UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-04526
Name of Registrant: | Vanguard Quantitative Funds | |
Address of Registrant: | P.O. Box 2600 | |
Valley Forge, PA 19482 | ||
Name and address of agent for service: | Heidi Stam, Esquire | |
P.O. Box 876 | ||
Valley Forge, PA 19482 |
Registrant’s telephone number, including area code: (610) 669-1000
Date of fiscal year end: September 30
Date of reporting period: October 1, 2012 – September 30, 2013
Item 1: Reports to Shareholders
Annual Report | September 30, 2013
Vanguard Growth and Income Fund
Vanguard’s Principles for Investing Success
We want to give you the best chance of investment success. These principles, grounded in Vanguard’s research and experience, can put you on the right path.
Goals. Create clear, appropriate investment goals.
Balance. Develop a suitable asset allocation using broadly diversified funds. Cost. Minimize cost.
Discipline. Maintain perspective and long-term discipline.
A single theme unites these principles: Focus on the things you can control.
We believe there is no wiser course for any investor.
Contents | |
Your Fund’s Total Returns. | 1 |
Chairman’s Letter. | 2 |
Advisors’ Report. | 8 |
Fund Profile. | 13 |
Performance Summary. | 14 |
Financial Statements. | 16 |
Your Fund’s After-Tax Returns. | 34 |
About Your Fund’s Expenses. | 35 |
Trustees Approve Advisory Arrangements. | 37 |
Glossary. | 39 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
About the cover: The ship's wheel represents leadership and guidance, essential qualities in navigating difficult seas. This one is a replica based on an 18th-century British vessel. The HMS Vanguard, another ship of that era, served as the flagship for Admiral Horatio Nelson when he defeated a French fleet at the Battle of the Nile.
Your Fund’s Total Returns | ||||
Fiscal Year Ended September 30, 2013 | ||||
Total | ||||
Returns | ||||
Vanguard Growth and Income Fund | ||||
Investor Shares | 19.54% | |||
Admiral™ Shares | 19.69 | |||
S&P 500 Index | 19.34 | |||
Large-Cap Core Funds Average | 19.85 | |||
Large-Cap Core Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | ||||
Admiral Shares carry lower expenses and are available to investors who meet certain account-balance requirements. | ||||
Your Fund’s Performance at a Glance | ||||
September 30, 2012, Through September 30, 2013 | ||||
Distributions Per Share | ||||
Starting | Ending | |||
Share | Share | Income | Capital | |
Price | Price | Dividends | Gains | |
Vanguard Growth and Income Fund | ||||
Investor Shares | $30.73 | $36.02 | $0.629 | $0.000 |
Admiral Shares | 50.18 | 58.82 | 1.090 | 0.000 |
1
Chairman’s Letter
Dear Shareholder,
Stocks rose during the 12 months ended September 30, and the Standard & Poor’s 500 Index—Vanguard Growth and Income Fund’s benchmark—reached a new high. Investor Shares of the fund returned 19.54% during the period, a bit ahead of the 19.34% returned by the benchmark. However, the fund was a step behind the 19.85% average return posted by its peer group of large-capitalization core funds.
Earlier in the fiscal year, stocks continued to climb despite fiscal tensions in Europe and the United States’ own “fiscal cliff” drama. They plunged in August, as investors worried about tensions in the Middle East and the consequences of an earlier-than-expected winding down of the Federal Reserve’s economic stimulus program. Stocks rebounded sharply in mid-September, however, after the Fed surprised investors by tabling its early-start plan—and the S&P 500 immediately edged up to a new record.
In this environment, the combined efforts of the Growth and Income Fund’s three advisors produced more sector-by-sector gains than shortfalls relative to the benchmark index. Using complementary types of computer-driven quantitative analysis, the advisors had their most successful selection among consumer discretionary stocks. This sector includes
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companies that do well in economic upswings (both rapid and, as now, more slow-paced), when consumers are more comfortable opening their wallets to make elective purchases.
Note: If you hold shares in a taxable account, you may wish to review the table and discussion of after-tax returns for the fiscal year, based on the highest tax bracket, later in this report.
Stocks dodged obstacles, but worries didn’t cease
As I’ve noted, domestic equities posted a strong gain for the period. So did international stocks, even though emerging market equities struggled amid worries about slowing global economic growth.
Still, markets were roiled in the waning days of September ahead of the partial U.S. government shutdown that began October 1. It’s natural for investors to be concerned by the situation in Washington. But as Sarah Hammer, a senior analyst in Vanguard Investment Strategy Group, noted in the midst of the temporary shut down, they shouldn’t be unduly influenced by these events. “Investors are often best served by sticking to their long-term investment plans and avoiding short-term decisions based on the legislative outlook,” Ms. Hammer said. Our recurrent advice to stick to your plan may lack pizzazz, but it’s proven to be sound counsel over the decades.
Market Barometer | |||
Average Annual Total Returns | |||
Periods Ended September 30, 2013 | |||
One | Three | Five | |
Year | Years | Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 20.91% | 16.64% | 10.53% |
Russell 2000 Index (Small-caps) | 30.06 | 18.29 | 11.15 |
Russell 3000 Index (Broad U.S. market) | 21.60 | 16.76 | 10.58 |
MSCI All Country World Index ex USA (International) | 16.48 | 5.95 | 6.26 |
Bonds | |||
Barclays U.S. Aggregate Bond Index (Broad taxable market) | -1.68% | 2.86% | 5.41% |
Barclays Municipal Bond Index (Broad tax-exempt market) | -2.21 | 3.24 | 5.98 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.07 | 0.07 | 0.14 |
CPI | |||
Consumer Price Index | 1.18% | 2.34% | 1.37% |
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Bond returns were negative despite September’s bounce
Investor concern about the Fed’s potential tapering of its stimulus program—which entailed large-scale purchases of bonds—affected the asset class’s performance. Though they posted declines for the year, bonds trimmed their losses after the Fed said it would continue the purchases.
The broad U.S. taxable bond market returned –1.68% for the fiscal year, and the yield of the 10-year Treasury note closed at 2.63% after starting at 1.64%. (Bond yields and prices move in opposite directions.) Municipal bonds returned –2.21% after rebounding a bit in September.
Money markets and savings accounts barely budged as the Fed’s target for short-term interest rates remained at 0%–0.25%.
Consumer discretionary selections turned in the best relative results
The biggest boost to the Growth and Income Fund’s sector returns compared with its benchmark came from consumer discretionary stocks, followed by financials, materials, utilities, and health care. The fund’s advisors seek stocks that have investment characteristics similar to those of the S&P 500 Index but are expected to produce a higher total return.
Expense Ratios | |||
Your Fund Compared With Its Peer Group | |||
Investor | Admiral | Peer Group | |
Shares | Shares | Average | |
Growth and Income Fund | 0.36% | 0.25% | 1.15% |
The fund expense ratios shown are from the prospectus dated January 28, 2013, and represent estimated costs for the current fiscal year. For the fiscal year ended September 30, 2013, the fund’s expense ratios were 0.36% for Investor Shares and 0.26% for Admiral Shares. The peer-group expense ratio is derived from data provided by Lipper, a Thomson Reuters Company, and captures information through year-end 2012.
Peer group: Large-Cap Core Funds.
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In consumer discretionary, media businesses such as cable and satellite companies and large newspaper organizations were the most substantial contributors to relative results. The advisors’ selection of retailing stocks, including strictly internet companies, provided generally positive results. Manufacturers of tires and large household appliances also lifted returns; homebuilder stocks, however, lagged.
In the financial sector, the fund’s diversified banking stocks produced mixed results that, in aggregate, were disappointing. Bright spots included diversified insurers, consumer finance companies, and real estate investment
trusts. Good results also came from gold producers; electric utilities; and providers of health care products, services, equipment, and supplies.
Some of the least successful stock choices were in the consumer staples sector, especially among packaged food companies.
Fund finishes the second year of its multi-manager approach
The fund delivered an average annual return of 6.89% over the ten years ended September 30. This was a few steps behind its benchmark but ahead of the average return of its peers.
Total Returns | |
Ten Years Ended September 30, 2013 | |
Average | |
Annual Return | |
Growth and Income Fund Investor Shares | 6.89% |
S&P 500 Index | 7.57 |
Large-Cap Core Funds Average | 6.24 |
Large-Cap Core Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. |
The figures shown represent past performance, which is not a guarantee of future results. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost.
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As you may know, fiscal 2014 is the second year in which Vanguard Growth and Income Fund is using a multimanager approach. With the introduction of this approach—I describe our thinking on the subject in more detail below—we believe that the fund is well-positioned to provide
competitive results over the long term. Moreover, the effect of the advisors’ performance on shareholders will be helped by the fund’s low costs, a Vanguard hallmark.
Investment insight | |
Don’t let a trick of the calendar alter your course | |
When making investment decisions, it’s important to weigh past returns with caution. | |
That’s because investment returns from any particular period are an unreliable anchor | |
for gauging the future. They can be highly date-dependent. | |
For example, take the five-year average annual return for the broad U.S. stock | |
market. That average just made a startling bounce: from 1.30% for the period | |
ended September 30, 2012, to 10.58% for the period ended September 30, 2013. | |
True, the market returned a hearty 21.60% in the most recent 12 months, but that’s | |
not enough to explain such a big leap in the average. Significantly, the year ended | |
September 30, 2008––when U.S. stocks returned –21.52% during the financial | |
crisis––has now rolled off the five-year calculation. | |
The important thing to remember is that historical returns are just that: historical. | |
Basing investment decisions on such date-dependent snapshots could easily lead | |
you to alter course––possibly in the wrong direction. Instead, Vanguard believes, you | |
should build your asset allocation strategy on long-term risk-and-return relationships, | |
always recognizing that no level of return is guaranteed. | |
Which five-year average should you count on? | |
(Answer: None of them!) | |
Average annual returns for U.S. stocks over five-year periods ended September 30 | |
2007 | 16.18% |
2008 | 5.70 |
2009 | 1.56 |
2010 | 0.92 |
2011 | –0.92 |
2012 | 1.30 |
2013 | 10.58 |
Note: The U.S. stock market is represented by the Russell 3000 Index. | |
Source: Vanguard. |
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Low costs and diversity of thought
can make a good combination
Investors sometimes ask why Vanguard uses a multi-advisor approach for many of its actively managed equity funds. Just as we recommend diversification within and across asset classes for an investor’s overall portfolio, we think significant benefits can accrue from using multiple advisory firms for a single fund: diversity of investment process and style, thought, and holdings.
All of these elements can lead to less risk and better results. Because not all investment managers invest the same way, their returns relative to the benchmark don’t move in lockstep.
As with many investment topics, however, there are some misconceptions about the benefits of using a multi-manager approach. For example, it is often suggested that the best ideas of the advisors are diluted when they are combined in one portfolio. Recent Vanguard research has found otherwise.
Conventional wisdom also suggests that multi-manager funds tend to be expensive. At Vanguard, this is not the case: Low costs are a hallmark of all our offerings. And Vanguard research indicates that low costs can contribute greatly to investing success, helping investors keep more of a portfolio’s return. (You can read more in Analyzing Multi-Manager Funds: Does Management Structure Affect Performance?, available at vanguard.com/research.)
As always, thank you for investing with Vanguard.
Sincerely,
F. William McNabb III
Chairman and Chief Executive Officer October 14, 2013
Advisors’ Report
Vanguard Growth and Income Fund’s Investor Shares returned 19.54% for the 12 months ended September 30. The fund’s Admiral Shares returned 19.69%. Its benchmark, the Standard & Poor’s 500 Index, returned 19.34%, and the average return of its large-cap core fund peers was 19.85%.
Your fund is managed by three independent advisors, a strategy that enhances the fund’s diversification by providing exposure to distinct yet complementary investment approaches. It is not uncommon for different advisors to have different views about individual securities or the broader investment environment.
The advisors, the percentage of fund assets each manages, and brief descriptions of their investment strategies are presented in the table below. The advisors have also prepared a discussion of the investment environment that existed during the fiscal year and of how the portfolio’s positioning reflects this assessment. (Please note that Los Angeles Capital’s discussion refers to industry sectors as defined by Russell classifications rather than by the Global Industry Classification Standard used elsewhere in this report.) These comments were prepared on October 10, 2013.
Vanguard Growth and Income Fund Investment Advisors
Fund Assets Managed | |||
Investment Advisor | % | $ Million | Investment Strategy |
D. E. Shaw Investment | 33 | 1,645 | Employs quantitative models that seek to capture |
Management, L.L.C. | predominantly “bottom up” stock-specific return | ||
opportunities while aiming to keep the portfolio’s | |||
sector weights, size, and style characteristics similar to | |||
the benchmark. | |||
Los Angeles Capital | 33 | 1,640 | Employs a quantitative model that emphasizes stocks |
with characteristics investors are currently seeking and | |||
underweights stocks with characteristics investors are | |||
currently avoiding. The portfolio’s sector weights, size, | |||
and style characteristics may differ modestly from the | |||
benchmark in a risk-controlled manner. | |||
Vanguard Equity Investment | 33 | 1,639 | Employs a quantitative, fundamental management |
Group | approach, using models that assess valuation, growth | ||
prospects, management decisions, market sentiment, | |||
and earnings quality of companies versus their peers. | |||
Cash Investments | 1 | 102 | These short-term reserves are invested by Vanguard in |
equity index products to simulate investments in | |||
stocks. Each advisor also may maintain a modest cash | |||
position. |
8
D. E. Shaw Investment Management, L.L.C.
Portfolio Manager:
Anne Dinning, Ph.D., Managing Director and Chief Investment Officer The primary themes driving equity market valuations during the reporting period were the European debt crisis, national elections in the United States and Japan, and macroeconomic developments in emerging markets, Japan, and the United States. Major U.S. headlines over the 12 months included the “fiscal cliff” negotiations, the Federal Reserve’s stimulus program, and the potential tapering of that program.
Negative economic news from Brazil, China, and India raised investor fears about slowing growth and rising inflation in emerging markets early in the period, but U.S. corporate profits generally held strong throughout the fiscal year. In the first calendar quarter of 2013, the Bank of Japan unveiled an aggressive quantitative easing program, and the inconclusive results of the Italian national election, along with the banking crisis in Cyprus, rekindled concerns about the stability of the Eurozone. Improved macroeconomic news from Europe and China helped boost investor sentiment in the third quarter of 2013.
We generally ascribe portfolio performance to bottom-up stock selection; exposure to common risk factors such as value, growth, and market capitalization; and exposure to industry groups. Stock selection
significantly aided results for the period. The three largest contributors to performance were overweight positions in American International Group, priceline.com, and Viacom. The three greatest detractors were an overweight position in Apple and underweight positions in Citigroup and Gilead Sciences.
Common risk factors had a modest positive impact on relative performance. The portfolio benefited from small exposures to high-momentum, small-cap, and value stocks. Sector and industry deviations from benchmark weights detracted slightly.
Despite concerns about the fiscal cliff and the Federal Reserve’s plans for its monetary stimulus program, equity markets in the United States reached new highs. However, we believe that the potential for downside shocks on the U.S. macroeconomic or political front and for unexpected tapering moves by the Fed constitute clear risks.
Los Angeles Capital
Portfolio Managers:
Thomas D. Stevens, CFA,
Chairman and Principal
Hal W. Reynolds, CFA,
Chief Investment Officer and Principal
Stock market gains were distributed broadly across economic sectors during the fiscal year ended September 30; 12 out of 15 sectors generated double-digit returns. Despite modest earnings growth
9
and continued downward GDP revisions globally, equities managed to outperform expectations. A commitment by central banks to maintain their low-interest-rate policies and a narrowing equity risk premium caused, in part, by a dearth of attractive investment opportunities drove returns.
Equity risk, as measured by the VIX (Chicago Board Options Exchange Market Volatility Index), generally drifted lower during the year. But uncertainty about the budget deficit and the debt ceiling subsequently moved the index back toward the high end of its 12-month range. On a positive note, analysts project 3% earnings growth for the third calendar quarter, with more significant gains expected by year-end. The main driver of these projections is a financial sector that continues to benefit from five years of monetary stimulus.
Housing prices have risen nationally for 15 straight months, but they appear to be decelerating because of the recent increase in long-term interest rates. The breadth of the global slowdown and record levels of profit margins for U.S. companies present significant challenges for companies seeking to achieve high real growth rates. An analysis of equity factors over the reporting period shows that earnings quality, short-term growth rates, momentum, and leverage all contributed to return. Larger companies generally underperformed as investors turned their attention to riskier, smaller-capitalization,
higher-growth assets. The jump in interest rates also put pressure on share prices for companies with higher dividend yields.
The best-performing sectors were biotechnology, business services, consumer cyclicals, and finance. The worst were technology, telecom, and energy. During the fiscal year, the portfolio shifted out of utilities and internet stocks and into the health care and consumer sectors. While maintaining its bias toward higher-quality securities, it has increased its exposure to smaller, higher-growth securities with attractive earnings yields.
Facing rising real yields and tempered expectations for economic growth, investors are clearly looking for attractively valued companies with sustainable growth rates. Our research process has led us to overweight consumer and health care stocks and underweight the economically sensitive capital goods, technology, and energy sectors. The portfolio has decreased its exposure to higher-yield stocks and increased its exposure to higher-beta, smaller-cap stocks with stronger growth prospects.
10
Vanguard Equity Investment Group
Portfolio Managers:
James D. Troyer, CFA, Principal
James P. Stetler, Principal
Michael R. Roach, CFA
For the 12 months ended September 30, 2013, equities in general experienced above-average returns. The broad U.S. equity market delivered a robust return of more than 20%; small-cap stocks outperformed their larger-cap counterparts by about 10 percentage points. The U.S. market performed similarly to those of other developed countries, while emerging-market returns were basically flat. Performance within the benchmark was broad-based: Nine of its ten sectors generated positive returns. Results were best in industrials, consumer discretionary, and financials. Telecommunications declined.
Equity investor sentiment seemed to gain confidence at the start of the fiscal year as economic data from around the world continued to improve, albeit at a snail’s pace. In the United States, the longer-term economic outlook is one of cautious optimism. GDP growth is expected to accelerate into 2014 and 2015, the housing market continues to recover, the unemployment rate is slowly falling, and corporate balance sheets are strong, with profits holding up.
Recently, however, macro events have again grabbed recent headlines, and this may translate into near-term market volatility. The Federal Reserve’s mixed signals on the tapering of its quantitative easing program, a jump in interest rates, and the failure of Congress and the White House to reach a budget agreement or forestall a federal government shutdown have left investors guessing about the market’s immediate prospects. Under these conditions, an increase in volatility would not be surprising, given how quickly stocks have risen here and abroad.
Equity markets will always be subject to short-term fluctuations brought on by the latest headlines. We find that often there is too much focus on the short term and not enough on the fundamental conditions and attributes that give investors the best chance of success. Strategies such as ours shift the focus back to company fundamentals by seeking to capture the spread between undervalued and overvalued stocks.
As indicated above, our strategy is not unlike that of traditional fundamental managers. However, we use a strict quantitative process to compare stocks and identify those with characteristics that should help them outperform over the long run. Our in-house research efforts center on a combination of valuation and other factors focused on fundamental growth. This allows us to take advantage of market inefficiencies caused by persistent biases
11
in investor behavior. Using the results of our modeling, we then construct our portfolio. Our goal is to minimize exposure to risks that our research indicates do not improve returns, such as market capitalization and other risks relative to our benchmark. In our view, these exposures cannot be justified by the rewards available.
Over the course of the fiscal year, our approach yielded mixed results. Our selection results were positive in five of the ten sectors in the benchmark; they were strongest in consumer discretionary, materials, and industrials. Selection results were neutral in three sectors, and we underperformed in health care and financials.
At the individual stock level, the largest contributions came from overweight positions in Goodyear Tire & Rubber, Western Digital, and Boeing. In addition, we benefited from underweighting or avoiding poorly performing stocks such as Newmont Mining and Apple.
We were not able to avoid all laggards. Overweight positions in CF Industries, IBM, and PulteGroup directly lowered results. And underweighting companies such as Gilead Sciences and Visa, which were not positively identified by the fundamentals in our model, hurt performance relative to the benchmark.
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Growth and Income Fund
Fund Profile
As of September 30, 2013
Share-Class Characteristics | ||
Investor | Admiral | |
Shares | Shares | |
Ticker Symbol | VQNPX | VGIAX |
Expense Ratio1 | 0.36% | 0.25% |
30-Day SEC Yield | 1.71% | 1.82% |
Portfolio Characteristics | |||
DJ U.S. | |||
Total | |||
Market | |||
S&P 500 | FA | ||
Fund | Index | Index | |
Number of Stocks | 640 | 500 | 3,636 |
Median Market Cap | $52.1B | $64.9B | $40.2B |
Price/Earnings Ratio | 17.9x | 17.9x | 19.5x |
Price/Book Ratio | 2.4x | 2.5x | 2.5x |
Return on Equity | 16.4% | 17.9% | 16.5% |
Earnings Growth | |||
Rate | 10.3% | 10.9% | 11.1% |
Dividend Yield | 2.1% | 2.1% | 1.9% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 109% | — | — |
Short-Term Reserves | 0.4% | — | — |
Sector Diversification (% of equity exposure)
DJ U.S. | |||
Total | |||
S&P 500 | Market | ||
Fund | Index | FA Index | |
Consumer | |||
Discretionary | 14.5% | 12.5% | 13.3% |
Consumer Staples | 10.0 | 10.0 | 8.7 |
Energy | 9.9 | 10.5 | 9.6 |
Financials | 17.2 | 16.3 | 17.3 |
Health Care | 13.9 | 13.0 | 12.6 |
Industrials | 10.4 | 10.7 | 11.4 |
Information | |||
Technology | 15.3 | 17.9 | 17.9 |
Materials | 3.5 | 3.5 | 3.8 |
Telecommunication | |||
Services | 2.8 | 2.4 | 2.2 |
Utilities | 2.5 | 3.2 | 3.2 |
Volatility Measures | ||
DJ U.S. | ||
S&P 500 | Total Market | |
Index | FA Index | |
R-Squared | 0.99 | 0.99 |
Beta | 1.01 | 0.96 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
Ten Largest Holdings (% of total net assets)
Apple Inc. | Computer Hardware | 2.7% |
Exxon Mobil Corp. | Integrated Oil & Gas | 2.3 |
General Electric Co. | Industrial | |
Conglomerates | 1.9 | |
JPMorgan Chase & Co. | Diversified Financial | |
Services | 1.8 | |
Johnson & Johnson | Pharmaceuticals | 1.7 |
Wells Fargo & Co. | Diversified Banks | 1.5 |
Chevron Corp. | Integrated Oil & Gas | 1.4 |
AT&T Inc. | Integrated | |
Telecommunication | ||
Services | 1.4 | |
Pfizer Inc. | Pharmaceuticals | 1.4 |
Berkshire Hathaway Inc. | Multi-Sector Holdings | 1.4 |
Top Ten | 17.5% |
The holdings listed exclude any temporary cash investments and equity index products.
Investment Focus
1 The expense ratios shown are from the prospectus dated January 28, 2013, and represent estimated costs for the current fiscal year. For the fiscal year ended September 30, 2013, the expense ratios were 0.36% for Investor Shares and 0.26% for Admiral Shares.
13
Growth and Income 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: September 30, 2003, Through September 30, 2013
Initial Investment of $10,000
Average Annual Total Returns | |||||
Periods Ended September 30, 2013 | |||||
Final Value | |||||
One | Five | Ten | of a $10,000 | ||
Year | Years | Years | Investment | ||
Growth and Income Fund*Investor | |||||
Shares | 19.54% | 9.02% | 6.89% | $19,466 | |
•••••••• | S&P 500 Index | 19.34 | 10.02 | 7.57 | 20,737 |
– – – – | Large-Cap Core Funds Average | 19.85 | 8.88 | 6.24 | 18,310 |
Dow Jones U.S. Total Stock Market | |||||
Float Adjusted Index | 21.44 | 10.69 | 8.32 | 22,235 |
Large-Cap Core Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.
