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, 2019—April 30, 2020
Item 1: Reports to Shareholders
Semiannual Report | April 30, 2020
Vanguard Windsor™ Fund
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See the inside front cover for important information about access to your fund’s annual and semiannual shareholder reports.
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Important information about access to shareholder reports
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your fund’s annual and semiannual shareholder reports will no longer be sent to you by mail, unless you specifically request them. Instead, you will be notified by mail each time a report is posted on the website and will be provided with a link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. You may elect to receive shareholder reports and other communications from the fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with the fund, by calling Vanguard at one of the phone numbers on the back cover of this report or by logging on to vanguard.com.
You may elect to receive paper copies of all future shareholder reports free of charge. If you invest through a financial intermediary, you can contact the intermediary to request that you continue to receive paper copies. If you invest directly with the fund, you can call Vanguard at one of the phone numbers on the back cover of this report or log on to vanguard.com. Your election to receive paper copies will apply to all the funds you hold through an intermediary or directly with Vanguard.
Contents | |
About Your Fund’s Expenses | 1 |
Financial Statements | 4 |
Trustees Approve Advisory Arrangements | 18 |
Liquidity Risk Management | 20 |
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.
1 |
Six Months Ended April 30, 2020
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
Windsor Fund | 10/31/2019 | 4/30/2020 | Period |
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $865.42 | $1.35 |
Admiral™ Shares | 1,000.00 | 865.67 | 0.88 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,023.42 | $1.46 |
Admiral Shares | 1,000.00 | 1,023.92 | 0.96 |
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 0.29% for Investor Shares and 0.19% for Admiral Shares. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period (182/366).
2 |
Windsor Fund
Fund Allocation
As of April 30, 2020
Communication Services | 9.0 | % |
Consumer Discretionary | 8.9 | |
Consumer Staples | 5.8 | |
Energy | 5.4 | |
Financials | 21.1 | |
Health Care | 14.6 | |
Industrials | 8.3 | |
Information Technology | 12.4 | |
Materials | 4.7 | |
Real Estate | 5.8 | |
Utilities | 4.0 |
The table reflects the fund’s investments, except for short-term investments and derivatives. Sector categories are based on the Global Industry Classification Standard ("GICS"), except for the "Other" category (if applicable), which includes securities that have not been provided a GICS classification as of the effective report-ing period.
The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party involved in making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
3 |
Windsor Fund
Financial Statements (unaudited)
Schedule of Investments
As of April 30, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | ||||||
Value• | ||||||
Shares | ($000 | ) | ||||
Common Stocks (98.0%) | ||||||
Communication Services (8.8%) | ||||||
* | T-Mobile US Inc. | 4,240,545 | 372,320 | |||
Comcast Corp. Class A | 9,205,887 | 346,417 | ||||
Verizon Communications Inc. | 3,445,769 | 197,959 | ||||
* | Electronic Arts Inc. | 1,396,925 | 159,613 | |||
* | Alphabet Inc. Class A | 95,430 | 128,516 | |||
Interpublic Group of Cos. Inc. | 4,983,648 | 84,622 | ||||
*,^ | Match Group Inc. | 1,003,300 | 77,214 | |||
AT&T Inc. | 1,208,041 | 36,809 | ||||
1,403,470 | ||||||
Consumer Discretionary (8.7%) | ||||||
Expedia Group Inc. | 2,832,969 | 201,084 | ||||
* | Dollar Tree Inc. | 2,368,277 | 188,681 | |||
VF Corp. | 2,478,700 | 144,013 | ||||
Lear Corp. | 1,463,465 | 142,907 | ||||
General Motors Co. | 6,093,064 | 135,814 | ||||
Ford Motor Co. | 21,565,427 | 109,768 | ||||
Las Vegas Sands Corp. | 2,242,600 | 107,690 | ||||
Newell Brands Inc. | 5,957,934 | 82,696 | ||||
PVH Corp. | 1,654,664 | 81,459 | ||||
Gildan Activewear Inc. | 5,742,068 | 80,044 | ||||
* | Mohawk Industries Inc. | 745,450 | 65,391 | |||
Royal Caribbean Cruises Ltd. | 915,200 | 42,804 | ||||
^ | Carnival Corp. | 504,655 | 8,024 | |||
1,390,375 | ||||||
Consumer Staples (5.7%) | ||||||
Philip Morris International Inc. | 3,952,576 | 294,862 | ||||
Sysco Corp. | 4,154,300 | 233,762 | ||||
Keurig Dr Pepper Ord Shs | 6,278,200 | 166,121 | ||||
Archer-Daniels-Midland Co. | 3,353,677 | 124,556 | ||||
* | US Foods Holding Corp. | 2,347,439 | 50,470 | |||
Kellogg Co. | 570,756 | 37,385 | ||||
907,156 | ||||||
Energy (5.3%) | ||||||
Halliburton Co. | 14,265,511 | 149,788 | ||||
Canadian Natural Resources Ltd. | 8,686,172 | 145,580 | ||||
Concho Resources Inc. | 2,266,480 | 128,555 | ||||
Diamondback Energy Inc. | 2,398,016 | 104,410 | ||||
National Oilwell Varco Inc. | 7,634,325 | 96,498 | ||||
^ | Royal Dutch Shell plc ADR | 2,272,791 | 75,297 | |||
Exxon Mobil Corp. | 1,472,730 | 68,438 | ||||
Baker Hughes Co. | 4,166,405 | 58,121 | ||||
Cenovus Energy Inc. | 6,621,254 | 24,101 | ||||
850,788 | ||||||
Financials (20.7%) | ||||||
Bank of America Corp. | 18,766,156 | 451,326 | ||||
MetLife Inc. | 7,827,503 | 282,416 | ||||
Citigroup Inc. | 4,998,048 | 242,705 | ||||
Raymond James Financial Inc. | 3,454,971 | 227,752 | ||||
Equitable Holdings Inc. | 10,526,712 | 192,849 | ||||
TD Ameritrade Holding Corp. | 4,823,596 | 189,423 | ||||
* | Athene Holding Ltd. Class A | 5,209,165 | 140,647 | |||
American International Group Inc. | 5,078,984 | 129,159 | ||||
Morgan Stanley | 3,128,833 | 123,370 | ||||
M&T Bank Corp. | 1,088,197 | 121,965 | ||||
JPMorgan Chase & Co. | 1,218,510 | 116,685 | ||||
Capital One Financial Corp. | 1,797,232 | 116,389 | ||||
Charles Schwab Corp. | 2,826,700 | 106,623 | ||||
Zions Bancorp NA | 3,245,453 | 102,589 | ||||
London Stock Exchange Group plc | 1,085,429 | 101,593 | ||||
Wells Fargo & Co. | 3,377,478 | 98,116 | ||||
Voya Financial Inc. | 2,064,001 | 93,231 | ||||
Goldman Sachs Group Inc. | 493,525 | 90,522 |
4 |
Windsor Fund
Market | ||||||
Value• | ||||||
Shares | ($000 | ) | ||||
Unum Group | 4,203,351 | 73,348 | ||||
Prudential Financial Inc. | 994,725 | 62,041 | ||||
ING Groep NV ADR | 10,549,795 | 58,024 | ||||
Fifth Third Bancorp | 2,159,384 | 40,359 | ||||
KeyCorp | 3,143,625 | 36,623 | ||||
Axis Capital Holdings Ltd. | 896,994 | 32,830 | ||||
UBS Group AG | 2,753,680 | 29,630 | ||||
KKR & Co. Inc. Class A | 876,027 | 22,085 | ||||
Assurant Inc. | 125,136 | 13,294 | ||||
Invesco Ltd. | 695,225 | 5,993 | ||||
3,301,587 | ||||||
