Real Estate Investment Trusts (REITs) (Cost $53,549,775) | 55,740,507 | |||||
Real Estate Management & Development (2.6%) | ||||||
Diversified Real Estate Activities (0.1%) | ||||||
* | St. Joe Co. | 1,458,382 | 30,057 | |||
RMR Group Inc. Class A | 679,675 | 19,548 | ||||
* | Tejon Ranch Co. | 988,012 | 14,178 | |||
* | Five Point Holdings LLC Class A | 2,304,242 | 11,060 | |||
74,843 | ||||||
Real Estate Development (0.2%) | ||||||
* | Howard Hughes Corp. | 1,840,817 | 97,913 | |||
* | Forestar Group Inc. | 750,247 | 12,987 | |||
110,900 | ||||||
Real Estate Operating Companies (0.2%) | ||||||
Kennedy-Wilson Holdings Inc. | 5,708,119 | 84,708 | ||||
Real Estate Services (2.1%) | ||||||
* | CBRE Group Inc. Class A | 14,923,990 | 653,820 | |||
Jones Lang LaSalle Inc. | 2,301,458 | 227,637 | ||||
* | Redfin Corp. | 3,243,793 | 134,877 | |||
* | Cushman & Wakefield plc | 4,881,688 | 52,234 | |||
Realogy Holdings Corp. | 5,104,992 | 46,251 | ||||
* | Marcus & Millichap Inc. | 1,048,441 | 28,560 | |||
Newmark Group Inc. Class A | 6,726,252 | 27,376 | ||||
RE/MAX Holdings Inc. Class A | 799,352 | 25,875 | ||||
*,1 | eXp World Holdings Inc. | 1,154,814 | 22,946 | |||
*,1 | Altisource Portfolio Solutions SA | 241,388 | 3,242 | |||
1,222,818 | ||||||
Total Real Estate Management & Development (Cost $2,034,350) | 1,493,269 |
Shares | Market Value• ($000) | |||||
Temporary Cash Investments (0.8%) | ||||||
Money Market Fund (0.8%) | ||||||
7,8 | Vanguard Market Liquidity Fund, 0.194% (Cost $435,765) | 4,358,859 | 435,886 | |||
Total Investments (100.3%) (Cost $56,019,890) | 57,669,662 | |||||
Other Assets and Liabilities—Net (-0.3%) | (169,296) | |||||
Net Assets (100%) | 57,500,366 |
Cost is in $000. | |
• | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
1 | Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $198,169,000. |
2 | Considered an affiliated company of the fund as the fund owns more than 5% of the outstanding voting securities of such company. |
3 | Security value determined using significant unobservable inputs. |
4 | “Other” represents securities that are not classified by the fund’s benchmark index. |
5 | Considered an affiliated company of the fund as the issuer is another member of The Vanguard Group. |
6 | Represents a wholly owned subsidiary of the fund. See accompanying financial statements for Vanguard Real Estate II Index Fund's Schedule of Investments. |
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 | Collateral of $216,429,000 was received for securities on loan. |
REIT—Real Estate Investment Trust. |
Over-the-Counter Total Return Swaps | ||||||
Reference Entity | Termination Date | Counterparty | Notional Amount ($000) | Floating Interest Rate Received (Paid)1 (%) | Value and Unrealized Appreciation ($000) | Value and Unrealized (Depreciation) ($000) |
Digital Realty Trust Inc. | 2/2/21 | GSI | 91,404 | (0.181) | 10,373 | — |
Extra Space Storage Inc. | 2/2/21 | GSI | 24,520 | (0.181) | 1,313 | — |
Hannon Armstrong Sustainable Infrastructure Capital Inc. | 2/2/21 | GSI | 6,682 | (0.181) | 324 | — |
Over-the-Counter Total Return Swaps (continued) | ||||||
Reference Entity | Termination Date | Counterparty | Notional Amount ($000) | Floating Interest Rate Received (Paid)1 (%) | Value and Unrealized Appreciation ($000) | Value and Unrealized (Depreciation) ($000) |
Public Storage | 2/2/21 | GSI | 38,560 | (0.181) | 1,413 | — |
Redfin Corp. | 2/2/21 | GSI | 26,096 | (0.181) | 3,008 | — |
Seritage Growth Properties | 2/2/21 | GSI | 4,261 | (0.181) | — | (574) |
VICI Properties Inc. | 2/2/21 | GSI | 63,570 | (0.181) | 1,555 | — |
17,986 | (574) |
1 Based on 1-month USD London Interbank Offered Rate (LIBOR) as of the most recent payment date. Floating interest payment received/paid monthly. |
GSI—Goldman Sachs International. |
($000s, except shares and per-share amounts) | Amount |
Assets | |
Investments in Securities, at Value | |
Unaffiliated Issuers (Cost $48,710,630) | 50,292,421 |
Affiliated Issuers (Cost $464,603) | 456,958 |
Vanguard Real Estate II Index Fund (Cost $6,844,657) | 6,920,283 |
Total Investments in Securities | 57,669,662 |
Investment in Vanguard | 2,185 |
Cash | 28,790 |
Receivables for Investment Securities Sold | 23,987 |
Receivables for Accrued Income | 21,316 |
Receivables for Capital Shares Issued | 17,924 |
Unrealized Appreciation—Over-the-Counter Swap Contracts | 17,986 |
Total Assets | 57,781,850 |
Liabilities | |
Payables for Investment Securities Purchased | 29,848 |
Collateral for Securities on Loan | 216,429 |
Payables for Capital Shares Redeemed | 31,555 |
Payables to Vanguard | 3,078 |
Unrealized Depreciation—Over-the-Counter Swap Contracts | 574 |
Total Liabilities | 281,484 |
Net Assets | 57,500,366 |
Statement of Assets and Liabilities (continued) | |
At July 31, 2020, net assets consisted of: | |
($000s, except shares and per-share amounts) | Amount |
Paid-in Capital | 56,918,260 |
Total Distributable Earnings (Loss) | 582,106 |
Net Assets | 57,500,366 |
Investor Shares—Net Assets | |
Applicable to 7,026,537 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 189,974 |
Net Asset Value Per Share—Investor Shares | $27.04 |
ETF Shares—Net Assets | |
Applicable to 358,425,632 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 29,166,021 |
Net Asset Value Per Share—ETF Shares | $81.37 |
Admiral Shares—Net Assets | |
Applicable to 166,680,355 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 19,222,325 |
Net Asset Value Per Share—Admiral Shares | $115.32 |
Institutional Shares—Net Assets | |
Applicable to 499,855,848 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 8,922,046 |
Net Asset Value Per Share—Institutional Shares | $17.85 |
Six Months Ended July 31, 2020 | |
($000) | |
Investment Income | |
Income | |
Dividends—Unaffiliated Issuers | 720,724 |
Dividends—Affiliated Issuers | 5,368 |
Dividends—Vanguard Real Estate II Index Fund | 104,882 |
Interest—Affiliated Issuers | 549 |
Securities Lending—Net | 4,353 |
Total Income | 835,876 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 1,373 |
Management and Administrative—Investor Shares | 224 |
Management and Administrative—ETF Shares | 14,707 |
Management and Administrative—Admiral Shares | 9,773 |
Management and Administrative—Institutional Shares | 3,636 |
Marketing and Distribution—Investor Shares | 13 |
Marketing and Distribution—ETF Shares | 697 |
Marketing and Distribution—Admiral Shares | 523 |
Marketing and Distribution—Institutional Shares | 132 |
Custodian Fees | 209 |
Shareholders’ Reports—Investor Shares | 7 |
Shareholders’ Reports—ETF Shares | 931 |
Shareholders’ Reports—Admiral Shares | 233 |
Shareholders’ Reports—Institutional Shares | 64 |
Trustees’ Fees and Expenses | 20 |
Total Expenses | 32,542 |
Expenses Paid Indirectly | (124) |
Net Expenses | 32,418 |
Net Investment Income | 803,458 |
Realized Net Gain (Loss) | |
Capital Gain Distributions Received—Unaffiliated Issuers | 93,272 |
Capital Gain Distributions Received—Affiliated Issuers | 795 |
Capital Gain Distributions Received—Vanguard Real Estate II Index Fund | — |
Investment Securities Sold—Unaffiliated Issuers1 | 513,276 |
Investment Securities Sold—Affiliated Issuers1 | (36,067) |
Investment Securities Sold—Vanguard Real Estate II Index Fund | — |
Futures Contracts | (3,901) |
Swap Contracts | (6,284) |
Realized Net Gain (Loss) | 561,091 |
Statement of Operations (continued) | |
Six Months Ended July 31, 2020 | |
($000) | |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities—Unaffiliated Issuers | (9,438,525) |
Investment Securities—Affiliated Issuers | (172,756) |
Investment Securities—Vanguard Real Estate II Index Fund | (1,032,220) |
Swap Contracts | 18,863 |
Change in Unrealized Appreciation (Depreciation) | (10,624,638) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (9,260,089) |
1 | Includes $1,333,090,000 of the net gain (loss) resulting from in-kind redemptions. |
Six Months Ended July 31, 2020 | Year Ended January 31, 2020 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 803,458 | 1,726,391 | |
Realized Net Gain (Loss) | 561,091 | 2,458,391 | |
Change in Unrealized Appreciation (Depreciation) | (10,624,638) | 5,911,672 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | (9,260,089) | 10,096,454 | |
Distributions1 | |||
Investor Shares | (3,308) | (22,650) | |
ETF Shares | (530,941) | (921,879) | |
Admiral Shares | (339,878) | (554,006) | |
Institutional Shares | (151,945) | (244,373) | |
Return of Capital | |||
Investor Shares | — | (7,475) | |
ETF Shares | — | (304,249) | |
Admiral Shares | — | (182,839) | |
Institutional Shares | — | (80,651) | |
Total Distributions | (1,026,072) | (2,318,122) | |
Capital Share Transactions | |||
Investor Shares | (19,424) | (1,748,144) | |
ETF Shares | (2,811,487) | 2,721,882 | |
Admiral Shares | (820,154) | 2,583,346 | |
Institutional Shares | 211,313 | 734,197 | |
Net Increase (Decrease) from Capital Share Transactions | (3,439,752) | 4,291,281 | |
Total Increase (Decrease) | (13,725,913) | 12,069,613 | |
Net Assets | |||
Beginning of Period | 71,226,279 | 59,156,666 | |
End of Period | 57,500,366 | 71,226,279 |
1 | Certain prior period numbers have been reclassed to conform with current period presentation. |
Investor Shares | �� | |||||
For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2020 | Year Ended January 31, | ||||
2020 | 2019 | 2018 | 2017 | 2016 | ||
Net Asset Value, Beginning of Period | $31.21 | $27.69 | $26.40 | $27.38 | $25.59 | $28.73 |
Investment Operations | ||||||
Net Investment Income | .3461 | .7191 | .7871 | .7611 | .746 | .711 |
Net Realized and Unrealized Gain (Loss) on Investments | (4.070) | 3.801 | 1.639 | (.614) | 2.324 | (2.851) |
Total from Investment Operations | (3.724) | 4.520 | 2.426 | .147 | 3.070 | (2.140) |
Distributions | ||||||
Dividends from Net Investment Income | (.446) | (.752) | (.851) | (.788) | (.752) | (.695) |
Distributions from Realized Capital Gains | — | — | — | (.011) | (.187) | — |
Return of Capital | — | (.248) | (.285) | (.328) | (.341) | (.305) |
Total Distributions | (.446) | (1.000) | (1.136) | (1.127) | (1.280) | (1.000) |
Net Asset Value, End of Period | $27.04 | $31.21 | $27.69 | $26.40 | $27.38 | $25.59 |
Total Return2 | -11.89% | 16.59% | 9.53% | 0.45% | 12.07% | -7.44% |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $190 | $243 | $1,871 | $2,143 | $2,603 | $2,621 |
Ratio of Total Expenses to Average Net Assets | 0.26% | 0.26% | 0.25% | 0.26% | 0.26% | 0.26% |
Ratio of Net Investment Income to Average Net Assets | 2.63% | 2.48% | 3.02% | 2.87% | 2.60% | 2.66% |
Portfolio Turnover Rate3 | 3% | 6% | 24% | 6% | 7% | 11% |
The expense ratio and net investment income ratio for the current period have been annualized. |
1 | Calculated based on average shares outstanding. |
2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
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. |
ETF Shares | ||||||
For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2020 | Year Ended January 31, | ||||
2020 | 2019 | 2018 | 2017 | 2016 | ||
Net Asset Value, Beginning of Period | $93.93 | $83.36 | $79.47 | $82.43 | $77.05 | $86.49 |
Investment Operations | ||||||
Net Investment Income | 1.1121 | 2.3351 | 2.4871 | 2.4991 | 2.334 | 2.217 |
Net Realized and Unrealized Gain (Loss) on Investments | (12.265) | 11.379 | 4.934 | (1.945) | 7.022 | (8.533) |
Total from Investment Operations | (11.153) | 13.714 | 7.421 | .554 | 9.356 | (6.316) |
Distributions | ||||||
Dividends from Net Investment Income | (1.407) | (2.364) | (2.646) | (2.458) | (2.353) | (2.170) |
Distributions from Realized Capital Gains | — | — | — | (.034) | (.563) | — |
Return of Capital | — | (.780) | (.885) | (1.022) | (1.060) | (.954) |
Total Distributions | (1.407) | (3.144) | (3.531) | (3.514) | (3.976) | (3.124) |
Net Asset Value, End of Period | $81.37 | $93.93 | $83.36 | $79.47 | $82.43 | $77.05 |
Total Return | -11.87% | 16.70% | 9.70% | 0.59% | 12.25% | -7.31% |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $29,166 | $37,682 | $30,857 | $32,377 | $33,527 | $27,007 |
Ratio of Total Expenses to Average Net Assets | 0.12% | 0.12% | 0.12% | 0.12% | 0.12% | 0.12% |
Ratio of Net Investment Income to Average Net Assets | 2.80% | 2.60% | 3.15% | 3.01% | 2.74% | 2.80% |
Portfolio Turnover Rate2 | 3% | 6% | 24% | 6% | 7% | 11% |
The expense ratio and net investment income ratio for the current period have been annualized. |
1 | Calculated based on average shares outstanding. |
2 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
Admiral Shares | ||||||
For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2020 | Year Ended January 31, | ||||
2020 | 2019 | 2018 | 2017 | 2016 | ||
Net Asset Value, Beginning of Period | $133.12 | $118.14 | $112.63 | $116.83 | $109.19 | $122.58 |
Investment Operations | ||||||
Net Investment Income | 1.5551 | 3.3151 | 3.5071 | 3.5381 | 3.306 | 3.142 |
