May 28, 2026
Prospectus
Vanguard Real Estate ETF
Exchange-traded fund shares that
are not individually redeemable and are listed on NYSE Arca
Vanguard Real Estate Index Fund
ETF Shares (VNQ)
This Prospectus contains
financial data for the Fund through the fiscal year ended January 31, 2026.
The Securities and Exchange
Commission (SEC) has not approved or disapproved these securities or passed upon
the adequacy of this Prospectus. Any representation to the contrary is a
criminal offense.
(Fees paid directly from your investment)
|
| |
|
Transaction Fee on
Purchases and Sales |
|
|
Transaction Fee on
Reinvested Dividends |
|
|
Transaction Fee on
Conversion to ETF Shares |
|
*
(Expenses that you pay each year as a percentage of the value of your investment)
|
| |
|
Management
Fees |
% |
|
12b-1 Distribution
Fee |
|
|
Other
Expenses |
% |
|
Acquired Fund Fees and
Expenses |
% |
|
Total Annual Fund
Operating Expenses1
|
% |
1
1
|
1
Year |
3
Years |
5
Years |
10
Years |
|
$ |
$ |
$ |
$ |
2
Principal
Risks
3
4
5
1 The year-to-date return as of
the most recent calendar quarter, which ended on March 31, 2026, was
1.32%.
|
|
Total
Return |
Quarter |
|
|
% |
|
|
|
-
% |
|
|
|
1
Year |
5
Years |
10
Years |
|
Vanguard Real Estate
Index Fund ETF Shares |
|
|
|
|
Based on
NAV |
|
|
|
|
Return Before
Taxes |
% |
% |
% |
|
Return After Taxes on
Distributions |
|
|
|
|
Return After Taxes on
Distributions and Sale of
Fund
Shares |
|
|
|
|
Based on Market
Price |
|
|
|
|
Return Before
Taxes |
|
|
|
|
Real Estate Spliced
Index
(reflects no deduction
for fees, expenses, or taxes) |
% |
% |
% |
|
MSCI US Investable
Market Real Estate 25/50 Index
(reflects no deduction
for fees, expenses, or taxes) |
|
|
|
|
Dow Jones U.S. Total
Stock Market Float Adjusted
Index
(reflects no deduction
for fees, expenses, or taxes) |
|
|
|
6
Investment Advisor
The Vanguard Group, Inc.
(Vanguard) through its wholly owned subsidiary, Vanguard Portfolio Management
(VPM). VPM exercises portfolio management responsibilities for the
Fund.
Portfolio
Managers
Chris Nieves, CFA, Portfolio
Manager at VPM. He has co-managed the Fund since 2025.
Gerard C. O’Reilly, Principal
of Vanguard and Portfolio Manager at VPM. He has managed the Fund since its
inception in 1996 (co-managed since 2016).
Jena Stenger, Portfolio
Manager at VPM. She has co-managed the Fund since 2025.
Purchase and Sale of Fund
Shares
ETF Shares may only be bought
and sold in the secondary market through a brokerage firm. The price you pay or
receive for ETF Shares will be the prevailing market price, which may be more
(premium) or less (discount) than the NAV of the shares. The brokerage firm may
charge you a commission to execute the transaction. Unless imposed by your
brokerage firm, there is no minimum dollar amount you must invest and no minimum
number of shares you must buy. ETF Shares of the Fund cannot be directly
purchased from or redeemed with the Fund, except by certain authorized
broker-dealers. These broker-dealers may purchase and redeem ETF Shares only in
large blocks (creation units), typically in exchange for baskets of securities.
An investor in ETF Shares may
incur costs attributable to the difference between the highest price a buyer is
willing to pay to purchase ETF Shares (bid) and the lowest price a seller is
willing to accept for ETF Shares (ask) when buying or selling shares in the
secondary market (bid-ask spread). Recent information about the Fund and its ETF
Shares, including information on the Fund’s NAV, market price, premiums and
discounts, and bid-ask spreads, is available online at vanguard.com.
7
Tax Information
The Fund’s distributions may
be taxable as ordinary income or capital gains. If you are investing through a
tax-advantaged account, such as an IRA or an employer-sponsored retirement or
savings plan, special tax rules apply. You should consult your own tax advisor
with respect to any particular U.S. or non-U.S. tax consequences of your
investment in the Fund.
Payments to Financial
Intermediaries
The Fund and its advisor do not
pay financial intermediaries for sales of Fund shares.
8
More on the Fund
This Prospectus provides
information about Vanguard Real Estate ETF, an exchange-traded class of shares
issued by Vanguard Real Estate Index Fund (the “Fund”). The Fund is a series of
Vanguard Specialized Funds (the “Trust”). Unlike conventional mutual fund
shares, ETF shares of a mutual fund (“ETF Shares”) cannot be purchased directly
from or redeemed directly with the issuing fund by an individual investor.
Instead, only certain authorized broker-dealers (“Authorized Participants”) can
purchase and redeem ETF Shares directly from the issuing fund at net asset
value. Authorized Participants may purchase and redeem ETF Shares from the
issuing fund only in large blocks (creation units), usually in exchange for
baskets of securities. Funds may also issue and redeem creation units in
exchange for solely cash or a combination of cash and securities. These trades
may occur in-kind between Vanguard and the Authorized Participant. Individual
investors can purchase ETF Shares on the secondary market through a broker.
Reading this Prospectus will help you decide whether the Fund’s ETF Shares are
the right investment for you.
As you consider an investment
in the Fund’s ETF Shares, you should take into account your tolerance for
fluctuations in the securities markets. The costs of investing are another
important consideration. As a Fund shareholder, you will pay a proportionate
share of the costs of operating a Fund and any transaction costs incurred when
the Fund buys or sells securities, including costs generated by shareholders of
other share classes to the extent the Fund offers more than one share class.
These costs can erode a substantial portion of the gross income or the capital
appreciation the Fund achieves. Even seemingly small differences can, over time,
have a dramatic effect on the Fund’s performance.
|
The Fund offered by
this Prospectus should not be confused with
Vanguard Real Estate II
Index Fund, a separate Vanguard fund that also
seeks to track the
performance of the Target Index and is anticipated to be
the Underlying Real
Estate Fund in which the Fund invests. Both funds
seek to replicate the
Target Index by investing in the stocks that make up
the Target Index. This
index replication strategy, combined with differences
in the funds’
respective cash flows and expenses, is expected to produce
slightly different
investment returns by the funds. To obtain a prospectus
for Vanguard Real
Estate II Index Fund, institutional investors may call
Vanguard’s
Institutional Division at 888-523-1036 or may call their
relationship managers
directly.
|
9
Investment Objective and More
on Principal Investment Strategies
In this section, you will
find more information about the Fund’s investment objective and the principal
investment strategies and policies that the Fund uses in pursuit of its
investment objective. The Trust’s board of trustees (the “Board”) oversees the
Fund’s management. The Board may approve changes to the Fund’s strategies or
policies in the interest of shareholders without shareholder approval unless the
strategy or policy is designated as fundamental.
Investment
Objective
The Fund seeks to provide a
high level of income and moderate long-term capital appreciation by tracking the
performance of a benchmark index that measures the performance of publicly
traded equity REITs and other real estate-related investments.
The Fund’s investment
objective is fundamental and may not be materially changed without shareholder
approval.
Implementation of Investment
Objective
To achieve its investment
objective, the Fund employs an indexing, or passive, investment approach
designed to track the performance of its Target Index, the MSCI US Investable
Market Real Estate 25/50 Index.
|
What are Index
Funds? |
|
Index funds attempt to
track—not outperform—the performance of a
specified market index.
An index is a group of securities whose overall
performance is used as
a standard to measure the investment
performance of a
particular market. Some indexes represent entire
markets, such as the
U.S. stock market, while others cover a segment of a
market, such as
short-term bonds. |
|
One cannot invest
directly in an index. Instead, an index fund’s advisor will
typically seek to hold
all, or substantially all, of the securities that make up
the fund’s target index
(often referred to as “replicating” an index or a “full
replication” approach)
or a representative sample of the securities that
make up a fund’s target
index (“sampling” an index). |
Under normal circumstances,
the Fund invests at least 80% of its net assets, plus the amount of any
borrowings for investment purposes, in the stocks that make up its Target Index.
Investments in derivatives may be counted toward the Fund’s 80% policy to the
extent that they provide investment exposure to the
10
securities included within
the policy or to one or more market risk factors associated with such
securities. The Fund may change its 80% policy only upon 60 days’ notice to
shareholders.
The Fund is considered
nondiversified, as defined under the Investment Company Act of 1940, which means
that it may invest a greater percentage of its assets in the securities of
particular issuers as compared with diversified funds. A fund becomes
nondiversified if, with respect to 75% of its total assets, the fund: (1)
purchases more than 10% of the outstanding voting securities of any one issuer,
or (2) purchases securities of any issuer when, as a result, more than 5% of the
fund’s total assets are invested in that issuer’s securities.
As a matter of fundamental
policy, the Fund concentrates its investments (i.e., invests more than 25% of
its assets) in the securities of issuers whose principal business activities are
in the real estate industry.
Security
Selection
The Fund uses the replication
method of indexing, meaning that the Fund generally holds the same stocks as
those in its Target Index and in approximately the same proportions, either
directly or indirectly through the Underlying Real Estate Fund. The advisor buys
and sells securities for the Fund for the purpose of tracking the Target
Index.