Health Care (14.4%) | ||||||
CVS Health Corp. | 5,690,985 | 350,280 | ||||
UnitedHealth Group Inc. | 995,402 | 291,125 | ||||
Bristol-Myers Squibb Co. | 4,475,984 | 272,185 | ||||
Medtronic plc | 2,466,197 | 240,775 | ||||
* | Centene Corp. | 2,493,294 | 166,004 | |||
Dentsply Sirona Inc. | 3,382,400 | 143,549 | ||||
Anthem Inc. | 454,500 | 127,592 | ||||
McKesson Corp. | 814,478 | 115,045 | ||||
Eli Lilly and Co. | 606,554 | 93,797 | ||||
* | Regeneron Pharmaceuticals Inc. | 162,800 | 85,613 | |||
Amgen Inc. | 339,895 | 81,310 | ||||
* | Mylan NV | 4,389,901 | 73,619 | |||
Pfizer Inc. | 1,888,111 | 72,428 | ||||
Koninklijke Philips NV | 1,419,559 | 61,882 | ||||
Cigna Corp. | 298,096 | 58,361 | ||||
Cardinal Health Inc. | 1,130,272 | 55,926 | ||||
2,289,491 | ||||||
Industrials (8.1%) | ||||||
Westinghouse Air Brake Technologies Corp. | 4,887,890 | 275,775 | ||||
Raytheon Technologies Corp. | 2,615,385 | 169,503 | ||||
General Electric Co. | 19,315,466 | 131,345 | ||||
* | Uber Technologies Inc. | 4,270,900 | 129,280 | |||
Stanley Black & Decker Inc. | 1,156,483 | 127,444 | ||||
JB Hunt Transport Services Inc. | 1,176,586 | 118,976 | ||||
Ferguson plc | 1,221,153 | 88,049 | ||||
* | Middleby Corp. | 978,484 | 54,433 | |||
Parker-Hannifin Corp. | 317,760 | 50,244 | ||||
Dover Corp. | 281,597 | 26,372 | ||||
1,290,705 | ||||||
Information Technology (12.1%) | ||||||
Intel Corp. | 5,617,207 | 336,920 | ||||
* | Micron Technology Inc. | 4,838,824 | 231,731 | |||
Cisco Systems Inc. | 4,884,497 | 207,005 | ||||
Broadcom Inc. | 730,621 | 198,451 | ||||
KLA Corp. | 1,073,171 | 176,097 | ||||
* | FleetCor Technologies Inc. | 531,200 | 128,152 | |||
Amdocs Ltd. | 1,913,309 | 123,294 | ||||
Cognizant Technology Solutions Corp. Class A | 1,962,403 | 113,859 | ||||
Oracle Corp. | 1,821,644 | 96,492 | ||||
Hewlett Packard Enterprise Co. | 9,494,924 | 95,519 | ||||
Global Payments Inc. | 468,705 | 77,814 | ||||
Samsung Electronics Co. Ltd. | 1,863,975 | 76,642 | ||||
Juniper Networks Inc. | 1,836,089 | 39,660 | ||||
Genpact Ltd. | 912,299 | 31,410 | ||||
1,933,046 | ||||||
Materials (4.6%) | ||||||
FMC Corp. | 2,003,391 | 184,112 | ||||
Reliance Steel & Aluminum Co. | 1,606,245 | 143,887 | ||||
Celanese Corp. | 1,573,563 | 130,716 | ||||
Dow Inc. | 2,846,876 | 104,452 | ||||
PPG Industries Inc. | 904,441 | 82,150 | ||||
Vulcan Materials Co. | 686,452 | 77,549 | ||||
* | Livent Corp. | 2,292,561 | 14,214 | |||
737,080 | ||||||
Real Estate (5.7%) | ||||||
Americold Realty Trust | 5,755,465 | 176,060 | ||||
VICI Properties Inc. | 8,891,700 | 154,893 | ||||
Prologis Inc. | 1,524,800 | 136,058 | ||||
Digital Realty Trust Inc. | 893,700 | 133,599 | ||||
Equinix Inc. | 178,844 | 120,756 | ||||
Host Hotels & Resorts Inc. | 8,839,808 | 108,818 | ||||
Camden Property Trust | 577,551 | 50,865 | ||||
American Tower Corp. | 137,686 | 32,769 | ||||
913,818 | ||||||
Utilities (3.9%) | ||||||
Exelon Corp. | 7,363,942 | 273,055 | ||||
Duke Energy Corp. | 2,314,539 | 195,949 | ||||
Edison International | 1,357,090 | 79,675 | ||||
Avangrid Inc. | 1,258,907 | 54,133 | ||||
Entergy Corp. | 239,718 | 22,895 | ||||
625,707 | ||||||
Total Common Stocks | ||||||
(Cost $16,117,492) | 15,643,223 |
5 |
Windsor Fund
Market | ||||||
Value• | ||||||
Shares | ($000 | ) | ||||
Temporary Cash Investments (3.2%) | ||||||
Money Market Fund (1.9%) | ||||||
1,2 Vanguard Market | ||||||
Liquidity Fund, | ||||||
0.522% | 2,943,424 | 294,343 | ||||
Face | ||||||
Amount | ||||||
($000 | ) | |||||
Repurchase Agreement (1.2%) | ||||||
| Bank of America Securities, LLC, 0.040%, 5/1/20 (Dated 4/30/20, Repurchase Value $198,300,000 collateralized by Federal National Mortgage Assn. 2.406%–9.500%, 5/25/20–2/1/50, Federal Home Loan Mortgage Corp. 2.500%–10.000%, 5/15/20–2/1/50, Government National Mortgage Assn. 3.000%, 4/20/2050, with a value of $202,266,000) | | 198,300 | | 198,300 | |
U.S. Government and Agency Obligations (0.1%) | ||||||
3 | United States Cash | |||||
Management Bill, | ||||||
0.100%–0.103%, 7/14/20 | 4,940 | 4,939 | ||||
United States Cash | ||||||
Management Bill, | ||||||
0.116%, 9/29/20 | 12,700 | 12,693 | ||||
3 | United States Treasury Bill, | |||||
1.551%, 5/14/20 | 2,000 | 2,000 | ||||
3 | United States Treasury Bill, | |||||
1.128%, 6/4/20 | 1,160 | 1,160 | ||||
20,792 | ||||||
Total Temporary Cash Investments | ||||||
(Cost $513,297) | 513,435 | |||||
Total Investments (101.2%) | ||||||
(Cost $16,630,789) | 16,156,658 | |||||
Other Assets and Liabilities— | ||||||
Net (-1.2%)2,3 | (194,179 | ) | ||||
Net Assets (100%) | 15,962,479 |
Cost rounded to $000.
• | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. |
^ | Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $149,106,000. |
1 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
2 | Collateral of $166,596,000 was received for securities on loan. |
3 | Securities with a value of $4,994,000 and cash of $5,781,000 have 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 | June 2020 | 765 | 111,017 | 20,004 |
See accompanying Notes, which are an integral part of the Financial Statements.
6 |
Windsor Fund
Statement of Assets and Liabilities
As of April 30, 2020
($000s, except shares and per-share amounts) | Amount | ||
Assets | |||
Investments in Securities, at Value | |||
Unaffiliated Issuers (Cost $16,336,583) | 15,862,315 | ||
Affiliated Issuers (Cost $294,206) | 294,343 | ||
Total Investments in Securities | 16,156,658 | ||
Investment in Vanguard | 736 | ||
Cash | 2,592 | ||
Cash Collateral Pledged—Futures Contracts | 5,781 | ||
Receivables for Investment Securities Sold | 40,190 | ||
Receivables for Accrued Income | 12,125 | ||
Receivables for Capital Shares Issued | 3,025 | ||
Variation Margin Receivable—Futures Contracts | 1,578 | ||
Total Assets | 16,222,685 | ||
Liabilities | |||
Payables for Investment Securities Purchased | 61,185 | ||
Collateral for Securities on Loan | 166,596 | ||
Payables for Capital Shares Redeemed | 22,481 | ||
Payables to Investment Advisor | 2,078 | ||
Payables to Vanguard | 7,866 | ||
Total Liabilities | 260,206 | ||
Net Assets | 15,962,479 | ||
At April 30, 2020, net assets consisted of: | |||
Paid-in Capital | 15,383,817 | ||
Total Distributable Earnings (Loss) | 578,662 | ||
Net Assets | 15,962,479 | ||
Investor Shares—Net Assets | |||
Applicable to 231,844,103 outstanding $.001 par value shares of | |||
beneficial interest (unlimited authorization) | 3,985,220 | ||
Net Asset Value Per Share—Investor Shares | $17.19 | ||
Admiral Shares—Net Assets | |||
Applicable to 206,587,015 outstanding $.001 par value shares of | |||
beneficial interest (unlimited authorization) | 11,977,259 | ||
Net Asset Value Per Share—Admiral Shares | $57.98 |
See accompanying Notes, which are an integral part of the Financial Statements.
