Annual Report  |  January 31, 2021
Vanguard Real Estate Index Funds
Vanguard Real Estate Index Fund
Vanguard Real Estate II Index Fund

Contents

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Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.

Table of Contents
Your Fund’s Performance at a Glance
For the 12 months ended January 31, 2021, returns for Vanguard Real Estate Index Fund ranged from –5.88% for Investor Shares to –5.68% for Institutional Shares. Vanguard Real Estate II Index Fund returned –5.70%. The results were in line with those of the funds’ benchmark index.
The emergence of COVID-19 in early 2020 turned into a global health crisis, and aggressive attempts to contain it resulted in a sharp downturn in economic activity. Unemployment spiked, and sectors where social distancing isn’t possible were hit hard.
Stocks initially plummeted as infections surged, but they finished the 12 months significantly higher, thanks in part to rapid and robust monetary and fiscal action by policymakers and the rollout of COVID-19 vaccines late in the period.
Specialized real estate investment trusts (REITs), the funds’ largest holding, contributed most to their returns. Retail, residential, and office REITs were the main detractors for both funds.
For the 10 years ended January 31, 2021, average annual returns for the Real Estate Index Fund ranged from 8.18% for Investor Shares to 8.36% for Institutional Shares, in line with its benchmark’s return. The Real Estate Index II Fund launched in 2017 and doesn’t have a 10-year record.
Market Barometer
  Average Annual Total Returns
Periods Ended January 31, 2021
  One Year Three Years Five Years
Stocks      
Russell 1000 Index (Large-caps) 19.84% 12.48% 16.69%
Russell 2000 Index (Small-caps) 30.17 11.11 16.50
Russell 3000 Index (Broad U.S. market) 20.48 12.38 16.68
FTSE All-World ex US Index (International) 14.59 3.40 10.77
Bonds      
Bloomberg Barclays U.S. Aggregate Bond Index (Broad taxable market) 4.72% 5.49% 4.00%
Bloomberg Barclays Municipal Bond Index (Broad tax-exempt market) 4.01 5.28 3.79
FTSE Three-Month U.S. Treasury Bill Index 0.45 1.53 1.16
CPI      
Consumer Price Index 1.40% 1.81% 2.00%
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Table of Contents
About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund‘s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table illustrates your fund’s costs in two ways:
Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading ”Expenses Paid During Period.“
Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.
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Table of Contents
Six Months Ended January 31, 2021      
  Beginning
Account Value
7/31/2020
Ending
Account Value
1/31/2021
Expenses
Paid During
Period
Based on Actual Fund Return      
Real Estate Index Fund      
Investor Shares $1,000.00 $1,068.30 $1.35
ETF Shares 1,000.00 1,068.80 0.57
AdmiralTM Shares 1,000.00 1,069.10 0.57
Institutional Shares 1,000.00 1,069.40 0.47
Real Estate II Index Fund $1,000.00 $1,069.40 $0.42
Based on Hypothetical 5% Yearly Return      
Real Estate Index Fund      
Investor Shares $1,000.00 $1,023.88 $1.32
ETF Shares 1,000.00 1,024.58 0.56
Admiral Shares 1,000.00 1,024.58 0.56
Institutional Shares 1,000.00 1,024.68 0.46
Real Estate II Index Fund $1,000.00 $1,024.73 $0.41
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 Real Estate Index Fund, 0.26% for Investor Shares, 0.11% for ETF Shares, 0.11% for Admiral Shares, and 0.09% for Institutional Shares; and for the Real Estate II Index Fund, 0.08%. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period (184/366).
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Table of Contents
Real Estate Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Cumulative Performance: January 31, 2011, Through January 31, 2021
Initial Investment of $10,000
      Average Annual Total Returns
Periods Ended January 31, 2021
    One
Year
Five
Years
Ten
Years
Final Value
of a $10,000
Investment
 Real Estate Index Fund Investor Shares -5.88% 6.23% 8.18% $21,955
 Real Estate Spliced Index -5.64 6.48 8.42 22,450
 Dow Jones U.S. Total Stock Market Float Adjusted Index 20.55 16.64 13.46 35,343
Real Estate Spliced Index: MSCI US REIT Index adjusted to include a 2% cash position (Lipper Money Market Average) through April 30, 2009; MSCI US REIT Index through February 1, 2018; MSCI US Investable Market Real Estate 25/50 Transition Index through July 24, 2018; MSCI US Investable Market Real Estate 25/50 Index thereafter.
       
    One
Year
Five
Years
Ten
Years
Final Value
of a $10,000
Investment
Real Estate Index Fund
ETF Shares Net Asset Value
-5.80% 6.37% 8.32% $22,240
Real Estate Index Fund
ETF Shares Market Price
-5.85 6.38 8.32 22,233
Real Estate Spliced Index -5.64 6.48 8.42 22,450
Dow Jones U.S. Total Stock Market Float Adjusted Index 20.55 16.64 13.46 35,343
    
See Financial Highlights for dividend and capital gains information.
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Table of Contents
Real Estate Index Fund
      Average Annual Total Returns
Periods Ended January 31, 2021
    One
Year
Five
Years
Ten
Years
Final Value
of a $10,000
Investment
Real Estate Index Fund Admiral Shares -5.74% 6.38% 8.33% $22,264
Real Estate Spliced Index -5.64 6.48 8.42 22,450
Dow Jones U.S. Total Stock Market Float Adjusted Index 20.55 16.64 13.46 35,343
       
