0000932471-18-005231.txt : 20180226 0000932471-18-005231.hdr.sgml : 20180226 20180226090610 ACCESSION NUMBER: 0000932471-18-005231 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 41 FILED AS OF DATE: 20180226 DATE AS OF CHANGE: 20180226 EFFECTIVENESS DATE: 20180226 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VANGUARD WINDSOR FUNDS CENTRAL INDEX KEY: 0000107606 IRS NUMBER: 510082711 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-14336 FILM NUMBER: 18638794 BUSINESS ADDRESS: STREET 1: PO BOX 2600 STREET 2: V26 CITY: VALLEY FORGE STATE: PA ZIP: 19482 BUSINESS PHONE: 6106691000 MAIL ADDRESS: STREET 1: PO BOX 2600 STREET 2: V26 CITY: VALLEY FORGE STATE: PA ZIP: 19482 FORMER COMPANY: FORMER CONFORMED NAME: VANGUARD WINDSOR FUNDS/ DATE OF NAME CHANGE: 20011121 FORMER COMPANY: FORMER CONFORMED NAME: VANGUARD/WINDSOR FUNDS INC DATE OF NAME CHANGE: 19931203 FORMER COMPANY: FORMER CONFORMED NAME: WINDSOR FUNDS INC DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VANGUARD WINDSOR FUNDS CENTRAL INDEX KEY: 0000107606 IRS NUMBER: 510082711 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-00834 FILM NUMBER: 18638795 BUSINESS ADDRESS: STREET 1: PO BOX 2600 STREET 2: V26 CITY: VALLEY FORGE STATE: PA ZIP: 19482 BUSINESS PHONE: 6106691000 MAIL ADDRESS: STREET 1: PO BOX 2600 STREET 2: V26 CITY: VALLEY FORGE STATE: PA ZIP: 19482 FORMER COMPANY: FORMER CONFORMED NAME: VANGUARD WINDSOR FUNDS/ DATE OF NAME CHANGE: 20011121 FORMER COMPANY: FORMER CONFORMED NAME: VANGUARD/WINDSOR FUNDS INC DATE OF NAME CHANGE: 19931203 FORMER COMPANY: FORMER CONFORMED NAME: WINDSOR FUNDS INC DATE OF NAME CHANGE: 19920703 0000107606 S000004417 Vanguard Windsor Fund C000012178 Investor Shares VWNDX C000012179 Admiral Shares VWNEX 0000107606 S000004418 Vanguard Windsor II Fund C000012180 Investor Shares VWNFX C000012181 Admiral Shares VWNAX 485BPOS 1 windsor2018.htm VANGUARD WINDSOR FUNDS windsor2018.htm - Generated by SEC Publisher for SEC Filing

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form N-1A
 
REGISTRATION STATEMENT (NO. 2-14336)  
UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 133 [X]
and
 
REGISTRATION STATEMENT (NO. 811-00834) UNDER THE INVESTMENT COMPANY ACT
OF 1940    
Amendment No. 136 [X]
 
 
VANGUARD WINDSOR FUNDS
(Exact Name of Registrant as Specified in Declaration of Trust)
 
P.O. Box 2600, Valley Forge, PA 19482
(Address of Principal Executive Office)
 
Registrant’s Telephone Number (610) 669-1000
 
Anne E. Robinson, Esquire
P.O. Box 876
Valley Forge, PA 19482
 
Approximate Date of Proposed Public Offering:  
It is proposed that this filing will become effective (check appropriate box)  
[ ] immediately upon filing pursuant to paragraph (b)  
[X] on February 26, 2018 pursuant to paragraph (b)  
[ ] 60 days after filing pursuant to paragraph (a)(1)  
[ ] on (date) pursuant to paragraph (a)(1)  
[ ] 75 days after filing pursuant to paragraph (a)(2)  
[ ] on (date) pursuant to paragraph (a)(2) of rule 485  
If appropriate, check the following box:  
[ ] This post-effective amendment designates a new effective date for a
  previously filed post-effective amendment.  

 


Vanguard WindsorFund
Prospectus
 
February 26, 2018
 
Investor Shares & Admiral™ Shares
Vanguard Windsor Fund Investor Shares (VWNDX)
Vanguard Windsor Fund Admiral Shares (VWNEX)
 
 
 
 
This prospectus contains financial data for the Fund through the fiscal year ended October 31, 2017.
The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or
passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 


 

Contents      
 
 
Fund Summary 1 Investing With Vanguard 24
More on the Fund 6 Purchasing Shares 24
The Fund and Vanguard 14 Converting Shares 27
Investment Advisors 15 Redeeming Shares 29
Dividends, Capital Gains, and Taxes 17 Exchanging Shares 33
Share Price 19 Frequent-Trading Limitations 33
Financial Highlights 21 Other Rules You Should Know 35
    Fund and Account Updates 39
    Employer-Sponsored Plans 41
    Contacting Vanguard 42
    Additional Information 43
    Glossary of Investment Terms 44

 


 

Fund Summary

Investment Objective

The Fund seeks to provide long-term capital appreciation and income.

Fees and Expenses

The following table describes the fees and expenses you may pay if you buy and hold Investor Shares or Admiral Shares of the Fund.

Shareholder Fees    
(Fees paid directly from your investment)    
  Investor Shares Admiral Shares
Sales Charge (Load) Imposed on Purchases None None
Purchase Fee None None
Sales Charge (Load) Imposed on Reinvested Dividends None None
Redemption Fee None None
Account Service Fee (for certain fund account balances below $20/year $20/year
$10,000)    
 
Annual Fund Operating Expenses    
(Expenses that you pay each year as a percentage of the value of your investment)  
  Investor Shares Admiral Shares
Management Fees 0.29% 0.20%
12b-1 Distribution Fee None None
Other Expenses 0.02% 0.01%
Total Annual Fund Operating Expenses 0.31% 0.21%

 

Examples

The following examples are intended to help you compare the cost of investing in the Fund’s Investor Shares or Admiral Shares with the cost of investing in other mutual funds. They illustrate the hypothetical expenses that you would incur over various periods if you were to invest $10,000 in the Fund’s shares. These examples assume that the shares provide a return of 5% each year and that total annual fund operating expenses remain as stated in the preceding table. You would incur these hypothetical expenses whether or not you redeem your investment at the end of the given period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:

  1 Year 3 Years 5 Years 10 Years
Investor Shares $32 $100 $174 $393
Admiral Shares $22 $68 $118 $268

 

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Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in more taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the previous expense examples, reduce the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 26% of the average value of its portfolio.

Principal Investment Strategies

The Fund invests mainly in large- and mid-capitalization companies whose stocks are considered by an advisor to be undervalued. Undervalued stocks are generally those that are out of favor with investors and that the advisor believes are trading at prices that are below average in relation to measures such as earnings and book value. The Fund uses multiple investment advisors. Each advisor independently selects and maintains a portfolio of common stocks for the Fund.

Principal Risks

An investment in the Fund could lose money over short or long periods of time. You should expect the Fund’s share price and total return to fluctuate within a wide range. The Fund is subject to the following risks, which could affect the Fund’s performance:

Stock market risk, which is the chance that stock prices overall will decline. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices.

Investment style risk, which is the chance that returns from large- and mid-capitalization value stocks will trail returns from the overall stock market. Large- and mid-cap stocks each tend to go through cycles of doing better—or worse—than other segments of the stock market or the stock market in general. These periods have, in the past, lasted for as long as several years. Historically, mid-cap stocks have been more volatile in price than large-cap stocks because, among other things, mid-size companies tend to be more sensitive to changing economic conditions.

Asset concentration risk, which is the chance that, because the Fund tends to invest a high percentage of assets in its ten largest holdings, the Fund’s performance may be hurt disproportionately by the poor performance of relatively few stocks.

Manager risk, which is the chance that poor security selection will cause the Fund to underperform relevant benchmarks or other funds with a similar investment objective. In addition, significant investment in the financial sector subjects the Fund to proportionately higher exposure to the risks of this sector.

An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

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Annual Total Returns

The following bar chart and table are intended to help you understand the risks of investing in the Fund. The bar chart shows how the performance of the Fund‘s Investor Shares has varied from one calendar year to another over the periods shown. The table shows how the average annual total returns of the share classes presented compare with those of a relevant market index, which has investment characteristics similar to those of the Fund. Keep in mind that the Fund’s past performance (before and after taxes) does not indicate how the Fund will perform in the future. Updated performance information is available on our website at vanguard.com/performance or by calling Vanguard toll-free at 800-662-7447.

Annual Total Returns — Vanguard Windsor Fund Investor Shares


During the periods shown in the bar chart, the highest return for a calendar quarter was 18.93% (quarter ended September 30, 2009), and the lowest return for a quarter was –20.60% (quarter ended December 31, 2008).

Average Annual Total Returns for Periods Ended December 31, 2017

  1 Year 5 Years 10 Years
Vanguard Windsor Fund Investor Shares      
Return Before Taxes 19.10% 14.53% 7.61%
Return After Taxes on Distributions 17.82 13.24 6.85
Return After Taxes on Distributions and Sale of Fund Shares 11.70 11.49 6.05
Vanguard Windsor Fund Admiral Shares      
Return Before Taxes 19.20% 14.65% 7.72%
Russell 1000 Value Index      
(reflects no deduction for fees, expenses, or taxes) 13.66% 14.04% 7.10%

Actual after-tax returns depend on your tax situation and may differ from those shown in the preceding table. When after-tax returns are calculated, it is assumed that the shareholder was in the highest individual federal marginal income tax bracket at the

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time of each distribution of income or capital gains or upon redemption. State and local income taxes are not reflected in the calculations. Please note that after-tax returns are shown only for the Investor Shares and may differ for each share class. After-tax returns are not relevant for a shareholder who holds fund shares in a tax-deferred account, such as an individual retirement account or a 401(k) plan. Also, figures captioned Return After Taxes on Distributions and Sale of Fund Shares may be higher than other figures for the same period if a capital loss occurs upon redemption and results in an assumed tax deduction for the shareholder.

Investment Advisors

Pzena Investment Management, LLC (Pzena)

Wellington Management Company LLP (Wellington Management)

Portfolio Managers

Richard Pzena, Managing Principal and co-Chief Investment Officer of Pzena. He has co-managed a portion of the Fund since 2012.

John J. Flynn, Principal and Portfolio Manager at Pzena. He has co-managed a portion of the Fund since 2017.

Benjamin S. Silver, CFA, CPA, Principal and Portfolio Manager at Pzena. He has co-managed a portion of the Fund since 2014.

James N. Mordy, Senior Managing Director and Equity Portfolio Manager at Wellington Management. He has managed a portion of the Fund since 2008 (co-managed since 2018).

David W. Palmer, CFA, Senior Managing Director and Equity Portfolio Manager at Wellington Management. He has co-managed a portion of the Fund since 2018.

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Purchase and Sale of Fund Shares

You may purchase or redeem shares online through our website (vanguard.com), by mail (The Vanguard Group, P.O. Box 1110, Valley Forge, PA 19482-1110), or by telephone (800-662-2739). The minimum investment amount required to open and maintain a Fund account for Investor Shares or Admiral Shares is $3,000 or $50,000, respectively. The minimum investment amount required to add to an existing Fund account is generally $1. Financial intermediaries, institutional, and Vanguard retail managed clients should contact Vanguard for information on special eligibility rules that may apply to them regarding Admiral Shares. If you are investing through an intermediary, please contact that firm directly for more information regarding your eligibility. If you are investing through an employer-sponsored retirement or savings plan, your plan administrator or your benefits office can provide you with detailed information on how you can invest through your plan.

Tax Information

The Fund’s distributions may be taxable as ordinary income or capital gain. If you are investing through a tax-advantaged account, such as an IRA or an employer-sponsored retirement or savings plan, special tax rules apply.

Payments to Financial Intermediaries

The Fund and its investment advisors do not pay financial intermediaries for sales of Fund shares.

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More on the Fund

This prospectus describes the principal risks you would face as a Fund shareholder. It is important to keep in mind one of the main axioms of investing: generally, the higher the risk of losing money, the higher the potential reward. The reverse, also, is generally true: the lower the risk, the lower the potential reward. As you consider an investment in any mutual fund, you should take into account your personal tolerance

for fluctuations in the securities markets. Look for this


symbol throughout the

prospectus. It is used to mark detailed information about the more significant risks that you would confront as a Fund shareholder. To highlight terms and concepts important to mutual fund investors, we have provided Plain Talk® explanations along the way. Reading the prospectus will help you decide whether the Fund is the right investment for you. We suggest that you keep this prospectus for future reference.

Share Class Overview

The Fund offers two separate classes of shares: Investor Shares and Admiral Shares.

Both share classes offered by the Fund have the same investment objective, strategies, and policies. However, different share classes have different expenses; as a result, their investment performances will differ.

Plain Talk About Fund Expenses
 
All mutual funds have operating expenses. These expenses, which are deducted
from a fund’s gross income, are expressed as a percentage of the net assets of
the fund. Assuming that operating expenses remain as stated in the Fees and
Expenses section, Vanguard Windsor Fund’s expense ratios would be as follows:
for Investor Shares, 0.31%, or $3.10 per $1,000 of average net assets; for
Admiral Shares, 0.21%, or $2.10 per $1,000 of average net assets. The average
expense ratio for multi-cap value funds in 2016 was 1.10%, or $11.00 per $1,000
of average net assets (derived from data provided by Lipper, a Thomson Reuters
Company, which reports on the mutual fund industry).

 

 

Plain Talk About Costs of Investing
 
Costs are an important consideration in choosing a mutual fund. That is because
you, as a shareholder, pay a proportionate share of the costs of operating a fund
and any transaction costs incurred when the fund buys or sells securities. These
costs can erode a substantial portion of the gross income or the capital
appreciation a fund achieves. Even seemingly small differences in expenses can,
over time, have a dramatic effect on a fund‘s performance.

 

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The following sections explain the principal investment strategies and policies that the Fund uses in pursuit of its objective. The Fund‘s board of trustees, which oversees the Fund‘s management, may change investment strategies or policies in the interest of shareholders without a shareholder vote, unless those strategies or policies are designated as fundamental.

Market Exposure

The Fund invests mainly in large- and mid-capitalization companies (although the advisors will occasionally select companies with lower market capitalizations) whose stocks are considered by an advisor to be undervalued. Undervalued stocks are generally those that are out of favor with investors and that the advisor believes are trading at prices that are below average in relation to measures such as earnings and book value.

Stocks of publicly traded companies and funds that invest in stocks are often classified according to market value, or market capitalization. These classifications typically include small-cap, mid-cap, and large-cap. It is important to understand that market capitalization ranges change over time. Also, interpretations of size vary, and there are no “official” definitions of small-, mid-, and large-cap, even among Vanguard fund advisors. The asset-weighted median market capitalization of the Fund’s stock holdings as of October 31, 2017, was $34.1 billion.


The Fund is subject to stock market risk, which is the chance that stock prices overall will decline. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices.

To illustrate the volatility of stock prices, the following table shows the best, worst, and average annual total returns for the U.S. stock market over various periods as measured by the S&P 500 Index, a widely used barometer of U.S. stock market activity. Total returns consist of dividend income plus change in market price. Note that the returns shown do not include the costs of buying and selling stocks or other expenses that a real-world investment portfolio would incur.

U.S. Stock Market Average Annual Returns      
(1926–2017)        
  1 Year 5 Years 10 Years 20 Years
Best 54.2% 28.6% 19.9% 17.9%
Worst –43.1 –12.4 –1.4 3.1
Average 12.0 10.1 10.3 11.0

 

The table covers all of the rolling 1-, 5-, 10-, and 20-year periods from 1926 through 2017. You can see, for example, that although the average annual return on common

7


 

stocks for all of the 5-year periods was 10.1%, average annual returns for individual 5-year periods ranged from –12.4% (from 1928 through 1932) to 28.6% (from 1995 through 1999). These average annual returns reflect past performance of common stocks; you should not regard them as an indication of future performance of either the stock market as a whole or the Fund in particular.

Plain Talk About Growth Funds and Value Funds
 
Growth investing and value investing are two styles employed by stock-fund
managers. Growth funds generally invest in stocks of companies believed to have
above-average potential for growth in revenue, earnings, cash flow, or other
similar criteria. These stocks typically have low dividend yields, if any, and above-
average prices in relation to measures such as earnings and book value. Value
funds typically invest in stocks whose prices are below average in relation to
those measures; these stocks often have above-average dividend yields. Value
stocks also may remain undervalued by the market for long periods of time.
Growth and value stocks have historically produced similar long-term returns,
though each style has periods when it outperforms the other.

 


The Fund is subject to investment style risk, which is the chance that returns from large- and mid-capitalization value stocks will trail returns from the overall stock market. Large- and mid-cap stocks each tend to go through cycles of doing better—or worse—than other segments of the stock market or the stock market in general. These periods have, in the past, lasted for as long as several years. Historically, mid-cap stocks have been more volatile in price than large-cap stocks because, among other things, mid-size companies are more sensitive to changing economic conditions.

8


 

Security Selection

The Fund uses multiple investment advisors. Each advisor independently selects and maintains a portfolio of common stocks for the Fund.

Each advisor employs active investment management methods, which means that securities are bought and sold according to the advisor’s evaluations of companies and their financial prospects, the prices of the securities, and the stock market and the economy in general. Each advisor will sell a security when, in the view of the advisor, it is no longer as attractive as an alternative investment or if the advisor deems it to be in the best interest of the Fund. Different advisors may reach different conclusions on the same security.

Although each advisor uses a different process to select securities, each is committed to investing in large- and mid-cap stocks that, in the advisor’s opinion, are undervalued. Undervalued stocks are generally those that are out of favor with investors and that the advisor believes are trading at prices that are below average in relation to measures such as earnings and book value.

Wellington Management Company LLP (Wellington Management) relies on the depth and experience of its investment team and supporting global industry analysts to identify stocks that the advisor believes are undervalued by the market. The portfolio typically offers prospective growth of earnings plus a dividend yield comparable with broad market averages, while at the same time being undervalued relative to the market.

Pzena Investment Management, LLC (Pzena) utilizes a fundamental, bottom-up, deep-value-oriented investment strategy. Pzena seeks to buy good businesses at low prices, focusing exclusively on companies that are underperforming their historically demonstrated earnings power.

Pzena conducts intensive fundamental research, investing in companies only when all three of the following criteria are generally met: (1) the company’s identified problems, if any, are temporary; (2) the company’s management has a viable strategy to generate a recovery in earnings; and (3) there is meaningful downside protection in case the earnings recovery does not materialize.


Because the Fund tends to invest a high percentage of assets in its ten largest holdings, the Fund is subject to asset concentration risk, which is the chance that the Fund‘s performance may be hurt disproportionately by the poor performance of relatively few stocks


The Fund is subject to manager risk, which is the chance that poor security selection will cause the Fund to underperform relevant benchmarks or other funds with a similar investment objective. In addition, significant investment in the financial sector subjects the Fund to proportionately higher exposure to the risks of this sector.

9


 

Other Investment Policies and Risks

In addition to investing in undervalued common stocks, the Fund may make other kinds of investments to achieve its objective.

The Fund typically invests a limited portion, up to 30%, of its assets in foreign securities, which may include depositary receipts. Foreign securities may be traded on U.S. or foreign markets. To the extent that it owns foreign securities, the Fund is subject to country risk and currency risk. Country risk is the chance that world events—such as political upheaval, financial troubles, or natural disasters—will adversely affect the value of securities issued by companies in foreign countries. In addition, the prices of foreign stocks and the prices of U.S. stocks have, at times, moved in opposite directions. Currency risk is the chance that the value of a foreign investment, measured in U.S. dollars, will decrease because of unfavorable changes in currency exchange rates.

The Fund may invest in money market instruments; fixed income securities; convertible securities; and other equity securities, such as preferred stocks. The Fund may invest up to 15% of its net assets in illiquid securities.

The Fund may invest, to a limited extent, in derivatives. Generally speaking, a derivative is a financial contract whose value is based on the value of a financial asset (such as a stock, a bond, or a currency), a physical asset (such as gold, oil, or wheat), a market index (such as the S&P 500 Index), or a reference rate (such as LIBOR). Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of investments directly in the underlying securities or assets. The Fund will not use derivatives for speculation or for the purpose of leveraging (magnifying) investment returns.

The Fund may enter into foreign currency exchange forward contracts, which are a type of derivative. A foreign currency exchange forward contract is an agreement to buy or sell a currency at a specific price on a specific date, usually 30, 60, or 90 days in the future. In other words, the contract guarantees an exchange rate on a given date. Advisors of funds that invest in foreign securities can use these contracts to guard against unfavorable changes in currency exchange rates. These contracts, however, would not prevent the Fund‘s securities from falling in value as a result of risks other than unfavorable currency exchange movements.

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Plain Talk About Derivatives
 
Derivatives can take many forms. Some forms of derivatives—such as exchange-
traded futures and options on securities, commodities, or indexes—have been
trading on regulated exchanges for decades. These types of derivatives are
standardized contracts that can easily be bought and sold and whose market
values are determined and published daily. On the other hand, non-exchange-
traded derivatives—such as certain swap agreements and foreign currency
exchange forward contracts—tend to be more specialized or complex and may be
more difficult to accurately value.

 

The Vanguard Group, Inc. (Vanguard) administers a small portion of the Fund‘s assets to facilitate cash flows to and from the Fund‘s advisors. The Fund may invest these assets in equity futures, which are a type of derivative, and/or shares of exchange-traded funds (ETFs), including ETF Shares issued by Vanguard stock funds. These equity futures and ETFs typically provide returns similar to those of common stocks. The Fund may also purchase futures or ETFs when doing so will reduce the Fund‘s transaction costs or have the potential to add value because the instruments are favorably priced. Vanguard receives no additional revenue from Fund assets invested in ETF Shares of other Vanguard funds. Fund assets invested in ETF Shares are excluded when allocating to the Fund its share of the costs of Vanguard operations.

Cash Management

The Fund‘s daily cash balance may be invested in one or more Vanguard CMT Funds, which are low-cost money market funds. When investing in a Vanguard CMT Fund, the Fund bears its proportionate share of the expenses of the CMT Fund in which it invests. Vanguard receives no additional revenue from Fund assets invested in a Vanguard CMT Fund.

Methods Used to Meet Redemption Requests

Under normal circumstances, the Fund typically expects to meet redemptions with other positive cash flows. When this is not an option, the Fund seeks to first meet redemptions from a cash or cash equivalent reserve. Alternatively, Vanguard may instruct the advisors to sell a cross section of the Fund’s holdings to meet redemptions, while also factoring in transaction costs. Additionally, the Fund may work with larger clients to implement their redemptions in a manner that is least disruptive to the portfolio; see “Potentially disruptive redemptions” under Redeeming Shares in the

Investing With Vanguard section.

Under certain circumstances, including under stressed market conditions, there are additional tools that the Fund may use in order to meet redemptions, including

11


 

advancing the settlement of market trades with counterparties to match investor redemption payments or delaying settlement of an investor’s transaction to match trade settlement within regulatory requirements. The Fund may also suspend payment of redemption proceeds for up to seven days; see “Emergency circumstances” under Redeeming Shares in the Investing With Vanguard section. Additionally under these unusual circumstances, the Fund may borrow money (subject to certain regulatory conditions and if available under board-approved procedures) through an interfund lending facility or through a bank line-of-credit, including a joint committed credit facility, in order to meet redemption requests.

Temporary Investment Measures

The Fund may temporarily depart from its normal investment policies and strategies when an advisor believes that doing so is in the Fund‘s best interest, so long as the strategy or policy employed is consistent with the Fund‘s investment objective. For instance, the Fund may invest beyond its normal limits in derivatives or exchange-traded funds that are consistent with the Fund‘s objective when those instruments are more favorably priced or provide needed liquidity, as might be the case if the Fund is transitioning assets from one advisor to another or receives large cash flows that it cannot prudently invest immediately.

In addition, the Fund may take temporary defensive positions that are inconsistent with its normal investment policies and strategies—for instance, by allocating substantial assets to cash equivalent investments or other less volatile instruments—in response to adverse or unusual market, economic, political, or other conditions. In doing so, the Fund may succeed in avoiding losses but may otherwise fail to achieve its investment objective.

Frequent Trading or Market-Timing

Background. Some investors try to profit from strategies involving frequent trading of mutual fund shares, such as market-timing. For funds holding foreign securities, investors may try to take advantage of an anticipated difference between the price of the fund’s shares and price movements in overseas markets, a practice also known as time-zone arbitrage. Investors also may try to engage in frequent trading of funds holding investments such as small-cap stocks and high-yield bonds. As money is shifted into and out of a fund by a shareholder engaging in frequent trading, the fund incurs costs for buying and selling securities, resulting in increased brokerage and administrative costs. These costs are borne by all fund shareholders, including the long-term investors who do not generate the costs. In addition, frequent trading may interfere with an advisor’s ability to efficiently manage the fund.

Policies to address frequent trading. The Vanguard funds (other than money market funds and short-term bond funds, but including Vanguard Short-Term Inflation-

12


 

Protected Securities Index Fund) do not knowingly accommodate frequent trading. The board of trustees of each Vanguard fund (other than money market funds and short-term bond funds, but including Vanguard Short-Term Inflation-Protected Securities Index Fund) has adopted policies and procedures reasonably designed to detect and discourage frequent trading and, in some cases, to compensate the fund for the costs associated with it. These policies and procedures do not apply to ETF Shares because frequent trading in ETF Shares generally does not disrupt portfolio management or otherwise harm fund shareholders. Although there is no assurance that Vanguard will be able to detect or prevent frequent trading or market-timing in all circumstances, the following policies have been adopted to address these issues:

• Each Vanguard fund reserves the right to reject any purchase request—including exchanges from other Vanguard funds—without notice and regardless of size. For example, a purchase request could be rejected because the investor has a history of frequent trading or if Vanguard determines that such purchase may negatively affect a fund’s operation or performance.

• Each Vanguard fund (other than money market funds and short-term bond funds, but including Vanguard Short-Term Inflation-Protected Securities Index Fund) generally prohibits, except as otherwise noted in the Investing With Vanguard section, an investor’s purchases or exchanges into a fund account for 30 calendar days after the investor has redeemed or exchanged out of that fund account.

• Certain Vanguard funds charge shareholders purchase and/or redemption fees on transactions.

See the Investing With Vanguard section of this prospectus for further details on Vanguard’s transaction policies.

Each Vanguard fund (other than retail and government money market funds), in determining its net asset value, will use fair-value pricing when appropriate, as described in the Share Price section. Fair-value pricing may reduce or eliminate the profitability of certain frequent-trading strategies.

Do not invest with Vanguard if you are a market-timer.

Turnover Rate

Although the Fund generally seeks to invest for the long term, it may sell securities regardless of how long they have been held. The Financial Highlights section of this prospectus shows historical turnover rates for the Fund. A turnover rate of 100%, for example, would mean that the Fund had sold and replaced securities valued at 100% of its net assets within a one-year period.

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Plain Talk About Turnover Rate
 
Before investing in a mutual fund, you should review its turnover rate. This rate
gives an indication of how transaction costs, which are not included in the fund’s
expense ratio, could affect the fund’s future returns. In general, the greater the
volume of buying and selling by the fund, the greater the impact that brokerage
commissions and other transaction costs will have on its return. Also, funds with
high turnover rates may be more likely to generate capital gains, including short-
term capital gains, that must be distributed to shareholders and will be taxable to
shareholders investing through a taxable account.

 

The Fund and Vanguard

The Fund is a member of The Vanguard Group, a family of over 200 funds holding assets of approximately $4.4 trillion. All of the funds that are members of The Vanguard Group (other than funds of funds) share in the expenses associated with administrative services and business operations, such as personnel, office space, and equipment.

Vanguard Marketing Corporation provides marketing services to the funds. Although shareholders do not pay sales commissions or 12b-1 distribution fees, each fund (other than a fund of funds) or each share class of a fund (in the case of a fund with multiple share classes) pays its allocated share of the Vanguard funds’ marketing costs.

Plain Talk About Vanguard’s Unique Corporate Structure
 
The Vanguard Group is truly a mutual mutual fund company. It is owned jointly by
the funds it oversees and thus indirectly by the shareholders in those funds.
Most other mutual funds are operated by management companies that may be
owned by one person, by a private group of individuals, or by public investors
who own the management company’s stock. The management fees charged by
these companies include a profit component over and above the companies’ cost
of providing services. By contrast, Vanguard provides services to its member
funds on an at-cost basis, with no profit component, which helps to keep the
funds’ expenses low.

 

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Investment Advisors

The Fund uses a multimanager approach. Each advisor independently manages its assigned portion of the Fund’s assets, subject to the supervision and oversight of Vanguard and the Fund’s board of trustees. The board of trustees designates the proportion of Fund assets to be managed by each advisor and may change these proportions at any time.

• Pzena Investment Management, LLC, 320 Park Avenue, 8th Floor, New York, NY

10022, is a global investment management firm founded in 1995. Pzena focuses exclusively on a deep value investment approach. The members of the firm’s executive committee and other employees collectively own a majority of the firm. As of October 31, 2017, Pzena managed approximately $35 billion in assets.

• Wellington Management Company LLP, 280 Congress Street, Boston, MA 02210, a Delaware limited liability partnership, is an 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 80 years. Wellington Management is owned by the partners of Wellington Management Group LLP, a Massachusetts limited liability partnership. As of October 31, 2017, Wellington Management and its investment advisory affiliates had investment management authority with respect to approximately $1.1 trillion in assets.

The Fund pays each of its 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 Value Index (for Pzena) or the S&P 500 Index (for Wellington Management) over the preceding 36-month period. When the performance adjustment is positive, the Fund’s expenses increase; when it is negative, expenses decrease.

For the fiscal year ended October 31, 2017, the aggregate advisory fee represented an effective annual rate of 0.13% of the Fund’s average net assets before a performance-based decrease of 0.05%.

Under the terms of an SEC exemption, the Fund’s board of trustees may, without prior approval from shareholders, change the terms of an advisory agreement with a third-party investment advisor or hire a new third-party investment advisor—either as a replacement for an existing advisor or as an additional advisor. Any significant change in the Fund’s advisory arrangements will be communicated to shareholders in writing. As the Fund’s sponsor and overall manager, Vanguard may provide investment advisory services to the Fund, on an at-cost basis, at any time. Vanguard may also

15


 

recommend to the board of trustees that an advisor be hired, terminated, or replaced or that the terms of an existing advisory agreement be revised. The Fund has filed an application seeking a similar SEC exception with respect to investment advisors that are wholly owned subsidiaries of Vanguard. If granted, the Fund may rely on the new SEC relief.

For a discussion of why the board of trustees approved the Fund’s investment advisory agreements, see the most recent semiannual report to shareholders covering the fiscal period ended April 30.

The managers primarily responsible for the day-to-day management of the Fund are:

Richard Pzena, Managing Principal and co-Chief Investment Officer of Pzena. He has worked in investment management since 1984, has managed investment portfolios for Pzena since 1996, and has co-managed a portion of the Fund since 2012. Education: B.S. and M.B.A., The Wharton School of the University of Pennsylvania.

John J. Flynn, Principal and Portfolio Manager at Pzena. He has worked in investment management since 2000, has managed investment portfolios for Pzena since 2011, and has co-managed a portion of the Fund since 2017. Education: B.A., Yale University; M.B.A., Harvard Business School.

Benjamin S. Silver, CFA, CPA, Principal and Portfolio Manager at Pzena. He has worked in investment management since 1999, has been with Pzena since 2001, has managed investment portfolios since 2006, and has co-managed a portion of the Fund since 2014. Education: B.S., Yeshiva University.

James N. Mordy, Senior Managing Director and Equity Portfolio Manager at Wellington Management. He has been with Wellington Management and has worked on the Windsor Fund investment team since 1985, has managed investment portfolios since 1997, and has managed a portion of the Fund since 2008 (co-managed since 2018). Education: B.A., Stanford University; M.B.A., The Wharton School of the University of Pennsylvania.

David W. Palmer, CFA, Senior Managing Director and Equity Portfolio Manager of Wellington Management. He has worked in investment management since 1993, has been with Wellington Management since 1998, has managed investment portfolios since 2004, and has co-managed a portion of the Fund since 2018. Education: B.A., Stanford University; M.B.A., The Wharton School of the University of Pennsylvania.

The Statement of Additional Information provides information about each portfolio manager’s compensation, other accounts under management, and ownership of shares of the Fund.

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Dividends, Capital Gains, and Taxes

Fund Distributions

The Fund distributes to shareholders virtually all of its net income (interest and dividends, less expenses) as well as any net short-term or long-term capital gains realized from the sale of its holdings. Income dividends generally are distributed semiannually in June and December; capital gains distributions, if any, generally occur annually in December. In addition, the Fund may occasionally make a supplemental distribution at some other time during the year.

You can receive distributions of income or capital gains in cash, or you can have them automatically reinvested in more shares of the Fund. However, if you are investing through an employer-sponsored retirement or savings plan, your distributions will be automatically reinvested in additional Fund shares.

Plain Talk About Distributions
 
As a shareholder, you are entitled to your portion of a fund’s income from interest
and dividends as well as capital gains from the fund’s sale of investments.
Income consists of both the dividends that the fund earns from any stock
holdings and the interest it receives from any money market and bond
investments. Capital gains are realized whenever the fund sells securities for
higher prices than it paid for them. These capital gains are either short-term or
long-term, depending on whether the fund held the securities for one year or less
or for more than one year.

 

Basic Tax Points

Investors in taxable accounts should be aware of the following basic federal income tax points:

• Distributions are taxable to you whether or not you reinvest these amounts in additional Fund shares.

• Distributions declared in December—if paid to you by the end of January—are taxable as if received in December.

• Any dividend distribution or short-term capital gains distribution that you receive is taxable to you as ordinary income. If you are an individual and meet certain holding-period requirements with respect to your Fund shares, you may be eligible for reduced tax rates on “qualified dividend income,” if any, distributed by the Fund.

• Any distribution of net long-term capital gains is taxable to you as long-term capital gains, no matter how long you have owned shares in the Fund.

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• Capital gains distributions may vary considerably from year to year as a result of the Fund‘s normal investment activities and cash flows.

  • A sale or exchange of Fund shares is a taxable event. This means that you may have
  • capital gain to report as income, or a capital loss to report as a deduction, when you

complete your tax return.

• Any conversion between classes of shares of the same fund is a nontaxable event. By contrast, an exchange between classes of shares of different funds is a taxable event.

• Vanguard (or your intermediary) will send you a statement each year showing the tax status of all of your distributions.

Individuals, trusts, and estates whose income exceeds certain threshold amounts are subject to a 3.8% Medicare contribution tax on “net investment income.” Net investment income takes into account distributions paid by the Fund and capital gains from any sale or exchange of Fund shares.

Dividend distributions and capital gains distributions that you receive, as well as your gains or losses from any sale or exchange of Fund shares, may be subject to state and local income taxes.

This prospectus provides general tax information only. If you are investing through a tax-advantaged account, such as an IRA or an employer-sponsored retirement or savings plan, special tax rules apply. Please consult your tax advisor for detailed information about any tax consequences for you.

Plain Talk About Buying a Dividend
 
Unless you are a tax-exempt investor or investing through a tax-advantaged
account (such as an IRA or an employer-sponsored retirement or savings plan),
you should consider avoiding a purchase of fund shares shortly before the fund
makes a distribution, because doing so can cost you money in taxes. This is
known as “buying a dividend.” For example: On December 15, you invest $5,000,
buying 250 shares for $20 each. If the fund pays a distribution of $1 per share on
December 16, its share price will drop to $19 (not counting market change). You
still have only $5,000 (250 shares x $19 = $4,750 in share value, plus 250 shares
x $1 = $250 in distributions), but you owe tax on the $250 distribution you
received—even if you reinvest it in more shares. To avoid buying a dividend, check
a fund’s distribution schedule before you invest.

 

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General Information

Backup withholding. By law, Vanguard must withhold 24% of any taxable distributions or redemptions from your account if you do not:

  • Provide your correct taxpayer identification number.
  • Certify that the taxpayer identification number is correct.
  • Confirm that you are not subject to backup withholding.

Similarly, Vanguard (or your intermediary) must withhold taxes from your account if the IRS instructs us to do so.

Foreign investors. Vanguard funds offered for sale in the United States (Vanguard U.S. funds), including the Fund offered in this prospectus, are not widely available outside the United States. Non-U.S. investors should be aware that U.S. withholding and estate taxes and certain U.S. tax reporting requirements may apply to any investments in Vanguard U.S. funds. Foreign investors should visit the Non-U.S. Investors page on our website at vanguard.com for information on Vanguard’s non-U.S. products.

Invalid addresses. If a dividend distribution or capital gains distribution check mailed to your address of record is returned as undeliverable, Vanguard will automatically reinvest the distribution and all future distributions until you provide us with a valid mailing address. Reinvestments will receive the net asset value calculated on the date of the reinvestment.

Share Price

Share price, also known as net asset value (NAV), is calculated each business day as of the close of regular trading on the New York Stock Exchange (NYSE), generally 4 p.m., Eastern time. Each share class has its own NAV, which is computed by dividing the total assets, minus liabilities, allocated to the share class by the number of Fund shares outstanding for that class. On U.S. holidays or other days when the NYSE is closed, the NAV is not calculated, and the Fund does not sell or redeem shares. However, on those days the value of the Fund’s assets may be affected to the extent that the Fund holds securities that change in value on those days (such as foreign securities that trade on foreign markets that are open).

Stocks held by a Vanguard fund are valued at their market value when reliable market quotations are readily available from the principal exchange or market on which they are traded. Such securities are generally valued at their official closing price, the last reported sales price, or if there were no sales that day, the mean between the closing bid and asking prices. When a fund determines that market quotations either are not readily available or do not accurately reflect the value of a security, the security is priced at its fair value (the amount that the owner might reasonably expect to receive upon the current sale of the security).

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The values of any foreign securities held by a fund are converted into U.S. dollars using an exchange rate obtained from an independent third party as of the close of regular trading on the NYSE. The values of any mutual fund shares, including institutional money market fund shares, held by a fund are based on the NAVs of the shares. The values of any ETF shares or closed-end fund shares held by a fund are based on the market value of the shares.

A fund also will use fair-value pricing if the value of a security it holds has been materially affected by events occurring before the fund’s pricing time but after the close of the principal exchange or market on which the security is traded. This most commonly occurs with foreign securities, which may trade on foreign exchanges that close many hours before the fund’s pricing time. Intervening events might be company-specific (e.g., earnings report, merger announcement) or country-specific or regional/global (e.g., natural disaster, economic or political news, act of terrorism, interest rate change). Intervening events include price movements in U.S. markets that exceed a specified threshold or that are otherwise deemed to affect the value of foreign securities.

Fair-value pricing may be used for domestic securities—for example, if (1) trading in a security is halted and does not resume before the fund’s pricing time or a security does not trade in the course of a day and (2) the fund holds enough of the security that its price could affect the NAV.

Fair-value prices are determined by Vanguard according to procedures adopted by the board of trustees. When fair-value pricing is employed, the prices of securities used by a fund to calculate the NAV may differ from quoted or published prices for the same securities.

Vanguard fund share prices are published daily on our website at vanguard.com/prices.

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Financial Highlights

The following financial highlights tables are intended to help you understand the Fund’s financial performance for the periods shown, and certain information reflects financial results for a single Fund share. The total returns in each table represent the rate that an investor would have earned or lost each period on an investment in the Fund (assuming reinvestment of all distributions). This information has been obtained from the financial statements audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report—along with the Fund’s financial statements—is included in the Fund‘s most recent annual report to shareholders. You may obtain a free copy of the latest annual or semiannual report by visiting vanguard.com or by contacting Vanguard by telephone or mail.

Plain Talk About How to Read the Financial Highlights Tables
 
This explanation uses the Fund’s Investor Shares as an example. The Investor
Shares began fiscal year 2017 with a net asset value (share price) of $19.70 per
share. During the year, each Investor Share earned $0.363 from investment
income (interest and dividends) and $4.345 from investments that had
appreciated in value or that were sold for higher prices than the Fund paid for
them.
 
Shareholders received $1.028 per share in the form of dividend and capital gains
distributions. A portion of each year’s distributions may come from the prior
year’s income or capital gains.
 
The share price at the end of the year was $23.38, reflecting earnings of $4.708
per share and distributions of $1.028 per share. This was an increase of $3.68 per
share (from $19.70 at the beginning of the year to $23.38 at the end of the year).
For a shareholder who reinvested the distributions in the purchase of more
shares, the total return was 24.53% for the year.
 
As of October 31, 2017, the Investor Shares had approximately $5.2 billion in net
assets. For the year, the expense ratio was 0.31% ($3.10 per $1,000 of net
assets), and the net investment income amounted to 1.66% of average net
assets. The Fund sold and replaced securities valued at 26% of its net assets.

 

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Windsor Fund Investor Shares          
      Year Ended October 31,
For a Share Outstanding Throughout Each Period 2017 2016 2015 2014 2013
Net Asset Value, Beginning of Period $19.70 $21.06 $21.98 $19.50 $14.66
Investment Operations          
Net Investment Income .363 1 .394 .356 2 .279 .255
Net Realized and Unrealized Gain (Loss)          
on Investments 4.345 (.168 ) .026 2.467 4.839
Total from Investment Operations 4.708 .226 .382 2.746 5.094
Distributions          
Dividends from Net Investment Income (.433) (.317) (.339) (.266) (.254)
Distributions from Realized Capital Gains (.595) (1.269) (.963)
Total Distributions (1.028) (1.586) (1.302) (.266) (.254)
Net Asset Value, End of Period $23.38 $19.70 $21.06 $21.98 $19.50
Total Return3 24.53% 1.27% 1.76% 14.14% 35.17%
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $5,191 $4,896 $5,379 $7,179 $7,126
Ratio of Total Expenses to Average Net Assets4 0.31% 0.30% 0.39% 0.38% 0.37%
Ratio of Net Investment Income to Average          
Net Assets 1.66% 2.01% 1.64%2 1.33% 1.49%
Portfolio Turnover Rate 26% 26% 28% 38% 40%

 

1 Calculated based on average shares outstanding.

2 Net investment income per share and the ratio of net investment income to average net assets include $0.052 and 0.24%, respectively, resulting from income received from Covidien Ltd. in January 2015.

3 Total returns do not include account service fees that may have applied in the periods shown.

4 Includes performance-based investment advisory fee increases (decreases) of (0.05%), (0.06%), 0.03%, 0.03%, and 0.02%.

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Windsor Fund Admiral Shares          
 
      Year Ended October 31,
For a Share Outstanding Throughout Each Period 2017 2016 2015 2014 2013
Net Asset Value, Beginning of Period $66.48 $71.04 $74.17 $65.81 $49.47
Investment Operations          
Net Investment Income 1.2951 1.398 1.2912 1.016 .924
Net Realized and Unrealized Gain (Loss)          
on Investments 14.650 (.545) .062 8.314 16.329
Total from Investment Operations 15.945 .853 1.353 9.330 17.253
Distributions          
Dividends from Net Investment Income (1.538) (1.134) (1.235) (.970) (.913)
Distributions from Realized Capital Gains (2.007) (4.279) (3.248)
Total Distributions (3.545) (5.413) (4.483) (.970) (.913)
Net Asset Value, End of Period $78.88 $66.48 $71.04 $74.17 $65.81
Total Return3 24.63% 1.41% 1.85% 14.24% 35.32%
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $14,366 $11,703 $12,206 $10,884 $9,144
Ratio of Total Expenses to Average Net Assets4 0.21% 0.20% 0.29% 0.28% 0.27%
Ratio of Net Investment Income to Average          
Net Assets 1.76% 2.11% 1.74%2 1.43% 1.59%
Portfolio Turnover Rate 26% 26% 28% 38% 40%

 

1 Calculated based on average shares outstanding.

2 Net investment income per share and the ratio of net investment income to average net assets include $0.177 and 0.24%, respectively, resulting from income received from Covidien Ltd. in January 2015.

3 Total returns do not include account service fees that may have applied in the periods shown.

4 Includes performance-based investment advisory fee increases (decreases) of (0.05%), (0.06%), 0.03%, 0.03%, and 0.02%.

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Investing With Vanguard

This section of the prospectus explains the basics of doing business with Vanguard. Vanguard fund shares can be held directly with Vanguard or indirectly through an intermediary, such as a bank, a broker, or an investment advisor. If you hold Vanguard fund shares directly with Vanguard, you should carefully read each topic within this section that pertains to your relationship with Vanguard. If you hold Vanguard fund shares indirectly through an intermediary (including shares held through a Vanguard brokerage account), please see Investing With Vanguard Through Other Firms, and also refer to your account agreement with the intermediary for information about transacting in that account. If you hold Vanguard fund shares through an employer-sponsored retirement or savings plan, please see Employer-Sponsored Plans. Vanguard reserves the right to change the following policies without notice. Please call or check online for current information. See Contacting Vanguard.

For Vanguard fund shares held directly with Vanguard, each fund you hold in an account is a separate “fund account.” For example, if you hold three funds in a nonretirement account titled in your own name, two funds in a nonretirement account titled jointly with your spouse, and one fund in an individual retirement account, you have six fund accounts—and this is true even if you hold the same fund in multiple accounts. Note that each reference to “you” in this prospectus applies to any one or more registered account owners or persons authorized to transact on your account.

Purchasing Shares

Vanguard reserves the right, without notice, to increase or decrease the minimum amount required to open, convert shares to, or maintain a fund account or to add to an existing fund account.

Investment minimums may differ for certain categories of investors.

Account Minimums for Investor Shares To open and maintain an account. $3,000.

To add to an existing account. Generally $1.

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Account Minimums for Admiral Shares

To open and maintain an account. $50,000. If you request Admiral Shares when you open a new account but the investment amount does not meet the account minimum for Admiral Shares, your investment will be placed in Investor Shares of the Fund. Financial intermediaries, institutional, and Vanguard retail managed clients should contact Vanguard for information on special eligibility rules that may apply to them. If you are investing through an intermediary, please contact that firm directly for more information regarding your eligibility.

To add to an existing account. Generally $1.

How to Initiate a Purchase Request

Be sure to check Exchanging Shares, Frequent-Trading Limitations, and Other Rules You Should Know before placing your purchase request.

Online. You may open certain types of accounts, request a purchase of shares, and request an exchange through our website or our mobile application if you are registered for online access.

By telephone. You may call Vanguard to begin the account registration process or request that the account-opening forms be sent to you. You may also call Vanguard to request a purchase of shares in your account or to request an exchange. See

Contacting Vanguard.

By mail. You may send Vanguard your account registration form and check to open a new fund account. To add to an existing fund account, you may send your check with an Invest-by-Mail form (from a transaction confirmation or your account statement), with a deposit slip (available online), or with a written request. You may also send a written request to Vanguard to make an exchange. For a list of Vanguard addresses, see Contacting Vanguard.

How to Pay for a Purchase

By electronic bank transfer. You may purchase shares of a Vanguard fund through an electronic transfer of money from a bank account. To establish the electronic bank transfer service on an account, you must designate the bank account online, complete a special form, or fill out the appropriate section of your account registration form. After the service is set up on your account, you can purchase shares by electronic bank transfer on a regular schedule (Automatic Investment Plan) or upon request. Your purchase request can be initiated online (if you are registered for online access), by telephone, or by mail.

By wire. Wiring instructions vary for different types of purchases. Please call Vanguard for instructions and policies on purchasing shares by wire. See Contacting Vanguard.

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By check. You may make initial or additional purchases to your fund account by sending a check or by utilizing our mobile application if you are registered for online access. Also see How to Initiate a Purchase Request. Make your check payable to Vanguard and include the appropriate fund number (e.g., Vanguard—xx). For a list of Fund numbers (for share classes in this prospectus), see Additional Information.

By exchange. You may purchase shares of a Vanguard fund using the proceeds from the simultaneous redemption of shares of another Vanguard fund. You may initiate an exchange online (if you are registered for online access), by telephone, or by mail. See

Exchanging Shares.

Trade Date

The trade date for any purchase request received in good order will depend on the day and time Vanguard receives your request, the manner in which you are paying, and the type of fund you are purchasing. Your purchase will be executed using the net asset value (NAV) as calculated on the trade date. NAVs are calculated only on days that the New York Stock Exchange (NYSE) is open for trading (a business day).

For purchases by check into all funds other than money market funds and for purchases by exchange, wire, or electronic bank transfer (not using an Automatic Investment Plan) into all funds: If the purchase request is received by Vanguard on a business day before the close of regular trading on the NYSE (generally 4 p.m., Eastern time), the trade date for the purchase will be the same day. If the purchase request is received on a business day after the close of regular trading on the NYSE, or on a nonbusiness day, the trade date for the purchase will be the next business day.

For purchases by check into money market funds: If the purchase request is received by Vanguard on a business day before the close of regular trading on the NYSE (generally 4 p.m., Eastern time), the trade date for the purchase will be the next business day. If the purchase request is received on a business day after the close of regular trading on the NYSE, or on a nonbusiness day, the trade date for the purchase will be the second business day following the day Vanguard receives the purchase request. Because money market instruments must be purchased with federal funds and it takes a money market mutual fund one business day to convert check proceeds into federal funds, the trade date for the purchase will be one business day later than for other funds.

For purchases by electronic bank transfer using an Automatic Investment Plan: Your trade date generally will be the date you selected for withdrawal of funds from your designated bank account. Your bank account generally will be debited on the business day after your trade date. If the date you selected for withdrawal of funds from your bank account falls on a weekend, holiday, or other nonbusiness day, your trade date generally will be the previous business day. For retirement accounts, if the date you

26


 

selected for withdrawal of funds from your designated bank account falls on the last business day of the year, your trade date will be the first business day of the following year. Please note that if you select the first of the month for automated withdrawals from your designated bank account, trades designated for January 1 will receive the next business day’s trade date.

If your purchase request is not accurate and complete, it may be rejected. See Other Rules You Should Know—Good Order.

For further information about purchase transactions, consult our website at vanguard.com or see Contacting Vanguard.

Other Purchase Rules You Should Know

Admiral Shares. Admiral Shares generally are not available for SIMPLE IRAs and Vanguard Individual 401(k) Plans.

Check purchases. All purchase checks must be written in U.S. dollars and must be drawn on a U.S. bank. Vanguard does not accept cash, traveler’s checks, starter checks, or money orders. In addition, Vanguard may refuse checks that are not made payable to Vanguard.

New accounts. We are required by law to obtain from you certain personal information that we will use to verify your identity. If you do not provide the information, we may not be able to open your account. If we are unable to verify your identity, Vanguard reserves the right, without notice, to close your account or take such other steps as we deem reasonable. Certain types of accounts may require additional documentation.

Refused or rejected purchase requests. Vanguard reserves the right to stop selling fund shares or to reject any purchase request at any time and without notice, including, but not limited to, purchases requested by exchange from another Vanguard fund. This also includes the right to reject any purchase request because the investor has a history of frequent trading or because the purchase may negatively affect a fund’s operation or performance.

Large purchases. Call Vanguard before attempting to invest a large dollar amount.

No cancellations. Vanguard will not accept your request to cancel any purchase request once processing has begun. Please be careful when placing a purchase request.

Converting Shares

When a conversion occurs, you receive shares of one class in place of shares of another class of the same fund. At the time of conversion, the dollar value of the “new” shares you receive equals the dollar value of the “old” shares that were converted. In other words, the conversion has no effect on the value of your investment in the fund at the

27


 

time of the conversion. However, the number of shares you own after the conversion may be greater than or less than the number of shares you owned before the conversion, depending on the NAVs of the two share classes.

Vanguard will not accept your request to cancel any self-directed conversion request once processing has begun. Please be careful when placing a conversion request.

A conversion between share classes of the same fund is a nontaxable event.

Trade Date

The trade date for any conversion request received in good order will depend on the day and time Vanguard receives your request. Your conversion will be executed using the NAVs of the different share classes on the trade date. NAVs are calculated only on days that the NYSE is open for trading (a business day).

For a conversion request received by Vanguard on a business day before the close of regular trading on the NYSE (generally 4 p.m., Eastern time), the trade date will be the same day. For a conversion request received on a business day after the close of regular trading on the NYSE, or on a nonbusiness day, the trade date will be the next business day. See Other Rules You Should Know.

Conversions From Investor Shares to Admiral Shares

Self-directed conversions. If your account balance in the Fund is at least $50,000, you may ask Vanguard to convert your Investor Shares to Admiral Shares. You may request a conversion through our website (if you are registered for online access), by telephone, or by mail. Financial intermediaries, institutional, and Vanguard retail managed clients should contact Vanguard for information on special eligibility rules that may apply to them. See Contacting Vanguard. If you are investing through an intermediary, please contact that firm directly for more information regarding your eligibility.

Automatic conversions. Vanguard conducts periodic reviews of account balances and may, if your account balance in the Fund exceeds $50,000, automatically convert your Investor Shares to Admiral Shares. You will be notified before an automatic conversion occurs and will have an opportunity to instruct Vanguard not to effect the conversion. Financial intermediaries, institutional, and Vanguard retail managed clients should contact Vanguard for information on special eligibility rules that may apply to them. If you are investing through an intermediary, please contact that firm directly for more information regarding your eligibility.

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Mandatory Conversions to Investor Shares

If an account no longer meets the balance requirements for Admiral Shares, Vanguard may automatically convert the shares in the account to Investor Shares. A decline in the account balance because of market movement may result in such a conversion. Vanguard will notify the investor in writing before any mandatory conversion occurs.

Redeeming Shares

How to Initiate a Redemption Request

Be sure to check Exchanging Shares, Frequent-Trading Limitations, and Other Rules You Should Know before placing your redemption request.

Online. You may request a redemption of shares or request an exchange through our website or our mobile application if you are registered for online access.

By telephone. You may call Vanguard to request a redemption of shares or an exchange. See Contacting Vanguard.

By mail. You may send a written request to Vanguard to redeem from a fund account or to make an exchange. See Contacting Vanguard.

How to Receive Redemption Proceeds

By electronic bank transfer. You may have the proceeds of a fund redemption sent directly to a designated bank account. To establish the electronic bank transfer service on an account, you must designate a bank account online, complete a special form, or fill out the appropriate section of your account registration form. After the service is set up on your account, you can redeem shares by electronic bank transfer on a regular schedule (Automatic Withdrawal Plan) or upon request. Your redemption request can be initiated online (if you are registered for online access), by telephone, or by mail.

By wire. To receive your proceeds by wire, you may instruct Vanguard to wire your redemption proceeds ($100 minimum) to a previously designated bank account. To establish the wire redemption service, you generally must designate a bank account online, complete a special form, or fill out the appropriate section of your account registration form.

Please note that Vanguard charges a $10 wire fee for outgoing wire redemptions. The fee is assessed in addition to, rather than being withheld from, redemption proceeds and is paid directly to the fund. For example, if you redeem $100 via a wire, you will receive the full $100, and your fund account will also be assessed the $10 fee by redeeming additional fund shares. If you redeem your entire fund account, your redemption proceeds will be reduced by the fee amount. The wire fee does not apply to accounts held by Flagship and Flagship Select clients; accounts held through

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intermediaries, including Vanguard Brokerage Services; or accounts held by institutional clients.

By exchange. You may have the proceeds of a Vanguard fund redemption invested directly in shares of another Vanguard fund. You may initiate an exchange online (if you are registered for online access), by telephone, or by mail. See Exchanging Shares.

By check. If you have not chosen another redemption method, Vanguard will mail you a redemption check, generally payable to all registered account owners, normally within two business days of your trade date, and generally to the address of record.

Trade Date

The trade date for any redemption request received in good order will depend on the day and time Vanguard receives your request and the manner in which you are redeeming. Your redemption will be executed using the NAV as calculated on the trade date. NAVs are calculated only on days that the NYSE is open for trading (a business day).

For redemptions by check, exchange, or wire: If the redemption request is received by Vanguard on a business day before the close of regular trading on the NYSE (generally 4 p.m., Eastern time), the trade date will be the same day. If the redemption request is received on a business day after the close of regular trading on the NYSE, or on a nonbusiness day, the trade date will be the next business day.

• Note on timing of wire redemptions from money market funds: For telephone requests received by Vanguard on a business day before 10:45 a.m., Eastern time (2 p.m., Eastern time, for Vanguard Prime Money Market Fund; 12:30 p.m., Eastern time, for Vanguard Federal Money Market Fund), the redemption proceeds generally will leave Vanguard by the close of business the same day. For telephone requests received by Vanguard on a business day after those cut-off times, or on a nonbusiness day, and for all requests other than by telephone, the redemption proceeds generally will leave Vanguard by the close of business on the next business day.

• Note on timing of wire redemptions from all other funds: For requests received by Vanguard on a business day before the close of regular trading on the NYSE (generally 4 p.m., Eastern time), the redemption proceeds generally will leave Vanguard by the close of business on the next business day. For requests received by Vanguard on a business day after the close of regular trading on the NYSE, or on a nonbusiness day, the redemption proceeds generally will leave Vanguard by the close of business on the second business day after Vanguard receives the request.

For redemptions by electronic bank transfer using an Automatic Withdrawal Plan: Your trade date generally will be the date you selected for withdrawal of funds (redemption of shares) from your Vanguard account. Proceeds of redeemed shares

30


 

generally will be credited to your designated bank account two business days after your trade date. If the date you selected for withdrawal of funds from your Vanguard account falls on a weekend, holiday, or other nonbusiness day, your trade date generally will be the previous business day. For retirement accounts, if the date you selected for withdrawal of funds from your Vanguard account falls on the last day of the year and if that date is a holiday, your trade date will be the first business day of the following year. Please note that if you designate the first of the month for automated withdrawals, trades designated for January 1 will receive the next business day’s trade date.

For redemptions by electronic bank transfer not using an Automatic Withdrawal Plan: If the redemption request is received by Vanguard on a business day before the close of regular trading on the NYSE (generally 4 p.m., Eastern time), the trade date will be the same day. If the redemption request is received on a business day after the close of regular trading on the NYSE, or on a nonbusiness day, the trade date will be the next business day.

If your redemption request is not accurate and complete, it may be rejected. If we are unable to send your redemption proceeds by wire or electronic bank transfer because the receiving institution rejects the transfer, Vanguard will make additional efforts to complete your transaction. If Vanguard is still unable to complete the transaction, we may send the proceeds of the redemption to you by check, generally payable to all registered account owners, or use your proceeds to purchase new shares of the fund from which you sold shares for the purpose of the wire or electronic bank transfer transaction. See Other Rules You Should Know—Good Order.

If your redemption request is received in good order, we typically expect that redemption proceeds will be paid by the Fund within one business day of the trade date; however, in certain circumstances, investors may experience a longer settlement period at the time of the transaction. For further information, see “Potentially disruptive redemptions” and “Emergency circumstances.”

For further information about redemption transactions, consult our website at vanguard.com or see Contacting Vanguard.

Other Redemption Rules You Should Know

Documentation for certain accounts. Special documentation may be required to redeem from certain types of accounts, such as trust, corporate, nonprofit, or retirement accounts. Please call us before attempting to redeem from these types of accounts.

Potentially disruptive redemptions. Vanguard reserves the right to pay all or part of a redemption in kind—that is, in the form of securities—if we reasonably believe that a cash redemption would negatively affect the fund’s operation or performance or that

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the shareholder may be engaged in market-timing or frequent trading. Under these circumstances, Vanguard also reserves the right to delay payment of the redemption proceeds for up to seven calendar days. By calling us before you attempt to redeem a large dollar amount, you may avoid in-kind or delayed payment of your redemption. Please see Frequent-Trading Limitations for information about Vanguard’s policies to limit frequent trading.

