Vanguard
Total International Bond ETF
Prospectus
February
25, 2022
Exchange-traded
fund shares that are not individually redeemable and are listed on
Nasdaq
Vanguard
Total International Bond Index Fund ETF Shares (BNDX)
This prospectus contains financial data for the Fund through the fiscal year ended October 31, 2021.
The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is
a
criminal offense.
(Fees paid directly from your investment)
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Transaction
Fee on Purchases and Sales |
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Transaction
Fee on Reinvested Dividends |
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Transaction
Fee on Conversion to ETF Shares |
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*
(Expenses that you pay each year as a percentage of the value of your investment)
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Management
Fees |
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12b-1
Distribution Fee |
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Other
Expenses |
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Total Annual
Fund Operating Expenses |
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1
|
1
Year |
3
Years |
5
Years |
10
Years |
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$ |
$ |
$ |
$ |
2
3
4
5
|
|
Total
Return |
Quarter |
|
|
|
|
|
|
- |
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|
|
1
Year |
5
Years |
Since
Fund
Inception |
Fund
Inception
Date |
|
Vanguard
Total International Bond Index
Fund
ETF Shares |
|
|
|
|
|
Based
on NAV |
|
|
|
|
|
Return Before
Taxes |
- |
|
|
|
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Return After
Taxes on Distributions |
- |
|
|
|
|
Return After
Taxes on Distributions and Sale of
Fund
Shares |
- |
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|
|
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Based
on Market Price |
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|
|
|
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Return Before
Taxes |
- |
|
|
|
|
Bloomberg
Global Aggregate ex-USD Float
Adjusted
RIC Capped Index (USD Hedged)
(reflects no
deduction for fees, expenses,
or
taxes) |
- |
|
|
|
|
Bloomberg
Global Aggregate Index ex USD
(reflects no
deduction for fees, expenses,
or
taxes) |
- |
|
|
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6
Investment
Advisor
The Vanguard Group,
Inc. (Vanguard)
Portfolio
Manager
Joshua C. Barrickman, CFA,
Principal of Vanguard and head of Vanguard’s Fixed Income Indexing Americas. He
has managed the Fund since its inception in 2013.
Purchase
and Sale of Fund Shares
ETF Shares may only be bought and
sold in the secondary market through a brokerage firm. The price you pay or
receive for ETF Shares will be the prevailing market price, which may be more
(premium) or less (discount) than the NAV of the shares. The brokerage firm may
charge you a commission to execute the transaction. Unless imposed by your
brokerage firm, there is no minimum dollar amount you must invest and no minimum
number of shares you must buy. ETF Shares of the Fund cannot be directly
purchased from or redeemed with the Fund, except by certain authorized
broker-dealers. These broker-dealers may purchase and redeem ETF Shares only in
large blocks (Creation Units), typically in exchange for cash.
An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase ETF Shares (bid) and the lowest price a seller is willing to accept for ETF Shares (ask) when buying or selling shares in the secondary market (bid-ask spread). Recent information, including information on the Fund's NAV, market price, premiums and discounts, and bid-ask spreads, is available online at vanguard.com.
An investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase ETF Shares (bid) and the lowest price a seller is willing to accept for ETF Shares (ask) when buying or selling shares in the secondary market (bid-ask spread). Recent information, including information on the Fund's NAV, market price, premiums and discounts, and bid-ask spreads, is available online at vanguard.com.
Tax
Information
The Fund’s
distributions may be taxable as ordinary income or capital gain. If you are
investing through a tax-advantaged account, such as an IRA or an
employer-sponsored retirement or savings plan, special tax rules
apply.
7
Payments
to Financial Intermediaries
The Fund and its
investment advisor do not pay financial intermediaries for sales of Fund
shares.
8
Investing
in Vanguard ETF®Shares
What
Are Vanguard ETF Shares?
Vanguard ETF Shares are an
exchange-traded class of shares issued by certain Vanguard funds. ETF Shares
represent an interest in the portfolio of stocks or bonds held by the issuing
fund. This prospectus describes Vanguard Total International Bond ETF, a class
of shares issued by Vanguard Total International Bond Index Fund. In addition to
ETF Shares, the Fund offers four conventional (i.e., not exchange-traded)
classes of shares. This prospectus, however, relates only to ETF
Shares.
How
Are Vanguard ETF Shares Different From Conventional Mutual Fund
Shares?
Conventional mutual
fund shares can be directly purchased from and redeemed with the issuing fund
for cash at the net asset value (NAV), typically calculated once a day. ETF
Shares, by contrast, cannot be purchased directly from or redeemed directly with
the issuing fund by an individual investor. Rather, ETF Shares can only be
purchased or redeemed directly from the issuing fund by certain authorized
broker-dealers. These broker-dealers may purchase and redeem ETF Shares only in
large blocks (Creation Units), usually in exchange for baskets of securities and
not for cash (although some funds issue and redeem Creation Units in exchange
for cash or a combination of cash and securities).
An organized
secondary trading market is expected to exist for ETF Shares, unlike
conventional mutual fund shares, because ETF Shares are listed for trading on a
national securities exchange. Individual investors can purchase and sell ETF
Shares on the secondary market through a broker. Secondary-market transactions
occur not at NAV, but at market prices that are subject to change throughout the
day based on the supply of and demand for ETF Shares, changes in the prices of
the fund’s portfolio holdings, and other factors.
The market price of
a fund's ETF Shares typically will differ somewhat from the NAV of those shares.
The difference between market price and NAV is expected to be small most of the
time, but in times of market disruption or extreme market volatility, the
difference may become significant.
9
How
Do I Buy and Sell Vanguard ETF Shares?
ETF Shares of the
Fund are listed for trading on Nasdaq. You can buy and sell ETF Shares on the
secondary market in the same way you buy and sell any other exchange-traded
security—through a broker. Your broker may charge a commission to execute a
transaction. You will also incur the cost of the “bid-ask spread,” which is the
difference between the highest price a buyer is willing to pay to purchase ETF
Shares (bid) and the lowest price a seller is willing to accept for ETF Shares
(ask) when buying or selling shares in the secondary market. Because
secondary-market transactions occur at market prices, you may pay more (premium)
or less (discount) than NAV when you buy ETF Shares and receive more or less
than NAV when you sell those shares. In times of severe market disruption, the
bid-ask spread and premiums/discounts can increase significantly. Unless imposed
by your broker, there is no minimum dollar amount you must invest and no minimum
number of ETF Shares you must buy.
Your ownership of
ETF Shares will be shown on the records of the broker through which you hold the
shares. Vanguard will not have any record of your ownership. Your account
information will be maintained by your broker, which will provide you with
account statements, confirmations of your purchases and sales of ETF Shares, and
tax information. Your broker also will be responsible for ensuring that you
receive income and capital gains distributions, as well as shareholder reports
and other communications from the fund whose ETF Shares you own. You will
receive other services (e.g., dividend reinvestment and average cost
information) only if your broker offers these services.
10
Investing
in Index Funds
What
Is Indexing?
Indexing is an
investment strategy for tracking the performance of a specified market
benchmark, or “index.” An index is a group of securities whose overall
performance is used as a standard to measure the investment performance of a
particular market. There are many types of indexes. Some represent entire
markets—such as the U.S. stock market or the U.S. bond market. Other indexes
cover market segments—such as small-capitalization stocks or short-term bonds.
One cannot invest directly in an index.
The index sponsor
determines the securities to include in the index and the weighting of each
security in the index. Under normal circumstances, the index sponsor will
rebalance an index on a regular schedule. An index sponsor may carry out
additional ad hoc index rebalances or delay or cancel a scheduled rebalance.
Generally, the index sponsor does not provide any warranty, or accept any
liability, with respect to the quality, accuracy, or completeness of either the
target index or its related data. Errors made by the index sponsor may occur
from time to time and may not be identified by the index sponsor for a period of
time or at all. Vanguard does not provide any warranty or guarantee against such
errors. Therefore, the gains, losses, or costs associated with the index
sponsor’s errors will generally be borne by the index fund and its
shareholders.
