PURCHASE AND REDEMPTION OF SHARES
Purchase of Shares (Other than ETF Shares)
The purchase price of shares of each Fund is the NAV per share next determined after the purchase request is received in good order, as defined in the Fund’s prospectus.
For non-ETF purchases, the Extended Duration Treasury Index Fund charges a 0.50% purchase fee. The purchase fee is paid to the Fund to reimburse it for the transaction costs incurred from purchasing securities. The fee is deducted from all purchases, including exchanges from other Vanguard funds, but not from reinvested dividends or capital gains.
Exchange of Securities for Shares of a Fund.
In certain circumstances, shares of a fund may be purchased “in kind” (i.e., in exchange for securities, rather than for cash). The securities tendered as part of an in-kind purchase must be included in the index tracked by an index fund and must have a total market value of at least $1 million. In addition, each position must have a market value of at least $10,000. Such securities also must be liquid securities that are not restricted as to transfer and have a value that is readily ascertainable. Securities accepted by the fund will be valued, as set forth in the fund’s prospectus, as of the time of the next determination of NAV after such acceptance. Shares of each fund are issued at the NAV determined as of the same time. All dividend, subscription, or other rights that are reflected in the market price of accepted securities at the time of valuation become the property of the fund and must be delivered to the fund by the investor upon receipt from the issuer. A gain or loss for federal income tax purposes would be realized by the investor upon the exchange, depending upon the cost of the securities tendered.
A fund will not accept securities in exchange for its shares unless (1) such securities are, at the time of the exchange, eligible to be held by the fund; (2) the transaction will not cause the fund’s weightings to become imbalanced with respect to the weightings of the securities included in the target index for an index fund; (3) the investor represents and agrees that all securities offered to the fund are not subject to any restrictions upon their sale by the fund under the 1933 Act, or otherwise; (4) such securities are traded in an unrelated transaction with a quoted sales price on the same day the exchange valuation is made; (5) the quoted sales price used as a basis of valuation is representative (e.g., one that does not involve a trade of substantial size that artificially influences the price of the security); and (6) the value of any such security being exchanged will not exceed 5% of the fund’s net assets immediately prior to the transaction.
Investors interested in purchasing fund shares in kind should contact Vanguard.
Redemption of Shares (Other than ETF Shares)
The redemption price of shares of each Fund is the NAV next determined after the redemption request is received in good order, as defined in the Fund’s prospectus.
Each Fund may suspend redemption privileges or postpone the date of payment for redeemed shares (1) during any period that the Exchange is closed or trading on the Exchange is restricted as determined by the SEC; (2) during any period when an emergency exists, as defined by the SEC, as a result of which it is not reasonably practicable for the Fund to dispose of securities it owns or to fairly determine the value of its assets; or (3) for such other periods as the SEC may permit.
The Trust has filed a notice of election with the SEC to pay in cash all redemptions requested by any shareholder of record limited in amount during any 90-day period to the lesser of $250,000 or 1% of the net assets of a Fund at the beginning of such period.
If Vanguard determines that it would be detrimental to the best interests of the remaining shareholders of a Fund to make payment wholly or partly in cash, the Fund may pay the redemption price in whole or in part by a distribution in kind of readily marketable securities held by the Fund in lieu of cash in conformity with applicable rules of the SEC. Investors may incur brokerage charges on the sale of such securities received in payment of redemptions.
The Funds do not charge redemption fees. Shares redeemed may be worth more or less than what was paid for them, depending on the market value of the securities held by the Fund.
Right to Change Policies
Vanguard reserves the right, without notice, to (1) alter, add, or discontinue any conditions of purchase (including eligibility requirements), redemption, exchange, conversion, service, or privilege at any time; (2) accept initial purchases
B-28
by telephone; (3) freeze any account and/or suspend account services if Vanguard has received reasonable notice of a dispute regarding the assets in an account, including notice of a dispute between the registered or beneficial account owners, or if Vanguard reasonably believes a fraudulent transaction may occur or has occurred; (4) temporarily freeze any account and/or suspend account services upon initial notification to Vanguard of the death of the shareholder until Vanguard receives required documentation in good order; (5) alter, impose, discontinue, or waive any purchase fee, redemption fee, account service fee, or other fees charged to a group of shareholders; and (6) redeem an account or suspend account privileges, without the owner’s permission to do so, in cases of threatening conduct or activity Vanguard believes to be suspicious, fraudulent, or illegal. Changes may affect any or all investors. These actions will be taken when, at the sole discretion of Vanguard management, Vanguard reasonably believes they are deemed to be in the best interest of a fund.
Investing With Vanguard Through Other Firms
Each Fund has authorized certain agents to accept on its behalf purchase and redemption orders, and those agents are authorized to designate other intermediaries to accept purchase and redemption orders on the Fund’s behalf (collectively, Authorized Agents). A Fund will be deemed to have received a purchase or redemption order when an Authorized Agent accepts the order in accordance with the Fund’s instructions. In most instances, a customer order that is properly transmitted to an Authorized Agent will be priced at the NAV next determined after the order is received by the Authorized Agent.
MANAGEMENT OF THE FUNDS
Vanguard
Each Fund is part of the Vanguard group of investment companies, which consists of more than 170 funds. Through their jointly owned subsidiary, Vanguard, the funds obtain at cost virtually all of their corporate management, administrative, and distribution services. Vanguard also provides investment advisory services on an at-cost basis to several of the Vanguard funds.
Vanguard employs a supporting staff of management and administrative personnel needed to provide the requisite services to the funds and also furnishes the funds with necessary office space, furnishings, and equipment. Each fund pays its share of Vanguard’s total expenses, which are allocated among the funds under methods approved by the board of trustees of each fund. In addition, each fund bears its own direct expenses, such as legal, auditing, and custodial fees.
The funds’ officers are also officers and employees of Vanguard.
Vanguard, Vanguard Marketing Corporation (VMC), the funds, and the funds’ advisors have adopted codes of ethics designed to prevent employees who may have access to nonpublic information about the trading activities of the funds (access persons) from profiting from that information. The codes of ethics permit access persons to invest in securities for their own accounts, including securities that may be held by a fund, but place substantive and procedural restrictions on the trading activities of access persons. For example, the codes of ethics require that access persons receive advance approval for most securities trades to ensure that there is no conflict with the trading activities of the funds.
Vanguard was established and operates under an Amended and Restated Funds’ Service Agreement. The Amended and Restated Funds’ Service Agreement provides that each Vanguard fund may be called upon to invest up to 0.40% of its current net assets in Vanguard. The amounts that each fund has invested are adjusted from time to time in order to maintain the proportionate relationship between each fund’s relative net assets and its contribution to Vanguard’s capital.
B-29
|
|
|
|
|
|
As of
August 31, 2012,
each Fund had contributed capital to Vanguard as follows:
|
|
|
|
|
|
|
|
|
Capital
|
Percentage of
|
Percent of
|
|
|
Contribution
|
Fund’s Average
|
Vanguard’s
|
|
Vanguard Fund
|
to Vanguard
|
Net Assets
|
Capitalization
|
|
U.S. Growth Fund
|
$ 537,000
|
0.01%
|
0.21%
|
|
International Growth Fund
|
2,405,000
|
0.01
|
0.96
|
|
FTSE Social Index Fund
|
83,000
|
0.01
|
0.03
|
|
Consumer Discretionary Index Fund
|
68,000
|
0.01
|
0.03
|
|
Consumer Staples Index Fund
|
185,000
|
0.01
|
0.07
|
|
Energy Index Fund
|
317,000
|
0.01
|
0.13
|
|
Financials Index Fund
|
120,000
|
0.01
|
0.05
|
|
Health Care Index Fund
|
146,000
|
0.01
|
0.06
|
|
Industrials Index Fund
|
72,000
|
0.01
|
0.03
|
|
Information Technology Index Fund
|
361,000
|
0.01
|
0.14
|
|
Materials Index Fund
|
108,000
|
0.01
|
0.04
|
|
Telecommunication Services Index Fund
|
84,000
|
0.01
|
0.03
|
|
Utilities Index Fund
|
229,000
|
0.02
|
0.09
|
|
Extended Duration Treasury Index Fund
|
108,000
|
0.01
|
0.04
|
|
Mega Cap Index Fund
|
111,000
|
0.02
|
0.04
|
|
Mega Cap 300 Value Index Fund
|
76,000
|
0.01
|
0.03
|
|
Mega Cap 300 Growth Index Fund
|
123,000
|
0.01
|
0.05
|
Management
.
Corporate management and administrative services include (1) executive staff, (2) accounting and financial, (3) legal and regulatory, (4) shareholder account maintenance, (5) monitoring and control of custodian relationships, (6) shareholder reporting, and (7) review and evaluation of advisory and other services provided to the funds by third parties.
Distribution
.
Vanguard Marketing Corporation, 400 Devon Park Drive A39, Wayne, PA 19087, a wholly owned subsidiary of Vanguard, is the principal underwriter for the funds and in that capacity performs and finances marketing, promotional, and distribution activities (collectively, marketing and distribution activities) that are primarily intended to result in the sale of the funds’ shares. VMC performs marketing and distribution activities at cost in accordance with the conditions of a 1981 SEC exemptive order that permits the Vanguard funds to internalize and jointly finance the marketing, promotion, and distribution of their shares. The funds’ trustees review and approve the marketing and distribution expenses incurred by the funds, including the nature and cost of the activities and the desirability of each fund’s continued participation in the joint arrangement.
To ensure that each fund’s participation in the joint arrangement falls within a reasonable range of fairness, each fund contributes to VMC’s marketing and distribution expenses in accordance with an SEC-approved formula. Under that formula, one half of the marketing and distribution expenses are allocated among the funds based upon their relative net assets. The remaining half of those expenses is allocated among the funds based upon each fund’s sales for the preceding 24 months relative to the total sales of the funds as a group; provided, however, that no fund’s aggregate quarterly rate of contribution for marketing and distribution expenses shall exceed 125% of the average marketing and distribution expense rate for Vanguard, and that no fund shall incur annual marketing and distribution expenses in excess of 0.20% of its average month-end net assets. Each fund’s contribution to these marketing and distribution expenses helps to maintain and enhance the attractiveness and viability of the Vanguard complex as a whole, which benefits all of the funds and their shareholders.
B-30
VMC’s principal marketing and distribution expenses are for advertising, promotional materials, and marketing personnel.
Other marketing and distribution activities that VMC undertakes on behalf of the funds may include, but are not limited to:
-
Conducting or publishing Vanguard-generated research and analysis concerning the funds, other investments, the
financial markets, or the economy;
-
Providing views, opinions, advice, or commentary concerning the funds, other investments, the financial markets, or
the economy;
-
Providing analytical, statistical, performance, or other information concerning the funds, other investments, the
financial markets, or the economy;
-
Providing administrative services in connection with investments in the funds or other investments, including, but not
limited to, shareholder services, recordkeeping services, and educational services;
-
Providing products or services that assist investors or financial service providers (as defined below) in the investment
decision-making process;
-
Providing promotional discounts, commission-free trading, fee waivers, and other benefits to clients of Vanguard
Brokerage Services
®
who maintain qualifying investments in the funds; and
-
Sponsoring, jointly sponsoring, financially supporting, or participating in conferences, programs, seminars,
presentations, meetings, or other events involving fund shareholders, financial service providers, or others concerning
the funds, other investments, the financial markets, or the economy, such as industry conferences, prospecting trips,
due diligence visits, training or education meetings, and sales presentations.
VMC performs most marketing and distribution activities itself. Some activities may be conducted by third parties pursuant to shared marketing arrangements under which VMC agrees to share the costs and performance of marketing and distribution activities in concert with a financial service provider. Financial service providers include, but are not limited to, investment advisors, broker-dealers, financial planners, financial consultants, banks, and insurance companies. Under these cost- and performance-sharing arrangements, VMC may pay or reimburse a financial service provider (or a third party it retains) for marketing and distribution activities that VMC would otherwise perform. VMC’s cost- and performance-sharing arrangements may be established in connection with Vanguard investment products or services offered or provided to or through the financial service providers. VMC’s arrangements for shared marketing and distribution activities may vary among financial service providers, and its payments or reimbursements to financial service providers in connection with shared marketing and distribution activities may be significant. VMC does not participate in the offshore arrangement Vanguard has established with a third party to provide marketing, promotional, and other services to qualifying Vanguard funds that are distributed in certain foreign countries on a private-placement basis to government-sponsored and other institutional investors. In exchange for such services, the third party receives an annual base (fixed) fee, and may also receive discretionary fees or performance adjustments.
In connection with its marketing and distribution activities, VMC may give financial service providers (or their representatives) (1) promotional items of nominal value that display Vanguard’s logo, such as golf balls, shirts, towels, pens, and mouse pads; (2) gifts that do not exceed $100 per person annually and are not preconditioned on achievement of a sales target; (3) an occasional meal, a ticket to a sporting event or the theater, or comparable entertainment that is neither so frequent nor so extensive as to raise any question of propriety and is not preconditioned on achievement of a sales target; and (4) reasonable travel and lodging accommodations to facilitate participation in marketing and distribution activities.
VMC, as a matter of policy, does not pay asset-based fees, sales-based fees, or account-based fees to financial service providers in connection with its marketing and distribution activities for the Vanguard funds. VMC policy also prohibits marketing and distribution activities that are intended, designed, or likely to compromise suitability determinations by, or the fulfillment of any fiduciary duties or other obligations that apply to, financial service providers. Nonetheless, VMC’s marketing and distribution activities are primarily intended to result in the sale of the funds’ shares, and, as such, its activities, including shared marketing and distribution activities, may influence participating financial service providers (or their representatives) to recommend, promote, include, or invest in a Vanguard fund or share class. In addition, Vanguard or any of its subsidiaries may retain a financial service provider to provide consulting or other services, and that financial service provider also may provide services to investors. Investors should consider the possibility that any of these activities or relationships may influence a financial service provider’s (or its representatives’) decision to recommend, promote, include, or invest in a Vanguard fund or share class. Each financial service provider should consider its
B-31
suitability determinations, fiduciary duties, and other legal obligations (or those of its representatives) in connection with any decision to consider, recommend, promote, include, or invest in a Vanguard fund or share class.
The following table describes the expenses of Vanguard and VMC that are incurred by the Funds on an at-cost basis. Amounts captioned “Management and Administrative Expenses” include a Fund‘s allocated share of expenses associated with the management, administrative, and transfer agency services Vanguard provides to the funds. Amounts captioned “Marketing and Distribution Expenses” include a Fund‘s allocated share of expenses associated with the marketing and distribution activities that VMC conducts on behalf of the Vanguard funds.
As is the case with all mutual funds, transaction costs incurred by the Funds for buying and selling securities are not reflected in the table. Annual Shared Fund Operating Expenses are based on expenses incurred in the fiscal years ended August 31,
2010
,
2011
, and
2012
, and are presented as a percentage of each Fund‘s average month-end net assets.
|
|
|
|
|
|
Annual Shared Fund Operating Expenses
|
|
(Shared Expenses Deducted from Fund Assets)
|
|
Vanguard Fund
|
2010
|
2011
|
2012
|
|
U.S. Growth Fund
|
|
|
|
|
Management and Administrative Expenses:
|
0.26%
|
0.23%
|
0.24%
|
|
Marketing and Distribution Expenses:
|
0.02
|
0.02
|
0.02
|
|
International Growth Fund
|
|
|
|
|
Management and Administrative Expenses:
|
0.25%
|
0.21%
|
0.20%
|
|
Marketing and Distribution Expenses:
|
0.02
|
0.02
|
0.02
|
|
FTSE Social Index Fund
|
|
|
|
|
Management and Administrative Expenses:
|
0.21%
|
0.21%
|
0.21%
|
|
Marketing and Distribution Expenses:
|
0.03
|
0.03
|
0.03
|
|
Consumer Discretionary Index Fund
|
|
|
|
|
Management and Administrative Expenses:
|
0.18%
|
0.14%
|
0.10%
|
|
Marketing and Distribution Expenses:
|
0.03
|
0.03
|
0.03
|
|
Consumer Staples Index Fund
|
|
|
|
|
Management and Administrative Expenses:
|
0.19%
|
0.15%
|
0.10%
|
|
Marketing and Distribution Expenses:
|
0.03
|
0.03
|
0.03
|
|
Energy Index Fund
|
|
|
|
|
Management and Administrative Expenses:
|
0.20%
|
0.15%
|
0.10%
|
|
Marketing and Distribution Expenses:
|
0.03
|
0.03
|
0.03
|
|
Financials Index Fund
|
|
|
|
|
Management and Administrative Expenses:
|
0.19%
|
0.14%
|
0.10%
|
|
Marketing and Distribution Expenses:
|
0.03
|
0.03
|
0.03
|
|
Health Care Index Fund
|
|
|
|
|
Management and Administrative Expenses:
|
0.19%
|
0.15%
|
0.10%
|
|
Marketing and Distribution Expenses:
|
0.03
|
0.02
|
0.03
|
|
Industrials Index Fund
|
|
|
|
|
Management and Administrative Expenses:
|
0.19%
|
0.14%
|
0.09%
|
|
Marketing and Distribution Expenses:
|
0.03
|
0.03
|
0.03
|
|
Information Technology Index Fund
|
|
|
|
|
Management and Administrative Expenses:
|
0.20%
|
0.15%
|
0.10%
|
|
Marketing and Distribution Expenses:
|
0.03
|
0.03
|
0.03
|
|
Materials Index Fund
|
|
|
|
|
Management and Administrative Expenses:
|
0.19%
|
0.15%
|
0.10%
|
|
Marketing and Distribution Expenses:
|
0.03
|
0.03
|
0.03
|
|
Telecommunication Services Index Fund
|
|
|
|
|
Management and Administrative Expenses:
|
0.18%
|
0.14%
|
0.09%
|
|
Marketing and Distribution Expenses:
|
0.03
|
0.03
|
0.03
|
|
Utilities Index Fund
|
|
|
|
|
Management and Administrative Expenses:
|
0.20%
|
0.15%
|
0.10%
|
|
Marketing and Distribution Expenses:
|
0.03
|
0.03
|
0.03
|
B-32
|
|
|
|
|
|
Annual Shared Fund Operating Expenses
|
|
(Shared Expenses Deducted from Fund Assets)
|
|
Vanguard Fund
|
2010
|
2011
|
2012
|
|
Extended Duration Treasury Index Fund
|
|
|
|
|
Management and Administrative Expenses:
|
0.07%
|
0.08%
|
0.07%
|
|
Marketing and Distribution Expenses:
|
0.03
|
0.03
|
0.02
|
|
Mega Cap Index Fund
|
|
|
|
|
Management and Administrative Expenses:
|
0.08%
|
0.07%
|
0.07%
|
|
Marketing and Distribution Expenses:
|
0.03
|
0.03
|
0.02
|
|
Mega Cap 300 Value Index Fund
|
|
|
|
|
Management and Administrative Expenses:
|
0.08%
|
0.07%
|
0.07%
|
|
Marketing and Distribution Expenses:
|
0.03
|
0.03
|
0.03
|
|
Mega Cap 300 Growth Index Fund
|
|
|
|
|
Management and Administrative Expenses:
|
0.08%
|
0.08%
|
0.08%
|
|
Marketing and Distribution Expenses:
|
0.03
|
0.03
|
0.03
|
Each Fund’s investment advisors may direct certain security trades, subject to obtaining the best price and execution, to brokers who have agreed to rebate to the Funds part of the commissions generated. Such rebates are used solely to reduce the Funds‘ management and administrative expenses and are not reflected in these totals.
Officers and Trustees
Each Vanguard fund is governed by the board of trustees of its trust and a single set of officers. Consistent with the board’s corporate governance principles, the trustees believe that their primary responsibility is oversight of the management of each fund for the benefit of its shareholders, not day-to-day management. The trustees set broad policies for the funds; select investment advisors; monitor fund operations, regulatory compliance, performance, and costs; nominate and select new trustees; and elect fund officers. Vanguard manages the day-to-day operations of the funds under the direction of the board of trustees.
The trustees play an active role, as a full board and at the committee level, in overseeing risk management for the funds. The trustees delegate the day-to-day risk management of the funds to various groups, including portfolio review, investment management, risk management, compliance, legal, fund accounting, and fund financial services. These groups provide the trustees with regular reports regarding investment, valuation, liquidity, and compliance, as well as the risks associated with each. The trustees also oversee risk management for the funds through regular interactions with the funds’ internal and external auditors.
The full board participates in the funds’ risk oversight, in part, through the Vanguard funds’ compliance program, which covers the following broad areas of compliance: investment and other operations; recordkeeping; valuation and pricing; communications and disclosure; reporting and accounting; oversight of service providers; fund governance; and codes of ethics, insider trading controls, and protection of nonpublic information. The program seeks to identify and assess risk through various methods, including through regular interdisciplinary communications between compliance professionals and business personnel who participate on a daily basis in risk management on behalf of the funds. The funds’ chief compliance officer regularly provides reports to the board in writing and in person.
The audit committee of the board, which is composed of all independent trustees, oversees management of financial risks and controls. The audit committee serves as the channel of communication between the independent auditors of the funds and the board with respect to financial statements and financial-reporting processes, systems of internal control, and the audit process. The head of internal audit reports directly to the audit committee and provides reports to the committee in writing and in person on a regular basis. Although the audit committee is responsible for overseeing the management of financial risks, the entire board is regularly informed of these risks through committee reports.
