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: | 811-00834 | |
Name of Registrant: | Vanguard Windsor Funds | |
Address of Registrant: | P.O. Box 2600 | |
Valley Forge, PA 19482 | ||
Name and address of agent for service: | Anne E. Robinson, Esquire | |
P.O. Box 876 | ||
Valley Forge, PA 19482 | ||
Registrant’s telephone number, including area code: (610) 669-1000 | ||
Date of fiscal year end: October 31 | ||
Date of reporting period: November 1, 2017 – October 31, 2018 | ||
Item 1: Reports to Shareholders |
Annual Report | October 31, 2018 |
Vanguard Windsor™ Fund |
Vanguard’s Principles for Investing Success
We want to give you the best chance of investment success. These principles, grounded in Vanguard’s research and experience, can put you on the right path.
Goals. Create clear, appropriate investment goals.
Balance. Develop a suitable asset allocation using broadly diversified funds. Cost. Minimize cost.
Discipline. Maintain perspective and long-term discipline.
A single theme unites these principles: Focus on the things you can control.
We believe there is no wiser course for any investor.
Contents | |
Your Fund’s Performance at a Glance. | 1 |
CEO’s Perspective. | 3 |
Advisors’ Report. | 5 |
Fund Profile. | 10 |
Performance Summary. | 12 |
Financial Statements. | 14 |
Your Fund’s After-Tax Returns. | 31 |
About Your Fund’s Expenses. | 32 |
Glossary. | 34 |
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.
Your Fund’s Performance at a Glance
• Vanguard Windsor Fund returned –1.69% for Investor Shares and –1.59% for Admiral Shares for the 12 months ended October 31, 2018. The fund lagged its benchmark, the Russell 1000 Value Index, and the average return of its multi-capitalization fund peers.
• The broad stock market returned more than 6% for the fiscal year as corporate earnings remained strong and the U.S. economy continued to grow. Growth stocks outperformed their value counterparts, while large-cap stocks surpassed mid- and small-caps.
• The Windsor Fund’s two advisors aim to invest in large- and mid-cap stocks they have determined are undervalued by the marketplace.
• The advisors’ holdings in financials, information technology, health care, consumer discretionary, and energy detracted from relative performance. Health care boosted the fund’s overall returns even as the advisors’ selections fell short against the benchmark.
• Over the past decade, the fund’s average return outpaced that of its peers and expense-free benchmark.
Total Returns: Fiscal Year Ended October 31, 2018 | |
Total | |
Returns | |
Vanguard Windsor Fund | |
Investor Shares | -1.69% |
Admiral™ Shares | -1.59 |
Russell 1000 Value Index | 3.03 |
Multi-Cap Value Funds Average | 1.29 |
Multi-Cap Value 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. |
Total Returns: Ten Years Ended October 31, 2018 | |
Average | |
Annual Return | |
Windsor Fund Investor Shares | 12.41% |
Russell 1000 Value Index | 11.30 |
Multi-Cap Value Funds Average | 10.94 |
Multi-Cap Value Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. |
The figures shown represent past performance, which is not a guarantee of future results. (Current
performance may be lower or higher than the performance data cited. For performance data current to the
most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment
returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more
or less than their original cost.
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Expense Ratios | |||
Your Fund Compared With Its Peer Group | |||
Investor | Admiral | Peer Group | |
Shares | Shares | Average | |
Windsor Fund | 0.31% | 0.21% | 1.06% |
The fund expense ratios shown are from the prospectus dated February 26, 2018, and represent estimated costs for the current fiscal year.
For the fiscal year ended October 31, 2018, the fund’s expense ratios were 0.31% for Investor Shares and 0.21% 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 2017.
Peer group: Multi-Cap Value Funds.
2
CEO’s Perspective
Tim Buckley
President and Chief Executive Officer
Dear Shareholder,
Over the years, I’ve found that prudent investors exhibit a common trait: discipline. No matter how the markets move or what new investing fad hits the headlines, those who stay focused on their goals and tune out the noise are set up for long-term success.
The prime gateway to investing is saving, and you don’t usually become a saver without a healthy dose of discipline. Savers make the decision to sock away part of their income, which means spending less and delaying gratification, no matter how difficult that may be.
Of course, disciplined investing extends beyond diligent saving. The financial markets, in the short term especially, are unpredictable; I have yet to meet the investor who can time them perfectly. It takes discipline to resist the urge to go all-in when markets are frothy or to retreat when things look bleak.
Staying put with your investments is one strategy for handling volatility. Another, rebalancing, requires even more discipline because it means steering your money away from strong performers and toward poorer performers.
Patience—a form of discipline—is also the friend of long-term investors. Higher returns are the potential reward for weathering the market’s turbulence and uncertainty.
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We have been enjoying one of the longest bull markets in history, but it won’t continue forever. Prepare yourself now for how you will react when volatility comes back. Don’t panic. Don’t chase returns or look for answers outside the asset classes you trust. And be sure to rebalance periodically, even when there’s turmoil.
Whether you’re a master of self-control, get a boost from technology, or work with a professional advisor, know that discipline is necessary to get the most out of your investment portfolio. And know that Vanguard is with you for the entire ride.
Thank you for your continued loyalty.
Sincerely,
Mortimer J. Buckley
President and Chief Executive Officer
November 16, 2018
Market Barometer | |||
Average Annual Total Returns | |||
Periods Ended October 31, 2018 | |||
One Year | Three Years | Five Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 6.98% | 11.31% | 11.05% |
Russell 2000 Index (Small-caps) | 1.85 | 10.68 | 8.01 |
Russell 3000 Index (Broad U.S. market) | 6.60 | 11.27 | 10.81 |
FTSE All-World ex US Index (International) | -7.99 | 4.57 | 2.01 |
Bonds | |||
Bloomberg Barclays U.S. Aggregate Bond Index | |||
(Broad taxable market) | -2.05% | 1.04% | 1.83% |
Bloomberg Barclays Municipal Bond Index | |||
(Broad tax-exempt market) | -0.51 | 1.90 | 3.25 |
FTSE Three-Month U. S. Treasury Bill Index | 1.67 | 0.86 | 0.52 |
CPI | |||
Consumer Price Index | 2.52% | 2.07% | 1.60% |
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Advisors’ Report
For the fiscal year ended October 31, 2018, Investor Shares of Vanguard Windsor Fund returned –1.69%, and lower-cost Admiral Shares returned –1.59%. 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 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 that 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 November 19, 2018.
Wellington Management Company llp
Portfolio Managers:
James N. Mordy,
Senior Managing Director
David W. Palmer, CFA,
Senior Managing Director
The fiscal year ended October 31, 2018, was another period in which investors preferred growth stocks over value, and our portion of the portfolio trailed the
Vanguard Windsor Fund Investment Advisors | |||
Fund Assets Managed | |||
Investment Advisor | % | $ Million | Investment Strategy |
Wellington Management | 69 | 12,640 | Seeks to provide long-term total returns above |
Company LLP | both the S&P 500 and value-oriented indexes | ||
over a complete market cycle through | |||
bottom-up, fundamentally driven stock | |||
selection focused on undervalued securities. | |||
Pzena Investment Management, | 30 | 5,598 | Uses a fundamental, bottom-up, |
LLC | deep-value-oriented investment strategy. Seeks | ||
to buy good businesses at low prices, focusing | |||
exclusively on companies that are | |||
underperforming their historically demonstrated | |||
earnings power. | |||
Cash Investments | 1 | 177 | 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. |
5
Russell 1000 Value Index as well as the S&P 500 Index. One of the notable characteristics of S&P 500 Index performance during 2018 has been that high P/E stocks have outpaced low P/E stocks, which served as a headwind.
We have always believed our best long-term opportunities are with stocks of good companies that have been discarded by other investors for reasons that we feel are temporary. There certainly have been times in the past where the portfolio has been out of sync with marketplace fashion. We are confident that if we remain disciplined in our value approach we will bring compensatory rewards to our deserving, patient shareholders over the long run.
Investors have become increasingly concerned about threats to the economic cycle and future corporate earnings growth. These include trade wars, higher interest rates, dollar strength, slower growth outside the U.S., a loss of momentum in the U.S. housing market, and tighter labor conditions. Over the fiscal year, the strongest sectors in our benchmark, the Russell 1000 Value Index, were communication services, health care, and information technology, while the more cyclical sectors—materials, consumer discretionary, and industrials—lagged.
While we often invest in controversial situations early, before their resolution is clear, we created some of our own performance obstacles through stock selection. Among the stocks that had an impact of at least 30 basis points (0.3%) on relative performance, positive or negative, the losers outnumbered the winners by almost two to one.
And the losers were broadly spread over five sectors, so our holdings missed the mark in several areas.
In a minority of instances, the position’s prospects were impaired relative to our buy case. In many others, however, the team was surprised by the extent of share-price punishment experienced by companies that we believed had transitory issues. We also saw unexpected price declines for stocks whose issuers executed to plan amid investor concern that economic activity might have been nearing a peak. We believe the companies in the portfolio as of the end of the period represent a compelling value relative to their future earnings and cash-generation potential.
Information technology was the worst-performing sector relative to the benchmark. This was largely because of our semiconductor stocks, including semiconductor equipment, which has historically been an area in which we have had much success. This year, the
6
stocks suffered a severe correction as the memory chip market lost steam and some key end markets, such as wireless handsets and autos, slowed. The industry is also on the front line of the trade wars, facing many unresolved questions about how supply chains might be disrupted.
In recognition of the environment, we trimmed many technology positions during the year. The sector was our biggest area of net selling; however, we remain overweighted to the industry. We have stress-tested our earnings models and believe our holdings’ prices anticipate a rather dire macroeconomic outcome. Therefore, we believe the risk/reward skew is in the Windsor shareholder’s favor.
Another sector that detracted was health care. In this case, the results were as much about what we didn’t own—Merck, Pfizer, Abbott Laboratories, and Express Scripts all had big returns for the year—as what we did own. Our large position in Bristol-Myers Squibb suffered as trial results for its key lung cancer drug, Opdivo, did not produce a clear advantage versus Merck’s Keytruda. While the firm remains a top-ten position in the portfolio, we did make some significant sales during the latter part of the year.
We had mixed results in the financial sector. Banks, among the early beneficiaries of higher rates and regulatory relief, found themselves pressured by increased deposit costs and competition from nonbank lenders. In the insurance category, a nice profit in XL Group (bought out by AXA) was offset by losses in holdings of AIG and Unum. Investor sentiment regarding Unum has been depressed by the large losses incurred by rival General Electric’s long-term- care policy liabilities. However, our analysis suggests that Unum’s prospects should not be painted with the same brush.
Fiscal stimulus has boosted economic growth in the U.S. in recent quarters but has also tightened the labor market; hourly wage growth recently climbed above 3%. Interest rates have moved higher as the trend in global monetary easing has reversed. We project slower growth next year, the key variables being trade negotiations with China and productivity trends in the U.S.
We believe the pickup in capital spending that occurred this year will provide some lift to productivity, which would give the Federal Reserve some cushion on the inflation front.
Many of our larger purchases in recent months have been stocks that we believe can outperform in a more volatile, slower growth environment. These include Assurant, Alphabet, Equinix, Walgreens Boots Alliance, Comcast, and Verizon.
We have also found value in certain cyclical stocks with good quality products, strong operations, and robust business models, whose stocks have sold off alongside weaker peers amid declining market appetite for economic sensitivity.
7
In this bucket, we would highlight new purchases of FMC, Reliance Steel & Aluminum, and Southwest Airlines.
Our portfolio manager transition will be complete at the end of December, when Dave Palmer becomes sole lead PM and Jim Mordy retires after more than 33 years of serving Windsor shareholders. We are highly confident that the team is in place to deliver the great results that you expect. Given Dave’s 20-year tenure as a Windsor team analyst, we do not anticipate any major shifts in the philosophy or guiding principles that have steered the portfolio through multiple decades, market environments, and business cycles.
We thank you for your continued trust and confidence in our stewardship of your assets.
Pzena Investment Management, LLC
Portfolio Managers:
Richard S. Pzena, Managing Principal and
Co-Chief Investment Officer
John J. Flynn, Principal
Benjamin S. Silver, CFA, CPA, Principal
U.S. equities withstood notable volatility in 2018. Alongside concerns that the nine-year rally had become long in the tooth, tightening monetary policy, heightened protectionism, and escalating trade tensions largely offset the benefits of tax reform and strong earnings growth. The Russell 1000 Value Index gained 3.03% for the year, led by health care, information technology, and communication services. Our portion of the portfolio lagged the benchmark largely because of our greater exposure to financials, which were particularly challenged by rising interest rates and slower economic growth.
Individual holdings that detracted the most were insurance provider American International Group (AIG), General Electric (GE), and consumer products company Newell Brands. AIG’s weakness derived from adverse developments in its insurance reserves in late 2017 and higher-than-expected catastrophe losses in 2018. However, it remains an attractive turnaround story.
General Electric came under heavy pressure amid cyclical weakness in one of its core businesses and concerns surrounding its balance sheet and legacy liabilities. In our view, GE remains a market leader in high-barrier-to-entry industries. Its management team is implementing effective self-help initiatives with a viable path to earnings recovery. We think the market has underappreciated GE’s skewed upside potential and the stock remains attractive.
We added Newell Brands in the wake of its acquisition of Jarden. We believe the overall franchise has a strong lineup of consumer brands and that its management’s plan to sell noncore businesses is credible.
8
Stock selection in health care and utilities added to performance, as did a lack of exposure to the underperforming materials sector. Specific holdings that helped returns were biopharmaceutical provider Merck, pharmacy benefits manager Express Scripts, and property and casualty insurer XL Group.
We added to our Merck exposure after its stock sold off on negative news surrounding its recently launched cancer drug, Keytruda. Meanwhile, announcements of merger and acquisition deals at Express Scripts (to merge with global health service giant Cigna Corporation) and XL Group (acquired by French insurance and asset management company AXA Group) pushed both stocks higher.
We increased our portfolio’s exposure to health care and initiated a position in utilities while reducing weights in financials and information technology. In financials, we sold positions in trust bank State Street Corporation and in annuity and life insurance provider Brighthouse Financial.
The portfolio added alternative asset manager KKR and participated in the initial public offering of life insurer AXA. At the time of the KKR purchase, we believed the market had underestimated the impact of carried interest on the company’s fee revenue, and the shares traded at a discount to our assessment of fair value.
Meanwhile, AXA (the majority shareholder of AllianceBernstein) was unfairly penalized in its IPO, in our view, because of the market’s discomfort with variable annuities. We saw the depressed share price as an opportunity to own a well-capitalized franchise with strong captive distribution and an attractive return on capital.
In health care, we added to Merck and initiated a position in leading biotechnology company Amgen. In our view, Amgen’s existing drug offerings provided significant downside protection because of the company’s low valuation at the time of purchase.
The portfolio remains geared toward economically sensitive sectors such as consumer discretionary and financials, which is our largest exposure because of its appealing valuations. The heightened volatility allowed us to buy great franchises, and the adjustments made in 2018 reflected widening opportunities in all sectors. We are excited about the portfolio and the opportunity it presents for future outperformance.
9
Windsor Fund
Fund Profile
As of October 31, 2018
Share-Class Characteristics | ||
Investor | Admiral | |
Shares | Shares | |
Ticker Symbol | VWNDX | VWNEX |
Expense Ratio1 | 0.31% | 0.21% |
30-Day SEC Yield | 2.04% | 2.14% |
Portfolio Characteristics | |||
Russell | DJ | ||
1000 | U.S. Total | ||
Value | Market | ||
Fund | Index | FA Index | |
Number of Stocks | 136 | 726 | 3,806 |
Median Market | |||
Cap | $36.5B | $67.0B | $71.6B |
Price/Earnings | |||
Ratio | 13.6x | 14.9x | 18.5x |
Price/Book Ratio | 1.8x | 2.0x | 2.9x |
Return on Equity | 11.9% | 12.1% | 15.0% |
Earnings Growth | |||
Rate | 9.6% | 5.6% | 8.2% |
Dividend Yield | 2.2% | 2.5% | 1.8% |
Foreign Holdings | 5.9% | 0.0% | 0.0% |
Turnover Rate | 33% | — | — |
Short-Term | |||
Reserves | 2.0% | — | — |
Volatility Measures | ||
Russell | DJ | |
1000 | U.S. Total | |
Value | Market | |
Index | FA Index | |
R-Squared | 0.90 | 0.88 |
Beta | 1.18 | 1.09 |
These measures show the degree and timing of the fund’s | ||
fluctuations compared with the indexes over 36 months. |
Sector Diversification (% of equity exposure) | |
Fund | |
Communication Services | 5.7% |
Consumer Discretionary | 7.5 |
Consumer Staples | 5.3 |
Energy | 9.1 |
Financials | 22.3 |
Health Care | 14.5 |
Industrials | 10.2 |
Information Technology | 13.9 |
Materials | 4.8 |
Real Estate | 3.1 |
Utilities | 3.6 |
Sector categories are based on the Global Industry Classification
Standard (“GICS”), except for the “Other” category (if applicable),
which includes securities that have not been provided a GICS
classification as of the effective reporting period.
