Annual Report | October 31, 2016
Vanguard High Dividend Yield Index Fund
A new format, unwavering commitment As you begin reading this report, you’ll notice that we’ve made some improvements to the opening sections—based on feedback from you, our clients. Page 1 starts with a new ”Your Fund’s Performance at a Glance,” a concise, handy summary of how your fund performed during the period. In the renamed ”Chairman’s Perspective,” Bill McNabb will focus on enduring principles and investment insights. We’ve modified some tables, and eliminated some redundancy, but we haven’t removed any information. At Vanguard, we’re always looking for better ways to communicate and to help you make sound investment decisions. Thank you for entrusting your assets to us.
Contents Your Fund’s Performance at a Glance. . . . . . . . . . . . . . . . . . 1 Chairman’s Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Fund Profile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Performance Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Your Fund’s After-Tax Returns. . . . . . . . . . . . . . . . . . . . . . . 28 About Your Fund’s Expenses. . . . . . . . . . . . . . . . . . . . . . . . 29 Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
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: No matter what language you speak, Vanguard has one consistent message and set of principles. Our primary focus is on you, our clients. We conduct our business with integrity as a faithful steward of your assets. This message is shown translated into seven languages, reflecting our expanding global presence.
Your Fund’s Performance at a Glance • Vanguard High Dividend Yield Index Fund returned a bit more than 8% for the 12 months ended October 31, 2016, closely tracking its target, the FTSE High Dividend Yield Index. It outdistanced both the broad market and the average return of its peers. • The fund’s focus on U.S. companies that are committed to paying larger-than-average dividends helped boost its results for the fiscal year. • The fund posted gains in each of its ten market sectors. Technology (+15%) was the top contributor, followed by consumer goods (+10%), utilities (+18%), and industrials (+10%). • Since its inception in November of 2006, the fund has produced an average annual return of almost 7%.
Total Returns: Fiscal Year Ended October 31, 2016 Total Returns Vanguard High Dividend Yield Index Fund Investor Shares
8.11%
ETF Shares Market Price
8.13
Net Asset Value
8.18
FTSE High Dividend Yield Index
8.25
Equity Income Funds Average
4.59
Equity Income Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. The Vanguard ETF® Shares shown are traded on the NYSE Arca exchange and are available only through brokers. The table provides ETF returns based on both the NYSE Arca market price and the net asset value for a share. U.S. Pat. Nos. 6,879,964; 7,337,138; 7,720,749; 7,925,573; 8,090,646; and 8,417,623. For the ETF Shares, the market price is determined by the midpoint of the bid-offer spread as of the closing time of the New York Stock Exchange (generally 4 p.m., Eastern time). The net asset value is also determined as of the NYSE closing time. For more information about how the ETF Shares' market prices have compared with their net asset value, visit vanguard.com, select your ETF, and then select the Price and Performance tab. The ETF premium/discount analysis there shows the percentages of days on which the ETF Shares' market price was above or below the NAV.
1
Total Returns: Inception Through October 31, 2016 Average Annual Return High Dividend Yield Index Fund Investor Shares (Returns since inception: 11/16/2006)
6.60%
FTSE High Dividend Yield Index
6.82
Equity Income Funds Average
5.11
Equity Income 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.
Expense Ratios Your Fund Compared With Its Peer Group
High Dividend Yield Index Fund
Investor Shares
ETF Shares
Peer Group Average
0.16%
0.09%
1.20%
The fund expense ratios shown are from the prospectus dated February 25, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended October 31, 2016, the fund’s expense ratios were 0.15% for Investor Shares and 0.08% for ETF Shares. The peer-group expense ratio is derived from data provided by Lipper, a Thomson Reuters Company, and captures information through year-end 2015. Peer group: Equity Income Funds.
2
Chairman’s Perspective Dear Shareholder, Over the three years ended August 31, 2016, investors poured more than $1 trillion into index funds. Indexing now accounts for nearly a third of all mutual fund assets—more than double what it did a decade ago and eight times its share two decades ago.1
Bill McNabb Chairman and Chief Executive Officer
By contrast, active management’s commercial struggles have reflected its disappointing investment performance. Over the decade ended December 31, 2015, 82% of actively managed stock funds and 81% of active bond funds have either underperformed their benchmarks or shut down. This subpar performance has fueled the explosion of asset growth in indexing among individual, retirement, and nonprofit investors. So what might the trend mean for the future of actively managed funds? Our research and experience indicate that active management can survive—and even succeed—but only if it’s offered at much lower expense. High costs, which limit a manager’s ability to deliver benchmark-beating returns to clients, are the biggest reason why active has lagged. Industrywide as of December 31, 2015, the average expense ratio for all active stock funds is 1.14%, compared with 0.76% for stock index
1 Sources: Wall Street Journal; Morningstar, Inc.; and Investment Company Institute, 2016. 3
funds. And the expense advantage is even wider for bonds; the average expense ratio for an active bond fund is 0.93%, compared with 0.43% for bond index funds. But even these big differences understate the real gap. These days, it’s not hard to find an index fund that charges maybe 0.05% or 0.10%. So even if you have identified active managers who are skilled at selecting stocks and bonds, to match the return of a comparable (much cheaper) index fund would require significant outperformance. Think about it. Any fund that charges 1.00% in expenses—not even the high end of the range—will find it extraordinarily difficult to overcome the index fund’s head start.
Active management also has taken a hit from a regulatory environment that has been favorable to low-cost strategies. The U.S. Department of Labor several years ago mandated greater disclosure of retirement plan fees. And its new fiduciary rule, which is set to take effect in April, requires financial advisors to demonstrate that their recommendations are aligned with their clients’ best interest. Both changes encourage the use of lower-cost investments, including index funds.
The future of active management In light of all this, people have been asking me whether active management is “dead.” My response is both yes and no. High-cost active management is dead, and rightly so. It has never been a winning proposition
Market Barometer Average Annual Total Returns Periods Ended October 31, 2016 One Year
Three Years
Five Years
Stocks Russell 1000 Index (Large-caps)
4.26%
8.48%
13.51%
Russell 2000 Index (Small-caps)
4.11
4.12
11.51
Russell 3000 Index (Broad U.S. market)
4.24
8.13
13.35
FTSE All-World ex US Index (International)
0.64
-0.94
4.09
4.37%
3.48%
2.90%
Bonds Bloomberg Barclays U.S. Aggregate Bond Index (Broad taxable market) Bloomberg Barclays Municipal Bond Index (Broad tax-exempt market)
4.06
4.89
4.34
Citigroup Three-Month U.S. Treasury Bill Index
0.22
0.07
0.07
1.64%
1.15%
1.32%
CPI Consumer Price Index
4
for investors. Low-cost active funds, though, can potentially play an important role for investors who seek to outperform the market. Paying less for your funds is the only sure-fire way to improve your odds of achieving success in active management. But even if you have found an active manager with low costs, the odds of outperforming the market are still long. You have to be able to identify talented stock and bond portfolio managers with long time horizons and clear investment strategies. Look for managers with consistent track records and the discipline to stick closely to their investment strategy.
