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: | 811-07443 | |
Name of Registrant: | Vanguard Whitehall Funds | |
Address of Registrant: | P.O. Box 2600 | |
Valley Forge, PA 19482 | ||
Name and address of agent for service: | Heidi Stam, 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, 2014 – April 30, 2015 | ||
Item 1: Reports to Shareholders |
Semiannual Report | April 30, 2015
Vanguard Selected Value Fund
The mission continues
On May 1, 1975, Vanguard began operations, a fledgling company based on the simple but revolutionary idea that a mutual fund company should be managed solely in the interest of its investors.
Four decades later, that revolutionary spirit continues to animate the enterprise. Vanguard remains on a mission to give investors the best chance of investment success.
As we mark our 40th anniversary, we thank you for entrusting your assets to Vanguard and giving us the opportunity to help you reach your financial goals in the decades to come.
Contents | |
Your Fund’s Total Returns. | 1 |
Chairman’s Letter. | 2 |
Advisors’ Report. | 7 |
Fund Profile. | 10 |
Performance Summary. | 11 |
Financial Statements. | 12 |
About Your Fund’s Expenses. | 23 |
Trustees Approve Advisory Arrangements. | 25 |
Glossary. | 27 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice.
Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the
risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
About the cover: Since our founding, Vanguard has drawn inspiration from the enterprise and valor demonstrated by British
naval hero Horatio Nelson and his command at the Battle of the Nile in 1798. The photograph displays a replica of a merchant
ship from the same era as Nelson’s flagship, the HMS Vanguard.
Your Fund’s Total Returns
Six Months Ended April 30, 2015 | |
Total | |
Returns | |
Vanguard Selected Value Fund | 4.22% |
Russell Midcap Value Index | 3.83 |
Mid-Cap Value Funds Average | 5.07 |
Mid-Cap Value Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. |
Your Fund’s Performance at a Glance | ||||
October 31, 2014, Through April 30, 2015 | ||||
Distributions Per Share | ||||
Starting | Ending | Income | Capital | |
Share Price | Share Price | Dividends | Gains | |
Vanguard Selected Value Fund | $29.49 | $29.08 | $0.404 | $1.169 |
1
Chairman’s Letter
Dear Shareholder,
Growth stocks overtook their value counterparts as the broad U.S. stock market decelerated over the six-month period ended April 30, 2015. At the same time, mid-capitalization stocks surpassed both large- and small-caps.
In this environment, Vanguard Selected Value Fund, which resides firmly in the mid-cap value category, posted solid results. It returned about 4%, a bit ahead of its benchmark, the Russell Midcap Value Index, but behind the average return of its mid-cap value peers.
Compared with the benchmark, the fund’s performance was distinguished by its consumer discretionary, health care, and industrial holdings. Its financial and energy stocks, however, restrained relative results. So did its cash position, which was more than 6% at the period’s close.
U.S. stocks closed higher despite fluctuating returns
U.S. stocks returned almost 5% for the six months, despite stretches of shakiness. In two of those months, stocks declined. In two others, they were virtually unchanged or gained less than 1%. February’s surge of almost 6%, the largest monthly gain since October 2011, lifted overall results for the period.
The Federal Reserve’s careful approach to potentially raising short-term interest rates helped stocks along, as did monetary stimulus efforts by other nations’ central
2
banks. These factors offset concerns that included Greece’s debt crisis and the negative effect of the strong U.S. dollar on the profits of U.S.-based multinational companies.
For U.S. investors, international stocks returned about 6%. Still, results were restrained by the dollar’s strength against many foreign currencies. Returns for the developed markets of the Pacific region, led by Japan, exceeded those of Europe and emerging markets. (You can read about Vanguard’s assessment of Japan’s economy in Japan: The Long Road Back to Inflation, available at vanguard.com/ research. This is part of the Global Macro Matters series produced by our economists.)
Stimulus policies and demand have driven up bond prices
Like equities, bonds have benefited from accommodative monetary policies from the world’s central banks. Investor demand for the perceived safety of fixed income assets has also boosted bond returns.
The broad U.S. taxable bond market returned 2.06% for the period, and the yield of the 10-year U.S. Treasury note ended April at 2.04%, down from 2.31% six months earlier. (Bond prices and yields move in opposite directions.)
International bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –4.83% as foreign currencies’ weakness relative to the dollar
Market Barometer | |||
Total Returns | |||
Periods Ended April 30, 2015 | |||
Six | One | Five Years | |
Months | Year | (Annualized) | |
Stocks | |||
Russell 1000 Index (Large-caps) | 4.75% | 13.00% | 14.47% |
Russell 2000 Index (Small-caps) | 4.65 | 9.71 | 12.73 |
Russell 3000 Index (Broad U.S. market) | 4.74 | 12.74 | 14.33 |
FTSE All-World ex US Index (International) | 6.00 | 3.53 | 6.40 |
Bonds | |||
Barclays U.S. Aggregate Bond Index (Broad taxable market) | 2.06% | 4.46% | 4.12% |
Barclays Municipal Bond Index (Broad tax-exempt market) | 1.17 | 4.80 | 4.75 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.00 | 0.03 | 0.05 |
CPI | |||
Consumer Price Index | -0.35% | -0.20% | 1.65% |
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affected results. For international bonds hedged to eliminate the effect of changes in currency exchange rates, returns were positive.
Returns of money market funds and savings accounts remained checked by the Fed’s target of 0%–0.25% for short-term interest rates.
Consumer discretionary, health care were key to Selected Value’s results
Vanguard Selected Value Fund’s patient approach often results in a portfolio that looks and behaves unlike the benchmark it is attempting to beat. The fund’s three advisors––Barrow, Hanley, Mewhinney & Strauss; Donald Smith & Co.; and Pzena Investment Management––rely on intense research to identify companies that have been shunned or overlooked by the market.
Operating independently, the advisors make a solid commitment to the companies that meet their strict criteria. This allegiance will generally last until the stock’s outlook is no longer as positive or its value has become more fully recognized by investors. Periods of underperformance are a by-product of the advisors’ commitment and conviction.
Although the fund lagged its peers during the period, the advisors’ choices helped its performance compared with the benchmark. Consumer discretionary stocks
Expense Ratios | ||
Your Fund Compared With Its Peer Group | ||
Peer Group | ||
Fund | Average | |
Selected Value Fund | 0.44% | 1.29% |
The fund expense ratio shown is from the prospectus dated February 25, 2015, and represents estimated costs for the current fiscal year. For
the six months ended April 30, 2015, the fund’s annualized expense ratio was 0.37%. The peer-group expense ratio is derived from data
provided by Lipper, a Thomson Reuters Company, and captures information through year-end 2014.
Peer group: Mid-Cap Value Funds.
4
continued to propel results as selections among automotive parts manufacturers and apparel retailers and manufacturers excelled.
The fund’s health care stocks, which had trailed the benchmark for the 12 months before the start of this period, forged comfortably ahead this time around. Solid results from individual companies in the health care distribution, services, and managed care segments more than offset a lack of exposure to several pharmaceutical firms that strongly advanced.
The industrial sector, one of the most sensitive to U.S. and global economic conditions, experienced tepid growth; however, a handful of holdings in the airlines, building products, and aerospace and defense categories did well.
One of the fund’s weakest showings came from its largest sector, financials, which can be quite susceptible to the economy’s rhythms. The fund’s financial stocks struggled to finish in positive territory and lagged those of the benchmark. Its consumer finance firms and REITs (real estate investment trusts) had negative results, and its banks and asset managers underperformed. Not owning some thriving asset managers and brokerage companies also detracted.
Two of the fund’s industry sectors—utilities and energy—had negative returns. The fund’s allocation to utilities was relatively small, but its energy holdings and exposure hindered performance. The drop in oil prices affected most of the industry, and the fund’s drilling, exploration and production, storage and transportation, and equipment and services firms suffered.
You can find more information on the fund’s positioning and performance during the fiscal half year in the Advisors’ Report that follows this letter.
Promoting good corporate governance is one way we protect your interests
Our core purpose is “to take a stand for all investors, to treat them fairly, and to give them the best chance for investment success.” This involves more than offering smart investments, trustworthy guidance, and low fees. It also means working with the companies held by Vanguard funds to make sure that your interests remain paramount.
How do we meet that responsibility?
As one of the world’s largest investment managers, we are making our voice heard in corporate boardrooms to promote the highest standards of stewardship. Our advocacy encompasses a range of issues, including executive compensation and succession planning, board composition and effectiveness, oversight of strategy and risk, and communication with shareholders.
We also exert our influence in a very important way when Vanguard funds cast their proxy votes at companies’ shareholder meetings.
5
Most of these votes occur at this time of year, making it an appropriate time to remind you that we work hard to represent your best interests. Good governance, we believe, is essential for any company seeking to maximize its long-term returns to shareholders. You can learn more about our efforts at vanguard.com/ corporategovernance.
Thank you for your confidence in Vanguard.
Sincerely,
F. William McNabb III
Chairman and Chief Executive Officer
May 15, 2015
Advisors’ Report
For the six months ended April 30, 2015, Vanguard Selected Value Fund returned 4.22%. Your fund is managed by three independent advisors. This provides exposure to distinct yet complementary investment approaches, enhancing the fund’s diversification. It is not uncommon for different advisors to have different views about individual securities or the broader investment environment.
The advisors, the percentage and amount of fund assets each manages, and a brief description of their investment strategies are presented in the table below. The advisors have also prepared a discussion of the investment environment that existed during the fiscal period and of how portfolio positioning reflects this assessment. These comments were prepared on May 21, 2015.
Barrow, Hanley, Mewhinney &
Strauss, LLC
Portfolio Managers:
James P. Barrow,
Executive Director
Mark Giambrone,
Managing Director
Stocks advanced moderately in the last six months as the market struggled to balance improving economic data with the prospects for rising interest rates and the strong dollar. This type of environment often produces solid results for value stocks with high dividend yields. We are positioning the portfolio for continued modest economic data and to benefit from the rising rates that should follow. Therefore, our largest
Vanguard Selected Value Fund Investment Advisors | |||
Fund Assets Managed | |||
Investment Advisor | % | $ Million | Investment Strategy |
Barrow, Hanley, Mewhinney & | 63 | 6,505 | Conducts fundamental research on individual stocks |
Strauss, LLC | exhibiting traditional value characteristics: | ||
price/earnings and price/book ratios below the market | |||
average and dividend yields above the market average. | |||
Donald Smith & Co., Inc. | 22 | 2,300 | Conducts fundamental research on the lowest |
price-to-tangible book value companies. Research | |||
focuses on underlying quality of book value and assets, | |||
and on long-term earnings potential. | |||
Pzena Investment Management, | 13 | 1,336 | Uses a fundamental, bottom-up, deep-value-oriented |
LLC | investment strategy. Seeks to buy good businesses at | ||
low prices, focusing exclusively on companies that are | |||
underperforming their historically demonstrated | |||
earnings power. | |||
Cash Investments | 2 | 174 | These short-term reserves are invested by Vanguard in |
equity index products to simulate investment in stocks. | |||
Each advisor may also maintain a cash position. |
7
positions are in the portion of the financial sector where higher rates will mean higher profits, as well as in those sectors that do well during economic uplifts, such as industrials and consumer discretionary.
We are underweighted in information technology, utilities, materials, and REITs (real estate investment trusts). We believe traditional yield plays such as utilities and REITs have had substantial runs in the current low-interest rate environment. Thus, they have very little room for valuation upside or meaningful yield, and we see considerable risk to these valuation levels should interest rates rise.
Donald Smith & Co., Inc.
Portfolio Managers:
Donald G. Smith,
Chief Investment Officer
Richard L. Greenberg, CFA,
Senior Vice President
Our portfolio continues to meet our criteria of owning a concentrated selection of low price-to-tangible book value stocks with attractive long-term earnings potential. It currently sells at 112% of tangible book value and 8.7 times our estimate of normalized earnings. In contrast, the Standard & Poor’s 500 Index sells at more than 500% of tangible book value and 17 times normalized earnings.
For the past six months, our largest holding, Micron Technologies, detracted most from performance, declining 15% after a spectacular run that saw the stock rise about 400% from the beginning of 2013. A slackening in demand for personal computers led to pricing weakness in PC DRAM, a product that accounts for more than 20% of Micron’s sales. We believe that the memory industry has undergone a structural change, shrinking to only three to four competitors, and that supply/ demand imbalances will be short-lived. Micron sells at only 10 times this year’s estimate and 9 times our normalized 2-to 4-year earnings estimate.
The fall in energy prices (oil, gas, coal) led to sharp declines in our energy stocks, including NRG Energy, Noble, Peabody Energy, Tidewater, and WPX Energy. On the positive side, JetBlue was a standout (77.9%), benefiting from both lower oil prices and the success of its extensive restructuring program. Insurance companies XL Group, CNA, Validus, Everest Re Group, and Unum also boosted results.
We eliminated Exelon from the portfolio and reduced our holdings in companies that performed well, including New Gold, Royal Caribbean, Valero Energy, and XL Group. We increased our positions in Aercap Holdings, Kinross Gold, and Unum but added no new names during the period.
Our largest industry weighting was insurance (21.7%). Our insurance holdings sell, on average, at about book value and 10 times potential earnings. At previous peaks, these stocks have sold as high as 1.5 to 2.0 times book value.
Airlines/aircraft leasing and technology made up 17.9% and 17.7% of the portfolio, respectively. Aercap and JetBlue were our
8
two largest stocks in the first group. Despite their recent appreciation, they both continue to sell at reasonable multiples of potential earnings.
Micron (mentioned earlier) and Ingram Micro were our biggest technology holdings. We are pleased that Ingram Micro has recently restarted its stock buyback program. At about book value, 10 times this year’s earnings estimate, and 8 times potential earnings, the stock is a good investment. We maintain moderate-size positions in energy (8.3%) and precious metals (6.8%).
Pzena Investment Management, LLC
Portfolio Managers:
Richard S. Pzena, Founder,
Chief Executive Officer, and
Co-Chief Investment Officer
Manoj Tandon, Principal,
Co-Director of Research
Eli Rabinowich, Principal
For the six months ended April 30, 2015, stock selection in financials, information technology, and energy and an underweighting of utilities all contributed to performance.
ON Semiconductor was our best stock pick, boosted by better-than-expected fourth-quarter results, expectations for long-term margin improvement, and favorable 2015 guidance, driven by strength in a rapidly growing automotive division. Consumer discretionary holding Staples continued to benefit from investors’ expectation of cost savings from the announced merger with Office Depot.
In energy, Baker Hughes rose on the announcement of its acquisition by Halliburton in November 2014. Oil prices started falling in August 2014, leading to a decline in oil service activity as major oil and gas producers reduced their capital expenditure. More recently, as oil prices stabilized above their lowest levels, these stocks have performed better. We are currently evaluating new opportunities in the energy sector as a number of stocks are screening in the cheapest quintile.
Negative contributions came from producer durable companies Actuant and KBR, as well as Genworth Financial. Actuant, the largest detractor, declined after it reduced full-year 2015 earnings guidance in January based on lower end-market demand in the European truck and oil and gas markets. KBR was hurt by the drop in energy prices and investor concern about a long-term reduction in new liquefied natural gas plant construction activity.
Overall, we maintain significant exposure to high-quality companies in the financial, technology, and consumer discretionary sectors and limited holdings in consumer staples, utilities, and REITs. In the last six months we added Torchmark, a life and health insurance provider; tool manufacturer Stanley Black & Decker; and utilities PG&E and Edison International.
We exited Becton Dickinson, a manufacturer of health care products, when its stock price reached fair value. We also sold our stakes in PartnerRe, a reinsurance provider, and Kohl’s, a leading department store operator.
9
Selected Value Fund
Fund Profile
As of April 30, 2015
Portfolio Characteristics | |||
DJ | |||
U.S. | |||
Russell | Total | ||
Midcap | Market | ||
Value | FA | ||
Fund | Index | Index | |
Number of Stocks | 119 | 577 | 3,748 |
Median Market Cap | $9.9B | $10.4B | $50.1B |
Price/Earnings Ratio | 16.5x | 21.3x | 21.1x |
Price/Book Ratio | 1.8x | 1.9x | 2.8x |
Return on Equity | 13.4% | 10.9% | 17.9% |
Earnings Growth | |||
Rate | 12.7% | 10.0% | 13.2% |
Dividend Yield | 2.0% | 2.1% | 1.9% |
Foreign Holdings | 7.4% | 0.0% | 0.0% |
Turnover Rate | |||
(Annualized) | 16% | — | — |
Ticker Symbol | VASVX | — | — |
Expense Ratio1 | 0.44% | — | — |
30-Day SEC Yield | 1.54% | — | — |
Short-Term Reserves | 6.1% | — | — |
Sector Diversification (% of equity exposure) | |||
DJ | |||
U.S. | |||
Russell | Total | ||
Midcap | Market | ||
Value | FA | ||
Fund | Index | Index | |
Consumer | |||
Discretionary | 13.8% | 10.4% | 13.2% |
Consumer Staples | 4.5 | 3.2 | 8.3 |
Energy | 5.5 | 4.1 | 7.8 |
Financials | 28.3 | 33.2 | 17.5 |
Health Care | 9.6 | 10.2 | 14.2 |
Industrials | 19.4 | 9.3 | 11.0 |
Information | |||
Technology | 9.9 | 10.8 | 19.2 |
Materials | 5.2 | 6.8 | 3.6 |
Telecommunication | |||
Services | 0.0 | 0.3 | 2.1 |
Utilities | 3.8 | 11.7 | 3.1 |
Volatility Measures | ||
Russell | DJ | |
Midcap | U.S. Total | |
Value | Market | |
Index | FA Index | |
R-Squared | 0.85 | 0.90 |
Beta | 0.93 | 0.99 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
Ten Largest Holdings (% of total net assets) | ||
Omnicare Inc. | Health Care Services | 2.7% |
Hanesbrands Inc. | Apparel, Accessories | |
& Luxury Goods | 2.6 | |
Micron Technology Inc. | Semiconductors | 2.4 |
Royal Caribbean Cruises | Hotels, Resorts & | |
Ltd. | Cruise Lines | 2.3 |
Stanley Black & Decker | ||
Inc. | Industrial Machinery | 2.3 |
Cigna Corp. | Managed Health | |
Care | 2.3 | |
Delphi Automotive plc | Auto Parts & | |
Equipment | 2.2 | |
L Brands Inc. | Apparel Retail | 2.1 |
Cardinal Health Inc. | Health Care | |
Distributors | 2.1 | |
Owens Corning | Building Products | 2.0 |
Top Ten | 23.0% |
The holdings listed exclude any temporary cash investments and equity index products.
Investment Focus
1 The expense ratio shown is from the prospectus dated February 25, 2015, and represents estimated costs for the current fiscal year. For the six
months ended April 30, 2015, the annualized expense ratio was 0.37%.
10
Selected 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.
Fiscal-Year Total Returns (%): October 31, 2004, Through April 30, 2015
Average Annual Total Returns: Periods Ended March 31, 2015
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
Inception | One | Five | Ten | |
Date | Year | Years | Years | |
Selected Value Fund | 2/15/1996 | 5.50% | 14.55% | 9.03% |
See Financial Highlights for dividend and capital gains information.
11
Selected Value Fund
Financial Statements (unaudited)
Statement of Net Assets
As of April 30, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Market | |||
Value• | |||
Shares | ($000) | ||
Common Stocks (92.7%)1 | |||
Consumer Discretionary (12.7%) | |||
Hanesbrands Inc. | 8,552,600 | 265,815 | |
Royal Caribbean Cruises | |||
Ltd. | 3,542,625 | 241,111 | |
Delphi Automotive plc | 2,780,400 | 230,773 | |
L Brands Inc. | 2,416,600 | 215,947 | |
2 | SeaWorld | ||
Entertainment Inc. | 5,267,100 | 111,663 | |
Meredith Corp. | 1,340,400 | 69,754 | |
News Corp. Class A | 2,298,100 | 36,264 | |
Interpublic Group of | |||
Cos. Inc. | 1,700,450 | 35,437 | |
Omnicom Group Inc. | 360,700 | 27,327 | |
Dana Holding Corp. | 1,259,850 | 27,175 | |
TRW Automotive | |||
Holdings Corp. | 188,765 | 19,832 | |
Staples Inc. | 1,159,250 | 18,919 | |
* | News Corp. Class B | 643,700 | 10,022 |
1,310,039 | |||
Consumer Staples (4.1%) | |||
Lorillard Inc. | 2,933,100 | 204,906 | |
Reynolds American Inc. | 2,786,000 | 204,214 | |
Kellogg Co. | 296,600 | 18,784 | |
427,904 | |||
Energy (5.1%) | |||
Murphy Oil Corp. | 2,790,950 | 132,877 | |
* | WPX Energy Inc. | 6,469,194 | 88,951 |
Golar LNG Ltd. | 1,739,608 | 62,617 | |
Noble Corp. plc | 3,160,316 | 54,705 | |
^ | Seadrill Ltd. | 3,382,000 | 44,270 |
Baker Hughes Inc. | 553,900 | 37,920 | |
Superior Energy | |||
Services Inc. | 1,481,750 | 37,785 | |
Rowan Cos. plc Class A | 730,525 | 15,480 | |
^ | Tidewater Inc. | 556,400 | 15,407 |
Nabors Industries Ltd. | 735,000 | 12,275 | |
Valero Energy Corp. | 181,000 | 10,299 |
^ | Peabody Energy Corp. | 1,738,700 | 8,224 |
^ | Paragon Offshore plc | 870,105 | 1,575 |
522,385 | |||
Financials (26.3%) | |||
Discover Financial | |||
Services | 3,296,000 | 191,069 | |
Capital One Financial | |||
Corp. | 2,261,600 | 182,850 | |
Fifth Third Bancorp | 8,793,975 | 175,880 | |
Navient Corp. | 8,888,647 | 173,684 | |
XL Group plc Class A | 4,603,630 | 170,703 | |
Ameriprise Financial Inc. | 1,346,800 | 168,727 | |
Host Hotels & Resorts Inc. 8,118,800 | 163,513 | ||
Willis Group Holdings plc | 3,029,475 | 147,323 | |
New York Community | |||
Bancorp Inc. | 8,059,600 | 138,545 | |
People’s United | |||
Financial Inc. | 7,696,800 | 116,299 | |
Unum Group | 3,182,590 | 108,717 | |
First Niagara Financial | |||
Group Inc. | 11,362,000 | 103,337 | |
CNA Financial Corp. | 2,165,344 | 87,263 | |
* | Genworth Financial Inc. | ||
Class A | 9,325,848 | 81,974 | |
Everest Re Group Ltd. | 429,037 | 76,759 | |
Corporate Office | |||
Properties Trust | 2,881,600 | 76,045 | |
Validus Holdings Ltd. | 1,773,775 | 74,197 | |
* | SLM Corp. | 4,618,000 | 47,057 |
Lamar Advertising Co. | |||
Class A | 752,150 | 43,595 | |
Axis Capital Holdings Ltd. | 768,600 | 40,013 | |
Progressive Corp. | 1,194,000 | 31,832 | |
Torchmark Corp. | 537,433 | 30,155 | |
Voya Financial Inc. | 627,465 | 26,567 | |
American National | |||
Insurance Co. | 254,722 | 25,488 | |
Webster Financial Corp. | 583,775 | 20,917 | |
Comerica Inc. | 438,450 | 20,787 |
12
Selected Value Fund
Market | ||||
Value• | ||||
Shares | ($000) | |||
Assurant Inc. | 332,970 | 20,464 | ||
Invesco Ltd. | 465,650 | 19,287 | ||
Legg Mason Inc. | 348,300 | 18,338 | ||
Hospitality Properties Trust | 583,800 | 17,561 | ||
Synovus Financial Corp. | 509,996 | 14,107 | ||
EPR Properties | 239,975 | 13,839 | ||
KeyCorp | 916,525 | 13,244 | ||
Endurance Specialty | ||||
Holdings Ltd. | 219,125 | 13,231 | ||
Allstate Corp. | 189,275 | 13,185 | ||
Hartford Financial | ||||
Services Group Inc. | 313,800 | 12,794 | ||
Regions Financial Corp. | 1,221,700 | 12,009 | ||
Primerica Inc. | 255,159 | 11,793 | ||
Citizens Financial | ||||
Group Inc. | 428,100 | 11,152 | ||
2,714,300 | ||||
Health Care (8.8%) | ||||
Omnicare Inc. | 3,202,400 | 281,747 | ||
Cigna Corp. | 1,891,707 | 235,782 | ||
Cardinal Health Inc. | 2,508,000 | 211,525 | ||
St. Jude Medical Inc. | 2,331,700 | 163,335 | ||
Aetna Inc. | 152,500 | 16,298 | ||
WellCare Health Plans Inc. | 20,724 | 1,605 | ||
910,292 | ||||
Industrials (18.0%) | ||||
Stanley Black & | ||||
Decker Inc. | 2,442,175 | 241,043 | ||
Owens Corning | 5,386,172 | 208,229 | ||
* | AerCap Holdings NV | 4,273,188 | 199,472 | |
Eaton Corp. plc | 2,338,800 | 160,746 | ||
Joy Global Inc. | 3,678,300 | 156,843 | ||
* | JetBlue Airways Corp. | 7,189,729 | 147,605 | |
* | Spirit AeroSystems | |||
Holdings Inc. Class A | 2,480,707 | 126,243 | ||
SPX Corp. | 1,489,000 | 114,653 | ||
KBR Inc. | 6,031,175 | 105,365 | ||
^ | CNH Industrial NV | 11,246,000 | 98,065 | |
Xylem Inc. | 2,142,700 | 79,323 | ||
*,^ | Air France-KLM ADR | 7,538,085 | 64,541 | |
AECOM | 1,122,860 | 35,437 | ||
Parker-Hannifin Corp. | 272,375 | 32,511 | ||
Terex Corp. | 1,135,750 | 31,188 | ||
Actuant Corp. Class A | 840,675 | 20,025 | ||
Regal Beloit Corp. | 185,400 | 14,498 | ||
Masco Corp. | 505,650 | 13,395 | ||
Con-way Inc. | 256,993 | 10,562 | ||
1,859,744 |
Information Technology (9.1%) | |||
* | Micron Technology Inc. | 8,980,588 | 252,624 |
Total System | |||
Services Inc. | 5,147,878 | 203,650 | |
CA Inc. | 4,616,800 | 146,676 | |
* | Ingram Micro Inc. | 4,615,009 | 116,114 |
Avnet Inc. | 1,043,966 | 44,504 | |
* | Celestica Inc. | 3,156,955 | 38,546 |
Arrow Electronics Inc. | 503,625 | 30,071 | |
ON Semiconductor Corp. | 2,601,546 | 29,970 | |
Flextronics | |||
International Ltd. | 2,423,850 | 27,935 | |
Jabil Circuit Inc. | 914,900 | 20,604 | |
Tech Data Corp. | 213,859 | 12,055 | |
Corning Inc. | 530,350 | 11,100 | |
933,849 | |||
Materials (4.8%) | |||
CRH plc ADR | 5,793,300 | 161,923 | |
FMC Corp. | 2,707,100 | 160,558 | |
Yamana Gold Inc. | 18,850,141 | 72,008 | |
* | Kinross Gold Corp. | 28,023,291 | 68,097 |
Ashland Inc. | 119,075 | 15,046 | |
* | New Gold Inc. | 3,333,025 | 11,266 |
* | Coeur Mining Inc. | 825,000 | 4,306 |
493,204 | |||
Other (0.3%) | |||
^,3 | Vanguard Mid-Cap | ||
Value ETF | 334,800 | 30,681 | |
Utilities (3.5%) | |||
Pinnacle West | |||
Capital Corp. | 2,257,400 | 138,153 | |
Xcel Energy Inc. | 3,430,337 | 116,323 | |
CenterPoint Energy Inc. | 2,289,217 | 48,005 | |
NRG Energy Inc. | 796,234 | 20,097 | |
PG&E Corp. | 262,800 | 13,907 | |
Edison International | 200,900 | 12,243 | |
Exelon Corp. | 333,668 | 11,351 | |
360,079 | |||
Total Common Stocks | |||
(Cost $7,086,701) | 9,562,477 |
13
Selected Value Fund
Market | ||||
Value• | ||||
Shares | ($000) | |||
Temporary Cash Investments (8.0%)1 | ||||
Money Market Fund (7.9%) | ||||
4,5 | Vanguard Market | |||
Liquidity Fund, | ||||
0.121% | 810,840,508 | 810,841 | ||
Face | ||||
Amount | ||||
($000) | ||||
U.S. Government and Agency Obligations (0.1%) | ||||
6 | Federal Home Loan | |||
Bank Discount Notes, | ||||
0.181%, 6/22/15 | 500 | 500 | ||
6,7 | Federal Home Loan | |||
Bank Discount Notes, | ||||
0.133%, 7/31/15 | 3,100 | 3,099 | ||
6,7 | Federal Home Loan | |||
Bank Discount Notes, | ||||
0.135%, 8/5/15 | 5,000 | 4,998 | ||
7,8 | Freddie Mac Discount | |||
Notes, 0.118%, 7/31/15 | 4,100 | 4,099 | ||
12,696 | ||||
Total Temporary Cash Investments | ||||
(Cost $823,537) | 823,537 | |||
Total Investments (100.7%) | ||||
(Cost $7,910,238) | 10,386,014 |
Market | |
Value• | |
($000) | |
Other Assets and Liabilities (-0.7%) | |
Other Assets | 18,900 |
Liabilities5 | (89,977) |
(71,077) | |
Net Assets (100%) | |
Applicable to 354,670,530 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 10,314,937 |
Net Asset Value Per Share | $29.08 |
At April 30, 2015, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 7,678,327 |
Undistributed Net Investment Income | 47,782 |
Accumulated Net Realized Gains | 113,319 |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 2,475,776 |
Futures Contracts | (267) |
Net Assets | 10,314,937 |
• 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 $49,511,000.
1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures
investments, the fund’s effective common stock and temporary cash investment positions represent 94.1% and 6.6%, respectively, of
net assets.
2 Considered an affiliated company of the fund as the fund owns more than 5% of the outstanding voting securities of such company.
3 Considered an affiliated company of the fund as the issuer is another member of The Vanguard Group.
4 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the
7-day yield.
5 Includes $50,846,000 of collateral received for securities on loan.
6 The issuer operates under a congressional charter; its securities are generally neither guaranteed by the U.S. Treasury nor backed by the
full faith and credit of the U.S. government.
7 Securities with a value of $6,598,000 have been segregated as initial margin for open futures contracts.
8 The issuer was placed under federal conservatorship in September 2008; since that time, its daily operations have been managed by the
Federal Housing Finance Agency and it receives capital from the U.S. Treasury, as needed to maintain a positive net worth, in exchange for
senior preferred stock.
ADR—American Depositary Receipt.
See accompanying Notes, which are an integral part of the Financial Statements.
14
Selected Value Fund
Statement of Operations
Six Months Ended | |
April 30, 2015 | |
($000) | |
Investment Income | |
Income | |
Dividends1 | 108,455 |
Interest | 531 |
Securities Lending | 64 |
Total Income | 109,050 |
Expenses | |
Investment Advisory Fees—Note B | |
Basic Fee | 10,891 |
Performance Adjustment | (1,310) |
The Vanguard Group—Note C | |
Management and Administrative | 8,053 |
Marketing and Distribution | 1,171 |
Custodian Fees | 50 |
Shareholders’ Reports | 88 |
Trustees’ Fees and Expenses | 9 |
Total Expenses | 18,952 |
Net Investment Income | 90,098 |
Realized Net Gain (Loss) | |
Investment Securities Sold | 104,586 |
Futures Contracts | 10,717 |
Realized Net Gain (Loss) | 115,303 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | 219,505 |
Futures Contracts | (1,105) |
Change in Unrealized Appreciation (Depreciation) | 218,400 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 423,801 |
1 Dividends are net of foreign withholding taxes of $338,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
15
Selected Value Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | |
April 30, | October 31, | |
2015 | 2014 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 90,098 | 136,639 |
Realized Net Gain (Loss) | 115,303 | 447,397 |
Change in Unrealized Appreciation (Depreciation) | 218,400 | 260,276 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 423,801 | 844,312 |
Distributions | ||
Net Investment Income | (138,609) | (86,230) |
Realized Capital Gain1 | (401,073) | (318,790) |
Total Distributions | (539,682) | (405,020) |
Capital Share Transactions | ||
Issued | 1,112,158 | 3,609,195 |
Issued in Lieu of Cash Distributions | 496,488 | 371,698 |
Redeemed | (1,331,119) | (1,285,461) |
Net Increase (Decrease) from Capital Share Transactions | 277,527 | 2,695,432 |
Total Increase (Decrease) | 161,646 | 3,134,724 |
Net Assets | ||
Beginning of Period | 10,153,291 | 7,018,567 |
End of Period2 | 10,314,937 | 10,153,291 |
1 Includes fiscal 2015 and 2014 short-term gain distributions totaling $33,623,000 and $0, respectively. Short-term gain distributions are
treated as ordinary income dividends for tax purposes.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $47,782,000 and $96,293,000.
See accompanying Notes, which are an integral part of the Financial Statements.
16
Selected Value Fund
Financial Highlights
Six Months | ||||||
Ended | ||||||
For a Share Outstanding | April 30, | Year Ended October 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
Net Asset Value, Beginning of Period | $29.49 | $28.07 | $21.01 | $18.81 | $17.73 | $14.78 |
Investment Operations | ||||||
Net Investment Income | .259 | .415 | .395 | .405 | .334 | .250 |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | .904 | 2.555 | 7.105 | 2.122 | 1.037 | 2.941 |
Total from Investment Operations | 1.163 | 2.970 | 7.500 | 2.527 | 1.371 | 3.191 |
Distributions | ||||||
Dividends from Net Investment Income | (. 404) | (. 330) | (. 440) | (. 327) | (. 291) | (. 241) |
Distributions from Realized Capital Gains | (1.169) | (1.220) | — | — | — | — |
Total Distributions | (1.573) | (1.550) | (.440) | (.327) | (.291) | (.241) |
Net Asset Value, End of Period | $29.08 | $29.49 | $28.07 | $21.01 | $18.81 | $17.73 |
Total Return1 | 4.22% | 11.02% | 36.43% | 13.64% | 7.74% | 21.75% |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $10,315 | $10,153 | $7,019 | $4,337 | $3,956 | $3,639 |
Ratio of Total Expenses to | ||||||
Average Net Assets2 | 0.37% | 0.41% | 0.43% | 0.38% | 0.45% | 0.47% |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 1.80% | 1.53% | 1.70% | 2.00% | 1.74% | 1.52% |
Portfolio Turnover Rate | 16% | 18% | 27% | 18% | 25% | 22% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 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.
2 Includes performance-based investment advisory fee increases (decreases) of (0.03%), 0.01%, 0.02%, (0.03%), 0.04%, and 0.5%.
See accompanying Notes, which are an integral part of the Financial Statements.
17
Selected Value Fund
Notes to Financial Statements
Vanguard Selected Value Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual 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. 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 acquired over 60 days to maturity 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. Other temporary cash investments are valued at amortized cost, which approximates market value.
2. 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 stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.
Futures contracts are valued at their quoted daily settlement prices. The aggregate settlement values of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized futures gains (losses).
During the six months ended April 30, 2015, the fund’s average investments in long and short futures contracts represented 2% and 0% of net assets, respectively, based on the average of aggregate settlement values at each quarter-end during the period.
18
Selected Value Fund
3. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (October 31, 2011–2014), and for the period ended April 30, 2015, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
4. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
5. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
6. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn 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 this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at April 30, 2015, or at any time during the period then ended.
7. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
B. Barrow, Hanley, Mewhinney & Strauss, LLC, Donald Smith & Co., Inc., and Pzena Investment Management, LLC, 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 Barrow, Hanley, Mewhinney & Strauss, LLC, is subject to quarterly adjustments based on
19
Selected Value Fund
performance for the preceding three years relative to the Russell Midcap Value Index. The basic fee of Donald Smith & Co., Inc., is subject to quarterly adjustments based on performance for the preceding five years relative to the MSCI Investable Market 2500 Index. The basic fee of Pzena Investment Management, LLC, is subject to quarterly adjustments based on performance since April 30, 2014, relative to the Russell Midcap Value Index.
The Vanguard Group manages the cash reserves of the fund on an at-cost basis.
For the six months ended April 30, 2015, the aggregate investment advisory fee represented an effective annual basic rate of 0.21% of the fund’s average net assets, before a decrease of $1,310,000 (0.03%) based on performance.
C. The Vanguard Group furnishes at cost corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the fund based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At April 30, 2015, the fund had contributed capital of $925,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.37% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
D. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
The following table summarizes the market value of the fund’s investments as of April 30, 2015, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 9,562,477 | — | — |
Temporary Cash Investments | 810,841 | 12,696 | — |
Futures Contracts—Assets1 | 20 | — | — |
Futures Contracts—Liabilities1 | (1,590) | — | — |
Total | 10,371,748 | 12,696 | — |
1 Represents variation margin on the last day of the reporting period. |
20
Selected Value Fund
E. At April 30, 2015, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were:
($000) | ||||
Aggregate | ||||
Number of | Settlement | Unrealized | ||
Long (Short) | Value | Appreciation | ||
Futures Contracts | Expiration | Contracts | Long (Short) | (Depreciation) |
E-mini S&P 500 Index | June 2015 | 614 | 63,822 | (356) |
E-mini S&P MidCap 400 Index | June 2015 | 382 | 57,166 | 128 |
S&P 500 Index | June 2015 | 23 | 11,954 | 64 |
E-mini Russell 2000 Index | June 2015 | 82 | 9,974 | (103) |
(267) |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
F. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year.
At April 30, 2015, the cost of investment securities for tax purposes was $7,910,238,000. Net unrealized appreciation of investment securities for tax purposes was $2,475,776,000, consisting of unrealized gains of $3,055,492,000 on securities that had risen in value since their purchase and $579,716,000 in unrealized losses on securities that had fallen in value since their purchase.
G. During the six months ended April 30, 2015, the fund purchased $787,267,000 of investment securities and sold $743,427,000 of investment securities, other than temporary cash investments.
H. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | |
April 30, 2015 | October 31, 2014 | |
Shares | Shares | |
(000) | (000) | |
Issued | 38,711 | 125,298 |
Issued in Lieu of Cash Distributions | 17,943 | 13,610 |
Redeemed | (46,233) | (44,653) |
Net Increase (Decrease) in Shares Outstanding | 10,421 | 94,255 |
21
Selected Value Fund
I. Certain of the fund’s investments are in companies that are considered to be affiliated companies of the fund because the fund owns more than 5% of the outstanding voting securities of the company or the issuer is another member of The Vanguard Group. Transactions during the period in securities of these companies were as follows:
Current Period Transactions | ||||||
Oct. 31, | Proceeds | Apr. 30, | ||||
2014 | from | Capital Gain | 2015 | |||
Market | Purchases | Securities | Distributions | Market | ||
Value | at Cost | Sold | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
SeaWorld Entertainment Inc. | 101,339 | — | — | 2,212 | — | 111,663 |
Vanguard Market Liquidity Fund | 942,982 | NA1 | NA1 | 524 | — | 810,841 |
Vanguard Mid-Cap Value ETF | 29,436 | — | — | 502 | — | 30,681 |
Total | 1,073,757 | 3,238 | — | 953,185 | ||
1 Not applicable—purchases and sales are for temporary cash investment purposes. |
J. Management has determined that no material events or transactions occurred subsequent to April 30, 2015, that would require recognition or disclosure in these financial statements.
22
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.
23
Six Months Ended April 30, 2015 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
Selected Value Fund | 10/31/2014 | 4/30/2015 | Period |
Based on Actual Fund Return | $1,000.00 | $1,042.16 | $1.87 |
Based on Hypothetical 5% Yearly Return | 1,000.00 | 1,022.96 | 1.86 |
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 0.37%. 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.
24
Trustees Approve Advisory Arrangements
The board of trustees of Vanguard Selected Value Fund has renewed the fund’s investment advisory arrangements with Barrow, Hanley, Mewhinney & Strauss, LLC (Barrow Hanley), Donald Smith & Co., Inc. (Donald Smith & Co.), and Pzena Investment Management Group, LLC (Pzena). The board determined that renewing the advisory arrangements was in the best interests of the fund and its shareholders.
The board based its decision upon an evaluation of each advisor’s investment staff, portfolio management process, and performance. The trustees considered the factors discussed below, among others. However, no single factor determined whether the board approved the arrangements. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of services
The board reviewed the quality of the fund’s investment management services over both the short and long term, and took into account the organizational depth and stability of each advisor. The board considered the following:
Barrow Hanley. Founded in 1979, Barrow Hanley is known for its commitment to value investing. A subsidiary of Old Mutual Asset Managers, Barrow Hanley remains independently managed. Using fundamental research, Barrow Hanley seeks to make long-term investments in quality or improving businesses that are undervalued because of short-term disappointments. The firm seeks to construct a portfolio with strict adherence to valuation factors, with below-average price-to-earnings and price-to-book-value ratios, and above-average current yields. Barrow Hanley has advised the fund since its inception in 1996.
Donald Smith & Co. Founded in 1983, Donald Smith & Co. is a deep-value-oriented firm that manages large-, mid-, and small-cap value portfolios and employs a strictly bottom-up approach. The firm looks for companies in the bottom decile of price-to-tangible-book value in the benchmark. It employs fundamental analysis to invest in those that it considers to be inexpensive relative to their estimated or normalized earnings power and to have solid balance sheets and asset quality. Donald Smith & Co. has managed a portion of the fund since 2005.
Pzena. Founded in 1995, Pzena is a global investment management firm that employs a deep-value investment approach. Pzena employs in-depth fundamental research to identify companies that are temporarily underperforming their long-term earnings power. Companies are purchased when Pzena judges that: (1) the company’s problems are temporary; (2) management has a viable strategy to generate recovery; and (3) there is meaningful downside protection in case the earnings recovery does not materialize. Pzena has advised a portion of the fund since 2014.
The board concluded that each advisor’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangements.
Investment performance
The board considered the short- and long-term performance of the fund and each advisor, including any periods of outperformance or underperformance relative to a benchmark index and peer group. The board concluded that the performance was such that the advisory arrangements should continue. Information about the fund’s most recent performance can be found in the Performance Summary section of this report.
25
Cost
The board concluded that the fund’s expense ratio was well below the average expense ratio charged by funds in its peer group and that the fund’s advisory fee rate was also well below the peer-group average. Information about the fund’s expenses appears in the About Your Fund’s Expenses section of this report as well as in the Financial Statements section, which also includes information about the fund’s advisory fee rate.
The board did not consider profitability of Barrow Hanley, Donald Smith & Co., or Pzena in determining whether to approve the advisory fees, because the firms are independent of Vanguard and the advisory fees are the result of arm’s-length negotiations.
The benefit of economies of scale
The board concluded that the fund’s shareholders benefit from economies of scale because of breakpoints in the advisory fee schedules for Barrow Hanley, Donald Smith & Co., and Pzena. The breakpoints reduce the effective rate of the fees as the fund’s assets managed by each advisor increase.
The board will consider whether to renew the advisory agreements again after a one-year period.
26
Glossary
30-Day SEC Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (for bonds), its actual income (for asset-backed securities), or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.
Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Dividend Yield. Dividend income earned by stocks, expressed as a percentage of the aggregate market value (or of net asset value, for a fund). The yield is determined by dividing the amount of the annual dividends by the aggregate value (or net asset value) at the end of the period. For a fund, the dividend yield is based solely on stock holdings and does not include any income produced by other investments.
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.
Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.
Foreign Holdings. The percentage of a fund represented by securities or depositary receipts of companies based outside the United States.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.
27
Price/Earnings Ratio. The ratio of a stock’s current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company’s future growth.
R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0. For this report, R-squared is based on returns over the past 36 months for both the fund and the index.
Return on Equity. The annual average rate of return generated by a company during the past five years for each dollar of shareholder’s equity (net income divided by shareholder’s equity). For a fund, the weighted average return on equity for the companies whose stocks it holds.
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
Turnover Rate. An indication of the fund’s trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to investors). The turnover rate excludes in-kind transactions, which have minimal impact on costs.
28
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The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 178 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
InterestedTrustee1 | Rajiv L. Gupta |
Born 1945. Trustee Since December 2001.2 Principal | |
F. William McNabb III | Occupation(s) During the Past Five Years and Other |
Born 1957. Trustee Since July 2009. Chairman of | Experience: Chairman and Chief Executive Officer |
the Board. Principal Occupation(s) During the Past | (retired 2009) and President (2006–2008) of |
Five Years and Other Experience: Chairman of the | Rohm and Haas Co. (chemicals); Director of Tyco |
Board of The Vanguard Group, Inc., and of each of | International PLC (diversified manufacturing and |
the investment companies served by The Vanguard | services), Hewlett-Packard Co. (electronic computer |
Group, since January 2010; Director of The Vanguard | manufacturing), and Delphi Automotive PLC |
Group since 2008; Chief Executive Officer and | (automotive components); Senior Advisor at New |
President of The Vanguard Group, and of each of | Mountain Capital. |
the investment companies served by The Vanguard | |
Group, since 2008; Director of Vanguard Marketing | Amy Gutmann |
Corporation; Managing Director of The Vanguard | Born 1949. Trustee Since June 2006. Principal |
Group (1995–2008). | Occupation(s) During the Past Five Years and |
Other Experience: President of the University of | |
Pennsylvania; Christopher H. Browne Distinguished | |
IndependentTrustees | |
Professor of Political Science, School of Arts and | |
Emerson U. Fullwood | Sciences, and Professor of Communication, Annenberg |
Born 1948. Trustee Since January 2008. Principal | School for Communication, with secondary faculty |
Occupation(s) During the Past Five Years and | appointments in the Department of Philosophy, School |
Other Experience: Executive Chief Staff and | of Arts and Sciences, and at the Graduate School of |
Marketing Officer for North America and Corporate | Education, University of Pennsylvania; Trustee of the |
Vice President (retired 2008) of Xerox Corporation | National Constitution Center; Chair of the Presidential |
(document management products and services); | Commission for the Study of Bioethical Issues. |
Executive in Residence and 2009–2010 Distinguished | |
Minett Professor at the Rochester Institute of | JoAnn Heffernan Heisen |
Technology; Director of SPX Corporation (multi-industry | Born 1950. Trustee Since July 1998. Principal |
manufacturing), the United Way of Rochester, | Occupation(s) During the Past Five Years and Other |
Amerigroup Corporation (managed health care), the | Experience: Corporate Vice President and Chief |
University of Rochester Medical Center, Monroe | Global Diversity Officer (retired 2008) and Member |
Community College Foundation, and North Carolina | of the Executive Committee (1997–2008) of Johnson |
A&T University. | & Johnson (pharmaceuticals/medical devices/ |
consumer products); Director of Skytop Lodge | |
Corporation (hotels), the University Medical Center | |
at Princeton, the Robert Wood Johnson Foundation, | |
and the Center for Talent Innovation; Member of | |
the Advisory Board of the Institute for Women’s | |
Leadership at Rutgers University. |
F. Joseph Loughrey | Executive Officers | |
Born 1949. Trustee Since October 2009. Principal | ||
Occupation(s) During the Past Five Years and Other | Glenn Booraem | |
Experience: President and Chief Operating Officer | Born 1967. Controller Since July 2010. Principal | |
(retired 2009) of Cummins Inc. (industrial machinery); | Occupation(s) During the Past Five Years and Other | |
Chairman of the Board of Hillenbrand, Inc. (specialized | Experience: Principal of The Vanguard Group, Inc.; | |
consumer services), and of Oxfam America; Director | Controller of each of the investment companies served | |
of SKF AB (industrial machinery), Hyster-Yale Materials | by The Vanguard Group; Assistant Controller of each of | |
Handling, Inc. (forklift trucks), the Lumina Foundation | the investment companies served by The Vanguard | |
for Education, and the V Foundation for Cancer | Group (2001–2010). | |
Research; Member of the Advisory Council for the | ||
College of Arts and Letters and of the Advisory Board | Thomas J. Higgins | |
to the Kellogg Institute for International Studies, both | Born 1957. Chief Financial Officer Since September | |
at the University of Notre Dame. | 2008. Principal Occupation(s) During the Past Five | |
Years and Other Experience: Principal of The Vanguard | ||
Mark Loughridge | Group, Inc.; Chief Financial Officer of each of the | |
Born 1953. Trustee Since March 2012. Principal | investment companies served by The Vanguard Group; | |
Occupation(s) During the Past Five Years and Other | Treasurer of each of the investment companies served | |
Experience: Senior Vice President and Chief Financial | by The Vanguard Group (1998–2008). | |
Officer (retired 2013) at IBM (information technology | ||
services); Fiduciary Member of IBM’s Retirement Plan | Kathryn J. Hyatt | |
Committee (2004–2013); Director of the Dow Chemical | Born 1955. Treasurer Since November 2008. Principal | |
Company; Member of the Council on Chicago Booth. | Occupation(s) During the Past Five Years and Other | |
Experience: Principal of The Vanguard Group, Inc.; | ||
Scott C. Malpass | Treasurer of each of the investment companies served | |
Born 1962. Trustee Since March 2012. Principal | by The Vanguard Group; Assistant Treasurer of each of | |
Occupation(s) During the Past Five Years and Other | the investment companies served by The Vanguard | |
Experience: Chief Investment Officer and Vice | Group (1988–2008). | |
President at the University of Notre Dame; Assistant | ||
Professor of Finance at the Mendoza College of | Heidi Stam | |
Business at Notre Dame; Member of the Notre Dame | Born 1956. Secretary Since July 2005. Principal | |
403(b) Investment Committee; Board Member of | Occupation(s) During the Past Five Years and Other | |
TIFF Advisory Services, Inc., and Catholic Investment | Experience: Managing Director of The Vanguard | |
Services, Inc. (investment advisors); Member of | Group, Inc.; General Counsel of The Vanguard Group; | |
the Investment Advisory Committee of Major | Secretary of The Vanguard Group and of each of the | |
League Baseball. | investment companies served by The Vanguard Group; | |
Director and Senior Vice President of Vanguard | ||
André F. Perold | Marketing Corporation. | |
Born 1952. Trustee Since December 2004. Principal | ||
Occupation(s) During the Past Five Years and Other | Vanguard Senior ManagementTeam | |
Experience: George Gund Professor of Finance and | ||
Banking, Emeritus at the Harvard Business School | Mortimer J. Buckley | Chris D. McIsaac |
(retired 2011); Chief Investment Officer and Managing | Kathleen C. Gubanich | Michael S. Miller |
Partner of HighVista Strategies LLC (private investment | Paul A. Heller | James M. Norris |
firm); Director of Rand Merchant Bank; Overseer of | Martha G. King | Glenn W. Reed |
the Museum of Fine Arts Boston. | John T. Marcante | |
Peter F. Volanakis | Chairman Emeritus and Senior Advisor | |
Born 1955. Trustee Since July 2009. Principal | ||
Occupation(s) During the Past Five Years and Other | John J. Brennan | |
Experience: President and Chief Operating Officer | Chairman, 1996–2009 | |
(retired 2010) of Corning Incorporated (communications | Chief Executive Officer and President, 1996–2008 | |
equipment); Trustee of Colby-Sawyer College; | ||
Member of the Advisory Board of the Norris Cotton | ||
Cancer Center and of the Advisory Board of the | Founder | |
Parthenon Group (strategy consulting). | ||
John C. Bogle | ||
Chairman and Chief Executive Officer, 1974–1996 |
1 Mr. McNabb is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the
Vanguard funds.
2 December 2002 for Vanguard Equity Income Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.
P.O. Box 2600 | ||
Valley Forge, PA 19482-2600 | ||
Connect with Vanguard® > vanguard.com | ||
Fund Information > 800-662-7447 | CFA® is a registered trademark owned by CFA Institute. | |
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 Lipper, a | ||
Thomson Reuters Company, or 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, 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 sec.gov. | ||
You can review and copy information about your fund at | ||
the SEC’s Public Reference Room in Washington, D.C. To | ||
find out more about this public service, call the SEC at | ||
202-551-8090. Information about your fund is also | ||
available on the SEC’s website, and you can receive | ||
copies of this information, for a fee, by sending a | ||
request in either of two ways: via e-mail addressed to | ||
publicinfo@sec.gov or via regular mail addressed to the | ||
Public Reference Section, Securities and Exchange | ||
Commission, Washington, DC 20549-1520. | ||
© 2015 The Vanguard Group, Inc. | ||
All rights reserved. | ||
Vanguard Marketing Corporation, Distributor. | ||
Q9342 062015 |
Semiannual Report | April 30, 2015
Vanguard Mid-Cap Growth Fund
The mission continues
On May 1, 1975, Vanguard began operations, a fledgling company based on the simple but revolutionary idea that a mutual fund company should be managed solely in the interest of its investors.
Four decades later, that revolutionary spirit continues to animate the enterprise. Vanguard remains on a mission to give investors the best chance of investment success.
As we mark our 40th anniversary, we thank you for entrusting your assets to Vanguard and giving us the opportunity to help you reach your financial goals in the decades to come.
Contents | |
Your Fund’s Total Returns. | 1 |
Chairman’s Letter. | 2 |
Advisors’ Report. | 7 |
Fund Profile. | 11 |
Performance Summary. | 12 |
Financial Statements. | 13 |
About Your Fund’s Expenses. | 23 |
Trustees Approve Advisory Arrangements. | 25 |
Glossary. | 27 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice.
Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the
risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
About the cover: Since our founding, Vanguard has drawn inspiration from the enterprise and valor demonstrated by British
naval hero Horatio Nelson and his command at the Battle of the Nile in 1798. The photograph displays a replica of a merchant
ship from the same era as Nelson’s flagship, the HMS Vanguard.
Your Fund’s Total Returns
Six Months Ended April 30, 2015 | |
Total | |
Returns | |
Vanguard Mid-Cap Growth Fund | 9.21% |
Russell Midcap Growth Index | 7.77 |
Mid-Cap Growth Funds Average | 6.77 |
Mid-Cap Growth Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. |
Your Fund’s Performance at a Glance | ||||
October 31, 2014, Through April 30, 2015 | ||||
Distributions Per Share | ||||
Starting | Ending | Income | Capital | |
Share Price | Share Price | Dividends | Gains | |
Vanguard Mid-Cap Growth Fund | $26.40 | $25.47 | $0.038 | $3.171 |
1
Chairman’s Letter
Dear Shareholder,
For the six months ended April 30, 2015, Vanguard Mid-Cap Growth Fund returned 9.21%. It easily surpassed its benchmark, the Russell Midcap Growth Index, as well as the average return of its peers.
Investors mostly favored growth stocks over their value counterparts during the period, and mid-capitalization stocks did better than large- and small-caps. These trends favored your fund, which posted positive results for eight of the nine market sectors it invests in. Technology stocks were by far the largest contributor to returns, and industrials—one of the fund’s smaller sectors—performed best in relation to the benchmark.
U.S. stocks closed out higher despite fluctuating returns
U.S. stocks returned almost 5% for the six months, despite stretches of shakiness. In two of those months, stocks declined. In two others, they were virtually unchanged or gained less than 1%. February’s surge of almost 6%, the largest monthly gain since October 2011, lifted overall returns for the period.
The Federal Reserve’s careful approach to potentially raising short-term interest rates helped stocks along, as did monetary stimulus efforts by other nations’ central banks. These factors offset concerns that ranged from Greece’s debt crisis to the negative effect of the strong U.S. dollar on the profits of U.S.-based multinational companies.
2
For U.S. investors, international stocks returned about 6%. Still, results were restrained by the dollar’s strength against many foreign currencies. Returns for the developed markets of the Pacific region, led by Japan, exceeded those of Europe and emerging markets. (You can read about Vanguard’s assessment of Japan’s economy in Japan: The Long Road Back to Inflation, available at vanguard.com/ research. This is part of the Global Macro Matters series produced by our economists.)
Stimulus policies and demand have driven up bond prices
Like equities, bonds have benefited from accommodative monetary policies from the world’s central banks. Investor demand for the perceived safety of fixed income assets has also boosted bond returns.
The broad U.S. taxable bond market returned 2.06% for the period, and the yield of the 10-year U.S. Treasury note ended April at 2.04%, down from 2.31% six months earlier. (Bond prices and yields move in opposite directions.)
Market Barometer | |||
Total Returns | |||
Periods Ended April 30, 2015 | |||
Six | One | Five Years | |
Months | Year | (Annualized) | |
Stocks | |||
Russell 1000 Index (Large-caps) | 4.75% | 13.00% | 14.47% |
Russell 2000 Index (Small-caps) | 4.65 | 9.71 | 12.73 |
Russell 3000 Index (Broad U.S. market) | 4.74 | 12.74 | 14.33 |
FTSE All-World ex US Index (International) | 6.00 | 3.53 | 6.40 |
Bonds | |||
Barclays U.S. Aggregate Bond Index (Broad taxable market) | 2.06% | 4.46% | 4.12% |
Barclays Municipal Bond Index (Broad tax-exempt market) | 1.17 | 4.80 | 4.75 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.00 | 0.03 | 0.05 |
CPI | |||
Consumer Price Index | -0.35% | -0.20% | 1.65% |
3
International bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –4.83% as foreign currencies’ weakness relative to the dollar affected results. For international bonds hedged to eliminate the effect of changes in currency exchange rates, returns were positive.
Returns of money market funds and savings accounts remained checked by the Fed’s target of 0%–0.25% for short-term interest rates.