Ten Largest Holdings (% of total net assets) | ||
Bank of America Corp. | Diversified Banks | 2.5% |
Citigroup Inc. | Diversified Banks | 1.9 |
Verizon Communications Integrated | ||
Inc. | Telecommunication | |
Services | 1.9 | |
MetLife Inc. | Life & Health | |
Insurance | 1.7 | |
Broadcom Inc. | Semiconductors | 1.7 |
American International | ||
Group Inc. | Multi-line Insurance | 1.6 |
UnitedHealth Group Inc. | Managed Health | |
Care | 1.6 | |
Wells Fargo & Co. | Diversified Banks | 1.5 |
American Tower Corp. | Specialized REITs | 1.4 |
Medtronic plc | Health Care | |
Equipment | 1.4 | |
Top Ten | 17.2% | |
The holdings listed exclude any temporary cash investments and | ||
equity index products. |
1 The expense ratios shown are from the prospectus dated February 26, 2018, and represent estimated costs for the current fiscal year. For the
fiscal year ended October 31, 2018, the expense ratios were 0.31% for Investor Shares and 0.21% for Admiral Shares.
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Windsor Fund
Investment Focus
11
Windsor Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Cumulative Performance: October 31, 2008, Through October 31, 2018
Initial Investment of $10,000
Average Annual Total Returns | |||||
Periods Ended October 31, 2018 | |||||
Final Value | |||||
One | Five | Ten | of a $10,000 | ||
Year | Years | Years | Investment | ||
Windsor Fund Investor Shares | -1.69% | 7.57% | 12.41% | $32,213 | |
• • • • • • • • | Russell 1000 Value Index | 3.03 | 8.61 | 11.30 | 29,170 |
– – – – | Multi-Cap Value Funds Average | 1.29 | 7.15 | 10.94 | 28,245 |
Dow Jones U.S. Total Stock Market | |||||
Float Adjusted Index | 6.56 | 10.76 | 13.36 | 35,036 | |
Multi-Cap Value Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. |
Final Value | ||||
One | Five | Ten | of a $50,000 | |
Year | Years | Years | Investment | |
Windsor Fund Admiral Shares | -1.59% | 7.67% | 12.53% | $162,830 |
Russell 1000 Value Index | 3.03 | 8.61 | 11.30 | 145,848 |
Dow Jones U.S. Total Stock Market Float | ||||
Adjusted Index | 6.56 | 10.76 | 13.36 | 175,179 |
See Financial Highlights for dividend and capital gains information.
12
Windsor Fund
Fiscal-Year Total Returns (%): October 31, 2008, Through October 31, 2018
Average Annual Total Returns: Periods Ended September 30, 2018
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 | |
Investor Shares | 10/23/1958 | 8.74% | 10.33% | 11.20% |
Admiral Shares | 11/12/2001 | 8.82 | 10.44 | 11.32 |
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Windsor Fund
Financial Statements
Statement of Net Assets
As of October 31, 2018
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.
Market | |||
Value• | |||
Shares | ($000) | ||
Common Stocks (97.6%)1 | |||
Communication Services (5.6%) | |||
Verizon Communications | |||
Inc. | 5,999,840 | 342,531 | |
Comcast Corp. Class A | 5,971,800 | 227,764 | |
* | Alphabet Inc. Class A | 125,083 | 136,413 |
Omnicom Group Inc. | 1,662,541 | 123,560 | |
Interpublic Group of | |||
Cos. Inc. | 4,983,648 | 115,421 | |
News Corp. Class A | 4,001,857 | 52,785 | |
AT&T Inc. | 815,225 | 25,011 | |
1,023,485 | |||
Consumer Discretionary (7.3%) | |||
TJX Cos. Inc. | 1,893,125 | 208,017 | |
Newell Brands Inc. | 12,145,653 | 192,873 | |
Ford Motor Co. | 17,932,958 | 171,260 | |
* | Norwegian Cruise Line | ||
Holdings Ltd. | 2,696,198 | 118,821 | |
Expedia Group Inc. | 929,877 | 116,634 | |
Hilton Worldwide | |||
Holdings Inc. | 1,522,800 | 108,378 | |
General Motors Co. | 2,916,008 | 106,697 | |
DR Horton Inc. | 2,492,183 | 89,619 | |
Lowe’s Cos. Inc. | 934,273 | 88,961 | |
Lear Corp. | 621,149 | 82,551 | |
Lennar Corp. Class A | 1,082,668 | 46,533 | |
Gildan Activewear Inc. | |||
Class A | 413,706 | 12,374 | |
1,342,718 | |||
Consumer Staples (5.1%) | |||
* | US Foods Holding Corp. | 6,250,293 | 182,321 |
Archer-Daniels-Midland | |||
Co. | 3,457,100 | 163,348 | |
British American | |||
Tobacco plc | 3,756,531 | 162,847 | |
Walgreens Boots | |||
Alliance Inc. | 1,393,800 | 111,183 | |
Kroger Co. | 3,713,081 | 110,501 |
Walmart Inc. | 903,267 | 90,580 | |
* | Post Holdings Inc. | 931,427 | 82,357 |
Kellogg Co. | 625,000 | 40,925 | |
944,062 | |||
Energy (8.9%) | |||
Royal Dutch Shell plc | |||
ADR | 3,336,671 | 210,844 | |
* | Concho Resources Inc. | 1,414,105 | 196,688 |
Halliburton Co. | 5,188,380 | 179,933 | |
Exxon Mobil Corp. | 1,713,960 | 136,568 | |
Chevron Corp. | 1,142,300 | 127,538 | |
Pioneer Natural | |||
Resources Co. | 782,383 | 115,221 | |
BP plc ADR | 2,579,305 | 111,864 | |
Canadian Natural | |||
Resources Ltd. | 4,032,561 | 110,170 | |
* | Newfield Exploration | ||
Co. | 5,237,226 | 105,792 | |
Anadarko Petroleum | |||
Corp. | 1,844,806 | 98,144 | |
Diamondback Energy | |||
Inc. | 870,800 | 97,843 | |
National Oilwell Varco | |||
Inc. | 1,994,099 | 73,383 | |
Cenovus Energy Inc. | 6,621,254 | 56,016 | |
Baker Hughes a GE Co. | 404,150 | 10,787 | |
1,630,791 | |||
Financials (21.7%) | |||
Bank of America Corp. | 16,557,374 | 455,328 | |
Citigroup Inc. | 5,468,818 | 357,989 | |
MetLife Inc. | 7,774,414 | 320,228 | |
American International | |||
Group Inc. | 7,228,933 | 298,483 | |
Wells Fargo & Co. | 5,265,291 | 280,271 | |
JPMorgan Chase & Co. | 1,559,517 | 170,019 | |
Unum Group | 4,454,959 | 161,537 | |
PNC Financial Services | |||
Group Inc. | 1,250,723 | 160,705 |
14
Windsor Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Capital One Financial | |||
Corp. | 1,797,232 | 160,493 | |
Arthur J Gallagher & Co. | 2,116,014 | 156,606 | |
Assurant Inc. | 1,263,800 | 122,854 | |
AXA Equitable Holdings | |||
Inc. | 5,594,427 | 113,511 | |
Goldman Sachs Group | |||
Inc. | 493,525 | 111,226 | |
Morgan Stanley | 2,395,936 | 109,398 | |
ING Groep NV ADR | 9,042,473 | 106,792 | |
UBS Group AG | 7,547,009 | 104,903 | |
Voya Financial Inc. | 2,353,572 | 102,992 | |
Axis Capital Holdings | |||
Ltd. | 1,685,313 | 94,024 | |
Comerica Inc. | 1,136,235 | 92,671 | |
Franklin Resources Inc. | 2,695,150 | 82,202 | |
Intercontinental | |||
Exchange Inc. | 788,217 | 60,724 | |
Fifth Third Bancorp | 2,159,384 | 58,282 | |
KeyCorp | 3,143,625 | 57,088 | |
M&T Bank Corp. | 310,385 | 51,341 | |
KKR & Co. Inc. Class A | 2,130,259 | 50,381 | |
Zions Bancorp NA | 1,011,860 | 47,608 | |
Principal Financial | |||
Group Inc. | 919,073 | 43,261 | |
Allstate Corp. | 308,319 | 29,512 | |
Willis Towers Watson | |||
plc | 205,562 | 29,428 | |
Invesco Ltd. | 695,225 | 15,093 | |
4,004,950 | |||
Health Care (14.1%) | |||
UnitedHealth Group Inc. | 1,131,423 | 295,697 | |
Medtronic plc | 2,873,514 | 258,099 | |
Bristol-Myers Squibb | |||
Co. | 5,045,327 | 254,991 | |
* | Mylan NV | 7,643,017 | 238,844 |
Koninklijke Philips NV | 5,421,178 | 202,189 | |
HCA Healthcare Inc. | 1,312,466 | 175,254 | |
Allergan plc | 987,079 | 155,968 | |
Merck & Co. Inc. | 1,981,581 | 145,864 | |
McKesson Corp. | 1,159,348 | 144,640 | |
Pfizer Inc. | 3,236,417 | 139,360 | |
Amgen Inc. | 712,843 | 137,429 | |
* | Express Scripts Holding | ||
Co. | 1,328,137 | 128,789 | |
CVS Health Corp. | 1,753,690 | 126,950 | |
* | Biogen Inc. | 394,272 | 119,965 |
Cardinal Health Inc. | 822,527 | 41,620 | |
Cigna Corp. | 170,556 | 36,467 | |
2,602,126 | |||
Industrials (9.9%) | |||
Harris Corp. | 1,606,115 | 238,845 | |
Eaton Corp. plc | 2,625,229 | 188,150 | |
* | IHS Markit Ltd. | 3,270,965 | 171,824 |
Raytheon Co. | 845,910 | 148,068 | |
Southwest Airlines Co. | 2,745,100 | 134,784 | |
Dover Corp. | 1,596,742 | 132,274 | |
Honeywell International | |||
Inc. | 906,534 | 131,284 | |
General Electric Co. | 12,982,758 | 131,126 | |
* | Sensata Technologies | ||
Holding plc | 2,701,912 | 126,720 | |
Johnson Controls | |||
International plc | 3,635,100 | 116,214 | |
JB Hunt Transport | |||
Services Inc. | 999,105 | 110,511 | |
American Airlines | |||
Group Inc. | 2,180,129 | 76,479 | |
Parker-Hannifin Corp. | 317,760 | 48,182 | |
Stanley Black & Decker | |||
Inc. | 368,612 | 42,951 | |
L3 Technologies Inc. | 166,050 | 31,462 | |
* | Resideo Technologies | ||
Inc. | 151,088 | 3,180 | |
1,832,054 | |||
Information Technology (13.4%) | |||
Broadcom Inc. | 1,364,446 | 304,940 | |
* | Arrow Electronics Inc. | 3,634,085 | 246,064 |
* | Micron Technology Inc. | 5,155,444 | 194,463 |
Oracle Corp. | 3,473,300 | 169,636 | |
Cisco Systems Inc. | 3,614,739 | 165,374 | |
SS&C Technologies | |||
Holdings Inc. | 3,090,761 | 158,123 | |
QUALCOMM Inc. | 2,296,812 | 144,447 | |
KLA-Tencor Corp. | 1,525,670 | 139,660 | |
Cognizant Technology | |||
Solutions Corp. | |||
Class A | 1,962,403 | 135,465 | |
* | VeriSign Inc. | 939,202 | 133,874 |
Marvell Technology | |||
Group Ltd. | 8,129,983 | 133,413 | |
Hewlett Packard | |||
Enterprise Co. | 8,187,213 | 124,855 | |
* | Keysight Technologies | ||
Inc. | 2,061,027 | 117,643 | |
Lam Research Corp. | 632,075 | 89,584 | |
Cypress Semiconductor | |||
Corp. | 5,495,200 | 71,108 | |
Amdocs Ltd. | 1,032,690 | 65,338 | |
Apple Inc. | 199,917 | 43,754 | |
Microsoft Corp. | 310,179 | 33,130 | |
2,470,871 | |||
Materials (4.7%) | |||
Celanese Corp. Class A | 2,177,199 | 211,058 | |
FMC Corp. | 2,354,257 | 183,820 | |
* | Alcoa Corp. | 3,730,390 | 130,526 |
Reliance Steel & | |||
Aluminum Co. | 1,600,205 | 126,288 |
15
Windsor Fund
Market | ||
Value• | ||
Shares | ($000) | |
Vulcan Materials Co. | 1,045,500 | 105,742 |
PPG Industries Inc. | 940,113 | 98,797 |
856,231 | ||
Other (0.4%) | ||
^,2 Vanguard Value ETF | 703,525 | 73,990 |
Real Estate (3.0%) | ||
American Tower Corp. | 1,676,797 | 261,262 |
Host Hotels & Resorts | ||
Inc. | 7,525,545 | 143,813 |
Equinix Inc. | 266,600 | 100,972 |
Weyerhaeuser Co. | 1,774,107 | 47,245 |
553,292 | ||
Utilities (3.5%) | ||
Edison International | 3,523,809 | 244,517 |
NextEra Energy Inc. | 1,220,502 | 210,537 |
Sempra Energy | 876,665 | 96,538 |
Avangrid Inc. | 1,258,907 | 59,181 |
Entergy Corp. | 367,502 | 30,852 |
641,625 | ||
Total Common Stocks | ||
(Cost $14,860,150) | 17,976,195 | |
Temporary Cash Investments (2.6%)1 | ||
Money Market Fund (1.3%) | ||
3,4 Vanguard Market | ||
Liquidity Fund, 2.308% | 2,404,171 | 240,417 |
Face | ||
Amount | ||
($000) | ||
Repurchase Agreement (1.3%) | ||
Bank of America | ||
Securities, LLC 2.21%, | ||
11/1/18 (Dated 10/31/18, | ||
Repurchase Value | ||
$233,314,000, | ||
collateralized by Federal | ||
National Mortgage Assn. | ||
3.500%–5.000%, | ||
10/1/33–9/1/48, Federal | ||
Home Loan Mortgage | ||
Corp. 2.500%–4.500%, | ||
2/1/28–11/1/48, with a | ||
value of $237,966,000) | 233,300 | 233,300 |
Face | Market | ||
Amount | Value • | ||
($000) | ($000) | ||
U. S. Government and Agency Obligations (0.0%) | |||
5 | United States Treasury | ||
Bill, 2.034%, 11/15/18 | 2,300 | 2,298 | |
5 | United States Treasury | ||
Bill, 2.122%, 1/10/19 | 2,000 | 1,991 | |
5 | United States Treasury | ||
Bill, 2.302%, 2/28/19 | 1,000 | 993 | |
United States Treasury | |||
Bill, 2.365%, 3/21/19 | 800 | 793 | |
6,075 | |||
Total Temporary Cash Investments | |||
(Cost $479,789) | 479,792 | ||
Total Investments (100.2%) | |||
(Cost $15,339,939) | 18,455,987 | ||
Amount | |||
($000) | |||
Other Assets and Liabilities (-0.2%) | |||
Other Assets | |||
Investment in Vanguard | 1,016 | ||
Receivables for Investment Securities | |||
Sold | 134,740 | ||
Receivables for Accrued Income | 17,791 | ||
Receivables for Capital Shares Issued | 4,632 | ||
Variation Margin Receivable— | |||
Futures Contracts | 1,267 | ||
Other Assets 6 | 2,428 | ||
Total Other Assets | 161,874 | ||
Liabilities | |||
Payables for Investment Securities | |||
Purchased | (145,627) | ||
Collateral for Securities on Loan | (2,914) | ||
Payables for Capital Shares Redeemed | (29,892) | ||
Payables to Investment Advisor | (3,891) | ||
Payables to Vanguard | (20,489) | ||
Total Liabilities | (202,813) | ||
Net Assets (100%) | 18,415,048 |
16
Windsor Fund
At October 31, 2018, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 13,551,383 |
Total Distributable Earnings (Loss) | 4,863,665 |
Net Assets | 18,415,048 |
Investor Shares—Net Assets | |
Applicable to 202,873,885 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 4,467,518 |
Net Asset Value Per Share— | |
Investor Shares | $22.02 |
Amount | |
($000) | |
Admiral Shares—Net Assets | |
Applicable to 187,756,997 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 13,947,530 |
Net Asset Value Per Share— | |
Admiral Shares | $74.29 |
• 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 $2,864,000.
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 98.2% and 2.0%, respectively, of net assets.
2 Considered an affiliated company of the fund as the issuer is
another member of The Vanguard Group.
3 Affiliated money market fund available only to Vanguard funds
and certain trusts and accounts managed by Vanguard. Rate
shown is the 7-day yield.
4 Includes $2,914,000 of collateral received for securities
on loan.
5 Securities with a value of $3,483,000 have been segregated
as initial margin for open futures contracts.
6 Cash of $2,414,000 has been segregated as initial margin for
open futures contracts.
ADR—American Depositary Receipt.
Derivative Financial Instruments Outstanding as of Period End | ||||
Futures Contracts | ||||
($000) | ||||
Value and | ||||
Number of | Unrealized | |||
Long (Short) | Notional | Appreciation | ||
Expiration | Contracts | Amount | (Depreciation) | |
Long Futures Contracts | ||||
E-mini S&P 500 Index | December 2018 | 776 | 105,191 | (5,335) |
See accompanying Notes, which are an integral part of the Financial Statements.
