Annual Report | December 31, 2021
Vanguard
Institutional Index Fund
Contents
Your Fund’s Performance at a Glance | 1 |
About Your Fund’s Expenses | 2 |
Performance Summary | 4 |
Financial Statements | 6 |
Please note: The
opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date
on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
Your Fund’s Performance at a Glance
| • | For the 12 months ended December 31, 2021, Vanguard Institutional Index Fund returned 28.67% for Institutional Shares and 28.69% for Institutional Plus Shares, closely tracking its target index, the Standard & Poor’s 500 Index. The fund provides exposure to the stocks of the largest U.S. companies. |
| • | The U.S. economy continued to heal over the 12 months. Vaccination programs started to roll out shortly after the beginning of the year, helping hard-hit sectors such as hospitality, leisure, and travel begin to rebound, and more workers returned to the labor force. U.S. stocks turned in a strong performance even with the spread of new COVID-19 variants, a surge in inflation, and Federal Reserve monetary policy turning less accommodative. |
| • | All 11 sectors recorded positive returns for the 12 months. Information technology, financial, health care, and consumer discretionary stocks contributed most to returns. |
| • | For the 10 years ended December 31, 2021, the fund posted average annual returns of 16.52% for Institutional Shares and 16.54% for Institutional Plus Shares, closely tracking the return of its target index. |
Market Barometer
| Average Annual Total Returns Periods Ended December 31, 2021 | |||
| One Year | Three Years | Five Years | |
| Stocks | |||
| Russell 1000 Index (Large-caps) | 26.45% | 26.21% | 18.43% |
| Russell 2000 Index (Small-caps) | 14.82 | 20.02 | 12.02 |
| Russell 3000 Index (Broad U.S. market) | 25.66 | 25.79 | 17.97 |
| FTSE All-World ex US Index (International) | 8.36 | 13.66 | 9.89 |
| Bonds | |||
| Bloomberg U.S. Aggregate Bond Index (Broad taxable market) | -1.54% | 4.79% | 3.57% |
| Bloomberg Municipal Bond Index (Broad tax-exempt market) | 1.52 | 4.73 | 4.17 |
| FTSE Three-Month U.S. Treasury Bill Index | 0.05 | 0.95 | 1.11 |
| CPI | |||
| Consumer Price Index | 7.04% | 3.53% | 2.92% |
1
About Your Fund’s Expenses
As a shareholder of the fund,
you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross
income, directly reduce the investment return of the fund.
A fund’s expenses are
expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and
to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table
illustrates your fund’s costs in two ways:
| • | Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund‘s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period. |
To do so, simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading ”Expenses Paid During Period.“
| • | Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds. |
Note that the expenses shown
in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or
account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no
shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information
about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your
fund’s current prospectus.
2
| Six Months Ended December 31, 2021 | |||
| Beginning Account Value 6/30/2021 | Ending Account Value 12/31/2021 | Expenses Paid During Period | |
| Based on Actual Fund Return | |||
| Institutional Index Fund | |||
| Institutional Shares | $1,000.00 | $1,116.50 | $0.19 |
| Institutional Plus Shares | 1,000.00 | 1,116.60 | 0.11 |
| Based on Hypothetical 5% Yearly Return | |||
| Institutional Index Fund | |||
| Institutional Shares | $1,000.00 | $1,025.03 | $0.18 |
| Institutional Plus Shares | 1,000.00 | 1,025.11 | 0.10 |
The calculations are
based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios for that period are 0.035% for Institutional Shares and 0.02% for Institutional Plus Shares. The
dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month
period, then divided by the number of days in the most recent 12-month period (184/365).
