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: 811-1027
Name of Registrant: Vanguard World Funds
Address of Registrant: P.O. Box 2600
Valley Forge, PA 19482
Name and address of agent for service: R. Gregory Barton, Esquire
P.O. Box 876
Valley Forge, PA 19482
Registrant's telephone number, including area code: (610) 669-1000
Date of fiscal year end: August 31
Date of reporting period: September 1, 2003 - February 29, 2004
Item 1: Reports to Shareholders
VANGUARD(R) U.S. GROWTH FUND
FEBRUARY 29, 2004
SEMIANNUAL REPORT
[THE VANGUARD GROUP(R)]
HOW TO READ YOUR FUND REPORT
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This report contains information that can help you evaluate your investment. It
includes details about your fund's return and presents data and analysis that
provide insight into the fund's performance and investment approach.
By reading the letter from Vanguard's chairman, John J. Brennan, together with
the letter from the managers who select securities for your fund, you'll get an
understanding of how the fund invests and how the market environment affected
its performance. The statistical information that follows can help you
understand how the fund's performance and characteristics stack up against those
of similar funds and market benchmarks.
It's important to keep in mind that the opinions expressed by Vanguard's
investment managers are just that: informed opinions. They should not be
considered promises or advice. The opinions, like the statistics, cover the
period through the date on the cover of this report. As things change--and in
the financial markets you can be certain only of change--an investment manager's
job is to evaluate new information and make adjustments, if necessary. Of
course, the risks of investing in the fund are spelled out in the prospectus.
Frequent updates on the fund's performance and information about some of its
holdings are available on Vanguard.com(R).
CONTENTS
1 LETTER FROM THE CHAIRMAN
6 REPORT FROM THE ADVISOR
10 FUND PROFILE
11 GLOSSARY OF INVESTMENT TERMS
12 PERFORMANCE SUMMARY
13 ABOUT YOUR FUND'S EXPENSES
14 FINANCIAL STATEMENTS
24 ADVANTAGES OF VANGUARD.COM
SUMMARY
- - Vanguard U.S. Growth Fund returned 11.9% for the six months ended February 29,
2004. This was a welcome continuation of the fund's fiscal 2003 gain, which
followed a trying two-year downturn.
- - The fund's return fell slightly short of its benchmark's result, but outpaced
that of its average mutual fund peer.
- - The fund's holdings in its three largest sector weightings--health care,
financial services, and technology--were the largest contributors to the fund's
return, while the fund's consumer discretionary and utilities stocks
underperformed.
Want less clutter in your mailbox? Just register with VANGUARD.COM and opt to
get fund reports online.
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LETTER FROM THE CHAIRMAN
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Fellow Shareholder,
Vanguard U.S. Growth Fund's Investor and Admiral Shares each returned 11.9%
during the fiscal half-year ended February 29, 2004. The fund benefited from the
advisor's allocation of assets to some of the half-year's best-performing
sectors and from a resurgence of investor interest in the stock market.
[PICTURES OF JOHN J. BRENNAN]
For the period, the fund's return fell a bit short of that of the Russell 1000
Growth Index, a benchmark for the U.S. large-capitalization stock universe, but
surpassed the 9.9% gain of the average large- cap growth mutual fund by 2
percentage points.
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Total Returns Six Months Ended
February 29, 2004
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Vanguard U.S. Growth Fund
Investor Shares 11.9%
Admiral Shares 11.9
Russell 1000 Growth Index 12.2
Average Large-Cap Growth Fund* 9.9
Wilshire 5000 Index 15.3
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*Derived from data provided by Lipper Inc.
The table at left provides details about the total returns (capital change plus
reinvested dividends) for your fund; its unmanaged benchmark; its average peer
fund; and the Wilshire 5000 Total Market Index, the broadest measure of the U.S.
stock market. You can find information on the fund's per-share distributions and
its starting and ending net asset values in the table on page 5.
STOCKS CONTINUED THEIR COMEBACK
As the fiscal half-year got under way last September, the U.S. stock market was
in the midst of a strong advance. The gains continued throughout the period,
buoyed by a steady flow of positive corporate earnings reports and economic data
that suggested the national economy was continuing to mend.
1
During the six months, the U.S. stock market, as measured by the Wilshire 5000
Index, returned 15.3%. The Russell 2000 Index, a proxy for small-cap stocks,
returned 18.3%, outpacing the mid- to large-cap stocks in the Russell 1000
Index, which returned 14.8%. Across the market-cap spectrum, value-oriented
stocks (those that generally trade at below-market valuations relative to their
book values) outpaced growth stocks (those expected to produce above-average
earnings growth).
International equities continued to provide generous gains for U.S.-based
investors. Returns from European markets were generally stronger than those from
Pacific markets, and returns from emerging markets were outstanding. The
continued decline in the U.S. dollar's relative value transformed
local-currency-based results into impressive dollar- denominated returns.
AS INTEREST RATES REMAINED LOW, INVESTORS SOUGHT OUT RISKIER BONDS
In the fixed income markets, demand for U.S. Treasury issues remained strong,
boosting the price of the 10-year Treasury note while reducing its yield from
4.46% at the start of the period to 3.97% by February 29. However, the low level
of market rates in general, together with signs of a strengthening economy,
prompted some investors to opt for the higher yields to be obtained from riskier
bonds. As a result, returns of corporate bonds exceeded those of government
bonds with similar maturities. The Lehman Brothers High Yield Bond Index, a
benchmark of below-investment-grade bonds, recorded a six-month return of 10.6%,
while the Lehman Aggregate Bond Index, a measure of the taxable investment-grade
bond market, returned 4.9%.
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MARKET BAROMETER TOTAL RETURNS
PERIODS ENDED FEBRUARY 29, 2004
-------------------------------
SIX ONE FIVE
MONTHS YEAR YEARS*
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STOCKS
Russell 1000 Index (Large-caps) 14.8% 39.7% 0.5%
Russell 2000 Index (Small-caps) 18.3 64.4 9.8
Wilshire 5000 Index (Entire market) 15.3 42.5 1.2
MSCI All Country World Index
ex USA (International) 25.4 55.9 2.9
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BONDS
Lehman Aggregate Bond Index 4.9% 4.5% 7.2%
(Broad taxable market)
Lehman Municipal Bond Index 6.5 6.3 6.1
Citigroup 3-Month Treasury Bill Index 0.5 1.0 3.4
================================================================================
CPI
Consumer Price Index 0.9% 1.7% 2.5%
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*Annualized.
Short-term interest rates remained low and stable, fluctuating within a tight
range of 0.91% to 0.97% throughout the six months. The 3-month Treasury bill, a
proxy for money market rates,
2
ended the half-year with a yield of 0.94%, just 3 basis points below its initial
0.97% yield.
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Admiral(TM) Shares
A lower-cost class of shares available to many longtime shareholders and to
those with significant investments in the fund.
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SOLID GAINS IN THE FUND'S LARGEST SECTORS BOLSTERED ITS RETURN
The U.S. Growth Fund's rebound in fiscal 2003 from the most troubling two fiscal
years in its 45-year history continued during the first six months of fiscal
2004. Two factors played a part in the upturn: strong security selection and a
stock market environment that was more amenable to the type of quality companies
poised for long-term growth that the fund's advisor, Alliance Capital
Management, aims to identify.
The fund's financial services holdings were among the biggest contributors to
the fund's total return during the six months. The fund's heavy weighting in
this sector--nearly twice that of the Russell 1000 Growth Index--combined with
the advisor's stock selection, paid off handsomely. Specifically, heightened
activity in the capital markets and excellent earnings growth in the insurance
industry led to strong gains for the fund's diversified financial companies and
insurance providers. The largest gains came from leading names in those fields,
including Citigroup (+17.7%) and American International Group (+24.5%).
The health care and technology sectors also provided a hefty boost for the fund.
The fund's health care holdings (roughly 25% of assets at the end of the
half-year), propelled by recent Medicare reforms, gained 16.6% and contributed
more than one-third of the fund's 11.9% return. Top performers included
drugmakers Forest Laboratories (+60.6%) and Pfizer (+23.6%), which were aided by
their promising new-drug pipelines. The fund's tech holdings (roughly 30% of
assets at the end of the half-year) advanced 10.4%, in part due to increased
business demand, contributing 3 percentage points to the fund's total return.
Noteworthy holdings were Juniper Networks (+50.3%) and Symantec (+42.6%).
The fund's consumer discretionary stocks were among its weakest performers, as
the sector produced the only negative return out of the 11 sectors in which the
fund invests. A few holdings, including eBay (+24.0%) and Avon Products
(+10.9%), posted respectable gains, but these were offset by lackluster results
from other stocks in the category.
3
MAINTAIN YOUR BALANCE THROUGH ALL TYPES OF MARKET CONDITIONS
Although stock markets in the United States and abroad enjoyed a welcome
resurgence over the past several months, we continue to urge investors to
proceed with caution and not to chase performance or make sudden changes in
their asset allocations. Investors enhance their ability to meet their long-term
financial goals by sticking with balanced portfolios of stocks, bonds, and
short-term reserves appropriate for their individual situations.
No matter how the market performs in the short term, maintaining a balanced
portfolio over the long term enables you to benefit from the gains of the
best-performing asset classes and to be less affected by the lows of the
worst-performing classes. For investors who seek long-term growth of
capital--and are comfortable with the inherent risks--Vanguard U.S. Growth Fund
can be an important component of such a portfolio.
We thank you for entrusting your hard-earned assets to us.
Sincerely,
/S/JOHN J. BRENNAN
John J. Brennan
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
March 10, 2004
4
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YOUR FUND'S PERFORMANCE AT A GLANCE AUGUST 31, 2003-FEBRUARY 29, 2004
DISTRIBUTIONS PER SHARE
-----------------------
STARTING ENDING INCOME CAPITAL
SHARE PRICE SHARE PRICE DIVIDENDS GAINS
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U.S. Growth Fund
Investor Shares $14.00 $15.61 $0.047 $0.000
Admiral Shares 36.28 40.41 0.189 0.000
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5
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REPORT FROM THE ADVISOR
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For the six months ended February 29, 2004, the U.S. Growth Fund advanced 11.9%,
a result just shy of the 12.2% increase of our benchmark, the Russell 1000
Growth Index.
INVESTMENT ENVIRONMENT
The fiscal half-year began with improving expectations for U.S. economic growth
and corporate profits. As promising reports on these topics came in, the markets
saw a strong upswing in investor confidence.
In line with the shift in perceptions, the market recovery has been
characterized by disproportionate strength in cyclical stocks and a bolder
appetite for risk among investors. These factors were reflected in the strong
relative performance of a number of fundamentally challenged companies over the
past year. Conversely, consistently defensive growth-oriented sectors such as
health care and consumer staples have generally underperformed, even though they
include many companies with impressive fundamentals and solid earnings growth.
These trends persisted over much of the fiscal half-year. However, February
witnessed a correction of this momentum, with strong relative performance by a
number of noncyclical growth sectors (in particular, consumer staples and health
care) juxtaposed with pronounced weakness in many cyclical sectors.
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Investment Philosophy
The advisor believes that superior long-term investment results can be achieved
by emphasizing investments in growth companies that are leaders in their
industries and that have a strong market presence.
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OUR SUCCESSES
The fund's six-month gain came primarily from results in two prominent sectors,
financial services and health care. In the financial services group, we
benefited from favorable stock selection combined with strong sector
performance. Stocks of note were American International Group, Morgan Stanley,
and Citigroup.
While the fund's large exposure to health care was beneficial, stock selection
in the group had mixed results. We did see good returns from Forest Laboratories
and WellPoint Health Networks, both of which are
6
top-ten holdings. The fund's technology holdings--our largest sector
exposure--had generally strong results, but as a group modestly lagged the broad
market sector. Here, too, our stock selection was mixed. Particularly favorable
contributions came from Juniper Networks, Symantec, and Broadcom.
OUR SHORTFALLS
Our underweighting in consumer staples stocks compared with the Russell 1000
Growth Index adversely affected the fund's relative result.
As noted earlier, the fund's health care and tech holdings were a mixed
proposition. Several stocks in each sector underperformed (Amgen, Health
Management Associates, Medtronic, Dell, and Linear Technology). Disappointing
results from several consumer discretionary holdings (including Bed Bath &
Beyond and Viacom) further hindered our overall performance.
POSITIONING OF THE PORTFOLIO
Anticipating an improving economic environment with accelerating corporate
profits and cash flow, we increased the fund's exposure to cyclical growth
stocks early in the fiscal half-year. We did this primarily by adding to
longer-term holdings in technology and financial services companies that had
successfully weathered the challenges of the prior two years and that appeared
well positioned to capitalize on an economic upswing. Some of the companies that
met these criteria were Dell, Intel, Symantec, Juniper Networks, Veritas, and
Morgan Stanley.
We also established or added to positions in some successful companies with
commanding competitive positions and distinctly superior growth prospects. These
included Broadcom, Marvell Technology Group, Electronic Arts, Intuit, Goldman
Sachs, and Merrill Lynch. We funded these new investments by reducing our
consumer staples and consumer services positions.
7
Recent economic evidence has reinforced our optimism about the prospects for
significant recovery in corporate profits and, with a lag, capital spending. The
past two years have seen the sharpest cyclical rebound in pre-tax margins in 40
years. Operating cash flow has rebounded broadly and--in tandem with a subdued
level of corporate spending--has resulted in record free cash flow and
liquidity. Corporate cash levels have recently grown at the fastest rate in 20
years. Measured against revenues and cash flows, capital spending has been
unprecedentedly low. Manufacturing inventories remain low relative to sales, and
recent reports have shown a significant increase in the pace of new orders.
While the past year's market recovery has clearly anticipated and discounted a
good measure of this improvement, we think that the strong cyclical recovery
will continue. We have selectively added several technology-oriented positions
(such as Applied Materials and SAP), but--recognizing the degree to which tech
stocks already have climbed--we have funded these purchases with reductions in
other technology holdings.
While we have increased the fund's exposure to economically sensitive sectors,
we continue to seek out companies with long records of superior growth and
success. Many of these firms grew impressively during the challenging 2000-2003
period and continue to achieve 15% to 20% growth, although they sell at
historically modest relative valuations. Their fundamental success and strength
have, at least in a relative sense, gone unrewarded. Among the more prominent
names that fit this bill are Pfizer, American International Group, Stryker,
WellPoint, UnitedHealth Group, Amgen, and MBNA. In addition, we have recently
initiated or increased positions in Forest Laboratories, Alcon, Zimmer Holdings,
Gilead Sciences, and St. Jude Medical.
We have sought to build the portfolio around successful companies that have
leading--and in a number of cases, dominant--competitive positions, that have
shown excellent historical growth and profitability, and that we expect will
sustain that growth. This is reflected in the five-year average revenue growth
rate of 16.2% for the fund's current holdings,
8
as compared with rates of 11.4% and 8.9% for the Russell 1000 Growth Index and
the Standard & Poor's 500 Index, respectively. Similarly, historical earnings
growth was 16.7% for the fund's holdings, compared with 11.4% for the Russell
1000 Growth Index and 7.5% for the S&P 500 Index.
While we have been disappointed with the fund's recent relative performance, we
are encouraged by the strong fundamentals of most of our holdings. We believe
that their superior business success and growth will ultimately be the primary
determinants of the fund's investment success.
John L. Blundin, EXECUTIVE VICE PRESIDENT
Alan Levi, SENIOR VICE PRESIDENT
ALLIANCE CAPITAL MANAGEMENT L.P.
MARCH 16, 2004
9
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As of 2/29/2004
FUND PROFILE
This Profile provides a snapshot of the fund's characteristics, compared where
indicated with both an appropriate market index and a broad market index. Key
terms are defined on page 11.
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U.S. GROWTH FUND
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PORTFOLIO CHARACTERISTICS
COMPARATIVE BROAD
FUND INDEX* INDEX**
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Number of Stocks 60 584 5,179
Median Market Cap $43.7B $57.2B $29.1B
Price/Earnings Ratio 26.9x 26.3x 23.5x
Price/Book Ratio 4.3x 4.7x 3.2x
Yield 1.0% 1.5%
Investor Shares 0.2%
Admiral Shares 0.4%
Return on Equity 22.6% 23.7% 15.7%
Earnings Growth Rate 16.7% 11.4% 5.4%
Foreign Holdings 2.5% 0.0% 0.9%
Turnover Rate 42%+ -- --
Expense Ratio -- --
Investor Shares 0.54%+
Admiral Shares 0.32%+
Short-Term Reserves 1% -- --
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VOLATILITY MEASURES
COMPARATIVE BROAD
FUND INDEX* FUND INDEX**
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R-Squared 0.96 1.00 0.87 1.00
Beta 1.16 1.00 1.29 1.00
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SECTOR DIVERSIFICATION (% OF PORTFOLIO)
COMPARATIVE BROAD
FUND INDEX* INDEX**
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Auto & Transportation 2% 2% 3%
Consumer Discretionary 12 17 16
Consumer Staples 2 9 7
Financial Services 19 11 24
Health Care 25 24 13
Integrated Oils 0 0 3
Other Energy 0 1 2
Materials & Processing 0 1 4
Producer Durables 3 3 4
Technology 32 23 14
Utilities 2 2 6
Other 2 7 4
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Short-Term Reserves 1% -- --
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*Russell 1000 Growth Index.
**Wilshire 5000 Index.
+Annualized.
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Ten Largest Holdings (% of total net assets)
Pfizer Inc. 4.8%
(pharmaceuticals)
American International Group, Inc. 4.8
(insurance)
Intel Corp. 4.2
(electronics)
Citigroup, Inc. 4.1
(banking)
Microsoft Corp. 4.1
(software)
Dell Inc. 3.4
(computer hardware)
Forest Laboratories, Inc. 3.0
(pharmaceuticals)
WellPoint Health Networks Inc. Class A 2.9
(health care)
Morgan Stanley 2.8
(financial services)
Veritas Software Corp. 2.6
(computer software)
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Top Ten 36.7%
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"Ten Largest Holdings" excludes any temporary cash investments and equity index
products.
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INVESTMENT FOCUS
Market Cap Large
Style Growth
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Visit our website at VANGUARD.COM for regularly updated fund information.
10
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GLOSSARY OF INVESTMENT TERMS
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BETA. A measure of the magnitude of a fund's past share-price fluctuations in
relation to the ups and downs of a given market index. The index is assigned a
beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically
would have seen its share price rise or fall by 12% when the index rose or fell
by 10%. A fund's beta should be reviewed in conjunction with its R-squared (see
definition below). The lower the R-squared, the less correlation there is
between the fund and the index, and the less reliable beta is as an indicator of
volatility.
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EARNINGS GROWTH RATE. The average annual rate of growth in earnings over the
past five years for the stocks now in a portfolio.
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EXPENSE RATIO. The percentage of a portfolio's average net assets used to pay
its annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
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FOREIGN HOLDINGS. The percentage of a portfolio's equity assets represented by
stocks or depositary receipts of companies based outside the United States.
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MEDIAN MARKET CAP. An indicator of the size of companies in which a portfolio
invests; the midpoint of market capitalization (market price x shares
outstanding) of a portfolio's stocks, weighted by the proportion of the
portfolio's assets invested in each stock. Stocks representing half of the
portfolio's assets have market capitalizations above the median, and the rest
are below it.
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PRICE/BOOK RATIO. The share price of a stock divided by its net worth, or book
value, per share. For a portfolio, the weighted average price/book ratio of the
stocks it holds.
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PRICE/EARNINGS RATIO. The ratio of a stock's current price to its per-share
earnings over the past year. For a portfolio, the weighted average P/E of the
stocks it holds. P/E is an indicator of market expectations about corporate
prospects; the higher the P/E, the greater the expectations for a company's
future growth.
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R-SQUARED. A measure of how much of a fund's past returns can be explained by
the returns from the market in general, as measured by a given index. If a
fund's total returns were precisely synchronized with an index's returns, its
R-squared would be 1.00. If the fund's returns bore no relationship to the
index's returns, its R-squared would be 0.
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RETURN ON EQUITY. The annual average rate of return generated by a company
during the past five years for each dollar of shareholder's equity (net income
divided by shareholder's equity). For a fund, the weighted average return on
equity for the companies whose stocks it holds.
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SHORT-TERM RESERVES. The percentage of a fund invested in highly liquid,
short-term securities that can be readily converted to cash.
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TURNOVER RATE. An indication of the fund's trading activity. Funds with high
turnover rates incur higher transaction costs and may be more likely to
distribute capital gains (which may be taxable to investors).
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YIELD. A snapshot of a fund's income from interest and dividends. The yield,
expressed as a percentage of the fund's net asset value, is based on income
earned over the past 30 days and is annualized, or projected forward for the
coming year. The index yield is based on the current annualized rate of income
provided by securities in the index.
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11
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AS OF 2/29/2004
PERFORMANCE SUMMARY
ALL OF THE RETURNS IN THIS REPORT REPRESENT PAST PERFORMANCE, WHICH IS NOT A
GUARANTEE OF FUTURE RESULTS THAT MAY BE ACHIEVED BY THE FUND. (FOR THE MOST
RECENT PERFORMANCE, WHICH MAY BE HIGHER OR LOWER THAN THAT CITED, VISIT OUR
WEBSITE AT WWW.VANGUARD.COM.) NOTE, TOO, THAT BOTH INVESTMENT RETURNS AND
PRINCIPAL VALUE CAN FLUCTUATE WIDELY, SO AN INVESTOR'S SHARES, WHEN SOLD, COULD
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE RETURNS IN THIS REPORT DO
NOT REFLECT TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR ON THE
SALE OF FUND SHARES.
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U.S. GROWTH FUND
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FISCAL-YEAR TOTAL RETURNS (%) AUGUST 31, 1993-FEBRUARY 29, 2004
U.S. Growth Fund Russell 1000
Investor Shares Growth Index
1994 7.0 6.6
1995 22.8 24.6
1996 25.3 18.4
1997 32.5 39.4
1998 14.0 8.3
1999 37.4 48.3
2000 33.3 33.5
2001 -54.1 -45.3
2002 -28.1 -22.2
2003 8.7 14.1
2004* 11.9 12.2
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*Six months ended February 29, 2004.
Note: See Financial Highlights tables on pages 19 and 20 for dividend and
capital gains information.
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AVERAGE ANNUAL TOTAL RETURNS For Periods Ended December 31, 2003
This table presents average annual total returns through the latest calendar
quarter--rather than through the end of the fiscal period. Securities and
Exchange Commission rules require that we provide this information.
TEN YEARS
ONE FIVE ----------------------
INCEPTION DATE YEAR YEARS CAPITAL INCOME TOTAL
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U.S. Growth Fund
Investor Shares 1/6/1959 26.10% -11.60% 4.92% 0.68% 5.60%
Admiral Shares 8/13/2001 26.31 -9.20* -- -- --
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*Return since inception.
12
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ABOUT YOUR FUND'S EXPENSES
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All mutual funds have operating expenses. These expenses 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 net assets. This figure is known
as the expense ratio.
A HYPOTHETICAL EXAMPLE
We believe it is important for you to understand the impact of costs on your
investment. The following example illustrates the costs that you would have
incurred over the most recent six-month period on a $10,000 investment in the
fund. The example uses the fund's actual return and operating expenses for the
period. The cost in dollars is calculated by applying the expense ratio to the
average balance in a hypothetical account. For comparative purposes, we also
show the fund's annualized expense ratio--in which its six-month expenses are
projected for a 12-month period--along with the average expense ratio for the
fund's peer group, which is derived from data provided by Lipper Inc.
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SIX MONTHS ENDED ANNUALIZED FUND EXPENSES
FEBRUARY 29, 2004 VERSUS PEER GROUP EXPENSES
------------------------------------------------
COST OF $10,000 FUND PEER GROUP*
INVESTMENT IN FUND EXPENSE RATIO EXPENSE RATIO
- --------------------------------------------------------------------------------
U.S. GROWTH FUND
Investor Shares $29 0.54% 1.61%
Admiral Shares 17 0.32 --
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*Average Large-Cap Growth Fund.
The calculation assumes no shares were sold. Your actual costs may have been
higher or lower, depending on the amount of your investment and your holding
period. Peer-group ratio captures data through year-end 2003.
You can find more information about the fund's expense ratio, including annual
expense ratios for the past five years, in the Financial Statements section of
this report. For additional information on operating expenses and other
shareholder costs, please refer to the fund's prospectus. The prospectus
presents hypothetical shareholder costs over various time periods based upon a
$10,000 investment and a return of 5% a year. This standardized example, which
appears in all mutual fund prospectuses, may be useful to you in comparing the
costs of investing in different funds.
13
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AS OF 2/29/2004
FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
This Statement provides a detailed list of the fund's holdings, including each
security's market value on the last day of the reporting period. Securities are
grouped and subtotaled by asset type (common stocks, bonds, etc.) and by
industry sector. Other assets are added to, and liabilities are subtracted from,
the value of Total Investments to calculate the fund's Net Assets. Finally, Net
Assets are divided by the outstanding shares of the fund to arrive at its share
price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table displaying the
composition of the fund's net assets. Because all income and any realized gains
must be distributed to shareholders each year, the bulk of net assets consists
of Paid-in Capital (money invested by shareholders). The amounts shown for
Undistributed Net Investment Income and Accumulated Net Realized Gains usually
approximate the sums the fund had available to distribute to shareholders as
income dividends or capital gains as of the statement date, but may differ
because certain investments or transactions may be treated differently for
financial statement and tax purposes. Any Accumulated Net Realized Losses, and
any cumulative excess of distributions over net income or net realized gains,
will appear as negative balances. Unrealized Appreciation (Depreciation) is the
difference between the market value of the fund's investments and their cost,
and reflects the gains (losses) that would be realized if the fund were to sell
all of its investments at their statement-date values.
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MARKET
VALUE*
U.S. GROWTH FUND SHARES (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (98.8%)
- --------------------------------------------------------------------------------
AUTO & TRANSPORTATION (2.1%)
Harley-Davidson, Inc. 2,879,100 152,938
-----------
Consumer Discretionary (12.2%)
* eBay Inc. 2,388,000 164,438
Avon Products, Inc. 2,056,100 145,161
Lowe's Cos., Inc. 2,479,900 138,874
* Bed Bath & Beyond, Inc. 3,177,400 129,892
Viacom Inc. Class B 3,291,874 126,605
* Electronic Arts Inc. 2,128,830 100,396
Tiffany & Co. 873,800 36,743
* Yahoo! Inc. 677,500 30,081
Best Buy Co., Inc. 444,200 23,654
-----------
895,844
-----------
CONSUMER STAPLES (1.9%)
The Procter & Gamble Co. 1,362,700 139,690
-----------
FINANCIAL SERVICES (19.5%)
American International
Group, Inc. 4,789,252 354,405
Citigroup, Inc. 6,066,100 304,882
Morgan Stanley 3,477,170 207,796
MBNA Corp. 6,455,000 176,415
Fannie Mae 1,965,800 147,238
The Goldman Sachs Group, Inc. 1,113,300 117,865
Merrill Lynch & Co., Inc. 1,848,695 113,159
Bank One Corp. 295,700 15,962
-----------
1,437,722
-----------
HEALTH CARE (24.9%)
BIOTECH RESEARCH & PRODUCTION (2.1%)
* Amgen, Inc. 2,477,150 157,373
DRUGS & PHARMACEUTICALS (11.4%)
Pfizer Inc. 9,704,700 355,677
* Forest Laboratories, Inc. 2,909,100 219,579
Johnson & Johnson 2,347,160 126,535
* Gilead Sciences, Inc. 1,007,600 54,622
Teva Pharmaceutical Industries
Ltd. Sponsored ADR 716,900 46,598
Allergan, Inc. 377,000 33,002
ELECTRONICS--MEDICAL SYSTEMS (0.5%)
Medtronic, Inc. 761,400 35,710
HEALTH & PERSONAL CARE (0.5%)
* Express Scripts Inc. 501,340 36,478
HEALTH CARE FACILITIES (1.3%)
Health Management Associates
Class A 4,321,500 96,326
14
- --------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- --------------------------------------------------------------------------------
HEALTH CARE MANAGEMENT SERVICES (5.9%)
* WellPoint Health Networks Inc.
Class A 1,962,500 213,461
UnitedHealth Group Inc. 2,254,700 139,791
* Caremark Rx, Inc. 2,567,000 82,811
MEDICAL & DENTAL INSTRUMENTS & SUPPLIES (3.2%)
Stryker Corp. 688,100 61,055
Alcon, Inc. 918,100 57,712
* St. Jude Medical, Inc. 763,900 55,497
* Zimmer Holdings, Inc. 497,100 37,601
* Boston Scientific Corp. 532,000 21,732
-----------
1,831,560
-----------
PRODUCER DURABLES (2.9%)
Danaher Corp. 1,063,600 95,330
Centex Corp. 484,500 51,745
Lennar Corp. Class A 922,000 45,593
* Applied Materials, Inc. 1,017,400 21,610
-----------
214,278
-----------
TECHNOLOGY (31.6%)
COMMUNICATIONS TECHNOLOGY (4.9%)
* Juniper Networks, Inc. 7,313,700 189,205
* Cisco Systems, Inc. 7,405,000 171,056
COMPUTER SERVICES SOFTWARE & SYSTEMS (11.3%)
Microsoft Corp. 11,321,460 300,019
* Veritas Software Corp. 6,344,300 192,994
* Symantec Corp. 3,682,000 151,477
* Mercury Interactive Corp. 1,791,800 86,974
* Intuit, Inc. 1,428,610 63,373
SAP AG ADR 880,900 34,884
COMPUTER TECHNOLOGY (3.4%)
* Dell Inc. 7,603,375 248,250
ELECTRONICS (0.5%)
* Flextronics International Ltd. 2,230,400 40,370
ELECTRONICS--SEMICONDUCTORS/COMPONENTS (11.5%)
Intel Corp. 10,465,500 305,907
* Broadcom Corp. 4,537,100 184,116
* Marvell Technology Group Ltd. 3,604,800 164,127
Linear Technology Corp. 2,280,200 91,185
Maxim Integrated Products, Inc. 1,406,091 70,178
* Altera Corp. 1,662,000 36,697
-----------
2,330,812
-----------
UTILITIES (2.2%)
* Comcast Corp. Special Class A 5,486,140 160,305
OTHER (1.5%)
General Electric Co. 3,509,800 114,139
-----------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $6,799,550) 7,277,288
- --------------------------------------------------------------------------------
PREFERRED STOCK (0.1%)
- --------------------------------------------------------------------------------
The News Corp. Ltd. Pfd. ADR
(Cost $7,571) 230,700 7,551
- --------------------------------------------------------------------------------
Face
Amount
(000)
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (3.3%)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
Collaterized by U.S. Government
Obligations in a Pooled
Cash Account
1.04%, 3/1/2004 92,527 92,527
1.04%, 3/1/2004--Note G 150,042 150,042
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $242,569) 242,569
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (102.2%)
(Cost $7,049,690) 7,527,408
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-2.2%)
- --------------------------------------------------------------------------------
Other Assets--Note C 71,414
Liabilities--Note G (234,162)
-----------
(162,748)
-----------
- --------------------------------------------------------------------------------
NET ASSETS (100%) $7,364,660
================================================================================
*See Note A in Notes to Financial Statements.
*Non-income-producing security.
ADR--American Depositary Receipt.
15
AMOUNT
U.S. GROWTH FUND (000)
- --------------------------------------------------------------------------------
AT FEBRUARY 29, 2004, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Paid-in Capital $14,076,581
Overdistributed Net Investment Income (10,966)
Accumulated Net Realized Losses (7,178,673)
Unrealized Appreciation 477,718
- --------------------------------------------------------------------------------
NET ASSETS $7,364,660
================================================================================
Investor Shares--Net Assets
Applicable to 394,916,525 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $6,163,446
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--
INVESTOR SHARES $15.61
================================================================================
Admiral Shares--Net Assets
Applicable to 29,723,637 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $1,201,214
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--
ADMIRAL SHARES $40.41
================================================================================
See Note E in Notes to Financial Statements for the tax-basis components of net
assets.
16
STATEMENT OF OPERATIONS
This Statement shows the types of income earned by the fund during the reporting
period, and details the operating expenses charged to each class of its shares.
These expenses directly reduce the amount of investment income available to pay
to shareholders as income dividends. This Statement also shows any Net Gain
(Loss) realized on the sale of investments, and the increase or decrease in the
Unrealized Appreciation (Depreciation) of investments during the period.
- --------------------------------------------------------------------------------
U.S. Growth Fund
Six Months Ended February 29, 2004
(000)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends $ 28,235
Interest 296
Security Lending 2
- --------------------------------------------------------------------------------
Total Income 28,533
- --------------------------------------------------------------------------------
Expenses
Investment Advisory Fees--Note B
Basic Fee 5,053
Performance Adjustment (1,037)
The Vanguard Group--Note C
Management and Administrative
Investor Shares 12,368
Admiral Shares 1,047
Marketing and Distribution
Investor Shares 443
Admiral Shares 88
Custodian Fees 63
Shareholders' Reports
Investor Shares 17
Admiral Shares --
Trustees' Fees and Expenses 4
- --------------------------------------------------------------------------------
Total Expenses 18,046
Expenses Paid Indirectly--Note D (738)
- --------------------------------------------------------------------------------
Net Expenses 17,308
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 11,225
- --------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) ON INVESTMENT SECURITIES SOLD 166,066
- --------------------------------------------------------------------------------
CHANGE IN UNREALIZED
APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES 624,927
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 802,218
================================================================================
17
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how the fund's total net assets changed during the two most
recent reporting periods. The Operations section summarizes information detailed
in the Statement of Operations. The amounts shown as Distributions to
shareholders from the fund's net income and capital gains may not match the
amounts shown in the Operations section, because distributions are determined on
a tax basis and may be made in a period different from the one in which the
income was earned or the gains were realized on the financial statements. The
Capital Share Transactions section shows the net amount shareholders invested in
or redeemed from the fund. Distributions and Capital Share Transactions are
shown separately for each class of shares.
- -----------------------------------------------------------------------------------------------------
U.S. Growth Fund
-------------------------------
Six Months Year
Ended Ended
Feb. 29, 2004 Aug. 31, 2003
(000) (000)
- -----------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income 11,225 22,446
Realized Net Gain (Loss) 166,066 (1,064,662)
Change in Unrealized Appreciation (Depreciation) 624,927 1,601,726
- -----------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets Resulting from Operations 802,218 559,510
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income
Investor Shares (19,232) (17,640)
Admiral Shares (5,426) (4,869)
Realized Capital Gain
Investor Shares -- --
Admiral Shares -- --
- -----------------------------------------------------------------------------------------------------
Total Distributions (24,658) (22,509)
- -----------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS--Note H
Investor Shares (386,756) (36,645)
Admiral Shares 10,151 (77,590)
- -----------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions (376,605) (114,235)
- -----------------------------------------------------------------------------------------------------
Total Increase (Decrease) 400,955 422,766
- -----------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 6,963,705 6,540,939
- -----------------------------------------------------------------------------------------------------
End of Period $ 7,364,660 $ 6,963,705
=====================================================================================================
18
FINANCIAL HIGHLIGHTS
This table summarizes the fund's investment results and distributions to
shareholders on a per-share basis for each class of shares. It also presents the
Total Return and shows net investment income and expenses as percentages of
average net assets. These data will help you assess: the variability of the
fund's net income and total returns from year to year; the relative
contributions of net income and capital gains to the fund's total return; how
much it costs to operate the fund; and the extent to which the fund tends to
distribute capital gains. The table also shows the Portfolio Turnover Rate, a
measure of trading activity. A turnover rate of 100% means that the average
security is held in the fund for one year.
U.S. GROWTH FUND INVESTOR SHARES
- ------------------------------------------------------------------------------------------------------------------------
Six Months Year Ended August 31,
Ended ------------------------------------------------------
For a Share Outstanding Throughout Each Period Feb. 29, 2004 2003 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $14.00 $12.92 $18.00 $49.26 $38.92 $30.36
- ------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .021 .040 .031 .039 .10 .21
Net Realized and Unrealized Gain (Loss)
on Investments 1.636 1.082 (5.075) (23.799) 12.47 10.85
- ------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.657 1.122 (5.044) (23.760) 12.57 11.06
- ------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.047) (.042) (.036) (.050) (.21) (.19)
Distributions from Realized Capital Gains -- -- -- (7.450) (2.02) (2.31)
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions (.047) (.042) (.036) (7.500) (2.23) (2.50)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $15.61 $14.00 $12.92 $18.00 $49.26 $38.92
========================================================================================================================
TOTAL RETURN* 11.85% 8.73% -28.09% -54.07% 33.29% 37.38%
========================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $6,163 $5,892 $5,472 $9,681 $22,331 $16,007
Ratio of Total Expenses to
Average Net Assets 0.54%* 0.55% 0.50% 0.44% 0.38% 0.39%
Ratio of Net Investment Income to
Average Net Assets 0.28%* 0.32% 0.20% 0.13% 0.24% 0.59%
Portfolio Turnover Rate 42%* 47% 53% 135% 76% 49%
========================================================================================================================
*Annualized.
19
FINANCIAL HIGHLIGHTS (CONTINUED)
U.S. GROWTH FUND ADMIRAL SHARES
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED
SIX MONTHS AUGUST 31, AUG. 13* TO
ENDED -------------------- AUG. 31,
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD FEB. 29, 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $36.28 $33.46 $46.59 $50.00
- --------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .097 .164 .168 .022
Net Realized and Unrealized Gain (Loss) on Investments 4.222 2.811 (13.167) (3.432)
- --------------------------------------------------------------------------------------------------------------
Total from Investment Operations 4.319 2.975 (12.999) (3.410)
- --------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.189) (.155) (.131) --
Distributions from Realized Capital Gains -- -- -- --
- --------------------------------------------------------------------------------------------------------------
Total Distributions (.189) (.155) (.131) --
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $40.41 $36.28 $33.46 $46.59
==============================================================================================================
TOTAL RETURN 11.93% 8.95% -27.99% -6.82%
==============================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,201 $1,071 $1,069 $262
Ratio of Total Expenses to Average Net Assets 0.32%** 0.37% 0.36% 0.38%**
Ratio of Net Investment Income to Average Net Assets 0.50%** 0.50% 0.37% 0.35%**
Portfolio Turnover Rate 42%** 47% 53% 135%
==============================================================================================================
*Inception.
**Annualized.
20
NOTES TO FINANCIAL STATEMENTS
Vanguard U.S. Growth Fund is registered under the Investment Company Act of 1940
as an open-end investment company, or mutual fund. The fund offers two classes
of shares, Investor Shares and Admiral Shares. Investor Shares are available to
any investor who meets the fund's minimum purchase requirements. Admiral Shares
are designed for investors who meet certain administrative, servicing, tenure,
and account-size criteria.
A. The following significant accounting policies conform to generally accepted
accounting principles for U.S. mutual funds. 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 4:00 p.m. Eastern time) on the valuation
date. Equity securities are valued at the latest quoted sales prices or
official closing prices taken from the primary market in which each
security trades; such securities not traded on the valuation date are
valued at the mean of the latest quoted bid and asked prices. Securities
for which market quotations are not readily available, or whose values have
been materially affected by events occurring before the fund's pricing time
but after the close of the securities' primary markets, are valued by
methods deemed by the board of trustees to represent fair value. Temporary
cash investments acquired over 60 days to maturity are valued using the
latest bid prices or using valuations based on a matrix system (which
considers such factors as security prices, yields, maturities, and
ratings), both as furnished by independent pricing services. Other
temporary cash investments are valued at amortized cost, which approximates
market value.
2. REPURCHASE AGREEMENTS: The fund, along with other members of The Vanguard
Group, transfers uninvested cash balances to a pooled cash account, which
is invested in repurchase agreements secured by U.S. government securities.
Securities pledged as collateral for repurchase agreements are held by a
custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of
interest and principal; however, in the event of default or bankruptcy by
the other party to the agreement, retention of the collateral may be
subject to legal proceedings.
3. FEDERAL INCOME TAXES: The fund intends to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for federal income taxes is required in the
financial statements.
4. DISTRIBUTIONS: Distributions to shareholders are recorded on the
ex-dividend date.
5. OTHER: Dividend income is recorded on the ex-dividend 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. ALLIANCE CAPITAL MANAGEMENT L.P. 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 Russell 1000 Growth Index. For the six
months ended February 29, 2004, the investment advisory fee represented an
effective annual basic rate of 0.14% of the fund's average net assets
before a decrease of $1,037,000 (0.03%) based on performance.
21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
C. The Vanguard Group furnishes at cost corporate management, administrative,
marketing, and distribution services. The costs of such services are
allocated to the fund under methods approved by the board of trustees. The
fund has committed to provide up to 0.40% of its net assets in capital
contributions to Vanguard. At February 29, 2004, the fund had contributed
capital of $1,101,000 to Vanguard (included in Other Assets), representing
0.02% of the fund's net assets and 1.10% of Vanguard's capitalization. The
fund's trustees and officers are also directors and officers of Vanguard.
D. The fund has asked its investment advisor to direct certain security
trades, subject to obtaining the best price and execution, to brokers who
have agreed to rebate to the fund part of the commissions generated. Such
rebates are used solely to reduce the fund's management and administrative
expenses. For the six months ended February 29, 2004, these arrangements
reduced expenses by $738,000 (an annual rate of 0.02% of average net
assets).
E. Distributions are determined on a tax basis and may differ from net
investment income and realized capital gains for financial reporting
purposes. Differences may be permanent or temporary. Permanent differences
are reclassified among capital accounts in the financial statements to
reflect their tax character. Temporary differences arise when certain items
of income, expense, gain, or loss are recognized in different periods for
financial statement and tax purposes; these differences will reverse at
some time in the future. Differences in classification may also result from
the treatment of short-term gains as ordinary income for tax purposes.
During 2002, the fund elected to use a provision of the Taxpayer Relief Act
of 1997 to mark-to-market certain appreciated securities held on January 1,
2001; such securities were treated as sold and repurchased, with unrealized
gains of $912,491,000 becoming realized and reducing the fund's capital
loss carryforward, for tax purposes. The mark-to-market had no effect on
realized gains or unrealized appreciation for financial statement purposes;
it created a difference between the cost of investments for financial
statement and tax purposes, which will reverse when the securities are
sold. The fund realized gains on the sale of these securities through
August 31, 2003, and subsequently during the six months ended February 29,
2004, of $656,107,000 and $37,358,000, respectively, for financial
statement purposes, which were included in fiscal 2001 mark-to-market gains
for tax purposes. The remaining difference of $219,026,000 is reflected in
the balance of accumulated net realized losses; the corresponding
difference between the securities' costs for financial statement purposes
and for tax purposes is reflected in unrealized appreciation.
The fund's tax-basis capital gains and losses are determined only at the
end of each fiscal year. For tax purposes, at August 31, 2003, the fund had
available realized losses of $7,087,673,000 to offset future net capital
gains of $3,610,329,000 through August 31, 2010, $2,548,333,000 through
August 31, 2011, and $929,011,000 through August 31, 2012. The fund will
use these capital losses to offset net taxable capital gains, if any,
realized during the year ending August 31, 2004; should the fund realize
net capital losses for the year, the losses will be added to the loss
carryforward balances above.
At February 29, 2004, net unrealized appreciation of investment securities
for tax purposes was $258,692,000, consisting of unrealized gains of
$881,617,000 on securities that had risen in value since their purchase and
$622,925,000 in unrealized losses on securities that had fallen in value
since their purchase.
F. During the six months ended February 29, 2004, the fund purchased
$1,479,059,000 of investment securities and sold $1,913,670,000 of
investment securities other than temporary cash investments.
22
G. The market value of securities on loan to broker/dealers at February 29,
2004, was $143,762,000, for which the fund held cash collateral of
$150,042,000. The fund invests cash collateral received in repurchase
agreements, and records a liability for the return of the collateral,
during the period the securities are on loan.
H. Capital share transactions for each class of shares were:
- -----------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2004 AUGUST 31, 2003
------------------- -----------------------
AMOUNT SHARES AMOUNT SHARES
(000) (000) (000) (000)
- -----------------------------------------------------------------------------------------------
Investor Shares
Issued $474,877 31,855 $1,226,990 97,854
Issued in Lieu of Cash Distributions 18,818 1,270 17,225 1,395
Redeemed (880,451) (59,079) (1,280,860) (101,975)
-----------------------------------------------
Net Increase (Decrease)--Investor Shares (386,756) (25,954) (36,645) (2,726)
-----------------------------------------------
Admiral Shares
Issued 177,755 4,552 347,808 10,762
Issued in Lieu of Cash Distributions 5,262 137 4,667 146
Redeemed (172,866) (4,494) (430,065) (13,311)
-----------------------------------------------
Net Increase (Decrease)--Admiral Shares 10,151 195 (77,590) (2,403)
- -----------------------------------------------------------------------------------------------
23
- --------------------------------------------------------------------------------
INVESTING IS FAST, EASY, AND SECURE
ON VANGUARD.COM
- --------------------------------------------------------------------------------
If you're like many Vanguard investors, you believe in planning and taking
control of your own investments. VANGUARD.COM was built for you--and it keeps
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RESEARCH AND PLAN YOUR INVESTMENTS WITH CONFIDENCE
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Find out what Vanguard.com can do for you. Log on today!
24
- --------------------------------------------------------------------------------
CAPITALIZE ON YOUR IRA
- --------------------------------------------------------------------------------
Are you taking full advantage of your individual retirement account? You really
should be. These tax-deferred accounts are powerful options for retirement
savers.
Here's how you can exploit your IRA--and improve your chances of having the
retirement of your dreams.
CONTRIBUTE THE MAXIMUM AMOUNT EACH YEAR
It may be an obvious point, but if you invest as much in your IRA as the law
allows--currently $3,000 per tax year if you are under age 50 and $3,500 if you
are age 50 or over--you will increase the odds of meeting your retirement goals.
"Max out" every year you can.
MAKE IT AUTOMATIC
Put your IRA on autopilot by taking advantage of Vanguard's Automatic Investment
Plan. Your IRA contributions will be deducted from your bank account on a
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CONSIDER COST
The owners of low-cost investments keep a larger portion of their gross returns
than the owners of high-cost investments. Over the long term, avoiding costlier
mutual funds and brokerage commissions could significantly boost your retirement
savings. Our low costs are one reason a Vanguard IRA(R) is such a smart choice.
REQUEST A DIRECT ROLLOVER WHEN YOU CHANGE JOBS
Don't spend your retirement assets before you've retired. When you change jobs,
roll your 401(k) or other employer-sponsored retirement plan assets directly
into your IRA.
If you have questions about your IRA, want to transfer an IRA from another
institution to Vanguard, or need help with any other IRA transaction, call our
Retirement Resource Center at 1-800-205-6189 or visit VANGUARD.COM. You can open
or fund your IRA on our website and have a confirmation in your hand within
minutes.
