Semiannual
Report |
February 28, 2022
Vanguard
U.S. Sector Index Funds
| Vanguard Communication Services Index Fund |
| Vanguard Consumer Discretionary Index Fund |
| Vanguard Consumer Staples Index Fund |
| Vanguard Energy Index Fund |
| Vanguard Financials Index Fund |
| Vanguard Health Care Index Fund |
| Vanguard Industrials Index Fund |
| Vanguard Information Technology Index Fund |
| Vanguard Materials Index Fund |
| Vanguard Utilities Index Fund |
Contents
|
About Your Fund’s Expenses
|
1 |
|
Communication Services Index Fund
|
4 |
|
Consumer Discretionary Index Fund
|
15 |
|
Consumer Staples Index Fund
|
26 |
|
Energy Index Fund
|
36 |
|
Financials Index Fund
|
47 |
|
Health Care Index Fund
|
60 |
|
Industrials Index Fund
|
74 |
|
Information Technology Index Fund
|
87 |
|
Materials Index Fund
|
100 |
|
Utilities Index Fund
|
111 |
About Your
Fund’s Expenses
As
a shareholder of the fund, you incur ongoing costs, which include costs for
portfolio management, administrative services, and shareholder reports (like
this one), among others. Operating expenses, which are deducted from a fund’s
gross income, directly reduce the investment return of the fund.
A
fund’s expenses are expressed as a percentage of its average net assets. This
figure is known as the expense ratio. The following examples are intended to
help you understand the ongoing costs (in dollars) of investing in your fund and
to compare these costs with those of other mutual funds. The examples are based
on an investment of $1,000 made at the beginning of the period shown and held
for the entire period.
The
accompanying table illustrates your fund’s costs in two ways:
| • | Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund‘s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period. |
To
do so, simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
given for your fund under the heading ”Expenses Paid During Period.“
| • | Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds. |
Note
that the expenses shown in the table are meant to highlight and help you compare
ongoing costs only and do not reflect
transaction costs incurred by the fund for buying and selling securities.
Further, the expenses do not include any purchase, redemption, or account
service fees described in the fund prospectus. If such fees were applied to your
account, your costs would be higher. Your fund does not carry a “sales
load.”
The
calculations assume no shares were bought or sold during the period. Your actual
costs may have been higher or lower, depending on the amount of your investment
and the timing of any purchases or redemptions.
You
can find more information about the fund’s expenses, including annual expense
ratios, in the Financial Statements section of this report. For additional
information on operating expenses and other shareholder costs, please refer to
your fund’s current prospectus.
1
| Six Months Ended February 28, 2022 | |||
| Beginning Account Value 8/31/2021 |
Ending Account Value 2/28/2022 |
Expenses Paid During Period | |
| Based on Actual Fund Return | |||
| Communication Services Index Fund | |||
| ETF Shares | $1,000.00 | $805.00 | $0.45 |
| Admiral™ Shares | 1,000.00 | 804.90 | 0.45 |
| Consumer Discretionary Index Fund | |||
| ETF Shares | $1,000.00 | $929.70 | $0.48 |
| Admiral Shares | 1,000.00 | 929.60 | 0.48 |
| Consumer Staples Index Fund | |||
| ETF Shares | $1,000.00 | $1,045.40 | $0.51 |
| Admiral Shares | 1,000.00 | 1,045.40 | 0.51 |
| Energy Index Fund | |||
| ETF Shares | $1,000.00 | $1,478.30 | $0.61 |
| Admiral Shares | 1,000.00 | 1,478.20 | 0.61 |
| Financials Index Fund | |||
| ETF Shares | $1,000.00 | $1,010.50 | $0.50 |
| Admiral Shares | 1,000.00 | 1,010.30 | 0.50 |
| Health Care Index Fund | |||
| ETF Shares | $1,000.00 | $932.60 | $0.48 |
| Admiral Shares | 1,000.00 | 932.70 | 0.48 |
| Industrials Index Fund | |||
| ETF Shares | $1,000.00 | $956.60 | $0.49 |
| Admiral Shares | 1,000.00 | 956.70 | 0.49 |
| Information Technology Index Fund | |||
| ETF Shares | $1,000.00 | $950.90 | $0.48 |
| Admiral Shares | 1,000.00 | 950.80 | 0.48 |
| Materials Index Fund | |||
| ETF Shares | $1,000.00 | $992.80 | $0.49 |
| Admiral Shares | 1,000.00 | 992.80 | 0.49 |
| Utilities Index Fund | |||
| ETF Shares | $1,000.00 | $1,007.20 | $0.50 |
| Admiral Shares | 1,000.00 | 1,007.40 | 0.50 |
2
| Six Months Ended February 28, 2022 | |||
| Beginning Account Value 8/31/2021 |
Ending Account Value 2/28/2022 |
Expenses Paid During Period | |
| Based on Hypothetical 5% Yearly Return | |||
| Communication Services Index Fund | |||
| ETF Shares | $1,000.00 | $1,024.30 | $0.50 |
| Admiral Shares | 1,000.00 | 1,024.30 | 0.50 |
| Consumer Discretionary Index Fund | |||
| ETF Shares | $1,000.00 | $1,024.30 | $0.50 |
| Admiral Shares | 1,000.00 | 1,024.30 | 0.50 |
| Consumer Staples Index Fund | |||
| ETF Shares | $1,000.00 | $1,024.30 | $0.50 |
| Admiral Shares | 1,000.00 | 1,024.30 | 0.50 |
| Energy Index Fund | |||
| ETF Shares | $1,000.00 | $1,024.30 | $0.50 |
| Admiral Shares | 1,000.00 | 1,024.30 | 0.50 |
| Financials Index Fund | |||
| ETF Shares | $1,000.00 | $1,024.30 | $0.50 |
| Admiral Shares | 1,000.00 | 1,024.30 | 0.50 |
| Health Care Index Fund | |||
| ETF Shares | $1,000.00 | $1,024.30 | $0.50 |
| Admiral Shares | 1,000.00 | 1,024.30 | 0.50 |
| Industrials Index Fund | |||
| ETF Shares | $1,000.00 | $1,024.30 | $0.50 |
| Admiral Shares | 1,000.00 | 1,024.30 | 0.50 |
| Information Technology Index Fund | |||
| ETF Shares | $1,000.00 | $1,024.30 | $0.50 |
| Admiral Shares | 1,000.00 | 1,024.30 | 0.50 |
| Materials Index Fund | |||
| ETF Shares | $1,000.00 | $1,024.30 | $0.50 |
| Admiral Shares | 1,000.00 | 1,024.30 | 0.50 |
| Utilities Index Fund | |||
| ETF Shares | $1,000.00 | $1,024.30 | $0.50 |
| Admiral Shares | 1,000.00 | 1,024.30 | 0.50 |
The
calculations are based on expenses incurred in the most recent six-month period.
The funds' annualized six-month expense ratios for that period are: for the
Communication Services Index Fund, 0.10% for ETF Shares and 0.10% for Admiral
Shares; for the Consumer Discretionary Index Fund, 0.10% for ETF Shares and
0.10% for Admiral Shares; for the Consumer Staples Index Fund, 0.10% for ETF
Shares and 0.10% for Admiral Shares; for the Energy Index Fund, 0.10% for ETF
Shares and 0.10% for Admiral Shares; for the Financials Index Fund, 0.10% for
ETF Shares and 0.10% for Admiral Shares; for the Health Care Index Fund, 0.10%
for ETF Shares and 0.10% for Admiral Shares; for the Industrials Index Fund,
0.10% for ETF Shares and 0.10% for Admiral Shares; for the Information
Technology Index Fund, 0.10% for ETF Shares and 0.10% for Admiral Shares; for
the Materials Index Fund, 0.10% for ETF Shares and 0.10% for Admiral Shares; and
for the Utilities Index Fund, 0.10% for ETF Shares and 0.10% for Admiral Shares.
The dollar amounts shown as “Expenses Paid" are equal to the annualized expense
ratio multiplied by the average account value over the period, multiplied by the
number of days in the most recent six-month period, then divided by the number
of days in the most recent 12-month period (181/365).
3
Communication
Services Index Fund
Fund
Allocation
As
of February 28, 2022
| Diversified Telecommunication Services | 12.6% |
| Entertainment | 21.3 |
| Interactive Media & Services | 42.7 |
| Media | 20.7 |
| Wireless Telecommunication Services | 2.7 |
The
table reflects the fund’s investments, except short-term investments and
derivatives. Sector categories are based on the Global Industry Classification
Standard (“GICS”), except for the “Other” category (if applicable), which
includes securities that have not been provided a GICS classification as of the
effective reporting period.
The
fund may invest in derivatives (such as futures and swap contracts) for various
reasons, including, but not limited to, attempting to remain fully invested and
tracking its target index as closely as possible.
Global
Industry Classification Standard (“GICS”) was developed by and is the exclusive
property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a
division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by
Vanguard. Neither MSCI, S&P nor any third party involved in making or
compiling the GICS or any GICS classification makes any express or implied
warranties or representations with respect to such standard or classification
(or the results to be obtained by the use thereof), and all such parties hereby
expressly disclaim all warranties of originality, accuracy, completeness,
merchantability or fitness for a particular purpose with respect to any such
standard or classification. Without limiting any of the foregoing, in no event
shall MSCI, S&P, any of its affiliates or any third party involved in making
or compiling the GICS or any GICS classification have any liability for any
direct, indirect, special, punitive, consequential or any other damages
(including lost profits) even if notified of the possibility of such
damages.
4
Communication
Services Index Fund
Financial
Statements (unaudited)
Schedule
of Investments
As
of February 28, 2022
The
fund files its complete schedule of portfolio holdings with the Securities and
Exchange Commission (SEC) for the first and third quarters of each fiscal year
as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are
available on the SEC’s website at www.sec.gov.
5
Communication
Services Index Fund
| Shares | Market Value• ($000) | ||
| Temporary Cash Investments (1.1%) | |||
| Money Market Fund (1.1%) | |||
| 2,3 | Vanguard Market Liquidity Fund, 0.138% (Cost $43,143) | 431,488 | 43,145 |
| Total Investments (100.9%) (Cost $3,903,826) | 3,905,870 | ||
| Other Assets and Liabilities—Net (-0.9%) | (35,459) | ||
| Net Assets (100.0%) | 3,870,411 | ||
| Cost is in $000. | |||
| • | See Note A in Notes to Financial Statements. |
| * | Non-income-producing security. |
| 1 | Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $31,114,000. |
| 2 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
| 3 | Collateral of $33,570,000 was received for securities on loan. |
6
Communication
Services Index Fund
Derivative
Financial Instruments Outstanding as of Period End
| Over-the-Counter Total Return Swaps | ||||||
| Reference Entity | Termination Date |
Counterparty | Notional Amount ($000) |
Floating Interest Rate Received (Paid)1 (%) |
Value
and Unrealized Appreciation ($000) |
Value
and Unrealized (Depreciation) ($000) |
| Pinterest Inc. Class A | 8/31/22 | BANA | 2,862 | (0.070) | — | — |
| Sirius XM Holdings Inc. | 1/31/23 | GSI | 4,030 | (0.070) | 151 | — |
| 151 | — | |||||
| 1 | Based on 1M USD Overnight Bank Funding Rate as of the most recent payment date. Floating interest payment received/paid monthly. |
| 1M—1-month. | |
| BANA—Bank of America, N.A. | |
| GSI—Goldman Sachs International. |
At
February 28, 2022, the counterparties had deposited in segregated accounts
securities with a value of $439,000 in connection with open over-the-counter
swap contracts.
See
accompanying Notes, which are an integral part of the Financial
Statements.
7
Communication
Services Index Fund
Statement
of Assets and Liabilities
As
of February 28, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $3,860,683) | 3,862,725 |
| Affiliated Issuers (Cost $43,143) | 43,145 |
| Total Investments in Securities | 3,905,870 |
| Investment in Vanguard | 135 |
| Cash | 227 |
| Cash Collateral Pledged—Over-the-Counter Swap Contracts | 240 |
| Receivables for Investment Securities Sold | 96,699 |
| Receivables for Accrued Income | 362 |
| Receivables for Capital Shares Issued | 19 |
| Unrealized Appreciation—Over-the-Counter Swap Contracts | 151 |
| Total Assets | 4,003,703 |
| Liabilities | |
| Payables for Investment Securities Purchased | 99,216 |
| Collateral for Securities on Loan | 33,570 |
| Payables for Capital Shares Redeemed | 368 |
| Payables to Vanguard | 138 |
| Unrealized Depreciation—Over-the-Counter Swap Contracts | — |
| Total Liabilities | 133,292 |
| Net Assets | 3,870,411 |
| At February 28, 2022, net assets consisted of: | |
| Paid-in Capital | 3,963,675 |
| Total Distributable Earnings (Loss) | (93,264) |
| Net Assets | 3,870,411 |
| ETF Shares—Net Assets | |
| Applicable
to 31,495,524 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
3,776,831 |
| Net Asset Value Per Share—ETF Shares | $119.92 |
| Admiral Shares—Net Assets | |
| Applicable
to 1,531,333 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
93,580 |
| Net Asset Value Per Share—Admiral Shares | $61.11 |
See
accompanying Notes, which are an integral part of the Financial
Statements.
8
Communication
Services Index Fund
See
accompanying Notes, which are an integral part of the Financial
Statements.
9
Communication
Services Index Fund
Financial
Highlights
| ETF Shares | ||||||
| For a Share Outstanding Throughout Each Period |
Six Months Ended February 28, 2022 |
Year Ended August 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $149.87 | $108.04 | $87.24 | $86.83 | $93.54 | $95.16 |
| Investment Operations | ||||||
| Net Investment Income1 | .606 | 1.018 | 1.005 | .917 | 3.067 | 3.108 |
| Net Realized and Unrealized Gain (Loss) on Investments | (29.732) | 41.708 | 20.743 | .316 | (6.297) | (1.587) |
| Total from Investment Operations | (29.126) | 42.726 | 21.748 | 1.233 | (3.230) | 1.521 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.824) | (.896) | (.948) | (.823) | (3.480) | (3.141) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (.824) | (.896) | (.948) | (.823) | (3.480) | (3.141) |
| Net Asset Value, End of Period | $119.92 | $149.87 | $108.04 | $87.24 | $86.83 | $93.54 |
| Total Return | -19.50% | 39.75% | 25.15% | 1.47% | -3.50% | 1.62% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $3,777 | $4,787 | $2,914 | $2,016 | $1,015 | $1,388 |
| Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 0.89% | 0.80% | 1.09% | 1.09% | 3.48% | 3.26% |
| Portfolio Turnover Rate2 | 10% | 15% | 15% | 33% | 84% | 18% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period |
Six Months Ended February 28, 2022 |
Year Ended August 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $76.38 | $55.06 | $44.46 | $44.25 | $47.67 | $48.50 |
| Investment Operations | ||||||
| Net Investment Income1 | .313 | .519 | .512 | .470 | 1.554 | 1.601 |
| Net Realized and Unrealized Gain (Loss) on Investments | (15.163) | 21.259 | 10.571 | .157 | (3.199) | (.829) |
| Total from Investment Operations | (14.850) | 21.778 | 11.083 | .627 | (1.645) | .772 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.420) | (.458) | (.483) | (.417) | (1.775) | (1.602) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (.420) | (.458) | (.483) | (.417) | (1.775) | (1.602) |
| Net Asset Value, End of Period | $61.11 | $76.38 | $55.06 | $44.46 | $44.25 | $47.67 |
| Total Return2 | -19.51% | 39.76% | 25.16% | 1.46% | -3.48% | 1.61% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $94 | $124 | $67 | $50 | $46 | $50 |
| Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 0.90% | 0.79% | 1.10% | 1.09% | 3.48% | 3.26% |
| Portfolio Turnover Rate3 | 10% | 15% | 15% | 33% | 84% | 18% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
See
accompanying Notes, which are an integral part of the Financial
Statements.
10
Communication
Services Index Fund
Notes
to Financial Statements
Vanguard
Communication Services Index Fund is registered under the Investment Company Act
of 1940 as an open-end investment company, or mutual fund. The fund offers two
classes of shares: ETF Shares and Admiral Shares. Each of the share classes has
different eligibility and minimum purchase requirements, and is designed for
different types of investors. ETF Shares are listed for trading on NYSE ARCA;
they can be purchased and sold through a broker.
Market
disruptions associated with the COVID-19 pandemic have had a global impact, and
uncertainty exists as to the long-term implications. Such disruptions can
adversely affect assets of the fund and thus fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security
Valuation: Securities are valued as of the close of trading on the New York
Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity
securities are valued at the latest quoted sales prices or official closing
prices taken from the primary market in which each security trades; such
securities not traded on the valuation date are valued at the mean of the latest
quoted bid and asked prices. Securities for which market quotations are not
readily available, or whose values have been materially affected by events
occurring before the fund’s pricing time but after the close of the securities’
primary markets, are valued by methods deemed by the board of trustees to
represent fair value. Investments in Vanguard Market Liquidity Fund are valued
at that fund's net asset value.
2.
Swap Contracts: The fund has entered into equity swap contracts to earn the
total return on selected reference stocks in the fund’s target index. Under the
terms of the swaps, the fund receives the total return on the referenced stock
(i.e., receiving the increase or paying the decrease in value of the selected
reference stock and receiving the equivalent of any dividends in respect of the
selected referenced stock) over a specified period of time, applied to a
notional amount that represents the value of a designated number of shares of
the selected reference stock at the beginning of the equity swap contract. The
fund also pays a floating rate that is based on short-term interest rates,
applied to the notional amount. At the same time, the fund generally invests an
amount approximating the notional amount of the swap in high-quality temporary
cash investments.
A
risk associated with all types of swaps is the possibility that a counterparty
may default on its obligation to pay net amounts due to the fund. The fund’s
maximum amount subject to counterparty risk is the unrealized appreciation on
the swap contract. The fund mitigates its counterparty risk by entering into
swaps only with a diverse group of prequalified counterparties, monitoring their
financial strength, entering into master netting arrangements with its
counterparties, and requiring its counterparties to transfer collateral as
security for their performance. In the absence of a default, the collateral
pledged or received by the fund cannot be repledged, resold, or rehypothecated.
In the event of a counterparty’s default (including bankruptcy), the fund may
terminate any swap contracts with that counterparty, determine the net amount
owed by either party in accordance with its master netting arrangements, and
sell or retain any collateral held up to the net amount owed to the fund under
the master netting arrangements. The swap contracts contain provisions whereby a
counterparty may terminate open contracts if the fund’s net assets decline below
a certain level, triggering a payment by the fund if the fund is in a net
liability position at the time of the termination. The payment amount would be
reduced by any collateral the fund has pledged. Any securities pledged as
collateral for open contracts are noted in the Schedule of Investments. The
value of collateral received or pledged is compared daily to the value of the
swap contracts exposure with each counterparty, and any difference, if in excess
of a specified minimum transfer amount, is adjusted and settled within two
business days.
The
notional amounts of swap contracts are not recorded in the Statement of Assets
and Liabilities. Swaps are valued daily based on market quotations received from
independent pricing services or recognized dealers and the change in value is
recorded in the Statement of Assets and Liabilities as an asset (liability) and
in the Statement of Operations as unrealized appreciation (depreciation) until
periodic payments are made or the termination of the swap, at which time
realized gain (loss) is recorded.
During
the six months ended February 28, 2022, the fund’s average amounts of
investments in total return swaps represented less than 1% of net assets, based
on the average of notional amounts at each quarter-end during the
period.
11
Communication
Services Index Fund
3. Federal
Income Taxes: The fund intends to continue to qualify as a regulated investment
company and distribute all of its taxable income. The fund’s tax returns are
open to examination by the relevant tax authorities until expiration of the
applicable statute of limitations, which is generally three years after the
filing of the tax return. Management has analyzed the fund’s tax positions taken
for all open federal and state income tax years, and has concluded that no
provision for income tax is required in the fund’s financial statements.
4. Distributions:
Distributions to shareholders are recorded on the ex-dividend date.
Distributions are determined on a tax basis at the fiscal year-end and may
differ from net investment income and realized capital gains for financial
reporting purposes.
5. Securities
Lending: To earn additional income, the fund lends its securities to qualified
institutional borrowers. Security loans are subject to termination by the fund
at any time, and are required to be secured at all times by collateral in an
amount at least equal to the market value of securities loaned. Daily market
fluctuations could cause the value of loaned securities to be more or less than
the value of the collateral received. When this occurs, the collateral is
adjusted and settled before the opening of the market on the next business day.
The fund further mitigates its counterparty risk by entering into securities
lending transactions only with a diverse group of prequalified counterparties,
monitoring their financial strength, and entering into master securities lending
agreements with its counterparties. The master securities lending agreements
provide that, in the event of a counterparty’s default (including bankruptcy),
the fund may terminate any loans with that borrower, determine the net amount
owed, and sell or retain the collateral up to the net amount owed to the fund;
however, such actions may be subject to legal proceedings. While collateral
mitigates counterparty risk, in the event of a default, the fund may experience
delays and costs in recovering the securities loaned. The fund invests cash
collateral received in Vanguard Market Liquidity Fund, and records a liability
in the Statement of Assets and Liabilities for the return of the collateral,
during the period the securities are on loan. Collateral investments in Vanguard
Market Liquidity Fund are subject to market appreciation or depreciation.
Securities lending income represents fees charged to borrowers plus income
earned on invested cash collateral, less expenses associated with the loan.
During the term of the loan, the fund is entitled to all distributions made on
or in respect of the loaned securities.
6. Credit
Facilities and Interfund Lending Program: The fund and certain other funds
managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion
committed credit facility provided by a syndicate of lenders pursuant to a
credit agreement and an uncommitted credit facility provided by Vanguard. Both
facilities may be renewed annually. Each fund is individually liable for its
borrowings, if any, under the credit facilities. Borrowings may be utilized for
temporary or emergency purposes, subject to the fund’s regulatory and
contractual borrowing restrictions. With respect to the committed credit
facility, the participating funds are charged administrative fees and an annual
commitment fee of 0.10% of the undrawn committed amount of the facility; these
fees are allocated to the funds based on a method approved by the fund’s board
of trustees and included in Management and Administrative expenses on the fund’s
Statement of Operations. Any borrowings under either facility bear interest at a
rate based upon the higher of the one-month London Interbank Offered Rate (or an
acceptable alternate rate, if necessary), federal funds effective rate, or
overnight bank funding rate plus an agreed-upon spread, except that borrowings
under the uncommitted credit facility may bear interest based upon an alternate
rate agreed to by the fund and Vanguard.
In
accordance with an exemptive order (the “Order”) from the SEC, the fund may
participate in a joint lending and borrowing program that allows registered
open-end Vanguard funds to borrow money from and lend money to each other for
temporary or emergency purposes (the “Interfund Lending Program”), subject to
compliance with the terms and conditions of the Order, and to the extent
permitted by the fund’s investment objective and investment policies. Interfund
loans and borrowings normally extend overnight, but can have a maximum duration
of seven days. Loans may be called on one business day’s notice. The interest
rate to be charged is governed by the conditions of the Order and internal
procedures adopted by the board of trustees. The board of trustees is
responsible for overseeing the Interfund Lending Program.
For
the six months ended February 28, 2022, the fund did not utilize the credit
facilities or the Interfund Lending Program.
7. Other:
Dividend income is recorded on the ex-dividend date. Non-cash dividends included
in income, if any, are recorded at the fair value of the securities received.
Interest income includes income distributions received from Vanguard Market
Liquidity Fund and is accrued daily. Security transactions are accounted for on
the date securities are bought or sold. Costs used to determine realized gains
(losses) on the sale of investment securities are those of the specific
securities sold.
12
Communication
Services Index Fund
Each
class of shares has equal rights as to assets and earnings, except that each
class separately bears certain class-specific expenses related to maintenance of
shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each
class of shares based on a method approved by the board of trustees. Income,
other non-class-specific expenses, and gains and losses on investments are
allocated to each class of shares based on its relative net assets.
| B. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
Upon
the request of Vanguard, the fund may invest up to 0.40% of its net assets as
capital in Vanguard. At February 28, 2022, the fund had contributed to Vanguard
capital in the amount of $135,000, representing less than 0.01% of the fund’s
net assets and 0.05% of Vanguard’s capital received pursuant to the FSA. The
fund’s trustees and officers are also directors and employees, respectively, of
Vanguard.
| C. | Various inputs may be used to determine the value of the fund’s investments and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. |
Level
1—Quoted prices in active markets for
identical securities.
Level
2—Other significant observable inputs
(including quoted prices for similar securities, interest rates, prepayment
speeds, credit risk, etc.).
Level
3—Significant unobservable inputs (including
the fund’s own assumptions used to determine the fair value of investments). Any
investments and derivatives valued with significant unobservable inputs are
noted on the Schedule of Investments.
The
following table summarizes the market value of the fund’s investments and
derivatives as of February 28, 2022, based on the inputs used to value
them:
| Level
1 ($000) |
Level
2 ($000) |
Level
3 ($000) |
Total ($000) | |
| Investments | ||||
| Assets | ||||
| Common Stocks | 3,862,725 | — | — | 3,862,725 |
| Temporary Cash Investments | 43,145 | — | — | 43,145 |
| Total | 3,905,870 | — | — | 3,905,870 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Swap Contracts | — | 151 | — | 151 |
| Liabilities | ||||
| Swap Contracts | — | — | — | — |
| D. | As of February 28, 2022, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows: |
| Amount ($000) | |
| Tax Cost | 3,912,941 |
| Gross Unrealized Appreciation | 407,229 |
| Gross Unrealized Depreciation | (414,300) |
| Net Unrealized Appreciation (Depreciation) | (7,071) |
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, 2021, the fund had available
capital losses totaling $364,946,000 that may be carried forward indefinitely to
offset future net capital gains. The fund will use these capital losses to
offset net taxable capital gains, if any, realized during the year ending August
31, 2022; should the fund realize net capital losses for the year, the losses
will be added to the loss carryforward balance above.
