N-CSRS 1 a19-9732_1ncsrs.htm N-CSRS

 

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: 811-05628

 

Name of Registrant:

Vanguard Malvern Funds

Address of Registrant:

P.O. Box 2600

 

Valley Forge, PA 19482

 

Name and address of agent for service:

Anne E. Robinson, Esquire

 

P.O. Box 876

 

Valley Forge, PA 19482

 

Registrant’s telephone number, including area code: (610) 669-1000

 

Date of fiscal year end:  September 30

 

Date of reporting period: October 1, 2018—March 31, 2019

 


 

Item 1: Reports to Shareholders

 


 

 

 

 

 

Semiannual Report | March 31, 2019

 

 

Vanguard U.S. Value Fund

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See the inside front cover for important information about access to your fund’s annual and semiannual shareholder reports.

 

 

 


 

Important information about access to shareholder reports

 

Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your fund’s annual and semiannual shareholder reports will no longer be sent to you by mail, unless you specifically request them. Instead, you will be notified by mail each time a report is posted on the website and will be provided with a link to access the report.

 

If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. You may elect to receive shareholder reports and other communications from the fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with the fund, by calling Vanguard at one of the phone numbers on the back cover of this report or by logging on to vanguard.com.

 

You may elect to receive paper copies of all future shareholder reports free of charge. If you invest through a financial intermediary, you can contact the intermediary to request that you continue to receive paper copies. If you invest directly with the fund, you can call Vanguard at one of the phone numbers on the back cover of this report or log on to vanguard.com. Your election to receive paper copies will apply to all the funds you hold through an intermediary or directly with Vanguard.

 

 

 

Contents

 

 

 

About Your Fund’s Expenses

1

Financial Statements

4

Trustees Approve Advisory Arrangement

16

 


 

About Your Fund’s Expenses

 

 

As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.

 

A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.

 

The accompanying table illustrates your fund’s costs in two ways:

 

·   Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.

 

To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading “Expenses Paid During Period.”

 

·   Based on hypothetical 5% yearly return. This section is intended to help you compare your fund’s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.

 

Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”

 

The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.

 

You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.

 

1


 

Six Months Ended March 31, 2019

 

 

 

 

Beginning

Ending

Expenses

 

Account Value

Account Value

Paid During

U.S. Value Fund

9/30/2018

3/31/2019

Period

Based on Actual Fund Return

$1,000.00

$943.85

$1.07

Based on Hypothetical 5% Yearly Return

1,000.00

1,023.83

1.11

 

The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratio for that period is 0.22%. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period (182/365).

 

2


 

U.S. Value Fund

 

 

Sector Diversification

As of March 31, 2019

 

Communication Services

6.5%

Consumer Discretionary

5.5

Consumer Staples

7.6

Energy

9.5

Financials

22.3

Health Care

14.5

Industrials

8.2

Information Technology

10.1

Materials

3.9

Real Estate

5.6

Utilities

6.3

 

The table reflects the fund’s equity exposure, based on its investments in stocks and stock index futures. Any holdings in short-term reserves are excluded. Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” category (if applicable), which includes securities that have not been provided a GICS classification as of the effective reporting period.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party involved in making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

 

3


 

U.S. Value Fund

 

 

Financial Statements (unaudited)

 

 

Statement of Net Assets

As of March 31, 2019

 

The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports will be available on the SEC’s website at www.sec.gov.

 

 

 

 

Market

 

 

 

Value·

 

 

Shares

($000)

Common Stocks (99.6%)1

 

 

Communication Services (6.5%)

 

 

 

AT&T Inc.

661,915

20,758

 

Verizon Communications Inc.

315,991

18,685

 

Comcast Corp. Class A

294,371

11,769

 

Walt Disney Co.

81,868

9,090

 

New York Times Co. Class A

229,783

7,548

 

Sirius XM Holdings Inc.

1,117,139

6,334

*

T-Mobile US Inc.

72,902

5,038

*

Liberty Media Corp-Liberty SiriusXM Class A

124,328

4,747

*

Glu Mobile Inc.

368,621

4,033

*

United States Cellular Corp.

72,998

3,351

 

Telephone & Data Systems Inc.

70,233

2,158

 

AMC Entertainment Holdings Inc. Class A

118,040

1,753

 

ATN International Inc.

21,252

1,198

 

News Corp. Class B

57,752

721

 

 

 

97,183

Consumer Discretionary (5.4%)

 

 

 

Darden Restaurants Inc.

81,725

9,927

*

Deckers Outdoor Corp.

62,187

9,141

 

Abercrombie & Fitch Co.

306,629

8,405

 

Brinker International Inc.

176,244

7,822

 

Lear Corp.

49,519

6,720

 

Best Buy Co. Inc.

87,831

6,241

 

Yum! Brands Inc.

56,894

5,679

*

Crocs Inc.

205,156

5,283

*

Rent-A-Center Inc.

243,850

5,089

 

McDonald’s Corp.

21,034

3,994

*

Stoneridge Inc.

84,996

2,453

*

Urban Outfitters Inc.

65,650

1,946

 

Dine Brands Global Inc.

18,396

1,679

 

Signet Jewelers Ltd.

49,797

1,353

 

Standard Motor Products Inc.

23,522

1,155

 

Aptiv plc

13,159

1,046

 

Tailored Brands Inc.

116,749

915

*

AutoZone Inc.

772

791

*,^

YETI Holdings Inc.

25,788

780

*

Modine Manufacturing Co.

47,761

662

 

 

 

81,081

Consumer Staples (7.6%)

 

 

 

Procter & Gamble Co.

203,711

21,196

 

Philip Morris International Inc.

166,602

14,726

 

PepsiCo Inc.

90,422

11,081

 

Walmart Inc.

107,998

10,533

 

Lamb Weston Holdings Inc.

128,813

9,653

 

Kroger Co.

380,375

9,357

*

TreeHouse Foods Inc.

129,536

8,361

*

Herbalife Nutrition Ltd.

155,829

8,257

 

Archer-Daniels-Midland Co.

120,399

5,193

*

BJ’s Wholesale Club Holdings Inc.

112,893

3,093

 

Cal-Maine Foods Inc.

61,339

2,738

*

Simply Good Foods Co.

123,146

2,536

 

Walgreens Boots Alliance Inc.

35,477

2,245

 

Lancaster Colony Corp.

10,439

1,636

 

Kimberly-Clark Corp.

11,806

1,463

 

Inter Parfums Inc.

14,119

1,071

*

US Foods Holding Corp.

23,693

827

 

 

 

113,966

Energy (9.5%)

 

 

 

Chevron Corp.

276,883

34,107

 

Exxon Mobil Corp.

384,597

31,075

 

ConocoPhillips

257,893

17,212

 

Occidental Petroleum Corp.

191,163

12,655

*

W&T Offshore Inc.

1,178,771

8,134

 

Valero Energy Corp.

81,779

6,937

 

HollyFrontier Corp.

134,502

6,627

 

4


 

U.S. Value Fund

 

 

 

 

 

Market

 

 

 

Value·

 

 

Shares

($000)

*

Chesapeake Energy Corp.

1,907,782

5,914

*

Denbury Resources Inc.

2,357,441

4,833

*

Continental Resources Inc.

105,182

4,709

 

Cabot Oil & Gas Corp.

104,568

2,729

 

Phillips 66

27,425

2,610

 

Murphy Oil Corp.

71,551

2,096

*

Renewable Energy Group Inc.

73,852

1,622

*

CONSOL Energy Inc.

42,615

1,458

 

 

 

142,718

Financials (22.3%)

 

 

 

JPMorgan Chase & Co.

440,211

44,563

 

Bank of America Corp.

1,252,542

34,558

*

Berkshire Hathaway Inc. Class B

153,683

30,873

 

Wells Fargo & Co.

334,271

16,152

 

Citigroup Inc.

210,552

13,101

 

Aflac Inc.

260,877

13,044

 

Allstate Corp.

130,313

12,273

 

Morgan Stanley

290,457

12,257

 

Capital One Financial Corp.

138,994

11,354

 

American Express Co.

90,841

9,929

 

Ally Financial Inc.