    One
Year
Five
Years
Ten
Years
Final Value
of a $5,000,000
Investment
Real Estate Index Fund Institutional Shares -5.68% 6.41% 8.36% $11,159,886
Real Estate Spliced Index -5.64 6.48 8.42 11,225,120
Dow Jones U.S. Total Stock Market Float Adjusted Index 20.55 16.64 13.46 17,671,413
Cumulative Returns of ETF Shares: January 31, 2011, Through January 31, 2021
  One
Year
Five
Years
Ten
Years
Real Estate Index Fund ETF Shares Market Price -5.85% 36.23% 122.33%
Real Estate Index Fund ETF Shares Net Asset Value -5.80 36.16 122.40
Real Estate Spliced Index -5.64 36.87 124.50
For the ETF Shares, the market price is determined by the midpoint of the bid-offer spread as of the closing time of the New York Stock Exchange (generally 4 p.m., Eastern time). The net asset value is also determined as of the NYSE closing time. For more information about how the ETF Shares' market prices have compared with their net asset value, visit vanguard.com, select your ETF, and then select the Price and Performance tab. The ETF premium/discount analysis there shows the percentages of days on which the ETF Shares' market price was above or below the NAV.
See Financial Highlights for dividend and capital gains information.
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Table of Contents
Real Estate Index Fund
Fund Allocation
As of January 31, 2021
Diversified Real Estate Activities 0.2%
Diversified REITs 3.6
Health Care REITs 8.8
Hotel & Resort REITs 3.1
Industrial REITs 11.0
Office REITs 7.5
Real Estate Development 0.3
Real Estate Operating Companies 0.2
Real Estate Services 3.5
Residential REITs 13.6
Retail REITs 9.3
Specialized REITs 38.9
The table reflects the fund’s investments, except for short-term investments and derivatives. Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” category (if applicable), which includes securities that have not been provided a GICS classification as of the effective reporting period.
The fund may invest in derivatives (such as futures and swap contracts) for various reasons, including, but not limited to, attempting to remain fully invested and tracking its target index as closely as possible.
The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party involved in making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
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Table of Contents
Real Estate Index Fund
Financial Statements
Schedule of Investments
As of January 31, 2021
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.
          Shares Market
Value

($000)
Equity Real Estate Investment Trusts (REITs) (96.1%)
Diversified REITs (3.2%)
WP Carey Inc.   7,776,388    516,352
VEREIT Inc.   9,640,598    339,638
STORE Capital Corp.  10,766,448    333,975
PS Business Parks Inc.     921,581    125,446
Colony Capital Inc.  21,555,230    106,914
Essential Properties Realty Trust Inc.   4,157,789     86,565
Washington REIT   3,680,270     80,745
Global Net Lease Inc.   3,999,761     64,436
Empire State Realty Trust Inc. Class A   6,533,622     64,422
American Assets Trust Inc.   2,284,536     63,122
iStar Inc.   3,360,261     51,009
Alexander & Baldwin Inc.   3,076,276     46,513
Armada Hoffler Properties Inc.   2,587,655     27,817
Gladstone Commercial Corp.   1,523,366     26,979
One Liberty Properties Inc.     735,955     14,749
                     1,948,682
Health Care REITs (7.7%)
Welltower Inc.  18,659,538  1,130,768
Ventas Inc.  16,682,668    768,571
Healthpeak Properties Inc.  24,071,319    713,715
Medical Properties Trust Inc.  25,640,709    541,275
Omega Healthcare Investors Inc.  10,149,089    367,600
Healthcare Trust of America Inc. Class A   9,773,441    276,100
Healthcare Realty Trust Inc.   6,084,068    182,583
Physicians Realty Trust   9,307,942    164,099
Sabra Health Care REIT Inc.   9,191,874    154,332
National Health Investors Inc.   1,996,460    129,450
CareTrust REIT Inc.   4,279,495     96,117
LTC Properties Inc.   1,755,712     67,841
          Shares Market
Value

($000)
Community Healthcare Trust Inc.     964,498     43,132
Diversified Healthcare Trust  10,628,958     42,728
Universal Health Realty Income Trust     584,347     34,874
Global Medical REIT Inc.   1,967,643     24,674
New Senior Investment Group Inc.   3,717,699     19,704
                     4,757,563
Hotel & Resort REITs (2.7%)
Host Hotels & Resorts Inc.  31,531,814    427,256
MGM Growth Properties LLC Class A   5,878,402    183,112
Park Hotels & Resorts Inc.  10,535,382    175,730
Ryman Hospitality Properties Inc.   2,335,644    151,466
Apple Hospitality REIT Inc.   9,481,586    118,330
Pebblebrook Hotel Trust   5,850,997    107,541
Sunstone Hotel Investors Inc.   9,639,918    103,147
RLJ Lodging Trust   7,380,391     95,281
Service Properties Trust   7,356,045     78,048
Xenia Hotels & Resorts Inc.   5,082,696     73,547
* DiamondRock Hospitality Co.   8,916,297     73,114
Summit Hotel Properties Inc.   4,730,220     38,315
Chatham Lodging Trust   2,103,034     22,523
CorePoint Lodging Inc.   1,817,455     12,377
* Hersha Hospitality Trust Class A   1,556,156     11,889
                     1,671,676
Industrial REITs (9.7%)
Prologis Inc.  33,033,488  3,409,056
Duke Realty Corp.  16,569,407    655,486
Americold Realty Trust   9,103,671    317,809
Rexford Industrial Realty Inc.   5,534,252    270,846
EastGroup Properties Inc.   1,758,346    237,623
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Table of Contents
Real Estate Index Fund
          Shares Market
Value

