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: 811-22114
Name of Registrant: Vanguard Montgomery Funds
Address of Registrant:
P.O. Box 2600
Valley Forge, PA 19482
Name and address of agent for service:
Heidi Stam, Esquire
P.O. Box 876
Valley Forge, PA 19482
Registrant’s telephone number, including area code: (610) 669-1000
Date of fiscal year end: December 31
Date of reporting period: January 1, 2010 – June 30, 2010
Item 1: Reports to Shareholders
 |
| Vanguard Market Neutral Fund |
| Semiannual Report |
| June 30, 2010 |
 |
> Vanguard Market Neutral Fund returned 0.72% for Investor Shares and 0.83% for Institutional Shares in the first half of 2010, ahead of the return of its Treasury-bill benchmark and the average return of competitive funds.
> The broad U.S. stock market’s generally steady climb from its 2009 bear-market low ended with an abrupt reversal, producing a loss of almost 6% for the period.
> The fund’s positive total return stemmed more from its short positions, which are stocks that are borrowed and sold with the hope that they will fall in price and can be purchased later for a lower price.
| Contents | |
| Your Fund’s Total Returns. | 1 |
| Chairman’s Letter. | 2 |
| Advisors’ Report. | 6 |
| Fund Profile. | 9 |
| Performance Summary. | 11 |
| Financial Statements. | 12 |
| About Your Fund’s Expenses. | 29 |
| Trustees Approve Advisory Arrangements. | 31 |
| Glossary. | 33 |
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
Cover photograph: Veronica Coia.
Your Fund’s Total Returns
Six Months Ended June 30, 2010
| Total | |
| Returns | |
| Vanguard Market Neutral Fund | |
| Investor Shares | 0.72% |
| Institutional Shares | 0.83 |
| Citigroup Three-Month U.S. Treasury Bill Index | 0.06 |
| Equity Market Neutral Funds Average | -0.73 |
| Equity Market Neutral Funds Average: Derived from data provided by Lipper Inc. |
Your Fund’s Performance at a Glance
December 31, 2009 , Through June 30, 2010
| Distributions Per Share | ||||
| Starting | Ending | Income | Capital | |
| Share Price | Share Price | Dividends | Gains | |
| Vanguard Market Neutral Fund | ||||
| Investor Shares | $9.71 | $9.78 | $0.000 | $0.000 |
| Institutional Shares | 9.66 | 9.74 | 0.000 | 0.000 |
1
Chairman’s Letter
Dear Shareholder,
For the fiscal half-year ended June 30, 2010—a period when the broad U.S. stock market declined almost 6%—the Investor Shares of Vanguard Market Neutral Fund returned 0.72% and the Institutional Shares 0.83%.
The fund topped the 0.06% return of its U.S. Treasury bill benchmark and was also well ahead of the –0.73% average return of peer-group funds.
Sovereign debt worries pulled down stock returns
After pulling back a bit in January from 2009’s strong gains, stocks rose steadily as winter turned to spring. Rapid growth in corporate earnings and optimism about the strength of the economic recovery were dominant themes. But in May, the scope of Europe’s fiscal challenges became clearer, and stock prices retreated sharply. For the full six months, U.S. stocks returned about –6%. Small-capitalization stocks, representing companies less exposed to global turmoil than large-cap multinationals, lost less ground than larger stocks.
International stocks also posted negative six-month returns. For U.S.-based investors, a strengthening U.S. dollar further reduced the returns from stocks abroad, particularly in Europe, where the euro fell noticeably in value.
2
Bonds continued to show strength as investors looked for safer assets
With the economic recovery appearing to decelerate and inflation remaining dormant, bonds stayed in favor throughout the period. As worries persisted about possible fallout from Europe’s sovereign debt problems, many investors sought safety in U.S. Treasuries. Higher-quality corporate bonds also performed well as earnings reports indicated that company balance sheets remained in good shape.
Municipal bonds, with their history of low default rates, also held their ground despite ongoing concerns about deficits confronting many state and local governments. In this risk-averse environment, lower-rated, higher-risk corporate bonds lagged a bit. For the full six months, the broad taxable market returned more than 5%; municipal securities returned more than 3%.
In June, the Federal Open Market Committee, the arm of the Federal Reserve that influences interest rates, reiterated its intention to keep its target for short-term rates at “exceptionally low levels” for an “extended period.” The target rate has remained between 0% and 0.25% for 18 months through June.
Advisors’ adept stock selections aved the way for a positive return
The goal of the Market Neutral Fund is twofold. The fund seeks to provide long- term capital appreciation while—as its name implies—“neutralizing,” or limiting,
| Market Barometer | |||
| Total Returns | |||
| Periods Ended June 30, 2010 | |||
| Six | One | Five Years | |
| Months | Year | (Annualized) | |
| Stocks | |||
| Russell 1000 Index (Large-caps) | -6.40% | 15.24% | -0.56% |
| Russell 2000 Index (Small-caps) | -1.95 | 21.48 | 0.37 |
| Dow Jones U.S. Total Stock Market Index | -5.67 | 16.20 | -0.08 |
| MSCI All Country World Index ex USA (International) | -10.80 | 10.87 | 3.84 |
| Bonds | |||
| Barclays Capital U.S. Aggregate Bond Index (Broad | |||
| taxable market) | 5.33% | 9.50% | 5.54% |
| Barclays Capital Municipal Bond Index | 3.31 | 9.61 | 4.40 |
| Citigroup Three-Month U.S. Treasury Bill Index | 0.06 | 0.12 | 2.63 |
| CPI | |||
| Consumer Price Index | 0.93% | 1.05% | 2.30% |
3
the effect of stock market movements on fund return. To accomplish this, the fund selects two baskets of stocks.
One basket—the “long” portfolio—consists of stocks that the fund’s advisors have purchased in the belief that they are undervalued and have potential to appreciate. The other—the “short” portfolio—consists of stocks that the advisors have borrowed and sold, viewing them as likely to decline in price. The plan is to turn a profit by returning the borrowed shares to the lenders after purchasing them back at a lower price.
The fund minimized much of its exposure to the broad stock market’s movements during the six months ended June 30. While the broad stock market returned –5.67% during the period, the Market Neutral Fund posted a positive return exceeding that of its benchmark index. Although the fund’s long portfolio declined, the short portfolio’s contribution outweighed that drop and produced an overall gain.
The biggest boost to return came from the materials-sector stocks in the short portfolio. While the fund’s long holdings in the sector declined about 7%, the advisors’ selections of materials stocks for the short portfolio declined 21%—music to the ears of a short-seller. Particularly beneficial were the fund’s short positions in Monsanto (–43%) and Alcoa (–37%).
At the other extreme, the fund’s return was weakened most notably by its industrial stocks in both portfolios. The advisors’ choices for the long portfolio, including 3M (–3%) and Boeing (–13%), declined in value, while the selections for the short portfolio, especially Emerson Electric (+4%) and United Parcel Service (+12%), rose.
Overall, the results from materials and industrials roughly offset each other. The interplay of positive and negative contributions from other sectors in both portfolios produced the overall gain for the fund.
4
A market-neutral fund can provide added diversification
Market-neutral funds are intended to provide a built-in buffer to the vagaries of stock markets, which shift constantly in reaction to traditional market forces such as the dynamics of the economy, corporate profits, and interest rates. The balancing long and short strategies are aimed at insulating the fund from such forces as far as possible. For investors interested in adding further diversification to an investment program that combines stock, bond, and cash holdings, the low- cost Vanguard Market Neutral Fund can be an effective choice.
After the close of the fiscal period, the fund’s trustees restructured the advisory arrangement for Vanguard Market Neutral Fund. AXA Rosenberg no longer serves as an advisor to the fund, which is now managed solely by Vanguard Quantitative Equity Group. AXA Rosenberg had managed the fund since its inception, and we thank them for their years of service. Vanguard Quantitative Equity Group, which oversees more than $8 billion in active quantitative equity fund assets, has advised the fund since 2007.
Thank you for entrusting your assets to Vanguard.
Sincerely,
F. William McNabb III
Chairman and Chief Executive Officer
July 14, 2010
5
Advisors’ Report
For the first six months of 2010, the Investor Shares of Vanguard Market Neutral Fund returned 0.72% and the Institutional Shares returned 0.83%. These results surpassed that of the fund’s benchmark, the Citigroup Three-Month U.S. Treasury Bill Index, which returned 0.06%. This performance reflects the combined efforts of your fund’s two independent advisors. The use of multiple advisors provides exposure to distinct, yet complementary, investment approaches, enhancing the fund’s diversification. It is not uncommon for different advisors to have different views about individual securities or the broader investment environment.
The advisors, the amount and percentage of fund assets each manages, and brief descriptions of their investment strategies are presented in the table below. Each advisor has also prepared a discussion of the investment environment and of how the portfolio’s positioning reflected this assessment. This report was prepared on July 14, 2010.
Vanguard Quantitative Equity Group
Portfolio Manager:
James D. Troyer, CFA, Principal
The U.S. equity market started the half-year by rising about 6% over the first three months of 2010, amid announcements of strong earnings and brighter economic outlooks. Volatility levels had declined
| Vanguard Market Neutral Fund Investment Advisors | |||
| Fund Assets Managed | |||
| Investment Advisor | % | $ Million | Investment Strategy |
| Vanguard Quantitative Equity | 47 | 41 | Conducts quantitative management using models that |
| Group | assess valuation, marketplace sentiment, and | ||
| balance-sheet characteristics of companies as | |||
| compared with their peers. | |||
| AXA Rosenberg Investment | 46 | 40 | Builds a portfolio based on fundamental analysis using |
| Management LLC | a two-part quantitative model that considers valuations | ||
| and earnings forecasts. | |||
| Cash Investments | 7 | 6 | The fund’s daily cash balance may be invested in one |
| or more Vanguard CMT Funds, which are very low-cost | |||
| money market funds. Each advisor may also maintain a | |||
| modest cash position. | |||
6
almost to the levels reached before the beginning of the recession, but financial and economic news deteriorated during the next three months. U.S. equities dropped more than 11% for the second quarter, fueling volatility. Small-capitalization companies outpaced larger companies by more than 4 percentage points for the full six-month period, led by health care, consumer discretionary, and consumer staples companies.
The market environment favored our stock-selection model. Four of our five model components notched positive returns for the six months. We use a model with multiple factors because our research (and common sense) tells us that no single indicator can consistently pick attractive stocks. Our process involves five themes, each with several components: valuation, market sentiment, earnings quality, earnings growth, and management decisions.
Our valuation model measures the price we pay for earnings and cash flows. How much we pay for earnings depends on the growth of earnings, which we evaluate in our growth model. Company management, privy to better knowledge of a company’s prospects and earnings than market participants, takes actions that signal its opinions of a firm’s future. We measure its actions in our management decisions model. Investors show their opinions of a company through their activity in the stock market, which we capture in our market sentiment model.
Finally, our quality model measures balance-sheet strength and the sustainability of earnings. During the past six months, our valuation and management decisions models were our best-performing signals. Our market sentiment and growth models also had positive returns for the period, while our quality indicator was negative, a condition that has persisted for the past year.
Our short positions in Monsanto and Mosaic aided returns, while our short position in Abraxis BioScience hurt results. Among our long positions, Dr Pepper Snapple Group and Tyson Foods were positive, while our long holding of BlackRock reduced our returns.
AXA Rosenberg Investment Management LLC
Portfolio Manager: William E. Ricks,
Americas Chief Executive and Chief Investment Officer
After posting four consecutive quarters of positive returns and also recording the best quarterly start to a year in more than a decade, U.S. equity markets fell sharply in May and June, effectively erasing the earlier gains.
In the second quarter, markets became more concerned about China’s tightening measures and Europe’s sovereign credit-risk issues, after shrugging off these worries earlier in the year. These renewed concerns resulted in a deteriorating outlook for global economic growth.
7
In addition, U.S. investors fretted about weak housing and employment data. There was also a disconnect between earnings and prices: Stock analysts generally continued to forecast improving global earnings in spite of the evolving macroeconomic headwinds and the recent retreat in equity prices.
