UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-00834
| Name of Registrant: | Vanguard Windsor Funds |
| Address of Registrant: | P.O. Box 2600 |
| Valley Forge, PA 19482 |
| Name and address of agent for service: | Anne E. Robinson, Esquire |
| P.O. Box 876 | |
| Valley Forge, PA 19482 |
Registrant’s telephone number, including area code: (610) 669-1000
Date of fiscal year end: October 31
Date of reporting period: November 1, 2021—April 30, 2022
Item 1: Reports to Shareholders
Semiannual Report | April 30, 2022
Vanguard
Windsor™ Fund
Contents
About Your Fund’s Expenses | 1 |
Financial Statements | 4 |
Trustees Approve Advisory Arrangements | 19 |
Liquidity Risk Management | 21 |
About Your Fund’s Expenses
As a shareholder of the fund,
you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross
income, directly reduce the investment return of the fund.
A fund’s expenses are
expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and
to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table
illustrates your fund’s costs in two ways:
| • | Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund‘s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period. |
To do so, simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading ”Expenses Paid During Period.“
| • | Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds. |
Note that the expenses shown
in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or
account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no
shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information
about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your
fund’s current prospectus.
1
| Six Months Ended April 30, 2022 | |||
| Beginning Account Value 10/31/2021 | Ending Account Value 4/30/2022 | Expenses Paid During Period | |
| Based on Actual Fund Return | |||
| Windsor Fund | |||
| Investor Shares | $1,000.00 | $985.40 | $1.77 |
| Admiral™ Shares | 1,000.00 | 985.80 | 1.28 |
| Based on Hypothetical 5% Yearly Return | |||
| Windsor Fund | |||
| Investor Shares | $1,000.00 | $1,023.01 | $1.81 |
| Admiral Shares | 1,000.00 | 1,023.51 | 1.30 |
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 0.36% for Investor Shares and 0.26% for Admiral Shares. The dollar amounts shown
as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by
the number of days in the most recent 12-month period (181/365).
2
Windsor Fund
Fund Allocation
As of April 30, 2022
| Communication Services | 5.7% |
| Consumer Discretionary | 8.9 |
| Consumer Staples | 3.8 |
| Energy | 6.4 |
| Financials | 20.4 |
| Health Care | 16.7 |
| Industrials | 8.5 |
| Information Technology | 14.2 |
| Materials | 5.3 |
| Real Estate | 3.6 |
| Utilities | 6.5 |
| Other | 0.0 |
The table reflects the fund’s
investments, except for short-term investments and derivatives. Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” category (if
applicable), which includes securities that have not been provided a GICS classification as of the effective reporting period.
Global Industry
Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc.
(“S&P”), and is licensed for use by Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification makes any express or implied warranties or
representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness,
merchantability or fitness for a particular purpose with respect to any such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party
involved in making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the
possibility of such damages.
3
Windsor Fund
Financial Statements (unaudited)
Schedule of Investments
As of April 30, 2022
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
4
Windsor Fund
5
Windsor Fund
| Face Amount ($000) | Market Value• ($000) | ||
| Repurchase Agreement (0.9%) | |||
| Bank of America Securities, LLC 0.300%, 5/2/22 (Dated 4/29/22, Repurchase Value $211,105,000, collateralized by Ginnie Mae 2.000%, 2/20/51, with a value of $215,322,000) | 211,100 | 211,100 | |
| Total Temporary Cash Investments (Cost $794,163) | 794,196 | ||
| Total Investments (101.4%) (Cost $19,203,118) | 23,429,209 | ||
| Other Assets and Liabilities—Net (-1.4%) | (329,192) | ||
| Net Assets (100%) | 23,100,017 | ||
| Cost is in $000. | |||
| • | See Note A in Notes to Financial Statements. |
| * | Non-income-producing security. |
| 1 | Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $263,747,000. |
| 2 | Security value determined using significant unobservable inputs. |
| 3 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
| 4 | Collateral of $282,315,000 was received for securities on loan. |
| ADR—American Depositary Receipt. |
Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| E-mini S&P 500 Index | June 2022 | 951 | 196,263 | (8,089) |
See accompanying
Notes, which are an integral part of the Financial Statements.
6
Windsor Fund
Statement of Assets and Liabilities
As of April 30, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value1 | |
| Unaffiliated Issuers (Cost $18,620,055) | 22,846,113 |
| Affiliated Issuers (Cost $583,063) | 583,096 |
| Total Investments in Securities | 23,429,209 |
| Investment in Vanguard | 823 |
| Cash Collateral Pledged—Futures Contracts | 10,794 |
| Receivables for Investment Securities Sold | 80,919 |
| Receivables for Accrued Income | 16,439 |
| Receivables for Capital Shares Issued | 5,630 |
| Total Assets | 23,543,814 |
| Liabilities | |
| Due to Custodian | 54,590 |
| Payables for Investment Securities Purchased | 81,087 |
| Collateral for Securities on Loan | 282,315 |
| Payables to Investment Advisor | 9,314 |
| Payables for Capital Shares Redeemed | 7,477 |
| Payables to Vanguard | 1,503 |
| Variation Margin Payable—Futures Contracts | 7,511 |
| Total Liabilities | 443,797 |
| Net Assets | 23,100,017 |
| 1 Includes $263,747 of securities on loan. | |
| At April 30, 2022, net assets consisted of: | |
| Paid-in Capital | 16,900,647 |
| Total Distributable Earnings (Loss) | 6,199,370 |
| Net Assets | 23,100,017 |
| Investor Shares—Net Assets | |
| Applicable to 221,268,070 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 5,145,925 |
| Net Asset Value Per Share—Investor Shares | $23.26 |
| Admiral Shares—Net Assets | |
| Applicable to 228,918,669 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 17,954,092 |
| Net Asset Value Per Share—Admiral Shares | $78.43 |
See accompanying
Notes, which are an integral part of the Financial Statements.
7
Windsor Fund
Statement of Operations
| Six Months Ended April 30, 2022 | |
| ($000) | |
| Investment Income | |
| Income | |
| Dividends1 | 218,121 |
| Interest2 | 423 |
| Securities Lending—Net | 1,448 |
| Total Income | 219,992 |
| Expenses | |
| Investment Advisory Fees—Note B | |
| Basic Fee | 15,235 |
| Performance Adjustment | 476 |
| The Vanguard Group—Note C | |
| Management and Administrative—Investor Shares | 5,893 |
| Management and Administrative—Admiral Shares | 11,211 |
| Marketing and Distribution—Investor Shares | 211 |
| Marketing and Distribution—Admiral Shares | 308 |
| Custodian Fees | 660 |
| Shareholders’ Reports—Investor Shares | 52 |
| Shareholders’ Reports—Admiral Shares | 30 |
| Trustees’ Fees and Expenses | 6 |
| Other Expenses | 10 |
| Total Expenses | 34,092 |
| Expenses Paid Indirectly | (33) |
| Net Expenses | 34,059 |
| Net Investment Income | 185,933 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold2 | 1,919,675 |
| Futures Contracts | (18,337) |
| Forward Currency Contracts | 16 |
| Foreign Currencies | (472) |
| Realized Net Gain (Loss) | 1,900,882 |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities2 | (2,403,505) |
| Futures Contracts | (18,088) |
| Foreign Currencies | (104) |
| Change in Unrealized Appreciation (Depreciation) | (2,421,697) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (334,882) |
| 1 | Dividends are net of foreign withholding taxes of $2,973,000. |
| 2 | Interest income, realized net gain (loss), capital gain distributions received, and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $299,000, ($33,000), $10,000, and ($4,000), respectively. Purchases and sales are for temporary cash investment purposes. |
See accompanying
Notes, which are an integral part of the Financial Statements.