All of the trustees bring to each fund’s board a wealth of executive leadership experience derived from their service as executives (in many cases chief executive officers), board members, and leaders of diverse public operating companies, academic institutions, and other organizations. In determining whether an individual is qualified to serve as a trustee of the funds, the board considers a wide variety of information about the trustee, and multiple factors contribute to the board’s decision. Each trustee is determined to have the experience, skills, and attributes necessary to serve the funds and their shareholders because each trustee demonstrates an exceptional ability to consider complex business and
B-33
financial matters, evaluate the relative importance and priority of issues, make decisions, and contribute effectively to the deliberations of the board. The board also considers the individual experience of each trustee and determines that the trustee’s professional experience, education, and background contribute to the diversity of perspectives on the board. The business acumen, experience, and objective thinking of the trustees are considered invaluable assets for Vanguard management and, ultimately, the Vanguard funds’ shareholders. The specific roles and experience of each board member that factor into this determination are presented on the following pages. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482.
|
|
|
|
|
|
|
|
|
|
Principal Occupation(s)
|
Number of
|
|
|
|
Vanguard
|
and Outside Directorships
|
Vanguard Funds
|
|
|
Position(s)
|
Funds’ Trustee/
|
During the Past Five Years
|
Overseen by
|
|
Name, Year of Birth
|
Held with Funds
|
Officer Since
|
and Other Experience
|
Trustee/Officer
|
|
Interested Trustee
1
|
|
|
|
|
|
F. William McNabb III
|
Chairman of the
|
July 2009
|
Mr. McNabb has served as Chairman of the Board of
|
180
|
|
(1957)
|
Board, Chief
|
|
Vanguard and of each of the investment companies
|
|
|
|
Executive Officer,
|
|
served by Vanguard, since January 2010; Trustee of
|
|
|
|
and President
|
|
each of the investment companies served by
|
|
|
|
|
|
Vanguard, since 2009; Director of Vanguard since
|
|
|
|
|
|
2008; and Chief Executive Officer and President of
|
|
|
|
|
|
Vanguard and of each of the investment companies
|
|
|
|
|
|
served by Vanguard, since 2008. Mr. McNabb also
|
|
|
|
|
|
serves as Director of Vanguard Marketing Corporation.
|
|
|
|
|
|
Mr. McNabb served as a Managing Director of
|
|
|
|
|
|
Vanguard from 1995 to 2008.
|
|
1 Mr. McNabb is considered an “interested person,” as defined in the 1940 Act, because he is an officer of the Trust.
|
|
|
|
|
|
|
Independent Trustees
|
|
|
|
|
|
Emerson U. Fullwood
|
Trustee
|
January 2008
|
Mr. Fullwood is the former Executive Chief Staff and
|
180
|
|
(1948)
|
|
|
Marketing Officer for North America and Corporate
|
|
|
|
|
|
Vice President (retired 2008) of Xerox Corporation
|
|
|
|
|
|
(document management products and services).
|
|
|
|
|
|
Previous positions held at Xerox by Mr. Fullwood
|
|
|
|
|
|
include President of the Worldwide Channels Group,
|
|
|
|
|
|
President of Latin America, Executive Chief Staff Officer
|
|
|
|
|
|
of Developing Markets, and President of Worldwide
|
|
|
|
|
|
Customer Services. Mr. Fullwood is the Executive in
|
|
|
|
|
|
Residence and 2010 Distinguished Minett Professor at
|
|
|
|
|
|
the Rochester Institute of Technology. Mr. Fullwood
|
|
|
|
|
|
serves as a director of SPX Corporation (multi-industry
|
|
|
|
|
|
manufacturing), Amerigroup Corporation (managed
|
|
|
|
|
|
health care), the University of Rochester Medical
|
|
|
|
|
|
Center, Monroe Community College Foundation, the
|
|
|
|
|
|
United Way of Rochester, and North Carolina A&T
|
|
|
|
|
|
University.
|
|
|
|
|
Rajiv L. Gupta
|
Trustee
|
December 2001
|
Mr. Gupta is the former Chairman and Chief Executive
|
180
|
|
(1945)
|
|
|
Officer (retired 2009) and President (2006–2008) of
|
|
|
|
|
|
Rohm and Haas Co. (chemicals). Mr. Gupta serves as a
|
|
|
|
|
|
director of Tyco International, Ltd. (diversified
|
|
|
|
|
|
manufacturing and services), Hewlett-Packard
|
|
|
|
|
|
Company (electronic computer manufacturing), and
|
|
|
|
|
|
Delphi Automotive LLP (automotive components); as
|
|
|
|
|
|
Senior Advisor at New Mountain Capital; and as a
|
|
|
|
|
|
trustee of The Conference Board.
|
|
B-34
|
|
|
|
|
|
|
|
|
|
Principal Occupation(s)
|
Number of
|
|
|
|
Vanguard
|
and Outside Directorships
|
Vanguard Funds
|
|
|
Position(s)
|
Funds’ Trustee/
|
During the Past Five Years
|
Overseen by
|
|
Name, Year of Birth
|
Held with Funds
|
Officer Since
|
and Other Experience
|
Trustee/Officer
|
|
Amy Gutmann
|
Trustee
|
June 2006
|
Dr. Gutmann has served as the President of the
|
180
|
|
(1949)
|
|
|
University of Pennsylvania since 2004. She is the
|
|
|
|
|
|
Christopher H. Browne Distinguished Professor of
|
|
|
|
|
|
Political Science in the School of Arts and Sciences
|
|
|
|
|
|
with secondary appointments at the Annenberg
|
|
|
|
|
|
School for Communication and the Graduate School
|
|
|
|
|
|
of Education at the University of Pennsylvania.
|
|
|
|
|
|
Dr. Gutmann also serves on the National Commission
|
|
|
|
|
|
on the Humanities and Social Sciences, and as a
|
|
|
|
|
|
trustee of Carnegie Corporation of New York and of the
|
|
|
|
|
|
National Constitution Center. Dr. Gutmann is Chair of
|
|
|
|
|
|
the Presidential Commission for the Study of
|
|
|
|
|
|
Bioethical Issues.
|
|
|
|
|
JoAnn Heffernan Heisen
|
Trustee
|
July 1998
|
Ms. Heisen is the former Corporate Vice President
|
180
|
|
(1950)
|
|
|
and Chief Global Diversity Officer (retired 2008)
|
|
|
|
|
|
and a former Member of the Executive Committee
|
|
|
|
|
|
(1997–2008) of Johnson & Johnson (pharmaceuticals/
|
|
|
|
|
|
medical devices/consumer products). Ms. Heisen
|
|
|
|
|
|
served as Vice President and Chief Information Officer
|
|
|
|
|
|
of Johnson & Johnson from 1997 to 2005. Ms. Heisen
|
|
|
|
|
|
serves as a director of Skytop Lodge Corporation
|
|
|
|
|
|
(hotels), the University Medical Center at Princeton,
|
|
|
|
|
|
the Robert Wood Johnson Foundation, and the Center
|
|
|
|
|
|
for Talent Innovation; and as a member of the advisory
|
|
|
|
|
|
board of the Maxwell School of Citizenship and Public
|
|
|
|
|
|
Affairs at Syracuse University.
|
|
|
|
|
F. Joseph Loughrey
|
Trustee
|
October 2009
|
Mr. Loughrey is the former President and Chief
|
180
|
|
(1949)
|
|
|
Operating Officer (retired 2009) and Vice Chairman of
|
|
|
|
|
|
the Board (2008–2009) of Cummins Inc. (industrial
|
|
|
|
|
|
machinery). Mr. Loughrey serves as a director of
|
|
|
|
|
|
SKF AB (industrial machinery), Hillenbrand, Inc.
|
|
|
|
|
|
(specialized consumer services), the Lumina
|
|
|
|
|
|
Foundation for Education, and Oxfam America; and as
|
|
|
|
|
|
Chairman of the Advisory Council for the College of
|
|
|
|
|
|
Arts and Letters and Member of the Advisory Board to
|
|
|
|
|
|
the Kellogg Institute for International Studies at the
|
|
|
|
|
|
University of Notre Dame. Mr. Loughrey served as a
|
|
|
|
|
|
director of Sauer-Danfoss Inc. (machinery) from 2000
|
|
|
|
|
|
to 2010, of Cummins Inc. from 2005 to 2009, and of
|
|
|
|
|
|
Tower Automotive Inc. (manufacturer of automobile
|
|
|
|
|
|
components) from 1994 to 2007.
|
|
|
|
|
Mark Loughridge
|
Trustee
|
March 2012
|
Mr. Loughridge has served as Senior Vice President
|
180
|
|
(1953)
|
|
|
and Chief Financial Officer at IBM (information
|
|
|
|
|
|
technology services) since 2004. Mr. Loughridge also
|
|
|
|
|
|
serves as a fiduciary member of IBM’s Retirement Plan
|
|
|
|
|
|
Committee. Previous positions held by Mr. Loughridge
|
|
|
|
|
|
since joining IBM in 1977 include Senior Vice President
|
|
|
|
|
|
and General Manager of Global Financing (2002–2004),
|
|
|
|
|
|
Vice President and Controller (1998–2002), and a
|
|
|
|
|
|
variety of management roles.
|
|
B-35
|
|
|
|
|
|
|
|
|
|
Principal Occupation(s)
|
Number of
|
|
|
|
Vanguard
|
and Outside Directorships
|
Vanguard Funds
|
|
|
Position(s)
|
Funds’ Trustee/
|
During the Past Five Years
|
Overseen by
|
|
Name, Year of Birth
|
Held with Funds
|
Officer Since
|
and Other Experience
|
Trustee/Officer
|
|
Scott C. Malpass
|
Trustee
|
March 2012
|
Mr. Malpass has served as Chief Investment Officer
|
180
|
|
(1962)
|
|
|
since 1989 and Vice President since 1996 at the
|
|
|
|
|
|
University of Notre Dame. Mr. Malpass serves as an
|
|
|
|
|
|
Assistant Professor of Finance at the Mendoza College
|
|
|
|
|
|
of Business at the University of Notre Dame and is a
|
|
|
|
|
|
member of the Notre Dame 403(b) Investment
|
|
|
|
|
|
Committee. Mr. Malpass also serves on the board of
|
|
|
|
|
|
TIFF Advisory Services, Inc. (investment advisor), and
|
|
|
|
|
|
as a member of the investment advisory committees
|
|
|
|
|
|
of the Financial Industry Regulatory Authority (FINRA)
|
|
|
|
|
|
and of Major League Baseball.
|
|
|
|
|
André F. Perold
|
Trustee
|
December 2004
|
Dr. Perold is the former George Gund Professor of
|
180
|
|
(1952)
|
|
|
Finance and Banking at the Harvard Business School
|
|
|
|
|
|
(retired 2011). Dr. Perold serves as Chief Investment
|
|
|
|
|
|
Officer and Managing Partner of HighVista Strategies
|
|
|
|
|
|
LLC (private investment firm). Dr. Perold also serves as
|
|
|
|
|
|
a director of Rand Merchant Bank and as an overseer
|
|
|
|
|
|
of the Museum of Fine Arts Boston. From 2003 to
|
|
|
|
|
|
2009, Dr. Perold served as chairman of the board of
|
|
|
|
|
|
UNX, Inc. (equities trading firm).
|
|
|
|
|
Alfred M. Rankin, Jr.
|
Lead
|
January 1993
|
Mr. Rankin serves as Chairman, President, and Chief
|
180
|
|
(1941)
|
Independent
|
|
Executive Officer of NACCO Industries, Inc. (forklift
|
|
|
|
Trustee
|
|
trucks/housewares/lignite). Mr. Rankin also serves as a
|
|
|
|
|
|
director of Goodrich Corporation (industrial products/
|
|
|
|
|
|
aircraft systems and services) and the National
|
|
|
|
|
|
Association of Manufacturers; Chairman of the Board of
|
|
|
|
|
|
the Federal Reserve Bank of Cleveland and of University
|
|
|
|
|
|
Hospitals of Cleveland; and Advisory Chairman of the
|
|
|
|
|
|
Board of The Cleveland Museum of Art.
|
|
|
|
|
Peter F. Volanakis
|
Trustee
|
July 2009
|
Mr. Volanakis is the retired President and Chief
|
180
|
|
(1955)
|
|
|
Operating Officer (retired 2010) of Corning
|
|
|
|
|
|
Incorporated (communications equipment).
|
|
|
|
|
|
Mr. Volanakis served as a director of Corning
|
|
|
|
|
|
Incorporated (2000–2010) and of Dow Corning (2001–
|
|
|
|
|
|
2010). Mr. Volanakis serves as a director of SPX
|
|
|
|
|
|
Corporation (multi-industry manufacturing), as an
|
|
|
|
|
|
Overseer of the Amos Tuck School of Business
|
|
|
|
|
|
Administration at Dartmouth College, and as an
|
|
|
|
|
|
Advisor to the Norris Cotton Cancer Center.
|
|
|
|
|
Executive Officers
|
|
|
|
|
|
Glenn Booraem
|
Controller
|
July 2010
|
Mr. Booraem, a Principal of Vanguard, has served as
|
180
|
|
(1967)
|
|
|
Controller of each of the investment companies served
|
|
|
|
|
|
by Vanguard, since 2010. Mr. Booraem served as
|
|
|
|
|
|
Assistant Controller of each of the investment
|
|
|
|
|
|
companies served by Vanguard, from 2001 to 2010.
|
|
|
|
|
Thomas J. Higgins
|
Chief Financial
|
September 2008
|
Mr. Higgins, a Principal of Vanguard, has served as Chief
|
180
|
|
(1957)
|
Officer
|
|
Financial Officer of each of the investment companies
|
|
|
|
|
|
served by Vanguard, since 2008. Mr. Higgins served as
|
|
|
|
|
|
Treasurer of each of the investment companies served
|
|
|
|
|
|
by Vanguard, from 1998 to 2008.
|
|
B-36
|
|
|
|
|
|
|
|
|
|
Principal Occupation(s)
|
Number of
|
|
|
|
Vanguard
|
and Outside Directorships
|
Vanguard Funds
|
|
|
Position(s)
|
Funds’ Trustee/
|
During the Past Five Years
|
Overseen by
|
|
Name, Year of Birth
|
Held with Funds
|
Officer Since
|
and Other Experience
|
Trustee/Officer
|
|
Kathryn J. Hyatt
|
Treasurer
|
November 2008
|
Ms. Hyatt, a Principal of Vanguard, has served as
|
180
|
|
(1955)
|
|
|
Treasurer of each of the investment companies served
|
|
|
|
|
|
by Vanguard, since 2008. Ms. Hyatt served as
|
|
|
|
|
|
Assistant Treasurer of each of the investment
|
|
|
|
|
|
companies served by Vanguard, from 1988 to 2008.
|
|
|
|
|
Heidi Stam
|
Secretary
|
July 2005
|
Ms. Stam has served as a Managing Director of
|
180
|
|
(1956)
|
|
|
Vanguard since 2006; General Counsel of Vanguard
|
|
|
|
|
|
since 2005; Secretary of Vanguard and of each of the
|
|
|
|
|
|
investment companies served by Vanguard, since
|
|
|
|
|
|
2005; and Director and Senior Vice President of
|
|
|
|
|
|
Vanguard Marketing Corporation since 2005. Ms. Stam
|
|
|
|
|
|
served as a Principal of Vanguard from 1997 to 2006.
|
|
All but one of the trustees are independent. The independent trustees designate a lead independent trustee. The lead independent trustee is a spokesperson and principal point of contact for the independent trustees and is responsible for coordinating the activities of the independent trustees, including calling regular executive sessions of the independent trustees; developing the agenda of each meeting together with the chairman; and chairing the meetings of the independent trustees, including the meetings of the audit, compensation, and nominating committees.
The independent trustees appoint the chairman of the board. The roles of chairman of the board and chief executive officer currently are held by the same person; as a result, the chairman of the board is an “interested” trustee. The independent trustees generally believe that the Vanguard funds’ chief executive officer is best qualified to serve as chairman and that fund shareholders benefit from this leadership structure through accountability and strong day-to-day leadership.
Board Committees: The Trust‘s board has the following committees:
-
Audit Committee: This committee oversees the accounting and financial reporting policies, the systems of internal
controls, and the independent audits of each fund. All independent trustees serve as members of the committee. The
committee held four meetings during the Funds‘ last fiscal year.
-
Compensation Committee: This committee oversees the compensation programs established by each fund for the
benefit of its trustees. All independent trustees serve as members of the committee. The committee held three
meetings during the Funds‘ last fiscal year.
-
Nominating Committee: This committee nominates candidates for election to the board of trustees of each fund. The
committee also has the authority to recommend the removal of any trustee. All independent trustees serve as
members of the committee. The committee held five meetings during the Funds‘ last fiscal year.
The Nominating Committee will consider shareholder recommendations for trustee nominees. Shareholders may send recommendations to Mr. Rankin, Chairman of the Committee.
Trustee Compensation
The same individuals serve as trustees of all Vanguard funds and each fund pays a proportionate share of the trustees’ compensation. The funds also employ their officers on a shared basis; however, officers are compensated by Vanguard, not the funds.
Independent Trustees.
The funds compensate their independent trustees (i.e., the ones who are not also officers of the funds) in three ways:
-
The independent trustees receive an annual fee for their service to the funds, which is subject to reduction based on
absences from scheduled board meetings.
-
The independent trustees are reimbursed for the travel and other expenses that they incur in attending board meetings.
-
Upon retirement (after attaining age 65 and completing five years of service), the independent trustees who began
their service prior to January 1, 2001, receive a retirement benefit under a separate account arrangement. As of
January 1, 2001, the opening balance of each eligible trustee’s separate account was generally equal to the net
B-37
present value of the benefits he or she had accrued under the trustees’ former retirement plan. Each eligible trustee’s separate account will be credited annually with interest at a rate of 7.5% until the trustee receives his or her final distribution. Those independent trustees who began their service on or after January 1, 2001, are not eligible to participate in the plan.
“Interested” Trustee.
Mr. McNabb serves as trustee, but is not paid in this capacity. He is, however, paid in his role as an officer of Vanguard.
Compensation Table.
The following table provides compensation details for each of the trustees. We list the amounts paid as compensation and accrued as retirement benefits by the Funds for each trustee. In addition, the table shows the total amount of benefits that we expect each trustee to receive from all Vanguard funds upon retirement, and the total amount of compensation paid to each trustee by all Vanguard funds.
|
|
|
|
|
|
|
VANGUARD WORLD FUND
|
|
TRUSTEES’ COMPENSATION TABLE
|
|
|
|
|
|
Pension or Retirement
|
Accrued Annual
|
Total Compensation
|
|
|
Aggregate
|
Benefits Accrued
|
Retirement
|
from All Vanguard
|
|
|
Compensation
|
as Part of the
|
Benefit at
|
Funds Paid
|
|
Trustee
|
from the Funds
1
|
Funds’ Expenses
1
|
January 1,
2013
2
|
to Trustees
3
|
|
F. William McNabb III
|
—
|
—
|
—
|
—
|
|
Emerson U. Fullwood
|
$7,449
|
—
|
—
|
$215,000
|
|
Rajiv L. Gupta
|
7,449
|
—
|
—
|
215,000
|
|
Amy Gutmann
|
7,449
|
—
|
—
|
208,900
|
|
JoAnn Heffernan Heisen
|
7,449
|
$285
|
$ 5,623
|
215,000
|
|
F. Joseph Loughrey
|
7,449
|
—
|
—
|
215,000
|
|
Mark Loughridge
4
|
2,985
|
—
|
—
|
174,133
|
|
Scott C. Malpass
4
|
2,985
|
—
|
—
|
180,233
|
|
André F. Perold
|
7,449
|
—
|
—
|
215,000
|
|
Alfred M. Rankin, Jr.
|
8,514
|
472
|
11,020
|
245,000
|
|
Peter F. Volanakis
|
7,449
|
—
|
—
|
215,000
|
|
1
|
The amounts shown in this column are based on the Trust‘s fiscal year ended August 31, 2012. Each Fund within the Trust is responsible for a proportionate share of these amounts.
|
|
2
|
Each trustee is eligible to receive retirement benefits only after completing at least 5 years (60 consecutive months) of service as a trustee for the Vanguard funds. The annual retirement benefit will be paid in monthly installments, beginning with the month following the trustee’s retirement from service, and will cease after 10 years of payments (120 monthly installments). Trustees who began their service on or after January 1, 2001, are not eligible to participate in the retirement benefit plan.
|
|
3
|
The amounts reported in this column reflect the total compensation paid to each trustee for his or her service as trustee of 180 Vanguard funds for the 2012 calendar year.
|
|
4
|
Mr. Loughridge and Mr. Malpass became trustees effective March 22, 2012.
|
B-38
Ownership of Fund Shares
All trustees allocate their investments among the various Vanguard funds based on their own investment needs. The following table shows each trustee’s ownership of shares of each Fund and of all Vanguard funds served by the trustee as of
December 31, 2012
.
|
|
|
|
|
|
|
|
Dollar Range of
|
Aggregate Dollar Range of
|
|
|
|
Fund Shares Owned
|
Vanguard Fund Shares
|
|
Vanguard
Fund
|
Trustee
|
by Trustee
|
Owned by Trustee
|
|
U.S. Growth Fund
|
Emerson U. Fullwood
|
—
|
Over $100,000
|
|
|
Rajiv L. Gupta
|
—
|
Over $100,000
|
|
|
Amy Gutmann
|
—
|
Over $100,000
|
|
|
JoAnn Heffernan Heisen
|
—
|
Over $100,000
|
|
|
F. Joseph Loughrey
|
—
|
Over $100,000
|
|
|
Mark Loughridge
|
—
|
Over $100,000
|
|
|
Scott C. Malpass
|
—
|
Over $100,000
|
|
|
F. William McNabb III
|
Over $100,000
|
Over $100,000
|
|
|
André F. Perold
|
—
|
Over $100,000
|
|
|
Alfred M. Rankin, Jr.
|
—
|
Over $100,000
|
|
|
Peter F. Volanakis
|
—
|
Over $100,000
|
|
|
|
International Growth Fund
|
Emerson U. Fullwood
|
—
|
Over $100,000
|
|
|
Rajiv L. Gupta
|
—
|
Over $100,000
|
|
|
Amy Gutmann
|
—
|
Over $100,000
|
|
|
JoAnn Heffernan Heisen
|
Over $100,000
|
Over $100,000
|
|
|
F. Joseph Loughrey
|
—
|
Over $100,000
|
|
|
Mark Loughridge
|
—
|
Over $100,000
|
|
|
Scott C. Malpass
|
—
|
Over $100,000
|
|
|
F. William McNabb III
|
Over $100,000
|
Over $100,000
|
|
|
André F. Perold
|
—
|
Over $100,000
|
|
|
Alfred M. Rankin, Jr.
|
Over $100,000
|
Over $100,000
|
|
|
Peter F. Volanakis
|
—
|
Over $100,000
|
|
|
|
FTSE Social Index Fund
|
Emerson U. Fullwood
|
—
|
Over $100,000
|
|
|
Rajiv L. Gupta
|
—
|
Over $100,000
|
|
|
Amy Gutmann
|
—
|
Over $100,000
|
|
|
JoAnn Heffernan Heisen
|
—
|
Over $100,000
|
|
|
F. Joseph Loughrey
|
—
|
Over $100,000
|
|
|
Mark Loughridge
|
—
|
Over $100,000
|
|
|
Scott C. Malpass
|
—
|
Over $100,000
|
|
|
F. William McNabb III
|
—
|
Over $100,000
|
|
|
André F. Perold
|
—
|
Over $100,000
|
|
|
Alfred M. Rankin, Jr.
|
—
|
Over $100,000
|
|
|
Peter F. Volanakis
|
—
|
Over $100,000
|
B-39
|
|
|
|
|
|
|
|
Dollar Range of
|
Aggregate Dollar Range of
|
|
|
|
Fund Shares Owned
|
Vanguard Fund Shares
|
|
Vanguard
Fund
|
Trustee
|
by Trustee
|
Owned by Trustee
|
|
Consumer Discretionary Index Fund
|
Emerson U. Fullwood
|
—
|
Over $100,000
|
|
|
Rajiv L. Gupta
|
—
|
Over $100,000
|
|
|
Amy Gutmann
|
—
|
Over $100,000
|
|
|
JoAnn Heffernan Heisen
|
—
|
Over $100,000
|
|
|
F. Joseph Loughrey
|
—
|
Over $100,000
|
|
|
Mark Loughridge
|
—
|
Over $100,000
|
|
|
Scott C. Malpass
|
—
|
Over $100,000
|
|
|
F. William McNabb III
|
—
|
Over $100,000
|
|
|
André F. Perold
|
—
|
Over $100,000
|
|
|
Alfred M. Rankin, Jr.
|
—
|
Over $100,000
|
|
|
Peter F. Volanakis
|
—
|
Over $100,000
|
|
|
|
Consumer Staples Index Fund
|
Emerson U. Fullwood
|
—
|
Over $100,000
|
|
|
Rajiv L. Gupta
|
—
|
Over $100,000
|
|
|
Amy Gutmann
|
—
|
Over $100,000
|
|
|
JoAnn Heffernan Heisen
|
—
|
Over $100,000
|
|
|
F. Joseph Loughrey
|
—
|
Over $100,000
|
|
|
Mark Loughridge
|
—
|
Over $100,000
|
|
|
Scott C. Malpass
|
—
|
Over $100,000
|
|
|
F. William McNabb III
|
—
|
Over $100,000
|
|
|
André F. Perold
|
—
|
Over $100,000
|
|
|
Alfred M. Rankin, Jr.
|
—
|
Over $100,000
|
|
|
Peter F. Volanakis
|
—
|
Over $100,000
|
|
|
|
Energy Index Fund
|
Emerson U. Fullwood
|
—
|
Over $100,000
|
|
|
Rajiv L. Gupta
|
—
|
Over $100,000
|
|
|
Amy Gutmann
|
—
|
Over $100,000
|
|
|
JoAnn Heffernan Heisen
|
—
|
Over $100,000
|
|
|
F. Joseph Loughrey
|
—
|
Over $100,000
|
|
|
Mark Loughridge
|
—
|
Over $100,000
|
|
|
Scott C. Malpass
|
—
|
Over $100,000
|
|
|
F. William McNabb III
|
—
|
Over $100,000
|
|
|
André F. Perold
|
—
|
Over $100,000
|
|
|
Alfred M. Rankin, Jr.
|
—
|
Over $100,000
|
|
|
Peter F. Volanakis
|
—
|
Over $100,000
|
B-40
|
|
|
|
|
|
|
|
Dollar Range of
|
Aggregate Dollar Range of
|
|
|
|
Fund Shares Owned
|
Vanguard Fund Shares
|
|
Vanguard
Fund
|
Trustee
|
by Trustee
|
Owned by Trustee
|
|
Financials Index Fund
|
Emerson U. Fullwood
|
—
|
Over $100,000
|
|
|
Rajiv L. Gupta
|
—
|
Over $100,000
|
|
|
Amy Gutmann
|
—
|
Over $100,000
|
|
|
JoAnn Heffernan Heisen
|
—
|
Over $100,000
|
|
|
F. Joseph Loughrey
|
—
|
Over $100,000
|
|
|
Mark Loughridge
|
—
|
Over $100,000
|
|
|
Scott C. Malpass
|
$10,001–$50,000
|
Over $100,000
|
|
|
F. William McNabb III
|
—
|
Over $100,000
|
|
|
André F. Perold
|
—
|
Over $100,000
|
|
|
Alfred M. Rankin, Jr.