7 |
Windsor Fund
Statement of Operations
Six Months Ended | |||
April 30, 2020 | |||
($000) | |||
Investment Income | |||
Income | |||
Dividends—Unaffiliated Issuers1 | 211,999 | ||
Dividends—Affiliated Issuers | — | ||
Interest—Unaffiliated Issuers | 1,131 | ||
Interest—Affiliated Issuers | 2,366 | ||
Securities Lending—Net | 1,782 | ||
Total Income | 217,278 | ||
Expenses | |||
Investment Advisory Fees—Note B | |||
Basic Fee | 11,635 | ||
Performance Adjustment | (6,506) | ||
The Vanguard Group—Note C | |||
Management and Administrative—Investor Shares | 4,786 | ||
Management and Administrative—Admiral Shares | 8,598 | ||
Marketing and Distribution—Investor Shares | 208 | ||
Marketing and Distribution—Admiral Shares | 299 | ||
Custodian Fees | 51 | ||
Shareholders’ Reports—Investor Shares | 31 | ||
Shareholders’ Reports—Admiral Shares | 25 | ||
Trustees’ Fees and Expenses | 14 | ||
Total Expenses | 19,141 | ||
Net Investment Income | 198,137 | ||
Realized Net Gain (Loss) | |||
Investment Securities Sold—Unaffiliated Issuers | 951,501 | ||
Investment Securities Sold—Affiliated Issuers | 36,199 | ||
Futures Contracts | (56,969) | ||
Foreign Currencies | 13 | ||
Realized Net Gain (Loss) | 930,744 | ||
Change in Unrealized Appreciation (Depreciation) | |||
Investment Securities—Unaffiliated Issuers | (3,577,166) | ||
Investment Securities—Affiliated Issuers | (32,928) | ||
Futures Contracts | 19,681 | ||
Foreign Currencies | (44) | ||
Change in Unrealized Appreciation (Depreciation) | (3,590,457) | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | (2,461,576) |
1 | Dividends are net of foreign withholding taxes of $2,044,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
8 |
Windsor Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | |||
April 30, | October 31, | |||
2020 | 2019 | |||
($000) | ($000) | |||
Increase (Decrease) in Net Assets | ||||
Operations | ||||
Net Investment Income | 198,137 | 389,438 | ||
Realized Net Gain (Loss) | 930,744 | 1,635,919 | ||
Change in Unrealized Appreciation (Depreciation) | (3,590,457) | 25,651 | ||
Net Increase (Decrease) in Net Assets Resulting from Operations | (2,461,576) | 2,051,008 | ||
Distributions1 | ||||
Investor Shares | (418,477) | (482,158) | ||
Admiral Shares | (1,350,489) | (1,528,988) | ||
Total Distributions | (1,768,966) | (2,011,146) | ||
Capital Share Transactions | ||||
Investor Shares | 437,827 | 63,089 | ||
Admiral Shares | 559,132 | 678,063 | ||
Net Increase (Decrease) from Capital Share Transactions | 996,959 | 741,152 | ||
Total Increase (Decrease) | (3,233,583) | 781,014 | ||
Net Assets | ||||
Beginning of Period | 19,196,062 | 18,415,048 | ||
End of Period | 15,962,479 | 19,196,062 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
9 |
Windsor Fund
Financial Highlights
Investor Shares
Six Months | |||||||
Ended | Year Ended October 31, | ||||||
For a Share Outstanding | April 30, | ||||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | |
Net Asset Value, Beginning of Period | $21.76 | $22.02 | $23.38 | $19.70 | $21.06 | $21.98 | |
Investment Operations |
Net Investment Income | .2071 | .4191 | .4171 | .3631 | .394 | .3562 |
Net Realized and Unrealized Gain (Loss) | ||||||
on Investments | (2.753) | 1.700 | (.753) | 4.345 | (.168) | .026 |
Total from Investment Operations | (2.546) | 2.119 | (.336) | 4.708 | .226 | .382 |
Distributions | ||||||
Dividends from Net Investment Income | (.239) | (.426) | (.378) | (.433) | (.317) | (.339) |
Distributions from Realized Capital Gains | (1.785) | (1.953) | (.646) | (.595) | (1.269) | (.963) |
Total Distributions | (2.024) | (2.379) | (1.024) | (1.028) | (1.586) | (1.302) |
Net Asset Value, End of Period | $17.19 | $21.76 | $22.02 | $23.38 | $19.70 | $21.06 |
Total Return3 | -13.46% | 11.59% | -1.69% | 24.53% | 1.27% | 1.76% |
Ratios/Supplemental Data | ||||||
Net Assets, End of Period (Millions) | $3,985 | $4,549 | $4,468 | $5,191 | $4,896 | $5,379 |
Ratio of Total Expenses to | ||||||
Average Net Assets4 | 0.29% | 0.30% | 0.31% | 0.31% | 0.30% | 0.39% |
Ratio of Net Investment Income to | ||||||
Average Net Assets | 2.11% | 2.04% | 1.76% | 1.66% | 2.01% | 1.64%2 |
Portfolio Turnover Rate | 27% | 39% | 33% | 26% | 26% | 28% |
The expense ratio and net investment income ratio for the current period have been annualized.
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 (0.07%), (0.05%), (0.05%), (0.05%), (0.06%), and 0.03%. |
See accompanying Notes, which are an integral part of the Financial Statements.
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Windsor Fund
Financial Highlights
Admiral Shares
Six Months | ||||||||
Ended | Year Ended October 31, | |||||||
For a Share Outstanding | April 30, | |||||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | ||
Net Asset Value, Beginning of Period | $73.41 | $74.29 | $78.88 | $66.48 | $71.04 | $74.17 | ||
Investment Operations | ||||||||
Net Investment Income | .7331 | 1.4841 | 1.4841 | 1.2951 | 1.398 | 1.2912 | ||
Net Realized and Unrealized Gain (Loss) | ||||||||
on Investments | (9.297) | 5.735 | (2.538) | 14.650 | (.545) | .062 | ||
Total from Investment Operations | (8.564) | 7.219 | (1.054) | 15.945 | .853 | 1.353 | ||
Distributions | ||||||||
Dividends from Net Investment Income | (.844) | (1.509) | (1.358) | (1.538) | (1.134) | (1.235) | ||
Distributions from Realized Capital Gains | (6.022) | (6.590) | (2.178) | (2.007) | (4.279) | (3.248) | ||
Total Distributions | (6.866) | (8.099) | (3.536) | (3.545) | (5.413) | (4.483) | ||
Net Asset Value, End of Period | $57.98 | $73.41 | $74.29 | $78.88 | $66.48 | $71.04 | ||
Total Return3 | -13.43% | 11.71% | -1.59% | 24.63% | 1.41% | 1.85% | ||
Ratios/Supplemental Data | ||||||||
Net Assets, End of Period (Millions) | $11,977 | $14,647 | $13,948 | $14,366 | $11,703 | $12,206 | ||
Ratio of Total Expenses to Average Net Assets4 | 0.19% | 0.20% | 0.21% | 0.21% | 0.20% | 0.29% | ||
Ratio of Net Investment Income to Average Net Assets | 2.20% | 2.14% | 1.86% | 1.76% | 2.11% | 1.74%2 | ||
Portfolio Turnover Rate | 27% | 39% | 33% | 26% | 26% | 28% |
The expense ratio and net investment income ratio for the current period have been annualized.
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 (0.07%), (0.05%), (0.05%), (0.05%), (0.06%), and 0.03%. |
See accompanying Notes, which are an integral part of the Financial Statements.
11 |
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. Each of the share classes has different eligibility and minimum purchase requirements, and is designed for different types of investors. In March 2020, the board of trustees approved a plan of reorganization whereby Vanguard Capital Value Fund would be reorganized into Vanguard Windsor Fund. The purpose of the reorganization is to consolidate the assets of the funds and allow Capital Value Fund shareholders to merge into a significantly larger fund with a similar investment objective, similar expenses, and the combined utilization of multiple investment advisors. The reorganization is expected to be completed in July 2020, and we anticipate it will qualify as a tax-free exchange under the Internal Revenue Code of 1986.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued 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
12 |
Windsor Fund
of futures contracts are imperfect correlation between changes in market values of stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures contracts.
During the six months ended April 30, 2020, the fund’s average investments in long and short futures contracts represented 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.
4. Repurchase Agreements: The fund enters into repurchase agreements with institutional counterparties. Securities pledged as collateral to the fund under repurchase agreements are held by a custodian bank until the agreements mature, 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 counterparty’s default (including bankruptcy), the fund may terminate any repurchase agreements with that counterparty, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund. Such action may be subject to legal proceedings, which may delay or limit the disposition of collateral.
5. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (October 31, 2016–2019), and for the period ended April 30, 2020, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
6. Distributions: Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
7. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled before the opening of the market on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of
13 |
Windsor Fund
prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the event of a default, the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Assets and Liabilities for the return of the collateral, during the period the securities are on loan. Collateral investments in Vanguard Market Liquidity Fund are subject to market appreciation or depreciation. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
8. Credit Facilities and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement and, effective May 2020, an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be utilized for temporary or emergency purposes, subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under either facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread, except that borrowings under the uncommitted credit facility may bear interest based upon an alternative rate agreed to by the fund and Vanguard.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended April 30, 2020, the fund did not utilize the credit facilities or the Interfund Lending Program.
9. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities are amortized and accreted, respectively, to interest income over the lives of the respective securities, except for premiums on certain callable debt securities that are
14 |
Windsor Fund
amortized to the earliest call date. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. 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, 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 six months ended April 30, 2020, 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 $6,506,000 (0.07%) 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 Assets and Liabilities, and subsequently, in May 2020, such liability was fully paid to Vanguard. All other costs of operations payable to Vanguard are generally settled twice a month.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At April 30, 2020, the fund had contributed to Vanguard capital in the amount of $736,000, representing less than 0.01% of the fund’s net assets and 0.29% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
D. Various inputs may be used to determine the value of the fund’s investments. 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.
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Windsor Fund
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
The following table summarizes the market value of the fund’s investments and derivatives as of April 30, 2020, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | Total | |
($000) | ($000) | ($000) | ($000) | |
Investments | ||||
Assets | ||||
Common Stocks | 15,315,057 | 328,166 | — | 15,643,223 |
Temporary Cash Investments | 294,343 | 219,092 | — | 513,435 |
Total | 15,609,400 | 547,258 | — | 16,156,658 |
Derivative Financial Instruments | ||||
Assets | ||||
Futures Contracts1 | 1,578 | — | — | 1,578 |
1 Represents variation margin on the last day of the reporting period.
E. As of April 30, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | |
($000) | |
Tax Cost | 16,630,789 |
Gross Unrealized Appreciation | 2,481,390 |
Gross Unrealized Depreciation | (2,935,517) |
Net Unrealized Appreciation (Depreciation) | (454,127) |
F. During the six months ended April 30, 2020, the fund purchased $4,764,273,000 of investment securities and sold $5,116,617,000 of investment securities, other than temporary cash investments.