THE VANGUARD(R)FAMILY OF FUNDS
STOCK FUNDS
500 Index Fund
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Energy Fund
Equity Income Fund
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BALANCED FUNDS
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STAR(R) Fund
Target Retirement Funds:
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Intermediate-Term Corporate Fund
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Intermediate-Term Treasury Fund
Limited-Term Tax-Exempt Fund
Long-Term Bond Index Fund
Long-Term Corporate Fund
Long-Term Tax-Exempt Fund
Long-Term Treasury Fund
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Short-Term Corporate Fund
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Short-Term Treasury Fund
State Tax-Exempt Bond Funds
(California, Florida, Massachusetts,
New Jersey, New York, Ohio,
Pennsylvania)
Total Bond Market Index Fund
MONEY MARKET FUNDS
Admiral(TM) Treasury Money Market Fund
Federal Money Market Fund
Prime Money Market Fund
State Tax-Exempt Money Market Funds
(California, New Jersey,
New York, Ohio, Pennsylvania)
Tax-Exempt Money Market Fund
Treasury Money Market Fund
VARIABLE ANNUITY
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Forge, PA 19482-2600. Read it carefully before you invest or send money.
THIS PAGE INTENTIONALLY LEFT BLANK.
THE PEOPLE WHO GOVERN YOUR FUND
- --------------------------------------------------------------------------------
The trustees of your mutual fund are there to see that the fund is operated and
managed in your best interests since, as a shareholder, you are a part owner of
the fund. Your fund trustees also serve on the board of directors of The
Vanguard Group, Inc., which is owned by the Vanguard(R) funds and provides
services to them on an at-cost basis.
A majority of Vanguard's board members are independent, meaning that they have
no affiliation with Vanguard or the funds they oversee, apart from the sizable
personal investments they have made as private individuals.
Our independent board members bring distinguished backgrounds in business,
academia, and public service to their task of working with Vanguard officers to
establish the policies and oversee the activities of
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
POSITION(S) HELD WITH
NAME FUND (NUMBER OF
(YEAR OF BIRTH) VANGUARD FUNDS
TRUSTEE/OFFICER OVERSEEN BY
SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------
JOHN J. BRENNAN* Chairman of the Chairman of the Board, Chief Executive Officer, and Director/Trustee
(1954) Board, Chief of The Vanguard Group, Inc., and of each of the investment companies
May 1987 Executive Officer, served by The Vanguard Group.
and Trustee
(129)
- ------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
CHARLES D. ELLIS Trustee The Partners of '63 (pro bono ventures in education); Senior Advisor
(1937) (129) to Greenwich Associates (international business strategy consulting);
January 2001 Successor Trustee of Yale University; Overseer of the Stern School of
Business at New York University; Trustee of the Whitehead Institute
for Biomedical Research.
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RAJIV L. GUPTA Trustee Chairman and Chief Executive Officer (since October 1999), Vice
(1945) (129) Chairman (January-September 1999), and Vice President (prior to
December 2001 September 1999) of Rohm and Haas Co. (chemicals); Director of
Technitrol, Inc. (electronic components), and Agere Systems
(communications components); Board Member of the American Chemistry
Council; and Trustee of Drexel University.
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JOANN HEFFERNAN Trustee Vice President, Chief Information Officer, and Member of the
HEISEN (129) Executive Committee of Johnson & Johnson (pharmaceuticals/consumer
(1950) products); Director of the Medical Center at Princeton and Women's
July 1998 Research and Education Institute.
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BURTON G. MALKIEL Trustee Chemical Bank Chairman's Professor of Economics,Princeton University;
(1932) (127) Director of Vanguard Investment Series plc (Irish investment fund)
May 1977 (since November 2001), Vanguard Group (Ireland)Limited (Irish
investment management firm)(since November 2001),Prudential Insurance
Co. of America, BKF Capital (investment management), The Jeffrey Co.
(holding company), and NeuVis, Inc.(software company).
- ------------------------------------------------------------------------------------------------------------
This page contains typographical corrections of text in the printed report.
- --------------------------------------------------------------------------------
the funds. Among board members' responsibilities are selecting investment
advisors for the funds; monitoring fund operations, performance, and costs;
reviewing contracts; nominating and selecting new trustees/directors; and
electing Vanguard officers.
Each trustee serves a fund until its termination; or until the trustee's
retirement, resignation, or death; or otherwise as specified in the fund's
organizational documents. Any trustee may be removed at a shareholders' meeting
by a vote representing two-thirds of the net asset value of all shares of the
fund together with shares of other Vanguard funds organized within the same
trust. The table on these two pages shows information for each trustee and
executive officer of the fund. The mailing address of the trustees and officers
is P.O. Box 876, Valley Forge, PA 19482.
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POSITION(S) HELD WITH
NAME FUND (NUMBER OF
(YEAR OF BIRTH) VANGUARD FUNDS
TRUSTEE/OFFICER OVERSEEN BY
SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------
Alfred M. Rankin, Jr. Trustee Chairman, President, Chief Executive Officer, and Director of NACCO
(1941) (129) Industries, Inc. (forklift trucks/housewares/lignite); Director of
January 1993 Goodrich Corporation (industrial products/aircraft systems and
services); Director of Standard Products Company (supplier for
the automotive industry) until 1998.
- ------------------------------------------------------------------------------------------------------------
J. Lawrence Wilson Trustee Retired Chairman and Chief Executive Officer of Rohm and Haas Co.
(1936) (129) (chemicals); Director of Cummins Inc. (diesel engines), The Mead
April 1985 Corp. (paper products), and AmerisourceBergen Corp. (pharmaceutical
distribution); Trustee of Vanderbilt University.
- ------------------------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS*
R. Gregory Barton Secretary Managing Director and General Counsel of The Vanguard Group, Inc.;
(1951) (129) Secretary of The Vanguard Group and of each of the investment
June 2001 companies served by The Vanguard Group.
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Thomas J. Higgins Treasurer Principal of The Vanguard Group, Inc.; Treasurer of each of the
(1957) (129) investment companies served by The Vanguard Group.
July 1998
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*Officers of the funds are "interested persons" as defined in the Investment
Company Act of 1940.
More information about the trustees is in the Statement of Additional
Information, available from The Vanguard Group.
- ------------------------------------------------------------------------------------------------------------
VANGUARD SENIOR MANAGEMENT TEAM
MORTIMER J. BUCKLEY, Information Technology. MICHAEL S. MILLER, Planning and Development.
JAMES H. GATELY, Investment Programs and Services. RALPH K. PACKARD, Finance.
KATHLEEN C. GUBANICH, Human Resources. GEORGE U. SAUTER, Chief Investment Officer.
F. WILLIAM MCNABB, III, Client Relationship Group.
- ------------------------------------------------------------------------------------------------------------
JOHN C. BOGLE, Founder; Chairman and Chief Executive Officer, 1974-1996.
- ------------------------------------------------------------------------------------------------------------
[SHIP]
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(C) 2004 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing
Corporation, Distributor.
Q232 042004
Vanguard(R) International Growth Fund
February 29, 2004
SEMIANNUAL REPORT
THE VANGUARD GROUP (R)
HOW TO READ YOUR FUND REPORT
This report contains information that can help you evaluate your investment. It
includes details about your fund's return and presents data and analysis that
provide insight into the fund's performance and investment approach.
By reading the letter from Vanguard's chairman, John J. Brennan, together with
the letter from the managers who select securities for your fund, you'll get an
understanding of how the fund invests and how the market environment affected
its performance. The statistical information that follows can help you
understand how the fund's performance and characteristics stack up against those
of similar funds and market benchmarks.
It's important to keep in mind that the opinions expressed by Vanguard's
investment managers are just that: informed opinions. They should not be
considered promises or advice. The opinions, like the statistics, cover the
period through the date on the cover of this report. As things change--and in
the financial markets you can be certain only of change--an investment manager's
job is to evaluate new information and make adjustments, if necessary. Of
course, the risks of investing in the fund are spelled out in the prospectus.
Frequent updates on the fund's performance and information about some of its
holdings are available on Vanguard.com(R).
================================================================================
CONTENTS
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1 LETTER FROM THE CHAIRMAN
5 REPORT FROM THE ADVISOR
8 FUND PROFILE
10 GLOSSARY OF INVESTMENT TERMS
11 PERFORMANCE SUMMARY
12 ABOUT YOUR FUND'S EXPENSES
13 FINANCIAL STATEMENTS
26 ADVANTAGES OF VANGUARD.COM
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================================================================================
SUMMARY
- - During the six-month period ended February 29, 2004, the Investor Shares of
Vanguard International Growth Fund returned 22.3%, an outstanding result in
absolute terms but one that slightly lagged the performance of the fund's
comparative measures.
- - Boosted by a falling U.S. dollar, international stocks outpaced domestic
stocks by a substantial margin.
- - Relatively conservative investments in Japan and in certain industries
caused the fund to lag the MSCI EAFE Index during a period in which riskier
stocks were in demand.
================================================================================
WANT LESS CLUTTER IN YOUR MAILBOX? JUST REGISTER WITH VANGUARD.COM AND OPT TO
GET FUND REPORTS ONLINE.
LETTER FROM THE CHAIRMAN
Fellow Shareholder,
The global rally in stocks that began last year continued in early 2004, and a
falling U.S. dollar helped international stocks outpace domestic stocks during
the six months ended February 29.
The Investor Shares of Vanguard International Growth Fund returned 22.3%--a
stellar absolute result for the first half of the fund's fiscal year. However,
the gain was a tad lower than the average return of the fund's mutual fund peer
group and about 3 percentage points less than the result of the fund's primary
unmanaged benchmark, the Morgan Stanley Capital International Europe,
Australasia, Far East (MSCI EAFE) Index. This latter shortfall was partly due to
the fund's Japanese holdings not keeping pace with those in the index.
================================================================================
TOTAL RETURNS SIX MONTHS ENDED
FEBRUARY 29, 2004
- --------------------------------------------------------------------------------
Vanguard International Growth Fund
Investor Shares 22.3%
Admiral Shares 22.5
MSCI EAFE Index 25.2
Average International Fund* 22.8
MSCI All Country World Index ex USA 25.4
- --------------------------------------------------------------------------------
*Derived from data provided by Lipper Inc.
================================================================================
The table above shows your fund's total returns versus those of the MSCI EAFE
Index, a measure of developed international markets; the average international
stock fund; and the unmanaged MSCI All Country World Index ex USA, the broadest
proxy of international stocks, including those from emerging markets. Total
returns are based on change in capital plus reinvested distributions. The fund's
distributions and its share prices at the beginning and end of the period are
shown in the table on page 4.
STOCKS CONTINUED THEIR COMEBACK
As the fiscal half-year got under way last September, stock markets in the
United States and abroad were in the midst of a strong advance.
1
================================================================================
ADMIRAL(TM) SHARES
A LOWER-COST CLASS OF SHARES AVAILABLE TO MANY LONGTIME SHAREHOLDERS AND TO
THOSE WITH SIGNIFICANT INVESTMENTS IN THE FUND.
================================================================================
The gains continued throughout the period, buoyed by a steady flow of positive
corporate earnings reports and economic data.
During the six months, the U.S. stock market, as measured by the Wilshire 5000
Total Market Index, returned 15.3%. For U.S.-based investors, gains were even
more impressive from overseas, with the MSCI All Country World Index ex USA
earning 25.4%. Returns from European markets were generally stronger than those
from Pacific markets, and returns from emerging markets were outstanding.
However, much of the gains for international stocks came from the continued
decline in the U.S. dollar, and this was particularly true for the developed
markets. The yen rose 7.1% against the dollar, the euro rose 13.7%, and the
British pound rose 18.5%. As a result, the EAFE Index's 25.2% return in dollars
was more than double the 11.3% gain in local currencies. The currency impact was
less beneficial for emerging-markets investors: The weaker dollar added only
about 3 percentage points to the MSCI Emerging Markets Index's already stellar
local-currency return of 25.4%.
AS INTEREST RATES REMAINED LOW, INVESTORS SOUGHT OUT RISKIER BONDS
In the fixed income markets, demand for U.S. Treasury issues remained strong,
boosting the price of the 10-year Treasury note while reducing its yield from
4.46% at the start of the period to 3.97% by February 29. However, the low level
of market rates in general, together with the signs of a strengthening economy,
sent some investors searching for the higher yields to be obtained from riskier
bonds. As a
================================================================================
MARKET BAROMETER TOTAL RETURNS
PERIODS ENDED FEBRUARY 29, 2004
-------------------------------
SIX ONE FIVE
MONTHS YEAR YEARS*
- --------------------------------------------------------------------------------
STOCKS
MSCI All Country World Index
ex USA (International) 25.4% 55.9% 2.9%
Russell 1000 Index (Large-caps) 14.8 39.7 0.5
Russell 2000 Index (Small-caps) 18.3 64.4 9.8
Wilshire 5000 Index (Entire market) 15.3 42.5 1.2
- --------------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index
(Broad taxable market) 4.9% 4.5% 7.2%
Lehman Municipal Bond Index 6.5 6.3 6.1
Citigroup 3-Month Treasury Bill Index 0.5 1.0 3.4
================================================================================
CPI
Consumer Price Index 0.9% 1.7% 2.5%
- --------------------------------------------------------------------------------
*Annualized.
================================================================================
2
result, returns of corporate bonds exceeded those of government bonds with
similar maturities. The Lehman Brothers High Yield Bond Index, a benchmark of
below-investment-grade bonds, recorded a six-month return of 10.6%, while the
Lehman Aggregate Bond Index, a measure of the taxable investment-grade bond
market, returned 4.9%.
Short-term interest rates remained low and stable, fluctuating within a tight
range of 0.91% to 0.97% throughout the six months. The 3-month Treasury bill, a
proxy for money market rates, ended the fiscal half-year with a yield of 0.94%,
just 3 basis points below its initial 0.97% yield.
EUROPE BOLSTERED YOUR FUND'S RETURN
Vanguard International Growth Fund's six-month returns of more than 22% were
stellar in absolute terms, though they fell a bit short of the returns of the
fund's benchmarks.
All industry sectors in your fund posted double-digit gains. Financial and
consumer discretionary stocks in particular bolstered performance, collectively
contributing 10 percentage points to your fund's total return. Viewed
regionally, European markets accounted for most of the fund's gains (16
percentage points), aided considerably by the strong euro and pound sterling.
(British stocks constituted one-quarter of the fund's assets at the end of the
period.) But European stocks were by no means the only strong performers: Out of
the 29 countries that your fund was invested in during the half-year, only four
had anything less than a double-digit return in U.S. dollars.
However, one of those four was Japan, the second-largest market weighting in
your fund, averaging about 19% of assets. While our Japanese holdings
collectively posted a solid return of almost 9%, this was short of the 16.6%
return of Japanese stocks in the EAFE Index, which partly accounted for the
fund's 3-percentage-point underperformance.
================================================================================
FUND ASSETS MANAGED FEBRUARY 29, 2004
-----------------------------
$ MILLION PERCENTAGE
- --------------------------------------------------------------------------------
Schroder Investment Management
North America Inc. $6,240 77%
Baillie Gifford Overseas Ltd. 1,556 19
Cash Investments* 364 4
- --------------------------------------------------------------------------------
Total $8,160 100%
================================================================================
*These short-term reserves are invested by The Vanguard Group in equity index
products to simulate investment in stocks. Each advisor also may maintain a
modest cash position.
================================================================================
Sector-wise, the fund's holdings in financials and technology, while recording
excellent results, did not keep
3
pace with the EAFE Index's stocks. The fund's investment advisors--Schroder
Investment Management and Baillie Gifford Overseas--tend to favor stocks of
companies with solid fundamentals and strong balance sheets. Such stocks did not
surge as much as did riskier equities during the six-month period.
WHETHER BULL OR BEAR, OUR ADVICE IS THE SAME
The past year has been a welcome change for investors who held on to stocks
through the long bear market that preceded it. We thank our long-term
shareholders for their patience and loyalty. While the environment has changed,
our advice remains the same as it has through both bull and bear markets:
Diversify across and within asset classes--stocks, bonds, and short-term
investments--in allocations appropriate for your objectives, time horizon, and
risk tolerance. That, combined with low costs and the discipline to stay the
course, stacks the odds of reaching your long-term financial goals in your
favor. Because overseas markets do not always move in sync with the U.S.
markets, a low-cost, diversified international investment such as Vanguard
International Growth Fund can be a valuable component in a balanced portfolio.
Thank you for entrusting your hard-earned dollars to us.
Sincerely,
JOHN J. BRENNAN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MARCH 11, 2004
================================================================================
YOUR FUND'S PERFORMANCE AT A GLANCE AUGUST 31, 2003-FEBRUARY 29, 2004
DISTRIBUTIONS PER SHARE
--------------------------
STARTING ENDING INCOME CAPITAL
SHARE PRICE SHARE PRICE DIVIDENDS GAINS
- --------------------------------------------------------------------------------
International Growth Fund
Investor Shares $14.01 $16.91 $0.21 $0.00
Admiral Shares 44.57 53.76 0.75 0.00
================================================================================
4
REPORT FROM THE ADVISOR
International stock markets continued their strong recovery in the first six
months of fiscal 2004. The Investor Shares of Vanguard International Growth Fund
returned 22.3%, compared with a 22.8% rise in the average international fund and
a 25.2% rise in the MSCI EAFE Index.
This report focuses on the portion of the portfolio managed by Schroder
Investment Management North America, representing 77% of the fund's assets as of
February 29, 2004.
THE INVESTMENT ENVIRONMENT
The global economic recovery has gained momentum, led by strong domestic demand
in the United States and China. The rest of the world has benefited enormously
from the consequent pickup in world trade, but no other major country or region,
except the United Kingdom, has seen growth in exports translate into a clear
recovery in private consumption. This, of course, is the vital link: Strong
export activity creates jobs, which in turn lead to a sustainable recovery.
In recent months, Japan has offered a glimmer of hope: In 2003, employment
actually rose marginally after six years of declines, and personal disposable
income fell only half a percent in real terms, its second best performance in
the past seven years. Both are encouraging, and Japanese consumers dipped into
their savings and spent aggressively in January. After many false cues in the
past, few people would extrapolate too much from this one-month improvement. But
other indicators also give credence to hints of an economic recovery. Since
recovery is still dependent on the continued buoyancy of exports, it is not
surprising that the Bank of Japan is determined to stop the yen from rising too
much.
================================================================================
INVESTMENT PHILOSOPHY
THE ADVISOR BELIEVES THAT SUPERIOR LONG-TERM INVESTMENT RESULTS CAN BE ACHIEVED
BY SELECTING THE STOCKS OF COMPANIES WITH THE POTENTIAL FOR ABOVE-AVERAGE
EARNINGS GROWTH, WITH PARTICULAR EMPHASIS ON COMPANIES IN COUNTRIES WITH
FAVORABLE BUSINESS AND MARKET ENVIRONMENTS.
================================================================================
The Eurozone, by contrast, is suffering from a 15% rise in the euro against the
dollar in the past year and a 40% rise in the past two years.
5
Moreover, the euro has risen 16% against the yen in the past two years. I have
stressed in the past that investors benefit from strong currencies. Indeed,
continental Europe offered the highest dollar returns of any developed region in
the world in the past 6 and 12 months. However, that currency gain is now behind
us, and we think the near-term future looks less attractive as the local
economies adjust to tougher trade terms. We have reduced exposure to the
Eurozone by 5% and are now 12% underweighted relative to the EAFE Index.
OUR SUCCESSES
Over the past six months, there was little variation in the performance of most
sectors of our universe: All sectors returned between 20% and 30%. Indeed, most
regions were also in apparent lockstep. Excluding Japan, regional percentage
returns in dollars were in the upper 20s. Japan broke ranks with a 17% return.
Against this background, our small underweight in Japan helped (but note that we
are now increasing our position). More importantly, we decided to buy energy
stocks again after a two-year absence from the portfolio and, thus, through a
combination of timing and stock selection, added 1% to recent performance.
We sense a trend beginning in favor of higher-quality stocks after a relatively
miserable year, and this certainly helped the portfolio to outperform in all
consumer-related and defensive growth sectors toward which the portfolio is
stylistically biased.
Finally, three of the portfolio's largest holdings delivered strongly for us:
Samsung Electronics rose 27%; Tesco, 41%; and Vivendi (which we have held
throughout its crisis), 70%.
OUR FAILURES
Nowhere in the globe has the high-/low-quality difference been more marked than
in Japan, where we suffered badly, particularly in the first three months of the
period. Our technology stocks declined -2% in a sector that boomed in other
regions.
We have suffered such underperformance twice in the past dozen years, and both
times we recuperated quickly. We have reason to believe this will happen again.
6
We also suffered from excessively timid stock selection in financials,
particularly in continental Europe. Reflecting the extent of their problems,
banks in Germany and Italy were at very depressed levels a year ago, leaving
enormous potential for recovery. Investors' willingness to fund that recovery
has surprised us.
OUR PORTFOLIO'S POSITIONING
Global economic growth is stronger than we originally expected, and it will
likely stay strong in 2004. However, we expect growth to peak by midyear.
Several leading indicators are beginning to suggest this. Indeed, 2005 could be
a poor year for some equity markets as profit growth fades and monetary policy
is tightened. Stock prices look ahead and sentiment can change rapidly, so we
have started to adjust the portfolio.
Approximately half of the portfolio is invested in stocks that should be
regarded as relative safe havens when investors become more cautious. A further
15% is invested in emerging markets, which empirical evidence suggests suffer
when global confidence is waning. Half of this exposure is in companies that
trade globally, notably Korean and Taiwanese technology companies; the balance
is in more domestically oriented companies. Both types are growing much faster
than the developed world and have much stronger finances. We believe these
companies are undervalued, and we do not intend to take widespread profits at
this time. Continued growth in many developing countries' economies is not
inconsistent with slower growth in the developed world.
Our nervousness at growth prospects in the Eurozone is highlighted by the
complete absence of German stocks in our portion of the portfolio. This is not a
country-based decision; instead, our valuation process currently indicates no
cheap stocks there. French companies, on the other hand, have stronger finances
and match our expectations better, as do British companies, many of which we
consider to be very cheap relative to their peers around the world. Accordingly,
26% of the portfolio is in the United Kingdom, the highest amount we have had
there for many years.
RICHARD FOULKES, EXECUTIVE VICE PRESIDENT
SCHRODER INVESTMENT MANAGEMENT NORTH AMERICA INC.
MARCH 8, 2004
7
FUND PROFILE AS OF 2-29-2004
This Profile provides a snapshot of the fund's characteristics, compared where
indicated with both an appropriate market index and a broad market index. Key
terms are defined on page 10.
INTERNATIONAL GROWTH FUND
================================================================================
PORTFOLIO CHARACTERISTICS
COMPARATIVE BROAD
FUND INDEX* INDEX**
- -------------------------------------------------------------------------------
Number of Stocks 208 1,001 1,744
Turnover Rate 49%+ -- --
Expense Ratio -- --
Investor Shares 0.66%+
Admiral Shares 0.46%+
Short-Term Reserves 1% -- --
================================================================================
====================================================
TEN LARGEST HOLDINGS (% of total net assets)
Samsung Electronics Co., Ltd. 3.6%
(electronics)
Tesco PLC 3.1
(retail)
Vodafone Group PLC 2.7
(telecommunications)
Royal Bank of Scotland Group PLC 2.2
(banking)
Nestle SA (Registered) 2.0
(food, beverage, and tobacco)
Telecom Italia SpA 1.9
(telecommunications)
Mitsui & Co., Ltd. 1.8
(energy and utilities)
Ricoh Co. 1.7
(computer hardware)
Vivendi Universal SA 1.7
(media)
Nokia Oyj 1.6
(telecommunications)
- ------------------------------------------------------
Top Ten 22.3%
======================================================
"Ten Largest Holdings" excludes any temporary cash investments and equity index
products.
================================================================================
VOLATILITY MEASURES
COMPARATIVE BROAD
FUND INDEX* FUND INDEX**
- ---------------------------------------------------------------------
R-Squared 0.96 1.00 0.97 1.00
Beta 1.02 1.00 1.02 1.00
================================================================================
SECTOR DIVERSIFICATION (% of portfolio)
COMPARATIVE BROAD
FUND INDEX* INDEX**
- --------------------------------------------------------------------------------
Consumer Discretionary 17% 13% 12%
Consumer Staples 12 9 8
Energy 8 8 9
Financials 22 25 25
Health Care 4 9 8
Industrials 10 9 9
Information Technology 14 7 8
Materials 4 7 8
Telecommunication Services 7 8 8
Utilities 1 5 5
Short-Term Reserves 1% -- --
- --------------------------------------------------------------------------------
Sector percentages exclude futures and currency contracts held by the fund.
===========================================================
ALLOCATION BY REGION (% of portfolio)
EUROPE - 60%
PACIFIC - 23%
EMERGING MARKETS - 16%
SHORT-TERM RESERVES - 1%
============================================================
*MSCI EAFE Index.
**MSCI All Country World Index ex USA.
+Annualized.
8
===================================================
COUNTRY DIVERSIFICATION (% of portfolio)
COMPARATIVE BROAD
FUND INDEX* INDEX**
- ---------------------------------------------------
EUROPE
United Kingdom 25% 26% 22%
France 11 10 8
Switzerland 6 7 6
Italy 4 4 3
Ireland 3 1 1
Sweden 3 2 2
Netherlands 2 5 4
Germany 2 7 6
Finland 2 2 2
Spain 1 4 3
Denmark 1 1 1
Belgium 0 1 1
Greece 0 1 0
- ---------------------------------------------------
Subtotal 60% 71% 59%
- ---------------------------------------------------
PACIFIC
Japan 17% 21% 18%
Hong Kong 3 2 2
Australia 2 5 4
Singapore 1 1 1
- ---------------------------------------------------
Subtotal 23% 29% 25%
- ---------------------------------------------------
EMERGING MARKETS
South Korea 6% -- 2%
Brazil 2 -- 1
Taiwan 2 -- 1
China 2 -- 0
India 1 -- 1
Indonesia 1 -- 0
Mexico 1 -- 1
Russia 1 -- 1
South Africa 0 -- 1
- ---------------------------------------------------
Subtotal 16% -- 8%
- ---------------------------------------------------
OTHER 0% -- 8%
- ---------------------------------------------------
Short-Term Reserves 1% -- --
- ---------------------------------------------------
Total 100% 100% 100%
===================================================
Country percentages exclude futures and currency contracts held by the fund.
*MSCI EAFE Index.
**MSCI All Country World Index ex USA.
Visit our website at Vanguard.com
for regularly updated fund information.
9
GLOSSARY OF INVESTMENT TERMS
BETA. A measure of the magnitude of a fund's past share-price fluctuations in
relation to the ups and downs of a given market index. The index is assigned a
beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically
would have seen its share price rise or fall by 12% when the index rose or fell
by 10%. A fund's beta should be reviewed in conjunction with its R-squared (see
definition below). The lower the R-squared, the less correlation there is
between the fund and the index, and the less reliable beta is as an indicator of
volatility.
- --------------------------------------------------------------------------------
EXPENSE RATIO. The percentage of a fund's average net assets used to pay its
annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
- --------------------------------------------------------------------------------
R-SQUARED. A measure of how much of a fund's past returns can be explained by
the returns from the market in general, as measured by a given index. If a
fund's total returns were precisely synchronized with an index's returns, its
R-squared would be 1.00. If the fund's returns bore no relationship to the
index's returns, its R-squared would be 0.
- --------------------------------------------------------------------------------
SHORT-TERM RESERVES. The percentage of a fund invested in highly liquid,
short-term securities that can be readily converted to cash.
- --------------------------------------------------------------------------------
TURNOVER RATE. An indication of the fund's trading activity. Funds with high
turnover rates incur higher transaction costs and may be more likely to
distribute capital gains (which may be taxable to investors).
- --------------------------------------------------------------------------------
10
PERFORMANCE SUMMARY AS OF 2-29-2004
All of the returns in this report represent past performance, which is not a
guarantee of future results that may be achieved by the fund. (For the most
recent performance, which may be higher or lower than that cited, visit our
website at www.vanguard.com.) Note, too, that both investment returns and
principal value can fluctuate widely, so an investor's shares, when sold, could
be worth more or less than their original cost. The returns shown do not reflect
taxes that a shareholder would pay on fund distributions or on the sale of fund
shares.
INTERNATIONAL GROWTH FUND
Fiscal-Year Total Returns (%) August 31, 1993-February 29, 2004
INTERNATIONAL GROWTH FUND
INVESTOR SHARES MSCI EAFE INDEX
------------------------- ---------------
1994 20.4 10.8
1995 3.8 0.5
1996 12.7 7.9
1997 15.8 9.1
1998 -3.0 -0.1
1999 21.7 25.7
2000 18.7 9.6
2001 -24.5 -24.4
2002 -14.2 -15.0
2003 9.6 9.1
2004* 22.3 25.2
*Six months ended February 29, 2004.
Note: See Financial Highlights tables on pages 20 and 21 for dividend and
capital gains information.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS for periods ended December 31, 2003
This table presents average annual total returns through the latest calendar
quarter--rather than through the end of the fiscal period. Securities and
Exchange Commission rules require that we provide this information.
================================================================================
TEN YEARS
ONE FIVE --------------------------
INCEPTION DATE YEAR YEARS CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------
International Growth Fund*
Investor Shares 9/30/1981 34.45% 0.69% 3.92% 1.36% 5.28%
Admiral Shares 8/13/2001 34.66 3.28** -- -- --
================================================================================
*Total returns do not reflect the 2% fee assessed on redemptions of shares
purchased on or after June 27, 2003, and held for less than two months.
**Return since inception.
11
ABOUT YOUR FUND'S EXPENSES
All mutual funds have operating expenses. These expenses 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 net assets. This figure is known
as the expense ratio.
A HYPOTHETICAL EXAMPLE
We believe it is important for you to understand the impact of costs on your
investment. The following example illustrates the costs that you would have
incurred over the most recent six-month period on a $10,000 investment in the
fund. The example uses the fund's actual return and operating expenses for the
period. The cost in dollars is calculated by applying the expense ratio to the
average balance in a hypothetical account. For comparative purposes, we also
show the fund's annualized expense ratio--in which its six-month expenses are
projected for a 12-month period--along with the average expense ratio for the
fund's peer group, which is derived from data provided by Lipper Inc.
================================================================================
SIX MONTHS ENDED ANNUALIZED FUND EXPENSES
FEBRUARY 29, 2004 VERSUS PEER GROUP EXPENSES
----------------- -------------------------------
COST OF $10,000 FUND PEER GROUP*
INVESTMENT IN FUND EXPENSE RATIO EXPENSE RATIO
- --------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND
Investor Shares $37 0.66% 1.76%
Admiral Shares 26 0.46 --
================================================================================
*Average International Fund.
The calculation assumes no shares were sold. Your actual costs may have been
higher or lower, depending on the amount of your investment and your holding
period. Peer-group ratio captures data through year-end 2003.
You can find more information about the fund's expense ratio, including annual
expense ratios for the past five years, in the Financial Statements section of
this report. For additional information on operating expenses and other
shareholder costs, please refer to the fund's prospectus. The prospectus
presents hypothetical shareholder costs over various time periods based upon a
$10,000 investment and a return of 5% a year. This standardized example, which
appears in all mutual fund prospectuses, may be useful to you in comparing the
costs of investing in different funds.
12
FINANCIAL STATEMENTS (unaudited) AS OF 2-29-2004
STATEMENT OF NET ASSETS
This Statement provides a detailed list of the fund's holdings, including each
security's market value on the last day of the reporting period. Securities are
grouped and subtotaled by asset type (common stocks, bonds, etc.) and by
country. Other assets are added to, and liabilities are subtracted from, the
value of Total Investments to calculate the fund's Net Assets. Finally, Net
Assets are divided by the outstanding shares of the fund to arrive at its share
price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table displaying the
composition of the fund's net assets. Because all income and any realized gains
must be distributed to shareholders each year, the bulk of net assets consists
of Paid-in Capital (money invested by shareholders). The amounts shown for
Undistributed Net Investment Income and Accumulated Net Realized Gains usually
approximate the sums the fund had available to distribute to shareholders as
income dividends or capital gains as of the statement date, but may differ
because certain investments or transactions may be treated differently for
financial statement and tax purposes. Any Accumulated Net Realized Losses, and
any cumulative excess of distributions over net income or net realized gains,
will appear as negative balances. Unrealized Appreciation (Depreciation) is the
difference between the market value of the fund's investments and their cost,
and reflects the gains (losses) that would be realized if the fund were to sell
all of its investments at their statement-date values.
================================================================================
MARKET
VALUE*
INTERNATIONAL GROWTH FUND SHARES (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (94.2%)(1)
- --------------------------------------------------------------------------------
AUSTRALIA (2.1%)
Woolworths Ltd. 5,705,000 51,632
BHP Billiton Ltd. 3,654,600 34,570
National Australia Bank Ltd. 1,345,000 32,066
Commonwealth Bank
of Australia 1,263,000 30,871
Westpac Banking Corp., Ltd. 1,087,000 14,132
Leighton Holdings Ltd. 720,000 6,083
News Corp. Ltd. Pfd. 700,000 5,784
----------
175,138
----------
AUSTRIA (0.1%)
* Telekom Austria AG 812,000 11,754
----------
BELGIUM (0.2%)
Groupe Bruxelles Lambert SA 239,000 14,284
----------
BRAZIL (2.5%)
Petrol Brasil Series A ADR 2,449,600 68,834
Companhia Vale do Rio
Doce ADR 695,600 34,606
Companhia de Bebidas das
Americas ADR 1,245,000 33,490
Itausa-Investimentos Itau SA 18,181,000 21,536
Uniao de Bancos
Brasileiros SA 774,507 17,620
================================================================================
================================================================================
MARKET
VALUE*
SHARES (000)
- --------------------------------------------------------------------------------
Brasil Telecom SA 3,298,100,000 16,250
Tele Norte Leste
Participacoes ADR 528,000 7,682
----------
200,018
----------
CHINA (0.6%)
China Oilfield Services Ltd. 60,980,000 20,173
Zhejiang Expressway Co., Ltd. 12,000,000 9,712
China Petroleum &
Chemical Corp. 22,000,000 9,256
Beijing Datang Power
Generation Co. Ltd. 10,000,000 8,479
----------
47,620
----------
DENMARK (0.8%)
ISS A/S 600,000 33,513
Danske Bank A/S 929,770 21,781
Novo Nordisk A/S B Shares 294,000 13,627
----------
68,921
----------
FINLAND (1.6%)
Nokia Oyj 6,112,900 133,905
----------
FRANCE (10.6%)
* Vivendi Universal SA 4,740,000 135,752
Total SA 573,000 104,657
L'Air Liquide SA (Registered) 442,000 78,314
Suez SA 3,370,000 74,826
Societe Generale Class A 833,000 73,951
PSA Peugeot Citroen 1,386,000 68,970
================================================================================
13
================================================================================
MARKET
VALUE*
INTERNATIONAL GROWTH FUND SHARES (000)
- --------------------------------------------------------------------------------
Pernod Ricard SA 522,175 64,069
BNP Paribas SA 959,000 60,591
L'Oreal SA 520,870 42,811
Publicis Groupe SA 1,018,000 35,189
Thales SA 869,000 33,061
Accor SA 509,000 22,331
LVMH Louis Vuitton
Moet Hennessy 273,000 20,861
Sanofi-Synthelabo SA 265,410 18,137
Essilor International SA 250,490 14,363
* France Telecom SA 464,610 12,798
* JCDecaux SA 230,000 4,607
----------
865,288
----------
GERMANY (1.8%)
SAP AG 213,410 33,676
Porsche AG 43,120 25,093
Deutsche Boerse AG 435,500 25,048
Adidas-Salomon AG 197,940 22,258
Deutsche Bank AG 247,660 21,232
Bayerische Motoren Werke AG 379,320 16,203
----------
143,510
----------
GREECE (0.1%)
Greek Organization of
Football Prognostics 601,481 11,016
----------
HONG KONG (2.8%)
Swire Pacific Ltd. A Shares 12,787,000 89,530
CNOOC Ltd. 17,727,000 35,869
Wharf Holdings Ltd. 6,046,000 18,875
Television Broadcasts Ltd. 2,878,833 14,054
Johnson Electric Holdings Ltd. 11,181,000 13,431
Cheung Kong Holdings Ltd. 1,395,000 13,307
Boc Hong Kong Holdings Ltd. 5,710,500 11,665
Hong Kong Exchanges &
Clearing Ltd. 4,220,000 11,168
Sun Hung Kai Properties Ltd. 1,009,000 9,916
Hang Seng Bank Ltd. 447,000 6,346
Jardine Matheson Holdings Ltd. 278,800 2,635
Legend Group Ltd. 4,552,000 1,915
----------
228,711
----------
INDIA (1.4%)
(3)Zee Telefilm
Warrants Exp. 5/19/2006 11,922,289 35,427
(3)Housing Development
Finance Corp.
Warrants Exp. 2/10/2006 1,483,741 20,203
(3)State Bank of India
Warrants Exp. 12/23/2005 1,456,753 19,036
*(3)Oriental Bank of Commerce
Warrants Exp. 8/8/2006 2,745,000 17,438
*(3)Canara Bank Ltd.
Warrants Exp. 8/25/2006 4,490,000 12,991
================================================================================
MARKET
VALUE*
SHARES (000)
- --------------------------------------------------------------------------------
(3)State Bank of India
Warrants Exp. 1/5/2006 654,729 8,459
----------
113,554
----------
INDONESIA (0.9%)
PT Hanjaya Mandala
Sampoerna Tbk 42,644,000 24,588
PT Bank Danamon Tbk 42,249,000 13,866
PT Telekomunikasi
Indonesia Tbk 16,000,000 13,814
PT Gudang Garam Tbk 8,262,846 13,780
PT Central Bank Asia Tbk 8,226,500 3,551
----------
69,599
----------
IRELAND (2.7%)
Allied Irish Banks PLC
(UK Shares) 7,928,140 121,164
Bank of Ireland 4,598,000 60,158
Allied Irish Banks PLC 1,311,160 19,908
* Ryanair Holdings PLC ADR 485,210 16,793
----------
218,023
----------
ISRAEL (0.4%)
Teva Pharmaceutical
Industries Ltd.
Sponsored ADR 440,100 28,606
----------
ITALY (3.8%)
* Telecom Italia SpA 50,081,285 157,432
ENI SpA 6,209,000 121,660
Riunione Adriatica
di Sicurta SpA 1,156,280 21,004
Unicredito Italiano SpA 2,477,320 13,051
----------
313,147
----------
JAPAN (17.3%)
Mitsui & Co., Ltd. 18,655,000 144,275
Ricoh Co. 6,737,000 136,269
Toyota Motor Corp. 3,475,100 119,908
Takeda Chemical
Industries Ltd. 2,393,000 98,558
East Japan Railway Co. 20,590 96,109
Bridgestone Corp. 4,489,000 66,271
Mabuchi Motor Co. 786,100 52,378
Rohm Co., Ltd. 458,000 51,769
Murata Manufacturing Co., Ltd. 785,000 43,611
Ito-Yokado Co., Ltd. 934,000 35,219
Canon, Inc. 651,000 31,758
Sumitomo Electric
Industries Ltd. 3,591,000 30,796
Mitsubishi Electric Corp. 6,408,000 30,732
Yamanouchi
Pharmaceuticals Co., Ltd. 900,000 30,148
Sankyo Co., Ltd. 815,400 28,956
Asahi Glass Co., Ltd. 3,000,000 27,622
Nippon Unipac Holding 5,700 26,398
================================================================================
14
================================================================================
MARKET
VALUE*
SHARES (000)
- --------------------------------------------------------------------------------
Nippon Television
Network Corp. 170,640 24,645
Mitsui Sumitomo
Insurance Co. 2,773,000 24,365
Kyocera Corp. 289,900 21,306
Daito Trust Construction
Co., Ltd. 600,000 20,703
SMC Corp. 161,600 18,947
Tokyu Corp. 3,340,000 17,944
Konica Minolta Holdings, Inc. 1,562,000 17,927
Japan Tobacco, Inc. 2,279 16,311
Omron Corp. 721,000 15,672
Shin-Etsu Chemical Co., Ltd. 401,300 15,610
Keyence Corp. 73,600 15,177
NGK Spark Plug Co. 1,775,000 15,125
Isetan Co. 1,168,000 13,405
Hirose Electric Co., Ltd. 117,900 13,014
Kao Corp. 584,000 12,320
Nippon Telegraph and
Telephone Corp. 2,547 11,796
NTT DoCoMo, Inc. 5,404 11,227
Brother Industries Ltd. 1,177,000 11,096
Nitto Denko Corp. 214,000 10,577
Alps Electric Co., Ltd. 780,000 10,187
Yamada Denki Co., Ltd. 313,000 9,941
Aiful Corp. 75,000 6,617
Uniden Corp. 386,000 6,377
Promise Co., Ltd. 100,000 6,059
Acom Co., Ltd. 100,000 6,022
*(3)Nippon Television Network
Warrants Exp. 1/19/2007 40,700 5,878
----------
1,409,025
----------
MEXICO (0.7%)
* Grupo Financiero BBVA
Bancomer, SA de CV
Class B 38,390,000 41,185
America Movil SA de
CV Series L ADR 375,000 13,372
Grupo Televisa SA ADR 138,000 6,095
----------
60,652
----------
NETHERLANDS (2.1%)
TPG NV 4,144,000 90,466
* Koninklijke KPN NV 4,833,000 38,132
Verenigde Nederlandse
Uitgeversbedrijven NV 582,590 18,980
Oce NV 694,166 13,369
Aegon NV 830,920 12,296
----------
173,243
----------
NEW ZEALAND (0.2%)
Telecom Corp. of
New Zealand Ltd. 3,318,000 13,033
----------
- --------------------------------------------------------------------------------
================================================================================
MARKET
VALUE*
SHARES (000)
- --------------------------------------------------------------------------------
RUSSIA (0.6%)
OAO Lukoil Holding
Sponsored ADR 243,200 27,044
YUKOS ADR 331,000 16,782
Surgutneftegaz ADR 201,000 6,563
----------
50,389
----------
SINGAPORE (1.0%)
Singapore Press Holdings Ltd. 2,430,486 26,557
Noble Group Ltd. 10,080,000 23,923
DBS Group Holdings Ltd. 1,476,000 12,746
Great Eastern Holdings Ltd. 1,234,000 9,062
Venture Corp. Ltd. 582,000 7,351
----------
79,639
----------
SOUTH AFRICA (0.2%)
Sasol Ltd. 886,000 13,294
Anglo American Platinum Corp. 136,600 6,058
----------
19,352
----------
SOUTH KOREA (5.6%)
Samsung Electronics Co., Ltd. 629,142 291,567
Hyundai Motor Co. Ltd. 1,009,000 42,900
Shinsegae Co., Ltd. 180,000 40,867
* Kookmin Bank 944,000 39,414
Samsung Fire & Marine
Insurance Co. 445,000 28,645
*(3)Samsung Electronics Co.,
Ltd. GDR 69,300 16,058
----------
459,451
----------
SPAIN (0.9%)
Altadis SA 1,469,000 47,273
Banco Popular Espanol SA 285,290 17,316
Industria de Diseno Textil SA 464,250 10,152
----------
74,741
----------
SWEDEN (2.5%)
Skandinaviska Enskilda
Banken AB A Shares 3,614,000 53,645
* Telefonaktiebolaget LM
Ericsson AB Class B 12,641,200 36,849
Svenska Handelsbanken
AB A Shares 1,702,000 32,009
Electrolux AB Series B 1,446,000 30,496
Atlas Copco AB A Shares 816,790 29,241
Sandvik AB 396,920 12,717
SKF AB B Shares 318,170 11,754
----------
206,711
----------
SWITZERLAND (5.6%)
Nestle SA (Registered) 619,000 163,273
Cie. Financiere Richemont AG 2,499,571 66,423
Zurich Financial Services AG 321,000 52,571
Adecco SA (Registered) 1,004,950 49,969
Credit Suisse Group
(Registered) 745,000 27,101
- --------------------------------------------------------------------------------
15
================================================================================
MARKET
VALUE*
INTERNATIONAL GROWTH FUND SHARES (000)
- --------------------------------------------------------------------------------
* ABB Ltd. 3,938,084 23,845
UBS AG 310,360 22,800
Swiss Re (Registered) 312,080 22,459
Holcim Ltd. (Registered) 432,550 22,427
Novartis AG (Registered) 83,950 3,698
----------
454,566
----------
TAIWAN (1.5%)
Hon Hai Precision
Industry Co., Ltd. 11,009,600 48,851
Quanta Computer Inc. 13,967,000 35,383
* Taiwan Semiconductor
Manufacturing Co., Ltd. 8,282,560 15,768
Ambit Microsystems Corp. 4,420,000 12,854
Compal Electronics Inc. 7,518,000 10,143
----------
122,999
----------
UNITED KINGDOM (23.6%)
Tesco PLC 52,155,000 249,233
Vodafone Group PLC 88,924,000 221,547
Royal Bank of
Scotland Group PLC 5,701,600 180,301
Compass Group PLC 14,791,000 100,601
Kingfisher PLC 17,633,000 98,007
Shell Transport &
Trading Co. PLC 12,970,000 88,577
Cadbury Schweppes PLC 10,324,000 85,067
BG Group PLC 13,048,000 76,760
Prudential PLC 6,662,000 60,859
Reckitt Benckiser PLC 2,215,000 57,795
* British Sky
Broadcasting Group PLC 4,020,000 53,789
AstraZeneca Group PLC 1,078,000 51,054
GKN PLC 9,978,000 50,783
HBOS PLC 3,429,000 46,486
GlaxoSmithKline PLC 2,192,000 45,601
Bunzl PLC 4,751,000 39,323
Provident Financial PLC 2,638,000 36,448
IMI PLC 5,191,000 33,982
Royal & Sun Alliance
Insurance Group PLC 17,590,000 33,705
Centrica PLC 7,179,000 28,577
Johnson Matthey PLC 1,624,781 27,710
Rexam PLC 3,260,636 27,411
Kesa Electricals PLC 5,042,600 25,454
HSBC Holdings PLC 1,505,000 24,453
Carnival PLC 520,030 24,194
Abbey National PLC 2,471,000 22,241
Imperial Tobacco Group PLC 1,027,000 22,090
Enterprise Inns PLC 1,950,000 22,057
Barclays PLC 1,957,000 17,569
Man Group PLC 588,000 16,827
Standard Chartered PLC 851,000 14,656
- --------------------------------------------------------------------------------
================================================================================
MARKET
VALUE*
SHARES (000)
- --------------------------------------------------------------------------------
* Celltech Group PLC 1,630,000 12,251
Next PLC 462,000 11,926
Brambles Industries PLC 1,970,652 7,662
Capita Group PLC 1,371,000 6,959
----------
1,921,955
----------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $5,819,133) 7,688,850
- --------------------------------------------------------------------------------
FACE
AMOUNT
(000)
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (12.1%)(1)
- --------------------------------------------------------------------------------
Federal Home Loan Bank
(2) 1.00%, 5/14/2004 $ 2,000 1,996
Federal National Mortgage Assn.