($000)
First Industrial Realty Trust Inc.   5,686,648    231,106
STAG Industrial Inc.   6,666,683    198,667
Innovative Industrial Properties Inc.     970,522    181,604
Terreno Realty Corp.   3,055,511    172,881
Lexington Realty Trust  12,375,630    126,850
Monmouth Real Estate Investment Corp.   4,164,294     72,167
Industrial Logistics Properties Trust   2,916,068     61,850
                     5,935,945
Office REITs (6.6%)
Alexandria Real Estate Equities Inc.   5,639,110    942,352
Boston Properties Inc.   6,611,284    603,412
Vornado Realty Trust   7,265,725    288,885
Kilroy Realty Corp.   4,635,522    262,510
1 SL Green Realty Corp.   3,275,568    221,035
Douglas Emmett Inc.   7,842,536    217,317
Cousins Properties Inc.   6,643,927    209,549
Highwoods Properties Inc.   4,645,818    174,172
JBG SMITH Properties   5,384,142    160,771
Hudson Pacific Properties Inc.   6,857,382    160,737
Equity Commonwealth   5,434,619    154,941
Corporate Office Properties Trust   5,016,094    131,773
Piedmont Office Realty Trust Inc. Class A   5,633,019     86,636
Brandywine Realty Trust   7,624,310     83,867
Easterly Government Properties Inc.   3,561,171     78,168
Paramount Group Inc.   7,936,496     70,555
Columbia Property Trust Inc.   5,114,265     69,554
Mack-Cali Realty Corp.   4,056,754     51,642
Office Properties Income Trust   2,156,930     49,911
Franklin Street Properties Corp.   4,806,670     19,755
City Office REIT Inc.   1,942,682     18,300
*,2 New York REIT Liquidating LLC       1,208         15
                     4,055,857
Other (12.0%)3
4,5 Vanguard Real Estate II Index Fund 360,944,844  7,399,530
Residential REITs (11.9%)
AvalonBay Communities Inc.   6,293,344  1,030,032
Equity Residential  16,643,445  1,025,902
Invitation Homes Inc.  25,064,721    738,908
Essex Property Trust Inc.   2,915,878    698,674
Mid-America Apartment Communities Inc.   5,113,831    678,861
Sun Communities Inc.   4,394,239    628,947
          Shares Market
Value

($000)
UDR Inc.  13,194,168    507,316
Equity LifeStyle Properties Inc.   7,737,708    470,762
Camden Property Trust   4,355,080    444,871
American Homes 4 Rent Class A  12,621,180    381,538
* Apartment Income REIT Corp.   6,657,599    258,115
American Campus Communities Inc.   6,154,911    253,336
Independence Realty Trust Inc.   4,238,884     56,292
Centerspace     573,149     40,086
NexPoint Residential Trust Inc.     868,758     34,290
Apartment Investment & Management Co. Class A   6,660,101     30,570
UMH Properties Inc.   1,665,426     24,482
Preferred Apartment Communities Inc. Class A   2,257,410     16,231
                     7,319,213
Retail REITs (8.1%)
Simon Property Group Inc.  14,538,420  1,351,055
Realty Income Corp.  15,428,396    911,201
Regency Centers Corp.   7,585,383    357,878
Kimco Realty Corp.  19,340,432    319,311
National Retail Properties Inc.   7,758,778    302,592
Federal Realty Investment Trust   3,213,254    281,353
Brixmor Property Group Inc.  13,258,310    224,463
Spirit Realty Capital Inc.   4,607,596    177,669
Agree Realty Corp.   2,408,143    152,195
Weingarten Realty Investors   5,440,995    122,477
Retail Properties of America Inc. Class A   9,576,361     88,198
1 Macerich Co.   5,013,674     78,715
SITE Centers Corp.   6,906,640     76,595
Retail Opportunity Investments Corp.   5,269,952     74,254
Urban Edge Properties   5,214,774     71,912
1 Tanger Factory Outlet Centers Inc.   4,178,433     64,473
Kite Realty Group Trust   3,767,825     60,059
Acadia Realty Trust   3,859,599     55,964
Getty Realty Corp.   1,592,818     42,321
American Finance Trust Inc. Class A   4,848,399     35,296
RPT Realty   3,622,374     33,507
Alexander's Inc.     102,892     27,493
*,1 Seritage Growth Properties Class A   1,246,888     22,207
Saul Centers Inc.     623,895     18,673
Urstadt Biddle Properties Inc. Class A   1,328,941     18,379
Whitestone REIT   1,701,182     13,269
 
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Table of Contents
Real Estate Index Fund
          Shares Market
Value