The Target Index measures the
performance of publicly traded equity REITs and other real estate-related
investments, including but not limited to specialized REITs, and real estate
management and development companies. It is a modified market
capitalization-weighted index, and is made up of the stocks of publicly traded
equity REITs and other real estate-related investments that meet certain
criteria. For example, to be included initially in the Target Index, a REIT must
meet a minimum market capitalization threshold and have enough shares and
trading volume to be considered liquid. Securities in the Target Index have
differing levels of capitalization.
To qualify as a “regulated
investment company” (“RIC”) for favorable tax treatment under the Internal
Revenue Code (the “Code”), the Fund must, among other things, meet certain
diversification standards under the Code. Those diversification standards
require the Fund to invest no more than 25% of its assets in any one security
and at least 50% in securities that each represent no more than 5% of the Fund’s
assets. The 25/50 in the name of the Fund’s Target Index denotes that the
index’s construction rules take into account the diversification standards for
RICs covered under the Code.
11
Note that although the Fund
continues to comply with the diversification standards of the Code, the Fund is
still considered nondiversified under the Investment Company Act of 1940, which
means that it may invest a greater percentage of its assets in the securities of
particular issuers as compared with funds defined as diversified under the
Investment Company Act of 1940.
As of January 31, 2026, the
number of securities in the Target Index was 146. The Target Index is rebalanced
and its current stocks are tested for continued compliance with the guidelines
of the Target Index on a quarterly basis. A REIT may be removed from the Target
Index because of a decline in market capitalization, because it becomes
illiquid, or because of other changes in its status.
Stocks in the Target Index
represent a broadly diversified range of property types. The makeup of the Fund,
as of January 31, 2026, was:
|
Fund Allocation
by
Company
Type |
Percentage of
Fund1 |
|
Data Center
REITs |
9.1
% |
|
Diversified Real Estate
Activities |
0.2
% |
|
Diversified
REITs |
2.0
% |
|
Health Care
REITs |
15.5
% |
|
Hotel & Resort
REITs |
2.1
% |
|
Industrial
REITs |
11.4
% |
|
Multi-Family
Residential REITs |
7.4
% |
|
Office
REITs |
2.7
% |
|
Other Specialized
REITs |
6.4
% |
|
Real Estate
Development |
0.2
% |
|
Real Estate Operating
Companies |
0.2
% |
|
Real Estate
Services |
8.5
% |
|
Retail
REITs |
14.0
% |
|
Self-Storage
REITs |
5.6
% |
|
Single-Family
Residential REITs |
3.6
% |
|
Telecom Tower
REITs |
9.4
% |
|
Timber
REITs |
1.7
% |
1
Due to rounding, the total
percentage may not be equal to 100%
The Target Index is owned,
calculated, and controlled by the index provider in its sole discretion. Neither
the advisor nor any of its affiliates has discretion to select Target Index
components or change the Target Index’s methodology.
Stocks of publicly traded
companies are often classified according to market capitalization, which is the
market value of a company’s outstanding shares. These classifications typically
include small-cap, mid-cap, and large-cap. It is
12
important to understand that
there is no “official” definition of each type of small-cap, mid-cap, or
large-cap and that market capitalization ranges can change over
time.
A fund’s median market
capitalization, which is the midpoint of the market capitalization of the fund’s
stocks weighted by the proportion of the fund’s assets invested in each stock,
can be used as an indicator of the size of the companies in which it invests.
Stocks representing half of a fund’s assets will have market capitalizations
above the median, and the rest will fall below it. As of January 31, 2026, the
asset-weighted median market capitalization of the Fund’s stock holdings
was:
|
Vanguard
Fund |
Asset-Weighted
Median
Market
Capitalization |
|
Vanguard Real Estate
Index Fund |
$37
billion |
Additional Information
Regarding the Fund’s Investments
The Fund’s investments are
described in more detail below.
• Large-Cap Stocks represent the largest
publicly traded companies, which are often well-established and widely
recognized. These companies typically have significant market share, global
reach, and a history of financial stability. While they may not offer as much
growth potential as smaller companies, they are generally considered more
resilient during economic downturns but still not immune from a decrease in
price.
• Mid-Cap Stocks represent medium-sized
companies, which can be companies that are more established than small-cap
companies but do not have the market share of large-cap companies. These
companies may be more agile than large-cap companies in responding to market
changes, while also benefiting from more resources and operational maturity than
small-cap companies. However, they can still face challenges during economic
downturns.
• Small-Cap Stocks represent smaller companies,
which may be newer or operate in niche markets. These companies can offer higher
growth potential than larger companies and may be more agile in adapting to
market changes. However, they also face greater risks, such as limited access to
capital and vulnerability during economic downturns.
• Real Estate Stocks include REITs and real
estate management and development companies. A REIT is a company that owns and
manages real estate. There are many different types of REITs, such as equity
REITs, mortgage REITs, and hybrid REITs. An equity REIT generally owns
properties directly. Equity REITs typically generate income from rental and
lease payments, and they offer the potential for growth from property
appreciation as well as occasional capital gains from the sale of property. A
mortgage REIT makes loans to commercial real estate developers. Mortgage REITs
earn interest income and are subject to credit risk (i.e., the
13
chance that a developer will
fail to repay a loan). A hybrid REIT holds both properties and mortgages. Real
estate management and development companies engage in real estate development,
management, and rental and/or direct investment in physical
property.
More on Fund
Risks
Investing in the securities
markets can result in a loss of principal. The Fund is subject to a variety of
risks, including the principal risks listed below, that can impact its net asset
value (NAV), performance, and ability to achieve its investment
objective.
More on Principal
Risks
Real Estate
Sector. Due to the Fund’s heavy
investment in the real estate sector, its performance will be impacted by the
general health of the sector. Companies in the real estate sector can be
negatively affected by various factors, including, but not limited to, supply
and demand for properties, changes in interest rates, general or local economic
conditions, the strength of specific industries that rent properties, and/or
regulatory changes. Real estate companies might be heavily focused on one
geographic market, which could affect those companies more than companies with
greater geographic diversification. Real estate companies may rely on leverage,
which, while used to help magnify returns, also has the negative effect of
magnifying losses. In addition, the real estate industry historically has been
sensitive to economic downturns and other events that limit demand for real
estate, which would adversely impact the value of real estate
investments.
Investing in
REITs. In addition to the risks
associated with the real estate sector, the Fund’s investments in equity REITs
are subject to certain additional risks. Equity REITs may be affected by changes
in the value of the underlying properties they own. An individual REIT’s
performance depends on the types and locations of the properties it owns and on
how well the REIT manages its properties. For instance, rental income could
decline because of extended vacancies, increased competition from nearby
properties, tenants’ failure to pay rent, regulatory limitations on rents,
fluctuations in rental income, variations in market rental rates, or incompetent
management. Property values could decrease because of overbuilding in the area,
environmental liabilities, uninsured damages caused by natural disasters, a
general decline in the neighborhood, losses because of casualty or condemnation,
increases in property taxes, or changes in zoning laws. Interest rate increases
can make it more difficult and costly to acquire financing, which could restrict
cash flows and negatively affect their operations and values. During periods of
rising interest rates, REIT stock prices overall may decline, which could result
in a decline in the Fund’s value.
14
In addition, unlike
corporations, REITs do not have to pay income taxes if they meet certain
Internal Revenue Code requirements. To qualify, a REIT must distribute at least
90% of its taxable income to its shareholders and receive at least 75% of that
income from rents, mortgages, and sales of property. Loss of IRS status as a
qualified REIT would negatively impact the REIT’s overall investment
returns.
General Market
Risk. The markets in which the
Fund invests can be affected by a variety of factors. These factors, which can
be real or perceived, may include economic, market, political, and regulatory
conditions and developments as well as local, regional, or global events such as
wars, military conflicts, natural disasters, and public health issues. In
addition, investor sentiment and expectations regarding these factors can also
impact the markets. Different parts of the market, including different
industries and sectors as well as different types of securities, may react
differently to factors that affect the market. These factors can contribute to
market uncertainty, market volatility, and fluctuations in the value of the
Fund’s investments, thereby resulting in potential losses to the Fund over short
or long periods.
Investing in Equity
Markets. The Fund invests in the
equity markets. Equity markets have historically been cyclical, having periods
of time when stock values rise and fall. These periods of rising and falling
values can occur for unpredictable timeframes over the short- and long-term.
Market volatility also is unpredictable and can lead to significant fluctuations
in stock values, resulting in potential losses to the Fund.
Market Capitalization (Market
Cap). Companies are generally
classified into three types of market cap depending on their size: small-, mid-,
and large-cap. Companies can be further classified into micro- or mega-cap.
Different factors can affect each market cap uniquely, and historically small-
and mid-cap stocks have typically been more volatile due to the effects of
changing economic conditions. Large companies may not reach the same levels of
growth or performance as smaller companies, and they may be slower to react to
competitive challenges. The performance of funds that invest in a subset of
market caps could diverge from the performance of funds that are focused on a
broader representation of the stock market.
Nondiversified
Funds. The Fund is considered a
nondiversified fund as defined under the Investment Company Act of 1940.