Recently purchased shares. Although you can redeem shares at any time, proceeds may not be made available to you until the fund collects payment for your purchase. This may take up to seven calendar days for shares purchased by check or by electronic bank transfer. If you have written a check on a fund with checkwriting privileges, that check may be rejected if your fund account does not have a sufficient available balance.

Share certificates. Share certificates are no longer issued for Vanguard funds. Shares currently held in certificates cannot be redeemed, exchanged, converted, or transferred (reregistered) until you return the certificates (unsigned) to Vanguard by registered mail. For the correct address, see Contacting Vanguard.

Address change. If you change your address online or by telephone, there may be up to a 15-day restriction on your ability to request check redemptions online and by telephone. You can request a redemption in writing at any time. Confirmations of address changes are sent to both the old and new addresses.

Payment to a different person or address. At your request, we can make your redemption check payable, or wire your redemption proceeds, to a different person or send it to a different address. However, this generally requires the written consent of all registered account owners and may require additional documentation, such as a signature guarantee or a notarized signature. You may obtain a signature guarantee from some commercial or savings banks, credit unions, trust companies, or member firms of a U.S. stock exchange.

No cancellations. Vanguard will not accept your request to cancel any redemption request once processing has begun. Please be careful when placing a redemption request.

Emergency circumstances. Vanguard funds can postpone payment of redemption proceeds for up to seven calendar days. In addition, Vanguard funds can suspend redemptions and/or postpone payments of redemption proceeds beyond seven calendar days at times when the NYSE is closed or during emergency circumstances, as determined by the SEC.

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Exchanging Shares

An exchange occurs when you use the proceeds from the redemption of shares of one Vanguard fund to simultaneously purchase shares of a different Vanguard fund. You can make exchange requests online (if you are registered for online access), by telephone, or by mail. See Purchasing Shares and Redeeming Shares.

If the NYSE is open for regular trading (generally until 4 p.m., Eastern time, on a business day) at the time an exchange request is received in good order, the trade date generally will be the same day. See Other Rules You Should Know—Good Order for additional information on all transaction requests.

Vanguard will not accept your request to cancel any exchange request once processing has begun. Please be careful when placing an exchange request.

Call Vanguard before attempting to exchange a large dollar amount. By calling us before you attempt to exchange a large dollar amount, you may avoid delayed or rejected transactions.

Please note that Vanguard reserves the right, without notice, to revise or terminate the exchange privilege, limit the amount of any exchange, or reject an exchange, at any time, for any reason. See Frequent-Trading Limitations for additional restrictions on exchanges.

Frequent-Trading Limitations

Because excessive transactions can disrupt management of a fund and increase the fund’s costs for all shareholders, the board of trustees of each Vanguard fund places certain limits on frequent trading in the funds. Each Vanguard fund (other than money market funds and short-term bond funds, but including Vanguard Short-Term Inflation-Protected Securities Index Fund) limits an investor’s purchases or exchanges into a fund account for 30 calendar days after the investor has redeemed or exchanged out of that fund account. ETF Shares are not subject to these frequent-trading limits.

For Vanguard Retirement Investment Program pooled plans, the limitations apply to exchanges made online or by telephone.

These frequent-trading limitations do not apply to the following:

  • Purchases of shares with reinvested dividend or capital gains distributions.
  • Transactions through Vanguard’s Automatic Investment Plan, Automatic Exchange

Service, Direct Deposit Service, Automatic Withdrawal Plan, Required Minimum Distribution Service, and Vanguard Small Business Online®.

• Discretionary transactions through Vanguard Asset Management Services, Vanguard Personal Advisor Services®, and Vanguard Institutional Advisory Services®.

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  • Redemptions of shares to pay fund or account fees.
  • Redemptions of shares to remove excess shareholder contributions to certain

types of retirement accounts (including, but not limited to, IRAs, certain Individual 403(b)(7) Custodial Accounts, and Vanguard Individual 401(k) Plans).

  • Transfers and reregistrations of shares within the same fund.
  • Purchases of shares by asset transfer or direct rollover.
  • Conversions of shares from one share class to another in the same fund.
  • Checkwriting redemptions.
  • Section 529 college savings plans.
  • Certain approved institutional portfolios and asset allocation programs, as well as

trades made by funds or trusts managed by Vanguard or its affiliates that invest in other Vanguard funds. (Please note that shareholders of Vanguard’s funds of funds are subject to the limitations.)

For participants in employer-sponsored defined contribution plans,* the frequent-trading limitations do not apply to:

• Purchases of shares with participant payroll or employer contributions or loan repayments.

  • Purchases of shares with reinvested dividend or capital gains distributions.
  • Distributions, loans, and in-service withdrawals from a plan.
  • Redemptions of shares as part of a plan termination or at the direction of the plan.
  • Transactions executed through the Vanguard Managed Account Program.
  • Redemptions of shares to pay fund or account fees.
  • Share or asset transfers or rollovers.
  • Reregistrations of shares.
  • Conversions of shares from one share class to another in the same fund.
  • Exchange requests submitted by written request to Vanguard. (Exchange requests

submitted by fax, if otherwise permitted, are subject to the limitations.)

* The following Vanguard fund accounts are subject to the frequent-trading limitations: SEP-IRAs, SIMPLE IRAs, certain Individual 403(b)(7) Custodial Accounts, and Vanguard Individual 401(k) Plans.

Accounts Held by Institutions (Other Than Defined Contribution Plans)

Vanguard will systematically monitor for frequent trading in institutional clients’ accounts. If we detect suspicious trading activity, we will investigate and take appropriate action, which may include applying to a client’s accounts the 30-day policy

34


 

previously described, prohibiting a client’s purchases of fund shares, and/or revoking the client’s exchange privilege.

Accounts Held by Intermediaries

When intermediaries establish accounts in Vanguard funds for the benefit of their clients, we cannot always monitor the trading activity of the individual clients. However, we review trading activity at the intermediary (omnibus) level, and if we detect suspicious activity, we will investigate and take appropriate action. If necessary, Vanguard may prohibit additional purchases of fund shares by an intermediary, including for the benefit of certain of the intermediary’s clients. Intermediaries also may monitor their clients’ trading activities with respect to Vanguard funds.

For those Vanguard funds that charge purchase and/or redemption fees, intermediaries will be asked to assess these fees on client accounts and remit these fees to the funds. The application of purchase and redemption fees and frequent-trading limitations may vary among intermediaries. There are no assurances that Vanguard will successfully identify all intermediaries or that intermediaries will properly assess purchase and redemption fees or administer frequent-trading limitations. If you invest with Vanguard through an intermediary, please read that firm’s materials carefully to learn of any other rules or fees that may apply.

Other Rules You Should Know

Prospectus and Shareholder Report Mailings

When two or more shareholders have the same last name and address, just one summary prospectus (or prospectus) and/or shareholder report may be sent in an attempt to eliminate the unnecessary expense of duplicate mailings. You may request individual prospectuses and reports by contacting our Client Services Department in writing, by telephone, or online. See Contacting Vanguard.

Vanguard.com

Registration. If you are a registered user of vanguard.com, you can review your account holdings; buy, sell, or exchange shares of most Vanguard funds; and perform most other transactions through our website. You must register for this service online.

Electronic delivery. Vanguard can deliver your account statements, transaction confirmations, prospectuses, certain tax forms, and shareholder reports electronically. If you are a registered user of vanguard.com, you can consent to the electronic delivery of these documents by logging on and changing your mailing preferences under “Account Maintenance.” You can revoke your electronic consent at any time

35


 

through our website, and we will begin to send paper copies of these documents within 30 days of receiving your revocation.

Telephone Transactions

Automatic. When we set up your account, we will automatically enable you to do business with us by telephone, unless you instruct us otherwise in writing.

Tele-Account®. To obtain fund and account information through Vanguard’s automated telephone service, you must first establish a Personal Identification Number (PIN) by calling Tele-Account at 800-662-6273.

Proof of a caller’s authority. We reserve the right to refuse a telephone request if the caller is unable to provide the requested information or if we reasonably believe that the caller is not an individual authorized to act on the account. Before we allow a caller to act on an account, we may request the following information:

• Authorization to act on the account (as the account owner or by legal documentation or other means).

  • Account registration and address.
  • Fund name and account number, if applicable.
  • Other information relating to the caller, the account owner, or the account.

Good Order

We reserve the right to reject any transaction instructions that are not in “good order.” Good order generally means that your instructions:

• Are provided by the person(s) authorized in accordance with Vanguard’s policies and procedures to access the account and request transactions.

  • Include the fund name and account number.
  • Include the amount of the transaction (stated in dollars, shares, or percentage).

Written instructions also must generally include:

  • An original signature and date from the authorized person(s).
  • Signature guarantees or notarized signatures, if required for the type of transaction.

(Call Vanguard for specific requirements.)

• Any supporting documentation that may be required.

Written instructions may be acceptable when a Vanguard form is not applicable. The requirements vary among types of accounts and transactions. For more information, consult our website at vanguard.com or see Contacting Vanguard.

Vanguard reserves the right, without notice, to revise the requirements for good order.

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Future Trade-Date Requests

Vanguard does not accept requests to hold a purchase, conversion, redemption, or exchange transaction for a future date. All such requests will receive trade dates as previously described in Purchasing Shares, Converting Shares, Redeeming Shares, and

Exchanging Shares. Vanguard reserves the right to return future-dated purchase checks.

Accounts With More Than One Owner

If an account has more than one owner or authorized person, Vanguard generally will accept instructions from any one owner or authorized person.

Responsibility for Fraud

Vanguard will not be responsible for any account losses because of fraud if we reasonably believe that the person transacting business on an account is authorized to do so. Please take precautions to protect yourself from fraud. Keep your account information private, and immediately review any account statements or other information that we provide to you. It is important that you contact Vanguard immediately about any transactions or changes to your account that you believe to be unauthorized.

Uncashed Checks

Please cash your distribution or redemption checks promptly. Vanguard will not pay interest on uncashed checks. Vanguard may be required to transfer assets related to uncashed checks to a state under the state’s abandoned property law.

Dormant Accounts

If your account has no activity in it for a period of time, Vanguard may be required to transfer it to a state under the state’s abandoned property law.

Unusual Circumstances

If you experience difficulty contacting Vanguard online or by telephone, you can send us your transaction request by regular or express mail. See Contacting Vanguard for addresses.

Investing With Vanguard Through Other Firms

You may purchase or sell shares of most Vanguard funds through a financial intermediary, such as a bank, a broker, or an investment advisor. Please consult your financial intermediary to determine which, if any, shares are available through that firm and to learn about other rules that may apply. Your financial intermediary can provide you with account information and any required tax forms.

37


 

Please see Frequent-Trading LimitationsAccounts Held by Intermediaries for information about the assessment of any purchase or redemption fees and the monitoring of frequent trading for accounts held by intermediaries.

Account Service Fee

Vanguard charges a $20 account service fee on fund accounts that have a balance below $10,000 for any reason, including market fluctuation. The account service fee applies to both retirement and nonretirement fund accounts and will be assessed on fund accounts in all Vanguard funds, regardless of the account minimum. The fee, which will be collected by redeeming fund shares in the amount of $20, will be deducted from a fund account only once per calendar year.

If you register on vanguard.com and elect to receive electronic delivery of statements, reports, and other materials for all of your fund accounts, the account service fee for balances below $10,000 will not be charged, so long as that election remains in effect.

The account service fee also does not apply to the following:

• Money market sweep accounts owned in connection with a Vanguard Brokerage Services® account.*

  • Accounts held through intermediaries.*
  • Accounts held by institutional clients.
  • Accounts held by Voyager, Voyager Select, Flagship, and Flagship Select clients.

Eligibility is based on total household assets held at Vanguard, with a minimum of $50,000 to qualify for Vanguard Voyager Services®, $500,000 for Vanguard Voyager Select Services®, $1 million for Vanguard Flagship Services®, and $5 million for Vanguard Flagship Select Services. Vanguard determines eligibility by aggregating assets of all qualifying accounts held by the investor and immediate family members who reside at the same address. Aggregate assets include investments in Vanguard mutual funds, Vanguard ETFs®, certain annuities through Vanguard, the Vanguard 529 Plan, and certain small-business accounts. Assets in employer-sponsored retirement plans for which Vanguard provides recordkeeping services may be included in determining eligibility if the investor also has a personal account holding Vanguard mutual funds. Note that assets held in a Vanguard Brokerage Services account (other than Vanguard funds, including Vanguard ETFs) are not included when determining a household’s eligibility.

• Participant accounts in employer-sponsored defined contribution plans.** Please consult your enrollment materials for the rules that apply to your account.

  • Section 529 college savings plans.
  • Please note that intermediaries, including Vanguard Brokerage Services, may charge
  • separate fee.


 

** The following Vanguard fund accounts have alternative fee structures: SIMPLE IRAs, certain Individual 403(b)(7) Custodial Accounts, Vanguard Retirement Investment Program pooled plans, and Vanguard Individual 401(k) Plans.

Low-Balance Accounts

The Fund reserves the right to liquidate a fund account whose balance falls below the account minimum for any reason, including market fluctuation. This liquidation policy applies to nonretirement fund accounts and accounts that are held through intermediaries. Any such liquidation will be preceded by written notice to the investor.

Right to Change Policies

In addition to the rights expressly stated elsewhere in this prospectus, 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 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 shareholder or 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 in the best interest of a fund.

Share Classes

Vanguard reserves the right, without notice, to change the eligibility requirements of its share classes, including the types of clients who are eligible to purchase each share class.

Fund and Account Updates

Confirmation Statements

We will send (or provide through our website, whichever you prefer) a confirmation of your trade date and the amount of your transaction when you buy, sell, exchange, or convert shares. However, we will not send confirmations reflecting only checkwriting

39


 

redemptions or the reinvestment of dividend or capital gains distributions. For any month in which you had a checkwriting redemption, a Checkwriting Activity Statement will be sent to you itemizing the checkwriting redemptions for that month. Promptly review each confirmation statement that we provide to you. It is important that you contact Vanguard immediately with any questions you may have about any transaction reflected on a confirmation statement, or Vanguard will consider the transaction properly processed.

Portfolio Summaries

We will send (or provide through our website, whichever you prefer) quarterly portfolio summaries to help you keep track of your accounts throughout the year. If you prefer, you may request to receive monthly portfolio summaries. Each summary shows the market value of your account at the close of the statement period, as well as all distributions, purchases, redemptions, exchanges, transfers, and conversions for the current calendar quarter (or month). Promptly review each summary that we provide to you. It is important that you contact Vanguard immediately with any questions you may have about any transaction reflected on the summary, or Vanguard will consider the transaction properly processed.

Tax Information Statements

For most accounts, Vanguard (or your intermediary) is required to provide annual tax forms to assist you in preparing your income tax returns. These forms are generally available for each calendar year early in the following year. Registered users of vanguard.com can also view certain forms through our website. Vanguard (or your intermediary) may also provide you with additional tax-related documentation. For more information, consult our website at vanguard.com or see Contacting Vanguard.

Annual and Semiannual Reports

We will send (or provide through our website, whichever you prefer) reports about Vanguard Windsor Fund twice a year, in June and December. These reports include overviews of the financial markets and provide the following specific Fund information:

  • Performance assessments and comparisons with industry benchmarks.
  • Reports from the advisors.
  • Financial statements with listings of Fund holdings.

Portfolio Holdings

Please consult the Fund‘s Statement of Additional Information or our website for a description of the policies and procedures that govern disclosure of the Fund’s portfolio holdings.

40


 

Employer-Sponsored Plans

Your plan administrator or your employee benefits office can provide you with detailed information on how to participate in your plan and how to elect the Fund as an investment option.

• If you have any questions about the Fund or Vanguard, including those about the Fund’s investment objective, strategies, or risks, contact Vanguard Participant Services toll-free at 800-523-1188 or visit our website at vanguard.com.

• If you have questions about your account, contact your plan administrator or the organization that provides recordkeeping services for your plan.

• Be sure to carefully read each topic that pertains to your transactions with Vanguard.

Vanguard reserves the right to change its policies without notice to shareholders.

Transactions

Processing times for your transaction requests may differ among recordkeepers or among transaction and funding types. Your plan’s recordkeeper (which may also be Vanguard) will determine the necessary processing time frames for your transaction requests prior to submission to the Fund. Consult your recordkeeper or plan administrator for more information.

If Vanguard is serving as your plan recordkeeper and if your transaction involves one or more investments with an early cut-off time for processing or another trading restriction, your entire transaction will be subject to the restriction when the trade date for your transaction is determined.

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Contacting Vanguard  
 
 
Web  
Vanguard.com For the most complete source of Vanguard news
  For fund, account, and service information
  For most account transactions
  For literature requests
  24 hours a day, 7 days a week
 
Phone  
Vanguard Tele-Account® 800-662-6273 For automated fund and account information
  Toll-free, 24 hours a day, 7 days a week
Investor Information 800-662-7447 For fund and service information
(Text telephone for people with hearing For literature requests
impairment at 800-749-7273)  
Client Services 800-662-2739 For account information
(Text telephone for people with hearing For most account transactions
impairment at 800-749-7273)  
Participant Services 800-523-1188 For information and services for participants in employer-
(Text telephone for people with hearing sponsored plans
impairment at 800-749-7273)  
Institutional Division For information and services for large institutional investors
888-809-8102  
Financial Advisor and Intermediary For information and services for financial intermediaries
Sales Support 800-997-2798 including financial advisors, broker-dealers, trust institutions,
  and insurance companies
Financial Advisory and Intermediary For account information and trading support for financial
Trading Support 800-669-0498 intermediaries including financial advisors, broker-dealers,
  trust institutions, and insurance companies

 

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Vanguard Addresses

Please be sure to use the correct address. Use of an incorrect address could delay the processing of your transaction.

Regular Mail (Individuals) The Vanguard Group    
  P.O. Box 1110    
  Valley Forge, PA 19482-1110  
Regular Mail (Institutions, Intermediaries, and The Vanguard Group    
Employer-Sponsored Plan Participants) P.O. Box 2900    
  Valley Forge, PA 19482-2900  
Registered, Express, or Overnight Mail The Vanguard Group    
  455 Devon Park Drive  
  Wayne, PA 19087-1815  
 
 
Additional Information        
 
 
 
  Inception Newspaper Vanguard CUSIP
  Date Abbreviation Fund Number Number
Windsor Fund        
Investor Shares 10/23/1958 Wndsr 22 922018106
Admiral Shares 11/12/2001 WndsrAdml 5022 922018403

 

CFA® is a registered trademark owned by CFA Institute.

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Glossary of Investment Terms

Capital Gains Distribution. Payment to mutual fund shareholders of gains realized on securities that a fund has sold at a profit, minus any realized losses.

Cash Equivalent Investments. Cash deposits, short-term bank deposits, and money market instruments that include U.S. Treasury bills and notes, bank certificates of deposit (CDs), repurchase agreements, commercial paper, and banker’s acceptances.

Common Stock. A security representing ownership rights in a corporation.

Dividend Distribution. Payment to mutual fund shareholders of income from interest or dividends generated by a fund’s investments.

Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but it does not include the transaction costs of buying and selling portfolio securities.

Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is generally measured from the inception date.

Joint Committed Credit Facility. The Fund participates, along with other funds managed by Vanguard, in a committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. The amount and terms of the committed credit facility are subject to approval by the fund’s board of trustees and renegotiation with the lender syndicate on an annual basis.

Median Market Capitalization. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.

Mutual Fund. An investment company that pools the money of many people and invests it in a variety of securities in an effort to achieve a specific objective over time.

New York Stock Exchange (NYSE). A stock exchange based in New York City that is open for regular trading on business days, Monday through Friday, from 9:30 a.m. to 4 p.m., Eastern time. Net asset values (NAVs) are calculated each business day as of the close of regular trading on the NYSE. In the rare event the NYSE experiences unanticipated trade disruptions and is unavailable at the close of the trading day, NAVs will be calculated as of the close of regular trading on the Nasdaq (or another alternate exchange if the Nasdaq is unavailable, as determined at Vanguard’s discretion), generally 4 p.m., Eastern time.

44


 

Russell 1000 Value Index. An index that measures the performance of those Russell 1000 companies with lower price/book ratios and lower predicted growth rates.

Securities. Stocks, bonds, money market instruments, and other investments.

Total Return. A percentage change, over a specified time period, in a mutual fund’s net asset value, assuming the reinvestment of all distributions of dividends and capital gains.

Volatility. The fluctuations in value of a mutual fund or other security. The greater a fund’s volatility, the wider the fluctuations in its returns.

Yield. Income (interest or dividends) earned by an investment, expressed as a percentage of the investment’s price.


 

P.O. Box 2600

Valley Forge, PA 19482-2600

Connect with Vanguard® > vanguard.com

For More Information

If you would like more information about Vanguard Windsor Fund, the following documents are available free upon request:

Annual/Semiannual Reports to Shareholders

Additional information about the Fund’s investments is available in the Fund’s annual and semiannual reports to shareholders. In the annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund’s performance during its last fiscal year.

Statement of Additional Information (SAI)

The SAI provides more detailed information about the Fund and is incorporated by reference into (and thus legally a part of) this prospectus.

To receive a free copy of the latest annual or semiannual report or the SAI, or to request additional information about the Fund or other Vanguard funds, please visit vanguard.com or contact us as follows:

If you are an individual investor:

The Vanguard Group

Investor Information Department P.O. Box 2600 Valley Forge, PA 19482-2600

Telephone: 800-662-7447; Text telephone for people with hearing impairment: 800-749-7273

If you are a participant in an employer-sponsored plan:

The Vanguard Group Participant Services P.O. Box 2900 Valley Forge, PA 19482-2900

Telephone: 800-523-1188; Text telephone for people with hearing impairment: 800-749-7273

If you are a current Vanguard shareholder and would like information about your account, account transactions, and/or account statements, please call:

Client Services Department

Telephone: 800-662-2739; Text telephone for people with hearing impairment: 800-749-7273

Information Provided by the Securities and Exchange Commission (SEC)

You can review and copy information about the Fund (including the SAI) at the SEC’s Public Reference Room in Washington, DC. To find out more about this public service, call the SEC at 202-551-8090. Reports and other information about the Fund are also available in the EDGAR database on the SEC’s website at www.sec.gov, or you can receive copies of this information, for a fee, by electronic request at the following email address: publicinfo@sec.gov, or by writing the Public Reference Section, Securities and Exchange Commission, Washington, DC 20549-1520.

Fund’s Investment Company Act file number: 811-00834

© 2018 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor.

P 022 022018


Vanguard WindsorII Fund
Prospectus
 
February 26, 2018
 
Investor Shares & Admiral™ Shares
Vanguard Windsor II Fund Investor Shares (VWNFX)
Vanguard Windsor II Fund Admiral Shares (VWNAX)
 
 
 
 
This prospectus contains financial data for the Fund through the fiscal year ended October 31, 2017.
The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or
passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 


 

Contents      
 
 
Fund Summary 1 Investing With Vanguard 26
More on the Fund 7 Purchasing Shares 26
The Fund and Vanguard 15 Converting Shares 29
Investment Advisors 16 Redeeming Shares 31
Dividends, Capital Gains, and Taxes 19 Exchanging Shares 35
Share Price 21 Frequent-Trading Limitations 35
Financial Highlights 23 Other Rules You Should Know 37
    Fund and Account Updates 41
    Employer-Sponsored Plans 43
    Contacting Vanguard 44
    Additional Information 45
    Glossary of Investment Terms 46

 


 

Fund Summary

Investment Objective

The Fund seeks to provide long-term capital appreciation and income.

Fees and Expenses

The following table describes the fees and expenses you may pay if you buy and hold Investor Shares or Admiral Shares of the Fund.

Shareholder Fees    
(Fees paid directly from your investment)    
  Investor Shares Admiral Shares
Sales Charge (Load) Imposed on Purchases None None
Purchase Fee None None
Sales Charge (Load) Imposed on Reinvested Dividends None None
Redemption Fee None None
Account Service Fee (for certain fund account balances below $20/year $20/year
$10,000)    
 
Annual Fund Operating Expenses    
(Expenses that you pay each year as a percentage of the value of your investment)  
  Investor Shares Admiral Shares
Management Fees 0.32% 0.25%
12b-1 Distribution Fee None None
Other Expenses 0.02% 0.01%
Total Annual Fund Operating Expenses 0.34% 0.26%

 

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Examples

The following examples are intended to help you compare the cost of investing in the Fund’s Investor Shares or Admiral Shares with the cost of investing in other mutual funds. They illustrate the hypothetical expenses that you would incur over various periods if you were to invest $10,000 in the Fund’s shares. These examples assume that the shares provide a return of 5% each year and that total annual fund operating expenses remain as stated in the preceding table. You would incur these hypothetical expenses whether or not you redeem your investment at the end of the given period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:

  1 Year 3 Years 5 Years 10 Years
Investor Shares $35 $109 $191 $431
Admiral Shares $27 $84 $146 $331

 

Portfolio Turnover

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in more taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the previous expense examples, reduce the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 32% of the average value of its portfolio.

Principal Investment Strategies

The Fund invests mainly in large- and mid-capitalization companies whose stocks are considered by an advisor to be undervalued. Undervalued stocks are generally those that are out of favor with investors and that the advisor believes are trading at prices that are below average in relation to measures such as earnings and book value. These stocks often have above-average dividend yields. The Fund uses multiple investment advisors. Each advisor independently selects and maintains a portfolio of common stocks for the Fund.

Principal Risks

An investment in the Fund could lose money over short or long periods of time. You should expect the Fund’s share price and total return to fluctuate within a wide range. The Fund is subject to the following risks, which could affect the Fund’s performance:

Stock market risk, which is the chance that stock prices overall will decline. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices.

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Investment style risk, which is the chance that returns from large- and mid-capitalization value stocks will trail returns from the overall stock market. Large- and mid-cap stocks each tend to go through cycles of doing better—or worse—than other segments of the stock market or the stock market in general. These periods have, in the past, lasted for as long as several years. Historically, mid-cap stocks have been more volatile in price than large-cap stocks because, among other things, mid-size companies tend to be more sensitive to changing economic conditions.

Asset concentration risk, which is the chance that, because the Fund tends to invest a high percentage of assets in its ten largest holdings, the Fund’s performance may be hurt disproportionately by the poor performance of relatively few stocks.

Manager risk, which is the chance that poor security selection will cause the Fund to underperform relevant benchmarks or other funds with a similar investment objective. In addition, significant investment in the financial sector subjects the Fund to proportionately higher exposure to the risks of this sector.

An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Annual Total Returns

The following bar chart and table are intended to help you understand the risks of investing in the Fund. The bar chart shows how the performance of the Fund‘s Investor Shares has varied from one calendar year to another over the periods shown. The table shows how the average annual total returns of the share classes presented compare with those of relevant market indexes, which have investment characteristics similar to those of the Fund. Keep in mind that the Fund’s past performance (before and after taxes) does not indicate how the Fund will perform in the future. Updated performance information is available on our website at vanguard.com/performance or by calling Vanguard toll-free at 800-662-7447.

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Annual Total Returns — Vanguard Windsor II Fund Investor Shares


During the periods shown in the bar chart, the highest return for a calendar quarter was 17.78% (quarter ended June 30, 2009), and the lowest return for a quarter was –21.62% (quarter ended December 31, 2008).

Average Annual Total Returns for Periods Ended December 31, 2017    
  1 Year 5 Years 10 Years
Vanguard Windsor II Fund Investor Shares      
Return Before Taxes 16.78% 13.24% 7.10%
Return After Taxes on Distributions 14.54 11.26 5.96
Return After Taxes on Distributions and Sale of Fund Shares 11.21 10.28 5.55
Vanguard Windsor II Fund Admiral Shares      
Return Before Taxes 16.89% 13.33% 7.19%
Comparative Indexes      
(reflect no deduction for fees, expenses, or taxes)      
Russell 1000 Value Index 13.66% 14.04% 7.10%
Standard & Poor's 500 Index 21.83 15.79 8.50

 

Actual after-tax returns depend on your tax situation and may differ from those shown in the preceding table. When after-tax returns are calculated, it is assumed that the shareholder was in the highest individual federal marginal income tax bracket at the time of each distribution of income or capital gains or upon redemption. State and local income taxes are not reflected in the calculations. Please note that after-tax returns are shown only for the Investor Shares and may differ for each share class. After-tax returns are not relevant for a shareholder who holds fund shares in a tax-deferred account, such as an individual retirement account or a 401(k) plan. Also, figures captioned Return After Taxes on Distributions and Sale of Fund Shares may be higher than other figures for the same period if a capital loss occurs upon redemption and results in an assumed tax deduction for the shareholder.

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Investment Advisors

Barrow, Hanley, Mewhinney & Strauss, LLC (Barrow, Hanley) Hotchkis and Wiley Capital Management, LLC (Hotchkis and Wiley) Lazard Asset Management LLC (Lazard) Sanders Capital, LLC (Sanders) The Vanguard Group, Inc. (Vanguard)

Portfolio Managers

Jeff G. Fahrenbruch, CFA, Managing Director of Barrow, Hanley. He has co-managed a portion of the Fund since 2013.

David W. Ganucheau, CFA, Managing Director of Barrow, Hanley. He has co-managed a portion of the Fund since 2013.

George H. Davis, Jr., Chief Executive Officer of Hotchkis and Wiley. He has co-managed a portion of the Fund since 2003.

Sheldon J. Lieberman, Principal of Hotchkis and Wiley. He has co-managed a portion of the Fund since 2003.

Christopher Blake, Managing Director of Lazard. He has co-managed a portion of the Fund since 2007.

Andrew Lacey, Deputy Chairman of Lazard. He has co-managed a portion of the Fund since 2007.

John P. Mahedy, CPA, Director of Research and Co-Chief Investment Officer of Sanders. He has co-managed a portion of the Fund since 2010.

Lewis A. Sanders, CFA, Chief Executive Officer and Co-Chief Investment Officer of Sanders. He has co-managed a portion of the Fund since 2010.

James P. Stetler, Senior Portfolio Manager at Vanguard. He has co-managed a portion of the Fund since 2012.

Binbin Guo, Ph.D., Principal of Vanguard and head of the Alpha Equity Investment team within Vanguard’s Quantitative Equity Group. He has co-managed a portion of the Fund since 2016.

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Purchase and Sale of Fund Shares

You may purchase or redeem shares online through our website (vanguard.com), by mail (The Vanguard Group, P.O. Box 1110, Valley Forge, PA 19482-1110), or by telephone (800-662-2739). The minimum investment amount required to open and maintain a Fund account for Investor Shares or Admiral Shares is $3,000 or $50,000, respectively. The minimum investment amount required to add to an existing Fund account is generally $1. Financial intermediaries, institutional, and Vanguard retail managed clients should contact Vanguard for information on special eligibility rules that may apply to them regarding Admiral Shares. If you are investing through an intermediary, please contact that firm directly for more information regarding your eligibility. If you are investing through an employer-sponsored retirement or savings plan, your plan administrator or your benefits office can provide you with detailed information on how you can invest through your plan.

Tax Information

The Fund’s distributions may be taxable as ordinary income or capital gain. If you are investing through a tax-advantaged account, such as an IRA or an employer-sponsored retirement or savings plan, special tax rules apply.

Payments to Financial Intermediaries

The Fund and its investment advisors do not pay financial intermediaries for sales of Fund shares.

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More on the Fund

This prospectus describes the principal risks you would face as a Fund shareholder. It is important to keep in mind one of the main axioms of investing: generally, the higher the risk of losing money, the higher the potential reward. The reverse, also, is generally true: the lower the risk, the lower the potential reward. As you consider an investment in any mutual fund, you should take into account your personal tolerance

for fluctuations in the securities markets. Look for this


symbol throughout the

prospectus. It is used to mark detailed information about the more significant risks that you would confront as a Fund shareholder. To highlight terms and concepts important to mutual fund investors, we have provided Plain Talk® explanations along the way. Reading the prospectus will help you decide whether the Fund is the right investment for you. We suggest that you keep this prospectus for future reference.

Share Class Overview

The Fund offers two separate classes of shares: Investor Shares and Admiral Shares.

Both share classes offered by the Fund have the same investment objective, strategies, and policies. However, different share classes have different expenses; as a result, their investment performances will differ.

Plain Talk About Fund Expenses
 
All mutual funds have operating expenses. These expenses, which are deducted
from a fund’s gross income, are expressed as a percentage of the net assets of
the fund. Assuming that operating expenses remain as stated in the Fees and
Expenses section, Vanguard Windsor II Fund’s expense ratios would be as
follows: for Investor Shares, 0.34%, or $3.40 per $1,000 of average net assets;
for Admiral Shares, 0.26%, or $2.60 per $1,000 of average net assets. The
average expense ratio for large-cap value funds in 2016 was 1.09%, or $10.90 per
$1,000 of average net assets (derived from data provided by Lipper, a Thomson
Reuters Company, which reports on the mutual fund industry).

 

Plain Talk About Costs of Investing
 
Costs are an important consideration in choosing a mutual fund. That is because
you, as a shareholder, pay a proportionate share of the costs of operating a fund
and any transaction costs incurred when the fund buys or sells securities. These
costs can erode a substantial portion of the gross income or the capital
appreciation a fund achieves. Even seemingly small differences in expenses can,
over time, have a dramatic effect on a fund‘s performance.

 

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The following sections explain the principal investment strategies and policies that the Fund uses in pursuit of its objective. The Fund‘s board of trustees, which oversees the Fund‘s management, may change investment strategies or policies in the interest of shareholders without a shareholder vote, unless those strategies or policies are designated as fundamental.

Market Exposure

The Fund invests mainly in the common stocks of large- and mid-capitalization companies (although the advisors will occasionally select companies with lower market capitalizations) whose stocks are considered by an advisor to be undervalued. Undervalued stocks are generally those that are out of favor with investors and that the advisor believes are trading at prices that are below average in relation to measures such as earnings and book value. These stocks often have above-average dividend yields. Typically, the Fund spreads its assets over a diversified group of companies.

Stocks of publicly traded companies and funds that invest in stocks are often classified according to market value, or market capitalization. These classifications typically include small-cap, mid-cap, and large-cap. It is important to understand that market capitalization ranges change over time. Also, interpretations of size vary, and there are no “official” definitions of small-, mid-, and large-cap, even among Vanguard fund advisors. The asset-weighted median market capitalization of the Fund’s stock holdings as of October 31, 2017, was $90.6 billion.


The Fund is subject to stock market risk, which is the chance that stock prices overall will decline. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices.

To illustrate the volatility of stock prices, the following table shows the best, worst, and average annual total returns for the U.S. stock market over various periods as measured by the S&P 500 Index, a widely used barometer of U.S. stock market activity. Total returns consist of dividend income plus change in market price. Note that the returns shown do not include the costs of buying and selling stocks or other expenses that a real-world investment portfolio would incur.

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U.S. Stock Market Average Annual Returns      
(1926–2017)        
  1 Year 5 Years 10 Years 20 Years
Best 54.2% 28.6% 19.9% 17.9%
Worst –43.1 –12.4 –1.4 3.1
Average 12.0 10.1 10.3 11.0

 

The table covers all of the rolling 1-, 5-, 10-, and 20-year periods from 1926 through 2017. You can see, for example, that although the average annual return on common stocks for all of the 5-year periods was 10.1%, average annual returns for individual 5-year periods ranged from –12.4% (from 1928 through 1932) to 28.6% (from 1995 through 1999). These average annual returns reflect past performance of common stocks; you should not regard them as an indication of future performance of either the stock market as a whole or the Fund in particular.

Plain Talk About Growth Funds and Value Funds
 
Growth investing and value investing are two styles employed by stock-fund
managers. Growth funds generally invest in stocks of companies believed to have
above-average potential for growth in revenue, earnings, cash flow, or other
similar criteria. These stocks typically have low dividend yields, if any, and above-
average prices in relation to measures such as earnings and book value. Value
funds typically invest in stocks whose prices are below average in relation to
those measures; these stocks often have above-average dividend yields. Value
stocks also may remain undervalued by the market for long periods of time.
Growth and value stocks have historically produced similar long-term returns,
though each style has periods when it outperforms the other.

 


The Fund is subject to investment style risk, which is the chance that returns from large- and mid-capitalization value stocks will trail returns from the overall stock market. Large- and mid-cap stocks each tend to go through cycles of doing better—or worse—than other segments of the stock market or the stock market in general. These periods have, in the past, lasted for as long as several years. Historically, mid-cap stocks have been more volatile in price than large-cap stocks because, among other things, mid-size companies are more sensitive to changing economic conditions.

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Security Selection

The Fund uses multiple investment advisors. Each advisor independently selects and maintains a portfolio of common stocks for the Fund.

Each advisor employs active investment management methods, which means that securities are bought and sold according to the advisor’s evaluations of companies and their financial prospects, the prices of the securities, and the stock market and the economy in general. Each advisor will sell a security when, in the view of the advisor, it is no longer as attractive as an alternative investment or if the advisor deems it to be in the best interest of the Fund. Different advisors may reach different conclusions on the same security.

Although each advisor uses a different process to select securities, each is committed to investing in large- and mid-cap stocks that, in the advisor’s opinion, are undervalued. Undervalued stocks are generally those that are out of favor with investors and that the advisor believes are trading at prices that are below average in relation to measures such as earnings and book value. These stocks often have above-average dividend yields.

Barrow, Hanley, Mewhinney & Strauss, LLC (Barrow, Hanley) uses traditional methods of stock selection—research and analysis—to identify undervalued securities. A security will be sold when, in the advisor’s opinion, its share price accurately reflects the security’s overall worth. At that point, another undervalued security will be chosen. Barrow, Hanley looks for individual stocks that reflect these value characteristics: price/ earnings and price/book ratios below the market, and dividend yield above the market.

Lazard Asset Management LLC (Lazard) employs a relative value approach that seeks a combination of attractive valuation and high financial productivity. The process is research-driven, relying upon bottom-up stock analysis performed by the firm’s global sector analysts.

Hotchkis and Wiley Capital Management, LLC (Hotchkis and Wiley) invests mainly in large-cap common stocks with value-oriented characteristics. The advisor follows a disciplined investment approach, focusing on investment parameters such as a company’s tangible assets, sustainable cash flow, and potential for improving business performance.

Sanders Capital, LLC (Sanders) uses a traditional, bottom-up, fundamental research approach. The investment process focuses on identifying securities that are undervalued relative to Sanders’ determination of their expected total return. Sanders’ valuation analysis starts with an analysis of free cash flows, ranks securities by expected returns, and then applies systematic risk controls.

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The Vanguard Group, Inc. (Vanguard) constructs a diversified portfolio of large- and mid-cap domestic value stocks based on its assessment of the relative return potential of the securities. The advisor selects stocks that it believes offer an appropriate balance between strong growth prospects and reasonable valuations relative to their industry peers. Vanguard manages the portfolio through the use of a quantitative process to evaluate all of the securities in the MSCI US Prime Market Value Index, while seeking to maintain a risk profile similar to that of the Index. This process was developed by a team of Vanguard researchers and is continually evolving. All potential enhancements to the process go through rigorous peer vetting and validation before being implemented. A team of portfolio managers utilizes the resulting process to determine which securities to buy and sell in the portfolio.


The Fund is subject to asset concentration risk, which is the chance that, because the Fund tends to invest a high percentage of assets in its ten largest holdings, the Fund‘s performance may be hurt disproportionately by the poor performance of relatively few stocks.


The Fund is subject to manager risk, which is the chance that poor security selection will cause the Fund to underperform relevant benchmarks or other funds with a similar investment objective. In addition, significant investment in the financial sector subjects the Fund to proportionately higher exposure to the risks of this sector.

Other Investment Policies and Risks

In addition to investing in undervalued common stocks, the Fund may make other kinds of investments to achieve its objective.

Although the Fund typically does not make significant investments in foreign securities, it reserves the right to invest up to 25% of its assets in foreign securities, which may include depositary receipts. Foreign securities may be traded on U.S. or foreign markets. To the extent that it owns foreign securities, the Fund is subject to country risk and currency risk. Country risk is the chance that world events—such as political upheaval, financial troubles, or natural disasters—will adversely affect the value of securities issued by companies in foreign countries. In addition, the prices of foreign stocks and the prices of U.S. stocks have, at times, moved in opposite directions. Currency risk is the chance that the value of a foreign investment, measured in U.S. dollars, will decrease because of unfavorable changes in currency exchange rates.

The Fund may invest in money market instruments; fixed income securities; convertible securities; and other equity securities, such as preferred stocks. The Fund may invest up to 15% of its net assets in illiquid securities.

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The Fund may invest, to a limited extent, in derivatives. Generally speaking, a derivative is a financial contract whose value is based on the value of a financial asset (such as a stock, a bond, or a currency), a physical asset (such as gold, oil, or wheat), a market index (such as the S&P 500 Index), or a reference rate (such as LIBOR). Investments in derivatives may subject the Fund to risks different from, and possibly greater than, those of investments directly in the underlying securities or assets. The Fund will not use derivatives for speculation or for the purpose of leveraging (magnifying) investment returns.

The Fund may enter into foreign currency exchange forward contracts, which are a type of derivative. A foreign currency exchange forward contract is an agreement to buy or sell a currency at a specific price on a specific date, usually 30, 60, or 90 days in the future. In other words, the contract guarantees an exchange rate on a given date. Advisors of funds that invest in foreign securities can use these contracts to guard against unfavorable changes in currency exchange rates. These contracts, however, would not prevent the Fund‘s securities from falling in value as a result of risks other than unfavorable currency exchange movements.

Plain Talk About Derivatives
 
Derivatives can take many forms. Some forms of derivatives—such as exchange-
traded futures and options on securities, commodities, or indexes—have been
trading on regulated exchanges for decades. These types of derivatives are
standardized contracts that can easily be bought and sold and whose market
values are determined and published daily. On the other hand, non-exchange-
traded derivatives—such as certain swap agreements and foreign currency
exchange forward contracts—tend to be more specialized or complex and may be
more difficult to accurately value.

 

Vanguard administers a small portion of the Fund‘s assets to facilitate cash flows to and from the Fund‘s advisors. The Fund may invest these assets in equity futures, which are a type of derivative, and/or shares of exchange-traded funds (ETFs), including ETF Shares issued by Vanguard stock funds. These equity futures and ETFs typically provide returns similar to those of common stocks. The Fund may also purchase futures or ETFs when doing so will reduce the Fund‘s transaction costs or have the potential to add value because the instruments are favorably priced. Vanguard receives no additional revenue from Fund assets invested in ETF Shares of other Vanguard funds. Fund assets invested in ETF Shares are excluded when allocating to the Fund its share of the costs of Vanguard operations.

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Cash Management

The Fund‘s daily cash balance may be invested in one or more Vanguard CMT Funds, which are low-cost money market funds. When investing in a Vanguard CMT Fund, the Fund bears its proportionate share of the expenses of the CMT Fund in which it invests. Vanguard receives no additional revenue from Fund assets invested in a Vanguard CMT Fund.

Methods Used to Meet Redemption Requests

Under normal circumstances, the Fund typically expects to meet redemptions with other positive cash flows. When this is not an option, the Fund seeks to first meet redemptions from a cash or cash equivalent reserve. Alternatively, Vanguard may instruct the advisors to sell a cross section of the Fund’s holdings to meet redemptions, while also factoring in transaction costs. Additionally, the Fund may work with larger clients to implement their redemptions in a manner that is least disruptive to the portfolio; see “Potentially disruptive redemptions” under Redeeming Shares in the

Investing With Vanguard section.

Under certain circumstances, including under stressed market conditions, there are additional tools that the Fund may use in order to meet redemptions, including advancing the settlement of market trades with counterparties to match investor redemption payments or delaying settlement of an investor’s transaction to match trade settlement within regulatory requirements. The Fund may also suspend payment of redemption proceeds for up to seven days; see “Emergency circumstances” under Redeeming Shares in the Investing With Vanguard section. Additionally under these unusual circumstances, the Fund may borrow money (subject to certain regulatory conditions and if available under board-approved procedures) through an interfund lending facility or through a bank line-of-credit, including a joint committed credit facility, in order to meet redemption requests.

Temporary Investment Measures

The Fund may temporarily depart from its normal investment policies and strategies when an advisor believes that doing so is in the Fund‘s best interest, so long as the strategy or policy employed is consistent with the Fund‘s investment objective. For instance, the Fund may invest beyond its normal limits in derivatives or exchange-traded funds that are consistent with the Fund‘s objective when those instruments are more favorably priced or provide needed liquidity, as might be the case if the Fund is transitioning assets from one advisor to another or receives large cash flows that it cannot prudently invest immediately.

In addition, the Fund may take temporary defensive positions that are inconsistent with its normal investment policies and strategies—for instance, by allocating substantial assets to cash equivalent investments or other less volatile instruments—

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in response to adverse or unusual market, economic, political, or other conditions. In doing so, the Fund may succeed in avoiding losses but may otherwise fail to achieve its investment objective.

Frequent Trading or Market-Timing

Background. Some investors try to profit from strategies involving frequent trading of mutual fund shares, such as market-timing. For funds holding foreign securities, investors may try to take advantage of an anticipated difference between the price of the fund’s shares and price movements in overseas markets, a practice also known as time-zone arbitrage. Investors also may try to engage in frequent trading of funds holding investments such as small-cap stocks and high-yield bonds. As money is shifted into and out of a fund by a shareholder engaging in frequent trading, the fund incurs costs for buying and selling securities, resulting in increased brokerage and administrative costs. These costs are borne by all fund shareholders, including the long-term investors who do not generate the costs. In addition, frequent trading may interfere with an advisor’s ability to efficiently manage the fund.

Policies to address frequent trading. The Vanguard funds (other than money market funds and short-term bond funds, but including Vanguard Short-Term Inflation-Protected Securities Index Fund) do not knowingly accommodate frequent trading. The board of trustees of each Vanguard fund (other than money market funds and short-term bond funds, but including Vanguard Short-Term Inflation-Protected Securities Index Fund) has adopted policies and procedures reasonably designed to detect and discourage frequent trading and, in some cases, to compensate the fund for the costs associated with it. These policies and procedures do not apply to ETF Shares because frequent trading in ETF Shares generally does not disrupt portfolio management or otherwise harm fund shareholders. Although there is no assurance that Vanguard will be able to detect or prevent frequent trading or market-timing in all circumstances, the following policies have been adopted to address these issues:

• Each Vanguard fund reserves the right to reject any purchase request—including exchanges from other Vanguard funds—without notice and regardless of size. For example, a purchase request could be rejected because the investor has a history of frequent trading or if Vanguard determines that such purchase may negatively affect a fund’s operation or performance.

• Each Vanguard fund (other than money market funds and short-term bond funds, but including Vanguard Short-Term Inflation-Protected Securities Index Fund) generally prohibits, except as otherwise noted in the Investing With Vanguard section, an investor’s purchases or exchanges into a fund account for 30 calendar days after the investor has redeemed or exchanged out of that fund account.

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• Certain Vanguard funds charge shareholders purchase and/or redemption fees on transactions.

See the Investing With Vanguard section of this prospectus for further details on Vanguard’s transaction policies.

Each Vanguard fund (other than retail and government money market funds), in determining its net asset value, will use fair-value pricing when appropriate, as described in the Share Price section. Fair-value pricing may reduce or eliminate the profitability of certain frequent-trading strategies.

Do not invest with Vanguard if you are a market-timer.

Turnover Rate

Although the Fund generally seeks to invest for the long term, it may sell securities regardless of how long they have been held. The Financial Highlights section of this prospectus shows historical turnover rates for the Fund. A turnover rate of 100%, for example, would mean that the Fund had sold and replaced securities valued at 100% of its net assets within a one-year period.

Plain Talk About Turnover Rate
 
Before investing in a mutual fund, you should review its turnover rate. This rate
gives an indication of how transaction costs, which are not included in the fund’s
expense ratio, could affect the fund’s future returns. In general, the greater the
volume of buying and selling by the fund, the greater the impact that brokerage
commissions and other transaction costs will have on its return. Also, funds with
high turnover rates may be more likely to generate capital gains, including short-
term capital gains, that must be distributed to shareholders and will be taxable to
shareholders investing through a taxable account.

 

The Fund and Vanguard

The Fund is a member of The Vanguard Group, a family of over 200 funds holding assets of approximately $4.4 trillion. All of the funds that are members of The Vanguard Group (other than funds of funds) share in the expenses associated with administrative services and business operations, such as personnel, office space, and equipment.

Vanguard Marketing Corporation provides marketing services to the funds. Although shareholders do not pay sales commissions or 12b-1 distribution fees, each fund (other than a fund of funds) or each share class of a fund (in the case of a fund with multiple share classes) pays its allocated share of the Vanguard funds’ marketing costs.

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Plain Talk About Vanguard’s Unique Corporate Structure
 
The Vanguard Group is truly a mutual mutual fund company. It is owned jointly by
the funds it oversees and thus indirectly by the shareholders in those funds.
Most other mutual funds are operated by management companies that may be
owned by one person, by a private group of individuals, or by public investors
who own the management company’s stock. The management fees charged by
these companies include a profit component over and above the companies’ cost
of providing services. By contrast, Vanguard provides services to its member
funds on an at-cost basis, with no profit component, which helps to keep the
funds’ expenses low.

 

Investment Advisors

The Fund uses a multimanager approach. Each advisor independently manages its assigned portion of the Fund’s assets, subject to the supervision and oversight of Vanguard and the Fund’s board of trustees. The board of trustees designates the proportion of Fund assets to be managed by each advisor and may change these proportions at any time.

• Barrow, Hanley, Mewhinney & Strauss, LLC, 2200 Ross Avenue, 31st Floor, Dallas, TX 75201, is an investment advisory firm founded in 1979. As of October 31, 2017, Barrow, Hanley managed approximately $92 billion in assets.

• Hotchkis and Wiley Capital Management, LLC, 725 South Figueroa Street, 39th Floor, Los Angeles, CA 90017, is an investment advisory firm founded in 1980. As of October 31, 2017, Hotchkis and Wiley managed approximately $31 billion in assets.

• Lazard Asset Management LLC, 30 Rockefeller Plaza, New York, NY 10112, is an investment management firm and wholly owned subsidiary of Lazard Freres & Co., LLC. As of October 31, 2017, Lazard managed approximately $212 billion in assets.

• Sanders Capital, LLC, 390 Park Avenue, New York, NY 10022, is an investment advisory firm founded in 2009. As of October 31, 2017, Sanders managed approximately $27.1 billion in assets.

• The Vanguard Group, Inc., P.O. Box 2600, Valley Forge, PA 19482, which began operations in 1975, serves as advisor to the Fund through its Quantitative Equity Group. As of October 31, 2017, Vanguard served as advisor for approximately $3.8 trillion in assets.

The Fund pays each of its investment advisors (other than Vanguard) 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

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on the cumulative total return of each advisor’s portion of the Fund relative to that of the MSCI US Prime Market 750 Index (for Barrow, Hanley), the MSCI US Investable Market 2500 Index (for Hotchkis and Wiley), the S&P 500 Index (for Lazard), or the Russell 3000 Index (for Sanders), over the preceding 60-month period (a 36-month period for Barrow, Hanley and for Lazard). When the performance adjustment is positive, the Fund’s expenses increase; when it is negative, expenses decrease.

Vanguard provides investment advisory services to the Fund on an at-cost basis, subject to the supervision and oversight of the trustees and officers of the Fund.

For the fiscal year ended October 31, 2017, the aggregate advisory fees and expenses represented an effective annual rate of 0.14% of the Fund’s average net assets before a performance-based decrease of 0.02%.

Under the terms of an SEC exemption, the Fund’s board of trustees may, without prior approval from shareholders, change the terms of an advisory agreement with a third-party investment advisor or hire a new third-party investment advisor—either as a replacement for an existing advisor or as an additional advisor. Any significant change in the Fund’s advisory arrangements will be communicated to shareholders in writing. As the Fund’s sponsor and overall manager, Vanguard may provide investment advisory services to the Fund, on an at-cost basis, at any time. Vanguard may also recommend to the board of trustees that an advisor be hired, terminated, or replaced or that the terms of an existing advisory agreement be revised. The Fund has filed an application seeking a similar SEC exemption with respect to investment advisors that are wholly owned subsidiaries of Vanguard. If granted, the Fund may rely on the new SEC relief.

For a discussion of why the board of trustees approved the Fund’s investment advisory arrangements, see the most recent semiannual report to shareholders covering the fiscal period ended April 30.

The managers primarily responsible for the day-to-day management of the Fund are:

Jeff G. Fahrenbruch, CFA, Managing Director of Barrow, Hanley. He has worked in investment management since 1997; has been with Barrow, Hanley since 2002; has managed investment portfolios since 2012; and has co-managed a portion of the Fund since 2013. Education: B.B.A., University of Texas.

David W. Ganucheau, CFA, Managing Director of Barrow, Hanley. He has worked in investment management since 1996; has been with Barrow, Hanley since 2004; has managed investment portfolios since 2012; and has co-managed a portion of the Fund since 2013. Education: B.B.A., Southern Methodist University.

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George H. Davis, Jr., Chief Executive Officer of Hotchkis and Wiley. He has worked in investment management since 1983, has been with Hotchkis and Wiley since 1988, and has co-managed a portion of the Fund since 2003. Education: B.A. and M.B.A., Stanford University.

Sheldon J. Lieberman, Principal of Hotchkis and Wiley. He has worked in investment management since 1986, has been with Hotchkis and Wiley since 1994, and has co-managed a portion of the Fund since 2003. Education: B.A., University of California, Los Angeles; M.B.A., California State University, Northridge.

Christopher Blake, Managing Director of Lazard. He has worked in investment management for Lazard since 1995 and has co-managed a portion of the Fund since 2007. Education: B.S.B.A., University of Denver.

Andrew Lacey, Deputy Chairman of Lazard. He has worked in investment management for Lazard since 1995 and has co-managed a portion of the Fund since 2007. Education: B.A., Wesleyan University; M.B.A., Columbia University.

John P. Mahedy, CPA, Director of Research and Co-Chief Investment Officer of Sanders. He has worked in investment management since 1988, has managed investment portfolios since 2001, has been with Sanders since 2009, and has co-managed a portion of the Fund since 2010. Education: B.S. and M.B.A., New York University.

Lewis A. Sanders, CFA, Chief Executive Officer and Co-Chief Investment Officer of Sanders. He has worked in investment management since 1968, has managed investment portfolios since 1981, has been with Sanders since 2009, and has co-managed a portion of the Fund since 2010. Education: B.S., Columbia University.

James P. Stetler, Senior Portfolio Manager at Vanguard. He has been with Vanguard since 1982, has worked in investment management since 1996, has managed investment portfolios since 2003, and has co-managed a portion of the Fund since 2012. Education: B.S., Susquehanna University; M.B.A., Saint Joseph’s University.

Binbin Guo, Ph.D., Principal of Vanguard and head of the Alpha Equity Investment team within Vanguard’s Quantitative Equity Group. He oversees the active quantitative equity funds and separately managed equity accounts. He has been with Vanguard since 2007 and has co-managed a portion of the Fund since 2016. Education: B.S. and M.S., Tsinghua University, China; Ph.D. and M.Phil., Yale University.

The Statement of Additional Information provides information about each portfolio manager’s compensation, other accounts under management, and ownership of shares of the Fund.

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Dividends, Capital Gains, and Taxes

Fund Distributions

The Fund distributes to shareholders virtually all of its net income (interest and dividends, less expenses) as well as any net short-term or long-term capital gains realized from the sale of its holdings. Income dividends generally are distributed semiannually in June and December; capital gains distributions, if any, generally occur annually in December. In addition, the Fund may occasionally make a supplemental distribution at some other time during the year.

You can receive distributions of income or capital gains in cash, or you can have them automatically reinvested in more shares of the Fund. However, if you are investing through an employer-sponsored retirement or savings plan, your distributions will be automatically reinvested in additional Fund shares.

Plain Talk About Distributions
 
As a shareholder, you are entitled to your portion of a fund’s income from interest
and dividends as well as capital gains from the fund’s sale of investments.
Income consists of both the dividends that the fund earns from any stock
holdings and the interest it receives from any money market and bond
investments. Capital gains are realized whenever the fund sells securities for
higher prices than it paid for them. These capital gains are either short-term or
long-term, depending on whether the fund held the securities for one year or less
or for more than one year.

 

Basic Tax Points

Investors in taxable accounts should be aware of the following basic federal income tax points:

• Distributions are taxable to you whether or not you reinvest these amounts in additional Fund shares.

• Distributions declared in December—if paid to you by the end of January—are taxable as if received in December.

• Any dividend distribution or short-term capital gains distribution that you receive is taxable to you as ordinary income. If you are an individual and meet certain holding-period requirements with respect to your Fund shares, you may be eligible for reduced tax rates on “qualified dividend income,” if any, distributed by the Fund.

• Any distribution of net long-term capital gains is taxable to you as long-term capital gains, no matter how long you have owned shares in the Fund.

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• Capital gains distributions may vary considerably from year to year as a result of the Fund‘s normal investment activities and cash flows.

  • A sale or exchange of Fund shares is a taxable event. This means that you may have
  • capital gain to report as income, or a capital loss to report as a deduction, when you

complete your tax return.

• Any conversion between classes of shares of the same fund is a nontaxable event. By contrast, an exchange between classes of shares of different funds is a taxable event.

• Vanguard (or your intermediary) will send you a statement each year showing the tax status of all of your distributions.

Individuals, trusts, and estates whose income exceeds certain threshold amounts are subject to a 3.8% Medicare contribution tax on “net investment income.” Net investment income takes into account distributions paid by the Fund and capital gains from any sale or exchange of Fund shares.

Dividend distributions and capital gains distributions that you receive, as well as your gains or losses from any sale or exchange of Fund shares, may be subject to state and local income taxes.

This prospectus provides general tax information only. If you are investing through a tax-advantaged account, such as an IRA or an employer-sponsored retirement or savings plan, special tax rules apply. Please consult your tax advisor for detailed information about any tax consequences for you.

Plain Talk About Buying a Dividend
 
Unless you are a tax-exempt investor or investing through a tax-advantaged
account (such as an IRA or an employer-sponsored retirement or savings plan),
you should consider avoiding a purchase of fund shares shortly before the fund
makes a distribution, because doing so can cost you money in taxes. This is
known as “buying a dividend.” For example: On December 15, you invest $5,000,
buying 250 shares for $20 each. If the fund pays a distribution of $1 per share on
December 16, its share price will drop to $19 (not counting market change). You
still have only $5,000 (250 shares x $19 = $4,750 in share value, plus 250 shares
x $1 = $250 in distributions), but you owe tax on the $250 distribution you
received—even if you reinvest it in more shares. To avoid buying a dividend, check
a fund’s distribution schedule before you invest.

 

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General Information

Backup withholding. By law, Vanguard must withhold 24% of any taxable distributions or redemptions from your account if you do not:

  • Provide your correct taxpayer identification number.
  • Certify that the taxpayer identification number is correct.
  • Confirm that you are not subject to backup withholding.

Similarly, Vanguard (or your intermediary) must withhold taxes from your account if the IRS instructs us to do so.

Foreign investors. Vanguard funds offered for sale in the United States (Vanguard U.S. funds), including the Fund offered in this prospectus, are not widely available outside the United States. Non-U.S. investors should be aware that U.S. withholding and estate taxes and certain U.S. tax reporting requirements may apply to any investments in Vanguard U.S. funds. Foreign investors should visit the Non-U.S. Investors page on our website at vanguard.com for information on Vanguard’s non-U.S. products.

Invalid addresses. If a dividend distribution or capital gains distribution check mailed to your address of record is returned as undeliverable, Vanguard will automatically reinvest the distribution and all future distributions until you provide us with a valid mailing address. Reinvestments will receive the net asset value calculated on the date of the reinvestment.