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Windsor Fund
G. Capital share transactions for each class of shares were:
Six Months Ended | Year Ended | ||||
April 30, 2020 | October 31, 2019 | ||||
Amount | Shares | Amount | Shares | ||
($000) | (000 | ) | ($000) | (000) | |
Investor Shares | |||||
Issued | 534,543 | 32,010 | 337,518 | 16,763 | |
Issued in Lieu of Cash Distributions | 406,594 | 19,179 | 468,025 | 25,211 | |
Redeemed | (503,310) | (28,339 | ) | (742,454) | (35,854) |
Net Increase (Decrease)—Investor Shares | 437,827 | 22,850 | 63,089 | 6,120 | |
Admiral Shares | |||||
Issued | 455,778 | 7,427 | 797,705 | 11,373 | |
Issued in Lieu of Cash Distributions | 1,264,598 | 17,689 | 1,434,609 | 22,917 | |
Redeemed | (1,161,244) | (18,054 | ) | (1,554,251) | (22,522) |
Net Increase (Decrease)—Admiral Shares | 559,132 | 7,062 | 678,063 | 11,768 |
H. Transactions during the period in investments where the issuer is another member of The Vanguard Group were as follows:
Current Period Transactions | ||||||||
Oct. 31, | Proceeds | Realized | April 30, | |||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||
Value | at Cost | Sold | (Loss) | App. (Dep.) | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
Vanguard Market | ||||||||
Liquidity Fund | 415,193 | NA1 | NA1 | (185) | 121 | 2,366 | — | 294,343 |
Vanguard Value ETF | 61,815 | — | 65,150 | 36,384 | (33,049) | — | — | — |
Total | 477,008 | 36,199 | (32,928) | 2,366 | — | 294,343 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
I. Management has determined that no other events or transactions occurred subsequent to April 30, 2020, that would require recognition or disclosure in these financial statements.
17 |
Trustees Approve Advisory Arrangements
The board of trustees of Vanguard Windsor Fund has renewed the fund’s investment advisory arrangements with Pzena Investment Management, LLC (Pzena), and Wellington Management Company LLP (Wellington Management). The board determined that renewing the fund’s advisory arrangements was in the best interests of the fund and its shareholders.
The board based its decision upon an evaluation of each advisor’s investment staff, portfolio management process, and performance. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department, which is responsible for fund and advisor oversight and product management. The Portfolio Review Department met regularly with the advisors and made monthly presentations to the board during the fiscal year that directed the board’s focus to relevant information and topics.
The board, or an investment committee made up of board members, also received information throughout the year during advisor presentations. For each advisor presentation, the board was provided with letters and reports that included information about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.
In addition, the board received monthly reports, which included a Market and Economic Report, a Fund Dashboard Monthly Summary, and a Fund Performance Report.
Prior to their meeting, the trustees were provided with a memo and materials that summarized the information they received over the course of the year. They also considered the factors discussed below, among others. However, no single factor determined whether the board approved the arrangements. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of services
The board reviewed the quality of the fund’s investment management services over both the short and long term, and took into account the organizational depth and stability of each advisor. The board considered the following:
Pzena. Founded in 1995, Pzena is a global investment management firm that employs a classic value investment approach. Pzena seeks to buy good businesses at low prices, focusing exclusively on companies that are underperforming their historically demonstrated earnings power. Pzena’s research team conducts intensive fundamental research, buying companies only when the problems are judged to be temporary, management has a viable strategy to generate earnings recovery, and there is meaningful downside protection in case earnings do not recover. Pzena has managed a portion of the fund since 2012.
Wellington Management. Founded in 1928, Wellington Management is among the nation’s oldest and most respected institutional investment managers. Using a bottom-up, fundamentally driven approach, Wellington Management invests in solid companies whose current fundamentals are depressed relative to longer-term earnings potential. The advisor has the ability to seek undervalued stocks across the capitalization spectrum. The investment team has the support of Wellington Management’s global industry analysts in conducting its research-intensive approach. Wellington Management has advised the fund since its inception in 1958.
The board concluded that each advisor’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangements.
18 |
Investment performance
The board considered the short- and long-term performance of each advisor’s subportfolio, including any periods of outperformance or underperformance compared with a relevant benchmark index and peer group. The board concluded that the performance was such that the advisory arrangements should continue.
Cost
The board concluded that the fund’s expense ratio was well below the average expense ratio charged by funds in its peer group and that the fund’s advisory fee rates were also well below the peer-group average.
The board did not consider the profitability of Pzena or Wellington Management in determining whether to approve the advisory fees, because the firms are independent of Vanguard and the advisory fees are the result of arm’s-length negotiations.
The benefit of economies of scale
The board concluded that the fund’s shareholders benefit from economies of scale because of breakpoints in the advisory fee schedules for Pzena and Wellington Management. The breakpoints reduce the effective rate of the fees as the fund’s assets managed by each advisor increase.
The board will consider whether to renew the advisory arrangements again after a one-year period.
19 |
Liquidity Risk Management
Vanguard funds (except for the money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining investors’ interests in the fund.
Assessment and management of a fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and limiting holdings of illiquid investments.
The board of trustees of Vanguard Windsor Funds approved the appointment of liquidity risk management program administrators responsible for administering Vanguard Windsor Fund’s Program and for carrying out the specific responsibilities set forth in the Program, including reporting to the board on at least an annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for the past year (the “Program Administrator Report”). The board has reviewed the Program Administrator Report covering the period from December 1, 2018, through December 31, 2019 (the “Review Period”). The Program Administrator Report stated that during the Review Period the Program operated and was implemented effectively to manage the fund’s liquidity risk.
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All rights reserved. | |
Vanguard Marketing Corporation, Distributor. | |
Q222 062020 |
Semiannual Report | April 30, 2020
Vanguard Windsor™ II Fund
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See the inside front cover for important information about access to your fund’s annual and semiannual shareholder reports.
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Important information about access to shareholder reports
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your fund’s annual and semiannual shareholder reports will no longer be sent to you by mail, unless you specifically request them. Instead, you will be notified by mail each time a report is posted on the website and will be provided with a link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. You may elect to receive shareholder reports and other communications from the fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with the fund, by calling Vanguard at one of the phone numbers on the back cover of this report or by logging on to vanguard.com.
You may elect to receive paper copies of all future shareholder reports free of charge. If you invest through a financial intermediary, you can contact the intermediary to request that you continue to receive paper copies. If you invest directly with the fund, you can call Vanguard at one of the phone numbers on the back cover of this report or log on to vanguard.com. Your election to receive paper copies will apply to all the funds you hold through an intermediary or directly with Vanguard.
Contents | |
About Your Fund’s Expenses | 1 |
Financial Statements | 4 |
Trustees Approve Advisory Arrangements | 19 |
Liquidity Risk Management | 21 |
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.
1 |
Six Months Ended April 30, 2020
Beginning | Ending | Expenses | |
Account Value | Account Value | Paid During | |
Windsor II Fund | 10/31/2019 | 4/30/2020 | Period |
Based on Actual Fund Return | |||
Investor Shares | $1,000.00 | $907.15 | $1.56 |
Admiral™ Shares | 1,000.00 | 907.17 | 1.19 |
Based on Hypothetical 5% Yearly Return | |||
Investor Shares | $1,000.00 | $1,023.22 | $1.66 |
Admiral Shares | 1,000.00 | 1,023.62 | 1.26 |
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 (182/366).
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Windsor II Fund
Fund Allocation
As of April 30, 2020
Communication Services | 8.4% |
Consumer Discretionary | 8.8 |
Consumer Staples | 6.2 |
Energy | 4.8 |
Financials | 15.9 |
Health Care | 18.9 |
Industrials | 8.1 |
Information Technology | 23.7 |
Materials | 2.1 |
Other | 0.8 |
Real Estate | 1.7 |
Utilities | 0.6 |
The table reflects the fund’s investments, except for short-term investments and derivatives. Sector categories are based on the Global Industry Classification Standard ("GICS"), except for the "Other" category (if applicable), which includes securities that have not been provided a GICS classification as of the effective report-ing period.
The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party involved in making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
3 |
Windsor II Fund
Financial Statements (unaudited)
Schedule of Investments
As of April 30, 2020
The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at www.sec.gov.