Nondiversified funds invest a greater percentage of their assets in a small
number of issuers than diversified funds, their performance may be negatively
impacted by relatively few securities or even a single security, and their
shares may experience significant fluctuations in value.
Index Investing. The Fund is subject to the
following risks associated with index investing:
15
Passive
Management. The Fund seeks to track the
performance of its Target Index regardless of how the Target Index is
performing. The advisor’s use of an indexing, or passive, approach to select and
maintain investments for the Fund means that the advisor will select investments
for the purpose of tracking the Target Index and generally will not use
strategies to reduce negative impacts to the Fund during periods of market
volatility. As a result, the Fund’s performance may be lower than it would be if
it were actively managed.
Index Replication
Strategy. Although the Fund seeks to
hold substantially all of the securities included in its Target Index, it may be
unable to do so. In addition, the Fund could be prevented from holding one or
more securities in the same proportion as in the Target Index.
Tracking Error. The performance of the
Fund’s investments, in the aggregate, may not match the investment performance
of its Target Index. It is important to understand that an index fund will never
perform exactly the same as its target index because, among other things, an
index fund has operating expenses and transaction costs and its target index
does not. Beyond these inherent differences in the operation of an index fund
versus the operation of its target index, there are a variety of other factors
that can cause or result in tracking error.These may include, but are not
limited to:
○
Price differences between the
securities held by the index fund and those included in its target
index
○
Cash flows into or out of the
index fund
○
The size of the index
fund
○
Compliance with new or
existing regulatory requirements
○
Portfolio transactions
carried out by the index fund’s advisor to minimize the distribution of capital
gains
○
Changes to the underlying
securities that make up the target index
○
Errors made by the provider of
the target index
Tracking error risk may be
heightened during times of increased market volatility or under other unusual
market conditions. An index fund using a sampling strategy may be more likely to
experience tracking error than an index fund using a replicating
strategy.
Index Provider. The Fund is subject to risks
associated with its index provider. The securities that make up the Target Index
and their weighting in the Target Index are determined by the index provider.
The index provider does not provide any warranty or accept any liability with
respect to the quality, accuracy, or completeness of the Target Index or any
data used to compile the Target Index. Under normal circumstances, the index
provider rebalances (updates) the Target Index on a regular schedule. However,
the index provider may also rebalance the Target Index outside of the regular
schedule or delay or cancel a
16
scheduled rebalance, which
could result in added costs for the Fund or cause the Fund to experience
tracking error. The index provider may make errors, and it is possible that such
errors may not be identified by the index provider for a period of time or at
all. Any gains, losses, or costs associated with or resulting from an error made
by the index provider will generally be borne by the Fund and, as a result, the
Fund’s shareholders. The Fund’s advisor does not provide any warranty or
guarantee against any errors made by the index provider.
ETF Share
Trading. Because ETF Shares trade on
the secondary markets, they are subject to the following risks:
ETF Shares Trading at Prices
Other Than NAV. ETF Shares may trade on a
national securities exchange at prices above, below, or at their most recent
NAV.The NAV of the Fund’s ETF Shares, which typically is calculated at the end
of each business day, will generally fluctuate with changes in the market value
of the Fund’s holdings. The market prices of ETF Shares will also fluctuate, in
some cases materially, in accordance with changes in NAV and the intraday value
of the Fund’s holdings, as well as the relative supply of and demand for the ETF
Shares on an exchange. Differences between secondary market prices of ETF Shares
and the intraday value of the Fund’s holdings may be due largely to supply and
demand forces in the secondary market, which may not be the same forces as those
influencing prices for securities held by the Fund at a particular
time.
Although it is expected that
the market price of an ETF Share typically will trade close to the value of the
Fund’s holdings, market prices are not expected to correlate exactly to the
Fund’s NAV due to timing reasons, supply and demand imbalances, and other
factors. In addition, disruptions to creations and redemptions; adverse
developments impacting market makers, authorized participants, or other market
participants; or high market volatility may result in the market price of ETF
Shares differing significantly from the Fund’s NAV or the intraday value of the
Fund’s holdings. As a result of these factors, among others, you may pay more
(premium) or less (discount) than NAV when you buy ETF Shares on the secondary
market, and you may receive more or less than NAV when you sell those shares.
These discounts and premiums are likely to be greatest during times of market
disruption or extreme market volatility.
Cost of Buying or Selling
Shares. Individual investors who
buy or sell ETF Shares through a broker may incur a brokerage commission or
other charges imposed by brokers. In addition, the market price of ETF Shares,
like the price of any security on an exchange, includes a “bid-ask spread”
charged by the market makers or other participants that trade the particular
security. The bid-ask spread is the difference between the highest price a buyer
is willing to pay to purchase ETF Shares (bid) and the lowest price a seller is
willing to accept for ETF Shares (ask) when buying or selling shares in the
secondary market. The bid-ask spread of the Fund’s ETF Shares can vary over time
based on the Fund’s trading volume and market liquidity and may increase if the
17
Fund’s trading volume, the
bid-ask spread of the Fund’s underlying securities, or market liquidity
decrease. In times of severe market disruption, including when trading of the
Fund’s holdings may be halted, the bid-ask spread may increase significantly.
This means that ETF Shares may trade at a discount to the Fund’s NAV, and the
discount is likely to be greatest during significant market
volatility.
Short Selling. ETF Shares, similar to
shares of other issuers listed on an exchange, may be sold short. In a short
sale, an investor “borrows” securities from a lender for a fee and then sells
the borrowed securities on the open market with the hope that the borrowed
securities decline in price before the investor has to repurchase the securities
to return them to the lender. Short sales of ETF Shares can increase their
volatility and lead to price decreases.
Lack of Active Trading
Market. Although ETF Shares are
listed on a national securities exchange, it is possible that an active trading
market may not be maintained. Although this could happen at any time, it is more
likely to occur during times of severe market disruption. If you attempt to sell
your ETF Shares when an active trading market is not functioning, you may have
to sell at a significant discount to NAV. In extreme cases, you may not be able
to sell your shares at all.
Trading Halt. Trading of ETF Shares on an
exchange may be halted by the activation of individual or market-wide trading
halts (which halt trading for a specific period of time when the price of a
particular security or overall market prices decline by a specified percentage).
Trading of ETF Shares may also be halted if (1) the shares are delisted from the
listing exchange without first being listed on another exchange or (2) exchange
officials determine that such action is appropriate in the interest of a fair
and orderly market or for the protection of investors. If a trading halt or
unanticipated early closing of an exchange occurs, a shareholder may be unable
to purchase or sell ETF Shares.
Authorized Participants.
Only Authorized Participants
may engage in creation or redemption transactions directly with the Fund. The
Fund has a limited number of financial institutions that may act as Authorized
Participants. The Fund’s Authorized Participants are not obligated to engage in
creation or redemption transactions. To the extent that the Fund’s Authorized
Participants are unable to or choose not to proceed with creation and/or
redemption transactions with respect to the Fund and no other Authorized
Participants step forward to engage in creation or redemption transactions with
the Fund, the Fund’s ETF Shares may trade at a discount to NAV and possibly face
trading halts and/or delisting.
18
Additional Risks
Geopolitical and Sanctions
Risk. Due to growing dependencies
between global economies, geopolitical events can negatively affect all
securities, markets, and economies. It is possible that events which only impact
one geographic area could have negative short- or long-term effects on markets,
issuers, and/or exchanges in the United States and other countries.
At times, the United States,
other governments, or other supranational bodies (e.g., the United Nations) may
impose sanctions on countries and/or entities in response to geopolitical events
or other priorities. Compliance with sanctions could impact the Fund, including
the Fund’s ability to transact in or obtain exposure to certain foreign
securities and assets. Sanctions also could cause significant losses to the
Fund’s investments and its performance could be negatively impacted. In lieu of
sanctions, companies or specific goods that the company produces could be
subjected to trade embargoes or tariffs, which can also affect securities
markets and create volatility. So long as sanctions do not prohibit investment
in the company or issuer, the Fund typically also would not be prohibited from
investing in the affected company or issuer.
ETF Share Class
Risks. By investing in the ETF
Shares of a fund that also offers conventional mutual fund shares, you could be
subject to costs and/or tax impacts that you would not be subject to if you
invested in exchange-traded shares offered by a fund without a conventional
mutual fund share class. These costs include brokerage and other transaction
costs associated with the Fund buying and selling portfolio securities in
response to conventional mutual fund share class inflows and outflows, cash drag
as a result of the Fund holding the cash necessary to satisfy conventional
mutual fund share class transactions, and taxable capital gains distributions if
the Fund has to sell portfolio holdings at a gain in order to satisfy mutual
fund share class redemptions.
Potential Redemption Activity
Impacts. The Vanguard funds can be
negatively impacted by certain large redemptions. These redemptions could occur
due to a single shareholder or multiple shareholders deciding to sell a large
quantity of shares of a fund or a share class of the fund. Large redemptions can
occur for many reasons, either as a result of actions taken by the Vanguard
funds or their advisors, or as a result of events unrelated to actions taken by
the Vanguard funds or their advisors. Actions taken by the Vanguard funds or
their advisors could include, but are not limited to, changes to a fund’s
advisor(s), changes to a fund’s portfolio manager(s), changes to the composition
of a fund’s portfolio, and/or other product changes or launches that, for
example, result in shareholders redeeming shares of one fund to purchase shares
of another fund or investment vehicle. For a fund of funds, actions taken by the
Vanguard funds or their advisors could include a withdrawal from an underlying
fund or a change in the allocation to underlying funds. Events
19
unrelated to actions taken by
the Vanguard funds or their advisors could include shareholders selling out of a
fund in response to market movements or regulatory changes.