3
Institutional Index Fund
Performance Summary
All of the returns in this
report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current
to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth
more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Cumulative Performance:
December 31, 2011, Through December 31, 2021
Initial Investment of $5,000,000
| Average Annual Total Returns Periods Ended December 31, 2021 | |||||
| One Year | Five Years | Ten Years | Final Value of a $5,000,000 Investment | ||
| Institutional Index Fund Institutional Shares | 28.67% | 18.44% | 16.52% | $23,071,910 |
| S&P 500 Index | 28.71 | 18.47 | 16.55 | 23,128,728 |
| Dow Jones U.S. Total Stock Market Float Adjusted Index | 25.66 | 17.92 | 16.24 | 22,525,162 |
| One Year | Five Years | Ten Years | Final Value of a $100,000,000 Investment | ||
| Institutional Index Fund Institutional Plus Shares | 28.69% | 18.46% | 16.54% | $462,230,040 | |
| S&P 500 Index | 28.71 | 18.47 | 16.55 | 462,574,560 | |
| Dow Jones U.S. Total Stock Market Float Adjusted Index | 25.66 | 17.92 | 16.24 | 450,503,240 | |
See Financial
Highlights for dividend and capital gains information.
4
Institutional Index Fund
Fund Allocation
As of December 31, 2021
| Communication Services | 10.1% |
| Consumer Discretionary | 12.5 |
| Consumer Staples | 5.9 |
| Energy | 2.6 |
| Financials | 10.7 |
| Health Care | 13.3 |
| Industrials | 7.8 |
| Information Technology | 29.2 |
| Materials | 2.6 |
| Real Estate | 2.8 |
| Utilities | 2.5 |
The table reflects the fund’s
investments, except for short-term investments and derivatives. Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” category (if
applicable), which includes securities that have not been provided a GICS classification as of the effective reporting period.
The fund may invest in
derivatives (such as futures and swap contracts) for various reasons, including, but not limited to, attempting to remain fully invested and tracking its target index as closely as possible.
Global Industry
Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc.
(“S&P”), and is licensed for use by Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification makes any express or implied warranties or
representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness,
merchantability or fitness for a particular purpose with respect to any such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party
involved in making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the
possibility of such damages.
5
Institutional Index Fund
Financial Statements
Schedule of Investments
As of December 31, 2021
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
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Institutional Index Fund
7
Institutional Index Fund
8
Institutional Index Fund
9
Institutional Index Fund
10
Institutional Index Fund
11
Institutional Index Fund
Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| E-mini S&P 500 Index | March 2022 | 5,387 | 1,281,702 | 22,896 |
| Over-the-Counter Total Return Swaps | ||||||
| Reference Entity | Termination Date | Counterparty | Notional Amount ($000) | Floating Interest Rate Received (Paid) (%) | Value and Unrealized Appreciation ($000) | Value and Unrealized (Depreciation) ($000) |
| Clorox Co. | 1/31/22 | GSI | 44,033 | (0.109)1 | — | (444) |
| State Street Corp. | 8/31/23 | BANA | 65,100 | (0.670)2 | 364 | — |
| Williams Cos. Inc. | 8/31/22 | BANA | 29,686 | (0.470)2 | 455 | — |
| 819 | (444) | |||||
| 1 | Based on 1M USD London Interbank Offered Rate (LIBOR) as of the most recent payment date. Floating interest payment received/paid monthly. |
| 2 | Based on 1M USD Overnight Bank Funding Rate as of the most recent payment date. Floating interest payment received/paid monthly. |
| 1M—1-month. | |
| BANA—Bank of America, N.A. | |
| GSI—Goldman Sachs International. |
At December 31, 2021, the
counterparties had deposited in segregated accounts cash of $2,420,000 in connection with open over-the-counter swap contracts.
See accompanying
Notes, which are an integral part of the Financial Statements.