Know what you own and why Despite the well-deserved reputation of indexing and the challenges for active managers, there’s still a place for traditional active strategies that are lowcost, diversified, and highly disciplined, and are run by talented managers who focus on the long term. Vanguard has always applied these principles to our active strategies, and investors have benefited as a majority of our active funds outperformed their benchmarks and bested their peers’ average annual return over the ten years ended September 30, 2016.
Worried about the election’s impact on your portfolio?
These findings hold true regardless of the market’s initial reaction. Whether there’s a swoon or bounce immediately after an election, investors shouldn’t extrapolate that performance to the long term. As you can see in the accompanying chart, data going back to 1853 show that stock market returns are virtually identical no matter which party controls the White House. Although headlines out of Washington at any given time may still cause concern, investors
shouldn’t overreact to short-term events. Instead, it’s best to maintain a balanced and diversified portfolio and stay focused on your long-term goals. Average annual stock market returns based on party control of the White House (1853–2015) Year-end stock market returns (nominal)
The 2016 presidential election season was one of the most intense and unpredictable in U.S. history. In its aftermath, investors may be left with lingering questions about what the outcome will mean for their portfolios. The answer, based on Vanguard research into decades of historical data, is that presidential elections typically have no long-term effect on market performance.
11%
0 Democrat
Republican
Sources: Global Financial Data, 1853–1926; Morningstar, Inc., and Ibbotson Associates thereafter through 2015.
5
But it’s crucial for investors to be patient. Even active managers with the best track records frequently underperform their benchmarks when their investment styles are out of favor. Such periods, though temporary, can persist. So it’s important when entrusting your assets to an active strategy to be in it for the long haul.
Keeping these considerations in mind can potentially boost your chances of success in identifying active strategies that may be able to help you reach your goals. As always, thank you for investing with Vanguard. Sincerely,
Make sure you know what you’re buying and what the risks are. Active strategies are becoming more complex, so it’s important to clearly understand what the investments in your portfolio are designed to accomplish and why you want to hold them. Otherwise, you run the risk of selecting strategies that don’t fit your needs or objectives.
6
F. William McNabb III Chairman and Chief Executive Officer November 9, 2016
High Dividend Yield Index Fund Fund Profile
As of October 31, 2016
Volatility Measures
Share-Class Characteristics
Investor Shares
FTSE High Dividend Yield Index
ETF Shares
DJ U.S. Total Market FA Index
Ticker Symbol
VHDYX
VYM
R-Squared
1.00
0.89
Expense Ratio1
0.16%
0.09%
Beta
1.00
0.86
30-Day SEC Yield
3.17%
3.24%
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
FTSE High Dividend Yield Index Fund
DJ U.S. Total Market FA Index
Portfolio Characteristics
Number of Stocks
419
415
3,833
Median Market Cap
$108.2B
$108.2B
$53.5B
Price/Earnings Ratio
20.2x
20.2x
23.1x
2.6x
2.6x
2.7x
Price/Book Ratio Return on Equity
17.4%
17.4%
16.6%
Ten Largest Holdings (% of total net assets) Microsoft Corp.
Software
5.3%
Exxon Mobil Corp.
Integrated Oil & Gas
4.0
Johnson & Johnson
Pharmaceuticals
3.7
General Electric Co.
Diversified Industrials
3.0
JPMorgan Chase & Co. Banks
2.9
Wells Fargo & Co.
Banks
2.7
AT&T Inc.
Fixed Line Telecommunications
2.6
Procter & Gamble Co.
Nondurable Household Products
2.6
Chevron Corp.
Integrated Oil & Gas
2.3
Earnings Growth Rate
1.1%
1.1%
8.4%
Dividend Yield
3.3%
3.3%
2.1%
Verizon Communications Fixed Line Inc. Telecommunications
Foreign Holdings
0.0%
0.0%
0.0%
Top Ten
7%
—
—
-0.1%
—
—
Turnover Rate Short-Term Reserves
2.3 31.4%
The holdings listed exclude any temporary cash investments and equity index products.
Investment Focus Style Market Cap
Value Blend Growth Large
Medium
Small
1 The expense ratios shown are from the prospectus dated February 25, 2016, and represent estimated costs for the current fiscal year. For the fiscal year ended October 31, 2016, the expense ratios were 0.15% for Investor Shares and 0.08% for ETF Shares. 7
High Dividend Yield Index Fund
Sector Diversification (% of equity exposure) FTSE High Dividend Yield Fund Index Basic Materials Consumer Goods Consumer Services
8
3.2% 15.2
3.2%
DJ U.S. Total Market FA Index 2.5%
15.2
10.2
5.7
5.6
13.2
Financials
13.8
13.8
19.4
Health Care
11.0
11.0
12.6
Industrials
12.4
12.4
12.7
Oil & Gas
10.4
10.5
6.6
Technology
14.8
14.8
17.2
Telecommunications
5.2
5.2
2.3
Utilities
8.3
8.3
3.3
High Dividend Yield Index Fund
Performance Summary All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares. Cumulative Performance: November 16, 2006, Through October 31, 2016 Initial Investment of $10,000
$25,000 18,903
2007
2008
2009
2010
2011
2012
2013
2014
2015
3,000
2016
Average Annual Total Returns Periods Ended October 31, 2016 One Year
• • • • • • • •
Five Years
Since Inception (11/16/2006)
Final Value of a $10,000 Investment $18,903
High Dividend Yield Index Fund Investor Shares
8.11%
13.63%
6.60%
FTSE High Dividend Yield Index
8.25
13.79
6.82
19,287
4.59
10.40
5.11
16,432
4.21
13.29
6.69
19,062
– – – – Equity Income Funds Average _______ Dow Jones U.S. Total Stock Market
Float Adjusted Index
Equity Income Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. "Since Inception" performance is calculated from the Investor Shares’ inception date for both the fund and its comparative standards.
Since Inception (11/10/2006)
Final Value of a $10,000 Investment
13.71%
6.80%
$19,267
13.79
6.90
19,449
13.29
6.85
19,358
One Year
Five Years
High Dividend Yield Index Fund ETF Shares Net Asset Value
8.18%
FTSE High Dividend Yield Index
8.25
Dow Jones U.S. Total Stock Market Float Adjusted Index
4.21
"Since Inception" performance is calculated from the ETF Shares’ inception date for both the fund and its comparative standards.
See Financial Highlights for dividend and capital gains information. 9
High Dividend Yield Index Fund
Cumulative Returns of ETF Shares: November 10, 2006, Through October 31, 2016
High Dividend Yield Index Fund ETF Shares Market Price
One Year
Five Years
Since Inception (11/10/2006)
8.13%
90.01%
92.68%
High Dividend Yield Index Fund ETF Shares Net Asset Value
8.18
90.09
92.67
FTSE High Dividend Yield Index
8.25
90.79
94.49
"Since Inception" performance is calculated from the ETF Shares’ inception date for both the fund and its comparative standards.
Fiscal-Year Total Returns (%): November 16, 2006, Through October 31, 2016 2008
2007
2009
2010
2011
2012
2013 24.35
10.16
15.79
10.48 3.27
16.15
17.69 11.70
2014
2015
2016
24.49
17.91
16.48
12.03
3.39
16.66 2.78
2.91
8.11
8.25
–32.17 –31.99
High Dividend Yield Index Fund Investor Shares FTSE High Dividend Yield Index
Average Annual Total Returns: Periods Ended September 30, 2016 This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period. Securities and Exchange Commission rules require that we provide this information.