A large redemption could
adversely affect a fund’s liquidity and NAV. For example, a large redemption
could require a fund’s manager to sell portfolio holdings at unplanned or
inopportune times. The manager’s sale of these holdings, which is a taxable
event, could require the fund to distribute any corresponding capital gains or
other taxable income to the fund’s remaining shareholders; see Dividends, Distributions, and
Taxes in the Investing in Vanguard
ETF® Shares section for additional
information. The increased trading activity could also increase underlying costs
for the fund due to commissions paid by the fund.
Investing in
Derivatives. Investing in derivatives may
present risks different from, and/or greater than, those associated with
investing directly in stocks, bonds, or other types of investments. Derivatives
could expose the Fund to increased volatility and/or significant loss. Certain
derivatives have an inherent leverage component, providing the Fund exposure to
a sizable position in an underlying asset with a relatively small upfront
investment at the time the Fund enters into the derivatives position. For these
derivatives, an adverse change in the value or price of the underlying asset
could result in a loss substantially greater than the amount invested in the
derivative itself. Some derivatives require the Fund to enter into a contract
with a counterparty. If the counterparty is unable or unwilling to fulfill its
contractual obligation, the Fund may experience a loss. A liquid market may not
always exist for the Fund’s derivatives positions. The Fund may be unable to
sell or otherwise exit its derivatives position at desired times or prices,
which could also result in a loss to the Fund. Some derivatives, particularly
OTC derivatives, can be complex and often are valued subjectively. Valuation may
be more difficult in times of market turmoil since many investors and market
makers may be reluctant to purchase complex instruments or quote prices for
them. Improper valuations can result in increased cash payment requirements to
counterparties or a loss of value to the Fund.
Derivatives may not perform
as intended, which may result in losses to the Fund. For example, derivatives
used for hedging or as a substitute for a portfolio instrument may not provide
the expected benefits, particularly during adverse market conditions. The use of
derivatives is also subject to legal risk, which includes the risk of loss
resulting from insufficient or unenforceable contractual documentation,
insufficient capacity or authority of the Fund’s counterparty, and operational
risk, which includes documentation or settlement issues, system failures,
inadequate controls, and human error.
Ownership Limitations
Risk. As the Vanguard funds
continue to grow, they may be increasingly impacted by ownership limitations
that apply to certain securities held by the Vanguard funds (“limited
securities”). An ownership
20
limitation restricts the
amount of a security that funds within the same fund complex or funds advised by
the same investment advisor can own. These limitations may apply even where an
external manager or different affiliate of Vanguard provides investment advisory
services to a fund. Ownership limitations restrict the amount that funds can
invest in certain securities, due to either regulatory limits that apply to
certain industries (for example, banking and utilities) or mechanisms that some
issuers have in place to deter takeover attempts (for example, poison pills).
These restrictions can have negative impacts on funds, including the inability
of an index fund to track its index, the inability of a fund to meet its
investment objectives, negative performance impacts, and unanticipated tax
consequences. The impact of a particular ownership limitation on a Vanguard fund
will vary based on several factors, including, but not limited to, a fund’s
investment strategy and its current and desired exposure to limited securities,
the industry to which the limitation applies, the country or region of a
particular issuer, and the regulatory body imposing the limitation. In addition
to the impacts of specific ownership limitations, the Vanguard funds are also
subject to the risk of multiple ownership limitations applying at one time,
which could increase the likelihood of a fund experiencing the negative impacts
listed above. The Vanguard funds attempt to mitigate the impacts of ownership
limitations through the various methods discussed below in “Methods to address
ownership limitations.” However, it is possible that these methods will be
unsuccessful and could also expose the Vanguard funds to other potential risks
and negative consequences.
Impacts of Ownership
Limitations. When an ownership limitation
applies, the Vanguard funds may need to allocate ownership of impacted
securities across impacted Vanguard funds, and a Vanguard fund may not be able
to buy additional securities or continue to hold existing securities above its
allocated amounts. For index funds, this can result in tracking error if a fund
cannot buy or hold the securities it needs in order to replicate or sample its
target index. For active funds, this can result in a fund not being able to take
advantage of favorable opportunities to invest in securities that are subject to
limitations. For both index and active funds, the inability to buy or hold
securities could prevent a fund from being able to meet its investment objective
or invest in accordance with its investment strategy, and/or could negatively
impact the fund’s performance. In addition, the steps taken to address ownership
limitations could result in additional costs and/or unanticipated tax
consequences to a fund that affect the amount, timing, and character of
distributions to the fund’s shareholders. The more assets the Vanguard funds
hold, the more likely it is that ownership limitations will negatively impact
Vanguard funds because they will not be able to purchase additional shares of
limited securities above their allocated amounts in order to fully invest their
assets in accordance with their investment strategies.
21
Methods to Address Ownership
Limitations. The Vanguard funds try to
manage the negative impacts of these ownership limitations on the Vanguard funds
by seeking permission (relief) from regulators and/or issuers to purchase or
hold more securities than the amount allowed by ownership limitations. However,
it is not always possible to secure relief and such relief could be revoked if
the Vanguard funds are unable to satisfy the applicable conditions, or if the
regulator or issuer changes its position or policy or if the applicable legal
requirements become more restrictive. There is an increasing amount of
uncertainty around how much ownership limitations relief regulators will grant
to asset managers like Vanguard. Given this uncertainty, there is no guarantee
that Vanguard or the Vanguard funds will be able to maintain their existing
relief or obtain additional relief from ownership limitations in the future. A
regulator may impose certain conditions on the Vanguard funds in connection with
granting relief from an ownership limitation, including, for example, that the
funds vote in a certain way with respect to shares of the limited security that
the Vanguard funds hold in excess of the ownership limitation. Regulatory relief
may also depend on the operational independence of certain Vanguard subsidiaries
and/or business divisions.
In addition, the relief upon
which Vanguard and the Vanguard funds currently rely, which has allowed Vanguard
to exceed certain ownership limitations, could be reduced or revoked, forcing
the Vanguard funds to sell down one or more securities to comply with the
ownership limitations. If a fund has to sell securities, there could be negative
impacts to fund performance as well as unanticipated tax consequences that could
impact the amount, timing, and character of distributions to the fund’s
shareholders.
When a Vanguard fund cannot
buy or hold securities directly due to ownership limitations, the fund will
typically try to get indirect exposure to impacted securities. The fund does
this so that it can replicate as closely as possible the returns the fund would
get if it directly owned the impacted securities. Indirect exposure can be
accomplished through the use of derivatives, such as total return swaps, or by
investing in wholly owned subsidiaries that hold the impacted securities. Both
of these methods of obtaining indirect exposure increase fund costs, and,
depending on the extent to which these alternatives are used by a fund to avoid
exceeding ownership limits, the added costs could have a negative impact on the
fund’s performance. With respect to an index fund, these added costs could also
result in tracking error relative to the fund’s target index. The risks
associated with derivatives use are discussed in more detail elsewhere in this
Prospectus.
There is no guarantee that
laws and regulations always will allow that indirect exposure to limited
securities may be omitted for purposes of determining the Vanguard funds’
exposure to limited securities and compliance with the
22
applicable ownership
limitations. In such circumstances, the Vanguard funds could not use these
techniques and would be required to sell down the indirect and/or direct
holdings in the applicable limited securities.
REITs Ownership Limitations
Risk. The Fund may be unable to
purchase, or otherwise obtain economic exposure, including through investing in
the Underlying Real Estate Fund, to the desired amounts of certain REITs
included in its Target Index. The Fund has significant ownership positions in
many REITs included in its Target Index. For tax and other reasons, a REIT
imposes limits on how much of its securities investors may own. If an ownership
limit is reached, Vanguard may seek to obtain an ownership waiver from the REIT
to exceed the limit. If the Fund is unable to obtain a waiver or an existing
waiver is terminated, then the Fund may seek to obtain economic exposure to the
REIT through alternative means, such as through a total return swap, which may
be more costly than owning REIT shares directly. If the Fund is unable to obtain
either an ownership waiver or economic exposure to the REIT through alternative
means, the Fund may experience increased tracking error. In addition, to
maintain its qualification as a regulated investment company for tax purposes,
the Fund may be unable to obtain additional economic exposure to certain REITs,
which may increase tracking error. Additional measures could be taken in the
future in response to REIT ownership limits, including changing the Fund’s
investment strategy, limiting additional purchases into the Fund, or any other
appropriate action.
Investing in the Underlying
Real Estate Fund. There is no assurance that
the Fund and/or the Underlying Real Estate Fund will be able to continue to
operate as intended. If the Fund is unable to own or gain economic exposure to
its desired amount of REITs by investing directly or through the Underlying Real
Estate Fund, or through alternative means, the Fund may experience tracking
error, which may impact the Fund’s performance. Because the Underlying Real
Estate Fund also employs an indexing investment approach designed to track the
performance of the Target Index, a strategy substantially similar to that of the
Fund, the Fund’s investment in the Underlying Real Estate Fund is subject to
risks similar to the risks of the Fund’s other investments.