8
Windsor Fund
Statement of Changes in Net Assets
| Six Months Ended April 30, 2022 | Year Ended October 31, 2021 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 185,933 | 351,555 | |
| Realized Net Gain (Loss) | 1,900,882 | 2,264,486 | |
| Change in Unrealized Appreciation (Depreciation) | (2,421,697) | 6,317,297 | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (334,882) | 8,933,338 | |
| Distributions | |||
| Investor Shares | (555,704) | (424,284) | |
| Admiral Shares | (1,816,802) | (1,221,462) | |
| Total Distributions | (2,372,506) | (1,645,746) | |
| Capital Share Transactions | |||
| Investor Shares | 37,194 | (723,894) | |
| Admiral Shares | 1,501,607 | 439,865 | |
| Net Increase (Decrease) from Capital Share Transactions | 1,538,801 | (284,029) | |
| Total Increase (Decrease) | (1,168,587) | 7,003,563 | |
| Net Assets | |||
| Beginning of Period | 24,268,604 | 17,265,041 | |
| End of Period | 23,100,017 | 24,268,604 | |
See accompanying
Notes, which are an integral part of the Financial Statements.
9
Windsor Fund
Financial Highlights
| Investor Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended April 30, 2022 | Year Ended October 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $26.24 | $18.55 | $21.76 | $22.02 | $23.38 | $19.70 |
| Investment Operations | ||||||
| Net Investment Income1 | .182 | .356 | .408 | .419 | .417 | .363 |
| Net Realized and Unrealized Gain (Loss) on Investments | (.586) | 9.122 | (1.412) | 1.700 | (.753) | 4.345 |
| Total from Investment Operations | (.404) | 9.478 | (1.004) | 2.119 | (.336) | 4.708 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.178) | (.411) | (.420) | (.426) | (.378) | (.433) |
| Distributions from Realized Capital Gains | (2.398) | (1.377) | (1.786) | (1.953) | (.646) | (.595) |
| Total Distributions | (2.576) | (1.788) | (2.206) | (2.379) | (1.024) | (1.028) |
| Net Asset Value, End of Period | $23.26 | $26.24 | $18.55 | $21.76 | $22.02 | $23.38 |
| Total Return2 | -1.46% | 53.49% | -5.64% | 11.59% | -1.69% | 24.53% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $5,146 | $5,728 | $4,570 | $4,549 | $4,468 | $5,191 |
| Ratio of Total Expenses to Average Net Assets3 | 0.36% | 0.30% | 0.29% | 0.30% | 0.31% | 0.31% |
| Ratio of Net Investment Income to Average Net Assets | 1.47% | 1.49% | 2.14% | 2.04% | 1.76% | 1.66% |
| Portfolio Turnover Rate | 23% | 33% | 51% | 39% | 33% | 26% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | Includes performance-based investment advisory fee increases (decreases) of 0.00%, (0.05%), (0.07%), (0.05%), (0.05%), and (0.05%). |
See accompanying
Notes, which are an integral part of the Financial Statements.
10
Windsor Fund
Financial Highlights
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended April 30, 2022 | Year Ended October 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $88.50 | $62.58 | $73.41 | $74.29 | $78.88 | $66.48 |
| Investment Operations | ||||||
| Net Investment Income1 | .648 | 1.278 | 1.448 | 1.484 | 1.484 | 1.295 |
| Net Realized and Unrealized Gain (Loss) on Investments | (1.981) | 30.747 | (4.770) | 5.735 | (2.538) | 14.650 |
| Total from Investment Operations | (1.333) | 32.025 | (3.322) | 7.219 | (1.054) | 15.945 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.649) | (1.460) | (1.485) | (1.509) | (1.358) | (1.538) |
| Distributions from Realized Capital Gains | (8.088) | (4.645) | (6.023) | (6.590) | (2.178) | (2.007) |
| Total Distributions | (8.737) | (6.105) | (7.508) | (8.099) | (3.536) | (3.545) |
| Net Asset Value, End of Period | $78.43 | $88.50 | $62.58 | $73.41 | $74.29 | $78.88 |
| Total Return2 | -1.42% | 53.60% | -5.55% | 11.71% | -1.59% | 24.63% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $17,954 | $18,541 | $12,695 | $14,647 | $13,948 | $14,366 |
| Ratio of Total Expenses to Average Net Assets3 | 0.26% | 0.20% | 0.19% | 0.20% | 0.21% | 0.21% |
| Ratio of Net Investment Income to Average Net Assets | 1.55% | 1.58% | 2.24% | 2.14% | 1.86% | 1.76% |
| Portfolio Turnover Rate | 23% | 33% | 51% | 39% | 33% | 26% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | Includes performance-based investment advisory fee increases (decreases) of 0.00%, (0.05%), (0.07%), (0.05%), (0.05%), and (0.05%). |
See accompanying
Notes, which are an integral part of the Financial Statements.
11
Windsor Fund
Notes to Financial Statements
Vanguard Windsor Fund is
registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Investor Shares and Admiral Shares. Each of the share classes has different
eligibility and minimum purchase requirements, and is designed for different types of investors.
Significant market
disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters, war (e.g., Russia’s invasion of Ukraine), acts of terrorism, or other events, can adversely affect
local and global markets and normal market operations. Any such disruptions could have an adverse impact on the value of the fund’s investments and fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security Valuation:
Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official
closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which
market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued at
their fair values calculated according to procedures adopted by the board of trustees. These procedures include obtaining quotations from an independent pricing service, monitoring news to identify significant market-
or security-specific events, and evaluating changes in the values of foreign market proxies (for example, ADRs, futures contracts, or exchange-traded funds), between the time the foreign markets close and the
fund’s pricing time. When fair-value pricing is employed, the prices of securities used by a fund to calculate its net asset value may differ from quoted or published prices for the same securities.
Investments in Vanguard Market Liquidity Fund
are valued at that fund's net asset value.
Temporary cash investments are valued using
the latest bid prices or using valuations based on a matrix system (which considers such factors as security prices, yields, maturities, and ratings), both as furnished by independent pricing services.