13
Communication
Services Index Fund
| E. | During the six months ended February 28, 2022, the fund purchased $1,171,698,000 of investment securities and sold $1,243,623,000 of investment securities, other than temporary cash investments. Purchases and sales include $718,260,000 and $813,709,000, respectively, in connection with in-kind purchases and redemptions of the fund's capital shares. |
The
fund purchased securities from and sold securities to other Vanguard funds or
accounts managed by Vanguard or its affiliates, in accordance with procedures
adopted by the board of trustees in compliance with Rule 17a-7 of the Investment
Company Act of 1940. For the six months ended February 28, 2022, such purchases
were $7,430,000 and sales were $57,626,000, resulting in net realized gain of
$10,572,000; these amounts, other than temporary cash investments, are included
in the purchases and sales of investment securities noted above.
| F. | Capital share transactions for each class of shares were: |
| Six Months Ended February 28, 2022 |
Year Ended August 31, 2021 | ||||
| Amount ($000) |
Shares (000) |
Amount ($000) |
Shares (000) | ||
| ETF Shares | |||||
| Issued | 755,849 | 5,753 | 1,693,617 | 12,776 | |
| Issued in Lieu of Cash Distributions | — | — | — | — | |
| Redeemed | (814,290) | (6,200) | (973,652) | (7,800) | |
| Net Increase (Decrease)—ETF Shares | (58,441) | (447) | 719,965 | 4,976 | |
| Admiral Shares | |||||
| Issued | 23,759 | 341 | 58,573 | 900 | |
| Issued in Lieu of Cash Distributions | 564 | 8 | 544 | 9 | |
| Redeemed | (30,447) | (444) | (32,266) | (504) | |
| Net Increase (Decrease)—Admiral Shares | (6,124) | (95) | 26,851 | 405 | |
| G. | Market disruptions associated with current geopolitical events have had a global impact, and uncertainty exists as to their implications. Such disruptions can adversely affect assets and thus performance of the fund; at this time, an aggregate effect on assets and performance cannot be reasonably estimated. Management is continuing to monitor these developments and evaluate impacts they may have on the fund. |
Management
has determined that no other events or transactions occurred subsequent to
February 28, 2022, that would require recognition or disclosure in these
financial statements.
14
Consumer
Discretionary Index Fund
Fund
Allocation
As
of February 28, 2022
| Auto Components | 2.5% |
| Automobiles | 16.2 |
| Distributors | 1.0 |
| Diversified Consumer Services | 1.4 |
| Hotels, Restaurants & Leisure | 17.8 |
| Household Durables | 4.3 |
| Internet & Direct Marketing Retail | 25.6 |
| Leisure Products | 1.4 |
| Multiline Retail | 4.0 |
| Other | 0.0 |
| Specialty Retail | 19.2 |
| Textiles, Apparel & Luxury Goods | 6.6 |
The
table reflects the fund’s investments, except short-term investments. Sector
categories are based on the Global Industry Classification Standard (“GICS”),
except for the “Other” category (if applicable), which includes securities that
have not been provided a GICS classification as of the effective reporting
period.
The
fund may invest in derivatives (such as futures and swap contracts) for various
reasons, including, but not limited to, attempting to remain fully invested and
tracking its target index as closely as possible.
Global
Industry Classification Standard (“GICS”) was developed by and is the exclusive
property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a
division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by
Vanguard. Neither MSCI, S&P nor any third party involved in making or
compiling the GICS or any GICS classification makes any express or implied
warranties or representations with respect to such standard or classification
(or the results to be obtained by the use thereof), and all such parties hereby
expressly disclaim all warranties of originality, accuracy, completeness,
merchantability or fitness for a particular purpose with respect to any such
standard or classification. Without limiting any of the foregoing, in no event
shall MSCI, S&P, any of its affiliates or any third party involved in making
or compiling the GICS or any GICS classification have any liability for any
direct, indirect, special, punitive, consequential or any other damages
(including lost profits) even if notified of the possibility of such
damages.
15
Consumer
Discretionary Index Fund
Financial
Statements (unaudited)
Schedule
of Investments
As
of February 28, 2022
The
fund files its complete schedule of portfolio holdings with the Securities and
Exchange Commission (SEC) for the first and third quarters of each fiscal year
as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are
available on the SEC’s website at www.sec.gov.
16
Consumer
Discretionary Index Fund
17
Consumer
Discretionary Index Fund
| Shares | Market Value• ($000) | ||
| * | Under Armour Inc. Class A | 309,880 | 5,544 |
| * | Under Armour Inc. Class C | 337,261 | 5,271 |
| Columbia Sportswear Co. | 53,346 | 4,946 | |
| Kontoor Brands Inc. | 89,428 | 4,430 | |
| Oxford Industries Inc. | 40,567 | 3,586 | |
| Wolverine World Wide Inc. | 147,297 | 3,392 | |
| Levi Strauss & Co. Class A | 137,379 | 3,112 | |
| * | G-III Apparel Group Ltd. | 107,909 | 2,993 |
| Movado Group Inc. | 74,835 | 2,950 | |
| * | Fossil Group Inc. | 154,067 | 2,083 |
| * | PLBY Group Inc. | 9,265 | 148 |
| 432,983 | |||
| Total Common Stocks (Cost $5,356,182) | 6,569,499 | ||
| Temporary Cash Investments (0.3%) | |||
| Money Market Fund (0.3%) | |||
| 4,5 | Vanguard Market Liquidity Fund, 0.138% (Cost $18,051) | 180,532 | 18,052 |
| Total Investments (100.3%) (Cost $5,374,233) | 6,587,551 | ||
| Other Assets and Liabilities—Net (-0.3%) | (19,486) | ||
| Net Assets (100.0%) | 6,568,065 | ||
| Cost is in $000. | |||
| • | See Note A in Notes to Financial Statements. |
| * | Non-income-producing security. |
| 1 | Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $18,186,000. |
| 2 | “Other” represents securities that are not classified by the fund’s benchmark index. |
| 3 | Security value determined using significant unobservable inputs. |
| 4 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
| 5 | Collateral of $18,038,000 was received for securities on loan. |
| CVR—Contingent Value Rights. |
See
accompanying Notes, which are an integral part of the Financial
Statements.
18
Consumer
Discretionary Index Fund
Statement
of Assets and Liabilities
As
of February 28, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $5,356,182) | 6,569,499 |
| Affiliated Issuers (Cost $18,051) | 18,052 |
| Total Investments in Securities | 6,587,551 |
| Investment in Vanguard | 233 |
| Receivables for Investment Securities Sold | 54,147 |
| Receivables for Accrued Income | 3,927 |
| Receivables for Capital Shares Issued | 8,317 |
| Total Assets | 6,654,175 |
| Liabilities | |
| Due to Custodian | 11,499 |
| Payables for Investment Securities Purchased | 54,084 |
| Collateral for Securities on Loan | 18,038 |
| Payables for Capital Shares Redeemed | 2,253 |
| Payables to Vanguard | 236 |
| Total Liabilities | 86,110 |
| Net Assets | 6,568,065 |
| At February 28, 2022, net assets consisted of: | |
| Paid-in Capital | 4,919,874 |
| Total Distributable Earnings (Loss) | 1,648,191 |
| Net Assets | 6,568,065 |
| ETF Shares—Net Assets | |
| Applicable
to 19,847,002 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
5,881,908 |
| Net Asset Value Per Share—ETF Shares | $296.36 |
| Admiral Shares—Net Assets | |
| Applicable
to 4,472,986 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
686,157 |
| Net Asset Value Per Share—Admiral Shares | $153.40 |
See
accompanying Notes, which are an integral part of the Financial
Statements.
19
Consumer
Discretionary Index Fund
See
accompanying Notes, which are an integral part of the Financial
Statements.
20
Consumer
Discretionary Index Fund
Financial
Highlights
| ETF Shares | ||||||
| For a Share Outstanding Throughout Each Period |
Six Months Ended February 28, 2022 |
Year Ended August 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $320.99 | $246.86 | $178.51 | $180.85 | $141.74 | $126.45 |
| Investment Operations | ||||||
| Net Investment Income1 | 1.093 | 1.724 | 1.998 | 2.052 | 2.066 | 2.068 |
| Net Realized and Unrealized Gain (Loss) on Investments | (23.515) | 76.697 | 68.603 | (2.391) | 39.031 | 15.248 |
| Total from Investment Operations | (22.422) | 78.421 | 70.601 | (.339) | 41.097 | 17.316 |
| Distributions | ||||||
| Dividends from Net Investment Income | (2.208) | (4.291) | (2.251) | (2.001) | (1.987) | (2.026) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (2.208) | (4.291) | (2.251) | (2.001) | (1.987) | (2.026) |
| Net Asset Value, End of Period | $296.36 | $320.99 | $246.86 | $178.51 | $180.85 | $141.74 |
| Total Return | -7.03% | 32.39% | 39.98% | -0.14% | 29.22% | 13.81% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $5,882 | $6,658 | $4,026 | $3,049 | $3,199 | $2,198 |
| Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 0.64% | 0.60% | 1.06% | 1.20% | 1.28% | 1.53% |
| Portfolio Turnover Rate2 | 2% | 8% | 10% | 9% | 28% | 6% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period |
Six Months Ended February 28, 2022 |
Year Ended August 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $166.15 | $127.78 | $92.40 | $93.61 | $73.36 | $65.45 |
| Investment Operations | ||||||
| Net Investment Income1 | .566 | .889 | 1.033 | 1.058 | 1.073 | 1.071 |
| Net Realized and Unrealized Gain (Loss) on Investments | (12.174) | 39.704 | 35.512 | (1.232) | 20.205 | 7.890 |
| Total from Investment Operations | (11.608) | 40.593 | 36.545 | (.174) | 21.278 | 8.961 |
| Distributions | ||||||
| Dividends from Net Investment Income | (1.142) | (2.223) | (1.165) | (1.036) | (1.028) | (1.051) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (1.142) | (2.223) | (1.165) | (1.036) | (1.028) | (1.051) |
| Net Asset Value, End of Period | $153.40 | $166.15 | $127.78 | $92.40 | $93.61 | $73.36 |
| Total Return2 | -7.04% | 32.39% | 40.01% | -0.14% | 29.24% | 13.81% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $686 | $753 | $437 | $321 | $328 | $204 |
| Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 0.64% | 0.60% | 1.06% | 1.20% | 1.28% | 1.53% |
| Portfolio Turnover Rate3 | 2% | 8% | 10% | 9% | 28% | 6% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
See
accompanying Notes, which are an integral part of the Financial
Statements.
21
Consumer
Discretionary Index Fund
Notes
to Financial Statements
Vanguard
Consumer Discretionary Index Fund is registered under the Investment Company Act
of 1940 as an open-end investment company, or mutual fund. The fund offers two
classes of shares: ETF Shares and Admiral Shares. Each of the share classes has
different eligibility and minimum purchase requirements, and is designed for
different types of investors. ETF Shares are listed for trading on NYSE ARCA;
they can be purchased and sold through a broker.
Market
disruptions associated with the COVID-19 pandemic have had a global impact, and
uncertainty exists as to the long-term implications. Such disruptions can
adversely affect assets of the fund and thus fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security
Valuation: Securities are valued as of the close of trading on the New York
Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity
securities are valued at the latest quoted sales prices or official closing
prices taken from the primary market in which each security trades; such
securities not traded on the valuation date are valued at the mean of the latest
quoted bid and asked prices. Securities for which market quotations are not
readily available, or whose values have been materially affected by events
occurring before the fund’s pricing time but after the close of the securities’
primary markets, are valued by methods deemed by the board of trustees to
represent fair value. Investments in Vanguard Market Liquidity Fund are valued
at that fund's net asset value. Temporary cash investments are valued using the
latest bid prices or using valuations based on a matrix system (which considers
such factors as security prices, yields, maturities, and ratings), both as
furnished by independent pricing services.
2. Futures
Contracts: The fund uses index futures contracts to a limited extent, with the
objectives of maintaining full exposure to the stock market, maintaining
liquidity, and minimizing transaction costs. The fund may purchase futures
contracts to immediately invest incoming cash in the market, or sell futures in
response to cash outflows, thereby simulating a fully invested position in the
underlying index while maintaining a cash balance for liquidity. The primary
risks associated with the use of futures contracts are imperfect correlation
between changes in market values of stocks held by the fund and the prices of
futures contracts, and the possibility of an illiquid market. Counterparty risk
involving futures is mitigated because a regulated clearinghouse is the
counterparty instead of the clearing broker. To further mitigate counterparty
risk, the fund trades futures contracts on an exchange, monitors the financial
strength of its clearing brokers and clearinghouse, and has entered into
clearing agreements with its clearing brokers. The clearinghouse imposes initial
margin requirements to secure the fund’s performance and requires daily
settlement of variation margin representing changes in the market value of each
contract. Any securities pledged as initial margin for open contracts are noted
in the Schedule of Investments.
Futures
contracts are valued at their quoted daily settlement prices. The notional
amounts of the contracts are not recorded in the Statement of Assets and
Liabilities. Fluctuations in the value of the contracts are recorded in the
Statement of Assets and Liabilities as an asset (liability) and in the Statement
of Operations as unrealized appreciation (depreciation) until the contracts are
closed, when they are recorded as realized gains (losses) on futures
contracts.
During
the six months ended February 28, 2022, the fund’s average investments in long
and short futures contracts represented less than 1% and 0% of net assets,
respectively, based on the average of the notional amounts at each quarter-end
during the period. The fund had no open futures contracts at February 28,
2022.
3. Federal
Income Taxes: The fund intends to continue to qualify as a regulated investment
company and distribute all of its taxable income. The fund’s tax returns are
open to examination by the relevant tax authorities until expiration of the
applicable statute of limitations, which is generally three years after the
filing of the tax return. Management has analyzed the fund’s tax positions taken
for all open federal and state income tax years, and has concluded that no
provision for income tax is required in the fund’s financial statements.
4. Distributions:
Distributions to shareholders are recorded on the ex-dividend date.
Distributions are determined on a tax basis at the fiscal year-end and may
differ from net investment income and realized capital gains for financial
reporting purposes.
5. Securities
Lending: To earn additional income, the fund lends its securities to qualified
institutional borrowers. Security loans are subject to termination by the fund
at any time, and are required to be secured at all times by collateral in an
amount at least equal to the market value of securities loaned. Daily market
fluctuations could cause the value of loaned securities to be more or less than
the value
22
Consumer
Discretionary Index Fund
of
the collateral received. When this occurs, the collateral is adjusted and
settled before the opening of the market on the next business day. The fund
further mitigates its counterparty risk by entering into securities lending
transactions only with a diverse group of prequalified counterparties,
monitoring their financial strength, and entering into master securities lending
agreements with its counterparties. The master securities lending agreements
provide that, in the event of a counterparty’s default (including bankruptcy),
the fund may terminate any loans with that borrower, determine the net amount
owed, and sell or retain the collateral up to the net amount owed to the fund;
however, such actions may be subject to legal proceedings. While collateral
mitigates counterparty risk, in the event of a default, the fund may experience
delays and costs in recovering the securities loaned. The fund invests cash
collateral received in Vanguard Market Liquidity Fund, and records a liability
in the Statement of Assets and Liabilities for the return of the collateral,
during the period the securities are on loan. Collateral investments in Vanguard
Market Liquidity Fund are subject to market appreciation or depreciation.
Securities lending income represents fees charged to borrowers plus income
earned on invested cash collateral, less expenses associated with the loan.
During the term of the loan, the fund is entitled to all distributions made on
or in respect of the loaned securities.
6. Credit
Facilities and Interfund Lending Program: The fund and certain other funds
managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion
committed credit facility provided by a syndicate of lenders pursuant to a
credit agreement and an uncommitted credit facility provided by Vanguard. Both
facilities may be renewed annually. Each fund is individually liable for its
borrowings, if any, under the credit facilities. Borrowings may be utilized for
temporary or emergency purposes, subject to the fund’s regulatory and
contractual borrowing restrictions. With respect to the committed credit
facility, the participating funds are charged administrative fees and an annual
commitment fee of 0.10% of the undrawn committed amount of the facility; these
fees are allocated to the funds based on a method approved by the fund’s board
of trustees and included in Management and Administrative expenses on the fund’s
Statement of Operations. Any borrowings under either facility bear interest at a
rate based upon the higher of the one-month London Interbank Offered Rate (or an
acceptable alternate rate, if necessary), federal funds effective rate, or
overnight bank funding rate plus an agreed-upon spread, except that borrowings
under the uncommitted credit facility may bear interest based upon an alternate
rate agreed to by the fund and Vanguard.
In
accordance with an exemptive order (the “Order”) from the SEC, the fund may
participate in a joint lending and borrowing program that allows registered
open-end Vanguard funds to borrow money from and lend money to each other for
temporary or emergency purposes (the “Interfund Lending Program”), subject to
compliance with the terms and conditions of the Order, and to the extent
permitted by the fund’s investment objective and investment policies. Interfund
loans and borrowings normally extend overnight, but can have a maximum duration
of seven days. Loans may be called on one business day’s notice. The interest
rate to be charged is governed by the conditions of the Order and internal
procedures adopted by the board of trustees. The board of trustees is
responsible for overseeing the Interfund Lending Program.
For
the six months ended February 28, 2022, the fund did not utilize the credit
facilities or the Interfund Lending Program.
7. Other:
Dividend income is recorded on the ex-dividend date. Non-cash dividends included
in income, if any, are recorded at the fair value of the securities received.
Interest income includes income distributions received from Vanguard Market
Liquidity Fund and is accrued daily. Security transactions are accounted for on
the date securities are bought or sold. Costs used to determine realized gains
(losses) on the sale of investment securities are those of the specific
securities sold.
Each
class of shares has equal rights as to assets and earnings, except that each
class separately bears certain class-specific expenses related to maintenance of
shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each
class of shares based on a method approved by the board of trustees. Income,
other non-class-specific expenses, and gains and losses on investments are
allocated to each class of shares based on its relative net assets.
| B. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
Upon
the request of Vanguard, the fund may invest up to 0.40% of its net assets as
capital in Vanguard. At February 28, 2022, the fund had contributed to Vanguard
capital in the amount of $233,000, representing less than 0.01% of the fund’s
net assets and 0.09% of Vanguard’s capital
23
Consumer
Discretionary Index Fund
received
pursuant to the FSA. The fund’s trustees and officers are also directors and
employees, respectively, of Vanguard.
| C. | Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. |
Level
1—Quoted prices in active markets for
identical securities.
Level
2—Other significant observable inputs
(including quoted prices for similar securities, interest rates, prepayment
speeds, credit risk, etc.).
Level
3—Significant unobservable inputs (including
the fund’s own assumptions used to determine the fair value of investments). Any
investments valued with significant unobservable inputs are noted on the
Schedule of Investments.
The
following table summarizes the market value of the fund’s investments as of
February 28, 2022, based on the inputs used to value them:
| Level
1 ($000) |
Level
2 ($000) |
Level
3 ($000) |
Total ($000) | |
| Investments | ||||
| Assets | ||||
| Common Stocks | 6,569,496 | — | 3 | 6,569,499 |
| Temporary Cash Investments | 18,052 | — | — | 18,052 |
| Total | 6,587,548 | — | 3 | 6,587,551 |
| D. | As of February 28, 2022, gross unrealized appreciation and depreciation for investments based on cost for U.S. federal income tax purposes were as follows: |
| Amount ($000) | |
| Tax Cost | 5,384,180 |
| Gross Unrealized Appreciation | 1,374,859 |
| Gross Unrealized Depreciation | (171,488) |
| Net Unrealized Appreciation (Depreciation) | 1,203,371 |
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, 2021, the fund had available
capital losses totaling $182,279,000 that may be carried forward indefinitely to
offset future net capital gains. The fund will use these capital losses to
offset net taxable capital gains, if any, realized during the year ending August
31, 2022; should the fund realize net capital losses for the year, the losses
will be added to the loss carryforward balance above.
| E. | During the six months ended February 28, 2022, the fund purchased $1,034,476,000 of investment securities and sold $1,297,075,000 of investment securities, other than temporary cash investments. Purchases and sales include $866,040,000 and $1,153,684,000, respectively, in connection with in-kind purchases and redemptions of the fund's capital shares. |
The
fund purchased securities from and sold securities to other Vanguard funds or
accounts managed by Vanguard or its affiliates, in accordance with procedures
adopted by the board of trustees in compliance with Rule 17a-7 of the Investment
Company Act of 1940. For the six months ended February 28, 2022, such purchases
were $79,000 and sales were $8,851,000, resulting in net realized loss of
$274,000; these amounts, other than temporary cash investments, are included in
the purchases and sales of investment securities noted above.
24
Consumer
Discretionary Index Fund
| F. | Capital share transactions for each class of shares were: |
| Six Months Ended February 28, 2022 |
Year Ended August 31, 2021 | ||||
| Amount ($000) |
Shares (000) |
Amount ($000) |
Shares (000) | ||
| ETF Shares | |||||
| Issued | 938,820 | 2,830 | 1,907,066 | 6,682 | |
| Issued in Lieu of Cash Distributions | — | — | — | — | |
| Redeemed | (1,162,136) | (3,725) | (586,506) | (2,250) | |
| Net Increase (Decrease)—ETF Shares | (223,316) | (895) | 1,320,560 | 4,432 | |
| Admiral Shares | |||||
| Issued | 141,252 | 828 | 361,180 | 2,448 | |
| Issued in Lieu of Cash Distributions | 4,574 | 28 | 7,024 | 57 | |
| Redeemed | (152,772) | (913) | (205,345) | (1,392) | |
| Net Increase (Decrease)—Admiral Shares | (6,946) | (57) | 162,859 | 1,113 | |
| G. | Market disruptions associated with current geopolitical events have had a global impact, and uncertainty exists as to their implications. Such disruptions can adversely affect assets and thus performance of the fund; at this time, an aggregate effect on assets and performance cannot be reasonably estimated. Management is continuing to monitor these developments and evaluate impacts they may have on the fund. |
Management
has determined that no other events or transactions occurred subsequent to
February 28, 2022, that would require recognition or disclosure in these
financial statements.
25
Consumer
Staples Index Fund
Fund
Allocation
As
of February 28, 2022
| Beverages | 23.0% |
| Food & Staples Retailing | 22.9 |
| Food Products | 20.5 |
| Household Products | 21.0 |
| Personal Products | 4.4 |
| Tobacco | 8.2 |
The
table reflects the fund’s investments, except short-term investments and
derivatives. Sector categories are based on the Global Industry Classification
Standard (“GICS”), except for the “Other” category (if applicable), which
includes securities that have not been provided a GICS classification as of the
effective reporting period.
The
fund may invest in derivatives (such as futures and swap contracts) for various
reasons, including, but not limited to, attempting to remain fully invested and
tracking its target index as closely as possible.
Global
Industry Classification Standard (“GICS”) was developed by and is the exclusive
property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a
division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by
Vanguard. Neither MSCI, S&P nor any third party involved in making or
compiling the GICS or any GICS classification makes any express or implied
warranties or representations with respect to such standard or classification
(or the results to be obtained by the use thereof), and all such parties hereby
expressly disclaim all warranties of originality, accuracy, completeness,
merchantability or fitness for a particular purpose with respect to any such
standard or classification. Without limiting any of the foregoing, in no event
shall MSCI, S&P, any of its affiliates or any third party involved in making
or compiling the GICS or any GICS classification have any liability for any
direct, indirect, special, punitive, consequential or any other damages
(including lost profits) even if notified of the possibility of such
damages.
26
Consumer
Staples Index Fund
Financial
Statements (unaudited)
Schedule
of Investments
As
of February 28, 2022
The
fund files its complete schedule of portfolio holdings with the Securities and
Exchange Commission (SEC) for the first and third quarters of each fiscal year
as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are
available on the SEC’s website at www.sec.gov.
27
Consumer
Staples Index Fund
Derivative
Financial Instruments Outstanding as of Period End
| Over-the-Counter Total Return Swaps | ||||||
| Reference Entity | Termination Date |
Counterparty | Notional Amount ($000) |
Floating Interest Rate Received (Paid)1 (%) |
Value
and Unrealized Appreciation ($000) |
Value
and Unrealized (Depreciation) ($000) |
| Bunge Ltd. | 8/31/22 | BANA | 8,887 | (0.070) | 44 | — |
| 1 | Based on 1M USD Overnight Bank Funding Rate as of the most recent payment date. Floating interest payment received/paid monthly. |
| 1M—1-month. | |
| BANA—Bank of America, N.A. |
See
accompanying Notes, which are an integral part of the Financial
Statements.
28
Consumer
Staples Index Fund
Statement
of Assets and Liabilities
As
of February 28, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $6,598,679) | 7,855,599 |
| Affiliated Issuers (Cost $40,706) | 40,707 |
| Total Investments in Securities | 7,896,306 |
| Investment in Vanguard | 253 |
| Cash | 6 |
| Receivables for Investment Securities Sold | 41,728 |
| Receivables for Accrued Income | 5,947 |
| Receivables for Capital Shares Issued | 3,881 |
| Unrealized Appreciation—Over-the-Counter Swap Contracts | 44 |
| Total Assets | 7,948,165 |
| Liabilities | |
| Due to Custodian | 1,334 |
| Payables for Investment Securities Purchased | 56,543 |
| Collateral for Securities on Loan | 20,616 |
| Payables for Capital Shares Redeemed | 7,152 |
| Payables to Vanguard | 279 |
| Total Liabilities | 85,924 |
| Net Assets | 7,862,241 |
| At February 28, 2022, net assets consisted of: | |
| Paid-in Capital | 6,598,226 |
| Total Distributable Earnings (Loss) | 1,264,015 |
| Net Assets | 7,862,241 |
| ETF Shares—Net Assets | |
| Applicable
to 34,679,180 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
6,719,702 |
| Net Asset Value Per Share—ETF Shares | $193.77 |
| Admiral Shares—Net Assets | |
| Applicable
to 11,958,335 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
1,142,539 |
| Net Asset Value Per Share—Admiral Shares | $95.54 |
See
accompanying Notes, which are an integral part of the Financial
Statements.
29
Consumer
Staples Index Fund
See
accompanying Notes, which are an integral part of the Financial
Statements.
