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Annual Report | January 31, 2021
Vanguard Health Care Fund
Contents
Your Fund’s Performance at a Glance . . . . . . . . . . . . . . . . 1
Advisor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Results of Proxy Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
About Your Fund’s Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 7
Performance Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promisesor advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of thisreport. Of course, the risks of investing in your fund are spelled out in the prospectus.
• For the 12 months ended January 31, 2021, Vanguard Health Care Fund returned16.16% for Investor Shares and 16.21% for Admiral Shares. These results trailed the17.74% return of the fund’s benchmark, the MSCI All Country World Health Care Index.
• The emergence of COVID-19 in early 2020 turned into a global health crisis, andaggressive attempts to contain it resulted in a sharp downturn in economic activity.Unemployment spiked, and sectors where social distancing isn’t possible were hit hard.Stocks initially plummeted as infections surged, but they finished the 12 monthssignificantly higher, thanks in part to rapid and robust monetary and fiscal action bypolicymakers and the rollout of COVID-19 vaccines late in the period.
• The advisor’s health care equipment holdings significantly lagged their counterpartsin the benchmark and trimmed relative returns the most. Stock selection in health caretechnology and mismatched allocations in supplies; facilities; and life sciences, tools,and services also hurt relative returns.
• On a more positive note, the advisor’s stock selection in pharmaceuticals––thefund’s largest allocation––boosted relative returns.
• For the 10 years ended January 31, 2021, the fund returned an annualized average of15.00% for Investor Shares and 15.06% for Admiral Shares. Its benchmark recorded anaverage annual return of 13.44%.
Market Barometer
Average Annual Total ReturnsPeriods Ended January 31, 2021
One Year Three Years Five Years
Stocks
Russell 1000 Index (Large-caps) 19.84% 12.48% 16.69%
Russell 2000 Index (Small-caps) 30.17 11.11 16.50
Russell 3000 Index (Broad U.S. market) 20.48 12.38 16.68
FTSE All-World ex US Index (International) 14.59 3.40 10.77
Bonds
Bloomberg Barclays U.S. Aggregate Bond Index(Broad taxable market) 4.72% 5.49% 4.00%
Bloomberg Barclays Municipal Bond Index(Broad tax-exempt market) 4.01 5.28 3.79
FTSE Three-Month U.S. Treasury Bill Index 0.45 1.53 1.16
CPI
Consumer Price Index 1.40% 1.81% 2.00%
Your Fund’s Performance at a Glance
1
For the 12 months ended January 31,2021, Investor Shares of Vanguard HealthCare Fund returned 16.16% and AdmiralShares returned 16.21%. These resultslagged the 17.74% return of thebenchmark, the MSCI All Country WorldHealth Care Index.
The investment environment
We view the health care sector through acustom lens of subsectors. We combinebiotechnology and pharmaceuticals andthink of them in terms of capitalization:biopharma small-cap, biopharma mid-cap,and biopharma large-cap. The othersubsectors are health care services andmedical technology.
Medical technology was thetop-performing subsector in thebenchmark during the twelve-monthperiod, followed by health care servicesand biopharma mid-caps. Biopharmalarge-caps lagged the broader health caresector. Small-cap biopharmaceuticalsperformed particularly well during theperiod, though this segment is notsignificantly represented in thebenchmark.
Our successes
Stock selection was strongest in thebiopharma large-cap subsector. From anallocation perspective, our underweight tounderperforming biopharma large-capscontributed to relative performance, as didour overweight to biopharma mid-caps.
Eli Lilly, a U.S.-based biopharma large-capcompany, was the top relative performer.Performance was driven by positive
clinical developments, including solidPhase 3 study results for the company’sinjectable Type 2 diabetes drug,characterized by impressive weight lossand an acceptable tolerability profile. Thefirm also announced news of promisingresults from a Phase 2 study ofDonanemab, an investigational antibodytherapy for the treatment of Alzheimer’sdisease.
Another top contributor to relativeperformance was our decision to not ownbiopharma large-cap companyGlaxoSmithKline. Shares declinedbecause of some pipelinedisappointments and the potential for alower dividend when the company splitsoff its consumer business.
An underweight to biopharma large-capcompany Merck & Co. was also amongthe top relative contributors. Thecompany’s share price suffered afterCOVID-related disruption topatient-physician interactions such asissuing prescriptions and administeringvaccines during 2020. Questions alsoincreased about the company’s pipelineand how it will navigate the Keytrudapatent expiration later this decade.
Our shortfalls
Stock selection detracted from the fund’sperformance, particularly in medicaltechnology. From an allocationperspective, our underweight to thestrongly performing subsector also hurtrelative performance.
Biopharma mid-cap genericpharmaceutical company Mylan, now
Advisor’s Report
2
Viatris after merging with Pfizer’s Upjohnbusiness, was the largest detractor fromperformance. Shares lagged throughoutthe year because of concerns aboutrevenue growth and profitability as aresult of the Upjohn merger, in addition topricing pressure among generics andCOVID-related business disruptions.
Boston Scientific also hurt relativeperformance. As COVID-19 spreadglobally, the medical device company’sshare price suffered because of businessdisruption from a decline in medicalprocedures. More recently, the companyreported disappointing results from thefailure of the Scope II trial and a globalvoluntary recall of all unused LOTUS EdgeAortic Valve Systems because ofcomplexities associated with the productdelivery system.
Eisai, a biopharma large-cap company,was another top detractor from relativeperformance. The share price fell sharplyin November after a panel of externalFood and Drug Administration (FDA)advisers voted against approval ofBiogen’s Alzheimer’s disease drugcandidate, aducanumab. Biogen and Eisaipartnered in the development ofBAN-2401, a similar drug candidate.However, the FDA’s briefing documentwas highly encouraging in our view, andwe expect the FDA will find a path toapproval in the coming months.
The fund’s positioning and outlook
At the period’s end, we held about 28% ofthe fund’s assets in non-U.S. investments,a level that has remained fairly stable over
recent years. Our non-U.S. holdings wereprimarily companies domiciled in Japan,the United Kingdom, Switzerland,Belgium, and Denmark, many of whichoperate globally. We believe this strategyprovides diversification for shareholdersover the long term.
The fund held 95 companies in allsubsectors of health care as of the end ofthe period, similar to the 89 we held ayear ago. The 10 largest holdingsrepresented a significant 40% of totalassets.
We expect the human and economicimpact of COVID-19 to remain challenging,but we continue to be optimistic with therollout of effective vaccines underway. Weare paying close attention to theemergence of novel variants of theSARS-CoV-2 virus, but we expect thevaccines to offer protection against them,perhaps aided by boosters. This shouldlead to a gradual normalization of healthcare services and procedures as the yearprogresses.
The COVID-19 crisis highlighted theimportance of the health care industry inserving individuals, and the power ofinnovation in solving the world’s problems.The long-lasting impacts will be a morerobust global diagnostic system, theemergence of new vaccine and antibodyplatforms to treat infectious disease, agreater appreciation for the biologyrevolution taking place inbiopharmaceutical research, and the needto equitably provide access to health care
3
services. All of these trends shouldbenefit our fund holdings in the comingyears.
The past year was unusual for health carestock performance. Some stocks highlydiscounted the benefit ofpandemic-related revenues, while forothers it became a negative distraction.Some biotech, diagnostics, andhigh-growth stocks were propelled bymarket liquidity, while others traded atmultiyear lows in valuation. Our process isgrounded in a strong fundamental andvaluation philosophy, and we strived tomaintain that discipline.
