UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-02968-99
Name of Registrant: | Vanguard Trustees’ Equity Fund |
Address of Registrant: | P.O. Box 2600 |
Valley Forge, PA 19482 |
Name and address of agent for service: | Anne E. Robinson, Esquire |
P.O. Box 876 | |
Valley Forge, PA 19482 |
Registrant’s telephone number, including area code: (610) 669-1000
Date of fiscal year end: October 31
Date of reporting period: November 1, 2019—October 31, 2020
Item 1: Reports to Shareholders
Annual Report | October 31, 2020
Vanguard International Value Fund
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See the inside front cover for important information about access to your fund’s annual and semiannual shareholder reports.
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Important information about access to shareholder reports
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your fund’s annual and semiannual shareholder reports will no longer be sent to you by mail, unless you specifically request them. Instead, you will be notified by mail each time a report is posted on the website and will be provided with a link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. You may elect to receive shareholder reports and other communications from the fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with the fund, by calling Vanguard at one of the phone numbers on the back cover of this report or by logging on to vanguard.com.
You may elect to receive paper copies of all future shareholder reports free of charge. If you invest through a financial intermediary, you can contact the intermediary to request that you continue to receive paper copies. If you invest directly with the fund, you can call Vanguard at one of the phone numbers on the back cover of this report or log on to vanguard.com. Your election to receive paper copies will apply to all the funds you hold through an intermediary or directly with Vanguard.
Contents
Your Fund’s Performance at a Glance | 1 |
Advisors’ Report | 2 |
About Your Fund’s Expenses | 7 |
Performance Summary | 9 |
Financial Statements | 11 |
Trustees Approve Advisory Arrangement | 29 |
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 October 31, 2020, Vanguard International Value Fund returned –8.69%. Its benchmark, the MSCI All Country World Index ex USA, returned –2.61%.
· In October, Sprucegrove Investment Management Ltd. was added as an advisor to the fund, with a target allocation of 35% of assets. Edinburgh Partners Limited no longer advises the fund.
· The period was marked by the global spread of COVID-19 and efforts to contain it. However, responses from policymakers, the start of trials for vaccines and treatments, and the easing of some pandemic-related restrictions eventually lifted investor sentiment.
· The broad U.S. stock market, as measured by the Russell 3000 Index, returned 10.15%. Growth stocks outperformed value, and large-capitalization stocks outperformed mid- and small-caps.
· Of the fund’s 11 sectors, only health care and real estate helped relative performance. Holdings in communication services and consumer discretionary detracted the most.
· On a regional basis, companies based in Europe and emerging markets lagged most. In the Pacific, firms in South Korea helped performance, but those in Japan, the fund’s largest market, detracted.
· Over the decade ended October 31, the fund’s average annualized return was 2.98%, trailing the 3.43% return of its expense-free benchmark.
Market Barometer
Average Annual Total Returns
Periods Ended October 31, 2020
One Year | Three Years | Five Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 10.87% | 10.63% | 11.79% |
Russell 2000 Index (Small-caps) | -0.14 | 2.19 | 7.27 |
Russell 3000 Index (Broad U.S. market) | 10.15 | 10.04 | 11.48 |
FTSE All-World ex US Index (International) | -2.17 | 0.13 | 4.52 |
Bonds | |||
Bloomberg Barclays U.S. Aggregate Bond Index (Broad taxable market) | 6.19% | 5.06% | 4.08% |
Bloomberg Barclays Municipal Bond Index (Broad tax-exempt market) | 3.59 | 4.09 | 3.70 |
FTSE Three-Month U.S. Treasury Bill Index | 0.86 | 1.62 | 1.15 |
CPI | |||
Consumer Price Index | 1.18% | 1.82% | 1.83% |
1
Advisors’ Report
For the 12 months ended October 31, 2020, Vanguard International Value Fund returned –8.69%. It underperformed its benchmark, the MSCI All Country World Index ex USA, which returned –2.61%.
Your fund is managed by three independent advisors, a strategy that enhances its 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 accompanying table lists the advisors, the amount and percentage of fund assets each manages, and brief descriptions of their investment strategies.
The advisors have provided the following assessment of the investment environment during the past 12 months and the notable successes and shortfalls in their portfolios. These comments were prepared on November 18, 2020.
Lazard Asset Management LLC
Portfolio Managers:
Michael G. Fry, Managing Director
Michael A. Bennett, CPA,
Managing Director
Market overview
As we entered the year, investors had high expectations that corporate profits would start growing again after positive geopolitical developments calmed uneasy markets in the fourth quarter of 2019. Global central banks, which drove valuations and stock prices higher by loosening policy in 2019, were expected to be supportive.
Then came the virus. By March, COVID-19 was a pandemic, and optimism dissipated. However, once economies around the world began to emerge from lockdowns, equities soared. On the heels of their worst-ever performance in the first quarter, international equities staged a dramatic recovery from March 23 through the end of October, and the MSCI All Country World Index ex USA rose 38.8%. International stocks are not yet back to their pre-coronavirus levels—the index is down 7.5% so far this calendar year—but the trend is encouraging.
Portfolio review
The most expensive growth stocks led the market as the MSCI All Country World ex US Growth Index outpaced its value counterpart by more than 27 percentage points. This was a headwind to relative performance.
Stock selection in the energy sector hurt relative returns as Suncor Energy, a Canadian integrated energy company, underperformed. The stock remains surrounded by the storm as an oil producer in an unprecedented period of demand destruction.
In contrast, stock selection in the communication services sector helped relative returns as Japanese video game manufacturer Nintendo outperformed. Both gross margins and operating margins
2
rose significantly during the year, and early indications of new-release games sales have been encouraging.
Outlook
The U.S. election, economic uncertainty, and COVID-19 could dominate market concerns in the near-term. There has certainly been progress toward developing viable treatments and vaccines, as well as building a more robust testing and contact-tracing system. However, scientists and policymakers are racing against reopenings, colder weather (flu season), and a second wave.
Nevertheless, we are optimistic that governments can manage through any increases in COVID-19 cases. The significant stimulus currently in the market and the potential for more to come could bode well for the performance of inexpensively valued, quality cyclicals, particularly in Europe.
Sprucegrove Investment Management Ltd.
Portfolio Managers:
Arjun Kumar, CFA,
Co-Lead of International Equities
Shirley Woo, CFA,
Co-Lead of International Equities
Note: On October 12, 2020, Vanguard added Sprucegrove as an advisor to Vanguard International Value Fund. The firm’s investment philosophy is described next.
Sprucegrove is a Toronto-based boutique asset manager specializing in international and global strategies. It was founded in 1993 and is 100% employee-owned.
The advisor’s investment philosophy is grounded in the belief that the short-term focus of many investors enables high-quality companies to trade at a discount. This allows firms that strictly adhere to a disciplined long-term approach to be patient and wait for exploitable valuation opportunities.
Sprucegrove seeks to purchase high-quality businesses at a substantial discount to their long-term value and has a record of holding them through market volatility, with a typical holding period of 10 years. The investment process begins with a bottom-up idea generation process that involves analysts measuring company quality based on five criteria:
· | Above-average, consistent profitability |
· | Sustainable competitive advantages |
· | Financial strength |
· | Opportunities to grow the business |
· | Capable management |
For each company, analysts look at approximately a decade’s worth of annual reports and balance sheets to assess the fundamentals of both the company and its competitors and to calculate projected return on equity. Analysts also meet with companies’ management to further determine the quality of capital allocation decisions. The team keeps a working list
3
of approximately 250 names, often covering a company for years before deciding its valuation presents a buying opportunity.
The result of this long-term, bottom-up, quality-first approach to value investing is a portfolio of approximately 80 firms with high active share, low downside capture and volatility over the long term, and an average annual turnover rate of only 7%.
ARGA Investment Management, LP
Portfolio Managers:
A. Rama Krishna, CFA, Founder and
Chief Investment Officer
Steven Morrow, CFA, Director of Research
International equity markets met the tumultuous year ended October 31 with an overall decline. Results reflected investors’ desire for certainty amid grave uncertainties from the pandemic. Companies with near-term earnings certainty and likely growth during the crisis enjoyed record highs. Those with less near-term certainty and economically sensitive stocks under-performed. While this dynamic created a growth-over-value scenario, it created very compelling value-style opportunities.
ARGA responded by maintaining its long-term discipline, seeking to take advantage of stock price anomalies identified through a research-based valuation process. Sector, country, and company research drove the portfolio’s focus toward businesses with solid balance sheets and strong franchises.
With many such companies priced as if they will remain permanently depressed, ARGA found opportunities in various sectors, including industrials, materials, and financials.
Most of ARGA’s successes, shortfalls, and opportunities occur on a company-specific basis. Even in industries suffering pandemic fallout, we found firms that are well-positioned to manage the downturn if not emerge stronger. For example, for the first time in more than a decade, we purchased underpriced aerospace companies with strong market positions. These include a duopolistic aircraft manufacturer and the world’s largest aircraft lessor. Both have unique advantages in revenue protection and balance sheet strength that imply strong future earnings when travel recovers.
Company-specific exposures to depressed industries included a low-cost South Korean steel producer. ARGA research projected the company could improve capital allocation and returns in non-steel businesses. During the period, management engagement by ARGA and other shareholders successfully led the firm to announce a large buyback program and implement initiatives boosting non-steel returns.
Additionally, select European banks became attractive on market overreaction to low interest rates. These holdings have strong capital positions to weather loan-book stress and boost returns despite environmental pressures.
4
Valuation spreads between international growth and value stocks are currently at their highest level in more than 45 years, even exceeding the dot-com peak. This suggests strong return potential for value-style investors. Fundamental research confirms this long-term opportunity. When the crisis eventually ends, ARGA expects recovery by many undervalued companies to substantially benefit the portfolio.
5
Vanguard International Value Fund Investment Advisors
Fund Assets Managed | ||||
Investment Advisor | % | $ Million | Investment Strategy | |
Lazard Asset Management LLC | 40 | 3,767 | The advisor uses a research-driven, bottom-up, relative-value approach in selecting stocks. The goal is to identify individual stocks that offer an appropriate trade-off between low relative valuation and high financial productivity. | |
Sprucegrove Investment Management Ltd. | 32 | 3,036 | The advisor employs a disciplined, low-turnover, value-oriented investment strategy to select stocks. The investment process was founded on intense proprietary research, with analysts identifying high-quality companies as measured against five criteria: above-average consistent profitability, sustainable competitive advantages, financial strength, opportunity for growth, and capable | |
management. | ||||
ARGA Investment Management, LP | 25 | 2,373 | The advisor believes that investors overreact to short-term developments in companies, leading to opportunities to generate gains as the businesses recover. Its valuation-focused process uses a dividend discount model to select stocks that trade at a discount to intrinsic value based on the company’s long-term earnings power and dividend-paying capability. | |
Cash Investments | 3 | 232 | These short-term reserves are invested by Vanguard in equity index products to simulate investments in stocks. Each advisor may also maintain a modest cash position. | |
6
About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table illustrates your fund’s costs in two ways:
• Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund‘s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading ”Expenses Paid During Period.“
• Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.
7
Six Months Ended October 31, 2020
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
International Value Fund | 4/30/2020 | 10/31/2020 | Period |
Based on Actual Fund Return | $1,000.00 | $1,093.97 | $1.84 |
Based on Hypothetical 5% Yearly Return | 1,000.00 | 1,023.38 | 1.78 |
The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratio for that period is 0.35%. 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 (184/366).
8
International Value Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Cumulative Performance: October 31, 2010, Through October 31, 2020
Initial Investment of $10,000
Average Annual Total Returns | ||||||
Periods Ended October 31, 2020 | ||||||
Final Value | ||||||
One | Five | Ten | of a $10,000 | |||
Year | Years | Years | Investment | |||
International Value Fund | -8.69% | 2.62% | 2.98% | $13,409 | ||
MSCI All Country World Index ex USA | -2.61 | 4.26 | 3.43 | 14,012 |
See Financial Highlights for dividend and capital gains information.
9
International Value Fund
Fund Allocation
As of October 31, 2020
Communication Services | 8.8% |
Consumer Discretionary | 12.5 |
Consumer Staples | 7.7 |
Energy | 3.2 |
Financials | 17.5 |
Health Care | 5.0 |
Industrials | 18.5 |
Information Technology | 9.5 |
Materials | 12.8 |
Real Estate | 1.7 |
Utilities | 2.8 |
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 report-ing period.
The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party involved in making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
10
International Value Fund
Financial Statements
Schedule of Investments
As of October 31, 2020
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.
Market | |||
Value• | |||
Shares | ($000) | ||
Common Stocks (93.7%) | |||
Australia (0.9%) | |||
BHP Group Ltd. | 1,831,825 | 43,912 | |
National Australia Bank Ltd. | 2,035,110 | 26,625 | |
Adbri Ltd. | 8,006,814 | 15,915 | |
86,452 | |||
Belgium (0.5%) | |||
Anheuser-Busch InBev SA/NV | 939,832 | 48,614 | |
Brazil (1.7%) | |||
Ambev SA ADR | 25,834,800 | 55,286 | |
Banco Bradesco SA ADR | 12,577,200 | 44,020 | |
Cia de Saneamento Basico do Estado de Sao Paulo | 3,588,000 | 26,576 | |
BB Seguridade Participacoes SA | 5,489,500 | 22,655 | |
Lojas Renner SA | 2,426,200 | 15,835 | |
164,372 | |||
Canada (2.7%) | |||
Nutrien Ltd. | 1,621,162 | 65,903 | |
Canadian Natural Resources Ltd. | 3,628,109 | 57,732 | |
Canadian National Railway Co. | 431,558 | 42,871 | |
Saputo Inc. | 1,184,949 | 28,843 | |
Bank of Nova Scotia | 683,400 | 28,392 | |
Suncor Energy Inc. | 2,506,606 | 28,277 | |
252,018 | |||
China (6.7%) | |||
Tencent Holdings Ltd. | 1,663,800 | 127,124 | |
* | Baidu Inc. ADR | 787,832 | 104,821 |
Ping An Insurance Group Co. of China Ltd. | 8,411,500 | 86,972 | |
ENN Energy Holdings Ltd. | 4,640,300 | 58,728 | |
Autohome Inc. ADR | 541,730 | 51,762 | |
* | Alibaba Group Holding Ltd. | 1,249,000 | 47,329 |
* | Weibo Corp. ADR | 887,480 | 36,875 |
*,1 | ESR Cayman Ltd. | 11,034,400 | 33,329 |
China Mobile Ltd. | 5,075,500 | 31,044 | |
Shanghai Fosun Pharmaceutical Group Co. Ltd. Class H | 6,454,500 | 26,638 | |
Momo Inc. ADR | 1,489,717 | 22,346 | |
626,968 | |||
Denmark (1.1%) | |||
Vestas Wind Systems A/S | 314,712 | 53,993 | |
Carlsberg AS Class B | 349,224 | 44,219 | |
Pandora A/S | 101,783 | 8,075 | |
106,287 | |||
Egypt (0.1%) | |||
Commercial International Bank Egypt SAE GDR | 3,590,900 | 13,851 | |
Finland (1.4%) | |||
Nokian Renkaat Oyj | 1,888,170 | 58,020 | |
Sampo Oyj Class A | 1,250,500 | 47,190 | |
* | Nokia Oyj | 6,980,867 | 23,534 |
128,744 | |||
France (9.9%) | |||
Vivendi SA | 3,672,238 | 105,994 | |
Sanofi | 1,007,062 | 90,932 | |
* | Safran SA | 782,464 | 82,535 |
* | Engie SA | 6,693,231 | 80,952 |
* | Airbus SE | 1,067,483 | 78,104 |
Air Liquide SA | 527,168 | 77,093 | |
* | Atos SE | 1,058,788 | 72,333 |
Vinci SA | 877,933 | 69,344 | |
TOTAL SE | 1,853,010 | 56,141 | |
* | Alstom SA | 901,794 | 40,292 |
* | BNP Paribas SA | 913,564 | 31,861 |
Pernod Ricard SA | 191,139 | 30,793 | |
* | ArcelorMittal SA | 2,147,325 | 29,118 |
* | Societe Generale SA | 1,673,334 | 22,737 |
* | Credit Agricole SA | 2,444,326 | 19,336 |
11
International Value Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Publicis Groupe SA | 472,470 | 16,415 | |
Thales SA | 233,464 | 15,213 | |
* | Natixis SA | 3,560,935 | 8,294 |
927,487 | |||
Germany (6.2%) | |||
SAP SE | 672,147 | 71,708 | |
Volkswagen AG Preference Shares | 468,372 | 68,226 | |
Henkel AG & Co. KGaA | 679,270 | 61,409 | |
Bayerische Motoren Werke AG | 842,110 | 57,549 | |
Beiersdorf AG | 508,804 | 53,277 | |
Basf SE | 896,280 | 49,079 | |
Muenchener Rueckversicherungs-Gesellschaft AG in Muenchen | 205,564 | 48,180 | |
Knorr-Bremse AG | 309,135 | 35,807 | |
Jungheinrich AG Preference Shares | 710,712 | 25,840 | |
MTU Aero Engines AG | 145,066 | 24,795 | |
Merck KGaA | 148,809 | 22,043 | |
Fuchs Petrolub SE Preference Shares | 414,898 | 21,355 | |
Continental AG | 198,245 | 21,064 | |
Fresenius Medical Care AG & Co. KGaA | 261,996 | 20,007 | |
580,339 | |||
Hong Kong (2.0%) | |||
AIA Group Ltd. | 5,984,400 | 56,955 | |
Xinyi Glass Holdings Ltd. | 11,928,000 | 26,194 | |
Jardine Strategic Holdings Ltd. | 1,156,000 | 25,030 | |
CK Hutchison Holdings Ltd. | 3,887,000 | 23,477 | |
Hongkong Land Holdings Ltd. | 5,005,500 | 18,376 | |
CK Asset Holdings Ltd. | 3,466,500 | 16,097 | |
Swire Pacific Ltd. Class A | 3,432,850 | 15,655 | |
Yue Yuen Industrial Holdings Ltd. | 4,431,000 | 7,217 | |
189,001 | |||
India (3.3%) | |||
Adani Ports & Special Economic Zone Ltd. | 13,391,490 | 64,957 | |
Zee Entertainment Enterprises Ltd. | 20,262,660 | 51,319 | |
* | ICICI Bank Ltd. ADR | 4,850,498 | 51,173 |
Housing Development Finance Corp. Ltd. | 1,685,290 | 43,722 | |
Ambuja Cements Ltd. | 11,579,019 | 40,538 | |
Hero MotoCorp Ltd. | 539,992 | 20,372 | |
Maruti Suzuki India Ltd. | 169,720 | 15,941 | |
Infosys Ltd. ADR | 1,104,600 | 15,763 | |
GAIL India Ltd. | 9,815,836 | 11,217 | |
315,002 | |||
Indonesia (1.0%) | |||
Astra International Tbk PT | 158,681,200 | 57,946 | |
Telekomunikasi Indonesia Persero Tbk PT ADR | 1,247,186 | 21,315 | |
Bank Mandiri Persero Tbk PT | 39,057,900 | 15,214 | |
94,475 | |||
Ireland (1.3%) | |||
* | Ryanair Holdings plc ADR | 765,228 | 61,677 |
CRH plc | 1,639,500 | 57,370 | |
119,047 | |||
Israel (0.1%) | |||
* | Check Point Software Technologies Ltd. | 86,700 | 9,846 |
Italy (1.8%) | |||
Enel SPA | 8,471,672 | 67,354 | |
* | CNH Industrial NV | 4,810,689 | 37,301 |
* | Freni Brembo SPA | 3,117,759 | 32,394 |
* | UniCredit SPA | 4,284,797 | 32,091 |
169,140 | |||
Japan (12.7%) | |||
Nintendo Co. Ltd. | 198,000 | 107,056 | |
Hitachi Ltd. | 2,419,700 | 81,554 | |
Toyota Motor Corp. | 1,024,200 | 67,236 | |
Nitto Denko Corp. | 936,800 | 65,816 | |
Denso Corp. | 1,389,300 | 64,737 | |
Panasonic Corp. | 6,533,000 | 60,349 | |
Mitsubishi Electric Corp. | 4,616,600 | 59,457 | |
Makita Corp. | 1,333,900 | 58,963 | |
Shin-Etsu Chemical Co. Ltd. | 397,100 | 53,039 | |
Kubota Corp. | 3,028,700 | 52,633 | |
Shimano Inc. | 203,400 | 46,521 | |
Sumitomo Mitsui Financial Group Inc. | 1,600,800 | 44,313 | |
Ryohin Keikaku Co. Ltd. | 2,063,900 | 43,320 | |
Daito Trust Construction Co. Ltd. | 400,000 | 36,386 | |
Suzuki Motor Corp. | 846,500 | 36,355 | |
Kao Corp. | 506,000 | 36,026 | |
Komatsu Ltd. | 1,501,400 | 33,850 | |
Omron Corp. | 461,500 | 33,323 | |
Daiwa House Industry Co. Ltd. | 1,252,800 | 32,917 | |
Ulvac Inc. | 761,809 | 27,905 |
12
International Value Fund | |||
Market | |||
Value• | |||
Shares | ($000) | ||
Ain Holdings Inc. | 374,300 | 26,181 | |
ITOCHU Corp. | 894,800 | 21,492 | |
Teijin Ltd. | 1,227,300 | 18,800 | |
Mitsubishi Heavy Industries Ltd. | 874,100 | 18,780 | |
Canon Inc. | 1,076,600 | 18,739 | |
FANUC Corp. | 84,200 | 17,785 | |
Daiwa Securities Group Inc. | 3,414,000 | 13,833 | |
Nihon Kohden Corp. | 339,000 | 10,603 | |
Sumitomo Chemical Co. Ltd. | 2,747,800 | 8,989 | |
Hitachi Construction Machinery Co. Ltd. | 13,000 | 321 | |
1,197,279 | |||
Mexico (0.6%) | |||
* | Grupo Financiero Banorte SAB de CV | 12,476,000 | 55,582 |
Netherlands (3.2%) | |||
Koninklijke DSM NV | 378,269 | 60,496 | |
Wolters Kluwer NV | 577,224 | 46,736 | |
* | AerCap Holdings NV | 1,772,366 | 44,008 |
SBM Offshore NV | 2,413,430 | 39,002 | |
*,1 | ABN AMRO Bank NV | 4,225,815 | 34,712 |
* | JDE Peet’s BV | 780,837 | 27,814 |
Aegon NV | 8,867,307 | 23,853 | |
* | Boskalis Westminster | 1,034,646 | 20,806 |
297,427 | |||
Norway (1.6%) | |||
Telenor ASA | 2,979,350 | 46,038 | |
Yara International ASA | 1,214,920 | 42,517 | |
Equinor ASA | 2,176,637 | 27,773 | |
* | Bakkafrost P/F | 303,820 | 17,381 |
TGS NOPEC Geophysical Co. ASA | 1,531,110 | 14,125 | |
147,834 | |||
Singapore (1.8%) | |||
United Overseas Bank Ltd. Singapore | 4,603,700 | 63,966 | |
Telecommunications Ltd. | 24,778,300 | 36,834 | |
DBS Group Holdings Ltd. | 2,276,700 | 33,913 | |
Sembcorp Industries Ltd. | 16,004,700 | 18,525 | |
SATS Ltd. | 6,992,400 | 15,249 | |
168,487 | |||
South Africa (0.8%) | |||
Tiger Brands Ltd. | 3,843,234 | 47,672 | |
Mr Price Group Ltd. | 3,373,013 | 25,517 | |
73,189 | |||
South Korea (6.0%) | |||
Samsung Electronics Co. Ltd. | 2,814,067 | 141,451 | |
Posco | 654,918 | 120,900 | |
1 | Samsung Electronics Co. Ltd. GDR | 85,820 | 108,268 |
SK Hynix Inc. | 1,141,810 | 81,003 | |
LG Household & Health Care Ltd. | 28,844 | 38,244 | |
Hana Financial Group Inc. | 984,207 | 26,586 | |
KB Financial Group Inc. | 605,341 | 21,653 | |
Shinhan Financial Group Co. Ltd. | 561,096 | 15,224 | |
Amorepacific Corp. | 72,440 | 10,177 | |
563,506 | |||
Spain (1.0%) | |||
* | Banco Santander SA | 19,133,324 | 38,316 |
Banco Bilbao Vizcaya Argentaria SA | 13,270,316 | 38,287 | |
^ | Industria de Diseno Textil SA | 705,306 | 17,414 |
94,017 | |||
Sweden (1.5%) | |||
* | Sandvik AB | 2,321,780 | 41,386 |
* | Hexagon AB Class B | 548,256 | 40,186 |
* | Nordea Bank Abp (XSTO) | 4,502,368 | 33,791 |
* | Nordea Bank Abp (XHEL) | 3,861,674 | 29,087 |
144,450 | |||
Switzerland (6.7%) | |||
Novartis AG | 1,957,311 | 152,519 | |
LafargeHolcim Ltd. | 2,854,015 | 122,493 | |
ABB Ltd. | 3,465,426 | 84,089 | |
Cie Financiere Richemont SA | 1,054,930 | 65,937 | |
Credit Suisse Group AG | 6,226,274 | 58,723 | |
Lonza Group AG | 68,307 | 41,388 | |
Swatch Group AG (Bearer) | 166,110 | 35,177 | |
Adecco Group AG | 505,126 | 24,768 | |
UBS Group AG | 2,113,238 | 24,602 | |
* | Flughafen Zurich AG | 142,628 | 19,248 |
628,944 | |||
Taiwan (0.2%) | |||
Silicon Motion Technology Corp. ADR | 371,881 | 14,035 | |
United Kingdom (12.4%) | |||
* | Lloyds Banking Group plc | 201,924,516 | 73,522 |
RELX plc | 3,477,744 | 68,818 | |
* | Weir Group plc | 3,481,170 | 64,673 |
Anglo American plc | 2,692,090 | 63,165 | |
Tesco plc | 22,485,622 | 59,847 | |
Unilever plc | 946,500 | 53,940 |
13
International Value Fund | ||||
Market | ||||
Value• | ||||
Shares | ($000) | |||
* | HSBC Holdings plc (XLON) | 11,471,635 | 48,073 | |
* | Ferguson plc | 461,227 | 45,810 | |
Smiths Group plc | 2,649,210 | 45,646 | ||
IMI plc | 3,342,400 | 44,817 | ||
Berkeley Group Holdings plc | 850,336 | 44,709 | ||
BHP Group plc | 2,227,230 | 43,147 | ||
* | Travis Perkins plc | 3,088,200 | 42,414 | |
Victrex plc | 1,727,690 | 41,284 | ||
Standard Life Aberdeen plc | 13,959,404 | 40,675 | ||
Diageo plc | 1,189,490 | 38,442 | ||
Spectris plc | 1,180,060 | 37,874 | ||
Royal Dutch Shell plc Class B | 3,088,180 | 37,242 | ||
Prudential plc | 3,020,088 | 36,937 | ||
* | HSBC Holdings plc (XHKG) | 7,830,000 | 32,706 | |
Johnson Matthey plc | 1,018,630 | 28,356 | ||
Carnival plc | 2,369,740 | 26,790 | ||
* | Glencore plc | 11,474,085 | 23,146 | |
* | Natwest Group plc | 13,263,907 | 21,386 | |
Direct Line Insurance Group plc | 5,486,918 | 18,751 | ||
Electrocomponents plc | 1,823,960 | 16,014 | ||
Aggreko plc | 2,784,239 | 15,869 | ||
* | ITV plc | 14,022,431 | 13,105 | |
* | Kingfisher plc | 3,512,509 | 13,063 | |
easyJet plc | 1,978,861 | 12,976 | ||
* | Taylor Wimpey plc | 8,950,968 | 12,264 | |
Pearson plc | 692,289 | 4,574 | ||
1,170,035 | ||||
United States (4.5%) | ||||
* | Capri Holdings Ltd. | 4,861,508 | 103,161 | |
TechnipFMC plc | 4,509,803 | 24,939 | ||
Aon plc Class A | 398,828 | 73,388 | ||
RenaissanceRe Holdings Ltd. | 260,654 | 42,153 | ||
Medtronic plc | 745,494 | 74,975 | ||
Copa Holdings SA Class A | 375,300 | 18,495 | ||
Accenture plc Class A | 265,248 | 57,535 | ||
Linde plc | 146,300 | 32,064 | ||
426,710 | ||||
Total Common Stocks | ||||
(Cost $8,816,677) | 8,813,138 | |||
Temporary Cash Investments (5.7%) | ||||
Money Market Fund (5.5%) | ||||
2,3 | Vanguard Market Liquidity Fund, 0.112% | 5,194,643 | 519,464 | |
| ||||
Face | ||||
Amount | ||||
($000) | ||||
U.S. Government and Agency Obligations (0.2%) | ||||
4 | United States Cash Management Bill, 0.113%, 3/23/21 | 12,402 | 12,397 | |
United States Cash Management Bill, 0.165%, 11/3/20 | 9,000 | 9,000 | ||
4 | United States Treasury Bill, 0.095%, 1/28/21 | 434 | 434 | |
21,831 | ||||
Total Temporary Cash Investments | ||||
(Cost $541,233) | 541,295 | |||
Total Investments (99.4%) | ||||
(Cost $9,357,910) | 9,354,433 | |||
Other Assets and Liabilities—Net (0.6%) | 53,989 | |||
Net Assets (100%) | 9,408,422 |
Cost is in $000.