12
Institutional Index Fund
Statement of Assets and Liabilities
As of December 31, 2021
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value | |
| Unaffiliated Issuers (Cost $96,986,976) | 303,420,564 |
| Affiliated Issuers (Cost $1,192,474) | 1,192,472 |
| Total Investments in Securities | 304,613,036 |
| Investment in Vanguard | 9,719 |
| Cash | 9,328 |
| Cash Collateral Pledged—Futures Contracts | 61,951 |
| Cash Collateral Pledged—Over-the-Counter Swap Contracts | 1,250 |
| Receivables for Investment Securities Sold | 519,273 |
| Receivables for Accrued Income | 183,165 |
| Receivables for Capital Shares Issued | 371,732 |
| Unrealized Appreciation—Over-the-Counter Swap Contracts | 819 |
| Total Assets | 305,770,273 |
| Liabilities | |
| Payables for Investment Securities Purchased | 922 |
| Collateral for Securities on Loan | 17,500 |
| Payables for Capital Shares Redeemed | 880,210 |
| Payables to Vanguard | 3,486 |
| Variation Margin Payable—Futures Contracts | 11,972 |
| Unrealized Depreciation—Over-the-Counter Swap Contracts | 444 |
| Total Liabilities | 914,534 |
| Net Assets | 304,855,739 |
| At December 31, 2021, net assets consisted of: | |
| Paid-in Capital | 96,917,795 |
| Total Distributable Earnings (Loss) | 207,937,944 |
| Net Assets | 304,855,739 |
| Institutional Shares—Net Assets | |
| Applicable to 316,524,069 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 128,441,017 |
| Net Asset Value Per Share—Institutional Shares | $405.79 |
| Institutional Plus Shares—Net Assets | |
| Applicable to 434,732,141 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 176,414,722 |
| Net Asset Value Per Share—Institutional Plus Shares | $405.80 |
See accompanying
Notes, which are an integral part of the Financial Statements.
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Institutional Index Fund
Statement of Operations
| Year Ended December 31, 2021 | |
| ($000) | |
| Investment Income | |
| Income | |
| Dividends1 | 3,947,258 |
| Interest2 | 738 |
| Securities Lending—Net | 1,676 |
| Total Income | 3,949,672 |
| Expenses | |
| The Vanguard Group—Note B | |
| Investment Advisory Services | 6,205 |
| Management and Administrative—Institutional Shares | 36,925 |
| Management and Administrative—Institutional Plus Shares | 25,060 |
| Marketing and Distribution—Institutional Shares | 3,145 |
| Marketing and Distribution—Institutional Plus Shares | 2,072 |
| Custodian Fees | 1,000 |
| Auditing Fees | 32 |
| Shareholders’ Reports—Institutional Shares | 393 |
| Shareholders’ Reports—Institutional Plus Shares | 692 |
| Trustees’ Fees and Expenses | 78 |
| Total Expenses | 75,602 |
| Net Investment Income | 3,874,070 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold2,3 | 16,314,390 |
| Futures Contracts | 273,163 |
| Swap Contracts | 14,949 |
| Realized Net Gain (Loss) | 16,602,502 |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities2 | 50,849,984 |
| Futures Contracts | 9,167 |
| Swap Contracts | 4,750 |
| Change in Unrealized Appreciation (Depreciation) | 50,863,901 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 71,340,473 |
| 1 | Dividends are net of foreign withholding taxes of $534,000. |
| 2 | Interest income, realized net gain (loss), capital gain distributions received, and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $742,000, ($12,000), $28,000, and ($83,000), respectively. Purchases and sales are for temporary cash investment purposes. |
| 3 | Includes $6,479,377,000 of net gain (loss) resulting from in-kind redemptions. |
See accompanying
Notes, which are an integral part of the Financial Statements.