Year-to-date through June 30, all sectors declined. While more defensive sectors outperformed in recent months, industrials and consumer discretionary were the top performers for the first half of 2010, building on earlier strengths. Materials and energy lost the most. The energy sector faced notable pressure in the second quarter, as weaker oil prices, slowing global demand, and the BP oil spill in the Gulf of Mexico all weighed on sentiment.
During the first half of 2010, investors initially pursued stocks tied to economic growth, especially those of cyclical companies and leveraged companies. As fear and volatility set in, investors sought cheap, beaten-down stocks. Overall, value stocks and leveraged stocks performed the best, while larger names and speculative stocks with high levels of trading activity performed the worst. The portfolio benefited from both its value stance and its short positions of stocks with high trading activity.
Among sectors, the portfolio benefited the most from shorting the two worst performers—energy and materials—as well as from stock selection in these two sectors. Short positions in Exxon Mobil, Schlumberger, Monsanto, and Alcoa all paid off handsomely, as profit forecasts in the sectors fell because of weaker demand and lowered GDP expectations. In addition, Monsanto faced increased competition from China’s herbicide producers.
Contributions from consumer discretionary and industrial positions were net negative, mainly driven by poor stock selection, although the heavier allocation toward long consumer discretionary stocks mitigated against this effect. Shorting McDonald’s detracted from performance, as the company’s first-quarter results beat analyst estimates.
8
Market Neutral Fund
Fund Profile
As of June 30, 2010
| Share-Class Characteristics | ||
| Investor | Institutional | |
| Shares | Shares | |
| Ticker Symbol | VMNFX | VMNIX |
| Total Expense Ratio1 | 2.80% | 2.73% |
| Management Expenses | 0.21% | 0.14% |
| Dividend Expenses on | ||
| Securities Sold Short2 | 1.42% | 1.42% |
| Borrowing Expenses on | ||
| Securities Sold Short2 | 0.99% | 0.99% |
| Other Expenses | 0.18% | 0.18% |
| Portfolio Characteristics | ||
| Long | Short | |
| Portfolio | Portfolio | |
| Number of Stocks | 320 | 323 |
| Median Market Cap | $6.3B | $7.6B |
| Price/Earnings Ratio | 17.2x | 22.2x |
| Price/Book Ratio | 1.7x | 2.0x |
| Return on Equity | 14.8% | 18.2% |
| Earnings Growth Rate | 0.9% | 9.0% |
| Foreign Holdings | 0.2% | 0.3% |
| Fund Characteristics | ||
| Turnover Rate (Annualized) | 140% | |
| Short-Term Reserves | 7.3% | |
| Volatility Measures | ||
| Citigroup | DJ | |
| Three-Month | U.S. Total | |
| U.S. Treasury | Market | |
| Bill Index | Index | |
| R-Squared | 0.10 | 0.00 |
| Beta | 3.97 | 0.01 |
| These measures show the degree and timing of the fund’s fluctuations compared with the index over 36 months. | ||
| Sector Diversification (% of equity exposure) | ||
| Long | Short | |
| Portfolio | Portfolio | |
| Consumer Discretionary | 17.5% | 10.9% |
| Consumer Staples | 9.8 | 9.6 |
| Energy | 11.0 | 10.8 |
| Financials | 13.2 | 15.3 |
| Health Care | 11.9 | 13.0 |
| Industrials | 12.1 | 10.2 |
| Information Technology | 13.0 | 14.3 |
| Materials | 3.6 | 7.6 |
| Telecommunication Services | 2.4 | 3.9 |
| Utilities | 5.5 | 4.4 |
1 The expense ratios shown are from the prospectus dated April 30, 2010, and represent estimated costs for the current fiscal year. For the six months ended June 30, 2010, the annualized total expense ratios were 1.76% for Investor Shares and 1.66% for Institutional Shares.
2 In connection with a short sale, the fund may receive income or be charged a fee based on the market value of the borrowed stock. When a cash dividend is declared on a stock the fund has sold short, the fund is required to pay an amount equal to that dividend to the party from which the fund borrowed the stock and to record the payment of the dividend as an expense.
9
Market Neutral Fund
| Ten Largest Holdings1 (% of total net assets) | ||
| Long Portfolio | ||
| AT&T Inc. | Integrated | |
| Telecommunication | ||
| Services | 1.6% | |
| Chevron Corp. | Integrated Oil & | |
| Gas | 1.6 | |
| ConocoPhillips | Integrated Oil & | |
| Gas | 1.5 | |
| Microsoft Corp. | Systems Software | 1.4 |
| 3M Co. | Industrial | |
| Conglomerates | 1.4 | |
| Pfizer Inc. | Pharmaceuticals | 1.4 |
| News Corp. Class A | Movies & | |
| Entertainment | 1.4 | |
| Walt Disney Co. | Movies & | |
| Entertainment | 1.3 | |
| International Business | IT Consulting & | |
| Machines Corp. | Other Services | 1.1 |
| Home Depot Inc. | Home | |
| Improvement Retail | 1.1 | |
| Top Ten | 13.8% | |
| Ten Largest Holdings1 (% of total net assets) | ||
| Short Portfolio | ||
| PepsiCo Inc. | Soft Drinks | 1.6% |
| Schlumberger Ltd. | Oil & Gas | |
| Equipment & | ||
| Services | 1.5 | |
| Verizon Communications | Integrated | |
| Inc. | Telecommunication | |
| Services | 1.4 | |
| Google Inc. Class A | Internet Software & | |
| Services | 1.3 | |
| QUALCOMM Inc. | Communications | |
| Equipment | 1.3 | |
| Goldman Sachs Group | Investment Banking | |
| Inc. | & Brokerage | 1.3 |
| Kraft Foods Inc. | Packaged Foods & | |
| Meats | 1.2 | |
| Procter & Gamble Co. | Household | |
| Products | 1.1 | |
| Exxon Mobil Corp. | Integrated Oil & | |
| Gas | 1.1 | |
| Abbott Laboratories | Pharmaceuticals | 1.0 |
| Top Ten | 12.8% | |
10
Market Neutral Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at www.vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Fiscal-Year Total Returns (%): December 31, 1999, Through June 30, 2010
| Average Annual Total Returns: Periods Ended June 30, 2010 | ||||
| Inception | One | Five | Ten | |
| Date | Year | Years | Years | |
| Investor Shares | 11/11/1998 | -1.51% | 0.56% | 2.48% |
| Institutional Shares | 10/19/1998 | -1.42 | 0.74 | 2.72 |
Vanguard fund returns do not reflect the 1% fee on redemptions of shares held for less than one year.
See Financial Highlights for dividend and capital gains information.
11
Market Neutral Fund
Financial Statements (unaudited)
Statement of Net Assets
As of June 30, 2010
The fund reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the fund’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the fund files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the fund’s Forms N-Q on the SEC’s website at www.sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
| Market | |||
| Value• | |||
| Shares | ($000) | ||
| Common Stocks — Long Positions (81.5%) | |||
| Consumer Discretionary (14.2%) | |||
| News Corp. Class A | 100,100 | 1,197 | |
| Walt Disney Co. | 34,800 | 1,096 | |
| † | Home Depot Inc. | 34,600 | 971 |
| † | Time Warner Cable Inc. | 11,200 | 583 |
| TJX Cos. Inc. | 9,800 | 411 | |
| † | Gap Inc. | 20,200 | 393 |
| † | Ltd Brands Inc. | 15,800 | 348 |
| † | Coach Inc. | 9,500 | 347 |
| Cablevision Systems Corp. | |||
| Class A | 13,600 | 327 | |
| Johnson Controls Inc. | 11,900 | 320 | |
| † | Ross Stores Inc. | 5,800 | 309 |
| † | Darden Restaurants Inc. | 6,400 | 248 |
| † | DISH Network Corp. Class A | 11,800 | 214 |
| * | Liberty Media Corp. - Capital | 4,800 | 201 |
| † | Advance Auto Parts Inc. | 3,800 | 191 |
| * † | Big Lots Inc. | 5,800 | 186 |
| * | Panera Bread Co. Class A | 2,400 | 181 |
| † | Starbucks Corp. | 7,400 | 180 |
| Williams-Sonoma Inc. | 7,200 | 179 | |
| * | Cheesecake Factory Inc. | 8,000 | 178 |
| * † | Ford Motor Co. | 17,600 | 177 |
| † | Whirlpool Corp. | 2,000 | 176 |
| † | Wyndham Worldwide Corp. | 8,700 | 175 |
| * | Skechers U.S.A. Inc. Class A | 4,800 | 175 |
| * † | TRW Automotive | ||
| Holdings Corp. | 6,200 | 171 | |
| * † | Valassis | ||
| Communications Inc. | 5,400 | 171 | |
| † | Gannett Co. Inc. | 12,400 | 167 |
| * | Fossil Inc. | 4,800 | 167 |
| Macy’s Inc. | 9,300 | 166 | |
| † | Dillard’s Inc. Class A | 7,500 | 161 |
| * † | Aeropostale Inc. | 5,550 | 159 |
| Sotheby’s | 6,500 | 149 | |
| † | H&R Block Inc. | 9,300 | 146 |
| Genuine Parts Co. | 3,700 | 146 | |
| Market | |||
| Value• | |||
| Shares | ($000) | ||
| * † | Signet Jewelers Ltd. | 5,200 | 143 |
| VF Corp. | 2,000 | 142 | |
| † | McGraw-Hill Cos. Inc. | 5,000 | 141 |
| † | DR Horton Inc. | 13,600 | 134 |
| * † | Liberty Media Corp. - | ||
| Interactive | 12,800 | 134 | |
| † | Brinker International Inc. | 9,200 | 133 |
| Fortune Brands Inc. | 3,400 | 133 | |
| Mattel Inc. | 6,100 | 129 | |
| Family Dollar Stores Inc. | 3,200 | 121 | |
| * † | New York Times Co. Class A | 13,900 | 120 |
| Expedia Inc. | 6,000 | 113 | |
| Hasbro Inc. | 2,300 | 94 | |
| * | Career Education Corp. | 3,900 | 90 |
| * | Dollar Tree Inc. | 2,100 | 87 |
| DeVry Inc. | 1,300 | 68 | |
| Jones Apparel Group Inc. | 3,300 | 52 | |
| * | Pulte Group Inc. | 5,800 | 48 |
| * | Chipotle Mexican Grill Inc. | ||
| Class A | 300 | 41 | |
| Chico’s FAS Inc. | 4,100 | 40 | |
| Comcast Corp. Class A | 2,300 | 40 | |
| Thor Industries Inc. | 1,500 | 36 | |
| † | Time Warner Inc. | 900 | 26 |
| * | HSN Inc. | 1,000 | 24 |