Market | ||||
Value• | ||||
Shares | ($000) | |||
Common Stocks (95.1%) | ||||
Communication Services (8.0%) | ||||
* | Alphabet Inc. Class A | 787,597 | 1,060,657 | |
* | Alphabet Inc. Class C | 334,565 | 451,214 | |
* | Facebook Inc. Class A | 1,666,662 | 341,182 | |
Verizon Communications Inc. | 4,296,510 | 246,835 | ||
* | Electronic Arts Inc. | 1,529,261 | 174,733 | |
Walt Disney Co. | 1,441,681 | 155,918 | ||
* | Twitter Inc. | 4,540,000 | 130,207 | |
Vodafone Group plc ADR | 9,082,432 | 128,426 | ||
Comcast Corp. Class A | 3,232,113 | 121,624 | ||
News Corp. Class A | 11,050,110 | 109,507 | ||
* | Discovery Communications Inc. Class C | 5,079,798 | 103,679 | |
Interpublic Group of Cos. Inc. | 2,230,783 | 37,879 | ||
Omnicom Group Inc. | 621,379 | 35,437 | ||
ViacomCBS Inc. Class B | 2,019,379 | 34,854 | ||
3,132,152 | ||||
Consumer Discretionary (8.4%) | ||||
McDonald’s Corp. | 2,495,779 | 468,108 | ||
Lowe’s Cos. Inc. | 3,760,500 | 393,912 | ||
Lennar Corp. Class A | 6,624,659 | 331,697 | ||
Home Depot Inc. | 1,165,854 | 256,290 | ||
Dollar General Corp. | 1,363,761 | 239,067 | ||
Sony Corp. ADR | 3,375,000 | 216,844 | ||
DR Horton Inc. | 4,354,110 | 205,601 | ||
* | Alibaba Group Holding Ltd. ADR | 962,845 | 195,140 | |
General Motors Co. | 8,222,424 | 183,278 | ||
Ross Stores Inc. | 1,972,202 | 180,180 | ||
Aptiv plc | 2,251,629 | 156,601 | ||
Magna International Inc. | 3,659,532 | 142,831 | ||
Starbucks Corp. | 1,808,676 | 138,780 | ||
Harley-Davidson Inc. | 2,293,773 | 50,073 | ||
Genuine Parts Co. | 563,542 | 44,678 | ||
Booking Holdings Inc. | 25,700 | 38,051 | ||
Goodyear Tire & Rubber Co. | 4,584,996 | 32,874 | ||
* | Adient plc | 1,311,943 | 19,653 | |
Lennar Corp. Class B | 47,457 | 1,810 | ||
3,295,468 | ||||
Consumer Staples (5.9%) | ||||
Coca-Cola Co. | 13,196,975 | 605,609 | ||
Procter & Gamble Co. | 4,220,845 | 497,511 | ||
Mondelez International Inc. Class A | 6,103,119 | 313,945 | ||
PepsiCo Inc. | 1,413,945 | 187,051 | ||
Kimberly-Clark Corp. | 1,338,696 | 185,383 | ||
Tyson Foods Inc. Class A | 2,404,064 | 149,509 | ||
* | Nestle SA | 1,213,373 | 128,508 | |
^ | Unilever plc ADR | 2,445,698 | 126,858 | |
Walgreens Boots Alliance Inc. | 2,100,000 | 90,909 | ||
Unilever NV | 579,487 | 28,638 | ||
2,313,921 | ||||
Energy (4.6%) | ||||
ConocoPhillips | 6,830,564 | 287,567 | ||
Cabot Oil & Gas Corp. | 10,471,000 | 226,383 | ||
Suncor Energy Inc. | 8,952,332 | 159,799 | ||
Hess Corp. | 3,255,567 | 158,351 | ||
Phillips 66 | 1,990,000 | 145,608 | ||
Halliburton Co. | 13,784,039 | 144,732 | ||
^ | Royal Dutch Shell plc ADR | 3,492,712 | 115,714 | |
National Oilwell Varco Inc. | 9,138,488 | 115,510 | ||
Apache Corp. | 8,331,577 | 108,977 | ||
Marathon Oil Corp. | 12,081,287 | 73,937 | ||
Pioneer Natural Resources Co. | 820,000 | 73,234 | ||
Marathon Petroleum Corp. | 1,958,189 | 62,819 | ||
EOG Resources Inc. | 1,075,811 | 51,112 | ||
Schlumberger Ltd. | 2,915,800 | 49,044 | ||
^ | Murphy Oil Corp. | 2,182,252 | 25,882 | |
1,798,669 |
4 |
Windsor II Fund
Market | ||||
Value• | ||||
Shares | ($000) | |||
Financials (15.1%) | ||||
Bank of America Corp. | 32,524,307 | 782,210 | ||
Intercontinental Exchange Inc. | 6,595,565 | 589,973 | ||
Wells Fargo & Co. | 17,027,593 | 494,652 | ||
JPMorgan Chase & Co. | 4,787,101 | 458,413 | ||
Citigroup Inc. | 9,339,073 | 453,505 | ||
American International Group Inc. | 11,040,656 | 280,764 | ||
Commerce Bancshares Inc. | 4,235,179 | 259,151 | ||
Aon plc | 1,405,006 | 242,602 | ||
Goldman Sachs Group Inc. | 1,208,649 | 221,690 | ||
Capital One Financial Corp. | 2,892,543 | 187,321 | ||
Ameriprise Financial Inc. | 1,330,000 | 152,870 | ||
Fifth Third Bancorp | 8,073,639 | 150,896 | ||
Citizens Financial Group Inc. | 5,588,151 | 125,119 | ||
Chubb Ltd. | 1,121,000 | 121,079 | ||
Travelers Cos. Inc. | 1,120,192 | 113,375 | ||
East West Bancorp Inc. | 3,000,000 | 105,210 | ||
Truist Financial Corp. | 2,717,868 | 101,431 | ||
Equitable Holdings Inc. | 5,114,540 | 93,698 | ||
BNP Paribas SA | 2,844,400 | 89,361 | ||
Discover Financial Services | 2,037,178 | 87,538 | ||
Hartford Financial Services Group Inc. | 2,233,400 | 84,847 | ||
Cullen/Frost Bankers Inc. | 1,132,000 | 81,346 | ||
Mitsubishi UFJ Financial Group Inc. ADR | 19,937,000 | 79,549 | ||
Bank of New York Mellon Corp. | 2,041,034 | 76,620 | ||
Morgan Stanley | 1,846,316 | 72,800 | ||
China Construction Bank Corp. Class H | 83,144,000 | 66,737 | ||
BOK Financial Corp. | 1,274,000 | 65,980 | ||
Industrial & Commercial Bank of China Ltd. Class H | 75,048,000 | 50,320 | ||
Barclays plc | 36,008,864 | 48,083 | ||
American Express Co. | 489,210 | 44,640 | ||
State Street Corp. | 665,188 | 41,933 | ||
Sumitomo Mitsui Financial Group Inc. | 1,227,100 | 32,269 | ||
Synchrony Financial | 1,624,651 | 32,152 | ||
Royal Bank of Scotland Group plc | 19,118,400 | 26,673 | ||
CIT Group Inc. | 1,001,610 | 19,011 | ||
Banco de Sabadell SA | 37,150,674 | 15,403 | ||
5,949,221 | ||||
Health Care (18.0%) | ||||
Medtronic plc | 10,824,211 | 1,056,768 | ||
Johnson & Johnson | 4,618,959 | 693,029 | ||
Pfizer Inc. | 17,904,404 | 686,813 | ||
Danaher Corp. | 3,869,871 | 632,569 | ||
Anthem Inc. | 1,910,716 | 536,395 | ||
UnitedHealth Group Inc. | 1,729,350 | 505,783 | ||
Cigna Corp. | 1,637,373 | 320,565 | ||
Thermo Fisher Scientific Inc. | 890,884 | 298,161 | ||
Humana Inc. | 714,153 | 272,678 | ||
Amgen Inc. | 1,116,000 | 266,970 | ||
HCA Healthcare Inc. | 1,983,100 | 217,903 | ||
Roche Holding AG | 555,700 | 192,437 | ||
Zoetis Inc. | 1,405,863 | 181,792 | ||
Novartis AG ADR | 1,947,000 | 164,969 | ||
* | Alcon Inc. | 3,105,000 | 163,975 | |
* | IQVIA Holdings Inc. | 939,575 | 133,974 | |
* | Elanco Animal Health Inc. | 5,064,677 | 125,148 | |
GlaxoSmithKline plc ADR | 2,970,294 | 124,960 | ||
* | Laboratory Corp. of America Holdings | 686,315 | 112,864 | |
Zimmer Biomet Holdings Inc. | 803,308 | 96,156 | ||
Sanofi ADR | 1,546,991 | 72,446 | ||
* | Biogen Inc. | 205,811 | 61,091 | |
* | Centene Corp. | 900,388 | 59,948 | |
AbbVie Inc. | 671,167 | 55,170 | ||
Merck & Co. Inc. | 555,229 | 44,052 | ||
7,076,616 | ||||
Industrials (7.7%) | ||||
Honeywell International Inc. | 3,274,086 | 464,593 | ||
General Electric Co. | 53,188,284 | 361,680 | ||
Caterpillar Inc. | 3,023,416 | 351,865 | ||
Norfolk Southern Corp. | 1,440,399 | 246,452 | ||
Cummins Inc. | 1,290,772 | 211,041 | ||
Allegion plc | 1,836,000 | 184,592 | ||
Xylem Inc. | 2,400,000 | 172,560 | ||
Oshkosh Corp. | 2,540,000 | 171,526 | ||
Parker-Hannifin Corp. | 1,059,000 | 167,449 | ||
FedEx Corp. | 1,117,890 | 141,715 | ||
Johnson Controls International plc | 4,680,000 | 136,235 | ||
General Dynamics Corp. | 1,018,000 | 132,971 | ||
* | CNH Industrial NV | 18,302,399 | 114,207 | |
Stanley Black & Decker Inc. | 569,690 | 62,780 | ||
PACCAR Inc. | 738,120 | 51,100 | ||
Boeing Co. | 310,700 | 43,815 | ||
Fluor Corp. | 2,263,685 | 26,485 | ||
* | Embraer SA ADR | 1,662,054 | 10,521 | |
3,051,587 |
5 |
Windsor II Fund
Market | ||||
Value• | ||||
Shares | ($000) | |||
Information Technology (22.5%) | ||||
Microsoft Corp. | 14,142,142 | 2,534,413 | ||
Apple Inc. | 4,441,458 | 1,304,900 | ||
Taiwan Semiconductor Manufacturing Co. Ltd. ADR | 8,716,485 | 463,107 | ||
Samsung Electronics Co. Ltd. | 9,721,500 | 399,724 | ||
* | Adobe Inc. | 1,030,000 | 364,249 | |
Analog Devices Inc. | 3,171,830 | 347,633 | ||
Visa Inc. Class A | 1,902,485 | 340,012 | ||
Cisco Systems Inc. | 6,922,980 | 293,396 | ||
* | ANSYS Inc. | 1,110,000 | 290,631 | |