30
Consumer
Staples Index Fund
Financial
Highlights
| ETF Shares | ||||||
| For a Share Outstanding Throughout Each Period |
Six Months Ended February 28, 2022 |
Year Ended August 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $187.61 | $167.31 | $154.72 | $140.13 | $140.15 | $139.97 |
| Investment Operations | ||||||
| Net Investment Income1 | 2.073 | 4.385 | 3.992 | 3.896 | 3.603 | 3.651 |
| Net Realized and Unrealized Gain (Loss) on Investments | 6.383 | 20.341 | 12.658 | 14.346 | (.033) | .212 |
| Total from Investment Operations | 8.456 | 24.726 | 16.650 | 18.242 | 3.570 | 3.863 |
| Distributions | ||||||
| Dividends from Net Investment Income | (2.296) | (4.427) | (4.060) | (3.652) | (3.590) | (3.683) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (2.296) | (4.427) | (4.060) | (3.652) | (3.590) | (3.683) |
| Net Asset Value, End of Period | $193.77 | $187.61 | $167.31 | $154.72 | $140.13 | $140.15 |
| Total Return | 4.54% | 15.01% | 11.01% | 13.24% | 2.60% | 2.83% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $6,720 | $5,908 | $5,712 | $5,296 | $3,983 | $3,780 |
| Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 2.17% | 2.50% | 2.58% | 2.71% | 2.60% | 2.63% |
| Portfolio Turnover Rate2 | 2% | 8% | 3% | 6% | 8% | 5% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period |
Six Months Ended February 28, 2022 |
Year Ended August 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $92.51 | $82.50 | $76.29 | $69.09 | $69.10 | $69.02 |
| Investment Operations | ||||||
| Net Investment Income1 | 1.013 | 2.160 | 1.973 | 1.923 | 1.776 | 1.797 |
| Net Realized and Unrealized Gain (Loss) on Investments | 3.148 | 10.032 | 6.239 | 7.076 | (.018) | .101 |
| Total from Investment Operations | 4.161 | 12.192 | 8.212 | 8.999 | 1.758 | 1.898 |
| Distributions | ||||||
| Dividends from Net Investment Income | (1.131) | (2.183) | (2.002) | (1.799) | (1.768) | (1.818) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (1.131) | (2.183) | (2.002) | (1.799) | (1.768) | (1.818) |
| Net Asset Value, End of Period | $95.54 | $92.51 | $82.50 | $76.29 | $69.09 | $69.10 |
| Total Return2 | 4.54% | 15.04% | 11.03% | 13.24% | 2.59% | 2.81% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $1,143 | $846 | $791 | $710 | $587 | $742 |
| Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 2.15% | 2.50% | 2.59% | 2.71% | 2.60% | 2.63% |
| Portfolio Turnover Rate3 | 2% | 8% | 3% | 6% | 8% | 5% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
See
accompanying Notes, which are an integral part of the Financial
Statements.
31
Consumer
Staples Index Fund
Notes
to Financial Statements
Vanguard
Consumer Staples Index Fund is registered under the Investment Company Act of
1940 as an open-end investment company, or mutual fund. The fund offers two
classes of shares: ETF Shares and Admiral Shares. Each of the share classes has
different eligibility and minimum purchase requirements, and is designed for
different types of investors. ETF Shares are listed for trading on NYSE Arca;
they can be purchased and sold through a broker.
Market
disruptions associated with the COVID-19 pandemic have had a global impact, and
uncertainty exists as to the long-term implications. Such disruptions can
adversely affect assets of the fund and thus fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security
Valuation: Securities are valued as of the close of trading on the New York
Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity
securities are valued at the latest quoted sales prices or official closing
prices taken from the primary market in which each security trades; such
securities not traded on the valuation date are valued at the mean of the latest
quoted bid and asked prices. Securities for which market quotations are not
readily available, or whose values have been materially affected by events
occurring before the fund’s pricing time but after the close of the securities’
primary markets, are valued by methods deemed by the board of trustees to
represent fair value. Investments in Vanguard Market Liquidity Fund are valued
at that fund's net asset value.
2.
Swap Contracts: The fund has entered into equity swap contracts to earn the
total return on selected reference stocks in the fund’s target index. Under the
terms of the swaps, the fund receives the total return on the referenced stock
(i.e., receiving the increase or paying the decrease in value of the selected
reference stock and receiving the equivalent of any dividends in respect of the
selected referenced stock) over a specified period of time, applied to a
notional amount that represents the value of a designated number of shares of
the selected reference stock at the beginning of the equity swap contract. The
fund also pays a floating rate that is based on short-term interest rates,
applied to the notional amount. At the same time, the fund generally invests an
amount approximating the notional amount of the swap in high-quality temporary
cash investments.
A
risk associated with all types of swaps is the possibility that a counterparty
may default on its obligation to pay net amounts due to the fund. The fund’s
maximum amount subject to counterparty risk is the unrealized appreciation on
the swap contract. The fund mitigates its counterparty risk by entering into
swaps only with a diverse group of prequalified counterparties, monitoring their
financial strength, entering into master netting arrangements with its
counterparties, and requiring its counterparties to transfer collateral as
security for their performance. In the absence of a default, the collateral
pledged or received by the fund cannot be repledged, resold, or rehypothecated.
In the event of a counterparty’s default (including bankruptcy), the fund may
terminate any swap contracts with that counterparty, determine the net amount
owed by either party in accordance with its master netting arrangements, and
sell or retain any collateral held up to the net amount owed to the fund under
the master netting arrangements. The swap contracts contain provisions whereby a
counterparty may terminate open contracts if the fund’s net assets decline below
a certain level, triggering a payment by the fund if the fund is in a net
liability position at the time of the termination. The payment amount would be
reduced by any collateral the fund has pledged. Any securities pledged as
collateral for open contracts are noted in the Schedule of Investments. The
value of collateral received or pledged is compared daily to the value of the
swap contracts exposure with each counterparty, and any difference, if in excess
of a specified minimum transfer amount, is adjusted and settled within two
business days.
The
notional amounts of swap contracts are not recorded in the Statement of Assets
and Liabilities. Swaps are valued daily based on market quotations received from
independent pricing services or recognized dealers and the change in value is
recorded in the Statement of Assets and Liabilities as an asset (liability) and
in the Statement of Operations as unrealized appreciation (depreciation) until
periodic payments are made or the termination of the swap, at which time
realized gain (loss) is recorded.
During
the six months ended February 28, 2022, the fund’s average amounts of
investments in total return swaps represented less than 1% of net assets, based
on the average of notional amounts at each quarter-end during the period.
3. Federal
Income Taxes: The fund intends to continue to qualify as a regulated investment
company and distribute all of its taxable income. The fund’s tax returns are
open to examination by the relevant tax authorities until expiration of the
applicable statute of limitations, which is generally three years
32
Consumer
Staples Index Fund
after
the filing of the tax return. Management has analyzed the fund’s tax positions
taken for all open federal and state income tax years, and has concluded that no
provision for income tax is required in the fund’s financial statements.
4. Distributions:
Distributions to shareholders are recorded on the ex-dividend date.
Distributions are determined on a tax basis at the fiscal year-end and may
differ from net investment income and realized capital gains for financial
reporting purposes.
5. Securities
Lending: To earn additional income, the fund lends its securities to qualified
institutional borrowers. Security loans are subject to termination by the fund
at any time, and are required to be secured at all times by collateral in an
amount at least equal to the market value of securities loaned. Daily market
fluctuations could cause the value of loaned securities to be more or less than
the value of the collateral received. When this occurs, the collateral is
adjusted and settled before the opening of the market on the next business day.
The fund further mitigates its counterparty risk by entering into securities
lending transactions only with a diverse group of prequalified counterparties,
monitoring their financial strength, and entering into master securities lending
agreements with its counterparties. The master securities lending agreements
provide that, in the event of a counterparty’s default (including bankruptcy),
the fund may terminate any loans with that borrower, determine the net amount
owed, and sell or retain the collateral up to the net amount owed to the fund;
however, such actions may be subject to legal proceedings. While collateral
mitigates counterparty risk, in the event of a default, the fund may experience
delays and costs in recovering the securities loaned. The fund invests cash
collateral received in Vanguard Market Liquidity Fund, and records a liability
in the Statement of Assets and Liabilities for the return of the collateral,
during the period the securities are on loan. Collateral investments in Vanguard
Market Liquidity Fund are subject to market appreciation or depreciation.
Securities lending income represents fees charged to borrowers plus income
earned on invested cash collateral, less expenses associated with the loan.
During the term of the loan, the fund is entitled to all distributions made on
or in respect of the loaned securities.
6. Credit
Facilities and Interfund Lending Program: The fund and certain other funds
managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion
committed credit facility provided by a syndicate of lenders pursuant to a
credit agreement and an uncommitted credit facility provided by Vanguard. Both
facilities may be renewed annually. Each fund is individually liable for its
borrowings, if any, under the credit facilities. Borrowings may be utilized for
temporary or emergency purposes, subject to the fund’s regulatory and
contractual borrowing restrictions. With respect to the committed credit
facility, the participating funds are charged administrative fees and an annual
commitment fee of 0.10% of the undrawn committed amount of the facility; these
fees are allocated to the funds based on a method approved by the fund’s board
of trustees and included in Management and Administrative expenses on the fund’s
Statement of Operations. Any borrowings under either facility bear interest at a
rate based upon the higher of the one-month London Interbank Offered Rate (or an
acceptable alternate rate, if necessary), federal funds effective rate, or
overnight bank funding rate plus an agreed-upon spread, except that borrowings
under the uncommitted credit facility may bear interest based upon an alternate
rate agreed to by the fund and Vanguard.
In
accordance with an exemptive order (the “Order”) from the SEC, the fund may
participate in a joint lending and borrowing program that allows registered
open-end Vanguard funds to borrow money from and lend money to each other for
temporary or emergency purposes (the “Interfund Lending Program”), subject to
compliance with the terms and conditions of the Order, and to the extent
permitted by the fund’s investment objective and investment policies. Interfund
loans and borrowings normally extend overnight, but can have a maximum duration
of seven days. Loans may be called on one business day’s notice. The interest
rate to be charged is governed by the conditions of the Order and internal
procedures adopted by the board of trustees. The board of trustees is
responsible for overseeing the Interfund Lending Program.
For
the six months ended February 28, 2022, the fund did not utilize the credit
facilities or the Interfund Lending Program.
7. Other:
Dividend income is recorded on the ex-dividend date. Non-cash dividends included
in income, if any, are recorded at the fair value of the securities received.
Interest income includes income distributions received from Vanguard Market
Liquidity Fund and is accrued daily. Security transactions are accounted for on
the date securities are bought or sold. Costs used to determine realized gains
(losses) on the sale of investment securities are those of the specific
securities sold.
Each
class of shares has equal rights as to assets and earnings, except that each
class separately bears certain class-specific expenses related to maintenance of
shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each
class of shares based on a method approved by the board of
33
Consumer
Staples Index Fund
trustees.
Income, other non-class-specific expenses, and gains and losses on investments
are allocated to each class of shares based on its relative net assets.
| B. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
Upon
the request of Vanguard, the fund may invest up to 0.40% of its net assets as
capital in Vanguard. At February 28, 2022, the fund had contributed to Vanguard
capital in the amount of $253,000, representing less than 0.01% of the fund’s
net assets and 0.10% of Vanguard’s capital received pursuant to the FSA. The
fund’s trustees and officers are also directors and employees, respectively, of
Vanguard.
| C. | Various inputs may be used to determine the value of the fund’s investments and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. |
Level
1—Quoted prices in active markets for
identical securities.
Level
2—Other significant observable inputs
(including quoted prices for similar securities, interest rates, prepayment
speeds, credit risk, etc.).
Level
3—Significant unobservable inputs (including
the fund’s own assumptions used to determine the fair value of investments). Any
investments and derivatives valued with significant unobservable inputs are
noted on the Schedule of Investments.
The
following table summarizes the market value of the fund’s investments and
derivatives as of February 28, 2022, based on the inputs used to value
them:
| Level
1 ($000) |
Level
2 ($000) |
Level
3 ($000) |
Total ($000) | |
| Investments | ||||
| Assets | ||||
| Common Stocks | 7,855,599 | — | — | 7,855,599 |
| Temporary Cash Investments | 40,707 | — | — | 40,707 |
| Total | 7,896,306 | — | — | 7,896,306 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Swap Contracts | — | 44 | — | 44 |
| D. | As of February 28, 2022, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows: |
| Amount ($000) | |
| Tax Cost | 6,648,783 |
| Gross Unrealized Appreciation | 1,524,506 |
| Gross Unrealized Depreciation | (276,983) |
| Net Unrealized Appreciation (Depreciation) | 1,247,523 |
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, 2021, the fund had available
capital losses totaling $168,707,000 that may be carried forward indefinitely to
offset future net capital gains. The fund will use these capital losses to
offset net taxable capital gains, if any, realized during the year ending August
31, 2022; should the fund realize net capital losses for the year, the losses
will be added to the loss carryforward balance above.
| E. | During the six months ended February 28, 2022, the fund purchased $1,484,735,000 of investment securities and sold $617,355,000 of investment securities, other than temporary cash investments. Purchases and sales include $1,021,208,000 and $506,055,000, respectively, in connection with in-kind purchases and redemptions of the fund's capital shares. |
The
fund purchased securities from and sold securities to other Vanguard funds or
accounts managed by Vanguard or its affiliates, in accordance with procedures
adopted by the board of
34
Consumer
Staples Index Fund
trustees
in compliance with Rule 17a-7 of the Investment Company Act of 1940. For the six
months ended February 28, 2022, such purchases were $23,000 and sales were
$1,610,000, resulting in net realized loss of $143,000; these amounts, other
than temporary cash investments, are included in the purchases and sales of
investment securities noted above.
| F. | Capital share transactions for each class of shares were: |
| Six Months Ended February 28, 2022 |
Year Ended August 31, 2021 | ||||
| Amount ($000) |
Shares (000) |
Amount ($000) |
Shares (000) | ||
| ETF Shares | |||||
| Issued | 1,119,058 | 5,839 | 871,879 | 4,824 | |
| Issued in Lieu of Cash Distributions | — | — | — | — | |
| Redeemed | (512,269) | (2,650) | (1,304,630) | (7,475) | |
| Net Increase (Decrease)—ETF Shares | 606,789 | 3,189 | (432,751) | (2,651) | |
| Admiral Shares | |||||
| Issued | 362,314 | 3,780 | 211,742 | 2,456 | |
| Issued in Lieu of Cash Distributions | 8,387 | 90 | 16,733 | 197 | |
| Redeemed | (99,447) | (1,058) | (265,847) | (3,092) | |
| Net Increase (Decrease)—Admiral Shares | 271,254 | 2,812 | (37,372) | (439) | |
| G. | Market disruptions associated with current geopolitical events have had a global impact, and uncertainty exists as to their implications. Such disruptions can adversely affect assets and thus performance of the fund; at this time, an aggregate effect on assets and performance cannot be reasonably estimated. Management is continuing to monitor these developments and evaluate impacts they may have on the fund. |
Management
has determined that no other events or transactions occurred subsequent to
February 28, 2022, that would require recognition or disclosure in these
financial statements.
35
Energy
Index Fund
Fund
Allocation
As
of February 28, 2022
| Coal & Consumable Fuels | 0.3% |
| Integrated Oil & Gas | 40.2 |
| Oil & Gas Drilling | 0.8 |
| Oil & Gas Equipment & Services | 9.0 |
| Oil & Gas Exploration & Production | 30.7 |
| Oil & Gas Refining & Marketing | 8.7 |
| Oil & Gas Storage & Transportation | 10.3 |
The
table reflects the fund’s investments, except short-term investments and
derivatives. Sector categories are based on the Global Industry Classification
Standard (“GICS”), except for the “Other” category (if applicable), which
includes securities that have not been provided a GICS classification as of the
effective reporting period.
The
fund may invest in derivatives (such as futures and swap contracts) for various
reasons, including, but not limited to, attempting to remain fully invested and
tracking its target index as closely as possible.
Global
Industry Classification Standard (“GICS”) was developed by and is the exclusive
property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a
division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by
Vanguard. Neither MSCI, S&P nor any third party involved in making or
compiling the GICS or any GICS classification makes any express or implied
warranties or representations with respect to such standard or classification
(or the results to be obtained by the use thereof), and all such parties hereby
expressly disclaim all warranties of originality, accuracy, completeness,
merchantability or fitness for a particular purpose with respect to any such
standard or classification. Without limiting any of the foregoing, in no event
shall MSCI, S&P, any of its affiliates or any third party involved in making
or compiling the GICS or any GICS classification have any liability for any
direct, indirect, special, punitive, consequential or any other damages
(including lost profits) even if notified of the possibility of such
damages.
36
Energy
Index Fund
Financial
Statements (unaudited)
Schedule
of Investments
As
of February 28, 2022
The
fund files its complete schedule of portfolio holdings with the Securities and
Exchange Commission (SEC) for the first and third quarters of each fiscal year
as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are
available on the SEC’s website at www.sec.gov.
37
Energy
Index Fund
Derivative
Financial Instruments Outstanding as of Period End
| Over-the-Counter Total Return Swaps | ||||||
| Reference Entity | Termination Date |
Counterparty | Notional Amount ($000) |
Floating Interest Rate Received (Paid)1 (%) |
Value
and Unrealized Appreciation ($000) |
Value
and Unrealized (Depreciation) ($000) |
| Cheniere Energy Inc. | 8/31/22 | BANA | 9,303 | (0.070) | 23 | — |
| Hess Corp. | 1/31/23 | GSI | 27,957 | (0.070) | 2,360 | — |
| 2,383 | — | |||||
| 1 | Based on 1M USD Overnight Bank Funding Rate as of the most recent payment date. Floating interest payment received/paid monthly. |
| 1M—1-month. | |
| BANA—Bank of America, N.A. | |
| GSI—Goldman Sachs International. |
At
February 28, 2022, the counterparties had deposited in segregated accounts
securities with a value of $1,965,000 and cash of $580,000 in connection with
open over-the-counter swap contracts.
See
accompanying Notes, which are an integral part of the Financial
Statements.
38
Energy
Index Fund
Statement
of Assets and Liabilities
As
of February 28, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $8,077,196) | 9,325,262 |
| Affiliated Issuers (Cost $4,444) | 4,444 |
| Total Investments in Securities | 9,329,706 |
| Investment in Vanguard | 283 |
| Receivables for Investment Securities Sold | 61,052 |
| Receivables for Accrued Income | 54,327 |
| Receivables for Capital Shares Issued | 8,185 |
| Unrealized Appreciation—Over-the-Counter Swap Contracts | 2,383 |
| Total Assets | 9,455,936 |
| Liabilities | |
| Due to Custodian | 15,882 |
| Payables for Investment Securities Purchased | 60,019 |
| Collateral for Securities on Loan | 4,435 |
| Payables for Capital Shares Redeemed | 3,895 |
| Payables to Vanguard | 319 |
| Other Liabilities | 7 |
| Total Liabilities | 84,557 |
| Net Assets | 9,371,379 |
| At February 28, 2022, net assets consisted of: | |
| Paid-in Capital | 8,907,340 |
| Total Distributable Earnings (Loss) | 464,039 |
| Net Assets | 9,371,379 |
| ETF Shares—Net Assets | |
| Applicable
to 78,742,221 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
7,722,828 |
| Net Asset Value Per Share—ETF Shares | $98.08 |
| Admiral Shares—Net Assets | |
| Applicable
to 33,646,843 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
1,648,551 |
| Net Asset Value Per Share—Admiral Shares | $49.00 |
See
accompanying Notes, which are an integral part of the Financial
Statements.
39
Energy
Index Fund
See
accompanying Notes, which are an integral part of the Financial
Statements.
40
Energy
Index Fund
Financial
Highlights
| ETF Shares | ||||||
| For a Share Outstanding Throughout Each Period |
Six Months Ended February 28, 2022 |
Year Ended August 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $67.99 | $47.90 | $75.75 | $103.13 | $85.71 | $95.06 |
| Investment Operations | ||||||
| Net Investment Income1 | 1.650 | 2.802 | 2.957 | 2.769 | 2.519 | 2.8192 |
| Net Realized and Unrealized Gain (Loss) on Investments | 30.303 | 19.789 | (28.064) | (27.449) | 17.837 | (9.801) |
| Total from Investment Operations | 31.953 | 22.591 | (25.107) | (24.680) | 20.356 | (6.982) |
| Distributions | ||||||
| Dividends from Net Investment Income | (1.863) | (2.501) | (2.743) | (2.700) | (2.936) | (2.368) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (1.863) | (2.501) | (2.743) | (2.700) | (2.936) | (2.368) |
| Net Asset Value, End of Period | $98.08 | $67.99 | $47.90 | $75.75 | $103.13 | $85.71 |
| Total Return | 47.83% | 48.07% | -33.87% | -24.34% | 24.06% | -7.55% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $7,723 | $4,806 | $2,720 | $3,029 | $4,288 | $3,656 |
| Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 3.78% | 4.54% | 4.91% | 3.15% | 2.56% | 2.93%2 |
| Portfolio Turnover Rate3 | 4% | 5% | 8% | 7% | 5% | 11% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Net investment income per share and the ratio of net investment income to average net assets include $.453 and 0.47%, respectively, from income received as a result of General Electric Co. and Baker Hughes Inc. merger in July 2017. |
| 3 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
See
accompanying Notes, which are an integral part of the Financial
Statements.
41
Energy
Index Fund
Financial
Highlights
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period |
Six Months Ended February 28, 2022 |
Year Ended August 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $33.97 | $23.93 | $37.84 | $51.52 | $42.82 | $47.49 |
| Investment Operations | ||||||
| Net Investment Income1 | .816 | 1.435 | 1.461 | 1.388 | 1.249 | 1.3752 |
| Net Realized and Unrealized Gain (Loss) on Investments | 15.144 | 9.855 | (14.001) | (13.720) | 8.916 | (4.863) |
| Total from Investment Operations | 15.960 | 11.290 | (12.540) | (12.332) | 10.165 | (3.488) |
| Distributions | ||||||
| Dividends from Net Investment Income | (.930) | (1.250) | (1.370) | (1.348) | (1.465) | (1.182) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (.930) | (1.250) | (1.370) | (1.348) | (1.465) | (1.182) |
| Net Asset Value, End of Period | $49.00 | $33.97 | $23.93 | $37.84 | $51.52 | $42.82 |
| Total Return3 | 47.82% | 48.18% | -33.82% | -24.33% | 24.06% | -7.56% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $1,649 | $1,100 | $407 | $468 | $642 | $523 |
| Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 3.75% | 4.52% | 4.84% | 3.15% | 2.56% | 2.93%2 |
| Portfolio Turnover Rate4 | 4% | 5% | 8% | 7% | 5% | 11% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Net investment income per share and the ratio of net investment income to average net assets include $.228 and 0.47%, respectively, from income received as a result of General Electric Co. and Baker Hughes Inc. merger in July 2017. |
| 3 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 4 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
See
accompanying Notes, which are an integral part of the Financial
Statements.
42
Energy
Index Fund
Notes
to Financial Statements
Vanguard
Energy Index Fund is registered under the Investment Company Act of 1940 as an
open-end investment company, or mutual fund. The fund offers two classes of
shares: ETF Shares and Admiral Shares. Each of the share classes has different
eligibility and minimum purchase requirements, and is designed for different
types of investors. ETF Shares are listed for trading on NYSE Arca; they can be
purchased and sold through a broker.
Market
disruptions associated with the COVID-19 pandemic have had a global impact, and
uncertainty exists as to the long-term implications. Such disruptions can
adversely affect assets of the fund and thus fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security
Valuation: Securities are valued as of the close of trading on the New York
Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity
securities are valued at the latest quoted sales prices or official closing
prices taken from the primary market in which each security trades; such
securities not traded on the valuation date are valued at the mean of the latest
quoted bid and asked prices. Securities for which market quotations are not
readily available, or whose values have been materially affected by events
occurring before the fund’s pricing time but after the close of the securities’
primary markets, are valued by methods deemed by the board of trustees to
represent fair value. Investments in Vanguard Market Liquidity Fund are valued
at that fund's net asset value.
2.
Swap Contracts: The fund has entered into equity swap contracts to earn the
total return on selected reference stocks in the fund’s target index. Under the
terms of the swaps, the fund receives the total return on the referenced stock
(i.e., receiving the increase or paying the decrease in value of the selected
reference stock and receiving the equivalent of any dividends in respect of the
selected referenced stock) over a specified period of time, applied to a
notional amount that represents the value of a designated number of shares of
the selected reference stock at the beginning of the equity swap contract. The
fund also pays a floating rate that is based on short-term interest rates,
applied to the notional amount. At the same time, the fund generally invests an
amount approximating the notional amount of the swap in high-quality temporary
cash investments.
A
risk associated with all types of swaps is the possibility that a counterparty
may default on its obligation to pay net amounts due to the fund. The fund’s
maximum amount subject to counterparty risk is the unrealized appreciation on
the swap contract. The fund mitigates its counterparty risk by entering into
swaps only with a diverse group of prequalified counterparties, monitoring their
financial strength, entering into master netting arrangements with its
counterparties, and requiring its counterparties to transfer collateral as
security for their performance. In the absence of a default, the collateral
pledged or received by the fund cannot be repledged, resold, or rehypothecated.
In the event of a counterparty’s default (including bankruptcy), the fund may
terminate any swap contracts with that counterparty, determine the net amount
owed by either party in accordance with its master netting arrangements, and
sell or retain any collateral held up to the net amount owed to the fund under
the master netting arrangements. The swap contracts contain provisions whereby a
counterparty may terminate open contracts if the fund’s net assets decline below
a certain level, triggering a payment by the fund if the fund is in a net
liability position at the time of the termination. The payment amount would be
reduced by any collateral the fund has pledged. Any securities pledged as
collateral for open contracts are noted in the Schedule of Investments. The
value of collateral received or pledged is compared daily to the value of the
swap contracts exposure with each counterparty, and any difference, if in excess
of a specified minimum transfer amount, is adjusted and settled within two
business days.
The
notional amounts of swap contracts are not recorded in the Statement of Assets
and Liabilities. Swaps are valued daily based on market quotations received from
independent pricing services or recognized dealers and the change in value is
recorded in the Statement of Assets and Liabilities as an asset (liability) and
in the Statement of Operations as unrealized appreciation (depreciation) until
periodic payments are made or the termination of the swap, at which time
realized gain (loss) is recorded.
During
the six months ended February 28, 2022, the fund’s average amounts of
investments in total return swaps represented less than 1% of net assets, based
on the average of notional amounts at each quarter-end during the period.
3. Federal
Income Taxes: The fund intends to continue to qualify as a regulated investment
company and distribute all of its taxable income. The fund’s tax returns are
open to examination by the relevant tax authorities until expiration of the
applicable statute of limitations, which is generally three years
43
Energy
Index Fund
after
the filing of the tax return. Management has analyzed the fund’s tax positions
taken for all open federal and state income tax years, and has concluded that no
provision for income tax is required in the fund’s financial statements.
4. Distributions:
Distributions to shareholders are recorded on the ex-dividend date.
Distributions are determined on a tax basis at the fiscal year-end and may
differ from net investment income and realized capital gains for financial
reporting purposes.
5. Securities
Lending: To earn additional income, the fund lends its securities to qualified
institutional borrowers. Security loans are subject to termination by the fund
at any time, and are required to be secured at all times by collateral in an
amount at least equal to the market value of securities loaned. Daily market
fluctuations could cause the value of loaned securities to be more or less than
the value of the collateral received. When this occurs, the collateral is
adjusted and settled before the opening of the market on the next business day.
The fund further mitigates its counterparty risk by entering into securities
lending transactions only with a diverse group of prequalified counterparties,
monitoring their financial strength, and entering into master securities lending
agreements with its counterparties. The master securities lending agreements
provide that, in the event of a counterparty’s default (including bankruptcy),
the fund may terminate any loans with that borrower, determine the net amount
owed, and sell or retain the collateral up to the net amount owed to the fund;
however, such actions may be subject to legal proceedings. While collateral
mitigates counterparty risk, in the event of a default, the fund may experience
delays and costs in recovering the securities loaned. The fund invests cash
collateral received in Vanguard Market Liquidity Fund, and records a liability
in the Statement of Assets and Liabilities for the return of the collateral,
during the period the securities are on loan. Collateral investments in Vanguard
Market Liquidity Fund are subject to market appreciation or depreciation.