An index fund seeks to hold all, or
a representative sample, of the securities that make up its target index. Index
funds attempt to mirror the performance of the target index, for better or
worse. However, an index fund generally does not perform exactly like its target index. For
example, index funds have operating expenses and transaction costs. Market
indexes do not, and therefore they will usually have a slight performance
advantage over funds that track them. The ability of an index fund to match its
performance to that of its target index can also be impacted by, among other
things, the timing and size of cash flows, asset valuation differences, and
the size of the fund. Market disruptions and regulatory or policy restrictions
could also have an adverse effect on a fund’s ability to adjust its exposure to
the required levels in order to track the index. The risk that a fund may not
track the performance of its target index may be heightened during times of
increased market volatility or other unusual market conditions.
Index funds
typically have the following characteristics:
• Variety
of investments. Depending on a
fund’s benchmark index, the fund may invest in the securities of a variety of
companies, industries, and/or governments or government agencies.
• Relative
performance consistency. Because they seek
to track market benchmarks, index funds usually do not perform dramatically
better or worse than their benchmarks.
• Low
cost.
Index funds are generally inexpensive to run compared with actively managed
funds. They have low or no research costs and typically keep trading
activity—and thus dealer markups and other transaction costs—to a minimum
compared with actively managed funds.
11
More
on the Fund and ETF Shares
This prospectus
describes the principal risks you would face as a Fund shareholder. It is
important to keep in mind one of the main principles of investing: generally,
the higher the risk of losing money, the higher the potential reward. The
reverse, also, is generally true: the lower the risk, the lower the potential
reward. As you consider an investment in any fund, you should take into account
your personal tolerance for fluctuations in the securities markets. Look for
this
symbol throughout
the prospectus. It is used to mark detailed information about the more
significant risks that you would confront as a Fund shareholder. To highlight
terms and concepts important to fund investors, we have provided Plain
Talk® explanations along
the way. Reading the prospectus will help you decide whether the Fund is the
right investment for you. We suggest that you keep this prospectus for future
reference.
symbol throughout
the prospectus. It is used to mark detailed information about the more
significant risks that you would confront as a Fund shareholder. To highlight
terms and concepts important to fund investors, we have provided Plain
Talk® explanations along
the way. Reading the prospectus will help you decide whether the Fund is the
right investment for you. We suggest that you keep this prospectus for future
reference.Share
Class Overview
This prospectus
offers the Fund‘s ETF Shares, an exchange-traded class of shares. Separate
prospectuses offer the Fund‘s Investor Shares, which are generally available
only to Vanguard funds that operate as funds of funds and to certain retirement
plan clients that receive recordkeeping services from Vanguard, and Admiral™
Shares, which generally have an investment minimum of $3,000. In addition,
another prospectus offers the Fund‘s Institutional Shares, which are generally
for investors who invest a minimum of $5 million. Another prospectus offers the
Fund's Institutional Select Shares, which are generally for investors who invest
a minimum of $3 billion.
All share classes
offered by the Fund have the same investment objective, strategies, and
policies. However, different share classes have different expenses; as a result,
their investment returns will differ.
A
Note to Investors
Vanguard ETF Shares
can be purchased directly from the issuing Fund only by certain authorized
broker-dealers in exchange for a basket of securities (or, in some cases, for
cash or a combination of cash and securities). Individual investors generally
will not be able to purchase ETF Shares directly from the Fund. Instead, these
investors will purchase ETF Shares on the secondary market through a
broker.
12
|
Plain
Talk About Fund Expenses |
|
All funds
have operating expenses. These expenses, which are deducted
from a
fund’s gross income, are expressed as a percentage of the net assets
of the
fund. Assuming that operating expenses remain as stated in the Fees
and
Expenses section, Vanguard Total International Bond Index Fund ETF
Shares’
expense ratio would be 0.07%, or $0.70 per $1,000 of average net
assets.
The average expense ratio for international income funds in 2020 was
0.88%, or
$8.80 per $1,000 of average net assets (derived from data
provided
by Lipper, a Thomson Reuters Company, which reports on the
fund
industry). |
|
Plain
Talk About Costs of Investing |
|
Costs
are an important consideration in choosing an ETF. That is because
you,
as a shareholder, pay a proportionate share of the costs of operating a
fund
and any transaction costs incurred when the fund buys or sells
securities.
These costs can erode a substantial portion of the gross income
or
the capital appreciation a fund achieves. Even seemingly small differences
in
expenses can, over time, have a dramatic effect on a fund’s
performance. |
The following
sections explain the principal investment strategies and policies that the Fund
uses in pursuit of its investment objective. The Fund's board of trustees, which
oversees the Fund's management, may change investment strategies or policies in
the interest of shareholders without a shareholder vote, unless those strategies
or policies are designated as fundamental. Note that the Fund‘s investment
objective is not fundamental and may be changed without a shareholder vote. The
Fund may change its policy of investing at least 80% of its assets in securities
that are held in its target index only upon 60 days‘ notice to
shareholders.
13
Market
Exposure
The
Fund is subject to interest rate risk, which is the chance that bond prices
overall will decline because of rising interest rates. Interest rate risk should
be moderate for the Fund because it invests in a geographically diverse mix of
short-, intermediate-, and long-term bonds.
Although fixed income securities
(commonly referred to as bonds) are often thought to be less risky than stocks,
there have been periods when bond prices have fallen significantly because of
rising interest rates. For instance, prices of U.S. long-term bonds fell by
almost 48% between December 1976 and September 1981. Note that over comparable
periods of time, the prices of foreign bonds and U.S. bonds may increase or
decrease by different amounts, and in some cases may move in opposite
directions.
To illustrate the
relationship between bond prices and interest rates, the following table shows
the effect of a 1% and a 2% change (both up and down) in interest rates on the
values of three noncallable bonds (i.e., bonds that cannot be redeemed by the
issuer) of different maturities, each with a face value of $1,000.
How
Interest Rate Changes Affect the Value of a $1,000 Bond1
|
Type
of Bond (Maturity) |
After
a 1%
Increase |
After
a 1%
Decrease |
After
a 2%
Increase |
After
a 2%
Decrease |
|
Short-Term
(2.5 years) |
$977 |
$1,024 |
$954 |
$1,049 |
|
Intermediate-Term
(10 years) |
922 |
1,086 |
851 |
1,180 |
|
Long-Term
(20 years) |
874 |
1,150 |
769 |
1,328 |
1 Assuming a 4%
coupon rate.
These figures are
for illustration only; you should not regard them as an indication of future
performance of foreign bonds generally or the Fund in particular.
14
|
Plain
Talk About Bonds and Interest Rates |
|
As
a rule, when interest rates rise, bond prices fall. The opposite is also
true:
Bond
prices go up when interest rates fall. Why do bond prices and interest
rates
move in opposite directions? Let’s assume that you hold a bond
offering
a 4% yield. A year later, interest rates are on the rise and bonds of
comparable
quality and maturity are offered with a 5% yield. With
higher-yielding
bonds available, you would have trouble selling your 4% bond
for
the price you paid—you would probably have to lower your asking price.
On
the other hand, if interest rates were falling and 3% bonds were being
offered,
you should be able to sell your 4% bond for more than you
paid. |
Changes in interest
rates can affect bond income as well as bond
prices.
The Fund is
subject to income risk, which is the chance that the Fund’s income will decline
because of falling interest rates. A fund’s income declines when interest rates
fall because the fund then must invest new cash flow and cash from maturing
bonds in lower-yielding bonds. Income risk should be moderate for the Fund
because it invests in a diverse mix of short-, intermediate-, and long-term
bonds, so investors should expect the Fund’s monthly income to
fluctuate
accordingly.
|
Plain
Talk About Bond Maturities |
|
A bond is
issued with a specific maturity date—the date when the issuer
must pay
back the bond’s principal (face value). Bond maturities range from
less than
1 year to more than 30 years. Typically, the longer a bond’s maturity,
the more
price risk you, as a bond investor, will face as interest rates
rise—but
also the higher the potential yield you could receive. Longer-term
bonds are
generally more suitable for investors willing to take a greater risk
of price
fluctuations to get higher and more stable interest income.
