N-CSR 1 tm2224861d5_ncsr.htm N-CSR

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT

OF

REGISTERED MANAGEMENT INVESTMENT COMPANIES

 

Investment Company Act file number: 811-07803

 

Name of Registrant: Vanguard Scottsdale Funds
Address of Registrant: P.O. Box 2600
  Valley Forge, PA 19482

  

Name and address of agent for service: Anne E. Robinson, Esquire
  P.O. Box 876
 

Valley Forge, PA 19482

  

Registrant’s telephone number, including area code: (610) 669-1000

 

Date of fiscal year end: August 31

 

Date of reporting period: September 1, 2021—August 31, 2022

 

 

 

 

 

 

Item 1: Reports to Shareholders

 

 

 

 

Annual Report   |   August 31, 2022
Vanguard Explorer Value Fund

 

Contents
Your Fund’s Performance at a Glance

1
Advisors' Report

2
About Your Fund’s Expenses

7
Performance Summary

9
Financial Statements

11
Liquidity Risk Management

25
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.

 

Your Fund’s Performance at a Glance
The 12 months ended August 31, 2022, were a very challenging period for financial markets. Vanguard Explorer Value Fund returned –10.05% for the period, lagging the –8.34% return of its benchmark, the Russell 2500 Value Index.
Early on, pent-up demand helped spur global growth and push unemployment rates down. The economic backdrop deteriorated, however, as inflation soared to multidecade highs, fueled in part by higher energy and food prices in the wake of Russia’s invasion of Ukraine. The Federal Reserve reacted by raising interest rates, which pushed borrowing costs higher and sparked fears of recession.
Negative double-digit returns in a handful of industry sectors, including consumer discretionary and health care, contributed to the poor return for the benchmark index.
Security selection in a number of sectors, including communication services and industrials, helped the fund’s performance compared with the benchmark. However, the fund’s underweight to the best-performing sector, energy, hurt performance, as did security selection in financials.
Market Barometer
  Average Annual Total Returns
Periods Ended August 31, 2022
  One Year Three Years Five Years
Stocks      
Russell 1000 Index (Large-caps) -12.96% 12.14% 11.61%
Russell 2000 Index (Small-caps) -17.88 8.59 6.95
Russell 3000 Index (Broad U.S. market) -13.28 11.90 11.29
FTSE All-World ex US Index (International) -19.00 3.48 2.12
Bonds      
Bloomberg U.S. Aggregate Float Adjusted Index
(Broad taxable market)
-11.65% -2.01% 0.54%
Bloomberg Municipal Bond Index
(Broad tax-exempt market)
-8.63 -0.83 1.28
FTSE Three-Month U.S. Treasury Bill Index 0.44 0.56 1.10
CPI      
Consumer Price Index 8.26% 4.90% 3.82%
1

 

Advisors’ Report
For the fiscal year ended August 31, 2022, Vanguard Explorer Value Fund returned –10.05%, underperforming the –8.34% return of its benchmark, the Russell 2500 Value Index. Your fund is managed by three independent advisors, a strategy that enhances the fund’s diversification by providing exposure to distinct yet complementary investment approaches. It is not uncommon for different advisors to have different views about individual securities or the broader investment environment.
The advisors, the amount and percentage of fund assets each manages, and brief descriptions of their investment strategies are presented in the table on page 6. The advisors have also prepared a discussion of the investment environment that existed during the period under review and of how their portfolio positioning reflects this assessment. (Please note that Ariel Investments, LLC, only began managing a portion of the fund in January 2022 and that the Frontier discussion refers to industry sectors as defined by ICB classifications rather than by the Global Industry Classification Standard used elsewhere in this report.) These comments were prepared on September 8, 2022.
Frontier Capital Management Co., LLC
Portfolio Managers:
William A. Teichner, CFA,
Managing Partner
Rushan Jiang, CFA,
Vice President
Stock selection in the Frontier portion of the fund was strong, especially in industrials, health care, and technology. Sector allocation was a modest detractor.
The portfolio’s 10 best-contributing stocks were spread over four sectors and included four companies each from energy and industrials and one position each from technology and health care. The energy holdings included three oil and natural gas producers and one renewable energy equipment manufacturer. Energy producers benefited as West Texas Intermediate benchmark crude oil spot prices appreciated from $69 to $90 per barrel. The industrials included a crude oil tanker company, a manufacturer of electrical wire, a producer of heat transfer products, and a maker of cables and connectors.
The top contributor was PDC Energy, an oil producer with operations in the Wattenberg Field in Colorado and the Delaware Basin in Texas. That stock added approximately 90 basis points to performance. For each of the past four quarters, PDC has grown its production at a robust year-over-year rate and posted higher-than-expected discretionary cash flow. Management expects to generate $1.6 billion in free cash flow during 2022, which should fund $1 billion in total capital returns to shareholders through dividends and share repurchases.
The portfolio’s 10 largest detractors were spread over five sectors and included three consumer discretionary companies, two holdings each from financials, technology, and industrials, and one real
 
2

 

estate position. The consumer discretionary holdings were an online clothing retailer, a seller of women’s intimate apparel and beauty products, and a designer of branded jeans. Like many other businesses, these companies have faced headwinds such as labor and input cost inflation, supply chain disruptions, and shifting consumer spending patterns.
The largest detractor was Argo Group International Holdings, a property and casualty insurance company. The company took a $122 million charge related to construction defects claims on U.S. policies written in 2017 and prior years and entered into a loss portfolio transfer (LPT) reinsurance agreement with Enstar Group Limited. The LPT agreement will cost Argo $100 million and cover its U.S. casualty reserves between 2011 and 2019. We reduced our weighting in the stock significantly but retain a small position given its attractive valuation and our belief that much has been done over the past several years to improve the company’s underwriting.
During the period, we bought eight new stocks and exited 10 holdings. The purchases were spread across four sectors: consumer discretionary, health care, industrials, and technology. The sales were across five sectors: basic materials, consumer discretionary, industrials, real estate, and technology. As is usual for the portfolio, the changes were made for company-specific reasons rather than sector positioning.
One purchase was Diversey Holdings, a leading global provider of commercial
cleaning and hygiene products. We initiated a small allocation at an average price of $9, well below its $15 initial public offering price in March 2021. We were attracted to Diversey’s objective of taking market share in a fragmented industry as well as management’s plans to improve profitability through optimizing prices, reducing procurement costs, and enhancing logistics and manufacturing. The stock is compelling based on our projected long-term earnings potential of a dollar per share.
One of our sales was Quanta Services, an engineering and construction company that restores and replaces electric and gas lines and also builds new infrastructure. We initially acquired the stock in March 2020 at an average price of $30 per share. Quanta executed well to capture increasing customer spending on infrastructure and expanded further into renewable energy by acquiring Blattner Holding Company. As Quanta’s market capitalization approached $20 billion, we sold the stock at $134 per share at a valuation that was no longer inexpensive.
Cardinal Capital Management, L.L.C.
Portfolio Managers:
Eugene Fox III, Managing Partner
Robert B. Kirkpatrick, CFA,
Managing Partner
Rachel D. Matthews, Partner
Robert Fields, Partner
3

 

For the 12 months ended August 31, 2022, the Russell 2500 Value Index fell –8.34%, though it was rangebound for the first eight months. We added value through early 2022 until Russia’s invasion of Ukraine and the associated commodity-driven rally caused the portfolio to lag.
Investors’ concerns during the period rapidly shifted from the effects of the Omicron variant to Russia’s war against Ukraine and the Federal Reserve’s response to rising inflation. After recognizing that higher inflation was not transitory, the Fed moved aggressively to reduce monetary stimulus and increase benchmark interest rates to slow rapidly rising consumer prices. The central bank’s change in approach led to significant concerns about economic growth; as a result, the Russell 2000 Index had its worst first-half-of-year performance since 1973. Corporate earnings, which rebounded to record levels as the economy emerged from the pandemic, are now under pressure as companies grapple with higher costs and a strong U.S. dollar in the face of moderating demand.
Until there is evidence that inflation is under control and recession risks are receding, equity market volatility is likely to remain elevated and macroeconomic factors the driver of absolute and relative performance. Given the growing economic uncertainty over the period, it is not surprising that investors favored large-cap and value stocks and that the portfolio benefited from its lower
exposure to the most volatile stocks and higher exposure to companies with higher earnings yield. However, the portfolio’s lower beta and its focus on quality businesses were also noticeable headwinds as those stocks broadly lagged.
We made modest changes to the portfolio, as the team believes the market is overly focused on short-term fundamentals. We reduced positions where we had less conviction in the long-term fundamentals and where valuations had fully reflected their attractive prospects. We added to investments where near-term expectations were low but long-term fundamentals remain sound.
Investments in the financials, industrials, health care, and energy sectors were the primary relative detractors. In financials, PacWest Bancorp lagged peers despite strong loan growth and higher margins, as interest rate-driven unrealized losses in its investment portfolio led to a decline in tangible book value. In industrials, the stock prices of GXO Logistics and XPO Logistics declined amid broad weakness in transportation stocks on increased recession concerns. In health care, the share price of Enovis Corporation lagged its peers as the orthopedics provider dealt with foreign exchange headwinds, supply chain constraints, and inflation pressures. The share prices of the portfolio’s holdings in the energy sector rose over 50% during the period; even so, they failed to keep pace with the sector’s 84% return. The largest detractor here was DT Midstream,
4