Securities lending income represents fees charged to borrowers plus income
earned on invested cash collateral, less expenses associated with the loan.
During the term of the loan, the fund is entitled to all distributions made on
or in respect of the loaned securities.
6. Credit
Facilities and Interfund Lending Program: The fund and certain other funds
managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion
committed credit facility provided by a syndicate of lenders pursuant to a
credit agreement and an uncommitted credit facility provided by Vanguard. Both
facilities may be renewed annually. Each fund is individually liable for its
borrowings, if any, under the credit facilities. Borrowings may be utilized for
temporary or emergency purposes, subject to the fund’s regulatory and
contractual borrowing restrictions. With respect to the committed credit
facility, the participating funds are charged administrative fees and an annual
commitment fee of 0.10% of the undrawn committed amount of the facility; these
fees are allocated to the funds based on a method approved by the fund’s board
of trustees and included in Management and Administrative expenses on the fund’s
Statement of Operations. Any borrowings under either facility bear interest at a
rate based upon the higher of the one-month London Interbank Offered Rate (or an
acceptable alternate rate, if necessary), federal funds effective rate, or
overnight bank funding rate plus an agreed-upon spread, except that borrowings
under the uncommitted credit facility may bear interest based upon an alternate
rate agreed to by the fund and Vanguard.
In
accordance with an exemptive order (the “Order”) from the SEC, the fund may
participate in a joint lending and borrowing program that allows registered
open-end Vanguard funds to borrow money from and lend money to each other for
temporary or emergency purposes (the “Interfund Lending Program”), subject to
compliance with the terms and conditions of the Order, and to the extent
permitted by the fund’s investment objective and investment policies. Interfund
loans and borrowings normally extend overnight, but can have a maximum duration
of seven days. Loans may be called on one business day’s notice. The interest
rate to be charged is governed by the conditions of the Order and internal
procedures adopted by the board of trustees. The board of trustees is
responsible for overseeing the Interfund Lending Program.
For
the six months ended February 28, 2022, the fund did not utilize the credit
facilities or the Interfund Lending Program.
7. Other:
Dividend income is recorded on the ex-dividend date. Non-cash dividends included
in income, if any, are recorded at the fair value of the securities received.
Interest income includes income distributions received from Vanguard Market
Liquidity Fund and is accrued daily. Security transactions are accounted for on
the date securities are bought or sold. Costs used to determine realized gains
(losses) on the sale of investment securities are those of the specific
securities sold.
Each
class of shares has equal rights as to assets and earnings, except that each
class separately bears certain class-specific expenses related to maintenance of
shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each
class of shares based on a method approved by the board of
44
Energy
Index Fund
trustees.
Income, other non-class-specific expenses, and gains and losses on investments
are allocated to each class of shares based on its relative net assets.
| B. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
Upon
the request of Vanguard, the fund may invest up to 0.40% of its net assets as
capital in Vanguard. At February 28, 2022, the fund had contributed to Vanguard
capital in the amount of $283,000, representing less than 0.01% of the fund’s
net assets and 0.11% of Vanguard’s capital received pursuant to the FSA. The
fund’s trustees and officers are also directors and employees, respectively, of
Vanguard.
| C. | Various inputs may be used to determine the value of the fund’s investments and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. |
Level
1—Quoted prices in active markets for
identical securities.
Level
2—Other significant observable inputs
(including quoted prices for similar securities, interest rates, prepayment
speeds, credit risk, etc.).
Level
3—Significant unobservable inputs (including
the fund’s own assumptions used to determine the fair value of investments). Any
investments and derivatives valued with significant unobservable inputs are
noted on the Schedule of Investments.
The
following table summarizes the market value of the fund’s investments and
derivatives as of February 28, 2022, based on the inputs used to value
them:
| Level
1 ($000) |
Level
2 ($000) |
Level
3 ($000) |
Total ($000) | |
| Investments | ||||
| Assets | ||||
| Common Stocks | 9,307,646 | 17,616 | — | 9,325,262 |
| Temporary Cash Investments | 4,444 | — | — | 4,444 |
| Total | 9,312,090 | 17,616 | — | 9,329,706 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Swap Contracts | — | 2,383 | — | 2,383 |
| D. | As of February 28, 2022, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows: |
| Amount ($000) | |
| Tax Cost | 8,124,803 |
| Gross Unrealized Appreciation | 1,654,309 |
| Gross Unrealized Depreciation | (449,406) |
| Net Unrealized Appreciation (Depreciation) | 1,204,903 |
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, 2021, the fund had available
capital losses totaling $1,086,540,000 that may be carried forward indefinitely
to offset future net capital gains. The fund will use these capital losses to
offset net taxable capital gains, if any, realized during the year ending August
31, 2022; should the fund realize net capital losses for the year, the losses
will be added to the loss carryforward balance above.
| E. | During the six months ended February 28, 2022, the fund purchased $2,134,242,000 of investment securities and sold $1,421,692,000 of investment securities, other than temporary cash investments. Purchases and sales include $1,616,782,000 and $1,125,622,000, respectively, in connection with in-kind purchases and redemptions of the fund's capital shares. |
The
fund purchased securities from and sold securities to other Vanguard funds or
accounts managed by Vanguard or its affiliates, in accordance with procedures
adopted by the board of
45
Energy
Index Fund
trustees
in compliance with Rule 17a-7 of the Investment Company Act of 1940. For the six
months ended February 28, 2022, such purchases were $680,000 and sales were
$5,626,000, resulting in net realized loss of $6,101,000; these amounts, other
than temporary cash investments, are included in the purchases and sales of
investment securities noted above.
| F. | Capital share transactions for each class of shares were: |
| Six Months Ended February 28, 2022 |
Year Ended August 31, 2021 | ||||
| Amount ($000) |
Shares (000) |
Amount ($000) |
Shares (000) | ||
| ETF Shares | |||||
| Issued | 1,803,007 | 21,765 | 1,677,226 | 28,056 | |
| Issued in Lieu of Cash Distributions | — | — | — | — | |
| Redeemed | (1,129,557) | (13,700) | (864,387) | (14,150) | |
| Net Increase (Decrease)—ETF Shares | 673,450 | 8,065 | 812,839 | 13,906 | |
| Admiral Shares | |||||
| Issued | 462,330 | 10,781 | 770,533 | 26,470 | |
| Issued in Lieu of Cash Distributions | 26,765 | 709 | 30,065 | 981 | |
| Redeemed | (428,217) | (10,238) | (376,284) | (12,066) | |
| Net Increase (Decrease)—Admiral Shares | 60,878 | 1,252 | 424,314 | 15,385 | |
| G. | Market disruptions associated with current geopolitical events have had a global impact, and uncertainty exists as to their implications. Such disruptions can adversely affect assets and thus performance of the fund; at this time, an aggregate effect on assets and performance cannot be reasonably estimated. Management is continuing to monitor these developments and evaluate impacts they may have on the fund. |
Management
has determined that no other events or transactions occurred subsequent to
February 28, 2022, that would require recognition or disclosure in these
financial statements.
46
Financials
Index Fund
Fund
Allocation
As
of February 28, 2022
| Banks | 38.2% |
| Capital Markets | 26.0 |
| Consumer Finance | 6.2 |
| Diversified Financial Services | 9.0 |
| Insurance | 18.4 |
| IT Services | 0.0 |
| Mortgage Real Estate Investment Trusts (REITs) | 1.2 |
| Thrifts & Mortgage Finance | 1.0 |
The
table reflects the fund’s investments, except short-term investments and
derivatives. Sector categories are based on the Global Industry Classification
Standard (“GICS”), except for the “Other” category (if applicable), which
includes securities that have not been provided a GICS classification as of the
effective reporting period.
The
fund may invest in derivatives (such as futures and swap contracts) for various
reasons, including, but not limited to, attempting to remain fully invested and
tracking its target index as closely as possible.
Global
Industry Classification Standard (“GICS”) was developed by and is the exclusive
property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a
division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by
Vanguard. Neither MSCI, S&P nor any third party involved in making or
compiling the GICS or any GICS classification makes any express or implied
warranties or representations with respect to such standard or classification
(or the results to be obtained by the use thereof), and all such parties hereby
expressly disclaim all warranties of originality, accuracy, completeness,
merchantability or fitness for a particular purpose with respect to any such
standard or classification. Without limiting any of the foregoing, in no event
shall MSCI, S&P, any of its affiliates or any third party involved in making
or compiling the GICS or any GICS classification have any liability for any
direct, indirect, special, punitive, consequential or any other damages
(including lost profits) even if notified of the possibility of such
damages.
47
Financials
Index Fund
Financial
Statements (unaudited)
Schedule
of Investments
As
of February 28, 2022
The
fund files its complete schedule of portfolio holdings with the Securities and
Exchange Commission (SEC) for the first and third quarters of each fiscal year
as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are
available on the SEC’s website at www.sec.gov.
48
Financials
Index Fund
49
Financials
Index Fund
50
Financials
Index Fund
| Shares | Market Value• ($000) | ||
| Temporary Cash Investments (0.2%) | |||
| Money Market Fund (0.2%) | |||
| 3,4 | Vanguard Market Liquidity Fund, 0.138% (Cost $30,008) | 300,120 | 30,009 |
| Total Investments (100.1%) (Cost $10,718,299) | 12,876,106 | ||
| Other Assets and Liabilities—Net (-0.1%) | (15,880) | ||
| Net Assets (100.0%) | 12,860,226 | ||
| Cost is in $000. | |||
| • | See Note A in Notes to Financial Statements. |
| * | Non-income-producing security. |
| 1 | Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $25,287,000. |
| 2 | Step bond. |
| 3 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
| 4 | Collateral of $25,151,000 was received for securities on loan. |
| REIT—Real Estate Investment Trust. |
51
Financials
Index Fund
Derivative
Financial Instruments Outstanding as of Period End
| Over-the-Counter Total Return Swaps | ||||||
| Reference Entity | Termination Date |
Counterparty | Notional Amount ($000) |
Floating Interest Rate Received (Paid)1 (%) |
Value
and Unrealized Appreciation ($000) |
Value
and Unrealized (Depreciation) ($000) |
| T Rowe Price Group Inc. | 8/31/22 | BANA | 14,456 | 0.030 | — | — |
| 1 | Based on 1M USD Overnight Bank Funding Rate as of the most recent payment date. Floating interest payment received/paid monthly. |
| 1M—1-month. | |
| BANA—Bank of America, N.A. |
See
accompanying Notes, which are an integral part of the Financial
Statements.
52
Financials
Index Fund
Statement
of Assets and Liabilities
As
of February 28, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $10,688,291) | 12,846,097 |
| Affiliated Issuers (Cost $30,008) | 30,009 |
| Total Investments in Securities | 12,876,106 |
| Investment in Vanguard | 430 |
| Cash Collateral Pledged—Over-the-Counter Swap Contracts | 1,020 |
| Receivables for Investment Securities Sold | 73,307 |
| Receivables for Accrued Income | 12,725 |
| Receivables for Capital Shares Issued | 976 |
| Unrealized Appreciation—Over-the-Counter Swap Contracts | — |
| Total Assets | 12,964,564 |
| Liabilities | |
| Due to Custodian | 199 |
| Payables for Investment Securities Purchased | 75,266 |
| Collateral for Securities on Loan | 25,151 |
| Payables for Capital Shares Redeemed | 3,249 |
| Payables to Vanguard | 473 |
| Total Liabilities | 104,338 |
| Net Assets | 12,860,226 |
| At February 28, 2022, net assets consisted of: | |
| Paid-in Capital | 10,377,387 |
| Total Distributable Earnings (Loss) | 2,482,839 |
| Net Assets | 12,860,226 |
| ETF Shares—Net Assets | |
| Applicable
to 126,103,807 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
11,945,529 |
| Net Asset Value Per Share—ETF Shares | $94.73 |
| Admiral Shares—Net Assets | |
| Applicable
to 19,267,021 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
914,697 |
| Net Asset Value Per Share—Admiral Shares | $47.47 |
See
accompanying Notes, which are an integral part of the Financial
Statements.
53
Financials
Index Fund
See
accompanying Notes, which are an integral part of the Financial
Statements.
54
Financials
Index Fund
Financial
Highlights
| ETF Shares | ||||||
| For a Share Outstanding Throughout Each Period |
Six Months Ended February 28, 2022 |
Year Ended August 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $94.79 | $61.18 | $67.31 | $71.60 | $62.26 | $50.81 |
| Investment Operations | ||||||
| Net Investment Income1 | .878 | 1.676 | 1.652 | 1.539 | 1.298 | 1.035 |
| Net Realized and Unrealized Gain (Loss) on Investments | .117 | 33.519 | (6.081) | (4.338) | 9.307 | 11.387 |
| Total from Investment Operations | .995 | 35.195 | (4.429) | (2.799) | 10.605 | 12.422 |
| Distributions | ||||||
| Dividends from Net Investment Income | (1.055) | (1.585) | (1.701) | (1.491) | (1.265) | (.972) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (1.055) | (1.585) | (1.701) | (1.491) | (1.265) | (.972) |
| Net Asset Value, End of Period | $94.73 | $94.79 | $61.18 | $67.31 | $71.60 | $62.26 |
| Total Return | 1.05% | 58.26% | -6.73% | -3.85% | 17.15% | 24.65% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $11,946 | $10,946 | $6,140 | $7,222 | $8,512 | $6,127 |
| Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 1.83% | 2.09% | 2.53% | 2.30% | 1.87% | 1.75% |
| Portfolio Turnover Rate2 | 2% | 4% | 5% | 5% | 3% | 5% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period |
Six Months Ended February 28, 2022 |
Year Ended August 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $47.51 | $30.66 | $33.73 | $35.88 | $31.20 | $25.47 |
| Investment Operations | ||||||
| Net Investment Income1 | .439 | .841 | .828 | .771 | .651 | .514 |
| Net Realized and Unrealized Gain (Loss) on Investments | .049 | 16.803 | (3.046) | (2.174) | 4.663 | 5.704 |
| Total from Investment Operations | .488 | 17.644 | (2.218) | (1.403) | 5.314 | 6.218 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.528) | (.794) | (.852) | (.747) | (.634) | (.488) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (.528) | (.794) | (.852) | (.747) | (.634) | (.488) |
| Net Asset Value, End of Period | $47.47 | $47.51 | $30.66 | $33.73 | $35.88 | $31.20 |
| Total Return2 | 1.03% | 58.32% | -6.70% | -3.87% | 17.16% | 24.62% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $915 | $822 | $432 | $490 | $690 | $518 |
| Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 1.83% | 2.09% | 2.53% | 2.30% | 1.87% | 1.75% |
| Portfolio Turnover Rate3 | 2% | 4% | 5% | 5% | 3% | 5% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
See
accompanying Notes, which are an integral part of the Financial
Statements.
55
Financials
Index Fund
Notes
to Financial Statements
Vanguard
Financials Index Fund is registered under the Investment Company Act of 1940 as
an open-end investment company, or mutual fund. The fund offers two classes of
shares: ETF Shares and Admiral Shares. Each of the share classes has different
eligibility and minimum purchase requirements, and is designed for different
types of investors. ETF Shares are listed for trading on NYSE Arca; they can be
purchased and sold through a broker.
Market
disruptions associated with the COVID-19 pandemic have had a global impact, and
uncertainty exists as to the long-term implications. Such disruptions can
adversely affect assets of the fund and thus fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security
Valuation: Securities are valued as of the close of trading on the New York
Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity
securities are valued at the latest quoted sales prices or official closing
prices taken from the primary market in which each security trades; such
securities not traded on the valuation date are valued at the mean of the latest
quoted bid and asked prices. Securities for which market quotations are not
readily available, or whose values have been materially affected by events
occurring before the fund’s pricing time but after the close of the securities’
primary markets, are valued by methods deemed by the board of trustees to
represent fair value. Investments in Vanguard Market Liquidity Fund are valued
at that fund's net asset value. Bonds and temporary cash investments are valued
using the latest bid prices or using valuations based on a matrix system (which
considers such factors as security prices, yields, maturities, and ratings),
both as furnished by independent pricing services.
2.
Swap Contracts: The fund has entered into equity swap contracts to earn the
total return on selected reference stocks in the fund’s target index. Under the
terms of the swaps, the fund receives the total return on the referenced stock
(i.e., receiving the increase or paying the decrease in value of the selected
reference stock and receiving the equivalent of any dividends in respect of the
selected referenced stock) over a specified period of time, applied to a
notional amount that represents the value of a designated number of shares of
the selected reference stock at the beginning of the equity swap contract. The
fund also pays a floating rate that is based on short-term interest rates,
applied to the notional amount. At the same time, the fund generally invests an
amount approximating the notional amount of the swap in high-quality temporary
cash investments.
A
risk associated with all types of swaps is the possibility that a counterparty
may default on its obligation to pay net amounts due to the fund. The fund’s
maximum amount subject to counterparty risk is the unrealized appreciation on
the swap contract. The fund mitigates its counterparty risk by entering into
swaps only with a diverse group of prequalified counterparties, monitoring their
financial strength, entering into master netting arrangements with its
counterparties, and requiring its counterparties to transfer collateral as
security for their performance. In the absence of a default, the collateral
pledged or received by the fund cannot be repledged, resold, or rehypothecated.
In the event of a counterparty’s default (including bankruptcy), the fund may
terminate any swap contracts with that counterparty, determine the net amount
owed by either party in accordance with its master netting arrangements, and
sell or retain any collateral held up to the net amount owed to the fund under
the master netting arrangements. The swap contracts contain provisions whereby a
counterparty may terminate open contracts if the fund’s net assets decline below
a certain level, triggering a payment by the fund if the fund is in a net
liability position at the time of the termination. The payment amount would be
reduced by any collateral the fund has pledged. Any securities pledged as
collateral for open contracts are noted in the Schedule of Investments. The
value of collateral received or pledged is compared daily to the value of the
swap contracts exposure with each counterparty, and any difference, if in excess
of a specified minimum transfer amount, is adjusted and settled within two
business days.
The
notional amounts of swap contracts are not recorded in the Statement of Assets
and Liabilities. Swaps are valued daily based on market quotations received from
independent pricing services or recognized dealers and the change in value is
recorded in the Statement of Assets and Liabilities as an asset (liability) and
in the Statement of Operations as unrealized appreciation (depreciation) until
periodic payments are made or the termination of the swap, at which time
realized gain (loss) is recorded.
During
the six months ended February 28, 2022, the fund’s average amounts of
investments in total return swaps represented less than 1% of net assets, based
on the average of notional amounts at each quarter-end during the
period.
56
Financials
Index Fund
3. Federal
Income Taxes: The fund intends to continue to qualify as a regulated investment
company and distribute all of its taxable income. The fund’s tax returns are
open to examination by the relevant tax authorities until expiration of the
applicable statute of limitations, which is generally three years after the
filing of the tax return. Management has analyzed the fund’s tax positions taken
for all open federal and state income tax years, and has concluded that no
provision for income tax is required in the fund’s financial statements.
4. Distributions:
Distributions to shareholders are recorded on the ex-dividend date.
Distributions are determined on a tax basis at the fiscal year-end and may
differ from net investment income and realized capital gains for financial
reporting purposes.
5. Securities
Lending: To earn additional income, the fund lends its securities to qualified
institutional borrowers. Security loans are subject to termination by the fund
at any time, and are required to be secured at all times by collateral in an
amount at least equal to the market value of securities loaned. Daily market
fluctuations could cause the value of loaned securities to be more or less than
the value of the collateral received. When this occurs, the collateral is
adjusted and settled before the opening of the market on the next business day.
The fund further mitigates its counterparty risk by entering into securities
lending transactions only with a diverse group of prequalified counterparties,
monitoring their financial strength, and entering into master securities lending
agreements with its counterparties. The master securities lending agreements
provide that, in the event of a counterparty’s default (including bankruptcy),
the fund may terminate any loans with that borrower, determine the net amount
owed, and sell or retain the collateral up to the net amount owed to the fund;
however, such actions may be subject to legal proceedings. While collateral
mitigates counterparty risk, in the event of a default, the fund may experience
delays and costs in recovering the securities loaned. The fund invests cash
collateral received in Vanguard Market Liquidity Fund, and records a liability
in the Statement of Assets and Liabilities for the return of the collateral,
during the period the securities are on loan. Collateral investments in Vanguard
Market Liquidity Fund are subject to market appreciation or depreciation.
Securities lending income represents fees charged to borrowers plus income
earned on invested cash collateral, less expenses associated with the loan.
During the term of the loan, the fund is entitled to all distributions made on
or in respect of the loaned securities.
6. Credit
Facilities and Interfund Lending Program: The fund and certain other funds
managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion
committed credit facility provided by a syndicate of lenders pursuant to a
credit agreement and an uncommitted credit facility provided by Vanguard. Both
facilities may be renewed annually. Each fund is individually liable for its
borrowings, if any, under the credit facilities. Borrowings may be utilized for
temporary or emergency purposes, subject to the fund’s regulatory and
contractual borrowing restrictions. With respect to the committed credit
facility, the participating funds are charged administrative fees and an annual
commitment fee of 0.10% of the undrawn committed amount of the facility; these
fees are allocated to the funds based on a method approved by the fund’s board
of trustees and included in Management and Administrative expenses on the fund’s
Statement of Operations. Any borrowings under either facility bear interest at a
rate based upon the higher of the one-month London Interbank Offered Rate (or an
acceptable alternate rate, if necessary), federal funds effective rate, or
overnight bank funding rate plus an agreed-upon spread, except that borrowings
under the uncommitted credit facility may bear interest based upon an alternate
rate agreed to by the fund and Vanguard.
In
accordance with an exemptive order (the “Order”) from the SEC, the fund may
participate in a joint lending and borrowing program that allows registered
open-end Vanguard funds to borrow money from and lend money to each other for
temporary or emergency purposes (the “Interfund Lending Program”), subject to
compliance with the terms and conditions of the Order, and to the extent
permitted by the fund’s investment objective and investment policies. Interfund
loans and borrowings normally extend overnight, but can have a maximum duration
of seven days. Loans may be called on one business day’s notice. The interest
rate to be charged is governed by the conditions of the Order and internal
procedures adopted by the board of trustees. The board of trustees is
responsible for overseeing the Interfund Lending Program.
For
the six months ended February 28, 2022, the fund did not utilize the credit
facilities or the Interfund Lending Program.
7. Other:
Dividend income is recorded on the ex-dividend date. Non-cash dividends included
in income, if any, are recorded at the fair value of the securities received.
Interest income includes income distributions received from Vanguard Market
Liquidity Fund and is accrued daily. Premiums and discounts on debt securities
are amortized and accreted, respectively, to interest income over the lives of
the respective securities, except for premiums on certain callable debt
securities that are
57
Financials
Index Fund
amortized
to the earliest call date. Security transactions are accounted for on the date
securities are bought or sold. Costs used to determine realized gains (losses)
on the sale of investment securities are those of the specific securities
sold.
Each
class of shares has equal rights as to assets and earnings, except that each
class separately bears certain class-specific expenses related to maintenance of
shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each
class of shares based on a method approved by the board of trustees. Income,
other non-class-specific expenses, and gains and losses on investments are
allocated to each class of shares based on its relative net assets.
| B. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
Upon
the request of Vanguard, the fund may invest up to 0.40% of its net assets as
capital in Vanguard. At February 28, 2022, the fund had contributed to Vanguard
capital in the amount of $430,000, representing less than 0.01% of the fund’s
net assets and 0.17% of Vanguard’s capital received pursuant to the FSA. The
fund’s trustees and officers are also directors and employees, respectively, of
Vanguard.
| C. | Various inputs may be used to determine the value of the fund’s investments and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. |
Level
1—Quoted prices in active markets for
identical securities.
Level
2—Other significant observable inputs
(including quoted prices for similar securities, interest rates, prepayment
speeds, credit risk, etc.).
Level
3—Significant unobservable inputs (including
the fund’s own assumptions used to determine the fair value of investments). Any
investments and derivatives valued with significant unobservable inputs are
noted on the Schedule of Investments.
The
following table summarizes the market value of the fund’s investments and
derivatives as of February 28, 2022, based on the inputs used to value
them:
| Level
1 ($000) |
Level
2 ($000) |
Level
3 ($000) |
Total ($000) | |
| Investments | ||||
| Assets | ||||
| Common Stocks | 12,846,073 | — | — | 12,846,073 |
| Corporate Bonds | — | 24 | — | 24 |
| Temporary Cash Investments | 30,009 | — | — | 30,009 |
| Total | 12,876,082 | 24 | — | 12,876,106 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Swap Contracts | — | — | — | — |
| D. | As of February 28, 2022, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows: |
| Amount ($000) | |
| Tax Cost | 10,732,935 |
| Gross Unrealized Appreciation | 2,378,262 |
| Gross Unrealized Depreciation | (235,091) |
| Net Unrealized Appreciation (Depreciation) | 2,143,171 |
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, 2021, the fund had available
capital losses totaling $143,547,000 that may be carried forward indefinitely to
offset future net capital gains. The fund will use these capital losses to
offset net taxable capital gains, if any, realized during the year ending August
31, 2022;
58
Financials
Index Fund
should
the fund realize net capital losses for the year, the losses will be added to
the loss carryforward balance above.
| E. | During the six months ended February 28, 2022, the fund purchased $2,597,738,000 of investment securities and sold $1,444,685,000 of investment securities, other than temporary cash investments. Purchases and sales include $2,005,725,000 and $1,213,504,000, respectively, in connection with in-kind purchases and redemptions of the fund's capital shares. |
The
fund purchased securities from and sold securities to other Vanguard funds or
accounts managed by Vanguard or its affiliates, in accordance with procedures
adopted by the board of trustees in compliance with Rule 17a-7 of the Investment
Company Act of 1940. For the six months ended February 28, 2022, such purchases
were $8,027,000 and sales were $2,652,000, resulting in net realized loss of
$350,000; these amounts, other than temporary cash investments, are included in
the purchases and sales of investment securities noted above.
| F. | Capital share transactions for each class of shares were: |
| Six Months Ended February 28, 2022 |
Year Ended August 31, 2021 | ||||
| Amount ($000) |
Shares (000) |
Amount ($000) |
Shares (000) | ||
| ETF Shares | |||||
| Issued | 2,285,117 | 23,378 | 2,863,520 | 35,814 | |
| Issued in Lieu of Cash Distributions | — | — | — | — | |
| Redeemed | (1,218,232) | (12,750) | (1,560,037) | (20,700) | |
| Net Increase (Decrease)—ETF Shares | 1,066,885 | 10,628 | 1,303,483 | 15,114 | |
| Admiral Shares | |||||
| Issued | 300,584 | 6,158 | 407,353 | 10,001 | |
| Issued in Lieu of Cash Distributions | 7,720 | 162 | 10,077 | 270 | |
| Redeemed | (209,876) | (4,354) | (283,504) | (7,060) | |
| Net Increase (Decrease)—Admiral Shares | 98,428 | 1,966 | 133,926 | 3,211 | |
| G. | Market disruptions associated with current geopolitical events have had a global impact, and uncertainty exists as to their implications. Such disruptions can adversely affect assets and thus performance of the fund; at this time, an aggregate effect on assets and performance cannot be reasonably estimated. Management is continuing to monitor these developments and evaluate impacts they may have on the fund. |
Management
has determined that no other events or transactions occurred subsequent to
February 28, 2022, that would require recognition or disclosure in these
financial statements.