359,583

9,885

 

Fifth Third Bancorp

363,719

9,173

 

Torchmark Corp.

111,509

9,138

 

Regions Financial Corp.

614,456

8,695

 

Comerica Inc.

110,027

8,067

 

Zions Bancorp NA

169,442

7,694

 

MetLife Inc.

177,454

7,554

 

E*TRADE Financial Corp.

153,341

7,120

 

Ameriprise Financial Inc.

54,042

6,923

 

OFG Bancorp

334,685

6,623

 

Assured Guaranty Ltd.

118,890

5,282

 

Universal Insurance Holdings Inc.

155,744

4,828

 

Popular Inc.

92,006

4,796

 

Commerce Bancshares Inc.

77,319

4,489

 

OneMain Holdings Inc.

100,394

3,188

 

Greenhill & Co. Inc.

144,898

3,117

 

SunTrust Banks Inc.

48,670

2,884

 

Erie Indemnity Co. Class A

15,979

2,853

 

AXA Equitable Holdings Inc.

116,637

2,349

 

Navient Corp.

198,825

2,300

 

American Equity Investment Life Holding Co.

84,047

2,271

 

Radian Group Inc.

107,107

2,221

 

Hanover Insurance Group Inc.

16,822

1,921

 

Bank of NT Butterfield & Son Ltd.

48,605

1,744

*

Ambac Financial Group Inc.

88,766

1,608

*

SVB Financial Group

7,062

1,570

 

First BanCorp

121,986

1,398

 

Primerica Inc.

10,922

1,334

 

HCI Group Inc.

27,401

1,171

 

Synchrony Financial

34,942

1,115

 

Walker & Dunlop Inc.

15,173

772

 

US Bancorp

15,262

736

 

Federal Agricultural Mortgage Corp.

9,890

716

 

 

 

333,639

Health Care (14.4%)

 

 

 

Johnson & Johnson

224,181

31,338

 

Merck & Co. Inc.

362,941

30,186

 

Pfizer Inc.

588,965

25,013

 

Abbott Laboratories

278,374

22,253

 

Anthem Inc.

54,056

15,513

 

Bristol-Myers Squibb Co.

242,227

11,557

 

HCA Healthcare Inc.

67,342

8,780

 

Cooper Cos. Inc.

26,602

7,879

 

Humana Inc.

29,440

7,831

*

Haemonetics Corp.

85,466

7,476

*

IQVIA Holdings Inc.

46,495

6,688

 

Medtronic plc

55,356

5,042

*

Integer Holdings Corp.

63,774

4,810

 

Baxter International Inc.

58,034

4,719

*

Enanta Pharmaceuticals Inc.

39,506

3,774

 

McKesson Corp.

30,711

3,595

 

Amgen Inc.

16,037

3,047

*

CareDx Inc.

82,979

2,615

 

Eli Lilly & Co.

18,858

2,447

*

Mallinckrodt plc

110,105

2,394

*

Brookdale Senior Living Inc.

325,758

2,143

*

Medpace Holdings Inc.

35,233

2,078

*

Endo International plc

235,493

1,891

 

Thermo Fisher Scientific Inc.

6,447

1,765

*

MacroGenics Inc.

34,537

621

*

Acorda Therapeutics Inc.

31,862

423

 

 

 

215,878

Industrials (8.2%)

 

 

 

Honeywell International Inc.

78,855

12,532

*

United Continental Holdings Inc.

116,786

9,317

*

FTI Consulting Inc.

120,334

9,244

 

Caterpillar Inc.

65,272

8,844

 

5


 

U.S. Value Fund

 

 

 

 

 

Market

 

 

 

Value·

 

 

Shares

($000)

 

Lockheed Martin Corp.

29,453

8,841

 

WW Grainger Inc.

28,276

8,509

 

Textron Inc.

138,518

7,017

*

HD Supply Holdings Inc.

154,871

6,714

 

Pentair plc

146,037

6,500

*,^

Enphase Energy Inc.

682,623

6,301

 

Lennox International Inc.

23,802

6,293

 

ArcBest Corp.

166,649

5,131

*

Vicor Corp.

128,414

3,983

 

GrafTech International Ltd.

258,624

3,308

 

United Technologies Corp.

20,867

2,690

 

Expeditors International of Washington Inc.

30,014

2,278

 

Navigant Consulting Inc.

99,958

1,946

 

Delta Air Lines Inc.

30,335

1,567

 

Allison Transmission Holdings Inc.

32,313

1,451

*

Meritor Inc.

69,335

1,411

*

YRC Worldwide Inc.

202,575

1,355

*

Hub Group Inc. Class A

30,844

1,260

*

Echo Global Logistics Inc.

50,448

1,250

 

Heidrick & Struggles International Inc.

27,371

1,049

 

PACCAR Inc.

13,678

932

 

Global Brass & Copper Holdings Inc.

23,217

800

 

General Electric Co.

75,699

756

*

BMC Stock Holdings Inc.

30,462

538

 

National Presto Industries Inc.

4,652

505

 

 

 

122,322

Information Technology (10.0%)

 

 

 

Intel Corp.

478,629

25,702

 

Cisco Systems Inc.

337,998

18,248

 

Microsoft Corp.

101,852

12,012

 

HP Inc.

572,066

11,115

 

QUALCOMM Inc.

162,749

9,282

 

Booz Allen Hamilton Holding Corp. Class A

159,096

9,250

 

CDW Corp.

87,054

8,389

*

Advanced Micro Devices Inc.

313,060

7,989

 

NetApp Inc.

107,139

7,429

*

CACI International Inc. Class A

35,050

6,380

 

Oracle Corp.

106,727

5,732

*

ON Semiconductor Corp.

187,173

3,850

*

Cardtronics plc Class A

106,973

3,806

*

Synaptics Inc.

65,401

2,600

*

Unisys Corp.

221,548

2,585

*

Insight Enterprises Inc.

43,569

2,399

*

Dell Technologies Inc.

39,490

2,318

*

Ciena Corp.

61,030

2,279

*

SMART Global Holdings Inc.

73,015

1,402

*

eGain Corp.

126,191

1,319

*

Diebold Nixdorf Inc.

117,886

1,305

*

NeoPhotonics Corp.

195,989

1,233

*

Calix Inc.

152,284

1,173

 

Comtech Telecommunications Corp.

43,309

1,006

*

Fabrinet

13,271

695

 

PC Connection Inc.

9,593

352

 

 

 

149,850

Materials (3.9%)

 

 

 

Ball Corp.

184,939

10,701

 

CF Industries Holdings Inc.

210,225

8,594

 

Linde plc

46,747

8,224

 

Mosaic Co.

272,783

7,450

 

Warrior Met Coal Inc.

220,042

6,689

 

DowDuPont Inc.

115,602

6,163

 

Domtar Corp.

73,559

3,652

*

Verso Corp.

149,201

3,196

 

Freeport-McMoRan Inc.

157,642

2,032

 

Valvoline Inc.

98,321

1,825

 

 

 

58,526

Real Estate (5.5%)

 

 

 

Omega Healthcare

 

 

 

Investors Inc.

243,605

9,294

 

Medical Properties Trust Inc.

475,548

8,802

 

Spirit Realty Capital Inc.

213,242

8,472

 

EPR Properties

108,875

8,372

 

Simon Property Group Inc.

45,455

8,282

 

Park Hotels & Resorts Inc.

266,018

8,268

 

HCP Inc.

193,221

6,048

 

Lexington Realty Trust

527,886

4,783

 

CubeSmart

123,066

3,943

 

Uniti Group Inc.

280,471

3,138

 

Global Net Lease Inc.

145,865

2,757

 

Equity Commonwealth

75,390

2,465

 

Ventas Inc.

29,248

1,866

 

CorEnergy Infrastructure Trust Inc.

42,158

1,549

 

Regency Centers Corp.

20,257

1,367

 

SITE Centers Corp.

84,603

1,152

 

CoreCivic Inc.

44,117

858

 

Kennedy-Wilson Holdings Inc.

37,564

804

 

NorthStar Realty Europe Corp.

40,936

711

 

 

 

82,931

 

6


 

U.S. Value Fund

 

 

 

 

 

Market

 

 

 

Value·

 

 

Shares

($000)

Utilities (6.3%)

 

 

 

Exelon Corp.