($000)
1 Washington Prime Group Inc.     932,611     13,150
Retail Value Inc.     812,201     12,678
*,2 Spirit MTA REIT   2,071,263        554
Urstadt Biddle Properties Inc.      16,033        192
                     5,008,083
Specialized REITs (34.2%)
American Tower Corp.  19,833,871  4,509,429
Crown Castle International Corp.  19,285,185  3,071,359
Equinix Inc.   3,959,759  2,930,063
Digital Realty Trust Inc.  12,027,892  1,731,415
Public Storage   7,034,525  1,601,199
SBA Communications Corp. Class A   5,005,249  1,344,760
Weyerhaeuser Co.  33,369,231  1,040,786
Extra Space Storage Inc.   5,771,241    656,709
VICI Properties Inc.  23,863,088    603,259
1 Iron Mountain Inc.  12,884,208    433,811
Gaming & Leisure Properties Inc.   9,482,753    390,026
CyrusOne Inc.   5,225,301    381,186
Lamar Advertising Co. Class A   3,863,104    312,061
CubeSmart   8,662,145    301,789
Life Storage Inc.   3,146,282    256,674
CoreSite Realty Corp.   1,901,494    255,637
Rayonier Inc.   6,104,800    187,723
QTS Realty Trust Inc. Class A   2,741,579    178,477
PotlatchDeltic Corp.   2,990,319    142,818
EPR Properties   3,335,948    132,237
Outfront Media Inc.   6,456,684    117,705
National Storage Affiliates Trust   3,075,418    112,376
Uniti Group Inc.   8,245,420    101,501
Four Corners Property Trust Inc.   3,143,833     82,871
1 GEO Group Inc.   5,425,762     48,506
1 Safehold Inc.     570,804     42,000
CatchMark Timber Trust Inc. Class A   2,181,376     19,894
                    20,986,271
Total Equity Real Estate Investment Trusts (REITs) (Cost $54,797,767) 59,082,820
Real Estate Management & Development (3.8%)
Diversified Real Estate Activities (0.2%)
St. Joe Co.   1,448,962     64,479
RMR Group Inc. Class A     683,589     25,211
* Tejon Ranch Co.     995,662     15,861
* Five Point Holdings LLC Class A   2,313,879     14,577
                       120,128
          Shares Market
Value

($000)
Real Estate Development (0.3%)
* Howard Hughes Corp.   1,843,057    158,816
* Forestar Group Inc.     752,758     16,177
                       174,993
Real Estate Operating Companies (0.2%)
Kennedy-Wilson Holdings Inc.   5,772,527     99,230
* FRP Holdings Inc.     277,274     11,975
                       111,205
Real Estate Services (3.1%)
* CBRE Group Inc. Class A  14,992,474    914,241
* Jones Lang LaSalle Inc.   2,315,623    338,567
* Redfin Corp.   3,876,063    276,015
* eXp World Holdings Inc.   1,225,361    130,611
* Realogy Holdings Corp.   5,159,209     73,261
*,1 Cushman & Wakefield plc   4,934,981     70,718
Newmark Group Inc. Class A   6,703,999     45,319
* Marcus & Millichap Inc.   1,054,591     37,681
RE/MAX Holdings Inc. Class A     809,171     29,308
* Altisource Portfolio Solutions SA     248,265      2,515
                     1,918,236
Total Real Estate Management & Development (Cost $2,115,832) 2,324,562
 
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          Shares Market
Value

($000)
Temporary Cash Investments (0.6%)
Money Market Fund (0.6%)
6,7 Vanguard Market Liquidity Fund, 0.107%
(Cost $353,639)
  3,537,135           353,714
Total Investments (100.5%)
(Cost $57,267,238)
  61,761,096
Other Assets and Liabilities—Net (-0.5%)   (329,923)
Net Assets (100%)   61,431,173
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 $158,271,000.
2 Security value determined using significant unobservable inputs.
3 “Other” represents securities that are not classified by the fund’s benchmark index.
4 Considered an affiliated company of the fund as the issuer is another member of The Vanguard Group.
5 Represents a wholly owned subsidiary of the fund. See accompanying financial statements for Vanguard Real Estate II Index Fund's Schedule of Investments.
6 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
7 Collateral of $180,031,000 was received for securities on loan, of which $178,498,000 is held in Vanguard Market Liquidity Fund and $1,533,000 is held in cash.
  REIT—Real Estate Investment Trust.

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)
Redfin Corp. 2/2/22 GSI 24,924 (0.120)
Seritage Growth Properties 2/2/22 GSI 7,053 (0.120)
         
1 Based on 1M USD London Interbank Offered Rate (LIBOR) as of the most recent payment date. Floating interest payment received/paid monthly.
  1M—1-month.
  GSI—Goldman Sachs International.
At January 31, 2021, the counterparties had deposited in segregated accounts securities with a value of $6,232,000 in connection with open over-the-counter swap contracts.
See accompanying Notes, which are an integral part of the Financial Statements.
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Real Estate Index Fund
Statement of Assets and Liabilities
As of January 31, 2021
($000s, except shares and per-share amounts) Amount
Assets  
Investments in Securities, at Value  
Unaffiliated Issuers (Cost $50,011,001) 54,007,852
Affiliated Issuers (Cost $353,639) 353,714
Vanguard Real Estate II Index Fund (Cost $6,902,598) 7,399,530
Total Investments in Securities 61,761,096
Investment in Vanguard 2,026
Cash 1,533
Receivables for Investment Securities Sold 79,898
Receivables for Accrued Income 50,314
Receivables for Capital Shares Issued 34,702
Total Assets 61,929,569
Liabilities  
Due to Custodian 76,627
Payables for Investment Securities Purchased 202,193
Collateral for Securities on Loan 180,031
Payables for Capital Shares Redeemed 37,830
Payables to Vanguard 1,715
Total Liabilities 498,396
Net Assets 61,431,173
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At January 31, 2021, net assets consisted of:  
($000s, except shares and per-share amounts) Amount
Paid-in Capital 59,473,564
Total Distributable Earnings (Loss) 1,957,609
Net Assets 61,431,173
 
Investor Shares—Net Assets  
Applicable to 6,648,554 outstanding $.001 par value shares of
beneficial interest (unlimited authorization)
187,676
Net Asset Value Per Share—Investor Shares $28.23
 
ETF Shares—Net Assets  
Applicable to 377,418,490 outstanding $.001 par value shares of
beneficial interest (unlimited authorization)
32,064,085
Net Asset Value Per Share—ETF Shares $84.96
 