We seek companies that look to providesolutions to the challenges facing thehealth care delivery system globally byshifting focus from volume to value. Overthe long term, the tailwinds of innovation,an aging population, and the globalizationof demand for cutting-edge health careshould continue to drive the growth of thehealth care sector. We believe that we are
favorably positioned to capitalize on thatpotential growth.
A core tenet of our philosophy is theimportance of using a longer-term horizonto evaluate secular themes and healthcare trends, as well as individualcompanies, on a global scale. This shouldenable our team to identify pockets ofopportunity that are best-positioned tocreate value and generate sustainable,innovation-driven, differentiated growth.We will remain diversified acrosssubsectors and regions, focused on thelong haul, and positioned in what webelieve to be the most attractive stocks aswe seek to generate strong, risk-adjustedreturns.
Jean M. Hynes, CFASenior Managing Director andPortfolio Manager
Wellington Management Company LLP
February 16, 2021
4
Major Portfolio ChangesYear ended January 31, 2021
Additions Comments
Stryker We initiated a new position in Stryker, a medical device andequipment maker focused on orthopedics, surgical, and spinalapplications. Stryker is a high-quality business that suffered in theshort term from COVID-related delays to procedures, giving usthe opportunity to invest in a long-term secular winner inorthopedic robotic surgery.
Laboratory Corporation of America We initiated a new position in Laboratory Corporation of America,a company with businesses in clinical laboratory services andcontract research organization. The company’s diagnosticsbusiness is likely to see sustainable benefits driven by seculardemand for its services as a result of COVID-19 in the shortterm, and in the long term, the company is making strides toimprove its CRO business.
Reductions Comments
Medtronic We eliminated the fund’s position in Medtronic, a global medicaldevice company, in order to take advantage of weakness in othermedical technology companies that underperformed because ofCOVID-related disruption.
CVS Health We eliminated pharmacy and managed-care company CVS,which outperformed other managed-care companies early in2020. We took the opportunity to shift into managed-carecompanies with more attractive long-term outlooks, such asAnthem and Humana.
5
At a joint special meeting of shareholders on January 22, 2021, fund shareholders approved the
following proposal:
Proposal—Reclassify the diversification status of Vanguard Health Care Fund to
non-diversified and eliminate a related fundamental policy.
Reclassifying the fund’s diversification status to non-diversified, as defined by the Investment
Company Act of 1940, and eliminating a related fundamental policy provides the fund’s portfolio
managers with increased investment flexibility and potential for better investment performance.
Vanguard Fund For Abstain AgainstBroker
Non-VotesPercentage
For
Health Care Fund 253,776,351 15,890,704 24,014,302 0 86.4%
Results of Proxy Voting
6
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 ongoingcosts 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.
About Your Fund’s Expenses
7
Six Months Ended January 31, 2021
Health Care Fund
BeginningAccount Value
7/31/2020
EndingAccount Value
1/31/2021
ExpensesPaid During
Period
Based on Actual Fund Return
Investor Shares $1,000.00 $1,064.33 $1.71
Admiral™ Shares 1,000.00 1,064.53 1.45
Based on Hypothetical 5% Yearly Return
Investor Shares $1,000.00 $1,023.48 $1.68
Admiral Shares 1,000.00 1,023.73 1.42
The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios forthat period are 0.33% for Investor Shares and 0.28% for Admiral Shares. The dollar amounts shown as “Expenses Paid” are equal to theannualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recentsix-month period, then divided by the number of days in the most recent 12-month period (184/366).
8
All of the returns in this report represent past performance, which is not a guarantee of
future results that may be achieved by the fund. (Current performance may be lower or
higher than the performance data cited. For performance data current to the most recent
month-end, visit our website at vanguard.com/performance.) Note, too, that both
investment returns and principal value can fluctuate widely, so an investor’s shares, when
sold, could be worth more or less than their original cost. The returns shown do not reflect
taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Cumulative Performance: January 31, 2011, Through January 31, 2021Initial Investment of $10,000
$45,000
5,000
40,460
2021202020192018201720162015201420132012
Average Annual Total ReturnsPeriods Ended January 31, 2021
OneYear
FiveYears
TenYears
Final Valueof a $10,000Investment
Health Care Fund Investor Shares 16.16% 11.15% 15.00% $40,460 MSCI All Country World Health Care Index 17.74 11.94 13.44 35,281
Dow Jones U.S. Total Stock Market Float
Adjusted Index 20.55 16.64 13.46 35,343
OneYear
FiveYears
TenYears
Final Valueof a $50,000
Investment
Health Care Fund Admiral Shares 16.21% 11.20% 15.06% $203,318
MSCI All Country World Health Care Index 17.74 11.94 13.44 176,404
Dow Jones U.S. Total Stock Market Float AdjustedIndex 20.55 16.64 13.46 176,714
Health Care Fund
Performance Summary
See Financial Highlights for dividend and capital gains information.
9
Biotechnology 20.3%
Health Care Equipment 16.0
Health Care Facilities 3.6
Health Care Services 0.7
Health Care Supplies 0.6
Health Care Technology 1.8
Life Sciences Tools & Services 6.5
Managed Health Care 11.6
Office REITs 0.1
Pharmaceuticals 38.8
The table reflects the fund’s investments, except for short-terminvestments. Sector categories are based on the Global IndustryClassification Standard (“GICS”), except for the “Other” category(if applicable), which includes securities that have not beenprovided a GICS classification as of the effective reporting period.
Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark ofMSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for useby Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classificationmakes any express or implied warranties or representations with respect to such standard or classification (or the resultsto be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy,completeness, merchantability or fitness for a particular purpose with respect to any such standard or classification.Without limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party involved inmaking or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive,consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
Health Care Fund
Fund AllocationAs of January 31, 2021
10
The fund files its complete schedule of portfolio holdings with the Securities and Exchange
Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on
Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at
www.sec.gov.