59
Health
Care Index Fund
Fund
Allocation
As
of February 28, 2022
| Biotechnology | 17.1% |
| Health Care Equipment & Supplies | 21.7 |
| Health Care Providers & Services | 21.2 |
| Health Care Technology | 1.9 |
| Life Sciences Tools & Services | 12.9 |
| Pharmaceuticals | 25.2 |
The
table reflects the fund’s investments, except short-term investments and
derivatives. Sector categories are based on the Global Industry Classification
Standard (“GICS”), except for the “Other” category (if applicable), which
includes securities that have not been provided a GICS classification as of the
effective reporting period.
The
fund may invest in derivatives (such as futures and swap contracts) for various
reasons, including, but not limited to, attempting to remain fully invested and
tracking its target index as closely as possible.
Global
Industry Classification Standard (“GICS”) was developed by and is the exclusive
property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a
division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by
Vanguard. Neither MSCI, S&P nor any third party involved in making or
compiling the GICS or any GICS classification makes any express or implied
warranties or representations with respect to such standard or classification
(or the results to be obtained by the use thereof), and all such parties hereby
expressly disclaim all warranties of originality, accuracy, completeness,
merchantability or fitness for a particular purpose with respect to any such
standard or classification. Without limiting any of the foregoing, in no event
shall MSCI, S&P, any of its affiliates or any third party involved in making
or compiling the GICS or any GICS classification have any liability for any
direct, indirect, special, punitive, consequential or any other damages
(including lost profits) even if notified of the possibility of such
damages.
60
Health
Care Index Fund
Financial
Statements (unaudited)
Schedule
of Investments
As
of February 28, 2022
The
fund files its complete schedule of portfolio holdings with the Securities and
Exchange Commission (SEC) for the first and third quarters of each fiscal year
as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are
available on the SEC’s website at www.sec.gov.
61
Health
Care Index Fund
62
Health
Care Index Fund
63
Health
Care Index Fund
| Shares | Market Value• ($000) | ||
| * | Amneal Pharmaceuticals Inc. | 320,260 | 1,451 |
| Phibro Animal Health Corp. Class A | 67,721 | 1,442 | |
| * | Ocular Therapeutix Inc. | 240,192 | 1,340 |
| *,1 | Oramed Pharmaceuticals Inc. | 120,518 | 1,241 |
| * | Aerie Pharmaceuticals Inc. | 148,806 | 1,235 |
| * | Fulcrum Therapeutics Inc. | 89,073 | 980 |
| * | SIGA Technologies Inc. | 150,523 | 903 |
| * | Phathom Pharmaceuticals Inc. | 45,992 | 834 |
| * | Edgewise Therapeutics Inc. | 32,595 | 384 |
| * | Pliant Therapeutics Inc. | 42,336 | 380 |
| * | Atea Pharmaceuticals Inc. | 54,150 | 343 |
| 4,827,340 | |||
| Total Common Stocks (Cost $14,515,370) | 19,127,757 | ||
| Temporary Cash Investments (0.3%) | |||
| Money Market Fund (0.3%) | |||
| 3,4 | Vanguard Market Liquidity Fund, 0.138% (Cost $52,687) | 526,997 | 52,695 |
| Total Investments (100.2%) (Cost $14,568,057) | 19,180,452 | ||
| Other Assets and Liabilities—Net (-0.2%) | (29,577) | ||
| Net Assets (100.0%) | 19,150,875 | ||
| Cost is in $000. | |||
| • | See Note A in Notes to Financial Statements. |
| * | Non-income-producing security. |
| 1 | Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $48,820,000. |
| 2 | Security value determined using significant unobservable inputs. |
| 3 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
| 4 | Collateral of $53,534,000 was received for securities on loan, of which $52,694,000 is held in Vanguard Market Liquidity Fund and $840,000 is held in cash. |
| CVR—Contingent Value Rights. |
64
Health
Care Index Fund
Derivative
Financial Instruments Outstanding as of Period End
| Over-the-Counter Total Return Swaps | ||||||
| Reference Entity | Termination Date |
Counterparty | Notional Amount ($000) |
Floating Interest Rate Received (Paid)1 (%) |
Value
and Unrealized Appreciation ($000) |
Value
and Unrealized (Depreciation) ($000) |
| Gilead Sciences Inc. | 8/31/22 | BANA | 12,080 | (0.070) | — | (1) |
| 1 | Based on 1M USD Overnight Bank Funding Rate as of the most recent payment date. Floating interest payment received/paid monthly. |
| 1M—1-month. | |
| BANA—Bank of America, N.A. |
See
accompanying Notes, which are an integral part of the Financial
Statements.
65
Health
Care Index Fund
Statement
of Assets and Liabilities
As
of February 28, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $14,515,370) | 19,127,757 |
| Affiliated Issuers (Cost $52,687) | 52,695 |
| Total Investments in Securities | 19,180,452 |
| Investment in Vanguard | 648 |
| Cash | 840 |
| Cash Collateral Pledged—Over-the-Counter Swap Contracts | 1,380 |
| Receivables for Investment Securities Sold | 41,873 |
| Receivables for Accrued Income | 25,765 |
| Receivables for Capital Shares Issued | 8,676 |
| Total Assets | 19,259,634 |
| Liabilities | |
| Due to Custodian | 3,417 |
| Payables for Investment Securities Purchased | 49,909 |
| Collateral for Securities on Loan | 53,534 |
| Payables for Capital Shares Redeemed | 1,223 |
| Payables to Vanguard | 675 |
| Unrealized Depreciation—Over-the-Counter Swap Contracts | 1 |
| Total Liabilities | 108,759 |
| Net Assets | 19,150,875 |
| At February 28, 2022, net assets consisted of: | |
| Paid-in Capital | 14,393,956 |
| Total Distributable Earnings (Loss) | 4,756,919 |
| Net Assets | 19,150,875 |
| ETF Shares—Net Assets | |
| Applicable
to 67,162,531 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
16,327,361 |
| Net Asset Value Per Share—ETF Shares | $243.10 |
| Admiral Shares—Net Assets | |
| Applicable
to 23,218,553 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
2,823,514 |
| Net Asset Value Per Share—Admiral Shares | $121.61 |
See
accompanying Notes, which are an integral part of the Financial
Statements.
66
Health
Care Index Fund
See
accompanying Notes, which are an integral part of the Financial
Statements.
67
Health
Care Index Fund
Financial
Highlights
| ETF Shares | ||||||
| For a Share Outstanding Throughout Each Period |
Six Months Ended February 28, 2022 |
Year Ended August 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $262.41 | $207.65 | $169.74 | $177.07 | $151.13 | $133.25 |
| Investment Operations | ||||||
| Net Investment Income1 | 1.551 | 2.893 | 2.702 | 3.6002 | 2.194 | 1.994 |
| Net Realized and Unrealized Gain (Loss) on Investments | (19.150) | 54.714 | 37.758 | (7.457) | 25.846 | 17.846 |
| Total from Investment Operations | (17.599) | 57.607 | 40.460 | (3.857) | 28.040 | 19.840 |
| Distributions | ||||||
| Dividends from Net Investment Income | (1.711) | (2.846) | (2.550) | (3.473) | (2.100) | (1.960) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (1.711) | (2.846) | (2.550) | (3.473) | (2.100) | (1.960) |
| Net Asset Value, End of Period | $243.10 | $262.41 | $207.65 | $169.74 | $177.07 | $151.13 |
| Total Return | -6.74% | 27.99% | 24.05% | -2.22% | 18.75% | 15.06% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $16,327 | $16,894 | $11,724 | $8,899 | $8,594 | $7,002 |
| Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 1.24% | 1.25% | 1.45% | 2.12%2 | 1.38% | 1.46% |
| Portfolio Turnover Rate3 | 1% | 5% | 7% | 5% | 6% | 4% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Net investment income per share and the ratio of net investment income to average net assets include $1.132 and 0.67%, respectively, resulting from a cash payment received in connection with the merger of Cigna Corp. and Express Scripts Holding Co. in December 2018. |
| 3 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
68
Health
Care Index Fund
Financial
Highlights
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period |
Six Months Ended February 28, 2022 |
Year Ended August 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $131.26 | $103.87 | $84.91 | $88.57 | $75.60 | $66.65 |
| Investment Operations | ||||||
| Net Investment Income1 | .776 | 1.450 | 1.351 | 1.8042 | 1.101 | .996 |
| Net Realized and Unrealized Gain (Loss) on Investments | (9.571) | 27.365 | 18.884 | (3.727) | 12.920 | 8.934 |
| Total from Investment Operations | (8.795) | 28.815 | 20.235 | (1.923) | 14.021 | 9.930 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.855) | (1.425) | (1.275) | (1.737) | (1.051) | (.980) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (.855) | (1.425) | (1.275) | (1.737) | (1.051) | (.980) |
| Net Asset Value, End of Period | $121.61 | $131.26 | $103.87 | $84.91 | $88.57 | $75.60 |
| Total Return3 | -6.73% | 28.01% | 24.06% | -2.21% | 18.74% | 15.07% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $2,824 | $2,972 | $1,676 | $1,316 | $1,248 | $924 |
| Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 1.24% | 1.25% | 1.45% | 2.12%2 | 1.38% | 1.46% |
| Portfolio Turnover Rate4 | 1% | 5% | 7% | 5% | 6% | 4% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Net investment income per share and the ratio of net investment income to average net assets include $.566 and 0.67%, respectively, resulting from a cash payment received in connection with the merger of Cigna Corp. and Express Scripts Holding Co. in December 2018. |
| 3 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 4 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
See
accompanying Notes, which are an integral part of the Financial
Statements.
69
Health
Care Index Fund
Notes
to Financial Statements
Vanguard
Health Care Index Fund is registered under the Investment Company Act of 1940 as
an open-end investment company, or mutual fund. The fund offers two classes of
shares: ETF Shares and Admiral Shares. Each of the share classes has different
eligibility and minimum purchase requirements, and is designed for different
types of investors. ETF Shares are listed for trading on NYSE Arca; they can be
purchased and sold through a broker.
Market
disruptions associated with the COVID-19 pandemic have had a global impact, and
uncertainty exists as to the long-term implications. Such disruptions can
adversely affect assets of the fund and thus fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security
Valuation: Securities are valued as of the close of trading on the New York
Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity
securities are valued at the latest quoted sales prices or official closing
prices taken from the primary market in which each security trades; such
securities not traded on the valuation date are valued at the mean of the latest
quoted bid and asked prices. Securities for which market quotations are not
readily available, or whose values have been materially affected by events
occurring before the fund’s pricing time but after the close of the securities’
primary markets, are valued by methods deemed by the board of trustees to
represent fair value. Investments in Vanguard Market Liquidity Fund are valued
at that fund's net asset value.
2.
Swap Contracts: The fund has entered into equity swap contracts to earn the
total return on selected reference stocks in the fund’s target index. Under the
terms of the swaps, the fund receives the total return on the referenced stock
(i.e., receiving the increase or paying the decrease in value of the selected
reference stock and receiving the equivalent of any dividends in respect of the
selected referenced stock) over a specified period of time, applied to a
notional amount that represents the value of a designated number of shares of
the selected reference stock at the beginning of the equity swap contract. The
fund also pays a floating rate that is based on short-term interest rates,
applied to the notional amount. At the same time, the fund generally invests an
amount approximating the notional amount of the swap in high-quality temporary
cash investments.
A
risk associated with all types of swaps is the possibility that a counterparty
may default on its obligation to pay net amounts due to the fund. The fund’s
maximum amount subject to counterparty risk is the unrealized appreciation on
the swap contract. The fund mitigates its counterparty risk by entering into
swaps only with a diverse group of prequalified counterparties, monitoring their
financial strength, entering into master netting arrangements with its
counterparties, and requiring its counterparties to transfer collateral as
security for their performance. In the absence of a default, the collateral
pledged or received by the fund cannot be repledged, resold, or rehypothecated.
In the event of a counterparty’s default (including bankruptcy), the fund may
terminate any swap contracts with that counterparty, determine the net amount
owed by either party in accordance with its master netting arrangements, and
sell or retain any collateral held up to the net amount owed to the fund under
the master netting arrangements. The swap contracts contain provisions whereby a
counterparty may terminate open contracts if the fund’s net assets decline below
a certain level, triggering a payment by the fund if the fund is in a net
liability position at the time of the termination. The payment amount would be
reduced by any collateral the fund has pledged. Any securities pledged as
collateral for open contracts are noted in the Schedule of Investments. The
value of collateral received or pledged is compared daily to the value of the
swap contracts exposure with each counterparty, and any difference, if in excess
of a specified minimum transfer amount, is adjusted and settled within two
business days.
The
notional amounts of swap contracts are not recorded in the Statement of Assets
and Liabilities. Swaps are valued daily based on market quotations received from
independent pricing services or recognized dealers and the change in value is
recorded in the Statement of Assets and Liabilities as an asset (liability) and
in the Statement of Operations as unrealized appreciation (depreciation) until
periodic payments are made or the termination of the swap, at which time
realized gain (loss) is recorded.
During
the six months ended February 28, 2022, the fund’s average amounts of
investments in total return swaps represented less than 1% of net assets, based
on the average of notional amounts at each quarter-end during the period.
3. Federal
Income Taxes: The fund intends to continue to qualify as a regulated investment
company and distribute all of its taxable income. The fund’s tax returns are
open to examination by the relevant tax authorities until expiration of the
applicable statute of limitations, which is generally three years
70
Health
Care Index Fund
after
the filing of the tax return. Management has analyzed the fund’s tax positions
taken for all open federal and state income tax years, and has concluded that no
provision for income tax is required in the fund’s financial statements.
4. Distributions:
Distributions to shareholders are recorded on the ex-dividend date.
Distributions are determined on a tax basis at the fiscal year-end and may
differ from net investment income and realized capital gains for financial
reporting purposes.
5. Securities
Lending: To earn additional income, the fund lends its securities to qualified
institutional borrowers. Security loans are subject to termination by the fund
at any time, and are required to be secured at all times by collateral in an
amount at least equal to the market value of securities loaned. Daily market
fluctuations could cause the value of loaned securities to be more or less than
the value of the collateral received. When this occurs, the collateral is
adjusted and settled before the opening of the market on the next business day.
The fund further mitigates its counterparty risk by entering into securities
lending transactions only with a diverse group of prequalified counterparties,
monitoring their financial strength, and entering into master securities lending
agreements with its counterparties. The master securities lending agreements
provide that, in the event of a counterparty’s default (including bankruptcy),
the fund may terminate any loans with that borrower, determine the net amount
owed, and sell or retain the collateral up to the net amount owed to the fund;
however, such actions may be subject to legal proceedings. While collateral
mitigates counterparty risk, in the event of a default, the fund may experience
delays and costs in recovering the securities loaned. The fund invests cash
collateral received in Vanguard Market Liquidity Fund, and records a liability
in the Statement of Assets and Liabilities for the return of the collateral,
during the period the securities are on loan. Collateral investments in Vanguard
Market Liquidity Fund are subject to market appreciation or depreciation.
Securities lending income represents fees charged to borrowers plus income
earned on invested cash collateral, less expenses associated with the loan.
During the term of the loan, the fund is entitled to all distributions made on
or in respect of the loaned securities.
6. Credit
Facilities and Interfund Lending Program: The fund and certain other funds
managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion
committed credit facility provided by a syndicate of lenders pursuant to a
credit agreement and an uncommitted credit facility provided by Vanguard. Both
facilities may be renewed annually. Each fund is individually liable for its
borrowings, if any, under the credit facilities. Borrowings may be utilized for
temporary or emergency purposes, subject to the fund’s regulatory and
contractual borrowing restrictions. With respect to the committed credit
facility, the participating funds are charged administrative fees and an annual
commitment fee of 0.10% of the undrawn committed amount of the facility; these
fees are allocated to the funds based on a method approved by the fund’s board
of trustees and included in Management and Administrative expenses on the fund’s
Statement of Operations. Any borrowings under either facility bear interest at a
rate based upon the higher of the one-month London Interbank Offered Rate (or an
acceptable alternate rate, if necessary), federal funds effective rate, or
overnight bank funding rate plus an agreed-upon spread, except that borrowings
under the uncommitted credit facility may bear interest based upon an alternate
rate agreed to by the fund and Vanguard.
In
accordance with an exemptive order (the “Order”) from the SEC, the fund may
participate in a joint lending and borrowing program that allows registered
open-end Vanguard funds to borrow money from and lend money to each other for
temporary or emergency purposes (the “Interfund Lending Program”), subject to
compliance with the terms and conditions of the Order, and to the extent
permitted by the fund’s investment objective and investment policies. Interfund
loans and borrowings normally extend overnight, but can have a maximum duration
of seven days. Loans may be called on one business day’s notice. The interest
rate to be charged is governed by the conditions of the Order and internal
procedures adopted by the board of trustees. The board of trustees is
responsible for overseeing the Interfund Lending Program.
For
the six months ended February 28, 2022, the fund did not utilize the credit
facilities or the Interfund Lending Program.
7. Other:
Dividend income is recorded on the ex-dividend date. Non-cash dividends included
in income, if any, are recorded at the fair value of the securities received.
Interest income includes income distributions received from Vanguard Market
Liquidity Fund and is accrued daily. Security transactions are accounted for on
the date securities are bought or sold. Costs used to determine realized gains
(losses) on the sale of investment securities are those of the specific
securities sold.
Each
class of shares has equal rights as to assets and earnings, except that each
class separately bears certain class-specific expenses related to maintenance of
shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each
class of shares based on a method approved by the board of
71
Health
Care Index Fund
trustees.
Income, other non-class-specific expenses, and gains and losses on investments
are allocated to each class of shares based on its relative net assets.
| B. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
Upon
the request of Vanguard, the fund may invest up to 0.40% of its net assets as
capital in Vanguard. At February 28, 2022, the fund had contributed to Vanguard
capital in the amount of $648,000, representing less than 0.01% of the fund’s
net assets and 0.26% of Vanguard’s capital received pursuant to the FSA. The
fund’s trustees and officers are also directors and employees, respectively, of
Vanguard.
| C. | Various inputs may be used to determine the value of the fund’s investments and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. |
Level
1—Quoted prices in active markets for
identical securities.
Level
2—Other significant observable inputs
(including quoted prices for similar securities, interest rates, prepayment
speeds, credit risk, etc.).
Level
3—Significant unobservable inputs (including
the fund’s own assumptions used to determine the fair value of investments). Any
investments and derivatives valued with significant unobservable inputs are
noted on the Schedule of Investments.
The
following table summarizes the market value of the fund’s investments and
derivatives as of February 28, 2022, based on the inputs used to value
them:
| Level
1 ($000) |
Level
2 ($000) |
Level
3 ($000) |
Total ($000) | |
| Investments | ||||
| Assets | ||||
| Common Stocks | 19,127,618 | — | 139 | 19,127,757 |
| Temporary Cash Investments | 52,695 | — | — | 52,695 |
| Total | 19,180,313 | — | 139 | 19,180,452 |
| Derivative Financial Instruments | ||||
| Liabilities | ||||
| Swap Contracts | — | 1 | — | 1 |
| D. | As of February 28, 2022, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows: |
| Amount ($000) | |
| Tax Cost | 14,595,003 |
| Gross Unrealized Appreciation | 5,343,683 |
| Gross Unrealized Depreciation | (758,234) |
| Net Unrealized Appreciation (Depreciation) | 4,585,449 |
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, 2021, the fund had available
capital losses totaling $361,010,000 that may be carried forward indefinitely to
offset future net capital gains. The fund will use these capital losses to
offset net taxable capital gains, if any, realized during the year ending August
31, 2022; should the fund realize net capital losses for the year, the losses
will be added to the loss carryforward balance above.
| E. | During the six months ended February 28, 2022, the fund purchased $1,982,400,000 of investment securities and sold $1,233,741,000 of investment securities, other than temporary cash investments. Purchases and sales include $1,544,691,000 and $945,876,000, respectively, in connection with in-kind purchases and redemptions of the fund's capital shares. |
The
fund purchased securities from and sold securities to other Vanguard funds or
accounts managed by Vanguard or its affiliates, in accordance with procedures
adopted by the board of
72
Health
Care Index Fund
trustees
in compliance with Rule 17a-7 of the Investment Company Act of 1940. For the six
months ended February 28, 2022, such purchases were $270,000 and sales were
$12,705,000, resulting in net realized loss of $8,825,000; these amounts, other
than temporary cash investments, are included in the purchases and sales of
investment securities noted above.
| F. | Capital share transactions for each class of shares were: |
| Six Months Ended February 28, 2022 |
Year Ended August 31, 2021 | ||||
| Amount ($000) |
Shares (000) |
Amount ($000) |
Shares (000) | ||
| ETF Shares | |||||
| Issued | 1,642,180 | 6,585 | 3,403,429 | 14,615 | |
| Issued in Lieu of Cash Distributions | — | — | — | — | |
| Redeemed | (948,439) | (3,800) | (1,524,366) | (6,700) | |
| Net Increase (Decrease)—ETF Shares | 693,741 | 2,785 | 1,879,063 | 7,915 | |
| Admiral Shares | |||||
| Issued | 294,565 | 2,331 | 1,140,545 | 9,947 | |
| Issued in Lieu of Cash Distributions | 16,742 | 132 | 23,652 | 212 | |
| Redeemed | (238,283) | (1,887) | (417,596) | (3,652) | |
| Net Increase (Decrease)—Admiral Shares | 73,024 | 576 | 746,601 | 6,507 | |
| G. | Market disruptions associated with current geopolitical events have had a global impact, and uncertainty exists as to their implications. Such disruptions can adversely affect assets and thus performance of the fund; at this time, an aggregate effect on assets and performance cannot be reasonably estimated. Management is continuing to monitor these developments and evaluate impacts they may have on the fund. |
Management
has determined that no other events or transactions occurred subsequent to
February 28, 2022, that would require recognition or disclosure in these
financial statements.
73
Industrials
Index Fund
Fund
Allocation
As
of February 28, 2022
| Aerospace & Defense | 17.5% |
| Air Freight & Logistics | 6.5 |
| Airlines | 2.5 |
| Building Products | 6.8 |
| Capital Markets | 1.0 |
| Commercial Services & Supplies | 6.5 |
| Construction & Engineering | 2.0 |
| Electrical Equipment | 7.3 |
| Industrial Conglomerates | 9.3 |
| Machinery | 19.4 |
| Marine | 0.2 |
| Professional Services | 5.8 |
| Road & Rail | 11.6 |
| Trading Companies & Distributors | 3.6 |
The
table reflects the fund’s investments, except short-term investments and
derivatives. Sector categories are based on the Global Industry Classification
Standard (“GICS”), except for the “Other” category (if applicable), which
includes securities that have not been provided a GICS classification as of the
effective reporting period.
The
fund may invest in derivatives (such as futures and swap contracts) for various
reasons, including, but not limited to, attempting to remain fully invested and
tracking its target index as closely as possible.
Global
Industry Classification Standard (“GICS”) was developed by and is the exclusive
property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a
division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by
Vanguard. Neither MSCI, S&P nor any third party involved in making or
compiling the GICS or any GICS classification makes any express or implied
warranties or representations with respect to such standard or classification
(or the results to be obtained by the use thereof), and all such parties hereby
expressly disclaim all warranties of originality, accuracy, completeness,
merchantability or fitness for a particular purpose with respect to any such
standard or classification. Without limiting any of the foregoing, in no event
shall MSCI, S&P, any of its affiliates or any third party involved in making
or compiling the GICS or any GICS classification have any liability for any
direct, indirect, special, punitive, consequential or any other damages
(including lost profits) even if notified of the possibility of such
damages.
74
Industrials
Index Fund
Financial
Statements (unaudited)
Schedule
of Investments
As
of February 28, 2022
The
fund files its complete schedule of portfolio holdings with the Securities and
Exchange Commission (SEC) for the first and third quarters of each fiscal year
as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are
available on the SEC’s website at www.sec.gov.
75
Industrials
Index Fund
76
Industrials
Index Fund
77
Industrials
Index Fund
Derivative
Financial Instruments Outstanding as of Period End
| Over-the-Counter Total Return Swaps | ||||||
| Reference Entity | Termination Date |
Counterparty | Notional Amount ($000) |
Floating Interest Rate Received (Paid)1 (%) |
Value
and Unrealized Appreciation ($000) |
Value
and Unrealized (Depreciation) ($000) |
| L3Harris Technologies Inc. | 8/31/22 | BANA | 6,055 | (0.070) | — | — |
| 1 | Based on 1M USD Overnight Bank Funding Rate as of the most recent payment date. Floating interest payment received/paid monthly. |
| 1M—1-month. | |
| BANA—Bank of America, N.A. |
At
February 28, 2022, the counterparties had deposited in segregated accounts cash
of $590,000 in connection with open over-the-counter swap contracts.
See
accompanying Notes, which are an integral part of the Financial
Statements.
78
Industrials
Index Fund
Statement
of Assets and Liabilities
As
of February 28, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $4,505,533) | 4,903,634 |
| Affiliated Issuers (Cost $11,527) | 11,528 |
| Total Investments in Securities | 4,915,162 |
| Investment in Vanguard | 168 |
| Cash | 1 |
| Receivables for Investment Securities Sold | 27,356 |
| Receivables for Accrued Income | 9,515 |
| Receivables for Capital Shares Issued | 287 |
| Total Assets | 4,952,489 |
| Liabilities | |
| Due to Custodian | 3,632 |
| Payables for Investment Securities Purchased | 23,634 |
| Collateral for Securities on Loan | 11,529 |
| Payables for Capital Shares Redeemed | 61 |
| Payables to Vanguard | 172 |
| Unrealized Depreciation—Over-the-Counter Swap Contracts | — |
| Total Liabilities | 39,028 |
| Net Assets | 4,913,461 |
| At February 28, 2022, net assets consisted of: | |
| Paid-in Capital | 4,178,266 |
| Total Distributable Earnings (Loss) | 735,195 |
| Net Assets | 4,913,461 |
| ETF Shares—Net Assets | |
| Applicable
to 24,589,166 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
4,657,415 |
| Net Asset Value Per Share—ETF Shares | $189.41 |
| Admiral Shares—Net Assets | |
| Applicable
to 2,631,370 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
256,046 |
| Net Asset Value Per Share—Admiral Shares | $97.31 |
See
accompanying Notes, which are an integral part of the Financial
Statements.