2. Foreign Currency:
Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates obtained from an independent third party as of the fund’s pricing time on the
valuation date. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the
effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the assets or
liabilities are settled in cash, at which time they are recorded as realized foreign currency gains (losses).
3. Futures Contracts:
The fund uses index futures contracts to a limited extent, with the objective of maintaining full exposure to the stock market while maintaining liquidity. The fund may purchase or sell futures contracts to achieve a
desired level of investment, whether to accommodate portfolio turnover or cash flows from capital share transactions. The primary risks associated with the use of futures contracts are imperfect correlation between
changes in market values of stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is
the
12
Windsor Fund
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 securities pledged as initial margin for open contracts are noted in the Schedule of Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
During the six months ended
April 30, 2022, the fund’s average investments in long and short futures contracts represented 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
4. Forward Currency
Contracts: The fund enters into forward currency contracts to protect the value of securities and related receivables and payables against changes in future foreign exchange rates. The fund’s risks in using
these contracts include movement in the values of the foreign currencies relative to the U.S. dollar and the ability of the counterparties to fulfill their obligations under the contracts. The fund mitigates its
counterparty risk by entering into forward currency contracts only with a diverse group of prequalified counterparties, monitoring their financial strength, entering into master netting arrangements with its
counterparties, and requiring its counterparties to transfer collateral as security for their performance. In the absence of a default, the collateral pledged or received by the fund cannot be repledged, resold, or
rehypothecated. The master netting arrangements provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate the forward currency contracts, determine the net amount owed
by either party in accordance with its master netting arrangements, and sell or retain any collateral held up to the net amount owed to the fund under the master netting arrangements. The forward currency contracts
contain provisions whereby a counterparty may terminate open contracts if the fund’s net assets decline below a certain level, triggering a payment by the fund if the fund is in a net liability position at the
time of the termination. The payment amount would be reduced by any collateral the fund has pledged. Any securities pledged as collateral for open contracts are noted in the Schedule of Investments. The value of
collateral received or pledged is compared daily to the value of the forward currency contracts exposure with each counterparty, and any difference, if in excess of a specified minimum transfer amount, is adjusted and
settled within two business days.
Forward currency contracts are
valued at their quoted daily prices obtained from an independent third party, adjusted for currency risk based on the expiration date of each contract. The notional amounts of the contracts are not recorded in the
Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized
appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on forward currency contracts.
13
Windsor Fund
During the six months ended
April 30, 2022, the fund’s average investment in forward currency contracts represented less than 1% of net assets, based on the average of the notional amounts at each quarter-end during the period. The fund
had no open forward currency contracts at April 30, 2022.
5. Repurchase
Agreements: The fund enters into repurchase agreements with institutional counterparties. Securities pledged as collateral to the fund under repurchase agreements are held by a custodian bank until the agreements
mature, and in the absence of a default, such collateral cannot be repledged, resold, or rehypothecated. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and
principal. The fund further mitigates its counterparty risk by entering into repurchase agreements only with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into
master repurchase agreements with its counterparties. The master repurchase agreements provide that, in the event of a 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.
6. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until expiration
of the applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state income tax
years, and has concluded that no provision for income tax is required in the fund’s financial statements.
7. Distributions:
Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial
reporting purposes.
8. Securities Lending:
To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are subject to termination by the fund at any time, and are required to be secured at all times by
collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When
this occurs, the collateral is adjusted and settled before the opening of the market on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only
with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements
provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net
amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the event of a default, the fund may experience delays and costs in recovering the
securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Assets and Liabilities for the return of the collateral, during the period
the securities are on loan. Collateral investments in Vanguard Market Liquidity Fund are subject to market appreciation or depreciation. Securities lending income represents fees charged to borrowers plus income
earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
14
Windsor Fund
9. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.4 billion committed credit facility provided by a syndicate of lenders pursuant to a credit
agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be
utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged
administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which are allocated to the funds based on a method approved by the fund’s board of trustees and included
in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds effective rate,
the overnight bank funding rate, or the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear interest based
upon an alternate rate agreed to by the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended April
30, 2022, the fund did not utilize the credit facilities or the Interfund Lending Program.
10. Other: Dividend
income is recorded on the ex-dividend date. Non-cash dividends included in income, if any, are recorded at the fair value of the securities received. Interest income includes income distributions received from
Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities are amortized and accreted, respectively, to interest income over the lives of the respective securities, except for
premiums on certain callable debt securities that are amortized to the earliest call date. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains
(losses) on the sale of investment securities are those of the specific securities sold.
Each class of shares has equal
rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on
investments are allocated to each class of shares based on its relative net assets.
| B. | The investment advisory firms Wellington Management Company llp and Pzena Investment Management, LLC, each provide investment advisory services to a portion of the fund for a fee calculated at an annual percentage rate of average net assets managed by the advisor. The basic fee of Wellington Management Company llp is subject to quarterly adjustments based on |
15
Windsor Fund
performance relative to the S&P 500 Index
for the preceding three years. The basic fee of Pzena Investment Management, LLC, is subject to quarterly adjustments based on performance relative to the Russell 1000 Value Index for the preceding three years.
Vanguard manages the cash
reserves of the fund as described below.
For the six months ended April
30, 2022, the aggregate investment advisory fee paid to all advisors represented an effective annual basic rate of 0.13% of the fund’s average net assets, before a net increase of $476,000 (less than 0.01%)
based on performance.
| C. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund corporate management, administrative, marketing, distribution and cash management services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
Upon the request of Vanguard,
the fund may invest up to 0.40% of its net assets as capital in Vanguard. At April 30, 2022, the fund had contributed to Vanguard capital in the amount of $823,000, representing less than 0.01% of the fund’s net
assets and 0.33% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
| D. | The fund has asked its investment advisors to direct certain security trades, subject to obtaining the best price and execution, to brokers who have agreed to rebate to the fund part of the commissions generated. Such rebates are used solely to reduce the fund’s management and administrative expenses. For the six months ended April 30, 2022, these arrangements reduced the fund’s expenses by $33,000 (an annual rate of less than 0.01% of average net assets). |
| E. | Various inputs may be used to determine the value of the fund’s investments and derivatives. 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 and derivatives valued with significant
unobservable inputs are noted on the Schedule of Investments.
