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Annual Report | January 31, 2014

Vanguard Energy Fund

Vanguard’s Principles for Investing Success

We want to give you the best chance of investment success. These principles,
grounded in Vanguard’s research and experience, can put you on the right path.

Goals. Create clear, appropriate investment goals.

Balance. Develop a suitable asset allocation using broadly diversified funds.

Cost. Minimize cost.

Discipline. Maintain perspective and long-term discipline.

A single theme unites these principles: Focus on the things you can control.

We believe there is no wiser course for any investor.

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.
See the Glossary for definitions of investment terms used in this report.
About the cover: The ship ’s wheel represents leadership and guidance, essential qualities in navigating difficult seas.
This one is a replica based on an 18th-century British vessel. The HMS Vanguard , another ship of that era, served as the
flagship for British Admiral Horatio Nelson when he defeated a French fleet at the Battle of the Nile.

Chairman’s Letter

Dear Shareholder,

Vanguard Energy Fund returned almost 6% for the 12 months ended January 31, 2014. A January pullback by the U.S. stock market in general—and energy stocks in particular—cut the fund’s fiscal-year return almost in half.

Still, the fund’s larger allocation to some U.S.-based oil and gas exploration companies helped it outpace the 0.74% return of its benchmark index. Your fund also maintained its edge over its global natural resource peer funds, whose average return was 2.40%. Many of those peer funds have significant allocations to sectors other than energy, such as materials, which lagged.

The energy sector lagged the broad U.S. stock market for the third consecutive year. Investors looked favorably on companies involved in the shale oil and gas production boom in North Dakota, Pennsylvania, and elsewhere in the United States. But forecasts of slower growth in global energy demand have tempered the outlook for the sector.

If you invest in the Energy Fund through a taxable account, you may wish to review information about the fund’s after-tax performance provided later in this report.

U.S. stocks found a groove before recent volatility

After delivering exceptional returns in 2013, U.S. stocks slid in January because of economic concerns at home and abroad.

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Nevertheless, U.S. stocks produced impressive gains of nearly 23% for the 12 months ended January 31.

Strong corporate earnings growth and investors’ willingness to pay for those earnings drove stock markets, with support from the Federal Reserve’s stimulative bond-buying program. The Fed, noting the economy’s improvement, began paring back its bond purchases in January (and announced that it would continue tapering in February).

Overall, international stocks advanced about 6% for the 12 months, with the developed markets of Europe and the Pacific region posting positive returns. Concerns about China’s slower growth and tighter U.S. monetary policy were among the factors that hurt stocks and currencies in various emerging-market countries.

For 2014, Vanguard Chief Economist Joe Davis and his team are guarded in their outlook for global stock returns, and their forecast for the bond market remains muted. Although Joe readily acknowledges that such forecasts are accompanied by uncertainty, he writes, “We believe that a long-term, strategic approach with a balanced, diversified, low-cost portfolio can remain a high-value proposition in the decade ahead.” (You can read more about our expectations for bond and stock returns in Vanguard’s Economic and Investment Outlook , available at vanguard.com/research.)

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Bond returns were flat as the Fed firmed its strategy

Investors spurned bonds for most of the 12-month period, wary of the Fed’s expected curtailment of its bond-buying program. In January, however, despite the start of that tapering, fixed income investments regained appeal as stocks slumped.

The broad U.S. taxable bond market returned 0.12% for the fiscal year, while municipal bonds returned –1.07%. The yield of the benchmark 10-year Treasury note generally increased during the period, eclipsing 3.00% at times, and finished at about 2.70%. (Bond prices and yields move in opposite directions.) The Fed’s continued target of 0%–0.25% for short-term interest rates tightly restricted returns of money market funds and savings accounts.

International bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –1.24%.