Technology stocks led the way, while energy companies slumped
Among midsize companies, growth stocks—which are considered to have more earnings potential—easily outdistanced their value counterparts, which are typically viewed as potentially underpriced.
The fund’s advisors, Chartwell Investment Partners and William Blair & Company, concentrate on midsize companies that they believe have stronger-than-average earnings and revenue growth prospects. Together, their separately managed portfolios are invested in nine of the ten sectors represented in the U.S. market. (The tiny utilities industry is omitted.)
All but one of these nine sectors gained ground. Technology—with internet and system services providers leading the way—returned more than 13%, beating its counterpart in the benchmark index by more than three percentage points.
Expense Ratios | ||
Your Fund Compared With Its Peer Group | ||
Peer Group | ||
Fund | Average | |
Mid-Cap Growth Fund | 0.46% | 1.31% |
The fund expense ratio shown is from the prospectus dated February 25, 2015, and represents estimated costs for the current fiscal year. For
the six months ended April 30, 2015, the fund’s annualized expense ratio was 0.43%. The peer-group expense ratio is derived from data
provided by Lipper, a Thomson Reuters Company, and captures information through year-end 2014.
Peer group: Mid-Cap Growth Funds.
4
The accelerating integration of IT with business operations has raised hopes for continued growth in the sector.
The advisors’ selections within industrials returned nearly 10% and proved to be the top outperformers (by six percentage points) in relation to the benchmark. Consulting and employment service firms were the standouts.
Financial companies selected by the advisors also outdistanced their benchmark counterparts. Asset management firms did particularly well, along with real estate managers and developers, as commercial real estate experienced healthy demand.
Health care stocks posted solid returns, but because the advisors’ selections did not include some of the best performers, the fund trailed the index in this sector.
The clear laggard within the fund was the energy sector (–11%). The plunge in oil and natural gas prices hit energy companies hard. The advisors’ underweighting of the sector compared with the benchmark helped increase the fund’s margin of outperformance.
You can find more information about the fund’s positioning and performance in the Advisors’ Report that follows this letter.
Promoting good corporate governance is one way we protect your interests
Our core purpose is “to take a stand for all investors, to treat them fairly, and to give them the best chance for investment success.” This involves more than offering smart investments, trustworthy guidance, and low fees. It also means working with the companies held by Vanguard funds to make sure that your interests remain paramount.
How do we do meet that responsibility? As one of the world’s largest investment managers, we are making our voice heard in corporate boardrooms to promote the highest standards of stewardship. Our advocacy encompasses a range of corporate governance issues, including executive compensation and succession planning, board composition and effectiveness, oversight of strategy and risk, and communication with shareholders.
We also exert our influence in a very important way when Vanguard funds cast their proxy votes at companies’ shareholder meetings.
5
Most of these votes take place at this time of year, making it an appropriate time to remind you that we work hard to represent your best interests. Good governance, we believe, is essential for any company seeking to maximize its long-term returns to shareholders. You can learn more about our efforts at vanguard.com/corporategovernance.
Thank you for your confidence in Vanguard.
Sincerely,
F. William McNabb III
Chairman and Chief Executive Officer
May 14, 2015
6
Advisors’ Report
During the six months ended April 30, 2015, Vanguard Mid-Cap Growth Fund returned 9.21%. Your fund is managed by two independent advisors, a strategy that enhances the fund’s diversification by providing exposure to distinct yet complementary investment approaches. It’s not uncommon for different advisors to have different views about individual securities or the broader investment environment.
The advisors, the percentage of fund assets each manages, and brief descriptions of their investment strategies are presented in the table below. The advisors have also prepared a discussion of the investment environment that existed during the fiscal year and of how their portfolio positioning reflects this assessment. These comments were prepared on May 18, 2015.
William Blair & Company, L.L.C.
Portfolio Managers:
Robert C. Lanphier, Partner
David Ricci, CFA, Partner
The market advanced during the period against a backdrop of accommodative global and U.S. monetary policy. Although monthly housing and employment data were somewhat mixed, the outlook for the U.S. economy was positive and more robust than those of other major nations.
Vanguard Mid-Cap Growth Fund Investment Advisors | |||
Fund Assets Managed | |||
Investment Advisor | % | $ Million | Investment Strategy |
William Blair & Company, L.L.C. | 49 | 1,921 | Uses a fundamental investment approach in pursuit of |
superior long-term investment results from | |||
growth-oriented companies with leadership positions | |||
and strong market presence. | |||
Chartwell Investment Partners, | 48 | 1,913 | Uses a bottom-up, fundamental, research-driven |
Inc. | stock-selection strategy focusing on companies with | ||
sustainable growth, strong management teams, | |||
competitive positions, and outstanding product and | |||
service offerings. These companies should continually | |||
demonstrate growth in earnings per share. | |||
Cash Investments | 3 | 122 | 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. |
7
Europe also showed signs of improvement as quantitative easing began, but the slowdown in China and other emerging economies continued.
The U.S. dollar strengthened, tamping down inflation prospects and creating a modest drag on the U.S. economy but helping to balance global growth. Despite labor market health, market participants viewed the benign inflation environment as likely to extend the timing and pace of interest rate hikes by the Federal Reserve. At the corporate level, foreign exchange rates and uncertainty for companies with exposure to energy-related investments kept 2015 earnings guidance in check, though balance sheets remained solid.
Our stock selection, including positions in Equifax and Vantiv, added value in the industrial and information technology sectors. Equifax performed well amid broad-based business momentum driven by an improving scenario for U.S. consumers and the economy, along with continued low interest rates.
Health care holding BioMarin Pharmaceutical was our top individual contributor for the period. Shares of the stock appreciated as sales of several of its commercialized drugs increased. We trimmed our position on strength but believe BioMarin’s diversified product portfolio and substantial pipeline of new drugs are underappreciated by the market.
Other standouts included consumer-related stocks such as O’Reilly Automotive and Monster Beverage.
On the downside, HMS Holdings was our largest detractor as investors remained uncertain about its Medicare Recovery Audit Contractor business. We still believe the company’s strong value proposition should drive solid long-term growth.
Keurig Green Mountain, one of our top contributors in 2014, ceded some performance in 2015 thanks to disappointing brewer sales. But we continue to hold the stock because of Keurig Kold’s opportunity for growth. Other notable laggards included SM Energy Company (oil and gas exploration and production), PRA Group (consumer debt acquisition and collection), and Polaris Industries (leisure equipment manufacturing).
On the heels of a six-year bull market, as the Federal Reserve transitions to a cycle of rising interest rates, company fundamentals should become important drivers of stock performance. A more normal market environment from both a return and volatility perspective, with more price differentiation based on company fundamentals, would favor our quality-growth investment style. After several difficult years for our strategy, our portfolio’s relative performance has substantially improved in the past six months.
8
We are committed to delivering strong risk-adjusted returns. To this end, we remain focused on identifying quality companies with meaningful internal growth drivers that can sustain outsized earnings growth over the long run.
Chartwell Investment Partners, Inc.
Portfolio Manager:
John A. Heffern, Managing Partner and
Senior Portfolio Manager
Stock prices have risen over the last six months despite the crosscurrents that continue to roil financial markets. The year started with renewed uncertainty about global growth. The outlook was then further complicated by divergent economic data and central bank policies. More recently, current-year earnings growth estimates fell because of slower-than-expected economic data.
More than ever, stock selection seems central to investment performance. Accordingly, we are navigating these uncertain times with a portfolio focused on mid-capitalization companies demonstrating above-average growth potential supported by good products and expanding markets. This approach leads to decisions that steadfastly reflect our bias toward quality, leadership, defensible margins, and a pattern of successful execution of growth-oriented business models.
Our stock selection was successful with several companies that provide business services. ManpowerGroup is an international provider of staffing services in blue- and white-collar professions. Despite macroeconomic concerns in Europe and Asia, the company reported solid quarterly results and a positive forward outlook based on strong sales and cost containment. SEI Investments, a provider of investment programs and processing to the asset management industry, posted steady results through sustained product investment and solid cost discipline.
Online broker E*Trade Financial profited from ongoing execution of its capital plan and improving credit trends. Strong quarterly results at Synovus, a Georgia-based financial services company, derived from lower credit costs, loan growth, and share buybacks. The company is performing well as it continues to heal from the effects of the recession.
The portfolio also benefited from our investment in NXP Semiconductors, a designer of mixed-signal and standard semiconductor products. The company became a leader in some of the fastest-growing segments of its industry when it acquired Freescale Semiconductor. Additionally, its core business continues to outperform and gain customers among equipment manufacturers.
9
Other good results came from BioMarin Pharmaceutical and global children’s apparel manufacturer Carter’s. BioMarin’s strong pipeline is becoming more apparent to investors since potential approval of a drug for Duchenne muscular dystrophy has accelerated. The company has also demonstrated proof-of-concept data in a treatment for hemophilia. Carter’s is profiting from stable demand and an improving cost environment.
We also found success with Superior Energy Services, a provider of oilfield services and equipment. Its best-in-class free cash flow generation should help it weather the energy downturn. Another holding, natural gas company Diamondback Energy, benefited from high return-on-investment reserves and strong hedges through 2016.
The sectors detracting the most from performance were health care and consumer-related stocks. Health Net, a managed care company, was negatively affected by sector-wide concerns related to a potential increase in usage. Despite steady-to-improving results in the United States, casino resort owner and operator MGM Resorts International has been pressured by anti-corruption initiatives in China.
Elsewhere, holdings in oil and gas company Whiting Petroleum were hurt by falling oil prices. Electronics For Imaging, a customer-centric digital printing company, faced several concerns. These included foreign exchange rates, a slower macroeconomic environment in China, and questions about whether sales of its outperforming product line Fiery would decelerate into a more normal growth pattern.
For-profit DeVry Education Group also underperformed as fewer new enrollments and higher investment spending in sales and marketing reduced earnings expectations. Lastly, exposure to falling profits in the energy sector lowered the stock price of Flowserve, a supplier of engineered flow control products, and we sold our shares.
10
Mid-Cap Growth Fund
Fund Profile
As of April 30, 2015
Portfolio Characteristics | |||
DJ | |||
U.S. | |||
Russell | Total | ||
Midcap | Market | ||
Growth | FA | ||
Fund | Index | Index | |
Number of Stocks | 103 | 552 | 3,748 |
Median Market Cap | $9.3B | $12.7B | $50.1B |
Price/Earnings Ratio | 31.4x | 29.0x | 21.1x |
Price/Book Ratio | 4.1x | 5.3x | 2.8x |
Return on Equity | 16.4% | 20.3% | 17.9% |
Earnings Growth | |||
Rate | 24.0% | 18.5% | 13.2% |
Dividend Yield | 0.6% | 1.0% | 1.9% |
Foreign Holdings | 1.8% | 0.0% | 0.0% |
Turnover Rate | |||
(Annualized) | 115% | — | — |
Ticker Symbol | VMGRX | — | — |
Expense Ratio1 | 0.46% | — | — |
30-Day SEC Yield | 0.17% | — | — |
Short-Term Reserves | 2.0% | — | — |
Sector Diversification (% of equity exposure) | |||
DJ | |||
U.S. | |||
Russell | Total | ||
Midcap | Market | ||
Growth | FA | ||
Fund | Index | Index | |
Consumer | |||
Discretionary | 24.8% | 23.0% | 13.2% |
Consumer Staples | 2.2 | 8.0 | 8.3 |
Energy | 5.3 | 5.4 | 7.8 |
Financials | 13.4 | 9.5 | 17.5 |
Health Care | 16.7 | 14.2 | 14.2 |
Industrials | 16.2 | 15.6 | 11.0 |
Information | |||
Technology | 18.5 | 18.3 | 19.2 |
Materials | 1.1 | 4.9 | 3.6 |
Telecommunication | |||
Services | 1.7 | 0.9 | 2.1 |
Utilities | 0.1 | 0.2 | 3.1 |
Volatility Measures | ||
Russell | DJ | |
Midcap | U.S. Total | |
Growth | Market | |
Index | FA Index | |
R-Squared | 0.96 | 0.85 |
Beta | 1.03 | 1.09 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
Ten Largest Holdings (% of total net assets) | ||
Sirona Dental Systems | Health Care | |
Inc. | Equipment | 2.2% |
Dollar General Corp. | General Merchandise | |
Stores | 2.2 | |
Vantiv Inc. | Data Processing & | |
Outsourced Services | 2.2 | |
BioMarin Pharmaceutical | ||
Inc. | Biotechnology | 1.8 |
Affiliated Managers | Asset Management | |
Group Inc. | & Custody Banks | 1.8 |
Towers Watson & Co. | Human Resource & | |
Employment | ||
Services | 1.8 | |
SBA Communications | Wireless | |
Corp. | Telecommunication | |
Services | 1.7 | |
Stericycle Inc. | Environmental & | |
Facilities Services | 1.6 | |
SEI Investments Co. | Asset Management | |
& Custody Banks | 1.6 | |
Brunswick Corp. | Leisure Products | 1.5 |
Top Ten | 18.4% |
The holdings listed exclude any temporary cash investments and equity index products.
Investment Focus
1 The expense ratio shown is from the prospectus dated February 25, 2015, and represents estimated costs for the current fiscal year. For the six
months ended April 30, 2015, the annualized expense ratio was 0.43%.
11
Mid-Cap Growth 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.
Fiscal-Year Total Returns (%): October 31, 2004, Through April 30, 2015
Average Annual Total Returns: Periods Ended March 31, 2015
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
Inception | One | Five | Ten | |
Date | Year | Years | Years | |
Mid-Cap Growth Fund | 12/31/1997 | 16.71% | 16.76% | 10.81% |
See Financial Highlights for dividend and capital gains information.
12
Mid-Cap Growth Fund
Financial Statements (unaudited)
Statement of Net Assets
As of April 30, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Market | |||
Value• | |||
Shares | ($000) | ||
Common Stocks (95.6%)1 | |||
Consumer Discretionary (23.8%) | |||
Dollar General Corp. | 1,199,726 | 87,232 | |
Brunswick Corp. | 1,217,320 | 60,915 | |
* | Hilton Worldwide | ||
Holdings Inc. | 1,996,270 | 57,812 | |
Royal Caribbean | |||
Cruises Ltd. | 838,890 | 57,095 | |
* | Norwegian Cruise Line | ||
Holdings Ltd. | 1,133,890 | 55,005 | |
Williams-Sonoma Inc. | 706,333 | 51,937 | |
BorgWarner Inc. | 829,704 | 49,118 | |
Polaris Industries Inc. | 344,800 | 47,224 | |
* | O’Reilly Automotive Inc. | 196,100 | 42,716 |
Marriott International Inc. | |||
Class A | 503,079 | 40,271 | |
Ross Stores Inc. | 400,200 | 39,572 | |
Hanesbrands Inc. | 1,258,900 | 39,127 | |
* | Michael Kors Holdings Ltd. | 598,700 | 37,036 |
Advance Auto Parts Inc. | 256,720 | 36,711 | |
* | Burlington Stores Inc. | 618,729 | 31,908 |
Tractor Supply Co. | 339,385 | 29,207 | |
Harman International | |||
Industries Inc. | 217,555 | 28,365 | |
Carter’s Inc. | 265,420 | 26,505 | |
PVH Corp. | 234,950 | 24,282 | |
Nordstrom Inc. | 308,925 | 23,342 | |
* | Chipotle Mexican Grill Inc. | ||
Class A | 31,325 | 19,463 | |
Six Flags Entertainment | |||
Corp. | 412,000 | 19,372 | |
L Brands Inc. | 209,800 | 18,748 | |
* | Sally Beauty Holdings Inc. | 598,692 | 18,685 |
941,648 | |||
Consumer Staples (2.0%) | |||
Mead Johnson Nutrition | |||
Co. | 341,400 | 32,747 |
Keurig Green Mountain | |||
Inc. | 245,950 | 28,621 | |
* | Monster Beverage Corp. | 146,300 | 20,059 |
81,427 | |||
Energy (5.0%) | |||
Superior Energy Services | |||
Inc. | 2,272,990 | 57,961 | |
* | Concho Resources Inc. | 218,600 | 27,688 |
* | Diamondback Energy Inc. | 335,035 | 27,664 |
Range Resources Corp. | 419,100 | 26,638 | |
* | Carrizo Oil & Gas Inc. | 420,315 | 23,424 |
Pioneer Natural Resources | |||
Co. | 129,500 | 22,375 | |
* | Dril-Quip Inc. | 161,000 | 12,835 |
198,585 | |||
Financials (12.4%) | |||
* | Affiliated Managers | ||
Group Inc. | 313,090 | 70,799 | |
SEI Investments Co. | 1,343,610 | 61,349 | |
* | E*TRADE Financial Corp. | 2,020,628 | 58,174 |
* | Popular Inc. | 1,685,610 | 54,665 |
Lazard Ltd. Class A | 1,006,830 | 53,392 | |
* | Signature Bank | 306,684 | 41,123 |
Assured Guaranty Ltd. | 1,521,135 | 39,534 | |
Moody’s Corp. | 272,600 | 29,310 | |
LPL Financial Holdings Inc. | 541,634 | 21,920 | |
* | PRA Group Inc. | 370,993 | 20,321 |
Jones Lang LaSalle Inc. | 120,960 | 20,087 | |
* | MGIC Investment Corp. | 1,284,425 | 13,384 |
IBERIABANK Corp. | 126,180 | 7,862 | |
491,920 | |||
Health Care (16.1%) | |||
* | Sirona Dental Systems | ||
Inc. | 943,174 | 87,479 | |
* | BioMarin Pharmaceutical | ||
Inc. | 632,325 | 70,852 | |
* | Actavis plc | 201,890 | 57,107 |
13
Mid-Cap Growth Fund
Market | |||
Value• | |||
Shares | ($000) | ||
* | MEDNAX Inc. | 657,752 | 46,556 |
* | Cerner Corp. | 602,300 | 43,251 |
* | Endo International plc | 373,330 | 31,384 |
* | HCA Holdings Inc. | 413,350 | 30,592 |
* | Health Net Inc. | 574,350 | 30,239 |
* | Medivation Inc. | 227,000 | 27,408 |
* | Align Technology Inc. | 447,300 | 26,319 |
* | Charles River Laboratories | ||
International Inc. | 374,185 | 25,879 | |
* | Mallinckrodt plc | 225,300 | 25,499 |
* | HMS Holdings Corp. | 1,390,478 | 23,652 |
* | Mettler-Toledo | ||
International Inc. | 69,000 | 21,874 | |
* | Akorn Inc. | 454,266 | 18,916 |
Bio-Techne Corp. | 193,618 | 18,579 | |
Perrigo Co. plc | 93,975 | 17,224 | |
* | Intuitive Surgical Inc. | 29,170 | 14,468 |
* | IDEXX Laboratories Inc. | 97,817 | 12,263 |
* | Incyte Corp. | 58,765 | 5,710 |
635,251 | |||
Industrials (15.4%) | |||
Towers Watson & Co. | |||
Class A | 546,160 | 69,310 | |
* | Stericycle Inc. | 462,790 | 61,750 |
ManpowerGroup Inc. | 685,190 | 58,467 | |
* | Old Dominion Freight | ||
Line Inc. | 723,100 | 51,434 | |
AMETEK Inc. | 946,800 | 49,631 | |
Equifax Inc. | 500,265 | 48,491 | |
* | Verisk Analytics Inc. | ||
Class A | 623,900 | 46,818 | |
Delta Air Lines Inc. | 1,018,150 | 45,450 | |
KAR Auction Services Inc. | 1,187,825 | 44,199 | |
Rockwell Collins Inc. | 454,100 | 44,198 | |
* | Middleby Corp. | 237,100 | 24,028 |
* | United Rentals Inc. | 227,990 | 22,019 |
TransDigm Group Inc. | 101,400 | 21,510 | |
* | HD Supply Holdings Inc. | 639,600 | 21,107 |
608,412 | |||
Information Technology (18.0%) | |||
* | Vantiv Inc. Class A | 2,180,792 | 85,269 |
* | NXP Semiconductors NV | 529,965 | 50,940 |
Avago Technologies Ltd. | |||
Class A | 430,745 | 50,346 | |
* | Akamai Technologies Inc. | 642,472 | 47,402 |
* | Red Hat Inc. | 586,900 | 44,170 |
* | PTC Inc. | 1,130,190 | 43,332 |
* | Cognizant Technology | ||
Solutions Corp. Class A | 710,095 | 41,569 | |
* | VeriFone Systems Inc. | 1,107,775 | 39,625 |
Cypress Semiconductor | |||
Corp. | 2,574,960 | 34,298 |
* | Guidewire Software Inc. | 664,300 | 33,182 | |
* | CoStar Group Inc. | 160,379 | 32,786 | |
* | Genpact Ltd. | 1,494,522 | 32,670 | |
* | Zebra Technologies Corp. | 284,550 | 26,201 | |
Belden Inc. | 300,220 | 25,204 | ||
Littelfuse Inc. | 241,925 | 23,706 | ||
*,^ | NeuStar Inc. Class A | 785,683 | 23,571 | |
* | IPG Photonics Corp. | 256,710 | 22,739 | |
ARM Holdings plc ADR | 395,200 | 20,151 | ||
SS&C Technologies | ||||
Holdings Inc. | 322,325 | 19,394 | ||
* | Pandora Media Inc. | 938,610 | 16,745 | |
713,300 | ||||
Materials (0.9%) | ||||
International Flavors & | ||||
Fragrances Inc. | 186,700 | 21,424 | ||
PolyOne Corp. | 335,035 | 13,083 | ||
34,507 | ||||
Other (0.3%) | ||||
2 | Vanguard Mid-Cap | |||
Growth ETF | 100,223 | 10,710 | ||
Telecommunication Services (1.7%) | ||||
* | SBA Communications | |||
Corp. Class A | 568,850 | 65,884 | ||
Total Common Stocks | ||||
(Cost $3,184,354) | 3,781,644 | |||
Temporary Cash Investments (7.3%)1 | ||||
Money Market Fund (7.1%) | ||||
3,4 | Vanguard Market | |||
Liquidity Fund, | ||||
0.121% | 280,692,866 | 280,693 | ||
Face | ||||
Amount | ||||
($000) | ||||
U.S. Government and Agency Obligations (0.2%) | ||||
5,6 | Fannie Mae Discount | |||
Notes, 0.170%, 6/17/15 | 200 | 200 | ||
6,7 | Federal Home Loan | |||
Bank Discount Notes, | ||||
0.065%%–0.276%, | ||||
5/13/15 | 1,200 | 1,200 | ||
6,7 | Federal Home Loan | |||
Bank Discount Notes, | ||||
0.070%, 5/15/15 | 100 | 100 | ||
6,7 | Federal Home Loan | |||
Bank Discount Notes, | ||||
0.085%, 7/15/15 | 1,000 | 1,000 |
14
Mid-Cap Growth Fund
Face | Market | |
Amount | Value• | |
($000) | ($000) | |
6,7 Federal Home Loan | ||
Bank Discount Notes, | ||
0.125%, 8/21/15 | 5,000 | 4,998 |
5,6 Freddie Mac Discount | ||
Notes, 0.066%, 7/20/15 | 2,000 | 1,999 |
9,497 | ||
Total Temporary Cash Investments | ||
(Cost $290,189) | 290,190 | |
Total Investments (102.9%) | ||
(Cost $3,474,543) | 4,071,834 | |
Other Assets and Liabilities (-2.9%) | ||
Other Assets | 89,255 | |
Liabilities4 | (205,315) | |
(116,060) | ||
Net Assets (100%) | ||
Applicable to 155,283,934 outstanding | ||
$.001 par value shares of beneficial | ||
interest (unlimited authorization) | 3,955,774 | |
Net Asset Value Per Share | $25.47 |
Amount | |
($000) | |
Statement of Assets and Liabilities | |
Assets | |
Investments in Securities, at Value | |
Unaffiliated Issuers | 3,780,431 |
Affiliated Vanguard Funds | 291,403 |
Total Investments in Securities | 4,071,834 |
Receivables for Investment | |
Securities Sold | 81,125 |
Receivables for Capital Shares Issued | 5,589 |
Receivables for Accrued Income | 1,186 |
Other Assets | 1,355 |
Total Assets | 4,161,089 |
Liabilities | |
Payables for Investment | |
Securities Purchased | 186,794 |
Payables for Capital Shares Redeemed | 2,217 |
Securities Lending Collateral Payable | |
to Brokers | 3,690 |
Other Liabilities | 12,614 |
Total Liabilities | 205,315 |
Net Assets | 3,955,774 |
At April 30, 2015, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 3,060,284 |
Undistributed Net Investment Income | 466 |
Accumulated Net Realized Gains | 299,618 |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 597,291 |
Futures Contracts | (1,885) |
Net Assets | 3,955,774 |
• 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 $3,690,000.
1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures
investments, the fund’s effective common stock and temporary cash investment positions represent 98.3% and 4.6%, respectively,
of net assets.
2 Considered an affiliated company of the fund as the issuer is another member of The Vanguard Group.
3 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown
is the 7-day yield.
4 Includes $3,690,000 of collateral received for securities on loan.
5 The issuer was placed under federal conservatorship in September 2008; since that time, its daily operations have been managed by the
Federal Housing Finance Agency and it receives capital from the U.S. Treasury, as needed to maintain a positive net worth, in exchange
for senior preferred stock.
6 Securities with a value of $4,898,000 have been segregated as initial margin for open futures contracts.
7 The issuer operates under a congressional charter; its securities are generally neither guaranteed by the U.S. Treasury nor backed by the
full faith and credit of the U.S. government.
ADR—American Depositary Receipt.
See accompanying Notes, which are an integral part of the Financial Statements.
15
Mid-Cap Growth Fund
Statement of Operations
Six Months Ended | |
April 30, 2015 | |
($000) | |
Investment Income | |
Income | |
Dividends1 | 12,185 |
Interest1 | 136 |
Securities Lending | 35 |
Total Income | 12,356 |
Expenses | |
Investment Advisory Fees—Note B | |
Basic Fee | 3,613 |
Performance Adjustment | (243) |
The Vanguard Group—Note C | |
Management and Administrative | 4,120 |
Marketing and Distribution | 349 |
Custodian Fees | 20 |
Shareholders’ Reports | 9 |
Trustees’ Fees and Expenses | 3 |
Total Expenses | 7,871 |
Expenses Paid Indirectly | (49) |
Net Expenses | 7,822 |
Net Investment Income | 4,534 |
Realized Net Gain (Loss) | |
Investment Securities Sold1 | 294,523 |
Futures Contracts | 5,275 |
Realized Net Gain (Loss) | 299,798 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | 9,881 |
Futures Contracts | (1,570) |
Change in Unrealized Appreciation (Depreciation) | 8,311 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 312,643 |
1 Dividend income, interest income, and realized net gain (loss) from affiliated companies of the fund were $81,000, $133,000, and $0, respectively. |
See accompanying Notes, which are an integral part of the Financial Statements.
16
Mid-Cap Growth Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | |
April 30, | October 31, | |
2015 | 2014 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 4,534 | 5,069 |
Realized Net Gain (Loss) | 299,798 | 446,093 |
Change in Unrealized Appreciation (Depreciation) | 8,311 | (63,181) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 312,643 | 387,981 |
Distributions | ||
Net Investment Income | (4,856) | (782) |
Realized Capital Gain1 | (405,208) | (278,523) |
Total Distributions | (410,064) | (279,305) |
Capital Share Transactions | ||
Issued | 612,250 | 619,821 |
Issued in Lieu of Cash Distributions | 398,819 | 271,718 |
Redeemed | (276,973) | (517,710) |
Net Increase (Decrease) from Capital Share Transactions | 734,096 | 373,829 |
Total Increase (Decrease) | 636,675 | 482,505 |
Net Assets | ||
Beginning of Period | 3,319,099 | 2,836,594 |
End of Period2 | 3,955,774 | 3,319,099 |
1 Includes fiscal 2015 and 2014 short-term gain distributions totaling $80,760,000 and $86,619,000, respectively. Short-term gain distributions
are treated as ordinary income dividends for tax purposes.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $466,000 and $788,000.
See accompanying Notes, which are an integral part of the Financial Statements.
17
Mid-Cap Growth Fund
Financial Highlights
Six Months | ||||||
Ended | ||||||
For a Share Outstanding | April 30, | Year Ended October 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
Net Asset Value, Beginning of Period | $26.40 | $25.72 | $20.95 | $19.40 | $17.54 | $13.86 |
Investment Operations | ||||||
Net Investment Income | . 035 2 | .045 | .048 | .041 | .0401 | .001 |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | 2.244 | 3.134 | 5.965 | 1.892 | 1.840 | 3.697 |
Total from Investment Operations | 2.279 | 3.179 | 6.013 | 1.933 | 1.880 | 3.698 |
Distributions | ||||||
Dividends from Net Investment Income | (. 038) | (. 007) | (. 075) | (. 030) | (. 020) | (. 018) |
Distributions from Realized Capital Gains | (3.171) | (2.492) | (1.168) | (.353) | — | — |
Total Distributions | (3.209) | (2.499) | (1.243) | (.383) | (.020) | (.018) |
Net Asset Value, End of Period | $25.47 | $26.40 | $25.72 | $20.95 | $19.40 | $17.54 |
Total Return3 | 9.21% | 13.42% | 30.32% | 10.24% | 10.72% | 26.70% |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $3,956 | $3,319 | $2,837 | $2,129 | $1,804 | $1,562 |
Ratio of Total Expenses to | ||||||
Average Net Assets4 | 0.43% | 0.46% | 0.51% | 0.54% | 0.53% | 0.51% |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 0.22%2 | 0.16% | 0.19% | 0.19% | 0.20%1 | 0.00% |
Portfolio Turnover Rate | 115% | 82% | 83% | 97% | 127% | 88% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Net investment income per share and the ratio of net investment income to average net assets include $0.02 and 0.11%, respectively,
resulting from a special dividend from VeriSign Inc. in December 2010.
2 Net investment income per share and the ratio of net investment income to average net assets include $0.01 and 0.03%, respectively,
resulting from special dividend from Lazard Ltd. in February 2015.
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%), (0.02%), 0.02%, 0.04%, 0.01%, and (0.01%).
See accompanying Notes, which are an integral part of the Financial Statements.
18
Mid-Cap Growth Fund
Notes to Financial Statements
Vanguard Mid-Cap Growth Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual 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. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Temporary cash investments acquired over 60 days to maturity 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. Other temporary cash investments are valued at amortized cost, which approximates market value.
2. 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 stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.
Futures contracts are valued at their quoted daily settlement prices. The aggregate settlement values of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized futures gains (losses).
During the six months ended April 30, 2015, the fund’s average investments in long and short futures contracts represented 3% and 0% of net assets, respectively, based on the average of aggregate settlement values at each quarter-end during the period.
3. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (October 31, 2011–2014), and for the period ended April 30, 2015, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
4. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
19
Mid-Cap Growth Fund
5. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counter-parties, 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 counter-party risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
6. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn 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 this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at April 30, 2015, or at any time during the period then ended.
7. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
B. William Blair & Company, L.L.C., and Chartwell Investment Partners, Inc., 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 William Blair & Company, L.L.C., is subject to quarterly adjustments based on performance for the preceding five years relative to the Russell MidCap Growth Index. The basic fee of Chartwell Investment Partners, Inc., is subject to quarterly adjustments based on performance for the preceding three years relative to the Russell MidCap Growth Index.
The Vanguard Group manages the cash reserves of the fund on an at-cost basis.
For the six months ended April 30, 2015, the aggregate investment advisory fee represented an effective annual basic rate of 0.20% of the fund’s average net assets, before a decrease of $243,000 (0.01%) based on performance.
20
Mid-Cap Growth Fund
C. The Vanguard Group furnishes at cost corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the fund based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At April 30, 2015, the fund had contributed capital of $355,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.14% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
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. For the six months ended April 30, 2015, these arrangements reduced the fund’s expenses by $49,000 (an annual rate of 0.00% of average net assets).
E. 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).
The following table summarizes the market value of the fund’s investments as of April 30, 2015, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 3,781,644 | — | — |
Temporary Cash Investments | 280,693 | 9,497 | — |
Futures Contracts—Liabilities1 | (1,139) | — | — |
Total | 4,061,198 | 9,497 | — |
1 Represents variation margin on the last day of the reporting period. |
F. At April 30, 2015, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were:
($000) | ||||
Aggregate | ||||
Number of | Settlement | Unrealized | ||
Long (Short) | Value | Appreciation | ||
Futures Contracts | Expiration | Contracts | Long (Short) | (Depreciation) |
E-mini S&P Midcap 400 Index | June 2015 | 635 | 95,028 | (1,767) |
E-mini S&P 500 Index | June 2015 | 110 | 11,434 | (118) |
(1,885) |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
21
Mid-Cap Growth Fund
G. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year.
At April 30, 2015, the cost of investment securities for tax purposes was $3,474,543,000. Net unrealized appreciation of investment securities for tax purposes was $597,291,000, consisting of unrealized gains of $640,887,000 on securities that had risen in value since their purchase and $43,596,000 in unrealized losses on securities that had fallen in value since their purchase.
H. During the six months ended April 30, 2015, the fund purchased $2,330,668,000 of investment securities and sold $1,985,858,000 of investment securities, other than temporary cash investments.
I. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | |
April 30, 2015 | October 31, 2014 | |
Shares | Shares | |
(000) | (000) | |
Issued | 24,066 | 24,664 |
Issued in Lieu of Cash Distributions | 16,399 | 11,417 |
Redeemed | (10,904) | (20,664) |
Net Increase (Decrease) in Shares Outstanding | 29,561 | 15,417 |
J. Management has determined that no material events or transactions occurred subsequent to April 30, 2015, that would require recognition or disclosure in these financial statements.
22
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.
23
Six Months Ended April 30, 2015 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
Mid-Cap Growth Fund | 10/31/2014 | 4/30/2015 | Period |
Based on Actual Fund Return | $1,000.00 | $1,092.07 | $2.23 |
Based on Hypothetical 5% Yearly Return | 1,000.00 | 1,022.66 | 2.16 |
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 0.43%. 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.
24
Trustees Approve Advisory Arrangements
The board of trustees of Vanguard Mid-Cap Growth Fund has renewed the fund’s investment advisory arrangements with Chartwell Investment Partners, Inc. (Chartwell), and William Blair & Company, L.L.C. (William Blair & Company). The board determined that renewing the fund’s advisory arrangements was in the best interests of the fund and its shareholders.
The board based its decisions upon an evaluation of each advisor’s investment staff, portfolio management process, and performance. The trustees considered the factors discussed below, among others. However, no single factor determined whether the board approved the arrangements. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of services
The board reviewed the quality of the fund’s investment management services, and took into account the organizational depth and stability of each advisor. The board considered the following:
Chartwell. Chartwell, founded in 1997, is a wholly owned subsidiary of TriState Capital. The firm has expertise in small- and mid-cap equity management and employs a bottom-up research approach to invest in companies that it believes will deliver accelerating earnings-per-share growth. The team focuses on what it terms “secular” growth companies that deliver competitive growth in revenue, profits, and cash flows by enhancing their competitive advantages, product and service offerings, and customer bases. Chartwell utilizes an intermediate-term horizon to purchase these companies at attractive valuations, and seeks to concentrate positions in the companies it believes will grow most rapidly. Chartwell has advised a portion of the fund since 2006.
William Blair & Company. Founded in 1935, William Blair & Company is an independently owned, full-service investment firm. The firm’s investment process relies on thorough in-depth fundamental research to identify quality growth companies that can sustain an above-average growth rate for a longer period than the market expects. The team focuses on businesses with durable franchises, sustainable competitive advantages and business models, solid balance sheets, high returns on invested capital, and quality management teams. Relative valuation is also analyzed in comparison with historical averages, the market, and industry peers. William Blair & Company has advised a portion of the fund since 2006.
The board concluded that each advisor’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangements.
Investment performance
The board considered the fund’s performance since 2006 (when the advisors began managing the fund), including any periods of outperformance or underperformance relative to a benchmark index and peer group. The board concluded that the performance was such that the advisory arrangements should continue. Information about the fund’s most recent performance can be found in the Performance Summary section of this report.
Cost
The board concluded that the fund’s expense ratio was well below the average expense ratio charged by funds in its peer group and that the fund’s advisory fee rate was also well below the peer-group average. Information about the fund’s expenses appears in the About Your Fund’s Expenses section of this report as well as in the Financial Statements section, which also includes information about the fund’s advisory fee rate.
25
The board did not consider profitability of Chartwell or William Blair & Company in determining whether to approve the advisory fees, because the firms are independent of Vanguard and the advisory fees are the result of arm’s-length negotiations.
The benefit of economies of scale
The board concluded that the fund’s shareholders benefit from economies of scale because of breakpoints in the advisory fee schedules for Chartwell and William Blair & Company. The breakpoints reduce the effective rate of the fees as the fund’s assets managed by each advisor increase.
The board will consider whether to renew the advisory arrangements again after a one-year period.
26
Glossary
30-Day SEC Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (for bonds), its actual income (for asset-backed securities), or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.
Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Dividend Yield. Dividend income earned by stocks, expressed as a percentage of the aggregate market value (or of net asset value, for a fund). The yield is determined by dividing the amount of the annual dividends by the aggregate value (or net asset value) at the end of the period. For a fund, the dividend yield is based solely on stock holdings and does not include any income produced by other investments.
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.
Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.
Foreign Holdings. The percentage of a fund represented by securities or depositary receipts of companies based outside the United States.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.
27
Price/Earnings Ratio. The ratio of a stock’s current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company’s future growth.
R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0. For this report, R-squared is based on returns over the past 36 months for both the fund and the index.
Return on Equity. The annual average rate of return generated by a company during the past five years for each dollar of shareholder’s equity (net income divided by shareholder’s equity). For a fund, the weighted average return on equity for the companies whose stocks it holds.
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
Turnover Rate. An indication of the fund’s trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to investors). The turnover rate excludes in-kind transactions, which have minimal impact on costs.
28
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The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 178 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
InterestedTrustee1 | Rajiv L. Gupta |
Born 1945. Trustee Since December 2001.2 Principal | |
F. William McNabb III | Occupation(s) During the Past Five Years and Other |
Born 1957. Trustee Since July 2009. Chairman of | Experience: Chairman and Chief Executive Officer |
the Board. Principal Occupation(s) During the Past | (retired 2009) and President (2006–2008) of |
Five Years and Other Experience: Chairman of the | Rohm and Haas Co. (chemicals); Director of Tyco |
Board of The Vanguard Group, Inc., and of each of | International PLC (diversified manufacturing and |
the investment companies served by The Vanguard | services), Hewlett-Packard Co. (electronic computer |
Group, since January 2010; Director of The Vanguard | manufacturing), and Delphi Automotive PLC |
Group since 2008; Chief Executive Officer and | (automotive components); Senior Advisor at New |
President of The Vanguard Group, and of each of | Mountain Capital. |
the investment companies served by The Vanguard | |
Group, since 2008; Director of Vanguard Marketing | Amy Gutmann |
Corporation; Managing Director of The Vanguard | Born 1949. Trustee Since June 2006. Principal |
Group (1995–2008). | Occupation(s) During the Past Five Years and |
Other Experience: President of the University of | |
IndependentTrustees | Pennsylvania; Christopher H. Browne Distinguished |
Professor of Political Science, School of Arts and | |
Emerson U. Fullwood | Sciences, and Professor of Communication, Annenberg |
Born 1948. Trustee Since January 2008. Principal | School for Communication, with secondary faculty |
Occupation(s) During the Past Five Years and | appointments in the Department of Philosophy, School |
Other Experience: Executive Chief Staff and | of Arts and Sciences, and at the Graduate School of |
Marketing Officer for North America and Corporate | Education, University of Pennsylvania; Trustee of the |
Vice President (retired 2008) of Xerox Corporation | National Constitution Center; Chair of the Presidential |
(document management products and services); | Commission for the Study of Bioethical Issues. |
Executive in Residence and 2009–2010 Distinguished | |
Minett Professor at the Rochester Institute of | JoAnn Heffernan Heisen |
Technology; Director of SPX Corporation (multi-industry | Born 1950. Trustee Since July 1998. Principal |
manufacturing), the United Way of Rochester, | Occupation(s) During the Past Five Years and Other |
Amerigroup Corporation (managed health care), the | Experience: Corporate Vice President and Chief |
University of Rochester Medical Center, Monroe | Global Diversity Officer (retired 2008) and Member |
Community College Foundation, and North Carolina | of the Executive Committee (1997–2008) of Johnson |
A&T University. | & Johnson (pharmaceuticals/medical devices/ |
consumer products); Director of Skytop Lodge | |
Corporation (hotels), the University Medical Center | |
at Princeton, the Robert Wood Johnson Foundation, | |
and the Center for Talent Innovation; Member of | |
the Advisory Board of the Institute for Women’s | |
Leadership at Rutgers University. |
F. Joseph Loughrey | Executive Officers | |
Born 1949. Trustee Since October 2009. Principal | ||
Occupation(s) During the Past Five Years and Other | Glenn Booraem | |
Experience: President and Chief Operating Officer | Born 1967. Controller Since July 2010. Principal | |
(retired 2009) of Cummins Inc. (industrial machinery); | Occupation(s) During the Past Five Years and Other | |
Chairman of the Board of Hillenbrand, Inc. (specialized | Experience: Principal of The Vanguard Group, Inc.; | |
consumer services), and of Oxfam America; Director | Controller of each of the investment companies served | |
of SKF AB (industrial machinery), Hyster-Yale Materials | by The Vanguard Group; Assistant Controller of each of | |
Handling, Inc. (forklift trucks), the Lumina Foundation | the investment companies served by The Vanguard | |
for Education, and the V Foundation for Cancer | Group (2001–2010). | |
Research; Member of the Advisory Council for the | ||
College of Arts and Letters and of the Advisory Board | Thomas J. Higgins | |
to the Kellogg Institute for International Studies, both | Born 1957. Chief Financial Officer Since September | |
at the University of Notre Dame. | 2008. Principal Occupation(s) During the Past Five | |
Years and Other Experience: Principal of The Vanguard | ||
Mark Loughridge | Group, Inc.; Chief Financial Officer of each of the | |
Born 1953. Trustee Since March 2012. Principal | investment companies served by The Vanguard Group; | |
Occupation(s) During the Past Five Years and Other | Treasurer of each of the investment companies served | |
Experience: Senior Vice President and Chief Financial | by The Vanguard Group (1998–2008). | |
Officer (retired 2013) at IBM (information technology | ||
services); Fiduciary Member of IBM’s Retirement Plan | Kathryn J. Hyatt | |
Committee (2004–2013); Director of the Dow Chemical | Born 1955. Treasurer Since November 2008. Principal | |
Company; Member of the Council on Chicago Booth. | Occupation(s) During the Past Five Years and Other | |
Experience: Principal of The Vanguard Group, Inc.; | ||
Scott C. Malpass | Treasurer of each of the investment companies served | |
Born 1962. Trustee Since March 2012. Principal | by The Vanguard Group; Assistant Treasurer of each of | |
Occupation(s) During the Past Five Years and Other | the investment companies served by The Vanguard | |
Experience: Chief Investment Officer and Vice | Group (1988–2008). | |
President at the University of Notre Dame; Assistant | ||
Professor of Finance at the Mendoza College of | Heidi Stam | |
Business at Notre Dame; Member of the Notre Dame | Born 1956. Secretary Since July 2005. Principal | |
403(b) Investment Committee; Board Member of | Occupation(s) During the Past Five Years and Other | |
TIFF Advisory Services, Inc., and Catholic Investment | Experience: Managing Director of The Vanguard | |
Services, Inc. (investment advisors); Member of | Group, Inc.; General Counsel of The Vanguard Group; | |
the Investment Advisory Committee of Major | Secretary of The Vanguard Group and of each of the | |
League Baseball. | investment companies served by The Vanguard Group; | |
Director and Senior Vice President of Vanguard | ||
André F. Perold | Marketing Corporation. | |
Born 1952. Trustee Since December 2004. Principal | ||
Occupation(s) During the Past Five Years and Other | Vanguard Senior ManagementTeam | |
Experience: George Gund Professor of Finance and | ||
Banking, Emeritus at the Harvard Business School | Mortimer J. Buckley | Chris D. McIsaac |
(retired 2011); Chief Investment Officer and Managing | Kathleen C. Gubanich | Michael S. Miller |
Partner of HighVista Strategies LLC (private investment | Paul A. Heller | James M. Norris |
firm); Director of Rand Merchant Bank; Overseer of | Martha G. King | Glenn W. Reed |
the Museum of Fine Arts Boston. | John T. Marcante | |
Peter F. Volanakis | Chairman Emeritus and Senior Advisor | |
Born 1955. Trustee Since July 2009. Principal | ||
Occupation(s) During the Past Five Years and Other | John J. Brennan | |
Experience: President and Chief Operating Officer | Chairman, 1996–2009 | |
(retired 2010) of Corning Incorporated (communications | Chief Executive Officer and President, 1996–2008 | |
equipment); Trustee of Colby-Sawyer College; | ||
Member of the Advisory Board of the Norris Cotton | ||
Cancer Center and of the Advisory Board of the | Founder | |
Parthenon Group (strategy consulting). | ||
John C. Bogle | ||
Chairman and Chief Executive Officer, 1974–1996 |
1 Mr. McNabb is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the
Vanguard funds.
2 December 2002 for Vanguard Equity Income Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.
P.O. Box 2600 | ||
Valley Forge, PA 19482-2600 | ||
Connect with Vanguard® > vanguard.com | ||
Fund Information > 800-662-7447 | CFA® is a registered trademark owned by CFA Institute. | |
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 Lipper, a | ||
Thomson Reuters Company, or 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, 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 sec.gov. | ||
You can review and copy information about your fund at | ||
the SEC’s Public Reference Room in Washington, D.C. To | ||
find out more about this public service, call the SEC at | ||
202-551-8090. Information about your fund is also | ||
available on the SEC’s website, and you can receive | ||
copies of this information, for a fee, by sending a | ||
request in either of two ways: via e-mail addressed to | ||
publicinfo@sec.gov or via regular mail addressed to the | ||
Public Reference Section, Securities and Exchange | ||
Commission, Washington, DC 20549-1520. | ||
© 2015 The Vanguard Group, Inc. | ||
All rights reserved. | ||
Vanguard Marketing Corporation, Distributor. | ||
Q3012 062015 |
Semiannual Report | April 30, 2015
Vanguard International Explorer™ Fund
The mission continues
On May 1, 1975, Vanguard began operations, a fledgling company based on the simple but revolutionary idea that a mutual fund company should be managed solely in the interest of its investors.
Four decades later, that revolutionary spirit continues to animate the enterprise. Vanguard remains on a mission to give investors the best chance of investment success.
As we mark our 40th anniversary, we thank you for entrusting your assets to Vanguard and giving us the opportunity to help you reach your financial goals in the decades to come.
Contents | |
Your Fund’s Total Returns. | 1 |
Chairman’s Letter. | 2 |
Advisors’ Report. | 8 |
Fund Profile. | 12 |
Performance Summary. | 14 |
Financial Statements. | 15 |
About Your Fund’s Expenses. | 31 |
Glossary. | 33 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice.
Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the
risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
About the cover: Since our founding, Vanguard has drawn inspiration from the enterprise and valor demonstrated by British
naval hero Horatio Nelson and his command at the Battle of the Nile in 1798. The photograph displays a replica of a merchant
ship from the same era as Nelson’s flagship, the HMS Vanguard.
Your Fund’s Total Returns
Six Months Ended April 30, 2015 | |
Total | |
Returns | |
Vanguard International Explorer Fund | 8.74% |
S&P EPAC SmallCap Index | 10.89 |
International Small-Cap Funds Average | 8.39 |
International Small-Cap Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. |
Your Fund’s Performance at a Glance | ||||
October 31, 2014, Through April 30, 2015 | ||||
Distributions Per Share | ||||
Starting | Ending | Income | Capital | |
Share Price | Share Price | Dividends | Gains | |
Vanguard International Explorer Fund | $18.26 | $18.28 | $0.326 | $1.096 |
1
Chairman’s Letter
Dear Shareholder,
International stocks made solid gains for the six months ended April 30, 2015. Monetary easing and growing consumer confidence helped offset concerns about worryingly low inflation, the downshift in economic activity in China, and uncertainty in Europe. International small-capitalization growth stocks, which are the focus of the fund, did particularly well.
Vanguard International Explorer Fund returned 8.74% for the period, trailing its benchmark, the S&P EPAC SmallCap Index, but pulling slightly ahead of the average return of its peers.
The advisors’ holdings in European and developed Pacific markets outperformed, but their emerging markets selections lagged.
U.S. stocks closed higher despite fluctuating returns
U.S. stocks returned almost 5% for the six months, despite stretches of shakiness. In two of those months, stocks declined. In two others, they were virtually unchanged or gained less than 1%. February’s surge of almost 6%, the largest monthly gain since October 2011, lifted overall returns for the period.
The Federal Reserve’s careful approach to potentially raising short-term interest rates helped stocks along, as did monetary stimulus efforts by other nations’ central banks. These factors offset concerns that ranged from Greece’s debt crisis to the
2
negative effect of the strong U.S. dollar on the profits of U.S.-based multinational companies.
For U.S. investors, international stocks returned about 6%. Returns for the developed markets of the Pacific region, led by Japan, exceeded those of Europe and emerging markets.
Stimulus policies and demand have driven up bond prices
Like equities, bonds have benefited from accommodative monetary policies from the world’s central banks. Investor demand for the perceived safety of fixed income assets has also boosted bond returns.
The broad U.S. taxable bond market returned 2.06% for the period, and the yield of the 10-year U.S. Treasury note ended April at 2.04%, down from 2.31% six months earlier. (Bond prices and yields move in opposite directions.)
International bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –4.83% as foreign currencies’ weakness relative to the dollar affected results. For international bonds hedged to eliminate the effect of changes in currency exchange rates, returns were positive.
Market Barometer | |||
Total Returns | |||
Periods Ended April 30, 2015 | |||
Six | One | Five Years | |
Months | Year | (Annualized) | |
Stocks | |||
Russell 1000 Index (Large-caps) | 4.75% | 13.00% | 14.47% |
Russell 2000 Index (Small-caps) | 4.65 | 9.71 | 12.73 |
Russell 3000 Index (Broad U.S. market) | 4.74 | 12.74 | 14.33 |
FTSE All-World ex US Index (International) | 6.00 | 3.53 | 6.40 |
Bonds | |||
Barclays U.S. Aggregate Bond Index (Broad taxable market) | 2.06% | 4.46% | 4.12% |
Barclays Municipal Bond Index (Broad tax-exempt market) | 1.17 | 4.80 | 4.75 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.00 | 0.03 | 0.05 |
CPI | |||
Consumer Price Index | -0.35% | -0.20% | 1.65% |
3
Returns of money market funds and savings accounts remained checked by the Fed’s target of 0%–0.25% for short-term interest rates.
Europe contributed the most to the fund’s performance
During the six months, various concerns hovered over international markets. These included Greece’s debt crisis, the future of the Eurozone, the potential impact of falling oil prices on exporting nations, slower growth in China, and the timing of the Fed’s first rate increase in almost a decade. As a result, returns seesawed, with bouts of higher volatility.
The International Explorer Fund’s stocks delivered solid results across most markets. Returns were often even stronger in local currency terms, restrained for U.S. investors by the dollar’s strength.
Developed markets in Europe, which represented more than half of the fund’s holdings on average, turned in a double-digit advance. The outlook for most Eurozone economies was positive, thanks in large part to the European Central Bank’s long-awaited announcement that it would begin a multi-month bond-buying program. This was expected to drive interest rates even lower, making stocks more attractive to some investors.
Expense Ratios | ||
Your Fund Compared With Its Peer Group | ||
Peer Group | ||
Fund | Average | |
International Explorer Fund | 0.40% | 1.61% |
The fund expense ratio shown is from the prospectus dated February 25, 2015, and represents estimated costs for the current fiscal year. For
the six months ended April 30, 2015, the fund’s annualized expense ratio was 0.42%. The peer-group expense ratio is derived from data
provided by Lipper, a Thomson Reuters Company, and captures information through year-end 2014.
Peer group: International Small-Cap Funds.
4
The stimulus efforts contributed to a weaker euro, which made exports from the continent less expensive. And lower energy prices helped boost consumer demand. Fund holdings in Italy, Germany, and Ireland did particularly well relative to the index. Stocks in the United Kingdom, which has the second-largest weighting in the fund, were the biggest underperformers.
International stocks—an opportunity for further diversification
International stocks led global stock markets out of the Great Recession in 2009. Since then,
they’ve trailed the broad U.S. stock market in every year but one.
Despite the underperformance of the last several years, international stocks—which represent
about half of the world’s market capitalization—can still help U.S.-based investors diversify
their portfolios.
As the chart below shows, U.S. and international stocks have periodically swapped market
leadership positions as differing market and economic forces caused their returns to vary.
Of course, the timing of these changes is impossible to predict.
Global diversification can help U.S. investors reduce their portfolio’s volatility over time by
mitigating losses when domestic stocks do poorly and adding to returns when foreign stocks
shine. (For more insight, see Global Equities: Balancing Home Bias and Diversification, available
at vanguard.com/research.)
Trailing 12-month return differential between U.S. and non-U.S. stocks
1987 and MSCI All Country World Index ex USA thereafter. Data are from December 31, 1984, through December 31, 2014.
Sources: Vanguard, Thomson Reuters Datastream, and MSCI.
5
Japan was the standout market among advanced Pacific countries
The advisors’ selections in developed Pacific markets returned more than 10% for the period. Japan, the country with the largest weighting in the fund, made a solid contribution, edging out the Japanese listings represented in the index. The Bank of Japan’s aggressive stimulus efforts helped the country’s economy. Much of its growth in recent months came from strength in exports, as a weaker yen relative to the U.S. dollar made Japan’s products less expensive for consumers abroad. (You can read about Vanguard’s assessment of Japan’s economy in Japan: The Long Road Back to Inflation, available at vanguard.com/research. This is part of the Global Macro Matters series produced by our economists.)
Australia, the Pacific region’s second-largest developed economy, had a negative return for the index because of a slump in the mining and energy industries. But the fund’s Australian holdings actually delivered a slightly positive return.
The advisors’ holdings in emerging markets, which are not represented in the index, detracted from performance. Losses were particularly large in Brazil, which was hurt by a decline in commodities exporting. That was offset a bit by the fund’s sizable position in India, which returned more than 13%.
Despite China’s economic slowdown, its stock market surged, making it the second-largest contributor to returns after Japan. China’s government has aggressively worked to stabilize growth, and its monetary policy has led to broad-based gains.
For more information on the fund’s investment strategies and positioning, please see the Advisors’ Report that follows this letter.
Promoting good corporate governance is one way we protect your interests
Our core purpose is “to take a stand for all investors, to treat them fairly, and to give them the best chance for investment success.” This involves more than offering smart investments, trustworthy guidance, and low fees. It also means working with the companies held by Vanguard funds to make sure your interests remain paramount.
How do we meet that responsibility? As one of the world’s largest investment managers, we are making our voice heard in corporate boardrooms to promote the highest standards of stewardship. Our advocacy encompasses a range of corporate governance issues, including executive compensation and succession planning, board composition and effectiveness, oversight of strategy and risk, and communication with shareholders.
6
We also exert our influence in a very important way when Vanguard funds cast their proxy votes at companies’ shareholder meetings.
Most of these votes take place at this time of year, making it an appropriate time to remind you that we work hard to represent your best interests. Good governance, we believe, is essential for any company seeking to maximize its long-term returns to shareholders. You can learn more about our efforts at vanguard.com/corporategovernance.
Thank you for your confidence in Vanguard.
Sincerely,
F. William McNabb III
Chairman and Chief Executive Officer
May 18, 2015
7
Advisors’ Report
For the six months ended April 30, 2015, Vanguard International Explorer Fund returned 8.74%. Your fund is managed by two independent advisors, a strategy that enhances its diversification by providing exposure to distinct yet complementary investment approaches. It is not uncommon for different advisors to have different views about individual securities or the broader investment environment.
The advisors, the amount and percentage of fund assets each manages, and brief descriptions of their investment strategies are presented in the table below. The advisors have also prepared a discussion of the investment environment that existed during the period and of how their portfolio positioning reflects this assessment. These comments were prepared on May 22, 2015.
Vanguard International Explorer Fund Investment Advisors | |||
Fund Assets Managed | |||
Investment Advisor | % | $ Million | Investment Strategy |
Schroder Investment | 78 | 2,139 | The advisor employs a fundamental investment |
Management North America Inc. | approach that considers macroeconomic factors while | ||
focusing primarily on company-specific factors, | |||
including a company’s potential for long-term growth, | |||
financial condition, quality of management, and | |||
sensitivity to cyclical factors. The advisor also | |||
considers the relative value of a company’s securities | |||
compared with those of other companies and the | |||
market as a whole. | |||
Wellington Management | 19 | 530 | The advisor employs a traditional, bottom-up approach |
Company LLP | that is opportunistic in nature, relying on global and | ||
regional research resources to identify both | |||
growth-oriented and neglected or misunderstood | |||
companies. | |||
Cash Investments | 3 | 85 | These short-term reserves are invested by Vanguard in |
equity index products to simulate investment in stocks. | |||
Each advisor also may maintain a modest cash | |||
position. |
8
Schroder Investment Management North America Inc.
Portfolio Manager: Matthew F. Dobbs,
Head of Global Small Companies
In a positive period for international small-company equities, the S&P EPAC SmallCap Index returned 10.9%. By comparison, the S&P EPAC Large/ MidCap Index returned 6.9%.