| Virgin Media Inc. | 200 | 3 | |
| 12,458 | |||
| Consumer Staples (7.9%) | |||
| † | CVS Caremark Corp. | 30,600 | 897 |
| Altria Group Inc. | 44,100 | 884 | |
| Lorillard Inc. | 6,100 | 440 | |
| † | Estee Lauder Cos. Inc. | ||
| Class A | 7,800 | 434 | |
| † | ConAgra Foods Inc. | 18,300 | 427 |
| † | Dr Pepper Snapple Group Inc. | 10,667 | 399 |
| Sysco Corp. | 13,100 | 374 | |
| Archer-Daniels-Midland Co. | 14,300 | 369 | |
| † | Tyson Foods Inc. Class A | 21,700 | 355 |
| † | Hershey Co. | 6,700 | 321 |
12
Market Neutral Fund
| Market | |||
| Value• | |||
| Shares | ($000) | ||
| † | Sara Lee Corp. | 22,200 | 313 |
| Reynolds American Inc. | 3,900 | 203 | |
| † | Del Monte Foods Co. | 13,500 | 194 |
| † | Ruddick Corp. | 6,100 | 189 |
| * | Smithfield Foods Inc. | 11,700 | 174 |
| † | Coca-Cola Enterprises Inc. | 6,600 | 171 |
| † | Mead Johnson Nutrition Co. | 3,251 | 163 |
| JM Smucker Co. | 2,700 | 163 | |
| Safeway Inc. | 6,800 | 134 | |
| Herbalife Ltd. | 2,300 | 106 | |
| SUPERVALU Inc. | 9,600 | 104 | |
| Church & Dwight Co. Inc. | 1,300 | 81 | |
| † | Clorox Co. | 1,000 | 62 |
| 6,957 | |||
| Energy (9.0%) | |||
| † | Chevron Corp. | 20,100 | 1,364 |
| † | ConocoPhillips | 27,400 | 1,346 |
| † | Apache Corp. | 8,700 | 733 |
| Devon Energy Corp. | 10,100 | 615 | |
| † | Anadarko Petroleum Corp. | 15,200 | 549 |
| † | Marathon Oil Corp. | 15,600 | 485 |
| † | Cimarex Energy Co. | 4,200 | 301 |
| Valero Energy Corp. | 12,700 | 228 | |
| Ship Finance | |||
| International Ltd. | 10,800 | 193 | |
| * † | Whiting Petroleum Corp. | 2,300 | 180 |
| * † | Newfield Exploration Co. | 3,600 | 176 |
| Pioneer Natural | |||
| Resources Co. | 2,900 | 172 | |
| † | SM Energy Co. | 4,100 | 165 |
| Frontline Ltd. | 5,600 | 160 | |
| † | EXCO Resources Inc. | 10,900 | 159 |
| † | Peabody Energy Corp. | 3,900 | 153 |
| * † | Oil States International Inc. | 3,800 | 150 |
| El Paso Corp. | 13,400 | 149 | |
| * † | Oceaneering | ||
| International Inc. | 2,900 | 130 | |
| * | FMC Technologies Inc. | 1,900 | 100 |
| Chesapeake Energy Corp. | 4,200 | 88 | |
| * | Alpha Natural Resources Inc. | 2,200 | 74 |
| * | Forest Oil Corp. | 2,300 | 63 |
| * | McMoRan Exploration Co. | 3,600 | 40 |
| Williams Cos. Inc. | 1,800 | 33 | |
| Southern Union Co. | 1,300 | 28 | |
| 7,834 | |||
| Financials (10.7%) | |||
| Aflac Inc. | 10,400 | 444 | |
| † | JPMorgan Chase & Co. | 12,100 | 443 |
| † | Prudential Financial Inc. | 7,800 | 419 |
| † | Ameriprise Financial Inc. | 11,500 | 415 |
| † | Bank of America Corp. | 22,700 | 326 |
| † | Unum Group | 13,600 | 295 |
| Wells Fargo & Co. | 11,200 | 287 | |
| Market | |||
| Value• | |||
| Shares | ($000) | ||
| PNC Financial Services | |||
| Group Inc. | 5,000 | 282 | |
| Loews Corp. | 7,400 | 246 | |
| Mercury General Corp. | 4,800 | 199 | |
| Prosperity Bancshares Inc. | 5,700 | 198 | |
| * † | CNA Financial Corp. | 7,600 | 194 |
| † | Assurant Inc. | 5,600 | 194 |
| † | Torchmark Corp. | 3,900 | 193 |
| † | Capital One Financial Corp. | 4,800 | 193 |
| † | First Citizens BancShares Inc. | ||
| Class A | 1,000 | 192 | |
| † | Franklin Resources Inc. | 2,200 | 190 |
| † | Vornado Realty Trust | 2,600 | 190 |
| † | BOK Financial Corp. | 4,000 | 190 |
| † | Unitrin Inc. | 7,200 | 184 |
| * | AmeriCredit Corp. | 10,100 | 184 |
| Jones Lang LaSalle Inc. | 2,800 | 184 | |
| † | RenaissanceRe Holdings Ltd. | 3,200 | 180 |
| Macerich Co. | 4,800 | 179 | |
| Raymond James Financial Inc. | 7,200 | 178 | |
| † | Endurance Specialty | ||
| Holdings Ltd. | 4,700 | 176 | |
| † | CBL & Associates | ||
| Properties Inc. | 14,100 | 175 | |
| Camden Property Trust | 4,200 | 172 | |
| † | Chubb Corp. | 3,400 | 170 |
| † | Bank of Hawaii Corp. | 3,500 | 169 |
| * | Forest City Enterprises Inc. | ||
| Class A | 14,900 | 169 | |
| † | American Financial Group Inc. | 6,100 | 167 |
| * † | Arch Capital Group Ltd. | 2,200 | 164 |
| CommonWealth REIT | 25,600 | 159 | |
| † | Travelers Cos. Inc. | 3,200 | 158 |
| KeyCorp | 20,300 | 156 | |
| † | Fulton Financial Corp. | 16,000 | 154 |
| † | Hudson City Bancorp Inc. | 11,400 | 140 |
| M&T Bank Corp. | 1,500 | 127 | |
| Goldman Sachs Group Inc. | 900 | 118 | |
| † | BlackRock Inc. | 800 | 115 |
| * | SLM Corp. | 10,600 | 110 |
| International Bancshares Corp. | 5,100 | 85 | |
| * | CB Richard Ellis Group Inc. | ||
| Class A | 5,700 | 78 | |
| Duke Realty Corp. | 6,500 | 74 | |
| Montpelier Re Holdings Ltd. | 4,400 | 66 | |
| Highwoods Properties Inc. | 2,300 | 64 | |
| * | Signature Bank | 1,500 | 57 |
| Apartment Investment | |||
| & Management Co. | 2,700 | 52 | |
| Jefferies Group Inc. | 2,400 | 51 | |
| Ares Capital Corp. | 4,000 | 50 | |
| Weingarten Realty Investors | 1,500 | 29 | |
| 9,384 |
13
Market Neutral Fund
| Market | |||
| Value• | |||
| Shares | ($000) | ||
| Health Care (9.7%) | |||
| † | Pfizer Inc. | 84,700 | 1,208 |
| † | UnitedHealth Group Inc. | 26,500 | 753 |
| † | McKesson Corp. | 8,500 | 571 |
| Cardinal Health Inc. | 13,900 | 467 | |
| † | AmerisourceBergen Corp. | ||
| Class A | 12,200 | 387 | |
| * | Thermo Fisher Scientific Inc. | 7,200 | 353 |
| * † | Forest Laboratories Inc. | 12,800 | 352 |
| * | Cephalon Inc. | 5,100 | 289 |
| † | Hill-Rom Holdings Inc. | 6,800 | 207 |
| * | Endo Pharmaceuticals | ||
| Holdings Inc. | 9,400 | 205 | |
| † | Perrigo Co. | 3,400 | 201 |
| * | Boston Scientific Corp. | 34,000 | 197 |
| Allergan Inc. | 3,300 | 192 | |
| * † | Humana Inc. | 4,200 | 192 |
| * † | Lincare Holdings Inc. | 5,850 | 190 |
| † | Cooper Cos. Inc. | 4,700 | 187 |
| PerkinElmer Inc. | 9,000 | 186 | |
| * † | Bruker Corp. | 15,200 | 185 |
| * | Emergency Medical Services | ||
| Corp. Class A | 3,700 | 181 | |
| † | Universal Health Services Inc. | ||
| Class B | 4,600 | 175 | |
| * † | Sirona Dental Systems Inc. | 4,900 | 171 |
| * † | LifePoint Hospitals Inc. | 5,000 | 157 |
| * † | Tenet Healthcare Corp. | 36,200 | 157 |
| * † | Community Health | ||
| Systems Inc. | 4,500 | 152 | |
| * † | Health Management | ||
| Associates Inc. Class A | 19,300 | 150 | |
| * † | Mylan Inc. | 8,400 | 143 |
| * | Life Technologies Corp. | 2,800 | 132 |
| * † | Amgen Inc. | 2,400 | 126 |
| CIGNA Corp. | 3,600 | 112 | |
| * | CareFusion Corp. | 4,100 | 93 |
| * | Medco Health Solutions Inc. | 1,600 | 88 |
| * † | Mettler-Toledo | ||
| International Inc. | 600 | 67 | |
| STERIS Corp. | 2,100 | 65 | |
| Medicis Pharmaceutical Corp. | |||
| Class A | 2,500 | 55 | |
| * | Bio-Rad Laboratories Inc. | ||
| Class A | 600 | 52 | |
| * | Express Scripts Inc. | 800 | 38 |
| * | Amedisys Inc. | 700 | 31 |
| 8,467 | |||
| Industrials (9.9%) | |||
| † | 3M Co. | 15,700 | 1,240 |
| † | Raytheon Co. | 16,800 | 813 |
| † | Boeing Co. | 11,600 | 728 |
| † | Northrop Grumman Corp. | 9,600 | 522 |
| Norfolk Southern Corp. | 8,100 | 430 | |
| Market | |||
| Value• | |||
| Shares | ($000) | ||
| † | L-3 Communications | ||
| Holdings Inc. | 5,200 | 368 | |
| † | Southwest Airlines Co. | 20,700 | 230 |
| Republic Services Inc. | |||
| Class A | 7,300 | 217 | |
| Union Pacific Corp. | 3,000 | 209 | |
| Rockwell Automation Inc. | 3,800 | 187 | |
| † | Avery Dennison Corp. | 5,800 | 186 |
| † | RR Donnelley & Sons Co. | 11,200 | 183 |
| Eaton Corp. | 2,800 | 183 | |
| † | Toro Co. | 3,700 | 182 |
| * † | Oshkosh Corp. | 5,800 | 181 |
| * † | Alaska Air Group Inc. | 4,000 | 180 |
| † | Joy Global Inc. | 3,600 | 180 |
| * † | Owens Corning | 6,000 | 179 |
| * † | UAL Corp. | 8,700 | 179 |
| Parker Hannifin Corp. | 3,200 | 177 | |
| † | Timken Co. | 6,800 | 177 |
| † | Cummins Inc. | 2,700 | 176 |
| * † | Delta Air Lines Inc. | 14,700 | 173 |
| Nordson Corp. | 3,000 | 168 | |
| † | Carlisle Cos. Inc. | 4,500 | 163 |
| † | Pitney Bowes Inc. | 7,300 | 160 |
| † | Regal-Beloit Corp. | 2,700 | 151 |
| Dover Corp. | 3,300 | 138 | |
| Crane Co. | 4,400 | 133 | |
| General Electric Co. | 7,000 | 101 | |
| * | Armstrong World | ||
| Industries Inc. | 3,300 | 100 | |
| * † | General Cable Corp. | 3,700 | 99 |
| Roper Industries Inc. | 1,600 | 90 | |
| FedEx Corp. | 700 | 49 | |
| * | URS Corp. | 600 | 24 |
| 8,656 | |||
| Information Technology (10.6%) | |||
| † | Microsoft Corp. | 54,900 | 1,263 |
| † | International Business | ||
| Machines Corp. | 7,900 | 976 | |
| † | Hewlett-Packard Co. | 19,500 | 844 |
| † | Computer Sciences Corp. | 12,600 | 570 |
| † | Harris Corp. | 8,500 | 354 |
| * † | Micron Technology Inc. | 36,000 | 306 |
| * † | Seagate Technology | 21,800 | 284 |
| † | CA Inc. | 13,800 | 254 |
| * † | Western Digital Corp. | 8,200 | 248 |
| Jabil Circuit Inc. | 15,100 | 201 | |
| * | Intuit Inc. | 5,700 | 198 |
| Lender Processing | |||
| Services Inc. | 6,100 | 191 | |
| * | Atmel Corp. | 39,500 | 190 |
| * † | Amdocs Ltd. | 7,000 | 188 |
| * † | VeriFone Systems Inc. | 9,700 | 184 |
| * † | Agilent Technologies Inc. | 6,400 | 182 |
| * | VMware Inc. Class A | 2,900 | 181 |
14
Market Neutral Fund
| Market | |||
| Value• | |||
| Shares | ($000) | ||
| * † | Lexmark International Inc. | ||
| Class A | 5,400 | 178 | |
| * † | Advanced Micro | ||