(2) 1.00%, 4/14/2004 21,000 20,974
Repurchase Agreements
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
1.038%, 3/1/2004 425,872 425,872
1.038%, 3/1/2004--Note G 541,162 541,162
- --------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $990,004) 990,004
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (106.3%)
(Cost $6,809,137) 8,678,854
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (_6.3%)
- --------------------------------------------------------------------------------
Other Assets--Note C 93,746
Security Lending Collateral
Payable to Brokers--Note G (541,162)
Other Liabilities (71,361)
----------
(518,777)
----------
- --------------------------------------------------------------------------------
NET ASSETS (100%) $8,160,077
================================================================================
*See Note A in Notes to Financial Statements.
*Non-income-producing security.
(1)The fund invests a portion of its cash reserves in equity markets through the
use of index futures contracts. After giving effect to futures investments, the
fund's effective common stock and temporary cash investment positions represent
98.4% and 7.9%, respectively, of net assets. See Note E in Notes to Financial
Statements.
(2)Security segregated as initial margin for open futures contracts.
(3)Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be sold in transactions exempt from registration,
normally to qualified institutional buyers. At February 29, 2004, the aggregate
value of these securities was $135,490,000, representing 1.7% of net assets.
ADR--American Depositary Receipt.
GDR--Global Depositary Receipt.
16
AMOUNT
(000)
- --------------------------------------------------------------------------------
AT FEBRUARY 29, 2004, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Paid-in Capital $7,411,103
Overdistributed Net Investment Income (2,803)
Accumulated Net Realized Losses (1,135,032)
Unrealized Appreciation
Investment Securities 1,869,717
Futures Contracts 14,331
Foreign Currencies and
Forward Currency Contracts 2,761
- --------------------------------------------------------------------------------
NET ASSETS $8,160,077
================================================================================
Investor Shares--Net Assets
Applicable to 405,602,509 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $6,857,745
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--
INVESTOR SHARES $16.91
================================================================================
Admiral Shares--Net Assets
Applicable to 24,222,771 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $1,302,332
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--
ADMIRAL SHARES $53.76
================================================================================
See Note E in Notes to Financial Statements for the tax-basis components of net
assets.
17
STATEMENT OF OPERATIONS
This Statement shows the types of income earned by the fund during the reporting
period, and details the operating expenses charged to each class of its shares.
These expenses directly reduce the amount of investment income available to pay
to shareholders as income dividends. This Statement also shows any Net Gain
(Loss) realized on the sale of investments, and the increase or decrease in the
Unrealized Appreciation (Depreciation) of investments during the period.
================================================================================
INTERNATIONAL GROWTH FUND
SIX MONTHS ENDED FEBRUARY 29, 2004
(000)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Dividends* $ 41,061
Interest 1,501
Security Lending 1,241
- --------------------------------------------------------------------------------
Total Income 43,803
- --------------------------------------------------------------------------------
Expenses
Investment Advisory Fees--Note B
Basic Fee 4,972
Performance Adjustment (82)
The Vanguard Group--Note C
Management and Administrative
Investor Shares 13,602
Admiral Shares 1,455
Marketing and Distribution
Investor Shares 516
Admiral Shares 101
Custodian Fees 2,211
Shareholders' Reports
Investor Shares 78
Admiral Shares --
Trustees' Fees and Expenses 4
- --------------------------------------------------------------------------------
Total Expenses 22,857
Expenses Paid Indirectly--Note D (1,326)
- --------------------------------------------------------------------------------
Net Expenses 21,531
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 22,272
- --------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS)
Investment Securities Sold 241,193
Futures Contracts 10,764
Foreign Currencies and Forward Currency Contracts 13,060
- --------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) 265,017
- --------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
Investment Securities 1,160,016
Futures Contracts 8,297
Foreign Currencies and Forward Currency Contracts 8,298
- --------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) 1,176,611
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $1,463,900
================================================================================
*Dividends are net of foreign withholding taxes of $340,000.
18
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how the fund's total net assets changed during the two most
recent reporting periods. The Operations section summarizes information detailed
in the Statement of Operations. The amounts shown as Distributions to
shareholders from the fund's net income and capital gains may not match the
amounts shown in the Operations section, because distributions are determined on
a tax basis and may be made in a period different from the one in which the
income was earned or the gains were realized on the financial statements. The
Capital Share Transactions section shows the net amount shareholders invested in
or redeemed from the fund. Distributions and Capital Share Transactions are
shown separately for each class of shares.
================================================================================
International
Growth Fund
----------------------------
Six Months Year
Ended Ended
Feb. 29, 2004 Aug. 31, 2003
(000) (000)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net Investment Income $ 22,272 $ 93,041
Realized Net Gain (Loss) 265,017 (748,407)
Change in Unrealized Appreciation (Depreciation) 1,176,611 1,278,704
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 1,463,900 623,338
- --------------------------------------------------------------------------------
Distributions
Net Investment Income
Investor Shares (82,650) (70,275)
Admiral Shares (17,801) (14,773)
Realized Capital Gain
Investor Shares -- --
Admiral Shares -- --
- --------------------------------------------------------------------------------
Total Distributions (100,451) (85,048)
- --------------------------------------------------------------------------------
Capital Share Transactions--Note H
Investor Shares 253,178 80,206
Admiral Shares 41,605 57,502
- --------------------------------------------------------------------------------
Net Increase (Decrease) from Capital
Share Transactions 294,783 137,708
- --------------------------------------------------------------------------------
Total Increase (Decrease) 1,658,232 675,998
- --------------------------------------------------------------------------------
Net Assets
Beginning of Period 6,501,845 5,825,847
- --------------------------------------------------------------------------------
End of Period $8,160,077 $6,501,845
================================================================================
19
FINANCIAL HIGHLIGHTS
This table summarizes the fund's investment results and distributions to
shareholders on a per-share basis for each class of shares. It also presents the
Total Return and shows net investment income and expenses as percentages of
average net assets. These data will help you assess: the variability of the
fund's net income and total returns from year to year; the relative
contributions of net income and capital gains to the fund's total return; how
much it costs to operate the fund; and the extent to which the fund tends to
distribute capital gains. The table also shows the Portfolio Turnover Rate, a
measure of trading activity. A turnover rate of 100% means that the average
security is held in the fund for one year.
INTERNATIONAL GROWTH FUND INVESTOR SHARES
=====================================================================================================================
SIX MONTHS YEAR ENDED AUGUST 31,
ENDED --------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD FEB. 29, 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $14.01 $12.97 $15.41 $22.23 $19.75 $16.57
- ---------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .04 .19 .19 .23 .26 .27
Net Realized and Unrealized Gain (Loss) on Investments 3.07 1.03 (2.35) (5.41) 3.38 3.29
- ---------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 3.11 1.22 (2.16) (5.18) 3.64 3.56
- ---------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.21) (.18) (.24) (.22) (.26) (.22)
Distributions from Realized Capital Gains -- -- (.04) (1.42) (.90) (.16)
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions (.21) (.18) (.28) (1.64) (1.16) (.38)
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $16.91 $14.01 $12.97 $15.41 $22.23 $19.75
=====================================================================================================================
TOTAL RETURN* 22.34% 9.62% -14.20% -24.49% 18.68% 21.70%
=====================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $6,858 $5,458 $4,930 $6,447 $10,144 $8,000
Ratio of Total Expenses to Average Net Assets 0.66%** 0.69% 0.67% 0.61% 0.53% 0.58%
Ratio of Net Investment Income to Average Net Assets 0.58%** 1.57% 1.28% 1.19% 1.26% 1.42%
Portfolio Turnover Rate 49%** 59% 40% 48% 48% 37%
=====================================================================================================================
*Total returns do not reflect the 2% fee assessed on redemptions of shares
purchased on or after June 27, 2003, and held for less than two months.
**Annualized.
20
INTERNATIONAL GROWTH FUND ADMIRAL SHARES
- ---------------------------------------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED AUG. 31, AUG. 13* TO
FEB. 29, ------------------------ AUG. 31,
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $44.57 $41.27 $49.02 $50.00
- ---------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .19 .681 .677 .07
Net Realized and Unrealized Gain (Loss) on Investments 9.75 3.264 (7.502) (1.05)
- ---------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 9.94 3.945 (6.825) (.98)
- ---------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.75) (.645) (.795) --
Distributions from Realized Capital Gains -- -- (.130) --
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions (.75) (.645) (.925) --
- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $53.76 $44.57 $41.27 $49.02
=====================================================================================================================
TOTAL RETURN** 22.46% 9.80% -14.12% -1.96%
=====================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1,302 $1,044 $895 $495
Ratio of Total Expenses to Average Net Assets 0.46%+ 0.51% 0.54% 0.54%+
Ratio of Net Investment Income to Average Net Assets 0.77%+ 1.76% 1.53% 2.50%+
Portfolio Turnover Rate 49%+ 59% 40% 48%
=====================================================================================================================
*Inception.
**Total returns do not reflect the 2% fee assessed on redemptions of shares
purchased on or after June 27, 2003, and held for less than two months.
+Annualized.
21
NOTES TO FINANCIAL STATEMENTS
Vanguard International Growth Fund is registered under the Investment Company
Act of 1940 as an open-end investment company, or mutual fund. The fund invests
in securities of foreign issuers, which may subject it to investment risks not
normally associated with investing in securities of United States corporations.
The fund offers two classes of shares, Investor Shares and Admiral Shares.
Investor Shares are available to any investor who meets the fund's minimum
purchase requirements. Admiral Shares are designed for investors who meet
certain administrative, servicing, tenure, and account-size criteria.
A. The following significant accounting policies conform to generally accepted
accounting principles for U.S. mutual funds. 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 4:00 p.m. Eastern time) on the valuation
date. Equity securities are valued at the latest quoted sales prices or
official closing prices taken from the primary market in which each
security trades; such securities not traded on the valuation date are
valued at the mean of the latest quoted bid and asked prices. Securities
for which market quotations are not readily available, or whose values have
been materially affected by events occurring before the fund's pricing time
but after the close of the securities' primary markets, are valued by
methods deemed by the board of trustees to represent fair value. Temporary
cash investments acquired over 60 days to maturity are valued using the
latest bid prices or using valuations based on a matrix system (which
considers such factors as security prices, yields, maturities, and
ratings), both as furnished by independent pricing services. Other
temporary cash investments are valued at amortized cost, which approximates
market value.
2. FOREIGN CURRENCY: Securities and other assets and liabilities denominated
in foreign currencies are translated into U.S. dollars at the exchange
rates on the valuation date as employed by Morgan Stanley Capital
International in the calculation of its indexes.
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 asset or liability is
settled in cash, when they are recorded as realized foreign currency gains
(losses).
3. FUTURES AND FORWARD CURRENCY CONTRACTS: The fund uses S&P ASX 200 Index,
Dow Jones EURO STOXX 50 Index, FTSE 100 Index, and Topix Index futures
contracts to a limited extent, with the objective of maintaining exposure
to the European and Pacific stock markets 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 portfolio and the prices of futures contracts,
and the possibility of an illiquid market.
The fund also enters into forward currency contracts to protect the value
of securities and related receivables and payables against changes in
future foreign exchange rates, or to provide the appropriate currency
exposure related to any open futures contracts. The fund's risks in using
these contracts include movement in the values of the foreign currencies
relative to the U.S. dollar and the ability of the counterparties to
fulfill their obligations under the contracts.
Futures and forward currency contracts are valued at their quoted daily
settlement prices. The aggregate principal amounts of the contracts are not
recorded in the financial statements. Fluctuations in the value of the
contracts are recorded in the Statement of Net Assets as an asset
(liability) and in the Statement of Operations as unrealized appreciation
(depreciation) until the contracts are closed, when they are recorded as
realized gains (losses) on futures or forward currency contracts.
22
4. REPURCHASE AGREEMENTS: The fund, along with other members of The Vanguard
Group, transfers uninvested cash balances to a pooled cash account, which
is invested in repurchase agreements secured by U.S. government securities.
Securities pledged as collateral for repurchase agreements are held by a
custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of
interest and principal; however, in the event of default or bankruptcy by
the other party to the agreement, retention of the collateral may be
subject to legal proceedings.
5. FEDERAL INCOME TAXES: The fund intends to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for federal income taxes is required in the
financial statements.
6. DISTRIBUTIONS: Distributions to shareholders are recorded on the
ex-dividend date.
7. OTHER: Dividend income is recorded on the ex-dividend 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. Fees assessed on
redemptions of capital shares are credited to paid-in capital.
Each class of shares has equal rights as to assets and earnings, except
that each class separately bears certain class-specific expenses related to
maintenance of shareholder accounts (included in Management and
Administrative expenses) 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. Schroder Investment Management North America Inc. and Baillie Gifford
Overseas Ltd. each provide investment advisory services to a portion of the fund
for a fee calculated at an annual percentage rate of average net assets managed
by the advisor. The basic fee of each advisor is subject to quarterly
adjustments based on performance relative to the Morgan Stanley Capital
International Europe, Australasia, Far East Index. For Schroder, the adjustments
are based on performance for the preceding three years, and for Baillie Gifford
the adjustments are based on performance since December 1, 2003.
The Vanguard Group manages the cash reserves of the fund on an at-cost basis.
For the six months ended February 29, 2004, the aggregate investment advisory
fee represented an effective annual basic rate of 0.14% of the fund's average
net assets, before a decrease of $82,000 based on performance.
C. The Vanguard Group furnishes at cost corporate management, administrative,
marketing, and distribution services. The costs of such services are allocated
to the fund under methods approved by the board of trustees. The fund has
committed to provide up to 0.40% of its net assets in capital contributions to
Vanguard. At February 29, 2004, the fund had contributed capital of $1,183,000
to Vanguard (included in Other Assets), representing 0.01% of the fund's net
assets and 1.18% of Vanguard's capitalization. The fund's trustees and officers
are also directors and officers of Vanguard.
D. The fund has asked its investment advisors to direct certain security trades,
subject to obtaining the best price and execution, to brokers who have agreed to
rebate to the fund part of the commissions generated. Such rebates are used
solely to reduce the fund's management and administrative expenses. The fund's
custodian bank has also agreed to reduce its fees when the fund maintains cash
on deposit in the non-interest-bearing custody account. For the six months ended
February 29, 2004, directed brokerage and custodian fee offset arrangements
reduced expenses by $1,324,000 and $2,000, respectively. The total expense
reduction represented an effective annual rate of 0.04% of the fund's average
net assets.
23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
E. Distributions are determined on a tax basis and may differ from net
investment income and realized capital gains for financial reporting purposes.
Differences may be permanent or temporary. Permanent differences are
reclassified among capital accounts in the financial statements to reflect their
tax character. Temporary differences arise when certain items of income,
expense, gain, or loss are recognized in different periods for financial
statement and tax purposes; these differences will reverse at some time in the
future. Differences in classification may also result from the treatment of
short-term gains as ordinary income for tax purposes.
During the six months ended February 29, 2004, the fund realized net foreign
currency gains of $300,000, which increased distributable net income for tax
purposes; accordingly, such gains have been reclassified from accumulated net
realized gains to undistributed net investment income.
The fund's tax-basis capital gains and losses are determined only at the end of
each fiscal year. For tax purposes, at August 31, 2003, the fund had available
realized losses of $1,405,609,000 to offset future net capital gains of
$233,177,000 through August 31, 2010, $709,774,000 through August 31, 2011, and
$462,658,000 through August 31, 2012. The fund will use these capital losses to
offset net taxable capital gains, if any, realized during the year ending August
31, 2004; should the fund realize net capital losses for the year, the losses
will be added to the loss carryforward balances above.
At February 29, 2004, net unrealized appreciation of investment securities for
tax purposes was $1,869,717,000, consisting of unrealized gains of
$1,942,782,000 on securities that had risen in value since their purchase and
$73,065,000 in unrealized losses on securities that had fallen in value since
their purchase.
At February 29, 2004, the aggregate settlement value of open futures contracts
expiring in March 2004 and the related unrealized appreciation were:
================================================================================
(000)
-------------------------------
AGGREGATE UNREALIZED
NUMBER OF SETTLEMENT APPRECIATION
FUTURES CONTRACTS LONG CONTRACTS VALUE (DEPRECIATION)
- --------------------------------------------------------------------------------
S&P ASX 200 Index 442 $ 28,752 $ 762
Dow Jones EURO STOXX 50 Index 3,570 129,227 5,942
FTSE 100 Index 1,242 103,836 2,072
Topix Index 820 81,437 5,555
================================================================================
At February 29, 2004, the fund had open forward currency contracts to receive
and deliver currencies as follows:
================================================================================
(000)
------------------------------------------------
Contract Amount Unrealized
-------------------------- Appreciation
Contract Settlement Date Receive Deliver (Depreciation)
- --------------------------------------------------------------------------------
3/19/2004 AUD $ 36,686 USD $ 28,243 $ 871
3/19/2004 EUR 103,280 USD 128,260 (648)
3/19/2004 GBP 54,064 USD 100,183 3,895
3/17/2004 JPY 8,433,700 USD 77,227 (1,537)
- --------------------------------------------------------------------------------
Unrealized appreciation (depreciation) on open forward currency contracts is
treated as realized gain (loss) for tax purposes.
24
The fund had net unrealized foreign currency gains of $180,000 resulting from
the translation of other assets and liabilities at February 29, 2004.
F. During the year ended February 29, 2004, the fund purchased $1,730,284,000 of
investment securities and sold $1,778,652,000 of investment securities other
than temporary cash investments.
G. The market value of securities on loan to broker/dealers at February 29,
2004, was $513,326,000, for which the fund held cash collateral of $541,162,000.
The fund invests cash collateral received in repurchase agreements, and records
a liability for the return of the collateral, during the period the securities
are on loan.
H. Capital share transactions for each class of shares were:
- ------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2004 AUGUST 31, 2003
---------------------- ------------------
AMOUNT SHARES AMOUNT SHARES
(000) (000) (000) (000)
- ------------------------------------------------------------------------------------------------
Investor Shares
Issued $ 703,669 44,773 $ 2,142,681 176,255
Issued in Lieu of Cash Distributions 78,734 5,083 66,589 5,481
Redeemed* (529,225) (33,989) (2,129,064) (172,227)
-----------------------------------------------
Net Increase (Decrease)--Investor Shares 253,178 15,867 80,206 9,509
-----------------------------------------------
Admiral Shares
Issued 226,945 4,567 833,188 21,460
Issued in Lieu of Cash Distributions 15,842 322 12,565 326
Redeemed* (201,182) (4,082) (788,251) (20,067)
-----------------------------------------------
Net Increase (Decrease)--Admiral Shares 41,605 807 57,502 1,719
- ------------------------------------------------------------------------------------------------
*Net of redemption fees of $107,000 and $216,000, respectively (fund totals).
25
INVESTING IS FAST, EASY, AND SECURE
ON VANGUARD.COM
If you're like many Vanguard investors, you believe in planning and taking
control of your own investments. Vanguard.com was built for you--and it keeps
getting better.
RESEARCH AND PLAN YOUR INVESTMENTS WITH CONFIDENCE
Use our Planning & Advice and Research Funds & Stocks sections to:
* Determine what asset allocation might best suit your needs--by taking our
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Find out what Vanguard.com can do for you. Log on today!
26
CAPITALIZE ON YOUR IRA
Are you taking full advantage of your individual retirement account? You really
should be. These tax-deferred accounts are more powerful options for retirement
savers.
Here's how you can exploit your IRA--and improve your chances of having the
retirement of your dreams.
CONTRIBUTE THE MAXIMUM AMOUNT EACH YEAR
It may be an obvious point, but if you invest as much in your IRA as the law
allows--currently $3,000 per tax year if you are under age 50 and $3,500 if you
are age 50 or over--you will increase the odds of meeting your retirement goals.
"Max out" every year you can.
MAKE IT AUTOMATIC
Put your IRA on autopilot by taking advantage of Vanguard's Automatic Investment
Plan. Your IRA contributions will be deducted from your bank account on a
schedule of your choosing, making retirement investing a healthy habit.
CONSIDER COST
The owners of low-cost investments keep a larger portion of their gross returns
than the owners of high-cost investments. Over the long term, avoiding costlier
mutual funds and brokerage commissions could significantly boost your retirement
savings. Our low costs are one reason a Vanguard IRA(R) is such a smart choice.
REQUEST A DIRECT ROLLOVER WHEN YOU CHANGE JOBS
Don't spend your retirement assets before you've retired. When you change jobs,
roll your 401(k) or other employer-sponsored retirement plan assets directly
into your IRA.
If you have questions about your IRA, want to transfer an IRA from another
institution to Vanguard, or need help with any other IRA transaction, call our
Retirement Resource Center at 1-800-205-6189 or visit Vanguard.com. You can open
or fund your IRA on our website and have a confirmation in your hand within
minutes.
THE PEOPLE WHO GOVERN YOUR FUND
The trustees of your mutual fund are there to see that the fund is operated and
managed in your best interests since, as a shareholder, you are a part owner of
the fund. Your fund trustees also serve on the board of directors of The
Vanguard Group, Inc., which is owned by the Vanguard(R) funds and provides
services to them on an at-cost basis.
A majority of Vanguard's board members are independent, meaning that they have
no affiliation with Vanguard or the funds they oversee, apart from the sizable
personal investments they have made as private individuals.
Our independent board members bring distinguished backgrounds in business,
academia, and public service to their task of working with Vanguard officers to
establish the policies and oversee the activities of
POSITION(S) HELD WITH
NAME FUND (NUMBER OF
(YEAR OF BIRTH) VANGUARD FUNDS
TRUSTEE/OFFICER OVERSEEN BY
SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ---------------------------------------------------------------------------------------------------------------------
JOHN J. BRENNAN* Chairman of the Chairman of the Board, Chief Executive Officer, and Director/Trustee of
(1954) Board, Chief The Vanguard Group, Inc., and of each of the investment companies
May 1987 Executive Officer, served by The Vanguard Group.
and Trustee
(129)
- ---------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
CHARLES D. ELLIS Trustee The Partners of '63 (pro bono ventures in education); Senior Advisor
(1937) (129) to Greenwich Associates (international business strategy consulting);
January 2001 Successor Trustee of Yale University; Overseer of the Stern School of
Business at New York University; Trustee of the Whitehead Institute
for Biomedical Research.
- ---------------------------------------------------------------------------------------------------------------------
RAJIV L. GUPTA Trustee Chairman and Chief Executive Officer (since October 1999), Vice
(1945) (129) Chairman (January-September 1999), and Vice President (prior to
December 2001 September 1999) of Rohm and Haas Co. (chemicals); Director of Technitrol,
Inc. (electronic components), and Agere Systems (communications
components); Board Member of the American Chemistry Council; Trustee of
Drexel University.
- ---------------------------------------------------------------------------------------------------------------------
JOANN HEFFERNAN Trustee Vice President, Chief Information Officer, and Member of the
HEISEN (129) Executive Committee of Johnson & Johnson (pharmaceuticals/
(1950) consumer products); Director of the University Medical Center at
July 1998 Princeton and Women's Research and Education Institute.
- ---------------------------------------------------------------------------------------------------------------------
BURTON G. MALKIEL Trustee Chemical Bank Chairman's Professor of Economics, Princeton Malkiel C
(1932) (127) University; Director of Vanguard Investment Series plc (Irish invest-
May 1977 ment fund) (since November 2001), Vanguard Group (Ireland)
Limited (Irish investment management firm) (since November 2001),
Prudential Insurance Co. of America, BKF Capital (investment
management), The Jeffrey Co. (holding company), and NeuVis, Inc.
(software company).
- ---------------------------------------------------------------------------------------------------------------------
the funds. Among board members' responsibilities are selecting investment
advisors for the funds; monitoring fund operations, performance, and costs;
reviewing contracts; nominating and selecting new trustees/directors; and
electing Vanguard officers.
Each trustee serves a fund until its termination; or until the trustee's
retirement, resignation, or death; or otherwise as specified in the fund's
organizational documents. Any trustee may be removed at a shareholders' meeting
by a vote representing two-thirds of the net asset value of all shares of the
fund together with shares of other Vanguard funds organized within the same
trust. The table on these two pages shows information for each trustee and
executive officer of the fund. The mailing address of the trustees and officers
is P.O. Box 876, Valley Forge, PA 19482.
POSITION(S) HELD WITH
NAME FUND (NUMBER OF
(YEAR OF BIRTH) VANGUARD FUNDS
TRUSTEE/OFFICER OVERSEEN BY
SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ---------------------------------------------------------------------------------------------------------------------
ALFRED M. RANKIN, JR.Trustee Chairman, President, Chief Executive Officer, and Director of NACCO
(1941) (129) Industries, Inc. (forklift trucks/housewares/lignite); Director of
January 1993 Goodrich Corporation (industrial products/aircraft systems and
services); Director of Standard Products Company (supplier for
the automotive industry) until 1998.
- ---------------------------------------------------------------------------------------------------------------------
J. LAWRENCE WILSON Trustee Retired Chairman and Chief Executive Officer of Rohm and Haas Co.
(1936) (129) (chemicals); Director of Cummins Inc. (diesel engines), MeadWestvaco
April 1985 Corp. (paper products), and AmerisourceBergen Corp. (pharmaceutical
distribution); Trustee of Vanderbilt University.
- ---------------------------------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS*
R. GREGORY BARTON Secretary Managing Director and General Counsel of The Vanguard Group, Inc.;
(1951) (129) Secretary of The Vanguard Group and of each of the investment
June 2001 companies served by The Vanguard Group.
- ---------------------------------------------------------------------------------------------------------------------
THOMAS J. HIGGINS Treasurer Principal of The Vanguard Group, Inc.; Treasurer of each of the
(1957) (129) investment companies served by The Vanguard Group.
July 1998
- ---------------------------------------------------------------------------------------------------------------------
*Officers of the funds are "interested persons" as defined in the Investment
Company Act of 1940.
More information about the trustees is in the Statement of Additional
Information, available from The Vanguard Group.
================================================================================================
VANGUARD SENIOR MANAGEMENT TEAM
MORTIMER J. BUCKLEY, Information Technology. MICHAEL S. MILLER, Planning and Development.
JAMES H. GATELY, Investment Programs and Services. RALPH K. PACKARD, Finance.
KATHLEEN C. GUBANICH, Human Resources. GEORGE U. SAUTER, Chief Investment Officer.
F. WILLIAM MCNABB, III, Client Relationship Group.
- ------------------------------------------------------------------------------------------------
JOHN C. BOGLE, Founder; Chairman and Chief Executive Officer, 1974-1996.
THE VANGUARD GROUP (R)
Post Office Box 2600
Valley Forge, PA 19482-2600
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All other marks are the exclusive property of their respective owners.
ABOUT OUR COVER
The photographs that appear on the cover of this report are copyrighted by
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FOR MORE INFORMATION
This report is intended for the fund's shareholders. It may not be distributed
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To receive a free copy of the prospectus or the Statement of Additional
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All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc.,
unless otherwise noted.
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(C) 2004 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing
Corporation, Distributor.
Q812 042004
VANGUARD(R) CALVERT SOCIAL INDEX FUND
February 29, 2004
SEMIANNUAL REPORT
THE VANGUARD GROUP (R)
HOW TO READ YOUR FUND REPORT
This report contains information that can help you evaluate your investment. It
includes details about your fund's return and presents data and analysis that
provide insight into the fund's performance and investment approach.
By reading the letter from Vanguard's chairman, you'll get an understanding of
how the fund invests and how the market environment affected its performance.
The statistical information that follows can help you understand how the fund's
performance and characteristics stack up against those of similar funds and
market benchmarks.
It's important to keep in mind that any opinions expressed here are just that:
informed opinions. They should not be considered promises or advice. The
opinions, like the statistics, cover the period through the date on the cover of
this report. The risks of investing in the fund are spelled out in the
prospectus.
Frequent updates on the fund's performance and information about some of its
holdings are available on Vanguard.com(R).
================================================================================
CONTENTS
1 LETTER FROM THE CHAIRMAN
5 FUND PROFILE
6 GLOSSARY OF INVESTMENT TERMS
7 PERFORMANCE SUMMARY
8 ABOUT YOUR FUND'S EXPENSES
9 FINANCIAL STATEMENTS
================================================================================
SUMMARY
- - The Investor Shares of Vanguard Calvert Social Index Fund returned 13.6%
during the six months ended February 29, 2004.
- - The fund's performance was in line with the 13.7% advance of its unmanaged
target index and was significantly better than the 9.9% result of the
average large-cap growth fund.
- - The fund's success was fueled by solid gains in its financial services,
technology, and health care holdings; these three sectors were the biggest
contributors to the fund's return.
================================================================================
WANT LESS CLUTTER IN YOUR MAILBOX? JUST REGISTER WITH VANGUARD.COM AND OPT TO
GET FUND REPORTS ONLINE.
LETTER FROM THE CHAIRMAN
Fellow Shareholder,
The Investor Shares of Vanguard Calvert Social Index Fund returned 13.6% for the
first six months of the 2004 fiscal year. The fund closely tracked the
performance of its target, the Calvert Social Index, and outpaced its average
mutual fund peer in an environment in which stocks made impressive gains.
============================================================
TOTAL RETURNS SIX MONTHS ENDED
FEBRUARY 29, 2004
- ------------------------------------------------------------
Vanguard Calvert Social Index Fund
Investor Shares 13.6%
Institutional Shares 13.7
Calvert Social Index 13.7
Average Large-Cap Growth Fund* 9.9
Wilshire 5000 Index 15.3
- ------------------------------------------------------------
*Derived from data provided by Lipper Inc.
============================================================
The adjacent table presents the six-month total return (capital change plus
reinvested dividends) for your fund's Investor Shares, along with those of the
Calvert Social Index, the average large-capitalization growth fund, and the
Wilshire 5000 Total Market Index, a proxy for the broad U.S. stock market. The
table also includes the return for the fund's Institutional Shares, which
require a minimum investment of $10 million. The table on page 4 provides
details of the changes in the fund's net asset values, along with its income
distributions to shareholders.
STOCKS CONTINUED THEIR COMEBACK
As the fiscal half-year got under way last September, the U.S. stock market was
in the midst of a strong advance. The gains continued throughout the period,
buoyed by a steady flow of positive corporate earnings reports and economic data
that suggested the national economy was continuing to mend.
During the six months, the U.S. stock market, as measured by the Wilshire 5000
Index, returned 15.3%. The Russell 2000 Index, a proxy
1
for small-cap stocks, returned 18.3%, outpacing the mid- to large-cap stocks in
the Russell 1000 Index, which returned 14.8%. Across the market-cap spectrum,
value-oriented stocks (those that generally trade at below-market valuations
relative to their book values) outpaced growth stocks (those expected to produce
above-average earnings growth).
International equities continued to provide generous gains for U.S.-based
investors. Returns from European markets were generally stronger than those from
Pacific markets, and returns from emerging markets were outstanding. The
continued decline in the U.S. dollar's relative value transformed
local-currency-based results into impressive dollar- denominated returns.
AS INTEREST RATES REMAINED LOW, INVESTORS SOUGHT OUT RISKIER BONDS
In the fixed income markets, demand for U.S. Treasury issues remained strong,
boosting the price of the 10-year Treasury note while reducing its yield from
4.46% at the start of the period to 3.97% by February 29. However, the low level
of market rates in general, together with signs of a strengthening economy,
prompted some investors to seek the higher yields to be obtained from riskier
bonds. As a result, returns of corporate bonds exceeded those of government
bonds with similar maturities. The Lehman Brothers High Yield Bond Index, a
benchmark of below-investment-grade bonds, recorded a six-month return of 10.6%,
while the Lehman Aggregate Bond Index, a measure of the taxable investment-grade
bond market, returned 4.9%.
=========================================================================
MARKET BAROMETER TOTAL RETURNS
PERIODS ENDED FEBRUARY 29, 2004
----------------------------------
SIX ONE FIVE
MONTHS YEAR YEARS*
- --------------------------------------------------------------------------
STOCKS
Russell 1000 Index (Large-caps) 14.8% 39.7% 0.5%
Russell 2000 Index (Small-caps) 18.3 64.4 9.8
Wilshire 5000 Index (Entire market) 15.3 42.5 1.2
MSCI All Country World Index
ex USA (International) 25.4 55.9 2.9
- ---------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index 4.9% 4.5% 7.2%
(Broad taxable market)
Lehman Municipal Bond Index 6.5 6.3 6.1
Citigroup 3-Month Treasury Bill Index 0.5 1.0 3.4
============================================================================
CPI
Consumer Price Index 0.9% 1.7% 2.5%
- ----------------------------------------------------------------------------
*Annualized.
============================================================================
Short-term interest rates remained low and stable, fluctuating within a tight
range of 0.91% to 0.97% throughout the six months. The 3-month Treasury bill, a
proxy for money market rates, ended the fiscal half-year with a yield of 0.94%,
just 3 basis points below its initial 0.97% yield.
2
MAJOR SECTOR HOLDINGS LED THE FUND TO SOLID RETURNS
Over the past six months, the U.S. stock market was a more hospitable
environment than had existed since your fund began operations in May 2000. In
achieving its returns of 13.6% for Investor Shares and 13.7% for Institutional
Shares, the Calvert Social Index Fund outpaced the average peer mutual fund by
more than 3 percentage points. The fund also successfully met its mandate to
closely track the performance of the Calvert Social Index, which, as of February
29, included 649 stocks that are screened for social responsibility. Each of the
12 economic sectors in the index posted a gain for the period.
The Calvert Social Index's screening criteria have historically resulted in a
growth-oriented profile for its holdings. This continued to be the case during
the past six months. Many companies in older industries, such as equipment
manufacturers or producers of basic materials, have difficulty satisfying the
index's environmental criteria, and thus these traditionally value-oriented
groups are not strongly represented in the portfolio.
The largest contributions to the fund's half-year return came from its financial
services, technology, and health care holdings. These sectors--together
representing about 70% of total assets--contributed almost three-quarters (10.1
percentage points) of the 13.6% total return. Financial services stocks were
aided by the resurgence of activity in the capital markets as well as by record
earnings growth among insurers. Technology firms saw renewed capital spending by
businesses seeking to "retool" for the anticipated economic upswing. And health
care stocks received a boost from the enactment of new Medicare legislation, as
well as from improved earnings among drug and medical device makers.
MAINTAIN YOUR BALANCE THROUGH ALL TYPES OF MARKET CONDITIONS
Although stock markets in the United States and abroad enjoyed a welcome
resurgence over the past several months, we continue to urge investors to
proceed with caution and not to chase performance or make sudden changes in
their asset allocations. Investors enhance their ability to meet their long-term
financial goals by sticking with balanced portfolios of stocks, bonds, and
short-term reserves appropriate for their individual situations.
No matter how the market performs in the short term, a balanced portfolio over
the long term enables you to benefit from the gains of
3
the best-performing asset classes and to be less affected by the woes of the
worst-performing classes. For investors who desire a socially screened stock
fund that seeks long-term growth of capital--and who are comfortable with the
risks inherent in that strategy--Vanguard Calvert Social Index Fund can play a
valuable role.
We thank you for entrusting your hard-earned assets to us.
Sincerely,
/S/ John J. Brennan
John J. Brennan
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MARCH 15, 2004
================================================================================
YOUR FUND'S PERFORMANCE AT A GLANCE AUGUST 31, 2003-FEBRUARY 29, 2004
DISTRIBUTIONS PER SHARE
-----------------------
STARTING ENDING INCOME CAPITAL
SHARE PRICE SHARE PRICE DIVIDENDS GAINS
- --------------------------------------------------------------------------------
CALVERT SOCIAL INDEX FUND
Investor Shares $6.87 $7.73 $0.070 $0.000
Institutional Shares 6.88 7.74 0.076 0.000
================================================================================
4
FUND PROFILE AS OF 2-29-2004
This Profile provides a snapshot of the fund's characteristics, compared where
appropriate with both its unmanaged target index and a broad market index. Key
terms are defined on page 6.
CALVERT SOCIAL INDEX FUND
================================================================================
PORTFOLIO CHARACTERISTICS
TARGET BROAD
FUND INDEX* INDEX**
- ----------------------------------------------------------
Number of Stocks 650 649 5,179
Median Market Cap $39.6B $40.1B $29.1B
Price/Earnings Ratio 26.1x 24.7x 23.5x
Price/Book Ratio 3.3x 3.3x 3.2x
Yield 1.3% 1.5%
Investor Shares 1.0%
Institutional Shares 1.2%
Return on Equity 17.2% 17.2% 15.7%
Earnings Growth Rate 13.8% 13.8% 5.4%
Foreign Holdings 0.2% 0.2% 0.9%
Turnover Rate 13%+ -- --
Expense Ratio -- --
Investor Shares 0.25%+
Institutional Shares 0.12%+
Short-Term Reserves 0% -- --
- -----------------------------------------------------------
- -----------------------------------------------------------
TEN LARGEST HOLDINGS (% of total net assets)
Pfizer Inc. 4.2%
(pharmaceuticals)
Microsoft Corp. 4.1
(software)
Intel Corp. 2.9
(electronics)
American International Group, Inc. 2.6
(insurance)
International Business Machines Corp. 2.5
(computer hardware)
Johnson & Johnson 2.4
(pharmaceuticals)
Cisco Systems, Inc. 2.4
(computer hardware)
The Procter & Gamble Co. 2.0
(consumer products)
Bank of America Corp. 1.8
(banking)
Merck & Co., Inc. 1.6
(pharmaceuticals)
- ---------------------------------------------------------
Top Ten 26.5%
- ---------------------------------------------------------
"Ten Largest Holdings" excludes any temporary cash investments and equity index
products.
- ----------------------------------------------------------------
VOLATILITY MEASURES
TARGET BROAD
FUND INDEX* FUND INDEX**
- ----------------------------------------------------------------
R-Squared 1.00 1.00 0.97 1.00
Beta 1.00 1.00 1.11 1.00
- ----------------------------------------------------------------
- -------------------------------------------
INVESTMENT FOCUS
MARKET CAP -- LARGE
STYLE -- GROWTH
- -------------------------------------------
- -----------------------------------------------------------------------
SECTOR DIVERSIFICATION (% of portfolio)
TARGET BROAD
FUND INDEX* INDEX**
- ----------------------------------------------------------
Auto & Transportation 2% 2% 3%
Consumer Discretionary 13 13 16
Consumer Staples 5 5 7
Financial Services 29 29 24
Health Care 17 17 13
Integrated Oils 0 0 3
Other Energy 1 1 2
Materials & Processing 1 1 4
Producer Durables 4 4 4
Technology 22 22 14
Utilities 5 5 6
Other 1 1 4
*Calvert Social Index.
**Wilshire 5000 Index.
+Annualized.
Visit our website at Vanguard.com
for regularly updated fund information.
5
GLOSSARY OF INVESTMENT TERMS
BETA. A measure of the magnitude of a fund's past share-price fluctuations in
relation to the ups and downs of a given market index. The index is assigned a
beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically
would have seen its share price rise or fall by 12% when the index rose or fell
by 10%. A fund's beta should be reviewed in conjunction with its R-squared (see
definition below). The lower the R-squared, the less correlation there is
between the fund and the index, and the less reliable beta is as an indicator of
volatility.
- --------------------------------------------------------------------------------
EARNINGS GROWTH RATE. The average annual rate of growth in earnings over the
past five years for the stocks now in a fund.
- --------------------------------------------------------------------------------
EXPENSE RATIO. The percentage of a fund's average net assets used to pay its
annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
- --------------------------------------------------------------------------------
FOREIGN HOLDINGS. The percentage of a fund's equity assets represented by stocks
or depositary receipts of companies based outside the United States.
- --------------------------------------------------------------------------------
MEDIAN MARKET CAP. An indicator of the size of companies in which a fund
invests; the midpoint of market capitalization (market price x shares
outstanding) of a fund's stocks, weighted by the proportion of the fund's assets
invested in each stock. Stocks representing half of the fund's assets have
market capitalizations above the median, and the rest are below it.
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO. The share price of a stock divided by its net worth, or book
value, per share. For a fund, the weighted average price/book ratio of the
stocks it holds.
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO. The ratio of a stock's current price to its per-share
earnings over the past year. For a fund, the weighted average P/E of the stocks
it holds. P/E is an indicator of market expectations about corporate prospects;
the higher the P/E, the greater the expectations for a company's future growth.
- --------------------------------------------------------------------------------
R-SQUARED. A measure of how much of a fund's past returns can be explained by
the returns from the market in general, as measured by a given index. If a
fund's total returns were precisely synchronized with an index's returns, its
R-squared would be 1.00. If the fund's returns bore no relationship to the
index's returns, its R-squared would be 0.
- --------------------------------------------------------------------------------
RETURN ON EQUITY. The annual average rate of return generated by a company
during the past five years for each dollar of shareholder's equity (net income
divided by shareholder's equity). For a fund, the weighted average return on
equity for the companies whose stocks it holds.
- --------------------------------------------------------------------------------
SHORT-TERM RESERVES. The percentage of a fund invested in highly liquid,
short-term securities that can be readily converted to cash.
- --------------------------------------------------------------------------------
TURNOVER RATE. An indication of the fund's trading activity. Funds with high
turnover rates incur higher transaction costs and may be more likely to
distribute capital gains (which may be taxable to investors).
- --------------------------------------------------------------------------------
YIELD. A snapshot of a fund's income from interest and dividends. The yield,
expressed as a percentage of the fund's net asset value, is based on income
earned over the past 30 days and is annualized, or projected forward for the
coming year. The index yield is based on the current annualized rate of income
provided by securities in the index.
- --------------------------------------------------------------------------------
6
PERFORMANCE SUMMARY AS OF 2-29-2004
All of the returns in this report represent past performance, which is not a
guarantee of future results that may be achieved by the fund. (For the most
recent performance, which may be higher or lower than that cited, visit our
website at www.vanguard.com.) Note, too, that both investment returns and
principal value can fluctuate widely, so an investor's shares, when sold, could
be worth more or less than their original cost. The returns in this report do
not reflect taxes that a shareholder would pay on fund distributions or on the
sale of fund shares.
CALVERT SOCIAL INDEX FUND
- ---------------------------------------------------------------------------
Fiscal-Year Total Returns (%) May 31, 2000-February 29, 2004
SCALE RANGE -60% to 40%
CALVERT SOCIAL INDEX FUND
INVESTOR SHARES CALVERT SOCIAL INDEX
------------------------- ---------------------
2000 11.1% 10.5%
2001 -31.8 -31.7
2002 -20.0 -19.7
2003 15.3 15.6
2004* 13.6 13.7
*Six months ended February 29, 2004.
Note: See Financial Highlights tables on pages 20 and 21 for dividend and
capital gains information.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS for periods ended December 31, 2003
This table presents average annual total returns through the latest calendar
quarter--rather than through the end of the fiscal period. Securities and
Exchange Commission rules require that we provide this information.
SINCE INCEPTION
ONE --------------------------
INCEPTION DATE YEAR CAPITAL INCOME TOTAL
- --------------------------------------------------------------------------------
CALVERT SOCIAL INDEX FUND
Investor Shares* 5/31/2000 30.45% -7.69% 0.76% -6.93%
Institutional Shares 1/14/2003 22.16** -- -- --
- --------------------------------------------------------------------------------
*Total return figures do not reflect the $10 annual account maintenance fee
applied on balances under $10,000.
**Return since inception.
7
ABOUT YOUR FUND'S EXPENSES
All mutual funds have operating expenses. These expenses 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 net assets. This figure is known
as the expense ratio.
A HYPOTHETICAL EXAMPLE
We believe it is important for you to understand the impact of costs on your
investment. The following example illustrates the costs that you would have
incurred over the most recent six-month period on a $10,000 investment in the
fund. The example uses the fund's actual return and operating expenses for the
period. The cost in dollars is calculated by applying the expense ratio to the
average balance in a hypothetical account. For comparative purposes, we also
show the fund's annualized expense ratio--in which its six-month expenses are
projected for a 12-month period--along with the average expense ratio for the
fund's peer group, which is derived from data provided by Lipper Inc.
- --------------------------------------------------------------------------------
SIX MONTHS ENDED ANNUALIZED FUND EXPENSES
FEBRUARY 29, 2004 VERSUS PEER GROUP EXPENSES
------------------ --------------------------------
COST OF $10,000 FUND PEER GROUP*
INVESTMENT IN FUND EXPENSE RATIO EXPENSE RATIO
- --------------------------------------------------------------------------------
CALVERT SOCIAL INDEX FUND
Investor Shares $13 0.25% 1.61%
Institutional Shares 6 0.12 --
- --------------------------------------------------------------------------------
*Average Large-Cap Growth Fund.
The calculation assumes no shares were sold. Your actual costs may have been
higher or lower, depending on the amount of your investment and your holding
period. Peer-group ratio captures data through year-end 2003.
You can find more information about the fund's expense ratio, including annual
expense ratios since inception, in the Financial Statements section of this
report. For additional information on operating expenses and other shareholder
costs, please refer to the fund's prospectus. The prospectus presents
hypothetical shareholder costs over various time periods based upon a $10,000
investment and a return of 5% a year. This standardized example, which appears
in all mutual fund prospectuses, may be useful to you in comparing the costs of
investing in different funds.
8
FINANCIAL STATEMENTS (UNAUDITED) AS OF 2-29-2004
STATEMENT OF NET ASSETS
This Statement provides a detailed list of the fund's holdings, including each
security's market value on the last day of the reporting period. Securities are
grouped and subtotaled by asset type (common stocks, bonds, etc.) and by
industry sector. Other assets are added to, and liabilities are subtracted from,
the value of Total Investments to calculate the fund's Net Assets. Finally, Net
Assets are divided by the outstanding shares of the fund to arrive at its share
price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table displaying the
composition of the fund's net assets. Because all income and any realized gains
must be distributed to shareholders each year, the bulk of net assets consists
of Paid-in Capital (money invested by shareholders). The amounts shown for
Undistributed Net Investment Income and Accumulated Net Realized Gains usually
approximate the sums the fund had available to distribute to shareholders as
income dividends or capital gains as of the statement date, but may differ
because certain investments or transactions may be treated differently for
financial statement and tax purposes. Any Accumulated Net Realized Losses, and
any cumulative excess of distributions over net income or net realized gains,
will appear as negative balances. Unrealized Appreciation (Depreciation) is the
difference between the market value of the fund's investments and their cost,
and reflects the gains (losses) that would be realized if the fund were to sell
all of its investments at their statement-date values.