 

as the interstate pipeline owner and operator lagged the sector because investors favored companies with more direct exposure to rising crude oil prices over those that benefit primarily from increasing domestic natural gas volumes.
The main contributors to relative performance were investments in the materials and communication services sectors, specifically FMC Corporation and Nexstar Media Group.
Cardinal’s near-term outlook for equities is cautious. The outlook for growth later this year continues to moderate, given the fallout from the war in Ukraine as well as rising inflation and interest rates. Although inflation will certainly remain well above the Federal Reserve’s 2% target, it should begin to ease as supply constraints lessen and demand pressures ebb. Labor has been a significant limitation for many businesses, and a loosening of the labor market should help ease supply chains. Nonetheless, the risk of recession has increased, and stock prices clearly reflect that higher probability. While short-term and long-term interest rates have risen significantly from their pandemic lows, they are still relatively low from a historical perspective and credit remains broadly available. The mergers and acquisitions market appears resilient, and lower public market valuations should allow for continued transactions once financial markets stabilize. Regardless, Cardinal continues to prefer investments whose success depends on company-specific drivers, with as many as possible under management control rather than solely
relying on near-term economic growth to produce sustainable growth in free cash flow.
Ariel Investments, LLC
Portfolio Managers:
John W. Rogers, Jr.,
Chairman, Co-CEO & Chief Investment Officer
Ken E. Kuhrt, CPA,
Executive Vice President
As the global economy moves beyond the pandemic, Russia’s invasion of Ukraine introduced new shocks as markets were already looking to process the effects of soaring inflation and a hawkish pivot by the Federal Reserve. Ripple effects from higher energy prices have extended to other commodities, increasing food prices and further disrupting supply chains. We believe prices have moved beyond fundamentals, with the market pricing in risks of a recession as investors fear a Fed-induced hard landing. Although uncertainty is high and volatility will likely remain elevated, we view these near-term risks as noise within the context of our long-term investment horizon.
After a volatile start to the year, stocks continued their descent through August. Other than energy, no sector has been spared in this market downturn. As bottom-up stock pickers, we select investments based on the strength of the underlying fundamentals of each portfolio company. We seek holdings possessing unique business models with sustainable competitive advantages and strong
5

 

balance sheets, led by skilled management teams. The result is a distinct yet diversified collection of businesses that offer a high-quality product or service supported by a well promoted brand, whose strength provides the company the ability to pass through, maintain, and enhance pricing and market share over time.
For the period under review, stock selection within consumer discretionary contributed most to returns for our portion of the fund. An underweight allocation to energy was the largest detractor. Although disappointing, this performance is consistent with what we have seen during broad-based market volatility driven by geopolitical events.
While we expect the issues outlined above will have negative implications for some of the companies in our portfolio in the near term, we can see past today’s turbulence to tomorrow’s possibilities. In our view, the balance sheets of U.S. financial institutions and households are generally in good shape, and we are cautiously optimistic this will protect against a severe downturn. Meanwhile, our portfolio’s stocks are trading at a significant discount to our internal estimate of private market value.
Knowing that today’s decisions will drive years of future returns, we remain laser-focused on following our philosophy and are doubling down on names that we know, like, and already own. We firmly believe that the patient investor who stays the course and owns differentiated businesses at reasonable prices will deliver superior returns over the long run.
Vanguard Explorer Value Fund Investment Advisors
 
  Fund Assets Managed  
Investment Advisor % $ Million Investment Strategy
Frontier Capital Management Co., LLC 44 475 The advisor selects stocks by identifying companies it believes are underpriced relative to their long-term value. These companies are generally inexpensive and have low price-to-book and price-to-earnings ratios.
Cardinal Capital Management, L.L.C. 41 442 The advisor seeks stocks that are able to generate excess cash flow and reinvest the cash to increase shareholder value.
Ariel Investments, LLC 13 142 The advisor seeks to take advantage of the market’s short-term view to drive long-term results for shareholders. It favors companies with strong brands and franchises that produce or deliver high-quality products or services.
Cash Investments 2 24 These short-term reserves are invested by Vanguard in equity index products to simulate investment in stocks. Each advisor may also maintain a modest cash position.
6

 

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.
7

 

Six Months Ended August 31, 2022      
Explorer Value Fund Beginning
Account Value
2/28/2022
Ending
Account Value
8/31/2022
Expenses
Paid During
Period
Based on Actual Fund Return $1,000.00 $891.30 $2.34
Based on Hypothetical 5% Yearly Return 1,000.00 1,022.74 2.50
The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratio for that period is 0.49%. 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 (184/365).
8

 

Explorer Value 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: August 31, 2012, Through August 31, 2022
Initial Investment of $10,000
    Average Annual Total Returns
Periods Ended August 31, 2022
 
    One
Year
Five
Years
Ten
Years
Final Value
of a $10,000
Investment
 Explorer Value Fund -10.05% 6.90% 10.09% $26,156
 Russell 2500 Value Index -8.34 7.03 9.88 25,662
 Dow Jones U.S. Total Stock Market Float Adjusted Index -13.73 11.16 12.66 32,942
See Financial Highlights for dividend and capital gains information.
9

 

Explorer Value Fund
Fund Allocation
As of August 31, 2022
Communication Services 7.2%
Consumer Discretionary 12.2
Consumer Staples 1.2
Energy 5.4
Financials 18.9
Health Care 6.8
Industrials 17.4
Information Technology 10.3
Materials 9.3
Real Estate 9.6
Utilities 1.7
The table reflects the fund’s investments, except for short-term investments and derivatives. Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” category (if applicable), which includes securities that have not been provided a GICS classification as of the effective reporting period.
Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party involved in making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
10

 

Explorer Value Fund
Financial Statements
Schedule of Investments
As of August 31, 2022
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
    Shares Market
Value

($000)
Common Stocks (94.6%)
Communication Services (6.8%)
  Nexstar Media Group Inc. Class A   136,122    26,043
* Ziff Davis Inc.   202,166    15,624
  John Wiley & Sons Inc. Class A   257,285    11,843
  Madison Square Garden Entertainment Corp.   104,754     5,820
  Paramount Global Inc. Class B   187,272     4,380
  Interpublic Group of Cos. Inc.   150,917     4,171
  Manchester United plc Class A   239,263     3,216
  Madison Square Garden Sports Corp.    17,346     2,780
         73,877
Consumer Discretionary (11.5%)
  Lithia Motors Inc. Class A    54,737    14,529
* Victoria's Secret & Co.   419,138    14,016
* Adtalem Global Education Inc.   275,758    10,393
* Modine Manufacturing Co.   568,772     8,520
  Cheesecake Factory Inc.   229,143     7,016
  Kontoor Brands Inc.   186,437     6,941
* Leslie's Inc.   484,098     6,865
  Mattel Inc.   273,639     6,053
  Royal Caribbean Cruises Ltd.   143,354     5,856
  OneSpaWorld Holdings Ltd.   659,627     5,811
* Helen of Troy Ltd.    38,006     4,699
  LCI Industries    35,517     4,115
  ADT Inc.   549,536     4,006
  Boyd Gaming Corp.    70,401     3,832
  Gentex Corp.   135,786     3,706
* Perdoceo Education Corp.   315,950     3,659
* Stoneridge Inc.   181,552     3,450
  Mohawk Industries Inc.    30,661     3,384
* Lands' End Inc.   236,324     3,266
* Under Armour Inc. Class A   300,573     2,531
* LGI Homes Inc.    22,151     2,102
        124,750
Consumer Staples (1.2%)
  Spectrum Brands Holdings Inc.   174,011    10,961
  J M Smucker Co.     9,574     1,340
         12,301
    Shares Market
Value