10
Inception Date
One Year
Five Years
Since Inception
Investor Shares
11/16/2006
18.75%
15.74%
6.81%
ETF Shares
11/10/2006
Market Price
18.79
15.82
7.00
Net Asset Value
18.79
15.84
7.00
High Dividend Yield Index Fund
Financial Statements Statement of Net Assets As of October 31, 2016
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).
Shares
Market Value• ($000)
Common Stocks (99.6%)1 Basic Materials (3.2%) EI du Pont de Nemours & Co. 2,173,172 Dow Chemical Co. 2,765,415 Air Products & Chemicals Inc. 538,044 LyondellBasell Industries NV Class A 869,176 International Paper Co. 1,023,383 Nucor Corp. 782,274 Mosaic Co. 873,979 RPM International Inc. 333,927 Steel Dynamics Inc. 565,803 Avery Dennison Corp. 222,243 CF Industries Holdings Inc. 562,040 Reliance Steel & Aluminum Co. 165,192 Olin Corp. 393,994 Scotts Miracle-Gro Co. Class A 89,723 Huntsman Corp. 406,196 Compass Minerals International Inc. 86,367 * Versum Materials Inc. 268,981 Domtar Corp. 146,301 * Ingevity Corp. 106,012 Commercial Metals Co. 276,105 KapStone Paper and Packaging Corp. 206,500 Innophos Holdings Inc. 54,893 A Schulman Inc. 86,695 Ferroglobe plc 165,318 Rayonier Advanced Materials Inc. 114,338
149,492 148,807 71,786 69,143 46,083 38,214 20,565 15,875 15,537 15,510 13,495 11,362 8,640 7,904 6,885 6,205 6,106 5,260 4,389 4,338 3,746 2,516 2,492 1,529
^
1,478 677,357
Consumer Goods (15.1%) Procter & Gamble Co. Coca-Cola Co. PepsiCo Inc.
6,361,328 10,251,522 3,574,839
552,163 434,664 383,223
^
Philip Morris International Inc. Altria Group Inc. Kraft Heinz Co. Reynolds American Inc. Ford Motor Co. General Motors Co. Kimberly-Clark Corp. General Mills Inc. Archer-Daniels-Midland Co. ConAgra Foods Inc. Kellogg Co. Stanley Black & Decker Inc. Clorox Co. Genuine Parts Co. Mattel Inc. Harley-Davidson Inc. Coach Inc. Hasbro Inc. Coca-Cola European Partners plc Bunge Ltd. Leggett & Platt Inc. Pinnacle Foods Inc. Nu Skin Enterprises Inc. Class A B&G Foods Inc. Flowers Foods Inc. Tupperware Brands Corp. Vector Group Ltd. HNI Corp. Steelcase Inc. Class A Universal Corp. Schweitzer-Mauduit International Inc. MDC Holdings Inc. Cal-Maine Foods Inc. Knoll Inc.
Shares
Market Value• ($000)
3,878,328 4,926,173 1,477,234 2,066,337 9,589,553 3,561,716 897,496 1,473,082
374,026 325,719 131,400 113,814 112,581 112,550 102,682 91,302
1,452,931 1,078,201 584,623
63,304 51,948 43,923
368,453 320,992 374,466 832,346 445,398 679,581 279,084
41,945 38,525 33,923 26,244 25,397 24,390 23,278
564,965 342,890 325,466 282,196
21,717 21,263 14,932 14,510
118,358 165,519 435,293 110,270 232,939 102,315 236,376 55,795
7,297 7,018 6,756 6,563 4,878 4,160 3,156 3,024
71,956 108,807 65,606 105,141
2,656 2,580 2,536 2,275
11
High Dividend Yield Index Fund
Cosan Ltd. Briggs & Stratton Corp. National Presto Industries Inc. Superior Industries International Inc.
Shares
Market Value• ($000)
251,354 95,647
2,237 1,781
15,145
1,321
^
53,376
1,308 3,238,969
Consumer Services (5.6%) Wal-Mart Stores Inc. 3,878,435 McDonald’s Corp. 2,123,966 Target Corp. 1,423,591 Sysco Corp. 1,284,200 Las Vegas Sands Corp. 994,162 Carnival Corp. 953,661 Omnicom Group Inc. 585,581 L Brands Inc. 533,089 Viacom Inc. Class B 855,499 Macy’s Inc. 764,430 Best Buy Co. Inc. 642,342 Darden Restaurants Inc. 313,880 Wynn Resorts Ltd. 202,982 Kohl’s Corp. 426,575 ^ Nordstrom Inc. 348,560 Gap Inc. 561,160 KAR Auction Services Inc. 333,257 Six Flags Entertainment Corp. 230,192 H&R Block Inc. 556,706 Staples Inc. 1,610,841 TEGNA Inc. 544,727 Cinemark Holdings Inc. 262,289 ^ Cracker Barrel Old Country Store Inc. 53,772 American Eagle Outfitters Inc. 425,696 International Game Technology plc 249,884 GameStop Corp. Class A 260,745 John Wiley & Sons Inc. Class A 103,387 Hillenbrand Inc. 150,118 ^ Regal Entertainment Group Class A 203,319 ILG Inc. 258,177 Meredith Corp. 92,988 DineEquity Inc. 44,398 Time Inc. 255,897 Extended Stay America Inc. 215,764 Abercrombie & Fitch Co. 174,422 SeaWorld Entertainment Inc. 175,035 Bob Evans Farms Inc. 56,260 Guess? Inc. 170,709 Gannett Co. Inc. 287,381 National CineMedia Inc. 148,555
12
^
271,568 239,095 97,843 61,796 57,542 46,825 46,741 38,484 32,133 27,894 24,993 20,336 19,192 18,663 18,125 15,482 14,190 12,810 12,788 11,920 10,688 10,439 7,420 7,254 7,177 6,271 5,335 4,556 4,373 4,229 4,217 3,512 3,327 3,085 2,548 2,452 2,319 2,305 2,233 2,060
ClubCorp Holdings Inc. Tailored Brands Inc. Copa Holdings SA Class A Weis Markets Inc. New Media Investment Group Inc. Cato Corp. Class A Buckle Inc. Rent-A-Center Inc. Pier 1 Imports Inc. Speedway Motorsports Inc.