Share Price

Share price, also known as net asset value (NAV), is calculated each business day as of the close of regular trading on the New York Stock Exchange (NYSE), generally 4 p.m., Eastern time. Each share class has its own NAV, which is computed by dividing the total assets, minus liabilities, allocated to the share class by the number of Fund shares outstanding for that class. On U.S. holidays or other days when the NYSE is closed, the NAV is not calculated, and the Fund does not sell or redeem shares. However, on those days the value of the Fund’s assets may be affected to the extent that the Fund holds securities that change in value on those days (such as foreign securities that trade on foreign markets that are open).

Stocks held by a Vanguard fund are valued at their market value when reliable market quotations are readily available from the principal exchange or market on which they are traded. Such securities are generally valued at their official closing price, the last reported sales price, or if there were no sales that day, the mean between the closing bid and asking prices. When a fund determines that market quotations either are not readily available or do not accurately reflect the value of a security, the security is priced at its fair value (the amount that the owner might reasonably expect to receive upon the current sale of the security).

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The values of any foreign securities held by a fund are converted into U.S. dollars using an exchange rate obtained from an independent third party as of the close of regular trading on the NYSE. The values of any mutual fund shares, including institutional money market fund shares, held by a fund are based on the NAVs of the shares. The values of any ETF shares or closed-end fund shares held by a fund are based on the market value of the shares.

A fund also will use fair-value pricing if the value of a security it holds has been materially affected by events occurring before the fund’s pricing time but after the close of the principal exchange or market on which the security is traded. This most commonly occurs with foreign securities, which may trade on foreign exchanges that close many hours before the fund’s pricing time. Intervening events might be company-specific (e.g., earnings report, merger announcement) or country-specific or regional/global (e.g., natural disaster, economic or political news, act of terrorism, interest rate change). Intervening events include price movements in U.S. markets that exceed a specified threshold or that are otherwise deemed to affect the value of foreign securities.

Fair-value pricing may be used for domestic securities—for example, if (1) trading in a security is halted and does not resume before the fund’s pricing time or a security does not trade in the course of a day and (2) the fund holds enough of the security that its price could affect the NAV.

Fair-value prices are determined by Vanguard according to procedures adopted by the board of trustees. When fair-value pricing is employed, the prices of securities used by a fund to calculate the NAV may differ from quoted or published prices for the same securities.

Vanguard fund share prices are published daily on our website at vanguard.com/prices.

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Financial Highlights

The following financial highlights tables are intended to help you understand the Fund’s financial performance for the periods shown, and certain information reflects financial results for a single Fund share. The total returns in each table represent the rate that an investor would have earned or lost each period on an investment in the Fund (assuming reinvestment of all distributions). This information has been obtained from the financial statements audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report—along with the Fund’s financial statements—is included in the Fund‘s most recent annual report to shareholders. You may obtain a free copy of the latest annual or semiannual report by visiting vanguard.com or by contacting Vanguard by telephone or mail.

Plain Talk About How to Read the Financial Highlights Tables
 
This explanation uses the Fund’s Investor Shares as an example. The Investor
Shares began fiscal year 2017 with a net asset value (share price) of $35.03 per
share. During the year, each Investor Share earned $0.75 from investment
income (interest and dividends) and $5.847 from investments that had
appreciated in value or that were sold for higher prices than the Fund paid for
them.
 
Shareholders received $2.817 per share in the form of dividend and capital gains
distributions. A portion of each year’s distributions may come from the prior
year’s income or capital gains.
 
The share price at the end of the year was $38.81, reflecting earnings of $6.597
per share and distributions of $2.817 per share. This was an increase of $3.78 per
share (from $35.03 at the beginning of the year to $38.81 at the end of the year).
For a shareholder who reinvested the distributions in the purchase of more
shares, the total return was 19.60% for the year.
 
As of October 31, 2017, the Investor Shares had approximately $13.6 billion in net
assets. For the year, the expense ratio was 0.34% ($3.40 per $1,000 of net
assets), and the net investment income amounted to 2.01% of average net
assets. The Fund sold and replaced securities valued at 32% of its net assets.

 

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Windsor II Fund Investor Shares          
      Year Ended October 31,
For a Share Outstanding Throughout Each Period 2017 2016 2015 2014 2013
Net Asset Value, Beginning of Period $35.03 $36.73 $39.59 $36.19 $29.33
Investment Operations          
Net Investment Income .750 1 .847 1 .809 .868 .740
Net Realized and Unrealized Gain (Loss)          
on Investments 5.847 .096 (.229) 4.167 6.842
Total from Investment Operations 6.597 .943 .580 5.035 7.582
Distributions          
Dividends from Net Investment Income (.851) (.781) (.827) (.838) (.722)
Distributions from Realized Capital Gains (1.966) (1.862) (2.613) (.797)
Total Distributions (2.817) (2.643) (3.440) (1.635) (.722)
Net Asset Value, End of Period $38.81 $35.03 $36.73 $39.59 $36.19
Total Return2 19.60% 2.86% 1.57% 14.36% 26.26%
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $13,638 $13,773 $15,397 $17,312 $18,034
Ratio of Total Expenses to Average Net Assets3 0.34% 0.33% 0.34% 0.36% 0.36%
Ratio of Net Investment Income to Average          
Net Assets 2.01% 2.46% 2.12% 2.28% 2.25%
Portfolio Turnover Rate 32% 33% 26% 27% 27%

 

1 Calculated based on average shares outstanding.

2 Total returns do not include account service fees that may have applied in the periods shown.

3 Includes performance-based investment advisory fee increases (decreases) of (0.02%), (0.03%), (0.02%), 0.00%, and (0.01%).

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Windsor II Fund Admiral Shares          
      Year Ended October 31,
For a Share Outstanding Throughout Each Period 2017 2016 2015 2014 2013
Net Asset Value, Beginning of Period $62.18 $65.20 $70.27 $64.23 $52.06
Investment Operations          
Net Investment Income 1.3771 1.5521 1.492 1.601 1.366
Net Realized and Unrealized Gain (Loss)          
on Investments 10.376 .168 (.401) 7.398 12.134
Total from Investment Operations 11.753 1.720 1.091 8.999 13.500
Distributions          
Dividends from Net Investment Income (1.565) (1.437) (1.525) (1.545) (1.330)
Distributions from Realized Capital Gains (3.488) (3.303) (4.636) (1.414)
Total Distributions (5.053) (4.740) (6.161) (2.959) (1.330)
Net Asset Value, End of Period $68.88 $62.18 $65.20 $70.27 $64.23
Total Return2 19.68% 2.94% 1.66% 14.46% 26.36%
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $35,514 $30,991 $31,763 $32,898 $27,593
Ratio of Total Expenses to Average Net Assets3 0.26% 0.25% 0.26% 0.28% 0.28%
Ratio of Net Investment Income to Average          
Net Assets 2.09% 2.54% 2.20% 2.36% 2.33%
Portfolio Turnover Rate 32% 33% 26% 27% 27%

 

1 Calculated based on average shares outstanding.

2 Total returns do not include account service fees that may have applied in the periods shown.

3 Includes performance-based investment advisory fee increases (decreases) of (0.02%), ( 0.03%), (0.02%), 0.00%, and (0.01%).

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Investing With Vanguard

This section of the prospectus explains the basics of doing business with Vanguard. Vanguard fund shares can be held directly with Vanguard or indirectly through an intermediary, such as a bank, a broker, or an investment advisor. If you hold Vanguard fund shares directly with Vanguard, you should carefully read each topic within this section that pertains to your relationship with Vanguard. If you hold Vanguard fund shares indirectly through an intermediary (including shares held through a Vanguard brokerage account), please see Investing With Vanguard Through Other Firms, and also refer to your account agreement with the intermediary for information about transacting in that account. If you hold Vanguard fund shares through an employer-sponsored retirement or savings plan, please see Employer-Sponsored Plans. Vanguard reserves the right to change the following policies without notice. Please call or check online for current information. See Contacting Vanguard.

For Vanguard fund shares held directly with Vanguard, each fund you hold in an account is a separate “fund account.” For example, if you hold three funds in a nonretirement account titled in your own name, two funds in a nonretirement account titled jointly with your spouse, and one fund in an individual retirement account, you have six fund accounts—and this is true even if you hold the same fund in multiple accounts. Note that each reference to “you” in this prospectus applies to any one or more registered account owners or persons authorized to transact on your account.

Purchasing Shares

Vanguard reserves the right, without notice, to increase or decrease the minimum amount required to open, convert shares to, or maintain a fund account or to add to an existing fund account.

Investment minimums may differ for certain categories of investors.

Account Minimums for Investor Shares To open and maintain an account. $3,000.

To add to an existing account. Generally $1.

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Account Minimums for Admiral Shares

To open and maintain an account. $50,000. If you request Admiral Shares when you open a new account but the investment amount does not meet the account minimum for Admiral Shares, your investment will be placed in Investor Shares of the Fund. Financial intermediaries, institutional, and Vanguard retail managed clients should contact Vanguard for information on special eligibility rules that may apply to them. If you are investing through an intermediary, please contact that firm directly for more information regarding your eligibility.

To add to an existing account. Generally $1.

How to Initiate a Purchase Request

Be sure to check Exchanging Shares, Frequent-Trading Limitations, and Other Rules You Should Know before placing your purchase request.

Online. You may open certain types of accounts, request a purchase of shares, and request an exchange through our website or our mobile application if you are registered for online access.

By telephone. You may call Vanguard to begin the account registration process or request that the account-opening forms be sent to you. You may also call Vanguard to request a purchase of shares in your account or to request an exchange. See

Contacting Vanguard.

By mail. You may send Vanguard your account registration form and check to open a new fund account. To add to an existing fund account, you may send your check with an Invest-by-Mail form (from a transaction confirmation or your account statement), with a deposit slip (available online), or with a written request. You may also send a written request to Vanguard to make an exchange. For a list of Vanguard addresses, see Contacting Vanguard.

How to Pay for a Purchase

By electronic bank transfer. You may purchase shares of a Vanguard fund through an electronic transfer of money from a bank account. To establish the electronic bank transfer service on an account, you must designate the bank account online, complete a special form, or fill out the appropriate section of your account registration form. After the service is set up on your account, you can purchase shares by electronic bank transfer on a regular schedule (Automatic Investment Plan) or upon request. Your purchase request can be initiated online (if you are registered for online access), by telephone, or by mail.

By wire. Wiring instructions vary for different types of purchases. Please call Vanguard for instructions and policies on purchasing shares by wire. See Contacting Vanguard.

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By check. You may make initial or additional purchases to your fund account by sending a check or by utilizing our mobile application if you are registered for online access. Also see How to Initiate a Purchase Request. Make your check payable to Vanguard and include the appropriate fund number (e.g., Vanguard—xx). For a list of Fund numbers (for share classes in this prospectus), see Additional Information.

By exchange. You may purchase shares of a Vanguard fund using the proceeds from the simultaneous redemption of shares of another Vanguard fund. You may initiate an exchange online (if you are registered for online access), by telephone, or by mail. See

Exchanging Shares.

Trade Date

The trade date for any purchase request received in good order will depend on the day and time Vanguard receives your request, the manner in which you are paying, and the type of fund you are purchasing. Your purchase will be executed using the net asset value (NAV) as calculated on the trade date. NAVs are calculated only on days that the New York Stock Exchange (NYSE) is open for trading (a business day).

For purchases by check into all funds other than money market funds and for purchases by exchange, wire, or electronic bank transfer (not using an Automatic Investment Plan) into all funds: If the purchase request is received by Vanguard on a business day before the close of regular trading on the NYSE (generally 4 p.m., Eastern time), the trade date for the purchase will be the same day. If the purchase request is received on a business day after the close of regular trading on the NYSE, or on a nonbusiness day, the trade date for the purchase will be the next business day.

For purchases by check into money market funds: If the purchase request is received by Vanguard on a business day before the close of regular trading on the NYSE (generally 4 p.m., Eastern time), the trade date for the purchase will be the next business day. If the purchase request is received on a business day after the close of regular trading on the NYSE, or on a nonbusiness day, the trade date for the purchase will be the second business day following the day Vanguard receives the purchase request. Because money market instruments must be purchased with federal funds and it takes a money market mutual fund one business day to convert check proceeds into federal funds, the trade date for the purchase will be one business day later than for other funds.

For purchases by electronic bank transfer using an Automatic Investment Plan: Your trade date generally will be the date you selected for withdrawal of funds from your designated bank account. Your bank account generally will be debited on the business day after your trade date. If the date you selected for withdrawal of funds from your bank account falls on a weekend, holiday, or other nonbusiness day, your trade date generally will be the previous business day. For retirement accounts, if the date you

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selected for withdrawal of funds from your designated bank account falls on the last business day of the year, your trade date will be the first business day of the following year. Please note that if you select the first of the month for automated withdrawals from your designated bank account, trades designated for January 1 will receive the next business day’s trade date.

If your purchase request is not accurate and complete, it may be rejected. See Other Rules You Should Know—Good Order.

For further information about purchase transactions, consult our website at vanguard.com or see Contacting Vanguard.

Other Purchase Rules You Should Know

Admiral Shares. Admiral Shares generally are not available for SIMPLE IRAs and Vanguard Individual 401(k) Plans.

Check purchases. All purchase checks must be written in U.S. dollars and must be drawn on a U.S. bank. Vanguard does not accept cash, traveler’s checks, starter checks, or money orders. In addition, Vanguard may refuse checks that are not made payable to Vanguard.

New accounts. We are required by law to obtain from you certain personal information that we will use to verify your identity. If you do not provide the information, we may not be able to open your account. If we are unable to verify your identity, Vanguard reserves the right, without notice, to close your account or take such other steps as we deem reasonable. Certain types of accounts may require additional documentation.

Refused or rejected purchase requests. Vanguard reserves the right to stop selling fund shares or to reject any purchase request at any time and without notice, including, but not limited to, purchases requested by exchange from another Vanguard fund. This also includes the right to reject any purchase request because the investor has a history of frequent trading or because the purchase may negatively affect a fund’s operation or performance.

Large purchases. Call Vanguard before attempting to invest a large dollar amount.

No cancellations. Vanguard will not accept your request to cancel any purchase request once processing has begun. Please be careful when placing a purchase request.

Converting Shares

When a conversion occurs, you receive shares of one class in place of shares of another class of the same fund. At the time of conversion, the dollar value of the “new” shares you receive equals the dollar value of the “old” shares that were converted. In other words, the conversion has no effect on the value of your investment in the fund at the

29


 

time of the conversion. However, the number of shares you own after the conversion may be greater than or less than the number of shares you owned before the conversion, depending on the NAVs of the two share classes.

Vanguard will not accept your request to cancel any self-directed conversion request once processing has begun. Please be careful when placing a conversion request.

A conversion between share classes of the same fund is a nontaxable event.

Trade Date

The trade date for any conversion request received in good order will depend on the day and time Vanguard receives your request. Your conversion will be executed using the NAVs of the different share classes on the trade date. NAVs are calculated only on days that the NYSE is open for trading (a business day).

For a conversion request received by Vanguard on a business day before the close of regular trading on the NYSE (generally 4 p.m., Eastern time), the trade date will be the same day. For a conversion request received on a business day after the close of regular trading on the NYSE, or on a nonbusiness day, the trade date will be the next business day. See Other Rules You Should Know.

Conversions From Investor Shares to Admiral Shares

Self-directed conversions. If your account balance in the Fund is at least $50,000, you may ask Vanguard to convert your Investor Shares to Admiral Shares. You may request a conversion through our website (if you are registered for online access), by telephone, or by mail. Financial intermediaries, institutional, and Vanguard retail managed clients should contact Vanguard for information on special eligibility rules that may apply to them. See Contacting Vanguard. If you are investing through an intermediary, please contact that firm directly for more information regarding your eligibility.

Automatic conversions. Vanguard conducts periodic reviews of account balances and may, if your account balance in the Fund exceeds $50,000, automatically convert your Investor Shares to Admiral Shares. You will be notified before an automatic conversion occurs and will have an opportunity to instruct Vanguard not to effect the conversion. Financial intermediaries, institutional, and Vanguard retail managed clients should contact Vanguard for information on special eligibility rules that may apply to them. If you are investing through an intermediary, please contact that firm directly for more information regarding your eligibility.

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Mandatory Conversions to Investor Shares

If an account no longer meets the balance requirements for Admiral Shares, Vanguard may automatically convert the shares in the account to Investor Shares. A decline in the account balance because of market movement may result in such a conversion. Vanguard will notify the investor in writing before any mandatory conversion occurs.

Redeeming Shares

How to Initiate a Redemption Request

Be sure to check Exchanging Shares, Frequent-Trading Limitations, and Other Rules You Should Know before placing your redemption request.

Online. You may request a redemption of shares or request an exchange through our website or our mobile application if you are registered for online access.

By telephone. You may call Vanguard to request a redemption of shares or an exchange. See Contacting Vanguard.

By mail. You may send a written request to Vanguard to redeem from a fund account or to make an exchange. See Contacting Vanguard.

How to Receive Redemption Proceeds

By electronic bank transfer. You may have the proceeds of a fund redemption sent directly to a designated bank account. To establish the electronic bank transfer service on an account, you must designate a bank account online, complete a special form, or fill out the appropriate section of your account registration form. After the service is set up on your account, you can redeem shares by electronic bank transfer on a regular schedule (Automatic Withdrawal Plan) or upon request. Your redemption request can be initiated online (if you are registered for online access), by telephone, or by mail.

By wire. To receive your proceeds by wire, you may instruct Vanguard to wire your redemption proceeds ($100 minimum) to a previously designated bank account. To establish the wire redemption service, you generally must designate a bank account online, complete a special form, or fill out the appropriate section of your account registration form.

Please note that Vanguard charges a $10 wire fee for outgoing wire redemptions. The fee is assessed in addition to, rather than being withheld from, redemption proceeds and is paid directly to the fund. For example, if you redeem $100 via a wire, you will receive the full $100, and your fund account will also be assessed the $10 fee by redeeming additional fund shares. If you redeem your entire fund account, your redemption proceeds will be reduced by the fee amount. The wire fee does not apply to accounts held by Flagship and Flagship Select clients; accounts held through

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intermediaries, including Vanguard Brokerage Services; or accounts held by institutional clients.

By exchange. You may have the proceeds of a Vanguard fund redemption invested directly in shares of another Vanguard fund. You may initiate an exchange online (if you are registered for online access), by telephone, or by mail. See Exchanging Shares.

By check. If you have not chosen another redemption method, Vanguard will mail you a redemption check, generally payable to all registered account owners, normally within two business days of your trade date, and generally to the address of record.

Trade Date

The trade date for any redemption request received in good order will depend on the day and time Vanguard receives your request and the manner in which you are redeeming. Your redemption will be executed using the NAV as calculated on the trade date. NAVs are calculated only on days that the NYSE is open for trading (a business day).

For redemptions by check, exchange, or wire: If the redemption request is received by Vanguard on a business day before the close of regular trading on the NYSE (generally 4 p.m., Eastern time), the trade date will be the same day. If the redemption request is received on a business day after the close of regular trading on the NYSE, or on a nonbusiness day, the trade date will be the next business day.

• Note on timing of wire redemptions from money market funds: For telephone requests received by Vanguard on a business day before 10:45 a.m., Eastern time (2 p.m., Eastern time, for Vanguard Prime Money Market Fund; 12:30 p.m., Eastern time, for Vanguard Federal Money Market Fund), the redemption proceeds generally will leave Vanguard by the close of business the same day. For telephone requests received by Vanguard on a business day after those cut-off times, or on a nonbusiness day, and for all requests other than by telephone, the redemption proceeds generally will leave Vanguard by the close of business on the next business day.

• Note on timing of wire redemptions from all other funds: For requests received by Vanguard on a business day before the close of regular trading on the NYSE (generally 4 p.m., Eastern time), the redemption proceeds generally will leave Vanguard by the close of business on the next business day. For requests received by Vanguard on a business day after the close of regular trading on the NYSE, or on a nonbusiness day, the redemption proceeds generally will leave Vanguard by the close of business on the second business day after Vanguard receives the request.

For redemptions by electronic bank transfer using an Automatic Withdrawal Plan: Your trade date generally will be the date you selected for withdrawal of funds (redemption of shares) from your Vanguard account. Proceeds of redeemed shares

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generally will be credited to your designated bank account two business days after your trade date. If the date you selected for withdrawal of funds from your Vanguard account falls on a weekend, holiday, or other nonbusiness day, your trade date generally will be the previous business day. For retirement accounts, if the date you selected for withdrawal of funds from your Vanguard account falls on the last day of the year and if that date is a holiday, your trade date will be the first business day of the following year. Please note that if you designate the first of the month for automated withdrawals, trades designated for January 1 will receive the next business day’s trade date.

For redemptions by electronic bank transfer not using an Automatic Withdrawal Plan: If the redemption request is received by Vanguard on a business day before the close of regular trading on the NYSE (generally 4 p.m., Eastern time), the trade date will be the same day. If the redemption request is received on a business day after the close of regular trading on the NYSE, or on a nonbusiness day, the trade date will be the next business day.

If your redemption request is not accurate and complete, it may be rejected. If we are unable to send your redemption proceeds by wire or electronic bank transfer because the receiving institution rejects the transfer, Vanguard will make additional efforts to complete your transaction. If Vanguard is still unable to complete the transaction, we may send the proceeds of the redemption to you by check, generally payable to all registered account owners, or use your proceeds to purchase new shares of the fund from which you sold shares for the purpose of the wire or electronic bank transfer transaction. See Other Rules You Should Know—Good Order.

If your redemption request is received in good order, we typically expect that redemption proceeds will be paid by the Fund within one business day of the trade date; however, in certain circumstances, investors may experience a longer settlement period at the time of the transaction. For further information, see “Potentially disruptive redemptions” and “Emergency circumstances.”

For further information about redemption transactions, consult our website at vanguard.com or see Contacting Vanguard.

Other Redemption Rules You Should Know

Documentation for certain accounts. Special documentation may be required to redeem from certain types of accounts, such as trust, corporate, nonprofit, or retirement accounts. Please call us before attempting to redeem from these types of accounts.

Potentially disruptive redemptions. Vanguard reserves the right to pay all or part of a redemption in kind—that is, in the form of securities—if we reasonably believe that a cash redemption would negatively affect the fund’s operation or performance or that

33


 

the shareholder may be engaged in market-timing or frequent trading. Under these circumstances, Vanguard also reserves the right to delay payment of the redemption proceeds for up to seven calendar days. By calling us before you attempt to redeem a large dollar amount, you may avoid in-kind or delayed payment of your redemption. Please see Frequent-Trading Limitations for information about Vanguard’s policies to limit frequent trading.

Recently purchased shares. Although you can redeem shares at any time, proceeds may not be made available to you until the fund collects payment for your purchase. This may take up to seven calendar days for shares purchased by check or by electronic bank transfer. If you have written a check on a fund with checkwriting privileges, that check may be rejected if your fund account does not have a sufficient available balance.

Share certificates. Share certificates are no longer issued for Vanguard funds. Shares currently held in certificates cannot be redeemed, exchanged, converted, or transferred (reregistered) until you return the certificates (unsigned) to Vanguard by registered mail. For the correct address, see Contacting Vanguard.

Address change. If you change your address online or by telephone, there may be up to a 15-day restriction on your ability to request check redemptions online and by telephone. You can request a redemption in writing at any time. Confirmations of address changes are sent to both the old and new addresses.

Payment to a different person or address. At your request, we can make your redemption check payable, or wire your redemption proceeds, to a different person or send it to a different address. However, this generally requires the written consent of all registered account owners and may require additional documentation, such as a signature guarantee or a notarized signature. You may obtain a signature guarantee from some commercial or savings banks, credit unions, trust companies, or member firms of a U.S. stock exchange.

No cancellations. Vanguard will not accept your request to cancel any redemption request once processing has begun. Please be careful when placing a redemption request.

Emergency circumstances. Vanguard funds can postpone payment of redemption proceeds for up to seven calendar days. In addition, Vanguard funds can suspend redemptions and/or postpone payments of redemption proceeds beyond seven calendar days at times when the NYSE is closed or during emergency circumstances, as determined by the SEC.

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Exchanging Shares

An exchange occurs when you use the proceeds from the redemption of shares of one Vanguard fund to simultaneously purchase shares of a different Vanguard fund. You can make exchange requests online (if you are registered for online access), by telephone, or by mail. See Purchasing Shares and Redeeming Shares.

If the NYSE is open for regular trading (generally until 4 p.m., Eastern time, on a business day) at the time an exchange request is received in good order, the trade date generally will be the same day. See Other Rules You Should Know—Good Order for additional information on all transaction requests.

Vanguard will not accept your request to cancel any exchange request once processing has begun. Please be careful when placing an exchange request.

Call Vanguard before attempting to exchange a large dollar amount. By calling us before you attempt to exchange a large dollar amount, you may avoid delayed or rejected transactions.

Please note that Vanguard reserves the right, without notice, to revise or terminate the exchange privilege, limit the amount of any exchange, or reject an exchange, at any time, for any reason. See Frequent-Trading Limitations for additional restrictions on exchanges.

Frequent-Trading Limitations

Because excessive transactions can disrupt management of a fund and increase the fund’s costs for all shareholders, the board of trustees of each Vanguard fund places certain limits on frequent trading in the funds. Each Vanguard fund (other than money market funds and short-term bond funds, but including Vanguard Short-Term Inflation-Protected Securities Index Fund) limits an investor’s purchases or exchanges into a fund account for 30 calendar days after the investor has redeemed or exchanged out of that fund account. ETF Shares are not subject to these frequent-trading limits.

For Vanguard Retirement Investment Program pooled plans, the limitations apply to exchanges made online or by telephone.

These frequent-trading limitations do not apply to the following:

  • Purchases of shares with reinvested dividend or capital gains distributions.
  • Transactions through Vanguard’s Automatic Investment Plan, Automatic Exchange

Service, Direct Deposit Service, Automatic Withdrawal Plan, Required Minimum Distribution Service, and Vanguard Small Business Online®.

• Discretionary transactions through Vanguard Asset Management Services, Vanguard Personal Advisor Services®, and Vanguard Institutional Advisory Services®.

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  • Redemptions of shares to pay fund or account fees.
  • Redemptions of shares to remove excess shareholder contributions to certain

types of retirement accounts (including, but not limited to, IRAs, certain Individual 403(b)(7) Custodial Accounts, and Vanguard Individual 401(k) Plans).

  • Transfers and reregistrations of shares within the same fund.
  • Purchases of shares by asset transfer or direct rollover.
  • Conversions of shares from one share class to another in the same fund.
  • Checkwriting redemptions.
  • Section 529 college savings plans.
  • Certain approved institutional portfolios and asset allocation programs, as well as

trades made by funds or trusts managed by Vanguard or its affiliates that invest in other Vanguard funds. (Please note that shareholders of Vanguard’s funds of funds are subject to the limitations.)

For participants in employer-sponsored defined contribution plans,* the frequent-trading limitations do not apply to:

• Purchases of shares with participant payroll or employer contributions or loan repayments.

  • Purchases of shares with reinvested dividend or capital gains distributions.
  • Distributions, loans, and in-service withdrawals from a plan.
  • Redemptions of shares as part of a plan termination or at the direction of the plan.
  • Transactions executed through the Vanguard Managed Account Program.
  • Redemptions of shares to pay fund or account fees.
  • Share or asset transfers or rollovers.
  • Reregistrations of shares.
  • Conversions of shares from one share class to another in the same fund.
  • Exchange requests submitted by written request to Vanguard. (Exchange requests

submitted by fax, if otherwise permitted, are subject to the limitations.)

* The following Vanguard fund accounts are subject to the frequent-trading limitations: SEP-IRAs, SIMPLE IRAs, certain Individual 403(b)(7) Custodial Accounts, and Vanguard Individual 401(k) Plans.

Accounts Held by Institutions (Other Than Defined Contribution Plans)

Vanguard will systematically monitor for frequent trading in institutional clients’ accounts. If we detect suspicious trading activity, we will investigate and take appropriate action, which may include applying to a client’s accounts the 30-day policy

36


 

previously described, prohibiting a client’s purchases of fund shares, and/or revoking the client’s exchange privilege.

Accounts Held by Intermediaries

When intermediaries establish accounts in Vanguard funds for the benefit of their clients, we cannot always monitor the trading activity of the individual clients. However, we review trading activity at the intermediary (omnibus) level, and if we detect suspicious activity, we will investigate and take appropriate action. If necessary, Vanguard may prohibit additional purchases of fund shares by an intermediary, including for the benefit of certain of the intermediary’s clients. Intermediaries also may monitor their clients’ trading activities with respect to Vanguard funds.

For those Vanguard funds that charge purchase and/or redemption fees, intermediaries will be asked to assess these fees on client accounts and remit these fees to the funds. The application of purchase and redemption fees and frequent-trading limitations may vary among intermediaries. There are no assurances that Vanguard will successfully identify all intermediaries or that intermediaries will properly assess purchase and redemption fees or administer frequent-trading limitations. If you invest with Vanguard through an intermediary, please read that firm’s materials carefully to learn of any other rules or fees that may apply.

Other Rules You Should Know

Prospectus and Shareholder Report Mailings

When two or more shareholders have the same last name and address, just one summary prospectus (or prospectus) and/or shareholder report may be sent in an attempt to eliminate the unnecessary expense of duplicate mailings. You may request individual prospectuses and reports by contacting our Client Services Department in writing, by telephone, or online. See Contacting Vanguard.

Vanguard.com

Registration. If you are a registered user of vanguard.com, you can review your account holdings; buy, sell, or exchange shares of most Vanguard funds; and perform most other transactions through our website. You must register for this service online.

Electronic delivery. Vanguard can deliver your account statements, transaction confirmations, prospectuses, certain tax forms, and shareholder reports electronically. If you are a registered user of vanguard.com, you can consent to the electronic delivery of these documents by logging on and changing your mailing preferences under “Account Maintenance.” You can revoke your electronic consent at any time

37


 

through our website, and we will begin to send paper copies of these documents within 30 days of receiving your revocation.

Telephone Transactions

Automatic. When we set up your account, we will automatically enable you to do business with us by telephone, unless you instruct us otherwise in writing.

Tele-Account®. To obtain fund and account information through Vanguard’s automated telephone service, you must first establish a Personal Identification Number (PIN) by calling Tele-Account at 800-662-6273.

Proof of a caller’s authority. We reserve the right to refuse a telephone request if the caller is unable to provide the requested information or if we reasonably believe that the caller is not an individual authorized to act on the account. Before we allow a caller to act on an account, we may request the following information:

• Authorization to act on the account (as the account owner or by legal documentation or other means).

  • Account registration and address.
  • Fund name and account number, if applicable.
  • Other information relating to the caller, the account owner, or the account.

Good Order

We reserve the right to reject any transaction instructions that are not in “good order.” Good order generally means that your instructions:

• Are provided by the person(s) authorized in accordance with Vanguard’s policies and procedures to access the account and request transactions.

  • Include the fund name and account number.
  • Include the amount of the transaction (stated in dollars, shares, or percentage).

Written instructions also must generally include:

  • An original signature and date from the authorized person(s).
  • Signature guarantees or notarized signatures, if required for the type of transaction.

(Call Vanguard for specific requirements.)

• Any supporting documentation that may be required.

Written instructions may be acceptable when a Vanguard form is not applicable. The requirements vary among types of accounts and transactions. For more information, consult our website at vanguard.com or see Contacting Vanguard.

Vanguard reserves the right, without notice, to revise the requirements for good order.

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Future Trade-Date Requests

Vanguard does not accept requests to hold a purchase, conversion, redemption, or exchange transaction for a future date. All such requests will receive trade dates as previously described in Purchasing Shares, Converting Shares, Redeeming Shares, and

Exchanging Shares. Vanguard reserves the right to return future-dated purchase checks.

Accounts With More Than One Owner

If an account has more than one owner or authorized person, Vanguard generally will accept instructions from any one owner or authorized person.

Responsibility for Fraud

Vanguard will not be responsible for any account losses because of fraud if we reasonably believe that the person transacting business on an account is authorized to do so. Please take precautions to protect yourself from fraud. Keep your account information private, and immediately review any account statements or other information that we provide to you. It is important that you contact Vanguard immediately about any transactions or changes to your account that you believe to be unauthorized.

Uncashed Checks

Please cash your distribution or redemption checks promptly. Vanguard will not pay interest on uncashed checks. Vanguard may be required to transfer assets related to uncashed checks to a state under the state’s abandoned property law.

Dormant Accounts

If your account has no activity in it for a period of time, Vanguard may be required to transfer it to a state under the state’s abandoned property law.

Unusual Circumstances

If you experience difficulty contacting Vanguard online or by telephone, you can send us your transaction request by regular or express mail. See Contacting Vanguard for addresses.

Investing With Vanguard Through Other Firms

You may purchase or sell shares of most Vanguard funds through a financial intermediary, such as a bank, a broker, or an investment advisor. Please consult your financial intermediary to determine which, if any, shares are available through that firm and to learn about other rules that may apply. Your financial intermediary can provide you with account information and any required tax forms.

39


 

Please see Frequent-Trading LimitationsAccounts Held by Intermediaries for information about the assessment of any purchase or redemption fees and the monitoring of frequent trading for accounts held by intermediaries.

Account Service Fee

Vanguard charges a $20 account service fee on fund accounts that have a balance below $10,000 for any reason, including market fluctuation. The account service fee applies to both retirement and nonretirement fund accounts and will be assessed on fund accounts in all Vanguard funds, regardless of the account minimum. The fee, which will be collected by redeeming fund shares in the amount of $20, will be deducted from a fund account only once per calendar year.

If you register on vanguard.com and elect to receive electronic delivery of statements, reports, and other materials for all of your fund accounts, the account service fee for balances below $10,000 will not be charged, so long as that election remains in effect.

The account service fee also does not apply to the following:

• Money market sweep accounts owned in connection with a Vanguard Brokerage Services® account.*

  • Accounts held through intermediaries.*
  • Accounts held by institutional clients.
  • Accounts held by Voyager, Voyager Select, Flagship, and Flagship Select clients.

Eligibility is based on total household assets held at Vanguard, with a minimum of $50,000 to qualify for Vanguard Voyager Services®, $500,000 for Vanguard Voyager Select Services®, $1 million for Vanguard Flagship Services®, and $5 million for Vanguard Flagship Select Services. Vanguard determines eligibility by aggregating assets of all qualifying accounts held by the investor and immediate family members who reside at the same address. Aggregate assets include investments in Vanguard mutual funds, Vanguard ETFs®, certain annuities through Vanguard, the Vanguard 529 Plan, and certain small-business accounts. Assets in employer-sponsored retirement plans for which Vanguard provides recordkeeping services may be included in determining eligibility if the investor also has a personal account holding Vanguard mutual funds. Note that assets held in a Vanguard Brokerage Services account (other than Vanguard funds, including Vanguard ETFs) are not included when determining a household’s eligibility.

• Participant accounts in employer-sponsored defined contribution plans.** Please consult your enrollment materials for the rules that apply to your account.

  • Section 529 college savings plans.
  • Please note that intermediaries, including Vanguard Brokerage Services, may charge
  • separate fee.


 

** The following Vanguard fund accounts have alternative fee structures: SIMPLE IRAs, certain Individual 403(b)(7) Custodial Accounts, Vanguard Retirement Investment Program pooled plans, and Vanguard Individual 401(k) Plans.

Low-Balance Accounts

The Fund reserves the right to liquidate a fund account whose balance falls below the account minimum for any reason, including market fluctuation. This liquidation policy applies to nonretirement fund accounts and accounts that are held through intermediaries. Any such liquidation will be preceded by written notice to the investor.

Right to Change Policies

In addition to the rights expressly stated elsewhere in this prospectus, 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 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 shareholder or 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 in the best interest of a fund.

Share Classes

Vanguard reserves the right, without notice, to change the eligibility requirements of its share classes, including the types of clients who are eligible to purchase each share class.

Fund and Account Updates

Confirmation Statements

We will send (or provide through our website, whichever you prefer) a confirmation of your trade date and the amount of your transaction when you buy, sell, exchange, or convert shares. However, we will not send confirmations reflecting only checkwriting

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redemptions or the reinvestment of dividend or capital gains distributions. For any month in which you had a checkwriting redemption, a Checkwriting Activity Statement will be sent to you itemizing the checkwriting redemptions for that month. Promptly review each confirmation statement that we provide to you. It is important that you contact Vanguard immediately with any questions you may have about any transaction reflected on a confirmation statement, or Vanguard will consider the transaction properly processed.

Portfolio Summaries

We will send (or provide through our website, whichever you prefer) quarterly portfolio summaries to help you keep track of your accounts throughout the year. If you prefer, you may request to receive monthly portfolio summaries. Each summary shows the market value of your account at the close of the statement period, as well as all distributions, purchases, redemptions, exchanges, transfers, and conversions for the current calendar quarter (or month). Promptly review each summary that we provide to you. It is important that you contact Vanguard immediately with any questions you may have about any transaction reflected on the summary, or Vanguard will consider the transaction properly processed.

Tax Information Statements

For most accounts, Vanguard (or your intermediary) is required to provide annual tax forms to assist you in preparing your income tax returns. These forms are generally available for each calendar year early in the following year. Registered users of vanguard.com can also view certain forms through our website. Vanguard (or your intermediary) may also provide you with additional tax-related documentation. For more information, consult our website at vanguard.com or see Contacting Vanguard.

Annual and Semiannual Reports

We will send (or provide through our website, whichever you prefer) reports about Vanguard Windsor II Fund twice a year, in June and December. These reports include overviews of the financial markets and provide the following specific Fund information:

  • Performance assessments and comparisons with industry benchmarks.
  • Reports from the advisors.
  • Financial statements with listings of Fund holdings.

Portfolio Holdings

Please consult the Fund‘s Statement of Additional Information or our website for a description of the policies and procedures that govern disclosure of the Fund’s portfolio holdings.

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Employer-Sponsored Plans

Your plan administrator or your employee benefits office can provide you with detailed information on how to participate in your plan and how to elect the Fund as an investment option.

• If you have any questions about the Fund or Vanguard, including those about the Fund’s investment objective, strategies, or risks, contact Vanguard Participant Services toll-free at 800-523-1188 or visit our website at vanguard.com.

• If you have questions about your account, contact your plan administrator or the organization that provides recordkeeping services for your plan.

• Be sure to carefully read each topic that pertains to your transactions with Vanguard.

Vanguard reserves the right to change its policies without notice to shareholders.

Transactions

Processing times for your transaction requests may differ among recordkeepers or among transaction and funding types. Your plan’s recordkeeper (which may also be Vanguard) will determine the necessary processing time frames for your transaction requests prior to submission to the Fund. Consult your recordkeeper or plan administrator for more information.

If Vanguard is serving as your plan recordkeeper and if your transaction involves one or more investments with an early cut-off time for processing or another trading restriction, your entire transaction will be subject to the restriction when the trade date for your transaction is determined.

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Contacting Vanguard  
 
 
Web  
Vanguard.com For the most complete source of Vanguard news
  For fund, account, and service information
  For most account transactions
  For literature requests
  24 hours a day, 7 days a week
 
Phone  
Vanguard Tele-Account® 800-662-6273 For automated fund and account information
  Toll-free, 24 hours a day, 7 days a week
Investor Information 800-662-7447 For fund and service information
(Text telephone for people with hearing For literature requests
impairment at 800-749-7273)  
Client Services 800-662-2739 For account information
(Text telephone for people with hearing For most account transactions
impairment at 800-749-7273)  
Participant Services 800-523-1188 For information and services for participants in employer-
(Text telephone for people with hearing sponsored plans
impairment at 800-749-7273)  
Institutional Division For information and services for large institutional investors
888-809-8102  
Financial Advisor and Intermediary For information and services for financial intermediaries
Sales Support 800-997-2798 including financial advisors, broker-dealers, trust institutions,
  and insurance companies
Financial Advisory and Intermediary For account information and trading support for financial
Trading Support 800-669-0498 intermediaries including financial advisors, broker-dealers,
  trust institutions, and insurance companies

 

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Vanguard Addresses

Please be sure to use the correct address. Use of an incorrect address could delay the processing of your transaction.

Regular Mail (Individuals)   The Vanguard Group    
    P.O. Box 1110    
    Valley Forge, PA 19482-1110  
Regular Mail (Institutions, Intermediaries, and The Vanguard Group    
Employer-Sponsored Plan Participants) P.O. Box 2900    
    Valley Forge, PA 19482-2900  
Registered, Express, or Overnight Mail The Vanguard Group    
    455 Devon Park Drive  
    Wayne, PA 19087-1815  
 
 
Additional Information        
 
 
  Inception Newspaper Vanguard CUSIP
  Date Abbreviation Fund Number Number
Windsor II Fund        
Investor Shares 6/24/1985 WndsrII 73 922018205
Admiral Shares 5/14/2001 WdsrIIAdml 573 922018304

 

CFA® is a registered trademark owned by CFA Institute.

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Glossary of Investment Terms

Capital Gains Distribution. Payment to mutual fund shareholders of gains realized on securities that a fund has sold at a profit, minus any realized losses.

Cash Equivalent Investments. Cash deposits, short-term bank deposits, and money market instruments that include U.S. Treasury bills and notes, bank certificates of deposit (CDs), repurchase agreements, commercial paper, and banker’s acceptances.

Common Stock. A security representing ownership rights in a corporation.

Dividend Distribution. Payment to mutual fund shareholders of income from interest or dividends generated by a fund’s investments.

Expense Ratio. A fund’s total annual operating expenses expressed as a percentage of the fund’s average net assets. The expense ratio includes management and administrative expenses, but it does not include the transaction costs of buying and selling portfolio securities.

Inception Date. The date on which the assets of a fund (or one of its share classes) are first invested in accordance with the fund’s investment objective. For funds with a subscription period, the inception date is the day after that period ends. Investment performance is generally measured from the inception date.

Joint Committed Credit Facility. The Fund participates, along with other funds managed by Vanguard, in a committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each fund is individually liable for its borrowings, if any, under the credit facility. The amount and terms of the committed credit facility are subject to approval by the fund’s board of trustees and renegotiation with the lender syndicate on an annual basis.

Median Market Capitalization. An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund’s stocks, weighted by the proportion of the fund’s assets invested in each stock. Stocks representing half of the fund’s assets have market capitalizations above the median, and the rest are below it.

MSCI US Prime Market Value Index. An index that tracks the value companies of the MSCI US Prime Market 750 Index as identified by factors such as book value to price ratio, earnings to price ratio, and dividend yield.

Mutual Fund. An investment company that pools the money of many people and invests it in a variety of securities in an effort to achieve a specific objective over time.

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New York Stock Exchange (NYSE). A stock exchange based in New York City that is open for regular trading on business days, Monday through Friday, from 9:30 a.m. to 4 p.m., Eastern time. Net asset values (NAVs) are calculated each business day as of the close of regular trading on the NYSE. In the rare event the NYSE experiences unanticipated trade disruptions and is unavailable at the close of the trading day, NAVs will be calculated as of the close of regular trading on the Nasdaq (or another alternate exchange if the Nasdaq is unavailable, as determined at Vanguard’s discretion), generally 4 p.m., Eastern time.

Price/Earnings (P/E) Ratio. The current share price of a stock, divided by its per-share earnings (profits). A stock selling for $20, with earnings of $2 per share, has a price/ earnings ratio of 10.

Quantitative Process. An assessment of specific measurable factors, such as cost of capital; value of assets; and projections of sales, costs, earnings, and profits. The use of a quantitative process provides a systematic approach to investment decisions and portfolios.

Russell 1000 Value Index. An index that measures the performance of those Russell 1000 companies with lower price/book ratios and lower predicted growth rates.

Securities. Stocks, bonds, money market instruments, and other investments.

Standard & Poor’s 500 Index. A widely recognized benchmark of U.S. stock market performance that is dominated by the stocks of large U.S. companies.

Total Return. A percentage change, over a specified time period, in a mutual fund’s net asset value, assuming the reinvestment of all distributions of dividends and capital gains.

Volatility. The fluctuations in value of a mutual fund or other security. The greater a fund’s volatility, the wider the fluctuations in its returns.

Yield. Income (interest or dividends) earned by an investment, expressed as a percentage of the investment’s price.

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P.O. Box 2600

Valley Forge, PA 19482-2600

Connect with Vanguard® > vanguard.com

For More Information

If you would like more information about Vanguard Windsor II Fund, the following documents are available free upon request:

Annual/Semiannual Reports to Shareholders

Additional information about the Fund’s investments is available in the Fund’s annual and semiannual reports to shareholders. In the annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund’s performance during its last fiscal year.

Statement of Additional Information (SAI)

The SAI provides more detailed information about the Fund and is incorporated by reference into (and thus legally a part of) this prospectus.

To receive a free copy of the latest annual or semiannual report or the SAI, or to request additional information about the Fund or other Vanguard funds, please visit vanguard.com or contact us as follows:

If you are an individual investor:

The Vanguard Group

Investor Information Department P.O. Box 2600 Valley Forge, PA 19482-2600

Telephone: 800-662-7447; Text telephone for people with hearing impairment: 800-749-7273

If you are a participant in an employer-sponsored plan:

The Vanguard Group Participant Services P.O. Box 2900 Valley Forge, PA 19482-2900

Telephone: 800-523-1188; Text telephone for people with hearing impairment: 800-749-7273

If you are a current Vanguard shareholder and would like information about your account, account transactions, and/or account statements, please call:

Client Services Department

Telephone: 800-662-2739; Text telephone for people with hearing impairment: 800-749-7273

Information Provided by the Securities and Exchange Commission (SEC)

You can review and copy information about the Fund (including the SAI) at the SEC’s Public Reference Room in Washington, DC. To find out more about this public service, call the SEC at 202-551-8090. Reports and other information about the Fund are also available in the EDGAR database on the SEC’s website at www.sec.gov, or you can receive copies of this information, for a fee, by electronic request at the following email address: publicinfo@sec.gov, or by writing the Public Reference Section, Securities and Exchange Commission, Washington, DC 20549-1520.

Fund’s Investment Company Act file number: 811-00834

© 2018 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor.

P 073 022018


PART B

VANGUARD® WINDSOR™ FUNDS

STATEMENT OF ADDITIONAL INFORMATION

February 26, 2018

This Statement of Additional Information is not a prospectus but should be read in conjunction with a Fund’s current prospectus (dated February 26, 2018). To obtain, without charge, a prospectus or the most recent Annual Report to Shareholders, which contains the Fund’s financial statements as hereby incorporated by reference, please contact The Vanguard Group, Inc. (Vanguard).

Phone: Investor Information Department at 800-662-7447 Online: vanguard.com

TABLE OF CONTENTS
Description of the Trust B-1
Fundamental Policies B-3
Investment Strategies, Risks, and Nonfundamental Policies B-4
Share Price B-22
Purchase and Redemption of Shares B-22
Management of the Funds B-23
Investment Advisory and Other Services B-38
Portfolio Transactions B-50
Proxy Voting Guidelines B-51
Financial Statements B-58

 

DESCRIPTION OF THE TRUST

Vanguard Windsor Funds (the Trust) currently offers the following funds and share classes (identified by ticker symbol):

  Share Classes1
Fund2 Investor Admiral
Vanguard Windsor Fund VWNDX VWNEX
Vanguard Windsor II Fund VWNFX VWNAX
1 Individually, a class; collectively, the classes.    
2 Individually, a Fund; collectively, the Funds.    

 

The Trust has the ability to offer additional funds or classes of shares. There is no limit on the number of full and fractional shares that may be issued for a single fund or class of shares.

Organization

The Trust was organized as Wellington Equity Fund, Inc., a Delaware corporation, in 1958. It was reorganized as a Maryland corporation in 1973 and subsequently was reorganized as a Pennsylvania business trust in 1985. The Trust then was reorganized as a Maryland corporation later in 1985 and, finally, was reorganized as a Delaware statutory trust in 1998. Prior to its reorganization as a Delaware statutory trust, the Trust was known as Vanguard/Windsor Funds, Inc. The Trust is registered with the United States Securities and Exchange Commission (SEC) under the Investment Company Act of 1940 (the 1940 Act) as an open-end management investment company. All Funds within the Trust are classified as diversified within the meaning of the 1940 Act.

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Service Providers

Custodian. Brown Brothers Harriman & Co., 50 Post Office Square, Boston, MA 02110-1548, serves as the Funds‘ custodian. The custodian is responsible for maintaining the Funds‘ assets, keeping all necessary accounts and records of Fund assets, and appointing any foreign subcustodians or foreign securities depositories.

Independent Registered Public Accounting Firm. PricewaterhouseCoopers LLP, Two Commerce Square, Suite 1800, 2001 Market Street, Philadelphia, PA 19103-7042, serves as the Funds‘ independent registered public accounting firm. The independent registered public accounting firm audits the Funds‘ annual financial statements and provides other related services.

Transfer and Dividend-Paying Agent. The Funds‘ transfer agent and dividend-paying agent is Vanguard, P.O. Box 2600, Valley Forge, PA 19482.

Characteristics of the Funds‘ Shares

Restrictions on Holding or Disposing of Shares. There are no restrictions on the right of shareholders to retain or dispose of a Fund’s shares, other than those described in the Fund’s current prospectus and elsewhere in this Statement of Additional Information. Each Fund or class may be terminated by reorganization into another mutual fund or class or by liquidation and distribution of the assets of the Fund or class. Unless terminated by reorganization or liquidation, each Fund and share class will continue indefinitely.

Shareholder Liability. The Trust is organized under Delaware law, which provides that shareholders of a statutory trust are entitled to the same limitations of personal liability as shareholders of a corporation organized under Delaware law. This means that a shareholder of a Fund generally will not be personally liable for payment of the Fund’s debts. Some state courts, however, may not apply Delaware law on this point. We believe that the possibility of such a situation arising is remote.

Dividend Rights. The shareholders of each class of a Fund are entitled to receive any dividends or other distributions declared by the Fund for each such class. No shares of a Fund have priority or preference over any other shares of the Fund with respect to distributions. Distributions will be made from the assets of the Fund and will be paid ratably to all shareholders of a particular class according to the number of shares of the class held by shareholders on the record date. The amount of dividends per share may vary between separate share classes of the Fund based upon differences in the net asset values of the different classes and differences in the way that expenses are allocated between share classes pursuant to a multiple class plan approved by the Fund’s board of trustees.

Voting Rights. Shareholders are entitled to vote on a matter if (1) the matter concerns an amendment to the Declaration of Trust that would adversely affect to a material degree the rights and preferences of the shares of a Fund or any class; (2) the trustees determine that it is necessary or desirable to obtain a shareholder vote; (3) a merger or consolidation, share conversion, share exchange, or sale of assets is proposed and a shareholder vote is required by the 1940 Act to approve the transaction; or (4) a shareholder vote is required under the 1940 Act. The 1940 Act requires a shareholder vote under various circumstances, including to elect or remove trustees upon the written request of shareholders representing 10% or more of a Fund’s net assets, to change any fundamental policy of a Fund (please see Fundamental Policies), and to enter into certain merger transactions. Unless otherwise required by applicable law, shareholders of a Fund receive one vote for each dollar of net asset value owned on the record date and a fractional vote for each fractional dollar of net asset value owned on the record date. However, only the shares of the Fund or class affected by a particular matter are entitled to vote on that matter. In addition, each class has exclusive voting rights on any matter submitted to shareholders that relates solely to that class, and each class has separate voting rights on any matter submitted to shareholders in which the interests of one class differ from the interests of another. Voting rights are noncumulative and cannot be modified without a majority vote by the shareholders.

Liquidation Rights. In the event that a Fund is liquidated, shareholders will be entitled to receive a pro rata share of the Fund’s net assets. In the event that a class of shares is liquidated, shareholders of that class will be entitled to receive a pro rata share of the Fund’s net assets that are allocated to that class. Shareholders may receive cash, securities, or a combination of the two.

Preemptive Rights. There are no preemptive rights associated with the Funds‘ shares.

Conversion Rights. Fund shareholders may convert their shares to another class of shares of the same Fund upon the satisfaction of any then-applicable eligibility requirements as described in the Fund’s current prospectus.

B-2


 

Redemption Provisions. Each Fund’s redemption provisions are described in its current prospectus and elsewhere in this Statement of Additional Information.

Sinking Fund Provisions. The Funds have no sinking fund provisions.

Calls or Assessment. Each Fund’s shares, when issued, are fully paid and non-assessable.

Tax Status of the Funds

Each Fund expects to qualify each year for treatment as a “regulated investment company” under Subchapter M of the Internal Revenue Code of 1986, as amended (the IRC). This special tax status means that the Fund will not be liable for federal tax on income and capital gains distributed to shareholders. In order to preserve its tax status, each Fund must comply with certain requirements relating to the source of its income and the diversification of its assets. If a Fund fails to meet these requirements in any taxable year, the Fund will, in some cases, be able to cure such failure, including by paying a fund-level tax, paying interest, making additional distributions, and/or disposing of certain assets. If the Fund is ineligible to or otherwise does not cure such failure for any year, it will be subject to tax on its taxable income at corporate rates, and all distributions from earnings and profits, including any distributions of net tax-exempt income and net long-term capital gains, will be taxable to shareholders as ordinary income. In addition, a Fund could be required to recognize unrealized gains, pay substantial taxes and interest, and make substantial distributions before regaining its tax status as a regulated investment company.

Dividends received and distributed by each Fund on shares of stock of domestic corporations (excluding Real Estate Investment Trusts (REITs)) and certain foreign corporations generally may be eligible to be reported by the Fund, and treated by individual shareholders, as “qualified dividend income” taxed at long-term capital gain rates instead of at higher ordinary income tax rates. Individuals must satisfy holding period and other requirements in order to be eligible for such treatment. Capital gains distributed by the Funds are not eligible for treatment as qualified dividend income.

Under recent tax legislation, individuals (and certain other noncorporate entities) are generally eligible for a 20% deduction with respect to taxable ordinary dividends from REITs and certain taxable income from publicly traded partnerships. Currently, there is not a regulatory mechanism for regulated investment companies to pass through the 20% deduction to shareholders. As a result, in comparison, investors investing directly in REITs or publicly traded partnerships would generally be eligible for the 20% deduction for such taxable income from these investments while investors investing in REITs or publicly traded partnerships indirectly through a Fund would not be eligible for the 20% deduction for their share of such taxable income.

Dividends received and distributed by each Fund on shares of stock of domestic corporations (excluding REITs) may be eligible for the dividends-received deduction applicable to corporate shareholders. Corporations must satisfy certain requirements in order to claim the deduction. Capital gains distributed by the Funds are not eligible for the dividends-received deduction.

Each Fund may declare a capital gain dividend consisting of the excess (if any) of net realized long-term capital gains over net realized short-term capital losses. Net capital gains for a fiscal year are computed by taking into account any capital loss carryforwards of the Fund. For Fund fiscal years beginning on or after December 22, 2010, capital losses may be carried forward indefinitely and retain their character as either short-term or long-term. Under prior law, net capital losses could be carried forward for eight tax years and were treated as short-term capital losses. A Fund is required to use capital losses arising in fiscal years beginning on or after December 22, 2010, before using capital losses arising in fiscal years beginning prior to December 22, 2010.

FUNDAMENTAL POLICIES

Each Fund is subject to the following fundamental investment policies, which cannot be changed in any material way without the approval of the holders of a majority of the Fund’s shares. For these purposes, a “majority” of shares means shares representing the lesser of (1) 67% or more of the Fund’s net assets voted, so long as shares representing more than 50% of the Fund’s net assets are present or represented by proxy or (2) more than 50% of the Fund’s net assets.

Borrowing. Each Fund may borrow money only as permitted by the 1940 Act or other governing statute, by the Rules thereunder, or by the SEC or other regulatory agency with authority over the Fund.

B-3


 

Commodities. Each Fund may invest in commodities only as permitted by the 1940 Act or other governing statute, by the Rules thereunder, or by the SEC or other regulatory agency with authority over the Fund.

Diversification. With respect to 75% of its total assets, each Fund may not (1) purchase more than 10% of the outstanding voting securities of any one issuer or (2) purchase securities of any issuer if, as a result, more than 5% of the Fund’s total assets would be invested in that issuer’s securities. This limitation does not apply to obligations of the U.S. government or its agencies or instrumentalities.

Industry Concentration. Each Fund will not concentrate its investments in the securities of issuers whose principal business activities are in the same industry.

Investment Objective. The investment objective of each Fund may not be materially changed without a shareholder vote.

Loans. Each Fund may make loans to another person only as permitted by the 1940 Act or other governing statute, by the Rules thereunder, or by the SEC or other regulatory agency with authority over the Fund.

Real Estate. Each Fund may not invest directly in real estate unless it is acquired as a result of ownership of securities or other instruments. This restriction shall not prevent the Fund from investing in securities or other instruments (1) issued by companies that invest, deal, or otherwise engage in transactions in real estate or (2) backed or secured by real estate or interests in real estate.

Senior Securities. Each Fund may not issue senior securities except as permitted by the 1940 Act or other governing statute, by the Rules thereunder, or by the SEC or other regulatory agency with authority over the Fund.

Underwriting. Each Fund may not act as an underwriter of another issuer’s securities, except to the extent that the Fund may be deemed to be an underwriter within the meaning of the Securities Act of 1933 (the 1933 Act), in connection with the purchase and sale of portfolio securities.

Compliance with the fundamental policies previously described is generally measured at the time the securities are purchased. Unless otherwise required by the 1940 Act (as is the case with borrowing), if a percentage restriction is adhered to at the time the investment is made, a later change in percentage resulting from a change in the market value of assets will not constitute a violation of such restriction. All fundamental policies must comply with applicable regulatory requirements. For more details, see Investment Strategies, Risks, and Nonfundamental Policies.

None of these policies prevents the Funds from having an ownership interest in Vanguard. As a part owner of Vanguard, each Fund may own securities issued by Vanguard, make loans to Vanguard, and contribute to Vanguard’s costs or other financial requirements. See Management of the Funds for more information.

INVESTMENT STRATEGIES, RISKS, AND NONFUNDAMENTAL POLICIES

Some of the investment strategies and policies described on the following pages and in each Fund’s prospectus set forth percentage limitations on a Fund’s investment in, or holdings of, certain securities or other assets. Unless otherwise required by law, compliance with these strategies and policies will be determined immediately after the acquisition of such securities or assets by the Fund. Subsequent changes in values, net assets, or other circumstances will not be considered when determining whether the investment complies with the Fund’s investment strategies and policies.

The following investment strategies, risks, and policies supplement each Fund’s investment strategies, risks, and policies set forth in the prospectus. With respect to the different investments discussed as follows, a Fund may acquire such investments to the extent consistent with its investment strategies and policies.

Borrowing. A fund’s ability to borrow money is limited by its investment policies and limitations; by the 1940 Act; and by applicable exemptions, no-action letters, interpretations, and other pronouncements issued from time to time by the SEC and its staff or any other regulatory authority with jurisdiction. Under the 1940 Act, a fund is required to maintain continuous asset coverage (that is, total assets including borrowings, less liabilities exclusive of borrowings) of 300% of the amount borrowed, with an exception for borrowings not in excess of 5% of the fund’s total assets made for temporary or emergency purposes. Any borrowings for temporary purposes in excess of 5% of the fund’s total assets must maintain continuous asset coverage. If the 300% asset coverage should decline as a result of market fluctuations or for other reasons, a fund may be required to sell some of its portfolio holdings within three days (excluding Sundays and holidays) to reduce the debt and restore the 300% asset coverage, even though it may be disadvantageous from an investment standpoint to sell securities at that time.