($000)
Energy (5.1%)
  DTE Midstream LLC   218,568    12,067
  Magnolia Oil & Gas Corp. Class A   476,659    11,378
  PDC Energy Inc.   134,639     9,143
  Viper Energy Partners LP   264,280     8,066
  Coterra Energy Inc.   257,626     7,963
  Core Laboratories NV   146,091     2,359
  Diamondback Energy Inc.    17,411     2,321
  International Seaways Inc.    75,710     2,236
         55,533
Financials (17.9%)
  PacWest Bancorp   593,323    15,622
  Starwood Property Trust Inc.   637,770    14,624
  Popular Inc.   138,712    10,711
  Wintrust Financial Corp.   116,934     9,862
  Columbia Banking System Inc.   320,739     9,606
  First Merchants Corp.   232,474     9,257
  Pinnacle Financial Partners Inc.   114,261     9,222
  First BanCorp. (XNYS)   644,682     9,219
* Bancorp Inc.   375,072     8,897
  BGC Partners Inc. Class A 2,013,165     8,093
  BankUnited Inc.   208,857     7,738
  Flushing Financial Corp.   359,572     7,425
  Washington Federal Inc.   220,199     7,049
  Pacific Premier Bancorp Inc.   205,908     6,746
  Webster Financial Corp.   130,746     6,152
  WSFS Financial Corp.   120,253     5,814
* NMI Holdings Inc. Class A   265,828     5,457
  Renasant Corp.   163,581     5,454
  Northern Trust Corp.    51,274     4,876
  KKR & Co. Inc.    95,575     4,832
  PJT Partners Inc. Class A    57,272     3,964
  Evercore Inc. Class A    40,951     3,837
  BOK Financial Corp.    41,768     3,712
  Lazard Ltd. Class A    96,057     3,492
  First American Financial Corp.    61,239     3,276
  Affiliated Managers Group Inc.    24,093     3,069
  Argo Group International Holdings Ltd.   123,955     2,433
* Green Dot Corp. Class A    92,025     1,867
  Janus Henderson Group plc    50,771     1,188
        193,494
11

 

Explorer Value Fund
    Shares Market
Value

($000)
Health Care (6.4%)
* Syneos Health Inc.   211,510    12,714
* Enovis Corp.   161,886     8,199
* Envista Holdings Corp.   218,115     8,090
* Varex Imaging Corp.   298,941     6,305
* Acadia Healthcare Co. Inc.    67,824     5,557
* Pacira BioSciences Inc.    99,711     5,233
* LivaNova plc    86,583     4,870
* NuVasive Inc.    95,970     4,080
  Laboratory Corp. of America Holdings    17,507     3,944
* Merit Medical Systems Inc.    59,045     3,497
  Charles River Laboratories International Inc.    14,974     3,073
  Bio-Rad Laboratories Inc. Class A     3,966     1,924
  Prestige Consumer Healthcare Inc.    36,032     1,822
         69,308
Industrials (16.5%)
* KAR Auction Services Inc.   869,736    12,698
  BWX Technologies Inc.   224,408    11,698
* Beacon Roofing Supply Inc.   168,717     9,264
* GXO Logistics Inc.   208,356     9,247
  MDU Resources Group Inc.   306,336     9,236
* WESCO International Inc.    68,128     8,971
  KBR Inc.   183,557     8,866
  Applied Industrial Technologies Inc.    80,626     8,548
* Univar Solutions Inc.   287,555     7,252
* Array Technologies Inc.   332,450     6,948
* IAA Inc.   181,309     6,756
* Stericycle Inc.   131,660     6,595
  Esab Corp.   153,641     6,313
  Interface Inc. Class A   544,484     6,082
* XPO Logistics Inc.   110,430     5,789
  EnerSys    81,479     5,082
* Builders FirstSource Inc.    82,883     4,858
  Kaman Corp.   141,342     4,483
  HNI Corp.   139,112     4,452
* MRC Global Inc.   437,002     4,252
  Resideo Technologies Inc.   202,631     4,219
  nVent Electric plc   124,764     4,112
  Kennametal Inc.   168,561     3,951
  Masco Corp.    72,931     3,710
  Altra Industrial Motion Corp.    74,937     2,844
  Brink's Co.    51,264     2,834
* Triumph Group Inc.   202,896     2,636
  Snap-on Inc.    11,307     2,463
  Steelcase Inc. Class A   164,883     1,843
  Greenbrier Cos. Inc.    62,731     1,788
  Simpson Manufacturing Co. Inc.    12,121     1,123
        178,913
Information Technology (9.7%)
* Verint Systems Inc.   302,430    14,665
* ACI Worldwide Inc.   457,703    10,848
  Jabil Inc.   156,477     9,436
  Belden Inc.   141,446     9,262
* Insight Enterprises Inc.    97,526     8,887
  Concentrix Corp.    58,820     7,398
* Fabrinet    70,575     7,258
  Silicon Motion Technology Corp. ADR    90,526     6,980
  TD SYNNEX Corp.    72,164     6,948
* Euronet Worldwide Inc.    71,051     6,299
    Shares Market
Value

($000)
* Teledyne Technologies Inc.    14,545     5,358
  Zebra Technologies Corp. Class A    14,345     4,327
  Keysight Technologies Inc.    18,124     2,970
  MKS Instruments Inc.    26,544     2,644
* MACOM Technology Solutions Holdings Inc. Class H    35,054     1,933
        105,213
Materials (8.8%)
  Silgan Holdings Inc.   646,199    29,434
* Axalta Coating Systems Ltd.   614,059    15,812
  Ashland Inc.   136,413    13,881
  FMC Corp.    85,866     9,280
  Eagle Materials Inc.    66,093     7,906
  Pactiv Evergreen Inc.   478,100     5,307
  Graphic Packaging Holding Co.   224,094     4,991
  Carpenter Technology Corp.   133,991     4,552
* Diversey Holdings Ltd.   637,847     3,910
         95,073
Real Estate (9.1%)
  Gaming and Leisure Properties Inc.   394,554    19,045
  Medical Properties Trust Inc.   849,450    12,410
  Agree Realty Corp.   122,463     9,224
  Corporate Office Properties Trust   312,790     8,083
  Spirit Realty Capital Inc.   188,985     7,720
  SITE Centers Corp.   594,384     7,703
  STAG Industrial Inc.   226,539     6,977
  Newmark Group Inc. Class A   620,491     6,360
* Sunstone Hotel Investors Inc.   466,526     5,081
* Howard Hughes Corp.    76,767     4,885
  RPT Realty   428,741     4,129
  Jones Lang LaSalle Inc.    19,079     3,301
  CBRE Group Inc. Class A    41,453     3,273
         98,191
Utilities (1.6%)
  Portland General Electric Co.   171,380     8,855
  ALLETE Inc.    90,744     5,370
  Unitil Corp.    66,836     3,482
         17,707
Total Common Stocks
(Cost $922,209)
1,024,360
 
12

 

Explorer Value Fund
    Shares Market
Value

($000)
Temporary Cash Investments (5.3%)
Money Market Fund (5.3%)
1 Vanguard Market Liquidity Fund, 2.284% (Cost$57,072)   570,956          57,078
Total Investments (99.9%) (Cost $979,281) 1,081,438
Other Assets and Liabilities—Net (0.1%) 1,097
Net Assets (100%) 1,082,535
Cost is in $000.
See Note A in Notes to Financial Statements.
* Non-income-producing security.
1 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
  ADR—American Depositary Receipt.