Some integrated giants stalled, other energy businesses advanced Higher natural gas prices made news in January, when much of the United States was in the grip of a deep freeze; prices ended the fiscal year higher than where they began. In contrast, crude oil prices

The fund expense ratios shown are from the prospectus dated May 28, 2013, and represent estimated costs for the current fiscal year. For the
fiscal year ended January 31, 2014, the fund’s expense ratios were 0.38% for Investor Shares and 0.32% for Admiral Shares. This increase
from the estimated expense ratio reflects a performance-based investment advisory fee adjustment. When the performance adjustment is
positive, the fund’s expenses increase; when it is negative, expenses decrease. The peer-group expense ratio is derived from data provided
by Lipper, a Thomson Reuters Company, and captures information through year-end 2013.

Peer group: Global Natural Resources Funds.

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rose at times over the fiscal year amid concerns about strife in the Middle East and Sudan (an oil producer), but ended the period near where they began. These price trends were reflected in varying degrees in the performance of the fund’s holdings.

The returns of exploration and production companies and of integrated oil and gas giants, which together represented more than three-quarters of the fund’s average assets, diverged notably. Explorers and producers, especially U.S. firms that rank among the fund’s top-ten holdings, sprinted ahead of the less-nimble global giants during the first half of the fiscal year.

They then widened their lead—buoyed in part by strong prices and optimism about U.S. production trends. The fund’s oil and gas exploration and production holdings returned almost 13% as a group, with individual company returns approaching 50% or more.

At the other end of the results scale, the major international oil and gas companies as a group were about flat for the year. Some of the fund’s largest holdings posted modest gains, but many emerging-market firms struggled amid the downdraft in developing markets and concern about growth prospects.

For a benchmark description, see the Glossary.
Global Natural Resources Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.

The figures shown represent past performance, which is not a guarantee of future results. (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.

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Compared with the benchmark index, the Energy Fund’s advisors added the most value with their choices of U.S. exploration and production companies. Refiners and marketers, as well as providers of equipment and services, also lifted relative returns, which were held back by some integrated multinationals.

The Advisors’ Report that follows this letter provides additional details about the management of the fund during the fiscal year.

Discipline and focus produced strong long-term results

The Energy Fund’s long-term performance continued to impress. For the ten years ended January 31, 2014, the average annual return of Investor Shares was 12.57%, more than 2 percentage points ahead of the benchmark index and almost 4 percentage points ahead of peer funds. Your fund also outperformed the broad U.S. stock market by about 5 percentage points.

In May, Vanguard Energy Fund will mark its 30th anniversary. Since its inception, the fund has been ably guided by Wellington Management Company. I thank Wellington for its ongoing distinguished service, dedication, and expertise. (Since 2005, a portion of the fund has also been managed by Vanguard Equity Investment Group.)

When traveling a long, bumpy road, be sure to pack some patience

Over time, even a small degree of outperformance can meaningfully affect a portfolio’s value. That’s why many investors remain drawn to active management—they want the opportunity for market-beating returns, even though considerable research has shown that only a minority of active managers consistently outperform their benchmarks.

Long-term outperformance is uncommon largely because active management tends to be costlier than indexing. The higher a fund’s expense ratio, the higher the hurdle it must overcome to beat its benchmark after accounting for expenses.

For investors, impatience can create a still higher hurdle. Even managers with the best market-beating records can’t avoid short periods of underperformance. An investor who is unwilling to endure some lean years could unwisely abandon a talented manager and miss out on long-term rewards. (You can read more in The Bumpy Road to Outperformance , available at vanguard.com/research.)

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That’s why Vanguard recommends that you pay attention to costs and take a patient, long-term view. Vanguard does its part to try to give investors the best chance for success by offering access to world-class active managers and by operating our funds at costs well below industry averages.

As always, thank you for investing with Vanguard.

Sincerely,

F. William McNabb III
Chairman and Chief Executive Officer
February 13, 2014

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Advisors’ Report

Vanguard Energy Fund returned 5.88% for Investor Shares and 5.94% for Admiral Shares in the fiscal year ended January 31, 2014, ahead of the 0.74% return of its benchmark index and the 2.40% average return of global natural resources peer funds. Your fund is managed by two advisors, a strategy that can enhance the fund’s diversification by providing exposure to distinct yet complementary investment approaches. It’s not uncommon for different advisors to have different views about individual securities or the broader investment environment.

