Vanguard Tax-Managed Funds

Annual Report | December 31, 2020

Vanguard Tax-Managed Funds?

Vanguard Tax-Managed Balanced Fund Vanguard Tax-Managed Capital Appreciation Fund Vanguard Tax-Managed Small-Cap Fund

Contents Your Fund's Performance at a Glance. . . . . . . . . . . . . . . 1 About Your Fund's Expenses . . . . . . . . . . . . . . . . . . . . . . . 2 Tax-Managed Balanced Fund . . . . . . . . . . . . . . . . . . . . . . . 4 Tax-Managed Capital Appreciation Fund . . . . . . . . . . . . 83 Tax-Managed Small-Cap Fund . . . . . . . . . . . . . . . . . . . . . .106

Please note: The opinions expressed in this report are just that--informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.

Your Fund's Performance at a Glance

? For the 12 months ended December 31, 2020, returns for the Vanguard Tax-Managed Funds ranged from 11.05% for Admiral Shares in the Vanguard Tax-Managed Small-Cap Fund to 21.08% for Institutional Shares in the Vanguard Tax-Managed Capital Appreciation Fund.

? The Tax-Managed Small-Cap Fund and the Tax-Managed Capital Appreciation Fund performed in line with their benchmark indexes. Vanguard Tax-Managed Balanced Fund slightly trailed its benchmark index.

? The fiscal year was marked by the global spread of COVID-19 and efforts to contain it. Responses from policymakers, the creation and initial distribution of vaccines, and the easing of some restrictions lifted investor sentiment, and stock markets hit highs in December. After an initial period of high volatility and low liquidity in the bond markets, yields fell and prices rose amid unprecedented actions taken by governments and central banks to blunt the virus's economic impact.

? Growth stocks outperformed value stocks for the 12 months, while large-capitalization stocks led mid- and small-caps. The broad U.S. stock market, as measured by the CRSP US Total Market Index, returned 20.99%.

? The municipal bond market, as measured by the Bloomberg Barclays 1?15 Year Municipal Bond Index, returned 4.73%. Municipal bonds make up about half the Balanced Fund's assets.

Market Barometer

Stocks Russell 1000 Index (Large-caps) Russell 2000 Index (Small-caps) Russell 3000 Index (Broad U.S. market) FTSE All-World ex US Index (International) Bonds Bloomberg Barclays U.S. Aggregate Bond Index (Broad taxable market) Bloomberg Barclays Municipal Bond Index (Broad tax-exempt market) FTSE Three-Month U.S. Treasury Bill Index CPI Consumer Price Index

1

Average Annual Total Returns Periods Ended December 31, 2020

One Year

Three Years

Five Years

20.96% 19.96 20.89 11.22

14.82% 10.25 14.49

5.18

15.60% 13.26 15.43

9.16

7.51% 5.21 0.58

1.36%

5.34% 4.64 1.56

1.85%

4.44% 3.91 1.16

1.95%

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.

2

Six Months Ended December 31, 2020

Beginning Account Value

6/30/2020

Ending Account Value

12/31/2020

Expenses Paid During

Period

Based on Actual Fund Return

Tax-Managed Balanced Fund

$1,000.00

$1,130.70

$0.48

Tax-Managed Capital Appreciation Fund

AdmiralTM Shares

$1,000.00

$1,243.10

$0.51

Institutional Shares

1,000.00

1,243.00

0.34

Tax-Managed Small-Cap Fund

Admiral Shares

$1,000.00

$1,351.10

$0.53

Institutional Shares

1,000.00

1,351.20

0.35

Based on Hypothetical 5% Yearly Return

Tax-Managed Balanced Fund

$1,000.00

$1,024.68

$0.46

Tax-Managed Capital Appreciation Fund

Admiral Shares

$1,000.00

$1,024.68

$0.46

Institutional Shares

1,000.00

1,024.84

0.31

Tax-Managed Small-Cap Fund

Admiral Shares

$1,000.00

$1,024.68

$0.46

Institutional Shares

1,000.00

1,024.84

0.31

The calculations are based on expenses incurred in the most recent six-month period. The funds' annualized six-month expense ratios for that period are: for the Tax-Managed Balanced Fund, 0.09%; for the Tax-Managed Capital Appreciation Fund, 0.09% for Admiral Shares and 0.06% for Institutional Shares; and for the Tax-Managed Small-Cap Fund, 0.09% for Admiral Shares and 0.06% for Institutional Shares. The dollar amounts shown as "Expenses Paid" are equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period (184/366).

3

Tax-Managed Balanced Fund Performance Summary

All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor's shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.