Derivative Financial Instruments Outstanding as of Period End

Futures Contracts
      ($000)
  Expiration Number of
Long (Short)
Contracts
Notional
Amount
Value and
Unrealized
Appreciation
(Depreciation)
Long Futures Contracts        
E-mini Russell 2000 Index September 2022 253 23,334 1,336
  
See accompanying Notes, which are an integral part of the Financial Statements.
13

 

Explorer Value Fund
Statement of Assets and Liabilities
As of August 31, 2022
($000s, except shares and per-share amounts) Amount
Assets  
Investments in Securities, at Value  
Unaffiliated Issuers (Cost $922,209) 1,024,360
Affiliated Issuers (Cost $57,072) 57,078
Total Investments in Securities 1,081,438
Investment in Vanguard 41
Cash Collateral Pledged—Futures Contracts 1,393
Receivables for Investment Securities Sold 995
Receivables for Accrued Income 1,004
Receivables for Capital Shares Issued 144
Total Assets 1,085,015
Liabilities  
Payables for Investment Securities Purchased 1,306
Payables to Investment Advisor 645
Payables for Capital Shares Redeemed 271
Payables to Vanguard 110
Variation Margin Payable—Futures Contracts 148
Total Liabilities 2,480
Net Assets 1,082,535
At August 31, 2022, net assets consisted of:  
   
Paid-in Capital 955,425
Total Distributable Earnings (Loss) 127,110
Net Assets 1,082,535
 
Net Assets  
Applicable to 27,112,406 outstanding $.001 par value shares of
beneficial interest (unlimited authorization)
1,082,535
Net Asset Value Per Share $39.93
  
See accompanying Notes, which are an integral part of the Financial Statements.
14

 

Explorer Value Fund
Statement of Operations
  Year Ended
August 31, 2022
  ($000)
Investment Income  
Income  
Dividends1 17,818
Interest2 414
Securities Lending—Net 1
Total Income 18,233
Expenses  
Investment Advisory Fees—Note B  
Basic Fee 3,363
Performance Adjustment 246
The Vanguard Group—Note C  
Management and Administrative 2,274
Marketing and Distribution 123
Custodian Fees 16
Auditing Fees 40
Shareholders’ Reports 63
Trustees’ Fees and Expenses
Other Expenses 14
Total Expenses 6,139
Expenses Paid Indirectly (3)
Net Expenses 6,136
Net Investment Income 12,097
Realized Net Gain (Loss)  
Investment Securities Sold2 38,593
Futures Contracts (12,980)
Realized Net Gain (Loss) 25,613
Change in Unrealized Appreciation (Depreciation)  
Investment Securities2 (160,790)
Futures Contracts 1,110
Change in Unrealized Appreciation (Depreciation) (159,680)
Net Increase (Decrease) in Net Assets Resulting from Operations (121,970)
1 Dividends are net of foreign withholding taxes of $58,000.
2 Interest income, realized net gain (loss), capital gain distributions received, and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $404,000, ($23,000), $2,000, and ($2,000), respectively. Purchases and sales are for temporary cash investment purposes.
  
See accompanying Notes, which are an integral part of the Financial Statements.
15

 

Explorer Value Fund
Statement of Changes in Net Assets
  Year Ended August 31,
  2022
($000)
2021
($000)
     
Increase (Decrease) in Net Assets    
Operations    
Net Investment Income 12,097 7,595
Realized Net Gain (Loss) 25,613 65,789
Change in Unrealized Appreciation (Depreciation) (159,680) 230,573
Net Increase (Decrease) in Net Assets Resulting from Operations (121,970) 303,957
Distributions    
Total Distributions (47,190) (5,943)
Capital Share Transactions    
Issued 260,809 672,371
Issued in Lieu of Cash Distributions 44,561 5,616
Redeemed (218,148) (374,152)
Net Increase (Decrease) from Capital Share Transactions 87,222 303,835
Total Increase (Decrease) (81,938) 601,849
Net Assets    
Beginning of Period 1,164,473 562,624
End of Period 1,082,535 1,164,473
  
See accompanying Notes, which are an integral part of the Financial Statements.
16

 

Explorer Value Fund
Financial Highlights
For a Share Outstanding
Throughout Each Period 
Year Ended August 31,
2022 2021 2020 2019 2018
Net Asset Value, Beginning of Period $46.26 $30.32 $33.49 $40.53 $34.45
Investment Operations          
Net Investment Income1 .461 .351 .400 .494 .355
Net Realized and Unrealized Gain (Loss) on Investments (4.910) 15.911 (3.032) (4.921) 7.112
Total from Investment Operations (4.449) 16.262 (2.632) (4.427) 7.467
Distributions          
Dividends from Net Investment Income (.352) (.322) (.538) (.366) (.288)
Distributions from Realized Capital Gains (1.529) (2.247) (1.099)
Total Distributions (1.881) (.322) (.538) (2.613) (1.387)
Net Asset Value, End of Period $39.93 $46.26 $30.32 $33.49 $40.53
Total Return2 -10.05% 53.90% -8.12% -10.10% 22.10%
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $1,083 $1,164 $563 $655 $768
Ratio of Total Expenses to Average Net Assets3 0.53%4 0.52% 0.64% 0.55% 0.56%
Ratio of Net Investment Income to Average Net Assets 1.05% 0.85% 1.28% 1.45% 0.95%
Portfolio Turnover Rate 31% 41% 42% 27% 31%
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 0.02%, 0.01%, 0.09%, 0.01%, and 0.03%.
4 The ratio of expenses to average net assets for the period net of reduction from broker commission abatement arrangements was 0.53%.
  
See accompanying Notes, which are an integral part of the Financial Statements.
17

 

Explorer Value Fund
Notes to Financial Statements
Vanguard Explorer Value Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. Significant market disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters, war (e.g., Russia’s invasion of Ukraine), acts of terrorism, or other events, can adversely affect local and global markets and normal market operations. Any such disruptions could have an adverse impact on the value of the fund’s investments and fund performance.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund's net asset value.
2. Futures Contracts: The fund uses index futures contracts to a limited extent, with the objective of maintaining full exposure to the stock market while maintaining liquidity. The fund may purchase or sell futures contracts to achieve a desired level of investment, whether to accommodate portfolio turnover or cash flows from capital share transactions. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any securities pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures contracts.
During the year ended August 31, 2022, the fund’s average investments in long and short futures contracts represented 3% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
3. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute virtually all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until expiration of the applicable statute of limitations,
18

 

Explorer Value Fund
which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state income tax years, and has concluded that no provision for income tax is required in the fund’s financial statements.
4. Distributions: Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
5. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled before the opening of the market on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the event of a default, the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Assets and Liabilities for the return of the collateral, during the period the securities are on loan. Collateral investments in Vanguard Market Liquidity Fund are subject to market appreciation or depreciation. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
6. Credit Facilities and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.4 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds effective rate, the overnight bank funding rate, or the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread.  However, borrowings under the uncommitted credit facility may bear interest based upon an alternate rate agreed to by the fund and Vanguard.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and
19

 

Explorer Value Fund
borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program. 
For the year ended August 31, 2022, the fund did not utilize the credit facilities or the Interfund Lending Program.
7. Other: Dividend income is recorded on the ex-dividend date. Non-cash dividends included in income, if any, are recorded at the fair value of the securities received. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
B. The investment advisory firms Frontier Capital Management Co., LLC, Cardinal Capital Management, L.L.C., and, beginning January 2022, Ariel Investments, LLC, each provide investment advisory services to a portion of the fund for a fee calculated at an annual percentage rate of average net assets managed by the advisor. The basic fee of Frontier Capital Management Co., LLC, is subject to quarterly adjustments based on performance relative to the Russell 2000 Value Index for the preceding three years. The basic fee of Cardinal Capital Management, L.L.C., is subject to quarterly adjustments based on performance relative to the Russell 3000 Value Custom Index for periods prior to June 23, 2022, and to the new Russell 2500 Value Index, beginning June 23, 2022, for the preceding three years. The benchmark change will be fully phased in by August 2025. In accordance with the advisory contract entered into with Ariel Investments, LLC, beginning March 1, 2023, the investment advisory fee will be subject to quarterly adjustments based on performance relative to the Russell 2500 Value Index since February 28, 2022.
Vanguard manages the cash reserves of the fund as described below.
For the year ended August 31, 2022, the aggregate investment advisory fee paid to all advisors represented an effective annual basic rate of 0.29% of the fund’s average net assets, before a net increase of $246,000 (0.02%) based on performance.
C. In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund corporate management, administrative, marketing, distribution and cash management services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At August 31, 2022, the fund had contributed to Vanguard capital in the amount of $41,000, representing less than 0.01% of the fund’s net assets and 0.02% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
D. The fund has asked its investment advisors to direct certain security trades, subject to obtaining the best price and execution, to brokers who have agreed to rebate to the fund part of the commissions generated. Such rebates are used solely to reduce the fund’s management and administrative expenses. For the year ended August 31, 2022, these arrangements reduced the fund’s expenses by $3,000 (an annual rate of less than 0.01% of average net assets).
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Explorer Value Fund
E. Various inputs may be used to determine the value of the fund’s investments and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant unobservable inputs are noted on the Schedule of Investments.
At August 31, 2022, 100% of the market value of the fund’s investments and derivatives was determined based on Level 1 inputs.
F. Permanent differences between book-basis and tax-basis components of net assets are reclassified among capital accounts in the financial statements to reflect their tax character. These reclassifications have no effect on net assets or net asset value per share. As of period end, permanent differences primarily attributable to the accounting for distributions in connection with fund share redemptions were reclassified between the following accounts:
  Amount
($000)
Paid-in Capital 2,206
Total Distributable Earnings (Loss) (2,206)
Temporary differences between book-basis and tax-basis components of total distributable earnings (loss) arise when certain items of income, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. The differences are primarily related to the deferral of losses from wash sales; and the recognition of unrealized gains or losses from certain derivative contracts. As of period end, the tax-basis components of total distributable earnings (loss) are detailed in the table as follows:
  Amount
($000)
Undistributed Ordinary Income 8,833
Undistributed Long-Term Gains 18,772
Capital Loss Carryforwards
Qualified Late-Year Losses
Net Unrealized Gains (Losses) 99,505
21