================================================================================
MARKET
VALUE*
CALVERT SOCIAL INDEX FUND SHARES (000)
================================================================================
COMMON STOCKS (99.9%)
- --------------------------------------------------------------------------------
AUTO & TRANSPORTATION (1.8%)
United Parcel Service, Inc. 20,255 1,431
FedEx Corp. 10,262 705
Harley-Davidson, Inc. 11,196 595
Southwest Airlines Co. 26,401 365
Genuine Parts Co. 6,397 222
Delphi Corp. 18,332 187
Expeditors International of
Washington, Inc. 3,900 150
C.H. Robinson Worldwide, Inc. 2,968 118
Gentex Corp. 2,800 114
BorgWarner, Inc. 1,000 90
* JetBlue Airways Corp. 3,159 75
CNF Inc. 1,865 62
ArvinMeritor, Inc. 2,600 59
Visteon Corp. 4,600 46
* Swift Transportation Co., Inc. 2,000 43
Skywest, Inc. 2,100 41
Delta Air Lines, Inc. 4,000 36
* Continental Airlines, Inc. Class B 2,300 34
----------
4,373
----------
CONSUMER DISCRETIONARY (12.6%)
Home Depot, Inc. 84,316 3,062
* Time Warner, Inc. 161,303 2,783
Lowe's Cos., Inc. 26,366 1,476
- --------------------------------------------------------------------------------
================================================================================
MARKET
VALUE*
SHARES (000)
- --------------------------------------------------------------------------------
Target Corp. 30,674 1,348
Gillette Co. 34,139 1,314
Kimberly-Clark Corp. 18,678 1,208
* Liberty Media Corp. 99,815 1,138
* eBay Inc. 15,999 1,102
* Yahoo! Inc. 20,775 922
* Costco Wholesale Corp. 16,952 660
Avon Products, Inc. 8,750 618
* Kohl's Corp. 11,232 578
Omnicom Group Inc. 7,007 573
The McGraw-Hill Cos., Inc. 7,059 552
* Starbucks Corp. 14,642 548
* Electronic Arts Inc. 11,044 521
Best Buy Co., Inc. 9,715 517
The Gap, Inc. 24,123 502
* Staples, Inc. 18,395 482
* Amazon.com, Inc. 10,748 464
* Bed Bath & Beyond, Inc. 11,072 453
* Apollo Group, Inc. Class A 5,230 398
* EchoStar Communications Corp.
Class A 9,101 329
Eastman Kodak Co. 10,535 301
* Univision Communications Inc. 8,437 301
Newell Rubbermaid, Inc. 10,258 263
R.R. Donnelley & Sons Co. 7,966 253
New York Times Co. Class A 5,438 248
================================================================================
9
================================================================================
MARKET
VALUE*
CALVERT SOCIAL INDEX FUND SHARES (000)
================================================================================
Dollar General Corp. 11,245 246
Family Dollar Stores, Inc. 6,044 230
* Office Depot, Inc. 11,528 201
Harman International
Industries, Inc. 2,449 191
Ross Stores, Inc. 5,719 183
Estee Lauder Cos. Class A 4,120 176
* Career Education Corp. 3,499 175
Jones Apparel Group, Inc. 4,677 174
Whirlpool Corp. 2,207 161
CDW Corp. 2,210 153
Black & Decker Corp. 2,917 150
E.W. Scripps Co. Class A 1,531 149
Nordstrom, Inc. 3,781 148
Manpower Inc. 3,234 145
PETsMART, Inc. 5,266 143
* Robert Half International, Inc. 6,321 142
Darden Restaurants Inc. 5,632 137
* Brinker International, Inc. 3,532 133
* Dollar Tree Stores, Inc. 4,274 132
* CarMax, Inc. 3,763 128
* Iron Mountain, Inc. 2,850 128
Sabre Holdings Corp. 5,374 122
Outback Steakhouse 2,500 121
* ChoicePoint Inc. 3,200 121
* Lamar Advertising Co. Class A 3,018 120
Fastenal Co. 2,402 116
The Stanley Works 2,948 114
* Williams-Sonoma, Inc. 3,452 110
* Sirius Satellite Radio, Inc. 36,793 108
Alberto-Culver Co. 2,509 103
Belo Corp. Class A 3,559 99
* Corinthian Colleges, Inc. 1,600 96
* Monster Worldwide Inc. 3,944 87
* The Cheesecake Factory 1,800 85
* Convergys Corp. 5,201 85
* Advance Auto Parts, Inc. 2,134 84
* Tech Data Corp. 2,070 84
* O'Reilly Automotive, Inc. 2,032 83
* Saks Inc. 4,700 82
* Getty Images, Inc. 1,600 82
* Krispy Kreme Doughnuts, Inc. 2,100 81
Viad Corp. 3,227 79
Maytag Corp. 2,696 76
Ruby Tuesday, Inc. 2,400 76
Meredith Corp. 1,442 73
* Education Management Corp. 2,200 70
* The Corporate Executive Board Co. 1,400 70
Borders Group, Inc. 2,904 70
* Barnes & Noble, Inc. 1,993 70
* Entercom Communications Corp. 1,500 69
- --------------------------------------------------------------------------------
================================================================================
MARKET
VALUE*
SHARES (000)
================================================================================
Regis Corp. 1,600 69
Reebok International Ltd. 1,700 68
* DeVry, Inc. 2,200 65
* ITT Educational Services, Inc. 1,700 65
Snap-On Inc. 1,979 63
Furniture Brands International Inc. 1,900 62
Ethan Allen Interiors, Inc. 1,400 61
* BearingPoint, Inc. 5,576 59
* BJ's Wholesale Club, Inc. 2,499 59
Lee Enterprises, Inc. 1,300 59
* Pixar, Inc. 889 58
* Valassis Communications, Inc. 1,876 57
* Weight Watchers International, Inc. 1,505 57
* CEC Entertainment Inc. 1,000 55
* Linens 'n Things, Inc. 1,600 54
* Tommy Hilfiger Corp. 3,299 53
The Brink's Co. 2,000 53
The McClatchy Co. Class A 767 53
* American Greetings Corp. Class A 2,300 52
* Metro-Goldwyn-Mayer Inc. 3,016 52
* DoubleClick Inc. 4,759 52
* R.H. Donnelley Corp. 1,178 51
Media General, Inc. Class A 772 50
The Toro Co. 906 50
* Earthlink, Inc. 5,357 49
* United Stationers, Inc. 1,200 48
* Timberland Co. 761 47
* Arbitron Inc. 1,100 46
Callaway Golf Co. 2,402 45
Extended Stay America, Inc. 2,786 43
La-Z-Boy Inc. 1,900 43
* P.F. Chang's China Bistro, Inc. 885 43
Harte-Hanks, Inc. 1,882 42
* Charter Communications, Inc. 9,089 41
Blyth, Inc. 1,200 41
* Scholastic Corp. 1,264 41
* Panera Bread Co. 998 39
John Wiley & Sons Class A 1,382 36
* Cox Radio, Inc. 1,500 33
* Catalina Marketing Corp. 1,675 29
* Hollywood Entertainment Corp. 1,900 21
----------
31,039
----------
CONSUMER STAPLES (4.7%)
The Procter & Gamble Co. 47,955 4,916
Walgreen Co. 37,993 1,355
Colgate-Palmolive Co. 18,404 1,021
Sysco Corp. 23,938 949
CVS Corp. 14,586 547
General Mills, Inc. 10,830 498
H.J. Heinz Co. 12,988 496
Kellogg Co. 8,739 345
================================================================================
10
================================================================================
MARKET
VALUE*
SHARES (000)
================================================================================
Wm. Wrigley Jr. Co. 4,979 280
Hershey Foods Corp. 3,280 272
Whole Foods Market, Inc. 2,209 171
McCormick & Co., Inc. 4,537 142
SuperValu Inc. 4,888 138
Dial Corp. 3,502 101
J.M. Smucker Co. 1,825 92
* NBTY, Inc. 2,200 73
Church & Dwight, Inc. 1,500 63
* Performance Food Group Co. 1,633 57
----------
11,516
----------
FINANCIAL SERVICES (29.2%)
BANKS--NEW YORK CITY (1.7%)
J.P. Morgan Chase & Co. 75,642 3,103
The Bank of New York Co., Inc. 28,568 943
BANKS--OUTSIDE NEW YORK CITY (11.9%)
Bank of America Corp. 55,131 4,516
Wells Fargo & Co. 62,767 3,600
Wachovia Corp. 49,138 2,357
Bank One Corp. 41,515 2,241
U.S. Bancorp 71,499 2,040
FleetBoston Financial Corp. 39,146 1,763
Fifth Third Bancorp 17,787 996
BB&T Corp. 20,354 756
National City Corp. 20,438 730
State Street Corp. 12,317 662
SunTrust Banks, Inc. 9,033 653
PNC Financial Services Group 10,257 601
Mellon Financial Corp. 15,853 513
KeyCorp 15,491 502
SouthTrust Corp. 12,239 411
Northern Trust Corp. 7,644 380
Comerica, Inc. 6,051 348
M & T Bank Corp. 3,460 332
AmSouth Bancorp 12,993 329
Marshall & Ilsley Corp. 7,760 308
Regions Financial Corp. 8,157 301
Synovus Financial Corp. 9,419 236
North Fork Bancorp, Inc. 5,555 235
National Commerce Financial Corp. 7,544 221
First Tennessee National Corp. 4,600 213
Union Planters Corp. 6,959 209
Popular, Inc. 4,489 201
Banknorth Group, Inc. 5,987 200
Zions Bancorp 3,291 192
Huntington Bancshares Inc. 8,100 187
Compass Bancshares Inc. 4,476 186
Commerce Bancorp, Inc. 2,853 173
Mercantile Bankshares Corp. 3,064 138
Hibernia Corp. Class A 5,716 136
- --------------------------------------------------------------------------------
================================================================================
MARKET
VALUE*
SHARES (000)
================================================================================
TCF Financial Corp. 2,512 131
Commerce Bancshares, Inc. 2,400 119
Doral Financial Corp. 3,400 116
Associated Banc-Corp 2,514 112
Investors Financial Services Corp. 2,400 106
City National Corp. 1,567 97
Valley National Bancorp 3,397 96
Bank of Hawaii Corp. 2,027 93
Sky Financial Group, Inc. 3,400 92
Wilmington Trust Corp. 2,388 89
Fulton Financial Corp. 4,003 88
Colonial BancGroup, Inc. 4,651 86
Cullen/Frost Bankers, Inc. 1,900 81
FirstMerit Corp. 2,621 70
The South Financial Group, Inc. 2,200 68
UCBH Holdings, Inc. 1,691 66
Westamerica Bancorporation 1,300 65
Hudson United Bancorp 1,600 63
Whitney Holdings Corp. 1,451 62
BancorpSouth, Inc. 2,700 59
First Midwest Bancorp, Inc. 1,750 59
First BanCorp Puerto Rico 1,365 58
Trustmark Corp. 1,896 58
Old National Bancorp 2,400 54
Park National Corp. 465 53
Greater Bay Bancorp 1,900 52
Pacific Capital Bancorp 1,232 49
Southwest Bancorporation
of Texas, Inc. 1,200 47
United Bankshares, Inc. 1,500 47
* Silicon Valley Bancshares 1,300 45
Citizens Banking Corp. 1,300 43
Chittenden Corp. 1,300 43
Community First Bankshares, Inc. 1,400 40
Texas Regional Bancshares, Inc. 983 39
DIVERSIFIED FINANCIAL SERVICES (1.6%)
American Express Co. 42,337 2,262
The Goldman Sachs Group, Inc. 11,138 1,179
CIT Group Inc. 7,882 311
Leucadia National Corp. 1,678 87
* BISYS Group, Inc. 4,248 75
F.N.B. Corp. 1,770 40
FINANCE COMPANIES (0.3%)
Capital One Financial Corp. 8,502 601
FINANCE--SMALL LOAN (0.3%)
SLM Corp. 16,626 697
* AmeriCredit Corp. 5,700 108
================================================================================
11
================================================================================
MARKET
VALUE*
CALVERT SOCIAL INDEX FUND SHARES (000)
================================================================================
FINANCIAL DATA PROCESSING SERVICES (1.6%)
First Data Corp. 33,381 1,368
Automatic Data Processing, Inc. 22,117 939
Paychex, Inc. 12,375 398
* SunGard Data Systems, Inc. 10,540 306
* Fiserv, Inc. 7,154 276
* Affiliated Computer
Services, Inc. Class A 4,572 221
* DST Systems, Inc. 3,960 177
Fair, Isaac, Inc. 1,800 107
Deluxe Corp. 1,851 73
* CheckFree Corp. 2,408 70
Jack Henry & Associates Inc. 2,700 50
Global Payments Inc. 983 43
FINANCIAL INFORMATION SERVICES (0.2%)
Moody's Corp. 4,733 316
* The Dun & Bradstreet Corp. 2,675 142
Dow Jones & Co., Inc. 1,521 74
FINANCIAL MISCELLANEOUS (2.9%)
Fannie Mae 32,418 2,428
Freddie Mac 25,666 1,589
MBNA Corp. 41,796 1,142
MBIA, Inc. 5,336 351
H & R Block, Inc. 6,103 330
Ambac Financial Group, Inc. 3,991 312
MGIC Investment Corp. 3,637 241
Fidelity National Financial, Inc. 5,582 218
Radian Group, Inc. 3,483 152
* Providian Financial Corp. 10,681 138
Nationwide Financial Services, Inc. 2,100 80
First American Corp. 2,572 79
Brown & Brown, Inc. 2,000 74
New Century Financial Corp. 1,299 64
INSURANCE--LIFE (0.7%)
Prudential Financial, Inc. 19,890 923
The Principal Financial Group, Inc. 11,950 433
Jefferson-Pilot Corp. 5,185 277
AmerUs Group Co. 1,421 55
* The MONY Group Inc. 1,700 54
INSURANCE--MULTILINE (4.2%)
American International Group, Inc. 84,926 6,285
AFLAC Inc. 18,951 770
The Hartford Financial
Services Group Inc. 10,441 684
St. Paul Cos., Inc. 8,406 359
Lincoln National Corp. 6,590 306
CIGNA Corp. 5,207 289
- --------------------------------------------------------------------------------
================================================================================
MARKET
VALUE*
SHARES (000)
================================================================================
Aon Corp. 10,311 271
Cincinnati Financial Corp. 5,260 237
SAFECO Corp. 5,108 230
Torchmark Corp. 4,183 218
UnumProvident Corp. 9,823 146
Arthur J. Gallagher & Co. 3,300 111
Protective Life Corp. 2,387 91
* Markel Corp. 317 86
* Allmerica Financial Corp. 1,973 73
StanCorp Financial Group, Inc. 1,100 73
Unitrin, Inc. 1,596 69
American National Insurance Co. 506 48
Hilb, Rogal and Hamilton Co. 1,164 43
INSURANCE--PROPERTY-CASUALTY (1.4%)
Progressive Corp. of Ohio 6,986 578
The Chubb Corp. 6,989 496
ACE Ltd. 10,299 463
XL Capital Ltd. Class A 5,084 390
Travelers Property
Casualty Corp. Class A 18,778 341
Everest Re Group, Ltd. 2,063 180
White Mountains
Insurance Group Inc. 285 139
The PMI Group Inc. 3,465 137
RenaissanceRe Holdings Ltd. 2,500 132
PartnerRe Ltd. 2,037 113
W.R. Berkley Corp. 2,700 113
HCC Insurance Holdings, Inc. 2,200 71
Transatlantic Holdings, Inc. 800 69
Erie Indemnity Co. Class A 1,116 53
IPC Holdings Ltd. 1,348 53
Commerce Group, Inc. 1,100 51
Mercury General Corp. 1,000 51
* Ohio Casualty Corp. 2,000 38
INVESTMENT MANAGEMENT COMPANIES (0.3%)
T. Rowe Price Group Inc. 4,650 245
Federated Investors, Inc. 3,516 114
SEI Corp. 2,644 94
Eaton Vance Corp. 2,218 85
Waddell & Reed Financial, Inc. 2,967 77
* Affiliated Managers Group, Inc. 800 68
REAL ESTATE INVESTMENT TRUST
Catellus Development Corp. 3,062 80
RENT & Lease Services--Commercial
* United Rentals, Inc. 2,397 42
================================================================================
12
================================================================================
MARKET
VALUE*
SHARES (000)
================================================================================
SAVINGS & Loan (1.5%)
Washington Mutual, Inc. 33,276 1,495
Golden West Financial Corp. 4,835 558
New York Community
Bancorp, Inc. 8,749 307
Sovereign Bancorp, Inc. 10,897 241
Green Point Financial Corp. 4,200 183
Astoria Financial Corp. 2,702 109
People's Bank 2,300 103
Hudson City Bancorp, Inc. 2,600 101
Webster Financial Corp. 1,700 86
Washington Federal Inc. 2,895 75
Independence Community
Bank Corp. 1,800 71
IndyMac Bancorp, Inc. REIT 2,000 70
Downey Financial Corp. 800 43
Commercial Federal Corp. 1,500 42
Staten Island Bancorp, Inc. 1,700 41
SECURITIES BROKERS & SERVICES (0.6%)
Charles Schwab Corp. 38,293 469
Franklin Resources Corp. 5,200 294
Legg Mason Inc. 2,490 235
* E*TRADE Group, Inc. 13,489 193
* Ameritrade Holding Corp. 10,654 173
A.G. Edwards & Sons, Inc. 2,886 110
Jefferies Group, Inc. 1,800 67
* Investment Technology Group, Inc. 1,650 24
LaBranche & Co. Inc. 1,106 11
----------
71,981
----------
HEALTH CARE (17.3%)
BIOTECH RESEARCH & PRODUCTION (2.0%)
* Amgen, Inc. 47,834 3,039
* Biogen Idec Inc. 12,101 671
* Genzyme Corp.-General Division 8,326 423
* Millennium Pharmaceuticals, Inc. 10,288 183
* Invitrogen Corp. 1,900 140
* Millipore Corp. 1,800 94
* Protein Design Labs, Inc. 3,500 84
* ICOS Corp. 2,093 80
* Neurocrine Biosciences, Inc. 1,391 77
* IDEXX Laboratories Corp. 1,300 66
* OSI Pharmaceuticals, Inc. 1,400 46
* Abgenix, Inc. 2,900 43
* Applera Corp.-Celera
Genomics Group 2,700 39
* Trimeris, Inc. 655 11
DRUGS & PHARMACEUTICALS (11.1%)
Pfizer Inc. 282,870 10,367
Johnson & Johnson 110,049 5,933
- --------------------------------------------------------------------------------
================================================================================
MARKET
VALUE*
SHARES (000)
================================================================================
Merck & Co., Inc. 82,476 3,965
Bristol-Myers Squibb Co. 71,944 2,002
Cardinal Health, Inc. 16,042 1,046
* Forest Laboratories, Inc. 13,543 1,022
Schering-Plough Corp. 54,496 979
Allergan, Inc. 4,865 426
* Gilead Sciences, Inc. 7,550 409
AmerisourceBergen Corp. 4,200 244
* MedImmune Inc. 9,186 236
* Barr Pharmaceuticals Inc. 2,193 170
* IVAX Corp. 6,066 135
* Pharmaceutical Resources, Inc. 1,312 82
Medicis Pharmaceutical Corp. 1,966 77
* Amylin Pharmaceuticals, Inc. 2,944 68
* Taro Pharmaceutical
Industries Ltd. 976 61
* Vertex Pharmaceuticals, Inc. 2,713 31
ELECTRONICS--MEDICAL SYSTEMS (1.0%)
Medtronic, Inc. 44,890 2,105
* Varian Medical Systems, Inc. 2,522 211
* Affymetrix, Inc. 2,178 74
HEALTH & PERSONAL CARE (0.5%)
* Anthem, Inc. 5,117 440
McKesson Corp. 10,186 278
Omnicare, Inc. 3,823 176
* Express Scripts Inc. 2,334 170
* Lincare Holdings, Inc. 3,630 117
* Accredo Health, Inc. 1,750 63
* Apria Healthcare Group Inc. 1,900 59
HEALTH CARE FACILITIES (0.4%)
Quest Diagnostics, Inc. 3,018 250
* Laboratory Corp. of
America Holdings 5,264 206
Health Management
Associates Class A 8,952 200
* DaVita, Inc. 2,381 108
* Renal Care Group, Inc. 1,800 84
* Pharmaceutical Product
Development, Inc. 1,800 53
* LifePoint Hospitals, Inc. 1,300 44
HEALTH CARE MANAGEMENT SERVICES (0.8%)
* WellPoint Health
Networks Inc. Class A 5,682 618
* Caremark Rx, Inc. 9,800 316
IMS Health, Inc. 8,794 218
* AdvancePCS 2,975 205
Oxford Health Plans, Inc. 2,855 137
================================================================================
13
================================================================================
MARKET
VALUE*
CALVERT SOCIAL INDEX FUND SHARES (000)
================================================================================
* Health Net Inc. 4,129 114
Universal Health Services Class B 1,882 101
* WebMD Corp. 11,270 97
* First Health Group Corp. 3,437 73
MEDICAL & DENTAL INSTRUMENTS & SUPPLIES (1.5%)
* Boston Scientific Corp. 21,663 885
* St. Jude Medical, Inc. 6,436 468
Becton, Dickinson & Co. 9,395 457
Stryker Corp. 5,138 456
Biomet, Inc. 8,749 341
* Patterson Dental Co. 2,191 149
Beckman Coulter, Inc. 2,300 121
* Henry Schein, Inc. 1,626 116
DENTSPLY International Inc. 2,556 112
* Apogent Technologies Inc. 3,343 94
* Edwards Lifesciences Corp. 2,200 71
* Respironics, Inc. 1,300 68
* Cytyc Corp. 4,000 66
* ResMed Inc. 1,300 61
* Techne Corp. 1,500 61
Cooper Cos., Inc. 1,204 57
Invacare Corp. 1,100 49
Medical Services
* Coventry Health Care Inc. 2,787 121
-----------
42,519
-----------
MATERIALS & PROCESSING (1.4%)
Weyerhaeuser Co. 8,180 534
Masco Corp. 17,128 480
Praxair, Inc. 12,022 437
Air Products & Chemicals, Inc. 7,920 382
* American Standard Cos., Inc. 2,279 248
Avery Dennison Corp. 3,590 227
Ecolab, Inc. 6,800 186
* Sealed Air Corp. 3,112 155
Sigma-Aldrich Corp. 2,241 128
Precision Castparts Corp. 2,310 104
Bemis Co., Inc. 2,000 102
Sonoco Products Co. 3,577 89
Harsco Corp. 1,554 71
Lubrizol Corp. 1,871 58
York International Corp. 1,500 56
Hughes Supply, Inc. 1,100 52
Airgas, Inc. 2,419 50
Corn Products International, Inc. 1,300 49
AptarGroup Inc. 1,200 49
Worthington Industries, Inc. 2,500 43
* Cabot Microelectronics Corp. 900 40
* Moore Wallace Inc. 100 2
----------
3,542
----------
- --------------------------------------------------------------------------------
================================================================================
MARKET
VALUE*
SHARES (000)
================================================================================
OTHER ENERGY (0.5%)
XTO Energy, Inc. 6,737 201
EOG Resources, Inc. 4,294 191
* Smith International, Inc. 3,677 186
* Pioneer Natural Resources Co. 4,300 138
Chesapeake Energy Corp. 8,653 111
Equitable Resources, Inc. 2,300 99
* Cooper Cameron Corp. 2,000 88
* Calpine Corp. 14,994 83
* Key Energy Services, Inc. 4,800 65
* Grant Prideco, Inc. 4,100 62
* FMC Technologies Inc. 2,238 59
----------
1,283
----------
PRODUCER DURABLES (4.3%)
* Applied Materials, Inc. 61,524 1,307
Emerson Electric Co. 15,545 971
Illinois Tool Works, Inc. 9,846 783
Deere & Co. 8,819 566
* Agilent Technologies, Inc. 16,066 549
* Xerox Corp. 29,365 415
* Lexmark International, Inc. 4,797 395
* KLA-Tencor Corp. 7,259 383
Danaher Corp. 4,250 381
Pitney Bowes, Inc. 8,633 357
Dover Corp. 7,516 295
Parker Hannifin Corp. 4,393 247
D. R. Horton, Inc. 7,623 242
Pulte Homes, Inc. 3,750 198
Cooper Industries, Inc. Class A 3,500 185
* Novellus Systems, Inc. 5,658 182
* Teradyne, Inc. 7,024 173
American Power Conversion Corp. 7,370 167
* Waters Corp. 4,433 164
W.W. Grainger, Inc. 3,051 144
Diebold, Inc. 2,677 141
* LAM Research Corp. 4,800 123
Pall Corp. 4,600 120
KB HOME 1,412 102
* NVR, Inc. 219 101
Pentair, Inc. 1,857 100
Tektronix, Inc. 3,100 99
Garmin Ltd. 2,161 99
* Andrew Corp. 5,303 94
* Crown Castle International Corp. 7,504 90
* American Tower Corp. Class A 7,814 86
* Polycom, Inc. 3,700 82
Molex, Inc. Class A 3,017 80
Donaldson Co., Inc. 1,396 80
Ryland Group, Inc. 919 79
MDC Holdings, Inc. 1,070 75
Herman Miller, Inc. 2,655 74
================================================================================
14
================================================================================
MARKET
VALUE*
CALVERT SOCIAL INDEX FUND SHARES (000)
================================================================================
Hubbell Inc. Class B 1,873 74
Graco, Inc. 1,700 72
HON Industries, Inc. 1,782 67
Roper Industries Inc. 1,300 63
* Terex Corp. 1,800 63
Cummins Inc. 1,256 62
Standard Pacific Corp. 1,147 60
Kennametal, Inc. 1,300 56
Briggs & Stratton Corp. 821 56
* Interdigital Communications Corp. 2,024 54
* Varian Semiconductor
Equipment Associates, Inc. 1,300 53
* AGCO Corp. 2,800 52
IDEX Corp. 1,180 50
* Cymer, Inc. 1,300 50
Cognex Corp. 1,400 47
* Flowserve Corp. 2,000 43
-----------
10,651
-----------
TECHNOLOGY (22.2%)
COMMUNICATIONS TECHNOLOGY (4.0%)
* Cisco Systems, Inc. 255,885 5,911
QUALCOMM Inc. 29,633 1,880
* Juniper Networks, Inc. 12,500 323
* Avaya Inc. 15,478 265
* JDS Uniphase Corp. 50,657 248
Scientific-Atlanta, Inc. 5,613 186
* NCR Corp. 3,463 155
* Tellabs, Inc. 13,941 135
Harris Corp. 2,500 118
* CIENA Corp. 17,441 100
* UTStarcom, Inc. 2,996 99
* Foundry Networks, Inc. 4,192 99
* 3Com Corp. 13,761 96
* ADC Telecommunications, Inc. 29,516 89
* Advanced Fibre
Communications, Inc. 3,200 78
* Avocent Corp. 1,733 67
* Brocade Communications
Systems, Inc. 9,400 66
ADTRAN Inc. 1,594 52
COMPUTER SERVICES SOFTWARE & SYSTEMS (5.9%)
Microsoft Corp. 377,938 10,015
* Veritas Software Corp. 15,866 483
* Symantec Corp. 11,426 470
Adobe Systems, Inc. 8,642 322
* Intuit, Inc. 6,747 299
* Siebel Systems, Inc. 16,298 213
* BEA Systems, Inc. 14,000 193
* Amdocs Ltd. 6,476 181
* BMC Software, Inc. 8,444 166
- --------------------------------------------------------------------------------
================================================================================
MARKET
VALUE*
SHARES (000)
================================================================================
* Mercury Interactive Corp. 3,300 160
* Check Point Software
Technologies Ltd. 6,600 152
* Cadence Design Systems, Inc. 9,592 148
* QLogic Corp. 3,535 148
* Novell, Inc. 13,743 140
* Citrix Systems, Inc. 6,041 128
Autodesk, Inc. 4,166 119
* Cognizant Technology
Solutions Corp. 2,408 114
* Ceridian Corp. 5,577 106
* Compuware Corp. 12,785 100
* Netscreen Technologies, Inc. 2,568 91
* Red Hat, Inc. 5,025 91
* Sybase, Inc. 3,656 79
National Instruments Corp. 1,950 67
Reynolds & Reynolds Class A 2,403 67
Acxiom Corp. 3,117 61
* Hyperion Solutions Corp. 1,439 51
* Electronics for Imaging, Inc. 1,975 50
* Ascential Software Corp. 2,200 50
* CACI International, Inc. 1,100 49
* Macromedia, Inc. 2,351 48
* Parametric Technology Corp. 9,670 44
* Mentor Graphics Corp. 2,400 40
* NetIQ Corp. 2,000 26
COMPUTER TECHNOLOGY (6.2%)
International Business
Machines Corp. 63,795 6,156
* Dell Inc. 83,791 2,736
Hewlett-Packard Co. 101,536 2,306
* EMC Corp. 89,020 1,275
* Sun Microsystems, Inc. 121,122 647
Electronic Data Systems Corp. 17,794 341
* Apple Computer, Inc. 12,439 298
* Network Appliance, Inc. 12,710 275
* Unisys Corp. 12,199 172
* Synopsys, Inc. 5,773 170
* SanDisk Corp. 5,232 133
* NVIDIA Corp. 5,700 127
* Zebra Technologies Corp. Class A 1,758 126
* Storage Technology Corp. 4,069 120
* Maxtor Corp. 8,884 91
* Ingram Micro, Inc. Class A 4,556 86
* Western Digital Corp. 7,425 85
* Emulex Corp. 3,000 70
Imation Corp. 1,325 47
* McDATA Corp. Class A 2,828 23
* Quantum Corp. 5,116 20
================================================================================
15
================================================================================
MARKET
VALUE*
CALVERT SOCIAL INDEX FUND SHARES (000)
================================================================================
ELECTRONICS (0.2%)
* Sanmina-SCI Corp. 18,988 241
* Amphenol Corp. 1,517 94
* Semtech Corp. 2,700 65
ELECTRONICS--SEMICONDUCTORS/COMPONENTS (5.7%)
Intel Corp. 242,156 7,078
Texas Instruments, Inc. 64,228 1,969
Analog Devices, Inc. 13,570 677
* Xilinx, Inc. 12,682 533
Linear Technology Corp. 11,605 464
* Broadcom Corp. 8,682 352
* Micron Technology, Inc. 22,544 339
* Altera Corp. 14,072 311
Microchip Technology, Inc. 7,700 219
* Advanced Micro Devices, Inc. 12,798 192
* Jabil Circuit, Inc. 6,034 169
* Marvell Technology Group Ltd. 3,333 152
* LSI Logic Corp. 14,095 142
* PMC Sierra Inc. 6,483 129
Intersil Corp. 5,100 120
* Atmel Corp. 16,192 112
* Avnet, Inc. 4,410 104
* Fairchild Semiconductor
International, Inc. 3,654 94
* Arrow Electronics, Inc. 3,698 91
* Conexant Systems, Inc. 10,100 74
* Agere Systems Inc. Class B 19,600 73
* Applied Micro Circuits Corp. 11,146 72
* Integrated Circuit Systems, Inc. 2,600 72
* Integrated Device Technology Inc. 3,800 63
* RF Micro Devices, Inc. 6,714 62
* Vitesse Semiconductor Corp. 7,688 61
* Skyworks Solutions, Inc. 5,247 59
* Agere Systems Inc. Class A 13,764 53
* Amkor Technology, Inc. 3,369 52
* GlobespanVirata, Inc. 5,473 49
* Lattice Semiconductor Corp. 3,700 38
ELECTRONICS--TECHNOLOGY (0.1%)
* Solectron Corp. 31,055 198
* The Titan Corp. 3,000 63
* KEMET Corp. 2,872 42
SCIENTIFIC EQUIPMENT & SUPPLIES (0.1%)
Applera Corp.-Applied
Biosystems Group 7,645 174
* Varian, Inc. 1,300 52
----------
54,646
----------
- --------------------------------------------------------------------------------
================================================================================
MARKET
VALUE*
SHARES (000)
================================================================================
UTILITIES (4.9%)
SBC Communications Inc. 122,637 2,945
BellSouth Corp. 68,466 1,887
* AT&T Wireless Services Inc. 83,243 1,130
* Comcast Corp. Special Class A 36,063 1,054
* Nextel Communications, Inc. 39,449 1,045
ALLTEL Corp. 11,494 595
* Comcast Corp. Class A 10,562 317
* Cox Communications, Inc. Class A 7,352 238
Kinder Morgan, Inc. 3,651 225
KeySpan Corp. 5,913 225
NiSource, Inc. 9,623 209
* AES Corp. 21,688 196
* NTL Inc. 2,818 193
* Cablevision Systems
NY Group Class A 6,874 175
CenturyTel, Inc. 4,988 143
* Citizens Communications Co. 10,452 138
Telephone & Data Systems, Inc. 1,874 135
Questar Corp. 3,011 108
MDU Resources Group, Inc. 3,917 91
OGE Energy Corp. 3,238 83
Puget Energy, Inc. 3,514 79
Aqua America, Inc. 3,475 75
Hawaiian Electric Industries Inc. 1,400 74
ONEOK, Inc. 2,967 66
Peoples Energy Corp. 1,400 62
AGL Resources Inc. 2,100 60
NICOR Inc. 1,563 56
Duquesne Light Holdings, Inc. 2,729 54
Piedmont Natural Gas, Inc. 1,300 54
WGL Holdings Inc. 1,800 52
Energen Corp. 1,233 51
Atmos Energy Corp. 1,893 50
* Cincinnati Bell Inc. 8,977 46
IDACORP, Inc. 1,351 42
Cleco Corp. 1,800 34
----------
11,987
----------
OTHER (1.0%)
3M Co. 26,609 2,076
* SPX Corp. 2,789 117
Teleflex Inc. 1,322 68
Carlisle Co., Inc. 1,133 65
Lancaster Colony Corp. 1,000 42
----------
2,368
----------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $237,385) 245,905
- --------------------------------------------------------------------------------
16
- --------------------------------------------------------------------------------
FACE MARKET
AMOUNT VALUE*
(000) (000)
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENTS (0.5%)
- --------------------------------------------------------------------------------
Repurchase Agreements
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
1.038%, 3/1/2004 $1,037 1,037
1.038%, 3/1/2004--Note E 142 142
- --------------------------------------------------------------------------------
TOTAL TEMPORARY CASH INVESTMENTS
(Cost $1,179) 1,179
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.4%)
(Cost $238,564) 247,084
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.4%)
- --------------------------------------------------------------------------------
Other Assets--Note B 944
Liabilities--Note E (2,012)
----------
(1,068)
----------
- --------------------------------------------------------------------------------
NET ASSETS (100%) $246,016
================================================================================
*See Note A in Notes to Financial Statements.
*Non-income-producing security.
================================================================================
AT FEBRUARY 29, 2004, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
AMOUNT
(000)
- --------------------------------------------------------------------------------
Paid-in Capital $249,471
Undistributed Net Investment Income 68
Accumulated Net Realized Losses (12,043)
Unrealized Appreciation 8,520
- --------------------------------------------------------------------------------
NET ASSETS $246,016
================================================================================
Investor Shares--Net Assets
Applicable to 30,019,648 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $232,119
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--
INVESTOR SHARES $7.73
================================================================================
Institutional Shares--Net Assets
Applicable to 1,796,060 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $13,897
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE--
INSTITUTIONAL SHARES $7.74
================================================================================
See Note C in Notes to Financial Statements for the tax- basis components of net
assets.
17
STATEMENT OF OPERATIONS
This Statement shows the types of income earned by the fund during the reporting
period, and details the operating expenses charged to each class of its shares.
These expenses directly reduce the amount of investment income available to pay
to shareholders as income dividends. This Statement also shows any Net Gain
(Loss) realized on the sale of investments, and the increase or decrease in the
Unrealized Appreciation (Depreciation) of investments during the period.
================================================================================
CALVERT SOCIAL INDEX FUND
SIX MONTHS ENDED FEBRUARY 29, 2004
(000)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
INCOME
Dividends $ 1,381
Interest 3
Security Lending 2
- --------------------------------------------------------------------------------
Total Income 1,386
- --------------------------------------------------------------------------------
EXPENSES
The Vanguard Group--Note B
Investment Advisory Services 54
Management and Administrative
Investor Shares 133
Institutional Shares 3
Marketing and Distribution
Investor Shares 14
Institutional Shares 1
Custodian Fees 36
Shareholders' Reports
Investor Shares 1
Institutional Shares --
- --------------------------------------------------------------------------------
Total Expenses 242
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,144
- --------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) ON INVESTMENT SECURITIES SOLD (119)
- --------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES 24,073
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $25,098
================================================================================
18
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how the fund's total net assets changed during the two most
recent reporting periods. The Operations section summarizes information detailed
in the Statement of Operations. The amounts shown as Distributions to
shareholders from the fund's net income and capital gains may not match the
amounts shown in the Operations section, because distributions are determined on
a tax basis and may be made in a period different from the one in which the
income was earned or the gains were realized on the financial statements. The
Capital Share Transactions section shows the net amount shareholders invested in
or redeemed from the fund. Distributions and Capital Share Transactions are
shown separately for each class of shares.
================================================================================
CALVERT SOCIAL INDEX FUND
-----------------------------
SIX MONTHS YEAR
ENDED ENDED
FEB. 29, 2004 AUG. 31, 2003
(000) (000)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $ 1,144 $ 1,392
Realized Net Gain (Loss) (119) (6,002)
Change in Unrealized Appreciation (Depreciation) 24,073 24,084
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 25,098 19,474
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income
Investor Shares (1,815) (994)
Institutional Shares (130) --
Realized Capital Gain
Investor Shares -- --
Institutional Shares -- --
- --------------------------------------------------------------------------------
Total Distributions (1,945) (994)
- --------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS--NOTE F
Investor Shares 60,295 38,311
Institutional Shares 642 10,640
- --------------------------------------------------------------------------------
Net Increase (Decrease) from Capital
Share Transactions 60,937 48,951
- --------------------------------------------------------------------------------
Total Increase (Decrease) 84,090 67,431
- --------------------------------------------------------------------------------
NET ASSETS
Beginning of Period 161,926 94,495
- --------------------------------------------------------------------------------
End of Period $246,016 $161,926
================================================================================
19
FINANCIAL HIGHLIGHTS
This table summarizes the fund's investment results and distributions to
shareholders on a per-share basis for each class of shares. It also presents the
Total Return and shows net investment income and expenses as percentages of
average net assets. These data will help you assess: the variability of the
fund's net income and total returns from year to year; the relative
contributions of net income and capital gains to the fund's total return; how
much it costs to operate the fund; and the extent to which the fund tends to
distribute capital gains. The table also shows the Portfolio Turnover Rate, a
measure of trading activity. A turnover rate of 100% means that the average
security is held in the fund for one year.
CALVERT SOCIAL INDEX FUND INVESTOR SHARES
- -----------------------------------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED AUGUST 31, MAY 8* TO
ENDED --------------------------- AUG. 31,
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD FEB. 29, 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $6.87 $6.02 $7.57 $11.14 $10.00
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .04 .07 .05 .04 .02
Net Realized and Unrealized Gain (Loss) on Investments .89 .84 (1.55) (3.57) 1.12
- -----------------------------------------------------------------------------------------------------------------
Total from Investment Operations .93 .91 (1.50) (3.53) 1.14
- -----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.07) (.06) (.05) (.03) --
Distributions from Realized Capital Gains -- -- -- (.01) --
- -----------------------------------------------------------------------------------------------------------------
Total Distributions (.07) (.06) (.05) (.04) --
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $7.73 $6.87 $6.02 $ 7.57 $11.14
=================================================================================================================
TOTAL RETURN** 13.60% 15.28% -19.96% -31.75% 11.07%
=================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $232 $150 $94 $80 $40
Ratio of Total Expenses to Average Net Assets 0.25%+ 0.25% 0.25% 0.25% 0.25%+
Ratio of Net Investment Income to Average Net Assets 1.13%+ 1.18% 0.82% 0.70% 0.98%+
Portfolio Turnover Rate 13%+ 14% 18% 10% 3%
=================================================================================================================
*Subscription period for the fund was May 8, 2000, to May 31, 2000, during which
time all assets were held in money market instruments. Performance measurement
begins May 31, 2000.
**Total returns do not reflect the $10 annual account maintenance fee applied to
balances under $10,000.
+Annualized.
20
CALVERT SOCIAL INDEX FUND INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
SIX MONTHS JAN. 14* TO
ENDED FEB. 29, AUG. 31,
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2004 2003
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $6.88 $6.22
- --------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .046 .05
Net Realized and Unrealized Gain (Loss) on Investments .890 .61
- --------------------------------------------------------------------------------
Total from Investment Operations .936 .66
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income (.076) --
Distributions from Realized Capital Gains -- --
- --------------------------------------------------------------------------------
Total Distributions (.076) --
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $7.74 $6.88
- --------------------------------------------------------------------------------
TOTAL RETURN 13.67% 10.61%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $14 $12
Ratio of Total Expenses to Average Net Assets 0.12%** 0.12%**
Ratio of Net Investment Income to Average Net Assets 1.27%** 1.32%**
Portfolio Turnover Rate 13%** 14%
================================================================================
*Inception.
**Annualized.
SEE ACCOMPANYING NOTES, WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
21
NOTES TO FINANCIAL STATEMENTS
Vanguard Calvert Social Index Fund is registered under the Investment Company
Act of 1940 as an open-end investment company, or mutual fund. The fund offers
two classes of shares, Investor Shares and Institutional Shares. Investor Shares
are available to any investor who meets the fund's minimum purchase
requirements. Institutional Shares were first issued on January 14, 2003, and
are designed for investors who meet certain administrative and servicing
criteria and invest a minimum of $10 million.
A. The following significant accounting policies conform to generally accepted
accounting principles for U.S. mutual funds. 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 4:00 p.m. Eastern time) on the valuation
date. Equity securities are valued at the latest quoted sales prices or
official closing prices taken from the primary market in which each
security trades; such securities not traded on the valuation date are
valued at the mean of the latest quoted bid and asked prices. Securities
for which market quotations are not readily available, or whose values have
been materially affected by events occurring before the fund's pricing time
but after the close of the securities' primary markets, are valued by
methods deemed by the board of trustees to represent fair value. Temporary
cash investments acquired over 60 days to maturity are valued using the
latest bid prices or using valuations based on a matrix system (which
considers such factors as security prices, yields, maturities, and
ratings), both as furnished by independent pricing services. Other
temporary cash investments are valued at amortized cost, which approximates
market value.
2. REPURCHASE AGREEMENTS: The fund, along with other members of The Vanguard
Group, transfers uninvested cash balances to a pooled cash account, which
is invested in repurchase agreements secured by U.S. government securities.
Securities pledged as collateral for repurchase agreements are held by a
custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of
interest and principal; however, in the event of default or bankruptcy by
the other party to the agreement, retention of the collateral may be
subject to legal proceedings.
3. FEDERAL INCOME TAXES: The fund intends to continue to qualify as a
regulated investment company and distribute all of its taxable income.
Accordingly, no provision for federal income taxes is required in the
financial statements.
4. DISTRIBUTIONS: Distributions to shareholders are recorded on the
ex-dividend date.
5. OTHER: Dividend income is recorded on the ex-dividend 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. The Vanguard Group furnishes at cost investment advisory, corporate
management, administrative, marketing, and distribution services. The costs of
such services are allocated to the fund under methods approved by the board of
trustees. The fund has committed to provide up to 0.40% of its net assets in
capital contributions to Vanguard. At February 29, 2004, the fund had
contributed capital of $35,000 to Vanguard (included in Other Assets),
representing 0.01% of the fund's net assets and 0.03% of Vanguard's
capitalization. The fund's trustees and officers are also directors and officers
of Vanguard.
22
C. Distributions are determined on a tax basis and may differ from net
investment income and realized capital gains for financial reporting purposes.
Differences may be permanent or temporary. Permanent differences are
reclassified among capital accounts in the financial statements to reflect their
tax character. Temporary differences arise when certain items of income,
expense, gain, or loss are recognized in different periods for financial
statement and tax purposes; these differences will reverse at some time in the
future. Differences in classification may also result from the treatment of
short-term gains as ordinary income for tax purposes.
The fund's tax-basis capital gains and losses are determined only at the end of
each fiscal year. For tax purposes, at August 31, 2003, the fund had available
realized losses of $11,904,000 to offset future net capital gains of $57,000
through August 31, 2009, $3,511,000 through August 31, 2010, $5,505,000 through
August 31, 2011, and $2,831,000 through August 31, 2012. The fund will use these
capital losses to offset net taxable capital gains, if any, realized during the
year ending August 31, 2004; should the fund realize net capital losses for the
year, the losses will be added to the loss carry- forward balances above.
At February 29, 2004, net unrealized appreciation of investment securities for
tax purposes was $8,520,000, consisting of unrealized gains of $27,714,000 on
securities that had risen in value since their purchase and $19,194,000 in
unrealized losses on securities that had fallen in value since their purchase.
D. During the six months ended February 29, 2004, the fund purchased $73,255,000
of investment securities and sold $12,867,000 of investment securities other
than temporary cash investments.
E. The market value of securities on loan to broker/dealers at February 29,
2004, was $132,000, for which the fund held cash collateral of $142,000. The
fund invests cash collateral received in repurchase agreements, and records a
liability for the return of the collateral, during the period the securities are
on loan.
F. Capital share transactions for each class of shares were:
- --------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2004 AUGUST 31, 2003
------------------- ------------------
AMOUNT SHARES AMOUNT SHARES
(000) (000) (000) (000)
- --------------------------------------------------------------------------------------------
Investor Shares
Issued $ 69,105 9,358 $ 56,456 9,160
Issued in Lieu of Cash Distributions 1,660 228 910 154
Redeemed (10,470) (1,418) (19,055) (3,163)
--------------------------------------------
Net Increase (Decrease)--Investor Shares 60,295 8,168 38,311 6,151
--------------------------------------------
Institutional Shares
Issued 1,833 245 12,139 1,954
Issued in Lieu of Cash Distributions 130 18 -- --
Redeemed (1,321) (180) (1,499) (241)
--------------------------------------------
Net Increase (Decrease)--Institutional Shares 642 83 10,640 1,713
- --------------------------------------------------------------------------------------------
23
THE PEOPLE WHO GOVERN YOUR FUND
The trustees of your mutual fund are there to see that the fund is operated and
managed in your best interests since, as a shareholder, you are a part owner of
the fund. Your fund trustees also serve on the board of directors of The
Vanguard Group, Inc., which is owned by the Vanguard(R) funds and provides
services to them on an at-cost basis.
A majority of Vanguard's board members are independent, meaning that they have
no affiliation with Vanguard or the funds they oversee, apart from the sizable
personal investments they have made as private individuals.
Our independent board members bring distinguished backgrounds in business,
academia, and public service to their task of working with Vanguard officers to
establish the policies and oversee the activities of
POSITION(S) HELD WITH
NAME FUND (NUMBER OF
(YEAR OF BIRTH) VANGUARD FUNDS
TRUSTEE/OFFICER OVERSEEN BY
SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ---------------------------------------------------------------------------------------------------------------------
JOHN J. BRENNAN* Chairman of the Chairman of the Board, Chief Executive Officer, and Director/Trustee of
(1954) Board, Chief The Vanguard Group, Inc., and of each of the investment companies
May 1987 Executive Officer, served by The Vanguard Group.
and Trustee
(129)
- ---------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
CHARLES D. ELLIS Trustee The Partners of '63 (pro bono ventures in education); Senior Advisor
(1937) (129) to Greenwich Associates (international business strategy consulting);
January 2001 Successor Trustee of Yale University; Overseer of the Stern School of
Business at New York University; Trustee of the Whitehead Institute
for Biomedical Research.