Final Value | ||||
One | Five | Ten | of a $50,000 | |
Year | Years | Years | Investment | |
Growth and Income Fund Admiral Shares | 19.69% | 9.15% | 7.03% | $98,669 |
S&P 500 Index | 19.34 | 10.02 | 7.57 | 103,685 |
Dow Jones U.S. Total Stock Market Float | ||||
Adjusted Index | 21.44 | 10.69 | 8.32 | 111,177 |
See Financial Highlights for dividend and capital gains information.
14
Growth and Income Fund
Fiscal-Year Total Returns (%): September 30, 2003, Through September 30, 2013
Growth and Income Fund Investor Shares
S&P 500 Index
15
Growth and Income Fund
Financial Statements
Statement of Net Assets
As of September 30, 2013
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Market | ||||
Value• | ||||
Shares | ($000) | |||
Common Stocks (97.7%)1 | ||||
Consumer Discretionary (14.1%) | ||||
Home Depot Inc. | 514,804 | 39,048 | ||
Comcast Corp. Class A | 825,056 | 37,251 | ||
* | Amazon.com Inc. | 90,281 | 28,225 | |
McDonald’s Corp. | 262,894 | 25,293 | ||
Time Warner Inc. | 381,475 | 25,105 | ||
Viacom Inc. Class B | 294,823 | 24,641 | ||
* | priceline.com Inc. | 23,500 | 23,757 | |
Ford Motor Co. | 1,395,268 | 23,538 | ||
Lowe’s Cos. Inc. | 481,973 | 22,947 | ||
Time Warner Cable Inc. | 199,820 | 22,300 | ||
Wyndham Worldwide Corp. | 357,694 | 21,809 | ||
* | O’Reilly Automotive Inc. | 158,179 | 20,182 | |
* | Charter Communications | |||
Inc. Class A | 148,900 | 20,066 | ||
* | Goodyear Tire & Rubber Co. | 852,445 | 19,137 | |
TJX Cos. Inc. | 310,739 | 17,523 | ||
Starbucks Corp. | 215,600 | 16,595 | ||
Cablevision Systems Corp. | ||||
Class A | 984,127 | 16,573 | ||
* | DIRECTV | 277,007 | 16,551 | |
Walt Disney Co. | 252,645 | 16,293 | ||
NIKE Inc. Class B | 201,337 | 14,625 | ||
Whirlpool Corp. | 91,186 | 13,353 | ||
Gannett Co. Inc. | 429,574 | 11,508 | ||
Macy’s Inc. | 246,980 | 10,687 | ||
Newell Rubbermaid Inc. | 384,012 | 10,560 | ||
Wynn Resorts Ltd. | 66,595 | 10,523 | ||
Gap Inc. | 234,945 | 9,464 | ||
Delphi Automotive plc | 159,050 | 9,292 | ||
Starwood Hotels & Resorts | ||||
Worldwide Inc. | 138,870 | 9,228 | ||
GameStop Corp. Class A | 174,410 | 8,659 | ||
Washington Post Co. | ||||
Class B | 13,950 | 8,528 | ||
* | TripAdvisor Inc. | 102,600 | 7,781 | |
H&R Block Inc. | 252,129 | 6,722 | ||
Expedia Inc. | 129,260 | 6,694 |
Johnson Controls Inc. | 160,220 | 6,649 | |
* | Fossil Group Inc. | 56,600 | 6,579 |
Staples Inc. | 438,900 | 6,430 | |
Interpublic Group of | |||
Cos. Inc. | 366,603 | 6,298 | |
Omnicom Group Inc. | 92,450 | 5,865 | |
* | Liberty Media Corp. Class A | 39,612 | 5,829 |
Mattel Inc. | 131,390 | 5,500 | |
International Game | |||
Technology | 288,214 | 5,456 | |
Target Corp. | 80,500 | 5,150 | |
Marriott International Inc. | |||
Class A | 121,720 | 5,120 | |
Yum! Brands Inc. | 70,693 | 5,047 | |
* | General Motors Co. | 137,750 | 4,955 |
PVH Corp. | 41,097 | 4,878 | |
Best Buy Co. Inc. | 120,830 | 4,531 | |
Coach Inc. | 82,800 | 4,515 | |
* | Netflix Inc. | 14,564 | 4,503 |
* | AutoNation Inc. | 83,990 | 4,382 |
Darden Restaurants Inc. | 89,430 | 4,140 | |
* | Dollar General Corp. | 71,079 | 4,013 |
Hasbro Inc. | 74,237 | 3,500 | |
* | Discovery Communications | ||
Inc. Class A | 40,710 | 3,437 | |
DR Horton Inc. | 170,980 | 3,322 | |
* | Fifth & Pacific Cos. Inc. | 128,800 | 3,237 |
Harman International | |||
Industries Inc. | 41,890 | 2,774 | |
* | NVR Inc. | 2,467 | 2,268 |
Leggett & Platt Inc. | 56,920 | 1,716 | |
* | Apollo Group Inc. Class A | 69,226 | 1,441 |
Nordstrom Inc. | 23,350 | 1,312 | |
PulteGroup Inc. | 73,362 | 1,210 | |
Kohl’s Corp. | 23,030 | 1,192 | |
CBS Corp. Class B | 18,933 | 1,044 | |
Service Corp. International | 55,600 | 1,035 | |
* | Sally Beauty Holdings Inc. | 36,700 | 960 |
* | Boyd Gaming Corp. | 63,700 | 901 |
* | Orbitz Worldwide Inc. | 72,272 | 696 |
16
Growth and Income Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Beazer Homes USA Inc. | 34,900 | 628 | |
Ralph Lauren Corp. Class A | 3,377 | 556 | |
* | News Corp. Class A | 31,300 | 503 |
Churchill Downs Inc. | 5,694 | 493 | |
Family Dollar Stores Inc. | 6,820 | 491 | |
* | Live Nation | ||
Entertainment Inc. | 22,700 | 421 | |
GNC Holdings Inc. Class A | 7,400 | 404 | |
* | AutoZone Inc. | 940 | 397 |
* | MGM Resorts International | 17,700 | 362 |
* | Ascena Retail Group Inc. | 17,200 | 343 |
* | Christopher & Banks Corp. | 44,898 | 324 |
Six Flags Entertainment Corp. | 7,000 | 236 | |
* | Biglari Holdings Inc. | 570 | 235 |
* | Sears Hometown and | ||
Outlet Stores Inc. | 3,923 | 125 | |
Hillenbrand Inc. | 4,472 | 122 | |
* | Liberty Ventures Class A | 1,100 | 97 |
* | Taylor Morrison Home Corp. | ||
Class A | 4,000 | 91 | |
* | Nautilus Inc. | 10,538 | 76 |
* | New York & Co. Inc. | 13,139 | 76 |
SeaWorld Entertainment Inc. | 2,000 | 59 | |
* | Lee Enterprises Inc. | 20,101 | 53 |
* | Build-A-Bear Workshop Inc. | 6,753 | 47 |
^ | Blyth Inc. | 3,000 | 41 |
* | Libbey Inc. | 1,400 | 33 |
* | Dollar Tree Inc. | 500 | 29 |
Hooker Furniture Corp. | 1,800 | 27 | |
* | DreamWorks Animation | ||
SKG Inc. Class A | 900 | 26 | |
* | Ascent Capital Group Inc. | ||
Class A | 238 | 19 | |
* | Body Central Corp. | 2,715 | 17 |
Ambassadors Group Inc. | 4,798 | 17 | |
JAKKS Pacific Inc. | 3,653 | 16 | |
* | Jamba Inc. | 1,195 | 16 |
Texas Roadhouse Inc. Class A | 600 | 16 | |
* | Unifi Inc. | 476 | 11 |
Bon-Ton Stores Inc. | 1,000 | 11 | |
* | ValueVision Media Inc. | ||
Class A | 2,300 | 10 | |
* | Isle of Capri Casinos Inc. | 1,280 | 10 |
* | McClatchy Co. Class A | 3,100 | 9 |
* | Express Inc. | 200 | 5 |
* | Reading International Inc. | ||
Class A | 700 | 5 | |
Lincoln Educational Services | |||
Corp. | 600 | 3 | |
Furniture Brands International | |||
Inc. | 600 | — | |
710,803 |
Consumer Staples (9.8%) | |||
Philip Morris International | |||
Inc. | 603,816 | 52,284 | |
Procter & Gamble Co. | 675,868 | 51,089 | |
PepsiCo Inc. | 636,031 | 50,564 | |
Wal-Mart Stores Inc. | 629,679 | 46,571 | |
Coca-Cola Co. | 988,638 | 37,450 | |
CVS Caremark Corp. | 332,040 | 18,843 | |
Kraft Foods Group Inc. | 319,079 | 16,733 | |
Altria Group Inc. | 463,105 | 15,908 | |
Costco Wholesale Corp. | 137,620 | 15,843 | |
Kimberly-Clark Corp. | 158,241 | 14,910 | |
Kroger Co. | 358,800 | 14,474 | |
Avon Products Inc. | 694,370 | 14,304 | |
Safeway Inc. | 439,730 | 14,067 | |
General Mills Inc. | 292,510 | 14,017 | |
ConAgra Foods Inc. | 345,181 | 10,473 | |
Reynolds American Inc. | 197,372 | 9,628 | |
JM Smucker Co. | 89,900 | 9,443 | |
Mondelez International Inc. | |||
Class A | 283,740 | 8,915 | |
Coca-Cola Enterprises Inc. | 221,540 | 8,908 | |
Dr Pepper Snapple | |||
Group Inc. | 193,031 | 8,652 | |
Hershey Co. | 86,100 | 7,964 | |
Kellogg Co. | 94,016 | 5,522 | |
Colgate-Palmolive Co. | 87,324 | 5,178 | |
* | Constellation Brands Inc. | ||
Class A | 87,200 | 5,005 | |
Mead Johnson Nutrition Co. | 65,915 | 4,895 | |
Campbell Soup Co. | 100,100 | 4,075 | |
Beam Inc. | 62,592 | 4,047 | |
Hormel Foods Corp. | 90,167 | 3,798 | |
Sysco Corp. | 73,899 | 2,352 | |
* | WhiteWave Foods Co. | ||
Class A | 117,353 | 2,344 | |
Clorox Co. | 26,860 | 2,195 | |
Molson Coors Brewing Co. | |||
Class B | 39,860 | 1,998 | |
Whole Foods Market Inc. | 32,579 | 1,906 | |
Dean Foods Co. | 94,813 | 1,830 | |
Estee Lauder Cos. Inc. | |||
Class A | 19,183 | 1,341 | |
* | Green Mountain Coffee | ||
Roasters Inc. | 14,800 | 1,115 | |
Walgreen Co. | 14,315 | 770 | |
* | Monster Beverage Corp. | 8,200 | 428 |
Pinnacle Foods Inc. | 8,400 | 222 | |
* | Rite Aid Corp. | 36,600 | 174 |
Archer-Daniels-Midland Co. | 3,500 | 129 | |
* | Crimson Wine Group Ltd. | 6,540 | 62 |
* | Post Holdings Inc. | 600 | 24 |
17
Growth and Income Fund | ||||
Market | ||||
Value• | ||||
Shares | ($000) | |||
* | Chiquita Brands | |||
International Inc. | 1,100 | 14 | ||
* | Farmer Bros Co. | 800 | 12 | |
* | Alliance One International Inc. 3,839 | 11 | ||
* | Synutra International Inc. | 800 | 4 | |
490,491 | ||||
Energy (9.7%) | ||||
Exxon Mobil Corp. | 1,367,561 | 117,665 | ||
Chevron Corp. | 594,742 | 72,261 | ||
Anadarko Petroleum Corp. | 408,046 | 37,944 | ||
Schlumberger Ltd. | 418,579 | 36,986 | ||
ConocoPhillips | 356,284 | 24,765 | ||
Phillips 66 | 362,663 | 20,969 | ||
Occidental Petroleum Corp. | 212,389 | 19,867 | ||
Halliburton Co. | 354,580 | 17,073 | ||
Marathon Petroleum Corp. | 234,243 | 15,067 | ||
Murphy Oil Corp. | 204,740 | 12,350 | ||
Valero Energy Corp. | 356,130 | 12,162 | ||
Chesapeake Energy Corp. | 383,700 | 9,930 | ||
Williams Cos. Inc. | 243,549 | 8,855 | ||
EOG Resources Inc. | 49,539 | 8,386 | ||
Marathon Oil Corp. | 235,628 | 8,219 | ||
Kinder Morgan Inc. | 229,330 | 8,157 | ||
Apache Corp. | 94,210 | 8,021 | ||
Hess Corp. | 101,285 | 7,833 | ||
Noble Energy Inc. | 112,720 | 7,553 | ||
* | Southwestern Energy Co. | 123,313 | 4,486 | |
Devon Energy Corp. | 74,491 | 4,303 | ||
Helmerich & Payne Inc. | 60,000 | 4,137 | ||
* | WPX Energy Inc. | 180,000 | 3,467 | |
* | Newfield Exploration Co. | 108,566 | 2,971 | |
CONSOL Energy Inc. | 88,120 | 2,965 | ||
Peabody Energy Corp. | 148,590 | 2,563 | ||
* | Denbury Resources Inc. | 126,400 | 2,327 | |
Tesoro Corp. | 38,080 | 1,675 | ||
Ensco plc Class A | 16,500 | 887 | ||
* | Cameron International Corp. | 9,970 | 582 | |
Cabot Oil & Gas Corp. | 13,600 | 508 | ||
* | Endeavour International Corp. 61,100 | 327 | ||
* | Hercules Offshore Inc. | 32,300 | 238 | |
SemGroup Corp. Class A | 3,790 | 216 | ||
* | Hyperdynamics Corp. | 10,406 | 46 | |
* | Cheniere Energy Inc. | 1,000 | 34 | |
* | Kosmos Energy Ltd. | 3,100 | 32 | |
* | Overseas Shipholding | |||
Group Inc. | 17,000 | 30 | ||
DHT Holdings Inc. | 5,600 | 24 | ||
* | Forest Oil Corp. | 4,000 | 24 | |
* | Gastar Exploration Ltd. | 4,100 | 16 | |
USEC Inc. | 1,000 | 11 | ||
* | Cal Dive International Inc. | 4,305 | 9 | |
* | Lone Pine Resources Inc. | 96,804 | 1 | |
* | Uranium Resources Inc. | 120 | — | |
485,942 |
Exchange-Traded Fund (0.2%) | |||
SPDR S&P 500 ETF Trust | 59,250 | 9,960 | |
Financials (16.9%) | |||
JPMorgan Chase & Co. | 1,737,131 | 89,792 | |
Wells Fargo & Co. | 1,854,951 | 76,647 | |
* | Berkshire Hathaway Inc. | ||
Class B | 609,385 | 69,171 | |
Citigroup Inc. | 1,252,527 | 60,760 | |
Bank of America Corp. | 4,213,802 | 58,150 | |
American International | |||
Group Inc. | 1,093,470 | 53,175 | |
Goldman Sachs Group Inc. | 163,052 | 25,796 | |
Aflac Inc. | 350,937 | 21,755 | |
State Street Corp. | 314,371 | 20,670 | |
Fifth Third Bancorp | 959,525 | 17,310 | |
Allstate Corp. | 325,080 | 16,433 | |
Travelers Cos. Inc. | 190,105 | 16,115 | |
American Tower | |||
Corporation | 197,239 | 14,621 | |
Discover Financial Services | 280,670 | 14,185 | |
XL Group plc Class A | 418,162 | 12,888 | |
Aon plc | 169,470 | 12,615 | |
PNC Financial Services | |||
Group Inc. | 154,996 | 11,229 | |
American Express Co. | 145,530 | 10,990 | |
SLM Corp. | 432,800 | 10,777 | |
Marsh & McLennan | |||
Cos. Inc. | 246,944 | 10,754 | |
Regions Financial Corp. | 1,032,300 | 9,559 | |
Progressive Corp. | 342,341 | 9,322 | |
Equity Residential | 171,000 | 9,160 | |
Bank of New York | |||
Mellon Corp. | 301,571 | 9,104 | |
Loews Corp. | 187,530 | 8,765 | |
Capital One Financial Corp. | 122,173 | 8,398 | |
Morgan Stanley | 309,780 | 8,349 | |
Comerica Inc. | 202,629 | 7,965 | |
Plum Creek Timber Co. Inc. | 162,866 | 7,627 | |
Public Storage | 42,200 | 6,775 | |
Chubb Corp. | 75,179 | 6,711 | |
BB&T Corp. | 186,540 | 6,296 | |
KeyCorp | 539,740 | 6,153 | |
Prologis Inc. | 162,316 | 6,106 | |
US Bancorp | 159,905 | 5,849 | |
Unum Group | 190,251 | 5,791 | |
MetLife Inc. | 123,210 | 5,785 | |
Principal Financial Group | |||
Inc. | 125,500 | 5,374 | |
Weyerhaeuser Co. | 183,700 | 5,259 | |
Assurant Inc. | 96,400 | 5,215 | |
Ventas Inc. | 84,600 | 5,203 | |
SunTrust Banks Inc. | 159,050 | 5,156 | |
* | E*TRADE Financial Corp. | 309,390 | 5,105 |
18
Growth and Income Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
Lincoln National Corp. | 114,500 | 4,808 | |
Northern Trust Corp. | 85,614 | 4,657 | |
Ameriprise Financial Inc. | 50,497 | 4,599 | |
* | CBRE Group Inc. Class A | 197,340 | 4,565 |
Simon Property Group Inc. | 29,000 | 4,299 | |
ACE Ltd. | 42,345 | 3,962 | |
First Horizon National Corp. | 343,160 | 3,771 | |
NASDAQ OMX Group Inc. | 102,740 | 3,297 | |
Prudential Financial Inc. | 40,170 | 3,132 | |
Apartment Investment & | |||
Management Co. Class A | 111,086 | 3,104 | |
Torchmark Corp. | 36,470 | 2,639 | |
Kimco Realty Corp. | 130,600 | 2,636 | |
People’s United | |||
Financial Inc. | 178,492 | 2,567 | |
Boston Properties Inc. | 18,340 | 1,961 | |
M&T Bank Corp. | 16,959 | 1,898 | |
Granite REIT | 47,800 | 1,704 | |
Vornado Realty Trust | 18,320 | 1,540 | |
Equity Lifestyle | |||
Properties Inc. | 44,998 | 1,538 | |
Legg Mason Inc. | 39,000 | 1,304 | |
Charles Schwab Corp. | 49,620 | 1,049 | |
* | Realogy Holdings Corp. | 22,700 | 977 |
BlackRock Inc. | 3,370 | 912 | |
* | MGIC Investment Corp. | 123,100 | 896 |
Hartford Financial Services | |||
Group Inc. | 27,160 | 845 | |
* | Genworth Financial Inc. | ||
Class A | 58,990 | 755 | |
Erie Indemnity Co. Class A | 10,273 | 745 | |
* | IntercontinentalExchange Inc. | 3,870 | 702 |
Host Hotels & Resorts Inc. | 35,600 | 629 | |
* | NewStar Financial Inc. | 22,800 | 417 |
Leucadia National Corp. | 10,599 | 289 | |
Healthcare Trust of America | |||
Inc. Class A | 22,500 | 237 | |
Old Republic International | |||
Corp. | 13,200 | 203 | |
Ryman Hospitality | |||
Properties Inc. | 5,200 | 179 | |
* | Howard Hughes Corp. | 974 | 109 |
Flagstar Bancorp Inc. | 7,200 | 106 | |
* | FelCor Lodging Trust Inc. | 16,989 | 105 |
Spirit Realty Capital Inc. | 10,148 | 93 | |
* | CIT Group Inc. | 1,900 | 93 |
* | Altisource Portfolio | ||
Solutions SA | 495 | 69 | |
Retail Properties of America | |||
Inc. | 5,000 | 69 | |
* | Cowen Group Inc. Class A | 17,436 | 60 |
Geo Group Inc. | 1,800 | 60 | |
White Mountains Insurance | |||
Group Ltd. | 100 | 57 |
First Industrial Realty Trust | ||||
Inc. | 3,120 | 51 | ||
Validus Holdings Ltd. | 1,200 | 44 | ||
CorEnergy Infrastructure | ||||
Trust Inc. | 6,019 | 42 | ||
United Bankshares Inc. | 1,400 | 41 | ||
Central Pacific Financial Corp. 2,120 | 38 | |||
Summit Hotel Properties Inc. | 4,078 | 38 | ||
* | Hilltop Holdings Inc. | 2,000 | 37 | |
American Assets Trust Inc. | 1,200 | 37 | ||
Reinsurance Group of | ||||
America Inc. Class A | 500 | 34 | ||
Chesapeake Lodging Trust | 1,372 | 32 | ||
Regency Centers Corp. | 600 | 29 | ||
Parkway Properties Inc. | 1,402 | 25 | ||
Symetra Financial Corp. | 1,308 | 23 | ||
* | Southwest Bancorp Inc. | 1,500 | 22 | |
Newcastle Investment Corp. | 3,500 | 20 | ||
Hudson City Bancorp Inc. | 1,895 | 17 | ||
Montpelier Re Holdings Ltd. | 624 | 16 | ||
ZAIS Financial Corp. | 771 | 13 | ||
Rouse Properties Inc. | 600 | 12 | ||
Starwood Property Trust Inc. | 500 | 12 | ||
Tree.com Inc. | 369 | 10 | ||
* | Phoenix Cos. Inc. | 226 | 9 | |
* | Green Dot Corp. Class A | 228 | 6 | |
* | Suffolk Bancorp | 300 | 5 | |
OFG Bancorp | 298 | 5 | ||
SI Financial Group Inc. | 100 | 1 | ||
851,116 | ||||
Health Care (13.6%) | ||||
Johnson & Johnson | 1,012,526 | 87,776 | ||
Pfizer Inc. | 2,415,963 | 69,362 | ||
Merck & Co. Inc. | 998,306 | 47,529 | ||
* | Express Scripts Holding | |||
Co. | 562,950 | 34,779 | ||
AbbVie Inc. | 663,373 | 29,673 | ||
* | Celgene Corp. | 191,100 | 29,416 | |
Eli Lilly & Co. | 558,882 | 28,129 | ||
UnitedHealth Group Inc. | 344,848 | 24,695 | ||
Amgen Inc. | 192,890 | 21,592 | ||
Medtronic Inc. | 389,593 | 20,746 | ||
* | Boston Scientific Corp. | 1,731,220 | 20,325 | |
* | Mylan Inc. | 511,710 | 19,532 | |
* | Biogen Idec Inc. | 72,598 | 17,479 | |
Abbott Laboratories | 465,976 | 15,466 | ||
WellPoint Inc. | 172,740 | 14,443 | ||
Becton Dickinson and Co. | 136,902 | 13,693 | ||
Cigna Corp. | 168,640 | 12,962 | ||
* | Gilead Sciences Inc. | 185,660 | 11,667 | |
Cardinal Health Inc. | 222,103 | 11,583 | ||
Allergan Inc. | 124,669 | 11,276 | ||
Bristol-Myers Squibb Co. | 234,982 | 10,875 | ||
McKesson Corp. | 79,383 | 10,185 |
19
Growth and Income Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Thermo Fisher Scientific | |||
Inc. | 109,720 | 10,111 | |
Agilent Technologies Inc. | 195,500 | 10,019 | |
* | CareFusion Corp. | 248,000 | 9,151 |
Humana Inc. | 76,480 | 7,138 | |
* | Hospira Inc. | 178,169 | 6,988 |
AmerisourceBergen Corp. | |||
Class A | 109,570 | 6,695 | |
Tenet Healthcare Corp. | 153,706 | 6,331 | |
Quest Diagnostics Inc. | 98,180 | 6,067 | |
Zoetis Inc. | 193,134 | 6,010 | |
* | DaVita HealthCare Partners | ||
Inc. | 103,980 | 5,916 | |
* | Laboratory Corp. of | ||
America Holdings | 58,170 | 5,767 | |
PerkinElmer Inc. | 135,250 | 5,106 | |
Covidien plc | 75,883 | 4,624 | |
* | Actavis Inc. | 25,156 | 3,622 |
* | Edwards Lifesciences Corp. | 34,773 | 2,421 |
Baxter International Inc. | 36,658 | 2,408 | |
DENTSPLY International Inc. | 52,130 | 2,263 | |
Aetna Inc. | 30,504 | 1,953 | |
* | Alexion Pharmaceuticals Inc. | 11,951 | 1,388 |
* | Health Net Inc. | 43,500 | 1,379 |
* | Sarepta Therapeutics Inc. | 28,600 | 1,351 |
* | Theravance Inc. | 19,400 | 793 |
* | Medivation Inc. | 11,900 | 713 |
* | Vertex Pharmaceuticals Inc. | 9,150 | 694 |
* | Repros Therapeutics Inc. | 23,300 | 624 |
* | Dynavax Technologies Corp. | 436,500 | 524 |
* | Stemline Therapeutics Inc. | 10,492 | 475 |
* | BioCryst Pharmaceuticals | ||