 

Explorer Value Fund
The tax character of distributions paid was as follows:
  Year Ended August 31,
  2022
Amount
($000)
2021
Amount
($000)
Ordinary Income* 12,337 5,943
Long-Term Capital Gains 34,853
Total 47,190 5,943
* Includes short-term capital gains, if any.
As of August 31, 2022, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
  Amount
($000)
Tax Cost 981,933
Gross Unrealized Appreciation 209,794
Gross Unrealized Depreciation (110,289)
Net Unrealized Appreciation (Depreciation) 99,505
G. During the year ended August 31, 2022, the fund purchased $364,932,000 of investment securities and sold $309,145,000 of investment securities, other than temporary cash investments.
H. Capital shares issued and redeemed were:
    
  Year Ended August 31,
  2022
Shares
(000)
2021
Shares
(000)
     
Issued 5,932 15,359
Issued in Lieu of Cash Distributions 997 152
Redeemed (4,988) (8,893)
Net Increase (Decrease) in Shares Outstanding 1,941 6,618
At August 31, 2022, one shareholder was a record or beneficial owner of 27% of the fund’s net assets. If this shareholder were to redeem its investment in the fund, the redemption might result in an increase in the fund’s expense ratio, cause the fund to incur higher transaction costs, or lead to the realization of taxable capital gains.
I. Management has determined that no events or transactions occurred subsequent to August 31, 2022, that would require recognition or disclosure in these financial statements.
22

 

Report of Independent Registered Public Accounting Firm
To the Board of Trustees of Vanguard Scottsdale Funds and Shareholders of Vanguard Explorer Value Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Vanguard Explorer Value Fund (one of the funds constituting Vanguard Scottsdale Funds, referred to hereafter as the "Fund") as of August 31, 2022, the related statement of operations for the year ended August 31, 2022, the statement of changes in net assets for each of the two years in the period ended August 31, 2022, including the related notes, and the financial highlights for each of the five years in the period ended August 31, 2022 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of August 31, 2022, 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 ended August 31, 2022 and the financial highlights for each of the five years in the period ended August 31, 2022 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements based on our audits. We are a public accounting 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 Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of August 31, 2022 by correspondence with the custodian, transfer agent and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
October 20, 2022
We have served as the auditor of one or more investment companies in The Vanguard Group of Funds since 1975.
23

 


Tax information (unaudited)
For corporate shareholders, 68.9%, or if subsequently determined to be different, the maximum percentage allowable by law, of ordinary income (dividend income plus short-term gains, if any) for the fiscal year qualified for the dividends-received deduction.
The fund hereby designates $10,734,000, or if subsequently determined to be different, the maximum amount allowable by law, as qualified dividend income for individual shareholders for the fiscal year.
For nonresident alien shareholders, 100% of short-term capital gain dividends distributed by the fund for the fiscal year are qualified short-term capital gains.
The fund distributed $36,048,000 as capital gain dividends (20% rate gain distributions) to shareholders during the fiscal year.
The fund hereby designates $145,000, or if subsequently determined to be different, the maximum amount allowable by law, of interest earned from obligations of the U.S. government which is generally exempt from state income tax.
24

 

Liquidity Risk Management
Vanguard funds (except for the money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining investors’ interests in the fund.
Assessment and management of a fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and limiting holdings of illiquid investments.
The board of trustees of Vanguard Scottsdale Funds approved the appointment of liquidity risk management program administrators responsible for administering Vanguard Explorer Value Fund’s Program and for carrying out the specific responsibilities set forth in the Program, including reporting to the board on at least an annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for the past year (the “Program Administrator Report”). The board has reviewed the Program Administrator Report covering the period from January 1, 2021, through December 31, 2021 (the “Review Period”). The Program Administrator Report stated that during the Review Period the Program operated and was implemented effectively to manage the fund’s liquidity risk.
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The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them.
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 206 Vanguard funds.
Information for each trustee and executive officer of the fund appears below. That information, as well as the Vanguard fund count, is as of the date on the cover of this fund report. 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
Mortimer J. Buckley
Born in 1969. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: chairman of the board (2019–present) of Vanguard and of each of the investment companies served by Vanguard; chief executive officer (2018–present) of Vanguard; chief executive officer, president, and trustee (2018–present) of each of the investment companies served by Vanguard; president and director (2017–present) of Vanguard; and president (2018–present) of Vanguard Marketing Corporation. Chief investment officer (2013–2017), managing director (2002–2017), head of the Retail Investor Group (2006–2012), and chief information officer (2001–2006) of Vanguard. Member of the board of governors of the Investment Company Institute and the board of governors of FINRA. Trustee and vice chair of The Shipley School.
Independent Trustees
Tara Bunch
Born in 1962. Trustee since November 2021. Principal occupation(s) during the past five years and other experience: head of global operations at Airbnb (2020–present). Vice president of AppleCare (2012–2020). Member of the board of directors of Out & Equal (2002–2006), the advisory board of the University of California, Berkeley School of Engineering (2020–present), and the advisory board
of Santa Clara University’s Leavey School of Business (2018–present).
Emerson U. Fullwood
Born in 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). Former president of the Worldwide Channels Group, Latin America, and Worldwide Customer Service and executive chief staff officer of Developing Markets of Xerox. Executive in residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology. Member of the board of directors of the University of Rochester Medical Center, the Monroe Community College Foundation, the United Way of Rochester, North Carolina A&T University, Roberts Wesleyan College, and the Rochester Philharmonic Orchestra. Trustee of the University of Rochester.                            
F. Joseph Loughrey
Born in 1949. Trustee since October 2009. Principal occupation(s) during the past five years and other experience: 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. (specialized consumer services). Director of the V Foundation. Member of the advisory council for the College of
 
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.

 

Arts and Letters at the University of Notre Dame. Chairman of the board of Saint Anselm College.
Mark Loughridge
Born in 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) of IBM (information technology services). Fiduciary member of IBM’s Retirement Plan Committee (2004–2013), senior vice president and general manager (2002–2004) of IBM Global Financing, vice president and controller (1998–2002) of IBM, and a variety of other prior management roles at IBM. Member of the Council on Chicago Booth.
Scott C. Malpass
Born in 1962. Trustee since March 2012. Principal occupation(s) during the past five years and other experience: adjunct professor of finance at the University of Notre Dame (2020–present). Chief investment officer (retired 2020) and vice president (retired 2020) of the University of Notre Dame. Assistant professor (retired June 2020) of finance at the Mendoza College of Business, University of Notre Dame, and member of the Notre Dame 403(b) Investment Committee. Member of the board of Catholic Investment Services, Inc. (investment advisors), the board of superintendence of the Institute for the Works of Religion, and the board of directors of Paxos Trust Company (finance).
Deanna Mulligan
Born in 1963. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: chief executive officer of Purposeful (advisory firm for CEOs and C-level executives; 2021–present). Board chair (2020), chief executive officer (2011–2020), and president (2010–2019) of The Guardian Life Insurance Company of America. Chief operating officer (2010–2011) and executive vice president (2008–2010) of Individual Life and Disability of the Guardian Life Insurance Company of America. Member of the board of the Economic Club of New York. Trustee of the Partnership for New York City (business leadership), Chief Executives for Corporate Purpose, and the NewYork-Presbyterian Hospital.
André F. Perold
Born in 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 co-managing partner of HighVista Strategies (private investment firm). Member of the board (2018–present) of RIT Capital Partners (investment
firm). Member of the investment committee of Partners Health Care System.
Sarah Bloom Raskin
Born in 1961. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: deputy secretary (2014–2017) of the United States Department of the Treasury. Governor (2010–2014) of the Federal Reserve Board. Commissioner (2007–2010) of financial regulation for the State of Maryland. Colin W. Brown Distinguished Professor of the Practice of Law (2021–present), professor (2020–present), Distinguished Fellow of the Global Financial Markets Center (2020–present), and Rubenstein Fellow (2017–2020) at Duke University. Trustee (2017–present) of Amherst College and member of Amherst College Investment Committee (2019–present). Member of the Regenerative Crisis Response Committee (2020–present).
David A. Thomas
Born in 1956. Trustee since July 2021. Principal occupation(s) during the past five years and other experience: president of Morehouse College (2018–present). Professor of business administration, emeritus at Harvard University (2017–2018). Dean (2011–2016) and professor of management (2016–2017) at the Georgetown University McDonough School of Business. Director of DTE Energy Company (2013–present). Trustee of Common Fund (2019–present).
Peter F. Volanakis
Born in 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) and director of Corning Incorporated (2000–2010) and Dow Corning (2001–2010). Director (2012) of SPX Corporation (multi-industry manufacturing). Overseer of the Amos Tuck School of Business Administration, Dartmouth College (2001–2013). Member of the BMW Group Mobility Council.