Admiral Shares—Net Assets  
Applicable to 163,631,114 outstanding $.001 par value shares of
beneficial interest (unlimited authorization)
19,701,837
Net Asset Value Per Share—Admiral Shares $120.40
 
Institutional Shares—Net Assets  
Applicable to 508,580,470 outstanding $.001 par value shares of
beneficial interest (unlimited authorization)
9,477,575
Net Asset Value Per Share—Institutional Shares $18.64
See accompanying Notes, which are an integral part of the Financial Statements.
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Statement of Operations
  Year Ended
January 31, 2021
  ($000)
Investment Income  
Income  
Dividends—Unaffiliated Issuers 1,246,865
Dividends—Affiliated Issuers 1,380
Dividends—Vanguard Real Estate II Index Fund 163,444
Interest—Unaffiliated Issuers
Interest—Affiliated Issuers 651
Securities Lending—Net 7,817
Total Income 1,420,157
Expenses  
The Vanguard Group—Note B  
Investment Advisory Services 2,729
Management and Administrative—Investor Shares 448
Management and Administrative—ETF Shares 30,168
Management and Administrative—Admiral Shares 19,713
Management and Administrative—Institutional Shares 7,559
Marketing and Distribution—Investor Shares 25
Marketing and Distribution—ETF Shares 1,423
Marketing and Distribution—Admiral Shares 1,045
Marketing and Distribution—Institutional Shares 271
Custodian Fees 332
Auditing Fees 39
Shareholders’ Reports—Investor Shares 7
Shareholders’ Reports—ETF Shares 931
Shareholders’ Reports—Admiral Shares 275
Shareholders’ Reports—Institutional Shares 95
Trustees’ Fees and Expenses 29
Total Expenses 65,089
Expenses Paid Indirectly (204)
Net Expenses 64,885
Net Investment Income 1,355,272
Realized Net Gain (Loss)  
Capital Gain Distributions Received—Unaffiliated Issuers 454,854
Capital Gain Distributions Received—Affiliated Issuers 6,418
Capital Gain Distributions Received—Vanguard Real Estate II Index Fund
Investment Securities Sold—Unaffiliated Issuers1 604,279
Investment Securities Sold—Affiliated Issuers1 (46,775)
Investment Securities Sold—Vanguard Real Estate II Index Fund
Futures Contracts (3,901)
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Statement of Operations (continued)
  Year Ended
January 31, 2021
  ($000)
Swap Contracts 45,925
Realized Net Gain (Loss) 1,060,800
Change in Unrealized Appreciation (Depreciation)  
Investment Securities—Unaffiliated Issuers (7,111,833)
Investment Securities—Affiliated Issuers (76,047)
Investment Securities—Vanguard Real Estate II Index Fund (611,535)
Swap Contracts 1,451
Change in Unrealized Appreciation (Depreciation) (7,797,964)
Net Increase (Decrease) in Net Assets Resulting from Operations (5,381,892)
1 Includes $2,132,105,000 of the net gain (loss) resulting from in-kind redemptions.
See accompanying Notes, which are an integral part of the Financial Statements.
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Statement of Changes in Net Assets
  Year Ended January 31,
  2021
($000)
2020
($000)
Increase (Decrease) in Net Assets    
Operations    
Net Investment Income 1,355,272 1,726,391
Realized Net Gain (Loss) 1,060,800 2,458,391
Change in Unrealized Appreciation (Depreciation) (7,797,964) 5,911,672
Net Increase (Decrease) in Net Assets Resulting from Operations (5,381,892) 10,096,454
Distributions1    
Net Investment Income    
Investor Shares (4,393) (22,650)
ETF Shares (714,428) (921,879)
Admiral Shares (458,678) (554,006)
Institutional Shares (213,294) (244,373)
Return of Capital    
Investor Shares (3,129) (7,475)
ETF Shares (508,885) (304,249)
Admiral Shares (326,715) (182,839)
Institutional Shares (151,929) (80,651)
Total Distributions (2,381,451) (2,318,122)
Capital Share Transactions    
Investor Shares (29,761) (1,748,144)
ETF Shares (1,176,383) 2,721,882
Admiral Shares (1,182,290) 2,583,346
Institutional Shares 356,671 734,197
Net Increase (Decrease) from Capital Share Transactions (2,031,763) 4,291,281
Total Increase (Decrease) (9,795,106) 12,069,613
Net Assets    
Beginning of Period 71,226,279 59,156,666
End of Period 61,431,173 71,226,279
1 Certain prior-period numbers have been reclassified to conform with the current-period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
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Financial Highlights
Investor Shares          
For a Share Outstanding
Throughout Each Period
Year Ended January 31,
2021 2020 2019 2018 2017
Net Asset Value, Beginning of Period $31.21 $27.69 $26.40 $27.38 $25.59
Investment Operations          
Net Investment Income .5861 .7191 .7871 .7611 .746
Net Realized and Unrealized Gain (Loss) on Investments (2.498) 3.801 1.639 (.614) 2.324
Total from Investment Operations (1.912) 4.520 2.426 .147 3.070
Distributions          
Dividends from Net Investment Income (.624) (.752) (.851) (.788) (.752)
Distributions from Realized Capital Gains (.011) (.187)
Return of Capital (.444) (.248) (.285) (.328) (.341)
Total Distributions (1.068) (1.000) (1.136) (1.127) (1.280)
Net Asset Value, End of Period $28.23 $31.21 $27.69 $26.40 $27.38
Total Return2 -5.88% 16.59% 9.53% 0.45% 12.07%
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $188 $243 $1,871 $2,143 $2,603
Ratio of Total Expenses to Average Net Assets 0.26% 0.26% 0.25% 0.26% 0.26%
Ratio of Net Investment Income to Average Net Assets 2.18% 2.48% 3.02% 2.87% 2.60%
Portfolio Turnover Rate3 8% 6% 24% 6% 7%
1 Calculated based on average shares outstanding.
2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
3 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
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Financial Highlights
ETF Shares          
For a Share Outstanding
Throughout Each Period
Year Ended January 31,
2021 2020 2019 2018 2017
Net Asset Value, Beginning of Period $93.93 $83.36 $79.47 $82.43 $77.05
Investment Operations          
Net Investment Income 1.8891 2.3351 2.4871 2.4991 2.334
Net Realized and Unrealized Gain (Loss) on Investments (7.525) 11.379 4.934 (1.945) 7.022
Total from Investment Operations (5.636) 13.714 7.421 .554 9.356
Distributions          
Dividends from Net Investment Income (1.947) (2.364) (2.646) (2.458) (2.353)
Distributions from Realized Capital Gains (.034) (.563)
Return of Capital (1.387) (.780) (.885) (1.022) (1.060)
Total Distributions (3.334) (3.144) (3.531) (3.514) (3.976)
Net Asset Value, End of Period $84.96 $93.93 $83.36 $79.47 $82.43
Total Return -5.80% 16.70% 9.70% 0.59% 12.25%
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $32,064 $37,682 $30,857 $32,377 $33,527
Ratio of Total Expenses to Average Net Assets 0.12% 0.12% 0.12% 0.12% 0.12%
Ratio of Net Investment Income to Average Net Assets 2.33% 2.60% 3.15% 3.01% 2.74%
Portfolio Turnover Rate2 8% 6% 24% 6% 7%
1 Calculated based on average shares outstanding.
2 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
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Financial Highlights
Admiral Shares          
For a Share Outstanding
Throughout Each Period
Year Ended January 31,
2021 2020 2019 2018 2017
Net Asset Value, Beginning of Period $133.12 $118.14 $112.63 $116.83 $109.19
Investment Operations          
Net Investment Income 2.6771 3.3151 3.5071 3.5381 3.306
Net Realized and Unrealized Gain (Loss) on Investments (10.672) 16.121 7.008 (2.761) 9.966
Total from Investment Operations (7.995) 19.436 10.515 .777 13.272
Distributions          
Dividends from Net Investment Income (2.759) (3.350) (3.751) (3.483) (3.333)
Distributions from Realized Capital Gains (.048) (.798)
Return of Capital (1.966) (1.106) (1.254) (1.447) (1.501)
Total Distributions (4.725) (4.456) (5.005) (4.978) (5.632)
Net Asset Value, End of Period $120.40 $133.12 $118.14 $112.63 $116.83
Total Return2 -5.74% 16.73% 9.69% 0.58% 12.23%
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $19,702 $23,274 $18,223 $17,757 $18,337
Ratio of Total Expenses to Average Net Assets 0.12% 0.12% 0.11% 0.12% 0.12%
Ratio of Net Investment Income to Average Net Assets 2.33% 2.60% 3.16% 3.01% 2.74%
Portfolio Turnover Rate3 8% 6% 24% 6% 7%
1 Calculated based on average shares outstanding.
2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.