Shares
Market Value• ($000)
170,361 119,497 19,407 31,174
1,968 1,888 1,790 1,734
109,542 48,589 65,168 130,755 220,797 37,581
1,577 1,442 1,359 1,319 952 707 1,198,956
Financials (13.7%) JPMorgan Chase & Co. 8,991,456 Wells Fargo & Co. 12,570,101 Chubb Ltd. 1,155,177 PNC Financial Services Group Inc. 1,222,092 BlackRock Inc. 306,297 MetLife Inc. 2,198,138 Prudential Financial Inc. 1,087,833 CME Group Inc. 796,849 BB&T Corp. 2,009,255 Travelers Cos. Inc. 716,280 Aflac Inc. 985,821 SunTrust Banks Inc. 1,227,242 M&T Bank Corp. 367,411 Fifth Third Bancorp 1,908,891 Principal Financial Group Inc. 713,128 KeyCorp 2,701,876 T. Rowe Price Group Inc. 586,766 Ameriprise Financial Inc. 403,956 Regions Financial Corp. 3,147,877 Huntington Bancshares Inc. 2,713,418 Invesco Ltd. 1,022,187 Cincinnati Financial Corp. 364,763 FNF Group 676,620 Western Union Co. 1,200,867 Arthur J Gallagher & Co. 430,902 New York Community Bancorp Inc. 1,168,558 People’s United Financial Inc. 792,489 PacWest Bancorp 287,475 Axis Capital Holdings Ltd. 208,657 First American Financial Corp. 268,635 Navient Corp. 802,237 Cullen/Frost Bankers Inc. 132,035 Eaton Vance Corp. 276,947 Lazard Ltd. Class A 265,963 Old Republic International Corp. 573,323
622,748 578,350 146,707 116,832 104,521 103,225 92,237 79,765 78,763 77,487 67,893 55,508 45,092 41,537 38,937 38,150 37,559 35,706 33,714 28,762 28,713 25,818 24,297 24,101 20,782 16,780 12,870 12,474 11,887 10,493 10,253 10,033 9,710 9,697 9,666
High Dividend Yield Index Fund
Shares
^
^
Allied World Assurance Co. Holdings AG Umpqua Holdings Corp. Validus Holdings Ltd. Bank of Hawaii Corp. Chemical Financial Corp. BankUnited Inc. ProAssurance Corp. United Bankshares Inc. Hancock Holding Co. FNB Corp. IBERIABANK Corp. Fulton Financial Corp. NorthStar Asset Management Group Inc. Valley National Bancorp Janus Capital Group Inc. Federated Investors Inc. Class B LPL Financial Holdings Inc. Washington Federal Inc. RLI Corp. Old National Bancorp Glacier Bancorp Inc. Capitol Federal Financial Inc. Hope Bancorp Inc. Columbia Banking System Inc. Community Bank System Inc. BGC Partners Inc. Class A Trustmark Corp. TFS Financial Corp. LegacyTexas Financial Group Inc. Northwest Bancshares Inc. Mercury General Corp. CVB Financial Corp. Horace Mann Educators Corp. Provident Financial Services Inc. BOK Financial Corp. NBT Bancorp Inc. Waddell & Reed Financial Inc. Class A Kemper Corp. WesBanco Inc. Independent Bank Corp. First Financial Bancorp Artisan Partners Asset Management Inc. Class A Simmons First National Corp. Class A NRG Yield Inc. Class A
Market Value• ($000)
222,510 544,485 160,212 98,753 169,871 242,102 129,752 181,104 199,473 511,679 101,202 444,809
9,563 8,320 8,187 7,421 7,296 7,055 6,916 6,828 6,692 6,688 6,644 6,628
482,226 663,719 471,963
6,607 6,544 6,051
219,367 190,884 216,635 90,828 342,443 177,526
5,923 5,910 5,903 5,063 5,034 5,017
340,220 307,206
4,991 4,958
140,581
4,642
96,063 487,412 144,817 222,764
4,526 4,187 4,009 3,970
114,689 246,102 70,750 221,691
3,924 3,874 3,854 3,720
99,140
3,564
155,528 49,330 101,735
3,529 3,503 3,429
211,265 86,212 97,839 55,880 141,879
3,321 3,237 3,220 3,082 3,050
111,401
2,896
57,901 193,468
2,857 2,850
Park National Corp. Westamerica Bancorporation CNA Financial Corp. Boston Private Financial Holdings Inc. HFF Inc. Class A Tompkins Financial Corp. Safety Insurance Group Inc. American National Insurance Co. S&T Bancorp Inc. Brookline Bancorp Inc. First Commonwealth Financial Corp. City Holding Co. Oritani Financial Corp. Maiden Holdings Ltd. Cohen & Steers Inc. FBL Financial Group Inc. Class A Washington Trust Bancorp Inc. Stock Yards Bancorp Inc. TrustCo Bank Corp. NY Flushing Financial Corp. BancFirst Corp. Sandy Spring Bancorp Inc. Community Trust Bancorp Inc. 1st Source Corp. Greenhill & Co. Inc. Dime Community Bancshares Inc. NRG Yield Inc. First Financial Corp. Republic Bancorp Inc. Class A Willis Towers Watson plc
Shares
Market Value• ($000)
29,100
2,821
55,960 72,248
2,773 2,642
199,406 98,058 31,963 37,099
2,622 2,611 2,534 2,512
20,356 75,879 163,424
2,385 2,382 2,092
185,243 35,821 117,384 133,081 47,293
1,882 1,872 1,837 1,817 1,758
27,315
1,729
36,048 46,333 207,081 67,578 19,900 43,261
1,655 1,580 1,450 1,448 1,427 1,371
37,223 35,861 50,681
1,361 1,239 1,188
71,018 68,351 24,254
1,150 1,053 973
18,762 8
594 1 2,939,309
Health Care (10.9%) Johnson & Johnson 6,831,686 Pfizer Inc. 15,076,778 Merck & Co. Inc. 6,898,512 AbbVie Inc. 4,022,673 Bristol-Myers Squibb Co. 4,136,700 Eli Lilly & Co. 2,445,586 Quest Diagnostics Inc. 343,916 Owens & Minor Inc. 149,356 Abaxis Inc. 58,721 * Innoviva Inc. 233,860 Kindred Healthcare Inc. 218,212 Meridian Bioscience Inc. 109,059 PDL BioPharma Inc. 397,897
792,407 478,085 405,081 224,385 210,599 180,582 28,009 4,847 2,803 2,409 2,149 1,794 1,281 2,334,431
13
High Dividend Yield Index Fund
Shares Industrials (12.4%) General Electric Co. 22,252,630 3M Co. 1,503,713 Boeing Co. 1,407,385 United Parcel Service Inc. Class B 1,725,859 Lockheed Martin Corp. 742,718 Caterpillar Inc. 1,436,924 Raytheon Co. 735,605 Automatic Data Processing Inc. 1,135,339 Emerson Electric Co. 1,585,268 Waste Management Inc. 1,112,462 Eaton Corp. plc 1,126,774 CSX Corp. 2,339,449 Norfolk Southern Corp. 727,436 Deere & Co. 735,799 Cummins Inc. 415,911 PACCAR Inc. 875,605 Paychex Inc. 817,704 Republic Services Inc. Class A 695,882 WestRock Co. 627,392 Fastenal Co. 654,487 Xerox Corp. 2,505,845 CH Robinson Worldwide Inc. 354,994 Packaging Corp. of America 233,690 MDU Resources Group Inc. 469,588 Sonoco Products Co. 234,636 Ryder System Inc. 135,494 MSC Industrial Direct Co. Inc. Class A 118,404 National Instruments Corp. 248,624 Kennametal Inc. 199,752 Timken Co. 166,396 MSA Safety Inc. 81,118 Covanta Holding Corp. 276,852 CEB Inc. 79,709 Applied Industrial Technologies Inc. 75,114 GATX Corp. 86,723 Aircastle Ltd. 169,245 Brady Corp. Class A 100,885 RR Donnelley & Sons Co. 170,746 Otter Tail Corp. 83,171 Greif Inc. Class A 63,223 ^ Ship Finance International Ltd. 192,688 ManTech International Corp. Class A 59,834 Greenbrier Cos. Inc. 70,298
14
Market Value• ($000) ^
647,551 248,564 200,454 185,979 182,991 119,926 100,491 98,843 80,341 73,044 71,854 71,377 67,651 64,971 53,162 48,088 45,137
^
^
*
*
^
36,624 28,979 25,512 24,482
Nordic American Tankers Ltd. GasLog Ltd. Raven Industries Inc. General Cable Corp. Seaspan Corp. Class A AVX Corp. LSC Communications Inc. McGrath RentCorp Schnitzer Steel Industries Inc. Donnelley Financial Solutions Inc. Triton International Ltd./Bermuda Scorpio Tankers Inc. H&E Equipment Services Inc. American Railcar Industries Inc. Teekay Corp. Myers Industries Inc. Textainer Group Holdings Ltd. Daktronics Inc.