17
Windsor Fund
Statement of Operations
Year Ended | |
October 31, 2018 | |
($000) | |
Investment Income | |
Income | |
Dividends—Unaffiliated Issuers1 | 403,445 |
Dividends—Affiliated Issuers | 1,836 |
Interest—Unaffiliated Issuers | 4,074 |
Interest—Affiliated Issuers | 4,982 |
Securities Lending—Net | 640 |
Total Income | 414,977 |
Expenses | |
Investment Advisory Fees—Note B | |
Basic Fee | 25,351 |
Performance Adjustment | (9,019) |
The Vanguard Group—Note C | |
Management and Administrative—Investor Shares | 10,766 |
Management and Administrative—Admiral Shares | 18,603 |
Marketing and Distribution—Investor Shares | 664 |
Marketing and Distribution—Admiral Shares | 619 |
Custodian Fees | 126 |
Auditing Fees | 43 |
Shareholders’ Reports and Proxy—Investor Shares | 107 |
Shareholders’ Reports and Proxy—Admiral Shares | 90 |
Trustees’ Fees and Expenses | 30 |
Total Expenses | 47,380 |
Net Investment Income | 367,597 |
Realized Net Gain (Loss) | |
Investment Securities Sold—Unaffiliated Issuers | 1,730,833 |
Investment Securities Sold—Affiliated Issuers | (64) |
Futures Contracts | 6,541 |
Forward Currency Contracts | 200 |
Foreign Currencies | 2,982 |
Realized Net Gain (Loss) | 1,740,492 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities—Unaffiliated Issuers | (2,359,238) |
Investment Securities—Affiliated Issuers | 2,495 |
Futures Contracts | (8,315) |
Forward Currency Contracts | (4,883) |
Foreign Currencies | (18) |
Change in Unrealized Appreciation (Depreciation) | (2,369,959) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (261,870) |
1 Dividends are net of foreign withholding taxes of $3,729,000. | |
See accompanying Notes, which are an integral part of the Financial Statements. |
18
Windsor Fund
Statement of Changes in Net Assets
Year Ended October 31, | ||
2018 | 2017 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 367,597 | 318,859 |
Realized Net Gain (Loss) | 1,740,492 | 556,807 |
Change in Unrealized Appreciation (Depreciation) | (2,369,959) | 3,093,941 |
Net Increase (Decrease) in Net Assets Resulting from Operations | (261,870) | 3,969,607 |
Distributions | ||
Net Investment Income | ||
Investor Shares | (80,060) | (103,547) |
Admiral Shares | (251,761) | (270,719) |
Realized Capital Gain1 | ||
Investor Shares | (139,411) | (142,531) |
Admiral Shares | (398,253) | (349,849) |
Total Distributions | (869,485) | (866,646) |
Capital Share Transactions | ||
Investor Shares | (456,403) | (587,639) |
Admiral Shares | 445,731 | 443,152 |
Net Increase (Decrease) from Capital Share Transactions | (10,672) | (144,487) |
Total Increase (Decrease) | (1,142,027) | 2,958,474 |
Net Assets | ||
Beginning of Period | 19,557,075 | 16,598,601 |
End of Period | 18,415,048 | 19,557,075 |
1 Includes fiscal 2018 and 2017 short-term gain distributions totaling $73,242,000 and $0, respectively. Short-term gain distributions | ||
are treated as ordinary income dividends for tax purposes. |
See accompanying Notes, which are an integral part of the Financial Statements.
19
Windsor Fund
Financial Highlights
Investor Shares | |||||
For a Share Outstanding | Year Ended October 31, | ||||
Throughout Each Period | 2018 | 2017 | 2016 | 2015 | 2014 |
Net Asset Value, Beginning of Period | $23.38 | $19.70 | $21.06 | $21.98 | $19.50 |
Investment Operations | |||||
Net Investment Income | . 4171 | .3631 | .394 | .3562 | .279 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | (.753) | 4.345 | (.168) | .026 | 2.467 |
Total from Investment Operations | (.336) | 4.708 | .226 | .382 | 2.746 |
Distributions | |||||
Dividends from Net Investment Income | (. 378) | (. 433) | (. 317) | (. 339) | (. 266) |
Distributions from Realized Capital Gains | (.646) | (.595) | (1.269) | (.963) | — |
Total Distributions | (1.024) | (1.028) | (1.586) | (1.302) | (.266) |
Net Asset Value, End of Period | $22.02 | $23.38 | $19.70 | $21.06 | $21.98 |
Total Return3 | -1.69% | 24.53% | 1.27% | 1.76% | 14.14% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $4,468 | $5,191 | $4,896 | $5,379 | $7,179 |
Ratio of Total Expenses to Average Net Assets4 | 0.31% | 0.31% | 0.30% | 0.39% | 0.38% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.76% | 1.66% | 2.01% | 1.64%2 | 1.33% |
Portfolio Turnover Rate | 33% | 26% | 26% | 28% | 38% |
1 Calculated based on average shares outstanding.
2 Net investment income per share and the ratio of net investment income to average net assets include $.052 and 0.24%, respectively,
resulting from income received from Covidien Ltd. in January 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 (0.05%), (0.05%), (0.06%), 0.03%, and 0.03%.
See accompanying Notes, which are an integral part of the Financial Statements.
20
Windsor Fund
Financial Highlights
Admiral Shares | |||||
For a Share Outstanding | Year Ended October 31, | ||||
Throughout Each Period | 2018 | 2017 | 2016 | 2015 | 2014 |
Net Asset Value, Beginning of Period | $78.88 | $66.48 | $71.04 | $74.17 | $65.81 |
Investment Operations | |||||
Net Investment Income | 1.4841 | 1.2951 | 1.398 | 1.2912 | 1.016 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | (2.538) | 14.650 | (.545) | .062 | 8.314 |
Total from Investment Operations | (1.054) | 15.945 | .853 | 1.353 | 9.330 |
Distributions | |||||
Dividends from Net Investment Income | (1.358) | (1.538) | (1.134) | (1.235) | (.970) |
Distributions from Realized Capital Gains | (2.178) | (2.007) | (4.279) | (3.248) | — |
Total Distributions | (3.536) | (3.545) | (5.413) | (4.483) | (.970) |
Net Asset Value, End of Period | $74.29 | $78.88 | $66.48 | $71.04 | $74.17 |
Total Return3 | -1.59% | 24.63% | 1.41% | 1.85% | 14.24% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $13,948 | $14,366 | $11,703 | $12,206 | $10,884 |
Ratio of Total Expenses to Average Net Assets4 | 0.21% | 0.21% | 0.20% | 0.29% | 0.28% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 1.86% | 1.76% | 2.11% | 1.74%2 | 1.43% |
Portfolio Turnover Rate | 33% | 26% | 26% | 28% | 38% |
1 Calculated based on average shares outstanding.
2 Net investment income per share and the ratio of net investment income to average net assets include $.177 and 0.24%, respectively,
resulting from income received from Covidien Ltd. in January 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 (0.05%), (0.05%), (0.06%), 0.03%, and 0.03%.
See accompanying Notes, which are an integral part of the Financial Statements.
21
Windsor Fund
Notes to Financial Statements
Vanguard Windsor 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 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. Temporary cash investments are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services.
2. Foreign Currency: Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates obtained from an independent third party as of the fund’s pricing time on the valuation date. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the assets or liabilities are settled in cash, at which time they are recorded as realized foreign currency gains (losses).
3. Futures Contracts: The fund uses index futures contracts to a limited extent, with the objective of maintaining full exposure to the stock market while maintaining liquidity. The fund may purchase or sell futures contracts to achieve a desired level of investment, whether to accommodate portfolio turnover or cash flows from capital share transactions. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of 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
22
Windsor Fund
margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Statement of Net Assets.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized futures gains (losses).
During the year ended October 31, 2018, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
4. Forward Currency Contracts: 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. In the absence of a default, the collateral pledged or received by the fund cannot be repledged, resold, or rehypothecated.
The master netting arrangements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate the forward currency contracts, determine the net amount owed by either party in accordance with its master netting arrangements, and sell or retain any collateral held up to the net amount owed to the fund under the master netting arrangements. The forward currency contracts contain provisions whereby a counterparty may terminate open contracts if the fund’s net assets decline below a certain level, triggering a payment by the fund if the fund is in a net liability position at the time of the termination. The payment amount would be reduced by any collateral the fund has pledged. Any 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.
Forward currency contracts are valued at their quoted daily prices obtained from an independent third party, adjusted for currency risk based on the expiration date of each contract. The notional amounts of the contracts are not recorded in the Statement of 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 forward currency contract gains (losses).
During the year ended October 31, 2018, the fund’s average investment in forward currency contracts represented less than 1% of net assets, based on the average of notional amounts at each quarter-end during the period. The fund had no open forward currency contracts at October 31, 2018.
23
Windsor Fund
5. Repurchase Agreements: The fund enters into repurchase agreements with institutional counterparties. Securities pledged as collateral to the fund under repurchase agreements are held by a custodian bank until the agreements mature, and in the absence of a default, such collateral cannot be repledged, resold, or rehypothecated. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal. The fund further mitigates its counterparty risk by entering into repurchase agreements only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master repurchase agreements with its counterparties. The master repurchase agreements provide that, in the event of a counter-party’s default (including bankruptcy), the fund may terminate any repurchase agreements with that counterparty, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund. Such action may be subject to legal proceedings, which may delay or limit the disposition of collateral.
6. 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, 2015–2018), and has concluded that no provision for federal income tax is required in the fund’s financial statements.
7. Distributions: Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes.
8. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled before the opening of the market on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the event of a default, the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of 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. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
9. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 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
24
Windsor Fund
funds are charged administrative fees and an annual commitment fee of 0.10% 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 based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at October 31, 2018, or at any time during the period then ended.
10. 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), shareholder reporting, and the proxy. 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 investment advisory firms Wellington Management Company, LLP, 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 Wellington Management Company, LLP, is subject to quarterly adjustments based on performance relative to the S&P 500 Index for the preceding three years. The basic fee of Pzena Investment Management Company, LLC, is subject to quarterly adjustments based on performance relative to the Russell 1000 Value Index for the preceding three years.
Vanguard manages the cash reserves of the fund as described below.
For the year ended October 31, 2018, the aggregate investment advisory fee represented an effective annual basic rate of 0.13% of the fund’s average net assets, before a decrease of $9,019,000 (0.05%) based on performance.
C. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund corporate management, administrative, marketing, distribution, and cash management services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets. All other costs of operations payable to Vanguard are generally settled twice a month.
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Windsor Fund
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At October 31, 2018, the fund had contributed to Vanguard capital in the amount of $1,016,000, representing 0.01% of the fund’s net assets and 0.41% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
D. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine
the fair value of investments). Any investments valued with significant unobservable inputs are
noted on the Statement of Net Assets.
The following table summarizes the market value of the fund’s investments as of October 31, 2018, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 17,611,159 | 365,036 | — |
Temporary Cash Investments | 240,417 | 239,375 | — |
Futures Contracts—Assets1 | 1,267 | — | — |
Total | 17,852,843 | 604,411 | — |
1 Represents variation margin on the last day of the reporting period. |
E. At October 31, 2018, 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) |
Variation Margin Receivable—Futures Contracts | — | 1,267 | 1,267 |
Total Assets | — | 1,267 | 1,267 |
26
Windsor Fund
Realized net gain (loss) and the change in unrealized appreciation (depreciation) on derivatives for the six months ended October 31, 2018 were:
Foreign | |||
Equity | Exchange | ||
Contracts | Contracts | Total | |
Realized Net Gain (Loss) on Derivatives | ($000) | ($000) | ($000) |
Futures Contracts | 6,541 | — | 6,541 |
Forward Currency Contracts | — | 200 | 200 |
Realized Net Gain (Loss) on Derivatives | 6,541 | 200 | 6,741 |
Change in Unrealized Appreciation (Depreciation) on Derivatives | |||
Futures Contracts | (8,315) | — | (8,315) |
Forward Currency Contracts | — | (4,883) | (4,883) |
Change in Unrealized Appreciation (Depreciation) on Derivatives | (8,315) | (4,883) | (13,198) |
F. Permanent differences between book-basis and tax-basis components of net assets are reclassified among capital accounts in the financial statements to reflect their tax character. These reclassifications have no effect on net assets or net asset value per share. As of period end, the following permanent differences primarily attributable to the accounting for foreign currency transactions, and distributions in connection with fund share redemptions were reclassified to the following accounts:
Amount | |
($000) | |
Paid-in Capital | 93,351 |
Total Distributable Earnings (Loss) | (93,351) |
Temporary differences between book-basis and tax-basis components of total distributable earnings (loss) arise when certain items of income, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. The differences are primarily related to the tax deferral of losses on wash sales and the realization of unrealized gains or losses on certain futures contracts. As of period end, the tax-basis components of total distributable earnings (loss) are detailed in the table as follows:
Amount | |
($000) | |
Undistributed Ordinary Income | 199,748 |
Undistributed Long-Term Gains | 1,567,641 |
Capital Loss Carryforwards (Non-expiring) | — |
Net Unrealized Gains (Losses) | 3,116,004 |
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Windsor Fund
As of October 31, 2018, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | |
($000) | |
Tax Cost | 15,339,939 |
Gross Unrealized Appreciation | 4,165,998 |
Gross Unrealized Depreciation | (1,049,950) |
Net Unrealized Appreciation (Depreciation) | 3,116,048 |
G. During the year ended October 31, 2018, the fund purchased $6,424,997,000 of investment securities and sold $6,963,160,000 of investment securities, other than temporary cash investments.
H. Capital share transactions for each class of shares were:
Year Ended October 31, | ||||
2018 | 2017 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
Investor Shares | ||||
Issued | 404,676 | 17,238 | 334,841 | 15,378 |
Issued in Lieu of Cash Distributions | 212,552 | 9,049 | 238,948 | 11,375 |
Redeemed | (1,073,631) | (45,424) | (1,161,428) | (53,188) |
Net Increase (Decrease)—Investor Shares | (456,403) | (19,137) | (587,639) | (26,435) |
Admiral Shares | ||||
Issued | 1,253,586 | 15,730 | 1,102,106 | 14,835 |
Issued in Lieu of Cash Distributions | 605,854 | 7,647 | 579,577 | 8,179 |
Redeemed | (1,413,709) | (17,752) | (1,238,531) | (16,927) |
Net Increase (Decrease)—Admiral Shares | 445,731 | 5,625 | 443,152 | 6,087 |
I. Transactions during the period in investments where the issuer is another member of The Vanguard Group were as follows:
Current Period Transactions | ||||||||
Oct. 31, | Proceeds | Realized | Oct. 31, | |||||
2017 | from | Net | Change in | Capital Gain | 2018 | |||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||
Value | at Cost | Sold | (Loss) | App. (Dep.) | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
Vanguard Market | ||||||||
Liquidity Fund | 241,265 | NA1 | NA1 | (64) | 18 | 4,982 | — | 240,417 |
Vanguard Value ETF | 71,513 | — | — | — | 2,477 | 1,836 | — | 73,990 |
Total | 312,778 | — | — | (64) | 2,495 | 6,818 | — | 314,407 |
1 Not applicable—purchases and sales are for temporary cash investment purposes. |
J. Management has determined that no events or transactions occurred subsequent to October 31, 2018, that would require recognition or disclosure in these financial statements.
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Report of Independent Registered
Public Accounting Firm
To the Board of Trustees of Vanguard Windsor Funds and Shareholders of Vanguard Windsor Fund
Opinion on the Financial Statements
We have audited the accompanying statement of net assets of Vanguard Windsor Fund (one of the funds constituting Vanguard Windsor Funds, referred to hereafter as the “Fund”) as of October 31, 2018, the related statement of operations for the year ended October 31, 2018, the statement of changes in net assets for each of the two years in the period ended October 31, 2018, including the related notes, and the financial highlights for each of the five years in the period ended October 31, 2018 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of October 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period ended October 31, 2018 and the financial highlights for each of the five years in the period ended October 31, 2018 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of October 31, 2018 by correspondence with the custodians and brokers and by agreement to the underlying ownership records of the transfer agent; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 13, 2018
We have served as the auditor of one or more investment companies in The Vanguard Group of Funds since 1975.
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Special 2018 tax information (unaudited) for Vanguard Windsor Fund
This information for the fiscal year ended October 31, 2018, is included pursuant to provisions
of the Internal Revenue Code.
The fund distributed $554,055,000 as capital gain dividends (20% rate gain distributions) to
shareholders during the fiscal year.
The fund distributed $331,821,000 of qualified dividend income to shareholders during the
fiscal year.
For corporate shareholders, 71.7% of investment income (dividend income plus short-term gains,
if any) qualifies for the dividends-received deduction.
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Your Fund’s After-Tax Returns
This table presents returns for your fund both before and after taxes. The after-tax returns are shown in two ways: (1) assuming that an investor owned the fund during the entire period and paid taxes on the fund’s distributions, and (2) assuming that an investor paid taxes on the fund’s distributions and sold all shares at the end of each period.
Calculations are based on the highest individual federal income tax and capital gains tax rates in effect at the times of the distributions and the hypothetical sales. State and local taxes were not considered. After-tax returns reflect any qualified dividend income, using actual prior-year figures and estimates for 2018. (In the example, returns after the sale of fund shares may be higher than those assuming no sale. This occurs when the sale would have produced a capital loss. The calculation assumes that the investor received a tax deduction for the loss.)
The table shows returns for Investor Shares only; returns for other share classes will differ. Please note that your actual after-tax returns will depend on your tax situation and may differ from those shown. Also note that if you own the fund in a tax-deferred account, such as an individual retirement account or a 401(k) plan, this information does not apply to you. Such accounts are not subject to current taxes.
Finally, keep in mind that a fund’s performance—whether before or after taxes—does not guarantee future results.