B-4


 

Borrowing will tend to exaggerate the effect on net asset value of any increase or decrease in the market value of a fund’s portfolio. Money borrowed will be subject to interest costs that may or may not be recovered by earnings on the securities purchased with the proceeds of such borrowing. A fund also may be required to maintain minimum average balances in connection with a borrowing or to pay a commitment or other fee to maintain a line of credit; either of these requirements would increase the cost of borrowing over the stated interest rate.

The SEC takes the position that transactions that have a leveraging effect on the capital structure of a fund or are economically equivalent to borrowing can be viewed as constituting a form of borrowing by the fund for purposes of the 1940 Act. These transactions can include entering into reverse repurchase agreements; engaging in mortgage-dollar-roll transactions; selling securities short (other than short sales “against-the-box”); buying and selling certain derivatives (such as futures contracts); selling (or writing) put and call options; engaging in sale-buybacks; entering into firm-commitment and standby-commitment agreements; engaging in when-issued, delayed-delivery, or forward-commitment transactions; and participating in other similar trading practices. (Additional discussion about a number of these transactions can be found on the following pages.) A borrowing transaction will not be considered to constitute the issuance, by a fund, of a “senior security,” as that term is defined in Section 18(g) of the 1940 Act, and therefore such transaction will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by a fund, if the fund maintains an offsetting financial position; segregates liquid assets (with such liquidity determined by the advisor in accordance with procedures established by the board of trustees) equal (as determined on a daily mark-to-market basis) in value to the fund’s potential economic exposure under the borrowing transaction; or otherwise “covers” the transaction in accordance with applicable SEC guidance (collectively, “covers” the transaction). A fund may have to buy or sell a security at a disadvantageous time or price in order to cover a borrowing transaction. In addition, segregated assets may not be available to satisfy redemptions or to fulfill other obligations.

Common Stock. Common stock represents an equity or ownership interest in an issuer. Common stock typically entitles the owner to vote on the election of directors and other important matters, as well as to receive dividends on such stock. In the event an issuer is liquidated or declares bankruptcy, the claims of owners of bonds, other debt holders, and owners of preferred stock take precedence over the claims of those who own common stock.

Convertible Securities. Convertible securities are hybrid securities that combine the investment characteristics of bonds and common stocks. Convertible securities typically consist of debt securities or preferred stock that may be converted (on a voluntary or mandatory basis) within a specified period of time (normally for the entire life of the security) into a certain amount of common stock or other equity security of the same or a different issuer at a predetermined price. Convertible securities also include debt securities with warrants or common stock attached and derivatives combining the features of debt securities and equity securities. Other convertible securities with features and risks not specifically referred to herein may become available in the future. Convertible securities involve risks similar to those of both fixed income and equity securities. In a corporation’s capital structure, convertible securities are senior to common stock but are usually subordinated to senior debt obligations of the issuer.

The market value of a convertible security is a function of its “investment value” and its “conversion value.” A security’s “investment value” represents the value of the security without its conversion feature (i.e., a nonconvertible debt security). The investment value may be determined by reference to its credit quality and the current value of its yield to maturity or probable call date. At any given time, investment value is dependent upon such factors as the general level of interest rates, the yield of similar nonconvertible securities, the financial strength of the issuer, and the seniority of the security in the issuer’s capital structure. A security’s “conversion value” is determined by multiplying the number of shares the holder is entitled to receive upon conversion or exchange by the current price of the underlying security. If the conversion value of a convertible security is significantly below its investment value, the convertible security will trade like nonconvertible debt or preferred stock and its market value will not be influenced greatly by fluctuations in the market price of the underlying security. In that circumstance, the convertible security takes on the characteristics of a bond, and its price moves in the opposite direction from interest rates. Conversely, if the conversion value of a convertible security is near or above its investment value, the market value of the convertible security will be more heavily influenced by fluctuations in the market price of the underlying security. In that case, the convertible security’s price may be as volatile as that of common stock. Because both interest rates and market movements can influence its value, a convertible security generally is not as sensitive to interest rates as a similar debt security, nor is it as sensitive to changes in share price as its underlying equity security. Convertible securities are often rated below investment-grade or are not rated, and they are generally subject to a high degree of credit risk.

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Although all markets are prone to change over time, the generally high rate at which convertible securities are retired (through mandatory or scheduled conversions by issuers or through voluntary redemptions by holders) and replaced with newly issued convertible securities may cause the convertible securities market to change more rapidly than other markets. For example, a concentration of available convertible securities in a few economic sectors could elevate the sensitivity of the convertible securities market to the volatility of the equity markets and to the specific risks of those sectors. Moreover, convertible securities with innovative structures, such as mandatory-conversion securities and equity-linked securities, have increased the sensitivity of the convertible securities market to the volatility of the equity markets and to the special risks of those innovations, which may include risks different from, and possibly greater than, those associated with traditional convertible securities. A convertible security may be subject to redemption at the option of the issuer at a price set in the governing instrument of the convertible security. If a convertible security held by a fund is subject to such redemption option and is called for redemption, the fund must allow the issuer to redeem the security, convert it into the underlying common stock, or sell the security to a third party.

Cybersecurity Risks. The increased use of technology to conduct business could subject a fund and its third-party service providers (including, but not limited to, investment advisors and custodians) to risks associated with cybersecurity. In general, a cybersecurity incident can occur as a result of a deliberate attack designed to gain unauthorized access to digital systems. If the attack is successful, an unauthorized person or persons could misappropriate assets or sensitive information, corrupt data, or cause operational disruption. A cybersecurity incident could also occur unintentionally if, for example, an authorized person inadvertently released proprietary or confidential information. Vanguard has developed robust technological safeguards and business continuity plans to prevent, or reduce the impact of, potential cybersecurity incidents. Additionally, Vanguard has a process for assessing the information security and/or cybersecurity programs implemented by a fund’s third-party service providers, which helps minimize the risk of potential incidents. Despite these measures, a cybersecurity incident still has the potential to disrupt business operations, which could negatively impact a fund and/or its shareholders. Some examples of negative impacts that could occur as a result of a cybersecurity incident include, but are not limited to, the following: a fund may be unable to calculate its net asset value (NAV), a fund’s shareholders may be unable to transact business, a fund may be unable to process transactions on behalf of its shareholders, or a fund may be unable to safeguard its data or the personal information of its shareholders.

Debt Securities. A debt security, sometimes called a fixed income security, consists of a certificate or other evidence of a debt (secured or unsecured) on which the issuing company or governmental body promises to pay the holder thereof a fixed, variable, or floating rate of interest for a specified length of time and to repay the debt on the specified maturity date. Some debt securities, such as zero-coupon bonds, do not make regular interest payments but are issued at a discount to their principal or maturity value. Debt securities include a variety of fixed income obligations, including, but not limited to, corporate bonds, government securities, municipal securities, convertible securities, mortgage-backed securities, and asset-backed securities. Debt securities include investment-grade securities, non-investment-grade securities, and unrated securities. Debt securities are subject to a variety of risks, such as interest rate risk, income risk, call risk, prepayment risk, extension risk, inflation risk, credit risk, liquidity risk, and (in the case of foreign securities) country risk and currency risk. The reorganization of an issuer under the federal bankruptcy laws may result in the issuer’s debt securities being cancelled without repayment, repaid only in part, or repaid in part or in whole through an exchange thereof for any combination of cash, debt securities, convertible securities, equity securities, or other instruments or rights in respect to the same issuer or a related entity.

Debt Securities—Non-Investment-Grade Securities. Non-investment-grade securities, also referred to as “high-yield securities” or “junk bonds,” are debt securities that are rated lower than the four highest rating categories by a nationally recognized statistical rating organization (e.g., lower than Baa3/P-2 by Moody’s Investors Service, Inc. (Moody’s) or below BBB–/A-2 by Standard & Poor’s Financial Services LLC (Standard & Poor’s)) or, if unrated, are determined to be of comparable quality by the fund’s advisor. These securities are generally considered to be, on balance, predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation, and they will generally involve more credit risk than securities in the investment-grade categories. Non-investment-grade securities generally provide greater income and opportunity for capital appreciation than higher quality securities, but they also typically entail greater price volatility and principal and income risk.

Analysis of the creditworthiness of issuers of high-yield securities may be more complex than for issuers of investment-grade securities. Thus, reliance on credit ratings in making investment decisions entails greater risks for high-yield

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securities than for investment-grade securities. The success of a fund’s advisor in managing high-yield securities is more dependent upon its own credit analysis than is the case with investment-grade securities.

Some high-yield securities are issued by smaller, less-seasoned companies, while others are issued as part of a corporate restructuring such as an acquisition, a merger, or a leveraged buyout. Companies that issue high-yield securities are often highly leveraged and may not have more traditional methods of financing available to them. Therefore, the risk associated with acquiring the securities of such issuers generally is greater than is the case with investment-grade securities. Some high-yield securities were once rated as investment-grade but have been downgraded to junk-bond status because of financial difficulties experienced by their issuers.

The market values of high-yield securities tend to reflect individual issuer developments to a greater extent than do investment-grade securities, which in general react to fluctuations in the general level of interest rates. High-yield securities also tend to be more sensitive to economic conditions than are investment-grade securities. An actual or anticipated economic downturn or sustained period of rising interest rates, for example, could cause a decline in junk bond prices because the advent of a recession could lessen the ability of a highly leveraged company to make principal and interest payments on its debt securities. If an issuer of high-yield securities defaults, in addition to risking payment of all or a portion of interest and principal, a fund investing in such securities may incur additional expenses to seek recovery.

The secondary market on which high-yield securities are traded may be less liquid than the market for investment-grade securities. Less liquidity in the secondary trading market could adversely affect the ability of a fund’s advisor to sell a high-yield security or the price at which a fund’s advisor could sell a high-yield security, and it could also adversely affect the daily net asset value of fund shares. When secondary markets for high-yield securities are less liquid than the market for investment-grade securities, it may be more difficult to value the securities because such valuation may require more research, and elements of judgment may play a greater role in the valuation of the securities.

Except as otherwise provided in a fund’s prospectus, if a credit rating agency changes the rating of a portfolio security held by a fund, the fund may retain the portfolio security if the advisor deems it in the best interests of shareholders.

Depositary Receipts. Depositary receipts (also sold as participatory notes) are securities that evidence ownership interests in a security or a pool of securities that have been deposited with a “depository.” Depositary receipts may be sponsored or unsponsored and include American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), and Global Depositary Receipts (GDRs). For ADRs, the depository is typically a U.S. financial institution, and the underlying securities are issued by a foreign issuer. For other depositary receipts, the depository may be a foreign or a U.S. entity, and the underlying securities may have a foreign or a U.S. issuer. Depositary receipts will not necessarily be denominated in the same currency as their underlying securities. Generally, ADRs are issued in registered form, denominated in U.S. dollars, and designed for use in the U.S. securities markets. Other depositary receipts, such as GDRs and EDRs, may be issued in bearer form and denominated in other currencies, and they are generally designed for use in securities markets outside the United States. Although the two types of depositary receipt facilities (sponsored and unsponsored) are similar, there are differences regarding a holder’s rights and obligations and the practices of market participants.

A depository may establish an unsponsored facility without participation by (or acquiescence of) the underlying issuer; typically, however, the depository requests a letter of nonobjection from the underlying issuer prior to establishing the facility. Holders of unsponsored depositary receipts generally bear all the costs of the facility. The depository usually charges fees upon the deposit and withdrawal of the underlying securities, the conversion of dividends into U.S. dollars or other currency, the disposition of noncash distributions, and the performance of other services. The depository of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the underlying issuer or to pass through voting rights to depositary receipt holders with respect to the underlying securities.

Sponsored depositary receipt facilities are created in generally the same manner as unsponsored facilities, except that sponsored depositary receipts are established jointly by a depository and the underlying issuer through a deposit agreement. The deposit agreement sets out the rights and responsibilities of the underlying issuer, the depository, and the depositary receipt holders. With sponsored facilities, the underlying issuer typically bears some of the costs of the depositary receipts (such as dividend payment fees of the depository), although most sponsored depositary receipt holders may bear costs such as deposit and withdrawal fees. Depositories of most sponsored depositary receipts agree to distribute notices of shareholder meetings, voting instructions, and other shareholder communications and information to the depositary receipt holders at the underlying issuer’s request.

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For purposes of a fund’s investment policies, investments in depositary receipts will be deemed to be investments in the underlying securities. Thus, a depositary receipt representing ownership of common stock will be treated as common stock. Depositary receipts do not eliminate all of the risks associated with directly investing in the securities of foreign issuers.

Derivatives. A derivative is a financial instrument that has a value based on—or “derived from”—the values of other assets, reference rates, or indexes. Derivatives may relate to a wide variety of underlying references, such as commodities, stocks, bonds, interest rates, currency exchange rates, and related indexes. Derivatives include futures contracts and options on futures contracts, certain forward-commitment transactions, options on securities, caps, floors, collars, swap agreements, and certain other financial instruments. Some derivatives, such as futures contracts and certain options, are traded on U.S. commodity and securities exchanges, while other derivatives, such as swap agreements, may be privately negotiated and entered into in the over-the-counter market (OTC Derivatives) or may be cleared through a clearinghouse (Cleared Derivatives) and traded on an exchange or swap execution facility. As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), certain swap agreements, such as certain standardized credit default and interest rate swap agreements, must be cleared through a clearinghouse and traded on an exchange or swap execution facility. This could result in an increase in the overall costs of such transactions. While the intent of derivatives regulatory reform is to mitigate risks associated with derivatives markets, the new regulations could, among other things, increase liquidity and decrease pricing for more standardized products while decreasing liquidity and increasing pricing for less standardized products. The risks associated with the use of derivatives are different from, and possibly greater than, the risks associated with investing directly in the securities or assets on which the derivatives are based.

Derivatives may be used for a variety of purposes, including—but not limited to—hedging, managing risk, seeking to stay fully invested, seeking to reduce transaction costs, seeking to simulate an investment in equity or debt securities or other investments, and seeking to add value by using derivatives to more efficiently implement portfolio positions when derivatives are favorably priced relative to equity or debt securities or other investments. Some investors may use derivatives primarily for speculative purposes while other uses of derivatives may not constitute speculation. There is no assurance that any derivatives strategy used by a fund’s advisor will succeed. The other parties to the funds’ OTC Derivatives contracts (usually referred to as “counterparties”) will not be considered the issuers thereof for purposes of certain provisions of the 1940 Act and the IRC, although such OTC Derivatives may qualify as securities or investments under such laws. The funds’ advisors, however, will monitor and adjust, as appropriate, the funds’ credit risk exposure to OTC Derivative counterparties.

Derivative products are highly specialized instruments that require investment techniques and risk analyses different from those associated with stocks, bonds, and other traditional investments. The use of a derivative requires an understanding not only of the underlying instrument but also of the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions.

When the fund enters into a Cleared Derivative, an initial margin deposit with a Futures Commission Merchant (FCM) is required. Initial margin deposits are typically calculated as an amount equal to the volatility in market value of a Cleared Derivative over a fixed period. If the value of the fund’s Cleared Derivatives declines, the fund will be required to make additional “variation margin” payments to the FCM to settle the change in value. If the value of the fund’s Cleared Derivatives increases, the FCM will be required to make additional “variation margin” payments to the fund to settle the change in value. This process is known as “marking-to-market” and is calculated on a daily basis.

For OTC Derivatives, the fund is subject to the risk that a loss may be sustained as a result of the insolvency or bankruptcy of the counterparty or the failure of the counterparty to make required payments or otherwise comply with the terms of the contract. Additionally, the use of credit derivatives can result in losses if a fund’s advisor does not correctly evaluate the creditworthiness of the issuer on which the credit derivative is based.

Derivatives may be subject to liquidity risk, which exists when a particular derivative is difficult to purchase or sell. If a derivative transaction is particularly large or if the relevant market is illiquid (as is the case with certain OTC Derivatives), it may not be possible to initiate a transaction or liquidate a position at an advantageous time or price.

Derivatives may be subject to pricing or “basis” risk, which exists when a particular derivative becomes extraordinarily expensive relative to historical prices or the prices of corresponding cash market instruments. Under certain market conditions, it may not be economically feasible to initiate a transaction or liquidate a position in time to avoid a loss or take advantage of an opportunity.

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Because certain derivatives have a leverage component, adverse changes in the value or level of the underlying asset, reference rate, or index can result in a loss substantially greater than the amount invested in the derivative itself. Certain derivatives have the potential for unlimited loss, regardless of the size of the initial investment. A derivative transaction will not be considered to constitute the issuance, by a fund, of a “senior security,” as that term is defined in Section 18(g) of the 1940 Act, and therefore such transaction will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by a fund, if the fund covers the transaction in accordance with the requirements described under the heading “Borrowing.”

Like most other investments, derivative instruments are subject to the risk that the market value of the instrument will change in a way detrimental to a fund’s interest. A fund bears the risk that its advisor will incorrectly forecast future market trends or the values of assets, reference rates, indexes, or other financial or economic factors in establishing derivative positions for the fund. If the advisor attempts to use a derivative as a hedge against, or as a substitute for, a portfolio investment, the fund will be exposed to the risk that the derivative will have or will develop imperfect or no correlation with the portfolio investment. This could cause substantial losses for the fund. Although hedging strategies involving derivative instruments can reduce the risk of loss, they can also reduce the opportunity for gain or even result in losses by offsetting favorable price movements in other fund investments. Many derivatives (in particular, OTC Derivatives) are complex and often valued subjectively. Improper valuations can result in increased cash payment requirements to counterparties or a loss of value to a fund.

Exchange-Traded Funds. A fund may purchase shares of exchange-traded funds (ETFs). Typically, a fund would purchase ETF shares for the same reason it would purchase (and as an alternative to purchasing) futures contracts: to obtain exposure to all or a portion of the stock or bond market. ETF shares enjoy several advantages over futures. Depending on the market, the holding period, and other factors, ETF shares can be less costly and more tax-efficient than futures. In addition, ETF shares can be purchased for smaller sums, offer exposure to market sectors and styles for which there is no suitable or liquid futures contract, and do not involve leverage.

An investment in an ETF generally presents the same principal risks as an investment in a conventional fund (i.e., one that is not exchange-traded) that has the same investment objective, strategies, and policies. The price of an ETF can fluctuate within a wide range, and a fund could lose money investing in an ETF if the prices of the securities owned by the ETF go down. In addition, ETFs are subject to the following risks that do not apply to conventional funds: (1) the market price of an ETF’s shares may trade at a discount or a premium to their net asset value; (2) an active trading market for an ETF’s shares may not develop or be maintained; and (3) trading of an ETF’s shares may be halted by the activation of individual or marketwide trading halts (which halt trading for a specific period of time when the price of a particular security or overall market prices decline by a specified percentage). Trading of an ETF’s shares may also be halted if the shares are delisted from the exchange without first being listed on another exchange or if the listing exchange’s officials determine that such action is appropriate in the interest of a fair and orderly market or for the protection of investors.

Most ETFs are investment companies. Therefore, a fund’s purchases of ETF shares generally are subject to the limitations on, and the risks of, a fund’s investments in other investment companies, which are described under the heading “Other Investment Companies.”

Foreign Securities. Typically, foreign securities are considered to be equity or debt securities issued by entities organized, domiciled, or with a principal executive office outside the United States, such as foreign corporations and governments. Securities issued by certain companies organized outside the United States may not be deemed to be foreign securities if the company’s principal operations are conducted from the United States or when the company’s equity securities trade principally on a U.S. stock exchange. Foreign securities may trade in U.S. or foreign securities markets. A fund may make foreign investments either directly by purchasing foreign securities or indirectly by purchasing depositary receipts or depositary shares of similar instruments (depositary receipts) for foreign securities. Direct investments in foreign securities may be made either on foreign securities exchanges or in the over-the-counter (OTC) markets. Investing in foreign securities involves certain special risk considerations that are not typically associated with investing in securities of U.S. companies or governments.

Because foreign issuers are not generally subject to uniform accounting, auditing, and financial reporting standards and practices comparable to those applicable to U.S. issuers, there may be less publicly available information about certain foreign issuers than about U.S. issuers. Evidence of securities ownership may be uncertain in many foreign countries. As a result, there are multiple risks that could result in a loss to the fund, including, but not limited to, the risk that a fund’s trade details could be incorrectly or fraudulently entered at the time of a transaction. Securities of foreign issuers are

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generally more volatile and less liquid than securities of comparable U.S. issuers, and foreign investments may be effected through structures that may be complex or confusing. In certain countries, there is less government supervision and regulation of stock exchanges, brokers, and listed companies than in the United States. The risk that securities traded on foreign exchanges may be suspended, either by the issuers themselves, by an exchange, or by government authorities, is also heightened. In addition, with respect to certain foreign countries, there is the possibility of expropriation or confiscatory taxation, political or social instability, war, terrorism, nationalization, limitations on the removal of funds or other assets, or diplomatic developments that could affect U.S. investments in those countries. Additionally, economic or other sanctions imposed on the United States by a foreign country, or imposed on a foreign country or issuer by the United States, could impair a fund’s ability to buy, sell, hold, receive, deliver, or otherwise transact in certain investment securities. Sanctions could also affect the value and/or liquidity of a foreign security.

Although an advisor will endeavor to achieve the most favorable execution costs for a fund’s portfolio transactions in foreign securities under the circumstances, commissions and other transaction costs are generally higher than those on U.S. securities. In addition, it is expected that the custodian arrangement expenses for a fund that invests primarily in foreign securities will be somewhat greater than the expenses for a fund that invests primarily in domestic securities. Additionally, bankruptcy laws vary by jurisdiction and cash deposits may be subject to a custodian’s creditors. Certain foreign governments levy withholding or other taxes against dividend and interest income from, capital gains on the sale of, or transactions in foreign securities. Although in some countries a portion of these taxes is recoverable by the fund, the nonrecovered portion of foreign withholding taxes will reduce the income received from such securities.

The value of the foreign securities held by a fund that are not U.S. dollar-denominated may be significantly affected by changes in currency exchange rates. The U.S. dollar value of a foreign security generally decreases when the value of the U.S. dollar rises against the foreign currency in which the security is denominated, and it tends to increase when the value of the U.S. dollar falls against such currency (as discussed under the heading “Foreign Securities—Foreign Currency Transactions,” a fund may attempt to hedge its currency risks). In addition, the value of fund assets may be affected by losses and other expenses incurred from converting between various currencies in order to purchase and sell foreign securities, as well as by currency restrictions, exchange control regulations, currency devaluations, and political and economic developments.

Foreign Securities—China A-shares Risk. China A-shares (A-shares) are shares of mainland Chinese companies that are traded locally on the Shanghai and Shenzhen stock exchanges. In order to invest in A-shares, a foreign investor must have access to an investment quota through a Qualified Foreign Institutional Investor (QFII) or a Renminbi QFII (RQFII) license holder. A-shares are also available through the China Stock Connect program, subject to separate quota limitations. The developing state of the investment and banking systems of the People’s Republic of China (China, or the PRC) subjects the settlement, clearing, and registration of securities transactions to heightened risks. Additionally, there are foreign ownership limitations that may result in limitations on investment or the return of profits if a fund purchases and sells shares of an issuer in which it owns 5% or more of the shares issued within a six-month period. It is unclear if the 5% ownership will be determined by aggregating the holdings of a fund with affiliated funds.

Due to these restrictions, it is possible that the A-shares quota available to a fund as a foreign investor may not be sufficient to meet the fund’s investment needs. In this situation, a fund may seek an alternative method of economic exposure, such as by purchasing other classes of securities or depositary receipts or by utilizing derivatives. Any of these options could increase a fund’s index sampling risk (for index funds) or investment cost. Additionally, investing in A-shares generally increases emerging markets risk due in part to government and issuer market controls and the developing settlement and legal systems.

Investing in China A-shares through Stock Connect. The China Stock Connect program (Stock Connect) is a mutual market access program designed to, among other things, enable foreign investment in the PRC via brokers in Hong Kong. A QFII/RQFII license is not required to trade via Stock Connect. There are significant risks inherent in investing in A-shares through Stock Connect. Specifically, trading can be affected by a number of issues. Stock Connect can only operate when both PRC and Hong Kong markets are open for trading and when banking services are available in both markets on the corresponding settlement days. As such, if one or both markets are closed on a U.S. trading day, a fund may not be able to dispose of its shares in a timely manner, which could adversely affect the fund’s performance. Trading through Stock Connect may require pre-delivery or pre-validation of cash or securities to or by a broker. If the cash or securities are not in the broker’s possession before the market opens on the day of selling, the sell order will be rejected. This requirement may limit a fund’s ability to dispose of its A-shares purchased through Stock Connect in a timely manner.

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Additionally, Stock Connect is subject to daily quota limitations on purchases into the PRC. Once the daily quota is reached, orders to purchase additional A-shares through Stock Connect will be rejected. In addition, a fund’s purchase of A-shares through Stock Connect may only be subsequently sold through Stock Connect and is not otherwise transferable. Stock Connect utilizes an omnibus clearing structure, and the fund’s shares will be registered in its custodian’s name on the Hong Kong Central Clearing and Settlement System. This may limit an advisor’s ability to effectively manage a fund’s holdings, including the potential enforcement of equity owner rights.

Foreign Securities—Emerging Market Risk. Investing in emerging market countries involves certain risks not typically associated with investing in the United States, and it imposes risks greater than, or in addition to, risks of investing in more developed foreign countries. These risks include, but are not limited to, the following: nationalization or expropriation of assets or confiscatory taxation; currency devaluations and other currency exchange rate fluctuations; greater social, economic, and political uncertainty and instability (including amplified risk of war and terrorism); more substantial government involvement in the economy; less government supervision and regulation of the securities markets and participants in those markets and possible arbitrary and unpredictable enforcement of securities regulations and other laws; controls on foreign investment and limitations on repatriation of invested capital and on the fund’s ability to exchange local currencies for U.S. dollars; unavailability of currency-hedging techniques in certain emerging market countries; generally smaller, less seasoned, or newly organized companies; differences in, or lack of, auditing and financial reporting standards, which may result in unavailability of material information about issuers; difficulty in obtaining and/or enforcing a judgment in a court outside the United States; and greater price volatility, substantially less liquidity, and significantly smaller market capitalization of securities markets. Also, any change in the leadership or politics of emerging market countries, or the countries that exercise a significant influence over those countries, may halt the expansion of or reverse the liberalization of foreign investment policies now occurring and adversely affect existing investment opportunities. Furthermore, high rates of inflation and rapid fluctuations in inflation rates have had, and may continue to have, negative effects on the economies and securities markets of certain emerging market countries. Custodial services and other investment-related costs are often more expensive in emerging market countries, which can reduce a fund’s income from investments in securities or debt instruments of emerging market country issuers.

Foreign Securities—Foreign Currency Transactions. The value in U.S. dollars of a fund’s non-dollar-denominated foreign securities may be affected favorably or unfavorably by changes in foreign currency exchange rates and exchange control regulations, and the fund may incur costs in connection with conversions between various currencies. To seek to minimize the impact of such factors on net asset values, a fund may engage in foreign currency transactions in connection with its investments in foreign securities. A fund will enter into foreign currency transactions only to attempt to “hedge” the currency risk associated with investing in foreign securities. Although such transactions tend to minimize the risk of loss that would result from a decline in the value of the hedged currency, they also may limit any potential gain that might result should the value of such currency increase.

Currency exchange transactions may be conducted either on a spot (i.e., cash) basis at the rate prevailing in the currency exchange market or through forward contracts to purchase or sell foreign currencies. A forward currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. These contracts are entered into with large commercial banks or other currency traders who are participants in the interbank market. Currency exchange transactions also may be effected through the use of swap agreements or other derivatives.

Currency exchange transactions may be considered borrowings. A currency exchange transaction will not be considered to constitute the issuance, by a fund, of a “senior security,” as that term is defined in Section 18(g) of the 1940 Act, and therefore such transaction will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by a fund, if the fund covers the transaction in accordance with the requirements described under the heading “Borrowing.”

By entering into a forward contract for the purchase or sale of foreign currency involved in underlying security transactions, a fund may be able to protect itself against part or all of the possible loss between trade and settlement dates for that purchase or sale resulting from an adverse change in the relationship between the U.S. dollar and such foreign currency. This practice is sometimes referred to as “transaction hedging.” In addition, when the advisor reasonably believes that a particular foreign currency may suffer a substantial decline against the U.S. dollar, a fund may enter into a forward contract to sell an amount of foreign currency approximating the value of some or all of its portfolio

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securities denominated in such foreign currency. This practice is sometimes referred to as “portfolio hedging.” Similarly, when the advisor reasonably believes that the U.S. dollar may suffer a substantial decline against a foreign currency, a fund may enter into a forward contract to buy that foreign currency for a fixed dollar amount.

A fund may also attempt to hedge its foreign currency exchange rate risk by engaging in currency futures, options, and “cross-hedge” transactions. In cross-hedge transactions, a fund holding securities denominated in one foreign currency will enter into a forward currency contract to buy or sell a different foreign currency (one that the advisor reasonably believes generally tracks the currency being hedged with regard to price movements). The advisor may select the tracking (or substitute) currency rather than the currency in which the security is denominated for various reasons, including in order to take advantage of pricing or other opportunities presented by the tracking currency or to take advantage of a more liquid or more efficient market for the tracking currency. Such cross-hedges are expected to help protect a fund against an increase or decrease in the value of the U.S. dollar against certain foreign currencies.

A fund may hold a portion of its assets in bank deposits denominated in foreign currencies so as to facilitate investment in foreign securities as well as protect against currency fluctuations and the need to convert such assets into U.S. dollars (thereby also reducing transaction costs). To the extent these assets are converted back into U.S. dollars, the value of the assets so maintained will be affected favorably or unfavorably by changes in foreign currency exchange rates and exchange control regulations.

The forecasting of currency market movement is extremely difficult, and whether any hedging strategy will be successful is highly uncertain. Moreover, it is impossible to forecast with precision the market value of portfolio securities at the expiration of a forward currency contract. Accordingly, a fund may be required to buy or sell additional currency on the spot market (and bear the expense of such transaction) if its advisor’s predictions regarding the movement of foreign currency or securities markets prove inaccurate. In addition, the use of cross-hedging transactions may involve special risks and may leave a fund in a less advantageous position than if such a hedge had not been established. Because forward currency contracts are privately negotiated transactions, there can be no assurance that a fund will have flexibility to roll over a forward currency contract upon its expiration if it desires to do so. Additionally, there can be no assurance that the other party to the contract will perform its services thereunder.

Foreign Securities—Foreign Investment Companies. Some of the countries in which a fund may invest may not permit, or may place economic restrictions on, direct investment by outside investors. Fund investments in such countries may be permitted only through foreign government-approved or authorized investment vehicles, which may include other investment companies. Such investments may be made through registered or unregistered closed-end investment companies that invest in foreign securities. Investing through such vehicles may involve layered fees or expenses and may also be subject to the limitations on, and the risks of, a fund’s investments in other investment companies, which are described under the heading “Other Investment Companies.

Futures Contracts and Options on Futures Contracts. Futures contracts and options on futures contracts are derivatives. A futures contract is a standardized agreement between two parties to buy or sell at a specific time in the future a specific quantity of a commodity at a specific price. The commodity may consist of an asset, a reference rate, or an index. A security futures contract relates to the sale of a specific quantity of shares of a single equity security or a narrow-based securities index. The value of a futures contract tends to increase and decrease in tandem with the value of the underlying commodity. The buyer of a futures contract enters into an agreement to purchase the underlying commodity on the settlement date and is said to be “long” the contract. The seller of a futures contract enters into an agreement to sell the underlying commodity on the settlement date and is said to be “short” the contract. The price at which a futures contract is entered into is established either in the electronic marketplace or by open outcry on the floor of an exchange between exchange members acting as traders or brokers. Open futures contracts can be liquidated or closed out by physical delivery of the underlying commodity or payment of the cash settlement amount on the settlement date, depending on the terms of the particular contract. Some financial futures contracts (such as security futures) provide for physical settlement at maturity. Other financial futures contracts (such as those relating to interest rates, foreign currencies, and broad-based securities indexes) generally provide for cash settlement at maturity. In the case of cash-settled futures contracts, the cash settlement amount is equal to the difference between the final settlement or market price for the relevant commodity on the last trading day of the contract and the price for the relevant commodity agreed upon at the outset of the contract. Most futures contracts, however, are not held until maturity but instead are “offset” before the settlement date through the establishment of an opposite and equal futures position.

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The purchaser or seller of a futures contract is not required to deliver or pay for the underlying commodity unless the contract is held until the settlement date. However, both the purchaser and seller are required to deposit “initial margin” with a futures commission merchant (FCM) when the futures contract is entered into. Initial margin deposits are typically calculated as an amount equal to the volatility in market value of a contract over a fixed period. If the value of the fund’s position declines, the fund will be required to make additional “variation margin” payments to the FCM to settle the change in value. If the value of the fund’s position increases, the FCM will be required to make additional “variation margin” payments to the fund to settle the change in value. This process is known as “marking-to-market” and is calculated on a daily basis. A futures transaction will not be considered to constitute the issuance, by a fund, of a “senior security,” as that term is defined in Section 18(g) of the 1940 Act, and therefore such transaction will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by a fund, if the fund covers the transaction in accordance with the requirements described under the heading “Borrowing.”

An option on a futures contract (or futures option) conveys the right, but not the obligation, to purchase (in the case of a call option) or sell (in the case of a put option) a specific futures contract at a specific price (called the “exercise” or “strike” price) any time before the option expires. The seller of an option is called an option writer. The purchase price of an option is called the premium. The potential loss to an option buyer is limited to the amount of the premium plus transaction costs. This will be the case, for example, if the option is held and not exercised prior to its expiration date. Generally, an option writer sells options with the goal of obtaining the premium paid by the option buyer. If an option sold by an option writer expires without being exercised, the writer retains the full amount of the premium. The option writer, however, has unlimited economic risk because its potential loss, except to the extent offset by the premium received when the option was written, is equal to the amount the option is “in-the-money” at the expiration date. A call option is in-the-money if the value of the underlying futures contract exceeds the exercise price of the option. A put option is in-the-money if the exercise price of the option exceeds the value of the underlying futures contract. Generally, any profit realized by an option buyer represents a loss for the option writer.

A fund that takes the position of a writer of a futures option is required to deposit and maintain initial and variation margin with respect to the option, as previously described in the case of futures contracts. A futures option transaction will not be considered to constitute the issuance, by a fund, of a “senior security,” as that term is defined in Section 18(g) of the 1940 Act, and therefore such transaction will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by a fund, if the fund covers the transaction in accordance with the requirements described under the heading “Borrowing.”

Each Fund intends to comply with Rule 4.5 under the Commodity Exchange Act (CEA), under which a mutual fund may be excluded from the definition of the term Commodity Pool Operator (CPO) if the fund meets certain conditions such as limiting its investments in certain CEA-regulated instruments (e.g., futures, options, or swaps) and complying with certain marketing restrictions. Accordingly, Vanguard is not subject to registration or regulation as a CPO with respect to each Fund under the CEA. A Fund will only enter into futures contracts and futures options that are traded on a U.S. or foreign exchange, board of trade, or similar entity or that are quoted on an automated quotation system.

Futures Contracts and Options on Futures Contracts—Risks. The risk of loss in trading futures contracts and in writing futures options can be substantial because of the low margin deposits required, the extremely high degree of leverage involved in futures and options pricing, and the potential high volatility of the futures markets. As a result, a relatively small price movement in a futures position may result in immediate and substantial loss (or gain) for the investor. For example, if at the time of purchase, 10% of the value of the futures contract is deposited as margin, a subsequent 10% decrease in the value of the futures contract would result in a total loss of the margin deposit, before any deduction for the transaction costs, if the account were then closed out. A 15% decrease would result in a loss equal to 150% of the original margin deposit if the contract were closed out. Thus, a purchase or sale of a futures contract, and the writing of a futures option, may result in losses in excess of the amount invested in the position. In the event of adverse price movements, a fund would continue to be required to make daily cash payments to maintain its required margin. In such situations, if the fund has insufficient cash, it may have to sell portfolio securities to meet daily margin requirements (and segregation requirements, if applicable) at a time when it may be disadvantageous to do so. In addition, on the settlement date, a fund may be required to make delivery of the instruments underlying the futures positions it holds.

A fund could suffer losses if it is unable to close out a futures contract or a futures option because of an illiquid secondary market. Futures contracts and futures options may be closed out only on an exchange that provides a secondary market for such products. However, there can be no assurance that a liquid secondary market will exist for

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any particular futures product at any specific time. Thus, it may not be possible to close a futures or option position. Moreover, most futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day’s settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day, and therefore does not limit potential losses because the limit may prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of future positions and subjecting some futures traders to substantial losses. The inability to close futures and options positions also could have an adverse impact on the ability to hedge a portfolio investment or to establish a substitute for a portfolio investment.

U.S.      Treasury futures are generally not subject to such daily limits.
A      fund bears the risk that its advisor will incorrectly predict future market trends. If the advisor attempts to use a futures

contract or a futures option as a hedge against, or as a substitute for, a portfolio investment, the fund will be exposed to the risk that the futures position will have or will develop imperfect or no correlation with the portfolio investment. This could cause substantial losses for the fund. Although hedging strategies involving futures products can reduce the risk of loss, they can also reduce the opportunity for gain or even result in losses by offsetting favorable price movements in other fund investments.

A fund could lose margin payments it has deposited with its FCM if, for example, the FCM breaches its agreement with the fund or becomes insolvent or goes into bankruptcy. In that event, the fund may be entitled to return of margin owed to it only in proportion to the amount received by the FCM’s other customers, potentially resulting in losses to the fund.

Interfund Borrowing and Lending. The SEC has granted an exemption permitting registered open-end Vanguard funds to participate in Vanguard’s interfund lending program. This program allows the Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes. The program is subject to a number of conditions, including, among other things, the requirements that (1) no fund may borrow or lend money through the program unless it receives a more favorable interest rate than is typically available from a bank for a comparable transaction, (2) no fund may lend money if the loan would cause its aggregate outstanding loans through the program to exceed 15% of its net assets at the time of the loan, and (3) a fund’s interfund loans to any one fund shall not exceed 5% of the lending fund’s net assets. In addition, a Vanguard fund may participate in the program only if and to the extent that such participation is consistent with the fund’s investment objective and investment policies. The boards of trustees of the Vanguard funds are responsible for overseeing the interfund lending program. Any delay in repayment to a lending fund could result in a lost investment opportunity or additional borrowing costs.

Investing for Control. Each Vanguard fund invests in securities and other instruments for the sole purpose of achieving a specific investment objective. As such, a Vanguard fund does not seek to acquire, individually or collectively with any other Vanguard fund, enough of a company’s outstanding voting stock to have control over management decisions. A Vanguard fund does not invest for the purpose of controlling a company’s management.

Options. An option is a derivative. An option on a security (or index) is a contract that gives the holder of the option, in return for the payment of a “premium,” the right, but not the obligation, to buy from (in the case of a call option) or sell to (in the case of a put option) the writer of the option the security underlying the option (or the cash value of the index) at a specified exercise price prior to the expiration date of the option. The writer of an option on a security has the obligation upon exercise of the option to deliver the underlying security upon payment of the exercise price (in the case of a call option) or to pay the exercise price upon delivery of the underlying security (in the case of a put option). The writer of an option on an index has the obligation upon exercise of the option to pay an amount equal to the cash value of the index minus the exercise price, multiplied by the specified multiplier for the index option. The multiplier for an index option determines the size of the investment position the option represents. Unlike exchange-traded options, which are standardized with respect to the underlying instrument, expiration date, contract size, and strike price, the terms of over-the-counter (OTC) options (options not traded on exchanges) generally are established through negotiation with the other party to the option contract. Although this type of arrangement allows the purchaser or writer greater flexibility to tailor an option to its needs, OTC options generally involve credit risk to the counterparty whereas for exchange-traded, centrally cleared options, credit risk is mutualized through the involvement of the applicable clearing house.

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The buyer (or holder) of an option is said to be “long” the option, while the seller (or writer) of an option is said to be “short” the option. A call option grants to the holder the right to buy (and obligates the writer to sell) the underlying security at the strike price, which is the predetermined price at which the option may be exercised. A put option grants to the holder the right to sell (and obligates the writer to buy) the underlying security at the strike price. The purchase price of an option is called the “premium.” The potential loss to an option buyer is limited to the amount of the premium plus transaction costs. This will be the case if the option is held and not exercised prior to its expiration date. Generally, an option writer sells options with the goal of obtaining the premium paid by the option buyer, but that person could also seek to profit from an anticipated rise or decline in option prices. If an option sold by an option writer expires without being exercised, the writer retains the full amount of the premium. The option writer, however, has unlimited economic risk because its potential loss, except to the extent offset by the premium received when the option was written, is equal to the amount the option is “in-the-money” at the expiration date. A call option is in-the-money if the value of the underlying position exceeds the exercise price of the option. A put option is in-the-money if the exercise price of the option exceeds the value of the underlying position. Generally, any profit realized by an option buyer represents a loss for the option writer. The writing of an option will not be considered to constitute the issuance, by a fund, of a “senior security,” as that term is defined in Section 18(g) of the 1940 Act, and therefore such transaction will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by a fund, if the fund covers the transaction in accordance with the requirements described under the heading “Borrowing.”

If a trading market, in particular options, were to become unavailable, investors in those options (such as the funds) would be unable to close out their positions until trading resumes, and they may be faced with substantial losses if the value of the underlying instrument moves adversely during that time. Even if the market were to remain available, there may be times when options prices will not maintain their customary or anticipated relationships to the prices of the underlying instruments and related instruments. Lack of investor interest, changes in volatility, or other factors or conditions might adversely affect the liquidity, efficiency, continuity, or even the orderliness of the market for particular options.

A fund bears the risk that its advisor will not accurately predict future market trends. If the advisor attempts to use an option as a hedge against, or as a substitute for, a portfolio investment, the fund will be exposed to the risk that the option will have or will develop imperfect or no correlation with the portfolio investment, which could cause substantial losses for the fund. Although hedging strategies involving options can reduce the risk of loss, they can also reduce the opportunity for gain or even result in losses by offsetting favorable price movements in other fund investments. Many options, in particular OTC options, are complex and often valued based on subjective factors. Improper valuations can result in increased cash payment requirements to counterparties or a loss of value to a fund.

OTC Swap Agreements. An over-the-counter (OTC) swap agreement, which is a type of derivative, is an agreement between two parties (counterparties) to exchange payments at specified dates (periodic payment dates) on the basis of a specified amount (notional amount) with the payments calculated with reference to a specified asset, reference rate, or index.

Examples of OTC swap agreements include, but are not limited to, interest rate swaps, credit default swaps, equity swaps, commodity swaps, foreign currency swaps, index swaps, excess return swaps, and total return swaps. Most OTC swap agreements provide that when the periodic payment dates for both parties are the same, payments are netted and only the net amount is paid to the counterparty entitled to receive the net payment. Consequently, a fund’s current obligations (or rights) under an OTC swap agreement will generally be equal only to the net amount to be paid or received under the agreement, based on the relative values of the positions held by each counterparty. OTC swap agreements allow for a wide variety of transactions. For example, fixed rate payments may be exchanged for floating rate payments; U.S. dollar-denominated payments may be exchanged for payments denominated in a different currency; and payments tied to the price of one asset, reference rate, or index may be exchanged for payments tied to the price of another asset, reference rate, or index.

An OTC option on an OTC swap agreement, also called a “swaption,” is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based “premium.” A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return of a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties.

The use of OTC swap agreements by a fund entails certain risks, which may be different from, or possibly greater than, the risks associated with investing directly in the securities and other investments that are the referenced asset for the

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swap agreement. OTC swaps are highly specialized instruments that require investment techniques, risk analyses, and tax planning different from those associated with stocks, bonds, and other traditional investments. The use of an OTC swap requires an understanding not only of the referenced asset, reference rate, or index but also of the swap itself, without the benefit of observing the performance of the swap under all possible market conditions.

OTC swap agreements may be subject to liquidity risk, which exists when a particular swap is difficult to purchase or sell. If an OTC swap transaction is particularly large or if the relevant market is illiquid (as is the case with many OTC swaps), it may not be possible to initiate a transaction or liquidate a position at an advantageous time or price, which may result in significant losses. In addition, OTC swap transactions may be subject to a fund’s limitation on investments in illiquid securities.

OTC swap agreements may be subject to pricing risk, which exists when a particular swap becomes extraordinarily expensive or inexpensive relative to historical prices or the prices of corresponding cash market instruments. Under certain market conditions, it may not be economically feasible to initiate a transaction or liquidate a position in time to avoid a loss or take advantage of an opportunity or to realize the intrinsic value of the OTC swap agreement.

Because certain OTC swap agreements have a leverage component, adverse changes in the value or level of the underlying asset, reference rate, or index can result in a loss substantially greater than the amount invested in the swap itself. Certain OTC swaps have the potential for unlimited loss, regardless of the size of the initial investment. A leveraged OTC swap transaction will not be considered to constitute the issuance, by a fund, of a “senior security,” as that term is defined in Section 18(g) of the 1940 Act, and therefore such transaction will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by a fund, if the fund covers the transaction in accordance with the requirements described under the heading “Borrowing.”

Like most other investments, OTC swap agreements are subject to the risk that the market value of the instrument will change in a way detrimental to a fund’s interest. A fund bears the risk that its advisor will not accurately forecast future market trends or the values of assets, reference rates, indexes, or other economic factors in establishing OTC swap positions for the fund. If the advisor attempts to use an OTC swap as a hedge against, or as a substitute for, a portfolio investment, the fund will be exposed to the risk that the OTC swap will have or will develop imperfect or no correlation with the portfolio investment. This could cause substantial losses for the fund. Although hedging strategies involving OTC swap instruments can reduce the risk of loss, they can also reduce the opportunity for gain or even result in losses by offsetting favorable price movements in other fund investments. Many OTC swaps are complex and often valued subjectively. Improper valuations can result in increased cash payment requirements to counterparties or a loss of value to a fund.

The use of an OTC swap agreement also involves the risk that a loss may be sustained as a result of the insolvency or bankruptcy of the counterparty or the failure of the counterparty to make required payments or otherwise comply with the terms of the agreement. Additionally, the use of credit default swaps can result in losses if a fund’s advisor does not correctly evaluate the creditworthiness of the issuer on which the credit swap is based.

The market for OTC swaps and swaptions is a relatively new market. It is possible that developments in the market could adversely affect a fund, including its ability to terminate existing OTC swap agreements or to realize amounts to be received under such agreements. As previously noted under the heading “Derivatives,” under the Dodd-Frank Act, certain swaps that may be used by a fund may be cleared through a clearinghouse and traded on an exchange or swap execution facility.

Other Investment Companies. A fund may invest in other investment companies to the extent permitted by applicable law or SEC exemption. Under Section 12(d)(1) of the 1940 Act, a fund generally may invest up to 10% of its assets in shares of investment companies and up to 5% of its assets in any one investment company, as long as no investment represents more than 3% of the voting stock of an acquired investment company. In addition, no funds for which Vanguard acts as an advisor may, in the aggregate, own more than 10% of the voting stock of a closed-end investment company. The 1940 Act and related rules provide certain exemptions from these restrictions, for example, for funds that invest in other funds within the same group of investment companies. If a fund invests in other investment companies, shareholders will bear not only their proportionate share of the fund’s expenses (including operating expenses and the fees of the advisor), but they also may indirectly bear similar expenses of the underlying investment companies. Certain investment companies, such as business development companies (BDCs), are more akin to operating companies and, as such, their expenses are not direct expenses paid by fund shareholders and are not used to calculate the fund’s net asset value. SEC rules nevertheless require that any expenses incurred by a BDC be included in a fund’s expense ratio as

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“Acquired Fund Fees and Expenses.” The expense ratio of a fund that holds a BDC will thus overstate what the fund actually spends on portfolio management, administrative services, and other shareholder services by an amount equal to these Acquired Fund Fees and Expenses. The Acquired Fund Fees and Expenses are not included in a fund’s financial statements, which provide a clearer picture of a fund’s actual operating expenses. Shareholders would also be exposed to the risks associated not only with the investments of the fund but also with the portfolio investments of the underlying investment companies. Certain types of investment companies, such as closed-end investment companies, issue a fixed number of shares that typically trade on a stock exchange or over-the-counter at a premium or discount to their net asset value. Others are continuously offered at net asset value but also may be traded on the secondary market.

Preferred Stock. Preferred stock represents an equity or ownership interest in an issuer. Preferred stock normally pays dividends at a specified rate and has precedence over common stock in the event the issuer is liquidated or declares bankruptcy. However, in the event an issuer is liquidated or declares bankruptcy, the claims of owners of bonds take precedence over the claims of those who own preferred and common stock. Preferred stock, unlike common stock, often has a stated dividend rate payable from the corporation’s earnings. Preferred stock dividends may be cumulative or noncumulative, participating, or auction rate. “Cumulative” dividend provisions require all or a portion of prior unpaid dividends to be paid before dividends can be paid to the issuer’s common stock. “Participating” preferred stock may be entitled to a dividend exceeding the stated dividend in certain cases. If interest rates rise, the fixed dividend on preferred stocks may be less attractive, causing the price of such stocks to decline. Preferred stock may have mandatory sinking fund provisions, as well as provisions allowing the stock to be called or redeemed, which can limit the benefit of a decline in interest rates. Preferred stock is subject to many of the risks to which common stock and debt securities are subject. In addition, preferred stock may be subject to more abrupt or erratic price movements than common stock or debt securities because preferred stock may trade with less frequency and in more limited volume.

Repurchase Agreements. A repurchase agreement is an agreement under which a fund acquires a debt security (generally a security issued by the U.S. government or an agency thereof, a banker’s acceptance, or a certificate of deposit) from a bank, a broker, or a dealer and simultaneously agrees to resell such security to the seller at an agreed-upon price and date (normally, the next business day). Because the security purchased constitutes collateral for the repurchase obligation, a repurchase agreement may be considered a loan that is collateralized by the security purchased. The resale price reflects an agreed-upon interest rate effective for the period the instrument is held by a fund and is unrelated to the interest rate on the underlying instrument. In these transactions, the securities acquired by a fund (including accrued interest earned thereon) must have a total value in excess of the value of the repurchase agreement and be held by a custodian bank until repurchased. In addition, the investment advisor will monitor a fund’s repurchase agreement transactions generally and will evaluate the creditworthiness of any bank, broker, or dealer party to a repurchase agreement relating to a fund. The aggregate amount of any such agreements is not limited, except to the extent required by law.

The use of repurchase agreements involves certain risks. One risk is the seller’s ability to pay the agreed-upon repurchase price on the repurchase date. If the seller defaults, the fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under bankruptcy laws, the disposition of the collateral may be delayed or limited. For example, if the other party to the agreement becomes insolvent and subject to liquidation or reorganization under bankruptcy or other laws, a court may determine that the underlying security is collateral for a loan by the fund not within its control, and therefore the realization by the fund on such collateral may be automatically stayed. Finally, it is possible that the fund may not be able to substantiate its interest in the underlying security and may be deemed an unsecured creditor of the other party to the agreement.

Restricted and Illiquid Securities. Illiquid securities are securities that cannot be sold or disposed of within seven days in the ordinary course of business at approximately the price at which they are valued. The SEC generally limits aggregate holdings of illiquid securities by a mutual fund to 15% of its net assets (5% for money market funds). A fund may experience difficulty valuing and selling illiquid securities and, in some cases, may be unable to value or sell certain illiquid securities for an indefinite period of time. Illiquid securities may include a wide variety of investments, such as (1) repurchase agreements maturing in more than seven days (unless the agreements have demand/redemption features), (2) OTC options contracts and certain other derivatives (including certain swap agreements), (3) fixed time deposits that are not subject to prepayment or do not provide for withdrawal penalties upon prepayment (other than overnight deposits), (4) certain loan interests and other direct debt instruments, (5) certain municipal lease obligations, (6) private equity investments, (7) commercial paper issued pursuant to Section 4(a)(2) of the 1933 Act, and (8) securities

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whose disposition is restricted under the federal securities laws. Illiquid securities include restricted, privately placed securities that, under the federal securities laws, generally may be resold only to qualified institutional buyers. If a substantial market develops for a restricted security held by a fund, it may be treated as a liquid security in accordance with procedures and guidelines approved by the board of trustees. This generally includes securities that are unregistered, that can be sold to qualified institutional buyers in accordance with Rule 144A under the 1933 Act, or that are exempt from registration under the 1933 Act, such as commercial paper. Although a fund’s advisor monitors the liquidity of restricted securities, the board of trustees oversees and retains ultimate responsibility for the advisor’s liquidity determinations. Several factors that the trustees consider in monitoring these decisions include the valuation of a security; the availability of qualified institutional buyers, brokers, and dealers that trade in the security; and the availability of information about the security’s issuer.

Reverse Repurchase Agreements. In a reverse repurchase agreement, a fund sells a security to another party, such as a bank or broker-dealer, in return for cash and agrees to repurchase that security at an agreed-upon price and time. Under a reverse repurchase agreement, the fund continues to receive any principal and interest payments on the underlying security during the term of the agreement. Reverse repurchase agreements involve the risk that the market value of securities retained by the fund may decline below the repurchase price of the securities sold by the fund that it is obligated to repurchase. In addition to the risk of such a loss, fees charged to the fund may exceed the return the fund earns from investing the proceeds received from the reverse repurchase agreement transaction. A reverse repurchase agreement may be considered a borrowing transaction for purposes of the 1940 Act. A reverse repurchase agreement transaction will not be considered to constitute the issuance, by a fund, of a “senior security,” as that term is defined in Section 18(g) of the 1940 Act, and therefore such transaction will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by a fund, if the fund covers the transaction in accordance with the requirements described under the heading “Borrowing.” A fund will enter into reverse repurchase agreements only with parties whose creditworthiness has been reviewed and found satisfactory by the advisor. If the buyer in a reverse repurchase agreement becomes insolvent or files for bankruptcy, a fund’s use of proceeds from the sale may be restricted while the other party or its trustee or receiver determines if it will honor the fund’s right to repurchase the securities. If the fund is unable to recover the securities it sold in a reverse repurchase agreement, it would realize a loss equal to the difference between the value of the securities and the payment it received for them.

Securities Lending. A fund may lend its investment securities to qualified institutional investors (typically brokers, dealers, banks, or other financial institutions) who may need to borrow securities in order to complete certain transactions, such as covering short sales, avoiding failures to deliver securities, or completing arbitrage operations. By lending its investment securities, a fund attempts to increase its net investment income through the receipt of interest on the securities lent. Any gain or loss in the market price of the securities lent that might occur during the term of the loan would be for the account of the fund. If the borrower defaults on its obligation to return the securities lent because of insolvency or other reasons, a fund could experience delays and costs in recovering the securities lent or in gaining access to the collateral. These delays and costs could be greater for foreign securities. If a fund is not able to recover the securities lent, the fund may sell the collateral and purchase a replacement investment in the market. The value of the collateral could decrease below the value of the replacement investment by the time the replacement investment is purchased. Cash received as collateral through loan transactions may be invested in other eligible securities. Investing this cash subjects that investment to market appreciation or depreciation. Currently, Vanguard funds that lend securities invest the cash collateral received in one or more Vanguard CMT Funds, which are low-cost money market funds.

The terms and the structure of the loan arrangements, as well as the aggregate amount of securities loans, must be consistent with the 1940 Act and the rules or interpretations of the SEC thereunder. These provisions limit the amount of securities a fund may lend to 33 1/3% of the fund’s total assets and require that (1) the borrower pledge and maintain with the fund collateral consisting of cash, an irrevocable letter of credit, or securities issued or guaranteed by the U.S. government having at all times not less than 100% of the value of the securities lent; (2) the borrower add to such collateral whenever the price of the securities lent rises (i.e., the borrower “marks to market” on a daily basis); (3) the loan be made subject to termination by the fund at any time; and (4) the fund receives reasonable interest on the loan (which may include the fund investing any cash collateral in interest-bearing short-term investments), any distribution on the lent securities, and any increase in their market value. Loan arrangements made by a fund will comply with all other applicable regulatory requirements, including the requirement to redeliver the securities within the standard settlement time applicable to the relevant trading market. The advisor will consider the creditworthiness of the borrower, among other things, in making decisions with respect to the lending of securities, subject to oversight by the board of trustees.

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At the present time, the SEC does not object if an investment company pays reasonable negotiated fees in connection with lent securities, so long as such fees are set forth in a written contract and approved by the investment company’s trustees. In addition, voting rights pass with the lent securities, but if a fund has knowledge that a material event will occur affecting securities on loan, and in respect to which the holder of the securities will be entitled to vote or consent, the lender must be entitled to call the loaned securities in time to vote or consent. A fund bears the risk that there may be a delay in the return of the securities, which may impair the fund’s ability to vote on such a matter.

Pursuant to Vanguard’s securities lending policy, Vanguard’s fixed income and money market funds are not permitted to, and do not, lend their investment securities.

Tax Matters—Federal Tax Discussion. Discussion herein of U.S. federal income tax matters summarizes some of the important, generally applicable U.S. federal tax considerations relevant to investment in a fund based on the IRC, U.S. Treasury regulations, and other applicable authorities. These authorities are subject to change by legislative, administrative, or judicial action, possibly with retroactive effect. Each Fund has not requested and will not request an advance ruling from the Internal Revenue Service (IRS) as to the U.S. federal income tax matters discussed in this Statement of Additional Information. In some cases, a fund’s tax position may be uncertain under current tax law and an adverse determination or future guidance by the IRS with respect to such a position could adversely affect the fund and its shareholders, including the fund’s ability to continue to qualify as a regulated investment company or to continue to pursue its current investment strategy. A shareholder should consult his or her tax professional for information regarding the particular situation and the possible application of U.S. federal, state, local, foreign, and other taxes.

Tax Matters—Federal Tax Treatment of Derivatives, Hedging, and Related Transactions. A fund’s transactions in derivative instruments (including, but not limited to, options, futures, forward contracts, and swap agreements), as well as any of the fund’s hedging, short sale, securities loan, or similar transactions, may be subject to one or more special tax rules that accelerate income to the fund, defer losses to the fund, cause adjustments in the holding periods of the fund’s securities, convert long-term capital gains into short-term capital gains, or convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing, and character of distributions to shareholders.

Because these and other tax rules applicable to these types of transactions are in some cases uncertain under current law, an adverse determination or future guidance by the IRS with respect to these rules (which determination or guidance could be retroactive) may affect whether a fund has made sufficient distributions, and otherwise satisfied the relevant requirements, to maintain its qualification as a regulated investment company and avoid a fund-level tax.

Tax Matters—Federal Tax Treatment of Futures Contracts. For federal income tax purposes, a fund generally must recognize, as of the end of each taxable year, any net unrealized gains and losses on certain futures contracts, as well as any gains and losses actually realized during the year. In these cases, any gain or loss recognized with respect to a futures contract is considered to be 60% long-term capital gain or loss and 40% short-term capital gain or loss, without regard to the holding period of the contract. Gains and losses on certain other futures contracts (primarily non-U.S. futures contracts) are not recognized until the contracts are closed and are treated as long-term or short-term, depending on the holding period of the contract. Sales of futures contracts that are intended to hedge against a change in the value of securities held by a fund may affect the holding period of such securities and, consequently, the nature of the gain or loss on such securities upon disposition. A fund may be required to defer the recognition of losses on one position, such as futures contracts, to the extent of any unrecognized gains on a related offsetting position held by the fund.

A fund will distribute to shareholders annually any net capital gains that have been recognized for federal income tax purposes on futures transactions. Such distributions will be combined with distributions of capital gains realized on the fund’s other investments, and shareholders will be advised on the nature of the distributions.