Shares
MarketValue•
($000)
Common Stocks (97.2%)
Belgium (3.1%)1 UCB SA 10,238,136 1,060,182* Argenx SE 1,108,736 323,304* Galapagos NV 1,175,458 122,920
1,506,406Brazil (0.1%) Notre Dame Intermedica Participacoes SA 1,699,100 29,346
China (1.4%)*,2 Wuxi Biologics Cayman Inc. 19,032,000 266,4852 WuXi AppTec Co. Ltd. Class H 8,198,680 195,025* Zai Lab Ltd. 862,000 136,603 Shanghai Fosun Pharmaceutical Group Co. Ltd. Class H 14,799,500 66,484*,2 Microport Cardioflow Medtech Corp. 1,348,000 2,121*,2 Shanghai Henlius Biotech Inc. Class H 112,117 571
667,289Denmark (1.8%)* Genmab A/S 1,953,376 777,726* Genmab A/S ADR 3,150,246 125,002
902,728Germany (0.1%)* MorphoSys AG 440,981 52,654
Hong Kong (0.6%)* BeiGene Ltd. ADR 883,826 282,824*,2 Everest Medicines Ltd. 149,500 1,623
284,447Japan (9.1%)1 Eisai Co. Ltd. 17,856,177 1,303,206 Daiichi Sankyo Co. Ltd. 24,630,090 792,868 Astellas Pharma Inc. 48,080,280 780,441 Ono Pharmaceutical Co. Ltd. 19,628,460 585,892 Chugai Pharmaceutical Co. Ltd. 10,469,800 547,876 Terumo Corp. 8,498,900 330,315 Nippon Shinyaku Co. Ltd. 1,977,800 145,603
4,486,201Netherlands (1.0%) Koninklijke Philips NV 8,996,518 490,393
Health Care Fund
Financial Statements
Schedule of InvestmentsAs of January 31, 2021
11
Shares
MarketValue•
($000)
Switzerland (4.2%) Novartis AG (Registered) 21,001,073 1,901,546* Alcon Inc. 2,550,401 183,036
2,084,582United Kingdom (6.2%) AstraZeneca plc 24,055,143 2,453,894 Smith & Nephew plc 13,455,498 283,289 Hikma Pharmaceuticals plc 6,910,934 226,951* Abcam plc ADR 4,175,559 96,581
3,060,715United States (69.6%) UnitedHealth Group Inc. 8,313,431 2,773,194 Pfizer Inc. 73,106,615 2,624,528 Eli Lilly and Co. 10,919,021 2,270,829 Bristol-Myers Squibb Co. 30,043,191 1,845,553* Boston Scientific Corp. 41,502,430 1,470,846 Thermo Fisher Scientific Inc. 2,833,759 1,444,367 Abbott Laboratories 11,459,418 1,416,269 Anthem Inc. 4,679,915 1,389,841* Regeneron Pharmaceuticals Inc. 2,556,310 1,287,971* Biogen Inc. 4,211,414 1,190,188*,1 Alnylam Pharmaceuticals Inc. 7,829,530 1,178,188 Danaher Corp. 4,572,566 1,087,539* Viatris Inc. 59,235,741 1,006,415* HCA Healthcare Inc. 6,083,989 988,527* Vertex Pharmaceuticals Inc. 4,200,114 962,162* Incyte Corp. 10,484,320 940,968* Edwards Lifesciences Corp. 9,131,833 754,107 Cerner Corp. 8,840,327 708,199 Stryker Corp. 2,911,914 643,562 Humana Inc. 1,598,438 612,378 Baxter International Inc. 7,782,641 597,940* Centene Corp. 9,573,772 577,298* Universal Health Services Inc. Class B 3,564,112 444,374 Agilent Technologies Inc. 3,049,141 366,415* Elanco Animal Health Inc. 11,077,272 321,573* Laboratory Corp. of America Holdings 1,387,554 317,625* Seagen Inc. 1,897,213 311,655*,1 Agios Pharmaceuticals Inc. 6,435,516 302,276*,1 Alkermes plc 13,605,397 285,577* Illumina Inc. 618,833 263,895*,1 Nektar Therapeutics Class A 13,045,706 257,000 Teleflex Inc. 652,004 246,216*,1 Bluebird Bio Inc. 5,338,722 237,840* Acadia Healthcare Co. Inc. 3,839,756 194,599* PPD Inc. 5,428,172 174,570* PRA Health Sciences Inc. 1,412,629 174,092* IQVIA Holdings Inc. 950,511 169,001*,1 Allscripts Healthcare Solutions Inc. 9,845,231 162,446* Mirati Therapeutics Inc. 734,259 150,765 Royalty Pharma plc Class A 3,053,455 143,543* Ascendis Pharma A/S ADR 942,809 141,563* Molina Healthcare Inc. 657,961 140,547* Quidel Corp. 512,327 128,579* Reata Pharmaceuticals Inc. Class A 1,237,211 128,163
Health Care Fund
12
Shares
MarketValue•
($000)
* Exact Sciences Corp. 911,215 124,982* Penumbra Inc. 455,684 118,975*,1 Ironwood Pharmaceuticals Inc. Class A 10,902,066 111,419* Hologic Inc. 1,358,813 108,338* Sarepta Therapeutics Inc. 1,020,307 91,215 Encompass Health Corp. 1,118,557 89,932 Hill-Rom Holdings Inc. 895,896 86,042 Alexandria Real Estate Equities Inc. 439,900 73,512* Arena Pharmaceuticals Inc. 764,026 56,721* Turning Point Therapeutics Inc. 424,352 53,252* PTC Therapeutics Inc. 868,354 50,208* ALX Oncology Holdings Inc. 618,227 48,995* Acceleron Pharma Inc. 419,076 48,416* Amneal Pharmaceuticals Inc. 9,306,210 44,763* Rocket Pharmaceuticals Inc. 723,218 39,835* Blueprint Medicines Corp. 394,542 38,172* NeoGenomics Inc. 622,800 33,021* Kodiak Sciences Inc. 226,890 28,659* Horizon Therapeutics plc 339,230 24,587* Apellis Pharmaceuticals Inc. 542,358 24,010* TG Therapeutics Inc. 480,391 23,189* Allakos Inc. 163,604 21,813* REVOLUTION Medicines Inc. 262,281 11,053
34,184,292
Total Common Stocks (Cost $27,358,999) 47,749,053
Temporary Cash Investments (2.9%)
Money Market Fund (0.0%)3 Vanguard Market Liquidity Fund, 0.107% 958 96
FaceAmount
($000)
Repurchase Agreements (2.2%) Bank of America Securities, LLC, 0.060%, 2/1/21
(Dated 1/29/21, Repurchase Value $13,200,000, collateralized by U.S. TreasuryNote 2.500%, 1/31/24, with a value of $13,464,000) 13,200 13,200
Bank of Nova Scotia, 0.040%, 2/1/21(Dated 1/29/21, Repurchase Value $283,801,000, collateralized by U.S. TreasuryBill 0.000%, 2/16/21–6/8/21 and U.S. Treasury Note/Bond 0.125%–7.625%,8/31/21–2/15/50, with a value of $289,477,000) 283,800 283,800
Barclays Capital Inc., 0.040%, 2/1/21(Dated 1/29/21, Repurchase Value $83,700,000, collateralized by U.S. TreasuryNote 2.625%, 6/30/23, with a value of $85,374,000) 83,700 83,700
BNP Paribas Securities Corp., 0.050%, 2/1/21(Dated 1/29/21, Repurchase Value $4,100,000, collateralized by Federal HomeLoan Mortgage Corp. 2.500%–3.174%, 12/1/35–9/1/49, Federal NationalMortgage Association 2.647%–3.500%, 11/1/36–9/1/49, and GovernmentNational Mortgage Association 2.734%–4.000%, 11/20/34–11/20/50, with a valueof $4,182,000) 4,100 4,100
Credit Agricole Securities (USA) Inc., 0.040%, 2/1/21(Dated 1/29/21, Repurchase Value $102,300,000, collateralized by U.S. TreasuryInflation Indexed Note 0.125%–0.375%, 1/15/22–1/15/27, with a value of$104,346,000) 102,300 102,300
Health Care Fund
13
FaceAmount
($000)
MarketValue•
($000)
HSBC Bank USA, 0.040%, 2/1/21(Dated 1/29/21, Repurchase Value $50,100,000, collateralized by U.S. TreasuryInflation Indexed Note/Bond 0.375%–3.875%, 1/15/27–2/15/47, with a value of$51,102,000) 50,100 50,100
HSBC Bank USA, 0.060%, 2/1/21(Dated 1/29/21, Repurchase Value $101,401,000, collateralized by Federal HomeLoan Mortgage Corp. 2.500%, 1/1/51 and Federal National Mortgage Association2.500%–4.500%, 3/1/26–1/1/51, with a value of $103,428,000) 101,400 101,400
Naxtixis SA, 0.040%, 2/1/21(Dated 1/29/21, Repurchase Value $230,301,000, collateralized by Federal HomeLoan Mortgage Corp. 0.000%, 12/11/25–9/15/29, U.S. Treasury Bill 0.000%,5/20/21–9/9/21, U.S. Treasury Inflation Indexed Note/Bond 0.750%–2.500%,1/15/28–2/15/45 and U.S. Treasury Note/Bond 0.125%–4.750%,5/15/21–11/15/48, with a value of $234,906,000) 230,300 230,300
Nomura International plc, 0.040%, 2/1/21(Dated 1/29/21, Repurchase Value $151,801,000, collateralized by U.S. TreasuryInflation Indexed Note/Bond 0.125%–0.625%, 7/15/25–2/15/43 and U.S. TreasuryNote 0.125%, 6/30/22–9/30/22, with a value of $154,836,000) 151,800 151,800