Inc. | 60,500 | 440 | |
* | XenoPort Inc. | 73,319 | 416 |
* | Keryx Biopharmaceuticals | ||
Inc. | 40,000 | 404 | |
* | Rigel Pharmaceuticals Inc. | 103,100 | 369 |
* | Illumina Inc. | 4,500 | 364 |
* | Mallinckrodt plc | 7,812 | 344 |
HealthSouth Corp. | 9,606 | 331 | |
* | Amedisys Inc. | 18,500 | 319 |
* | Synta Pharmaceuticals Corp. | 48,438 | 306 |
* | BioTelemetry Inc. | 28,400 | 281 |
* | Insys Therapeutics Inc. | 7,917 | 277 |
* | VCA Antech Inc. | 9,400 | 258 |
* | Sirona Dental Systems Inc. | 3,500 | 234 |
* | Orexigen Therapeutics Inc. | 38,100 | 234 |
* | Santarus Inc. | 10,340 | 233 |
* | Nektar Therapeutics | 21,700 | 227 |
* | Clovis Oncology Inc. | 3,400 | 207 |
* | Amicus Therapeutics Inc. | 71,970 | 167 |
* | Progenics Pharmaceuticals | ||
Inc. | 31,030 | 156 | |
* | Sunesis Pharmaceuticals | ||
Inc. | 31,200 | 155 |
* | Intuitive Surgical Inc. | 400 | 151 | |
* | AMAG Pharmaceuticals Inc. | 6,200 | 133 | |
* | Nordion Inc. | 15,418 | 133 | |
* | Idenix Pharmaceuticals Inc. | 24,900 | 130 | |
Pain Therapeutics Inc. | 45,400 | 124 | ||
* | AVEO Pharmaceuticals Inc. | 55,700 | 115 | |
* | Anacor Pharmaceuticals Inc. | 10,801 | 115 | |
* | BioMarin Pharmaceutical Inc. | 1,500 | 108 | |
* | Accretive Health Inc. | 8,600 | 78 | |
* | Array BioPharma Inc. | 12,400 | 77 | |
* | GTx Inc. | 36,435 | 73 | |
* | LCA-Vision Inc. | 20,300 | 73 | |
Warner Chilcott plc Class A | 3,155 | 72 | ||
* | Sequenom Inc. | 26,955 | 72 | |
* | Cell Therapeutics Inc. | 34,900 | 57 | |
* | Auxilium Pharmaceuticals Inc. | 2,800 | 51 | |
* | Oncothyreon Inc. | 22,900 | 47 | |
* | Vivus Inc. | 4,900 | 46 | |
* | Insmed Inc. | 2,800 | 44 | |
*,^ | Celsion Corp. | 37,882 | 44 | |
* | Accuray Inc. | 5,337 | 39 | |
* | Cleveland Biolabs Inc. | 23,400 | 37 | |
* | Bruker Corp. | 1,700 | 35 | |
* | Cytokinetics Inc. | 4,220 | 32 | |
* | Epizyme Inc. | 700 | 28 | |
* | Chelsea Therapeutics | |||
International Ltd. | 8,697 | 26 | ||
* | BioDelivery Sciences | |||
International Inc. | 4,100 | 22 | ||
* | Arqule Inc. | 9,233 | 22 | |
* | Triple-S Management Corp. | |||
Class B | 961 | 18 | ||
Teleflex Inc. | 199 | 16 | ||
* | Baxano Surgical Inc. | 10,180 | 14 | |
* | Zalicus Inc. | 11,700 | 14 | |
* | Five Star Quality Care Inc. | 2,400 | 12 | |
* | Impax Laboratories Inc. | 600 | 12 | |
* | AcelRx Pharmaceuticals Inc. | 1,100 | 12 | |
* | Discovery Laboratories Inc. | 6,000 | 12 | |
* | Agenus Inc. | 3,700 | 10 | |
* | Geron Corp. | 2,600 | 9 | |
* | Nymox Pharmaceutical Corp. | 1,000 | 7 | |
* | Hansen Medical Inc. | 3,199 | 6 | |
* | Affymax Inc. | 4,000 | 5 | |
Myrexis Inc. | 1,550 | — | ||
681,567 | ||||
Industrials (10.1%) | ||||
General Electric Co. | 4,005,720 | 95,697 | ||
Boeing Co. | 345,410 | 40,586 | ||
General Dynamics Corp. | 391,286 | 34,245 | ||
Honeywell International | ||||
Inc. | 263,780 | 21,904 | ||
Tyco International Ltd. | 543,531 | 19,013 | ||
United Parcel Service Inc. | ||||
Class B | 194,903 | 17,808 |
20
Growth and Income Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Ingersoll-Rand plc | 268,992 | 17,468 | |
Lockheed Martin Corp. | 134,324 | 17,133 | |
Raytheon Co. | 221,777 | 17,092 | |
Dun & Bradstreet Corp. | 154,690 | 16,065 | |
ADT Corp. | 325,400 | 13,231 | |
Union Pacific Corp. | 84,688 | 13,155 | |
Northrop Grumman Corp. | 124,949 | 11,903 | |
United Technologies Corp. | 107,810 | 11,624 | |
Republic Services Inc. | |||
Class A | 336,180 | 11,215 | |
Rockwell Automation Inc. | 104,400 | 11,165 | |
Danaher Corp. | 151,789 | 10,522 | |
Emerson Electric Co. | 123,979 | 8,021 | |
Nielsen Holdings NV | 207,107 | 7,549 | |
Snap-on Inc. | 69,363 | 6,902 | |
L-3 Communications | |||
Holdings Inc. | 70,545 | 6,667 | |
Stanley Black & Decker Inc. | 73,290 | 6,638 | |
CSX Corp. | 253,187 | 6,517 | |
Deere & Co. | 79,452 | 6,467 | |
3M Co. | 53,410 | 6,378 | |
Babcock & Wilcox Co. | 186,900 | 6,302 | |
Xylem Inc. | 223,370 | 6,239 | |
Ryder System Inc. | 102,530 | 6,121 | |
Caterpillar Inc. | 70,411 | 5,870 | |
Rockwell Collins Inc. | 74,590 | 5,062 | |
Southwest Airlines Co. | 341,251 | 4,969 | |
Masco Corp. | 184,160 | 3,919 | |
Joy Global Inc. | 75,579 | 3,858 | |
Roper Industries Inc. | 28,434 | 3,778 | |
Waste Management Inc. | 88,860 | 3,665 | |
Pentair Ltd. | 51,400 | 3,338 | |
Textron Inc. | 109,720 | 3,029 | |
Delta Air Lines Inc. | 90,200 | 2,128 | |
CH Robinson Worldwide Inc. | 31,530 | 1,878 | |
Iron Mountain Inc. | 65,580 | 1,772 | |
Illinois Tool Works Inc. | 21,810 | 1,663 | |
Cummins Inc. | 11,821 | 1,571 | |
Pitney Bowes Inc. | 85,237 | 1,551 | |
* | Spirit Aerosystems | ||
Holdings Inc. Class A | 59,011 | 1,430 | |
Flowserve Corp. | 17,220 | 1,074 | |
Equifax Inc. | 16,380 | 980 | |
FedEx Corp. | 7,560 | 863 | |
Covanta Holding Corp. | 36,400 | 778 | |
* | MRC Global Inc. | 25,500 | 683 |
* | USG Corp. | 13,300 | 380 |
* | DigitalGlobe Inc. | 8,800 | 278 |
* | Engility Holdings Inc. | 5,677 | 180 |
* | EnerNOC Inc. | 11,992 | 180 |
* | Meritor Inc. | 15,700 | 123 |
Huntington Ingalls | |||
Industries Inc. | 1,400 | 94 | |
Towers Watson & Co. Class A | 800 | 86 | |
Alliant Techsystems Inc. | 800 | 78 |
PACCAR Inc. | 1,263 | 70 | |
* | Fuel Tech Inc. | 15,601 | 68 |
Albany International Corp. | 1,485 | 53 | |
RR Donnelley & Sons Co. | 2,700 | 43 | |
* | Republic Airways Holdings Inc. | 3,449 | 41 |
* | Wabash National Corp. | 3,195 | 37 |
* | FuelCell Energy Inc. | 28,810 | 37 |
* | Terex Corp. | 900 | 30 |
* | Federal Signal Corp. | 2,200 | 28 |
* | ARC Document Solutions Inc. 3,710 | 17 | |
* | Flow International Corp. | 2,000 | 8 |
* | Cenveo Inc. | 1,400 | 4 |
* | CRA International Inc. | 200 | 4 |
509,325 | |||
Information Technology (14.8%) | |||
Apple Inc. | 281,853 | 134,373 | |
* | Google Inc. Class A | 65,014 | 56,946 |
International Business | |||
Machines Corp. | 307,046 | 56,859 | |
Microsoft Corp. | 1,462,480 | 48,715 | |
Hewlett-Packard Co. | 1,286,487 | 26,990 | |
Cisco Systems Inc. | 1,135,269 | 26,588 | |
Oracle Corp. | 781,187 | 25,912 | |
Xerox Corp. | 2,499,911 | 25,724 | |
Visa Inc. Class A | 129,626 | 24,771 | |
Intel Corp. | 1,063,174 | 24,368 | |
Computer Sciences Corp. | 378,472 | 19,582 | |
QUALCOMM Inc. | 273,607 | 18,430 | |
Mastercard Inc. Class A | 26,599 | 17,895 | |
Texas Instruments Inc. | 413,652 | 16,658 | |
Fidelity National Information | |||
Services Inc. | 348,578 | 16,188 | |
LSI Corp. | 2,003,670 | 15,669 | |
Symantec Corp. | 615,910 | 15,244 | |
Western Digital Corp. | 231,875 | 14,701 | |
Motorola Solutions Inc. | 212,780 | 12,635 | |
* | Autodesk Inc. | 292,200 | 12,030 |
TE Connectivity Ltd. | 215,861 | 11,177 | |
* | VeriSign Inc. | 208,841 | 10,628 |
Western Union Co. | 556,662 | 10,387 | |
CA Inc. | 345,960 | 10,265 | |
Seagate Technology plc | 226,260 | 9,897 | |
* | Electronic Arts Inc. | 348,390 | 8,901 |
Harris Corp. | 120,720 | 7,159 | |
* | Lam Research Corp. | 139,030 | 7,117 |
Broadcom Corp. Class A | 240,870 | 6,265 | |
EMC Corp. | 223,831 | 5,721 | |
* | Juniper Networks Inc. | 279,820 | 5,557 |
* | Fiserv Inc. | 52,380 | 5,293 |
Accenture plc Class A | 71,100 | 5,236 | |
Automatic Data Processing | |||
Inc. | 55,610 | 4,025 | |
* | Red Hat Inc. | 77,600 | 3,580 |
Corning Inc. | 215,649 | 3,146 |
21
Growth and Income Fund
Market | |||
Value• | |||
Shares | ($000) | ||
* | Cognizant Technology | ||
Solutions Corp. Class A | 35,000 | 2,874 | |
* | First Solar Inc. | 52,870 | 2,126 |
* | NCR Corp. | 50,700 | 2,008 |
* | Zebra Technologies Corp. | 40,384 | 1,839 |
* | eBay Inc. | 24,738 | 1,380 |
Paychex Inc. | 30,480 | 1,239 | |
Dell Inc. | 83,700 | 1,153 | |
* | Adobe Systems Inc. | 20,284 | 1,054 |
* | FleetCor Technologies Inc. | 7,900 | 870 |
* | Teradyne Inc. | 50,840 | 840 |
* | F5 Networks Inc. | 8,723 | 748 |
Jabil Circuit Inc. | 30,700 | 666 | |
* | Akamai Technologies Inc. | 12,050 | 623 |
Marvell Technology | |||
Group Ltd. | 49,300 | 567 | |
* | CoreLogic Inc. | 20,000 | 541 |
AOL Inc. | 13,000 | 450 | |
* | Net 1 UEPS Technologies | ||
Inc. | 24,400 | 293 | |
* | Advanced Micro Devices | ||
Inc. | 50,940 | 194 | |
* | Brightcove Inc. | 14,200 | 160 |
* | Silicon Image Inc. | 28,300 | 151 |
* | Quantum Corp. | 65,900 | 91 |
* | Vocus Inc. | 7,200 | 67 |
* | PMC - Sierra Inc. | 8,000 | 53 |
* | Fortinet Inc. | 2,100 | 43 |
* | Aeroflex Holding Corp. | 3,500 | 25 |
* | Mattson Technology Inc. | 9,100 | 22 |
* | MoneyGram International Inc. | 1,093 | 21 |
* | NCI Inc. Class A | 3,244 | 18 |
* | Agilysys Inc. | 1,500 | 18 |
* | Novatel Wireless Inc. | 5,788 | 15 |
* | AsiaInfo-Linkage Inc. | 1,100 | 13 |
* | Identive Group Inc. | 17,600 | 12 |
Broadridge Financial | |||
Solutions Inc. | 349 | 11 | |
* | UTStarcom Holdings Corp. | 1,453 | 4 |
* | Amtech Systems Inc. | 500 | 4 |
* | Dynamics Research Corp. | 300 | 2 |
Pulse Electronics Corp. | 540 | 2 | |
* | Smith Micro Software Inc. | 969 | 1 |
* | Powerwave Technologies | ||
Inc. | 15,776 | — | |
* | FriendFinder Networks Inc. | 1,250 | — |
744,830 | |||
Materials (3.4%) | |||
LyondellBasell Industries NV | |||
Class A | 257,542 | 18,860 | |
PPG Industries Inc. | 112,622 | 18,815 | |
Monsanto Co. | 139,100 | 14,518 | |
Sealed Air Corp. | 515,080 | 14,005 | |
Dow Chemical Co. | 355,403 | 13,647 | |
International Paper Co. | 222,500 | 9,968 |
Avery Dennison Corp. | 204,690 | 8,908 | |
CF Industries Holdings Inc. | 41,450 | 8,739 | |
Valspar Corp. | 133,500 | 8,468 | |
Ball Corp. | 156,036 | 7,003 | |
* | Owens-Illinois Inc. | 221,242 | 6,642 |
EI du Pont de | |||
Nemours & Co. | 112,086 | 6,564 | |
Sherwin-Williams Co. | 27,700 | 5,046 | |
Mosaic Co. | 93,400 | 4,018 | |
Alcoa Inc. | 491,150 | 3,988 | |
Newmont Mining Corp. | 132,660 | 3,728 | |
Ecolab Inc. | 32,400 | 3,200 | |
Vulcan Materials Co. | 50,591 | 2,621 | |
Freeport-McMoRan Copper | |||
& Gold Inc. | 55,463 | 1,835 | |
Nucor Corp. | 37,190 | 1,823 | |
Eastman Chemical Co. | 23,390 | 1,822 | |
Praxair Inc. | 14,350 | 1,725 | |
Airgas Inc. | 11,740 | 1,245 | |
FMC Corp. | 6,615 | 474 | |
Bemis Co. Inc. | 12,000 | 468 | |
International Flavors & | |||
Fragrances Inc. | 4,283 | 352 | |
* | Mercer International Inc. | 49,427 | 350 |
Rockwood Holdings Inc. | 5,200 | 348 | |
Axiall Corp. | 7,600 | 287 | |
Mesabi Trust | 3,098 | 68 | |
FutureFuel Corp. | 3,649 | 66 | |
Huntsman Corp. | 2,300 | 47 | |
Myers Industries Inc. | 2,100 | 42 | |
* | Taminco Corp. | 1,514 | 31 |
* | Clearwater Paper Corp. | 500 | 24 |
* | General Moly Inc. | 1,731 | 3 |
* | Vista Gold Corp. | 4,200 | 2 |
169,750 | |||
Telecommunication Services (2.7%) | |||
AT&T Inc. | 2,126,599 | 71,922 | |
Verizon Communications | |||
Inc. | 849,644 | 39,644 | |
CenturyLink Inc. | 421,400 | 13,224 | |
* | Crown Castle International | ||
Corp. | 77,350 | 5,649 | |
* | Sprint Corp. | 360,115 | 2,236 |
Frontier Communications | |||
Corp. | 490,500 | 2,045 | |
^ | Windstream Holdings Inc. | 212,500 | 1,700 |
136,420 | |||
Utilities (2.4%) | |||
AES Corp. | 1,605,341 | 21,335 | |
PPL Corp. | 404,813 | 12,298 | |
Northeast Utilities | 286,239 | 11,807 | |
PG&E Corp. | 249,900 | 10,226 | |
Edison International | 214,600 | 9,884 | |
DTE Energy Co. | 138,700 | 9,151 |
22
Growth and Income Fund
Market | ||||
Value• | ||||
Shares | ($000) | |||
Pinnacle West Capital Corp. | 157,100 | 8,600 | ||
Ameren Corp. | 238,226 | 8,300 | ||
AGL Resources Inc. | 150,800 | 6,941 | ||
CMS Energy Corp. | 260,600 | 6,859 | ||
Dominion Resources Inc. | 43,304 | 2,706 | ||
Southern Co. | 61,750 | 2,543 | ||
NextEra Energy Inc. | 29,940 | 2,400 | ||
CenterPoint Energy Inc. | 65,442 | 1,569 | ||
American Electric | ||||
Power Co. Inc. | 29,290 | 1,270 | ||
Entergy Corp. | 15,520 | 981 | ||
Duke Energy Corp. | 12,830 | 857 | ||
ONEOK Inc. | 13,430 | 716 | ||
Xcel Energy Inc. | 23,000 | 635 | ||
Exelon Corp. | 11,250 | 333 | ||
NiSource Inc. | 2,700 | 83 | ||
NorthWestern Corp. | 1,700 | 76 | ||
* | Dynegy Inc. | 1,224 | 24 | |
* | NRG Yield Inc. Class A | 49 | 2 | |
119,596 | ||||
Total Common Stocks | ||||
(Cost $4,198,070) | 4,909,800 | |||
Temporary Cash Investments (2.5%)1 | ||||
Money Market Fund (2.4%) | ||||
2,3 | Vanguard Market | |||
Liquidity Fund, | ||||
0.112% | 119,495,495 | 119,495 |
Face | Market | ||
Amount | Value• | ||
($000) | ($000) | ||
U.S. Government and Agency Obligations (0.1%) | |||
4 | Federal Home Loan Bank | ||
Discount Notes, | |||
0.100%, 1/15/14 | 1,000 | 1,000 | |
4,5 | Federal Home Loan Bank | ||
Discount Notes, | |||
0.070%, 3/12/14 | 300 | 300 | |
5,6 | Freddie Mac Discount Notes, | ||
0.073%, 11/12/13 | 5,000 | 4,999 | |
6 | Freddie Mac Discount Notes, | ||
0.095%, 11/18/13 | 100 | 100 | |
6,399 | |||
Total Temporary Cash Investments | |||
(Cost $125,895) | 125,894 | ||
Total Investments (100.2%) | |||
(Cost $4,323,965) | 5,035,694 | ||
Other Assets and Liabilities (-0.2%) | |||
Other Assets | 56,186 | ||
Liabilities3 | (65,369) | ||
(9,183) | |||
Net Assets (100%) | 5,026,511 |
23
Growth and Income Fund
At September 30, 2013, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 4,624,040 |
Undistributed Net Investment Income | 10,362 |
Accumulated Net Realized Losses | (318,806) |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 711,729 |
Futures Contracts | (814) |
Net Assets | 5,026,511 |
Investor Shares—Net Assets | |
Applicable to 79,654,920 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 2,869,385 |
Net Asset Value Per Share— | |
Investor Shares | $36.02 |
Admiral Shares—Net Assets | |
Applicable to 36,673,312 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 2,157,126 |
Net Asset Value Per Share— | |
Admiral Shares | $58.82 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Part of security position is on loan to broker-dealers. The total value of securities on loan is $472,000.
1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to
futures investments, the fund’s effective common stock and temporary cash investment positions represent 99.8% and 0.4%, respectively,
of net assets.
2 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is
the 7-day yield.
3 Includes $541,000 of collateral received for securities on loan.
4 The issuer operates under a congressional charter; its securities are generally neither guaranteed by the U.S. Treasury nor backed by the full
faith and credit of the U.S. government.
5 Securities with a value of $5,299,000 have been segregated as initial margin for open futures contracts.
6 The issuer was placed under federal conservatorship in September 2008; since that time, its daily operations have been managed by the
Federal Housing Finance Agency and it receives capital from the U.S. Treasury, as needed to maintain a positive net worth, in exchange for
senior preferred stock.
REIT—Real Estate Investment Trust.
See accompanying Notes, which are an integral part of the Financial Statements.
24
Growth and Income Fund | |
Statement of Operations | |
Year Ended | |
September 30, 2013 | |
($000) | |
Investment Income | |
Income | |
Dividends1 | 104,943 |
Interest2 | 185 |
Securities Lending | 259 |
Total Income | 105,387 |
Expenses | |
Investment Advisory Fees—Note B | |
Basic Fee | 5,172 |
Performance Adjustment | 536 |
The Vanguard Group—Note C | |
Management and Administrative—Investor Shares | 6,168 |
Management and Administrative—Admiral Shares | 2,097 |
Marketing and Distribution—Investor Shares | 442 |
Marketing and Distribution—Admiral Shares | 251 |
Custodian Fees | 228 |
Auditing Fees | 28 |
Shareholders’ Reports—Investor Shares | 77 |
Shareholders’ Reports—Admiral Shares | 10 |
Trustees’ Fees and Expenses | 15 |
Total Expenses | 15,024 |
Expenses Paid Indirectly | (51) |
Net Expenses | 14,973 |
Net Investment Income | 90,414 |
Realized Net Gain (Loss) | |
Investment Securities Sold | 598,924 |
Futures Contracts | 18,833 |
Realized Net Gain (Loss) | 617,757 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | 125,658 |
Futures Contracts | 200 |
Change in Unrealized Appreciation (Depreciation) | 125,858 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 834,029 |
1 Dividends are net of foreign withholding taxes of $201,000. | |
2 Interest income from an affiliated company of the fund was $177,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
25
Growth and Income Fund | ||
Statement of Changes in Net Assets | ||
Year Ended September 30, | ||
2013 | 2012 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 90,414 | 81,914 |
Realized Net Gain (Loss) | 617,757 | 463,150 |
Change in Unrealized Appreciation (Depreciation) | 125,858 | 558,291 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 834,029 | 1,103,355 |
Distributions | ||
Net Investment Income | ||
Investor Shares | (53,617) | (51,327) |
Admiral Shares | (36,430) | (27,485) |
Realized Capital Gain | ||
Investor Shares | — | — |
Admiral Shares | — | — |
Total Distributions | (90,047) | (78,812) |
Capital Share Transactions | ||
Investor Shares | (383,262) | (437,673) |
Admiral Shares | 276,911 | 122,956 |
Net Increase (Decrease) from Capital Share Transactions | (106,351) | (314,717) |
Total Increase (Decrease) | 637,631 | 709,826 |
Net Assets | ||
Beginning of Period | 4,388,880 | 3,679,054 |
End of Period1 | 5,026,511 | 4,388,880 |
1 Net Assets—End of Period includes undistributed net investment income of $10,362,000 and $9,985,000.
See accompanying Notes, which are an integral part of the Financial Statements.