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Institutional Index Fund
Statement of Changes in Net Assets
| Year Ended December 31, | ||
| 2021 ($000) | 2020 ($000) | |
| Increase (Decrease) in Net Assets | ||
| Operations | ||
| Net Investment Income | 3,874,070 | 4,282,979 |
| Realized Net Gain (Loss) | 16,602,502 | 8,788,933 |
| Change in Unrealized Appreciation (Depreciation) | 50,863,901 | 27,825,102 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 71,340,473 | 40,897,014 |
| Distributions | ||
| Institutional Shares | (6,220,924) | (3,751,166) |
| Institutional Plus Shares | (8,234,215) | (4,332,922) |
| Total Distributions | (14,455,139) | (8,084,088) |
| Capital Share Transactions | ||
| Institutional Shares | (15,740,353) | (12,893,969) |
| Institutional Plus Shares | 2,524,999 | (906,093) |
| Net Increase (Decrease) from Capital Share Transactions | (13,215,354) | (13,800,062) |
| Total Increase (Decrease) | 43,669,980 | 19,012,864 |
| Net Assets | ||
| Beginning of Period | 261,185,759 | 242,172,895 |
| End of Period | 304,855,739 | 261,185,759 |
See accompanying
Notes, which are an integral part of the Financial Statements.
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Institutional Index Fund
Financial Highlights
| Institutional Shares | |||||
| For a Share Outstanding Throughout Each Period | Year Ended December 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | |
| Net Asset Value, Beginning of Period | $331.47 | $290.23 | $227.55 | $243.46 | $203.83 |
| Investment Operations | |||||
| Net Investment Income1 | 5.048 | 5.261 | 5.203 | 5.059 | 4.379 |
| Net Realized and Unrealized Gain (Loss) on Investments | 88.637 | 46.122 | 65.746 | (15.434) | 39.687 |
| Total from Investment Operations | 93.685 | 51.383 | 70.949 | (10.375) | 44.066 |
| Distributions | |||||
| Dividends from Net Investment Income | (5.199) | (5.273) | (5.550) | (4.837) | (4.436) |
| Distributions from Realized Capital Gains | (14.166) | (4.870) | (2.719) | (.698) | — |
| Total Distributions | (19.365) | (10.143) | (8.269) | (5.535) | (4.436) |
| Net Asset Value, End of Period | $405.79 | $331.47 | $290.23 | $227.55 | $243.46 |
| Total Return | 28.67% | 18.39% | 31.46% | -4.42% | 21.79% |
| Ratios/Supplemental Data | |||||
| Net Assets, End of Period (Millions) | $128,441 | $119,012 | $116,814 | $104,296 | $140,591 |
| Ratio of Total Expenses to Average Net Assets | 0.035% | 0.035% | 0.035% | 0.035% | 0.04% |
| Ratio of Net Investment Income to Average Net Assets | 1.35% | 1.83% | 1.98% | 2.03% | 1.96% |
| Portfolio Turnover Rate2 | 3% | 4% | 4% | 6% | 5% |
| 1 | Calculated based on average shares outstanding. |
| 2 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares. |
See accompanying
Notes, which are an integral part of the Financial Statements.
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Institutional Index Fund
Financial Highlights
| Institutional Plus Shares | |||||
| For a Share Outstanding Throughout Each Period | Year Ended December 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | |
| Net Asset Value, Beginning of Period | $331.48 | $290.25 | $227.57 | $243.48 | $203.84 |
| Investment Operations | |||||
| Net Investment Income1 | 5.117 | 5.310 | 5.252 | 5.167 | 4.414 |
| Net Realized and Unrealized Gain (Loss) on Investments | 88.627 | 46.108 | 65.739 | (15.503) | 39.705 |
| Total from Investment Operations | 93.744 | 51.418 | 70.991 | (10.336) | 44.119 |
| Distributions | |||||
| Dividends from Net Investment Income | (5.256) | (5.318) | (5.592) | (4.876) | (4.479) |
| Distributions from Realized Capital Gains | (14.168) | (4.870) | (2.719) | (.698) | — |
| Total Distributions | (19.424) | (10.188) | (8.311) | (5.574) | (4.479) |
| Net Asset Value, End of Period | $405.80 | $331.48 | $290.25 | $227.57 | $243.48 |
| Total Return | 28.69% | 18.41% | 31.48% | -4.41% | 21.82% |
| Ratios/Supplemental Data | |||||
| Net Assets, End of Period (Millions) | $176,415 | $142,174 | $125,359 | $95,707 | $91,567 |
| Ratio of Total Expenses to Average Net Assets | 0.02% | 0.02% | 0.02% | 0.02% | 0.02% |
| Ratio of Net Investment Income to Average Net Assets | 1.37% | 1.84% | 1.99% | 2.05% | 1.98% |
| Portfolio Turnover Rate2 | 3% | 4% | 4% | 6% | 5% |
| 1 | Calculated based on average shares outstanding. |
| 2 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares. |
See accompanying
Notes, which are an integral part of the Financial Statements.