Tax Matters—Federal Tax Treatment of Non-U.S. Currency Transactions. Special rules generally govern the federal income tax treatment of a fund’s transactions in the following: non-U.S. currencies; non-U.S. currency-denominated debt obligations; and certain non-U.S. currency options, futures contracts, forward contracts, and similar instruments. Accordingly, if a fund engages in these types of transactions it may have ordinary income or loss to the extent that such income or loss results from fluctuations in the value of the non-U.S. currency concerned. Such ordinary income could accelerate fund distributions to shareholders and increase the distributions taxed to shareholders as ordinary income. Any ordinary loss so created will generally reduce ordinary income distributions and, in some cases, could require the recharacterization of prior ordinary income distributions. Net ordinary losses cannot be carried forward by the fund to offset income or gains realized in subsequent taxable years.

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Any gain or loss attributable to the non-U.S. currency component of a transaction engaged in by a fund that is not subject to these special currency rules (such as foreign equity investments other than certain preferred stocks) will generally be treated as a capital gain or loss and will not be segregated from the gain or loss on the underlying transaction.

To the extent a fund engages in non-U.S. currency hedging, the fund may elect or be required to apply other rules that could affect the character, timing, or amount of the fund’s gains and losses. For more information, see “Tax Matters—Federal Tax Treatment of Derivatives, Hedging, and Related Transactions.”

Tax Matters—Foreign Tax Credit. Foreign governments may withhold taxes on dividends and interest paid with respect to foreign securities held by a fund. Foreign governments may also impose taxes on other payments or gains with respect to foreign securities. If, at the close of its fiscal year, more than 50% of a fund’s total assets are invested in securities of foreign issuers, the fund may elect to pass through to shareholders the ability to deduct or, if they meet certain holding period requirements, take a credit for foreign taxes paid by the fund. Similarly, if at the close of each quarter of a fund’s taxable year, at least 50% of its total assets consist of interests in other regulated investment companies, the fund is permitted to elect to pass through to its shareholders the foreign income taxes paid by the fund in connection with foreign securities held directly by the fund or held by a regulated investment company in which the fund invests that has elected to pass through such taxes to shareholders.

Tax Matters—Passive Foreign Investment Companies. Each Fund may invest in passive foreign investment companies (PFICs). A foreign company is generally a PFIC if 75% or more of its gross income is passive or if 50% or more of its assets produce passive income. Capital gains on the sale of an interest in a PFIC will be deemed ordinary income regardless of how long the Fund held it. Also, a Fund may be subject to corporate income tax and an interest charge on certain dividends and capital gains earned in respect to PFIC interests, whether or not such amounts are distributed to shareholders. To avoid such tax and interest, a Fund may elect to “mark to market” its PFIC interests, that is, to treat such interests as sold on the last day of the Fund’s fiscal year, and to recognize any unrealized gains (or losses, to the extent of previously recognized gains) as ordinary income each year. Distributions from a Fund that are attributable to income or gains earned in respect to PFIC interests are characterized as ordinary income.

Tax Matters—Real Estate Mortgage Investment Conduits. If a fund invests directly or indirectly, including through a REIT or other pass-through entity, in residual interests in real estate mortgage investment conduits (REMICs) or equity interests in taxable mortgage pools (TMPs), a portion of the fund’s income that is attributable to a residual interest in a REMIC or an equity interest in a TMP (such portion referred to in the IRC as an “excess inclusion”) will be subject to U.S. federal income tax in all eventsincluding potentially at the fund levelunder a notice issued by the IRS in October 2006 and U.S. Treasury regulations that have yet to be issued but may apply retroactively. This notice also provides, and the regulations are expected to provide, that excess inclusion income of a registered investment company will be allocated to shareholders of the registered investment company in proportion to the dividends received by such shareholders, with the same consequences as if the shareholders held the related interest directly. In general, excess inclusion income allocated to shareholders (1) cannot be offset by net operation losses (subject to a limited exception for certain thrift institutions); (2) will constitute unrelated business taxable income (UBTI) to entities (including a qualified pension plan, an individual retirement account, a 401(k) plan, a Keogh plan, or other tax-exempt entity) subject to tax on UBTI, thereby potentially requiring such an entity, which otherwise might not be required, to file a tax return and pay tax on such income; and (3) in the case of a non-U.S. investor, will not qualify for any reduction in U.S. federal withholding tax. A shareholder will be subject to U.S. federal income tax on such inclusions notwithstanding any exemption from such income tax otherwise available under the IRC. As a result, a fund investing in such interests may not be suitable for charitable remainder trusts. See “Tax Matters—Tax-Exempt Investors.”

Tax Matters—Tax Considerations for Non-U.S. Investors. U.S. withholding and estate taxes and certain U.S. tax reporting requirements may apply to any investments made by non-U.S. investors in Vanguard funds. Certain properly reported distributions of qualifying interest income or short-term capital gain made by a fund to its non-U.S. investors are exempt from U.S. withholding taxes, provided the investors furnish valid tax documentation (i.e., IRS Form W-8) certifying as to their non-U.S. status.

A fund is permitted, but is not required, to report any of its distributions as eligible for such relief, and some distributions (e.g., distributions of interest a fund receives from non-U.S. issuers) are not eligible for this relief. For some funds, Vanguard has chosen to report qualifying distributions and apply the withholding exemption to those distributions when made to non-U.S. shareholders who invest directly with Vanguard. For other funds, Vanguard may choose not to apply the withholding exemption to qualifying fund distributions made to direct shareholders, but may

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provide the reporting to such shareholders. In these cases, a shareholder may be able to reclaim such withholding tax directly from the IRS.

If shareholders hold fund shares (including ETF shares) through a broker or intermediary, their broker or intermediary may apply this relief to properly reported qualifying distributions made to shareholders with respect to those shares. If a shareholder’s broker or intermediary instead collects withholding tax where the fund has provided the proper reporting, the shareholder may be able to reclaim such withholding tax from the IRS. Please consult your broker or intermediary regarding the application of these rules.

This relief does not apply to any withholding required under the Foreign Account Tax Compliance Act (FATCA), which generally requires a fund to obtain information sufficient to identify the status of each of its shareholders. If a shareholder fails to provide this information or otherwise fails to comply with FATCA, a fund may be required to withhold under FATCA at a rate of 30% with respect to that shareholder on fund distributions and on the proceeds of the sale, redemption, or exchange of fund shares. Please consult your tax advisor for more information about these rules.

Tax Matters—Tax-Exempt Investors. Income of a fund that would be UBTI if earned directly by a tax-exempt entity will not generally be attributed as UBTI to a tax-exempt shareholder of the fund. Notwithstanding this “blocking” effect, a tax-exempt shareholder could realize UBTI by virtue of its investment in a fund if shares in the fund constitute debt-financed property in the hands of the tax-exempt shareholder within the meaning of IRC Section 514(b).

A tax-exempt shareholder may also recognize UBTI if a fund recognizes “excess inclusion income” derived from direct or indirect investments in residual interests in REMICs or equity interests in TMPs. See “Tax Matters—Real Estate Mortgage Investment Conduits.”

In addition, special tax consequences apply to charitable remainder trusts that invest in a fund that invests directly or indirectly in residual interests in REMICs or equity interests in TMPs. Charitable remainder trusts and other tax-exempt investors are urged to consult their tax advisors concerning the consequences of investing in a fund.

Time Deposits. Time deposits are subject to the same risks that pertain to domestic issuers of money market instruments, most notably credit risk (and, to a lesser extent, income risk, market risk, and liquidity risk). Additionally, time deposits of foreign branches of U.S. banks and foreign branches of foreign banks may be subject to certain sovereign risks. One such risk is the possibility that a sovereign country might prevent capital, in the form of U.S. dollars, from flowing across its borders. Other risks include adverse political and economic developments, the extent and quality of government regulation of financial markets and institutions, the imposition of foreign withholding taxes, and expropriation or nationalization of foreign issuers. However, time deposits of such issuers will undergo the same type of credit analysis as domestic issuers in which a Vanguard fund invests and will have at least the same financial strength as the domestic issuers approved for the fund.

Warrants. Warrants are instruments that give the holder the right, but not the obligation, to buy an equity security at a specific price for a specific period of time. Changes in the value of a warrant do not necessarily correspond to changes in the value of its underlying security. The price of a warrant may be more volatile than the price of its underlying security, and a warrant may offer greater potential for capital appreciation as well as capital loss. Warrants do not entitle a holder to dividends or voting rights with respect to the underlying security and do not represent any rights in the assets of the issuing company. A warrant ceases to have value if it is not exercised prior to its expiration date. These factors can make warrants more speculative than other types of investments.

When-Issued, Delayed-Delivery, and Forward-Commitment Transactions. When-issued, delayed-delivery, and forward-commitment transactions involve a commitment to purchase or sell specific securities at a predetermined price or yield in which payment and delivery take place after the customary settlement period for that type of security. Typically, no interest accrues to the purchaser until the security is delivered. When purchasing securities pursuant to one of these transactions, payment for the securities is not required until the delivery date. However, the purchaser assumes the rights and risks of ownership, including the risks of price and yield fluctuations and the risk that the security will not be issued as anticipated. When a fund has sold a security pursuant to one of these transactions, the fund does not participate in further gains or losses with respect to the security. If the other party to a delayed-delivery transaction fails to deliver or pay for the securities, the fund could miss a favorable price or yield opportunity or suffer a loss. A fund may renegotiate a when-issued or forward-commitment transaction and may sell the underlying securities before delivery, which may result in capital gains or losses for the fund. When-issued, delayed-delivery, and forward-commitment transactions will not be considered to constitute the issuance, by a fund, of a “senior security,” as that term is defined in Section 18(g) of the 1940 Act, and therefore such transaction will not be subject to the 300% asset coverage requirement otherwise applicable to

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borrowings by the fund, if the fund covers the transaction in accordance with the requirements described under the heading “Borrowing.”

Regulatory restrictions in India. Shares of Vanguard Windsor Fund have not been, and will not be, registered under the laws of India and are not intended to benefit from any laws in India promulgated for the protection of shareholders. As a result of regulatory requirements in India, shares of the Fund shall not be knowingly offered to (directly or indirectly) or sold or delivered to (within India); transferred to or purchased by; or held by, for, on the account of, or for the benefit of (i) a “person resident in India” (as defined under applicable Indian law), (ii) an “overseas corporate body” or a “person of Indian origin” (as defined under applicable Indian law), or (iii) any other entity or person disqualified or otherwise prohibited from accessing the Indian securities market under applicable laws, as may be amended from time to time. Investors, prior to purchasing shares of the Fund, must satisfy themselves regarding compliance with these requirements.

SHARE PRICE

Multiple-class funds do not have a single share price. Rather, each class has a share price, called its net asset value, or NAV, that is calculated each business day as of the close of regular trading on the New York Stock Exchange (the Exchange), generally 4 p.m., Eastern time. NAV per share is computed by dividing the total assets, minus liabilities, allocated to the share class by the number of Fund shares outstanding for that class. On U.S. holidays or other days when the Exchange is closed, the NAV is not calculated, and the Funds do not sell or redeem shares. However, on those days the value of a Fund’s assets may be affected to the extent that the Fund holds securities that change in value on those days (such as foreign securities that trade on foreign markets that are open).

The Exchange typically observes the following holidays: New Year’s Day; Martin Luther King, Jr., Day; Presidents’ Day (Washington’s Birthday); Good Friday; Memorial Day; Independence Day; Labor Day; Thanksgiving Day; and Christmas Day. Although each Fund expects the same holidays to be observed in the future, the Exchange may modify its holiday schedule or hours of operation at any time.

PURCHASE AND REDEMPTION OF SHARES

Purchase of 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.

Exchange of Securities for Shares of a Fund. Shares of a Fund may be purchased “in kind” (i.e., in exchange for securities, rather than for cash) at the discretion of the Fund’s portfolio manager. Such securities must not be restricted as to transfer and must 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. 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, depending upon the cost of the securities tendered, would be realized by the investor upon the exchange. Investors interested in purchasing fund shares in kind should contact Vanguard.

Redemption of Shares

The redemption price of shares of each Fund is the NAV per share next determined after the redemption request is received in good order, as defined in the Fund’s prospectus.

Each Fund can postpone payment of redemption proceeds for up to seven calendar days. In addition, each Fund can suspend redemptions and/or postpone payments of redemption proceeds beyond seven calendar days (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.

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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 a redemption fee. 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 Funds.

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 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 shareholder or 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 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). The 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 per share 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 over 200 funds. Each fund is a series of a Delaware statutory trust, and through the trusts’ 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 certain 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 (other than a fund of funds) 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 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

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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 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.

As of October 31, 2017, 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
Windsor Fund $1,190,000 0.01% 0.48%
Windsor II Fund 3,015,000 0.01 1.21

 

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, 100 Vanguard Boulevard, Malvern, PA 19355, 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 offers shares of each fund for sale on a continuous basis and will use all reasonable efforts in connection with the distribution of shares of the funds. 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 are 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.

VMC’s principal marketing and distribution expenses are for advertising, promotional materials, and marketing personnel. Other marketing and distribution activities of an administrative nature 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.

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  • Providing promotional discounts, commission-free trading, fee waivers, and other benefits to clients of Vanguard Brokerage Services® who maintain qualifying investments in the funds.
  • 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 participates in an offshore arrangement 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 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 Vanguard 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 October 31, 2015, 2016, and 2017, and are presented as a percentage of each Fund‘s average month-end net assets.

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Annual Shared Fund Operating Expenses
(Shared Expenses Deducted From Fund Assets)
Vanguard Fund 2015 2016 2017
Windsor Fund      
Management and Administrative Expenses 0.15% 0.15% 0.15%
Marketing and Distribution Expenses 0.01 0.01 0.01
Windsor II Fund      
Management and Administrative Expenses 0.15% 0.15% 0.15%
Marketing and Distribution Expenses 0.01 0.01 0.01

 

The Windsor II 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 Fund part of the commissions generated. Such rebates are used solely to reduce the Fund’s 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 JoAnn Heffernan Heisen, F. Joseph Loughrey, Mark Loughridge, Sarah Bloom Raskin, and Peter F. Volanakis, each of whom is an independent trustee, 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. Vanguard’s 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 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

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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 Trustees1        
F. William McNabb III Chairman of the July 2009 Mr. McNabb has served as Chairman of the Board of 208
(1957) Board   Vanguard and of each of the investment companies  
      served by Vanguard since January 2010; Trustee of  
      each of the investment companies served by Vanguard  
      since 2009; and Director of Vanguard since 2008. Mr.  
      McNabb served as Chief Executive Officer and  
      President of Vanguard and of each of the investment  
      companies served by Vanguard (2008–2017), as a  
      Managing Director of Vanguard (1995–2008), and as a  
      Director of Vanguard Marketing Corporation  
      (1997–2018).  
 
Mortimer J. Buckley Chief Executive January 2018 Mr. Buckley has served as Chief Executive Officer of 208
(1969) Officer and   Vanguard since January 2018; Chief Executive Officer,  
  President   President, and Trustee of each of the investment  
      companies served by Vanguard since January 2018;  
      and President and Director of Vanguard since 2017.  
      Previous positions held by Mr. Buckley at Vanguard  
      include Chief Investment Officer (2013–2017),  
      Managing Director (2002–2017), Head of the Retail  
      Investor Group (2006–2012), and Chief Information  
      Officer (2001–2006). Mr. Buckley also served as  
      Chairman of the Board of the Children’s Hospital of  
      Philadelphia (2011–2017).  
 
1 Mr. McNabb and Mr. Buckley are considered “interested persons,” as defined in the 1940 Act, because they are officers of the Trust.  
Independent Trustees        
Emerson U. Fullwood Trustee January 2008 Mr. Fullwood is the former Executive Chief Staff and 208
(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 2009–2010 Distinguished Minett  
      Professor at the Rochester Institute of Technology.  
      Mr. Fullwood serves as Lead Director of SPX FLOW, Inc.  
      (multi-industry manufacturing); as a Director of the  
      University of Rochester Medical Center, Monroe  
      Community College Foundation, the United Way of  
      Rochester, North Carolina A&T University, and Roberts  
      Wesleyan College; and as a Trustee of the University of  
      Rochester.  

 

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      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 208
(1949)     University of Pennsylvania since 2004. She is the  
      Christopher H. Browne Distinguished Professor of  
      Political Science, School of Arts and Sciences, and  
      Professor of Communication, Annenberg School for  
      Communication, with secondary faculty appointments  
      in the Department of Philosophy, School of Arts and  
      Sciences, and at the Graduate School of Education,  
      University of Pennsylvania. Dr. Gutmann also serves  
      as a Trustee of the National Constitution Center.  
 
JoAnn Heffernan Heisen Trustee July 1998 Ms. Heisen is the former Corporate Vice President 208
(1950)     of Johnson & Johnson (pharmaceuticals/medical  
      devices/consumer products) and a former member of  
      the Executive Committee (1997–2008). During her  
      tenure at Johnson & Johnson, Ms. Heisen held  
      multiple roles, including: Chief Global Diversity Officer  
      (retired 2008), Vice President and Chief Information  
      Officer (1997–2006), Controller (1995–1997), Treasurer  
      (1991–1995), and Assistant Treasurer (1989–1991). Ms.  
      Heisen serves as a Director of Skytop Lodge  
      Corporation (hotels) and the Robert Wood Johnson  
      Foundation and as a member of the Advisory Board of  
      the Institute for Women’s Leadership at Rutgers  
      University.  
 
F. Joseph Loughrey Trustee October 2009 Mr. Loughrey is the former President and Chief 208
(1949)     Operating Officer (retired 2009) and Vice Chairman of  
      the Board (2008–2009) of Cummins Inc. (industrial  
      machinery). Mr. Loughrey serves as Chairman of the  
      Board of Hillenbrand, Inc. (specialized consumer  
      services), Oxfam America, and the Lumina Foundation  
      for Education; as a Director of the V Foundation for  
      Cancer Research; and as a member of the Advisory  
      Council for the College of Arts and Letters and Chair of  
      the Advisory Board to the Kellogg Institute for  
      International Studies, both at the University of Notre  
Dame.
 
Mark Loughridge Lead Independent March 2012 Mr. Loughridge is the former Senior Vice President and 208
(1953) Trustee   Chief Financial Officer (retired 2013) at IBM  
      (information technology services). Mr. Loughridge also  
      served as a fiduciary member of IBM’s Retirement Plan  
      Committee (2004–2013). Previous positions held by Mr.  
      Loughridge at IBM include Senior Vice President and  
      General Manager of Global Financing (2002–2004),  
      Vice President and Controller (1998–2002), and a  
      variety of management roles. Mr. Loughridge serves as  
      a member of the Council on Chicago Booth.  

 

B-28


 

      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 208
(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 as Chairman of  
      the Board of TIFF Advisory Services, Inc., and on the  
      board of Catholic Investment Services, Inc.  
      (investment advisors); as a member of the board of  
      advisors for Spruceview Capital Partners; and as a  
      member of the Board of Superintendence of the  
      Institute for the Works of Religion.  
 
Deanna Mulligan Trustee January 2018 Ms. Mulligan has served as President since 2010 and 208
(1963)     Chief Executive Officer since 2011 at The Guardian Life  
      Insurance Company of America.2 Previous positions  
      held by Ms. Mulligan at The Guardian Life Insurance  
      Company of America include Chief Operating Officer  
      (2010–2011) and Executive Vice President of Individual  
      Life and Disability (2008–2010). Ms. Mulligan serves as  
      a Member of the Board of The Guardian Life Insurance  
      Company of America, the American Council of Life  
      Insurers, the Partnership for New York City (business  
      leadership), and the Committee Encouraging  
      Corporate Philanthropy. She also serves as a Trustee of  
      the Economic Club of New York and the Bruce  
      Museum (arts and science) and as a member of the  
      Advisory Council for the Stanford Graduate School of  
      Business.  
 
André F. Perold Trustee December 2004 Dr. Perold is the George Gund Professor of Finance 208
(1952)     and Banking, Emeritus at the Harvard Business School  
      (retired 2011). Dr. Perold serves as Chief Investment  
      Officer and Co-Managing Partner of HighVista  
      Strategies LLC (private investment firm). Dr. Perold  
      also serves as an Overseer of the Museum of Fine  
      Arts Boston.  
 
Sarah Bloom Raskin Trustee January 2018 Ms. Raskin served as Deputy Secretary of the United 208
(1961)     States Department of the Treasury (2014–2017),  
      Governor of the Federal Reserve Board (2010–2014),  
      and Commissioner of Financial Regulation of the State  
      of Maryland (2007–2010). Ms. Raskin also served as a  
      member of the Neighborhood Reinvestment  
      Corporation Board (2012–2014). Ms. Raskin serves as a  
      Director of i(x) Investments, LLC.  

 

B-29


 

      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
Peter F. Volanakis Trustee July 2009 Mr. Volanakis is the retired President and Chief 208
(1955)     Operating Officer (retired 2010) of Corning  
      Incorporated (communications equipment) and a  
      former Director of Corning Incorporated (2000–2010)  
      and of Dow Corning (2001–2010). Mr. Volanakis served  
      as a Director of SPX Corporation (multi-industry  
      manufacturing) in 2012 and as an Overseer of the  
      Amos Tuck School of Business Administration at  
      Dartmouth College (2001–2013). Mr. Volanakis serves  
      as Chairman of the Board of Trustees of Colby-Sawyer  
      College and is a Member of the Board of Hypertherm  
      Inc. (industrial cutting systems, software, and  
      consumables).  

 

2 Guardian Life provides group insurance and administrative services for employee benefits such as group life, dental, vision, and disability coverage to two advisors, each of which manages one or more of the Vanguard funds. Amounts paid by these advisors to Guardian Life for such insurance and services were less than 0.006% of Guardian Life’s premium revenues in each of 2015 and 2016. Park Avenue Securities (PAS) is an indirect, wholly owned subsidiary of Guardian Life and a dually registered broker-dealer and investment advisor. From time to time, PAS receives payments related to the sale of certain non-Vanguard mutual funds advised by firms that also advise certain Vanguard funds. In 2016, these payments amounted to less than 0.15% of PAS’ revenues and PAS’ earnings comprised less than 1% of Guardian Life’s pre-tax earnings. Deanna Mulligan is not an officer or director of PAS.

Executive Officers        
Glenn Booraem Investment February 2001 Mr. Booraem, a Principal of Vanguard, has served as 208
(1967) Stewardship   Investment Stewardship Officer of each of the  
  Officer   investment companies served by Vanguard since  
      February 2017. Mr. Booraem served as Treasurer  
      (2015–2017), Controller (2010–2015), and Assistant  
      Controller (2001–2010) of each of the investment  
      companies served by Vanguard.  
 
Christine M. Buchanan Treasurer November 2017 Ms. Buchanan, a Principal of Vanguard, has served as 208
(1970)     Treasurer of each of the investment companies served  
      by Vanguard since November 2017. Ms. Buchanan  
      served as a Partner at KPMG LLP (2005–2017). She also  
      serves as Global Head of Fund Administration at  
      Vanguard.  
 
Thomas J. Higgins Chief Financial July 1998 Mr. Higgins, a Principal of Vanguard, has served as Chief 208
(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 (19982008).  
 
Peter Mahoney Controller May 2015 Mr. Mahoney, a Principal of Vanguard, has served as 208
(1974)     Controller of each of the investment companies served  
      by Vanguard since May 2015. Mr. Mahoney served as  
      head of International Fund Services at Vanguard (2008  
2014).

 

B-30


 

      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
Anne E. Robinson Secretary September 2016 Ms. Robinson has served as General Counsel of 208
(1970)     Vanguard since September 2016; Secretary of  
      Vanguard and of each of the investment companies  
      served by Vanguard since September 2016; Director  
      and Senior Vice President of Vanguard Marketing  
      Corporation since September 2016; and a Managing  
      Director of Vanguard since August 2016. Ms. Robinson  
      served as Managing Director and General Counsel of  
      Global Cards and Consumer Services at Citigroup  
      (2014–2016). She also served as counsel at American  
      Express (2003–2014).  
 
Michael Rollings Finance Director February 2017 Mr. Rollings, a Managing Director of Vanguard since 208
(1963)     June 2016, has served as Finance Director of each of  
      the investment companies served by Vanguard since  
      November 2017 and as a Director of Vanguard  
      Marketing Corporation since June 2016. Mr. Rollings  
      served as Treasurer of each of the investment  
      companies served by Vanguard from February 2017 to  
      November 2017. He served as the Executive Vice  
      President and Chief Financial Officer of MassMutual  
      Financial Group (2006–2016).  

 

All but two of the trustees are independent. The independent trustees designate a lead independent trustee and appoint the chairman of the board. 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. The lead independent trustee also chairs the meetings of the audit, compensation, and nominating committees. The board also has two investment committees, which consist of independent trustees and the interested trustees.

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. The following independent trustees serve as members of the committee: Ms. Heisen, Mr. Loughrey, Mr. Loughridge, Ms. Raskin, and Mr. Volanakis. The committee held six meetings during the Funds‘ fiscal year ended October 31, 2017.
  • 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 two meetings during the Funds‘ fiscal year ended October 31, 2017.
  • Investment Committees: These committees assist the board in its oversight of investment advisors to the funds and in the review and evaluation of materials relating to the board’s consideration of investment advisory agreements with the funds. Each trustee serves on one of two investment committees. Each investment committee held four meetings during the Funds‘ fiscal year ended October 31, 2017.
  • 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 three meetings during the Funds‘ fiscal year ended October 31, 2017.

The Nominating Committee will consider shareholder recommendations for trustee nominees. Shareholders may send recommendations to Mr. Loughridge, chairman of the committee.

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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 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” Trustees. Mr. McNabb and Mr. Buckley serve as trustees, but are not paid in this capacity. They are, however, paid in their roles as officers 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 WINDSOR FUNDS
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 Funds1 Funds’ Expenses1 January 1, 20182 to Trustees3
F. William McNabb III
Mortimer J. Buckley4
Emerson U. Fullwood $11,525 $244,000
Rajiv L. Gupta5 12,399 262,500
Amy Gutmann 11,525 244,000
JoAnn Heffernan Heisen 12,469 $171 $8,073 264,000
F. Joseph Loughrey 12,469 264,000
Mark Loughridge 13,980 296,000
Scott C. Malpass 11,196 237,030
Deanna Mulligan4
André F. Perold 11,525 244,000
Sarah Bloom Raskin4
Peter F. Volanakis 12,469 264,000

 

1      The amounts shown in this column are based on the Trust‘s fiscal year ended October 31, 2017. 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 201 Vanguard funds for the 2017 calendar year.
4      Mr. Buckley, Ms. Mulligan, and Ms. Raskin became members of the Funds’ board effective January 1, 2018.
5      Mr. Gupta retired from the Funds’ board effective December 31, 2017.

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Ownership of Fund Shares

All current trustees (including Mr. Buckley, Ms. Mulligan, and Ms. Raskin, who began service as trustees effective January 1, 2018) 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, 2017.

    Dollar Range of Aggregate Dollar Range of
    Fund Shares Vanguard Fund Shares
Vanguard Fund Trustee Owned by Trustee Owned by Trustee
Windsor Fund Mortimer J. Buckley Over $100,000 Over $100,000
  Emerson U. Fullwood 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
  Deanna Mulligan Over $100,000
  André F. Perold Over $100,000
  Sarah Bloom Raskin Over $100,000
  Peter F. Volanakis Over $100,000
 
Windsor II Fund Mortimer J. Buckley Over $100,000
  Emerson U. Fullwood 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 Over $100,000
  Scott C. Malpass Over $100,000 Over $100,000
  F. William McNabb III Over $100,000
  Deanna Mulligan Over $100,000
  André F. Perold Over $100,000
  Sarah Bloom Raskin Over $100,000
  Peter F. Volanakis Over $100,000

 

As of January 31, 2018, 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 January 31, 2018, the following owned of record 5% or more of the outstanding shares of each class: Vanguard Windsor Fund—Investor Shares: Vanguard STAR Fund, Valley Forge, PA (32.52%); Vanguard Windsor Fund—Admiral Shares: FedEx Corporation Retirement Savings Plan, Memphis, TN (7.96%); Vanguard Windsor II Fund—Investor Shares: Vanguard STAR Fund, Valley Forge, PA (22.54%); Variable Annuity Life Insurance Company, Houston, TX (13.20%); Vanguard Windsor II Fund—Admiral Shares: Fidelity Investments Institutional Operations Co., Inc., Covington, KY (9.24%).

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

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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 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 actively managed Vanguard fund generally will seek to disclose the fund’s ten largest stock portfolio holdings and the percentage of the fund’s total assets that each of these holdings represents as of the end of the most recent calendar quarter (quarter-end ten largest stock holdings with weightings) 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. Each Vanguard index fund generally will seek to disclose the fund’s ten largest stock portfolio holdings and the percentage of the fund’s total assets that each of these holdings represents as of the end of the most recent month (month-end ten largest stock holdings with weightings) online at vanguard.com, in the “Portfolio” section of the fund’s Portfolio & Management page, 15 calendar days after the end of the month. In addition, Vanguard funds generally will seek to disclose the fund’s ten largest stock portfolio holdings and the aggregate percentage of the fund’s total assets (and, for balanced funds, the aggregate percentage of the fund’s equity securities) that these holdings represent 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 actively managed Vanguard fund, unless otherwise stated, 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 and Vanguard Alternative Strategies 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. Each Vanguard index fund generally will seek to disclose the fund’s complete portfolio holdings as of the end of the most recent month online at vanguard.com, in the “Portfolio” section of the fund’s Portfolio & Management page, 15 calendar days after the end of the month. 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

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Vanguard fund, and all other persons. Vanguard will review complete portfolio holdings before 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 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; issuers of guaranteed investment contracts for stable value portfolios; 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 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 Department or Legal and Compliance Division. 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.; Canon Business Process Services; 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.; Reuters America Inc.; R.R. Donnelley, Inc.; State Street Bank and Trust Company; Trade Informatics LLC; 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

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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 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 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

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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 Department or Legal and Compliance Division.

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 email, 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 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.

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INVESTMENT ADVISORY AND OTHER SERVICES

The Trust currently uses seven investment advisors:

  • Barrow, Hanley, Mewhinney & Strauss, LLC (Barrow, Hanley) provides investment advisory services for a portion of Vanguard Windsor II Fund.
  • Hotchkis and Wiley Capital Management, LLC (Hotchkis and Wiley) provides investment advisory services for a portion of Vanguard Windsor II Fund.
  • Lazard Asset Management LLC (Lazard) provides investment advisory services for a portion of Vanguard Windsor II Fund.
  • Pzena Investment Management, LLC (Pzena) provides investment advisory services for a portion of Vanguard Windsor Fund.
  • Sanders Capital, LLC (Sanders) provides investment advisory services for a portion of Vanguard Windsor II Fund.
  • Wellington Management Company LLP (Wellington Management) provides investment advisory services for a portion of Vanguard Windsor Fund.
  • Vanguard provides investment advisory services for a portion of Vanguard Windsor II Fund.

The Trust previously employed one other investment advisor:

  • Armstrong Shaw Associates Inc. provided investment advisory services for a portion of Vanguard Windsor II Fund from 2006 to 2014.

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 arm’s 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 fiscal year ended October 31, 2017.

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. In this capacity, each advisor continuously reviews, supervises, and administers the investment program for its portion of the fund’s assets. Hereafter, each portion will be referred to as the advisor’s Portfolio. Each advisor discharges its responsibilities subject to the supervision and oversight of Vanguard’s Portfolio Review Department and the officers and trustees of the fund. Vanguard’s Portfolio Review Department 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 recommendations to hire, terminate, or replace an advisor.

I. Vanguard Windsor Fund

The Fund pays each of its 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 Value Index (for Pzena) or the S&P 500 Index (for Wellington Management) over the preceding 36-month period.

During the fiscal years ended October 31, 2015, 2016, and 2017, Vanguard Windsor Fund incurred aggregate investment advisory fees of $23,280,000 (before a performance-based increase of $5,817,000), $21,313,000 (before a performance-based decrease of $9,772,000), and $23,478,000 (before a performance-based decrease of $8,480,000), respectively.

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A. Pzena Investment Management (Pzena)

Pzena, based in New York, New York, was founded in 1995. In 2007, the firm completed an initial public offering, whereby the majority ownership of the firm was retained by the members of the Executive Committee and other employees.

1. Other Accounts Managed

Richard Pzena co-manages a portion of Vanguard Windsor Fund; as of October 31, 2017, the Fund held assets of $19.6 billion. As of October 31, 2017, Mr. Pzena also managed 6 other registered investment companies with total assets of $3 billion (advisory fees based on account performance for 1 of these accounts with total assets of $2.3 billion), 18 other pooled investment vehicles with total assets of $957 million (advisory fees not based on account performance), and 66 other accounts with total assets of $2 billion (advisory fees based on account performance for 1 of these accounts with total assets of $965 million).

Benjamin S. Silver co-manages a portion of Vanguard Windsor Fund; as of October 31, 2017, the Fund held assets of $19.6 billion. As of October 31, 2017, Mr. Silver also managed 10 other registered investment companies with total assets of $3.1 billion (advisory fees based on account performance for 1 of these accounts with total assets of $2.3 billion), 36 other pooled investment vehicles with total assets of $3.2 billion (advisory fees based on account performance for 2 of these accounts with total assets of $500 million), and 123 other accounts with total assets of $6.8 billion (advisory fees based on account performance for 1 of these accounts with total assets of $965 million).

John Flynn co-manages a portion of Vanguard Windsor Fund; as of October 31, 2017, the Fund held assets of $19.6 billion. As of October 30, 2017, Mr. Flynn also managed 10 other registered investment companies with total assets of $3.1 billion (advisory fees based on account performance for 1 of these accounts with total assets of $2.3 billion), 22 other pooled investment vehicles with total assets of $988 million (advisory fees not based on account performance), and 111 other accounts with total assets of $3.3 billion (advisory fees based on account performance for 1 of these accounts with total assets of $965 million).

2. Material Conflicts of Interest

Conflicts of interest may arise in managing the Pzena Portfolio’s investments, on the one hand, and the portfolios of Pzena’s other clients and/or accounts (together “Accounts”), on the other. Set forth below is a brief description of some of the material conflicts that may arise and Pzena’s policy or procedure for handling them. Although Pzena has designed such procedures to prevent and address conflicts, there is no guarantee that these procedures will detect every situation in which a conflict could arise.

The management of multiple Accounts inherently carries the risk that there may be competing interests for the portfolio management team’s time and attention. Pzena seeks to minimize this by using one investment approach (i.e., classic value investing) and by managing all Accounts on a product-specific basis.

If the portfolio management team identifies a limited investment opportunity that may be suitable for more than one Account, the Pzena Portfolio may not be able to take full advantage of that opportunity. However, Pzena has adopted procedures for allocating portfolio transactions across Accounts so that each Account is treated fairly. With respect to partial fills for an order, depending on the size of the execution, Pzena may choose to allocate the executed shares on a pro-rata basis or on a random basis. As with all trade allocations, each Account generally receives pro-rata allocations of any new issue or IPO security that is appropriate for its investment objective. Permissible reasons for excluding an Account from an otherwise acceptable IPO or new-issue investment include the Account having FINRA restricted person status, lack of available cash to make the purchase, a client-imposed trading prohibition on IPOs or on the business of the issuer, and brokerage restrictions.

With respect to securities transactions for the Accounts, Pzena determines which broker to use to execute each order, consistent with its duty to seek best execution. Pzena will aggregate like orders when it believes doing so will be beneficial to the Accounts. However, for certain Accounts, Pzena may be limited by the client with respect to the selection of brokers or may be instructed to direct trades through a particular broker. In these cases, Pzena may place separate, nonsimultaneous transactions for the Pzena Portfolio and another Account, which may temporarily affect the market price of the security or the execution of the transaction to the detriment of one or the other.

Conflicts of interest may arise when members of the portfolio management team transact personally in securities investments made or to be made for the Pzena Portfolio or other Accounts. To address this, Pzena has adopted a

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written Code of Business Conduct and Ethics designed to prevent and detect personal trading activities that may interfere or conflict with client interests (including Fund shareholders’ interests) or its current investment strategy. The Code of Business Conduct and Ethics generally requires that most transactions in securities by Pzena’s Access Persons and certain related persons, whether or not such securities are purchased or sold on behalf of the Accounts, be cleared prior to execution by appropriate approving parties and compliance personnel. Securities transactions for Access Persons’ personal accounts also are subject to reporting requirements and annual and quarterly certification requirements. In addition, no Access Person shall be permitted to effect a short-term trade (i.e., to purchase and subsequently sell within 60 calendar days, or to sell and subsequently purchase within 60 calendar days) of non-exempt securities. Finally, orders for proprietary accounts (i.e., accounts of Pzena’s principals, affiliates, or employees, or their immediate family that are managed by Pzena) are subject to written trade allocation procedures designed to ensure fair treatment of client accounts.

Pzena manages some Accounts under performance-based fee arrangements. Pzena recognizes that this type of incentive compensation creates the risk for potential conflicts of interest. This structure may create inherent pressure to allocate investments having a greater potential for higher returns to accounts of those clients paying a performance fee. To prevent conflicts of interest associated with managing accounts with different compensation structures, Pzena generally requires portfolio decisions to be made on a product-specific basis. Pzena also requires pre-allocation of all client orders based on specific fee-neutral criteria. Additionally, Pzena requires average pricing of all aggregated orders. Finally, Pzena has adopted a policy prohibiting portfolio managers (and all employees) from placing the investment interests of one client or a group of clients with the same investment objectives above the investment interests of any other client or group of clients with the same or similar investment objectives. These measures help Pzena mitigate some of the conflicts that its management of private investment companies would otherwise present. Investment personnel of the firm or its affiliates may be permitted to be commercially or professionally involved with an issuer of securities. Any potential conflicts of interest from such involvement would be monitored with the firm’s Code of Ethics.

3. Description of Compensation

Mr. Pzena, Mr. Silver, Mr. Flynn, and the other investment professionals at Pzena are compensated through a combination of a fixed base salary, performance bonus, and equity ownership, if appropriate, due to superior personal performance. The time frame Pzena examines for bonus compensation is annual. Pzena considers both quantitative and qualitative factors when determining performance bonuses; however, performance bonuses are not based on Fund performance or assets of the Fund. For investment professionals, Pzena examines such things as effort, efficiency, ability to focus on the correct issues, stock modeling ability, and ability to successfully interact with company management. However, Pzena always looks at the person as a whole and the contributions that he/she has made and is likely to make in the future. Pzena avoids a compensation model that is driven by individual security performance, as this can lead to short-term thinking which is contrary to the firm's value investment philosophy. Ultimately, equity ownership is the primary tool used by Pzena for attracting and retaining the best people. This ties personnel to long-term performance as the value of their ownership stake depends on our delivering superior long-term results to our investors. Mr. Pzena, Mr. Flynn, and Mr. Silver are equity owners of Pzena.

4. Ownership of Securities

As of October 31, 2017, Mr. Pzena, Mr. Silver, and Mr. Flynn did not own any shares of Vanguard Windsor Fund.

B. Wellington Management Company LLP (Wellington Management)

Wellington Management is a Delaware private limited liability partnership with principal offices at 280 Congress Street, Boston, MA 02210. As of October 31, 2017, the firm is owned by 158 partners, all fully active in 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 80 years. Wellington Management is owned by the partners of Wellington Management Group LLP, a Massachusetts limited liability partnership.

1. Other Accounts Managed

James N. Mordy co-manages a portion of Vanguard Windsor Fund; as of October 31, 2017, the Fund held assets of $19.6 billion. As of October 31, 2017, Mr. Mordy also managed 10 other registered investment companies with total

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assets of $3.8 billion (advisory fees not based on account performance), 3 other pooled investment vehicles with total assets of $541 million (advisory fees not based on account performance), and 8 other accounts with total assets of $1.4 billion (advisory fees based on account performance for 1 of these accounts with total assets of $26.7 million).

David W. Palmer co-manages a portion of the Vanguard Windsor Fund; as of October 31, 2017, the Fund held assets of $19.6 billion. As of October 31, 2017, Mr. Palmer also managed 8 other registered investment companies with total assets of $3.4 billion, 4 other pooled investment vehicles with total assets of $160 million, and 1 other account with total assets of $806 million (advisory fees based on account performance for 2 of these accounts with total assets of $912 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 initial public offerings (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 those 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. Mr. Mordy also manages accounts which pay performance allocations to Wellington Management or its affiliates. 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 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.

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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. The following information relates to the fiscal year ended October 31, 2017.

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 Fund’s manager listed in the prospectus, who is primarily responsible for the day-to-day management of the Fund, includes a base salary and incentive components. The base salary for each Portfolio Manager who is a partner (a “Partner”) of Wellington Management Group LLP, the ultimate holding company of Wellington Management, is generally a fixed amount that is determined by the managing partners of Wellington Management Group LLP.

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 the Portfolio Manager. The Portfolio Manager’s incentive payment relating to the Wellington Management Portfolio is linked to the net pre-tax performance of the Wellington Management Portfolio compared to the Standard & Poor’s 500 Index over one, three, and five-year periods, with an emphasis on five-year results. 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 is eligible to participate in a Partner-funded tax-qualified retirement plan, the contributions to which are made pursuant to an actuarial formula. Mr. Mordy and Mr. Palmer are both Partners.

4. Ownership of Securities

As of October 31, 2017, Mr. Mordy owned shares of Vanguard Windsor Fund exceeding $1,000,000. As of October 31, 2017, Mr. Palmer owned shares of Vanguard Windsor Fund within the $100,001-$500,000 range.

II. Vanguard Windsor II Fund

The Fund pays each of its investment advisors (other than Vanguard) a base fee plus or minus a perfomance 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 US Prime Market 750 Index (for Barrow, Hanley), the MSCI US Investable Market 2500 Index (for Hotchkis and Wiley), the S&P 500 Index (for Lazard), or the Russell 3000 Index (for Sanders), over the preceding 60-month period (a 36-month period for Barrow, Hanley and for Lazard).

For the fiscal years ended October 31, 2015, 2016, and 2017, Vanguard Windsor II Fund incurred aggregate investment advisory fees and expenses of $69,094,000 (before a performance-based decrease of $11,490,000), $63,636,000 (before a performance-based decrease of $14,848,000), and $67,179,000 (before a performance-based decrease of $10,379,000), respectively.

Of the aggregate fees and expenses previously described, the investment advisory expenses paid to Vanguard for the fiscal year ended October 31, 2017, were $397,000 (representing an effective annual rate of less than 0.01%). The investment advisory fees paid to the remaining advisors for the fiscal year ended October 31, 2017, were $56,403,000 (representing an effective annual rate of approximately 0.07%).

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A. Barrow, Hanley, Mewhinney & Strauss, LLC (Barrow, Hanley)

Barrow, Hanley, a Delaware limited liability company, is an investment management firm founded in 1979, which provides investment advisory services to separately managed U.S. and non-U.S. equity, fixed income, and balanced portfolios for large institutional clients, mutual funds, employee benefit plans, endowments, foundations, limited liability companies, and other institutions and individuals. Barrow, Hanley is a subsidiary of OM Asset Management plc (OMAM), a publicly-held company traded on the New York Stock Exchange.

1. Other Accounts Managed

Jeff G. Fahrenbruch co-manages a portion of Vanguard Windsor II Fund; as of October 31, 2017, the Fund held assets of $49 billion. As of October 31, 2017, Mr. Fahrenbruch also managed 2 other registered investment companies with total assets of $800 million (advisory fees based on account performance for 1 of these accounts with total assets of $557 million), 1 other pooled investment vehicle with total assets of $168 million (advisory fees not based on account performance), and 27 other accounts with total assets of $2.5 billion (advisory fees not based on account performance).

David W. Ganucheau co-manages a portion of Vanguard Windsor II Fund; as of October 31, 2017, the Fund held assets of $49 billion. As of October 31, 2017, Mr. Ganucheau also managed 3 other registered investment companies with total assets of $1.3 billion (advisory fees based on account performance for 1 of these accounts with total assets of $557 million), 2 other pooled investment vehicles with total assets of $333 million (advisory fees not based on account performance), and 22 other accounts with total assets of $1.6 billion (advisory fees not based on account performance).

2. Material Conflicts of Interest

Actual or potential conflicts of interest may arise when a portfolio manager has management responsibilities to more than one account (including Vanguard Windsor II Fund) or private commingled fund accounts. Barrow, Hanley manages potential conflicts between funds or with other types of accounts through allocation policies and procedures, internal review processes, and oversight by directors and independent third parties to ensure that no client, regardless of type or fee structure, is intentionally favored or disfavored at the expense of another. Barrow, Hanley’s investment management and trading 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

In addition to base salary, all Barrow, Hanley portfolio managers and analysts share in a bonus pool that is distributed semiannually. Portfolio managers and analysts are rated on their value added to the team-oriented investment process. Overall compensation applies with respect to all accounts managed and compensation does not differ with respect to distinct accounts managed by a portfolio manager. Compensation is not tied to a published or private benchmark. It is important to understand that contributions to the overall investment process may include not recommending securities in an analyst’s sector if there are no compelling opportunities in the industries covered by that analyst.

The compensation of portfolio managers is not directly tied to fund performance or growth in assets for any fund or other account managed by a portfolio manager, and portfolio managers are not compensated for bringing in new business. Of course, growth in assets from the appreciation of existing assets and/or growth in new assets will increase revenues and profit. The consistent, long-term growth in assets at any investment firm is to a great extent, dependent upon the success of the portfolio management team. The compensation of the portfolio management team at Barrow, Hanley will increase over time, if and when assets continue to grow through competitive performance. Lastly, many key investment personnel have a long-term incentive compensation plan in the form of an equity interest in Barrow, Hanley.

4. Ownership of Securities

As of October 31, 2017, Mr. Fahrenbruch and Mr. Ganucheau both owned shares of Vanguard Windsor II Fund exceeding $1,000,000.

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B. Hotchkis and Wiley Capital Management, LLC (Hotchkis and Wiley)

The Advisor is a limited liability company, the primary members of which are HWCap Holdings, a limited liability company whose members are current and former employees of the Advisor, and Stephens-H&W, a limited liability company whose primary member is SF Holding Corp., which is a diversified holding company.

1. Other Accounts Managed

The investment process employed is the same for similar accounts, including the portion of Vanguard Windsor II Fund managed by Hotchkis and Wiley (the Hotchkis and Wiley Portfolio), and is team-based utilizing primarily in-house, fundamental research. The investment research staff is organized by industry and sector and supports all of the accounts managed in each of Hotchkis and Wiley’s strategies. Portfolio coordinators for each strategy ensure that the best thinking of the investment team is reflected in the “target portfolios.” Investment ideas for the Hotchkis and Wiley Portfolio are generated by Hotchkis and Wiley’s investment team. Although the Hotchkis and Wiley Portfolio is managed by Hotchkis and Wiley’s investment team, Hotchkis and Wiley has identified George H. Davis, Jr., and Sheldon J. Lieberman as the portfolio managers with the most significant responsibility for the day-to-day management of the Hotchkis and Wiley Portfolio.

Mr. Davis and Mr. Lieberman co-manage a portion of Vanguard Windsor II Fund; as of October 31, 2017, the Fund held assets of $49 billion. As of October 31, 2017, Mr. Davis and Mr. Lieberman also co-managed 14 other registered investment companies with total assets of $8.6 billion (advisory fees not based on account performance), 7 other pooled investment vehicles with total assets of $1.1 billion (advisory fees based on account performance for 1 of these accounts with total assets of $59 million), and 65 other accounts with total assets of $9.6 billion (advisory fees based on account performance for 5 of these accounts with total assets of $941 million).

2. Material Conflicts of Interest

The Portfolio is managed by HWCM’s investment team (Investment Team). The Investment Team also manages institutional accounts and other mutual funds in several different investment strategies. The portfolios within an investment strategy are managed using a target portfolio; however, each portfolio may have different restrictions, cash flows, tax and other relevant considerations which may preclude a portfolio from participating in certain transactions for that investment strategy. Consequently, the performance of portfolios may vary due to these different considerations. The Investment Team may place transactions for one investment strategy that are directly or indirectly contrary to investment decisions made on behalf of another investment strategy. HWCM also provides model portfolio investment recommendations to sponsors without execution or additional services. The recommendations are provided on a delayed basis relative to transactions of discretionary accounts. HWCM may be restricted from purchasing more than a limited percentage of the outstanding shares of a company or otherwise restricted from trading in a company’s securities due to other regulatory limitations. If a company is a viable investment for more than one investment strategy, HWCM has adopted policies and procedures reasonably designed to ensure that all of its clients are treated fairly and equitably. Additionally, potential and actual conflicts of interest may also arise as a result of HWCM’s other business activities and HWCM’s possession of material non-public information about an issuer, which may have an adverse impact on one group of clients while benefiting another group. In certain situations, HWCM will purchase different classes of securities of the same company (e.g. senior debt, subordinated debt, and or equity) in different investment strategies which can give rise to conflicts where HWCM may advocate for the benefit of one class of security which may be adverse to another security that is held by clients of a different strategy. HWCM seeks to mitigate the impact of these conflicts on a case by case basis.

HWCM utilizes soft dollars to obtain brokerage and research services, which may create a conflict of interest in allocating clients’ brokerage business. Research services may benefit certain accounts more than others. Certain accounts may also pay a less proportionate amount of commissions for research services. If a research product provides both a research and a non-research function, H&W will make a reasonable allocation of the use and pay for the non-research portion with hard dollars. HWCM will make decisions involving soft dollars in a manner that satisfies the requirements of Section 28(e) of the Securities Exchange Act of 1934.

Different types of accounts and investment strategies may have different fee structures. Additionally, certain accounts pay Hotchkis and Wiley performance-based fees, which may vary depending on how well the account performs compared to a benchmark. Because such fee arrangements have the potential to create an incentive for Hotchkis and

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Wiley to favor such accounts in making investment decisions and allocations, Hotchkis and Wiley has adopted policies and procedures reasonably designed to ensure that all of its clients are treated fairly and equitably, including in respect of allocation decisions, such as initial public offerings.

Since accounts are managed to a target portfolio by the Investment Team, adequate time and resources are consistently applied to all accounts in the same investment strategy. Investment personnel of the firm or its affiliates may be permitted to be commercially or professionally involved with an issuer of securities. Any potential conflicts of interest from such involvement would be monitored for compliance with the firm’s Code of Ethics.

3. Description of Compensation

Hotchkis and Wiley’s Portfolio Managers are compensated in various forms, which may include a base salary, bonus, profit sharing, and equity ownership. Compensation is used to reward, attract, and retain high-quality investment professionals.

The Portfolio Managers are evaluated and accountable at three levels. The first level is individual contribution to the research and decision-making process, including the quality and quantity of work achieved. The second level is teamwork, generally evaluated through contribution within sector teams. The third level pertains to overall portfolio and firm performance.

Fixed salaries and discretionary bonuses for investment professionals are determined by the Chief Executive Officer of Hotchkis and Wiley using tools which may include annual evaluations, compensation surveys, feedback from other employees, and advice from members of Hotchkis and Wiley’s Executive and Compensation Committees. The amount of the bonus is determined by the total amount of Hotchkis and Wiley’s bonus pool available for the year, which is generally a function of revenues. No investment professional receives a bonus that is a pre-determined percentage of revenues or net income. Compensation is thus subjective rather than formulaic.

The majority of the Portfolio Managers own equity in Hotchkis and Wiley. Hotchkis and Wiley believes that the employee ownership structure of the firm will be a significant factor in ensuring a motivated and stable employee base going forward. Hotchkis and Wiley believes that the combination of competitive compensation levels and equity ownership provides Hotchkis and Wiley with a demonstrable advantage in the retention and motivation of employees. Portfolio Managers who own equity in Hotchkis and Wiley receive their pro rata share of Hotchkis and Wiley’s profits. Investment professionals may also receive contributions under Hotchkis and Wiley’s profit sharing/401(k) plan.

4. Ownership of Securities

As of October 31, 2017, Mr. Davis and Mr. Lieberman did not own any shares of Vanguard Windsor II Fund.

C. Lazard Asset Management LLC (Lazard)

Lazard is a registered investment advisor and is a direct, wholly owned subsidiary of Lazard Freres & Co., LLC, and an indirect, wholly owned subsidiary of Lazard Ltd.

1. Other Accounts Managed

Andrew Lacey co-manages a portion of Vanguard Windsor II Fund; as of October 31, 2017, the Fund held assets of $49 billion. As of October 31, 2017, Mr. Lacey also managed 10 other registered investment companies with total assets of $12 billion (advisory fees not based on account performance), 10 other pooled investment vehicles with total assets of $1.5 billion (advisory fees not based on account performance), and 140 other accounts with total assets of $6.2 billion (advisory fees not based on account performance).

Christopher Blake co-manages a portion of Vanguard Windsor II Fund; as of October 31, 2017, the Fund held assets of $49 billion. As of October 31, 2017, Mr. Blake also managed 7 other registered investment companies with total assets of $11.7 billion (advisory fees not based on account performance), 7 other pooled investment vehicles with total assets of $808 million (advisory fees based on account performance for 1 of these accounts with total assets of $52 million), and 125 other accounts with total assets of $7 billion (advisory fees based on account performance for 1 of these accounts with total assets of $358 million).

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2. Material Conflicts of Interest

Although the potential for conflicts of interest exists when an investment advisor and portfolio managers manage other accounts with similar investment objectives and strategies as the portion of Vanguard Windsor II Fund managed by Lazard (Similar Accounts), Lazard has procedures in place that are designed to ensure that all accounts are treated fairly and that the Fund is not disadvantaged, including procedures regarding trade allocations and “conflicting trades” (e.g., long and short positions in the same security, as described below). In addition, the Fund, as a registered investment company, is subject to different regulations than certain of the Similar Accounts, and consequently, may not be permitted to engage in all the investment techniques or transactions, or to engage in such techniques or transactions to the same degree, as the Similar Accounts.

Potential conflicts of interest may arise because of Lazard’s management of a portion of the Fund (Lazard Portfolio) and Similar Accounts. For example, conflicts of interest may arise with both the aggregation and allocation of securities transactions and allocation of limited investment opportunities, as Lazard may be perceived as causing accounts it manages to participate in an offering to increase Lazard’s overall allocation of securities in that offering, or to increase Lazard’s ability to participate in future offerings by the same underwriter or issuer. Allocations of bunched trades, particularly trade orders that were only partially filled due to limited availability, and allocation of investment opportunities generally, could raise a potential conflict of interest, as Lazard may have an incentive to allocate securities that are expected to increase in value to preferred accounts. Initial public offerings, in particular, are frequently of very limited availability. Additionally, portfolio managers may be perceived to have a conflict of interest because of the large number of Similar Accounts, in addition to the Fund, that they are managing on behalf of Lazard. Although Lazard does not track each individual portfolio manager’s time dedicated to each account, Lazard periodically reviews each portfolio manager’s overall responsibilities to ensure that they are able to allocate the necessary time and resources to effectively manage the Fund. In addition, Lazard could be viewed as having a conflict of interest to the extent that Lazard and/or portfolio managers have a materially larger investment in a Similar Account than their investment in the Fund.

A potential conflict of interest may be perceived to arise if transactions in one account closely follow related transactions in a different account, such as when a purchase increases the value of securities previously purchased by the other account, or when a sale in one account lowers the sale price received in a sale by a second account. Lazard manages hedge funds that are subject to performance/incentive fees. Certain hedge funds managed by Lazard may also be permitted to sell securities short. When Lazard engages in short sales of securities of the type in which the Fund invests, Lazard could be seen as harming the performance of the Fund for the benefit of the account managing short sales if the short sales cause the market value of the securities to fall. As described above, Lazard has procedures in place to address these conflicts. Additionally, portfolio managers/analysts and portfolio management teams are generally not permitted to manage long-only assets alongside long/short assets, although may from time to time manage both hedge funds and long-only accounts, including open-end and closed-end registered investment companies. Investment personnel of the firm or its affiliates may be permitted to be commercially or professionally involved with an issuer of securities. Any potential conflicts of interest from such involvement would be monitored for compliance with the firm’s Code of Ethics.

3. Description of Compensation

Lazard compensates portfolio managers by a competitive salary and bonus structure, which is determined both quantitatively and qualitatively. Salary and bonus are paid in cash, stock, and restricted interests in funds managed by Lazard or its affiliates. Portfolio managers are compensated on the performance of the aggregate group of portfolios managed by the teams of which they are a member rather than for a specific fund or account. Various factors are considered in the determination of a portfolio manager’s compensation. All of the portfolios managed by a portfolio manager are comprehensively evaluated to determine his or her positive and consistent performance contribution over time. Further factors include the amount of assets in the portfolios as well as qualitative aspects that reinforce Lazard’s investment philosophy. Total compensation is generally not fixed, but rather is based on the following factors: (1) leadership, teamwork, and commitment; (2) maintenance of current knowledge and opinions on companies owned in the portfolio; (3) generation and development of new investment ideas, including the quality of security analysis and identification of appreciation catalysts; (4) ability and willingness to develop and share ideas on a team basis; and (5) the performance results of the portfolios managed by the investment teams of which the portfolio manager is a member.

Variable bonus is based on the portfolio manager’s quantitative performance as measured by his or her ability to make investment decisions that contribute to the pre-tax absolute and relative returns of the accounts managed by the teams of which the portfolio manager is a member, by comparison of each account to a predetermined benchmark (as set forth

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in the prospectus or other governing document) over the current fiscal year and the longer-term performance of such account, as well as performance of the account relative to peers. The portfolio manager’s bonus also can be influenced by subjective measurement of the manager’s ability to help others make investment decisions. A portion of a portfolio manager’s variable bonus is awarded under a deferred compensation arrangement pursuant to which the portfolio manager may allocate certain amounts awarded among certain Portfolios, in shares that vest in two to three years. Certain portfolio managers’ bonus compensation may be tied to a fixed percentage of revenue or assets generated by the accounts managed by such portfolio management teams.

4. Ownership of Securities

As of October 31, 2017, Mr. Lacey and Mr. Blake did not own any shares of Vanguard Windsor II Fund.

D. Sanders Capital, LLC (Sanders)

Sanders, a New York limited liability company, is a registered investment advisor founded in 2009 by Lewis Sanders, former chairman and CEO of AllianceBernstein L.P. Mr. Sanders is the firm’s controlling owner, CEO, and Co-CIO, with the remaining ownership stake divided among several of his key employees.

1. Other Accounts Managed

Lewis A. Sanders and John P. Mahedy co-manage a portion of Vanguard Windsor II Fund; as of October 31, 2017, the Fund held assets of $49 billion. As of October 31, 2017, Mr. Sanders and Mr. Mahedy also co-managed 1 other registered investment company with total assets of $483 million (advisory fee not based on account performance) and 12 other pooled investment vehicles with total assets of $2.7 billion (advisory fees not based on account performance). As of October 31, 2017, Mr. Sanders also managed 69 other accounts with total assets of $17.2 billion (advisory fees based on account performance for 5 of these accounts with total assets of $3.5 billion) and Mr. Mahedy also managed 65 other accounts with total assets of $16.9 billion (advisory fees based on account performance for 5 of these accounts with total assets of $3.5 billion).