Average Annual Total Returns: Windsor Fund Investor Shares | |||
Periods Ended October 31, 2018 | |||
One | Five | Ten | |
Year | Years | Years | |
Returns Before Taxes | -1.69% | 7.57% | 12.41% |
Returns After Taxes on Distributions | -2.73 | 6.34 | 11.62 |
Returns After Taxes on Distributions and Sale of Fund Shares | -0.28 | 5.81 | 10.29 |
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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 October 31, 2018 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
Windsor Fund | 4/30/2018 | 10/31/2018 | Period |
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $948.43 | $1.52 |
Admiral Shares | 1,000.00 | 949.12 | 1.03 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,023.64 | $1.58 |
Admiral Shares | 1,000.00 | 1,024.15 | 1.07 |
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 0.31% for Investor Shares and 0.21% 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 (184/365).
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Glossary
30-Day SEC Yield. A fund’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the fund’s security holdings in the previous 30 days are used to calculate the fund’s hypothetical net income for that period, which is then annualized and divided by the fund’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (for bonds), its actual income (for asset-backed securities), or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the fund’s actual experience. As a result, the fund’s income distributions may be higher or lower than implied by the SEC yield.
Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Dividend Yield. Dividend income earned by stocks, expressed as a percentage of the aggregate market value (or of net asset value, for a fund). The yield is determined by dividing the amount of the annual dividends by the aggregate value (or net asset value) at the end of the period. For a fund, the dividend yield is based solely on stock holdings and does not include any income produced by other investments.
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.
Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but does not include the transaction costs of buying and selling portfolio securities.
Foreign Holdings. The percentage of a fund represented by securities or depositary receipts of companies based outside the United States.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share.
For a fund, the weighted average price/book ratio of the stocks it holds.
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Price/Earnings Ratio. The ratio of a stock’s current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company’s future growth.
R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0. For this report, R-squared is based on returns over the past 36 months for both the fund and the index.
Return on Equity. The annual average rate of return generated by a company during the past five years for each dollar of shareholder’s equity (net income divided by shareholder’s equity). For a fund, the weighted average return on equity for the companies whose stocks it holds.
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
Turnover Rate. An indication of the fund’s trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to investors). The turnover rate excludes in-kind transactions, which have minimal impact on costs.
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The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark
of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use
by Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification
makes any express or implied warranties or representations with respect to such standard or classification (or the results
to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy,
completeness, merchantability or fitness for a particular purpose with respect to any such standard or classification.
Without limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party involved in
making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive,
consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
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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 211 Vanguard funds.
Information for each trustee and executive officer of the fund appears below. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
Interested Trustees1
F. William McNabb III
Born in 1957. Trustee since July 2009. Principal occupation(s) during the past five years and other experience: chairman of the board (January 2010–present) of Vanguard and of each of the investment companies served by Vanguard, trustee (2009–present) of each of the investment companies served by Vanguard, and director (2008–present) of Vanguard. Chief executive officer and president (2008–2017) of Vanguard and each of the investment companies served by Vanguard, managing director (1995–2008) of Vanguard, and director (1997–2018) of Vanguard Marketing Corporation. Director (2018–present) of UnitedHealth Group.
Mortimer J. Buckley
Born in 1969. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: chief executive officer (January 2018–present) of Vanguard; chief executive officer, president, and trustee (January 2018–present) of each of the investment companies served by Vanguard; president and director (2017–present) of Vanguard; and president (February 2018–present) of Vanguard Marketing Corporation. Chief investment officer (2013–2017), managing director (2002–2017), head of the Retail Investor Group (2006–2012), and chief information officer (2001–2006) of Vanguard. Chairman of the board (2011–2017) of the Children’s Hospital of Philadelphia.
Independent Trustees
Emerson U. Fullwood
Born in 1948. Trustee since January 2008. Principal occupation(s) during the past five years and other experience: executive chief staff and marketing officer for North America and corporate vice president (retired 2008) of Xerox Corporation (document management products and services). Former president of the Worldwide Channels Group, Latin America, and Worldwide Customer Service and executive chief staff officer of Developing Markets of Xerox. Executive in residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology. Lead director of SPX FLOW, Inc. (multi-industry manufacturing). Director of the University of Rochester Medical Center, the Monroe Community College Foundation, the United Way of Rochester, North Carolina A&T University, and Roberts Wesleyan College. Trustee of the University of Rochester.
Amy Gutmann
Born in 1949. Trustee since June 2006. Principal occupation(s) during the past five years and other experience: president (2004–present) of the University of Pennsylvania. Christopher H. Browne Distinguished Professor of Political Science, School of Arts and Sciences, and professor of communication, Annenberg School for Communication, with secondary faculty appointments in the Department of Philosophy, School of Arts and Sciences, and at the Graduate School of Education, University of Pennsylvania. Trustee of the National Constitution Center.
1 Mr. McNabb and Mr. Buckley are considered “interested persons,” as defined in the Investment Company Act of 1940, because
they are officers of the Vanguard funds.
JoAnn Heffernan Heisen
Born in 1950. Trustee since July 1998. Principal occupation(s) during the past five years and other experience: corporate vice president of Johnson & Johnson (pharmaceuticals/medical devices/consumer products) and member of its executive committee (1997–2008). Chief global diversity officer (retired 2008), vice president and chief information officer (1997–2006), controller (1995–1997), treasurer (1991–1995), and assistant treasurer (1989–1991) of Johnson & Johnson. Director of Skytop Lodge Corporation (hotels) and the Robert Wood Johnson Foundation. Member of the advisory board of the Institute for Women’s Leadership at Rutgers University.
F. Joseph Loughrey
Born in 1949. Trustee since October 2009. Principal occupation(s) during the past five years and other experience: president and chief operating officer (retired 2009) and vice chairman of the board (2008–2009) of Cummins Inc. (industrial machinery). Chairman of the board of Hillenbrand, Inc. (specialized consumer services), Oxfam America, and the Lumina Foundation for Education. Director of the V Foundation for Cancer Research. Member of the advisory council for the College of Arts and Letters and chair of the advisory board to the Kellogg Institute for International Studies, both at the University of Notre Dame.
Mark Loughridge
Born in 1953. Trustee since March 2012. Principal occupation(s) during the past five years and other experience: senior vice president and chief financial officer (retired 2013) of IBM (information technology services). Fiduciary member of IBM’s Retirement Plan Committee (2004–2013), senior vice president and general manager (2002–2004) of IBM Global Financing, vice president and controller (1998–2002) of IBM, and a variety of other prior management roles at IBM. Member of the Council on Chicago Booth.
Scott C. Malpass
Born in 1962. Trustee since March 2012. Principal occupation(s) during the past five years and other experience: chief investment officer (1989–present) and vice president (1996–present) of the University of Notre Dame. Assistant professor of finance at the Mendoza College of Business, University of Notre Dame, and member of the Notre Dame 403(b) Investment Committee. Chairman of the board of TIFF Advisory Services, Inc. Member of the board of Catholic Investment Services, Inc. (investment advisors), the board of advisors for Spruceview Capital Partners, and the board of superintendence of the Institute for the Works of Religion.
Deanna Mulligan
Born in 1963. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: president (2010–present) and chief executive officer (2011–present) of The Guardian Life Insurance Company of America. Chief operating officer (2010–2011) and executive vice president (2008–2010) of Individual Life and Disability of The Guardian Life Insurance Company of America. Member of the board of The Guardian Life Insurance Company of America, the American Council of Life Insurers, the Partnership for New York City (business leadership), and the Committee Encouraging Corporate Philanthropy. Trustee of the Economic Club of New York and the Bruce Museum (arts and science). Member of the Advisory Council for the Stanford Graduate School of Business.
André F. Perold
Born in 1952. Trustee since December 2004. Principal occupation(s) during the past five years and other experience: George Gund Professor of Finance and Banking, Emeritus at the Harvard Business School (retired 2011). Chief investment officer and co-managing partner of HighVista Strategies LLC (private investment firm). Overseer of the Museum of Fine Arts Boston.
Sarah Bloom Raskin
Born in 1961. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: deputy secretary (2014–2017) of the United States Department of the Treasury. Governor (2010–2014) of the Federal Reserve Board. Commissioner (2007–2010) of financial regulation for the State of Maryland. Member of the board of directors (2012–2014) of Neighborhood Reinvestment Corporation. Director of i(x) Investments, LLC.
Peter F. Volanakis
Born in 1955. Trustee since July 2009. Principal occupation(s) during the past five years and other experience: president and chief operating officer (retired 2010) of Corning Incorporated (communications equipment) and director of Corning Incorporated (2000–2010) and Dow Corning (2001–2010). Director (2012) of SPX Corporation (multi-industry manufacturing). Overseer of the Amos Tuck School of Business Administration, Dartmouth College (2001–2013). Chairman of the board of trustees of Colby-Sawyer College. Member of the Board of Hypertherm Inc. (industrial cutting systems, software, and consumables).
Executive Officers
Glenn Booraem
Born in 1967. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Investment stewardship officer (2017–present), treasurer (2015–2017), controller (2010–2015), and assistant controller (2001–2010) of each of the investment companies served by Vanguard.
Christine M. Buchanan
Born in 1970. Principal occupation(s) during the past five years and other experience: principal of Vanguard and global head of Fund Administration at Vanguard. Treasurer (2017–present) of each of the investment companies served by Vanguard. Partner (2005–2017) at KPMG LLP (audit, tax, and advisory services).
Brian Dvorak
Born in 1973. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Chief compliance officer (2017–present) of Vanguard and each of the investment companies served by Vanguard. Assistant vice president (2017–present) of Vanguard Marketing Corporation. Vice president and director of Enterprise Risk Management (2011–2013) at Oppenheimer Funds, Inc.
Thomas J. Higgins
Born in 1957. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Chief financial officer (2008–present) and treasurer (1998–2008) of each of the investment companies served by Vanguard.
Peter Mahoney
Born in 1974. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Controller (2015–present) of each of the investment companies served by Vanguard. Head of International Fund Services (2008–2014) at Vanguard.
Anne E. Robinson
Born in 1970. Principal occupation(s) during the past five years and other experience: general counsel (2016–present) of Vanguard. Secretary (2016–present) of Vanguard and of each of the investment companies served by Vanguard. Managing director (2016–present) of Vanguard. Director and senior vice president (2016–2018) of Vanguard Marketing Corporation. Managing director and general counsel of Global Cards and Consumer Services (2014–2016) at Citigroup. Counsel (2003–2014) at American Express.
Michael Rollings
Born in 1963. Principal occupation(s) during the past five years and other experience: finance director (2017–present) and treasurer (2017) of each of the investment companies served by Vanguard. Managing director (2016–present) of Vanguard. Chief financial officer (2016–present) of Vanguard. Director (2016–present) of Vanguard Marketing Corporation. Executive vice president and chief financial officer (2006–2016) of MassMutual Financial Group.
Vanguard Senior Management Team | |
Joseph Brennan | Chris D. McIsaac |
Mortimer J. Buckley | James M. Norris |
Gregory Davis | Thomas M. Rampulla |
John James | Karin A. Risi |
Martha G. King | Anne E. Robinson |
John T. Marcante | Michael Rollings |
Chairman Emeritus and Senior Advisor | |
John J. Brennan | |
Chairman, 1996–2009 | |
Chief Executive Officer and President, 1996–2008 | |
Founder | |
John C. Bogle | |
Chairman and Chief Executive Officer, 1974–1996 |
P.O. Box 2600 | |
Valley Forge, PA 19482-2600 | |
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© 2018 The Vanguard Group, Inc. | |
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Q220 122018 |
Annual Report | October 31, 2018 |
Vanguard Windsor™ II Fund |
Vanguard’s Principles for Investing Success
We want to give you the best chance of investment success. These principles, grounded in Vanguard’s research and experience, can put you on the right path.
Goals. Create clear, appropriate investment goals.
Balance. Develop a suitable asset allocation using broadly diversified funds. Cost. Minimize cost.
Discipline. Maintain perspective and long-term discipline.
A single theme unites these principles: Focus on the things you can control.
We believe there is no wiser course for any investor.
Contents | |
Your Fund’s Performance at a Glance. | 1 |
CEO’s Perspective. | 3 |
Advisors’ Report. | 5 |
Fund Profile. | 10 |
Performance Summary. | 12 |
Financial Statements. | 14 |
Your Fund’s After-Tax Returns. | 32 |
About Your Fund’s Expenses. | 33 |
Glossary. | 35 |
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.
Your Fund’s Performance at a Glance
• Vanguard Windsor II Fund returned 4.44% for Investor Shares and 4.52% for Admiral Shares for the 12 months ended October 31, 2018. The fund outperformed its benchmark, the Russell 1000 Value Index, and the average return of its large-capitalization value fund peers.
• The broad stock market returned more than 6% for the 12 months as corporate earnings remained strong and the U.S. economy continued to grow. Growth stocks outperformed value stocks, and large-cap stocks surpassed mid- and small-caps.
• Each of the fund’s five advisors uses a value-oriented, long-term strategy.
• Information technology and health care holdings contributed most to the fund’s relative performance; industrials and financials detracted most.
• For the ten years ended October 31, 2018, Windsor II Fund’s average annual return exceeded that of both its benchmark and its peers.
Total Returns: Fiscal Year Ended October 31, 2018 | |
Total | |
Returns | |
Vanguard Windsor II Fund | |
Investor Shares | 4.44% |
Admiral™ Shares | 4.52 |
Russell 1000 Value Index | 3.03 |
Large-Cap Value Funds Average | 3.08 |
Large-Cap Value 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. |
Total Returns: Ten Years Ended October 31, 2018 | |
Average | |
Annual Return | |
Windsor II Fund Investor Shares | 11.50% |
Russell 1000 Value Index | 11.30 |
Large-Cap Value Funds Average | 10.61 |
Large-Cap Value Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. |
The figures shown represent past performance, which is not a guarantee of future results. (Current
performance may be lower or higher than the performance data cited. For performance data current to the
most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment
returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more
or less than their original cost.
1
Expense Ratios | |||
Your Fund Compared With Its Peer Group | |||
Investor | Admiral | Peer Group | |
Shares | Shares | Average | |
Windsor II Fund | 0.34% | 0.26% | 1.04% |
The fund expense ratios shown are from the prospectus dated February 26, 2018, and represent estimated costs for the current fiscal year.
For the fiscal year ended October 31, 2018, the fund’s expense ratios were 0.33% for Investor Shares and 0.25% 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 2017.
Peer group: Large-Cap Value Funds.
2
CEO’s Perspective
Tim Buckley
President and Chief Executive Officer
Dear Shareholder,
Over the years, I’ve found that prudent investors exhibit a common trait: discipline. No matter how the markets move or what new investing fad hits the headlines, those who stay focused on their goals and tune out the noise are set up for long-term success.
The prime gateway to investing is saving, and you don’t usually become a saver without a healthy dose of discipline. Savers make the decision to sock away part of their income, which means spending less and delaying gratification, no matter how difficult that may be.
Of course, disciplined investing extends beyond diligent saving. The financial markets, in the short term especially, are unpredictable; I have yet to meet the investor who can time them perfectly. It takes discipline to resist the urge to go all-in when markets are frothy or to retreat when things look bleak.
Staying put with your investments is one strategy for handling volatility. Another, rebalancing, requires even more discipline because it means steering your money away from strong performers and toward poorer performers.
Patience—a form of discipline—is also the friend of long-term investors. Higher returns are the potential reward for weathering the market’s turbulence and uncertainty.
3
We have been enjoying one of the longest bull markets in history, but it won’t continue forever. Prepare yourself now for how you will react when volatility comes back. Don’t panic. Don’t chase returns or look for answers outside the asset classes you trust. And be sure to rebalance periodically, even when there’s turmoil.
Whether you’re a master of self-control, get a boost from technology, or work with a professional advisor, know that discipline is necessary to get the most out of your investment portfolio. And know that Vanguard is with you for the entire ride.
Thank you for your continued loyalty.
Sincerely,
Mortimer J. Buckley
President and Chief Executive Officer
November 16, 2018
Market Barometer | |||
Average Annual Total Returns | |||
Periods Ended October 31, 2018 | |||
One Year | Three Years | Five Years | |
Stocks | |||
Russell 1000 Index (Large-caps) | 6.98% | 11.31% | 11.05% |
Russell 2000 Index (Small-caps) | 1.85 | 10.68 | 8.01 |
Russell 3000 Index (Broad U.S. market) | 6.60 | 11.27 | 10.81 |
FTSE All-World ex US Index (International) | -7.99 | 4.57 | 2.01 |
Bonds | |||
Bloomberg Barclays U.S. Aggregate Bond Index | |||
(Broad taxable market) | -2.05% | 1.04% | 1.83% |
Bloomberg Barclays Municipal Bond Index | |||
(Broad tax-exempt market) | -0.51 | 1.90 | 3.25 |
FTSE Three-Month U. S. Treasury Bill Index | 1.67 | 0.86 | 0.52 |
CPI | |||
Consumer Price Index | 2.52% | 2.07% | 1.60% |
4
Advisors’ Report
For the 12 months ended October 31, 2018, Vanguard Windsor II Fund returned 4.44% for Investor Shares and 4.52% for Admiral Shares, surpassing the performance of its benchmark, the Russell 1000 Value Index, and the average return of its large-capitalization value fund peers. Your fund is managed by five 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 table on page 9 lists the advisors, the amount and percentage of fund assets each manages, and brief descriptions of their investment strategies. The advisors have provided the following assessment of the investment environment during the past 12 months and the notable successes and shortfalls in their portfolios. These comments were prepared on November 19, 2018.