The advisors, the amount and percentage of fund assets each manages, and brief descriptions of their investment strategies are presented in the table below. The advisors have also provided a discussion of the investment environment that existed during the year and of how their portfolio positioning reflects this assessment. These reports were prepared on February 12, 2014.

Wellington Management Company, llp

Portfolio Manager:
Karl E. Bandtel, Senior Vice President

The investment environment

Global equities advanced during the fiscal year ended January 31, 2014. Despite liquidity concerns in China and tepid economic growth in Europe, investors were emboldened by signs of stronger

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growth in the United States and Japan. U.S. stock returns were particularly strong, and more volatile smaller-company stocks led the way. Emerging-market stocks trailed their developed-market counterparts. As a group, stocks in the global energy sector finished roughly where they started, lagging the approximately 13% return of the broad MSCI All Country World Index.

Energy commodity spot price movements were mixed. The price of West Texas Intermediate (WTI) crude oil (a benchmark based on oil produced domestically) was flat for the period, closing at $98 per barrel. However, the spread between Brent (a benchmark based on oil produced outside the United States) and WTI crude oil prices narrowed, as Brent declined from $116 to $108 per barrel. Henry Hub natural gas prices rose from $3.33 to just over $5 per million Btu. In our view, the market does not fully appreciate the long-term natural gas demand story, and we expect that the prospect of increased demand in the next few years will support healthy prices.

Our successes

Stock selection within the oil and gas sub-sector was the key driver of our success. We also benefited from favorable security selection within the energy equipment and services subsector.

Top individual contributors included Cabot Oil & Gas, Pioneer Natural Resources, EQT, EOG Resources, and Baker Hughes, all based in the United States. In fact, nine of our top 10 absolute contributors during this period were stocks of U.S.-domiciled companies.

Pioneer Natural Resources is engaged in oil and gas exploration and production. The company has unconventional oil production sources in the Permian Basin in the U.S. Southwest, and recent appraisal drilling gave reason for optimism about the size and quality of these reserves. This bolstered investor confidence, supporting the company’s stock price.

We are optimistic about the company’s growth prospects, and we increased our position.

EOG Resources is an exploration and production company focused primarily in North America. EOG has a strong asset portfolio, and reserves could be significantly higher than current estimates. The company’s focus on organic growth, operational efficiency, and cost control has resulted in strong profitability metrics, yet the shares remain attractively priced in our view. We added to our position during the period.

Our shortfalls

Our most significant detractors during the period included Petrobras (Brazil), PetroChina (China), Cenovus Energy (Canada), Inpex (Japan), and Cobalt International Energy (United States).

Petrobras, an integrated oil and gas company, experienced production delays related to the deployment of drilling platforms. That, coupled with a broader sell-off across emerging markets (Brazil in particular), depressed the stock. We believe that production growth will improve and accelerate into 2014. We expect that

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downstream retail margins, previously disappointing, should also improve to more normal levels. We continue to hold our position.

Cobalt International Energy is an oil-focused exploration and production company. Following disappointing drilling results this summer, Cobalt’s stock price remained under pressure as investors maintained high expectations for the company. We are closely monitoring important prospects and appraisals that could be significant catalysts for the stock, and maintain a position.

The fund’s positioning

Our long-term outlook for the energy sector remains favorable. However, as always, we urge caution regarding the near-term direction of commodity prices and, by extension, the inherent volatility that accompanies investing in stocks of energy companies.

Over time, we believe that substituting natural gas for coal—in North America and overseas—is a significant opportunity for patient investors. Such substitutions, combined with the impact of several projects under way to enable the export of U.S. natural gas, are likely to keep narrowing the wide disparity between global energy prices and North American natural gas prices.