|
—
|
Over $100,000
|
|
|
Peter F. Volanakis
|
—
|
Over $100,000
|
|
|
|
Health Care Index Fund
|
Emerson U. Fullwood
|
—
|
Over $100,000
|
|
|
Rajiv L. Gupta
|
—
|
Over $100,000
|
|
|
Amy Gutmann
|
—
|
Over $100,000
|
|
|
JoAnn Heffernan Heisen
|
—
|
Over $100,000
|
|
|
F. Joseph Loughrey
|
—
|
Over $100,000
|
|
|
Mark Loughridge
|
—
|
Over $100,000
|
|
|
Scott C. Malpass
|
—
|
Over $100,000
|
|
|
F. William McNabb III
|
—
|
Over $100,000
|
|
|
André F. Perold
|
—
|
Over $100,000
|
|
|
Alfred M. Rankin, Jr.
|
—
|
Over $100,000
|
|
|
Peter F. Volanakis
|
—
|
Over $100,000
|
|
|
|
Industrials Index Fund
|
Emerson U. Fullwood
|
—
|
Over $100,000
|
|
|
Rajiv L. Gupta
|
—
|
Over $100,000
|
|
|
Amy Gutmann
|
—
|
Over $100,000
|
|
|
JoAnn Heffernan Heisen
|
—
|
Over $100,000
|
|
|
F. Joseph Loughrey
|
—
|
Over $100,000
|
|
|
Mark Loughridge
|
—
|
Over $100,000
|
|
|
Scott C. Malpass
|
—
|
Over $100,000
|
|
|
F. William McNabb III
|
—
|
Over $100,000
|
|
|
André F. Perold
|
—
|
Over $100,000
|
|
|
Alfred M. Rankin, Jr.
|
—
|
Over $100,000
|
|
|
Peter F. Volanakis
|
—
|
Over $100,000
|
B-41
|
|
|
|
|
|
|
|
Dollar Range of
|
Aggregate Dollar Range of
|
|
|
|
Fund Shares Owned
|
Vanguard Fund Shares
|
|
Vanguard
Fund
|
Trustee
|
by Trustee
|
Owned by Trustee
|
|
Information Technology Index Fund
|
Emerson U. Fullwood
|
—
|
Over $100,000
|
|
|
Rajiv L. Gupta
|
—
|
Over $100,000
|
|
|
Amy Gutmann
|
—
|
Over $100,000
|
|
|
JoAnn Heffernan Heisen
|
—
|
Over $100,000
|
|
|
F. Joseph Loughrey
|
—
|
Over $100,000
|
|
|
Mark Loughridge
|
—
|
Over $100,000
|
|
|
Scott C. Malpass
|
—
|
Over $100,000
|
|
|
F. William McNabb III
|
—
|
Over $100,000
|
|
|
André F. Perold
|
—
|
Over $100,000
|
|
|
Alfred M. Rankin, Jr.
|
—
|
Over $100,000
|
|
|
Peter F. Volanakis
|
—
|
Over $100,000
|
|
|
|
Materials Index Fund
|
Emerson U. Fullwood
|
—
|
Over $100,000
|
|
|
Rajiv L. Gupta
|
—
|
Over $100,000
|
|
|
Amy Gutmann
|
—
|
Over $100,000
|
|
|
JoAnn Heffernan Heisen
|
—
|
Over $100,000
|
|
|
F. Joseph Loughrey
|
—
|
Over $100,000
|
|
|
Mark Loughridge
|
—
|
Over $100,000
|
|
|
Scott C. Malpass
|
—
|
Over $100,000
|
|
|
F. William McNabb III
|
—
|
Over $100,000
|
|
|
André F. Perold
|
—
|
Over $100,000
|
|
|
Alfred M. Rankin, Jr.
|
—
|
Over $100,000
|
|
|
Peter F. Volanakis
|
—
|
Over $100,000
|
|
|
|
Telecommunications Services Index Fund
|
Emerson U. Fullwood
|
—
|
Over $100,000
|
|
|
Rajiv L. Gupta
|
—
|
Over $100,000
|
|
|
Amy Gutmann
|
—
|
Over $100,000
|
|
|
JoAnn Heffernan Heisen
|
—
|
Over $100,000
|
|
|
F. Joseph Loughrey
|
—
|
Over $100,000
|
|
|
Mark Loughridge
|
—
|
Over $100,000
|
|
|
Scott C. Malpass
|
—
|
Over $100,000
|
|
|
F. William McNabb III
|
—
|
Over $100,000
|
|
|
André F. Perold
|
—
|
Over $100,000
|
|
|
Alfred M. Rankin, Jr.
|
—
|
Over $100,000
|
|
|
Peter F. Volanakis
|
—
|
Over $100,000
|
B-42
|
|
|
|
|
|
|
|
Dollar Range of
|
Aggregate Dollar Range of
|
|
|
|
Fund Shares Owned
|
Vanguard Fund Shares
|
|
Vanguard
Fund
|
Trustee
|
by Trustee
|
Owned by Trustee
|
|
Utilities Index Fund
|
Emerson U. Fullwood
|
—
|
Over $100,000
|
|
|
Rajiv L. Gupta
|
—
|
Over $100,000
|
|
|
Amy Gutmann
|
—
|
Over $100,000
|
|
|
JoAnn Heffernan Heisen
|
—
|
Over $100,000
|
|
|
F. Joseph Loughrey
|
—
|
Over $100,000
|
|
|
Mark Loughridge
|
—
|
Over $100,000
|
|
|
Scott C. Malpass
|
—
|
Over $100,000
|
|
|
F. William McNabb III
|
—
|
Over $100,000
|
|
|
André F. Perold
|
—
|
Over $100,000
|
|
|
Alfred M. Rankin, Jr.
|
—
|
Over $100,000
|
|
|
Peter F. Volanakis
|
—
|
Over $100,000
|
|
|
|
Extended Duration Treasury Index Fund
|
Emerson U. Fullwood
|
—
|
Over $100,000
|
|
|
Rajiv L. Gupta
|
—
|
Over $100,000
|
|
|
Amy Gutmann
|
—
|
Over $100,000
|
|
|
JoAnn Heffernan Heisen
|
—
|
Over $100,000
|
|
|
F. Joseph Loughrey
|
—
|
Over $100,000
|
|
|
Mark Loughridge
|
—
|
Over $100,000
|
|
|
Scott C. Malpass
|
—
|
Over $100,000
|
|
|
F. William McNabb III
|
—
|
Over $100,000
|
|
|
André F. Perold
|
—
|
Over $100,000
|
|
|
Alfred M. Rankin, Jr.
|
—
|
Over $100,000
|
|
|
Peter F. Volanakis
|
—
|
Over $100,000
|
|
|
|
Mega Cap Index Fund
|
Emerson U. Fullwood
|
—
|
Over $100,000
|
|
|
Rajiv L. Gupta
|
—
|
Over $100,000
|
|
|
Amy Gutmann
|
—
|
Over $100,000
|
|
|
JoAnn Heffernan Heisen
|
—
|
Over $100,000
|
|
|
F. Joseph Loughrey
|
—
|
Over $100,000
|
|
|
Mark Loughridge
|
—
|
Over $100,000
|
|
|
Scott C. Malpass
|
—
|
Over $100,000
|
|
|
F. William McNabb III
|
—
|
Over $100,000
|
|
|
André F. Perold
|
—
|
Over $100,000
|
|
|
Alfred M. Rankin, Jr.
|
—
|
Over $100,000
|
|
|
Peter F. Volanakis
|
—
|
Over $100,000
|
B-43
|
|
|
|
|
|
|
|
Dollar Range of
|
Aggregate Dollar Range of
|
|
|
|
Fund Shares Owned
|
Vanguard Fund Shares
|
|
Vanguard
Fund
|
Trustee
|
by Trustee
|
Owned by Trustee
|
|
Mega Cap 300 Value Index Fund
|
Emerson U. Fullwood
|
—
|
Over $100,000
|
|
|
Rajiv L. Gupta
|
—
|
Over $100,000
|
|
|
Amy Gutmann
|
—
|
Over $100,000
|
|
|
JoAnn Heffernan Heisen
|
—
|
Over $100,000
|
|
|
F. Joseph Loughrey
|
—
|
Over $100,000
|
|
|
Mark Loughridge
|
—
|
Over $100,000
|
|
|
Scott C. Malpass
|
—
|
Over $100,000
|
|
|
F. William McNabb III
|
—
|
Over $100,000
|
|
|
André F. Perold
|
—
|
Over $100,000
|
|
|
Alfred M. Rankin, Jr.
|
—
|
Over $100,000
|
|
|
Peter F. Volanakis
|
—
|
Over $100,000
|
|
|
|
Mega Cap 300 Growth Index Fund
|
Emerson U. Fullwood
|
—
|
Over $100,000
|
|
|
Rajiv L. Gupta
|
—
|
Over $100,000
|
|
|
Amy Gutmann
|
—
|
Over $100,000
|
|
|
JoAnn Heffernan Heisen
|
—
|
Over $100,000
|
|
|
F. Joseph Loughrey
|
—
|
Over $100,000
|
|
|
Mark Loughridge
|
—
|
Over $100,000
|
|
|
Scott C. Malpass
|
—
|
Over $100,000
|
|
|
F. William McNabb III
|
—
|
Over $100,000
|
|
|
André F. Perold
|
—
|
Over $100,000
|
|
|
Alfred M. Rankin, Jr.
|
—
|
Over $100,000
|
|
|
Peter F. Volanakis
|
—
|
Over $100,000
|
As of
March 31, 2013,
the trustees and officers of the funds owned, in the aggregate, less than 1% of each class of each fund’s outstanding shares.
As of
March 31, 2013
, the following owned of record 5% or more of the outstanding shares of each class:
XX
Although the Funds do not have information concerning the beneficial ownership of shares held in the names of Depository Trust Company (DTC) participants, as of
March 31, 2013,
the name and percentage ownership of each DTC participant that owned of record 5% or more of the outstanding ETF Shares of a Fund were as follows:
XX
Portfolio Holdings Disclosure Policies and Procedures
Introduction
Vanguard and the Boards of Trustees of the Vanguard funds (Boards) have adopted Portfolio Holdings Disclosure Policies and Procedures (Policies and Procedures) to govern the disclosure of the portfolio holdings of each Vanguard fund. Vanguard and the Boards considered each of the circumstances under which Vanguard fund portfolio holdings may be disclosed to different categories of persons under the Policies and Procedures. Vanguard and the Boards also considered actual and potential material conflicts that could arise in such circumstances between the interests of Vanguard fund shareholders, on the one hand, and those of the fund’s investment advisor, distributor, or any affiliated person of the fund, its investment advisor, or its distributor, on the other. After giving due consideration to such matters and after the exercise of their fiduciary duties and reasonable business judgment, Vanguard and the Boards determined that the Vanguard funds have a legitimate business purpose for disclosing portfolio holdings to the persons described in each of
B-44
the circumstances set forth in the Policies and Procedures and that the Policies and Procedures are reasonably designed to ensure that disclosure of portfolio holdings and information about portfolio holdings is in the best interests of fund shareholders and appropriately addresses the potential for material conflicts of interest.
The Boards exercise continuing oversight of the disclosure of Vanguard fund portfolio holdings by (1) overseeing the implementation and enforcement of the Policies and Procedures, the Code of Ethics, and the Policies and Procedures Designed to Prevent the Misuse of Inside Information (collectively, the portfolio holdings governing policies) by the Chief Compliance Officer of Vanguard and the Vanguard funds; (2) considering reports and recommendations by the Chief Compliance Officer concerning any material compliance matters (as defined in Rule 38a-1 under the 1940 Act and Rule 206(4)-7 under the Investment Advisers Act of 1940) that may arise in connection with any portfolio holdings governing policies; and (3) considering whether to approve or ratify any amendment to any portfolio holdings governing policies. Vanguard and the Boards reserve the right to amend the Policies and Procedures at any time and from time to time without prior notice at their sole discretion. For purposes of the Policies and Procedures, the term “portfolio holdings” means the equity and debt securities (e.g., stocks and bonds) held by a Vanguard fund and does not mean the cash investments, derivatives, and other investment positions (collectively, other investment positions) held by the fund.
Online Disclosure of Ten Largest Stock Holdings
Each of the Vanguard equity funds and Vanguard balanced funds generally will seek to disclose the fund’s ten largest stock portfolio holdings and the percentages that each of these ten largest stock portfolio holdings represents of the fund’s total assets as of the end of the most recent calendar quarter (quarter-end ten largest stock holdings) online at
vanguard.com,
in the “Portfolio” section of the fund’s Portfolio & Management page, 15 calendar days after the end of the calendar quarter. In addition, those funds generally will seek to disclose the fund’s ten largest stock portfolio holdings as of the end of the most recent month (month-end ten largest stock holdings) online at
vanguard.com,
in the “Portfolio” section of the fund’s Portfolio & Management page, 10 business days after the end of the month. Together, the quarter-end and month-end ten largest stock holdings are referred to as the ten largest stock holdings. Online disclosure of the ten largest stock holdings is made to all categories of persons, including individual investors, institutional investors, intermediaries, third-party service providers, rating and ranking organizations, affiliated persons of a Vanguard fund, and all other persons.
Online Disclosure of Complete Portfolio Holdings
Each of the Vanguard funds, excluding Vanguard money market funds and Vanguard Market Neutral Fund, generally will seek to disclose the fund’s complete portfolio holdings as of the end of the most recent calendar quarter online at
vanguard.com,
in the “Portfolio” section of the fund’s Portfolio & Management page, 30 calendar days after the end of the calendar quarter. In accordance with Rule 2a-7 under the 1940 Act, each of the Vanguard money market funds will disclose the fund’s complete portfolio holdings as of the last business day of the prior month online at
vanguard.com,
in the “Portfolio” section of the fund’s Portfolio & Management page, no later than the fifth business day of the current month. The complete portfolio holdings information for money market funds will remain available online for at least six months after the initial posting. Vanguard Market Neutral Fund generally will seek to disclose the Fund’s complete portfolio holdings as of the end of the most recent calendar quarter online at
vanguard.com,
in the “Portfolio” section of the Fund’s Portfolio & Management page, 60 calendar days after the end of the calendar quarter. Online disclosure of complete portfolio holdings is made to all categories of persons, including individual investors, institutional investors, intermediaries, third-party service providers, rating and ranking organizations, affiliated persons of a Vanguard fund, and all other persons. Vanguard’s Portfolio Review Department will review complete portfolio holdings before online disclosure is made and, except with respect to the complete portfolio holdings of the Vanguard money market funds, may withhold any portion of the fund’s complete portfolio holdings from online disclosure when deemed to be in the best interests of the fund after consultation with a Vanguard fund’s investment advisor.
Disclosure of Complete Portfolio Holdings to Service Providers Subject to Confidentiality and Trading Restrictions
Vanguard, for legitimate business purposes, may disclose Vanguard fund complete portfolio holdings at times it deems necessary and appropriate to rating and ranking organizations; financial printers; proxy voting service providers; pricing information vendors; third parties that deliver analytical, statistical, or consulting services; and other third parties that provide services (collectively, Service Providers) to Vanguard, Vanguard subsidiaries, and/or the Vanguard funds. Disclosure of
B-45
complete portfolio holdings to a Service Provider is conditioned on the Service Provider being subject to a written agreement imposing a duty of confidentiality, including a duty not to trade on the basis of any material nonpublic information.
The frequency with which complete portfolio holdings may be disclosed to a Service Provider, and the length of the lag, if any, between the date of the information and the date on which the information is disclosed to the Service Provider, is determined based on the facts and circumstances, including, without limitation, the nature of the portfolio holdings information to be disclosed, the risk of harm to the funds and their shareholders, and the legitimate business purposes served by such disclosure. The frequency of disclosure to a Service Provider varies and may be as frequent as daily, with no lag. Disclosure of Vanguard fund complete portfolio holdings by Vanguard to a Service Provider must be authorized by a Vanguard fund officer or a Principal in Vanguard’s Portfolio Review or Legal Department. Any disclosure of Vanguard fund complete portfolio holdings to a Service Provider as previously described may also include a list of the other investment positions that make up the fund, such as cash investments and derivatives.
Currently, Vanguard fund complete portfolio holdings are disclosed to the following Service Providers as part of ongoing arrangements that serve legitimate business purposes: Abel/Noser Corporation; Advisor Software, Inc.; Alcom Printing Group Inc.; Apple Press, L.C.; Bloomberg L.P.; Brilliant Graphics, Inc.; Broadridge Financial Solutions, Inc.; Brown Brothers Harriman & Co.; FactSet Research Systems Inc.; Innovation Printing & Communications; Institutional Shareholder Services, Inc.; Intelligencer Printing Company; Investment Technology Group, Inc.; Lipper, Inc.; Markit WSO Corporation; McMunn Associates Inc.; Oce’ Business Services, Inc.; Reuters America Inc.; R.R. Donnelley, Inc.; State Street Bank and Trust Company; Triune Color Corporation; and Tursack Printing Inc.
Disclosure of Complete Portfolio Holdings to Vanguard Affiliates and Certain Fiduciaries Subject to Confidentiality and Trading Restrictions
Vanguard fund complete portfolio holdings may be disclosed between and among the following persons (collectively, Affiliates and Fiduciaries) for legitimate business purposes within the scope of their official duties and responsibilities, subject to such persons’ continuing legal duty of confidentiality and legal duty not to trade on the basis of any material nonpublic information, as such duties are imposed under the Code of Ethics, the Policies and Procedures Designed to Prevent the Misuse of Inside Information, by agreement, or under applicable laws, rules, and regulations: (1) persons who are subject to the Code of Ethics or the Policies and Procedures Designed to Prevent the Misuse of Inside Information; (2) an investment advisor, distributor, administrator, transfer agent, or custodian to a Vanguard fund; (3) an accounting firm, an auditing firm, or outside legal counsel retained by Vanguard, a Vanguard subsidiary, or a Vanguard fund; (4) an investment advisor to whom complete portfolio holdings are disclosed for due diligence purposes when the advisor is in merger or acquisition talks with a Vanguard fund’s current advisor; and (5) a newly hired investment advisor or sub-advisor to whom complete portfolio holdings are disclosed prior to the time it commences its duties.
The frequency with which complete portfolio holdings may be disclosed between and among Affiliates and Fiduciaries, and the length of the lag, if any, between the date of the information and the date on which the information is disclosed between and among the Affiliates and Fiduciaries, is determined by such Affiliates and Fiduciaries based on the facts and circumstances, including, without limitation, the nature of the portfolio holdings information to be disclosed, the risk of harm to the funds and their shareholders, and the legitimate business purposes served by such disclosure. The frequency of disclosure between and among Affiliates and Fiduciaries varies and may be as frequent as daily, with no lag. Any disclosure of Vanguard fund complete portfolio holdings to any Affiliates and Fiduciaries as previously described may also include a list of the other investment positions that make up the fund, such as cash investments and derivatives. Disclosure of Vanguard fund complete portfolio holdings or other investment positions by Vanguard, Vanguard Marketing Corporation, or a Vanguard fund to Affiliates and Fiduciaries must be authorized by a Vanguard fund officer or a Principal of Vanguard.
Currently, Vanguard fund complete portfolio holdings are disclosed to the following Affiliates and Fiduciaries as part of ongoing arrangements that serve legitimate business purposes: Vanguard and each investment advisor, custodian, and independent registered public accounting firm identified in each fund’s Statement of Additional Information.
Disclosure of Portfolio Holdings to Broker-Dealers in the Normal Course of Managing a Fund’s Assets
An investment advisor, administrator, or custodian for a Vanguard fund may, for legitimate business purposes within the scope of its official duties and responsibilities, disclose portfolio holdings (whether partial portfolio holdings or complete portfolio holdings) and other investment positions that make up the fund to one or more broker-dealers during the course
B-46
of, or in connection with, normal day-to-day securities and derivatives transactions with or through such broker-dealers subject to the broker-dealer’s legal obligation not to use or disclose material nonpublic information concerning the fund’s portfolio holdings, other investment positions, securities transactions, or derivatives transactions without the consent of the fund or its agents. The Vanguard funds have not given their consent to any such use or disclosure and no person or agent of Vanguard is authorized to give such consent except as approved in writing by the Boards of the Vanguard funds. Disclosure of portfolio holdings or other investment positions by Vanguard to broker-dealers must be authorized by a Vanguard fund officer or a Principal of Vanguard.
Disclosure of Nonmaterial Information
The Policies and Procedures permit Vanguard fund officers, Vanguard fund portfolio managers, and other Vanguard representatives (collectively, Approved Vanguard Representatives) to disclose any views, opinions, judgments, advice, or commentary, or any analytical, statistical, performance, or other information, in connection with or relating to a Vanguard fund or its portfolio holdings and/or other investment positions (collectively, commentary and analysis) or any changes in the portfolio holdings of a Vanguard fund that occurred after the end of the most recent calendar quarter (recent portfolio changes) to any person if (1) such disclosure serves a legitimate business purpose, (2) such disclosure does not effectively result in the disclosure of the complete portfolio holdings of any Vanguard fund (which can be disclosed only in accordance with the Policies and Procedures), and (3) such information does not constitute material nonpublic information. Disclosure of commentary and analysis or recent portfolio changes by Vanguard, Vanguard Marketing Corporation, or a Vanguard fund must be authorized by a Vanguard fund officer or a Principal of Vanguard.
An Approved Vanguard Representative must make a good faith determination whether the information constitutes material nonpublic information, which involves an assessment of the particular facts and circumstances. Vanguard believes that in most cases recent portfolio changes that involve a few or even several securities in a diversified portfolio or commentary and analysis would be immaterial and would not convey any advantage to a recipient in making an investment decision concerning a Vanguard fund. Nonexclusive examples of commentary and analysis about a Vanguard fund include (1) the allocation of the fund’s portfolio holdings and other investment positions among various asset classes, sectors, industries, and countries; (2) the characteristics of the stock and bond components of the fund’s portfolio holdings and other investment positions; (3) the attribution of fund returns by asset class, sector, industry, and country; and (4) the volatility characteristics of the fund. Approved Vanguard Representatives may, at their sole discretion, deny any request for information made by any person, and may do so for any reason or for no reason. Approved Vanguard Representatives include, for purposes of the Policies and Procedures, persons employed by or associated with Vanguard or a subsidiary of Vanguard who have been authorized by Vanguard’s Portfolio Review Department to disclose recent portfolio changes and/or commentary and analysis in accordance with the Policies and Procedures.
Disclosure of Portfolio Holdings in Accordance with SEC Exemptive Orders
Vanguard’s Fund Financial Services unit may disclose to the National Securities Clearing Corporation (NSCC), Authorized Participants, and other market makers the daily portfolio composition files (PCFs) that identify a basket of specified securities that may overlap with the actual or expected portfolio holdings of the Vanguard funds that offer a class of shares known as Vanguard ETF Shares (ETF Funds), in accordance with the terms and conditions of related exemptive orders (Vanguard ETF Exemptive Orders) issued by the Securities and Exchange Commission, as described in this section.
Unlike the conventional classes of shares issued by ETF Funds, the ETF Shares are listed for trading on a national securities exchange. Each ETF Fund issues and redeems ETF Shares in large blocks, known as “Creation Units.” To purchase or redeem a Creation Unit, an investor must be an “Authorized Participant” or the investor must purchase or redeem through a broker-dealer that is an Authorized Participant. An Authorized Participant is a participant in the Depository Trust Company (DTC) that has executed a “Participant Agreement” with Vanguard Marketing Corporation. Each ETF Fund issues Creation Units in exchange for a “portfolio deposit” consisting of a basket of specified securities (Deposit Securities) and a cash payment (Balancing Amount). Each ETF Fund also redeems Creation Units in kind; an investor who tenders a Creation Unit will receive, as redemption proceeds, a basket of specified securities together with a Balancing Amount.
In connection with the creation and redemption process, and in accordance with the terms and conditions of the Vanguard ETF Exemptive Orders, Vanguard makes available to the NSCC (a clearing agency registered with the SEC and affiliated with the DTC), for dissemination to NSCC participants on each business day prior to the opening of trading on
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the listing exchange, a PCF containing a list of the names and the required number of shares of each Deposit Security for each ETF Fund. In addition, the listing exchange disseminates (1) continuously throughout the trading day, through the facilities of the Consolidated Tape Association, the market value of an ETF Share; and (2) every 15 seconds throughout the trading day, a calculation of the estimated NAV of an ETF Share (expected to be accurate to within a few basis points). Comparing these two figures allows an investor to determine whether, and to what extent, ETF Shares are selling at a premium or at a discount to NAV. ETF Shares are listed on the exchange and traded on the secondary market in the same manner as other equity securities. The price of ETF Shares trading on the secondary market is based on a current bid/offer market.