Net Realized and Unrealized Gain (Loss) on Investments | (17.362) | 16.121 | 7.008 | (2.761) | 9.966 | (12.105) |
Total from Investment Operations | (15.807) | 19.436 | 10.515 | .777 | 13.272 | (8.963) |
Distributions | ||||||
Dividends from Net Investment Income | (1.993) | (3.350) | (3.751) | (3.483) | (3.333) | (3.076) |
Distributions from Realized Capital Gains | — | — | — | (.048) | (.798) | — |
Return of Capital | — | (1.106) | (1.254) | (1.447) | (1.501) | (1.351) |
Total Distributions | (1.993) | (4.456) | (5.005) | (4.978) | (5.632) | (4.427) |
Net Asset Value, End of Period | $115.32 | $133.12 | $118.14 | $112.63 | $116.83 | $109.19 |
Total Return2 | -11.83% | 16.73% | 9.69% | 0.58% | 12.23% | -7.30% |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $19,222 | $23,274 | $18,223 | $17,757 | $18,337 | $15,029 |
Ratio of Total Expenses to Average Net Assets | 0.12% | 0.12% | 0.11% | 0.12% | 0.12% | 0.12% |
Ratio of Net Investment Income to Average Net Assets | 2.77% | 2.60% | 3.16% | 3.01% | 2.74% | 2.80% |
Portfolio Turnover Rate3 | 3% | 6% | 24% | 6% | 7% | 11% |
The expense ratio and net investment income ratio for the current period have been annualized. |
1 | Calculated based on average shares outstanding. |
2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
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. |
Institutional Shares | ||||||
For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2020 | Year Ended January 31, | ||||
2020 | 2019 | 2018 | 2017 | 2016 | ||
Net Asset Value, Beginning of Period | $20.60 | $18.28 | $17.43 | $18.08 | $16.90 | $18.97 |
Investment Operations | ||||||
Net Investment Income | .2421 | .5181 | .5431 | .5681 | .515 | .489 |
Net Realized and Unrealized Gain (Loss) on Investments | (2.682) | 2.496 | 1.085 | (.444) | 1.540 | (1.870) |
Total from Investment Operations | (2.440) | 3.014 | 1.628 | .124 | 2.055 | (1.381) |
Distributions | ||||||
Dividends from Net Investment Income | (.310) | (.522) | (.583) | (.542) | (.519) | (.479) |
Distributions from Realized Capital Gains | — | — | — | (.007) | (.123) | — |
Return of Capital | — | (.172) | (.195) | (.225) | (.233) | (.210) |
Total Distributions | (.310) | (.694) | (.778) | (.774) | (.875) | (.689) |
Net Asset Value, End of Period | $17.85 | $20.60 | $18.28 | $17.43 | $18.08 | $16.90 |
Total Return | -11.80% | 16.77% | 9.70% | 0.60% | 12.23% | -7.27% |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $8,922 | $10,027 | $8,206 | $8,176 | $7,799 | $6,785 |
Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.09% | 0.10% | 0.10% | 0.10% |
Ratio of Net Investment Income to Average Net Assets | 2.79% | 2.63% | 3.18% | 3.03% | 2.76% | 2.82% |
Portfolio Turnover Rate2 | 3% | 6% | 24% | 6% | 7% | 11% |
The expense ratio and net investment income ratio for the current period have been annualized. |
1 | Calculated based on average shares outstanding. |
2 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
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. |
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 and are generally settled twice a month. |
C. | The fund’s custodian bank has agreed to reduce its fees when the fund maintains cash on deposit in the non-interest-bearing custody account. For the six months ended July 31, 2020, custodian fee offset arrangements reduced the fund’s expenses by $124,000 (an annual rate of less than 0.01% 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 ($000) | Level 2 ($000) | Level 3 ($000) | Total ($000) | |
Investments | ||||
Assets | ||||
Common Stocks | 57,232,171 | — | 1,605 | 57,233,776 |
Temporary Cash Investments | 435,886 | — | — | 435,886 |
Total | 57,668,057 | — | 1,605 | 57,669,662 |
Derivative Financial Instruments | ||||
Assets | ||||
Swap Contracts | — | 17,986 | — | 17,986 |
Liabilities | ||||
Swap Contracts | — | 574 | — | 574 |
E. | As of July 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows: |
Amount ($000) | |
Tax Cost | 56,110,995 |
Gross Unrealized Appreciation | 11,388,681 |
Gross Unrealized Depreciation | (9,812,602) |
Net Unrealized Appreciation (Depreciation) | 1,576,079 |
F. | During the six months ended July 31, 2020, the fund purchased $5,773,862,000 of investment securities and sold $9,314,536,000 of investment securities, other than temporary cash investments. Purchases and sales include $3,767,593,000 and $6,607,729,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares. |
G. | Capital share transactions for each class of shares were: |
Six Months Ended July 31, 2020 | Year Ended January 31, 2020 | ||||
Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
Investor Shares | |||||
Issued | 9,259 | 341 | 395,906 | 13,631 | |
Issued in Lieu of Cash Distributions | 3,308 | 125 | 28,280 | 981 | |
Redeemed1 | (31,991) | (1,233) | (2,172,330) | (74,391) | |
Net Increase (Decrease)—Investor Shares | (19,424) | (767) | (1,748,144) | (59,779) | |
ETF Shares | |||||
Issued | 4,140,510 | 47,351 | 10,501,566 | 118,494 | |
Issued in Lieu of Cash Distributions | — | — | — | — | |
Redeemed | (6,951,997) | (90,100) | (7,779,684) | (87,500) | |
Net Increase (Decrease)—ETF Shares | (2,811,487) | (42,749) | 2,721,882 | 30,994 | |
Admiral Shares | |||||
Issued1 | 1,753,770 | 15,842 | 5,327,904 | 42,120 | |
Issued in Lieu of Cash Distributions | 298,052 | 2,644 | 647,759 | 5,156 | |
Redeemed | (2,871,976) | (26,638) | (3,392,317) | (26,697) | |
Net Increase (Decrease)—Admiral Shares | (820,154) | (8,152) | 2,583,346 | 20,579 | |
Institutional Shares | |||||
Issued | 940,012 | 55,794 | 2,004,257 | 102,367 | |
Issued in Lieu of Cash Distributions | 143,493 | 8,234 | 306,680 | 15,790 | |
Redeemed | (872,192) | (50,829) | (1,576,740) | (80,293) | |
Net Increase (Decrease)—Institutional Shares | 211,313 | 13,199 | 734,197 | 37,864 |
1 | In November 2018, the fund announced changes to the availability and minimum investment criteria of the Investor and Admiral share classes. As a result, all of the outstanding Investor Shares automatically converted to Admiral Shares beginning in April 2019, with the exception of those held by Vanguard funds and certain other institutional investors. Investor Shares—Redeemed and Admiral Shares—Issued include 57,968,000 and 13,589,000 shares, respectively, in the amount of $1,688,895,000 from the conversion during the year ended January 31, 2020. |
H. | Certain of the fund’s investments are in companies that are considered to be affiliated companies of the fund because the fund owns more than 5% of the outstanding voting securities of the company or the issuer is another member of The Vanguard Group. Transactions during the period in securities of these companies were as follows: |
Current Period Transactions | ||||||||
Jan. 31, 2020 Market Value ($000) | Purchases at Cost ($000) | Proceeds from Securities Sold1 ($000) | Realized Net Gain (Loss) ($000) | Change in Unrealized App. (Dep.) ($000) | Income ($000) | Capital Gain Distributions Received ($000) | Jul. 31, 2020 Market Value ($000) | |
City Office REIT Inc. | NA2 | 2,129 | 5,161 | (719) | (11,142) | — | — | 21,072 |
Host Hotels & Resorts Inc. | 586,395 | 38,120 | 88,109 | (34,634) | (162,537) | 5,368 | 795 | NA3 |
Vanguard Market Liquidity Fund | 561,293 | NA4 | NA4 | 156 | 53 | 549 | — | 435,886 |
Vanguard Real Estate II Index Fund | 7,847,621 | 104,882 | — | — | (1,032,220) | 104,882 | — | 6,920,283 |
Winthrop Realty Trust | — | — | — | (870) | 870 | — | — | — |
Total | 8,995,309 | 145,131 | 93,270 | (36,067) | (1,204,976) | 110,799 | 795 | 7,377,241 |
1 | Does not include adjustments related to return of capital. |
2 | Not applicable—at January 31, 2020, the issuer was not an affiliated company of the fund. |
3 | Not applicable—at July 31, 2020, the security was still held, but the issuer was no longer an affiliated company of the fund. |
4 | Not applicable—purchases and sales are for temporary cash investment purposes. |
I. | Management has determined that no events or transactions occurred subsequent to July 31, 2020, that would require recognition or disclosure in these financial statements. |
Diversified Real Estate Activities | 0.2% |
Diversified REITs | 3.4 |
Health Care REITs | 8.3 |
Hotel & Resort REITs | 2.2 |
Industrial REITs | 11.8 |
Office REITs | 7.9 |
Real Estate Development | 0.2 |
Real Estate Operating Companies | 0.2 |
Real Estate Services | 2.5 |
Residential REITs | 13.6 |
Retail REITs | 7.9 |
Specialized REITs | 41.8 |
Shares | Market Value• ($000) | |||||
Equity Real Estate Investment Trusts (REITs) (96.8%) | ||||||
Diversified REITs (3.4%) | ||||||
WP Carey Inc. | 1,050,978 | 75,008 | ||||
VEREIT Inc. | 6,572,017 | 42,784 | ||||
STORE Capital Corp. Class A | 1,414,562 | 33,511 | ||||
PS Business Parks Inc. | 125,540 | 17,318 | ||||
Washington REIT | 500,690 | 11,195 | ||||
Global Net Lease Inc. | 549,252 | 9,145 | ||||
Essential Properties Realty Trust Inc. | 560,930 | 9,031 | ||||
American Assets Trust Inc. | 311,237 | 8,403 | ||||
Empire State Realty Trust Inc. Class A | 930,204 | 6,139 | ||||
Colony Capital Inc. | 2,972,224 | 5,707 | ||||
iStar Inc. | 471,495 | 5,474 | ||||
Alexander & Baldwin Inc. | 418,217 | 4,943 | ||||
Gladstone Commercial Corp. | 206,791 | 3,764 | ||||
Armada Hoffler Properties Inc. | 343,968 | 3,316 | ||||
One Liberty Properties Inc. | 97,551 | 1,656 | ||||
237,394 | ||||||
Health Care REITs (8.3%) | ||||||
Welltower Inc. | 2,503,475 | 134,086 | ||||
Ventas Inc. | 2,274,778 | 87,261 | ||||
Healthpeak Properties Inc. | 3,083,369 | 84,145 | ||||
Medical Properties Trust Inc. | 3,178,081 | 63,975 | ||||
Omega Healthcare Investors Inc. | 1,382,611 | 44,769 | ||||
Healthcare Trust of America Inc. Class A | 1,321,945 | 36,499 | ||||
Healthcare Realty Trust Inc. | 821,789 | 24,078 | ||||
Physicians Realty Trust | 1,202,118 | 21,686 | ||||
Sabra Health Care REIT Inc. | 1,253,719 | 18,480 | ||||
National Health Investors Inc. | 272,186 | 16,876 | ||||
CareTrust REIT Inc. | 582,363 | 10,494 | ||||
LTC Properties Inc. | 243,422 | 9,043 | ||||
Community Healthcare Trust Inc. | 125,545 | 5,741 | ||||
Diversified Healthcare Trust | 1,451,109 | 5,652 | ||||
Universal Health Realty Income Trust | 79,765 | 5,550 |
Shares | Market Value• ($000) | |||||
Global Medical REIT Inc. | 251,236 | 2,987 | ||||
New Senior Investment Group Inc. | 506,273 | 1,721 | ||||
573,043 | ||||||
Hotel & Resort REITs (2.2%) | ||||||
Host Hotels & Resorts Inc. | 4,306,137 | 46,420 | ||||
MGM Growth Properties LLC Class A | 801,118 | 21,903 | ||||
Park Hotels & Resorts Inc. | 1,463,235 | 12,101 | ||||
Apple Hospitality REIT Inc. | 1,296,569 | 11,436 | ||||
Sunstone Hotel Investors Inc. | 1,372,342 | 10,265 | ||||
Ryman Hospitality Properties Inc. | 318,106 | 10,186 | ||||
Pebblebrook Hotel Trust | 798,684 | 8,466 | ||||
RLJ Lodging Trust | 1,026,525 | 8,222 | ||||
Service Properties Trust | 1,003,099 | 6,721 | ||||
DiamondRock Hospitality Co. | 1,221,796 | 5,645 | ||||
Xenia Hotels & Resorts Inc. | 687,912 | 5,476 | ||||
Summit Hotel Properties Inc. | 639,777 | 3,314 | ||||
Chatham Lodging Trust | 284,854 | 1,484 | ||||
CorePoint Lodging Inc. | 247,002 | 1,381 | ||||
Hersha Hospitality Trust Class A | 213,976 | 1,018 | ||||
Braemar Hotels & Resorts Inc. | 181,226 | 442 | ||||
Ashford Hospitality Trust Inc. | 58,737 | 230 | ||||
154,710 | ||||||
Industrial REITs (11.8%) | ||||||
Prologis Inc. | 4,507,306 | 475,160 | ||||
Duke Realty Corp. | 2,247,418 | 90,324 | ||||
Americold Realty Trust | 1,221,975 | 49,307 | ||||
First Industrial Realty Trust Inc. | 775,039 | 34,040 | ||||
Rexford Industrial Realty Inc. | 695,200 | 32,626 | ||||
EastGroup Properties Inc. | 237,362 | 31,488 | ||||
STAG Industrial Inc. | 907,001 | 29,568 | ||||
Terreno Realty Corp. | 411,064 | 24,976 | ||||
Lexington Realty Trust | 1,556,269 | 18,053 | ||||
Innovative Industrial Properties Inc. | 129,984 | 13,548 |
Shares | Market Value• ($000) | |||||
Industrial Logistics Properties Trust | 397,347 | 8,388 | ||||
Monmouth Real Estate Investment Corp. | 566,831 | 8,179 | ||||
815,657 | ||||||
Office REITs (7.9%) | ||||||
Alexandria Real Estate Equities Inc. | 748,639 | 132,921 | ||||
Boston Properties Inc. | 897,073 | 79,920 | ||||
Vornado Realty Trust | 990,181 | 34,181 | ||||
Kilroy Realty Corp. | 582,931 | 33,967 | ||||
Douglas Emmett Inc. | 1,016,011 | 29,607 | ||||
Cousins Properties Inc. | 895,004 | 27,495 | ||||
Highwoods Properties Inc. | 633,244 | 24,279 | ||||
Equity Commonwealth | 744,458 | 23,503 | ||||
Hudson Pacific Properties Inc. | 943,573 | 22,240 | ||||
SL Green Realty Corp. | 476,966 | 22,179 | ||||
JBG SMITH Properties | 740,499 | 21,482 | ||||
Corporate Office Properties Trust | 683,798 | 18,107 | ||||
Piedmont Office Realty Trust Inc. Class A | 767,384 | 12,439 | ||||
Brandywine Realty Trust | 1,076,008 | 11,653 | ||||
Easterly Government Properties Inc. | 457,948 | 11,197 | ||||
Columbia Property Trust Inc. | 705,599 | 8,439 | ||||
Paramount Group Inc. | 1,131,765 | 8,069 | ||||
Mack-Cali Realty Corp. | 552,463 | 7,966 | ||||