Shorter-term
bond investors should be willing to accept lower yields and
greater
income variability in return for less fluctuation in the value of their
investment.
The stated maturity of a bond may differ from the effective
maturity
of a bond, which takes into consideration that an action such as a
call or
refunding may cause bonds to be repaid before their stated
maturity
dates. |
Although falling
interest rates tend to strengthen bond prices, they can cause other problems for
bond fund investors—bond calls and prepayments.
15
The
Fund is subject to call risk, which is the chance that during periods of falling
interest rates, issuers of callable bonds may call (redeem) securities with
higher coupon rates or interest rates before their maturity dates. The Fund
would then lose any price appreciation above the bond’s call price and would be
forced to reinvest the unanticipated proceeds at lower interest rates, resulting
in a decline in the Fund’s income. Such redemptions and subsequent reinvestments
would also increase the Fund’s portfolio turnover rate.
Because the Fund
invests only a small portion of its assets in callable bonds, call risk should
be low for the Fund.
The
Fund is subject to credit risk, which is the chance that a bond issuer will fail
to pay interest or principal in a timely manner or that negative perceptions of
the issuer’s ability to make such payments will cause the price of that bond to
decline. Credit risk should be relatively low for the Fund because it purchases
only bonds that are of investment-grade quality.
Although the Fund
purchases only investment-grade bonds, a bond held by the Fund may be
downgraded, causing the Fund to hold securities below investment-grade. If a
bond is downgraded below investment-grade, the Fund will generally attempt to
sell the bond within a reasonable period of time. If the Fund determines that
the bond cannot be sold at a reasonable price, the Fund may hold the bond until
a reasonable price for the bond may be obtained.
|
Plain
Talk About Credit Quality |
|
A
bond’s credit quality rating is an assessment of the issuer’s ability to
pay
interest
on the bond and, ultimately, to repay the principal. The lower the
credit
quality, the greater the perceived chance that the bond issuer will
default,
or fail to meet its payment obligations. All things being equal, the
lower
a bond’s credit quality, the higher its yield should be to compensate
investors
for assuming additional risk. |
The
Fund is subject to country/regional risk, which is the chance that world
events—such as political upheaval, financial troubles, or natural disasters—will
adversely affect the value and/or liquidity of securities issued by foreign
companies, governments, or government agencies. Because the Fund may invest a
large portion of its assets in bonds of issuers located in a particular country
or region, the Fund’s performance may be hurt disproportionately by the poor
performance of its investments in that area. Country/regional risk for the Fund
is high.
16
As of October 31, 2021, the target
index for the Fund held a substantial percentage of its assets in bonds of
issuers located in a small number of markets, as shown in the following
table:
|
Bloomberg
Global Aggregate ex-USD
Float
Adjusted RIC Capped Index (USD Hedged) | |
|
Japan |
16.6% |
|
France |
12.2 |
|
Germany |
10.7 |
|
Italy |
7.7 |
|
United
Kingdom |
7.1 |
|
Canada |
6.0 |
|
Spain |
5.5 |
|
Total |
65.8% |
The
Fund is subject to nondiversification risk, which is the chance that the Fund’s
performance may be hurt disproportionately by the poor performance of bonds
issued by just a few issuers or even a single issuer. The Fund is considered
nondiversified, which means that it may invest a greater percentage of its
assets in bonds issued by a small number of issuers as compared with diversified
mutual funds.
As of October 31, 2021, the target
index for the Fund held a substantial percentage of its assets in bonds of a
small number of issuers, as shown in the following table:
|
Bloomberg
Global Aggregate ex-USD
Float
Adjusted RIC Capped Index (USD Hedged) | |
|
Government of
Japan |
15.0% |
|
Government of
France |
7.5 |
|
Government of
Italy |
6.4 |
|
Government of
Germany |
5.5 |
|
Government of
the United Kingdom |
4.3 |
|
Total |
38.7%
|
17
The
Fund is subject to currency risk and currency hedging risk. The Fund seeks to
mimic the performance of foreign bonds without regard to currency exchange rate
fluctuations. To accomplish this goal, the Fund attempts to offset, or hedge,
its foreign currency exposure by entering into currency hedging transactions,
primarily through the use of foreign currency exchange forward contracts (a type
of derivative). However, it generally is not possible to perfectly hedge the
Fund’s foreign currency exposure. The Fund will decline in value if it
underhedges a currency that has weakened or overhedges a currency that has
strengthened relative to the U.S. dollar. In addition, the Fund will incur
expenses to hedge its foreign currency exposure. By entering into currency
hedging transactions, the Fund may eliminate any chance to benefit from
favorable fluctuations in relevant currency exchange rates. Currency risk and
currency hedging risk for the Fund is low. The Fund's use of foreign currency
exchange forward contracts also subjects the Fund to counterparty risk, which is
the chance that the counterparty to a currency forward contract with the Fund
will be unable or unwilling to meet its financial obligations. Counterparty risk
is low for the Fund.
|
Plain
Talk About International Investing |
|
U.S.
investors who invest in foreign securities will encounter risks not
typically
associated with U.S. companies because foreign stock and bond
markets
operate differently from the U.S. markets. For instance, foreign
companies
and governments may not be subject to the same or similar
accounting,
auditing, legal, tax, and financial reporting standards and
practices
as U.S. companies and the U.S. government, and their stocks and
bonds
may not be as liquid as those of similar U.S. entities. In addition,
foreign
stock exchanges, brokers, companies, bond markets, and dealers
may
be subject to less government supervision and regulation than their
counterparts
in the United States. These factors, among others, could
negatively
affect the returns U.S. investors receive from foreign
investments. |
Market disruptions
can adversely affect local and global markets as well as normal market
conditions and operations. Any such disruptions could have an adverse impact on
the value of the Fund's investments and Fund performance.
Security
Selection
Index
sampling strategy. Because it would
be very expensive and inefficient to buy and sell all, or substantially all, of
the bonds held in its target index—which is an indexing strategy called
“replication”—the Fund uses index “sampling” techniques to select securities.
Using computer programs, the Fund’s advisor generally selects a representative
sample of securities that approximates the full
18
target index in
terms of key risk factors and other characteristics. These factors include
country of origin, duration, cash flow, credit quality, and callability of the
underlying bonds. Because the Fund does not
hold
all of the securities included in its target index, some of the securities (and
issuers) that are held will likely be overweighted (or underweighted) compared
with the target index.
The
Fund is subject to index sampling risk, which is the chance that the securities
selected for the Fund, in the aggregate, will not provide investment performance
matching that of the Fund's target index. Index sampling risk for the Fund is
expected to be low.
The number of bonds held by the
Fund and the number of bonds in the Fund’s target index were 6,427 and 12,090,
respectively, as of October 31, 2021.
Types of bonds.
The Fund seeks to
track the investment performance of the Bloomberg Global Aggregate ex-USD Float
Adjusted RIC Capped Index (USD Hedged). This Index provides a broad-based
measure of the global, investment-grade, fixed-rate debt markets. The Index
includes government, government agency, corporate, and securitized non-U.S.
investment-grade fixed income investments, all issued in currencies other than
the U.S. dollar and with maturities of more than one year. The Index is capped
to comply with investment company diversification standards of the Internal
Revenue Code, which state that, at the close of each fiscal quarter, a fund’s
(1) exposure to any particular bond issuer may not exceed 25% of the fund’s
assets and (2) aggregate exposure to issuers that individually constitute 5% or
more of the fund may not exceed 50% of the fund’s assets. To help enforce these
limits, if the Index, on the last business day of any month, were to have
greater than 20% exposure to any particular bond issuer, or greater than 48%
aggregate exposure to issuers that individually constitute 5% or more of the
Index, then the excess would be reallocated to bonds of other issuers
represented in the Index. Notwithstanding the fact that the Index is capped,
exposure of the Index or the Fund to a particular bond issuer may exceed 25%,
and issuers that individually constitute 5% or more of the Index or the Fund
may, in the aggregate, constitute more than 50% of the Index or the Fund on any
day during the month because of currency and/or price movements.