To some degree, the recovery of small companies simply represented a reaction to their relative weakness in the first three quarters of 2014. The category’s outperformance was most marked in Europe. After reaching relatively attractive valuations as investors fretted over central bank policy and the lead-up to Greek elections, small companies received a boost from quantitative easing and improved economic figures. They also performed notably well in Hong Kong and South Korea.
In Japan, large-caps did better, reflecting their higher overseas exposure and greater benefit from the weaker Japanese yen. Australia was one of the few markets to yield negative dollar returns.
Stock selection in continental Europe and Japan aided our portfolio’s results. In Europe, the best-performing sectors were industrials (Maire Tecnimont, Elis, Andritz), materials (Smurfit Kappa, Braas Monier), information technology (Xing), and consumer staples (Glanbia). In Japan, industrial holdings Obara Group, Nitta, Trusco Nakayama, and Kuroda Electric made solid contributions. Materials had a lesser impact.
Falling oil prices hurt returns for energy companies. Although we were not materially overweighted in the sector, stock selection was disappointing. Notable detractors were OW Bunker (which filed for bankruptcy in November), Modec, and Premier Oil. Energy holdings were the biggest laggard in the United Kingdom. Financials also had areas of weakness, as lower interest rates in the Eurozone affected life insurance firms such as Delta Lloyd and Storebrand.
Our Asian stocks in both developed and emerging markets generally hampered performance. Increased liquidity fueled a dramatic rise in the domestic Chinese equity markets that spread offshore, primarily to Hong Kong. Our holdings in Hong Kong and mainland China yielded positive returns but have not kept pace with index averages. Stock selection and an underweight position in South Korea also dampened results.
Our cash holdings rose modestly over the period as markets steadily improved and a number of stocks reached our appraisal of fair value. Although the portfolio retains a significant exposure to emerging markets, we marginally slimmed our stakes, particularly in India after its strong performance.
We also reduced our continental European holdings, primarily in health care, materials, and telecommunications. As a consequence
9
of our emerging-market commitment, we are underweighted in all the developed regions, especially in Japan and Australia. In sector terms, the portfolio is overweighted in industrials and consumer cyclicals and underweighted in financials, consumer staples, and health care.
We feel that the outlook should favor our focus on well-financed companies with superior secular growth characteristics, above-average returns, and healthy investment opportunities. Although smaller companies may have fewer financing options than larger firms, their greater flexibility and narrower focus can provide significant advantages and exposure to potential niches of growth.
Wellington Management Company llp
Portfolio Manager:
Simon H. Thomas,
Senior Managing Director and
Equity Portfolio Manager
Global equities rose during the period, though there was no shortage of headlines for investors to fret over. Ebola fears escalated, Japan’s recession deepened, and Chinese manufacturing data disappointed. Europe was a bright spot during the first quarter of 2015. Banks provided further accommodative monetary policy and economic data were encouraging, including positive trends in manufacturing, exports, and economic sentiment. However, fears about Greece’s future in the European Union resurfaced amid uncertainty about the disbursement of more bailout aid.
Although the U.S. economy grew in the latter half of 2014, U.S. stocks lagged the broader global market for the six months ended April 30. Some market participants voiced concerns about potential problems such as high valuations, the tightening of near-term Federal Reserve policy, and the impact of the strong dollar on U.S. exports. Our portfolio’s shortfalls included stock selection in financials, consumer discretionary, and energy. These choices were partially offset by strong picks in industrials.
Allocation among sectors, largely a result of our bottom-up stock selection process, also weighed on results. At a regional level, selection in emerging markets hurt relative performance. However, our picks in Europe and our underweighted exposure to Asia were positive.
The largest relative detractors included Pacific Rubiales Energy, Yamato Kogyo, and Zuiko. Shares of Pacific Rubiales, an oil and natural gas exploration and production company focused on reserves in Colombia and Peru, fell as oil prices declined. We have retained a position because the company is self-funded and continues to grow. Yamato Kogyo, a steel company with manufacturing facilities in Japan, South Korea, the United States, Thailand, and Bahrain, underperformed after a period of soft near-term fundamentals. We trimmed our holdings but maintained a stake.
10
Zuiko, a Japanese diaper manufacturer, suffered from weak execution and a series of production delays. However, the company recently completed an expansion of its Chinese facility to increase capacity by at least 50%. We modestly reduced our position but remain positive about the stock.
Top contributors to relative performance included Gategroup, Anima, and Asahi Intecc. Switzerland-based Gategroup, a leading provider of catering, hospitality, and logistics services to the travel industry, rallied as lower oil prices were seen as beneficial to the travel business. We still hold shares because we believe the company’s business is steady and stable.
Anima is an Italy-based firm created to buy the asset management divisions of regional Italian banks sold to repair the banks’ balance sheets after the financial crisis. It has benefited from inflows as Italy shifts from a low savings rate. Asahi Intecc, a Japanese producer of guidewires and catheters, climbed as investors proved optimistic about increasing demand for the company’s products, high margins, and market share gains.
At the end of the period we were most overweighted relative to the benchmark in industrials, materials, and health care. We were most underweighted in information technology, consumer staples, and consumer discretionary. On a regional basis, our greatest relative overweight position was Japan, and we were most underweighted in Europe. We continue to look for high-quality companies that have been neglected by the market and offer attractive investment opportunities.
11
International Explorer Fund
Fund Profile
As of April 30, 2015
Portfolio Characteristics | |||
MSCI | |||
S&P | AC | ||
EPAC | World | ||
SmallCap | Index ex | ||
Fund | Index | USA | |
Number of Stocks | 327 | 3,667 | 1,829 |
Median Market Cap | $1.9B | $2.0B | $33.9B |
Price/Earnings Ratio | 22.2x | 21.8x | 19.1x |
Price/Book Ratio | 2.0x | 1.8x | 1.8x |
Return on Equity | 12.0% | 10.9% | 15.0% |
Earnings Growth | |||
Rate | 14.2% | 13.4% | 10.4% |
Dividend Yield | 1.9% | 2.1% | 2.8% |
Turnover Rate | |||
(Annualized) | 38% | — | — |
Ticker Symbol | VINEX | — | — |
Expense Ratio1 | 0.40% | — | — |
Short-Term Reserves | 3.6% | — | — |
Sector Diversification (% of equity exposure) | |||
MSCI | |||
S&P | AC | ||
EPAC | World | ||
SmallCap | Index ex | ||
Fund | Index | USA | |
Consumer Discretionary 19.6% | 18.1% | 11.6% | |
Consumer Staples | 4.8 | 5.8 | 9.8 |
Energy | 1.5 | 1.7 | 7.5 |
Financials | 20.0 | 23.2 | 27.5 |
Health Care | 7.1 | 7.8 | 8.9 |
Industrials | 26.5 | 21.4 | 11.0 |
Information Technology | 7.8 | 9.0 | 7.5 |
Materials | 9.8 | 9.2 | 7.6 |
Telecommunication | |||
Services | 1.6 | 1.6 | 5.2 |
Utilities | 1.3 | 2.2 | 3.4 |
Volatility Measures | ||
MSCI | ||
S&P | AC | |
EPAC | World | |
SmallCap | Index ex | |
Index | USA | |
R-Squared | 0.95 | 0.87 |
Beta | 0.92 | 0.90 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
Ten Largest Holdings (% of total net assets) | ||
Gujarat Pipavav Port Ltd. Marine Ports & | ||
Services | 1.2% | |
Helvetia Holding AG | Multi-line Insurance | 1.2 |
Maire Tecnimont SPA | Construction & | |
Engineering | 1.1 | |
Cerved Information | ||
Solutions SPA | Specialized Finance | 1.1 |
Matas A/S | Specialty Stores | 1.1 |
Smurfit Kappa Group plc Paper Packaging | 1.1 | |
BRAAS Monier Building | Construction | |
Group SA | Materials | 1.0 |
Techtronic Industries Co. Household | ||
Ltd. | Appliances | 1.0 |
XING AG | Internet Software & | |
Services | 0.8 | |
Idea Cellular Ltd. | Wireless | |
Telecommunication | ||
Services | 0.8 | |
Top Ten | 10.4% |
The holdings listed exclude any temporary cash investments and equity index products.
Allocation by Region (% of equity exposure)
1 The expense ratio shown is from the prospectus dated February 25, 2015, and represents estimated costs for the current fiscal year. For the six
months ended April 30, 2015, the annualized expense ratio was 0.42%.
12
International Explorer Fund
Market Diversification (% of equity exposure) | |||
S&P | MSCI | ||
EPAC | AC World | ||
SmallCap | Index ex | ||
Fund | Index | USA | |
Europe | |||
United Kingdom | 18.3% | 19.5% | 14.4% |
Italy | 8.1 | 2.4 | 1.7 |
France | 5.5 | 8.4 | 7.0 |
Germany | 5.3 | 7.7 | 6.5 |
Switzerland | 4.6 | 8.3 | 6.5 |
Ireland | 4.5 | 0.2 | 0.2 |
Sweden | 3.0 | 3.0 | 2.1 |
Denmark | 1.9 | 1.1 | 1.2 |
Norway | 1.7 | 0.7 | 0.5 |
Netherlands | 1.4 | 1.7 | 1.9 |
Austria | 1.1 | 0.2 | 0.1 |
Other | 2.8 | 5.1 | 4.2 |
Subtotal | 58.2% | 58.3% | 46.3% |
Pacific | |||
Japan | 22.5% | 21.1% | 15.8% |
Australia | 4.3 | 5.7 | 5.1 |
Hong Kong | 1.9 | 2.9 | 2.3 |
South Korea | 1.6 | 4.8 | 3.3 |
Singapore | 1.2 | 1.3 | 1.1 |
Other | 0.4 | 0.2 | 0.1 |
Subtotal | 31.9% | 36.0% | 27.7% |
Emerging Markets | |||
India | 3.4% | 0.0% | 1.4% |
China | 2.4 | 0.9 | 5.5 |
Taiwan | 1.5 | 0.0 | 2.8 |
Other | 2.0 | 0.0 | 8.8 |
Subtotal | 9.3% | 0.9% | 18.5% |
North America | 0.6% | 0.2% | 6.9% |
Middle East | 0.0% | 0.7% | 0.4% |
Other | 0.0% | 3.9% | 0.2% |
Other represents securities that are not classified by the Fund's benchmark index. |
13
International Explorer 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.
Fiscal-Year Total Returns (%): October 31, 2004, Through April 30, 2015
Average Annual Total Returns: Periods Ended March 31, 2015
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
Inception | One | Five | Ten | |
Date | Year | Years | Years | |
International Explorer Fund | 11/4/1996 | -0.14% | 8.61% | 7.09% |
See Financial Highlights for dividend and capital gains information.
14
International Explorer Fund
Financial Statements (unaudited)
Statement of Net Assets
As of April 30, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Market | |||
Value | |||
Shares | ($000) | ||
Common Stocks (93.7%)1 | |||
Australia (3.8%) | |||
Iluka Resources Ltd. | 2,094,685 | 13,348 | |
Computershare Ltd. | 1,339,861 | 12,997 | |
Mirvac Group | 7,419,796 | 11,755 | |
Asaleo Care Ltd. | 6,618,650 | 9,631 | |
Ansell Ltd. | 464,023 | 9,550 | |
Amcor Ltd. | 867,190 | 9,232 | |
Incitec Pivot Ltd. | 2,439,068 | 7,660 | |
Spotless Group | |||
Holdings Ltd. | 3,776,771 | 6,787 | |
^ | Super Retail Group Ltd. | 689,097 | 5,364 |
Nufarm Ltd. | 692,820 | 3,971 | |
Tox Free Solutions Ltd. | 1,599,335 | 3,819 | |
SAI Global Ltd. | 915,291 | 2,847 | |
Transpacific Industries | |||
Group Ltd. | 4,170,963 | 2,517 | |
Recall Holdings Ltd. | 423,397 | 2,432 | |
* | Karoon Gas Australia Ltd. | 768,086 | 1,655 |
103,565 | |||
Austria (1.1%) | |||
ANDRITZ AG | 382,994 | 22,423 | |
^ | Schoeller-Bleckmann | ||
Oilfield Equipment AG | 32,588 | 2,297 | |
BUWOG AG | 112,962 | 2,284 | |
* | Kapsch TrafficCom AG | 85,000 | 1,908 |
CA Immobilien Anlagen AG | 84,915 | 1,541 | |
30,453 | |||
Belgium (0.5%) | |||
Cie d’Entreprises CFE | 49,596 | 5,366 | |
Ackermans & | |||
van Haaren NV | 33,394 | 4,081 | |
D’ieteren SA/NV | 100,205 | 3,909 | |
13,356 | |||
Brazil (0.3%) | |||
BR Properties SA | 1,692,688 | 5,905 | |
Magazine Luiza SA | 734,595 | 1,221 | |
7,126 |
Canada (0.0%) | |||
^,* | Pacific Rubiales | ||
Energy Corp. | 228,580 | 773 | |
China (2.3%) | |||
Shenzhou International | |||
Group Holdings Ltd. | 2,009,000 | 9,449 | |
* | New Oriental Education | ||
& Technology Group | |||
Inc. ADR | 347,121 | 8,883 | |
ANTA Sports | |||
Products Ltd. | 3,901,000 | 8,578 | |
^ | Baoxin Auto Group Ltd. | 9,677,000 | 7,636 |
Haitian International | |||
Holdings Ltd. | 2,600,000 | 6,466 | |
* | WuXi PharmaTech | ||
Cayman Inc. ADR | 148,722 | 6,420 | |
Dah Chong Hong | |||
Holdings Ltd. | 10,202,000 | 6,368 | |
E-House China | |||
Holdings Ltd. ADR | 576,200 | 3,918 | |
*,2 | Cosmo Lady China | ||
Holdings Co. Ltd. | 3,297,000 | 2,762 | |
Daphne International | |||
Holdings Ltd. | 5,724,000 | 1,594 | |
CSPC Pharmaceutical | |||
Group Ltd. | 1,224,000 | 1,271 | |
Leju Holdings Ltd. ADR | 33,405 | 352 | |
63,697 | |||
Denmark (1.8%) | |||
Matas A/S | 1,233,703 | 29,180 | |
^ | FLSmidth & Co. A/S | 250,000 | 10,680 |
DSV A/S | 164,096 | 5,692 | |
* | H Lundbeck A/S | 262,698 | 5,110 |
* | OW Bunker A/S | 1,000,000 | — |
50,662 | |||
Finland (0.2%) | |||
Vaisala Oyj | 100,000 | 2,683 | |
Tikkurila Oyj | 71,345 | 1,469 | |
4,152 |
15
International Explorer Fund
Market | |||
Value | |||
Shares | ($000) | ||
France (5.1%) | |||
^ | Rubis SCA | 325,000 | 22,082 |
Montupet | 307,313 | 21,659 | |
Eurofins Scientific SE | 65,000 | 18,309 | |
* | Elis SA | 807,777 | 16,426 |
Euler Hermes Group | 100,000 | 10,932 | |
* | Naturex | 140,044 | 9,354 |
Korian-Medica | 260,000 | 8,871 | |
Lectra | 600,000 | 8,567 | |
^ | Imerys SA | 66,481 | 5,060 |
Wendel SA | 31,907 | 3,919 | |
Virbac SA | 13,262 | 3,452 | |
Eurazeo SA | 47,521 | 3,402 | |
Groupe Eurotunnel SE | 200,000 | 3,206 | |
Albioma SA | 100,000 | 2,088 | |
* | Air France-KLM | 217,559 | 1,876 |
* | Inside Secure SA | 280,456 | 686 |
139,889 | |||
Germany (5.0%) | |||
* | BRAAS Monier Building | ||
Group SA | 994,642 | 27,308 | |
XING AG | 140,680 | 23,246 | |
MTU Aero Engines AG | 180,000 | 17,695 | |
Zeal Network SE | 303,979 | 16,530 | |
RIB Software AG | 700,000 | 11,055 | |
* | Tom Tailor Holding AG | 890,000 | 11,001 |
Freenet AG | 200,000 | 6,478 | |
* | GRENKELEASING AG | 41,695 | 5,557 |
Rheinmetall AG | 88,693 | 4,541 | |
STRATEC Biomedical AG | 66,675 | 3,333 | |
ElringKlinger AG | 86,456 | 2,380 | |
LEG Immobilien AG | 27,262 | 2,115 | |
* | Grand City Properties SA | 111,069 | 2,105 |
SAF-Holland SA | 132,679 | 2,009 | |
* | Suss Microtec AG | 250,000 | 1,521 |
136,874 | |||
Hong Kong (1.8%) | |||
Techtronic Industries | |||
Co. Ltd. | 7,500,000 | 26,542 | |
* | HKBN Ltd. | 7,152,000 | 9,246 |
Johnson Electric | |||
Holdings Ltd. | 2,472,625 | 9,186 | |
Yue Yuen Industrial | |||
Holdings Ltd. | 1,390,500 | 5,283 | |
50,257 | |||
India (3.2%) | |||
* | Gujarat Pipavav Port Ltd. | 9,558,436 | 33,320 |
Idea Cellular Ltd. | 8,449,659 | 23,231 | |
Apollo Hospitals | |||
Enterprise Ltd. | 895,498 | 16,003 | |
Cipla Ltd. | 732,735 | 7,323 | |
Ipca Laboratories Ltd. | 607,911 | 6,138 | |
Multi Commodity | |||
Exchange of India Ltd. | 205,558 | 3,378 | |
89,393 |
Indonesia (0.5%) | |||
Matahari Department | |||
Store Tbk PT | 6,888,200 | 9,264 | |
Ciputra Property Tbk PT | 73,359,500 | 3,833 | |
Gajah Tunggal Tbk PT | 14,517,890 | 1,229 | |
14,326 | |||
Ireland (4.3%) | |||
Smurfit Kappa Group plc | 950,000 | 29,086 | |
Glanbia plc | 1,250,000 | 23,166 | |
Paddy Power plc | 200,000 | 17,880 | |
* | Dalata Hotel Group plc | 3,800,000 | 15,377 |
Irish Residential | |||
Properties REIT plc | 8,400,000 | 10,099 | |
FBD Holdings plc | 725,000 | 7,833 | |
IFG Group plc | 2,622,895 | 5,685 | |
Irish Continental | |||
Group plc | 1,050,000 | 4,700 | |
Origin Enterprises plc | 485,000 | 4,379 | |
118,205 | |||
Italy (7.7%) | |||
* | Maire Tecnimont SPA | 10,133,632 | 30,334 |
* | Cerved Information | ||
Solutions SPA | 4,055,292 | 29,422 | |
* | Banca Popolare | ||
dell’Emilia Romagna SC | 2,600,000 | 21,387 | |
* | Sorin SPA | 5,600,000 | 17,627 |
*,2 | OVS SPA | 3,569,694 | 17,236 |
Credito Emiliano SPA | 2,000,000 | 16,684 | |
*,2 | Anima Holding SPA | 1,834,993 | 16,338 |
FinecoBank Banca | |||
Fineco SPA | 1,900,000 | 14,344 | |
* | Yoox SPA | 280,000 | 8,820 |
Prysmian SPA | 250,000 | 5,098 | |
DiaSorin SPA | 102,252 | 4,668 | |
^ | Brunello Cucinelli SPA | 250,844 | 4,655 |
Moncler SPA | 245,971 | 4,380 | |
* | Ei Towers SPA | 65,041 | 3,940 |
^ | Beni Stabili SpA SIIQ | 4,708,318 | 3,882 |
* | Autogrill SPA | 378,316 | 3,618 |
Banca Generali SPA | 101,784 | 3,416 | |
Salvatore Ferragamo SPA | 76,528 | 2,380 | |
Immobiliare Grande | |||
Distribuzione SIIQ SPA | 1,892,969 | 1,863 | |
*,2 | RAI Way SPA | 347,896 | 1,720 |
Industria Macchine | |||
Automatiche SPA | 22,125 | 1,127 | |
212,939 | |||
Japan (21.1%) | |||
Nitta Corp. | 701,100 | 19,212 | |
Tokai Tokyo Financial | |||
Holdings Inc. | 2,211,100 | 16,990 | |
Trusco Nakayama Corp. | 496,800 | 16,729 | |
Tsuruha Holdings Inc. | 220,735 | 16,010 | |
NEC Networks & System | |||
Integration Corp. | 691,300 | 14,814 |
16
International Explorer Fund
Market | |||
Value | |||
Shares | ($000) | ||
Kissei Pharmaceutical | |||
Co. Ltd. | 481,900 | 14,303 | |
Kuroda Electric Co. Ltd. | 772,400 | 13,885 | |
Nippon Densetsu | |||
Kogyo Co. Ltd. | 781,000 | 13,115 | |
Hitachi Transport | |||
System Ltd. | 732,800 | 11,818 | |
Arcs Co. Ltd. | 542,800 | 11,357 | |
Daibiru Corp. | 1,156,100 | 11,352 | |
Aica Kogyo Co. Ltd. | 486,000 | 11,162 | |
Ai Holdings Corp. | 613,500 | 11,157 | |
Koito Manufacturing | |||
Co. Ltd. | 310,100 | 10,851 | |
TPR Co. Ltd. | 412,500 | 10,821 | |
Lintec Corp. | 440,400 | 10,803 | |
Eagle Industry Co. Ltd. | 531,200 | 10,727 | |
^ | Musashi Seimitsu | ||
Industry Co. Ltd. | 499,000 | 10,562 | |
^ | JSP Corp. | 544,593 | 10,317 |
^ | Digital Garage Inc. | 692,200 | 9,854 |
^ | Kakaku.com Inc. | 629,000 | 9,755 |
Unipres Corp. | 469,700 | 9,697 | |
^ | Kureha Corp. | 2,115,000 | 9,680 |
OBIC Business | |||
Consultants Ltd. | 256,200 | 9,653 | |
Nippon Soda Co. Ltd. | 1,453,000 | 9,078 | |
Mitsui Sugar Co. Ltd. | 2,469,000 | 8,897 | |
Nabtesco Corp. | 318,500 | 8,760 | |
Kumiai Chemical | |||
Industry Co. Ltd. | 955,000 | 8,433 | |
Zenkoku Hosho Co. Ltd. | 228,155 | 8,423 | |
Glory Ltd. | 296,400 | 8,204 | |
Mitsubishi UFJ Lease & | |||
Finance Co. Ltd. | 1,497,295 | 8,032 | |
Nihon Parkerizing Co. Ltd. | 663,400 | 7,542 | |
Shinsei Bank Ltd. | 3,469,235 | 7,099 | |
Takasago International | |||
Corp. | 1,528,000 | 7,055 | |
^ | Obara Group Inc. | 116,300 | 6,842 |
Asahi Intecc Co. Ltd. | 110,735 | 6,819 | |
Nippon Shinyaku Co. Ltd. | 194,000 | 6,486 | |
IHI Corp. | 1,368,245 | 6,273 | |
Hoshizaki Electric Co. Ltd. | 106,355 | 6,257 | |
Nichi-iko Pharmaceutical | |||
Co. Ltd. | 292,800 | 6,164 | |
Sumitomo Real Estate | |||
Sales Co. Ltd. | 225,900 | 6,140 | |
Tokyo Steel | |||
Manufacturing Co. Ltd. | 889,100 | 6,138 | |
Plenus Co. Ltd. | 309,500 | 6,044 | |
Asahi Diamond | |||
Industrial Co. Ltd. | 490,300 | 6,028 | |
Kawasaki Heavy | |||
Industries Ltd. | 1,162,000 | 5,989 | |
DMG Mori Seiki Co. Ltd. | 366,115 | 5,971 |
Hitachi High- | |||
Technologies Corp. | 203,600 | 5,900 | |
Yaskawa Electric Corp. | 402,275 | 5,527 | |
^ | Message Co. Ltd. | 170,480 | 5,285 |
Tsutsumi Jewelry Co. Ltd. | 217,700 | 5,173 | |
Nippon Shokubai Co. Ltd. | 371,805 | 5,133 | |
Kobe Steel Ltd. | 2,701,000 | 4,909 | |
Welcia Holdings Co. Ltd. | 107,500 | 4,701 | |
SCSK Corp. | 159,400 | 4,655 | |
Teijin Ltd. | 1,342,000 | 4,559 | |
Denyo Co. Ltd. | 285,770 | 4,319 | |
TDK Corp. | 59,900 | 4,315 | |
Makino Milling | |||
Machine Co. Ltd. | 441,220 | 4,030 | |
Jamco Corp. | 140,100 | 4,002 | |
Sanwa Holdings Corp. | 526,665 | 3,975 | |
Mitsubishi Gas | |||
Chemical Co. Inc. | 709,865 | 3,967 | |
^ | Yushin Precision | ||
Equipment Co. Ltd. | 175,200 | 3,783 | |
^,* | TechnoPro Holdings Inc. | 128,600 | 3,574 |
Tokyo TY Financial | |||
Group Inc. | 121,243 | 3,466 | |
Showa Denko KK | 2,503,000 | 3,422 | |
Tenma Corp. | 205,500 | 3,325 | |
Yamato Kogyo Co. Ltd. | 140,720 | 3,311 | |
IBJ Leasing Co. Ltd. | 146,665 | 3,280 | |
Mitsubishi Materials Corp. | 877,000 | 3,157 | |
CyberAgent Inc. | 65,110 | 3,133 | |
^ | Zuiko Corp. | 91,160 | 3,011 |
^ | Kenedix Inc. | 733,900 | 2,922 |
^ | Sumco Corp. | 190,000 | 2,867 |
Ferrotec Corp. | 484,700 | 2,816 | |
Iida Group | |||
Holdings Co. Ltd. | 201,685 | 2,707 | |
Daiwa Office | |||
Investment Corp. | 420 | 2,211 | |
GLP J-Reit | 1,933 | 1,987 | |
NTT Urban | |||
Development Corp. | 186,000 | 1,936 | |
kabu.com Securities | |||
Co. Ltd. | 260,300 | 1,900 | |
Ichiyoshi Securities | |||
Co. Ltd. | 172,605 | 1,853 | |
Shimadzu Corp. | 153,000 | 1,790 | |
Dena Co. Ltd. | 76,600 | 1,530 | |
Nafco Co. Ltd. | 63,500 | 918 | |
Fukushima Industries Corp. | 43,400 | 729 | |
581,376 | |||
Luxembourg (1.2%) | |||
* | Stabilus SA | 650,000 | 22,639 |
B&M European Value | |||
Retail SA | 1,302,329 | 6,028 | |
Reinet Investments SCA | 180,645 | 3,893 | |
2 | O’Key Group SA GDR | 239,162 | 725 |
33,285 |
17
International Explorer Fund
Market | |||
Value | |||
Shares | ($000) | ||
Malaysia (0.4%) | |||
Bursa Malaysia Bhd. | 4,245,200 | 10,405 | |
Netherlands (1.4%) | |||
Delta Lloyd NV | 1,200,000 | 22,693 | |
Sligro Food Group NV | 170,000 | 6,560 | |
Beter Bed Holding NV | 114,122 | 2,944 | |
USG People NV | 203,635 | 2,765 | |
* | Constellium NV Class A | 129,206 | 2,374 |
37,336 | |||
New Zealand (0.3%) | |||
Fletcher Building Ltd. | 1,475,159 | 9,338 | |
Norway (1.7%) | |||
Borregaard ASA | 2,623,606 | 20,285 | |
* | Storebrand ASA | 5,300,000 | 18,739 |
Kongsberg Gruppen ASA | 302,376 | 6,497 | |
45,521 | |||
Panama (0.1%) | |||
Copa Holdings SA Class A | 25,948 | 2,877 | |
Singapore (1.2%) | |||
UOL Group Ltd. | 2,533,300 | 15,233 | |
First Resources Ltd. | 5,310,000 | 7,122 | |
Mapletree Industrial Trust | 5,807,480 | 7,059 | |
* | Vard Holdings Ltd. | 6,230,000 | 3,002 |
32,416 | |||
South Africa (0.1%) | |||
Gold Fields Ltd. | 660,470 | 3,049 | |
South Korea (1.6%) | |||
^ | Halla Visteon Climate | ||
Control Corp. | 337,355 | 12,657 | |
Hankook Tire Co. Ltd. | 137,449 | 5,776 | |
^ | Sung Kwang Bend Co. Ltd. | 386,521 | 5,645 |
Green Cross Corp. | 32,111 | 5,291 | |
S-1 Corp. | 49,638 | 3,700 | |
CJ O Shopping Co. Ltd. | 12,657 | 2,831 | |
Lotte Chemical Corp. | 10,938 | 2,538 | |
Samsung Securities Co. Ltd. | 39,076 | 2,374 | |
Nexen Tire Corp. | 176,153 | 2,137 | |
42,949 | |||
Spain (0.7%) | |||
* | Applus Services SA | 1,550,000 | 18,684 |
Sweden (2.8%) | |||
Loomis AB Class B | 650,000 | 20,832 | |
^ | Intrum Justitia AB | 600,000 | 18,895 |
*,3 | Bufab Holding AB | 2,111,839 | 13,558 |
Opus Group AB | 5,599,522 | 6,161 | |
Modern Times Group | |||
MTG AB Class B | 180,000 | 5,986 | |
AAK AB | 70,000 | 4,429 |
Concentric AB | 241,269 | 3,414 | |
*,2 | Hoist Finance AB | 357,603 | 2,800 |
Haldex AB | 143,429 | 2,143 | |
78,218 | |||
Switzerland (4.5%) | |||
Helvetia Holding AG | 58,000 | 32,952 | |
OC Oerlikon Corp. AG | 1,269,575 | 16,608 | |
Kuoni Reisen Holding AG | 34,754 | 11,677 | |
EFG International AG | 647,683 | 9,507 | |
Gategroup Holding AG | 270,706 | 9,466 | |
Interroll Holding AG | 14,000 | 9,308 | |
Komax Holding AG | 50,380 | 9,265 | |
Ascom Holding AG | 500,000 | 8,902 | |
* | Dufry AG | 30,476 | 4,481 |
Partners Group Holding AG | 13,609 | 4,266 | |
Tecan Group AG | 23,567 | 3,132 | |
Orior AG | 50,000 | 3,035 | |
Comet Holding AG | 781 | 689 | |
123,288 | |||
Taiwan (1.4%) | |||
Giant Manufacturing | |||
Co. Ltd. | 2,316,000 | 19,976 | |
Chroma ATE Inc. | 3,824,000 | 9,210 | |
CTCI Corp. | 4,336,000 | 7,624 | |
Gourmet Master Co. Ltd. | 598,000 | 2,548 | |
39,358 | |||
Thailand (0.3%) | |||
LPN Development PCL | 14,565,300 | 7,574 | |
United Arab Emirates (0.3%) | |||
* | Lamprell plc | 3,937,500 | 8,480 |
United Kingdom (16.5%) | |||
Grafton Group plc | 1,425,000 | 17,983 | |
DCC plc | 275,000 | 17,494 | |
Kennedy Wilson Europe | |||
Real Estate plc | 1,017,072 | 17,421 | |
Dechra | |||
Pharmaceuticals plc | 1,100,000 | 17,289 | |
Grainger plc | 4,915,405 | 15,942 | |
IG Group Holdings plc | 1,346,431 | 15,181 | |
Millennium & Copthorne | |||
Hotels plc | 1,400,000 | 12,429 | |
Ashtead Group plc | 700,000 | 12,003 | |
Elementis plc | 2,575,563 | 11,986 | |
London Stock Exchange | |||
Group plc | 286,019 | 11,134 | |
Persimmon plc | 400,000 | 10,386 | |
Keller Group plc | 678,861 | 10,384 | |
Ricardo plc | 800,000 | 10,374 | |
* | SSP Group plc | 2,226,437 | 10,174 |
Investec plc | 1,050,000 | 10,026 | |
Micro Focus | |||
International plc | 499,250 | 9,609 |
18
International Explorer Fund
Market | |||
Value | |||
Shares | ($000) | ||
Berendsen plc | 575,000 | 9,141 | |
WS Atkins plc | 436,022 | 8,946 | |
* | SuperGroup plc | 560,000 | 8,858 |
Redrow plc | 1,563,146 | 8,854 | |
Inchcape plc | 675,000 | 8,586 | |
Photo-Me | |||
International plc | 3,750,000 | 8,018 | |
Bodycote plc | 750,000 | 7,899 | |
Pets at Home Group plc | 1,945,078 | 7,764 | |
Halma plc | 675,000 | 7,351 | |
Domino Printing | |||
Sciences plc | 508,200 | 7,130 | |
^ | Telecom Plus plc | 600,000 | 7,047 |
Senior plc | 1,433,298 | 6,883 | |
HomeServe plc | 1,098,841 | 6,421 | |
A.G.Barr plc | 650,000 | 6,231 | |
QinetiQ Group plc | 2,000,000 | 6,190 | |
* | Premier Oil plc | 2,300,000 | 6,153 |
Eco Animal Health | |||
Group plc | 1,608,166 | 6,037 | |
SIG plc | 1,975,000 | 5,869 | |
UNITE Group plc | 617,865 | 5,677 | |
* | Alent plc | 1,000,000 | 5,554 |
Hays plc | 2,316,206 | 5,444 | |
* | Findel plc | 1,600,365 | 5,371 |
Tyman plc | 1,172,506 | 5,351 | |
Just Retirement | |||
Group plc | 1,983,072 | 5,307 | |
Soco International plc | 1,917,355 | 5,302 | |
Northgate plc | 518,269 | 5,134 | |
Brewin Dolphin | |||
Holdings plc | 984,495 | 5,113 | |
Mears Group plc | 775,970 | 5,094 | |
Michael Page | |||
International plc | 588,715 | 4,796 | |
Crest Nicholson | |||
Holdings plc | 686,090 | 4,711 | |
Big Yellow Group plc | 399,498 | 4,085 | |
^,* | EnQuest plc | 4,950,000 | 3,977 |
* | LMS Capital plc | 3,097,813 | 3,605 |
Kier Group plc | 130,185 | 3,229 | |
Savills plc | 245,441 | 3,108 | |
N Brown Group plc | 580,970 | 3,050 | |
* | Polypipe Group plc | 669,905 | 2,831 |
Laird plc | 512,513 | 2,819 | |
Hansteen Holdings plc | 1,550,774 | 2,802 | |
Berkeley Group | |||
Holdings plc | 67,124 | 2,585 | |
Direct Line Insurance | |||
Group plc | 509,063 | 2,485 | |
De La Rue plc | 292,558 | 2,459 | |
Booker Group plc | 1,013,241 | 2,243 | |
James Fisher & Sons plc | 123,604 | 2,186 | |
Consort Medical plc | 144,171 | 2,075 | |
* | Ophir Energy plc | 881,060 | 1,921 |
Hikma Pharmaceuticals plc | 53,791 | 1,682 | ||
Hunting plc | 123,599 | 1,110 | ||
Chemring Group plc | 336,273 | 1,105 | ||
455,404 | ||||
United States (0.5%) | ||||
Samsonite | ||||
International SA | 4,151,400 | 15,141 | ||
Total Common Stocks | ||||
(Cost $2,141,296) | 2,580,366 | |||
Temporary Cash Investments (8.5%)1 | ||||
Money Market Fund (7.8%) | ||||
4,5 | Vanguard Market | |||
Liquidity Fund, | ||||
0.121% | 214,837,588 | 214,838 | ||
Face | ||||
Amount | ||||
($000) | ||||
Repurchase Agreement (0.4%) | ||||
Goldman Sachs & Co. | ||||
0.100%, 5/1/15 (Dated | ||||
4/30/15, Repurchase | ||||
Value $9,300,000, | ||||
collateralized by Federal | ||||
Home Loan Mortgage | ||||
Corp. 4.000%–5.500%, | ||||
1/1/19–5/1/40, and | ||||
Federal National | ||||
Mortgage Assn. | ||||
3.000%–6.000%, | ||||
8/1/24–5/1/45, with a | ||||
value of $9,486,000) | 9,300 | 9,300 | ||
U.S. Government and Agency Obligations (0.3%) | ||||
6,7 | Fannie Mae Discount | |||
Notes, 0.070%, 7/15/15 | 700 | 700 | ||
8 | Federal Home Loan | |||
Bank Discount Notes, | ||||
0.065%, 5/13/15 | 1,000 | 1,000 | ||
7,8 | Federal Home Loan | |||
Bank Discount Notes, | ||||
0.085%, 7/24/15 | 6,000 | 5,998 | ||
6 | Freddie Mac Discount | |||
Notes, 0.131%, 6/8/15 | 1,200 | 1,200 | ||
8,898 | ||||
Total Temporary Cash Investments | ||||
(Cost $233,036) | 233,036 | |||
Total Investments (102.2%) | ||||
(Cost $2,374,332) | 2,813,402 |
19
International Explorer Fund
Market | |
Value | |
($000) | |
Other Assets and Liabilities (-2.2%) | |
Other Assets | 37,568 |
Liabilities5 | (97,290) |
(59,722) | |
Net Assets (100%) | |
Applicable to 150,603,118 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 2,753,680 |
Net Asset Value Per Share | $18.28 |
At April 30, 2015, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 2,240,252 |
Overdistributed Net Investment Income | (16,116) |
Accumulated Net Realized Gains | 87,023 |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 439,070 |
Futures Contracts | 1,003 |
Forward Currency Contracts | 2,428 |
Foreign Currencies | 20 |
Net Assets | 2,753,680 |
See Note A in Notes to Financial Statements.
^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $58,950,000.
* Non-income-producing security.
1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures
investments, the fund’s effective common stock and temporary cash investment positions represent 96.3% and 5.9%, respectively, of
net assets.
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 April 30, 2015, the aggregate value of these securities was $41,581,000,
representing 1.5% of net assets.
3 Considered an affiliated company of the fund as the fund owns more than 5% of the outstanding voting securities of such company.
4 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is
the 7-day yield.
5 Includes $62,311,000 of collateral received for securities on loan.
6 The issuer was placed under federal conservatorship in September 2008; since that time, its daily operations have been managed by the
Federal Housing Finance Agency and it receives capital from the U.S. Treasury, as needed to maintain a positive net worth, in exchange
for senior preferred stock.
7 Securities with a value of $3,799,000 have been segregated as initial margin for open futures contracts.
8 The issuer operates under a congressional charter; its securities are generally neither guaranteed by the U.S. Treasury nor backed by the
full faith and credit of the U.S. government.
ADR—American Depositary Receipt.
GDR—Global Depositary Receipt.
REIT—Real Estate Investment Trust.
See accompanying Notes, which are an integral part of the Financial Statements.
20
International Explorer Fund
Statement of Operations
Six Months Ended | |
April 30, 2015 | |
($000) | |
Investment Income | |
Income | |
Dividends1 | 20,321 |
Interest | 84 |
Securities Lending | 824 |
Total Income | 21,229 |
Expenses | |
Investment Advisory Fees—Note B | |
Basic Fee | 2,777 |
Performance Adjustment | 57 |
The Vanguard Group—Note C | |
Management and Administrative | 1,961 |
Marketing and Distribution | 234 |
Custodian Fees | 248 |
Shareholders’ Reports | 12 |
Trustees’ Fees and Expenses | 2 |
Total Expenses | 5,291 |
Net Investment Income | 15,938 |
Realized Net Gain (Loss) | |
Investment Securities Sold | 87,047 |
Futures Contracts | 7,383 |
Foreign Currencies and Forward Currency Contracts | (8,279) |
Realized Net Gain (Loss) | 86,151 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | 110,916 |
Futures Contracts | (957) |
Foreign Currencies and Forward Currency Contracts | 4,834 |
Change in Unrealized Appreciation (Depreciation) | 114,793 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 216,882 |
1 Dividends are net of foreign withholding taxes of $1,106,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
21
International Explorer Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | |
April 30, | October 31, | |
2015 | 2014 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 15,938 | 43,712 |
Realized Net Gain (Loss) | 86,151 | 172,966 |
Change in Unrealized Appreciation (Depreciation) | 114,793 | (166,772) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 216,882 | 49,906 |
Distributions | ||
Net Investment Income | (45,599) | (52,360) |
Realized Capital Gain1 | (153,304) | (35,904) |
Total Distributions | (198,903) | (88,264) |
Capital Share Transactions | ||
Issued | 276,251 | 653,367 |
Issued in Lieu of Cash Distributions | 183,328 | 81,125 |
Redeemed | (321,650) | (379,732) |
Net Increase (Decrease) from Capital Share Transactions | 137,929 | 354,760 |
Total Increase (Decrease) | 155,908 | 316,402 |
Net Assets | ||
Beginning of Period | 2,597,772 | 2,281,370 |
End of Period2 | 2,753,680 | 2,597,772 |
1 Includes fiscal 2015 and 2014 short-term gain distributions totaling $26,297,000 and $17,079,000, respectively. Short-term gain distributions
are treated as ordinary income dividends for tax purposes.
2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of ($16,116,000) and $13,317,000.
See accompanying Notes, which are an integral part of the Financial Statements.
22
International Explorer Fund
Financial Highlights
Six Months | ||||||
Ended | ||||||
For a Share Outstanding | April 30, | Year Ended October 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
Net Asset Value, Beginning of Period | $18.26 | $18.50 | $14.50 | $14.41 | $15.81 | $13.55 |
Investment Operations | ||||||
Net Investment Income | .123 | .335 | .327 | .362 | .322 | .237 |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | 1.319 | .133 | 4.078 | .287 | (1.498) | 2.225 |
Total from Investment Operations | 1.442 | .468 | 4.405 | .649 | (1.176) | 2.462 |
Distributions | ||||||
Dividends from Net Investment Income | (. 326) | (. 420) | (. 405) | (. 346) | (. 224) | (. 202) |
Distributions from Realized Capital Gains | (1.096) | (.288) | — | (.213) | — | — |
Total Distributions | (1.422) | (.708) | (. 405) | (. 559) | (. 224) | (. 202) |
Net Asset Value, End of Period | $18.28 | $18.26 | $18.50 | $14.50 | $14.41 | $15.81 |
Total Return1 | 8.74% | 2.66% | 31.13% | 5.02% | -7.60% | 18.38% |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $2,754 | $2,598 | $2,281 | $1,819 | $2,187 | $2,436 |
Ratio of Total Expenses to | ||||||
Average Net Assets2 | 0.42% | 0.40% | 0.36% | 0.43% | 0.42% | 0.39% |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 1.26% | 1.69% | 2.03% | 2.35% | 1.93% | 1.67% |
Portfolio Turnover Rate | 38% | 39% | 36% | 28% | 43% | 51% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Total returns do not include transaction or account service fees that may have applied in the periods shown. Fund prospectuses provide
information about any applicable transaction and account service fees.
2 Includes performance-based investment advisory fee increases (decreases) of 0.00%, 0.00%, (0.05%), 0.02%, 0.03%, and 0.00%.
See accompanying Notes, which are an integral part of the Financial Statements.
23
International Explorer Fund
Notes to Financial Statements
Vanguard International Explorer 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 United States corporations.
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 acquired over 60 days to maturity 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. Other temporary cash investments are valued at amortized cost, which approximates market value.
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 and Forward Currency 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 stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearing-house imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.
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International Explorer Fund
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 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. 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 assets pledged as collateral for open contracts are noted in the Statement of Net Assets. 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.
Futures contracts are valued at their quoted daily settlement prices. 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 aggregate settlement values and notional amounts of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures or forward currency contracts.
During the six months ended April 30, 2015, the fund’s average investments in long and short futures contracts represented 2% and 0% of net assets, respectively, based on the average of aggregate settlement values at each quarter-end during the period. The fund’s average investment in forward currency contracts represented 4% of net assets, based on the average of notional amounts at each quarter-end during the period.
4. Repurchase Agreements: The fund enters into repurchase agreements with institutional counter-parties. Securities pledged as collateral to the fund under repurchase agreements are held by a custodian bank until the agreements mature. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal. The fund further mitigates its counterparty risk by entering into repurchase agreements only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master repurchase agreements with its counterparties. The master repurchase agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any repurchase agreements with that counterparty, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund. Such action may be subject to legal proceedings, which may delay or limit the disposition of collateral.
25
International Explorer Fund
5. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (October 31, 2011–2014), and for the period ended April 30, 2015, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
6. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
7. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
8. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn 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 this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at April 30, 2015, or at any time during the period then ended.
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 purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
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International Explorer Fund
B. Schroder Investment Management North America Inc. 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 fees of Schroder Investment Management North America Inc. and Wellington Management Company LLP are subject to quarterly adjustments based on performance for the preceding three years relative to the S&P EPAC SmallCap Index.
The Vanguard Group manages the cash reserves of the fund on an at-cost basis.
For the six months ended April 30, 2015, the aggregate investment advisory fee represented an effective annual basic rate of 0.22% of the fund’s average net assets, before an increase of $57,000 (0.00%) based on performance.
C. The Vanguard Group furnishes at cost corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the fund based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At April 30, 2015, the fund had contributed capital of $237,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.09% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
D. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments).
The following table summarizes the market value of the fund’s investments as of April 30, 2015, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 32,723 | 2,547,643 | — |
Temporary Cash Investments | 214,838 | 18,198 | — |
Futures Contracts—Assets1 | 51 | — | — |
Futures Contracts—Liabilities1 | (570) | — | — |
Forward Currency Contracts—Assets | — | 2,473 | — |
Forward Currency Contracts—Liabilities | — | (45) | — |
Total | 247,042 | 2,568,269 | — |
1 Represents variation margin on the last day of the reporting period. |
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International Explorer Fund
E. At April 30, 2015, the fair values of derivatives were reflected in the Statement of Net Assets as follows:
Foreign | |||
Equity | Exchange | ||
Contracts | Contracts | Total | |
Statement of Net Assets Caption | ($000) | ($000) | ($000) |
Other Assets | 51 | 2,473 | 2,524 |
Liabilities | (570) | (45) | (615) |
Realized net gain (loss) and the change in unrealized appreciation (depreciation) on derivatives for the six months ended April 30, 2015, were:
Foreign | |||
Equity | Exchange | ||
Contracts | Contracts | Total | |
Realized Net Gain (Loss) on Derivatives | ($000) | ($000) | ($000) |
Futures Contracts | 7,383 | — | 7,383 |
Forward Currency Contracts | — | (7,962) | (7,962) |
Realized Net Gain (Loss) on Derivatives | 7,383 | (7,962) | (579) |
Change in Unrealized Appreciation (Depreciation) on Derivatives | |||
Futures Contracts | (957) | — | (957) |
Forward Currency Contracts | — | 4,593 | 4,593 |
Change in Unrealized Appreciation (Depreciation) on Derivatives | (957) | 4,593 | 3,636 |
At April 30, 2015, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were:
($000) | ||||
Aggregate | ||||
Number of | Settlement | Unrealized | ||
Long (Short) | Value | Appreciation | ||
Futures Contracts | Expiration | Contracts | Long (Short) | (Depreciation) |
FTSE 100 Index | June 2015 | 271 | 28,857 | 665 |
Topix Index | June 2015 | 138 | 18,318 | 583 |
Dow Jones EURO STOXX 50 Index | June 2015 | 347 | 13.874 | (96) |
S&P ASX 200 Index | June 2015 | 88 | 9,990 | (149) |
1,003 |
Unrealized appreciation (depreciation) on open FTSE 100 Index and Dow Jones EURO STOXX 50 Index futures contracts is required to be treated as realized gain (loss) for tax purposes.
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International Explorer Fund
At April 30, 2015, the fund had open forward currency contracts to receive and deliver currencies as follows. Unrealized appreciation (depreciation) on open forward currency contracts is treated as realized gain (loss) for tax purposes.
Unrealized | ||||||
Contract | Appreciation | |||||
Settlement | Contract Amount (000) | (Depreciation) | ||||
Counterparty | Date | Receive | Deliver | ($000) | ||
BNP Paribas | 6/24/15 | GBP | 14,332 | USD | 21,157 | 834 |
Bank of America, N.A. | 6/16/15 | JPY | 2,524,668 | USD | 20,853 | 303 |
BNP Paribas | 6/24/15 | EUR | 10,741 | USD | 11.448 | 621 |
Bank of America, N.A. | 6/23/15 | AUD | 11,854 | USD | 8,987 | 365 |
Bank of America, N.A. | 6/24/15 | GBP | 2,437 | USD | 3,594 | 146 |
UBS AG | 6/16/15 | JPY | 319,200 | USD | 2,683 | (9) |
UBS AG | 6/24/15 | GBP | 1,619 | USD | 2,424 | 61 |
Bank of America, N.A. | 6/24/15 | EUR | 1,807 | USD | 1,948 | 83 |
Goldman Sachs International | 6/23/15 | AUD | 2,046 | USD | 1,554 | 60 |
The Toronto-Dominion Bank | 6/16/15 | USD | 6,404 | JPY | 766,798 | (21) |
UBS AG | 6/23/15 | USD | 769 | AUD | 994 | (15) |
2,428 | ||||||
AUD—Australian dollar. | ||||||
EUR—Euro. | ||||||
GBP—British pound. | ||||||
JPY—Japanese yen. | ||||||
USD—U.S. dollar. |
At April 30, 2015, the counterparty had deposited in segregated accounts securities with a value of $2,285,000 in connection with amounts due to the fund for open forward currency contracts.
F. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; such differences are primarily attributed to the tax treatment of unrealized appreciation on passive foreign investment companies. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
Certain of the fund’s investments are in securities considered to be passive foreign investment companies, for which any unrealized appreciation and/or realized gains are required to be included in distributable net investment income for tax purposes. Passive foreign investment companies had unrealized appreciation of $23,947,000 at April 30, 2015.
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International Explorer Fund
At April 30, 2015, the cost of investment securities for tax purposes was $2,398,279,000. Net unrealized appreciation of investment securities for tax purposes was $415,123,000, consisting of unrealized gains of $568,054,000 on securities that had risen in value since their purchase and $152,931,000 in unrealized losses on securities that had fallen in value since their purchase.
G. During the six months ended April 30, 2015, the fund purchased $466,216,000 of investment securities and sold $564,914,000 of investment securities, other than temporary cash investments.
H. Capital shares issued and redeemed were:
Six Months Ended | Year Ended | |
April 30, 2015 | October 31, 2014 | |
Shares | Shares | |
(000) | (000) | |
Issued | 15,763 | 34,696 |
Issued in Lieu of Cash Distributions | 11,118 | 4,589 |
Redeemed | (18,566) | (20,296) |
Net Increase (Decrease) in Shares Outstanding | 8,315 | 18,989 |
I. Certain of the fund’s investments are in companies that are considered to be affiliated companies of the fund because the fund owns more than 5% of the outstanding voting securities of the company or the issuer is another member of The Vanguard Group. Transactions during the period in securities of these companies were as follows:
Current Period Transactions | ||||||
Oct. 31, | Proceeds | Apr. 30, | ||||
2014 | from | Capital Gain | 2015 | |||
Market | Purchases | Securities | Distributions | Market | ||
Value | at Cost | Sold | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
Bufab Holding AB | NA1 | 3,079 | — | — | — | 13,558 |
Vanguard Market Liquidity Fund | 151,072 | NA 2 | NA 2 | 76 | — | 214,838 |
Total | 151,072 | 76 | — | 228,396 | ||
1 Not applicable—at October 31, 2014, the issuer was not an affiliated company of the fund. | ||||||
2 Not applicable—purchases and sales are for temporary cash investment purposes. |
J. Management has determined that no material events or transactions occurred subsequent to April 30, 2015, that would require recognition or disclosure in these financial statements.
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About Your Fund’s Expenses
As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table illustrates your fund’s costs in two ways:
• Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund‘s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading ”Expenses Paid During Period.“
• Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.
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Six Months Ended April 30, 2015 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
International Explorer Fund | 10/31/2014 | 4/30/2015 | Period |
Based on Actual Fund Return | $1,000.00 | $1,087.42 | $2.17 |
Based on Hypothetical 5% Yearly Return | 1,000.00 | 1,022.71 | 2.11 |
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 0.42%. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account
value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most
recent 12-month period.
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Glossary
Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Dividend Yield. Dividend income earned by stocks, expressed as a percentage of the aggregate market value (or of net asset value, for a fund). The yield is determined by dividing the amount of the annual dividends by the aggregate value (or net asset value) at the end of the period. For a fund, the dividend yield is based solely on stock holdings and does not include any income produced by other investments.
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.
Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.
Price/Earnings Ratio. The ratio of a stock’s current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company’s future growth.
R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0. For this report, R-squared is based on returns over the past 36 months for both the fund and the index.
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Return on Equity. The annual average rate of return generated by a company during the past five years for each dollar of shareholder’s equity (net income divided by shareholder’s equity). For a fund, the weighted average return on equity for the companies whose stocks it holds.
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
Turnover Rate. An indication of the fund’s trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to investors). The turnover rate excludes in-kind transactions, which have minimal impact on costs.
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The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 178 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
InterestedTrustee1 | Rajiv L. Gupta |
Born 1945. Trustee Since December 2001.2 Principal | |
F. William McNabb III | Occupation(s) During the Past Five Years and Other |
Born 1957. Trustee Since July 2009. Chairman of | Experience: Chairman and Chief Executive Officer |
the Board. Principal Occupation(s) During the Past | (retired 2009) and President (2006–2008) of |
Five Years and Other Experience: Chairman of the | Rohm and Haas Co. (chemicals); Director of Tyco |
Board of The Vanguard Group, Inc., and of each of | International PLC (diversified manufacturing and |
the investment companies served by The Vanguard | services), Hewlett-Packard Co. (electronic computer |
Group, since January 2010; Director of The Vanguard | manufacturing), and Delphi Automotive PLC |
Group since 2008; Chief Executive Officer and | (automotive components); Senior Advisor at New |
President of The Vanguard Group, and of each of | Mountain Capital. |
the investment companies served by The Vanguard | |
Group, since 2008; Director of Vanguard Marketing | Amy Gutmann |
Corporation; Managing Director of The Vanguard | Born 1949. Trustee Since June 2006. Principal |
Group (1995–2008). | Occupation(s) During the Past Five Years and |
Other Experience: President of the University of | |
IndependentTrustees | Pennsylvania; Christopher H. Browne Distinguished |
Professor of Political Science, School of Arts and | |
Emerson U. Fullwood | Sciences, and Professor of Communication, Annenberg |
Born 1948. Trustee Since January 2008. Principal | School for Communication, with secondary faculty |
Occupation(s) During the Past Five Years and | appointments in the Department of Philosophy, School |
Other Experience: Executive Chief Staff and | of Arts and Sciences, and at the Graduate School of |
Marketing Officer for North America and Corporate | Education, University of Pennsylvania; Trustee of the |
Vice President (retired 2008) of Xerox Corporation | National Constitution Center; Chair of the Presidential |
(document management products and services); | Commission for the Study of Bioethical Issues. |
Executive in Residence and 2009–2010 Distinguished | |
Minett Professor at the Rochester Institute of | JoAnn Heffernan Heisen |
Technology; Director of SPX Corporation (multi-industry | Born 1950. Trustee Since July 1998. Principal |
manufacturing), the United Way of Rochester, | Occupation(s) During the Past Five Years and Other |
Amerigroup Corporation (managed health care), the | Experience: Corporate Vice President and Chief |
University of Rochester Medical Center, Monroe | Global Diversity Officer (retired 2008) and Member |
Community College Foundation, and North Carolina | of the Executive Committee (1997–2008) of Johnson |
A&T University. | & Johnson (pharmaceuticals/medical devices/ |
consumer products); Director of Skytop Lodge | |
Corporation (hotels), the University Medical Center | |
at Princeton, the Robert Wood Johnson Foundation, | |
and the Center for Talent Innovation; Member of | |
the Advisory Board of the Institute for Women’s | |
Leadership at Rutgers University. |
F. Joseph Loughrey | Executive Officers | |
Born 1949. Trustee Since October 2009. Principal | ||
Occupation(s) During the Past Five Years and Other | Glenn Booraem | |
Experience: President and Chief Operating Officer | Born 1967. Controller Since July 2010. Principal | |
(retired 2009) of Cummins Inc. (industrial machinery); | Occupation(s) During the Past Five Years and Other | |
Chairman of the Board of Hillenbrand, Inc. (specialized | Experience: Principal of The Vanguard Group, Inc.; | |
consumer services), and of Oxfam America; Director | Controller of each of the investment companies served | |
of SKF AB (industrial machinery), Hyster-Yale Materials | by The Vanguard Group; Assistant Controller of each of | |
Handling, Inc. (forklift trucks), the Lumina Foundation | the investment companies served by The Vanguard | |
for Education, and the V Foundation for Cancer | Group (2001–2010). | |
Research; Member of the Advisory Council for the | ||
College of Arts and Letters and of the Advisory Board | Thomas J. Higgins | |
to the Kellogg Institute for International Studies, both | Born 1957. Chief Financial Officer Since September | |
at the University of Notre Dame. | 2008. Principal Occupation(s) During the Past Five | |
Years and Other Experience: Principal of The Vanguard | ||
Mark Loughridge | Group, Inc.; Chief Financial Officer of each of the | |
Born 1953. Trustee Since March 2012. Principal | investment companies served by The Vanguard Group; | |
Occupation(s) During the Past Five Years and Other | Treasurer of each of the investment companies served | |
Experience: Senior Vice President and Chief Financial | by The Vanguard Group (1998–2008). | |
Officer (retired 2013) at IBM (information technology | ||
services); Fiduciary Member of IBM’s Retirement Plan | Kathryn J. Hyatt | |
Committee (2004–2013); Director of the Dow Chemical | Born 1955. Treasurer Since November 2008. Principal | |
Company; Member of the Council on Chicago Booth. | Occupation(s) During the Past Five Years and Other | |
Experience: Principal of The Vanguard Group, Inc.; | ||
Scott C. Malpass | Treasurer of each of the investment companies served | |
Born 1962. Trustee Since March 2012. Principal | by The Vanguard Group; Assistant Treasurer of each of | |
Occupation(s) During the Past Five Years and Other | the investment companies served by The Vanguard | |
Experience: Chief Investment Officer and Vice | Group (1988–2008). | |
President at the University of Notre Dame; Assistant | ||
Professor of Finance at the Mendoza College of | Heidi Stam | |
Business at Notre Dame; Member of the Notre Dame | Born 1956. Secretary Since July 2005. Principal | |
403(b) Investment Committee; Board Member of | Occupation(s) During the Past Five Years and Other | |
TIFF Advisory Services, Inc., and Catholic Investment | Experience: Managing Director of The Vanguard | |
Services, Inc. (investment advisors); Member of | Group, Inc.; General Counsel of The Vanguard Group; | |
the Investment Advisory Committee of Major | Secretary of The Vanguard Group and of each of the | |
League Baseball. | investment companies served by The Vanguard Group; | |
Director and Senior Vice President of Vanguard | ||
André F. Perold | Marketing Corporation. | |
Born 1952. Trustee Since December 2004. Principal | ||
Occupation(s) During the Past Five Years and Other | Vanguard Senior ManagementTeam | |
Experience: George Gund Professor of Finance and | ||
Banking, Emeritus at the Harvard Business School | Mortimer J. Buckley | Chris D. McIsaac |
(retired 2011); Chief Investment Officer and Managing | Kathleen C. Gubanich | Michael S. Miller |
Partner of HighVista Strategies LLC (private investment | Paul A. Heller | James M. Norris |
firm); Director of Rand Merchant Bank; Overseer of | Martha G. King | Glenn W. Reed |
the Museum of Fine Arts Boston. | John T. Marcante | |
Peter F. Volanakis | Chairman Emeritus and Senior Advisor | |
Born 1955. Trustee Since July 2009. Principal | ||
Occupation(s) During the Past Five Years and Other | John J. Brennan | |
Experience: President and Chief Operating Officer | Chairman, 1996–2009 | |
(retired 2010) of Corning Incorporated (communications | Chief Executive Officer and President, 1996–2008 | |
equipment); Trustee of Colby-Sawyer College; | ||
Member of the Advisory Board of the Norris Cotton | ||
Cancer Center and of the Advisory Board of the | Founder | |
Parthenon Group (strategy consulting). | ||
John C. Bogle | ||
Chairman and Chief Executive Officer, 1974–1996 |
1 Mr. McNabb is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the
Vanguard funds.