In addition to making PCFs available to the NSCC, as previously described, Vanguard’s Fund Financial Services unit may disclose the PCF for any ETF Fund to any person, or online at
vanguard.com
to all categories of persons, if (1) such disclosure serves a legitimate business purpose and (2) such disclosure does not constitute material nonpublic information. Vanguard’s Fund Financial Services unit must make a good faith determination whether the PCF for any ETF Fund constitutes material nonpublic information, which involves an assessment of the particular facts and circumstances. Vanguard believes that in most cases the PCF for any ETF Fund would be immaterial and would not convey any advantage to the recipient in making an investment decision concerning the ETF Fund, if sufficient time has passed between the date of the PCF and the date on which the PCF is disclosed. Vanguard’s Fund Financial Services unit may, at its sole discretion, determine whether to deny any request for the PCF for any ETF Fund made by any person, and may do so for any reason or for no reason. Disclosure of a PCF must be authorized by a Vanguard fund officer or a Principal in Vanguard’s Fund Financial Services unit.
Disclosure of Portfolio Holdings Related Information to the Issuer of a Security for Legitimate Business Purposes
Vanguard, at its sole discretion, may disclose portfolio holdings information concerning a security held by one or more Vanguard funds to the issuer of such security if the issuer presents, to the satisfaction of Vanguard’s Fund Financial Services unit, convincing evidence that the issuer has a legitimate business purpose for such information. Disclosure of this information to an issuer is conditioned on the issuer being subject to a written agreement imposing a duty of confidentiality, including a duty not to trade on the basis of any material nonpublic information. The frequency with which portfolio holdings information concerning a security may be disclosed to the issuer of such security, and the length of the lag, if any, between the date of the information and the date on which the information is disclosed to the issuer, is determined based on the facts and circumstances, including, without limitation, the nature of the portfolio holdings information to be disclosed, the risk of harm to the funds and their shareholders, and the legitimate business purposes served by such disclosure. The frequency of disclosure to an issuer cannot be determined in advance of a specific request and will vary based upon the particular facts and circumstances and the legitimate business purposes, but in unusual situations could be as frequent as daily, with no lag. Disclosure of portfolio holdings information concerning a security held by one or more Vanguard funds to the issuer of such security must be authorized by a Vanguard fund officer or a Principal in Vanguard’s Portfolio Review or Legal Department.
Disclosure of Portfolio Holdings as Required by Applicable Law
Vanguard fund portfolio holdings (whether partial portfolio holdings or complete portfolio holdings) and other investment positions that make up a fund shall be disclosed to any person as required by applicable laws, rules, and regulations. Examples of such required disclosure include, but are not limited to, disclosure of Vanguard fund portfolio holdings (1) in a filing or submission with the SEC or another regulatory body, (2) in connection with seeking recovery on defaulted bonds in a federal bankruptcy case, (3) in connection with a lawsuit, or (4) as required by court order. Disclosure of portfolio holdings or other investment positions by Vanguard, Vanguard Marketing Corporation, or a Vanguard fund as required by applicable laws, rules, and regulations must be authorized by a Vanguard fund officer or a Principal of Vanguard.
Prohibitions on Disclosure of Portfolio Holdings
No person is authorized to disclose Vanguard fund portfolio holdings or other investment positions (whether online at
vanguard.com
, in writing, by fax, by e-mail, orally, or by other means) except in accordance with the Policies and Procedures. In addition, no person is authorized to make disclosure pursuant to the Policies and Procedures if such disclosure is otherwise unlawful under the antifraud provisions of the federal securities laws (as defined in Rule 38a-1 under the 1940 Act). Furthermore, Vanguard’s management, at its sole discretion, may determine not to disclose
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portfolio holdings or other investment positions that make up a Vanguard fund to any person who would otherwise be eligible to receive such information under the Policies and Procedures, or may determine to make such disclosures publicly as provided by the Policies and Procedures.
Prohibitions on Receipt of Compensation or Other Consideration
The Policies and Procedures prohibit a Vanguard fund, its investment advisor, and any other person or entity from paying or receiving any compensation or other consideration of any type for the purpose of obtaining disclosure of Vanguard fund portfolio holdings or other investment positions. “Consideration” includes any agreement to maintain assets in the fund or in other investment companies or accounts managed by the investment advisor or by any affiliated person of the investment advisor.
INVESTMENT ADVISORY SERVICES
The Trust currently uses seven investment advisors:
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Ballie Gifford Overseas Ltd. provides investment advisory services for a portion of Vanguard International Growth Fund.
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Delaware Management Company provides investment advisory services for a portion of Vanguard U.S. Growth Fund.
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M&G Investment Management Limited
provides investment advisory services for a portion of Vanguard
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International Growth Fund.
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Schroder Investment Management North America Inc. provides investment advisory services for a portion of
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Vanguard International Growth Fund.
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Wellington Management Company,
LLP
, provides investment advisory services for a portion of Vanguard U.S.
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Growth Fund.
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William Blair & Company, L.L.C., provides investment advisory services for a portion of Vanguard U.S. Growth Fund.
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Vanguard provides investment advisory services to Vanguard FTSE Social Index Fund, Vanguard U.S. Sector Index
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Funds, Vanguard Extended Duration Treasury Index Fund, and Vanguard
Mega Cap Index Funds.
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The Trust previously employed one other firm as investment advisor:
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AllianceBernstein L.P. provided investment advisory services for a portion of Vanguard U.S. Growth Fund from 2001
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through September 2010.
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For funds that are advised by independent third-party advisory firms unaffiliated with Vanguard, the board of trustees of each fund hires investment advisory firms, not individual portfolio managers, to provide investment advisory services to such funds. Vanguard negotiates each advisory agreement, which contains advisory fee arrangements, on an arms-length basis with the advisory firm. Each advisory agreement is reviewed annually by each fund’s board of trustees, taking into account numerous factors, which include, without limitation, the nature, extent, and quality of the services provided; investment performance; and the fair market value of the services provided. Each advisory agreement is between the Trust and the advisory firm, not between the Trust and the portfolio manager. The structure of the advisory fee paid to each unaffiliated investment advisory firm is described in the following sections. In addition, each firm has established policies and procedures designed to address the potential for conflicts of interest. Each firm’s compensation structure and management of potential conflicts of interest are summarized by the advisory firm in the following sections for the period ended
August 31, 2012
.
A fund is a party to an investment advisory agreement with each of its independent third-party advisors whereby the advisor manages the investment and reinvestment of the portion of the fund’s assets that the fund’s board of trustees determines to assign to the advisor. Hereafter, each portion is referred to as the advisor’s Portfolio. In this capacity, each advisor continuously reviews, supervises, and administers the investment program for its portion of the fund’s assets. Each advisor discharges its responsibilities subject to the supervision and oversight of Vanguard’s Portfolio Review Group and the officers and trustees of the fund. Vanguard’s Portfolio Review Group is responsible for recommending changes in a fund’s advisory arrangements to the fund’s board of trustees, including changes in the amount of assets allocated to each advisor, and whether to hire, terminate, or replace an advisor.
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I. Vanguard U.S. Growth Fund
The Fund pays each of its independent third-party investment advisors a base fee plus or minus a performance adjustment. Each base fee, which is paid quarterly, is a percentage of average daily net assets managed by the advisor during the most recent fiscal quarter. The base fee has breakpoints, which means that the percentage declines as assets go up. The performance adjustment, also paid quarterly, is based on the cumulative total return of each advisor’s portion of the Fund relative to that of the Russell 1000 Growth Index over the preceding 36-month period (60-month period for William Blair & Company).
During the fiscal years ended August 31, 2010, 2011, and 2012, Vanguard U.S. Growth Fund incurred aggregate investment advisory fees of approximately $6,368,000 (before a performance-based decrease of $1,075,000), $6,438,000 (before a performance-based decrease of $502,000), and $6,396,000 (before a performance-based decrease of $512,000, respectively.
A. Delaware Management Company
Delaware Management Company is an investment management firm and a series of Delaware Management Business Trust (“DMBT”), a Delaware statutory trust. DMBT is a subsidiary, and subject to the ultimate control, of Macquarie Group, Limited, a Sydney, Australia-headquartered global provider of banking, financial, advisory, and investment services.
Investments in Vanguard U.S. Growth Fund are not and will not be deposits with or liabilities of Macquarie Bank Limited ABN 46 008 583 542 and its holding companies, including their subsidiaries or related companies (the” Macquarie Group”), and are subject to investment risk, including possible delays in repayment and loss of income and capital invested. No Macquarie Group company guarantees or will guarantee the performance of Vanguard U.S. Growth Fund, the repayment of capital from Vanguard U.S. Growth Fund, or any particular rate of return.
1. Other Accounts Managed
Christopher J. Bonavico co-manages a portion of Vanguard U.S. Growth Fund; as of
August 31, 2012
, the Fund held assets of $3.8 billion. As of
August 31, 2012
, Mr. Bonavico also managed 18 other registered investment companies with total assets of $6.6 billion (advisory fee based on account performance for one of these accounts with total assets of $107 million) and 70 other accounts with total assets of $8.1 billion (advisory fees based on account performance for five of these accounts with total assets of $653 million).
Christopher M. Ericksen co-manages a portion of Vanguard U.S. Growth Fund; as of
August 31, 2012
, the Fund held assets of $3.8 billion. As of
August 31, 2012
, Mr. Ericksen also managed 12 other registered investment companies with total assets of $4.5 billion (advisory fee based on account performance for one of these accounts with total assets of $107 million) and 42 other accounts with total assets of $6.4 billion (advisory fees based on account performance for three of these accounts with total assets of $443 million).
Daniel J. Prislin co-manages a portion of Vanguard U.S. Growth Fund; as of
August 31, 2012
, the Fund held assets of $3.8 billion. As of
August 31, 2012
, Mr. Prislin also co-managed 13 other registered investment companies with total assets of $4.7 billion (advisory fee based on account performance for one of these accounts with total assets of $107 million) and 55 other accounts with total assets of $7.2 billion (advisory fees based on account performance for five of these accounts with total assets of $653 million).
Jeffrey S. Van Harte co-manages a portion of Vanguard U.S. Growth Fund; as of
August 31, 2012
, the Fund held assets of $3.8 billion. As of
August 31, 2012
, Mr. Van Harte also co-managed 13 other registered investment companies with total assets of $4.7 billion (advisory fee based on account performance for
one
of these accounts with total assets of $107 million) and managed 50 other accounts with total assets of $7.2 billion (advisory fees based on account performance for five of these accounts with total assets of $653 million).
2. Material Conflicts of Interest
Individual portfolio managers may perform investment management services for other funds or accounts similar to those provided to the Delaware Management Company Portfolio, and the investment action for each other fund or account and the Delaware Management Company Portfolio may differ. For example, one fund or account may be selling a security, while another fund or account may be purchasing or holding the same security. As a result, transactions
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executed for one fund or account or the Delaware Management Company Portfolio may adversely affect the value of securities held by another fund or account or the Delaware Management Company Portfolio. In addition, the management of multiple other funds or accounts and the Delaware Management Company Portfolio may give rise to potential conflicts of interest, as a portfolio manager must allocate time and effort to multiple funds or accounts and the Delaware Management Company Portfolio. A portfolio manager may discover an investment opportunity that may be suitable for more than one fund or account. The investment opportunity may be limited, however, so that all funds or accounts for which the investment would be suitable may not be able to participate. Delaware Management Company has adopted procedures designed to allocate investments fairly across multiple funds or accounts.
Seven of the accounts managed by the portfolio managers have performance-based fees. This compensation structure presents a potential conflict of interest. The portfolio managers have an incentive to manage such accounts so as to enhance their performance, to the possible detriment of other accounts for which the investment manager does not receive a performance-based fee. A portfolio manager’s management of personal accounts also may present certain conflicts of interest.
Although Delaware Management Company’s code of ethics is designed to address these potential conflicts, there is no guarantee that it will do so.
3. Description of Compensation
Each portfolio manager’s compensation consists of the following:
Base Salary—
Each named portfolio manager receives a fixed base salary. Salaries are determined by a comparison to industry data prepared by third parties to ensure that portfolio manager salaries are in line with salaries paid at peer investment advisory firms.
Bonus—
Each named portfolio manager is eligible to receive an annual cash bonus. The bonus pool is determined by the revenues associated with the products a portfolio manager manages. Delaware Management Company keeps a percentage of the revenues and the remaining percentage of revenues (minus appropriate expenses associated with relevant product and the investment management team) create the “bonus pool” for the product. Various members of the team have the ability to earn a percentage of the bonus pool with the most senior contributor generally having the largest share. The pool is allotted based on subjective factors (50%) and objective factors (50%).
The primary objective factors are the performance of the funds managed relative to the performance of the appropriate Lipper peer groups and the performance of institutional composites relative to a peer group from a nationally recognized publicly available database, both for five successive rolling-12-month periods. An average is taken of the five-year relative performance data to determine the multiplier to be applied in calculating the portion of the pool that will be paid out. To the extent there was less than a complete payout of the “objective” portion of the bonus pool over the previous five years, there is an opportunity to recoup these amounts if the multiplier is in excess of 100% (at the discretion of senior management.)
Individual allocations of the bonus pool are based on individual performance measurements, both objective and subjective, as determined by senior management.
The Focus Growth team also has substantial long-term retention incentives, including a deferred bonus program. The bonus amount was based on a calculation as of December 31, 2009 and is paid into a deferred-compensation vehicle at set intervals. To qualify to receive payment of the bonus, an eligible individual must be an employee in good standing on the date the bonus vests. The deferred compensation vehicle is primarily invested in the products that the Focus Growth team manages for alignment of interest purposes.
Incentive Unit Plan—
Portfolio managers may be awarded incentive unit awards (“Awards”) relating to the underlying shares of common stock of Delaware Management Holdings, Inc. issuable pursuant to the terms of the Delaware Investments Incentive Unit Plan (the “Plan”) adopted on November 30, 2010. Awards are no longer granted under the Delaware Investments U.S., Inc. 2009 Incentive Compensation Plan or the Amended and Restated Delaware Investments U.S., Inc. Incentive Compensation Plan, which was established in 2001.
The Plan was adopted in order to assist Delaware Management Company in attracting, retaining, and rewarding key employees of the company; enable such employees to acquire or increase an equity interest in the company in order to align the interest of such employees and Delaware Management Company; and provide such employees with incentives to expend their maximum efforts. Subject to the terms of the Plan and applicable award agreements, Awards typically
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vest in 25% increments on a four-year schedule, and shares of common stock underlying the Awards are issued after vesting. The fair market value of the shares of Delaware Management Holdings, Inc. is normally determined as of each March 31, June 30, September 30, and December 31 by an independent appraiser. Generally, a stockholder may put shares back to the company during the put period communicated in connection with the applicable valuation.
Other Compensation—
Portfolio managers may also participate in benefit plans and programs available generally to all employees.
4. Ownership of Securities
As of
August 31, 2012
, the named portfolio managers did not own any shares of Vanguard U.S. Growth Fund.
B. Wellington Management Company,
LLP
(Wellington Management)
Wellington Management is a Massachusetts limited liability partnership with principal offices at 280 Congress Street, Boston, MA 02210. As of July 1, 2012, the firm is owned by 125 partners, all fully active in the business of the firm. Wellington Management is a professional investment counseling firm that provides investment services to investment companies, employee benefit plans, endowments, foundations, and other institutions. Wellington Management and its predecessor organizations have provided investment advisory services for over 70 years.
1. Other Accounts Managed
Andrew J. Shilling manages a portion of Vanguard U.S. Growth Fund; as of
August 31, 2012
, the Fund held assets of $3.8 billion. As of
August 31, 2012
, Mr. Shilling also managed five other registered investment companies with total assets of $1.7 billion (advisory fee based on account performance for one of these accounts with total assets of $97.2 million), seven other pooled investment vehicles with total assets of $1.5 billion (advisory fees not based on account performance), and 28 other accounts with total assets of $4 billion (advisory fee based on account performance for one of these accounts with total assets of $182.5 million).
2. Material Conflicts of Interest
Individual investment professionals at Wellington Management manage multiple accounts for multiple clients. These accounts may include mutual funds, separate accounts (assets managed on behalf of institutions, such as pension funds, insurance companies, foundations, or separately managed account programs sponsored by financial intermediaries), bank common trust accounts, and hedge funds. The Wellington Management Portfolio's manager listed in the prospectus, who is primarily responsible for the day-to-day management of the Wellington Management Portfolio (Portfolio Manager), generally manages accounts in several different investment styles. These accounts may have investment objectives, strategies, time horizons, tax considerations, and risk profiles that differ from those of the Fund. The Portfolio Manager makes investment decisions for each account, including the Wellington Management Portfolio, based on the investment objectives, policies, practices, benchmarks, cash flows, tax, and other relevant investment considerations applicable to that account. Consequently, the Portfolio Manager may purchase or sell securities, including IPOs, for one account and not another account, and the performance of securities purchased for one account may vary from the performance of securities purchased for other accounts. Alternatively, these accounts may be managed in a similar fashion to the Wellington Management Portfolio and thus the accounts may have similar, and in some cases nearly identical, objectives, strategies and/or holdings to that of the Wellington Management Portfolio
The Portfolio Manager or other investment professionals at Wellington Management may place transactions on behalf of other accounts that are directly or indirectly contrary to investment decisions made on behalf of the Wellington Management Portfolio, or make investment decisions that are similar to those made for the Wellington Management Portfolio, both of which have the potential to adversely impact the Wellington Management Portfolio depending on market conditions. For example, an investment professional may purchase a security in one account while appropriately selling that same security in another account. Similarly, the Portfolio Manager may purchase the same security for the Wellington Management Portfolio and one or more other accounts at or about the same time. In those instances the other accounts will have access to their respective holdings prior to the public disclosure of the Wellington Management Portfolio’s holdings. In addition, some of these accounts have fee structures, including performance fees, which are or have the potential to be higher, in some cases significantly higher, than the fees Wellington Management receives for managing the Wellington Management Portfolio. Because incentive payments paid by Wellington Management to the Portfolio Manager are tied to revenues earned by Wellington Management and, where noted, to the performance
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achieved by the manager in each account, the incentives associated with any given account may be significantly higher or lower than those associated with other accounts managed by the Portfolio Manager. Finally, the Portfolio Manager may hold shares or investments in the other pooled investment vehicles and/or other accounts previously identified.
Wellington Management’s goal is to meet its fiduciary obligation to treat all clients fairly and provide high quality investment services to all of its clients. Wellington Management has adopted and implemented policies and procedures, including brokerage and trade allocation policies and procedures, that it believes address the conflicts associated with managing multiple accounts for multiple clients. In addition, Wellington Management monitors a variety of areas, including compliance with primary account guidelines, the allocation of IPOs, and compliance with the firm’s Code of Ethics, and places additional investment restrictions on investment professionals who manage hedge funds and certain other accounts. Furthermore, senior investment and business personnel at Wellington Management periodically review the performance of Wellington Management’s investment professionals. Although Wellington Management does not track the time an investment professional spends on a single account, Wellington Management does periodically assess whether an investment professional has adequate time and resources to effectively manage the investment professional’s various client mandates.
3. Description of Compensation
Wellington Management receives a fee based on the assets under management of the Wellington Management Portfolio as set forth in the Investment Advisory Agreement between Wellington Management and the Trust on behalf of the Fund. Wellington Management pays its investment professionals out of its total revenues, including the advisory fee earned with respect to the Wellington Management Portfolio.
Wellington Management’s compensation structure is designed to attract and retain high-caliber investment professionals necessary to deliver high quality investment management services to its clients. Wellington Management’s compensation of the named Portfolio Manager includes a base salary and incentive components. The base salary for each Portfolio Manager who is a partner of Wellington Management, is generally a fixed amount that is determined by the Managing Partners of the firm.
The Portfolio Manager is eligible to receive an incentive payment based on the revenues earned by Wellington Management from the Wellington Management Portfolio and generally each other account managed by such Portfolio Manager. The Portfolio Manager’s incentive payment relating to the Wellington Management Portfolio is linked to the net pre-tax performance of the portion of the Wellington Management Portfolio compared to the Russell 1000 Growth Index over one- and three-year periods, with an emphasis on three-year results. In 2012, Wellington Management began placing increased emphasis on long-term performance and is phasing in five-year performance comparison periods. Wellington Management applies similar incentive compensation structures (although the benchmarks or peer groups, time periods and rates may differ) to other accounts managed by the Portfolio Manager, including accounts with performance fees.
Portfolio-based incentives across all accounts managed by an investment professional can, and typically do, represent a significant portion of an investment professional’s overall compensation; incentive compensation varies significantly by individual and can vary significantly from year to year. The Portfolio Manager may also be eligible for bonus payments based on his overall contribution to Wellington Management’s business operations. Senior management at Wellington Management may reward individuals as it deems appropriate based on other factors. Each partner of Wellington Management is eligible to participate in a partner-funded tax qualified retirement plan, the contributions to which are made pursuant to an actuarial formula. Mr. Shilling is a partner of the firm.
4. Ownership of Securities
As of
August 31, 2012
, Mr. Shilling owned shares of Vanguard U.S. Growth Fund within the $500,001–$1,000,000 range.
C. William Blair & Company, L.L.C. (William Blair & Company)
William Blair & Company is an independently owned full service investment advisory firm founded in 1935. William Blair & Company is organized as a Delaware limited liability company.
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1. Other Accounts Managed
James Golan co-manages a portion of Vanguard U.S. Growth Fund; as of
August 31, 2012
, the Fund held assets of $3.8 billion. As of
August 31, 2012
, Mr. Golan also managed two other registered investment companies with total assets of $117 million (advisory fee based on account performance for one of these accounts with total assets of $89.1 million) and 20 other accounts with total assets of $162.7 million (none of which had advisory fees based on account performance).
David Ricci co-manages a portion of Vanguard U.S. Growth Fund; as of
August 31, 2012
, the Fund held assets of $3.8 billion. As of
August 31, 2012
, Mr. Ricci also managed four other registered investment companies with total assets of $1.5 billion (advisory fees based on account performance for two of these accounts with total assets of $1.1 billion), six other pooled investment vehicles with total assets of $357.3 million (advisory fees not based on account performance), and 29 other accounts with total assets of $1.6 billion (advisory fees not based on account performance).
2. Material Conflicts of Interest
Because each portfolio manager manages other accounts in addition to the William Blair & Company Portfolio, conflicts of interest may arise in connection with the portfolio managers’ management of William Blair & Company Portfolio’s investments on the one hand and the investments of such other accounts on the other hand. However, William Blair & Company has adopted policies and procedures designed to address such conflicts, including, among others, policies and procedures relating to allocation of investment opportunities, soft dollars, and aggregation of trades.
3. Description of Compensation
The compensation of William Blair & Company portfolio managers is based on the firm’s mission: “to achieve success for its clients.” Mr. Golan and Mr. Ricci are principals of William Blair & Company, and, as of
August 31, 2012
, each portfolio manager’s compensation consisted of a fixed base salary, a share of the firm’s profits, and, in some instances, a discretionary bonus. The discretionary bonus, as well as any potential changes to the principals’ ownership stakes, is determined by the head of William Blair & Company’s Investment Management Department subject to the approval of the firm’s Executive Committee and is based entirely on a qualitative assessment rather than a formula. The discretionary bonus rewards the specific accomplishments in the prior year, including short-term and long-term investment performance, quality of research ideas, and other contributions to the firm and its clients. Changes in ownership stake are based upon the portfolio manager’s sustained, multi-year contribution to long-term investment performance and to the firm’s revenue, profitability, intellectual capital, and brand reputation. The compensation process is a subjective one that takes into account the factors described in this section. Portfolio managers do not receive any direct compensation based upon the performance of any individual client account and no indices are used to measure performance. In addition, there is no particular weighting or formula for evaluating the factors.
4. Ownership of Securities
As of
August 31, 2012
, Mr. Golan owned shares of Vanguard U.S. Growth Fund within the $100,001–$500,000 range. Mr. Ricci did not own any shares of Vanguard U.S. Growth Fund.
II. Vanguard International Growth Fund
The Fund pays each of its independent third-party investment advisors a base fee plus or minus a performance adjustment. Each base fee, which is paid quarterly, is a percentage of average daily net assets managed by the advisor during the most recent fiscal quarter. The base fee has breakpoints, which means that the percentage declines as assets go up. The performance adjustment, also paid quarterly, is based on the cumulative total return of each advisor’s portion of the Fund relative to that of the MSCI ACWI ex USA Index over the preceding 36-month period.
During the fiscal years ended August 31, 2010, 2011, and 2012, Vanguard International Growth Fund incurred aggregate investment advisory fees of approximately $19,219,000 (before a performance-based increase of $4,340,000), $25,730,000 (before a performance-based increase of $5,447,000), and $24,191,000 (before a performance-based increase of $6,693,000), respectively.