The Fund will attempt to hedge its foreign currency exposure, primarily through the use of foreign currency exchange forward contracts, in order to correlate to the returns of the Index, which is U.S. dollar hedged. Such hedging is intended to minimize the currency risk associated with investment in bonds denominated in currencies other than the U.S. dollar. Local currency bonds are bonds denominated in the local currency of a non-U.S. country. They can be issued by foreign governments, government agencies, and corporations. To the extent that
The Fund will attempt to hedge its foreign currency exposure, primarily through the use of foreign currency exchange forward contracts, in order to correlate to the returns of the Index, which is U.S. dollar hedged. Such hedging is intended to minimize the currency risk associated with investment in bonds denominated in currencies other than the U.S. dollar. Local currency bonds are bonds denominated in the local currency of a non-U.S. country. They can be issued by foreign governments, government agencies, and corporations. To the extent that
19
the Fund owns local
currency bonds and hedges its foreign currency exposure, it is subject to
currency hedging risk. Currency hedging risk should be low for the Fund. All of
the bonds held by the Fund will be local currency bonds.
To the extent that the Fund enters into currency hedging transactions, the Fund is subject to counterparty risk. Counterparty risk is the chance that the counterparty to a currency forward contract with the Fund is unable or unwilling to meet its financial obligations. Counterparty risk is low for the Fund.
To the extent that the Fund enters into currency hedging transactions, the Fund is subject to counterparty risk. Counterparty risk is the chance that the counterparty to a currency forward contract with the Fund is unable or unwilling to meet its financial obligations. Counterparty risk is low for the Fund.
Other
Investment Policies and Risks
Under normal
circumstances, the Fund will invest at least 80% of its assets in bonds held in
its target index. Subject to a 20% limit, the Fund may purchase investments that
are not included in its target index or may hold bonds that, when acquired, were
included in the index but subsequently were removed.
The Fund reserves
the right to substitute a different index for the index it currently tracks if
the current index is discontinued, if the Fund's agreement with the sponsor of
its target index is terminated, or for any other reason determined in good faith
by the Fund’s board of trustees. In any such instance, the substitute index
would represent the same market segment as the current index.
The
Fund may invest in derivatives. In general, investments in derivatives may
involve risks different from, and possibly greater than, those of investments
directly in the underlying securities or assets.
Generally speaking,
a derivative is a financial contract whose value is based on the value of a
financial asset (such as a stock, a bond, or a currency), a physical asset (such
as gold, oil, or wheat), a market index, or a reference rate. The Fund may
invest in derivatives only if the expected risks and rewards of the derivatives
are consistent with the investment objective, policies, strategies, and risks of
the Fund as disclosed in this prospectus. In particular, derivatives will be
used only when they may help the advisor to accomplish one or more of the
following:
• Invest in
eligible asset classes with greater efficiency and lower cost than is possible
through direct investment.
• Add value when
these instruments are attractively priced.
• Adjust
sensitivity to changes in interest rates.
• Hedge foreign
currency exposure.
The Fund's
derivative investments may include fixed income futures contracts, fixed income
options, interest rate swaps, total return swaps, credit default swaps, or other
derivatives. Losses (or gains) involving futures contracts can
20
sometimes be
substantial—in part because a relatively small price movement in a futures
contract may result in an immediate and substantial loss (or gain) for a fund.
Similar risks exist for other types of derivatives.
The Fund will enter
into foreign currency exchange forward contracts, which are a type of
derivative, in order to hedge its foreign currency exposure. A foreign currency
exchange forward contract is an agreement to buy or sell a currency at a
specific price on a specific date, usually 30, 60, or 90 days in the future. In
other words, the contract guarantees an exchange rate on a given date. These
contracts will be used in an effort to offset any changes in the dollar value of
foreign bonds attributable to changes in the value of the bonds’ local
currencies relative to the U.S. dollar. Although such contracts can protect the
Fund from unfavorable fluctuations in currency exchange rates, they also reduce
or eliminate any chance for the Fund to benefit from favorable exchange rate
fluctuations. Notably, foreign currency exchange forward contracts do not
prevent the Fund’s securities from falling in value for reasons unrelated to
currency exchange rates, such as interest rate increases and credit
downgrades.
|
Plain
Talk About Derivatives |
|
Derivatives
can take many forms. Some forms of derivatives—such as
exchange-traded
futures and options on securities, commodities, or
indexes—have
been trading on regulated exchanges for decades. These
types
of derivatives are standardized contracts that can easily be bought and
sold
and whose market values are determined and published daily. On the
other
hand, non-exchange-traded derivatives—such as certain swap
agreements
and foreign currency exchange forward contracts—tend to be
more
specialized or complex and may be more difficult to accurately
value. |
The Fund may invest
a small portion of its assets in fixed income futures, which are a type of
derivative, and/or shares of exchange-traded funds (ETFs). These fixed income
futures and ETFs typically provide returns similar to those of the bonds listed
in the index, or in a subset of the index, the Fund seeks to track. The Fund may
purchase futures or ETFs when doing so will reduce the Fund’s transaction costs,
facilitate cash management, mitigate risk, or have the potential to add value
because the instruments are favorably priced. Vanguard receives no additional
revenue from Fund assets invested in ETF Shares of other Vanguard funds. Fund
assets invested in ETF Shares are excluded when allocating to the Fund its share
of the costs of Vanguard operations.
21
Cash
Management
The Fund's daily
cash balance may be invested in Vanguard Market Liquidity Fund and/or Vanguard
Municipal Cash Management Fund (each, a CMT Fund), which are low-cost money
market funds. When investing in a CMT Fund, the Fund bears its proportionate
share of the expenses of the CMT Fund in which it invests. Vanguard receives no
additional revenue from Fund assets invested in a CMT Fund.
Methods
Used to Meet Redemption Requests
Redemptions of ETF
Shares are typically met through a combination of cash and securities held by
the Fund; see “How Are Vanguard ETF Shares Different From Conventional Mutual
Fund Shares?” If cash is used to meet redemptions, the Fund typically obtains
such cash through positive cash flows or the sale of Fund holdings consistent
with the Fund’s investment objective and strategy. Please consult the Fund's
Statement
of Additional Information for further
information on redemptions of ETF Shares.
Under certain
circumstances, the Fund may borrow money (subject to certain regulatory
conditions and if available under board-approved procedures) through an
interfund lending facility; through a bank line-of-credit, including a joint
committed credit facility; or through an uncommitted line-of-credit from
Vanguard in order to meet redemption requests.
Temporary
Investment Measures
The Fund may
temporarily depart from its normal investment policies and strategies when the
advisor believes that doing so is in the Fund's best interest, so long as the
strategy or policy employed is consistent with the Fund's investment objective.
For instance, the Fund may invest beyond its normal limits in derivatives or
exchange-traded funds that are consistent with the Fund's investment objective
when those instruments are more favorably priced or provide needed liquidity, as
might be the case when the Fund receives large cash flows that it cannot
prudently invest immediately.
Special
Risks of Exchange-Traded Shares
ETF
Shares are not individually redeemable. They can be redeemed with the issuing
Fund at NAV only by certain authorized broker-dealers and only in large blocks
known as Creation Units. Consequently, if you want to liquidate some or all of
your ETF Shares, you must sell them on the secondary market at prevailing market
prices.
22
The
market price of ETF Shares may differ from NAV. Although it is expected that the
market price of an ETF Share typically will approximate its NAV, there may be
times when the market price and the NAV differ significantly. Thus, you may pay
more (premium) or less (discount) than NAV when you buy ETF Shares on the
secondary market, and you may receive more or less than NAV when you sell those
shares. These discounts and premiums are likely to be greatest during times of
market disruption or extreme market volatility.
Vanguard’s website
at vanguard.com shows the previous
day’s closing NAV and closing market price for the Fund’s ETF Shares. The
website also discloses, in the Premium/Discount
Analysis section of the ETF
Shares’ Price & Performance page, how frequently the Fund’s ETF Shares
traded at a premium or discount to NAV (based on closing NAVs and market prices)
and the magnitudes of such premiums and discounts.