| Devices Inc. | 23,300 | 171 | |
| * † | Teradata Corp. | 5,600 | 171 |
| * † | Rovi Corp. | 4,300 | 163 |
| * † | Hewitt Associates Inc. | ||
| Class A | 4,500 | 155 | |
| * † | Autodesk Inc. | 6,000 | 146 |
| * † | Tech Data Corp. | 4,100 | 146 |
| * | Veeco Instruments Inc. | 4,100 | 141 |
| * † | Marvell Technology | ||
| Group Ltd. | 8,900 | 140 | |
| * † | Vishay Intertechnology Inc. | 17,800 | 138 |
| * | Teradyne Inc. | 12,300 | 120 |
| * | Avnet Inc. | 4,500 | 108 |
| * † | LSI Corp. | 23,400 | 108 |
| Maxim Integrated | |||
| Products Inc. | 6,300 | 105 | |
| Activision Blizzard Inc. | 9,800 | 103 | |
| * | Red Hat Inc. | 3,400 | 98 |
| * | SanDisk Corp. | 2,200 | 93 |
| Plantronics Inc. | 3,200 | 91 | |
| * | AOL Inc. | 4,300 | 89 |
| * | Symantec Corp. | 3,800 | 53 |
| Texas Instruments Inc. | 2,200 | 51 | |
| * | NetApp Inc. | 1,200 | 45 |
| * | Arris Group Inc. | 3,700 | 38 |
| * | VeriSign Inc. | 800 | 21 |
| 9,286 | |||
| Materials (3.0%) | |||
| † | Lubrizol Corp. | 4,300 | 346 |
| † | Eastman Chemical Co. | 4,700 | 251 |
| † | Walter Energy Inc. | 3,800 | 231 |
| Albemarle Corp. | 4,800 | 191 | |
| * | WR Grace & Co. | 8,500 | 179 |
| † | Ashland Inc. | 3,700 | 172 |
| † | Domtar Corp. | 3,400 | 167 |
| † | Valspar Corp. | 5,200 | 157 |
| † | International Paper Co. | 6,700 | 152 |
| † | EI du Pont de Nemours & Co. | 4,200 | 145 |
| † | Celanese Corp. Class A | 5,700 | 142 |
| † | Freeport-McMoRan Copper | ||
| & Gold Inc. | 2,200 | 130 | |
| Sonoco Products Co. | 3,500 | 107 | |
| Ball Corp. | 1,700 | 90 | |
| Cytec Industries Inc. | 1,700 | 68 | |
| * | Solutia Inc. | 4,200 | 55 |
| Reliance Steel & | |||
| Aluminum Co. | 500 | 18 | |
| 2,601 | |||
| Market | |||
| Value• | |||
| Shares | ($000) | ||
| Telecommunication Services (2.0%) | |||
| AT&T Inc. | 57,000 | 1,379 | |
| † | CenturyLink Inc. | 5,300 | 177 |
| Telephone & | |||
| Data Systems Inc. | 5,400 | 164 | |
| 1,720 | |||
| Utilities (4.5%) | |||
| Duke Energy Corp. | 28,400 | 454 | |
| † | DTE Energy Co. | 8,000 | 365 |
| † | Oneok Inc. | 6,800 | 294 |
| Public Service Enterprise | |||
| Group Inc. | 8,800 | 276 | |
| † | NiSource Inc. | 17,600 | 255 |
| † | Pinnacle West Capital Corp. | 5,600 | 204 |
| † | CenterPoint Energy Inc. | 15,100 | 199 |
| † | Nicor Inc. | 4,900 | 198 |
| † | Integrys Energy Group Inc. | 4,500 | 197 |
| Energen Corp. | 4,300 | 191 | |
| † | Constellation Energy | ||
| Group Inc. | 5,600 | 181 | |
| † | TECO Energy Inc. | 12,000 | 181 |
| † | CMS Energy Corp. | 11,500 | 168 |
| † | Atmos Energy Corp. | 6,100 | 165 |
| * | AES Corp. | 15,100 | 139 |
| AGL Resources Inc. | 3,800 | 136 | |
| Ameren Corp. | 5,400 | 128 | |
| † | Exelon Corp. | 3,000 | 114 |
| DPL Inc. | 2,100 | 50 | |
| IDACORP Inc. | 1,100 | 37 | |
| 3,932 | |||
| Total Common Stocks — Long Positions | |||
| (Cost $71,776) | 71,295 | ||
| Common Stocks Sold Short (–76.2%) | |||
| Consumer Discretionary (–8.3%) | |||
| * | Discovery Communications | ||
| Inc. Class A | (13,200) | (471) | |
| * | O’Reilly Automotive Inc. | (6,700) | (318) |
| * | Liberty Global Inc. Class A | (11,800) | (307) |
| * | LKQ Corp. | (10,600) | (204) |
| * | DreamWorks Animation SKG | ||
| Inc. Class A | (7,000) | (200) | |
| Genuine Parts Co. | (5,000) | (197) | |
| * | NVR Inc. | (300) | (197) |
| * | Morningstar Inc. | (4,500) | (191) |
| CTC Media Inc. | (13,100) | (189) | |
| * | BorgWarner Inc. | (5,000) | (187) |
| * | Hyatt Hotels Corp. Class A | (5,000) | (185) |
| Best Buy Co. Inc. | (5,300) | (179) | |
| Wendy’s/Arby’s Group Inc. | |||
| Class A | (44,600) | (178) | |
| Staples Inc. | (9,300) | (177) | |
15
Market Neutral Fund
| Market | |||
| Value• | |||
| Shares | ($000) | ||
| American Eagle | |||
| Outfitters Inc. | (15,100) | (177) | |
| * | Penn National Gaming Inc. | (7,500) | (173) |
| Fortune Brands Inc. | (4,400) | (172) | |
| * | Pulte Group Inc. | (20,700) | (171) |
| Harley-Davidson Inc. | (7,400) | (165) | |
| International Game | |||
| Technology | (10,400) | (163) | |
| * | Urban Outfitters Inc. | (4,700) | (162) |
| * | Bally Technologies Inc. | (5,000) | (162) |
| Walt Disney Co. | (5,100) | (161) | |
| JC Penney Co. Inc. | (7,500) | (161) | |
| * | priceline.com Inc. | (900) | (159) |
| International Speedway Corp. | |||
| Class A | (6,100) | (157) | |
| * | Interpublic Group of | ||
| Cos. Inc. | (20,800) | (148) | |
| * | GameStop Corp. Class A | (7,800) | (147) |
| * | Dollar General Corp. | (5,300) | (146) |
| Weight Watchers | |||
| International Inc. | (5,700) | (146) | |
| * | Clear Channel Outdoor | ||
| Holdings Inc. Class A | (16,700) | (145) | |
| Lowe’s Cos. Inc. | (6,900) | (141) | |
| * | Toll Brothers Inc. | (8,300) | (136) |
| * | Las Vegas Sands Corp. | (5,900) | (131) |
| Abercrombie & Fitch Co. | (3,900) | (120) | |
| Stanley Black & Decker Inc. | (2,200) | (111) | |
| NIKE Inc. Class B | (1,600) | (108) | |
| Wynn Resorts Ltd. | (1,400) | (107) | |
| * | Scientific Games Corp. | ||
| Class A | (10,700) | (98) | |
| * | Apollo Group Inc. Class A | (2,200) | (93) |
| H&R Block Inc. | (5,800) | (91) | |
| Carnival Corp. | (2,700) | (82) | |
| Gentex Corp. | (3,800) | (68) | |
| Hasbro Inc. | (1,000) | (41) | |
| * | WMS Industries Inc. | (900) | (35) |
| Scripps Networks Interactive | |||
| Inc. Class A | (600) | (24) | |
| (7,281) | |||
| Consumer Staples (–7.3%) | |||
| PepsiCo Inc. | (23,500) | (1,432) | |
| Kraft Foods Inc. | (36,400) | (1,019) | |
| Procter & Gamble Co. | (16,000) | (960) | |
| Kimberly-Clark Corp. | (7,900) | (479) | |
| Costco Wholesale Corp. | (8,300) | (455) | |
| Alberto-Culver Co. Class B | (7,300) | (198) | |
| Coca-Cola Co. | (3,900) | (195) | |
| Avon Products Inc. | (7,200) | (191) | |
| * | Dean Foods Co. | (18,500) | (186) |
| * | Ralcorp Holdings Inc. | (3,400) | (186) |
| Market | |||
| Value• | |||
| Shares | ($000) | ||
| * | Hansen Natural Corp. | (4,400) | (172) |
| * | Central European | ||
| Distribution Corp. | (7,900) | (169) | |
| McCormick & Co. Inc. | (4,200) | (159) | |
| Kroger Co. | (7,500) | (148) | |
| Kellogg Co. | (2,100) | (106) | |
| Bunge Ltd. | (2,000) | (98) | |
| * | Whole Foods Market Inc. | (2,600) | (94) |
| Sysco Corp. | (1,800) | (51) | |
| Safeway Inc. | (2,000) | (39) | |
| HJ Heinz Co. | (700) | (30) | |
| Brown-Forman Corp. Class B | (400) | (23) | |
| (6,390) | |||
| Energy (–8.3%) | |||
| Schlumberger Ltd. | (24,100) | (1,334) | |
| Exxon Mobil Corp. | (16,500) | (942) | |
| Halliburton Co. | (23,000) | (565) | |
| * | Southwestern Energy Co. | (11,300) | (437) |
| Spectra Energy Corp. | (21,100) | (423) | |
| * | Denbury Resources Inc. | (20,100) | (295) |
| Range Resources Corp. | (6,900) | (277) | |
| * | Petrohawk Energy Corp. | (15,400) | (261) |
| Baker Hughes Inc. | (6,000) | (249) | |
| * | Cameron International Corp. | (6,600) | (215) |
| * | Ultra Petroleum Corp. | (4,400) | (195) |
| * | Cobalt International | ||
| Energy Inc. | (26,200) | (195) | |
| Frontier Oil Corp. | (14,400) | (194) | |
| Tidewater Inc. | (4,800) | (186) | |
| * | Plains Exploration | ||
| & Production Co. | (8,400) | (173) | |
| Cabot Oil & Gas Corp. | (5,200) | (163) | |
| Arch Coal Inc. | (7,900) | (157) | |
| Consol Energy Inc. | (3,600) | (122) | |
| * | Atlas Energy Inc. | (4,200) | (114) |
| * | Comstock Resources Inc. | (4,100) | (114) |
| Holly Corp. | (3,800) | (101) | |
| Tesoro Corp. | (8,500) | (99) | |
| * | Concho Resources Inc. | (1,600) | (89) |
| * | Alpha Natural Resources Inc. | (2,500) | (85) |
| Helmerich & Payne Inc. | (2,100) | (77) | |
| EOG Resources Inc. | (700) | (69) | |
| * | Dresser-Rand Group Inc. | (1,400) | (44) |
| * | Superior Energy Services Inc. | (1,900) | (35) |
| (7,210) | |||
| Financials (–11.6%) | |||
| Goldman Sachs Group Inc. | (8,500) | (1,116) | |
| Charles Schwab Corp. | (31,900) | (452) | |
| Invesco Ltd. | (18,900) | (318) | |
| People’s United Financial Inc. | (20,500) | (277) | |
| Chubb Corp. | (5,200) | (260) | |
| T Rowe Price Group Inc. | (5,200) | (231) | |
16
Market Neutral Fund
| Market | |||
| Value• | |||
| Shares | ($000) | ||
| Progressive Corp. | (11,400) | (213) | |
| * | Alleghany Corp. | (712) | (209) |
| CapitalSource Inc. | (43,700) | (208) | |
| Bank of New York | |||
| Mellon Corp. | (8,400) | (207) | |
| * | Markel Corp. | (600) | (204) |
| HCC Insurance Holdings Inc. | (8,100) | (201) | |
| Transatlantic Holdings Inc. | (4,200) | (201) | |
| First Niagara Financial | |||
| Group Inc. | (15,800) | (198) | |
| Corporate Office Properties | |||
| Trust SBI MD | (5,200) | (196) | |
| Wesco Financial Corp. | (600) | (194) | |
| Health Care REIT Inc. | (4,600) | (194) | |
| AON Corp. | (5,200) | (193) | |
| Brown & Brown Inc. | (10,100) | (193) | |
| Public Storage | (2,200) | (193) | |
| Greenhill & Co. Inc. | (3,100) | (190) | |
| Associated Banc-Corp | (15,100) | (185) | |
| Synovus Financial Corp. | (72,800) | (185) | |
| Equity One Inc. | (11,800) | (184) | |
| ProLogis | (18,100) | (183) | |
| Alexander’s Inc. | (600) | (182) | |