We hold stocks domiciled in 14 countries. Over 35% of the portfolio’s assets are invested in international stocks (including roughly 5% in emerging markets), and we will probably seek opportunities to increase

this exposure as we pare back positions in North America on the margin and redeploy the proceeds into investments with more attractive valuations.

Our portfolio remains skewed toward low-cost producers with compelling valuations, based on our assessment of their long-term resource bases. We believe many of these companies are able to create value for shareholders absent generally rising commodity prices.

Our low-turnover investment process remains steady with an emphasis on finding mid- and large-capitalization integrated oil and exploration and production companies that are attractively valued. We will continue to focus on stocks of companies that have clean balance sheets, long-lived resources, and high-quality management teams.

Vanguard Equity Investment Group

Portfolio Managers:
James D. Troyer, CFA, Principal

James P. Stetler, Principal

Michael R. Roach, CFA

Generally, the fiscal year was a weak period for energy stocks; the fund’s benchmark underperformed the broad global equity market (as represented by the MSCI All Country World Index) in each of the four quarters. The first quarter’s relative performance was the weakest: The fund’s benchmark lagged by more than 6 percentage points.

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From a macroeconomic perspective, the changing of the guard at the Federal Reserve created market volatility because of uncertainty about its approach to monetary policy, leading to sharp fluctuations in interest rates. Emerging markets have been under pressure because of the Fed’s tapering and slowing economic growth. As a result, the demand for commodities has been relatively flat. Crude oil prices in the United States finished the year nearly unchanged. All these factors led to a relatively weak performance by the energy stocks throughout this reporting period.

We use a quantitative approach to investing that focuses on specific stock fundamentals. We do not take a stand on the overall market for energy stocks. In addition, we do not attempt to make predictions on different geographic regions. We focus our investment process on identifying stocks that we believe are undervalued based on our multi-signal model.

Over the period ended January 31, our most successful overweighted holdings included the following: in the United States, First Solar (+80%), Noble Energy (+17%), and Chesapeake Energy (+35%); in Japan, Showa Shell Sekiyu K.K. (+93%); and in China, China Oilfield Services Limited Class H (+27%). Our performance was aided significantly by our ability to underweight exposures that did not do as well, such as Ecopetrol SA (–34%) in Colombia and PetroChina Co. Ltd. Class H (–29%) in China.

Our results were hurt by overweighting Tatneft (–21%) and Rosneft (–19%) in Russia; PTT Public (–16%) in Thailand; and Turkiye Petrol Rafinerileri (–36%) in Turkey and by underweighting U.S.-based Pioneer Natural Resources (+44%).

Although exceptional performance by the broad stock market did not translate into a very robust year for energy stocks, our model was able to effectively capture a spread between overvalued and undervalued energy stocks. While it is difficult to predict the direction of the sector returns, we are confident that our model should continue to capture the relative attractiveness of individual stocks. Attractive fundamentals remain one of the main drivers of our strategy, which the market should reward in the long run. We thank you for your investment and look forward to the next productive fiscal year.

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1 The expense ratios shown are from the prospectus dated May 28, 2013, and represent estimated costs for the current fiscal year. For the fiscal
year ended January 31, 2014, the expense ratios were 0.38% for Investor Shares and 0.32% for Admiral Shares.

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Energy Fund

Financial Statements

Statement of Net Assets
As of January 31, 2014

The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).

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See Note A in Notes to Financial Statements.
* Non-income-producing security.
^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $ 1 2, 945 ,000.
1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures
investments, the fund’s effective common stock and temporary cash investment positions represent 97 . 1 % and 3 .0%, respectively, of net
assets.
2 Considered an affiliated company of the fund as the issuer is another member of The Vanguard Group.
3 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the
7 -day yield.
4 Includes $ 13 , 653 ,000 of collateral received for securities on loan.
5 The issuer operates under a congressional charter; its securities are generally neither guaranteed by the U.S. Treasury nor backed by the full
faith and credit of the U.S. government.
6 Securities with a value of $ 7 , 898 ,000 have been segregated as initial margin for open futures contracts.
ADR—American Depositary Receipt.
GDR—Global Depositary Receipt.
See accompanying Notes, which are an integral part of the Financial Statements.