3 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
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Financial Highlights
Institutional Shares          
For a Share Outstanding
Throughout Each Period
Year Ended January 31,
2021 2020 2019 2018 2017
Net Asset Value, Beginning of Period $20.60 $18.28 $17.43 $18.08 $16.90
Investment Operations          
Net Investment Income .4211 .5181 .5431 .5681 .515
Net Realized and Unrealized Gain (Loss) on Investments (1.646) 2.496 1.085 (.444) 1.540
Total from Investment Operations (1.225) 3.014 1.628 .124 2.055
Distributions          
Dividends from Net Investment Income (.429) (.522) (.583) (.542) (.519)
Distributions from Realized Capital Gains (.007) (.123)
Return of Capital (.306) (.172) (.195) (.225) (.233)
Total Distributions (.735) (.694) (.778) (.774) (.875)
Net Asset Value, End of Period $18.64 $20.60 $18.28 $17.43 $18.08
Total Return -5.68% 16.77% 9.70% 0.60% 12.23%
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $9,478 $10,027 $8,206 $8,176 $7,799
Ratio of Total Expenses to Average Net Assets 0.10% 0.10% 0.09% 0.10% 0.10%
Ratio of Net Investment Income to Average Net Assets 2.37% 2.63% 3.18% 3.03% 2.76%
Portfolio Turnover Rate2 8% 6% 24% 6% 7%
1 Calculated based on average shares outstanding.
2 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
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Notes to Financial Statements
Vanguard Real Estate Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers four classes of shares: Investor Shares, ETF Shares, Admiral Shares, and Institutional 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.
As a part of its principal investment strategy, the fund attempts to replicate its benchmark index by investing all, or substantially all, of its assets—either directly or indirectly through a wholly owned subsidiary—in the stocks that make up the index. Vanguard Real Estate II Index Fund is the wholly owned subsidiary in which the fund has invested a portion of its assets. For additional financial information about the Real Estate II Index Fund, refer to the accompanying financial statements.
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 affiliated Vanguard funds 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
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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 year ended January 31, 2021, 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 January 31, 2021.
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 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 year ended January 31, 2021, 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.
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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. The portion of distributions that exceed a fund's current and accumulated earnings and profits, as measured on a tax basis, constitute a non-taxable return of capital. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
6. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled before the opening of the market on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the event of a default, the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Assets and Liabilities for the return of the collateral, during the period the securities are on loan. Collateral investments in Vanguard Market Liquidity Fund are subject to market appreciation or depreciation. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
7. Credit Facilities and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be utilized for temporary or emergency purposes, subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under either facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread, except that borrowings under the uncommitted credit facility may bear interest based upon an alternative rate agreed to by the fund and Vanguard.
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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 year ended January 31, 2021, the fund did not utilize the credit facilities or the Interfund Lending Program.
8. Other: Distributions received from investment securities are recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at the fair value of the securities received. Each investment security reports annually the tax character of its distributions. Dividend income, capital gain distributions received, and unrealized appreciation (depreciation) reflect the amounts of taxable income, capital gain, and return of capital reported by the investment securities, and management’s estimates of such amounts for investment security distributions for which actual information has not been reported. Income, capital gain, and return of capital distributions received from affiliated Vanguard funds are recorded on ex-dividend date.
Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees 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 January 31, 2021, the fund had contributed to Vanguard capital in the amount of $2,026,000, representing less than 0.01% of the fund’s net assets and 0.81% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
C. The fund’s custodian bank has agreed to reduce its fees when the fund maintains cash on deposit in the non-interest-bearing custody account. For the year ended January 31, 2021, custodian fee offset arrangements reduced the fund’s expenses by $204,000 (an annual rate of less than 0.01% of average net assets).
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D. 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 January 31, 2021, based on the inputs used to value them:
  Level 1
($000)
Level 2
($000)
Level 3
($000)
Total
($000)
Investments        
Assets        
Common Stocks 61,406,813 569 61,407,382
Temporary Cash Investments 353,714 353,714
Total 61,760,527 569 61,761,096
Derivative Financial Instruments        
Assets        
Swap Contracts
E. Permanent differences between book-basis and tax-basis components of net assets are reclassified among capital accounts in the financial statements to reflect their tax character. These reclassifications have no effect on net assets or net asset value per share. As of period end, permanent differences primarily attributable to the accounting for in-kind redemptions and swap agreements were reclassified between the following accounts:
  Amount
($000)
Paid-in Capital 2,137,973
Total Distributable Earnings (Loss) (2,137,973)
Temporary differences between book-basis and tax-basis components of total distributable earnings (loss) arise when certain items of income, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. The differences are primarily related to the deferral of losses from wash sales; and the
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classification of securities for tax purposes. As of period end, the tax-basis components of total distributable earnings (loss) are detailed in the table as follows:
  Amount
($000)
Undistributed Ordinary Income
Undistributed Long-Term Gains
Capital Loss Carryforwards (2,472,556)
Qualified Late-Year Losses
Net Unrealized Gains (Losses) 4,333,696
The tax character of distributions paid was as follows:
  Year Ended
January 31,
  2021
Amount
($000)
2020
Amount
($000)
Ordinary Income* 1,390,793 1,742,908
Long-Term Capital Gains
Return of Capital 990,658 575,214
Total 2,381,451 2,318,122
* Includes short-term capital gains, if any.
As of January 31, 2021, gross unrealized appreciation and depreciation for investments based on cost for U.S. federal income tax purposes were as follows:
  Amount
($000)
Tax Cost 57,427,400
Gross Unrealized Appreciation 10,849,531
Gross Unrealized Depreciation (6,515,835)
Net Unrealized Appreciation (Depreciation) 4,333,696
F. During the year ended January 31, 2021, the fund purchased $12,507,494,000 of investment securities and sold $14,453,946,000 of investment securities, other than temporary cash investments. Purchases and sales include $8,100,287,000 and $9,386,227,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
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G. Capital share transactions for each class of shares were:
    