Barrow, Hanley, Mewhinney &
Strauss, LLC
Portfolio Managers:
Jeff Fahrenbruch, CFA,
Managing Director
David Ganucheau, CFA,
Managing Director
Value benchmarks continued to trail both growth benchmarks and the Standard & Poor’s 500 Index as information technology
stocks outperformed over the 12 months ended October 31, 2018. The market also became increasingly narrow, with only three sectors outperforming the S&P 500: information technology, consumer discretionary, and health care. Historically, when markets have become this narrow, it has indicated that valuations for certain market favorites have become extreme. We witnessed this in the tech bubble of the late 1990s, and we are seeing echoes today.
There are encouraging signs, however, that the market is beginning to recognize the value embedded in our portfolio holdings. Examples include such transactions as Cigna’s acquisition of Express Scripts Holding and Disney’s acquisition of the majority of Twenty-First Century Fox’s assets. Other large contributors to returns were Dollar General and Lowe’s, as both performed well despite Amazon’s continued growth. These two companies were purchased opportunistically when fears of displacement from Amazon were elevated and market participants essentially “threw the baby out with the bathwater.”
Broadcom was blocked in its takeover of portfolio holding Qualcomm, but pressures from the takeover attempt resulted in Qualcomm management’s renewed focus on shareholder value. Qualcomm’s stock performed well as management implemented plans including a large cost-cutting program and a buyback of 25% of outstanding shares.
In addition to the successes, the portfolio experienced some struggles with companies early in their turnaround
5
situations, such as with General Electric and Johnson Controls International. Although these companies’ performance is disappointing, other examples of value recognized in the portfolio over the past year are very encouraging, and we continue to look for similar opportunities every day.
Lazard Asset Management LLC
Portfolio Managers:
Andrew Lacey, Deputy Chairman
Ronald Temple, Managing Director
The S&P 500 Index rose 7.35% over the 12 months ended October 31, 2018. Stocks set records in the final months of 2017 and into the new year as solid economic data and progress in government initiatives spurred investor optimism. Corporate earnings and other indicators of economic health were largely positive as the majority of companies reported quarterly earnings above expectations, the economy continued to add jobs at a strong rate, and consumer confidence reached an 18-year high in September. Annualized GDP growth readings during the period were broadly above consensus expectations, with second- and third-quarter readings marking multiyear highs. But in October, markets suffered their worst month since 2011, as generally strong corporate earnings and economic data were not enough to nullify concerns that economic conditions and stock valuations had peaked amid continued trade tensions and rising interest rates.
Stock selection within and an overweight allocation to information technology boosted the portfolio’s performance; top contributors included Cisco and Motorola Solutions. Stock selection in health care also helped; in that sector, top contributors included Zoetis and Johnson & Johnson.
Stock selection in the consumer discretionary sector hurt performance, with eBay and Whirlpool among the biggest detractors. We sold our position in Whirlpool in September, as our investment thesis was broken. Stock selection in consumer staples also hurt; Molson Coors and Kroger were among the biggest detractors. We sold Kroger in March and Molson Coors in August, as our investment theses were broken.
Sanders Capital, LLC
Portfolio Managers:
Lewis A. Sanders, CFA,
Chief Executive Officer and
Co-Chief Investment Officer
John P. Mahedy, CPA,
Director of Research and
Co-Chief Investment Officer
Over the past 12 months, we have harvested gains from sectors such as financials and consumer durables with the objective of reducing the portfolio’s sensitivity to the broad equity market, and the portfolio’s relative volatility is now well below average. This shift has been in response to rising equity prices (and thus
6
declining expected returns) and the compressed state of equities’ valuation differentials. We have reduced volatility while maintaining the portfolio’s valuation discount to market standards at about 25%.
The portfolio is also well-diversified, with investments focused in five sectors: health care (25%), information technology (20%), financials (18%), communication services (11%), and energy (11%). About 20% of the portfolio is invested in companies domiciled outside the U.S. (that is, Canada, the United Kingdom, Europe, South Korea, Taiwan, and China). We believe that such companies are well-positioned in their industries and priced at 25%-plus discounts to our U.S. holdings.
Investment performance is expected to derive from the portfolio’s faster earnings growth and higher free-cash-flow yield as compared with the equity market overall. Despite strong earnings, investment results trailed the benchmark over the 12 months ended October 31, 2018, primarily because of our investments in U.S. housing and selected energy and tech companies. In each case, we remain confident of fully recovering lost performance as our estimates of these holdings’ long-term earnings potential remain intact.
Hotchkis & Wiley Capital
Management, LLC
Portfolio Managers:
George H. Davis, Jr.,
Chief Executive Officer
Sheldon J. Lieberman,Principal
The S&P 500 Index returned more than 7% for the 12 months ended October 31, 2018, though it had been up more than 15% before the correction in October. Investor concerns about U.S.-China relations and rising interest rates—concerns that seemed to have been percolating for months—came to the forefront. Contentious political rhetoric and a Federal Reserve rate increase, combined with increasingly bearish sentiment in equities, led the 10-year U.S. Treasury yield to rise to its highest levels since 2011.
Over the 12 months, growth outperformed value by nearly 8 percentage points, after having outperformed by about 12 percentage points in the prior 12-month period. This has resulted in a wide valuation dichotomy, which we believe will revert, benefiting investors with a valuation focus. The overall equity market appears fairly valued, but this dispersion has produced compelling opportunities for long-term, fundamental value investors. Consequently, the portfolio trades at a considerable valuation discount relative to the benchmark.
7
More than 20% of the portfolio was invested in stocks that trade at a discount to book value, compared with less than 5% for the index. This was a performance hindrance as low-valued stocks significantly lagged the overall index. Stock selection in financials, consumer discretionary, and industrials detracted for the period, as did an underweight position in health care. Positive selection in energy, information technology, and consumer staples contributed to relative performance. Overweight allocations to information technology and communication services, along with underweight positions in materials and utilities, also helped.
Vanguard Quantitative Equity Group
Portfolio Managers:
James P. Stetler
Binbin Guo, Principal, Head of
Alpha Equity Investments
U.S. stocks generally climbed over the 12 months, fueled by a strong economy, rising corporate profits, and investors’ willingness to pay more for those profits. In October, however, U.S. stocks tumbled and volatility rose as investors grew more concerned about the market impact of trade tensions and potential interest rate increases by the Federal Reserve. Stocks of emerging markets and the developed markets of Europe and the Pacific region all declined over the period.
The Fed did raise rates in September—its eighth increase since the current tightening cycle began—and signaled more hikes to come. Attention is now focused on the pace of future rate increases, with many analysts expecting one in December and three more in 2019.
Although our overall performance is affected by the macroeconomic factors we’ve described, our approach to investing focuses on specific stock fundamentals that we believe are more likely to produce outperformance over the long run. Those fundamentals include five models—high quality, management decisions, consistent earnings growth, strong market sentiment, and reasonable valuation.
For the period, four of the five models helped relative performance; only sentiment detracted. Our relative sector results were strongest in financials and energy and weakest in communication services and real estate.
At the individual stock level, the largest relative contributors were Valero Energy and HollyFrontier in energy, Progressive in financials, NRG Energy in utilities, and an underweight exposure to MetLife in financials. Relative detractors included Comcast and Sprint in communication services, Forest City Realty Trust and Weyerhaeuser in real estate, and Huntsman in materials.
8
Vanguard Windsor II Fund Investment Advisors | |||
Fund Assets Managed | |||
Investment Advisor | % | $ Million | Investment Strategy |
Barrow, Hanley, Mewhinney & | 43 | 19,945 | Conducts fundamental research on individual stocks |
Strauss, LLC | exhibiting traditional value characteristics: | ||
price/earnings and price/book ratios below the broad | |||
market average and dividend yields above the broad | |||
market average. | |||
Lazard Asset Management LLC | 23 | 10,555 | Employs a relative-value approach that seeks a |
combination of attractive valuation and high financial | |||
productivity. The process is research-driven, relying | |||
upon bottom-up stock analysis performed by the | |||
firm’s global sector analysts. | |||
Sanders Capital, LLC | 17 | 7,666 | Employs a traditional, bottom-up, fundamental |
research approach to identifying securities that are | |||
undervalued relative to their expected total return. | |||
Hotchkis and Wiley Capital | 16 | 7,588 | Uses a disciplined investment approach, focusing on |
Management, LLC | such investment parameters as a company’s tangible | ||
assets, sustainable cash flow, and potential for | |||
improving business performance. | |||
Vanguard Quantitative Equity | 1 | 334 | Employs a quantitative fundamental management |
Group | approach, using models that assess valuation, market | ||
sentiment, earnings quality and growth, and | |||
management decisions of companies versus their | |||
peers. | |||
Cash Investments | 0 | 98 | 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. |
9
Windsor II Fund
Fund Profile
As of October 31, 2018
Share-Class Characteristics | ||
Investor | Admiral | |
Shares | Shares | |
Ticker Symbol | VWNFX | VWNAX |
Expense Ratio1 | 0.34% | 0.26% |
30-Day SEC Yield | 2.26% | 2.34% |
Portfolio Characteristics | |||
Russell | DJ | ||
1000 | U.S. Total | ||
Value | Market | ||
Fund | Index | FA Index | |
Number of Stocks | 267 | 726 | 3,806 |
Median Market | |||
Cap | $87.7B | $67.0B | $71.6B |
Price/Earnings | |||
Ratio | 16.8x | 14.9x | 18.5x |
Price/Book Ratio | 2.2x | 2.0x | 2.9x |
Return on Equity | 15.2% | 12.1% | 15.0% |
Earnings Growth | |||
Rate | 5.1% | 5.6% | 8.2% |
Dividend Yield | 2.5% | 2.5% | 1.9% |
Foreign Holdings | 8.3% | 0.0% | 0.0% |
Turnover Rate | 29% | — | — |
Short-Term | |||
Reserves | 2.3% | — | — |
Volatility Measures | ||
Russell | DJ | |
1000 | U.S. Total | |
Value | Market | |
Index | FA Index | |
R-Squared | 0.95 | 0.88 |
Beta | 1.04 | 0.94 |
These measures show the degree and timing of the fund’s | ||
fluctuations compared with the indexes over 36 months. |
Sector Diversification (% of equity exposure) | |
Fund | |
Communication Services | 7.5% |
Consumer Discretionary | 7.6 |
Consumer Staples | 7.0 |
Energy | 11.7 |
Financials | 18.7 |
Health Care | 18.3 |
Industrials | 9.0 |
Information Technology | 14.9 |
Materials | 3.0 |
Real Estate | 0.4 |
Utilities | 1.9 |
Sector categories are based on the Global Industry Classification | |
Standard (“GICS”), except for the “Other” category (if applicable), | |
which includes securities that have not been provided a GICS | |
classification as of the effective reporting period. |
Ten Largest Holdings (% of total net assets) | ||
Microsoft Corp. | Systems Software | 3.4% |
Wells Fargo & Co. | Diversified Banks | 3.2 |
Johnson & Johnson | Pharmaceuticals | 2.7 |
Pfizer Inc. | Pharmaceuticals | 2.7 |
Medtronic plc | Health Care | |
Equipment | 2.5 | |
Apple Inc. | Technology | |
Hardware, Storage & | ||
Peripherals | 2.2 | |
Oracle Corp. | Systems Software | 2.1 |
United Technologies | Aerospace & | |
Corp. | Defense | 2.0 |
Alphabet Inc. | Interactive Media & | |
Services | 2.0 | |
Lowe's Cos. Inc. | Home Improvement | |
Retail | 1.9 | |
Top Ten | 24.7% | |
The holdings listed exclude any temporary cash investments and | ||
equity index products. |
1 The expense ratios shown are from the prospectus dated February 26, 2018, and represent estimated costs for the current fiscal year. For the
fiscal year ended October 31, 2018, the expense ratios were 0.33% for Investor Shares and 0.25% for Admiral Shares.
10
Windsor II Fund
Investment Focus
11
Windsor II Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Cumulative Performance: October 31, 2008, Through October 31, 2018
Initial Investment of $10,000
Average Annual Total Returns | |||||
Periods Ended October 31, 2018 | |||||
Final Value | |||||
One | Five | Ten | of a $10,000 | ||
Year | Years | Years | Investment | ||
Windsor II Fund Investor Shares | 4.44% | 8.34% | 11.50% | $29,701 | |
• • • • • • • • | Russell 1000 Value Index | 3.03 | 8.61 | 11.30 | 29,170 |
– – – – | Large-Cap Value Funds Average | 3.08 | 7.99 | 10.61 | 27,419 |
Dow Jones U.S. Total Stock Market | |||||
Float Adjusted Index | 6.56 | 10.76 | 13.36 | 35,036 | |
Large-Cap Value Funds Average: Derived from data provided by Lipper, a Thomson Reuters Company. |
Final Value | ||||
One | Five | Ten | of a $50,000 | |
Year | Years | Years | Investment | |
Windsor II Fund Admiral Shares | 4.52% | 8.42% | 11.59% | $149,695 |
Russell 1000 Value Index | 3.03 | 8.61 | 11.30 | 145,848 |
Dow Jones U.S. Total Stock Market Float | ||||
Adjusted Index | 6.56 | 10.76 | 13.36 | 175,179 |
See Financial Highlights for dividend and capital gains information.
12
Windsor II Fund
Fiscal-Year Total Returns (%): October 31, 2008, Through October 31, 2018
Average Annual Total Returns: Periods Ended September 30, 2018
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 | |
Investor Shares | 6/24/1985 | 12.39% | 10.62% | 10.07% |
Admiral Shares | 5/14/2001 | 12.48 | 10.71 | 10.16 |
13
Windsor II Fund
Financial Statements
Statement of Net Assets
As of October 31, 2018
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.