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Institutional Index Fund
Notes to Financial Statements
Vanguard Institutional Index
Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Institutional Shares and Institutional Plus Shares. Each of the
share classes has different eligibility and minimum purchase requirements, and is designed for different types of investors.
Market disruptions associated
with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security Valuation:
Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official
closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which
market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are
valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund's net asset value. Temporary cash investments are valued using the
latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services.
2. Futures Contracts:
The fund uses index futures contracts to a limited extent, with the objectives of maintaining full exposure to the stock market, maintaining liquidity, and minimizing transaction costs. The fund may purchase futures
contracts to immediately invest incoming cash in the market, or sell futures in response to cash outflows, thereby simulating a fully invested position in the underlying index while maintaining a cash balance for
liquidity. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks held by the fund and the prices of futures contracts, and the possibility
of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades
futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin
requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any securities pledged as initial margin for open
contracts are noted in the Schedule of Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
During the year ended December
31, 2021, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during
the period.
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Institutional Index Fund
3. Swap Contracts: The
fund has entered into equity swap contracts to earn the total return on selected reference stocks in the fund’s target index. Under the terms of the swaps, the fund receives the total return on the referenced
stock (i.e., receiving the increase or paying the decrease in value of the selected reference stock and receiving the equivalent of any dividends in respect of the selected referenced stock) over a specified period of
time, applied to a notional amount that represents the value of a designated number of shares of the selected reference stock at the beginning of the equity swap contract. The fund also pays a floating rate that is
based on short-term interest rates, applied to the notional amount. At the same time, the fund generally invests an amount approximating the notional amount of the swap in high-quality temporary cash investments.
A risk associated with all
types of swaps is the possibility that a counterparty may default on its obligation to pay net amounts due to the fund. The fund’s maximum amount subject to counterparty risk is the unrealized appreciation on
the swap contract. The fund mitigates its counterparty risk by entering into swaps only with a diverse group of prequalified counterparties, monitoring their financial strength, entering into master netting
arrangements with its counterparties, and requiring its counterparties to transfer collateral as security for their performance. In the absence of a default, the collateral pledged or received by the fund cannot be
repledged, resold, or rehypothecated. In the event of a counterparty’s default (including bankruptcy), the fund may terminate any swap contracts with that counterparty, determine the net amount owed by either
party in accordance with its master netting arrangements, and sell or retain any collateral held up to the net amount owed to the fund under the master netting arrangements. The swap contracts contain provisions
whereby a counterparty may terminate open contracts if the fund’s net assets decline below a certain level, triggering a payment by the fund if the fund is in a net liability position at the time of the
termination. The payment amount would be reduced by any collateral the fund has pledged. Any securities pledged as collateral for open contracts are noted in the Schedule of Investments. The value of collateral
received or pledged is compared daily to the value of the swap contracts exposure with each counterparty, and any difference, if in excess of a specified minimum transfer amount, is adjusted and settled within two
business days.
The notional amounts of swap
contracts are not recorded in the Statement of Assets and Liabilities. Swaps are valued daily based on market quotations received from independent pricing services or recognized dealers and the change in value is
recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until periodic payments are made or the termination of the swap,
at which time realized gain (loss) is recorded.
During the year ended December
31, 2021, the fund’s average amounts of investments in total return swaps represented less than 1% of net assets, based on the average of notional amounts at each quarter-end during the period.
4. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until expiration
of the applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state income tax
years, and has concluded that no provision for income tax is required in the fund’s financial statements.
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Institutional Index Fund
5. Distributions:
Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial
reporting purposes.
6. Securities Lending:
To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are subject to termination by the fund at any time, and are required to be secured at all times by
collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When
this occurs, the collateral is adjusted and settled before the opening of the market on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only
with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements
provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net
amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the event of a default, the fund may experience delays and costs in recovering the
securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Assets and Liabilities for the return of the collateral, during the period
the securities are on loan. Collateral investments in Vanguard Market Liquidity Fund are subject to market appreciation or depreciation. Securities lending income represents fees charged to borrowers plus income
earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
7. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit
agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be
utilized for temporary or emergency purposes, subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged
administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and
included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under either facility bear interest at a rate based upon the higher of the one-month London Interbank
Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread, except that borrowings under the uncommitted credit facility may
bear interest based upon an alternate rate agreed to by the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
20
Institutional Index Fund
For the year ended December
31, 2021, the fund did not utilize the credit facilities or the Interfund Lending Program.
8. Other: Dividend
income is recorded on the ex-dividend date. Non-cash dividends included in income, if any, are recorded at the fair value of the securities received. Interest income includes income distributions received from
Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities are amortized and accreted, respectively, to interest income over the lives of the respective securities, except for
premiums on certain callable debt securities that are amortized to the earliest call date. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains
(losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal
rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on
investments are allocated to each class of shares based on its relative net assets.
| B. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
Upon the request of Vanguard,
the fund may invest up to 0.40% of its net assets as capital in Vanguard. At December 31, 2021, the fund had contributed to Vanguard capital in the amount of $9,719,000, representing less than 0.01% of the
fund’s net assets and 3.89% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
| C. | Various inputs may be used to determine the value of the fund’s investments and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. |
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant
unobservable inputs are noted on the Schedule of Investments.
21
Institutional Index Fund
The following table summarizes
the market value of the fund’s investments and derivatives as of December 31, 2021, based on the inputs used to value them:
| Level 1 ($000) | Level 2 ($000) | Level 3 ($000) | Total ($000) | |
| Investments | ||||
| Assets | ||||
| Common Stocks | 303,420,564 | — | — | 303,420,564 |
| Temporary Cash Investments | 1,192,472 | — | — | 1,192,472 |
| Total | 304,613,036 | — | — | 304,613,036 |
| Derivative Financial Instruments | ||||
| Assets | ||||
| Futures Contracts1 | 22,896 | — | — | 22,896 |
| Swap Contracts | — | 819 | — | 819 |
| Total | 22,896 | 819 | — | 23,715 |
| Liabilities | ||||
| Swap Contracts | — | 444 | — | 444 |
| 1 | Includes cumulative appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
| D. | Permanent differences between book-basis and tax-basis components of net assets are reclassified among capital accounts in the financial statements to reflect their tax character. These reclassifications have no effect on net assets or net asset value per share. As of period end, permanent differences primarily attributable to the accounting for in-kind redemptions, distributions in connection with fund share redemptions, and swap agreements were reclassified between the following accounts: |
