Vanguard International Index Fund Tax Attributes

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Barry Barnitz
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Vanguard International Index Fund Tax Attributes

Post by Barry Barnitz »

A brief monograph containing tax and accounting data for Vanguard International Index Funds, updated for FY 2007:

Vanguard International Index Fund Tax Attributes-FY 2007

regards

[edit to add FTSE-AllWorld ex-US Index]
Last edited by Barry Barnitz on Thu Jan 10, 2008 12:22 am, edited 2 times in total.
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Post by Greenberry »

Hi Barry,

Thank you for these continued updates! I've found them to be quite helpful.

One question for you: any plans to include tax-managed international in the future, especially as it's now the basis for Europe Pacific ETF and seems to have a renewed emphasis on tracking the EAFE index? It may not technically be an index fund, but it quacks like one. :)
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TM International

Post by Barry Barnitz »

Greenberry wrote:Hi Barry,

Thank you for these continued updates! I've found them to be quite helpful.

One question for you: any plans to include tax-managed international in the future, especially as it's now the basis for Europe Pacific ETF and seems to have a renewed emphasis on tracking the EAFE index? It may not technically be an index fund, but it quacks like one. :)
Hi Greenberry:

I will provide an updated report on the tax-managed equity funds once I receive the annual report.

regards,
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Dividend yield data

Post by Arnie »

Barry,

This work is great! Very helpful.

A few questions:

Can you point me to where on Vanguard's site you actually get this data?

Also I noticed that many other postings refer to the FTSE having a lower dividend than the Total Intl (not true by your table) and also that the FTSE has a tax credit near 20bps (also not true by your table).

Were people just guessing before the data came out?

Any reason why the dividends are so different given that Canada seems the only major difference?

Also on the foreign tax credit - in Europe (.19) it is actually larger than the admiral or ETF fee of .12? How should I interpret this?

Thanks and sorry if I'm misreading the table
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For Arnie

Post by Barry Barnitz »

All data is derived from the Annual Reports of the fund.

In the case of the FTSE index, FY 2007 marks the initial year of the fund's existence and the fund was not in existence for the full year. This may have effected the reporting of annualized ratios.

Keep in mind that the foreign tax credit is an independent cash flow separate from internal fund expenses, having no effect on the reported expense ratio. The government gives one a tax credit on one's personal income tax return for the tax paid on the fund's dividends, which either augments the individual's refund or lowers the tax due on the return.

I am putting the finishing touches on my Vanguard Index Fund Tax Attributes (FY 2007) report, which includes the US style box indexes. I should have it ready within the next few days. All data is derived from annual and semiannual reports.

regards,


regards,
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Re: For Arnie

Post by House Blend »

Fantastic. A very thorough and useful report.

Staring at Table 1, I suspect that maybe there's a typo regarding the dividend yields, especially for Total.

A back of the envelope calculation says that it should be a weighted average of roughly 40% of the yield for Europe, 40% of Pacific, and 20% Emerging. That works out to about 2.5%, which also squares with the numbers on my 1099-DIV for VGTSX.

In fact, I would speculate that maybe the entries for Total and FTSE got switched.
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Dividend Yields:

Post by Barry Barnitz »

Hi:

The reporting of dividend yields is derived from the yields reported in the annual report and is accurate (unless Vanguard has made an error in reporting on the annual report.) Here are the reported yields of the Total International Index over the past five years as given in the FY 2007 annual report:

2007: 1.93%
2006: 1.71%
2005: 1.76%
2004: 1.54%
2003: 1.75%

Keep in mind that the fiscal year for Vanguard International Index Funds ends each October, and that an individual's tax year and distribution of dividends occurs on a calendar year, with the dividend distribution coming in December.

regards,
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Re: Dividend Yields:

Post by House Blend »

Barry Barnitz wrote: Keep in mind that the fiscal year for Vanguard International Index Funds ends each October, and that an individual's tax year and distribution of dividends occurs on a calendar year, with the dividend distribution coming in December.
Thanks. I missed that part about the fiscal year not matching the calendar year. That could certainly explain why the rate I obtained for tax year 2007 doesn't match the table.

But it is still a bit mysterious why the dividends reported for VGTSX aren't close to a weighted average of Europe/Pacific/Emerging.
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Re: Dividend yield data

Post by mas »

Arnie wrote:Also I noticed that many other postings refer to the FTSE having a lower dividend than the Total Intl (not true by your table)
The FTSE dividend does seem out of place...
VFWIX
https://personal.vanguard.com/us/funds/ ... IntExt=INT

Code: Select all

Type      Amt       Record Date  Reinvest Price
Dividend  $0.18500  12/20/2007   $22.84	
0.8%

vs
VGTSX
https://personal.vanguard.com/us/funds/ ... IntExt=INT

Code: Select all

Type      Amt       Record Date  Reinvest Price
Dividend  $0.52200  12/26/2007   $19.86
2.6%
Barry Barnitz wrote:The reporting of dividend yields is derived from the yields reported in the annual report and is accurate (unless Vanguard has made an error in reporting on the annual report.)