2 December 2002 for Vanguard Equity Income Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.
P.O. Box 2600 | |
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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 Lipper, a | |
Thomson Reuters Company, or 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, 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 sec.gov. | |
You can review and copy information about your fund at | |
the SEC’s Public Reference Room in Washington, D.C. To | |
find out more about this public service, call the SEC at | |
202-551-8090. Information about your fund is also | |
available on the SEC’s website, and you can receive | |
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Commission, Washington, DC 20549-1520. | |
© 2015 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q1262 062015 |
Semiannual Report | April 30, 2015
Vanguard High Dividend Yield Index Fund
The mission continues
On May 1, 1975, Vanguard began operations, a fledgling company based on the simple but revolutionary idea that a mutual fund company should be managed solely in the interest of its investors.
Four decades later, that revolutionary spirit continues to animate the enterprise. Vanguard remains on a mission to give investors the best chance of investment success.
As we mark our 40th anniversary, we thank you for entrusting your assets to Vanguard and giving us the opportunity to help you reach your financial goals in the decades to come.
Contents | |
Your Fund’s Total Returns. | 1 |
Chairman’s Letter. | 2 |
Fund Profile. | 7 |
Performance Summary. | 9 |
Financial Statements. | 10 |
About Your Fund’s Expenses. | 25 |
Trustees Approve Advisory Arrangement. | 27 |
Glossary. | 28 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice.
Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the
risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
About the cover: Since our founding, Vanguard has drawn inspiration from the enterprise and valor demonstrated by British
naval hero Horatio Nelson and his command at the Battle of the Nile in 1798. The photograph displays a replica of a merchant
ship from the same era as Nelson’s flagship, the HMS Vanguard.
Your Fund’s Total Returns
Six Months Ended April 30, 2015 | |
Total | |
Returns | |
Vanguard High Dividend Yield Index Fund | |
Investor Shares | 3.43% |
ETF Shares | |
Market Price | 3.46 |
Net Asset Value | 3.47 |
FTSE High Dividend Yield Index | 3.51 |
Equity Income Funds Average | 3.02 |
Equity Income Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.
The Vanguard ETF® Shares shown are traded on the NYSE Arca exchange and are available only through brokers. The table provides ETF
returns based on both the NYSE Arca market price and the net asset value for a share. U.S. Pat. Nos. 6,879,964; 7,337,138; 7,720,749;
7,925,573; 8,090,646; and 8,417,623.
For the ETF Shares, the market price is determined by the midpoint of the bid-offer spread as of the closing time of the New York Stock
Exchange (generally 4 p.m., Eastern time). The net asset value is also determined as of the NYSE closing time. For more information about
how the ETF Shares' market prices have compared with their net asset value, visit vanguard.com, select your ETF, and then select the Price
and Performance tab. The ETF premium/discount analysis there shows the percentages of days on which the ETF Shares' market price was
above or below the NAV.
Your Fund’s Performance at a Glance
October 31, 2014, Through April 30, 2015
Distributions Per Share | ||||
Starting | Ending | Income | Capital | |
Share Price | Share Price | Dividends | Gains | |
Vanguard High Dividend Yield Index Fund | ||||
Investor Shares | $26.98 | $27.50 | $0.395 | $0.000 |
ETF Shares | 68.11 | 69.44 | 1.024 | 0.000 |
1
Chairman’s Letter
Dear Shareholder,
For the six months ended April 30, 2015, Vanguard High Dividend Yield Index Fund returned 3.43% for Investor Shares and 3.47% for ETF Shares based on net asset value. The fund met its objective of closely tracking the performance of its target, the FTSE High Dividend Yield Index, and it topped the average return of its peers.
However, the fund trailed the broad U.S. stock market. Dividend-paying funds primarily invest in large-capitalization stocks, but investors during the period mostly favored mid-caps over large- and small-caps and also favored growth stocks over their value counterparts.
At the period’s close, the 30-day SEC yield of the fund’s Investor Shares was 3.06%, compared with the 1.76% yield of the broad stock market, as measured by Investor Shares of Vanguard Total Stock Market Index Fund.
The fund posted positive results in eight of its ten market sectors. Technology stocks were by far the leading contributor to performance.
U.S. stocks closed out higher despite fluctuating returns
U.S. stocks returned almost 5% for the six months, despite stretches of shakiness. In two of those months, stocks declined. In two others, they were virtually unchanged or gained less than 1%. February’s surge of almost 6%, the largest monthly gain since October 2011, lifted stocks for the period.
2
The Federal Reserve’s careful approach to potentially raising short-term interest rates helped stocks along, as did monetary stimulus efforts by other nations’ central banks. These factors offset concerns that ranged from Greece’s debt crisis to the negative effect of the strong U.S. dollar on the profits of U.S.-based multinational companies.
For U.S. investors, international stocks returned about 6%. Still, results were restrained by the dollar’s strength against many foreign currencies. Returns for the developed markets of the Pacific region, led by Japan, exceeded those of Europe and emerging markets. (You can read about Vanguard’s assessment of Japan’s economy in Japan: The Long Road Back to Inflation, available at vanguard.com/ research. This is part of the Global Macro Matters series produced by our economists.)
Stimulus policies and demand have driven up bond prices
Like equities, bonds have benefited from accommodative monetary policies from the world’s central banks. Investor demand for the perceived safety of fixed income assets has also boosted bond returns.
Market Barometer | |||
Total Returns | |||
Periods Ended April 30, 2015 | |||
Six | One | Five Years | |
Months | Year | (Annualized) | |
Stocks | |||
Russell 1000 Index (Large-caps) | 4.75% | 13.00% | 14.47% |
Russell 2000 Index (Small-caps) | 4.65 | 9.71 | 12.73 |
Russell 3000 Index (Broad U.S. market) | 4.74 | 12.74 | 14.33 |
FTSE All-World ex US Index (International) | 6.00 | 3.53 | 6.40 |
Bonds | |||
Barclays U.S. Aggregate Bond Index (Broad taxable market) | 2.06% | 4.46% | 4.12% |
Barclays Municipal Bond Index (Broad tax-exempt market) | 1.17 | 4.80 | 4.75 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.00 | 0.03 | 0.05 |
CPI | |||
Consumer Price Index | -0.35% | -0.20% | 1.65% |
3
The broad U.S. taxable bond market returned 2.06% for the period, and the yield of the 10-year U.S. Treasury note ended April at 2.04%, down from 2.31% six months earlier. (Bond prices and yields move in opposite directions.)
International bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –4.83% as foreign currencies’ weakness relative to the dollar affected results. For international bonds hedged to eliminate the effect of changes in currency exchange rates, returns were positive.
Returns of money market funds and savings accounts remained checked by the Fed’s target of 0%–0.25% for short-term interest rates.
Technology led the fund’s results even as its weighting was reduced
Technology turned in the best sector performance for the fund, returning about 13%. The sector, which includes hardware and software makers and computer service companies, was powered by Apple, which alone averaged about 6% of the index’s market value during the half year and produced more than one-third of the fund’s advance.
Expense Ratios | |||
Your Fund Compared With Its Peer Group | |||
Investor | ETF | Peer Group | |
Shares | Shares | Average | |
High Dividend Yield Index Fund | 0.18% | 0.10% | 1.22% |
The fund expense ratios shown are from the prospectus dated February 25, 2015, and represent estimated costs for the current fiscal year.
For the six months ended April 30, 2015, the fund’s annualized expense ratios were 0.16% for Investor Shares and 0.09% for ETF Shares. The
peer-group expense ratio is derived from data provided by Lipper, a Thomson Reuters Company, and captures information through year-end
2014.
Peer group: Equity Income Funds.
4
By the end of the period, though, Apple had been dropped from the benchmark and consequently from the fund’s portfolio, reducing the tech sector’s weighting. Benchmark provider FTSE Group made the move during its annual reconstitution of the index this past March. Apple was first added to the index in March 2014 because it had boosted its dividend.
But this past March, its stock price surged to the point that its dividend, expressed as a percentage of the price, was no longer high enough to meet FTSE’s threshold requiring above-average dividends.
Consequently, consumer goods became the index’s largest sector by April 30. These companies, which sell staples such as food, beverages, and autos, had tepid returns (+2%). But consumer services stocks (+6%) were noteworthy contributors as investors anticipated increased discretionary spending given rising employment and lower energy prices. Big retailers and media companies were the best performers in that industry.
Health care stocks rose about 4%, helped by investor enthusiasm over mergers and acquisitions among large pharmaceutical firms. New drugs moving closer to market also boosted investor interest.
Financial stocks, the fund’s second-largest sector by the end of the period, returned close to 5% as banks and financial service firms saw higher loan volumes.
Not surprisingly, oil and gas stocks were the biggest losers, returning about –6%. The plunge in oil and natural gas prices hit energy companies hard, particularly ones that explore and drill for oil and gas. These “upstream” firms are more vulnerable to falling prices than“downstream” companies that transport and sell energy to consumers.
Promoting good corporate governance is one way we protect your interests
Our core purpose is “to take a stand for all investors, to treat them fairly, and to give them the best chance for investment success.” This means more than offering smart investments, trustworthy guidance, and low fees. It also means working with the companies held by Vanguard funds to make sure your interests remain paramount.
How do we meet that responsibility? As one of the world’s largest investment managers, we are making our voice heard in corporate boardrooms to promote the highest standards of stewardship. Our advocacy encompasses a range of corporate governance issues, including executive compensation and succession planning, board composition and effectiveness, oversight of strategy and risk, and communication with shareholders.
We also exert our influence in a very important way when Vanguard funds cast their proxy votes at companies’ shareholder meetings.
5
Most of these votes occur at this time of year, making it an appropriate time to remind you that we work hard to represent your best interests. Good governance, we believe, is essential for any company seeking to maximize its long-term returns to shareholders. You can learn more about our efforts at vanguard.com/corporategovernance.
Thank you for your confidence in Vanguard.
Sincerely,
F. William McNabb III
Chairman and Chief Executive Officer
May 13, 2015
High Dividend Yield Index Fund
Fund Profile
As of April 30, 2015
Share-Class Characteristics | ||
Investor | ETF | |
Shares | Shares | |
Ticker Symbol | VHDYX | VYM |
Expense Ratio1 | 0.18% | 0.10% |
30-Day SEC Yield | 3.06% | 3.13% |
Portfolio Characteristics | |||
DJ | |||
U.S. | |||
FTSE High | Total | ||
Dividend | Market | ||
Yield | FA | ||
Fund | Index | Index | |
Number of Stocks | 435 | 431 | 3,748 |
Median Market Cap | $104.5B | $104.5B | $50.1B |
Price/Earnings Ratio | 17.7x | 17.7x | 21.1x |
Price/Book Ratio | 2.7x | 2.7x | 2.8x |
Return on Equity | 18.9% | 18.9% | 17.9% |
Earnings Growth | |||
Rate | 7.3% | 7.3% | 13.2% |
Dividend Yield | 3.2% | 3.2% | 1.9% |
Foreign Holdings | 0.0% | 0.0% | 0.0% |
Turnover Rate | |||
(Annualized) | 11% | — | — |
Short-Term | |||
Reserves | -0.1% | — | — |
Volatility Measures | ||
FTSE High | DJ | |
Dividend | U.S. Total | |
Yield | Market | |
Index | FA Index | |
R-Squared | 1.00 | 0.86 |
Beta | 1.00 | 0.89 |
These measures show the degree and timing of the fund’s fluctuations compared with the indexes over 36 months.
Ten Largest Holdings (% of total net assets) | ||
Exxon Mobil Corp. | Integrated Oil & Gas | 4.3% |
Microsoft Corp. | Software | 4.2 |
Wells Fargo & Co. | Banks | 3.3 |
Johnson & Johnson | Pharmaceuticals | 3.2 |
General Electric Co. | Diversified Industrials | 3.2 |
JPMorgan Chase & Co. | Banks | 2.7 |
Procter & Gamble Co. | Nondurable | |
Household Products | 2.5 | |
Chevron Corp. | Integrated Oil & Gas | 2.4 |
Pfizer Inc. | Pharmaceuticals | 2.4 |
Verizon Communications Fixed Line | ||
Inc. | Telecommunications | 2.4 |
Top Ten | 30.6% |
The holdings listed exclude any temporary cash investments and equity index products.
Investment Focus
1 The expense ratios shown are from the prospectus dated February 25, 2015, and represent estimated costs for the current fiscal year. For the six
months ended April 30, 2015, the annualized expense ratios were 0.16% for Investor Shares and 0.09% for ETF Shares.
7
High Dividend Yield Index Fund
Sector Diversification (% of equity exposure) | |||
DJ | |||
U.S. | |||
FTSE High | Total | ||
Dividend | Market | ||
Yield | FA | ||
Fund | Index | Index | |
Basic Materials | 3.5% | 3.5% | 2.8% |
Consumer Goods | 14.5 | 14.5 | 9.8 |
Consumer Services | 6.2 | 6.2 | 14.1 |
Financials | 14.0 | 14.0 | 18.7 |
Health Care | 11.5 | 11.5 | 13.4 |
Industrials | 12.0 | 12.0 | 12.4 |
Oil & Gas | 12.3 | 12.3 | 7.8 |
Technology | 13.5 | 13.5 | 15.9 |
Telecommunications | 4.9 | 4.9 | 2.1 |
Utilities | 7.6 | 7.6 | 3.0 |
8
High Dividend Yield Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): November 16, 2006, Through April 30, 2015
Average Annual Total Returns: Periods Ended March 31, 2015
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
Inception | One | Five | Since | |
Date | Year | Years | Inception | |
Investor Shares | 11/16/2006 | 10.93% | 14.78% | 6.74% |
ETF Shares | 11/10/2006 | |||
Market Price | 11.04 | 14.89 | 6.96 | |
Net Asset Value | 11.00 | 14.89 | 6.95 |
See Financial Highlights for dividend and capital gains information.
9
High Dividend Yield Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of April 30, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Market | ||
Value | ||
Shares | ($000) | |
Common Stocks (99.7%)1 | ||
Basic Materials (3.5%) | ||
EI du Pont de Nemours | ||
& Co. | 1,647,858 | 120,623 |
Dow Chemical Co. | 2,105,891 | 107,400 |
LyondellBasell Industries | ||
NV Class A | 729,072 | 75,474 |
Air Products & | ||
Chemicals Inc. | 389,761 | 55,903 |
Freeport-McMoRan Inc. | 1,887,937 | 43,932 |
International Paper Co. | 776,823 | 41,731 |
Nucor Corp. | 576,229 | 28,155 |
RPM International Inc. | 241,825 | 11,496 |
Avery Dennison Corp. | 164,509 | 9,145 |
Steel Dynamics Inc. | 411,800 | 9,113 |
Reliance Steel & | ||
Aluminum Co. | 131,506 | 8,511 |
Huntsman Corp. | 293,743 | 6,771 |
Compass Minerals | ||
International Inc. | 60,086 | 5,307 |
Domtar Corp. | 109,847 | 4,748 |
Olin Corp. | 136,204 | 4,022 |
Commercial Metals Co. | 189,909 | 3,152 |
Worthington Industries Inc. | 97,544 | 2,637 |
Tronox Ltd. Class A | 114,267 | 2,394 |
A Schulman Inc. | 53,070 | 2,253 |
Innophos Holdings Inc. | 39,300 | 2,077 |
544,844 | ||
Consumer Goods (14.4%) | ||
Procter & Gamble Co. | 4,944,071 | 393,103 |
Coca-Cola Co. | 7,594,557 | 308,035 |
PepsiCo Inc. | 2,696,251 | 256,467 |
Philip Morris | ||
International Inc. | 2,841,333 | 237,166 |
Altria Group Inc. | 3,607,695 | 180,565 |
Ford Motor Co. | 7,066,458 | 111,650 |
General Motors Co. | 2,658,593 | 93,210 |
Kraft Foods Group Inc. | 1,070,873 | 90,757 |
Kimberly-Clark Corp. | 677,499 | 74,315 |
General Mills Inc. | 1,098,260 | 60,778 |
Lorillard Inc. | 658,906 | 46,031 |
Reynolds American Inc. | 560,568 | 41,090 |
Kellogg Co. | 448,415 | 28,398 |
Stanley Black & Decker Inc. 282,416 | 27,874 | |
ConAgra Foods Inc. | 767,910 | 27,760 |
Dr Pepper Snapple | ||
Group Inc. | 355,022 | 26,478 |
Clorox Co. | 238,656 | 25,321 |
Genuine Parts Co. | 279,679 | 25,129 |
Autoliv Inc. | 164,732 | 19,557 |
Coach Inc. | 498,859 | 19,061 |
Coca-Cola Enterprises Inc. | 428,225 | 19,017 |
Molson Coors Brewing Co. | ||
Class B | 251,879 | 18,516 |
Mattel Inc. | 615,823 | 17,342 |
Campbell Soup Co. | 330,478 | 14,776 |
Hasbro Inc. | 205,842 | 14,572 |
Leggett & Platt Inc. | 249,838 | 10,611 |
Ingredion Inc. | 118,094 | 9,377 |
Pinnacle Foods Inc. | 209,054 | 8,477 |
Flowers Foods Inc. | 315,580 | 7,050 |
Avon Products Inc. | 786,385 | 6,425 |
Tupperware Brands Corp. | 81,053 | 5,419 |
Nu Skin Enterprises Inc. | ||
Class A | 91,975 | 5,201 |
Scotts Miracle-Gro Co. | ||
Class A | 63,729 | 4,111 |
Vector Group Ltd. | 145,717 | 3,228 |
B&G Foods Inc. | 96,889 | 2,945 |
Steelcase Inc. Class A | 160,314 | 2,817 |
Snyder’s-Lance Inc. | 83,511 | 2,466 |
Schweitzer-Mauduit | ||
International Inc. | 52,155 | 2,306 |
Universal Corp. | 40,848 | 1,921 |
MDC Holdings Inc. | 70,487 | 1,892 |
Knoll Inc. | 82,602 | 1,881 |
10
High Dividend Yield Index Fund
Market | |||
Value | |||
Shares | ($000) | ||
Cosan Ltd. | 238,169 | 1,729 | |
Briggs & Stratton Corp. | 75,037 | 1,467 | |
Superior Industries | |||
International Inc. | 42,193 | 785 | |
National Presto | |||
Industries Inc. | 9,898 | 619 | |
2,257,695 | |||
Consumer Services (6.1%) | |||
Wal-Mart Stores Inc. | 2,950,289 | 230,270 | |
McDonald’s Corp. | 1,770,162 | 170,909 | |
Target Corp. | 1,148,007 | 90,497 | |
Time Warner Cable Inc. | 510,942 | 79,462 | |
Sysco Corp. | 1,069,464 | 39,602 | |
Las Vegas Sands Corp. | 729,490 | 38,575 | |
L Brands Inc. | 397,090 | 35,484 | |
Omnicom Group Inc. | 451,451 | 34,202 | |
Carnival Corp. | 758,168 | 33,337 | |
Kohl’s Corp. | 341,813 | 24,491 | |
Staples Inc. | 1,164,190 | 19,000 | |
Wynn Resorts Ltd. | 148,167 | 16,457 | |
H&R Block Inc. | 500,092 | 15,123 | |
Darden Restaurants Inc. | 225,703 | 14,393 | |
Gannett Co. Inc. | 410,584 | 14,091 | |
KAR Auction Services Inc. | 249,933 | 9,300 | |
Cinemark Holdings Inc. | 188,772 | 8,047 | |
Six Flags | |||
Entertainment Corp. | 169,050 | 7,949 | |
^ | GameStop Corp. Class A | 195,999 | 7,554 |
Cablevision Systems Corp. | |||
Class A | 348,804 | 6,969 | |
Cracker Barrel Old | |||
Country Store Inc. | 40,438 | 5,357 | |
American Eagle | |||
Outfitters Inc. | 330,135 | 5,252 | |
Time Inc. | 195,863 | 4,472 | |
^,* | International Game | ||
Technology plc | 201,541 | 4,103 | |
Meredith Corp. | 66,596 | 3,466 | |
Hillenbrand Inc. | 112,749 | 3,314 | |
Regal Entertainment | |||
Group Class A | 145,507 | 3,201 | |
DineEquity Inc. | 31,151 | 3,004 | |
Rent-A-Center Inc. | 95,303 | 2,821 | |
Abercrombie & Fitch Co. | 124,661 | 2,802 | |
SeaWorld | |||
Entertainment Inc. | 119,760 | 2,539 | |
Guess? Inc. | 124,063 | 2,272 | |
Extended Stay America Inc. | 103,045 | 2,088 | |
Buckle Inc. | 43,271 | 1,939 | |
Bob Evans Farms Inc. | 42,440 | 1,826 | |
Copa Holdings SA Class A | 16,327 | 1,811 | |
National CineMedia Inc. | 117,196 | 1,786 | |
New Media Investment | |||
Group Inc. | 76,747 | 1,775 |
Cato Corp. Class A | 43,265 | 1,702 |
Weis Markets Inc. | 24,588 | 1,090 |
Capella Education Co. | 20,049 | 1,083 |
Stage Stores Inc. | 50,546 | 976 |
Speedway Motorsports Inc. 26,384 | 604 | |
Harte-Hanks Inc. | 77,735 | 528 |
CTC Media Inc. | 112,907 | 394 |
955,917 | ||
Financials (13.9%) | ||
Wells Fargo & Co. | 9,404,008 | 518,161 |
JPMorgan Chase & Co. | 6,756,690 | 427,428 |
PNC Financial Services | ||
Group Inc. | 957,165 | 87,801 |
MetLife Inc. | 1,651,586 | 84,710 |
BlackRock Inc. | 227,585 | 82,827 |
Prudential Financial Inc. | 833,119 | 67,983 |
ACE Ltd. | 603,442 | 64,562 |
Travelers Cos. Inc. | 584,629 | 59,112 |
Marsh & McLennan | ||
Cos. Inc. | 990,155 | 55,607 |
CME Group Inc. | 580,678 | 52,789 |
Aflac Inc. | 794,201 | 50,066 |
BB&T Corp. | 1,307,016 | 50,046 |
T. Rowe Price Group Inc. | 453,035 | 36,777 |
Invesco Ltd. | 787,940 | 32,636 |
Fifth Third Bancorp | 1,499,223 | 29,984 |
Principal Financial | ||
Group Inc. | 536,959 | 27,449 |
M&T Bank Corp. | 211,297 | 25,286 |
Regions Financial Corp. | 2,502,634 | 24,601 |
Western Union Co. | 950,972 | 19,286 |
FNF Group | 499,553 | 17,979 |
Huntington | ||
Bancshares Inc. | 1,486,678 | 16,145 |
Willis Group Holdings plc | 323,457 | 15,730 |
Navient Corp. | 746,419 | 14,585 |
Arthur J Gallagher & Co. | 299,774 | 14,338 |
New York Community | ||
Bancorp Inc. | 769,396 | 13,226 |
Cincinnati Financial Corp. | 258,348 | 13,083 |
PartnerRe Ltd. | 89,148 | 11,411 |
Lazard Ltd. Class A | 188,974 | 10,021 |
Axis Capital Holdings Ltd. | 173,492 | 9,032 |
Eaton Vance Corp. | 208,911 | 8,582 |
People’s United | ||
Financial Inc. | 560,266 | 8,466 |
PacWest Bancorp | 174,033 | 7,849 |
Cullen/Frost Bankers Inc. | 98,940 | 7,217 |
Waddell & Reed | ||
Financial Inc. Class A | 140,073 | 6,908 |
First American | ||
Financial Corp. | 194,546 | 6,768 |
Old Republic | ||
International Corp. | 433,746 | 6,632 |
11
High Dividend Yield Index Fund
Market | ||
Value | ||
Shares | ($000) | |
Umpqua Holdings Corp. | 389,179 | 6,620 |
Janus Capital Group Inc. | 335,880 | 6,012 |
FirstMerit Corp. | 293,878 | 5,692 |
Federated Investors Inc. | ||
Class B | 163,454 | 5,623 |
First Niagara Financial | ||
Group Inc. | 616,221 | 5,605 |
BankUnited Inc. | 167,972 | 5,520 |
Hanover Insurance | ||
Group Inc. | 79,477 | 5,450 |
Validus Holdings Ltd. | 129,388 | 5,412 |
ProAssurance Corp. | 103,263 | 4,642 |
Bank of Hawaii Corp. | 76,740 | 4,634 |
Endurance Specialty | ||
Holdings Ltd. | 74,463 | 4,496 |
Hancock Holding Co. | 148,228 | 4,315 |
Susquehanna | ||
Bancshares Inc. | 314,252 | 4,224 |
Fulton Financial Corp. | 334,589 | 4,069 |
United Bankshares Inc. | 106,176 | 3,990 |
FNB Corp. | 295,258 | 3,918 |
Valley National Bancorp | 400,751 | 3,779 |
Washington Federal Inc. | 173,289 | 3,743 |
Glacier Bancorp Inc. | 134,215 | 3,535 |
IBERIABANK Corp. | 56,520 | 3,522 |
RLI Corp. | 65,696 | 3,262 |
NRG Yield Inc. Class A | 62,183 | 3,059 |
Capitol Federal | ||
Financial Inc. | 254,020 | 3,048 |
Artisan Partners Asset | ||
Management Inc. Class A | 65,252 | 2,923 |
Columbia Banking | ||
System Inc. | 97,970 | 2,910 |
Old National Bancorp | 212,173 | 2,898 |
Mercury General Corp. | 49,584 | 2,724 |
National Penn | ||
Bancshares Inc. | 252,130 | 2,622 |
Trustmark Corp. | 110,123 | 2,621 |
Horace Mann | ||
Educators Corp. | 75,687 | 2,571 |
CVB Financial Corp. | 162,724 | 2,547 |
BOK Financial Corp. | 37,451 | 2,441 |
Kemper Corp. | 64,643 | 2,435 |
Community Bank | ||
System Inc. | 66,847 | 2,336 |
Northwest Bancshares Inc. | 183,749 | 2,262 |
BGC Partners Inc. Class A | 217,091 | 2,179 |
Boston Private Financial | ||
Holdings Inc. | 160,174 | 2,106 |
NBT Bancorp Inc. | 84,743 | 2,047 |
Greenhill & Co. Inc. | 51,573 | 2,040 |
Provident Financial | ||
Services Inc. | 113,202 | 2,038 |
Westamerica | ||
Bancorporation | 46,749 | 2,036 |
First Financial Bancorp | 117,241 | 2,024 |
WesBanco Inc. | 62,643 | 1,974 |
CNA Financial Corp. | 48,919 | 1,971 |
Chemical Financial Corp. | 63,631 | 1,966 |
Park National Corp. | 23,798 | 1,965 |
BBCN Bancorp Inc. | 134,900 | 1,914 |
Simmons First National | ||
Corp. Class A | 43,129 | 1,887 |
Renasant Corp. | 60,979 | 1,812 |
Independent Bank Corp. | 42,263 | 1,763 |
Safety Insurance | ||
Group Inc. | 28,954 | 1,684 |
American National | ||
Insurance Co. | 16,720 | 1,673 |
S&T Bancorp Inc. | 57,553 | 1,548 |
Maiden Holdings Ltd. | 103,727 | 1,507 |
Brookline Bancorp Inc. | 136,817 | 1,474 |
First Commonwealth | ||
Financial Corp. | 160,035 | 1,444 |
Cohen & Steers Inc. | 34,582 | 1,309 |
Oritani Financial Corp. | 86,457 | 1,288 |
City Holding Co. | 27,866 | 1,281 |
Sandy Spring Bancorp Inc. | 46,353 | 1,208 |
United Fire Group Inc. | 39,718 | 1,186 |
FBL Financial Group Inc. | ||
Class A | 19,825 | 1,155 |
TrustCo Bank Corp. NY | 170,670 | 1,138 |
Flushing Financial Corp. | 54,770 | 1,049 |
Tompkins Financial Corp. | 19,707 | 1,028 |
Washington Trust | ||
Bancorp Inc. | 27,343 | 1,012 |
OFG Bancorp | 67,111 | 946 |
Dime Community | ||
Bancshares Inc. | 57,451 | 915 |
Community Trust | ||
Bancorp Inc. | 27,017 | 867 |
1st Source Corp. | 27,351 | 851 |
BancFirst Corp. | 14,629 | 844 |
Stock Yards Bancorp Inc. | 22,989 | 800 |
First Financial Corp. | 19,023 | 646 |
Republic Bancorp Inc. | 19,056 | 453 |
Baldwin & Lyons Inc. | 12,631 | 287 |
* Communications Sales & | ||
Leasing Inc. | 98 | 3 |
Home Loan Servicing | ||
Solutions Ltd. | 110 | — |
2,177,861 | ||
Health Care (11.5%) | ||
Johnson & Johnson | 4,995,032 | 495,507 |
Pfizer Inc. | 11,148,221 | 378,259 |
Merck & Co. Inc. | 5,185,371 | 308,841 |
Bristol-Myers Squibb Co. | 3,002,422 | 191,344 |
12
High Dividend Yield Index Fund
Market | |||
Value | |||
Shares | ($000) | ||
AbbVie Inc. | 2,903,064 | 187,712 | |
Eli Lilly & Co. | 1,808,750 | 129,995 | |
Baxter International Inc. | 985,831 | 67,766 | |
Quest Diagnostics Inc. | 264,609 | 18,899 | |
Healthcare Services | |||
Group Inc. | 127,621 | 3,863 | |
Owens & Minor Inc. | 107,512 | 3,625 | |
Kindred Healthcare Inc. | 142,148 | 3,262 | |
^ Theravance Inc. | 155,088 | 2,520 | |
PDL BioPharma Inc. | 289,577 | 1,932 | |
Meridian Bioscience Inc. | 80,906 | 1,434 | |
1,794,959 | |||
Industrials (12.0%) | |||
General Electric Co. | 18,248,797 | 494,177 | |
3M Co. | 1,165,589 | 182,286 | |
Boeing Co. | 1,165,939 | 167,126 | |
United Parcel Service Inc. | |||
Class B | 1,284,820 | 129,163 | |
Lockheed Martin Corp. | 577,291 | 107,723 | |
Caterpillar Inc. | 1,101,201 | 95,672 | |
Emerson Electric Co. | 1,246,438 | 73,328 | |
Automatic Data | |||
Processing Inc. | 864,334 | 73,071 | |
Eaton Corp. plc | 859,754 | 59,091 | |
Raytheon Co. | 559,050 | 58,141 | |
Norfolk Southern Corp. | 561,927 | 56,670 | |
Deere & Co. | 585,487 | 52,998 | |
PACCAR Inc. | 643,078 | 42,025 | |
Waste Management Inc. | 833,020 | 41,260 | |
Paychex Inc. | 595,509 | 28,817 | |
Xerox Corp. | 2,076,887 | 23,884 | |
Republic Services Inc. | |||
Class A | 535,021 | 21,738 | |
Fastenal Co. | 492,500 | 20,990 | |
CH Robinson | |||
Worldwide Inc. | 266,162 | 17,138 | |
Packaging Corp. of America | 178,339 | 12,339 | |
ADT Corp. | 311,502 | 11,713 | |
Bemis Co. Inc. | 180,363 | 8,116 | |
MDU Resources Group Inc. | 353,139 | 7,872 | |
Sonoco Products Co. | 171,217 | 7,652 | |
RR Donnelley & Sons Co. | 360,473 | 6,712 | |
MSC Industrial | |||
Direct Co. Inc. Class A | 88,515 | 6,290 | |
National Instruments Corp. | 179,713 | 5,140 | |
Timken Co. | 130,749 | 5,137 | |
Covanta Holding Corp. | 191,343 | 3,882 | |
Teekay Corp. | 75,659 | 3,761 | |
GATX Corp. | 66,246 | 3,604 | |
ABM Industries Inc. | 96,723 | 3,100 | |
Aircastle Ltd. | 121,077 | 2,903 | |
Scorpio Tankers Inc. | 285,285 | 2,665 | |
MSA Safety Inc. | 56,655 | 2,591 |
Applied Industrial | ||
Technologies Inc. | 60,118 | 2,511 |
TAL International | ||
Group Inc. | 61,112 | 2,355 |
Harsco Corp. | 145,058 | 2,333 |
Brady Corp. Class A | 82,909 | 2,208 |
Nordic American | ||
Tankers Ltd. | 164,929 | 2,017 |
Greif Inc. Class A | 49,364 | 2,012 |
Seaspan Corp. Class A | 93,435 | 1,852 |
Otter Tail Corp. | 61,854 | 1,850 |
Ship Finance | ||
International Ltd. | 113,320 | 1,786 |
GasLog Ltd. | 72,237 | 1,610 |
General Cable Corp. | 87,703 | 1,430 |
AVX Corp. | 100,648 | 1,386 |
Raven Industries Inc. | 68,399 | 1,364 |
ManTech International | ||
Corp. Class A | 46,476 | 1,359 |
McGrath RentCorp | 40,812 | 1,351 |
Textainer Group | ||
Holdings Ltd. | 41,402 | 1,255 |
H&E Equipment | ||
Services Inc. | 49,843 | 1,232 |
Acacia Research Corp. | 96,738 | 1,066 |
Schnitzer Steel | ||
Industries Inc. | 51,449 | 896 |
Daktronics Inc. | 83,458 | 896 |
American Railcar | ||
Industries Inc. | 16,399 | 870 |
Myers Industries Inc. | 42,767 | 692 |
American Science & | ||
Engineering Inc. | 15,322 | 573 |
Powell Industries Inc. | 17,064 | 566 |
Navios Maritime | ||
Holdings Inc. | 143,086 | 542 |
1,874,787 | ||
Oil & Gas (12.3%) | ||
Exxon Mobil Corp. | 7,629,650 | 666,602 |
Chevron Corp. | 3,438,417 | 381,871 |
ConocoPhillips | 2,233,097 | 151,672 |
Kinder Morgan Inc. | 3,285,572 | 141,115 |
Occidental | ||
Petroleum Corp. | 1,410,478 | 112,979 |
Phillips 66 | 1,016,516 | 80,620 |
Williams Cos. Inc. | 1,359,385 | 69,587 |
Valero Energy Corp. | 948,081 | 53,946 |
Spectra Energy Corp. | 1,211,550 | 45,130 |
National Oilwell Varco Inc. | 782,736 | 42,589 |
Marathon Oil Corp. | 1,227,270 | 38,168 |
Helmerich & Payne Inc. | 185,933 | 14,497 |
Murphy Oil Corp. | 303,089 | 14,430 |
HollyFrontier Corp. | 356,157 | 13,812 |
13
High Dividend Yield Index Fund
Market | |||
Value | |||
Shares | ($000) | ||
OGE Energy Corp. | 362,452 | 11,845 | |
Ensco plc Class A | 421,727 | 11,505 | |
Targa Resources Corp. | 85,952 | 9,022 | |
Noble Corp. plc | 455,549 | 7,885 | |
SemGroup Corp. Class A | 73,503 | 6,188 | |
Golar LNG Ltd. | 166,021 | 5,976 | |
Patterson-UTI Energy Inc. | 260,110 | 5,813 | |
Denbury Resources Inc. | 632,110 | 5,569 | |
Western Refining Inc. | 122,886 | 5,413 | |
PBF Energy Inc. Class A | 154,864 | 4,395 | |
Atwood Oceanics Inc. | 116,187 | 3,878 | |
Delek US Holdings Inc. | 100,428 | 3,708 | |
Pattern Energy Group Inc. | |||
Class A | 93,127 | 2,699 | |
^ | Tidewater Inc. | 75,868 | 2,101 |
RPC Inc. | 114,445 | 1,821 | |
^ | CARBO Ceramics Inc. | 35,940 | 1,590 |
CVR Energy Inc. | 33,695 | 1,349 | |
Frank’s International NV | 57,966 | 1,206 | |
Ocean Rig UDW Inc. | 97,078 | 729 | |
W&T Offshore Inc. | 57,182 | 368 | |
1,920,078 | |||
Technology (13.5%) | |||
Microsoft Corp. | 13,429,296 | 653,201 | |
International Business | |||
Machines Corp. | 1,814,314 | 310,774 | |
Intel Corp. | 8,614,190 | 280,392 | |
Cisco Systems Inc. | 9,369,547 | 270,124 | |
QUALCOMM Inc. | 3,023,799 | 205,618 | |
Texas Instruments Inc. | 1,921,358 | 104,157 | |
Analog Devices Inc. | 570,138 | 35,257 | |
Seagate Technology plc | 569,647 | 33,450 | |
Symantec Corp. | 1,241,541 | 30,945 | |
Xilinx Inc. | 474,656 | 20,581 | |
Linear Technology Corp. | 433,977 | 20,019 | |
CA Inc. | 604,294 | 19,198 | |
Microchip Technology Inc. | 366,545 | 17,468 | |
KLA-Tencor Corp. | 295,997 | 17,404 | |
Maxim Integrated | |||
Products Inc. | 518,378 | 17,018 | |
Harris Corp. | 190,354 | 15,274 | |
Garmin Ltd. | 194,793 | 8,803 | |
Pitney Bowes Inc. | 365,938 | 8,186 | |
Cypress | |||
Semiconductor Corp. | 560,160 | 7,461 | |
Lexmark International Inc. | |||
Class A | 112,258 | 4,983 | |
Leidos Holdings Inc. | 110,972 | 4,621 | |
Diebold Inc. | 116,671 | 4,057 | |
Science Applications | |||
International Corp. | 68,177 | 3,416 | |
West Corp. | 92,528 | 2,864 | |
Cogent Communications | |||
Holdings Inc. | 78,327 | 2,741 |
Intersil Corp. Class A | 194,980 | 2,603 |
Quality Systems Inc. | 86,377 | 1,347 |
Brooks Automation Inc. | 120,786 | 1,300 |
Computer Programs & | ||
Systems Inc. | 20,561 | 1,076 |
Epiq Systems Inc. | 56,208 | 1,007 |
Comtech | ||
Telecommunications Corp. | 31,151 | 900 |
2,106,245 | ||
Telecommunications (4.9%) | ||
Verizon | ||
Communications Inc. | 7,423,524 | 374,443 |
AT&T Inc. | 9,505,401 | 329,267 |
CenturyLink Inc. | 1,037,251 | 37,300 |
Frontier | ||
Communications Corp. | 1,823,816 | 12,511 |
* Windstream Holdings Inc. | 181,396 | 2,119 |
Consolidated | ||
Communications | ||
Holdings Inc. | 96,979 | 2,043 |
EarthLink Holdings Corp. | 159,302 | 753 |
758,436 | ||
Utilities (7.6%) | ||
Duke Energy Corp. | 1,284,189 | 99,615 |
NextEra Energy Inc. | 791,586 | 79,895 |
Dominion Resources Inc. | 1,062,139 | 76,134 |
Southern Co. | 1,621,622 | 71,838 |
Exelon Corp. | 1,558,166 | 53,009 |
American Electric | ||
Power Co. Inc. | 885,490 | 50,358 |
Sempra Energy | 447,311 | 47,491 |
PG&E Corp. | 866,613 | 45,861 |
PPL Corp. | 1,208,622 | 41,129 |
Public Service Enterprise | ||
Group Inc. | 925,177 | 38,432 |
Edison International | 592,714 | 36,120 |
Consolidated Edison Inc. | 528,508 | 32,530 |
Xcel Energy Inc. | 919,464 | 31,179 |
Eversource Energy | 575,642 | 28,068 |
FirstEnergy Corp. | 760,820 | 27,321 |
DTE Energy Co. | 321,664 | 25,614 |
Entergy Corp. | 328,367 | 25,343 |
NiSource Inc. | 572,667 | 24,865 |
Wisconsin Energy Corp. | 414,243 | 20,348 |
ONEOK Inc. | 378,236 | 18,193 |
Ameren Corp. | 439,731 | 18,003 |
American Water | ||
Works Co. Inc. | 325,745 | 17,760 |
CMS Energy Corp. | 502,326 | 17,044 |
CenterPoint Energy Inc. | 777,547 | 16,305 |
AES Corp. | 1,206,841 | 15,991 |
SCANA Corp. | 231,205 | 12,249 |
Pinnacle West Capital Corp. | 199,379 | 12,202 |
Alliant Energy Corp. | 200,781 | 12,141 |
14
High Dividend Yield Index Fund
Market | ||
Value | ||
Shares | ($000) | |
Pepco Holdings Inc. | 456,884 | 11,870 |
UGI Corp. | 314,527 | 10,949 |
Integrys Energy Group Inc. | 145,557 | 10,640 |
AGL Resources Inc. | 203,452 | 10,228 |
Atmos Energy Corp. | 180,876 | 9,767 |
Westar Energy Inc. | ||
Class A | 236,093 | 8,889 |
TECO Energy Inc. | 421,300 | 7,984 |
Questar Corp. | 317,292 | 7,437 |
Aqua America Inc. | 262,373 | 7,037 |
Great Plains Energy Inc. | 263,221 | 6,891 |
Vectren Corp. | 147,813 | 6,381 |
Cleco Corp. | 109,152 | 5,932 |
Hawaiian Electric | ||
Industries Inc. | 185,213 | 5,797 |
IDACORP Inc. | 90,202 | 5,442 |
Piedmont Natural | ||
Gas Co. Inc. | 142,023 | 5,317 |
UIL Holdings Corp. | 99,922 | 4,984 |
Portland General | ||
Electric Co. | 141,223 | 4,965 |
WGL Holdings Inc. | 89,806 | 4,940 |
New Jersey | ||
Resources Corp. | 152,191 | 4,643 |
Southwest Gas Corp. | 83,597 | 4,598 |
NorthWestern Corp. | 84,752 | 4,415 |
ALLETE Inc. | 80,355 | 4,042 |
PNM Resources Inc. | 143,835 | 3,996 |
Black Hills Corp. | 80,225 | 3,954 |
ONE Gas Inc. | 93,386 | 3,919 |
Laclede Group Inc. | 73,204 | 3,802 |
Avista Corp. | 112,394 | 3,666 |
South Jersey Industries Inc. | 60,764 | 3,205 |
El Paso Electric Co. | 72,683 | 2,705 |
American States Water Co. | 69,409 | 2,665 |
MGE Energy Inc. | 62,107 | 2,576 |
Abengoa Yield plc | 69,041 | 2,341 |
Northwest Natural Gas Co. | 49,087 | 2,292 |
California Water | ||
Service Group | 85,335 | 2,037 |
Empire District Electric Co. | 83,488 | 1,968 |
SJW Corp. | 30,570 | 894 |
1,188,206 | ||
Total Common Stocks | ||
(Cost $13,037,904) | 15,579,028 | |
Temporary Cash Investments (0.2%)1 | ||
Money Market Fund (0.2%) | ||
2,3 Vanguard Market | ||
Liquidity Fund, 0.121% | 23,512,363 | 23,512 |
Face | Market | ||
Amount | Value | ||
($000) | ($000) | ||
U.S. Government and Agency Obligations (0.0%) | |||
4,5 | Federal Home Loan Bank | ||
Discount Notes, 0.060%, | |||
5/8/15 | 1,000 | 1,000 | |
4,5 | Federal Home Loan Bank | ||
Discount Notes, 0.077%, | |||
5/20/15 | 900 | 900 | |
1,900 | |||
Total Temporary Cash Investments | |||
(Cost $25,412) | 25,412 | ||
Total Investments (99.9%) | |||
(Cost $13,063,316) | 15,604,440 | ||
Other Assets and Liabilities (0.1%) | |||
Other Assets | 35,826 | ||
Liabilities2 | (18,619) | ||
17,207 | |||
Net Assets (100%) | 15,621,647 |
15
High Dividend Yield Index Fund
At April 30, 2015, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 13,144,314 |
Undistributed Net Investment Income | 35,247 |
Accumulated Net Realized Losses | (98,907) |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 2,541,124 |
Futures Contracts | (131) |
Net Assets | 15,621,647 |
Investor Shares—Net Assets | |
Applicable to 162,036,501 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 4,456,683 |
Net Asset Value Per Share— | |
Investor Shares | $27.50 |
ETF Shares—Net Assets | |
Applicable to 160,783,283 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 11,164,964 |
Net Asset Value Per Share— | |
ETF Shares | $69.44 |
See Note A in Notes to Financial Statements.
^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $5,947,000.
* Non-income-producing security.
1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures
investments, the fund’s effective common stock and temporary cash investment positions represent 100.0% and -0.1%, respectively, of
net assets.
2 Includes $6,117,000 of collateral received for securities on loan.
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 The issuer operates under a congressional charter; its securities are generally neither guaranteed by the U.S. Treasury nor backed by
the full faith and credit of the U.S. government.
5 Securities with a value of $1,900,000 have been segregated as initial margin for open futures contracts.
See accompanying Notes, which are an integral part of the Financial Statements.
16
High Dividend Yield Index Fund
Statement of Operations
Six Months Ended | |
April 30, 2015 | |
($000) | |
Investment Income | |
Income | |
Dividends | 233,647 |
Interest1 | 32 |
Securities Lending | 302 |
Total Income | 233,981 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 982 |
Management and Administrative—Investor Shares | 2,744 |
Management and Administrative—ETF Shares | 2,656 |
Marketing and Distribution—Investor Shares | 347 |
Marketing and Distribution—ETF Shares | 1,004 |
Custodian Fees | 231 |
Shareholders’ Reports—Investor Shares | 15 |
Shareholders’ Reports—ETF Shares | 113 |
Trustees’ Fees and Expenses | 5 |
Total Expenses | 8,097 |
Net Investment Income | 225,884 |
Realized Net Gain (Loss) | |
Investment Securities Sold | 559,786 |
Futures Contracts | 5,247 |
Realized Net Gain (Loss) | 565,033 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | (266,862) |
Futures Contracts | (888) |
Change in Unrealized Appreciation (Depreciation) | (267,750) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 523,167 |
1 Interest income from an affiliated company of the fund was $29,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
17
High Dividend Yield Index Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | |
April 30, | October 31, | |
2015 | 2014 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 225,884 | 341,438 |
Realized Net Gain (Loss) | 565,033 | 338,215 |
Change in Unrealized Appreciation (Depreciation) | (267,750) | 1,092,881 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 523,167 | 1,772,534 |
Distributions | ||
Net Investment Income | ||
Investor Shares | (62,506) | (98,372) |
ETF Shares | (159,924) | (235,932) |
Realized Capital Gain | ||
Investor Shares | — | — |
ETF Shares | — | — |
Total Distributions | (222,430) | (334,304) |
Capital Share Transactions | ||
Investor Shares | 309,120 | 614,733 |
ETF Shares | 1,163,689 | 1,858,114 |
Net Increase (Decrease) from Capital Share Transactions | 1,472,809 | 2,472,847 |
Total Increase (Decrease) | 1,773,546 | 3,911,077 |
Net Assets | ||
Beginning of Period | 13,848,101 | 9,937,024 |
End of Period1 | 15,621,647 | 13,848,101 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $35,247,000 and $31,793,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
18
High Dividend Yield Index Fund
Financial Highlights
Investor Shares | ||||||
Six Months | ||||||
Ended | ||||||
For a Share Outstanding | April 30, | Year Ended October 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
Net Asset Value, Beginning of Period | $26.98 | $23.83 | $19.76 | $17.30 | $15.94 | $14.15 |
Investment Operations | ||||||
Net Investment Income | . 396 | .727 | . 667 | . 579 | . 489 | . 415 |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | .519 | 3.147 | 4.063 | 2.446 | 1.355 | 1.792 |
Total from Investment Operations | .915 | 3.874 | 4.730 | 3.025 | 1.844 | 2.207 |
Distributions | ||||||
Dividends from Net Investment Income | (. 395) | (.724) | (. 660) | (. 565) | (. 484) | (. 417) |
Distributions from Realized Capital Gains | — | — | — | — | — | — |
Total Distributions | (. 395) | (.724) | (. 660) | (. 565) | (. 484) | (. 417) |
Net Asset Value, End of Period | $27.50 | $26.98 | $23.83 | $19.76 | $17.30 | $15.94 |
Total Return1 | 3.43% | 16.48% | 24.35% | 17.69% | 11.70% | 15.79% |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $4,457 | $4,066 | $3,019 | $1,596 | $761 | $296 |
Ratio of Total Expenses to | ||||||
Average Net Assets | 0.16% | 0.18% | 0.19% | 0.20% | 0.25% | 0.30% |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 2.98% | 2.92% | 3.10% | 3.22% | 3.04% | 2.86% |
Portfolio Turnover Rate2 | 11% | 12% | 13% | 11% | 16% | 34% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 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.
2 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares,
including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
19
High Dividend Yield Index Fund
Financial Highlights
ETF Shares | ||||||
Six Months | ||||||
Ended | ||||||
For a Share Outstanding | April 30, | Year Ended October 31, | ||||
Throughout Each Period | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 |
Net Asset Value, Beginning of Period | $68.11 | $60.16 | $49.89 | $43.68 | $40.22 | $35.70 |
Investment Operations | ||||||
Net Investment Income | 1.024 | 1.885 | 1.732 | 1.506 | 1.283 | 1.092 |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | 1.330 | 7.943 | 10.247 | 6.180 | 3.442 | 4.527 |
Total from Investment Operations | 2.354 | 9.828 | 11.979 | 7.686 | 4.725 | 5.619 |
Distributions | ||||||
Dividends from Net Investment Income | (1.024) | (1.878) | (1.709) | (1.476) | (1.265) | (1.099) |
Distributions from Realized Capital Gains | — | — | — | — | — | — |
Total Distributions | (1.024) | (1.878) | (1.709) | (1.476) | (1.265) | (1.099) |
Net Asset Value, End of Period | $69.44 | $68.11 | $60.16 | $49.89 | $43.68 | $40.22 |
Total Return | 3.47% | 16.56% | 24.43% | 17.80% | 11.88% | 15.93% |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $11,165 | $9,782 | $6,918 | $4,203 | $1,984 | $884 |
Ratio of Total Expenses to | ||||||
Average Net Assets | 0.09% | 0.10% | 0.10% | 0.10% | 0.13% | 0.18% |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 3.05% | 3.00% | 3.19% | 3.32% | 3.16% | 2.98% |
Portfolio Turnover Rate1 | 11% | 12% | 13% | 11% | 16% | 34% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares,
including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
20
High Dividend Yield Index Fund
Notes to Financial Statements
Vanguard High Dividend Yield Index Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Investor Shares and ETF Shares. Investor Shares are available to any investor who meets the fund’s minimum purchase requirements. ETF Shares are listed for trading on NYSE Arca; they can be purchased and sold through a broker.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Temporary cash investments acquired over 60 days to maturity 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. Other temporary cash investments are valued at amortized cost, which approximates market value.
2. Futures Contracts: The fund uses index futures contracts to a limited extent, with the objectives of maintaining full exposure to the stock market, enhancing returns, maintaining liquidity, and minimizing transaction costs. The fund may purchase futures contracts to immediately invest incoming cash in the market, or sell futures in response to cash outflows, thereby simulating a fully invested position in the underlying index while maintaining a cash balance for liquidity. The fund may seek to enhance returns by using futures contracts instead of the underlying securities when futures are believed to be priced more attractively than the underlying securities. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.
Futures contracts are valued at their quoted daily settlement prices. The aggregate settlement values of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized futures gains (losses).
During the six months ended April 30, 2015, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of aggregate settlement values at each quarter-end during the period.
21
High Dividend Yield Index Fund
3. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (October 31, 2011–2014), and for the period ended April 30, 2015, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
4. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
5. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
6. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn 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 this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at April 30, 2015, or at any time during the period then ended.
7. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
22
High Dividend Yield Index Fund
B. The Vanguard Group furnishes at cost investment advisory, corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the fund based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At April 30, 2015, the fund had contributed capital of $1,382,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.55% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
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).
The following table summarizes the market value of the fund’s investments as of April 30, 2015, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 15,579,028 | — | — |
Temporary Cash Investments | 23,512 | 1,900 | — |
Futures Contracts—Liabilities1 | (408) | — | — |
Total | 15,602,132 | 1,900 | — |
1 Represents variation margin on the last day of the reporting period. |
D. At April 30, 2015, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were:
($000) | ||||
Aggregate | ||||
Number of | Settlement | Unrealized | ||
Long (Short) | Value | Appreciation | ||
Futures Contracts | Expiration | Contracts | Long (Short) | (Depreciation) |
S&P 500 Index | June 2015 | 38 | 19,750 | 105 |
E-mini S&P 500 Index | June 2015 | 220 | 22,868 | (236) |
(131) |
Unrealized appreciation (depreciation) on open futures contracts is required to be treated as realized gain (loss) for tax purposes.
E. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss
23
High Dividend Yield Index Fund
are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
During the six months ended April 30, 2015, the fund realized $638,649,000 of net capital gains resulting from in-kind redemptions—in which shareholders exchanged fund shares for securities held by the fund rather than for cash. Because such gains are not taxable to the fund, and are not distributed to shareholders, they have been reclassified from accumulated net realized losses to paid-in capital.
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at October 31, 2014, the fund had available capital losses totaling $24,533,000 to offset future net capital gains. Of this amount, $18,315,000 is subject to expiration on October 31, 2018. Capital losses of $6,218,000 realized beginning in fiscal 2012 may be carried forward indefinitely under the Regulated Investment Company Modernization Act of 2010, but must be used before any expiring loss carryforwards. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending October 31, 2015; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At April 30, 2015, the cost of investment securities for tax purposes was $13,063,893,000. Net unrealized appreciation of investment securities for tax purposes was $2,540,547,000, consisting of unrealized gains of $2,646,627,000 on securities that had risen in value since their purchase and $106,080,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the six months ended April 30, 2015, the fund purchased $4,679,574,000 of investment securities and sold $3,191,098,000 of investment securities, other than temporary cash investments. Purchases and sales include $2,694,018,000 and $1,752,995,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
G. Capital share transactions for each class of shares were:
Six Months Ended | Year Ended | |||
April 30, 2015 | October 31, 2014 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
Investor Shares | ||||
Issued | 683,474 | 25,036 | 1,212,378 | 47,724 |
Issued in Lieu of Cash Distributions | 50,516 | 1,874 | 79,918 | 3,136 |
Redeemed | (424,870) | (15,592) | (677,563) | (26,847) |
Net Increase (Decrease)—Investor Shares | 309,120 | 11,318 | 614,733 | 24,013 |
ETF Shares | ||||
Issued | 2,926,128 | 42,571 | 2,875,637 | 44,821 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (1,762,439) | (25,400) | (1,017,523) | (16,200) |
Net Increase (Decrease)—ETF Shares | 1,163,689 | 17,171 | 1,858,114 | 28,621 |
H. Management has determined that no material events or transactions occurred subsequent to April 30, 2015, that would require recognition or disclosure in these financial statements.
24
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.
25
Six Months Ended April 30, 2015 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
High Dividend Yield Index Fund | 10/31/2014 | 4/30/2015 | Period |
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $1,034.27 | $0.81 |
ETF Shares | 1,000.00 | 1,034.72 | 0.45 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,024.00 | $0.80 |
ETF Shares | 1,000.00 | 1,024.35 | 0.45 |
The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios for that
period are 0.16% for Investor Shares and 0.09% for ETF Shares. The dollar amounts shown as “Expenses Paid” are equal to the annualized
expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period,
then divided by the number of days in the most recent 12-month period.