Office Properties Income Trust | 293,881 | 7,391 | ||||
Franklin Street Properties Corp. | 654,490 | 3,436 | ||||
City Office REIT Inc. | 331,875 | 2,871 | ||||
543,342 | ||||||
Residential REITs (13.6%) | ||||||
AvalonBay Communities Inc. | 858,043 | 131,384 | ||||
Equity Residential | 2,269,506 | 121,714 | ||||
Invitation Homes Inc. | 3,306,112 | 98,588 | ||||
Essex Property Trust Inc. | 403,707 | 89,114 | ||||
Sun Communities Inc. | 569,361 | 85,364 | ||||
Mid-America Apartment Communities Inc. | 697,283 | 83,109 | ||||
Equity LifeStyle Properties Inc. | 1,055,650 | 72,122 | ||||
UDR Inc. | 1,797,384 | 65,065 | ||||
Camden Property Trust | 593,892 | 53,931 | ||||
American Homes 4 Rent Class A | 1,647,766 | 47,785 | ||||
Apartment Investment & Management Co. Class A | 908,487 | 35,268 | ||||
American Campus Communities Inc. | 837,875 | 29,862 | ||||
Independence Realty Trust Inc. | 625,259 | 7,191 | ||||
Investors Real Estate Trust | 73,918 | 5,344 |
Shares | Market Value• ($000) | |||||
NexPoint Residential Trust Inc. | 123,298 | 4,714 | ||||
UMH Properties Inc. | 223,488 | 2,749 | ||||
Front Yard Residential Corp. | 312,960 | 2,713 | ||||
Preferred Apartment Communities Inc. Class A | 281,779 | 2,037 | ||||
938,054 | ||||||
Retail REITs (7.9%) | ||||||
Realty Income Corp. | 2,035,939 | 122,258 | ||||
Simon Property Group Inc. | 1,872,114 | 116,726 | ||||
Regency Centers Corp. | 1,022,223 | 41,942 | ||||
National Retail Properties Inc. | 1,047,063 | 37,118 | ||||
Federal Realty Investment Trust | 438,495 | 33,457 | ||||
Kimco Realty Corp. | 2,638,517 | 29,419 | ||||
Spirit Realty Capital Inc. | 627,897 | 21,637 | ||||
Brixmor Property Group Inc. | 1,818,702 | 20,933 | ||||
Agree Realty Corp. | 278,027 | 18,620 | ||||
Taubman Centers Inc. | 374,322 | 14,494 | ||||
Weingarten Realty Investors | 751,181 | 12,815 | ||||
Retail Properties of America Inc. Class A | 1,304,492 | 8,297 | ||||
Urban Edge Properties | 739,955 | 7,755 | ||||
Retail Opportunity Investments Corp. | 710,066 | 7,718 | ||||
SITE Centers Corp. | 945,177 | 6,928 | ||||
Getty Realty Corp. | 214,562 | 6,358 | ||||
Acadia Realty Trust | 499,477 | 6,014 | ||||
1 | Macerich Co. | 688,625 | 5,254 | |||
Kite Realty Group Trust | 510,994 | 5,044 | ||||
American Finance Trust Inc. Class A | 649,790 | 4,747 | ||||
1 | Tanger Factory Outlet Centers Inc. | 565,993 | 3,639 | |||
Alexander's Inc. | 14,026 | 3,532 | ||||
RPT Realty | 488,285 | 3,037 | ||||
Saul Centers Inc. | 84,268 | 2,588 | ||||
*,1 | Seritage Growth Properties Class A | 212,887 | 1,982 | |||
Urstadt Biddle Properties Inc. Class A | 181,825 | 1,784 | ||||
Whitestone REIT | 229,556 | 1,515 | ||||
Retail Value Inc. | 102,173 | 1,294 | ||||
1 | Washington Prime Group Inc. | 1,141,086 | 837 | |||
1 | Pennsylvania REIT | 400,198 | 472 | |||
Cedar Realty Trust Inc. | 539,698 | 439 | ||||
*,2 | Spirit MTA REIT | 257,871 | 198 | |||
548,851 | ||||||
Specialized REITs (41.7%) | ||||||
American Tower Corp. | 2,702,364 | 706,371 | ||||
Crown Castle International Corp. | 2,536,758 | 422,878 | ||||
Equinix Inc. | 521,330 | 409,494 | ||||
Digital Realty Trust Inc. | 1,527,697 | 245,256 | ||||
SBA Communications Corp. Class A | 682,916 | 212,756 |
Shares | Market Value• ($000) | |||||
Public Storage | 959,612 | 191,807 | ||||
Weyerhaeuser Co. | 4,548,446 | 126,492 | ||||
Extra Space Storage Inc. | 790,786 | 81,720 | ||||
VICI Properties Inc. | 2,858,167 | 62,051 | ||||
CyrusOne Inc. | 701,732 | 58,538 | ||||
Iron Mountain Inc. | 1,752,780 | 49,411 | ||||
Gaming & Leisure Properties Inc. | 1,270,672 | 46,011 | ||||
CubeSmart | 1,180,994 | 35,040 | ||||
Lamar Advertising Co. Class A | 525,221 | 34,523 | ||||
CoreSite Realty Corp. | 230,017 | 29,684 | ||||
Life Storage Inc. | 284,804 | 27,948 | ||||
QTS Realty Trust Inc. Class A | 354,339 | 25,495 | ||||
Rayonier Inc. | 789,570 | 21,934 | ||||
PotlatchDeltic Corp. | 411,368 | 17,611 | ||||
EPR Properties | 481,676 | 13,790 | ||||
Outfront Media Inc. | 879,311 | 12,671 | ||||
National Storage Affiliates Trust | 364,101 | 11,222 | ||||
Uniti Group Inc. | 1,123,083 | 11,118 | ||||
Four Corners Property Trust Inc. | 428,377 | 10,795 | ||||
GEO Group Inc. | 739,263 | 7,858 | ||||
CoreCivic Inc. | 726,217 | 6,471 | ||||
Safehold Inc. | 72,768 | 3,670 | ||||
CatchMark Timber Trust Inc. Class A | 297,846 | 2,907 | ||||
Jernigan Capital Inc. | 140,895 | 1,974 | ||||
CorEnergy Infrastructure Trust Inc. | 82,547 | 723 | ||||
2,888,219 | ||||||
Total Equity Real Estate Investment Trusts (REITs) (Cost $6,488,927) | 6,699,270 | |||||
Real Estate Management & Development (3.0%) | ||||||
Diversified Real Estate Activities (0.1%) | ||||||
* | St. Joe Co. | 199,174 | 4,105 | |||
RMR Group Inc. Class A | 93,043 | 2,676 | ||||
* | Tejon Ranch Co. | 134,655 | 1,932 | |||
* | Five Point Holdings LLC Class A | 312,198 | 1,499 | |||
10,212 | ||||||
Real Estate Development (0.2%) | ||||||
* | Howard Hughes Corp. | 252,445 | 13,428 | |||
* | Forestar Group Inc. | 101,966 | 1,765 | |||
15,193 |
Shares | Market Value• ($000) | |||||
Real Estate Operating Companies (0.2%) | ||||||
Kennedy-Wilson Holdings Inc. | 780,953 | 11,589 | ||||
Real Estate Services (2.5%) | ||||||
* | CBRE Group Inc. Class A | 2,042,486 | 89,481 | |||
Jones Lang LaSalle Inc. | 314,369 | 31,094 | ||||
* | Redfin Corp. | 539,872 | 22,448 | |||
* | Cushman & Wakefield plc | 668,415 | 7,152 | |||
Realogy Holdings Corp. | 698,519 | 6,328 | ||||
* | Marcus & Millichap Inc. | 143,086 | 3,898 | |||
Newmark Group Inc. Class A | 918,430 | 3,738 | ||||
RE/MAX Holdings Inc. Class A | 109,183 | 3,534 | ||||
* | eXp World Holdings Inc. | 157,960 | 3,139 | |||
* | Altisource Portfolio Solutions SA | 32,956 | 443 | |||
171,255 | ||||||
Total Real Estate Management & Development (Cost $273,401) | 208,249 | |||||
Temporary Cash Investments (0.4%) | ||||||
Money Market Fund (0.4%) | ||||||
3,4 | Vanguard Market Liquidity Fund, 0.194% (Cost $24,920) | 249,251 | 24,925 | |||
Total Investments (100.2%) (Cost $6,787,248) | 6,932,444 | |||||
Other Assets and Liabilities—Net (-0.2%) | (12,161) | |||||
Net Assets (100%) | 6,920,283 |
Cost is in $000. | |
• | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
1 | Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $10,488,000. |
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 | Collateral of $12,400,000 was received for securities on loan. |
REIT—Real Estate Investment Trust. |
Over-the-Counter Total Return Swaps | ||||||
Reference Entity | Termination Date | Counterparty | Notional Amount ($000) | Floating Interest Rate Received (Paid)1 (%) | Value and Unrealized Appreciation ($000) | Value and Unrealized (Depreciation) ($000) |
Digital Realty Trust Inc. | 2/2/21 | GSI | 10,813 | (0.181) | 1,227 | — |
1 Based on 1-month USD London Interbank Offered Rate (LIBOR) as of the most recent payment date. Floating interest payment received/paid monthly. |
GSI—Goldman Sachs International. |
($000s, except shares and per-share amounts) | Amount |
Assets | |
Investments in Securities, at Value | |
Unaffiliated Issuers (Cost $6,762,328) | 6,907,519 |
Affiliated Issuers (Cost $24,920) | 24,925 |
Total Investments in Securities | 6,932,444 |
Investment in Vanguard | 297 |
Receivables for Investment Securities Sold | 1,051 |
Receivables for Accrued Income | 2,905 |
Unrealized Appreciation—Over-the-Counter Swap Contracts | 1,227 |
Total Assets | 6,937,924 |
Liabilities | |
Due to Custodian | 1,007 |
Payables for Investment Securities Purchased | 3,970 |
Collateral for Securities on Loan | 12,400 |
Payables to Vanguard | 264 |
Total Liabilities | 17,641 |
Net Assets | 6,920,283 |
At July 31, 2020, net assets consisted of: | |
Paid-in Capital | 6,843,863 |
Total Distributable Earnings (Loss) | 76,420 |
Net Assets | 6,920,283 |
Net Assets | |
Applicable to 351,958,381 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 6,920,283 |
Net Asset Value Per Share | $19.66 |
Six Months Ended July 31, 2020 | |
($000) | |
Investment Income | |
Income | |
Dividends | 94,610 |
Interest1 | 51 |
Securities Lending—Net | 530 |
Total Income | 95,191 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 503 |
Management and Administrative | 2,117 |
Marketing and Distribution | 20 |
Custodian Fees | 24 |
Shareholders’ Reports | — |
Trustees’ Fees and Expenses | 2 |
Total Expenses | 2,666 |
Net Investment Income | 92,525 |
Realized Net Gain (Loss) | |
Capital Gain Distributions Received | 12,094 |
Investment Securities Sold1 | (27,251) |
Futures Contracts | (521) |
Swap Contracts | (1,341) |
Realized Net Gain (Loss) | (17,019) |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities1 | (1,004,132) |
Swap Contracts | 1,288 |
Change in Unrealized Appreciation (Depreciation) | (1,002,844) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (927,338) |
1 | Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $51,000, $38,000, and ($1,000), respectively. Purchases and sales are for temporary cash investment purposes. |
Six Months Ended July 31, 2020 | Year Ended January 31, 2020 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 92,525 | 193,741 | |
Realized Net Gain (Loss) | (17,019) | 31,455 | |
Change in Unrealized Appreciation (Depreciation) | (1,002,844) | 902,961 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | (927,338) | 1,128,157 | |
Distributions1 | |||
Net Investment Income | (104,882) | (199,690) | |
Return of Capital | — | (65,435) | |
Total Distributions | (104,882) | (265,125) | |
Capital Share Transactions | |||
Issued | — | — | |
Issued in Lieu of Cash Distributions | 104,882 | 265,125 | |
Redeemed | — | — | |
Net Increase (Decrease) from Capital Share Transactions | 104,882 | 265,125 | |
Total Increase (Decrease) | (927,338) | 1,128,157 | |
Net Assets | |||
Beginning of Period | 7,847,621 | 6,719,464 | |
End of Period | 6,920,283 | 7,847,621 |
1 | Certain prior period numbers have been reclassed to conform with current period presentation. |
For a Share Outstanding Throughout Each Period | Six Months Ended July 31, 2020 | Year Ended January 31, | September 26, 20171 to January 31, 2018 | |
2020 | 2019 | |||
Net Asset Value, Beginning of Period | $22.64 | $20.10 | $19.17 | $20.00 |
Investment Operations | ||||
Net Investment Income2 | .265 | .571 | .611 | .268 |
Net Realized and Unrealized Gain (Loss) on Investments | (2.943) | 2.752 | 1.176 | (.834) |
Total from Investment Operations | (2.678) | 3.323 | 1.787 | (.566) |
Distributions | ||||
Dividends from Net Investment Income | (.302) | (.590) | (.626) | (.225) |
Distributions from Realized Capital Gains | — | — | — | (.030) |
Return of Capital | — | (.193) | (.231) | (.009) |
Total Distributions | (.302) | (.783) | (.857) | (.264) |
Net Asset Value, End of Period | $19.66 | $22.64 | $20.10 | $19.17 |
Total Return | -11.81% | 16.78% | 9.68% | -2.89% |
Ratios/Supplemental Data | ||||
Net Assets, End of Period (Millions) | $6,920 | $7,848 | $6,719 | $6,126 |
Ratio of Total Expenses to Average Net Assets | 0.08% | 0.08% | 0.08% | 0.08%3 |
Ratio of Net Investment Income to Average Net Assets | 2.78% | 2.63% | 3.22% | 3.84%3 |
Portfolio Turnover Rate | 4% | 3% | 23% | 1% |
The expense ratio and net investment income ratio for the current period have been annualized. |
1 | Inception. |
2 | Calculated based on average shares outstanding. |
3 | Annualized. |
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. |
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 and are generally settled twice a month. |
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 ($000) | Level 2 ($000) | Level 3 ($000) | Total ($000) | |
Investments | ||||
Assets | ||||
Common Stocks | 6,907,321 | — | 198 | 6,907,519 |
Temporary Cash Investments | 24,925 | — | — | 24,925 |
Total | 6,932,246 | — | 198 | 6,932,444 |
Level 1 ($000) | Level 2 ($000) | Level 3 ($000) | Total ($000) | |
Derivative Financial Instruments | ||||
Assets | ||||
Swap Contracts | — | 1,227 | — | 1,227 |
D. | As of July 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows: |
Amount ($000) | |
Tax Cost | 6,816,419 |
Gross Unrealized Appreciation | 1,467,225 |
Gross Unrealized Depreciation | (1,349,973) |
Net Unrealized Appreciation (Depreciation) | 117,252 |
E. | During the six months ended July 31, 2020, the fund purchased $265,734,000 of investment securities and sold $129,048,000 of investment securities, other than temporary cash investments. |
F. | Capital shares issued and redeemed were: |
Six Months Ended July 31, 2020 | Year Ended January 31, 2020 | ||
Shares (000) | Shares (000) | ||
Issued | — | — | |
Issued in Lieu of Cash Distributions | 5,384 | 12,285 | |
Redeemed | — | — | |
Net Increase (Decrease) in Shares Outstanding | 5,384 | 12,285 |
G. | Management has determined that no events or transactions occurred subsequent to July 31, 2020, that would require recognition or disclosure in these financial statements. |
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Vanguard Marketing Corporation, Distributor.