16
Windsor Fund
The following table summarizes
the market value of the fund’s investments and derivatives as of April 30, 2022, based on the inputs used to value them:
| Level 1 ($000) | Level 2 ($000) | Level 3 ($000) | Total ($000) | |
| Investments | ||||
| Assets | ||||
| Common Stocks | 21,510,360 | 1,124,653 | — | 22,635,013 |
| Temporary Cash Investments | 583,096 | 211,100 | — | 794,196 |
| Total | 22,093,456 | 1,335,753 | — | 23,429,209 |
| Derivative Financial Instruments | ||||
| Liabilities | ||||
| Futures Contracts1 | 8,089 | — | — | 8,089 |
| 1 | Includes cumulative appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
| F. | As of April 30, 2022, 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 | 19,209,012 |
| Gross Unrealized Appreciation | 5,261,011 |
| Gross Unrealized Depreciation | (1,048,903) |
| Net Unrealized Appreciation (Depreciation) | 4,212,108 |
| G. | During the six months ended April 30, 2022, the fund purchased $5,368,136,000 of investment securities and sold $5,851,401,000 of investment securities, other than temporary cash investments. |
| H. | Capital share transactions for each class of shares were: |
| Six Months Ended April 30, 2022 | Year Ended October 31, 2021 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 250,696 | 10,136 | 422,386 | 17,602 | |
| Issued in Lieu of Cash Distributions | 536,769 | 23,277 | 412,533 | 19,492 | |
| Redeemed | (750,271) | (30,443) | (1,558,813) | (65,085) | |
| Net Increase (Decrease)—Investor Shares | 37,194 | 2,970 | (723,894) | (27,991) | |
17
Windsor Fund
| Six Months Ended April 30, 2022 | Year Ended October 31, 2021 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Admiral Shares | |||||
| Issued | 866,853 | 10,358 | 1,733,594 | 21,194 | |
| Issued in Lieu of Cash Distributions | 1,686,354 | 21,692 | 1,138,412 | 15,936 | |
| Redeemed | (1,051,600) | (12,629) | (2,432,141) | (30,502) | |
| Net Increase (Decrease)—Admiral Shares | 1,501,607 | 19,421 | 439,865 | 6,628 | |
| I. | Management has determined that no other events or transactions occurred subsequent to April 30, 2022, that would require recognition or disclosure in these financial statements. |
18
Trustees Approve Advisory Arrangements
The board of trustees of
Vanguard Windsor Fund has renewed the fund’s investment advisory arrangements with Wellington Management Company LLP (Wellington Management) and Pzena Investment Management, LLC (Pzena). The board determined
that renewing the fund’s advisory arrangements was in the best interests of the fund and its shareholders.
The board based its decisions
upon an evaluation of each advisor’s investment staff, portfolio management process, and performance. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department,
which is responsible for fund and advisor oversight and product management. The Portfolio Review Department met regularly with the advisors and made monthly presentations to the board during the fiscal year that
directed the board’s focus to relevant information and topics.
The board, or an investment
committee made up of board members, also received information throughout the year during advisor presentations. For each advisor presentation, the board was provided with letters and reports that included information
about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.
In addition, the board
received periodic reports throughout the year, which included information about the fund’s performance relative to its peers and benchmark, as applicable, and updates, as needed, on the Portfolio Review
Department’s ongoing assessment of the advisor.
Prior to their meeting, the
trustees were provided with a memo and materials that summarized the information they received over the course of the year. They also considered the factors discussed below, among others. However, no single factor
determined whether the board approved the arrangements. Rather, it was the totality of the circumstances that drove the board’s decisions.
Nature, extent, and quality of
services
The board reviewed the quality of the
fund’s investment management services over both the short and long term, and took into account the organizational depth and stability of each advisor. The board considered the following:
Wellington Management. Founded in 1928, Wellington Management is among the nation’s oldest and most respected institutional investment managers. Using a bottom-up, fundamentally driven approach, Wellington
Management invests in solid companies whose current fundamentals are depressed relative to longer-term earnings potential. Wellington Management has the ability to seek undervalued stocks across the capitalization
spectrum. The investment team has the support of Wellington Management’s global industry analysts in conducting its research-intensive approach. Wellington Management has advised the fund since its inception in
1958.
Pzena. Founded in 1995, Pzena is a global investment management firm that employs a classic value investment approach. Pzena seeks to buy good businesses at low prices, focusing exclusively on
companies that are underperforming their historically demonstrated earnings power. Pzena’s research team conducts intensive fundamental research, buying companies only when the problems are judged to be
temporary, management has a viable strategy to generate earnings
19
recovery, and there is meaningful downside
protection in case earnings do not recover. Pzena has managed a portion of the fund since 2012.
The board concluded that each
advisor’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangements.
Investment performance
The board considered the short- and long-term
performance of each advisor’s subportfolio, including any periods of outperformance or underperformance compared with a relevant benchmark index and peer group. The board concluded that the performance was such
that the advisory arrangements should continue.
Cost
The board concluded that the fund’s
expense ratio was below the average expense ratio charged by funds in its peer group and that the fund’s advisory fee rates were also below the peer-group average.
The board did not consider the
profitability of Wellington Management or Pzena in determining whether to approve the advisory fees, because the firms are independent of Vanguard and the advisory fees are the result of arm’s-length
negotiations.
The benefit of economies of
scale
The board concluded that the fund’s
shareholders benefit from economies of scale because of breakpoints in the advisory fee schedules for Wellington Management and Pzena. The breakpoints reduce the effective rate of the fees as the fund’s assets
managed by each advisor increase.
The board will consider
whether to renew the advisory arrangements again after a one-year period.
20
Liquidity Risk Management
Vanguard funds (except for the
money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that
each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining
investors’ interests in the fund.
Assessment and management of a
fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably
foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding
sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and
limiting holdings of illiquid investments.
The board of trustees of
Vanguard Windsor Funds approved the appointment of liquidity risk management program administrators responsible for administering Vanguard Windsor Fund’s Program and for carrying out the specific
responsibilities set forth in the Program, including reporting to the board on at least an annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for the past
year (the “Program Administrator Report”). The board has reviewed the Program Administrator Report covering the period from January 1, 2021, through December 31, 2021 (the “Review Period”). The
Program Administrator Report stated that during the Review Period the Program operated and was implemented effectively to manage the fund’s liquidity risk.
21
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Connect with
Vanguard®>vanguard.com
Semiannual Report | April 30, 2022
Vanguard
Windsor™ II Fund
Contents
About Your Fund’s Expenses | 1 |
Financial Statements | 4 |
Trustees Approve Advisory Arrangements | 18 |
Liquidity Risk Management | 20 |
About Your Fund’s Expenses
As a shareholder of the fund,
you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross
income, directly reduce the investment return of the fund.
A fund’s expenses are
expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund and
to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The accompanying table
illustrates your fund’s costs in two ways:
| • | Based on actual fund return. This section helps you to estimate the actual expenses that you paid over the period. The ”Ending Account Value“ shown is derived from the fund‘s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period. |
To do so, simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund under the heading ”Expenses Paid During Period.“
| • | Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the fund’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds. |
Note that the expenses shown
in the table are meant to highlight and help you compare ongoing costs only and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or
account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
The calculations assume no
shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information
about the fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your
fund’s current prospectus.