288,165

14,446

 

Southern Co.

223,044

11,527

 

FirstEnergy Corp.

276,370

11,500

 

AES Corp.

578,792

10,464

 

NRG Energy Inc.

241,775

10,271

 

CenterPoint Energy Inc.

303,222

9,309

 

Black Hills Corp.

91,459

6,774

 

Ameren Corp.

62,731

4,614

 

Vistra Energy Corp.

128,289

3,339

 

Entergy Corp.

24,642

2,356

 

IDACORP Inc.

22,155

2,205

 

National Fuel Gas Co.

34,775

2,120

 

NextEra Energy Inc.

10,610

2,051

 

ALLETE Inc.

22,165

1,823

 

OGE Energy Corp.

23,906

1,031

 

Clearway Energy Inc. Class A

56,529

822

 

 

 

94,652

Total Common Stocks

 

 

(Cost $1,279,045)

 

1,492,746

Temporary Cash Investments (0.9%)1

 

 

Money Market Fund (0.8%)

 

 

2,3

Vanguard Market Liquidity Fund, 2.554%

126,318

12,634

 

 

 

Face

 

 

 

Amount

 

 

 

             ($000) 

 

U.S. Government and Agency Obligations (0.1%)

 

 

4

United States Treasury Bill, 2.479%, 5/9/19

800

798

Total Temporary Cash Investments

 

 

(Cost $13,430)

 

13,432

Total Investments (100.5%)

 

 

(Cost $1,292,475)

 

1,506,178

 

 

Amount

 

($000)

Other Assets and Liabilities (-0.5%)

 

Other Assets

 

Investment in Vanguard

77

Receivables for Accrued Income

1,849

Receivables for Capital Shares Issued

782

Variation Margin Receivable—Futures Contracts

46

Other Assets3

475

Total Other Assets

3,229

Liabilities

 

Payables for Investment Securities Purchased

(11)

Collateral for Securities on Loan

(7,080)

Payables for Capital Shares Redeemed

(2,632)

Payables to Vanguard

(1,072)

Total Liabilities

(10,795)

Net Assets (100%)

 

Applicable to 85,403,187 outstanding $.001 par value shares of beneficial interest (unlimited authorization)

1,498,612

Net Asset Value Per Share

$17.55

 

At March 31, 2019, net assets consisted of:

 

 

Amount

 

($000)

Paid-in Capital

1,297,936

Total Distributable Earnings (Loss)

200,676

Net Assets

1,498,612

 

·  See Note A in Notes to Financial Statements.

 

*  Non-income-producing security.

 

^  Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $6,530,000.

 

1 The fund invests a portion of its cash reserves in equity markets through the use of index futures contracts. After giving effect to futures investments, the fund’s effective common stock and temporary cash investment positions represent 100.1% and 0.4%, respectively, 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.

 

3 Includes $7,080,000 of collateral received for securities on loan, of which $6,605,000 is held in Vanguard Market Liquidity Fund and $475,000 is held in cash.

 

4 Securities with a value of $549,000 have been segregated as initial margin for open futures contracts.

 

7


 

U.S. Value Fund

 

 

Derivative Financial Instruments Outstanding as of Period End

 

 

 

 

 

 

 

 

 

Futures Contracts

 

 

 

 

 

 

 

 

 

($000)

 

 

 

 

Value and

 

 

Number of

 

Unrealized

 

 

Long (Short)

Notional

Appreciation

 

Expiration

Contracts

Amount

(Depreciation)

Long Futures Contracts

 

 

 

 

E-mini S&P 500 Index

June 2019

52

7,378

37

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes, which are an integral part of the Financial Statements.

 

8


 

U.S. Value Fund

 

 

Statement of Operations

 

 

 

 

Six Months Ended

 

March 31, 2019

 

($000)

Investment Income

 

Income

 

Dividends

19,253

Interest1

70

Securities Lending—Net

251

Total Income

19,574

Expenses

 

The Vanguard Group—Note B

 

Investment Advisory Services

595

Management and Administrative

963

Marketing and Distribution

93

Custodian Fees

3

Shareholders’ Reports

15

Trustees’ Fees and Expenses

Total Expenses

1,669

Net Investment Income

17,905

Realized Net Gain (Loss)

 

Investment Securities Sold1

(19,976)

Futures Contracts

(307)

Realized Net Gain (Loss)

(20,283)

Change in Unrealized Appreciation (Depreciation)

 

Investment Securities1

(96,175)

Futures Contracts

45

Change in Unrealized Appreciation (Depreciation)

(96,130)

Net Increase (Decrease) in Net Assets Resulting from Operations

(98,508)

 

1   Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $61,000, $2,000, and $2,000, respectively. Purchases and sales are for temporary cash investment purposes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes, which are an integral part of the Financial Statements.

 

9


 

U.S. Value Fund

 

 

Statement of Changes in Net Assets

 

 

 

Six Months Ended

 

Year Ended

 

March 31,

 

September 30,

 

2019

 

2018

 

($000)

 

($000)

Increase (Decrease) in Net Assets

 

 

 

Operations

 

 

 

Net Investment Income

17,905

 

32,402

Realized Net Gain (Loss)

(20,283)

 

81,508

Change in Unrealized Appreciation (Depreciation)

(96,130)

 

50,866

Net Increase (Decrease) in Net Assets Resulting from Operations

(98,508)

 

164,776

Distributions

 

 

 

Net Investment Income

(32,254)

 

(32,253)

Realized Capital Gain1

(71,059)

 

(97,416)

Total Distributions

(103,313)

 

(129,669)

Capital Share Transactions

 

 

 

Issued

110,566

 

214,440

Issued in Lieu of Cash Distributions

96,928

 

121,791

Redeemed

(199,065)

 

(354,645)

Net Increase (Decrease) from Capital Share Transactions

8,429

 

(18,414)

Total Increase (Decrease)

(193,392)

 

16,693

Net Assets

 

 

 

Beginning of Period

1,692,004

 

1,675,311

End of Period

1,498,612

 

1,692,004

 

1   Includes fiscal 2019 and 2018 short-term gain distributions totaling $0 and $22,953,000, respectively. Short-term gain distributions are treated as ordinary income dividends for tax purposes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes, which are an integral part of the Financial Statements.

 

10


 

U.S. Value Fund

 

 

Financial Highlights

 

 

 

Six Months

 

 

 

 

 

 

 

Ended

 

 

 

 

 

 

For a Share Outstanding

March 31,

 

Year Ended September 30,

Throughout Each Period

2019

 

2018

2017

2016

2015

2014

Net Asset Value, Beginning of Period

$20.03

 

$19.63

$17.25

$16.48

$16.95

$14.41

Investment Operations

 

 

 

 

 

 

 

Net Investment Income

.2091

 

.3731

.4371

.440

.355

.299

Net Realized and Unrealized Gain (Loss) on Investments

(1.443)

 

1.563

2.606

1.341

(.543)

2.531

Total from Investment Operations

(1.234)

 

1.936

3.043

1.781

(.188)

2.830

Distributions

 

 

 

 

 

 

 

Dividends from Net Investment Income

(.389)

 

(.382)

(.386)

(.358)

(.282)

(.290)

Distributions from Realized Capital Gains

(.857)

 

(1.154)

(.277)

(.653)

Total Distributions

(1.246)

 

(1.536)

(.663)

(1.011)

(.282)

(.290)

Net Asset Value, End of Period

$17.55

 

$20.03

$19.63

$17.25

$16.48

$16.95

 

 

 

 

 

 

 

 

Total Return2

-5.61%

 

10.22%

17.87%

11.09%

-1.18%

19.89%

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

Net Assets, End of Period (Millions)

$1,499

 

$1,692

$1,675

$1,374

$1,215

$1,117

Ratio of Total Expenses to Average Net Assets

0.22%

 

0.22%

0.23%

0.23%

0.26%

0.29%

Ratio of Net Investment Income to Average Net Assets

2.32%

 

1.92%

2.36%

2.63%

2.10%

1.92%

Portfolio Turnover Rate

55%

 

75%

95%

76%

66%

57%

 

The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized.