Semiannual Report | July 31, 2020
Vanguard Dividend Growth Fund
|
See the inside front cover for important information about access to your fund’s annual and semiannual shareholder reports.
|
Important information about access to shareholder reports
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your fund’s annual and semiannual shareholder reports will no longer be sent to you by mail, unless you specifically request them. Instead, you will be notified by mail each time a report is posted on the website and will be provided with a link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. You may elect to receive shareholder reports and other communications from the fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with the fund, by calling Vanguard at one of the phone numbers on the back cover of this report or by logging on to vanguard.com.
You may elect to receive paper copies of all future shareholder reports free of charge. If you invest through a financial intermediary, you can contact the intermediary to request that you continue to receive paper copies. If you invest directly with the fund, you can call Vanguard at one of the phone numbers on the back cover of this report or log on to vanguard.com. Your election to receive paper copies will apply to all the funds you hold through an intermediary or directly with Vanguard.
Contents | |
About Your Fund’s Expenses | 1 |
Financial Statements | 4 |
Liquidity Risk Management | 14 |
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.
1
Six Months Ended July 31, 2020
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
Dividend Growth Fund | 1/31/2020 | 7/31/2020 | Period |
Based on Actual Fund Return | $1,000.00 | $975.21 | $1.28 |
Based on Hypothetical 5% Yearly Return | 1,000.00 | 1,023.57 | 1.31 |
The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratio for that period is 0.26%. 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 (182/366).
2
Dividend Growth Fund
Fund Allocation
As of July 31, 2020
Communication Services | 1.1% |
Consumer Discretionary | 12.3 |
Consumer Staples | 17.0 |
Financials | 9.7 |
Health Care | 19.4 |
Industrials | 21.3 |
Information Technology | 9.9 |
Materials | 5.5 |
Real Estate | 3.8 |
The table reflects the fund’s investments, except for short-term investments and derivatives. 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.
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.
3
Dividend Growth Fund
Financial Statements (unaudited)
Schedule of Investments
As of July 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | |||||
Value· | |||||
Shares | ($000 | ) | |||
Common Stocks (98.6%) | |||||
Communication Services (1.0%) | |||||
Comcast Corp. Class A | 10,237,535 | 438,166 | |||
Consumer Discretionary (12.1%) | |||||
McDonald’s Corp. | 8,409,160 | 1,633,732 | |||
NIKE Inc. Class B | 12,887,044 | 1,257,904 | |||
TJX Cos. Inc. | 22,438,076 | 1,166,556 | |||
Home Depot Inc. | 3,736,021 | 991,876 | |||
5,050,068 | |||||
Consumer Staples (16.7%) | |||||
Coca-Cola Co. | 30,956,636 | 1,462,391 | |||
Procter & Gamble Co. | 10,840,186 | 1,421,365 | |||
Colgate-Palmolive Co. | 17,407,819 | 1,343,884 | |||
PepsiCo Inc. | 7,874,212 | 1,083,964 | |||
Diageo plc | 28,952,341 | 1,059,388 | |||
Costco Wholesale Corp. | 1,854,098 | 603,565 | |||
6,974,557 | |||||
Financials (9.6%) | |||||
Marsh & McLennan Cos. Inc. | 10,196,934 | 1,188,962 | |||
American Express Co. | 11,960,841 | 1,116,186 | |||
Chubb Ltd. | 7,834,067 | 996,807 | |||
PNC Financial Services Group Inc. | 6,614,486 | 705,567 | |||
4,007,522 | |||||
Health Care (19.1%) | |||||
UnitedHealth Group Inc. | 5,384,814 | 1,630,414 | |||
Johnson & Johnson | 9,209,508 | 1,342,378 | |||
Medtronic plc | 12,816,741 | 1,236,559 | |||
Merck & Co. Inc. | 14,249,422 | 1,143,374 | |||
Danaher Corp. | 5,414,799 | 1,103,536 | |||
Baxter International Inc. | 9,409,749 | 812,814 | |||
Amgen Inc. | 2,891,229 | 707,397 | |||
7,976,472 | |||||
Industrials (21.0%) | |||||
Union Pacific Corp. | 7,160,302 | 1,241,238 | |||
Canadian National Railway Co. | 11,149,376 | 1,089,092 | |||
United Parcel Service Inc. Class B | 7,546,263 | 1,077,305 | |||
Northrop Grumman Corp. | 3,100,702 | 1,007,759 | |||
General Dynamics Corp. | 6,364,743 | 933,962 | |||
Lockheed Martin Corp. | 2,309,885 | 875,377 | |||
Honeywell International Inc. | 5,692,772 | 850,329 | |||
Deere & Co. | 4,185,802 | 737,999 | |||
3M Co. | 3,990,154 | 600,399 | |||
Raytheon Technologies Corp. | 5,967,504 | 338,238 | |||
8,751,698 | |||||
Information Technology (9.8%) | |||||
Microsoft Corp. | 7,155,777 | 1,467,006 | |||
Accenture plc Class A | 4,419,338 | 993,379 | |||
Visa Inc. Class A | 5,169,243 | 984,224 | |||
Automatic Data Processing Inc. | 4,737,151 | 629,614 | |||
4,074,223 | |||||
Materials (5.5%) | |||||
Linde plc | 5,110,711 | 1,252,686 | |||
Ecolab Inc. | 5,450,660 | 1,019,710 | |||
2,272,396 | |||||
Real Estate (3.8%) | |||||
American Tower Corp. | 3,009,145 | 786,561 | |||
Public Storage | 3,906,816 | 780,894 | |||
1,567,455 | |||||
Total Common Stocks (Cost $26,320,908) | 41,112,557 | ||||
Temporary Cash Investments (1.4%) | |||||
Money Market Fund (0.0%) | |||||
1 | Vanguard Market Liquidity Fund, 0.194% | 262 | 26 |
4
Dividend Growth Fund
Face | Market | ||||
Amount | Value· | ||||
($000 | ) | ($000 | ) | ||
Repurchase Agreements (0.9%) | |||||
Credit Agricole Securities (USA) Inc. 0.070%, 8/3/20 (Dated 7/31/20, Repurchase Value $15,200,000, collateralized by U.S. Treasury Note/Bond, 1.125%, 1/15/21, with a value of $15,504,000) | 15,200 | 15,200 | |||
Natixis SA 0.070%, 8/3/20 (Dated 7/31/20, Repurchase Value $227,001,000, collateralized by Federal National Mortgage Assn. 0.000%, 5/15/30, and U.S. Treasury Note/Bond, 0.000%–2.875%, 5/20/21– 7/15/29, with a value of $231,540,000) | 227,000 | 227,000 | |||
RBS Securities, Inc. 0.070%, 8/3/20 (Dated 7/31/20, Repurchase Value $83,700,000, collateralized by U.S. Treasury Note/ Bond, 2.375%–6.250%, 8/15/23–8/15/24, with a value of $85,374,000) | 83,700 | 83,700 | |||
Societe Generale 0.070%, 8/3/20 (Dated 7/31/20, Repurchase Value $43,100,000, collateralized by Federal Home Loan Mortgage Corp. 3.884%– 5.550%, 6/1/29–1/1/35, and Federal National Mortgage Assn. 2.134%–4.500%, 11/1/26–2/1/57, with a value of $43,962,000) | 43,100 | 43,100 | |||
369,000 | |||||
U.S. Government and Agency Obligations (0.5%) | |||||
United States Cash Management Bill, 0.173%, 11/10/20 | 74,810 | 74,789 | |||
United States Treasury Bill, 0.177%, 8/6/20 | 58,275 | 58,274 | |||
United States Treasury Bill, 0.145%, 11/12/20 | 72,890 | 72,870 | |||
205,933 | |||||
Total Temporary Cash Investments (Cost $574,933) | 574,959 | ||||
Total Investments (100.0%) (Cost $26,895,841) | 41,687,516 | ||||
Other Assets and Liabilities— Net (0.0%) | (11,885 | ) | |||
Net Assets (100%) | 41,675,631 |
Cost is in $000.
· | 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.
5
Dividend Growth Fund
Statement of Assets and Liabilities
As of July 31, 2020
($000s, except shares and per-share amounts) | Amount |
Assets | |
Investments in Securities, at Value | |
Unaffiliated Issuers (Cost $26,895,815) | 41,687,490 |
Affiliated Issuers (Cost $26) | 26 |
Total Investments in Securities | 41,687,516 |
Investment in Vanguard | 1,790 |
Cash | 714 |
Receivables for Accrued Income | 50,379 |
Receivables for Capital Shares Issued | 21,511 |
Total Assets | 41,761,910 |
Liabilities | |
Payables for Investment Securities Purchased | 45,126 |
Payables to Investment Advisor | 10,606 |
Payables for Capital Shares Redeemed | 27,680 |
Payables to Vanguard | 2,867 |
Total Liabilities | 86,279 |
Net Assets | 41,675,631 |
At July 31, 2020, net assets consisted of: | |
Paid-in Capital | 26,555,325 |
Total Distributable Earnings (Loss) | 15,120,306 |
Net Assets | 41,675,631 |
Net Assets | |
Applicable to 1,408,190,903 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 41,675,631 |
Net Asset Value Per Share | $29.60 |
See accompanying Notes, which are an integral part of the Financial Statements.
6
Dividend Growth Fund
Statement of Operations
Six Months Ended | ||
July 31, 2020 | ||
($000 | ) | |
Investment Income | ||
Income | ||
Dividends1 | 429,491 | |
Interest2 | 2,720 | |
Securities Lending—Net | 1,009 | |
Total Income | 433,220 | |
Expenses | ||
Investment Advisory Fees—Note B | ||
Basic Fee | 25,912 | |
Performance Adjustment | (2,811 | ) |
The Vanguard Group—Note C | ||
Management and Administrative | 25,426 | |
Marketing and Distribution | 1,828 | |
Custodian Fees | 96 | |
Shareholders’ Reports | 228 | |
Trustees’ Fees and Expenses | 33 | |
Total Expenses | 50,712 | |
Net Investment Income | 382,508 | |
Realized Net Gain (Loss) | ||
Investment Securities Sold2 | 275,324 | |
Foreign Currencies | (631 | ) |
Realized Net Gain (Loss) | 274,693 | |
Change in Unrealized Appreciation (Depreciation) | ||
Investment Securities2 | (1,792,868 | ) |
Foreign Currencies | 82 | |
Change in Unrealized Appreciation (Depreciation) | (1,792,786 | ) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (1,135,585 | ) |
1 | Dividends are net of foreign withholding taxes of $1,416,000. |
2 | Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $0, $1,000, and $1,000, respectively. Purchases and sales are for temporary cash investment purposes. |
See accompanying Notes, which are an integral part of the Financial Statements.
7
Dividend Growth Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | |||
July 31, | January 31, | |||
2020 | 2020 | |||
($000 | ) | ($000 | ) | |
Increase (Decrease) in Net Assets | ||||
Operations | ||||
Net Investment Income | 382,508 | 688,114 | ||
Realized Net Gain (Loss) | 274,693 | 1,370,012 | ||
Change in Unrealized Appreciation (Depreciation) | (1,792,786 | ) | 5,633,953 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | (1,135,585 | ) | 7,692,079 | |
Distributions1 | ||||
Total Distributions | (351,812 | ) | (1,880,356 | ) |
Capital Share Transactions | ||||
Issued | 4,787,888 | 6,730,003 | ||
Issued in Lieu of Cash Distributions | 309,851 | 1,669,017 | ||
Redeemed | (4,958,969 | ) | (4,042,052 | ) |
Net Increase (Decrease) from Capital Share Transactions | 138,770 | 4,356,968 | ||
Total Increase (Decrease) | (1,348,627 | ) | 10,168,691 | |
Net Assets | ||||
Beginning of Period | 43,024,258 | 32,855,567 | ||
End of Period | 41,675,631 | 43,024,258 |
1 | Certain prior period numbers have been reclassified to conform with current period presentation. |
See accompanying Notes, which are an integral part of the Financial Statements.
8
Dividend Growth Fund
Financial Highlights
Six Months | |||||||
Ended | |||||||
For a Share Outstanding | July 31, | Year Ended January 31, | |||||
Throughout Each Period | 2020 | 2020 | 2019 | 2018 | 2017 | 2016 | |
Net Asset Value, Beginning of Period | $30.63 | $26.03 | $27.85 | $23.72 | $21.78 | $22.47 | |
Investment Operations | |||||||
Net Investment Income | .2711 | .5361 | .5201 | .5141 | .446 | .442 | |
Net Realized and Unrealized Gain (Loss) on Investments | (1.052) | 5.499 | (.178) | 4.985 | 2.165 | .145 | |
Total from Investment Operations | (.781) | 6.035 | .342 | 5.499 | 2.611 | .587 | |
Distributions | |||||||
Dividends from Net Investment Income | (.249) | (.525) | (.526) | (.509) | (.450) | (.432) | |
Distributions from Realized Capital Gains | — | (.910) | (1.636) | (.860) | (.221) | (.845) | |
Total Distributions | (.249) | (1.435) | (2.162) | (1.369) | (.671) | (1.277) | |
Net Asset Value, End of Period | $29.60 | $30.63 | $26.03 | $27.85 | $23.72 | $21.78 | |
Total Return2 | -2.48% | 23.33% | 1.63% | 23.65% | 12.06% | 2.44% | |
Ratios/Supplemental Data | |||||||
Net Assets, End of Period (Millions) | $41,676 | $43,024 | $32,856 | $34,706 | $30,633 | $25,632 | |
Ratio of Total Expenses to Average Net Assets3 | 0.26% | 0.27% | 0.22% | 0.26% | 0.30% | 0.33% | |
Ratio of Net Investment Income to Average Net Assets | 1.94% | 1.82% | 1.93% | 2.00% | 1.93% | 1.95% | |
Portfolio Turnover Rate | 9% | 17% | 23% | 15% | 27% | 26% |
The expense ratio and net investment income ratio for the current period have been annualized.
1 | Calculated based on average shares outstanding. |
2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
3 | Includes performance-based investment advisory fee increases (decreases) of (0.01%), 0.00%, (0.05%), (0.01%), 0.03%, and 0.04%. |
See accompanying Notes, which are an integral part of the Financial Statements.
9
Dividend Growth Fund
Notes to Financial Statements
Vanguard Dividend Growth Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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. 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.
10
Dividend Growth Fund
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 (January 31, 2017–2020), and for the period ended July 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
6. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled before the opening of the market 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 Assets and Liabilities for the return of the collateral, during the period the securities are on loan. Collateral investments in Vanguard Market Liquidity Fund are subject to market appreciation or depreciation. 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 Facilities and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be utilized for temporary or emergency purposes, subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn committed 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 either facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread, except that borrowings under the uncommitted credit facility may bear interest based upon an alternative rate agreed to by the fund and Vanguard.
11
Dividend Growth Fund
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended July 31, 2020, the fund did not utilize the credit facilities or the Interfund Lending Program.
8. Other: Dividend income is recorded on the ex-dividend date. Premiums and discounts on debt securities are amortized and accreted, respectively, to interest income over the lives of the respective securities, except for premiums on certain callable debt securities that are amortized to the earliest call date. 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.