 

Executive Officers
Christine M. Buchanan
Born in 1970. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Chief financial officer (2021–present) and treasurer (2017–present) of each of the investment companies served by Vanguard. Partner (2005–2017) at KPMG (audit, tax, and advisory services).
John Galloway
Born in 1973. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Investment stewardship officer (September 2020–present) of each of the investment companies served by Vanguard. Head of Investor Advocacy (February 2020–present) and head of Marketing Strategy and Planning (2017–2020) at Vanguard. Special assistant to the President of the United States (2015).
Ashley Grim
Born in 1984. Principal occupation(s) during the past five years and other experience: treasurer (February 2022–present) of each of the investment companies served by Vanguard. Fund transfer agent controller (2019–2022) and director of Audit Services (2017–2019) at Vanguard. Senior manager (2015–2017) at PriceWaterhouseCoopers (audit and assurance, consulting, and tax services).
Peter Mahoney
Born in 1974. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Controller (2015–present) of each of the investment companies served by Vanguard. Head of International Fund Services (2008–2014) at Vanguard.
Anne E. Robinson
Born in 1970. Principal occupation(s) during the past five years and other experience: general counsel (2016–present) of Vanguard. Secretary (2016–present) of Vanguard and of each of the investment companies served by Vanguard. Managing director (2016–present) of Vanguard. Managing director and general counsel of Global Cards and Consumer Services (2014–2016) at Citigroup. Counsel (2003–2014) at American Express. Nonexecutive director of the board of National Grid (energy).
Michael Rollings
Born in 1963. Principal occupation(s) during the past five years and other experience: finance director (2017–present) and treasurer (2017) of each of the investment companies served by Vanguard. Managing director (2016–present) of Vanguard. Chief financial 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. Schadl
Born in 1972. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Chief compliance officer (2019–present) of Vanguard and of each of the investment companies served by Vanguard. Assistant vice president (2019–present) of Vanguard Marketing Corporation.
Vanguard Senior Management Team
Matthew Benchener Thomas M. Rampulla
Joseph Brennan Karin A. Risi
Mortimer J. Buckley Anne E. Robinson
Gregory Davis Michael Rollings
John James Nitin Tandon
Chris D. Mclsaac Lauren Valente

 

Connect with Vanguard®>vanguard.com
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This material may be used in conjunction with the offering of shares of any Vanguard fund only if preceded or accompanied by the fund’s current prospectus.
All comparative mutual fund data are from 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, www.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 www.sec.gov.
You can review information about your fund on the SEC’s website, and you can receive copies of this information, for a fee, by sending a request via email addressed to publicinfo@sec.gov.
Source for Bloomberg indexes: Bloomberg Index Services Limited. Copyright 2022, Bloomberg. All rights reserved.
CFA® is a registered trademark owned by CFA Institute.
© 2022 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing Corporation, Distributor.
Q16900 102022

 

 

Annual Report   |   August 31, 2022
Vanguard Russell 1000 Index Funds
Vanguard Russell 1000 Index Fund
Vanguard Russell 1000 Value Index Fund
Vanguard Russell 1000 Growth Index Fund

 

Contents
Your Fund’s Performance at a Glance

1
About Your Fund’s Expenses

2
Russell 1000 Index Fund

4
Russell 1000 Value Index Fund

29
Russell 1000 Growth Index Fund

54
Trustees Approve Advisory Arrangements

75
Liquidity Risk Management

77
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.

 

Your Fund’s Performance at a Glance
Returns for the three Vanguard Russell 1000 Index Funds for the 12 months ended August 31, 2022, ranged from about –19% for Vanguard Russell 1000 Growth Index Fund to about –6% for Vanguard Russell 1000 Value Index Fund. Vanguard Russell 1000 Index Fund returned about –13%. Each fund closely tracked its target index.
The investment outlook grew more challenging as the period progressed. Sentiment deteriorated as inflation rose, propelled in part by higher energy and food prices after Russia’s invasion of Ukraine. The Federal Reserve reacted by raising interest rates, which pushed borrowing costs higher and sparked fears of recession.
Large-capitalization stocks declined less than their mid- and small-cap counterparts, and value stocks held up better than growth.
Returns fell by double digits across most industry sectors for all three funds. The energy sector was a notable exception amid heightened demand for oil and gas and supply constraints related to the conflict in Ukraine. Technology, consumer discretionary, and industrial stocks detracted the most from both the Index Fund and the Growth Index Fund, while financial and technology stocks took the biggest bite from the Value Index Fund.
Market Barometer
  Average Annual Total Returns
Periods Ended August 31, 2022
  One Year Three Years Five Years
Stocks      
Russell 1000 Index (Large-caps) -12.96% 12.14% 11.61%
Russell 2000 Index (Small-caps) -17.88 8.59 6.95
Russell 3000 Index (Broad U.S. market) -13.28 11.90 11.29
FTSE All-World ex US Index (International) -19.00 3.48 2.12
Bonds      
Bloomberg U.S. Aggregate Float Adjusted Index
(Broad taxable market)
-11.65% -2.01% 0.54%
Bloomberg Municipal Bond Index
(Broad tax-exempt market)
-8.63 -0.83 1.28
FTSE Three-Month U.S. Treasury Bill Index 0.44 0.56 1.10
CPI      
Consumer Price Index 8.26% 4.90% 3.82%
1

 

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.
2

 

Six Months Ended August 31, 2022      
  Beginning
Account Value
2/28/2022
Ending
Account Value
8/31/2022
Expenses
Paid During
Period
Based on Actual Fund Return      
Russell 1000 Index Fund      
ETF Shares $1,000.00 $905.10 $0.38
Institutional Shares 1,000.00 905.20 0.34
Russell 1000 Value Index Fund      
ETF Shares $1,000.00 $933.40 $0.39
Institutional Shares 1,000.00 933.50 0.34
Russell 1000 Growth Index Fund      
ETF Shares $1,000.00 $877.00 $0.38
Institutional Shares 1,000.00 877.10 0.33
Based on Hypothetical 5% Yearly Return      
Russell 1000 Index Fund      
ETF Shares $1,000.00 $1,024.80 $0.41
Institutional Shares 1,000.00 1,024.85 0.36
Russell 1000 Value Index Fund      
ETF Shares $1,000.00 $1,024.80 $0.41
Institutional Shares 1,000.00 1,024.85 0.36
Russell 1000 Growth Index Fund      
ETF Shares $1,000.00 $1,024.80 $0.41
Institutional Shares 1,000.00 1,024.85 0.36
The calculations are based on expenses incurred in the most recent six-month period. The funds' annualized six-month expense ratios for that period are: for the Russell 1000 Index Fund, 0.08% for ETF Shares and 0.07% for Institutional Shares; for the Russell 1000 Value Index Fund, 0.08% for ETF Shares and 0.07% for Institutional Shares; and for the Russell 1000 Growth Index Fund, 0.08% for ETF Shares and 0.07% for Institutional 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 (184/365).
3

 

Russell 1000 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: August 31, 2012, Through August 31, 2022
Initial Investment of $10,000
    Average Annual Total Returns
Periods Ended August 31, 2022
 
    One
Year
Five
Years
Ten
Years
Final Value
of a $10,000
Investment
 Russell 1000 Index Fund ETF Shares Net Asset Value -13.02% 11.52% 12.85% $33,498
  Russell 1000 Index Fund ETF Shares Market Price -13.04 11.52 12.84 33,482
 Russell 1000 Index -12.96 11.61 12.98 33,883
 Dow Jones U.S. Total Stock Market Float Adjusted Index -13.73 11.16 12.66 32,942
       
    One
Year
Five
Years
Ten
Years
Final Value
of a $5,000,000
Investment
Russell 1000 Index Fund Institutional Shares -13.01% 11.54% 12.89% $16,804,076
Russell 1000 Index -12.96 11.61 12.98 16,941,527
Dow Jones U.S. Total Stock Market Float Adjusted Index -13.73 11.16 12.66 16,470,991
See Financial Highlights for dividend and capital gains information.
4