26
Trustees Approve Advisory Arrangement
The board of trustees of Vanguard High Dividend Yield Index Fund has renewed the fund’s investment advisory arrangement with The Vanguard Group Inc. (Vanguard). Vanguard’s Equity Investment Group—through its Equity Index Group—serves as the investment advisor for the fund. The board determined that continuing the fund’s internalized management structure was in the best interests of the fund and its shareholders.
The board based its decision upon an evaluation of the advisor’s investment staff, portfolio management process, and performance. The trustees 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 reviewed the quality of the fund’s investment management services since the fund’s inception in 2006, and took into account the organizational depth and stability of the advisor. The board considered that Vanguard has been managing investments for more than three decades. The Equity Index Group adheres to a sound, disciplined investment management process; the team has considerable experience, stability, and depth.
The board concluded that Vanguard’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangement.
Investment performance
The board considered the fund’s performance since its inception, including any periods of outperformance or underperformance relative to a target index and peer group. The board concluded that the performance was such that the advisory arrangement should continue. Information about the fund’s most recent performance can be found in the Performance Summary section of this report.
Cost
The board concluded that the fund’s expense ratio was well below the average expense ratio charged by funds in its peer group and that the fund’s advisory fee rate was also well below its peer-group average. Information about the fund’s expenses appears in the About Your Fund’s Expenses section of this report as well as in the Financial Statements section.
The board does not conduct a profitability analysis of Vanguard because of Vanguard’s unique “at-cost” structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees, and produces “profits” only in the form of reduced expenses for fund shareholders.
The benefit of economies of scale
The board concluded that the fund’s at-cost arrangement with Vanguard ensures that the fund will realize economies of scale as it grows, with the cost to shareholders declining as the fund’s assets increase.
The board will consider whether to renew the advisory arrangement again after a one-year period.
27
Glossary
30-Day SEC Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (for bonds), its actual income (for asset-backed securities), or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.
Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Dividend Yield. Dividend income earned by stocks, expressed as a percentage of the aggregate market value (or of net asset value, for a fund). The yield is determined by dividing the amount of the annual dividends by the aggregate value (or net asset value) at the end of the period. For a fund, the dividend yield is based solely on stock holdings and does not include any income produced by other investments.
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.
Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.
Foreign Holdings. The percentage of a fund represented by securities or depositary receipts of companies based outside the United States.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.
28
Price/Earnings Ratio. The ratio of a stock’s current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company’s future growth.
R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0. For this report, R-squared is based on returns over the past 36 months for both the fund and the index.
Return on Equity. The annual average rate of return generated by a company during the past five years for each dollar of shareholder’s equity (net income divided by shareholder’s equity). For a fund, the weighted average return on equity for the companies whose stocks it holds.
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
Turnover Rate. An indication of the fund’s trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to investors). The turnover rate excludes in-kind transactions, which have minimal impact on costs.
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The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 178 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
InterestedTrustee1 | Rajiv L. Gupta |
Born 1945. Trustee Since December 2001.2 Principal | |
F. William McNabb III | Occupation(s) During the Past Five Years and Other |
Born 1957. Trustee Since July 2009. Chairman of | Experience: Chairman and Chief Executive Officer |
the Board. Principal Occupation(s) During the Past | (retired 2009) and President (2006–2008) of |
Five Years and Other Experience: Chairman of the | Rohm and Haas Co. (chemicals); Director of Tyco |
Board of The Vanguard Group, Inc., and of each of | International PLC (diversified manufacturing and |
the investment companies served by The Vanguard | services), Hewlett-Packard Co. (electronic computer |
Group, since January 2010; Director of The Vanguard | manufacturing), and Delphi Automotive PLC |
Group since 2008; Chief Executive Officer and | (automotive components); Senior Advisor at New |
President of The Vanguard Group, and of each of | Mountain Capital. |
the investment companies served by The Vanguard | |
Group, since 2008; Director of Vanguard Marketing | Amy Gutmann |
Corporation; Managing Director of The Vanguard | Born 1949. Trustee Since June 2006. Principal |
Group (1995–2008). | Occupation(s) During the Past Five Years and |
Other Experience: President of the University of | |
IndependentTrustees | Pennsylvania; Christopher H. Browne Distinguished |
Professor of Political Science, School of Arts and | |
Emerson U. Fullwood | Sciences, and Professor of Communication, Annenberg |
Born 1948. Trustee Since January 2008. Principal | School for Communication, with secondary faculty |
Occupation(s) During the Past Five Years and | appointments in the Department of Philosophy, School |
Other Experience: Executive Chief Staff and | of Arts and Sciences, and at the Graduate School of |
Marketing Officer for North America and Corporate | Education, University of Pennsylvania; Trustee of the |
Vice President (retired 2008) of Xerox Corporation | National Constitution Center; Chair of the Presidential |
(document management products and services); | Commission for the Study of Bioethical Issues. |
Executive in Residence and 2009–2010 Distinguished | |
Minett Professor at the Rochester Institute of | JoAnn Heffernan Heisen |
Technology; Director of SPX Corporation (multi-industry | Born 1950. Trustee Since July 1998. Principal |
manufacturing), the United Way of Rochester, | Occupation(s) During the Past Five Years and Other |
Amerigroup Corporation (managed health care), the | Experience: Corporate Vice President and Chief |
University of Rochester Medical Center, Monroe | Global Diversity Officer (retired 2008) and Member |
Community College Foundation, and North Carolina | of the Executive Committee (1997–2008) of Johnson |
A&T University. | & Johnson (pharmaceuticals/medical devices/ |
consumer products); Director of Skytop Lodge | |
Corporation (hotels), the University Medical Center | |
at Princeton, the Robert Wood Johnson Foundation, | |
and the Center for Talent Innovation; Member of | |
the Advisory Board of the Institute for Women’s | |
Leadership at Rutgers University. |
F. Joseph Loughrey | Executive Officers | |
Born 1949. Trustee Since October 2009. Principal | ||
Occupation(s) During the Past Five Years and Other | Glenn Booraem | |
Experience: President and Chief Operating Officer | Born 1967. Controller Since July 2010. Principal | |
(retired 2009) of Cummins Inc. (industrial machinery); | Occupation(s) During the Past Five Years and Other | |
Chairman of the Board of Hillenbrand, Inc. (specialized | Experience: Principal of The Vanguard Group, Inc.; | |
consumer services), and of Oxfam America; Director | Controller of each of the investment companies served | |
of SKF AB (industrial machinery), Hyster-Yale Materials | by The Vanguard Group; Assistant Controller of each of | |
Handling, Inc. (forklift trucks), the Lumina Foundation | the investment companies served by The Vanguard | |
for Education, and the V Foundation for Cancer | Group (2001–2010). | |
Research; Member of the Advisory Council for the | ||
College of Arts and Letters and of the Advisory Board | Thomas J. Higgins | |
to the Kellogg Institute for International Studies, both | Born 1957. Chief Financial Officer Since September | |
at the University of Notre Dame. | 2008. Principal Occupation(s) During the Past Five | |
Years and Other Experience: Principal of The Vanguard | ||
Mark Loughridge | Group, Inc.; Chief Financial Officer of each of the | |
Born 1953. Trustee Since March 2012. Principal | investment companies served by The Vanguard Group; | |
Occupation(s) During the Past Five Years and Other | Treasurer of each of the investment companies served | |
Experience: Senior Vice President and Chief Financial | by The Vanguard Group (1998–2008). | |
Officer (retired 2013) at IBM (information technology | ||
services); Fiduciary Member of IBM’s Retirement Plan | Kathryn J. Hyatt | |
Committee (2004–2013); Director of the Dow Chemical | Born 1955. Treasurer Since November 2008. Principal | |
Company; Member of the Council on Chicago Booth. | Occupation(s) During the Past Five Years and Other | |
Experience: Principal of The Vanguard Group, Inc.; | ||
Scott C. Malpass | Treasurer of each of the investment companies served | |
Born 1962. Trustee Since March 2012. Principal | by The Vanguard Group; Assistant Treasurer of each of | |
Occupation(s) During the Past Five Years and Other | the investment companies served by The Vanguard | |
Experience: Chief Investment Officer and Vice | Group (1988–2008). | |
President at the University of Notre Dame; Assistant | ||
Professor of Finance at the Mendoza College of | Heidi Stam | |
Business at Notre Dame; Member of the Notre Dame | Born 1956. Secretary Since July 2005. Principal | |
403(b) Investment Committee; Board Member of | Occupation(s) During the Past Five Years and Other | |
TIFF Advisory Services, Inc., and Catholic Investment | Experience: Managing Director of The Vanguard | |
Services, Inc. (investment advisors); Member of | Group, Inc.; General Counsel of The Vanguard Group; | |
the Investment Advisory Committee of Major | Secretary of The Vanguard Group and of each of the | |
League Baseball. | investment companies served by The Vanguard Group; | |
Director and Senior Vice President of Vanguard | ||
André F. Perold | Marketing Corporation. | |
Born 1952. Trustee Since December 2004. Principal | ||
Occupation(s) During the Past Five Years and Other | Vanguard Senior ManagementTeam | |
Experience: George Gund Professor of Finance and | ||
Banking, Emeritus at the Harvard Business School | Mortimer J. Buckley | Chris D. McIsaac |
(retired 2011); Chief Investment Officer and Managing | Kathleen C. Gubanich | Michael S. Miller |
Partner of HighVista Strategies LLC (private investment | Paul A. Heller | James M. Norris |
firm); Director of Rand Merchant Bank; Overseer of | Martha G. King | Glenn W. Reed |
the Museum of Fine Arts Boston. | John T. Marcante | |
Peter F. Volanakis | Chairman Emeritus and Senior Advisor | |
Born 1955. Trustee Since July 2009. Principal | ||
Occupation(s) During the Past Five Years and Other | John J. Brennan | |
Experience: President and Chief Operating Officer | Chairman, 1996–2009 | |
(retired 2010) of Corning Incorporated (communications | Chief Executive Officer and President, 1996–2008 | |
equipment); Trustee of Colby-Sawyer College; | ||
Member of the Advisory Board of the Norris Cotton | ||
Cancer Center and of the Advisory Board of the | Founder | |
Parthenon Group (strategy consulting). | ||
John C. Bogle | ||
Chairman and Chief Executive Officer, 1974–1996 |
1 Mr. McNabb is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the
Vanguard funds.
2 December 2002 for Vanguard Equity Income Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.
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Q6232 062015 |
Semiannual Report | April 30, 2015
Vanguard Emerging Markets
Government Bond Index Fund
The mission continues
On May 1, 1975, Vanguard began operations, a fledgling company based on the simple but revolutionary idea that a mutual fund company should be managed solely in the interest of its investors.
Four decades later, that revolutionary spirit continues to animate the enterprise. Vanguard remains on a mission to give investors the best chance of investment success.
As we mark our 40th anniversary, we thank you for entrusting your assets to Vanguard and giving us the opportunity to help you reach your financial goals in the decades to come.
Contents | |
Your Fund’s Total Returns. | 1 |
Chairman’s Letter. | 2 |
Fund Profile. | 7 |
Performance Summary. | 9 |
Financial Statements. | 10 |
About Your Fund’s Expenses. | 42 |
Trustees Approve Advisory Arrangement. | 44 |
Glossary. | 45 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice.
Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the
risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
About the cover: Since our founding, Vanguard has drawn inspiration from the enterprise and valor demonstrated by British
naval hero Horatio Nelson and his command at the Battle of the Nile in 1798. The photograph displays a replica of a merchant
ship from the same era as Nelson’s flagship, the HMS Vanguard.
Your Fund’s Total Returns
Six Months Ended April 30, 2015 | ||||
30-Day SEC | Income | Capital | Total | |
Yield | Returns | Returns | Returns | |
Vanguard Emerging Markets Government Bond Index Fund | ||||
Investor Shares | 4.25% | 2.22% | -1.21% | 1.01% |
ETF Shares | 4.46 | |||
Market Price | 0.95 | |||
Net Asset Value | 1.11 | |||
Admiral™ Shares | 4.43 | 2.31 | -1.16 | 1.15 |
Institutional Shares (Inception: 2/11/2015) | 4.47 | 1.21 | 2.73 | 3.94 |
Barclays USD Emerging Markets Government RIC Capped Index | 1.03 | |||
Emerging Markets Hard Currency Debt Funds Average | -1.46 |
Emerging Markets Hard Currency Debt Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company.
Admiral Shares carry lower expenses and are available to investors who meet certain account-balance requirements. The Vanguard ETF®
Shares shown are traded on the Nasdaq exchange and are available only through brokers. The table provides ETF returns based on both the
Nasdaq market price and the net asset value for a share. U.S. Pat. Nos. 6,879,964; 7,337,138; 7,720,749; 7,925,573; 8,090,646; and 8,417,623.
For the ETF Shares, the market price is determined by the midpoint of the bid-offer spread as of the closing time of the New York Stock
Exchange (generally 4 p.m., Eastern time). The net asset value is also determined as of the NYSE closing time. For more information about
how the ETF Shares' market prices have compared with their net asset value, visit vanguard.com, select your ETF, and then select the Price
and Performance tab. The ETF premium/discount analysis there shows the percentages of days on which the ETF Shares' market price was
above or below the NAV.
Your Fund’s Performance at a Glance | ||||
October 31, 2014, Through April 30, 2015 | ||||
Distributions Per Share | ||||
Starting | Ending | Income | Capital | |
Share Price | Share Price | Dividends | Gains | |
Vanguard Emerging Markets Government Bond | ||||
Index Fund | ||||
Investor Shares | $9.95 | $9.83 | $0.216 | $0.000 |
ETF Shares | 79.40 | 78.46 | 1.780 | 0.000 |
Admiral Shares | 19.90 | 19.67 | 0.448 | 0.000 |
Institutional Shares (Inception: 2/11/2015) | 30.72 | 31.56 | 0.472 | 0.000 |
1
Chairman’s Letter
Dear Shareholder,
The continuing slide in the price of oil and weak demand for commodities weighed on emerging-market government bonds in November and December. They managed to regain some lost ground later on, however, to finish the six months ended April 30, 2015, in positive territory.
Investor Shares of Vanguard Emerging Markets Government Bond Index Fund returned 1.01% for the half year. The fund’s other share classes, with their lower expense ratios, produced slightly better results. (Institutional Shares, which were launched in the latter part of the period as emerging-market bonds were recovering, returned significantly more.) Interest earned by the fund was sufficient to offset the fall in bond prices, which shaved roughly 1 percentage point off performance.
In terms of relative performance, the fund’s results were on target. The fund met its objective of closely tracking its benchmark index—the Barclays USD Emerging Markets Government RIC Capped Index—which incurs no expenses and returned 1.03% for the six months. The fund’s peer group had an average return of –1.46%. That group consists of emerging-market debt funds that may invest in bonds issued in what are considered relatively stable, or “hard,” currencies, other than the U.S. dollar.
At April 30, the fund’s 30-day SEC yield for Investor Shares was 4.25%, down from 4.39% at the end of October 2014.
2
Stimulus policies and demand drove up U.S. bond prices
Bonds of developed countries have benefited from the accommodative monetary policies of major central banks around the world. Investor demand for the perceived safety of these fixed income assets has also boosted bond returns.
The broad U.S. taxable bond market returned 2.06% for the period, and the yield of the 10-year U.S. Treasury note ended April at 2.04%, down from 2.31% six months earlier. (Bond prices and yields move in opposite directions.)
International bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –4.83% as foreign currencies’ weakness relative to the dollar affected results. For international bonds hedged to mitigate the effect of changes in currency exchange rates, returns were positive.
Returns of money market funds and savings accounts remained checked by the Federal Reserve’s target of 0%–0.25% for short-term interest rates.
U.S. stocks closed higher despite fluctuating returns
U.S. stocks returned almost 5% for the six months, despite stretches of shakiness. In two of those months, stocks declined. In two others, they were virtually unchanged or gained less than 1%. February’s surge of almost 6%, the largest monthly gain since October 2011, lifted stocks over the period.
Market Barometer | |||
Total Returns | |||
Periods Ended April 30, 2015 | |||
Six | One | Five Years | |
Months | Year | (Annualized) | |
Bonds | |||
Barclays U.S. Aggregate Bond Index (Broad taxable | |||
market) | 2.06% | 4.46% | 4.12% |
Barclays Municipal Bond Index (Broad tax-exempt market) | 1.17 | 4.80 | 4.75 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.00 | 0.03 | 0.05 |
Stocks | |||
Russell 1000 Index (Large-caps) | 4.75% | 13.00% | 14.47% |
Russell 2000 Index (Small-caps) | 4.65 | 9.71 | 12.73 |
Russell 3000 Index (Broad U.S. market) | 4.74 | 12.74 | 14.33 |
FTSE All-World ex US Index (International) | 6.00 | 3.53 | 6.40 |
CPI | |||
Consumer Price Index | -0.35% | -0.20% | 1.65% |
3
The Fed’s careful approach to potentially raising short-term interest rates helped stocks along, as did monetary stimulus efforts by other nations’ central banks. These factors offset concerns that ranged from Greece’s debt crisis to the negative effect of the strong U.S. dollar on the profits of U.S.-based multinational companies.
For U.S. investors, international stocks returned about 6%, a little more than their domestic counterparts. Results were restrained by the dollar’s strength against many foreign currencies. Returns for the developed markets of the Pacific region, led by Japan, exceeded those of Europe and emerging markets. (You can read about Vanguard’s assessment of Japan’s economy in Japan: The Long Road Back to Inflation, available at vanguard.com/research. This is part of the Global Macro Matters series produced by our economists.)
A drop in bond prices early on dampened half-year returns
Even though yields have been very low for some time now, your fund’s 30-day SEC yield at the end of the half year was well above 4%, as I mentioned earlier. That relatively high yield is compensation for the risk being taken. The fund is broadly diversified across more than 60 countries, invests only in bonds of government and government-related issuers, and carries no currency risk as its holdings are denominated in U.S. dollars. But keep in mind that emerging-market bonds, even when issued by
Expense Ratios | |||||
Your Fund Compared With Its Peer Group | |||||
Investor | ETF | Admiral | Institutional | Peer Group | |
Shares | Shares | Shares | Shares | Average | |
Emerging Markets Government Bond | |||||
Index Fund | 0.49% | 0.34% | 0.34% | 0.30% | 1.25% |
The fund expense ratios shown are from the prospectus dated February 25, 2015, and represent estimated costs for the current fiscal year.
For the six months ended April 30, 2015, the fund’s annualized expense ratios were 0.49% for Investor Shares, 0.32% for ETF Shares, 0.32%
for Admiral Shares, and 0.28% for Institutional Shares (since inception). The peer-group expense ratio is derived from data provided by Lipper,
a Thomson Reuters Company, and captures information through year-end 2014.
Peer group: Emerging Markets Hard Currency Debt Funds.
4
governments, generally are substantially more volatile and less liquid than their developed-market counterparts. There is credit risk to consider as well—roughly 30% of the fund’s assets were in the below-investment-grade category and 50% were in the bottom rating in the investment-grade category.
Yields in many emerging markets remained attractive over the six months for international bond investors. Although global financial markets were rattled when the Fed began tapering its bond-buying program, the Fed remained patient about raising interest rates, putting off what would be its first rate increase in almost a decade until it sees further improvements in the economy. Central bank policy remained accommodative in other developed markets as well: The Bank of Japan dialed up the pace of its bond buying in November and the European Central Bank initiated its own quantitative-easing program in March.
The sharp drop in commodity prices, however, resulted in negative returns for the fund in the first two months of the period. Oversupply drove down the price of oil and hit petroleum-exporting countries especially hard, although weak global demand weighed on other commodity producers as well. A slow recovery in bond prices in the months that followed left the fund with a small gain for the six months.
Among the countries with the largest weightings in the fund, China performed better than most. Although investors have been concerned about the extent of the slowdown in that nation’s economy, they seemed increasingly convinced that the government would succeed in piloting a soft landing. The fund’s Chinese holdings returned more than 3% for the period.
The return from Russian bonds was in line with that of the fund overall. While Russian bonds fell steeply in the first half of the period amid a slump in the price of oil, the effects of international sanctions on the economy, and a ratings agency downgrade in January, the bonds rebounded sharply in the second half as the price of oil rose.
Brazilian bonds began to recover toward the end of the period as well, but later and at a slower pace; they finished the period with a return below –1%. In addition to the fall in commodity prices, Brazil has had to cope with rising inflation and a corruption scandal involving politicians and the country’s largest oil company.
Venezuela’s heavy reliance on oil revenues and its precarious fiscal position raised fears of default. The bonds from this emerging market posted a double-digit decline for the fund.
In emerging markets overall, longer-term bonds tended to perform better, but the difference wasn’t large. Bonds maturing in 1–3 years dipped into negative territory, while the average return for bonds maturing in 10 years or more was close to 2%.
The credit-quality picture was even more nuanced: Lower-rated bonds fell more steeply at the beginning of the period, but rebounded more sharply afterward.
5
Promoting good corporate governance is one way we protect your interests
Our core purpose is “to take a stand for all investors, to treat them fairly, and to give them the best chance for investment success.” This means more than offering smart investments, trustworthy guidance, and low fees. It also means working with the companies held by Vanguard funds to make sure that your interests remain paramount.
Because promoting good corporate governance supports our core purpose, we want to inform our investors—regardless of which Vanguard fund they may own—about our efforts in this area. As one of the world’s largest investment managers, we are making our voice heard in corporate boardrooms to promote the highest standards of stewardship. Our advocacy encompasses a range of corporate governance issues, including executive compensation and succession planning, board composition and effectiveness, oversight of strategy and risk, and communication with shareholders.
We also exert our influence in a very important way when Vanguard funds cast their proxy votes at companies’ shareholder meetings.
Most of these votes take place at this time of year, making it an appropriate time to remind you that we work hard to represent your best interests. Good governance, we believe, is essential for any company seeking to maximize its long-term returns to shareholders. You can learn more about our efforts at vanguard.com/corporategovernance.
As always, thank you for investing with Vanguard.
Sincerely,
F. William McNabb III
Chairman and Chief Executive Officer
May 19, 2015
6
Emerging Markets Government Bond Index Fund
Fund Profile
As of April 30, 2015
Share-Class Characteristics | ||||
Investor | Admiral | Institutional | ||
Shares | Shares | Shares | ETF Shares | |
Ticker Symbol | VGOVX | VGAVX | VGIVX | VWOB |
Expense Ratio1 | 0.49% | 0.34% | 0.30% | 0.34% |
30-Day SEC Yield | 4.25% | 4.43% | 4.47% | 4.46% |
Financial Attributes | ||
Barclays USD | ||
Emerging Mkts | ||
Government | ||
Fund | RIC Capped Idx | |
Number of Bonds | 814 | 789 |
Yield to Maturity | ||
(before expenses) | 5.2% | 5.2% |
Average Coupon | 5.7% | 5.7% |
Average Duration | 6.7 years | 6.6 years |
Average Effective | ||
Maturity | 10.6 years | 10.6 years |
Short-Term | ||
Reserves | 0.6% | — |
Sector Diversification (% of portfolio) | |
Foreign Government | 100.0% |
The agency and mortgage-backed securities sectors may include issues from government-sponsored enterprises; such issues are
generally not backed by the full faith and credit of the U.S. government.
Distribution by Credit Quality (% of portfolio) | |
Aa | 11.0 |
A | 9.5 |
Baa | 50.8 |
Less Than Baa | 28.7 |
Credit-quality ratings are obtained from Barclays and are from Moody's, Fitch, and S&P. When ratings from all three agencies are
used, the median rating is shown. When ratings from two of the agencies are used, the lower rating for each issue is shown. "Not
Rated" is used to classify securities for which a rating is not available. For more information about these ratings, see the
Glossary entry for Credit Quality.
Distribution by Effective Maturity | |
(% of portfolio) | |
Under 1 Year | 0.2% |
1 - 3 Years | 14.6 |
3 - 5 Years | 20.4 |
5 - 10 Years | 37.2 |
10 - 20 Years | 9.7 |
20 - 30 Years | 15.9 |
Over 30 Years | 2.0 |
1 The expense ratios shown are from the prospectus dated February 25, 2015, and represent estimated costs for the current fiscal year. For the six
months ended April 30, 2015, the annualized expense ratios were 0.49% for Investor Shares, 0.32% for Admiral Shares, 0.28 for Institutional Shares
(since inception), and 0.32% for ETF Shares.
7
Emerging Markets Government Bond Index Fund
Market Diversification (% of portfolio) | |
Fund | |
Emerging Markets | |
China | 10.3% |
Brazil | 9.4 |
Mexico | 9.1 |
Russia | 7.4 |
Indonesia | 6.2 |
Turkey | 6.0 |
United Arab Emirates | 5.4 |
Qatar | 3.6 |
Venezuela | 3.3 |
Colombia | 3.2 |
Philippines | 3.2 |
Lebanon | 2.1 |
Hungary | 2.0 |
India | 1.9 |
Chile | 1.8 |
South Africa | 1.7 |
Kazakhstan | 1.7 |
Malaysia | 1.5 |
Argentina | 1.5 |
Poland | 1.5 |
Peru | 1.4 |
Croatia | 1.1 |
Other | 13.5 |
Subtotal | 98.8% |
Other | |
Panama | 1.2% |
8
Emerging Markets Government Bond Index Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): May 31, 2013, Through April 30, 2015
Barclays USD | ||||
Emerging Mkts | ||||
Government | ||||
Investor Shares | RIC Capped Idx | |||
Fiscal Year | Income Returns | Capital Returns | Total Returns | Total Returns |
2013 | 1.51% | -2.89% | -1.38% | -1.30% |
2014 | 4.46 | 2.16 | 6.62 | 7.06 |
2015 | 2.22 | -1.21 | 1.01 | 1.03 |
Note: For 2015, performance data reflect the six months ended April 30, 2015. |
Total Returns: Periods Ended March 31, 2015
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
Since Inception | |||||
Inception Date | One Year | Income | Capital | Total | |
Investor Shares | 5/31/2013 | 4.10% | 4.20% | -1.86% | 2.34% |
Fee-Adjusted Returns | 3.32 | 1.92 | |||
ETF Shares | 5/31/2013 | ||||
Market Price | 4.11 | 2.93 | |||
Net Asset Value | 4.25 | 2.44 | |||
Admiral Shares | 5/31/2013 | 4.26 | 4.35 | -1.89 | 2.46 |
Fee-Adjusted Returns | 3.48 | 2.04 | |||
Institutional Shares | 2/11/2015 | — | 0.79 | 1.24 | 2.03 |
Fee-Adjusted Returns | — | 1.27 |
Vanguard fund returns are adjusted to reflect the 0.75% fee on purchases of fund shares. The fee does not apply to the ETF Shares. The
Fiscal-Year Total Returns table is not adjusted for fees.
See Financial Highlights for dividend and capital gains information.
9
Emerging Markets Government Bond Index Fund
Financial Statements (unaudited)
Statement of Net Assets
As of April 30, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Face | Market | ||||
Maturity | Amount | Value• | |||
Coupon | Date | ($000) | ($000) | ||
Angola (0.1%) | |||||
Sovereign Bond (U.S. Dollar-Denominated) (0.1%) | |||||
1 | Republic of Angola Via Northern Lights III BV | 7.000% | 8/16/19 | 250 | 257 |
Total Angola (Cost $262) | 257 | ||||
Argentina (1.2%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (1.2%) | |||||
1 | City of Buenos Aires Argentina | 8.950% | 2/19/21 | 200 | 213 |
1 | Provincia de Buenos Aires | 10.875% | 1/26/21 | 350 | 364 |
Provincia de Cordoba | 12.375% | 8/17/17 | 150 | 156 | |
† | Republic of Argentina | 8.750% | 6/2/17 | 650 | 637 |
† | Republic of Argentina | 8.280% | 12/31/33 | 586 | 584 |
† | Republic of Argentina | 8.280% | 12/31/33 | 1,891 | 1,929 |
†,1 | Republic of Argentina | 2.500% | 12/31/38 | 2,364 | 1,365 |
2 | YPF SA | 8.875% | 12/19/18 | 50 | 53 |
YPF SA | 8.875% | 12/19/18 | 150 | 158 | |
1 | YPF SA | 8.750% | 4/4/24 | 500 | 522 |
Total Argentina (Cost $5,024) | 5,981 | ||||
Armenia (0.1%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.1%) | |||||
Republic of Armenia | 6.000% | 9/30/20 | 200 | 200 | |
2 | Republic of Armenia | 6.000% | 9/30/20 | 200 | 200 |
Republic of Armenia | 7.150% | 3/26/25 | 200 | 204 | |
Total Armenia (Cost $586) | 604 | ||||
Azerbaijan (0.3%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.3%) | |||||
2 | Republic of Azerbaijan | 4.750% | 3/18/24 | 400 | 416 |
State Oil Co. of the Azerbaijan Republic | 5.450% | 2/9/17 | 200 | 207 | |
State Oil Co. of the Azerbaijan Republic | 4.750% | 3/13/23 | 800 | 780 | |
Total Azerbaijan (Cost $1,383) | 1,403 | ||||
Bahrain (0.8%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.8%) | |||||
Bahrain Mumtalakat Holding Co. BSC | 4.000% | 11/25/21 | 250 | 250 | |
Batelco International Finance No. 1 Ltd. | 4.250% | 5/1/20 | 200 | 201 | |
Kingdom of Bahrain | 6.273% | 11/22/18 | 550 | 613 | |
2 | Kingdom of Bahrain | 5.500% | 3/31/20 | 350 | 380 |
2 | Kingdom of Bahrain | 6.125% | 7/5/22 | 800 | 890 |
10
Emerging Markets Government Bond Index Fund
Face | Market | |||
Maturity | Amount | Value• | ||
Coupon | Date | ($000) | ($000) | |
Kingdom of Bahrain | 6.125% | 8/1/23 | 650 | 725 |
2 Kingdom of Bahrain | 6.125% | 8/1/23 | 150 | 167 |
2 Kingdom of Bahrain | 6.000% | 9/19/44 | 500 | 488 |
Total Bahrain (Cost $3,665) | 3,714 | |||
Belarus (0.1%) | ||||
Sovereign Bond (U.S. Dollar-Denominated) (0.1%) | ||||
Republic of Belarus | 8.950% | 1/26/18 | 350 | 321 |
Total Belarus (Cost $325) | 321 | |||
Belize (0.0%) | ||||
Sovereign Bond (U.S. Dollar-Denominated) (0.0%) | ||||
1 Belize | 5.000% | 2/20/38 | 200 | 149 |
Total Belize (Cost $138) | 149 | |||
Bermuda (0.1%) | ||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.1%) | ||||
2 Bermuda | 5.603% | 7/20/20 | 100 | 110 |
Bermuda | 4.854% | 2/6/24 | 200 | 217 |
2 Bermuda | 4.854% | 2/6/24 | 150 | 160 |
Total Bermuda (Cost $465) | 487 | |||
Bolivia (0.1%) | ||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.1%) | ||||
Plurinational State of Bolivia | 4.875% | 10/29/22 | 200 | 203 |
Plurinational State of Bolivia | 5.950% | 8/22/23 | 200 | 212 |
Total Bolivia (Cost $395) | 415 | |||
Brazil (8.9%) | ||||
Sovereign Bonds (U.S. Dollar-Denominated) (8.9%) | ||||
Banco do Brasil SA | 3.875% | 1/23/17 | 94 | 96 |
Banco do Brasil SA | 6.000% | 1/22/20 | 400 | 432 |
Banco do Brasil SA | 5.375% | 1/15/21 | 275 | 279 |
Banco do Brasil SA | 5.875% | 1/26/22 | 800 | 806 |
Banco do Brasil SA | 3.875% | 10/10/22 | 1,200 | 1,138 |
Banco do Brasil SA | 5.875% | 1/19/23 | 250 | 256 |
1 Banco do Brasil SA | 8.500% | 10/29/49 | 650 | 721 |
Banco Nacional de Desenvolvimento | ||||
Economico e Social | 3.375% | 9/26/16 | 525 | 532 |
Banco Nacional de Desenvolvimento | ||||
Economico e Social | 6.369% | 6/16/18 | 725 | 781 |
2 Banco Nacional de Desenvolvimento | ||||
Economico e Social | 4.000% | 4/14/19 | 450 | 453 |
Banco Nacional de Desenvolvimento | ||||
Economico e Social | 6.500% | 6/10/19 | 700 | 770 |
2 Banco Nacional de Desenvolvimento | ||||
Economico e Social | 5.500% | 7/12/20 | 100 | 106 |
Banco Nacional de Desenvolvimento | ||||
Economico e Social | 5.500% | 7/12/20 | 100 | 106 |
2 Banco Nacional de Desenvolvimento | ||||
Economico e Social | 5.750% | 9/26/23 | 300 | 317 |
Banco Nacional de Desenvolvimento | ||||
Economico e Social | 5.750% | 9/26/23 | 400 | 426 |
Caixa Economica Federal | 2.375% | 11/6/17 | 775 | 749 |
2 Caixa Economica Federal | 4.500% | 10/3/18 | 200 | 201 |
Caixa Economica Federal | 4.500% | 10/3/18 | 600 | 604 |
11
Emerging Markets Government Bond Index Fund | ||||
Face | Market | |||
Maturity | Amount | Value• | ||
Coupon | Date | ($000) | ($000) | |
Caixa Economica Federal | 3.500% | 11/7/22 | 150 | 138 |
Centrais Eletricas Brasileiras SA | 6.875% | 7/30/19 | 350 | 343 |
Centrais Eletricas Brasileiras SA | 5.750% | 10/27/21 | 800 | 740 |
Federative Republic of Brazil | 6.000% | 1/17/17 | 875 | 941 |
Federative Republic of Brazil | 5.875% | 1/15/19 | 720 | 801 |
Federative Republic of Brazil | 8.875% | 10/14/19 | 175 | 219 |
Federative Republic of Brazil | 4.875% | 1/22/21 | 1,156 | 1,231 |
Federative Republic of Brazil | 2.625% | 1/5/23 | 1,382 | 1,258 |
Federative Republic of Brazil | 8.875% | 4/15/24 | 707 | 954 |
Federative Republic of Brazil | 4.250% | 1/7/25 | 1,772 | 1,756 |
Federative Republic of Brazil | 8.750% | 2/4/25 | 450 | 606 |
Federative Republic of Brazil | 10.125% | 5/15/27 | 848 | 1,304 |
Federative Republic of Brazil | 8.250% | 1/20/34 | 725 | 957 |
Federative Republic of Brazil | 7.125% | 1/20/37 | 1,140 | 1,394 |
1 Federative Republic of Brazil | 11.000% | 8/17/40 | 788 | 811 |
Federative Republic of Brazil | 5.625% | 1/7/41 | 1,491 | 1,533 |
Federative Republic of Brazil | 5.000% | 1/27/45 | 1,661 | 1,557 |
3 Petrobras Global Finance BV | 1.881% | 5/20/16 | 350 | 343 |
Petrobras Global Finance BV | 2.000% | 5/20/16 | 400 | 392 |
3 Petrobras Global Finance BV | 2.631% | 3/17/17 | 550 | 531 |
Petrobras Global Finance BV | 3.250% | 3/17/17 | 600 | 590 |
3 Petrobras Global Finance BV | 2.415% | 1/15/19 | 750 | 692 |
Petrobras Global Finance BV | 3.000% | 1/15/19 | 800 | 746 |
Petrobras Global Finance BV | 4.875% | 3/17/20 | 1,325 | 1,279 |
Petrobras Global Finance BV | 4.375% | 5/20/23 | 1,850 | 1,653 |
Petrobras Global Finance BV | 6.250% | 3/17/24 | 1,350 | 1,336 |
Petrobras Global Finance BV | 5.625% | 5/20/43 | 550 | 453 |
Petrobras Global Finance BV | 7.250% | 3/17/44 | 200 | 198 |
Petrobras International Finance Co. SA | 6.125% | 10/6/16 | 400 | 412 |
Petrobras International Finance Co. SA | 3.500% | 2/6/17 | 700 | 691 |
Petrobras International Finance Co. SA | 5.875% | 3/1/18 | 1,200 | 1,228 |
Petrobras International Finance Co. SA | 8.375% | 12/10/18 | 350 | 386 |
Petrobras International Finance Co. SA | 7.875% | 3/15/19 | 1,200 | 1,304 |
Petrobras International Finance Co. SA | 5.750% | 1/20/20 | 1,800 | 1,801 |
Petrobras International Finance Co. SA | 5.375% | 1/27/21 | 1,585 | 1,520 |
Petrobras International Finance Co. SA | 6.875% | 1/20/40 | 965 | 914 |
Petrobras International Finance Co. SA | 6.750% | 1/27/41 | 1,127 | 1,048 |
Total Brazil (Cost $43,521) | 42,833 | |||
Chile (1.8%) | ||||
Sovereign Bonds (U.S. Dollar-Denominated) (1.8%) | ||||
2 Banco del Estado de Chile | 2.000% | 11/9/17 | 200 | 202 |
2 Banco del Estado de Chile | 4.125% | 10/7/20 | 200 | 214 |
2 Banco del Estado de Chile | 3.875% | 2/8/22 | 425 | 444 |
2 Corp. Nacional del Cobre de Chile | 7.500% | 1/15/19 | 300 | 355 |
Corp. Nacional del Cobre de Chile | 3.750% | 11/4/20 | 300 | 315 |
2 Corp. Nacional del Cobre de Chile | 3.875% | 11/3/21 | 600 | 636 |
2 Corp. Nacional del Cobre de Chile | 3.000% | 7/17/22 | 950 | 934 |
Corp. Nacional del Cobre de Chile | 3.000% | 7/17/22 | 200 | 197 |
2 Corp. Nacional del Cobre de Chile | 4.500% | 8/13/23 | 150 | 162 |
Corp. Nacional del Cobre de Chile | 4.500% | 8/13/23 | 200 | 215 |
2 Corp. Nacional del Cobre de Chile | 5.625% | 9/21/35 | 300 | 342 |
2 Corp. Nacional del Cobre de Chile | 6.150% | 10/24/36 | 200 | 242 |
2 Corp. Nacional del Cobre de Chile | 4.250% | 7/17/42 | 50 | 47 |
2 Corp. Nacional del Cobre de Chile | 5.625% | 10/18/43 | 200 | 229 |
Corp. Nacional del Cobre de Chile | 5.625% | 10/18/43 | 300 | 342 |
12
Emerging Markets Government Bond Index Fund
Face | Market | ||||
Maturity | Amount | Value• | |||
Coupon | Date | ($000) | ($000) | ||
2 | Corp. Nacional del Cobre de Chile | 4.875% | 11/4/44 | 400 | 415 |
2 | Empresa de Transporte de Pasajeros Metro SA | 4.750% | 2/4/24 | 200 | 217 |
2 | Empresa Nacional del Petroleo | 5.250% | 8/10/20 | 200 | 215 |
2 | Empresa Nacional del Petroleo | 4.750% | 12/6/21 | 200 | 211 |
Empresa Nacional del Petroleo | 4.375% | 10/30/24 | 250 | 255 | |
Republic of Chile | 3.875% | 8/5/20 | 866 | 950 | |
Republic of Chile | 3.250% | 9/14/21 | 275 | 293 | |
Republic of Chile | 2.250% | 10/30/22 | 350 | 347 | |
Republic of Chile | 3.125% | 3/27/25 | 575 | 603 | |
Republic of Chile | 3.625% | 10/30/42 | 300 | 293 | |
Total Chile (Cost $8,286) | 8,675 | ||||
China (10.2%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (10.2%) | |||||
Amber Circle Funding Ltd. | 2.000% | 12/4/2017 | 200 | 200 | |
Amber Circle Funding Ltd. | 3.250% | 12/4/2022 | 600 | 605 | |
Amipeace Ltd. | 2.000% | 12/6/2016 | 250 | 251 | |
Bank of China Ltd. | 2.125% | 1/23/2017 | 300 | 302 | |
Bank of China Ltd. | 3.125% | 1/23/2019 | 200 | 206 | |
2 | Bank of China Ltd. | 5.000% | 11/13/2024 | 500 | 525 |
Bank of China Ltd. | 5.000% | 11/13/2024 | 850 | 892 | |
BOC Aviation Pte Ltd. | 2.875% | 10/10/2017 | 300 | 303 | |
BOC Aviation Pte Ltd. | 3.000% | 3/30/2020 | 400 | 398 | |
BOC Aviation Pte Ltd. | 4.375% | 5/2/2023 | 200 | 207 | |
Century Master Investment Co. Ltd. | 4.750% | 9/19/2018 | 200 | 211 | |
Charming Light Investments Ltd. | 3.750% | 9/3/2019 | 650 | 662 | |
China Cinda Finance 2014 Ltd. | 4.000% | 5/14/2019 | 500 | 517 | |
China Cinda Finance 2014 Ltd. | 5.625% | 5/14/2024 | 200 | 218 | |
China Cinda Finance 2015 I Ltd. | 4.250% | 4/23/2025 | 900 | 884 | |
China Great Wall International Holdings Ltd. | 2.500% | 9/17/2017 | 200 | 201 | |
2 | China Resources Gas Group Ltd. | 4.500% | 4/5/2022 | 200 | 212 |
2 | China Resources Land Ltd. | 4.625% | 5/19/2016 | 450 | 462 |
China Resources Land Ltd. | 4.375% | 2/27/2019 | 450 | 470 | |
China Resources Land Ltd. | 6.000% | 2/27/2024 | 400 | 452 | |
China Shenhua Overseas Capital Co. Ltd. | 3.125% | 1/20/2020 | 450 | 455 | |
China Shenhua Overseas Capital Co. Ltd. | 3.875% | 1/20/2025 | 400 | 411 | |
2 | CNOOC Curtis Funding No 1 Pty Ltd. | 4.500% | 10/3/2023 | 300 | 323 |
CNOOC Curtis Funding No 1 pty Ltd. | 4.500% | 10/3/2023 | 520 | 560 | |
2 | CNOOC Finance 2011 Ltd. | 4.250% | 1/26/2021 | 638 | 685 |
2 | CNOOC Finance 2011 Ltd. | 5.750% | 1/26/2041 | 200 | 242 |
2 | CNOOC Finance 2012 Ltd. | 3.875% | 5/2/2022 | 575 | 597 |
2 | CNOOC Finance 2012 Ltd. | 5.000% | 5/2/2042 | 200 | 219 |
CNOOC Finance 2013 Ltd. | 1.125% | 5/9/2016 | 650 | 649 | |
CNOOC Finance 2013 Ltd. | 1.750% | 5/9/2018 | 200 | 199 | |
CNOOC Finance 2013 Ltd. | 3.000% | 5/9/2023 | 850 | 823 | |
CNOOC Finance 2013 Ltd. | 4.250% | 5/9/2043 | 200 | 196 | |
CNOOC Finance 2015 Australia Pty Ltd. | 2.625% | 5/5/2020 | 750 | 747 | |
CNOOC Finance 2015 USA LLC | 3.500% | 5/5/2025 | 400 | 397 | |
CNOOC Nexen Finance 2014 ULC | 1.625% | 4/30/2017 | 800 | 803 | |
CNOOC Nexen Finance 2014 ULC | 4.250% | 4/30/2024 | 850 | 897 | |
CNOOC Nexen Finance 2014 ULC | 4.875% | 4/30/2044 | 900 | 971 | |
2 | CNPC General Capital Ltd. | 2.750% | 4/19/2017 | 50 | 51 |
3 | CNPC General Capital Ltd. | 1.157% | 5/14/2017 | 500 | 500 |
2,3 | CNPC General Capital Ltd. | 1.157% | 5/14/2017 | 200 | 199 |
CNPC General Capital Ltd. | 1.950% | 4/16/2018 | 350 | 348 | |
CNPC General Capital Ltd. | 2.750% | 5/14/2019 | 450 | 452 |
13
Emerging Markets Government Bond Index Fund
Face | Market | ||||
Maturity | Amount | Value• | |||
Coupon | Date | ($000) | ($000) | ||
2 | CNPC General Capital Ltd. | 2.750% | 5/14/2019 | 200 | 201 |
2 | CNPC General Capital Ltd. | 3.950% | 4/19/2022 | 200 | 209 |
CNPC General Capital Ltd. | 3.400% | 4/16/2023 | 250 | 250 | |
2 | CNPC HK Overseas Capital Ltd. | 4.500% | 4/28/2021 | 675 | 733 |
2 | CNPC HK Overseas Capital Ltd. | 5.950% | 4/28/2041 | 200 | 249 |
COSCO Finance 2011 Ltd. | 4.000% | 12/3/2022 | 400 | 410 | |
2 | COSL Finance BVI Ltd. | 3.250% | 9/6/2022 | 550 | 536 |
1 | CRCC Yupeng Ltd. | 3.950% | 2/28/2049 | 300 | 309 |
CRCC Yuxiang Ltd. | 3.500% | 5/16/2023 | 450 | 448 | |
CSSC Capital 2013 Ltd. | 2.750% | 12/12/2016 | 350 | 354 | |
1 | Dianjian Haixing Ltd. | 4.050% | 10/29/2049 | 200 | 205 |
Eastern Creation II Investment Holdings Ltd. | 2.625% | 11/20/2017 | 400 | 404 | |
2 | Export-Import Bank of China | 2.500% | 7/31/2019 | 700 | 705 |
Export-Import Bank of China | 2.500% | 7/31/2019 | 210 | 212 | |
Export-Import Bank of China | 3.625% | 7/31/2024 | 750 | 780 | |
Franshion Brilliant Ltd. | 5.750% | 3/19/2019 | 200 | 214 | |
2 | Franshion Development Ltd. | 6.750% | 4/15/2021 | 200 | 227 |
Franshion Investment Ltd. | 4.700% | 10/26/2017 | 200 | 206 | |
Hebei Iron & Steel Hong Kong International | |||||
Trade Co. Ltd. | 2.750% | 10/27/2017 | 200 | 201 | |
Huarong Finance Co. Ltd. | 4.000% | 7/17/2019 | 700 | 718 | |
Huarong Finance II Co. Ltd. | 3.500% | 1/16/2018 | 250 | 256 | |
Huarong Finance II Co. Ltd. | 4.500% | 1/16/2020 | 500 | 522 | |
Huarong Finance II Co. Ltd. | 5.500% | 1/16/2025 | 600 | 641 | |
Industrial & Commercial Bank of China Asia Ltd. | 5.125% | 11/30/2020 | 700 | 765 | |
Industrial & Commercial Bank of China Ltd. | 2.351% | 11/13/2017 | 1,000 | 1,008 | |
Industrial & Commercial Bank of China Ltd. | 2.500% | 11/21/2017 | 300 | 303 | |
King Power Capital Ltd. | 5.625% | 11/3/2024 | 300 | 321 | |
MCC Holding Hong Kong Corp. Ltd. | 4.875% | 7/29/2016 | 500 | 510 | |
MCC Holding Hong Kong Corp. Ltd. | 2.625% | 6/16/2017 | 200 | 201 | |
MCC Holding Hong Kong Corp. Ltd. | 2.500% | 8/28/2017 | 400 | 402 | |
Nexen Energy ULC | 7.875% | 3/15/2032 | 100 | 140 | |
Nexen Energy ULC | 5.875% | 3/10/2035 | 308 | 355 | |
Nexen Energy ULC | 6.400% | 5/15/2037 | 425 | 525 | |
Nexen Energy ULC | 7.500% | 7/30/2039 | 300 | 424 | |
Prosperous Ray Ltd. | 3.000% | 11/12/2018 | 400 | 409 | |
1,2 | Sinochem Global Capital Co. Ltd. | 5.000% | 12/29/2049 | 200 | 205 |
Sinochem Offshore Capital Co. Ltd. | 3.250% | 4/29/2019 | 400 | 409 | |
2 | Sinochem Offshore Capital Co. Ltd. | 3.250% | 4/29/2019 | 200 | 205 |
2 | Sinochem Overseas Capital Co. Ltd. | 4.500% | 11/12/2020 | 375 | 404 |
Sinochem Overseas Capital Co. Ltd. | 4.500% | 11/12/2020 | 100 | 108 | |
2 | Sinochem Overseas Capital Co. Ltd. | 6.300% | 11/12/2040 | 250 | 320 |
Sino-Ocean Land Treasure Finance I Ltd. | 4.625% | 7/30/2019 | 200 | 205 | |
Sino-Ocean Land Treasure Finance I Ltd. | 6.000% | 7/30/2024 | 350 | 365 | |
Sino-Ocean Land Treasure Finance II Ltd. | 4.450% | 2/4/2020 | 400 | 407 | |
Sino-Ocean Land Treasure Finance II Ltd. | 5.950% | 2/4/2027 | 250 | 255 | |
Sinopec Capital 2013 Ltd. | 1.875% | 4/24/2018 | 600 | 597 | |
2 | Sinopec Capital 2013 Ltd. | 3.125% | 4/24/2023 | 400 | 391 |
Sinopec Capital 2013 Ltd. | 3.125% | 4/24/2023 | 400 | 392 | |
Sinopec Capital 2013 Ltd. | 4.250% | 4/24/2043 | 200 | 197 | |
2 | Sinopec Group Overseas Development 2012 Ltd. | 2.750% | 5/17/2017 | 375 | 383 |
2 | Sinopec Group Overseas Development 2012 Ltd. | 3.900% | 5/17/2022 | 425 | 443 |
2 | Sinopec Group Overseas Development 2012 Ltd. | 4.875% | 5/17/2042 | 400 | 433 |
Sinopec Group Overseas Development 2013 Ltd. | 2.500% | 10/17/2018 | 300 | 303 | |
Sinopec Group Overseas Development 2013 Ltd. | 4.375% | 10/17/2023 | 1,425 | 1,529 |
14
Emerging Markets Government Bond Index Fund
Face | Market | ||||
Maturity | Amount | Value• | |||
Coupon | Date | ($000) | ($000) | ||
Sinopec Group Overseas Development 2013 Ltd. | 5.375% | 10/17/2043 | 200 | 233 | |
3 | Sinopec Group Overseas Development 2014 Ltd. | 1.051% | 4/10/2017 | 600 | 599 |
Sinopec Group Overseas Development 2014 Ltd. | 1.750% | 4/10/2017 | 225 | 225 | |
2 | Sinopec Group Overseas Development 2014 Ltd. | 1.750% | 4/10/2017 | 1,000 | 1,001 |
2 | Sinopec Group Overseas Development 2014 Ltd. | 2.750% | 4/10/2019 | 400 | 405 |
Sinopec Group Overseas Development 2014 Ltd. | 4.375% | 4/10/2024 | 200 | 216 | |
Sinopec Group Overseas Development 2015 Ltd. | 2.500% | 4/28/2020 | 1,100 | 1,093 | |
