Vanguardfi Health Care Fund - Vanguard Advisors

Vanguard? Health Care Fund

Investment Approach Health care sector fund. Seeks long-term capital appreciation. Invests across industry subsectors and market capitalizations. Invests in health care companies based in the United States and abroad. Fundamental approach. More geographically diversified than most competitors.

Vanguard?

Quarterly Commentary

Stock market sentiment improved in the second quarter of 2023. Turmoil in the wake of U.S. and European bank failures and a potential default on U.S. government debt proved transitory. Major central banks slowed their pace of rate hikes or even hit the pause button, but they signaled that they stood ready to tighten monetary policy further to bring down inflation. With interest rates not expected to go much higher and with resilience in labor markets, consumer spending, and overall economic growth, investor concerns about a possible global recession appeared to ease.

Stocks finished higher, with equities in the United States showing more strength than in Europe, Asia, and emerging markets.

For the quarter, Vanguard Health Care Fund outperformed its benchmark, the MSCI ACWI Health Care Index (+2.25%), and the average return of its peer group (+3.93%). Security selection within biotechnology (?7.2%) and pharmaceuticals (+5.5%) led the outperformance. An overweight allocation to and strong selection in health care facilities (+8.7%) also helped. A lack of exposure to AbbVie (?15%) and an overweight allocation to Eli Lilly (+37%) were among the top contributors to returns.

On the other side of the ledger, an overweight allocation to and poor selection in health care equipment (+8.3%) dragged on performance. A lack of exposure to Intuitive Surgical (+34%) detracted most.

For the 12 months ended June 30, the fund outperformed its benchmark (+5.71%) and peer average (+8.97%). Strong selection in biotechnology (+4.7%) and pharmaceuticals (+7.1%) drove the outperformance. An overallocation to managed health rare (?6.1%) hurt returns most. Top contributors included Eisai (+63%) and Eli Lilly (+46%). The biggest detractor was a lack of exposure to Novo Nordisk (+48%).

Note: Company returns may differ if a security was held in the portfolio for less than the full period.

People and Process

Vanguard Health Care Fund seeks long-term capital appreciation by investing in stocks broadly representing the health care industry. The advisor seeks to maintain exposure across five primary subsectors: health services, medical products, specialty pharmaceuticals, major pharmaceuticals, and international markets. Fundamental research focuses on companies with high-quality balance sheets, strong management, and the potential for new products that will lead to above-average growth in revenue and earnings. Reflecting the advisor's contrarian style, stocks may be purchased after negative events have caused a decline in share price. Assets are usually concentrated in the top ten holdings, but the fund remains invested across both subsectors and market capitalizations. Because of the industry's long product-development cycle, the advisor pursues a long-term investment approach that has resulted in below-average turnover. The fund historically has been more geographically diversified than other health care sector funds.

Wellington Management Company LLP

Founded in 1928, Wellington Management Company LLP, Boston, Massachusetts, is among the nation's oldest and most respected institutional investment managers. The firm has advised Vanguard Health Care Fund since 1984.

Investment Manager Biographies

Jean M. Hynes, CFA, CEO of Wellington Management Company, Managing Partner and Equity Portfolio Manager. Portfolio manager. Advised the fund since 2008. Worked in investment management since 1991. B.A., Wellesley College.

Rebecca Sykes, CFA. Portfolio manager. Advised the fund since 2023. Worked in investment management since 2005. B.S., University of Pennsylvania. M.B.A., The Wharton School of the University of Pennsylvania.

As of June 30, 2023

Vanguard Health Care Fund

Total Returns

Health Care Fund Investor Shares (5/23/1984) Admiral Shares (11/12/2001)

Spliced Health Care Index Global Health/Biotechnology Funds Average

Expense Ratio

0.34% 0.29

-- --

Quarter

4.25% 4.27 2.25 3.93

Year to Date

3.63% 3.66 0.50 3.96

1 Year

12.05% 12.12 5.71 8.97

3 Years

8.48% 8.53 7.60 4.58

5 Years

10.26% 10.31 9.37 8.07

10 Years

11.92% 11.97 9.98 10.44

The performance data shown represent past performance, which is not a guarantee of future results. Investment returns and principal value will fluctuate, so investors' shares, when sold, may be worth more or less than their original cost. 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 performance. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. Figures for periods of less than one year are cumulative returns. All other figures represent average annual returns. Performance figures include the reinvestment of all dividends and any capital gains distributions. All returns are net of expenses.

Note: Spliced Health Care Index: S&P 500 Index through December 31, 2001; S&P Health Care Index through May 31, 2010; MSCI All Country World Health Care Index thereafter. Average fund returns are derived from data provided by Lipper, a Thomson Reuters Company. Admiral class shareholders are required to maintain specific minimum balances and meet other special criteria.