 

1 Calculated based on average shares outstanding.

 

2 Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes, which are an integral part of the Financial Statements.

 

11


 

U.S. Value Fund

 

 

Notes to Financial Statements

 

 

Vanguard U.S. Value Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund.

 

A.      The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.

 

1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been materially affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by methods deemed by the board of trustees to represent fair value. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Temporary cash investments are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services.

 

2. Futures Contracts: The fund uses index futures contracts to a limited extent, with the objective of maintaining full exposure to the stock market while maintaining liquidity. The fund may purchase or sell futures contracts to achieve a desired level of investment, whether to accommodate portfolio turnover or cash flows from capital share transactions. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any assets pledged as initial margin for open contracts are noted in the Statement of Net Assets.

 

Futures contracts are valued at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized futures gains (losses).

 

During the six months ended March 31, 2019, the fund’s average investments in long and short futures contracts represented less than 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the period.

 

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 (September 30, 2015–2018), and for the period ended March 31, 2019, and has concluded that no provision for federal income tax is required in the fund’s financial statements.

 

12


 

U.S. Value Fund

 

 

 

 

 

4. Distributions: Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes.

 

5. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled before the opening of the market on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the event of a default, the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.

 

6. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.

 

The fund had no borrowings outstanding at March 31, 2019, or at any time during the period then ended.

 

7. Other: Dividend income is recorded on the ex-dividend date. Interest income includes income distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.

 

13


 

U.S. Value Fund

 

 

 

 

 

B.      In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets. All other costs of operations payable to Vanguard are generally settled twice a month.

 

Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At March 31, 2019, the fund had contributed to Vanguard capital in the amount of $77,000, representing 0.01% of the fund’s net assets and 0.03% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.

 

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

 

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

 

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

 

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

 

The following table summarizes the market value of the fund’s investments as of March 31, 2019, based on the inputs used to value them:

 

 

Level 1

Level 2

Level 3

Investments

($000)

($000)

($000)

Common Stocks

1,492,746

Temporary Cash Investments

12,634

798

Futures Contracts—Assets1

46

Total

1,505,426

798

 

1 Represents variation margin on the last day of the reporting period.

 

 

D.      As of March 31, 2019, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:

 

 

Amount

 

($000)

Tax Cost

1,292,475

Gross Unrealized Appreciation

275,196

Gross Unrealized Depreciation

(61,456)

Net Unrealized Appreciation (Depreciation)

213,740

 

14


 

U.S. Value Fund

 

 

 

 

 

E.      During the six months ended March 31, 2019, the fund purchased $421,600,000 of investment securities and sold $494,103,000 of investment securities, other than temporary cash investments.

 

F.       Capital shares issued and redeemed were:

 

 

 

Six Months Ended

 

Year Ended

 

March 31, 2019

 

September 30, 2018

 

Shares

 

Shares

 

(000

)

(000)

Issued

6,334

 

11,008

Issued in Lieu of Cash Distributions

6,009

 

6,353

Redeemed

(11,415

)

(18,245)

Net Increase (Decrease) in Shares Outstanding

928

 

(884)

 

 

G.     Management has determined that no events or transactions occurred subsequent to March 31, 2019, that would require recognition or disclosure in these financial statements.

 

15


 

Trustees Approve Advisory Arrangement

 

 

The board of trustees of Vanguard U.S. Value Fund has renewed the fund’s investment advisory arrangement with The Vanguard Group, Inc. (Vanguard), through its Quantitative Equity Group. The board determined that continuing the fund’s internalized management structure was in the best interests of the fund and its shareholders.

 

The board based its decision upon an evaluation of the advisor’s investment staff, portfolio management process, and performance. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department, which is responsible for advisor oversight and product management. The Portfolio Review Department met regularly with the advisor and made monthly presentations to the board during the fiscal year that directed the board’s focus to relevant information and topics.

 

The board, or an investment committee made up of board members, also received information throughout the year during advisor presentations. For each advisor presentation, the board was provided with letters and reports that included information about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.

 

In addition, the board received monthly reports, which included a Market and Economic Report, a Fund Dashboard Monthly Summary, and a Fund Performance Report.

 

Prior to their meeting, the trustees were provided with a memo and materials that summarized the information they received over the course of the year. They also considered the factors discussed below, among others. However, no single factor determined whether the board approved the arrangement. Rather, it was the totality of the circumstances that drove the board’s decision.

 

Nature, extent, and quality of services

 

The board reviewed the quality of the fund’s investment management services since Vanguard began managing the fund in 2008, and took into account the organizational depth and stability of the advisor. The board considered that Vanguard has been managing investments for more than four decades. The Quantitative Equity Group adheres to a sound, disciplined investment management process; the team has considerable experience, stability, and depth.

 

The board concluded that Vanguard’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangement.

 

Investment performance

 

The board considered the short- and long-term performance of the fund, including any periods of outperformance or underperformance compared with a relevant benchmark index and peer group. The board concluded that the performance was such that the advisory arrangement should continue.

 

Cost

 

The board concluded that the fund’s expense ratio was well below the average expense ratio charged by funds in its peer group and that the fund’s advisory expenses were also well below the peer-group average.

 

The board does not conduct a profitability analysis of Vanguard because of Vanguard’s unique structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees.

 

16


 

The benefit of economies of scale

 

The board concluded that the fund’s arrangement with Vanguard ensures that the fund will realize economies of scale as it grows, with the cost to shareholders declining as fund assets increase.

 

The board will consider whether to renew the advisory arrangement again after a one-year period.

 

17


 

 

 

 

P.O. Box 2600

Valley Forge, PA 19482-2600

 

 

 

Connect with Vanguard® >  vanguard.com

 

 

 

Fund Information > 800-662-7447

 

Direct Investor Account Services > 800-662-2739

 

Institutional Investor Services > 800-523-1036

 

Text Telephone for People

 

Who Are Deaf or Hard of Hearing > 800-749-7273

 

This material may be used in conjunction with the offering of shares of any Vanguard fund only if preceded or accompanied by the fund’s current prospectus.

 

 

 

You can obtain a free copy of Vanguard’s proxy voting guidelines by visiting vanguard.com/proxyreporting or by calling Vanguard at 800-662-2739. The guidelines are also available from the SEC’s website, sec.gov. In addition, you may obtain a free report on how your fund voted the proxies for securities it owned during the 12 months ended June 30. To get the report, visit either vanguard.com/proxyreporting or sec.gov.

 

You can review information about your fund on the SEC’s website, and you can receive copies of this information, for a fee, by sending a request via email addressed to publicinfo@sec.gov.

 

 

 

 

 

 

© 2019 The Vanguard Group, Inc.

All rights reserved.

Vanguard Marketing Corporation, Distributor.

 

Q1242 052019

 


 

 

 

 

Semiannual Report  March 31, 2019

 

 

Vanguard Capital Value Fund

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See the inside front cover for important information about access to your fund’s annual and semiannual shareholder reports.

 

 


 

Important information about access to shareholder reports

 

Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your fund’s annual and semiannual shareholder reports will no longer be sent to you by mail, unless you specifically request them. Instead, you will be notified by mail each time a report is posted on the website and will be provided with a link to access the report.

 

If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. You may elect to receive shareholder reports and other communications from the fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with the fund, by calling Vanguard at one of the phone numbers on the back cover of this report or by logging on to vanguard.com.

 

You may elect to receive paper copies of all future shareholder reports free of charge. If you invest through a financial intermediary, you can contact the intermediary to request that you continue to receive paper copies. If you invest directly with the fund, you can call Vanguard at one of the phone numbers on the back cover of this report or log on to vanguard.com. Your election to receive paper copies will apply to all the funds you hold through an intermediary or directly with Vanguard.

 

 

 

Contents

 

 

 

About Your Fund’s Expenses

1

Financial Statements

4

Trustees Approve Advisory Arrangement

16

 


 

About Your Fund’s Expenses

 

 

As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.

 

A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.

 

The accompanying table illustrates your fund’s costs in two ways:

 

·   Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.

 

To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading “Expenses Paid During Period.”

 

·   Based on hypothetical 5% yearly return. This section is intended to help you compare your fund’s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.