2. Material Conflicts of Interest

Mr. Sanders and Mr. Mahedy are co-chief investment officers of Sanders Capital LLC (Sanders). In addition to the Fund, Sanders manages on a discretionary basis other accounts which utilize the value equity strategy utilized for the Fund or which utilize a different strategy but hold some of the same securities as the Fund, including, as of October 31, 2017, two accounts belonging to Mr. Sanders personally. Mr. Sanders also has an interest in three of the portfolios of a privately offered limited partnership whose general partner is an affiliate of Sanders and which is managed by Sanders. Under its agreement with the Fund, the general partner is entitled to a performance allocation if the Fund’s returns exceed specified amounts. Sanders has strict policies in force to ensure that all clients are treated fairly. For example, when practical, all client orders for the same security entered at the same time are aggregated in a single order and, if the order cannot be filled by day-end, Sanders allocates shares to underlying accounts on a pro rata basis. If an order is filled at several prices through multiple trades with the same broker, an average price and commission will be used for the executed trades in the order. For allocation and other purposes, managed accounts of staff members are treated the same as accounts of other clients, in keeping with Sanders’ belief that staff investments in Sanders’ products align their interests with those of clients. Sanders has strict rules with respect to personal trading by staff to ensure that client interests always come first. Staff must obtain permission prior to executing any trade in a personal account; permission is denied if Sanders is purchasing or considering purchasing a security for clients until all client orders are completed. Once a purchase is made, the staff member must hold the security for at least one year, and beyond that time if the security is then held in client accounts. Investment personnel of the firm or its affiliates may be permitted to be commercially or professionally involved with an issuer of securities. Any potential conflicts of interest from such involvement would be monitored for compliance with the firm’s Code of Ethics.

3. Description of Compensation

Sanders compensates Mr. Sanders and Mr. Mahedy by means of a guaranteed salary (draw) and a guaranteed bonus. Both Mr. Sanders and Mr. Mahedy are members (i.e., part owners) of Sanders; accordingly, they are each entitled to a share of the firm’s profits, if and when earned. The Portfolio Managers are also members of an affiliate of Sanders, which is the general partner of a limited partnership with four portfolios managed by Sanders; the General Partner is entitled to a

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performance allocation if the returns in these portfolios exceed stated amounts. In such event, the Portfolio Managers would benefit proportional to their ownership interests in the General Partner.

4. Ownership of Securities

As of October 31, 2017, Mr. Sanders and Mr. Mahedy did not own any shares of Vanguard Windsor II Fund.

E. Vanguard

Vanguard, through its Quantitative Equity Group, provides investment advisory services on an at-cost basis for a portion of Vanguard Windsor II Fund’s assets. The compensation and other expenses of Vanguard’s advisory staff are allocated among the funds utilizing Vanguard’s advisory services.

1. Other Accounts Managed

James P. Stetler and Binbin Guo co-manage a portion of Vanguard Windsor II Fund; as of October 31, 2017, the Fund held assets of $49 billion. As of October 31, 2017, Mr. Stetler and Mr. Guo co-managed all or a portion of 11 other registered investment companies with total assets of $92 billion (advisory fees not based on account performance). Mr. Guo also co-managed 1 other pooled investment vehicle with total assets of $234 million (advisory fees not based on account performance).

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, and 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 where two or more funds or accounts participate in investment decisions involving the same securities.

3. Description of Compensation

All named Vanguard portfolio managers are Vanguard employees. This section describes the compensation of the Vanguard employees who manage Vanguard mutual funds. As of October 31, 2017, 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 in response to a market adjustment of the position.

A portfolio manager’s bonus is determined by a number of factors. One factor is gross, pre-tax performance of a 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 amount of assets held in the fund’s portfolio. For the portion of the Windsor II Fund managed by Vanguard, the performance factor depends on how successfully the portfolio manager outperforms the MSCI US Prime Market Value Index and maintains the risk parameters of the Fund over a three-year period. Additional factors include the portfolio manager’s contributions to the investment management functions within the sub-asset class, contributions to

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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 or collective investment trusts that may invest in Vanguard funds based on their own individual investment needs and goals. Vanguard employees, as a group, invest a sizable portion of their personal assets in Vanguard funds. As of October 31, 2017, Vanguard employees collectively invested more than $6.2 billion in Vanguard funds or collective investment trusts that may invest in Vanguard funds.

As of October 31, 2017, the named portfolio managers did not own any shares of Vanguard Windsor II Fund.

Duration and Termination of Investment Advisory Agreements

The Funds’ current investment advisory agreements with the unaffiliated advisors 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, (2) by a vote of a majority of the Fund’s outstanding voting securities upon 30 days’ written notice to the advisor, or (3) by the advisor upon ninety (90) days’ written notice to the Fund.

Vanguard provides at-cost investment advisory services to Vanguard Windsor II Fund 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.

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Securities Lending

The following table describes the securities lending activities of each Fund during the fiscal year ended October 31, 2017:

Windsor Fund  
Gross income from securities lending activities $589,994
Fees paid to securities lending agent from a revenue split $0
Fees paid for any cash collateral management service (including fees deducted from a pooled cash  
collateral reinvestment vehicle) that are not included in the revenue split $3,276
Administrative fees not included in revenue split $8,711
Indemnification fee not included in revenue split $0
Rebate (paid to borrower) $99,855
Other fees not included in revenue split (specify) $0
Aggregate fees/compensation for securities lending activities $111,842
Net income from securities lending activities $478,152
Windsor II Fund  
Gross income from securities lending activities $1,917,425
Fees paid to securities lending agent from a revenue split $0
Fees paid for any cash collateral management service (including fees deducted from a pooled cash  
collateral reinvestment vehicle) that are not included in the revenue split $10,065
Administrative fees not included in revenue split $33,149
Indemnification fee not included in revenue split $0
Rebate (paid to borrower) $193,271
Other fees not included in revenue split (specify) $0
Aggregate fees/compensation for securities lending activities $236,485
Net income from securities lending activities $1,680,940

The services provided by Brown Brothers Harriman & Co. and Vanguard, each acting separately as securities lending agents for certain Vanguard funds, include coordinating the selection of secuties to be loaned to approved borrowers; negotiating the terms of the loan; monitoring the value of the securities loaned and corresponding collateral, marking to market daily; coordinating the investment of cash collateral in the funds’ approved cash collateral reinvestment vehicle; monitoring dividends and coordinating material proxy votes relating to loaned securities; and transferring, recalling, and arranging the return of loaned securities to the funds upon termination of the loan.

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

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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.

During the fiscal years ended October 31, 2015, 2016, and 2017, the Funds paid the following approximate amounts in brokerage commissions:

Vanguard Fund 2015 2016 2017
Windsor Fund $4,538,000 $5,738,000 $5,354,000
Windsor II Fund 15,297,000 16,534,000 14,852,000

 

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, certain derivatives markets, certain international markets, and certain issuers that limit ownership by a single shareholder or group of related shareholders, or to exercise rights on behalf of a Fund, may be restricted or impaired because of limitations on the aggregate level of investment unless regulatory or corporate consents or ownership waivers 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. If a Fund is required to limit its investment in a particular issuer, the Fund may seek to obtain economic exposure to that issuer through alternative means, such as through a derivative, which may be more costly than owning securities of the issuer directly.

As of October 31, 2017, 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
Windsor Fund Banc of America Securities LLC $456,155,000
  Citigroup Global Markets Inc. 191,501,000
  Merrill Lynch, Pierce, Fenner & Smith Inc.
 
Windsor II Fund Citigroup Global Markets Inc. 1,428,790,000
  Goldman, Sachs & Co. 99,047,000
  Morgan Stanley 210,433,000

 

PROXY VOTING GUIDELINES

The Board of Trustees (the Board) of each Vanguard fund has adopted proxy voting procedures and guidelines to govern proxy voting by the fund. The Board has delegated responsibility for monitoring proxy voting activities to the Investment Stewardship 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 also 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

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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 or vote in a particular way 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 funds in the aggregate) were to own more than the permissible maximum percentage of a company’s stock (as determined by the company’s governing documents or by applicable law, regulation, or regulatory agreement).

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.

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).
  Actions of committee(s) on which nominee serves demonstrate serious
  failures of governance (e.g., unilaterally acting to significantly reduce
  shareholder rights, failure to respond to previous vote results for directors
  and shareholder proposals).

 

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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.

D. Proxy access

We believe that long-term investors may benefit from having proxy access, or the opportunity to place director nominees on a company’s proxy ballot. In our view, this improves shareholders’ ability to participate in director elections while potentially enhancing boards’ accountability and responsiveness to shareholders.

That said, we also believe that proxy access provisions should be appropriately limited to avoid abuse by investors who lack a meaningful long-term interest in the company. As such, we generally believe that a shareholder or group of shareholders representing 3% of a company’s outstanding shares held for at least three years should be able to nominate directors for up to 20% of the seats on the board.

We will review proposals regarding proxy access case by case. The funds will be most likely to support access provisions with the terms described above, but they may support different thresholds based on a company’s other governance provisions, as well as other relevant factors.

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.

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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.  

 

B. Bonus plans

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.

The funds’ positions on a number of the most commonly presented issues in this area are as follows:

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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. Increase in authorized shares

The funds are supportive of companies seeking to increase authorized share amounts that do not potentially expose shareholders to excessive dilution. We will generally approve increases of up to 50% of the current share authorization, but will also consider a company’s specific circumstances and market practices.

C. 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.

D. 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.

E. 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.

F. 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.

G. 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.

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V. Corporate and Social Policy Issues

We vote case by case on all environmental and social proposals. We evaluate these resolutions in the context of our view that a company’s board has ultimate responsibility for providing effective ongoing oversight of relevant sector- and company-specific risks, including those related to environmental and social matters. We evaluate each proposal on its merits and support those where we believe there is a logically demonstrable linkage between the specific proposal and long-term shareholder value. Some of the factors considered when evaluating these proposals include the materiality of the issue, the quality of the current disclosure and business practices, and any progress by the company toward the adoption of best practices and/or industry norms.

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. 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.

In addition, applicable law may require prior regulatory approval to permit ownership of certain regulated issuer’s voting securities above certain limits or may impose other restrictions on owners of more than a certain percentage of a regulated issuer’s voting shares. The Board has authorized the funds to vote shares above these limits in the same proportion as votes cast by the issuer’s entire shareholder base (i.e., mirror vote) or to refrain from voting excess shares if mirror voting is not practicable. For example, rules administered by the Board of Governors of the Federal Reserve System (the FRB) generally require that a person seeking to own more than 10% of a bank regulated by the FRB seek prior approval. Vanguard has obtained regulatory approval that allows Vanguard funds to own up to 15% of a class of a bank’s outstanding voting shares without seeking prior regulatory approval, provided the funds’ shares in excess of 10% are mirror voted or not voted at all.

These ownership limits may be applied at the individual fund level, across all Vanguard-advised funds, or across all Vanguard funds, regardless of whether they are advised by Vanguard.

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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.

IX. Investment Stewardship

The Board has delegated the day-to-day operation of the funds’ proxy voting process to the Investment Stewardship team (Investment Stewardship), 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 Investment Stewardship 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.

Investment Stewardship performs the following functions: (1) managing and conducting due diligence of 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. Investment Stewardship also prepares periodic and special reports to the Board, and any proposed amendments to the procedures and guidelines.

X. The Investment Stewardship 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 Investment Stewardship 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. A summary of the procedures and guidelines is 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 www.sec.gov.

B-57


 

FINANCIAL STATEMENTS

Each Fund’s Financial Statements for the fiscal year ended October 31, 2017, appearing in the Funds‘ 2017 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.

SAI 022 022018

B-58


PART C

VANGUARD WINDSOR FUNDS

OTHER INFORMATION

Item 28. Exhibits

(a)      Articles of Incorporation, Amended and Restated Agreement and Declaration of Trust, filed with Post-Effective Amendment No. 111 dated February 27, 2009, are hereby incorporated by reference.
(b)      By-Laws, Amended and Restated By-Laws, is filed herewith.
(c)      Instruments Defining Rights of Security Holders, reference is made to Articles III and V of the Registrant’s Amended and Restated Agreement and Declaration of Trust, refer to Exhibit (a) above.
(d)      Investment Advisory Contracts, for Wellington Management Company LLP, filed with Post- Effective Amendment No. 110 dated February 27, 2008; for Hotchkis and Wiley Capital Management, LLC, filed with Post-Effective Amendment No. 112 on December 21, 2009; for Sanders Capital, LLC, filed with Post-Effective Amendment No. 114 dated February 25, 2010; for Barrow, Hanley, Mewhinney & Strauss, LLC and for Lazard Asset Management LLC, filed with Post-Effective Amendment No. 117 dated February 27, 2012; and for Pzena Investment Management, LLC, filed with Post-Effective Amendment No. 124 dated February 26, 2014, are hereby incorporated by reference. The Vanguard Group, Inc., provides investment advisory services to Vanguard Windsor II Fund at cost pursuant to the Fifth Amended and Restated Funds’ Service Agreement, refer to (h) below.
(e)      Underwriting Contracts, not applicable
(f)      Bonus or Profit Sharing Contracts, reference is made to the section entitled “Management of the Funds” in Part B of this Registration Statement.
(g)      Custodian Agreements, for Brown Brothers Harriman & Co., is filed herewith.
(h)      Other Material Contracts, Fifth Amended and Restated Funds’ Service Agreement, is filed herewith.
(i)      Legal Opinion, not applicable.
(j)      Other Opinions, Consent of Independent Registered Public Accounting Firm, is filed herewith.
(k)      Omitted Financial Statements, not applicable.
(l)      Initial Capital Agreements, not applicable.
(m)      Rule 12b-1 Plan, not applicable.
(n)      Rule 18f-3 Plan, is filed herewith.
(o)      Reserved.
(p)      Codes of Ethics, for Barrow, Hanley, Mewhinney & Strauss, LLC, filed with Post-Effective Amendment No. 110 dated February 27, 2008; and for Lazard Asset Management LLC, filed with Post-Effective Amendment No. 126 dated February 25, 2015; and for Pzena Investment Management, LLC, and for Hotchkis and Wiley Capital Management, LLC, filed with Post- Effective Amendment No. 128 dated February 25, 2016, are hereby incorporated by reference.
  For Sanders Capital, LLC, Vanguard Group, Inc. and Wellington Management Company LLP, are filed herewith.

Item 29. Persons Controlled by or under Common Control with Registrant

The Registrant does not control and is not under common control with any other 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.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the Securities Act) may be permitted for directors, officers, or persons controlling the Registrant pursuant to the foregoing provisions, the Registrant has been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Item 31. Business and Other Connections of Investment Advisers

Barrow, Hanley, Mewhinney & Strauss, LLC (Barrow, Hanley) is an investment adviser registered under the Investment Advisers Act of 1940 (the Advisers Act). The list required by this Item 31 of officers and directors of Barrow, Hanley, 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 Barrow, Hanley pursuant to the Advisers Act (SEC File No. 801-31237).

Hotchkis and Wiley Capital Management, LLC (Hotchkis and Wiley) is an investment adviser registered under the Advisers Act. The list required by this Item 31 of officers and directors of Hotchkis and Wiley, 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 Hotchkis and Wiley pursuant to the Advisers Act (SEC File No. 801-60512).

Wellington Management Company LLP (Wellington Management) is an investment adviser registered under 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).

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).

Lazard Asset Management LLC (Lazard) is an investment adviser registered under the Advisers Act. The list required by this Item 31 of officers and directors of Lazard Asset Management, 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 Lazard pursuant to the Advisers Act (SEC File No. 801-61701).

Sanders Capital, LLC (Sanders) is an investment adviser registered under the Advisers Act. The list required by this Item 31 of officers and members of Sanders, together with any information as to any business, profession, vocation, or employment of a substantial nature engaged in by such officers and members during the past two years, is incorporated herein by reference from Form ADV filed by Sanders pursuant to the Advisers Act (SEC File No. 801-70661).

Pzena Investment Management, LLC (Pzena) is an investment adviser registerd under the Advisers Act. The list required by this Item 31 of officers and directors of Pzena, 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 hereby incorporated by reference from Form ADV filed by Pzena pursuant to the Advisers Act (SEC File No. 801-50838).


 

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 over 200 funds.

(b)The principal business address of each named director and officer of Vanguard Marketing Corporation is 100 Vanguard Boulevard, Malvern, PA 19355.

Name Positions and Office with Underwriter Positions and Office with Funds
Karin A.Risi Director and Chairman and Principal and Chief Executive None
  Officer Designee  
Scott A. Conking Director and Principal None
Kevin Justice Director and Principal None
Christopher D. McIsaac Director and Principal None
Thomas M. Rampulla Director and Principal None
Michael Rollings Director and Principal Finance Director
John E. Schadl Director and Principal and General Counsel None
Mortimer J. Buckley President Chief Executive Officer, President and
    Trustee
Brian Dvorak Assistant Vice President None
Caroline Cosby Secretary None
Beth Morales Singh Assistant Secretary None
Aisling Murphy Chief Compliance Officer None
John T. Marcante Chief Information Officer None
Ellen Rinaldi Chief Information Security Officer None
Salvatore L. Pantalone Financial and Operations Principal and Treasurer None
Amy M. Laursen Financial and Operations Principal None
Danielle Corey Annuity and Insurance Officer None
Jeff Seglem Annuity and Insurance Officer None
Matthew Benchener Principal None
John Bendl Principal None
Saundra K. Cusumano Principal None
James M. Delaplane Jr. Principal None
Kathleen A. Graham-Kelly Principal None
Andrew Kadjeski Principal None
Martha G. King Principal None
Phillip Korenman Principal None
Mike Lucci Principal None
Alba E. Martinez Principal None
Brian McCarthy Principal None
James M. Norris Principal None
David Petty Principal None

 


 

Frank Satterthwaite

Principal

None

(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 Investment Company Act of 1940, as amended, and the rules promulgated thereunder will be maintained at the offices of the Registrant, 100 Vanguard Boulevard, Malvern, PA 19355; the Registrant’s Transfer Agent, The Vanguard Group, Inc., 100 Vanguard Boulevard, Malvern, PA 19355; the Registrant’s Custodian, Brown Brothers Harriman & Co., 50 Post Office Square, Boston, MA 02110-1548; and the Registrant’s investment advisors at their respective locations identified in Part B of this Registration Statement.

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 and the Investment Company Act of 1940, the Registrant hereby certifies that it meets all requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and 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 the 26th day of February, 2018.

VANGUARD WINDSOR FUNDS

BY:____________/s/ Mortimer J. Buckley*____

Mortimer J. Buckley
Chief Executive Officer, President, and Trustee

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated:

Signature Title Date
 
/S/ F. WILLIAM MCNABB III* Chairman February 26, 2018
F. William McNabb    
/S/ MORTIMER J. BUCKLEY* Chief Executive Officer, President, and February 26, 2018
  Trustee  
Mortimer J. Buckley    
/S/ EMERSON U. FULLWOOD* Trustee February 26, 2018
Emerson U. Fullwood    
/S/ AMY GUTMANN* Trustee February 26, 2018
Amy Gutmann    
/S/ JOANN HEFFERNAN HEISEN* Trustee February 26, 2018
JoAnn Heffernan Heisen    
/S/ F. JOSEPH LOUGHREY* Trustee February 26, 2018
F. Joseph Loughrey    
/S/ MARK LOUGHRIDGE* Trustee February 26, 2018
Mark Loughridge    
/S/ SCOTT C. MALPASS* Trustee February 26, 2018
Scott C. Malpass    
/S/ DEANNA MULLIGAN* Trustee February 26, 2018
Deanna Mulligan    
/S/ ANDRÉ F. PEROLD* Trustee February 26, 2018
André F. Perold    
/S/ SARAH BLOOM RASKIN* Trustee February 26, 2018
Sarah Bloom Raskin    
/S/ PETER F. VOLANAKIS* Trustee February 26, 2018
Peter F. Volanakis    
/S/ THOMAS J. HIGGINS* Chief Financial Officer February 26, 2018
Thomas J. Higgins    

 

*By: /s/ Anne E. Robinson

Anne E. Robinson, pursuant to a Power of Attorney filed on January 18, 2018, see file Number 33-32216, Incorporated by Reference.


 

INDEX TO EXHIBITS  
 
By-Laws, Amended and Restated By-Laws. Ex-99.B
Custodian Agreement, Brown Brothers Harriman & Co. Ex-99.G
Other Material Contracts, Fifth Amended and Restated Funds’ Service Agreement Ex-99.H
Other Opinions, Consent of Independent Registered Public Accounting Firm Ex-99.J
Rule 18f-3 Plan. Ex-99.N
Codes of Ethics, Sanders Capital, LLC Ex-99.P
Codes of Ethics, Vanguard Group Inc., Ex-99.P
Codes of Ethics, Wellington Management LLP Ex-99.P

 

EX-99.B BYLAWS 2 elby-lawswindsorfunds_121320.htm BY-LAWS elby-lawswindsorfunds_121320.htm - Generated by SEC Publisher for SEC Filing

AMENDED AND RESTATED

BY-LAWS

OF

VANGUARD WINDSOR FUNDS

     These By-Laws of Vanguard Windsor Funds, a Delaware statutory trust, are subject to the Amended and Restated Declaration of Trust of the Trust dated as of November 19, 2008, as from time to time amended, supplemented or restated (the “Declaration of Trust”). In the event of any conflict between the provisions of these ByLaws and the provisions of the Declaration of Trust, the provisions of the Declaration of Trust will control. Capitalized terms used herein which are defined in the Declaration of Trust are used as therein defined.

ARTICLE I

Fiscal Year and Offices

     Section 1. Fiscal Year. Unless otherwise provided by resolution of the Board of Trustees, the fiscal year of the Trust shall begin on the 1st day of November and end on the last day of October.

     Section 2. Delaware Office. The Board of Trustees shall establish a registered office in the State of Delaware and shall appoint as the Trust’s registered agent for service of process in the State of Delaware an individual resident of the State of Delaware or a Delaware corporation or a foreign corporation authorized to transact business in the State of Delaware; in each case the business office of such registered agent for service of process shall be identical with the registered Delaware office of the Trust.

     Section 3. Principal Office. The principal office of the Trust shall be located at 100 Vanguard Boulevard, Malvern, Pennsylvania 19355, or such other location s the Trustees may from time to time determine.

     Section 4. Other Offices. The Board of Trustees may at any time establish branch or subordinate offices at any place or places where the Trust intends to do business.


 

ARTICLE II

Meetings of Shareholders

     Section 1. Place of Meeting. Meetings of the Shareholders for the election of Trustees shall be held in such place as shall be fixed by resolution of the Board of Trustees and stated in the notice of the meeting.

     Section 2. Annual Meetings. An annual meeting of Shareholders will not be held unless the 1940 Act requires the election of Trustees to be acted upon.

     Section 3. Special Meetings. Special meetings of the Shareholders may be called at any time by the chairman, or president, or by the Board of Trustees, and shall be called by the secretary upon written request of the holders of Shares entitled to cast not less than twenty percent of all the votes entitled to be cast at such meeting provided that (a) such request shall state the purposes of such meeting and the matters proposed to be acted on, (b) the Shareholders requesting such meeting shall have paid to the Trust the reasonable estimated cost of preparing and mailing the notice thereof, which the secretary shall determine and specify to such Shareholders, and (c) the Shareholders requesting such meeting must provide ninety (90) days advance notice of business to be brought to a vote at a shareholder meeting and for nomination of directors, unless such notice runs counter to the proxy rules under the Securities Exchange Act of 1934. No special meeting need be called upon the request of Shareholders entitled to cast less than a majority of all votes entitled to be cast at such meeting to consider any matter which is substantially the same as a matter voted on at any meeting of the Shareholders held during the preceding twelve months. The foregoing provisions of this Section 3 notwithstanding a special meeting of Shareholders shall be called upon the request of the holders of at least ten percent of the votes entitled to be cast for the purpose of consideration removal of a Trustee from office as provided in section 16(c) of the 1940 Act.

     Section 4. Notice. Not less than ten, nor more than one hundred (100) days before the date of every annual or special meeting, the secretary shall cause to be delivered to each Shareholder entitled to vote at such meeting a written notice in accordance with Article IV, Section 1 of these By-Laws stating the time and place of the meeting and, in the case of a special meeting of Shareholders, shall state the purposes of the meeting and the matters to be acted on and the purposes of such special meeting and matters to be acted on shall be limited to those stated in such written notice. Notice of adjournment of a Shareholders meeting to another time or place need not be given, if such time and place are announced at the meeting. No notice need be given to any Shareholder who shall have failed to inform the Trust of his or her current address or if a written waiver of notice, executed before or after the meeting by the Shareholder or his or her attorney thereunto authorized, is filed with the records of the meeting.

     Section 5. Record Date for Meetings. The Board of Trustees may fix in advance a date not more than one hundred (100), nor less than ten, days prior to the date

2


 

of any annual or special meeting of the Shareholders as a record date for the determination of the Shareholders entitled to receive notice of, and to vote at any meeting and any adjournment thereof; and in such case such Shareholders and only such Shareholders as shall be Shareholders of record on the date so fixed shall be entitled to receive notice of and to vote at such meeting and any adjournment thereof as the case may be, notwithstanding any transfer of any stock on the books of the Trust after any such record date fixed as aforesaid.

     Section 6. Quorum. Except as otherwise provided by the 1940 Act or in the Trust’s Declaration of Trust, at any meeting of Shareholders, the presence in person or by proxy of the holders of record of Shares issued and outstanding and entitled to vote representing more than thirty-three and one-third percent (33 1/3%) of the total combined net asset value of all Shares issued and outstanding and entitled to vote shall constitute a quorum for the transaction of any business at the meeting.

     If, however, a quorum shall not be present or represented at any meeting of the Shareholders, either the chairman of the meeting (without a Shareholder vote) or the holders of a majority of the votes present or in person or by proxy shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The Shareholders of record entitled to vote at a Shareholders’ meeting that has been postponed or reconvened after one or more adjournments shall be deemed to be the Shareholders on the original record date, unless the Trustees have fixed a new record date.

     Section 7. Voting. Each Shareholder shall have one vote for each dollar (and a fractional vote for each fractional dollar) of the net asset value of each share (including fractional Shares) held by such Shareholder on the record date set pursuant to Section 5 on each matter submitted to a vote at a meeting of Shareholders. For purposes of this section and Section 6 of this Article II, net asset value shall be determined pursuant to Section 3, Article VIII of these By-Laws as of the record date for such meeting set pursuant to Section 5. There shall be no cumulative voting in the election of Trustees. At any meeting of Shareholders, any Shareholder entitled to vote thereat may vote either in person or by written proxy signed by the Shareholder, provided that no proxy shall be voted at any meeting unless it shall have been placed on file with the secretary, or with such other officer or agent of the Trust as the secretary may direct, for verification prior to the time at which such vote shall be taken; provided, however, that notwithstanding any other provision of this Section 7 to the contrary, the Trustees or any officer of the Trust with responsibility for such matters may at any time adopt one or more electronic, telecommunication, telephonic, computerized or other alternatives to execution of a written instrument that will enable Shareholders entitled to vote at any meeting to appoint a proxy to vote such Shareholders’ Shares at such meeting; provided, further, that, until the Trustees or such officer adopt such electronic, telecommunication, telephonic, computerized or other alternatives, no Shareholder may act to appoint a proxy

3


 

to vote such holder’s Shares at a meeting by any such alternatives and if the Trustees or such officer do adopt such electronic, telecommunication, telephonic, computerized or other alternatives, then Shareholders may only act in the manner prescribed by the Trustees. Proxies may be solicited in the name of one or more Trustees or one or more of the officers of the Trust. Only Shareholders of record shall be entitled to vote. When any share is held jointly by several persons, any one of them may vote at any meeting in person or by proxy in respect of such share, but if more than one of them shall be present at such meeting in person or by proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, such vote shall not be received in respect of such share. Unless otherwise specifically limited by their terms, proxies shall entitle the holder thereof to vote at any adjournment of a meeting. A proxy purporting to be executed by or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. If the holder of any such share is a minor or a person of unsound mind, and subject to guardianship or the legal control of any other person as regards the charge or management of such share, he or she may vote by his or her guardian or such other person appointed or having such control, and such vote may be given in person or by proxy. Except as otherwise provided herein or in the Declaration of Trust or the Delaware Act, all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Trust were a Delaware corporation and the Shareholders were Shareholders of a Delaware corporation.

     At all meetings of the Shareholders, a quorum being present, the Trustees shall be elected by the vote of a plurality of the votes cast by Shareholders present in person or by proxy and all other matters shall be decided by majority of the votes cast by Shareholders present in person or by proxy, unless the question is one for which by express provision of the 1940 Act or the Declaration of Trust, a different vote is required, in which case such express provision shall control the decision of such question. There shall be no cumulative voting for Trustees. At all meetings of Shareholders, unless the voting is conducted by inspectors, all questions relating to the qualification of voters and the validity of proxies and the acceptance or rejection of votes shall be decided by the Chairman of the meeting.

     Section 8. Inspectors. At any election of Trustees, the Board of Trustees prior thereto may, or, if they have not so acted, the chairman of the meeting may appoint one or more inspectors of election who shall first subscribe an oath of affirmation to execute faithfully the duties of inspectors at such election with strict impartiality and according to the best of their ability, and shall after the election make a certificate of the result of the vote taken.

     Section 9. Stock Ledger and List of Shareholders. It shall be the duty of the secretary or assistant secretary of the Trust to cause an original or duplicate share ledger to be maintained at the office of the Trust’s transfer agent. Such share ledger may be in written form or any other form capable of being converted into written form within a reasonable time for visual inspection.

4


 

     Section 10. Action Without Meeting. Any action to be taken by Shareholders may be taken without a meeting if (a) all Shareholders entitled to vote on the matter consent to the action in writing, (b) all Shareholders entitled to notice of the meeting but not entitled to vote at it sign a written waiver of any right to dissent, and (c) the written consents are filed with the records of the meeting of Shareholders. Such consent shall be treated for all purposes as a vote at a meeting.

ARTICLE III

Trustees

     Section 1. Place of Meeting. Meetings of the Board of Trustees, regular or special, may be held at any place as the Board may from time to time determine.

     Section 2. Quorum. At all meetings of the Board of Trustees, one-third of the Trustees then in office shall constitute a quorum for the transaction of business provided that in no case may a quorum be fewer than two persons (unless there is only one Trustee then in office, in which case such Trustee shall constitute a quorum). The action of a majority of the Trustees present at any meeting at which a quorum is present shall be the action of the Board of Trustees unless the concurrence of a greater proportion is required for such action by the 1940 Act or the Declaration of Trust. If a quorum shall not be present at any meeting of Trustees, the Trustees present thereat may by a majority vote adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum shall be present.

     Section 3. Regular Meetings. Regular meetings of the Board of Trustees may be held without additional notice at such time and place as shall from time to time be determined by the Board of Trustees provided that notice of any change in the time or place of such meetings shall be sent promptly to each Trustee not present at the meeting at which such change was made in the manner provided for notice of special meetings.

     Section 4. Special Meetings. Special meetings of the Board of Trustees may be called by the chairman or president on one day’s notice to each Trustee; special meetings shall be called by the chairman or president or secretary in like manner and on like notice on the written request of two Trustees.

     Section 5. Telephone Meeting. Members of the Board of Trustees or a committee of the Board of Trustees may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time.

     Section 6. Informal Actions. Any action required or permitted to be taken at any meeting of the Board of Trustees or of any committee thereof may be taken without a meeting, if a written consent to such action is signed by a majority of the Trustees then in office or by a majority of the members of such committee, as the case

5


 

may be (unless, in either case, the question is one for which by express provision of the 1940 Act or the Declaration of Trust, a different vote is required, in which case such express provision shall control the decision of such question). Any such written consent shall be filed with the minutes of proceedings of the Board or committee, as applicable.

     Section 7. Committees. The Board of Trustees may appoint from among its members an Executive Committee and other committees composed of two or more Trustees, and may delegate to such committees any or all of the powers of the Board of Trustees in the management of the business and affairs of the Trust.

     Section 8. Action of Committees. In the absence of an appropriate resolution of the Board of Trustees, each committee may adopt such rules and regulations governing its proceedings, quorum and manner of acting as it shall deem proper and desirable, provided that the quorum shall not be fewer than two Trustees. The committees shall keep minutes of their proceedings and shall report the same to the Board of Trustees at the meeting next succeeding, and any action by the committee shall be subject to revision and alteration by the Board of Trustees, provided that no rights of third persons shall be affected by any such revision or alteration. In the absence of any member of such committee, the members thereof present at any meeting, whether or not they constitute a quorum, may appoint a member of the Board of Trustees to act in the place of such absent member.

     Section 9. Election of Chairman. The Board of Trustees shall choose a Chairman. The Chairman of the Board of Trustees shall hold his post for such term and shall perform and execute such duties and administrative powers as the Board of Trustees shall prescribe from time to time.

     Section 10. Other Executive Posts. The Board of Trustees from time to time may appoint such other Executive Posts as it shall deem advisable, who shall hold their posts for such terms and shall perform and execute such executive duties and administrative powers as the Board of Trustees shall from time to time prescribe.

ARTICLE IV

Notices

     Section 1. Form. Subject to the 1940 Act, notices and all other communications to Shareholders shall be in writing and delivered personally, or sent by electronic transmission to an electronic mail address provided by the Shareholder or mailed to the Shareholders at their addresses appearing on the books of the Trust. Notices to Trustees shall be oral or by telephone or in writing delivered personally or mailed to the Trustees at their addresses appearing on the books of the Trust or by electronic transmission to an electronic mail address provided by the Trustee. Notice by mail shall be deemed to be given at the time when the same shall be mailed and notice by electronic transmission shall be deemed given at the time when sent. Subject to the provisions of the 1940 Act, notice to Trustees need not state the purpose of a regular or

6


 

special meeting.

7


 

     Section 2. Waiver. Whenever any notice of the time, place or purpose of any meeting of Shareholders, Trustees or a committee is required to be given under the provisions of the Declaration of Trust or these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to such notice and filed with the records of the meeting, whether before or after the holding thereof, or actual attendance at the meeting of Shareholders in person or by proxy, or at the meeting of Trustees or a committee in person, shall be deemed equivalent to the giving of such notice to such persons.

ARTICLE V

Officers

     Section 1. Executive Officers. The officers of the Trust shall be chosen by the Board of Trustees and shall include a president, a secretary and a treasurer. The Board of Trustees may, from time to time, elect or appoint a controller, one or more vice presidents, assistant secretaries, assistant treasurers, and assistant controllers. The same person may hold two or more offices, except that no person shall be both president and vice president and no officer shall execute, acknowledge or verify any instrument in more than one capacity, if such instrument is required by law, the Declaration of Trust or these By-Laws to be executed, acknowledged or verified by two or more officers.

     Section 2. Election. The Board of Trustees shall choose a president, a secretary and a treasurer.

     Section 3. Other Officers. The Board of Trustees from time to time may appoint such other officers and agents as it shall deem advisable, who shall hold their offices for such terms and shall exercise powers and perform such duties as shall be determined from time to time by the Board of Trustees. The Board of Trustees from time to time may delegate to one or more officers or agents the power to appoint any such subordinate officers or agents and to prescribe their respective rights, terms of office, authorities and duties.

     Section 4. Compensation. The salaries or other compensation of all officers and agents of the Trust shall be fixed by the Board of Trustees, except that the Board of Trustees may delegate to any person or group of persons the power to fix the salary or other compensation of any subordinate officers or agents appointed pursuant to Section 3 of this Article V.

     Section 5. Tenure. The officers of the Trust shall serve at the pleasure of the Board of Trustees. Any officer or agent may be removed by the affirmative vote of the Board of Trustees with or without cause whenever, in its judgment, the best interests of the Trust will be served thereby. In addition, any officer or agent appointed pursuant to Section 3 may be removed, either with or without cause, by any officer upon whom such power of removal shall have been conferred by the Board of Trustees. Any vacancy occurring in any office of the Trust by death, resignation, removal or otherwise shall be

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filled by the Board of Trustees, unless pursuant to Section 3 the power of appointment has been conferred by the Board of Trustees on any other officer.

     Section 6. President and Chief Executive Officer. The president shall be the chief executive officer of the Trust, unless the Board of Trustees designates the chairman as chief executive officer. The chief executive officer shall see that all orders and resolutions of the Board of Trustees are carried into effect. The chief executive officer shall also be the chief administrative officer of the Trust and shall perform such other duties and have such other powers as the Board of Trustees may from time to time prescribe.

     Section 7. Vice President. The vice presidents, in order of their seniority, shall, in the absence or disability of the chief executive officer, perform the duties and exercise the powers of the chief executive officer and shall perform such other duties as the Board of Trustees or the chief executive officer may from time to time prescribe.

     Section 8. Secretary. The secretary shall attend all meetings of the Board of Trustees and all meetings of the Shareholders and record all the proceedings thereof and shall perform like duties for any committee when required. He shall give, or cause to be given, notice of meetings of the Shareholders and of the Board of Trustees, shall have charge of the records of the Trust, including the stock books, and shall perform such other duties as may be prescribed by the Board of Trustees or chief executive officer, under whose supervision he shall be. He shall keep in safe custody the seal of the Trust and, when authorized by the Board of Trustees, shall affix and attest the same to any instrument requiring it. The Board of Trustees may give general authority to any other officer to affix the seal of the Trust and to attest the affixing by his signature.

     Section 9. Assistant Secretaries. The assistant secretaries in order of their seniority, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary and shall perform such other duties as the Board of Trustees or the chief executive officer shall prescribe.

     Section 10. Treasurer. The treasurer, unless another officer has been so designated, shall be the chief financial officer of the Trust. He shall have general charge of the finances and books of account of the Trust. Except as otherwise provided by the Board of Trustees, he shall have general supervision of the funds and property of the Trust and of the performance by the custodian of its duties with respect thereto. He shall render to the Board of Trustees, whenever directed by the Board of Trustees, an account of the financial condition of the Trust and of all his transactions as treasurer. He shall cause to be prepared annually a full and correct statement of the affairs of the Trust, including a balance sheet and a statement of operations for the preceding fiscal year. He shall perform all of the acts incidental to the office of treasurer, subject to the control of the Board of Trustees or the chief executive officer.

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     Section 11. Assistant Treasurer. The assistant treasurer shall in the absence or disability of the treasurer, perform the duties and exercise the powers of the treasurer and shall perform such other duties as the Board of Trustees or the chief executive officer may from time to time prescribe.

ARTICLE VI

Indemnification and Insurance

     Section 1. Agents, Proceedings and Expenses. For the purpose of this Article, “agent” means any person who is or was a Trustee or officer of this Trust and any person who, while a Trustee or officer of this Trust, is or was serving at the request of this Trust as a Trustee, director, officer, partner, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise; “Trust” includes any domestic or foreign predecessor entity of this Trust in a merger, consolidation, or other transaction in which the predecessor’s existence ceased upon consummation of the transaction; “proceeding” means any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative; and “expenses” includes without limitation attorney’s fees and any expenses of establishing a right to indemnification under this Article.

     Section 2. Actions Other Than by Trust. This Trust shall indemnify any person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of this Trust) by reason of the fact that such person is or was an agent of this Trust, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding, if it is determined that person acted in good faith and reasonably believed: (a) in the case of conduct in his official capacity as an agent of the Trust, that his conduct was in the Trust’s best interests and (b) in all other cases, that his conduct was at least not opposed to the Trust’s best interests and (c) in the case of a criminal proceeding, that he had no reasonable cause to believe the conduct of that person was unlawful. The termination of any proceeding by judgment, order or settlement shall not of itself create a presumption that the person did not meet the requisite standard of conduct set forth in this Section. The termination of any proceeding by conviction, or a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, creates a rebuttable presumption that the person did not meet the requisite standard of conduct set forth in this Section.

     Section 3. Actions by the Trust. This Trust shall indemnify any person who was or is a party or is threatened to be made a party to any proceeding by or in the right of this Trust to procure a judgment in its favor by reason of the fact that that person is or was an agent of this Trust, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of that action if that person acted in good faith, in a manner that person believed to be in the best interests of this Trust and with such care, including reasonable inquiry, as an ordinarily prudent person in a like

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position would use under similar circumstances.

     Section 4. Exclusion of Indemnification. Notwithstanding any provision to the contrary contained herein, there shall be no right to indemnification for 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 agent’s office with this Trust.

No indemnification shall be made under Sections 2 or 3 of this Article:

(a)      In respect of any proceeding as to which that person shall have been adjudged to be liable on the basis that personal benefit was improperly received by him, whether or not the benefit resulted from an action taken in the person’s official capacity; or
(b)      In respect of any proceeding as to which that person shall have been adjudged to be liable in the performance of that person’s duty to this Trust, unless and only to the extent that the court in which that action was brought shall determine upon application that in view of all the relevant circumstances of the case, that person is fairly and reasonably entitled to indemnity for the expenses which the court shall determine; however, in such case, indemnification with respect to any proceeding by or in the right of the Trust or in which liability shall have been adjudged by reason of the disabling conduct set forth in the preceding paragraph shall be limited to expenses; or
(c)      Of amounts paid in settling or otherwise disposing of a proceeding, with or without court approval, or of expenses incurred in defending a proceeding which is settled or otherwise disposed of without court approval, unless the required approval set forth in Section 6 of this Article is obtained.

     Section 5. Successful Defense by Agent. To the extent that an agent of this Trust has been successful, on the merits or otherwise, in the defense of any proceeding referred to in Sections 2 or 3 of this Article before the court or other body before whom the proceeding was brought, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith, provided that the Board of Trustees, including a majority who are disinterested, non-party Trustees, also determines that based upon a review of the facts, the agent was not liable by reason of the disabling conduct referred to in Section 4 of this Article.

     Section 6. Required Approval. Except as provided in Section 5 of this Article, any indemnification under this Article shall be made by this Trust only if authorized in the specific case on a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct

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set forth in Sections 2 or 3 of this Article and is not prohibited from indemnification because of the disabling conduct set forth in Section 4 of this Article, by:

(a)      A majority vote of a quorum consisting of Trustees who are not parties to the proceeding and are not interested persons of the Trust (as defined in the 1940 Act);
(b)      A written opinion by an independent legal counsel; or
(c)      The Shareholders; however, Shares held by agents who are parties to the proceeding may not be voted on the subject matter under this Sub-Section.

     Section 7. Advance of Expenses. Expenses incurred in defending any proceeding may be advanced by this Trust before the final disposition of the proceeding if (a) receipt of a written affirmation by the agent of his good faith belief that he has met the standard of conduct necessary for indemnification under this Article and a written undertaking by or on behalf of the agent, such undertaking being an unlimited general obligation to repay the amount of the advance if it is ultimately determined that he has not met those requirements, and (b) a determination that the facts then known to those making the determination would not preclude indemnification under this Article. Determinations and authorizations of payments under this Section must be made in the manner specified in Section 6 of this Article for determining that the indemnification is permissible.

     Section 8. Other Contractual Rights. Nothing contained in this Article shall affect any right to indemnification to which persons other than Trustees and officers of this Trust or any subsidiary hereof may be entitled by contract or otherwise.

     Section 9. Limitations. No indemnification or advance shall be made under this Article, except as provided in Sections 5 or 6 in any circumstances where it appears:

(a)      That it would be inconsistent with a provision of the Agreement and Declaration of Trust of the Trust, a resolution of the Shareholders, or an agreement in effect at the time of accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid which prohibits or otherwise limits indemnification; or
(b)      That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.

     Section 10. Insurance. Upon and in the event of a determination by the Board of Trustees of this Trust to purchase such insurance, this Trust shall purchase and maintain insurance on behalf of any agent or employee of this Trust against any liability

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asserted against or incurred by the agent or employee in such capacity or arising out of the agent’s or employee’s status as such to the fullest extent permitted by law.

     Section 11. Fiduciaries of Employee Benefit Plan. This Article does not apply to any proceeding against any Trustee, investment manager or other fiduciary of an employee benefit plan in that person’s capacity as such, even though that person may also be an agent of this Trust as defined in Section 1 of this Article. Nothing contained in this Article shall limit any right to indemnification to which such a Trustee, investment manager, or other fiduciary may be entitled by contract or otherwise which shall be enforceable to the extent permitted by applicable law other than this Article.

ARTICLE VII

Shares of Beneficial Interest

     Section 1. Certificates. A certificate or certificates representing and certifying the series or class and the full, but not fractional, number of Shares of beneficial interest owned by each Shareholder in the Trust shall not be issued except as the Board of Trustees may otherwise determine from time to time. Any such certificate issued shall be signed by facsimile signature or otherwise by the chairman or president or a vice president and counter-signed by the secretary or an assistant secretary or the treasurer or an assistant treasurer.

     Section 2. Signature. In case any officer who has signed any certificate ceases to be an officer of the Trust before the certificate is issued, the certificate may nevertheless be issued by the Trust with the same effect as if the officer had not ceased to be such officer as of the date of its issue.

     Section 3. Recording and Transfer Without Certificates. The Trust shall have the full power to participate in any program approved by the Board of Trustees providing for the recording and transfer of ownership of the Trust’s Shares by electronic or other means without the issuance of certificates.

     Section 4. Lost Certificates. The Board of Trustees may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Trust alleged to have been stolen, lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to have been stolen, lost or destroyed, or upon other satisfactory evidence of such theft, loss or destruction and may in its discretion and as a condition precedent to the issuance thereof, require the owner of such stolen, lost or destroyed certificate or certificates, or his legal representative, to give the Trust a bond with sufficient surety, to the Trust to indemnify it against any loss or claim that may be made by reason of the issuance of a new certificate.

     Section 5. Transfer of Shares. Transfers of Shares of beneficial interest of the Trust shall be made on the books of the Trust by the holder of record thereof (in person or by his attorney thereunto duly authorized by a power of attorney duly executed

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in writing and filed with the secretary of the Trust) (i) if a certificate or certificates have been issued, upon the surrender of the certificate or certificates, properly endorsed or accompanied by proper instruments of transfer, representing such Shares, or (ii) as otherwise prescribed by the Board of Trustees. Every certificate exchanged, surrendered for redemption or otherwise returned to the Trust shall be marked “Canceled” with the date of cancellation.

     Section 6. Registered Shareholders. The Trust shall be entitled to recognize the exclusive right of a person registered on its books as the owner of Shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of Shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or Shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by applicable law or the Declaration of Trust.

     Section 7. Transfer Agents and Registrars. The Board of Trustees may, from time to time, appoint or remove transfer agents and or registrars of the Trust, and they may appoint the same person as both transfer agent and registrar. Upon any such appointment being made, all certificates representing Shares of beneficial interest thereafter issued shall be countersigned by such transfer agent and shall not be valid unless so countersigned.

     Section 8. Stock Ledger. The Trust shall maintain an original stock ledger containing the names and addresses of all Shareholders and the number and series or class of Shares held by each Shareholder. Such stock ledger may be in written form or any other form capable of being converted into written form within reasonable time for visual inspection.

ARTICLE VIII

General Provisions

     Section 1. Custodianship. Except as otherwise provided by resolution of the Board of Trustees, the Trust shall place and at all times maintain in the custody of a custodian (including any sub-custodian for the custodian) all funds, securities and similar investments owned by the Trust. Subject to the approval of the Board of Trustees, the custodian may enter into arrangements with securities depositories, provided such arrangements comply with the provisions of the 1940 Act and the rules and regulations promulgated thereunder.

     Section 2. Execution of Instruments. All deeds, documents, transfers, contracts, agreements and other instruments requiring execution by the Trust may be signed by the chairman or president or a vice president or the treasurer or the secretary or any other duly authorized officer or agent of the Trust, which authority may be general or specific.

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     Section 3. Net Asset Value. Subject to Section 1 of Article VI of the Declaration of Trust, the net asset value per Share shall be determined separately as to each series or class of the Trust’s Shares, by dividing the sum of the total market value of the series’ or class’s investments and other assets, less any liabilities, by the total outstanding Shares of such series or class, subject to the 1940 Act and any other applicable Federal securities law or rule or regulation currently in effect.

ARTICLE IX

Amendments

     The Board of Trustees, without a vote by the Shareholders, shall have the power to make, alter and repeal the By-Laws of the Trust.

15

EX-99.G CUST AGREEMT 3 custodyagreement2001amendmen.htm CUSTODIAN AGREEMENT custodyagreement2001amendmen.htm - Generated by SEC Publisher for SEC Filing

AMENDED AND RESTATED CUSTODIAN AGREEMENT

     THIS AMENDED AND RESTATED AGREEMENT, dated as of June 25, 2001, between certain open-end management investment companies (each investment company a “Fund”) organized under the laws of the State of Delaware and registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (the "1940 Act"), on behalf of certain of their series (each series a “Series”), and BROWN BROTHERS HARRIMAN & CO., a limited partnership formed under the laws of the State of New York (BBH&Co. or the Custodian),

W I T N E S S E T H:

     WHEREAS, each Fund has employed BBH&Co. to act as the Fund's custodian and to provide related services, all as provided herein; WHEREAS, the Securities and Exchange Commission has promulgated amendments to Rule 17f-5 and adopted Rule 17f-7 under the 1940 Act that establish rules regarding the custody of investment company assets held outside the United States; and WHEREAS, BBH&Co. is willing to provide services in connection with such Rules in accordance with the terms of this Amended Custodian Agreement; NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained,

each Fund and BBH&Co. hereby agree, as follows:

1. Appointment of Custodian.

The Fund hereby appoints BBH&Co. as the Fund's custodian, and

BBH&Co. hereby accepts such appointment. All Investments of the Fund delivered to the Custodian or its

agents or Subcustodians shall be dealt with as provided in this Agreement. The duties of the Custodian with

respect to the Fund's Investments shall be set forth expressly in this Agreement and any addenda thereto

which duties are generally comprised of safekeeping and various administrative duties that will be

performed in accordance with Instructions and as reasonably required to effect Instructions.

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2. Representations, Warranties and Covenants of the Fund. The Fund hereby represents, warrants

and covenants each of the following:

     2.1 This Agreement has been, and at the time of delivery of each Instruction such Instruction will have been, duly authorized, executed and delivered by the Fund. This Agreement does not violate any Applicable Law or conflict with or constitute a default under the Fund's prospectus or other organic document, agreement, judgment, order or decree to which the Fund is a party or by which it or its Investments is bound. The Fund is and will be in compliance with all laws and regulations applicable to its operations, investments or activities.

     2.2 By providing an Instruction with respect to the first acquisition of an Investment in a jurisdiction other than the United States of America, the Fund shall be deemed to have confirmed to the Custodian that the Fund has (a) assessed and accepted all material Country or Sovereign Risks and accepted responsibility for their occurrence, (b) made all determinations required to be made by the Fund under the 1940 Act, and (iii) appropriately and adequately disclosed to its shareholders, other investors and all persons who have rights in or to such Investments, all material investment risks, including those relating to the custody and settlement infrastructure or the servicing of securities in such jurisdiction.

     2.3 The Fund shall safeguard and shall solely be responsible for the safekeeping of any testkeys, identification codes, passwords, other security devices or statements of account with which the Custodian provides it. In furtherance and not limitation of the foregoing, in the event the Fund utilizes any on-line service offered by the Custodian, the Fund and the Custodian shall be fully responsible for the security of each party’s connecting terminal, access thereto and the proper and authorized use thereof and the initiation and application of continuing effective safeguards in respect thereof. Additionally, if the Fund uses any on-line or similar communications service made available by the Custodian, the Fund shall be solely responsible for ensuring the security of its access to the service and for the use of the service, and shall only attempt to access the service and the Custodian’s computer systems as directed by the Custodian. If the Custodian provides any computer software to the Fund relating to the services described in this Agreement, the Fund will only use the software for the purposes for which the Custodian provided the software to the Fund, and will abide by the license agreement accompanying the software and any other security policies which the Custodian provides to the Fund.

3. Representation and Warranty of BBH&Co. BBH&Co. hereby represents and warrants that this

Agreement has been duly authorized, executed and delivered by BBH&Co. and does not and will not

violate any Applicable Law or conflict with or constitute a default under BBH&Co.'s limited partnership

agreement or any agreement, instrument, judgment, order or decree to which BBH&Co. is a party or by

which it is bound. BBH&Co. also warrants that it will comply with all applicable laws and regulations in

performance of its duties under this Agreement.

4.      Instructions. Unless otherwise explicitly indicated herein, the Custodian shall perform its duties

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pursuant to Instructions. As used herein, the term Instruction shall mean a directive initiated by the Fund,

acting directly or through its board of directors or trustees, officers or other Authorized Persons, which

directive shall conform to the requirements of this Section 4.

4.1 Authorized Persons. For purposes hereof, an Authorized Person shall be a person or entity

authorized to give Instructions for or on behalf of the Fund by written notices to the Custodian or otherwise

in accordance with procedures delivered to the Custodian. The Custodian may treat any Authorized Person

as having full authority of the Fund to issue Instructions hereunder unless the notice of authorization

contains explicit limitations as to said authority. The Custodian shall be entitled to rely upon the authority

of Authorized Persons until it receives appropriate written notice from the Fund to the contrary.

4.2 Form of Instruction. Each Instruction shall be transmitted by such secured or authenticated

electro-mechanical means as the Custodian shall make available to the Fund from time to time unless the

Fund shall elect to transmit such Instruction in accordance with Subsections 4.2.1 through 4.2.3 of this

Section.

4.2.1 Fund Designated Secured-Transmission Method. Instructions may be transmitted
through a secured or tested electro-mechanical means identified by the Fund or by an Authorized

 

Person entitled to give Instruction and acknowledged and accepted by the Custodian; it being understood that such acknowledgment shall authorize the Custodian to receive and process such means of delivery but shall not represent a judgment by the Custodian as to the reasonableness or security of the method determined by the Authorized Person.

     4.2.2 Written Instructions. Instructions may be transmitted in a writing that bears the manual signature of Authorized Persons.

     4.2.3 Other Forms of Instruction. Instructions may also be transmitted by another means determined by the Fund or Authorized Persons and acknowledged and accepted by the Custodian (subject to the same limits as to acknowledgements as is contained in Subsection 4.2.1, above) including Instructions given orally or by SWIFT, telex or telefax (whether tested or untested).

When an Instruction is given by means established under Subsections 4.2.1 through 4.2.3, it shall be the

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responsibility of the Custodian to use reasonable care to adhere to any security or other procedures

established in writing between the Custodian and the Authorized Person with respect to such means of

Instruction, but such Authorized Person shall be solely responsible for determining that the particular means

chosen is reasonable under the circumstances. If the Custodian believes that the means chosen are

unreasonable, it shall promptly notify an Authorized Person. Oral Instructions shall be binding upon the

Custodian only if and when an Authorized Person provides Instructions that conform to the requirements of

this Section 4. Any Oral Instructions shall promptly thereafter be confirmed in writing by an Authorized

Person (which confirmation may bear the facsimile signature of such Person). With respect to telefax

Instructions, the parties agree and acknowledge that receipt of legible Instructions cannot be assured and

that the Custodian cannot verify that authorized signatures on telefax Instructions are original or properly

affixed. If the Custodian determines that a telefax Instruction is illegible, the Custodian shall promptly

contact an Authorized Person and request a legible telefax Instruction. Provided the Custodian has

exercised the standard of care required herein with respect to receipt of Proper Instructions including but

not limited to any applicable security or authorization procedures, the Custodian shall not be liable for

losses or expenses incurred through actions taken in reliance on inaccurately stated or unauthorized telefax

Instructions. The provisions of Section 4A of the Uniform Commercial Code shall apply to Funds

Transfers performed in accordance with Instructions. In the event that a Funds Transfer Services

Agreement is executed between the Fund or an Authorized Person and the Custodian, such an agreement

shall comprise a designation of form of a means of delivering Instructions for purposes of this Section 4.2.

4.3 Completeness and Contents of Instructions. The Authorized Person shall be responsible for

assuring the adequacy and accuracy of Instructions. Particularly, upon any acquisition or disposition or

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other dealing in the Fund's Investments and upon any delivery and transfer of any Investment or moneys, the

person initiating such Instruction shall give the Custodian an Instruction with appropriate detail, including,

without limitation:

4.3.1      The transaction date and the date and location of settlement;
4.3.2      The specification of the type of transaction;
4.3.4      A description of the Investments or moneys in question, including, as appropriate,

quantity, price per unit, amount of money to be received or delivered and currency information. Where an Instruction is communicated by electronic means, or otherwise where an Instruction contains an identifying number such as a CUSIP, SEDOL or ISIN number, the Custodian shall be entitled to rely on such number as controlling notwithstanding any inconsistency contained in such Instruction, particularly with respect to Investment description. If the Custodian is aware of such an inconsistency in an Instruction, it shall give prompt notice of such inconsistency to an Authorized Person.

     4.3.5 The name of the broker or similar entity concerned with execution of the transaction.

If the Custodian shall reasonably determine that an Instruction, including a telefax Instruction, is either

unclear or incomplete, the Custodian shall give prompt notice of such determination to the Fund, and the

Fund shall thereupon amend or otherwise reform such Instruction. In such event, the Custodian shall have

no obligation to take any action in response to the Instruction initially delivered until the redelivery of an

amended or reformed Instruction

4.4 Timeliness of Instructions. In giving an Instruction, the Fund shall take into consideration

delays which may occur due to the involvement of a Subcustodian or agent, differences in time zones, and

other factors particular to a given market, exchange or issuer. When the Custodian has established specific

timing requirements or deadlines with respect to particular classes of Instruction and the Custodian has

notified the Fund of such timing requirements and deadlines, or when an Instruction is received by the

Custodian at such a time that it could not reasonably be expected to have acted on such Instruction due to

time zone differences or other factors beyond its reasonable control, the execution of any Instruction

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received by the Custodian after such deadline or at such time (including any modification or revocation of a

previous Instruction) shall be at the risk of the Fund.

5. Safekeeping of Fund Assets.

The Custodian shall hold Investments delivered to it or

Subcustodians for the Fund in accordance with the provisions of this Section. The Custodian will identify

the Investments on its books as belonging to each individual Series. The Custodian shall not be responsible

for (a) the safekeeping of Investments not delivered or that are not caused to be issued to it or its

Subcustodians; or, (b) pre-existing faults or defects in Investments that are delivered to the Custodian, or its

Subcustodians. The Custodian or Subcustodian shall give prompt notice to the Fund of any pre-existing

faults or defects that it is aware of. The Custodian is hereby authorized to hold with itself or a

Subcustodian, and to record in one or more accounts, all Investments delivered to and accepted by the

Custodian, any Subcustodian or their respective agents pursuant to an Instruction or in consequence of any

corporate action. Each such account is a “Securities Account” (as such term is defined in the Uniform

Commercial Code as in effect from time to time in the State of New York (the “UCC”)). The Custodian

shall hold Investments for the account of the Fund and shall segregate Investments from assets belonging to

the Custodian and shall cause its Subcustodians to segregate Investments from assets belonging to the

Subcustodian in an account held for the Fund or in an account maintained by the Subcustodian generally for

non-proprietary assets of the Custodian.

The parties acknowledge that the Custodian and Subcustodians each are acting under this

Agreement as a “Securities Intermediary” (as such term is used and defined in the UCC). For the purposes

of this Agreement, the parties hereto acknowledge and agree that (i) any Investment held by the Custodian

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or any Subcustodian shall constitute a “Financial Asset” (as such term is used and defined in the UCC), (ii)

the Fund may at any time issue one or more “Entitlement Orders” (as such term is used and defined in the

UCC) with respect to the Fund’s Investments, (iii) upon the Custodian’s or Subcustodian’s receipt of an

Investment for the benefit of the Fund, the Custodian or Subcustodian, as the case may be, shall credit to the

Fund a “Security Entitlement” (as such term is used and defined in the UCC), and (iv) the Fund shall have a

Security Entitlement with respect to all Investments held by the Custodian or Subcustodian.

5.1 Use of Securities Depositories. The Custodian may deposit and maintain Investments in any

Securities Depository, either directly or through one or more Subcustodians appointed by the Custodian.