Other Investment
Policies
In addition to employing its
principal investment strategies, the Fund may use the following other investment
strategies and types of investments in order to achieve its investment
objective.
23
Substitute Index
The Fund reserves the right
to substitute a different index for the index it currently tracks if the current
index is discontinued, if the Fund’s agreement with the provider of its Target
Index is terminated, or for any other reason determined in good faith by the
Board. In any such instance, the substitute index would represent the same
market segment as the Target Index.
Foreign
Securities
The Fund has the ability to
invest in foreign securities to the extent necessary to carry out its investment
strategy of holding all, or substantially all, of the stocks that make up its
Target Index.
Other Types of
Investments
The Fund may invest in
derivatives such as total return swaps, equity futures, or other derivatives. In
general, a derivative is a financial contract whose value is based on the value
of a financial asset (such as a stock, a bond, or a currency), a physical asset
(such as gold, oil, or wheat), a market index, or a reference rate. The Fund may
invest in derivatives only if the expected risks and rewards of the derivatives
are consistent with the investment objective, policies, strategies, and risks of
the Fund as disclosed in this Prospectus. In particular, derivatives will be
used only when they may help the advisor to accomplish one or more of the
following:
• Invest in eligible asset classes with greater efficiency and lower cost than is possible through direct investment.
• Obtain economic exposure to a stock, a basket of stocks, or an index when deemed desirable or necessary, or when the Fund is required to limit its investment in a particular issuer or industry.
• Add value when these instruments are attractively priced.
• Invest in eligible asset classes with greater efficiency and lower cost than is possible through direct investment.
• Obtain economic exposure to a stock, a basket of stocks, or an index when deemed desirable or necessary, or when the Fund is required to limit its investment in a particular issuer or industry.
• Add value when these instruments are attractively priced.
Cash Management
The Fund’s daily cash balance
may be invested in one or more Vanguard CMT Funds, which are used as cash
management vehicles for the Vanguard funds. When investing in a CMT Fund, the
Fund bears its proportionate share of the expenses of the CMT Fund in which it
invests. Vanguard receives no additional revenue from Fund assets invested in a
CMT Fund.
Temporary Defensive
Measures
The Fund may temporarily
depart from its normal investment policies and strategies when the advisor
believes that doing so is in the Fund’s best interest, so long as the strategy
or policy employed is consistent with the Fund’s investment objective. For
instance, the Fund may invest beyond its normal limits in derivatives or
exchange-traded funds that are consistent with the
24
Fund’s investment objective
when those instruments are more favorably priced or provide needed liquidity, as
might be the case when the Fund receives large cash flows that it cannot
prudently invest immediately. The Fund may also invest beyond its normal limits
in derivatives as an alternate means to obtain economic exposure if the Fund is
required to limit its investment in a particular issuer or
industry.
Portfolio Holdings
Please consult the Fund’s
Statement of Additional
Information or Vanguard’s website for a
description of the policies and procedures that govern disclosure of the Fund’s
portfolio holdings.
Management and Distribution
of the Fund
The Fund is a member of The
Vanguard Group, Inc. (Vanguard), a family of over 200 funds. All of the funds
that are members of Vanguard (other than funds of funds) share in the expenses
associated with administrative services and business operations, such as
personnel, office space, and equipment.
Vanguard Marketing Corporation
provides marketing services to the funds. Although fund shareholders do not pay
sales commissions or 12b-1 distribution fees, each fund (other than a fund of
funds) or each share class of a fund (in the case of a fund with multiple share
classes) pays its allocated share of the Vanguard funds’ marketing
costs.
To the extent that the Fund’s
assets are invested in another Vanguard fund, including a wholly owned
subsidiary, such assets will be excluded when allocating to the Fund its share
of the costs of Vanguard’s operations.
|
How is Vanguard’s
Corporate Structure Unique? |
|
Vanguard is owned
jointly by the funds it oversees and thus indirectly by
the shareholders in
those funds. Most other mutual funds are operated by
management companies
that are owned by third parties—either public or
private stockholders—and
not by the funds they serve. |
25
Investment
Advisor
The Vanguard Group, Inc.,
P.O. Box 2600, Valley Forge, PA 19482, which began operations in 1975, serves as
advisor to the Fund through Vanguard Portfolio Management (VPM). VPM exercises
portfolio management responsibilities for the Fund. As of January 31, 2026,
Vanguard served as advisor for approximately $10.1 trillion in assets.
Vanguard, through VPM, provides investment advisory
services to the Fund pursuant to the Funds’ Service Agreement and an
intercompany service agreement between Vanguard and VPM, subject to the
supervision and oversight of the trustees and officers of the Fund.
VPM, P.O. Box 2600, Valley
Forge, PA 19482, is a wholly owned subsidiary of Vanguard and was established in
2025. As of January 31, 2026, VPM exercised portfolio management
responsibilities for approximately $2 trillion in assets.
For the fiscal year ended
January 31, 2026, the advisory expenses represented an effective annual rate of
less than 0.01% of the Fund’s average net assets.
The Fund reserves the right
to utilize a multimanager approach in the future. Under the terms of an SEC
exemption, the Board may, without prior approval from shareholders, change the
terms of an advisory agreement with a third-party investment advisor or hire a
new third-party investment advisor—either as a replacement for an existing
advisor or as an additional advisor. Any significant change in the Fund’s
advisory arrangement will be communicated to shareholders in writing. As
Vanguard is the Fund’s sponsor and overall manager, Vanguard, through VPM, may provide
investment advisory services to the Fund under certain circumstances. Vanguard
may also recommend to the Board that an advisor be hired, terminated, or
replaced or that the terms of an existing advisory agreement be revised. The
Fund has filed an application seeking an SEC exemption with respect to
investment advisors that are wholly owned subsidiaries of Vanguard. If the
exemption is granted, the Fund may rely on the new SEC
relief.
A discussion regarding the
basis for the Board’s approval of the Fund’s investment advisory
arrangement is available in the Fund’s
Form N-CSR filed with the SEC for the fiscal period ended July 31 and in the
applicable Financial Statements and Other Information document available on the
Fund’s website.
The managers primarily
responsible for the day-to-day management of the Fund are:
Chris Nieves, CFA, Portfolio Manager at
VPM. He has worked in investment management since 2013, has been with Vanguard
since 2017, and has co-managed the Fund since 2025. Education: B.A., Cornell
University; MEng., Cornell University.
26
Gerard C.
O’Reilly, Principal of Vanguard and
Portfolio Manager at VPM. He has been with Vanguard since 1992, has managed
investment portfolios since 1994, and has managed the Fund since its inception
in 1996 (co-managed since 2016). Education: B.S., Villanova
University.
Jena Stenger, Portfolio Manager at VPM.
She has worked in investment management since 2013, has been with Vanguard since
2015, and has co-managed the Fund since 2025. Education: B.S., Villanova
University; M.B.A., University of Chicago Booth School of
Business.
The Fund’s Statement of Additional
Information provides information about
each portfolio manager’s compensation, other accounts under management, and
ownership of shares of the Fund.
27
Investing in Vanguard
ETF® Shares
Each Vanguard fund may offer
one or more share classes. If a Vanguard fund offers multiple share classes,
each share class has the same investment objective, strategies, and policies.
However, because different share classes can have different expenses, their
investment returns may differ. Vanguard and the Fund have received an exemptive
order from the SEC that permits the Fund to offer conventional mutual fund
shares and ETF shares. This Prospectus offers the Fund’s ETF Shares.
The Fund’s ETF Shares are
listed for trading on NYSE Arca. You can buy and sell ETF Shares on the
secondary market in the same way you buy and sell any other exchange-traded
security—through a broker. Your broker may charge a commission to execute a
transaction. Unless imposed by your broker, there is no minimum dollar amount
you must invest and no minimum number of ETF Shares you must buy.
Your ownership of ETF Shares
will be shown on the records of the broker through which you hold the shares.
Vanguard will not have any record of your ownership. Your account information
will be maintained by your broker, which will provide you with account
statements, confirmations of your purchases and sales of ETF Shares, and tax
information. Your broker also will be responsible for ensuring that you receive
income and capital gains distributions, as well as shareholder reports and other
communications from the fund whose ETF Shares you own. You will receive other
services (e.g., dividend reinvestment and average cost information) only if your
broker offers these services.
Redemption of ETF Shares by
Authorized Participants
Unlike conventional (i.e.,
not exchange-traded) mutual fund shares, ETF Shares cannot be purchased directly
from or redeemed directly with the issuing fund by an individual investor.
Instead, only Authorized Participants can purchase and redeem ETF Shares
directly from the issuing fund. Authorized Participants may purchase and redeem
ETF Shares from the issuing fund only in large blocks (creation units), usually
in exchange for baskets of securities. Funds may also issue and redeem creation
units in exchange for solely cash or a combination of cash and securities. These
trades may occur in-kind between Vanguard and the Authorized Participant. If
cash is used to meet redemptions, the Fund typically obtains such cash through
positive cash flows or the sale of Fund holdings consistent with the Fund’s
investment objective and strategy.