B. Wellington Management Company LLP provides investment advisory services to the fund for a fee calculated at an annual percentage rate of average net assets. The basic fee is subject to quarterly adjustments based on the fund’s performance relative to the NASDAQ US Dividend Achievers Select Index for the preceding three years. For the six months ended July 31, 2020, the investment advisory fee represented an effective annual basic rate of 0.13% of the fund’s average net assets before a decrease of $2,811,000 (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, 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 and are generally settled twice a month.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At July 31, 2020, the fund had contributed to Vanguard capital in the amount of $1,790,000, representing less than 0.01% of the fund’s net assets and 0.72% of Vanguard’s capital received pursuant to the FSA. 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 Schedule of Investments.
12
Dividend Growth Fund
The following table summarizes the market value of the fund’s investments as of July 31, 2020, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | Total | |
($000) | ($000) | ($000) | ($000) | |
Investments | ||||
Assets | ||||
Common Stocks | 40,053,169 | 1,059,388 | — | 41,112,557 |
Temporary Cash Investments | 26 | 574,933 | — | 574,959 |
Total | 40,053,195 | 1,634,321 | — | 41,687,516 |
E. As of July 31, 2020, gross unrealized appreciation and depreciation for investments based on cost for U.S. federal income tax purposes were as follows:
Amount | |
($000) | |
Tax Cost | 26,895,841 |
Gross Unrealized Appreciation | 15,472,810 |
Gross Unrealized Depreciation | (681,135) |
Net Unrealized Appreciation (Depreciation) | 14,791,675 |
F. During the six months ended July 31, 2020, the fund purchased $4,531,635,000 of investment securities and sold $3,511,996,000 of investment securities, other than temporary cash investments.
G. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | ||
July 31, 2020 | January 31, 2020 | ||
Shares | Shares | ||
(000) | (000) | ||
Issued | 175,407 | 224,130 | |
Issued in Lieu of Cash Distributions | 11,354 | 55,515 | |
Redeemed | (182,998) | (137,538) | |
Net Increase (Decrease) in Shares Outstanding | 3,763 | 142,107 |
H. Management has determined that no events or transactions occurred subsequent to July 31, 2020, that would require recognition or disclosure in these financial statements.
13
Liquidity Risk Management
Vanguard funds (except for the money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining investors’ interests in the fund.
Assessment and management of a fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and limiting holdings of illiquid investments.
The board of trustees of Vanguard Specialized Funds approved the appointment of liquidity risk management program administrators responsible for administering Vanguard Dividend Growth Fund’s Program and for carrying out the specific responsibilities set forth in the Program, including reporting to the board on at least an annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for the past year (the “Program Administrator Report”). The board has reviewed the Program Administrator Report covering the period from December 1, 2018, through December 31, 2019 (the “Review Period”). The Program Administrator Report stated that during the Review Period the Program operated and was implemented effectively to manage the fund’s liquidity risk.
14
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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.
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, www.sec.gov. In addition, you may obtain a free report on how your fund voted the proxies for securities it owned during the 12 months ended June 30. To get the report, visit either vanguard.com/proxyreporting or www.sec.gov.
You can review information about your fund on the SEC’s website, and you can receive copies of this information, for a fee, by sending a request via email addressed to publicinfo@sec.gov.
© 2020 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q572 092020 |
Semiannual Report | July 31, 2020
Vanguard Dividend Appreciation Index Fund
|
See the inside front cover for important information about access to your fund’s annual and semiannual shareholder reports.
|
Important information about access to shareholder reports
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your fund’s annual and semiannual shareholder reports will no longer be sent to you by mail, unless you specifically request them. Instead, you will be notified by mail each time a report is posted on the website and will be provided with a link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. You may elect to receive shareholder reports and other communications from the fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with the fund, by calling Vanguard at one of the phone numbers on the back cover of this report or by logging on to vanguard.com.
You may elect to receive paper copies of all future shareholder reports free of charge. If you invest through a financial intermediary, you can contact the intermediary to request that you continue to receive paper copies. If you invest directly with the fund, you can call Vanguard at one of the phone numbers on the back cover of this report or log on to vanguard.com. Your election to receive paper copies will apply to all the funds you hold through an intermediary or directly with Vanguard.
Contents | |
About Your Fund’s Expenses | 1 |
Financial Statements | 4 |
Trustees Approve Advisory Arrangement | 20 |
Liquidity Risk Management | 22 |
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.
1
Six Months Ended July 31, 2020 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
Dividend Appreciation Index Fund | 1/31/2020 | 7/31/2020 | Period |
Based on Actual Fund Return | |||
ETF Shares | $1,000.00 | $990.92 | $0.30 |
Admiral™ Shares | 1,000.00 | 991.02 | 0.40 |
Based on Hypothetical 5% Yearly Return | |||
ETF Shares | $1,000.00 | $1,024.57 | $0.30 |
Admiral Shares | 1,000.00 | 1,024.47 | 0.40 |
The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios for that period are 0.06% for ETF Shares and 0.08% 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 (182/366).
2
Dividend Appreciation Index Fund
Fund Allocation
As of July 31, 2020
Basic Materials | 3.4 | % |
Consumer Goods | 12.1 | |
Consumer Services | 22.8 | |
Financials | 11.7 | |
Health Care | 15.4 | |
Industrials | 17.2 | |
Technology | 12.5 | |
Telecommunications | 0.0 | |
Utilities | 4.9 |
The table reflects the fund’s investments, except for short-term investments and derivatives. 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.
The fund may invest in derivatives (such as futures and swap contracts) for various reasons, including, but not limited to, attempting to remain fully invested and tracking its target index as closely as possible.
The Industry Classification Benchmark (“ICB”) is owned by FTSE. FTSE does not accept any liability to any person for any loss or damage arising out of any error or omission in the ICB.
3
Dividend Appreciation Index Fund
Financial Statements (unaudited)
Schedule of Investments
As of July 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | |||||
Value· | |||||
Shares | ($000 | ) | |||
Common Stocks (99.6%) | |||||
Basic Materials (3.4%) | |||||
Air Products & Chemicals Inc. | 1,495,661 | 428,701 | |||
Ecolab Inc. | 1,952,663 | 365,304 | |||
Fastenal Co. | 3,890,122 | 182,991 | |||
PPG Industries Inc. | 1,596,304 | 171,842 | |||
International Flavors & Fragrances Inc. | 723,828 | 91,166 | |||
Nucor Corp. | 2,040,408 | 85,595 | |||
Celanese Corp. Class A | 808,405 | 78,577 | |||
RPM International Inc. | 879,681 | 71,773 | |||
Royal Gold Inc. | 444,541 | 62,205 | |||
Scotts Miracle-Gro Co. | 376,917 | 59,768 | |||
Albemarle Corp. | 719,968 | 59,369 | |||
Westlake Chemical Corp. | 870,340 | 47,434 | |||
Ashland Global Holdings Inc. | 408,333 | 30,821 | |||
Quaker Chemical Corp. | 120,183 | 23,316 | |||
Balchem Corp. | 218,625 | 21,919 | |||
Stepan Co. | 152,777 | 16,683 | |||
HB Fuller Co. | 348,691 | 15,810 | |||
Sensient Technologies Corp. | 287,194 | 14,994 | |||
Hawkins Inc. | 72,256 | 3,723 | |||
1,831,991 | |||||
Consumer Goods (12.1%) | |||||
Procter & Gamble Co. | 16,733,073 | 2,194,041 | |||
PepsiCo Inc. | 9,415,883 | 1,296,190 | |||
NIKE Inc. Class B | 8,418,905 | 821,769 | |||
Colgate-Palmolive Co. | 5,793,782 | 447,280 | |||
Estee Lauder Cos. Inc. Class A | 1,506,840 | 297,661 | |||
Clorox Co. | 847,351 | 200,407 | |||
Hormel Foods Corp. | 3,621,763 | 184,203 | |||
McCormick & Co. Inc. | 837,814 | 163,290 | |||
VF Corp. | 2,673,000 | 161,342 | |||
Church & Dwight Co. Inc. | 1,665,083 | 160,397 | |||
Hershey Co. | 1,003,076 | 145,857 | |||
Brown-Forman Corp. Class B | 2,091,089 | 144,996 | |||
Genuine Parts Co. | 983,770 | 88,687 | |||
Hasbro Inc. | 927,893 | 67,514 | |||
Polaris Inc. | 417,316 | 43,247 | |||
Columbia Sportswear Co. | 456,849 | 34,647 | |||
Lancaster Colony Corp. | 186,478 | 29,574 | |||
WD-40 Co. | 92,897 | 18,259 | |||
J&J Snack Foods Corp. | 128,223 | 15,788 | |||
^ | Tootsie Roll Industries Inc. | 271,084 | 8,593 | ||
Andersons Inc. | 222,546 | 3,165 | |||
6,526,907 | |||||
Consumer Services (22.7%) | |||||
Walmart Inc. | 18,193,335 | 2,354,218 | |||
Home Depot Inc. | 7,391,444 | 1,962,354 | |||
Walt Disney Co. | 12,233,654 | 1,430,604 | |||
Comcast Corp. Class A | 30,787,140 | 1,317,690 | |||
McDonald’s Corp. | 5,051,415 | 981,389 | |||
Costco Wholesale Corp. | 2,993,499 | 974,474 | |||
Lowe’s Cos. Inc. | 5,194,936 | 773,578 | |||
Target Corp. | 3,433,899 | 432,259 | |||
TJX Cos. Inc. | 8,153,019 | 423,875 | |||
Ross Stores Inc. | 2,430,823 | 217,972 | |||
Marriott International Inc. Class A | 2,195,778 | 184,061 | |||
Sysco Corp. | 3,445,865 | 182,114 | |||
McKesson Corp. | 1,199,384 | 180,100 | |||
Best Buy Co. Inc. | 1,752,348 | 174,516 | |||
Kroger Co. | 4,422,241 | 153,850 | |||
AmerisourceBergen Corp. Class A | 1,394,181 | 139,683 | |||
Rollins Inc. | 2,222,415 | 116,455 | |||
FactSet Research Systems Inc. | 256,945 | 88,980 | |||
Williams-Sonoma Inc. | 525,120 | 45,748 | |||
Casey’s General Stores Inc. | 249,378 | 39,698 | |||
Wendy’s Co. | 1,511,933 | 35,047 |
4
Dividend Appreciation Index Fund
Market | |||||
Value· | |||||
Shares | ($000 | ) | |||
Aaron’s Inc. | 452,865 | 23,630 | |||
Monro Inc. | 225,832 | 12,714 | |||
John Wiley & Sons Inc. Class A | 319,181 | 10,798 | |||
Matthews International Corp. Class A | 212,307 | 4,586 | |||
12,260,393 | |||||
Financials (11.6%) | |||||
Visa Inc. Class A | 10,333,270 | 1,967,455 | |||
BlackRock Inc. | 1,049,080 | 603,231 | |||
S&P Global Inc. | 1,652,160 | 578,669 | |||
Marsh & McLennan Cos. Inc. | 3,413,406 | 398,003 | |||
Chubb Ltd. | 3,062,157 | 389,629 | |||
Moody’s Corp. | 1,269,466 | 357,101 | |||
T. Rowe Price Group Inc. | 1,598,634 | 220,771 | |||
Travelers Cos. Inc. | 1,726,832 | 197,584 | |||
Aflac Inc. | 4,906,285 | 174,517 | |||
MarketAxess Holdings Inc. | 257,039 | 132,812 | |||
Ameriprise Financial Inc. | 834,405 | 128,190 | |||
Broadridge Financial Solutions Inc. | 778,175 | 104,540 | |||
Brown & Brown Inc. | 1,904,840 | 86,613 | |||
Cincinnati Financial Corp. | 1,102,565 | 85,923 | |||
W R Berkley Corp. | 1,243,140 | 76,764 | |||
Erie Indemnity Co. Class A | 313,097 | 65,788 | |||
Raymond James Financial Inc. | 944,137 | 65,599 | |||
RenaissanceRe Holdings Ltd. | 344,183 | 62,084 | |||
Globe Life Inc. | 728,999 | 58,028 | |||
SEI Investments Co. | 1,016,567 | 53,197 | |||
Assurant Inc. | 405,504 | 43,579 | |||
Commerce Bancshares Inc. | 758,513 | 43,432 | |||
American Financial Group Inc. | 612,382 | 37,214 | |||
Reinsurance Group of America Inc. | 424,246 | 36,167 | |||
Prosperity Bancshares Inc. | 641,837 | 35,660 | |||
Cullen/Frost Bankers Inc. | 424,489 | 30,589 | |||
RLI Corp. | 304,443 | 26,831 | |||
BOK Financial Corp. | 478,810 | 26,670 | |||
Hanover Insurance Group Inc. | 260,550 | 26,545 | |||
Axis Capital Holdings Ltd. | 569,362 | 22,843 | |||
Community Bank System Inc. | 351,050 | 19,740 | |||
Cohen & Steers Inc. | 323,710 | 19,481 | |||
UMB Financial Corp. | 331,852 | 16,526 | |||
American Equity Investment Life Holding Co. | 619,424 | 15,764 | |||
International Bancshares Corp. | 442,336 | 13,456 | |||
Westamerica BanCorp | 183,898 | 11,100 | |||
Horace Mann Educators Corp. | 279,612 | 10,508 | |||
BancFirst Corp. | 221,841 | 9,663 | |||
Tompkins Financial Corp. | 101,369 | 6,541 | |||
Stock Yards Bancorp Inc. | 153,560 | 6,003 | |||
1st Source Corp. | 173,193 | 5,736 | |||
First Financial Corp. | 93,026 | 3,110 | |||
Bank of Marin Bancorp | 92,201 | 2,896 | |||
First of Long Island Corp. | 164,120 | 2,447 | |||
6,278,999 | |||||
Health Care (15.4%) | |||||
Johnson & Johnson | 14,567,717 | 2,123,390 | |||
UnitedHealth Group Inc. | 6,427,625 | 1,946,156 | |||
Abbott Laboratories | 11,949,169 | 1,202,564 | |||
Bristol-Myers Squibb Co. | 15,296,377 | 897,286 | |||
Medtronic plc | 9,079,867 | 876,026 | |||
Becton Dickinson and Co. | 1,837,482 | 516,957 | |||
Stryker Corp. | 2,538,228 | 490,640 | |||