 

Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”

 

The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.

 

You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.

 

1


 

Six Months Ended March 31, 2019

 

 

 

 

Beginning

Ending

Expenses

 

Account Value

Account Value

Paid During

Capital Value Fund

9/30/2018

3/31/2019

Period

Based on Actual Fund Return

$1,000.00

$944.65

$1.36

Based on Hypothetical 5% Yearly Return

1,000.00

1,023.54

1.41

 

The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratio for that period is 0.28%. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period (182/365).

 

2


 

Capital Value Fund

 

 

Sector Diversification

As of March 31, 2019

 

Communication Services

6.8%

Consumer Discretionary

5.1

Consumer Staples

7.2

Energy

11.6

Financials

17.8

Health Care

11.4

Industrials

9.7

Information Technology

12.9

Materials

6.5

Other

0.1

Real Estate

8.3

Utilities

2.6

 

The table reflects the fund’s equity exposure, based on its investments in stocks and stock index futures. Any holdings in short-term reserves are excluded. Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” category (if applicable), which includes securities that have not been provided a GICS classification as of the effective reporting period.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc. (“S&P”), and is licensed for use by Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party involved in making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

 

3


 

Capital Value Fund

 

 

Financial Statements (unaudited)

 

 

Statement of Net Assets

As of March 31, 2019

 

The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports will be available on the SEC’s website at www.sec.gov.

 

 

 

 

 

 

Market

 

 

 

 

 

Value·

 

 

 

Shares

 

($000)

Common Stocks (99.5%)

 

 

 

 

Communication Services (6.8%)

 

 

 

 

 

Comcast Corp. Class A

 

588,236

 

23,518

 

Verizon Communications Inc.

 

375,790

 

22,220

*

Electronic Arts Inc.

 

75,988

 

7,723

 

 

 

 

 

53,461

Consumer Discretionary (5.1%)

 

 

 

 

 

Carter’s Inc.

 

100,300

 

10,109

*

Skechers U.S.A. Inc. Class A

 

287,716

 

9,670

 

General Motors Co.

 

236,357

 

8,769

 

Expedia Group Inc.

 

50,781

 

6,043

 

Newell Brands Inc.

 

381,048

 

5,846

 

 

 

 

 

40,437

Consumer Staples (7.2%)

 

 

 

 

 

Philip Morris International Inc.

 

184,542

 

16,312

 

British American Tobacco plc

 

261,465

 

10,908

 

Walgreens Boots Alliance Inc.

 

157,419

 

9,960

 

Kroger Co.

 

348,159

 

8,565

 

Coty Inc. Class A

 

521,001

 

5,991

 

Archer-Daniels-Midland Co.

 

118,000

 

5,089

 

 

 

 

 

56,825

Energy (11.6%)

 

 

 

 

 

Chevron Corp.

 

136,761

 

16,846

 

Concho Resources Inc.

 

129,465

 

14,366

^

Canadian Natural Resources Ltd.

 

517,361

 

14,227

 

Cimarex Energy Co.

 

140,107

 

9,794

 

Enbridge Inc.

 

214,400

 

7,774

 

Halliburton Co.

 

264,847

 

7,760

 

Tenaris SA ADR

 

259,189

 

7,322

 

Diamondback Energy Inc.

 

64,877

 

6,587

 

Anadarko Petroleum Corp.

 

142,158

 

6,465

 

 

 

 

 

91,141

Financials (17.7%)

 

 

 

 

 

MetLife Inc.

 

539,054

 

22,947

 

Wells Fargo & Co.

 

382,132

 

18,465

 

Citigroup Inc.

 

276,698

 

17,216

 

Unum Group

 

355,328

 

12,021

 

PNC Financial Services Group Inc.

 

93,429

 

11,460

 

RenaissanceRe Holdings Ltd.

 

63,786

 

9,153

 

Bank OZK

 

278,380

 

8,067

*

Athene Holding Ltd. Class A

 

185,000

 

7,548

 

Raymond James Financial Inc.

 

91,200

 

7,333

 

Voya Financial Inc.

 

144,628

 

7,226

 

American International Group Inc.

 

160,278

 

6,902

 

CNO Financial Group Inc.

 

374,881

 

6,066

 

Lancashire Holdings Ltd.

 

668,155

 

5,690

 

 

 

 

 

140,094

Health Care (11.3%)

 

 

 

 

 

CVS Health Corp.

 

366,073

 

19,742

 

Koninklijke Philips NV

 

298,363

 

12,191

 

Bristol-Myers Squibb Co.

 

206,016

 

9,829

 

McKesson Corp.

 

82,173

 

9,619

 

Allergan plc

 

62,989

 

9,222

*

Biogen Inc.

 

27,683

 

6,544

*

Incyte Corp.

 

71,325

 

6,135

*

Seattle Genetics Inc.

 

79,621

 

5,831

 

4


 

Capital Value Fund

 

 

 

 

 

 

 

Market

 

 

 

 

 

Value·

 

 

 

Shares

 

($000)

 

AstraZeneca plc ADR

 

120,300

 

4,864

*

Mylan NV

 

151,502

 

4,294

*

Five Prime Therapeutics Inc.

 

89,800

 

1,203

 

 

 

 

 

89,474

Industrials (9.6%)

 

 

 

 

 

Fortune Brands Home & Security Inc.

 

222,130

 

10,576

 

Steelcase Inc. Class A

 

685,855

 

9,979

 

Southwest Airlines Co.

 

185,757

 

9,643

 

Delta Air Lines Inc.

 

186,419

 

9,629

 

Herman Miller Inc.

 

263,855

 

9,282

 

Sanwa Holdings Corp.

 

741,100

 

8,838

 

Johnson Controls International plc

 

221,048

 

8,165

*

Middleby Corp.

 

38,500

 

5,006

 

Wabtec Corp.

 

67,400

 

4,969

 

 

 

 

 

76,087

Information Technology (12.8%)

 

 

 

 

 

Intel Corp.

 

357,900

 

19,219

 

Western Digital Corp.

 

289,757

 

13,926

 

Broadcom Inc.

 

45,599

 

13,712

 

KLA-Tencor Corp.

 

103,516

 

12,361

 

Genpact Ltd.

 

323,647

 

11,386

 

Amdocs Ltd.

 

134,835

 

7,296

*

Coherent Inc.

 

49,058

 

6,952

 

Samsung Electronics Co. Ltd.

 

173,416

 

6,840

 

Marvell Technology Group Ltd.

 

260,839

 

5,188

*

Micron Technology Inc.

 

99,000

 

4,092

 

 

 

 

 

100,972

Materials (6.5%)

 

 

 

 

 

Reliance Steel & Aluminum Co.

 

171,630

 

15,491

 

Celanese Corp. Class A

 

136,230

 

13,434

 

CRH plc

 

225,910

 

7,000

 

Cabot Corp.

 

135,300

 

5,633

^

Nutrien Ltd.

 

103,800

 

5,474

*

Alcoa Corp.

 

155,900

 

4,390

 

 

 

 

 

51,422

Other (0.1%)

 

 

 

 

*,§,1

Allstar Co-Invest LLC Private Placement

 

NA

 

593

 

 

 

 

 

 

Real Estate (8.2%)

 

 

 

 

 

Host Hotels & Resorts Inc.

 

756,277

 

14,294

 

Equinix Inc.

 

29,617

 

13,421

 

Simon Property Group Inc.

 

51,250

 

9,338

 

Columbia Property Trust Inc.

 

366,839

 

8,257

 

Brixmor Property Group Inc.

 

404,612

 

7,433

 

Acadia Realty Trust

 

249,457

 

6,803

 

American Tower Corp.

 

27,516

 

5,422

 

 

 

 

 

64,968

Utilities (2.6%)

 

 

 

 

*

Iberdrola SA

 

1,029,356

 

9,037

 

Sempra Energy

 

59,977

 

7,549

 

OGE Energy Corp.