Investments held in a Securities Depository shall be held (a) subject to the agreement, rules, statement of

terms and conditions or other document or conditions effective between the Securities Depository and the

Custodian or the Subcustodian, as the case may be, and (b) in an account for the Fund or in bulk segregation

in an account maintained for the non-proprietary assets of the entity holding such Investments in the

Depository. If market practice or the rules and regulations of the Securities Depository prevent the

Custodian, the Subcustodian or (any agent of either) from holding its client assets in such a separate

account, the Custodian, the Subcustodian or other agent shall as appropriate segregate such Investments for

the benefit of the Fund or for benefit of clients of the Custodian generally on its own books.

5.2 Certificated Assets. Investments which are certificated may be held in registered or bearer

form: (a) in the Custodian's vault; (b) in the vault of a Subcustodian or agent of the Custodian or a

Subcustodian; or (c) in an account maintained by the Custodian, Subcustodian or agent at a Securities

Depository; all in accordance with customary market practice in the jurisdiction in which any Investments

are held.

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5.3 Registered Assets. Investments which are registered may be registered in the name of the

Custodian, a Subcustodian, or in the name of the Fund or a nominee for any of the foregoing, and may be

held in any manner set forth in paragraph 5.2 above with or without any identification of fiduciary capacity

in such registration.

5.4 Book Entry Assets. Investments which are represented by book-entry may be so held in an

account maintained by the Book-Entry Agent on behalf of the Custodian, a Subcustodian or another agent

of the Custodian, or a Securities Depository.

5.5 Replacement of Lost Investments.

In the event of a loss of Investments for which the

Custodian is responsible under the terms of this Agreement, the Custodian shall promptly replace such

Investment, or in the event that such replacement cannot be effected, the Custodian shall pay to the Fund the

fair market value of such Investment based on the last available price as of the close of business in the

relevant market on the date that a claim was first made to the Custodian with respect to such loss.

6. Administrative Duties of the Custodian. The Custodian shall perform the following administrative

duties with respect to Investments of the Fund.

     6.1 Purchase of Investments. Pursuant to Instruction, Investments purchased for the account of the Fund shall be paid for (a) against delivery thereof to the Custodian or a Subcustodian, as the case may be, either directly or through a Clearing Corporation or a Securities Depository (in accordance with the rules of such Securities Depository or such Clearing Corporation), or (b) otherwise in accordance with an Instruction, Applicable Law, generally accepted trade practices, or the terms of the instrument representing such Investment.

     6.2 Sale of Investments. Pursuant to Instruction, Investments sold for the account of the Fund shall be delivered (a) against payment therefor in cash, by check or by bank wire transfer, (b) by credit to the account of the Custodian or the applicable Subcustodian, as the case may be, with a Clearing

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Corporation or a Securities Depository (in accordance with the rules of such Securities Depository or such Clearing Corporation), or (c) otherwise in accordance with an Instruction, Applicable Law, generally accepted trade practices, or the terms of the instrument representing such Investment.

     6.3 Delivery in Connection with Borrowings of the Fund or other Collateral and Margin Requirements. Pursuant to Instruction, the Custodian may deliver Investments or cash of the Fund in connection with borrowings and other collateral and margin requirements.

     6.4 Futures and Options. If, pursuant to an Instruction, the Custodian shall become a party to an agreement with the Fund and a futures commission merchant regarding margin (Tri-Party Agreement), the Custodian shall (a) receive and retain, to the extent the same are provided to the Custodian, confirmations or other documents evidencing the purchase or sale by the Fund of exchange-traded futures contracts and commodity options, (b) when required by such Tri-Party Agreement, deposit and maintain in an account opened pursuant to such Agreement (Margin Account), segregated either physically or by book-entry in a Securities Depository for the benefit of any futures commission merchant, such Investments as the Fund shall have designated as initial, maintenance or variation "margin" deposits or other collateral intended to secure the Fund's performance of its obligations under the terms of any exchange-traded futures contracts and commodity options; and (c) thereafter pay, release or transfer Investments into or out of the Margin Account in accordance with the provisions of the such Agreement. Alternatively, the Custodian may deliver Investments, in accordance with an Instruction, to a futures commission merchant for purposes of margin requirements in accordance with Rule 17f-6. The Custodian shall in no event be responsible for but shall give prompt notice to the Fund in the event it becomes aware of the acts and omissions of any futures commission merchant to whom Investments are delivered pursuant to this Section; for the sufficiency of Investments held in any Margin Account; or, for the performance of any terms of any exchange-traded futures contracts and commodity options.

     6.5 Contractual Obligations and Similar Investments. From time to time, the Fund's Investments may include Investments that are not ownership interests as may be represented by certificate (whether registered or bearer), by entry in a Securities Depository or by book entry agent, registrar or similar agent for recording ownership interests in the relevant Investment. If the Fund shall at any time acquire such Investments, including without limitation deposit obligations, loan participations, repurchase agreements

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and derivative arrangements, the Custodian shall (a) receive and retain, to the extent the same are provided to the Custodian, confirmations or other documents evidencing the arrangement; and (b) perform on the Fund's account in accordance with the terms of the applicable arrangement, but only to the extent directed to do so by Instruction. The Custodian shall have no responsibility for agreements running to the Fund as to which it is not a party other than to retain, to the extent the same are provided to the Custodian, documents or copies of documents evidencing the arrangement and, in accordance with Instruction, to include such arrangements in reports made to the Fund.

     6.6 Exchange of Securities. Unless otherwise directed by Instruction, the Custodian shall: (a) exchange securities held for the account of the Fund for other securities in connection with any reorganization, recapitalization, conversion, split-up, change of par value of shares or similar event, and (b) deposit any such securities in accordance with the terms of any reorganization or protective plan.

     6.7 Surrender of Securities. Unless otherwise directed by Instruction, the Custodian may surrender securities: (a) in temporary form for definitive securities; (b) for transfer into the name of an entity allowable under Section 5.3; and (c) for a different number of certificates or instruments representing the same number of shares or the same principal amount of indebtedness.

     6.8 Rights, Warrants, Etc. Pursuant to Instruction, the Custodian shall (a) deliver warrants, puts, calls, rights or similar securities to the issuer or trustee thereof, or to any agent of such issuer or trustee, for purposes of exercising such rights or selling such securities, and (b) deposit securities in response to any invitation for the tender thereof.

6.9 Mandatory Corporate Actions.

Unless otherwise directed by Instruction, the Custodian

shall: (a) comply with the terms of all mandatory or compulsory exchanges, calls, tenders, redemptions or similar rights of securities ownership affecting securities held on the Fund’s account and promptly notify the Fund of such action, and (b) collect all stock dividends, rights and other items of like nature with respect to such securities.

6.10 Income Collection.

Unless otherwise directed by Instruction, the Custodian shall collect

any amount due and payable to the Fund with respect to Investments and promptly credit the amount collected to a Principal or Agency Account; provided, however, that the Custodian shall not be responsible for: (a) the collection of amounts due and payable with respect to Investments that are in default, or (b) the

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collection of cash or share entitlements with respect to Investments that are not registered in the name of the Custodian or its Subcustodians. The Custodian is hereby authorized to endorse and deliver any instrument required to be so endorsed and delivered to effect collection of any amount due and payable to the Fund with respect to Investments.

     6.11 Ownership Certificates and Disclosure of the Fund's Interest. The Custodian is hereby authorized to execute on behalf of the Fund ownership certificates, affidavits or other disclosure required under Applicable Law or established market practice in connection with the receipt of income, capital gains or other payments by the Fund with respect to Investments, or in connection with the sale, purchase or ownership of Investments.

6.12 Proxy Materials.

The Custodian shall deliver, or cause to be delivered promptly, to the

Fund proxy forms, notices of meeting, and any other notices or announcements materially affecting or

relating to Investments received by the Custodian or any nominee.

6.13 Tax Reclaim Service.

The Custodian will apply for a reduction of withholding tax and

any refund of any tax paid or tax credits which apply in each applicable market in respect of income payments on Investments for the benefit of the Fund which the Custodian believes may be available to such Fund. Where such reports are available, the Custodian shall periodically report to the Fund concerning the making of applications for a reduction of withholding tax and refund of any tax paid or tax credits which apply in each applicable market in respect of income payments on Investments for the benefit of the Fund. The provision of tax reclaim services by the Custodian is conditional upon the Custodian receiving from the Fund or, where required, the beneficial owner of Investments (a) a declaration of its identity and place of residence and (b) certain other documentation (pro forma copies of which are available from the Custodian). The Custodian shall use reasonable means to advise the Fund of the declarations, documentation and information which the Fund is to provide to the Custodian in order for the Custodian to provide the tax reclaim services described herein. The Fund shall provide to the Custodian such documentation and information as it may require in connection with taxation, and warrants that, when given, this information shall be true and correct in every respect, not misleading in any way, and contain all material information. The Fund undertakes to notify the Custodian immediately if any such information requires updating or amendment. The Custodian shall perform tax reclaim services only with respect to

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taxation by the revenue authorities of the countries notified to the Fund.

     The Fund confirms that the Custodian is authorized to deduct from any cash received or credited to an account any taxes or levies required by any revenue or governmental authority for whatever reasons in respect of the accounts. The Custodian and the Fund shall promptly notify the other regarding any change in the Fund’s tax status with respect to withholding taxes of which it becomes aware. It is acknowledged that the Custodian does not offer tax advice and that the Fund should consult with its tax adviser as to tax matters.

     6.14 Other Dealings. The Custodian shall otherwise act as directed by Instruction, including without limitation effecting the free payments of moneys or the free delivery of securities, provided that such Instruction shall indicate the purpose of such payment or delivery and that the Custodian shall record the party to whom such payment or delivery is made.

The Custodian shall attend to all nondiscretionary details in connection with the sale or purchase or

other administration of Investments, except as otherwise directed by an Instruction.

In fulfilling the duties set forth in Sections 6.6 through 6.10 above, the Custodian shall provide

promptly to the Fund all material information pertaining to a corporate action which the Custodian actually

receives. The Custodian shall not be responsible for the completeness or accuracy of such information as

long as the Custodian has shown due diligence in attempting to receive complete and accurate information.

Any advance credit of cash or shares expected to be received as a result of any corporate action shall be

subject to actual collection and may, when the Custodian deems collection unlikely, be reversed by the

Custodian. The Custodian shall notify the Fund at least 48 hours prior to any such reversal.

The Custodian may at any time or times in its discretion appoint (and may at any time remove)

agents (other than Subcustodians) to carry out some or all of the administrative provisions of this

Agreement (Agents), provided, however, that the appointment of such agent shall not relieve the Custodian

of its administrative obligations under this Agreement.

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7. Cash Accounts, Deposits and Money Movements.

Subject to the terms and conditions set forth

in this Section 7, the Fund hereby authorizes the Custodian to open and maintain, with itself or with

Subcustodians, cash accounts in United States Dollars, in such other currencies as are the currencies of the

countries in which the Fund maintains Investments or in such other currencies as the Fund shall from time to

time request by Instruction.

7.1 Types of Cash Accounts. Cash accounts opened on the books of the Custodian (Principal

Accounts) shall be opened in the name of the Fund. Such accounts collectively shall be a deposit

obligation of the Custodian and shall be subject to the terms of this Section 7 and the general liability

provisions contained in Section 9. Cash accounts opened on the books of a Subcustodian may be opened in

the name of the Fund or the Custodian or in the name of the Custodian for its customers generally (Agency

Accounts). Such deposits shall be obligations of the Subcustodian and shall be treated as an Investment of

the Fund. Accordingly, the Custodian shall be responsible for exercising reasonable care in the

administration of such accounts but shall not be liable for their repayment in the event such Subcustodian,

by reason of its bankruptcy, insolvency or sovereign risk/force majeure, fails to make repayment unless (a)

such Subcustodian is a parent, subsidiary or otherwise affiliated with the Custodian or (b) the Custodian’s

negligence, bad faith or willful misconduct was the direct cause of the Subcustodian failing to make the

repayment or (c) a transaction or other matter between the Custodian and Subcustodian unrelated to the

Funds was the cause of the Subcustodian failing to make repayment. Under (a), (b) or (c) the Custodian

shall be liable for the repayment.

7.2 Payments and Credits with Respect to the Cash Accounts. The Custodian shall make

payments from or deposits to any of said accounts in the course of carrying out its administrative duties,

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including but not limited to income collection with respect to the Fund's Investments, and otherwise in

accordance with Instructions. The Custodian and its Subcustodians shall be required to credit amounts to

the cash accounts only when moneys are actually received in cleared funds in accordance with banking

practice in the country and currency of deposit. Any credit made to any Principal or Agency Account

before actual receipt of cleared funds shall be provisional and may be reversed by the Custodian in the

event such payment is not actually collected. The Custodian shall provide the Fund with at least 48 hours

notice prior to any such reversal. Unless otherwise specifically agreed in writing by the Custodian or any

Subcustodian, all deposits shall be payable only at the branch of the Custodian or Subcustodian where the

deposit is made or carried.

7.3 Currency and Related Risks. The Fund bears risks of holding or transacting in any currency.

The Custodian shall not be liable for any loss or damage arising from the applicability of any law or

regulation now or hereafter in effect, or from the occurrence of any event, which may delay or affect the

transferability, convertibility or availability of any currency in the country (a) in which such Principal or

Agency Accounts are maintained or (b) in which such currency is issued, and in no event shall the

Custodian be obligated to make payment of a deposit denominated in a currency during the period during

which its transferability, convertibility or availability has been affected by any such law, regulation or event.

The Custodian shall notify the Fund in the event it is aware that the Fund is entering into a transaction that

is, to its knowledge, illegal under local law. Without limiting the generality of the foregoing, neither the

Custodian nor any Subcustodian shall be required to repay any deposit made at a foreign branch of either

the Custodian or Subcustodian if such branch cannot repay the deposit due to a cause for which the

Custodian would not be responsible in accordance with the terms of Section 9 of this Agreement unless the

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Custodian or such Subcustodian expressly agrees in writing to repay the deposit under such circumstances.

All currency transactions in any account opened pursuant to this Agreement are subject to exchange control

regulations of the United States and of the country where such currency is the lawful currency or where the

account is maintained. Any taxes, costs, charges or fees imposed on the convertibility of a currency held by

the Fund shall be for the account of the Fund unless such taxes, costs, charges or fees were due to an error

by the Custodian or Subcustodian.

7.4 Foreign Exchange Transactions. The Custodian shall, subject to the terms of this Section,

settle foreign exchange transactions (including contracts, futures, options and options on futures) on behalf

and for the account of the Fund with such currency brokers or banking institutions, including Subcustodians, as the Fund may direct pursuant to Instructions. The Custodian may act as principal in any foreign exchange transaction with the Fund in accordance with Section 7.4.2 of this Agreement. The

obligations of the Custodian in respect of all foreign exchange transactions (whether or not the Custodian

shall act as principal in such transaction) shall be contingent on the free, unencumbered transferability of the

currency transacted on the actual settlement date of the transaction.

     7.4.1 Third Party Foreign Exchange Transactions. The Custodian shall process foreign exchange transactions (including without limitation contracts, futures, options, and options on futures), where any third party acts as principal counterparty to the Fund on the same basis it performs duties as agent for the Fund with respect to any other of the Fund's Investments. Accordingly the Custodian shall only be responsible for delivering or receiving currency on behalf of the Fund in respect of such contracts pursuant to Instructions. The Custodian shall not be responsible for the failure of any counterparty (including any Subcustodian) in such agency transaction to perform its obligations thereunder unless (a) such counterparty is a parent, subsidiary or otherwise affiliated with the Custodian or (b) the Custodian’s negligence, bad faith or willful misconduct was the direct cause of the counterparty failing to perform its obligations or (c) a transaction or other matter between the Custodian and the counterparty unrelated to the Funds was the cause of the counterparty’s failure to perform. Under (a), (b) or (c) , the Custodian shall be liable. The Custodian (a) shall transmit cash and Instructions to and from the currency broker or banking institution with which a foreign exchange contract or option has been executed pursuant hereto, (b) may make free outgoing payments of cash in the form of Dollars or foreign currency without receiving confirmation of a foreign

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exchange contract or option or confirmation that the countervalue currency completing the foreign exchange contract has been delivered or received or that the option has been delivered or received, and (c) shall hold all confirmations, certificates and other documents and agreements received by the Custodian and evidencing or relating to such foreign exchange transactions in safekeeping. The Fund accepts full responsibility for its use of third-party foreign exchange dealers and for execution of said foreign exchange contracts and options and understands that the Fund shall be responsible for any and all costs and interest charges which may be incurred by the Fund or the Custodian as a result of the failure or delay of third parties to deliver foreign exchange. The Custodian or Subcustodian shall respectively be responsible for any failure or delay of third parties to deliver foreign exchange when either of those parties respectively is a parent, subsidiary or otherwise affiliated with such third party.

     7.4.2 Foreign Exchange with the Custodian as Principal. The Custodian may undertake foreign exchange transactions with the Fund as principal as the Custodian and the Fund may agree from time to time. In such event, the foreign exchange transaction will be performed in accordance with the particular agreement of the parties, or in the event a principal foreign exchange transaction is initiated by Instruction in the absence of specific agreement, such transaction will be performed in accordance with the usual commercial terms of the Custodian.

7.5 Delays. If no event of Force Majeure shall have occurred and be continuing and in the event

that a delay shall have been caused by the negligence, bad faith or willful misconduct of the Custodian in

carrying out an Instruction to credit or transfer cash, the Custodian shall be liable to the Fund: (a) with

respect to Principal Accounts, for interest to be calculated at the rate customarily paid on such deposit and

currency by the Custodian on overnight deposits at the time the delay occurs for the period from the day

when the transfer should have been effected until the day it is in fact effected; and, (b) with respect to

Agency Accounts, for interest to be calculated at the rate customarily paid on such deposit and currency by

the Subcustodian on overnight deposits at the time the delay occurs for the period from the day when the

transfer should have been effected until the day it is in fact effected. The Custodian shall not be liable for

delays in carrying out such Instructions to transfer cash which are not due to the Custodian's own

negligence, bad faith or willful misconduct. The Custodian shall make reasonable attempts where possible

to mitigate any such delays.

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7.6 Advances. If, for any reason in the conduct of its safekeeping duties pursuant to Section

5 hereof or its administration of the Fund's assets pursuant to Section 6 hereof, the Custodian or any

Subcustodian advances monies to facilitate settlement or otherwise for benefit of the Fund (whether or not

any Principal or Agency Account shall be overdrawn either during, or at the end of, any Business Day),

Fund hereby does:

7.6.1 grant to the Custodian a continuing security interest in certain Investments (as mutually agreed from time to time) as security for such Advance, such security interest to be effective only as long as such Advance remain outstanding; and,

7.6.2 agree that the Custodian may secure the resulting Advance by perfecting a security interest in such Investments under Applicable Law.

The Custodian shall promptly notify the Fund of any such Advances and the time at which such Advances must be repaid. Such Advances shall be deemed a loan payable on demand, bearing interest at the rate customarily charged by the Custodian on similar loans.

Neither the Custodian nor any Subcustodian shall be obligated to advance monies to the Fund, and in the event that such Advance occurs, any transaction giving rise to an Advance shall be for the account and risk of the Fund and shall not be deemed to be a transaction undertaken by the Custodian for its own account and risk. If such Advance shall have been made by a Subcustodian or any other person, the Custodian may assign any rights granted to the Custodian hereunder to such Subcustodian or other person. If the Fund shall fail to repay when due the principal balance of an Advance and accrued and unpaid interest thereon, the Custodian or its assignee, as the case may be, shall be entitled to utilize the available cash balance in the applicable Series Agency or Principal Account and to dispose of any agreed upon Investments to the extent necessary to recover payment of all principal of, and interest on, such Advance in full. The Custodian may assign any rights it has hereunder to a Subcustodian or third party. Any security interest in Investments taken hereunder shall be treated as Financial Assets credited to Securities Accounts under Articles 8 and 9 of the UCC. Accordingly, the Custodian shall have the rights and benefits of a secured creditor that is a Securities Intermediary under such Articles 8 and 9.

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7.7 Integrated Account. For purposes hereof, deposits maintained in all Principal Accounts for

each Series of each Fund (whether or not denominated in Dollars) shall collectively constitute a single and

indivisible current account with respect to that Series' obligations to the Custodian, or its assignee, and

balances in such Principal Accounts shall be available for satisfaction of that Series' obligations under this

Section 7. The Custodian shall further have a right of offset against the balances in any Agency Account

maintained hereunder to the extent that the aggregate of all Principal Accounts is overdrawn.

8. Subcustodians and Securities Depositories. Subject to the provisions hereinafter set forth in

 

this Section 8, the Fund hereby authorizes the Custodian to utilize Securities Depositories to act on behalf

of the Fund and to appoint from time to time and to utilize Subcustodians. With respect to securities and

funds held by a Subcustodian, either directly or indirectly (including by a Securities Depository or Clearing

Corporation), notwithstanding any provisions of this Agreement to the contrary, payment for securities

purchased and delivery of securities sold may be made prior to receipt of securities or payment,

respectively, and securities or payment may be received in a form, in accordance with (a) governmental

regulations, (b) rules of Securities Depositories and clearing agencies, (c) generally accepted trade practice

in the applicable local market, (d) the terms and characteristics of the particular Investment, or (e) the terms

of Instructions.

8.1 Domestic Subcustodians and Securities Depositories. The Custodian may deposit and/or

maintain, either directly or through one or more agents appointed by the Custodian, Investments of the Fund

in any Securities Depository in the United States, including The Depository Trust Company, provided such

Depository meets applicable requirements of the Federal Reserve Bank or of the Securities and Exchange

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Commission. The Custodian may, at any time and from time to time, appoint any bank as defined in Section

2(a)(5) of the 1940 Act meeting the requirements of a custodian under Section 17(f) of the 1940 Act and the

rules and regulations thereunder, to act on behalf of the Fund as a Subcustodian for purposes of holding

Investments of the Fund in the United States.

8.2 Foreign Subcustodians and Securities Depositories. Unless instructed otherwise by the

Fund, the Custodian may deposit and/or maintain non-U.S. Investments of the Fund in any non-U.S.

Securities Depository provided such Securities Depository meets the requirements of an "eligible securities

depository" under Rule 17f-7 promulgated under the 1940 Act, or any successor rule or regulation ("Rule

17f-7") or which by order of the Securities and Exchange Commission is exempted therefrom. Prior to the

time that securities are placed with such depository, but subject to the provisions of Section 8.2.5 below, the

Custodian shall have prepared an analysis of the custody risks associated with maintaining assets with the

Securities Depository and shall have established a system to monitor such risks on a continuing basis in

accordance with Subsection 8.2.3 of this Section. Additionally, the Custodian may, at any time and from

time to time, appoint (a) any bank, trust company or other entity meeting the requirements of an "eligible

foreign custodian" under Rule 17f-5 under the 1940 Act or which by order of the Securities and Exchange

Commission is exempted therefrom, or (b) any bank as defined in Section 2(a)(5) of the 1940 Act meeting

the requirements of a custodian under Section 17(f) of the 1940 Act and the rules and regulations

thereunder, to act on behalf of the Fund as a Subcustodian for purposes of holding Investments of the Fund

outside the United States. Such appointment of foreign Subcustodians shall be subject to approval of the

Fund in accordance with Subsections 8.2.1 and 8.2.2 hereof, and the use of non-U.S. Securities

Depositories shall be subject to the terms of Subsections 8.2.3, 8.2.4 and 8.2.5 hereof. An Instruction to

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open an account in a given country shall comprise authorization of the Custodian to hold assets in such

country in accordance with the terms of this Agreement. The Custodian shall not be required to make

independent inquiry as to the authorization of the Fund to invest in such country.

     8.2.1 Board Approval of Foreign Subcustodians. Unless and except to the extent that the Board has delegated to, and the Custodian has accepted delegation of, review of certain matters concerning the appointment of Subcustodians pursuant to Subsection 8.2.2, the Custodian shall, prior to the appointment of any Subcustodian for purposes of holding Investments of the Fund outside the United States, obtain written confirmation of the approval of the Board of Trustees or Directors of the Fund with respect to (a) the identity of a Subcustodian, and (b) the Subcustodian agreement which shall govern such appointment, such confirmation to be signed by an Authorized Person. Each such duly approved Subcustodian shall be listed on the Global Custody Network listing attached hereto as the same may from time to time be amended.

     8.2.2 Delegation of Board Review of Subcustodians. From time to time, the Custodian may agree to perform certain reviews of Subcustodians and of Subcustodian Contracts as delegate of the Fund's Board. In such event, the Custodian's duties and obligations with respect to this delegated review will be performed in accordance with the terms of the attached 17f-5 Delegation Schedule to this Agreement.

     8.2.3 Monitoring and Risk Assessment of Securities Depositories. Prior to the placement of any assets of the Fund with a Securities Depository, the Custodian: (a) shall provide to the Fund or its authorized representative an assessment of the custody risks associated with maintaining assets with such Securities Depository; and (b) shall have established a system to monitor the custody risks associated with maintaining assets with such Securities Depository on a continuing basis and to promptly notify the Fund or its Investment Adviser of any material changes in such risk. In performing its duties under this subsection, the Custodian shall use reasonable care, prudence and diligence and may rely on such reasonable sources of information as may be available including but not limited to: (i) published ratings; (ii) information supplied by a Subcustodian that is a participant in such Securities Depository; (iii) industry surveys or publications; (iv) information supplied by the depository itself, by its auditors (internal or external) or by the relevant Foreign Financial Regulatory Authority. It is acknowledged that information procured through some or all of these sources may not be independently verifiable by the Custodian and that direct access to Securities Depositories is limited in most circumstances. Accordingly, the Custodian shall not be responsible for errors or omissions in its duties hereunder provided that it has performed its monitoring and assessment duties with reasonable care. The risk assessment shall be provided to the Fund or its Investment Adviser by such means as the Custodian shall reasonably establish. Advice of material change in such assessment may be provided by the Custodian in the manner established as customary between the Fund and the Custodian for transmission of material market information.

     8.2.4 Withdrawal of Assets from Eligible Securities Depository. If the Fund or its authorized representative determines that a custody arrangement with an Eligible Securities Depository no longer meets the requirements of Rule 17f-7(a), the Fund or its Investment Adviser shall Instruct the Custodian to remove the Fund's Assets from the Depository as soon as reasonably practicable.

8.2.5 Special Transitional Rule. It is acknowledged that Rule 17f-7 has an effective

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date of July 1, 2001 and that the Custodian will require a period of time to fully prepare risk assessment information and to establish a risk monitoring system as provided in Subsection 8.2.3. Accordingly, until July 1, 2001, the Custodian shall use reasonable efforts to implement the measures required by Subsection 8.2.3, and shall in the interim provide to the Fund or its Investment Adviser the depository information customarily provided and shall promptly inform the Fund or its Investment Adviser of any material development affecting the custody risks associated with the maintenance of assets with a particular Securities Depository of which it becomes aware in the course of its general duties under this Agreement or from its duties under Subsection 8.2.3 as such duties have been implemented at any given time.

8.3 Responsibility for Subcustodians.

Except as provided in the last sentence of this

Section 8.3, the Custodian shall be liable to the Fund for any loss or damage to the Fund caused by or

resulting from the acts or omissions of any Subcustodian to the extent that such acts or omissions would be

deemed to be negligence, gross negligence, willful misconduct or bad faith in accordance with the terms of

the relevant subcustodian agreement under the laws, circumstances and practices prevailing in the place

where the act or omission occurred.

The liability of the Custodian in respect of the countries and

subcustodians listed on the attached Subcustodian Liability Appendix to this Agreement, as such Appendix

may be amended from time to time, shall be subject to the additional condition that the Custodian actually

recovers such loss or damage from the Subcustodian.

8.4 New Countries. The Fund shall be responsible for informing the Custodian sufficiently in

advance of a proposed investment which is to be held in a country in which no Subcustodian is authorized

to act in order that the Custodian shall, if it deems appropriate to do so, have sufficient time to establish a

subcustodial arrangement in accordance herewith. In the event, however, the Custodian is unable to

establish such arrangements prior to the time such Investment is to be acquired, the Custodian is authorized

to designate at its discretion a local safekeeping agent, and the use of such local safekeeping agent shall be

at the sole risk of the Fund, and accordingly the Custodian shall be responsible to the Fund for the actions of

such agent if and only to the extent the Custodian shall have recovered from such agent for any damages

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caused the Fund by such agent. Notwithstanding the above, the Custodian shall be liable to the extent that

(a) such local safekeeping agent is a parent, subsidiary or otherwise affiliated with the Custodian or (b) the

Custodian’s negligence, bad faith or willful misconduct is the direct cause of the local safekeeping agent

failing to make the repayment or (c) a transaction or other matter between the Custodian and the local

safekeeping agent unrelated to the Funds was the cause of the loss or damage. Under (a), (b) or (c) the

Custodian shall be liable.

9. Responsibility of the Custodian.

In performing its duties and obligations hereunder, the

Custodian shall use reasonable care under the facts and circumstances prevailing in the market where

performance is effected. Subject to the specific provisions of this Section, the Custodian shall be liable for

any direct damage incurred by the Fund in consequence of the Custodian's negligence, bad faith or willful

misconduct. The Custodian hereby indemnifies the Fund and agrees to hold the Fund harmless from and

against all claims and liabilities, including counsel fees and taxes, incurred or assessed against the Fund to

the extent that such claim or liability arises from the negligence, gross negligence, bad faith or willful

misconduct on the part of the Custodian itself. If a Fund gives written notice of claim to the Custodian, the

Custodian shall promptly give a written response to the Fund. Not more than 30 days following the date of

such response, unless the Custodian shall not be liable, the Custodian will pay the amount of such claim or

reimburse the Fund for any payment made by the Fund in respect thereof. In no event shall the Custodian

be liable hereunder for any special, indirect, punitive or consequential damages arising out of, pursuant to

or in connection with this Agreement even if the Custodian has been advised of the possibility of such

damages. It is agreed that the Custodian shall have no duty to assess the risks inherent in the Fund's

Investments or to provide investment advice with respect to such Investments and that the Fund as principal

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shall bear any risks attendant to particular Investments such as failure of counterparty or issuer. The

Custodian shall provide the Fund with its Market Practice Reports in respect of any foreign market where a

Series shall place and maintain Investments. In addition, the Custodian shall provide the Fund with access

to its Global Updates which address topical “market" events.

     9.1 Force Majeure The Custodian shall not be responsible for any failure to perform its duties and correspondingly, shall not be liable for any loss, cost, damage or expense attributable to its failure to perform in consequence of a force majeure event. Force Majeure shall mean any circumstance or event which is beyond the reasonable control of the Custodian, a Subcustodian or any agent of the Custodian or a Subcustodian and which adversely affects the performance by the above parties, including any event caused by, arising out of or involving (a) an act of God, (b) accident, fire, water damage or explosion, (c) any third party computer, system or other equipment failure or malfunction caused by any computer virus or the malfunction or failure of any communications medium, (d) any third party interruption of the power supply or other utility service, (e) any strike or other work stoppage, whether partial or total, (f) any delay or disruption resulting from or reflecting the occurrence of any Sovereign Risk, (g) any disruption of, or suspension of trading in, the securities, commodities or foreign exchange markets, whether or not resulting from or reflecting the occurrence of any Sovereign Risk, (h) any encumbrance on the transferability of a currency or a currency position on the actual settlement date of a foreign exchange transaction, whether or not resulting from or reflecting the occurrence of any Sovereign Risk, or (i) any other cause similarly beyond the reasonable control of the Custodian, provided always that this shall not affect the Custodian’s duty to indemnify the Fund for other losses, claims and liabilities for which the Custodian is bound to indemnify the Fund pursuant to Section 9. The Custodian and the Subcustodian shall take reasonable steps to mitigate additional damages. The Custodian shall notify the Fund when it becomes aware of a situation outlined above. The Fund shall not be responsible for temporary delays in the performance of its duties and obligations and correspondingly shall not be liable for any loss, cost, damage or expense attributable to such delay in consequence of a Force Majeure event as described above affecting the Fund’s principal place of business operations or administration; provided always that this shall not affect the Fund’s duty to indemnify the Custodian for losses, claims and liabilities for which the Fund is bound to indemnify the Custodian pursuant to Section 10.

9.2 Limitations of Performance. The Custodian shall not be responsible under this Agreement

for any failure to perform its duties, and shall not be liable hereunder for any loss or damage in association

with such failure to perform, for or in consequence of the following causes:

     9.2.1 Country Risk. Country Risk shall mean, with respect to the acquisition, ownership, settlement or custody of Investments in a jurisdiction, all risks relating to, or arising in consequence of, systemic and markets factors affecting the acquisition, payment for or ownership of Investments including (a) the prevalence of crime and corruption, (b) the inaccuracy or unreliability of business and financial information, (c) the instability or volatility of banking and financial systems, or the absence or inadequacy of an infrastructure to support such systems, (d)

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custody and settlement infrastructure of the market in which such Investments are transacted and held, (e) the acts, omissions and operation of any Securities Depository, (f) the risk of the bankruptcy or insolvency of banking agents, counterparties to cash and securities transactions, registrars or transfer agents, and (g) the existence of market conditions which prevent the orderly execution or settlement of transactions or which affect the value of assets. The Custodian shall provide the Fund with its Market Practice Reports in respect of any foreign market where a Series shall place and maintain Investments. Such Market Practice Report may describe some of the Country Risks outlined above. In addition, the Custodian shall provide the Fund with access to its Global Updates which may describe some timely Country Risks outlined above.

     9.2.2 Sovereign Risk. Sovereign Risk shall mean, in respect of any jurisdiction, including the United States of America, where Investments are acquired or held hereunder or under a Subcustody Agreement, (a) any act of war, terrorism, riot, insurrection or civil commotion, (b) the imposition of any investment, repatriation or exchange control restrictions by any Governmental Authority, (c) the confiscation, expropriation or nationalization of any Investments by any Governmental Authority, whether de facto or de jure, (d) any devaluation or revaluation of the currency, (e) the imposition of taxes, levies or other charges affecting Investments, (f) any change in the Applicable Law, or (g) any other economic or political risk incurred or experienced. The Custodian shall provide the Fund with its Market Practice Reports in respect of any foreign market where a Series shall place and maintain Investments. Such Market Practice Report may describe some of the Sovereign Risks outlined above. In addition, the Custodian shall provide the Fund with access to its Global Updates which may describe some timely Sovereign Risks outlined above.

9.3. Limitations on Liability. The Custodian shall not be liable for any loss, claim, damage or

other liability arising from the following causes:

     9.3.1 Failure of Third Parties. The failure of any third party including: (a) any issuer of Investments or book-entry or other agent of an issuer; (b) any counterparty with respect to any Investment, including any issuer of exchange-traded or other futures, option, derivative or commodities contract; (c) failure of an Investment Advisor, Foreign Custody Manager or other agent of the Fund; or (d) failure of other third parties similarly beyond the control or choice of the Custodian unless: (a) any such third party is a parent, subsidiary or otherwise affiliated with the Custodian or (b) the Custodian’s negligence, bad faith or willful misconduct was the direct cause of the failure of the third party or (c) a transaction or other matter between the Custodian and the third party unrelated to the Funds was the cause of the failure of the third party. Under (a), (b) or

(c)      the Custodian shall be liable for the failure of such third party.
  9.3.2 Information Sources. The Custodian may rely upon information received from
issuers      of Investments or agents of such issuers, information received from Subcustodians and

from other commercially reasonable sources such as commercial data bases and the like, but shall not be responsible for specific inaccuracies in such information, provided that the Custodian has relied upon such information in good faith, or for the failure of any commercially reasonable information provider.

     9.3.3 Reliance on Instruction. Action by the Custodian or the Subcustodian in accordance with an Instruction, even when such action conflicts with, or is contrary to any provision of, the Fund's declaration of trust, certificate of incorporation or by-laws, Applicable Law, or actions by the trustees, directors or shareholders of the Fund. If the Custodian or Subcustodian is aware of any of the above, it shall promptly contact an officer of the Fund.

9.3.4 Restricted Securities.

The limitations inherent in the rights, transferability or

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similar investment characteristics of a given Investment of the Fund.

10. Indemnification. The Fund hereby indemnifies the Custodian and each Subcustodian, and their

respective agents, nominees and the partners, employees, officers and directors, and agrees to hold each of

them harmless from and against all claims and liabilities, including counsel fees and taxes, incurred or

assessed against any of them in connection with the performance of this Agreement and any Instruction

except to the extent that such claim or liability is the result of the negligence, bad faith or willful misconduct

of the Custodian or Subcustodian. If a Subcustodian or any other person indemnified under the preceding

sentence, gives written notice of claim to the Custodian, the Custodian shall promptly give written notice to

the Fund. Not more than thirty days following the date of such notice, unless the Custodian shall be liable

under Section 8 hereof in respect of such claim, the Fund will pay the amount of such claim or reimburse

the Custodian for any payment made by the Custodian in respect thereof.

11. Reports and Records. The Custodian shall:

     11.1 create and maintain records relating to the performance of its obligations under this Agreement;

     11.2 make available to the Fund, its auditors, agents and employees, upon reasonable request and during normal business hours of the Custodian, all records maintained by the Custodian pursuant to Section 11.1 above, subject, however, to all reasonable security requirements of the Custodian then applicable to the records of its custody customers generally; and

     11.3 make available to the Fund all Electronic Reports; it being understood that the Custodian shall not be liable hereunder for the inaccuracy or incompleteness thereof or for errors in any information included therein except to the extent that such inaccuracy, incompleteness or errors are the result of the Custodian’s negligence, bad faith or willful misconduct.

All such reports and records shall, to the extent applicable, be maintained and preserved in

conformity with the 1940 Act and the rules and regulations thereunder. The Fund shall examine all records,

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howsoever produced or transmitted, promptly upon receipt thereof and notify the Custodian promptly of any

discrepancy or error therein. Unless the Fund delivers written notice of any such discrepancy or error

within a reasonable time after its receipt thereof, such records shall be deemed to be true and accurate. It is

understood that the Custodian now obtains and will in the future obtain information on the value of assets

from outside sources which may be utilized in certain reports made available to the Fund. The Custodian

deems such sources to be reliable but it is acknowledged and agreed that the Custodian does not verify nor

represent nor warrant as to the accuracy or completeness of such information and accordingly shall be

without liability in selecting and using such sources and furnishing such information as long as the

Custodian has shown due diligence in attempting to receive complete and accurate information.

12.      Miscellaneous.
  12.1 Proxies, etc. The Fund will promptly execute and deliver, upon request, such
proxies,      powers of attorney or other instruments as may be necessary or desirable for the Custodian to

provide, or to cause any Subcustodian to provide, custody services.

12.2 Entire Agreement.

Except as specifically provided herein, this Agreement

constitutes the entire agreement between the Fund and the Custodian with respect to the subject matter

hereof. Accordingly, this Agreement supersedes any custody agreement or other oral or written agreements

heretofore in effect between the Fund and the Custodian with respect to the custody of the Fund's

Investments.

12.3 Waiver and Amendment. No provision of this Agreement may be waived,

amended or modified, and no addendum to this Agreement shall be or become effective, or be waived,

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amended or modified, except by an instrument in writing executed by the party against which enforcement

of such waiver, amendment or modification is sought; provided, however, that an Instruction shall, whether

or not such Instruction shall constitute a waiver, amendment or modification for purposes hereof, be

deemed to have been accepted by the Custodian when it commences actions pursuant thereto or in

accordance therewith.

12.4 GOVERNING LAW AND JURISDICTION. THIS AGREEMENT SHALL BE

CONSTRUED IN ACCORDANCE WITH, AND BE GOVERNED BY THE LAWS OF, THE STATE OF

NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW OF SUCH STATE.

12.5 Notices. Notices and other writings contemplated by this Agreement, other than

Instructions, shall be delivered (a) by hand, (b) by first class registered or certified mail, postage prepaid,

return receipt requested, (c) by a nationally recognized overnight courier or (d) by facsimile transmission,

provided that any notice or other writing sent by facsimile transmission shall also be mailed, postage

prepaid, to the party to whom such notice is addressed. All such notices shall be addressed, as follows:

If to the Fund:

Vanguard Group
P.O. Box 2600
Valley Forge, PA 19482

Attn: Assistant Treasurer
Telephone: (610) 669-6106
Facsimile (610) 669-6112

 

If to the Custodian:

Brown Brothers Harriman & Co. 40 Water Street Boston, Massachusetts 02109

     Attn: Manager, Investor Services Department Telephone: (617) 772-1818 Facsimile: (617) 772-2263,

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or such other address as the Fund or the Custodian may have designated in writing to the other.

12.6 Headings. Paragraph headings included herein are for convenience of reference

only and shall not modify, define, expand or limit any of the terms or provisions hereof.

12.7 Counterparts. This Agreement may be executed in any number of counterparts,

each of which shall be deemed an original. This Agreement shall become effective when one or more

counterparts have been signed and delivered by the Fund and the Custodian.

12.8 Confidentiality. The parties hereto agree that each shall treat confidentially the

terms and conditions of this Agreement and all information provided by each party to the other regarding its

business and operations. All confidential information provided by a party hereto shall be used by any other

party hereto solely for the purpose of rendering or obtaining services pursuant to this Agreement and,

except as may be required in carrying out this Agreement, shall not be disclosed to any third party without

the prior consent of such providing party. The foregoing shall not be applicable to any information that is

publicly available when provided or thereafter becomes publicly available other than through a breach of

this Agreement, or that is required to be disclosed by or to any bank examiner of the Custodian or any

Subcustodian, any Regulatory Authority, any auditor of the parties hereto, or by judicial or administrative

process or otherwise by Applicable Law.

12.9 Counsel. In fulfilling its duties hereunder, the Custodian shall be entitled to

receive and act upon the advice of (i) counsel regularly retained by the Custodian in respect of such matters,

(ii) counsel for the Fund or (iii) such counsel as the Fund and the Custodian may agree upon, with respect to

all matters, and the Custodian shall be without liability for any action reasonably taken or omitted pursuant

to such advice (except to the extent that such action was due to the Custodian’s negligence, bad faith or

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willful misconduct).

13.      Definitions. The following defined terms will have the respective meanings set forth below.
  13.1 Advance shall mean any extension of credit by or through the Custodian or by or through
any      Subcustodian and shall include amounts paid to third parties for the account of the Fund or in discharge

of any expense, tax or other item payable by the Fund.

     13.2 Agency Account shall mean any deposit account opened on the books of a Subcustodian or other banking institution in accordance with Section 7.1.

13.3      Agent shall have the meaning set forth in the last paragraph of Section 6.
13.4      Applicable Law shall mean with respect to each jurisdiction, all (a) laws, statutes, treaties,

regulations, guidelines (or their equivalents); (b) orders, interpretations, licenses and permits; and (c) judgments, decrees, injunctions, writs, orders and similar actions by a court of competent jurisdiction; compliance with which is required or customarily observed in such jurisdiction.

     13.5 Authorized Person shall mean any person or entity authorized to give Instructions on behalf of the Fund in accordance with Section 4.1.

     13.6 Book-entry Agent shall mean an entity acting as agent for the issuer of Investments for purposes of recording ownership or similar entitlement to Investments, including without limitation a transfer agent or registrar.

     13.7 Clearing Corporation shall mean any entity or system established for purposes of providing securities settlement and movement and associated functions for a given market.

     13.8 Delegation Agreement shall mean any separate agreement entered into between the Custodian and the Fund or its authorized representative with respect to certain matters concerning the appointment and administration of Subcustodians delegated to the Custodian pursuant to Rule 17f-5 under the 1940 Act.

     13.9 Foreign Custody Manager shall mean the Fund’s foreign custody manager appointed pursuant to Rule 17f-5 under the 1940 Act.

     13.10 Foreign Financial Regulatory Authority shall have the meaning given by Section 2(a)(50) of the 1940 Act.

     13.11 Funds Transfer Services Agreement shall mean any separate agreement entered into between the Custodian and the Fund or its authorized representative with respect to certain matters concerning the processing of payment orders from Principal Accounts of the Fund.

13.12      Instruction(s) shall have the meaning assigned in Section 4.
13.13      Investment Advisor shall mean any investment advisor as defined in Section 202(a)(11)

of the Investment Advisors Act of 1940.

13.14      Investments shall mean any investment asset of the Fund, including without limitation

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securities, bonds, notes, and debentures as well as receivables, derivatives, contractual rights or entitlements and other intangible assets.

13.15      Margin Account shall have the meaning set forth in Section 6.4 hereof.
13.16      Principal Account shall mean deposit accounts of the Fund carried on the books of

BBH&Co. as principal in accordance with Section 7.

     13.17 Safekeeping Account shall mean an account established on the books of the Custodian or any Subcustodian for purposes of segregating the interests of the Fund (or clients of the Custodian or Subcustodian) from the assets of the Custodian or any Subcustodian.

     13.18 Securities Depository shall mean a central or book entry system or agency established under Applicable Law for purposes of recording the ownership and/or entitlement to investment securities for a given market that, if a foreign Securities Depository, meets the requirements of an "Eligible Securities Depository" as defined in Rule 17f-7 under the 1940 Act.

     13.19 Subcustodian shall mean each foreign bank appointed by the Custodian pursuant to Section 8, but shall not include Securities Depositories.

13.20      Tri-Party Agreement shall have the meaning set forth in Section 6.4 hereof.
13.21      1940 Act shall mean the Investment Company Act of 1940.

14. Compensation. The Fund agrees to pay to the Custodian for its services under this Agreement

such amount as may be agreed upon in writing from time to time (“Fee Schedule”).

15. Several Obligations of the Funds: With respect to any obligations of the Funds and their related

accounts arising hereunder, the Custodian shall look for payment or satisfaction of any such obligation

solely to the assets and property of the Fund and such accounts to which such obligation relates as though

each investment company had separately contracted with the Custodian by separate written instrument with

respect to each Fund and its accounts. The Custodian and each Subcustodian realize that the Fund is

comprised of one or more Series. The Custodian and each Subcustodian agree that it will honor and abide

by any and all Instructions or notices which the Custodian or Subcustodian may receive from time to time

from the Fund with respect to designating, marking, allocating or otherwise attributing securities to or for

the benefit of any one Series.

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16. Termination. This Agreement may be terminated by either party in accordance with the

provisions of this Section. The provisions of this Agreement and any other rights or obligations incurred or

accrued by any party hereto prior to termination of this Agreement shall survive any termination of this

Agreement.

This Agreement may be terminated as to one or more Funds (but less than all the Funds) by

delivery of an amended List of Funds deleting all such Funds, in which case termination as to the deleted

Funds shall take effect sixty days after the date of such delivery. The execution and delivery of an amended

List of Funds which deletes one or more Funds, shall constitute a termination hereof only with respect to

such deleted Funds, shall be governed by the provisions of Section 16.2 as to the identification of a

successor custodian and the delivery of Investments of the Fund so deleted to such successor custodian, and

shall not affect the obligations of the Custodian hereunder with respect to the other Funds set forth in the

List of Funds, as amended from time to time.

     16.1 Notice and Effect. This Agreement may be terminated by either party by written notice effective no sooner than sixty days following the date that notice to such effect shall be delivered to other party at its address set forth in paragraph 12.5 hereof.

     16.2 Successor Custodian. In the event of the appointment of a successor custodian, it is agreed that the Investments of the Fund held by the Custodian or any Subcustodian shall be delivered to the successor custodian in accordance with reasonable Instructions. The Custodian agrees to cooperate with the Fund in the execution of documents and performance of other actions necessary or desirable in order to facilitate the succession of the new custodian. If no successor custodian shall be appointed, the Custodian shall in like manner transfer the Fund's Investments in accordance with Instructions.

     16.3 Delayed Succession. If no Instruction has been given as of the effective date of termination, Custodian may at any time on or after such termination date and upon ten days written notice to the Fund either (a) deliver the Investments of the Fund held hereunder to the Fund at the address designated for receipt of notices hereunder; or (b) deliver any investments held hereunder to a bank or trust company having a capitalization of $2M USD equivalent and operating under the Applicable law of the jurisdiction where such Investments are located, such delivery to be at the risk of the Fund. In the event that Investments or moneys of the Fund remain in the custody of the Custodian or its Subcustodians after the date of termination owing to the failure of the Fund to issue Instructions with respect to their disposition or owing to the fact that such disposition could not be accomplished in accordance with such Instructions despite diligent efforts of the Custodian,

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the Custodian shall be entitled to compensation for its services with respect to such Investments and moneys during such period as the Custodian or its Subcustodians retain possession of such items and the provisions of this Agreement shall remain in full force and effect until disposition in accordance with this Section is accomplished.

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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed as of

the date first above written.

By: /s Robert Snowden

Assistant Treasurer

On behalf of the Funds included on the List of Funds attached hereto

BROWN BROTHERS HARRIMAN & CO.

By: /s Stokley P. Towles

Partner

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LIST OF FUNDS

SCHEDULE TO THE

CUSTODIAN AGREEMENT

BETWEEN

CERTAIN OPEN-END MANAGEMENT INVESTMENT COMPANIES (“FUNDS”)

and BROWN BROTHERS HARRIMAN & CO.

The following is a list of Funds and their Series for which the Custodian serves under an Amended

Custodian Agreement dated as of June 25, 2001 (the "Agreement"):

The following series of Vanguard International Equity Index Funds: Vanguard Emerging Markets Stock Index Fund Vanguard European Stock Index Fund Vanguard Pacific Stock Index Fund

The following series of Vanguard Horizon Funds: Vanguard Global Asset Allocation Fund Vanguard Global Equity Fund

The following series of Vanguard Tax-Managed Funds Vanguard Tax-Managed International Fund

The following series of Vanguard Trustees’ Equity Fund: Vanguard International Value Fund

Vanguard Variable Insurance Funds-International Portfolio

IN WITNESS WHEREOF, each of the parties hereto has caused this Schedule to be executed in its name

and on behalf of such Funds.  
FUNDS BROWN BROTHERS HARRIMAN & CO.

By: /s Robert Snowden Name: Robert Snowden Title: Assistant Treasurer

By: /s Stokley P. Towles Name: Stokley P. Towles Title: Partner

 

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LIST OF FUNDS

AMENDED SCHEDULE TO THE CUSTODIAN AGREEMENT BETWEEN

CERTAIN OPEN-END MANAGEMENT INVESTMENT COMPANIES (“FUNDS”) and BROWN BROTHERS HARRIMAN & CO.

The following is a list of Funds and their Series for which the Custodian serves under an Amended Custodian Agreement dated as of June 25, 2001 (the “Agreement”):

The following series of Vanguard Charlotte Funds:
Vanguard Total International Bond Index Fund

The following series of Vanguard Explorer Fund:
Vanguard Explorer Fund

The following series of Vanguard Fenway Funds:
Vanguard Equity Income Fund

The following series of Vanguard Horizon Funds:
Vanguard Global Equity Fund

The following series of Vanguard Index Funds:
Vanguard 500 Index Fund
Vanguard Extended Market Index Fund
Vanguard Large-Cap Index Fund
Vanguard Mid-Cap Index Fund
Vanguard Small-Cap Growth Index Fund
Vanguard Small-Cap Value Index Fund
Vanguard Value Index Fund

The following series of Vanguard Institutional Index Funds: Vanguard Institutional Total Stock Market Index Fund

The following series of Vanguard International Equity Index Funds: Vanguard Emerging Markets Stock Index Fund Vanguard European Stock Index Fund Vanguard FTSE All-World ex-US Index Fund Vanguard FTSE All-World ex-US Small-Cap Index Fund Vanguard Global ex-U.S. Real Estate Index Fund Vanguard Pacific Stock Index Fund Vanguard Total World Stock Index Fund

The following series of Vanguard Malvern Funds:
Vanguard Capital Value Fund
Vanguard U.S. Value Fund

The following series of Vanguard Montgomery Funds: Vanguard Market Neutral Fund

0368459, v0.2


 

The following series of Vanguard Morgan Growth Fund: Vanguard Morgan Growth Fund

The following series of Vanguard Specialized Funds: Vanguard Dividend Growth Fund Vanguard Energy Fund Vanguard REIT Index Fund

The following series of Vanguard Tax-Managed Funds: Vanguard Tax-Managed Capital Appreciation Fund Vanguard Developed Markets Index Fund Vanguard Tax-Managed Small-Cap Fund

The following series of Vanguard Trustees’ Equity Fund: Vanguard Diversified Equity Fund Vanguard International Value Fund Vanguard Alternative Strategies Fund

The following series of Vanguard Valley Forge Funds: Vanguard Managed Payout Fund

The following series of Vanguard Variable Insurance Funds: Conservative Allocation Portfolio Equity Income Portfolio International Portfolio Moderate Allocation Portfolio Total Stock Market Index Portfolio

     The following series of Vanguard Whitehall Funds: Vanguard Mid-Cap Growth Fund Vanguard Emerging Markets Government Bond Index Fund

The following series of Vanguard Windsor Funds: Vanguard Windsor Fund Vanguard Windsor II Fund

0368459, v0.2


 

The following series of Vanguard World Fund:
Vanguard Consumer Discretionary Index Fund
Vanguard Consumer Staples Index Fund
Vanguard Energy Index Fund
Vanguard Financials Index Fund
Vanguard Health Care Index Fund
Vanguard Industrials Index Fund
Vanguard Information Technology Index Fund
Vanguard Materials Index Fund
Vanguard Mega Cap 300 Index Fund
Vanguard Mega Cap 300 Growth Index Fund
Vanguard Mega Cap 300 Value Index Fund
Vanguard Telecommunication Services Index Fund
Vanguard U.S. Growth Fund
Vanguard Utilities Index Fund

IN WITNESS WHEREOF, each of the parties hereto has caused this Schedule to be executed in its name

and on behalf of such Funds on

, 2015.

FUNDS

By:

Name: Jean E. Drabick Title: Assistant Treasurer

BROWN BROTHERS HARRIMAN & CO.

By:______________________

Name: Title:

 

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EX-99.H OTH MAT CONT 4 fundsserviceagreement_112120.htm FUNDS' SERVICE AGREEMENT fundsserviceagreement_112120.htm - Generated by SEC Publisher for SEC Filing

FIFTH AMENDED AND RESTATED FUNDS’ SERVICE AGREEMENT

     This Fifth Amended and Restated Funds’ Service Agreement, made as of the 8th day of June, 2009 (the “Agreement”), between and among the investment companies registered under the Investment Company Act of 1940 (“1940 Act”), whose names are set forth on the signature page of this Agreement, which together with any additional investment companies which may become a party to this Agreement pursuant to Section 5.4 and 5.5 are collectively called the “Funds”; and The Vanguard Group, Inc., a Pennsylvania corporation (“Service Company”).

     Whereas, each of the Funds has heretofore determined (as evidenced by, among many documents, prior versions* of this Agreement (the “Prior Agreements”), and by prospectuses and proxy statements of the Funds related thereto): (i) to manage and perform the corporate management, administrative and share distribution functions required for its continued operation, (ii) to create a structure which enhances the independence of the Funds from the providers of external services, (iii) to share, on an equitable and fair basis, with all of the other Funds the expenses of establishing the means to accomplish these objectives at the lowest reasonable cost; and Whereas, each of the Funds: (i) has heretofore determined that these objectives can best be accomplished by establishing a company: (a) to be wholly-owned by the Funds; (b) to provide corporate management, administrative, and distribution services, and upon the reasonable request of any Fund to provide other service to such Fund at cost; (c) to employ the executive, managerial, administrative, secretarial and clerical personnel necessary or appropriate to perform such services; and (d) to acquire such assets and to obtain such facilities and equipment as are necessary or appropriate to carry out such services, and to make those assets available to the Funds; and (ii) since May 1, 1975 (or the commencement of its operations after this date) has utilized Service Company, pursuant to the provisions of the Prior Agreements; and Whereas, each of the Funds has further heretofore recognized that it may, from time to time, be in the best interests of the Funds (i) for Service Company to provide similar services to investment companies other than the Funds, (ii) for the Funds to organize, from time to time, new investment companies which are intended to become parties to this Agreement; and, (iii) for Service Company to engage in business activities (directly or through subsidiaries), supportive of the Funds’ operations as investment companies; and Whereas, each of the Funds desires to enter into a completely integrated Fifth Amended and Restated Funds’ Service Agreement with the other Funds to (i) set forth the current terms and provisions of the relationships which the Funds have determined to establish; and (ii) make non-substantive amendments to the Amended and Restated Funds’ Service Agreement, including correcting the names of the Funds set forth on the signature page of this Agreement.

     Now, Therefore, each Fund agrees with each and all of the other Funds, and with Service Company, as follows:

* Funds’ Service Agreement dated May 1, 1975; an Amended and Restated Funds’ Service Agreement dated October 1, 1977; an Amended and Restated Funds’ Service Agreement dated May 10, 1993, an Amended and Restated Funds’ Service Agreement dated January 1, 1996, and an Amended and Restated Funds’ Service Agreement dated June 15, 2001 as therefore amended.

646121


 

I. CAPITALIZATION AND ASSETS OF SERVICE COMPANY

     1.1 Capital and Assets. To provide the Service Company with the cash and with the office space, facilities and equipment necessary for it to discharge its responsibilities hereunder, each Fund agrees: A. To make cash investments in the Service Company as provided in Sections 1.2, 1.3 and 1.4.

     B. To assign and transfer to Service Company on and after May 1, 1975 any and all right, title and interest which the Funds may have in any office facilities and equipment necessary for it to discharge its responsibilities and in any other assets which Service Company may develop or acquire, subject only to the rights reserved in Section 1.6 (concerning certain major assets). Section 5.2 (concerning rights upon withdrawal) and Section 5.3 (concerning rights upon termination) of the Agreement.

     1.2 Cash Investments in Service Company. To provide Service Company with such cash as may be necessary or appropriate from time to time to accomplish the purposes of the Funds and to discharge its responsibilities hereunder, each Fund agrees to purchase, for cash, shares of common stock of Service Company (“Shares”) or such other securities of Service Company (hereafter referred to as “other securities”) upon the favorable vote of the holders of a majority of the Shares adopting a resolution setting forth the terms and provisions of the purchase. Provided, however, that: A. Without the consent of all of the Funds, the date for the purchase of Shares or other securities shall not be less than 15 days following the date on which the resolution is approved by the shareholders.

     B. The cash purchase price to be paid by any Fund for the Shares or other securities, expressed as a percentage of the total purchase price for the additional securities to be paid by all of the Funds shall not exceed the percentage which the then current net assets of the Fund bears to the aggregate current net assets of all of the Funds as of the most recent month-end preceding the purchase date.

     1.3 Periodic Adjustments of Cash Investments. To maintain and re-establish periodically a fair and proportionate ratio of cash investments by each Fund in the Service Company as compared to its then current net assets, each Fund agrees to purchase from one or more of the other Funds, or to sell one or more of the Funds, sufficient Shares or other securities to reestablish the ratio.

     A. Such purchases and sales shall be made (1) as of the last business day of any month upon the addition or withdrawal of any Fund as a party to this Agreement, provided that if the addition or withdrawal of a Fund creates no material disparity in the ratios (as determined by the Service Company’s Board of Directors), and no Fund requests that an adjustment be made, the adjustment may be deferred until the close of the Service Company’s fiscal year; (2) in connection with additional investments pursuant to Section 1.2; and (3) annually as of the close of the Service Company’s fiscal year, on a date fixed by Service Company’s Board of Directors within 90 days after the close of the fiscal year unless there is no material disparity in the ratios (as determined by the Service Company’s Board of Directors) and no Fund requests that an adjustment be made.

     B. The cash purchases and sale price of the Share or other securities shall be for each Fund (1) in the case of Shares, the fair market value of Shares determined in accord

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with generally accepted accounting principles and procedures established by the Board of Directors of Service Company; and (2) in the case of debt securities, the face value thereof.