- ---------------------------------------------------------------------------------------------------------------------
RAJIV L. GUPTA Trustee Chairman and Chief Executive Officer (since October 1999), Vice
(1945) (129) Chairman (January-September 1999), and Vice President (prior to
December 2001 September 1999) of Rohm and Haas Co. (chemicals); Director of Technitrol,
Inc. (electronic components), and Agere Systems (communications
components); Board Member of the American Chemistry Council; Trustee of
Drexel University.
- ---------------------------------------------------------------------------------------------------------------------
JOANN HEFFERNAN Trustee Vice President, Chief Information Officer, and Member of the
HEISEN (129) Executive Committee of Johnson & Johnson (pharmaceuticals/
(1950) consumer products); Director of the University Medical Center at
July 1998 Princeton and Women's Research and Education Institute.
- ---------------------------------------------------------------------------------------------------------------------
BURTON G. MALKIEL Trustee Chemical Bank Chairman's Professor of Economics, Princeton Malkiel C
(1932) (127) University; Director of Vanguard Investment Series plc (Irish invest-
May 1977 ment fund) (since November 2001), Vanguard Group (Ireland)
Limited (Irish investment management firm) (since November 2001),
Prudential Insurance Co. of America, BKF Capital (investment
management), The Jeffrey Co. (holding company), and NeuVis, Inc.
(software company).
- ---------------------------------------------------------------------------------------------------------------------
the funds. Among board members' responsibilities are selecting investment
advisors for the funds; monitoring fund operations, performance, and costs;
reviewing contracts; nominating and selecting new trustees/directors; and
electing Vanguard officers.
Each trustee serves a fund until its termination; or until the trustee's
retirement, resignation, or death; or otherwise as specified in the fund's
organizational documents. Any trustee may be removed at a shareholders' meeting
by a vote representing two-thirds of the net asset value of all shares of the
fund together with shares of other Vanguard funds organized within the same
trust. The table on these two pages shows information for each trustee and
executive officer of the fund. The mailing address of the trustees and officers
is P.O. Box 876, Valley Forge, PA 19482.
POSITION(S) HELD WITH
NAME FUND (NUMBER OF
(YEAR OF BIRTH) VANGUARD FUNDS
TRUSTEE/OFFICER OVERSEEN BY
SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ---------------------------------------------------------------------------------------------------------------------
ALFRED M. RANKIN, JR.Trustee Chairman, President, Chief Executive Officer, and Director of NACCO
(1941) (129) Industries, Inc. (forklift trucks/housewares/lignite); Director of
January 1993 Goodrich Corporation (industrial products/aircraft systems and
services); Director of Standard Products Company (supplier for
the automotive industry) until 1998.
- ---------------------------------------------------------------------------------------------------------------------
J. LAWRENCE WILSON Trustee Retired Chairman and Chief Executive Officer of Rohm and Haas Co.
(1936) (129) (chemicals); Director of Cummins Inc. (diesel engines), MeadWestvaco
April 1985 Corp. (paper products), and AmerisourceBergen Corp. (pharmaceutical
distribution); Trustee of Vanderbilt University.
- ---------------------------------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS*
R. GREGORY BARTON Secretary Managing Director and General Counsel of The Vanguard Group, Inc.;
(1951) (129) Secretary of The Vanguard Group and of each of the investment
June 2001 companies served by The Vanguard Group.
- ---------------------------------------------------------------------------------------------------------------------
THOMAS J. HIGGINS Treasurer Principal of The Vanguard Group, Inc.; Treasurer of each of the
(1957) (129) investment companies served by The Vanguard Group.
July 1998
- ---------------------------------------------------------------------------------------------------------------------
*Officers of the funds are "interested persons" as defined in the Investment
Company Act of 1940.
More information about the trustees is in the Statement of Additional
Information, available from The Vanguard Group.
================================================================================================
VANGUARD SENIOR MANAGEMENT TEAM
MORTIMER J. BUCKLEY, Information Technology. MICHAEL S. MILLER, Planning and Development.
JAMES H. GATELY, Investment Programs and Services. RALPH K. PACKARD, Finance.
KATHLEEN C. GUBANICH, Human Resources. GEORGE U. SAUTER, Chief Investment Officer.
F. WILLIAM MCNABB, III, Client Relationship Group.
- ------------------------------------------------------------------------------------------------
JOHN C. BOGLE, Founder; Chairman and Chief Executive Officer, 1974-1996.
THE VANGUARD GROUP (R)
Post Office Box 2600
Valley Forge, PA 19482-2600
Vanguard, The Vanguard Group, Vanguard.com, and the ship logo are trademarks of
The Vanguard Group, Inc.
Calvert Social Index is a trademark of Calvert Group, Ltd., and has been
licensed for use by The Vanguard Group, Inc. Vanguard Calvert Social Index Fund
is not sponsored, endorsed, sold, or promoted by Calvert Group, Ltd., and
Calvert Group, Ltd., makes no representation regarding the advisability of
investing in the fund.
All other marks are the exclusive property of their respective owners.
ABOUT OUR COVER
The photographs that appear on the cover of this report are copyrighted by
Michael Kahn.
FOR MORE INFORMATION
This report is intended for the fund's shareholders. It may not be distributed
to prospective investors unless it is preceded or accompanied by the current
fund prospectus.
To receive a free copy of the prospectus or the Statement of Additional
Information, or to request additional information about the fund or other
Vanguard funds, please contact us at one of the adjacent telephone numbers or by
e-mail through Vanguard.com. Prospectuses may also be viewed online.
You can obtain a free copy of Vanguard's proxy voting guidelines by visiting our
website, www.vanguard.com, and searching for "proxy voting guidelines," or by
calling 1-800-662-2739. They are also available from the SEC's website,
www.sec.gov.
All comparative mutual fund data are from Lipper Inc. or Morningstar, Inc.,
unless otherwise noted.
WORLD WIDE WEB
www.vanguard.com
FUND INFORMATION
1-800-662-7447
DIRECT INVESTOR ACCOUNT SERVICES
1-800-662-2739
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1-800-523-1036
TEXT TELEPHONE
1-800-952-3335
(C) 2004 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing
Corporation, Distributor.
Q2132 042004
VANGUARD(R) U.S. SECTOR INDEX FUNDS
FEBRUARY 29, 2004
SEMIANNUAL REPORT
VANGUARD(R) CONSUMER DISCRETIONARY INDEX FUND
VANGUARD(R) CONSUMER STAPLES INDEX FUND
VANGUARD(R) FINANCIALS INDEX FUND
VANGUARD(R) HEALTH CARE INDEX FUND
VANGUARD(R) INFORMATION TECHNOLOGY INDEX FUND
VANGUARD(R) MATERIALS INDEX FUND
VANGUARD(R) UTILITIES INDEX FUND
THE VANGUARD GROUP(R)LOGO
HOW TO READ THIS REPORT
This report contains information that can help you evaluate your investment. It
includes details about your Fund's return and presents data and analysis that
provide insight into the Fund's performance and investment approach.
By reading the letter from Vanguard's chairman, you'll get an understanding of
how the Fund invests and how the market environment affected its performance.
The statistical information that follows can help you understand how the Fund's
performance and characteristics stack up against those of similar funds and
market benchmarks.
It's important to keep in mind that any opinions expressed here are just that:
informed opinions. They should not be considered promises or advice. These
opinions, like the statistics, cover the period through the date on the cover of
this report. The risks of investing in the Fund are spelled out in the
prospectus.
Frequent updates on the Fund's performance and information about some of its
holdings are available on Vanguard.com.
- --------------------------------------------------------------------------------
CONTENTS
1 letter from the chairman
5 fund profiles
9 glossary of investment terms
10 performance summaries
11 financial statements
43 advantages of vanguard.com
- --------------------------------------------------------------------------------
SUMMARY
* Launched just two to five weeks before the close of their first reporting
period on February 29, the Vanguard U.S. Sector Index Funds posted returns
ranging from -7.1% to 5.4%.
* As the period came to an end, the broad stock market gave up some of its
earlier gains, particularly those won by technology stocks.
* Despite the market's retreat in the final weeks of the period, most of the
industry sectors tracked by the funds rose.
- --------------------------------------------------------------------------------
Want less clutter in your mailbox? Just register with VANGUARD.COM and opt to
get fund reports online.
-----------
INDEXED TO
MSCI
-----------
LETTER FROM THE CHAIRMAN
FELLOW SHAREHOLDER,
As this is our first report for the Vanguard U.S. Sector Index Funds, it is my
pleasure to welcome our new shareholders. These funds are designed to be
low-cost tools to help meet complex investment needs, such as increasing
exposure to an underrepresented sector or mitigating overall risk without having
to overhaul an entire portfolio.
[PICTURES OF JOHN J. BRENNAN]
Because these funds launched so recently, this report covers periods ranging
from just two to five weeks. That's far too short to derive any significant
meaning from performance data. We can say, however, that the funds made a good
start toward their common objective of closely tracking their respective
benchmarks.
The adjacent table shows the total return since inception for each fund's
Admiral Shares. It also shows the returns of the respective target indexes
(subsets of the MSCI US Investable Market 2500 Index) and the broad U.S. stock
market, as measured by the Wilshire 5000 Total Market Index, over the same
periods. The Total Returns table on the next page does the same for the funds'
exchange-traded VIPER Shares. (Three of the funds had not yet issued Admiral
Shares as of February 29. Please note that Vanguard plans to introduce index
funds tracking additional market sectors in the future.)
STOCKS CONTINUED THEIR COMEBACK
The Sector Index Funds will have a fiscal year-end of August 31; that is why you
are now reading their "semiannual" report. Although the funds did not exist at
the start of the fiscal period, we think it is helpful to reflect on the
investment environment that preceded their inception.
As the fiscal half-year began last September, the U.S. stock market was in the
midst of a strong advance. The gains continued through most of the period,
buoyed by a steady flow of positive corporate earnings reports and economic data
that suggested the national economy was continuing to mend. Despite these signs
of growth, however, the job market remained all but flat.
During the six months, the U.S. stock market, as measured by the Wilshire 5000
Index, returned 15.3%. The Russell 2000 Index, a proxy for small-capitalization
stocks, returned 18.3%, outpacing the mid- to large-cap stocks in the Russell
1000 Index, which returned 14.8%. Across the market-cap spectrum, value-oriented
stocks (those that generally trade at below-market valuations relative to their
book values) outpaced growth stocks.
- --------------------------------------------------------------------
TOTAL RETURNS: ADMIRAL SHARES* INCEPTION**
THROUGH FEBRUARY 29, 2004
- --------------------------------------------------------------------
VANGUARD CONSUMER STAPLES INDEX FUND 5.4%
MSCI US IMI/Consumer Staples 5.4
Wilshire 5000 Index 1.5
- --------------------------------------------------------------------
VANGUARD FINANCIALS INDEX FUND 3.1%
MSCI US IMI/Financials 3.1
Wilshire 5000 Index 2.2
- --------------------------------------------------------------------
VANGUARD HEALTH CARE INDEX FUND -0.3%
MSCI US IMI/Health Care -0.3
Wilshire 5000 Index 1.9
- --------------------------------------------------------------------
VANGUARD MATERIALS INDEX FUND 0.3%
MSCI US IMI/Materials 0.3
Wilshire 5000 Index -1.0
- --------------------------------------------------------------------
*Returns do not reflect the 2% fee on sales of shares held for less than one
year.
**Admiral Shares inception dates: Consumer Staples Index Fund, January 30, 2004;
Financials Index Fund, February 4, 2004; Health Care Index Fund, February 5,
2004; Materials Index Fund, February 11, 2004.
International equities continued to provide generous gains for U.S.-based
investors. Returns from European markets were generally stronger than those from
Pacific markets, and returns from emerging markets were outstanding. The
continued decline in the U.S. dollar's relative value transformed
local-currency-based results into impressive dollar-denominated returns.
1
- --------------------------------------------------------------------------------
ADMIRAL(A) SHARES A low-cost class of shares available to shareholders who make
significant investments in the fund.
VIPER SHARES Traded on the American Stock Exchange, VIPERs are available only
through brokers. The table at right shows VIPER returns based on both the AMEX
market price and the net asset value for a share.
- --------------------------------------------------------------------------------
AS INTEREST RATES REMAINED LOW, INVESTORS SOUGHT OUT RISKIER BONDS
In the fixed income markets, demand for U.S. Treasury issues remained strong,
boosting the price of the 10-year Treasury note while reducing its yield from
4.46% at the start of the period to 3.97% by February 29. However, the low level
of market rates in general, together with signs of a strengthening economy, sent
many investors searching for the higher yields to be obtained from riskier
bonds. As a result, returns of corporate bonds exceeded those of government
bonds with similar maturities. The Lehman Brothers High Yield Bond Index, a
benchmark of below-investment-grade bonds, recorded a six-month return of 10.6%,
while the Lehman Aggregate Bond Index, a measure of the taxable investment-grade
bond market, returned 4.9%.
Short-term interest rates remained low and stable, fluctuating within a tight
range of 0.91% to 0.97% throughout the six months. The 3-month Treasury bill, a
proxy for money market rates, ended the fiscal half-year with a yield of 0.94%,
just 3 basis points below its initial 0.97% yield.
MOST OF THE FUNDS ROSE DESPITE A LATE MARKET RETREAT
- --------------------------------------------------------------------------------
MARKET BAROMETER TOTAL RETURNS
PERIODS ENDED FEBRUARY 29, 2004
-------------------------------------
SIX ONE FIVE
MONTHS YEAR YEARS*
- --------------------------------------------------------------------------------
STOCKS
Russell 1000 Index (Large-caps) 14.8% 39.7% 0.5%
Russell 2000 Index (Small-caps) 18.3 64.4 9.8
Wilshire 5000 Index (Entire market) 15.3 42.5 1.2
MSCI All Country World Index
ex USA (International) 25.4 55.9 2.9
- --------------------------------------------------------------------------------
BONDS
Lehman Aggregate Bond Index 4.9% 4.5% 7.2%
(Broad taxable market)
Lehman Municipal Bond Index 6.5 6.3 6.1
Citigroup 3-Month Treasury Bill Index 0.5 1.0 3.4
================================================================================
CPI
Consumer Price Index 0.9% 1.7% 2.5%
- --------------------------------------------------------------------------------
*Annualized.
After the funds were launched in late January and early February, the stock
market started giving up some of its earlier gains. Anemic payroll growth was
likely a factor in the retreat, as was the potential impact of a weaker dollar
on inflation. Whatever the reason, the net effect was a decline in the broad
market during the final weeks, led primarily by the sector that enjoyed the
biggest gains in 2003Ntechnology. Our Information Technology VIPERs fell -D7.1%
from inception on January 26 through the end of February.
- --------------------------------------------------------------------------
TOTAL RETURNS: VIPER SHARES JANUARY 26, 2004,*
THROUGH FEBRUARY 29, 2004
- --------------------------------------------------------------------------
VANGUARD CONSUMER DISCRETIONARY VIPERS
Market Price -0.6%
Net Asset Value -0.6
MSCI US IMI/Consumer Discretionary -0.6
- --------------------------------------------------------------------------
VANGUARD CONSUMER STAPLES VIPERS
Market Price 5.0%
Net Asset Value 4.9
MSCI US IMI/Consumer Staples 5.0
- --------------------------------------------------------------------------
VANGUARD FINANCIALS VIPERS
Market Price 1.3%
Net Asset Value 1.3
MSCI US IMI/Financials 1.3
- --------------------------------------------------------------------------
VANGUARD HEALTH CARE VIPERS
Market Price 0.0%
Net Asset Value -0.1
MSCI US IMI/Health Care -0.2
- --------------------------------------------------------------------------
VANGUARD INFORMATION TECHNOLOGY VIPERS
Market Price -7.0%
Net Asset Value -7.1
MSCI US IMI/Information Technology -7.1
- --------------------------------------------------------------------------
VANGUARD MATERIALS VIPERS
Market Price 4.2%
Net Asset Value 4.2
MSCI US IMI/Materials 4.2
- --------------------------------------------------------------------------
VANGUARD UTILITIES VIPERS
Market Price 1.9%
Net Asset Value 2.0
MSCI US IMI/Utilities 2.1
- --------------------------------------------------------------------------
Wilshire 5000 Index -0.8%
- --------------------------------------------------------------------------
*VIPER Shares inception date for all funds.
However, the broad decline masked uneven performance among industry groups, and
most of the sectors tracked by our funds produced positive returns. Not
surprisingly, industries traditionally considered defensive enjoyed the largest
gains: Our Consumer Staples VIPERs and Materials VIPERs rose 4.9% and 4.2%,
respectively, during their five-week lifespans.
DIVERSIFICATION IS KEY TO LONG-TERM SUCCESS
As I mentioned at the beginning of this letter, sector funds, if used
judiciously, can play a valuable role for many investors, meeting specific needs
in a sophisticated portfolio or helping to mitigate the portfolio's
2
overall risk through diversification. These funds are not meant to be
speculative tools. Oversized bets on any one sector of the market can backfire,
as those investors who gorged on tech during the late 1990s can attest.
Because no one can foresee the short-term direction of the financial markets, we
offer the same advice to all our clients in both bull and bear markets:
Diversify across and within asset classesNstocks, bonds, and short-term
reservesNin allocations appropriate for your objectives and circumstances. An
investment program that combines the opportunity for gain with some protection
from loss is a powerful ally in pursuit of your financial goals.
Thank you for entrusting your assets to us.
Sincerely,
/S/ JOHN J. BRENNAN
John J. Brennan
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MARCH 15, 2004
- -------------------------------------------------------------------------------
YOUR FUND'S PERFORMANCE AT A GLANCE PERIOD ENDING
FEBRUARY 29, 2004
STARTING ENDING
SHARE PRICE* SHARE PRICE
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY INDEX FUND
VIPER Shares $50.09 $49.79
- --------------------------------------------------------------------------------
CONSUMER STAPLES INDEX FUND
Admiral Shares $25.00 $26.35
VIPER Shares 50.84 53.35
- --------------------------------------------------------------------------------
FINANCIALS INDEX FUND
Admiral Shares $24.90 $25.66
VIPER Shares 50.51 51.19
- --------------------------------------------------------------------------------
HEALTH CARE INDEX FUND
Admiral Shares $25.33 $25.26
VIPER Shares 50.55 50.48
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY INDEX FUND
VIPER Shares $50.89 $47.29
- --------------------------------------------------------------------------------
MATERIALS INDEX FUND
Admiral Shares $26.14 $26.23
VIPER Shares 49.48 51.54
- --------------------------------------------------------------------------------
UTILITIES INDEX FUND
VIPER Shares $49.64 $50.65
- --------------------------------------------------------------------------------
*At inception. Inception dates are: for the VIPER Shares, January 26, 2004; for
the Consumer Staples Index Fund Admiral Shares, January 30, 2004; for the
Financials Index Fund Admiral Shares, February 4, 2004; for the Health Care
Index Fund Admiral Shares, February 5, 2004; for the Materials Index Fund
Admiral Shares, February 11, 2004.
NOTE: The funds made no distributions during the fiscal period.
3
Market prices for VIPER Shares, and for exchange-traded funds in general, can
deviate from the net asset value (NAV) of the underlying securities.
The tables on this page indicate the extent to which the funds' VIPER Shares
have traded at a premium or a discount to NAV since inception.
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY INDEX FUND VIPER SHARES
PREMIUM/DISCOUNT: JANUARY 26*-FEBRUARY 29, 2004
CLOSING PRICE
ABOVE OR EQUAL TO CLOSING PRICE BELOW
CLOSING NET ASSET VALUE CLOSING NET ASSET VALUE
-------------------------- ------------------------
BASIS POINT NUMBER PERCENTAGE OF NUMBER PERCENTAGE OF
DIFFERENTIAL** OF DAYS TOTAL DAYS OF DAYS TOTAL DAYS
- --------------------------------------------------------------------------------
0-24.9 12 50.00% 11 45.83%
25-49.9 0 0.00 1 4.17
50-74.9 0 0.00 0 0.00
75-100.0 0 0.00 0 0.00
>100.0 0 0.00 0 0.00
- --------------------------------------------------------------------------------
Total 12 50.00% 12 50.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONSUMER STAPLES INDEX FUND VIPER SHARES
PREMIUM/DISCOUNT: JANUARY 26*-FEBRUARY 29, 2004
CLOSING PRICE
ABOVE OR EQUAL TO CLOSING PRICE BELOW
CLOSING NET ASSET VALUE CLOSING NET ASSET VALUE
-------------------------- ------------------------
BASIS POINT NUMBER PERCENTAGE OF NUMBER PERCENTAGE OF
DIFFERENTIAL** OF DAYS TOTAL DAYS OF DAYS TOTAL DAYS
- --------------------------------------------------------------------------------
0-D24.9 13 54.17% 10 41.66%
25-D49.9 0 0.00 1 4.17
50-D74.9 0 0.00 0 0.00
75-D100.0 0 0.00 0 0.00
>100.0 0 0.00 0 0.00
- --------------------------------------------------------------------------------
Total 13 54.17% 11 45.83%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIALS INDEX FUND VIPER SHARES
PREMIUM/DISCOUNT: JANUARY 26*-DFEBRUARY 29, 2004
CLOSING PRICE
ABOVE OR EQUAL TO CLOSING PRICE BELOW
CLOSING NET ASSET VALUE CLOSING NET ASSET VALUE
-------------------------- ------------------------
BASIS POINT NUMBER PERCENTAGE OF NUMBER PERCENTAGE OF
DIFFERENTIAL** OF DAYS TOTAL DAYS OF DAYS TOTAL DAYS
- --------------------------------------------------------------------------------
0-24.9 10 41.67% 14 58.33%
25-49.9 0 0.00 0 0.00
50-74.9 0 0.00 0 0.00
75-100.0 0 0.00 0 0.00
>100.0 0 0.00 0 0.00
- --------------------------------------------------------------------------------
Total 10 41.67% 14 58.33%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HEALTH CARE INDEX FUND VIPER SHARES
PREMIUM/DISCOUNT: JANUARY 26*-FEBRUARY 29, 2004
CLOSING PRICE
ABOVE OR EQUAL TO CLOSING PRICE BELOW
CLOSING NET ASSET VALUE CLOSING NET ASSET VALUE
-------------------------- ------------------------
BASIS POINT NUMBER PERCENTAGE OF NUMBER PERCENTAGE OF
DIFFERENTIAL** OF DAYS TOTAL DAYS OF DAYS TOTAL DAYS
- --------------------------------------------------------------------------------
0-24.9 15 62.50% 9 37.50%
25-49.9 0 0.00 0 0.00
50-74.9 0 0.00 0 0.00
75-100.0 0 0.00 0 0.00
>100.0 0 0.00 0 0.00
- --------------------------------------------------------------------------------
Total 15 62.50% 37.50%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY INDEX FUND VIPER SHARES
PREMIUM/DISCOUNT: JANUARY 26*-FEBRUARY 29, 2004
CLOSING PRICE
ABOVE OR EQUAL TO CLOSING PRICE BELOW
CLOSING NET ASSET VALUE CLOSING NET ASSET VALUE
-------------------------- ------------------------
BASIS POINT NUMBER PERCENTAGE OF NUMBER PERCENTAGE OF
DIFFERENTIAL** OF DAYS TOTAL DAYS OF DAYS TOTAL DAYS
- --------------------------------------------------------------------------------
0-24.9 17 70.83% 6 25.00%
25-49.9 0 0.00 0 0.00
50-74.9 0 0.00 0 0.00
75-100.0 0 0.00 0 0.00
>100.0 1 4.17 0 0.00
- --------------------------------------------------------------------------------
Total 18 75.00% 6 25.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MATERIALS INDEX FUND VIPER SHARES
PREMIUM/DISCOUNT: JANUARY 26*-FEBRUARY 29, 2004
CLOSING PRICE
ABOVE OR EQUAL TO CLOSING PRICE BELOW
CLOSING NET ASSET VALUE CLOSING NET ASSET VALUE
-------------------------- ------------------------
BASIS POINT NUMBER PERCENTAGE OF NUMBER PERCENTAGE OF
DIFFERENTIAL** OF DAYS TOTAL DAYS OF DAYS TOTAL DAYS
- --------------------------------------------------------------------------------
0-24.9 15 62.50% 9 37.50%
25-49.9 0 0.00 0 0.00
50-74.9 0 0.00 0 0.00
75-100.0 0 0.00 0 0.00
>100.0 0 0.00 0 0.00
- --------------------------------------------------------------------------------
Total 15 62.50% 9 37.50%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UTILITIES INDEX FUND VIPER SHARES
PREMIUM/DISCOUNT: JANUARY 26*-FEBRUARY 29, 2004
CLOSING PRICE
ABOVE OR EQUAL TO CLOSING PRICE BELOW
CLOSING NET ASSET VALUE CLOSING NET ASSET VALUE
-------------------------- ------------------------
BASIS POINT NUMBER PERCENTAGE OF NUMBER PERCENTAGE OF
DIFFERENTIAL** OF DAYS TOTAL DAYS OF DAYS TOTAL DAYS
- --------------------------------------------------------------------------------
0-24.9 10 41.67% 10 41.66%
25-49.9 2 8.33 0 0.00
50-74.9 0 0.00 1 4.17
75-100.0 0 0.00 1 4.17
>100.0 0 0.00 0 0.00
- --------------------------------------------------------------------------------
Total 12 50.00% 12 50.00%
- --------------------------------------------------------------------------------
*Inception.
**One basis point equals 1/100th of 1%.
4
FUND PROFILES
These Profiles provide snapshots of the funds' characteristics, compared where
indicated with both an appropriate market index and a broad market index. Key
terms are defined on page 9.
AS OF 2/29/2004
CONSUMER DISCRETIONARY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
TARGET BROAD
FUND INDEX* INDEX**
Number of Stocks 425 426 5,179
Median Market Cap $15.4B $15.4B $29.1B
Price/Earnings Ratio 24.6x 24.6x 23.5x
Price/Book Ratio 2.6x 2.6x 3.2x
Yield 0.5% 0.8% 1.5%
Return on Equity 15.8% 15.8% 15.7%
Earnings Growth Rate 14.8% 14.8% 5.4%
Foreign Holdings 0.1% 0.1% 0.9%
Turnover Rate 15% N N
Expense Ratio 0.28% N N
Short-Term Reserves 0% N N
- --------------------------------------------------------------------------------
CONSUMER STAPLES INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
TARGET BROAD
FUND INDEX* INDEX**
- --------------------------------------------------------------------------------
Number of Stocks 105 105 5,179
Median Market Cap $39.3B $89.2B $29.1B
Price/Earnings Ratio 21.0x 21.1x 23.5x
Price/Book Ratio 4.9x 5.5x 3.2x
Yield 1.8% 1.5%
Admiral Shares 1.7%
VIPER Shares 1.5%
Return on Equity 28.9% 30.5% 15.7%
Earnings Growth Rate 10.3% 10.6% 5.4%
Foreign Holdings 0.0% 0.0% 0.9%
Turnover Rate 43% - -
Expense Ratio - -
Admiral Shares 0.28%
VIPER Shares 0.28%
Short-Term Reserves 0% - -
- --------------------------------------------------------------------------------
- ---------------------------------------------------
SECTOR DIVERSIFICATION (% OF PORTFOLIO)
Advertising Agencies 2%
Auto Parts-Aftermarket 1
Auto Parts-Original Equipment 1
Automobiles 3
Cable Television Services 3
Casinos & Gambling 3
Communications & Media 5
Consumer Products 1
Entertainment 8
Home Building 3
Hotel/Motel 2
Household Furnishings 1
Leisure Time 2
Multi-Sector Companies 2
Photography 1
Publishing-Miscellaneous 1
Publishing-Newspapers 4
Radio & Television Broadcasters 4
Recreational Vehicles & Boats 1
Restaurants 7
Retail 32
Services-Commercial 4
Shoes 1
Textile-Apparel Manufacturing 2
Toys 1
Utilities-Cable Television & Radio 5
- ---------------------------------------------------
- ---------------------------------------------------
SECTOR DIVERSIFICATION (% OF PORTFOLIO)
Beverage-Brewers & Wineries 5%
Beverage-Soft Drinks 15
Consumer Products 7
Cosmetics 3
Drug & Grocery Store Chains 11
Foods 20
Milling-Fruit & Grain Producers 1
Retail 15
Soap & Household Chemicals 13
Tobacco 10
- ---------------------------------------------------
- ---------------------------------------------------
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
Wal-Mart Stores, Inc. 13.1%
The Procter & Gamble Co. 9.3
Altria Group, Inc. 8.4
The Coca-Cola Co. 7.9
PepsiCo, Inc. 6.0
Anheuser-Busch Cos., Inc. 4.0
Gillette Co. 3.4
Walgreen Co. 3.3
Kimberly-Clark Corp. 3.0
Colgate-Palmolive Co. 2.7
- ---------------------------------------------------
Top Ten 61.1%
- ---------------------------------------------------
* Ten Largest HoldingsO excludes any temporary cash investments and equity index
products.
*MSCI US IMI/Consumer Discretionary.
**Wilshire 5000 Index.
+Annualized.
- ---------------------------------------------------
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
Home Depot, Inc. 5.4%
Time Warner, Inc. 4.9
Comcast Corp. 4.3
Viacom Inc. Class B 3.9
The Walt Disney Co. 3.6
Lowe's Cos., Inc. 2.7
Target Corp. 2.5
McDonald's Corp. 2.4
eBay Inc. 2.0
Liberty Media Corp. 1.8
- ---------------------------------------------------
Top Ten 33.5%
- ---------------------------------------------------
* Ten Largest HoldingsO excludes any temporary cash investments and equity index
products.
* MSCI US IMI/Consumer Staples.
**Wilshire 5000 Index.
+Annualized.
VISIT OUR WEBSITE AT VANGUARD.COM
FOR REGULARLY UPDATED FUND INFORMATION.
5
FUND PROFILES (CONTINUED)
FINANCIALS INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
TARGET BROAD
FUND INDEX* INDEX**
- --------------------------------------------------------------------------------
Number of Stocks 535 535 5,179
Median Market Cap $34.9B $34.9B $29.1B
Price/Earnings Ratio 15.8x 15.8x 23.5x
Price/Book Ratio 2.4x 2.4x 3.2x
Yield 2.5% 1.5%
Admiral Shares 2.2%
VIPER Shares 2.2%
Return on Equity 18.4% 18.4% 15.7%
Earnings Growth Rate 8.2% 8.3% 5.4%
Foreign Holdings 0.0% 0.0% 0.9%
Turnover Rate 14% - -
Expense Ratio - -
Admiral Shares 0.28%
VIPER Shares 0.28%
Short-Term Reserves 0% - -
- --------------------------------------------------------------------------------
HEALTH CARE INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
TARGET BROAD
FUND INDEX* INDEX**
- --------------------------------------------------------------------------------
Number of Stocks 296 296 5,179
Median Market Cap $55.0B $55.0B $29.1B
Price/Earnings Ratio 25.4x 25.3x 23.5x
Price/Book Ratio 4.7x 4.7x 3.2x
Yield 1.2% 1.5%
Admiral Shares 1.1%
VIPER Shares 0.9%
Return on Equity 27.1% 27.1% 15.7%
Earnings Growth Rate 13.4% 13.4% 5.4%
Foreign Holdings 0.0% 0.0% 0.9%
Turnover Rate 12% - -
Expense Ratio - -
Admiral Shares 0.28%
VIPER Shares 0.28%
Short-Term Reserves 0% - -
- --------------------------------------------------------------------------------
- ---------------------------------------------------
SECTOR DIVERSIFICATION (% OF PORTFOLIO)
Banks-New York City 4%
Banks-Outside New York City 31
Diversified Financial Services 20
Finance Companies 1
Financial-Small Loan 1
Financial-Miscellaneous 7
Insurance-Life 2
Insurance-Multiline 12
Insurance-Property-Casualty 4
Investment Management Companies 1
Multi-Sector Companies 1
Real Estate Investment Trusts 8
Savings & Loan 5
Securities Brokers & Services 3
- ---------------------------------------------------
- ---------------------------------------------------
SECTOR DIVERSIFICATION (% OF PORTFOLIO)
Biotech Research & Production 13%
Drugs & Pharmaceuticals 58
Electronics-Medical Systems 4
Health & Personal Care 3
Health Care Facilities 4
Health Care Management Services 7
Insurance-Multiline 1
Medical & Dental Instruments & Supplies 10
- ---------------------------------------------------
- ---------------------------------------------------
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
Pfizer Inc. 16.5%
Johnson & Johnson 9.5
Merck & Co., Inc. 6.3
Amgen, Inc. 4.8
Eli Lilly & Co. 4.5
Abbott Laboratories 3.8
Medtronic, Inc. 3.3
Bristol-Myers Squibb Co. 3.2
Wyeth 3.1
UnitedHealth Group Inc. 2.3
- ---------------------------------------------------
Top Ten 57.3%
- ---------------------------------------------------
"Ten Largest Holdings" excludes any temporary cash investments and equity index
products.
*MSCI US IMI/Financials.
**Wilshire 5000 Index.
Annualized.
- ---------------------------------------------------
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
Citigroup, Inc. 9.5%
American International Group, Inc. 6.0
Bank of America Corp. 4.4
Wells Fargo & Co. 3.6
J.P. Morgan Chase & Co. 3.1
Fannie Mae 2.7
Wachovia Corp. 2.3
American Express Co. 2.3
Bank One Corp. 2.2
Morgan Stanley 2.1
- ---------------------------------------------------
Top Ten 38.2%
- ---------------------------------------------------
"Ten Largest Holdings" excludes any temporary cash investments and equity index
products.
*MSCI US IMI/Health Care.
**Wilshire 5000 Index.
Annualized.
6
INFORMATION TECHNOLOGY INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
TARGET BROAD
FUND INDEX* INDEX**
- --------------------------------------------------------------------------------
Number of Stocks 460 459 5,179
Median Market Cap $42.7B $42.7B $29.1B
Price/Earnings Ratio 44.3x 44.1x 23.5x
Price/Book Ratio 4.2x 4.2x 3.2x
Yield 0.1% 0.3% 1.5%
Return on Equity 17.4% 17.4% 15.7%
Earnings Growth Rate 1.5% 1.5% 5.4%
Foreign Holdings 0.5% 0.5% 0.9%
Turnover Rate 9% - -
Expense Ratio 0.28% - -
Short-Term Reserves 0% - -
- --------------------------------------------------------------------------------
MATERIALS INDEX FUND
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
TARGET BROAD
FUND INDEX* INDEX**
- --------------------------------------------------------------------------------
Number of Stocks 116 116 5,179
Median Market Cap $11.0B $11.0B $29.1B
Price/Earnings Ratio 38.6x 38.5x 23.5x
Price/Book Ratio 2.9x 2.9x 3.2x
Yield 1.9% 1.5%
Admiral Shares 1.7%
VIPER Shares 1.7%
Return on Equity 9.3% 9.3% 15.7%
Earnings Growth Rate -6.5% -6.5% 5.4%
Foreign Holdings 0.0% 0.0% 0.9%
Turnover Rate 8% _ -
Expense Ratio _ -
Admiral Shares 0.28%
VIPER Shares 0.28%
Short-Term Reserves 0% - -
- --------------------------------------------------------------------------------
- ---------------------------------------------------
SECTOR DIVERSIFICATION (% OF PORTFOLIO)
Communications Technology 18%
Computer Services Software & Systems 26
Computer Technology 21
Consumer Electronics 2
Electronics 1
Electronics-Semiconductors/Components 20
Electronics-Technology 1
Financial Data Processing Services 5
Identification Control & Filter Devices 1
Office Furniture & Business Equipment 1
Production Technical Equipment 3
Services-Commercial 1
- ---------------------------------------------------
- ---------------------------------------------------
SECTOR DIVERSIFICATION (% OF PORTFOLIO)
Agriculture-Fish & Ranch 2%
Aluminum 9
Building-Cement 1
Building Materials 2
Chemicals 40
Coal 2
Consumer Products 1
Container & Package-Metal & Glass 1
Container & Package-Paper & Plastics 6
Copper 4
Diversified Manufacturing 2
Fertilizers 1
Forest Products 7
Gold 5
Metals & Minerals Miscellaneous 1
Paints & Coating 4
Paper 8
Steel 4
- ---------------------------------------------------
- ---------------------------------------------------
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
Microsoft Corp. 11.5%
Intel Corp. 9.0
International Business Machines Corp. 7.8
Cisco Systems, Inc. 7.5
Dell Inc. 3.5
Hewlett-Packard Co. 3.1
Texas Instruments, Inc. 2.5
QUALCOMM Inc. 2.4
Oracle Corp. 2.4
Motorola, Inc. 2.0
- ---------------------------------------------------
Top Ten 51.7%
- ---------------------------------------------------
"Ten Largest Holdings" excludes any temporary cash investments and equity index
products.
*MSCI US IMI/Materials.
**Wilshire 5000 Index.
Annualized.
- ---------------------------------------------------
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
E.I. du Pont de Nemours & Co. 11.8%
Dow Chemical Co. 10.5
Alcoa Inc. 8.5
International Paper Co. 5.3
Newmont Mining Corp. (Holding Co.) 4.9
Weyerhaeuser Co. 3.7
Praxair, Inc. 3.1
Air Products & Chemicals, Inc. 2.9
PPG Industries, Inc. 2.6
Monsanto Co. 2.3
- ---------------------------------------------------
Top Ten 55.6%
- ---------------------------------------------------
"Ten Largest Holdings" excludes any temporary cash investments and equity index
products.
*MSCI US IMI/Information Technology.
**Wilshire 5000 Index.
Annualized.
VISIT OUR WEBSITE AT VANGUARD.COM
FOR REGULARLY UPDATED FUND INFORMATION.
7
FUND PROFILES (CONTINUED)
UTILITIES INDEX FUND
- -----------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
TARGET BROAD
FUND INDEX* INDEX**
- -----------------------------------------------------------------------------
Number of Stocks 94 94 5,179
Median Market Cap $8.6B $8.6B $29.1B
Price/Earnings Ratio 16.0x 16.0x 23.5x
Price/Book Ratio 1.7x 1.7x 3.2x
Yield 3.1% 3.7% 1.5%
Return on Equity 12.8% 12.8% 15.7%
Earnings Growth Rate 3.8% 3.8% 5.4%
Foreign Holdings 0.0% 0.0% 0.9%
Turnover Rate 4% - -
Expense Ratio 0.28% - -
Short-Term Reserves 0% - -
- -----------------------------------------------------------------------------
- ---------------------------------------------------
SECTOR DIVERSIFICATION (% OF PORTFOLIO)
Energy Miscellaneous 1%
Utilities-Electrical 83
Utilities-Gas Distribution 11
Utilities-Gas Pipelines 3
Utilities-Water 1
Utilities-Miscellaneous 1
- ---------------------------------------------------
- ---------------------------------------------------
TEN LARGEST HOLDINGS (% OF TOTAL NET ASSETS)
Southern Co. 5.8%
Exelon Corp. 5.7
Dominion Resources, Inc. 5.3
Duke Energy Corp. 5.2
Entergy Corp. 3.6
American Electric Power Co., Inc. 3.6
FirstEnergy Corp. 3.3
PG&E Corp. 3.1
FPL Group, Inc. 3.0
Public Service Enterprise Group, Inc. 2.9
- ---------------------------------------------------
Top Ten 41.5%
- ---------------------------------------------------
"Ten Largest Holdings" excludes any temporary cash investments and equity index
products.
*MSCI USIMI/Utilities.
**Wilshire 5000 Index.
Annualized.
8
GLOSSARY OF INVESTMENT TERMS
EARNINGS GROWTH RATE. The average annual rate of growth in earnings over the
past five years for the stocks now in a fund.
- --------------------------------------------------------------------------------
EXPENSE RATIO. The percentage of a fund's average net assets used to pay its
annual administrative and advisory expenses. These expenses directly reduce
returns to investors.
- --------------------------------------------------------------------------------
FOREIGN HOLDINGS. The percentage of a fund's equity assets represented by stocks
or depositary receipts of companies based outside the United States.
- --------------------------------------------------------------------------------
MEDIAN MARKET CAP. An indicator of the size of companies in which a fund
invests; the midpoint of market capitalization (market price x shares
outstanding) of a fund's stocks, weighted by the proportion of the fund's assets
invested in each stock. Stocks representing half of the fund's assets have
market capitalizations above the median, and the rest are below it.
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO. The share price of a stock divided by its net worth, or book
value, per share. For a fund, the weighted average price/book ratio of the
stocks it holds.
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO. The ratio of a stock's current price to its per-share
earnings over the past year. For a fund, the weighted average P/E of the stocks
it holds. P/E is an indicator of market expectations about corporate prospects;
the higher the P/E, the greater the expectations for a company's future growth.
- --------------------------------------------------------------------------------
RETURN ON EQUITY. The annual average rate of return generated by a company
during the past five years for each dollar of shareholder's equity (net income
divided by shareholder's equity). For a fund, the weighted average return on
equity for the companies whose stocks it holds.
- --------------------------------------------------------------------------------
SHORT-TERM RESERVES. The percentage of a fund invested in highly liquid,
short-term securities that can be readily converted to cash.
- --------------------------------------------------------------------------------
TURNOVER RATE. An indication of the fund's trading activity. Funds with high
turnover rates incur higher transaction costs and may be more likely to
distribute capital gains (which may be taxable to investors).
- --------------------------------------------------------------------------------
YIELD. A snapshot of a fund's income from interest and dividends. The yield,
expressed as a percentage of the fund's net asset value, is based on income
earned over the past 30 days and is annualized, or projected forward for the
coming year. The index yield is based on the current annualized rate of income
provided by securities in the index.
- --------------------------------------------------------------------------------
9
AS OF 2/29/2004
PERFORMANCE SUMMARY
All of the returns in this report represent past performance, which is not a
guarantee of future results that may be achieved by the funds. (For the most
recent performance, which may be higher or lower than that cited, visit our
website at www.vanguard.com.) Note, too, that both investment returns
and principal value can fluctuate widely, so an investor's shares, when sold,
could be worth more or less than their original cost. The returns shown do not
reflect taxes that a shareholder would pay on fund distributions or on the sale
of fund shares.
- --------------------------------------------------------------------------------
FISCAL-PERIOD TOTAL RETURNS* (%) PERIODS ENDING FEBRUARY 29, 2004
INDEX
SINCE TOTAL
FUND INCEPTION** RETURNS
- --------------------------------------------------------------------------------
Consumer Discretionary Index Fund
VIPER Shares -0.6%
Market Price -0.6%
Net Asset Value -0.6
- --------------------------------------------------------------------------------
Consumer Staples Index Fund
Admiral Shares 5.4% 5.4%
VIPER Shares 5.0
Market Price 5.0
Net Asset Value 4.9
- --------------------------------------------------------------------------------
Financials Index Fund
Admiral Shares 3.1% 3.1%
VIPER Shares 1.3
Market Price 1.3
Net Asset Value 1.3
- --------------------------------------------------------------------------------
Health Care Index Fund
Admiral Shares -0.3% -0.3%
VIPER Shares -0.2
Market Price 0.0
Net Asset Value -0.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INDEX
SINCE TOTAL
FUND INCEPTION** RETURNS
- --------------------------------------------------------------------------------
Information Technology Index Fund
VIPER Shares -7.1%
Market Price -7.0%
Net Asset Value -7.1
- --------------------------------------------------------------------------------
Materials Index Fund
Admiral Shares 0.3% 0.3%
VIPER Shares 4.2
Market Price 4.2
Net Asset Value 4.2
- --------------------------------------------------------------------------------
Utilities Index Fund
VIPER Shares 2.1%
Market Price 1.9%
Net Asset Value 2.0
- --------------------------------------------------------------------------------
* Returns do not reflect the 2% fee on sales of shares held for less than one
year.
** Forall funds' VIPER Shares, the inception date is January 26, 2004. For the
Admiral Shares, inception dates are: Consumer Staples Index Fund, January
30, 2004; Financials Index Fund, February 4, 2004; Health Care Index Fund,
February 5, 2004; Materials Index Fund, February 11, 2004.
+ Index returns are for the same periods as the relevant fund returns.
Indexes are: for the Consumer Discretionary Index Fund, MSCI US
IMI/Consumer Discretionary; for the Consumer Staples Index Fund, MSCI US
IMI/Consumer Staples; for the Financials Index Fund, MSCI US
IMI/Financials; for the Health Care Index Fund, MSCI US IMI/Health Care;
for the Information Technology Index Fund, MSCI US IMI/Information
Technology; for the Materials Index Fund, MSCI US IMI/Materials; for the
Utilities Index Fund, MSCI US IMI/Utilities.
Note: See Financial Highlights tables on pages 37 through 40 for dividend and
capital gains information.
10
AS OF 2/29/2004 FINANCIAL STATEMENTS (UNAUDITED)
STATEMENT OF NET ASSETS
This Statement provides a detailed list of each fund's holdings, including each
security's market value on the last day of the reporting period. Securities are
grouped and subtotaled by asset type (common stocks, bonds, etc.) and by
industry sector. Other assets are added to, and liabilities are subtracted from,
the value of Total Investments to calculate the fund's Net Assets. Finally, Net
Assets are divided by the outstanding shares of the fund to arrive at its share
price, or Net Asset Value (NAV) Per Share.
At the end of the Statement of Net Assets, you will find a table displaying the
composition of the fund's net assets. Because all income and any realized gains
must be distributed to shareholders each year, the bulk of net assets consists
of Paid-in Capital (money invested by shareholders). The amounts shown for
Undistributed Net Investment Income and Accumulated Net Realized Gains usually
approximate the sums the fund had available to distribute to shareholders as
income dividends or capital gains as of the statement date, but may differ
because certain investments or transactions may be treated differently for
financial statement and tax purposes. Any Accumulated Net Realized Losses, and
any cumulative excess of distributions over net income or net realized gains,
will appear as negative balances. Unrealized Appreciation (Depreciation) is the
difference between the market value of the fund's investments and their cost,
and reflects the gains (losses) that would be realized if the fund were to sell
all of its investments at their statement-date values.