Under certain circumstances,
including under stressed market conditions, the Fund may borrow money (subject
to certain regulatory conditions and if available under board-approved
procedures) through an interfund lending
28
facility; through a bank
line-of-credit, including a joint committed credit facility; or through an
uncommitted line-of-credit from Vanguard in order to meet redemption
requests.
Conversion
Privilege
Owners of conventional shares
issued by the Fund may convert those shares to ETF Shares of equivalent value of
the same fund. Please note that investors who own conventional shares through a
401(k) plan or other employer-sponsored retirement or benefit plan generally may
not convert those shares to ETF Shares and should check with their plan sponsor
or recordkeeper. ETF Shares, whether acquired through a conversion or purchased
on the secondary market, cannot be converted to conventional shares by a
shareholder. Also, ETF Shares of one fund cannot be exchanged for ETF Shares of
another fund.
ETF Shares must be held in a
brokerage account. Thus, before converting conventional shares to ETF Shares,
you must have an existing, or open a new, brokerage account. This account may be
with Vanguard Brokerage Services® or with any other brokerage
firm. To initiate a conversion of conventional shares to ETF Shares, please
contact your broker.
Vanguard Brokerage Services
does not impose a fee on conversions from Vanguard conventional shares to
Vanguard ETF Shares. However, other brokerage firms may charge a fee to process
a conversion. Vanguard reserves the right, in the future, to impose a
transaction fee on conversions or to limit, temporarily suspend, or terminate
the conversion privilege.
Converting conventional
shares to ETF Shares is generally accomplished as follows. First, after your
broker notifies Vanguard of your request to convert, Vanguard will transfer your
conventional shares from your account to the broker’s omnibus account with
Vanguard (an account maintained by the broker on behalf of all its customers who
hold conventional Vanguard fund shares through the broker). After the transfer,
Vanguard’s records will reflect your broker, not you, as the owner of the
shares. Next, your broker will instruct Vanguard to convert the appropriate
number or dollar amount of conventional shares in its omnibus account to ETF
Shares of equivalent value, based on the respective NAVs of the two share
classes.
Your Fund’s transfer agent
will reflect ownership of all ETF Shares in the name of the Depository Trust
Company (DTC). The DTC will keep track of which ETF Shares belong to your
broker, and your broker, in turn, will keep track of which ETF Shares belong to
you.
Because the DTC is unable to
handle fractional shares, only whole shares can be converted. For example, if
you owned 300.25 conventional shares, and this was equivalent in value to 90.75
ETF Shares, the DTC account would receive 90 ETF Shares. Conventional shares
with a value equal to 0.75 ETF Shares (in
29
this example, that would be
2.481 conventional shares) would remain in the broker’s omnibus account with
Vanguard. Your broker then could either (1) credit your account with 0.75 ETF
Shares or (2) redeem the 2.481 conventional shares for cash at NAV and deliver
that cash to your account. If your broker chose to redeem your conventional
shares, you would realize a gain or loss on the redemption that must be reported
on your tax return (unless you hold the shares in an IRA or other tax-deferred
account). Please consult your broker for information on how it will handle the
conversion process, including whether it will impose a fee to process a
conversion.
If you convert your
conventional shares to ETF Shares through Vanguard Brokerage Services, all
conventional shares for which you request conversion will be converted to ETF
Shares of equivalent value. Because no fractional shares will have to be sold,
the transaction will not be taxable.
Here are some important
points to keep in mind when converting conventional shares of a Vanguard fund to
ETF Shares:
• The conversion process can
take anywhere from several days to several weeks, depending on your broker.
Vanguard generally will process conversion requests either on the day they are
received or on the next business day. Vanguard imposes conversion blackout
windows around the dates when a fund with ETF Shares declares dividends. This is
necessary to prevent a shareholder from collecting a dividend from both the
conventional share class currently held and also from the ETF share class to
which the shares will be converted.
• Until the conversion process
is complete, you will remain fully invested in a fund’s conventional shares, and
your investment will increase or decrease in value in tandem with the NAV of
those shares.
• The conversion transaction is
nontaxable except, if applicable, to the very limited extent previously
described.
Pricing of Fund
Shares
ETF Shares may only be bought
and sold in the secondary market. The price you pay or receive for the ETF
Shares will be the prevailing market price, which may be more or less than the
Fund’s NAV. Your transaction will be priced at the NAV only if you purchase or
redeem your ETF Shares in creation unit blocks (an option available only to
certain authorized broker-dealers) or if you convert your conventional fund
shares to ETF Shares. NAV is typically calculated as of the close of regular
trading on the New York Stock Exchange (“NYSE”), generally 4 p.m., Eastern time,
on each day that the NYSE is open for business (a business day). In the rare
event the NYSE experiences unanticipated disruptions and is unavailable at the
close of the trading day, NAVs will be calculated as of the close of regular
trading on the Nasdaq (or another alternate exchange if the Nasdaq is
unavailable, as determined at Vanguard’s discretion),
30
generally 4 p.m., Eastern
time. The time selected for NAV calculation in this rare event generally shall
also serve as the conclusion of the trading day. On U.S. holidays or other days
when the NYSE is closed, the NAV is not calculated, and the Vanguard funds do
not sell or redeem shares. However, on those days the value of a fund’s assets
may be affected to the extent that the fund holds securities that change in
value on those days (such as foreign securities that trade on foreign markets
that are open).
If a fund only has one share
class, the NAV per share is computed by dividing the total assets, minus
liabilities, of a fund by the number of fund shares outstanding. If a fund has
more than one share class, each share class has its own NAV, which is computed
by dividing the total assets, minus liabilities, allocated to the share class by
the number of fund shares outstanding for that class. The value of securities
and other investments held by the Vanguard funds is determined pursuant to the
valuation policies and procedures adopted by the Vanguard funds’ boards of
trustees. Vanguard has been designated as the valuation designee for the
Vanguard funds pursuant to Rule 2a-5 under the Investment Company Act of 1940,
subject to oversight by the Vanguard funds’ boards of trustees.
Securities for which market
quotations are readily available are valued at their market value, based on
quotations provided by independent third-party pricing sources. Such securities
are generally valued at their official closing price, the last reported sales
price, or if there were no sales that day, the mean between the closing bid and
asking prices, from the principal exchange or market on which they are traded. A
fund’s investments in any mutual fund shares, including institutional money
market fund shares, are valued at the NAVs of the mutual fund shares. A fund’s
investments in any ETF shares or closed-end fund shares are valued at the market
value of those shares.
When the market quotations
are not readily available or do not accurately reflect the value of a security
or other investment, such security or other investment is priced at fair value,
generally based on information provided by independent third-party pricing
services, in accordance with the valuation policies and procedures adopted by
the Vanguard funds’ boards of trustees. Fair value represents a good faith
determination of the value of a fund’s investments. The fair value of a security
or other investment is the amount that the owner might reasonably expect to
receive upon the current sale of the security or other investment. Fair-value
pricing may require subjective determinations. It is possible that the price
determined through fair-value pricing may differ from the price quoted or
published by other sources and may not be the price at which those investments
could have been sold during the period in which the fair value was
used.
Fair-value pricing may be
used in a variety of circumstances. For example, it may be used if the value of
a security or other investment has been materially affected by events occurring
after the close of the principal exchange or market
31
on which the security is
traded but before the funds’ NAV is calculated. These events might be
company-specific (e.g., earnings report, merger announcement), country-specific
(e.g., significant price movements in U.S. or a foreign market), or
regional/global events (e.g., natural disaster, economic or political news,
interest rate change, act of terrorism). These events could affect a single
security or a large number of securities in a particular market, and it most
commonly occurs with foreign portfolio holdings because many foreign markets
operate at times that do not coincide with those of the major U.S. markets.
Events that could affect the value of the foreign portfolio holdings may occur
between the close of the foreign market and the time a fund’s NAV is calculated.
The values of any foreign securities held by a fund are converted into U.S.
dollars using an exchange rate obtained from an independent third party as of
the close of regular trading on the NYSE.
In addition, fair-value
pricing may be used if trading in a security is halted and does not resume
before a fund’s pricing time, a security does not trade in the course of a day
and a fund holds enough of the security that its price could affect the NAV, or
if the trading market on which a security is listed is suspended or closed and
no appropriate alternative trading market is available.
Fixed income securities are
generally valued based on information furnished by independent pricing services
and are priced at fair value. Pricing services may use matrix pricing or
valuation models that utilize certain inputs and assumptions to derive values.
Pricing services generally value fixed income securities assuming orderly
transactions of an institutional round lot size, but a fund may hold or transact
in such securities in smaller odd lot sizes. Odd lots may trade at lower prices
than institutional round lots.
Failures by third-party
pricing services to carry out their obligations to the Vanguard funds (e.g., any
errors in the data provided by third-party pricing services) could result in
delays in the calculation of the funds’ NAVs and/or the inability to calculate
the NAVs over extended time periods. The funds may be unable to recover any
losses associated with such failures.
The Vanguard funds have
authorized certain financial intermediaries and their designees, and may, from
time to time, authorize certain funds of funds for which Vanguard serves as the
investment advisor (Vanguard Funds of Funds), to accept orders to purchase or
redeem fund shares on behalf of the Vanguard funds. In these circumstances, the
Vanguard fund will be deemed to receive an order when accepted by the authorized
financial intermediary, its designee, or one of the Vanguard Funds of Funds, and
the order will be executed using the NAV next calculated after such
acceptance.