1
| Six Months Ended April 30, 2022 | |||
| Beginning Account Value 10/31/2021 | Ending Account Value 4/30/2022 | Expenses Paid During Period | |
| Based on Actual Fund Return | |||
| Windsor II Fund | |||
| Investor Shares | $1,000.00 | $917.20 | $1.62 |
| Admiral™ Shares | 1,000.00 | 917.50 | 1.24 |
| Based on Hypothetical 5% Yearly Return | |||
| Windsor II Fund | |||
| Investor Shares | $1,000.00 | $1,023.11 | $1.71 |
| Admiral Shares | 1,000.00 | 1,023.51 | 1.30 |
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 0.34% for Investor Shares and 0.26% for Admiral Shares. The dollar amounts shown
as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by
the number of days in the most recent 12-month period (181/365).
2
Windsor II Fund
Fund Allocation
As of April 30, 2022
| Communication Services | 7.1% |
| Consumer Discretionary | 9.1 |
| Consumer Staples | 6.2 |
| Energy | 6.3 |
| Financials | 16.7 |
| Health Care | 17.7 |
| Industrials | 9.1 |
| Information Technology | 20.5 |
| Materials | 2.6 |
| Real Estate | 2.0 |
| Utilities | 1.7 |
| Other | 1.0 |
The table reflects the fund’s
investments, except for short-term investments and derivatives. Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” category (if
applicable), which includes securities that have not been provided a GICS classification as of the effective reporting period.
Global Industry
Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc.
(“S&P”), and is licensed for use by Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification makes any express or implied warranties or
representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness,
merchantability or fitness for a particular purpose with respect to any such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party
involved in making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the
possibility of such damages.
3
Windsor II Fund
Financial Statements (unaudited)
Schedule of Investments
As of April 30, 2022
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
4
Windsor II Fund
5
Windsor II Fund
| Shares | Market Value• ($000) | ||
| International Paper Co. | 1,051,929 | 48,683 | |
| 1,338,252 | |||
| Other (0.9%) | |||
| 1 | SPDR S&P 500 ETF Trust | 1,236,073 | 509,262 |
| Real Estate (1.9%) | |||
| Prologis Inc. | 3,107,070 | 498,032 | |
| Crown Castle International Corp. | 1,560,000 | 288,928 | |
| Sun Communities Inc. | 720,000 | 126,410 | |
| Equity LifeStyle Properties Inc. | 1,600,000 | 123,648 | |
| 1,037,018 | |||
| Utilities (1.6%) | |||
| PPL Corp. | 11,229,703 | 317,913 | |
| Xcel Energy Inc. | 3,913,704 | 286,718 | |
| Atmos Energy Corp. | 2,332,700 | 264,528 | |
| 869,159 | |||
| Total Common Stocks (Cost $36,032,044) | 52,085,271 | ||
| Temporary Cash Investments (5.0%) | |||
| Money Market Fund (5.0%) | |||
| 2,3 | Vanguard Market Liquidity Fund, 0.409% (Cost $2,690,452) | 26,908,708 | 2,690,602 |
| Total Investments (101.0%) (Cost $38,722,496) | 54,775,873 | ||
| Other Assets and Liabilities—Net (-1.0%) | (518,539) | ||
| Net Assets (100%) | 54,257,334 | ||
| Cost is in $000. | |||
| • | See Note A in Notes to Financial Statements. |
| * | Non-income-producing security. |
| 1 | Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $524,460,000. |
| 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 | Collateral of $555,652,000 was received for securities on loan. |
| ADR—American Depositary Receipt. |
Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| E-mini S&P 500 Index | June 2022 | 2,269 | 468,265 | (39,714) |
See accompanying
Notes, which are an integral part of the Financial Statements.
6
Windsor II Fund
Statement of Assets and Liabilities
As of April 30, 2022
| ($000s, except shares and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value1 | |
| Unaffiliated Issuers (Cost $36,032,044) | 52,085,271 |
| Affiliated Issuers (Cost $2,690,452) | 2,690,602 |
| Total Investments in Securities | 54,775,873 |
| Investment in Vanguard | 1,969 |
| Cash | 529,846 |
| Cash Collateral Pledged—Futures Contracts | 25,713 |
| Foreign Currency, at Value (Cost $1) | 1 |
| Receivables for Investment Securities Sold | 196,903 |
| Receivables for Accrued Income | 58,982 |
| Receivables for Capital Shares Issued | 17,264 |
| Total Assets | 55,606,551 |
| Liabilities | |
| Payables for Investment Securities Purchased | 736,525 |
| Collateral for Securities on Loan | 555,652 |
| Payables to Investment Advisor | 17,042 |
| Payables for Capital Shares Redeemed | 18,458 |
| Payables to Vanguard | 3,639 |
| Variation Margin Payable—Futures Contracts | 17,901 |
| Total Liabilities | 1,349,217 |
| Net Assets | 54,257,334 |
| 1 Includes $524,460 of securities on loan. | |
| At April 30, 2022, net assets consisted of: | |
| Paid-in Capital | 36,150,699 |
| Total Distributable Earnings (Loss) | 18,106,635 |
| Net Assets | 54,257,334 |
| Investor Shares—Net Assets | |
| Applicable to 285,358,502 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 11,793,641 |
| Net Asset Value Per Share—Investor Shares | $41.33 |
| Admiral Shares—Net Assets | |
| Applicable to 579,043,815 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 42,463,693 |
| Net Asset Value Per Share—Admiral Shares | $73.33 |
See accompanying
Notes, which are an integral part of the Financial Statements.
7
Windsor II Fund
Statement of Operations
| Six Months Ended April 30, 2022 | |
| ($000) | |
| Investment Income | |
| Income | |
| Dividends1 | 459,579 |
| Interest2 | 1,702 |
| Securities Lending—Net | 418 |
| Total Income | 461,699 |
| Expenses | |
| Investment Advisory Fees—Note B | |
| Basic Fee | 36,555 |
| Performance Adjustment | (1,567) |
| The Vanguard Group—Note C | |
| Management and Administrative—Investor Shares | 13,419 |
| Management and Administrative—Admiral Shares | 30,732 |
| Marketing and Distribution—Investor Shares | 488 |
| Marketing and Distribution—Admiral Shares | 833 |
| Custodian Fees | 518 |
| Shareholders’ Reports—Investor Shares | 224 |
| Shareholders’ Reports—Admiral Shares | 57 |
| Trustees’ Fees and Expenses | 15 |
| Other Expenses | 10 |
| Total Expenses | 81,284 |
| Net Investment Income | 380,415 |
| Realized Net Gain (Loss) | |
| Investment Securities Sold2 | 1,944,640 |
| Futures Contracts | (41,192) |
| Foreign Currencies | (103) |
| Realized Net Gain (Loss) | 1,903,345 |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities—Unaffiliated Issuers2 | (7,129,491) |
| Futures Contracts | (61,121) |
| Foreign Currencies | (690) |
| Change in Unrealized Appreciation (Depreciation) | (7,191,302) |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (4,907,542) |
| 1 | Dividends are net of foreign withholding taxes of $6,692,000. |
| 2 | Interest income, realized net gain (loss), capital gain distributions received, and change in unrealized appreciation (depreciation) from an affiliated company of the fund were $514,000, ($311,000), $47,000, and ($3,000), respectively. Purchases and sales are for temporary cash investment purposes. |
See accompanying
Notes, which are an integral part of the Financial Statements.
