N-Q 1 a19-6281_1nq.htm N-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-Q

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF

REGISTERED MANAGEMENT COMPANY

 

 

 

Investment Company Act file number: 811-04627

 

 

Name of Registrant: Vanguard Convertible Securities Fund

 

 

Address of Registrant:
P.O. Box 2600

Valley Forge, PA 19482

 

 

Name and address of agent for service:

Anne E. Robinson, Esquire

P.O. Box 876

Valley Forge, PA 19482

 

 

Date of fiscal year end: November 30

 

 

Date of reporting period: February 28, 2019

 

 

Item 1: Schedule of Investments

 

 

Vanguard Convertible Securities Fund

 

 

Schedule of Investments (unaudited)

As of February 28, 2019

 

 

 

Coupon

Maturity
Date

Currency

Face
Amount

(000)

Market Value

($000)

Convertible Bonds (52.5%)

 

 

 

 

 

 

Communication Services (4.6%)

 

 

 

 

 

 

1

Gannett Co. Inc. Cvt.

4.750%

4/15/24

USD

4,675

 

5,277

1

Liberty Media Corp. Cvt.

2.125%

3/31/48

USD

2,000

 

1,961

1

Liberty Media Corp. Cvt.

2.250%

12/1/48

USD

4,740

 

5,007

1

Live Nation Entertainment Inc. Cvt.

2.500%

3/15/23

USD

3,400

 

3,799

 

 

 

 

 

 

 

16,044

Consumer Discretionary (4.9%)

 

 

 

 

 

 

 

EDION Corp. Cvt.

0.000%

6/19/25

JPY

100,000

 

931

 

Kyoritsu Maintenance Co. Ltd. Cvt.

0.000%

3/31/21

JPY

200,000

 

1,911

1

Liberty Expedia Holdings Inc. Cvt.

1.000%

6/30/47

USD

4,525

 

4,452

 

Lotte Shopping Co. Ltd. Cvt.

0.000%

4/4/23

KRW

4,000,000

 

3,339

 

NHK Spring Co. Ltd. Cvt.

0.000%

9/20/19

USD

1,000

 

1,002

 

Sony Corp. Cvt.

0.000%

9/30/22

JPY

104,000

 

1,155

 

Tesla Inc. Cvt.

1.250%

3/1/21

USD

3,950

 

4,340

 

 

 

 

 

 

 

17,130

Consumer Staples (3.3%)

 

 

 

 

 

 

1

Herbalife Ltd. Cvt.

2.625%

3/15/24

USD

6,660

 

7,253

 

Orpar SA Cvt.

0.000%

6/20/24

EUR

3,600

 

4,233

 

 

 

 

 

 

 

11,486

Energy (2.9%)

 

 

 

 

 

 

1

Cheniere Energy Inc. Cvt.

0.000%

5/28/21

USD

5,710

 

5,891

 

Chesapeake Energy Corp. Cvt.

5.500%

9/15/26

USD

2,090

 

1,914

 

Green Plains Inc. Cvt.

4.125%

9/1/22

USD

2,650

 

2,466

 

 

 

 

 

 

 

10,271

Financials (4.2%)

 

 

 

 

 

 

 

Blackstone Mortgage Trust Inc. Cvt.

4.375%

5/5/22

USD

4,500

 

4,508

 

BofA Finance LLC Cvt.

0.250%

5/1/23

USD

2,690

 

2,594

 

JPMorgan Chase Bank NA Cvt.

0.000%

12/30/20

USD

1,800

 

1,951

1

JPMorgan Chase Financial Co. LLC Cvt.

0.250%

5/1/23

USD

2,805

 

2,705

 

PRA Group Inc. Cvt.

3.500%

6/1/23

USD

3,000

 

2,921

 

 

 

 

 

 

 

14,679

Health Care (5.2%)

 

 

 

 

 

 

 

BioMarin Pharmaceutical Inc. Cvt.

0.599%

8/1/24

USD

2,975

 

3,103

 

Ionis Pharmaceuticals Inc. Cvt.