Vanguard’s website will show
the previous day’s closing NAV and closing market price for the fund’s ETF
Shares. The website also discloses, in the Premium/Discount analysis section of
a fund’s Price and Performance page,
32
how frequently the fund
traded at a premium or discount to NAV (based on closing NAVs and market prices)
and the magnitudes of such premiums and discounts.
Dividends, Distributions, and
Taxes
Fund
Distributions
Generally, each March, June,
September, and December, the Fund pays out to shareholders virtually all of the
distributions it receives from its investments, less expenses. Distributions may
include income, return of capital, and capital gains. The Fund may also realize
capital gains on the sale of its investments. Distributions of these gains, if
any, are included in the December distribution. In addition, the Fund may make a
supplemental distribution at some other time during the year.
From time to time, Vanguard
and/or a fund’s board of trustees may adjust a fund’s fees and expenses and/or
reduce, refund, reimburse, waive, or otherwise return to the funds and their
shareholders a portion of prior fees and expenses (collectively, “expense
adjustments”). Fund performance and potentially shareholder distributions, will
reflect such expense adjustments. If you sell all or part of your investment in
a fund before an expense adjustment occurs, then you will not receive the
economic benefit, if any, of such expense adjustment. An expense adjustment at
any given time does not imply or guarantee that similar or additional expense
adjustments will be made in the future.
Reinvestment of
Distributions
In order to reinvest dividend
and capital gains distributions, investors in the Fund’s ETF Shares must hold
their shares at a broker that offers a reinvestment service. This can be the
broker’s own service or a service made available by a third party, such as the
broker’s outside clearing firm or the DTC. If a reinvestment service is
available, distributions of income and capital gains can automatically be
reinvested in additional whole and fractional ETF Shares of the Fund. If a
reinvestment service is not available, investors will receive their
distributions in cash. To determine whether a reinvestment service is available
and whether there is a commission or other charge for using this service,
consult your broker.
Mutual fund share class
holders will receive dividend payments before holders of ETF Shares. As with all
exchange-traded funds, reinvestment of dividend and capital gains distributions
in additional ETF Shares will occur two business days or more after the
ex-dividend date (the date when a distribution of dividends or capital gains is
deducted from the price of the Fund’s shares). The exact number of days depends
on your broker. During that time, the amount of your distribution will not be
invested in the Fund and therefore will not share in the Fund’s income, gains,
and losses.
33
Basic Tax Points
Vanguard (or your
intermediary) expects to send you a statement each February showing the tax
status of all of your distributions. (Other Vanguard funds mail their tax
statements in January; the Fund mails its statements later because REITs do not
provide information on the taxability of their distributions until after the
calendar year-end.) In addition, investors in taxable accounts should be aware
of the following basic federal income tax points:
• Distributions (other than any
return of capital) are taxable to you whether or not you reinvest these amounts
in additional Fund shares.
• Distributions declared and
recorded in December—if paid to you by the end of January—are generally taxable
as if received in December.
• Any dividend distribution or
short-term capital gains distribution that you receive is taxable to you as
ordinary income. If you are an individual and meet certain holding-period
requirements with respect to your Fund shares, you may be eligible for reduced
tax rates on “qualified dividend income,” if any, or a special tax deduction on
“qualified REIT dividends,” if any, distributed by the Fund.
• Any distribution of net
long-term capital gains is taxable to you as long-term capital gains, no matter
how long you have owned shares in the Fund.
• Capital gains distributions
can occur when the Fund sells assets at a gain. Capital gains distributions vary
from year to year as a result of the Fund’s investment activities and cash
flows, including those due to redemption activity by Fund
shareholders.
• Capital gains distributions
may occur if Vanguard, the Fund, or its advisor makes
changes that would impact the Fund directly or indirectly, including changes to
the Fund’s portfolio or advisors or changes to any other Vanguard fund or
product that would involve the redemption of shares of the Fund and the related
sale of the Fund’s investments. Such changes could, depending on the timing,
result in capital gains distributions in the current fiscal year, subsequent
fiscal year, or both.
• Your cost basis in the Fund
will be decreased by the amount of any return of capital that you receive. This,
in turn, will affect the amount of any capital gain or loss that you realize
when selling your Fund shares.
• Return of capital
distributions generally are not taxable to you until your cost basis has been
reduced to zero. If your cost basis is at zero, return of capital distributions
will be treated as capital gains.
• A sale of Fund shares is a
taxable event. This means that you may have a capital gain to report as income,
or a capital loss to report as a deduction, when you complete your tax
return.
• Dividend distributions
attributable to the Fund’s REIT investments are generally not eligible for the
corporate dividends-received deduction.
34
• If you purchase shares before
an ex-dividend date when a fund has realized but not yet distributed income or
capital gains, the purchase price may include the amount of the upcoming
distribution, and you may pay the full price for the shares and later receive a
portion of the purchase price back as a taxable distribution. In such case, you
generally will be taxed upon receipt of such distribution, even though the
distribution effectively represents a return of a portion of your purchase
price. This is known as “buying a dividend.”
Individuals, trusts, and
estates whose income exceeds certain threshold amounts are subject to a 3.8%
Medicare contribution tax on “net investment income.” Net investment income
takes into account distributions paid by the Fund and capital gains from any
sale of Fund shares.
Dividend distributions and
capital gains distributions that you receive, as well as your gains or losses
from any sale of Fund shares, may be subject to state and local income
taxes.
This Prospectus provides
general tax information only. If you are investing through a tax-advantaged
account, such as an IRA or an employer-sponsored retirement or savings plan,
special tax rules apply. Please consult your own tax advisor for detailed
information about any tax consequences for you.
Frequent Trading
Limitations
Unlike frequent trading of a
Vanguard fund’s conventional share classes, frequent trading of ETF Shares
generally does not disrupt portfolio management or otherwise harm fund
shareholders. The vast majority of trading in ETF Shares occurs on the secondary
market. Because these trades do not involve the issuing fund, they do not pose
potential harm to the fund or its shareholders. Certain broker-dealers are
authorized to purchase and redeem ETF Shares directly with the issuing fund.
Because these trades typically are effected in kind (i.e., for securities and
not for cash), or are assessed a transaction fee when effected in cash, they do
not cause any of the harmful effects to the issuing fund (as previously noted)
that may result from frequent trading. For these reasons, the boards of trustees
of Vanguard funds that issue ETF Shares have determined that it is not necessary
to adopt policies and procedures to detect and deter frequent trading and
market-timing of ETF Shares.
35
Financial
Highlights
Financial highlights
information is intended to help you understand a fund’s performance for the past
five years (or, if shorter, its period of operations). Certain information
reflects financial results for a single fund share. Total return represents the
rate that an investor would have earned or lost each period on an investment in
a fund or share class (assuming reinvestment of all distributions). This
information has been obtained from the financial statements audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
whose report, along with fund financial statements, is included in a fund’s most
recent annual Financial Statements and Other Information. You may obtain a free
copy of a fund’s latest disclosure documents upon request.
Vanguard Real Estate Index Fund
ETF Shares
|
For a Share
Outstanding
Throughout Each
Period |
Year Ended January
31, | ||||
|
2026 |
2025 |
2024 |
2023 |
2022 | |
|
Net Asset Value,
Beginning of Period |
$90.61 |
$83.94 |
$91.06 |
$106.44 |
$84.96 |
|
Investment
Operations |
|
|
|
|
|
|
Net Investment
Income1 |
2.567 |
2.473 |
2.527 |
2.240 |
1.960 |
|
Net Realized and
Unrealized Gain (Loss) on
Investments |
1.105 |
7.631 |
(6.154) |
(14.394) |
22.486 |
|
Total from Investment
Operations |
3.672 |
10.104 |
(3.627) |
(12.154) |
24.446 |
|
Distributions |
|
|
|
|
|
|
Dividends from Net
Investment Income |
(2.620) |
(2.613) |
(2.595) |
(2.152) |
(1.943) |
|
Distributions from
Realized Capital Gains |
— |
— |
— |
— |
— |
|
Return of
Capital |
(.852) |
(.821) |
(.898) |
(1.074) |
(1.023) |
|
Total
Distributions |
(3.472) |
(3.434) |
(3.493) |
(3.226) |
(2.966) |
|
Net Asset Value, End of
Period |
$90.81 |
$90.61 |
$83.94 |
$91.06 |
$106.44 |
|
Total
Return |
4.18% |
12.22% |
-3.81% |
-11.25% |
28.88% |
|
Ratios/Supplemental
Data |
|
|
|
|
|
|
Net Assets, End of
Period (Millions) |
$34,928 |
$35,127 |
$32,359 |
$36,825 |
$46,673 |
|
Ratio of Total Expenses
to Average Net Assets |
0.12% |
0.12% |
0.12% |
0.12%2 |
0.12% |
|
Acquired Fund Fees and
Expenses3 |
0.01% |
0.01% |
0.01% |
— |
— |
|
Ratio of Net Investment
Income to Average Net Assets |
2.85% |
2.78% |
3.07% |
2.38% |
1.90% |
|
Portfolio Turnover
Rate4 |
7% |
7% |
9% |
7% |
7% |
|
1 |
Calculated based on
average shares outstanding. |
|
2 |
The ratio of expenses
to average net assets for the period net of reduction from custody fee
offset arrangements was
0.12%. |
|
3 |
For the fiscal year
ended January 31, 2023, and January 31, 2022, the acquired fund fees
and expenses were less
than 0.01%. |
|
4 |
Excludes the value of
portfolio securities received or delivered as a result of in-kind
purchases or
redemptions of the fund’s capital shares, including ETF Creation
Units. |
36
Additional
Information
A Precautionary Note to
Investment Companies. The Fund’s ETF Shares are
issued by a registered investment company, and therefore the acquisition of such
shares by other investment companies and private funds is subject to the
restrictions of Section 12(d)(1) of the Investment Company Act of 1940 (the 1940
Act). SEC Rule 12d1-4 under the 1940 Act permits registered investment companies
to invest in other registered investment companies beyond the limits in Section
12(d)(1), subject to certain conditions, including that funds with different
investment advisors must enter into a fund of funds investment
agreement.