 

91,786

 

3,958

 

 

 

 

 

20,544

Total Common Stocks

 

 

 

 

(Cost $763,573)

 

 

 

786,018

Temporary Cash Investments (2.8%)

 

 

 

 

Money Market Fund (2.5%)

 

 

 

 

2,3

Vanguard Market Liquidity Fund, 2.554%

 

193,890

 

19,393

 

 

 

 

 

 

 

 

 

Face

 

 

 

 

 

Amount

 

 

 

 

 

($000)

 

 

Repurchase Agreement (0.3%)

 

 

 

 

 

RBS Securities, Inc. 2.550%, 4/1/19 (Dated 3/29/19, Repurchase Value $2,701,000, collateralized by U.S. Treasury Note/Bond 2.750%, 8/15/47, with a value of $2,754,000)

 

2,700

 

2,700

Total Temporary Cash Investments

 

 

 

 

(Cost $22,091)

 

 

 

22,093

Total Investments (102.3%)

 

 

 

 

(Cost $785,664)

 

 

 

808,111

 

5


 

Capital Value Fund

 

 

 

 

Amount

 

 

($000)

Other Assets and Liabilities (-2.3%)

 

 

Other Assets

 

 

Investment in Vanguard

 

41

Receivables for Investment Securities Sold

 

5,067

Receivables for Accrued Income

 

1,796

Receivables for Capital Shares Issued

 

256

Unrealized Appreciation—Forward Currency Contracts

 

41

Other Assets

 

160

Total Other Assets

 

7,361

Liabilities

 

 

Payables for Investment Securities Purchased

 

(3,852)

Collateral for Securities on Loan

 

(19,390)

Payables to Investment Advisor

 

(103)

Payables for Capital Shares Redeemed

 

(390)

Payables to Vanguard

 

(1,557)

Unrealized Depreciation—Forward Currency Contracts

 

(30)

Total Liabilities

 

(25,322)

Net Assets (100%)

 

 

Applicable to 62,257,231 outstanding $.001 par value shares of beneficial interest (unlimited authorization)

 

790,150

Net Asset Value Per Share

 

$12.69

 

At March 31, 2019, net assets consisted of:

 

 

 

Amount

 

 

($000)

Paid-in Capital

 

775,594

Total Distributable Earnings (Loss)

 

14,556

Net Assets

 

790,150

 

· See Note A in Notes to Financial Statements.

 

* Non-income-producing security.

 

^ Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $18,919,000.

 

§ Security value determined using significant unobservable inputs.

 

1 Restricted security represents 0.1% of net assets. Shares not applicable for this private placement. See Restricted Security table for additional information.

 

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.

 

3 Includes $19,390,000 of collateral received for securities on loan.

 

ADR—American Depositary Receipt.

 

 

Restricted Securities as of Period End

 

 

 

 

 

 

 

Acquisition

 

Acquisition

Cost

Security Name

Date

($000)

Allstar Co-Invest LLC Private Placement

August 2011

459

 

6


 

Capital Value Fund

 

 

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)

Citibank, N.A.

 

6/19/19

 

USD

7,246

JPY

801,276

(30)

Goldman Sachs International

 

6/19/19

 

USD

4,952

EUR

4,348

41

 

 

 

 

 

 

 

 

41

(30)

 

EUR—euro.

 

JPY—Japanese yen.

 

USD—U.S. dollar.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes, which are an integral part of the Financial Statements.

 

7


 

Capital Value Fund

 

 

Statement of Operations

 

 

 

Six Months Ended

 

March 31, 2019

 

($000)

Investment Income

 

Income

 

Dividends1

10,685

Interest2

78

Securities Lending—Net

10

Total Income

10,773

Expenses

 

Investment Advisory Fees—Note B

 

Basic Fee

887

Performance Adjustment

(677)

The Vanguard Group—Note C

 

Management and Administrative

856

Marketing and Distribution

38

Custodian Fees

1

Shareholders’ Reports

8

Trustees’ Fees and Expenses

1

Total Expenses

1,114

Net Investment Income

9,659

Realized Net Gain (Loss)

 

Investment Securities Sold2

4,867

Forward Currency Contracts

310

Foreign Currencies

(6)

Realized Net Gain (Loss)

5,171

Change in Unrealized Appreciation (Depreciation)

 

Investment Securities2

(65,131)

Forward Currency Contracts

(126)

Foreign Currencies

(1)

Change in Unrealized Appreciation (Depreciation)

(65,258)

Net Increase (Decrease) in Net Assets Resulting from Operations

(50,428)

 

1 Dividends are net of foreign withholding taxes of $149,000.

 

2 Interest income, realized net gain (loss), and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $0, ($1,000), and $2,000, respectively.

 

 

 

 

 

 

 

 

 

 

See accompanying Notes, which are an integral part of the Financial Statements.

 

8


 

Capital Value Fund

 

 

Statement of Changes in Net Assets

 

 

 

Six Months Ended

 

Year Ended

 

March 31,

 

September 30,

 

2019

 

2018

 

($000)

 

($000)

Increase (Decrease) in Net Assets

 

 

 

Operations

 

 

 

Net Investment Income

9,659

 

18,141

Realized Net Gain (Loss)

5,171

 

81,935

Change in Unrealized Appreciation (Depreciation)

(65,258)

 

(27,061)

Net Increase (Decrease) in Net Assets Resulting from Operations

(50,428)

 

73,015

Distributions

 

 

 

Net Investment Income

(18,899)

 

(17,678)

Realized Capital Gain

 

Total Distributions

(18,899)

 

(17,678)

Capital Share Transactions

 

 

 

Issued

47,034

 

57,634

Issued in Lieu of Cash Distributions

17,308

 

16,300

Redeemed

(78,359)

 

(159,126)

Net Increase (Decrease) from Capital Share Transactions

(14,017)

 

(85,192)

Total Increase (Decrease)

(83,344)

 

(29,855)

Net Assets

 

 

 

Beginning of Period

873,494

 

903,349

End of Period

790,150

 

873,494

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes, which are an integral part of the Financial Statements.

 

9


 

Capital Value Fund

 

 

Financial Highlights

 

 

 

 

Six Months

 

 

 

 

 

 

 

 

 

 

 

 

 

Ended

 

 

 

 

 

 

 

 

 

 

 

For a Share Outstanding

 

March 31,

 

Year Ended September 30,

 

Throughout Each Period

 

2019

 

2018

 

2017

 

2016

 

2015

 

2014

 

Net Asset Value, Beginning of Period

 

$13.79

 

$12.96

 

$11.50

 

$11.45

 

$15.32

 

$14.57

 

Investment Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Investment Income

 

.153

1

.273

1

.241

1

.180

 

.129

1

.178

2

Net Realized and Unrealized Gain (Loss) on Investments

 

(.951

)

.817

 

1.420

 

1.060

 

(2.330

)

2.055

 

Total from Investment Operations

 

(.798

)

1.090

 

1.661

 

1.240

 

(2.201

)

2.233

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends from Net Investment Income

 

(.302

)

(.260

)

(.201

)

(.144

)

(.175

)

(.111

)

Distributions from Realized Capital Gains

 

 

 

 

(1.046

)

(1.494

)

(1.372

)

Total Distributions

 

(.302

)

(.260

)

(.201

)

(1.190

)

(1.669

)

(1.483

)

Net Asset Value, End of Period

 

$12.69

 

$13.79

 

$12.96

 

$11.50

 

$11.45

 

$15.32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Return3

 

-5.54%

 

8.48%

 

14.56%

 

11.36%

 

-15.67%

 

16.50%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios/Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets, End of Period (Millions)

 

$790

 

$873

 

$903

 

$933

 

$1,059

 

$1,784

 

Ratio of Total Expenses to Average Net Assets4

 

0.28%

 

0.29%

 

0.27%

 

0.25%

 

0.50%

 

0.47%

 

Ratio of Net Investment Income to Average Net Assets

 

2.49%

 

2.04%

 

1.97%

 

1.51%

 

0.93%

 

1.19%2

 

Portfolio Turnover Rate

 

46%

 

47%

 

41%

 

134%

 

90%

 

90% 

 

 

The expense ratio, net investment income ratio, and turnover rate for the current period have been annualized.

 

1   Calculated based on average shares outstanding.

 

2   Net investment income per share and the ratio of net investment income to average net assets include $0.18 and 0.12%, respectively, resulting from a special dividend from Vodafone Group plc in the form of cash and shares in Verizon Communications Inc. in February 2014.