Sub-Advisor—Schroder Investment Management North America Limited
The Fund has entered into a sub-advisory agreement with Schroder Investment Management North America Inc.
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(Schroders) and Schroder Investment Management North America Limited (Schroder Limited) pursuant to which Schroder Limited has primary responsibility for choosing investments for the Fund.
As of October 31, 2012, under the terms of the sub-advisory agreement for the Fund, Schroders pays Schroder Limited advisory fees equal to 50% of the advisory fee actually paid to Schroders under its investment advisory agreement with the Fund. The sub-advisory agreement became effective on April 1, 2003.
A. Ballie Gifford Overseas Ltd. (Baillie Gifford)
Baillie Gifford is an investment advisory firm founded in 1983. Baillie Gifford is wholly owned by a Scottish investment company, Baillie Gifford & Co. Founded in 1908, Baillie Gifford & Co., one of the largest independently owned investment management firms in the United Kingdom, manages money primarily for institutional clients.
1. Other Accounts Managed
James K. Anderson leads an investment team that manages a portion of Vanguard International Growth Fund; as of
August 31, 2012
, the Fund held assets of $16.6 billion. As of
August 31, 2012
, Mr. Anderson also led investment teams responsible for managing four other registered investment companies with total assets of $2.8 billion (advisory fees not based on account performance), four other pooled investment vehicles with total assets of $5.5 billion (advisory fees not based on account performance), and 90 other accounts with total assets of $29.5 billion (advisory fees based on account performance for 11 of these accounts with total assets of $4.5 billion).
2. Material Conflicts of Interest
At Baillie Gifford, individual portfolio managers may manage multiple accounts for multiple clients. In addition to mutual funds, these other accounts may include separate accounts, collective investment schemes, or offshore funds. Baillie Gifford manages potential conflicts between funds or with other types of accounts by implementing effective organizational and administrative arrangements to ensure that reasonable steps are taken to prevent the conflict giving rise to a material risk of damage to the interests of clients.
One area where a conflict of interest potentially arises is in the placing of orders for multiple clients and subsequent allocation of trades. Unless client-specific circumstances dictate otherwise, investment teams normally implement transactions in individual stocks for all clients with similar mandates at the same time. This aggregation of individual transactions can, of course, operate to the advantage or disadvantage of the clients involved in the order. When receiving orders from investment managers, traders at Baillie Gifford will generally treat order priority on a “first come, first served” basis, and any exceptions to this are permitted only in accordance with established policies. Baillie Gifford has also developed trade allocation systems and controls to ensure that no one client, regardless of type, is intentionally favored at the expense of another. Allocation policies are designed to address potential conflicts in situations where two or more funds or accounts participate in investment decisions involving the same securities.
3. Description of Compensation
Mr. Anderson is a Partner of Baillie Gifford. His remuneration comprises a base salary and a share of the partnership profits. The profit share is calculated as a percentage of total partnership profits based on seniority, role within Baillie Gifford, and length of service. The basis for the profit share is detailed in the Baillie Gifford Partnership Agreement. The main staff benefits such as pension benefits are not available to Partners, and therefore Partners provide for benefits from their own personal funds.
4. Ownership of Securities
As of
August 31, 2012
, Mr. Anderson did not own any shares of Vanguard International Growth Fund.
B. M&G Investment Management Limited (M&G)
M&G is a wholly owned subsidiary of Prudential plc (an English insurance company not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States). M&G, founded in 1931, launched Great Britain’s first unit trust (mutual fund).
B-55
1. Other Accounts Managed
Greg Aldridge manages a portion of Vanguard International Growth Fund; as of
August 31, 2012
, the Fund held assets of $16.6 billion. As of
August 31, 2012
, Mr. Aldridge also managed one other registered investment company with total assets of $189 million (advisory fee based on account performance) and five other pooled investment vehicles with total assets of $1.8 billion (advisory fee based on account performance for one of these accounts with total assets of $42 million).
2. Material Conflicts of Interest
At M&G, individual portfolio managers may manage multiple accounts for multiple clients. In addition to mutual funds, these other accounts may include non-U.S. collective investment schemes, insurance companies, and segregated pension funds. M&G manages potential conflicts between funds or with other types of accounts through allocation policies and procedures, internal review processes, and oversight by directors. M&G has developed trade allocation procedures and controls to ensure that no one client, regardless of type, is intentionally favored at the expense of another. Allocation policies are designed to address potential conflicts in situations where two or more funds participate in investment decisions involving the same securities.
3. Description of Compensation
Mr. Aldridge is compensated in line with standard M&G practice, which is outlined in this section:
M&G has a strong and integrated set of compensation practices designed to reflect the logic, internally within M&G, of people’s value as well as their outputs. Each component of the remuneration package has a role to play in the effective and appropriate reward of individuals in order to attract, retain, and motivate. M&G believes it is also important to ensure that in total the components are coherent and relate appropriately to each other, delivering the reward levels that M&G wants to make available for different levels of performance. The components are as follows:
-
Base pay is used to reward inputs, reflecting the values of people’s knowledge, skills, aptitudes, and track records. It
progresses in line with personal growth, general contribution, and potential.
-
Bonus payment levels are closely aligned with ”outputs” (chiefly investment performance but also other results) such
as asset accumulation. Bonuses are discretionary, variable year-on-year, and reflect personal, team, and company
performance. Depending on the fund’s objective, M&G uses either a representative index or a representative group of
competitor funds as a benchmark against which to measure performance. In the case of Vanguard International
Growth Fund, the performance factor of the fund manager’s bonus is dependent on the Fund’s performance over
one- and three-year periods compared with a representative benchmark index. The actual bonus, which is paid on an
annual basis, may be up to a multiple of base salary, depending on the achieved percentile ranking in this peer group
over these time periods.
-
M&G’s long-term incentive plan, combining phantom equity and options over phantom equity in M&G, is designed to
provide a meaningful stake in the future growth of the company’s value to those who play a significant role in its
growth. The long-term incentive plan consists of phantom shares, normally awarded on an annual basis, with each
award having a three-year performance cycle. The value of an award at vesting, and consequently the payment a
participant receives, is dependent on its initial value and the change in operating profit for the M&G Retail business
over the performance cycle. While the exit price is based on actual business performance, the shares awarded are
phantom shares as M&G is not a listed company.
-
The method used to determine the compensation for portfolio managers who are responsible for the management of
multiple accounts is the same for all funds.
In addition, the portfolio manager is eligible for the standard retirement benefits and health benefits generally available to all M&G employees.
M&G’s remuneration package is regularly reviewed by outside consultants to ensure that it is competitive in the London investment management market.
4. Ownership of Securities
As of
August 31, 2012
, Mr. Aldridge did not own any shares of Vanguard International Growth Fund.
B-56
C. Schroder Investment Management North America Inc. (Schroders)
Each of Schroders and Schroder Limited is an indirect wholly owned subsidiary of Schroders plc, the ultimate parent of a large worldwide group of financial service companies with subsidiaries and branches and representative offices located in 25 countries. Schroders plc is a publicly owned holding company organized under the laws of England. Schroders plc and its affiliates specialize in providing investment management services.
1. Other Accounts Managed
Virginie Maisonneuve co-manages a portion of Vanguard International Growth Fund; as of
August 31, 2012
, the Fund held assets of $16.6 billion. As of
August 31, 2012
, Ms. Maisonneuve also co-managed eight other registered investment companies with total assets of $2.1 billion (advisory fee based on account performance for one of these accounts with total assets of $459.5 million) and managed 12 other pooled investment vehicles with total assets of $1.9 billion (advisory fees not based on account performance) and 28 other accounts with total assets of $4.4 billion (advisory fees based on account performance for four of these accounts with total assets of $608.1 million).
Simon Webber co-manages a portion of Vanguard International Growth Fund; as of
August 31, 2012
, the Fund held assets of $16.6 billion. As of
August 31, 2012
, Mr. Webber also co-managed eight other registered investment companies with total assets of $2.1 billion (advisory fee based on account performance for one of these accounts with total assets of $459.5 million) and managed five other pooled investment vehicles with total assets of $302.2 million and 13 other accounts with total assets of $1.6 billion (none of which had advisory fees based on account performance).
2. Material Conflicts of Interest
Whenever a portfolio manager of the Schroder’s Portfolio manages other accounts, potential conflicts of interest exist, including potential conflicts between the investment strategy of the Schroder’s Portfolio and the investment strategy of the other accounts. For example, in certain instances, a portfolio manager may take conflicting positions in a particular security for different accounts, by selling a security for one account and continuing to hold it for another account. In addition, the fact that other accounts require the portfolio manager to devote less than all of his or her time to the Schroder’s Portfolio may be seen itself to constitute a conflict with the interest of the Schroder’s Portfolio.
A portfolio manager may also execute transactions for another fund or account at the direction of such fund or account that may adversely impact the value of securities held by the Schroder’s Portfolio. Securities selected for funds or accounts other than the Schroder’s Portfolio may outperform the securities selected for the Schroder’s Portfolio. Finally, if a portfolio manager identifies a limited investment opportunity that may be suitable for more than one fund or other account, the Schroder’s Portfolio may not be able to take full advantage of that opportunity because of an allocation of that opportunity across all eligible funds and accounts.
At Schroders, individual portfolio managers may manage multiple accounts for multiple clients. In addition to mutual funds, these other accounts may include separate accounts, collective trusts, or offshore funds. Certain of these accounts may pay a performance fee, and portfolio managers may have an incentive to allocate investment to these accounts.
Schroders manages potential conflicts between funds or with other types of accounts through allocation policies and procedures, internal review processes, and oversight by client directors. Schroders has developed trade allocation and client order priority systems and controls to ensure that no one client, regardless of type, is intentionally favored at the expense of another. Allocation policies are designed to address potential conflicts in situations where two or more funds or accounts participate in investment decisions involving the same securities.
The structure of each portfolio manager’s compensation may give rise to potential conflicts of interest. Each portfolio manager’s base pay tends to increase with additional and more complex responsibilities that include increased assets under management, which indirectly links compensation to sales.
Schroders has adopted certain compliance procedures that are designed to address these, and other, types of conflicts.
However, there is no guarantee that such procedures will detect each and every situation in which a conflict arises.
B-57
3. Description of Compensation
Schroders’ fund managers are paid a combination of base salary and annual bonus, as well as the standard retirement, health, and welfare benefits available to all of our employees. Certain of the most senior managers also participate in a long-term incentive program. Ms. Maisonneuve and Mr. Webber both receive compensation based on the factors discussed in this section.
Base salary is determined by reference to the level of responsibility inherent in the role and the experience of the incumbent, and is benchmarked annually against market data to ensure that Schroders is paying competitively. The base salary is subject to an annual review, and will increase if market movements make this necessary and/or if there has been an increase in the employee’s responsibilities. At more senior levels, base salaries tend to move less as the emphasis is increasingly on the discretionary bonus.
Bonuses for fund managers may be composed of an agreed contractual floor and/or a discretionary component. Any discretionary bonus is determined by a number of factors. At a macro level the total amount available to spend is a function of the compensation to revenue ratio achieved by the firm globally. Schroders then assesses the performance of the division and of the team to determine the share of the aggregate bonus pool that is spent in each area. This focus on “team” maintains consistency and minimizes internal competition that may be detrimental to the interests of our clients. For individual fund managers, Schroders assesses the performance of its funds relative to competitors and to the relevant benchmarks over one and three year periods, the level of funds under management, and the level of performance fees generated. Schroders also reviews “softer” factors such as leadership, contribution to other parts of the business, and adherence to our corporate values of excellence, integrity, teamwork, passion, and innovation.
For those employees receiving significant bonuses, a part may be deferred in the form of Schroders plc stock. These employees may also receive part of the deferred award in the form of notional cash investments in a range of Schroders funds. These deferrals vest over a period of three years and ensure that the interests of the employee are aligned both with those of the shareholders and with those of investors. Over recent years Schroders has increased the level of deferred awards, and as a consequence these key employees have an increasing incentive to remain with Schroders as their store of unvested awards grows over time.
4. Ownership of Securities
As of
August 31, 2012
, Ms. Maisonneuve owned shares of Vanguard International Growth Fund within the $100,001–$500,000 range. Mr. Webber did not own any shares of Vanguard International Growth Fund.
III. Vanguard FTSE Social Index Fund, Vanguard U.S. Sector Index Funds, Vanguard Extended Duration Treasury Index Fund, and
Vanguard Mega Cap Index Funds
Vanguard, through its Equity Investment Group, provides investment advisory services on an at-cost basis to Vanguard FTSE Social Index Fund, Vanguard U.S. Sector Index Funds, and Vanguard Mega Cap 300 Index Funds. Vanguard Extended Duration Treasury Index Fund receives all investment advisory services from Vanguard, through its Fixed Income Group, on an at-cost basis. The compensation and other expenses of Vanguard’s advisory staff are allocated among the funds utilizing these services.
B-58
During the fiscal years ended August 31,
2010, 2011
, and
2012
, the Funds incurred the following approximate investment advisory expenses:
|
|
|
|
|
|
Vanguard Fund
|
2010
|
2011
|
2012
|
|
FTSE Social Index Fund
|
$ 66,000
|
$ 76,000
|
$ 77,000
|
|
Consumer Discretionary Index Fund
|
29,000
|
51,000
|
59,000
|
|
Consumer Staples Index Fund
|
90,000
|
101,000
|
127,000
|
|
Energy Index Fund
|
144,000
|
201,000
|
215,000
|
|
Financials Index Fund
|
91,000
|
100,000
|
98,000
|
|
Health Care Index Fund
|
101,000
|
108,000
|
115,000
|
|
Industrials Index Fund
|
46,000
|
65,000
|
68,000
|
|
Information Technology Index Fund
|
124,000
|
196,000
|
214,000
|
|
Materials Index Fund
|
83,000
|
106,000
|
107,000
|
|
Telecommunication Services Index Fund
|
30,000
|
54,000
|
59,000
|
|
Utilities Index Fund
|
78,000
|
126,000
|
153,000
|
|
Extended Duration Treasury Index Fund
|
35,000
|
57,000
|
69,000
|
|
Mega Cap Index Fund
|
48,000
|
60,000
|
77,000
|
|
Mega Cap 300 Value Index Fund
|
40,000
|
59,000
|
71,000
|
|
Mega Cap 300 Growth Index Fund
|
60,000
|
75,000
|
96,000
|
1. Other Accounts Managed
Gregory Davis manages Vanguard Extended Duration Treasury Index Fund; as of
August 31, 2012
, the Fund held assets of $789.1 million. As of
August 31, 2012
, Mr. Davis also managed all or a portion of six other registered investment companies with total assets of $49 billion, co-managed three other registered investment companies with total assets of $117 billion, and co-managed five other pooled investment vehicles with total assets of $2.7 billion (none of which had advisory fees based on account performance).
Michael D. Eyre manages Vanguard Mega Cap 300 Value Index Fund, Vanguard Mega Cap 300 Growth Index Fund, Vanguard Materials Index Fund, and Vanguard Utilities Index Fund; as of
August 31, 2012
, the Funds collectively held assets of $3.6 billion.
Christine Franquin manages Vanguard FTSE Social Index Fund; as of
August 31, 2012
, the Fund held assets of $580.9 million. As of
August 31, 2012
, Ms. Franquin also managed all or a portion of four other registered investment companies with total assets of $63 billion, three other pooled investment vehicles with total assets of $11 billion, and four other accounts with total assets of $3.8 billion (none of which had advisory fees based on account performance).
Michael A. Johnson manages Vanguard Consumer Discretionary Index Fund and Vanguard Consumer Staples Index Fund; as of
August 31, 2012
, the Funds collectively held assets of $1.8 billion. As of
August 31, 2012
, Mr. Johnson also managed two other registered investment companies with total assets of $1.2 billion and two other pooled investment vehicles with total assets of $2 billion (none of which had advisory fees based on account performance).
Ryan E. Ludt manages Vanguard Health Care Index Fund, Vanguard Telecommunication Services Index Fund, and Vanguard
Mega Cap Index Fund
; as of
August 31, 2012
, the Funds collectively held assets of $2.2 billion. As of
August 31, 2012
, Mr. Ludt also managed nine other registered investment companies with total assets of $39 billion (none of which had advisory fees based on account performance).
Jeffrey D. Miller manages Vanguard Energy Index Fund, Vanguard Financials Index Fund , Vanguard Industrials Index Fund, and Vanguard Information Technology Index Fund; as of
August 31, 2012
, the Funds collectively held assets of $6.2 billion. As of
August 31, 2012
, Mr. Miller also managed two other registered investment companies with total assets of $647 million, two other pooled investment vehicles with total assets of $9.1 billion, and one other account with total assets of $11.2 billion (none of which had advisory fees based on account performance).
B-59
2. Material Conflicts of Interest
At Vanguard, individual portfolio managers may manage multiple accounts for multiple clients. In addition to mutual funds, these accounts may include separate accounts, collective trusts, or offshore funds. Managing multiple funds or accounts may give rise to potential conflicts of interest, including, for example, conflicts among investment strategies and conflicts in the allocation of investment opportunities. Vanguard manages potential conflicts between funds or accounts through allocation policies and procedures, internal review processes, and oversight by trustees and independent third parties. Vanguard has developed trade allocation procedures and controls to ensure that no one client, regardless of type, is intentionally favored at the expense of another. Allocation policies are designed to address potential conflicts in situations in which two or more funds or accounts participate in investment decisions involving the same securities.
3. Description of Compensation
All Vanguard portfolio managers are Vanguard employees. This section describes the compensation of the Vanguard employees who manage Vanguard mutual funds. As of
August 31, 2012
, a Vanguard portfolio manager’s compensation generally consists of base salary, bonus, and payments under Vanguard’s long-term incentive compensation program. In addition, portfolio managers are eligible for the standard retirement benefits and health and welfare benefits available to all Vanguard employees. Also, certain portfolio managers may be eligible for additional retirement benefits under several supplemental retirement plans that Vanguard adopted in the 1980s to restore dollar-for-dollar the benefits of management employees that had been cut back solely as a result of tax-law changes. These plans are structured to provide the same retirement benefits as the standard retirement plans.
In the case of portfolio managers responsible for managing multiple Vanguard funds or accounts, the method used to determine their compensation is the same for all funds and investment accounts. A portfolio manager’s base salary is determined by the manager’s experience and performance in the role, taking into account the ongoing compensation benchmark analyses performed by Vanguard’s Human Resources Department. A portfolio manager’s base salary is generally a fixed amount that may change as a result of an annual review, upon assumption of new duties, or when a market adjustment of the position occurs.
A portfolio manager’s bonus is determined by a number of factors. One factor is gross, pre-tax performance of the fund relative to expectations for how the fund should have performed, given the fund’s investment objective, policies, strategies, and limitations, and the market environment during the measurement period. This performance factor is not based on the value of assets held in the fund’s portfolio. For the FTSE Social Index Fund, the U.S. Sector Index Funds, the Extended Duration Treasury Index Fund, and the
Mega Cap Index Funds
, the performance factor depends on how closely the portfolio manager tracks the Fund’s benchmark index over a one-year period. Additional factors include the portfolio manager’s contributions to the investment management functions within the sub-asset class, contributions to the development of other investment professionals and supporting staff, and overall contributions to strategic planning and decisions for the investment group. The target bonus is expressed as a percentage of base salary. The actual bonus paid may be more or less than the target bonus, based on how well the manager satisfies the objectives previously described. The bonus is paid on an annual basis.
Under the long-term incentive compensation program, all full-time employees receive a payment from Vanguard’s long-term incentive compensation plan based on their years of service, job level, and, if applicable, management responsibilities. Each year, Vanguard’s independent directors determine the amount of the long-term incentive compensation award for that year based on the investment performance of the Vanguard funds relative to competitors and Vanguard’s operating efficiencies in providing services to the Vanguard funds.
4. Ownership of Securities
Vanguard employees, including portfolio managers, allocate their investments among the various Vanguard funds based on their own individual investment needs and goals. Vanguard employees, as a group, invest a sizeable portion of their personal assets in Vanguard funds. As of
August 31, 2012
, Vanguard employees collectively invested more than $3.2 billion in Vanguard funds. F. William McNabb III, Chairman of the Board, Chief Executive Officer, and President of Vanguard and the Vanguard funds
, invests substantially all of his
personal financial assets in Vanguard funds.
As of
August 31, 2012
, the named portfolio managers did not own any shares of the Funds they managed.
B-60
Duration and Termination of Investment Advisory Agreements
The current investment advisory agreements with Baillie Gifford, Delaware Management Company, M&G, Schroders, Wellington Management, and William Blair & Company are renewable for successive one-year periods, only if (1) each renewal is specifically approved by a vote of the Fund’s board of trustees, including the affirmative votes of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of considering such approval, or (2) each renewal is specifically approved by a vote of a majority of the Fund’s outstanding voting securities.
An agreement is automatically terminated if assigned, and may be terminated without penalty at any time either (1) by vote of the board of trustees of the Fund upon thirty (30) days’ written notice to the advisor (sixty (60) days’ for Schroders), (2) by a vote of a majority of the Fund’s outstanding voting securities upon 30 days’ written notice to the advisor (60 days’ for Schroders), or (3) by the advisor upon ninety (90) days’ written notice to the Fund.
Vanguard provides at-cost investment advisory services to Vanguard FTSE Social Index Fund, Vanguard Extended Duration Treasury Index Fund, Vanguard U.S. Sector Index Funds, and Vanguard
Mega Cap Index Funds
pursuant to the terms of the Fifth Amended and Restated Funds’ Service Agreement. This agreement will continue in full force and effect until terminated or amended by mutual agreement of the Vanguard funds and Vanguard
PORTFOLIO TRANSACTIONS
The advisor decides which securities to buy and sell on behalf of a Fund and then selects the brokers or dealers that will execute the trades on an agency basis or the dealers with whom the trades will be effected on a principal basis. For each trade, the advisor must select a broker-dealer that it believes will provide “best execution.” Best execution does not necessarily mean paying the lowest spread or commission rate available. In seeking best execution, the SEC has said that an advisor should consider the full range of a broker-dealer’s services. The factors considered by the advisor in seeking best execution include, but are not limited to, the broker-dealer’s execution capability; clearance and settlement services; commission rate; trading expertise; willingness and ability to commit capital; ability to provide anonymity; financial responsibility; reputation and integrity; responsiveness; access to underwritten offerings and secondary markets; and access to company management, as well as the value of any research provided by the broker-dealer. In assessing which broker-dealer can provide best execution for a particular trade, the advisor also may consider the timing and size of the order and available liquidity and current market conditions. Subject to applicable legal requirements, the advisor may select a broker based partly on brokerage or research services provided to the advisor and its clients, including the Funds. The advisor may cause a Fund to pay a higher commission than other brokers would charge if the advisor determines in good faith that the amount of the commission is reasonable in relation to the value of services provided. The advisor also may receive brokerage or research services from broker-dealers that are provided at no charge in recognition of the volume of trades directed to the broker. To the extent research services or products may be a factor in selecting brokers, services and products may include written research reports analyzing performance or securities; discussions with research analysts; meetings with corporate executives to obtain oral reports on company performance; market data; and other products and services that will assist the advisor in its investment decision-making process. The research services provided by brokers through which a Fund effects securities transactions may be used by the advisor in servicing all of its accounts, and some of the services may not be used by the advisor in connection with the Fund.
The types of bonds in which the Extended Duration Treasury Index Fund invests are generally purchased and sold through principal transactions, meaning that the Fund normally purchases bonds directly from the issuer or a primary market-maker acting as principal for the bonds, on a net basis. Explicit brokerage commissions are not paid on these transactions, although purchases of new issues from underwriters of bonds typically include a commission or concession paid by the issuer to the underwriter, and purchases from dealers serving as market-makers typically include a dealer’s markup (i.e., a spread between the bid and the asked prices).
As previously explained, the types of bonds that the Extended Duration Treasury Index Fund purchases do not normally involve the payment of explicit brokerage commissions. If any such brokerage commissions are paid, however, the advisor will evaluate their reasonableness by considering (1) historical commission rates; (2) rates that other institutional investors are paying, based upon publicly available information; (3) rates quoted by brokers and dealers; (4) the size of a particular transaction, in terms of the number of shares, dollar amount, and number of clients involved; (5) the complexity of a particular transaction in terms of both execution and settlement; (6) the level and type of business done
B-61
with a particular firm over a period of time; and (7) the extent to which the broker or dealer has capital at risk in the transaction.