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1 Total returns do not include transaction or account service fees that may have applied in the periods shown. Fund prospectuses provide
information about any applicable transaction and account service fees.
2 Includes performance-based investment advisory fee increases (decreases) of 0.0 4 %, (0.02%), 0.0 1 %, 0.00%, and 0.0 3 %.

See accompanying Notes, which are an integral part of the Financial Statements.

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1 Total returns do not include transaction fees that may have applied in the periods shown. Fund prospectuses provide information about any
applicable transaction fees.
2 Includes performance-based investment advisory fee increases (decreases) of 0.0 4 %, (0.02%), 0.0 1 %, 0.00%, and 0.0 3 %.

See accompanying Notes, which are an integral part of the Financial Statements.

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Energy Fund

Energy Fund

Futures contracts are valued at their quoted daily settlement prices. The aggregate notional amounts of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets 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 futures gains (losses).

During the year ended January 31, 2014, the fund’s average investments in long and short futures contracts represented 1% and 0% of net assets, respectively, based on quarterly average aggregate settlement values.

4. Repurchase Agreements: The fund enters into repurchase agreements with institutional counterparties. Securities pledged as collateral to the fund under repurchase agreements are held by a custodian bank until the agreements mature. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal. The fund further mitigates its counterparty risk by entering into repurchase agreements only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master repurchase agreements with its counterparties. The master repurchase agreements provide that, in the event of a counter-party’s default (including bankruptcy), the fund may terminate any repurchase agreements with that counterparty, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund. Such action may be subject to legal proceedings, which may delay or limit the disposition of collateral.

5. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (January 31, 2011–2014), and has concluded that no provision for federal income tax is required in the fund’s financial statements.

6. Distributions: Distributions to shareholders are recorded on the ex-dividend date.

7 . Securities Lending: To earn additional income, the fund may lend its securities to qualified institutional borrowers. Security loans 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 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 absence 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 for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.

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Energy Fund

8 . Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. 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. Wellington Management Company, LLP , provides investment advisory services to a portion of the fund for a fee calculated at an annual percentage rate of average net assets managed by the advisor. The basic fee is subject to quarterly adjustments based on performance for the preceding three years relative to the MSCI ACWI Energy Index.

The Vanguard Group provides investment advisory services to a portion of the fund on an at-cost basis; the fund paid Vanguard advisory fees of $3 87 ,000 for the year ended January 31, 2014.

For the year ended January 31, 2014, the aggregate investment advisory fee represented an effective annual basic rate of 0.14% of the fund’s average net assets, before an increase of $4,62 7 ,000 (0.04%) based on performance.

C. The Vanguard Group furnishes at cost corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the fund under methods approved by the board of trustees. The fund has committed to provide up to 0.40% of its net assets in capital contributions to Vanguard. At January 31, 2014, the fund had contributed capital of $1,3 7 5,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.55% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.

D. Various inputs may be used to determine the value of the fund’s investments. 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).

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Energy Fund

The fund used a tax accounting practice to treat a portion of the price of capital shares redeemed during the year as distributions from net investment income and realized capital gains. Accordingly, the fund has reclassified $10,222,000 from overdistributed net investment income, and $2 8 ,2 7 0,000 from accumulated net realized gains, to paid-in capital.

The fund used a capital loss carryforward of $15, 7 01,000 to offset taxable capital gains realized during the year ended January 31, 2014, reducing the amount of capital gains that would otherwise be available to distribute to shareholders. For tax purposes, at January 31, 2014, the fund had $39,110,000 of long-term capital gains available for distribution.