RBC Capital Markets LLC, 0.050%, 2/1/21(Dated 1/29/21, Repurchase Value $10,700,000, collateralized by Federal HomeLoan Mortgage Corp. 2.000%–4.500%, 1/1/33–10/1/50 and Federal NationalMortgage Association 3.500%–4.000%, 3/1/42–1/1/58, with a value of$10,914,000) 10,700 10,700
Wells Fargo & Co., 0.060%, 2/1/21(Dated 1/29/21, Repurchase Value $12,300,000, collateralized by Federal HomeLoan Mortgage Corp. 2.000%, 1/1/51, with a value of $12,546,000) 12,300 12,300
1,043,700U.S. Government and Agency Obligations (0.7%) U.S. Cash Management Bill, 0.103%, 4/6/21 75,000 74,992 U.S. Treasury Bill, 0.077%, 2/4/21 100,000 100,000 U.S. Treasury Bill, 0.091%, 2/16/21 75,000 74,999 U.S. Treasury Bill, 0.086%, 3/25/21 100,000 99,993
349,984
Total Temporary Cash Investments (Cost $1,393,763) 1,393,780
Total Investments (100.1%) (Cost $28,752,762) 49,142,833
Other Assets and Liabilities—Net (-0.1%) (32,160)
Net Assets (100%) 49,110,673
Cost is in $000. • See Note A in Notes to Financial Statements.* Non-income-producing security.1 Considered an affiliated company of the fund as the fund owns more than 5% of the outstanding voting securities of such company.2 Security exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be sold in transactions exempt
from registration, normally to qualified institutional buyers. At January 31, 2021, the aggregate value was $465,825,000, representing0.9% of net assets.
3 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown isthe 7-day yield.ADR—American Depositary Receipt.
See accompanying Notes, which are an integral part of the Financial Statements.
Health Care Fund
14
($000s, except shares and per-share amounts) Amount
Assets
Investments in Securities, at Value
Unaffiliated Issuers (Cost $24,731,195) 44,244,603
Affiliated Issuers (Cost $4,021,567) 4,898,230
Total Investments in Securities 49,142,833
Investment in Vanguard 1,867
Cash 33
Receivables for Investment Securities Sold 156,756
Receivables for Accrued Income 105,731
Receivables for Capital Shares Issued 13,916
Total Assets 49,421,136
Liabilities
Payables for Investment Securities Purchased 254,924
Payables to Investment Advisor 16,136
Payables for Capital Shares Redeemed 37,158
Payables to Vanguard 2,245
Total Liabilities 310,463
Net Assets 49,110,673
At January 31, 2021, net assets consisted of:
Paid-in Capital 28,118,253
Total Distributable Earnings (Loss) 20,992,420
Net Assets 49,110,673
Investor Shares—Net Assets
Applicable to 38,160,699 outstanding $.001 par value shares ofbeneficial interest (unlimited authorization) 8,341,838
Net Asset Value Per Share—Investor Shares $218.60
Admiral Shares—Net Assets
Applicable to 442,312,461 outstanding $.001 par value shares ofbeneficial interest (unlimited authorization) 40,768,835
Net Asset Value Per Share—Admiral Shares $92.17
See accompanying Notes, which are an integral part of the Financial Statements.
Health Care Fund
Statement of Assets and LiabilitiesAs of January 31, 2021
15
Year EndedJanuary 31, 2021
($000)
Investment Income
Income
Dividends—Unaffiliated Issuers1 557,816
Dividends—Affiliated Issuers2 37,390
Interest—Unaffiliated Issuers 3,059
Securities Lending—Net 3,132
Total Income 601,397
Expenses
Investment Advisory Fees—Note B
Basic Fee 68,484
Performance Adjustment (6,559)
The Vanguard Group—Note C
Management and Administrative—Investor Shares 14,385
Management and Administrative—Admiral Shares 52,044
Marketing and Distribution—Investor Shares 710
Marketing and Distribution—Admiral Shares 1,192
Custodian Fees 605
Auditing Fees 35
Shareholders' Reports and Proxy—Investor Shares 987
Shareholders' Reports and Proxy—Admiral Shares 830
Trustees’ Fees and Expenses 59
Total Expenses 132,772
Net Investment Income 468,625
Realized Net Gain (Loss)
Investment Securities Sold—Unaffiliated Issuers 4,315,253
Investment Securities Sold—Affiliated Issuers (1,237,688)
Foreign Currencies (953)
Realized Net Gain (Loss) 3,076,612
Change in Unrealized Appreciation (Depreciation)
Investment Securities—Unaffiliated Issuers 2,193,104
Investment Securities—Affiliated Issuers 1,360,360
Foreign Currencies 3,547
Change in Unrealized Appreciation (Depreciation) 3,557,011
Net Increase (Decrease) in Net Assets Resulting from Operations 7,102,248
1 Dividends are net of foreign withholding taxes of $15,932,000.2 Dividends are net of foreign withholding taxes of $7,157,000.
See accompanying Notes, which are an integral part of the Financial Statements.
Health Care Fund
Statement of Operations
16
Year Ended January 31,
2021($000)
2020($000)
Increase (Decrease) in Net Assets
Operations
Net Investment Income 468,625 587,650
Realized Net Gain (Loss) 3,076,612 4,235,291
Change in Unrealized Appreciation (Depreciation) 3,557,011 793,607
Net Increase (Decrease) in Net Assets Resulting from Operations 7,102,248 5,616,548
Distributions1
Investor Shares (659,397) (1,020,974)
Admiral Shares (3,142,312) (4,439,397)
Total Distributions (3,801,709) (5,460,371)
Capital Share Transactions
Investor Shares (1,001,082) (145,595)
Admiral Shares (44,287) 107,728
Net Increase (Decrease) from Capital Share Transactions (1,045,369) (37,867)
Total Increase (Decrease) 2,255,170 118,310
Net Assets
Beginning of Period 46,855,503 46,737,193
End of Period 49,110,673 46,855,503
1 Certain prior-period numbers have been reclassified to conform with the current-period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
Health Care Fund
Statement of Changes in Net Assets
17
Investor Shares
For a Share OutstandingThroughout Each Period
Year Ended January 31,
2021 2020 2019 2018 2017
Net Asset Value, Beginning of Period $204.57 $203.34 $215.96 $189.88 $200.67
Investment Operations
Net Investment Income 2.0051 2.5061 2.3751 2.1621 2.039
Net Realized and Unrealized Gain (Loss) onInvestments 29.203 23.326 2.489 38.929 2.951
Total from Investment Operations 31.208 25.832 4.864 41.091 4.990
Distributions
Dividends from Net Investment Income (1.886) (2.428) (2.323) (2.059) (1.854)
Distributions from Realized Capital Gains (15.292) (22.174) (15.161) (12.952) (13.926)
Total Distributions (17.178) (24.602) (17.484) (15.011) (15.780)
Net Asset Value, End of Period $218.60 $204.57 $203.34 $215.96 $189.88
Total Return2 16.16% 13.16% 2.76% 22.29% 2.71%
Ratios/Supplemental Data
Net Assets, End of Period (Millions) $8,342 $8,729 $8,850 $9,853 $9,636
Ratio of Total Expenses toAverage Net Assets3 0.32% 0.32% 0.34% 0.38% 0.37%
Ratio of Net Investment Income toAverage Net Assets 0.95% 1.25% 1.12% 1.02% 0.98%
Portfolio Turnover Rate 18% 18% 16% 11% 12%
1 Calculated based on average shares outstanding.2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information
about any applicable account service fees.3 Includes performance-based investment advisory fee increases (decreases) of (0.01%), (0.02%), 0.00%, 0.04%, and 0.04%.