Forum Selection. The Trust’s Bylaws designate
Delaware courts as the exclusive forum for certain claims against or related to
the Trust, a trustee, an officer, or other employee of the Trust, except that,
unless the Trust otherwise consents in writing, the U.S. Federal District Courts
are the exclusive forum for the resolution of complaints under the Securities
Act of 1933 or the 1940 Act. These provisions may limit a shareholder’s ability
to bring a claim in a different forum and may result in increased shareholder
costs in pursuing such a claim.
Shareholder
Rights. The Fund’s Agreement and
Declaration of Trust, as amended, requires a shareholder bringing a derivative
action on behalf of the Trust that is subject to a pre-suit demand to
collectively hold at least 10% of the outstanding shares of the Trust or at
least 10% of the outstanding shares of the series or class to which the demand
relates and to undertake to reimburse the Trust for the expense of any counsel
or advisors used when considering the merits of the demand in the event that the
board of trustees determines not to bring such action. In each case, these
requirements do not apply to claims arising under the federal securities laws to
the extent that any such federal securities laws, rules, or regulations do not
permit such application. The Trust’s Bylaws also provide that shareholders waive
the right to trial by jury to the fullest extent permitted by
law.
Joint Committed Credit
Facility. The Fund participates, along
with other funds managed by Vanguard, in a committed credit facility provided by
a syndicate of lenders pursuant to a credit agreement that may be renewed
annually; each Vanguard fund is individually liable for its borrowings, if any,
under the credit facility. The amount and terms of the committed credit facility
are subject to approval by the Board and renegotiation with the lender syndicate
on an annual basis.
37
Securities Market
Indexes
Listed below is the broad-based securities market index, as referenced in the Fund’s Average Annual Total Returns table:
Listed below is the broad-based securities market index, as referenced in the Fund’s Average Annual Total Returns table:
Dow Jones U.S. Total Stock
Market Float Adjusted Index. An index designed to
measure all U.S. equity issues with readily available prices.
|
Vanguard
Fund |
Inception
Date |
Vanguard
Fund
Number |
CUSIP
Number |
|
Vanguard Real Estate
Index Fund |
|
|
|
|
ETF
Shares |
9/23/2004
(Investor
Shares
5/13/1996) |
986 |
922908553 |
Certain affiliates of the
Fund and the advisor may purchase and resell ETF Shares pursuant to the
prospectus.
Inception Date means the date
on which the assets of a fund (or one of its share classes) are first invested
in accordance with the fund’s investment objective. For funds with a
subscription period, the inception date is the day after that period ends.
Investment performance is generally measured from the inception
date.
CGS identifiers have been
provided by CUSIP Global Services, managed on behalf of the American Bankers
Association by FactSet Research Systems Inc., and are not for use or
dissemination in a manner that would serve as a substitute for any CUSIP
service. The CUSIP Database, © 2026 American Bankers Association. “CUSIP” is a
registered trademark of the American Bankers Association.
38
CFA® is a registered trademark
owned by CFA Institute.
GICS® is a registered trademark of
Standard & Poor’s Financial Services LLC.
THIS FUND IS NOT SPONSORED,
ENDORSED, SOLD OR PROMOTED BY MSCI INC. (“MSCI”), ANY OF ITS AFFILIATES, ANY OF
ITS DIRECT OR INDIRECT INFORMATION PROVIDERS OR ANY OTHER THIRD PARTY INVOLVED
IN, OR RELATED TO, COMPILING, COMPUTING OR CREATING ANY MSCI INDEX
(COLLECTIVELY, THE “MSCI PARTIES”). THE MSCI INDEXES ARE THE EXCLUSIVE PROPERTY
OF MSCI. MSCI AND THE MSCI INDEX NAMES ARE SERVICE MARK(S) OF MSCI OR ITS
AFFILIATES AND HAVE BEEN LICENSED FOR USE FOR CERTAIN PURPOSES BY VANGUARD. NONE
OF THE MSCI PARTIES MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO
THE OWNERS OF THIS FUND OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY
OF INVESTING IN FUNDS GENERALLY OR IN THIS FUND PARTICULARLY OR THE ABILITY OF
ANY MSCI INDEX TO TRACK CORRESPONDING STOCK MARKET PERFORMANCE. MSCI OR ITS
AFFILIATES ARE THE LICENSORS OF CERTAIN TRADEMARKS, SERVICE MARKS AND TRADE
NAMES AND OF THE MSCI INDEXES WHICH ARE DETERMINED, COMPOSED AND CALCULATED BY
MSCI WITHOUT REGARD TO THIS FUND OR THE ISSUER OR OWNER OF THIS FUND. NONE OF
THE MSCI PARTIES HAS ANY OBLIGATION TO TAKE THE NEEDS OF THE ISSUERS OR OWNERS
OF THIS FUND INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE
MSCI INDEXES. NONE OF THE MSCI PARTIES IS RESPONSIBLE FOR OR HAS PARTICIPATED IN
THE DETERMINATION OF THE TIMING OF, PRICES AT, OR QUANTITIES OF THIS FUND TO BE
ISSUED OR IN THE DETERMINATION OR CALCULATION OF THE CONSIDERATION INTO WHICH
THIS FUND IS REDEEMABLE. NONE OF THE MSCI PARTIES HAS ANY OBLIGATION OR
LIABILITY TO THE OWNERS OF THIS FUND IN CONNECTION WITH THE ADMINISTRATION,
MARKETING OR OFFERING OF THIS FUND.
ALTHOUGH MSCI SHALL OBTAIN
INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF THE MSCI INDEXES
FROM SOURCES WHICH MSCI CONSIDERS RELIABLE, NONE OF THE MSCI PARTIES WARRANTS OR
GUARANTEES THE ORIGINALITY, ACCURACY AND/OR THE COMPLETENESS OF ANY MSCI INDEX
OR ANY DATA INCLUDED THEREIN. NONE OF THE MSCI PARTIES MAKES ANY WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, LICENSEE’S
CUSTOMERS OR COUNTERPARTIES, ISSUERS OF THIS FUND, OWNERS OF THIS FUND, OR ANY
OTHER PERSON OR ENTITY, FROM THE USE OF ANY MSCI INDEX OR ANY DATA INCLUDED
THEREIN IN CONNECTION WITH THE RIGHTS LICENSED HEREUNDER OR FOR ANY OTHER USE.
NONE OF THE MSCI PARTIES SHALL HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR
INTERRUPTIONS OF OR IN CONNECTION WITH ANY MSCI INDEX OR ANY DATA INCLUDED
THEREIN. FURTHER, NONE OF THE MSCI PARTIES MAKES ANY EXPRESS OR IMPLIED
WARRANTIES OF ANY KIND, AND THE MSCI PARTIES HEREBY EXPRESSLY DISCLAIM ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT
TO ANY MSCI INDEX AND ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL ANY OF THE MSCI PARTIES HAVE ANY LIABILITY FOR ANY
DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES
(INCLUDING WITHOUT LIMITATION LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY
OF SUCH DAMAGES.
39
Connect with
Vanguard® ˃ vanguard.com
For More
Information
If you would like more
information about Vanguard Real Estate ETF, the following documents are
available free upon request:
Annual/Semiannual Reports to
Shareholders and Form N-CSR
Additional information about the
Fund’s investments is available in the Fund’s annual and semiannual reports to
shareholders and in Form N-CSR. In the annual report, you will find a discussion
of the market conditions and investment strategies that significantly affected
the Fund’s performance during its last fiscal year. In Form N-CSR, you will find
the Fund’s annual and semiannual financial statements.
Statement of Additional
Information (SAI)
The SAI provides more
detailed information about the Fund’s ETF Shares and is incorporated by
reference into (and thus legally a part of) this Prospectus.
To obtain a free copy of the
latest annual or semiannual report, financial statements, or the SAI, or to
request additional information about Vanguard ETF Shares, please visit
https://vgi.vg/fund-literature or contact us as
follows:
Telephone: 866-499-8473; Text
telephone for people with hearing impairment: 800-749-7273
Information Provided by the
SEC
Reports and other information
about the Fund are available in the EDGAR database on the SEC’s website at
sec.gov, or you can receive copies of this information, for a fee, by electronic
request at the following email address: [email protected].
Fund’s Investment Company Act
file number: 811-03916
© 2026 The Vanguard Group,
Inc. All rights reserved.
Vanguard Marketing
Corporation, Distributor.
P 986
052026