An
active trading market may not exist. Although Vanguard ETF Shares are listed on
a national securities exchange, it is possible that an active trading market may
not be maintained. Although this could happen at any time, it is more likely to
occur during times of severe market disruption. If you attempt to sell your ETF
Shares when an active trading market is not functioning, you may have to sell at
a significant discount to NAV. In extreme cases, you may not be able to sell
your shares at all.
Trading
may be halted. Trading of Vanguard ETF Shares on an exchange may be halted by
the activation of individual or marketwide trading halts (which halt trading for
a specific period of time when the price of a particular security or overall
market prices decline by a specified percentage). Trading of ETF Shares may also
be halted if (1) the shares are delisted from the listing exchange without first
being listed on another exchange or (2) exchange officials determine that such
action is appropriate in the interest of a fair and orderly market or for the
protection of investors.
Conversion
Privilege
Owners of
conventional shares issued by the Fund may convert those shares to ETF Shares of
equivalent value of the same fund. Please note that investors who own
conventional shares through a 401(k) plan or other employer-sponsored retirement
or benefit plan generally may not convert those shares to ETF Shares and should
check with their plan sponsor or recordkeeper. ETF Shares, whether acquired
through a conversion or purchased on the secondary market, cannot be converted
to conventional shares by a shareholder. Also, ETF Shares of one fund cannot be
exchanged for ETF Shares of another fund.
23
You must hold ETF
Shares in a brokerage account. Thus, before converting conventional shares to
ETF Shares, you must have an existing, or open a new, brokerage account. This
account may be with Vanguard Brokerage Services® or with any other
brokerage firm. To initiate a conversion of conventional shares to ETF Shares,
please contact your broker.
Vanguard Brokerage
Services does not impose a fee on conversions from Vanguard conventional shares
to Vanguard ETF Shares. However, other brokerage firms may charge a fee to
process a conversion. Vanguard reserves the right, in the future, to impose a
transaction fee on conversions or to limit, temporarily suspend, or terminate
the conversion privilege.
Converting
conventional shares to ETF Shares is generally accomplished as follows. First,
after your broker notifies Vanguard of your request to convert, Vanguard will
transfer your conventional shares from your account to the broker’s omnibus
account with Vanguard (an account maintained by the broker on behalf of all its
customers who hold conventional Vanguard fund shares through the broker). After
the transfer, Vanguard’s records will reflect your broker, not you, as the owner
of the shares. Next, your broker will instruct Vanguard to convert the
appropriate number or dollar amount of conventional shares in its omnibus
account to ETF Shares of equivalent value, based on the respective NAVs of the
two share classes.
Your Fund’s
transfer agent will reflect ownership of all ETF Shares in the name of the
Depository Trust Company (DTC). The DTC will keep track of which ETF Shares
belong to your broker, and your broker, in turn, will keep track of which ETF
Shares belong to you.
Because the DTC is
unable to handle fractional shares, only whole shares can be converted. For
example, if you owned 300.25 conventional shares, and this was equivalent in
value to 90.75 ETF Shares, the DTC account would receive 90 ETF Shares.
Conventional shares with a value equal to 0.75 ETF Shares (in this example, that
would be 2.481 conventional shares) would remain in the broker’s omnibus account
with Vanguard. Your broker then could either (1) credit your account with 0.75
ETF Shares or (2) redeem the 2.481 conventional shares for cash at NAV and
deliver that cash to your account. If your broker chose to redeem your
conventional shares, you would realize a gain or loss on the redemption that
must be reported on your tax return (unless you hold the shares in an IRA or
other tax-deferred account). Please consult your broker for information on how
it will handle the conversion process, including whether it will impose a fee to
process a conversion.
24
If you convert your
conventional shares to ETF Shares through Vanguard Brokerage Services,
all conventional
shares for which you request conversion will be converted to ETF Shares of
equivalent value. Because no fractional shares will have to be sold, the
transaction will not be taxable.
Here are some
important points to keep in mind when converting conventional shares of a
Vanguard fund to ETF Shares:
• The conversion
process can take anywhere from several days to several weeks, depending on your
broker. Vanguard generally will process conversion requests either on the day
they are received or on the next business day. Vanguard imposes conversion
blackout windows around the dates when a fund with ETF Shares declares
dividends. This is necessary to prevent a shareholder from collecting a dividend
from both the conventional share class currently held and also from the ETF
share class to which the shares will be converted.
• Until the
conversion process is complete, you will remain fully invested in a fund’s
conventional shares, and your investment will increase or decrease in value in
tandem with the NAV of those shares.
• The conversion
transaction is nontaxable except, if applicable, to the very limited extent
previously described.
A precautionary
note to investment companies: Vanguard ETF Shares are issued by
registered investment companies, and therefore the acquisition of such shares by
other investment companies is subject to the restrictions of Section 12(d)(1) of
the Investment Company Act of 1940. Vanguard has obtained SEC exemptive orders
that allow registered investment companies to invest in the issuing funds beyond
the limits of Section 12(d)(1), subject to certain terms and conditions,
including the requirement to enter into a participation agreement with Vanguard.
The SEC recently adopted changes to the regulatory framework for fund of funds
arrangements, and, as a result, Vanguard's exemptive orders were rescinded by
the SEC on January 19, 2022. However, effective
January 19, 2022, new Rule 12d1-4 under the Investment Company Act of 1940
permits registered investment companies to invest in other registered investment
companies beyond the limits in Section 12(d)(1), subject to certain conditions,
including that the funds enter into a fund of funds investment
agreement.
Shareholder
Rights
The Fund's Agreement and
Declaration of Trust, as amended, requires a shareholder bringing a derivative
action on behalf of Vanguard Charlotte Funds Funds (the Trust) that is subject
to a pre-suit demand to collectively hold at least 10% of the outstanding shares
of the Trust or at least 10% of the outstanding shares of the series or class to
which the demand relates and to undertake to reimburse the Trust for the expense
of any counsel or advisors used when
25
considering the merits of the
demand in the event that the board of trustees determines not to bring such
action. In each case, these requirements do not apply to claims arising under
the federal securities laws to the extent that any such federal securities laws,
rules, or regulations do not permit such application.
Frequent
Trading and Market-Timing
Unlike frequent
trading of a Vanguard fund’s conventional (i.e., not exchange-traded) classes of
shares, frequent trading of ETF Shares does not disrupt portfolio management or
otherwise harm fund shareholders. The vast majority of trading in ETF Shares
occurs on the secondary market. Because these trades do not involve the issuing
fund, they do not harm the fund or its shareholders. Certain broker-dealers are
authorized to purchase and redeem ETF Shares directly with the issuing fund.
Because these trades typically are effected in kind (i.e., for securities and
not for cash), or are assessed a transaction fee when effected in cash, they do
not cause any of the harmful effects to the issuing fund (as previously noted)
that may result from frequent trading. For these reasons, the board of trustees
of each fund that issues ETF Shares has determined that it is not necessary to
adopt policies and procedures to detect and deter frequent trading and
market-timing of ETF Shares.
Portfolio
Holdings
Please consult the
Fund's Statement
of Additional Information or our website for
a description of the policies and procedures that govern disclosure of the
Fund’s portfolio holdings.
Turnover
Rate
Although the Fund generally seeks
to invest for the long term, it may sell securities regardless of how long they
have been held. Generally, an index fund sells securities in response to
redemption requests from shareholders of conventional (i.e., not
exchange-traded) shares or to changes in the composition of its target index or
in an effort to manage the fund’s duration. The Financial
Highlights section of
this prospectus shows historical turnover rates for the Fund. A turnover rate of
100%, for example, would mean that the Fund had sold and replaced securities
valued at 100% of its net assets within a one-year period. In general, the
greater the turnover rate, the greater the impact transaction costs will have on
a fund’s return. Also, funds with high turnover rates may be more likely to
generate capital gains, including short-term capital gains, that must be
distributed to shareholders and will be taxable to shareholders investing
through a taxable account.
26
The
Fund and Vanguard
The Fund is a member of The
Vanguard Group, Inc. (Vanguard), a family of over 200
funds. All of the funds that are members of Vanguard (other than funds of funds)
share in the expenses associated with administrative services and business
operations, such as personnel, office space, and equipment.