Sinopec Group Overseas Development 2015 Ltd. | 3.250% | 4/28/2025 | 700 | 686 | |
Sinopec Group Overseas Development 2015 Ltd. | 4.100% | 4/28/2045 | 400 | 389 | |
2 | State Grid Overseas Investment 2013 Ltd. | 1.750% | 5/22/2018 | 200 | 199 |
State Grid Overseas Investment 2013 Ltd. | 3.125% | 5/22/2023 | 910 | 913 | |
2 | State Grid Overseas Investment 2013 Ltd. | 4.375% | 5/22/2043 | 200 | 208 |
State Grid Overseas Investment 2014 Ltd. | 2.750% | 5/7/2019 | 300 | 305 | |
2 | State Grid Overseas Investment 2014 Ltd. | 2.750% | 5/7/2019 | 700 | 712 |
State Grid Overseas Investment 2014 Ltd. | 4.125% | 5/7/2024 | 600 | 645 | |
2 | State Grid Overseas Investment 2014 Ltd. | 4.850% | 5/7/2044 | 350 | 387 |
Total China (Cost $47,940) | 49,022 | ||||
Colombia (3.1%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (3.1%) | |||||
Ecopetrol SA | 7.625% | 7/23/19 | 750 | 889 | |
Ecopetrol SA | 5.875% | 9/18/23 | 865 | 942 | |
Ecopetrol SA | 4.125% | 1/16/25 | 475 | 458 | |
Ecopetrol SA | 7.375% | 9/18/43 | 400 | 450 | |
Ecopetrol SA | 5.875% | 5/28/45 | 900 | 863 | |
Empresas Publicas de Medellin ESP | 7.625% | 7/29/19 | 300 | 354 | |
Oleoducto Central SA | 4.000% | 5/7/21 | 200 | 199 | |
Republic of Colombia | 7.375% | 1/27/17 | 725 | 799 | |
Republic of Colombia | 7.375% | 3/18/19 | 1,155 | 1,363 | |
Republic of Colombia | 4.375% | 7/12/21 | 1,334 | 1,415 | |
1 | Republic of Colombia | 2.625% | 3/15/23 | 675 | 637 |
Republic of Colombia | 4.000% | 2/26/24 | 1,317 | 1,355 | |
Republic of Colombia | 8.125% | 5/21/24 | 340 | 451 | |
Republic of Colombia | 7.375% | 9/18/37 | 550 | 733 | |
Republic of Colombia | 6.125% | 1/18/41 | 1,238 | 1,455 | |
1 | Republic of Colombia | 5.625% | 2/26/44 | 1,424 | 1,577 |
1 | Republic of Colombia | 5.000% | 6/15/45 | 1,100 | 1,118 |
Total Colombia (Cost $14,955) | 15,058 | ||||
Costa Rica (0.7%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.7%) | |||||
Banco de Costa Rica | 5.250% | 8/12/18 | 250 | 256 | |
2 | Banco Nacional de Costa Rica | 4.875% | 11/1/18 | 200 | 203 |
Banco Nacional de Costa Rica | 4.875% | 11/1/18 | 400 | 405 | |
Instituto Costarricense de Electricidad | 6.950% | 11/10/21 | 200 | 214 | |
Instituto Costarricense de Electricidad | 6.375% | 5/15/43 | 200 | 172 | |
Republic of Costa Rica | 4.250% | 1/26/23 | 600 | 573 | |
Republic of Costa Rica | 4.375% | 4/30/25 | 200 | 188 | |
Republic of Costa Rica | 5.625% | 4/30/43 | 200 | 177 | |
Republic of Costa Rica | 7.000% | 4/4/44 | 600 | 622 | |
Republic of Costa Rica | 7.158% | 3/12/45 | 400 | 419 | |
Total Costa Rica (Cost $3,195) | 3,229 |
15
Emerging Markets Government Bond Index Fund
Face | Market | ||||
Maturity | Amount | Value• | |||
Coupon | Date | ($000) | ($000) | ||
Cote d’Ivoire (0.4%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.4%) | |||||
Republic of Cote d’Ivoire | 5.375% | 7/23/24 | 250 | 240 | |
1 | Republic of Cote d’Ivoire | 6.375% | 3/3/28 | 700 | 705 |
1 | Republic of Cote d’Ivoire | 5.750% | 12/31/32 | 1,295 | 1,237 |
Total Cote d’Ivoire (Cost $2,179) | 2,182 | ||||
Croatia (1.1%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (1.1%) | |||||
Hrvatska Elektroprivreda | 6.000% | 11/9/17 | 200 | 210 | |
Republic of Croatia | 6.250% | 4/27/17 | 512 | 543 | |
Republic of Croatia | 6.750% | 11/5/19 | 600 | 667 | |
Republic of Croatia | 6.625% | 7/14/20 | 1,112 | 1,231 | |
Republic of Croatia | 6.375% | 3/24/21 | 900 | 997 | |
Republic of Croatia | 5.500% | 4/4/23 | 700 | 742 | |
Republic of Croatia | 6.000% | 1/26/24 | 635 | 694 | |
Total Croatia (Cost $4,960) | 5,084 | ||||
Dominican Republic (0.8%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.8%) | |||||
1 | Dominican Republic | 7.500% | 5/6/21 | 752 | 842 |
Dominican Republic | 6.600% | 1/28/24 | 250 | 273 | |
1 | Dominican Republic | 5.875% | 4/18/24 | 350 | 370 |
Dominican Republic | 5.500% | 1/27/25 | 550 | 569 | |
Dominican Republic | 7.450% | 4/30/44 | 450 | 508 | |
Dominican Republic | 6.850% | 1/27/45 | 200 | 209 | |
2 | Dominican Republic | 6.850% | 1/27/45 | 1,000 | 1,045 |
Total Dominican Republic (Cost $3,686) | 3,816 | ||||
Ecuador (0.3%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.3%) | |||||
Republic of Ecuador | 10.500% | 3/24/20 | 350 | 373 | |
Republic of Ecuador | 7.950% | 6/20/24 | 1,050 | 1,013 | |
Total Ecuador (Cost $1,399) | 1,386 | ||||
Egypt (0.3%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.3%) | |||||
African Export-Import Bank | 5.750% | 7/27/16 | 300 | 312 | |
African Export-Import Bank | 3.875% | 6/4/18 | 250 | 250 | |
African Export-Import Bank | 4.750% | 7/29/19 | 200 | 205 | |
Arab Republic of Egypt | 5.750% | 4/29/20 | 412 | 437 | |
Arab Republic of Egypt | 6.875% | 4/30/40 | 300 | 312 | |
Total Egypt (Cost $1,504) | 1,516 | ||||
El Salvador (0.6%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.6%) | |||||
Republic of El Salvador | 7.375% | 12/1/19 | 345 | 379 | |
Republic of El Salvador | 7.750% | 1/24/23 | 450 | 505 | |
Republic of El Salvador | 5.875% | 1/30/25 | 300 | 300 | |
2 | Republic of El Salvador | 6.375% | 1/18/27 | 300 | 305 |
Republic of El Salvador | 8.250% | 4/10/32 | 578 | 665 | |
Republic of El Salvador | 7.650% | 6/15/35 | 420 | 448 | |
Republic of El Salvador | 7.625% | 2/1/41 | 158 | 167 | |
Total El Salvador (Cost $2,719) | 2,769 |
16
Emerging Markets Government Bond Index Fund
Face | Market | ||||
Maturity | Amount | Value• | |||
Coupon | Date | ($000) | ($000) | ||
Ethiopia (0.1%) | |||||
Sovereign Bond (U.S. Dollar-Denominated) (0.1%) | |||||
Federal Democratic Republic of Ethiopia | 6.625% | 12/11/24 | 450 | 450 | |
Total Ethiopia (Cost $447) | 450 | ||||
Gabon (0.1%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.1%) | |||||
1,2 | Gabonese Republic | 6.375% | 12/12/24 | 400 | 403 |
1 | Gabonese Republic | 6.375% | 12/12/24 | 200 | 201 |
Total Gabon (Cost $619) | 604 | ||||
Georgia (0.1%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.1%) | |||||
Georgian Railway JSC | 7.750% | 7/11/22 | 200 | 220 | |
Republic of Georgia | 6.875% | 4/12/21 | 200 | 223 | |
Total Georgia (Cost $448) | 443 | ||||
Ghana (0.2%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.2%) | |||||
Republic of Ghana | 8.500% | 10/4/17 | 200 | 208 | |
2 | Republic of Ghana | 7.875% | 8/7/23 | 400 | 387 |
1,2 | Republic of Ghana | 8.125% | 1/18/26 | 300 | 291 |
1 | Republic of Ghana | 8.125% | 1/18/26 | 200 | 193 |
Total Ghana (Cost $1,110) | 1,079 | ||||
Guatemala (0.1%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.1%) | |||||
Republic of Guatemala | 5.750% | 6/6/22 | 200 | 220 | |
Republic of Guatemala | 4.875% | 2/13/28 | 400 | 413 | |
Total Guatemala (Cost $608) | 633 | ||||
Honduras (0.1%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.1%) | |||||
Republic of Honduras | 8.750% | 12/16/20 | 200 | 229 | |
1 | Republic of Honduras | 7.500% | 3/15/24 | 200 | 219 |
Total Honduras (Cost $400) | 448 | ||||
Hungary (1.9%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (1.9%) | |||||
4 | Magyar Export-Import Bank Zrt | 5.500% | 2/12/18 | 750 | 803 |
2,4 | MFB Magyar Fejlesztesi Bank Zrt | 6.250% | 10/21/20 | 200 | 226 |
Republic of Hungary | 4.125% | 2/19/18 | 782 | 817 | |
Republic of Hungary | 4.000% | 3/25/19 | 500 | 523 | |
Republic of Hungary | 6.250% | 1/29/20 | 581 | 665 | |
Republic of Hungary | 6.375% | 3/29/21 | 1,200 | 1,399 | |
Republic of Hungary | 5.375% | 2/21/23 | 1,562 | 1,751 | |
Republic of Hungary | 5.750% | 11/22/23 | 1,220 | 1,402 | |
Republic of Hungary | 5.375% | 3/25/24 | 810 | 911 | |
Republic of Hungary | 7.625% | 3/29/41 | 570 | 822 | |
Total Hungary (Cost $8,820) | 9,319 | ||||
India (1.9%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (1.9%) | |||||
Bank of Baroda | 5.000% | 8/24/16 | 200 | 208 | |
Bank of Baroda | 4.875% | 7/23/19 | 575 | 619 | |
Bank of India | 3.625% | 9/21/18 | 350 | 360 |
17
Emerging Markets Government Bond Index Fund
Face | Market | |||
Maturity | Amount | Value• | ||
Coupon | Date | ($000) | ($000) | |
Bharat Petroleum Corp. Ltd. | 4.625% | 10/25/22 | 200 | 211 |
Canara Bank | 5.250% | 10/18/18 | 200 | 216 |
Export-Import Bank of India | 4.000% | 8/7/17 | 875 | 912 |
Export-Import Bank of India | 4.000% | 1/14/23 | 400 | 410 |
IDBI Bank Ltd. | 4.375% | 3/26/18 | 200 | 207 |
IDBI Bank Ltd. | 3.750% | 1/25/19 | 200 | 201 |
Indian Oil Corp. Ltd. | 5.625% | 8/2/21 | 200 | 224 |
Indian Oil Corp. Ltd. | 5.750% | 8/1/23 | 200 | 224 |
Indian Overseas Bank | 5.000% | 10/19/16 | 400 | 414 |
Indian Railway Finance Corp. Ltd. | 3.917% | 2/26/19 | 200 | 208 |
NTPC Ltd. | 5.625% | 7/14/21 | 400 | 451 |
NTPC Ltd. | 4.750% | 10/3/22 | 200 | 214 |
NTPC Ltd. | 4.375% | 11/26/24 | 400 | 418 |
Oil India Ltd. | 3.875% | 4/17/19 | 200 | 208 |
Oil India Ltd. | 5.375% | 4/17/24 | 250 | 276 |
ONGC Videsh Ltd. | 3.250% | 7/15/19 | 200 | 203 |
ONGC Videsh Ltd. | 3.750% | 5/7/23 | 400 | 399 |
ONGC Videsh Ltd. | 4.625% | 7/15/24 | 250 | 263 |
Power Grid Corp. of India Ltd. | 3.875% | 1/17/23 | 200 | 201 |
State Bank of India | 4.125% | 8/1/17 | 250 | 261 |
State Bank of India | 3.250% | 4/18/18 | 700 | 716 |
State Bank of India | 3.622% | 4/17/19 | 400 | 415 |
2 State Bank of India | 4.875% | 4/17/24 | 200 | 218 |
Syndicate Bank | 4.750% | 11/6/16 | 250 | 259 |
Syndicate Bank | 4.125% | 4/12/18 | 200 | 207 |
Total India (Cost $8,872) | 9,123 | |||
Indonesia (6.0%) | ||||
Sovereign Bonds (U.S. Dollar-Denominated) (6.0%) | ||||
Bank Negara Indonesia Persero Tbk PT | 4.125% | 4/27/17 | 200 | 207 |
Lembaga Pembiayaan Ekspor Indonesia | 3.750% | 4/26/17 | 300 | 308 |
Majapahit Holding BV | 7.750% | 10/17/16 | 400 | 432 |
Majapahit Holding BV | 7.250% | 6/28/17 | 200 | 219 |
Majapahit Holding BV | 8.000% | 8/7/19 | 250 | 295 |
Majapahit Holding BV | 7.750% | 1/20/20 | 525 | 618 |
Majapahit Holding BV | 7.875% | 6/29/37 | 200 | 255 |
2 Pelabuhan Indonesia II PT | 4.250% | 5/5/25 | 200 | 196 |
2 Pelabuhan Indonesia III PT | 4.875% | 10/1/24 | 200 | 207 |
Pertamina Persero PT | 5.250% | 5/23/21 | 450 | 479 |
Pertamina Persero PT | 4.875% | 5/3/22 | 850 | 880 |
2 Pertamina Persero PT | 4.300% | 5/20/23 | 430 | 429 |
Pertamina Persero PT | 4.300% | 5/20/23 | 700 | 697 |
Pertamina Persero PT | 6.500% | 5/27/41 | 400 | 428 |
2 Pertamina Persero PT | 6.000% | 5/3/42 | 750 | 752 |
Pertamina Persero PT | 6.000% | 5/3/42 | 250 | 250 |
2 Pertamina Persero PT | 5.625% | 5/20/43 | 200 | 194 |
Pertamina Persero PT | 5.625% | 5/20/43 | 200 | 193 |
Pertamina Persero PT | 6.450% | 5/30/44 | 200 | 214 |
2 Perusahaan Gas Negara Persero Tbk PT | 5.125% | 5/16/24 | 400 | 419 |
Perusahaan Gas Negara Persero Tbk PT | 5.125% | 5/16/24 | 400 | 419 |
Perusahaan Listrik Negara PT | 5.500% | 11/22/21 | 550 | 598 |
Perusahaan Listrik Negara PT | 5.250% | 10/24/42 | 500 | 477 |
Perusahaan Penerbit SBSN Indonesia II | 4.000% | 11/21/18 | 600 | 631 |
2 Perusahaan Penerbit SBSN Indonesia III | 6.125% | 3/15/19 | 200 | 226 |
Perusahaan Penerbit SBSN Indonesia III | 6.125% | 3/15/19 | 400 | 451 |
18
Emerging Markets Government Bond Index Fund
Face | Market | |||
Maturity | Amount | Value• | ||
Coupon | Date | ($000) | ($000) | |
Perusahaan Penerbit SBSN Indonesia III | 3.300% | 11/21/22 | 628 | 616 |
2 Perusahaan Penerbit SBSN Indonesia III | 4.350% | 9/10/24 | 600 | 616 |
Republic of Indonesia | 6.875% | 3/9/17 | 450 | 493 |
Republic of Indonesia | 6.875% | 1/17/18 | 1,527 | 1,724 |
Republic of Indonesia | 11.625% | 3/4/19 | 1,002 | 1,335 |
2 Republic of Indonesia | 5.875% | 3/13/20 | 350 | 397 |
Republic of Indonesia | 5.875% | 3/13/20 | 950 | 1,076 |
Republic of Indonesia | 4.875% | 5/5/21 | 850 | 925 |
Republic of Indonesia | 3.750% | 4/25/22 | 850 | 866 |
Republic of Indonesia | 3.375% | 4/15/23 | 600 | 586 |
Republic of Indonesia | 5.375% | 10/17/23 | 409 | 457 |
Republic of Indonesia | 5.875% | 1/15/24 | 300 | 345 |
2 Republic of Indonesia | 4.125% | 1/15/25 | 200 | 205 |
Republic of Indonesia | 8.500% | 10/12/35 | 1,200 | 1,731 |
Republic of Indonesia | 6.625% | 2/17/37 | 1,318 | 1,603 |
Republic of Indonesia | 7.750% | 1/17/38 | 852 | 1,161 |
Republic of Indonesia | 5.250% | 1/17/42 | 900 | 943 |
Republic of Indonesia | 4.625% | 4/15/43 | 975 | 946 |
2 Republic of Indonesia | 6.750% | 1/15/44 | 100 | 127 |
Republic of Indonesia | 6.750% | 1/15/44 | 950 | 1,202 |
Republic of Indonesia | 5.125% | 1/15/45 | 800 | 827 |
Total Indonesia (Cost $27,468) | 28,655 | |||
Iraq (0.2%) | ||||
Sovereign Bond (U.S. Dollar-Denominated) (0.2%) | ||||
Republic of Iraq | 5.800% | 1/15/28 | 1,060 | 918 |
Total Iraq (Cost $942) | 918 | |||
Jamaica (0.2%) | ||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.2%) | ||||
1 Jamaica | 8.000% | 6/24/19 | 550 | 586 |
1 Jamaica | 7.625% | 7/9/25 | 250 | 279 |
1 Jamaica | 8.000% | 3/15/39 | 225 | 244 |
Total Jamaica (Cost $1,045) | 1,109 | |||
Kazakhstan (1.6%) | ||||
Sovereign Bonds (U.S. Dollar-Denominated) (1.6%) | ||||
Development Bank of Kazakhstan JSC | 4.125% | 12/10/22 | 800 | 736 |
Intergas Finance BV | 6.375% | 5/14/17 | 150 | 154 |
KazAgro National Management Holding JSC | 4.625% | 5/24/23 | 600 | 554 |
Kazakhstan Temir Zholy Finance BV | 6.950% | 7/10/42 | 600 | 617 |
KazMunayGas National Co. JSC | 9.125% | 7/2/18 | 725 | 821 |
KazMunayGas National Co. JSC | 7.000% | 5/5/20 | 900 | 983 |
KazMunayGas National Co. JSC | 6.375% | 4/9/21 | 1,030 | 1,092 |
KazMunayGas National Co. JSC | 4.400% | 4/30/23 | 425 | 404 |
2 KazMunayGas National Co. JSC | 5.750% | 4/30/43 | 225 | 201 |
KazMunayGas National Co. JSC | 5.750% | 4/30/43 | 900 | 810 |
2 KazMunayGas National Co. JSC | 6.000% | 11/7/44 | 200 | 182 |
Republic of Kazakhstan | 3.875% | 10/14/24 | 800 | 775 |
2 Republic of Kazakhstan | 4.875% | 10/14/44 | 400 | 370 |
Total Kazakhstan (Cost $7,796) | 7,699 |
19
Emerging Markets Government Bond Index Fund
Face | Market | |||
Maturity | Amount | Value• | ||
Coupon | Date | ($000) | ($000) | |
Kenya (0.3%) | ||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.3%) | ||||
2 Republic of Kenya | 5.875% | 6/24/19 | 200 | 206 |
2 Republic of Kenya | 6.875% | 6/24/24 | 200 | 211 |
Republic of Kenya | 6.875% | 6/24/24 | 1,000 | 1,057 |
Total Kenya (Cost $1,471) | 1,474 | |||
Lebanon (2.0%) | ||||
Sovereign Bonds (U.S. Dollar-Denominated) (2.0%) | ||||
Republic of Lebanon | 4.750% | 11/2/16 | 250 | 251 |
Republic of Lebanon | 9.000% | 3/20/17 | 400 | 434 |
Republic of Lebanon | 5.000% | 10/12/17 | 1,025 | 1,031 |
Republic of Lebanon | 5.150% | 6/12/18 | 150 | 151 |
Republic of Lebanon | 5.150% | 11/12/18 | 475 | 479 |
Republic of Lebanon | 5.500% | 4/23/19 | 50 | 50 |
Republic of Lebanon | 6.000% | 5/20/19 | 450 | 462 |
Republic of Lebanon | 5.450% | 11/28/19 | 925 | 931 |
Republic of Lebanon | 6.375% | 3/9/20 | 1,066 | 1,115 |
Republic of Lebanon | 8.250% | 4/12/21 | 1,176 | 1,335 |
Republic of Lebanon | 6.100% | 10/4/22 | 708 | 725 |
Republic of Lebanon | 6.000% | 1/27/23 | 350 | 356 |
Republic of Lebanon | 6.200% | 2/26/25 | 100 | 102 |
Republic of Lebanon | 6.250% | 6/12/25 | 100 | 102 |
Republic of Lebanon | 6.600% | 11/27/26 | 600 | 619 |
Republic of Lebanon | 6.750% | 11/29/27 | 495 | 519 |
Republic of Lebanon | 6.650% | 2/26/30 | 800 | 825 |
Total Lebanon (Cost $9,361) | 9,487 | |||
Malaysia (1.6%) | ||||
Sovereign Bonds (U.S. Dollar-Denominated) (1.6%) | ||||
Cagamas Global plc | 2.745% | 12/10/19 | 200 | 203 |
Export-Import Bank of Malaysia Bhd. | 2.875% | 12/14/17 | 200 | 205 |
2 Federation of Malaysia | 2.991% | 7/6/16 | 875 | 895 |
2 Federation of Malaysia | 4.646% | 7/6/21 | 250 | 276 |
1 Malayan Banking Berhad | 3.250% | 9/20/22 | 400 | 404 |
Petroliam Nasional Bhd. | 7.625% | 10/15/26 | 430 | 593 |
2 Petronas Capital Ltd. | 5.250% | 8/12/19 | 1,323 | 1,480 |
Petronas Capital Ltd. | 5.250% | 8/12/19 | 416 | 465 |
Petronas Capital Ltd. | 7.875% | 5/22/22 | 200 | 262 |
2 Petronas Capital Ltd. | 7.875% | 5/22/22 | 750 | 981 |
Petronas Capital Ltd. | 3.500% | 3/18/25 | 650 | 664 |
Petronas Capital Ltd. | 4.500% | 3/18/45 | 650 | 660 |
SSG Resources Ltd. | 4.250% | 10/4/22 | 400 | 412 |
Total Malaysia (Cost $7,394) | 7,500 | |||
Mexico (8.5%) | ||||
Sovereign Bonds (U.S. Dollar-Denominated) (8.5%) | ||||
Comision Federal de Electricidad | 4.875% | 5/26/21 | 550 | 590 |
2 Comision Federal de Electricidad | 4.875% | 1/15/24 | 200 | 214 |
Comision Federal de Electricidad | 4.875% | 1/15/24 | 400 | 426 |
Comision Federal de Electricidad | 5.750% | 2/14/42 | 200 | 217 |
Petroleos Mexicanos | 5.750% | 3/1/18 | 775 | 843 |
Petroleos Mexicanos | 3.500% | 7/18/18 | 600 | 620 |
Petroleos Mexicanos | 8.000% | 5/3/19 | 1,404 | 1,675 |
Petroleos Mexicanos | 6.000% | 3/5/20 | 200 | 228 |
2 Petroleos Mexicanos | 3.500% | 7/23/20 | 300 | 307 |
20
Emerging Markets Government Bond Index Fund
Face | Market | ||||
Maturity | Amount | Value• | |||
Coupon | Date | ($000) | ($000) | ||
Petroleos Mexicanos | 5.500% | 1/21/21 | 1,389 | 1,528 | |
Petroleos Mexicanos | 4.875% | 1/24/22 | 1,450 | 1,542 | |
Petroleos Mexicanos | 3.500% | 1/30/23 | 1,350 | 1,307 | |
Petroleos Mexicanos | 4.875% | 1/18/24 | 825 | 875 | |
2 | Petroleos Mexicanos | 4.250% | 1/15/25 | 600 | 608 |
2 | Petroleos Mexicanos | 4.500% | 1/23/26 | 550 | 560 |
Petroleos Mexicanos | 6.625% | 6/15/35 | 1,383 | 1,571 | |
Petroleos Mexicanos | 6.500% | 6/2/41 | 1,570 | 1,747 | |
Petroleos Mexicanos | 5.500% | 6/27/44 | 1,011 | 1,003 | |
2 | Petroleos Mexicanos | 5.500% | 6/27/44 | 500 | 496 |
Petroleos Mexicanos | 6.375% | 1/23/45 | 1,060 | 1,176 | |
2 | Petroleos Mexicanos | 5.625% | 1/23/46 | 1,900 | 1,919 |
United Mexican States | 11.375% | 9/15/16 | 475 | 544 | |
United Mexican States | 5.625% | 1/15/17 | 1,340 | 1,437 | |
United Mexican States | 5.950% | 3/19/19 | 1,195 | 1,363 | |
United Mexican States | 8.125% | 12/30/19 | 850 | 1,107 | |
United Mexican States | 5.125% | 1/15/20 | 1,280 | 1,438 | |
United Mexican States | 3.500% | 1/21/21 | 475 | 493 | |
United Mexican States | 3.625% | 3/15/22 | 1,058 | 1,103 | |
United Mexican States | 4.000% | 10/2/23 | 1,485 | 1,563 | |
United Mexican States | 3.600% | 1/30/25 | 1,139 | 1,157 | |
United Mexican States | 8.300% | 8/15/31 | 600 | 918 | |
United Mexican States | 7.500% | 4/8/33 | 490 | 703 | |
United Mexican States | 6.750% | 9/27/34 | 806 | 1,071 | |
United Mexican States | 6.050% | 1/11/40 | 1,564 | 1,900 | |
United Mexican States | 4.750% | 3/8/44 | 2,300 | 2,362 | |
United Mexican States | 5.550% | 1/21/45 | 1,510 | 1,730 | |
United Mexican States | 4.600% | 1/23/46 | 1,375 | 1,380 | |
United Mexican States | 5.750% | 10/12/10 | 1,200 | 1,285 | |
Total Mexico (Cost $40,254) | 41,006 | ||||
Mongolia (0.2%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.2%) | |||||
5 | Development Bank of Mongolia LLC | 5.750% | 3/21/17 | 200 | 193 |
Mongolia | 4.125% | 1/5/18 | 200 | 189 | |
Mongolia | 5.125% | 12/5/22 | 450 | 400 | |
Total Mongolia (Cost $792) | 782 | ||||
Morocco (0.5%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.5%) | |||||
Kingdom of Morocco | 4.250% | 12/11/22 | 700 | 719 | |
Kingdom of Morocco | 5.500% | 12/11/42 | 225 | 242 | |
OCP SA | 5.625% | 4/25/24 | 700 | 750 | |
2 | OCP SA | 5.625% | 4/25/24 | 100 | 107 |
2 | OCP SA | 4.500% | 10/22/25 | 450 | 437 |
2 | OCP SA | 6.875% | 4/25/44 | 200 | 220 |
Total Morocco (Cost $2,384) | 2,475 | ||||
Mozambique (0.1%) | |||||
Sovereign Bond (U.S. Dollar-Denominated) (0.1%) | |||||
1,6 | Mozambique EMATUM Finance 2020 BV | 6.305% | 9/11/20 | 400 | 389 |
Total Mozambique (Cost $386) | 389 |
21
Emerging Markets Government Bond Index Fund
Face | Market | |||
Maturity | Amount | Value• | ||
Coupon | Date | ($000) | ($000) | |
Namibia (0.0%) | ||||
Sovereign Bond (U.S. Dollar-Denominated) (0.0%) | ||||
Republic of Namibia | 5.500% | 11/3/21 | 200 | 220 |
Total Namibia (Cost $205) | 220 | |||
Nigeria (0.2%) | ||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.2%) | ||||
2 Africa Finance Corp. | 4.375% | 4/29/20 | 350 | 354 |
2 Federal Republic of Nigeria | 5.125% | 7/12/18 | 200 | 205 |
Federal Republic of Nigeria | 6.750% | 1/28/21 | 250 | 270 |
Federal Republic of Nigeria | 6.375% | 7/12/23 | 200 | 210 |
Total Nigeria (Cost $1,013) | 1,039 | |||
Pakistan (0.4%) | ||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.4%) | ||||
Islamic Republic of Pakistan | 6.875% | 6/1/17 | 375 | 389 |
Islamic Republic of Pakistan | 7.250% | 4/15/19 | 200 | 210 |
2 Islamic Republic of Pakistan | 7.250% | 4/15/19 | 400 | 421 |
Islamic Republic of Pakistan | 6.750% | 12/3/19 | 400 | 413 |
Islamic Republic of Pakistan | 8.250% | 4/15/24 | 200 | 217 |
2 Islamic Republic of Pakistan | 8.250% | 4/15/24 | 250 | 273 |
Total Pakistan (Cost $1,838) | 1,923 | |||
Panama (1.1%) | ||||
Sovereign Bonds (U.S. Dollar-Denominated) (1.1%) | ||||
Republic of Panama | 5.200% | 1/30/20 | 788 | 877 |
1 Republic of Panama | 4.000% | 9/22/24 | 550 | 571 |
1 Republic of Panama | 3.750% | 3/16/25 | 400 | 406 |
Republic of Panama | 7.125% | 1/29/26 | 500 | 647 |
Republic of Panama | 8.875% | 9/30/27 | 425 | 619 |
Republic of Panama | 9.375% | 4/1/29 | 450 | 686 |
1 Republic of Panama | 6.700% | 1/26/36 | 1,132 | 1,473 |
1 Republic of Panama | 4.300% | 4/29/53 | 200 | 189 |
Total Panama (Cost $5,268) | 5,468 | |||
Paraguay (0.2%) | ||||
Republic of Paraguay | 4.625% | 1/25/23 | 200 | 206 |
Republic of Paraguay | 6.100% | 8/11/44 | 500 | 536 |
Total Paraguay (Cost $740) | 742 | |||
Peru (1.4%) | ||||
Sovereign Bonds (U.S. Dollar-Denominated) (1.4%) | ||||
Corp. Financiera de Desarrollo SA | 4.750% | 2/8/22 | 200 | 214 |
Fondo MIVIVIENDA SA | 3.500% | 1/31/23 | 500 | 493 |
Republic of Peru | 7.125% | 3/30/19 | 471 | 558 |
Republic of Peru | 7.350% | 7/21/25 | 1,018 | 1,377 |
Republic of Peru | 8.750% | 11/21/33 | 910 | 1,440 |
1 Republic of Peru | 6.550% | 3/14/37 | 792 | 1,049 |
Republic of Peru | 5.625% | 11/18/50 | 1,143 | 1,383 |
Total Peru (Cost $6,264) | 6,514 | |||
Philippines (3.1%) | ||||
Sovereign Bonds (U.S. Dollar-Denominated) (3.1%) | ||||
7 Power Sector Assets & Liabilities | ||||
Management Corp. | 6.875% | 11/2/16 | 100 | 108 |
22
Emerging Markets Government Bond Index Fund
Face | Market | ||||
Maturity | Amount | Value• | |||
Coupon | Date | ($000) | ($000) | ||
7 | Power Sector Assets & Liabilities | ||||
Management Corp. | 7.250% | 5/27/19 | 664 | 789 | |
7 | Power Sector Assets & Liabilities | ||||
Management Corp. | 7.390% | 12/2/24 | 600 | 810 | |
Republic of the Philippines | 9.875% | 1/15/19 | 250 | 320 | |
Republic of the Philippines | 8.375% | 6/17/19 | 816 | 1,023 | |
Republic of the Philippines | 6.500% | 1/20/20 | 300 | 360 | |
Republic of the Philippines | 4.000% | 1/15/21 | 770 | 845 | |
Republic of the Philippines | 4.200% | 1/21/24 | 850 | 959 | |
Republic of the Philippines | 10.625% | 3/16/25 | 584 | 954 | |
Republic of the Philippines | 5.500% | 3/30/26 | 850 | 1,040 | |
Republic of the Philippines | 9.500% | 2/2/30 | 1,003 | 1,687 | |
Republic of the Philippines | 7.750% | 1/14/31 | 1,454 | 2,188 | |
Republic of the Philippines | 6.375% | 1/15/32 | 600 | 815 | |
Republic of the Philippines | 6.375% | 10/23/34 | 850 | 1,196 | |
Republic of the Philippines | 5.000% | 1/13/37 | 880 | 1,081 | |
Republic of the Philippines | 3.950% | 1/20/40 | 700 | 748 | |
Total Philippines (Cost $14,118) | 14,923 | ||||
Poland (1.4%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (1.4%) | |||||
Republic of Poland | 6.375% | 7/15/19 | 2,321 | 2,724 | |
Republic of Poland | 5.125% | 4/21/21 | 885 | 1,010 | |
Republic of Poland | 5.000% | 3/23/22 | 1,268 | 1,440 | |
Republic of Poland | 3.000% | 3/17/23 | 875 | 889 | |
Republic of Poland | 4.000% | 1/22/24 | 830 | 903 | |
Total Poland (Cost $6,737) | 6,966 | ||||
Qatar (3.5%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (3.5%) | |||||
1,2 | Nakilat Inc. | 6.067% | 12/31/33 | 500 | 588 |
2 | Ooredoo International Finance Ltd. | 3.375% | 10/14/16 | 805 | 826 |
2 | Ooredoo International Finance Ltd. | 7.875% | 6/10/19 | 400 | 489 |
2 | Ooredoo International Finance Ltd. | 4.750% | 2/16/21 | 500 | 551 |
2 | Ooredoo International Finance Ltd. | 3.250% | 2/21/23 | 150 | 149 |
2 | Ooredoo International Finance Ltd. | 5.000% | 10/19/25 | 200 | 223 |
2 | Ooredoo International Finance Ltd. | 3.875% | 1/31/28 | 850 | 836 |
Ooredoo Tamweel Ltd. | 3.039% | 12/3/18 | 225 | 232 | |
2,8 | Qatari Diar Finance QSC | 5.000% | 7/21/20 | 1,075 | 1,213 |
QNB Finance Ltd. | 3.375% | 2/22/17 | 1,250 | 1,289 | |
QNB Finance Ltd. | 2.125% | 2/14/18 | 200 | 200 | |
QNB Finance Ltd. | 2.750% | 10/31/18 | 400 | 407 | |
QNB Finance Ltd. | 2.875% | 4/29/20 | 200 | 205 | |
1,2 | Ras Laffan Liquefied Natural Gas Co. Ltd. II | 5.298% | 9/30/20 | 286 | 310 |
2 | Ras Laffan Liquefied Natural Gas Co. Ltd. III | 6.750% | 9/30/19 | 250 | 297 |
1,2 | Ras Laffan Liquefied Natural Gas Co. Ltd. III | 5.838% | 9/30/27 | 770 | 890 |
1,2 | Ras Laffan Liquefied Natural Gas Co. Ltd. III | 6.332% | 9/30/27 | 250 | 299 |
2 | State of Qatar | 3.125% | 1/20/17 | 775 | 803 |
8 | State of Qatar | 2.099% | 1/18/18 | 700 | 715 |
2 | State of Qatar | 6.550% | 4/9/19 | 450 | 530 |
2 | State of Qatar | 5.250% | 1/20/20 | 757 | 861 |
State of Qatar | 5.250% | 1/20/20 | 100 | 114 | |
2 | State of Qatar | 4.500% | 1/20/22 | 1,050 | 1,174 |
8 | State of Qatar | 3.241% | 1/18/23 | 575 | 598 |
2 | State of Qatar | 9.750% | 6/15/30 | 600 | 1,020 |
State of Qatar | 9.750% | 6/15/30 | 75 | 128 |
23
Emerging Markets Government Bond Index Fund
Face | Market | |||
Maturity | Amount | Value• | ||
Coupon | Date | ($000) | ($000) | |
2 State of Qatar | 6.400% | 1/20/40 | 500 | 679 |
State of Qatar | 6.400% | 1/20/40 | 102 | 139 |
2 State of Qatar | 5.750% | 1/20/42 | 616 | 779 |
State of Qatar | 5.750% | 1/20/42 | 200 | 254 |
Total Qatar (Cost $16,235) | 16,798 | |||
Romania (0.6%) | ||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.6%) | ||||
Republic of Romania | 6.750% | 2/7/22 | 1,026 | 1,231 |
Republic of Romania | 4.375% | 8/22/23 | 1,254 | 1,331 |
2 Republic of Romania | 4.875% | 1/22/24 | 100 | 110 |
2 Republic of Romania | 6.125% | 1/22/44 | 200 | 249 |
Republic of Romania | 6.125% | 1/22/44 | 180 | 224 |
Total Romania (Cost $2,988) | 3,145 | |||
Russia (9.3%) | ||||
Sovereign Bonds (U.S. Dollar-Denominated) (9.3%) | ||||
AK Transneft OJSC Via TransCapitalInvest Ltd. | 8.700% | 8/7/18 | 420 | 456 |
Gazprom Neft OAO Via GPN Capital SA | 4.376% | 9/19/22 | 600 | 507 |
2 Gazprom Neft OAO Via GPN Capital SA | 6.000% | 11/27/23 | 200 | 184 |
Gazprom Neft OAO Via GPN Capital SA | 6.000% | 11/27/23 | 450 | 415 |
Gazprom OAO Via Gaz Capital SA | 4.950% | 5/23/16 | 500 | 504 |
Gazprom OAO Via Gaz Capital SA | 6.212% | 11/22/16 | 545 | 559 |
Gazprom OAO Via Gaz Capital SA | 8.146% | 4/11/18 | 800 | 846 |
Gazprom OAO Via Gaz Capital SA | 9.250% | 4/23/19 | 1,050 | 1,165 |
Gazprom OAO Via Gaz Capital SA | 3.850% | 2/6/20 | 678 | 617 |
Gazprom OAO Via Gaz Capital SA | 5.999% | 1/23/21 | 200 | 197 |
Gazprom OAO Via Gaz Capital SA | 6.510% | 3/7/22 | 525 | 526 |
Gazprom OAO Via Gaz Capital SA | 4.950% | 7/19/22 | 350 | 326 |
Gazprom OAO Via Gaz Capital SA | 4.950% | 2/6/28 | 450 | 391 |
Gazprom OAO Via Gaz Capital SA | 8.625% | 4/28/34 | 525 | 597 |
Gazprom OAO Via Gaz Capital SA | 7.288% | 8/16/37 | 525 | 535 |
Gazprombank OJSC Via GPB | ||||
Eurobond Finance plc | 5.625% | 5/17/17 | 400 | 393 |
Gazprombank OJSC Via GPB | ||||
Eurobond Finance plc | 7.250% | 5/3/19 | 200 | 193 |
Gazprombank OJSC Via GPB | ||||
Eurobond Finance plc | 4.960% | 9/5/19 | 400 | 364 |
Rosneft Finance SA | 7.500% | 7/18/16 | 250 | 256 |
Rosneft Finance SA | 6.625% | 3/20/17 | 100 | 101 |
2 Rosneft Finance SA | 7.875% | 3/13/18 | 100 | 102 |
Rosneft Finance SA | 7.875% | 3/13/18 | 850 | 867 |
Rosneft Finance SA | 7.250% | 2/2/20 | 200 | 199 |
Rosneft Oil Co. via Rosneft | ||||
International Finance Ltd. | 3.149% | 3/6/17 | 400 | 379 |
Rosneft Oil Co. via Rosneft | ||||
International Finance Ltd. | 4.199% | 3/6/22 | 977 | 829 |
Russian Agricultural Bank OJSC | ||||
Via RSHB Capital SA | 6.299% | 5/15/17 | 300 | 295 |
Russian Agricultural Bank OJSC | ||||
Via RSHB Capital SA | 5.298% | 12/27/17 | 318 | 303 |
Russian Agricultural Bank OJSC | ||||
Via RSHB Capital SA | 7.750% | 5/29/18 | 400 | 401 |
2 Russian Agricultural Bank OJSC | ||||
Via RSHB Capital SA | 5.100% | 7/25/18 | 100 | 94 |
24
Emerging Markets Government Bond Index Fund
Face | Market | |||
Maturity | Amount | Value• | ||
Coupon | Date | ($000) | ($000) | |
Russian Agricultural Bank OJSC | ||||
Via RSHB Capital SA | 5.100% | 7/25/18 | 1,000 | 932 |
1 Russian Agricultural Bank OJSC | ||||
Via RSHB Capital SA | 6.000% | 6/3/21 | 600 | 528 |
Russian Federation | 3.250% | 4/4/17 | 1,000 | 1,017 |
Russian Federation | 11.000% | 7/24/18 | 825 | 1,006 |
2 Russian Federation | 3.500% | 1/16/19 | 300 | 293 |
Russian Federation | 3.500% | 1/16/19 | 1,000 | 980 |
Russian Federation | 5.000% | 4/29/20 | 2,000 | 2,038 |
Russian Federation | 4.500% | 4/4/22 | 1,000 | 971 |
2 Russian Federation | 4.875% | 9/16/23 | 200 | 197 |
Russian Federation | 4.875% | 9/16/23 | 1,800 | 1,763 |
Russian Federation | 12.750% | 6/24/28 | 975 | 1,538 |
1 Russian Federation | 7.500% | 3/31/30 | 6,746 | 7,887 |
Russian Federation | 5.625% | 4/4/42 | 1,200 | 1,149 |
Russian Federation | 5.875% | 9/16/43 | 600 | 590 |
Russian Railways via RZD Capital plc | 5.739% | 4/3/17 | 636 | 636 |
Russian Railways via RZD Capital plc | 5.700% | 4/5/22 | 600 | 568 |
Sberbank of Russia Via SB Capital SA | 4.950% | 2/7/17 | 325 | 323 |
Sberbank of Russia Via SB Capital SA | 5.400% | 3/24/17 | 550 | 549 |
Sberbank of Russia Via SB Capital SA | 5.180% | 6/28/19 | 750 | 718 |
Sberbank of Russia Via SB Capital SA | 5.717% | 6/16/21 | 400 | 382 |
Sberbank of Russia Via SB Capital SA | 6.125% | 2/7/22 | 800 | 772 |
Sberbank of Russia Via SB Capital SA | 5.125% | 10/29/22 | 974 | 808 |
SCF Capital Ltd. | 5.375% | 10/27/17 | 200 | 186 |
Vnesheconombank Via VEB Finance plc | 5.375% | 2/13/17 | 300 | 294 |
Vnesheconombank Via VEB Finance plc | 4.224% | 11/21/18 | 1,000 | 903 |
Vnesheconombank Via VEB Finance plc | 6.902% | 7/9/20 | 550 | 526 |
Vnesheconombank Via VEB Finance plc | 6.025% | 7/5/22 | 725 | 656 |
2 Vnesheconombank Via VEB Finance plc | 5.942% | 11/21/23 | 200 | 175 |
Vnesheconombank Via VEB Finance plc | 6.800% | 11/22/25 | 450 | 418 |
VTB Bank OJSC Via VTB Capital SA | 6.000% | 4/12/17 | 925 | 914 |
VTB Bank OJSC Via VTB Capital SA | 6.315% | 2/22/18 | 400 | 397 |
VTB Bank OJSC Via VTB Capital SA | 6.875% | 5/29/18 | 875 | 879 |
VTB Bank OJSC Via VTB Capital SA | 6.551% | 10/13/20 | 450 | 439 |
VTB Bank OJSC Via VTB Capital SA | 6.950% | 10/17/22 | 575 | 528 |
VTB Bank OJSC Via VTB Capital SA | 6.250% | 6/30/35 | 100 | 100 |
Total Russia (Cost $45,311) | 44,661 | |||
Saudi Arabia (0.8%) | ||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.8%) | ||||
SABIC Capital II BV | 2.625% | 10/3/18 | 400 | 408 |
Saudi Electricity Global Sukuk Co. | 2.665% | 4/3/17 | 400 | 409 |
Saudi Electricity Global Sukuk Co. | 4.211% | 4/3/22 | 625 | 673 |
Saudi Electricity Global Sukuk Co. 2 | 3.473% | 4/8/23 | 550 | 565 |
Saudi Electricity Global Sukuk Co. 2 | 5.060% | 4/8/43 | 400 | 414 |
Saudi Electricity Global Sukuk Co. 3 | 4.000% | 4/8/24 | 350 | 374 |
2 Saudi Electricity Global Sukuk Co. 3 | 4.000% | 4/8/24 | 650 | 695 |
2 Saudi Electricity Global Sukuk Co. 3 | 5.500% | 4/8/44 | 300 | 329 |
Total Saudi Arabia (Cost $3,728) | 3,867 | |||
Senegal (0.1%) | ||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.1%) | ||||
Republic of Senegal | 8.750% | 5/13/21 | 200 | 225 |
Republic of Senegal | 6.250% | 7/30/24 | 200 | 197 |
Total Senegal (Cost $419) | 422 |
25
Emerging Markets Government Bond Index Fund
Face | Market | ||||
Maturity | Amount | Value• | |||
Coupon | Date | ($000) | ($000) | ||
Serbia, Republic Of (0.6%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.6%) | |||||
Republic of Serbia | 5.250% | 11/21/17 | 400 | 414 | |
2 | Republic of Serbia | 5.875% | 12/3/18 | 200 | 211 |
Republic of Serbia | 5.875% | 12/3/18 | 400 | 424 | |
Republic of Serbia | 4.875% | 2/25/20 | 400 | 410 | |
Republic of Serbia | 7.250% | 9/28/21 | 1,300 | 1,498 | |
Total Serbia, Republic Of (Cost $2,884) | 2,957 | ||||
South Africa (1.7%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (1.7%) | |||||
Eskom Holdings SOC Ltd. | 5.750% | 1/26/21 | 1,100 | 1,094 | |
Eskom Holdings SOC Ltd. | 6.750% | 8/6/23 | 600 | 621 | |
2 | Eskom Holdings SOC Ltd. | 7.125% | 2/11/25 | 200 | 209 |
Eskom Holdings SOC Ltd. | 7.125% | 2/11/25 | 250 | 261 | |
Republic of South Africa | 6.875% | 5/27/19 | 1,195 | 1,371 | |
Republic of South Africa | 5.500% | 3/9/20 | 295 | 323 | |
Republic of South Africa | 5.875% | 5/30/22 | 200 | 225 | |
Republic of South Africa | 4.665% | 1/17/24 | 1,050 | 1,100 | |
Republic of South Africa | 5.875% | 9/16/25 | 1,200 | 1,365 | |
Republic of South Africa | 6.250% | 3/8/41 | 461 | 549 | |
Republic of South Africa | 5.375% | 7/24/44 | 500 | 530 | |
2 | Transnet SOC Ltd. | 4.000% | 7/26/22 | 600 | 578 |
Total South Africa (Cost $8,017) | 8,226 | ||||
Sri Lanka (0.7%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.7%) | |||||
Bank of Ceylon | 6.875% | 5/3/17 | 250 | 256 | |
Bank of Ceylon | 5.325% | 4/16/18 | 200 | 199 | |
2 | Democratic Socialist Republic of Sri Lanka | 6.000% | 1/14/19 | 200 | 207 |
2 | Democratic Socialist Republic of Sri Lanka | 5.125% | 4/11/19 | 250 | 251 |
Democratic Socialist Republic of Sri Lanka | 6.250% | 10/4/20 | 432 | 447 | |
Democratic Socialist Republic of Sri Lanka | 6.250% | 7/27/21 | 1,150 | 1,187 | |
Democratic Socialist Republic of Sri Lanka | 5.875% | 7/25/22 | 600 | 607 | |
National Savings Bank | 8.875% | 9/18/18 | 400 | 432 | |
Total Sri Lanka (Cost $3,566) | 3,586 | ||||
Thailand (0.3%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.3%) | |||||
Krung Thai Bank PCL | 2.250% | 9/11/18 | 200 | 199 | |
1 | Krung Thai Bank PCL | 5.200% | 12/26/24 | 450 | 469 |
PTT PCL | 4.500% | 10/25/42 | 400 | 369 | |
PTT Public Co. Ltd. | 3.375% | 10/25/22 | 225 | 224 | |
Total Thailand (Cost $1,237) | 1,261 | ||||
Trinidad And Tobago (0.1%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.1%) | |||||
2 | Petroleum Co. of Trinidad & Tobago Ltd. | 9.750% | 8/14/19 | 300 | 363 |
2 | Republic of Trinidad & Tobago | 4.375% | 1/16/24 | 200 | 216 |
Total Trinidad And Tobago (Cost $565) | 579 | ||||
Tunisia (0.1%) | |||||
Sovereign Bond (U.S. Dollar-Denominated) (0.1%) | |||||
Banque Centrale de Tunisie SA | 5.750% | 1/30/25 | 400 | 413 | |
Total Tunisia (Cost $408) | 413 |
26
Emerging Markets Government Bond Index Fund
Face | Market | ||||
Maturity | Amount | Value• | |||
Coupon | Date | ($000) | ($000) | ||
Turkey (5.9%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (5.9%) | |||||
Export Credit Bank of Turkey | 5.375% | 11/4/16 | 450 | 466 | |
Export Credit Bank of Turkey | 5.875% | 4/24/19 | 600 | 634 | |
2 | Export Credit Bank of Turkey | 5.000% | 9/23/21 | 400 | 400 |
Hazine Mustesarligi Varlik Kiralama AS | 4.557% | 10/10/18 | 250 | 261 | |
2 | Hazine Mustesarligi Varlik Kiralama AS | 4.489% | 11/25/24 | 400 | 404 |
Republic of Turkey | 7.000% | 9/26/16 | 500 | 537 | |
Republic of Turkey | 7.500% | 7/14/17 | 991 | 1,097 | |
9 | Republic of Turkey | 2.803% | 3/26/18 | 700 | 696 |
Republic of Turkey | 6.750% | 4/3/18 | 687 | 759 | |
2 | Republic of Turkey | 4.557% | 10/10/18 | 150 | 157 |
Republic of Turkey | 7.000% | 3/11/19 | 1,078 | 1,219 | |
Republic of Turkey | 7.500% | 11/7/19 | 1,350 | 1,572 | |
Republic of Turkey | 7.000% | 6/5/20 | 630 | 725 | |
Republic of Turkey | 5.625% | 3/30/21 | 901 | 983 | |
Republic of Turkey | 5.125% | 3/25/22 | 825 | 874 | |
Republic of Turkey | 6.250% | 9/26/22 | 504 | 569 | |
Republic of Turkey | 3.250% | 3/23/23 | 451 | 425 | |
Republic of Turkey | 5.750% | 3/22/24 | 1,350 | 1,485 | |
Republic of Turkey | 7.375% | 2/5/25 | 2,000 | 2,449 | |
Republic of Turkey | 11.875% | 1/15/30 | 775 | 1,346 | |
Republic of Turkey | 8.000% | 2/14/34 | 502 | 674 | |
Republic of Turkey | 6.875% | 3/17/36 | 2,002 | 2,425 | |
Republic of Turkey | 7.250% | 3/5/38 | 255 | 324 | |
Republic of Turkey | 6.750% | 5/30/40 | 1,010 | 1,222 | |
Republic of Turkey | 6.000% | 1/14/41 | 1,200 | 1,332 | |
Republic of Turkey | 4.875% | 4/16/43 | 1,466 | 1,404 | |
Republic of Turkey | 6.625% | 2/17/45 | 950 | 1,147 | |
2 | TC Ziraat Bankasi AS | 4.250% | 7/3/19 | 200 | 198 |
Turkey Government International Bond | 4.250% | 4/14/26 | 200 | 194 | |
Turkiye Halk Bankasi AS | 4.875% | 7/19/17 | 425 | 436 | |
2 | Turkiye Halk Bankasi AS | 4.750% | 6/4/19 | 250 | 249 |
Turkiye Halk Bankasi AS | 3.875% | 2/5/20 | 400 | 382 | |
Turkiye Halk Bankasi AS | 4.750% | 2/11/21 | 200 | 197 | |
Turkiye Vakiflar Bankasi Tao | 5.750% | 4/24/17 | 200 | 208 | |
Turkiye Vakiflar Bankasi Tao | 3.750% | 4/15/18 | 200 | 196 | |
Turkiye Vakiflar Bankasi Tao | 5.000% | 10/31/18 | 200 | 203 | |
Turkiye Vakiflar Bankasi Tao | 6.000% | 11/1/22 | 400 | 392 | |
1 | Turkiye Vakiflar Bankasi Tao | 6.875% | 2/3/25 | 200 | 198 |
Total Turkey (Cost $27,867) | 28,439 | ||||
Ukraine (0.7%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.7%) | |||||
10 | Financing of Infrastructural | ||||
Projects State Enterprise | 8.375% | 11/3/17 | 100 | 45 | |
10 | Financing of Infrastructural | ||||
Projects State Enterprise | 9.000% | 12/7/17 | 200 | 88 | |
10 | Financing of Infrastructural | ||||
Projects State Enterprise | 7.400% | 4/20/18 | 200 | 88 | |
Oschadbank Via SSB #1 plc | 8.875% | 3/20/18 | 200 | 132 | |
Ukraine | 6.250% | 6/17/16 | 400 | 184 | |
Ukraine | 6.580% | 11/21/16 | 723 | 331 | |
Ukraine | 9.250% | 7/24/17 | 1,328 | 604 | |
Ukraine | 6.750% | 11/14/17 | 800 | 364 |
27
Emerging Markets Government Bond Index Fund
Face | Market | ||||
Maturity | Amount | Value• | |||
Coupon | Date | ($000) | ($000) | ||
Ukraine | 7.750% | 9/23/20 | 627 | 285 | |
Ukraine | 7.950% | 2/23/21 | 650 | 296 | |
Ukraine | 7.800% | 11/28/22 | 780 | 355 | |
Ukraine | 7.500% | 4/17/23 | 600 | 280 | |
2 | Ukraine Railways via Shortline plc | 9.500% | 5/21/18 | 200 | 108 |
Ukreximbank Via Biz Finance plc | 8.750% | 1/22/18 | 200 | 135 | |
Total Ukraine (Cost $6,036) | 3,295 | ||||
United Arab Emirates (5.1%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (5.1%) | |||||
2 | Abu Dhabi National Energy Co. PJSC | 5.875% | 10/27/16 | 585 | 624 |
2 | Abu Dhabi National Energy Co. PJSC | 4.125% | 3/13/17 | 400 | 419 |
2 | Abu Dhabi National Energy Co. PJSC | 2.500% | 1/12/18 | 400 | 407 |
2 | Abu Dhabi National Energy Co. PJSC | 6.250% | 9/16/19 | 275 | 320 |
2 | Abu Dhabi National Energy Co. PJSC | 5.875% | 12/13/21 | 200 | 237 |
2 | Abu Dhabi National Energy Co. PJSC | 3.625% | 1/12/23 | 600 | 615 |
Abu Dhabi National Energy Co. PJSC | 3.875% | 5/6/24 | 200 | 206 | |
2 | Abu Dhabi National Energy Co. PJSC | 6.500% | 10/27/36 | 625 | 803 |
3 | ADCB Finance Cayman Ltd. | 1.574% | 1/9/17 | 200 | 201 |
ADCB Finance Cayman Ltd. | 2.500% | 3/6/18 | 200 | 202 | |
ADCB Finance Cayman Ltd. | 3.000% | 3/4/19 | 400 | 410 | |
ADCB Finance Cayman Ltd. | 4.500% | 3/6/23 | 425 | 442 | |
ADCB Islamic Finance Cayman Ltd. | 4.071% | 11/22/16 | 720 | 751 | |
AHB Sukuk Co. Ltd. | 3.267% | 10/8/18 | 200 | 207 | |
DEWA Sukuk 2013 Ltd. | 3.000% | 3/5/18 | 650 | 664 | |
1,2 | Dolphin Energy Ltd. | 5.888% | 6/15/19 | 286 | 314 |
2 | Dolphin Energy Ltd. | 5.500% | 12/15/21 | 620 | 715 |
2 | DP World Ltd. | 6.850% | 7/2/37 | 800 | 901 |
2 | DP World Sukuk Ltd. | 6.250% | 7/2/17 | 670 | 725 |
Dubai DOF Sukuk Ltd. | 6.450% | 5/2/22 | 200 | 240 | |
2 | Dubai Electricity & Water Authority | 6.375% | 10/21/16 | 250 | 268 |
2 | Dubai Electricity & Water Authority | 7.375% | 10/21/20 | 550 | 673 |
2 | Emirate of Abu Dhabi | 6.750% | 4/8/19 | 525 | 622 |
Emirate of Dubai | 4.900% | 5/2/17 | 200 | 213 | |
Emirate of Dubai | 7.750% | 10/5/20 | 500 | 621 | |
Emirate of Dubai | 3.875% | 1/30/23 | 400 | 413 | |
Emirate of Dubai | 5.250% | 1/30/43 | 200 | 189 | |
Emirates Airline | 5.125% | 6/8/16 | 700 | 725 | |
1,2 | Emirates Airline | 4.500% | 2/6/25 | 343 | 346 |
Emirates NBD PJSC | 4.625% | 3/28/17 | 675 | 705 | |
Emirates NBD PJSC | 3.250% | 11/19/19 | 335 | 339 | |
1 | Emirates NBD PJSC | 4.875% | 3/28/23 | 250 | 259 |
Emirates Telecommunications Corp. | 2.375% | 6/18/19 | 200 | 202 | |
Emirates Telecommunications Corp. | 3.500% | 6/18/24 | 200 | 212 | |
ICD Sukuk Co. Ltd. | 3.508% | 5/21/20 | 250 | 250 | |
2 | IPIC GMTN Ltd. | 3.750% | 3/1/17 | 945 | 984 |
2 | IPIC GMTN Ltd. | 5.000% | 11/15/20 | 500 | 563 |
2 | IPIC GMTN Ltd. | 5.500% | 3/1/22 | 710 | 829 |
2 | IPIC GMTN Ltd. | 6.875% | 11/1/41 | 400 | 567 |
Jafz Sukuk Ltd. | 7.000% | 6/19/19 | 400 | 458 | |
2 | MDC-GMTN B.V. | 7.625% | 5/6/19 | 500 | 607 |
2 | MDC-GMTN B.V. | 5.500% | 4/20/21 | 450 | 524 |
2 | MDC-GMTN B.V. | 3.250% | 4/28/22 | 200 | 208 |
1 | Medjool Ltd. | 3.875% | 3/19/23 | 303 | 310 |
2 | Mubadala GE Capital Ltd. | 3.000% | 11/10/19 | 200 | 200 |
28
Emerging Markets Government Bond Index Fund
Face | Market | ||||
Maturity | Amount | Value• | |||
Coupon | Date | ($000) | ($000) | ||
National Bank of Abu Dhabi PJSC | 3.250% | 3/27/17 | 400 | 413 | |
National Bank of Abu Dhabi PJSC | 3.000% | 8/13/19 | 400 | 413 | |
National Bank of Abu Dhabi PJSC | 2.250% | 2/11/20 | 225 | 224 | |
2 | NOVA Chemicals Corp. | 5.250% | 8/1/23 | 400 | 421 |
RAK Capital | 3.297% | 10/21/18 | 200 | 208 | |
RAKFunding Cayman Ltd. | 3.250% | 6/24/19 | 200 | 202 | |
1 | Ruwais Power Co. PJSC | 6.000% | 8/31/36 | 400 | 478 |
Sharjah Sukuk Ltd. | 3.764% | 9/17/24 | 400 | 425 | |
Union National Bank PJSC | 3.875% | 11/10/16 | 200 | 207 | |
1,2 | Waha Aerospace BV | 3.925% | 7/28/20 | 814 | 854 |
Total United Arab Emirates (Cost $23,992) | 24,535 | ||||
United States (0.0%) | |||||
U.S. Government and Agency Obligations (0.0%) | |||||
United States Treasury Note/Bond | 5.125% | 5/15/16 | 15 | 16 | |
United States Treasury Note/Bond | 0.500% | 2/28/17 | 20 | 20 | |
United States Treasury Note/Bond | 3.000% | 2/28/17 | 15 | 16 | |
United States Treasury Note/Bond | 0.875% | 7/31/19 | 20 | 19 | |
United States Treasury Note/Bond | 2.750% | 2/15/24 | 30 | 32 | |
United States Treasury Note/Bond | 5.500% | 8/15/28 | 30 | 41 | |
United States Treasury Note/Bond | 6.125% | 8/15/29 | 5 | 7 | |
United States Treasury Note/Bond | 3.750% | 8/15/41 | 5 | 6 | |
Total United States (Cost $155) | 157 | ||||
Uruguay (0.9%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.9%) | |||||
1 | Oriental Republic of Uruguay | 8.000% | 11/18/22 | 218 | 287 |
1 | Oriental Republic of Uruguay | 4.500% | 8/14/24 | 871 | 941 |
Oriental Republic of Uruguay | 7.875% | 1/15/33 | 346 | 488 | |
1 | Oriental Republic of Uruguay | 7.625% | 3/21/36 | 686 | 959 |
1 | Oriental Republic of Uruguay | 4.125% | 11/20/45 | 350 | 321 |
1 | Oriental Republic of Uruguay | 5.100% | 6/18/50 | 1,440 | 1,467 |
Total Uruguay (Cost $4,297) | 4,463 | ||||
Venezuela (3.2%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (3.2%) | |||||
Bolivarian Republic of Venezuela | 13.625% | 8/15/18 | 566 | 422 | |
Bolivarian Republic of Venezuela | 7.000% | 12/1/18 | 882 | 437 | |
Bolivarian Republic of Venezuela | 7.750% | 10/13/19 | 1,206 | 558 | |
Bolivarian Republic of Venezuela | 6.000% | 12/9/20 | 850 | 361 | |
1 | Bolivarian Republic of Venezuela | 12.750% | 8/23/22 | 1,215 | 665 |
Bolivarian Republic of Venezuela | 9.000% | 5/7/23 | 851 | 387 | |
Bolivarian Republic of Venezuela | 8.250% | 10/13/24 | 434 | 184 | |
Bolivarian Republic of Venezuela | 7.650% | 4/21/25 | 750 | 321 | |
Bolivarian Republic of Venezuela | 11.750% | 10/21/26 | 1,427 | 724 | |
Bolivarian Republic of Venezuela | 9.250% | 9/15/27 | 1,497 | 740 | |
Bolivarian Republic of Venezuela | 9.250% | 5/7/28 | 540 | 235 | |
1 | Bolivarian Republic of Venezuela | 11.950% | 8/5/31 | 2,956 | 1,493 |
Bolivarian Republic of Venezuela | 9.375% | 1/13/34 | 450 | 201 | |
Bolivarian Republic of Venezuela | 7.000% | 3/31/38 | 675 | 270 | |
CA La Electricidad de Caracas | 8.500% | 4/10/18 | 200 | 93 | |
2 | CITGO Holding Inc. | 10.750% | 2/15/20 | 650 | 689 |
CITGO Petroleum Corp. | 6.250% | 8/15/22 | 100 | 98 | |
2 | CITGO Petroleum Corp. | 6.250% | 8/15/22 | 200 | 196 |
29
Emerging Markets Government Bond Index Fund
Face | Market | ||||
Maturity | Amount | Value• | |||
Coupon | Date | ($000) | ($000) | ||
Petroleos de Venezuela SA | 5.250% | 4/12/17 | 1,425 | 828 | |
1 | Petroleos de Venezuela SA | 8.500% | 11/2/17 | 2,884 | 2,228 |
1 | Petroleos de Venezuela SA | 9.000% | 11/17/21 | 1,200 | 576 |
1 | Petroleos de Venezuela SA | 12.750% | 2/17/22 | 1,205 | 699 |
1 | Petroleos de Venezuela SA | 6.000% | 11/15/26 | 2,026 | 841 |
Petroleos de Venezuela SA | 5.375% | 4/12/27 | 1,881 | 767 | |
1 | Petroleos de Venezuela SA | 9.750% | 5/17/35 | 2,229 | 1,081 |
Petroleos de Venezuela SA | 5.500% | 4/12/37 | 200 | 81 | |
Total Venezuela (Cost $20,549) | 15,175 | ||||
Vietnam (0.2%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.2%) | |||||
Socialist Republic of Vietnam | 6.750% | 1/29/20 | 519 | 585 | |
2 | Socialist Republic of Vietnam | 4.800% | 11/19/24 | 200 | 208 |
Total Vietnam (Cost $765) | 793 | ||||
Zambia (0.2%) | |||||
Sovereign Bonds (U.S. Dollar-Denominated) (0.2%) | |||||
Republic of Zambia | 5.375% | 9/20/22 | 425 | 394 | |
2 | Republic of Zambia | 8.500% | 4/14/24 | 450 | 488 |
Total Zambia (Cost $863) | 882 | ||||
Shares | |||||
Temporary Cash Investments (0.6%) | |||||
11 | Vanguard Market Liquidity Fund (Cost $2,692) | 0.121% | 2,691,733 | 2,692 | |
Total Investments (99.1%) (Cost $475,961) | 476,635 | ||||
Other Assets and Liabilities (0.9%) | |||||
Other Assets | 11,331 | ||||
Liabilities | (6,849) | ||||
4,482 | |||||
Net Assets (100%) | 481,117 |
30
Emerging Markets Government Bond Index Fund
At April 30, 2015, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 480,954 |
Undistributed Net Investment Income | 993 |
Accumulated Net Realized Losses | (1,504) |
Unrealized Appreciation (Depreciation) | 674 |
Net Assets | 481,117 |
Investor Shares—Net Assets | |
Applicable to 1,009,843 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 9,931 |
Net Asset Value Per Share—Investor Shares | $9.83 |
Admiral Shares—Net Assets | |
Applicable to 6,258,944 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 123,101 |
Net Asset Value Per Share—Admiral Shares | $19.67 |
Institutional Shares—Net Assets | |
Applicable to 326,860 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 10,317 |
Net Asset Value Per Share—Institutional Shares | $31.56 |
ETF Shares—Net Assets | |
Applicable to 4,304,908 outstanding $.001 par value shares of | |
beneficial interest (unlimited authorization) | 337,768 |
Net Asset Value Per Share—ETF Shares | $78.46 |
• See Note A in Notes to Financial Statements.