• | 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 $16,543,000. |
1 | Security exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 2020, the aggregate value of these securities was $176,309,000, representing 1.9% of net assets. |
2 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
3 | Collateral of $17,528,000 was received for securities on loan. |
4 | Securities with a value of $12,831,000 have been segregated as initial margin for open futures contracts. |
ADR—American Depositary Receipt. | |
GDR—Global Depositary Receipt. |
14
International Value Fund
Derivative Financial Instruments Outstanding as of Period End |
Futures Contracts |
($000) | |||||
Value and | |||||
Number of | Unrealized | ||||
Long (Short) | Notional | Appreciation | |||
Expiration | Contracts | Amount | (Depreciation) | ||
Long Futures Contracts | |||||
MSCI EAFE Index | December 2020 | 1,422 | 126,835 | (6,081) | |
MSCI Emerging Market Index | December 2020 | 1,089 | 59,998 | (725) | |
(6,806) |
See accompanying Notes, which are an integral part of the Financial Statements.
15
International Value Fund
Statement of Assets and Liabilities
As of October 31, 2020
($000s, except shares and per-share amounts) | Amount |
Assets | |
Investments in Securities, at Value | |
Unaffiliated Issuers (Cost $8,838,507) | 8,834,969 |
Affiliated Issuers (Cost $519,403) | 519,464 |
Total Investments in Securities | 9,354,433 |
Investment in Vanguard | 399 |
Cash | 5 |
Cash Collateral Pledged—Futures Contracts | 2,640 |
Foreign Currency, at Value (Cost $26,414) | 26,481 |
Receivables for Investment Securities Sold | 20,805 |
Receivables for Accrued Income | 38,928 |
Receivables for Capital Shares Issued | 10,271 |
Total Assets | 9,453,962 |
Liabilities | |
Payables for Investment Securities Purchased | 16,772 |
Collateral for Securities on Loan | 17,528 |
Payables to Investment Advisor | 2,730 |
Payables for Capital Shares Redeemed | 6,112 |
Payables to Vanguard | 1,013 |
Variation Margin Payable—Futures Contracts | 1,385 |
Total Liabilities | 45,540 |
Net Assets | 9,408,422 |
| |
At October 31, 2020, net assets consisted of: | |
Paid-in Capital | 9,899,813 |
Total Distributable Earnings (Loss) | (491,391) |
Net Assets | 9,408,422 |
Net Assets | |
Applicable to 289,651,681 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 9,408,422 |
Net Asset Value Per Share | $32.48 |
See accompanying Notes, which are an integral part of the Financial Statements.
16
International Value Fund
Statement of Operations
Year Ended | |
October 31, 2020 | |
($000) | |
Investment Income | |
Income | |
Dividends—Unaffiliated Issuers1 | 224,778 |
Dividends—Affiliated Issuers | 133 |
Interest—Unaffiliated Issuers | 236 |
Interest—Affiliated Issuers | 4,511 |
Securities Lending—Net | 1,835 |
Total Income | 231,493 |
Expenses | |
Investment Advisory Fees—Note B | |
Basic Fee | 15,713 |
Performance Adjustment | (1,795) |
The Vanguard Group—Note C | |
Management and Administrative | 18,644 |
Marketing and Distribution | 961 |
Custodian Fees | 386 |
Auditing Fees | 44 |
Shareholders’ Reports | 221 |
Trustees’ Fees and Expenses | 17 |
Total Expenses | 34,191 |
Net Investment Income | 197,302 |
Realized Net Gain (Loss) | |
Investment Securities—Unaffiliated Issuers | (507,239) |
Investment Securities—Affiliated Issuers | 4,180 |
Futures Contracts | 18,397 |
Forward Currency Contracts | (10,593) |
Foreign Currencies | (502) |
Realized Net Gain (Loss) | (495,757) |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities—Unaffiliated Issuers | (534,421) |
Investment Securities—Affiliated Issuers | (6,322) |
Futures Contracts | (9,616) |
Forward Currency Contracts | (1,460) |
Foreign Currencies | 879 |
Change in Unrealized Appreciation (Depreciation) | (550,940) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (849,395) |
1 Dividends are net of foreign withholding taxes of $25,103,000.
See accompanying Notes, which are an integral part of the Financial Statements.
17
International Value Fund
Statement of Changes in Net Assets
Year Ended October 31, | ||||
2020 | 2019 | |||
($000) | ($000) | |||
Increase (Decrease) in Net Assets | ||||
Operations | ||||
Net Investment Income | 197,302 | 308,413 | ||
Realized Net Gain (Loss) | (495,757) | (142,714) | ||
Change in Unrealized Appreciation (Depreciation) | (550,940) | 640,000 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | (849,395) | 805,699 | ||
Distributions1 | ||||
Total Distributions | (308,988) | (527,741) | ||
Capital Share Transactions | ||||
Issued | 2,047,882 | 1,467,177 | ||
Issued in Lieu of Cash Distributions | 283,820 | 490,069 | ||
Redeemed | (2,125,218) | (1,399,172) | ||
Net Increase (Decrease) from Capital Share Transactions | 206,484 | 558,074 | ||
Total Increase (Decrease) | (951,899) | 836,032 | ||
Net Assets | ||||
Beginning of Period | 10,360,321 | 9,524,289 | ||
End of Period | 9,408,422 | 10,360,321 |
1 Certain prior-period numbers have been reclassified to conform with the current-period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
18
International Value Fund
Financial Highlights
For a Share Outstanding | Year Ended October 31, | ||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 |
Net Asset Value, Beginning of Period | $36.63 | $35.86 | $39.26 | $32.30 | $33.22 |
Investment Operations | |||||
Net Investment Income | .6841 | 1.1041 | .9501 | .7811 | .721 |
Net Realized and Unrealized Gain (Loss) on Investments | (3.723) | 1.669 | (3.607) | 6.905 | (.979) |
Total from Investment Operations | (3.039) | 2.773 | (2.657) | 7.686 | (.258) |
Distributions | |||||
Dividends from Net Investment Income | (1.111) | (.943) | (.743) | (.726) | (.662) |
Distributions from Realized Capital Gains | — | (1.060) | — | — | — |
Total Distributions | (1.111) | (2.003) | (.743) | (.726) | (.662) |
Net Asset Value, End of Period | $32.48 | $36.63 | $35.86 | $39.26 | $32.30 |
Total Return2 | -8.69% | 8.48% | -6.95% | 24.33% | -0.67% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $9,408 | $10,360 | $9,524 | $9,964 | $7,873 |
Ratio of Total Expenses to Average Net Assets3 | 0.35% | 0.37% | 0.38% | 0.40% | 0.43% |
Ratio of Net Investment Income to Average Net Assets | 2.05% | 3.15% | 2.41% | 2.21% | 2.29% |
Portfolio Turnover Rate | 72% | 38% | 28% | 34% | 30% |
1 | Calculated based on average shares outstanding. |
2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
3 | Includes performance-based investment advisory fee increases (decreases) of (0.02%), (0.01%), (0.01%), 0.00%, and 0.03%. |
See accompanying Notes, which are an integral part of the Financial Statements.
19
International Value Fund
Notes to Financial Statements
Vanguard International Value Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund invests in securities of foreign issuers, which may subject it to investment risks not normally associated with investing in securities of U.S. corporations. 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 affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued at their fair values calculated according to procedures adopted by the board of trustees. These procedures include obtaining quotations from an independent pricing service, monitoring news to identify significant market- or security-specific events, and evaluating changes in the values of foreign market proxies (for example, ADRs, futures contracts, or exchange-traded funds), between the time the foreign markets close and the fund’s pricing time. When fair-value pricing is employed, the prices of securities used by a fund to calculate its net asset value may differ from quoted or published prices for the same securities. 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. Foreign Currency: Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates obtained from an independent third party as of the fund’s pricing time on the valuation date. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the assets or liabilities are settled in cash, at which time they are recorded as realized foreign currency gains (losses).
3. Futures Contracts: The fund uses index futures contracts to a limited extent, with the objective of maintaining full exposure to the stock market while maintaining liquidity. The fund may purchase or sell futures contracts to achieve a desired level of investment, whether to accommodate portfolio turnover or cash flows from capital share transactions. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of investments 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
20
International Value Fund
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 October 31, 2020, the fund’s average investments in long and short futures contracts represented 2% and less than 1% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
4. Forward Currency Contracts: The fund enters into forward currency contracts to provide the appropriate currency exposure related to any open futures contracts or to protect the value of securities and related receivables and payables against changes in future foreign exchange rates. The fund’s risks in using these contracts include movement in the values of the foreign currencies relative to the U.S. dollar and the ability of the counterparties to fulfill their obligations under the contracts. The fund mitigates its counterparty risk by entering into forward currency contracts 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. The master netting arrangements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate the forward currency contracts, 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 forward currency 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 forward currency 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.
Forward currency contracts are valued at their quoted daily prices obtained from an independent third party, adjusted for currency risk based on the expiration date of each contract. 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 forward currency contracts.
During the year ended October 31, 2020, the fund’s average investment in forward currency contracts represented 3% of net assets, based on the average of the notional amounts at each quarter-end during the period. The fund had no open forward currency contracts at October 31, 2020.
5. 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
21
International Value Fund
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.
6. 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.
7. 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.
8. 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 alternative 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
22
International Value Fund
borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the year ended October 31, 2020, the fund did not utilize the credit facilities or the Interfund Lending Program.
9. 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 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.
Withholding taxes on foreign dividends and capital gains have been provided for in accordance with the fund’s understanding of the applicable countries’ tax rules and rates. The fund has filed tax reclaims for previously withheld taxes on dividends earned in certain European Union countries. These filings are subject to various administrative and judicial proceedings within these countries. Such tax reclaims received during the year, if any, are included in dividend income. No other amounts for additional tax reclaims are reflected in the financial statements due to the uncertainty as to the ultimate resolution of proceedings, the likelihood of receipt of these reclaims, and the potential timing of payment.
B. The investment advisory firms Lazard Asset Management LLC, ARGA Investment Management, LP, and, beginning October 2020, Sprucegrove Investment Management Ltd. each provide investment advisory services to a portion of the fund for a fee calculated at an annual percentage rate of average net assets managed by the advisor. The basic fees of Lazard Asset Management LLC and ARGA Investment Management, LP, are subject to quarterly adjustments based on performance relative to the MSCI All Country World Index ex US for the preceding five years. In accordance with the advisory contract entered into with Sprucegrove Investment Management Ltd., beginning November 1, 2021, the investment advisory fee will be subject to quarterly adjustments based on performance relative to the MSCI All Country World Index ex US since October 31, 2020. Until October 2020, a portion of the fund was managed by Edinburgh Partners Limited. The basic fee paid to Edinburgh Partners Limited was subject to quarterly adjustments based on performance relative to the MSCI All Country World Index ex US for the preceding three years.
Vanguard manages the cash reserves of the fund as described below.
For the year ended October 31, 2020, the aggregate investment advisory fee represented an effective annual basic rate of 0.16% of the fund’s average net assets, before a net decrease of $1,795,000 (0.02%) based on performance.
C. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund corporate management, administrative, marketing, distribution, and cash management services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month.
23
International Value Fund
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At October 31, 2020, the fund had contributed to Vanguard capital in the amount of $399,000, representing less than 0.01% of the fund’s net assets and 0.16% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
D. 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.
The following table summarizes the market value of the fund’s investments and derivatives as of October 31, 2020, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | Total | |
($000) | ($000) | ($000) | ($000) | |
Investments | ||||
Assets | ||||
Common Stock | 1,300,237 | 7,512,901 | — | 8,813,138 |
Temporary Cash Investments | 519,464 | 21,831 | — | 541,295 |
Total | 1,819,701 | 7,534,732 | — | 9,354,433 |
Derivative Financial Instruments | ||||
Liabilities | ||||
Futures Contracts1 | 1,385 | — | — | 1,385 |
1 Represents variation margin on the last day of the reporting period.
E. 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 foreign currency transactions and passive foreign investment companies were reclassified between the individual components of total distributable earnings (loss).
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.
24
International Value Fund
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 | 164,608 |
Undistributed Long-Term Gains | — |
Capital Loss Carryforwards | (639,349) |
Qualified Late-Year Losses | — |
Net Unrealized Gains (Losses) | (16,650) |
The tax character of distributions paid was as follows:
Year Ended October 31, | ||
2020 | 2019 | |
Amount | Amount | |
($000) | ($000) | |
Ordinary Income* | 308,988 | 279,535 |
Long-Term Capital Gains | — | 248,206 |
Total | 308,988 | 527,741 |
* Includes short-term capital gains, if any.
As of October 31, 2020, 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 | 9,372,209 |
Gross Unrealized Appreciation | 867,135 |
Gross Unrealized Depreciation | (884,912) |
Net Unrealized Appreciation (Depreciation) | (17,777) |
F. During the year ended October 31, 2020, the fund purchased $6,630,280,000 of investment securities and sold $6,470,942,000 of investment securities, other than temporary cash investments.
G. Capital shares issued and redeemed were:
Year Ended October 31, | ||
2020 | 2019 | |
Shares | Shares | |
(000) | (000) | |
Issued | 64,897 | 42,273 |
Issued in Lieu of Cash Distributions | 7,593 | 15,158 |
Redeemed | (65,710) | (40,172) |
Net Increase (Decrease) in Shares Outstanding | 6,780 | 17,259 |
25
International Value Fund
H. Transactions during the period in investments where the issuer is another member of The Vanguard Group were as follows:
Current Period Transactions | ||||||||
Oct. 31, | Proceeds | Realized | Oct. 31, | |||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||
Value | at Cost | Sold | (Loss) | App. (Dep.) | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
Vanguard FTSE All World ex-US ETF | 37,084 | — | 35,096 | 4,361 | (6,349) | 133 | — | — |
Vanguard Market Liquidity Fund | 588,088 | NA1 | NA1 | (181) | 27 | 4,511 | — | 519,464 |
Total | 625,172 | — | 35,096 | 4,180 | (6,322) | 4,644 | — | 519,464 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
I. Management has determined that no events or transactions occurred subsequent to October 31, 2020, that would require recognition or disclosure in these financial statements.
26
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of Vanguard Trustees’ Equity Fund and Shareholders of Vanguard International Value Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Vanguard International Value Fund (one of the funds constituting Vanguard Trustees’ Equity Fund, referred to hereafter as the “Fund”) as of October 31, 2020, the related statement of operations for the year ended October 31, 2020, the statement of changes in net assets for each of the two years in the period ended October 31, 2020, including the related notes, and the financial highlights for each of the five years in the period ended October 31, 2020 (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 October 31, 2020, 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 October 31, 2020 and the financial highlights for each of the five years in the period ended October 31, 2020 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 October 31, 2020 by correspondence with the custodian and brokers and by agreement to the underlying ownership records of the transfer agent; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 17, 2020
We have served as the auditor of one or more investment companies in The Vanguard Group of Funds since 1975.
27
Special 2020 tax information (unaudited) for Vanguard International Value Fund
This information for the fiscal year ended October 31, 2020, is included pursuant to provisions of the Internal Revenue Code.
For nonresident alien shareholders, 100% of short-term capital gain dividends distributed by the fund are qualified short-term capital gains.
The fund distributed $228,466,000 of qualified dividend income to shareholders during the fiscal year.
The fund designates to shareholders foreign source income of $250,528,000 and foreign taxes paid of $17,947,000. Shareholders will receive more detailed information with their Form 1099-DIV in January 2021 to determine the calendar-year amounts to be included on their 2020 tax returns.
28
Trustees Approve Advisory Arrangement
Effective October 12, 2020, the board of trustees of Vanguard International Value Fund approved a restructuring of the portfolio’s investment advisory arrangements whereby Sprucegrove Investment Management Ltd. (Sprucegrove) has been added as an advisor and Edinburgh Partners Limited has been removed as an advisor to the portfolio. The board determined that the foregoing actions were in the best interests of the portfolio and its shareholders. As of October 12, 2020, ARGA Investment Management, LP, Lazard Asset Management LLC, and Sprucegrove are advisors to the fund.
The board based its decision upon an evaluation of the advisor’s investment staff, portfolio management process, and performance. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department, which is responsible for fund and advisor oversight and product management. The Portfolio Review Department will meet regularly with the fund’s advisors and will make monthly presentations to the board during the fiscal year that direct the board’s focus to relevant information and topics.
The board, or an investment committee made up of board members, will also receive information throughout the year during advisor presentations. For each advisor presentation, the board will be provided with letters and reports that include information about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.
In addition, the board will receive monthly reports, which include a Market and Economic Report, a Fund Dashboard Monthly Summary, and a Fund Performance Report.
Prior to their meeting to determine whether to approve the new advisory arrangement with Sprucegrove, the trustees were provided with a memo and materials that summarized the information they receive over the course of the year for each advisor. They also considered the factors discussed below, among others. However, no single factor determined whether the board approved the arrangement. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of services
The board considered the quality of the investment management services to be provided to the fund by Sprucegrove and took into account the organizational depth and stability of the advisor. The board considered that Sprucegrove, a Toronto-based boutique asset management firm founded in 1993, specializes in international and global strategies. The firm has an investment edge centered on its disciplined research and decision-making process; an impressive, multigenerational, diverse team; and a 27-year history as an independent and value-investing-focused boutique. It employs a disciplined, value-oriented, global investment strategy to select stocks. The foundation of the firm’s investment philosophy is the belief that investors’ short-term focus allows high-quality companies to trade at a discount. The investment process was founded on research that identifies high-quality companies as measured against five criteria: above-average consistent profitability, sustainable competitive advantages, financial strength, opportunity for growth, and capable management. Sprucegrove has managed a portion of the portfolio since October 2020.
The board concluded that the advisor’s experience, stability, depth, and performance, among other factors, warranted approval of the advisory arrangement.
29
Investment performance
The board concluded that Sprucegrove, in its management of other funds and portfolios, has produced strong long-term performance in its international value strategy, particularly when compared to a style-specific benchmark, and the firm’s selection in emerging markets has been solid over time. The long-term track record of Sprucegrove’s flagship strategy has been strong, with outperformance versus an appropriate value benchmark over 3-, 5-, 10-, and 15-year periods.
Cost
The board considered the cost of services to be provided and competitive fee rates and concluded that the portfolio’s advisory fee rate and expense ratio under the new advisory arrangement should remain well below the advisory fee rates and expense ratios of the portfolio’s peers.
The board did not consider the profitability of Sprucegrove in determining whether to approve the advisory fee, because the firm is independent of Vanguard and the advisory fee is the result of arm’s-length negotiations.
The benefit of economies of scale
The board concluded that the fund and its shareholders will realize economies of scale as the fund grows because of the breakpoints in the fund’s advisory fee schedule for Sprucegrove. The breakpoints reduce the effective rate of the fee as the fund grows, thereby capturing economies of scale for the benefit of the fund’s shareholders.
The board will consider whether to renew the advisory arrangement with Sprucegrove after a one-year period.
30
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 213 Vanguard funds.
Information for each trustee and executive officer of the fund appears below. That information, as well as the Vanguard fund count, is as of the date on the cover of this fund report. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
Interested Trustee1
Mortimer J. Buckley
Born in 1969. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: chairman of the board (2019–present) of Vanguard and of each of the investment companies served by Vanguard; chief executive officer (2018– present) of Vanguard; chief executive officer, president, and trustee (2018–present) of each of the investment companies served by Vanguard; president and director (2017–present) of Vanguard; and president (2018–present) of Vanguard Marketing Corporation. Chief investment officer (2013–2017), managing director (2002–2017), head of the Retail Investor Group (2006–2012), and chief information officer (2001–2006) of Vanguard. Chairman of the board (2011–2017) and trustee (2009–2017) of the Children’s Hospital of Philadelphia; and trustee (2018–present) and vice chair (2019–present) of The Shipley School.
Independent Trustees
Emerson U. Fullwood
Born in 1948. Trustee since January 2008. Principal occupation(s) during the past five years and other experience: executive chief staff and marketing officer for North America and corporate vice president (retired 2008) of Xerox Corporation (document management products and services). Former president of the Worldwide Channels Group, Latin America, and Worldwide Customer Service and executive chief staff officer of Developing Markets of Xerox. Executive in residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology. Director of SPX FLOW, Inc. (multi-industry manufacturing). Director of the University of Rochester Medical Center, the Monroe Community College Foundation, the United Way of Rochester, North Carolina A&T University, and Roberts Wesleyan College. Trustee of the University of Rochester.
Amy Gutmann
Born in 1949. Trustee since June 2006. Principal occupation(s) during the past five years and other experience: president (2004–present) of the University of Pennsylvania. Christopher H. Browne Distinguished Professor of Political Science, School of Arts and Sciences, and professor of communication, Annenberg School for Communication, with secondary faculty appointments in the Department of Philosophy, School of Arts and Sciences, and at the Graduate School of Education, University of Pennsylvania.
F. Joseph Loughrey
Born in 1949. Trustee since October 2009. Principal occupation(s) during the past five years and other experience: president and chief operating officer (retired 2009) and vice chairman of the board (2008–2009) of Cummins Inc. (industrial machinery). Chairman of the board of Hillenbrand, Inc. (specialized consumer services) and the Lumina Foundation. Director of the V Foundation. Member of the advisory
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. |
council for the College of Arts and Letters and chair of the advisory board to the Kellogg Institute for International Studies, both at the University of Notre Dame.
Mark Loughridge
Born in 1953. Trustee since March 2012. Principal occupation(s) during the past five years and other experience: senior vice president and chief financial officer (retired 2013) of IBM (information technology services). Fiduciary member of IBM’s Retirement Plan Committee (2004–2013), senior vice president and general manager (2002–2004) of IBM Global Financing, vice president and controller (1998–2002) of IBM, and a variety of other prior management roles at IBM. Member of the Council on Chicago Booth.
Scott C. Malpass
Born in 1962. Trustee since March 2012. Principal occupation(s) during the past five years and other experience: chief investment officer (retired June 2020) and vice president (retired June 2020) of the University of Notre Dame. Assistant professor of finance at the Mendoza College of Business, University of Notre Dame, and member of the Notre Dame 403(b) Investment Committee (retired June 2020). Member of the board of Catholic Investment Services, Inc. (investment advisors) and the board of superintendence of the Institute for the Works of Religion.
Deanna Mulligan
Born in 1963. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: board chair (2020–present), chief executive officer (2011–2020), and president (2010–2019) of The Guardian Life Insurance Company of America. Chief operating officer (2010–2011) and executive vice president (2008–2010) of the individual life and disability division of Guardian Life. Member of the board of the American Council of Life Insurers and the board of the Economic Club of New York. Trustee of the Partnership for New York City (business leadership), Chief Executives for Corporate Purpose, NewYork-Presbyterian Hospital, Catalyst, and the Bruce Museum (arts and science). Member of the Advisory Council for the Stanford Graduate School of Business.
André F. Perold
Born in 1952. Trustee since December 2004. Principal occupation(s) during the past five years and other experience: George Gund Professor of Finance and Banking, Emeritus at the Harvard Business School (retired 2011). Chief investment officer and co-managing partner of HighVista Strategies (private investment firm). Member of the board of advisors and member of the investment committee of the Museum of Fine Arts Boston. Member of the board (2018–present) of RIT Capital Partners (investment firm). Member of the investment committee of Partners Health Care System.
Sarah Bloom Raskin
Born in 1961. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: deputy secretary (2014–2017) of the United States Department of the Treasury. Governor (2010–2014) of the Federal Reserve Board. Commissioner (2007–2010) of financial regulation for the State of Maryland. Member of the board of directors (2012–2014) of Neighborhood Reinvestment Corporation. Director (2017–present) of i(x) Investments, LLC; director (2017–present) of Reserve Trust. Rubenstein Fellow (2017–present) of Duke University; trustee (2017–present) of Amherst College, and trustee (2019–present) of the Folger Shakespeare Library.