  Year Ended
January 31,
  2021   2020
  Amount
($000)
Shares
(000)
  Amount
($000)
Shares
(000)
Investor Shares          
Issued 16,000 586   395,906 13,631
Issued in Lieu of Cash Distributions 7,522 282   28,280 981
Redeemed1 (53,283) (2,013)   (2,172,330) (74,391)
Net Increase (Decrease)—Investor Shares (29,761) (1,145)   (1,748,144) (59,779)
ETF Shares          
Issued 8,299,471 100,643   10,501,566 118,494
Issued in Lieu of Cash Distributions  
Redeemed (9,475,854) (124,400)   (7,779,684) (87,500)
Net Increase (Decrease)—ETF Shares (1,176,383) (23,757)   2,721,882 30,994
Admiral Shares          
Issued1 3,229,939 28,465   5,327,904 42,120
Issued in Lieu of Cash Distributions 688,666 6,053   647,759 5,156
Redeemed (5,100,895) (45,719)   (3,392,317) (26,697)
Net Increase (Decrease)—Admiral Shares (1,182,290) (11,201)   2,583,346 20,579
Institutional Shares          
Issued 1,959,562 112,493   2,004,257 102,367
Issued in Lieu of Cash Distributions 343,567 19,520   306,680 15,790
Redeemed (1,946,458) (110,090)   (1,576,740) (80,293)
Net Increase (Decrease)—Institutional Shares 356,671 21,923   734,197 37,864
1 In November 2018, the fund announced changes to the availability and minimum investment criteria of the Investor and Admiral share classes. As a result, all of the outstanding Investor Shares automatically converted to Admiral Shares beginning in April 2019, with the exception of those held by Vanguard funds and certain other institutional investors. Investor Shares—Redeemed and Admiral Shares—Issued include 57,968,000 and 13,589,000 shares, respectively, in the amount of $1,688,895,000 from the conversion during the year ended January 31, 2020.
H. Certain of the fund’s investments are in companies that are considered to be affiliated companies of the fund because the fund owns more than 5% of the outstanding voting securities of the company or the issuer is another member of The Vanguard Group. Transactions during the period in securities of these companies were as follows:
    Current Period Transactions  
  Jan. 31, 2020
Market Value
($000)
Purchases
at Cost
($000)
Proceeds
from
Securities
Sold1
($000)
Realized
Net Gain
(Loss)
($000)
Change in
Unrealized
App. (Dep.)
($000)
Income
($000)
Capital Gain
Distributions
Received
($000)
Jan. 31, 2021
Market Value
($000)
City Office REIT Inc. NA2 3,574 10,735 (3,318) (7,225) 1,018 NA2
Host Hotels & Resorts Inc. 586,395 79,820 126,471 (42,789) (69,699) 362 6,418 NA3
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    Current Period Transactions  
  Jan. 31, 2020
Market Value
($000)
Purchases
at Cost
($000)
Proceeds
from
Securities
Sold1
($000)
Realized
Net Gain
(Loss)
($000)
Change in
Unrealized
App. (Dep.)
($000)
Income
($000)
Capital Gain
Distributions
Received
($000)
Jan. 31, 2021
Market Value
($000)
Vanguard Market Liquidity Fund 561,293 NA4 NA4 202 7 651 353,714
Vanguard Real Estate II Index Fund 7,847,621 282,501 (611,535) 163,444 7,399,530
Winthrop Realty Trust (870) 870
Total 8,995,309 365,895 137,206 (46,775) (687,582) 165,475 6,418 7,753,244
1 Does not include adjustments related to return of capital.
2 Not applicable—at January 31, 2020, and January 31, 2021, the issuer was not an affiliated company of the fund, but it was affiliated during the period.
3 Not applicable—at January 31, 2021, the security was still held, but the issuer was no longer an affiliated company of the fund.
4 Not applicable—purchases and sales are for temporary cash investment purposes.
I. Management has determined that no events or transactions occurred subsequent to January 31, 2021, that would require recognition or disclosure in these financial statements.
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Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Cumulative Performance: September 26, 2017, Through January 31, 2021
Initial Investment of $100,000,000
      Average Annual Total Returns
Periods Ended January 31, 2021
    One
Year
Since
Inception
(9/26/2017)
Final Value
of a $100,000,000
Investment
 Real Estate II Index Fund -5.70% 4.88% $117,295,170
 Real Estate Spliced Index -5.64 4.95 117,542,030
 Dow Jones U.S. Total Stock Market Float Adjusted Index 20.55 15.15 160,368,680
Real Estate Spliced Index: MSCI US REIT Index adjusted to include a 2% cash position (Lipper Money Market Average) through April 30, 2009; MSCI US REIT Index through February 1, 2018; MSCI US Investable Market Real Estate 25/50 Transition Index through July 24, 2018; MSCI US Investable Market Real Estate 25/50 Index thereafter.
"Since Inception" performance is calculated from the fund's inception date for both the fund and its comparative standard(s).
See Financial Highlights for dividend and capital gains information.
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Fund Allocation
As of January 31, 2021
Diversified Real Estate Activities 0.2%
Diversified REITs 3.6
Health Care REITs 8.8
Hotel & Resort REITs 3.1
Industrial REITs 11.0
Office REITs 7.5
Real Estate Development 0.3
Real Estate Operating Companies 0.2
Real Estate Services 3.6
Residential REITs 13.6
Retail REITs 9.3
Specialized REITs 38.8
The table reflects the fund’s investments, except for short-term investments and derivatives. Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” category (if applicable), which includes securities that have not been provided a GICS classification as of the effective reporting period.
The fund may invest in derivatives (such as futures and swap contracts) for various reasons, including, but not limited to, attempting to remain fully invested and tracking its target index as closely as possible.
The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party involved in making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
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Financial Statements
Schedule of Investments
As of January 31, 2021
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.
          Shares Market
Value