26
Growth and Income Fund | |||||
Financial Highlights | |||||
Investor Shares | |||||
For a Share Outstanding | Year Ended September 30, | ||||
Throughout Each Period | 2013 | 2012 | 2011 | 2010 | 2009 |
Net Asset Value, Beginning of Period | $30.73 | $23.86 | $23.98 | $22.34 | $25.84 |
Investment Operations | |||||
Net Investment Income | . 631 | . 549 | .482 | .418 | .447 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 5.288 | 6.846 | (.124) | 1.630 | (3.453) |
Total from Investment Operations | 5.919 | 7.395 | .358 | 2.048 | (3.006) |
Distributions | |||||
Dividends from Net Investment Income | (. 629) | (. 525) | (. 478) | (.408) | (.494) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (. 629) | (. 525) | (. 478) | (.408) | (.494) |
Net Asset Value, End of Period | $36.02 | $30.73 | $23.86 | $23.98 | $22.34 |
Total Return1 | 19.54% | 31.27% | 1.28% | 9.24% | -11.29% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $2,869 | $2,798 | $2,548 | $3,020 | $3,253 |
Ratio of Total Expenses to | |||||
Average Net Assets2 | 0.36% | 0.36% | 0.32% | 0.32% | 0.35% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.90% | 1.94% | 1.78% | 1.74% | 2.28% |
Portfolio Turnover Rate | 109% | 102% | 120% | 94% | 83% |
1 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.
2 Includes performance-based investment advisory fee increases (decreases) of 0.01%, 0.01%, (0.04%), (0.04%), and (0.04%).
See accompanying Notes, which are an integral part of the Financial Statements.
27
Growth and Income Fund | |||||
Financial Highlights | |||||
Admiral Shares | |||||
For a Share Outstanding | Year Ended September 30, | ||||
Throughout Each Period | 2013 | 2012 | 2011 | 2010 | 2009 |
Net Asset Value, Beginning of Period | $50.18 | $38.97 | $39.15 | $36.48 | $42.20 |
Investment Operations | |||||
Net Investment Income | 1.097 | .952 | .832 | .722 | .775 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 8.633 | 11.168 | (.199) | 2.666 | (5.638) |
Total from Investment Operations | 9.730 | 12.120 | .633 | 3.388 | (4.863) |
Distributions | |||||
Dividends from Net Investment Income | (1.090) | (.910) | (.813) | (.718) | (.857) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.090) | (.910) | (.813) | (.718) | (.857) |
Net Asset Value, End of Period | $58.82 | $50.18 | $38.97 | $39.15 | $36.48 |
Total Return | 19.69% | 31.40% | 1.39% | 9.37% | -11.15% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $2,157 | $1,591 | $1,131 | $1,199 | $1,441 |
Ratio of Total Expenses to | |||||
Average Net Assets1 | 0.26% | 0.25% | 0.21% | 0.21% | 0.21% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.00% | 2.05% | 1.89% | 1.85% | 2.42% |
Portfolio Turnover Rate | 109% | 102% | 120% | 94% | 83% |
1 Includes performance-based investment advisory fee increases (decreases) of 0.01%, 0.01%, (0.04%), (0.04%), and (0.04%).
See accompanying Notes, which are an integral part of the Financial Statements.
28
Growth and Income Fund
Notes to Financial Statements
Vanguard Growth and Income Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Investor Shares and Admiral Shares. Investor Shares are available to any investor who meets the fund’s minimum purchase requirements. Admiral Shares are designed for investors who meet certain administrative, service, and account-size criteria.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. mutual funds. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 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 acquired over 60 days to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments are valued at amortized cost, which approximates market value.
2. Futures Contracts: The fund may use index futures contracts to a limited extent, with the objective of maintaining full exposure to the stock market while maintaining liquidity. The fund may purchase or sell futures contracts to achieve a desired level of investment, whether to accommodate portfolio turnover or cash flows from capital share transactions. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.
Futures contracts are valued at their quoted daily settlement prices. The aggregate notional amounts of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized futures gains (losses).
During the year ended September 30, 2013, the fund’s average investments in long and short futures contracts represented 2% and 0% of net assets, respectively, based on quarterly average aggregate settlement values.
3. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (September 30, 2010–2013), and has concluded that no provision for federal income tax is required in the fund’s financial statements.
4. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
29
Growth and Income Fund
5. Securities Lending: To earn additional income, the fund may lend its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence 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 for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
6. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) 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. D. E. Shaw Investment Management, L.L.C., and Los Angeles Capital Management and Equity Research, Inc., each provide investment advisory services to a portion of the fund for a fee calculated at an annual percentage rate of average net assets managed by the advisor. The basic fees of D. E. Shaw Investment Management, L.L.C., and Los Angeles Capital Management and Equity Research, Inc., are subject to quarterly adjustments based on performance since September 30, 2011, relative to the S&P 500 Index.
The Vanguard Group provides investment advisory services to a portion of the fund on an at-cost basis; the fund paid Vanguard advisory fees of $796,000 for the year ended September 30, 2013.
For the year ended September 30, 2013, the aggregate investment advisory fee represented an effective annual basic rate of 0.11% of the fund’s average net assets, before an increase of $536,000 (0.01%) based on performance.
C. The Vanguard Group furnishes at cost corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the fund under methods approved by the board of trustees. The fund has committed to provide up to 0.40% of its net assets in capital contributions to Vanguard. At September 30, 2013, the fund had contributed capital of $599,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.24% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
30
Growth and Income Fund
D. The fund has asked its investment advisors to direct certain security trades, subject to obtaining the best price and execution, to brokers who have agreed to rebate to the fund part of the commissions generated. Such rebates are used solely to reduce the fund’s management and administrative expenses. For the year ended September 30, 2013, these arrangements reduced the fund’s expenses by $51,000 (an annual rate of 0.00% of average net assets).
E. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
The following table summarizes the market value of the fund’s investments as of September 30, 2013, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 4,909,800 | — | — |
Temporary Cash Investments | 119,495 | 6,399 | — |
Futures Contracts—Liabilities1 | (777) | — | — |
Total | 5,028,518 | 6,399 | — |
1 Represents variation margin on the last day of the reporting period. |
F. At September 30, 2013, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were:
($000) | ||||
Aggregate | ||||
Number of | Settlement | Unrealized | ||
Long (Short) | Value Long | Appreciation | ||
Futures Contracts | Expiration | Contracts | (Short) | (Depreciation) |
S&P 500 Index | December 2013 | 245 | 102,551 | (758) |
E-mini S&P 500 Index | December 2013 | 61 | 5,106 | (56) |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
G. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
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Growth and Income Fund
Certain of the fund’s investments are in securities considered to be “passive foreign investment companies,” for which any unrealized appreciation and/or realized gains are required to be included in distributable net income for tax purposes. During the year ended September 30, 2013, the fund realized gains on the sale of passive foreign investment companies of $10,000, which have been included in current and prior periods’ taxable income; accordingly, such gains have been reclassified from accumulated net realized losses to undistributed net investment income.
For tax purposes, at September 30, 2013, the fund had $22,943,000 of ordinary income available for distribution. The fund used capital loss carryforwards of $618,652,000 to offset taxable capital gains realized during the year ended September 30, 2013. At September 30, 2013, the fund had available capital losses totaling $318,390,000 to offset future net capital gains through September 30, 2018.
At September 30, 2013, the cost of investment securities for tax purposes was $4,325,784,000. Net unrealized appreciation of investment securities for tax purposes was $709,910,000, consisting of unrealized gains of $779,991,000 on securities that had risen in value since their purchase and $70,081,000 in unrealized losses on securities that had fallen in value since their purchase.
H. During the year ended September 30, 2013, the fund purchased $4,948,092,000 of investment securities and sold $5,069,798,000 of investment securities, other than temporary cash investments.
I. Capital share transactions for each class of shares were: | ||||
Year Ended September 30, | ||||
2013 | 2012 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
Investor Shares | ||||
Issued | 212,836 | 6,415 | 196,350 | 6,915 |
Issued in Lieu of Cash Distributions | 52,142 | 1,640 | 49,896 | 1,822 |
Redeemed | (648,240) | (19,450) | (683,919) | (24,460) |
Net Increase (Decrease)—Investor Shares | (383,262) | (11,395) | (437,673) | (15,723) |
Admiral Shares | ||||
Issued | 485,483 | 8,814 | 303,344 | 6,585 |
Issued in Lieu of Cash Distributions | 33,824 | 649 | 25,393 | 568 |
Redeemed | (242,396) | (4,496) | (205,781) | (4,475) |
Net Increase (Decrease) —Admiral Shares | 276,911 | 4,967 | 122,956 | 2,678 |
J. Management has determined that no material events or transactions occurred subsequent to September 30, 2013, that would require recognition or disclosure in these financial statements.
32
Report of Independent Registered Public Accounting Firm
To the Trustees of Vanguard Quantitative Funds and the Shareholders of Vanguard Growth and Income Fund:
In our opinion, the accompanying statement of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Vanguard Growth and Income Fund (constituting a separate portfolio of Vanguard Quantitative Funds, hereafter referred to as the “Fund”) at September 30, 2013, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2013 by correspondence with the custodian and broker and by agreement to the underlying ownership records of the transfer agent, provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
November 7, 2013
Special 2013 tax information (unaudited) for Vanguard Growth and Income Fund
This information for the fiscal year ended September 30, 2013, is included pursuant to provisions of the Internal Revenue Code.
The fund distributed $90,047,000 of qualified dividend income to shareholders during the fiscal year.
For corporate shareholders, 100% of investment income (dividend income plus short-term gains, if any) qualifies for the dividends-received deduction.
33
Your Fund’s After-Tax Returns
This table presents returns for your fund both before and after taxes. The after-tax returns are shown in two ways: (1) assuming that an investor owned the fund during the entire period and paid taxes on the fund’s distributions, and (2) assuming that an investor paid taxes on the fund’s distributions and sold all shares at the end of each period.
Calculations are based on the highest individual federal income tax and capital gains tax rates in effect at the times of the distributions and the hypothetical sales. State and local taxes were not considered. After-tax returns reflect any qualified dividend income, using actual prior-year figures and estimates for 2013. (In the example, returns after the sale of fund shares may be higher than those assuming no sale. This occurs when the sale would have produced a capital loss. The calculation assumes that the investor received a tax deduction for the loss.)
The table shows returns for one share class only; returns for other share classes will differ. Please note that your actual after-tax returns will depend on your tax situation and may differ from those shown. Also note that if you own the fund in a tax-deferred account, such as an individual retirement account or a 401(k) plan, this information does not apply to you. Such accounts are not subject to current taxes.
Finally, keep in mind that a fund’s performance—whether before or after taxes—does not guarantee future results.
Average Annual Total Returns: Growth and Income Fund Investor Shares
Periods Ended September 30, 2013
One | Five | Ten | |
Year | Years | Years | |
Returns Before Taxes | 19.54% | 9.02% | 6.89% |
Returns After Taxes on Distributions | 19.11 | 8.68 | 6.39 |
Returns After Taxes on Distributions and Sale of Fund Shares | 11.54 | 7.16 | 5.65 |
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About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table illustrates your fund’s costs in two ways:
• Based on actual fund return. This section helps you to estimate the actual expenses that you paid
over the period. The ”Ending Account Value“ shown is derived from the fund‘s actual return, and the
third column shows the dollar amount that would have been paid by an investor who started with
$1,000 in the fund. You may use the information here, together with the amount you invested, to
estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading ”Expenses Paid During Period.“
• Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s
costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before
expenses, but that the expense ratio is unchanged. In this case—because the return used is not the
fund’s actual return—the results do not apply to your investment. The example is useful in making
comparisons because the Securities and Exchange Commission requires all mutual funds to calculate
expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical
example with the hypothetical examples that appear in shareholder reports of other funds.
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.
35
Six Months Ended September 30, 2013 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
Growth and Income Fund | 3/31/2013 | 9/30/2013 | Period |
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $1,083.66 | $1.93 |
Admiral Shares | 1,000.00 | 1,084.38 | 1.36 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,023.21 | $1.88 |
Admiral Shares | 1,000.00 | 1,023.76 | 1.32 |
The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios for that period are 0.37% for Investor Shares and 0.26% for Admiral Shares. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period.
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Trustees Approve Advisory Arrangements
The board of trustees of Vanguard Growth and Income Fund has renewed the fund’s investment advisory arrangements with D. E. Shaw Investment Management, L.L.C. (DESIM), Los Angeles Capital Management and Equity Research, Inc. (LA Capital), and The Vanguard Group, Inc. (Vanguard), through its Equity Investment Group. The board determined that renewing the fund’s advisory arrangements was in the best interest of the fund and its shareholders.
The board based its decision upon an evaluation of each advisor’s investment staff, portfolio management process, and performance. The trustees considered the factors discussed below, among others. However, no single factor determined whether the board approved the arrangements. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of services
The board considered the quality of each advisor’s investment management services provided to the fund since 2011, and took into account the organizational depth and stability of each advisor. The board noted the following:
DESIM. Founded in 2005, DESIM is a global investment management and technology development firm. The firm employs quantitative models that seek to capture predominantly “bottom-up” stock-specific return opportunities while aiming to control overall portfolio risk and characteristics, such as size, sector weights, and style, to be similar to those of the benchmark. DESIM has managed a portion of the fund since 2011.
LA Capital. LA Capital was formed in 2002 from the equity portion of Wilshire Asset Management. The firm employs a quantitative model that seeks to emphasize stocks with characteristics that investors are currently seeking and to underweight stocks with characteristics that investors are currently avoiding. LA Capital has managed a portion of the fund since 2011.
Vanguard. Vanguard has been managing investments for more than three decades. The Equity Investment Group adheres to a sound, disciplined investment management process; the team has considerable experience, stability, and depth. Vanguard has managed a portion of the fund since 2011.
The board concluded that each advisor’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangements.
Investment performance
The board considered the fund’s investment performance since each advisor began managing the fund in 2011, including any periods of outperformance or underperformance relative to a benchmark index and peer group. The board concluded that the performance was such that the advisory arrangement should continue. Information about the fund’s most recent performance can be found in the Performance Summary section of this report.
37
Cost
The board concluded that the fund’s expense ratio was well below the average expense ratio charged by funds in its peer group and that the fund’s advisory fee rate was also well below its peer-group average. Information about the fund’s expense ratio appears in the About Your Fund’s Expenses section of this report as well as in the Financial Statements section, which also includes information about the fund’s advisory fee rate.
The board did not consider profitability of DESIM and LA Capital in determining whether to approve the advisory fees, because the firms are independent of Vanguard, and the advisory fees are the result of arm’s-length negotiations. The board does not conduct a profitability analysis of Vanguard, because of Vanguard’s unique “at-cost” structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees, and produces “profits” only in the form of reduced expenses for fund shareholders.
The benefit of economies of scale
The board concluded that the fund’s shareholders benefit from economies of scale because of breakpoints in the advisory fee schedules for DESIM and LA Capital. The breakpoints reduce the effective rate of the fee as the fund’s assets managed by each advisor increase. The board also concluded that the fund’s at-cost arrangement with Vanguard ensures that the fund will realize economies of scale as it grows, with the cost to shareholders declining as the fund’s assets managed by Vanguard increase.
The board will consider whether to renew the advisory arrangements again after a one-year period.
38
Glossary
30-Day SEC Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (for bonds), its actual income (for asset-backed securities), or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.
Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Dividend Yield. Dividend income earned by stocks, expressed as a percentage of the aggregate market value (or of net asset value, for a fund). The yield is determined by dividing the amount of the annual dividends by the aggregate value (or net asset value) at the end of the period. For a fund, the dividend yield is based solely on stock holdings and does not include any income produced by other investments.
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.
Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.
Foreign Holdings. The percentage of a fund represented by securities or depositary receipts of companies based outside the United States.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.
39
Price/Earnings Ratio. The ratio of a stock’s current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company’s future growth.
R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0. For this report, R-squared is based on returns over the past 36 months for both the fund and the index.
Return on Equity. The annual average rate of return generated by a company during the past five years for each dollar of shareholder’s equity (net income divided by shareholder’s equity). For a fund, the weighted average return on equity for the companies whose stocks it holds.
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
Turnover Rate. An indication of the fund’s trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to investors). The turnover rate excludes in-kind transactions, which have minimal impact on costs.
40
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The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 181 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
InterestedTrustee1 | and Delphi Automotive LLP (automotive components); |
Senior Advisor at New Mountain Capital; Trustee of | |
F. William McNabb III | The Conference Board. |
Born 1957. Trustee Since July 2009. Chairman of the | |
Board. Principal Occupation(s) During the Past Five | |
Years: Chairman of the Board of The Vanguard Group, | Amy Gutmann |
Inc., and of each of the investment companies served | Born 1949. Trustee Since June 2006. Principal |
by The Vanguard Group, since January 2010; Director | Occupation(s) During the Past Five Years: President |
of The Vanguard Group since 2008; Chief Executive | of the University of Pennsylvania; Christopher H. |
Officer and President of The Vanguard Group and of | Browne Distinguished Professor of Political Science |
each of the investment companies served by The | in the School of Arts and Sciences with secondary |
Vanguard Group since 2008; Director of Vanguard | appointments at the Annenberg School for |
Marketing Corporation; Managing Director of The | Communication and the Graduate School of Education |
Vanguard Group (1995–2008). | of the University of Pennsylvania; Member of the |
National Commission on the Humanities and Social | |
Sciences; Trustee of Carnegie Corporation of New | |
IndependentTrustees | York and of the National Constitution Center; Chair |
of the U. S. Presidential Commission for the Study | |
of Bioethical Issues. | |
Emerson U. Fullwood | |
Born 1948. Trustee Since January 2008. Principal | JoAnn Heffernan Heisen |
Occupation(s) During the Past Five Years: Executive | Born 1950. Trustee Since July 1998. Principal |
Chief Staff and Marketing Officer for North America | Occupation(s) During the Past Five Years: Corporate |
and Corporate Vice President (retired 2008) of Xerox | Vice President and Chief Global Diversity Officer |
Corporation (document management products and | (retired 2008) and Member of the Executive |
services); Executive in Residence and 2010 | Committee (1997–2008) of Johnson & Johnson |
Distinguished Minett Professor at the Rochester | (pharmaceuticals/medical devices/consumer |
Institute of Technology; Director of SPX Corporation | products); Director of Skytop Lodge Corporation |
(multi-industry manufacturing), the United Way of | (hotels), the University Medical Center at Princeton, |
Rochester, Amerigroup Corporation (managed health | the Robert Wood Johnson Foundation, and the Center |
care), the University of Rochester Medical Center, | for Talent Innovation; Member of the Advisory Board |
Monroe Community College Foundation, and North | of the Maxwell School of Citizenship and Public Affairs |
Carolina A&T University. | at Syracuse University. |
Rajiv L. Gupta | F. Joseph Loughrey |
Born 1945. Trustee Since December 2001.2 | Born 1949. Trustee Since October 2009. Principal |
Principal Occupation(s) During the Past Five Years: | Occupation(s) During the Past Five Years: President |
Chairman and Chief Executive Officer (retired 2009) | and Chief Operating Officer (retired 2009) of Cummins |
and President (2006–2008) of Rohm and Haas Co. | Inc. (industrial machinery); Chairman of the Board of |
(chemicals); Director of Tyco International, Ltd. | Hillenbrand, Inc. (specialized consumer services) and |
(diversified manufacturing and services), Hewlett- | of Oxfam America; Director of SKF AB (industrial |
Packard Co. (electronic computer manufacturing), | |
machinery) and the Lumina Foundation for Education; | Executive Officers | |
Member of the Advisory Council for the College of | ||
Arts and Letters and of the Advisory Board to the | Glenn Booraem | |
Kellogg Institute for International Studies, both at | Born 1967. Controller Since July 2010. Principal | |
the University of Notre Dame. | Occupation(s) During the Past Five Years: Principal | |
of The Vanguard Group, Inc.; Controller of each of | ||
Mark Loughridge | the investment companies served by The Vanguard | |
Born 1953. Trustee Since March 2012. Principal | Group; Assistant Controller of each of the investment | |
Occupation(s) During the Past Five Years: Senior Vice | companies served by The Vanguard Group (2001–2010). | |
President and Chief Financial Officer at IBM (information | ||
technology services); Fiduciary Member of IBM’s | Thomas J. Higgins | |
Retirement Plan Committee. | Born 1957. Chief Financial Officer Since September | |
2008. Principal Occupation(s) During the Past Five | ||
Scott C. Malpass | Years: Principal of The Vanguard Group, Inc.; Chief | |
Born 1962. Trustee Since March 2012. Principal | Financial Officer of each of the investment companies | |
Occupation(s) During the Past Five Years: Chief | served by The Vanguard Group; Treasurer of each of | |
Investment Officer and Vice President at the University | the investment companies served by The Vanguard | |
of Notre Dame; Assistant Professor of Finance at the | Group (1998–2008). | |
Mendoza College of Business at Notre Dame; Member | ||
of the Notre Dame 403(b) Investment Committee; | Kathryn J. Hyatt | |
Director of TIFF Advisory Services, Inc. (investment | Born 1955. Treasurer Since November 2008. Principal | |
advisor); Member of the Investment Advisory | Occupation(s) During the Past Five Years: Principal of | |
Committees of the Financial Industry Regulatory | The Vanguard Group, Inc.; Treasurer of each of the | |
Authority (FINRA) and of Major League Baseball. | investment companies served by The Vanguard | |
Group; Assistant Treasurer of each of the investment | ||
André F. Perold | companies served by The Vanguard Group (1988–2008). | |
Born 1952. Trustee Since December 2004. Principal | ||
Occupation(s) During the Past Five Years: George | Heidi Stam | |
Gund Professor of Finance and Banking at the Harvard | Born 1956. Secretary Since July 2005. Principal | |
Business School (retired 2011); Chief Investment | Occupation(s) During the Past Five Years: Managing | |
Officer and Managing Partner of HighVista Strategies | Director of The Vanguard Group, Inc.; General Counsel | |
LLC (private investment firm); Director of Rand | of The Vanguard Group; Secretary of The Vanguard | |
Merchant Bank; Overseer of the Museum of Fine | Group and of each of the investment companies | |
Arts Boston. | served by The Vanguard Group; Director and Senior | |
Vice President of Vanguard Marketing Corporation. | ||
Alfred M. Rankin, Jr. | ||
Born 1941. Trustee Since January 1993. Principal | ||
Occupation(s) During the Past Five Years: Chairman, | Vanguard Senior ManagementTeam | |
President, and Chief Executive Officer of NACCO | Mortimer J. Buckley | Chris D. McIsaac |
Industries, Inc. (housewares/lignite) and of Hyster-Yale | Kathleen C. Gubanich | Michael S. Miller |
Materials Handling, Inc. (forklift trucks); Director of | Paul A. Heller | James M. Norris |
the National Association of Manufacturers; Chairman | Martha G. King | Glenn W. Reed |
of the Board of University Hospitals of Cleveland; | John T. Marcante | |
Advisory Chairman of the Board of The Cleveland | ||
Museum of Art. | ||
Chairman Emeritus and Senior Advisor | ||
Peter F. Volanakis | John J. Brennan | |
Born 1955. Trustee Since July 2009. Principal | Chairman, 1996–2009 | |
Occupation(s) During the Past Five Years: President | ||
and Chief Operating Officer (retired 2010) of Corning | Chief Executive Officer and President, 1996–2008 | |
Incorporated (communications equipment); Director | ||
of SPX Corporation (multi-industry manufacturing); | Founder | |
Overseer of the Amos Tuck School of Business | John C. Bogle | |
Administration at Dartmouth College; Advisor to the | Chairman and Chief Executive Officer, 1974–1996 | |
Norris Cotton Cancer Center. |
1 Mr. McNabb is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the Vanguard funds.
2 December 2002 for Vanguard Equity Income Fund, Vanguard Growth Equity Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.