Peter F. Volanakis
Born in 1955. Trustee since July 2009. Principal occupation(s) during the past five years and other experience: president and chief operating officer (retired 2010) of Corning Incorporated (communications equipment) and director of Corning Incorporated (2000–2010) and Dow Corning (2001–2010). Director (2012) of SPX Corporation (multi-industry manufacturing). Overseer of the Amos Tuck School of Business Administration, Dartmouth College (2001–2013). Chairman of the board of trustees of Colby-Sawyer College. Member of the board of Hypertherm Inc. (industrial cutting systems, software, and consumables).
Executive Officers
John Bendl
Born in 1970. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Chief financial officer (2019–present) of each of the investment companies served by Vanguard. Chief accounting officer, treasurer, and controller of Vanguard (2017–present). Partner (2003–2016) at KPMG (audit, tax, and advisory services).
Christine M. Buchanan
Born in 1970. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Treasurer (2017–present) of each of the investment companies served by Vanguard. Partner (2005–2017) at KPMG (audit, tax, and advisory services).
David Cermak
Born in 1960. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Finance director (2019–present) of each of the investment companies served by Vanguard. Managing director and head (2017–present) of Vanguard Investments Singapore. Managing director and head (2017–2019) of Vanguard Investments Hong Kong. Representative director and head (2014–2017) of Vanguard Investments Japan.
John Galloway
Born in 1973. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Investment stewardship officer (September 2020–present) of each of the investment companies served by Vanguard. Head of Investor Advocacy (February 2020–present) and head of Marketing Strategy and Planning (2017–2020) at Vanguard. Deputy assistant to the President of the United States (2015).
Thomas J. Higgins
Born in 1957. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Finance director (2019–present), chief financial officer (2008–2019), and treasurer (1998–2008) of each of the investment companies served by Vanguard.
Peter Mahoney
Born in 1974. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Controller (2015–present) of each of the investment companies served by Vanguard. Head of International Fund Services (2008–2014) at Vanguard.
Anne E. Robinson
Born in 1970. Principal occupation(s) during the past five years and other experience: general counsel (2016–present) of Vanguard. Secretary (2016–present) of Vanguard and of each of the investment companies served by Vanguard. Managing director (2016–present) of Vanguard. Managing director and general counsel of Global Cards and Consumer Services (2014–2016) at Citigroup. Counsel (2003–2014) at American Express.
Michael Rollings
Born in 1963. Principal occupation(s) during the past five years and other experience: finance director (2017–present) and treasurer (2017) of each of the investment companies served by Vanguard. Managing director (2016–present) of Vanguard. Chief financial officer (2016–present) of Vanguard. Director (2016–present) of Vanguard Marketing Corporation. Executive vice president and chief financial officer (2006–2016) of MassMutual Financial Group.
John E. Schadl
Born in 1972. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Chief compliance officer (2019–present) of Vanguard and of each of the investment companies served by Vanguard. Assistant vice president (2019–present) of Vanguard Marketing Corporation.
Vanguard Senior Management Team
Joseph Brennan | James M. Norris |
Mortimer J. Buckley | Thomas M. Rampulla |
Gregory Davis | Karin A. Risi |
John James | Anne E. Robinson |
John T. Marcante | Michael Rollings |
Chris D. McIsaac | Lauren Valente |
Connect with Vanguard® > vanguard.com
Fund Information > 800-662-7447 Direct Investor Account Services > 800-662-2739 Institutional Investor Services > 800-523-1036 |
Text Telephone for People |
Who Are Deaf or Hard of Hearing > 800-749-7273 |
This material may be used in conjunction with the offering of shares of any Vanguard fund only if preceded or accompanied by the fund’s current prospectus.
All comparative mutual fund data are from Morningstar, Inc., unless otherwise noted.
You can obtain a free copy of Vanguard’s proxy voting guidelines by visiting vanguard.com/proxyreporting or by calling Vanguard at 800-662-2739. The guidelines are also available from the SEC’s website, www.sec.gov. In addition, you may obtain a free report on how your fund voted the proxies for securities it owned during the 12 months ended June 30. To get the report, visit either vanguard.com/proxyreporting or www.sec.gov.
You can review information about your fund on the SEC’s website, and you can receive copies of this information, for a fee, by sending a request via email addressed to publicinfo@sec.gov.
Source for Bloomberg Barclays indexes: Bloomberg Index Services Limited. Copyright 2020, Bloomberg. All rights reserved.
CFA® is a registered trademark owned by CFA Institute.
© 2020 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor. | |
Q460 122020 |
Annual Report | October 31, 2020 | |
Vanguard Diversified Equity Fund | |
See the inside front cover for important information about access to your fund’s annual and semiannual shareholder reports. | |
Important information about access to shareholder reports
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your fund’s annual and semiannual shareholder reports will no longer be sent to you by mail, unless you specifically request them. Instead, you will be notified by mail each time a report is posted on the website and will be provided with a link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. You may elect to receive shareholder reports and other communications from the fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with the fund, by calling Vanguard at one of the phone numbers on the back cover of this report or by logging on to vanguard.com.
You may elect to receive paper copies of all future shareholder reports free of charge. If you invest through a financial intermediary, you can contact the intermediary to request that you continue to receive paper copies. If you invest directly with the fund, you can call Vanguard at one of the phone numbers on the back cover of this report or log on to vanguard.com. Your election to receive paper copies will apply to all the funds you hold through an intermediary or directly with Vanguard.
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 October 31, 2020, Vanguard Diversified Equity Fund returned 15.73%, ahead of the 10.25% return of its benchmark, the MSCI US Broad Market Index.
• The period was marked by the global spread of COVID-19 and efforts to contain it, including lockdowns, the shuttering of nonessential businesses, and travel restrictions. However, responses from policymakers, the start of trials for vaccines and treatments, and the easing of some pandemic-related restrictions eventually lifted investor sentiment. The broad U.S. stock market advanced about 10% for the year.
• As a “fund of funds,” the Diversified Equity Fund invests in six actively managed Vanguard funds selected to provide broad exposure to all segments of the U.S. equity market. Together, these funds cover the style and capitalization spectrum. In late July, the fund’s allocation to Vanguard Capital Value Fund was reallocated to Vanguard Windsor Fund upon completion of the merger of the Capital Value Fund into the Windsor Fund.
• Results from the underlying funds ranged from about –6% for the Windsor Fund to about 43% for Vanguard U.S. Growth Fund.
• For the 10 years ended October 31, 2020, the fund’s average annual return of 12.97% was slightly ahead of the 12.85% result of its benchmark.
Market Barometer
Average Annual Total Returns | |||
Periods Ended October 31, 2020 | |||
One Year | Three Years | Five Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 10.87% | 10.63% | 11.79% |
Russell 2000 Index (Small-caps) | -0.14 | 2.19 | 7.27 |
Russell 3000 Index (Broad U.S. market) | 10.15 | 10.04 | 11.48 |
FTSE All-World ex US Index (International) | -2.17 | 0.13 | 4.52 |
Bonds | |||
Bloomberg Barclays U.S. Aggregate Bond Index (Broad taxable market) | 6.19% | 5.06% | 4.08% |
Bloomberg Barclays Municipal Bond Index (Broad tax-exempt market) | 3.59 | 4.09 | 3.70 |
FTSE Three-Month U.S. Treasury Bill Index | 0.86 | 1.62 | 1.15 |
CPI | |||
Consumer Price Index | 1.18% | 1.82% | 1.83% |
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 typical fund’s expenses are expressed as a percentage of its average net assets. The Diversified Equity Fund has no direct expenses, but bears its proportionate share of the costs for the underlying funds in which it invests. These indirect expenses make up the acquired fund fees and expenses, also expressed as a percentage of average net assets.
The following examples are intended to help you understand the ongoing cost (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 costs were calculated using the acquired fund fees and expenses for the Diversified Equity Fund.
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 October 31, 2020
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
Diversified Equity Fund | 4/30/2020 | 10/31/2020 | Period |
Based on Actual Fund Return | $1,000.00 | $1,188.86 | $1.87 |
Based on Hypothetical 5% Yearly Return | 1,000.00 | 1,023.43 | 1.73 |
The calculations are based on acquired fund fees and expenses charged by the underlying mutual funds in which the Diversified Equity Fund invests. The Diversified Equity Fund’s annualized expense figure for the period is 0.34%. The dollar amounts shown as ”Expenses Paid” are equal to the annualized average weighted expense ratio for the underlying funds 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 (184/366).
3
Diversified Equity 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: October 31, 2010, Through October 31, 2020
Initial Investment of $10,000
Average Annual Total Returns | |||||
Periods Ended October 31, 2020 | |||||
One | Five | Ten | Final Value of a $10,000 | ||
Year | Years | Years | Investment | ||
Diversified Equity Fund | 15.73% | 11.91% | 12.97% | $33,846 | |
MSCI US Broad Market Index | 10.25 | 11.51 | 12.85 | 33,510 |
See Financial Highlights for dividend and capital gains information.
4
Diversified Equity Fund
Underlying Vanguard Funds
As of October 31, 2020
Vanguard U.S. Growth Fund Investor Shares | 29.5% |
Vanguard Windsor™ Fund Investor Shares | 20.2 |
Vanguard Growth and Income Fund Investor Shares | 20.0 |
Vanguard Windsor II Fund Investor Shares | 15.1 |
Vanguard Explorer™ Fund Investor Shares | 10.1 |
Vanguard Mid-Cap Growth Fund | 5.1 |
The table reflects the fund's investments, except for short-term investments.
5
Diversified Equity Fund
Financial Statements
Schedule of Investments
As of October 31, 2020
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.
Market | ||
Value• | ||
Shares | ($000) | |
Investment Companies (100.0%) | ||
U.S. Stock Funds (100.0%) | ||
Vanguard U.S. Growth Fund Investor Shares | 9,871,662 | 565,646 |
Vanguard Windsor Fund Investor Shares | 20,923,306 | 388,336 |
Vanguard Growth and Income Fund Investor Shares | 7,266,183 | 383,146 |
Vanguard Windsor II Fund Investor Shares | 8,315,666 | 289,801 |
Vanguard Explorer Fund Investor Shares | 1,761,752 | 194,568 |
Vanguard Mid-Cap Growth Fund | 3,254,831 | 97,287 |
Total Investment Companies (100%) (Cost $1,198,330) | 1,918,784 | |
Other Assets and Liabilities—Net (0.0%) | 58 | |
Net Assets (100%) | 1,918,842 |
Cost is in $000.
• See Note A in Notes to Financial Statements.
See accompanying Notes, which are an integral part of the Financial Statements.
6
Diversified Equity Fund
Statement of Assets and Liabilities
As of October 31, 2020
($000s, except shares and per-share amounts) | Amount |
Assets | |
Investments in Securities, at Value—Affiliated Funds (Cost $1,198,330) | 1,918,784 |
Receivables for Investment Securities Sold | 721 |
Receivables for Accrued Income | 248 |
Receivables for Capital Shares Issued | 1,556 |
Total Assets | 1,921,309 |
Liabilities | |
Due to Custodian | 1,454 |
Payables for Capital Shares Redeemed | 1,013 |
Total Liabilities | 2,467 |
Net Assets | 1,918,842 |
At October 31, 2020, net assets consisted of: | |
Paid-in Capital | 1,094,723 |
Total Distributable Earnings (Loss) | 824,119 |
Net Assets | 1,918,842 |
Net Assets | |
Applicable to 46,824,798 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 1,918,842 |
Net Asset Value Per Share | $40.98 |
See accompanying Notes, which are an integral part of the Financial Statements.
7
Diversified Equity Fund
Statement of Operations
Year Ended | |
October 31, 2020 | |
($000) | |
Investment Income | |
Income | |
Income Distributions Received from Affiliated Funds | 21,380 |
Other Income | 248 |
Net Investment Income—Note B | 21,628 |
Realized Net Gain (Loss) | |
Capital Gain Distributions Received from Affiliated Funds | 89,171 |
Affiliated Funds Sold | 25,769 |
Realized Net Gain (Loss) | 114,940 |
Change in Unrealized Appreciation (Depreciation) from Affiliated Funds | 122,165 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 258,733 |
See accompanying Notes, which are an integral part of the Financial Statements.
8
Diversified Equity Fund
Statement of Changes in Net Assets
Year Ended October 31, | ||
2020 | 2019 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 21,628 | 22,061 |
Realized Net Gain (Loss) | 114,940 | 137,214 |
Change in Unrealized Appreciation (Depreciation) | 122,165 | 48,896 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 258,733 | 208,171 |
Distributions1 | ||
Total Distributions | (128,412) | (96,045) |
Capital Share Transactions | ||
Issued | 285,583 | 175,169 |
Issued in Lieu of Cash Distributions | 121,112 | 90,958 |
Redeemed | (406,693) | (298,471) |
Net Increase (Decrease) from Capital Share Transactions | 2 | (32,344) |
Total Increase (Decrease) | 130,323 | 79,782 |
Net Assets | ||
Beginning of Period | 1,788,519 | 1,708,737 |
End of Period | 1,918,842 | 1,788,519 |
1 Certain prior-period numbers have been reclassified to conform with the current-period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
9
Diversified Equity Fund
Financial Highlights
For a Share Outstanding | Year Ended October 31, | ||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 |
Net Asset Value, Beginning of Period | $37.95 | $35.88 | $35.57 | $30.76 | $33.15 |
Investment Operations | |||||
Net Investment Income | .4521 | .4551 | .3951 | .4281 | .397 |
Capital Gain Distributions Received | 1.8661 | 3.0871 | 1.6861 | 1.0641 | .860 |
Net Realized and Unrealized Gain (Loss) on Investments | 3.447 | .575 | .206 | 5.627 | (.836) |
Total from Investment Operations | 5.765 | 4.117 | 2.287 | 7.119 | .421 |
Distributions | |||||
Dividends from Net Investment Income | (.369) | (.383) | (.358) | (.414) | (.362) |
Distributions from Realized Capital Gains | (2.366) | (1.664) | (1.619) | (1.895) | (2.449) |
Total Distributions | (2.735) | (2.047) | (1.977) | (2.309) | (2.811) |
Net Asset Value, End of Period | $40.98 | $37.95 | $35.88 | $35.57 | $30.76 |
Total Return2 | 15.73% | 12.82% | 6.55% | 24.47% | 1.39% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $1,919 | $1,789 | $1,709 | $1,439 | $1,276 |
Ratio of Total Expenses to Average Net Assets | — | — | — | — | — |
Acquired Fund Fees and Expenses | 0.35% | 0.35% | 0.36% | 0.36% | 0.36% |
Ratio of Net Investment Income to Average Net Assets | 1.19% | 1.27% | 1.07% | 1.31% | 1.26% |
Portfolio Turnover Rate | 14% | 9% | 8% | 5% | 9% |
1 | Calculated based on average shares outstanding. |
2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
See accompanying Notes, which are an integral part of the Financial Statements.
10
Diversified Equity Fund
Notes to Financial Statements
Vanguard Diversified Equity Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund invests in selected Vanguard actively managed U.S. stock funds. Financial statements and other information about each underlying fund are available at www.vanguard.com.
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: Investments are valued at the net asset value of each underlying Vanguard fund determined as of the close of the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date.
2. 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.
3. 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.
4. 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 borne by the funds in which the fund invests (see Note B). 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 alternative 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
11
Diversified Equity Fund
may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the year ended October 31, 2020, the fund did not utilize the credit facilities or the Interfund Lending Program.
5. Other: Income and capital gain distributions received are recorded on the ex-dividend 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.
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. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the period ended October 31, 2020, were borne by the underlying Vanguard funds in which the fund invests. The fund’s trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
C. 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). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
At October 31, 2020, 100% of the market value of the fund’s investments was determined based on Level 1 inputs.
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Diversified Equity Fund
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 distributions in connection with fund share redemptions were reclassified between the following accounts:
Amount | |
($000) | |
Paid-in Capital | 17,082 |
Total Distributable Earnings (Loss) | (17,082) |
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. 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 | 5,608 |
Undistributed Long-Term Gains | 98,057 |
Capital Loss Carryforwards | — |
Qualified Late-Year Losses | — |
Net Unrealized Gains (Losses) | 720,454 |
The tax character of distributions paid was as follows:
Year Ended October 31, | ||
2020 | 2019 | |
Amount | Amount | |
($000) | ($000) | |
Ordinary Income* | 19,336 | 37,757 |
Long-Term Capital Gains | 109,076 | 58,288 |
Total | 128,412 | 96,045 |
*Includes short-term capital gains, if any.
As of October 31, 2020, gross unrealized appreciation and depreciation for investments based on cost for U.S. federal income tax purposes were as follows:
Amount | |
($000) | |
Tax Cost | 1,198,330 |
Gross Unrealized Appreciation | 735,269 |
Gross Unrealized Depreciation | (14,815) |
Net Unrealized Appreciation (Depreciation) | 720,454 |
13
Diversified Equity Fund
E. Capital shares issued and redeemed were:
Year Ended October 31, | ||
2020 | 2019 | |
Shares | Shares | |
(000) | (000) | |
Issued | 7,639 | 4,941 |
Issued in Lieu of Cash Distributions | 3,175 | 2,961 |
Redeemed | (11,117) | (8,400) |
Net Increase (Decrease) in Shares Outstanding | (303) | (498) |
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
Current Period Transactions | ||||||||
Oct. 31, | Proceeds | Realized | Oct. 31, | |||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||
Value | at Cost | Sold | (Loss) | App. (Dep.) | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
Vanguard Market Liquidity Fund | 7 | NA1 | NA1 | — | — | 1 | — | — |
Vanguard Capital Value Fund2 | 90,708 | 9,501 | 2,919 | 61 | (24,782) | 2,983 | — | — |
Vanguard Explorer Fund | 178,827 | 18,560 | 20,591 | (1,604) | 19,376 | 512 | 8,496 | 194,568 |
Vanguard Growth and Income Fund | 357,518 | 28,611 | 16,325 | (2,986) | 16,328 | 5,801 | 9,248 | 383,146 |
Vanguard Mid-Cap Growth Fund | 87,741 | 10,822 | 8,070 | 199 | 6,595 | 209 | 8,548 | 97,287 |
Vanguard U.S. Growth Fund | 533,865 | 41,040 | 177,923 | 31,240 | 137,424 | 1,519 | 20,350 | 565,646 |
Vanguard Windsor Fund2 | 269,382 | 95,712 | 32,006 | (985) | (16,336) | 5,565 | 21,813 | 388,336 |
Vanguard Windsor II Fund | 270,329 | 43,173 | 7,105 | (156) | (16,440) | 4,790 | 20,716 | 289,801 |
Total | 1,788,377 | 247,419 | 264,939 | 25,769 | 122,165 | 21,380 | 89,171 | 1,918,784 |
1 | Not applicable—purchases and sales are for temporary cash investment purposes. |
2 | In July 2020, Vanguard Capital Value Fund reorganized with and into Vanguard Windsor Fund through a tax-free reorganization. As a result of the merger, the fund received shares of Vanguard Windsor Fund valued at $93,180,000, which consisted of cost of $72,569,000 and unrealized appreciation of $20,611,000. |
G. Management has determined that no events or transactions occurred subsequent to October 31, 2020, that would require recognition or disclosure in these financial statements.
14
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of Vanguard Trustees’ Equity Fund and Shareholders of Vanguard Diversified Equity Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Vanguard Diversified Equity Fund (one of the funds constituting Vanguard Trustees’ Equity Fund, referred to hereafter as the “Fund”) as of October 31, 2020, the related statement of operations for the year ended October 31, 2020, the statement of changes in net assets for each of the two years in the period ended October 31, 2020, including the related notes, and the financial highlights for each of the five years in the period ended October 31, 2020 (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 October 31, 2020, 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 October 31, 2020 and the financial highlights for each of the five years in the period ended October 31, 2020 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 October 31, 2020 by correspondence with the transfer agent. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 15, 2020
We have served as the auditor of one or more investment companies in The Vanguard Group of Funds since 1975.
15
Special 2020 tax information (unaudited) for Vanguard Diversified Equity Fund
This information for the fiscal year ended October 31, 2020, is included pursuant to provisions of the Internal Revenue Code.
The fund distributed $123,795,000 as capital gain dividends (20% rate gain distributions) to shareholders during the fiscal year.
The fund distributed $19,336,000 of qualified dividend income to shareholders during the fiscal year.
For corporate shareholders, 78.6% of investment income (dividend income plus short-term gains, if any) qualifies for the dividends-received deduction.
16
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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 213 Vanguard funds.
Information for each trustee and executive officer of the fund appears below. That information, as well as the Vanguard fund count, is as of the date on the cover of this fund report. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
Interested Trustee1
Mortimer J. Buckley
Born in 1969. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: chairman of the board (2019–present) of Vanguard and of each of the investment companies served by Vanguard; chief executive officer (2018– present) of Vanguard; chief executive officer, president, and trustee (2018–present) of each of the investment companies served by Vanguard; president and director (2017–present) of Vanguard; and president (2018–present) of Vanguard Marketing Corporation. Chief investment officer (2013–2017), managing director (2002–2017), head of the Retail Investor Group (2006–2012), and chief information officer (2001–2006) of Vanguard. Chairman of the board (2011–2017) and trustee (2009–2017) of the Children’s Hospital of Philadelphia; and trustee (2018–present) and vice chair (2019–present) of The Shipley School.
Independent Trustees
Emerson U. Fullwood
Born in 1948. Trustee since January 2008. Principal occupation(s) during the past five years and other experience: executive chief staff and marketing officer for North America and corporate vice president (retired 2008) of Xerox Corporation (document management products and services). Former president of the Worldwide Channels Group, Latin America, and Worldwide Customer Service and executive chief staff officer of Developing Markets of Xerox. Executive in residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology. Director of SPX FLOW, Inc. (multi-industry manufacturing). Director of the University of Rochester Medical Center, the Monroe Community College Foundation, the United Way of Rochester, North Carolina A&T University, and Roberts Wesleyan College. Trustee of the University of Rochester.
Amy Gutmann
Born in 1949. Trustee since June 2006. Principal occupation(s) during the past five years and other experience: president (2004–present) of the University of Pennsylvania. Christopher H. Browne Distinguished Professor of Political Science, School of Arts and Sciences, and professor of communication, Annenberg School for Communication, with secondary faculty appointments in the Department of Philosophy, School of Arts and Sciences, and at the Graduate School of Education, University of Pennsylvania.
F. Joseph Loughrey
Born in 1949. Trustee since October 2009. Principal occupation(s) during the past five years and other experience: president and chief operating officer (retired 2009) and vice chairman of the board (2008–2009) of Cummins Inc. (industrial machinery). Chairman of the board of Hillenbrand, Inc. (specialized consumer services) and the Lumina Foundation. Director of the V Foundation. Member of the advisory
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. |
council for the College of Arts and Letters and chair of the advisory board to the Kellogg Institute for International Studies, both at the University of Notre Dame.
Mark Loughridge
Born in 1953. Trustee since March 2012. Principal occupation(s) during the past five years and other experience: senior vice president and chief financial officer (retired 2013) of IBM (information technology services). Fiduciary member of IBM’s Retirement Plan Committee (2004–2013), senior vice president and general manager (2002–2004) of IBM Global Financing, vice president and controller (1998–2002) of IBM, and a variety of other prior management roles at IBM. Member of the Council on Chicago Booth.
Scott C. Malpass
Born in 1962. Trustee since March 2012. Principal occupation(s) during the past five years and other experience: chief investment officer (retired June 2020) and vice president (retired June 2020) of the University of Notre Dame. Assistant professor of finance at the Mendoza College of Business, University of Notre Dame, and member of the Notre Dame 403(b) Investment Committee (retired June 2020). Member of the board of Catholic Investment Services, Inc. (investment advisors) and the board of superintendence of the Institute for the Works of Religion.
Deanna Mulligan
Born in 1963. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: board chair (2020–present), chief executive officer (2011–2020), and president (2010–2019) of The Guardian Life Insurance Company of America. Chief operating officer (2010–2011) and executive vice president (2008–2010) of the individual life and disability division of Guardian Life. Member of the board of the American Council of Life Insurers and the board of the Economic Club of New York. Trustee of the Partnership for New York City (business leadership), Chief Executives for Corporate Purpose, NewYork-Presbyterian Hospital, Catalyst, and the Bruce Museum (arts and science). Member of the Advisory Council for the Stanford Graduate School of Business.
André F. Perold
Born in 1952. Trustee since December 2004. Principal occupation(s) during the past five years and other experience: George Gund Professor of Finance and Banking, Emeritus at the Harvard Business School (retired 2011). Chief investment officer and co-managing partner of HighVista Strategies (private investment firm). Member of the board of advisors and member of the investment committee of the Museum of Fine Arts Boston. Member of the board (2018–present) of RIT Capital Partners (investment firm). Member of the investment committee of Partners Health Care System.
Sarah Bloom Raskin
Born in 1961. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: deputy secretary (2014–2017) of the United States Department of the Treasury. Governor (2010–2014) of the Federal Reserve Board. Commissioner (2007–2010) of financial regulation for the State of Maryland. Member of the board of directors (2012–2014) of Neighborhood Reinvestment Corporation. Director (2017–present) of i(x) Investments, LLC; director (2017–present) of Reserve Trust. Rubenstein Fellow (2017–present) of Duke University; trustee (2017–present) of Amherst College, and trustee (2019–present) of the Folger Shakespeare Library.
Peter F. Volanakis
Born in 1955. Trustee since July 2009. Principal occupation(s) during the past five years and other experience: president and chief operating officer (retired 2010) of Corning Incorporated (communications equipment) and director of Corning Incorporated (2000–2010) and Dow Corning (2001–2010). Director (2012) of SPX Corporation (multi-industry manufacturing). Overseer of the Amos Tuck School of Business Administration, Dartmouth College (2001–2013). Chairman of the board of trustees of Colby-Sawyer College. Member of the board of Hypertherm Inc. (industrial cutting systems, software, and consumables).
Executive Officers
John Bendl
Born in 1970. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Chief financial officer (2019–present) of each of the investment companies served by Vanguard. Chief accounting officer, treasurer, and controller of Vanguard (2017–present). Partner (2003–2016) at KPMG (audit, tax, and advisory services).
Christine M. Buchanan
Born in 1970. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Treasurer (2017–present) of each of the investment companies served by Vanguard. Partner (2005–2017) at KPMG (audit, tax, and advisory services).
David Cermak
Born in 1960. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Finance director (2019–present) of each of the investment companies served by Vanguard. Managing director and head (2017–present) of Vanguard Investments Singapore. Managing director and head (2017–2019) of Vanguard Investments Hong Kong. Representative director and head (2014–2017) of Vanguard Investments Japan.
John Galloway
Born in 1973. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Investment stewardship officer (September 2020–present) of each of the investment companies served by Vanguard. Head of Investor Advocacy (February 2020–present) and head of Marketing Strategy and Planning (2017–2020) at Vanguard. Deputy assistant to the President of the United States (2015).