...

Keep in mind that the fiscal year for Vanguard International Index Funds ends each October, and that an individual's tax year and distribution of dividends occurs on a calendar year, with the dividend distribution coming in December.
Since both of the dividends were received in December, I don't think the year end is an issue. Maybe the annual report quotes the expected future dividend yield, rather than the realized yield of the past year?
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Dividends:

Post by Barry Barnitz »

Hi:

The Vanguard International Index Funds' fiscal year ended on October 31, 2007. The reported realized dividend yield over the yearly period runs from October 31, 2006 to October 31, 2007. The dividend distribution in December 2007 comes two months after the end of the fiscal year.

regards,
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Post by baw703916 »

The FTSE dividend does seem out of place...
Remember that the dividend payout of the fund (+expense ratio) is only equal to the dividend yield of the fund's portfolio if the fund's number of shares didn't change significantly over the course of the year.

Since FTSE is a new fund and grew rapidly during the year, the number of shares over which the dividends were distributed at year end is much larger than the number of shares outstanding when the fund received the dividends form the companies whose stocks it owns. So the dividend payout is diluted by the growth in the number of shares.

Best wishes,
Brad
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mas
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Re: Dividends:

Post by mas »

Barry Barnitz wrote:Hi:

The Vanguard International Index Funds' fiscal year ended on October 31, 2007. The reported realized dividend yield over the yearly period runs from October 31, 2006 to October 31, 2007. The dividend distribution in December 2007 comes two months after the end of the fiscal year.

regards,
Right, so VFWIX should have reported $0.00 realized dividend. Since it didn't ($0.410/share and 2.61% per your document), maybe it is actually reporting something else?
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Post by mas »

baw703916 wrote:
The FTSE dividend does seem out of place...
Remember that the dividend payout of the fund (+expense ratio) is only equal to the dividend yield of the fund's portfolio if the fund's number of shares didn't change significantly over the course of the year.

Since FTSE is a new fund and grew rapidly during the year, the number of shares over which the dividends were distributed at year end is much larger than the number of shares outstanding when the fund received the dividends form the companies whose stocks it owns. So the dividend payout is diluted by the growth in the number of shares.

Best wishes,
Brad
Yes, due to this I would expect a much lower dividend reported for 2007 than was actually shown.
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Dividends

Post by Barry Barnitz »

There are timing issues between reporting on a fiscal year basis and on the distribution timing. Here is the note from the annual report
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. Differences in classification may also result from the treatment of shortterm gains as ordinary income for tax purposes.
Secondly, for reporting purposes, the expense ratio and net investment yield of the FTSE index are annualized. The fund was in operation from March 2007 to October 2007 during FY 2007. The report does give zero distributed net income for the fiscal year, although the fund earned 0.41 per share of income (2.61% annualized) over the period; substantially all of this net income will be distributed in late 2007 and in 2008.

regards,
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Re: Dividends

Post by mas »

Barry Barnitz wrote:There are timing issues between reporting on a fiscal year basis and on the distribution timing.
I suppose that is the heart of the issue. As a fund holder, I am mostly concerned with a fund's tax impact on me (i.e. actual distributions, and their relation to my fiscal year - starting Jan 1). The data in the annual report is significantly different from this for at least this data point, and probably slightly different on the rest.

Thanks for the explanations.
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Re: Dividend Yields:

Post by Greenberry »

House Blend wrote:But it is still a bit mysterious why the dividends reported for VGTSX aren't close to a weighted average of Europe/Pacific/Emerging.
Although the fiscal year may have some impact on the reported dividends for VG International Index (VGTSX) vs. the weighted average of Europe, Pacific, and Emerging, there are two primary causes for it: (a) fund expenses and (b) foreign taxes. The pre-tax, pre-expense dividend for VGTSX and the weighted average should be the same, but VGTSX has a slightly higher ER if I recall, and the ER comes out of the dividend. Also, as a fund-of-funds, VGTSX is ineligible for the foreign tax credit, so it doesn't bother to distribute gains that were used to pay those taxes, whereas Eur/Pac/EM distribute those dividends but also note the foreign taxes paid separately.
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Post by Arnie »

Thanks all (was away for a bit). This is very helpful!
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