P.O. Box 2600
Valley Forge, PA 19482-2600
Connect with Vanguard® > vanguard.com
Fund Information > 800-662-7447 | CFA® is a trademark owned by CFA Institute. |
Direct Investor Account Services > 800-662-2739 | |
Institutional Investor Services > 800-523-1036 | |
Text Telephone for People | |
With Hearing Impairment > 800-749-7273 | |
This material may be used in conjunction | |
with the offering of shares of any Vanguard | |
fund only if preceded or accompanied by | |
the fund’s current prospectus. | |
All comparative mutual fund data are from Lipper, a | |
Thomson Reuters Company, or Morningstar, Inc., unless | |
otherwise noted. | |
You can obtain a free copy of Vanguard’s proxy voting | |
guidelines by visiting vanguard.com/proxyreporting or by | |
calling Vanguard at 800-662-2739. The guidelines are | |
also available from the SEC’s website, sec.gov. In | |
addition, you may obtain a free report on how your fund | |
voted the proxies for securities it owned during the 12 | |
months ended June 30. To get the report, visit either | |
vanguard.com/proxyreporting or sec.gov. | |
You can review and copy information about your fund at | |
the SEC’s Public Reference Room in Washington, D.C. To | |
find out more about this public service, call the SEC at | |
202-551-8090. Information about your fund is also | |
available on the SEC’s website, and you can receive | |
copies of this information, for a fee, by sending a | |
request in either of two ways: via e-mail addressed to | |
publicinfo@sec.gov or via regular mail addressed to the | |
Public Reference Section, Securities and Exchange | |
Commission, Washington, DC 20549-1520. | |
© 2013 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q930 112013 |
Annual Report | September 30, 2013
Vanguard Structured Equity Funds
Vanguard’s Principles for Investing Success
We want to give you the best chance of investment success. These principles, grounded in Vanguard’s research and experience, can put you on the right path.
Goals. Create clear, appropriate investment goals.
Balance. Develop a suitable asset allocation using broadly diversified funds.
Cost. Minimize cost.
Discipline. Maintain perspective and long-term discipline.
A single theme unites these principles: Focus on the things you can control.
We believe there is no wiser course for any investor.
Contents | |
Your Fund’s Total Returns. | 1 |
Chairman’s Letter. | 2 |
Advisor’s Report. | 8 |
Structured Large-Cap Equity Fund. | 10 |
Structured Broad Market Fund. | 25 |
About Your Fund’s Expenses. | 42 |
Glossary. | 44 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice.
Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the
risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
About the cover: The ship's wheel represents leadership and guidance, essential qualities in navigating difficult seas.
This one is a replica based on an 18th-century British vessel. The HMS Vanguard, another ship of that era, served as the
flagship for Admiral Horatio Nelson when he defeated a French fleet at the Battle of the Nile.
Your Fund’s Total Returns | |
Fiscal Year Ended September 30, 2013 | |
Total | |
Returns | |
Vanguard Structured Large-Cap Equity Fund | |
Institutional Shares | 18.93% |
Institutional Plus Shares | 19.02 |
S&P 500 Index | 19.34 |
Large-Cap Core Funds Average | 19.85 |
Large-Cap Core Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.
| |
Vanguard Structured Broad Market Fund | |
Institutional Shares | 22.85% |
Institutional Plus Shares | 22.95 |
Russell 3000 Index | 21.60 |
Multi-Cap Core Funds Average | 22.81 |
Multi-Cap Core Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.
Institutional Shares and Institutional Plus Shares are available to certain institutional investors who meet specific administrative, service, and
account-size criteria.
Your Fund’s Performance at a Glance | ||||
September 30, 2012, Through September 30, 2013 | ||||
Distributions Per Share | ||||
Starting | Ending | |||
Share | Share | Income | Capital | |
Price | Price | Dividends | Gains | |
Vanguard Structured Large-Cap Equity Fund | ||||
Institutional Shares | $27.83 | $32.42 | $0.570 | $0.000 |
Institutional Plus Shares | 55.02 | 64.10 | 1.164 | 0.000 |
Vanguard Structured Broad Market Fund | ||||
Institutional Shares | $27.10 | $32.59 | $0.575 | $0.000 |
Institutional Plus Shares | 54.17 | 65.15 | 1.186 | 0.000 |
1
Chairman’s Letter
Dear Shareholder,
Sluggish but sustained growth in the U.S. economy was enough to lift investor sentiment and push the broad stock market significantly higher during the fiscal year ended September 30, 2013. Small-capitalization stocks gained even more than their larger-cap counterparts as investors looked to these riskier investments for potentially greater returns.
Given investors’ tilt toward smaller-cap stocks during the period, Vanguard Structured Broad Market Fund notched a better performance than its large-cap counterpart. The fund, which includes small-, mid-, and large-cap stocks, returned almost 23%, outpacing its benchmark, the Russell 3000 Index, by more than a percentage point and edging ahead of the average return of its peers as well.
Vanguard Structured Large-Cap Equity Fund returned about 19% over the same period, a little less than its bench-mark, the Standard & Poor’s 500 Index, and about a percentage point behind the average return of its peers.
In terms of sectors, industrials, consumer discretionary, health care, and financials each produced returns above 27% in both benchmarks, while utilities, technology, and telecommunication services were the laggards. Where stock choices helped or hurt relative performance, however, varied between the funds.
2
Note: If you hold shares in a taxable account, you may wish to review the table of after-tax returns, based on the highest federal income tax bracket, that appears later in this report.
Stocks dodged obstacles
to produce strong gains
Although their path wasn’t always smooth, U.S. stocks powered to a return of about 22% for the 12 months ended September 30. The U.S. economy delivered only modest growth over the fiscal year, but investors’ appetite for stocks seemed to increase faster than companies’ profits.
In mid-September, U.S. stocks jumped when the Federal Reserve surprised investors by announcing that it had no immediate plans to unwind its stimulative
bond-buying program. But in the waning days of that month, stocks slid ahead of the partial federal government shutdown that began October 1.
It’s natural for investors to be concerned by the situation in Washington. But as Sarah Hammer, a senior analyst in Vanguard Investment Strategy Group, noted in the midst of the temporary shutdown, they shouldn’t be unduly influenced by these events. “Investors are often best served by sticking to their long-term investment plans and avoiding short-term decisions based on the legislative outlook,” Ms. Hammer said. Our recurrent advice to stick to your plan may lack pizzazz, but it’s proven to be sound counsel over the decades.
Market Barometer | |||
Average Annual Total Returns | |||
Periods Ended September 30, 2013 | |||
One | Three | Five | |
Year | Years | Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 20.91% | 16.64% | 10.53% |
Russell 2000 Index (Small-caps) | 30.06 | 18.29 | 11.15 |
Russell 3000 Index (Broad U.S. market) | 21.60 | 16.76 | 10.58 |
MSCI All Country World Index ex USA (International) | 16.48 | 5.95 | 6.26 |
Bonds | |||
Barclays U.S. Aggregate Bond Index (Broad taxable market) | -1.68% | 2.86% | 5.41% |
Barclays Municipal Bond Index (Broad tax-exempt market) | -2.21 | 3.24 | 5.98 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.07 | 0.07 | 0.14 |
CPI | |||
Consumer Price Index | 1.18% | 2.34% | 1.37% |
3
International stocks generally posted strong results. Emerging-market stocks, however, lagged amid worries about slowing economic growth.
Bond returns were negative
despite September’s bounce
Investor concern about the Fed’s potential scaling back of its bond-buying program also affected the performance of bonds, which posted declines for the year. In September, however, bonds trimmed their losses after the Fed said it would continue the purchases.
The broad U.S. taxable bond market returned –1.68% for the fiscal year, and the yield of the 10-year Treasury note closed at 2.63%, down from 2.76% a month earlier. (Bond yields and prices move in opposite directions.) Municipal bonds returned –2.21% after rebounding a bit in September.
Money markets and savings accounts barely budged as the Fed’s target for short-term interest rates remained at 0%–0.25%.
Sources of strength and weakness differed from fund to fund
Like other funds that employ a quantitative investment strategy, the Structured Broad Market Fund and the Structured Large-Cap Equity Fund rely on a computer model to drive their stock selection process. What our funds’ model is looking for as it scans the U.S. market reflects the advisor’s convictions about which characteristics of a stock are most predictive of future outperformance.
That process resulted in the Broad Market Fund’s holding a selection of about 210 stocks at the end of the fiscal year, compared with approximately 2,970 in its benchmark. The comparable figures for the Large-Cap Equity Fund were about 180 and 500.
For both funds, the advisor’s quantitative analysis proved particularly successful among industrial stocks during the 12-month period. Airline-related holdings were among the top performers. There has been some consolidation in the industry contributing to fuller flights, less intense competition, and higher ticket prices, all meaning opportunity for higher profit margins.
For the Broad Market Fund, the consumer staples sector also generated outsized returns through a very narrow selection of the stocks of personal care companies and of food packagers and retailers.
In contrast, stock selection in technology, especially among software companies and computer hardware makers, was the main detractor from the fund’s performance relative to its benchmark.
For the Large-Cap Equity Fund, stock selection successes were more modest. The quantitative screening resulted in the fund’s holding some stocks that did better than the overall market in both the energy and materials sectors, notably oil and gas companies and chemical manufacturers. It also helped the fund to sidestep some pockets of stocks that did poorly over the
4
12-month period, including those of coal producers and of metals and mining companies.
Although stock selection was subpar in telecommunication services and health care, the fund’s biggest misstep was not holding some of the strongest performers in the financial sector.
Earlier disappointments continue
to weigh on the funds’ track records
As all seasoned investors can report, any given investment strategy tends to work better under some market conditions than others. Quantitative funds in general struggled during the financial crisis, when the stock market dropped sharply across the board, and then post-crisis, when
the overall market rebounded. That’s not surprising, as the advisors of quantitative funds use computer models to identify individual stocks that are likely to perform better than their peers over time. This strategy has worked better in recent years, when stocks have generally moved less in lockstep with one another as investors focused more closely on the merits of individual companies.
So, although the Broad Market Fund outpaced its benchmark in each of the past three fiscal years, and the Large-Cap Equity Fund did so in two of those years, there have been periods when they have lagged. Compared with the average returns of their peers (which include
Total Returns | |
Inception Through September 30, 2013 | |
Average | |
Annual Return | |
Structured Large-Cap Equity Fund Institutional Plus Shares (Returns since inception: 5/15/2006) | 5.82% |
S&P 500 Index | 5.86 |
Large-Cap Core Funds Average | 4.80 |
Large-Cap Core Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. | |
Structured Broad Market Fund Institutional Plus Shares (Returns since inception: 5/3/2004) | 7.23% |
Russell 3000 Index | 7.18 |
Multi-Cap Core Funds Average | 6.24 |
Multi-Cap Core Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.
The figures shown represent past performance, which is not a guarantee of future results. (Current performance may be
lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our
website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so
an investor’s shares, when sold, could be worth more or less than their original cost.
5
Investment insight | |
Don’t let a trick of the calendar alter your course | |
When making investment decisions, it’s important to weigh past returns with caution. | |
That’s because investment returns from any particular period are an unreliable anchor | |
for gauging the future. They can be highly date-dependent. | |
For example, take the five-year average annual return for the broad U.S. stock | |
market. That average just made a startling bounce: from 1.30% for the period | |
ended September 30, 2012, to 10.58% for the period ended September 30, 2013. | |
True, the market returned a hearty 21.60% in the most recent 12 months, but that’s | |
not enough to explain such a big leap in the average. Significantly, the year ended | |
September 30, 2008––when U.S. stocks returned –21.52% during the financial | |
crisis––has now rolled off the five-year calculation. | |
The important thing to remember is that historical returns are just that: historical. | |
Basing investment decisions on such date-dependent snapshots could easily lead | |
you to alter course––possibly in the wrong direction. Instead, Vanguard believes, you | |
should build your asset allocation strategy on long-term risk-and-return relationships, | |
always recognizing that no level of return is guaranteed. | |
Which five-year average should you count on? | |
(Answer: None of them!) | |
Average annual returns for U.S. stocks over five-year periods ended September 30 | |
2007 | 16.18% |
2008 | 5.70 |
2009 | 1.56 |
2010 | 0.92 |
2011 | –0.92 |
2012 | 1.30 |
2013 | 10.58 |
Note: The U.S. stock market is represented by the Russell 3000 Index. | |
Source: Vanguard. |
6
actively managed funds that do not use a quantitative approach), both funds have performed better since inception.
As stock markets climb, the wisdom of rebalancing holds true
More than four years have passed since the U.S. stock markets began an impressive recovery from the depths of the 2008–2009 global financial crisis. The S&P 500 Index has gone from a low of 676 on March 9, 2009, to a close of 1,681 on September 30, 2013, a cumulative total return of 149% through the end of September.
Such a strong recovery is, of course, a welcome development that few would have predicted four years ago. And investors who had the discipline to maintain their stock allocation as part of a balanced, diversified portfolio have been able to more than recoup their crisis-era losses.
Discipline is just as important in good times as it is in bad. At Vanguard, we have long counseled investors to “stay the course”—to maintain a long-term commitment to a sensible portfolio. But staying the course doesn’t mean you should avoid taking action altogether.
Over time, returns will shift the weighting of stocks and bonds in a portfolio, and its asset mix may become more aggressive than originally planned. To manage this risk, investors should periodically consider rebalancing, or adjusting their asset allocation to bring it back to its target.
For example, you should consider rebalancing if you’ve established a 60%/40% stock/bond portfolio and you find that your target allocation is now off by 5 percentage points or more. (For more on this topic, see
Best Practices for Portfolio Rebalancing, available at vanguard.com/research.)
I realize that it’s not easy to contemplate rebalancing when stocks have surged and expectations for bond returns are very modest. However, we believe that bonds will continue to play a valuable role in helping to smooth out stocks’ volatility. Without rebalancing, investors could end up with a portfolio that’s very different—and potentially more risky—than they intended.
As always, thank you for investing with Vanguard.
F. William McNabb III
Chairman and Chief Executive Officer
October 17, 2013
7
Advisor’s Report
For the 12-month period ended September 30, 2013, Vanguard Structured Large-Cap Equity Fund returned 18.93% for Institutional Shares and 19.02% for Institutional Plus Shares, slightly lagging the 19.34% return of its benchmark, the S&P 500 Index.
Vanguard Structured Broad Market Fund returned 22.85% for Institutional Shares and 22.95% for Institutional Plus Shares, outperforming its benchmark, the Russell 3000 Index, which returned 21.60%.
U.S. equities in general experienced above-average returns over this 12-month period; however, small-capitalization stocks significantly outpaced larger-cap equities. Globally, the U.S. market provided returns similar to those of other developed countries, while emerging-market returns were basically flat. Within the broad U.S. universe, all ten sectors generated gains. Results were best among consumer discretionary, industrial, and health care companies. Telecommunication services, utilities, and information technology companies were the laggards, though all rose.
Investors seemed to gain confidence at the start of the fiscal year as economic data around the world continued to improve, albeit at a snail’s pace. Here in the United States, the housing market continued its recovery, the unemployment rate slowly decreased, corporate balance sheets were strong, and profits held up. And the longer-term economic outlook was one of cautious optimism, with GDP growth expected to accelerate in 2014 and 2015.
Macroeconomic events, however, grabbed the headlines recently, which translated into greater market volatility. The Federal Reserve’s mixed signals on tapering its quantitative easing program, a jump in interest rates, and the budget deadlock between Congress and the White House that threatened to force a federal government shutdown (and did so on October 1) left investors guessing as to the market’s prospects for the near term.
Although such dramas influence stock performance in the short run, we believe that long-term investing requires a focus on the underlying factors that influence companies’ growth.
Our investment process is not unlike that of traditional fundamental managers, in that we employ a combination of valuation and other basic measures in assessing stocks. However, we do this through a strict quantitative process that compares all stocks in our investment universe to highlight those with the potential to outperform the rest over the long run. As we construct a portfolio using the results from our model, we seek to minimize deviations from the benchmark’s characteristics in areas where we think there would be no reward. We believe that this metrics-focused process enables us to take advantage of inefficiencies in the market caused by biases in investor behavior.
The model’s effectiveness across sectors was mixed during the period. For the Structured Large-Cap Equity Fund, stock selection produced positive results relative
8
to the index in most sectors, notably energy, industrials, and materials; we underperformed in health care and financials. In the Structured Broad Market Fund, our stock selection had positive results in five sectors, with the most benefit coming from holdings in industrials and consumer staples. In contrast, utilities and information technology were the laggards in terms of relative performance.
Structured Large-Cap Equity Fund
At the individual stock level, the largest contributions came from overweight positions in Kroger, Western Digital, and Boeing. In addition, in performance relative to the benchmark, we benefited from underweighting or avoiding poorly performing stocks such as Newmont Mining and Apple.
Unfortunately, we were not able to avoid all bad performers. Overweight positions in CF Industries, IBM, and AT&T directly lowered performance. Also, underweighting certain companies that our model’s fundamental measures did not highlight, such as Gilead Sciences and Citigroup, hurt our overall outperformance relative to our benchmark.
Structured Broad Market Fund
At the individual stock level, the largest contributors were overweight positions in Pilgrim’s Pride, Delta Air Lines, and Nu Skin Enterprises. Also helpful, in terms of relative results, was underweighting or avoiding poorly performing stocks such as EMC and Newmont Mining.
Overweight positions in CF Industries and IBM subtracted from performance. Also, underweighting companies like Citigroup and Gilead Sciences, which were not singled out by our model, reduced our outperformance of the benchmark.
Although equity markets have seen an increase in overall volatility, which is not surprising given how quickly stocks have risen domestically and internationally, we argue that investors would be better off paying less attention to the short-term gyrations in stock prices.
Strategies such as ours shift the focus back to company fundamentals by seeking to capture the spread between undervalued and overvalued stocks, which we believe will provide worthwhile returns for long-term investors. With that in mind, we believe that equity exposure will continue to play an important part in a diversified investment plan.
We thank you for your investment and look forward to the new fiscal year.
James P. Stetler
Principal and Portfolio Manager
James D. Troyer, CFA
Principal and Portfolio Manager
Michael R. Roach, CFA
Portfolio Manager
Vanguard Equity Investment Group
October 21, 2013
9
Structured Large-Cap Equity Fund
Fund Profile
As of September 30, 2013
Share-Class Characteristics | ||
Institutional | Institutional | |
Shares | Plus Shares | |
Ticker Symbol | VSLIX | VSLPX |
Expense Ratio1 | 0.24% | 0.17% |
30-Day SEC Yield | 2.00% | 2.07% |
Portfolio Characteristics | |||
DJ U.S. | |||
Total | |||
Market | |||
S&P 500 | FA | ||
Fund | Index | Index | |
Number of Stocks | 176 | 500 | 3,636 |
Median Market Cap | $53.9B | $64.9B | $40.2B |
Price/Earnings Ratio | 16.6x | 17.9x | 19.5x |
Price/Book Ratio | 2.4x | 2.5x | 2.5x |
Return on Equity | 16.8% | 17.9% | 16.5% |
Earnings Growth | |||
Rate | 11.5% | 10.9% | 11.1% |
Dividend Yield | 2.2% | 2.1% | 1.9% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 62% | — | — |
Short-Term Reserves | 0.0% | — | — |
Sector Diversification (% of equity exposure) | |||
DJ U.S. | |||
Total | |||
S&P 500 | Market | ||
Fund | Index | FA Index | |
Consumer | |||
Discretionary | 12.6% | 12.5% | 13.3% |
Consumer Staples | 10.3 | 10.0 | 8.7 |
Energy | 9.9 | 10.5 | 9.6 |
Financials | 16.8 | 16.3 | 17.3 |
Health Care | 12.8 | 13.0 | 12.6 |
Industrials | 10.4 | 10.7 | 11.4 |
Information | |||
Technology | 17.8 | 17.9 | 17.9 |
Materials | 3.9 | 3.5 | 3.8 |
Telecommunication | |||
Services | 2.9 | 2.4 | 2.2 |
Utilities | 2.6 | 3.2 | 3.2 |
Volatility Measures | ||
DJ U.S. | ||
S&P 500 | Total Market | |
Index | FA Index | |
R-Squared | 0.99 | 0.98 |
Beta | 1.01 | 0.95 |
These measures show the degree and timing of the fund’s
fluctuations compared with the indexes over 36 months.
Ten Largest Holdings (% of total net assets) | ||
Apple Inc. | Computer Hardware | 2.3% |
Johnson & Johnson | Pharmaceuticals | 2.1 |
Exxon Mobil Corp. | Integrated Oil & Gas | 2.0 |
General Electric Co. | Industrial | |
Conglomerates | 1.9 | |
Wells Fargo & Co. | Diversified Banks | 1.8 |
JPMorgan Chase & Co. | Diversified Financial | |
Services | 1.8 | |
International Business | IT Consulting & | |
Machines Corp. | Other Services | 1.6 |
AT&T Inc. | Integrated | |
Telecommunication | ||
Services | 1.5 | |
Bank of America Corp. | Diversified Financial | |
Services | 1.5 | |
Chevron Corp. | Integrated Oil & Gas | 1.5 |
Top Ten | 18.0% |
The holdings listed exclude any temporary cash investments and
equity index products.
Investment Focus
1 The expense ratios shown are from the prospectus dated January 28, 2013. For the fiscal year ended September 30, 2013, the expense
ratios were 0.24% for Institutional Shares and 0.17% for Institutional Plus Shares.
10
Structured Large-Cap Equity 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: May 16, 2006, Through September 30, 2013
Initial Investment of $5,000,000
Average Annual Total Returns | |||||
Periods Ended September 30, 2013 | |||||
Since | Final Value | ||||
One | Five | Inception | of a $5,000,000 | ||
Year | Years | (5/16/2006) | Investment | ||
Structured Large-Cap Equity | |||||
Fund*Institutional Shares | 18.93% | 10.04% | 5.76% | $7,556,130 | |
•••••••• | S&P 500 Index | 19.34 | 10.02 | 5.89 | 7,623,218 |
– – – – | Large-Cap Core Funds Average | 19.85 | 8.88 | 4.82 | 7,077,459 |
Dow Jones U.S. Total Stock Market | |||||
Float Adjusted Index | 21.44 | 10.69 | 6.35 | 7,875,402 |
Large-Cap Core Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.
"Since Inception" performance is calculated from the Institutional Shares’ inception date for both the fund and its comparative standards.
Since | Final Value | |||
One | Five | Inception | of a $200,000,000 | |
Year | Years | (5/15/2006) | Investment | |
Structured Large-Cap Equity Fund Institutional | ||||
Plus Shares | 19.02% | 10.12% | 5.82% | $303,521,265 |
S&P 500 Index | 19.34 | 10.02 | 5.86 | 282,645,397 |
Dow Jones U.S. Total Stock Market Float | ||||
Adjusted Index | 21.44 | 10.69 | 6.33 | 314,539,987 |
"Since Inception" performance is calculated from the Institutional Plus Shares’ inception date for both the fund and its comparative standards.
See Financial Highlights for dividend and capital gains information.