8
Windsor II Fund
Statement of Changes in Net Assets
| Six Months Ended April 30, 2022 | Year Ended October 31, 2021 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 380,415 | 657,953 | |
| Realized Net Gain (Loss) | 1,903,345 | 4,007,994 | |
| Change in Unrealized Appreciation (Depreciation) | (7,191,302) | 15,751,779 | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | (4,907,542) | 20,417,726 | |
| Distributions | |||
| Investor Shares | (934,861) | (877,466) | |
| Admiral Shares | (3,265,729) | (2,558,212) | |
| Total Distributions | (4,200,590) | (3,435,678) | |
| Capital Share Transactions | |||
| Investor Shares | 63,778 | (1,563,435) | |
| Admiral Shares | 2,734,931 | 3,159,805 | |
| Net Increase (Decrease) from Capital Share Transactions | 2,798,709 | 1,596,370 | |
| Total Increase (Decrease) | (6,309,423) | 18,578,418 | |
| Net Assets | |||
| Beginning of Period | 60,566,757 | 41,988,339 | |
| End of Period | 54,257,334 | 60,566,757 | |
See accompanying
Notes, which are an integral part of the Financial Statements.
9
Windsor II Fund
Financial Highlights
| Investor Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended April 30, 2022 | Year Ended October 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $48.48 | $34.85 | $37.22 | $37.39 | $38.81 | $35.03 |
| Investment Operations | ||||||
| Net Investment Income1 | .279 | .502 | .551 | .775 | .783 | .750 |
| Net Realized and Unrealized Gain (Loss) on Investments | (4.071) | 15.971 | .607 | 2.628 | .950 | 5.847 |
| Total from Investment Operations | (3.792) | 16.473 | 1.158 | 3.403 | 1.733 | 6.597 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.288) | (.516) | (.635) | (.844) | (.740) | (.851) |
| Distributions from Realized Capital Gains | (3.070) | (2.327) | (2.893) | (2.729) | (2.413) | (1.966) |
| Total Distributions | (3.358) | (2.843) | (3.528) | (3.573) | (3.153) | (2.817) |
| Net Asset Value, End of Period | $41.33 | $48.48 | $34.85 | $37.22 | $37.39 | $38.81 |
| Total Return2 | -8.28% | 49.42% | 2.93% | 10.82% | 4.44% | 19.60% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $11,794 | $13,734 | $10,997 | $12,119 | $12,061 | $13,638 |
| Ratio of Total Expenses to Average Net Assets3 | 0.34% | 0.34% | 0.34% | 0.33% | 0.33% | 0.34% |
| Ratio of Net Investment Income to Average Net Assets | 1.22% | 1.15% | 1.61% | 2.20% | 2.04% | 2.01% |
| Portfolio Turnover Rate | 10% | 20% | 61% | 32% | 29% | 32% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | Includes performance-based investment advisory fee increases (decreases) of (0.01%), (0.00%), (0.01%), (0.03%), (0.03%), and (0.02%). |
See accompanying
Notes, which are an integral part of the Financial Statements.
10
Windsor II Fund
Financial Highlights
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended April 30, 2022 | Year Ended October 31, | ||||
| 2021 | 2020 | 2019 | 2018 | 2017 | ||
| Net Asset Value, Beginning of Period | $86.03 | $61.84 | $66.06 | $66.35 | $68.88 | $62.18 |
| Investment Operations | ||||||
| Net Investment Income1 | .525 | .950 | 1.027 | 1.426 | 1.443 | 1.377 |
| Net Realized and Unrealized Gain (Loss) on Investments | (7.227) | 28.341 | 1.065 | 4.675 | 1.682 | 10.376 |
| Total from Investment Operations | (6.702) | 29.291 | 2.092 | 6.101 | 3.125 | 11.753 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.550) | (.972) | (1.178) | (1.547) | (1.371) | (1.565) |
| Distributions from Realized Capital Gains | (5.448) | (4.129) | (5.134) | (4.844) | (4.284) | (3.488) |
| Total Distributions | (5.998) | (5.101) | (6.312) | (6.391) | (5.655) | (5.053) |
| Net Asset Value, End of Period | $73.33 | $86.03 | $61.84 | $66.06 | $66.35 | $68.88 |
| Total Return2 | -8.25% | 49.55% | 3.00% | 10.93% | 4.52% | 19.68% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $42,464 | $46,833 | $30,992 | $34,022 | $34,126 | $35,514 |
| Ratio of Total Expenses to Average Net Assets3 | 0.26% | 0.26% | 0.26% | 0.25% | 0.25% | 0.26% |
| Ratio of Net Investment Income to Average Net Assets | 1.30% | 1.22% | 1.69% | 2.28% | 2.12% | 2.09% |
| Portfolio Turnover Rate | 10% | 20% | 61% | 32% | 29% | 32% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | Includes performance-based investment advisory fee increases (decreases) of (0.01%), (0.00%), (0.01%), (0.03%), (0.03%), and (0.02%). |
See accompanying
Notes, which are an integral part of the Financial Statements.
11
Windsor II Fund
Notes to Financial Statements
Vanguard Windsor II Fund is
registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Investor Shares and Admiral Shares. Each of the share classes has different
eligibility and minimum purchase requirements, and is designed for different types of investors.
Significant market
disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters, war (e.g., Russia’s invasion of Ukraine), acts of terrorism, or other events, can adversely affect
local and global markets and normal market operations. Any such disruptions could have an adverse impact on the value of the fund’s investments and fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security Valuation:
Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official
closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which
market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued at
their fair values calculated according to procedures adopted by the board of trustees. These procedures include obtaining quotations from an independent pricing service, monitoring news to identify significant market-
or security-specific events, and evaluating changes in the values of foreign market proxies (for example, ADRs, futures contracts, or exchange-traded funds), between the time the foreign markets close and the
fund’s pricing time. When fair-value pricing is employed, the prices of securities used by a fund to calculate its net asset value may differ from quoted or published prices for the same securities.
Investments in Vanguard Market Liquidity Fund
are valued at that fund's net asset value.
2. Foreign Currency:
Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates obtained from an independent third party as of the fund’s pricing time on the
valuation date. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the
effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the assets or
liabilities are settled in cash, at which time they are recorded as realized foreign currency gains (losses).
3. Futures Contracts:
The fund uses index futures contracts to a limited extent, with the objective of maintaining full exposure to the stock market while maintaining liquidity. The fund may purchase or sell futures contracts to achieve a
desired level of investment, whether to accommodate portfolio turnover or cash flows from capital share transactions. The primary risks associated with the use of futures contracts are imperfect correlation between
changes in market values of stocks held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk involving futures is mitigated because a regulated clearinghouse is
the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors the financial strength of its clearing brokers and clearinghouse, and
has entered into clearing agreements with its clearing brokers. The
12
Windsor II Fund
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 securities pledged as initial margin for open
contracts are noted in the Schedule of Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
During the six months ended
April 30, 2022, the fund’s average investments in long and short futures contracts represented 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
4. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until expiration
of the applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state income tax
years, and has concluded that no provision for income tax is required in the fund’s financial statements.