1.000%

11/15/21

USD

3,000

 

3,709

 

Toho Holdings Co. Ltd. Cvt.

0.000%

6/23/23

JPY

430,000

 

4,014

1

Wright Medical Group Inc. Cvt.

1.625%

6/15/23

USD

6,760

 

7,512

 

 

 

 

 

 

 

18,338

Industrials (11.1%)

 

 

 

 

 

 

 

Arconic Inc. Cvt.

1.625%

10/15/19

USD

2,504

 

2,473

 

Brenntag Finance BV Cvt.

1.875%

12/2/22

USD

2,750

 

2,601

 

China Conch Venture Holdings International Ltd. Cvt.

0.000%

9/5/23

HKD

31,000

 

3,924

 

Huron Consulting Group Inc. Cvt.

1.250%

10/1/19

USD

1,040

 

1,018

 

Kandenko Co. Ltd. Cvt.

0.000%

3/31/21

JPY

140,000

 

1,307

 

Macquarie Infrastructure Corp. Cvt.

2.875%

7/15/19

USD

8,962

 

8,916

 

Minebea Mitsumi Inc. Cvt.

0.000%

8/3/22

JPY

290,000

 

2,995

 

Navistar International Corp. Cvt.

4.750%

4/15/19

USD

7,770

 

7,776

 

 

 

Safran SA Cvt.

0.000%

6/21/23

EUR

1,681

 

2,090

 

Shanghai Port Group BVI Holding Co. Ltd. Cvt.

0.000%

8/9/22

USD

5,469

 

5,579

 

 

 

 

 

 

 

38,679

Information Technology (6.2%)

 

 

 

 

 

 

 

Inphi Corp. Cvt.

1.125%

12/1/20

USD

1,185

 

1,444

 

Microchip Technology Inc. Cvt.

1.625%

2/15/27

USD

1,200

 

1,379

 

OSI Systems Inc. Cvt.

1.250%

9/1/22

USD

1,265

 

1,278

1

Palo Alto Networks Inc. Cvt.

0.750%

7/1/23

USD

4,265

 

4,743

 

Semiconductor Manufacturing International Corp.   Cvt.

0.000%

7/7/22

USD

1,000

 

1,062

1

Splunk Inc. Cvt.

0.500%

9/15/23

USD

6,330

 

7,065

 

STMicroelectronics NV Cvt.

0.250%

7/3/24

USD

2,800

 

2,991

1

Zendesk Inc. Cvt.

0.250%

3/15/23

USD

555

 

766

 

Zhen Ding Technology Holding Ltd. Cvt.

0.000%

6/26/19

USD

1,000

 

1,048

 

 

 

 

 

 

 

21,776

Materials (2.3%)

 

 

 

 

 

 

 

Angang Steel Co. Ltd. Cvt.

0.000%

5/25/23

HKD

10,000

 

1,233

 

Asia Cement Corp. Cvt.

0.000%

9/21/23

USD

300

 

311

 

LG Chem Ltd. Cvt.

0.000%

4/16/21

USD

2,600

 

2,654

 

SSR Mining Inc. Cvt.

2.875%

2/1/33

USD

2,910

 

2,935

 

Teijin Ltd. Cvt.

0.000%

12/10/21

JPY

90,000

 

882

 

 

 

 

 

 

 

8,015

Real Estate (5.0%)

 

 

 

 

 

 

 

Consus Real Estate AG Cvt.

4.000%

11/29/22

EUR

6,000

 

6,070

 

Deutsche Wohnen SE Cvt.

0.600%

1/5/26

EUR

1,900

 

2,299

1

Empire State Realty OP LP Cvt.

2.625%

8/15/19

USD

5,049

 

5,006

 

Grand City Properties SA Cvt.

0.250%

3/2/22

EUR

700

 

844

 

IH Merger Sub LLC Cvt.

3.500%

1/15/22

USD

1,294

 

1,442

 

Nexity SA Cvt.

0.000%

1/1/23

EUR

1,739

 

1,990

 

 

 

 

 

 

 

17,651

Utilities (2.8%)

 

 

 

 

 

 

 

China Yangtze Power International BVI 1 Ltd. Cvt.