At January 31, 2014, the cost of investment securities for tax purposes was $ 7 ,306,55 7 ,000. Net unrealized appreciation of investment securities for tax purposes was $4,3 8 6, 77 6,000, consisting of unrealized gains of $4,62 8 ,42 7 ,000 on securities that had risen in value since their purchase and $241,651,000 in unrealized losses on securities that had fallen in value since their purchase.

G. During the year ended January 31, 2014, the fund purchased $1,9 7 1,2 7 5,000 of investment securities and sold $2,699,3 8 2,000 of investment securities, other than temporary cash investments.

H. Capital share transactions for each class of shares were:

I. Management has determined that no material events or transactions occurred subsequent to January 31, 2014, that would require recognition or disclosure in these financial statements.

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Your Fund’s After-Tax Returns

This table presents returns for your fund both before and after taxes. The after-tax returns are shown in two ways: (1) assuming that an investor owned the fund during the entire period and paid taxes on the fund’s distributions, and (2) assuming that an investor paid taxes on the fund’s distributions and sold all shares at the end of each period.

Calculations are based on the highest individual federal income tax and capital gains tax rates in effect at the times of the distributions and the hypothetical sales. State and local taxes were not considered. After-tax returns reflect any qualified dividend income, using actual prior-year figures and estimates for 2014 . (In the example, returns after the sale of fund shares may be higher than those assuming no sale. This occurs when the sale would have produced a capital loss. The calculation assumes that the investor received a tax deduction for the loss.)

The table shows returns for one share class only; returns for other share classes will differ. Please note that your actual after-tax returns will depend on your tax situation and may differ from those shown. Also note that if you own the fund in a tax-deferred account, such as an individual retirement account or a 401(k) plan, this information does not apply to you. Such accounts are not subject to current taxes.

Finally, keep in mind that a fund’s performance—whether before or after taxes—does not guarantee future results.

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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.

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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 0.38% for Investor Shares and 0.32% for Admiral 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.

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Glossary

30-Day SEC Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (for bonds), its actual income (for asset-backed securities), or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.

Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.

Dividend Yield. Dividend income earned by stocks, expressed as a percentage of the aggregate market value (or of net asset value, for a fund). The yield is determined by dividing the amount of the annual dividends by the aggregate value (or net asset value) at the end of the period. For a fund, the dividend yield is based solely on stock holdings and does not include any income produced by other investments.

Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.

Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.

Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.

Foreign Holdings. The percentage of a fund represented by securities or depositary receipts of companies based outside the United States.

Inception Date. 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 measured from the inception date.

Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.

Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.

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Price/Earnings Ratio. The ratio of a stock’s current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company’s future growth.

R-Squared . A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0. For this report, R-squared is based on returns over the past 36 months for both the fund and the index.

Return on Equity. The annual average rate of return generated by a company during the past five years for each dollar of shareholder’s equity (net income divided by shareholder’s equity). For a fund, the weighted average return on equity for the companies whose stocks it holds.

Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.

Turnover Rate. An indication of the fund’s trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to investors). The turnover rate excludes in-kind transactions, which have minimal impact on costs.

Benchmark Information

Spliced Energy Index: S &P 500 Index through November 30, 2000; S&P Energy Sector Index through May 31, 2010; MSCI All Country World Energy Index thereafter.

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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 on an at-cost basis.

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 1 8 0 Vanguard funds.

The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information , which can be obtained, without charge, by contacting Vanguard at 8 00-662- 7 44 7 , or online at vanguard.com.

1 Mr. McNabb is considered an “interested person,” as defined in the Investment Company Act of 194 0, because he is an officer of the
Vanguard funds.
2 December 2002 for Vanguard Equity Income Fund, Vanguard Growth Equity Fund, the Vanguard Municipal Bond Funds, and the Vanguard
State Tax-Exempt Funds.

Annual Report | January 31, 2014

Vanguard Health Care Fund

Vanguard’s Principles for Investing Success

We want to give you the best chance of investment success. These principles, grounded in Vanguard’s research and experience, can put you on the right path.

Goals. Create clear, appropriate investment goals.