† Non-income producing security—security in default.
1 The average or expected maturity is shorter than the final maturity shown because of the possibility of interim principal payments
and prepayments or the possibility of the issue being called.
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 April 30, 2015, the aggregate value of these securities was
$72,469,000, representing 15.1% of net assets.
3 Adjustable-rate security.
4 Guaranteed by the Republic of Hungary.
5 Guaranteed by the Government of Mongolia.
6 Guaranteed by the Republic of Mozambique.
7 Guaranteed by the Republic of the Philippines.
8 Guaranteed by the State of Qatar.
9 Guaranteed by the Republic of Turkey.
10 Guaranteed by the Government of Ukraine.
11 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is
the 7-day yield.
See accompanying Notes, which are an integral part of the Financial Statements.
31
Emerging Markets Government Bond Index Fund
Statement of Operations
Six Months Ended | |
April 30, 2015 | |
($000) | |
Investment Income | |
Income | |
Interest1 | 10,096 |
Total Income | 10,096 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 5 |
Management and Administrative—Investor Shares | 16 |
Management and Administrative—Admiral Shares | 169 |
Management and Administrative—Institutional Shares | 8 |
Management and Administrative—ETF Shares | 385 |
Marketing and Distribution—Investor Shares | — |
Marketing and Distribution—Admiral Shares | 10 |
Marketing and Distribution—Institutional Shares | — |
Marketing and Distribution—ETF Shares | 28 |
Custodian Fees | 19 |
Shareholders’ Reports—Investor Shares | 3 |
Shareholders’ Reports—Admiral Shares | — |
Shareholders’ Reports—Institutional Shares | — |
Shareholders’ Reports—ETF Shares | 3 |
Total Expenses | 646 |
Net Investment Income | 9,450 |
Realized Net Gain (Loss) | |
Investment Securities Sold | (1,289) |
Futures Contracts | 4 |
Realized Net Gain (Loss) | (1,285) |
Change in Unrealized Appreciation (Depreciation) of Investment Securities | (3,036) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 5,129 |
1 Interest income from an affiliated company of the fund was $2,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
32
Emerging Markets Government Bond Index Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | |
April 30, | October 31, | |
2015 | 2014 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 9,450 | 11,445 |
Realized Net Gain (Loss) | (1,285) | 282 |
Change in Unrealized Appreciation (Depreciation) | (3,036) | 6,002 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 5,129 | 17,729 |
Distributions | ||
Net Investment Income | ||
Investor Shares | (190) | (251) |
Admiral Shares | (2,709) | (4,147) |
Institutional Shares | (152) | — |
ETF Shares | (6,122) | (6,640) |
Realized Capital Gain | ||
Investor Shares | — | — |
Admiral Shares | — | — |
Institutional Shares | — | — |
ETF Shares | — | — |
Total Distributions | (9,173) | (11,038) |
Capital Share Transactions | ||
Investor Shares | 2,712 | 2,919 |
Admiral Shares | 6,416 | 61,205 |
Institutional Shares | 10,435 | — |
ETF Shares | 117,504 | 132,526 |
Net Increase (Decrease) from Capital Share Transactions | 137,067 | 196,650 |
Total Increase (Decrease) | 133,023 | 203,341 |
Net Assets | ||
Beginning of Period | 348,094 | 144,753 |
End of Period1 | 481,117 | 348,094 |
1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $993,000 and $716,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
33
Emerging Markets Government Bond Index Fund
Financial Highlights
Investor Shares | |||
Six Months | Year | May 14, | |
Ended | Ended | 20131 to | |
April 30, | Oct. 31, | Oct. 31, | |
For a Share Outstanding Throughout Each Period | 2015 | 2014 | 2013 |
Net Asset Value, Beginning of Period | $9.95 | $9.74 | $10.00 |
Investment Operations | |||
Net Investment Income | . 213 | . 417 | .149 |
Net Realized and Unrealized Gain (Loss) on Investments2 | (.117) | . 213 | (. 261) |
Total from Investment Operations | .096 | .630 | (.112) |
Distributions | |||
Dividends from Net Investment Income | (. 216) | (. 420) | (.148) |
Distributions from Realized Capital Gains | — | — | — |
Total Distributions | (. 216) | (. 420) | (.148) |
Net Asset Value, End of Period | $9.83 | $9.95 | $9.74 |
Total Return3 | 1.01% | 6.62% | -1.38% |
Ratios/Supplemental Data | |||
Net Assets, End of Period (Millions) | $10 | $7 | $4 |
Ratio of Total Expenses to Average Net Assets | 0.49% | 0.49% | 0.49%4 |
Ratio of Net Investment Income to Average Net Assets | 4.52% | 4.35% | 3.81%4 |
Portfolio Turnover Rate 5 | 24% | 27% | 38% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Subscription period for the fund was May 14, 2013, to May 30, 2013, during which time all assets were held in money market instruments.
Performance measurement began May 31, 2013, at a net asset value of $10.03.
2 Includes increases from purchase fees of $.00, $.00, and $.03
3 Total returns do not include transaction or account service fees that may have applied in the periods shown. Fund prospectuses provide
information about any applicable transaction and account service fees.
4 Annualized.
5 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares,
including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
34
Emerging Markets Government Bond Index Fund
Financial Highlights
Admiral Shares | |||
Six Months | Year | May 14, | |
Ended | Ended | 20131 to | |
April 30, | Oct. 31, | Oct. 31, | |
For a Share Outstanding Throughout Each Period | 2015 | 2014 | 2013 |
Net Asset Value, Beginning of Period | $19.90 | $19.48 | $20.00 |
Investment Operations | |||
Net Investment Income | . 442 | . 863 | . 309 |
Net Realized and Unrealized Gain (Loss) on Investments2 | (. 224) | . 427 | (. 522) |
Total from Investment Operations | .218 | 1.290 | (.213) |
Distributions | |||
Dividends from Net Investment Income | (. 448) | (. 870) | (. 307) |
Distributions from Realized Capital Gains | — | — | — |
Total Distributions | (. 448) | (. 870) | (. 307) |
Net Asset Value, End of Period | $19.67 | $19.90 | $19.48 |
Total Return3 | 1.15% | 6.78% | -1.37% |
Ratios/Supplemental Data | |||
Net Assets, End of Period (Millions) | $123 | $118 | $55 |
Ratio of Total Expenses to Average Net Assets | 0.32% | 0.34% | 0.34%4 |
Ratio of Net Investment Income to Average Net Assets | 4.69% | 4.50% | 3.96%4 |
Portfolio Turnover Rate 5 | 24% | 27% | 38% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Subscription period for the fund was May 14, 2013, to May 30, 2013, during which time all assets were held in money market instruments.
Performance measurement began May 31, 2013, at a net asset value of $20.07.
2 Includes increases from purchase fees of $.00, $.00, and $.06.
3 Total returns do not include transaction or account service fees that may have applied in the periods shown. Fund prospectuses provide
information about any applicable transaction and account service fees.
4 Annualized.
5 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares,
including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
35
Emerging Markets Government Bond Index Fund
Financial Highlights
Institutional Shares | |
Nov. 25, | |
20141 to | |
April 30, | |
For a Share Outstanding Throughout the Period | 2015 |
Net Asset Value, Beginning of Period | $31.53 |
Investment Operations | |
Net Investment Incom e | . 411 |
Net Realized and Unrealized Gain (Loss) on Investments2 | . 091 |
Total from Investment Oper ations | . 502 |
Distributions | |
Dividends from Net Investment Income | (.472) |
Distributions from Realized Capital Gains | — |
Total Distributions | (. 472) |
Net Asset Value, End of Period | $31.56 |
Total Return 3 | 3.94% |
Ratios/Supplemental Data | |
Net Assets, End of Period (Millions) | $10 |
Ratio of Total Expenses to Average Net Assets | 0.28% |
Ratio of Net Investment Income to Average Net Assets | 4.73% |
Portfolio Turnover Rate4 | 24% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 The class commenced operations on November 25, 2014, and on December 18, 2014, all outstanding shares were redeemed. On February 11,
2015, the class recommenced operations at a net asset value of $30.72; accordingly, the total return reflects performance from February 11
to April 30, 2015.
2 Includes increases from purchase fees of $.00.
3 Total return does not include transaction fees that may have applied in the period shown. Fund prospectuses provide information about any
applicable transaction fees.
4 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares,
including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
36
Emerging Markets Government Bond Index Fund
Financial Highlights
ETF Shares | |||
Six Months | Year | May 31, | |
Ended | Ended | 20131 to | |
April 30, | Oct. 31, | Oct. 31, | |
For a Share Outstanding Throughout Each Period | 2015 | 2014 | 2013 |
Net Asset Value, Beginning of Period | $79.40 | $77.71 | $79.52 |
Investment Operations | |||
Net Investment Income | 1.763 | 3.429 | 1.217 |
Net Realized and Unrealized Gain (Loss) on Investments2 | (.923) | 1.700 | (2.086) |
Total from Investment Operations | .840 | 5.129 | (.869) |
Distributions | |||
Dividends from Net Investment Income | (1.780) | (3.439) | (.941) |
Distributions from Realized Capital Gains | — | — | — |
Total Distributions | (1.780) | (3.439) | (.941) |
Net Asset Value, End of Period | $78.46 | $79.40 | $77.71 |
Total Return | 1.11% | 6.79% | -1.39% |
Ratios/Supplemental Data | |||
Net Assets, End of Period (Millions) | $338 | $222 | $85 |
Ratio of Total Expenses to Average Net Assets | 0.32% | 0.34% | 0.35%3 |
Ratio of Net Investment Income to Average Net Assets | 4.69% | 4.50% | 3.95%3 |
Portfolio Turnover Rate 4 | 24% | 27% | 38% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
1 Inception.
2 Includes increases from purchase fees of $.00, $.01, and $.30.
3 Annualized.
4 Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares,
including ETF Creation Units.
See accompanying Notes, which are an integral part of the Financial Statements.
37
Emerging Markets Government Bond Index Fund
Notes to Financial Statements
Vanguard Emerging Markets Government Bond Index 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. The fund offers four classes of shares: Investor Shares, Admiral Shares, Institutional Shares, and ETF Shares. Investor Shares are available to any investor who meets the fund’s minimum purchase requirements. Admiral Shares and Institutional Shares are designed for investors who meet certain administrative, service, and account-size criteria. Institutional Shares were issued on November 25, 2014. ETF Shares are listed for trading on Nasdaq; they can be purchased and sold through a broker.
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 acquired over 60 days to maturity, 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. Other temporary cash investments are valued at amortized cost, which approximates market 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 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.
2. Futures Contracts: The fund uses futures contracts to invest in fixed income asset classes with greater efficiency and lower cost than is possible through direct investment, to add value when these instruments are attractively priced, or to adjust sensitivity to changes in interest rates. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of bonds 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 clearing-house, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.
Futures contracts are valued at their quoted daily settlement prices. The aggregate settlement values of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized futures gains (losses).
During the six months ended April 30, 2015, the fund’s average investments in long and short futures contracts each represented less than 1% of net assets, based on the average of aggregate settlement values at each quarter-end during the period. The fund had no open futures contracts at April 30, 2015.
38
Emerging Markets Government Bond Index Fund
3. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (October 31, 2013–2014), and for the period ended April 30, 2015, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
4. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
5. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn 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 this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at April 30, 2015, or at any time during the period then ended.
6. Other: Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold. Fees assessed on capital share transactions are credited to paid-in capital.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. The Vanguard Group furnishes at cost investment advisory, corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the fund based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At April 30, 2015, the fund had contributed capital of $40,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.02% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers 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).
39
Emerging Markets Government Bond Index Fund
The following table summarizes the market value of the fund’s investments as of April 30, 2015, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
U.S. Government and Agency Obligations | — | 157 | — |
Sovereign Bonds | — | 473,786 | — |
Temporary Cash Investments | 2,692 | — | — |
Total | 2,692 | 473,943 | — |
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
During the six months ended April 30, 2015, the fund realized $165,000 of net capital losses resulting from in-kind redemptions—in which shareholders exchanged fund shares for securities held by the fund rather than for cash. Because such losses are not taxable losses to the fund, they have been reclassified from accumulated net realized losses to paid-in capital.
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at October 31, 2014, the fund had available capital losses totaling $378,000 that may be carried forward indefinitely to offset future net capital gains. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending October 31, 2015; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
At April 30, 2015, the cost of investment securities for tax purposes was $475,961,000. Net unrealized appreciation of investment securities for tax purposes was $674,000, consisting of unrealized gains of $11,469,000 on securities that had risen in value since their purchase and $10,795,000 in unrealized losses on securities that had fallen in value since their purchase.
E. During the six months ended April 30, 2015, the fund purchased $217,952,000 of investment securities and sold $83,785,000 of investment securities, other than U.S. government securities and temporary cash investments. Purchases and sales of U.S. government securities were $1,311,000 and $1,219,000, respectively. Total purchases and sales include $133,012,000 and $37,343,000, respectively, in connection with in-kind purchases and redemptions of the fund’s capital shares.
40
Emerging Markets Government Bond Index Fund
F. Capital share transactions for each class of shares were:
Six Months Ended | Year Ended | |||
April 30, 2015 | October 31, 2014 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
Investor Shares | ||||
Issued1 | 4,724 | 488 | 7,000 | 712 |
Issued in Lieu of Cash Distributions | 159 | 16 | 234 | 24 |
Redeemed | (2,171) | (224) | (4,315) | (438) |
Net Increase (Decrease)—Investor Shares | 2,712 | 280 | 2,919 | 298 |
Admiral Shares | ||||
Issued1 | 29,941 | 1,535 | 78,630 | 4,007 |
Issued in Lieu of Cash Distributions | 2,303 | 119 | 3,473 | 176 |
Redeemed | (25,828) | (1,341) | (20,898) | (1,063) |
Net Increase (Decrease)—Admiral Shares | 6,416 | 313 | 61,205 | 3,120 |
Institutional Shares2 | ||||
Issued1 | 19,852 | 638 | — | — |
Issued in Lieu of Cash Distributions | 118 | 4 | — | — |
Redeemed | (9,535) | (315) | — | — |
Net Increase (Decrease)—Institutional Shares | 10,435 | 327 | — | — |
ETF Shares | ||||
Issued1 | 155,731 | 2,003 | 148,304 | 1,902 |
Issued in Lieu of Cash Distributions | — | — | — | — |
Redeemed | (38,227) | (500) | (15,778) | (200) |
Net Increase (Decrease)—ETF Shares | 117,504 | 1,503 | 132,526 | 1,702 |
1 Includes purchase fees for fiscal 2015 and 2014 of $3,000 and $62,000, respectively (fund totals). | ||||
2 Institutional shares were issued on November 25, 2014. |
G. Management has determined that no material events or transactions occurred subsequent to April 30, 2015, that would require recognition or disclosure in these financial statements.
41
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.
42
Six Months Ended April 30, 2015 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
Emerging Markets Government Bond Index Fund | 10/31/2014 | 4/30/2015 | Period |
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $1,010.14 | $2.44 |
ETF Shares | 1,000.00 | 1,011.14 | 1.60 |
Admiral Shares | 1,000.00 | 1,011.49 | 1.60 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,022.36 | $2.46 |
ETF Shares | 1,000.00 | 1,023.21 | 1.61 |
Admiral Shares | 1,000.00 | 1,023.21 | 1.61 |
The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios for that
period are 0.49% for Investor Shares, 0.32% for ETF Shares, and 0.32% for Admiral Shares. The dollar amounts shown as “Expenses Paid”
are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the
most recent six-month period, then divided by the number of days in the most recent 12-month period. The table does not include data for
share classes with less than six months of history.
43
Trustees Approve Advisory Arrangement
The board of trustees of Vanguard Emerging Markets Government Bond Index Fund has renewed the fund’s investment advisory arrangement with The Vanguard Group, Inc. (Vanguard). Vanguard—through its Fixed Income Group—serves as the investment advisor for the fund. The board determined that continuing the fund’s internalized management structure was in the best interests of the fund and its shareholders.
The board based its decision upon an evaluation of the advisor’s investment staff, portfolio management process, and performance. The trustees 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 reviewed the quality of the investment management services provided to the fund since its inception in 2013, and took into account the organizational depth and stability of the advisor. The board considered that Vanguard has been managing investments for more than three decades. The Fixed Income Group adheres to a sound, disciplined investment management process; the team has considerable experience, stability, and depth.
The board concluded that Vanguard’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangement.
Investment performance
The board considered the performance of the fund since its inception, including any periods of outperformance or underperformance relative to a target index and peer group. The board concluded that the performance was such that the advisory arrangement should continue. Information about the fund’s performance since inception can be found in the Performance Summary section of this report.
Cost
The board concluded that the fund’s expense ratio was well below the average expense ratio charged by funds in its peer group and that the fund’s advisory fee rate was also well below its peer-group average. Information about the fund’s expense ratio appears in the About Your Fund’s Expenses section of this report as well as in the Financial Statements section.
The board did not conduct a profitability analysis of Vanguard, because of Vanguard’s unique “at-cost” structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees, and produces “profits” only in the form of reduced expenses for fund shareholders.
The benefit of economies of scale
The board concluded that the fund’s at-cost arrangement with Vanguard ensures that the fund will realize economies of scale as it grows, with the cost to shareholders declining as fund assets increase.
The board will consider whether to renew the advisory arrangement again after a one-year period.
44
Glossary
30-Day SEC Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (for bonds), its actual income (for asset-backed securities), or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.
Average Coupon. The average interest rate paid on the fixed income securities held by a fund. It is expressed as a percentage of face value.
Average Duration. An estimate of how much the value of the bonds held by a fund will fluctuate in response to a change in interest rates. To see how the value could change, multiply the average duration by the change in rates. If interest rates rise by 1 percentage point, the value of the bonds in a fund with an average duration of five years would decline by about 5%. If rates decrease by a percentage point, the value would rise by 5%.
Average Effective Maturity. The average length of time until fixed income securities held by a fund reach maturity and are repaid, taking into consideration the possibility that the issuer may call the bond before its maturity date. The figure reflects the proportion of fund assets represented by each security; it also reflects any futures contracts held. In general, the longer the average effective maturity, the more a fund’s share price will fluctuate in response to changes in market interest rates.
Credit Quality. Credit-quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). U.S. Treasury, U.S. Agency, and U.S. Agency mortgage-backed securities appear under “U.S. Government.” Credit-quality ratings are obtained from Barclays and are generally from Moody’s, Fitch, and S&P. When ratings from all three agencies are used, the median rating is shown. When ratings from two of the agencies are used, the lower rating for each issue is shown. “Not Rated” is used to classify securities for which a rating is not available.
Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
Yield to Maturity. The rate of return an investor would receive if the fixed income securities held by a fund were held to their maturity dates.
45
Vanguard Emerging Markets Government Bond Index Fund is not sponsored, endorsed, issued, sold, or promoted by Barclays
Capital Inc. or any of its affiliates (“Barclays”). Barclays makes no representation or warranty, express or implied, to the
owners or purchasers of the fund or any member of the public regarding the advisability of investing in securities generally
or in the fund particularly or the ability of the Barclays index to track general bond market performance. Barclays has not
passed on the legality or suitability of the fund with respect to any person or entity. Barclays’ only relationship to Vanguard
and the fund is the licensing of the Barclays index, which is determined, composed, and calculated by Barclays without regard
to Vanguard or the fund or any owners or purchasers of the fund. Barclays has no obligation to take the needs of Vanguard, the
fund, or the owners of the fund into consideration in determining, composing, or calculating the Barclays index. Barclays is
not responsible for and has not participated in the determination of the timing of, prices at, or quantities of the fund to be
issued. Barclays has no obligation or liability in connection with the administration, marketing, or trading of the fund.
Barclays shall have no liability to third parties for the quality, accuracy, and/or completeness of the index or any data included
therein or for interruptions in the delivery of the index. Barclays makes no warranty, express or implied, as to results to be
obtained by owners of the fund or any other person or entity from the use of the index or any data included therein in connection
with the rights licensed hereunder or for any other use. Barclays reserves the right to change the methods of calculation or
publication, or to cease the calculation or publication of the Barclays USD Emerging Markets Government RIC Capped Index,
and Barclays shall not be liable for any miscalculation of or any incorrect, delayed, or interrupted publication with respect to
the index. Barclays makes no express or implied warranties, and hereby expressly disclaims all warranties of merchantability
or fitness for a particular purpose or use with respect to the index or any data included therein. Barclays shall not be liable for
any damages, including, without limitation, any indirect or consequential damages resulting from the use of the index or any
data included therein.
46
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The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 178 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
InterestedTrustee1 | Rajiv L. Gupta |
Born 1945. Trustee Since December 2001.2 Principal | |
F. William McNabb III | Occupation(s) During the Past Five Years and Other |
Born 1957. Trustee Since July 2009. Chairman of | Experience: Chairman and Chief Executive Officer |
the Board. Principal Occupation(s) During the Past | (retired 2009) and President (2006–2008) of |
Five Years and Other Experience: Chairman of the | Rohm and Haas Co. (chemicals); Director of Tyco |
Board of The Vanguard Group, Inc., and of each of | International PLC (diversified manufacturing and |
the investment companies served by The Vanguard | services), Hewlett-Packard Co. (electronic computer |
Group, since January 2010; Director of The Vanguard | manufacturing), and Delphi Automotive PLC |
Group since 2008; Chief Executive Officer and | (automotive components); Senior Advisor at New |
President of The Vanguard Group, and of each of | Mountain Capital. |
the investment companies served by The Vanguard | |
Group, since 2008; Director of Vanguard Marketing | Amy Gutmann |
Corporation; Managing Director of The Vanguard | Born 1949. Trustee Since June 2006. Principal |
Group (1995–2008). | Occupation(s) During the Past Five Years and |
Other Experience: President of the University of | |
Pennsylvania; Christopher H. Browne Distinguished | |
IndependentTrustees | |
Professor of Political Science, School of Arts and | |
Emerson U. Fullwood | Sciences, and Professor of Communication, Annenberg |
Born 1948. Trustee Since January 2008. Principal | School for Communication, with secondary faculty |
Occupation(s) During the Past Five Years and | appointments in the Department of Philosophy, School |
Other Experience: Executive Chief Staff and | of Arts and Sciences, and at the Graduate School of |
Marketing Officer for North America and Corporate | Education, University of Pennsylvania; Trustee of the |
Vice President (retired 2008) of Xerox Corporation | National Constitution Center; Chair of the Presidential |
(document management products and services); | Commission for the Study of Bioethical Issues. |
Executive in Residence and 2009–2010 Distinguished | |
Minett Professor at the Rochester Institute of | JoAnn Heffernan Heisen |
Technology; Director of SPX Corporation (multi-industry | Born 1950. Trustee Since July 1998. Principal |
manufacturing), the United Way of Rochester, | Occupation(s) During the Past Five Years and Other |
Amerigroup Corporation (managed health care), the | Experience: Corporate Vice President and Chief |
University of Rochester Medical Center, Monroe | Global Diversity Officer (retired 2008) and Member |
Community College Foundation, and North Carolina | of the Executive Committee (1997–2008) of Johnson |
A&T University. | & Johnson (pharmaceuticals/medical devices/ |
consumer products); Director of Skytop Lodge | |
Corporation (hotels), the University Medical Center | |
at Princeton, the Robert Wood Johnson Foundation, | |
and the Center for Talent Innovation; Member of | |
the Advisory Board of the Institute for Women’s | |
Leadership at Rutgers University. |
F. Joseph Loughrey | Executive Officers | |
Born 1949. Trustee Since October 2009. Principal | ||
Occupation(s) During the Past Five Years and Other | Glenn Booraem | |
Experience: President and Chief Operating Officer | Born 1967. Controller Since July 2010. Principal | |
(retired 2009) of Cummins Inc. (industrial machinery); | Occupation(s) During the Past Five Years and Other | |
Chairman of the Board of Hillenbrand, Inc. (specialized | Experience: Principal of The Vanguard Group, Inc.; | |
consumer services), and of Oxfam America; Director | Controller of each of the investment companies served | |
of SKF AB (industrial machinery), Hyster-Yale Materials | by The Vanguard Group; Assistant Controller of each of | |
Handling, Inc. (forklift trucks), the Lumina Foundation | the investment companies served by The Vanguard | |
for Education, and the V Foundation for Cancer | Group (2001–2010). | |
Research; Member of the Advisory Council for the | ||
College of Arts and Letters and of the Advisory Board | Thomas J. Higgins | |
to the Kellogg Institute for International Studies, both | Born 1957. Chief Financial Officer Since September | |
at the University of Notre Dame. | 2008. Principal Occupation(s) During the Past Five | |
Years and Other Experience: Principal of The Vanguard | ||
Mark Loughridge | Group, Inc.; Chief Financial Officer of each of the | |
Born 1953. Trustee Since March 2012. Principal | investment companies served by The Vanguard Group; | |
Occupation(s) During the Past Five Years and Other | Treasurer of each of the investment companies served | |
Experience: Senior Vice President and Chief Financial | by The Vanguard Group (1998–2008). | |
Officer (retired 2013) at IBM (information technology | ||
services); Fiduciary Member of IBM’s Retirement Plan | Kathryn J. Hyatt | |
Committee (2004–2013); Director of the Dow Chemical | Born 1955. Treasurer Since November 2008. Principal | |
Company; Member of the Council on Chicago Booth. | Occupation(s) During the Past Five Years and Other | |
Experience: Principal of The Vanguard Group, Inc.; | ||
Scott C. Malpass | Treasurer of each of the investment companies served | |
Born 1962. Trustee Since March 2012. Principal | by The Vanguard Group; Assistant Treasurer of each of | |
Occupation(s) During the Past Five Years and Other | the investment companies served by The Vanguard | |
Experience: Chief Investment Officer and Vice | Group (1988–2008). | |
President at the University of Notre Dame; Assistant | ||
Professor of Finance at the Mendoza College of | Heidi Stam | |
Business at Notre Dame; Member of the Notre Dame | Born 1956. Secretary Since July 2005. Principal | |
403(b) Investment Committee; Board Member of | Occupation(s) During the Past Five Years and Other | |
TIFF Advisory Services, Inc., and Catholic Investment | Experience: Managing Director of The Vanguard | |
Services, Inc. (investment advisors); Member of | Group, Inc.; General Counsel of The Vanguard Group; | |
the Investment Advisory Committee of Major | Secretary of The Vanguard Group and of each of the | |
League Baseball. | investment companies served by The Vanguard Group; | |
Director and Senior Vice President of Vanguard | ||
André F. Perold | Marketing Corporation. | |
Born 1952. Trustee Since December 2004. Principal | ||
Occupation(s) During the Past Five Years and Other | Vanguard Senior ManagementTeam | |
Experience: George Gund Professor of Finance and | ||
Banking, Emeritus at the Harvard Business School | Mortimer J. Buckley | Chris D. McIsaac |
(retired 2011); Chief Investment Officer and Managing | Kathleen C. Gubanich | Michael S. Miller |
Partner of HighVista Strategies LLC (private investment | Paul A. Heller | James M. Norris |
firm); Director of Rand Merchant Bank; Overseer of | Martha G. King | Glenn W. Reed |
the Museum of Fine Arts Boston. | John T. Marcante | |
Peter F. Volanakis | ||
Chairman Emeritus and Senior Advisor | ||
Born 1955. Trustee Since July 2009. Principal | ||
Occupation(s) During the Past Five Years and Other | John J. Brennan | |
Experience: President and Chief Operating Officer | Chairman, 1996–2009 | |
(retired 2010) of Corning Incorporated (communications | Chief Executive Officer and President, 1996–2008 | |
equipment); Trustee of Colby-Sawyer College; | ||
Member of the Advisory Board of the Norris Cotton | ||
Cancer Center and of the Advisory Board of the | Founder | |
Parthenon Group (strategy consulting). | ||
John C. Bogle | ||
Chairman and Chief Executive Officer, 1974–1996 |
1 Mr. McNabb is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the
Vanguard funds.
2 December 2002 for Vanguard Equity Income Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.
P.O. Box 2600 | |
Valley Forge, PA 19482-2600 | |
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 Lipper, a | |
Thomson Reuters Company, or 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, 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 sec.gov. | |
You can review and copy information about your fund at | |
the SEC’s Public Reference Room in Washington, D.C. To | |
find out more about this public service, call the SEC at | |
202-551-8090. Information about your fund is also | |
available on the SEC’s website, and you can receive | |
copies of this information, for a fee, by sending a | |
request in either of two ways: via e-mail addressed to | |
publicinfo@sec.gov or via regular mail addressed to the | |
Public Reference Section, Securities and Exchange | |
Commission, Washington, DC 20549-1520. | |
© 2015 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q11202 062015 |
Semiannual Report | April 30, 2015
Vanguard Global Minimum Volatility Fund
The mission continues
On May 1, 1975, Vanguard began operations, a fledgling company based on the simple but revolutionary idea that a mutual fund company should be managed solely in the interest of its investors.
Four decades later, that revolutionary spirit continues to animate the enterprise. Vanguard remains on a mission to give investors the best chance of investment success.
As we mark our 40th anniversary, we thank you for entrusting your assets to Vanguard and giving us the opportunity to help you reach your financial goals in the decades to come.
Contents | |
Your Fund’s Total Returns. | 1 |
Chairman’s Letter. | 2 |
Advisor’s Report. | 7 |
Fund Profile. | 10 |
Performance Summary. | 12 |
Financial Statements. | 13 |
About Your Fund’s Expenses. | 33 |
Trustees Approve Advisory Arrangement. | 35 |
Glossary. | 36 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice.
Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the
risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
About the cover: Since our founding, Vanguard has drawn inspiration from the enterprise and valor demonstrated by British
naval hero Horatio Nelson and his command at the Battle of the Nile in 1798. The photograph displays a replica of a merchant
ship from the same era as Nelson’s flagship, the HMS Vanguard.
Your Fund’s Total Returns | |
Six Months Ended April 30, 2015 | |
Total | |
Returns | |
Vanguard Global Minimum Volatility Fund | |
Investor Shares | 7.70% |
Admiral™ Shares | 7.77 |
FTSE Global All Cap Index (USD Hedged) | 8.41 |
Global Funds Average | 4.46 |
Global Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. |
Your Fund’s Performance at a Glance | ||||
October 31, 2014, Through April 30, 2015 | ||||
Distributions Per Share | ||||
Starting | Ending | Income | Capital | |
Share Price | Share Price | Dividends | Gains | |
Vanguard Global Minimum Volatility Fund | ||||
Investor Shares | $11.41 | $11.57 | $0.280 | $0.403 |
Admiral Shares | 22.83 | 23.14 | 0.585 | 0.806 |
1
Chairman’s Letter
Dear Shareholder,
For the six months ended April 30, 2015, Vanguard Global Minimum Volatility Fund returned nearly 8%, modestly behind its benchmark, the FTSE Global All Cap Index (USD Hedged). As I’ve noted in previous reports, however, you should evaluate this fund based on whether it meets its objective of delivering a smoother ride than the global stock market as a whole.
By that broad yardstick, your fund was again successful, with annualized daily volatility of about 8%, compared with nearly 10% for its benchmark. We assess volatility using a statistic called standard deviation, which calculates the degree to which the fund’s return in a given period varies from its average return.
Another indicator of your fund’s success is its risk-adjusted return—its return divided by the standard deviation of its returns. Think of this as a measure of return earned per unit of risk taken, so the higher the better. For the six months, the fund’s risk-adjusted return was about 10% higher than that of its benchmark. We are also encouraged that your fund has been successful by this measure since its inception in late 2013—still a relatively short period, of course.
U.S. stocks closed higher despite fluctuating returns
U.S. stocks returned almost 5% for the six months, despite stretches of shakiness. In two of those months, stocks declined. In two others, they were virtually unchanged or gained less than 1%. It was February’s
2
surge of almost 6%, the largest monthly gain since October 2011, that lifted stocks for the period.
The Federal Reserve’s careful approach to potentially raising short-term interest rates helped stocks along, as did monetary stimulus efforts by other nations’ central banks. These factors offset concerns that ranged from Greece’s debt crisis to the negative effect of the strong U.S. dollar on the profits of U.S.-based multinational companies.
For U.S. investors, international stocks returned 6%, outpacing the broad U.S. market. Still, results were restrained by the dollar’s strength against many foreign currencies. Returns for the developed markets of the Pacific region, led by Japan, exceeded those of Europe and emerging markets. (You can read about Vanguard’s assessment of Japan’s economy in Japan: The Long Road Back to Inflation, available at vanguard.com/research. This is part of the Global Macro Matters series produced by our global economists.)
Stimulus policies and demand have driven up bond prices
Like equities, bonds have benefited from accommodative monetary policies from many of the world’s central banks. Investor demand for the perceived safety of fixed income assets has also boosted bond returns.
Market Barometer | |||
Total Returns | |||
Periods Ended April 30, 2015 | |||
Six | One | Five Years | |
Months | Year | (Annualized) | |
Stocks | |||
Russell 1000 Index (Large-caps) | 4.75% | 13.00% | 14.47% |
Russell 2000 Index (Small-caps) | 4.65 | 9.71 | 12.73 |
Russell 3000 Index (Broad U.S. market) | 4.74 | 12.74 | 14.33 |
FTSE All-World ex US Index (International) | 6.00 | 3.53 | 6.40 |
Bonds | |||
Barclays U.S. Aggregate Bond Index (Broad taxable market) | 2.06% | 4.46% | 4.12% |
Barclays Municipal Bond Index (Broad tax-exempt market) | 1.17 | 4.80 | 4.75 |
Citigroup Three-Month U.S. Treasury Bill Index | 0.00 | 0.03 | 0.05 |
CPI | |||
Consumer Price Index | -0.35% | -0.20% | 1.65% |
3
The broad U.S. taxable bond market returned 2.06% for the period, and the yield of the 10-year U.S. Treasury note ended April at 2.04%, down from 2.31% six months earlier. (Bond prices and yields move in opposite directions.)
International bond markets (as measured by the Barclays Global Aggregate Index ex USD) returned –4.83% for U.S. dollar-based investors. However, the index’s return was positive when hedged to eliminate the effect of changes in currency exchange rates.
Returns of money market funds and savings accounts remained checked by the Fed’s target of 0%–0.25% for short-term interest rates.
Your fund smoothed the ride as stock returns seesawed
During the half year, concerns about a variety of unknowns ebbed and flowed—including Greece’s elections and debt crisis, the future of the Eurozone, the potential impact of falling oil prices on exporting nations, slower growth in China, and the timing of the Fed’s first rate increase in almost a decade. As a result, global stock market returns seesawed, with bouts of higher volatility. Your fund’s below-market volatility is a testament to the skill of its advisor, Vanguard Equity Investment Group, through its Quantitative Equity Group (QEG).
Expense Ratios | |||
Your Fund Compared With Its Peer Group | |||
Investor | Admiral | Peer Group | |
Shares | Shares | Average | |
Global Minimum Volatility Fund | 0.30% | 0.20% | 1.33% |
The fund expense ratios shown are from the prospectus dated February 25, 2015, and represent estimated costs for the current fiscal period.
For the six months ended April 30, 2015, the fund’s annualized expense ratios were 0.28% for Investor Shares and 0.19% for Admiral Shares.
The peer-group expense ratio is derived from data provided by Lipper, a Thomson Reuters Company, and captures information through
year-end 2014.
Peer group: Global Funds.
4
QEG uses quantitative models to evaluate all the stocks in nearly 50 developed-market and emerging-market countries represented in the benchmark. Your advisor’s selection process considers estimates of expected volatility and correlations (how stocks move in relation to one another) to help identify stocks with less volatility.
Because about half your fund’s assets are invested in stocks of non-U.S. companies, their returns could be exposed to fluctuations in foreign exchange rates. That’s why currency hedging is an important part of the advisor’s strategy to manage volatility. As the U.S. dollar strengthened against a basket of major currencies during the period, currency hedging helped your fund outpace its global peers’ average return. The vast majority of peer funds don’t pursue investment strategies focused on volatility and don’t hedge currency exposure. (Note that QEG’s hedging strategy doesn’t materially affect your fund’s performance versus its benchmark, which is similarly hedged.)
With the rising dollar trimming the returns of non-U.S. stocks, funds that do hedge currency exposure saw their popularity surge. And when the tide turns and the dollar weakens, it wouldn’t be surprising for those funds to see outflows. For the Global Minimum Volatility Fund, however, currency hedging is an all-weather strategy to manage volatility, not to enhance returns, as discussed in the box below.
During the half year, the fund’s holdings in developed markets—the bulk of fund assets—modestly outperformed those in emerging markets. Brazil, in particular, struggled in both the fund and the index amid falling oil prices and a corruption scandal at the country’s largest oil company.
Why we hedge foreign currency exposure in your fund |
Investing in non-U.S. stocks brings with it exposure to foreign exchange rates. In recent months, |
the U.S. dollar has strengthened significantly, trimming the returns of foreign equities—and |
adding to their volatility—when translated into dollars for U.S.-based investors. A weakening |
dollar would have the reverse effect on the returns of non-U.S. stocks but still make them |
more volatile. |
We use currency forward contracts to eliminate most of this kind of “noise” from fluctuating |
exchange rates, in keeping with the Global Minimum Volatility Fund’s objective to provide a |
less bumpy ride. Forward contracts are a way to lock in future exchange rates, helping us to |
reduce risk. |
Vanguard doesn’t forecast exchange rates or use currency hedging to enhance returns. (For |
more insight, see To Hedge or Not to Hedge? Evaluating Currency Exposure in Global Equity |
Portfolios, available at vanguard.com/research.) But for the Global Minimum Volatility Fund, |
hedging foreign currency exposure is an important element of our volatility-reduction strategy. |
5
Although the fund and the index had similar regional weightings, there were some notable differences in sector weightings. That’s in part because QEG imposes a set of constraints to prevent concentrated exposure to any single country or industry—such as financials, the largest sector in the index. This helps to ensure portfolio diversification and liquidity (the ability to readily trade into and out of holdings). The fund was also underweighted in the more volatile energy sector and overweighted in less volatile consumer staples.
For more on QEG’s investment strategy and process, please see the Advisor’s Report that follows this letter.
Promoting good corporate governance is one way we protect your interests
Our core purpose is “to take a stand for all investors, to treat them fairly, and to give them the best chance for investment success.” This means more than offering smart investments, trustworthy guidance, and low fees. It also means working with the companies held by Vanguard funds to make sure your interests remain paramount.
How do we meet that responsibility? As one of the world’s largest investment managers, we are making our voice heard in corporate boardrooms to promote the highest standards of stewardship. Our advocacy encompasses a range of corporate governance issues, including executive compensation and succession planning, board composition and effectiveness, oversight of strategy and risk, and communication with shareholders.
We also exert our influence in a very important way when Vanguard funds cast their proxy votes at companies’ shareholder meetings.
Most of these votes take place at this time of year, making it an appropriate time to remind you that we work hard to represent your best interests. Good governance, we believe, is essential for any company seeking to maximize its long-term returns to shareholders. You can learn more about our efforts at vanguard.com/corporategovernance.
Thank you for your confidence in Vanguard.
Sincerely,
F. William McNabb III
Chairman and Chief Executive Officer
May 19, 2015
6
Advisor’s Report
For the six months ended April 30, 2015, Vanguard Global Minimum Volatility Fund returned 7.70% for Investor Shares with an annualized daily volatility of 8.21%. By comparison, its benchmark, the FTSE Global All Cap Index (USD Hedged), returned 8.41% with an annualized daily volatility of 9.81%. (To get the annualized daily volatility, we calculate the standard deviation of daily returns, and then multiply it by the square root of 252, generally the number of trading days in a year.)
Investment objective
Our objective is to create a portfolio that has broad equity exposure with less volatility than the global equity market. We achieved this over the performance period, as the fund’s volatility was about 16% less than that of its benchmark, on average.
It is important to mention, as we have in the past, that we do not target a specific volatility level. Rather, we seek to provide an equity fund that has lower absolute risk than the broad global market. Thus, when the broad global equity market is experiencing periods with spikes in volatility, you should expect this fund’s volatility to rise as well—just not by the same magnitude.
We recognize that equity-like returns are also an important outcome of an investment in this fund, but achieving a total return higher than the benchmark’s is not an objective of our approach. Although our research leads us to expect that, on average, a minimum volatility fund may
outperform the overall global market in sharp downturns (while still experiencing losses), the fund should be expected to trail in some strong bull markets. With that in mind, because the fund is expected to have a lower level of risk than the global equity market, you should not expect it to outperform the market over the long run.
We think an acceptable comparative performance measure in the long term is the fund’s risk-adjusted return. This can be calculated by dividing the portfolio’s total return for the period by the annualized standard deviation of daily returns. We view six months to be a relatively short time, but for the most recent half year, the risk-adjusted return was 0.94, compared with 0.86 for the benchmark. And over a slightly longer period—since the fund’s inception on December 12, 2013—its risk-adjusted return was 2.19, compared with 1.62 for the benchmark.
Investment strategy
In building our portfolio, we use quantitative models that evaluate a variety of factors that drive a stock’s volatility in addition to estimates of their correlation—or how the returns associated with these factors move in relation to each other. This approach allows us to make appropriate risk/diversification trade-offs, while not relying solely on volatility estimates.
Our process also approaches currency exposure and its impact on a portfolio in a specific manner. We recognize that owning companies in foreign markets involves the risk of movements in foreign
7
currency exchange rates relative to the U.S. dollar. Because of this, an optimization process that focuses solely on volatilities tied to an investor’s home currency will tend to overweight exposures to that currency. We aim to avoid such currency-specific exposures by focusing on equity volatilities and correlations measured in local currency terms. Then we use currency forward contracts to hedge the resulting currency exposure for U.S. investors. We believe this process can further reduce the volatility of the portfolio overall in the long run.
Finally, when constructing the portfolio, we apply constraints to reduce stock, sector, and country concentration risk. We find that these constraints, which allow for broader diversification and liquidity, reduce unnecessarily high risk exposures without significantly affecting our ability to reduce overall volatility. Drawing from the universe of about 7,600 stocks in the FTSE index, we construct a portfolio of approximately 400 stocks.
The investment environment
Global equities continued to deliver strong returns over the half year. Developed markets outside North America led, with the FTSE Developed ex North America Index returning more than 7%. The FTSE North America Index and the FTSE Emerging Index returned about 4% each. Performance within the fund’s benchmark was broad-based, as eight of the ten index sectors generated positive returns. Results were best in consumer discretionary and health care, while energy declined.
As we moved into 2015, the U.S. economy continued to build on its momentum despite challenges and roadblocks. First-quarter GDP year-over-year growth came in at an annual rate of 3.0%. But compared with the prior quarter, growth was estimated to be basically flat, hurt by the harsh winter in many parts of the country. Job growth began to slow in March, but the unemployment level declined in April to 5.4%, and the economy is approaching full employment. Wholesale inventory levels have increased amid tepid sales, leaving little motivation to restock warehouses. It remains uncertain when the Federal Reserve will begin raising interest rates and to what extent. In addition, although the U.S. dollar’s strength softened slightly in April, its appreciation over the half year boosted the price of U.S. exports by as much as 20%, challenging multinationals’ revenues and profits.
Economic and market uncertainties brought about short-term spikes in volatility over the period, though average levels remained at the lower end of the historical range. For example, the Chicago Board Options Exchange Volatility Index (VIX), a measure of implied volatility of S&P 500 Index options, had a ten-year average level of 20.12, compared with 15.19 for the six months.
The fund’s successes and shortfalls
We caution that during periods of low volatility (as indicated above), expectations about the size of the portfolio’s volatility discount relative to the market should be tempered. But despite the overall
8
low-volatility conditions, the fund still met its lower-volatility objective over the six months.
A combination of factors helped to reduce the fund’s volatility. Our strategy of holding stocks that have lower correlations with each other provided diversification benefits. And, from a sector perspective, on average we were overweighted in less volatile sectors such as consumer staples and telecommunication services and underweighted in two of the benchmark’s more volatile ones, energy and information technology. Our volatility estimates led us to overweight the health care sector, which ended up more volatile than anticipated, modestly trimming our results.
Among specific holdings, overweight allocations to lower-volatility stocks such as Clorox, Church & Dwight, and Starwood Property Trust helped the portfolio. Some stocks that our model initially identified as attractive were more volatile during the period, though. For example, concerns about the energy sector as a whole weighed on S-Oil, and poor earnings hurt Pier 1 Imports.
Our approach to portfolio construction paid off in volatility reduction, but we underperformed in terms of relative total return. However, as we’ve noted, a strategy such as this can reward or fall short of investor expectations over shorter periods. With this in mind, we find that focusing on the long-term, risk-adjusted returns of the portfolio relative to the benchmark realigns expectations with the fund’s objective. We thank you for your investment and look forward to the second half of the fiscal year.
Portfolio Managers:
James D. Troyer, CFA, Principal
James P. Stetler, Principal
Michael R. Roach, CFA
Vanguard Equity Investment Group
May 20, 2015
9
Global Minimum Volatility Fund
Fund Profile
As of April 30, 2015
Share-Class Characteristics | ||
Investor | Admiral | |
Shares | Shares | |
Ticker Symbol | VMVFX | VMNVX |
Expense Ratio1 | 0.30% | 0.20% |
Portfolio Characteristics | ||
FTSE Global | ||
All Cap Index | ||
Fund | (USD Hedged) | |
Number of Stocks | 402 | 7,596 |
Median Market Cap | $7.4B | $35.0B |
Price/Earnings Ratio | 24.2x | 20.1x |
Price/Book Ratio | 2.5x | 2.2x |
Return on Equity | 15.7% | 16.2% |
Earnings Growth | ||
Rate | 8.7% | 12.0% |
Dividend Yield | 2.5% | 2.3% |
Turnover Rate | ||
(Annualized) | 49% | — |
Short-Term | ||
Reserves | 1.8% | — |
Sector Diversification (% of equity exposure) | ||
FTSE Global | ||
All Cap Index | ||
Fund | (USD Hedged) | |
Consumer Discretionary | 15.2% | 12.7% |
Consumer Staples | 13.1 | 8.9 |
Energy | 3.0 | 7.5 |
Financials | 17.3 | 22.0 |
Health Care | 15.8 | 11.4 |
Industrials | 8.2 | 11.5 |
Information Technology | 9.2 | 13.7 |
Materials | 3.2 | 5.8 |
Telecommunication Services | 7.6 | 3.3 |
Utilities | 7.4 | 3.2 |
Ten Largest Holdings (% of total net assets) | ||
Galenica AG | Pharmaceuticals | 1.5% |
Kaiser Aluminum Corp. | Aluminum | 1.4 |
Dollarama Inc. | General Merchandise | |
Stores | 1.4 | |
CLP Holdings Ltd. | Electric Utilities | 1.4 |
People's United Financial Thrifts & Mortgage | ||
Inc. | Finance | 1.4 |
Church & Dwight Co. | ||
Inc. | Household Products | 1.4 |
China Mengniu Dairy Co. Packaged Foods & | ||
Ltd. | Meats | 1.2 |
Want Want China | Packaged Foods & | |
Holdings Ltd. | Meats | 1.2 |
Next plc | Department Stores | 1.1 |
Jack Henry & Associates Data Processing & | ||
Inc. | Outsourced Services | 1.1 |
Top Ten | 13.1% |
Allocation by Region (% of equity exposure)
1 The expense ratios shown are from the prospectus dated February 25, 2015, and represent estimated costs for the current fiscal period. For the six
months ended April 30, 2015, the annualized expense ratios were 0.28% for Investor Shares and 0.19% for Admiral Shares.
10
Global Minimum Volatility Fund
Market Diversification (% of equity exposure) | ||
FTSE | ||
Global | ||
All Cap | ||
Index | ||
(USD | ||
Fund | Hedged) | |
Europe | ||
United Kingdom | 9.7% | 7.2% |
Switzerland | 3.4 | 3.0 |
Germany | 1.6 | 3.0 |
Netherlands | 1.1 | 1.0 |
Denmark | 1.0 | 0.6 |
Other | 2.6 | 7.5 |
Subtotal | 19.4% | 22.3% |
Pacific | ||
Hong Kong | 6.6% | 1.3% |
Australia | 4.9 | 2.5 |
Japan | 4.5 | 8.2 |
South Korea | 3.2 | 1.6 |
Singapore | 1.1 | 0.5 |
Other | 0.0 | 0.1 |
Subtotal | 20.3% | 14.2% |
Emerging Markets | ||
India | 1.9% | 1.0% |
Brazil | 1.6 | 0.8 |
Taiwan | 1.2 | 1.5 |
Other | 2.2 | 6.0 |
Subtotal | 6.9% | 9.3% |
North America | ||
United States | 46.3% | 50.6% |
Canada | 6.7 | 3.4 |
Subtotal | 53.0% | 54.0% |
Middle East | 0.4% | 0.2% |
11
Global Minimum Volatility 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.
Fiscal-Year Total Returns (%): December 12, 2013, Through April 30, 2015
Average Annual Total Returns: Periods Ended March 31, 2015
This table presents returns through the latest calendar quarter—rather than through the end of the fiscal period.
Securities and Exchange Commission rules require that we provide this information.
Inception | One | Since | |
Date | Year | Inception | |
Investor Shares | 12/12/2013 | 16.77% | 17.72% |
Admiral Shares | 12/12/2013 | 16.84 | 17.82 |
See Financial Highlights for dividend and capital gains information.