Shares
Market Value• ($000)
268,921 133,590 94,239 139,299 157,065 121,511 63,830 49,971
2,197 2,051 2,021 1,950 1,943 1,704 1,547 1,504
58,208
1,406
63,830
1,369
112,833 295,523
1,362 1,132
79,262
1,106
27,295 145,350 54,838
1,004 949 661
50,219 1,161
382 10 2,647,195
24,182 19,279 12,308 11,800 9,402 8,620 6,984 5,655 5,499 4,729 4,153 3,878 3,816 3,796 3,478 3,339 3,031 2,990 2,963 2,437 2,323 2,214
Oil & Gas (10.4%) Exxon Mobil Corp. 10,360,211 Chevron Corp. 4,678,093 Occidental Petroleum Corp. 1,919,538 ConocoPhillips 3,066,582 Phillips 66 1,317,627 Kinder Morgan Inc. 4,663,030 Spectra Energy Corp. 1,732,123 Valero Energy Corp. 1,154,729 Marathon Petroleum Corp. 1,316,985 1,845,440 Williams Cos. Inc. National Oilwell Varco Inc. 942,682 ^ Helmerich & Payne Inc. 261,870 Targa Resources Corp. 370,652 OGE Energy Corp. 492,324 Murphy Oil Corp. 424,138 HollyFrontier Corp. 403,775 Patterson-UTI Energy Inc. 369,037 Western Refining Inc. 219,245 Oceaneering International Inc. 249,835 PBF Energy Inc. Class A 265,515 SemGroup Corp. Class A 164,006 Pattern Energy Group Inc. Class A 183,751 Noble Corp. plc 624,509 Delek US Holdings Inc. 167,362
863,213 490,030 139,954 133,243 106,925 95,266 72,420 68,406 57,407 53,887 30,260 16,527 16,272 15,282 10,972 10,074 8,296 6,325 5,946 5,788 5,289 4,107 3,085 2,828
High Dividend Yield Index Fund
^
Archrock Inc. Frank’s International NV CVR Energy Inc.
Shares
Market Value• ($000)
161,631 117,847 84,952
1,875 1,326 1,127 2,226,130
Other (0.0%)2 * Safeway Inc CVR (Casa Ley) Expire 1/30/2018 * Safeway Inc CVR (PDC) Expire 1/30/2017
^
Consolidated Communications Holdings Inc. Windstream Holdings Inc. EarthLink Holdings Corp.
Shares
Market Value• ($000)
124,516 244,196 243,821
2,980 1,917 1,395 1,107,180
364
—
364
—
Technology (14.8%) Microsoft Corp. 18,793,880 Intel Corp. 11,776,788 Cisco Systems Inc. 12,522,705 International Business Machines Corp. 2,387,024 QUALCOMM Inc. 3,650,583 Texas Instruments Inc. 2,504,350 HP Inc. 4,265,355 Analog Devices Inc. 763,566 Western Digital Corp. 656,806 Linear Technology Corp. 598,383 Microchip Technology Inc. 534,217 Xilinx Inc. 632,227 KLA-Tencor Corp. 386,823 Maxim Integrated Products Inc. 709,640 Harris Corp. 308,233 Seagate Technology plc 701,010 CA Inc. 774,634 Garmin Ltd. 263,236 Pitney Bowes Inc. 465,983 Cypress Semiconductor Corp. 798,914 Science Applications International Corp. 91,494 Lexmark International Inc. Class A 156,890 Intersil Corp. Class A 277,999 Diebold Inc. 187,608 Cogent Communications Holdings Inc. 103,875 West Corp. 161,906 Brooks Automation Inc. 167,756 Computer Programs & Systems Inc. 12,023
1,126,129 410,657 384,197 366,862 250,868 177,433 61,805 48,944 38,384 35,939 32,347 32,161 29,054 28,123 27,497 24,052 23,812 12,730 8,313 7,965 6,305 6,227 6,138 4,090 3,833 3,193 2,186 314 3,159,558
Telecommunications (5.2%) AT&T Inc. 15,355,165 Verizon Communications Inc. 10,138,588 CenturyLink Inc. 1,368,364 Frontier Communications Corp. 2,968,957
564,916 487,666 36,371 11,935
Utilities (8.3%) NextEra Energy Inc. Duke Energy Corp. Southern Co. Dominion Resources Inc. American Electric Power Co. Inc. PG&E Corp. Exelon Corp. Sempra Energy Edison International Consolidated Edison Inc. PPL Corp. Public Service Enterprise Group Inc. Xcel Energy Inc. WEC Energy Group Inc. Eversource Energy DTE Energy Co. FirstEnergy Corp. Entergy Corp. Ameren Corp. CMS Energy Corp. ONEOK Inc. CenterPoint Energy Inc. SCANA Corp. Alliant Energy Corp. Westar Energy Inc. Class A Pinnacle West Capital Corp. UGI Corp. AES Corp. Atmos Energy Corp. NiSource Inc. Great Plains Energy Inc. Aqua America Inc. National Fuel Gas Co. Vectren Corp. Portland General Electric Co. IDACORP Inc. Southwest Gas Corp. NRG Energy Inc. WGL Holdings Inc. Black Hills Corp. Hawaiian Electric Industries Inc. ONE Gas Inc.