Health Care Fund
Financial Highlights
18
Admiral Shares
For a Share OutstandingThroughout Each Period
Year Ended January 31,
2021 2020 2019 2018 2017
Net Asset Value, Beginning of Period $86.27 $85.75 $91.08 $80.09 $84.64
Investment Operations
Net Investment Income .8831 1.0971 1.0361 .9381 .908
Net Realized and Unrealized Gain (Loss) onInvestments 12.316 9.844 1.057 16.436 1.244
Total from Investment Operations 13.199 10.941 2.093 17.374 2.152
Distributions
Dividends from Net Investment Income (.849) (1.068) (1.027) (.920) (.828)
Distributions from Realized Capital Gains (6.450) (9.353) (6.396) (5.464) (5.874)
Total Distributions (7.299) (10.421) (7.423) (6.384) (6.702)
Net Asset Value, End of Period $92.17 $86.27 $85.75 $91.08 $80.09
Total Return2 16.21% 13.22% 2.81% 22.35% 2.76%
Ratios/Supplemental Data
Net Assets, End of Period (Millions) $40,769 $38,126 $37,888 $39,214 $33,715
Ratio of Total Expenses to Average Net Assets3 0.27% 0.27% 0.28% 0.33% 0.32%
Ratio of Net Investment Income toAverage Net Assets 0.99% 1.30% 1.18% 1.07% 1.03%
Portfolio Turnover Rate 18% 18% 16% 11% 12%
1 Calculated based on average shares outstanding.2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information
about any applicable account service fees.3 Includes performance-based investment advisory fee increases (decreases) of (0.01%), (0.02%), 0.00%, 0.04%, and 0.04%.
Health Care Fund
Financial Highlights
19
Vanguard Health Care 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. Each of the share classes has different eligibility and minimum
purchase requirements, and is designed for different types of investors.
The fund invests in securities of foreign issuers, which may subject to investment risks notnormally associated with investing in securities of U.S. corporations. Market disruptions associatedwith the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-termimplications. Such disruptions can adversely affect assets of the fund and thus fund performance.
A. The following significant accounting policies conform to generally accepted accountingprinciples for U.S. investment companies. The fund consistently follows such policies in preparingits financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York StockExchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at thelatest quoted sales prices or official closing prices taken from the primary market in which eachsecurity trades; such securities not traded on the valuation date are valued at the mean of thelatest quoted bid and asked prices. Securities for which market quotations are not readily available,or whose values have been affected by events occurring before the fund’s pricing time but afterthe close of the securities’ primary markets, are valued at their fair values calculated according toprocedures adopted by the board of trustees. These procedures include obtaining quotations froman independent pricing service, monitoring news to identify significant market- or security-specificevents, and evaluating changes in the values of foreign market proxies (for example, ADRs, futurescontracts, or exchange-traded funds), between the time the foreign markets close and the fund’spricing time. When fair-value pricing is employed, the prices of securities used by a fund tocalculate its net asset value may differ from quoted or published prices for the same securities.Investments in Vanguard Market Liquidity Fund are valued at that fund's net asset value.Temporary cash investments are valued using the latest bid prices or using valuations based on amatrix system (which considers such factors as security prices, yields, maturities, and ratings),both as furnished by independent pricing services.
2. Foreign Currency: Securities and other assets and liabilities denominated in foreign currenciesare translated into U.S. dollars using exchange rates obtained from an independent third party asof the fund’s pricing time on the valuation date. Realized gains (losses) and unrealized appreciation(depreciation) on investment securities include the effects of changes in exchange rates since thesecurities were purchased, combined with the effects of changes in security prices. Fluctuations inthe value of other assets and liabilities resulting from changes in exchange rates are recorded asunrealized foreign currency gains (losses) until the assets or liabilities are settled in cash, at whichtime they are recorded as realized foreign currency gains (losses).
3. Repurchase Agreements: The fund enters into repurchase agreements with institutionalcounterparties. Securities pledged as collateral to the fund under repurchase agreements are heldby a custodian bank until the agreements mature, and in the absence of a default, such collateralcannot be repledged, resold, or rehypothecated. Each agreement requires that the market value ofthe collateral be sufficient to cover payments of interest and principal. The fund further mitigatesits counterparty risk by entering into repurchase agreements only with a diverse group ofprequalified counterparties, monitoring their financial strength, and entering into masterrepurchase agreements with its counterparties. The master repurchase agreements provide that,
Health Care Fund
Notes to Financial Statements
20
in the event of a counterparty's default (including bankruptcy), the fund may terminate anyrepurchase agreements with that counterparty, determine the net amount owed, and sell or retainthe collateral up to the net amount owed to the fund. Such action may be subject to legalproceedings, which may delay or limit the disposition of collateral.
4. Federal Income Taxes: The fund intends to continue to qualify as a regulated investmentcompany and distribute all of its income. The fund’s tax returns are open to examination by therelevant tax authorities until expiration of the applicable statute of limitations, which is generallythree years after the filing of the tax return. Management has analyzed the fund’s tax positionstaken for all open federal and state income tax years, and has concluded that no provision forincome tax is required in the fund’s financial statements.
5. Distributions: Distributions to shareholders are recorded on the ex-dividend date. Distributionsare determined on a tax basis at the fiscal year-end and may differ from net investment incomeand realized capital gains for financial reporting purposes.
6. Securities Lending: To earn additional income, the fund lends its securities to qualifiedinstitutional borrowers. Security loans are subject to termination by the fund at any time, and arerequired to be secured at all times by collateral in an amount at least equal to the market value ofsecurities loaned. Daily market fluctuations could cause the value of loaned securities to be moreor less than the value of the collateral received. When this occurs, the collateral is adjusted andsettled before the opening of the market on the next business day. The fund further mitigates itscounterparty risk by entering into securities lending transactions only with a diverse group ofprequalified counterparties, monitoring their financial strength, and entering into master securitieslending agreements with its counterparties. The master securities lending agreements providethat, in the event of a counterparty’s default (including bankruptcy), the fund may terminate anyloans with that borrower, determine the net amount owed, and sell or retain the collateral up tothe net amount owed to the fund; however, such actions may be subject to legal proceedings.While collateral mitigates counterparty risk, in the event of a default, the fund may experiencedelays and costs in recovering the securities loaned. The fund invests cash collateral received inVanguard Market Liquidity Fund, and records a liability in the Statement of Assets and Liabilitiesfor the return of the collateral, during the period the securities are on loan. Collateral investmentsin Vanguard Market Liquidity Fund are subject to market appreciation or depreciation. Securitieslending income represents fees charged to borrowers plus income earned on invested cashcollateral, less expenses associated with the loan. During the term of the loan, the fund is entitledto all distributions made on or in respect of the loaned securities.