* | Micron Technology Inc. | 6,046,623 | 289,573 | |
Texas Instruments Inc. | 2,410,097 | 279,740 | ||
* | PayPal Holdings Inc. | 1,861,300 | 228,940 | |
Oracle Corp. | 4,002,625 | 212,019 | ||
^ | Microchip Technology Inc. | 2,377,000 | 208,534 | |
QUALCOMM Inc. | 2,191,000 | 172,366 | ||
Corning Inc. | 7,041,451 | 154,982 | ||
Accenture plc Class A | 802,910 | 148,691 | ||
Hewlett Packard Enterprise Co. | 14,428,241 | 145,148 | ||
TE Connectivity Ltd. | 1,392,066 | 102,261 | ||
* | salesforce.com Inc. | 621,137 | 100,593 | |
Motorola Solutions Inc. | 692,595 | 99,602 | ||
Telefonaktiebolaget LM Ericsson ADR | 11,536,480 | 97,599 | ||
Fidelity National Information Services Inc. | 682,300 | 89,989 | ||
CDW Corp. | 478,467 | 53,014 | ||
* | Palo Alto Networks Inc. | 244,613 | 48,069 | |
Applied Materials Inc. | 631,172 | 31,357 | ||
* | PTC Inc. | 442,837 | 30,667 | |
* | Teradata Corp. | 1,042,423 | 25,633 | |
8,856,842 | ||||
Materials (2.0%) | ||||
Corteva Inc. | 7,087,000 | 185,609 | ||
Martin Marietta Materials Inc. | 823,000 | 156,559 | ||
RPM International Inc. | 2,014,266 | 133,767 | ||
International Paper Co. | 3,030,929 | 103,809 | ||
Avery Dennison Corp. | 935,271 | 103,245 | ||
Vulcan Materials Co. | 628,985 | 71,057 | ||
PPG Industries Inc. | 397,800 | 36,132 | ||
790,178 | ||||
Other (0.7%) | ||||
^ | SPDR S&P 500 ETF Trust 970,942 | 282,039 | ||
Real Estate (1.6%) | ||||
Prologis Inc. | 3,938,709 | 351,451 | ||
Sun Communities Inc. | 894,000 | 120,154 | ||
Equity LifeStyle Properties Inc. | 1,932,000 | 116,519 | ||
Crown Castle International Corp. | 332,472 | 53,006 | ||
641,130 | ||||
Utilities (0.6%) | ||||
PPL Corp. | 6,246,103 | 158,776 | ||
Southern Co. | 1,221,210 | 69,279 | ||
228,055 | ||||
Total Common Stocks | ||||
(Cost $33,433,349) | 37,415,878 | |||
Temporary Cash Investments (6.1%) | ||||
Money Market Fund (6.0%) | ||||
1,2 | Vanguard Market | |||
Liquidity Fund, 0.522% 23,381,179 | 2,338,118 |
Face | ||||
Amount | ||||
($000) | ||||
U.S. Government and Agency Obligations (0.1%) | ||||
3 | United States Cash | |||
Management Bill, | ||||
0.100%–0.103%, 7/14/20 | 17,000 | 16,996 | ||
United States Treasury | ||||
Bill, 1.551%, 5/14/20 | 4,400 | 4,400 | ||
3 | United States Treasury | |||
Bill, 1.551%, 5/21/20 | 30,000 | 29,998 | ||
51,394 | ||||
Total Temporary Cash Investments | ||||
(Cost $2,388,694) | 2,389,512 | |||
Total Investments (101.2%) | ||||
(Cost $35,822,043) | 39,805,390 | |||
Other Assets and Liabilities— | ||||
Net (-1.2%)2 | (485,559) | |||
Net Assets (100%) | 39,319,831 |
Cost rounded to $000.
• | See Note A in Notes to Financial Statements. |
* | Non-income-producing security. | |
^ | Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $464,756,000. |
1 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
2 | Collateral of $495,131,000 was received for securities on loan. |
3 | Securities with a value of $44,239,000 have been segregated as initial margin for open futures contracts. |
ADR—American Depositary Receipt.
6 |
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 | June 2020 | 3,514 | 509,952 | 22,360 |
See accompanying Notes, which are an integral part of the Financial Statements.
7 |
Windsor II Fund
Statement of Assets and Liabilities
As of April 30, 2020
($000s, except shares and per-share amounts) | Amount |
Assets | |
Investments in Securities, at Value | |
Unaffiliated Issuers (Cost $33,484,717) | 37,467,272 |
Affiliated Issuers (Cost $2,337,326) | 2,338,118 |
Total Investments in Securities | 39,805,390 |
Investment in Vanguard | 1,809 |
Cash | 731 |
Receivables for Investment Securities Sold | 176,830 |
Receivables for Accrued Income | 35,999 |
Receivables for Capital Shares Issued | 10,292 |
Total Assets | 40,031,051 |
Liabilities | |
Payables for Investment Securities Purchased | 158,874 |
Collateral for Securities on Loan | 495,131 |
Payables for Capital Shares Redeemed | 17,461 |
Payables to Investment Advisor | 12,083 |
Payables to Vanguard | 20,631 |
Variation Margin Payable—Futures Contracts | 7,040 |
Total Liabilities | 711,220 |
Net Assets | 39,319,831 |
At April 30, 2020, net assets consisted of:
Paid-in Capital | 33,472,452 |
Total Distributable Earnings (Loss) | 5,847,379 |
Net Assets | 39,319,831 |
Investor Shares—Net Assets | |
Applicable to 340,499,507 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 10,536,835 |
Net Asset Value Per Share—Investor Shares | $30.95 |
Admiral Shares—Net Assets | |
Applicable to 524,152,276 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 28,782,996 |
Net Asset Value Per Share—Admiral Shares | $54.91 |
See accompanying Notes, which are an integral part of the Financial Statements.
8 |
Windsor II Fund
Statement of Operations
Six Months Ended | |
April 30, 2020 | |
($000) | |
Investment Income | |
Income | |
Dividends—Unaffiliated Issuers1 | 436,550 |
Dividends—Affiliated Issuers | 233 |
Interest—Unaffiliated Issuers | 296 |
Interest—Affiliated Issuers | 11,539 |
Securities Lending—Net | 611 |
Total Income | 449,229 |
Expenses | |
Investment Advisory Fees—Note B | |
Basic Fee | 27,583 |
Performance Adjustment | (2,597) |
The Vanguard Group—Note C | |
Management and Administrative—Investor Shares | 12,026 |
Management and Administrative—Admiral Shares | 21,624 |
Marketing and Distribution—Investor Shares | 527 |
Marketing and Distribution—Admiral Shares | 690 |
Custodian Fees | 320 |
Shareholders’ Reports—Investor Shares | 79 |
Shareholders’ Reports—Admiral Shares | 95 |
Trustees’ Fees and Expenses | 32 |
Total Expenses | 60,379 |
Net Investment Income | 388,850 |
Realized Net Gain (Loss) | |
Investment Securities Sold—Unaffiliated Issuers | 1,615,451 |
Investment Securities Sold—Affiliated Issuers | 18,001 |
Futures Contracts | 67,183 |
Foreign Currencies | 51 |
Realized Net Gain (Loss) | 1,700,686 |
Change in Unrealized Appreciation (Depreciation) | |
Investment Securities—Unaffiliated Issuers | (6,160,971) |
Investment Securities—Affiliated Issuers | (16,101) |
Futures Contracts | (2,765) |
Foreign Currencies | (21) |
Change in Unrealized Appreciation (Depreciation) | (6,179,858) |
Net Increase (Decrease) in Net Assets Resulting from Operations | (4,090,322) |
1 Dividends are net of foreign withholding taxes of $7,914,000.
See accompanying Notes, which are an integral part of the Financial Statements.
9 |
Windsor II Fund
Statement of Changes in Net Assets
Six Months Ended | Year Ended | ||
April 30, | October 31, | ||
2020 | 2019 | ||
($000) | ($000) | ||
Increase (Decrease) in Net Assets | |||
Operations | |||
Net Investment Income | 388,850 | 1,021,147 | |
Realized Net Gain (Loss) | 1,700,686 | 3,748,740 | |
Change in Unrealized Appreciation (Depreciation) | (6,179,858) | (93,447) | |
Net Increase (Decrease) in Net Assets Resulting from Operations | (4,090,322) | 4,676,440 | |
Distributions1 | |||
Investor Shares | (1,050,102) | (1,149,738) | |
Admiral Shares | (2,983,851) | (3,272,645) | |
Total Distributions | (4,033,953) | (4,422,383) | |
Capital Share Transactions | |||
Investor Shares | 526,860 | (15,087) | |
Admiral Shares | 776,417 | (284,508) | |
Net Increase (Decrease) from Capital Share Transactions | 1,303,277 | (299,595) | |
Total Increase (Decrease) | (6,820,998) | (45,538) | |
Net Assets | |||
Beginning of Period | 46,140,829 | 46,186,367 | |
End of Period | 39,319,831 | 46,140,829 |
1 Certain prior period numbers have been reclassified to conform with current period presentation.
See accompanying Notes, which are an integral part of the Financial Statements.