Market | |||
Value• | |||
Shares | ($000) | ||
Common Stocks (97.6%)1 | |||
Communication Services (7.3%) | |||
Comcast Corp. Class A | 21,561,075 | 822,339 | |
* | Alphabet Inc. Class A | 497,198 | 542,234 |
Verizon | |||
Communications Inc. | 7,285,164 | 415,910 | |
* | Alphabet Inc. Class C | 335,406 | 361,155 |
* | Discovery | ||
Communications Inc. | 7,388,000 | 216,542 | |
Omnicom Group Inc. | 2,692,524 | 200,108 | |
AT&T Inc. | 5,480,831 | 168,152 | |
Vodafone Group plc | |||
ADR | 8,813,936 | 166,848 | |
* | Facebook Inc. Class A | 1,006,200 | 152,731 |
CBS Corp. Class B | 1,646,100 | 94,404 | |
* | Electronic Arts Inc. | 827,594 | 75,295 |
News Corp. Class A | 4,802,500 | 63,345 | |
Publicis Groupe SA | 687,520 | 39,799 | |
Interpublic Group of | |||
Cos. Inc. | 1,543,200 | 35,741 | |
*,^ | Discovery | ||
Communications Inc. | |||
Class A | 594,800 | 19,266 | |
* | Liberty Media | ||
Corp-Liberty SiriusXM | |||
Class A | 39,309 | 1,621 | |
News Corp. Class B | 78,408 | 1,046 | |
* | Liberty Latin America Ltd. | ||
Class A | 25,863 | 465 | |
Twenty-First Century Fox | |||
Inc. | 9,900 | 447 | |
* | TripAdvisor Inc. | 3,991 | 208 |
* | Liberty Media Corp-Liberty | ||
SiriusXM Class C | 4,402 | 182 | |
* | Liberty Latin America Ltd. 6,186 | 111 | |
CenturyLink Inc. | 4,668 | 96 | |
3,378,045 |
Consumer Discretionary (7.4%) | |||
Lowe’s Cos. Inc. | 9,167,096 | 872,891 | |
Dollar General Corp. | 6,390,991 | 711,829 | |
General Motors Co. | 6,275,600 | 229,624 | |
McDonald’s Corp. | 1,231,725 | 217,892 | |
^,2 | Adient plc | 6,820,577 | 207,482 |
* | eBay Inc. | 6,435,425 | 186,820 |
Aptiv plc | 2,126,576 | 163,321 | |
Starbucks Corp. | 2,713,670 | 158,126 | |
DR Horton Inc. | 3,837,656 | 138,002 | |
Lennar Corp. Class A | 3,053,620 | 131,245 | |
Magna International Inc. | 1,686,700 | 83,053 | |
* | Dollar Tree Inc. | 926,965 | 78,143 |
Goodyear Tire & Rubber | |||
Co. | 3,212,700 | 67,659 | |
Genuine Parts Co. | 563,581 | 55,186 | |
Harley-Davidson Inc. | 1,315,300 | 50,271 | |
Hyundai Motor Co. | 263,261 | 24,658 | |
Bed Bath & Beyond Inc. | 1,630,200 | 22,399 | |
Best Buy Co. Inc. | 31,603 | 2,217 | |
Darden Restaurants Inc. | 18,402 | 1,961 | |
^ | Autoliv Inc. | 22,287 | 1,857 |
Ralph Lauren Corp. | |||
Class A | 14,330 | 1,857 | |
H&R Block Inc. | 68,794 | 1,826 | |
PulteGroup Inc. | 73,725 | 1,811 | |
Lennar Corp. Class B | 47,457 | 1,697 | |
Kohl’s Corp. | 22,205 | 1,682 | |
Macy’s Inc. | 23,318 | 800 | |
Gentex Corp. | 33,349 | 702 | |
Lear Corp. | 1,453 | 193 | |
Toll Brothers Inc. | 5,671 | 191 | |
Las Vegas Sands Corp. | 1,964 | 100 | |
3,415,495 | |||
Consumer Staples (6.8%) | |||
Philip Morris | |||
International Inc. | 7,046,006 | 620,542 | |
Altria Group Inc. | 8,558,293 | 556,631 |
14
Windsor II Fund
Market | |||
Value• | |||
Shares | ($000) | ||
Coca-Cola Co. | 10,392,510 | 497,593 | |
Imperial Brands plc | |||
ADR | 12,623,648 | 427,311 | |
PepsiCo Inc. | 2,864,719 | 321,937 | |
Procter & Gamble Co. | 3,398,662 | 301,393 | |
Mondelez International | |||
Inc. Class A | 2,536,600 | 106,486 | |
Nestle SA | 1,258,500 | 106,247 | |
Kroger Co. | 2,542,552 | 75,666 | |
Unilever plc ADR | 1,411,600 | 74,787 | |
Kellogg Co. | 551,471 | 36,110 | |
Archer-Daniels-Midland | |||
Co. | 50,763 | 2,399 | |
Sysco Corp. | 31,258 | 2,230 | |
Walmart Inc. | 20,950 | 2,101 | |
Lamb Weston Holdings | |||
Inc. | 25,244 | 1,973 | |
Spectrum Brands | |||
Holdings Inc. | 26,743 | 1,737 | |
Tyson Foods Inc. Class A | 18,811 | 1,127 | |
McCormick & Co. Inc. | 6,364 | 916 | |
Molson Coors Brewing | |||
Co. Class B | 5,860 | 375 | |
Conagra Brands Inc. | 3,392 | 121 | |
3,137,682 | |||
Energy (11.4%) | |||
BP plc ADR | 15,266,487 | 662,108 | |
ConocoPhillips | 9,444,880 | 660,197 | |
Schlumberger Ltd. | 11,017,209 | 565,293 | |
Occidental Petroleum | |||
Corp. | 7,748,656 | 519,702 | |
Phillips 66 | 4,932,531 | 507,163 | |
Chevron Corp. | 3,979,850 | 444,350 | |
Halliburton Co. | 8,871,779 | 307,673 | |
Apache Corp. | 5,815,900 | 220,016 | |
Marathon Oil Corp. | 11,184,226 | 212,388 | |
Suncor Energy Inc. | 6,256,180 | 208,393 | |
EOG Resources Inc. | 1,958,945 | 206,355 | |
Hess Corp. | 3,408,500 | 195,648 | |
Cabot Oil & Gas Corp. | 7,483,823 | 181,333 | |
Royal Dutch Shell plc | |||
ADR | 1,851,106 | 116,971 | |
Murphy Oil Corp. | 3,616,181 | 115,212 | |
National Oilwell Varco | |||
Inc. | 1,524,100 | 56,087 | |
Marathon Petroleum | |||
Corp. | 643,257 | 45,317 | |
* | Kosmos Energy Ltd. | 5,732,500 | 37,204 |
Exxon Mobil Corp. | 94,688 | 7,545 | |
HollyFrontier Corp. | 28,501 | 1,922 | |
Anadarko Petroleum | |||
Corp. | 30,300 | 1,612 |
* | Continental Resources | ||
Inc. | 24,921 | 1,313 | |
Valero Energy Corp. | 11,247 | 1,025 | |
5,274,827 | |||
Financials (18.2%) | |||
Wells Fargo & Co. | 28,067,577 | 1,494,037 | |
JPMorgan Chase & Co. | 6,841,443 | 745,854 | |
US Bancorp | 12,452,062 | 650,869 | |
American International | |||
Group Inc. | 15,191,866 | 627,272 | |
American Express Co. | 6,029,617 | 619,423 | |
Bank of America Corp. | 20,842,005 | 573,155 | |
Citigroup Inc. | 6,987,417 | 457,396 | |
Bank of New York | |||
Mellon Corp. | 9,118,578 | 431,582 | |
Intercontinental | |||
Exchange Inc. | 4,275,177 | 329,360 | |
SunTrust Banks Inc. | 4,213,351 | 264,009 | |
Citizens Financial | |||
Group Inc. | 6,155,125 | 229,894 | |
Aon plc | 1,156,750 | 180,661 | |
Fifth Third Bancorp | 6,370,561 | 171,941 | |
Goldman Sachs Group | |||
Inc. | 735,264 | 165,706 | |
Capital One Financial | |||
Corp. | 1,662,919 | 148,499 | |
Commerce Bancshares | |||
Inc. | 2,101,236 | 133,639 | |
State Street Corp. | 1,842,800 | 126,693 | |
Travelers Cos. Inc. | 948,800 | 118,723 | |
Navient Corp. | 9,795,109 | 113,427 | |
Discover Financial | |||
Services | 1,563,500 | 108,929 | |
* | SLM Corp. | 9,795,020 | 99,322 |
Synchrony Financial | 3,167,121 | 91,466 | |
AXA Equitable | |||
Holdings Inc. | 3,869,700 | 78,516 | |
Barclays plc | 31,514,564 | 69,436 | |
Ally Financial Inc. | 2,109,470 | 53,602 | |
China Construction | |||
Bank Corp. | 56,748,000 | 45,032 | |
Morgan Stanley | 903,848 | 41,270 | |
Sumitomo Mitsui | |||
Financial Group Inc. | 1,036,900 | 40,372 | |
CIT Group Inc. | 821,600 | 38,927 | |
Royal Bank of Scotland | |||
Group plc | 12,529,200 | 37,719 | |
Banco de Sabadell SA | 24,989,467 | 32,902 | |
Industrial & | |||
Commercial Bank of | |||
China Ltd. | 45,262,000 | 30,709 | |
Sterling Bancorp | 1,629,078 | 29,291 |
15
Windsor II Fund
Market | ||||
Value• | ||||
Shares | ($000) | |||
Progressive Corp. | 39,036 | 2,721 | ||
Aflac Inc. | 62,594 | 2,696 | ||
Allstate Corp. | 27,702 | 2,652 | ||
Regions Financial Corp. | 127,570 | 2,165 | ||
* | SVB Financial Group | 8,266 | 1,961 | |
Torchmark Corp. | 22,875 | 1,937 | ||
Santander Consumer | ||||
USA Holdings Inc. | 102,132 | 1,915 | ||
Brown & Brown Inc. | 63,635 | 1,793 | ||
Alleghany Corp. | 2,806 | 1,686 | ||
Comerica Inc. | 19,889 | 1,622 | ||
T. Rowe Price Group Inc. | 16,284 | 1,579 | ||
E*TRADE Financial Corp. | 31,927 | 1,578 | ||
Jefferies Financial Group | ||||
Inc. | 54,735 | 1,175 | ||
Loews Corp. | 21,336 | 993 | ||
Voya Financial Inc. | 6,018 | 263 | ||
PNC Financial Services | ||||
Group Inc. | 1,890 | 243 | ||
8,406,612 | ||||
Health Care (17.8%) | ||||
Johnson & Johnson | 8,945,856 | 1,252,330 | ||
Pfizer Inc. | 28,860,160 | 1,242,719 | ||
Medtronic plc | 12,931,826 | 1,161,537 | ||
* | Express Scripts | |||
Holding Co. | 8,193,786 | 794,551 | ||
CVS Health Corp. | 9,020,465 | 652,992 | ||
Sanofi ADR | 13,535,965 | 605,328 | ||
Cardinal Health Inc. | 7,858,003 | 397,615 | ||
UnitedHealth Group Inc. | 1,255,400 | 328,099 | ||
Anthem Inc. | 957,845 | 263,953 | ||
Cigna Corp. | 1,129,855 | 241,574 | ||
Gilead Sciences Inc. | 2,946,100 | 200,865 | ||
Zoetis Inc. | 1,936,447 | 174,571 | ||
Danaher Corp. | 1,544,002 | 153,474 | ||
* | Biogen Inc. | 365,615 | 111,246 | |
Humana Inc. | 344,910 | 110,513 | ||
GlaxoSmithKline plc | ||||
ADR | 2,827,600 | 110,446 | ||
Roche Holding AG | 394,400 | 95,982 | ||
Merck & Co. Inc. | 1,286,650 | 94,710 | ||
Thermo Fisher | ||||
Scientific Inc. | 330,380 | 77,193 | ||
* | Laboratory Corp. of | |||
America Holdings | 453,338 | 72,783 | ||
AbbVie Inc. | 591,281 | 46,031 | ||
Zimmer Biomet Holdings | ||||
Inc. | 325,300 | 36,951 | ||
Eli Lilly & Co. | 44,650 | 4,842 | ||
Amgen Inc. | 10,863 | 2,094 | ||
Agilent Technologies Inc. | 31,405 | 2,035 |
Universal Health | ||||
Services Inc. Class B | 16,330 | 1,985 | ||
Abbott Laboratories | 26,457 | 1,824 | ||
Quest Diagnostics Inc. | 16,552 | 1,558 | ||
* | IQVIA Holdings Inc. | 9,700 | 1,192 | |
8,240,993 | ||||
Industrials (8.8%) | ||||
United Technologies | ||||
Corp. | 7,532,341 | 935,592 | ||
Johnson Controls | ||||
International plc | 23,172,228 | 740,816 | ||
General Electric Co. | 52,661,371 | 531,880 | ||
Raytheon Co. | 1,687,283 | 295,342 | ||
General Dynamics Corp. | 1,647,473 | 284,321 | ||
Eaton Corp. plc | 2,913,513 | 208,812 | ||
Honeywell | ||||
International Inc. | 1,244,651 | 180,250 | ||
Cummins Inc. | 1,123,200 | 153,530 | ||
Norfolk Southern Corp. | 911,918 | 153,047 | ||
CNH Industrial NV | 14,452,700 | 150,164 | ||
Rockwell Automation | ||||
Inc. | 606,602 | 99,926 | ||
Deere & Co. | 644,050 | 87,230 | ||
Stanley Black & Decker | ||||
Inc. | 488,022 | 56,864 | ||
Caterpillar Inc. | 340,884 | 41,356 | ||
PACCAR Inc. | 660,878 | 37,809 | ||
* | Gates Industrial Corp. | |||
plc | 2,430,001 | 36,572 | ||
Embraer SA ADR | 1,339,300 | 29,826 | ||
Emerson Electric Co. | 42,703 | 2,899 | ||
* | United Continental | |||
Holdings Inc. | 26,064 | 2,229 | ||
WW Grainger Inc. | 7,055 | 2,003 | ||
Allison Transmission | ||||
Holdings Inc. | 40,905 | 1,803 | ||
Expeditors International | ||||
of Washington Inc. | 25,337 | 1,702 | ||
KAR Auction Services Inc. | 24,765 | 1,410 | ||
Huntington Ingalls | ||||
Industries Inc. | 5,971 | 1,305 | ||
Waste Management Inc. | 6,997 | 626 | ||
Pentair plc | 12,788 | 513 | ||
Delta Air Lines Inc. | 6,691 | 366 | ||
4,038,193 | ||||
Information Technology (14.5%) | ||||
Microsoft Corp. | 14,609,483 | 1,560,439 | ||
Apple Inc. | 4,551,036 | 996,040 | ||
Oracle Corp. | 19,414,616 | 948,210 | ||
QUALCOMM Inc. | 10,528,936 | 662,165 | ||
Cisco Systems Inc. | 8,331,659 | 381,173 |
16
Windsor II Fund
Market | ||||
Value• | ||||
Shares | ($000) | |||
Hewlett Packard | ||||
Enterprise Co. | 20,501,700 | 312,651 | ||
Taiwan Semiconductor | ||||
Manufacturing Co. | ||||
Ltd. ADR | 7,567,119 | 288,307 | ||
Samsung Electronics | ||||
Co. Ltd. | 7,670,000 | 287,132 | ||
Visa Inc. Class A | 1,456,600 | 200,792 | ||
Analog Devices Inc. | 1,918,801 | 160,623 | ||
Skyworks Solutions Inc. | 1,594,600 | 138,347 | ||
DXC Technology Co. | 1,828,725 | 133,186 | ||
Corning Inc. | 4,067,600 | 129,960 | ||
Motorola Solutions Inc. | 898,220 | 110,086 | ||
* | Worldpay Inc. Class A | 941,100 | 86,431 | |
Telefonaktiebolaget LM | ||||
Ericsson ADR | 8,591,200 | 74,400 | ||
* | Palo Alto Networks Inc. | 391,285 | 71,621 | |
TE Connectivity Ltd. | 741,800 | 55,946 | ||
* | Micron Technology Inc. | 1,097,456 | 41,396 | |
* | Teradata Corp. | 943,500 | 34,343 | |
Intel Corp. | 148,250 | 6,950 | ||
International Business | ||||
Machines Corp. | 30,515 | 3,522 | ||
HP Inc. | 112,820 | 2,723 | ||
NetApp Inc. | 32,184 | 2,526 | ||
* | Advanced Micro Devices | |||
Inc. | 105,126 | 1,914 | ||
Sabre Corp. | 76,455 | 1,885 | ||
Seagate Technology plc | 44,268 | 1,781 | ||
* | Zebra Technologies Corp. | 9,836 | 1,636 | |
NVIDIA Corp. | 5,059 | 1,067 | ||
* | Dell Technologies Inc. | |||
Class V | 8,541 | 772 | ||
Western Union Co. | 39,895 | 720 | ||
Broadcom Inc. | 2,844 | 636 | ||
* | First Data Corp. Class A | 4,173 | 78 | |
6,699,458 | ||||
Materials (2.9%) | ||||
Air Products & | ||||
Chemicals Inc. | 4,169,234 | 643,521 | ||
DowDuPont Inc. | 9,513,111 | 512,947 | ||
International Paper Co. | 2,479,200 | 112,457 | ||
Vulcan Materials Co. | 700,733 | 70,872 | ||
LyondellBasell | ||||
Industries NV Class A | 24,787 | 2,213 | ||
Huntsman Corp. | 83,994 | 1,838 | ||
Steel Dynamics Inc. | 46,245 | 1,831 | ||
Freeport-McMoRan Inc. | 145,731 | 1,698 | ||
Mosaic Co. | 52,409 | 1,622 |
Nucor Corp. | 14,109 | 834 | ||
Westlake Chemical Corp. | 3,429 | 244 | ||
Reliance Steel & | ||||
Aluminum Co. | 2,945 | 232 | ||
1,350,309 | ||||
Other (0.3%) | ||||
^ | SPDR S&P 500 ETF | |||
Trust | 253,443 | 68,589 | ||
^,3 | Vanguard Value ETF | 444,068 | 46,703 | |
115,292 | ||||
Real Estate (0.4%) | ||||
Prologis Inc. | 2,620,300 | 168,931 | ||
Simon Property Group | ||||
Inc. | 12,177 | 2,235 | ||
Host Hotels & Resorts | ||||
Inc. | 107,130 | 2,047 | ||
Weyerhaeuser Co. | 71,392 | 1,901 | ||
Omega Healthcare | ||||
Investors Inc. | 55,098 | 1,838 | ||
Spirit Realty Capital Inc. | 232,346 | 1,817 | ||
Park Hotels & Resorts Inc. 61,121 | 1,777 | |||
Jones Lang LaSalle Inc. | 12,695 | 1,679 | ||
Gaming and Leisure | ||||
Properties Inc. | 35,604 | 1,199 | ||
183,424 | ||||
Utilities (1.8%) | ||||
Dominion Energy Inc. | 5,561,771 | 397,222 | ||
Exelon Corp. | 5,787,510 | 253,551 | ||
PPL Corp. | 2,930,300 | 89,081 | ||
Southern Co. | 1,928,800 | 86,854 | ||
NextEra Energy Inc. | 23,257 | 4,012 | ||
FirstEnergy Corp. | 65,243 | 2,432 | ||
Entergy Corp. | 27,562 | 2,314 | ||
AES Corp. | 151,790 | 2,213 | ||
NRG Energy Inc. | 55,036 | 1,992 | ||
UGI Corp. | 28,393 | 1,507 | ||
National Fuel Gas Co. | 26,382 | 1,432 | ||
MDU Resources Group | ||||
Inc. | 30,830 | 769 | ||
843,379 | ||||
Total Common Stocks | ||||
(Cost $34,800,292) | 45,083,709 | |||
Temporary Cash Investments (2.6%)1 | ||||
Money Market Fund (2.5%) | ||||
4,5 | Vanguard Market | |||
Liquidity Fund, | ||||
2.308% | 11,562,800 | 1,156,280 |
17
Windsor II Fund
Face | Market | ||
Amount | Value • | ||
($000) | ($000) | ||
U. S. Government and Agency Obligations (0.1%) | |||
United States Treasury | |||
Bill, 2.022%–2.078%, | |||
11/15/18 | 12,100 | 12,090 | |
6 | United States Treasury | ||
Bill, 2.033%, 11/23/18 | 15,000 | 14,981 | |
6 | United States Treasury | ||
Bill, 2.292%, 2/28/19 | 100 | 99 | |
27,170 | |||
Total Temporary Cash Investments | |||
(Cost $1,183,448) | 1,183,450 | ||
Total Investments (100.2%) | |||
(Cost $35,983,740) | 46,267,159 | ||
Amount | |||
($000) | |||
Other Assets and Liabilities (-0.2%) | |||
Other Assets | |||
Investment in Vanguard | 2,502 | ||
Receivables for Investment | |||
Securities Sold | 162,649 | ||
Receivables for Accrued Income | 48,867 | ||
Receivables for Capital Shares Issued | 7,178 | ||
Variation Margin Receivable— | |||
Futures Contracts | 807 | ||
Other Assets | 5,210 | ||
Total Other Assets | 227,213 | ||
Liabilities | |||
Payables for Investment Securities | |||
Purchased | (155,615) | ||
Collateral for Securities on Loan | (46,702) | ||
Payables to Investment Advisor | (13,237) | ||
Payables for Capital Shares Redeemed | (32,358) | ||
Payables to Vanguard | (57,921) | ||
Other Liabilities | (2,172) | ||
Total Liabilities | (308,005) | ||
Net Assets (100%) | 46,186,367 |
At October 31, 2018, net assets consisted of: | |
Amount | |
($000) | |
Paid-in Capital | 32,210,396 |
Total Distributable Earnings (Loss) | 13,975,971 |
Net Assets | 46,186,367 |
Investor Shares—Net Assets | |
Applicable to 322,572,039 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 12,060,790 |
Net Asset Value Per Share— | |
Investor Shares | $37.39 |
Admiral Shares—Net Assets | |
Applicable to 514,301,988 outstanding | |
$.001 par value shares of beneficial | |
interest (unlimited authorization) | 34,125,577 |
Net Asset Value Per Share— | |
Admiral Shares | $66.35 |
• 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 $46,044,000.