79
Industrials
Index Fund
See
accompanying Notes, which are an integral part of the Financial
Statements.
80
Industrials
Index Fund
Financial
Highlights
| ETF Shares | ||||||
| For a Share Outstanding Throughout Each Period |
Six Months Ended February 28, 2022 |
Year Ended August 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $199.27 | $146.89 | $142.53 | $146.12 | $128.70 | $111.57 |
| Investment Operations | ||||||
| Net Investment Income1 | 1.148 | 2.264 | 2.366 | 2.597 | 2.263 | 2.383 |
| Net Realized and Unrealized Gain (Loss) on Investments | (9.761) | 52.318 | 4.554 | (3.754) | 17.412 | 16.998 |
| Total from Investment Operations | (8.613) | 54.582 | 6.920 | (1.157) | 19.675 | 19.381 |
| Distributions | ||||||
| Dividends from Net Investment Income | (1.247) | (2.202) | (2.560) | (2.433) | (2.255) | (2.251) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (1.247) | (2.202) | (2.560) | (2.433) | (2.255) | (2.251) |
| Net Asset Value, End of Period | $189.41 | $199.27 | $146.89 | $142.53 | $146.12 | $128.70 |
| Total Return | -4.34% | 37.41% | 4.96% | -0.73% | 15.41% | 17.55% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $4,657 | $5,438 | $3,090 | $3,457 | $3,957 | $3,202 |
| Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 1.15% | 1.25% | 1.69% | 1.87% | 1.62% | 1.95% |
| Portfolio Turnover Rate2 | 2% | 5% | 4% | 4% | 4% | 5% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period |
Six Months Ended February 28, 2022 |
Year Ended August 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $102.37 | $75.46 | $73.22 | $75.07 | $66.12 | $57.32 |
| Investment Operations | ||||||
| Net Investment Income1 | .572 | 1.162 | 1.221 | 1.340 | 1.154 | 1.237 |
| Net Realized and Unrealized Gain (Loss) on Investments | (4.991) | 26.880 | 2.336 | (1.941) | 8.955 | 8.721 |
| Total from Investment Operations | (4.419) | 28.042 | 3.557 | (.601) | 10.109 | 9.958 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.641) | (1.132) | (1.317) | (1.249) | (1.159) | (1.158) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (.641) | (1.132) | (1.317) | (1.249) | (1.159) | (1.158) |
| Net Asset Value, End of Period | $97.31 | $102.37 | $75.46 | $73.22 | $75.07 | $66.12 |
| Total Return2 | -4.33% | 37.43% | 4.98% | -0.75% | 15.41% | 17.55% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $256 | $372 | $210 | $202 | $213 | $176 |
| Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 1.11% | 1.25% | 1.71% | 1.87% | 1.62% | 1.95% |
| Portfolio Turnover Rate3 | 2% | 5% | 4% | 4% | 4% | 5% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares. |
See
accompanying Notes, which are an integral part of the Financial
Statements.
81
Industrials
Index Fund
Notes
to Financial Statements
Vanguard
Industrials Index Fund is registered under the Investment Company Act of 1940 as
an open-end investment company, or mutual fund. The fund offers two classes of
shares: ETF Shares and Admiral Shares. Each of the share classes has different
eligibility and minimum purchase requirements, and is designed for different
types of investors. ETF Shares are listed for trading on NYSE Arca; they can be
purchased and sold through a broker.
Market
disruptions associated with the COVID-19 pandemic have had a global impact, and
uncertainty exists as to the long-term implications. Such disruptions can
adversely affect assets of the fund and thus fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security
Valuation: Securities are valued as of the close of trading on the New York
Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity
securities are valued at the latest quoted sales prices or official closing
prices taken from the primary market in which each security trades; such
securities not traded on the valuation date are valued at the mean of the latest
quoted bid and asked prices. Securities for which market quotations are not
readily available, or whose values have been materially affected by events
occurring before the fund’s pricing time but after the close of the securities’
primary markets, are valued by methods deemed by the board of trustees to
represent fair value. Investments in Vanguard Market Liquidity Fund are valued
at that fund's net asset value.
2. Futures
Contracts: The fund uses index futures contracts to a limited extent, with the
objectives of maintaining full exposure to the stock market, maintaining
liquidity, and minimizing transaction costs. The fund may purchase futures
contracts to immediately invest incoming cash in the market, or sell futures in
response to cash outflows, thereby simulating a fully invested position in the
underlying index while maintaining a cash balance for liquidity. The primary
risks associated with the use of futures contracts are imperfect correlation
between changes in market values of stocks held by the fund and the prices of
futures contracts, and the possibility of an illiquid market. Counterparty risk
involving futures is mitigated because a regulated clearinghouse is the
counterparty instead of the clearing broker. To further mitigate counterparty
risk, the fund trades futures contracts on an exchange, monitors the financial
strength of its clearing brokers and clearinghouse, and has entered into
clearing agreements with its clearing brokers. The clearinghouse imposes initial
margin requirements to secure the fund’s performance and requires daily
settlement of variation margin representing changes in the market value of each
contract. Any securities pledged as initial margin for open contracts are noted
in the Schedule of Investments.
Futures
contracts are valued at their quoted daily settlement prices. The notional
amounts of the contracts are not recorded in the Statement of Assets and
Liabilities. Fluctuations in the value of the contracts are recorded in the
Statement of Assets and Liabilities as an asset (liability) and in the Statement
of Operations as unrealized appreciation (depreciation) until the contracts are
closed, when they are recorded as realized gains (losses) on futures
contracts.
During
the six months ended February 28, 2022, the fund’s average investments in long
and short futures contracts represented less than 1% and 0% of net assets,
respectively, based on the average of the notional amounts at each quarter-end
during the period. The fund had no open futures contracts at February 28,
2022.
3.
Swap Contracts: The fund has entered into equity swap contracts to earn the
total return on selected reference stocks in the fund’s target index. Under the
terms of the swaps, the fund receives the total return on the referenced stock
(i.e., receiving the increase or paying the decrease in value of the selected
reference stock and receiving the equivalent of any dividends in respect of the
selected referenced stock) over a specified period of time, applied to a
notional amount that represents the value of a designated number of shares of
the selected reference stock at the beginning of the equity swap contract. The
fund also pays a floating rate that is based on short-term interest rates,
applied to the notional amount. At the same time, the fund generally invests an
amount approximating the notional amount of the swap in high-quality temporary
cash investments.
A
risk associated with all types of swaps is the possibility that a counterparty
may default on its obligation to pay net amounts due to the fund. The fund’s
maximum amount subject to counterparty risk is the unrealized appreciation on
the swap contract. The fund mitigates its counterparty risk by entering into
swaps only with a diverse group of prequalified counterparties, monitoring their
financial strength, entering into master netting arrangements with its
counterparties, and requiring its counterparties to transfer collateral as
security for their performance. In the absence of a default, the collateral
pledged or received by the fund cannot be repledged, resold, or rehypothecated.
In the
82
Industrials
Index Fund
event
of a counterparty’s default (including bankruptcy), the fund may terminate any
swap contracts with that counterparty, determine the net amount owed by either
party in accordance with its master netting arrangements, and sell or retain any
collateral held up to the net amount owed to the fund under the master netting
arrangements. The swap contracts contain provisions whereby a counterparty may
terminate open contracts if the fund’s net assets decline below a certain level,
triggering a payment by the fund if the fund is in a net liability position at
the time of the termination. The payment amount would be reduced by any
collateral the fund has pledged. Any securities pledged as collateral for open
contracts are noted in the Schedule of Investments. The value of collateral
received or pledged is compared daily to the value of the swap contracts
exposure with each counterparty, and any difference, if in excess of a specified
minimum transfer amount, is adjusted and settled within two business days.
The
notional amounts of swap contracts are not recorded in the Statement of Assets
and Liabilities. Swaps are valued daily based on market quotations received from
independent pricing services or recognized dealers and the change in value is
recorded in the Statement of Assets and Liabilities as an asset (liability) and
in the Statement of Operations as unrealized appreciation (depreciation) until
periodic payments are made or the termination of the swap, at which time
realized gain (loss) is recorded.
During
the six months ended February 28, 2022, the fund’s average amounts of
investments in total return swaps represented less than 1% of net assets, based
on the average of notional amounts at each quarter-end during the period.
4. Federal
Income Taxes: The fund intends to continue to qualify as a regulated investment
company and distribute all of its taxable income. The fund’s tax returns are
open to examination by the relevant tax authorities until expiration of the
applicable statute of limitations, which is generally three years after the
filing of the tax return. Management has analyzed the fund’s tax positions taken
for all open federal and state income tax years, and has concluded that no
provision for income tax is required in the fund’s financial statements.
5. Distributions:
Distributions to shareholders are recorded on the ex-dividend date.
Distributions are determined on a tax basis at the fiscal year-end and may
differ from net investment income and realized capital gains for financial
reporting purposes.
6. Securities
Lending: To earn additional income, the fund lends its securities to qualified
institutional borrowers. Security loans are subject to termination by the fund
at any time, and are required to be secured at all times by collateral in an
amount at least equal to the market value of securities loaned. Daily market
fluctuations could cause the value of loaned securities to be more or less than
the value of the collateral received. When this occurs, the collateral is
adjusted and settled before the opening of the market on the next business day.
The fund further mitigates its counterparty risk by entering into securities
lending transactions only with a diverse group of prequalified counterparties,
monitoring their financial strength, and entering into master securities lending
agreements with its counterparties. The master securities lending agreements
provide that, in the event of a counterparty’s default (including bankruptcy),
the fund may terminate any loans with that borrower, determine the net amount
owed, and sell or retain the collateral up to the net amount owed to the fund;
however, such actions may be subject to legal proceedings. While collateral
mitigates counterparty risk, in the event of a default, the fund may experience
delays and costs in recovering the securities loaned. The fund invests cash
collateral received in Vanguard Market Liquidity Fund, and records a liability
in the Statement of Assets and Liabilities for the return of the collateral,
during the period the securities are on loan. Collateral investments in Vanguard
Market Liquidity Fund are subject to market appreciation or depreciation.
Securities lending income represents fees charged to borrowers plus income
earned on invested cash collateral, less expenses associated with the loan.
During the term of the loan, the fund is entitled to all distributions made on
or in respect of the loaned securities.
7. Credit
Facilities and Interfund Lending Program: The fund and certain other funds
managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion
committed credit facility provided by a syndicate of lenders pursuant to a
credit agreement and an uncommitted credit facility provided by Vanguard. Both
facilities may be renewed annually. Each fund is individually liable for its
borrowings, if any, under the credit facilities. Borrowings may be utilized for
temporary or emergency purposes, subject to the fund’s regulatory and
contractual borrowing restrictions. With respect to the committed credit
facility, the participating funds are charged administrative fees and an annual
commitment fee of 0.10% of the undrawn committed amount of the facility; these
fees are allocated to the funds based on a method approved by the fund’s board
of trustees and included in Management and Administrative expenses on the fund’s
Statement of Operations. Any borrowings under either facility bear interest at a
rate based upon the higher of the one-month London Interbank
83
Industrials
Index Fund
Offered
Rate (or an acceptable alternate rate, if necessary), federal funds effective
rate, or overnight bank funding rate plus an agreed-upon spread, except that
borrowings under the uncommitted credit facility may bear interest based upon an
alternate rate agreed to by the fund and Vanguard.
In
accordance with an exemptive order (the “Order”) from the SEC, the fund may
participate in a joint lending and borrowing program that allows registered
open-end Vanguard funds to borrow money from and lend money to each other for
temporary or emergency purposes (the “Interfund Lending Program”), subject to
compliance with the terms and conditions of the Order, and to the extent
permitted by the fund’s investment objective and investment policies. Interfund
loans and borrowings normally extend overnight, but can have a maximum duration
of seven days. Loans may be called on one business day’s notice. The interest
rate to be charged is governed by the conditions of the Order and internal
procedures adopted by the board of trustees. The board of trustees is
responsible for overseeing the Interfund Lending Program.
For
the six months ended February 28, 2022, the fund did not utilize the credit
facilities or the Interfund Lending Program.
8. Other:
Dividend income is recorded on the ex-dividend date. Non-cash dividends included
in income, if any, are recorded at the fair value of the securities received.
Interest income includes income distributions received from Vanguard Market
Liquidity Fund and is accrued daily. Security transactions are accounted for on
the date securities are bought or sold. Costs used to determine realized gains
(losses) on the sale of investment securities are those of the specific
securities sold.
Each
class of shares has equal rights as to assets and earnings, except that each
class separately bears certain class-specific expenses related to maintenance of
shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each
class of shares based on a method approved by the board of trustees. Income,
other non-class-specific expenses, and gains and losses on investments are
allocated to each class of shares based on its relative net assets.
| B. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
Upon
the request of Vanguard, the fund may invest up to 0.40% of its net assets as
capital in Vanguard. At February 28, 2022, the fund had contributed to Vanguard
capital in the amount of $168,000, representing less than 0.01% of the fund’s
net assets and 0.07% of Vanguard’s capital received pursuant to the FSA. The
fund’s trustees and officers are also directors and employees, respectively, of
Vanguard.
| C. | Various inputs may be used to determine the value of the fund’s investments and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. |
Level
1—Quoted prices in active markets for
identical securities.
Level
2—Other significant observable inputs
(including quoted prices for similar securities, interest rates, prepayment
speeds, credit risk, etc.).
Level
3—Significant unobservable inputs (including
the fund’s own assumptions used to determine the fair value of investments). Any
investments and derivatives valued with significant unobservable inputs are
noted on the Schedule of Investments.
84
Industrials
Index Fund
The
following table summarizes the market value of the fund’s investments and
derivatives as of February 28, 2022, based on the inputs used to value
them:
| Level
1 ($000) |
Level
2 ($000) |
Level
3 ($000) |
Total ($000) | |
| Investments | ||||
| Assets | ||||
| Common Stocks | 4,903,634 | — | — | 4,903,634 |
| Temporary Cash Investments | 11,528 | — | — | 11,528 |
| Total | 4,915,162 | — | — | 4,915,162 |
| Derivative Financial Instruments | ||||
| Liabilities | ||||
| Swap Contracts | — | — | — | — |
| D. | As of February 28, 2022, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows: |
| Amount ($000) | |
| Tax Cost | 4,524,510 |
| Gross Unrealized Appreciation | 807,505 |
| Gross Unrealized Depreciation | (416,853) |
| Net Unrealized Appreciation (Depreciation) | 390,652 |
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, 2021, the fund had available
capital losses totaling $76,579,000 that may be carried forward indefinitely to
offset future net capital gains. The fund will use these capital losses to
offset net taxable capital gains, if any, realized during the year ending August
31, 2022; should the fund realize net capital losses for the year, the losses
will be added to the loss carryforward balance above.
| E. | During the six months ended February 28, 2022, the fund purchased $663,626,000 of investment securities and sold $1,319,768,000 of investment securities, other than temporary cash investments. Purchases and sales include $557,481,000 and $1,143,505,000, respectively, in connection with in-kind purchases and redemptions of the fund's capital shares. |
The
fund purchased securities from and sold securities to other Vanguard funds or
accounts managed by Vanguard or its affiliates, in accordance with procedures
adopted by the board of trustees in compliance with Rule 17a-7 of the Investment
Company Act of 1940. For the six months ended February 28, 2022, such purchases
were $7,777,000 and sales were $3,226,000, resulting in net realized loss of
$233,000; these amounts, other than temporary cash investments, are included in
the purchases and sales of investment securities noted above.
| F. | Capital share transactions for each class of shares were: |
| Six Months Ended February 28, 2022 |
Year Ended August 31, 2021 | ||||
| Amount ($000) |
Shares (000) |
Amount ($000) |
Shares (000) | ||
| ETF Shares | |||||
| Issued | 591,856 | 3,025 | 2,002,840 | 10,975 | |
| Issued in Lieu of Cash Distributions | — | — | — | — | |
| Redeemed | (1,117,500) | (5,725) | (886,520) | (4,725) | |
| Net Increase (Decrease)—ETF Shares | (525,644) | (2,700) | 1,116,320 | 6,250 | |
| Admiral Shares | |||||
| Issued | 65,159 | 642 | 203,805 | 2,209 | |
| Issued in Lieu of Cash Distributions | 2,071 | 21 | 3,138 | 36 | |
| Redeemed | (164,495) | (1,670) | (128,438) | (1,384) | |
| Net Increase (Decrease)—Admiral Shares | (97,265) | (1,007) | 78,505 | 861 | |
At
February 28, 2022, one shareholder was a record or beneficial owner of 28% of
the fund’s net assets. If this shareholder were to redeem its investment in the
fund, the redemption might result in
85
Industrials
Index Fund
an
increase in the fund’s expense ratio, cause the fund to incur higher transaction
costs, or lead to the realization of taxable capital gains.
| G. | Market disruptions associated with current geopolitical events have had a global impact, and uncertainty exists as to their implications. Such disruptions can adversely affect assets and thus performance of the fund; at this time, an aggregate effect on assets and performance cannot be reasonably estimated. Management is continuing to monitor these developments and evaluate impacts they may have on the fund. |
Management
has determined that no other events or transactions occurred subsequent to
February 28, 2022, that would require recognition or disclosure in these
financial statements.
86
Information
Technology Index Fund
Fund
Allocation
As
of February 28, 2022
| Communications Equipment | 3.1% |
| Electronic Equipment, Instruments & Components | 3.1 |
| IT Services | 15.9 |
| Semiconductors & Semiconductor Equipment | 20.8 |
| Software | 33.6 |
| Technology Hardware, Storage & Peripherals | 23.5 |
The
table reflects the fund’s investments, except short-term investments and
derivatives. Sector categories are based on the Global Industry Classification
Standard (“GICS”), except for the “Other” category (if applicable), which
includes securities that have not been provided a GICS classification as of the
effective reporting period.
The
fund may invest in derivatives (such as futures and swap contracts) for various
reasons, including, but not limited to, attempting to remain fully invested and
tracking its target index as closely as possible.
Global
Industry Classification Standard (“GICS”) was developed by and is the exclusive
property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a
division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by
Vanguard. Neither MSCI, S&P nor any third party involved in making or
compiling the GICS or any GICS classification makes any express or implied
warranties or representations with respect to such standard or classification
(or the results to be obtained by the use thereof), and all such parties hereby
expressly disclaim all warranties of originality, accuracy, completeness,
merchantability or fitness for a particular purpose with respect to any such
standard or classification. Without limiting any of the foregoing, in no event
shall MSCI, S&P, any of its affiliates or any third party involved in making
or compiling the GICS or any GICS classification have any liability for any
direct, indirect, special, punitive, consequential or any other damages
(including lost profits) even if notified of the possibility of such
damages.
87
Information
Technology Index Fund
Financial
Statements (unaudited)
Schedule
of Investments
As
of February 28, 2022
The
fund files its complete schedule of portfolio holdings with the Securities and
Exchange Commission (SEC) for the first and third quarters of each fiscal year
as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are
available on the SEC’s website at www.sec.gov.
88
Information
Technology Index Fund
89
Information
Technology Index Fund
90
Information
Technology Index Fund
Derivative
Financial Instruments Outstanding as of Period End
| Over-the-Counter Total Return Swaps | ||||||
| Reference Entity | Termination Date |
Counterparty | Notional Amount ($000) |
Floating Interest Rate Received (Paid)1 (%) |
Value
and Unrealized Appreciation ($000) |
Value
and Unrealized (Depreciation) ($000) |
| Visa Inc. Class A | 8/31/22 | BANA | 108,060 | 0.030 | 190 | — |
| 1 | Based on 1M USD Overnight Bank Funding Rate as of the most recent payment date. Floating interest payment received/paid monthly. |
| 1M—1-month. | |
| BANA—Bank of America, N.A. |
See
accompanying Notes, which are an integral part of the Financial
Statements.
91
Information
Technology Index Fund
Statement
of Assets and Liabilities
As
of February 28, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $34,755,095) | 55,511,576 |
| Affiliated Issuers (Cost $85,040) | 85,073 |
| Total Investments in Securities | 55,596,649 |
| Investment in Vanguard | 1,962 |
| Cash | 1,504 |
| Cash Collateral Pledged—Over-the-Counter Swap Contracts | 3,270 |
| Receivables for Investment Securities Sold | 380,438 |
| Receivables for Accrued Income | 45,928 |
| Receivables for Capital Shares Issued | 6,303 |
| Unrealized Appreciation—Over-the-Counter Swap Contracts | 190 |
| Total Assets | 56,036,244 |
| Liabilities | |
| Payables for Investment Securities Purchased | 382,392 |
| Collateral for Securities on Loan | 36,844 |
| Payables for Capital Shares Redeemed | 9,624 |
| Payables to Vanguard | 1,962 |
| Total Liabilities | 430,822 |
| Net Assets | 55,605,422 |
| At February 28, 2022, net assets consisted of: | |
| Paid-in Capital | 30,785,373 |
| Total Distributable Earnings (Loss) | 24,820,049 |
| Net Assets | 55,605,422 |
| ETF Shares—Net Assets | |
| Applicable
to 120,418,703 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
48,638,498 |
| Net Asset Value Per Share—ETF Shares | $403.91 |
| Admiral Shares—Net Assets | |
| Applicable
to 33,685,865 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
6,966,924 |
| Net Asset Value Per Share—Admiral Shares | $206.82 |
See
accompanying Notes, which are an integral part of the Financial
Statements.
92
Information
Technology Index Fund
See
accompanying Notes, which are an integral part of the Financial
Statements.
93
Information
Technology Index Fund
Financial
Highlights
| ETF Shares | ||||||
| For a Share Outstanding Throughout Each Period |
Six Months Ended February 28, 2022 |
Year Ended August 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $426.48 | $328.54 | $213.66 | $202.82 | $151.19 | $117.82 |
| Investment Operations | ||||||
| Net Investment Income1 | 1.537 | 2.634 | 2.926 | 2.572 | 1.921 | 1.646 |
| Net Realized and Unrealized Gain (Loss) on Investments | (22.399) | 97.919 | 114.955 | 10.792 | 51.430 | 33.329 |
| Total from Investment Operations | (20.862) | 100.553 | 117.881 | 13.364 | 53.351 | 34.975 |
| Distributions | ||||||
| Dividends from Net Investment Income | (1.708) | (2.613) | (3.001) | (2.524) | (1.721) | (1.605) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (1.708) | (2.613) | (3.001) | (2.524) | (1.721) | (1.605) |
| Net Asset Value, End of Period | $403.91 | $426.48 | $328.54 | $213.66 | $202.82 | $151.19 |
| Total Return | -4.91% | 30.80% | 55.72% | 6.70% | 35.52% | 29.93% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $48,638 | $51,238 | $38,711 | $20,738 | $22,595 | $14,638 |
| Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 0.72% | 0.73% | 1.17% | 1.32% | 1.10% | 1.24% |
| Portfolio Turnover Rate2 | 2% | 4% | 5% | 5% | 7% | 6% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period |
Six Months Ended February 28, 2022 |
Year Ended August 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $218.38 | $168.23 | $109.40 | $103.86 | $77.42 | $60.33 |
| Investment Operations | ||||||
| Net Investment Income1 | .788 | 1.353 | 1.504 | 1.326 | 1.001 | .850 |
| Net Realized and Unrealized Gain (Loss) on Investments | (11.473) | 50.136 | 58.864 | 5.509 | 26.324 | 17.062 |
| Total from Investment Operations | (10.685) | 51.489 | 60.368 | 6.835 | 27.325 | 17.912 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.875) | (1.339) | (1.538) | (1.295) | (.885) | (.822) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (.875) | (1.339) | (1.538) | (1.295) | (.885) | (.822) |
| Net Asset Value, End of Period | $206.82 | $218.38 | $168.23 | $109.40 | $103.86 | $77.42 |
| Total Return2 | -4.92% | 30.81% | 55.78% | 6.70% | 35.54% | 29.94% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $6,967 | $7,301 | $5,149 | $2,470 | $2,033 | $933 |
| Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 0.72% | 0.73% | 1.17% | 1.32% | 1.10% | 1.24% |
| Portfolio Turnover Rate3 | 2% | 4% | 5% | 5% | 7% | 6% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
See
accompanying Notes, which are an integral part of the Financial
Statements.
94
Information
Technology Index Fund
Notes
to Financial Statements
Vanguard
Information Technology Index Fund is registered under the Investment Company Act
of 1940 as an open-end investment company, or mutual fund. The fund offers two
classes of shares: ETF Shares and Admiral Shares. Each of the share classes has
different eligibility and minimum purchase requirements, and is designed for
different types of investors. ETF Shares are listed for trading on NYSE Arca;
they can be purchased and sold through a broker.
Market
disruptions associated with the COVID-19 pandemic have had a global impact, and
uncertainty exists as to the long-term implications. Such disruptions can
adversely affect assets of the fund and thus fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security
Valuation: Securities are valued as of the close of trading on the New York
Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity
securities are valued at the latest quoted sales prices or official closing
prices taken from the primary market in which each security trades; such
securities not traded on the valuation date are valued at the mean of the latest
quoted bid and asked prices. Securities for which market quotations are not
readily available, or whose values have been materially affected by events
occurring before the fund’s pricing time but after the close of the securities’
primary markets, are valued by methods deemed by the board of trustees to
represent fair value. Investments in Vanguard Market Liquidity Fund are valued
at that fund's net asset value. Temporary cash investments are valued using the
latest bid prices or using valuations based on a matrix system (which considers
such factors as security prices, yields, maturities, and ratings), both as
furnished by independent pricing services.
2. Futures
Contracts: The fund uses index futures contracts to a limited extent, with the
objectives of maintaining full exposure to the stock market, maintaining
liquidity, and minimizing transaction costs. The fund may purchase futures
contracts to immediately invest incoming cash in the market, or sell futures in
response to cash outflows, thereby simulating a fully invested position in the
underlying index while maintaining a cash balance for liquidity. The primary
risks associated with the use of futures contracts are imperfect correlation
between changes in market values of stocks held by the fund and the prices of
futures contracts, and the possibility of an illiquid market. Counterparty risk
involving futures is mitigated because a regulated clearinghouse is the
counterparty instead of the clearing broker. To further mitigate counterparty
risk, the fund trades futures contracts on an exchange, monitors the financial
strength of its clearing brokers and clearinghouse, and has entered into
clearing agreements with its clearing brokers. The clearinghouse imposes initial
margin requirements to secure the fund’s performance and requires daily
settlement of variation margin representing changes in the market value of each
contract. Any securities pledged as initial margin for open contracts are noted
in the Schedule of Investments.