 

Russell 1000 Index Fund
Cumulative Returns of ETF Shares: August 31, 2012, Through August 31, 2022
  One
Year
Five
Years
Ten
Years
Russell 1000 Index Fund ETF Shares Market Price -13.04% 72.49% 234.82%
Russell 1000 Index Fund ETF Shares Net Asset Value -13.02 72.47 234.98
Russell 1000 Index -12.96 73.16 238.83
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, click on Price, and then scroll down to the Premium/Discount chart. The ETF premium/discount chart there shows the percentage and days on which the ETF Shares’ market price was above or below the NAV.
5

 

Russell 1000 Index Fund
Fund Allocation
As of August 31, 2022
Basic Materials 2.0%
Consumer Discretionary 14.9
Consumer Staples 5.7
Energy 4.9
Financials 10.9
Health Care 13.0
Industrials 12.7
Real Estate 3.4
Technology 26.6
Telecommunications 2.5
Utilities 3.4
The table reflects the fund’s investments, except short-term investments and derivatives. Sector categories are based on the Industry Classification Benchmark (“ICB”), except for the “Other” category (if applicable), which includes securities that have not been provided an ICB classification as of the effective reporting period.
The fund may invest in derivatives (such as futures and swap contracts) for various reasons, including, but not limited to, attempting to remain fully invested and tracking its target index as closely as possible.
The Industry Classification Benchmark (“ICB”) is owned by FTSE. FTSE does not accept any liability to any person for any loss or damage arising out of any error or omission in the ICB.
6

 

Russell 1000 Index Fund
Financial Statements
Schedule of Investments
As of August 31, 2022
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
    Shares Market
Value

($000)
Common Stocks (99.8%)
Basic Materials (2.0%)
  Linde plc    66,261    18,743
  Air Products and Chemicals Inc.    29,208     7,374
  Freeport-McMoRan Inc.   190,288     5,633
  Ecolab Inc.    32,698     5,357
  Dow Inc.    95,950     4,893
  Nucor Corp.    34,994     4,652
  Newmont Corp.   104,600     4,326
  Albemarle Corp.    15,371     4,119
  Fastenal Co.    76,047     3,827
  International Flavors & Fragrances Inc.    33,525     3,704
  CF Industries Holdings Inc.    27,533     2,849
  LyondellBasell Industries NV Class A    33,821     2,807
  Mosaic Co.    47,841     2,577
  International Paper Co.    49,057     2,042
  Avery Dennison Corp.    10,779     1,979
  Steel Dynamics Inc.    23,668     1,910
  FMC Corp.    16,652     1,800
  Celanese Corp. Class A    14,337     1,589
  Eastman Chemical Co.    16,962     1,544
  Reliance Steel & Aluminum Co.     8,132     1,529
  Alcoa Corp.    24,397     1,207
* Cleveland-Cliffs Inc.    68,674     1,186
  Olin Corp.    18,579     1,016
  US Steel Corp.    34,365       786
  Royal Gold Inc.     8,525       783
  Huntsman Corp.    26,086       731
  Chemours Co.    20,221       682
  Valvoline Inc.    23,451       682
  Ashland Inc.     6,632       675
  Hexcel Corp.    11,107       652
  Element Solutions Inc.    29,829       557
* Univar Solutions Inc.    22,020       555
  Southern Copper Corp.    11,331       533
  Timken Co.     8,147       513
  Westlake Corp.     4,391       433
* MP Materials Corp.    11,870       415
  SSR Mining Inc. (XTSE)    27,660       373
  Scotts Miracle-Gro Co.     5,264       352
  NewMarket Corp.       784       225
  SSR Mining Inc.        52         1
         95,611
    Shares Market
Value

($000)
Consumer Discretionary (14.9%)
* Amazon.com Inc. 1,172,477   148,635
* Tesla Inc.   335,560    92,484
  Home Depot Inc.   136,272    39,304
  Costco Wholesale Corp.    58,402    30,492
* Walt Disney Co.   240,263    26,929
  Walmart Inc.   190,162    25,206
  McDonald's Corp.    97,472    24,590
  NIKE Inc. Class B   161,700    17,213
  Lowe's Cos. Inc.    87,247    16,938
* Netflix Inc.    57,739    12,908
  Starbucks Corp.   151,291    12,719
* Booking Holdings Inc.     5,357    10,049
  Target Corp.    61,133     9,802
  TJX Cos. Inc.   154,923     9,659
  Activision Blizzard Inc.   102,477     8,043
  Ford Motor Co.   519,388     7,915
  Estee Lauder Cos. Inc. Class A    30,297     7,707
  General Motors Co.   191,594     7,321
* Uber Technologies Inc.   249,251     7,168
  Dollar General Corp.    30,140     7,156
* O'Reilly Automotive Inc.     8,608     6,001
* Chipotle Mexican Grill Inc. Class A     3,664     5,851
* Airbnb Inc. Class A    49,338     5,581
  Marriott International Inc. Class A    36,097     5,550
* AutoZone Inc.     2,607     5,525
  Electronic Arts Inc.    36,883     4,679
  Hilton Worldwide Holdings Inc.    36,044     4,591
* Lululemon Athletica Inc.    14,699     4,409
  Yum! Brands Inc.    37,625     4,185
* Warner Bros Discovery Inc.   310,800     4,115
  Ross Stores Inc.    45,349     3,912
* Dollar Tree Inc.    28,087     3,811
* Trade Desk Inc. Class A    57,834     3,626
* Copart Inc.    28,240     3,379
* Aptiv plc    35,671     3,333
  eBay Inc.    73,653     3,250
  DR Horton Inc.    42,492     3,023
* Southwest Airlines Co.    78,248     2,872
  Genuine Parts Co.    18,330     2,860
* Ulta Beauty Inc.     6,794     2,853
  Tractor Supply Co.    14,700     2,722
* Delta Air Lines Inc.    84,211     2,616
  Lennar Corp. Class A    33,765     2,615
7

 

Russell 1000 Index Fund
    Shares Market
Value

($000)
* Take-Two Interactive Software Inc.    20,750     2,543
* Roblox Corp. Class A    58,149     2,274
* Expedia Group Inc.    20,043     2,057
  Darden Restaurants Inc.    16,506     2,042
* Spotify Technology SA    18,379     1,988
  VF Corp.    46,192     1,915
  Best Buy Co. Inc.    26,662     1,885
* CarMax Inc.    21,227     1,877
  LKQ Corp.    35,047     1,865
* Live Nation Entertainment Inc.    20,396     1,843
  Paramount Global Inc. Class B    77,819     1,820
  Garmin Ltd.    20,351     1,801
  Omnicom Group Inc.    26,872     1,798
  Domino's Pizza Inc.     4,754     1,768
* Etsy Inc.    16,535     1,746
  Pool Corp.     5,081     1,723
* Liberty Media Corp.-Liberty Formula One Class C    26,780     1,705
* Las Vegas Sands Corp.    43,815     1,649
* NVR Inc.       396     1,639
  MGM Resorts International    47,265     1,543
* United Airlines Holdings Inc.    43,055     1,507
  Interpublic Group of Cos. Inc.    52,101     1,440
  Williams-Sonoma Inc.     9,222     1,372
  Fox Corp. Class A    39,923     1,365
  Advance Auto Parts Inc.     8,075     1,362
  Hasbro Inc.    17,276     1,362
  Nielsen Holdings plc    47,482     1,322
* BJ's Wholesale Club Holdings Inc.    17,724     1,320
  PulteGroup Inc.    31,410     1,277
  Service Corp. International    20,353     1,256
* Burlington Stores Inc.     8,726     1,223
  Tapestry Inc.    34,569     1,201
  BorgWarner Inc. (XNYS)    31,818     1,200
  Vail Resorts Inc.     5,334     1,198
* Carnival Corp.   126,401     1,196
* Royal Caribbean Cruises Ltd.    29,162     1,191
  Bath & Body Works Inc.    31,729     1,184
* Caesars Entertainment Inc.    27,309     1,178
* Deckers Outdoor Corp.     3,582     1,152
  Whirlpool Corp.     7,290     1,142
* Floor & Decor Holdings Inc. Class A    13,684     1,113
* American Airlines Group Inc.    85,388     1,109
  Aramark    30,490     1,089
  Lear Corp.     7,840     1,087
*,1 Lucid Group Inc.    70,297     1,078
* Mattel Inc.    46,685     1,033
  Rollins Inc.    30,163     1,018
*,1 GameStop Corp. Class A    35,519     1,017
  Lithia Motors Inc. Class A     3,765       999
  Nexstar Media Group Inc. Class A     5,147       985
  H&R Block Inc.    21,344       961
  Churchill Downs Inc.     4,790       944
* Five Below Inc.     7,100       908
* Capri Holdings Ltd.    18,893       891
  Newell Brands Inc.    49,879       890
  Polaris Inc.     7,529       853
  News Corp. Class A    50,302       851
    Shares Market
Value