Thomas J. Higgins
Born in 1957. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Finance director (2019–present), chief financial officer (2008–2019), and treasurer (1998–2008) of each of the investment companies served by Vanguard.
Peter Mahoney
Born in 1974. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Controller (2015–present) of each of the investment companies served by Vanguard. Head of International Fund Services (2008–2014) at Vanguard.
Anne E. Robinson
Born in 1970. Principal occupation(s) during the past five years and other experience: general counsel (2016–present) of Vanguard. Secretary (2016–present) of Vanguard and of each of the investment companies served by Vanguard. Managing director (2016–present) of Vanguard. Managing director and general counsel of Global Cards and Consumer Services (2014–2016) at Citigroup. Counsel (2003–2014) at American Express.
Michael Rollings
Born in 1963. Principal occupation(s) during the past five years and other experience: finance director (2017–present) and treasurer (2017) of each of the investment companies served by Vanguard. Managing director (2016–present) of Vanguard. Chief financial officer (2016–present) of Vanguard. Director (2016–present) of Vanguard Marketing Corporation. Executive vice president and chief financial officer (2006–2016) of MassMutual Financial Group.
John E. Schadl
Born in 1972. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Chief compliance officer (2019–present) of Vanguard and of each of the investment companies served by Vanguard. Assistant vice president (2019–present) of Vanguard Marketing Corporation.
Vanguard Senior Management Team
Joseph Brennan | James M. Norris | |
Mortimer J. Buckley | Thomas M. Rampulla | |
Gregory Davis | Karin A. Risi | |
John James | Anne E. Robinson | |
John T. Marcante | Michael Rollings | |
Chris D. McIsaac | Lauren Valente |
Connect with Vanguard® > vanguard.com
Fund Information > 800-662-7447
Direct Investor Account Services > 800-662-2739
Institutional Investor Services > 800-523-1036
Text Telephone for People
Who Are Deaf or Hard of Hearing > 800-749-7273
This material may be used in conjunction with the offering of shares of any Vanguard fund only if preceded or accompanied by the fund’s current prospectus.
All comparative mutual fund data are from Morningstar, Inc., unless otherwise noted.
You can obtain a free copy of Vanguard’s proxy voting guidelines by visiting vanguard.com/proxyreporting or by calling Vanguard at 800-662-2739. The guidelines are also available from the SEC’s website, www.sec.gov. In addition, you may obtain a free report on how your fund voted the proxies for securities it owned during the 12 months ended June 30. To get the report, visit either vanguard.com/proxyreporting or www.sec.gov.
You can review information about your fund on the SEC’s website, and you can receive copies of this information, for a fee, by sending a request via email addressed to publicinfo@sec.gov.
Source for Bloomberg Barclays indexes: Bloomberg Index Services Limited. Copyright 2020, Bloomberg. All rights reserved.
© 2020 The Vanguard Group, Inc. All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q6080 122020 |
Your Fund’s Performance at a Glance | 1 |
Advisors' Report | 2 |
About Your Fund’s Expenses | 8 |
Performance Summary | 10 |
Financial Statements | 12 |
• | For the 12 months ended October 31, 2020, Vanguard Emerging Markets Select Stock Fund returned 3.51%. It lagged by a wide margin the 7.56% return of the FTSE Emerging Index. |
• | The period was marked by the global spread of COVID-19 and efforts to contain it, including lockdowns, the shutting of nonessential businesses, and travel restrictions. However, responses from policymakers, the start of trials for vaccines and treatments, and the easing of some pandemic-related restrictions eventually lifted investor sentiment. Emerging markets outperformed developed markets outside the U.S. but trailed the U.S. market. |
• | At the sector level, the fund’s holdings in consumer discretionary and financial companies (primarily automakers and banks, respectively) lagged the benchmark’s results. Stock selection in consumer staples and health care companies helped to offset some of the drag. |
• | At the regional level, the fund’s underperformance stemmed mostly from stock selection in China, South Africa, and Brazil. The fund’s underweighted stake in China also hurt its relative performance, as Chinese stocks powered the broad emerging-market advance. |
Average Annual Total Returns Periods Ended October 31, 2020 | |||
One Year | Three Years | Five Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 10.87% | 10.63% | 11.79% |
Russell 2000 Index (Small-caps) | -0.14 | 2.19 | 7.27 |
Russell 3000 Index (Broad U.S. market) | 10.15 | 10.04 | 11.48 |
FTSE All-World ex US Index (International) | -2.17 | 0.13 | 4.52 |
Bonds | |||
Bloomberg Barclays U.S. Aggregate Bond Index (Broad taxable market) | 6.19% | 5.06% | 4.08% |
Bloomberg Barclays Municipal Bond Index (Broad tax-exempt market) | 3.59 | 4.09 | 3.70 |
FTSE Three-Month U.S. Treasury Bill Index | 0.86 | 1.62 | 1.15 |
CPI | |||
Consumer Price Index | 1.18% | 1.82% | 1.83% |
Fund Assets Managed | |||
Investment Advisor | % | $ Million | Investment Strategy |
Baillie Gifford Overseas Ltd. | 26 | 172 | Believes that companies that can sustainably grow their business and increase earnings faster than market average will perform best. Stock selection is driven by bottom-up, fundamental analysis, focusing on a company’s potential over a meaningful time period, typically three to five years and beyond. |
Oaktree Capital Management, L.P. | 24 | 160 | Seeks securities that have been undervalued by investors. Oaktree’s investment process is driven by bottom-up research, which includes extensive travel to meet company management and maintaining in-house models focused on deriving reliable cash-flow projections. |
Wellington Management Company LLP | 23 | 157 | Allocates the assets in its portion of the fund to a team of global analysts who seek to add value through in-depth fundamental research and understanding of their industries. By covering the same companies over a period of many years, these investment professionals gain comprehensive insight to guide decisions for their subportfolios. |
Pzena Investment Management, LLC | 22 | 149 | Uses a deep-value approach that focuses on the most undervalued companies based on price-to-normalized earnings. The firm believes that this value philosophy works well globally and is especially effective in emerging markets because of generally wider valuation spreads. |
Cash Investments | 5 | 32 | These short-term reserves are invested by Vanguard in equity index products to simulate investment in stocks. Each advisor may also maintain a modest cash position. |
• | 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. |
• | 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. |
Six Months Ended October 31, 2020 | |||
Emerging Markets Select Stock Fund | Beginning Account Value 4/30/2020 | Ending Account Value 10/31/2020 | Expenses Paid During Period |
Based on Actual Fund Return | $1,000.00 | $1,229.49 | $4.71 |
Based on Hypothetical 5% Yearly Return | 1,000.00 | 1,020.91 | 4.27 |
Average Annual Total Returns Periods Ended October 31, 2020 | |||||
One Year | Five Years | Since Inception (6/27/2011) | Final Value of a $10,000 Investment | ||
Emerging Markets Select Stock Fund | 3.51% | 8.14% | 2.58% | $12,691 | |
FTSE Emerging Index | 7.56 | 8.04 | 2.57 | 12,680 | |
MSCI All Country World Index ex USA | -2.19 | 4.76 | 3.66 | 14,002 |
Communication Services | 9.7% |
Consumer Discretionary | 20.2 |
Consumer Staples | 4.0 |
Energy | 5.9 |
Financials | 19.8 |
Health Care | 3.2 |
Industrials | 3.0 |
Information Technology | 18.1 |
Materials | 8.4 |
Real Estate | 1.8 |
Utilities | 3.7 |
Other | 2.2 |
Shares | Market Value• ($000) | ||
Common Stocks (94.1%) | |||
Argentina (0.1%) | |||
* | YPF SA ADR | 253,663 | 817 |
Brazil (5.5%) | |||
Vale SA Class B ADR | 573,863 | 6,066 | |
Petroleo Brasileiro SA ADR | 496,220 | 3,290 | |
Ambev SA | 1,415,200 | 3,004 | |
* | Light SA | 887,014 | 2,982 |
Banco Bradesco SA ADR | 833,656 | 2,918 | |
Itau Unibanco Holding SA ADR | 627,646 | 2,567 | |
Itau Unibanco Holding SA Preference | 621,972 | 2,545 | |
Cia Energetica de Minas Gerais Preference | 1,414,480 | 2,527 | |
B3 SA - Brasil Bolsa Balcao | 242,700 | 2,159 | |
Petroleo Brasileiro SA | 543,117 | 1,798 | |
Petrobras Distribuidora SA | 395,998 | 1,324 | |
Magazine Luiza SA | 255,160 | 1,095 | |
Localiza Rent a Car SA | 80,751 | 854 | |
Petroleo Brasileiro SA ADR Preference | 112,056 | 741 | |
Cia de Saneamento do Parana | 130,141 | 537 | |
Gerdau SA Preference | 136,700 | 520 | |
Lojas Renner SA | 72,207 | 471 | |
Raia Drogasil SA | 105,145 | 441 | |
Notre Dame Intermedica Participacoes SA | 32,013 | 367 | |
BR Properties SA | 211,329 | 319 | |
Hypera SA | 48,300 | 235 | |
Cogna Educacao | 298,900 | 223 | |
36,983 | |||
Canada (0.6%) | |||
First Quantum Minerals Ltd. | 180,143 | 2,070 | |
Lundin Mining Corp. | 268,500 | 1,622 | |
* | Parex Resources Inc. | 46,254 | 450 |
* | Valeura Energy Inc. | 264,800 | 78 |
4,220 | |||
Chile (0.2%) | |||
Sociedad Quimica y Minera de Chile SA ADR | 27,710 | 1,026 | |
China (32.5%) | |||
Tencent Holdings Ltd. | 495,372 | 37,849 | |
* | Alibaba Group Holding Ltd. | 765,323 | 29,001 |
Ping An Insurance Group Co. of China Ltd. Class H | 1,219,808 | 12,612 |
Shares | Market Value• ($000) | ||
* | Alibaba Group Holding Ltd. ADR | 41,306 | 12,586 |
China Construction Bank Corp. Class H | 10,096,206 | 6,957 | |
China Merchants Bank Co. Ltd. Class H | 1,294,322 | 6,742 | |
* | Meituan Class B | 179,700 | 6,699 |
Geely Automobile Holdings Ltd. | 2,437,849 | 5,009 | |
China Mobile Ltd. | 740,000 | 4,526 | |
Industrial & Commercial Bank of China Ltd. Class H | 7,512,843 | 4,266 | |
Dongfeng Motor Group Co. Ltd. Class H | 5,908,460 | 4,162 | |
China Resources Power Holdings Co. Ltd. | 3,894,000 | 4,053 | |
Shimao Group Holdings Ltd. | 977,145 | 3,461 | |
* | Lufax Holding Ltd. ADR | 258,991 | 3,328 |
China Longyuan Power Group Corp. Ltd. Class H | 4,774,784 | 3,273 | |
CNOOC Ltd. | 3,082,000 | 2,820 | |
* | Tencent Music Entertainment Group ADR | 182,030 | 2,709 |
1 | WuXi AppTec Co. Ltd. Class H | 167,310 | 2,675 |
*,2 | Kingsoft Cloud Holdings Ltd. ADR | 84,294 | 2,449 |
Ping An Bank Co. Ltd. Class A | 890,791 | 2,364 | |
Jiangsu Yanghe Brewery Joint-Stock Co. Ltd. Class A | 87,991 | 2,213 | |
Anhui Conch Cement Co. Ltd. Class H | 346,500 | 2,168 | |
1 | Pharmaron Beijing Co. Ltd. Class H | 147,531 | 2,136 |
Contemporary Amperex Technology Co. Ltd. Class A | 55,400 | 2,035 | |
* | KE Holdings Inc. ADR | 28,506 | 1,988 |
Midea Group Co. Ltd. Class A | 164,785 | 1,923 | |
* | Zai Lab Ltd. ADR | 23,295 | 1,911 |
Ping An Bank Co. Ltd. Class A | 696,183 | 1,848 | |
* | JD.com Inc. Class A | 44,106 | 1,799 |
China Tourism Group Duty Free Corp. Ltd. Class A | 59,796 | 1,783 | |
*,1 | Shimao Services Holdings Ltd. | 807,607 | 1,729 |
* | China Mengniu Dairy Co. Ltd. | 362,376 | 1,708 |
* | Gree Electric Appliances Inc. of Zhuhai Class A | 190,300 | 1,668 |
Suofeiya Home Collection Co. Ltd. Class A | 375,890 | 1,587 | |
* | Grand Baoxin Auto Group Ltd. | 11,434,500 | 1,422 |
China Life Insurance Co. Ltd. Class H | 638,351 | 1,393 | |
Shenzhou International Group Holdings Ltd. | 80,000 | 1,392 | |
CNOOC Ltd. ADR | 14,986 | 1,381 | |
China Resources Beer Holdings Co. Ltd. | 217,996 | 1,353 | |
Luxshare Precision Industry Co. Ltd. Class A | 164,376 | 1,346 | |
Haier Electronics Group Co. Ltd. | 320,000 | 1,220 | |
Hangzhou Tigermed Consulting Co. Ltd. Class A | 62,649 | 1,164 | |
Wuhan Raycus Fiber Laser Technologies Co. Ltd. Class A | 103,365 | 1,157 | |
* | Kingdee International Software Group Co. Ltd. | 425,000 | 1,122 |
China Railway Group Ltd. Class H | 2,431,000 | 1,119 | |
Li Ning Co. Ltd. | 214,000 | 1,115 | |
China Gas Holdings Ltd. | 360,517 | 1,108 | |
1 | China Tower Corp. Ltd. Class H | 6,959,925 | 1,089 |
* | Kangji Medical Holdings Ltd. | 393,473 | 1,075 |
Brilliance China Automotive Holdings Ltd. | 1,182,000 | 1,020 | |
Kingboard Holdings Ltd. | 299,617 | 1,015 | |
*,1 | Wuxi Biologics Cayman Inc. | 35,000 | 983 |
ENN Energy Holdings Ltd. | 74,442 | 942 | |
China Overseas Land & Investment Ltd. | 362,864 | 911 | |
*,1,3 | JW Cayman Therapeutics Co. Ltd. | 294,074 | 903 |
Jiangsu Hengrui Medicine Co. Ltd. Class A | 67,560 | 899 | |
1 | Longfor Group Holdings Ltd. | 161,500 | 885 |
China Dongxiang Group Co. Ltd. | 6,914,000 | 857 |
Shares | Market Value• ($000) | ||
Sinopec Shanghai Petrochemical Co. Ltd. Class H | 4,480,953 | 828 | |
Weichai Power Co. Ltd. Class H | 417,000 | 791 | |
*,1 | China Yangtze Power Co. Ltd. GDR | 26,601 | 710 |
China Oilfield Services Ltd. Class H | 1,136,857 | 687 | |
1 | CSC Financial Co. Ltd. Class H | 552,957 | 671 |
*,3 | Tianhe Chemicals Group Ltd. | 4,142,000 | 625 |
Shenzhen Mindray Bio-Medical Electronics Co. Ltd. Class A | 8,000 | 463 | |
*,1 | Innovent Biologics Inc. | 55,817 | 414 |
Amoy Diagnostics Co. Ltd. Class A | 28,008 | 352 | |
* | Estun Automation Co. Ltd. Class A | 96,300 | 319 |
Yifeng Pharmacy Chain Co. Ltd. Class A | 20,300 | 309 | |
Shandong Weigao Group Medical Polymer Co. Ltd. Class H | 137,769 | 267 | |
China National Accord Medicines Corp. Ltd. Class A | 35,500 | 264 | |
*,1 | Hangzhou Tigermed Consulting Co. Ltd. Class H | 13,700 | 220 |
China Traditional Chinese Medicine Holdings Co. Ltd. | 481,873 | 193 | |
* | Zai Lab Ltd. | 1,400 | 116 |
Sinopharm Group Co. Ltd. Class H | 9,907 | 23 | |
218,160 | |||
Czech Republic (0.6%) | |||
CEZ AS | 161,149 | 3,050 | |
* | Komercni banka as | 33,688 | 684 |
3,734 | |||
Greece (0.2%) | |||
* | Alpha Bank AE | 1,463,373 | 745 |
Hellenic Telecommunications Organization SA | 49,421 | 655 | |
* | Bank of Cyprus Holdings plc | 399,691 | 212 |
1,612 | |||
Hong Kong (4.0%) | |||
AIA Group Ltd. | 490,885 | 4,672 | |
Galaxy Entertainment Group Ltd. | 686,000 | 4,533 | |
Lenovo Group Ltd. | 5,602,000 | 3,517 | |
Man Wah Holdings Ltd. | 1,958,800 | 2,734 | |
Pacific Basin Shipping Ltd. | 17,752,975 | 2,593 | |
Yue Yuen Industrial Holdings Ltd. | 1,364,000 | 2,222 | |
Want Want China Holdings Ltd. | 2,153,000 | 1,426 | |
* | BeiGene Ltd. ADR | 4,732 | 1,403 |
Minth Group Ltd. | 202,000 | 836 | |
1 | Budweiser Brewing Co. APAC Ltd. | 233,785 | 689 |
*,1 | ESR Cayman Ltd. | 194,931 | 589 |
* | MMG Ltd. | 1,726,500 | 409 |
Kerry Properties Ltd. | 126,161 | 310 | |
Precision Tsugami China Corp. Ltd. | 343,000 | 308 | |
*,1 | Everest Medicines Ltd. | 34,800 | 260 |
26,501 | |||
Hungary (0.5%) | |||
* | OTP Bank Nyrt | 118,842 | 3,707 |
India (8.1%) | |||
Reliance Industries Ltd. | 387,668 | 10,748 | |
Housing Development Finance Corp. Ltd. | 164,697 | 4,273 | |
* | ICICI Bank Ltd. | 720,353 | 3,789 |
Aurobindo Pharma Ltd. | 323,159 | 3,368 | |
* | ICICI Bank Ltd. ADR | 313,871 | 3,311 |
NTPC Ltd. | 2,654,212 | 3,136 |
Shares | Market Value• ($000) | ||
UltraTech Cement Ltd. | 39,985 | 2,466 | |
* | State Bank of India | 851,393 | 2,169 |
Larsen & Toubro Ltd. | 168,238 | 2,108 | |
Tata Consultancy Services Ltd. | 52,990 | 1,910 | |
* | Axis Bank Ltd. | 252,434 | 1,673 |
Tech Mahindra Ltd. | 144,318 | 1,589 | |
Bharti Airtel Ltd. | 262,439 | 1,535 | |
*,1 | ICICI Prudential Life Insurance Co. Ltd. | 251,621 | 1,369 |
Tube Investments of India Ltd. | 141,939 | 1,253 | |
Maruti Suzuki India Ltd. | 11,689 | 1,098 | |
*,1 | HDFC Life Insurance Co. Ltd. | 131,154 | 1,043 |
Eicher Motors Ltd. | 36,915 | 1,039 | |
* | Kotak Mahindra Bank Ltd. | 44,486 | 928 |
Glenmark Pharmaceuticals Ltd. | 143,198 | 917 | |
Mahindra & Mahindra Ltd. | 111,063 | 889 | |
Dabur India Ltd. | 112,281 | 775 | |
Asian Paints Ltd. | 25,161 | 750 | |
*,1 | ICICI Lombard General Insurance Co. Ltd. | 43,907 | 732 |
Power Grid Corp. of India Ltd. | 276,204 | 637 | |
Indraprastha Gas Ltd. | 106,387 | 578 | |
Apollo Hospitals Enterprise Ltd. | 14,189 | 406 | |
* | Edelweiss Financial Services Ltd. | 62,994 | 47 |
54,536 | |||
Indonesia (1.7%) | |||
Bank Rakyat Indonesia Persero Tbk PT | 18,140,000 | 4,106 | |
Bank Mandiri Persero Tbk PT | 8,185,318 | 3,189 | |
Semen Indonesia Persero Tbk PT | 3,470,500 | 2,248 | |
Bank Central Asia Tbk PT | 595,291 | 1,171 | |
Unilever Indonesia Tbk PT | 1,010,002 | 536 | |
11,250 | |||
Japan (0.3%) | |||
Murata Manufacturing Co. Ltd. | 12,100 | 849 | |
Tsugami Corp. | 39,600 | 552 | |
Nexon Co. Ltd. | 16,934 | 472 | |
1,873 | |||
Kazakhstan (0.2%) | |||
NAC Kazatomprom JSC GDR | 29,022 | 412 | |
*,3 | Kaspi.KZ JSC GDR | 11,207 | 378 |
*,1 | Kaspi.KZ JSC GDR (XLON) | 9,124 | 308 |
1,098 | |||
Kenya (0.1%) | |||
* | Equity Group Holdings plc | 1,901,343 | 592 |
Malaysia (0.2%) | |||
Genting Malaysia Bhd | 2,106,700 | 1,014 | |
CIMB Group Holdings Bhd | 499,375 | 355 | |
1,369 | |||
Mexico (1.7%) | |||
Cemex SAB de CV ADR | 827,778 | 3,435 | |
* | Grupo Financiero Banorte SAB de CV Class O | 593,114 | 2,642 |
America Movil SAB de CV Class L ADR | 126,721 | 1,511 | |
Orbia Advance Corp. SAB de CV | 487,505 | 862 | |
Wal-Mart de Mexico SAB de CV | 333,000 | 805 | |
America Movil SAB de CV Series L | 1,075,359 | 654 |
Shares | Market Value• ($000) | ||
Grupo Mexico SAB de CV Series B | 148,445 | 422 | |
* | Alpek SAB de CV | 496,641 | 371 |
* | Regional SAB de CV | 130,800 | 353 |
Corp. Inmobiliaria Vesta SAB de CV | 149,100 | 240 | |
11,295 | |||
Netherlands (0.1%) | |||
ASML Holding NV | 2,815 | 1,019 | |
Pakistan (0.1%) | |||
United Bank Ltd. | 957,842 | 655 | |
Philippines (0.1%) | |||
Ayala Land Inc. | 644,232 | 439 | |
Poland (0.5%) | |||
*,1 | Allegro.eu SA | 134,779 | 2,739 |
* | KGHM Polska Miedz SA | 26,451 | 792 |
3,531 | |||
Russia (4.7%) | |||
Sberbank of Russia PJSC ADR | 759,613 | 7,680 | |
LUKOIL PJSC ADR | 146,461 | 7,493 | |
MMC Norilsk Nickel PJSC ADR | 245,635 | 5,855 | |
Rosneft Oil Co. PJSC GDR (XLON) | 1,279,253 | 5,584 | |
Magnit PJSC GDR | 69,384 | 958 | |
Sberbank of Russia PJSC | 366,102 | 928 | |
* | Moscow Exchange MICEX-RTS PJSC | 443,090 | 748 |
* | Inter RAO UES PJSC | 10,424,287 | 669 |
Mobile TeleSystems PJSC ADR | 69,073 | 540 | |
Sberbank of Russia PJSC ADR | 40,501 | 409 | |
MMC Norilsk Nickel PJSC | 1,639 | 390 | |
Rosneft Oil Co. PJSC GDR | 19,047 | 88 | |
31,342 | |||
Singapore (0.7%) | |||
Wilmar International Ltd. | 1,534,100 | 4,542 | |
* | Ezion Holdings Ltd. Warrants Exp. 4/16/23 | 2,242,476 | — |
4,542 | |||
South Africa (3.0%) | |||
Naspers Ltd. Class N | 41,093 | 8,022 | |
AngloGold Ashanti Ltd. ADR | 141,657 | 3,278 | |
FirstRand Ltd. | 710,474 | 1,649 | |
Shoprite Holdings Ltd. | 207,747 | 1,646 | |
* | Sasol Ltd. | 274,364 | 1,433 |
Reunert Ltd. | 607,574 | 1,253 | |
Gold Fields Ltd. | 100,111 | 1,083 | |
* | Ninety One plc | 154,272 | 415 |
* | Old Mutual Ltd. | 644,547 | 374 |
Sibanye Stillwater Ltd. | 124,777 | 368 | |
Coronation Fund Managers Ltd. | 139,263 | 322 | |
Rand Merchant Investment Holdings Ltd. | 55,582 | 97 | |
19,940 | |||
South Korea (6.8%) | |||
Samsung Electronics Co. Ltd. | 182,721 | 9,185 | |
SK Hynix Inc. | 70,470 | 4,999 | |
POSCO | 26,636 | 4,917 | |
DB Insurance Co. Ltd. | 106,920 | 4,180 |
Shares | Market Value• ($000) | ||
LG Chem Ltd. | 7,269 | 3,964 | |
Samsung SDI Co. Ltd. | 6,510 | 2,565 | |
Hankook Tire & Technology Co. Ltd. | 87,447 | 2,450 | |
Samsung Electronics Co. Ltd. Preference | 54,356 | 2,418 | |
Shinhan Financial Group Co. Ltd. | 66,550 | 1,806 | |
Hana Financial Group Inc. | 64,612 | 1,745 | |
* | Korea Shipbuilding & Offshore Engineering Co. Ltd. | 24,760 | 1,726 |
NAVER Corp. | 5,629 | 1,440 | |
Hyundai Motor Co. | 8,773 | 1,284 | |
KB Financial Group Inc. | 32,680 | 1,169 | |
Doosan Bobcat Inc. | 28,570 | 730 | |
Koh Young Technology Inc. | 10,272 | 723 | |
45,301 | |||
Taiwan (11.3%) | |||
Taiwan Semiconductor Manufacturing Co. Ltd. | 1,915,161 | 28,976 | |
MediaTek Inc. | 481,841 | 11,453 | |
Taiwan Semiconductor Manufacturing Co. Ltd. ADR | 123,943 | 10,395 | |
Hon Hai Precision Industry Co. Ltd. | 1,587,685 | 4,306 | |
Catcher Technology Co. Ltd. | 500,000 | 3,161 | |
ASE Technology Holding Co. Ltd. | 988,000 | 2,218 | |
Largan Precision Co. Ltd. | 15,000 | 1,593 | |
Airtac International Group | 58,885 | 1,585 | |
Compal Electronics Inc. | 2,308,000 | 1,504 | |
Globalwafers Co. Ltd. | 93,428 | 1,360 | |
Uni-President Enterprises Corp. | 616,990 | 1,323 | |
Realtek Semiconductor Corp. | 104,963 | 1,308 | |
Accton Technology Corp. | 165,767 | 1,204 | |
Formosa Sumco Technology Corp. | 238,780 | 945 | |
Lite-On Technology Corp. | 573,000 | 933 | |
E.Sun Financial Holding Co. Ltd. | 1,046,528 | 890 | |
Sino-American Silicon Products Inc. | 252,673 | 883 | |
Far Eastern New Century Corp. | 907,435 | 819 | |
Chroma ATE Inc. | 166,273 | 792 | |
75,648 | |||
Thailand (1.7%) | |||
Siam Commercial Bank PCL NVDR | 1,958,500 | 4,078 | |
Charoen Pokphand Foods PCL | 4,032,300 | 3,264 | |
Bangkok Bank PCL NVDR | 469,100 | 1,453 | |
Kasikornbank PCL NVDR | 548,980 | 1,341 | |
Bangkok Bank PCL (Registered) | 215,800 | 668 | |
* | Precious Shipping PCL | 3,024,016 | 471 |
PTT PCL | 50,541 | 50 | |
11,325 | |||
Turkey (0.8%) | |||
Ford Otomotiv Sanayi AS | 234,694 | 3,036 | |
* | Akbank T.A.S. | 2,428,837 | 1,378 |
* | Tupras Turkiye Petrol Rafinerileri AS | 74,120 | 663 |
* | Turkiye Garanti Bankasi AS | 281,744 | 222 |
5,299 | |||
United Arab Emirates (0.5%) | |||
3 | Abu Dhabi Commercial Bank PJSC | 2,104,950 | 3,349 |
Shares | Market Value• ($000) | ||
United Kingdom (1.5%) | |||
* | Standard Chartered plc | 914,940 | 4,181 |
Antofagasta plc | 262,207 | 3,496 | |
Anglo American plc | 30,563 | 717 | |
Polymetal International plc | 30,910 | 657 | |
Ferrexpo plc | 175,433 | 433 | |
*,1 | Network International Holdings plc | 114,484 | 329 |
Hikma Pharmaceuticals plc | 6,856 | 223 | |
*,2 | Premier Oil plc | 794,600 | 117 |
10,153 | |||
United States (5.7%) | |||
* | MercadoLibre Inc. | 5,503 | 6,681 |
* | Baidu Inc. ADR | 46,532 | 6,191 |
* | Trip.com Group Ltd. ADR | 198,347 | 5,704 |
* | Flex Ltd. | 312,744 | 4,425 |
Cognizant Technology Solutions Corp. Class A | 37,641 | 2,688 | |
* | Afya Ltd. Class A | 82,254 | 1,974 |
Credicorp Ltd. | 16,494 | 1,892 | |
* | TAL Education Group ADR | 25,658 | 1,705 |
* | New Oriental Education & Technology Group Inc. ADR | 8,394 | 1,346 |
4 | Vanguard FTSE Emerging Markets ETF | 29,800 | 1,306 |
* | Sea Ltd. ADR | 6,809 | 1,074 |
Copa Holdings SA Class A | 19,048 | 939 | |
*,2 | Azul SA ADR | 79,233 | 939 |
* | Yandex NV Class A | 9,965 | 574 |
* | Huazhu Group Ltd. | 9,550 | 404 |