7. Credit Facilities and Interfund Lending Program: The fund and certain other funds managed byThe Vanguard Group ("Vanguard") participate in a $4.3 billion committed credit facility provided by asyndicate of lenders pursuant to a credit agreement and an uncommitted credit facility provided byVanguard. Both facilities may be renewed annually. Each fund is individually liable for itsborrowings, if any, under the credit facilities. Borrowings may be utilized for temporary oremergency purposes, subject to the fund’s regulatory and contractual borrowing restrictions. Withrespect to the committed credit facility, the participating funds are charged administrative fees andan annual commitment fee of 0.10% of the undrawn committed amount of the facility; these feesare allocated to the funds based on a method approved by the fund’s board of trustees andincluded in Management and Administrative expenses on the fund’s Statement of Operations. Anyborrowings under either facility bear interest at a rate based upon the higher of the one-monthLondon Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds
Health Care Fund
21
effective rate, or overnight bank funding rate plus an agreed-upon spread, except that borrowingsunder the uncommitted credit facility may bear interest based upon an alternate rate agreed to bythe fund and Vanguard.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in ajoint lending and borrowing program that allows registered open-end Vanguard funds to borrowmoney from and lend money to each other for temporary or emergency purposes (the “InterfundLending Program”), subject to compliance with the terms and conditions of the Order, and to theextent permitted by the fund’s investment objective and investment policies. Interfund loans andborrowings normally extend overnight, but can have a maximum duration of seven days. Loansmay be called on one business day’s notice. The interest rate to be charged is governed by theconditions of the Order and internal procedures adopted by the board of trustees. The board oftrustees is responsible for overseeing the Interfund Lending Program.
For the year ended January 31, 2021, the fund did not utilize the credit facilities or the InterfundLending Program.
8. Other: Dividend income is recorded on the ex-dividend date. Non-cash dividends included individend income, if any, are recorded at the fair value of the securities received. Interest incomeincludes income distributions received from Vanguard Market Liquidity Fund and is accrued daily.Premiums and discounts on debt securities purchased are amortized and accreted, respectively, tointerest income over the lives of the respective securities, except for premiums on certain callabledebt securities that are amortized to the earliest call date. Security transactions are accounted foron the date securities are bought or sold. Costs used to determine realized gains (losses) on thesale of investment securities are those of the specific securities sold.
Taxes on foreign dividends and capital gains have been provided for in accordance with the fund’sunderstanding of the applicable countries’ tax rules and rates. Foreign capital gains tax, if any, isaccrued daily based upon net unrealized gains. The fund has filed tax reclaims for previouslywithheld taxes on dividends earned in certain European Union countries. These filings are subjectto various administrative and judicial proceedings within these countries. Such tax reclaimsreceived during the year, if any, are included in dividend income. No other amounts for additionaltax reclaims are reflected in the financial statements due to the uncertainty as to the ultimateresolution of proceedings, the likelihood of receipt of these reclaims, and the potential timing ofpayment.
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) shareholder reporting, and the proxy. 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. Wellington Management Company LLP provides investment advisory services to the fund for afee calculated at an annual percentage rate of average net assets. The basic fee is subject toquarterly adjustments based on the fund’s performance relative to the MSCI All Country WorldHealth Care Index for the preceding three years. For the year ended January 31, 2021, theinvestment advisory fee represented an effective annual basic rate of 0.14% of the fund’s averagenet assets, before a decrease of $6,559,000 (0.01%) based on performance.
Health Care Fund
22
C. In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguardand the fund, Vanguard furnishes to the fund corporate management, administrative, marketing,and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs ofoperations are allocated to the fund based on methods and guidelines approved by the board oftrustees and are generally settled twice a month.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital inVanguard. At January 31, 2021, the fund had contributed to Vanguard capital in the amount of$1,867,000, representing less than 0.01% of the fund’s net assets and 0.75% of Vanguard’s capitalreceived pursuant to the FSA. The fund’s trustees and officers are also directors and employees,respectively, of Vanguard.
D. Various inputs may be used to determine the value of the fund’s investments. These inputs aresummarized in three broad levels for financial statement purposes. The inputs or methodologiesused to value securities are not necessarily an indication of the risk associated with investing inthose securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interestrates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used todetermine the fair value of investments). Any investments valued with significant unobservableinputs are noted on the Schedule of Investments.
The following table summarizes the market value of the fund’s investments as of January 31,2021, based on the inputs used to value them:
Level 1($000)
Level 2($000)
Level 3($000)
Total($000)
Investments
Assets
Common Stocks—North and SouthAmerica 34,213,638 — — 34,213,638
Common Stocks—Other 504,407 13,031,008 — 13,535,415
Temporary Cash Investments 96 1,393,684 — 1,393,780
Total 34,718,141 14,424,692 — 49,142,833
E. Permanent differences between book-basis and tax-basis components of net assets arereclassified among capital accounts in the financial statements to reflect their tax character. Thesereclassifications have no effect on net assets or net asset value per share. As of period end,permanent differences primarily attributable to the accounting for passive foreign investmentcompanies, foreign currency transactions, and distributions in connection with fund shareredemptions were reclassified between the following accounts:
Amount($000)
Paid-in Capital 154,929
Total Distributable Earnings (Loss) (154,929)
Health Care Fund
23
Temporary differences between book-basis and tax-basis components of total distributableearnings (loss) arise when certain items of income, gain, or loss are recognized in different periodsfor financial statement and tax purposes; these differences will reverse at some time in the future.The differences are primarily related to the deferral of losses from wash sales and the recognitionof unrealized gains from passive foreign investment companies. As of period end, the tax-basiscomponents of total distributable earnings (loss) are detailed in the table as follows:
Amount($000)
Undistributed Ordinary Income 331,588
Undistributed Long-Term Gains 404,518
Capital Loss Carryforwards —
Qualified Late-Year Losses —
Net Unrealized Gains (Losses) 20,256,327
The tax character of distributions paid was as follows:
Year Ended January 31,
2021Amount
($000)
2020Amount
($000)
Ordinary Income* 693,669 869,989
Long-Term Capital Gains 3,108,040 4,590,382
Total 3,801,709 5,460,371 * Includes short-term capital gains, if any.
As of January 31, 2021, gross unrealized appreciation and depreciation for investments based oncost for U.S. federal income tax purposes were as follows:
Amount($000)
Tax Cost 28,890,717
Gross Unrealized Appreciation 21,837,252
Gross Unrealized Depreciation (1,585,136)
Net Unrealized Appreciation (Depreciation) 20,252,116
F. During the year ended January 31, 2021, the fund purchased $8,153,329,000 of investmentsecurities and sold $12,713,271,000 of investment securities, other than temporary cashinvestments.