West Pharmaceutical Services Inc. | 500,529 | 134,577 | |||
Chemed Corp. | 108,839 | 53,570 | |||
Perrigo Co. plc | 922,798 | 48,927 | |||
Ensign Group Inc. | 363,208 | 16,704 | |||
Atrion Corp. | 12,587 | 7,805 | |||
National HealthCare Corp. | 104,035 | 6,171 | |||
8,320,773 | |||||
Industrials (17.1%) | |||||
Accenture plc Class A | 4,303,169 | 967,266 | |||
Union Pacific Corp. | 4,676,770 | 810,718 | |||
Lockheed Martin Corp. | 1,910,289 | 723,942 | |||
Raytheon Technologies Corp. | 10,544,609 | 597,668 | |||
Caterpillar Inc. | 3,727,228 | 495,274 | |||
Sherwin-Williams Co. | 625,057 | 404,987 | |||
Illinois Tool Works Inc. | 2,160,836 | 399,733 | |||
Automatic Data Processing Inc. | 2,925,620 | 388,844 | |||
CSX Corp. | 5,243,788 | 374,092 | |||
Northrop Grumman Corp. | 1,136,051 | 369,228 |
5
Dividend Appreciation Index Fund
Market | |||||
Value· | |||||
Shares | ($000 | ) | |||
Waste Management Inc. | 2,877,935 | 315,422 | |||
FedEx Corp. | 1,769,343 | 297,957 | |||
General Dynamics Corp. | 1,962,917 | 288,038 | |||
Emerson Electric Co. | 4,146,611 | 257,131 | |||
Cintas Corp. | 702,614 | 212,098 | |||
Cummins Inc. | 1,017,520 | 196,646 | |||
Republic Services Inc. Class A | 2,160,187 | 188,476 | |||
Rockwell Automation Inc. | 786,989 | 171,674 | |||
Stanley Black & Decker Inc. | 1,043,008 | 159,914 | |||
WW Grainger Inc. | 363,195 | 124,042 | |||
Dover Corp. | 976,748 | 100,537 | |||
Expeditors International of Washington Inc. | 1,150,875 | 97,260 | |||
JB Hunt Transport Services Inc. | 722,482 | 93,489 | |||
Jack Henry & Associates Inc. | 520,053 | 92,726 | |||
CH Robinson Worldwide Inc. | 914,571 | 85,714 | |||
IDEX Corp. | 516,739 | 85,169 | |||
Nordson Corp. | 391,380 | 75,783 | |||
Lennox International Inc. | 261,658 | 70,161 | |||
Graco Inc. | 1,138,207 | 60,598 | |||
Snap-on Inc. | 370,527 | 54,049 | |||
Toro Co. | 728,831 | 52,002 | |||
AptarGroup Inc. | 434,185 | 50,018 | |||
Hubbell Inc. Class B | 368,981 | 49,801 | |||
Carlisle Cos. Inc. | 378,986 | 45,130 | |||
A O Smith Corp. | 921,457 | 44,359 | |||
Donaldson Co. Inc. | 857,755 | 41,464 | |||
Robert Half International Inc. | 780,368 | 39,697 | |||
Lincoln Electric Holdings Inc. | 409,159 | 36,984 | |||
HEICO Corp. | 367,074 | 35,283 | |||
Sonoco Products Co. | 678,378 | 35,099 | |||
ITT Inc. | 595,077 | 34,354 | |||
MSA Safety Inc. | 263,380 | 31,218 | |||
Silgan Holdings Inc. | 750,783 | 28,718 | |||
MDU Resources Group Inc. | 1,358,351 | 28,498 | |||
Regal Beloit Corp. | 275,492 | 25,337 | |||
Franklin Electric Co. Inc. | 314,781 | 17,014 | |||
Applied Industrial Technologies Inc. | 262,374 | 16,561 | |||
ABM Industries Inc. | 452,923 | 16,260 | |||
Brady Corp. Class A | 337,442 | 15,512 | |||
Hillenbrand Inc. | 506,971 | 14,819 | |||
Badger Meter Inc. | 197,538 | 12,366 | |||
McGrath RentCorp | 164,855 | 9,565 | |||
Tennant Co. | 124,504 | 8,295 | |||
Lindsay Corp. | 73,371 | 7,115 | |||
Gorman-Rupp Co. | 177,318 | 5,366 | |||
Cass Information Systems Inc. | 98,737 | 3,538 | |||
9,263,009 | |||||
Technology (12.4%) | |||||
Microsoft Corp. | 12,092,506 | 2,479,085 | |||
Oracle Corp. | 21,734,837 | 1,205,197 | |||
QUALCOMM Inc. | 7,744,468 | 817,893 | |||
Texas Instruments Inc. | 6,329,814 | 807,368 | |||
Roper Technologies Inc. | 719,040 | 310,949 | |||
Analog Devices Inc. | 2,494,648 | 286,510 | |||
L3Harris Technologies Inc. | 1,497,434 | 252,063 | |||
KLA Corp. | 1,061,943 | 212,208 | |||
Xilinx Inc. | 1,685,149 | 180,901 | |||
Microchip Technology Inc. | 1,622,340 | 165,040 | |||
6,717,214 | |||||
Telecommunications (0.0%) | |||||
Telephone and Data Systems Inc. | 729,770 | 14,172 | |||
Utilities (4.9%) | |||||
NextEra Energy Inc. | 3,313,749 | 930,169 | |||
American Electric Power Co. Inc. | 3,347,419 | 290,824 | |||
Xcel Energy Inc. | 3,554,206 | 245,382 | |||
WEC Energy Group Inc. | 2,136,668 | 203,539 | |||
Eversource Energy | 2,234,852 | 201,293 | |||
American Water Works Co. Inc. | 1,225,672 | 180,505 | |||
CMS Energy Corp. | 1,926,559 | 123,647 | |||
Alliant Energy Corp. | 1,657,864 | 89,276 | |||
Atmos Energy Corp. | 828,806 | 87,845 | |||
Essential Utilities Inc. | 1,510,217 | 68,488 | |||
UGI Corp. | 1,413,673 | 47,132 | |||
Portland General Electric Co. | 605,928 | 26,740 | |||
Southwest Gas Holdings Inc. | 370,235 | 25,783 | |||
Black Hills Corp. | 425,275 | 24,607 | |||
New Jersey Resources Corp. | 647,562 | 20,113 | |||
American States Water Co. | 249,782 | 19,203 | |||
MGE Energy Inc. | 234,905 | 15,581 | |||
California Water Service Group | 328,881 | 15,415 | |||
SJW Group | 193,079 | 12,060 |
6
Dividend Appreciation Index Fund
Market | |||||
Value· | |||||
Shares | ($000 | ) | |||
Northwest Natural Holding Co. | 206,505 | 11,046 | |||
Chesapeake Utilities Corp. | 111,326 | 9,406 | |||
Middlesex Water Co. | 118,301 | 7,578 | |||
York Water Co. | 88,108 | 4,080 | |||
2,659,712 | |||||
Total Common Stocks | |||||
(Cost $39,411,688) | 53,873,170 | ||||
Temporary Cash Investments (0.3%) | |||||
Money Market Fund (0.3%) | |||||
1,2 | Vanguard Market Liquidity Fund, 0.194% | 1,669,456 | 166,946 | ||
Face | |||||
Amount | |||||
($000 | ) | ||||
U.S. Government and Agency Obligations (0.0%) | |||||
United States Cash Management Bill, 0.210%, 9/15/20 | 555 | 555 | |||
3 | United States Cash Management Bill, 0.116%, 9/29/20 | 2,800 | 2,799 | ||
3 | United States Cash Management Bill, 0.145%, 12/15/20 | 5,200 | 5,198 | ||
8,552 |
Total Temporary Cash Investments | ||
(Cost $175,457) | 175,498 | |
Total Investments (99.9%) | ||
(Cost $39,587,145) | 54,048,668 | |
Other Assets and Liabilities—Net (0.1%) | 48,059 | |
Net Assets (100%) | 54,096,727 |
Cost is in $000.
· | 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 $7,957,000. |
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 | Collateral of $8,032,000 was received for securities on loan. |
3 | Securities with a value of $7,927,000 have been segregated as initial margin for open futures contracts. |
7
Dividend Appreciation 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 2020 | 643 | 104,922 | 5,307 |
Over-the-Counter Total Return Swaps | ||||||
Floating | ||||||
Interest | ||||||
Rate | Value and | Value and | ||||
Notional | Received | Unrealized | Unrealized | |||
Termination | Amount | (Paid)1 | Appreciation | (Depreciation) | ||
Reference Entity | Date | Counterparty | ($000) | (%) | ($000) | ($000) |
Kroger Co. | 2/2/21 | GSI | 33,770 | (0.181) | 1,018 | — |
Visa Inc. Class A | 9/2/20 | BOANA | 85,961 | (0.062) | — | (1,237) |
1,018 | (1,237) |
1 | Based on 1-month USD London Interbank Offered Rate (LIBOR) as of the most recent payment date. Floating interest payment received/paid monthly. |
BOANA—Bank of America, N.A.
GSI—Goldman Sachs International.
At July 31, 2020, the counterparties had deposited in segregated accounts securities with a value of $1,077,000 in connection with open over-the-counter swap contracts.
See accompanying Notes, which are an integral part of the Financial Statements.
8
Dividend Appreciation Index Fund
Statement of Assets and Liabilities
As of July 31, 2020
($000s, except shares and per-share amounts) | Amount | |||
Assets | ||||
Investments in Securities, at Value | ||||
Unaffiliated Issuers (Cost $39,420,239) | 53,881,722 | |||
Affiliated Issuers (Cost $166,906) | 166,946 | |||
Total Investments in Securities | 54,048,668 | |||
Investment in Vanguard | 2,291 | |||
Cash | 17 | |||
Receivables for Accrued Income | 57,542 | |||
Receivables for Capital Shares Issued | 5,297 | |||
Variation Margin Receivable—Futures Contracts | 479 | |||
Unrealized Appreciation—Over-the-Counter Swap Contracts | 1,018 | |||
Total Assets | 54,115,312 | |||
Liabilities | ||||
Payables for Investment Securities Purchased | 39 | |||
Collateral for Securities on Loan | 8,032 | |||
Payables for Capital Shares Redeemed | 7,593 | |||
Payables to Vanguard | 1,684 | |||
Unrealized Depreciation—Over-the-Counter Swap Contracts | 1,237 | |||
Total Liabilities | 18,585 | |||
Net Assets | 54,096,727 | |||
At July 31, 2020, net assets consisted of: | ||||
Paid-in Capital | 40,757,244 | |||
Total Distributable Earnings (Loss) | 13,339,483 | |||
Net Assets | 54,096,727 | |||
ETF Shares—Net Assets | ||||
Applicable to 362,637,464 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 44,619,324 | |||
Net Asset Value Per Share—ETF Shares | $123.04 | |||
Admiral Shares—Net Assets | ||||
Applicable to 283,831,062 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 9,477,403 | |||
Net Asset Value Per Share—Admiral Shares | $33.39 |
See accompanying Notes, which are an integral part of the Financial Statements.
9
Dividend Appreciation Index Fund
Statement of Operations
Six Months Ended | ||||
July 31, 2020 | ||||
($000 | ) | |||
Investment Income | ||||
Income | ||||
Dividends | 494,209 | |||
Interest1 | 560 | |||
Securities Lending—Net | 1,862 | |||
Total Income | 496,631 | |||
Expenses | ||||
The Vanguard Group—Note B | ||||
Investment Advisory Services | 1,311 | |||
Management and Administrative—ETF Shares | 9,703 | |||
Management and Administrative—Admiral Shares | 3,013 | |||
Marketing and Distribution—ETF Shares | 872 | |||
Marketing and Distribution—Admiral Shares | 266 | |||
Custodian Fees | 146 | |||
Shareholders’ Reports—ETF Shares | 561 | |||
Shareholders’ Reports—Admiral Shares | 63 | |||
Trustees’ Fees and Expenses | 18 | |||
Total Expenses | 15,953 | |||
Expenses Paid Indirectly | (97 | ) | ||
Net Expenses | 15,856 | |||
Net Investment Income | 480,775 | |||
Realized Net Gain (Loss) | ||||
Investment Securities Sold1,2 | (459,700 | ) | ||
Futures Contracts | (5,898 | ) | ||
Swap Contracts | 7,660 | |||
Realized Net Gain (Loss) | (457,938 | ) | ||
Change in Unrealized Appreciation (Depreciation) | ||||
Investment Securities1 | (330,212 | ) | ||
Futures Contracts | 3,878 | |||
Swap Contracts | (3,196 | ) | ||
Change in Unrealized Appreciation (Depreciation) | (329,530 | ) | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | (306,693 | ) |
1 | Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $529,000, $7,000, and $24,000, respectively. Purchases and sales are for temporary cash investment purposes. | |
2 | Includes $860,940,000 of net gain (loss) resulting from in-kind redemptions. |
See accompanying Notes, which are an integral part of the Financial Statements.
10
Dividend Appreciation Index Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | ||||
July 31, | January 31, | ||||
2020 | 2020 | ||||
($000 | ) | ($000 | ) | ||
Increase (Decrease) in Net Assets | |||||
Operations | |||||
Net Investment Income | 480,775 | 865,655 | |||
Realized Net Gain (Loss) | (457,938 | ) | 1,514,420 | ||
Change in Unrealized Appreciation (Depreciation) | (329,530 | ) | 6,739,343 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | (306,693 | ) | 9,119,418 | ||
Distributions1 | |||||
Investor Shares | — | (8,596 | ) | ||
ETF Shares | (385,043 | ) | (677,362 | ) | |
Admiral Shares | (81,908 | ) | (151,843 | ) | |
Total Distributions | (466,951 | ) | (837,801 | ) | |
Capital Share Transactions | |||||
Investor Shares | — | (1,174,095 | ) | ||
ETF Shares | 2,928,019 | 4,581,785 | |||
Admiral Shares | (229,301 | ) | 1,720,389 | ||
Net Increase (Decrease) from Capital Share Transactions | 2,698,718 | 5,128,079 | |||
Total Increase (Decrease) | 1,925,074 | 13,409,696 | |||
Net Assets | |||||
Beginning of Period | 52,171,653 | 38,761,957 | |||
End of Period | 54,096,727 | 52,171,653 |
1 | Certain prior period numbers have been reclassified to conform with current period presentation. |
See accompanying Notes, which are an integral part of the Financial Statements.
11
Dividend Appreciation Index Fund
Financial Highlights
ETF Shares | ||||||
Six Months | ||||||
Ended | ||||||
For a Share Outstanding | July 31, | Year Ended January 31, | ||||
Throughout Each Period | 2020 | 2020 | 2019 | 2018 | 2017 | 2016 |
Net Asset Value, Beginning of Period | $125.38 | $104.09 | $107.10 | $86.66 | $75.98 | $78.42 |
Investment Operations | ||||||
Net Investment Income | 1.1121 | 2.2141 | 2.0841 | 1.9511 | 1.810 | 1.759 |
Net Realized and Unrealized Gain (Loss) on Investments | (2.377) | 21.210 | (3.056) | 20.408 | 10.696 | (2.380) |
Total from Investment Operations | (1.265) | 23.424 | (.972) | 22.359 | 12.506 | (.621) |
Distributions | ||||||
Dividends from Net Investment Income | (1.075) | (2.134) | (2.038) | (1.919) | (1.826) | (1.819) |
Distributions from Realized Capital Gains | — | — | — | — | — | — |
Total Distributions | (1.075) | (2.134) | (2.038) | (1.919) | (1.826) | (1.819) |
Net Asset Value, End of Period | $123.04 | $125.38 | $104.09 | $107.10 | $86.66 | $75.98 |
Total Return | -0.91% | 22.68% | -0.87% | 26.10% | 16.59% | -0.84% |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $44,619 | $42,217 | $30,969 | $28,717 | $22,698 | $18,771 |
Ratio of Total Expenses to Average Net Assets | 0.06% | 0.06% | 0.06% | 0.08% | 0.08% | 0.09% |
Ratio of Net Investment Income to Average Net Assets | 1.93% | 1.90% | 2.01% | 2.06% | 2.20% | 2.21% |
Portfolio Turnover Rate2 | 27% | 14% | 16% | 14% | 19% | 22% |
The expense ratio and net investment income ratio for the current period have been annualized.