* | Chindata Group Holdings ADR | 17,154 | 239 |
Huazhu Group Ltd. ADR | 5,570 | 221 | |
* | New Frontier Health Corp. | 24,080 | 208 |
38,510 | |||
Vietnam (0.1%) | |||
*,1 | Vinhomes JSC | 203,370 | 667 |
Total Common Stocks (Cost $564,869) | 630,493 | ||
Temporary Cash Investments (6.0%) | |||
Money Market Fund (5.6%) | |||
5,6 | Vanguard Market Liquidity Fund 0.112% | 374,452 | 37,445 |
Face Amount ($000) | |||
U.S. Government and Agency Obligations (0.4%) | |||
7 | U.S. Cash Management Bill, 0.098%, 1/5/21 | 1,500 | 1,500 |
7 | U.S. Cash Management Bill, 0.091%, 2/16/21 | 926 | 926 |
Face Amount ($000) | Market Value• ($000) | ||
7 | U.S. Treasury Bill, 0.122%, 12/15/20 | 500 | 500 |
2,926 | |||
Total Temporary Cash Investments (Cost $40,367) | 40,371 | ||
Total Investments (100.1%) (Cost $605,236) | 670,864 | ||
Other Assets and Liabilities—Net (-0.1%) | (568) | ||
Net Assets (100%) | 670,296 | ||
Cost is in $000. |
• | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
1 | Security exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 2020, the aggregate value was $21,140,000, representing 3.2% of net assets. |
2 | Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $1,751,000. |
3 | Security value determined using significant unobservable inputs. |
4 | Considered an affiliated company of the fund as the issuer is another member of The Vanguard Group. |
5 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
6 | Collateral of $2,554,000 was received for securities on loan. |
7 | Securities with a value of $2,785,000 have been segregated as initial margin for open futures contracts. |
ADR—American Depositary Receipt. | |
GDR—Global Depositary Receipt. | |
NVDR—Non-Voting Depository Receipt. |
Futures Contracts | ||||
($000) | ||||
Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
Long Futures Contracts | ||||
MSCI Emerging Markets Index | December 2020 | 577 | 31,790 | 307 |
Forward Currency Contracts | |||||||
Contract Settlement Date | Contract Amount (000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) | ||||
Counterparty | Receive | Deliver | |||||
State Street Bank & Trust Co. | 11/5/20 | HKD | 5,183 | USD | 669 | — | — |
HKD—Hong Kong dollar. |
USD—U.S. dollar. |
($000s, except shares and per-share amounts) | Amount |
Assets | |
Investments in Securities, at Value | |
Unaffiliated Issuers (Cost $566,493) | 632,113 |
Affiliated Issuers (Cost $38,743) | 38,751 |
Total Investments in Securities | 670,864 |
Investment in Vanguard | 28 |
Cash | 1,970 |
Foreign Currency, at Value (Cost $149) | 149 |
Receivables for Investment Securities Sold | 5,118 |
Receivables for Accrued Income | 1,128 |
Receivables for Capital Shares Issued | 815 |
Total Assets | 680,072 |
Liabilities | |
Payables for Investment Securities Purchased | 5,380 |
Collateral for Securities on Loan | 2,554 |
Payables to Investment Advisor | 795 |
Payables for Capital Shares Redeemed | 274 |
Payables to Vanguard | 118 |
Variation Margin Payable—Futures Contracts | 398 |
Deferred Foreign Capital Gain Taxes | 257 |
Total Liabilities | 9,776 |
Net Assets | 670,296 |
At October 31, 2020, net assets consisted of: | |
Paid-in Capital | 613,839 |
Total Distributable Earnings (Loss) | 56,457 |
Net Assets | 670,296 |
Net Assets | |
Applicable to 30,223,384 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 670,296 |
Net Asset Value Per Share | $22.18 |
Year Ended October 31, 2020 | |
($000) | |
Investment Income | |
Income | |
Dividends—Unaffiliated Issuers1 | 14,480 |
Dividends—Affiliated Issuers | 48 |
Interest—Unaffiliated Issuers | 19 |
Interest—Affiliated Issuers | 296 |
Securities Lending—Net | 109 |
Total Income | 14,952 |
Expenses | |
Investment Advisory Fees—Note B | |
Basic Fee | 3,375 |
Performance Adjustment | (78) |
The Vanguard Group—Note C | |
Management and Administrative | 2,016 |
Marketing and Distribution | 75 |
Custodian Fees | 144 |
Auditing Fees | 40 |
Shareholders’ Reports | 24 |
Trustees’ Fees and Expenses | 1 |
Total Expenses | 5,597 |
Expenses Paid Indirectly | (8) |
Net Expenses | 5,589 |
Net Investment Income | 9,363 |
Realized Net Gain (Loss) | |
Investment Securities Sold—Unaffiliated Issuers | (19,871) |
Investment Securities Sold—Affiliated Issuers | (66) |
Futures Contracts | 5,097 |
Forward Currency Contracts | (1) |
Foreign Currencies | (364) |
Realized Net Gain (Loss) | (15,205) |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities—Unaffiliated Issuers2 | 17,261 |
Investment Securities—Affiliated Issuers | 25 |
Futures Contracts | (293) |
Forward Currency Contracts | — |
Foreign Currencies | (23) |
Change in Unrealized Appreciation (Depreciation) | 16,970 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 11,128 |
1 | Dividends are net of foreign withholding taxes of $1,770,000. |
2 | The change in unrealized appreciation (depreciation) is net of the change in deferred foreign capital gains taxes of ($128,000). |
Year Ended October 31, | ||
2020 ($000) | 2019 ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 9,363 | 14,825 |
Realized Net Gain (Loss) | (15,205) | 352 |
Change in Unrealized Appreciation (Depreciation) | 16,970 | 64,448 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 11,128 | 79,625 |
Distributions1 | ||
Total Distributions | (15,169) | (14,035) |
Capital Share Transactions | ||
Issued | 197,586 | 240,400 |
Issued in Lieu of Cash Distributions | 13,238 | 12,484 |
Redeemed | (238,050) | (181,231) |
Net Increase (Decrease) from Capital Share Transactions | (27,226) | 71,653 |
Total Increase (Decrease) | (31,267) | 137,243 |
Net Assets | ||
Beginning of Period | 701,563 | 564,320 |
End of Period | 670,296 | 701,563 |
1 | Certain prior-period numbers have been reclassified to conform with the current-period presentation. |
For a Share Outstanding Throughout Each Period | Year Ended October 31, | ||||
2020 | 2019 | 2018 | 2017 | 2016 | |
Net Asset Value, Beginning of Period | $21.87 | $19.68 | $22.56 | $18.27 | $16.48 |
Investment Operations | |||||
Net Investment Income | .2981 | .4741,2 | .4141 | .4131 | .234 |
Net Realized and Unrealized Gain (Loss) on Investments | .483 | 2.208 | (2.943) | 4.129 | 1.840 |
Total from Investment Operations | .781 | 2.682 | (2.529) | 4.542 | 2.074 |
Distributions | |||||
Dividends from Net Investment Income | (.471) | (.492) | (.351) | (.252) | (.284) |
Distributions from Realized Capital Gains | — | — | — | — | — |
Total Distributions | (.471) | (.492) | (.351) | (.252) | (.284) |
Net Asset Value, End of Period | $22.18 | $21.87 | $19.68 | $22.56 | $18.27 |
Total Return3 | 3.51% | 13.96% | -11.39% | 25.28% | 12.95% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $670 | $702 | $564 | $646 | $339 |
Ratio of Total Expenses to Average Net Assets4 | 0.85% | 0.93% | 0.94% | 0.92% | 0.90% |
Ratio of Net Investment Income to Average Net Assets | 1.43% | 2.25%2 | 1.85% | 2.04% | 1.57% |
Portfolio Turnover Rate | 52% | 46% | 76% | 44% | 46% |
1 | Calculated based on average shares outstanding. |
2 | Net investment income per share and the ratio of net investment income to average net assets include $0.071 and 0.34%, respectively, resulting from a special dividend from Naspers Ltd. in September 2019. |
3 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
4 | Includes performance-based investment advisory fee increases (decreases) of (0.01%), 0.07%, 0.05%, (0.01%), and (0.03%). |
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. |
B. | The investment advisory firms Baillie Gifford Overseas Ltd., Oaktree Capital Management, L.P., Pzena Investment Management, LLC, and Wellington Management Company llp, each provide investment advisory services to a portion of the fund for a fee calculated at an annual percentage rate of average net assets managed by the advisor. The basic fee of Baillie Gifford Overseas Ltd. is subject to quarterly adjustments based on performance relative to the FTSE Emerging Index since July 31, 2018. The basic fees of Oaktree Capital Management, L.P., Pzena Investment Management, LLC, and Wellington Management Company llp are subject to quarterly adjustments based on performance relative to the FTSE Emerging Index for the preceding three years. |
C. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund corporate management, administrative, marketing, distribution and cash management services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
D. | The fund has asked its investment advisors to direct certain security trades, subject to obtaining the best price and execution, to brokers who have agreed to rebate to the fund part of the commissions generated. Such rebates are used solely to reduce the fund’s management and administrative expenses. The fund’s custodian bank has also agreed to reduce its fees when the fund maintains cash on deposit in the non-interest-bearing custody account. For the year ended October 31, 2020, these arrangements reduced the fund’s management and administrative expenses by $4,000 and custodian fees by $4,000. The total expense reduction represented an effective annual rate of less than 0.01% of the fund’s average net assets. |
E. | Various inputs may be used to determine the value of the fund’s investments and derivatives. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities. |
Level 1 ($000) | Level 2 ($000) | Level 3 ($000) | Total ($000) | |
Investments | ||||
Assets | ||||
Common Stocks—North and South America | 92,447 | 404 | — | 92,851 |
Common Stocks—Other | 53,934 | 478,453 | 5,255 | 537,642 |
Temporary Cash Investments | 37,445 | 2,926 | — | 40,371 |
Total | 183,826 | 481,783 | 5,255 | 670,864 |
Derivative Financial Instruments | ||||
Liabilities | ||||
Futures Contracts1 | 398 | — | — | 398 |
1 | Represents variation margin on the last day of the reporting period. |
F. | At October 31, 2020, the fair values of derivatives were reflected in the Statement of Assets and Liabilities as follows: |
Statement of Assets and Liabilities Caption | Equity Contracts ($000) | Foreign Exchange Contracts ($000) | Total ($000) |
Variation Margin Payable—Futures Contracts | 398 | — | 398 |
Total Liabilities | 398 | — | 398 |
Realized Net Gain (Loss)on Derivatives | Equity Contracts ($000) | Foreign Exchange Contracts ($000) | Total ($000) |
Futures Contracts | 5,097 | — | 5,097 |
Forward Currency Contracts | — | (1) | (1) |
Realized Net Gain (Loss) on Derivatives | 5,097 | (1) | 5,096 |
Change in Unrealized Appreciation (Depreciation) on Derivatives | |||
Futures Contracts | (293) | — | (293) |
Forward Currency Contracts | — | — | — |
Change in Unrealized Appreciation (Depreciation) on Derivatives | (293) | — | (293) |
G. | 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 foreign currency transactions, passive foreign investment companies, and tax expense on capital gains were reclassified between the individual components of total distributable earnings (loss). |
Amount ($000) | |
Undistributed Ordinary Income | 7,807 |
Undistributed Long-Term Gains | — |
Capital Loss Carryforwards | (15,485) |
Qualified Late-Year Losses | — |
Net Unrealized Gains (Losses) | 64,135 |
Year Ended October 31, | ||
2020 Amount ($000) | 2019 Amount ($000) | |
Ordinary Income* | 15,169 | 14,035 |
Long-Term Capital Gains | — | — |
Total | 15,169 | 14,035 |
* | Includes short-term capital gains, if any. |
Amount ($000) | |
Tax Cost | 608,125 |
Gross Unrealized Appreciation | 158,114 |
Gross Unrealized Depreciation | (93,699) |
Net Unrealized Appreciation (Depreciation) | 64,415 |
H. | During the year ended October 31, 2020, the fund purchased $319,182,000 of investment securities and sold $342,805,000 of investment securities, other than temporary cash investments. |
I. | Capital shares issued and redeemed were: |
Year Ended October 31, | ||
2020 | 2019 | |
Shares (000) | Shares (000) | |
Issued | 9,613 | 11,415 |
Issued in Lieu of Cash Distributions | 579 | 646 |
Redeemed | (12,051) | (8,654) |
Net Increase (Decrease) in Shares Outstanding | (1,859) | 3,407 |
J. | Transactions during the period in investments where the issuer is another member of The Vanguard Group were as follows: |
Current Period Transactions | ||||||||
Oct. 31, 2019 Market Value ($000) | Purchases at Cost ($000) | Proceeds from Securities Sold ($000) | Realized Net Gain (Loss) ($000) | Change in Unrealized App. (Dep.) ($000) | Income ($000) | Capital Gain Distributions Received ($000) | Oct. 31, 2020 Market Value ($000) | |
Vanguard FTSE Emerging Markets ETF | 3,902 | 14,284 | 16,839 | (65) | 24 | 48 | — | 1,306 |
Vanguard Market Liquidity Fund | 34,181 | NA1 | NA1 | (1) | 1 | 296 | — | 37,445 |
Total | 38,083 | (66) | 25 | 344 | — | 38,751 |
1 | Not applicable—purchases and sales are for temporary cash investment purposes. |
K. | Management has determined that no events or transactions occurred subsequent to October 31, 2020, that would require recognition or disclosure in these financial statements. |
Philadelphia, Pennsylvania
December 21, 2020
Joseph Brennan | James M. Norris |
Mortimer J. Buckley | Thomas M. Rampulla |
Gregory Davis | Karin A. Risi |
John James | Anne E. Robinson |
John T. Marcante | Michael Rollings |
Chris D. McIsaac | Lauren Valente |
All rights reserved.
Vanguard Marketing Corporation, Distributor.
Your Fund’s Performance at a Glance | 1 |
Advisor’s Report | 2 |
About Your Fund’s Expenses | 5 |
Performance Summary | 7 |
Consolidated Financial Statements | 9 |
• | Vanguard Alternative Strategies Fund returned about –18.17% for the 12 months ended October 31, 2020. Its benchmark, the FTSE 3-Month Treasury Bill Index, returned 0.86%. |
• | The fund seeks to generate returns using a combination of several alternative strategies that collectively are expected to have low correlation with traditional capital markets. The fund regularly uses derivatives to hedge portfolio risks. On balance, its holdings of forward currency contracts and equity index and bond futures contracts detracted from performance. |
• | Event-driven, or merger arbitrage, strategies detracted most, as deal activity slowed when the coronavirus pandemic hit the United States in March. The fund’s two defensively oriented sectors—long/short equity and fixed income relative value—provided mixed results. Long/short equity returned about –29% as low-volatility stocks struggled. Fixed income relative value benefited from low interest rates and was the only strategy in positive territory for the 12 months. |
• | Despite heightened uncertainty, the diversification resulting from the fund’s variety of exposures helped reduce overall volatility compared with the broad U.S. stock market. |
Average Annual Total Returns Periods Ended October 31, 2020 | |||
One Year | Three Years | Five Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 10.87% | 10.63% | 11.79% |
Russell 2000 Index (Small-caps) | -0.14 | 2.19 | 7.27 |
Russell 3000 Index (Broad U.S. market) | 10.15 | 10.04 | 11.48 |
FTSE All-World ex US Index (International) | -2.17 | 0.13 | 4.52 |
Bonds | |||
Bloomberg Barclays U.S. Aggregate Bond Index (Broad taxable market) | 6.19% | 5.06% | 4.08% |
Bloomberg Barclays Municipal Bond Index (Broad tax-exempt market) | 3.59 | 4.09 | 3.70 |
FTSE Three-Month U.S. Treasury Bill Index | 0.86 | 1.62 | 1.15 |
CPI | |||
Consumer Price Index | 1.18% | 1.82% | 1.83% |
• | Long/short equity. This approach focuses on building a long/short portfolio of equity securities based on their volatility characteristics by executing long positions in low-volatility stocks and short positions in high-volatility stocks. It seeks to capture a risk-adjusted spread by constructing positions to reduce the net market exposure of the overall portfolio to general market movements (beta). |
• | Event-driven. This strategy seeks to profit from the expectation that a specific event or catalyst (such as a merger/acquisition deal closure) will affect the stock price of a U.S. or foreign company. |
• | Fixed income relative value. This approach seeks to exploit the steepness of the Treasury yield curve that is created by investors’ desire to hold shorter-maturity bonds because they tend to be more liquid (easily traded) and less sensitive to growth and inflation risk. We try to capture this premium by investing in Treasury futures with longer times to maturity and borrowing those with short maturities. |
• | Currencies. The fund seeks to benefit from expected currency movements across countries by using long and short foreign currency exchange forward contracts. It does this by selling currencies of countries with poor fundamental characteristics and buying those of countries with strong ones. |
• | Commodity-linked investments. This strategy seeks to capture the risk premium associated with inventory levels of commodities, which are reflected in the prices of their futures contracts. We take long positions in commodities whose prices are expected to rise because of limited inventory and short positions in those whose prices are expected to fall. |
• | Equity futures. The fund uses long and short positions in global equity index futures to capture excess return opportunities. The strategy seeks to benefit from global differences in market and fundamental characteristics by buying equity index futures with strong characteristics and selling equity index futures with poor characteristics. |
• | 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. |
• | 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. |
Six Months Ended October 31, 2020 | |||
Alternative Strategies Fund | Beginning Account Value 4/30/2020 | Ending Account Value 10/31/2020 | Expenses Paid During Period |
Based on Actual Fund Return | $1,000.00 | $948.04 | $3.92 |
Based on Hypothetical 5% Yearly Return | 1,000.00 | 1,021.12 | 4.06 |
Average Annual Total Returns Periods Ended October 31, 2020 | |||||
One Year | Five Years | Since Inception (8/11/2015) | Final Value of a $50,000 Investment | ||
Alternative Strategies Fund | -18.17% | -0.86% | -3.14% | $48,428 | |
FTSE 3-Month Treasury Bill Index | 0.86 | 4.47 | 1.11 | 50,555 |
Long Portfolio1 | Short Portfolio2 | |
Communication Services | 12.5% | 1.0% |
Consumer Discretionary | 13.7 | 19.1 |
Consumer Staples | 3.3 | 2.1 |
Energy | — | 4.9 |
Financials | 17.9 | 31.0 |
Health Care | 17.9 | 8.0 |
Industrials | 6.6 | 10.4 |
Information Technology | 15.9 | 16.3 |
Materials | 2.5 | 2.2 |
Real Estate | 5.4 | 4.0 |
Utilities | 4.3 | 1.0 |
1 | Percentage of investments in long portfolio. |
2 | Percentage of investments in short portfolio. |
Shares | Market Value• ($000) | ||
Common Stocks—Long Positions (54.2%) | |||
Communication Services (6.8%) | |||
* | Cincinnati Bell Inc. | 320,000 | 4,816 |
* | Sogou Inc. ADR | 520,220 | 4,630 |
* | SINA Corp. | 93,945 | 4,025 |
* | Bitauto Holdings Ltd. ADR | 250,637 | 3,995 |
*,1 | Alphabet Inc. Class A | 219 | 354 |
1 | Sirius XM Holdings Inc. | 61,447 | 352 |
*,1 | Liberty Broadband Corp. Class C | 2,397 | 340 |
*,1 | Charter Communications Inc. Class A | 544 | 328 |
1 | Verizon Communications Inc. | 5,648 | 322 |
1 | Comcast Corp. Class A | 7,452 | 315 |
*,1 | T-Mobile US Inc. | 2,862 | 314 |
1 | AT&T Inc. | 11,457 | 309 |
1 | Omnicom Group Inc. | 5,340 | 252 |
1 | Walt Disney Co. | 1,976 | 240 |
*,1 | Madison Square Garden Sports Corp. | 1,108 | 157 |
20,749 | |||
Consumer Discretionary (7.4%) | |||
BorgWarner Inc. | 155,052 | 5,424 | |
* | Hudson Ltd. Class A | 648,000 | 4,951 |
Tiffany & Co. | 31,236 | 4,087 | |
*,2 | GrandVision NV | 115,476 | 3,210 |
1 | Pool Corp. | 1,015 | 355 |
1 | Starbucks Corp. | 4,029 | 350 |
1 | Dollar General Corp. | 1,648 | 344 |
1 | Service Corp. International | 7,291 | 338 |
1 | NIKE Inc. Class B | 2,763 | 332 |
1 | Home Depot Inc. | 1,234 | 329 |
*,1 | AutoZone Inc. | 289 | 326 |
1 | McDonald's Corp. | 1,502 | 320 |
1 | Genuine Parts Co. | 3,499 | 316 |
1 | Tractor Supply Co. | 2,370 | 316 |
*,1 | Amazon.com Inc. | 103 | 313 |
1 | eBay Inc. | 6,565 | 313 |
*,1 | O'Reilly Automotive Inc. | 697 | 304 |
1 | Garmin Ltd. | 2,927 | 304 |
1 | TJX Cos. Inc. | 5,897 | 299 |
1 | Columbia Sportswear Co. | 2,757 | 206 |
22,737 |
Shares | Market Value• ($000) | ||
Consumer Staples (1.8%) | |||
1 | Costco Wholesale Corp. | 955 | 342 |
1 | Colgate-Palmolive Co. | 4,285 | 338 |
1 | Walmart Inc. | 2,413 | 335 |
1 | Procter & Gamble Co. | 2,426 | 333 |
1 | J M Smucker Co. | 2,942 | 330 |
1 | Church & Dwight Co. Inc. | 3,716 | 328 |
1 | Kellogg Co. | 5,142 | 323 |
1 | Coca-Cola Co. | 6,686 | 321 |
1 | Clorox Co. | 1,533 | 318 |
1 | McCormick & Co. Inc. | 1,757 | 317 |
1 | Brown-Forman Corp. Class B | 4,540 | 316 |
1 | General Mills Inc. | 5,328 | 315 |
1 | PepsiCo Inc. | 2,365 | 315 |
1 | Kimberly-Clark Corp. | 2,346 | 311 |
*,1 | Post Holdings Inc. | 3,606 | 310 |
1 | Mondelez International Inc. Class A | 5,752 | 306 |
1 | Archer-Daniels-Midland Co. | 3,182 | 147 |
Altria Group Inc. | 3,758 | 136 | |
1 | Seaboard Corp. | 11 | 38 |
5,479 | |||
Financials (9.7%) | |||
Charles Schwab Corp. | 173,359 | 7,127 | |
Morgan Stanley | 114,752 | 5,525 | |
National General Holdings Corp. | 150,000 | 5,095 | |
Willis Towers Watson plc | 21,650 | 3,951 | |
Genworth MI Canada Inc. | 110,500 | 3,666 | |
1 | White Mountains Insurance Group Ltd. | 392 | 356 |
1 | Brown & Brown Inc. | 7,750 | 337 |
1 | TFS Financial Corp. | 20,494 | 322 |
1 | Arthur J Gallagher & Co. | 3,076 | 319 |
1 | CNA Financial Corp. | 10,441 | 311 |
1 | Hanover Insurance Group Inc. | 3,248 | 311 |
*,1 | Berkshire Hathaway Inc. Class B | 1,529 | 309 |
1 | Marsh & McLennan Cos. Inc. | 2,932 | 303 |
1 | Intercontinental Exchange Inc. | 3,102 | 293 |
1 | W R Berkley Corp. | 4,769 | 287 |
*,1 | Markel Corp. | 278 | 259 |
1 | Cboe Global Markets Inc. | 3,045 | 247 |
1 | Alleghany Corp. | 429 | 235 |
1 | Allstate Corp. | 2,612 | 232 |
1 | Aon plc Class A | 732 | 135 |
1 | RenaissanceRe Holdings Ltd. | 402 | 65 |
29,685 | |||
Health Care (9.7%) | |||
* | Wright Medical Group NV | 154,500 | 4,726 |
* | AMAG Pharmaceuticals Inc. | 327,060 | 4,487 |
* | MyoKardia Inc. | 19,829 | 4,432 |
* | Varian Medical Systems Inc. | 23,300 | 4,026 |
* | BioSpecifics Technologies Corp. | 30,000 | 2,643 |
* | Livongo Health Inc. | 20,000 | 2,553 |
1 | Danaher Corp. | 1,612 | 370 |
1 | Thermo Fisher Scientific Inc. | 772 | 365 |
*,1 | IDEXX Laboratories Inc. | 840 | 357 |
1 | STERIS plc | 1,905 | 338 |
Shares | Market Value• ($000) | ||
1 | AmerisourceBergen Corp. Class A | 3,511 | 337 |
1 | Chemed Corp. | 703 | 336 |
1 | Cerner Corp. | 4,746 | 333 |
1 | Cooper Cos. Inc. | 1,033 | 330 |
1 | Abbott Laboratories | 3,130 | 329 |
1 | Zoetis Inc. | 2,069 | 328 |
1 | West Pharmaceutical Services Inc. | 1,186 | 323 |
1 | Merck & Co. Inc. | 4,277 | 322 |