5. Distributions:
Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial
reporting purposes.
6. Securities Lending:
To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are subject to termination by the fund at any time, and are required to be secured at all times by
collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When
this occurs, the collateral is adjusted and settled before the opening of the market on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only
with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements
provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net
amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the event of a default, the fund may experience delays and costs in recovering the
securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Assets and Liabilities for the return of the collateral, during the period
the securities are on loan. Collateral investments in Vanguard Market Liquidity Fund are subject to market appreciation or depreciation. Securities lending income represents fees charged to borrowers plus income
earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
7. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.4 billion committed credit facility provided by a syndicate of lenders pursuant to a credit
agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its
13
Windsor II Fund
borrowings, if any, under the credit
facilities. Borrowings may be utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the
participating funds are charged administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which are allocated to the funds based on a method approved by the
fund’s board of trustees and included in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under either facility bear interest at an agreed-upon spread plus the
higher of the federal funds effective rate, the overnight bank funding rate, or the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the
uncommitted credit facility may bear interest based upon an alternate rate agreed to by the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended April
30, 2022, the fund did not utilize the credit facilities or the Interfund Lending Program.
8. Other: Dividend
income is recorded on the ex-dividend date. Non-cash dividends included in income, if any, are recorded at the fair value of the securities received. Interest income includes income distributions received from
Vanguard Market Liquidity Fund and is accrued daily. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment
securities are those of the specific securities sold.
Taxes on foreign dividends and
capital gains have been provided for in accordance with the fund's understanding of the applicable countries' tax rules and rates. Deferred foreign capital gains tax, if any, is accrued daily based upon net unrealized
gains. The fund has filed tax reclaims for previously withheld taxes on dividends earned in certain European Union countries. These filings are subject to various administrative and judicial proceedings within these
countries. Such tax reclaims received and related professional fees incurred during the year, if any, are included in dividend income and other expenses, respectively. No other amounts for additional tax reclaims are
reflected in the financial statements due to the uncertainty as to the ultimate resolution of proceedings, the likelihood of receipt of these reclaims, and the potential timing of payment.
Each class of shares has equal
rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on
investments are allocated to each class of shares based on its relative net assets.
| B. | The investment advisory firms Lazard Asset Management LLC, Hotchkis and Wiley Capital Management, LLC, Sanders Capital, LLC, and Aristotle Capital Management, LLC, each provide |
14
Windsor II Fund
investment advisory services to a portion of
the fund for a fee calculated at an annual percentage rate of average net assets managed by the advisor. The basic fee of Lazard Asset Management LLC is subject to quarterly adjustments based on performance relative
to the S&P 500 Index for the preceding three years. The basic fee of Hotchkis and Wiley Capital Management, LLC, is subject to quarterly adjustments based on performance relative to the MSCI US Investable Market
2500 Index for the preceding five years. The basic fee of Sanders Capital, LLC, is subject to quarterly adjustments based on performance relative to the Russell 3000 Index for the preceding five years. The basic fee
of Aristotle Capital Management, LLC, is subject to quarterly adjustments based on performance relative to the S&P 500 Index since January 31, 2020.
Vanguard manages the cash
reserves of the fund as described below.
For the six months ended April
30, 2022, the aggregate investment advisory fee paid to all advisors represented an effective annual basic rate of 0.12% of the fund’s average net assets, before a net decrease of $1,567,000 (0.01%) based on
performance.
| C. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund corporate management, administrative, marketing, distribution and cash management services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
Upon the request of Vanguard,
the fund may invest up to 0.40% of its net assets as capital in Vanguard. At April 30, 2022, the fund had contributed to Vanguard capital in the amount of $1,969,000, representing less than 0.01% of the fund’s
net assets and 0.79% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
| D. | Various inputs may be used to determine the value of the fund’s investments and derivatives. 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 and derivatives valued with significant
unobservable inputs are noted on the Schedule of Investments.
15
Windsor II Fund
The following table summarizes
the market value of the fund’s investments and derivatives as of April 30, 2022, based on the inputs used to value them:
| Level 1 ($000) | Level 2 ($000) | Level 3 ($000) | Total ($000) | |
| Investments | ||||
| Assets | ||||
| Common Stocks | 50,352,292 | 1,732,979 | — | 52,085,271 |
| Temporary Cash Investments | 2,690,602 | — | — | 2,690,602 |
| Total | 53,042,894 | 1,732,979 | — | 54,775,873 |
| Derivative Financial Instruments | ||||
| Liabilities | ||||
| Futures Contracts1 | 39,714 | — | — | 39,714 |
| 1 | Includes cumulative appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
| E. | As of April 30, 2022, 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 | 38,761,817 |
| Gross Unrealized Appreciation | 17,248,600 |
| Gross Unrealized Depreciation | (1,274,258) |
| Net Unrealized Appreciation (Depreciation) | 15,974,342 |
| F. | During the six months ended April 30, 2022, the fund purchased $5,895,209,000 of investment securities and sold $6,552,224,000 of investment securities, other than temporary cash investments. |
| G. | Capital share transactions for each class of shares were: |
| Six Months Ended April 30, 2022 | Year Ended October 31, 2021 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 451,788 | 9,863 | 823,222 | 18,805 | |
| Issued in Lieu of Cash Distributions | 910,696 | 20,585 | 856,941 | 22,227 | |
| Redeemed | (1,298,706) | (28,373) | (3,243,598) | (73,302) | |
| Net Increase (Decrease)—Investor Shares | 63,778 | 2,075 | (1,563,435) | (32,270) | |
16
Windsor II Fund
| Six Months Ended April 30, 2022 | Year Ended October 31, 2021 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Admiral Shares | |||||
| Issued | 2,100,947 | 25,879 | 4,997,051 | 63,663 | |
| Issued in Lieu of Cash Distributions | 3,064,286 | 39,046 | 2,400,086 | 35,053 | |
| Redeemed | (2,430,302) | (30,258) | (4,237,332) | (55,504) | |
| Net Increase (Decrease)—Admiral Shares | 2,734,931 | 34,667 | 3,159,805 | 43,212 | |
| H. | Management has determined that no events or transactions occurred subsequent to April 30, 2022, that would require recognition or disclosure in these financial statements. |
17
Trustees Approve Advisory Arrangements
The board of trustees of
Vanguard Windsor II Fund has renewed the fund’s investment advisory arrangements with Lazard Asset Management LLC (Lazard); Hotchkis and Wiley Capital Management, LLC (Hotchkis and Wiley); Aristotle Capital
Management, LLC (Aristotle) and Sanders Capital, LLC (Sanders Capital). The board determined that renewing the fund’s advisory arrangements was in the best interests of the fund and its shareholders.