| AMB Property Corp. | (7,400) | (175) | |
| Janus Capital Group Inc. | (19,700) | (175) | |
| Lazard Ltd. Class A | (6,500) | (174) | |
| Arthur J Gallagher & Co. | (7,000) | (171) | |
| Senior Housing | |||
| Properties Trust | (8,000) | (161) | |
| Morgan Stanley | (6,900) | (160) | |
| Marsh & McLennan Cos. Inc. | (7,000) | (158) | |
| * | IntercontinentalExchange Inc. | (1,400) | (158) |
| AvalonBay Communities Inc. | (1,600) | (149) | |
| Legg Mason Inc. | (5,300) | (149) | |
| Northern Trust Corp. | (3,200) | (149) | |
| Marshall & Ilsley Corp. | (20,100) | (144) | |
| Fidelity National Financial Inc. | |||
| Class A | (10,900) | (142) | |
| * | MSCI Inc. Class A | (4,600) | (126) |
| Whitney Holding Corp. | (13,400) | (124) | |
| * | Genworth Financial Inc. | ||
| Class A | (9,200) | (120) | |
| KeyCorp | (14,900) | (115) | |
| Nationwide Health | |||
| Properties Inc. | (3,200) | (114) | |
| PartnerRe Ltd. | (1,300) | (91) | |
| BRE Properties Inc. | (2,400) | (89) | |
| Digital Realty Trust Inc. | (1,500) | (87) | |
| * | NASDAQ OMX Group Inc. | (4,900) | (87) |
| * | TD Ameritrade Holding Corp. | (5,300) | (81) |
| Regions Financial Corp. | (11,800) | (78) | |
| Cincinnati Financial Corp. | (2,900) | (75) | |
| BlackRock Inc. | (500) | (72) | |
| * | CB Richard Ellis Group Inc. | ||
| Class A | (5,300) | (72) |
| Market | |||
| Value• | |||
| Shares | ($000) | ||
| Moody’s Corp. | (3,000) | (60) | |
| American National | |||
| Insurance Co. | (600) | (49) | |
| National Retail Properties Inc. | (1,900) | (41) | |
| * | E*Trade Financial Corp. | (3,000) | (35) |
| BB&T Corp. | (700) | (18) | |
| (10,166) | |||
| Health Care (–9.9%) | |||
| Abbott Laboratories | (18,500) | (865) | |
| * | Celgene Corp. | (9,700) | (493) |
| * | Gilead Sciences Inc. | (12,800) | (439) |
| Merck & Co. Inc. | (12,300) | (430) | |
| Baxter International Inc. | (9,800) | (398) | |
| * | Genzyme Corp. | (7,500) | (380) |
| * | Laboratory Corp. of | ||
| America Holdings | (4,000) | (302) | |
| Allergan Inc. | (5,000) | (291) | |
| DENTSPLY International Inc. | (9,100) | (272) | |
| * | Vertex Pharmaceuticals Inc. | (7,700) | (254) |
| * | Abraxis BioScience Inc. | (3,400) | (252) |
| Beckman Coulter Inc. | (3,400) | (205) | |
| * | Gen-Probe Inc. | (4,500) | (204) |
| * | Henry Schein Inc. | (3,700) | (203) |
| * | St. Jude Medical Inc. | (5,500) | (199) |
| * | Boston Scientific Corp. | (33,700) | (195) |
| Techne Corp. | (3,400) | (195) | |
| * | Inverness Medical | ||
| Innovations Inc. | (7,100) | (189) | |
| * | VCA Antech Inc. | (7,600) | (188) |
| * | Onyx Pharmaceuticals Inc. | (8,500) | (184) |
| * | NuVasive Inc. | (5,100) | (181) |
| * | Myriad Genetics Inc. | (11,300) | (169) |
| Patterson Cos. Inc. | (5,800) | (165) | |
| * | Covance Inc. | (3,200) | (164) |
| * | Zimmer Holdings Inc. | (2,900) | (157) |
| * | United Therapeutics Corp. | (3,200) | (156) |
| Stryker Corp. | (3,100) | (155) | |
| Pfizer Inc. | (10,400) | (148) | |
| * | Illumina Inc. | (3,100) | (135) |
| * | DaVita Inc. | (2,100) | (131) |
| * | Edwards Lifesciences Corp. | (2,200) | (123) |
| * | Human Genome | ||
| Sciences Inc. | (4,900) | (111) | |
| CR Bard Inc. | (1,400) | (109) | |
| * | Cerner Corp. | (1,400) | (106) |
| * | Express Scripts Inc. | (2,000) | (94) |
| * | ResMed Inc. | (1,500) | (91) |
| Pharmaceutical Product | |||
| Development Inc. | (3,500) | (89) | |
| * | Dendreon Corp. | (2,700) | (87) |
| * | Alexion Pharmaceuticals Inc. | (1,600) | (82) |
| Medtronic Inc. | (1,200) | (44) | |
| * | Intuitive Surgical Inc. | (100) | (32) |
| (8,667) | |||
17
Market Neutral Fund
| Market | |||
| Value• | |||
| Shares | ($000) | ||
| Industrials (–7.8%) | |||
| Precision Castparts Corp. | (4,300) | (442) | |
| Lockheed Martin Corp. | (5,800) | (432) | |
| CH Robinson Worldwide Inc. | (6,800) | (379) | |
| Fluor Corp. | (7,900) | (336) | |
| Expeditors International of | |||
| Washington Inc. | (8,900) | (307) | |
| * | McDermott International Inc. | (13,300) | (288) |
| * | Quanta Services Inc. | (13,300) | (275) |
| * | Jacobs Engineering | ||
| Group Inc. | (7,300) | (266) | |
| * | IHS Inc. Class A | (3,700) | (216) |
| * | Covanta Holding Corp. | (12,300) | (204) |
| Watsco Inc. | (3,500) | (203) | |
| * | FTI Consulting Inc. | (4,600) | (201) |
| AMETEK Inc. | (4,900) | (197) | |
| Goodrich Corp. | (2,900) | (192) | |
| Roper Industries Inc. | (3,400) | (190) | |
| * | AGCO Corp. | (7,000) | (189) |
| Landstar System Inc. | (4,800) | (187) | |
| * | Aecom Technology Corp. | (8,100) | (187) |
| KBR Inc. | (9,100) | (185) | |
| Con-way Inc. | (6,100) | (183) | |
| Harsco Corp. | (7,800) | (183) | |
| * | Shaw Group Inc. | (4,600) | (157) |
| Danaher Corp. | (4,200) | (156) | |
| Alexander & Baldwin Inc. | (5,200) | (155) | |
| Wabtec Corp. | (3,700) | (148) | |
| * | Stericycle Inc. | (2,000) | (131) |
| Fastenal Co. | (2,600) | (131) | |
| IDEX Corp. | (4,300) | (123) | |
| Robert Half International Inc. | (4,600) | (108) | |
| Pitney Bowes Inc. | (4,100) | (90) | |
| * | Clean Harbors Inc. | (1,300) | (86) |
| Pall Corp. | (2,400) | (83) | |
| Textron Inc. | (4,600) | (78) | |
| * | Verisk Analytics Inc. Class A | (1,900) | (57) |
| JB Hunt Transport | |||
| Services Inc. | (1,600) | (52) | |
| Emerson Electric Co. | (700) | (31) | |
| (6,828) | |||
| Information Technology (–10.9%) | |||
| * | Google Inc. Class A | (2,600) | (1,157) |
| QUALCOMM Inc. | (34,600) | (1,136) | |
| * | Adobe Systems Inc. | (16,400) | (434) |
| * | eBay Inc. | (21,300) | (418) |
| Mastercard Inc. Class A | (1,800) | (359) | |
| Paychex Inc. | (13,400) | (348) | |
| * | Citrix Systems Inc. | (7,400) | (312) |
| * | FLIR Systems Inc. | (10,200) | (296) |
| Visa Inc. Class A | (3,500) | (248) | |
| * | Sohu.com Inc. | (4,700) | (193) |
| Oracle Corp. | (8,900) | (191) | |
| * | PMC - Sierra Inc. | (25,200) | (190) |
| * | Netlogic Microsystems Inc. | (6,900) | (188) |
| Market | |||
| Value• | |||
| Shares | ($000) | ||
| * | Juniper Networks Inc. | (8,100) | (185) |
| Amphenol Corp. Class A | (4,700) | (184) | |
| Western Union Co. | (12,300) | (183) | |
| * | Varian Semiconductor | ||
| Equipment Associates Inc. | (6,300) | (181) | |
| Intersil Corp. Class A | (14,900) | (180) | |
| Corning Inc. | (11,000) | (178) | |
| * | Concur Technologies Inc. | (4,100) | (175) |
| * | Arrow Electronics Inc. | (7,800) | (174) |
| * | MEMC Electronic | ||
| Materials Inc. | (17,600) | (174) | |
| National Instruments Corp. | (5,300) | (168) | |
| * | Trimble Navigation Ltd. | (5,900) | (165) |
| * | Genpact Ltd. | (10,000) | (155) |
| Applied Materials Inc. | (12,700) | (153) | |
| Automatic Data | |||
| Processing Inc. | (3,800) | (153) | |
| * | Fiserv Inc. | (3,100) | (142) |
| * | Akamai Technologies Inc. | (3,500) | (142) |
| * | Dell Inc. | (11,800) | (142) |
| * | SAIC Inc. | (7,800) | (131) |
| * | Monster Worldwide Inc. | (10,700) | (125) |
| Linear Technology Corp. | (4,400) | (122) | |
| * | Red Hat Inc. | (3,600) | (104) |
| * | VeriSign Inc. | (3,800) | (101) |
| Microchip Technology Inc. | (3,500) | (97) | |
| * | McAfee Inc. | (3,100) | (95) |
| * | Autodesk Inc. | (3,800) | (93) |
| * | Advanced Micro Devices Inc. | (11,000) | (81) |
| * | Cisco Systems Inc. | (3,000) | (64) |
| * | EMC Corp. | (3,300) | (60) |
| * | Brocade Communications | ||
| Systems Inc. | (11,000) | (57) | |
| * | Equinix Inc. | (700) | (57) |
| Broadridge Financial | |||
| Solutions Inc. | (1,500) | (29) | |
| (9,520) | |||
| Materials (–5.8%) | |||
| Praxair Inc. | (8,500) | (646) | |
| Monsanto Co. | (13,700) | (633) | |
| Freeport-McMoRan Copper | |||
| & Gold Inc. | (8,100) | (479) | |
| Nucor Corp. | (10,600) | (406) | |
| Mosaic Co. | (7,500) | (292) | |
| Allegheny Technologies Inc. | (6,000) | (266) | |
| Martin Marietta | |||
| Materials Inc. | (3,100) | (263) | |
| Alcoa Inc. | (23,600) | (237) | |
| Vulcan Materials Co. | (5,300) | (233) | |
| * | Pactiv Corp. | (6,900) | (192) |
| Bemis Co. Inc. | (7,000) | (189) | |
| Royal Gold Inc. | (3,900) | (187) | |
| Weyerhaeuser Co. | (5,000) | (176) | |
| Compass Minerals | |||
| International Inc. | (2,200) | (155) | |
18
Market Neutral Fund
| Market | |||
| Value• | |||
| Shares | ($000) | ||
| Dow Chemical Co. | (6,100) | (145) | |
| Air Products & Chemicals Inc. | (2,200) | (143) | |
| Sigma-Aldrich Corp. | (2,400) | (120) | |
| Celanese Corp. Class A | (3,100) | (77) | |
| CF Industries Holdings Inc. | (1,000) | (63) | |
| Eagle Materials Inc. | (2,200) | (57) | |
| Commercial Metals Co. | (3,600) | (48) | |
| Aptargroup Inc. | (800) | (30) | |
| Steel Dynamics Inc. | (1,800) | (24) | |
| (5,061) | |||
| Telecommunication Services (–2.9%) | |||
| Verizon Communications Inc. | (44,900) | (1,258) | |
| * | American Tower Corp. | ||
| Class A | (9,100) | (405) | |
| * | Crown Castle | ||
| International Corp. | (5,400) | (201) | |
| * | SBA Communications Corp. | ||
| Class A | (5,900) | (200) | |
| * | Level 3 | ||
| Communications Inc. | (169,600) | (185) | |
| * | Leap Wireless | ||