Vanguard Marketing
Corporation provides marketing services to the funds. Although fund shareholders
do not pay sales commissions or 12b-1 distribution fees, each fund (other than a
fund of funds) or each share class of a fund (in the case of a fund with
multiple share classes) pays its allocated share of the Vanguard funds’
marketing costs.
|
Plain
Talk About Vanguard’s Unique Corporate Structure |
|
Vanguard is
owned jointly by the funds it oversees and thus indirectly by the
shareholders
in those funds. Most other mutual funds are operated by
management
companies that are owned by third parties—either public or
private
stockholders—and not by the funds they
serve. |
Investment
Advisor
The Vanguard Group, Inc., P.O. Box
2600, Valley Forge, PA 19482, which began operations in 1975, serves as advisor
to the Fund through its Fixed Income Group. As of October 31, 2021, Vanguard
served as advisor for approximately $6.8 trillion in assets. Vanguard provides
investment advisory services to the Fund pursuant to the Funds’ Service
Agreement and subject to the supervision and oversight of the trustees and
officers of the Fund.
For the fiscal year ended October
31, 2021, the advisory expenses represented an effective annual rate of less
than 0.01% of the Fund’s average net assets.
Under the terms of
an SEC exemption, the Fund's board of trustees may, without prior approval from
shareholders, change the terms of an advisory agreement with a third-party
investment advisor or hire a new third-party investment advisor—either as a
replacement for an existing advisor or as an additional advisor. Any significant
change in the Fund's advisory arrangements will be communicated to shareholders
in writing. As the Fund's sponsor and overall manager, Vanguard may provide
investment advisory services to the Fund at any time. Vanguard may also
recommend to the board of trustees that an advisor be hired, terminated, or
replaced or that the terms of an existing
27
advisory agreement
be revised. The Fund has filed an application seeking a similar SEC exemption
with respect to investment advisors that are wholly owned subsidiaries of
Vanguard. If the exemption is granted, the Fund may rely on the new SEC
relief.
For a discussion of
why the board of trustees approved the Fund's investment advisory arrangement,
see the most recent semiannual report to shareholders covering the fiscal period
ended April 30.
28
The manager
primarily responsible for the day-to-day management of the Fund is:
Joshua C.
Barrickman, CFA,
Principal of Vanguard and head of Vanguard’s Fixed Income Indexing Americas. He
has been with Vanguard since 1998, has worked in investment management since
1999, has managed investment portfolios since 2005, and has managed the Fund
since its inception in 2013. Education: B.S., Ohio Northern University; M.B.A.,
Lehigh University.
The Fund's
Statement
of Additional Information provides
information about the portfolio manager’s compensation, other accounts under
management, and ownership of shares of the Fund.
Dividends,
Capital Gains, and Taxes
Fund
Distributions
The Fund
distributes to shareholders virtually all of its net income (interest less
expenses) as well as any net short-term or long-term capital gains realized from
the sale of its holdings. From time to time, the Fund may also make
distributions that are treated as a return of capital. Income dividends
generally are declared monthly and distributed monthly; capital gains
distributions, if any, generally occur annually in December. In addition, the
Fund may occasionally make a supplemental distribution at some other time during
the year.
|
Plain
Talk About Distributions |
|
As
a shareholder, you are entitled to your portion of a fund’s income from
interest
as well as capital gains from the fund’s sale of investments. Income
consists
of interest the fund earns from its money market and bond
investments.
Capital gains are realized whenever the fund sells securities for
higher
prices than it paid for them. These capital gains are either short-term
or
long-term, depending on whether the fund held the securities for one year
or
less or for more than one
year. |
Reinvestment
of Distributions
In order to
reinvest dividend and capital gains distributions, investors in the Fund's ETF
Shares must hold their shares at a broker that offers a reinvestment service.
This can be the broker’s own service or a service made available by a third
party, such as the broker’s outside clearing firm or the DTC. If a reinvestment
service is available, distributions of income and capital gains can
29
automatically be
reinvested in additional whole and fractional ETF Shares of the Fund. If a
reinvestment service is not available, investors will receive their
distributions in cash. To determine whether a reinvestment service is available
and whether there is a commission or other charge for using this service,
consult your broker.
As with all
exchange-traded funds, reinvestment of dividend and capital gains distributions
in additional ETF Shares will occur four business days or more after the
ex-dividend date (the date when a distribution of dividends or capital gains is
deducted from the price of the Fund’s shares). The exact number of days depends
on your broker. During that time, the amount of your distribution will not be
invested in the Fund and therefore will not share in the Fund’s income, gains,
and losses.
Basic
Tax Points
Investors in
taxable accounts should be aware of the following basic federal income tax
points:
• Distributions are
taxable to you whether or not you reinvest these amounts in additional ETF
Shares.
• Distributions
declared in December—if paid to you by the end of January—are taxable as if
received in December.
• Any income
dividend distribution or short-term capital gains distribution that you receive
is taxable to you as ordinary income.
• Any distribution
of net long-term capital gains is taxable to you as long-term capital gains, no
matter how long you have owned ETF Shares.
• Income and
capital gains distributions may vary considerably from month to month or year to
year, as applicable, as a result of the Fund’s normal investment and currency
hedging activities and cash flows.
• Your cost basis
in the Fund will be decreased by the amount of any return of capital that you
receive. This, in turn, will affect the amount of any capital gain or loss that
you realize when selling your ETF Shares.
• Return of capital
distributions generally are not taxable to you until your cost basis has been
reduced to zero. If your cost basis is at zero, return of capital distributions
will be treated as capital gains.
• A sale of ETF
Shares is a taxable event. This means that you may have a capital gain to report
as income, or a capital loss to report as a deduction, when you complete your
tax return.
30
Individuals,
trusts, and estates whose income exceeds certain threshold amounts are subject
to a 3.8% Medicare contribution tax on “net investment income.” Net investment
income takes into account distributions paid by the Fund and capital gains from
any sale of ETF Shares.
Income dividends
and capital gains distributions that you receive, as well as your gains or
losses from any sale of ETF Shares, may be subject to state and local income
taxes.
The Fund may be
subject to foreign taxes or foreign tax withholding on dividends, interest, and
some capital gains that it receives on foreign securities. If at the end of the
taxable year more than 50% of the value of the Fund’s assets consists of
securities of foreign corporations, and the Fund makes a special election, you
will generally be required to include in your income, for U.S. federal income
tax purposes, your share of the qualifying foreign income taxes paid by the Fund
in respect of its foreign portfolio securities. There is no assurance that the
Fund will make this election for a taxable year, even if it is eligible to do
so. You may qualify for an offsetting credit or deduction under U.S. tax laws
for any amount designated as your portion of the Fund’s foreign tax obligations,
provided that you meet certain requirements. See your tax advisor or IRS
publications for more information.
This prospectus
provides general tax information only. If you are investing through a
tax-advantaged account, such as an IRA or an employer-sponsored retirement or
savings plan, special tax rules apply. Please consult your tax advisor for
detailed information about any tax consequences for you.
Share
Price and Market Price
Share price, also
known as net
asset value (NAV), is
calculated as of the close of regular trading on the New York Stock Exchange
(NYSE), generally 4 p.m., Eastern time, on each day that the NYSE is open for
business (a business day). In the rare event the NYSE experiences unanticipated
disruptions and is unavailable at the close of the trading day, NAVs will be
calculated as of the close of regular trading on the Nasdaq (or another
alternate exchange if the Nasdaq is unavailable, as determined at Vanguard’s
discretion), generally 4 p.m., Eastern time. Each share class has its own NAV,
which is computed by dividing the total assets, minus liabilities, allocated to
the share class by the number of Fund shares outstanding for that class. On U.S.
holidays or other days when the NYSE is closed, the NAV is not calculated, and
the Fund does not sell or redeem shares. However, on those days the value of the
Fund’s assets may be affected to the extent that the Fund holds securities that
change in value on those days (such as foreign securities that trade on foreign
markets that are open).