Futures
contracts are valued at their quoted daily settlement prices. The notional
amounts of the contracts are not recorded in the Statement of Assets and
Liabilities. Fluctuations in the value of the contracts are recorded in the
Statement of Assets and Liabilities as an asset (liability) and in the Statement
of Operations as unrealized appreciation (depreciation) until the contracts are
closed, when they are recorded as realized gains (losses) on futures
contracts.
During
the six months ended February 28, 2022, the fund’s average investments in long
and short futures contracts represented less than 1% and 0% of net assets,
respectively, based on the average of the notional amounts at each quarter-end
during the period. The fund had no open futures contracts at February 28,
2022.
3.
Swap Contracts: The fund has entered into equity swap contracts to earn the
total return on selected reference stocks in the fund’s target index. Under the
terms of the swaps, the fund receives the total return on the referenced stock
(i.e., receiving the increase or paying the decrease in value of the selected
reference stock and receiving the equivalent of any dividends in respect of the
selected referenced stock) over a specified period of time, applied to a
notional amount that represents the value of a designated number of shares of
the selected reference stock at the beginning of the equity swap contract. The
fund also pays a floating rate that is based on short-term interest rates,
applied to the notional amount. At the same time, the fund generally invests an
amount approximating the notional amount of the swap in high-quality temporary
cash investments.
A
risk associated with all types of swaps is the possibility that a counterparty
may default on its obligation to pay net amounts due to the fund. The fund’s
maximum amount subject to counterparty risk is the unrealized appreciation on
the swap contract. The fund mitigates its counterparty risk by entering into
swaps only with a diverse group of prequalified counterparties, monitoring their
financial strength, entering into master netting arrangements with its
counterparties, and requiring its
95
Information
Technology Index Fund
counterparties
to transfer collateral as security for their performance. In the absence of a
default, the collateral pledged or received by the fund cannot be repledged,
resold, or rehypothecated. In the event of a counterparty’s default (including
bankruptcy), the fund may terminate any swap contracts with that counterparty,
determine the net amount owed by either party in accordance with its master
netting arrangements, and sell or retain any collateral held up to the net
amount owed to the fund under the master netting arrangements. The swap
contracts contain provisions whereby a counterparty may terminate open contracts
if the fund’s net assets decline below a certain level, triggering a payment by
the fund if the fund is in a net liability position at the time of the
termination. The payment amount would be reduced by any collateral the fund has
pledged. Any securities pledged as collateral for open contracts are noted in
the Schedule of Investments. The value of collateral received or pledged is
compared daily to the value of the swap contracts exposure with each
counterparty, and any difference, if in excess of a specified minimum transfer
amount, is adjusted and settled within two business days.
The
notional amounts of swap contracts are not recorded in the Statement of Assets
and Liabilities. Swaps are valued daily based on market quotations received from
independent pricing services or recognized dealers and the change in value is
recorded in the Statement of Assets and Liabilities as an asset (liability) and
in the Statement of Operations as unrealized appreciation (depreciation) until
periodic payments are made or the termination of the swap, at which time
realized gain (loss) is recorded.
During
the six months ended February 28, 2022, the fund’s average amounts of
investments in total return swaps represented less than 1% of net assets, based
on the average of notional amounts at each quarter-end during the period.
4. Federal
Income Taxes: The fund intends to continue to qualify as a regulated investment
company and distribute all of its taxable income. The fund’s tax returns are
open to examination by the relevant tax authorities until expiration of the
applicable statute of limitations, which is generally three years after the
filing of the tax return. Management has analyzed the fund’s tax positions taken
for all open federal and state income tax years, and has concluded that no
provision for income tax is required in the fund’s financial statements.
5. Distributions:
Distributions to shareholders are recorded on the ex-dividend date.
Distributions are determined on a tax basis at the fiscal year-end and may
differ from net investment income and realized capital gains for financial
reporting purposes.
6. Securities
Lending: To earn additional income, the fund lends its securities to qualified
institutional borrowers. Security loans are subject to termination by the fund
at any time, and are required to be secured at all times by collateral in an
amount at least equal to the market value of securities loaned. Daily market
fluctuations could cause the value of loaned securities to be more or less than
the value of the collateral received. When this occurs, the collateral is
adjusted and settled before the opening of the market on the next business day.
The fund further mitigates its counterparty risk by entering into securities
lending transactions only with a diverse group of prequalified counterparties,
monitoring their financial strength, and entering into master securities lending
agreements with its counterparties. The master securities lending agreements
provide that, in the event of a counterparty’s default (including bankruptcy),
the fund may terminate any loans with that borrower, determine the net amount
owed, and sell or retain the collateral up to the net amount owed to the fund;
however, such actions may be subject to legal proceedings. While collateral
mitigates counterparty risk, in the event of a default, the fund may experience
delays and costs in recovering the securities loaned. The fund invests cash
collateral received in Vanguard Market Liquidity Fund, and records a liability
in the Statement of Assets and Liabilities for the return of the collateral,
during the period the securities are on loan. Collateral investments in Vanguard
Market Liquidity Fund are subject to market appreciation or depreciation.
Securities lending income represents fees charged to borrowers plus income
earned on invested cash collateral, less expenses associated with the loan.
During the term of the loan, the fund is entitled to all distributions made on
or in respect of the loaned securities.
7. Credit
Facilities and Interfund Lending Program: The fund and certain other funds
managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion
committed credit facility provided by a syndicate of lenders pursuant to a
credit agreement and an uncommitted credit facility provided by Vanguard. Both
facilities may be renewed annually. Each fund is individually liable for its
borrowings, if any, under the credit facilities. Borrowings may be utilized for
temporary or emergency purposes, subject to the fund’s regulatory and
contractual borrowing restrictions. With respect to the committed credit
facility, the participating funds are charged administrative fees and an annual
commitment fee of 0.10% of the undrawn committed amount of the facility; these
fees are allocated to the funds based on a method approved by the fund’s board
of trustees and included in Management and Administrative expenses on the fund’s
Statement of Operations. Any borrowings
96
Information
Technology Index Fund
under
either facility bear interest at a rate based upon the higher of the one-month
London Interbank Offered Rate (or an acceptable alternate rate, if necessary),
federal funds effective rate, or overnight bank funding rate plus an agreed-upon
spread, except that borrowings under the uncommitted credit facility may bear
interest based upon an alternate rate agreed to by the fund and Vanguard.
In
accordance with an exemptive order (the “Order”) from the SEC, the fund may
participate in a joint lending and borrowing program that allows registered
open-end Vanguard funds to borrow money from and lend money to each other for
temporary or emergency purposes (the “Interfund Lending Program”), subject to
compliance with the terms and conditions of the Order, and to the extent
permitted by the fund’s investment objective and investment policies. Interfund
loans and borrowings normally extend overnight, but can have a maximum duration
of seven days. Loans may be called on one business day’s notice. The interest
rate to be charged is governed by the conditions of the Order and internal
procedures adopted by the board of trustees. The board of trustees is
responsible for overseeing the Interfund Lending Program.
For
the six months ended February 28, 2022, the fund did not utilize the credit
facilities or the Interfund Lending Program.
8. Other:
Dividend income is recorded on the ex-dividend date. Non-cash dividends included
in income, if any, are recorded at the fair value of the securities received.
Interest income includes income distributions received from Vanguard Market
Liquidity Fund and is accrued daily. Security transactions are accounted for on
the date securities are bought or sold. Costs used to determine realized gains
(losses) on the sale of investment securities are those of the specific
securities sold.
Each
class of shares has equal rights as to assets and earnings, except that each
class separately bears certain class-specific expenses related to maintenance of
shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each
class of shares based on a method approved by the board of trustees. Income,
other non-class-specific expenses, and gains and losses on investments are
allocated to each class of shares based on its relative net assets.
| B. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
Upon
the request of Vanguard, the fund may invest up to 0.40% of its net assets as
capital in Vanguard. At February 28, 2022, the fund had contributed to Vanguard
capital in the amount of $1,962,000, representing less than 0.01% of the fund’s
net assets and 0.78% of Vanguard’s capital received pursuant to the FSA. The
fund’s trustees and officers are also directors and employees, respectively, of
Vanguard.
| C. | Various inputs may be used to determine the value of the fund’s investments and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. |
Level
1—Quoted prices in active markets for
identical securities.
Level
2—Other significant observable inputs
(including quoted prices for similar securities, interest rates, prepayment
speeds, credit risk, etc.).
Level
3—Significant unobservable inputs (including
the fund’s own assumptions used to determine the fair value of investments). Any
investments and derivatives valued with significant unobservable inputs are
noted on the Schedule of Investments.
97
Information
Technology Index Fund
The
following table summarizes the market value of the fund’s investments and
derivatives as of February 28, 2022, based on the inputs used to value
them:
| Level
1 ($000) |
Level
2 ($000) |
Level
3 ($000) |
Total ($000) | |
| Investments | ||||
| Assets | ||||
| Common Stocks | 55,511,576 | — | — | 55,511,576 |
| Temporary Cash Investments | 85,073 | — | — | 85,073 |
| Total | 55,596,649 | — | — | 55,596,649 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Swap Contracts | — | 190 | — | 190 |
| D. | As of February 28, 2022, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows: |
| Amount ($000) | |
| Tax Cost | 34,860,346 |
| Gross Unrealized Appreciation | 21,793,975 |
| Gross Unrealized Depreciation | (1,057,672) |
| Net Unrealized Appreciation (Depreciation) | 20,736,303 |
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, 2021, the fund had available
capital losses totaling $339,928,000 that may be carried forward indefinitely to
offset future net capital gains. The fund will use these capital losses to
offset net taxable capital gains, if any, realized during the year ending August
31, 2022; should the fund realize net capital losses for the year, the losses
will be added to the loss carryforward balance above.
| E. | During the six months ended February 28, 2022, the fund purchased $8,060,232,000 of investment securities and sold $7,756,062,000 of investment securities, other than temporary cash investments. Purchases and sales include $6,591,725,000 and $6,645,422,000, respectively, in connection with in-kind purchases and redemptions of the fund's capital shares. |
The
fund purchased securities from and sold securities to other Vanguard funds or
accounts managed by Vanguard or its affiliates, in accordance with procedures
adopted by the board of trustees in compliance with Rule 17a-7 of the Investment
Company Act of 1940. For the six months ended February 28, 2022, such purchases
were $9,943,000 and sales were $17,130,000, resulting in net realized loss of
$1,974,000; these amounts, other than temporary cash investments, are included
in the purchases and sales of investment securities noted above.
| F. | Capital share transactions for each class of shares were: |
| Six Months Ended February 28, 2022 |
Year Ended August 31, 2021 | ||||
| Amount ($000) |
Shares (000) |
Amount ($000) |
Shares (000) | ||
| ETF Shares | |||||
| Issued | 6,838,486 | 16,177 | 6,291,821 | 16,864 | |
| Issued in Lieu of Cash Distributions | — | — | — | — | |
| Redeemed | (6,654,457) | (15,900) | (5,224,714) | (14,550) | |
| Net Increase (Decrease)—ETF Shares | 184,029 | 277 | 1,067,107 | 2,314 | |
| Admiral Shares | |||||
| Issued | 1,076,866 | 4,867 | 2,226,601 | 12,124 | |
| Issued in Lieu of Cash Distributions | 27,065 | 123 | 38,227 | 218 | |
| Redeemed | (1,028,873) | (4,738) | (1,715,775) | (9,519) | |
| Net Increase (Decrease)—Admiral Shares | 75,058 | 252 | 549,053 | 2,823 | |
| G. | Market disruptions associated with current geopolitical events have had a global impact, and uncertainty exists as to their implications. Such disruptions can adversely affect assets and thus |
98
Information
Technology Index Fund
performance
of the fund; at this time, an aggregate effect on assets and performance cannot
be reasonably estimated. Management is continuing to monitor these developments
and evaluate impacts they may have on the fund.
Management
has determined that no other events or transactions occurred subsequent to
February 28, 2022, that would require recognition or disclosure in these
financial statements.
99
Materials
Index Fund
Fund
Allocation
As
of February 28, 2022
| Chemicals | 60.3% |
| Construction Materials | 4.6 |
| Containers & Packaging | 13.5 |
| Metals & Mining | 20.7 |
| Paper & Forest Products | 0.9 |
The
table reflects the fund’s investments, except short-term investments and
derivatives. Sector categories are based on the Global Industry Classification
Standard (“GICS”), except for the “Other” category (if applicable), which
includes securities that have not been provided a GICS classification as of the
effective reporting period.
The
fund may invest in derivatives (such as futures and swap contracts) for various
reasons, including, but not limited to, attempting to remain fully invested and
tracking its target index as closely as possible.
Global
Industry Classification Standard (“GICS”) was developed by and is the exclusive
property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a
division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by
Vanguard. Neither MSCI, S&P nor any third party involved in making or
compiling the GICS or any GICS classification makes any express or implied
warranties or representations with respect to such standard or classification
(or the results to be obtained by the use thereof), and all such parties hereby
expressly disclaim all warranties of originality, accuracy, completeness,
merchantability or fitness for a particular purpose with respect to any such
standard or classification. Without limiting any of the foregoing, in no event
shall MSCI, S&P, any of its affiliates or any third party involved in making
or compiling the GICS or any GICS classification have any liability for any
direct, indirect, special, punitive, consequential or any other damages
(including lost profits) even if notified of the possibility of such
damages.
100
Materials
Index Fund
Financial
Statements (unaudited)
Schedule
of Investments
As
of February 28, 2022
The
fund files its complete schedule of portfolio holdings with the Securities and
Exchange Commission (SEC) for the first and third quarters of each fiscal year
as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are
available on the SEC’s website at www.sec.gov.
101
Materials
Index Fund
| Shares | Market Value• ($000) | ||
| Temporary Cash Investments (0.3%) | |||
| Money Market Fund (0.3%) | |||
| 2,3 | Vanguard Market Liquidity Fund, 0.138% (Cost $14,089) | 140,912 | 14,090 |
| Total Investments (100.2%) (Cost $4,344,942) | 4,976,162 | ||
| Other Assets and Liabilities—Net (-0.2%) | (7,966) | ||
| Net Assets (100.0%) | 4,968,196 | ||
| Cost is in $000. | |||
| • | See Note A in Notes to Financial Statements. |
| * | Non-income-producing security. |
| 1 | Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $10,345,000. |
| 2 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
| 3 | Collateral of $11,122,000 was received for securities on loan, of which $11,121,000 is held in Vanguard Market Liquidity Fund and $1,000 is held in cash. |
| ADR—American Depositary Receipt. |
102
Materials
Index Fund
Derivative
Financial Instruments Outstanding as of Period End
| Over-the-Counter Total Return Swaps | ||||||
| Reference Entity | Termination Date |
Counterparty | Notional Amount ($000) |
Floating Interest Rate Received (Paid)1 (%) |
Value
and Unrealized Appreciation ($000) |
Value
and Unrealized (Depreciation) ($000) |
| US Steel Corp. | 8/31/22 | BANA | 5,769 | (0.070) | 10 | — |
| 1 | Based on 1M USD Overnight Bank Funding Rate as of the most recent payment date. Floating interest payment received/paid monthly. |
| 1M—1-month. | |
| BANA—Bank of America, N.A. |
At
February 28, 2022, the counterparties had deposited in segregated accounts cash
of $1,330,000 in connection with open over-the-counter swap
contracts.
See
accompanying Notes, which are an integral part of the Financial
Statements.
103
Materials
Index Fund
Statement
of Assets and Liabilities
As
of February 28, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $4,330,853) | 4,962,072 |
| Affiliated Issuers (Cost $14,089) | 14,090 |
| Total Investments in Securities | 4,976,162 |
| Investment in Vanguard | 167 |
| Cash | 896 |
| Receivables for Investment Securities Sold | 21,439 |
| Receivables for Accrued Income | 7,792 |
| Receivables for Capital Shares Issued | 1,056 |
| Unrealized Appreciation—Over-the-Counter Swap Contracts | 10 |
| Total Assets | 5,007,522 |
| Liabilities | |
| Payables for Investment Securities Purchased | 27,392 |
| Collateral for Securities on Loan | 11,122 |
| Payables for Capital Shares Redeemed | 636 |
| Payables to Vanguard | 176 |
| Total Liabilities | 39,326 |
| Net Assets | 4,968,196 |
| At February 28, 2022, net assets consisted of: | |
| Paid-in Capital | 4,348,072 |
| Total Distributable Earnings (Loss) | 620,124 |
| Net Assets | 4,968,196 |
| ETF Shares—Net Assets | |
| Applicable
to 21,092,832 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
3,881,994 |
| Net Asset Value Per Share—ETF Shares | $184.04 |
| Admiral Shares—Net Assets | |
| Applicable
to 11,583,390 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
1,086,202 |
| Net Asset Value Per Share—Admiral Shares | $93.77 |
See
accompanying Notes, which are an integral part of the Financial
Statements.
104
Materials
Index Fund
See
accompanying Notes, which are an integral part of the Financial
Statements.
105
Materials
Index Fund
Financial
Highlights
| ETF Shares | ||||||
| For a Share Outstanding Throughout Each Period |
Six Months Ended February 28, 2022 |
Year Ended August 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $187.02 | $134.84 | $122.80 | $134.33 | $124.29 | $108.16 |
| Investment Operations | ||||||
| Net Investment Income1 | 1.413 | 2.801 | 2.522 | 2.501 | 2.285 | 2.175 |
| Net Realized and Unrealized Gain (Loss) on Investments | (2.770) | 52.014 | 12.053 | (11.541) | 9.961 | 16.072 |
| Total from Investment Operations | (1.357) | 54.815 | 14.575 | (9.040) | 12.246 | 18.247 |
| Distributions | ||||||
| Dividends from Net Investment Income | (1.623) | (2.635) | (2.535) | (2.490) | (2.206) | (2.117) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (1.623) | (2.635) | (2.535) | (2.490) | (2.206) | (2.117) |
| Net Asset Value, End of Period | $184.04 | $187.02 | $134.84 | $122.80 | $134.33 | $124.29 |
| Total Return | -0.72% | 41.00% | 12.12% | -6.73% | 9.91% | 17.06% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $3,882 | $3,924 | $1,676 | $1,921 | $2,749 | $1,913 |
| Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 1.52% | 1.66% | 2.05% | 2.04% | 1.71% | 1.87% |
| Portfolio Turnover Rate2 | 2% | 5% | 4% | 4% | 5% | 5% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period |
Six Months Ended February 28, 2022 |
Year Ended August 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $95.29 | $68.70 | $62.57 | $68.45 | $63.33 | $55.11 |
| Investment Operations | ||||||
| Net Investment Income1 | .721 | 1.424 | 1.294 | 1.282 | 1.159 | 1.104 |
| Net Realized and Unrealized Gain (Loss) on Investments | (1.414) | 26.507 | 6.130 | (5.892) | 5.084 | 8.195 |
| Total from Investment Operations | (.693) | 27.931 | 7.424 | (4.610) | 6.243 | 9.299 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.827) | (1.341) | (1.294) | (1.270) | (1.123) | (1.079) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (.827) | (1.341) | (1.294) | (1.270) | (1.123) | (1.079) |
| Net Asset Value, End of Period | $93.77 | $95.29 | $68.70 | $62.57 | $68.45 | $63.33 |
| Total Return2 | -0.72% | 41.04% | 12.14% | -6.74% | 9.91% | 17.06% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $1,086 | $1,078 | $583 | $482 | $452 | $372 |
| Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 1.52% | 1.67% | 2.08% | 2.04% | 1.71% | 1.87% |
| Portfolio Turnover Rate3 | 2% | 5% | 4% | 4% | 5% | 5% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
See
accompanying Notes, which are an integral part of the Financial
Statements.
106
Materials
Index Fund
Notes
to Financial Statements
Vanguard
Materials Index Fund is registered under the Investment Company Act of 1940 as
an open-end investment company, or mutual fund. The fund offers two classes of
shares: ETF Shares and Admiral Shares. Each of the share classes has different
eligibility and minimum purchase requirements, and is designed for different
types of investors. ETF Shares are listed for trading on NYSE Arca; they can be
purchased and sold through a broker.
Market
disruptions associated with the COVID-19 pandemic have had a global impact, and
uncertainty exists as to the long-term implications. Such disruptions can
adversely affect assets of the fund and thus fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security
Valuation: Securities are valued as of the close of trading on the New York
Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity
securities are valued at the latest quoted sales prices or official closing
prices taken from the primary market in which each security trades; such
securities not traded on the valuation date are valued at the mean of the latest
quoted bid and asked prices. Securities for which market quotations are not
readily available, or whose values have been materially affected by events
occurring before the fund’s pricing time but after the close of the securities’
primary markets, are valued by methods deemed by the board of trustees to
represent fair value. Investments in Vanguard Market Liquidity Fund are valued
at that fund's net asset value.
2.
Swap Contracts: The fund has entered into equity swap contracts to earn the
total return on selected reference stocks in the fund’s target index. Under the
terms of the swaps, the fund receives the total return on the referenced stock
(i.e., receiving the increase or paying the decrease in value of the selected
reference stock and receiving the equivalent of any dividends in respect of the
selected referenced stock) over a specified period of time, applied to a
notional amount that represents the value of a designated number of shares of
the selected reference stock at the beginning of the equity swap contract. The
fund also pays a floating rate that is based on short-term interest rates,
applied to the notional amount. At the same time, the fund generally invests an
amount approximating the notional amount of the swap in high-quality temporary
cash investments.
A
risk associated with all types of swaps is the possibility that a counterparty
may default on its obligation to pay net amounts due to the fund. The fund’s
maximum amount subject to counterparty risk is the unrealized appreciation on
the swap contract. The fund mitigates its counterparty risk by entering into
swaps only with a diverse group of prequalified counterparties, monitoring their
financial strength, entering into master netting arrangements with its
counterparties, and requiring its counterparties to transfer collateral as
security for their performance. In the absence of a default, the collateral
pledged or received by the fund cannot be repledged, resold, or rehypothecated.
In the event of a counterparty’s default (including bankruptcy), the fund may
terminate any swap contracts with that counterparty, determine the net amount
owed by either party in accordance with its master netting arrangements, and
sell or retain any collateral held up to the net amount owed to the fund under
the master netting arrangements. The swap contracts contain provisions whereby a
counterparty may terminate open contracts if the fund’s net assets decline below
a certain level, triggering a payment by the fund if the fund is in a net
liability position at the time of the termination. The payment amount would be
reduced by any collateral the fund has pledged. Any securities pledged as
collateral for open contracts are noted in the Schedule of Investments. The
value of collateral received or pledged is compared daily to the value of the
swap contracts exposure with each counterparty, and any difference, if in excess
of a specified minimum transfer amount, is adjusted and settled within two
business days.
The
notional amounts of swap contracts are not recorded in the Statement of Assets
and Liabilities. Swaps are valued daily based on market quotations received from
independent pricing services or recognized dealers and the change in value is
recorded in the Statement of Assets and Liabilities as an asset (liability) and
in the Statement of Operations as unrealized appreciation (depreciation) until
periodic payments are made or the termination of the swap, at which time
realized gain (loss) is recorded.
During
the six months ended February 28, 2022, the fund’s average amounts of
investments in total return swaps represented less than 1% of net assets, based
on the average of notional amounts at each quarter-end during the period.
3. Federal
Income Taxes: The fund intends to continue to qualify as a regulated investment
company and distribute all of its taxable income. The fund’s tax returns are
open to examination by the relevant tax authorities until expiration of the
applicable statute of limitations, which is generally three years
107
Materials
Index Fund
after
the filing of the tax return. Management has analyzed the fund’s tax positions
taken for all open federal and state income tax years, and has concluded that no
provision for income tax is required in the fund’s financial statements.
4. Distributions:
Distributions to shareholders are recorded on the ex-dividend date.
Distributions are determined on a tax basis at the fiscal year-end and may
differ from net investment income and realized capital gains for financial
reporting purposes.
5. Securities
Lending: To earn additional income, the fund lends its securities to qualified
institutional borrowers. Security loans are subject to termination by the fund
at any time, and are required to be secured at all times by collateral in an
amount at least equal to the market value of securities loaned. Daily market
fluctuations could cause the value of loaned securities to be more or less than
the value of the collateral received. When this occurs, the collateral is
adjusted and settled before the opening of the market on the next business day.
The fund further mitigates its counterparty risk by entering into securities
lending transactions only with a diverse group of prequalified counterparties,
monitoring their financial strength, and entering into master securities lending
agreements with its counterparties. The master securities lending agreements
provide that, in the event of a counterparty’s default (including bankruptcy),
the fund may terminate any loans with that borrower, determine the net amount
owed, and sell or retain the collateral up to the net amount owed to the fund;
however, such actions may be subject to legal proceedings. While collateral
mitigates counterparty risk, in the event of a default, the fund may experience
delays and costs in recovering the securities loaned. The fund invests cash
collateral received in Vanguard Market Liquidity Fund, and records a liability
in the Statement of Assets and Liabilities for the return of the collateral,
during the period the securities are on loan. Collateral investments in Vanguard
Market Liquidity Fund are subject to market appreciation or depreciation.
Securities lending income represents fees charged to borrowers plus income
earned on invested cash collateral, less expenses associated with the loan.
During the term of the loan, the fund is entitled to all distributions made on
or in respect of the loaned securities.
6. Credit
Facilities and Interfund Lending Program: The fund and certain other funds
managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion
committed credit facility provided by a syndicate of lenders pursuant to a
credit agreement and an uncommitted credit facility provided by Vanguard. Both
facilities may be renewed annually. Each fund is individually liable for its
borrowings, if any, under the credit facilities. Borrowings may be utilized for
temporary or emergency purposes, subject to the fund’s regulatory and
contractual borrowing restrictions. With respect to the committed credit
facility, the participating funds are charged administrative fees and an annual
commitment fee of 0.10% of the undrawn committed amount of the facility; these
fees are allocated to the funds based on a method approved by the fund’s board
of trustees and included in Management and Administrative expenses on the fund’s
Statement of Operations. Any borrowings under either facility bear interest at a
rate based upon the higher of the one-month London Interbank Offered Rate (or an
acceptable alternate rate, if necessary), federal funds effective rate, or
overnight bank funding rate plus an agreed-upon spread, except that borrowings
under the uncommitted credit facility may bear interest based upon an alternate
rate agreed to by the fund and Vanguard.