1,153,179 1,722,568 2,436,925 1,563,311
147,607 137,840 125,672 117,561
1,223,158 1,253,886 2,197,210 616,040 812,893 762,539 1,668,563
79,310 77,891 74,859 65,978 59,731 57,610 57,298
1,264,433 1,236,086 788,760 776,646 444,228 1,047,162 438,706 595,738 691,079 527,086 1,058,219 318,855 555,098
53,207 51,359 47,105 42,762 42,650 35,907 32,324 29,757 29,129 25,527 24,127 23,391 21,121
362,437
20,775
270,732 429,689 1,687,705 257,516 791,877 488,134 374,046 194,231 199,051
20,611 19,890 19,864 19,157 18,419 13,883 11,483 10,174 10,014
215,488 118,539 120,962 791,987 130,752 129,515
9,404 9,292 8,765 8,419 8,247 8,010
264,426 125,628
7,801 7,698
15
High Dividend Yield Index Fund
New Jersey Resources Corp. ALLETE Inc. Spire Inc. NorthWestern Corp. PNM Resources Inc. Avista Corp. Avangrid Inc. South Jersey Industries Inc. MGE Energy Inc. Empire District Electric Co. El Paso Electric Co. Northwest Natural Gas Co. California Water Service Group Atlantica Yield plc
Shares
Market Value• ($000)
220,205 115,574 110,424 117,496 203,431 148,325 155,618 193,803 86,277 140,303 94,819 66,232
7,476 7,084 6,935 6,762 6,683 6,141 6,133 5,746 5,043 4,803 4,381 3,894
119,053 89,574
3,691 1,611
Other Assets and Liabilities (0.0%)
1,768,012 Total Common Stocks (Cost $18,713,225)
704,088
70,416
U.S. Government and Agency Obligations (0.0%) 5 United States Treasury Bill, 0.275–0.312%, 12/8/16 2,500 2,499 5 United States Treasury Bill, 0.281%, 12/15/16 300 300 5 United States Treasury Bill, 0.300%, 12/22/16 200 200 5 United States Treasury Bill, 0.360%, 1/12/17 500 500 3,499 Total Temporary Cash Investments (Cost $73,912)
16
1,630 31,814 9,960 16
Total Other Assets
43,420
Liabilities Payables for Investment Securities Purchased Collateral for Securities on Loan Payables for Capital Shares Redeemed Payables to Vanguard Other Liabilities Total Liabilities Net Assets (100%)
(268) (23,840) (7,637) (6,431) (136) (38,312) 21,376,120
At October 31, 2016, net assets consisted of: Amount ($000)
Face Amount ($000)
Total Investments (100.0%) (Cost $18,787,137)
Other Assets Investment in Vanguard Receivables for Accrued Income Receivables for Capital Shares Issued Other Assets
21,297,097
Temporary Cash Investments (0.4%)1 Money Market Fund (0.4%) 3,4 Vanguard Market Liquidity Fund, 0.718%
Amount ($000)
73,915 21,371,012
Paid-in Capital Undistributed Net Investment Income Accumulated Net Realized Losses Unrealized Appreciation (Depreciation) Investment Securities Futures Contracts
18,939,601 63,970 (210,773)
Net Assets
21,376,120
2,583,875 (553)
High Dividend Yield Index Fund
Amount ($000) Investor Shares—Net Assets Applicable to 208,506,549 outstanding $.001 par value shares of beneficial interest (unlimited authorization) Net Asset Value Per Share— Investor Shares
5,878,923 $28.20
ETF Shares—Net Assets Applicable to 217,684,796 outstanding $.001 par value shares of beneficial interest (unlimited authorization) 15,497,197 Net Asset Value Per Share— ETF Shares
$71.19
• See Note A in Notes to Financial Statements. ^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $22,757,000. * 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 “Other” represents securities that are not classified by the fund’s benchmark index. 3 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. 4 Includes $23,840,000 of collateral received for securities on loan. 5 Securities with a value of $3,349,000 have been segregated as initial margin for open futures contracts. CVR—Contingent Value Rights. See accompanying Notes, which are an integral part of the Financial Statements.
17
High Dividend Yield Index Fund
Statement of Operations Year Ended October 31, 2016 ($000) Investment Income Income Dividends Interest1 Securities Lending—Net Total Income
611,556 185 2,059 613,800
Expenses The Vanguard Group—Note B Investment Advisory Services
2,202
Management and Administrative—Investor Shares
5,586
Management and Administrative—ETF Shares
7,368
Marketing and Distribution—Investor Shares
1,068
Marketing and Distribution—ETF Shares Custodian Fees
868 603
Auditing Fees
35
Shareholders’ Reports—Investor Shares
49
Shareholders’ Reports—ETF Shares Trustees’ Fees and Expenses Total Expenses Net Investment Income
349 10 18,138 595,662
Realized Net Gain (Loss) Investment Securities Sold1 Futures Contracts Realized Net Gain (Loss)
345,824 4,312 350,136
Change in Unrealized Appreciation (Depreciation) Investment Securities Futures Contracts Change in Unrealized Appreciation (Depreciation) Net Increase (Decrease) in Net Assets Resulting from Operations 1 Interest income and realized net gain (loss) from an affiliated company of the fund were $166,000 and $7,000, respectively.
See accompanying Notes, which are an integral part of the Financial Statements. 18
538,186 (5,027) 533,159 1,478,957
High Dividend Yield Index Fund
Statement of Changes in Net Assets Year Ended October 31, 2016 ($000)
2015 ($000)
Increase (Decrease) in Net Assets Operations Net Investment Income
595,662
471,533
Realized Net Gain (Loss)
350,136
709,023
533,159
(758,580)
1,478,957
421,976
Change in Unrealized Appreciation (Depreciation) Net Increase (Decrease) in Net Assets Resulting from Operations Distributions Net Investment Income Investor Shares
(149,810)
(131,007)
ETF Shares
(416,117)
(338,220)
Investor Shares
—
—
ETF Shares
—
—
(565,927)
(469,227)
Realized Capital Gain
Total Distributions Capital Share Transactions Investor Shares
1,276,227
316,638
ETF Shares
3,605,173
1,464,202
Net Increase (Decrease) from Capital Share Transactions
4,881,400
1,780,840
Total Increase (Decrease)
5,794,430
1,733,589
Net Assets Beginning of Period
15,581,690
13,848,101
End of Period1
21,376,120
15,581,690
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $63,970,000 and $34,148,000.
See accompanying Notes, which are an integral part of the Financial Statements. 19
High Dividend Yield Index Fund
Financial Highlights Investor Shares For a Share Outstanding Throughout Each Period Net Asset Value, Beginning of Period
Year Ended October 31, 2016
2015
2014
2013
2012
$26.89
$26.98
$23.83
$19.76
$17.30
Investment Operations .854
.815
Net Realized and Unrealized Gain (Loss) on Investments
Net Investment Income
.727
.667
.579
1.286
(.088)
3.147
4.063
2.446
Total from Investment Operations
2.140
.727
3.874
4.730
3.025
(.830)
(.817)
(.724)
(.660)
(.565)
—
—
(.817)
(.724)
Distributions Dividends from Net Investment Income Distributions from Realized Capital Gains Total Distributions Net Asset Value, End of Period Total Return1
— (.830)
— (.660)
— (.565)
$28.20
$26.89
$26.98
$23.83
$19.76
8.11%
2.78%
16.48%
24.35%
17.69%
Ratios/Supplemental Data Net Assets, End of Period (Millions)
$5,879
$4,368
$4,066
$3,019
$1,596
Ratio of Total Expenses to Average Net Assets
0.15%
0.16%
0.18%
0.19%
0.20%
Ratio of Net Investment Income to Average Net Assets
3.19%
3.06%
2.92%
3.10%
3.22%
7%
11%
12%
13%
11%
Portfolio Turnover Rate2
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 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements. 20
High Dividend Yield Index Fund
Financial Highlights ETF Shares For a Share Outstanding Throughout Each Period Net Asset Value, Beginning of Period
Year Ended October 31, 2016
2015
2014
2013
2012
$67.88
$68.11
$60.16
$49.89
$43.68
Investment Operations Net Investment Income
2.203
Net Realized and Unrealized Gain (Loss) on Investments
2.104
1.885
1.732
1.506
3.245
Total from Investment Operations
5.448
(.222)
7.943
10.247
6.180
1.882
9.828
11.979
7.686
(2.138)
(2.112)
(1.878)
(1.709)
(1.476)
Distributions Dividends from Net Investment Income Distributions from Realized Capital Gains Total Distributions
—
—
(2.138)
(2.112)
— (1.878)
—
—
(1.709)
(1.476)
Net Asset Value, End of Period
$71.19
$67.88
$68.11
$60.16
$49.89
Total Return
8.18%
2.84%
16.56%
24.43%
17.80%
Ratios/Supplemental Data Net Assets, End of Period (Millions)
$15,497
$11,214
$9,782
$6,918
$4,203
Ratio of Total Expenses to Average Net Assets
0.08%
0.09%
0.10%
0.10%
0.10%
Ratio of Net Investment Income to Average Net Assets
3.26%
3.13%
3.00%
3.19%
3.32%
7%
11%
12%
13%
11%
Portfolio Turnover Rate1
1 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares, including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements. 21
High Dividend Yield Index Fund
Notes to Financial Statements Vanguard High Dividend Yield Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Investor Shares and ETF Shares. Investor Shares are available to any investor who meets the fund’s minimum purchase requirements. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker. A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. 1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Temporary cash investments 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 uses 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 settlement values 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 October 31, 2016, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of aggregate settlement values at each quarter-end during the period.