During the fiscal years ended August 31,
2010
,
2011
, and
2012
, the Funds paid the following approximate amounts in brokerage commissions:
|
|
|
|
|
|
Vanguard Fund
|
2010
|
2011
|
2012
|
|
U.S. Growth Fund
1
|
$ 3,951,000
|
$ 2,532,000
|
$ 1,379,000
|
|
International Growth Fund
2
|
18,549,000
|
20,556,000
|
11,437,000
|
|
FTSE Social Index Fund
3
|
52,000
|
8,000
|
15,000
|
|
Consumer Discretionary Index Fund
|
5,000
|
4,000
|
4,000
|
|
Consumer Staples Index Fund
|
9,000
|
9,000
|
9,000
|
|
Energy Index Fund
|
69,000
|
63,000
|
59,000
|
|
Financials Index Fund
4
|
43,000
|
31,000
|
13,000
|
|
Health Care Index Fund
4
|
23,000
|
12,000
|
14,000
|
|
Industrials Index Fund
4
|
7,000
|
4,000
|
4,000
|
|
Information Technology Index Fund
|
30,000
|
21,000
|
24,000
|
|
Materials Index Fund
4
|
10,000
|
25,000
|
8,000
|
|
Telecommunications Services Index Fund
4
|
42,000
|
30,000
|
80,000
|
|
Utilities Index Fund
4
|
17,000
|
11,000
|
14,000
|
|
Extended Duration Treasury Index Fund
|
—
|
—
|
—
|
|
M
ega Cap Index Fund
|
6,000
|
8,000
|
8,000
|
|
Mega Cap 300 Value Index Fund
4
|
10,000
|
13,000
|
20,000
|
|
Mega Cap 300 Growth Index Fund
4
|
11,000
|
16,000
|
9,000
|
1 The decrease in brokerage commissions in 2011 for the Fund was due to the trading strategies employed by the Fund’s current advisors. The current advisors joined the Fund in October 2010; 2011 was the first full year in which their trading strategies impacted brokerage commissions. The decrease in brokerage commissions in 2012 was due to less active trading by the advisors.
2 A reduction in broker fees resulted in lower brokerage commissions for the fiscal year ended August 31, 2012.
3 The changes in brokerage commissions in the Fund’s most recent fiscal years are the result of changes in portfolio turnover. The Fund’s turnover rate will vary as stocks pass or fail the social screening policies employed by the benchmark index, resulting in changes to the stocks that make up the benchmark index.
4 Several factors can impact the frequency of a fund’s portfolio transactions. Two of those factors, cash flow and market volatility, were factors during the Fund’s most recent fiscal years, resulting in higher or lower brokerage commissions.
Some securities that are considered for investment by a Fund may also be appropriate for other Vanguard funds or for other clients served by the advisors. If such securities are compatible with the investment policies of a Fund and one or more of an advisor’s other clients, and are considered for purchase or sale at or about the same time, then transactions in such securities may be aggregated by the advisor and the purchased securities or sale proceeds may be allocated among the participating Vanguard funds and the other participating clients of the advisor in a manner deemed equitable by the advisor. Although there may be no specified formula for allocating such transactions, the allocation methods used, and the results of such allocations, will be subject to periodic review by the Funds‘ board of trustees.
The ability of Vanguard and external advisors to purchase or dispose of investments in regulated industries, the derivatives markets, and certain international markets, or to exercise rights or undertake business transactions on behalf of a Fund, may be restricted or impaired due to limitations on the aggregate level of investment unless regulatory or corporate consents are obtained. As a result, Vanguard and external advisors on behalf of a Fund may be required to limit purchases, sell existing investments, or otherwise restrict or limit the exercise of shareholder rights by the Fund, including voting rights.
B-62
As of
August 31, 2012
, each Fund held securities of its “regular brokers or dealers,” as that term is defined in Rule 10b-1 of the 1940 Act, as follows:
|
|
|
|
|
Vanguard Fund
|
Regular Broker or Dealer (or Parent)
|
Aggregate Holdings
|
|
U.S. Growth Fund
|
Banc of America Securities LLC
|
—
|
|
|
J.P. Morgan Securities Inc.
|
$23,915,000
|
|
International Growth Fund
|
—
|
—
|
|
FTSE Social Index Fund
|
Citigroup Global Markets Inc.
|
$7,997,000
|
|
|
Goldman, Sachs & Co.
|
4,778,000
|
|
|
Morgan Stanley
|
2,047,000
|
|
Consumer Discretionary Index Fund
|
—
|
—
|
|
Consumer Staples Index Fund
|
—
|
—
|
|
Energy Index Fund
|
—
|
—
|
|
Financials Index Fund
|
Citigroup Global Markets Inc.
|
$31,046,000
|
|
|
Goldman, Sachs & Co.
|
17,613,000
|
|
|
ITG, Inc.
|
—
|
|
|
J.P. Morgan Securities Inc.
|
50,386,000
|
|
|
Jefferies & Company, Inc.
|
702,000
|
|
|
Morgan Stanley
|
7,925,000
|
|
|
Wells Fargo Securities, LLC
|
61,454,000
|
|
Health Care Index Fund
|
—
|
—
|
|
Industrials Index Fund
|
—
|
—
|
|
Information Technology Index Fund
|
—
|
—
|
|
Materials Index Fund
|
—
|
—
|
|
Telecommunication Services Index Fund
|
—
|
—
|
|
Utilities Index Fund
|
—
|
—
|
|
Extended Duration Treasury Index Fund
|
—
|
—
|
|
M
ega Cap Index Fund
|
Citigroup Global Markets Inc.
|
$5,332,,000
|
|
|
Goldman, Sachs & Co.
|
3,025,000
|
|
|
Morgan Stanley
|
1,355,000
|
|
Mega Cap 300 Value Index Fund
|
Banc of America Securities LLC
|
$8,020,000
|
|
|
Citigroup Global Markets Inc.
|
8.114,000
|
|
|
Goldman, Sachs & Co.
|
4,605,000
|
|
|
Morgan Stanley
|
2,068,000
|
|
Mega Cap 300 Growth Index Fund
|
—
|
—
|
B-63
PROXY VOTING GUIDELINES
The Board of Trustees (the Board) of each Vanguard fund that invests in stocks has adopted proxy voting procedures and guidelines to govern proxy voting by the fund. The Board has delegated oversight of proxy voting to the Proxy Oversight Committee (the Committee), made up of senior officers of Vanguard and subject to the operating procedures and guidelines described below. The Committee reports directly to the Board. Vanguard is subject to these procedures and guidelines to the extent that they call for Vanguard to administer the voting process and implement the resulting voting decisions, and for these purposes the guidelines have been approved by the Board of Directors of Vanguard.
The overarching objective in voting is simple: to support proposals and director nominees that maximize the value of a fund’s investments—and those of fund shareholders—over the long term. Although the goal is simple, the proposals the funds receive are varied and frequently complex. As such, the guidelines adopted by the Board provide a rigorous framework for assessing each proposal. Under the guidelines, each proposal must be evaluated on its merits, based on the particular facts and circumstances as presented.
For ease of reference, the procedures and guidelines often refer to all funds. However, our processes and practices seek to ensure that proxy voting decisions are suitable for individual funds. For most proxy proposals, particularly those involving corporate governance, the evaluation will result in the same position being taken across all of the funds and the funds voting as a block. In some cases, however, a fund may vote differently, depending upon the nature and objective of the fund, the composition of its portfolio, and other factors.
The guidelines do not permit the Board to delegate voting responsibility to a third party that does not serve as a fiduciary for the funds. Because many factors bear on each decision, the guidelines incorporate factors the Committee should consider in each voting decision. A fund may refrain from voting some or all of its shares if doing so would be in the fund’s and its shareholders’ best interests. These circumstances may arise, for example, if the expected cost of voting exceeds the expected benefits of voting, if exercising the vote would result in the imposition of trading or other restrictions, or if a fund (or all Vanguard-advised funds in the aggregate) were to own more than a maximum percentage of a company’s stock (as determined by the company’s governing documents).
In evaluating proxy proposals, we consider information from many sources, including, but not limited to, the investment advisor for the fund, the management or shareholders of a company presenting a proposal, and independent proxy research services. We will give substantial weight to the recommendations of the company’s board, absent guidelines or other specific facts that would support a vote against management. In all cases, however, the ultimate decision rests with the members of the Committee, who are accountable to the fund’s Board.
While serving as a framework, the following guidelines cannot contemplate all possible proposals with which a fund may be presented. In the absence of a specific guideline for a particular proposal (e.g., in the case of a transactional issue or contested proxy), the Committee will evaluate the issue and cast the fund’s vote in a manner that, in the Committee’s view, will maximize the value of the fund’s investment, subject to the individual circumstances of the fund.
|
I.
|
The Board of Directors
|
|
A.
|
Election of directors
|
Good governance starts with a majority-independent board, whose key committees are made up entirely of independent directors. As such, companies should attest to the independence of directors who serve on the Compensation, Nominating, and Audit committees. In any instance in which a director is not categorically independent, the basis for the independence determination should be clearly explained in the proxy statement.
B-64
Although the funds will generally support the board’s nominees, the following factors will be taken into account in determining each fund’s vote:
|
|
|
|
Factors For Approval
|
Factors Against Approval
|
|
Nominated slate results in board made up of a majority of
|
Nominated slate results in board made up of a majority of
|
|
independent directors.
|
non-independent directors.
|
|
All members of Audit, Nominating, and Compensation
|
Audit, Nominating, and/or Compensation committees include
|
|
committees are independent of management.
|
non-independent members.
|
|
|
Incumbent board member failed to attend at least 75% of meetings
|
|
|
in the previous year.
|
|
|
Actions of committee(s) on which nominee serves are inconsistent with
|
|
|
other guidelines (e.g., excessive equity grants, substantial non-audit fees,
|
|
|
lack of board independence).
|
B. Contested director elections
In the case of contested board elections, we will evaluate the nominees’ qualifications, the performance of the incumbent board, and the rationale behind the dissidents’ campaign, to determine the outcome that we believe will maximize shareholder value.
C. Classified boards
The funds will generally support proposals to declassify existing boards (whether proposed by management or shareholders), and will block efforts by companies to adopt classified board structures in which only part of the board is elected each year.
II. Approval of Independent Auditors
The relationship between the company and its auditors should be limited primarily to the audit, although it may include certain closely related activities that do not, in the aggregate, raise any appearance of impaired independence. The funds will generally support management’s recommendation for the ratification of the auditor, except in instances in which audit and audit-related fees make up less than 50% of the total fees paid by the company to the audit firm. We will evaluate on a case-by-case basis instances in which the audit firm has a substantial non-audit relationship with the company (regardless of its size relative to the audit fee) to determine whether independence has been compromised.
III. Compensation Issues
A. Stock-based compensation plans
Appropriately designed stock-based compensation plans, administered by an independent committee of the board and approved by shareholders, can be an effective way to align the interests of long-term shareholders with the interests of management, employees, and directors. The funds oppose plans that substantially dilute their ownership interest in the company, provide participants with excessive awards, or have inherently objectionable structural features.
An independent compensation committee should have significant latitude to deliver varied compensation to motivate the company’s employees. However, we will evaluate compensation proposals in the context of several factors (a company’s industry, market capitalization, competitors for talent, etc.) to determine whether a particular plan or proposal balances the perspectives of employees and the company’s other shareholders. We will evaluate each proposal on a case-by-case basis, taking all material facts and circumstances into account.
B-65
The following factors will be among those considered in evaluating these proposals:
|
|
|
|
Factors For Approval
|
Factors Against Approval
|
|
Company requires senior executives to hold a minimum amount
|
Total potential dilution (including all stock-based plans) exceeds 15% of
|
|
of company stock (frequently expressed as a multiple of salary).
|
shares outstanding.
|
|
Company requires stock acquired through equity awards to be
|
Annual equity grants have exceeded 2% of shares outstanding.
|
|
held for a certain period of time.
|
|
|
Compensation program includes performance-vesting awards,
|
Plan permits repricing or replacement of options without
|
|
indexed options, or other performance-linked grants.
|
shareholder approval.
|
|
Concentration of equity grants to senior executives is limited
|
Plan provides for the issuance of reload options.
|
|
(indicating that the plan is very broad-based).
|
|
|
Stock-based compensation is clearly used as a substitute for
|
Plan contains automatic share replenishment (evergreen) feature.
|
|
cash in delivering market-competitive total pay.
|
|
Bonus plans, which must be periodically submitted for shareholder approval to qualify for deductibility under Section 162(m) of the IRC, should have clearly defined performance criteria and maximum awards expressed in dollars. Bonus plans with awards that are excessive, in both absolute terms and relative to a comparative group, generally will not be supported.
C. Employee stock purchase plans
The funds will generally support the use of employee stock purchase plans to increase company stock ownership by employees, provided that shares purchased under the plan are acquired for no less than 85% of their market value and that shares reserved under the plan amount to less than 5% of the outstanding shares.
D. Advisory votes on executive compensation (Say on Pay)
In addition to proposals on specific equity or bonus plans, the funds are required to cast advisory votes approving many companies’ overall executive compensation plans (so-called Say on Pay votes). In evaluating these proposals, we consider a number of factors, including the amount of compensation that is at risk, the amount of equity-based compensation that is linked to the company’s performance, and the level of compensation as compared to industry peers. The funds will generally support pay programs that demonstrate effective linkage between pay and performance over time and that provide compensation opportunities that are competitive relative to industry peers. On the other hand, pay programs in which significant compensation is guaranteed or insufficiently linked to performance will be less likely to earn our support.
E. Executive severance agreements (golden parachutes)
Although executives’ incentives for continued employment should be more significant than severance benefits, there are instances—particularly in the event of a change in control—in which severance arrangements may be appropriate. Severance benefits payable upon a change of control AND an executive’s termination (so-called “double trigger” plans) are generally acceptable to the extent that benefits paid do not exceed three times salary and bonus. Arrangements in which the benefits exceed three times salary and bonus should be justified and submitted for shareholder approval. We do not generally support guaranteed severance absent a change in control or arrangements that do not require the termination of the executive (so-called “single trigger” plans).
IV. Corporate Structure and Shareholder Rights
The exercise of shareholder rights, in proportion to economic ownership, is a fundamental privilege of stock ownership that should not be unnecessarily limited. Such limits may be placed on shareholders’ ability to act by corporate charter or by-law provisions, or by the adoption of certain takeover provisions. In general, the market for corporate control should be allowed to function without undue interference from these artificial barriers.
B-66
The funds’ positions on a number of the most commonly presented issues in this area are as follows:
A. Shareholder rights plans (poison pills)
A company’s adoption of a so-called poison pill effectively limits a potential acquirer’s ability to buy a controlling interest without the approval of the target’s board of directors. Such a plan, in conjunction with other takeover defenses, may serve to entrench incumbent management and directors. However, in other cases, a poison pill may force a suitor to negotiate with the board and result in the payment of a higher acquisition premium.
In general, shareholders should be afforded the opportunity to approve shareholder rights plans within a year of their adoption. This provides the board with the ability to put a poison pill in place for legitimate defensive purposes, subject to subsequent approval by shareholders. In evaluating the approval of proposed shareholder rights plans, we will consider the following factors:
|
|
|
|
Factors For Approval
|
Factors Against Approval
|
|
Plan is relatively short-term (3-5 years).
|
Plan is long term (>5 years).
|
|
Plan requires shareholder approval for renewal.
|
Renewal of plan is automatic or does not require shareholder approval.
|
|
Plan incorporates review by a committee of independent
|
Board with limited independence.
|
|
directors at least every three years (so-called TIDE provisions).
|
|
|
Ownership trigger is reasonable (15-20%).
|
Ownership trigger is less than 15%.
|
|
Highly independent, non-classified board.
|
Classified board.
|
|
Plan includes permitted-bid/qualified-offer feature (chewable
|
|
|
pill) that mandates a shareholder vote in certain situations.
|
|
B. Cumulative voting
The funds are generally opposed to cumulative voting under the premise that it allows shareholders a voice in director elections that is disproportionate to their economic investment in the corporation.
C. Supermajority vote requirements
The funds support shareholders’ ability to approve or reject matters presented for a vote based on a simple majority. Accordingly, the funds will support proposals to remove supermajority requirements and oppose proposals to impose them.
D. Right to call meetings and act by written consent
The funds support shareholders’ right to call special meetings of the board (for good cause and with ample representation) and to act by written consent. The funds will generally vote for proposals to grant these rights to shareholders and against proposals to abridge them.
E. Confidential voting
The integrity of the voting process is enhanced substantially when shareholders (both institutions and individuals) can vote without fear of coercion or retribution based on their votes. As such, the funds support proposals to provide confidential voting.
F. Dual classes of stock
We are opposed to dual class capitalization structures that provide disparate voting rights to different groups of shareholders with similar economic investments. We will oppose the creation of separate classes with different voting rights and will support the dissolution of such classes.
B-67
V. Corporate and Social Policy Issues
Proposals in this category, initiated primarily by shareholders, typically request that the company disclose or amend certain business practices. The Board generally believes that these are “ordinary business matters” that are primarily the responsibility of management and should be evaluated and approved solely by the corporation’s board of directors. Often, proposals may address concerns with which the Board philosophically agrees, but absent a compelling economic impact on shareholder value (e.g., proposals to require expensing of stock options), the funds will typically abstain from voting on these proposals. This reflects the belief that regardless of our philosophical perspective on the issue, these decisions should be the province of company management unless they have a significant, tangible impact on the value of a fund’s investment and management is not responsive to the matter.
VI. Voting in Foreign Markets
Corporate governance standards, disclosure requirements, and voting mechanics vary greatly among the markets outside the United States in which the funds may invest. Each fund’s votes will be used, where applicable, to advocate for improvements in governance and disclosure by each fund’s portfolio companies. We will evaluate issues presented to shareholders for each fund’s foreign holdings in the context with the guidelines described above, as well as local market standards and best practices. The funds will cast their votes in a manner believed to be philosophically consistent with these guidelines, while taking into account differing practices by market. In addition, there may be instances in which the funds elect not to vote, as described below.
Many foreign markets require that securities be “blocked” or reregistered to vote at a company’s meeting. Absent an issue of compelling economic importance, we will generally not subject the fund to the loss of liquidity imposed by these requirements.
The costs of voting (e.g., custodian fees, vote agency fees) in foreign markets may be substantially higher than for U.S. holdings. As such, the fund may limit its voting on foreign holdings in instances in which the issues presented are unlikely to have a material impact on shareholder value.
VII. Voting Shares of a Company that has an Ownership Limitation
Certain companies have provisions in their governing documents that restrict stock ownership in excess of a specified limit. The ownership limit may be applied at the individual fund level or across all Vanguard-advised funds. Typically, these ownership restrictions are included in the governing documents of real estate investment trusts, but may be included in other companies’ governing documents.
A company’s governing documents normally allow the company to grant a waiver of these ownership limits, which would allow a fund (or all Vanguard-advised funds) to exceed the stated ownership limit. Sometimes a company will grant a waiver without restriction. From time to time, a company may grant a waiver only if a fund (or funds) agrees to not vote the company’s shares in excess of the normal specified limit. In such a circumstance, a fund may refrain from voting shares if owning the shares beyond the company’s specified limit is in the best interests of the fund and its shareholders.
VIII. Voting on a Fund’s Holdings of Other Vanguard Funds
Certain Vanguard funds (owner funds) may, from time to time, own shares of other Vanguard funds (underlying funds). If an underlying fund submits a matter to a vote of its shareholders, votes for and against such matters on behalf of the owner funds will be cast in the same proportion as the votes of the other shareholders in the underlying fund.
B-68
IX. The Proxy Voting Group
The Board has delegated the day-to-day operations of the funds’ proxy voting process to the Proxy Voting Group, which the Committee oversees. Although most votes will be determined, subject to the individual circumstances of each fund, by reference to the guidelines as separately adopted by each of the funds, there may be circumstances when the Proxy Voting Group will refer proxy issues to the Committee for consideration. In addition, at any time, the Board has the authority to vote proxies, when, at the Board’s or the Committee’s discretion, such action is warranted.
The Proxy Voting Group performs the following functions: (1) managing proxy voting vendors; (2) reconciling share positions; (3) analyzing proxy proposals using factors described in the guidelines; (4) determining and addressing potential or actual conflicts of interest that may be presented by a particular proxy; and (5) voting proxies. The Proxy Voting Group also prepares periodic and special reports to the Board, and any proposed amendments to the procedures and guidelines.
X. The Proxy Oversight Committee
The Board, including a majority of the independent trustees, appoints the members of the Committee who are senior officers of Vanguard.
The Committee does not include anyone whose primary duties include external client relationship management or sales. This clear separation between the proxy voting and client relationship functions is intended to eliminate any potential conflict of interest in the proxy voting process. In the unlikely event that a member of the Committee believes he or she might have a conflict of interest regarding a proxy vote, that member must recuse himself or herself from the committee meeting at which the matter is addressed, and not participate in the voting decision.
The Committee works with the Proxy Voting Group to provide reports and other guidance to the Board regarding proxy voting by the funds. The Committee has an obligation to conduct its meetings and exercise its decision-making authority subject to the fiduciary standards of good faith, fairness, and Vanguard’s Code of Ethics. The Committee shall authorize proxy votes that the Committee determines, at its sole discretion, to be in the best interests of each fund’s shareholders. In determining how to apply the guidelines to a particular factual situation, the Committee may not take into account any interest that would conflict with the interest of fund shareholders in maximizing the value of their investments.
The Board may review these procedures and guidelines and modify them from time to time. The procedures and guidelines are available on Vanguard’s website at
vanguard.com
.
You may obtain a free copy of a report that details how the funds voted the proxies relating to the portfolio securities held by the funds for the prior 12-month period ended June 30 by logging on to Vanguard’s website at
vanguard.com
or the SEC’s website at sec.gov.
INFORMATION ABOUT THE ETF SHARE CLASS
Vanguard Extended Duration Treasury Index Fund,
Vanguard Mega Cap Index Fund
, Vanguard Mega Cap 300 Value Index Fund, Vanguard Mega Cap 300 Growth Index Fund, and each Vanguard U.S. Sector Index Fund (collectively, the ETF Funds) offer and issue an exchange-traded class of shares called ETF Shares. Each ETF Fund issues and redeems ETF Shares in large blocks, known as “Creation Units.”
For the Funds, the number of shares in an ETF Creation Unit is 100,000 (50,000 for Vanguard Extended Duration Treasury Index Fund).
To purchase or redeem a Creation Unit, you must be an Authorized Participant or you must transact through a broker that is an Authorized Participant. An Authorized Participant is a participant in the Depository Trust Company (DTC) that has executed a Participant Agreement with Vanguard Marketing Corporation, the Funds’ Distributor (the Distributor). For a current list of Authorized Participants, contact the Distributor.
Investors that are not Authorized Participants must hold ETF Shares in a brokerage account. As with any stock traded on an exchange through a broker, purchases and sales of ETF Shares will be subject to usual and customary brokerage commissions.
B-69
Each ETF Fund issues Creation Units in kind in exchange for a basket of securities that are part of—or soon to be part of—its target index (Deposit Securities). Each ETF Fund also redeems Creation Units in kind; an investor who tenders a Creation Unit will receive, as redemption proceeds, a basket of securities that are part of the Fund’s portfolio holdings (Redemption Securities). As part of any creation or redemption transaction, the investor will either pay or receive some cash in addition to the securities, as described more fully on the following pages. Each ETF Fund reserves the right to issue Creation Units for cash, rather than in kind.
EXCHANGE LISTING AND TRADING
The ETF Shares have been approved for listing on a national securities exchange and will trade on the exchange at market prices that may differ from net asset value (NAV). There can be no assurance that, in the future, ETF Shares will continue to meet all of the exchange’s listing requirements. The exchange may, but is not required to, delist a Fund’s ETF Shares if (1) following the initial 12-month period beginning upon the commencement of trading, there are fewer than 50 beneficial owners of the ETF Shares for 30 or more consecutive trading days; (2) the value of the target index tracked by the ETF Fund is no longer calculated or available; or (3) such other event shall occur or condition exist that, in the opinion of the exchange, makes further dealings on the exchange inadvisable. The exchange will also delist a Fund’s ETF Shares upon termination of the ETF share class.
The exchange disseminates, through the facilities of the Consolidated Tape Association, an updated “indicative optimized portfolio value” (IOPV) for each Fund as calculated by an information provider. The ETF Funds are not involved with or responsible for the calculation or dissemination of the IOPVs, and they make no warranty as to the accuracy of the IOPVs. An IOPV for a Fund’s ETF Shares is disseminated every 15 seconds during regular exchange trading hours. An IOPV has a securities value component and a cash component. The securities values included in an IOPV are based on the real-time market prices of the Deposit Securities for a Fund’s ETF Shares. The IOPV is designed as an estimate of a Fund’s NAV at a particular point in time, but it is only an estimate and it should not be viewed as the actual NAV, which is calculated once each day.