12
Global Minimum Volatility Fund
Financial Statements (unaudited)
Statement of Net Assets
As of April 30, 2015
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Market | |||
Value | |||
Shares | ($000) | ||
Common Stocks (98.9%)1 | |||
Australia (4.9%) | |||
Telstra Corp. Ltd. | 1,461,078 | 7,182 | |
Transurban Group | 753,516 | 5,891 | |
Sonic Healthcare Ltd. | 355,206 | 5,567 | |
AGL Energy Ltd. | 299,787 | 3,596 | |
DUET Group | 1,758,491 | 3,513 | |
Wesfarmers Ltd. | 83,893 | 2,892 | |
ASX Ltd. | 66,161 | 2,198 | |
JB Hi-Fi Ltd. | 134,642 | 2,080 | |
BWP Trust | 796,405 | 1,910 | |
Sydney Airport | 276,421 | 1,174 | |
Coca-Cola Amatil Ltd. | 134,249 | 1,087 | |
Harvey Norman | |||
Holdings Ltd. | 288,503 | 1,001 | |
Charter Hall Retail REIT | 191,055 | 649 | |
GPT Group | 172,057 | 606 | |
Federation Centres | 251,047 | 583 | |
Ansell Ltd. | 23,502 | 484 | |
Abacus Property Group | 142,425 | 332 | |
Mirvac Group | 187,271 | 297 | |
Ramsay Health Care Ltd. | 3,958 | 195 | |
41,237 | |||
Austria (0.1%) | |||
OMV AG | 22,858 | 761 | |
Belgium (0.7%) | |||
Delhaize Group SA | 18,325 | 1,475 | |
Sofina SA | 9,541 | 1,083 | |
Elia System | |||
Operator SA/NV | 23,212 | 1,030 | |
Ageas | 20,883 | 785 | |
Belgacom SA | 16,363 | 609 | |
Cofinimmo SA | 4,692 | 518 | |
* | UCB SA | 2,802 | 202 |
* | Cofinimmo SA Rights | ||
Expire 05/06/2015 | 4,692 | 3 | |
5,705 |
Brazil (1.6%) | |||
2 | Telefonica Brasil SA ADR | 165,100 | 2,711 |
Embraer SA ADR | 83,400 | 2,600 | |
Cia Brasileira de | |||
Distribuicao ADR | 66,400 | 2,227 | |
BRF SA ADR | 102,400 | 2,198 | |
Ultrapar Participacoes | |||
SA ADR | 75,600 | 1,727 | |
Ambev SA ADR | 213,200 | 1,350 | |
Cia Energetica de | |||
Minas Gerais ADR | 128,500 | 632 | |
13,445 | |||
Canada (6.6%) | |||
^ | Dollarama Inc. | 213,050 | 12,234 |
BCE Inc. | 209,500 | 9,236 | |
Fortis Inc. | 279,650 | 9,102 | |
^ | Emera Inc. | 143,750 | 4,844 |
^ | Canadian Tire Corp. Ltd. | ||
Class A | 30,900 | 3,273 | |
TELUS Corp. | 74,900 | 2,591 | |
Thomson Reuters Corp. | 54,300 | 2,231 | |
^ | Cineplex Inc. | 49,300 | 1,974 |
Manitoba Telecom | |||
Services Inc. | 90,200 | 1,942 | |
Intact Financial Corp. | 16,500 | 1,271 | |
^ | H&R REIT | 63,400 | 1,216 |
^ | RioCan REIT | 41,300 | 1,022 |
^ | Parkland Fuel Corp. | 45,600 | 996 |
Shaw Communications Inc. | |||
Class B | 41,800 | 956 | |
Power Corp. of Canada | 21,700 | 596 | |
Veresen Inc. | 35,000 | 526 | |
^ | CI Financial Corp. | 15,100 | 444 |
Gildan Activewear Inc. | 14,000 | 444 | |
^ | Boardwalk REIT | 5,900 | 297 |
Extendicare Inc. | 42,000 | 274 | |
Imperial Oil Ltd. | 5,700 | 251 | |
Dream Office REIT | 10,000 | 229 | |
Cominar REIT | 14,100 | 223 | |
56,172 |
13
Global Minimum Volatility Fund
Market | |||
Value | |||
Shares | ($000) | ||
Chile (0.3%) | |||
Enersis SA ADR | 61,500 | 1,093 | |
Banco Santander | |||
Chile ADR | 30,700 | 670 | |
Cia Cervecerias Unidas | |||
SA ADR | 29,000 | 634 | |
2,397 | |||
China (0.3%) | |||
2 | China Mobile Ltd. ADR | 40,800 | 2,914 |
Denmark (1.0%) | |||
Novo Nordisk A/S ADR | 49,600 | 2,791 | |
TDC A/S | 355,205 | 2,704 | |
* | William Demant | ||
Holding A/S | 11,062 | 910 | |
* | Topdanmark A/S | 27,823 | 835 |
Tryg A/S | 4,413 | 479 | |
Royal Unibrew A/S | 1,957 | 375 | |
ALK-Abello A/S | 2,012 | 238 | |
8,332 | |||
France (0.2%) | |||
BioMerieux | 7,524 | 812 | |
*,^ | Veolia Environnement SA | 24,482 | 518 |
Sodexo SA | 5,000 | 506 | |
1,836 | |||
Germany (1.6%) | |||
Fresenius Medical | |||
Care AG & Co. KGaA | 37,065 | 3,115 | |
Fielmann AG | 39,184 | 2,661 | |
Merck KGaA | 23,500 | 2,533 | |
MTU Aero Engines AG | 15,632 | 1,537 | |
RHOEN-KLINIKUM AG | 49,613 | 1,373 | |
MAN SE | 8,468 | 919 | |
Henkel AG & Co. KGaA | |||
Preference Shares | 4,432 | 515 | |
Celesio AG | 15,153 | 450 | |
STADA Arzneimittel AG | 3,800 | 139 | |
13,242 | |||
Hong Kong (6.6%) | |||
CLP Holdings Ltd. | 1,386,500 | 12,137 | |
China Mengniu | |||
Dairy Co. Ltd. | 2,000,000 | 10,132 | |
Want Want China | |||
Holdings Ltd. | 8,952,000 | 9,820 | |
Hang Seng Bank Ltd. | 207,900 | 4,050 | |
Tingyi Cayman Islands | |||
Holding Corp. | 1,676,000 | 3,539 | |
Yuexiu REIT | 6,177,000 | 3,488 | |
*,3 | WH Group Ltd. | 3,594,000 | 2,509 |
Chow Tai Fook Jewellery | |||
Group Ltd. | 1,969,600 | 2,384 | |
Hong Kong Exchanges | |||
and Clearing Ltd. | 43,100 | 1,643 |
Television Broadcasts Ltd. | 186,100 | 1,212 | |
Hopewell Highway | |||
Infrastructure Ltd. | 2,375,000 | 1,181 | |
Uni-President China | |||
Holdings Ltd. | 990,000 | 799 | |
Cheung Kong Infrastructure | |||
Holdings Ltd. | 69,000 | 585 | |
* | China LotSynergy | ||
Holdings Ltd. | 4,880,000 | 477 | |
AAC Technologies | |||
Holdings Inc. | 81,500 | 430 | |
Sun Art Retail Group Ltd. | 378,250 | 389 | |
TCC International | |||
Holdings Ltd. | 922,000 | 389 | |
* | Global Brands Group | ||
Holding Ltd. | 1,766,000 | 361 | |
VTech Holdings Ltd. | 20,700 | 288 | |
* | Microport Scientific Corp. | 492,000 | 275 |
56,088 | |||
India (1.9%) | |||
Dr Reddy’s | |||
Laboratories Ltd. ADR | 177,400 | 9,221 | |
Infosys Ltd. ADR | 202,300 | 6,267 | |
HDFC Bank Ltd. ADR | 14,300 | 813 | |
16,301 | |||
Indonesia (0.1%) | |||
Telekomunikasi Indonesia | |||
Persero Tbk PT ADR | 23,600 | 977 | |
Israel (0.4%) | |||
Teva Pharmaceutical | |||
Industries Ltd. ADR | 15,750 | 952 | |
Paz Oil Co. Ltd. | 5,690 | 869 | |
Teva Pharmaceutical | |||
Industries Ltd. | 7,347 | 446 | |
Bezeq The Israeli | |||
Telecommunication | |||
Corp. Ltd. | 221,490 | 419 | |
Ituran Location and | |||
Control Ltd. | 10,962 | 252 | |
Delek Automotive | |||
Systems Ltd. | 19,918 | 242 | |
3,180 | |||
Italy (0.8%) | |||
Davide Campari- | |||
Milano SPA | 230,477 | 1,782 | |
Parmalat SPA | 628,084 | 1,739 | |
Terna Rete Elettrica | |||
Nazionale SPA | 363,053 | 1,712 | |
A2A SPA | 915,394 | 1,055 | |
Recordati SPA | 16,499 | 329 | |
6,617 |
14
Global Minimum Volatility Fund
Market | |||
Value | |||
Shares | ($000) | ||
Japan (4.4%) | |||
Takeda Pharmaceutical | |||
Co. Ltd. | 180,200 | 9,252 | |
Daiichi Sankyo Co. Ltd. | 229,500 | 3,986 | |
Kagome Co. Ltd. | 225,700 | 3,540 | |
^ | Gree Inc. | 329,700 | 2,129 |
Sega Sammy Holdings Inc. | 135,600 | 1,893 | |
TonenGeneral Sekiyu KK | 164,000 | 1,574 | |
Canon Inc. | 43,900 | 1,565 | |
Kyowa Hakko Kirin Co. Ltd. | 81,000 | 1,186 | |
MOS Food Services Inc. | 56,200 | 1,156 | |
Studio Alice Co. Ltd. | 61,900 | 1,140 | |
USS Co. Ltd. | 52,300 | 921 | |
Kappa Create | |||
Holdings Co. Ltd. | 94,500 | 876 | |
Matsuya Foods Co. Ltd. | 31,600 | 629 | |
Ringer Hut Co. Ltd. | 28,800 | 563 | |
* | Hokkaido Electric | ||
Power Co. Inc. | 60,000 | 553 | |
Sawai Pharmaceutical | |||
Co. Ltd. | 9,400 | 535 | |
Kisoji Co. Ltd. | 32,100 | 533 | |
* | Shikoku Electric | ||
Power Co. Inc. | 37,900 | 513 | |
* | Fujiya Co. Ltd. | 309,000 | 505 |
Earth Chemical Co. Ltd. | 13,200 | 485 | |
Key Coffee Inc. | 27,900 | 422 | |
Yahoo Japan Corp. | 100,600 | 411 | |
Keiyo Co. Ltd. | 80,900 | 377 | |
Nitto Kohki Co. Ltd. | 18,200 | 368 | |
Mitsubishi Tanabe | |||
Pharma Corp. | 21,100 | 359 | |
Sagami Chain Co. Ltd. | 29,000 | 291 | |
Rock Field Co. Ltd. | 13,500 | 278 | |
Sakata Seed Corp. | 15,600 | 270 | |
Senshukai Co. Ltd. | 34,200 | 247 | |
Daisyo Corp. | 18,000 | 226 | |
Kourakuen Corp. | 15,900 | 205 | |
36,988 | |||
Mexico (0.8%) | |||
Grupo Aeroportuario | |||
del Pacifico SAB de | |||
CV ADR | 46,000 | 3,268 | |
* | Fomento Economico | ||
Mexicano SAB de CV ADR | 33,000 | 2,986 | |
* | Grupo Televisa SAB ADR | 13,000 | 473 |
America Movil SAB | |||
de CV ADR | 21,800 | 456 | |
7,183 | |||
Netherlands (1.1%) | |||
^ | Wolters Kluwer NV | 115,617 | 3,746 |
^ | Reed Elsevier NV | 142,682 | 3,441 |
Koninklijke Vopak NV | 18,537 | 973 | |
Wereldhave NV | 12,582 | 807 | |
* | PostNL NV | 115,355 | 573 |
9,540 |
Norway (0.4%) | |||
Telenor ASA | 63,541 | 1,435 | |
Norsk Hydro ASA | 280,997 | 1,331 | |
^ | Orkla ASA | 102,754 | 807 |
3,573 | |||
Russia (0.6%) | |||
Rosneft OAO GDR | 566,798 | 2,797 | |
Surgutneftegas OAO ADR | 228,287 | 1,653 | |
Gazprom OAO ADR | 146,641 | 859 | |
5,309 | |||
Singapore (1.1%) | |||
Singapore Airlines Ltd. | 258,000 | 2,378 | |
DBS Group Holdings Ltd. | 129,200 | 2,053 | |
Oversea-Chinese | |||
Banking Corp. Ltd. | 192,248 | 1,548 | |
Singapore | |||
Telecommunications Ltd. | 460,000 | 1,537 | |
Keppel Corp. Ltd. | 164,900 | 1,083 | |
CapitaMall Trust | 270,700 | 447 | |
StarHub Ltd. | 68,000 | 217 | |
9,263 | |||
South Africa (0.0%) | |||
* | AngloGold Ashanti Ltd. ADR | 37,000 | 419 |
South Korea (3.2%) | |||
* | KT Corp. | 170,867 | 5,051 |
S-Oil Corp. | 45,767 | 3,118 | |
Yuhan Corp. | 10,829 | 2,333 | |
KT&G Corp. | 24,102 | 2,135 | |
LG Household & | |||
Health Care Ltd. | 2,686 | 1,973 | |
Agabang&Company | 117,440 | 1,423 | |
Bukwang | |||
Pharmaceutical Co. Ltd. | 54,875 | 1,261 | |
Hyundai Department | |||
Store Co. Ltd. | 7,526 | 1,022 | |
GS Holdings Corp. | 21,038 | 981 | |
* | Hanmi Pharm Co. Ltd. | 2,686 | 939 |
Hyundai Marine & Fire | |||
Insurance Co. Ltd. | 30,245 | 806 | |
Macquarie Korea | |||
Infrastructure Fund | 106,880 | 789 | |
Daou Technology Inc. | 44,675 | 779 | |
Hyundai Steel Co. | 10,449 | 764 | |
Korea Zinc Co. Ltd. | 1,620 | 722 | |
Hyundai Greenfood Co. Ltd. | 36,375 | 641 | |
* | SK Securities Co. Ltd. | 377,282 | 597 |
Kolao Holdings | 27,102 | 506 | |
Green Cross Holdings Corp. | 16,432 | 447 | |
Hite Jinro Co. Ltd. | 13,595 | 288 | |
POSCO Chemtech Co. Ltd. | 2,217 | 283 | |
* | Komipharm | ||
International Co. Ltd. | 9,825 | 225 | |
Samsung Securities Co. Ltd. | 2,300 | 140 | |
27,223 |
15
Global Minimum Volatility Fund
Market | |||
Value | |||
Shares | ($000) | ||
Spain (0.1%) | |||
Viscofan SA | 9,941 | 632 | |
Ebro Foods SA | 17,809 | 345 | |
977 | |||
Sweden (0.3%) | |||
^ | Svenska Cellulosa AB | ||
SCA Class B | 45,705 | 1,156 | |
Swedish Match AB | 26,615 | 819 | |
* | Axfood AB | 21,376 | 338 |
2,313 | |||
Switzerland (3.4%) | |||
Galenica AG | 13,847 | 12,929 | |
Swisscom AG | 10,453 | 6,214 | |
Kaba Holding AG Class B | 5,720 | 3,757 | |
Swatch Group AG (Bearer) | 4,115 | 1,840 | |
Allreal Holding AG | 9,242 | 1,326 | |
* | Dufry AG | 5,000 | 735 |
Siegfried Holding AG | 3,851 | 655 | |
Chocoladefabriken | |||
Lindt & Sprungli AG | 106 | 579 | |
* | Alpiq Holding AG | 3,408 | 297 |
Kuehne & Nagel | |||
International AG | 1,585 | 238 | |
Swiss Re AG | 2,424 | 215 | |
28,785 | |||
Taiwan (1.2%) | |||
Chunghwa Telecom | |||
Co. Ltd. ADR | 151,500 | 4,875 | |
Siliconware Precision | |||
Industries Co. Ltd. ADR | 486,505 | 3,946 | |
United Microelectronics | |||
Corp. ADR | 649,400 | 1,571 | |
10,392 | |||
United Kingdom (9.6%) | |||
Next plc | 85,183 | 9,577 | |
Marks & Spencer Group plc | 973,993 | 8,248 | |
National Grid plc | 381,314 | 5,130 | |
3 | Merlin Entertainments plc | 663,339 | 4,432 |
Inmarsat plc | 287,635 | 4,429 | |
British American | |||
Tobacco plc | 75,852 | 4,168 | |
Burberry Group plc | 133,889 | 3,569 | |
Greene King plc | 278,496 | 3,541 | |
GlaxoSmithKline plc | 145,330 | 3,357 | |
Howden Joinery Group plc | 419,688 | 2,988 | |
AstraZeneca plc | 42,500 | 2,917 | |
Land Securities Group plc | 118,995 | 2,277 | |
Centrica plc | 517,361 | 2,020 | |
* | Indivior plc | 655,251 | 2,004 |
Sage Group plc | 259,893 | 1,932 | |
DCC plc | 28,229 | 1,796 | |
Reed Elsevier plc | 105,062 | 1,739 | |
G4S plc | 348,376 | 1,563 | |
BT Group plc | 214,142 | 1,494 |
SSE plc | 60,127 | 1,425 | |
UK Commercial Property | |||
Trust Ltd. | 946,030 | 1,333 | |
BAE Systems plc | 171,174 | 1,326 | |
Kingfisher plc | 228,018 | 1,225 | |
Lloyds Banking Group plc | 1,025,537 | 1,214 | |
F&C Commercial | |||
Property Trust Ltd. | 537,029 | 1,155 | |
Inchcape plc | 82,750 | 1,053 | |
Amlin plc | 142,523 | 999 | |
Sky plc | 54,798 | 903 | |
Meggitt plc | 82,679 | 668 | |
Rightmove plc | 13,460 | 652 | |
Compass Group plc | 36,815 | 651 | |
Reckitt Benckiser | |||
Group plc | 6,175 | 550 | |
Standard Life plc | 74,481 | 532 | |
Ultra Electronics | |||
Holdings plc | 17,786 | 473 | |
Derwent London plc | 5,835 | 307 | |
Hammerson plc | 26,771 | 274 | |
81,921 | |||
United States (45.6%) | |||
Consumer Discretionary (4.2%) | |||
McDonald’s Corp. | 41,800 | 4,036 | |
Vail Resorts Inc. | 39,800 | 3,949 | |
Service Corp. International | 140,000 | 3,875 | |
Signet Jewelers Ltd. | 22,200 | 2,978 | |
John Wiley & Sons Inc. | |||
Class A | 50,800 | 2,889 | |
Churchill Downs Inc. | 17,600 | 2,097 | |
* | Five Below Inc. | 53,000 | 1,787 |
Graham Holdings Co. | |||
Class B | 1,700 | 1,739 | |
* | Sally Beauty Holdings Inc. | 47,600 | 1,486 |
* | AutoZone Inc. | 2,050 | 1,379 |
Oxford Industries Inc. | 17,000 | 1,351 | |
CST Brands Inc. | 27,800 | 1,160 | |
Hasbro Inc. | 14,900 | 1,055 | |
Dillard’s Inc. Class A | 6,500 | 855 | |
*,2 | International Game | ||
Technology plc | 36,500 | 743 | |
Buckle Inc. | 15,200 | 681 | |
* | Markit Ltd. | 25,600 | 657 |
Columbia Sportswear Co. | 9,800 | 614 | |
Wendy’s Co. | 48,600 | 492 | |
Monro Muffler Brake Inc. | 7,400 | 443 | |
Meredith Corp. | 5,700 | 297 | |
Pool Corp. | 3,800 | 247 | |
* | Grand Canyon | ||
Education Inc. | 5,400 | 244 | |
Six Flags | |||
Entertainment Corp. | 4,200 | 197 | |
35,251 |
16
Global Minimum Volatility Fund
Market | |||
Value | |||
Shares | ($000) | ||
Consumer Staples (5.2%) | |||
2 | Church & Dwight Co. Inc. | 142,250 | 11,546 |
2 | Clorox Co. | 88,150 | 9,353 |
Colgate-Palmolive Co. | 83,700 | 5,631 | |
Kimberly-Clark Corp. | 30,700 | 3,367 | |
2 | Procter & Gamble Co. | 37,550 | 2,985 |
2 | Altria Group Inc. | 56,300 | 2,818 |
2 | Philip Morris International Inc. | 26,500 | 2,212 |
JM Smucker Co. | 14,400 | 1,669 | |
Vector Group Ltd. | 37,100 | 822 | |
* | Sprouts Farmers Market Inc. | 24,000 | 768 |
Universal Corp. | 15,900 | 748 | |
Spectrum Brands | |||
Holdings Inc. | 7,100 | 649 | |
Energizer Holdings Inc. | 4,200 | 574 | |
J&J Snack Foods Corp. | 4,400 | 459 | |
McCormick & Co. Inc. | 5,400 | 407 | |
44,008 | |||
Energy (0.9%) | |||
2 | World Fuel Services Corp. | 137,730 | 7,644 |
2 | Kinder Morgan Inc. | 5,900 | 253 |
7,897 | |||
Financials (12.0%) | |||
People’s United | |||
Financial Inc. | 783,150 | 11,833 | |
New York Community | |||
Bancorp Inc. | 527,100 | 9,061 | |
* | Beneficial Bancorp Inc. | 752,909 | 8,734 |
4 | Hudson Pacific | ||
Properties Inc. | 210,500 | 6,349 | |
*,2 | Markel Corp. | 8,300 | 6,147 |
Lamar Advertising Co. | |||
Class A | 99,072 | 5,742 | |
Two Harbors | |||
Investment Corp. | 523,700 | 5,499 | |
Capitol Federal Financial Inc. | 455,900 | 5,471 | |
Starwood Property Trust Inc. | 207,600 | 4,984 | |
WP Carey Inc. | 67,700 | 4,298 | |
Blackstone Mortgage | |||
Trust Inc. Class A | 102,500 | 3,150 | |
2 | Oritani Financial Corp. | 206,400 | 3,075 |
Marsh & McLennan Cos. Inc. | 46,600 | 2,617 | |
TFS Financial Corp. | 175,700 | 2,569 | |
Colony Capital Inc. Class A | 96,800 | 2,508 | |
Hatteras Financial Corp. | 136,900 | 2,472 | |
Outfront Media Inc. | 71,500 | 2,053 | |
Capstead Mortgage Corp. | 154,400 | 1,799 | |
Acadia Realty Trust | 56,000 | 1,730 | |
Ramco-Gershenson | |||
Properties Trust | 76,300 | 1,334 | |
Post Properties Inc. | 17,300 | 989 | |
Urstadt Biddle Properties | |||
Inc. Class A | 47,000 | 975 |
Government Properties | |||
Income Trust | 36,000 | 750 | |
Piedmont Office Realty | |||
Trust Inc. Class A | 42,900 | 750 | |
Brookline Bancorp Inc. | 68,100 | 733 | |
Capital One Financial Corp. | 8,600 | 695 | |
National Health Investors Inc. 9,400 | 627 | ||
Equity One Inc. | 24,100 | 594 | |
Investors Real Estate Trust | 82,500 | 592 | |
Alexandria Real Estate | |||
Equities Inc. | 5,900 | 545 | |
Northwest Bancshares Inc. | 41,800 | 515 | |
Liberty Property Trust | 13,800 | 481 | |
Universal Health Realty | |||
Income Trust | 8,800 | 437 | |
2 | Dime Community | ||
Bancshares Inc. | 25,000 | 398 | |
Safety Insurance Group Inc. | 6,600 | 384 | |
Brown & Brown Inc. | 10,500 | 335 | |
Camden Property Trust | 3,300 | 248 | |
Retail Properties of | |||
America Inc. | 14,600 | 221 | |
101,694 | |||
Health Care (7.1%) | |||
* | Henry Schein Inc. | 57,300 | 7,856 |
Patterson Cos. Inc. | 130,500 | 6,128 | |
* | MEDNAX Inc. | 84,600 | 5,988 |
Omnicare Inc. | 66,800 | 5,877 | |
AmerisourceBergen Corp. | |||
Class A | 43,900 | 5,018 | |
Hill-Rom Holdings Inc. | 95,800 | 4,784 | |
2 | Johnson & Johnson | 37,500 | 3,720 |
Chemed Corp. | 25,800 | 2,973 | |
* | Bio-Rad Laboratories Inc. | ||
Class A | 20,700 | 2,783 | |
2 | Pfizer Inc. | 76,700 | 2,602 |
* | DaVita HealthCare | ||
Partners Inc. | 27,600 | 2,238 | |
* | Sirona Dental Systems Inc. | 20,600 | 1,911 |
* | HeartWare International Inc. | 23,600 | 1,787 |
* | Amsurg Corp. | 26,600 | 1,668 |
* | Magellan Health Inc. | 24,400 | 1,545 |
Owens & Minor Inc. | 25,300 | 853 | |
Landauer Inc. | 23,800 | 768 | |
ResMed Inc. | 9,600 | 614 | |
* | Impax Laboratories Inc. | 9,800 | 444 |
* | LHC Group Inc. | 10,900 | 349 |
Teleflex Inc. | 2,200 | 270 | |
60,176 | |||
Industrials (4.4%) | |||
Rollins Inc. | 230,100 | 5,707 | |
* | Stericycle Inc. | 35,400 | 4,723 |
United Parcel Service Inc. | |||
Class B | 38,600 | 3,880 |
17
Global Minimum Volatility Fund
Market | |||
Value | |||
Shares | ($000) | ||
Covanta Holding Corp. | 136,600 | 2,772 | |
General Dynamics Corp. | 20,100 | 2,760 | |
Danaher Corp. | 28,400 | 2,325 | |
Rockwell Collins Inc. | 23,700 | 2,307 | |
Expeditors International of | |||
Washington Inc. | 48,400 | 2,218 | |
2 | 3M Co. | 14,100 | 2,205 |
* | Teledyne Technologies Inc. | 17,400 | 1,827 |
Carlisle Cos. Inc. | 15,700 | 1,515 | |
National Presto | |||
Industries Inc. | 24,000 | 1,502 | |
Illinois Tool Works Inc. | 13,000 | 1,217 | |
Matthews International | |||
Corp. Class A | 22,400 | 1,087 | |
* | Aerojet Rocketdyne | ||
Holdings Inc. | 36,300 | 714 | |
Cubic Corp. | 11,200 | 555 | |
Healthcare Services | |||
Group Inc. | 15,200 | 460 | |
37,774 | |||
Information Technology (6.8%) | |||
Jack Henry & | |||
Associates Inc. | 141,500 | 9,411 | |
2 | Amdocs Ltd. | 152,400 | 8,393 |
*,2 | CACI International Inc. | ||
Class A | 91,500 | 8,074 | |
2 | MAXIMUS Inc. | 113,750 | 7,281 |
2 | Motorola Solutions Inc. | 68,600 | 4,099 |
j2 Global Inc. | 51,900 | 3,600 | |
* | VeriSign Inc. | 55,500 | 3,525 |
Paychex Inc. | 57,800 | 2,797 | |
* | Yandex NV Class A | 99,300 | 1,910 |
* | Check Point Software | ||
Technologies Ltd. | 16,900 | 1,411 | |
FactSet Research | |||
Systems Inc. | 8,900 | 1,401 | |
Automatic Data | |||
Processing Inc. | 12,800 | 1,082 | |
CSG Systems | |||
International Inc. | 34,060 | 992 | |
* | Genpact Ltd. | 40,800 | 892 |
* | Monster Worldwide Inc. | 120,000 | 707 |
Leidos Holdings Inc. | 16,000 | 666 | |
* | Progress Software Corp. | 19,000 | 501 |
* | CommScope Holding Co. Inc. | 9,700 | 286 |
* | CoStar Group Inc. | 1,300 | 266 |
57,294 |
Materials (2.7%) | ||||
2 | Kaiser Aluminum Corp. | 152,300 | 12,240 | |
Compass Minerals | ||||
International Inc. | 57,300 | 5,061 | ||
AptarGroup Inc. | 63,800 | 3,960 | ||
Silgan Holdings Inc. | 17,500 | 943 | ||
Globe Specialty Metals Inc. | 27,900 | 556 | ||
22,760 | ||||
Telecommunication Services (0.8%) | ||||
* | Level 3 Communications Inc. | 45,700 | 2,557 | |
Cogent Communications | ||||
Holdings Inc. | 68,700 | 2,404 | ||
2 | AT&T Inc. | 63,200 | 2,189 | |
7,150 | ||||
Utilities (1.5%) | ||||
2,4 | Southern Co. | 62,600 | 2,773 | |
Duke Energy Corp. | 21,600 | 1,676 | ||
ALLETE Inc. | 30,000 | 1,509 | ||
Empire District Electric Co. | 62,100 | 1,464 | ||
NorthWestern Corp. | 27,300 | 1,422 | ||
MDU Resources Group Inc. | 53,500 | 1,193 | ||
2 | Eversource Energy | 24,000 | 1,170 | |
Great Plains Energy Inc. | 21,700 | 568 | ||
Vectren Corp. | 12,900 | 557 | ||
Portland General Electric Co. | 8,200 | 288 | ||
12,620 | ||||
386,624 | ||||
Total Common Stocks | ||||
(Cost $795,377) | 839,714 | |||
Temporary Cash Investment (5.8%)1 | ||||
Money Market Fund (5.8%) | ||||
5,6 | Vanguard Market | |||
Liquidity Fund, 0.121% | ||||
(Cost $49,193) | 49,193,250 | 49,193 | ||
Total Investments (104.7%) | ||||
(Cost $844,570) | 888,907 | |||
Other Assets and Liabilities (-4.7%) | ||||
Other Assets | 12,881 | |||
Liabilities6 | (53,132) | |||
(40,251) | ||||
Net Assets (100%) | 848,656 |
18
Global Minimum Volatility Fund
At April 30, 2015, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 789,512 |
Undistributed Net Investment Income | 3,345 |
Accumulated Net Realized Gains | 21,770 |
Unrealized Appreciation (Depreciation) | |
Investment Securities | 44,337 |
Futures Contracts | (59) |
Forward Currency Contracts | (10,108) |
Foreign Currencies | (141) |
Net Assets | 848,656 |
Investor Shares—Net Assets | |
Applicable to 40,498,148 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 468,535 |
Net Asset Value Per Share— | |
Investor Shares | $11.57 |
Admiral Shares—Net Assets | |
Applicable to 16,424,127 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 380,121 |
Net Asset Value Per Share— | |
Admiral Shares | $23.14 |
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 $25,290,000.
1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures
investments, the fund’s effective common stock and temporary cash investment positions represent 99.4% and 5.3%, respectively, of
net assets.
2 Securities with a value of $17,814,000 have been segregated as collateral for open forward currency contracts.
3 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 April 30, 2015, the aggregate value of these securities was $6,941,000,
representing 0.8% of net assets.
4 Securities with a value of $3,658,000 have been segregated as initial margin for open futures contracts.
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 Includes $29,631,000 of collateral received for securities on loan.
ADR—American Depositary Receipt.
GDR—Global Depositary Receipt.
REIT—Real Estate Investment Trust.
See accompanying Notes, which are an integral part of the Financial Statements.
19
Global Minimum Volatility Fund
Statement of Operations
Six Months Ended | |
April 30, 2015 | |
($000) | |
Investment Income | |
Income | |
Dividends1 | 7,497 |
Interest2 | 7 |
Securities Lending | 80 |
Total Income | 7,584 |
Expenses | |
The Vanguard Group—Note B | |
Investment Advisory Services | 283 |
Management and Administrative—Investor Shares | 296 |
Management and Administrative—Admiral Shares | 81 |
Marketing and Distribution—Investor Shares | 31 |
Marketing and Distribution—Admiral Shares | 18 |
Custodian Fees | 69 |
Shareholders’ Reports—Investor Shares | 1 |
Shareholders’ Reports—Admiral Shares | 1 |
Total Expenses | 780 |
Net Investment Income | 6,804 |
Realized Net Gain (Loss) | |
Investment Securities Sold | 1,824 |
Futures Contracts | 895 |
Foreign Currencies and Forward Currency Contracts | 28,238 |
Realized Net Gain (Loss) | 30,957 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities | 24,334 |
Futures Contracts | (312) |
Foreign Currencies and Forward Currency Contracts | (19,360) |
Change in Unrealized Appreciation (Depreciation) | 4,662 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 42,423 |
1 Dividends are net of foreign withholding taxes of $405,000. | |
2 Interest income from an affiliated company of the fund was $7,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
20
Global Minimum Volatility Fund
Statement of Changes in Net Assets
December 12, | ||
Six Months Ended | 20131 to | |
April 30, | October 31, | |
2015 | 2014 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 6,804 | 10,742 |
Realized Net Gain (Loss) | 30,957 | 9,575 |
Change in Unrealized Appreciation (Depreciation) | 4,662 | 29,367 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 42,423 | 49,684 |
Distributions | ||
Net Investment Income | ||
Investor Shares | (9,075) | (703) |
Admiral Shares | (3,883) | (27) |
Realized Capital Gain 2 | ||
Investor Shares | (13,061) | — |
Admiral Shares | (5,350) | — |
Total Distributions | (31,369) | (730) |
Capital Share Transactions | ||
Investor Shares | 102,118 | 318,348 |
Admiral Shares | 260,672 | 107,510 |
Net Increase (Decrease) from Capital Share Transactions | 362,790 | 425,858 |
Total Increase (Decrease) | 373,844 | 474,812 |
Net Assets | ||
Beginning of Period | 474,812 | — |
End of Period3 | 848,656 | 474,812 |
1 Inception.
2 Includes fiscal 2015 short-term gain distributions totaling $13,523,000. Short-term gain distributions are treated as ordinary income
dividends for tax purposes.
3 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $3,345,000 and $9,648,000.
See accompanying Notes, which are an integral part of the Financial Statements.
21
Global Minimum Volatility Fund
Financial Highlights
Investor Shares | ||
Six Months | Dec. 12, | |
Ended | 20131 to | |
April 30, | Oct. 31, | |
For a Share Outstanding Throughout Each Period | 2015 | 2014 |
Net Asset Value, Beginning of Period | $11.41 | $10.00 |
Investment Operations | ||
Net Investment Income | .1212 | .262 |
Net Realized and Unrealized Gain (Loss) on Investments | .722 | 1.172 |
Total from Investment Operations | .843 | 1.434 |
Distributions | ||
Dividends from Net Investment Income | (.280) | (.024) |
Distributions from Realized Capital Gains | (.403) | — |
Total Distributions | (.683) | (.024) |
Net Asset Value, End of Period | $11.57 | $11.41 |
Total Return3 | 7.70% | 14.37% |
Ratios/Supplemental Data | ||
Net Assets, End of Period (Millions) | $469 | $360 |
Ratio of Total Expenses to Average Net Assets | 0.28% | 0.30%4 |
Ratio of Net Investment Income to Average Net Assets | 2.29% | 3.18%4 |
Portfolio Turnover Rate | 49% | 49% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
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.
22
Global Minimum Volatility Fund
Financial Highlights
Admiral Shares | ||
Six Months | Dec. 12, | |
Ended | 20131 to | |
April 30, | Oct. 31, | |
For a Share Outstanding Throughout Each Period | 2015 | 2014 |
Net Asset Value, Beginning of Period | $22.83 | $20.00 |
Investment Operations | ||
Net Investment Income | . 244 2 | .546 |
Net Realized and Unrealized Gain (Loss) on Investments | 1.457 | 2.332 |
Total from Investment Operations | 1.701 | 2.878 |
Distributions | ||
Dividends from Net Investment Income | (.585) | (.048) |
Distributions from Realized Capital Gains | (.806) | — |
Total Distributions | (1.391) | (.048) |
Net Asset Value, End of Period | $23.14 | $22.83 |
Total Return3 | 7.77% | 14.42% |
Ratios/Supplemental Data | ||
Net Assets, End of Period (Millions) | $380 | $115 |
Ratio of Total Expenses to Average Net Assets | 0.19% | 0.20%4 |
Ratio of Net Investment Income to Average Net Assets | 2.38% | 3.28%4 |
Portfolio Turnover Rate | 49% | 49% |
The expense ratio, net income ratio, and turnover rate for the current period have been annualized.
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.
23
Global Minimum Volatility Fund
Notes to Financial Statements
Vanguard Global Minimum Volatility 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. To minimize the currency risk and volatility associated with investment in securities denominated in currencies other than the U.S. dollar, the fund attempts to hedge its currency exposure. The fund offers two classes of shares: Investor Shares and Admiral Shares. Investor Shares are available to any investor who meets the fund’s minimum purchase requirements. Admiral Shares are designed for investors who meet certain administrative, service, and account-size criteria.
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.
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 and Forward Currency 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 stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract.
24
Global Minimum Volatility Fund
The fund enters into forward currency contracts 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. 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 assets pledged as collateral for open contracts are noted in the Statement of Net Assets. 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.
Futures contracts are valued at their quoted daily settlement prices. 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 aggregate settlement values and notional amounts of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures or forward currency contracts.
During the six months ended April 30, 2015, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of aggregate settlement values at each quarter-end during the period. The fund’s average investment in forward currency contracts represented 45% of net assets, based on the average of notional amounts at each quarter-end during the period.
4. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for its open federal income tax period ended October 31, 2014, and for the period ended April 30, 2015, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
5. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
6. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled on the next business day. The fund further mitigates its counterparty
25
Global Minimum Volatility Fund
risk by entering into securities lending transactions only with a diverse group of prequalified counter-parties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the absence of a default the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan.
7. Credit Facility: The fund and certain other funds managed by The Vanguard Group participate in a $3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn 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 this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The fund had no borrowings outstanding at April 30, 2015, or at any time during the period then ended.
8. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. The Vanguard Group furnishes at cost investment advisory, corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the fund based on methods approved by the board of trustees. The fund has committed to invest up to 0.40% of its net assets in Vanguard. At April 30, 2015, the fund had contributed capital of $69,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.03% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
26
Global Minimum Volatility Fund
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).
The following table summarizes the market value of the fund’s investments as of April 30, 2015, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks—International | 113,944 | 338,863 | 283 |
Common Stocks—United States | 386,624 | — | — |
Temporary Cash Investments | 49,193 | — | — |
Futures Contracts—Assets1 | 2 | — | — |
Futures Contracts—Liabilities1 | (45) | — | — |
Forward Currency Contracts—Assets | — | 1,323 | — |
Forward Currency Contracts—Liabilities | — | (11,431) | — |
Total | 549,718 | 328,755 | 283 |
1 Represents variation margin on the last day of the reporting period. |
D. At April 30, 2015, the fair values of derivatives were reflected in the Statement of Net Assets as follows:
Foreign | |||
Equity | Exchange | ||
Contracts | Contracts | Total | |
Statement of Net Assets Caption | ($000) | ($000) | ($000) |
Other Assets | 2 | 1,323 | 1,325 |
Liabilities | (45) | (11,431) | (11,476) |
27
Global Minimum Volatility Fund
Realized net gain (loss) and the change in unrealized appreciation (depreciation) on derivatives for the
six months ended April 30, 2015, were:
Foreign | |||
Equity | Exchange | ||
Contracts | Contracts | Total | |
Realized Net Gain (Loss) on Derivatives | ($000) | ($000) | ($000) |
Futures Contracts | 895 | — | 895 |
Forward Currency Contracts | — | 28,387 | 28,387 |
Realized Net Gain (Loss) on Derivatives | 895 | 28,387 | 29,282 |
Change in Unrealized Appreciation (Depreciation) on Derivatives | |||
Futures Contracts | (312) | — | (312) |
Forward Currency Contracts | — | (19,268) | (19,268) |
Change in Unrealized Appreciation (Depreciation) on Derivatives | (312) | (19,268) | (19,580) |
At April 30, 2015, the aggregate settlement value of open futures contracts and the related unrealized appreciation (depreciation) were:
($000) | ||||
Aggregate | ||||
Number of | Settlement | Unrealized | ||
Long (Short) | Value | Appreciation | ||
Futures Contracts | Expiration | Contracts | Long (Short) | (Depreciation) |
E-mini S&P 500 Index | June 2015 | 24 | 2,495 | (40) |
Topix Index | June 2015 | 5 | 664 | (4) |
S&P ASX 200 Index | June 2015 | 4 | 454 | (7) |
Dow Jones EURO STOXX 50 Index | June 2015 | 11 | 440 | (6) |
FTSE 100 Index | June 2015 | 3 | 319 | (2) |
(59) |
Unrealized appreciation (depreciation) on open E-mini S&P 500 Index, Dow Jones EURO STOXX 50 Index, and FTSE 100 Index futures contracts is required to be treated as realized gain (loss) for tax purposes.
28
Global Minimum Volatility Fund
At April 30, 2015, the fund had open forward currency contracts to receive and deliver currencies as follows. Unrealized appreciation (depreciation) on open forward currency contracts, except for Indonesian rupiah and Taiwanese dollar contracts, is treated as realized gain (loss) for tax purposes.
Unrealized | ||||||
Contract | Appreciation | |||||
Settlement | Contract Amount (000) | (Depreciation) | ||||
Counterparty | Date | Receive | Deliver | ($000) | ||
Credit Suisse International | 5/7/15 | GBP | 53,291 | USD | 81,766 | 33 |
Goldman Sachs International | 5/7/15 | CAD | 63,656 | USD | 52,758 | (2) |
Deutsche Bank AG | 5/7/15 | EUR | 42,545 | USD | 47,324 | 453 |
BNP Paribas | 5/7/15 | AUD | 52,921 | USD | 41,685 | 178 |
Deutsche Bank AG | 5/7/15 | JPY | 4,176,632 | USD | 34,939 | 43 |
Credit Suisse International | 5/7/15 | CHF | 26,849 | USD | 28,478 | 307 |
BNP Paribas | 5/6/15 | KRW | 27,314,759 | USD | 25,540 | (64) |
BNP Paribas | 5/6/15 | INR | 1,104,958 | USD | 17,380 | (7) |
BNP Paribas | 5/5/15 | BRL | 41,180 | USD | 13,756 | (113) |
BNP Paribas | 5/6/15 | TWD | 324,820 | USD | 10,639 | (33) |
Goldman Sachs International | 5/7/15 | MXN | 97,244 | USD | 6,331 | 4 |
BNP Paribas | 5/6/15 | RUB | 266,148 | USD | 5,174 | (18) |
BNP Paribas | 5/7/15 | NOK | 25,111 | USD | 3,325 | 9 |
Deutsche Bank AG | 5/7/15 | SEK | 18,115 | USD | 2,162 | 12 |
BNP Paribas | 5/6/15 | IDR | 13,399,758 | USD | 1,036 | (3) |
Credit Suisse International | 6/3/15 | USD | 82,202 | GBP | 53,586 | (33) |
BNP Paribas | 5/7/15 | USD | 75,682 | GBP | 51,042 | (2,665) |
Goldman Sachs International | 6/3/15 | USD | 56,530 | CAD | 68,234 | 2 |
Deutsche Bank AG | 5/7/15 | USD | 48,161 | CAD | 60,161 | (1,699) |
Deutsche Bank AG | 6/3/15 | USD | 47,039 | EUR | 42,276 | (451) |
Goldman Sachs International | 5/7/15 | USD | 43,872 | EUR | 40,173 | (1,240) |
BNP Paribas | 6/3/15 | USD | 41,119 | AUD | 52,281 | (174) |
Deutsche Bank AG | 5/7/15 | USD | 39,217 | AUD | 50,181 | (478) |
Deutsche Bank AG | 6/3/15 | USD | 37,360 | JPY | 4,465,028 | (48) |
Credit Suisse International | 5/7/15 | USD | 35,072 | JPY | 4,176,632 | 90 |
Credit Suisse International | 6/3/15 | USD | 28,748 | CHF | 27,079 | (312) |
BNP Paribas | 6/2/15 | USD | 27,121 | KRW | 29,270,380 | (157) |
BNP Paribas | 5/6/15 | USD | 24,687 | KRW | 27,314,759 | (788) |
Goldman Sachs International | 5/7/15 | USD | 23,181 | CHF | 22,194 | (615) |
BNP Paribas | 5/6/15 | USD | 17,447 | INR | 1,104,958 | 75 |
BNP Paribas | 6/2/15 | USD | 16,488 | INR | 1,055,870 | (10) |
BNP Paribas | 6/2/15 | USD | 13,283 | BRL | 40,407 | 31 |
BNP Paribas | 5/5/15 | USD | 12,777 | BRL | 41,180 | (866) |
BNP Paribas | 5/5/15 | USD | 10,418 | TWD | 324,820 | (188) |
BNP Paribas | 6/2/15 | USD | 10,371 | TWD | 317,927 | (10) |
29
Global Minimum Volatility Fund
Unrealized | ||||||
Contract | Appreciation | |||||
Settlement | Contract Amount (000) | (Depreciation) | ||||
Counterparty | Date | Receive | Deliver | ($000) | ||
Goldman Sachs International | 6/3/15 | USD | 7,321 | MXN | 112,676 | (5) |
Deutsche Bank AG | 5/7/15 | USD | 6,420 | MXN | 97,244 | 84 |
BNP Paribas | 6/2/15 | USD | 5,251 | RUB | 273,671 | 2 |
BNP Paribas | 5/6/15 | USD | 4,570 | RUB | 266,148 | (586) |
BNP Paribas | 6/3/15 | USD | 3,595 | NOK | 27,170 | (10) |
Goldman Sachs International | 5/7/15 | USD | 3,287 | GBP | 2,249 | (165) |
Deutsche Bank AG | 6/3/15 | USD | 3,212 | ILS | 12,438 | (9) |
Credit Suisse International | 5/7/15 | USD | 3,188 | NOK | 25,111 | (146) |
BNP Paribas | 5/7/15 | USD | 2,799 | CAD | 3,496 | (98) |
BNP Paribas | 5/7/15 | USD | 2,551 | EUR | 2,373 | (113) |
BNP Paribas | 5/7/15 | USD | 2,496 | CHF | 2,441 | (121) |
BNP Paribas | 6/2/15 | USD | 2,386 | CLP | 1,467,781 | (6) |
Deutsche Bank AG | 5/7/15 | USD | 2,319 | CHF | 2,213 | (54) |
Deutsche Bank AG | 6/3/15 | USD | 2,306 | SEK | 19,306 | (13) |
BNP Paribas | 5/7/15 | USD | 2,121 | SEK | 18,115 | (53) |
Goldman Sachs International | 5/7/15 | USD | 2,110 | AUD | 2,740 | (58) |
BNP Paribas | 5/5/15 | USD | 1,016 | IDR | 13,399,758 | (17) |
BNP Paribas | 6/3/15 | USD | 1,001 | IDR | 13,101,550 | (3) |
(10,108) | ||||||
AUD—Australian dollar. | ||||||
BRL—Brazilian real. | ||||||
CAD—Canadian dollar. | ||||||
CHF—Swiss franc. | ||||||
CLP—Chilean peso. | ||||||
EUR—Euro. | ||||||
GBP—British pound. | ||||||
IDR—Indonesian rupiah. | ||||||
ILS—Israeli shekel. | ||||||
INR—Indian rupee. | ||||||
JPY—Japanese yen. | ||||||
KRW—Korean won. | ||||||
MXN—Mexican peso. | ||||||
NOK—Norwegian krone. | ||||||
RUB—Russian ruble. | ||||||
SEK—Swedish krona. | ||||||
TWD—Taiwanese dollar. | ||||||
USD—U.S. dollar. |
30
Global Minimum Volatility Fund
The following table summarizes the fund’s derivative assets and liabilities by counterparty for derivatives subject to agreements that provide for offsetting assets and liabilities. Exchange traded derivatives are listed separately.
Assets | Liabilities | Amounts Not Offset in the | Net | |||
Reflected in | Reflected in | Net Amount | Statement of Net Assets | Exposure3 | ||
Statement of | Statement of | Receivable | Collateral | Collateral | (Not Less | |
Net Assets1 | Net Assets1 | (Payable) | Pledged 2 | Received 2 | Than $0) | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
Forwards Subject to Offsetting | ||||||
Arrangements, by Counterparty | ||||||
BNP Paribas | 295 | (6,103) | (5,808) | 11,246 | — | — |
Credit Suisse International | 430 | (491) | (61) | 212 | — | — |
Deutsche Bank AG | 592 | (2,752) | (2,160) | 5,535 | — | — |
Goldman Sachs International | 6 | (2,085) | (2,079) | 821 | — | — |
Exchange Traded Futures Contracts | 2 | (45) | (43) | 3,658 | — | — |
Total | 1,325 | (11,476) | (10,151) | 21,472 | — | — |
1 Absent an event of default or early termination, derivative assets and liabilities are presented gross and not offset in the Statement of
Net Assets.
2 Securities or other assets pledged as collateral are noted in the Statement of Net Assets. Securities or other assets received as collateral
are held in a segregated account and not included in the fund’s security holdings in the Statement of Net Assets.
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.
E. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; such differences are primarily attributed to mark-to-market of open forward currency contracts. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes. The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year.
At April 30, 2015, the cost of investment securities for tax purposes was $845,165,000. Net unrealized appreciation of investment securities for tax purposes was $43,742,000, consisting of unrealized gains of $60,576,000 on securities that had risen in value since their purchase and $16,834,000 in unrealized losses on securities that had fallen in value since their purchase.
F. During the six months ended April 30, 2015, the fund purchased $512,402,000 of investment securities and sold $154,802,000 of investment securities, other than temporary cash investments.
31
Global Minimum Volatility Fund
G. Capital share transactions for each class of shares were:
Six Months Ended | December 12, 20131 to | |||
April 30, 2015 | October 31, 2014 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
Investor Shares | ||||
Issued | 127,974 | 11,146 | 352,372 | 34,751 |
Issued in Lieu of Cash Distributions | 21,996 | 2,000 | 702 | 69 |
Redeemed | (47,852) | (4,189) | (34,726) | (3,279) |
Net Increase (Decrease)—Investor Shares | 102,118 | 8,957 | 318,348 | 31,541 |
Admiral Shares | ||||
Issued | 292,289 | 12,750 | 130,196 | 6,096 |
Issued in Lieu of Cash Distributions | 8,043 | 366 | 26 | 1 |
Redeemed | (39,660) | (1,732) | (22,712) | (1,057) |
Net Increase (Decrease)—Admiral Shares | 260,672 | 11,384 | 107,510 | 5,040 |
1 Inception. |
At April 30, 2015, Vanguard Managed Payout Fund was the record or beneficial owner of 39% of the fund’s net assets. If the shareholder were to redeem its investment in the fund, the redemption might result in an increase in the fund’s expense ratio, cause the fund to incur higher transaction costs, or lead to the realization of taxable capital gains.
H. Management has determined that no material events or transactions occurred subsequent to April 30, 2015, that would require recognition or disclosure in these financial statements.
32
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.
33
Six Months Ended April 30, 2015 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
Global Minimum Volatility Fund | 10/31/2014 | 4/30/2015 | Period |
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $1,076.98 | $1.44 |
Admiral Shares | 1,000.00 | 1,077.69 | 0.98 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,023.41 | $1.40 |
Admiral Shares | 1,000.00 | 1,023.85 | 0.95 |
The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios for that
period are 0.28% for Investor Shares and 0.19% for Admiral Shares. The dollar amounts shown as “Expenses Paid” are equal to the
annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent
six-month period, then divided by the number of days in the most recent 12-month period.
34
Trustees Approve Advisory Arrangement
The board of trustees of Vanguard Global Minimum Volatility Fund has renewed the fund’s investment advisory arrangement with The Vanguard Group, Inc. (Vanguard). Vanguard’s Equity Investment Group—through its Quantitative Equity Group—serves as the investment advisor for the fund. The board determined that continuing the fund’s internalized management structure was in the best interests of the fund and its shareholders.
The board based its decision upon an evaluation of the advisor’s investment staff, portfolio management process, and performance. The trustees 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 reviewed the quality of the investment management services provided to the fund since its inception in 2013, and took into account the organizational depth and stability of the advisor. The board considered that Vanguard has been managing investments for more than three decades. The Quantitative Equity Group adheres to a sound, disciplined investment management process; the team has considerable experience, stability, and depth.
The board concluded that Vanguard’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangement.
Investment performance
The board considered the performance of the fund since its inception, including any periods of outperformance or underperformance relative to a benchmark and peer group. The board concluded that the performance was such that the advisory arrangement should continue. Information about the fund’s performance since inception can be found in the Performance Summary section of this report.
Cost
The board concluded that the fund’s expense ratio was well below the average expense ratio charged by funds in its peer group and that the fund’s advisory fee rate was also well below its peer-group average. Information about the fund’s expenses appears in the About Your Fund’s Expenses section of this report as well as in the Financial Statements section.
The board did not conduct a profitability analysis of Vanguard, because of Vanguard’s unique “at-cost” structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees, and produces “profits” only in the form of reduced expenses for fund shareholders.
The benefit of economies of scale
The board concluded that the fund’s at-cost arrangement with Vanguard ensures that the fund will realize economies of scale as it grows, with the cost to shareholders declining as fund assets increase.
The board will consider whether to renew the advisory arrangement again after a one-year period.
35
Glossary
Dividend Yield. Dividend income earned by stocks, expressed as a percentage of the aggregate market value (or of net asset value, for a fund). The yield is determined by dividing the amount of the annual dividends by the aggregate value (or net asset value) at the end of the period. For a fund, the dividend yield is based solely on stock holdings and does not include any income produced by other investments.
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.
Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.
Price/Earnings Ratio. The ratio of a stock’s current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company’s future growth.
Return on Equity. The annual average rate of return generated by a company during the past five years for each dollar of shareholder’s equity (net income divided by shareholder’s equity). For a fund, the weighted average return on equity for the companies whose stocks it holds.
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
Turnover Rate. An indication of the fund’s trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to investors). The turnover rate excludes in-kind transactions, which have minimal impact on costs.
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The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 178 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
InterestedTrustee1 | Rajiv L. Gupta |
Born 1945. Trustee Since December 2001.2 Principal | |
F. William McNabb III | Occupation(s) During the Past Five Years and Other |
Born 1957. Trustee Since July 2009. Chairman of | Experience: Chairman and Chief Executive Officer |
the Board. Principal Occupation(s) During the Past | (retired 2009) and President (2006–2008) of |
Five Years and Other Experience: Chairman of the | Rohm and Haas Co. (chemicals); Director of Tyco |
Board of The Vanguard Group, Inc., and of each of | International PLC (diversified manufacturing and |
the investment companies served by The Vanguard | services), Hewlett-Packard Co. (electronic computer |
Group, since January 2010; Director of The Vanguard | manufacturing), and Delphi Automotive PLC |
Group since 2008; Chief Executive Officer and | (automotive components); Senior Advisor at New |
President of The Vanguard Group, and of each of | Mountain Capital. |
the investment companies served by The Vanguard | |
Group, since 2008; Director of Vanguard Marketing | Amy Gutmann |
Corporation; Managing Director of The Vanguard | Born 1949. Trustee Since June 2006. Principal |
Group (1995–2008). | Occupation(s) During the Past Five Years and |
Other Experience: President of the University of | |
IndependentTrustees | Pennsylvania; Christopher H. Browne Distinguished |
Professor of Political Science, School of Arts and | |
Emerson U. Fullwood | Sciences, and Professor of Communication, Annenberg |
Born 1948. Trustee Since January 2008. Principal | School for Communication, with secondary faculty |
Occupation(s) During the Past Five Years and | appointments in the Department of Philosophy, School |
Other Experience: Executive Chief Staff and | of Arts and Sciences, and at the Graduate School of |
Marketing Officer for North America and Corporate | Education, University of Pennsylvania; Trustee of the |
Vice President (retired 2008) of Xerox Corporation | National Constitution Center; Chair of the Presidential |
(document management products and services); | Commission for the Study of Bioethical Issues. |
Executive in Residence and 2009–2010 Distinguished | |
Minett Professor at the Rochester Institute of | JoAnn Heffernan Heisen |
Technology; Director of SPX Corporation (multi-industry | Born 1950. Trustee Since July 1998. Principal |
manufacturing), the United Way of Rochester, | Occupation(s) During the Past Five Years and Other |
Amerigroup Corporation (managed health care), the | Experience: Corporate Vice President and Chief |
University of Rochester Medical Center, Monroe | Global Diversity Officer (retired 2008) and Member |
Community College Foundation, and North Carolina | of the Executive Committee (1997–2008) of Johnson |
A&T University. | & Johnson (pharmaceuticals/medical devices/ |
consumer products); Director of Skytop Lodge | |
Corporation (hotels), the University Medical Center | |
at Princeton, the Robert Wood Johnson Foundation, | |
and the Center for Talent Innovation; Member of | |
the Advisory Board of the Institute for Women’s | |
Leadership at Rutgers University. |
F. Joseph Loughrey | Executive Officers | |
Born 1949. Trustee Since October 2009. Principal | ||
Occupation(s) During the Past Five Years and Other | Glenn Booraem | |
Experience: President and Chief Operating Officer | Born 1967. Controller Since July 2010. Principal | |
(retired 2009) of Cummins Inc. (industrial machinery); | Occupation(s) During the Past Five Years and Other | |
Chairman of the Board of Hillenbrand, Inc. (specialized | Experience: Principal of The Vanguard Group, Inc.; | |
consumer services), and of Oxfam America; Director | Controller of each of the investment companies served | |
of SKF AB (industrial machinery), Hyster-Yale Materials | by The Vanguard Group; Assistant Controller of each of | |
Handling, Inc. (forklift trucks), the Lumina Foundation | the investment companies served by The Vanguard | |
for Education, and the V Foundation for Cancer | Group (2001–2010). | |
Research; Member of the Advisory Council for the | ||
College of Arts and Letters and of the Advisory Board | Thomas J. Higgins | |
to the Kellogg Institute for International Studies, both | Born 1957. Chief Financial Officer Since September | |
at the University of Notre Dame. | 2008. Principal Occupation(s) During the Past Five | |
Years and Other Experience: Principal of The Vanguard | ||
Mark Loughridge | Group, Inc.; Chief Financial Officer of each of the | |
Born 1953. Trustee Since March 2012. Principal | investment companies served by The Vanguard Group; | |
Occupation(s) During the Past Five Years and Other | Treasurer of each of the investment companies served | |
Experience: Senior Vice President and Chief Financial | by The Vanguard Group (1998–2008). | |
Officer (retired 2013) at IBM (information technology | ||
services); Fiduciary Member of IBM’s Retirement Plan | Kathryn J. Hyatt | |
Committee (2004–2013); Director of the Dow Chemical | Born 1955. Treasurer Since November 2008. Principal | |
Company; Member of the Council on Chicago Booth. | Occupation(s) During the Past Five Years and Other | |
Experience: Principal of The Vanguard Group, Inc.; | ||
Scott C. Malpass | Treasurer of each of the investment companies served | |
Born 1962. Trustee Since March 2012. Principal | by The Vanguard Group; Assistant Treasurer of each of | |
Occupation(s) During the Past Five Years and Other | the investment companies served by The Vanguard | |
Experience: Chief Investment Officer and Vice | Group (1988–2008). | |
President at the University of Notre Dame; Assistant | ||
Professor of Finance at the Mendoza College of | Heidi Stam | |
Business at Notre Dame; Member of the Notre Dame | Born 1956. Secretary Since July 2005. Principal | |
403(b) Investment Committee; Board Member of | Occupation(s) During the Past Five Years and Other | |
TIFF Advisory Services, Inc., and Catholic Investment | Experience: Managing Director of The Vanguard | |
Services, Inc. (investment advisors); Member of | Group, Inc.; General Counsel of The Vanguard Group; | |
the Investment Advisory Committee of Major | Secretary of The Vanguard Group and of each of the | |
League Baseball. | investment companies served by The Vanguard Group; | |
Director and Senior Vice President of Vanguard | ||
André F. Perold | Marketing Corporation. | |
Born 1952. Trustee Since December 2004. Principal | ||
Occupation(s) During the Past Five Years and Other | Vanguard Senior ManagementTeam | |
Experience: George Gund Professor of Finance and | ||
Banking, Emeritus at the Harvard Business School | Mortimer J. Buckley | Chris D. McIsaac |
(retired 2011); Chief Investment Officer and Managing | Kathleen C. Gubanich | Michael S. Miller |
Partner of HighVista Strategies LLC (private investment | Paul A. Heller | James M. Norris |
firm); Director of Rand Merchant Bank; Overseer of | Martha G. King | Glenn W. Reed |
the Museum of Fine Arts Boston. | John T. Marcante | |
Peter F. Volanakis | ||
Chairman Emeritus and Senior Advisor | ||
Born 1955. Trustee Since July 2009. Principal | ||
Occupation(s) During the Past Five Years and Other | John J. Brennan | |
Experience: President and Chief Operating Officer | Chairman, 1996–2009 | |
(retired 2010) of Corning Incorporated (communications | Chief Executive Officer and President, 1996–2008 | |
equipment); Trustee of Colby-Sawyer College; | ||
Member of the Advisory Board of the Norris Cotton | ||
Cancer Center and of the Advisory Board of the | Founder | |
Parthenon Group (strategy consulting). | ||
John C. Bogle | ||
Chairman and Chief Executive Officer, 1974–1996 |
1 Mr. McNabb is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the
Vanguard funds.
2 December 2002 for Vanguard Equity Income Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.
P.O. Box 2600 | ||
Valley Forge, PA 19482-2600 | ||
Connect with Vanguard® > vanguard.com | ||
Fund Information > 800-662-7447 | CFA® is a registered trademark owned by CFA Institute. | |
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 Lipper, a | ||
Thomson Reuters Company, or 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, 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 sec.gov. | ||
You can review and copy information about your fund at | ||
the SEC’s Public Reference Room in Washington, D.C. To | ||
find out more about this public service, call the SEC at | ||
202-551-8090. Information about your fund is also | ||
available on the SEC’s website, and you can receive | ||
copies of this information, for a fee, by sending a | ||
request in either of two ways: via e-mail addressed to | ||
publicinfo@sec.gov or via regular mail addressed to the | ||
Public Reference Section, Securities and Exchange | ||
Commission, Washington, DC 20549-1520. | ||
© 2015 The Vanguard Group, Inc. | ||
All rights reserved. | ||
Vanguard Marketing Corporation, Distributor. | ||
Q11942 062015 |
Item 2: Code of Ethics.
Not Applicable.
Item 3: Audit Committee Financial Expert.
Not Applicable.
Item 4: Principal Accountant Fees and Services.
(a) Audit Fees.
Not Applicable.
Item 5: Audit Committee of Listed Registrants.
Not Applicable.
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. There were no significant changes in 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: Exhibits.
(a) 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 WHITEHALL FUNDS | |
BY: | /s/ F. WILLIAM MCNABB III* |
F. WILLIAM MCNABB III | |
CHIEF EXECUTIVE OFFICER | |
Date: June 18, 2015 |
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 WHITEHALL FUNDS | |
BY: | /s/ F. WILLIAM MCNABB III* |
F. WILLIAM MCNABB III | |
CHIEF EXECUTIVE OFFICER | |
Date: June 18, 2015 | |
VANGUARD WHITEHALL FUNDS | |
BY: | /s/ THOMAS J. HIGGINS* |
THOMAS J. HIGGINS | |
CHIEF FINANCIAL OFFICER | |
Date: June 18, 2015 |
* By: /s/ Heidi Stam
Heidi Stam, pursuant to a Power of Attorney filed on April 22, 2014 see file Number 2-17620, Incorporated by Reference.