22
High Dividend Yield Index Fund
3. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (October 31, 2013–2016), 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 lends its securities to qualified institutional borrowers. Security loans are subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled 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 in the Statement of Net Assets 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. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities. 6. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread. The fund had no borrowings outstanding at October 31, 2016, or at any time during the period then ended. 7. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. 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 23
High Dividend Yield Index Fund
expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets. B. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets. Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At October 31, 2016, the fund had contributed to Vanguard capital in the amount of $1,630,000, representing 0.01% of the fund’s net assets and 0.65% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard. C. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. Level 1—Quoted prices in active markets for identical securities. Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). The following table summarizes the market value of the fund’s investments as of October 31, 2016, based on the inputs used to value them: Level 1 ($000)
Investments Common Stocks Temporary Cash Investments Futures Contracts—Liabilities1 Total
Level 2 ($000)
Level 3 ($000)
21,297,097
—
—
70,416
3,499
—
(132)
—
—
21,367,381
3,499
—
1 Represents variation margin on the last day of the reporting period.
D. At October 31, 2016, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were: ($000)
Futures Contracts E-mini S&P 500 Index
Expiration
Number of Long (Short) Contracts
Aggregate Settlement Value Long (Short)
Unrealized Appreciation (Depreciation)
December 2016
713
75,582
(553)
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes. 24
High Dividend Yield Index Fund
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. 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 October 31, 2016, the fund realized gains on the sale of passive foreign investment companies of $87,000, 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. Passive foreign investment companies held at October 31, 2016, had unrealized appreciation of $652,000. During the year ended October 31, 2016, the fund realized $472,041,000 of net capital gains resulting from in-kind redemptions—in which shareholders exchanged fund shares for securities held by the fund rather than for cash. Because such gains are not taxable to the fund, and are not distributed to shareholders, they have been reclassified from accumulated net realized losses to paid-in capital. For tax purposes, at October 31, 2016, the fund had $70,013,000 of ordinary income available for distribution. At October 31, 2016, the fund had available capital losses totaling $211,326,000 to offset future net capital gains. Of this amount, $18,315,000 is subject to expiration on October 31, 2018. Capital losses of $193,011,000 realized beginning in fiscal 2012 may be carried forward indefinitely under the Regulated Investment Company Modernization Act of 2010, but must be used before any expiring loss carryforwards. At October 31, 2016, the cost of investment securities for tax purposes was $18,787,789,000. Net unrealized appreciation of investment securities for tax purposes was $2,583,223,000, consisting of unrealized gains of $2,980,769,000 on securities that had risen in value since their purchase and $397,546,000 in unrealized losses on securities that had fallen in value since their purchase. F. During the year ended October 31, 2016, the fund purchased $7,672,681,000 of investment securities and sold $2,765,795,000 of investment securities, other than temporary cash investments. Purchases and sales include $4,544,933,000 and $1,418,566,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares. The fund purchased securities from and sold securities to other Vanguard funds or accounts managed by Vanguard or its affiliates, in accordance with procedures adopted by the board of trustees in compliance with Rule 17a-7 of the Investment Company Act of 1940. For the year ended October 31, 2016, such purchases and sales were $285,964,000 and $395,673,000, respectively; these amounts are included in the purchases and sales of investment securities noted above.
25
High Dividend Yield Index Fund
G. Capital share transactions for each class of shares were: Year Ended October 31, 2016
2015
Amount ($000)
Shares (000)
Amount ($000)
Shares (000)
43,020
Investor Shares Issued
2,061,346
74,813
1,160,012
Issued in Lieu of Cash Distributions
124,953
4,577
106,677
4,039
Redeemed
(910,072)
(33,330)
(950,051)
(35,330)
1,276,227
46,060
316,638
11,729
5,032,957
73,213
3,664,582
53,660
—
—
—
—
Redeemed
(1,427,784)
(20,725)
(2,200,380)
(32,075)
Net Increase (Decrease)—ETF Shares
3,605,173
52,488
1,464,202
21,585
Net Increase (Decrease)—Investor Shares ETF Shares Issued Issued in Lieu of Cash Distributions
H. Management has determined that no material events or transactions occurred subsequent to October 31, 2016, that would require recognition or disclosure in these financial statements.
26
Report of Independent Registered Public Accounting Firm To the Board of Trustees of Vanguard Whitehall Funds and the Shareholders of Vanguard High Dividend Yield Index 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 High Dividend Yield Index Fund (constituting a separate portfolio of Vanguard Whitehall Funds, hereafter referred to as the “Fund”) at October 31, 2016, 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 October 31, 2016 by correspondence with the custodian and brokers and by agreement to the underlying ownership records of the transfer agent, provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP Philadelphia, Pennsylvania December 15, 2016
Special 2016 tax information (unaudited) for Vanguard High Dividend Yield Index Fund This information for the fiscal year ended October 31, 2016, is included pursuant to provisions of the Internal Revenue Code. The fund distributed $565,927,000 of qualified dividend income to shareholders during the fiscal year. For corporate shareholders, 99.7% of investment income (dividend income plus short-term gains, if any) qualifies for the dividends-received deduction. 27
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 i ncome, using actual prior-year figures and estimates for 2016. (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 Investor Shares 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: High Dividend Yield Index Fund Investor Shares Periods Ended October 31, 2016
One Year
28
Five Years
Since Inception (11/16/2006)
Returns Before Taxes
8.11%
13.63%
6.60%
Returns After Taxes on Distributions
7.33
12.90
6.03
Returns After Taxes on Distributions and Sale of Fund Shares
5.18
10.89
5.27
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.
29
Six Months Ended October 31, 2016
High Dividend Yield Index Fund
Beginning Account Value 4/30/2016
Ending Account Value 10/31/2016
Expenses Paid During Period
$1,000.00
$1,039.29
$0.77
1,000.00
1,039.72
0.41
$1,000.00
$1,024.38
$0.76
1,000.00
1,024.73
0.41
Based on Actual Fund Return Investor Shares ETF Shares Based on Hypothetical 5% Yearly Return Investor Shares ETF Shares
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 0.15% for Investor Shares and 0.08% for ETF 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 (184/366).