| International Inc. | (9,500) | (123) | |
| * | NII Holdings Inc. | (3,300) | (107) |
| Windstream Corp. | (8,400) | (89) | |
| (2,568) | |||
| Utilities (–3.4%) | |||
| Exelon Corp. | (9,500) | (361) | |
| EQT Corp. | (8,500) | (307) | |
| Aqua America Inc. | (11,600) | (205) | |
| Alliant Energy Corp. | (6,200) | (197) | |
| Sempra Energy | (4,200) | (197) | |
| * | NRG Energy Inc. | (8,700) | (185) |
| * | AES Corp. | (19,100) | (176) |
| ITC Holdings Corp. | (3,300) | (175) | |
| Southern Co. | (5,200) | (173) | |
| * | RRI Energy Inc. | (45,000) | (171) |
| Duke Energy Corp. | (10,200) | (163) | |
| NV Energy Inc. | (13,400) | (158) | |
| Great Plains Energy Inc. | (9,000) | (153) | |
| Dominion Resources Inc. | (2,400) | (93) | |
| * | Calpine Corp. | (6,800) | (87) |
| * | Dynegy Inc. Class A | (15,260) | (59) |
| SCANA Corp. | (1,300) | (46) | |
| Wisconsin Energy Corp. | (800) | (41) | |
| (2,947) | |||
| Total Common Stocks Sold Short | |||
| (Proceeds $70,272) | (66,638) | ||
| Market | ||
| Value• | ||
| Shares | ($000) | |
| Temporary Cash Investments (9.6%) | ||
| Money Market Fund (9.6%) | ||
| 1 Vanguard Market Liquidity | ||
| Fund, 0.286% | ||
| (Cost $8,396) | 8,395,956 | 8,396 |
| † Other Assets and Liabilities— | ||
| Net (85.1%) | 74,391 | |
| Net Assets (100%) | 87,444 | |
| Statement of Assets and Liabilities | ||
| Assets | ||
| Investment in Securities, | ||
| Long Positions at Value | ||
| Common Stocks | 71,295 | |
| Temporary Cash Investments | 8,396 | |
| Cash Deposited with Broker for | ||
| Short Positions | 76,827 | |
| Receivables for Capital Shares Issued | 198 | |
| Other Assets | 83 | |
| Total Assets | 156,799 | |
| Liabilities | ||
| Securities Sold Short, at Value | 66,638 | |
| Payables for Capital Shares Redeemed | 2,185 | |
| Other Liabilities | 532 | |
| Total Liabilities | 69,355 | |
| Net Assets (100%) | 87,444 | |
19
Market Neutral Fund
At June 30, 2010, net assets consisted of:
| Amount | |
| ($000) | |
| Paid-in Capital | 108,132 |
| Accumulated Net Investment Losses | (84) |
| Accumulated Net Realized Losses | (23,757) |
| Unrealized Appreciation (Depreciation) | |
| Investment Securities--Long Positions | (481) |
| Investment Securities Sold Short | 3,634 |
| Net Assets | 87,444 |
| Investor Shares—Net Assets | |
| Applicable to 8,040,489 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 78,650 |
| Net Asset Value Per Share— | |
| Investor Shares | $9.78 |
| Institutional Shares—Net Assets | |
| Applicable to 903,235 outstanding | |
| $.001 par value shares of beneficial | |
| interest (unlimited authorization) | 8,794 |
| Net Asset Value Per Share— | |
| Institutional Shares | $9.74 |
• See Note A in Notes to Financial Statements.
* Non-income-producing security.
† Long security positions with a value of $34,274,000 and cash of $76,827,000 have been segregated in connection with securities sold short.
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.
See accompanying Notes, which are an integral part of the Financial Statements.
20
Market Neutral Fund
Statement of Operations
| Six Months Ended | |
| June 30, 2010 | |
| ($000) | |
| Investment Income | |
| Income | |
| Dividends | 571 |
| Interest1 | 8 |
| Total Income | 579 |
| Expenses | |
| Investment Advisory Fees—Note B | |
| Basic Fee | 83 |
| Performance Adjustment | (51) |
| The Vanguard Group—Note C | |
| Management and Administrative—Investor Shares | 50 |
| Management and Administrative—Institutional Shares | 5 |
| Marketing and Distribution—Investor Shares | 8 |
| Marketing and Distribution—Institutional Shares | 2 |
| Custodian Fees | 15 |
| Shareholders’ Reports—Investor Shares | 2 |
| Shareholders’ Reports—Institutional Shares | — |
| Dividend Expense on Securities Sold Short | 475 |
| Borrowing Expense on Securities Sold Short | 24 |
| Total Expenses | 613 |
| Net Investment Income (Loss) | (34) |
| Realized Net Gain (Loss) | |
| Investment Securities—Long Positions | 4,228 |
| Investment Securities Sold Short | (6,040) |
| Realized Net Gain (Loss) | (1,812) |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities—Long Positions | (8,427) |
| Investment Securities Sold Short | 10,508 |
| Change in Unrealized Appreciation (Depreciation) | 2,081 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 235 |
| 1 Interest income from an affiliated company of the fund was $8,000. |
See accompanying Notes, which are an integral part of the Financial Statements.
21
Market Neutral Fund
Statement of Changes in Net Assets
| Six Months Ended | Year Ended | |
| June 30, | December 31, | |
| 2010 | 2009 | |
| ($000) | ($000) | |
| Increase (Decrease) in Net Assets | ||
| Operations | ||
| Net Investment Income (Loss) | (34) | (719) |
| Realized Net Gain (Loss) | (1,812) | (15,526) |
| Change in Unrealized Appreciation (Depreciation) | 2,081 | 6,224 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 235 | (10,021) |
| Distributions | ||
| Net Investment Income | ||
| Investor Shares | — | (76) |
| Institutional Shares | — | (12) |
| Realized Capital Gain | ||
| Investor Shares | — | — |
| Institutional Shares | — | — |
| Total Distributions | — | (88) |
| Capital Share Transactions | ||
| Investor Shares | 25,702 | (11,487) |
| Institutional Shares | (6,883) | 206 |
| Net Increase (Decrease) from Capital Share Transactions | 18,819 | (11,281) |
| Total Increase (Decrease) | 19,054 | (21,390) |
| Net Assets | ||
| Beginning of Period | 68,390 | 89,780 |
| End of Period1 | 87,444 | 68,390 |
| 1 Net Assets—End of Period includes undistributed (overdistributed) net investment income of ($84,000) and ($50,000). | ||
See accompanying Notes, which are an integral part of the Financial Statements.
22
Market Neutral Fund
Financial Highlights
| Investor Shares | ||||||||
| Six Months | Year | April 1, | ||||||
| Ended | Ended | 2008, to | ||||||
| For a Share Outstanding | June 30, | Dec. 31, | Dec. 31, | Year Ended March 31, | ||||
| Throughout Each Period | 2010 | 2009 | 20081 | 20082 | 2007 | 2006 | 2005 | |
| Net Asset Value, | ||||||||
| Beginning of Period | $9.71 | $10.97 | $12.45 | $12.19 | $12.12 | $11.46 | $10.86 | |
| Investment Operations | ||||||||
| Net Investment Income (Loss) | (.006)3 | (.105) | .084 | .3113 | .500 | .220 | (.040) | |
| Net Realized and Unrealized Gain (Loss) | ||||||||
| on Investments4 | .076 | (1.143) | (.838) | .909 | .060 | .590 | .640 | |
| Total from Investment Operations | .070 | (1.248) | (.754) | 1.220 | .560 | .810 | .600 | |
| Distributions | ||||||||
| Dividends from Net Investment Income | — | (.012) | (.132) | (.607) | (.490) | (.150) | — | |
| Distributions from Realized Capital Gains | — | — | (.594) | (.353) | — | — | — | |
| Total Distributions | — | (.012) | (.726) | (.960) | (.490) | (.150) | — | |
| Net Asset Value, End of Period | $9.78 | $9.71 | $10.97 | $12.45 | $12.19 | $12.12 | $11.46 | |
| Total Return5 | 0.72% | –11.38% | –6.11% | 10.15% | 4.68% | 7.09% | 5.52% | |
| Ratios/Supplemental Data | ||||||||
| Net Assets, End of Period (Millions) | $79 | $53 | $73 | $45 | $9 | $12 | $13 | |
| Ratio of Expenses to | ||||||||
| Average Net Assets | ||||||||
| Based on Total Expenses8 | 1.76%6,7 | 2.80%7 | 2.13%6 | 3.09% | 3.46% | 3.31% | 3.55% | |
| Net of Expenses Waived/ | ||||||||
| Reimbursed2,8 | 1.76%6,7 | 2.80%7 | 2.13%6 | 2.79% | 2.98% | 3.02% | 3.26% | |
| Net of Expenses Waived/Reimbursed | ||||||||
| and Dividend and Borrowing | ||||||||
| Expense on Securities Sold Short8 | 0.34%6 | 0.39% | 0.46%6 | 1.16% | 1.54% | 1.59% | 1.61% | |
| Ratio of Net Investment Income (Loss) | ||||||||
| to Average Net Assets | (0.12%)6 | (0.97%) | 1.15%6 | 2.69% | 3.40% | 2.14% | (0.33%) | |
| Portfolio Turnover Rate | 140%6 | 142% | 161% | 214% | 169% | 213% | 180% | |
2 Laudus Rosenberg U.S. Large/Mid Capitalization Long/Short Equity Fund reorganized into Vanguard Market Neutral Fund effective December 1, 2007. Prior to December 1, 2007, the fund’s advisor and other service providers waived or reimbursed certain fund expenses.
3 Calculated based on average shares outstanding.
4 Includes increases from redemption fees of $.00, $.04, $.00, $.00, $.01, $.00, and $.00.
5 Total returns do not reflect the 2% fee assessed until November 30, 2007, on redemptions of shares purchased within 30 days; the 1% fee assessed beginning December 1, 2007, on redemptions of shares held less than one year; or the account service fee that may be applicable to certain accounts with balances below $10,000.
6 Annualized.
7 Includes 2010 dividend and borrowing expense on securities sold short of 1.35% and 0.07%, respectively. Includes 2009 dividend and borrowing expense on securities sold short of 1.42% and 0.99%, respectively.
8 Includes performance-based investment advisory fee increases (decreases) of (0.15%) for fiscal 2010, (0.10%) for fiscal 2009, and (0.02%) for fiscal 2008. Performance-based investment advisory fees did not apply prior to fiscal 2008.
See accompanying Notes, which are an integral part of the Financial Statements.