31
Remember: If you
buy or sell ETF Shares on the secondary market, you will pay or receive the
market price, which may be higher or lower than NAV. Your transaction will be
priced at NAV only if you purchase or redeem your ETF Shares in Creation Unit
blocks (an option available only to certain authorized broker-dealers) or if you
convert your conventional shares to ETF Shares.
Debt securities
held by a Vanguard fund are valued based on information furnished by an
independent pricing service or market quotations. When a fund determines that
pricing-service information or market quotations either are not readily
available or do not accurately reflect the value of a security, the security is
priced at its fair
value
(the amount that the owner might reasonably expect to receive upon the current
sale of the security).
The values of any
foreign securities held by a fund are converted into U.S. dollars using an
exchange rate obtained from an independent third party as of the close of
regular trading on the NYSE. The values of any mutual fund shares, including
institutional money market fund shares, held by a fund are based on the NAVs of
the shares. The values of any ETF shares or closed-end fund shares held by a
fund are based on the market value of the shares.
A fund also will
use fair-value pricing if the value of a security it holds has been materially
affected by events occurring before the fund’s pricing time but after the close
of the principal exchange or market on which the security is traded. This most
commonly occurs with foreign securities, which may trade on foreign exchanges or
markets that close many hours before the fund’s pricing time. Intervening events
might be company-specific (e.g., earnings report, material credit events) or
country-specific or regional/global (e.g., natural disaster, economic or
political news, act of terrorism, interest rate change). Intervening events
include price movements in U.S. markets that exceed a specified threshold or
that are otherwise deemed to affect the value of foreign securities. A fund may
also use fair-value pricing on bond market holidays when the fund is open for
business (such as Columbus Day and Veterans Day).
Fair-value prices
are determined by Vanguard according to procedures adopted by the board of
trustees. When fair-value pricing is employed, the prices of securities used by
a fund to calculate the NAV may differ from quoted or published prices for the
same securities.
Vanguard’s website
will show the previous day’s closing NAV and closing market price for the Fund’s
ETF Shares.
32
Additional
Information
The Fund’s Bylaws require, unless
the Trust otherwise consents in writing, that the U.S. Federal District Courts
be the sole and exclusive forum for the resolution of complaints under the
Securities Act of 1933. This provision may limit a shareholder’s ability to
bring a claim in a different forum and may result in increased shareholder costs
in pursuing such a claim.
|
|
Inception
Date |
Vanguard
Fund
Number |
CUSIP
Number |
|
Total
International Bond Index Fund |
|
|
|
|
ETF
Shares |
5/31/2013 |
3711 |
92203J407 |
Certain affiliates
of the Fund and the advisor may purchase and resell ETF Shares pursuant to the
prospectus.
CGS identifiers have been provided by CUSIP Global Services, managed on behalf of the American Bankers Association by Standard & Poor’s Financial Services, LLC, and are not for use or dissemination in a manner that would serve as a substitute for any CUSIP service. The CUSIP Database, ©2022 American Bankers Association. “CUSIP” is a registered trademark of the American Bankers Association.
33
Financial
Highlights
Financial
highlights information is intended to help you understand a fund’s performance
for the past five years (or, if shorter, its period of operations). Certain
information reflects financial results for a single fund share. Total return
represents the rate that an investor would have earned or lost each period on an
investment in a fund or share class (assuming reinvestment of all
distributions). This information has been obtained from the financial statements
audited by PricewaterhouseCoopers LLP, an independent registered public
accounting firm, whose report, along with fund financial statements, is included
in a fund’s most recent annual report to shareholders. You may obtain a free
copy of a fund’s latest annual or semiannual report, which is available upon
request.
Vanguard
Total International Bond Index Fund ETF Shares
|
|
Year Ended October
31, | ||||
|
For a Share
Outstanding Throughout Each Period |
2021 |
2020 |
2019 |
2018 |
2017 |
|
Net
Asset Value, Beginning of Period |
$58.27 |
$58.34 |
$54.47 |
$54.75 |
$55.09 |
|
Investment
Operations |
|
|
|
|
|
|
Net
Investment Income1
|
.492 |
.572 |
.630 |
.584 |
.578 |
|
Net
Realized and Unrealized Gain (Loss) on Investments |
(1.603) |
1.232 |
4.913 |
.356 |
.038 |
|
Total from
Investment Operations |
(1.111) |
1.804 |
5.543 |
.940 |
.616 |
|
Distributions |
|
|
|
|
|
|
Dividends
from Net Investment Income |
(.510) |
(1.874) |
(1.673) |
(1.220) |
(.956) |
|
Distributions
from Realized Capital Gains |
(.089) |
— |
— |
— |
— |
|
Total
Distributions |
(.599) |
(1.874) |
(1.673) |
(1.220) |
(.956) |
|
Net
Asset Value, End of Period |
$56.56 |
$58.27 |
$58.34 |
$54.47 |
$54.75 |
|
Total
Return |
-1.92% |
3.20% |
10.40% |
1.74% |
1.15% |
|
Ratios/Supplemental
Data |
|
|
|
|
|
|
Net Assets,
End of Period (Millions) |
$45,348 |
$33,941 |
$23,911 |
$12,092 |
$8,504 |
|
Ratio of
Total Expenses to Average Net Assets |
0.07% |
0.08% |
0.08% |
0.09% |
0.11% |
|
Ratio of
Net Investment Income to Average Net Assets |
0.86% |
0.99% |
1.12% |
1.07% |
1.07% |
|
Portfolio
Turnover Rate |
25%2
|
31%2
|
26% |
22% |
19% |
|
|
|
|
1 |
Calculated
based on average shares outstanding. |
|
2 |
Excludes the
value of portfolio securities received or delivered as a result of in-kind
purchases or redemptions of
the fund’s
capital shares, including ETF Creation
Units. |
34
CFA® is a registered
trademark owned by CFA Institute.
”Bloomberg®” and the Global Aggregate ex-USD Float
Adjusted RIC Capped Index (USD Hedged) and Bloomberg Global
Aggregate Index ex USD are service marks of Bloomberg Finance L.P. and its
affiliates, including Bloomberg Index Services Limited (“BISL”), the
administrator of the Indices (collectively, “Bloomberg”), and have been licensed
for use for certain purposes by Vanguard.
The Total International Bond ETF is
not sponsored, endorsed, sold or promoted by Bloomberg. Bloomberg does not make
any representation or warranty, express or implied, to the owners of or counterparties to
the Total International Bond ETF or any member of the public regarding the
advisability of investing in securities generally or in the Total International
Bond ETF particularly. The only relationship of Bloomberg to
Vanguard is the licensing of certain trademarks, trade names and service marks
and of the Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged)
and Bloomberg Global Aggregate Index ex USD, which is determined, composed and
calculated by BISL without regard to Vanguard or the Total International Bond
ETF. Bloomberg has no obligation to take the needs of Vanguard or the owners of
the Total International Bond ETF into consideration in determining, composing or calculating the Global
Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged) and Bloomberg
Global Aggregate Index ex USD. Bloomberg is not responsible for and has not
participated in the determination of the timing of, prices at, or quantities of
the Total International Bond ETF to be issued. Bloomberg shall not have any
obligation or liability, including, without limitation, to the Total International Bond ETF
customers, in connection with the administration, marketing or trading of the
Total International Bond ETF.
BLOOMBERG DOES NOT GUARANTEE THE
ACCURACY AND/OR THE COMPLETENESS OF THE BLOOMBERG GLOBAL AGGREGATE EX-USD FLOAT
ADJUSTED RIC CAPPED INDEX (USD HEDGED) AND BLOOMBERG GLOBAL AGGREGATE INDEX EX
USD OR ANY DATA RELATED THERETO AND SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN.