CONVERSIONS AND EXCHANGES OF VANGUARD U.S. SECTOR INDEX FUNDS AND VANGUARD
MEGA CAP INDEX FUNDS
Owners of conventional shares (i.e., not exchange-traded shares) issued by an ETF Fund may convert those shares to ETF Shares of equivalent value of the same Fund.
Note: 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.
ETF Shares, whether acquired through a conversion or purchased on the secondary market, cannot be converted to conventional shares. Similarly, ETF Shares of one fund cannot be exchanged for ETF Shares of another fund.
Investors that are not Authorized Participants must hold ETF Shares in a brokerage account. Thus, before converting conventional shares to ETF Shares, an investor must have an existing, or open a new, brokerage account. This account may be with Vanguard Brokerage Services (Vanguard Brokerage) or with any other brokerage firm. To initiate a conversion of conventional shares to ETF Shares, an investor must contact his or her broker.
Vanguard Brokerage 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 or terminate the conversion privilege.
Converting conventional shares to ETF Shares generally is accomplished as follows. First, after the broker notifies Vanguard of an investor’s request to convert, Vanguard will transfer conventional shares from the investor’s account with Vanguard 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 the broker, not the investor, as the owner of the shares. Next, the 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. The Fund’s transfer agent will reflect ownership of all ETF Shares in the name of the DTC. The DTC will keep track of which ETF Shares belong to the broker, and the broker, in turn, will keep track of which ETF Shares belong to its customers.
B-70
Because the DTC is unable to handle fractional shares, only whole shares will be converted. For example, if the investor owned 300.250 conventional shares, and this was equivalent in value to 90.750 ETF Shares, the DTC account would receive 90 ETF Shares. Conventional shares worth 0.750 ETF Shares (in this example, that would be 2.481 conventional shares) would remain in the broker’s omnibus account with Vanguard. The broker then could either (1) take certain internal actions necessary to credit the investor’s account with 0.750 ETF Shares rather than 2.481 conventional shares, or (2) redeem the 2.481 conventional shares at NAV, in which case the investor would receive cash in lieu of those shares. If the broker chooses to redeem the conventional shares, the investor will realize a gain or loss on the redemption that must be reported on his or her tax return (unless the shares are held in an IRA or other tax-deferred account). An investor should consult his or her broker for information on how the broker will handle the conversion process, including whether the broker will impose a fee to process a conversion.
The conversion process works differently for investors who opt to hold ETF Shares through an account at Vanguard Brokerage. Investors who convert their conventional shares to ETF Shares through Vanguard Brokerage will have
all
conventional shares for which they request conversion converted to the equivalent dollar value of ETF Shares. Because no fractional shares will have to be sold, the transaction will be 100% tax-free.
Here are some important points to keep in mind when converting conventional shares of an ETF Fund to ETF Shares:
-
The conversion process can take anywhere from several days to several weeks, depending on the 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 an ETF Fund 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.
-
During the conversion process, an investor will remain fully invested in the Fund‘s conventional shares, and the
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.
-
During the conversion process, an investor will be able to liquidate all or part of an investment by instructing Vanguard
or the broker (depending on whether their shares are held in the investor’s account or the broker‘s omnibus account)
to redeem the conventional shares. After the conversion process is complete, an investor will be able to liquidate all or
part of an investment by instructing the broker to sell the ETF Shares.
NO CONVERSIONS OR EXCHANGES OF VANGUARD EXTENDED DURATION TREASURY ETF SHARES
The conventional share classes of Vanguard Extended Duration Treasury Index Fund are “daily dividend” share classes, which accrue dividends each day, while the ETF share class does not. The ETF Shares treat dividends much like a stock fund does, in that the dividends cause the NAV of the ETF Shares to increase. When the dividend is earned (on the “ex-dividend date”), the NAV of the ETF Shares will fall. The differing dividend policy between the conventional and ETF classes of shares prevents Vanguard from offering a conversion privilege for the Fund.
BOOK ENTRY ONLY SYSTEM
ETF Shares issued by the Funds are registered in the name of the DTC or its nominee, Cede & Co., and are deposited with, or on behalf of, the DTC. The DTC is a limited-purpose trust company that was created to hold securities of its participants (DTC Participants) and to facilitate the clearance and settlement of transactions among them through electronic book-entry changes in their accounts, thereby eliminating the need for physical movement of securities certificates. DTC Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. The DTC is a subsidiary of the Depository Trust and Clearing Corporation (DTCC), which is owned by certain participants of the DTCC’s subsidiaries, including the DTC. Access to the DTC system is also available to others such as banks, brokers, dealers, and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (Indirect Participants).
B-71
Beneficial ownership of ETF Shares is limited to DTC Participants, Indirect Participants, and persons holding interests through DTC Participants and Indirect Participants. Ownership of beneficial interests in ETF Shares (owners of such beneficial interests are referred to herein as Beneficial Owners) is shown on, and the transfer of ownership is effected only through, records maintained by the DTC (with respect to DTC Participants) and on the records of DTC Participants (with respect to Indirect Participants and Beneficial Owners that are not DTC Participants). Beneficial Owners will receive from, or through, the DTC Participant a written confirmation relating to their purchase of ETF Shares. The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities. Such laws may impair the ability of certain investors to acquire beneficial interests in ETF Shares.
Each ETF Fund recognizes the DTC or its nominee as the record owner of all ETF Shares for all purposes. Beneficial Owners of ETF Shares are not entitled to have ETF Shares registered in their names and will not receive or be entitled to physical delivery of share certificates. Each Beneficial Owner must rely on the procedures of the DTC and any DTC Participant and/or Indirect Participant through which such Beneficial Owner holds its interests to exercise any rights of a holder of ETF Shares.
Conveyance of all notices, statements, and other communications to Beneficial Owners is effected as follows. The DTC will make available to each ETF Fund, upon request and for a fee, a listing of the ETF Shares of the Fund held by each DTC Participant. The Fund shall obtain from each DTC Participant the number of Beneficial Owners holding ETF Shares, directly or indirectly, through the DTC Participant. The Fund shall provide each DTC Participant with copies of such notice, statement, or other communication, in form, number and at such place as the DTC Participant may reasonably request, in order that these communications may be transmitted by the DTC Participant, directly or indirectly, to the Beneficial Owners. In addition, the Fund shall pay to each DTC Participant a fair and reasonable amount as reimbursement for the expenses attendant to such transmittal, subject to applicable statutory and regulatory requirements.
Share distributions shall be made to the DTC or its nominee as the registered holder of all ETF Shares. The DTC or its nominee, upon receipt of any such distributions, shall immediately credit the DTC Participants’ accounts with payments in amounts proportionate to their respective beneficial interests in ETF Shares of the appropriate Fund as shown on the records of the DTC or its nominee. Payments by DTC Participants to Indirect Participants and Beneficial Owners of ETF Shares held through such DTC Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in a “street name,” and will be the responsibility of such DTC Participants.
The ETF Funds have no responsibility or liability for any aspects of the records relating to or notices to Beneficial Owners; or payments made on account of beneficial ownership interests in such ETF Shares; or for maintaining, supervising, or reviewing any records relating to such beneficial ownership interests; or for any other aspect of the relationship between the DTC and DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through such DTC Participants.
The DTC may determine to discontinue providing its service with respect to ETF Shares at any time by giving reasonable notice to the Funds and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the Funds shall take action either to find a replacement for the DTC to perform its functions at a comparable cost or, if such replacement is unavailable, to issue and deliver printed certificates representing ownership of ETF Shares, unless the Funds make other arrangements with respect thereto satisfactory to the exchange.
PURCHASE AND ISSUANCE OF ETF SHARES IN CREATION UNITS
Except for conversions to ETF Shares from conventional shares, the ETF Funds issue and sell ETF Shares only in Creation Units on a continuous basis through the Distributor, without a sales load, at their NAV next determined after receipt, on any Business Day, of an order in proper form. The ETF Funds do not issue fractional Creation Units.
A Business Day is any day on which the NYSE is open for business. As of the date of this Statement of Additional Information, the NYSE observes the following holidays: New Year’s Day; Martin Luther King, Jr. Day; Presidents’ Day (Washington’s Birthday); Good Friday; Memorial Day (observed); Independence Day; Labor Day; Thanksgiving Day; and Christmas Day.
B-72
Fund Deposit
The consideration for purchase of a Creation Unit from an ETF Fund generally consists of the in-kind deposit of a designated portfolio of securities (Deposit Securities) and an amount of cash (Cash Component) consisting of a Purchase Balancing Amount and a Transaction Fee (both described in the following paragraphs). Together, the Deposit Securities and the Cash Component constitute the Fund Deposit.
The Purchase Balancing Amount is an amount equal to the difference between the NAV of a Creation Unit and the market value of the Deposit Securities (Deposit Amount). It ensures that the NAV of a Fund Deposit (not including the Transaction Fee) is identical to the NAV of the Creation Unit it is used to purchase. If the Purchase Balancing Amount is a positive number (i.e., the NAV per Creation Unit exceeds the market value of the Deposit Securities), then that amount will be paid by the purchaser to an ETF Fund in cash. If the Purchase Balancing Amount is a negative number (i.e., the NAV per Creation Unit is less than the market value of the Deposit Securities), then that amount will be paid by an ETF Fund to the purchaser in cash (except as offset by the Transaction Fee).
Vanguard, through the National Securities Clearing Corporation (NSCC), makes available after the close of each Business Day a list of the names and the number of shares of each Deposit Security to be included in the next Business Day’s Fund Deposit for each ETF Fund (subject to possible amendment or correction). Each ETF Fund reserves the right to accept a nonconforming Fund Deposit.
The identity and number of shares of the Deposit Securities required for a Fund Deposit may change from one day to another to reflect rebalancing adjustments and corporate actions, to reflect interest payments on underlying bonds, or in response to adjustments to the weighting or composition of the component securities of the relevant target index.
In addition, each ETF Fund reserves the right to permit or require the substitution of an amount of cash—referred to as “cash in lieu”—to be added to the Cash Component to replace any Deposit Security. This might occur, for example, if a Deposit Security is not available in sufficient quantity for delivery, is not eligible for transfer through the applicable clearance and settlement system, or is not eligible for trading by an Authorized Participant or the investor for which an Authorized Participant is acting. Trading costs incurred by the Fund in connection with the purchase of Deposit Securities with cash-in-lieu amounts will be an expense of the Fund. However, Vanguard may adjust the Transaction Fee to protect existing shareholders from this expense.
All questions as to the number of shares of each security in the Deposit Securities and the validity, form, eligibility, and acceptance for deposit of any securities to be delivered shall be determined by the appropriate ETF Fund, and the Fund’s determination shall be final and binding.
Procedures For Purchasing Creation Units
An Authorized Participant may place an order to purchase Creation Units from a stock ETF
Fund
either (1) through the Continuous Net Settlement (CNS) clearing processes of the NSCC as such processes have been enhanced to effect purchases of Creation Units, such processes being referred to herein as the Clearing Process, or (2) outside the Clearing Process. To purchase through the Clearing Process, an Authorized Participant must be a member of the NSCC that is eligible to use the CNS system. Purchases of Creation Units cleared through the Clearing Process will be subject to a lower Transaction Fee than those cleared outside the Clearing Process.
For all Funds, t
o initiate a purchase order for a Creation Unit (
either
through the Clearing Process or outside the Clearing Process
for stock ETF Funds)
, an Authorized Participant must submit an order in proper form to the Distributor and such order must be received by the Distributor prior to the closing time of regular trading on the NYSE (Closing Time) (ordinarily 4 p.m., Eastern time) to receive that day’s NAV. The date on which an order to purchase (or redeem) Creation Units is placed is referred to as the Transmittal Date. Authorized Participants must transmit orders using a transmission method acceptable to the Distributor pursuant to procedures set forth in the Participant Agreement.
Purchase orders effected outside the Clearing Process are likely to require transmittal by the Authorized Participant earlier on the Transmittal Date than orders effected using the Clearing Process. Those persons placing orders outside the Clearing Process should ascertain the deadlines applicable to the DTC and the Federal Reserve Bank wire system by contacting the operations department of the broker or depository institution effectuating such transfer of the Deposit Securities and the Cash Component.
B-73
Neither the Trust, the ETF Funds, the Distributor, nor any affiliated party will be liable to an investor who is unable to submit a purchase order by Closing Time, even if the problem is the responsibility of one of those parties (e.g., the Distributor’s phone or e-mail systems were not operating properly).
If you are not an Authorized Participant, you must place your purchase order in an acceptable form with an Authorized Participant. The Authorized Participant may request that you make certain representations or enter into agreements with respect to the order, e.g., to provide for payments of cash when required.
Placement of Purchase Orders for Vanguard U.S. Sector ETFs and Vanguard
Mega Cap ETFs
Purchase Orders Using the Clearing Process
For purchase orders placed through the Clearing Process, the Participant Agreement authorizes the Distributor to transmit through the transfer agent or index receipt agent to the NSCC, on behalf of an Authorized Participant, such trade instructions as are necessary to effect the Authorized Participant’s purchase order. Pursuant to such trade instructions to the NSCC, the Authorized Participant agrees to deliver the requisite Deposit Securities and the Cash Component to the appropriate ETF Fund, together with such additional information as may be required by the Distributor.
An order to purchase Creation Units through the Clearing Process is deemed received on the Transmittal Date if (1) such order is received by the Fund’s designated agent n
o
later than Closing Time on such Transmittal Date, and (2) all other procedures set forth in the Participant Agreement are properly followed. Such order will be effected based on the NAV of the ETF Fund next determined on that day. An order to purchase Creation Units through the Clearing Process made in proper form but received after Closing Time on the Transmittal Date will be deemed received on the next Business Day immediately following the Transmittal Date and will be effected at the NAV next determined on that day. The Deposit Securities and the Cash Component will be transferred by the third NSCC Business Day following the date on which the purchase request is deemed received.
Purchase Orders Outside the Clearing Process
An Authorized Participant that wishes to place an order to purchase Creation Units outside the Clearing Process must state that it is not using the Clearing Process and that the purchase instead will be effected through a transfer of securities and cash directly through the DTC. An order to purchase Creation Units outside the Clearing Process is deemed received by the Fund’s designated agent on the Transmittal Date if (1) such order is received by the Distributor n
o
later than Closing Time on such Transmittal Date, and (2) all other procedures set forth in the Participant Agreement are properly followed.
If a Fund Deposit is incomplete on the third Business Day after the trade date (the trade date, known as “T,” is the date on which a security trade actually takes place; three Business Days after the trade date is known as “T+3”) because of the failed delivery of one or more of the Deposit Securities, an ETF Fund shall be entitled to cancel the purchase order. Alternatively, the Fund may issue Creation Units in reliance on the Authorized Participant’s undertaking to deliver the missing Deposit Securities at a later date. Such undertaking shall be secured by the delivery and maintenance of cash collateral in an amount determined by the ETF Fund in accordance with the terms of the Participant Agreement.
Placement of Purchase Orders for Vanguard Extended Duration Treasury ETFs
An Authorized Participant must deliver the cash and government securities portion of a Fund Deposit through the Federal Reserve’s Fedwire System and the corporate securities portion of a Fund Deposit through the DTC. If a Fund Deposit is incomplete on the third Business Day after the trade date because of the failed delivery of one or more of the Deposit Securities, the Fund shall be entitled to cancel the purchase order.
The ETF Fund may issue Creation Units in reliance on the Authorized Participant’s undertaking to deliver the missing Deposit Securities at a later date. Such undertaking shall be secured by the delivery and maintenance of cash collateral in an amount determined by the Fund in accordance with the terms of the Participant Agreement.
B-74
Rejection of Purchase Orders
Each ETF Fund reserves the absolute right to reject a purchase order transmitted to it by the Distributor. By way of example, and not limitation, an ETF Fund will reject a purchase order if:
-
the order is not in proper form;
-
the investor(s), upon obtaining the ETF Shares ordered, would own 80% or more of the total combined voting power
and number of shares of all classes of stock issued by the Fund;
-
the Deposit Securities delivered are not the same (in name or amount) as the published basket;
-
acceptance of the Deposit Securities would have certain adverse tax consequences to the ETF Fund;
-
acceptance of the Fund Deposit would, in the opinion of counsel, be unlawful;
-
acceptance of the Fund Deposit would otherwise, at the discretion of the ETF Fund or Vanguard, have an adverse
effect on the Fund or any of its shareholders; or
-
circumstances outside the control of the ETF Fund, the Trust, the transfer agent, the custodian, the Distributor, and
Vanguard make it for all practical purposes impossible to process the order. Examples of such circumstances include
natural disasters, public service disruptions, or utility problems such as fires, floods, extreme weather conditions,
and power outages resulting in telephone, telecopy, and computer failures; market conditions or activities causing
trading halts; systems failures involving computer or other information systems affecting the aforementioned parties
as well as the DTC, the NSCC,
the Federal Reserve,
or any other participant in the purchase process; and similar
extraordinary events.
If the purchase order is rejected, the Distributor shall notify the Authorized Participant that submitted the order. The ETF Funds, the Trust, the transfer agent, the custodian, the Distributor, and Vanguard are under no duty, however, to give notification of any defects or irregularities in the delivery of a Fund Deposit, nor shall any of them incur any liability for the failure to give any such notification.
Transaction Fee on Purchases of Creation Units
Each ETF Fund imposes a Transaction Fee (payable to the Fund) to compensate the Fund for costs associated with the issuance of Creation Units. For all ETF Funds except Vanguard Extended Duration Treasury Index Fund, an additional charge may be imposed for purchases of Creation Units effected outside the Clearing Process. When an ETF Fund permits (or requires) a purchaser to substitute cash in lieu of depositing one or more Deposit Securities, the purchaser may be assessed an additional charge on the cash-in-lieu portion of its investment. The amount of this charge will be disclosed to investors before they place their orders. The amount will be determined by the Fund at its sole discretion, but will not be more than the Fund’s good faith estimate of the costs it will incur investing the cash in lieu, which may include, if applicable, market-impact costs. In no event will the total Transaction Fee exceed 2% of the cash-in-lieu amount.
B-75
The Transaction Fees for purchases of Creation Units are listed in the following table. The Transaction Fees are subject to revision from time to time.
|
|
|
|
|
Transaction Fee
|
|
Vanguard ETF
|
on Purchases
|
|
Consumer Discretionary ETF
|
$1,000
|
|
Consumer Staples ETF
|
250
|
|
Energy ETF
|
500
|
|
Financials ETF
|
1,000
|
|
Health Care ETF
|
750
|
|
Industrials ETF
|
500
|
|
Information Technology ETF
|
1,000
|
|
Materials ETF
|
500
|
|
Telecommunication Services ETF
|
250
|
|
Utilities ETF
|
250
|
|
Mega Cap ETF
1
|
750
|
|
Mega Cap 300 Value ETF
|
500
|
|
Mega Cap 300 Growth ETF
|
500
|
|
Extended Duration Treasury ETF
|
500
|
|
1 Formerly known as Mega Cap 300 ETF
|
|
REDEMPTION OF ETF SHARES IN CREATION UNITS
To be eligible to place a redemption order, you must be an Authorized Participant. Investors that are not Authorized Participants must make appropriate arrangements with an Authorized Participant in order to redeem a Creation Unit.
ETF Shares may be redeemed only in Creation Units. Investors should expect to incur brokerage and other transaction costs in connection with assembling a sufficient number of ETF Shares to constitute a redeemable Creation Unit. There can be no assurance, however, that there will be sufficient liquidity in the public trading market at any time to permit assembly of a Creation Unit. Redemption requests received on a Business Day in good order will receive the NAV next determined after the request is made.
Unless cash redemptions are available or specified for an ETF Fund, an investor tendering a Creation Unit generally will receive redemption proceeds consisting of (1) a basket of Redemption Securities; plus (2) a Redemption Balancing Amount in cash equal to the difference between (x) the NAV of the Creation Unit being redeemed, as next determined after receipt of a request in proper form, and (y) the value of the Redemption Securities; less (3) a Transaction Fee. If the Redemption Securities have a value greater than the NAV of a Creation Unit, the redeeming investor would pay the Redemption Balancing Amount in cash to the ETF Fund rather than receiving such amount from the Fund.
Vanguard, through the NSCC, makes available after the close of each Business Day a list of the names and the number of shares of each Redemption Security to be included in the next Business Day’s redemption basket for each ETF Fund (subject to possible amendment or correction). The basket of Redemption Securities provided to an investor redeeming a Creation Unit may not be identical to the basket of Deposit Securities required of an investor purchasing a Creation Unit. If an ETF Fund and a redeeming investor mutually agree, the Fund may provide the investor with a basket of Redemption Securities that differs from the composition of the redemption basket published through the NSCC.
Each ETF Fund reserves the right to deliver cash in lieu of any Redemption Security for the same reason it might accept cash in lieu of a Deposit Security, as previously discussed, or if the Fund could not lawfully deliver the security or could not do so without first registering such security under federal or state law.
Neither the Trust, the ETF Funds, the Distributor, nor any affiliated party will be liable to an investor who is unable to submit a redemption order by Closing Time, even if the problem is the responsibility of one of those parties (e.g., the Distributor’s phone or e-mail systems were not operating properly).
B-76
Transaction Fee on Redemptions of Creation Units
Each ETF Fund imposes a Transaction Fee (payable to the Fund) to compensate the Fund for costs associated with the redemption of Creation Units. For all ETF Funds except Vanguard Extended Duration Treasury Index Fund, an additional charge may be imposed for redemptions of Creation Units effected outside the Clearing Process. When an ETF Fund permits (or requires) a redeeming investor to receive cash in lieu of one or more Redemption Securities, the investor may be assessed an additional charge on the cash-in-lieu portion of its redemption. The amount of this charge will be disclosed to investors before they place their orders. The amount will vary as determined by the Fund at its sole discretion, but will not be more than the Fund’s good faith estimate of the costs it will incur by selling portfolio securities to raise the necessary cash, which may include, if applicable, market-impact costs. In no event will the total Transaction Fee exceed 2% of the cash-in-lieu amount. When the Extended Duration Treasury Index Fund permits (or requires) a redeeming investor to receive cash in lieu of one or more Redemption Securities, unlike for purchases, the Fund does not impose an additional variable charge on the cash-in-lieu portion.
For each ETF Fund, the amount of the Transaction Fee on redemptions of Creation Units is the same as the fee imposed on comparable purchases (see “Transaction Fee on Purchases of Creation Units”), regardless of the number of Creation Units redeemed. The Transaction Fees are subject to revision from time to time.
Placement of Redemption Orders for Vanguard U.S. Sector ETFs and Vanguard
Mega Cap ETFs
Redemption Orders Using the Clearing Process
An Authorized Participant may place an order to redeem Creation Units of a stock ETF
Fund
either (1) through the CNS clearing processes of the NSCC as such processes have been enhanced to effect redemptions of Creation Units, such processes being referred to herein as the Clearing Process, or (2) outside the Clearing Process. To redeem through the Clearing Process, an Authorized Participant must be a member of the NSCC that is eligible to use the CNS system. Redemptions of Creation Units cleared through the Clearing Process will be subject to a lower Transaction Fee than those cleared outside the Clearing Process.
An order to redeem Creation Units through the Clearing Process is deemed received on the Transmittal Date if (1) such order is received by the ETF Fund’s designated agent no later than Closing Time on such Transmittal Date, and (2) all other procedures set forth in the Participant Agreement are properly followed. Such order will be effected based on the NAV of an ETF Fund next determined on that day. An order to redeem Creation Units through the Clearing Process made in proper form but received by a Fund after Closing Time on the Transmittal Date will be deemed received on the next Business Day immediately following the Transmittal Date and will be effected at the NAV next determined on that day. The Redemption Securities and the Cash Redemption Amount will be transferred by the third NSCC Business Day following the date on which the redemption request is deemed received.
Redemption Orders Outside the Clearing Process
An Authorized Participant that wishes to place an order to redeem a Creation Unit outside the Clearing Process must state that it is not using the Clearing Process and that redemption instead will be effected through a transfer of ETF Shares directly through the DTC. An order to redeem a Creation Unit of an ETF Fund outside the Clearing Process is deemed received on the Transmittal Date if (1) such order is received by the Fund’s designated agent no later than Closing Time on such Transmittal Date, and (2) all other procedures set forth in the Participant Agreement are properly followed.
If a redemption order in proper form is submitted to the transfer agent by an Authorized Participant prior to Closing Time on the Transmittal Date, then the value of the Redemption Securities and the Cash Redemption Amount will be determined by the ETF Fund on such Transmittal Date.