1 | Becton Dickinson and Co. | 1,381 | 319 |
1 | Johnson & Johnson | 2,306 | 316 |
1 | Baxter International Inc. | 4,055 | 314 |
1 | Hill-Rom Holdings Inc. | 3,444 | 314 |
1 | Eli Lilly and Co. | 2,360 | 308 |
1 | Pfizer Inc. | 8,412 | 298 |
1 | Amgen Inc. | 1,282 | 278 |
1 | Gilead Sciences Inc. | 4,694 | 273 |
*,1 | Henry Schein Inc. | 4,195 | 267 |
29,622 | |||
Industrials (3.6%) | |||
* | BMC Stock Holdings Inc. | 75,000 | 2,969 |
1 | Hubbell Inc. Class B | 2,472 | 360 |
1 | IHS Markit Ltd. | 4,446 | 360 |
1 | Graco Inc. | 5,685 | 352 |
1 | Rollins Inc. | 6,007 | 347 |
1 | Honeywell International Inc. | 2,091 | 345 |
1 | Illinois Tool Works Inc. | 1,745 | 342 |
1 | Toro Co. | 4,171 | 342 |
1 | Carlisle Cos. Inc. | 2,732 | 338 |
1 | Expeditors International of Washington Inc. | 3,733 | 330 |
1 | IDEX Corp. | 1,935 | 330 |
1 | Verisk Analytics Inc. Class A | 1,853 | 330 |
1 | Watsco Inc. | 1,462 | 328 |
1 | AMETEK Inc. | 3,277 | 322 |
1 | Waste Management Inc. | 2,945 | 318 |
1 | Republic Services Inc. Class A | 3,589 | 316 |
1 | Allegion plc | 3,210 | 316 |
1 | Lennox International Inc. | 1,129 | 307 |
1 | Lockheed Martin Corp. | 870 | 305 |
1 | Roper Technologies Inc. | 811 | 301 |
1 | General Dynamics Corp. | 2,239 | 294 |
1 | Equifax Inc. | 2,067 | 282 |
1 | AMERCO | 731 | 254 |
1 | Allison Transmission Holdings Inc. | 5,605 | 203 |
1 | Norfolk Southern Corp. | 973 | 203 |
1 | CSX Corp. | 2,158 | 170 |
1 | BWX Technologies Inc. | 1,854 | 102 |
1 | PACCAR Inc. | 1,031 | 88 |
* | Ingersoll Rand Inc. | 2,250 | 79 |
10,933 | |||
Information Technology (8.6%) | |||
* | Fitbit Inc. Class A | 680,000 | 4,787 |
* | Acacia Communications Inc. | 66,374 | 4,496 |
Maxim Integrated Products Inc. | 50,000 | 3,483 | |
* | MobileIron Inc. | 427,386 | 3,009 |
* | Citadel Group Ltd. | 200,000 | 797 |
Shares | Market Value• ($000) | ||
1 | Automatic Data Processing Inc. | 2,518 | 398 |
*,1 | Tyler Technologies Inc. | 975 | 375 |
1 | Dolby Laboratories Inc. Class A | 4,775 | 359 |
1 | Amphenol Corp. Class A | 3,164 | 357 |
1 | Broadridge Financial Solutions Inc. | 2,577 | 355 |
1 | Paychex Inc. | 4,255 | 350 |
1 | Motorola Solutions Inc. | 2,199 | 348 |
*,1 | Black Knight Inc. | 3,930 | 346 |
1 | CDW Corp. | 2,822 | 346 |
*,1 | Synopsys Inc. | 1,606 | 343 |
1 | Amdocs Ltd. | 5,809 | 328 |
1 | Intuit Inc. | 1,040 | 327 |
1 | Accenture plc Class A | 1,508 | 327 |
1 | Oracle Corp. | 5,801 | 325 |
1 | Microsoft Corp. | 1,592 | 322 |
1 | Booz Allen Hamilton Holding Corp. Class A | 4,093 | 321 |
*,1 | VeriSign Inc. | 1,673 | 319 |
1 | Visa Inc. Class A | 1,696 | 308 |
1 | Jack Henry & Associates Inc. | 2,006 | 297 |
*,1 | ANSYS Inc. | 971 | 296 |
1 | Apple Inc. | 2,697 | 294 |
1 | Western Union Co. | 15,092 | 293 |
*,1 | Akamai Technologies Inc. | 3,040 | 289 |
*,1 | Adobe Inc. | 645 | 288 |
1 | Fidelity National Information Services Inc. | 2,270 | 283 |
1 | International Business Machines Corp. | 2,464 | 275 |
1 | Juniper Networks Inc. | 13,963 | 275 |
1 | Citrix Systems Inc. | 2,307 | 261 |
1 | Leidos Holdings Inc. | 3,095 | 257 |
1 | Mastercard Inc. Class A | 886 | 256 |
*,1 | Fiserv Inc. | 2,575 | 246 |
26,336 | |||
Materials (1.4%) | |||
1 | RPM International Inc. | 4,186 | 354 |
1 | Packaging Corp. of America | 3,055 | 350 |
1 | AptarGroup Inc. | 3,028 | 345 |
1 | Ball Corp. | 3,809 | 339 |
1 | Sherwin-Williams Co. | 488 | 336 |
1 | Silgan Holdings Inc. | 9,485 | 327 |
1 | Avery Dennison Corp. | 2,331 | 323 |
1 | Ecolab Inc. | 1,753 | 322 |
1 | Sonoco Products Co. | 6,476 | 317 |
*,1 | Linde plc | 1,414 | 311 |
1 | Air Products and Chemicals Inc. | 1,104 | 305 |
1 | NewMarket Corp. | 852 | 305 |
1 | Reliance Steel & Aluminum Co. | 2,351 | 256 |
4,190 | |||
Real Estate (2.9%) | |||
Jernigan Capital Inc. | 202,900 | 3,508 | |
1 | Extra Space Storage Inc. | 3,140 | 364 |
1 | CubeSmart | 10,616 | 360 |
1 | Life Storage Inc. | 3,132 | 358 |
1 | Public Storage | 1,541 | 353 |
1 | American Homes 4 Rent Class A | 11,883 | 336 |
1 | Mid-America Apartment Communities Inc. | 2,879 | 336 |
Shares | Market Value• ($000) | ||
1 | Invitation Homes Inc. | 11,968 | 326 |
1 | Duke Realty Corp. | 8,513 | 323 |
1 | AvalonBay Communities Inc. | 2,232 | 311 |
1 | Camden Property Trust | 3,112 | 287 |
1 | Equity Commonwealth | 10,785 | 285 |
1 | Equity Residential | 5,972 | 281 |
1 | Apartment Investment and Management Co. Class A | 8,658 | 276 |
1 | Essex Property Trust Inc. | 1,335 | 273 |
1 | UDR Inc. | 8,707 | 272 |
1 | Sun Communities Inc. | 1,853 | 255 |
1 | Douglas Emmett Inc. | 6,631 | 156 |
1 | CoreSite Realty Corp. | 1,270 | 152 |
1 | Alexandria Real Estate Equities Inc. | 871 | 132 |
1 | Kilroy Realty Corp. | 1,130 | 53 |
8,997 | |||
Utilities (2.3%) | |||
PNM Resources Inc. | 42,000 | 2,100 | |
1 | NextEra Energy Inc. | 4,928 | 361 |
1 | Duke Energy Corp. | 3,886 | 358 |
1 | Alliant Energy Corp. | 6,323 | 350 |
1 | Ameren Corp. | 4,237 | 344 |
1 | Dominion Energy Inc. | 4,268 | 343 |
1 | IDACORP Inc. | 3,889 | 341 |
1 | American Water Works Co. Inc. | 2,255 | 339 |
1 | CMS Energy Corp. | 5,313 | 336 |
1 | Xcel Energy Inc. | 4,786 | 335 |
1 | Atmos Energy Corp. | 3,519 | 323 |
1 | Eversource Energy | 3,521 | 307 |
1 | American Electric Power Co. Inc. | 3,125 | 281 |
1 | Southern Co. | 4,552 | 262 |
1 | Exelon Corp. | 6,037 | 241 |
1 | OGE Energy Corp. | 6,964 | 214 |
1 | WEC Energy Group Inc. | 1,798 | 181 |
1 | Avangrid Inc. | 2,317 | 114 |
1 | Entergy Corp. | 568 | 57 |
7,187 | |||
Total Common Stocks—Long Positions (Cost $153,250) | 165,915 | ||
Temporary Cash Investments (60.6%) | |||
Money Market Fund (47.7%) | |||
3 | Vanguard Market Liquidity Fund, 0.112% | 1,462,243 | 146,224 |
Face Amount ($000) | |||
U.S. Government and Agency Obligations (12.9%) | |||
4,5 | U.S. Treasury Bill, 0.122%, 12/15/20 | 39,500 | 39,496 |
Total Temporary Cash Investments (Cost $185,700) | 185,720 |
Shares | Market Value• ($000) | ||
Common Stocks Sold Short (-21.0%) | |||
Communication Services (-0.2%) | |||
* | Roku Inc. | (1,618) | (327) |
* | Zillow Group Inc. Class A | (3,253) | (291) |
TripAdvisor Inc. | (2,141) | (41) | |
(659) | |||
Consumer Discretionary (-4.0%) | |||
BorgWarner Inc. | (155,052) | (5,424) | |
Gap Inc. | (18,857) | (367) | |
* | Capri Holdings Ltd. | (16,810) | (357) |
Kohl's Corp. | (16,308) | (347) | |
* | Tempur Sealy International Inc. | (3,839) | (342) |
L Brands Inc. | (10,533) | (337) | |
Six Flags Entertainment Corp. | (15,302) | (331) | |
PVH Corp. | (5,627) | (328) | |
* | Floor & Decor Holdings Inc. Class A | (4,443) | (324) |
* | Planet Fitness Inc. Class A | (5,271) | (312) |
Darden Restaurants Inc. | (3,336) | (307) | |
MGM Resorts International | (14,724) | (303) | |
* | Etsy Inc. | (2,457) | (299) |
Toll Brothers Inc. | (7,072) | (299) | |
Wynn Resorts Ltd. | (4,119) | (298) | |
* | Tesla Inc. | (762) | (296) |
Royal Caribbean Cruises Ltd. | (5,052) | (285) | |
Wendy's Co. | (12,952) | (283) | |
* | Wayfair Inc. Class A | (1,078) | (267) |
* | Carvana Co. Class A | (1,439) | (267) |
Thor Industries Inc. | (3,101) | (262) | |
* | Ulta Beauty Inc. | (1,186) | (245) |
Qurate Retail Inc. Series A | (33,430) | (226) | |
* | Ollie's Bargain Outlet Holdings Inc. | (1,854) | (161) |
(12,267) | |||
Consumer Staples (-0.5%) | |||
Nu Skin Enterprises Inc. Class A | (6,692) | (330) | |
Coty Inc. Class A | (103,888) | (301) | |
* | US Foods Holding Corp. | (14,250) | (298) |
Spectrum Brands Holdings Inc. | (4,796) | (273) | |
Energizer Holdings Inc. | (3,652) | (144) | |
(1,346) | |||
Energy (-1.0%) | |||
Targa Resources Corp. | (21,803) | (350) | |
Antero Midstream Corp. | (57,048) | (327) | |
Halliburton Co. | (26,507) | (320) | |
EQT Corp. | (20,787) | (315) | |
Parsley Energy Inc. Class A | (28,505) | (285) | |
Cimarex Energy Co. | (10,932) | (277) | |
Apache Corp. | (31,802) | (264) | |
Diamondback Energy Inc. | (10,178) | (264) | |
Devon Energy Corp. | (24,028) | (215) | |
National Oilwell Varco Inc. | (22,556) | (190) | |
Occidental Petroleum Corp. | (18,827) | (172) | |
ONEOK Inc. | (3,391) | (98) | |
Murphy Oil Corp. | (7,542) | (58) |
Shares | Market Value• ($000) | ||
* | Occidental Petroleum Corp. Warrants Exp. 8/3/27 | (1,752) | (4) |
(3,139) | |||
Financials (-6.5%) | |||
Charles Schwab Corp. | (173,359) | (7,127) | |
Morgan Stanley | (114,752) | (5,525) | |
Aon plc Class A | (23,381) | (4,302) | |
Discover Financial Services | (5,940) | (386) | |
* | Brighthouse Financial Inc. | (11,593) | (384) |
OneMain Holdings Inc. | (10,320) | (360) | |
Ally Financial Inc. | (12,864) | (343) | |
Lincoln National Corp. | (9,454) | (332) | |
New Residential Investment Corp. | (41,897) | (314) | |
* | Athene Holding Ltd. Class A | (9,224) | (296) |
Unum Group | (15,176) | (268) | |
LPL Financial Holdings Inc. | (3,258) | (261) | |
(19,898) | |||
Health Care (-1.7%) | |||
* | Teladoc Health Inc. | (11,840) | (2,326) |
* | Sage Therapeutics Inc. | (5,402) | (397) |
* | Acadia Healthcare Co. Inc. | (10,939) | (390) |
* | Align Technology Inc. | (850) | (362) |
* | Exact Sciences Corp. | (2,786) | (345) |
* | Reata Pharmaceuticals Inc. Class A | (2,916) | (340) |
* | Adaptive Biotechnologies Corp. | (7,079) | (326) |
* | Moderna Inc. | (4,228) | (285) |
* | DexCom Inc. | (826) | (264) |
* | Bluebird Bio Inc. | (2,509) | (130) |
(5,165) | |||
Industrials (-2.2%) | |||
* | Builders FirstSource Inc. | (98,438) | (2,983) |
* | United Rentals Inc. | (1,982) | (353) |
* | XPO Logistics Inc. | (3,851) | (347) |
* | JetBlue Airways Corp. | (28,371) | (340) |
* | United Airlines Holdings Inc. | (9,713) | (329) |
* | Gates Industrial Corp. plc | (29,272) | (325) |
* | Uber Technologies Inc. | (9,422) | (315) |
Spirit AeroSystems Holdings Inc. Class A | (17,147) | (312) | |
Copa Holdings SA Class A | (6,142) | (303) | |
Air Lease Corp. Class A | (10,693) | (291) | |
Delta Air Lines Inc. | (9,016) | (276) | |
Boeing Co. | (1,818) | (262) | |
* | Lyft Inc. Class A | (9,047) | (206) |
* | Ingersoll Rand Inc. | (2,250) | (79) |
(6,721) | |||
Information Technology (-3.4%) | |||
Analog Devices Inc. | (31,500) | (3,734) | |
* | ON Semiconductor Corp. | (14,513) | (364) |
Alliance Data Systems Corp. | (6,750) | (348) | |
* | Trade Desk Inc. Class A | (584) | (331) |
* | Pure Storage Inc. Class A | (20,504) | (330) |
DXC Technology Co. | (17,632) | (325) | |
* | Enphase Energy Inc. | (3,308) | (325) |
* | Coherent Inc. | (2,507) | (314) |
* | Square Inc. Class A | (2,011) | (311) |
Shares | Market Value• ($000) | ||
* | Twilio Inc. Class A | (1,111) | (310) |
* | Zscaler Inc. | (2,271) | (308) |
* | 2U Inc. | (8,201) | (302) |
* | Elastic NV | (2,934) | (298) |
* | Anaplan Inc. | (5,369) | (297) |
* | CommScope Holding Co. Inc. | (32,920) | (293) |
* | Nutanix Inc. Class A | (11,967) | (291) |
* | Bill.com Holdings Inc. | (2,913) | (291) |
* | RingCentral Inc. Class A | (1,123) | (290) |
Western Digital Corp. | (7,659) | (289) | |
* | Alteryx Inc. Class A | (2,211) | (277) |
* | Dynatrace Inc. | (7,684) | (271) |
* | Pluralsight Inc. Class A | (17,168) | (270) |
Sabre Corp. | (39,540) | (258) | |
* | MongoDB Inc. | (159) | (36) |
(10,463) | |||
Materials (-0.5%) | |||
Freeport-McMoRan Inc. | (21,229) | (368) | |
Mosaic Co. | (19,383) | (359) | |
Olin Corp. | (20,785) | (344) | |
Chemours Co. | (16,551) | (333) | |
(1,404) | |||
Real Estate (-0.8%) | |||
Apple Hospitality REIT Inc. | (34,129) | (338) | |
Park Hotels & Resorts Inc. | (32,978) | (327) | |
Omega Healthcare Investors Inc. | (10,755) | (310) | |
Simon Property Group Inc. | (4,695) | (295) | |
Gaming and Leisure Properties Inc. | (7,755) | (282) | |
Outfront Media Inc. | (20,815) | (273) | |
Ventas Inc. | (6,808) | (269) | |
EPR Properties | (10,873) | (259) | |
* | Howard Hughes Corp. | (3,169) | (197) |
(2,550) | |||
Utilities (-0.2%) | |||
AES Corp. | (18,702) | (365) |
Shares | Market Value• ($000) | ||
* | PG&E Corp. | (30,879) | (295) |
(660) | |||
Total Common Stocks Sold Short (Proceeds $65,393) | (64,272) | ||
Other Assets and Other Liabilities—Net (6.2%) | 19,004 | ||
Net Assets (100%) | 306,367 | ||
Cost is in $000. |
• | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
1 | Long security positions with a value of $57,181,000 and cash of $18,444,000 are held in a segregated account at the fund's custodian bank and pledged to a broker-dealer as collateral for the fund's obligation to return borrowed securities. For so long as such obligations continue, the fund’s access to these assets is subject to authorization from the broker-dealer. |
2 | Security exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At October 31, 2020, the aggregate value was $3,210,000, representing 1.0% of net assets. |
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 | Securities with a value of $19,782,000 have been segregated as initial margin for open futures contracts. |
5 | Security is owned by the Vanguard ASF Portfolio, which is a wholly owned subsidiary of the Alternative Strategies Fund. |
ADR—American Depositary Receipt. | |
REIT—Real Estate Investment Trust. |
Futures Contracts | ||||
($000) | ||||
Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
Long Futures Contracts | ||||
10-Year U.S. Treasury Note | December 2020 | 295 | 40,774 | (346) |
2-Year U.S. Treasury Note | December 2020 | 1,221 | 269,650 | (29) |
5-Year U.S. Treasury Note | December 2020 | 505 | 63,429 | (158) |
Amsterdam Index | November 2020 | 117 | 14,512 | (1,019) |
Cocoa1 | March 2021 | 276 | 6,362 | (117) |
Copper1 | November 2020 | 42 | 7,049 | (80) |
Copper1 | December 2020 | 39 | 6,547 | 20 |
FTSE 100 Index | December 2020 | 211 | 15,208 | (701) |
FTSE Taiwan Index | November 2020 | 349 | 15,133 | (422) |
Hang Seng Index | November 2020 | 97 | 15,113 | (371) |
Live Cattle1 | December 2020 | 147 | 6,368 | (104) |
Live Cattle1 | January 2021 | 98 | 6,572 | 35 |
LME Aluminum1 | November 2020 | 154 | 7,136 | 83 |
LME Lead1 | November 2020 | 150 | 6,795 | 173 |
LME Tin1 | November 2020 | 77 | 6,826 | (171) |
LME Tin1 | December 2020 | 71 | 6,296 | (212) |
MSCI Singapore Index | November 2020 | 739 | 14,913 | (627) |
S&P Toronto Stock Exchange 60 Index | December 2020 | 111 | 15,420 | (662) |
Soybean1 | January 2021 | 124 | 6,549 | (6) |
Sugar #111 | February 2021 | 411 | 6,610 | 823 |
WTI Crude Oil1 | December 2020 | 327 | 6,594 | 454 |
(3,437) | ||||
Futures Contracts (continued) | ||||
($000) | ||||
Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
Short Futures Contracts | ||||
CAC 40 Index | November 2020 | (271) | (14,487) | 1,101 |
Copper1 | November 2020 | (42) | (7,049) | (25) |
Corn1 | December 2020 | (327) | (6,516) | (69) |
Cotton No.21 | December 2020 | (188) | (6,479) | (250) |
DAX 30 Index | December 2020 | (43) | (14,478) | 1,280 |
IBEX 35 Index | November 2020 | (195) | (14,622) | 1,038 |
KOSPI 200 Index | December 2020 | (238) | (15,825) | 587 |
LME Aluminum1 | November 2020 | (154) | (7,136) | (233) |
LME Aluminum1 | December 2020 | (141) | (6,532) | (52) |
LME Lead1 | November 2020 | (150) | (6,795) | 378 |
LME Lead1 | December 2020 | (146) | (6,629) | (168) |
LME Tin1 | November 2020 | (77) | (6,826) | 238 |
LME Zinc1 | December 2020 | (107) | (6,734) | (284) |
Low Sulphur Gas Oil1 | December 2020 | (191) | (5,864) | 644 |
Natural Gas1 | November 2020 | (200) | (6,708) | (145) |
OMX Stockholm 30 Index | November 2020 | (755) | (14,589) | 979 |
Topix Index | December 2020 | (104) | (15,626) | 403 |
Wheat1 | December 2020 | (240) | (6,495) | (41) |
5,381 | ||||
1,944 |
1 | Security is owned by the subsidiary. |
Forward Currency Contracts | |||||||
Contract Settlement Date | Contract Amount (000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) | ||||
Counterparty | Receive | Deliver | |||||
Standard Chartered Bank | 11/9/20 | AUD | 26,910 | USD | 19,251 | — | (335) |
Royal Bank of Canada | 11/9/20 | CAD | 25,706 | USD | 19,307 | — | (12) |
Morgan Stanley Capital Services Inc. | 11/2/20 | CAD | 2,633 | USD | 1,970 | 6 | — |
Morgan Stanley Capital Services Inc. | 11/9/20 | INR | 567,097 | USD | 7,708 | — | (61) |
Bank of America, N.A. | 11/9/20 | MXN | 170,217 | USD | 7,725 | 291 | — |
Standard Chartered Bank | 11/9/20 | NOK | 176,062 | USD | 18,825 | — | (383) |
Bank of America, N.A. | 11/9/20 | NOK | 3,965 | USD | 426 | — | (11) |
Standard Chartered Bank | 11/9/20 | RUB | 591,741 | USD | 7,510 | — | (68) |
BNP Paribas | 11/9/20 | RUB | 8,920 | USD | 113 | — | (1) |
Bank of America, N.A. | 11/9/20 | TRY | 59,261 | USD | 7,593 | — | (551) |
Standard Chartered Bank | 11/9/20 | TRY | 724 | USD | 92 | — | (6) |
Standard Chartered Bank | 11/9/20 | ZAR | 129,102 | USD | 7,729 | 196 | — |
Bank of America, N.A. | 11/9/20 | USD | 797 | AUD | 1,116 | 13 | — |
Forward Currency Contracts (continued) | |||||||
Contract Settlement Date | Contract Amount (000) | Unrealized Appreciation ($000) | Unrealized Depreciation ($000) | ||||
Counterparty | Receive | Deliver | |||||
Morgan Stanley Capital Services Inc. | 11/9/20 | USD | 1,971 | CAD | 2,633 | — | (6) |
Morgan Stanley Capital Services Inc. | 11/9/20 | USD | 1,672 | CAD | 2,200 | 21 | — |
Standard Chartered Bank | 11/9/20 | USD | 12 | CAD | 17 | — | — |
Morgan Stanley Capital Services Inc. | 11/9/20 | USD | 19,314 | CHF | 17,773 | — | (74) |
BNP Paribas | 11/9/20 | USD | 7,691 | CLP | 6,098,051 | — | (194) |
Morgan Stanley Capital Services Inc. | 11/9/20 | USD | 7,638 | CZK | 176,817 | 80 | — |
BNP Paribas | 11/9/20 | USD | 29 | CZK | 669 | — | — |
Standard Chartered Bank | 11/9/20 | USD | 22,524 | EUR | 19,220 | 135 | — |
Morgan Stanley Capital Services Inc. | 11/9/20 | USD | 7,741 | ILS | 26,567 | — | (46) |
Bank of America, N.A. | 11/9/20 | USD | 19,406 | JPY | 2,041,820 | — | (98) |
State Street Bank & Trust Co. | 11/9/20 | USD | 7,681 | PLN | 29,567 | 212 | — |
BNP Paribas | 11/9/20 | USD | 7,791 | TWD | 224,534 | — | (59) |
954 | (1,905) |
AUD—Australian dollar. |
CAD—Canadian dollar. |
CHF—Swiss franc. |
CLP—Chilean peso. |
CZK—Czech koruna. |
EUR—euro. |
ILS—Israeli shekel. |
INR—Indian rupee. |
JPY—Japanese yen. |
MXN—Mexican peso. |
NOK—Norwegian krone. |
PLN—Polish zloty. |
RUB—Russian ruble. |
TWD—Taiwanese dollar. |
USD—U.S. dollar. |
ZAR—South African rand. |
($000s, except shares and per-share amounts) | Amount |
Assets | |
Investments in Securities, | |
Long Positions, at Value | |
Unaffiliated Issuers (Cost $192,743) | 205,411 |
Affiliated Issuers (Cost $146,207) | 146,224 |
Total Long Positions | 351,635 |
Investment in Vanguard | 12 |
Cash | 872 |
Cash Segregated for Short Positions | 18,444 |
Cash Collateral Pledged—Futures Contracts | 3,244 |
Cash Collateral Pledged—Forward Currency Contracts | 710 |
Receivables for Investment Securities Sold | 13 |
Receivables for Accrued Income | 118 |
Receivables for Capital Shares Issued | 71 |
Unrealized Appreciation—Forward Currency Contracts | 954 |
Total Assets | 376,073 |
Liabilities | |
Securities Sold Short, at Value (Proceeds $65,393) | 64,272 |
Foreign Currency Due to Custodian, at Value | 1,977 |
Payables for Investment Securities Purchased | 14 |
Payables for Capital Shares Redeemed | 1,032 |
Payables to Vanguard | 82 |
Variation Margin Payable—Futures Contracts | 327 |
Unrealized Depreciation—Forward Currency Contracts | 1,905 |
Accrued Dividend Expense on Securities Sold Short | 97 |
Total Liabilities | 69,706 |
Net Assets | 306,367 |
At October 31, 2020, net assets consisted of: | |
Paid-in Capital | 336,419 |
Total Distributable Earnings (Loss) | (30,052) |
Net Assets | 306,367 |
Net Assets | |
Applicable to 17,864,682 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 306,367 |
Net Asset Value Per Share | $17.15 |
Year Ended October 31, 2020 | |
($000) | |
Investment Income | |
Income | |
Dividends1 | 2,435 |
Interest2 | 812 |
Total Income | 3,247 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 326 |
Management and Administrative | 705 |
Marketing and Distribution | 46 |
Custodian Fees | 73 |
Auditing Fees | 59 |
Shareholders’ Reports | 3 |
Trustees’ Fees and Expenses—Note B | 10 |
Dividend Expense on Securities Sold Short | 1,592 |
Total Expenses | 2,814 |
Net Investment Income | 433 |
Realized Net Gain (Loss) | |
Investment Securities Sold—Long Positions2 | (15,699) |
Investment Securities Sold—Short Positions | (17,808) |
Futures Contracts | (25,517) |
Forward Currency Contracts | (15,656) |
Foreign Currencies | 1,900 |
Realized Net Gain (Loss) | (72,780) |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities—Long Positions2 | (5,011) |
Investment Securities—Short Positions | (2,768) |
Futures Contracts | 5,294 |
Forward Currency Contracts | (7) |
Foreign Currencies | 342 |
Change in Unrealized Appreciation (Depreciation) | (2,150) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (74,497) |
1 | Dividends are net of foreign withholding taxes of $421,000. |
2 | Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $476,000, $3,000, and $17,000, respectively. Purchases and sales are for temporary cash investment purposes. |
Year Ended October 31, | ||
2020 ($000) | 2019 ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 433 | 3,726 |
Realized Net Gain (Loss) | (72,780) | 22,762 |
Change in Unrealized Appreciation (Depreciation) | (2,150) | 4,317 |
Net Increase (Decrease) in Net Assets Resulting from Operations | (74,497) | 30,805 |
Distributions1 | ||
Total Distributions | (17,409) | (3,935) |
Capital Share Transactions | ||
Issued | 318,091 | 21,069 |
Issued in Lieu of Cash Distributions | 17,310 | 3,928 |
Redeemed | (234,534) | (74,370) |
Net Increase (Decrease) from Capital Share Transactions | 100,867 | (49,373) |
Total Increase (Decrease) | 8,961 | (22,503) |
Net Assets | ||
Beginning of Period | 297,406 | 319,909 |
End of Period | 306,367 | 297,406 |
1 | Certain prior-period numbers have been reclassified to conform with the current-period presentation. |
For a Share Outstanding Throughout Each Period | Year Ended October 31, | ||||
2020 | 2019 | 2018 | 2017 | 2016 | |
Net Asset Value, Beginning of Period | $22.23 | $20.41 | $20.46 | $21.28 | $20.23 |
Investment Operations | |||||
Net Investment Income | .0231 | .2521 | .1971 | .1531 | .106 |
Net Realized and Unrealized Gain (Loss) on Investments | (3.835) | 1.828 | (.143) | (.139) | 1.039 |
Total from Investment Operations | (3.812) | 2.080 | .054 | .014 | 1.145 |
Distributions | |||||
Dividends from Net Investment Income | (.385) | (.260) | (.104) | (.093) | (.095) |
Distributions from Realized Capital Gains | (.883) | — | — | (.741) | — |
Total Distributions | (1.268) | (.260) | (.104) | (.834) | (.095) |
Net Asset Value, End of Period | $17.15 | $22.23 | $20.41 | $20.46 | $21.28 |