| Amount ($000) | |
| Paid-in Capital | 7,291,816 |
| Total Distributable Earnings (Loss) | (7,291,816) |
Temporary differences between
book-basis and tax-basis components of total distributable earnings (loss) arise when certain items of income, gain, or loss are recognized in different periods for financial statement and tax purposes; these
differences will reverse at some time in the future. The differences are primarily related to the deferral of losses from wash sales; and the recognition of unrealized gains or losses from certain derivative
contracts. As of period end, the tax-basis components of total distributable earnings (loss) are detailed in the table as follows:
| Amount ($000) | |
| Undistributed Ordinary Income | 97,955 |
| Undistributed Long-Term Gains | 1,488,957 |
| Capital Loss Carryforwards | — |
| Qualified Late-Year Losses | — |
| Net Unrealized Gains (Losses) | 206,351,032 |
22
Institutional Index Fund
The tax character of
distributions paid was as follows:
| Year Ended December 31, | ||
| 2021 Amount ($000) | 2020 Amount ($000) | |
| Ordinary Income* | 4,355,593 | 4,324,881 |
| Long-Term Capital Gains | 10,099,546 | 3,759,207 |
| Total | 14,455,139 | 8,084,088 |
| * | Includes short-term capital gains, if any. |
As of December 31, 2021, gross
unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
| Amount ($000) | |
| Tax Cost | 98,262,005 |
| Gross Unrealized Appreciation | 211,020,701 |
| Gross Unrealized Depreciation | (4,669,669) |
| Net Unrealized Appreciation (Depreciation) | 206,351,032 |
| E. | During the year ended December 31, 2021, the fund purchased $9,612,210,000 of investment securities and sold $33,062,352,000 of investment securities, other than temporary cash investments. Purchases and sales include $511,581,000 and $8,816,615,000, respectively, in connection with in-kind purchases and redemptions of the fund's capital shares. |
The fund purchased securities
from and sold securities to other Vanguard funds or accounts managed by Vanguard or its affiliates, in accordance with procedures adopted by the board of trustees in compliance with Rule 17a-7 of the Investment
Company Act of 1940. For the year ended December 31, 2021, such purchases were $1,169,593,000 and sales were $797,624,000, resulting in net realized gain of $2,444,000; these amounts, other than temporary cash
investments, are included in the purchases and sales of investment securities noted above.
| F. | Capital share transactions for each class of shares were: |
| Year Ended December 31, | |||||
| 2021 | 2020 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Institutional Shares | |||||
| Issued | 14,069,993 | 38,135 | 16,030,122 | 57,378 | |
| Issued in Lieu of Cash Distributions | 5,724,040 | 14,937 | 3,469,785 | 12,450 | |
| Redeemed | (35,534,386) | (95,588) | (32,393,876) | (113,270) | |
| Net Increase (Decrease)—Institutional Shares | (15,740,353) | (42,516) | (12,893,969) | (43,442) | |
23
Institutional Index Fund
| Year Ended December 31, | |||||
| 2021 | 2020 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Institutional Plus Shares | |||||
| Issued | 26,784,719 | 72,216 | 20,850,601 | 73,122 | |
| Issued in Lieu of Cash Distributions | 7,927,526 | 20,596 | 4,174,182 | 14,912 | |
| Redeemed | (32,187,246) | (86,981) | (25,930,876) | (91,033) | |
| Net Increase (Decrease)—Institutional Plus Shares | 2,524,999 | 5,831 | (906,093) | (2,999) | |
| G. | Management has determined that no events or transactions occurred subsequent to December 31, 2021, that would require recognition or disclosure in these financial statements. |
24
Report of Independent Registered Public Accounting
Firm
To the Board of Trustees of Vanguard
Institutional Index Funds and Shareholders of Vanguard Institutional Index Fund
Opinion on the Financial
Statements
We have audited the accompanying statement of
assets and liabilities, including the schedule of investments, of Vanguard Institutional Index Fund (one of the funds constituting Vanguard Institutional Index Funds, referred to hereafter as the "Fund") as of
December 31, 2021, the related statement of operations for the year ended December 31, 2021, the statement of changes in net assets for each of the two years in the period ended December 31, 2021, including the
related notes, and the financial highlights for each of the five years in the period ended December 31, 2021 (collectively referred to as the "financial statements"). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Fund as of December 31, 2021, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the
period ended December 31, 2021 and the financial highlights for each of the five years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of
America.
Basis for Opinion
These financial statements are the
responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits of
these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud.
Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2021 by correspondence with the custodian, transfer agent and brokers; when replies
were not received from the transfer agent or brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers
LLP
Philadelphia, Pennsylvania
February 16, 2022
Philadelphia, Pennsylvania
February 16, 2022
We have served as the auditor
of one or more investment companies in The Vanguard Group of Funds since 1975.
25
Special 2021 tax information
(unaudited) for Vanguard Institutional Index Fund
This information for the
fiscal year ended December 31, 2021, is included pursuant to provisions of the Internal Revenue Code.
For corporate shareholders,
86.4% of investment income (dividend income plus short-term gains, if any) qualifies for the dividends-received deduction.
The fund distributed
$3,845,193,000 of qualified dividend income to shareholders during the fiscal year.
For nonresident alien
shareholders, 100% of short-term capital gain dividends distributed by the fund are qualified short-term capital gains.
The fund distributed
$10,884,350,000 as capital gain dividends (20% rate gain distributions) to shareholders during the fiscal year.
The fund distributed
$98,595,000 of qualified business income to shareholders during the fiscal year.
26
The S&P 500 Index is a
product of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates (“SPDJI”), and has been licensed for use by Vanguard. Standard & Poor’s®, and S&P® are
registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (“S&P”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC
(“Dow Jones”). The trademarks have been licensed to SPDJI and have been sublicensed for use for certain purposes by Vanguard. Vanguard Institutional Index Fund is not sponsored, endorsed, sold or promoted
by SPDJI, Dow Jones, S&P, any of their respective affiliates (collectively, “S&P Dow Jones Indices”). S&P Dow Jones Indices make no representation or warranty, express or implied, to the owners
of the Vanguard Institutional Index Fund or any member of the public regarding the advisability of investing in securities generally or in Vanguard Institutional Index Fund particularly or the ability of the S&P
500 Index to track general market performance. S&P Dow Jones Indices’ only relationship to Vanguard with respect to the S&P 500 Index is the licensing of the Index and certain trademarks, service marks
and/or trade names of S&P Dow Jones Indices and/or its licensors. The S&P 500 Index is determined, composed and calculated by S&P Dow Jones Indices without regard to Vanguard or the Vanguard Institutional
Index Fund. S&P Dow Jones Indices have no obligation to take the needs of Vanguard or the owners of Vanguard Institutional Index Fund into consideration in determining, composing or calculating the S&P 500
Index. S&P Dow Jones Indices are not responsible for and have not participated in the determination of the prices, and amount of Vanguard Institutional Index Fund or the timing of the issuance or sale of Vanguard
Institutional Index Fund or in the determination or calculation of the equation by which Vanguard Institutional Index Fund is to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow Jones
Indices have no obligation or liability in connection with the administration, marketing or trading of Vanguard Institutional Index Fund. There is no assurance that investment products based on the S&P 500 Index
will accurately track index performance or provide positive investment returns. S&P Dow Jones Indices LLC is not an investment advisor. Inclusion of a security within an index is not a recommendation by S&P
Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.
S&P DOW JONES INDICES DOES
NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE S&P GLOBAL EX-U.S. PROPERTY INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN
COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES
INDICES MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY VANGUARD, OWNERS OF THE VANGUARD
GLOBAL EX-U.S. REAL ESTATE INDEX FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P GLOBAL EX-U.S. PROPERTY INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO
EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR
GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN
S&P DOW JONES INDICES AND VANGUARD, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
27
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The People Who Govern Your Fund
The trustees of your mutual
fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on the board of directors of The
Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them.
A majority of Vanguard’s
board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board
members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 217 Vanguard funds.
Information for each trustee
and executive officer of the fund appears below. That information, as well as the Vanguard fund count, is as of the date on the cover of this fund report. The mailing address of the trustees and officers is P.O. Box
876, Valley Forge, PA 19482. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
1 Mr. Buckley is considered an “interested
person,” as defined in the Investment Company Act of 1940, because he is an officer of the Vanguard funds.
Connect with
Vanguard®>vanguard.com