In
accordance with an exemptive order (the “Order”) from the SEC, the fund may
participate in a joint lending and borrowing program that allows registered
open-end Vanguard funds to borrow money from and lend money to each other for
temporary or emergency purposes (the “Interfund Lending Program”), subject to
compliance with the terms and conditions of the Order, and to the extent
permitted by the fund’s investment objective and investment policies. Interfund
loans and borrowings normally extend overnight, but can have a maximum duration
of seven days. Loans may be called on one business day’s notice. The interest
rate to be charged is governed by the conditions of the Order and internal
procedures adopted by the board of trustees. The board of trustees is
responsible for overseeing the Interfund Lending Program.
For
the six months ended February 28, 2022, the fund did not utilize the credit
facilities or the Interfund Lending Program.
7. Other:
Dividend income is recorded on the ex-dividend date. Non-cash dividends included
in income, if any, are recorded at the fair value of the securities received.
Interest income includes income distributions received from Vanguard Market
Liquidity Fund and is accrued daily. Security transactions are accounted for on
the date securities are bought or sold. Costs used to determine realized gains
(losses) on the sale of investment securities are those of the specific
securities sold.
Each
class of shares has equal rights as to assets and earnings, except that each
class separately bears certain class-specific expenses related to maintenance of
shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each
class of shares based on a method approved by the board of
108
Materials
Index Fund
trustees.
Income, other non-class-specific expenses, and gains and losses on investments
are allocated to each class of shares based on its relative net assets.
| B. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
Upon
the request of Vanguard, the fund may invest up to 0.40% of its net assets as
capital in Vanguard. At February 28, 2022, the fund had contributed to Vanguard
capital in the amount of $167,000, representing less than 0.01% of the fund’s
net assets and 0.07% of Vanguard’s capital received pursuant to the FSA. The
fund’s trustees and officers are also directors and employees, respectively, of
Vanguard.
| C. | Various inputs may be used to determine the value of the fund’s investments and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. |
Level
1—Quoted prices in active markets for
identical securities.
Level
2—Other significant observable inputs
(including quoted prices for similar securities, interest rates, prepayment
speeds, credit risk, etc.).
Level
3—Significant unobservable inputs (including
the fund’s own assumptions used to determine the fair value of investments). Any
investments and derivatives valued with significant unobservable inputs are
noted on the Schedule of Investments.
The
following table summarizes the market value of the fund’s investments and
derivatives as of February 28, 2022, based on the inputs used to value
them:
| Level
1 ($000) |
Level
2 ($000) |
Level
3 ($000) |
Total ($000) | |
| Investments | ||||
| Assets | ||||
| Common Stocks | 4,962,072 | — | — | 4,962,072 |
| Temporary Cash Investments | 14,090 | — | — | 14,090 |
| Total | 4,976,162 | — | — | 4,976,162 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Swap Contracts | — | 10 | — | 10 |
| D. | As of February 28, 2022, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows: |
| Amount ($000) | |
| Tax Cost | 4,358,174 |
| Gross Unrealized Appreciation | 790,610 |
| Gross Unrealized Depreciation | (172,622) |
| Net Unrealized Appreciation (Depreciation) | 617,988 |
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, 2021, the fund had available
capital losses totaling $103,739,000 that may be carried forward indefinitely to
offset future net capital gains. The fund will use these capital losses to
offset net taxable capital gains, if any, realized during the year ending August
31, 2022; should the fund realize net capital losses for the year, the losses
will be added to the loss carryforward balance above.
| E. | During the six months ended February 28, 2022, the fund purchased $401,283,000 of investment securities and sold $350,759,000 of investment securities, other than temporary cash investments. Purchases and sales include $256,270,000 and $272,534,000, respectively, in connection with in-kind purchases and redemptions of the fund's capital shares. |
The
fund purchased securities from and sold securities to other Vanguard funds or
accounts managed by Vanguard or its affiliates, in accordance with procedures
adopted by the board of
109
Materials
Index Fund
trustees
in compliance with Rule 17a-7 of the Investment Company Act of 1940. For the six
months ended February 28, 2022, such purchases were $10,481,000 and sales were
$0, resulting in net realized gain (loss) of $0; these amounts, other than
temporary cash investments, are included in the purchases and sales of
investment securities noted above.
| F. | Capital share transactions for each class of shares were: |
| Six Months Ended February 28, 2022 |
Year Ended August 31, 2021 | ||||
| Amount ($000) |
Shares (000) |
Amount ($000) |
Shares (000) | ||
| ETF Shares | |||||
| Issued | 304,181 | 1,609 | 1,856,866 | 11,008 | |
| Issued in Lieu of Cash Distributions | — | — | — | — | |
| Redeemed | (273,888) | (1,500) | (406,172) | (2,450) | |
| Net Increase (Decrease)—ETF Shares | 30,293 | 109 | 1,450,694 | 8,558 | |
| Admiral Shares | |||||
| Issued | 157,500 | 1,652 | 454,856 | 5,232 | |
| Issued in Lieu of Cash Distributions | 8,444 | 91 | 11,777 | 146 | |
| Redeemed | (139,719) | (1,472) | (219,223) | (2,551) | |
| Net Increase (Decrease)—Admiral Shares | 26,225 | 271 | 247,410 | 2,827 | |
| G. | Market disruptions associated with current geopolitical events have had a global impact, and uncertainty exists as to their implications. Such disruptions can adversely affect assets and thus performance of the fund; at this time, an aggregate effect on assets and performance cannot be reasonably estimated. Management is continuing to monitor these developments and evaluate impacts they may have on the fund. |
Management
has determined that no other events or transactions occurred subsequent to
February 28, 2022, that would require recognition or disclosure in these
financial statements.
110
Utilities
Index Fund
Fund
Allocation
As
of February 28, 2022
| Electric Utilities | 59.6% |
| Gas Utilities | 4.7 |
| Independent Power and Renewable Electricity Producers | 3.5 |
| Multi-Utilities | 27.7 |
| Water Utilities | 4.5 |
The
table reflects the fund’s investments, except short-term investments and
derivatives. Sector categories are based on the Global Industry Classification
Standard (“GICS”), except for the “Other” category (if applicable), which
includes securities that have not been provided a GICS classification as of the
effective reporting period.
The
fund may invest in derivatives (such as futures and swap contracts) for various
reasons, including, but not limited to, attempting to remain fully invested and
tracking its target index as closely as possible.
Global
Industry Classification Standard (“GICS”) was developed by and is the exclusive
property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a
division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by
Vanguard. Neither MSCI, S&P nor any third party involved in making or
compiling the GICS or any GICS classification makes any express or implied
warranties or representations with respect to such standard or classification
(or the results to be obtained by the use thereof), and all such parties hereby
expressly disclaim all warranties of originality, accuracy, completeness,
merchantability or fitness for a particular purpose with respect to any such
standard or classification. Without limiting any of the foregoing, in no event
shall MSCI, S&P, any of its affiliates or any third party involved in making
or compiling the GICS or any GICS classification have any liability for any
direct, indirect, special, punitive, consequential or any other damages
(including lost profits) even if notified of the possibility of such
damages.
111
Utilities
Index Fund
Financial
Statements (unaudited)
Schedule
of Investments
As
of February 28, 2022
The
fund files its complete schedule of portfolio holdings with the Securities and
Exchange Commission (SEC) for the first and third quarters of each fiscal year
as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are
available on the SEC’s website at www.sec.gov.
Derivative
Financial Instruments Outstanding as of Period End
| Over-the-Counter Total Return Swaps | ||||||
| Reference Entity | Termination Date |
Counterparty | Notional Amount ($000) |
Floating Interest Rate Received (Paid)1 (%) |
Value
and Unrealized Appreciation ($000) |
Value
and Unrealized (Depreciation) ($000) |
| Ameren Corp. | 1/31/23 | GSI | 8,438 | (0.070) | 157 | — |
| Sempra Energy | 8/31/22 | BANA | 11,538 | (0.070) | — | (1) |
| 157 | (1) | |||||
| 1 | Based on 1M USD Overnight Bank Funding Rate as of the most recent payment date. Floating interest payment received/paid monthly. |
| 1M—1-month. | |
| BANA—Bank of America, N.A. | |
| GSI—Goldman Sachs International. |
See
accompanying Notes, which are an integral part of the Financial
Statements.
112
Utilities
Index Fund
Statement
of Assets and Liabilities
As
of February 28, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $6,407,988) | 7,107,848 |
| Affiliated Issuers (Cost $883) | 884 |
| Total Investments in Securities | 7,108,732 |
| Investment in Vanguard | 243 |
| Receivables for Investment Securities Sold | 38,298 |
| Receivables for Accrued Income | 30,807 |
| Receivables for Capital Shares Issued | 2,673 |
| Unrealized Appreciation—Over-the-Counter Swap Contracts | 157 |
| Total Assets | 7,180,910 |
| Liabilities | |
| Due to Custodian | 2,668 |
| Payables for Investment Securities Purchased | 47,302 |
| Collateral for Securities on Loan | 881 |
| Payables for Capital Shares Redeemed | 858 |
| Payables to Vanguard | 250 |
| Unrealized Depreciation—Over-the-Counter Swap Contracts | 1 |
| Total Liabilities | 51,960 |
| Net Assets | 7,128,950 |
| At February 28, 2022, net assets consisted of: | |
| Paid-in Capital | 6,465,970 |
| Total Distributable Earnings (Loss) | 662,980 |
| Net Assets | 7,128,950 |
| ETF Shares—Net Assets | |
| Applicable
to 37,076,674 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
5,498,675 |
| Net Asset Value Per Share—ETF Shares | $148.31 |
| Admiral Shares—Net Assets | |
| Applicable
to 21,910,520 outstanding $.001 par value shares of beneficial interest (unlimited authorization) |
1,630,275 |
| Net Asset Value Per Share—Admiral Shares | $74.41 |
See
accompanying Notes, which are an integral part of the Financial
Statements.
113
Utilities
Index Fund
See
accompanying Notes, which are an integral part of the Financial
Statements.
114
Utilities
Index Fund
Financial
Highlights
| ETF Shares | ||||||
| For a Share Outstanding Throughout Each Period |
Six Months Ended February 28, 2022 |
Year Ended August 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $149.52 | $129.35 | $139.09 | $119.32 | $120.75 | $107.35 |
| Investment Operations | ||||||
| Net Investment Income1 | 2.188 | 4.310 | 4.306 | 4.087 | 3.757 | 3.697 |
| Net Realized and Unrealized Gain (Loss) on Investments | (1.147) | 20.048 | (9.802) | 19.562 | (1.434) | 13.374 |
| Total from Investment Operations | 1.041 | 24.358 | (5.496) | 23.649 | 2.323 | 17.071 |
| Distributions | ||||||
| Dividends from Net Investment Income | (2.251) | (4.188) | (4.244) | (3.879) | (3.753) | (3.671) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (2.251) | (4.188) | (4.244) | (3.879) | (3.753) | (3.671) |
| Net Asset Value, End of Period | $148.31 | $149.52 | $129.35 | $139.09 | $119.32 | $120.75 |
| Total Return | 0.72% | 19.19% | -4.08% | 20.17% | 2.05% | 16.27% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $5,499 | $5,126 | $4,014 | $4,107 | $2,809 | $2,689 |
| Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 2.97% | 3.09% | 3.18% | 3.22% | 3.25% | 3.33% |
| Portfolio Turnover Rate2 | 1% | 6% | 5% | 4% | 4% | 4% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period |
Six Months Ended February 28, 2022 |
Year Ended August 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $75.01 | $64.89 | $69.78 | $59.86 | $60.58 | $53.86 |
| Investment Operations | ||||||
| Net Investment Income1 | 1.092 | 2.166 | 2.163 | 2.038 | 1.883 | 1.863 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.563) | 10.055 | (4.924) | 9.828 | (.719) | 6.698 |
| Total from Investment Operations | .529 | 12.221 | (2.761) | 11.866 | 1.164 | 8.561 |
| Distributions | ||||||
| Dividends from Net Investment Income | (1.129) | (2.101) | (2.129) | (1.946) | (1.884) | (1.841) |
| Distributions from Realized Capital Gains | — | — | — | — | — | — |
| Total Distributions | (1.129) | (2.101) | (2.129) | (1.946) | (1.884) | (1.841) |
| Net Asset Value, End of Period | $74.41 | $75.01 | $64.89 | $69.78 | $59.86 | $60.58 |
| Total Return2 | 0.74% | 19.22% | -4.05% | 20.19% | 2.04% | 16.24% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $1,630 | $1,582 | $1,281 | $1,266 | $868 | $845 |
| Ratio of Total Expenses to Average Net Assets | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% | 0.10% |
| Ratio of Net Investment Income to Average Net Assets | 2.96% | 3.10% | 3.18% | 3.22% | 3.25% | 3.33% |
| Portfolio Turnover Rate3 | 1% | 6% | 5% | 4% | 4% | 4% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units. |
See
accompanying Notes, which are an integral part of the Financial
Statements.
115
Utilities
Index Fund
Notes
to Financial Statements
Vanguard
Utilities Index Fund is registered under the Investment Company Act of 1940 as
an open-end investment company, or mutual fund. The fund offers two classes of
shares: ETF Shares and Admiral Shares. Each of the share classes has different
eligibility and minimum purchase requirements, and is designed for different
types of investors. ETF Shares are listed for trading on NYSE Arca; they can be
purchased and sold through a broker.
Market
disruptions associated with the COVID-19 pandemic have had a global impact, and
uncertainty exists as to the long-term implications. Such disruptions can
adversely affect assets of the fund and thus fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security
Valuation: Securities are valued as of the close of trading on the New York
Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity
securities are valued at the latest quoted sales prices or official closing
prices taken from the primary market in which each security trades; such
securities not traded on the valuation date are valued at the mean of the latest
quoted bid and asked prices. Securities for which market quotations are not
readily available, or whose values have been materially affected by events
occurring before the fund’s pricing time but after the close of the securities’
primary markets, are valued by methods deemed by the board of trustees to
represent fair value. Investments in Vanguard Market Liquidity Fund are valued
at that fund's net asset value.
2. Futures
Contracts: The fund uses index futures contracts to a limited extent, with the
objectives of maintaining full exposure to the stock market, maintaining
liquidity, and minimizing transaction costs. The fund may purchase futures
contracts to immediately invest incoming cash in the market, or sell futures in
response to cash outflows, thereby simulating a fully invested position in the
underlying index while maintaining a cash balance for liquidity. The primary
risks associated with the use of futures contracts are imperfect correlation
between changes in market values of stocks held by the fund and the prices of
futures contracts, and the possibility of an illiquid market. Counterparty risk
involving futures is mitigated because a regulated clearinghouse is the
counterparty instead of the clearing broker. To further mitigate counterparty
risk, the fund trades futures contracts on an exchange, monitors the financial
strength of its clearing brokers and clearinghouse, and has entered into
clearing agreements with its clearing brokers. The clearinghouse imposes initial
margin requirements to secure the fund’s performance and requires daily
settlement of variation margin representing changes in the market value of each
contract. Any securities pledged as initial margin for open contracts are noted
in the Schedule of Investments.
Futures
contracts are valued at their quoted daily settlement prices. The notional
amounts of the contracts are not recorded in the Statement of Assets and
Liabilities. Fluctuations in the value of the contracts are recorded in the
Statement of Assets and Liabilities as an asset (liability) and in the Statement
of Operations as unrealized appreciation (depreciation) until the contracts are
closed, when they are recorded as realized gains (losses) on futures
contracts.
During
the six months ended February 28, 2022, the fund’s average investments in long
and short futures contracts represented less than 1% and 0% of net assets,
respectively, based on the average of the notional amounts at each quarter-end
during the period. The fund had no open futures contracts at February 28,
2022.
3.
Swap Contracts: The fund has entered into equity swap contracts to earn the
total return on selected reference stocks in the fund’s target index. Under the
terms of the swaps, the fund receives the total return on the referenced stock
(i.e., receiving the increase or paying the decrease in value of the selected
reference stock and receiving the equivalent of any dividends in respect of the
selected referenced stock) over a specified period of time, applied to a
notional amount that represents the value of a designated number of shares of
the selected reference stock at the beginning of the equity swap contract. The
fund also pays a floating rate that is based on short-term interest rates,
applied to the notional amount. At the same time, the fund generally invests an
amount approximating the notional amount of the swap in high-quality temporary
cash investments.
A
risk associated with all types of swaps is the possibility that a counterparty
may default on its obligation to pay net amounts due to the fund. The fund’s
maximum amount subject to counterparty risk is the unrealized appreciation on
the swap contract. The fund mitigates its counterparty risk by entering into
swaps only with a diverse group of prequalified counterparties, monitoring their
financial strength, entering into master netting arrangements with its
counterparties, and requiring its counterparties to transfer collateral as
security for their performance. In the absence of a default, the collateral
pledged or received by the fund cannot be repledged, resold, or rehypothecated.
In the
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Utilities
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event
of a counterparty’s default (including bankruptcy), the fund may terminate any
swap contracts with that counterparty, determine the net amount owed by either
party in accordance with its master netting arrangements, and sell or retain any
collateral held up to the net amount owed to the fund under the master netting
arrangements. The swap contracts contain provisions whereby a counterparty may
terminate open contracts if the fund’s net assets decline below a certain level,
triggering a payment by the fund if the fund is in a net liability position at
the time of the termination. The payment amount would be reduced by any
collateral the fund has pledged. Any securities pledged as collateral for open
contracts are noted in the Schedule of Investments. The value of collateral
received or pledged is compared daily to the value of the swap contracts
exposure with each counterparty, and any difference, if in excess of a specified
minimum transfer amount, is adjusted and settled within two business days.
The
notional amounts of swap contracts are not recorded in the Statement of Assets
and Liabilities. Swaps are valued daily based on market quotations received from
independent pricing services or recognized dealers and the change in value is
recorded in the Statement of Assets and Liabilities as an asset (liability) and
in the Statement of Operations as unrealized appreciation (depreciation) until
periodic payments are made or the termination of the swap, at which time
realized gain (loss) is recorded.
During
the six months ended February 28, 2022, the fund’s average amounts of
investments in total return swaps represented less than 1% of net assets, based
on the average of notional amounts at each quarter-end during the period.
4. Federal
Income Taxes: The fund intends to continue to qualify as a regulated investment
company and distribute all of its taxable income. The fund’s tax returns are
open to examination by the relevant tax authorities until expiration of the
applicable statute of limitations, which is generally three years after the
filing of the tax return. Management has analyzed the fund’s tax positions taken
for all open federal and state income tax years, and has concluded that no
provision for income tax is required in the fund’s financial statements.
5. Distributions:
Distributions to shareholders are recorded on the ex-dividend date.
Distributions are determined on a tax basis at the fiscal year-end and may
differ from net investment income and realized capital gains for financial
reporting purposes.
6. Securities
Lending: To earn additional income, the fund lends its securities to qualified
institutional borrowers. Security loans are subject to termination by the fund
at any time, and are required to be secured at all times by collateral in an
amount at least equal to the market value of securities loaned. Daily market
fluctuations could cause the value of loaned securities to be more or less than
the value of the collateral received. When this occurs, the collateral is
adjusted and settled before the opening of the market on the next business day.
The fund further mitigates its counterparty risk by entering into securities
lending transactions only with a diverse group of prequalified counterparties,
monitoring their financial strength, and entering into master securities lending
agreements with its counterparties. The master securities lending agreements
provide that, in the event of a counterparty’s default (including bankruptcy),
the fund may terminate any loans with that borrower, determine the net amount
owed, and sell or retain the collateral up to the net amount owed to the fund;
however, such actions may be subject to legal proceedings. While collateral
mitigates counterparty risk, in the event of a default, the fund may experience
delays and costs in recovering the securities loaned. The fund invests cash
collateral received in Vanguard Market Liquidity Fund, and records a liability
in the Statement of Assets and Liabilities for the return of the collateral,
during the period the securities are on loan. Collateral investments in Vanguard
Market Liquidity Fund are subject to market appreciation or depreciation.
Securities lending income represents fees charged to borrowers plus income
earned on invested cash collateral, less expenses associated with the loan.
During the term of the loan, the fund is entitled to all distributions made on
or in respect of the loaned securities.
7. Credit
Facilities and Interfund Lending Program: The fund and certain other funds
managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion
committed credit facility provided by a syndicate of lenders pursuant to a
credit agreement and an uncommitted credit facility provided by Vanguard. Both
facilities may be renewed annually. Each fund is individually liable for its
borrowings, if any, under the credit facilities. Borrowings may be utilized for
temporary or emergency purposes, subject to the fund’s regulatory and
contractual borrowing restrictions. With respect to the committed credit
facility, the participating funds are charged administrative fees and an annual
commitment fee of 0.10% of the undrawn committed amount of the facility; these
fees are allocated to the funds based on a method approved by the fund’s board
of trustees and included in Management and Administrative expenses on the fund’s
Statement of Operations. Any borrowings under either facility bear interest at a
rate based upon the higher of the one-month London Interbank
117
Utilities
Index Fund
Offered
Rate (or an acceptable alternate rate, if necessary), federal funds effective
rate, or overnight bank funding rate plus an agreed-upon spread, except that
borrowings under the uncommitted credit facility may bear interest based upon an
alternate rate agreed to by the fund and Vanguard.
In
accordance with an exemptive order (the “Order”) from the SEC, the fund may
participate in a joint lending and borrowing program that allows registered
open-end Vanguard funds to borrow money from and lend money to each other for
temporary or emergency purposes (the “Interfund Lending Program”), subject to
compliance with the terms and conditions of the Order, and to the extent
permitted by the fund’s investment objective and investment policies. Interfund
loans and borrowings normally extend overnight, but can have a maximum duration
of seven days. Loans may be called on one business day’s notice. The interest
rate to be charged is governed by the conditions of the Order and internal
procedures adopted by the board of trustees. The board of trustees is
responsible for overseeing the Interfund Lending Program.
For
the six months ended February 28, 2022, the fund did not utilize the credit
facilities or the Interfund Lending Program.
8. Other:
Dividend income is recorded on the ex-dividend date. Non-cash dividends included
in income, if any, are recorded at the fair value of the securities received.
Interest income includes income distributions received from Vanguard Market
Liquidity Fund and is accrued daily. Security transactions are accounted for on
the date securities are bought or sold. Costs used to determine realized gains
(losses) on the sale of investment securities are those of the specific
securities sold.
Each
class of shares has equal rights as to assets and earnings, except that each
class separately bears certain class-specific expenses related to maintenance of
shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each
class of shares based on a method approved by the board of trustees. Income,
other non-class-specific expenses, and gains and losses on investments are
allocated to each class of shares based on its relative net assets.
| B. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
Upon
the request of Vanguard, the fund may invest up to 0.40% of its net assets as
capital in Vanguard. At February 28, 2022, the fund had contributed to Vanguard
capital in the amount of $243,000, representing less than 0.01% of the fund’s
net assets and 0.10% of Vanguard’s capital received pursuant to the FSA. The
fund’s trustees and officers are also directors and employees, respectively, of
Vanguard.
| C. | Various inputs may be used to determine the value of the fund’s investments and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. |
Level
1—Quoted prices in active markets for
identical securities.
Level
2—Other significant observable inputs
(including quoted prices for similar securities, interest rates, prepayment
speeds, credit risk, etc.).
Level
3—Significant unobservable inputs (including
the fund’s own assumptions used to determine the fair value of investments). Any
investments and derivatives valued with significant unobservable inputs are
noted on the Schedule of Investments.
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Utilities
Index Fund
The
following table summarizes the market value of the fund’s investments and
derivatives as of February 28, 2022, based on the inputs used to value
them:
| Level
1 ($000) |
Level
2 ($000) |
Level
3 ($000) |
Total ($000) | |
| Investments | ||||
| Assets | ||||
| Common Stocks | 7,107,848 | — | — | 7,107,848 |
| Temporary Cash Investments | 884 | — | — | 884 |
| Total | 7,108,732 | — | — | 7,108,732 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Swap Contracts | — | 157 | — | 157 |
| Liabilities | ||||
| Swap Contracts | — | 1 | — | 1 |
| D. | As of February 28, 2022, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows: |
| Amount ($000) | |
| Tax Cost | 6,419,756 |
| Gross Unrealized Appreciation | 804,889 |
| Gross Unrealized Depreciation | (115,913) |
| Net Unrealized Appreciation (Depreciation) | 688,976 |
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, 2021, the fund had available
capital losses totaling $174,481,000 that may be carried forward indefinitely to
offset future net capital gains. The fund will use these capital losses to
offset net taxable capital gains, if any, realized during the year ending August
31, 2022; should the fund realize net capital losses for the year, the losses
will be added to the loss carryforward balance above.
| E. | During the six months ended February 28, 2022, the fund purchased $939,644,000 of investment securities and sold $468,329,000 of investment securities, other than temporary cash investments. Purchases and sales include $736,847,000 and $420,160,000, respectively, in connection with in-kind purchases and redemptions of the fund's capital shares. |
The
fund purchased securities from and sold securities to other Vanguard funds or
accounts managed by Vanguard or its affiliates, in accordance with procedures
adopted by the board of trustees in compliance with Rule 17a-7 of the Investment
Company Act of 1940. For the six months ended February 28, 2022, such purchases
were $161,000 and sales were $8,002,000, resulting in net realized gain of
$109,000; these amounts, other than temporary cash investments, are included in
the purchases and sales of investment securities noted above.
| F. | Capital share transactions for each class of shares were: |
| Six Months Ended February 28, 2022 |
Year Ended August 31, 2021 | ||||
| Amount ($000) |
Shares (000) |
Amount ($000) |
Shares (000) | ||
| ETF Shares | |||||
| Issued | 831,569 | 5,646 | 1,157,689 | 8,423 | |
| Issued in Lieu of Cash Distributions | — | — | — | — | |
| Redeemed | (420,481) | (2,850) | (718,917) | (5,175) | |
| Net Increase (Decrease)—ETF Shares | 411,088 | 2,796 | 438,772 | 3,248 | |
| Admiral Shares | |||||
| Issued | 184,379 | 2,476 | 472,916 | 6,793 | |
| Issued in Lieu of Cash Distributions | 18,109 | 249 | 33,142 | 489 | |
| Redeemed | (140,985) | (1,900) | (413,171) | (5,940) | |
| Net Increase (Decrease)—Admiral Shares | 61,503 | 825 | 92,887 | 1,342 | |
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Utilities
Index Fund
| G. | Market disruptions associated with current geopolitical events have had a global impact, and uncertainty exists as to their implications. Such disruptions can adversely affect assets and thus performance of the fund; at this time, an aggregate effect on assets and performance cannot be reasonably estimated. Management is continuing to monitor these developments and evaluate impacts they may have on the fund. |
Management
has determined that no other events or transactions occurred subsequent to
February 28, 2022, that would require recognition or disclosure in these
financial statements.
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