BLOOMBERG DOES NOT MAKE ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE
OBTAINED BY VANGUARD, OWNERS OF THE TOTAL INTERNATIONAL BOND ETF OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE BLOOMBERG GLOBAL AGGREGATE EX-USD FLOAT
ADJUSTED RIC CAPPED INDEX (USD HEDGED) AND BLOOMBERG GLOBAL AGGREGATE INDEX EX
USD OR ANY DATA RELATED THERETO. BLOOMBERG DOES NOT MAKE ANY EXPRESS OR IMPLIED
WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE BLOOMBERG GLOBAL AGGREGATE
EX-USD FLOAT ADJUSTED RIC CAPPED INDEX (USD HEDGED) AND BLOOMBERG GLOBAL
AGGREGATE INDEX EX USD OR ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE
FOREGOING, TO THE MAXIMUM EXTENT ALLOWED BY LAW, BLOOMBERG, ITS
LICENSORS, AND ITS AND THEIR RESPECTIVE
EMPLOYEES, CONTRACTORS, AGENTS, SUPPLIERS, AND VENDORS SHALL HAVE NO LIABILITY
OR RESPONSIBILITY WHATSOEVER FOR ANY INJURY OR DAMAGES—WHETHER DIRECT, INDIRECT,
CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR OTHERWISE—ARISING IN
CONNECTION WITH THE TOTAL INTERNATIONAL BOND ETF OR BLOOMBERG GLOBAL AGGREGATE
EX-USD FLOAT ADJUSTED RIC CAPPED INDEX (USD HEDGED) AND BLOOMBERG GLOBAL
AGGREGATE INDEX EX USD OR ANY DATA OR VALUES RELATING THERETO—WHETHER ARISING
FROM THEIR NEGLIGENCE OR OTHERWISE, EVEN IF NOTIFIED OF THE
POSSIBILITY THEREOF.
35
Glossary
of Investment Terms
Authorized
Participant. Institutional
investors that are permitted to purchase Creation Units directly from, and
redeem Creation Units directly with, the issuing fund. To be an Authorized
Participant, an entity must be a participant in the Depository Trust Company and
must enter into an agreement with the fund’s Distributor.
Average
Maturity. The average length
of time until bonds held by a fund reach maturity and are repaid. In general,
the longer the average maturity, the more a fund's share price fluctuates in
response to changes in market interest rates. In calculating average maturity, a
fund uses a bond’s maturity or, if applicable, an earlier date on which the
advisor believes it is likely that a maturity-shortening device (such as a call,
put, refunding, prepayment, or redemption provision or an adjustable coupon
rate) will cause the bond to be repaid.
Bid-Ask
Spread. The difference
between the highest price a buyer is willing to pay to purchase ETF Shares (bid)
and the lowest price a seller is willing to accept for ETF Shares (ask) when
buying or selling shares in the secondary market.
Bloomberg Global
Aggregate Index ex USD. A multi-currency benchmark that
includes fixed-rate treasury, government-related, corporate, and securitized
bonds from developed and emerging market issuers while excluding USD denominated
debt. It is largely comprised of two major regional aggregate components: the
Pan-European Aggregate and the Asian-Pacific Aggregate Index.
Bond. A debt security
(IOU) issued by a corporation, a government, or a government agency in exchange
for the money the bondholder lends it. In most instances, the issuer agrees to
pay back the loan by a specific date and generally to make regular interest
payments until that date.
Capital
Gains Distributions. Payments to fund
shareholders of gains realized on securities that a fund has sold at a profit,
minus any realized losses.
Coupon
Rate.
The interest rate paid by the issuer of a debt security until its maturity. It
is expressed as an annual percentage of the face value of the
security.
Creation
Unit.
A large block of a specified number of ETF Shares. Certain broker-dealers known
as “Authorized Participants” may purchase and redeem ETF Shares from the issuing
fund in Creation Unit size blocks.
Dividend
Distributions. Payments to fund
shareholders of income from interest or dividends generated by a fund's
investments.
36
Ex-Dividend
Date.
The date when a distribution of dividends and/or capital gains is deducted from
the share price of a mutual fund, ETF, or stock. On the ex-dividend date, the
share price drops by the amount of the distribution per share (plus or minus any
market activity).
Expense
Ratio.
A fund's total annual operating expenses expressed as a percentage of the fund's
average net assets. The expense ratio includes management and administrative
expenses, but it does not include the transaction costs of buying and selling
portfolio securities.
Face
Value.
The amount to be paid at a bond’s maturity; also known as the par value or
principal.
Fixed Income
Security. An
investment, such as a bond, representing a debt that must be repaid by a
specified date, and on which the borrower may pay a fixed, variable, or floating
rate of interest.
Float-Adjusted
Index.
An index that weights its constituent securities based on the value of the
constituent securities that are available for public trading, rather than the
value of all constituent securities. Some portion of an issuer’s securities may
be unavailable for public trading because, for example, those securities are
owned by company insiders on a restricted basis or by a government agency. By
excluding unavailable securities, float-adjusted indexes can produce a more
accurate picture of the returns actually experienced by investors in the
measured market.
Inception
Date.
The date on which the assets of a fund (or one of its share classes) are first
invested in accordance with the fund's investment objective. For funds with a
subscription period, the inception date is the day after that period ends.
Investment performance is generally measured from the inception
date.
Indexing. A low-cost
investment strategy in which a fund attempts to track—rather than outperform—a
specified market benchmark, or “index.”
Investment-Grade
Bond.
A debt security whose credit quality is considered by independent bond rating
agencies, or through independent analysis conducted by a fund's advisor, to be
sufficient to ensure timely payment of principal and interest under current
economic circumstances. Debt securities rated in one of the four highest rating
categories are considered investment-grade. Other debt securities may be
considered by an advisor to be investment-grade.
37
Joint
Committed Credit Facility. The Fund
participates, along with other funds managed by Vanguard, in a committed credit
facility provided by a syndicate of lenders pursuant to a credit agreement that
may be renewed annually; each Vanguard fund is individually liable for its
borrowings, if any, under the credit facility. The amount and terms of the
committed credit facility are subject to approval by the Fund's board of
trustees and renegotiation with the lender syndicate on an annual
basis.
Mutual
Fund.
An investment company that pools the money of many people and invests it in a
variety of securities in an effort to achieve a specific objective over
time.
New
York Stock Exchange (NYSE). A stock exchange
based in New York City that is open for regular trading on business days, Monday
through Friday, from 9:30 a.m. to 4 p.m., Eastern time.
Principal. The face value of
a debt instrument or the amount of money put into an investment.
Return of
Capital. A return of
capital occurs when a fund's distributions exceed its earnings in a fiscal year.
A return of capital is a return of all or part of your original investment or
amounts paid in excess of your original investment in a fund. In general, a
return of capital reduces your cost basis in a fund's shares and is not taxable
to you until your cost basis has been reduced to zero.
Securities. Stocks, bonds,
money market instruments, and other investments.
Total
Return. A percentage
change, over a specified time period, in a fund's net asset value, assuming the
reinvestment of all distributions of dividends and capital gains.
Volatility. The fluctuations
in value of a mutual fund or other security. The greater a fund's volatility,
the wider the fluctuations in its returns.
Yield. Income (interest
or dividends) earned by an investment, expressed as a percentage of the
investment’s price.
38
Connect
with Vanguard®˃
vanguard.com
For
More Information
If you would like
more information about Vanguard Total International Bond ETF, the following
documents are available free upon request:
Annual/Semiannual
Reports to Shareholders
Additional
information about the Fund's investments is available in the Fund's annual and
semiannual reports to shareholders. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
Statement
of Additional Information (SAI)
The SAI provides more
detailed information about the Fund's ETF Shares and is incorporated by
reference into (and thus legally a part of) this prospectus.
To receive a free
copy of the latest annual or semiannual report or the SAI, or to request
additional information about Vanguard ETF Shares, please visit vanguard.com
or
contact us as follows:
Telephone:
866-499-8473; Text telephone for people with hearing impairment:
800-749-7273
Information
Provided by the Securities and Exchange Commission (SEC)
Reports and other information about
the Fund are available in the EDGAR database on the SEC’s website at sec.gov, or
you can receive copies of this information, for a fee, by electronic request at
the following email address: [email protected].
Fund's Investment
Company Act file number: 811-22619
© 2022 The
Vanguard Group, Inc. All rights reserved.
U.S. Patent No6,879,964
Vanguard Marketing Corporation, Distributor.
P 3711 022022
U.S. Patent No6,879,964
Vanguard Marketing Corporation, Distributor.
P 3711 022022