Health Care Fund
24
G. Capital share transactions for each class of shares were:
Year Ended January 31,
2021 2020
Amount($000)
Shares(000)
Amount($000)
Shares(000)
Investor Shares
Issued 973,375 4,703 597,477 2,991
Issued in Lieu of Cash Distributions 619,156 3,096 960,801 4,742
Redeemed (2,593,613) (12,311) (1,703,873) (8,580)
Net Increase (Decrease)—Investor Shares (1,001,082) (4,512) (145,595) (847)
Admiral Shares
Issued 2,668,213 30,075 1,115,698 13,215
Issued in Lieu of Cash Distributions 2,766,485 32,638 3,932,657 46,023
Redeemed (5,478,985) (62,362) (4,940,627) (59,104)
Net Increase (Decrease)—Admiral Shares (44,287) 351 107,728 134
Health Care Fund
25
H. Certain of the fund investments were in companies that were considered to be affiliatedcompanies of the fund because the fund owned more than 5% of the outstanding votingsecurities of the company or the issuer was another member of The Vanguard Group. Transactionsduring the period in securities of these companies were as follows:
Current Period Transactions
Jan. 31,2020
MarketValue
($000)
Purchasesat Cost($000)
Proceedsfrom
SecuritiesSold
($000)
RealizedNet
Gain(Loss)($000)
Change inUnrealized
App. (Dep.)($000)
Income($000)
Capital GainDistributions
Received($000)
Jan. 31,2021
MarketValue
($000)
AgiosPharmaceuticals Inc. 313,603 — — — (11,327) — — 302,276
Alkermes plc 232,465 3,802 — — 49,310 — — 285,577
Allscripts HealthcareSolutions Inc. 84,472 — — — 77,974 — — 162,446
AlnylamPharmaceuticals Inc. 1,064,513 — 218,333 83,836 248,172 — — 1,178,188
Bluebird Bio Inc. 366,946 38,682 — — (167,788) — — 237,840
Eisai Co. Ltd. 1,391,076 — 47,794 (692) (39,384) 24,711 — 1,303,206
IronwoodPharmaceuticals Inc.Class A 127,468 3,300 — — (19,349) — — 111,419
Mylan NV 978,113 68,995 790,677 (1,248,198) 991,767 — — NA1
Nektar TherapeuticsClass A 266,379 — 6,988 (24,774) 22,383 — — 257,000
PortolaPharmaceuticals Inc. NA2 8,333 84,216 (78,477) 108,272 — — —
UCB SA 1,060,486 — 131,275 30,623 100,348 12,679 — 1,060,182
Vanguard MarketLiquidity Fund 115,658 NA3 NA3 (6) (18) — — 96
Total 6,001,179 (1,237,688) 1,360,360 37,390 — 4,898,230
1 Not applicable—in November 2020, Mylan NV merged into Viatris Inc.2 Not applicable—at January 31, 2021, and January 31, 2020, the issuer was not an affiliated company of the fund, but it was affiliated
during the year.3 Not applicable—purchases and sales are for temporary cash investment purposes.
I. Management has determined that no events or transactions occurred subsequent toJanuary 31, 2021, that would require recognition or disclosure in these financial statements.
Health Care Fund
26
To the Board of Trustees of Vanguard Specialized Funds and Shareholders of Vanguard Health CareFund
Opinion on the Financial StatementsWe have audited the accompanying statement of assets and liabilities, including the schedule ofinvestments, of Vanguard Health Care Fund (one of the funds constituting Vanguard SpecializedFunds, referred to hereafter as the “Fund”) as of January 31, 2021, the related statement ofoperations for the year ended January 31, 2021, the statement of changes in net assets for eachof the two years in the period ended January 31, 2021, including the related notes, and thefinancial highlights for each of the five years in the period ended January 31, 2021 (collectivelyreferred to as the “financial statements”). In our opinion, the financial statements present fairly, inall material respects, the financial position of the Fund as of January 31, 2021, the results of itsoperations for the year then ended, the changes in its net assets for each of the two years in theperiod ended January 31, 2021 and the financial highlights for each of the five years in the periodended January 31, 2021 in conformity with accounting principles generally accepted in theUnited States of America.
Basis for OpinionThese financial statements are the responsibility of the Fund’s management. Our responsibility isto express an opinion on the Fund’s financial statements based on our audits. We are a publicaccounting firm registered with the Public Company Accounting Oversight Board (United States)(PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S.federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of thePCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether dueto error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of thefinancial statements, whether due to error or fraud, and performing procedures that respond tothose risks. Such procedures included examining, on a test basis, evidence regarding the amountsand disclosures in the financial statements. Our audits also included evaluating the accountingprinciples used and significant estimates made by management, as well as evaluating the overallpresentation of the financial statements. Our procedures included confirmation of securitiesowned as of January 31, 2021 by correspondence with the custodian, transfer agent and brokers;when replies were not received from brokers, we performed other auditing procedures. Webelieve that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLPPhiladelphia, PennsylvaniaMarch 17, 2021
We have served as the auditor of one or more investment companies in The Vanguard Group ofFunds since 1975.
Report of Independent RegisteredPublic Accounting Firm
27
Special 2020 tax information (unaudited) for Vanguard Health Care Fund
This information for the fiscal year ended January 31, 2021, is included pursuant to provisions ofthe Internal Revenue Code.
The fund distributed $3,221,361,000 as capital gain dividends (20% rate gain distributions) toshareholders during the fiscal year.
For nonresident alien shareholders, 100% of short-term capital gain dividends distributed by thefund are qualified short-term capital gains.
The fund distributed $600,288,000 of qualified dividend income to shareholders during the fiscalyear.
For corporate shareholders, 36.0% of investment income (dividend income plus short-term gains,if any) qualifies for the dividends-received deduction.
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The trustees of your mutual fund are there to see that the fund is operated and managed in yourbest interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees alsoserve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard fundsand provides services to them.
A majority of Vanguard’s board members are independent, meaning that they have no affiliationwith Vanguard or the funds they oversee, apart from the sizable personal investments they havemade as private individuals. The independent board members have distinguished backgrounds inbusiness, academia, and public service. Each of the trustees and executive officers oversees 211Vanguard funds.
Information for each trustee and executive officer of the fund appears below. That information, aswell as the Vanguard fund count, is as of the date on the cover of this fund report. The mailingaddress of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482. More informationabout the trustees is in the Statement of Additional Information, which can be obtained, withoutcharge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
Interested Trustee1
Mortimer J. BuckleyBorn in 1969. Trustee since January 2018. Principaloccupation(s) during the past five years and otherexperience: chairman of the board (2019–present) ofVanguard and of each of the investment companiesserved by Vanguard; chief executive officer(2018–present) of Vanguard; chief executive officer,president, and trustee (2018–present) of each of theinvestment companies served by Vanguard; presidentand director (2017–present) of Vanguard; andpresident (2018–present) of Vanguard MarketingCorporation. Chief investment officer (2013–2017),managing director (2002–2017), head of the RetailInvestor Group (2006–2012), and chief informationofficer (2001–2006) of Vanguard. Chairman of theboard (2011–2017) and trustee (2009–2017) of theChildren’s Hospital of Philadelphia; and trustee(2018–present) and vice chair (2019–present) of TheShipley School.
Independent Trustees
Emerson U. FullwoodBorn in 1948. Trustee since January 2008. Principaloccupation(s) during the past five years and otherexperience: executive chief staff and marketingofficer for North America and corporate vice president(retired 2008) of Xerox Corporation (documentmanagement products and services). Formerpresident of the Worldwide Channels Group, Latin
America, and Worldwide Customer Service andexecutive chief staff officer of Developing Markets ofXerox. Executive in residence and 2009–2010Distinguished Minett Professor at the RochesterInstitute of Technology. Director of SPX FLOW, Inc.(multi-industry manufacturing). Director of theUniversity of Rochester Medical Center, the MonroeCommunity College Foundation, the United Way ofRochester, North Carolina A&T University, andRoberts Wesleyan College. Trustee of the Universityof Rochester.