0.000%

11/9/21

USD

1,772

 

1,952

 

Kyushu Electric Power Co. Inc. Cvt.

0.000%

3/31/22

JPY

330,000

 

3,085

1

NRG Energy Inc. Cvt.

2.750%

6/1/48

USD

4,280

 

4,777

 

 

 

 

 

 

 

9,814

Total Convertible Bonds (Cost $183,534)

 

 

 

 

 

183,883

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Convertible Preferred Stocks (6.8%)

 

 

 

 

 

 

Financials (0.8%)

 

 

 

 

 

 

 

Wells Fargo & Co. Pfd.

7.500%

Perpetual

 

2,325

 

2,989

 

 

 

 

 

 

 

Real Estate (1.8%)

 

 

 

 

 

 

 

QTS Realty Trust Inc. Pfd.

6.500%

Perpetual

 

59,520

 

6,209

 

 

 

 

 

 

 

Utilities (4.2%)

 

 

 

 

 

 

 

DTE Energy Co. Pfd.

6.500%

10/1/19

 

83,550

 

4,631

 

Sempra Energy Pfd.

6.750%

7/15/21

 

58,100

 

6,096

 

Vistra Energy Corp. Pfd.

7.000%

7/1/19

 

39,100

 

3,859

 

 

 

 

 

 

 

14,586

Total Convertible Preferred Stocks (Cost $23,042)

 

 

 

 

 

23,784

 

 

Temporary Cash Investment (38.2%)

 

 

 

 

 

 

Money Market Fund (38.2%)

 

 

 

 

 

 

2

Vanguard Market Liquidity Fund (Cost $133,736)

2.563%

 

 

1,337,252

 

133,738

Total Investments (97.5%) (Cost $340,312)

 

 

 

 

 

341,405

Other Assets and Liabilities-Net (2.5%)

 

 

 

 

 

8,643

Net Assets (100%)

 

 

 

 

 

350,048

 

1

Security exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At February 28, 2019, the aggregate value of these securities was $66,214,000, representing 18.9% of net assets.

2

Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield.

 

 

 

Derivative Financial Instruments Outstanding as of Period End

 

Forward Currency Contracts

 

 

Contract

 

 

 

 

Unrealized

Unrealized

 

Settlement

Contract Amount (000)

Appreciation

(Depreciation)

Counterparty

Date

 

Receive

 

Deliver

($000)

($000)

UBS AG

3/7/19

EUR

16,668

USD

18,927

44

—

UBS AG

3/7/19

JPY

979,100

USD

8,956

—

(167)

UBS AG

3/7/19

EUR

7,156

USD

8,189

—

(45)

UBS AG

3/7/19

KRW

5,393,000

USD

4,820

—

(24)

UBS AG

3/7/19

AUD

5,128

USD

3,690

—

(52)

UBS AG

3/7/19

USD

45,613

EUR

39,861

244

—

UBS AG

3/7/19

USD

32,802

JPY

3,558,900

855

—

UBS AG

3/7/19

USD

9,774

KRW

10,956,000

30

—

UBS AG

3/7/19

USD

5,083

HKD

39,813

10

—

UBS AG

3/7/19

USD

3,684

AUD

5,128

46

—

UBS AG

3/7/19

USD

309

TWD

9,513

—

—

 

 

 

 

 

 

1,229

(288)

 

AUD—Australian dollar.

EUR—euro.

HKD—Hong Kong dollar.

JPY—Japanese yen.

KRW—South Korean won.

TWD—Taiwanese dollar.

USD—U.S. dollar.

 

At February 28, 2019, a counterparty had deposited in a segregated account securities with a value of $920,000 in connection with open forward currency contracts.

 

A. 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. Bonds and temporary cash

 

 

investments are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued at their fair values calculated according to procedures adopted by the board of trustees. These procedures include obtaining quotations from an independent pricing service, monitoring news to identify significant market- or security-specific events, and evaluating changes in the values of foreign market proxies (for example, ADRs, futures contracts, or exchange-traded funds), between the time the foreign markets close and the fund’s pricing time. When fair-value pricing is employed, the prices of securities used by a fund to calculate its net asset value may differ from quoted or published prices for the same securities.