($000)
Equity Real Estate Investment Trusts (REITs) (95.7%)
Diversified REITs (3.6%)
WP Carey Inc. 1,064,829    70,705
VEREIT Inc. 1,320,000    46,504
STORE Capital Corp. 1,474,190    45,729
PS Business Parks Inc.   126,227    17,182
Colony Capital Inc. 2,953,936    14,651
Essential Properties Realty Trust Inc.   569,695    11,861
Washington REIT   503,853    11,055
Global Net Lease Inc.   547,834     8,826
Empire State Realty Trust Inc. Class A   893,708     8,812
American Assets Trust Inc.   312,481     8,634
iStar Inc.   460,413     6,989
Alexander & Baldwin Inc.   421,126     6,367
Armada Hoffler Properties Inc.   354,455     3,810
Gladstone Commercial Corp.   207,978     3,683
One Liberty Properties Inc.   100,588     2,016
                    266,824
Health Care REITs (8.8%)
Welltower Inc. 2,555,061   154,837
Ventas Inc. 2,284,346   105,240
Healthpeak Properties Inc. 3,296,041    97,728
Medical Properties Trust Inc. 3,510,923    74,116
Omega Healthcare Investors Inc. 1,389,735    50,336
Healthcare Trust of America Inc. Class A 1,338,160    37,803
Healthcare Realty Trust Inc.   833,022    24,999