The board based its decisions
upon an evaluation of each advisor’s investment staff, portfolio management process, and performance. This evaluation included information provided to the board by Vanguard’s Portfolio Review Department,
which is responsible for fund and advisor oversight and product management. The Portfolio Review Department met regularly with the advisors and made monthly presentations to the board during the fiscal year that
directed the board’s focus to relevant information and topics.
The board, or an investment
committee made up of board members, also received information throughout the year during advisor presentations. For each advisor presentation, the board was provided with letters and reports that included information
about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.
In addition, the board
received periodic reports throughout the year, which included information about the fund’s performance relative to its peers and benchmark, as applicable, and updates, as needed, on the Portfolio Review
Department’s ongoing assessment of the advisor.
Prior to their meeting, the
trustees were provided with a memo and materials that summarized the information they received over the course of the year. They also considered the factors discussed below, among others. However, no single factor
determined whether the board approved the arrangements. Rather, it was the totality of the circumstances that drove the board’s decisions.
Nature, extent, and quality of
services
The board reviewed the quality of the
investment management services provided by Lazard, Hotchkis and Wiley, Aristotle, and Sanders Capital over both the short and long term, and took into account the organizational depth and stability of each advisor.
The board considered the following:
Lazard. Lazard, a subsidiary of the investment bank Lazard Ltd., provides investment management services for clients around the world in a variety of investment mandates, including international
equities, domestic equities, and fixed income securities. The investment team employs a relative value, bottom-up stock-selection process to identify stocks with sustainable financial productivity and attractive
valuations. Using scenario analysis, the team seeks to understand the durability and future direction of financial productivity and valuation. Lazard has managed a portion of the fund since 2007.
Hotchkis and Wiley. Founded in 1980, Hotchkis and Wiley is a value-oriented firm that manages various large-, mid-, and small-capitalization portfolios. Hotchkis and Wiley invests in companies where it
believes that the present value of future cash flows exceeds the market price. The advisor believes that the market frequently undervalues companies because of the extrapolation of current
18
trends, while capital flows usually cause a
company’s returns and profitability to normalize over the long term. Hotchkis and Wiley seeks to identify these companies with a disciplined, bottom-up research process. The portfolio managers leverage the
support of a broad analyst team, which is organized into sector teams in an effort to better understand the impact that industry dynamics and macroeconomic risk factors might have on individual companies. Hotchkis and
Wiley has managed a portion of the fund since 2003.
Aristotle. Aristotle is an employee-owned investment firm that provides investment management services to clients across a variety of value equity strategies, including domestic, international, and
global. The team has employed the same research-driven, bottom-up, quality-value approach for more than 20 years, seeking to invest in high-quality companies available at attractive valuations. Aristotle has managed a
portion of the fund since 2019.
Sanders Capital. Founded in 2009, Sanders Capital employs a traditional, bottom-up, fundamental research approach to identify securities that are undervalued relative to their expected total return. The
portfolio managers are supported by a well-credentialed and experienced sector analyst team, in addition to a quantitative research analyst. Sanders Capital has managed a portion of the fund since 2010.
The board concluded that each
advisor’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangements.
Investment performance
The board considered the short-, long-term,
and since-inception performance, as applicable, of Lazard’s, Hotchkis and Wiley’s, Aristotle’s, and Sanders Capital’s subportfolios, including any periods of outperformance or underperformance
compared with a relevant benchmark index and peer group. The board concluded that the performance was such that the advisory arrangements should continue.
Cost
The board concluded that the fund’s
expense ratio was below the average expense ratio charged by funds in its peer group and that Lazard’s, Hotchkis and Wiley’s, Aristotle’s, and Sanders Capital’s advisory fee rates were also
below the peer-group average.
The board did not consider the
profitability of Lazard, Hotchkis and Wiley, Aristotle, or Sanders Capital in determining whether to approve the advisory fees, because the firms are independent of Vanguard and the advisory fees are the result of
arm’s-length negotiations.
The benefit of economies of
scale
The board concluded that the fund’s
shareholders benefit from economies of scale because of breakpoints in the advisory fee schedules for Lazard, Hotchkis and Wiley, Aristotle, and Sanders Capital. The breakpoints reduce the effective rate of the fees
as the fund’s assets managed by each advisor increase.
The board will consider
whether to renew the advisory arrangements again after a one-year period.
19
Liquidity Risk Management
Vanguard funds (except for the
money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that
each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining
investors’ interests in the fund.
Assessment and management of a
fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably
foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding
sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and
limiting holdings of illiquid investments.
The board of trustees of
Vanguard Windsor Funds approved the appointment of liquidity risk management program administrators responsible for administering Vanguard Windsor II Fund’s Program and for carrying out the specific
responsibilities set forth in the Program, including reporting to the board on at least an annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for the past
year (the “Program Administrator Report”). The board has reviewed the Program Administrator Report covering the period from January 1, 2021, through December 31, 2021 (the “Review Period”). The
Program Administrator Report stated that during the Review Period the Program operated and was implemented effectively to manage the fund’s liquidity risk.
20
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Item 2: Code of Ethics.
Not applicable.
Item 3: Audit Committee Financial Expert.
Not applicable.
Item 4: Principal Accountant Fees and Services.
Not applicable.
Item 5: Audit Committee of Listed Registrants.
Not applicable.
Item 6: Investments.
Not applicable. The complete schedule of investments is included as part of the report to shareholders filed under Item 1 of this Form.
Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8: Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9: Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10: Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11: Controls and Procedures.
(a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.
(b) Internal Control Over Financial Reporting. There were no significant changes in the Registrant’s Internal Control Over Financial Reporting or in other factors that could significantly affect this control subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Item 12: Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13: Exhibits.
| (a)(1) | Not applicable. |
| (a)(2) | Certifications filed herewith. |
| (b) | Certifications filed herewith. |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| VANGUARD WINDSOR FUNDS | ||
| BY: | /s/ MORTIMER J. BUCKLEY* | |
| MORTIMER J. BUCKLEY | ||
| CHIEF EXECUTIVE OFFICER | ||
Date: June 17, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| VANGUARD WINDSOR FUNDS | ||
| BY: | /s/ MORTIMER J. BUCKLEY* | |
| MORTIMER J. BUCKLEY | ||
| CHIEF EXECUTIVE OFFICER | ||
Date: June 17, 2022
| VANGUARD WINDSOR FUNDS | ||
| BY: | /s/ CHRISTINE BUCHANAN* | |
| CHRISTINE BUCHANAN | ||
| CHIEF FINANCIAL OFFICER | ||
Date: June 17, 2022
| * By: | /s/ Anne E. Robinson |
Anne E. Robinson, pursuant to a Power of Attorney filed on November 29, 2021 (see File Number 33-64845), a Power of Attorney filed on October 12, 2021 (see File Number 33-23444), and a Power of Attorney filed on August 26, 2021 (see file Number 811-02652), Incorporated by Reference.