1 | Calculated based on average shares outstanding. |
2 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
See accompanying Notes, which are an integral part of the Financial Statements.
12
Dividend Appreciation Index Fund
Financial Highlights
Admiral Shares | ||||||
Six Months | ||||||
Ended | ||||||
For a Share Outstanding | July 31, | Year Ended January 31, | ||||
Throughout Each Period | 2020 | 2020 | 2019 | 2018 | 2017 | 2016 |
Net Asset Value, Beginning of Period | $34.03 | $28.25 | $29.07 | $23.52 | $20.62 | $21.28 |
Investment Operations | ||||||
Net Investment Income | .2991 | .5941 | .5601 | .5281 | .492 | .478 |
Net Realized and Unrealized Gain (Loss) on Investments | (.651) | 5.757 | (.830) | 5.542 | 2.903 | (.644) |
Total from Investment Operations | (.352) | 6.351 | (.270) | 6.070 | 3.395 | (.166) |
Distributions | ||||||
Dividends from Net Investment Income | (.288) | (.571) | (.550) | (.520) | (.495) | (.494) |
Distributions from Realized Capital Gains | — | — | — | — | — | — |
Total Distributions | (.288) | (.571) | (.550) | (.520) | (.495) | (.494) |
Net Asset Value, End of Period | $33.39 | $34.03 | $28.25 | $29.07 | $23.52 | $20.62 |
Total Return2 | -0.90% | 22.65% | -0.89% | 26.11% | 16.58% | -0.83% |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $9,477 | $9,955 | $6,755 | $6,014 | $4,294 | $3,215 |
Ratio of Total Expenses to Average Net Assets | 0.08% | 0.08% | 0.08% | 0.08% | 0.08% | 0.09% |
Ratio of Net Investment Income to Average Net Assets | 1.92% | 1.87% | 1.99% | 2.06% | 2.20% | 2.21% |
Portfolio Turnover Rate3 | 27% | 14% | 16% | 14% | 19% | 22% |
The expense ratio and net investment income ratio for the current period have been annualized.
1 | Calculated based on average shares outstanding. |
2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
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
Dividend Appreciation Index Fund
Notes to Financial Statements
Vanguard Dividend Appreciation 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. Each of the share classes has different eligibility and minimum purchase requirements, and is designed for different types of investors. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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 at their fair values calculated according to procedures adopted by the board of trustees. 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, 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 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. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. 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 gains (losses) on futures contracts.
During the six months ended July 31, 2020, 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.
14
Dividend Appreciation Index Fund
3. Swap Contracts: The fund has entered into equity swap contracts to earn the total return on selected reference stocks in the fund’s target index. Under the terms of the swaps, the fund receives the total return on the referenced stock (i.e., receiving the increase or paying the decrease in value of the selected reference stock and receiving the equivalent of any dividends in respect of the selected referenced stock) over a specified period of time, applied to a notional amount that represents the value of a designated number of shares of the selected reference stock at the beginning of the equity swap contract. The fund also pays a floating rate that is based on short-term interest rates, applied to the notional amount. At the same time, the fund generally invests an amount approximating the notional amount of the swap in high-quality temporary cash investments.
The notional amounts of swap contracts are not recorded in the Schedule of Investments. Swaps are valued daily based on market quotations received from independent pricing services or recognized dealers and the change in value is recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until periodic payments are made or the termination of the swap, at which time realized gain (loss) is recorded.
A risk associated with all types of swaps is the possibility that a counterparty may default on its obligation to pay net amounts due to the fund. The fund’s maximum amount subject to counterparty risk is the unrealized appreciation on the swap contract. The fund mitigates its counterparty risk by entering into swaps 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. In the event of a counterparty’s default (including bankruptcy), the fund may terminate any swap contracts with that counterparty, 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 swap contracts contain provisions whereby a counterparty may terminate open contracts if the fund 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 securities pledged as collateral for open contracts are noted in the Schedule of Investments. The value of collateral received or pledged is compared daily to the value of the swap 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.
During the six months ended July 31, 2020, the fund’s average amounts of investments in total return swaps represented less than 1% of net assets, based on the average of notional amounts at each quarter-end during the period.
4. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (January 31, 2017–2020), and for the period ended July 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
15
Dividend Appreciation Index Fund
6. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled before the opening of the market 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 Assets and Liabilities for the return of the collateral, during the period the securities are on loan. Collateral investments in Vanguard Market Liquidity Fund are subject to market appreciation or depreciation. 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 Facilities and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be utilized for temporary or emergency purposes, subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn committed 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 either facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread, except that borrowings under the uncommitted credit facility may bear interest based upon an alternative rate agreed to by the fund and Vanguard.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
16
Dividend Appreciation Index Fund
For the six months ended July 31, 2020, the fund did not utilize the credit facilities or the Interfund Lending Program.
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 are amortized and accreted, respectively, to interest income over the lives of the respective securities, except for premiums on certain callable debt securities that are amortized to the earliest call date. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At July 31, 2020, the fund had contributed to Vanguard capital in the amount of $2,291,000, representing less than 0.01% of the fund’s net assets and 0.92% of Vanguard’s capital received pursuant to the FSA. 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 six months ended July 31, 2020, custodian fee offset arrangements reduced the fund’s expenses by $97,000 (an annual rate less than 0.01% 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 investments valued with significant unobservable inputs are noted on the Schedule of Investments.
17
Dividend Appreciation Index Fund
The following table summarizes the market value of the fund’s investments and derivatives as of July 31, 2020, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | Total | |
($000) | ($000) | ($000) | ($000) | |
Investments | ||||
Assets | ||||
Common Stocks | 53,873,170 | — | — | 53,873,170 |
Temporary Cash Investments | 166,946 | 8,552 | — | 175,498 |
Total | 54,040,116 | 8,552 | — | 54,048,668 |
Derivative Financial Instruments | ||||
Assets | ||||
Futures Contracts1 | 479 | — | — | 479 |
Swap Contracts | — | 1,018 | — | 1,018 |
Total | 479 | 1,018 | — | 1,497 |
Liabilities | ||||
Swap Contracts | — | 1,237 | — | 1,237 |
1 Represents variation margin on the last day of the reporting period.
E. As of July 31, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | |
($000) | |
Tax Cost | 39,587,145 |
Gross Unrealized Appreciation | 14,933,018 |
Gross Unrealized Depreciation | (466,407) |
Net Unrealized Appreciation (Depreciation) | 14,466,611 |
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at January 31, 2020, the fund had available capital losses totaling $748,618,000 that may be carried forward indefinitely to offset future net capital gains. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending January 31, 2021; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
F. During the six months ended July 31, 2020, the fund purchased $18,354,418,000 of investment securities and sold $15,662,944,000 of investment securities, other than temporary cash investments. Purchases and sales include $4,582,239,000 and $1,953,398,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
18
Dividend Appreciation Index Fund
G. Capital share transactions for each class of shares were:
Six Months Ended | Year Ended | |||||||||
July 31, 2020 | January 31, 2020 | |||||||||
Amount | Shares | Amount | Shares | |||||||
($000 | ) | (000 | ) | ($000 | ) | (000 | ) | |||
Investor Shares | ||||||||||
Issued | — | — | 254,211 | 5,369 | ||||||
Issued in Lieu of Cash Distributions | — | — | 7,936 | 179 | ||||||
Redeemed1 | — | — | (1,436,242 | ) | (30,460 | ) | ||||
Net Increase (Decrease)—Investor Shares | — | — | (1,174,095 | ) | (24,912 | ) | ||||
ETF Shares | ||||||||||
Issued | 4,884,361 | 43,612 | 9,814,909 | 85,404 | ||||||
Issued in Lieu of Cash Distributions | — | — | — | — | ||||||
Redeemed | (1,956,342 | ) | (17,675 | ) | (5,233,124 | ) | (46,225 | ) | ||
Net Increase (Decrease)—ETF Shares | 2,928,019 | 25,937 | 4,581,785 | 39,179 | ||||||
Admiral Shares | ||||||||||
Issued1 | 1,331,993 | 43,171 | 3,452,025 | 108,647 | ||||||
Issued in Lieu of Cash Distributions | 70,311 | 2,437 | 130,515 | 4,114 | ||||||
Redeemed | (1,631,605 | ) | (54,345 | ) | (1,862,151 | ) | (59,339 | ) | ||
Net Increase (Decrease)—Admiral Shares | (229,301 | ) | (8,737 | ) | 1,720,389 | 53,422 |
1 | In November 2018, the fund announced changes to the availability and minimum investment criteria of the Investor and Admiral Share classes. As a result, all of the outstanding Investor Shares automatically converted to Admiral Shares beginning in April 2019. Investor Shares—Redeemed and Admiral Shares—Issued include 26,826,000 and 39,551,000 shares, respectively, in the amount of $1,130,304,000 from the conversion during the year ended January 31, 2020. |
H. Management has determined that no events or transactions occurred subsequent to July 31, 2020, that would require recognition or disclosure in these financial statements.
19
Trustees Approve Advisory Arrangement
The board of trustees of Vanguard Dividend Appreciation 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 during 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 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 four 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.
20
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 the peer-group average.
The board does not conduct a profitability analysis of Vanguard because of Vanguard’s unique structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees.
The benefit of economies of scale
The board concluded that the fund’s 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.
21
Liquidity Risk Management
Vanguard funds (except for the money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining investors’ interests in the fund.
Assessment and management of a fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and limiting holdings of illiquid investments.
The board of trustees of Vanguard Specialized Funds approved the appointment of liquidity risk management program administrators responsible for administering Vanguard Dividend Appreciation Index Fund’s Program and for carrying out the specific responsibilities set forth in the Program, including reporting to the board on at least an annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for the past year (the “Program Administrator Report”). The board has reviewed the Program Administrator Report covering the period from December 1, 2018, through December 31, 2019 (the “Review Period”). The Program Administrator Report stated that during the Review Period the Program operated and was implemented effectively to manage the fund’s liquidity risk.
22
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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.
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, www.sec.gov. In addition, you may obtain a free report on how your fund voted the proxies for securities it owned during the 12 months ended June 30. To get the report, visit either vanguard.com/proxyreporting or www.sec.gov.
You can review information about your fund on the SEC’s website, and you can receive copies of this information, for a fee, by sending a request via email addressed to publicinfo@sec.gov.
© 2020 The Vanguard Group, Inc. | |
All rights reserved. | |
U.S. Patent Nos. 6,879,964; 7,337,138; | |
7,720,749; 7,925,573; 8,090,646; 8,417,623; and 8,626,636. | |
Vanguard Marketing Corporation, Distributor. | |
Q6022 092020 |
Semiannual Report | July 31, 2020
Vanguard Global ESG Select Stock Fund
|
See the inside front cover for important information about access to your fund’s annual and semiannual shareholder reports.
|
Important information about access to shareholder reports
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your fund’s annual and semiannual shareholder reports will no longer be sent to you by mail, unless you specifically request them. Instead, you will be notified by mail each time a report is posted on the website and will be provided with a link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. You may elect to receive shareholder reports and other communications from the fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with the fund, by calling Vanguard at one of the phone numbers on the back cover of this report or by logging on to vanguard.com.
You may elect to receive paper copies of all future shareholder reports free of charge. If you invest through a financial intermediary, you can contact the intermediary to request that you continue to receive paper copies. If you invest directly with the fund, you can call Vanguard at one of the phone numbers on the back cover of this report or log on to vanguard.com. Your election to receive paper copies will apply to all the funds you hold through an intermediary or directly with Vanguard.
Contents | |
About Your Fund’s Expenses | 1 |
Financial Statements | 4 |
Liquidity Risk Management | 15 |
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.
1
Six Months Ended July 31, 2020
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
Global ESG Select Stock Fund | 1/31/2020 | 7/31/2020 | Period |
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $1,005.58 | $2.74 |
Admiral™ Shares | 1,000.00 | 1,006.22 | 2.24 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,022.13 | $2.77 |
Admiral Shares | 1,000.00 | 1,022.63 | 2.26 |
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 0.55% for Investor Shares and 0.45% 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 (182/366).
2
Global ESG Select Stock Fund
Fund Allocation
As of July 31, 2020
Communication Services | 2.8% |
Consumer Discretionary | 16.9 |
Consumer Staples | 2.9 |
Financials | 20.1 |
Health Care | 10.4 |
Industrials | 15.3 |
Information Technology | 20.1 |
Materials | 4.6 |
Real Estate | 2.4 |
Utilities | 4.5 |
The table reflects the fund’s investments, except for short-term investments and derivatives. 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.
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.
3
Global ESG Select Stock Fund
Financial Statements (unaudited)
Schedule of Investments
As of July 31, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | |||||
Value* | |||||
Shares | ($000 | ) | |||
Common Stocks (95.3%) | |||||
Brazil (1.5%) | |||||
B3 SA - Brasil Bolsa Balcao | 179,800 | 2,187 | |||
Canada (4.9%) | |||||
BCE Inc. | 91,052 | 3,817 | |||
Bank of Nova Scotia | 74,402 | 3,056 | |||
6,873 | |||||
Denmark (1.9%) | |||||
Vestas Wind Systems A/S | 21,028 | 2,695 | |||
France (7.2%) | |||||
Cie Generale des Etablissements Michelin SCA | 37,040 | 3,836 | |||
Schneider Electric SE | 31,795 | 3,646 | |||
LVMH Moet Hennessy Louis Vuitton SE | 6,209 | 2,700 | |||
10,182 | |||||
Hong Kong (2.4%) | |||||
AIA Group Ltd. | 377,400 | 3,403 | |||
Japan (4.6%) | |||||
Recruit Holdings Co. Ltd. | 106,600 | 3,325 | |||
Mitsubishi UFJ Financial Group Inc. | 835,000 | 3,129 | |||
6,454 | |||||
Netherlands (6.1%) | |||||
Koninklijke DSM NV | 23,766 | 3,638 | |||
ING Groep NV | 395,500 | 2,758 | |||
Wolters Kluwer NV | 28,155 | 2,222 | |||
8,618 | |||||
Singapore (2.9%) | |||||
DBS Group Holdings Ltd. | 283,200 | 4,091 | |||
Spain (5.6%) | |||||
Industria de Diseno Textil SA | 158,117 | 4,190 | |||
* | Iberdrola SA (XMAD) | 269,771 | 3,487 | ||
* | Iberdrola SA | 5,996 | 77 | ||
7,754 | |||||
Sweden (1.7%) | |||||
Atlas Copco AB Class A | 53,847 | 2,390 | |||
Switzerland (2.3%) | |||||
Novartis AG | 39,717 | 3,271 | |||
Taiwan (2.9%) | |||||
Taiwan Semiconductor Manufacturing Co. Ltd. | 278,000 | 4,046 | |||
United Kingdom (1.9%) | |||||
Compass Group plc | 191,838 | 2,640 | |||
United States (49.4%) | |||||
Microsoft Corp. | 37,147 | 7,616 | |||
Merck & Co. Inc. | 64,017 | 5,137 | |||
Starbucks Corp. | 61,662 | 4,719 | |||
Home Depot Inc. | 17,021 | 4,519 | |||
Deere & Co. | 25,506 | 4,497 | |||
Progressive Corp. | 48,709 | 4,400 | |||
Visa Inc. Class A | 23,016 | 4,382 | |||
Texas Instruments Inc. | 31,208 | 3,981 | |||
Northern Trust Corp. | 49,887 | 3,909 | |||
Colgate-Palmolive Co. | 50,315 | 3,884 | |||
Automatic Data Processing Inc. | 28,391 | 3,773 | |||
Prologis Inc. | 30,617 | 3,228 | |||
Accenture plc Class A | 13,810 | 3,104 | |||
Danaher Corp. | 14,145 | 2,883 | |||
Baxter International Inc. | 31,204 | 2,695 |
4
Global ESG Select Stock Fund
Market | |||||
Value· | |||||
Shares | ($000 | ) | |||
NextEra Energy Inc. | 8,992 | 2,524 | |||
Ecolab Inc. | 13,275 | 2,483 | |||
Trane Technologies plc | 15,201 | 1,701 | |||
69,435 | |||||
Total Common Stocks (Cost $124,585) | 134,039 | ||||
Temporary Cash Investment (4.6%) | |||||
Money Market Fund (4.6%) | |||||
1 | Vanguard Market Liquidity Fund (Cost $6,446) 0.194% | 64,474 | 6,447 | ||
Total Investments (99.9%) (Cost $131,031) | 140,486 | ||||
Other Assets and Liabilities—Net (0.1%) | 207 | ||||
Net Assets (100%) | 140,693 |
Cost is in $000.
· | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
1 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
See accompanying Notes, which are an integral part of the Financial Statements.
5
Global ESG Select Stock Fund
Statement of Assets and Liabilities
As of July 31, 2020
($000s, except shares and per-share amounts) | Amount |
Assets | |
Investments in Securities, at Value | |
Unaffiliated Issuers (Cost $124,585) | 134,039 |
Affiliated Issuers (Cost $6,446) | 6,447 |
Total Investments in Securities | 140,486 |
Investment in Vanguard | 6 |
Foreign Currency, at Value (Cost $1) | 1 |
Receivables for Accrued Income | 170 |
Receivables for Capital Shares Issued | 616 |
Total Assets | 141,279 |
Liabilities | |
Payables for Investment Securities Purchased | 162 |
Payables to Investment Advisor | 72 |
Payables for Capital Shares Redeemed | 334 |
Payables to Vanguard | 18 |
Total Liabilities | 586 |
Net Assets | 140,693 |
At July 31, 2020, net assets consisted of: | |
Paid-in Capital | 130,458 |
Total Distributable Earnings (Loss) | 10,235 |
Net Assets | 140,693 |
Investor Shares—Net Assets | |
Applicable to 1,836,875 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 41,188 |
Net Asset Value Per Share—Investor Shares | $22.42 |
Admiral Shares—Net Assets | |
Applicable to 3,548,610 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 99,505 |
Net Asset Value Per Share—Admiral Shares | $28.04 |
See accompanying Notes, which are an integral part of the Financial Statements.
6
Global ESG Select Stock Fund
Statement of Operations
Six Months Ended | ||
July 31, 2020 | ||
($000 | ) | |
Investment Income | ||
Income | ||
Dividends1 | 1,468 | |
Interest2 | 21 | |
Total Income | 1,489 | |
Expenses | ||
The Vanguard Group—Note B | ||
Investment Advisory Services | 134 | |
Management and Administrative—Investor Shares | 51 | |
Management and Administrative—Admiral Shares | 86 | |
Marketing and Distribution—Investor Shares | 2 | |
Marketing and Distribution—Admiral Shares | 3 | |
Custodian Fees | 6 | |
Shareholders’ Reports—Investor Shares | 2 | |
Shareholders’ Reports—Admiral Shares | — | |
Total Expenses | 284 | |
Net Investment Income | 1,205 | |
Realized Net Gain (Loss) | ||
Investment Securities Sold2 | (238 | ) |
Foreign Currencies | 5 | |
Realized Net Gain (Loss) | (233 | ) |
Change in Unrealized Appreciation (Depreciation) | ||
Investment Securities2 | 2,170 | |
Foreign Currencies | 6 | |
Change in Unrealized Appreciation (Depreciation) | 2,176 | |
Net Increase (Decrease) in Net Assets Resulting from Operations | 3,148 |
1 | Dividends are net of foreign withholding taxes of $109,000. |
2 | Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $20,000, ($2,000), and $1,000, respectively. Purchases and sales are for temporary cash investment purposes. |
See accompanying Notes, which are an integral part of the Financial Statements.
7
Global ESG Select Stock Fund
Statement of Changes in Net Assets
May 21, | ||||
Six Months Ended | 20191 to | |||
July 31, | January 31, | |||
2020 | 2020 | |||
($000 | ) | ($000 | ) | |
Increase (Decrease) in Net Assets | ||||
Operations | ||||
Net Investment Income | 1,205 | 954 | ||
Realized Net Gain (Loss) | (233 | ) | (159 | ) |
Change in Unrealized Appreciation (Depreciation) | 2,176 | 7,283 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | 3,148 | 8,078 | ||
Distributions2 | ||||
Investor Shares | (62 | ) | (226 | ) |
Admiral Shares | (162 | ) | (541 | ) |
Total Distributions | (224 | ) | (767 | ) |
Capital Share Transactions | ||||
Investor Shares | 7,153 | 31,199 | ||
Admiral Shares | 23,159 | 68,947 | ||
Net Increase (Decrease) from Capital Share Transactions | 30,312 | 100,146 | ||
Total Increase (Decrease) | 33,236 | 107,457 | ||
Net Assets | ||||
Beginning of Period | 107,457 | — | ||
End of Period | 140,693 | 107,457 |
1 | Commencement of subscription period for the fund. |
2 | Certain prior period numbers have been reclassified to conform with current period presentation. |
See accompanying Notes, which are an integral part of the Financial Statements.
8
Global ESG Select Stock Fund
Financial Highlights
Investor Shares
Six Months | May 21, | |
Ended | 20191 to | |
July 31, | Jan. 31, | |
For a Share Outstanding Throughout Each Period | 2020 | 2020 |
Net Asset Value, Beginning of Period | $22.34 | $20.00 |
Investment Operations | ||
Net Investment Income2 | .203 | .258 |
Net Realized and Unrealized Gain (Loss) on Investments | (.086) | 2.257 |
Total from Investment Operations | .117 | 2.515 |
Distributions | ||
Dividends from Net Investment Income | (.037) | (.167) |
Distributions from Realized Capital Gains | — | (.008) |
Total Distributions | (.037) | (.175) |
Net Asset Value, End of Period | $22.42 | $22.34 |
Total Return3 | 0.56% | 12.57% |
Ratios/Supplemental Data | ||
Net Assets, End of Period (Millions) | $41 | $34 |
Ratio of Total Expenses to Average Net Assets | 0.55% | 0.58%4,5 |
Ratio of Net Investment Income to Average Net Assets | 1.97% | 1.81%4 |
Portfolio Turnover Rate | 12% | 15% |
The expense ratio and net investment income ratio for the current period have been annualized.
1 | The subscription period for the fund was May 21, 2019, to June 4, 2019, during which time all assets were held in cash. Performance measurement began June 5, 2019, the first business day after the subscription period, at a net asset value of $20.00. |
2 | Calculated based on average shares outstanding. |
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 | Annualized. |
5 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.55%. |
See accompanying Notes, which are an integral part of the Financial Statements.
9
Global ESG Select Stock Fund
Financial Highlights
Admiral Shares
Six Months | May 21, | |
Ended | 20191 to | |
July 31, | Jan. 31, | |
For a Share Outstanding Throughout Each Period | 2020 | 2020 |
Net Asset Value, Beginning of Period | $27.93 | $25.00 |
Investment Operations | ||
Net Investment Income2 | .267 | .338 |
Net Realized and Unrealized Gain (Loss) on Investments | (.105) | 2.823 |
Total from Investment Operations | .162 | 3.161 |
Distributions | ||
Dividends from Net Investment Income | (.052) | (.221) |
Distributions from Realized Capital Gains | — | (.010) |
Total Distributions | (.052) | (.231) |
Net Asset Value, End of Period | $28.04 | $27.93 |
Total Return3 | 0.62% | 12.64% |
Ratios/Supplemental Data | ||
Net Assets, End of Period (Millions) | $100 | $74 |
Ratio of Total Expenses to Average Net Assets | 0.45% | 0.48%4,5 |
Ratio of Net Investment Income to Average Net Assets | 2.07% | 1.89%4 |
Portfolio Turnover Rate | 12% | 15% |
The expense ratio and net investment income ratio for the current period have been annualized.
1 | The subscription period for the fund was May 21, 2019, to June 4, 2019, during which time all assets were held in cash. Performance measurement began June 5, 2019, the first business day after the subscription period, at a net asset value of $25.00. |
2 | Calculated based on average shares outstanding. |
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 | Annualized. |
5 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.45%. |
See accompanying Notes, which are an integral part of the Financial Statements.
10
Global ESG Select Stock Fund
Notes to Financial Statements
Vanguard Global ESG Select Stock 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. Each of the share classes has different eligibility and minimum purchase requirements, and is designed for different types of investors.
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. Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
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.
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. 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 its open federal income tax year ended January 31, 2020, and for the period ended July 31, 2020, 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. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
5. Credit Facilities and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement and an uncommitted credit facility provided by
11
Global ESG Select Stock Fund
Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be utilized for temporary or emergency purposes, subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn committed 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 either facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread, except that borrowings under the uncommitted credit facility may bear interest based upon an alternative rate agreed to by the fund and Vanguard.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended July 31, 2020, the fund did not utilize the credit facilities or the Interfund Lending Program.
6. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities are amortized and accreted, respectively, to interest income over the lives of the respective securities, except for premiums on certain callable debt securities that are amortized to the earliest call date. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. Wellington Management Company LLP provides investment advisory services to the fund for a fee calculated at an annual percentage rate of average net assets. In accordance with the advisory contract entered into with Wellington Management Company LLP, beginning August 1, 2020, the basic fee will be subject to quarterly adjustments based on the performance relative to the FTSE All-World Index since August 1, 2019. For the six months ended July 31, 2020, the investment advisory fee represented an effective annual basic rate of 0.23% of the fund’s average net assets.
12
Global ESG Select Stock Fund
C. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund corporate management, administrative, marketing, 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 and are generally settled twice a month.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At July 31, 2020, the fund had contributed to Vanguard capital in the amount of $6,000, representing less than 0.01% of the fund’s net assets and less than 0.01% of Vanguard’s capital received pursuant to the FSA. 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 Schedule of Investments.
The following table summarizes the market value of the fund’s investments as of July 31, 2020, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | Total | |||||||||
($000 | ) | ($000 | ) | ($000 | ) | ($000 | ) | |||||
Investments | ||||||||||||
Assets | ||||||||||||
Common Stocks—North and South America | 78,495 | — | — | 78,495 | ||||||||
Common Stocks—Other | — | 55,544 | — | 55,544 | ||||||||
Temporary Cash Investments | 6,447 | — | — | 6,447 | ||||||||
Total | 84,942 | 55,544 | — | 140,486 |
E. As of July 31, 2020, gross unrealized appreciation and depreciation for investments based on cost for U.S. federal income tax purposes were as follows:
Amount | ||||
($000 | ) | |||
Tax Cost | 131,031 | |||
Gross Unrealized Appreciation | 16,622 | |||
Gross Unrealized Depreciation | (7,167 | ) | ||
Net Unrealized Appreciation (Depreciation) | 9,455 |
13
Global ESG Select Stock Fund
F. During the six months ended July 31, 2020, the fund purchased $42,256,000 of investment securities and sold $13,249,000 of investment securities, other than U.S. government securities and temporary cash investments.
G. Capital share transactions for each class of shares were:
Six Months Ended | May 21, 20191 to | ||||
July 31, 2020 | January 31, 2020 | ||||
Amount | Shares | Amount | Shares | ||
($000) | (000) | ($000) | (000) | ||
Investor Shares | |||||
Issued | 17,111 | 824 | 39,713 | 1,896 | |
Issued in Lieu of Cash Distributions | 53 | 3 | 191 | 8 | |
Redeemed | (10,011) | (490) | (8,705) | (404) | |
Net Increase (Decrease)—Investor Shares | 7,153 | 337 | 31,199 | 1,500 | |
Admiral Shares | |||||
Issued | 47,675 | 1,874 | 83,112 | 3,170 | |
Issued in Lieu of Cash Distributions | 136 | 6 | 461 | 16 | |
Redeemed | (24,652) | (980) | (14,626) | (538) | |
Net Increase (Decrease)—Admiral Shares | 23,159 | 900 | 68,947 | 2,648 |
1 Commencement of subscription period for the fund.
H. Management has determined that no events or transactions occurred subsequent to July 31, 2020, that would require recognition or disclosure in these financial statements.
14
Liquidity Risk Management
Vanguard funds (except for the money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining investors’ interests in the fund.
Assessment and management of a fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and limiting holdings of illiquid investments.
The board of trustees of Vanguard Specialized Funds approved the appointment of liquidity risk management program administrators responsible for administering Vanguard Global ESG Select Stock Fund’s Program and for carrying out the specific responsibilities set forth in the Program, including reporting to the board on at least an annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for the past year (the “Program Administrator Report”). The board has reviewed the Program Administrator Report covering the period from December 1, 2018, through December 31, 2019 (the “Review Period”). The Program Administrator Report stated that during the Review Period the Program operated and was implemented effectively to manage the fund’s liquidity risk.
15
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© 2020 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q5472 092020 |
Item 2: Code of Ethics.
Not applicable.
Item 3: Audit Committee Financial Expert.
Not applicable.
Item 4: Principal Accountant Fees and Services.
(a) Audit Fees.
Not applicable.
Item 5: Audit Committee of Listed Registrants.
Not applicable.
Item 6: Investments.
Not applicable.
Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8: Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9: Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10: Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11: Controls and Procedures.
(a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.
(b) Internal Control Over Financial Reporting. In March 2020, a third-party service provider began performing certain administrative and accounting services for Vanguard Real Estate Index Fund. There were no other significant changes in the 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) | 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 SPECIALIZED FUNDS | ||
BY: | /s/ MORTIMER J. BUCKLEY* | |
MORTIMER J. BUCKLEY | ||
CHIEF EXECUTIVE OFFICER |
Date: September 22, 2020
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 SPECIALIZED FUNDS | ||
BY: | /s/ MORTIMER J. BUCKLEY* | |
MORTIMER J. BUCKLEY | ||
CHIEF EXECUTIVE OFFICER |
Date: September 22, 2020
VANGUARD SPECIALIZED FUNDS | ||
BY: | /s/ JOHN BENDL* | |
JOHN BENDL | ||
CHIEF FINANCIAL OFFICER |
Date: September 22, 2020
* By: /s/ Anne E. Robinson
Anne E. Robinson, pursuant to a Power of Attorney filed on January 18, 2018 (see file Number 33-32216) and a Power of Attorney filed on October 30, 2019 (see file Number 811-02554), Incorporated by Reference.