1 The fund invests a portion of its cash reserves in equity
markets through the use of index futures contracts. After
giving effect to futures investments, the fund’s effective
common stock and temporary cash investment positions
represent 97.8% and 2.4%, 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 $46,702,000 of collateral received for securities
on loan.
6 Securities with a value of $3,894,000 have been segregated
as initial margin for open futures contracts.
ADR—American Depositary Receipt.
18
Windsor II Fund
Derivative Financial Instruments Outstanding as of Period End | ||||
Futures Contracts | ||||
($000) | ||||
Value and | ||||
Number of | Unrealized | |||
Long (Short) | Notional | Appreciation | ||
Expiration | Contracts | Amount | (Depreciation) | |
Long Futures Contracts | ||||
E-mini S&P 500 Index | December 2018 | 493 | 66,829 | (4,269) |
See accompanying Notes, which are an integral part of the Financial Statements.
19
Windsor II Fund
Statement of Operations
Year Ended | |
October 31, 2018 | |
($000) | |
Investment Income | |
Income | |
Dividends—Unaffiliated Issuers1 | 1,133,744 |
Dividends—Affiliated Issuers | 7,200 |
Interest—Unaffiliated Issuers | 432 |
Interest—Affiliated Issuers | 20,755 |
Securities Lending—Net | 891 |
Total Income | 1,163,022 |
Expenses | |
Investment Advisory Fees—Note B | |
Basic Fee | 68,230 |
Performance Adjustment | (13,022) |
The Vanguard Group—Note C | |
Management and Administrative—Investor Shares | 26,674 |
Management and Administrative—Admiral Shares | 47,106 |
Marketing and Distribution—Investor Shares | 1,684 |
Marketing and Distribution—Admiral Shares | 1,517 |
Custodian Fees | 1,187 |
Auditing Fees | 47 |
Shareholders’ Reports and Proxy—Investor Shares | 282 |
Shareholders’ Reports and Proxy—Admiral Shares | 277 |
Trustees’ Fees and Expenses | 73 |
Total Expenses | 134,055 |
Expenses Paid Indirectly | (717) |
Net Expenses | 133,338 |
Net Investment Income | 1,029,684 |
Realized Net Gain (Loss) | |
Investment Securities Sold—Unaffiliated Issuers | 3,674,576 |
Investment Securities Sold—Affiliated Issuers | 7,528 |
Futures Contracts | 564 |
Foreign Currencies | 19 |
Realized Net Gain (Loss) | 3,682,687 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities—Unaffiliated Issuers | (2,156,290) |
Investment Securities—Affiliated Issuers | (275,157) |
Futures Contracts | (5,012) |
Foreign Currencies | (98) |
Change in Unrealized Appreciation (Depreciation) | (2,436,557) |
Net Increase (Decrease) in Net Assets Resulting from Operations | 2,275,814 |
1 Dividends are net of foreign withholding taxes of $12,525,000. | |
See accompanying Notes, which are an integral part of the Financial Statements. |
20
Windsor II Fund
Statement of Changes in Net Assets
Year Ended October 31, | ||
2018 | 2017 | |
($000) | ($000) | |
Increase (Decrease) in Net Assets | ||
Operations | ||
Net Investment Income | 1,029,684 | 995,340 |
Realized Net Gain (Loss) | 3,682,687 | 3,197,107 |
Change in Unrealized Appreciation (Depreciation) | (2,436,557) | 4,305,009 |
Net Increase (Decrease) in Net Assets Resulting from Operations | 2,275,814 | 8,497,456 |
Distributions | ||
Net Investment Income | ||
Investor Shares | (252,654) | (328,011) |
Admiral Shares | (710,493) | (780,981) |
Realized Capital Gain1 | ||
Investor Shares | (828,642) | (754,617) |
Admiral Shares | (2,184,797) | (1,716,810) |
Total Distributions | (3,976,586) | (3,580,419) |
Capital Share Transactions | ||
Investor Shares | (1,134,007) | (1,593,453) |
Admiral Shares | (130,763) | 1,063,814 |
Net Increase (Decrease) from Capital Share Transactions | (1,264,770) | (529,639) |
Total Increase (Decrease) | (2,965,542) | 4,387,398 |
Net Assets | ||
Beginning of Period | 49,151,909 | 44,764,511 |
End of Period | 46,186,367 | 49,151,909 |
1 Includes fiscal 2018 and 2017 short-term gain distributions totaling $190,915,000 and $129,480,000, respectively. Short-term gain | ||
distributions are treated as ordinary income dividends for tax purposes. |
See accompanying Notes, which are an integral part of the Financial Statements.
21
Windsor II Fund
Financial Highlights
Investor Shares | |||||
For a Share Outstanding | Year Ended October 31, | ||||
Throughout Each Period | 2018 | 2017 | 2016 | 2015 | 2014 |
Net Asset Value, Beginning of Period | $38.81 | $35.03 | $36.73 | $39.59 | $36.19 |
Investment Operations | |||||
Net Investment Income | .7831 | .7501 | .8471 | .809 | .868 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | .950 | 5.847 | .096 | (.229) | 4.167 |
Total from Investment Operations | 1.733 | 6.597 | .943 | .580 | 5.035 |
Distributions | |||||
Dividends from Net Investment Income | (.740) | (. 851) | (.781) | (. 827) | (. 838) |
Distributions from Realized Capital Gains | (2.413) | (1.966) | (1.862) | (2.613) | (.797) |
Total Distributions | (3.153) | (2.817) | (2.643) | (3.440) | (1.635) |
Net Asset Value, End of Period | $37.39 | $38.81 | $35.03 | $36.73 | $39.59 |
Total Return2 | 4.44% | 19.60% | 2.86% | 1.57% | 14.36% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $12,061 | $13,638 | $13,773 | $15,397 | $17,312 |
Ratio of Total Expenses to Average Net Assets3 | 0.33% | 0.34% | 0.33% | 0.34% | 0.36% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.04% | 2.01% | 2.46% | 2.12% | 2.28% |
Portfolio Turnover Rate | 29% | 32% | 33% | 26% | 27% |
1 Calculated based on average shares outstanding.
2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information
about any applicable account service fees.
3 Includes performance-based investment advisory fee increases (decreases) of (0.03%), (0.02%), (0.03%), (0.02%), and 0.00%.
See accompanying Notes, which are an integral part of the Financial Statements.
22
Windsor II Fund
Financial Highlights
Admiral Shares | |||||
For a Share Outstanding | Year Ended October 31, | ||||
Throughout Each Period | 2018 | 2017 | 2016 | 2015 | 2014 |
Net Asset Value, Beginning of Period | $68.88 | $62.18 | $65.20 | $70.27 | $64.23 |
Investment Operations | |||||
Net Investment Income | 1.4431 | 1.3771 | 1.5521 | 1.492 | 1.601 |
Net Realized and Unrealized Gain (Loss) | |||||
on Investments | 1.682 | 10.376 | .168 | (.401) | 7.398 |
Total from Investment Operations | 3.125 | 11.753 | 1.720 | 1.091 | 8.999 |
Distributions | |||||
Dividends from Net Investment Income | (1.371) | (1.565) | (1.437) | (1.525) | (1.545) |
Distributions from Realized Capital Gains | (4.284) | (3.488) | (3.303) | (4.636) | (1.414) |
Total Distributions | (5.655) | (5.053) | (4.740) | (6.161) | (2.959) |
Net Asset Value, End of Period | $66.35 | $68.88 | $62.18 | $65.20 | $70.27 |
Total Return2 | 4.52% | 19.68% | 2.94% | 1.66% | 14.46% |
Ratios/Supplemental Data | |||||
Net Assets, End of Period (Millions) | $34,126 | $35,514 | $30,991 | $31,763 | $32,898 |
Ratio of Total Expenses to Average Net Assets3 | 0.25% | 0.26% | 0.25% | 0.26% | 0.28% |
Ratio of Net Investment Income to | |||||
Average Net Assets | 2.12% | 2.09% | 2.54% | 2.20% | 2.36% |
Portfolio Turnover Rate | 29% | 32% | 33% | 26% | 27% |
1 Calculated based on average shares outstanding.
2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information
about any applicable account service fees.
3 Includes performance-based investment advisory fee increases (decreases) of (0.03%), (0.02%), (0.03%), (0.02%), and 0.00%.
See accompanying Notes, which are an integral part of the Financial Statements.
23
Windsor II Fund
Notes to Financial Statements
Vanguard Windsor II 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 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. Temporary cash investments are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services.
2. Foreign Currency: Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates obtained from an independent third party as of the fund’s pricing time on the valuation date. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the assets or liabilities are settled in cash, at which time they are recorded as realized foreign currency gains (losses).
3. Futures Contracts: The fund uses index futures contracts to a limited extent, with the objective of maintaining full exposure to the stock market while maintaining liquidity. The fund may purchase or sell futures contracts to achieve a desired level of investment, whether to accommodate portfolio turnover or cash flows from capital share transactions. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of 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
24
Windsor II Fund
requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Statement of Net Assets.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized futures gains (losses).
During the year ended October 31, 2018, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
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 all open federal income tax years (October 31, 2015–2018), 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. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes.
6. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled before the opening of the market on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the event of a default, the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of 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. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
7. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $3.1 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 0.10% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the
25
Windsor II Fund
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 based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.
The fund had no borrowings outstanding at October 31, 2018, 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. 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), shareholder reporting, and the proxy. 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 investment advisory firms Barrow, Hanley, Mewhinney & Strauss, LLC, Lazard Asset Management LLC, Sanders Capital, LLC, and Hotchkis and Wiley Capital 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 performance relative to the MSCI US Prime Market 750 Index for the preceding three years. The basic fee of Lazard Asset Management LLC is subject to quarterly adjustments based on performance relative to the S&P 500 Index for the preceding three years. The basic fee of Sanders Capital, LLC, is subject to quarterly adjustments based on performance relative to the Russell 3000 Index for the preceding five years. The basic fee of Hotchkis and Wiley Capital Management, LLC, is subject to quarterly adjustments based on performance relative to the MSCI US Investable Market 2500 Index for the preceding five years.
Vanguard provides investment advisory services to a portion of the fund as described below; the fund paid Vanguard advisory fees of $515,000 for the year ended October 31, 2018.
For the year ended October 31, 2018, the aggregate investment advisory fee paid to all advisors represented an effective annual basic rate of 0.14% of the fund’s average net assets, before a decrease of $13,022,000 (0.03%) based on performance.
C. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets. All other costs of operations payable to Vanguard are generally settled twice a month.
26
Windsor II Fund
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At October 31, 2018, the fund had contributed to Vanguard capital in the amount of $2,502,000, representing 0.01% of the fund’s net assets and 1.00% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and employees, respectively, 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. The fund’s custodian bank has also agreed to reduce its fees when the fund maintains cash on deposit in the non-interest-bearing custody account. For the year ended October 31, 2018, these arrangements reduced the fund’s management and administrative expenses by $714,000 and custodian fees by $3,000. The total expense reduction represented an effective annual rate of 0.00% of the fund’s 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). Any investments valued with significant unobservable inputs are
noted on the Statement of Net Assets.
The following table summarizes the market value of the fund’s investments as of October 31, 2018, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | |
Investments | ($000) | ($000) | ($000) |
Common Stocks | 44,273,721 | 809,988 | — |
Temporary Cash Investments | 1,156,280 | 27,170 | — |
Futures Contracts—Assets1 | 807 | — | — |
Total | 45,430,808 | 837,158 | — |
1 Represents variation margin on the last day of the reporting period. |
F. Permanent differences between book-basis and tax-basis components of net assets are reclassified among capital accounts in the financial statements to reflect their tax character. These reclassifications have no effect on net assets or net asset value per share. As of period end, the following permanent differences primarily attributable to the accounting for foreign currency transactions and distributions in connection with fund share redemption were reclassified to the following accounts:
Amount | |
($000) | |
Paid-in Capital | 208,343 |
Total Distributable Earnings (Loss) | (208,343) |
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Windsor II Fund
Temporary differences between book-basis and tax-basis components of total distributable earnings (loss) arise when certain items of income, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. The differences are primarily related to the tax deferral of losses on wash sales and the realization of unrealized gains or losses on certain futures contracts. As of period end, the tax-basis components of total distributable earnings (loss) are detailed in the table as follows:
Amount | |
($000) | |
Undistributed Ordinary Income | 547,222 |
Undistributed Long-Term Gains | 3,197,501 |
Capital Loss Carryforwards (Non-expiring) | — |
Net Unrealized Gains (Losses) | 10,281,212 |
As of October 31, 2018, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | |
($000) | |
Tax Cost | 35,985,829 |
Gross Unrealized Appreciation | 13,192,332 |
Gross Unrealized Depreciation | (2,911,002) |
Net Unrealized Appreciation (Depreciation) | 10,281,330 |
G. During the year ended October 31, 2018, the fund purchased $13,855,113,000 of investment securities and sold $17,994,665,000 of investment securities, other than temporary cash investments.
H. Capital share transactions for each class of shares were:
Year Ended October 31, | ||||
2018 | 2017 | |||
Amount | Shares | Amount | Shares | |
($000) | (000) | ($000) | (000) | |
Investor Shares | ||||
Issued | 803,624 | 21,108 | 649,950 | 17,561 |
Issued in Lieu of Cash Distributions | 1,052,733 | 27,845 | 1,057,833 | 29,591 |
Redeemed | (2,990,364) | (77,778) | (3,301,236) | (88,909) |
Net Increase (Decrease)—Investor Shares | (1,134,007) | (28,825) | (1,593,453) | (41,757) |
Admiral Shares | ||||
Issued | 2,416,874 | 35,509 | 3,043,402 | 46,187 |
Issued in Lieu of Cash Distributions | 2,738,624 | 40,825 | 2,363,797 | 37,258 |
Redeemed | (5,286,261) | (77,631) | (4,343,385) | (66,275) |
Net Increase (Decrease)—Admiral Shares | (130,763) | (1,297) | 1,063,814 | 17,170 |
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Windsor II 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 | Realized | Oct. 31, | |||||
2017 | from | Net | Change in | Capital Gain | 2018 | |||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||
Value | at Cost | Sold | (Loss) | App. (Dep.) | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
Adient plc | NA1 | 270,713 | 41,295 | (2,967) | (266,911) | 5,921 | — | 207,482 |
Vanguard Market | ||||||||
Liquidity Fund | 1,240,439 | NA 2 | NA 2 | (136) | 14 | 20,755 | — | 1,156,280 |
Vanguard | ||||||||
Value ETF | 64,101 | — | 19,769 | 10,631 | (8,260) | 1,279 | — | 46,703 |
Total | 1,304,540 | 7,528 | (275,157) | 27,955 | — | 1,410,465 | ||
1 Not applicable— at October 31, 2017, 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 events or transactions occurred subsequent to October 31, 2018, that would require recognition or disclosure in these financial statements.
29
Report of Independent Registered
Public Accounting Firm
To the Board of Trustees of Vanguard Windsor Funds and Shareholders of Vanguard Windsor II Fund
Opinion on the Financial Statements
We have audited the accompanying statement of net assets of Vanguard Windsor II Fund (one of the funds constituting Vanguard Windsor Funds, referred to hereafter as the “Fund”) as of October 31, 2018, the related statement of operations for the year ended October 31, 2018, the statement of changes in net assets for each of the two years in the period ended October 31, 2018, including the related notes, and the financial highlights for each of the five years in the period ended October 31, 2018 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of October 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period ended October 31, 2018 and the financial highlights for each of the five years in the period ended October 31, 2018 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of October 31, 2018 by correspondence with the custodians and brokers and by agreement to the underlying ownership records of the transfer agent; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 13, 2018
We have served as the auditor of one or more investment companies in The Vanguard Group of Funds since 1975.
30
Special 2018 tax information (unaudited) for Vanguard Windsor II Fund
This information for the fiscal year ended October 31, 2018, is included pursuant to provisions
of the Internal Revenue Code.
The fund distributed $3,019,827,000 as capital gain dividends (20% rate gain distributions) to
shareholders during the fiscal year.