- --------------------------------------------------------------------------------
MARKET
VALUE*
CONSUMER DISCRETIONARY INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (100.0%)
- --------------------------------------------------------------------------------
ADVERTISING AGENCIES (2.1%)
Omnicom Group Inc. 2,496 $ 204
* Interpublic Group of Cos., Inc. 5,438 92
* Lamar Advertising Co. Class A 1,104 44
Harte-Hanks, Inc. 802 18
* R.H. Donnelley Corp. 407 18
ADVO, Inc. 392 13
* Catalina Marketing Corp. 616 11
Grey Global Group Inc. 12 8
----------------
$ 408
----------------
AUTO PARTS-AFTERMARKET (0.5%)
Genuine Parts Co. 2,280 79
Superior Industries International, Inc. 281 10
* TBC Corp. 252 7
* Keystone Automotive Industries, Inc. 172 5
* Aftermarket Technology Corp. 161 2
* Raytech Corp. 84 -
----------------
$ 103
----------------
AUTO PARTS-ORIGINAL EQUIPMENT (1.4%)
Delphi Corp. 6,676 68
Lear Corp. 887 55
Dana Corp. 1,948 42
BorgWarner, Inc. 360 32
* American Axle & Manufacturing Holdings, Inc. 586 22
ArvinMeritor, Inc. 792 18
Visteon Corp. 1,712 17
* Tenneco Automotive, Inc. 472 6
* Tower Automotive, Inc. 652 4
* Strattec Security Corp. 44 3
* Dura Automotive Systems, Inc. 192 2
* Stoneridge, Inc. 160 2
* Collins & Aikman Corp. 268 1
----------------
$ 272
----------------
AUTO TRUCKS & Parts (0.3%)
Gentex Corp. 955 39
Modine Manufacturing Co. 359 10
* TRW Automotive Holdings Corp. 400 10
----------------
$ 59
----------------
AUTOMOBILES (3.1%)
Ford Motor Co. 23,060 317
General Motors Corp. 6,248 301
----------------
$ 618
----------------
BUILDING MATERIALS
Building Materials Holding Corp. 152 3
----------------
CABLE TELEVISION SERVICES (2.5%)
* Liberty Media Corp. 31,712 362
* EchoStar Communications Corp. Class A 3,240 117
* Charter Communications, Inc. 3,704 17
* Insight Communications Co., Inc. 588 6
* TiVo Inc. 488 5
----------------
$ 507
----------------
CASINOS & Gambling (2.6%)
International Game Technology 4,523 177
Harrah's Entertainment, Inc. 1,448 75
GTECH Holdings Corp. 788 46
* Caesars Entertainment, Inc. 3,592 44
* MGM Mirage, Inc. 932 41
Mandalay Resort Group 685 35
Station Casinos, Inc. 549 21
* Multimedia Games Inc. 310 13
* Scientific Games Corp. 696 12
* Argosy Gaming Co. 336 10
* Aztar Corp. 448 10
* Shuffle Master, Inc. 217 9
Boyd Gaming Corp. 440 9
* WMS Industries, Inc. 244 6
* Isle of Capri Casinos, Inc. 194 4
* Ameristar Casinos, Inc. 157 4
Churchill Downs, Inc. 87 3
* MTR Gaming Group Inc. 320 3
Dover Downs Gaming & Entertainment, Inc. 120 1
----------------
$ 523
----------------
COMMERCIAL INFORMATION SERVICES (0.1%)
* ProQuest Co. 328 $ 10
----------------
COMMUNICATIONS & MEDIA (5.0%)
* Time Warner, Inc. 56,988 983
* Gemstar-TV Guide International, Inc. 2,320 17
* Entravision Communications Corp. 560 5
----------------
$ 1,005
----------------
CONSUMER ELECTRONICS (0.4%)
Harman International Industries, Inc. 819 64
* NetFlix.com, Inc. 325 11
* Alloy, Inc. 480 3
----------------
$ 78
----------------
CONSUMER PRODUCTS (0.6%)
Snap-On Inc. 776 25
* The Yankee Candle Co., Inc. 667 19
* American Greetings Corp. Class A 808 18
Blyth, Inc. 428 15
Tupperware Corp. 676 13
* Jarden Corp. 325 12
The Nautilus Group, Inc. 376 6
Oakley, Inc. 356 5
* RC2 Corp. 200 5
11
- --------------------------------------------------------------------------------
MARKET
VALUE*
CONSUMER DISCRETIONARY INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
CSS Industries, Inc. 101 $ 3
* The Boyds Collection, Ltd. 184 1
----------------
$ 122
----------------
COSMETICS (0.1%)
* Helen of Troy Ltd. 328 $ 10
----------------
ELECTRICAL-HOUSEHOLD APPLIANCES (0.5%)
Whirlpool Corp. 901 66
Maytag Corp. 1,008 28
National Presto Industries, Inc. 80 3
----------------
$ 97
----------------
ENTERTAINMENT (8.4%)
Viacom Inc. Class B 20,120 774
The Walt Disney Co. 26,796 711
* Fox Entertainment Group, Inc. Class A 2,517 73
* Pixar, Inc. 290 19
International Speedway Corp. 369 16
* Alliance Gaming Corp. 572 14
* Metro-Goldwyn-Mayer Inc. 716 12
* Gaylord Entertainment Co. 352 10
* Hollywood Entertainment Corp. 804 9
Regal Entertainment Group Class A 408 8
Movie Gallery, Inc. 376 8
Speedway Motorsports, Inc. 192 6
* AMC Entertainment, Inc. 388 6
* Boca Resorts, Inc. Class A 252 4
---------------
$ 1,670
----------------
FINANCIAL INFORMATION SERVICES (0.2%)
Dow Jones & Co., Inc. 638 31
* Interactive Data Corp. 368 6
----------------
$ 37
----------------
FOREST PRODUCTS (0.2%)
Boise Cascade Corp. 1,100 $ 37
----------------
HOME BUILDING (2.8%)
Centex Corp. 812 87
D. R. Horton, Inc. 2,627 84
Lennar Corp. Class A 1,641 81
Pulte Homes, Inc. 1,373 72
KB HOME 516 37
* NVR, Inc. 79 37
* Toll Brothers, Inc. 718 32
Ryland Group, Inc. 324 28
MDC Holdings, Inc. 289 20
Standard Pacific Corp. 376 20
Beazer Homes USA, Inc. 175 19
* Hovnanian Enterprises Inc. Class A 210 17
* Meritage Corp. 129 10
M/I Homes, Inc. 133 6
* William Lyon Homes, Inc. 57 5
----------------
$ 555
----------------
HOTEL/MOTEL (1.8%)
Marriott International, Inc. Class A 2,576 115
Starwood Hotels & Resorts Worldwide, Inc. 2,651 103
Hilton Hotels Corp. 4,764 76
Extended Stay America, Inc. 1,096 17
* Wynn Resorts Ltd. 432 16
Choice Hotel International, Inc. 257 11
* Prime Hospitality Corp. 516 6
Orient-Express Hotel Ltd. 264 5
The Marcus Corp. 232 4
----------------
$ 353
----------------
HOUSEHOLD EQUIPMENT & PRODUCTS (0.5%)
Black & Decker Corp. 1,019 53
The Stanley Works 1,062 41
----------------
$ 94
----------------
HOUSEHOLD FURNISHINGS (1.4%)
Newell Rubbermaid, Inc. 3,597 92
Leggett & Platt, Inc. 2,424 59
* Mohawk Industries, Inc. 697 58
Furniture Brands International Inc. 695 23
Ethan Allen Interiors, Inc. 464 20
La-Z-Boy Inc. 632 14
* Select Comfort Corp. 331 9
Libbey, Inc. 156 4
Haverty Furniture Cos., Inc. 200 4
* Bombay Co. 404 3
* Kirkland's, Inc. 20 -
----------------
$ 286
----------------
IDENTIFICATION CONTROL & FILTER DEVICES (0.2%)
Garmin Ltd. 637 29
----------------
JEWELRY, WATCHES & GEMS (0.5%)
Tiffany & Co. 1,922 81
* Fossil, Inc. 336 12
Movado Group, Inc. 100 3
----------------
96
----------------
LEISURE TIME (1.5%)
Carnival Corp. 4,954 220
* SCP Pool Corp. 464 17
Callaway Golf Co. 872 16
* Penn National Gaming, Inc. 416 11
* Six Flags, Inc. 1,272 9
* K2 Inc. 380 7
* West Marine, Inc. 170 5
Sturm, Ruger & Co., Inc. 312 4
* Steiner Leisure Ltd. 188 3
Action Performance Cos., Inc. 208 3
* Bally Total Fitness Holding Corp. 392 2
* Vail Resorts Inc. 120 2
----------------
299
----------------
MANUFACTURED HOUSING (0.1%)
* Champion Enterprises, Inc. 764 8
Skyline Corp. 96 4
* Palm Harbor Homes, Inc. 135 3
----------------
15
----------------
MISCELLANEOUS BUSINESS & CONSUMER DISCRETIONARY (0.3%)
E.W. Scripps Co. Class A 533 52
----------------
MULTI-SECTOR COMPANIES (1.6%)
Johnson Controls, Inc. 2,347 137
Fortune Brands, Inc. 1,901 136
Brunswick Corp. 1,200 47
----------------
320
----------------
OFFICE FURNITURE & BUSINESS EQUIPMENT
Kimball International, Inc. Class B 280 5
----------------
PAINTS & COATING (0.3%)
Sherwin-Williams Co. 1,624 57
----------------
PHOTOGRAPHY (0.5%)
Eastman Kodak Co. 3,757 107
----------------
PUBLISHING-MISCELLANEOUS (1.4%)
The McGraw-Hill Cos., Inc. 2,512 196
Meredith Corp. 501 25
Reader's Digest Association, Inc. 1,340 18
* Scholastic Corp. 436 14
John Wiley & Sons Class A 465 12
Courier Corp. 92 4
* PRIMEDIA Inc. 1,300 4
* Martha Stewart Living Omnimedia, Inc. 224 3
* Information Holdings Inc. 140 3
* Playboy Enterprises, Inc. Class B 160 2
Advanced Marketing Services 220 2
----------------
283
----------------
12
- --------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- --------------------------------------------------------------------------------
PUBLISHING-NEWSPAPERS (4.0%)
Gannett Co., Inc. 3,553 307
Tribune Co. 2,865 143
New York Times Co. Class A 1,942 89
Knight Ridder 1,047 78
Washington Post Co. Class B 72 64
Belo Corp. Class A 1,220 34
Lee Enterprises, Inc. 462 21
The McClatchy Co. Class A 259 18
Media General, Inc. Class A 264 17
Hollinger International, Inc. 828 15
* Journal Register Co. 476 10
Pulitzer, Inc. 88 5
----------------
801
----------------
RADIO & TELEVISION BROADCASTERS (4.3%)
Clear Channel Communications, Inc. 6,859 295
* Hughes Electronics Corp. 9,068 157
* Univision Communications Inc. 2,992 107
* XM Satellite Radio Holdings, Inc. 2,284 56
* Sirius Satellite Radio, Inc. 12,684 37
* Westwood One, Inc. 1,041 32
* Entercom Communications Corp. 525 24
* Emmis Communications, Inc. 672 17
* Radio One, Inc. Class D 750 14
* Cumulus Media Inc. 684 14
* Citadel Broadcasting Corp. 720 13
* Cox Radio, Inc. 519 11
Liberty Corp. 224 11
Hearst-Argyle Television Inc. 337 9
Gray Television, Inc. 604 8
* Lin TV Corp. 349 8
* Sinclair Broadcast Group, Inc. 608 8
* Spanish Broadcasting System, Inc. 528 6
* Radio One, Inc. 260 5
* Young Broadcasting Inc. 204 4
* Fisher Communications, Inc. 73 4
* Regent Communications, Inc. 536 4
* Paxson Communications Corp. 688 3
* Salem Communications Corp. 108 3
* Saga Communications, Inc. 112 2
* Beasley Broadcast Group, Inc. 88 2
----------------
854
----------------
REAL ESTATE (0.1%)
* WCI Communities, Inc. 371 9
Brookfield Homes Corp. 223 6
----------------
15
----------------
REAL ESTATE INVESTMENT TRUSTS (0.1%)
* La Quinta Corp. REIT 2,204 17
----------------
RECREATIONAL VEHICLES & BOATS (1.4%)
Harley-Davidson, Inc. 3,972 211
Polaris Industries, Inc. 285 24
Thor Industries, Inc. 464 14
Winnebago Industries, Inc. 166 11
* Monaco Coach Corp. 336 10
* Fleetwood Enterprises, Inc. 507 7
Arctic Cat, Inc. 164 4
Coachmen Industries, Inc. 180 3
----------------
284
----------------
Rent & Lease Services-Consumer (0.2%)
* Rent-A-Center, Inc. 848 28
Aaron Rents, Inc. Class B 312 7
* Wesco International, Inc. 168 2
----------------
37
----------------
RESTAURANTS (6.6%)
McDonald's Corp. 16,637 471
* Starbucks Corp. 5,120 191
* Yum! Brands, Inc. 3,856 143
Wendy's International, Inc. 1,412 57
Darden Restaurants Inc. 2,053 50
* Brinker International, Inc. 1,267 48
Outback Steakhouse 834 40
Applebee's International, Inc. 744 30
* The Cheesecake Factory 644 30
Ruby Tuesday, Inc. 852 27
CBRL Group, Inc. 664 25
* Krispy Kreme Doughnuts, Inc. 632 24
* CEC Entertainment Inc. 338 18
* Sonic Corp. 515 17
Bob Evans Farms, Inc. 458 15
* P.F. Chang's China Bistro, Inc. 317 15
* Panera Bread Co. 368 14
* Rare Hospitality International Inc. 441 13
* Jack in the Box Inc. 472 12
* Ryan's Family Steak Houses, Inc. 588 10
IHOP Corp. 265 10
Landry's Restaurants, Inc. 320 10
Lone Star Steakhouse & Saloon, Inc. 240 7
* Steak n Shake Co. 312 6
* Papa John's International, Inc. 165 6
* CKE Restaurants Inc. 664 6
* Red Robin Gourmet Burgers 146 5
* O'Charley's Inc. 240 4
* California Pizza Kitchen, Inc. 220 4
Triarc Cos., Inc. Class B 356 4
Triarc Cos., Inc. Class A 228 3
----------------
1,315
----------------
RETAIL (29.0%)
Home Depot, Inc. 29,825 1,083
Lowe's Cos., Inc. 9,756 546
Target Corp. 11,332 498
* Kohl's Corp. 4,024 207
Best Buy Co., Inc. 3,606 192
The Gap, Inc. 8,220 171
* Amazon.com, Inc. 3,943 170
* Staples, Inc. 6,468 170
* Bed Bath & Beyond, Inc. 3,882 159
TJX Cos., Inc. 6,597 155
Sears, Roebuck & Co. 3,161 148
May Department Stores Co. 3,594 127
Federated Department Stores, Inc. 2,412 126
Limited Brands, Inc. 5,772 114
J.C. Penney Co., Inc. (Holding Co.) 3,579 110
* AutoZone Inc. 928 83
Dollar General Corp. 3,755 82
Family Dollar Stores, Inc. 2,034 77
* Office Depot, Inc. 4,080 71
RadioShack Corp. 2,044 71
Ross Stores, Inc. 1,993 64
Nordstrom, Inc. 1,351 53
PETsMART, Inc. 1,872 51
Foot Locker, Inc. 1,865 49
* Chico's FAS, Inc. 1,100 47
* CarMax, Inc. 1,358 46
* Dollar Tree Stores, Inc. 1,432 44
* Toys R Us, Inc. 2,797 44
Michaels Stores, Inc. 878 42
* Williams-Sonoma, Inc. 1,301 42
* Abercrombie & Fitch Co. 1,268 40
* AutoNation, Inc. 2,344 39
Circuit City Stores, Inc. 2,616 29
Pier 1 Imports Inc. 1,166 27
* AnnTaylor Stores Corp. 591 27
* Advance Auto Parts, Inc. 673 27
* Barnes & Noble, Inc. 742 26
* O'Reilly Automotive, Inc. 624 25
* Pacific Sunwear of California, Inc. 1,026 25
Borders Group, Inc. 1,015 24
13
- --------------------------------------------------------------------------------
MARKET
VALUE*
CONSUMER DISCRETIONARY INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
* Saks Inc. 1,384 24
* Big Lots Inc. 1,552 22
Claire's Stores, Inc. 1,068 22
The Neiman Marcus Group, Inc. Class A 380 21
* Linens On Things, Inc. 612 21
* Zale Corp. 359 21
* Hot Topic, Inc. 648 19
* American Eagle Outfitters, Inc. 700 17
* Tractor Supply Co. 391 17
Dillard's Inc. 916 16
* Kmart Holding Corp. 529 16
* 99 Cents Only Stores 567 15
* Urban Outfitters, Inc. 312 14
* PETCO Animal Supplies, Inc. 414 13
* Aeropostale, Inc. 369 13
Fred's, Inc. 452 13
* CSK Auto Corp. 636 12
* Payless ShoeSource, Inc. 892 12
* Tuesday Morning Corp. 348 11
* Insight Enterprises, Inc. 536 11
Talbots Inc. 334 11
* Cost Plus, Inc. 285 11
* Men's Wearhouse, Inc. 413 11
* Dick's Sporting Goods, Inc. 184 11
* The Sports Authority, Inc. 255 11
Christopher & Banks Corp. 532 10
* Charming Shoppes, Inc. 1,508 10
The Neiman Marcus Group, Inc. Class B 183 10
* Too Inc. 496 10
* Group 1 Automotive, Inc. 260 9
Blockbuster Inc. Class A 516 9
Sonic Automotive, Inc. 336 8
Brown Shoe Co., Inc. 208 8
* Guitar Center, Inc. 219 8
* Stage Stores, Inc. 220 8
United Auto Group, Inc. 272 8
Handleman Co. 326 7
* Hibbett Sporting Goods, Inc. 202 7
* Priceline.com, Inc. 301 7
* Jo-Ann Stores, Inc. 248 7
* ShopKo Stores, Inc. 436 7
* Big 5 Sporting Goods Corp. 264 7
* The Gymboree Corp. 444 7
* Sharper Image Corp. 176 6
* The Dress Barn, Inc. 336 6
Cato Corp. Class A 260 5
* The Children's Place Retail Stores, Inc. 175 5
* Genesco, Inc. 252 5
Russ Berrie and Co., Inc. 140 5
* Electronics Boutique Holdings Corp. 178 5
* MarineMax, Inc. 180 5
* ValueVision Media, Inc. 282 5
Lithia Motors, Inc. 168 5
* GameStop Corp. 232 4
* Cole National Corp. Class A 188 4
Burlington Coat Factory Warehouse Corp. 216 4
* A.C. Moore Arts & Crafts, Inc. 178 4
Hancock Fabrics, Inc. 216 4
* J. Jill Group, Inc. 228 4
* Blue Rhino Corp. 204 3
* Stein Mart, Inc. 284 3
* 1-800-FLOWERS.COM, Inc. 328 3
* Tweeter Home Entertainment Group, Inc. 276 3
* Asbury Automotive Group, Inc. 170 3
Stamps.com Inc. 516 3
* Drugstore.com, Inc. 500 3
* Party City Corp. 188 3
The Buckle, Inc. 111 3
* PC Connection, Inc. 288 2
Blair Corp. 92 2
* The Wet Seal, Inc. Class A 292 2
* Charlotte Russe Holding Inc. 144 2
* bebe stores, inc 68 2
* barnesandnoble.com inc 560 2
* Restoration Hardware, Inc. 348 2
* Mothers Work, Inc. 60 2
Deb Shops, Inc. 60 1
* GSI Commerce, Inc. 68 1
----------------
5,784
----------------
SERVICES-COMMERCIAL (3.6%)
* eBay Inc. 5,928 408
* InterActiveCorp 6,361 207
* Getty Images, Inc. 548 28
Regis Corp. 544 24
* Weight Watchers International, Inc. 536 20
The Pep Boys (Manny, Moe & Jack) 654 15
* Harris Interactive Inc. 620 5
* 4Kids Entertainment Inc. 152 4
UniFirst Corp. 104 3
* Navigant International, Inc. 164 3
----------------
717
----------------
SHOES (1.2%)
NIKE, Inc. Class B 2,158 158
Reebok International Ltd. 618 25
* Timberland Co. 257 16
Wolverine World Wide, Inc. 564 13
K-Swiss, Inc. 336 8
* Finish Line, Inc. 228 8
The Stride Rite Corp. 556 7
Kenneth Cole Productions, Inc. 132 4
* Steven Madden, Ltd. 152 3
* Skechers U.S.A., Inc. 216 3
* Shoe Carnival, Inc. 48 1
----------------
246
----------------
TEXTILE PRODUCTS
* Interface, Inc. 508 4
* Unifi, Inc. 624 3
----------------
7
----------------
TEXTILE-APPAREL MANUFACTURING (1.9%)
* Coach, Inc. 2,433 96
Jones Apparel Group, Inc. 1,664 62
Liz Claiborne, Inc. 1,430 53
VF Corp. 1,133 51
Polo Ralph Lauren Corp. 568 19
* Tommy Hilfiger Corp. 1,148 19
Kellwood Co. 350 15
* Quiksilver, Inc. 740 15
* The Warnaco Group, Inc. 620 11
* Columbia Sportswear Co. 184 10
Oxford Industries, Inc. 188 8
Phillips-Van Heusen Corp. 298 6
Russell Corp. 276 5
Oshkosh B' Gosh, Inc. Class A 112 2
* Guess ?, Inc. 100 2
----------------
374
----------------
TIRES & RUBBER (0.2%)
* The Goodyear Tire & Rubber Co. 2,028 17
Cooper Tire & Rubber Co. 852 17
Bandag, Inc. 84 4
Bandag, Inc. Class A 67 3
----------------
41
----------------
TOYS (0.9%)
Mattel, Inc. 5,635 107
Hasbro, Inc. 2,058 45
* Marvel Enterprises Inc. 613 21
* Leapfrog Enterprises, Inc. 304 8
* JAKKS Pacific, Inc. 284 4
----------------
185
----------------
14
- --------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- --------------------------------------------------------------------------------
UTILITIES-CABLE TELEVISION & RADIO (5.3%)
* Comcast Corp. Class A 16,895 $508
* Comcast Corp. Special Class A 11,599 339
* Cox Communications, Inc. Class A 2,720 88
* Cablevision Systems NY Group Class A 2,878 73
* UnitedGlobalCom Inc. Class A 4,692 45
* Mediacom Communications Corp. 736 6
----------------
1,059
----------------
UTILITIES-TELECOMMUNICATIONS (0.3%)
* NTL Inc. 1,013 69
----------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost $20,037) 19,915
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
Other Assets-Note B 290
Liabilities (291)
----------------
(1)
----------------
- --------------------------------------------------------------------------------
NET ASSETS (100%) $19,914
================================================================================
(+)See Note A in Notes to Financial Statements.
*Non-income-producing security.
- --------------------------------------------------------------------------------
AMOUNT
(000)
- --------------------------------------------------------------------------------
AT FEBRUARY 29, 2004, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Paid-in Capital $20,044
Undistributed Net Investment Income 15
Accumulated Net Realized Losses (23)
Unrealized Depreciation (122)
- --------------------------------------------------------------------------------
NET ASSETS $19,914
================================================================================
VIPER Shares-Net Assets
Applicable to 400,000 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $19,914
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE-
VIPER SHARES $49.79
================================================================================
See Note C in Notes to Financial Statements for the tax-basis components of net
assets.
15
- --------------------------------------------------------------------------------
MARKET
VALUE*
CONSUMER STAPLES INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (100.7%)
- --------------------------------------------------------------------------------
AGRICULTURE-FISH & RANCH (0.3%)
Delta & Pine Land Co. 1,544 39
Alico, Inc. 688 26
----------------
65
----------------
BEVERAGE-BREWERS & WINERIES (4.8%)
Anheuser-Busch Cos., Inc. 16,064 855
* Constellation Brands, Inc. Class A 2,484 79
Adolph Coors Co. Class B 848 57
* Robert Mondavi Corp. Class A 744 28
* Boston Beer Co., Inc. Class A 1,372 24
----------------
1,043
----------------
BEVERAGE-DISTILLERS (0.3%)
Brown-Forman Corp. Class B 1,252 61
----------------
Beverage-Soft Drinks (15.5%)
The Coca-Cola Co. 34,016 1,699
PepsiCo, Inc. 25,032 1,299
Coca-Cola Enterprises, Inc. 5,752 134
The Pepsi Bottling Group, Inc. 4,108 119
PepsiAmericas, Inc. 2,832 54
Coca-Cola Bottling Co. 520 27
* Peet's Coffee & Tea Inc. 1,320 27
----------------
3,359
----------------
CHEMICALS (0.4%)
* Energizer Holdings, Inc. 1,956 91
----------------
CONSUMER PRODUCTS (7.1%)
Gillette Co. 19,008 732
Kimberly-Clark Corp. 10,008 647
Alberto-Culver Co. 1,862 76
* USANA Health Sciences, Inc. 924 28
The Topps Co., Inc. 2,932 27
* Playtex Products, Inc. 3,900 25
----------------
1,535
----------------
COSMETICS (2.7%)
Avon Products, Inc. 4,852 343
Estee Lauder Cos. Class A 2,636 112
Nu Skin Enterprises, Inc. 1,964 38
* Elizabeth Arden, Inc. 1,568 30
* Del Laboratories, Inc. 784 26
* Revlon, Inc. Class A 6,676 23
----------------
572
----------------
DRUG & GROCERY STORE CHAINS (10.8%)
Walgreen Co. 20,284 723
CVS Corp. 8,140 305
* The Kroger Co. 14,672 282
* Safeway, Inc. 9,448 216
Albertson's, Inc. 7,548 187
Whole Foods Market, Inc. 1,512 117
SuperValu Inc. 3,364 95
* Rite Aid Corp. 13,760 77
Casey's General Stores, Inc. 2,112 36
Ruddick Corp. 1,780 36
* 7-Eleven, Inc. 2,040 33
Winn-Dixie Stores, Inc. 5,308 32
Longs Drug Stores, Inc. 1,492 31
Weis Markets, Inc. 900 29
* Duane Reade Inc. 1,616 28
* Wild Oats Markets Inc. 2,092 27
* The Great Atlantic & Pacific Tea Co., Inc. 3,140 25
Ingles Markets, Inc. 2,064 23
Arden Group Inc. Class A 304 23
----------------
2,325
----------------
DRUGS & PHARMACEUTICALS (0.1%)
* Chattem, Inc. 1,228 28
----------------
FOODS (17.3%)
Sysco Corp. 13,044 517
Sara Lee Corp. 15,372 335
ConAgra Foods, Inc. 11,064 301
General Mills, Inc. 6,184 284
H.J. Heinz Co. 7,352 281
Kraft Foods Inc. 6,460 218
Kellogg Co. 5,312 210
Wm. Wrigley Jr. Co. 3,228 182
Hershey Foods Corp. 2,060 171
Campbell Soup Co. 5,132 144
* Dean Foods Co. 3,592 130
McCormick & Co., Inc. 3,104 97
Tyson Foods, Inc. 5,672 90
* Smithfield Foods, Inc. 2,548 65
J.M. Smucker Co. 1,284 65
* Del Monte Foods Co. 5,796 63
Hormel Foods Corp. 2,260 63
* NBTY, Inc. 1,532 51
* Performance Food Group Co. 1,444 51
Flowers Foods, Inc. 1,580 43
* Ralcorp Holdings, Inc. 1,260 40
* Chiquita Brands International, Inc. 1,676 38
Tootsie Roll Industries, Inc. 1,016 38
* American Italian Pasta Co. 876 36
Interstate Bakeries Corp. 2,240 34
* Hain Celestial Group, Inc. 1,516 33
* J & J Snack Foods Corp. 652 31
* International Multifoods Corp. 1,496 29
Pilgrim's Pride Corp. 1,396 28
Lance, Inc. 1,624 27
Riviana Foods, Inc. 896 25
Sanderson Farms, Inc. 598 21
----------------
3,741
----------------
MANUFACTURING (0.2%)
* Rayovac Corp. 1,452 38
----------------
METALS & MINERALS & COMMODITIES (0.2%)
WD-40 Co. 976 33
----------------
MILLING-FRUIT & GRAIN PRODUCERS (1.2%)
Archer-Daniels-Midland Co. 11,820 203
Corn Products International, Inc. 1,276 48
----------------
251
----------------
MISCELLANEOUS HEALTH CARE (0.2%)
* NeighborCare Inc. 1,512 39
----------------
MULTI-SECTOR COMPANIES (0.2%)
Lancaster Colony Corp. 1,068 45
----------------
RETAIL (15.4%)
Wal-Mart Stores, Inc. 47,588 2,834
* Costco Wholesale Corp. 9,344 364
* BJ's Wholesale Club, Inc. 2,268 54
* United Natural Foods, Inc. 804 37
* Central Garden and Pet Co. 1,000 35
----------------
3,324
----------------
SOAP & HOUSEHOLD CHEMICALS (13.4%)
The Procter & Gamble Co. 19,596 2,009
Colgate-Palmolive Co. 10,720 594
The Clorox Co. 3,476 171
Dial Corp. 2,656 76
Church & Dwight, Inc. 1,236 52
----------------
2,902
----------------
TOBACCO (10.5%)
Altria Group, Inc. 31,712 1,825
UST, Inc. 3,772 144
R.J. Reynolds Tobacco Holdings, Inc. 2,012 124
16
- --------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- --------------------------------------------------------------------------------
Carolina Group 1,824 $52
Universal Corp. (VA) 972 49
Vector Group Ltd. 1,512 27
Dimon Inc. 3,896 27
Standard Commercial Tobacco Co. 1,320 25
----------------
2,273
----------------
WHOLESALE & INTERNATIONAL TRADE (0.1%)
* Central European Distribution Corp. 804 28
----------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $20,836) 21,753
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES-NET (-0.7%) (146)
- --------------------------------------------------------------------------------
NET ASSETS (100%) $21,607
================================================================================
(+)See Note A in Notes to Financial Statements.
*Non-income-producing security.
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
ASSETS
Investments in Securities, at Value $21,753
Receivables for Investment Securities Sold 1,851
Other Assets-Note B 22
----------------
Total Assets 23,626
----------------
LIABILITIES
Payables for Investment Securities Purchased 2,008
Other Liabilities 11
----------------
Total Liabilities 2,019
----------------
- --------------------------------------------------------------------------------
NET ASSETS (100%) $21,607
================================================================================
- --------------------------------------------------------------------------------
AMOUNT
(000)
- --------------------------------------------------------------------------------
AT FEBRUARY 29, 2004, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Paid-in Capital $20,588
Undistributed Net Investment Income 13
Accumulated Net Realized Gains 89
Unrealized Appreciation 917
- --------------------------------------------------------------------------------
NET ASSETS $21,607
================================================================================
Admiral Shares-Net Assets
Applicable to 10,117 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $267
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE-
ADMIRAL SHARES $26.35
================================================================================
VIPER Shares-Net Assets
Applicable to 400,000 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $21,340
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE-
VIPER SHARES $53.35
================================================================================
See Note C in Notes to Financial Statements for the tax-basis components of net
assets.
17
- --------------------------------------------------------------------------------
MARKET
VALUE*
FINANCIALS INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (100.2%)
- --------------------------------------------------------------------------------
BANKS-NEW YORK CITY (4.0%)
J.P. Morgan Chase & Co. 15,736 645
The Bank of New York Co., Inc. 6,064 200
----------------
845
----------------
BANKS-OUTSIDE NEW YORK CITY (31.0%)
Bank of America Corp. 11,372 932
Wells Fargo & Co. 13,032 747
Wachovia Corp. 10,148 487
Bank One Corp. 8,620 465
U.S. Bancorp 14,872 424
FleetBoston Financial Corp. 8,204 369
Fifth Third Bancorp 3,756 210
National City Corp. 4,664 167
BB&T Corp. 4,204 156
SunTrust Banks, Inc. 1,952 141
State Street Corp. 2,612 140
PNC Financial Services Group 2,272 133
Mellon Financial Corp. 3,388 110
KeyCorp 3,120 101
SouthTrust Corp. 2,544 85
Comerica, Inc. 1,316 76
AmSouth Bancorp 2,736 69
Northern Trust Corp. 1,332 66
M & T Bank Corp. 632 61
Regions Financial Corp. 1,644 61
Marshall & Ilsley Corp. 1,476 58
North Fork Bancorp, Inc. 1,156 49
Synovus Financial Corp. 1,792 45
National Commerce Financial Corp. 1,520 44
Popular, Inc. 920 41
Union Planters Corp. 1,360 41
Banknorth Group, Inc. 1,220 41
First Tennessee National Corp. 872 40
Huntington Bancshares Inc. 1,688 39
Zions Bancorp 624 36
Compass Bancshares Inc. 872 36
Commerce Bancorp, Inc. 520 32
UnionBanCal Corp. 524 28
Hibernia Corp. Class A 1,184 28
TCF Financial Corp. 496 26
Doral Financial Corp. 748 26
Mercantile Bankshares Corp. 552 25
Commerce Bancshares, Inc. 480 24
Associated Banc-Corp 512 23
Valley National Bancorp 752 21
City National Corp. 336 21
Investors Financial Services Corp. 452 20
Cullen/Frost Bankers, Inc. 456 19
Bank of Hawaii Corp. 408 19
Sky Financial Group, Inc. 640 17
Wilmington Trust Corp. 456 17
Fulton Financial Corp. 768 17
Westamerica Bancorporation 328 16
Hudson United Bancorp 412 16
Colonial BancGroup, Inc. 864 16
FirstMerit Corp. 588 16
The South Financial Group, Inc. 504 16
International Bancshares Corp. 268 15
East West Bancorp, Inc. 268 14
Old National Bancorp 564 13
Trustmark Corp. 408 12
UCBH Holdings, Inc. 312 12
Whitney Holdings Corp. 280 12
BancorpSouth, Inc. 544 12
First BanCorp Puerto Rico 276 12
Chittenden Corp. 352 12
First Midwest Bancorp, Inc. 324 11
Cathay General Bancorp 172 10
Citizens Banking Corp. 300 10
Greater Bay Bancorp 360 10
Provident Financial Group, Inc. 240 10
Park National Corp. 84 9
Pacific Capital Bancorp 240 9
United Bankshares, Inc. 304 9
Southwest Bancorporation of Texas, Inc. 236 9
* Silicon Valley Bancshares 240 8
Texas Regional Bancshares, Inc. 204 8
Corus Bankshares Inc. 196 8
* BOK Financial Corp. 196 8
UMB Financial Corp. 152 8
Community First Bankshares, Inc. 264 7
Susquehanna Bancshares, Inc. 276 7
TrustCo Bank NY 516 7
MB Financial, Inc. 184 7
* Piper Jaffray Companies 132 7
R & G Financial Corp. Class B 204 6
First Commonwealth Financial Corp. 420 6
Wintrust Financial Corp. 128 6
Republic Bancorp, Inc. 440 6
Chemical Financial Corp. 164 6
Irwin Financial Corp. 196 6
Provident Bankshares Corp. 172 6
United Community Banks, Inc. 164 6
S & T Bancorp, Inc. 184 6
First Financial Bancorp 308 5
National Penn Bancshares Inc. 168 5
The Trust Co. of New Jersey 128 5
First Citizens BancShares Class A 41 5
Amcore Financial, Inc. 172 5
NBT Bancorp, Inc. 224 5
Hancock Holding Co. 83 5
CVB Financial Corp. 236 5
Community Bank System, Inc. 100 5
Harleysville National Corp. 164 5
Boston Private Financial Holdings, Inc. 168 5
Alabama National BanCorporation 88 4
Gold Banc Corp., Inc. 272 4
First Charter Corp. 204 4
First Financial Bankshares, Inc. 108 4
Glacier Bancorp, Inc. 132 4
Frontier Financial Corp. 128 4
First Community Bancorp 108 4
Westbanco Inc. 140 4
Sterling Bancshares, Inc. 308 4
Umpqua Holdings Corp. 196 4
Unizan Financial Corp. 152 4
City Holding Co. 116 4
Mid-State Bancshares 164 4
Oriental Financial Group Inc. 136 4
Independent Bank Corp. (MI) 136 4
Sandy Spring Bancorp, Inc. 100 4
Allegiant Bancorp, Inc. 120 4
Prosperity Bancshares, Inc. 144 3
Main Street Banks, Inc. 132 3
Riggs National Corp. 200 3
PrivateBancorp, Inc. 68 3
First Merchants Corp. 128 3
Independent Bank Corp. (MA) 100 3
Central Pacific Financial Co. 112 3
Midwest Banc Holdings, Inc. 124 3
First Financial Corp. (IN) 96 3
Integra Bank Corp. 120 3
Republic Bancshares, Inc. 92 3
Hanmi Financial Corp. 96 3
Capitol Bancorp Ltd. 96 3
Bank of the Ozarks, Inc. 112 3
18
- --------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- --------------------------------------------------------------------------------
Tompkins Trustco, Inc. 56 3
Community Trust Bancorp Inc. 92 3
Suffolk Bancorp 76 3
First Busey Corp. 96 3
Simmons First National Corp. 96 3
First Community Bancshares, Inc. 80 3
Community Banks, Inc. 80 3
Old Second Bancorp, Inc. 48 2
Washington Trust Bancorp, Inc. 92 2
CityBank Lynnwood WA 68 2
West Coast Bancorp 104 2
Columbia Banking System, Inc. 92 2
Seacoast Banking Corp. of Florida 108 2
Capital City Bank Group, Inc. 52 2
Sterling Financial Corp. (PA) 95 2
Banner Corp. 80 2
Peoples Bancorp, Inc. 76 2
First Bancorp (NC) 64 2
Second Bancorp, Inc. 64 2
CCBT Financial Cos. Inc. 60 2
First Oak Brook Bancshares, Inc. 68 2
S.Y. Bancorp, Inc. 92 2
Arrow Financial Corp. 68 2
Omega Financial Corp. 56 2
Republic Bancorp, Inc. Class A 104 2
CB Bancshares Inc. (HI) 28 2
CoBiz Inc. 96 2
Camden National Corp. 56 2
Bank of Granite Corp. 92 2
Lakeland Bancorp, Inc. 112 2
Peoples Holding Co. 56 2
Royal Bancshares of Pennsylvania, Inc. 69 2
Franklin Financial Corp. 60 2
Peapack Gladstone Financial Corp. 52 2
Union Bankshares Corp. 52 2
SCBT Financial Corp. 52 2
Financial Institutions, Inc. 76 2
Farmers Capital Bank Corp. 48 2
Virginia Financial Group, Inc. 48 2
Pennrock Financial Services Corp. 52 2
NBC Capital Corp. 56 1
German American Bancorp 76 1
BancFirst Corp. 22 1
First Source Corp. 48 1
----------------
6,499
----------------
DIVERSIFIED FINANCIAL SERVICES (20.0%)
Citigroup, Inc. 39,852 2,003
American Express Co. 8,932 477
Morgan Stanley 7,448 445
Merrill Lynch & Co., Inc. 6,988 428
The Goldman Sachs Group, Inc. 2,192 232
Metropolitan Life Insurance Co. 5,876 207
Marsh & McLennan Cos., Inc. 3,896 187
John Hancock Financial Services, Inc. 2,308 97
CIT Group Inc. 1,668 66
The Chicago Mercantile Exchange 228 21
Leucadia National Corp. 392 20
F.N.B. Corp. 320 7
First National Bankshares of Florida 320 6
* USI Holdings Corp. 316 4
* Rewards Network Inc. 156 2
----------------
4,202
----------------
FINANCE COMPANIES (0.7%)
Capital One Financial Corp. 1,776 126
* Saxon Capital Inc. 200 5
* Accredited Home Lenders Holding Co. 140 5
* Credit Acceptance Corp. 76 1
----------------
137
----------------
FINANCIAL DATA PROCESSING SERVICES (0.1%)
* CompuCredit Corp. 224 5
* eSPEED, Inc. Class A 208 4
----------------
9
----------------
FINANCIAL INFORMATION SERVICES (0.3%)
Moody's Corp. 1,036 69
----------------
FINANCIAL-SMALL LOAN (0.8%)
SLM Corp. 3,528 148
* AmeriCredit Corp. 1,184 23
Student Loan Corp. 31 5
----------------
176
----------------
FINANCIAL-MISCELLANEOUS (7.3%)
Fannie Mae 7,460 559
Freddie Mac 5,272 326
MBNA Corp. 9,368 256
MBIA, Inc. 1,104 73
Ambac Financial Group, Inc. 840 66
MGIC Investment Corp. 684 45
Fidelity National Financial, Inc. 1,098 43
Radian Group, Inc. 748 33
* Providian Financial Corp. 2,212 29
Brown & Brown, Inc. 476 18
First American Corp. 540 16
Nationwide Financial Services, Inc. 388 15
New Century Financial Corp. 240 12
* CapitalSource Inc. 300 7
LandAmerica Financial Group, Inc. 128 6
* Financial Federal Corp. 128 4
Stewart Information Services Corp. 116 4
Cash America International Inc. 180 4
* Triad Guaranty, Inc. 72 4
Sterling Bancorp 104 3
WFS Financial, Inc. 64 3
WSFS Financial Corp. 52 3
* Metris Cos., Inc. 400 2
* Federal Agricultural Mortgage Corp. Class C 72 2
Advanta Corp. Class B 120 2
----------------
1,535
----------------
HOME BUILDING
* Levitt Corp. Class A 92 2
----------------
INSURANCE-LIFE (1.8%)
Prudential Financial, Inc. 4,088 190
The Principal Financial Group, Inc. 2,148 78
Jefferson-Pilot Corp. 1,084 58
AmerUs Group Co. 372 15
* The MONY Group Inc. 424 13
The Phoenix Cos., Inc. 656 9
Delphi Financial Group, Inc. 184 7
Scottish Re Group Ltd. 244 6
Presidential Life Corp. 204 3
* National Western Life Insurance Co. Class A 17 3
* Citizens, Inc. 236 2
* Universal American Financial Corp. 172 2
----------------
386
----------------
INSURANCE-MULTILINE (11.7%)
American International Group, Inc. 17,108 1,266
Allstate Corp. 5,184 237
AFLAC Inc. 3,968 161
The Hartford Financial Services Group Inc. 2,308 151
St. Paul Cos., Inc. 1,780 76
Lincoln National Corp. 1,332 62
Loews Corp. 988 60
Aon Corp. 2,072 54
Cincinnati Financial Corp. 1,112 50
Torchmark Corp. 892 46
SAFECO Corp. 960 43
UnumProvident Corp. 2,256 33
19
- --------------------------------------------------------------------------------
MARKET
VALUE*
FINANCIALS INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
Old Republic International Corp. 1,356 32
Arthur J. Gallagher & Co. 728 24
* Markel Corp. 68 19
Protective Life Corp. 480 18
* Assurant, Inc. 700 18
Unitrin, Inc. 368 16
* Allmerica Financial Corp. 368 14
StanCorp Financial Group, Inc. 204 13
Reinsurance Group of America, Inc. 320 13
Hilb, Rogal and Hamilton Co. 236 9
American Financial Group, Inc. 284 9
Zenith National Insurance Corp. 132 5
Horace Mann Educators Corp. 296 4
Max Re Capital Ltd. 164 4
Alfa Corp. 256 3
* UICI 224 3
* CNA Surety Corp. 100 1
Crawford & Co. Class B 172 1
----------------
2,445
----------------
INSURANCE-PROPERTY-CASUALTY (4.2%)
Progressive Corp. of Ohio 1,508 125
The Chubb Corp. 1,400 99
ACE Ltd. 2,132 96
XL Capital Ltd. Class A 1,052 81
Travelers Property Casualty Corp. Class B 3,568 65
Travelers Property Casualty Corp. Class A 3,520 64
Everest Re Group, Ltd. 384 34
White Mountains Insurance Group Inc. 54 26
RenaissanceRe Holdings Ltd. 488 26
The PMI Group Inc. 652 26
W.R. Berkley Corp. 576 24
PartnerRe Ltd. 372 21
HCC Insurance Holdings, Inc. 444 14
Transatlantic Holdings, Inc. 164 14
Mercury General Corp. 276 14
IPC Holdings Ltd. 336 13
Fremont General Corp. 528 12
Erie Indemnity Co. Class A 244 12
Commerce Group, Inc. 220 10
Platinum Underwriters Holdings, Ltd. 300 10
* Philadelphia Consolidated Holding Corp. 152 9
Montpelier Re Holdings Ltd. 240 9
* Arch Capital Group Ltd. 196 8
Axis Capital Holdings Ltd. 272 8
* Ohio Casualty Corp. 424 8
R.L.I. Corp. 176 7
Selective Insurance Group 188 7
* ProAssurance Corp. 200 7
Infinity Property & Casualty Corp. 144 5
Endurance Specialty Holdings Ltd. 140 5
Odyssey Re Holdings Corp. 152 4
* Argonaut Group, Inc. 184 4
Midland Co. 124 3
United Fire & Casualty Co. 68 3
PXRE Group Ltd. 92 2
* Navigators Group, Inc. 84 2
Baldwin & Lyons, Inc. Class B 84 2
Harleysville Group, Inc. 108 2
State Auto Financial Corp. 72 2
PMA Capital Corp. Class A 216 1
----------------
884
----------------
INVESTMENT MANAGEMENT COMPANIES (1.0%)
T. Rowe Price Group Inc. 856 45
Allied Capital Corp. 988 30
Janus Capital Group Inc. 1,560 27
SEI Corp. 628 22
Federated Investors, Inc. 652 21
* Affiliated Managers Group, Inc. 248 21
Eaton Vance Corp. 476 18
Waddell & Reed Financial, Inc. 676 18
BlackRock, Inc. 128 8
MCG Capital Corp. 164 3
Capital Southwest Corp. 28 2
Gabelli Asset Management Inc. 48 2
----------------
217
----------------
MULTI-SECTOR COMPANIES (0.8%)
* Berkshire Hathaway Inc. Class B 52 163
----------------
REAL ESTATE (0.2%)
The St. Joe Co. 428 18
Forest City Enterprise Class A 152 8
LNR Property Corp. 136 7
* Jones Lang LaSalle Inc. 220 5
* Trammell Crow Co. 256 4
* Tejon Ranch Co. 62 2
* Avatar Holding, Inc. 60 2
----------------
46
----------------
REAL ESTATE INVESTMENT TRUSTS (8.3%)
Equity Office Properties Trust REIT 3,068 88
Simon Property Group, Inc. REIT 1,212 66
Equity Residential REIT 2,100 62
General Growth Properties Inc. REIT 1,588 50
Vornado Realty Trust REIT 784 45
ProLogis REIT 1,344 45
Plum Creek Timber Co. Inc. REIT 1,368 43
Archstone-Smith Trust REIT 1,504 42
Boston Properties, Inc. REIT 776 40
Kimco Realty Corp. REIT 760 36
Rouse Co. REIT 712 36
Duke Realty Corp. REIT 1,040 34
iStar Financial Inc. REIT 796 33
Public Storage, Inc. REIT 676 32
* Host Marriott Corp. REIT 2,216 27
Friedman, Billings, Ramsey Group, Inc. REIT 952 25
Avalonbay Communities, Inc. REIT 488 25
Health Care Properties Investors REIT 440 25
Apartment Investment & Management Co.