11
Structured Large-Cap Equity Fund
Fiscal-Year Total Returns (%): May 16, 2006, Through September 30, 2013
12
Structured Large-Cap Equity Fund
Financial Statements
Statement of Net Assets
As of September 30, 2013
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Market | |||
Value | |||
Shares | ($000) | ||
Common Stocks (99.6%)1 | |||
Consumer Discretionary (12.6%) | |||
Home Depot Inc. | 107,275 | 8,137 | |
Comcast Corp. Class A | 166,900 | 7,536 | |
Time Warner Inc. | 93,400 | 6,147 | |
NIKE Inc. Class B | 81,100 | 5,891 | |
Viacom Inc. Class B | 59,400 | 4,965 | |
Lowe’s Cos. Inc. | 93,050 | 4,430 | |
Time Warner Cable Inc. | 38,800 | 4,330 | |
* | O’Reilly Automotive Inc. | 31,900 | 4,070 |
Whirlpool Corp. | 26,200 | 3,837 | |
TJX Cos. Inc. | 67,200 | 3,789 | |
Wynn Resorts Ltd. | 23,800 | 3,761 | |
Gap Inc. | 87,500 | 3,524 | |
Macy’s Inc. | 79,900 | 3,457 | |
GameStop Corp. Class A | 66,700 | 3,312 | |
Starwood Hotels & Resorts | |||
Worldwide Inc. | 48,400 | 3,216 | |
Ford Motor Co. | 151,500 | 2,556 | |
Walt Disney Co. | 23,879 | 1,540 | |
* | Goodyear Tire & Rubber Co. | 66,600 | 1,495 |
* | Amazon.com Inc. | 4,700 | 1,469 |
Newell Rubbermaid Inc. | 47,400 | 1,304 | |
H&R Block Inc. | 38,700 | 1,032 | |
McDonald’s Corp. | 10,147 | 976 | |
PetSmart Inc. | 11,300 | 862 | |
Gannett Co. Inc. | 21,200 | 568 | |
Comcast Corp. | 10,525 | 456 | |
CBS Corp. Class B | 7,580 | 418 | |
Johnson Controls Inc. | 4,700 | 195 | |
Target Corp. | 2,800 | 179 | |
83,452 | |||
Consumer Staples (10.2%) | |||
PepsiCo Inc. | 109,592 | 8,713 | |
CVS Caremark Corp. | 111,800 | 6,345 | |
Procter & Gamble Co. | 83,194 | 6,289 | |
Costco Wholesale Corp. | 43,500 | 5,008 | |
Kimberly-Clark Corp. | 50,600 | 4,767 |
Kraft Foods Group Inc. | 89,266 | 4,681 | |
Kroger Co. | 108,800 | 4,389 | |
General Mills Inc. | 77,900 | 3,733 | |
Hershey Co. | 40,100 | 3,709 | |
JM Smucker Co. | 33,800 | 3,550 | |
Wal-Mart Stores Inc. | 45,146 | 3,339 | |
Coca-Cola Co. | 81,880 | 3,102 | |
Archer-Daniels-Midland Co. | 79,700 | 2,936 | |
Philip Morris | |||
International Inc. | 31,736 | 2,748 | |
Altria Group Inc. | 75,200 | 2,583 | |
Tyson Foods Inc. Class A | 59,800 | 1,691 | |
Reynolds American Inc. | 5,800 | 283 | |
Colgate-Palmolive Co. | 2,200 | 130 | |
67,996 | |||
Energy (9.8%) | |||
Exxon Mobil Corp. | 152,639 | 13,133 | |
Chevron Corp. | 80,856 | 9,824 | |
ConocoPhillips | 101,459 | 7,052 | |
Anadarko Petroleum Corp. | 57,500 | 5,347 | |
EOG Resources Inc. | 28,900 | 4,892 | |
Hess Corp. | 55,300 | 4,277 | |
Schlumberger Ltd. | 47,625 | 4,208 | |
Chesapeake Energy Corp. | 139,500 | 3,610 | |
Marathon Petroleum Corp. | 51,150 | 3,290 | |
Valero Energy Corp. | 94,000 | 3,210 | |
Phillips 66 | 40,379 | 2,335 | |
Helmerich & Payne Inc. | 33,500 | 2,310 | |
Devon Energy Corp. | 17,000 | 982 | |
Murphy Oil Corp. | 8,000 | 483 | |
Noble Energy Inc. | 4,400 | 295 | |
Cabot Oil & Gas Corp. | 5,200 | 194 | |
65,442 | |||
Financials (16.7%) | |||
Wells Fargo & Co. | 293,635 | 12,133 | |
JPMorgan Chase & Co. | 232,779 | 12,032 | |
Bank of America Corp. | 711,953 | 9,825 | |
Citigroup Inc. | 132,025 | 6,405 |
13
Structured Large-Cap Equity Fund | |||
Market | |||
Value | |||
Shares | ($000) | ||
Goldman Sachs Group Inc. | 38,900 | 6,154 | |
American International | |||
Group Inc. | 99,600 | 4,844 | |
* | Berkshire Hathaway Inc. | ||
Class B | 40,505 | 4,598 | |
State Street Corp. | 69,900 | 4,596 | |
Travelers Cos. Inc. | 53,600 | 4,544 | |
Aflac Inc. | 71,900 | 4,457 | |
Discover Financial Services | 83,150 | 4,202 | |
Allstate Corp. | 80,700 | 4,079 | |
Fifth Third Bancorp | 203,500 | 3,671 | |
XL Group plc Class A | 104,900 | 3,233 | |
Public Storage | 16,100 | 2,585 | |
Regions Financial Corp. | 265,600 | 2,460 | |
BlackRock Inc. | 8,000 | 2,165 | |
Comerica Inc. | 51,800 | 2,036 | |
Simon Property Group Inc. | 13,600 | 2,016 | |
Plum Creek Timber Co. Inc. | 41,900 | 1,962 | |
Lincoln National Corp. | 46,200 | 1,940 | |
Ventas Inc. | 30,800 | 1,894 | |
* | Berkshire Hathaway Inc. | ||
Class A | 11 | 1,875 | |
Weyerhaeuser Co. | 60,600 | 1,735 | |
Kimco Realty Corp. | 57,200 | 1,154 | |
Apartment Investment & | |||
Management Co. Class A | 38,800 | 1,084 | |
PNC Financial Services | |||
Group Inc. | 13,900 | 1,007 | |
US Bancorp | 26,800 | 980 | |
Ameriprise Financial Inc. | 8,500 | 774 | |
Bank of New York | |||
Mellon Corp. | 11,100 | 335 | |
ACE Ltd. | 2,100 | 197 | |
110,972 | |||
Health Care (12.8%) | |||
Johnson & Johnson | 162,446 | 14,083 | |
Pfizer Inc. | 309,976 | 8,899 | |
* | Celgene Corp. | 41,000 | 6,311 |
AbbVie Inc. | 136,968 | 6,127 | |
Medtronic Inc. | 106,600 | 5,677 | |
Eli Lilly & Co. | 107,487 | 5,410 | |
McKesson Corp. | 36,200 | 4,645 | |
* | Mylan Inc. | 110,100 | 4,203 |
Cigna Corp. | 53,500 | 4,112 | |
* | Express Scripts Holding Co. | 61,900 | 3,824 |
Becton Dickinson and Co. | 38,100 | 3,811 | |
Amgen Inc. | 31,100 | 3,481 | |
* | CareFusion Corp. | 85,700 | 3,162 |
Merck & Co. Inc. | 61,144 | 2,911 | |
* | Biogen Idec Inc. | 11,100 | 2,672 |
WellPoint Inc. | 27,800 | 2,324 | |
Abbott Laboratories | 44,900 | 1,490 |
AmerisourceBergen Corp. | |||
Class A | 14,000 | 855 | |
* | Gilead Sciences Inc. | 12,600 | 792 |
84,789 | |||
Industrials (10.4%) | |||
General Electric Co. | 539,022 | 12,877 | |
Boeing Co. | 58,500 | 6,874 | |
Honeywell International Inc. | 70,900 | 5,888 | |
United Parcel Service Inc. | |||
Class B | 63,921 | 5,840 | |
Lockheed Martin Corp. | 38,300 | 4,885 | |
General Dynamics Corp. | 52,300 | 4,577 | |
Raytheon Co. | 57,300 | 4,416 | |
Northrop Grumman Corp. | 46,016 | 4,383 | |
Union Pacific Corp. | 24,900 | 3,868 | |
L-3 Communications | |||
Holdings Inc. | 37,900 | 3,582 | |
Ingersoll-Rand plc | 52,300 | 3,396 | |
Delta Air Lines Inc. | 139,500 | 3,291 | |
Dun & Bradstreet Corp. | 30,700 | 3,188 | |
CSX Corp. | 38,800 | 999 | |
Masco Corp. | 21,700 | 462 | |
United Technologies Corp. | 3,986 | 430 | |
68,956 | |||
Information Technology (17.7%) | |||
Apple Inc. | 32,682 | 15,581 | |
International Business | |||
Machines Corp. | 57,740 | 10,692 | |
Microsoft Corp. | 270,941 | 9,025 | |
* | Google Inc. Class A | 8,205 | 7,187 |
Mastercard Inc. Class A | 9,500 | 6,391 | |
Cisco Systems Inc. | 222,315 | 5,207 | |
Hewlett-Packard Co. | 242,050 | 5,078 | |
Texas Instruments Inc. | 124,700 | 5,022 | |
Intuit Inc. | 63,700 | 4,224 | |
Motorola Solutions Inc. | 66,250 | 3,934 | |
Fidelity National Information | |||
Services Inc. | 83,000 | 3,855 | |
Symantec Corp. | 153,300 | 3,794 | |
Accenture plc Class A | 50,200 | 3,697 | |
Xerox Corp. | 358,700 | 3,691 | |
Computer Sciences Corp. | 71,300 | 3,689 | |
Western Digital Corp. | 57,700 | 3,658 | |
Seagate Technology plc | 82,200 | 3,596 | |
Applied Materials Inc. | 185,700 | 3,257 | |
LSI Corp. | 396,800 | 3,103 | |
* | Electronic Arts Inc. | 117,400 | 3,000 |
* | Yahoo! Inc. | 57,400 | 1,903 |
Oracle Corp. | 53,488 | 1,774 | |
Intel Corp. | 69,953 | 1,603 | |
QUALCOMM Inc. | 23,157 | 1,560 | |
* | Fiserv Inc. | 11,400 | 1,152 |
14
Structured Large-Cap Equity Fund | ||
Market | ||
Value | ||
Shares | ($000) | |
TE Connectivity Ltd. | 19,000 | 984 |
Visa Inc. Class A | 3,800 | 726 |
* Cognizant Technology | ||
Solutions Corp. Class A | 4,800 | 394 |
117,777 | ||
Materials (3.9%) | ||
Dow Chemical Co. | 138,800 | 5,330 |
LyondellBasell Industries | ||
NV Class A | 65,900 | 4,826 |
PPG Industries Inc. | 22,614 | 3,778 |
International Paper Co. | 81,000 | 3,629 |
CF Industries Holdings Inc. | 15,185 | 3,201 |
Avery Dennison Corp. | 69,000 | 3,003 |
EI du Pont de Nemours | ||
& Co. | 24,300 | 1,423 |
Sherwin-Williams Co. | 3,300 | 601 |
Bemis Co. Inc. | 7,700 | 300 |
26,091 | ||
Telecommunication Services (2.9%) | ||
AT&T Inc. | 298,435 | 10,093 |
Verizon | ||
Communications Inc. | 164,896 | 7,694 |
CenturyLink Inc. | 47,900 | 1,503 |
19,290 | ||
Utilities (2.6%) | ||
Edison International | 85,400 | 3,933 |
AES Corp. | 269,300 | 3,579 |
AGL Resources Inc. | 75,800 | 3,489 |
Pinnacle West Capital Corp. | 49,800 | 2,726 |
DTE Energy Co. | 38,000 | 2,507 |
PPL Corp. | 19,900 | 605 |
PG&E Corp. | 5,600 | 229 |
Public Service | ||
Enterprise Group Inc. | 5,800 | 191 |
17,259 | ||
Total Common Stocks | ||
(Cost $532,585) | 662,024 |
Temporary Cash Investments (0.4%)1 | |||
Money Market Fund (0.4%) | |||
2 Vanguard Market Liquidity | |||
Fund, 0.112% | 2,315,708 | 2,316 | |
Face | |||
Amount | |||
($000) | |||
U.S. Government and Agency Obligations (0.0%) | |||
3,4 Fannie Mae Discount | |||
Notes, 0.098%, 11/6/13 | 200 | 200 | |
Total Temporary Cash Investments | |||
(Cost $2,516) | 2,516 | ||
Total Investments (100.0%) | |||
(Cost $535,101) | 664,540 | ||
Other Assets and Liabilities (0.0%) | |||
Other Assets | 841 | ||
Liabilities | (984) | ||
(143) | |||
Net Assets (100%) | 664,397 |
15
Structured Large-Cap Equity Fund
At September 30, 2013, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 647,688 |
Undistributed Net Investment Income | 8,271 |
Accumulated Net Realized Losses | (120,981) |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 129,439 |
Futures Contracts | (20) |
Net Assets | 664,397 |
Institutional Shares—Net Assets | |
Applicable to 1,608,164 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 52,139 |
Net Asset Value Per Share— | |
Institutional Shares | $32.42 |
Institutional Plus Shares—Net Assets | |
Applicable to 9,551,653 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 612,258 |
Net Asset Value Per Share— | |
Institutional Plus Shares | $64.10 |
See Note A in Notes to Financial Statements.
* Non-income-producing security.
1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures
investments, the fund’s effective common stock and temporary cash investment positions represent 100.0% and 0.0%, respectively, of
net assets.
2 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is
the 7-day yield.
3 The issuer was placed under federal conservatorship in September 2008; since that time, its daily operations have been managed by the
Federal Housing Finance Agency and it receives capital from the U.S. Treasury, as needed to maintain a positive net worth, in exchange
for senior preferred stock.
4 Securities with a value of $200,000 have been segregated as initial margin for open futures contracts.
See accompanying Notes, which are an integral part of the Financial Statements.
16
Structured Large-Cap Equity Fund | |
Statement of Operations | |
Year Ended | |
September 30, 2013 | |
($000) | |
Investment Income | |
Income | |
Dividends | 13,056 |
Interest1 | 5 |
Securities Lending | 1 |
Total Income | 13,062 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 452 |
Management and Administrative—Institutional Shares | 19 |
Management and Administrative—Institutional Plus Shares | 378 |
Marketing and Distribution—Institutional Shares | 4 |
Marketing and Distribution—Institutional Plus Shares | 67 |
Custodian Fees | 11 |
Auditing Fees | 30 |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 962 |
Net Investment Income | 12,100 |
Realized Net Gain (Loss) | |
Investment Securities Sold | 62,661 |
Futures Contracts | 270 |
Realized Net Gain (Loss) | 62,931 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | 21,080 |
Futures Contracts | (11) |
Change in Unrealized Appreciation (Depreciation) | 21,069 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 96,100 |
1 Interest income from an affiliated company of the fund was $3,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
17
Structured Large-Cap Equity Fund | ||
Statement of Changes in Net Assets | ||
Year Ended September 30, | ||
2013 | 2012 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 12,100 | 10,050 |
Realized Net Gain (Loss) | 62,931 | 30,061 |
Change in Unrealized Appreciation (Depreciation) | 21,069 | 85,517 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 96,100 | 125,628 |
Distributions | ||
Net Investment Income | ||
Institutional Shares | (313) | (271) |
Institutional Plus Shares | (10,525) | (9,009) |
Realized Capital Gain | ||
Institutional Shares | — | — |
Institutional Plus Shares | — | — |
Total Distributions | (10,838) | (9,280) |
Capital Share Transactions | ||
Institutional Shares | 34,877 | 9 |
Institutional Plus Shares | 31,530 | 5,674 |
Net Increase (Decrease) from Capital Share Transactions | 66,407 | 5,683 |
Total Increase (Decrease) | 151,669 | 122,031 |
Net Assets | ||
Beginning of Period | 512,728 | 390,697 |
End of Period1 | 664,397 | 512,728 |
1 Net Assets—End of Period includes undistributed net investment income of $8,271,000 and $7,009,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
18
Structured Large-Cap Equity Fund | |||||
Financial Highlights | |||||
Institutional Shares | |||||
For a Share Outstanding | Year Ended September 30, | ||||
Throughout Each Period | 2013 | 2012 | 2011 | 2010 | 2009 |
Net Asset Value, Beginning of Period | $27.83 | $21.49 | $20.97 | $19.47 | $22.56 |
Investment Operations | |||||
Net Investment Income | . 618 | .531 | .4281 | .366 | .546 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 4.542 | 6.306 | .458 | 1.505 | (2.993) |
Total from Investment Operations | 5.160 | 6.837 | .886 | 1.871 | (2.447) |
Distributions | |||||
Dividends from Net Investment Income | (.570) | (.497) | (. 366) | (. 371) | (.643) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (.570) | (.497) | (. 366) | (. 371) | (.643) |
Net Asset Value, End of Period | $32.42 | $27.83 | $21.49 | $20.97 | $19.47 |
Total Return | 18.93% | 32.32% | 4.14% | 9.68% | -10.25% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $52 | $15 | $12 | $95 | $106 |
Ratio of Total Expenses to | |||||
Average Net Assets | 0.24% | 0.24% | 0.24% | 0.24% | 0.25% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.09% | 2.10% | 1.95% | 1.86% | 2.33% |
Portfolio Turnover Rate | 62% | 64% | 67% | 61% | 80%2 |
1 Calculated based on average shares outstanding.
2 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares.
See accompanying Notes, which are an integral part of the Financial Statements.
19
Structured Large-Cap Equity Fund
Financial Highlights | |||||
Institutional Plus Shares | |||||
For a Share Outstanding | Year Ended September 30, | ||||
Throughout Each Period | 2013 | 2012 | 2011 | 2010 | 2009 |
Net Asset Value, Beginning of Period | $55.02 | $42.48 | $41.98 | $38.97 | $45.15 |
Investment Operations | |||||
Net Investment Income | 1.207 | 1.084 | .9101 | .768 | 1.116 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 9.037 | 12.466 | . 906 | 3.014 | (5.980) |
Total from Investment Operations | 10.244 | 13.550 | 1.816 | 3.782 | (4.864) |
Distributions | |||||
Dividends from Net Investment Income | (1.164) | (1.010) | (1.316) | (.772) | (1.316) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.164) | (1.010) | (1.316) | (.772) | (1.316) |
Net Asset Value, End of Period | $64.10 | $55.02 | $42.48 | $41.98 | $38.97 |
Total Return | 19.02% | 32.42% | 4.18% | 9.78% | -10.16% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $612 | $497 | $379 | $570 | $467 |
Ratio of Total Expenses to | |||||
Average Net Assets | 0.17% | 0.17% | 0.17% | 0.17% | 0.17% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.16% | 2.17% | 2.02% | 1.93% | 2.41% |
Portfolio Turnover Rate | 62% | 64% | 67% | 61% | 80%2 |
1 Calculated based on average shares outstanding.
2 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares.
See accompanying Notes, which are an integral part of the Financial Statements.
20
Structured Large-Cap Equity Fund
Notes to Financial Statements
Vanguard Structured Large-Cap Equity 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: Institutional Shares and Institutional Plus Shares. Institutional Shares and Institutional Plus Shares are available to investors who meet certain administrative, service, and account-size criteria.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. mutual funds. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 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 acquired over 60 days to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments are valued at amortized cost, which approximates market value.
2. Futures Contracts: The fund may use index futures contracts to a limited extent, with the objectives of maintaining full exposure to the stock market, enhancing returns, maintaining liquidity, and minimizing transaction costs. The fund may purchase futures contracts to immediately invest incoming cash in the market, or sell futures in response to cash outflows, thereby simulating a fully invested position in the underlying index while maintaining a cash balance for liquidity. The fund may seek to enhance returns by using futures contracts instead of the underlying securities when futures are believed to be priced more attractively than the underlying securities. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.
Futures contracts are valued at their quoted daily settlement prices. The aggregate notional amounts of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized futures gains (losses).
During the year ended September 30, 2013, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on quarterly average aggregate settlement values.
21
Structured Large-Cap Equity Fund
3. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (September 30, 2010–2013), and has concluded that no provision for federal income tax is required in the fund’s financial statements.
4. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
5. Securities Lending: To earn additional income, the fund may lend its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence 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 for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
6. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. The Vanguard Group furnishes at cost investment advisory, corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the fund under methods approved by the board of trustees. The fund has committed to provide up to 0.40% of its net assets in capital contributions to Vanguard. At September 30, 2013, the fund had contributed capital of $75,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.03% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
22
Structured Large-Cap Equity Fund
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest
rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine
the fair value of investments).
The following table summarizes the market value of the fund’s investments as of September 30, 2013, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 662,024 | — | — |
Temporary Cash Investments | 2,316 | 200 | — |
Futures Contracts—Liabilities1 | (17) | — | — |
Total | 664,323 | 200 | — |
1 Represents variation margin on the last day of the reporting period.
D. At September 30, 2013, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were:
($000) | ||||
Aggregate | ||||
Number of | Settlement | Unrealized | ||
Long (Short) | Value | Appreciation | ||
Futures Contracts | Expiration | Contracts | Long (Short) | (Depreciation) |
E-mini S&P 500 Index | December 2013 | 18 | 1,507 | (17) |
S&P 500 Index | December 2013 | 2 | 837 | (3) |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
E. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
23
Structured Large-Cap Equity Fund
For tax purposes, at September 30, 2013, the fund had $8,783,000 of ordinary income available for distribution. The fund used capital loss carryforwards of $62,920,000 to offset taxable capital gains realized during the year ended September 30, 2013. At September 30, 2013, the fund had available capital losses totaling $121,009,000 to offset future net capital gains of $8,299,000 through September 30, 2017, and $112,710,000 through September 30, 2018.
At September 30, 2013, the cost of investment securities for tax purposes was $535,101,000. Net unrealized appreciation of investment securities for tax purposes was $129,439,000, consisting of unrealized gains of $131,386,000 on securities that had risen in value since their purchase and $1,947,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the year ended September 30, 2013, the fund purchased $415,328,000 of investment securities and sold $348,727,000 of investment securities, other than temporary cash investments.
G. Capital share transactions for each class of shares were: | ||||
Year Ended September 30, | ||||
2013 | 2012 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
Institutional Shares | ||||
Issued | 38,717 | 1,188 | 221 | 9 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (3,840) | (129) | (212) | (9) |
Net Increase (Decrease) —Institutional Shares | 34,877 | 1,059 | 9 | — |
Institutional Plus Shares | ||||
Issued | 27,997 | 444 | 2,675 | 56 |
Issued in Lieu of Cash Distributions | 3,533 | 66 | 2,999 | 66 |
Redeemed | — | — | — | — |
Net Increase (Decrease)—Institutional Plus Shares | 31,530 | 510 | 5,674 | 122 |
At September 30, 2013, two shareholders were each a record or beneficial owner of 34% or more of the fund’s net assets, with a combined ownership of 92%. If one of these shareholders were to redeem its investment in the fund, the redemption might result in 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.
H. Management has determined that no material events or transactions occurred subsequent to September 30, 2013, that would require recognition or disclosure in these financial statements.