23
Market Neutral Fund
Financial Highlights
| Institutional Shares | ||||||||
| Six Months | Year | April 1, | ||||||
| Ended | Ended | 2008, to | ||||||
| For a Share Outstanding | June 30, | Dec. 31, | Dec. 31, | Year Ended March 31, | ||||
| Throughout Each Period | 2010 | 2009 | 20081 | 20082 | 2007 | 2006 | 2005 | |
| Net Asset Value, | ||||||||
| Beginning of Period | $9.66 | $10.90 | $12.39 | $12.14 | $12.08 | $11.44 | $10.80 | |
| Investment Operations | ||||||||
| Net Investment Income (Loss) | (.001)3 | (.093) | .085 | .3903 | .600 | .250 | (.010)3 | |
| Net Realized and Unrealized Gain (Loss) | ||||||||
| on Investments4 | .081 | (1.139) | (.846) | .864 | — | .580 | .650 | |
| Total from Investment Operations | .080 | (1.232) | (.761) | 1.254 | .600 | .830 | .640 | |
| Distributions | ||||||||
| Dividends from Net Investment Income | — | (.008) | (.138) | (.651) | (.540) | (.190) | — | |
| Distributions from Realized Capital Gains | — | — | (.591) | (.353) | — | — | — | |
| Total Distributions | — | (.008) | (.729) | (1.004) | (.540) | (.190) | — | |
| Net Asset Value, End of Period | $9.74 | $9.66 | $10.90 | $12.39 | $12.14 | $12.08 | $11.44 | |
| Total Return5 | 0.83% | –11.31% | –6.20% | 10.49% | 4.98% | 7.29% | 5.93% | |
| Ratios/Supplemental Data | ||||||||
| Net Assets, End of Period (Millions) | $9 | $16 | $17 | $12 | $10 | $20 | $12 | |
| Ratio of Expenses to | ||||||||
| Average Net Assets | ||||||||
| Based on Total Expenses8 | 1.66%6,7 | 2.73%7 | 2.08%6 | 2.97% | 3.07% | 3.01% | 3.23% | |
| Net of Expenses Waived/ | ||||||||
| Reimbursed2,8 | 1.66%6,7 | 2.73%7 | 2.08%6 | 2.56% | 2.67% | 2.71% | 2.94% | |
| Net of Expenses Waived/Reimbursed | ||||||||
| and Dividend and Borrowing | ||||||||
| Expense on Securities Sold Short8 | 0.24%6 | 0.32% | 0.41%6 | 0.93% | 1.24% | 1.24% | 1.24% | |
| Ratio of Net Investment Income (Loss) | ||||||||
| to Average Net Assets | (0.02%)6 | (0.90%) | 1.20%6 | 2.92% | 3.68% | 2.50% | (0.13%) | |
| Portfolio Turnover Rate | 140%6 | 142% | 161% | 214% | 169% | 213% | 180% | |
2 Laudus Rosenberg U.S. Large/Mid Capitalization Long/Short Equity Fund reorganized into Vanguard Market Neutral Fund effective December 1, 2007. Prior to December 1, 2007, the fund’s advisor and other service providers waived or reimbursed certain fund expenses.
3 Calculated based on average shares outstanding.
4 Includes increases from redemption fees of $.00, $.03, $.00, $.00, $.00, $.00, and $.00.
5 Total returns do not reflect the 2% fee assessed until November 30, 2007, on redemptions of shares purchased within 30 days or the 1% fee assessed beginning December 1, 2007, on redemptions of shares held less than one year.
6 Annualized.
7 Includes 2010 dividend and borrowing expense on securities sold short of 1.35% and 0.07%, respectively. Includes 2009 dividend and borrowing expense on securities sold short of 1.42% and 0.99%, respectively.
8 Includes performance-based investment advisory fee increases (decreases) of (0.15%) for fiscal 2010, (0.10%) for fiscal 2009, and (0.02%) for fiscal 2008. Performance-based investment advisory fees did not apply prior to fiscal 2008.
See accompanying Notes, which are an integral part of the Financial Statements.
24
Market Neutral Fund
Notes to Financial Statements
Vanguard Market Neutral 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 Institutional Shares. Investor Shares are available to any investor who meets the fund’s minimum purchase requirements. Institutional Shares are designed for institutional investors who meet certain administrative, service, and account-size criteria.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. mutual funds. 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 proxi es (for example, ADRs, futures contracts, or exchange-traded funds), between the time the foreign markets close and the fund’s pricing time. When fair-value pricing is employed, the prices of securities used by a fund to calculate its net asset value may differ from quoted or published prices for the same securities. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value.
2. Short Sales: Short sales are the sales of securities that the fund does not own. The fund may sell a security it does not own in anticipation of a decline in the value of that security. In order to deliver the security to the purchaser, the fund borrows the security from a broker-dealer. The fund must segregate, as collateral for its obligation to return the borrowed security, an amount of cash and long security positions at least equal to the market value of the security sold short. The fund later closes out the position by returning the security to the lender, typically by purchasing the security in the open market. A gain, limited to the price at which the fund sold the security short, or a loss, theoretically unlimited in size, is recognized upon the termination of the short sale. The fund may receive a portion of the income from the investment of collateral, or be charged a fee on borrowed securities, based on the market value of each borrowe d security and a variable rate that is dependent upon the availability of such security. The net amounts of income or fees are recorded as interest income (for net income received) or borrowing expense on securities sold short (for net fees charged) on the Statement of Operations. Dividends on securities sold short are reported as an expense in the Statement of Operations.
Cash collateral segregated for securities sold short is recorded as an asset in the Statement of Assets and Liabilities. Long security positions segregated as collateral are shown in the Statement of Net Assets.
25
Market Neutral Fund
3. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (March 31, 2006–December 31, 2009), and for the period ended June 30, 2010, and has concluded that no provision for federal income tax is required in the fund’s financial statements.
4. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
5. Other: Dividend income (or dividend expense on short positions) is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold. Fees assessed on redemptions of capital shares are credited to paid-in capital.
Each class of shares has equal rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on investments are allocated to each class of shares based on its relative net assets.
B. AXA Rosenberg Investment Management LLC (AXA) provides investment advisory services to a portion of the fund for a fee calculated at an annual percentage rate of average net assets managed by the advisor. The basic fee for AXA is subject to quarterly adjustments based on performance since December 31, 2007, relative to the Citigroup Three-Month U.S. Treasury Bill Index.
The Vanguard Group provides investment advisory services to a portion of the fund on an at-cost basis.
For the six months ended June 30, 2010, the aggregate investment advisory fee represented an effective annual basic rate of 0.24% of the fund’s average net assets, before a decrease of $51,000 (0.15%) based on performance.
After the close of the fiscal period, the fund’s trustees restructured the advisory arrangement for the fund. AXA no longer serves as an advisor to the fund, which is now managed solely by The Vanguard Group.
C. The Vanguard Group furnishes at cost corporate management, administrative, marketing, and distribution services. The costs of such services are allocated to the fund under methods approved by the board of trustees. The fund has committed to provide up to 0.40% of its net assets in capital contributions to Vanguard. At June 30, 2010, the fund had contributed capital of $13,000 to Vanguard (included in Other Assets), representing 0.01% of the fund’s net assets and 0.01% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and officers of Vanguard.
26
Market Neutral 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).
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.
At June 30, 2010, 100% of the fund’s investments were valued based on Level 1 inputs.
E. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at December 31, 2009, the fund had available capital loss carryforwards totaling $19,593,000 to offset future net capital gains through December 31, 2017. In addition, the fund realized losses of $76,000 during the period from November 1, 2009, through December 31, 2009, which are deferred and will be treated as realized for tax purposes in fiscal 2010. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending December 31, 2010; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.
The fund had realized losses totaling $2,225,000 through December 31, 2009, which are deferred for tax purposes and reduce the amount of unrealized appreciation on investment securities for tax purposes.
At June 30, 2010, the cost of long security positions for tax purposes was $80,621,000. Net unrealized depreciation of long security positions for tax purposes was $931,000, consisting of unrealized gains of $4,390,000 on securities that had risen in value since their purchase and $5,321,000 in unrealized losses on securities that had fallen in value since their purchase. Tax-basis net unrealized appreciation on securities sold short was $1,859,000, consisting of unrealized gains of $6,128,000 on securities that had fallen in value since their sale and $4,269,000 in unrealized losses on securities that had risen in value since their sale.
27
Market Neutral Fund
F. During the six months ended June 30, 2010, the fund purchased $59,508,000 of investment securities and sold $44,007,000 of investment securities, other than temporary cash investments. The proceeds of short sales and the cost of purchases to cover short sales were $57,790,000 and $38,632,000 respectively.
G. Capital share transactions for each class of shares were:
| Six Months Ended | Year Ended | |||
| June 30, 2010 | December 31, 2009 | |||
| Amount | Shares | Amount | Shares | |
| ($000) | (000) | ($000) | (000) | |
| Investor Shares | ||||
| Issued | 33,910 | 3,439 | 45,232 | 4,547 |
| Issued in Lieu of Cash Distributions | — | — | 68 | 7 |
| Redeemed1 | (8,208) | (840) | (56,787) | (5,725) |
| Net Increase (Decrease)—Investor Shares | 25,702 | 2,599 | (11,487) | (1,171) |
| Institutional Shares | ||||
| Issued | 127 | 13 | 7,875 | 804 |
| Issued in Lieu of Cash Distributions | — | — | 12 | 1 |
| Redeemed1 | (7,010) | (718) | (7,681) | (781) |
| Net Increase (Decrease)—Institutional Shares | (6,883) | (705) | 206 | 24 |
| 1 Net of redemption fees of $0 and $257,000 (fund totals). | ||||
H. In preparing the financial statements as of June 30, 2010, management considered the impact of subsequent events for potential recognition or disclosure in these financial statements.
28
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 the 1% fee assessed on redemptions of shares held for less than one year, nor do they include the account service fee described in the 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.
29
| Six Months Ended June 30, 2010 | |||
| Beginning | Ending | Expenses | |
| Account Value | Account Value | Paid During | |
| Market Neutral Fund | 12/31/2009 | 6/30/2010 | Period |
| Based on Actual Fund Return | |||
| Investor Shares | $1,000.00 | $1,007.21 | $8.76 |
| Institutional Shares | 1,000.00 | 1,008.28 | 8.27 |
| Based on Hypothetical 5% Yearly Return | |||
| Investor Shares | $1,000.00 | $1,016.07 | $8.80 |
| Institutional Shares | 1,000.00 | 1,016.56 | 8.30 |
30
Trustees Approve Advisory Arrangements
In May 2010, the board of trustees of Vanguard Market Neutral Fund renewed the fund’s investment advisory arrangements with AXA Rosenberg Investment Management LLC and The Vanguard Group, Inc. (through its Quantitative Equity Group).
In approving the arrangements, the trustees considered the factors discussed below, among others. No single factor was determinative; 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 fund’s investment management over both the short and long term, and took into account the organizational depth and stability of each advisor. The board noted the following:
AXA Rosenberg Investment Management LLC. Founded in 1985, AXA Rosenberg is an independently operated subsidiary of the AXA Group and has advised the fund since 1998. The firm employs an investment philosophy grounded in fundamental analysis using quantitative models.
During the period, AXA Rosenberg notified Vanguard of the discovery of a coding error that may have affected one of its models, as well as of certain management and ownership changes.
The Vanguard Group, Inc. Vanguard has been managing investments for more than three decades. The Quantitative Equity Group adheres to a sound, disciplined investment management process; the team has considerable experience, stability, and depth. Vanguard has managed a portion of the fund since 2007.
At its May meeting, the board concluded that each advisor’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangements. However, the board noted that it would continue to diligently monitor and assess the coding-error situation with AXA Rosenberg and would reassess the advisory arrangement in light of new developments or findings.
Investment performance
During the meeting, the board considered the short- and long-term performance of the fund, including any periods of outperformance or underperformance of a relevant benchmark and peer group. The board concluded that the advisors had carried out the fund’s investment strategy in disciplined fashion; however, the fund’s results versus its peer-group average and its benchmark, the Citigroup Three- Month Treasury Bill Index, have been less favorable over the last 12 months. Information about the fund’s most recent performance can be found in the Performance Summary section of this report.
Cost
The board concluded that the fund’s expense ratio was reasonable compared with the average expense ratio charged by funds in its peer group. The board noted that the fund’s advisory fee rate was well below the peer-group average. Information about the fund’s expense ratio appears in the About Your Fund’s Expenses section of this report as well as in the Financial Statements section, which also includes information about the advisory fee rate.
The board did not consider profitability of AXA Rosenberg in determining whether to approve the advisory fee, because AXA Rosenberg is independent of Vanguard, and the advisory fee was the result of arm’s-length negotiations. The board does not conduct a profitability analysis of Vanguard, because of Vanguard’s unique “at-cost” structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees, and produces “profits” only in the form of reduced expenses for fund shareholders.
31
The benefit of economies of scale
At its May meeting, the board concluded that the fund’s shareholders benefited from economies of scale because of breakpoints in the advisory fee schedule for AXA Rosenberg. The breakpoints would reduce the effective rate of the fee as the fund’s assets managed by AXA Rosenberg increased.