Total Return2 | -18.17% | 10.30% | 0.27% | 0.11% | 5.68% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $306 | $297 | $320 | $292 | $235 |
Ratio of Total Expenses to Average Net Assets | |||||
Based on Total Expenses3 | 0.78% | 0.79%4 | 0.66%4 | 0.79% | 0.71% |
Net of Dividend and Borrowing Expense on Securities Sold Short | 0.34% | 0.38%4 | 0.33%4 | 0.35% | 0.36% |
Ratio of Net Investment Income to Average Net Assets | 0.12% | 1.18% | 0.93% | 0.75% | 0.50% |
Portfolio Turnover Rate | 173% | 157% | 131% | 125% | 120% |
1 | Calculated based on average shares outstanding. |
2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
3 | Includes dividend expense on securities sold short of 0.44%, 0.41%, 0.33%, 0.44 and 0.35%, respectively. |
4 | The ratio of total expenses to average net assets for the periods ended 2019 and 2018, net of reduction from custody fee offset arrangement for total expenses and net of dividend and borrowing expense on securities sold short, was 0.74% and 0.33%, and 0.65% and 0.32%, respectively. |
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. |
Assets Reflected in Consolidated Statement of Assets and Liabilities1 ($000) | Liabilities Reflected in Consolidated Statement of Assets and Liabilities1 ($000) | Net Amount Receivable (Payable) ($000) | Amounts Not Offset in the Consolidated Statement of Assets and Liabilities | Net Exposure3 (Not Less Than $0) ($000) | ||
Collateral Pledged2 ($000) | Collateral Received2 ($000) | |||||
Derivatives Subject to Offsetting Arrangements, by Counterparty | ||||||
Bank of America, N.A. | 304 | (660) | (356) | — | — | — |
BNP Paribas | — | (254) | (254) | — | — | — |
Morgan Stanley Capital Services Inc. | 107 | (187) | (80) | — | — | — |
Royal Bank of Canada | — | (12) | (12) | — | — | — |
Standard Chartered Bank | 331 | (792) | (461) | 570 | — | — |
State Street Bank & Trust Co. | 212 | — | 212 | 140 | — | 212 |
Exchange-Traded Futures Contracts | — | (327) | (327) | 23,026 | — | — |
Total | 954 | (2,232) | (1,278) | 23,736 | — | 212 |
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. |
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 ($000) | Level 2 ($000) | Level 3 ($000) | Total ($000) | |
Investments | ||||
Assets | ||||
Common Stocks | 161,908 | 4,007 | — | 165,915 |
Temporary Cash Investments | 146,224 | 39,496 | — | 185,720 |
Total | 308,132 | 43,503 | — | 351,635 |
Liabilities | ||||
Common Stocks | 64,272 | — | — | 64,272 |
Derivative Financial Instruments | ||||
Assets | ||||
Forward Currency Contracts | — | 954 | — | 954 |
Total | — | 954 | — | 954 |
Liabilities | ||||
Future Contracts1 | 327 | — | — | 327 |
Forward Currency Contracts | — | 1,905 | — | 1,905 |
Total | 327 | 1,905 | — | 2,232 |
1 | Represents variation margin on the last day of the reporting period. |
D. | At October 31, 2020, the fair values of derivatives were reflected in the Consolidated Statement of Assets and Liabilities as follows: |
Consolidated Statement of Assets and Liabilities Caption | Equity Contracts ($000) | Commodity Contracts ($000) | Interest Rate Contracts ($000) | Foreign Exchange Contracts ($000) | Total ($000) |
Unrealized Appreciation—Forward Currency Contracts | — | — | — | 954 | 954 |
Total Assets | — | — | — | 954 | 954 |
Variation Margin Payable—Futures Contracts | 80 | 168 | 79 | — | 327 |
Unrealized Depreciation— Forward Currency Contracts | — | — | — | 1,905 | 1,905 |
Total Liabilities | 80 | 168 | 79 | 1,905 | 2,232 |
Realized Net Gain (Loss)on Derivatives | Equity Contracts ($000) | Commodity Contracts ($000) | Interest Rate Contracts ($000) | Foreign Exchange Contracts ($000) | Total ($000) |
Futures Contracts | (12,858) | (26,469) | 13,810 | — | (25,517) |
Forward Currency Contracts | — | — | — | (15,656) | (15,656) |
Realized Net Gain (Loss)on Derivatives | Equity Contracts ($000) | Commodity Contracts ($000) | Interest Rate Contracts ($000) | Foreign Exchange Contracts ($000) | Total ($000) |
Realized Net Gain (Loss) on Derivatives | (12,858) | (26,469) | 13,810 | (15,656) | (41,173) |
Change in Unrealized Appreciation (Depreciation) on Derivatives | |||||
Futures Contracts | 2,649 | 2,420 | 225 | — | 5,294 |
Forward Currency Contracts | — | — | — | (7) | (7) |
Change in Unrealized Appreciation (Depreciation) on Derivatives | 2,649 | 2,420 | 225 | (7) | 5,287 |
E. | 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 foreign currency transactions, passive foreign investment companies, and operations of the subsidiary were reclassified between the following accounts: |
Amount ($000) | |
Paid-in Capital | (23,519) |
Total Distributable Earnings (Loss) | 23,519 |
Amount ($000) | |
Undistributed Ordinary Income | 1,765 |
Undistributed Long-Term Gains | — |
Capital Loss Carryforwards | (45,421) |
Qualified Late-Year Losses | — |
Net Unrealized Gains (Losses) | 13,604 |
Year Ended October 31, | ||
2020 Amount ($000) | 2019 Amount ($000) | |
Ordinary Income* | 13,349 | 3,935 |
Long-Term Capital Gains | 4,060 | — |
Total | 17,409 | 3,935 |
* | Includes short-term capital gains, if any. |
Amount ($000) | |
Tax Cost | 340,123 |
Gross Unrealized Appreciation | 62,815 |
Gross Unrealized Depreciation | (49,569) |
Net Unrealized Appreciation (Depreciation) | 13,246 |
F. | During the year ended October 31, 2020, the fund purchased $424,677,000 of investment securities and sold $391,766,000 of investment securities, other than temporary cash investments. The proceeds of short sales and the cost of purchases to cover short sales were $139,838,000 and $118,107,000, respectively. |
G. | Capital shares issued and redeemed were: |
Year Ended October 31, | ||
2020 | 2019 | |
Shares (000) | Shares (000) | |
Issued | 16,660 | 991 |
Issued in Lieu of Cash Distributions | 829 | 192 |
Redeemed | (13,003) | (3,475) |
Net Increase (Decrease) in Shares Outstanding | 4,486 | (2,292) |
H. | Management has determined that no material events or transactions occurred subsequent to October 31, 2020, that would require recognition or disclosure in these financial statements. |
Philadelphia, Pennsylvania
December 21, 2020
Joseph Brennan | James M. Norris |
Mortimer J. Buckley | Thomas M. Rampulla |
Gregory Davis | Karin A. Risi |
John James | Anne E. Robinson |
John T. Marcante | Michael Rollings |
Chris D. McIsaac | Lauren Valente |
All rights reserved.
Vanguard Marketing Corporation, Distributor.
Annual Report | October 31, 2020 |
Vanguard Commodity Strategy Fund |
See the inside front cover for important information about access to your fund’s annual and semiannual shareholder reports. |
Important information about access to shareholder reports
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your fund’s annual and semiannual shareholder reports will no longer be sent to you by mail, unless you specifically request them. Instead, you will be notified by mail each time a report is posted on the website and will be provided with a link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. You may elect to receive shareholder reports and other communications from the fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with the fund, by calling Vanguard at one of the phone numbers on the back cover of this report or by logging on to vanguard.com.
You may elect to receive paper copies of all future shareholder reports free of charge. If you invest through a financial intermediary, you can contact the intermediary to request that you continue to receive paper copies. If you invest directly with the fund, you can call Vanguard at one of the phone numbers on the back cover of this report or log on to vanguard.com. Your election to receive paper copies will apply to all the funds you hold through an intermediary or directly with Vanguard.
Contents | |
Your Fund’s Performance at a Glance | 1 |
Advisor’s Report | 2 |
About Your Fund’s Expenses | 4 |
Performance Summary | 6 |
Consolidated Financial Statements | 8 |
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 October 31, 2020, Vanguard Commodity Strategy Fund returned –1.45%, besting its benchmark, the Bloomberg Commodity Total Return Index, which returned –8.75%.
· The period was marked by the global spread of COVID-19 and efforts to contain it, including lockdowns, the shuttering of nonessential businesses, and travel restrictions. However, responses from policymakers, the start of trials for vaccines and treatments, and the easing of some pandemic-related restrictions eventually lifted investor sentiment.
· Commodities such as oil, which had been struggling before the outbreak, were hit hard by a drop in demand as economic activity slumped. In contrast, safe-haven commodities such as gold performed well.
· The fund outperformed its benchmark largely because of its underweight to front-month futures contracts—they performed worse than contracts with delivery months further into the future. Oil and natural gas were bright spots for the fund.
· The fund’s collateral also added to its outperformance. It has a significant portion in short-term U.S. Treasury Inflation-Protected Securities, which outperformed Treasury bills over the period.
· The fund uses derivatives to obtain its exposure to commodities. Its holdings of commodity index swaps detracted from a total return perspective.
Market Barometer
Average Annual Total Returns | |||
Periods Ended October 31, 2020 | |||
One Year | Three Years | Five Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 10.87% | 10.63% | 11.79% |
Russell 2000 Index (Small-caps) | -0.14 | 2.19 | 7.27 |
Russell 3000 Index (Broad U.S. market) | 10.15 | 10.04 | 11.48 |
FTSE All-World ex US Index (International) | -2.17 | 0.13 | 4.52 |
Bonds | |||
Bloomberg Barclays U.S. Aggregate Bond Index | |||
(Broad taxable market) | 6.19% | 5.06% | 4.08% |
Bloomberg Barclays Municipal Bond Index | |||
(Broad tax-exempt market) | 3.59 | 4.09 | 3.70 |
FTSE Three-Month U.S. Treasury Bill Index | 0.86 | 1.62 | 1.15 |
CPI | |||
Consumer Price Index | 1.18% | 1.82% | 1.83% |
1
Advisor’s Report
For the 12 months ended October 31, 2020, Vanguard Commodity Strategy Fund returned –1.45%. The fund outperformed its benchmark, the Bloomberg Commodity Total Return Index, which returned –8.75%.
Investment objective and strategy
The Commodity Strategy Fund is designed to serve investors as a potential hedge against inflation risk and as further diversification for a traditional stock/bond portfolio. It invests in commodity-linked derivative investments, such as commodity futures and swaps, collateralized by a mix of short-term U.S. Treasury Inflation-Protected Securities (TIPS) and U.S. Treasury bills. With its blend of commodity-linked futures and mix of short-term TIPS and Treasury bills, the fund is expected to offer a controlled approach that has the potential to act as an inflation hedge and enhance returns over time without taking on excessive risk.
The fund uses multiple strategies for enhancing commodity returns, such as commodity curve positioning and the over- and underweighting of securities. It also takes advantage of roll schedules, a practice that involves rolling over commodity futures before or after the Bloomberg Commodity Total Return Index rolls shorter-term futures contracts into longer-term contracts.
Investment environment
The period was defined by the outbreak of the novel coronavirus in early 2020—and the aggressive efforts to contain it, which upended economies and financial markets worldwide. As the pandemic spread, trade and travel restrictions multiplied, nonessential businesses were shuttered, unemployment spiked, and crude oil prices sank.
Many governments and central banks around the world took emergency action in the form of fiscal and monetary stimulus to blunt the impact of the pandemic on economic activity, jobs, and the functioning of the credit markets.
While global stocks initially plummeted as large swaths of the economy closed, the unprecedented scale of the response from policymakers, the start of numerous trials for vaccines and treatments, and the lifting of some lockdown restrictions in countries hit early on by the virus helped lift investor sentiment.
The U.S. stock market performed more strongly than emerging markets and, especially, developed markets outside the United States. The U.S. market returned almost 10% for the 12-month period, as measured by the Standard & Poor’s 500 Index. The FTSE Global All Cap ex US Index, which tracks non-U.S. stocks of all sizes in both developed and emerging markets, returned about –2% for the period.
2
In the bond market, there was a spike in volatility and an erosion in liquidity at the height of investor pessimism in March. Yields nevertheless ended the period significantly lower—and prices higher— as investors sought out safer assets. The overall U.S. market for taxable investment-grade bonds, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index, returned more than 6%. The Bloomberg Barclays Global Aggregate Index returned about half a percentage point less than that.
In commodity markets, both oil and natural gas prices fell hard as the spread of the pandemic hurt manufacturing and transportation. Natural gas rebounded more strongly, however, to finish the period higher, while the price of oil remained well below its November 2019 level. Among precious metals, gold and silver made strong advances earlier this year amid investor demand for safe assets. Industrial metals were mixed, with copper and aluminum prices finishing the period higher and nickel and zinc prices lower. Grains advanced, especially soybeans and wheat, while lean-hog prices ended flat for the period.
Successes and shortfalls
The fund outperformed its benchmark largely because of its underweight to near-month futures contracts—they performed worse than contracts with delivery months further into the future. Oil and natural gas proved to be positives for the fund.
The fund also benefited from its collateral management. Well over half its collateral is in short-term TIPS, an allocation that would help mitigate the fund’s performance against an unexpected rise in inflation. They outperformed Treasury bills over the period.
Although markets can be unpredictable, we are confident that our team of experienced managers and analysts can find opportunities to produce competitive returns without taking excessive risks.
Portfolio Managers:
Anatoly Shtekhman, CFA
Fei Xu, CFA
Vanguard Quantitative Equity Group
Joshua C. Barrickman, CFA, Principal
Vanguard Fixed Income Group
November 23, 2020
3
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 Consolidated Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.
4
Six Months Ended October 31, 2020
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
Commodity Strategy Fund | 4/30/2020 | 10/31/2020 | Period |
Based on Actual Fund Return | $1,000.00 | $1,193.91 | $1.10 |
Based on Hypothetical 5% Yearly Return | 1,000.00 | 1,024.13 | 1.02 |
The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratio for that period is 0.20%. 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 (184/366).
5
Commodity Strategy 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: June 25, 2019, Through October 31, 2020
Initial Investment of $50,000
Average Annual Total Returns | ||||
Periods Ended October 31, 2020 | ||||
Since | Final Value | |||
One | Inception | of a $50,000 | ||
Year | (6/25/2019) | Investment | ||
Commodity Strategy Fund | -1.45% | -1.58% | $48,937 | |
Bloomberg Commodity Total Return Index | -8.75 | -6.60 | 45,595 |
"Since Inception" performance is calculated from the fund’s inception date for both the fund and its comparative standard(s).
See Financial Highlights for dividend and capital gains information.
6
Commodity Strategy Fund
Fund Allocation
As of October 31, 2020
Treasury/Agency | 100.0 | % |
The table reflects the fund's investments, except for short-term investments and derivatives. The agency and mortgage-backed securities may include issues from government-sponsored enterprises; such issues are generally not backed by the full faith and credit of the U.S. government.
7
Commodity Strategy Fund
Consolidated Financial Statements
Consolidated Schedule of Investments
As of October 31, 2020
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.
Face | Market | ||||||||
Maturity | Amount | Value• | |||||||
Coupon | Date | ($000) | ($000) | ||||||
U.S. Government and Agency Obligations (70.8%) | |||||||||
U.S. Government Securities (70.8%) | |||||||||
United States Treasury Inflation Indexed Bonds | 1.125% | 1/15/21 | 12,170 | 14,478 | |||||
United States Treasury Inflation Indexed Bonds | 0.125% | 4/15/21 | 14,370 | 15,744 | |||||
United States Treasury Inflation Indexed Bonds | 0.625% | 7/15/21 | 10,483 | 12,199 | |||||
United States Treasury Inflation Indexed Bonds | 0.125% | 1/15/22 | 13,965 | 16,215 | |||||
United States Treasury Inflation Indexed Bonds | 0.125% | 4/15/22 | 14,266 | 15,435 | |||||
United States Treasury Inflation Indexed Bonds | 0.125% | 7/15/22 | 13,489 | 15,558 | |||||
United States Treasury Inflation Indexed Bonds | 0.125% | 1/15/23 | 15,565 | 17,973 | |||||
United States Treasury Inflation Indexed Bonds | 0.625% | 4/15/23 | 14,050 | 15,285 | |||||
United States Treasury Inflation Indexed Bonds | 0.375% | 7/15/23 | 15,495 | 18,058 | |||||
United States Treasury Inflation Indexed Bonds | 0.625% | 1/15/24 | 14,774 | 17,394 | |||||
United States Treasury Inflation Indexed Bonds | 0.500% | 4/15/24 | 10,120 | 11,011 | |||||
United States Treasury Inflation Indexed Bonds | 0.125% | 7/15/24 | 14,435 | 16,621 | |||||
United States Treasury Inflation Indexed Bonds | 0.125% | 10/15/24 | 12,473 | 13,323 | |||||
United States Treasury Inflation Indexed Bonds | 0.250% | 1/15/25 | 14,515 | 16,877 | |||||
United States Treasury Inflation Indexed Bonds | 2.375% | 1/15/25 | 7,070 | 11,222 | |||||
United States Treasury Inflation Indexed Bonds | 0.125% | 4/15/25 | 12,325 | 13,110 | |||||
United States Treasury Inflation Indexed Bonds | 0.375% | 7/15/25 | 13,875 | 16,381 | |||||
United States Treasury Inflation Indexed Bonds | 0.125% | 10/15/25 | 6,500 | 6,955 | |||||
Total U.S. Government and Agency Obligations (Cost $259,069) | 263,839 |
8
Commodity Strategy Fund | ||||
Market | ||||
Value• | ||||
Shares | ($000) | |||
Temporary Cash Investments (31.5%) | ||||
Money Market Fund (10.9%) | ||||
1 | Vanguard Market Liquidity Fund, 0.112% | 405,283 | 40,528 |
Face | ||||
Amount | ||||
($000 | ||||
U.S. Government and Agency Obligations (20.6%) | ||||
2 | United States Treasury Bill, 0.097%, 11/27/20 | 13,800 | 13,799 | |
2 | United States Treasury Bill, 0.105%, 12/3/20 | 6,000 | 6,000 | |
2 | United States Treasury Bill, 0.102%, 12/10/20 | 14,000 | 13,999 | |
2 | United States Treasury Bill, 0.085%, 12/17/20 | 6,000 | 5,999 | |
2 | United States Treasury Bill, 0.083%, 1/21/21 | 14,000 | 13,997 | |
2 | United States Treasury Bill, 0.091%, 1/28/21 | 23,000 | 22,995 | |
76,789 | ||||
Total Temporary Cash Investments (Cost $117,307) | 117,317 | |||
Total Investments (102.3%) (Cost $376,376) | 381,156 | |||
Other Assets and Liabilities—Net (-2.3%) | (8,442) | |||
Net Assets (100%) | 372,714 |
Cost is in $000.
• See Note A in Notes to Consolidated Financial Statements.
1 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.
2 Security is owned by the Vanguard CSF Portfolio, which is a wholly owned subsidiary of the Commodity Strategy Fund.
9
Commodity Strategy Fund
Derivative Financial Instruments Outstanding as of Period End
Over-the-Counter Total Return Swaps
Floating | ||||||||||||
Interest | ||||||||||||
Rate | Value and | Value and | ||||||||||
Notional | Received | Unrealized | Unrealized | |||||||||
Termination | Amount | (Paid | )1 | Appreciation | (Depreciation | ) | ||||||
Reference Entity | Date | Counterparty | ($000 | ) | (% | ) | ($000 | ) | ($000 | ) | ||
Bloomberg | ||||||||||||
Commodity Index2 | 11/23/20 | BARC | 115,000 | (0.100 | ) | — | (2,695 | ) | ||||
Bloomberg | ||||||||||||
Commodity Index 2 | ||||||||||||
Month Forward2 | 11/23/20 | BARC | 50,000 | (0.110 | ) | — | (1,179 | ) | ||||
Bloomberg | ||||||||||||
Commodity Index 3 | ||||||||||||
Month Forward2 | 11/23/20 | GSI | 20,000 | (0.120 | ) | — | (461 | ) | ||||
BofA Merrill Lynch | ||||||||||||
Commodity MLCILP3E | ||||||||||||
Excess Return Strategy2,3 | 11/23/20 | MLI | 26,000 | (0.140 | ) | — | (599 | ) | ||||
BofA Merrill Lynch | ||||||||||||
MLBXAKSV Excess | ||||||||||||
Return Index2,3 | 11/23/20 | MLI | 20,000 | (0.170 | ) | — | (534 | ) | ||||
Credit Suisse | ||||||||||||
Custom 34 - 01E | ||||||||||||
Forward Excess | ||||||||||||
Return2,3 | 11/23/20 | CSFBI | 105,000 | (0.160 | ) | — | (2,378 | ) | ||||
Goldman Sachs | ||||||||||||
Commodity i-Select | ||||||||||||
Strategy 11292,3 | 11/23/20 | GSI | 20,000 | (0.120 | ) | — | (465 | ) | ||||
Modified Strategy | ||||||||||||
DBS18 on the | ||||||||||||
Bloomberg | ||||||||||||
Commodity Index2,3 | 11/23/20 | GSI | 31,000 | (0.120 | ) | — | (637 | ) | ||||
— | (8,948 | ) |
1 | Based on 1-month USD London Interbank Offered Rate (LIBOR) as of the most recent payment date. Floating interest payment received/paid monthly. |
2 | Security is owned by the subsidiary. |
3 | Information on the components of the reference entity is available on www.vanguard.com. |
BARC—Barclays Bank plc.
CSFBI—Credit Suisse First Boston International.
GSI—Goldman Sachs International.
MLI—Merrill Lynch International.
See accompanying Notes, which are an integral part of the Financial Statements.
10
Commodity Strategy Fund
Consolidated Statement of Assets and Liabilities
As of October 31, 2020
($000s, except shares and per-share amounts) | Amount |
Assets | |
Investments in Securities, at Value | |
Unaffiliated Issuers (Cost $335,858) | 340,628 |
Affiliated Issuers (Cost $40,518) | 40,528 |
Total Investments in Securities | 381,156 |
Investment in Vanguard | 16 |
Cash | 418 |
Receivables for Investment Securities Sold | 7,060 |
Receivables for Accrued Income | 260 |
Receivables for Capital Shares Issued | 464 |
Total Assets | 389,374 |
Liabilities | |
Payables for Investment Securities Purchased | 6,961 |
Payables for Capital Shares Redeemed | 710 |
Payables to Vanguard | 41 |
Unrealized Depreciation—Over-the-Counter Swap Contracts | 8,948 |
Total Liabilities | 16,660 |
Net Assets | 372,714 |
At October 31, 2020, net assets consisted of: | |
Paid-in Capital | 366,257 |
Total Distributable Earnings (Loss) | 6,457 |
Net Assets | 372,714 |
Net Assets | |
Applicable to 15,323,888 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 372,714 |
Net Asset Value Per Share | $24.32 |
See accompanying Notes, which are an integral part of the Financial Statements.