($000)
* Liberty Media Corp.- Liberty SiriusXM Class C    20,389       843
  Gentex Corp.    30,477       832
* Wynn Resorts Ltd.    13,690       829
* DraftKings Inc. Class A    49,630       797
  Wyndham Hotels & Resorts Inc.    11,971       782
  Dick's Sporting Goods Inc.     7,279       774
  Marriott Vacations Worldwide Corp.     5,403       770
* Rivian Automotive Inc. Class A    23,347       764
* Planet Fitness Inc. Class A    11,171       757
* SiteOne Landscape Supply Inc.     5,872       735
* Norwegian Cruise Line Holdings Ltd.    54,779       717
* Alaska Air Group Inc.    15,950       695
* Terminix Global Holdings Inc.    16,139       688
  Harley-Davidson Inc.    17,616       679
* Penn Entertainment Inc.    21,526       672
* IAA Inc.    18,015       671
  New York Times Co. Class A    21,962       670
  Leggett & Platt Inc.    17,447       667
* Skechers USA Inc. Class A    17,314       654
* Avis Budget Group Inc.     3,897       652
* AutoNation Inc.     5,199       648
  Macy's Inc.    37,301       646
  AMERCO     1,196       629
  Fox Corp. Class B    19,769       625
*,1 AMC Entertainment Holdings Inc. Class A    67,681       617
  Toll Brothers Inc.    14,078       616
* Hyatt Hotels Corp. Class A     6,716       602
* Lyft Inc. Class A    40,700       600
* RH     2,318       593
1 Sirius XM Holdings Inc.    93,464       569
  Thor Industries Inc.     7,019       569
  Boyd Gaming Corp.    10,429       568
* Hertz Global Holdings Inc.    30,494       563
  Tempur Sealy International Inc.    22,461       562
  Ralph Lauren Corp. Class A     5,945       543
* Wayfair Inc. Class A    10,282       542
* Bright Horizons Family Solutions Inc.     7,724       527
  Choice Hotels International Inc.     4,378       502
  PVH Corp.     8,715       490
  Travel + Leisure Co.    11,362       482
  Kohl's Corp.    16,765       476
* Ollie's Bargain Outlet Holdings Inc.     8,225       455
* Carvana Co. Class A    13,679       451
  Wendy's Co.    22,496       431
  Penske Automotive Group Inc.     3,529       416
* YETI Holdings Inc.    11,122       410
* Peloton Interactive Inc. Class A    40,181       409
  Hanesbrands Inc.    46,358       404
* Madison Square Garden Sports Corp.     2,492       399
  Carter's Inc.     5,329       394
* Liberty Media Corp.- Liberty SiriusXM Class A     9,415       391
 
8

 

Russell 1000 Index Fund
    Shares Market
Value

($000)
  World Wrestling Entertainment Inc. Class A     5,745       391
* Victoria's Secret & Co.    10,835       362
*,1 QuantumScape Corp. Class A    32,770       361
  Columbia Sportswear Co.     4,810       343
* Coty Inc. Class A    45,594       342
* Grand Canyon Education Inc.     4,135       337
* JetBlue Airways Corp.    42,646       332
* TripAdvisor Inc.    13,481       321
* Leslie's Inc.    21,428       304
* Copa Holdings SA Class A     4,117       293
* Under Armour Inc. Class A    34,660       292
  News Corp. Class B    16,416       283
  Nordstrom Inc.    14,826       254
  Gap Inc.    25,329       232
* Six Flags Entertainment Corp.    10,083       223
* Driven Brands Holdings Inc.     6,776       213
* Petco Health & Wellness Co. Inc. Class A    10,546       157
* Playtika Holding Corp.    13,766       145
* Liberty Media Corp.- Liberty Formula One Class A     2,434       142
* Under Armour Inc. Class C    16,818       128
* Mister Car Wash Inc.    10,835       107
  Lennar Corp. Class B     1,616       100
        729,791
Consumer Staples (5.7%)
  Procter & Gamble Co.   315,316    43,495
  Coca-Cola Co.   515,186    31,792
  PepsiCo Inc.   182,415    31,425
  Philip Morris International Inc.   204,447    19,523
  CVS Health Corp.   172,931    16,973
  Mondelez International Inc. Class A   182,456    11,287
  Altria Group Inc.   238,410    10,757
  Colgate-Palmolive Co.   109,153     8,537
  McKesson Corp.    19,187     7,042
  Archer-Daniels-Midland Co.    73,728     6,480
  General Mills Inc.    79,296     6,090
  Corteva Inc.    95,797     5,885
  Kimberly-Clark Corp.    44,282     5,647
  Sysco Corp.    67,132     5,520
  Constellation Brands Inc. Class A    20,357     5,009
* Monster Beverage Corp.    48,999     4,353
  Hershey Co.    19,276     4,331
  Keurig Dr Pepper Inc.   112,688     4,296
  Kroger Co.    86,284     4,136
  Kraft Heinz Co.    91,882     3,436
  Walgreens Boots Alliance Inc.    94,220     3,303
  AmerisourceBergen Corp. Class A    19,704     2,888
  Tyson Foods Inc. Class A    37,636     2,837
  McCormick & Co. Inc.    33,130     2,785
  Church & Dwight Co. Inc.    32,019     2,680
  Kellogg Co.    33,314     2,423
  Clorox Co.    16,118     2,326
  Conagra Brands Inc.    62,156     2,137
  J M Smucker Co.    13,882     1,943
    Shares Market
Value

($000)
  Hormel Foods Corp.    37,873     1,904
  Bunge Ltd.    18,508     1,835
  Brown-Forman Corp. Class B    24,351     1,770
* Darling Ingredients Inc.    21,156     1,609
  Lamb Weston Holdings Inc.    19,029     1,513
  Campbell Soup Co.    25,245     1,272
  Molson Coors Beverage Co. Class B    23,183     1,198
  Casey's General Stores Inc.     4,924     1,053
* Performance Food Group Co.    19,909       995
* US Foods Holding Corp    29,432       901
  Ingredion Inc.     8,801       766
  Flowers Foods Inc.    24,497       669
* Post Holdings Inc.     7,340       651
  Albertsons Cos. Inc. Class A    21,050       579
* Grocery Outlet Holding Corp.    11,512       462
  Brown-Forman Corp. Class A     5,897       416
* Boston Beer Co. Inc. Class A     1,216       410
  Spectrum Brands Holdings Inc.     5,330       336
* Freshpet Inc.     6,137       267
* Olaplex Holdings Inc.    16,276       217
  Reynolds Consumer Products Inc.     6,936       194
* Pilgrim's Pride Corp.     6,020       171
  Seaboard Corp.        36       139
        278,663
Energy (4.9%)
  Exxon Mobil Corp.   556,127    53,160
  Chevron Corp.   259,245    40,976
  ConocoPhillips   170,678    18,681
  EOG Resources Inc.    77,134     9,356
  Pioneer Natural Resources Co.    31,774     8,046
  Occidental Petroleum Corp.   107,837     7,656
  Marathon Petroleum Corp.    71,155     7,169
  Schlumberger NV   185,972     7,095
  Valero Energy Corp.    53,620     6,280
  Devon Energy Corp.    86,780     6,128
  Phillips 66    63,432     5,675
  Williams Cos. Inc.   160,381     5,458
  Cheniere Energy Inc.    33,322     5,337
* Enphase Energy Inc.    17,217     4,932
  Kinder Morgan Inc.   261,726     4,795
  Hess Corp.    36,974     4,466
  ONEOK Inc.    58,702     3,594
  Halliburton Co.   118,562     3,572
  Coterra Energy Inc.   104,267     3,223
  Diamondback Energy Inc.    23,390     3,117
  Baker Hughes Co. Class A   122,366     3,091
  Marathon Oil Corp.    93,129     2,383
  EQT Corp.    48,715     2,329
  Targa Resources Corp.    29,795     2,033
* Plug Power Inc.    68,894     1,932
  Ovintiv Inc. (XNYS)    34,170     1,816
* First Solar Inc.    14,054     1,793
  APA Corp.    44,439     1,738
  Chesapeake Energy Corp.    16,875     1,696
* Antero Resources Corp.    38,816     1,556
  Texas Pacific Land Corp.