The board also concluded that the fund’s low-cost arrangement with Vanguard ensures that the fund will realize economies of scale as it grows, with the cost to shareholders declining as the fund’s assets managed by Vanguard increase.
| Important Change to the Investment Advisory Arrangements |
| After the close of the fiscal period covered by this report, the board restructured the |
| fund’s investment advisory team, removing AXA Rosenberg as an investment advisor |
| and reallocating the assets to Vanguard’s Quantitative Equity Group. |
32
Glossary
Beta. A measure of the magnitude of a fund’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a fund with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. For this report, beta is based on returns over the past 36 months for both the fund and the index. Note that a fund’s beta should be reviewed in conjunction with its R-squared (see definition). The lower the R-squared, the less correlation there is between the fund and the index, and the less reliable beta is as an indicator of volatility.
Earnings Growth Rate. The average annual rate of growth in earnings over the past five years for the stocks now in a fund.
Equity Exposure. A measure that reflects a fund’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.
Expense Ratio. The percentage of a fund’s average net assets used to pay its annual administrative and advisory expenses. These expenses directly reduce returns to investors.
Foreign Holdings. The percentage of a fund represented by stocks or depositary receipts of companies based outside the United States.
Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is measured from the inception date.
Median Market Cap. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.
Price/Book Ratio. The share price of a stock divided by its net worth, or book value, per share. For a fund, the weighted average price/book ratio of the stocks it holds.
Price/Earnings Ratio. The ratio of a stock’s current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company’s future growth.
R-Squared. A measure of how much of a fund’s past returns can be explained by the returns from the market in general, as measured by a given index. If a fund’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the fund’s returns bore no relationship to the index’s returns, its R-squared would be 0. For this report, R-squared is based on returns over the past 36 months for both the fund and the index.
Return on Equity. The annual average rate of return generated by a company during the past five years for each dollar of shareholder’s equity (net income divided by shareholder’s equity). For a fund, the weighted average return on equity for the companies whose stocks it holds.
Short-Term Reserves. The percentage of a fund invested in highly liquid, short-term securities that can be readily converted to cash.
33
Turnover Rate. An indication of the fund’s trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to investors). The turnover rate excludes in-kind transactions, which have minimal impact on costs.
34
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The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them on an at-cost basis.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 162 Vanguard funds.
The following table provides information for each trustee and executive officer of the fund. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at www.vanguard.com.
| Interested Trustee1 | Rajiv L. Gupta |
| Born 1945. Trustee Since December 2001.2 | |
| F. William McNabb III | Principal Occupation(s) During the Past Five Years: |
| Born 1957. Trustee Since July 2009. Chairman of the | Chairman and Chief Executive Officer (retired 2009) |
| Board. Principal Occupation(s) During the Past Five | and President (2006–2008) of Rohm and Haas Co. |
| Years: Chairman of the Board of The Vanguard Group, | (chemicals); Director of Tyco International, Ltd. |
| Inc., and of each of the investment companies served | (diversified manufacturing and services) and Hewlett- |
| by The Vanguard Group, since January 2010; Director | Packard Co. (electronic computer manufacturing); |
| of The Vanguard Group since 2008; Chief Executive | Trustee of The Conference Board; Member of the |
| Officer and President of The Vanguard Group and of | Board of Managers of Delphi Automotive LLP |
| each of the investment companies served by The | (automotive components). |
| Vanguard Group since 2008; Director of Vanguard | |
| Marketing Corporation; Managing Director of The | Amy Gutmann |
| Vanguard Group (1995–2008). | Born 1949. Trustee Since June 2006. Principal |
| Occupation(s) During the Past Five Years: President | |
| of the University of Pennsylvania; Christopher H. | |
| Independent Trustees | Browne Distinguished Professor of Political Science |
| in the School of Arts and Sciences with secondary | |
| Emerson U. Fullwood | appointments at the Annenberg School for Commu- |
| Born 1948. Trustee Since January 2008. Principal | nication and the Graduate School of Education of |
| Occupation(s) During the Past Five Years: Executive | the University of Pennsylvania; Director of Carnegie |
| Chief Staff and Marketing Officer for North America | Corporation of New York, Schuylkill River Development |
| and Corporate Vice President (retired 2008) of Xerox | Corporation, and Greater Philadelphia Chamber of |
| Corporation (document management products and | Commerce; Trustee of the National Constitution Center; |
| services); Director of SPX Corporation (multi-industry | Chair of the Presidential Commission for the Study of |
| manufacturing), the United Way of Rochester, | Bioethical Issues. |
| Amerigroup Corporation (managed health care), | |
| the University of Rochester Medical Center, and | |
| Monroe Community College Foundation. |
| JoAnn Heffernan Heisen | Executive Officers | |
| Born 1950. Trustee Since July 1998. Principal | ||
| Occupation(s) During the Past Five Years: Corporate | Thomas J. Higgins | |
| Vice President and Chief Global Diversity Officer since | Born 1957. Chief Financial Officer Since September | |
| 2006 (retired 2008) and Member of the Executive | 2008. Principal Occupation(s) During the Past Five | |
| Committee (retired 2008) of Johnson & Johnson | Years: Principal of The Vanguard Group, Inc.; Chief | |
| (pharmaceuticals/consumer products); Vice President | Financial Officer of each of the investment companies | |
| and Chief Information Officer of Johnson & Johnson | served by The Vanguard Group since 2008; Treasurer | |
| (1997–2005); Director of the University Medical Center | of each of the investment companies served by The | |
| at Princeton and Women’s Research and Education | Vanguard Group (1998–2008). | |
| Institute; Member of the Advisory Board of the | ||
| Maxwell School of Citizenship and Public Affairs | Kathryn J. Hyatt | |
| at Syracuse University. | Born 1955. Treasurer Since November 2008. Principal | |
| Occupation(s) During the Past Five Years: Principal | ||
| F. Joseph Loughrey | of The Vanguard Group, Inc.; Treasurer of each of | |
| Born 1949. Trustee Since October 2009. Principal | the investment companies served by The Vanguard | |
| Occupation(s) During the Past Five Years: President | Group since 2008; Assistant Treasurer of each of the | |
| and Chief Operating Officer since 2005 (retired 2009) | investment companies served by The Vanguard Group | |
| and Vice Chairman of the Board (2008–2009) of | (1988–2008). | |
| Cummins Inc. (industrial machinery); Director of | ||
| SKF AB (industrial machinery), Hillenbrand, Inc. | Heidi Stam | |
| (specialized consumer services), Sauer-Danfoss Inc. | Born 1956. Secretary Since July 2005. Principal | |
| (machinery), the Lumina Foundation for Education, | Occupation(s) During the Past Five Years: Managing | |
| and Oxfam America; Chairman of the Advisory Council | Director of The Vanguard Group, Inc., since 2006; | |
| for the College of Arts and Letters at the University of | General Counsel of The Vanguard Group since 2005; | |
| Notre Dame. | Secretary of The Vanguard Group and of each of the | |
| investment companies served by The Vanguard Group | ||
| André F. Perold | since 2005; Director and Senior Vice President of | |
| Born 1952. Trustee Since December 2004. Principal | Vanguard Marketing Corporation since 2005; | |
| Occupation(s) During the Past Five Years: George | Principal of The Vanguard Group (1997–2006). | |
| Gund Professor of Finance and Banking at the Harvard | ||
| Business School; Chair of the Investment Committee | ||
| of HighVista Strategies LLC (private investment firm). | Vanguard Senior Management Team | |
| Alfred M. Rankin, Jr. | R. Gregory Barton | Michael S. Miller |
| Born 1941. Trustee Since January 1993. Principal | Mortimer J. Buckley | James M. Norris |
| Occupation(s) During the Past Five Years: Chairman, | Kathleen C. Gubanich | Glenn W. Reed |
| President, and Chief Executive Officer of NACCO | Paul A. Heller | George U. Sauter |
| Industries, Inc. (forklift trucks/housewares/lignite); | ||
| Director of Goodrich Corporation (industrial products/ | ||
| aircraft systems and services); Chairman of the Federal | Chairman Emeritus and Senior Advisor | |
| Reserve Bank of Cleveland; Trustee of The Cleveland | ||
| Museum of Art. | John J. Brennan | |
| Chairman, 1996–2009 | ||
| Peter F. Volanakis | Chief Executive Officer and President, 1996–2008 | |
| Born 1955. Trustee Since July 2009. Principal | ||
| Occupation(s) During the Past Five Years: President | ||
| since 2007 and Chief Operating Officer since 2005 | Founder | |
| of Corning Incorporated (communications equipment); | ||
| President of Corning Technologies (2001–2005); | John C. Bogle | |
| Director of Corning Incorporated and Dow Corning; | Chairman and Chief Executive Officer, 1974–1996 | |
| Trustee of the Corning Incorporated Foundation and | ||
| the Corning Museum of Glass; Overseer of the | ||
| Amos Tuck School of Business Administration at | ||
| Dartmouth College. | ||
2 December 2002 for Vanguard Equity Income Fund, Vanguard Growth Equity Fund, the Vanguard Municipal Bond Funds, and the Vanguard State Tax-Exempt Funds.
 | |
| P.O. Box 2600 | |
| Valley Forge, PA 19482-2600 |
Connect with Vanguard® > Vanguard.com
| Fund Information > 800-662-7447 | CFA® is a trademark owned by CFA Institute. |
| Direct Investor Account Services > 800-662-2739 | |
| Institutional Investor Services > 800-523-1036 | |
| Text Telephone for People | |
| With Hearing Impairment > 800-749-7273 | |
| This material may be used in conjunction | |
| with the offering of shares of any Vanguard | |
| fund only if preceded or accompanied by | |
| the fund’s current prospectus. | |
| All comparative mutual fund data are from Lipper Inc. or | |
| Morningstar, Inc., unless otherwise noted. | |
| You can obtain a free copy of Vanguard’s proxy voting | |
| guidelines by visiting our website, Vanguard.com, and | |
| searching for “proxy voting guidelines,” or by calling | |
| Vanguard at 800-662-2739. The guidelines are also | |
| available from the SEC’s website, sec.gov. In addition, | |
| you may obtain a free report on how your fund voted the | |
| proxies for securities it owned during the 12 months | |
| ended June 30. To get the report, visit either | |
| Vanguard.com or sec.gov. | |
| You can review and copy information about your fund at | |
| the SEC’s Public Reference Room in Washington, D.C. To | |
| find out more about this public service, call the SEC at | |
| 202-551-8090. Information about your fund is also | |
| available on the SEC’s website, and you can receive | |
| copies of this information, for a fee, by sending a | |
| request in either of two ways: via e-mail addressed to | |
| publicinfo@sec.gov or via regular mail addressed to the | |
| Public Reference Section, Securities and Exchange | |
| Commission, Washington, DC 20549-1520. | |
| © 2010 The Vanguard Group, Inc. | |
| All rights reserved. | |
| Vanguard Marketing Corporation, Distributor. | |
| Q6342 082010 | |
Item 2: Not Applicable.
Item 3: Not Applicable.
Item 4: Not Applicable.
Item 5: Not Applicable.
Item 6: Not Applicable.
Item 7: Not Applicable.
Item 8: Not Applicable.
Item 9: Not Applicable.
Item 10: Not Applicable.
Item 11: Controls and Procedures.
(a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant's Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.
(b) Internal Control Over Financial Reporting. There were no significant changes in Registrant’s Internal Control Over Financial Reporting or in other factors that could significantly affect this control subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Item 12: Exhibits.
(a) Code of Ethics.
(b) Certifications.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
| VANGUARD MONTGOMERY FUNDS | |
| By: | /s/ F. WILLIAM MCNABB III* |
| F. WILLIAM MCNABB III | |
| CHIEF EXECUTIVE OFFICER | |
| Date: August 23, 2010 | |
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 MONTGOMERY FUNDS | |
| By: | /s/ F. WILLIAM MCNABB III* |
| F. WILLIAM MCNABB III | |
| CHIEF EXECUTIVE OFFICER | |
| Date: August 23, 2010 | |
| VANGUARD MONTGOMERY FUNDS | |
| By: | /s/ THOMAS J. HIGGINS* |
| THOMAS J. HIGGINS | |
| CHIEF FINANCIAL OFFICER | |
| Date: August 23, 2010 | |
* By: /s/ Heidi Stam
Heidi Stam, pursuant to a Power of Attorney filed on April 26, 2010, see file Number 33-53683, is Incorporated by Reference.