 

B. Foreign Currency: Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates obtained from an independent third party as of the fund’s pricing time on the valuation date. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the assets or liabilities are settled in cash, at which time they are recorded as realized foreign currency gains (losses).

 

C. Forward Currency Contracts: The fund enters into forward currency contracts to protect the value of securities and related receivables and payables against changes in future foreign exchange rates. The fund’s risks in using these contracts include movement in the values of the foreign currencies relative to the U.S. dollar and the ability of the counterparties to fulfill their obligations under the contracts. The fund mitigates its counterparty risk by entering into forward currency contracts only with a diverse group of prequalified counterparties, monitoring their financial strength, entering into master netting arrangements with its counterparties, and requiring its counterparties to transfer collateral as security for their performance. In the absence of a default, the collateral pledged or received by the fund cannot be repledged, resold, or rehypothecated. The master netting arrangements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate the forward currency contracts, determine the net amount owed by either party in accordance with its master netting arrangements, and sell or retain any collateral held up to the net amount owed to the fund under the master netting arrangements. The forward currency contracts contain provisions whereby a counterparty may terminate open contracts if the fund’s net assets decline below a certain level, triggering a payment by the fund if the fund is in a net liability position at the time of the termination. The payment amount would be reduced by any collateral the fund has pledged. Any assets pledged as collateral for open contracts are noted in the Schedule of Investments. The value of collateral received or pledged is compared daily to the value of the forward currency contracts exposure with each counterparty, and any difference, if in excess of a specified minimum transfer amount, is adjusted and settled within two business days.

 

Forward currency contracts are valued at their quoted daily prices obtained from an independent third party, adjusted for currency risk based on the expiration date of each contract. The notional amounts of the contracts are not recorded in the Schedule of Investments. Fluctuations in the value of the contracts are recorded as an asset (liability).

 

D. Various inputs may be used to determine the value of the fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.

 

Level 1—Quoted prices in active markets for identical securities.

 

Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).

 

Level 3—Significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). Any investments valued with significant unobservable inputs are noted on the Schedule of Investments.

 

 

The following table summarizes the market value of the fund’s investments as of February 28, 2019, based on the inputs used to value them:

 

Investments

 

Level 1

($000)

Level 2

($000)

Level 3

($000)

Convertible Bonds

 

—

183,883

—

Convertible Preferred Stocks

 

—

23,784

—

Temporary Cash Investments

 

133,738

—

—

Forward Currency Contracts—Assets

 

—

1,229

—

Forward Currency Contracts—Liabilities

 

—

(288)

—

Total

 

133,738

208,608

—

 

 

Item 2: 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. During the last fiscal quarter, there was no significant change in the Registrant’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

Item 3: Exhibits

 

(a) Certifications

 

 

 

VANGUARD CONVERTIBLE SECURITIES FUND

 

 

 

 

By:

/s/ MORTIMER J. BUCKLEY*

 

MORTIMER J. BUCKLEY

 

CHIEF EXECUTIVE OFFICER

 

 

Date: April 19, 2019

 

 

 

 

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 CONVERTIBLE SECURITIES FUND

 

 

 

 

By:

/s/ MORTIMER J. BUCKLEY*

 

MORTIMER J. BUCKLEY

 

CHIEF EXECUTIVE OFFICER

 

 

Date: April 19, 2019

 

 

 

 

VANGUARD CONVERTIBLE SECURITIES FUND

 

 

 

 

By:

/s/ THOMAS J. HIGGINS*

 

THOMAS J. HIGGINS

 

CHIEF FINANCIAL OFFICER

 

 

Date: April 19, 2019

 

 

 

 

*By: /s/ Anne E. Robinson

Anne E. Robinson, pursuant to a Power of Attorney filed on January 18, 2018 see file Number 33-32216, Incorporated by Reference.