Class A REIT 752 24
Liberty Property Trust REIT 576 24
AMB Property Corp. REIT 668 24
The Macerich Co. REIT 464 23
Developers Diversified Realty Corp. REIT 600 22
Catellus Development Corp. REIT 784 21
New Plan Excel Realty Trust REIT 776 20
CenterPoint Properties Corp. REIT 260 20
Hospitality Properties Trust REIT 436 19
Weingarten Realty Investors REIT 380 19
Annaly Mortgage Management Inc. REIT 892 18
Chelsea Property Group REIT 300 18
United Dominion Realty Trust REIT 932 18
Ventas, Inc. REIT 652 17
Mack-Cali Realty Corp. REIT 404 17
Thornburg Mortgage, Inc. REIT 560 16
Camden Property Trust REIT 372 16
Healthcare Realty Trust Inc. REIT 392 16
Realty Income Corp. REIT 360 16
American Financial Realty Trust REIT 848 15
Mills Corp. REIT 308 15
CarrAmerica Realty Corp. REIT 464 15
HRPT Properties Trust REIT 1,300 14
Federal Realty Investment Trust REIT 340 14
BRE Properties Inc. Class A REIT 440 14
Alexandria Real Estate Equities, Inc. REIT 232 14
Rayonier Inc. REIT 328 14
First Industrial Realty Trust REIT 372 14
Arden Realty Group, Inc. REIT 440 14
Pan Pacific Retail Properties, Inc. REIT 280 14
Reckson Associates Realty Corp. REIT 504 14
20
- --------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- --------------------------------------------------------------------------------
Regency Centers Corp. REIT 312 13
Health Care Inc. REIT 332 13
Crescent Real Estate, Inc. REIT 688 12
Home Properties, Inc. REIT 300 12
Highwood Properties, Inc. REIT 468 12
CBL & Associates Properties, Inc. REIT 208 12
Nationwide Health Properties, Inc. REIT 556 12
Shurgard Storage Centers, Inc. Class A REIT 312 12
SL Green Realty Corp. REIT 260 11
Brandywine Realty Trust REIT 392 11
Taubman Co. REIT 444 11
Trizec Properties, Inc. REIT 644 10
Cousins Properties, Inc. REIT 336 10
Gables Residential Trust REIT 292 10
Impac Mortgage Holdings, Inc. REIT 476 10
Prentiss Properties Trust REIT 284 10
Essex Property Trust, Inc. REIT 156 10
Pennsylvania REIT 244 9
Novastar Financial, Inc. REIT 168 9
Washington REIT 288 9
Senior Housing Properties Trust REIT 440 8
Redwood Trust, Inc. REIT 124 8
Post Properties, Inc. REIT 264 8
Capital Automotive REIT 220 8
Colonial Properties Trust REIT 180 7
PS Business Parks, Inc. REIT 148 7
Commercial Net Lease Realty REIT 344 7
Heritage Property Investment Trust REIT 216 6
Kilroy Realty Corp. REIT 192 6
MFA Mortgage Investments, Inc. REIT 612 6
Keystone Property Trust REIT 280 6
Glimcher Realty Trust REIT 244 6
Lexington Corporate Properties Trust REIT 280 6
Sun Communities, Inc. REIT 128 5
Manufactured Home Communities, Inc. REIT 156 5
National Health Investors REIT 184 5
Equity One, Inc. REIT 264 5
Corporate Office Properties Trust, Inc. REIT 204 5
Entertainment Properties Trust REIT 120 5
Mid-America Apartment Communities, Inc. REIT 124 4
* FelCor Lodging Trust, Inc. REIT 408 4
EastGroup Properties, Inc. REIT 128 4
RAIT Investment Trust REIT 160 4
Koger Equity, Inc. REIT 180 4
Summit Properties, Inc. REIT 188 4
Anthracite Capital Inc. REIT 336 4
Newcastle Investment Corp. REIT 140 4
Glenborough Realty Trust, Inc. REIT 192 4
Getty Realty Holding Corp. REIT 148 4
AMLI Residential Properties Trust REIT 132 4
Tanger Factory Outlet Centers, Inc. REIT 88 4
Bedford Property Investors, Inc. REIT 116 4
Anworth Mortgage Asset Corp. REIT 256 4
Sovran Self Storage, Inc. REIT 92 3
Cornerstone Realty Income Trust, Inc. REIT 380 3
LaSalle Hotel Properties REIT 168 3
Parkway Properties Inc. REIT 72 3
Kramont Realty Trust REIT 168 3
Ramco-Gershenson Properties Trust REIT 116 3
Saul Centers, Inc. REIT 108 3
Town & Country Trust REIT 112 3
U.S. Restaurant Properties, Inc. REIT 156 3
Universal Health Realty Income REIT 80 3
* MeriStar Hospitality Corp. REIT 424 3
Investors Real Estate Trust REIT 256 3
Equity Inns, Inc. REIT 280 3
Innkeepers USA Trust REIT 260 2
Urstadt Biddle Properties Class A REIT 128 2
Great Lakes, Inc. REIT 112 2
Capstead Mortgage Corp. REIT 96 2
Mission West Properties Inc. REIT 124 2
Urstadt Biddle Properties REIT 48 1
----------------
1,736
----------------
RENT & LEASE SERVICES-COMMERCIAL (0.1%)
GATX Corp. 340 8
----------------
SAVINGS & LOAN (4.7%)
Washington Mutual, Inc. 6,908 310
Golden West Financial Corp. 956 110
New York Community Bancorp, Inc. 1,841 65
Charter One Financial, Inc. 1,668 60
Sovereign Bancorp, Inc. 2,306 51
Green Point Financial Corp. 772 34
Astoria Financial Corp. 560 23
Hudson City Bancorp, Inc. 528 21
Washington Federal Inc. 642 17
Webster Financial Corp. 316 16
Independence Community Bank Corp. 380 15
IndyMac Bancorp, Inc. 384 14
Westcorp, Inc. 252 11
W Holding Co., Inc. 516 10
People's Bank 228 10
MAF Bancorp, Inc. 228 10
Staten Island Bancorp, Inc. 408 10
Commercial Federal Corp. 304 9
First Niagara Financial Group, Inc. 580 8
Provident Financial Services Inc. 428 8
Capitol Federal Financial 208 8
* Sterling Financial Corp. 204 7
BankAtlantic Bancorp, Inc. Class A 376 7
Seacoast Financial Services Corp. 184 6
Brookline Bancorp, Inc. 400 6
Waypoint Financial Corp. 240 6
Bank Mutual Corp. 548 6
Flagstar Bancorp, Inc. 216 6
Dime Community Bancshares 176 6
* BankUnited Financial Corp. 200 6
* First Federal Financial Corp. 116 5
Downey Financial Corp. 92 5
Harbor Florida Bancshares, Inc. 164 5
Anchor Bancorp Wisconsin Inc. 164 4
Hudson River Bancorp. Inc. 212 4
First Republic Bank 104 4
First Sentinel Bancorp Inc. 192 4
PFF Bancorp, Inc. 116 4
Net.Bank, Inc. 332 4
Connecticut Bancshares, Inc. 76 4
Fidelity Bankshares, Inc. 104 4
* TierOne Corp. 156 4
* Commercial Capital Bancorp, Inc. 169 4
Firstfed America Bancorp, Inc. 120 3
First Federal Capital Corp. 152 3
* Hawthorne Financial Corp. 80 3
IBERIABANK Corp. 48 3
United Community Financial Corp. 240 3
First Financial Holdings, Inc. 88 3
* Ocwen Financial Corp. 264 3
* Local Financial Corp. 116 3
BSB Bancorp, Inc. 64 3
Flushing Financial Corp. 132 2
OceanFirst Financial Corp. 96 2
Great Southern Bancorp, Inc. 48 2
First Indiana Corp. 108 2
* ITLA Capital Corp. 44 2
Quaker City Bancorp, Inc. 44 2
First Place Financial Corp. 92 2
Partners Trust Financial Group, Inc. 50 2
Pennfed Financial Services, Inc. 48 2
21
- --------------------------------------------------------------------------------
MARKET
VALUE*
FINANCIALS INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
Citizens 1st Bancorp, Inc. 60 1
CFS Bancorp, Inc. 84 1
Bay View Capital Corp. 440 1
----------------
979
----------------
SECURITIES BROKERS & SERVICES (3.2%)
Lehman Brothers Holdings, Inc. 1,596 138
Countrywide Financial Corp. 1,360 125
Charles Schwab Corp. 7,900 97
Bear Stearns Co., Inc. 692 61
Franklin Resources Corp. 1,044 59
Legg Mason Inc. 456 43
* E*TRADE Financial Corp. 2,616 37
* Ameritrade Holding Corp. 1,632 27
A.G. Edwards & Sons, Inc. 552 21
American Capital Strategies, Ltd. 448 15
Jefferies Group, Inc. 384 14
Raymond James Financial, Inc. 336 13
* Knight Trading Group, Inc. 788 11
* Investment Technology Group, Inc. 328 5
LaBranche & Co. Inc. 412 4
Nuveen Investments, Inc. Class A 136 4
SWS Group, Inc. 116 2
Advanta Corp. Class A 68 1
----------------
677
----------------
Services-Commercial
* Clark, Inc. 128 2
----------------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS (Cost $20,790) 21,017
- --------------------------------------------------------------------------------
Face
Amount
(000)
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (1.0%)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
1.04%, 3/1/2004
(COST $220) $220 220
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (101.2%)
(Cost $21,010) 21,237
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-1.2%)
- --------------------------------------------------------------------------------
Other Assets-Note B 433
Payables for Investment Securities Purchased (682)
Other Liabilities (5)
----------------
(254)
----------------
- --------------------------------------------------------------------------------
NET ASSETS (100%) $20,983
================================================================================
(+)See Note A in Notes to Financial Statements.
*Non-income-producing security.
- --------------------------------------------------------------------------------
AMOUNT
(000)
- --------------------------------------------------------------------------------
AT FEBRUARY 29, 2004, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Paid-in Capital $20,708
Undistributed Net Investment Income 51
Accumulated Net Realized Losses (3)
Unrealized Appreciation 227
- --------------------------------------------------------------------------------
NET ASSETS $20,983
================================================================================
Admiral Shares-Net Assets
Applicable to 19,829 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $509
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE-
ADMIRAL SHARES $25.66
================================================================================
VIPER Shares-Net Assets
Applicable to 400,000 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $20,474
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE-
VIPER SHARES $51.19
================================================================================
See Note C in Notes to Financial Statements for the tax-basis components of net
assets.
22
- --------------------------------------------------------------------------------
MARKET
VALUE*
HEALTH CARE INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (100.2%)
- --------------------------------------------------------------------------------
BIOTECH RESEARCH & PRODUCTION (12.7%)
* Amgen, Inc. 15,592 991
* Genentech, Inc. 2,772 299
* Biogen Idec Inc. 4,032 223
Baxter International, Inc. 7,388 215
* Genzyme Corp.-General Division 2,776 141
* Chiron Corp. 1,380 68
* Millennium Pharmaceuticals, Inc. 3,332 59
* Invitrogen Corp. 660 49
* Celgene Corp. 1,004 41
* Cephalon, Inc. 620 37
* ImClone Systems, Inc. 732 31
* ICOS Corp. 796 30
* Millipore Corp. 544 28
* Protein Design Labs, Inc. 1,044 25
* Charles River Laboratories, Inc. 508 22
* Neurocrine Biosciences, Inc. 392 22
* IDEXX Laboratories Corp. 384 20
* Human Genome Sciences, Inc. 1,440 18
* Martek Biosciences Corp. 308 18
* NPS Pharmaceuticals Inc. 512 15
* Abgenix, Inc. 980 14
* OSI Pharmaceuticals, Inc. 436 14
* Vicuron Pharmaceuticals Inc. 600 14
* Telik, Inc. 572 13
* Applera Corp.-Celera Genomics Group 908 13
* Nabi Biopharmaceuticals 620 9
* Enzon Pharmaceuticals, Inc. 484 8
* Digene Corp. 204 8
* Genta Inc. 636 7
* Exelixis, Inc. 792 7
* Incyte Corp. 804 7
* InterMune Inc. 356 7
* Integra LifeSciences Holdings 196 6
* Cell Genesys, Inc. 436 6
* Alexion Pharmaceuticals, Inc. 244 6
* ArthroCare Corp. 232 6
* XOMA Ltd. 912 5
* Pharmacopeia, Inc. 264 5
* Serologicals Corp. 272 5
* Myriad Genetics, Inc. 300 5
* Cubist Pharmaceuticals, Inc. 432 5
* Tanox, Inc. 288 5
* Transkaryotic Therapies, Inc. 392 5
* Zymogenetics, Inc. 284 5
* Trimeris, Inc. 240 4
* Cell Therapeutics, Inc. 460 4
* Geron Corp. 428 4
* Albany Molecular Research, Inc. 256 4
* Corixa Corp. 612 4
* CuraGen Corp. 552 4
* Antigenics, Inc. 340 3
* Bioveris Corp. 264 3
* Lexicon Genetics Inc. 496 3
* Kensey Nash Corp. 124 3
* Diversa Corp. 276 3
* Savient Pharmaceuticals Inc. 664 3
* Immunomedics Inc. 556 2
* Exact Sciences Corp. 312 2
* Arena Pharmaceuticals, Inc. 320 2
* Gene Logic Inc. 348 2
* Maxygen Inc. 188 2
----------------
2,589
----------------
CHEMICALS
* Wilson Greatbatch Technologies, Inc. 236 9
----------------
COMPUTER SERVICES SOFTWARE & SYSTEMS (0.1%)
* Dendrite International, Inc. 452 7
* The TriZetto Group, Inc. 520 4
----------------
11
----------------
COMPUTER TECHNOLOGY
Analogic Corp. 148 6
----------------
CONSUMER PRODUCTS (0.1%)
Matthews International Corp. 460 14
----------------
DRUGS & PHARMACEUTICALS (57.5%)
Pfizer Inc. 92,008 3,372
Johnson & Johnson 35,888 1,935
Merck & Co., Inc. 26,800 1,289
Eli Lilly & Co. 12,316 911
Abbott Laboratories 17,920 767
Bristol-Myers Squibb Co. 23,412 651
Wyeth 16,140 637
Cardinal Health, Inc. 5,176 338
* Forest Laboratories, Inc. 4,468 337
Schering-Plough Corp. 17,780 319
Allergan, Inc. 1,656 145
* Gilead Sciences, Inc. 2,444 132
AmerisourceBergen Corp. 1,348 78
Mylan Laboratories, Inc. 3,292 77
* MedImmune Inc. 2,984 77
* Watson Pharmaceuticals, Inc. 1,300 60
* King Pharmaceuticals, Inc. 2,788 54
* Barr Pharmaceuticals Inc. 644 50
* IVAX Corp. 1,780 40
* Sepracor Inc. 1,044 30
* Andrx Group 804 24
* Amylin Pharmaceuticals, Inc. 1,040 24
Medicis Pharmaceutical Corp. 600 24
* Pharmaceutical Resources, Inc. 376 23
Valeant Pharmaceuticals International 1,028 23
* MGI Pharma, Inc. 436 21
* Onyx Pharmaceuticals, Inc. 424 16
* Alkermes, Inc. 1,092 16
Perrigo Co. 780 15
* The Medicines Co. 524 14
* Nektar Therapeutics 724 14
* Endo Pharmaceuticals Holdings, Inc. 568 14
* Ligand Pharmaceuticals Inc. Class B 772 12
Alpharma, Inc. Class A 544 12
* Tularik, Inc. 628 12
* Vertex Pharmaceuticals, Inc. 960 11
* ILEX Oncology, Inc. 428 11
* American Pharmaceuticals Partners, Inc. 276 10
* K-V Pharmaceutical Co. Class A 364 9
* Priority Healthcare Corp. Class B 408 9
* Kos Pharmaceuticals, Inc. 200 9
* Impax Laboratories, Inc. 388 8
* Dendreon Corp. 592 8
* AtheroGenics, Inc. 408 8
* Connetics Corp. 352 8
* Medarex, Inc. 864 8
* Regeneron Pharmaceuticals, Inc. 456 6
* Salix Pharmaceuticals, Ltd. 240 6
* Atrix Laboratories, Inc. 232 6
* Enzo Biochem, Inc. 332 6
* Noven Pharmaceuticals, Inc. 252 6
* Eon Labs, Inc. 96 6
* BioMarin Pharmaceutical Inc. 712 5
* NeoPharm, Inc. 252 5
* CIMA Labs Inc. 160 5
* Adolor Corp. 320 5
23
- --------------------------------------------------------------------------------
MARKET
VALUE*
HEALTH CARE INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
* CV Therapeutics, Inc. 316 5
* United Therapeutics Corp. 236 5
* Isis Pharmaceuticals, Inc. 620 5
* Inspire Pharmaceuticals, Inc. 352 5
* PRAECIS Pharmaceuticals Inc. 580 3
* aaiPharma Inc. 212 3
* ImmunoGen, Inc. 452 3
* SciClone Pharmaceuticals, Inc. 492 3
* Pozen Inc. 216 3
* Hollis-Eden Pharmaceuticals, Inc. 212 3
* Columbia Laboratories Inc. 440 3
* K-V Pharmaceutical Co. Class B 76 2
* Lannett Company, Inc. 124 2
----------------
11,763
----------------
ELECTRONICS-MEDICAL SYSTEMS (4.1%)
Medtronic, Inc. 14,564 683
* Varian Medical Systems, Inc. 760 64
* Affymetrix, Inc. 656 22
* VISX Inc. 636 12
* eResearch Technology, Inc. 368 11
* Haemonetics Corp. 268 8
* Intuitive Surgical, Inc. 360 6
Datascope Corp. 164 6
* CTI Molecular Imaging, Inc. 304 5
* Possis Medical Inc. 200 5
* EPIX Medical, Inc. 240 5
* Hologic, Inc. 220 4
* Zoll Medical Corp. 100 4
* CardioDynamics International Corp. 516 3
* Bruker BioSciences Corp. 160 1
----------------
839
----------------
FINANCIAL DATA PROCESSING SERVICES (0.1%)
NDCHealth Corp. 492 14
----------------
FUNERAL PARLORS & CEMETERIES (0.2%)
* Service Corp. International 3,648 25
* Stewart Enterprises, Inc. Class A 1,168 7
----------------
32
----------------
HEALTH & PERSONAL CARE (2.9%)
* Anthem, Inc. 1,744 150
* Medco Health Solutions, Inc. 3,320 108
McKesson Corp. 3,340 91
Omnicare, Inc. 1,228 56
* Express Scripts Inc. 676 49
* Lincare Holdings, Inc. 1,196 39
* Apria Healthcare Group Inc. 608 19
* Accredo Health, Inc. 532 19
* Province Healthcare Co. 544 9
* Inveresk Research Group Inc. 320 9
* Odyssey Healthcare, Inc. 396 9
* IDX Systems Corp. 228 8
* VistaCare, Inc. 176 5
* LabOne, Inc. 132 4
* Gentiva Health Services, Inc. 288 4
* Alliance Imaging, Inc. 136 1
* Dynacq Healthcare, Inc 164 1
----------------
581
----------------
HEALTH CARE FACILITIES (3.5%)
HCA Inc. 5,436 231
Quest Diagnostics, Inc. 872 72
* Laboratory Corp. of America Holdings 1,716 67
* Tenet Healthcare Corp. 5,572 67
Health Management Associates Class A 2,872 64
Manor Care, Inc. 1,092 39
* DaVita, Inc. 740 34
* Triad Hospitals, Inc. 940 33
* Renal Care Group, Inc. 548 26
* Pharmaceutical Product Development, Inc. 624 18
* LifePoint Hospitals, Inc. 432 14
* United Surgical Partners International, Inc. 304 11
* American Healthways Inc. 348 10
* Beverly Enterprises, Inc. 1,196 10
* Sunrise Senior Living, Inc. 236 8
* Genesis Healthcare Corp. 220 6
* Kindred Healthcare, Inc. 100 6
* National Healthcare Corp. 128 3
* Specialty Laboratories, Inc. 48 1
----------------
720
----------------
HEALTH CARE MANAGEMENT SERVICES (7.0%)
UnitedHealth Group Inc. 7,529 467
* WellPoint Health Networks Inc. Class A 1,796 195
Aetna Inc. 1,816 147
* Caremark Rx, Inc. 3,164 102
IMS Health, Inc. 2,864 71
* AdvancePCS 884 61
Oxford Health Plans, Inc. 924 44
* Humana Inc. 1,904 42
* Health Net Inc. 1,396 38
* PacifiCare Health Systems, Inc. 1,032 37
Universal Health Services Class B 604 33
* WebMD Corp. 3,604 31
* First Health Group Corp. 1,156 24
* Community Health Systems, Inc. 700 20
* Cerner Corp. 392 18
* Pediatrix Medical Group, Inc. 256 16
* AMERIGROUP Corp. 368 16
Select Medical Corp. 680 11
* US Oncology, Inc. 860 11
* Sierra Health Services, Inc. 320 11
* AmSurg Corp. 220 8
* Eclipsys Corp. 508 7
* Centene Corp. 220 7
* Per-Se Technologies, Inc. 340 5
Hooper Holmes, Inc. 724 5
* CorVel Corp. 120 4
* Orthodontic Centers of America, Inc. 560 4
Computer Programs and Systems, Inc. 116 2
----------------
1,437
----------------
IDENTIFICATION CONTROL & FILTER DEVICES
Mine Safety Appliances Co. 308 7
----------------
INSURANCE-MULTILINE (0.5%)
CIGNA Corp. 1,764 98
* WellChoice Inc. 232 9
----------------
107
----------------
MEDICAL & DENTAL INSTRUMENTS & SUPPLIES (10.3%)
* Boston Scientific Corp. 7,380 301
Guidant Corp. 3,768 257
* Zimmer Holdings, Inc. 2,980 225
Becton, Dickinson & Co. 3,132 152
* St. Jude Medical, Inc. 2,016 146
Stryker Corp. 1,620 144
Biomet, Inc. 2,960 115
C.R. Bard, Inc. 576 54
* Patterson Dental Co. 660 45
* Henry Schein, Inc. 584 42
DENTSPLY International Inc. 880 38
Beckman Coulter, Inc. 680 36
Bausch & Lomb, Inc. 588 35
* Apogent Technologies Inc. 1,124 32
* Edwards Lifesciences Corp. 692 22
* STERIS Corp. 872 22
* Cytyc Corp. 1,324 22
Cooper Cos., Inc. 452 21
* Respironics, Inc. 376 20
* Techne Corp. 456 18
* INAMED Corp. 384 18
* Dade Behring Holdings Inc. 448 18
24
- --------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- --------------------------------------------------------------------------------
* Gen-Probe Inc. 532 18
* ResMed Inc. 376 18
Mentor Corp. 616 18
Diagnostic Products Corp. 320 15
* Sybron Dental Specialties, Inc. 528 15
Invacare Corp. 332 15
* Advanced Neuromodulation Systems, Inc. 316 14
Owens & Minor, Inc. Holding Co. 476 12
PolyMedica Corp. 376 10
* CONMED Corp. 324 9
* PSS World Medical, Inc. 748 9
* Wright Medical Group, Inc. 268 9
* Sola International Inc. 344 8
* Ventana Medical Systems, Inc. 184 8
* American Medical Systems Holdings, Inc. 268 8
Arrow International, Inc. 280 8
* Ocular Sciences, Inc. 264 8
* Advanced Medical Optics, Inc. 324 7
* Viasys Healthcare Inc. 336 7
* Therasense, Inc. 260 7
* Thoratec Corp. 520 7
* Bio-Rad Laboratories, Inc. Class A 128 7
* ALARIS Medical Systems, Inc. 288 6
* Cyberonics, Inc. 252 6
West Pharmaceutical Services, Inc. 160 6
* Kyphon Inc. 232 6
* Merit Medical Systems, Inc. 280 6
* Biosite Inc. 172 5
* Closure Medical Corp. 152 5
* ICU Medical, Inc. 152 5
* Align Technology, Inc. 252 5
* Inverness Medical Innovations, Inc. 212 5
Vital Signs, Inc. 144 5
* Immucor Inc. 216 4
* OraSure Technologies, Inc. 484 4
* SurModics, Inc. 196 4
* SonoSite, Inc. 160 4
* Molecular Devices Corp. 168 3
Young Innovations, Inc. 66 2
* Conceptus, Inc. 240 2
----------------
2,103
----------------
MEDICAL SERVICES (0.4%)
* Coventry Health Care Inc. 952 41
* Covance, Inc. 788 24
* VCA Antech, Inc. 352 11
* PAREXEL International Corp. 288 5
* RehabCare Group, Inc. 180 4
* Hanger Orthopedic Group, Inc. 232 4
----------------
89
----------------
MULTI-SECTOR COMPANIES (0.2%)
Hillenbrand Industries, Inc. 688 45
----------------
RETAIL (0.2%)
* Fisher Scientific International Inc. 688 37
* 1-800 CONTACTS, Inc. 48 1
----------------
38
----------------
SCIENTIFIC EQUIPMENT & SUPPLIES (0.3%)
Applera Corp.-Applied Biosystems Group 2,520 57
----------------
SERVICES-COMMERCIAL (0.1%)
* The Advisory Board Co. 172 6
* Cross Country Healthcare, Inc. 260 4
* AMN Healthcare Services, Inc. 212 4
* Medical Staffing Network Holdings, Inc. 136 1
----------------
15
----------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $20,533) 20,476
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
VALUE*
(000)
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.2%)
- --------------------------------------------------------------------------------
Other Assets-Note B $337
Liabilities (372)
----------------
(35)
----------------
- --------------------------------------------------------------------------------
NET ASSETS (100%) $20,441
================================================================================
(+)See Note A in Notes to Financial Statements.
*Non-income-producing security.
- --------------------------------------------------------------------------------
AMOUNT
(000)
- --------------------------------------------------------------------------------
AT FEBRUARY 29, 2004, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Paid-in Capital $20,470
Undistributed Net Investment Income 30
Accumulated Net Realized Losses (2)
Unrealized Depreciation (57)
- --------------------------------------------------------------------------------
NET ASSETS $20,441
================================================================================
Admiral Shares- Net Assets
Applicable to 9,870 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $249
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE-
ADMIRAL SHARES $25.26
================================================================================
VIPER Shares-Net Assets
Applicable to 400,000 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $20,192
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE-
VIPER SHARES $50.48
================================================================================
See Note C in Notes to Financial Statements for the tax-basis components of net
assets.
25
- --------------------------------------------------------------------------------
MARKET
VALUE*
INFORMATION TECHNOLOGY INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (100.0%)
- --------------------------------------------------------------------------------
ADVERTISING AGENCIES (0.1%)
* ValueClick, Inc. 616 7
* aQuantive, Inc. 296 3
----------------
10
----------------
CHEMICALS (0.1%)
* Cabot Microelectronics Corp. 220 10
----------------
COMMERCIAL INFORMATION SERVICES (0.1%)
* CMGI Inc. 3,276 8
* Ask Jeeves, Inc. 352 7
* infoUSA Inc. 232 2
* Neoforma, Inc. 160 2
----------------
19
----------------
COMMUNICATIONS TECHNOLOGY (17.8%)
* Cisco Systems, Inc. 61,516 1,421
QUALCOMM Inc. 7,129 452
Motorola, Inc. 20,743 383
* Lucent Technologies, Inc. 37,268 156
* Corning, Inc. 11,849 149
* Juniper Networks, Inc. 2,775 72
* Avaya Inc. 3,764 65
* JDS Uniphase Corp. 10,978 54
Scientific-Atlanta, Inc. 1,336 44
* NCR Corp. 843 38
Symbol Technologies, Inc. 2,120 36
* Tellabs, Inc. 3,532 34
* Comverse Technology, Inc. 1,714 34
* UTStarcom, Inc. 864 29
Harris Corp. 594 28
* Network Associates, Inc. 1,439 25
* 3Com Corp. 3,360 24
* Foundry Networks, Inc. 988 23
* ADC Telecommunications, Inc. 7,288 22
* CIENA Corp. 3,712 21
* Advanced Fibre Communications, Inc. 775 19
* Avocent Corp. 414 16
* Brocade Communications Systems, Inc. 2,140 15
ADTRAN Inc. 378 12
* Sonus Networks, Inc. 2,020 12
* TIBCO Software Inc. 1,360 11
* Aspect Communications Corp. 500 9
* CommScope, Inc. 492 9
Black Box Corp. 163 8
* Harmonic, Inc. 680 8
* Tekelec 408 8
* Extreme Networks, Inc. 968 8
* Enterasys Networks, Inc. 1,704 8
* Anixter International Inc. 258 8
* Sycamore Networks, Inc. 1,560 7
* Corvis Corp. 3,388 7
* CSG Systems International, Inc. 466 7
* WebEx Communications, Inc. 229 6
* ViaSat, Inc. 216 6
Inter-Tel, Inc. 168 5
* Standard Microsystem Corp. 140 4
* j2 Global Communications, Inc. 192 4
* Secure Computing Corp. 284 4
* SeaChange International, Inc. 224 4
* Packeteer, Inc. 264 4
* Finisar Corp. 1,268 4
* Stratex Networks, Inc. 688 4
* Remec, Inc. 488 3
* Avanex Corp. 620 3
* Westell Technologies, Inc. 408 3
* Anaren, Inc. 180 3
* New Focus, Inc. 532 3
* Entrust, Inc. 528 3
* Inet Technologies, Inc. 207 3
* Echelon Corp. 232 3
Bel Fuse, Inc. Class B 68 3
* Net2Phone, Inc. 368 2
* Ixia 184 2
Talx Corp. 112 2
* Oplink Communications, Inc. 800 2
* Verso Technologies, Inc. 952 2
* Verisity Ltd. 168 2
* Ulticom, Inc. 112 1
Bel Fuse, Inc. Class A 24 1
----------------
3,368
----------------
COMPUTER SERVICES SOFTWARE & SYSTEMS (22.2%)
Microsoft Corp. 81,898 2,170
* Oracle Corp. 34,996 451
* Veritas Software Corp. 3,836 117
* Symantec Corp. 2,724 112
Computer Associates International, Inc. 4,128 110
Adobe Systems, Inc. 2,085 78
* Intuit, Inc. 1,680 75
* PeopleSoft, Inc. 3,007 65
* Computer Sciences Corp. 1,502 63
* Siebel Systems, Inc. 4,204 55
* BEA Systems, Inc. 3,236 45
* Mercury Interactive Corp. 816 40
* BMC Software, Inc. 2,016 40
* Cadence Design Systems, Inc. 2,344 36
* QLogic Corp. 842 35
* Novell, Inc. 3,404 35
* Citrix Systems, Inc. 1,471 31
Autodesk, Inc. 1,028 29
* Compuware Corp. 3,480 27
* Cognizant Technology Solutions Corp. 562 27
* Ceridian Corp. 1,332 25
* Red Hat, Inc. 1,224 22
* Sybase, Inc. 888 19
* Netscreen Technologies, Inc. 494 18
National Instruments Corp. 486 17
Reynolds & Reynolds Class A 599 17
Acxiom Corp. 708 14
* Akamai Technologies, Inc. 892 13
* Hyperion Solutions Corp. 357 13
* Macromedia, Inc. 620 13
* Electronics for Imaging, Inc. 481 12
* Ascential Software Corp. 529 12
* CACI International, Inc. 257 11
* Parametric Technology Corp. 2,412 11
* Mentor Graphics Corp. 608 10
* Openwave Systems Inc. 604 9
* F5 Networks, Inc. 268 9
* Anteon International Corp. 251 7
* Internet Security Systems, Inc. 412 7
* Macrovision Corp. 371 7
* Borland Software Corp. 772 7
* Manhattan Associates, Inc. 248 7
* Ariba, Inc. 2,244 7
* Wind River Systems Inc. 700 7
* MicroStrategy Inc. 109 7
* Zoran Corp. 377 7
* MICROS Systems, Inc. 155 7
* Micromuse Inc. 744 7
* Progress Software Corp. 311 6
* Informatica Corp. 668 6
* Keane, Inc. 428 6
* NetIQ Corp. 468 6
* Quest Software, Inc. 368 6
* American Management Systems, Inc. 378 6
* Transaction Systems Architects, Inc. 318 6
26
- --------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- --------------------------------------------------------------------------------
* Digital River, Inc. 256 6
* Vignette Corp. 2,308 5
* Verity, Inc. 312 5
* Epicor Software Corp. 364 5
* Websense, Inc. 184 5
* Ciber, Inc. 528 5
* ANSYS, Inc. 124 5
* Magma Design Automation, Inc. 207 5
* Sapient Corp. 704 5
* RealNetworks, Inc. 856 5
* SRA International, Inc. 121 5
* webMethods, Inc. 432 5
* Gartner, Inc. Class A 404 5
* Interwoven Inc. 328 4
* SonicWALL, Inc. 464 4
* ScanSoft, Inc. 816 4
* Altiris, Inc. 160 4
* Manugistics Group, Inc. 584 4
* E.piphany Inc. 612 4
* SafeNet, Inc. 108 4
* Pinnacle Systems, Inc. 540 4
* Agile Software Corp. 428 4
* SERENA Software, Inc. 192 4
* Digitas Inc. 384 4
* Retek Inc. 448 4
* JDA Software Group, Inc. 236 4
* Lawson Software Inc. 395 3
* Concur Technologies, Inc. 268 3
* Opsware, Inc. 372 3
* Rainbow Technologies, Inc. 220 3
* Lionbridge Technologies, Inc. 368 3
* SPSS, Inc. 144 3
* SupportSoft, Inc. 235 3
* ManTech International Corp. 136 3
* MRO Software Inc. 204 3
* Concord Communications, Inc. 148 3
* Netegrity, Inc. 288 3
* EPIQ Systems, Inc. 148 3
* MatrixOne, Inc. 400 3
* Verint Systems Inc. 93 2
* MSC.Software Corp. 252 2
* ActivCard Corp. 348 2
* Tyler Technologies, Inc. 236 2
* WatchGuard Technologies, Inc. 272 2
* Digimarc Corp. 164 2
* Keynote Systems Inc. 156 2
* OpenTV Corp. 680 2
* SeeBeyond Technology Corp. 388 2
* Group 1 Software, Inc. 124 2
Integral Systems, Inc. 80 1
* PalmSource, Inc. 76 1
* Tier Technologies, Inc. 148 1
Syntel, Inc. 53 1
* Embarcadero Technologies, Inc. 107 1
* Vastera, Inc. 344 1
* PDF Solutions, Inc. 108 1
* PEC Solutions, Inc. 97 1
* QAD Inc. 72 1
* iGATE Corp. 128 1
* Pegasystems Inc. 88 1
* NASSDA Corp. 16 -
----------------
4,193
----------------
COMPUTER TECHNOLOGY (20.5%)
International Business Machines Corp. 15,331 1,479
* Dell Inc. 20,561 671
Hewlett-Packard Co. 25,812 586
* EMC Corp. 21,463 307
* Sun Microsystems, Inc. 29,110 155
Electronic Data Systems Corp. 4,287 82
* Apple Computer, Inc. 3,268 78
* Network Appliance, Inc. 2,940 64
* Unisys Corp. 2,944 42
* Synopsys, Inc. 1,384 41
* SanDisk Corp. 1,387 35
* Storage Technology Corp. 1,012 30
* NVIDIA Corp. 1,301 29
* Zebra Technologies Corp. Class A 373 27
Seagate Technology 1,394 24
* Maxtor Corp. 2,188 22
* Western Digital Corp. 1,844 21
* Emulex Corp. 738 17
* Ingram Micro, Inc. Class A 810 15
Imation Corp. 318 11
* Gateway, Inc. 1,992 11
* RSA Security Inc. 588 10
* Perot Systems Corp. 694 10
* UNOVA, Inc. 424 9
* FileNET Corp. 326 9
* Adaptec, Inc. 1,000 9
* Lexar Media, Inc. 628 9
* Hutchinson Technology, Inc. 231 7
* Advanced Digital Information Corp. 520 7
* McDATA Corp. Class A 772 6
* Intergraph Corp. 300 6
* Quantum Corp. 1,472 6
* Silicon Graphics, Inc. 1,696 5
* Cray Inc. 684 5
* Dot Hill Systems Corp. 340 5
* Safeguard Scientifics, Inc. 992 4
* InFocus Corp. 328 4
* Komag, Inc. 168 4
* Synaptics Inc. 204 4
* PalmOne, Inc. 352 4
Iomega Corp. 428 2
* McDATA Corp. 284 2
* Computer Network Technology Corp. 224 2
* Concurrent Computer Corp. 516 2
* FalconStor Software, Inc. 184 1
* Neoware Systems, Inc. 128 1
* CompuCom Systems, Inc. 212 1
* Radiant Systems, Inc. 148 1
----------------
3,882
----------------
CONSUMER ELECTRONICS (2.5%)
* Yahoo! Inc. 4,979 221
* Electronic Arts Inc. 2,624 124
* VeriSign, Inc. 2,044 36
* Activision, Inc. 832 17
* Earthlink, Inc. 1,423 13
* DoubleClick Inc. 1,140 12
* Take-Two Interactive Software, Inc. 387 12
* CNET Networks, Inc. 1,064 11
* InfoSpace, Inc. 224 8
* United Online, Inc. 428 7
* THQ Inc. 340 6
* Atari, Inc. 304 1
----------------
468
----------------
DIVERSIFIED FINANCIAL SERVICES (0.1%)
* BISYS Group, Inc. 1,096 19
----------------
EDUCATION-SERVICES
Renaissance Learning, Inc. 83 2
----------------
ELECTRICAL & ELECTRONICS (0.2%)
* Benchmark Electronics, Inc. 332 12
* Power Integrations, Inc. 264 8
* Plexus Corp. 379 7
27
- --------------------------------------------------------------------------------
MARKET
VALUE*
INFORMATION TECHNOLOGY INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
* TTM Technologies, Inc. 288 5
* Universal Display Corp. 184 3
* OSI Systems Inc. 120 2
----------------
37
----------------
ELECTRICAL EQUIPMENT & COMPONENTS (0.3%)
Molex, Inc. Class A 761 20
Molex, Inc. 532 17
* MKS Instruments, Inc. 307 7
* Technitrol, Inc. 332 6
* Littelfuse, Inc. 180 6
CTS Corp. 288 4
* Cable Design Technologies Corp. 372 4
Cohu, Inc. 176 3
----------------
67
----------------
ELECTRONICS (1.4%)
* Flextronics International Ltd. 4,744 86
* Sanmina-SCI Corp. 4,546 58
* Vishay Intertechnology, Inc. 1,300 29
* Amphenol Corp. 355 22
* Semtech Corp. 654 16
* FLIR Systems, Inc. 293 11
* Avid Technology, Inc. 248 11
AVX Corp. 541 9
* Aeroflex, Inc. 548 8
Park Electrochemical Corp. 164 4
Methode Electronics, Inc. 292 4
Agilysys, Inc. 268 4
* Kopin Corp. 576 4
* Daktronics, Inc. 125 3
BEI Technologies, Inc. 120 3
* Drexler Technology Corp. 88 1
----------------
273
----------------
ELECTRONICS-GAUGE & METER (0.5%)
* Thermo Electron Corp. 1,451 41
Tektronix, Inc. 753 24
* Mettler-Toledo International Inc. 368 16
* Itron, Inc. 172 3
Keithley Instruments Inc. 112 3
* Metrologic Instruments, Inc. 68 2
----------------
89
----------------
ELECTRONICS-SEMICONDUCTORS/COMPONENTS (20.4%)
Intel Corp. 58,207 1,701
Texas Instruments, Inc. 15,422 473
Analog Devices, Inc. 3,283 164
Maxim Integrated Products, Inc. 2,928 146
* Xilinx, Inc. 3,047 128
Linear Technology Corp. 2,784 111
* Broadcom Corp. 2,096 85
* Altera Corp. 3,375 75
* Micron Technology, Inc. 4,868 73
* National Semiconductor Corp. 1,643 65
Microchip Technology, Inc. 1,831 52
* Advanced Micro Devices, Inc. 3,106 47
* Jabil Circuit, Inc. 1,425 40
* LSI Logic Corp. 3,448 35
* Marvell Technology Group Ltd. 734 33
* PMC Sierra Inc. 1,523 30
* Agere Systems Inc. Class B 8,144 30
Intersil Corp. 1,176 28
* Agere Systems Inc. Class A 6,928 27
* International Rectifier Corp. 573 26
* Avnet, Inc. 1,092 26
* Atmel Corp. 3,696 26
* Arrow Electronics, Inc. 1,036 25
* Rambus Inc. 785 25
* Cypress Semiconductor Corp. 1,084 23
* Fairchild Semiconductor International, Inc. 876 23
PerkinElmer, Inc. 1,074 22
* Integrated Circuit Systems, Inc. 643 18
* Applied Micro Circuits Corp. 2,732 18
* Integrated Device Technology Inc. 964 16
* Cree, Inc. 661 16
* Vitesse Semiconductor Corp. 1,960 16
* Skyworks Solutions, Inc. 1,332 15
* Amkor Technology, Inc. 929 14
* RF Micro Devices, Inc. 1,532 14
* Silicon Laboratories Inc. 244 14
* OmniVision Technologies, Inc. 448 13
* Lattice Semiconductor Corp. 1,036 11
* ON Semiconductor Corp. 1,264 11
* Silicon Storage Technology, Inc. 788 10
* Micrel, Inc. 616 9
* Conexant Systems, Inc. 1,235 9
* GlobespanVirata, Inc. 1,012 9
* TriQuint Semiconductor, Inc. 1,116 9
* MEMC Electronic Materials, Inc. 812 8
* Microsemi Corp. 480 7
* Mindspeed Technologies, Inc. 756 7
* Silicon Image, Inc. 588 7
* DSP Group Inc. 253 6
* Exar Corp. 362 6
* Cirrus Logic 796 6
* Pixelworks, Inc. 320 5
* Actel Corp. 208 5
* Integrated Silicon Solution, Inc. 311 5
* ESS Technology, Inc. 277 4
* Genesis Microchip Inc. 264 4
* Transmeta Corp. 1,188 4
* FormFactor Inc. 196 4
* Artisan Components, Inc. 184 3
* Excel Technology, Inc. 100 3
* ChipPAC, Inc. 392 3
* Pericom Semiconductor Corp. 212 2
* Monolithic System Technology, Inc. 178 2
* Siliconix, Inc. 48 2
* Planar Systems, Inc. 120 2
* White Electronic Designs Corp. 200 2
* IXYS Corp. 172 2
* Virage Logic Corp. 76 1
----------------
3,861
----------------
ELECTRONICS-TECHNOLOGY (0.6%)
* Solectron Corp. 7,496 48
* The Titan Corp. 668 14
* KEMET Corp. 716 11
* Trimble Navigation Ltd. 295 10
* Coherent, Inc. 266 8
* Checkpoint Systems, Inc. 293 5
* ScanSource, Inc. 109 5
* Identix, Inc. 716 4
----------------
105
----------------
FINANCIAL DATA PROCESSING SERVICES (5.4%)
First Data Corp. 8,116 333
Automatic Data Processing, Inc. 5,297 225
Paychex, Inc. 3,024 97
* SunGard Data Systems, Inc. 2,572 75
* Fiserv, Inc. 1,730 67
* Affiliated Computer Services, Inc. Class A 1,111 54
* DST Systems, Inc. 592 26
Fair, Isaac, Inc. 431 26
Certegy, Inc. 592 20
* CheckFree Corp. 639 19
Jack Henry & Associates Inc. 636 12
Global Payments Inc. 250 11
* Alliance Data Systems Corp. 355 11
* Kronos, Inc. 270 9
Total System Services, Inc. 336 7
* eFunds Corp. 420 7
* Digital Insight Corp. 272 6
28
- --------------------------------------------------------------------------------
MARKET
VALUE*
SHARES (000)
- --------------------------------------------------------------------------------
* Advent Software, Inc. 234 4
* Portal Software, Inc. 344 3
* CCC Information Services Group 120 2
* InterCept, Inc. 168 2
* iPayment Holdings, Inc. 58 2
----------------
1,018
----------------
FINANCIAL INFORMATION SERVICES (0.1%)
FactSet Research Systems Inc. 180 7
* S1 Corp. 584 4
* HomeStore, Inc. 788 4
----------------
15
----------------
FINANCIAL-MISCELLANEOUS
Barra, Inc. 130 4
----------------
HEALTH CARE MANAGEMENT SERVICES
* MedQuist, Inc. 66 1
----------------
IDENTIFICATION CONTROL & FILTER DEVICES (1.0%)
* Agilent Technologies, Inc. 3,817 130
* Waters Corp. 1,082 40
* Veeco Instruments, Inc. 244 7
* Asyst Technologies, Inc. 480 5
* Paxar Corp. 324 5
* Advanced Energy Industries, Inc. 168 4
----------------
191
----------------
Machinery-Specialty (0.1%)
Helix Technology Corp. 216 6
* Applied Films Corp. 120 4
* Semitool, Inc. 136 2
----------------
12
----------------
MEDICAL & DENTAL INSTRUMENTS & SUPPLIES
Landauer, Inc. 72 3
----------------
MISCELLANEOUS MATERIALS & PROCESSING
* Rogers Corp. 136 7
----------------
OFFICE FURNITURE & BUSINESS EQUIPMENT (1.2%)
* Xerox Corp. 7,072 100
* Lexmark International, Inc. 1,145 94
Diebold, Inc. 648 34
* Presstek, Inc. 284 3
----------------
231
----------------
PRODUCTION TECHNICAL EQUIPMENT (3.5%)
* Applied Materials, Inc. 14,820 315
* KLA-Tencor Corp. 1,733 91
* Novellus Systems, Inc. 1,356 44
* Teradyne, Inc. 1,687 42
* LAM Research Corp. 1,152 29
* Varian Semiconductor Equipment Associates, Inc 308 13
* Cymer, Inc. 315 12
Cognex Corp. 360 12
* Axcelis Technologies, Inc. 920 11
* Brooks Automation, Inc. 385 8
* LTX Corp. 512 8
* ATMI, Inc. 276 7
* Credence Systems Corp. 628 7
* Kulicke & Soffa Industries, Inc. 516 6
* Electro Scientific Industries, Inc. 249 6
* FEI Co. 221 5
* Mykrolis Corp. 332 5
* Photon Dynamics, Inc. 136 5
MTS Systems Corp. 176 5
* Ultratech, Inc. 188 5
* Photronics Inc. 268 5
* Mattson Technology, Inc. 372 4
* Entegris Inc. 356 4
* DuPont Photomasks, Inc. 152 3
* Rudolph Technologies, Inc. 110 2
----------------
654
----------------
RETAIL (0.2%)
CDW Corp. 556 38
* Global Imaging Systems, Inc. 145 4
* FreeMarkets, Inc. 348 3
----------------
45
----------------
SCIENTIFIC EQUIPMENT & SUPPLIES (0.1%)
* Varian, Inc. 309 12
* Newport Corp. 348 6
----------------
18
----------------
SERVICES-COMMERCIAL (1.0%)
* Accenture Ltd. 2,922 67
Sabre Holdings Corp. 1,292 29
* Iron Mountain, Inc. 608 27
* Convergys Corp. 1,288 21
* BearingPoint, Inc. 1,386 15
* MPS Group, Inc. 948 9
* Hewitt Associates, Inc. 259 8
* MAXIMUS, Inc. 172 6
* Autobytel Inc. 308 4
* Gartner, Inc. Class B 240 3
* Pegasus Solutions Inc. 208 3
* Forrester Research, Inc. 130 2
Startek, Inc. 45 2
* Lightbridge, Inc. 224 2
* NetRatings, Inc. 80 1
----------------
199
----------------
TELECOMMUNICATIONS EQUIPMENT (0.5%)
* Andrew Corp. 1,232 22
* Polycom, Inc. 920 20
* Plantronics, Inc. 364 15
* Interdigital Communications Corp. 490 13
* Arris Group Inc. 624 6
* Powerwave Technologies, Inc. 524 5
* Audiovox Corp. 172 3
* Terayon Communications Systems, Inc. 620 3
* Tollgrade Communications, Inc. 112 2
----------------
89
----------------
UTILITIES-TELECOMMUNICATIONS
* Intrado Inc. 132 3
----------------
WHOLESALERS (0.1%)
* Tech Data Corp. 506 20
* Brightpoint, Inc. 152 3
----------------
23
----------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $20,326) 18,916
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
Other Assets-Note B 153
Liabilities (154)
----------------
(1)
----------------
- --------------------------------------------------------------------------------
NET ASSETS (100%) $18,915
================================================================================
(+)See Note A in Notes to Financial Statements.