24
Structured Broad Market Fund
Fund Profile
As of September 30, 2013
Share-Class Characteristics | ||
Institutional | Institutional | |
Shares | Plus Shares | |
Ticker Symbol | VSBMX | VSBPX |
Expense Ratio1 | 0.24% | 0.17% |
30-Day SEC Yield | 1.76% | 1.83% |
Portfolio Characteristics | |||
DJ U.S. | |||
Total | |||
Russell | Market | ||
3000 | FA | ||
Fund | Index | Index | |
Number of Stocks | 207 | 2,965 | 3,636 |
Median Market Cap | $30.9B | $40.6B | $40.2B |
Price/Earnings Ratio | 16.9x | 19.4x | 19.5x |
Price/Book Ratio | 2.5x | 2.5x | 2.5x |
Return on Equity | 15.8% | 16.5% | 16.5% |
Earnings Growth | |||
Rate | 13.8% | 11.2% | 11.1% |
Dividend Yield | 2.0% | 2.0% | 1.9% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | 63% | — | — |
Short-Term Reserves | 0.0% | — | — |
Sector Diversification (% of equity exposure)
DJ U.S. | |||
Russell | Total | ||
3000 | Market | ||
Fund | Index | FA Index | |
Consumer | |||
Discretionary | 13.4% | 13.4% | 13.3% |
Consumer Staples | 9.3 | 8.7 | 8.7 |
Energy | 9.0 | 9.5 | 9.6 |
Financials | 17.3 | 17.4 | 17.3 |
Health Care | 13.4 | 12.6 | 12.6 |
Industrials | 11.6 | 11.4 | 11.4 |
Information | |||
Technology | 17.2 | 17.9 | 17.9 |
Materials | 3.4 | 3.8 | 3.8 |
Telecommunication | |||
Services | 2.6 | 2.2 | 2.2 |
Utilities | 2.8 | 3.1 | 3.2 |
Volatility Measures | ||
DJ U.S. | ||
Russell 3000 | Total Market | |
Index | FA Index | |
R-Squared | 0.99 | 0.99 |
Beta | 1.04 | 1.04 |
These measures show the degree and timing of the fund’s
fluctuations compared with the indexes over 36 months.
Ten Largest Holdings (% of total net assets)
Apple Inc. | Computer Hardware | 1.8% |
General Electric Co. | Industrial | |
Conglomerates | 1.8 | |
Wells Fargo & Co. | Diversified Banks | 1.6 |
Exxon Mobil Corp. | Integrated Oil & Gas | 1.5 |
JPMorgan Chase & Co. | Diversified Financial | |
Services | 1.5 | |
International Business | IT Consulting & | |
Machines Corp. | Other Services | 1.5 |
Johnson & Johnson | Pharmaceuticals | 1.5 |
AT&T Inc. | Integrated | |
Telecommunication | ||
Services | 1.4 | |
Chevron Corp. | Integrated Oil & Gas | 1.2 |
Verizon Communications Integrated | ||
Inc. | Telecommunication | |
Services | 1.2 | |
Top Ten | 15.0% |
The holdings listed exclude any temporary cash investments and equity index products.
Investment Focus
1 The expense ratios shown are from the prospectus dated January 28, 2013. For the fiscal year ended September 30, 2013, the expense ratios were 0.24% for Institutional Shares and 0.17% for Institutional Plus Shares.
25
Structured Broad Market 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: November 30, 2006, Through September 30, 2013
Initial Investment of $5,000,000
Average Annual Total Returns | |||||
Periods Ended September 30, 2013 | |||||
Since | Final Value | ||||
One | Five | Inception | of a $5,000,000 | ||
Year | Years | (11/30/2006) | Investment | ||
Structured Broad Market | |||||
Fund*Institutional Shares | 22.85% | 10.82% | 5.05% | $6,999,316 | |
•••••••• | Russell 3000 Index | 21.60 | 10.58 | 5.35 | 7,140,206 |
– – – – | Multi-Cap Core Funds Average | 22.81 | 9.55 | 4.39 | 6,704,247 |
Dow Jones U.S. Total Stock Market | |||||
Float Adjusted Index | 21.44 | 10.69 | 5.53 | 7,223,065 |
Multi-Cap Core Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.
"Since Inception" performance is calculated from the Institutional Shares’ inception date for both the fund and its comparative standards.
Since | Final Value | |||
One | Five | Inception | of a $200,000,000 | |
Year | Years | (5/3/2004) | Investment | |
Structured Broad Market Fund Institutional | ||||
Plus Shares | 22.95% | 10.91% | 7.23% | $385,579,056 |
Russell 3000 Index | 21.60 | 10.58 | 7.18 | 353,635,678 |
Dow Jones U.S. Total Stock Market Float | ||||
Adjusted Index | 21.44 | 10.69 | 7.37 | 390,368,762 |
of a predecessor trust, Vanguard Fiduciary Trust Company Structured Broad Market Trust, from May 3, 2004, to October 3, 2006.
26
Structured Broad Market Fund
Fiscal-Year Total Returns (%): November 30, 2006, Through September 30, 2013
27
Structured Broad Market Fund
Financial Statements
Statement of Net Assets
As of September 30, 2013
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Market | |||
Value | |||
Shares | ($000) | ||
Common Stocks (99.5%)1 | |||
Consumer Discretionary (13.4%) | |||
Comcast Corp. Class A | 119,291 | 5,386 | |
Home Depot Inc. | 68,400 | 5,188 | |
Starbucks Corp. | 54,600 | 4,203 | |
Time Warner Inc. | 63,300 | 4,166 | |
TJX Cos. Inc. | 66,100 | 3,727 | |
Viacom Inc. Class B | 41,300 | 3,452 | |
Whirlpool Corp. | 20,700 | 3,031 | |
* | O’Reilly Automotive Inc. | 21,900 | 2,794 |
Gap Inc. | 66,200 | 2,666 | |
* | Goodyear Tire & Rubber Co. | 118,600 | 2,663 |
Macy’s Inc. | 59,800 | 2,588 | |
* | Red Robin Gourmet | ||
Burgers Inc. | 35,200 | 2,503 | |
* | AMC Networks Inc. Class A | 35,600 | 2,438 |
Brinker International Inc. | 60,000 | 2,432 | |
CBS Corp. Class B | 42,200 | 2,328 | |
Dillard’s Inc. Class A | 25,400 | 1,989 | |
Lowe’s Cos. Inc. | 39,600 | 1,885 | |
NIKE Inc. Class B | 19,900 | 1,445 | |
Johnson Controls Inc. | 25,600 | 1,062 | |
Hanesbrands Inc. | 16,500 | 1,028 | |
Gannett Co. Inc. | 38,300 | 1,026 | |
Starwood Hotels & Resorts | |||
Worldwide Inc. | 14,900 | 990 | |
Wynn Resorts Ltd. | 5,700 | 901 | |
Brunswick Corp. | 21,000 | 838 | |
* | Jack in the Box Inc. | 19,800 | 792 |
GameStop Corp. Class A | 13,100 | 650 | |
* | priceline.com Inc. | 600 | 607 |
Walt Disney Co. | 5,700 | 368 | |
Time Warner Cable Inc. | 3,200 | 357 | |
Cracker Barrel Old | |||
Country Store Inc. | 3,100 | 320 | |
* | Amazon.com Inc. | 500 | 156 |
* | Starz | 4,682 | 132 |
McDonald’s Corp. | 1,011 | 97 | |
64,208 |
Consumer Staples (9.2%) | |||
PepsiCo Inc. | 68,500 | 5,446 | |
CVS Caremark Corp. | 65,000 | 3,689 | |
Costco Wholesale Corp. | 31,100 | 3,580 | |
Kimberly-Clark Corp. | 34,300 | 3,232 | |
Kroger Co. | 79,600 | 3,211 | |
Kraft Foods Group Inc. | 57,100 | 2,994 | |
Procter & Gamble Co. | 39,351 | 2,974 | |
Nu Skin Enterprises Inc. | |||
Class A | 29,300 | 2,805 | |
JM Smucker Co. | 25,000 | 2,626 | |
* | Pilgrim’s Pride Corp. | 145,250 | 2,439 |
Reynolds American Inc. | 48,400 | 2,361 | |
Tyson Foods Inc. Class A | 81,900 | 2,316 | |
Energizer Holdings Inc. | 21,500 | 1,960 | |
Coca-Cola Co. | 36,880 | 1,397 | |
Philip Morris International Inc. | 14,550 | 1,260 | |
* | USANA Health Sciences Inc. | 9,700 | 842 |
Wal-Mart Stores Inc. | 10,065 | 744 | |
General Mills Inc. | 5,500 | 264 | |
Sanderson Farms Inc. | 3,900 | 254 | |
44,394 | |||
Energy (9.0%) | |||
Exxon Mobil Corp. | 86,220 | 7,418 | |
Chevron Corp. | 49,165 | 5,974 | |
ConocoPhillips | 68,240 | 4,743 | |
Anadarko Petroleum Corp. | 39,100 | 3,636 | |
Hess Corp. | 39,100 | 3,024 | |
Chesapeake Energy Corp. | 104,400 | 2,702 | |
Valero Energy Corp. | 78,500 | 2,681 | |
Marathon Petroleum Corp. | 41,600 | 2,676 | |
Helmerich & Payne Inc. | 37,000 | 2,551 | |
Murphy Oil Corp. | 38,800 | 2,341 | |
HollyFrontier Corp. | 49,900 | 2,101 | |
Phillips 66 | 26,970 | 1,559 | |
EOG Resources Inc. | 6,700 | 1,134 | |
Schlumberger Ltd. | 5,810 | 513 | |
43,053 |
28
Structured Broad Market Fund | |||
Market | |||
Value | |||
Shares | ($000) | ||
Financials (17.2%) | |||
Wells Fargo & Co. | 181,370 | 7,494 | |
JPMorgan Chase & Co. | 141,436 | 7,311 | |
Bank of America Corp. | 330,900 | 4,566 | |
Goldman Sachs Group Inc. | 27,200 | 4,303 | |
Citigroup Inc. | 74,300 | 3,604 | |
State Street Corp. | 49,800 | 3,274 | |
Travelers Cos. Inc. | 38,500 | 3,264 | |
Allstate Corp. | 59,800 | 3,023 | |
* | Berkshire Hathaway Inc. | ||
Class B | 25,600 | 2,906 | |
SunTrust Banks Inc. | 87,900 | 2,850 | |
American International | |||
Group Inc. | 58,300 | 2,835 | |
Fifth Third Bancorp | 157,000 | 2,832 | |
* | Portfolio Recovery | ||
Associates Inc. | 47,200 | 2,829 | |
Lincoln National Corp. | 66,400 | 2,788 | |
Discover Financial Services | 45,400 | 2,295 | |
Regions Financial Corp. | 229,400 | 2,124 | |
XL Group plc Class A | 55,900 | 1,723 | |
* | World Acceptance Corp. | 19,156 | 1,723 |
Public Storage | 9,700 | 1,557 | |
US Bancorp | 40,250 | 1,472 | |
Weyerhaeuser Co. | 45,100 | 1,291 | |
Everest Re Group Ltd. | 8,400 | 1,221 | |
RLJ Lodging Trust | 50,400 | 1,184 | |
Ventas Inc. | 19,000 | 1,169 | |
Host Hotels & Resorts Inc. | 65,500 | 1,157 | |
Plum Creek Timber Co. Inc. | 23,700 | 1,110 | |
Corrections Corp. of America | 31,800 | 1,099 | |
Nelnet Inc. Class A | 27,800 | 1,069 | |
Omega Healthcare | |||
Investors Inc. | 34,900 | 1,042 | |
Kimco Realty Corp. | 48,700 | 983 | |
Weingarten Realty Investors | 31,500 | 924 | |
Retail Properties of | |||
America Inc. | 66,900 | 920 | |
Brandywine Realty Trust | 64,400 | 849 | |
Ameriprise Financial Inc. | 9,100 | 829 | |
Morgan Stanley | 27,650 | 745 | |
National Retail Properties Inc. | 23,000 | 732 | |
Geo Group Inc. | 12,600 | 419 | |
Simon Property Group Inc. | 2,200 | 326 | |
Regency Centers Corp. | 5,500 | 266 | |
Platinum Underwriters | |||
Holdings Ltd. | 4,300 | 257 | |
Axis Capital Holdings Ltd. | 4,400 | 191 | |
* | Howard Hughes Corp. | 1,600 | 180 |
Equity Lifestyle | |||
Properties Inc. | 3,600 | 123 | |
82,859 | |||
Health Care (13.4%) | |||
Johnson & Johnson | 82,307 | 7,135 | |
Pfizer Inc. | 194,059 | 5,571 | |
* | Celgene Corp. | 28,200 | 4,341 |
AbbVie Inc. | 93,600 | 4,187 | |
Medtronic Inc. | 71,300 | 3,797 | |
* | Biogen Idec Inc. | 15,600 | 3,756 |
Eli Lilly & Co. | 69,220 | 3,484 | |
McKesson Corp. | 25,000 | 3,208 | |
* | Mylan Inc. | 82,400 | 3,145 |
Cigna Corp. | 40,100 | 3,082 | |
WellPoint Inc. | 35,200 | 2,943 | |
ResMed Inc. | 50,100 | 2,646 | |
* | CareFusion Corp. | 69,300 | 2,557 |
Becton Dickinson and Co. | 24,300 | 2,430 | |
* | Endo Health Solutions Inc. | 52,800 | 2,399 |
* | Covance Inc. | 26,200 | 2,265 |
* | Charles River Laboratories | ||
International Inc. | 42,600 | 1,971 | |
Omnicare Inc. | 33,300 | 1,848 | |
Merck & Co. Inc. | 26,583 | 1,266 | |
* | Boston Scientific Corp. | 81,100 | 952 |
* | PAREXEL International Corp. | 17,300 | 869 |
* | United Therapeutics Corp. | 3,700 | 292 |
Warner Chilcott plc Class A | 4,800 | 110 | |
64,254 | |||
Industrials (11.5%) | |||
General Electric Co. | 356,980 | 8,528 | |
Boeing Co. | 41,950 | 4,929 | |
Union Pacific Corp. | 28,200 | 4,381 | |
Lockheed Martin Corp. | 27,800 | 3,546 | |
Raytheon Co. | 42,800 | 3,299 | |
Delta Air Lines Inc. | 137,500 | 3,244 | |
General Dynamics Corp. | 36,600 | 3,203 | |
Northrop Grumman Corp. | 33,030 | 3,146 | |
Towers Watson & Co. | |||
Class A | 28,100 | 3,005 | |
Honeywell International Inc. | 32,800 | 2,724 | |
Masco Corp. | 125,700 | 2,675 | |
Generac Holdings Inc. | 51,000 | 2,175 | |
Alaska Air Group Inc. | 32,300 | 2,023 | |
Rockwell Automation Inc. | 17,500 | 1,871 | |
United Parcel Service Inc. | |||
Class B | 17,300 | 1,581 | |
Dun & Bradstreet Corp. | 14,900 | 1,547 | |
Flowserve Corp. | 21,900 | 1,366 | |
Deluxe Corp. | 18,300 | 762 | |
Cintas Corp. | 13,200 | 676 | |
L-3 Communications | |||
Holdings Inc. | 6,800 | 643 | |
55,324 | |||
Information Technology (17.1%) | |||
Apple Inc. | 18,520 | 8,829 | |
International Business | |||
Machines Corp. | 39,042 | 7,230 | |
Mastercard Inc. Class A | 6,900 | 4,642 | |
Microsoft Corp. | 134,297 | 4,473 | |
Cisco Systems Inc. | 162,850 | 3,814 | |
* | Google Inc. Class A | 3,900 | 3,416 |
Hewlett-Packard Co. | 160,900 | 3,376 |
29
Structured Broad Market Fund | |||
Market | |||
Value | |||
Shares | ($000) | ||
Texas Instruments Inc. | 83,100 | 3,346 | |
Accenture plc Class A | 45,300 | 3,336 | |
Western Digital Corp. | 45,300 | 2,872 | |
Symantec Corp. | 115,700 | 2,864 | |
Fidelity National Information | |||
Services Inc. | 59,800 | 2,777 | |
* | Alliance Data Systems Corp. | 12,900 | 2,728 |
Computer Sciences Corp. | 50,800 | 2,628 | |
Motorola Solutions Inc. | 44,200 | 2,625 | |
* | Unisys Corp. | 97,500 | 2,456 |
* | Anixter International Inc. | 27,400 | 2,402 |
* | Gartner Inc. | 37,400 | 2,244 |
Heartland Payment | |||
Systems Inc. | 50,900 | 2,022 | |
LSI Corp. | 255,100 | 1,995 | |
* | Freescale | ||
Semiconductor Ltd. | 110,900 | 1,847 | |
* | Electronic Arts Inc. | 68,100 | 1,740 |
* | Manhattan Associates Inc. | 16,600 | 1,585 |
* | Brocade Communications | ||
Systems Inc. | 148,800 | 1,198 | |
Harris Corp. | 17,000 | 1,008 | |
MAXIMUS Inc. | 22,200 | 1,000 | |
Jack Henry & Associates Inc. | 18,300 | 944 | |
Oracle Corp. | 15,848 | 526 | |
* | CommVault Systems Inc. | 5,100 | 448 |
Intel Corp. | 19,390 | 444 | |
QUALCOMM Inc. | 4,500 | 303 | |
* | Applied Micro Circuits Corp. | 21,700 | 280 |
Applied Materials Inc. | 15,000 | 263 | |
* | Zebra Technologies Corp. | 4,400 | 200 |
* | Sanmina Corp. | 11,300 | 198 |
* | Silicon Image Inc. | 30,000 | 160 |
82,219 | |||
Materials (3.3%) | |||
PPG Industries Inc. | 19,250 | 3,216 | |
Sherwin-Williams Co. | 15,500 | 2,824 | |
International Paper Co. | 59,500 | 2,666 | |
CF Industries Holdings Inc. | 11,250 | 2,372 | |
Packaging Corp. of America | 26,800 | 1,530 | |
Avery Dennison Corp. | 29,100 | 1,266 | |
LyondellBasell Industries | |||
NV Class A | 13,800 | 1,010 | |
Westlake Chemical Corp. | 8,800 | 921 | |
Schweitzer-Mauduit | |||
International Inc. | 3,900 | 236 | |
16,041 | |||
Telecommunication Services (2.6%) | |||
AT&T Inc. | 197,129 | 6,667 | |
Verizon | |||
Communications Inc. | 122,657 | 5,723 | |
12,390 |
Market | ||||
Value | ||||
Shares | ($000) | |||
Utilities (2.8%) | ||||
Edison International | 57,600 | 2,653 | ||
DTE Energy Co. | 39,200 | 2,587 | ||
CMS Energy Corp. | 91,500 | 2,408 | ||
PG&E Corp. | 56,900 | 2,328 | ||
UGI Corp. | 39,900 | 1,561 | ||
Pinnacle West Capital Corp. | 17,300 | 947 | ||
Ameren Corp. | 18,900 | 659 | ||
Black Hills Corp. | 6,100 | 304 | ||
13,447 | ||||
Total Common Stocks | ||||
(Cost $379,472) | 478,189 | |||
Temporary Cash Investments (0.5%)1 | ||||
Money Market Fund (0.4%) | ||||
2 | Vanguard Market Liquidity | |||
Fund, 0.112% | 2,210,590 | 2,211 | ||
Face | ||||
Amount | ||||
($000) | ||||
U.S. Government and Agency Obligations (0.1%) | ||||
3,4 | Federal Home Loan Bank | |||
Discount Notes, 0.095%, | ||||
10/4/13 | 100 | 100 | ||
3,5 | Freddie Mac Discount | |||
Notes, 0.095%, 11/18/13 | 100 | 100 | ||
5 | Freddie Mac Discount | |||
Notes, 0.070%, 3/31/14 | 100 | 100 | ||
300 | ||||
Total Temporary Cash Investments | ||||
(Cost $2,511) | 2,511 | |||
Total Investments (100.0%) | ||||
(Cost $381,983) | 480,700 | |||
Other Assets and Liabilities (0.0%) | ||||
Other Assets | 2,475 | |||
Liabilities | (2,566) | |||
(91) | ||||
Net Assets (100%) | 480,609 |
30
Structured Broad Market Fund
At September 30, 2013, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 361,180 |
Undistributed Net Investment Income | 5,849 |
Accumulated Net Realized Gains | 14,889 |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 98,717 |
Futures Contracts | (26) |
Net Assets | 480,609 |
Institutional Shares—Net Assets | |
Applicable to 478,335 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 15,591 |
Net Asset Value Per Share— | |
Institutional Shares | $32.59 |
Institutional Plus Shares—Net Assets | |
Applicable to 7,137,886 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 465,018 |
Net Asset Value Per Share— | |
Institutional Plus Shares | $65.15 |
See Note A in Notes to Financial Statements.
* Non-income-producing security.
1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures
investments, the fund’s effective common stock and temporary cash investment positions represent 100.0% and 0.0%, respectively, of
net assets.
2 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is
the 7-day yield.
3 Securities with a value of $200,000 have been segregated as initial margin for open futures contracts.
4 The issuer operates under a congressional charter; its securities are generally neither guaranteed by the U.S. Treasury nor backed by the
full faith and credit of the U.S. government.
5 The issuer was placed under federal conservatorship in September 2008; since that time, its daily operations have been managed by the
Federal Housing Finance Agency and it receives capital from the U.S. Treasury, as needed to maintain a positive net worth, in exchange
for senior preferred stock.
See accompanying Notes, which are an integral part of the Financial Statements.
31
Structured Broad Market Fund
Statement of Operations
Year Ended | |
September 30, 2013 | |
($000) | |
Investment Income | |
Income | |
Dividends | 9,340 |
Interest1 | 3 |
Securities Lending | 39 |
Total Income | 9,382 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 391 |
Management and Administrative—Institutional Shares | 18 |
Management and Administrative—Institutional Plus Shares | 242 |
Marketing and Distribution—Institutional Shares | — |
Marketing and Distribution—Institutional Plus Shares | 52 |
Custodian Fees | 9 |
Auditing Fees | 28 |
Total Expenses | 740 |
Net Investment Income | 8,642 |
Realized Net Gain (Loss) | |
Investment Securities Sold | 51,604 |
Futures Contracts | 440 |
Realized Net Gain (Loss) | 52,044 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | 28,380 |
Futures Contracts | (6) |
Change in Unrealized Appreciation (Depreciation) | 28,374 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 89,060 |
1 Interest income from an affiliated company of the fund was $3,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
32
Structured Broad Market Fund
Statement of Changes in Net Assets
Year Ended September 30, | ||
2013 | 2012 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 8,642 | 7,973 |
Realized Net Gain (Loss) | 52,044 | 25,899 |
Change in Unrealized Appreciation (Depreciation) | 28,374 | 58,865 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 89,060 | 92,737 |
Distributions | ||
Net Investment Income | ||
Institutional Shares | (156) | (119) |
Institutional Plus Shares | (8,303) | (6,371) |
Realized Capital Gain | ||
Institutional Shares | — | — |
Institutional Plus Shares | — | — |
Total Distributions | (8,459) | (6,490) |
Capital Share Transactions | ||
Institutional Shares | 5,441 | 119 |
Institutional Plus Shares | 7,941 | 4,615 |
Net Increase (Decrease) from Capital Share Transactions | 13,382 | 4,734 |
Total Increase (Decrease) | 93,983 | 90,981 |
Net Assets | ||
Beginning of Period | 386,626 | 295,645 |
End of Period1 | 480,609 | 386,626 |
1 Net Assets—End of Period includes undistributed net investment income of $5,849,000 and $5,666,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
33
Structured Broad Market Fund
Financial Highlights
Institutional Shares | |||||
For a Share Outstanding | Year Ended September 30, | ||||
Throughout Each Period | 2013 | 2012 | 2011 | 2010 | 2009 |
Net Asset Value, Beginning of Period | $27.10 | $21.03 | $20.70 | $18.99 | $21.53 |
Investment Operations | |||||
Net Investment Income | . 573 | .544 | .3851 | .376 | .3521 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 5.492 | 5.973 | .338 | 1.672 | (2.500) |
Total from Investment Operations | 6.065 | 6.517 | .723 | 2.048 | (2.148) |
Distributions | |||||
Dividends from Net Investment Income | (.575) | (. 447) | (. 393) | (. 338) | (.392) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (.575) | (. 447) | (. 393) | (. 338) | (.392) |
Net Asset Value, End of Period | $32.59 | $27.10 | $21.03 | $20.70 | $18.99 |
Total Return | 22.85% | 31.43% | 3.37% | 10.88% | -9.67% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $16 | $7 | $6 | $5 | $4 |
Ratio of Total Expenses to | |||||
Average Net Assets | 0.24% | 0.24% | 0.24% | 0.24% | 0.25% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.94% | 2.19% | 1.64% | 1.91% | 2.15% |
Portfolio Turnover Rate | 63% | 58% | 56% | 52% | 62% |
1 Calculated based on average shares outstanding. |
See accompanying Notes, which are an integral part of the Financial Statements.