Amy GutmannBorn in 1949. Trustee since June 2006. Principaloccupation(s) during the past five years and otherexperience: president (2004–present) of theUniversity of Pennsylvania. Christopher H. BrowneDistinguished Professor of Political Science, School ofArts and Sciences, and professor of communication,Annenberg School for Communication, withsecondary faculty appointments in the Department ofPhilosophy, School of Arts and Sciences, and at theGraduate School of Education, University ofPennsylvania.
F. Joseph LoughreyBorn in 1949. Trustee since October 2009. Principaloccupation(s) during the past five years and otherexperience: president and chief operating officer(retired 2009) and vice chairman of the board(2008–2009) of Cummins Inc. (industrial machinery).Chairman of the board of Hillenbrand, Inc. (specializedconsumer services). Director of the V Foundation.
1 Mr. Buckley is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the
Vanguard funds.
The People Who Govern Your Fund
Member of the advisory council for the College ofArts and Letters and chair of the advisory board to theKellogg Institute for International Studies, both at theUniversity of Notre Dame. Chairman of the board ofSaint Anselm College.
Mark LoughridgeBorn in 1953. Trustee since March 2012. Principaloccupation(s) during the past five years and otherexperience: senior vice president and chief financialofficer (retired 2013) of IBM (information technologyservices). Fiduciary member of IBM’s RetirementPlan Committee (2004–2013), senior vice presidentand general manager (2002–2004) of IBM GlobalFinancing, vice president and controller (1998–2002)of IBM, and a variety of other prior management rolesat IBM. Member of the Council on Chicago Booth.
Scott C. MalpassBorn in 1962. Trustee since March 2012. Principaloccupation(s) during the past five years and otherexperience: chief investment officer (retired June2020) and vice president (retired June 2020) of theUniversity of Notre Dame. Assistant professor (retiredJune 2020) of finance at the Mendoza College ofBusiness, University of Notre Dame, and member ofthe Notre Dame 403(b) Investment Committee.Member of the board of Catholic InvestmentServices, Inc. (investment advisors) and the board ofsuperintendence of the Institute for the Works ofReligion.
Deanna MulliganBorn in 1963. Trustee since January 2018. Principaloccupation(s) during the past five years and otherexperience: board chair (2020), chief executive officer(2011–2020), and president (2010–2019) of TheGuardian Life Insurance Company of America. Chiefoperating officer (2010–2011) and executive vicepresident (2008–2010) of Individual Life and Disabilityof the Guardian Life Insurance Company of America.Member of the board of the Economic Club of NewYork. Trustee of the Partnership for New York City(business leadership), Chief Executives for CorporatePurpose, NewYork-Presbyterian Hospital, and theBruce Museum (arts and science). Member of theAdvisory Council for the Stanford Graduate School ofBusiness.
André F. PeroldBorn in 1952. Trustee since December 2004. Principaloccupation(s) during the past five years and otherexperience: George Gund Professor of Finance andBanking, Emeritus at the Harvard Business School(retired 2011). Chief investment officer andco-managing partner of HighVista Strategies (privateinvestment firm). Member of the board(2018–present) of RIT Capital Partners (investmentfirm). Member of the investment committee ofPartners Health Care System.
Sarah Bloom RaskinBorn in 1961. Trustee since January 2018. Principaloccupation(s) during the past five years and otherexperience: deputy secretary (2014–2017) of theUnited States Department of the Treasury. Governor(2010–2014) of the Federal Reserve Board.Commissioner (2007–2010) of financial regulation forthe State of Maryland. Director (2017–present) of i(x)Investments, LLC. Rubenstein Fellow (2017–2020) ofDuke University. Trustee (2017–present) of AmherstCollege and member (2019–present) of AmherstCollege Investment Committee.
Peter F. VolanakisBorn in 1955. Trustee since July 2009. Principaloccupation(s) during the past five years and otherexperience: president and chief operating officer(retired 2010) of Corning Incorporated(communications equipment) and director of CorningIncorporated (2000–2010) and Dow Corning(2001–2010). Director (2012) of SPX Corporation(multi-industry manufacturing). Overseer of the AmosTuck School of Business Administration, DartmouthCollege (2001–2013). Chairman of the board oftrustees of Colby-Sawyer College. Member of theBMW Group Mobility Council.
Executive Officers
John BendlBorn in 1970. Principal occupation(s) during the pastfive years and other experience: principal ofVanguard. Chief financial officer (2019–present) ofeach of the investment companies served byVanguard. Chief accounting officer, treasurer, andcontroller of Vanguard (2017–present). Partner(2003–2016) at KPMG (audit, tax, and advisoryservices).
Christine M. BuchananBorn in 1970. Principal occupation(s) during the pastfive years and other experience: principal ofVanguard. Treasurer (2017–present) of each of theinvestment companies served by Vanguard. Partner(2005–2017) at KPMG (audit, tax, and advisoryservices).
David CermakBorn in 1960. Principal occupation(s) during the pastfive years and other experience: principal ofVanguard. Finance director (2019–present) of each ofthe investment companies served by Vanguard.Managing director and head (2017–present) ofVanguard Investments Singapore. Managing directorand head (2017–2019) of Vanguard Investments HongKong. Representative director and head (2014–2017)of Vanguard Investments Japan.
John GallowayBorn in 1973. Principal occupation(s) during the pastfive years and other experience: principal ofVanguard. Investment stewardship officer (September2020–present) of each of the investment companiesserved by Vanguard. Head of Investor Advocacy(February 2020–present) and head of MarketingStrategy and Planning (2017–2020) at Vanguard.Deputy assistant to the President of theUnited States (2015).
Peter MahoneyBorn in 1974. Principal occupation(s) during the pastfive years and other experience: principal ofVanguard. Controller (2015–present) of each of theinvestment companies served by Vanguard. Head ofInternational Fund Services (2008–2014) at Vanguard.
Anne E. RobinsonBorn in 1970. Principal occupation(s) during the pastfive years and other experience: general counsel(2016–present) of Vanguard. Secretary (2016–present)of Vanguard and of each of the investmentcompanies served by Vanguard. Managing director(2016–present) of Vanguard. Managing director andgeneral counsel of Global Cards and ConsumerServices (2014–2016) at Citigroup. Counsel(2003–2014) at American Express.
Michael RollingsBorn in 1963. Principal occupation(s) during the pastfive years and other experience: finance director(2017–present) and treasurer (2017) of each of theinvestment companies served by Vanguard.Managing director (2016–present) of Vanguard. Chieffinancial officer (2016–present) of Vanguard. Director(2016–present) of Vanguard Marketing Corporation.Executive vice president and chief financial officer(2006–2016) of MassMutual Financial Group.
John E. SchadlBorn in 1972. Principal occupation(s) during the pastfive years and other experience: principal ofVanguard. Chief compliance officer (2019–present) ofVanguard and of each of the investment companiesserved by Vanguard. Assistant vice president(2019–present) of Vanguard Marketing Corporation.
Vanguard Senior Management Team Joseph Brennan James M. NorrisMortimer J. Buckley Thomas M. RampullaGregory Davis Karin A. RisiJohn James Anne E. RobinsonJohn T. Marcante Michael RollingsChris D. McIsaac Lauren Valente
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