For nonresident alien shareholders, 100% of short-term capital gain dividends distributed by the
fund are qualified short-term capital gains.
The fund distributed $1,039,723,000 of qualified dividend income to shareholders during the
fiscal year.
For corporate shareholders, 73.7% of investment income (dividend income plus short-term gains,
if any) qualifies for the dividends-received deduction.
31
Your Fund’s After-Tax Returns
This table presents returns for your fund both before and after taxes. The after-tax returns are shown in two ways: (1) assuming that an investor owned the fund during the entire period and paid taxes on the fund’s distributions, and (2) assuming that an investor paid taxes on the fund’s distributions and sold all shares at the end of each period.
Calculations are based on the highest individual federal income tax and capital gains tax rates in effect at the times of the distributions and the hypothetical sales. State and local taxes were not considered. After-tax returns reflect any qualified dividend income, using actual prior-year figures and estimates for 2018. (In the example, returns after the sale of fund shares may be higher than those assuming no sale. This occurs when the sale would have produced a capital loss. The calculation assumes that the investor received a tax deduction for the loss.)
The table shows returns for Investor Shares only; returns for other share classes will differ. Please note that your actual after-tax returns will depend on your tax situation and may differ from those shown. Also note that if you own the fund in a tax-deferred account, such as an individual retirement account or a 401(k) plan, this information does not apply to you. Such accounts are not subject to current taxes.
Finally, keep in mind that a fund’s performance—whether before or after taxes—does not guarantee future results.
Average Annual Total Returns: Windsor II Fund Investor Shares | |||
Periods Ended October 31, 2018 | |||
One | Five | Ten | |
Year | Years | Years | |
Returns Before Taxes | 4.44% | 8.34% | 11.50% |
Returns After Taxes on Distributions | 2.46 | 6.44 | 10.31 |
Returns After Taxes on Distributions and Sale of Fund Shares | 3.98 | 6.28 | 9.38 |
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 October 31, 2018 | |||
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
Windsor II Fund | 4/30/2018 | 10/31/2018 | Period |
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $1,017.60 | $1.68 |
Admiral Shares | 1,000.00 | 1,018.02 | 1.27 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,023.54 | $1.68 |
Admiral Shares | 1,000.00 | 1,023.95 | 1.28 |
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 0.33% for Investor Shares and 0.25% 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 (184/365).
34
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.
35
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.
36
The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark
of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use
by Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification
makes any express or implied warranties or representations with respect to such standard or classification (or the results
to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy,
completeness, merchantability or fitness for a particular purpose with respect to any such standard or classification.
Without limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party involved in
making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive,
consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
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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 211 Vanguard funds.
Information for each trustee and executive officer of the fund appears below. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
Interested Trustees1
F. William McNabb III
Born in 1957. Trustee since July 2009. Principal occupation(s) during the past five years and other experience: chairman of the board (January 2010–present) of Vanguard and of each of the investment companies served by Vanguard, trustee (2009–present) of each of the investment companies served by Vanguard, and director (2008–present) of Vanguard. Chief executive officer and president (2008–2017) of Vanguard and each of the investment companies served by Vanguard, managing director (1995–2008) of Vanguard, and director (1997–2018) of Vanguard Marketing Corporation. Director (2018–present) of UnitedHealth Group.
Mortimer J. Buckley
Born in 1969. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: chief executive officer (January 2018–present) of Vanguard; chief executive officer, president, and trustee (January 2018–present) of each of the investment companies served by Vanguard; president and director (2017–present) of Vanguard; and president (February 2018–present) of Vanguard Marketing Corporation. Chief investment officer (2013–2017), managing director (2002–2017), head of the Retail Investor Group (2006–2012), and chief information officer (2001–2006) of Vanguard. Chairman of the board (2011–2017) of the Children’s Hospital of Philadelphia.
Independent Trustees
Emerson U. Fullwood
Born in 1948. Trustee since January 2008. Principal occupation(s) during the past five years and other experience: executive chief staff and marketing officer for North America and corporate vice president (retired 2008) of Xerox Corporation (document management products and services). Former president of the Worldwide Channels Group, Latin America, and Worldwide Customer Service and executive chief staff officer of Developing Markets of Xerox. Executive in residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology. Lead director of SPX FLOW, Inc. (multi-industry manufacturing). Director of the University of Rochester Medical Center, the Monroe Community College Foundation, the United Way of Rochester, North Carolina A&T University, and Roberts Wesleyan College. Trustee of the University of Rochester.
Amy Gutmann
Born in 1949. Trustee since June 2006. Principal occupation(s) during the past five years and other experience: president (2004–present) of the University of Pennsylvania. Christopher H. Browne Distinguished Professor of Political Science, School of Arts and Sciences, and professor of communication, Annenberg School for Communication, with secondary faculty appointments in the Department of Philosophy, School of Arts and Sciences, and at the Graduate School of Education, University of Pennsylvania. Trustee of the National Constitution Center.
1 Mr. McNabb and Mr. Buckley are considered “interested persons,” as defined in the Investment Company Act of 1940, because
they are officers of the Vanguard funds.
JoAnn Heffernan Heisen
Born in 1950. Trustee since July 1998. Principal occupation(s) during the past five years and other experience: corporate vice president of Johnson & Johnson (pharmaceuticals/medical devices/consumer products) and member of its executive committee (1997–2008). Chief global diversity officer (retired 2008), vice president and chief information officer (1997–2006), controller (1995–1997), treasurer (1991–1995), and assistant treasurer (1989–1991) of Johnson & Johnson. Director of Skytop Lodge Corporation (hotels) and the Robert Wood Johnson Foundation. Member of the advisory board of the Institute for Women’s Leadership at Rutgers University.
F. Joseph Loughrey
Born in 1949. Trustee since October 2009. Principal occupation(s) during the past five years and other experience: president and chief operating officer (retired 2009) and vice chairman of the board (2008–2009) of Cummins Inc. (industrial machinery). Chairman of the board of Hillenbrand, Inc. (specialized consumer services), Oxfam America, and the Lumina Foundation for Education. Director of the V Foundation for Cancer Research. Member of the advisory council for the College of Arts and Letters and chair of the advisory board to the Kellogg Institute for International Studies, both at the University of Notre Dame.
Mark Loughridge
Born in 1953. Trustee since March 2012. Principal occupation(s) during the past five years and other experience: senior vice president and chief financial officer (retired 2013) of IBM (information technology services). Fiduciary member of IBM’s Retirement Plan Committee (2004–2013), senior vice president and general manager (2002–2004) of IBM Global Financing, vice president and controller (1998–2002) of IBM, and a variety of other prior management roles at IBM. Member of the Council on Chicago Booth.
Scott C. Malpass
Born in 1962. Trustee since March 2012. Principal occupation(s) during the past five years and other experience: chief investment officer (1989–present) and vice president (1996–present) of the University of Notre Dame. Assistant professor of finance at the Mendoza College of Business, University of Notre Dame, and member of the Notre Dame 403(b) Investment Committee. Chairman of the board of TIFF Advisory Services, Inc. Member of the board of Catholic Investment Services, Inc. (investment advisors), the board of advisors for Spruceview Capital Partners, and the board of superintendence of the Institute for the Works of Religion.
Deanna Mulligan
Born in 1963. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: president (2010–present) and chief executive officer (2011–present) of The Guardian Life Insurance Company of America. Chief operating officer (2010–2011) and executive vice president (2008–2010) of Individual Life and Disability of The Guardian Life Insurance Company of America. Member of the board of The Guardian Life Insurance Company of America, the American Council of Life Insurers, the Partnership for New York City (business leadership), and the Committee Encouraging Corporate Philanthropy. Trustee of the Economic Club of New York and the Bruce Museum (arts and science). Member of the Advisory Council for the Stanford Graduate School of Business.
André F. Perold
Born in 1952. Trustee since December 2004. Principal occupation(s) during the past five years and other experience: George Gund Professor of Finance and Banking, Emeritus at the Harvard Business School (retired 2011). Chief investment officer and co-managing partner of HighVista Strategies LLC (private investment firm). Overseer of the Museum of Fine Arts Boston.
Sarah Bloom Raskin
Born in 1961. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: deputy secretary (2014–2017) of the United States Department of the Treasury. Governor (2010–2014) of the Federal Reserve Board. Commissioner (2007–2010) of financial regulation for the State of Maryland. Member of the board of directors (2012–2014) of Neighborhood Reinvestment Corporation. Director of i(x) Investments, LLC.
Peter F. Volanakis
Born in 1955. Trustee since July 2009. Principal occupation(s) during the past five years and other experience: president and chief operating officer (retired 2010) of Corning Incorporated (communications equipment) and director of Corning Incorporated (2000–2010) and Dow Corning (2001–2010). Director (2012) of SPX Corporation (multi-industry manufacturing). Overseer of the Amos Tuck School of Business Administration, Dartmouth College (2001–2013). Chairman of the board of trustees of Colby-Sawyer College. Member of the Board of Hypertherm Inc. (industrial cutting systems, software, and consumables).
Executive Officers
Glenn Booraem
Born in 1967. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Investment stewardship officer (2017–present), treasurer (2015–2017), controller (2010–2015), and assistant controller (2001–2010) of each of the investment companies served by Vanguard.
Christine M. Buchanan
Born in 1970. Principal occupation(s) during the past five years and other experience: principal of Vanguard and global head of Fund Administration at Vanguard. Treasurer (2017–present) of each of the investment companies served by Vanguard. Partner (2005–2017) at KPMG LLP (audit, tax, and advisory services).
Brian Dvorak
Born in 1973. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Chief compliance officer (2017–present) of Vanguard and each of the investment companies served by Vanguard. Assistant vice president (2017–present) of Vanguard Marketing Corporation. Vice president and director of Enterprise Risk Management (2011–2013) at Oppenheimer Funds, Inc.
Thomas J. Higgins
Born in 1957. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Chief financial officer (2008–present) and treasurer (1998–2008) of each of the investment companies served by Vanguard.
Peter Mahoney
Born in 1974. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Controller (2015–present) of each of the investment companies served by Vanguard. Head of International Fund Services (2008–2014) at Vanguard.
Anne E. Robinson
Born in 1970. Principal occupation(s) during the past five years and other experience: general counsel (2016–present) of Vanguard. Secretary (2016–present) of Vanguard and of each of the investment companies served by Vanguard. Managing director (2016–present) of Vanguard. Director and senior vice president (2016–2018) of Vanguard Marketing Corporation. Managing director and general counsel of Global Cards and Consumer Services (2014–2016) at Citigroup. Counsel (2003–2014) at American Express.
Michael Rollings
Born in 1963. Principal occupation(s) during the past five years and other experience: finance director (2017–present) and treasurer (2017) of each of the investment companies served by Vanguard. Managing director (2016–present) of Vanguard. Chief financial officer (2016–present) of Vanguard. Director (2016–present) of Vanguard Marketing Corporation. Executive vice president and chief financial officer (2006–2016) of MassMutual Financial Group.
Vanguard Senior Management Team | |
Joseph Brennan | Chris D. McIsaac |
Mortimer J. Buckley | James M. Norris |
Gregory Davis | Thomas M. Rampulla |
John James | Karin A. Risi |
Martha G. King | Anne E. Robinson |
John T. Marcante | Michael Rollings |
Chairman Emeritus and Senior Advisor | |
John J. Brennan | |
Chairman, 1996–2009 | |
Chief Executive Officer and President, 1996–2008 | |
Founder | |
John C. Bogle | |
Chairman and Chief Executive Officer, 1974–1996 |
P.O. Box 2600 | |
Valley Forge, PA 19482-2600 | |
Connect with Vanguard® > vanguard.com | |
Fund Information > 800-662-7447 | Source for Bloomberg Barclays indexes: Bloomberg |
Direct Investor Account Services > 800-662-2739 | Index Services Limited. Copyright 2018, Bloomberg. All |
rights reserved. | |
Institutional Investor Services > 800-523-1036 | |
CFA® is a registered trademark owned by CFA Institute. | |
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 information about your fund on the | |
SEC’s website, and you can receive copies of this | |
information, for a fee, by sending a request via email | |
addressed to publicinfo@sec.gov. | |
© 2018 The Vanguard Group, Inc. | |
All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q730 122018 |
Item 2: Code of Ethics. The Registrant has adopted a code of ethics that applies to the Registrant’s principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The Code of Ethics was amended during the reporting period covered by this report to make certain technical, non-material changes.
Item 3: Audit Committee Financial Expert. All members of the Audit Committee have been determined by the Registrant’s Board of Trustees to be Audit Committee Financial Experts and to be independent: JoAnn Heffernan Heisen, F. Joseph Loughrey, Mark Loughridge, Sarah Bloom Raskin, and Peter F. Volanakis.
Item 4: Principal Accountant Fees and Services.
(a) Audit Fees.
Audit Fees of the Registrant.
Fiscal Year Ended October 31, 2018: $90,000
Fiscal Year Ended October 31, 2017: $98,000
Aggregate Audit Fees of Registered Investment Companies in the Vanguard Group.
Fiscal Year Ended October 31, 2018: $9,734,277
Fiscal Year Ended October 31, 2017: $8,424,459
Includes fees billed in connection with audits of the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc. and Vanguard Marketing Corporation.
(b) Audit-Related Fees.
Fiscal Year Ended October 31, 2018: $5,581,336
Fiscal Year Ended October 31, 2017: $3,194,093
Includes fees billed in connection with assurance and related services provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.
(c) Tax Fees.
Fiscal Year Ended October 31, 2018: $347,985
Fiscal Year Ended October 31, 2017: $274,313
Includes fees billed in connection with tax compliance, planning, and advice services provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.
(d) All Other Fees.
Fiscal Year Ended October 31, 2018: $0
Fiscal Year Ended October 31, 2017: $0
Includes fees billed for services related to tax reported information provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.
(e) (1) Pre-Approval Policies. The policy of the Registrant’s Audit Committee is to consider and, if appropriate, approve before the principal accountant is engaged for such services, all specific audit and non-audit services provided to: the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and entities controlled by The Vanguard Group, Inc. that provide ongoing services to the Registrant. In making a determination, the Audit Committee considers whether the services are consistent with maintaining the principal accountant’s independence.
In the event of a contingency situation in which the principal accountant is needed to provide services in between scheduled Audit Committee meetings, the Chairman of the Audit Committee would be called on to consider and, if appropriate, pre-approve audit or permitted non-audit services in an amount sufficient to complete services through the next Audit Committee meeting, and to determine if such services would be consistent with maintaining the accountant’s independence. At the next scheduled Audit Committee meeting, services and fees would be presented to the Audit Committee for formal consideration, and, if appropriate, approval by the entire Audit Committee. The Audit Committee would again consider whether such services and fees are consistent with maintaining the principal accountant’s independence.
The Registrant’s Audit Committee is informed at least annually of all audit and non-audit services provided by the principal accountant to the Vanguard complex, whether such services are provided to: the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., or other entities controlled by The Vanguard Group, Inc. that provide ongoing services to the Registrant.
(2) No percentage of the principal accountant’s fees or services were approved pursuant to the waiver provision of paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) For the most recent fiscal year, over 50% of the hours worked under the principal accountant’s engagement were not performed by persons other than full-time, permanent employees of the principal accountant.
(g) Aggregate Non-Audit Fees.
Fiscal Year Ended October 31, 2018: $347,985
Fiscal Year Ended October 31, 2017: $274,313
Includes fees billed for non-audit services provided to the Registrant, other registered investment companies in the Vanguard complex, The Vanguard Group, Inc., and Vanguard Marketing Corporation.
(h) For the most recent fiscal year, the Audit Committee has determined that the provision of all non-audit services was consistent with maintaining the principal accountant’s independence.
Item 5: Audit Committee of Listed Registrants.
The Registrant is a listed issuer as defined in rule 10A-3 under the Securities Exchange Act of 1934 (“Exchange Act”). The Registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Registrant’s audit committee members are: JoAnn Heffernan Heisen, F. Joseph Loughrey, Mark Loughridge, Sarah Bloom Raskin, and Peter F. Volanakis.
Item 6: Investments.
Not Applicable.
Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment
Companies.
Not Applicable.
Item 8: Portfolio Managers of Closed-End Management Investment Companies.
Not Applicable.
Item 9: Purchase of Equity Securities by Closed-End Management Investment Company and
Affiliated Purchasers.
Not Applicable.
Item 10: Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 11: Controls and Procedures.
(a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.
(b) Internal Control Over Financial Reporting. 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: Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not Applicable.
Item 13: Exhibits.
(a) Code of Ethics.
(b) Certifications.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
VANGUARD WINDSOR FUNDS | |
BY: | /s/ MORTIMER J. BUCKLEY* |
MORTIMER J. BUCKLEY | |
CHIEF EXECUTIVE OFFICER | |
Date: December 18, 2018 |
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 WINDSOR FUNDS | |
BY: | /s/ MORTIMER J. BUCKLEY * |
MORTIMER J. BUCKLEY | |
CHIEF EXECUTIVE OFFICER | |
Date: December 18, 2018 | |
| VANGUARD WINDSOR FUNDS |
BY: | /s/ THOMAS J. HIGGINS* |
THOMAS J. HIGGINS | |
CHIEF FINANCIAL OFFICER | |
Date: December 18, 2018 |
* By: /s/ Anne E. Robinson
Anne E. Robinson, pursuant to a Power of Attorney filed on January 18, 2018 see file Number
33-32216, Incorporated by Reference.