 

3   Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees.

 

4   Includes performance-based investment advisory fee increases (decreases) of (0.17%), (0.17%), (0.19%), (0.20%), 0.06%, and 0.02%.

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes, which are an integral part of the Financial Statements.

 

10


 

Capital Value Fund

 

 

Notes to Financial Statements

 

 

Vanguard Capital Value Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund.

 

A.  The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements.

 

1. Security Valuation: Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued at their fair values calculated according to procedures adopted by the board of trustees. These procedures include obtaining quotations from an independent pricing service, monitoring news to identify significant market- or security-specific events, and evaluating changes in the values of foreign market proxies (for example, ADRs, futures contracts, or exchange-traded funds), between the time the foreign markets close and the fund’s pricing time. When fair-value pricing is employed, the prices of securities used by a fund to calculate its net asset value may differ from quoted or published prices for the same securities. Investments in Vanguard Market Liquidity Fund are valued at that fund’s net asset value. Temporary cash investments are valued using the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services.

 

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

 

3. 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

 

11


 

Capital Value Fund

 

 

 

 

 

if the fund is in a net liability position at the time of the termination. The payment amount would be reduced by any collateral the fund has pledged. Any assets pledged as collateral for open contracts are noted in the Statement of Net Assets. The value of collateral received or pledged is compared daily to the value of the forward currency contracts exposure with each counterparty, and any difference, if in excess of a specified minimum transfer amount, is adjusted and settled within two business days.

 

Forward currency contracts are valued at their quoted daily prices obtained from an independent third party, adjusted for currency risk based on the expiration date of each contract. The notional amounts of the contracts are not recorded in the Statement of Net Assets. Fluctuations in the value of the contracts are recorded in the Statement of Net Assets as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized forward currency contract gains (losses).

 

During the six months ended March 31, 2019, the fund’s average investment in forward currency contracts represented 2% of net assets, based on the average of notional amounts at each quarter-end during the period.

 

4. Repurchase Agreements: The fund enters into repurchase agreements with institutional counterparties. Securities pledged as collateral to the fund under repurchase agreements are held by a custodian bank until the agreements mature, and in the absence of a default, such collateral cannot be repledged, resold, or rehypothecated. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal. The fund further mitigates its counterparty risk by entering into repurchase agreements only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master repurchase agreements with its counterparties. The master repurchase agreements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any repurchase agreements with that counterparty, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund. Such action may be subject to legal proceedings, which may delay or limit the disposition of collateral.

 

5. Federal Income Taxes: The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the fund’s tax positions taken for all open federal income tax years (September 30, 2015–2018), and for the period ended March 31, 2019, and has concluded that no provision for federal income tax is required in the fund’s financial statements.

 

6. Distributions: Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes.

 

7. Securities Lending: To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are subject to termination by the fund at any time, and are required to be secured at all times by collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When this occurs, the collateral is adjusted and settled before the opening of the market on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements provide that,

 

12


 

Capital Value Fund

 

 

 

 

 

in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the event of a default, the fund may experience delays and costs in recovering the securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Net Assets for the return of the collateral, during the period the securities are on loan. Securities lending income represents fees charged to borrowers plus income earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.

 

8. Credit Facility: The fund and certain other funds managed by The Vanguard Group (“Vanguard”) participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the fund’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under this facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate, federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread.

 

The fund had no borrowings outstanding at March 31, 2019, or at any time during the period then ended.

 

9. Other: Dividend income is recorded on the ex-dividend date. Interest income is accrued daily. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securities. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.

 

B.  Wellington Management Company LLP provides investment advisory services to the fund for a fee calculated at an annual percentage rate of average net assets. The basic fee is subject to quarterly adjustments based on the fund’s performance relative to the Dow Jones U.S. Total Stock Market Float Adjusted Index for the preceding three years. For the six months ended March 31, 2019, the investment advisory fee represented an effective annual basic rate of 0.23% of the fund’s average net assets before a decrease of $677,000 (0.17%) based on performance.

 

C.  In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees. Vanguard does not require reimbursement in the current period for certain costs of operations (such as deferred compensation/benefits and risk/insurance costs); the fund’s liability for these costs of operations is included in Payables to Vanguard on the Statement of Net Assets. All other costs of operations payable to Vanguard are generally settled twice a month.

 

13


 

Capital Value Fund

 

 

 

 

 

Upon the request of Vanguard, the fund may invest up to 0.40% of its net assets as capital in Vanguard. At March 31, 2019, the fund had contributed to Vanguard capital in the amount of $41,000, representing 0.01% of the fund’s net assets and 0.02% of Vanguard’s capitalization. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.

 

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

 

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

 

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

 

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

 

The following table summarizes the market value of the fund’s investments as of March 31, 2019, based on the inputs used to value them:

 

 

Level 1

Level 2

Level 3

Investments

($000)

($000)

($000)

Common Stocks

737,112

48,313

593

Temporary Cash Investments

19,393

2,700

Forward Currency Contracts—Assets

41

Forward Currency Contracts—Liabilities

(30)

Total

756,505

51,024

593

 

 

E.  As of March 31, 2019, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:

 

 

 

 

Amount

 

 

 

($000)

Tax Cost

 

 

785,664

Gross Unrealized Appreciation

 

 

87,742

Gross Unrealized Depreciation

 

 

(65,284)

Net Unrealized Appreciation (Depreciation)

 

 

22,458

 

 

The fund’s tax-basis capital gains and losses are determined only at the end of each fiscal year. For tax purposes, at September 30, 2018, the fund had available capital losses totaling $15,830,000 that may be carried forward indefinitely to offset future net capital gains. The fund will use these capital losses to offset net taxable capital gains, if any, realized during the year ending September 30, 2019; should the fund realize net capital losses for the year, the losses will be added to the loss carryforward balance above.

 

14


 

Capital Value Fund

 

 

 

 

 

F.  During the six months ended March 31, 2019, the fund purchased $183,429,000 of investment securities and sold $205,021,000 of investment securities, other than temporary cash investments.

 

G. Capital shares issued and redeemed were:

 

 

Six Months Ended

 

Year Ended

 

March 31, 2019

 

September 30, 2018

 

Shares

 

Shares

 

(000)

 

(000)

Issued

3,751

 

4,316

Issued in Lieu of Cash Distributions

1,520

 

1,227

Redeemed

(6,350)

 

(11,915)

Net Increase (Decrease) in Shares Outstanding

(1,079)

 

(6,372)

 

 

H.  Management has determined that no events or transactions occurred subsequent to March 31, 2019, that would require recognition or disclosure in these financial statements.

 

15


 

Trustees Approve Advisory Arrangement

 

 

The board of trustees of Vanguard Capital Value Fund has renewed the fund’s investment advisory arrangement with Wellington Management Company LLP (Wellington Management). The board determined that renewing the fund’s advisory arrangement was in the best interests of the fund and its shareholders.

 

The board based its decision upon an evaluation of the advisor’s investment staff, portfolio management process, and performance. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department, which is responsible for fund and advisor oversight and product management. The Portfolio Review Department met regularly with the advisor and made monthly presentations to the board during the year that directed the board’s focus to relevant information and topics.

 

The board, or an investment committee made up of board members, also received information throughout the year during advisor presentations. For each advisor presentation, the board was provided with letters and reports that included information about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.

 

In addition, the board received monthly reports, which included a Market and Economic Report, a Fund Dashboard Monthly Summary, and a Fund Performance Report.

 

Prior to their meeting, the trustees were provided with a memo and materials that summarized the information they received over the course of the year. They also considered the factors discussed below, among others. However, no single factor determined whether the board approved the arrangement. Rather, it was the totality of the circumstances that drove the board’s decision.

 

Nature, extent, and quality of services

 

The board reviewed the quality of the fund’s investment management services over both the short and long term, and took into account the organizational depth and stability of the advisor. The board considered that Wellington Management, founded in 1928, is among the nation’s oldest and most respected institutional investment managers. The advisor seeks long-term capital appreciation in a diversified portfolio of undervalued stocks across the capitalization spectrum, employing an opportunistic and contrarian investment style. The portfolio managers have the support of Wellington Management’s global industry analysts in conducting their research-intensive approach. Wellington Management has advised the fund since its inception in 2001.