30
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.
31
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.
32
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 198 Vanguard funds. The following table provides information for each trustee and executive officer of the fund. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482. 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.
Interested Trustee1 F. William McNabb III Born 1957. Trustee Since July 2009. Chairman of the Board. Principal Occupation(s) During the Past Five Years and Other Experience: Chairman of the Board of The Vanguard Group, Inc., and of each of the investment companies served by The Vanguard Group, since January 2010; Director of The Vanguard Group since 2008; Chief Executive Officer and President of The Vanguard Group, and of each of the investment companies served by The Vanguard Group, since 2008; Director of Vanguard Marketing Corporation; Managing Director of The Vanguard Group (1995–2008).
Independent Trustees Emerson U. Fullwood Born 1948. Trustee Since January 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Executive Chief Staff and Marketing Officer for North America and Corporate Vice President (retired 2008) of Xerox Corporation (document management products and services); Executive in Residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology; Lead Director of SPX FLOW, Inc. (multi-industry manufacturing); Director of the United Way of Rochester, the University of Rochester Medical Center, Monroe Community College Foundation, North Carolina A&T University, and Roberts Wesleyan College.
Rajiv L. Gupta Born 1945. Trustee Since December 2001. 2 Principal Occupation(s) During the Past Five Years and Other Experience: Chairman and Chief Executive Officer (retired 2009) and President (2006–2008) of Rohm and Haas Co. (chemicals); Director of Tyco International plc (diversified manufacturing and services), HP Inc. (printer and personal computer manufacturing), and Delphi Automotive plc (automotive components); Senior Advisor at New Mountain Capital. Amy Gutmann Born 1949. Trustee Since June 2006. Principal Occupation(s) During the Past Five Years and Other Experience: President of the University of Pennsylvania; Christopher H. Browne Distinguished Professor of Political Science, School of Arts and Sciences, and Professor of Communication, Annenberg School for Communication, with secondary faculty appointments in the Department of Philosophy, School of Arts and Sciences, and at the Graduate School of Education, University of Pennsylvania; Trustee of the National Constitution Center; Chair of the Presidential Commission for the Study of Bioethical Issues. JoAnn Heffernan Heisen Born 1950. Trustee Since July 1998. Principal Occupation(s) During the Past Five Years and Other Experience: Corporate Vice President and Chief Global Diversity Officer (retired 2008) and Member of the Executive Committee (1997–2008) of Johnson & Johnson (pharmaceuticals/medical devices/consumer products); Director of Skytop Lodge Corporation (hotels) and the Robert Wood Johnson Foundation; Member of the Advisory Board of the Institute for Women’s Leadership at Rutgers University.
F. Joseph Loughrey Born 1949. Trustee Since October 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2009) of Cummins Inc. (industrial machinery); Chairman of the Board of Hillenbrand, Inc. (specialized consumer services), and of Oxfam America; Director of SKF AB (industrial machinery), Hyster-Yale Materials Handling, Inc. (forklift trucks), the Lumina Foundation for Education, and the V Foundation for Cancer Research; Member of the Advisory Council for the College of Arts and Letters and of the Advisory Board to the Kellogg Institute for International Studies, both at the University of Notre Dame. Mark Loughridge Born 1953. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Senior Vice President and Chief Financial Officer (retired 2013) at IBM (information technology services); Fiduciary Member of IBM’s Retirement Plan Committee (2004–2013); Director of the Dow Chemical Company; Member of the Council on Chicago Booth. Scott C. Malpass Born 1962. Trustee Since March 2012. Principal Occupation(s) During the Past Five Years and Other Experience: Chief Investment Officer and Vice President at the University of Notre Dame; Assistant Professor of Finance at the Mendoza College of Business at Notre Dame; Member of the Notre Dame 403(b) Investment Committee, the Board of Advisors for Spruceview Capital Partners, and the Investment Advisory Committee of Major League Baseball; Board Member of TIFF Advisory Services, Inc., and Catholic Investment Services, Inc. (investment advisors). André F. Perold Born 1952. Trustee Since December 2004. Principal Occupation(s) During the Past Five Years and Other Experience: George Gund Professor of Finance and Banking, Emeritus at the Harvard Business School (retired 2011); Chief Investment Officer and Managing Partner of HighVista Strategies LLC (private investment firm); Director of Rand Merchant Bank; Overseer of the Museum of Fine Arts Boston. Peter F. Volanakis Born 1955. Trustee Since July 2009. Principal Occupation(s) During the Past Five Years and Other Experience: President and Chief Operating Officer (retired 2010) of Corning Incorporated (communications equipment); Chairman of the Board of Trustees of Colby-Sawyer College; Member of the Advisory Board of the Norris Cotton Cancer Center.
Executive Officers Glenn Booraem Born 1967. Treasurer Since May 2015. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Treasurer of each of the investment companies served by The Vanguard Group; Controller of each of the investment companies served by The Vanguard Group (2010–2015); Assistant Controller of each of the investment companies served by The Vanguard Group (2001–2010). Thomas J. Higgins Born 1957. Chief Financial Officer Since September 2008. Principal Occupation(s) During the Past Five Years and Other Experience: Principal of The Vanguard Group, Inc.; Chief Financial Officer of each of the investment companies served by The Vanguard Group; Treasurer of each of the investment companies served by The Vanguard Group (1998–2008). Peter Mahoney Born 1974. Controller Since May 2015. Principal Occupation(s) During the Past Five Years and Other Experience: Head of Global Fund Accounting at The Vanguard Group, Inc.; Controller of each of the investment companies served by The Vanguard Group; Head of International Fund Services at The Vanguard Group (2008–2014). Anne E. Robinson Born 1970. Secretary Since September 2016. Principal Occupation(s) During the Past Five Years and Other Experience: Managing Director of The Vanguard Group, Inc.; General Counsel of The Vanguard Group; Secretary of The Vanguard Group and of each of the investment companies served by The Vanguard Group; Director and Senior Vice President of Vanguard Marketing Corporation; Managing Director and General Counsel of Global Cards and Consumer Services at Citigroup (2014–2016); Counsel at American Express (2003–2014).
Vanguard Senior Management Team Mortimer J. Buckley Kathleen C. Gubanich Martha G. King John T. Marcante Chris D. McIsaac
James M. Norris Thomas M. Rampulla Glenn W. Reed Karin A. Risi Michael Rollings
Chairman Emeritus and Senior Advisor John J. Brennan Chairman, 1996–2009 Chief Executive Officer and President, 1996–2008
Founder John C. Bogle Chairman and Chief Executive Officer, 1974–1996
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, 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 Direct Investor Account Services > 800-662-2739 Institutional Investor Services > 800-523-1036 Text Telephone for People Who Are Deaf or Hard of Hearing > 800-749-7273
This material may be used in conjunction with the offering of shares of any Vanguard fund only if preceded or accompanied by the fund’s current prospectus. 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.
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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 email addressed to
[email protected] or via regular mail addressed to the Public Reference Section, Securities and Exchange Commission, Washington, DC 20549-1520. © 2016 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor. Q6230 122016