As of June 30, 2023

Vanguard Health Care Fund

Quarterly Returns: Investor Shares

Year 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013

1st Quarter -0.59% -3.09 -0.29 -10.98 7.91 0.21 10.58 -8.84 9.64 8.84 14.43

2nd Quarter 4.25% -5.57

10.70 16.16 -0.98 0.52 6.54 5.42 3.80 5.17 5.00

3rd Quarter --

-3.30% -1.23 4.11 -1.53 13.07 0.97 0.71 -8.90 3.90 7.56

4th Quarter --

11.82% 4.84 4.61 16.84 -11.18 0.55 -5.97 8.65 8.06 10.80

Health Care --

-1.05% 14.30 12.62 22.93

1.15 19.61 -8.99 12.65 28.52 43.19

Spliced Health

Care Index

-- -6.14% 17.50 14.87 22.67

1.71 20.14 -6.83 6.33 18.13 35.76

Year-End

Assets (Millions)

$7,440 7,542 8,140 8,327 8,977 8,315 9,487 9,550 12,018 11,252 9,636

Quarterly Returns: Admiral Shares

Year 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013

1st Quarter -0.59% -3.08 -0.27 -10.97 7.92 0.22 10.59 -8.83 9.66 8.85 14.44

2nd Quarter 4.27% -5.57 10.71 16.18

-0.96 0.53 6.55 5.43 3.81 5.18 5.01

3rd Quarter --

-3.29% -1.21 4.12 -1.52 13.08 0.99 0.72 -8.89 3.91 7.58

4th Quarter --

11.84% 4.86 4.62 16.85 -11.17 0.56 -5.95 8.67 8.07 10.81

Health Care --

-1.01% 14.36 12.67 22.98

1.21 19.66 -8.94 12.71 28.57 43.27

Spliced Health

Care Index

-- -6.14% 17.50 14.87 22.67

1.71 20.14 -6.83 6.33 18.13 35.76

Year-End

Assets (Millions) $40,572

40,265 43,436 40,704 39,149 35,608 37,667 33,299 40,299 33,375 24,142

As of June 30, 2023

Vanguard Health Care Fund

Fund Facts

Fund Number Ticker Newspaper Listing CUSIP Number Assets (millions)

(Total $48,012) Inception Expense Ratio

(as of 5/2023)

Equity Characteristics

Number of stocks Median market cap Average market cap Price/earnings ratio Price/book ratio Return on equity Earnings growth rate Equity yield (dividend) Foreign holdings Short-term reserves Turnover rate (fiscal year end)

Investor Shares

0052 VGHCX HlthCare 921908307 $7,440

5/23/1984

0.34%

Admiral Shares

0552 VGHAX HlthCareAdml 921908885 $40,572

11/12/2001

0.29%

Health Care

MSCI ACWI Health Care

105

255

$79.6 Billion $119.8 Billion

$144.4 Billion $178.0 Billion

24.0x

24.2x

4.3x

4.2x

18.3%

20.2%

16.2%

19.3%

1.1%

1.7%

26.7%

0.0%

1.6%

--

19.1%

--

Volatility Measures

R-Squared

Beta

Spliced Health Care Index

0.95

0.93

DJ US Total Stock Mkt Float Adj Idx

0.56

0.56

R-squared and beta are calculated from trailing 36-month fund returns relative to the associated benchmark.

Top 10 Largest Holdings

% of Total Net Assets

Eli Lilly & Co.

6.4 %

UnitedHealth Group Inc.

6.1

AstraZeneca plc

5.8

Merck & Co. Inc.

4.9

Novartis AG

4.7

Pfizer Inc.

4.5

Daiichi Sankyo Co. Ltd.

2.7

Biogen Inc.

2.7

Eisai Co. Ltd.

2.7

Abbott Laboratories

2.7

Total

43.2 %

The holdings listed exclude any temporary cash investments and equity index products.

As of June 30, 2023

Vanguard Health Care Fund

Sector Diversification (% of Stocks)

Health Care

MSCI ACWI Health Care

Overweight/ Underweight

Biotechnology

21.8%

13.7%

8.1

Health Care Distributors

0.0

2.0

-2.0

Health Care Equipment

11.8

16.1

-4.3

Health Care Facilities Health Care Services

2.8

1.7

1.1

1.8

3.3

-1.5

Health Care Supplies

1.4

2.9

-1.5

Health Care Technology

Life Sciences Tools & Services

0.2

0.5

-0.3

8.2

9.9

-1.7

Managed Health Care

12.5

8.9

3.6

Pharmaceuticals

39.5

41.1

-1.6

Total

100.0%

100.0%

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.

3 month attribution

Biotechnology Pharmaceuticals Health Care Facilities Life Sciences Tools & Services Drug Retail Health Care Supplies Health Care Technology Health Care Distributors Health Care Services Managed Health Care Health Care Equipment Total

Portfolio

Avg. weight

22.1 39.4

2.5 8.3 0.0 1.3 0.2 0.0 1.7 12.6 12.0 100.0

3 mo. return

3.6 7.8 16.0 -7.8 -8.9 9.1 -6.6 0.0 -9.1 0.2 7.1 4.3

Contrib. Return

0.7 3.0 0.4 -0.7 0.0 0.1 0.0 0.0 -0.2 0.1 0.8 4.3

Benchmark

Avg. weight

14.4 41.0

1.5 10.1 0.0 2.8 0.5 1.8 3.3 9.1 15.5 100.0

3 mo. return

-7.2 5.5 8.7 -7.1 0.0 6.3 1.5 15.8 2.5 1.1 8.3 2.4

Contrib. Return

-1.1 2.1 0.1 -0.7 0.0 0.2 0.0 0.3 0.1 0.1 1.2 2.4

Attribution

Alloc. effect

-0.8 0.0 0.1 0.2 0.0 -0.1 0.0 -0.2 0.0 0.0 -0.2 -0.9

Select effect

2.5 0.9 0.2 -0.1 0.0 0.0 0.0 0.0 -0.2 -0.1 -0.1 2.8

Total effect

1.7 0.9 0.2 0.1 0.0 0.0 0.0 -0.2 -0.2 -0.2 -0.4 1.9

As of June 30, 2023

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