Cumulative Performance: December 31, 2010,Through December 31, 2020 Initial Investment of $10,000

$44,000

23,660

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

6,000

Tax-Managed Balanced Fund

Tax-Managed Balanced Composite Index

Bloomberg Barclays Municipal Bond Index

Dow Jones U.S. Total Stock Market Float Adjusted Index

Average Annual Total Returns Periods Ended December 31, 2020

One Year

13.30%

14.15

5.21

Five Years

9.48%

9.83

3.91

Ten Years

8.99%

9.23

4.63

20.79

15.36

13.74

Final Value of a $10,000

Investment $23,660 24,182 15,718

36,240

Tax-Managed Balanced Composite Index: Weighted 50% Russell 1000 Index and 50% Bloomberg Barclays 7 Year Municipal Bond Index through January 31, 2002, and 50% Russell 1000 Index and 50% Bloomberg Barclays 1?15 Year Municipal Bond Index thereafter.

See Financial Highlights for dividend and capital gains information. 4

Tax-Managed Balanced Fund

Fund Allocation

As of December 31, 2020

Investment Exposure

Basic Materials

0.8%

Consumer Discretionary

8.5

Consumer Staples

2.4

Energy

1.0

Financials

5.0

Health Care

6.2

Industrials

6.9

Other

1.0

Real Estate

1.4

Technology

13.3

Telecommunications

1.6

Utilities

1.3

Tax-Exempt Municipal Bonds

50.6

The table reflects the fund's investments, except for short-term investments and derivatives. Sector categories are based on the Industry Classification Benchmark ("ICB"), except for the "Other" category (if applicable), which includes securities that have not been provided an ICB classification as of the effective reporting period.

The Industry Classification Benchmark ("ICB") is owned by FTSE. FTSE does not accept any liability to any person for any loss or damage arising out of any error or omission in the ICB.

5

Tax-Managed Balanced Fund

Financial Statements

Schedule of Investments

As of December 31, 2020

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 .

Common Stocks (49.0%)

Basic Materials (0.8%) Linde plc Ecolab Inc. Air Products and Chemicals Inc. Newmont Corp. Freeport-McMoRan Inc. Element Solutions Inc. Dow Inc. Celanese Corp. Class A

* Alcoa Corp. Albemarle Corp. FMC Corp. Fastenal Co. Scotts Miracle-Gro Co. Reliance Steel & Aluminum Co. Westlake Chemical Corp. Eastman Chemical Co. Avery Dennison Corp. Huntsman Corp. International Flavors & Fragrances Inc. CF Industries Holdings Inc. Royal Gold Inc. Nucor Corp. LyondellBasell Industries NV Class A Ashland Global Holdings Inc. Timken Co. NewMarket Corp. Mosaic Co. Valvoline Inc.

* Univar Solutions Inc. W R Grace & Co. Steel Dynamics Inc.

Consumer Discretionary (8.4%) * Inc.

Shares

Market Value? ($000)

52,529 13,842 32,303 6,989

19,099 79,841 141,389 128,571 36,222 14,628 70,034 10,400

9,098 21,246

4,442

5,218 4,782 3,679 2,279 2,010 1,901 1,614 1,534 1,046 1,037

885

6,900

826

9,894

807

7,819

784

4,600

713

27,900

701

6,430

700

16,859

653

6,100

649

11,200

596

5,638

517

6,198 5,841 1,129 18,068 17,015 19,164 6,600 4,100

491 452 450 416 394 364 362 151

56,842

41,128 133,951

* Tesla Inc. * Walt Disney Co.

Home Depot Inc. * Netflix Inc.

Walmart Inc. NIKE Inc. Class B Costco Wholesale Corp. McDonald's Corp. Lowe's Cos. Inc. Starbucks Corp. Estee Lauder Cos. Inc.

Class A * Booking Holdings Inc.

Target Corp. TJX Cos. Inc. Activision Blizzard Inc. * Lululemon Athletica Inc. Dollar General Corp. * Chipotle Mexican Grill Inc.

Class A * Copart Inc. * Uber Technologies Inc.

Ross Stores Inc. * O'Reilly Automotive Inc. * Spotify Technology SA * Under Armour Inc. Class A

Aptiv plc Marriott International Inc.

Class A eBay Inc. Yum! Brands Inc. Hilton Worldwide

Holdings Inc. Electronic Arts Inc. General Motors Co. * AutoZone Inc. Lennar Corp. Class A * Dollar Tree Inc. * Mohawk Industries Inc. Southwest Airlines Co. DR Horton Inc. * Capri Holdings Ltd.

6

Shares

65,015 178,123 104,969 42,251 136,623 135,111 46,842 62,436 79,663 113,970

Market Value? ($000)

45,879 32,272 27,882 22,846 19,694 19,114 17,649 13,398 12,787 12,193

33,569 3,778

41,325 106,628

69,615 15,881 25,991

8,936 8,415 7,295 7,282 6,464 5,527 5,466

3,292 35,413 86,204 35,144

9,503 13,409 225,100 29,624

4,565 4,506 4,396 4,316 4,301 4,219 3,865 3,860

27,645 70,733 31,728

3,647 3,554 3,444

30,445 23,473 76,101

2,594 39,160 27,452 19,372 56,166 37,302 59,100

3,387 3,371 3,169 3,075 2,985 2,966 2,730 2,618 2,571 2,482

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