10 |
Windsor II Fund
Financial Highlights
Investor Shares
Six Months | ||||||||
Ended | ||||||||
For a Share Outstanding | April 30, | Year Ended October 31, | ||||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | ||
Net Asset Value, Beginning of Period | $37.22 | $37.39 | $38.81 | $35.03 | $36.73 | $39.59 | ||
Investment Operations | ||||||||
Net Investment Income | .2921 | .7751 | .7831 | .7501 | .8471 | .809 | ||
Net Realized and Unrealized Gain (Loss) on Investments | (3.278) | 2.628 | .950 | 5.847 | .096 | (.229) | ||
Total from Investment Operations | (2.986) | 3.403 | 1.733 | 6.597 | .943 | .580 | ||
Distributions | ||||||||
Dividends from Net Investment Income | (.391) | (.844) | (.740) | (.851) | (.781) | (.827) | ||
Distributions from Realized Capital Gains | (2.893) | (2.729) | (2.413) | (1.966) | (1.862) | (2.613) | ||
Total Distributions | (3.284) | (3.573) | (3.153) | (2.817) | (2.643) | (3.440) | ||
Net Asset Value, End of Period | $30.95 | $37.22 | $37.39 | $38.81 | $35.03 | $36.73 | ||
Total Return2 | -9.28% | 10.82% | 4.44% | 19.60% | 2.86% | 1.57% | ||
Ratios/Supplemental Data | ||||||||
Net Assets, End of Period (Millions) | $10,537 | $12,119 | $12,061 | $13,638 | $13,773 | $15,397 | ||
Ratio of Total Expenses to Average Net Assets3 | 0.33% | 0.33% | 0.33% | 0.34% | 0.33% | 0.34% | ||
Ratio of Net Investment Income to Average Net Assets | 1.71% | 2.20% | 2.04% | 2.01% | 2.46% | 2.12% | ||
Portfolio Turnover Rate | 51% | 32% | 29% | 32% | 33% | 26% |
The expense ratio and net investment income ratio for the current period have been annualized.
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 (0.01%), (0.03%), (0.03%), (0.02%), (0.03%), and (0.02%).
See accompanying Notes, which are an integral part of the Financial Statements.
11 |
Windsor II Fund
Financial Highlights
Admiral Shares
Six Months | ||||||||
Ended | ||||||||
For a Share Outstanding | April 30, | Year Ended October 31, | ||||||
Throughout Each Period | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | ||
Net Asset Value, Beginning of Period | $66.06 | $66.35 | $68.88 | $62.18 | $65.20 | $70.27 | ||
Investment Operations | ||||||||
Net Investment Income | .5441 | 1.4261 | 1.4431 | 1.3771 | 1.5521 | 1.492 | ||
Net Realized and Unrealized Gain (Loss) on Investments | (5.839) | 4.675 | 1.682 | 10.376 | .168 | (.401) | ||
Total from Investment Operations | (5.295) | 6.101 | 3.125 | 11.753 | 1.720 | 1.091 | ||
Distributions | ||||||||
Dividends from Net Investment Income | (.721) | (1.547) | (1.371) | (1.565) | (1.437) | (1.525) | ||
Distributions from Realized Capital Gains | (5.134) | (4.844) | (4.284) | (3.488) | (3.303) | (4.636) | ||
Total Distributions | (5.855) | (6.391) | (5.655) | (5.053) | (4.740) | (6.161) | ||
Net Asset Value, End of Period | $54.91 | $66.06 | $66.35 | $68.88 | $62.18 | $65.20 | ||
Total Return2 | -9.28% | 10.93% | 4.52% | 19.68% | 2.94% | 1.66% | ||
Ratios/Supplemental Data | ||||||||
Net Assets, End of Period (Millions) | $28,783 | $34,022 | $34,126 | $35,514 | $30,991 | $31,763 | ||
Ratio of Total Expenses to Average Net Assets3 | 0.25% | 0.25% | 0.25% | 0.26% | 0.25% | 0.26% | ||
Ratio of Net Investment Income to Average Net Assets | 1.79% | 2.28% | 2.12% | 2.09% | 2.54% | 2.20% | ||
Portfolio Turnover Rate | 51% | 32% | 29% | 32% | 33% | 26% |
The expense ratio and net investment income ratio for the current period have been annualized.
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 (0.01%), (0.03%), (0.03%), (0.02%), (0.03%), and (0.02%).
See accompanying Notes, which are an integral part of the Financial Statements.
12 |
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. Each of the share classes has different eligibility and minimum purchase requirements, and is designed for different types of investors.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus fund performance.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.
1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been 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
13 |
Windsor II Fund
of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures contracts.
During the six months ended April 30, 2020, the fund’s average investments in long and short futures contracts represented 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, 2016–2019), and for the period ended April 30, 2020, 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 at the fiscal year-end and may differ from net investment income and realized capital gains for financial reporting purposes.
6. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled before the opening of the market on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the event of a default, the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Assets and Liabilities for the return of the collateral, during the period the securities are on loan. Collateral investments in Vanguard Market Liquidity Fund are subject to market appreciation or depreciation. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
14 |
Windsor II Fund
7. Credit Facilities and Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement and, effective May 2020, an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be utilized for temporary or emergency purposes, subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under either facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread, except that borrowings under the uncommitted credit facility may bear interest based upon an alternative rate agreed to by the fund and Vanguard.
In accordance with an exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment objective and investment policies. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended April 30, 2020, the fund did not utilize the credit facilities or the Interfund Lending Program.
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 are amortized and accreted, respectively, to interest income over the lives of the respective securities, except for premiums on certain callable debt securities that are amortized to the earliest call date. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. The investment advisory firms Lazard Asset Management LLC, Sanders Capital, LLC, Hotchkis and Wiley Capital Management, LLC, and, beginning December 2019, Aristotle Capital Management, LLC, each provide investment advisory services to a portion of the fund for a fee calculated at an
15 |
Windsor II Fund
annual percentage rate of average net assets managed by the advisor. 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. In accordance with the advisory contract entered into with Aristotle Capital Management, LLC, beginning February 1, 2021, the investment advisory fee will be subject to quarterly adjustments based on performance relative to the S&P 500 Index since January 31, 2020. Until November 2019, a portion of the fund was managed by Barrow, Hanley, Mewhinney & Strauss, LLC. The basic fee paid to Barrow, Hanley, Mewhinney & Strauss, LLC, was subject to quarterly adjustments based on performance relative to the MSCI US Prime Market 750 Index for the preceding three years.
Until November 2019, Vanguard provided investment advisory services to a portion of the fund. The fund paid Vanguard advisory fees of $20,000 for the six months ended April 30, 2020. Vanguard manages the cash reserves of the fund as described below.
For the six months ended April 30, 2020, the aggregate investment advisory fee paid to all advisors represented an effective annual basic rate of 0.13% of the fund’s average net assets, before a net decrease of $2,597,000 (0.01%) 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 Assets and Liabilities, and subsequently, in May 2020, such liability was fully paid to Vanguard. All other costs of operations payable to Vanguard are generally settled twice a month.
Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At April 30, 2020, the fund had contributed to Vanguard capital in the amount of $1,809,000, representing less than 0.01% of the fund’s net assets and 0.72% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
D. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.
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Windsor II Fund
The following table summarizes the market value of the fund’s investments and derivatives as of April 30, 2020, based on the inputs used to value them:
Level 1 | Level 2 | Level 3 | Total | |
($000) | ($000) | ($000) | ($000) | |
Investments | ||||
Assets | ||||
Common Stocks | 36,366,362 | 1,049,516 | — | 37,415,878 |
Temporary Cash Investments | 2,338,118 | 51,394 | — | 2,389,512 |
Total | 38,704,480 | 1,100,910 | — | 39,805,390 |
Derivative Financial Instruments | ||||
Liabilities | ||||
Futures Contracts1 | 7,040 | — | — | 7,040 |
1 Represents variation margin on the last day of the reporting period.
E. As of April 30, 2020, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
Amount | |
($000) | |
Tax Cost | 35,822,043 |
Gross Unrealized Appreciation | 8,443,380 |
Gross Unrealized Depreciation | (4,437,673) |
Net Unrealized Appreciation (Depreciation) | 4,005,707 |
F. During the six months ended April 30, 2020, the fund purchased $21,266,218,000 of investment securities and sold $23,600,807,000 of investment securities, other than temporary cash investments.