After the transfer agent has deemed an order for redemption outside the Clearing Process received, the transfer agent will initiate procedures to transfer the Redemption Securities and the Cash Redemption Amount to the Authorized Participant on behalf of the redeeming Beneficial Owner by the third Business Day following the Transmittal Date on which such redemption order is deemed received by the transfer agent.
If on T+3 an Authorized Participant has failed to deliver all of the Vanguard ETF Shares it is seeking to redeem, the Fund shall be entitled to cancel the redemption order. Alternatively, the Fund may deliver to the Authorized Participant the full complement of Redemption Securities and cash in reliance on the Authorized Participant’s undertaking to deliver the missing ETF Shares at a later date. Such undertaking shall be secured by the Authorized Participant’s delivery and
B-77
maintenance of cash collateral in accordance with collateral procedures that are part of the Participant Agreement. In all cases the ETF Fund shall be entitled to charge the Authorized Participant for any costs (including investment losses, attorney’s fees, and interest) incurred by the Fund as a result of the late delivery or failure to deliver.
Each ETF Fund reserves the right, at its sole discretion, to require or permit a redeeming investor to receive its redemption proceeds in cash. In such cases, the investor would receive a cash payment equal to the NAV of its ETF Shares based on the NAV of those shares next determined after the redemption request is received in proper form (minus a Transaction Fee, including a charge for cash redemptions, as previously discussed).
If an Authorized Participant, or a redeeming investor acting through an Authorized Participant, is subject to a legal restriction with respect to a particular security included in the basket of Redemption Securities, such investor may be paid an equivalent amount of cash in lieu of the security. In addition, each ETF Fund reserves the right to redeem Creation Units partially for cash to the extent that the Fund could not lawfully deliver one or more Redemption Securities or could not do so without first registering such securities under federal or state law.
Placement of Redemption Orders for Vanguard Extended Duration Treasury ETFs
To initiate a redemption order for a Creation Unit, an Authorized Participant must submit such order in proper form to the Distributor no later than Closing Time in order to receive that day’s NAV. Authorized Participants must transmit orders using a transmission method acceptable to the Distributor pursuant to procedures set forth in the Participant Agreement.
If on the settlement date (typically T+3) an Authorized Participant has failed to deliver all of the Vanguard ETF Shares it is seeking to redeem, the Fund shall be entitled to cancel the redemption order. Alternatively, the Fund may deliver to the Authorized Participant the full complement of Redemption Securities and cash in reliance on the Authorized Participant’s undertaking to deliver the missing ETF Shares at a later date. Such undertaking shall be secured by the Authorized Participant’s delivery and maintenance of cash collateral in accordance with the collateral procedures that are part of the Participant Agreement. In all cases the ETF Fund shall be entitled to charge Authorized Participant for any costs (including investment losses, attorney’s fees, and interest) incurred by the Fund as a result of the late delivery or failure to deliver.
If an Authorized Participant, or a redeeming investor acting through an Authorized Participant, is subject to a legal restriction with respect to a particular security included in the basket of Redemption Securities, such investor may be paid an equivalent amount of cash in lieu of the security. In addition, the ETF Fund reserves the right to redeem Creation Units partially for cash to the extent that the Fund could not lawfully deliver one or more Redemption Securities or could not do so without first registering such securities under federal or state law.
Suspension of Redemption Rights
The right of redemption may be suspended or the date of payment postponed with respect to an ETF Fund (1) for any period during which the NYSE or listing exchange is closed (other than customary weekend and holiday closings), (2) for any period during which trading on the NYSE or listing exchange is suspended or restricted, (3) for any period during which an emergency exists as a result of which disposal of the Fund’s portfolio securities or determination of its NAV is not reasonably practicable, or (4) in such other circumstances as the SEC permits.
Precautionary Notes
A precautionary note to retail investors:
The DTC or its nominee will be the registered owner of all outstanding ETF Shares. Your ownership of ETF Shares will be shown on the records of the DTC and the DTC Participant 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 distributing income and capital gains distributions and for ensuring that you receive 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.
A precautionary note to purchasers of Creation Units
: You should be aware of certain legal risks unique to investors purchasing Creation Units directly from the issuing fund.
Because new ETF Shares may be issued on an ongoing basis, a “distribution” of ETF Shares could be occurring at any time. Certain activities that you perform as a dealer could, depending on the circumstances, result in your being deemed
B-78
a participant in the distribution in a manner that could render you a statutory underwriter and subject you to the prospectus delivery and liability provisions of the Securities Act of 1933. For example, you could be deemed a statutory underwriter if you purchase Creation Units from the issuing fund, break them down into the constituent ETF Shares, and sell those shares directly to customers, or if you choose to couple the creation of a supply of new ETF Shares with an active selling effort involving solicitation of secondary market demand for ETF Shares. Whether a person is an underwriter depends upon all of the facts and circumstances pertaining to that person’s activities, and the examples mentioned here should not be considered a complete description of all the activities that could cause you to be deemed an underwriter.
Dealers who are not “underwriters” but are participating in a distribution (as opposed to engaging in ordinary secondary-market transactions), and thus dealing with ETF Shares as part of an “unsold allotment” within the meaning of Section 4(3)(C) of the Securities Act, will be unable to take advantage of the prospectus delivery exemption provided by Section 4(3) of the Securities Act.
A precautionary note to shareholders redeeming Creation Units:
An Authorized Participant that is not a “qualified institutional buyer” as defined in Rule 144A under the Securities Act of 1933 will not be able to receive, as part of the redemption basket, restricted securities eligible for resale under Rule 144A.
A precautionary note to investment companies:
For purposes of the Investment Company Act of 1940, Vanguard ETF Shares are issued by registered investment companies, and the acquisition of such shares by other investment companies is subject to the restrictions of Section 12(d)(1) of that Act, except as permitted by an SEC exemptive order that allows registered investment companies to invest in the issuing funds beyond the limits of Section 12(d)(1), subject to certain terms and conditions.
FINANCIAL STATEMENTS
Each Fund’s Financial Statements for the fiscal year ended
August 31, 2012,
appearing in the Funds‘
2012
Annual Reports to Shareholders, and the reports thereon of PricewaterhouseCoopers LLP, an independent registered public accounting firm, also appearing therein, are incorporated by reference into this Statement of Additional Information. For a more complete discussion of each Fund’s performance, please see the Funds‘ Annual and Semiannual Reports to Shareholders, which may be obtained without charge.
B-79
The Vanguard funds are not in any way sponsored, endorsed, sold or promoted by FTSE International Limited (“FTSE”) the London Stock Exchange Group companies (“LSEG”) (together the “Licensor Parties”) and none of the Licensor Parties make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to (i) the results to be obtained from the use of a FTSE Index (the “Index”) (upon which a Vanguard fund is based), (ii) the figure at which the Index is said to stand at any particular time on any particular day or otherwise, or (iii) the suitability of the Index for the purpose to which it is being put in connection with the Vanguard fund. None of the Licensor Parties have provided or will provide any financial or investment advice or recommendation in relation to the Index to Vanguard or to its clients. The Index is calculated by FTSE or its agent. None of the Licensor Parties shall be (a) liable (whether in negligence or otherwise) to any person for any error in the Index or (b) under any obligation to advise any person of any error therein. All rights in the Index vest in FTSE. “FTSE
®
” is a trademark of LSEG and is used by FTSE under licence. The Russell Indexes and
Russell
®
are registered trademarks of Russell Investments and have been licensed for use by The Vanguard Group, Inc. The products are not sponsored, endorsed, sold or promoted by Russell Investments and Russell Investments makes no representation regarding the advisability of investing in the products.
Standard & Poor’s
®
,
S&P
®
,
S&P 500
®
,
Standard & Poor’s 500
,
500
®
,
S&P MidCap 400
®
, and
S&P SmallCap 600
®
are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and have been licensed for use by The Vanguard Group, Inc. The Vanguard mutual funds are not sponsored, endorsed, sold, or promoted by S&P or its Affiliates, and S&P and its Affiliates make no representation, warranty, or condition regarding the advisability of buying, selling, or holding units/shares in the funds. Vanguard ETFs are not sponsored, endorsed, sold, or promoted by Barclays. Barclays makes no representation or warranty, express or implied, to the owners of Vanguard ETFs or any member of the public regarding the advisability of investing in securities generally or in Vanguard ETFs particularly or the ability of the Barclays Index to track general bond market performance. Barclays hereby expressly disclaims all warranties of merchantability and fitness for a particular purpose with respect to the Barclays Index and any data included therein. Barclays’ only relationship to Vanguard and Vanguard ETFs is the licensing of the Barclays Index which is determined, composed, and calculated by Barclays without regard to Vanguard or the Vanguard ETFs. Barclays is not responsible for and has not participated in the determination of the timing of, prices of, or quantities of Vanguard ETFs to be issued.
Vanguard funds are not sponsored, endorsed, sold, or promoted by the University of Chicago or its Center for Research in Security Prices, and neither the University of Chicago nor its Center for Research in Security Prices makes any representation regarding the advisability of investing in the funds.
CFA
®
and
Chartered Financial Analyst
®
are trademarks owned by CFA Institute.
THESE FUNDS ARE NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY MSCI INC. (“MSCI”), ANY OF ITS AFFILIATES, ANY OF ITS DIRECT OR INDIRECT INFORMATION PROVIDERS OR ANY OTHER THIRD PARTY INVOLVED IN, OR RELATED TO, COMPILING, COMPUTING OR CREATING ANY MSCI INDEX (COLLECTIVELY, THE “MSCI PARTIES”). THE MSCI INDEXES ARE THE EXCLUSIVE PROPERTY OF MSCI. MSCI AND THE MSCI INDEX NAMES ARE SERVICE MARK(S) OF MSCI OR ITS AFFILIATES AND HAVE BEEN LICENSED FOR USE FOR CERTAIN PURPOSES BY VANGUARD. NONE OF THE MSCI PARTIES MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE OWNERS OF THESE FUNDS OR ANY MEMBER OF THE PUBLIC REGARDING THE ADVISABILITY OF INVESTING IN FUNDS GENERALLY OR IN THESE FUNDS PARTICULARLY OR THE ABILITY OF ANY MSCI INDEX TO TRACK CORRESPONDING STOCK MARKET PERFORMANCE. MSCI OR ITS AFFILIATES ARE THE LICENSORS OF CERTAIN TRADEMARKS, SERVICE MARKS AND TRADE NAMES AND OF THE MSCI INDEXES WHICH ARE DETERMINED, COMPOSED AND CALCULATED BY MSCI WITHOUT REGARD TO THESE FUNDS OR THE ISSUER OR OWNER OF THESE FUNDS. NONE OF THE MSCI PARTIES HAS ANY OBLIGATION TO TAKE THE NEEDS OF THE ISSUERS OR OWNERS OF THESE FUNDS INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE MSCI INDEXES. NONE OF THE MSCI PARTIES IS RESPONSIBLE FOR OR HAS PARTICIPATED IN THE DETERMINATION OF THE TIMING OF, PRICES AT, OR QUANTITIES OF THESE FUNDS TO BE ISSUED OR IN THE DETERMINATION OR CALCULATION OF THE CONSIDERATION INTO WHICH THESE FUNDS ARE REDEEMABLE. NONE OF THE MSCI PARTIES HAS ANY OBLIGATION OR LIABILITY TO THE OWNERS OF THESE FUNDS IN CONNECTION WITH THE ADMINISTRATION, MARKETING OR OFFERING OF THESE FUNDS.
ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF THE MSCI INDEXES FROM SOURCES WHICH MSCI CONSIDERS RELIABLE, NONE OF THE MSCI PARTIES WARRANTS OR GUARANTEES THE ORIGINALITY, ACCURACY AND/OR THE COMPLETENESS OF ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. NONE OF THE MSCI PARTIES MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, LICENSEE’S CUSTOMERS OR COUNTERPARTIES, ISSUERS OF THE FUNDS, OWNERS OF THE FUNDS, OR ANY OTHER PERSON OR ENTITY, FROM THE USE OF ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED HEREUNDER OR FOR ANY OTHER USE. NONE OF THE MSCI PARTIES SHALL HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS OF OR IN CONNECTION WITH ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. FURTHER, NONE OF THE MSCI PARTIES MAKES ANY EXPRESS OR IMPLIED WARRANTIES OF ANY KIND, AND THE MSCI PARTIES HEREBY EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO ANY MSCI INDEX AND ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL ANY OF THE MSCI PARTIES HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING WITHOUT LIMITATION LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
SAI023 042013
B-80
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PART C
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VANGUARD WORLD FUND
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OTHER INFORMATION
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Item 28. Exhibits
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(a)
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Articles of Incorporation, Amended and Restated Agreement and Declaration of Trust, filed
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on December 20, 2011, Post-Effective Amendment No. 119, are hereby incorporated by
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reference.
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(b)
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By-Laws, filed September 30, 2010, Post-Effective Amendment No. 115, are hereby
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incorporated by reference.
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(c)
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Instruments Defining Rights of Security Holders, reference is made to Articles III and V of the
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Registrant’s Amended and Restated Agreement and Declaration of Trust, refer to Exhibit (a)
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above.
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(d)
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Investment Advisory Contracts, for M&G Investment Management Limited, filed on February
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26, 2008, Post-Effective Amendment No. 109; for Wellington Management Company,
LLP
, and
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Delaware Management Company, filed on December 15, 2010, Post-Effective Amendment No.
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117; for William Blair & Company, L.L.C., Ballie Gifford Overseas Ltd., and Schroder Investment
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Management North America Inc., filed on April 8, 2011, Post-Effective Amendment No. 118,
are hereby incorporated by reference.
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For Schroder Investment Management North America Limited, is filed herewith.
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For The Vanguard
Group, Inc., which provides investment advisory services to the Funds at cost pursuant to the
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Amended and Restated Funds’ Service Agreement, refer to Exhibit (h) below.
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(e)
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Underwriting Contracts, not applicable.
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(f)
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Bonus or Profit Sharing Contracts, reference is made to the section entitled “Management of
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the Funds” in Part B of this Registration Statement.
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(g)
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Custodian Agreements, for Brown Brothers Harriman & Co., filed on October 20, 2009, Post-
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Effective Amendment No. 112; for State Street Bank and Trust Company, filed December 15,
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2010, Post-Effective Amendment No 117; and for JPMorgan Chase Bank,
filed on December
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27, 2012, Post-Effective Amendment No. 124, are hereby incorporated by reference
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(h)
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Other Material Contracts, and Form of Authorized Participant Agreement, filed September 30,
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2010, Post-Effective Amendment No. 115; Indemnity Agreement between The Vanguard
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Group, Inc., and William Blair & Company, L.L.C., and Fifth Amended and Restated Funds’
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Service Agreement, filed on December 20, 2011, Post-Effective Amendment No. 119, are
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hereby incorporated by reference.
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(i)
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Legal Opinion, not applicable.
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(j)
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Other Opinions, Consent of Independent Registered Public Accounting Firm,
to be filed by
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amendment.
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(k)
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Omitted Financial Statements, not applicable.
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(l)
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Initial Capital Agreements, not applicable.
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(m)
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Rule 12b-1 Plan, not applicable.
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(n)
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Rule 18f-3 Plan,
filed on December 27, 2012, Post-Effective Amendment No. 124, is hereby
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incorporated by reference
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(o)
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Reserved.
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(p)
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Code of Ethics, for Baillie Gifford Overseas Ltd., filed on December 10, 2007, Post-Effective
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Amendment No. 108; for M&G Investment Management Limited, filed on April 28, 2008,
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Post-Effective Amendment No. 110; for Schroder Investment Management North America,
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Inc., and Schroder Investment Management North America, Ltd., filed on December 23,
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2008, Post-Effective Amendment No. 111; for The Vanguard Group, Inc., filed on July 30, 2010,
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Post-Effective Amendment No. 114; for Wellington Management Company,
LLP
, filed on
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December 15, 2010, Post-Effective Amendment No. 117; and for Delaware Management
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Company and William Blair & Company, LLC, filed on April 8, 2011, Post-Effective Amendment
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No. 118, are hereby incorporated by reference.
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Item 29. Persons Controlled by or under Common Control with Registrant
Registrant is not controlled by or under common control with any person.
Item 30. Indemnification
The Registrant’s organizational documents contain provisions indemnifying trustees and officers against liability incurred in their official capacities. Article VII, Section 2 of the Amended and Restated Agreement and Declaration of Trust provides that the Registrant may indemnify and hold harmless each and every trustee and officer from and against any and all claims, demands, costs, losses, expenses, and damages whatsoever arising out of or related to the performance of his or her duties as a trustee or officer. Article VI of the By-Laws generally provides that the Registrant shall indemnify its trustees and officers from any liability arising out of their past or present service in that capacity. Among other things, this provision excludes any liability arising by reason of willful misfeasance, bad faith, gross negligence, or the reckless disregard of the duties involved in the conduct of the trustee’s or officer’s office with the Registrant.
Item 31. Business and Other Connections of Investment Adviser
Wellington Management Company,
LLP
(Wellington Management) is an investment advisor registered under the Investment Advisers Act of 1940, as amended (the Advisers Act). The list required by this Item 31 of officers and partners of Wellington Management, together with any information as to any business, profession, vocation, or employment of a substantial nature engaged in by such officers and partners during the past two years, is incorporated herein by reference from Form ADV filed by Wellington Management pursuant to the Advisers Act (SEC File No. 801-15908).
Delaware Management Company, a series of Delaware Management Business Trust (DMBT), is an investment adviser registered under the Advisers Act. The list required by this Item 31 of officers and directors of DMBT, together with any information as to any business, profession, vocation, or employment of a substantial nature engaged in by such officers and directors during the past two years, is incorporated herein by reference from Form ADV filed by DMBT pursuant to the Advisers Act (SEC File No. 801-32108).
William Blair & Company, L.L.C. (William Blair & Company), is an investment adviser registered under the Advisers Act. The list required by this Item 31 of officers and directors of William Blair & Company, together with any information as to any business, profession, vocation, or employment of a substantial nature engaged in by such officers and directors during the past two years, is incorporated herein by reference from Form ADV filed by William Blair & Company pursuant to the Advisers Act (SEC File No. 801-688).
Schroder Investment Management North America, Inc. (Schroder), is an investment adviser registered under the Advisers Act. The list required by this Item 31 of officers and directors of Schroder, together with any information as to any business, profession, vocation, or employment of a substantial nature engaged in by such officers and directors during the past two years, is incorporated herein by reference from Form ADV filed by Schroder pursuant to the Advisers Act (SEC File No. 801-15834).
Baillie Gifford Overseas Ltd. (Baillie Gifford) is an investment adviser registered under the Advisers Act. The list required by this Item 31 of officers and directors of Baillie Gifford, together with any information as to any business, profession, vocation, or employment of a substantial nature engaged in by such officers and directors during the past two years, is incorporated by reference to Form ADV filed by Baillie Gifford pursuant to the Advisers Act (SEC File No. 801-21051).
M&G Investment Management Limited (M&G) is an investment adviser registered under the Advisers Act. The list required by this Item 31of officers and directors of M&G, together with any information as to any business, profession, vocation, or employment of a substantial nature engaged in by such officers and directors during the past two years, is incorporated herein by reference from Form ADV filed by M&G pursuant to the Advisers Act (SEC File No. 801-21981).
The Vanguard Group, Inc. (Vanguard) is an investment adviser registered under the Advisers Act. The list required by this Item 31 of officers and directors of Vanguard, together with any information as to any business, profession, vocation, or employment of a substantial nature engaged in by such officers and directors during the past two years, is incorporated herein by reference from Form ADV filed by Vanguard pursuant to the Advisers Act (SEC File No. 801-11953).
Item 32. Principal Underwriters
(a) Vanguard Marketing Corporation, a wholly owned subsidiary of The Vanguard Group, Inc., is the principal underwriter of each fund within the Vanguard group of investment companies, a family of more than 170 mutual funds.
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(b)
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The principal business address of each named director and officer of Vanguard Marketing Corporation is
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100
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Vanguard Boulevard, Malvern, PA 19355.
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Name
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Positions and Office with Underwriter
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Positions and Office with Funds
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F. William McNabb III
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Director
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Chairman and Chief Executive Officer
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Michael S. Miller
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Director and Managing Director
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None
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Glenn W. Reed
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Director
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None
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Mortimer J. Buckley
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Director and Senior Vice President
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None
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Martha G. King
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Director and Senior Vice President
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None
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Chris D. McIsaac
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Director and Senior Vice President
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None
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George U. Sauter
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Director and Senior Vice President
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None
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Heidi Stam
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Director and Senior Vice President
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Secretary
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Paul A. Heller
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Senior Vice President
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None
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Pauline C. Scalvino
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Chief Compliance Officer
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Chief Compliance Officer
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Jack Brod
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Principal
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None
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David L. Cermak
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Principal
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None
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Brian Gallary
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Principal
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None
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Crystal Hardie
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Principal
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None
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John C. Heywood
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Principal
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None
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Timothy P. Holmes
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Principal
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None
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Colin M. Kelton
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Principal
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None
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Mike Lucci
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Principal
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None
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Brian McCarthy
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Principal
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None
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Jane K. Myer
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Principal
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None
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Salvatore L. Pantalone
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Financial and Operations Principal and
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None
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Assistant Treasurer
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Joseph Colaizzo
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Financial and Operations Principal
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None
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Joseph F. Miele
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Registered Municipal Securities Principal
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None
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Richard D. Carpenter
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Treasurer
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None
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Paul Atkins
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Assistant Treasurer
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None
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Jennifer M. Halliday
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Assistant Treasurer
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None
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Name
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Positions and Office with Underwriter
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Positions and Office with Funds
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Jack T. Wagner
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Assistant Treasurer
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None
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Michael L. Kimmel
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Secretary
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None
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Caroline Cosby
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Assistant Secretary
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None
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(c)Not Applicable.
Item 33. Location of Accounts and Records
The books, accounts, and other documents required to be maintained by Section 31 (a) of the 1940 Act and the Rules thereunder will be maintained at the offices of the Registrant, 100 Vanguard Boulevard, Malvern, Pennsylvania 19355; the Registrant’s Transfer Agent, The Vanguard Group, Inc., 100 Vanguard Boulevard, Malvern, Pennsylvania 19355; and the Registrant’s custodians, Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109; JPMorgan Chase Bank, 270 Park Avenue, New York, New York 10017-2070; and State Street Bank and Trust Company, One Lincoln Street, Boston, Massachusetts 02111.
Item 34. Management Services
Other than as set forth in the section entitled “Management of the Funds” in Part B of this Registration Statement, the Registrant is not a party to any management-related service contract.
Item 35. Undertakings
Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the Securities Act) and the Investment Company Act, the Registrant hereby certifies that it has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Town of Valley Forge and the Commonwealth of Pennsylvania, on this 31st day of January, 2013.
VANGUARD WORLD FUND
BY:_______ _/s/ F. William McNabb III
*
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F. William McNabb III
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Post-Effective Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated:
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Signature
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Title
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Date
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/s/ F. William McNabb III*
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Chairman and Chief Executive
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January 31, 2013
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Officer
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F. William McNabb
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/s/ Emerson U. Fullwood*
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Trustee
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January 31, 2013
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Emerson U. Fullwood
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/s/ Rajiv L. Gupta*
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Trustee
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January 31, 2013
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Rajiv L. Gupta
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/s/ Amy Gutmann*
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Trustee
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January 31, 2013
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Amy Gutmann
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/s/ JoAnn Heffernan Heisen*
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Trustee
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January 31, 2013
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JoAnn Heffernan Heisen
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/s/ F. Joseph Loughrey*
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Trustee
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January 31, 2013
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F. Joseph Loughrey
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/s/ Mark Loughridge*
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Trustee
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January 31, 2013
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Mark Loughridge
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/s/ Scott C. Malpass*
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Trustee
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January 31, 2013
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Scott C. Malpass
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/s/ André F. Perold*
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Trustee
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January 31, 2013
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André F. Perold
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/s/ Alfred M. Rankin, Jr.*
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Trustee
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January 31, 2013
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Alfred M. Rankin, Jr.
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/s/ Peter F. Volanakis*
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Trustee
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January 31, 2013
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Peter F. Volanakis
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/s/ Thomas J. Higgins*
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Chief Financial Officer
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January 31, 2013
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Thomas J. Higgins
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*By:
/s/ Heidi Stam
Heidi Stam, pursuant to a Power of Attorney filed on March 27, 2012, see File Number 2-11444,
I
ncorporated by Reference.
Investment Advisory Contracts, Schroder Investment Management North America Limited...........................EX-99.D