34
Structured Broad Market Fund
Financial Highlights
Institutional Plus Shares | |||||
For a Share Outstanding | Year Ended September 30, | ||||
Throughout Each Period | 2013 | 2012 | 2011 | 2010 | 2009 |
Net Asset Value, Beginning of Period | $54.17 | $42.02 | $41.36 | $37.94 | $43.07 |
Investment Operations | |||||
Net Investment Income | 1.186 | 1.122 | .7961 | .778 | .7251 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 10.980 | 11.951 | .672 | 3.343 | (5.006) |
Total from Investment Operations | 12.166 | 13.073 | 1.468 | 4.121 | (4.281) |
Distributions | |||||
Dividends from Net Investment Income | (1.186) | (. 923) | (. 808) | (.701) | (.849) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (1.186) | (. 923) | (. 808) | (.701) | (.849) |
Net Asset Value, End of Period | $65.15 | $54.17 | $42.02 | $41.36 | $37.94 |
Total Return | 22.95% | 31.56% | 3.43% | 10.96% | -9.60% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $465 | $379 | $290 | $304 | $275 |
Ratio of Total Expenses to | |||||
Average Net Assets | 0.17% | 0.17% | 0.17% | 0.17% | 0.17% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.01% | 2.26% | 1.71% | 1.98% | 2.23% |
Portfolio Turnover Rate | 63% | 58% | 56% | 52% | 62% |
1 Calculated based on average shares outstanding. |
See accompanying Notes, which are an integral part of the Financial Statements.
35
Structured Broad Market Fund
Notes to Financial Statements
Vanguard Structured Broad Market 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: Institutional Shares and Institutional Plus Shares. Institutional Shares and Institutional Plus Shares are available to investors who meet certain administrative, service, and account-size criteria.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. mutual funds. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 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 acquired over 60 days to maturity are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Other temporary cash investments are valued at amortized cost, which approximates market value.
2. Futures Contracts: The fund may use index futures contracts to a limited extent, with the objectives of maintaining full exposure to the stock market, enhancing returns, maintaining liquidity, and minimizing transaction costs. The fund may purchase futures contracts to immediately invest incoming cash in the market, or sell futures in response to cash outflows, thereby simulating a fully invested position in the underlying index while maintaining a cash balance for liquidity. The fund may seek to enhance returns by using futures contracts instead of the underlying securities when futures are believed to be priced more attractively than the underlying securities. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.
Futures contracts are valued at their quoted daily settlement prices. The aggregate notional amounts of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized futures gains (losses).
During the year ended September 30, 2013, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on quarterly average aggregate settlement values.
36
Structured Broad Market Fund
3. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (September 30, 2010–2013), and has concluded that no provision for federal income tax is required in the fund’s financial statements.
4. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
5. Securities Lending: To earn additional income, the fund may lend its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence 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 for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
6. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. The Vanguard Group furnishes at cost investment advisory, corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the fund under methods approved by the board of trustees. The fund has committed to provide up to 0.40% of its net assets in capital contributions to Vanguard. At September 30, 2013, the fund had contributed capital of $57,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.02% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
37
Structured Broad Market Fund
C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest
rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine
the fair value of investments).
The following table summarizes the market value of the fund’s investments as of September 30, 2013, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 478,189 | — | — |
Temporary Cash Investments | 2,211 | 300 | — |
Futures Contracts—Liabilities1 | (17) | — | — |
Total | 480,383 | 300 | — |
1 Represents variation margin on the last day of the reporting period.
D. At September 30, 2013, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were:
($000) | ||||
Aggregate | ||||
Number of | Settlement | Unrealized | ||
Long (Short) | Value | Appreciation | ||
Futures Contracts | Expiration | Contracts | Long (Short) | (Depreciation) |
E-mini S&P 500 Index | December 2013 | 29 | 2,428 | (26) |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
E. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
38
Structured Broad Market Fund
The fund used capital loss carryforwards of $37,168,000 to offset taxable capital gains realized during the year ended September 30, 2013, reducing the amount of capital gains that would otherwise be available to distribute to shareholders. For tax purposes, at September 30, 2013, the fund had $6,108,000 of ordinary income and $14,870,000 of long-term capital gains available for distribution.
At September 30, 2013, the cost of investment securities for tax purposes was $381,983,000. Net unrealized appreciation of investment securities for tax purposes was $98,717,000, consisting of unrealized gains of $101,566,000 on securities that had risen in value since their purchase and $2,849,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the year ended September 30, 2013, the fund purchased $284,282,000 of investment securities and sold $270,807,000 of investment securities, other than temporary cash investments.
G. Capital share transactions for each class of shares were:
Year Ended September 30, | ||||
2013 | 2012 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
Institutional Shares | ||||
Issued | 5,285 | 201 | — | — |
Issued in Lieu of Cash Distributions | 156 | 6 | 119 | 5 |
Redeemed | — | — | — | — |
Net Increase (Decrease) —Institutional Shares | 5,441 | 207 | 119 | 5 |
Institutional Plus Shares | ||||
Issued | 74,668 | 1,229 | 2,634 | 55 |
Issued in Lieu of Cash Distributions | 2,609 | 49 | 1,981 | 44 |
Redeemed | (69,336) | (1,141) | — | — |
Net Increase (Decrease) —Institutional Plus Shares | 7,941 | 137 | 4,615 | 99 |
At September 30, 2013, one shareholder was the record or beneficial owner of 97% of the fund’s net assets. If the shareholder were to redeem its investment in the fund, the redemption might result in an increase in the fund’s expense ratio, cause the fund to incur higher transaction costs, or lead to the realization of taxable capital gains.
H. Management has determined that no material events or transactions occurred subsequent to September 30, 2013, that would require recognition or disclosure in these financial statements.
39
Report of Independent Registered
Public Accounting Firm
To the Trustees of Vanguard Quantitative Funds and the Shareholders of Vanguard Structured Large-Cap Equity Fund and Vanguard Structured Broad Market Fund:
In our opinion, the accompanying statements of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Vanguard Structured Large-Cap Equity Fund and Vanguard Structured Broad Market Fund (constituting two separate portfolios of Vanguard Quantitative Funds, hereafter referred to as the “Funds”) at September 30, 2013, the results of each of their operations for the year ended, the changes in each of their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2013 by correspondence with the custodian and broker and by agreement to the underlying ownership records of the transfer agent, provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
November 14, 2013
40
Special 2013 tax information (unaudited) for Vanguard Structured Equity Funds
This information for the fiscal year ended September 30, 2013, is included pursuant to provisions of the Internal Revenue Code.
The funds distributed qualified dividend income to shareholders during the period as follows:
Fund | ($000) |
Structured Large-Cap Equity | 10,838 |
Structured Broad Market | 8,459 |
For corporate shareholders, the percentage of investment income (dividend income plus short-term gains, if any) that qualifies for the dividends-received deduction is as follows:
Fund | Percentage |
Structured Large-Cap Equity | 100% |
Structured Broad Market | 100 |
41
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.
42
Six Months Ended September 30, 2013 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
3/31/2013 | 9/30/2013 | Period | |
Based on Actual Fund Return | |||
Structured Large-Cap Equity Fund | |||
Institutional Shares | $1,000.00 | $1,074.22 | $1.25 |
Institutional Plus Shares | 1,000.00 | 1,074.60 | 0.88 |
Structured Broad Market Fund | |||
Institutional Shares | $1,000.00 | $1,089.97 | $1.26 |
Institutional Plus Shares | 1,000.00 | 1,090.56 | 0.89 |
Based on Hypothetical 5% Yearly Return | |||
Structured Large-Cap Equity Fund | |||
Institutional Shares | $1,000.00 | $1,023.87 | $1.22 |
Institutional Plus Shares | 1,000.00 | 1,024.22 | 0.86 |
Structured Broad Market Fund | |||
Institutional Shares | $1,000.00 | $1,023.87 | $1.22 |
Institutional Plus Shares | 1,000.00 | 1,024.22 | 0.86 |
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 Structured Large-Cap Equity Fund, 0.24% for Institutional Shares and 0.17% for Institutional Plus Shares; for the Structured
Broad Market Fund, 0.24% for Institutional Shares and 0.17% for Institutional Plus Shares. The dollar amounts shown as “Expenses Paid” are
equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most
recent six-month period, then divided by the number of days in the most recent 12-month period.
43
Glossary
30-Day SEC Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (for bonds), its actual income (for asset-backed securities), or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.
Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Dividend Yield. Dividend income earned by stocks, expressed as a percentage of the aggregate market value (or of net asset value, for a fund). The yield is determined by dividing the amount of the annual dividends by the aggregate value (or net asset value) at the end of the period. For a fund, the dividend yield is based solely on stock holdings and does not include any income produced by other investments.
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.
Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.
Foreign Holdings. The percentage of a fund represented by securities or depositary receipts of companies based outside the United States.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.
Price/Earnings Ratio. The ratio of a stock’s current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company’s future growth.
44
R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0. For this report, R-squared is based on returns over the past 36 months for both the fund and the index.
Return on Equity. The annual average rate of return generated by a company during the past five years for each dollar of shareholder’s equity (net income divided by shareholder’s equity). For a fund, the weighted average return on equity for the companies whose stocks it holds.
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
Turnover Rate. An indication of the fund’s trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to investors). The turnover rate excludes in-kind transactions, which have minimal impact on costs.
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The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 181 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
InterestedTrustee1 | and Delphi Automotive LLP (automotive components); |
Senior Advisor at New Mountain Capital; Trustee of | |
F. William McNabb III | The Conference Board. |
Born 1957. Trustee Since July 2009. Chairman of the | |
Board. Principal Occupation(s) During the Past Five | |
Years: Chairman of the Board of The Vanguard Group, | Amy Gutmann |
Inc., and of each of the investment companies served | Born 1949. Trustee Since June 2006. Principal |
by The Vanguard Group, since January 2010; Director | Occupation(s) During the Past Five Years: President |
of The Vanguard Group since 2008; Chief Executive | of the University of Pennsylvania; Christopher H. |
Officer and President of The Vanguard Group and of | Browne Distinguished Professor of Political Science |
each of the investment companies served by The | in the School of Arts and Sciences with secondary |
Vanguard Group since 2008; Director of Vanguard | appointments at the Annenberg School for |
Marketing Corporation; Managing Director of The | Communication and the Graduate School of Education |
Vanguard Group (1995–2008). | of the University of Pennsylvania; Member of the |
National Commission on the Humanities and Social | |
Sciences; Trustee of Carnegie Corporation of New | |
IndependentTrustees | York and of the National Constitution Center; Chair |
of the U. S. Presidential Commission for the Study | |
of Bioethical Issues. | |
Emerson U. Fullwood | |
Born 1948. Trustee Since January 2008. Principal | JoAnn Heffernan Heisen |
Occupation(s) During the Past Five Years: Executive | Born 1950. Trustee Since July 1998. Principal |
Chief Staff and Marketing Officer for North America | Occupation(s) During the Past Five Years: Corporate |
and Corporate Vice President (retired 2008) of Xerox | Vice President and Chief Global Diversity Officer |
Corporation (document management products and | (retired 2008) and Member of the Executive |
services); Executive in Residence and 2010 | Committee (1997–2008) of Johnson & Johnson |
Distinguished Minett Professor at the Rochester | (pharmaceuticals/medical devices/consumer |
Institute of Technology; Director of SPX Corporation | products); Director of Skytop Lodge Corporation |
(multi-industry manufacturing), the United Way of | (hotels), the University Medical Center at Princeton, |
Rochester, Amerigroup Corporation (managed health | the Robert Wood Johnson Foundation, and the Center |
care), the University of Rochester Medical Center, | for Talent Innovation; Member of the Advisory Board |
Monroe Community College Foundation, and North | of the Maxwell School of Citizenship and Public Affairs |
Carolina A&T University. | at Syracuse University. |
Rajiv L. Gupta | F. Joseph Loughrey |
Born 1945. Trustee Since December 2001.2 | Born 1949. Trustee Since October 2009. Principal |
Principal Occupation(s) During the Past Five Years: | Occupation(s) During the Past Five Years: President |
Chairman and Chief Executive Officer (retired 2009) | and Chief Operating Officer (retired 2009) of Cummins |
and President (2006–2008) of Rohm and Haas Co. | Inc. (industrial machinery); Chairman of the Board of |
(chemicals); Director of Tyco International, Ltd. | Hillenbrand, Inc. (specialized consumer services) and |
(diversified manufacturing and services), Hewlett- | of Oxfam America; Director of SKF AB (industrial |
Packard Co. (electronic computer manufacturing), | |
machinery) and the Lumina Foundation for Education; | Executive Officers | |
Member of the Advisory Council for the College of | ||
Arts and Letters and of the Advisory Board to the | Glenn Booraem | |
Kellogg Institute for International Studies, both at | Born 1967. Controller Since July 2010. Principal | |
the University of Notre Dame. | Occupation(s) During the Past Five Years: Principal | |
of The Vanguard Group, Inc.; Controller of each of | ||
Mark Loughridge | the investment companies served by The Vanguard | |
Born 1953. Trustee Since March 2012. Principal | Group; Assistant Controller of each of the investment | |
Occupation(s) During the Past Five Years: Senior Vice | companies served by The Vanguard Group (2001–2010). | |
President and Chief Financial Officer at IBM (information | ||
technology services); Fiduciary Member of IBM’s | Thomas J. Higgins | |
Retirement Plan Committee. | Born 1957. Chief Financial Officer Since September | |
2008. Principal Occupation(s) During the Past Five | ||
Scott C. Malpass | Years: Principal of The Vanguard Group, Inc.; Chief | |
Born 1962. Trustee Since March 2012. Principal | Financial Officer of each of the investment companies | |
Occupation(s) During the Past Five Years: Chief | served by The Vanguard Group; Treasurer of each of | |
Investment Officer and Vice President at the University | the investment companies served by The Vanguard | |
of Notre Dame; Assistant Professor of Finance at the | Group (1998–2008). | |
Mendoza College of Business at Notre Dame; Member | ||
of the Notre Dame 403(b) Investment Committee; | Kathryn J. Hyatt | |
Director of TIFF Advisory Services, Inc. (investment | Born 1955. Treasurer Since November 2008. Principal | |
advisor); Member of the Investment Advisory | Occupation(s) During the Past Five Years: Principal of | |
Committees of the Financial Industry Regulatory | The Vanguard Group, Inc.; Treasurer of each of the | |
Authority (FINRA) and of Major League Baseball. | investment companies served by The Vanguard | |
Group; Assistant Treasurer of each of the investment | ||
André F. Perold | companies served by The Vanguard Group (1988–2008). | |
Born 1952. Trustee Since December 2004. Principal | ||
Occupation(s) During the Past Five Years: George | Heidi Stam | |
Gund Professor of Finance and Banking at the Harvard | Born 1956. Secretary Since July 2005. Principal | |
Business School (retired 2011); Chief Investment | Occupation(s) During the Past Five Years: Managing | |
Officer and Managing Partner of HighVista Strategies | Director of The Vanguard Group, Inc.; General Counsel | |
LLC (private investment firm); Director of Rand | of The Vanguard Group; Secretary of The Vanguard | |
Merchant Bank; Overseer of the Museum of Fine | Group and of each of the investment companies | |
Arts Boston. | served by The Vanguard Group; Director and Senior | |
Vice President of Vanguard Marketing Corporation. | ||
Alfred M. Rankin, Jr. | ||
Born 1941. Trustee Since January 1993. Principal | ||
Occupation(s) During the Past Five Years: Chairman, | Vanguard Senior ManagementTeam | |
President, and Chief Executive Officer of NACCO | Mortimer J. Buckley | Chris D. McIsaac |
Industries, Inc. (housewares/lignite) and of Hyster-Yale | Kathleen C. Gubanich | Michael S. Miller |
Materials Handling, Inc. (forklift trucks); Director of | Paul A. Heller | James M. Norris |
the National Association of Manufacturers; Chairman | Martha G. King | Glenn W. Reed |
of the Board of University Hospitals of Cleveland; | John T. Marcante | |
Advisory Chairman of the Board of The Cleveland | ||
Museum of Art. | ||
Chairman Emeritus and Senior Advisor | ||
Peter F. Volanakis | John J. Brennan | |
Born 1955. Trustee Since July 2009. Principal | Chairman, 1996–2009 | |
Occupation(s) During the Past Five Years: President | ||
and Chief Operating Officer (retired 2010) of Corning | Chief Executive Officer and President, 1996–2008 | |
Incorporated (communications equipment); Director | ||
of SPX Corporation (multi-industry manufacturing); | Founder | |
Overseer of the Amos Tuck School of Business | John C. Bogle | |
Administration at Dartmouth College; Advisor to the | Chairman and Chief Executive Officer, 1974–1996 | |
Norris Cotton Cancer Center. |
1 Mr. McNabb is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the Vanguard funds.
2 December 2002 for Vanguard Equity Income Fund, Vanguard Growth Equity Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.
P.O. Box 2600
Valley Forge, PA 19482-2600
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This material may be used in conjunction | |
with the offering of shares of any Vanguard | |
fund only if preceded or accompanied by | |
the fund’s current prospectus. | |
All comparative mutual fund data are from Lipper, a | |
Thomson Reuters Company, or Morningstar, Inc., unless | |
otherwise noted. | |
You can obtain a free copy of Vanguard’s proxy voting | |
guidelines by visiting vanguard.com/proxyreporting or by | |
calling Vanguard at 800-662-2739. The guidelines are | |
also available from the SEC’s website, sec.gov. In | |
addition, you may obtain a free report on how your fund | |
voted the proxies for securities it owned during the 12 | |
months ended June 30. To get the report, visit either | |
vanguard.com/proxyreporting or sec.gov. | |
You can review and copy information about your fund at | |
the SEC’s Public Reference Room in Washington, D.C. To | |
find out more about this public service, call the SEC at | |
202-551-8090. Information about your fund is also | |
available on the SEC’s website, and you can receive | |
copies of this information, for a fee, by sending a | |
request in either of two ways: via e-mail addressed to | |
publicinfo@sec.gov or via regular mail addressed to the | |
Public Reference Section, Securities and Exchange | |
Commission, Washington, DC 20549-1520. | |
© 2013 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q08700 112013 |
Item 2: Code of Ethics. The Registrant has adopted a code of ethics that applies to the Registrant’s principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The Code of Ethics was amended during the reporting period covered by this report to make certain technical, non-material changes.
Item 3: Audit Committee Financial Expert. The following members of the Audit Committee have been determined by the Registrant’s Board of Trustees to be Audit Committee Financial Experts serving on its Audit Committee, and to be independent: Rajiv L. Gupta, Amy Gutmann, JoAnn Heffernan Heisen, F. Joseph Loughrey, Mark Loughridge, Scott C. Malpass, André F. Perold, and Alfred M. Rankin, Jr.
Item 4: Principal Accountant Fees and Services.
(a) Audit Fees.
Audit Fees of the Registrant
Fiscal Year Ended September 30, 2013: $86,000
Fiscal Year Ended September 30, 2012: $85,000
Aggregate Audit Fees of Registered Investment Companies in the Vanguard Group.
Fiscal Year Ended September 30, 2013: $5,714,113
Fiscal Year Ended September 30, 2012: $4,809,780
Includes fees billed in connection with audits of the Registrant and other registered investment companies in the Vanguard complex. Also includes fees billed in connection with audits of The Vanguard Group, Inc. and Vanguard Marketing Corporation for Fiscal Year Ended September 30, 2013.
(b) Audit-Related Fees.
Fiscal Year Ended September 30, 2013: $1,552,950
Fiscal Year Ended September 30, 2012: $1,812,565
Includes fees billed in connection with assurance and related services provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.
(c) Tax Fees.
Fiscal Year Ended September 30, 2013: $110,000
Fiscal Year Ended September 30, 2012: $490,518
Includes fees billed in connection with tax compliance, planning, and advice services provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation. Also includes fees billed in connection with certain tax services related to audits of the Registrant and other registered investment companies in the Vanguard complex for Fiscal Year Ended September 30, 2012.
(d) All Other Fees.
Fiscal Year Ended September 30, 2013: $132,000
Fiscal Year Ended September 30, 2012: $16,000
Includes fees billed in connection with tax compliance, planning, and advice services provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.
(e) (1) Pre-Approval Policies. The policy of the Registrant’s Audit Committee is to consider and, if appropriate, approve before the principal accountant is engaged for such services, all specific audit and non-audit services provided to: the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and entities controlled by The Vanguard Group, Inc. that provide ongoing services to the Registrant. In making a determination, the Audit Committee considers whether the services are consistent with maintaining the principal accountant’s independence.
In the event of a contingency situation in which the principal accountant is needed to provide services in between scheduled Audit Committee meetings, the Chairman of the Audit Committee would be called on to consider and, if appropriate, pre-approve audit or permitted non-audit services in an amount sufficient to complete services through the next Audit Committee meeting, and to determine if such services would be consistent with maintaining the accountant’s independence. At the next scheduled Audit Committee meeting, services and fees would be presented to the Audit Committee for formal consideration, and, if appropriate, approval by the entire Audit Committee. The Audit Committee would again consider whether such services and fees are consistent with maintaining the principal accountant’s independence.
The Registrant’s Audit Committee is informed at least annually of all audit and non-audit services provided by the principal accountant to the Vanguard complex, whether such services are provided to: the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., or other entities controlled by The Vanguard Group, Inc. that provide ongoing services to the Registrant.
(2) No percentage of the principal accountant’s fees or services were approved pursuant to the waiver provision of paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) For the most recent fiscal year, over 50% of the hours worked under the principal accountant’s engagement were not performed by persons other than full-time, permanent employees of the principal accountant.
(g) Aggregate Non-Audit Fees.
Fiscal Year Ended September 30, 2013: $242,000 Fiscal Year Ended September 30, 2012: $506,518
Includes fees billed for non-audit services provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.
(h) For the most recent fiscal year, the Audit Committee has determined that the provision of all non-audit services was consistent with maintaining the principal accountant’s independence.
Item 5: Audit Committee of Listed Registrants.
Not Applicable.
Item 6: Investments.
Not Applicable.
Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not Applicable.
Item 8: Portfolio Managers of Closed-End Management Investment Companies.
Not Applicable.
Item 9: Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not Applicable.
Item 10: Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 11: Controls and Procedures.
(a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.
(b) Internal Control Over Financial Reporting. There were no significant changes in Registrant’s Internal Control Over Financial Reporting or in other factors that could significantly affect this control subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Item 12: Exhibits.
(a) | Code of Ethics. |
(b) | Certifications. |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
VANGUARD QUANTITATIVE FUNDS | |
BY: | /s/ F. WILLIAM MCNABB III* |
F. WILLIAM MCNABB III | |
CHIEF EXECUTIVE OFFICER |
Date: November 15, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
VANGUARD QUANTITATIVE FUNDS | |
BY: | /s/ F. WILLIAM MCNABB III* |
F. WILLIAM MCNABB III | |
CHIEF EXECUTIVE OFFICER |
Date: November 15, 2013
VANGUARD QUANTITATIVE FUNDS | |
BY: | /s//s/ THOMAS J. HIGGINS* |
THOMAS J. HIGGINS | |
CHIEF FINANCIAL OFFICER |
* By: /s/ Heidi Stam
Heidi Stam, pursuant to a Power of Attorney filed on March 27, 2012 see file Number 2-11444, Incorporated by Reference.