11
Commodity Strategy Fund
Consolidated Statement of Operations
Year Ended | |
October 31, 2020 | |
($000) | |
Investment Income | |
Income | |
Interest1 | 3,837 |
Total Income | 3,837 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 48 |
Management and Administrative | 446 |
Marketing and Distribution | 18 |
Custodian Fees | 3 |
Auditing Fees | 48 |
Shareholders’ Reports | 5 |
Trustees’ Fees and Expenses—Note B | 13 |
Total Expenses | 581 |
Net Investment Income | 3,256 |
Realized Net Gain (Loss) | |
Investment Securities Sold1 | (523) |
Swap Contracts | 2,883 |
Realized Net Gain (Loss) | 2,360 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities1 | 4,768 |
Swap Contracts | (8,060) |
Change in Unrealized Appreciation (Depreciation) | (3,292) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 2,324 |
1 Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $220,000, ($10,000), and $10,000, respectively. Purchases and sales are for temporary cash investment purposes.
See accompanying Notes, which are an integral part of the Financial Statements.
12
Commodity Strategy Fund
Consolidated Statement of Changes in Net Assets
June 25, | |||
Year Ended | 20191 to | ||
Oct. 31, | Oct. 31, | ||
2020 | 2019 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 3,256 | 1,055 | |
Realized Net Gain (Loss) | 2,360 | (435) | |
Change in Unrealized Appreciation (Depreciation) | (3,292) | (876) | |
Net Increase (Decrease) in Net Assets Resulting from Operations | 2,324 | (256) | |
Distributions2 | |||
Total Distributions | (1,458) | — | |
Capital Share Transactions | |||
Issued | 310,858 | 214,859 | |
Issued in Lieu of Cash Distributions | 1,346 | — | |
Redeemed | (147,645) | (7,314) | |
Net Increase (Decrease) from Capital Share Transactions | 164,559 | 207,545 | |
Total Increase (Decrease) | 165,425 | 207,289 | |
Net Assets | |||
Beginning of Period | 207,289 | — | |
End of Period | 372,714 | 207,289 |
1 | Inception. |
2 | Certain prior-period numbers have been reclassified to conform with the current-period presentation. |
See accompanying Notes, which are an integral part of the Financial Statements.
13
Commodity Strategy Fund
Consolidated Financial Highlights
Year | June 25, | |
Ended | 20191 to | |
Oct. 31, | Oct.31, | |
For a Share Outstanding Throughout Each Period | 2020 | 2019 |
Net Asset Value, Beginning of Period | $24.83 | $25.00 |
Investment Operations | ||
Net Investment Income2 | .265 | .143 |
Net Realized and Unrealized Gain (Loss) on Investments | (.620) | (.313) |
Total from Investment Operations | (.355) | (.170) |
Distributions | ||
Dividends from Net Investment Income | (.155) | — |
Distributions from Realized Capital Gains | — | — |
Total Distributions | (.155) | — |
Net Asset Value, End of Period | $24.32 | $24.83 |
Total Return3 | -1.45% | -0.68% |
Ratios/Supplemental Data | ||
Net Assets, End of Period (Millions) | $373 | $207 |
Ratio of Total Expenses to Average Net Assets | 0.20% | 0.20%4 |
Ratio of Net Investment Income to Average Net Assets | 1.15% | 1.65%4 |
Portfolio Turnover Rate | 38% | 7% |
1 | Inception. |
2 | Calculated based on average shares outstanding. |
3 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
4 | Annualized. |
See accompanying Notes, which are an integral part of the Financial Statements.
14
Commodity Strategy Fund
Notes to Consolidated Financial Statements
Vanguard Commodity Strategy Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. 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.
The Consolidated Financial Statements include Vanguard CSF Portfolio (“the subsidiary”), which commenced operations on June 25, 2019. The subsidiary is wholly owned by the fund and is a unit trust established in the Cayman Islands under the Trusts Law (2011 Revision) of the Cayman Islands, which is organized to invest in certain commodity-linked investments on behalf of the fund, consistent with the fund’s investment objectives and policies. The commodity-linked investments and other investments held by the subsidiary are subject to the same risks that apply to similar investments if held directly by the fund. As of October 31, 2020, the fund held $68,252,000 in the subsidiary, representing 18% of the fund’s net assets. All inter-fund transactions and balances (including the fund’s investment in the subsidiary) have been eliminated, and the Consolidated Financial Statements include all investments and other accounts of the subsidiary as if held directly by the fund.
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. Bonds and 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. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Securities for which market quotations are not readily available, or whose values have been 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.
2. Swap Contracts: The fund gains exposure to commodities through the subsidiary’s investment in swaps that earn the total return on a specified commodity index. Under the terms of the swaps, the subsidiary receives the total return on the specified index (receiving the increase or paying the decrease in the value of the specified index), applied to a notional amount. The subsidiary also pays a floating rate that is based on short-term interest rates, applied to the notional amount. At the same time, the subsidiary 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 subsidiary. The subsidiary’s maximum amount subject to counterparty risk is the unrealized appreciation on the swap contract. The subsidiary 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 subsidiary cannot be repledged, resold, or rehypothecated. In the event of a counterparty’s default (including bankruptcy), the subsidiary 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 subsidiary under the master netting arrangements. The swap
15
Commodity Strategy Fund
contracts contain provisions whereby a counterparty may terminate open contracts if the subsidiary’s net assets decline below a certain level, triggering a payment by the subsidiary if the subsidiary is in a net liability position at the time of the termination. The payment amount would be reduced by any collateral the subsidiary has pledged. Any securities pledged as collateral for open contracts are noted in the Consolidated 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 Consolidated 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 Consolidated Statement of Assets and Liabilities as an asset (liability) and in the Consolidated 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 October 31, 2020, the fund’s average amounts of investments in total return swaps represented 103% of net assets, based on the average of notional amounts at each quarter-end during the period.
The following table summarizes the fund’s derivative assets and liabilities by counterparty for derivatives subject to arrangements that provide for offsetting assets and liabilities.
Assets | Liabilities | Amounts Not Offset in | ||||||||||
Reflected in | Reflected in | the Consolidated | ||||||||||
Consolidated | Consolidated | Statement of Assets | Net | |||||||||
Statement of | Statement of | Net Amount | and Liabilities | Exposure3 | ||||||||
Assets and | Assets and | Receivable | Collateral | Collateral | (Not Less | |||||||
Liabilities1 | Liabilities1 | (Payable) | Pledged2 | Received2 | Than $0) | |||||||
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |||||||
Derivatives Subject to | ||||||||||||
Offsetting Arrangements, | ||||||||||||
by Counterparty | ||||||||||||
Barclays Bank plc | — | 3,874 | (3,874) | — | — | — | ||||||
Credit Suisse First | ||||||||||||
Boston International | — | 2,378 | (2,378) | — | — | — | ||||||
Goldman Sachs International | — | 1,563 | (1,563) | — | — | — | ||||||
Merrill Lynch International | — | 1,133 | (1,133) | — | — | — | ||||||
Total | — | 8,948 | (8,948) | — | — | — |
1 | Absent an event of default or early termination, derivative assets and liabilities are presented gross and not offset in the Consolidated Statement of Assets and Liabilities. |
2 | Securities or other assets pledged as collateral are noted in the Consolidated Schedule of Investments and Consolidated Statement of Assets and Liabilities. Securities or other assets received as collateral are held in a segregated account and not included in the fund’s security holdings in the Consolidated Schedule of Investments. |
3 | Net exposure represents the net amount receivable from the counterparty in the event of default. Counterparties are not required to exchange collateral if amount is below a specified minimum transfer amount. |
16
Commodity Strategy Fund
3. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. The subsidiary is classified as a foreign corporation for U.S. tax purposes, and because it does not carry on a U.S. trade or business, is generally not subject to U.S. federal income tax. The subsidiary also complies with the Foreign Account Tax Compliance Act (“FATCA”) and thus will not be subject to 30% withholding under FATCA on any income from U.S. investments. In addition, the subsidiary is not subject to Cayman Islands income tax. The subsidiary is not required to distribute any earnings and profits to the fund. 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.
4. Distributions: Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
5. 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 Consolidated 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 alternative 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.
For the year ended October 31, 2020, the fund did not utilize the credit facilities or the Interfund Lending Program.
17
Commodity Strategy Fund
6. Other: 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. Inflation adjustments to the face amount of inflation-indexed securities are included in interest income. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
B. 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.
Under a separate agreement, Vanguard provides corporate management and administrative services to the subsidiary for an annual fee of 0.10% of average net assets of the subsidiary, generally settled once a month. In addition, the subsidiary pays an unaffiliated third party, VGMF I (Cayman) Limited, an affiliate of Maples Trustee Services (Cayman) Limited, a fee plus reasonable additional expenses for trustee services. All of the subsidiary’s expenses are reflected in the Consolidated Statement of Operations and in the Ratio of Total Expenses to Average Net Assets in the Consolidated Financial Highlights.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At October 31, 2020, the fund had contributed to Vanguard capital in the amount of $16,000, representing less than 0.01% of the fund’s net assets and 0.01% 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 Consolidated Schedule of Investments.
18
Commodity Strategy Fund
The following table summarizes the market value of the fund’s investments and derivatives as of October 31, 2020, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | Total | |
($000) | ($000) | ($000) | ($000) | |
Investments | ||||
Assets | ||||
U.S. Government and Agency Obligations | — | 263,839 | — | 263,839 |
Temporary Cash Investments | 40,528 | 76,789 | — | 117,317 |
Total | 40,528 | 340,628 | — | 381,156 |
Derivative Financial Instruments | ||||
Liabilities | ||||
Swap Contracts | — | 8,948 | — | 8,948 |
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 operations of the subsidiary were reclassified between the following accounts:
Amount | |
($000) | |
Paid-in Capital | (4,780) |
Total Distributable Earnings (Loss) | 4,780 |
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. 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 | 2,312 |
Undistributed Long-Term Gains | — |
Capital Loss Carryforwards | (635) |
Qualified Late-Year Losses | — |
Net Unrealized Gains (Losses) | 4,780 |
19
Commodity Strategy Fund
The tax character of distributions paid was as follows:
Year Ended | June 25, 20191 to | ||
October 31, 2020 | October 31, 2019 | ||
Amount | Amount | ||
($000) | ($000) | ||
Ordinary Income* | 1,458 | — | |
Long-Term Capital Gains | — | — | |
Total | 1,458 | — |
* | Includes short-term capital gains, if any. |
1 | Inception. |
As of October 31, 2020, 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 | 376,376 |
Gross Unrealized Appreciation | 8,207 |
Gross Unrealized Depreciation | (3,427) |
Net Unrealized Appreciation (Depreciation) | 4,780 |
E. During the year ended October 31, 2020, the fund purchased $182,353,000 of investment securities and sold $70,938,000 of investment securities, other than temporary cash investments.
F. Capital shares issued and redeemed were:
Year Ended | June 25, 20191 to | ||
Oct. 31, 2020 | Oct. 31, 2019 | ||
Shares | Shares | ||
(000) | (000) | ||
Issued | 13,549 | 8,645 | |
Issued in Lieu of Cash Distributions | 53 | — | |
Redeemed | (6,625) | (298) | |
Net Increase (Decrease) in Shares Outstanding | 6,977 | 8,347 |
1 Inception.
G. Management has determined that no events or transactions occurred subsequent to October 31, 2020, that would require recognition or disclosure in these financial statements.
20
Report of Independent Registered
Public Accounting Firm
To the Board of Trustees of Vanguard Trustees’ Equity Fund and Shareholders of Vanguard Commodity Strategy Fund
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of assets and liabilities, including the consolidated schedule of investments, of Vanguard Commodity Strategy Fund and its subsidiary (one of the funds constituting Vanguard Trustees’ Equity Fund, referred to hereafter as the “Fund”) as of October 31, 2020, the related consolidated statement of operations for the year ended October 31, 2020 and the statement of changes in net assets and the financial highlights for the year ended October 31, 2020 and for the period June 25, 2019 (inception) through October 31, 2019, including the related notes, (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Fund as of October 31, 2020, the results of its operations for the year ended October 31, 2020, and the changes in its net assets and the financial highlights for the year ended October 31, 2020 and for the period June 25, 2019 (inception) through October 31, 2019 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s consolidated 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 consolidated 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 consolidated 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 consolidated 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 consolidated 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 consolidated financial statements. Our procedures included confirmation of securities owned as of October 31, 2020 by correspondence with the custodian, transfer agent and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 21, 2020
We have served as the auditor of one or more investment companies in The Vanguard Group of Funds since 1975.
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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 213 Vanguard funds.
Information for each trustee and executive officer of the fund appears below. That information, as well as the Vanguard fund count, is as of the date on the cover of this fund report. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
Interested Trustee1
Mortimer J. Buckley
Born in 1969. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: chairman of the board (2019–present) of Vanguard and of each of the investment companies served by Vanguard; chief executive officer (2018– present) of Vanguard; chief executive officer, president, and trustee (2018–present) of each of the investment companies served by Vanguard; president and director (2017–present) of Vanguard; and president (2018–present) of Vanguard Marketing Corporation. Chief investment officer (2013–2017), managing director (2002–2017), head of the Retail Investor Group (2006–2012), and chief information officer (2001–2006) of Vanguard. Chairman of the board (2011–2017) and trustee (2009–2017) of the Children’s Hospital of Philadelphia; and trustee (2018–present) and vice chair (2019–present) of The Shipley School.
Independent Trustees
Emerson U. Fullwood
Born in 1948. Trustee since January 2008. Principal occupation(s) during the past five years and other experience: executive chief staff and marketing officer for North America and corporate vice president (retired 2008) of Xerox Corporation (document management products and services). Former president of the Worldwide Channels Group, Latin America, and Worldwide Customer Service and executive chief staff officer of Developing Markets of Xerox. Executive in residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology. Director of SPX FLOW, Inc. (multi-industry manufac-turing). Director of the University of Rochester Medical Center, the Monroe Community College Foundation, the United Way of Rochester, North Carolina A&T University, and Roberts Wesleyan College. Trustee of the University of Rochester.
Amy Gutmann
Born in 1949. Trustee since June 2006. Principal occupation(s) during the past five years and other experience: president (2004–present) of the University of Pennsylvania. Christopher H. Browne Distinguished Professor of Political Science, School of Arts and Sciences, and professor of communication, Annenberg School for Communication, with secondary faculty appointments in the Department of Philosophy, School of Arts and Sciences, and at the Graduate School of Education, University of Pennsylvania.
F. Joseph Loughrey
Born in 1949. Trustee since October 2009. Principal occupation(s) during the past five years and other experience: president and chief operating officer (retired 2009) and vice chairman of the board (2008–2009) of Cummins Inc. (industrial machinery). Chairman of the board of Hillenbrand, Inc. (specialized consumer services) and the Lumina Foundation. Director of the V Foundation. Member of the advisory
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. |
council for the College of Arts and Letters and chair of the advisory board to the Kellogg Institute for International Studies, both at the University of Notre Dame.
Mark Loughridge
Born in 1953. Trustee since March 2012. Principal occupation(s) during the past five years and other experience: senior vice president and chief financial officer (retired 2013) of IBM (information technology services). Fiduciary member of IBM’s Retirement Plan Committee (2004–2013), senior vice president and general manager (2002–2004) of IBM Global Financing, vice president and controller (1998–2002) of IBM, and a variety of other prior management roles at IBM. Member of the Council on Chicago Booth.
Scott C. Malpass
Born in 1962. Trustee since March 2012. Principal occupation(s) during the past five years and other experience: chief investment officer (retired June 2020) and vice president (retired June 2020) of the University of Notre Dame. Assistant professor of finance at the Mendoza College of Business, University of Notre Dame, and member of the Notre Dame 403(b) Investment Committee (retired June 2020). Member of the board of Catholic Investment Services, Inc. (investment advisors) and the board of superintendence of the Institute for the Works of Religion.
Deanna Mulligan
Born in 1963. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: board chair (2020–present), chief executive officer (2011–2020), and president (2010–2019) of The Guardian Life Insurance Company of America. Chief operating officer (2010–2011) and executive vice president (2008–2010) of the individual life and disability division of Guardian Life. Member of the board of the American Council of Life Insurers and the board of the Economic Club of New York. Trustee of the Partnership for New York City (business leadership), Chief Executives for Corporate Purpose, NewYork-Presbyterian Hospital, Catalyst, and the Bruce Museum (arts and science). Member of the Advisory Council for the Stanford Graduate School of Business.
André F. Perold
Born in 1952. Trustee since December 2004. Principal occupation(s) during the past five years and other experience: George Gund Professor of Finance and Banking, Emeritus at the Harvard Business School (retired 2011). Chief investment officer and co-managing partner of HighVista Strategies (private investment firm). Member of the board of advisors and member of the investment committee of the Museum of Fine Arts Boston. Member of the board (2018–present) of RIT Capital Partners (investment firm). Member of the investment committee of Partners Health Care System.
Sarah Bloom Raskin
Born in 1961. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: deputy secretary (2014–2017) of the United States Department of the Treasury. Governor (2010–2014) of the Federal Reserve Board. Commissioner (2007–2010) of financial regulation for the State of Maryland. Member of the board of directors (2012–2014) of Neighborhood Reinvestment Corporation. Director (2017–present) of i(x) Investments, LLC; director (2017–present) of Reserve Trust. Rubenstein Fellow (2017–present) of Duke University; trustee (2017–present) of Amherst College, and trustee (2019–present) of the Folger Shakespeare Library.
Peter F. Volanakis
Born in 1955. Trustee since July 2009. Principal occupation(s) during the past five years and other experience: president and chief operating officer (retired 2010) of Corning Incorporated (communications equipment) and director of Corning Incorporated (2000–2010) and Dow Corning (2001–2010). Director (2012) of SPX Corporation (multi-industry manufacturing). Overseer of the Amos Tuck School of Business Administration, Dartmouth College (2001–2013). Chairman of the board of trustees of Colby-Sawyer College. Member of the board of Hypertherm Inc. (industrial cutting systems, software, and consumables).
Executive Officers
John Bendl
Born in 1970. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Chief financial officer (2019–present) of each of the investment companies served by Vanguard. Chief accounting officer, treasurer, and controller of Vanguard (2017–present). Partner (2003–2016) at KPMG (audit, tax, and advisory services).
Christine M. Buchanan
Born in 1970. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Treasurer (2017–present) of each of the investment companies served by Vanguard. Partner (2005–2017) at KPMG (audit, tax, and advisory services).
David Cermak
Born in 1960. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Finance director (2019–present) of each of the investment companies served by Vanguard. Managing director and head (2017–present) of Vanguard Investments Singapore. Managing director and head (2017–2019) of Vanguard Investments Hong Kong. Representative director and head (2014–2017) of Vanguard Investments Japan.
John Galloway
Born in 1973. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Investment stewardship officer (September 2020–present) of each of the investment companies served by Vanguard. Head of Investor Advocacy (February 2020–present) and head of Marketing Strategy and Planning (2017–2020) at Vanguard. Deputy assistant to the President of the United States (2015).
Thomas J. Higgins
Born in 1957. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Finance director (2019–present), chief financial officer (2008–2019), and treasurer (1998–2008) of each of the investment companies served by Vanguard.
Peter Mahoney
Born in 1974. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Controller (2015–present) of each of the investment companies served by Vanguard. Head of International Fund Services (2008–2014) at Vanguard.
Anne E. Robinson
Born in 1970. Principal occupation(s) during the past five years and other experience: general counsel (2016–present) of Vanguard. Secretary (2016–present) of Vanguard and of each of the investment companies served by Vanguard. Managing director (2016–present) of Vanguard. Managing director and general counsel of Global Cards and Consumer Services (2014–2016) at Citigroup. Counsel (2003–2014) at American Express.
Michael Rollings
Born in 1963. Principal occupation(s) during the past five years and other experience: finance director (2017–present) and treasurer (2017) of each of the investment companies served by Vanguard. Managing director (2016–present) of Vanguard. Chief financial officer (2016–present) of Vanguard. Director (2016–present) of Vanguard Marketing Corporation. Executive vice president and chief financial officer (2006–2016) of MassMutual Financial Group.
John E. Schadl
Born in 1972. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Chief compliance officer (2019–present) of Vanguard and of each of the investment companies served by Vanguard. Assistant vice president (2019–present) of Vanguard Marketing Corporation.
Vanguard Senior Management Team
Joseph Brennan | James M. Norris |
Mortimer J. Buckley | Thomas M. Rampulla |
Gregory Davis | Karin A. Risi |
John James | Anne E. Robinson |
John T. Marcante | Michael Rollings |
Chris D. McIsaac | Lauren Valente |
Connect with Vanguard® > vanguard.com
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All comparative mutual fund data are from Morningstar, Inc., unless otherwise noted.
You can obtain a free copy of Vanguard’s proxy voting guidelines by visiting vanguard.com/proxyreporting or by calling Vanguard at 800-662-2739. The guidelines are also available from the SEC’s website, www.sec.gov. In addition, you may obtain a free report on how your fund voted the proxies for securities it owned during the 12 months ended June 30. To get the report, visit either vanguard.com/proxyreporting or www.sec.gov.
You can review information about your fund on the SEC’s website, and you can receive copies of this information, for a fee, by sending a request via email addressed to publicinfo@sec.gov.
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© 2020 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q5170 122020 |
Item 2: Code of Ethics. The Registrant has adopted a code of ethics that applies to the Registrant’s principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The Code of Ethics was amended during the reporting period covered by this report to make certain technical, non-material changes.
Item 3: Audit Committee Financial Expert. All members of the Audit Committee have been determined by the Registrant’s Board of Trustees to be Audit Committee Financial Experts and to be independent: F. Joseph Loughrey, Mark Loughridge, Sarah Bloom Raskin, and Peter F. Volanakis.
Item 4: Principal Accountant Fees and Services.
(a) | Audit Fees. |
Audit Fees of the Registrant.
Fiscal Year Ended October 31, 2020: $191,000
Fiscal Year Ended October 31, 2019: $164,000
Aggregate Audit Fees of Registered Investment Companies in the Vanguard Group.
Fiscal Year Ended October 31, 2020: $10,761,407
Fiscal Year Ended October 31, 2019: $9,568,215
Includes fees billed in connection with audits of the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.
(b) | Audit-Related Fees. |
Fiscal Year Ended October 31, 2020: $2,915,863
Fiscal Year Ended October 31, 2019: $3,012,031
Includes fees billed in connection with assurance and related services provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.
(c) | Tax Fees. |
Fiscal Year Ended October 31, 2020: $247,168
Fiscal Year Ended October 31, 2019: $357,238
Includes fees billed in connection with tax compliance, planning, and advice services provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.
(d) | All Other Fees. |
Fiscal Year Ended October 31, 2020: $115,000
Fiscal Year Ended October 31, 2019: $0
Includes fees billed for services related to tax reported information provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.
(e) (1) Pre-Approval Policies. The policy of the Registrant’s Audit Committee is to consider, and, if appropriate, approve before the principal accountant is engaged for such services, all specific audit and non-audit services provided to: the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and entities controlled by The Vanguard Group, Inc. that provide ongoing services to the Registrant. In making a determination, the Audit Committee considers whether the services are consistent with maintaining the principal accountant’s independence.
In the event of a contingency situation in which the principal accountant is needed to provide services in between scheduled Audit Committee meetings, the Chairman of the Audit Committee would be called on to consider and, if appropriate, pre-approve audit or permitted non-audit services in an amount sufficient to complete services through the next Audit Committee meeting, and to determine if such services would be consistent with maintaining the accountant’s independence. At the next scheduled Audit Committee meeting, services and fees would be presented to the Audit Committee for formal consideration, and, if appropriate, approval by the entire Audit Committee. The Audit Committee would again consider whether such services and fees are consistent with maintaining the principal accountant’s independence.
The Registrant’s Audit Committee is informed at least annually of all audit and non-audit services provided by the principal accountant to the Vanguard complex, whether such services are provided to: the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., or other entities controlled by The Vanguard Group, Inc. that provide ongoing services to the Registrant.
(2) No percentage of the principal accountant’s fees or services were approved pursuant to the waiver provision of paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) For the most recent fiscal year, over 50% of the hours worked under the principal accountant’s engagement were not performed by persons other than full-time, permanent employees of the principal accountant.
(g) Aggregate Non-Audit Fees.
Fiscal Year Ended October 31, 2020: $362,168
Fiscal Year Ended October 31, 2019: $357,238
Includes fees billed for non-audit services provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.
(h) For the most recent fiscal year, the Audit Committee has determined that the provision of all non-audit services was consistent with maintaining the principal accountant’s independence.
Item 5: Audit Committee of Listed Registrants.
The Registrant is a listed issuer as defined in rule 10A-3 under the Securities Exchange Act of 1934 (“Exchange Act”). The Registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Registrant’s audit committee members are: F. Joseph Loughrey, Mark Loughridge, Sarah Bloom Raskin, and Peter F. Volanakis.
Item 6: Investments.
Not applicable.
Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8: Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9: Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10: Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11: Controls and Procedures.
(a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.
(b) Internal Control Over Financial Reporting. In September 2020, a third-party service provider began performing certain administrative and accounting services for Vanguard Alternative Strategies Fund and Vanguard Emerging Markets Select Stock Fund. There were no other significant changes in the Registrant’s Internal Control Over Financial Reporting or in other factors that could significantly affect this control subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Item 12: Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13: Exhibits.
(a) | Code of Ethics. |
(b) | Certifications. |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
VANGUARD TRUSTEES’ EQUITY FUND | ||
BY: | /s/ MORTIMER J. BUCKLEY* | |
MORTIMER J. BUCKLEY | ||
CHIEF EXECUTIVE OFFICER |
Date: December 18, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
VANGUARD TRUSTEES’ EQUITY FUND | ||
BY: | /s/ MORTIMER J. BUCKLEY* | |
MORTIMER J. BUCKLEY | ||
CHIEF EXECUTIVE OFFICER |
Date: December 18, 2020
VANGUARD TRUSTEES’ EQUITY FUND | ||
BY: | /s/ JOHN BENDL* | |
JOHN BENDL | ||
CHIEF FINANCIAL OFFICER |
Date: December 18, 2020
* By: /s/ Anne E. Robinson
Anne E. Robinson, pursuant to a Power of Attorney filed on December 18, 2020 (see File Number 33-64845), Incorporated by Reference.