17 |
Windsor II Fund
G. Capital share transactions for each class of shares were:
Six Months Ended | Year Ended | ||||
April 30, 2020 | October 31, 2019 | ||||
Amount | Shares | Amount | Shares | ||
($000) | (000) | ($000) | (000) | ||
Investor Shares | |||||
Issued | 832,963 | 27,805 | 651,279 | 18,910 | |
Issued in Lieu of Cash Distributions | 1,026,143 | 28,409 | 1,122,692 | 35,211 | |
Redeemed | (1,332,246) | (41,293) | (1,789,058) | (51,114) | |
Net Increase (Decrease)—Investor Shares | 526,860 | 14,921 | (15,087) | 3,007 | |
Admiral Shares | |||||
Issued | 1,164,932 | 20,111 | 1,513,788 | 24,434 | |
Issued in Lieu of Cash Distributions | 2,802,995 | 43,742 | 3,089,248 | 54,596 | |
Redeemed | (3,191,510) | (54,743) | (4,887,544) | (78,289) | |
Net Increase (Decrease)—Admiral Shares | 776,417 | 9,110 | (284,508) | 741 |
H. Transactions during the period in investments where the issuer is another member of The Vanguard Group were as follows:
Current Period Transactions | ||||||||
Oct. 31, | Proceeds | Realized | April 30, | |||||
2019 | from | Net | Change in | Capital Gain | 2020 | |||
Market | Purchases | Securities | Gain | Unrealized | Distributions | Market | ||
Value | at Cost | Sold | (Loss) | App. (Dep.) | Income | Received | Value | |
($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |
Vanguard Market Liquidity Fund | 1,799,860 | NA1 | NA1 | (278) | 687 | 11,539 | — | 2,338,118 |
Vanguard Value ETF | 29,097 | — | 30,588 | 18,279 | (16,788) | 233 | — | — |
Total | 1,828,957 | 18,001 | (16,101) | 11,772 | — | 2,338,118 |
1 Not applicable—purchases and sales are for temporary cash investment purposes.
I. Management has determined that no other events or transactions occurred subsequent to April 30, 2020, that would require recognition or disclosure in these financial statements.
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Trustees Approve Advisory Arrangements
The board of trustees of Vanguard Windsor II Fund has renewed the fund’s investment advisory arrangements with Hotchkis and Wiley Capital Management, LLC (Hotchkis and Wiley); Lazard Asset Management LLC (Lazard); and Sanders Capital, LLC (Sanders Capital). Effective November 2019, the board also approved a restructuring of the fund’s investment advisory arrangements whereby Aristotle Capital Management, LLC (Aristotle), has been added as an advisor, while Barrow, Hanley, Mewhinney & Strauss, LLC, and The Vanguard Group, Inc. (Vanguard), through its Quantitative Equity Group, have been removed as advisors. The board determined that the foregoing actions were in the best interests of the fund and its shareholders.
The board based its decision upon an evaluation of each advisor’s investment staff, portfolio management process, and performance. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department, which is responsible for fund and advisor oversight and product management. The Portfolio Review Department met regularly with the advisors and made monthly presentations to the board during the fiscal year that directed the board’s focus to relevant information and topics.
The board, or an investment committee made up of board members, also received information throughout the year during advisor presentations. For each advisor presentation, the board was provided with letters and reports that included information about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.
In addition, the board received monthly reports, which included a Market and Economic Report, a Fund Dashboard Monthly Summary, and a Fund Performance Report.
Prior to their meeting, the trustees were provided with a memo and materials that summarized the information they received over the course of the year. They also considered the factors discussed below, among others. However, no single factor determined whether the board approved the arrangements. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of services
The board considered the quality of the investment management services to be provided to the fund by Aristotle, reviewed the quality of the investment management services provided by Hotchkis and Wiley, Lazard, and Sanders Capital over both the short and long term, and took into account the organizational depth and stability of each advisor. The board considered the following:
Aristotle. Founded in 2010, Aristotle manages domestic, international, and global value strategies for institutional and individual clients. Aristotle employs a value-oriented investment style founded on fundamental research and investment in high-quality businesses. The portfolio managers are supported by a group of global research analysts, all of whom have research coverage responsibility for one or more global economic sectors or industries. The investment team takes a research-first mentality by focusing on market inefficiency as well as edge and evidence, and it seeks a comprehensive understanding of companies within the context of their competitors, suppliers, and customers. The team has employed the same research-driven, bottom-up, quality-value approach for more than 20 years, seeking to invest in high-quality companies available at attractive valuations. Aristotle has managed a portion of the fund since December 2019.
Hotchkis and Wiley. Founded in 1980, Hotchkis and Wiley is a value-oriented firm that manages various large-, mid-, and small-capitalization portfolios. Hotchkis and Wiley invests in companies where it believes that the present value of future cash flows exceeds the market price. The advisor
19 |
believes that the market frequently undervalues companies due to the extrapolation of current trends, while capital flows usually cause a company’s returns and profitability to normalize over the long term. Hotchkis and Wiley seeks to identify these companies with a disciplined, bottom-up research process. The portfolio managers leverage the support of a broad analyst team, which is organized into sector teams in an effort to better understand the impact that industry dynamics and macro-economic risk factors might have on individual companies. Hotchkis and Wiley has managed a portion of the fund since 2003.
Lazard. Lazard, a subsidiary of the investment bank Lazard Ltd., provides investment management services for clients around the world in a variety of investment mandates, including international equities, domestic equities, and fixed income securities. The investment team employs a relative value, bottom-up stock-selection process to identify stocks with sustainable financial productivity and attractive valuations. Using scenario analysis, the team seeks to understand the durability and future direction of financial productivity and valuation. Lazard has managed a portion of the fund since 2007.
Sanders Capital. Founded in 2009, Sanders Capital employs a traditional, bottom-up, fundamental research approach to identify securities that are undervalued relative to their expected total return. The portfolio managers are supported by a well-credentialed and experienced sector analyst team, in addition to a quantitative research analyst. Sanders Capital has managed a portion of the fund since 2010.
The board concluded that each advisor’s experience, stability, depth, and performance, among other factors, warranted approval or continuation, as applicable, of the advisory arrangements.
Investment performance
The board considered the short- and long-term performance of Hotchkis and Wiley’s, Lazard’s, and Sanders Capital’s subportfolios, including any periods of outperformance or underperformance compared with a relevant benchmark index and peer group. The board concluded that the performance was such that the advisory arrangements should continue. The board also concluded that Aristotle has a track record of consistent performance and disciplined investment processes.
Cost
The board concluded that the fund’s expense ratio was well below the average expense ratio charged by funds in its peer group and that Hotchkis and Wiley’s, Lazard’s, and Sanders Capital’s advisory fee rates were also well below the peer-group average. The board also concluded that the advisory fee rate to be paid to Aristotle is well below the fund’s peer-group average.
The board did not consider the profitability of Aristotle, Hotchkis and Wiley, Lazard, or Sanders Capital in determining whether to approve the advisory fees, because the firms are independent of Vanguard and the advisory fees are the result of arm’s-length negotiations.
The benefit of economies of scale
The board concluded that the fund’s shareholders benefit from economies of scale because of breakpoints in the advisory fee schedules for Aristotle, Hotchkis and Wiley, Lazard, and Sanders Capital. The breakpoints reduce the effective rate of the fees as the fund’s assets managed by each advisor increase.
The board will consider whether to renew the advisory arrangements again after a one-year period.
20 |
Liquidity Risk Management
Vanguard funds (except for the money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining investors’ interests in the fund.
Assessment and management of a fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and limiting holdings of illiquid investments.
The board of trustees of Vanguard Windsor Funds approved the appointment of liquidity risk management program administrators responsible for administering Vanguard Windsor II Fund’s Program and for carrying out the specific responsibilities set forth in the Program, including reporting to the board on at least an annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for the past year (the “Program Administrator Report”). The board has reviewed the Program Administrator Report covering the period from December 1, 2018, through December 31, 2019 (the “Review Period”). The Program Administrator Report stated that during the Review Period the Program operated and was implemented effectively to manage the fund’s liquidity risk.
21 |
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Q732 062020 |
Item 2: Code of Ethics.
Not applicable.
Item 3: Audit Committee Financial Expert.
Not applicable.
Item 4: Principal Accountant Fees and Services.
(a) Audit Fees.
Not applicable.
Item 5: Audit Committee of Listed Registrants.
Not applicable.
Item 6: Investments.
Not applicable.
Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8: Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9: Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10: Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11: Controls and Procedures.
(a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.
(b) Internal Control Over Financial Reporting. There were no significant changes in Registrant’s Internal Control Over Financial Reporting or in other factors that could significantly affect this control subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Item 12: Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13: Exhibits.
(a) | Certifications. |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
VANGUARD WINDSOR FUNDS
BY: /s/ MORTIMER J. BUCKLEY*
___________________________
MORTIMER J. BUCKLEY
CHIEF EXECUTIVE OFFICER
Date: June 18, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
VANGUARD WINDSOR FUNDS
BY: /s/ MORTIMER J. BUCKLEY*
___________________________
MORTIMER J. BUCKLEY
CHIEF EXECUTIVE OFFICER
Date: June 18, 2020
VANGUARD WINDSOR FUNDS
BY: /s/ JOHN BENDL*
___________________________
JOHN BENDL
CHIEF FINANCIAL OFFICER
Date: June 18, 2020
* By: /s/ Anne E. Robinson
Anne E. Robinson, pursuant to a Power of Attorney filed on January 18, 2018 (see file Number 33-32216) and a Power of Attorney filed on October 30, 2019 (see file Number 811-02554), Incorporated by Reference.