Vanguard International Value Fund tax distributions

The following tables provide long term data on the fund's history of both dividend and capital gains distributions. The first table also provides an estimate of the foreign tax credit. One should note that the fund has a fiscal year ending in October, so its reported distributions for a year reflect the prior year's December distribution of dividends and capital gains.

The second table provides a database of the fund's accounting figures: the annual level of realized and distributed gains; its level of unrealized gains and loss carryforwards; as well as the annual in-kind redemption gains the fund has realized. These figures highlight the level of a fund's tax liabilities.

Because both manager turnover of securities inside the portfolio and investor turnover of fund shares can affect the level of gains realization, a third table provides historical turnover ratios.

Distributions
Over the period (1996 - 2010) the Vanguard International Value Fund regularly distributed both short-term and long-term gains to shareholders, with the exception of years (2002 - 2005; 2009 - 2010) in which the fund possessed loss carryforwards. Over the 2004 - 2010 period, the fund provided an average 75% qualified dividend distribution to shareholders.


 * FY 2003 - Introduction of 2% transaction fee on redemptions of shares held < 2 mos.

Accounting data
The accounting figures and associated ratios (tables 2 and 3) can help one visualize some of the major determinants of a fund’s tendency to distribute taxable gains. These determining features include:

Turnover: The rate at which a fund manager sells securities within the fund has a major effect on potential gains realization. Single digit annual fund turnover percentages result in a low rate of realized gains. Similarly, fund shareholders' sales flows have major effects on a fund’s distribution tendencies. Net flows into the fund have the following effects:


 * 1) Constant inflows allow a fund manager to purchase a wide range of price lots for shares. The manager can select high basis shares when forced to sell a stock (this may realize a loss). The manager can also select low basis shares when redeeming a stock in-kind (a non-taxable transaction that can remove an unrealized gain out of the portfolio.)
 * 2) A large and growing net asset base serves to diffuse any realized capital gains across a large base of shareholders and reduces the per share gain distribution. Large outflows have the opposite effect; any gains realized are spread across a smaller asset base and result in higher per share distributed gains.

The level of unrealized gains and carryover realized losses in a fund: A fund which defers gains realization accumulates unrealized appreciation, which when distributed, will be taxed; thus the unrealized gain/loss figure shows the potential gain (or loss) that would be realized if the portfolio was to be entirely liquidated. Any loss carryovers a fund possesses can be used to offset future realized gains (carryovers have an eight year expiration period). The second tab on the Table 2. spreadsheet shows the data in percentage of total assets form.

Fund analysis
Table 2.

Turnover statistics
In response to the early 2000's mutual fund market timing scandals, Vanguard introduced a 2% early redemption fee on Vanguard International Value Fund shares sold less than two months after purchase. Prior to this policy change, shareholder turnover (R/ANA) in the fund ranged between 30% - 89%. After the change, shareholder turnover has ranged between 13% - 24%.

Table 3.