*Non-income-producing security.
29
- --------------------------------------------------------------------------------
AMOUNT
INFORMATION TECHNOLOGY INDEX FUND (000)
- --------------------------------------------------------------------------------
AT FEBRUARY 29, 2004, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Paid-in Capital $20,356
Undistributed Net Investment Income 3
Accumulated Net Realized Losses (34)
Unrealized Depreciation (1,410)
- --------------------------------------------------------------------------------
NET ASSETS $18,915
================================================================================
VIPER Shares-Net Assets
Applicable to 400,000 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $18,915
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE-
VIPER SHARES $47.29
================================================================================
See Note C in Notes to Financial Statements for the tax-basis components of net
assets.
30
- --------------------------------------------------------------------------------
MARKET
VALUE*
MATERIALS INDEX FUND ` SHARES (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (99.9%)
- --------------------------------------------------------------------------------
AGRICULTURE-FISH & RANCH (2.3%)
Monsanto Co. 14,560 481
----------------
ALUMINUM (8.5%)
Alcoa Inc. 48,168 1,805
----------------
BUILDING-CEMENT (0.6%)
Lafarge North America Inc. 1,720 71
Eagle Materials, Inc. 540 32
* Eagle Materials, Inc. B Shares 500 28
----------------
131
----------------
BUILDING MATERIALS (2.5%)
Vulcan Materials Co. 5,384 255
Martin Marietta Materials, Inc. 2,696 132
Florida Rock Industries, Inc. 1,796 79
Texas Industries, Inc. 1,176 42
Ameron International Corp. 404 16
----------------
524
----------------
CHEMICALS (38.0%)
E.I. du Pont de Nemours & Co. 55,432 2,499
Dow Chemical Co. 51,156 2,224
Praxair, Inc. 18,128 658
Air Products & Chemicals, Inc. 12,596 608
Rohm & Haas Co. 8,044 320
Ecolab, Inc. 10,852 296
Sigma-Aldrich Corp. 3,612 206
Eastman Chemical Co. 4,348 184
Lyondell Chemical Co. 7,908 141
Cabot Corp. 3,248 112
Lubrizol Corp. 2,828 88
Airgas, Inc. 3,744 78
Cytec Industries, Inc. 2,092 73
* Hercules, Inc. 5,756 68
Great Lakes Chemical Corp. 2,480 63
Albemarle Corp. 1,904 54
* OM Group, Inc. 1,548 48
Millennium Chemicals, Inc. 3,544 47
Crompton Corp. 6,072 45
MacDermid, Inc. 1,180 45
Georgia Gulf Corp. 1,556 42
Cambrex Corp. 1,312 36
A. Schulman Inc. 1,704 32
Arch Chemicals, Inc. 1,144 31
* PolyOne Corp. 4,680 27
Calgon Carbon Corp. 1,988 14
Quaker Chemical Corp. 484 13
NL Industries, Inc. 432 6
Stepan Co. 252 6
----------------
8,064
----------------
COAL (1.8%)
CONSOL Energy, Inc. 4,320 109
Peabody Energy Corp. 2,360 101
Massey Energy Co. 4,144 87
Arch Coal, Inc. 2,780 81
----------------
378
----------------
CONSUMER PRODUCTS (0.8%)
International Flavors & Fragrances, Inc. 4,504 165
----------------
CONTAINER & PACKAGE-METAL & GLASS (1.4%)
* Crown Holdings, Inc. 9,016 85
* Owens-Illinois, Inc. 6,040 81
AptarGroup Inc. 1,948 79
* Silgan Holdings, Inc. 632 28
Greif Inc. Class A 640 23
----------------
296
----------------
CONTAINER & PACKAGE-PAPER & PLASTICS (5.7%)
Smurfit-Stone Container Corp. 13,128 244
* Sealed Air Corp. 4,532 226
* Pactiv Corp. 8,736 188
Temple-Inland Inc. 2,764 180
Bemis Co., Inc. 2,808 143
Sonoco Products Co. 5,240 131
Packaging Corp. of America 3,520 83
Myers Industries, Inc. 1,136 14
----------------
1,209
----------------
COPPER (3.7%)
* Phelps Dodge Corp. 4,944 426
Freeport-McMoRan Copper & Gold, Inc. Class B 8,180 349
----------------
775
----------------
DIVERSIFIED MANUFACTURING (2.2%)
Engelhard Corp. 7,088 206
Ball Corp. 2,984 193
Olin Corp. 3,780 69
----------------
468
----------------
FERTILIZERS (0.7%)
* Scotts Co. 1,216 77
IMC Global Inc. 5,972 67
----------------
144
----------------
FOODS (0.2%)
Sensient Technologies Corp. 2,392 47
----------------
FOREST PRODUCTS (6.9%)
Weyerhaeuser Co. 12,184 795
Georgia Pacific Group 12,744 408
Louisiana-Pacific Corp. 5,636 139
Potlatch Corp. 1,464 62
Longview Fibre Co. 2,504 33
Deltic Timber Corp. 508 17
Pope & Talbot, Inc. 800 14
----------------
1,468
----------------
GOLD (5.4%)
Newmont Mining Corp. (Holding Co.) 24,112 1,048
* Coeur d'Alene Mines Corp. 11,324 80
Royal Gold, Inc. 752 13
----------------
1,141
----------------
METAL FABRICATING (0.5%)
Quanex Corp. 920 43
Commercial Metals Co. 1,424 42
* RTI International Metals, Inc. 1,164 20
----------------
105
----------------
METALS & MINERALS & COMMODITIES (0.2%)
* Symyx Technologies, Inc. 1,596 43
----------------
METALS & MINERALS MISCELLANEOUS (1.4%)
* GrafTech International Ltd. 4,968 67
Minerals Technologies, Inc. 1,128 61
* Apex Silver Mines Ltd. 2,268 50
* Hecla Mining Co. 6,000 46
* Cleveland-Cliffs Inc. 628 37
* Stillwater Mining Co. 2,160 26
AMCOL International Corp. 1,048 19
----------------
306
----------------
MISCELLANEOUS MATERIALS & PROCESSING (0.2%)
USEC Inc. 4,496 38
----------------
MULTI-SECTOR COMPANIES (0.3%)
* FMC Corp. 1,800 68
----------------
PAINTS & COATING (4.2%)
PPG Industries, Inc. 9,360 549
Valspar Corp. 2,684 134
RPM International, Inc. 6,396 104
31
- --------------------------------------------------------------------------------
MARKET
VALUE*
MATERIALS INDEX FUND ` SHARES (000)
- --------------------------------------------------------------------------------
Ferro Corp. 2,280 59
H.B. Fuller Co. 1,648 45
----------------
891
----------------
PAPER (8.1%)
International Paper Co. 25,364 1,123
MeadWestvaco Corp. 11,124 326
Bowater Inc. 3,124 143
Wausau-Mosinee Paper Corp. 2,532 34
Chesapeake Corp. of Virginia 884 22
Rock-Tenn Co. 1,380 20
* Caraustar Industries, Inc. 1,524 18
Glatfelter 1,432 17
* Buckeye Technology, Inc. 1,688 16
----------------
1,719
----------------
PLASTICS (0.2%)
Spartech Corp. 1,796 42
----------------
POLLUTION CONTROL & ENVIRONMENTAL SERVICE (0.2%)
* Headwaters Inc. 1,676 40
----------------
STEEL (3.8%)
Nucor Corp. 4,388 276
United States Steel Corp. 5,668 208
Worthington Industries, Inc. 3,688 64
* Steel Dynamics, Inc. 1,936 47
* International Steel Group, Inc. 1,172 46
Allegheny Technologies Inc. 3,544 45
Schnitzer Steel Industries, Inc. Class A 816 40
Carpenter Technology Corp. 1,140 39
* AK Steel Corp. 5,536 27
Gibraltar Steel 780 19
----------------
811
----------------
SYNTHETIC FIBERS
Wellman, Inc. 1,628 13
----------------
TOBACCO (0.1%)
Schweitzer-Mauduit International, Inc. 852 28
----------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $20,428) 21,200
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (0.1%)
- --------------------------------------------------------------------------------
Other Assets-Note B 234
Liabilities (213)
----------------
21
----------------
- --------------------------------------------------------------------------------
NET ASSETS (100%) $21,221
================================================================================
(+)See Note A in Notes to Financial Statements.
*Non-income-producing security.
- --------------------------------------------------------------------------------
AMOUNT
` (000)
- --------------------------------------------------------------------------------
AT FEBRUARY 29, 2004, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Paid-in Capital $20,392
Undistributed Net Investment Income 56
Accumulated Net Realized Gains 1
Unrealized Appreciation 772
- --------------------------------------------------------------------------------
NET ASSETS $21,221
================================================================================
Admiral Shares-Net Assets
Applicable to 23,046 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $605
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE-
ADMIRAL SHARES $26.23
================================================================================
VIPER Shares-Net Assets
Applicable to 400,000 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $20,616
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE-
VIPER SHARES $51.54
================================================================================
See Note C in Notes to Financial Statements for the tax-basis components of net
assets.
32
- --------------------------------------------------------------------------------
MARKET
VALUE*
UTILITIES INDEX FUND SHARES (000)
- --------------------------------------------------------------------------------
COMMON STOCKS (100.0%)
- --------------------------------------------------------------------------------
ENERGY MISCELLANEOUS (1.3%)
* Calpine Corp. 43,952 242
* Reliant Resources, Inc. 29,668 225
Texas Genco Holdings, Inc. 1,680 62
----------------
529
----------------
UTILITIES-ELECTRICAL (81.6%)
Southern Co. 77,760 2,358
Exelon Corp. 34,656 2,327
Dominion Resources, Inc. 34,496 2,167
Duke Energy Corp. 96,400 2,117
Entergy Corp. 24,392 1,446
American Electric Power Co., Inc. 41,904 1,446
FirstEnergy Corp. 35,032 1,353
* PG&E Corp. 44,088 1,242
FPL Group, Inc. 18,556 1,218
Public Service Enterprise Group, Inc. 24,992 1,178
Progress Energy, Inc. 24,768 1,143
Consolidated Edison Inc. 23,976 1,059
TXU Corp. 32,692 920
Ameren Corp. 19,260 913
PPL Corp. 18,820 876
Xcel Energy, Inc. 42,296 739
DTE Energy Co. 17,836 722
Edison International 31,116 718
Cinergy Corp. 18,032 707
Constellation Energy Group, Inc. 17,696 703
NiSource, Inc. 27,848 605
* AES Corp. 59,560 540
SCANA Corp. 11,728 410
Wisconsin Energy Corp. 12,480 403
Pepco Holdings, Inc. 18,212 387
Pinnacle West Capital Corp. 9,668 378
Energy East Corp. 15,480 374
CenterPoint Energy Inc. 29,224 306
Alliant Energy Corp. 11,772 303
TECO Energy, Inc. 19,972 301
NSTAR 5,560 284
DPL Inc. 13,460 269
Northeast Utilities 13,520 260
Great Plains Energy, Inc. 7,352 255
OGE Energy Corp. 9,240 238
Puget Energy, Inc. 9,956 224
Hawaiian Electric Industries Inc. 3,928 208
* Allegheny Energy, Inc. 13,472 178
WPS Resources Corp. 3,696 176
Duquesne Light Holdings, Inc. 7,968 159
* CMS Energy Corp. 17,200 158
Westar Energy, Inc. 7,672 148
PNM Resources Inc. 4,216 128
IDACORP, Inc. 4,004 125
* Sierra Pacific Resources 12,480 101
Black Hills Corp. 3,280 100
Cleco Corp. 5,056 96
Avista Corp. 4,832 87
CH Energy Group, Inc. 1,752 86
UniSource Energy Corp. 3,528 86
UIL Holdings Corp. 1,480 71
Otter Tail Corp. 2,628 70
* El Paso Electric Co. 5,148 70
Empire District Electric Co. 2,608 59
MGE Energy, Inc. 1,828 57
Central Vermont Public Service Corp. 1,252 28
----------------
33,080
----------------
UTILITIES-GAS DISTRIBUTION (11.4%)
Sempra Energy 21,636 686
KeySpan Corp. 16,912 643
Kinder Morgan, Inc. 9,880 610
Questar Corp. 8,364 $300
National Fuel Gas Co. 8,208 208
AGL Resources Inc. 6,512 187
ONEOK, Inc. 8,400 187
Peoples Energy Corp. 3,844 171
NICOR Inc. 4,616 167
Piedmont Natural Gas, Inc. 3,988 166
* Kinder Morgan Management, LLC 3,640 157
UGI Corp. Holding Co. 4,472 148
WGL Holdings Inc. 5,096 148
Atmos Energy Corp. 4,900 129
Energen Corp. 3,092 128
* Southern Union Co. 5,768 112
New Jersey Resources Corp. 2,852 111
Northwest Natural Gas Co. 2,696 86
Southwest Gas Corp. 3,644 86
The Laclede Group, Inc. 1,948 60
South Jersey Industries, Inc. 1,416 60
NUI Corp. 1,680 29
Cascade Natural Gas Corp. 1,164 25
----------------
4,604
----------------
UTILITIES-GAS PIPELINES (3.5%)
Williams Cos., Inc. 55,092 522
El Paso Corp. 66,396 494
Equitable Resources, Inc. 6,624 285
* Dynegy, Inc. 28,272 116
----------------
1,417
----------------
UTILITIES-WATER (0.9%)
Aqua America, Inc. 9,772 211
California Water Service Group 1,728 51
American States Water Co. 1,592 39
Connecticut Water Services, Inc. 836 24
SJW Corp. 168 18
----------------
343
----------------
UTILITIES-MISCELLANEOUS (1.3%)
MDU Resources Group, Inc. 11,064 256
Vectren Corp. 8,020 200
* Aquila, Inc. 20,756 82
----------------
538
----------------
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $39,744) 40,511
- --------------------------------------------------------------------------------
FACE
AMOUNT
(000)
- --------------------------------------------------------------------------------
TEMPORARY CASH INVESTMENT (0.6%)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT
Collateralized by U.S. Government
Obligations in a Pooled
Cash Account
1.04%, 3/1/2004-Note E
(Cost $244) $244 244
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.6%)
(Cost $39,988) 40,755
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (-0.6%)
- --------------------------------------------------------------------------------
Other Assets-Note B 286
Liabilities-Note E (521)
----------------
(235)
----------------
- --------------------------------------------------------------------------------
NET ASSETS (100%) $40,520
================================================================================
(+)See Note A in Notes to Financial Statements.
*Non-income-producing security.
33
- --------------------------------------------------------------------------------
AMOUNT
UTILITIES INDEX FUND (000)
- --------------------------------------------------------------------------------
AT FEBRUARY 29, 2004, NET ASSETS CONSISTED OF:
- --------------------------------------------------------------------------------
Paid-in Capital $39,567
Undistributed Net Investment Income 181
Accumulated Net Realized Gains 5
Unrealized Appreciation 767
- --------------------------------------------------------------------------------
NET ASSETS $40,520
================================================================================
VIPER Shares-Net Assets
Applicable to 800,000 outstanding $.001
par value shares of beneficial interest
(unlimited authorization) $40,520
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE-
VIPER SHARES $50.65
================================================================================
See Note C in Notes to Financial Statements for the tax-basis components of net
assets.
34
STATEMENT OF OPERATIONS
This Statement shows the types of income earned by each fund during the
reporting period, and details the operating expenses charged to each class of
its shares. These expenses directly reduce the amount of investment income
available to pay to shareholders as income dividends. This Statement also shows
any Net Gain (Loss) realized on the sale of investments, and the increase or
decrease in the Unrealized Appreciation (Depreciation) of investments during the
period.
- ----------------------------------------------------------------------------------------------------------------------
Consumer Consumer
Discretionary Staples Financials Health Care
Index Fund Index Fund Index Fund Index Fund
-------------------------------------------------------
January 26, 2004* to February 29, 2004
- ----------------------------------------------------------------------------------------------------------------------
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------
INCOME
Dividends $20 $18 $56 $35
- ----------------------------------------------------------------------------------------------------------------------
Total Income 20 18 56 35
- ----------------------------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group-Note B
Management and Administrative
Admiral Shares - - - -
VIPER Shares 3 4 3 4
Custodian Fees 2 1 2 1
- ----------------------------------------------------------------------------------------------------------------------
Total Expenses 5 5 5 5
- ----------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 15 13 51 30
- ----------------------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) ON INVESTMENT SECURITIES SOLD (23) 89 (3) (2)
- ----------------------------------------------------------------------------------------------------------------------
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES (122) 917 227 (57)
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(130) $1,019 $275 $(29)
======================================================================================================================
- ---------------------------------------------------------------------------------------------------------
INFORMATION
TECHNOLOGY MATERIALS UTILITIES
INDEX FUND INDEX FUND INDEX FUND
---------------------------------------
JANUARY 26, 2004* TO FEBRUARY 29, 2004
---------------------------------------
(000) (000) (000)
- ---------------------------------------------------------------------------------------------------------
INCOME
Dividends $8 $61 $190
- ---------------------------------------------------------------------------------------------------------
Total Income 8 61 190
- ---------------------------------------------------------------------------------------------------------
EXPENSES
The Vanguard Group-Note B
Management and Administrative
Admiral Shares - - -
VIPER Shares 3 4 8
Custodian Fees 2 1 1
- ---------------------------------------------------------------------------------------------------------
Total Expenses 5 5 9
- ---------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 3 56 181
- ---------------------------------------------------------------------------------------------------------
REALIZED NET GAIN (LOSS) ON INVESTMENT SECURITIES SOLD (34) 1 5
- ---------------------------------------------------------------------------------------------------------
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES (1,410) 772 767
- ---------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(1,441) $829 $953
=========================================================================================================
*Inception.
35
STATEMENT OF CHANGES IN NET ASSETS
This Statement shows how each funds' total net assets changed during the
reporting period. The Operations section summarizes information detailed in the
Statement of Operations. The amounts shown as Distributions to shareholders from
the fund's net income and capital gains may not match the amounts shown in the
Operations section, because distributions are
determined on a tax basis and may be made in a period different from the one in
which the income was earned or the gains were realized on the financial
statements. The Capital Share Transactions section shows the net amount
shareholders invested in or redeemed from the fund. Distributions and Capital
Share Transactions are shown separately for each class of shares.
- ----------------------------------------------------------------------------------------------------------------------
CONSUMER CONSUMER
DISCRETIONARY STAPLES FINANCIALS HEALTH CARE
INDEX FUND INDEX FUND INDEX FUND INDEX FUND
-------------------------------------------------------
JANUARY 26, 2004* TO FEBRUARY 29, 2004
-------------------------------------------------------
(000) (000) (000) (000)
- ----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $15 $13 $51 $30
Realized Net Gain (Loss) (23) 89 (3) (2)
Unrealized Appreciation (Depreciation) (122) 917 227 (57)
- ----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (130) 1,019 275 (29)
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income
Admiral Shares - - - -
VIPER Shares - - - -
Realized Capital Gain
Admiral Shares - - - -
VIPER Shares - - - -
- ----------------------------------------------------------------------------------------------------------------------
Total Distributions - - - -
- ----------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS-Note F
Admiral Shares - 253 500 250
VIPER Shares 20,044 20,335 20,208 20,220
- ----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions 20,044 20,588 20,708 20,470
- ----------------------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 19,914 21,607 20,983 20,441
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period - - - -
- ----------------------------------------------------------------------------------------------------------------------
End of Period $19,914 $21,607 $20,983 $20,441
======================================================================================================================
- --------------------------------------------------------------------------------------------------------
INFORMATION
TECHNOLOGY MATERIALS UTILITIES
INDEX FUND INDEX FUND INDEX FUND
---------------------------------------
JANUARY 26, 2004* TO FEBRUARY 29, 2004
---------------------------------------
(000) (000) (000)
- --------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net Investment Income $3 $56 $181
Realized Net Gain (Loss) (34) 1 5
Unrealized Appreciation (Depreciation) (1,410) 772 767
- --------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (1,441) 829 953
- --------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income
Admiral Shares - - -
VIPER Shares - - -
Realized Capital Gain
Admiral Shares - - -
VIPER Shares - - -
Total Distributions - - -
- --------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS-Note F
Admiral Shares - 600 -
VIPER Shares 20,356 19,792 39,567
- --------------------------------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share Transactions 20,356 20,392 39,567
- --------------------------------------------------------------------------------------------------------
Total Increase (Decrease) 18,915 21,221 40,520
- --------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period - - -
- --------------------------------------------------------------------------------------------------------
End of Period $18,915 $21,221 $40,520
========================================================================================================
*Inception.
36
FINANCIAL HIGHLIGHTS
These tables summarize each fund's investment results and distributions to
shareholders on a per-share basis for each class of shares. It also presents the
Total Return and shows net investment income and expenses as percentages of
average net assets. These data will help you assess: the variability of the
fund's net income and total returns from year to year; the relative
contributions of net income and capital gains to the fund's total return; how
much it costs to operate the fund; and the extent to which the fund tends to
distribute capital gains. The table also shows the Portfolio Turnover Rate, a
measure of trading activity. A turnover rate of 100% means that the average
security is held in the fund for one year.
CONSUMER DISCRETIONARY INDEX FUND
VIPER SHARES
- --------------------------------------------------------------------------------
JAN. 26* TO
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD FEB. 29, 2004
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $50.09
- --------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .04
Net Realized and Unrealized Gain (Loss) on Investments (.34)
- --------------------------------------------------------------------------------
Total from Investment Operations (.30)
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income -
Distributions from Realized Capital Gains -
- --------------------------------------------------------------------------------
Total Distributions -
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $49.79
================================================================================
TOTAL RETURN -0.60%
================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $20
Ratio of Total Expenses to Average Net Assets 0.28%**
Ratio of Net Investment Income to Average Net Assets 0.80%**
Portfolio Turnover Rate 15%**
================================================================================
CONSUMER STAPLES INDEX FUND
VIPER SHARES
- --------------------------------------------------------------------------------
JAN. 26* TO
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD FEB. 29, 2004
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $50.84
- --------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .03
Net Realized and Unrealized Gain (Loss) on Investments 2.48
- --------------------------------------------------------------------------------
Total from Investment Operations 2.51
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income -
Distributions from Realized Capital Gains -
- --------------------------------------------------------------------------------
Total Distributions -
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $53.35
================================================================================
TOTAL RETURN 4.94%
================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $21
Ratio of Total Expenses to Average Net Assets 0.28%**
Ratio of Net Investment Income to Average Net Assets 0.67%**
Portfolio Turnover Rate 43%**
================================================================================
CONSUMER STAPLES INDEX FUND
ADMIRAL SHARES
- --------------------------------------------------------------------------------
JAN. 30* TO
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD FEB. 29, 2004
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $25.00
- --------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .01
Net Realized and Unrealized Gain (Loss) on Investments 1.34
- --------------------------------------------------------------------------------
Total from Investment Operations 1.35
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income -
Distributions from Realized Capital Gains -
- --------------------------------------------------------------------------------
Total Distributions -
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $26.35
================================================================================
TOTAL RETURN 5.40%
================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $0.3
Ratio of Total Expenses to Average Net Assets 0.28%**
Ratio of Net Investment Income to Average Net Assets 0.67%**
Portfolio Turnover Rate 43%**
================================================================================
*Inception.
**Annualized.
+Total returns do not reflect the 2% fee assessed on redemptions of shares held
for less than one year.
37
FINANCIAL HIGHLIGHTS (CONTINUED)
FINANCIALS INDEX FUND
VIPER SHARES
- --------------------------------------------------------------------------------
JAN. 26* TO
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD FEB. 29, 2004
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $50.51
- --------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .13
Net Realized and Unrealized Gain (Loss) on Investments .55
- --------------------------------------------------------------------------------
Total from Investment Operations .68
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income -
Distributions from Realized Capital Gains -
- --------------------------------------------------------------------------------
Total Distributions -
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $51.19
================================================================================
TOTAL RETURN 1.35%
================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $20
Ratio of Total Expenses to Average Net Assets 0.28%**
Ratio of Net Investment Income to Average Net Assets 2.72%**
Portfolio Turnover Rate 14%**
================================================================================
HEALTH CARE INDEX FUND
VIPER SHARES
- --------------------------------------------------------------------------------
JAN. 26* TO
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD FEB. 29, 2004
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $50.55
- --------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .07
Net Realized and Unrealized Gain (Loss) on Investments (.14)
- --------------------------------------------------------------------------------
Total from Investment Operations (.07)
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income -
Distributions from Realized Capital Gains -
- --------------------------------------------------------------------------------
Total Distributions -
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $50.48
================================================================================
TOTAL RETURN -0.14%
================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $20
Ratio of Total Expenses to Average Net Assets 0.28%**
Ratio of Net Investment Income to Average Net Assets 1.57%**
Portfolio Turnover Rate 12%**
================================================================================
FINANCIALS INDEX FUND
ADMIRAL SHARES
- --------------------------------------------------------------------------------
FEB. 4* TO
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD FEB. 29, 2004
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $24.90
- --------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .02
Net Realized and Unrealized Gain (Loss) on Investments .74
- --------------------------------------------------------------------------------
Total from Investment Operations .76
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income -
Distributions from Realized Capital Gains -
- --------------------------------------------------------------------------------
Total Distributions -
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $25.66
================================================================================
TOTAL RETURN 3.05%
================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1
Ratio of Total Expenses to Average Net Assets 0.28%**
Ratio of Net Investment Income to Average Net Assets 2.72%**
Portfolio Turnover Rate 14%**
================================================================================
HEALTH CARE INDEX FUND
ADMIRAL SHARES
- --------------------------------------------------------------------------------
FEB. 5* TO
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD FEB. 29, 2004
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $25.33
- --------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .04
Net Realized and Unrealized Gain (Loss) on Investments (.11)
- --------------------------------------------------------------------------------
Total from Investment Operations (.07)
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income -
Distributions from Realized Capital Gains -
- --------------------------------------------------------------------------------
Total Distributions -
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $25.26
================================================================================
TOTAL RETURN -0.28%
================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $0.2
Ratio of Total Expenses to Average Net Assets 0.28%**
Ratio of Net Investment Income to Average Net Assets 1.57%**
Portfolio Turnover Rate 12%**
================================================================================
*Inception.
**Annualized.
+Total returns do not reflect the 2% fee assessed on redemptions of shares held
for less than one year.
38
INFORMATION TECHNOLOGY INDEX FUND
VIPER SHARES
- --------------------------------------------------------------------------------
JAN. 26* TO
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD FEB. 29, 2004
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $50.89
- --------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .01
Net Realized and Unrealized Gain (Loss) on Investments (3.61)
- --------------------------------------------------------------------------------
Total from Investment Operations (3.60)
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income -
Distributions from Realized Capital Gains -
- --------------------------------------------------------------------------------
Total Distributions -
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $47.29
================================================================================
TOTAL RETURN -7.07%
================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $19
Ratio of Total Expenses to Average Net Assets 0.28%**
Ratio of Net Investment Income to Average Net Assets 0.14%**
Portfolio Turnover Rate 9%**
================================================================================
MATERIALS INDEX FUND
VIPER SHARES
- --------------------------------------------------------------------------------
JAN. 26* TO
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD FEB. 29, 2004
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $49.48
- --------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .14
Net Realized and Unrealized Gain (Loss) on Investments 1.92
- --------------------------------------------------------------------------------
Total from Investment Operations 2.06
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income -
Distributions from Realized Capital Gains -
- --------------------------------------------------------------------------------
Total Distributions -
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $51.54
================================================================================
TOTAL RETURN 4.16%
================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $21
Ratio of Total Expenses to Average Net Assets 0.28%**
Ratio of Net Investment Income to Average Net Assets 3.00%**
Portfolio Turnover Rate 8%**
================================================================================
MATERIALS INDEX FUND
ADMIRAL SHARES
- --------------------------------------------------------------------------------
FEB. 11* TO
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD FEB. 29, 2004
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $26.14
- --------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .02
Net Realized and Unrealized Gain (Loss) on Investments .07
- --------------------------------------------------------------------------------
Total from Investment Operations .09
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income -
Distributions from Realized Capital Gains -
- --------------------------------------------------------------------------------
Total Distributions -
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $26.23
================================================================================
TOTAL RETURN 0.34%
================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $1
Ratio of Total Expenses to Average Net Assets 0.28%**
Ratio of Net Investment Income to Average Net Assets 3.00%**
Portfolio Turnover Rate 8%**
================================================================================
*Inception.
**Annualized.
+Total returns do not reflect the 2% fee assessed on redemptions of shares held
for less than one year.
39
FINANCIAL HIGHLIGHTS (CONTINUED)
UTILITIES INDEX FUND
VIPER SHARES
- --------------------------------------------------------------------------------
JAN. 26* TO
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD FEB. 29, 2004
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $49.64
- --------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income .23
Net Realized and Unrealized Gain (Loss) on Investments .78
- --------------------------------------------------------------------------------
Total from Investment Operations 1.01
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Dividends from Net Investment Income -
Distributions from Realized Capital Gains -
- --------------------------------------------------------------------------------
Total Distributions -
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $50.65
================================================================================
TOTAL RETURN 2.03%
================================================================================
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (Millions) $41
Ratio of Total Expenses to Average Net Assets 0.28%**
Ratio of Net Investment Income to Average Net Assets 5.62%**
Portfolio Turnover Rate 4%**
================================================================================
SEE ACCOMPANYING NOTES, WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
*Inception.
**Annualized.
40
NOTES TO FINANCIAL STATEMENTS
Vanguard U.S. Sector Index Funds comprise the Consumer Discretionary, Consumer
Staples, Financials, Health Care, Information Technology, Materials, and
Utilities Index Funds, each of which is registered under the Investment Company
Act of 1940 as an open-end investment company, or mutual fund. The funds offer
two classes of shares, Admiral Shares and VIPER Shares. Admiral Shares were
first issued on January 30, 2004, February 4, 2004, February 5, 2004, and
February 11, 2004, by the Consumer Staples, Financials, Health Care, and
Materials Index Funds, respectively, and are available to any investor who meets
the fund's minimum purchase requirements. The Consumer Discretionary,
Information Technology, and Utilities Index Funds have not issued any Admiral
Shares through February 29, 2004. VIPER Shares were first issued on January 26,
2004, and first offered to the public on January 30, 2004. VIPER Shares are
listed for trading on the American Stock Exchange; they can be purchased and
sold through a broker.
A. The following significant accounting policies conform to generally accepted
accounting principles for U.S. mutual funds. The funds consistently follow such
policies in preparing their financial statements.
1. SECURITY VALUATION: Securities are valued as of the close of trading on the
New York Stock Exchange (generally 4:00 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 funds' pricing time
but after the close of the securities' primary markets, are valued by
methods deemed by the board of trustees to represent fair value. Temporary
cash investments acquired over 60 days to maturity are valued using the
latest bid prices or using valuations based on a matrix system (which
considers such factors as security prices, yields, maturities, and
ratings), both as furnished by independent pricing services. Other
temporary cash investments are valued at amortized cost, which approximates
market value.
2. REPURCHASE AGREEMENTS: Each fund, along with other members of The Vanguard
Group, transfers uninvested cash balances into a pooled cash account, which
is invested in repurchase agreements secured by U.S. government securities.
Securities pledged as collateral for repurchase agreements are held by a
custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of
interest and principal; however, in the event of default or bankruptcy by
the other party to the agreement, retention of the collateral may be
subject to legal proceedings.
3. FEDERAL INCOME TAXES: Each fund intends to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly,
no provision for federal income taxes is required in the financial
statements.
4. DISTRIBUTIONS: Distributions to shareholders are recorded on the
ex-dividend date.
5. OTHER: Dividend income is recorded on the ex-dividend 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. Fees assessed on
redemptions of Admiral Shares are credited to paid-in capital. No
redemption fees were assessed during the period ended February 29, 2004.
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 realized and unrealized gains and losses on investments are
allocated to each class of shares based on its relative net assets.
B. The Vanguard Group furnishes at cost investment advisory, corporate
management, administrative, marketing, and distribution services. The costs of
such services are allocated to each fund under methods approved by the board of
trustees. Each fund has committed to provide up to 0.40% of its net assets in
capital contributions to Vanguard. At February 29, 2004, the funds had
contributed capital to Vanguard (included in Other Assets) of:
- --------------------------------------------------------------------------------
CAPITAL CONTRIBUTION PERCENTAGE PERCENTAGE OF
TO VANGUARD OF FUND VANGUARD'S
INDEX FUND (000) NET ASSETS CAPITALIZATION
- --------------------------------------------------------------------------------
Consumer Discretionary $3 0.02% 0.00%
Consumer Staples 3 0.01 0.00
Financials 3 0.01 0.00
Health Care 3 0.01 0.00
Information Technology 3 0.02 0.00
Materials 3 0.01 0.00
Utilities 3 0.01 0.00
- --------------------------------------------------------------------------------
The funds' trustees and officers are also directors and officers of Vanguard.
C. Distributions are determined on a tax basis and may differ from net
investment income and realized capital gains for financial reporting purposes.
Differences may be permanent or temporary. Permanent differences are
reclassified among capital accounts in the financial statements to reflect their
tax character. Temporary differences arise when certain items of income,
expense, gain, or loss are recognized in different periods for financial
statement and tax purposes; these differences will reverse at some time in the
future. Differences in classification may also result from the treatment of
short-term gains as ordinary income for tax purposes. The funds' tax-basis
capital gains and losses are determined only at the end of the fiscal year.
At February 29, 2004, net unrealized appreciation (depreciation) of investment
securities for tax purposes was:
- --------------------------------------------------------------------------------
(000)
------------------------------------------------
NET UNREALIZED
APPRECIATED DEPRECIATED APPRECIATION
INDEX FUND SECURITIES SECURITIES (DEPRECIATION)
- --------------------------------------------------------------------------------
Consumer Discretionary $606 $(728) $(122)
Consumer Staples 968 (51) 917
Financials 432 (205) 227
Health Care 426 (483) (57)
Information Technology 158 (1,568) (1,410)
Materials 903 (131) 772
Utilities 1,067 (300) 767
- --------------------------------------------------------------------------------
D. During the period ended February 29, 2004, purchases and sales of investment
securities other than temporary cash investments were:
- --------------------------------------------------------------------------------
(000)
---------------------------------
INDEX FUND PURCHASES SALES
- --------------------------------------------------------------------------------
Consumer Discretionary $22,036 $1,976
Consumer Staples 24,286 3,539
Financials 22,404 1,611
Health Care 21,901 1,366
Information Technology 21,677 1,317
Materials 21,598 1,171
Utilities 40,375 636
- --------------------------------------------------------------------------------
E. The market value of securities on loan to broker/dealers at February 29,
2004, for the Utilities Index Fund was $224,000, for which the fund held cash
collateral of $244,000. The fund invests cash collateral received in repurchase
agreements, and records a liability for the return of the collateral, during the
period the securities are on loan.
41
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
F. Capital share transactions for each class of shares were:
- --------------------------------------------------------------------------------
JANUARY 26* TO
FEBRUARY 29, 2004
---------------------------------
AMOUNT SHARES
INDEX FUND (000) (000)
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY
VIPER Shares
Issued $20,044 400
Issued in Lieu of Cash Distributions - -
Redeemed - -
---------------------------------
Net Increase (Decrease)-VIPER Shares 20,044 400
- --------------------------------------------------------------------------------
CONSUMER STAPLES
Admiral Shares
Issued $253 10
Issued in Lieu of Cash Distributions - -
Redeemed - -
---------------------------------
Net Increase (Decrease)-Admiral Shares 253 10
---------------------------------
VIPER Shares
Issued 20,335 400
Issued in Lieu of Cash Distributions - -
Redeemed - -
---------------------------------
Net Increase (Decrease)-VIPER Shares 20,335 400
- --------------------------------------------------------------------------------
FINANCIALS
Admiral Shares
Issued $500 20
Issued in Lieu of Cash Distributions - -
Redeemed - -
---------------------------------
Net Increase (Decrease)-Admiral Shares 500 20
---------------------------------
VIPER Shares
Issued 20,208 400
Issued in Lieu of Cash Distributions - -
Redeemed - -
---------------------------------
Net Increase (Decrease)-VIPER Shares 20,208 400
- --------------------------------------------------------------------------------
HEALTH CARE
Admiral Shares
Issued $250 10
Issued in Lieu of Cash Distributions - -
Redeemed - -
---------------------------------
Net Increase (Decrease)-Admiral Shares 250 10
---------------------------------
VIPER Shares
Issued 20,220 400
Issued in Lieu of Cash Distributions - -
Redeemed - -
---------------------------------
Net Increase (Decrease)-VIPER Shares 20,220 400
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
JANUARY 26* TO
FEBRUARY 29, 2004
---------------------------------
AMOUNT SHARES
INDEX FUND (000) (000)
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY
VIPER Shares
Issued $20,356 400
Issued in Lieu of Cash Distributions - -
Redeemed - -
---------------------------------
Net Increase (Decrease)-VIPER Shares 20,356 400
- --------------------------------------------------------------------------------
MATERIALS
Admiral Shares
Issued $600 23
Issued in Lieu of Cash Distributions - -
Redeemed - -
---------------------------------
Net Increase (Decrease)-Admiral Shares 600 23
---------------------------------
VIPER Shares
Issued 19,792 400
Issued in Lieu of Cash Distributions - -
Redeemed - -
---------------------------------
Net Increase (Decrease)-VIPER Shares 19,792 400
- --------------------------------------------------------------------------------
UTILITIES
VIPER Shares
Issued $39,567 800
Issued in Lieu of Cash Distributions - -
Redeemed - -
---------------------------------
Net Increase (Decrease)-VIPER Shares 39,567 800
- --------------------------------------------------------------------------------
*Inception.
42
- --------------------------------------------------------------------------------
INVESTING IS FAST, EASY, AND SECURE ON VANGUARD.COM
- --------------------------------------------------------------------------------
If you're like many Vanguard investors, you believe in planning and taking
control of your own investments. VANGUARD.COM was built for you-and it keeps
getting better.
RESEARCH AND PLAN YOUR INVESTMENTS WITH CONFIDENCE
Use our PLANNING & ADVICE and RESEARCH FUNDS & STOCKS sections to:
- - Determine what asset allocation might best suit your needs-by taking our
Investor Questionnaire.
- - Find out how much to save for retirement and your children's college
education-by using our planning tools.
- - Learn how to achieve your goals-by reading our PlainTalk investment guides.
- - Find your next fund-by using the Compare Funds, Compare Costs, and Narrow
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- -Lookup fund price, performance history, and distribution information-in a
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INVEST AND MANAGE ACCOUNTS WITH EASE
Log on to Vanguard.com to:
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- - Elect to receive online statements, fund reports (like this one),
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Find out what Vanguard.com can do for you. Log on today!
43
- --------------------------------------------------------------------------------
CAPITALIZE ON YOUR IRA
- --------------------------------------------------------------------------------
Are you taking full advantage of your individual retirement account? You really
should be. These tax-deferred accounts are more powerful options for retirement
savers.
Here's how you can exploit your IRA-and improve your chances of having the
retirement of your dreams.
CONTRIBUTE THE MAXIMUM AMOUNT EACH YEAR
It may be an obvious point, but if you invest as much in your IRA as the law
allows-currently $3,000 per tax year if you are under age 50 and $3,500 if you
are age 50 or over-you will increase the odds of meeting your retirement goals.
"Max out" every year you can.
MAKE IT AUTOMATIC
Put your IRA on autopilot by taking advantage of Vanguard's Automatic Investment
Plan. Your IRA contributions will be deducted from your bank account on a
schedule of your choosing, making retirement investing a healthy habit.
CONSIDER COST
The owners of low-cost investments keep a larger portion of their gross returns
than the owners of high-cost investments. Over the long term, avoiding costlier
mutual funds and brokerage commissions could significantly boost your retirement
savings. Our low costs are one reason a Vanguard IRA is such a smart choice.
REQUEST A DIRECT ROLLOVER WHEN YOU CHANGE JOBS
Don't spend your retirement assets before you've retired. When you change jobs,
roll your 401(k) or other employer-sponsored retirement plan assets directly
into your IRA.
If you have questions about your IRA, want to transfer an IRA from another
institution to Vanguard, or need help with any other IRA transaction, call our
Retirement Resource Center at 1-800-205-6189 or visit VANGUARD.COM. You can open
or fund your IRA on our website and have a confirmation in your hand within
minutes.
THE PEOPLE WHO GOVERN YOUR FUND
- --------------------------------------------------------------------------------
The trustees of your mutual fund are there to see that the fund is operated and
managed in your best interests since, as a shareholder, you are a part owner of
the fund. Your fund trustees also serve on the board of directors of The
Vanguard Group, Inc., which is owned by the Vanguard funds and provides services
to them on an at-cost basis.
A majority of Vanguard's board members are independent, meaning that they have
no affiliation with Vanguard or the funds they oversee, apart from the
investments they have made as private individuals. Our independent board members
bring distinguished backgrounds in business, academia, and public service to
their task of working with Vanguard officers to establish the policies and
oversee the activities of the funds.
Among board members' responsibilities are selecting investment advisors for the
funds; monitoring fund operations, performance, and costs; reviewing contracts;
nominating and selecting new trustees/directors; and electing Vanguard officers.
- --------------------------------------------------------------------------------
POSITION(S) HELD WITH
NAME FUND (NUMBER OF
(YEAR OF BIRTH) VANGUARD FUNDS
TRUSTEE/OFFICER OVERSEEN BY
SINCE TRUSTEE/OFFICER) PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------
JOHN J. BRENNAN* Chairman of the Chairman of the Board, Chief Executive Officer, and Director/Trustee of
(1954) Board, Chief The Vanguard Group, Inc., and of each of the investment companies
May 1987 Executive Officer, served by The Vanguard Group.
and Trustee
(129)
- ------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
CHARLES D. ELLIS Trustee The Partners of '63 (pro bono ventures in education); Senior Advisor
(1937) (129) to Greenwich Associates (international business strategy consulting);
January 2001 Successor Trustee of Yale University; Overseer of the Stern School of
Business at New York University; Trustee of the Whitehead Institute
for Biomedical Research.
- ------------------------------------------------------------------------------------------------------------------
RAJIV L. GUPTA Trustee Chairman and Chief Executive Officer (since October 1999), Vice
(1945) (129) Chairman (January-September 1999), and Vice President (prior to
December 2001 September 1999) of Rohm and Haas Co. (chemicals); Director of
Technitrol, Inc. (electronic components), and Agere Systems
(communications components); Board Member of the American Chemistry
Council; and Trustee of Drexel University.
- ------------------------------------------------------------------------------------------------------------------
JOANN HEFFERNAN Trustee Vice President, Chief Information Officer, and Member of the
HEISEN (129) Executive Committee of Johnson & Johnson (pharmaceuticals/consumer
(1950) products); Director of the Medical Center at Princeton and Women's
July 1998 Research and Education Institute.
- ------------------------------------------------------------------------------------------------------------------
BURTON G. MALKIEL Trustee Chemical Bank Chairman's Professor of Economics,Princeton University;
(1932) (127) Director of Vanguard Investment Series plc (Irish investment fund)
May 1977 (since November 2001), Vanguard Group (Ireland)Limited (Irish
investment management firm)(since November 2001),Prudential Insurance
Co. of America, BKF Capital (investment management), The Jeffrey Co.
(holding company), and NeuVis, Inc.(software company).
- ------------------------------------------------------------------------------------------------------------------
ALFRED M. RANKIN, JR. Trustee Chairman, President, Chief Executive Officer, and Director of NACCO
(1941) (129) Industries, Inc. (forklift trucks/housewares/lignite); Director of
January 1993 Goodrich Corporation (industrial products/aircraft systems and
services); Director of Standard Products Company (supplier for
the automotive industry) until 1998.
- ------------------------------------------------------------------------------------------------------------------
J. LAWRENCE WILSON Trustee Retired Chairman and Chief Executive Officer of Rohm and Haas Co.
(1936) (129) (chemicals); Director of Cummins Inc. (diesel engines), The Mead
April 1985 Corp. (paper products), and AmerisourceBergen Corp. (pharmaceutical
distribution); Trustee of Vanderbilt University.
- ------------------------------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS*
R. GREGORY BARTON Secretary Managing Director and General Counsel of The Vanguard Group, Inc.;
(1951) (129) Secretary of The Vanguard Group and of each of the investment
June 2001 companies served by The Vanguard Group.
- ------------------------------------------------------------------------------------------------------------------
THOMAS J. HIGGINS Treasurer Principal of The Vanguard Group, Inc.; Treasurer of each of the
(1957) (129) investment companies served by The Vanguard Group.
July 1998
- ------------------------------------------------------------------------------------------------------------------
*Officers of the funds are "interested persons" as defined in the Investment
Company Act of 1940.
More information about the trustees is in the Statement of Additional
Information, available from The Vanguard Group.
- ------------------------------------------------------------------------------------------------------------------
VANGUARD SENIOR MANAGEMENT TEAM
MORTIMER J. BUCKLEY, Information Technology. MICHAEL S. MILLER, Planning and Development.
JAMES H. GATELY, Investment Programs and Services. RALPH K. PACKARD, Finance.
KATHLEEN C. GUBANICH, Human Resources. GEORGE U. SAUTER, Chief Investment Officer.
F. WILLIAM MCNABB, III, Client Relationship Group.
- ------------------------------------------------------------------------------------------------------------------
JOHN C. BOGLE, Founder; Chairman and Chief Executive Officer, 1974-1996.
- ------------------------------------------------------------------------------------------------------------------
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Q4832E042004
Item 2: Not applicable.
Item 3: Not applicable.
Item 4: Not applicable.
Item 5: Not applicable.
Item 6: Not applicable.
Item 7: Not applicable.
Item 8: Not applicable.
Item 9: Not applicable.
Item 10: 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 Controls. There were no significant changes in Registrant's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Item 11: Exhibits.
(a) Certifications.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
VANGUARD WORLD FUNDS
BY: (signature)
----------------------------------------
(HEIDI STAM)
JOHN J. BRENNAN*
CHIEF EXECUTIVE OFFICER
Date: April 16, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
VANGUARD WORLD FUNDS
BY: (signature)
----------------------------------------
(HEIDI STAM)
JOHN J. BRENNAN*
CHIEF EXECUTIVE OFFICER
Date: April 16, 2004
VANGUARD WORLD FUNDS
BY: (signature)
----------------------------------------
(HEIDI STAM)
THOMAS J. HIGGINS*
TREASURER
Date: April 16, 2004
*By Power of Attorney. See File Number 2-57689, filed on December 26, 2002.
Incorporated by Reference.