 

The board concluded that the advisor’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangement.

 

Investment performance

 

The board considered the short- and long-term performance of the fund, including any periods of outperformance or underperformance compared with a relevant benchmark index and peer group. The board concluded that the performance was such that the advisory arrangement should continue.

 

16


 

Cost

 

The board concluded that the fund’s expense ratio was well below the average expense ratio charged by funds in its peer group and that the fund’s advisory fee rate was also well below the peer-group average.

 

The board did not consider the profitability of Wellington Management in determining whether to approve the advisory fee, because Wellington Management is independent of Vanguard and the advisory fee is the result of arm’s-length negotiations.

 

The benefit of economies of scale

 

The board concluded that the fund’s shareholders benefit from economies of scale because of breakpoints in the fund’s advisory fee schedule. The breakpoints reduce the effective rate of the fee as the fund’s assets increase.

 

The board will consider whether to renew the advisory arrangement again after a one-year period.

 

17


 

 

 

 

 

 

 

P.O. Box 2600

 

Valley Forge, PA 19482-2600

 

 

 

Connect with Vanguard® > vanguard.com

 

 

 

Fund Information > 800-662-7447

 

Direct Investor Account Services > 800-662-2739

 

Institutional Investor Services > 800-523-1036

 

Text Telephone for People

 

Who Are Deaf or Hard of Hearing > 800-749-7273

 

This material may be used in conjunction with the offering of shares of any Vanguard fund only if preceded or accompanied by the fund’s current prospectus.

 

 

 

You can obtain a free copy of Vanguard’s proxy voting guidelines by visiting vanguard.com/proxyreporting or by calling Vanguard at 800-662-2739. The guidelines are also available from the SEC’s website, sec.gov. In addition, you may obtain a free report on how your fund voted the proxies for securities it owned during the 12 months ended June 30. To get the report, visit either vanguard.com/proxyreporting or sec.gov.

 

You can review information about your fund on the SEC’s website, and you can receive copies of this information, for a fee, by sending a request via email addressed to publicinfo@sec.gov.

 

 

 

 

 

 

 

 

© 2019 The Vanguard Group, Inc.

 

All rights reserved.

 

Vanguard Marketing Corporation, Distributor.

 

 

 

Q3282 052019

 


 

 

 

 

Semiannual Report  |  March 31, 2019

 

 

Vanguard Short-Term Inflation-Protected Securities Index Fund

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See the inside front cover for important information about access to your fund’s annual and semiannual shareholder reports.

 

 


 

Important information about access to shareholder reports

 

Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your fund’s annual and semiannual shareholder reports will no longer be sent to you by mail, unless you specifically request them. Instead, you will be notified by mail each time a report is posted on the website and will be provided with a link to access the report.

 

If you have already elected to receive shareholder reports electronically, you will not be affected by this change and do not need to take any action. You may elect to receive shareholder reports and other communications from the fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with the fund, by calling Vanguard at one of the phone numbers on the back cover of this report or by logging on to vanguard.com.

 

You may elect to receive paper copies of all future shareholder reports free of charge. If you invest through a financial intermediary, you can contact the intermediary to request that you continue to receive paper copies. If you invest directly with the fund, you can call Vanguard at one of the phone numbers on the back cover of this report or log on to vanguard.com. Your election to receive paper copies will apply to all the funds you hold through an intermediary or directly with Vanguard.

 

 

 

Contents

 

 

 

About Your Fund’s Expenses

1

Financial Statements

4

Trustees Approve Advisory Arrangement

16

 


 

About Your Fund’s Expenses

 

 

As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund.

 

A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.

 

The accompanying table illustrates your fund’s costs in two ways:

 

·   Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the fund’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.

 

To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading “Expenses Paid During Period.”

 

·   Based on hypothetical 5% yearly return. This section is intended to help you compare your fund’s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.

 

Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”

 

The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.

 

You can find more information about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current prospectus.

 

1


 

Six Months Ended March 31, 2019

 

 

 

Short-Term Inflation-Protected Securities Index Fund

Beginning
Account Value
9/30/2018

Ending
Account Value
3/31/2019

Expenses
Paid During
Period

Based on Actual Fund Return

 

 

 

Investor Shares

$1,000.00

$1,013.92

$0.70

ETF Shares

1,000.00

1,014.32

0.30

Admiral™ Shares

1,000.00

1,014.51

0.30

Institutional Shares

1,000.00

1,014.55

0.20

Based on Hypothetical 5% Yearly Return

 

 

 

Investor Shares

$1,000.00

$1,024.23

$0.71

ETF Shares

1,000.00

1,024.63

0.30

Admiral Shares

1,000.00

1,024.63

0.30

Institutional Shares

1,000.00

1,024.73

0.20

 

The calculations are based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios for that period are 0.14% for Investor Shares, 0.06% for ETF Shares, 0.06% for Admiral Shares, and 0.04% for Institutional Shares. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period (182/365).

 

2


 

Short-Term Inflation-Protected Securities Index Fund

 

 

Sector Diversification

As of March 31, 2019

 

Treasury/Agency

 

100.0

%

 

The table reflects the fund’s market exposure. Any holdings in short-term reserves are excluded. The agency and mortgage-backed securities sectors may include issues from government-sponsored enterprises; such issues are generally not backed by the full faith and credit of the U.S. government.

 

3


 

Short-Term Inflation-Protected Securities Index Fund

 

 

Financial Statements (unaudited)

 

 

Statement of Net Assets

As of March 31, 2019

 

The fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports will be available on the SEC’s website at www.sec.gov.

 

 

Coupon

Maturity
Date

Face
Amount
($000)

Market
Value
·
($000)

U.S. Government and Agency Obligations (99.8%)

 

 

 

 

U.S. Government Securities (99.8%)

 

 

 

 

 

United States Treasury Inflation Indexed Bonds

0.125%

4/15/19

2,320,159

2,493,906

 

United States Treasury Inflation Indexed Bonds

1.875%

7/15/19

673,739

803,439

 

United States Treasury Inflation Indexed Bonds

1.375%

1/15/20

833,520

978,259

 

United States Treasury Inflation Indexed Bonds

0.125%

4/15/20

2,333,516

2,496,440

 

United States Treasury Inflation Indexed Bonds

1.250%

7/15/20

1,299,921

1,522,621

 

United States Treasury Inflation Indexed Bonds

1.125%

1/15/21

1,482,049

1,727,468

 

United States Treasury Inflation Indexed Bonds

0.125%

4/15/21

2,054,871

2,165,310

 

United States Treasury Inflation Indexed Bonds

0.625%

7/15/21

1,635,204

1,842,758

 

United States Treasury Inflation Indexed Bonds

0.125%

1/15/22

1,809,586

1,997,061

 

United States Treasury Inflation Indexed Bonds

0.125%

4/15/22

2,047,797

2,098,316

 

United States Treasury Inflation Indexed Bonds

0.125%

7/15/22

1,897,752

2,066,855

 

United States Treasury Inflation Indexed Bonds

0.125%

1/15/23

1,909,634

2,059,361

 

United States Treasury Inflation Indexed Bonds

0.625%

4/15/23

2,048,937

2,091,904

 

United States Treasury Inflation Indexed Bonds

0.375%

7/15/23

1,905,538

2,066,860

 

United States Treasury Inflation Indexed Bonds

0.625%

1/15/24

1,906,135

2,076,534

Total U.S. Government and Agency Obligations (Cost $28,489,893)

 

 

28,487,092

 

 

 

 

 

 

 

 

Shares

 

Temporary Cash Investment (0.1%)

 

 

 

 

Money Market Fund (0.1%)

 

 

 

 

1

Vanguard Market Liquidity Fund (Cost $15,882)

2.554%

 

158,808

15,884

Total Investments (99.9%) (Cost $28,505,775)

 

 

 

28,502,976

 

4


 

 

Short-Term Inflation-Protected Securities Index Fund

 

 

 

 

 

Amount

 

($000)

Other Assets and Liabilities (0.1%)