     C. Unless specifically required by applicable law, the issuance and transfer of Shares or other securities of Service Company, and the cash investments of the Funds in Service Company, may be evidenced by proper records of Service Company; and no certificates need be issued.

     1.4 Limitation Upon Funds’ Obligations to Make Cash Investments or Purchases. Notwithstanding the provisions of Sections 1.1, 1.2 and 1.3 above, no Fund shall be obligated to purchase Shares or other securities of Service Company if, as a result of such purchase the Fund would thereby have invested in cash a total of more than 0.40% of its then current net assets in Shares or other securities of Service Company.

     1.5 Restrictions on Transfer of Shares or Other Securities. Each Fund agrees that it will not, without the written consent of all other parties to this Agreement, transfer or dispose of or encumber any of its Shares or other securities of Service Company except as provided in this Agreement, and that, if issued, each certificate for Shares or other securities of Service Company will be stamped with a legend referring to this restriction.

     1.6 Assets of Service Company. The Funds agree that Service Company may acquire, by purchase or lease, office space, furniture, equipment, supplies, files, records, computer hardware and software, and other assets necessary or appropriate for the discharge of the Service Company’s responsibilities hereunder. Each of the Funds hereby assigns and transfers to Service Company, any and all right, title and interest that it may have or hereafter acquire in any such assets, subject to the rights of each Fund (A) to receive the then fair value of such assets upon the purchase or sale of Shares pursuant to this Agreement, (B) to the continued use of such assets in the administration of the business affairs of a Fund so long as the Fund remains a party to this Agreement.

     1.7 Borrowing by Service Company. The Funds agree that Service Company may borrow money, and may issue a note or other security in connection with such borrowing, as long as such borrowing, is in connection with the discharge of Service Company’s responsibilities hereunder and is undertaken in accord with procedures approved by the Service Company’s Board of Directors.

II. SERVICES TO BE OBTAINED INDEPENDENTLY BY EACH FUND

     2.1 Services and Expenses. Each Fund shall, at its own expense, obtain from Service Company or an outside vendor (as that Fund’s Board of Trustees shall determine):

A.      Services of an independent public accountant.
B.      Services of outside legal counsel.
C.      Transfer agency services, including “shareholder services.”
D.      Custodian, registrar and dividend disbursing services.
E.      Brokerage fees, commissions and transfer taxes in connection with the

purchase and sale of securities for its investment portfolio.

F.      Investment advisory services.
G.      Taxes and other fees applicable to its operations.

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     H. Costs incident to its annual or special meetings of shareholders, including but not limited to legal and accounting fees, and the preparations, printing and mailing of proxy materials.

I. Trustees’ fees.

     J. Costs incurred in the continued maintenance of its corporate existence, including reports to shareholders and government agencies, and the expenses, if any, attributable to the registration of the Fund’s shares with Federal and state regulatory authorities.

     K. And, in general and except as provided in Section 3.2(B), any other costs directly attributable to and identified with a particular Fund or Funds rather than all Funds which are parties to this Agreement.

     2.2 Disbursement of Payment for These Services. Notwithstanding the provisions of Section 2.1 above, Service Company may, as agent for any Fund, disburse to third parties payments for any of the foregoing services or expenses. Each Fund shall reimburse Service Company promptly for such disbursements made on behalf of the Fund.

III. SERVICES PROVIDED BY AND EXPENSES OF SERVICE COMPANY

     3.1 Services to be Provided to Funds. Service Company shall with respect to each Fund, subject to the direction and control of the Board of Trustees and officers of the Fund: A. Manage, administer and/or conduct the general business activities of the Fund.

     B. Provide the personnel and obtain the office space, facilities and equipment necessary to perform such general business activities under the direction of the Funds’ executive officers (who may also be officers of Service Company) who will have the full responsibility for the general management of these functions.

     C. Establish wholly-owned subsidiaries, and supervise the management and operations of such subsidiaries, as are necessary or appropriate to carry on or support the business activities of the Fund; and authorize such subsidiaries to perform such other functions for the Fund, including organizing new investment companies which are intended to become parties to this Agreement pursuant to Section 5.4 or Section 5.5, as Service Company’s Board of Directors shall determine.

No provisions hereof shall prohibit the Service Company from performing such additional services to the Fund as the Fund’s Board of Trustees may appropriately request and which two-thirds of the shareholders of the Service Company shall approve.

     3.2 Expenses of Operation of Service Company. Each of the Funds agrees to pay to the Service Company, within 10 days after the last business day of each month or at such other time as agreed to by the Fund and the Service Company, the Fund’s portion of the actual costs of operation of Service Company for each monthly period, or for such other period as is agreed upon, during which the Fund is a party to this Agreement.

     A. Corporate Management and Administrative Expenses. A Fund’s portion of the cost of operation of Service Company shall mean its share of the direct and indirect expenses of Service Company’s providing corporate management and administrative services, including distribution services of an administrative nature, as allocated among the Funds with Allocation of indirect costs based on one or more of the following methods of allocation:

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     (1) Net Assets: The proportionate allocation of expenses based upon the value of each Fund’s net assets, computed as a percentage of the value of total net assets of all Funds receiving services from Service Company, determined at the end of the last preceding monthly period.

     (2) Personnel Time: The proportionate allocation of expenses based upon a summary by each Fund of the time spent by each employee who works directly on the affairs of one or more of the Funds, computed as a percentage of the total time spent by such employee on the affairs of all of the Funds.

     (3) Shareholder Accounts: The proportionate allocation of expenses based upon the number of each Fund’s shareholder accounts and transaction activity in those accounts, measured over a period of time, relative to the total number of shareholder accounts and transaction activity in those accounts for all Funds receiving number of portfolio transactions for all Funds receiving services from the Service Company during such period.

     (4) Such other methods of allocation as may be approved by the Board of Directors of the Service Company based upon its determination that the allocation method is fair to each Fund in view of (i) the nature, amount and purpose of the expenditure, (ii) the benefits, if any, to be derived directly by each Fund relative to the benefits derived by other Funds, (iii) the need or desirability for the Funds as a group to provide competitive investment programs and services at competitive prices for the group to survive and grow, (iv) the benefits which each Fund derives by being a member of a strong Fund group, and (v) such other factors as the Board considers relevant to the specific expenditure and allocation.

     B. Distribution Expenses. Each of the Funds expressly agrees to pay to Service Company, as requested, the Fund’s portion of the actual cost of distributing shares of the Funds, which shall mean its share of all of the direct and indirect expenses of a marketing and promotional nature including, but not limited to, advertising, sales literature, and sales personnel, as well as expenditures on behalf of any newly organized registered investment company which is to become a party of this Agreement pursuant to Section 5.4. The cost of distributing shares of the Funds shall not include distribution-related expenses of an administrative nature, which shall be allocated among the Funds pursuant to Section 3.2(A). Distribution expenses of a marketing and promotional nature shall be allocated among the Funds in the manner approved by the Securities and Exchange Commission in Investment Company Act Release No. 11645 (Feb. 25, 1981): (1) 50% of these expenses will be allocated based upon each Fund’s average month-end assets during the preceding quarter relative to the average month-end assets during the preceding quarter of the Funds as a group.

     (2) 50% of these expenses will be allocated initially among the Funds based upon each Fund’s sales for the 24 months ended with the last day of the preceding quarter relative to the sales of the Funds as a group for the same period. (Shares issued pursuant to a reorganization shall be excluded from the sales of a Fund and the Funds as a group.) (3) Provided, however, that no Fund’s aggregate quarterly contribution for distribution expenses, expressed as a percentage of its assets, shall exceed 125% of the average expenses for the Funds as a Group, expressed as a percentage of the

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total assets of the Funds. Expenses not charged to a particular Fund(s) because of this 125% limitation shall be reallocated to other Funds on iterative basis; and that no Fund’s annual expenses for distribution shall exceed 0.2% of its average month-end net assets.

IV. CONCERNING THE SERVICE COMPANY

4.1 Name. Each Fund acknowledge and agrees:

     A. That the name “The Vanguard Group, Inc.”, and any variants thereof used to identify (1) the Funds as a group, (2) any Fund as a member of a group being served by Service Company, or (3) any other person as being served or related to Service Company (whether now in existence or hereafter created), shall be the sole and exclusive property of Service Company, its affiliates, and its successors.

     B. That Service Company shall have the sole and exclusive right to permit the use of said name or variants thereof so long as this Agreement or any amendments thereto are effective.

     C. That upon its withdrawal from this Agreement and upon the written request of Service Company, the Fund shall cease to use, or in any way to refer to itself as related to, “The Vanguard Group, Inc.” or any variant thereof.

     The foregoing agreements on the part of each Fund are hereby made binding upon it, its trustees, officers, shareholders and creditors and all other persons claiming under or through it.

     4.2 Services to Others. The Service Company may render services to any person other than the Funds so long as:

A.      The services to be rendered to the Funds hereunder are not impaired thereby.
B.      The terms and provisions upon which the services are to be rendered have

been approved by the holders of a majority of the Shares.

     C. The services rendered for compensation and, to the extent achievable, for the purpose of gaining a profit thereon.

     D. Any income earned and fees received by Service Company shall be used to reduce the total costs and expenses of Service Company.

     4.3 Books, Records, and Audits of Service Company. The Service Company, and any subsidiary established pursuant to Section 3.1(C), shall maintain complete, accurate, and current books, records, and financial statements concerning its activities. To the extent appropriate, it will preserve said records in the manner and for the periods prescribed by law. Financial records and statements shall be kept in accord with generally accepted accounting principles and shall be audited at least annually by independent public accountants (who may also be accountants for any of the Funds). Within 120 days after the close of Service Company’s fiscal year, it shall deliver to each Fund a copy of its audited financial statements for that year and the accountants report thereon. Service Company, on behalf of itself and any subsidiary, acknowledges that all of the records they shall prepare and maintain pursuant to this Agreement shall be the property of the Funds and that upon a request of any Fund they shall make the Fund’s records available to it, along with such other information and data as are reasonably requested by the Fund, for inspection, audit or copying, or turn said records over to the Fund.

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4.4      Indemnification.
  A.      Each Fund (herein the “Indemnitor”) agrees to indemnify, hold harmless, and
  reimburse      (herein “indemnify”) every other Fund, Service Company and/or any

subsidiary of Service Company (herein the “Indemnitee”):

     (1) which Indemnitee (a) was or is a party to, or is threatened to be made a party to, any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (herein a “suit”), or (b) incurs an actual economic loss or expense (herein a “loss”).

     (2) if: (a) such suit or loss arises from an action or failure to act, event, occurrence, transaction, or other analogous happening (herein an “event”) under circumstances in which the Indemnitee is involved in a suit or incurs a loss.

     (i) as a result substantially of, or attributable primarily to, its being a party to this Agreement, or to its indirect participation in transactions contemplated by this Agreement; and (ii) where the suit or loss arises primarily and substantially from an event related primarily and substantially to the business and/or operations of the Indemnitor; and (b) an independent third party, who may but need not be legal counsel for the Funds, advises the Funds in writing (i) that the condition set forth in “(1)” and “(2)(a)” have occurred and (ii) that the Indemnitee is without significant fault or responsibility for the suit or loss as measured by the comparative conduct of the Indemnitor and Indemnitee and by the purposes sought to be accomplished by this Agreement.

     B. The financial obligations of the Indemnitor under this Section shall be limited to: (1) In the case of a suit, to expenses (including attorneys’ fees), actually incurred by the Indemnitee. The termination of any suit by judgment, order, settlement, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Indemnitee is not entitled to be indemnified hereunder.

     (2) In the case of an event, to losses and/or expenses (including attorney’s fees) actually incurred by the Indemnitee.

The Indemnitee shall not be liable financially hereunder for lost profits in the case of either a suit or loss.

     C. Expenses incurred in defending a suit or resolving an event may be paid by the prospective Indemnitor in advance of the final disposition of such suit or event if authorized by the Board of Trustees of the prospective Indemnitor in the specific case upon receipt of an undertaking by or on behalf of the prospective indemnitee to repay such amount unless it shall ultimately be determined that the Indemnitee is entitled to be indemnified by the Indemnitor as provided in this Section.

     D. The indemnification provided by this section shall not be deemed exclusive of any other rights to which the Indemnitee may be entitled under any agreement or otherwise.

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V. TERM OF AGREEMENT

     5.1 Effective Period. This Agreement shall become effective on the date first written above, and shall continue in full force and effect as to all parties hereto until terminated or amended by mutual agreement of all parties hereto. The withdrawal pursuant to Section 5.2(A) or 5.2(B) of one or more of the Funds from this agreement shall not affect the continuance of this Agreement except as to the parties withdrawing.

5.2 Withdrawal from Agreement.

     A. Any Fund may elect to withdraw from this Agreement effective at the end of any monthly period by giving at least 90 days’ prior written notice to each of the parties to this Agreement. Upon the written demand of all other Funds which are parties to this Agreement a Fund shall withdraw, and in the event of its failure to do so shall be deemed to have withdrawn, from this Agreement; such demand shall specify the date of withdrawal which shall be at the end of any monthly period at least 90 days from the time of service of such demand.

     B. In the event of the withdrawal of any Fund from this Agreement, all its rights and obligations, except for lease commitments, under this Agreement (except such rights or obligations as have accrued prior to the date of withdrawal) shall terminate as of the date of the withdrawal. The withdrawing Fund shall surrender its Shares to Service Company, and (1) shall be entitled to receive from Service Company an amount equal to the excess of the fair value of (i) its Shares of other securities Service Company as of the date of its withdrawal less (ii) its proportionate interest in any liabilities of Service Company, including when appropriate any commitments of Service Company and unexpired leases at the date of withdrawal; (2) shall be obligated to pay Service Company an amount equal to the excess of (ii) over (i). Such amount to be received from or paid to Service Company shall be determined by the favorable vote of the holders of a majority of the Shares whose determination shall be conclusive upon the Funds. Any amount found payable by the Service Company to the withdrawing Fund shall be recoverable by Service Company from the Funds remaining under this Agreement in accordance with the provisions of Section 1.2, 1.3 and 1.4 hereof.

     5.3 Termination by Mutual Consent. In the event that all Funds withdraw from this Agreement without entering into a comparable successor agreement, each Fund shall surrender its Shares to Service Company and after payment by Service Company of all its liabilities, including the settlement of unexpired lease obligations, shall: A. Receive from Service Company in cash an amount equal to its proportionate share of the actual value of all assets of the Service Company which can be reduced readily to cash.

     B. Negotiate in good faith with the other Funds provision for the equitable use and/or disposition of assets of the Service Company which are not readily reducible to cash.

     5.4 Additional Parties to Agreement. Upon the favorable vote of two-thirds of the shareholders and of the holders of two-thirds of the Shares of the Service Company, any investment company registered under the Investment Company Act of 1940 may become a party to this Agreement and share as a Fund in all of the rights, duties and liabilities hereunder by

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adopting, executing and delivering to the Service Company and the Funds a signed copy of this Agreement which shall evidence that investment company’s agreement to assume the duties and obligations of a Fund hereunder. Upon the delivery of a signed copy of this Agreement, the new Fund shall be subject to all provisions of this Agreement and become a holder of Shares by adjustment in cash investments among the Funds pursuant to Section 1.3. No person shall become a holder of shares without becoming a party to this Agreement.

     5.5 Fund of Funds Parties to Agreement. A “Fund of Funds” shall mean a registered investment company or series of a Fund which is managed and administered by Service Company and which invests substantially all of its assets in shares of two or more Funds (or series thereof).

     A. Upon the favorable vote of two-thirds of the shareholders and of the holders of two-thirds of the Shares of the Service Company, a Fund of Funds organized as a separate registered investment company may become a party to this Agreement and share as a Fund in all of the rights, duties and liabilities hereunder by adopting, executing and delivering to the Service Company and the Funds a signed copy of this Agreement which shall evidence that investment company’s agreement to assume the duties and obligations of a Fund hereunder, except as provided in the following paragraph B.

     B. A Fund of Funds: (1) shall not be obligated or permitted to make a capital contribution or to acquire Shares pursuant to Section I except to the extent that the Fund of Funds’ assets are not invested in shares of the Funds; (2) shall not be allocated or obligated to pay any portion of the expenses of Service Company pursuant to Section 3.2 except as determined by the Board of Directors of Service Company pursuant to Section 3.2(A)(4); and (3) may have the expenses the Fund of Funds would otherwise bear pursuant to Section 2.1 reduced or eliminated by the savings which accrue to the benefit of the Funds.

     C. Upon the delivery of a signed copy of this Agreement, the Fund of Funds shall be subject to all the provisions of this Agreement except as provided herein.

VI. GENERAL

     6.1 Definition of Certain Terms. As used in this Agreement, the terms set forth below shall mean: A. “Fair Value of Shares” shall mean the proportionate interest, as represented by the ratio of the number of Shares owned by a Fund to the number of Shares issued and outstanding, in all assets of the Service Company less all liabilities of the Service Company on the date fair value is to be determined. Assets shall be valued at fair market value. In case of any dispute as to the proportionate interest of any Fund or as to the fair value of the Shares, the issue shall be determined by the favorable vote of the holders of a majority of the Shares, whose determination shall be conclusive upon the Fund.

     B. “Person” shall mean a natural person, a corporation, a partnership, an association, a joint-stock company, a trust, a fund or any organized group of persons whether incorporated or not.

     6.2 Assignment. This Agreement shall bind and inure to the benefit of the parties thereto, their respective successors and assigns.

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     6.3 Captions. The captions in this Agreement are included for convenience of reference only and in no way define any of the provisions hereof or otherwise affect their construction or effect.

     6.4 Amendment. Unless prohibited by applicable laws, regulations or orders of regulatory authorities and except as set forth below, this Agreement may be amended at any time and in one or more respects upon the favorable vote of the holders of a majority of the Shares (except that the vote required in Sections 3.1 and 5.4 may be amended only by the favorable votes of the number of holders or Shares specified therein) and without the further approval or vote of shareholders of any of the Funds; provided, however, that Section 1.4 (limiting cash investments by the Funds in Service Company) may not be amended unless and exemptive order permitting such amendment is obtained from the U.S. Securities and Exchange Commission.

     6.5 Severability. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby.

     In Witness Whereof, each of the parties hereto has caused the Agreement to be signed and its corporate seal to be hereto affixed by its proper officers thereunto duly authorized, all as of the date and year first above written.

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The Vanguard Group, Inc.

Attest: /s/ Anne Robinson
Anne Robinson
Secretary

The Vanguard Group of Investment Companies:

Vanguard Admiral Funds
Vanguard California Tax-Free Funds
Vanguard Chester Funds
Vanguard Explorer Fund
Vanguard Fixed Income Securities Funds
Vanguard Horizon Funds
Vanguard International Equity Index Funds
Vanguard Malvern Funds
Vanguard Money Market Reserves
Vanguard Morgan Growth Fund
Vanguard New Jersey Tax-Free Funds
Vanguard Ohio Tax-Free Funds
Vanguard Quantitative Funds
Vanguard Specialized Funds
Vanguard Tax-Managed Funds
Vanguard Valley Forge Funds
Vanguard Wellesley Income Fund
Vanguard Whitehall Funds
Vanguard World Fund

BY: /s/ F. William McNabb III
F. William McNabb III
Chief Executive Officer

Vanguard Bond Index Funds
Vanguard Charlotte Funds
Vanguard Convertible Securities Fund
Vanguard Fenway Funds
Vanguard Florida Tax-Free Funds
Vanguard Index Funds
Vanguard Institutional Index Funds
Vanguard Massachusetts Tax-Exempt Funds
Vanguard Montgomery Funds
Vanguard Municipal Bond Funds
Vanguard New York Tax-Free Funds
Vanguard Pennsylvania Tax-Free Funds
Vanguard Scottsdale Funds1
Vanguard STAR Funds
Vanguard Trustees’ Equity Fund
Vanguard Variable Insurance Funds
Vanguard Wellington Fund
Vanguard Windsor Funds

Attest: /s/ Anne Robinson Anne Robinson

Secretary

BY: /s/ F. William McNabb III F. William McNabb III

President and

Chief Executive Officer

 

Signature page revised as of November 16, 2017.

1 Formerly Vanguard Treasury Fund

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EX-99.J OTHER OPININ 5 pwcconsent.htm CONSENT pwcconsent.htm - Generated by SEC Publisher for SEC Filing

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in this Registration Statement on Form N-1A of Vanguard Windsor Funds of our reports dated December 13, 2017, relating to the financial statements and financial highlights, which appear in Vanguard Windsor Fund and Vanguard Windsor II Fund’s Annual Reports on Form N-CSR for the year ended October 31, 2017. We also consent to the references to us under the headings “Financial Highlights”, “Financial Statements” and “Service Providers—Independent Registered Public Accounting Firm” in such Registration Statement.

/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 20, 2018

EX-99.N 18F-3 PLAN 6 multipleclassplanvanguardfun.htm MULTICLASS PLAN multipleclassplanvanguardfun.htm - Generated by SEC Publisher for SEC Filing

VANGUARD FUNDS
MULTIPLE CLASS PLAN

I. INTRODUCTION

     This Multiple Class Plan (the “Plan”) describes seven separate classes of shares that may be offered by investment company members of The Vanguard Group of Mutual Funds (collectively the “Funds,” individually a “Fund”). The Plan explains the separate arrangements for each class, how expenses are allocated to each class, and the conversion features of each class. Each Fund may offer any one or more of the specified classes.

     The Plan has been approved by the Board of Directors of The Vanguard Group, Inc. (“VGI”). In addition, the Plan has been adopted by a majority of the Board of Trustees of each Fund (“Fund Board”), including a majority of the Trustees who are not interested persons of each Fund. The classes of shares offered by each Fund are designated in Schedule A hereto, as such Schedule may be amended from time to time.

II. SHARE CLASSES

A Fund may offer any one or more of the following share classes:

Investor Shares
Admiral Shares
Institutional Shares
Institutional Plus Shares
Institutional Select Shares
ETF Shares
Transition Shares

III. DISTRIBUTION, AVAILABILITY AND ELIGIBILITY

     Distribution arrangements for all classes are described below. Distribution arrangements vary by VGI business line depending on the eligibility of the client segments to whom they market. Each Fund retains sole discretion in determining share class availability, and VGI retains discretion in determining whether Fund shares shall be offered either directly or through certain financial intermediaries, or on certain financial intermediary platforms. Eligibility requirements for purchasing shares of each class will differ, as follows:

A. Investor Shares

     Investor Shares generally will be available to investors who are not permitted to purchase other classes of shares, subject to the eligibility requirements specified in Schedule B hereto, as such Schedule may be amended

1


 

from time to time. It is expected that the minimum investment amount for Investor Shares will be substantially lower than the amount required for any other class of shares. Investor Shares are typically distributed by all VGI business lines.

B. Admiral Shares

     Admiral Shares generally will be available to individual, institutional, and other investors who meet the eligibility requirements specified in Schedule B hereto, as such Schedule may be amended from time to time. These eligibility requirements may include, but are not limited to the following factors: (i) the total amount invested the Fund; or (ii) any other factors deemed appropriate by a Fund’s Board. Admiral Shares are typically distributed by all VGI business lines.

C. Institutional Shares

     Institutional Shares generally will be available to institutional and other investors who meet the eligibility requirements specified in Schedule B hereto, as such Schedule may be amended from time to time. It is expected that the minimum investment amount per account for Institutional Shares will be substantially higher than the amounts required for Investor Shares or Admiral Shares. Institutional Shares are typically distributed by Vanguard’s financial advisory services and institutional business lines.

D. Institutional Plus Shares

     Institutional Plus Shares generally will be available to institutional and other investors who meet the eligibility requirements specified in Schedule B hereto, as such Schedule may be amended from time to time. It is expected that the minimum investment amount for Institutional Plus Shares will be substantially higher than the amount required for Institutional Shares. Institutional Plus Shares are typically distributed by VGI’s financial advisory services and institutional business lines.

E. Institutional Select Shares

     Institutional Select Shares generally will be available to institutional investors who meet the eligibility requirements specified in Schedule B hereto, as such Schedule may be amended from time to time. It is expected that the minimum investment amount for Institutional Select Shares will be the highest among all VGI share classes. Institutional Select Shares are typically distributed by VGI’s institutional business line.

F. ETF Shares

     A Fund will sell ETF Shares to investors that are (or who purchase through) Authorized Participants, and who pay for their ETF shares by depositing

2


 

a prescribed basket of securities rather than paying cash. An Authorized Participant is an institution, usually a broker-dealer, that is a participant in the Depository Trust Company (DTC) and that has executed a Participant Agreement with the Fund’s distributor. Additional eligibility requirements may be specified in Schedule B hereto, as such Schedule may be amended from time to time. Investors who are not Authorized Participants may buy and sell ETF shares through various exchanges and market centers. ETF Shares are typically distributed by all VGI business lines.

G. Transition Shares

     Transition Shares generally will be available solely to Vanguard Funds that operate as funds-of-funds and meet the eligibility requirements specified in Schedule B hereto, as such Schedule may be amended from time to time. Transition Shares are only internally distributed.

IV. SERVICE ARRANGEMENTS

     All share classes will receive a range of services provided by VGI on a per account basis. These “account-based” services may include transaction processing and shareholder recordkeeping, as well as the mailing of updated prospectuses, shareholder reports, tax statements, confirmation statements, quarterly portfolio summaries, and other items. It is expected that the aggregate amount of account-based services provided to Investor Shares will materially exceed the amount of such services provided to any other class, due to the existence of many more accounts holding Investor Shares. In addition to this difference in the volume of services provided, arrangements will differ among the classes as follows:

A. Investor Shares

     Investor Shares generally will receive the most basic level of service from VGI. Investor Shares generally will be serviced through a pool of VGI client service representatives.

B. Admiral Shares

     Admiral Shares will receive a different level of service from VGI as compared to Investor Shares. Special client service representatives may be assigned to service Admiral Shares, and holders of such shares may from time to time receive special mailings and unique additional services.

C. Institutional Shares

     Institutional Shares will receive from VGI a level of service that differs from the service provided to the holders of shares of other classes. Such services may include special client service representatives who will be assigned to service

3


 

  Institutional      Shares. Most holders of Institutional Shares periodically will receive
  special      investment updates from VGI’s investment staff. Holders of Institutional
  Shares      also may receive unique additional services from VGI, and generally will
  be      permitted to transact with VGI through the National Securities Clearing
  Corporation’s      FundSERV system and other special servicing platforms for
  institutional      investors.
  D.      Institutional Plus Shares
   Institutional Plus Shares generally will receive a very high level of service
  from      VGI as compared to any other share classes. Special client service
  representatives      will be assigned to service Institutional Plus Shares, and most
  holders      of such shares periodically, but more than the holders of all other shares,
  will      receive special updates from VGI’s investment staff. Holders of Institutional
  Plus      Shares may receive unique additional services from VGI, and generally will
  be      permitted to transact with VGI through the National Securities Clearing
  Corporation’s      FundSERV system and other special servicing platforms for
  institutional      investors.
  E.      Institutional Select Shares
   Institutional Select Shares generally will receive a customized level of
  service.      Holders of Institutional Select Shares may receive unique additional
  services      from VGI, and generally will be permitted to transact with VGI through
  the      National Securities Clearing Corporation’s FundSERV system and other
  special      servicing platforms for institutional investors.
  F.      ETF Shares
   A Fund is expected to maintain only one shareholder of record for ETF
  SharesDTC      or its nominee. Special client service representatives will be
  assigned      to the DTC account, and all transactions on this account will be handled
  electronically.      Due to the nature and purpose of the DTC account, ETF Shares
  will      not receive any special updates from VGI’s investment staff.
  G.      Transition Shares
   The only investors eligible to own Transition Shares are Vanguard Funds
  that      operate as funds-of-funds, and it is expected that such funds, because of the
  nature      of Transition Shares, will own the shares only for the brief periods
  necessary      to complete the relevant portfolio transitions. The level of service
  provided      will be commensurate with the needs of a fund-of-funds transitioning
  from      one underlying fund to another.
V.      CONVERSION FEATURES
  A.      Self-Directed Conversions

4


 

     1. Conversion into Investor Shares, Admiral Shares, Institutional Shares Institutional Plus Shares, and Institutional Select Shares. Shareholders may conduct self-directed conversions from one share class into another share class of the same fund for which they are eligible. Self-directed conversions may be initiated by the shareholder; however, depending upon the particular share class and the complexity of the shareholder’s accounts, such conversions may require the assistance of a VGI representative. Shareholders may convert from one share class into another share class provided that following the conversion the shareholder: (i) meets the then applicable eligibility requirements for the share class into which they are converting; and (ii) receives services consistent with such new share class. Any such conversion will occur at the respective net asset values of the share classes next calculated after VGI’s receipt of the shareholder’s request in good order.

     2. Conversion into ETF Shares. Except as otherwise provided, a shareholder may convert Investor Shares, Admiral Shares, or Institutional Shares into ETF Shares of the same fund (if available), provided that: (i) the share class out of which the shareholder is converting and the ETF Shares declare and distribute dividends on the same schedule; (ii) the shares to be converted are not held through an employee benefit plan; and (iii) following the conversion, the shareholder will hold ETF Shares through a brokerage account. Any such conversion will occur at the respective net asset values of the share classes next calculated after VGI’s receipt of the shareholder’s request in good order. VGI or the Fund may charge an administrative fee to process conversion transactions.

B.      Automatic Conversions
  1.      Automatic conversion into Admiral Shares. VGI may
  automatically convert Investor Shares into Admiral Shares of the same fund (if available), provided that following the conversion the shareholder: (i) meets the eligibility requirements for Admiral Shares; and (ii) receives services consistent with Admiral Shares. Any such conversion will occur at the respective net asset values of the share classes next calculated after VGI’s conversion without the imposition of any charge. Such automatic conversions may occur on a periodic, or one-time basis. Automatic conversions may occur at different times due to the differing mechanisms through which an account is funded or meets the required investment minimum. Automatic conversions do not apply to certain types of
  accounts      (e.g., accounts held through certain intermediaries, or other
  accounts      as may be excluded by VGI management).
  2.      Automatic conversion into Institutional Shares, Institutional
  Plus Shares, or Institutional Select Shares. VGI may conduct automatic conversions of any share class into either Institutional Shares, Institutional

5


 

  Plus Shares, or Institutional Select Shares in accordance with then-current eligibility requirements.
  C.      Involuntary Conversions and Cash Outs
   1.      Cash Outs. If a shareholder in any class of shares no longer
   meets the eligibility requirements for such shares, the Fund may cash out the shareholder’s remaining account balance. Any such cash out will be
   preceded      by written notice to the shareholder and will be subject to the
   Fund’s normal redemption fees, if any.
   2.      Conversion of Admiral Shares, Institutional Shares, and
   Institutional Plus Shares. If a shareholder no longer meets the eligibility requirements for the share class currently held, the Fund may convert the shareholder’s holdings into the share class for which such shareholder is eligible. Any such conversion will be preceded by written notice to the shareholder, and will occur at the respective net asset values of the share classes without the imposition of any sales load, fee, or other charge.
   3.      Conversions of Transition Shares. When a Fund that issues
   Transition      Shares has completed the relevant portfolio transition, the Fund
   will convert the Transition Shares to another share class of the same Fund as appropriate, based on the eligibility requirements of such class as specified in
   Schedule      B hereto, as such Schedule may be amended from time to time.
VI.      EXPENSE ALLOCATION AMONG CLASSES
  A.      Background
   VGI is a jointly-owned subsidiary of the Funds. VGI provides the Funds,
  on      an at-cost basis, virtually all of their corporate management, administrative and
  distribution      services. VGI also may provide investment advisory services on an
  at-cost      basis to the Funds. VGI was established and operates pursuant to a Funds’
  Service      Agreement between itself and the Funds (the “Agreement”), and pursuant
  to      certain exemptive orders granted by the U.S. Securities and Exchange
  Commission      (“Exemptive Orders”). VGI’s direct and indirect expenses of
  providing      corporate management, administrative and distribution services to the
  Funds      are allocated among such funds in accordance with methods specified in
  the      Agreement.1
  B.      Class Specific Expenses

1 In accordance with the Agreement and Board approved methodologies, the expenses that would otherwise have been allocated to each Vanguard Fund of Funds are reallocated to the approve share class of the underlying funds in the Fund of Funds’ portfolio on a pro rata basis based on that Fund of Funds relative net assets invested in the underlying fund’s share class.

6


 

     1. Expenses for Account-Based Services. Expenses associated with VGI’s provision of account-based services to the Funds will be allocated among the share classes of each Fund on the basis of the amount incurred by each such class as follows:

     (a) Account maintenance expenses. Expenses associated with the maintenance of investor accounts will be proportionately allocated among each Fund’s share classes based upon a monthly determination of the costs to service each class of shares. Factors considered in this determination are (i) the percentage of total shareholder accounts represented by each class; (ii) the percentage of total account transactions performed by VGI for each class; and (iii) the percentage of new accounts opened for each class.

(b) Expenses of special servicing arrangements.

Expenses relating to any special servicing arrangements for a specific class will be proportionally allocated among each eligible Fund’s share classes primarily based on their percentage of total shareholder accounts receiving the special servicing arrangements.

(c) Literature production and mailing expenses.

Expenses associated with shareholder reports, proxy materials and other literature will be allocated among each Fund’s share classes based upon the number of such items produced and mailed for each class.

     2. Other Class Specific Expenses. Expenses for the primary benefit of a particular share class will be allocated to that share class. Such expenses would include any legal fees attributable to a particular class.

C.      Fund-Wide Expenses
  1.      Marketing and Distribution Expenses. Each share class will
  bear marketing and distribution expenses proportionate to the marketing and distribution expenses of the business lines that distribute that share class. Retail and institutional businesses expenses will be allocated based on the percentage of client accounts in each share class serviced by the respective business. Financial advisory service expenses will be apportioned based on the percentage of assets in each share class.
  Expenses      associated with each share class will be allocated only among
  the Funds that have such share class according to the “Vanguard Modified Formula,” with each share class or each Fund treated as if it were a separate Fund. The Vanguard Modified Formula is set forth in the Agreement and in certain of the SEC Exemptive Orders. This allocation

7


 

has been deemed an appropriate allocation methodology by each Fund Board under paragraph (c)(1)(v) of Rule 18f-3 under the Investment Company Act of 1940.

     2. Asset Management Expenses. Expenses associated with management of a Fund’s assets (including all advisory, tax preparation and custody fees) will be allocated among the Fund’s share classes on the basis of their relative net assets.

     3. Other Fund Expenses. Any other Fund expenses not described above will be allocated among the share classes on the basis of their relative net assets.

VII. ALLOCATION OF INCOME, GAINS AND LOSSES

     Income, gains and losses will be allocated among each Fund’s share classes on the basis of their relative net assets. As a result of differences in allocated expenses, it is expected that the net income of, and dividends payable to, each class of shares will vary. Dividends and distributions paid to each class of shares will be calculated in the same manner, on the same day and at the same time.

VIII. VOTING AND OTHER RIGHTS

     Each share class will have: (i) exclusive voting rights on any matter submitted to shareholders that relates solely to its service or distribution arrangements; and (ii) separate voting rights on any matter submitted to shareholders in which the interests of one class differ from the interests of the other class; and (iii) in all other respects the same rights, obligations and privileges as each other, except as described in the Plan.

IX. AMENDMENTS

     All material amendments to the Plan must be approved by a majority of the Board of Trustees of each Fund, including a majority of the Trustees who are not interested persons of the Fund. In addition, any material amendment to the Plan must be approved by the Board of Directors of VGI.

Original Board Approval: July 21, 2000
Last Approved by Board: July 21, 2017

8


 

SCHEDULE A to

VANGUARD FUNDS MULTIPLE CLASS PLAN

Note: Transition Shares, when offered by a Fund, are available for a limited period of time and are then converted into another share class. For this reason, Transition Shares are not shown on Schedule A.

Vanguard Fund Share Classes Authorized
 
Vanguard Admiral Funds  
Treasury Money Market Fund Investor
S&P 500 Value Index Fund Institutional, ETF
S&P 500 Growth Index Fund Institutional, ETF
S&P MidCap 400 Index Fund Institutional, ETF
S&P MidCap 400 Value Index Fund Institutional, ETF
S&P MidCap 400 Growth Index Fund Institutional, ETF
S&P SmallCap 600 Index Fund Institutional, ETF
S&P SmallCap 600 Value Index Fund Institutional, ETF
S&P SmallCap 600 Growth Index Fund Institutional, ETF
 
Vanguard Bond Index Funds  
Short-Term Bond Index Fund Investor, Admiral, Institutional,
    Institutional Plus, ETF
Intermediate-Term Bond Index Fund Investor, Admiral, Institutional, Institutional
    Plus, ETF
Long-Term Bond Index Fund Investor, Institutional, Institutional Plus,
    ETF
Total Bond Market Index Fund Investor, Admiral, Institutional, Institutional
    Plus, Institutional Select, ETF
Total Bond Market II Index Fund Investor, Institutional
Inflation-Protected Securities Fund Investor, Admiral, Institutional
 
Vanguard California Tax-Free Funds  
Municipal Money Market Fund Investor
Intermediate-Term Tax-Exempt Fund Investor, Admiral
Long-Term Tax-Exempt Fund Investor, Admiral
 
Vanguard Charlotte Funds  
Total International Bond Index Fund Investor, Admiral, Institutional,
    Institutional Select, ETF

 

1


 

Vanguard Fund Share Classes Authorized
 
Vanguard Chester Funds  
PRIMECAP Fund Investor, Admiral
Target Retirement Income Fund Investor
Target Retirement 2010 Fund Investor
Target Retirement 2015 Fund Investor
Target Retirement 2020 Fund Investor
Target Retirement 2025 Fund Investor
Target Retirement 2030 Fund Investor
Target Retirement 2035 Fund Investor
Target Retirement 2040 Fund Investor
Target Retirement 2045 Fund Investor
Target Retirement 2050 Fund Investor
Target Retirement 2055 Fund Investor
Target Retirement 2060 Fund Investor
Target Retirement 2065 Fund Investor
Institutional Target Retirement Income Fund Institutional
Institutional Target Retirement 2010 Fund Institutional
Institutional Target Retirement 2015 Fund Institutional
Institutional Target Retirement 2020 Fund Institutional
Institutional Target Retirement 2025 Fund Institutional
Institutional Target Retirement 2030 Fund Institutional
Institutional Target Retirement 2035 Fund Institutional
Institutional Target Retirement 2040 Fund Institutional
Institutional Target Retirement 2045 Fund Institutional
Institutional Target Retirement 2050 Fund Institutional
Institutional Target Retirement 2055 Fund Institutional
Institutional Target Retirement 2060 Fund Institutional
Institutional Target Retirement 2065 Fund Institutional
 
Vanguard Convertible Securities Fund Investor
 
Vanguard Explorer Fund Investor, Admiral
 
Vanguard Fenway Funds  
Equity Income Fund Investor, Admiral
Growth Equity Fund Investor
PRIMECAP Core Fund Investor
 
Vanguard Fixed Income Securities Funds  
Ultra-Short-Term Bond Fund Investor, Admiral
REIT II Index Fund Institutional Plus
Short-Term Treasury Fund Investor, Admiral
Short-Term Federal Fund Investor, Admiral
Short-Term Investment-Grade Fund Investor, Admiral, Institutional
Intermediate-Term Treasury Fund Investor, Admiral
Intermediate-Term Investment-Grade Fund Investor, Admiral
GNMA Fund Investor, Admiral

 

2


 

Vanguard Fund Share Classes Authorized
 
Long-Term Treasury Fund Investor, Admiral
Long-Term Investment-Grade Fund Investor, Admiral
High-Yield Corporate Fund Investor, Admiral
 
Vanguard Horizon Funds  
Capital Opportunity Fund Investor, Admiral
Global Equity Fund Investor
Strategic Equity Fund Investor
Strategic Small-Cap Equity Fund Investor
 
Vanguard Index Funds  
500 Index Fund Investor, Admiral, Institutional Select, ETF
Extended Market Index Fund Investor, Admiral, Institutional,
    Institutional Plus, Institutional Select, ETF
Growth Index Fund Investor, Admiral, Institutional, ETF
Large-Cap Index Fund Investor, Admiral, Institutional, ETF
Mid-Cap Growth Index Fund Investor, Admiral, ETF
Mid-Cap Index Fund Investor, Admiral, Institutional,
    Institutional Plus, ETF
Mid-Cap Value Index Fund Investor, Admiral, ETF
Small-Cap Growth Index Fund Investor, Admiral, Institutional, ETF
Small-Cap Index Fund Investor, Admiral, Institutional,
    Institutional Plus, ETF
Small-Cap Value Index Fund Investor, Admiral, Institutional, ETF
Total Stock Market Index Fund Investor, Admiral, Institutional, Institutional
    Plus, Institutional Select, ETF
Value Index Fund Investor, Admiral, Institutional, ETF
 
Vanguard International Equity Index Funds  
Emerging Markets Stock Index Fund Investor, Admiral, Institutional,
    Institutional Plus
  FTSE Emerging Markets ETF ETF
European Stock Index Fund Investor, Admiral, Institutional,
    Institutional Plus
  FTSE Europe ETF ETF
FTSE All-World ex US Index Fund Investor, Admiral, Institutional, Institutional
    Plus, ETF
Pacific Stock Index Fund Investor, Admiral, Institutional,
    Institutional Plus
  FTSE Pacific ETF ETF
Total World Stock Index Fund Investor, Institutional, ETF
FTSE All World ex-US Small-Cap Index Fund Investor, Institutional, ETF
Global ex-U.S. Real Estate Index Fund Investor, Admiral, Institutional, ETF

 

3


 

Vanguard Fund Share Classes Authorized
 
Vanguard Malvern Funds  
Capital Value Fund Investor
Short-Term Inflation-Protected Securities  
  Index Fund Investor, Admiral, Institutional, ETF
U.S. Value Fund Investor
Institutional Short-Term Bond Fund Institutional Plus
Institutional Intermediate-Term Bond Fund Institutional Plus
Core Bond Fund Investor, Admiral
Emerging Markets Bond Fund Investor, Admiral
 
Vanguard Massachusetts Tax-Exempt Funds  
Massachusetts Tax-Exempt Fund Investor
 
Vanguard Money Market Funds  
Prime Money Market Fund Investor, Admiral
Federal Money Market Fund Investor
 
Vanguard Morgan Growth Fund Investor, Admiral
 
Vanguard Montgomery Funds  
Market Neutral Fund Investor, Institutional
 
Vanguard Municipal Bond Funds  
Municipal Money Market Fund Investor
Short-Term Tax-Exempt Fund Investor, Admiral
Limited-Term Tax-Exempt Fund Investor, Admiral
Intermediate-Term Tax-Exempt Fund Investor, Admiral
Long-Term Tax-Exempt Fund Investor, Admiral
High-Yield Tax-Exempt Fund Investor, Admiral
Tax-Exempt Bond Index Fund Investor, Admiral, ETF
 
Vanguard New Jersey Tax-Free Funds  
Municipal Money Market Fund Investor
Long-Term Tax-Exempt Fund Investor, Admiral
 
Vanguard New York Tax-Free Funds  
Municipal Money Market Fund Investor
Long-Term Tax-Exempt Fund Investor, Admiral
 
Vanguard Ohio Tax-Free Funds  
Long-Term Tax-Exempt Fund Investor
 
Vanguard Pennsylvania Tax-Free Funds  
Municipal Money Market Fund Investor
Long-Term Tax-Exempt Fund Investor, Admiral

 

4


 

Vanguard Fund Share Classes Authorized
 
Vanguard Quantitative Funds  
Growth and Income Fund Investor, Admiral
 
Vanguard Scottsdale Funds  
Short-Term Treasury Index Fund Institutional, Admiral, ETF
Intermediate-Term Treasury Index Fund Institutional, Admiral, ETF
Long-Term Treasury Index Fund Institutional, Admiral, ETF
Short-Term Corporate Bond Index Fund Institutional, Admiral, ETF
Intermediate-Term Corporate Bond Index Fund Institutional, Admiral, ETF
Long-Term Corporate Bond Index Fund Institutional, Admiral, ETF
Mortgage-Backed Securities Index Fund Institutional, Admiral, ETF
Explorer Value Fund Investor
Russell 1000 Index Fund Institutional, ETF
Russell 1000 Value Index Fund Institutional, ETF
Russell 1000 Growth Index Fund Institutional, ETF
Russell 2000 Index Fund Institutional, ETF
Russell 2000 Value Index Fund Institutional, ETF
Russell 2000 Growth Index Fund Institutional, ETF
Russell 3000 Index Fund Institutional, ETF
Total Corporate Bond ETF ETF
 
Vanguard Specialized Funds  
Energy Fund Investor, Admiral
Precious Metals Fund Investor
Health Care Fund Investor, Admiral
Dividend Growth Fund Investor
REIT Index Fund Investor, Admiral, Institutional, ETF
Dividend Appreciation Index Fund Investor, Admiral, ETF
 
Vanguard STAR Funds  
LifeStrategy Conservative Growth Fund Investor
LifeStrategy Growth Fund Investor
LifeStrategy Income Fund Investor
LifeStrategy Moderate Growth Fund Investor
STAR Fund Investor
Total International Stock Index Fund Investor, Admiral, Institutional,
    Institutional Plus, Institutional Select,
    ETF
Vanguard Tax-Managed Funds  
Tax-Managed Balanced Fund Admiral
Tax-Managed Capital Appreciation Fund Admiral, Institutional
Developed Markets Index Fund Investor, Admiral, Institutional,
    Institutional Plus
  FTSE Developed Markets ETF ETF
Tax-Managed Small-Cap Fund Admiral, Institutional

 

5


 

Vanguard Fund Share Classes Authorized
 
Vanguard Trustees’ Equity Fund  
International Value Fund Investor
Diversified Equity Fund Investor
Emerging Markets Select Stock Fund Investor
Alternative Strategies Fund Investor
 
Vanguard Valley Forge Funds  
Balanced Index Fund Investor, Admiral, Institutional
Managed Payout Fund Investor
 
Vanguard Variable Insurance Funds  
Balanced Portfolio Investor
Conservative Allocation Portfolio Investor
Diversified Value Portfolio Investor
Equity Income Portfolio Investor
Equity Index Portfolio Investor
Growth Portfolio Investor
Global Bond Index Portfolio Investor
Total Bond Market Index Portfolio Investor
High Yield Bond Portfolio Investor
International Portfolio Investor
Mid-Cap Index Portfolio Investor
Moderate Allocation Portfolio Investor
Money Market Portfolio Investor
REIT Index Portfolio Investor
Short-Term Investment Grade Portfolio Investor
Small Company Growth Portfolio Investor
Capital Growth Portfolio Investor
Total International Stock Market Index Portfolio Investor
Total Stock Market Index Portfolio Investor
 
Vanguard Wellesley Income Fund Investor, Admiral
 
Vanguard Wellington Fund  
U.S. Liquidity Factor ETF ETF
U.S. Minimum Volatility ETF ETF
U.S. Momentum Factor ETF ETF
U.S. Multifactor ETF ETF
U.S. Multifactor Fund Admiral
U.S. Quality Factor ETF ETF
U.S. Value Factor ETF ETF
Wellington Fund Investor, Admiral

 

6


 

Vanguard Fund Share Classes Authorized
 
Vanguard Whitehall Funds  
Selected Value Fund Investor
Mid-Cap Growth Fund Investor
International Explorer Fund Investor
High Dividend Yield Index Fund Investor, ETF
Emerging Markets Government  
  Bond Index Fund Investor, Admiral, Institutional, ETF
Vanguard Global Minimum Volatility Fund Investor, Admiral
International Dividend Appreciation Index Fund Investor, Admiral, ETF
International High Dividend Yield Index Fund Investor, Admiral, ETF
 
Vanguard Windsor Funds  
Windsor Fund Investor, Admiral
Windsor II Fund Investor, Admiral
 
Vanguard World Fund  
Extended Duration Treasury Index Fund Institutional, Institutional Plus, ETF
FTSE Social Index Fund Investor, Institutional
Global Wellesley Income Fund Investor, Admiral
Global Wellington Fund Investor, Admiral
International Growth Fund Investor, Admiral
Mega Cap Index Fund Institutional, ETF
Mega Cap Growth Index Fund Institutional, ETF
Mega Cap Value Index Fund Institutional, ETF
U.S. Growth Fund Investor, Admiral
Consumer Discretionary Index Fund Admiral, ETF
Consumer Staples Index Fund Admiral, ETF
Energy Index Fund Admiral, ETF
Financials Index Fund Admiral, ETF
Health Care Index Fund Admiral, ETF
Industrials Index Fund Admiral, ETF
Information Technology Index Fund Admiral, ETF
Materials Index Fund Admiral, ETF
Telecommunication Services Index Fund Admiral, ETF
Utilities Index Fund Admiral, ETF

 

Original Board Approval: July 21, 2000
Last Updated: January 9, 2018

7


 

SCHEDULE B to

VANGUARD FUNDS MULTIPLE CLASS PLAN

VGI has policies and procedures designed to ensure consistency and compliance with the offering of multiple classes of shares within this Multiple Class Plan’s eligibility requirements.2 These policies are reviewed and monitored on an ongoing basis in conjunction with VGI’s Compliance Department.

Investor Shares - Eligibility Requirements

Investor Shares generally require a minimum initial investment and ongoing account balance of $3,000 ($50,000 for Vanguard Treasury Money Market Fund). Retail managed clients and financial intermediary and other institutional clients may hold Investor Shares without restriction in Funds that do not offer Admiral Shares. A Vanguard Fund may, from time to time, establish higher or lower minimum amounts for Investor Shares. Each Fund and VGI also reserve the right to establish higher or lower minimum amounts for certain investors or a group of investors.

Admiral Shares – Eligibility Requirements

Admiral Shares generally are intended for clients who meet the required minimum initial investment and ongoing account balance of $10,000 for retail clients in index funds and $50,000 for retail clients in actively managed funds. Retail managed clients and external financial intermediary and other institutional clients may hold Admiral Shares of both index and actively managed funds without restriction. Vanguard Funds may, from time to time, establish higher or lower minimum amounts for Admiral Shares and each Fund and VGI reserve the right to establish higher or lower minimum amounts for certain investors or a group of investors. Admiral Share class eligibility also is subject to the following rule:

  • Certain Retirement Plans – Admiral Shares generally are not available for SIMPLE IRAs and Vanguard Individual 401(k) Plans.3

Institutional Shares – Eligibility Requirements

Institutional Shares generally require a minimum initial investment and ongoing account balance of $5,000,000. However, each Fund and VGI also reserve the right to establish higher or lower minimum amounts for certain investors or a group of investors. Institutional Share

2 The eligibility of a Vanguard Fund that operates as a fund of funds to invest in a particular share class of an underlying Vanguard Fund is determined by VGI and the Board in accordance with the allocation methodology referenced in Section VI.

3 Vanguard’s Retail 403(b) business is being outsourced to The Newport Group. In the new structure (launching in July 2017), Admiral Shares will be available for participants.


 

class eligibility also is subject to the following special rules:

  • Individual clients. Individual clients may hold Institutional Shares by
      aggregating      up to 3 accounts held by the same client (same tax I.D. number)
      in      a single Fund.
  • Financial intermediary clients. Financial intermediaries generally may hold
      Institutional      Shares for the benefit of their underlying clients provided that:
      (1)      each underlying investor individually meets the investment minimum
      amount      described above; and
      (2)      the financial intermediary agrees to monitor ongoing compliance of the
      underlying      investor accounts with the investment minimum amount; or
      (3)      a sub-accounting arrangement between VGI and the financial
      intermediary      allows VGI to monitor compliance with the eligibility
      requirements.     
  • Institutional clients. Institutional clients, including but not limited to defined
      benefit      and contribution plan clients, endowments, and foundations may hold
      Institutional      Shares if the total amount aggregated among all accounts held by
      such      client (including accounts held through financial intermediaries) and
      invested      in the Fund is at least $5 million (or such higher minimum required
      by      the individual fund). Such institutional clients must disclose to VGI on
      behalf      of their accounts the following: (1) that each account has a common
      decision-maker;      and (2) the total balance in each account held by the client in
      the      Fund.
  • Investment by Vanguard Target Retirement Collective Trust. A Vanguard
      Target      Retirement Trust that is a collective trust exempt from regulation under
      the      Investment Company Act and that seeks to achieve its investment
      objective      by investing in underlying Vanguard Funds (a “TRT”) may hold
      Institutional      Shares of an underlying Fund whether or not its investment meets
      the      minimum investment threshold specified above.
  • Accumulation Period Accounts funded through regular contributions (e.g.
      employer      sponsored participant contribution plans), whose assets are expected
      to      quickly achieve eligibility levels, may qualify for Institutional Shares upon
      account      creation, rather than undergoing the conversion process shortly after
      account      set-up if VGI management determines that the account will become
      eligible      for Institutional Shares within a limited period of time (generally 90
      days).      The accumulation period eligibility is subject to the discretion of VGI
      management.     

     

    Institutional Plus Shares - Eligibility Requirements

    Institutional Plus Shares generally require a minimum initial investment and ongoing account balance of $100,000,000. However, each Fund and VGI also reserve the right to establish higher or lower minimum amounts for certain investors or a group of investors. Institutional Plus Share class eligibility also is subject to the following special rules:

  • Individual clients. Individual clients may hold Institutional Plus Shares by
      aggregating      up to 3 accounts held by the same client (same tax I.D. number)
      in      a single Fund. For purposes of this rule, VGI management is authorized to
      permit      aggregation of a greater number of accounts in the case of clients
      whose      aggregate assets within the Funds are expected to generate substantial
      economies      in the servicing of their accounts.
  • Institutional clients. Institutional clients, including but not limited to defined
      benefit      and contribution plan clients, endowments, and foundations may hold
      Institutional      Plus Shares if the total amount aggregated among all accounts
      held      by such client (including accounts held through financial intermediaries)
      and      invested in the Fund is at least $100 million (or such higher or lower
      minimum      required by the individual fund). Such institutional clients must
      disclose      to VGI on behalf of their accounts the following: (1) that each
      account      has a common decision-maker; and (2) the total balance in each
      account      held by the client in the Fund.
  • Financial intermediary clients. Financial intermediaries generally may hold
      Institutional      Plus Shares for the benefit of their underlying clients provided
      that:     
      (1)      each underlying investor individually meets the investment minimum
      amount      described above; and
      (2)      the financial intermediary agrees to monitor ongoing compliance of the
      underlying      investor accounts with the investment minimum amount; or
      (3)      a sub-accounting arrangement between VGI and the financial
      intermediary      allows VGI to monitor compliance with the eligibility
      requirements.     
  • Accumulation Period - Accounts funded through regular contributions e.g.
      employer      sponsored participant contribution plans), whose assets are expected
      to      quickly achieve eligibility levels, may qualify for Institutional Plus Shares
      upon      account creation, rather than undergoing the conversion process shortly
      after      account set-up if VGI management determines that the account will
      become      eligible for Institutional Plus Shares within a limited period of time
      (generally      90 days). The accumulation period eligibility is subject to the
      discretion      of VGI management.

     

    • Asset Allocation Models - Vanguard Clients with defined asset allocation models whose assets meet eligibility requirements may qualify for Institutional Plus Shares if such models comply with policies and procedures that have been approved by VGI management.

    Institutional Select Shares - Eligibility Requirements

    Institutional Select Shares generally require a minimum initial investment and ongoing account balance of $3,000,000,000. However, each Fund and VGI also reserve the right to establish higher or lower minimum amounts for certain investors or a group of investors. Institutional Select Share class eligibility also is subject to the following special rules:

  • Institutional clients. Institutional clients, including but not limited to defined
      benefit      and contribution plan clients, endowments, foundations, and Section
      529      college savings plans may hold Institutional Select Shares if the total
      amount      aggregated among all accounts held by such client (including accounts
      held      through financial intermediaries) and invested in the Fund is at least $3
      billion      (or such higher or lower minimum required by the individual fund).
      Such      institutional clients must disclose to VGI on behalf of their accounts the
      following:      (1) that each account has a common decision-maker; and (2) the
      total      balance in each account held by the client in the Fund.
  • Financial intermediary clients. Financial intermediaries generally may hold
      Institutional      Select Shares for the benefit of their underlying clients provided
      that:     
      (1)      each underlying investor individually meets the investment minimum
      amount      described above; and
      (2)      the financial intermediary agrees to monitor ongoing compliance of the
      underlying      investor accounts with the investment minimum amount; or
      (3)      a sub-accounting arrangement between VGI and the financial
      intermediary      allows VGI to monitor compliance with the eligibility
      requirements.     
  • Accumulation Period - Accounts funded through regular contributions (e.g.
      employer      sponsored participant contribution plans), whose assets are expected
      to      quickly achieve eligibility levels, may qualify for Institutional Select Shares
      upon      account creation, rather than undergoing the conversion process shortly
      after      account set-up, if VGI management determines that the account will
      become      eligible for Institutional Select Shares within a limited period of time
      (generally      90 days). The accumulation period eligibility is subject to the
      discretion      of VGI management.

     

    • Investment by VGI collective investment trusts with a similar mandate. A VGI collective investment trust exempt from regulation under the Investment Company Act and that seeks to achieve its investment objective by investing in an underlying Fund with an index-based mandate may hold Institutional Select Shares of an underlying Fund with a similar index-based mandate whether or not its investment meets the minimum investment threshold specified above.

    ETF Shares – Eligibility Requirements

    The eligibility requirements for ETF Shares will be set forth in the Fund’s Registration Statement. To be eligible to purchase ETF Shares directly from a Fund, an investor must be (or must purchase through) an Authorized DTC Participant, as defined in Paragraph III.D of the Multiple Class Plan. Investors purchasing ETF Shares from a Fund must purchase a minimum number of shares, known as a Creation Unit. The number of ETF Shares in a Creation Unit may vary from Fund to Fund, and will be set forth in the relevant prospectus. The value of a Fund's Creation Unit will vary with the net asset value of the Fund’s ETF Shares, but is expected to be several million dollars. An eligible investor generally must purchase a Creation Unit by depositing a prescribed basket of securities with the Fund, rather than paying cash.

    Transition Shares – Eligibility Requirements

    Transition Shares will be offered only to Vanguard Funds that operate as funds-of-funds and only by an underlying Vanguard Fund (i) that is receiving assets in kind from one or more Vanguard Funds and (ii) that will “transition” those in-kind assets by selling some or all of them and using the proceeds to purchase different assets. There is no minimum investment amount for Transition Shares.

    Original Board Approval: July 21, 2000
    Last Approved by Board: July 21, 2017

    EX-99.CODE ETH 7 sandersethicscode-recdfebrua.htm SANDERS COE sandersethicscode-recdfebrua.htm - Generated by SEC Publisher for SEC Filing

    SANDERS CAPITAL, LLC

    Code of Ethics and Personal Trading Policy

    A. General Principles

         The Advisers Act imposes a fiduciary duty on investment advisers. As a fiduciary, Sanders Capital has a duty to exercise a high level of care and competency on behalf of each client; our fiduciary duty also requires us to act in good faith solely in the best interests of each of our clients. This fiduciary duty is the core principle underlying this Code of Ethics and Personal Trading Policy, and represents the expected basis of all dealings with our clients.

         These principles reflect our fiduciary duties to our clients and our obligations to adhere to the many laws that govern the operation of our business:

    1.      The firm and the staff must place the interests of our clients ahead of the firm’s or any staff member’s personal investment interests;
    2.      You must conduct your personal securities transactions and perform your job duties in keeping with this Code of Ethics and in a manner so as to avoid any actual or potential conflicts of interest or any abuse of your position of trust and responsibility;
    3.      You must not take inappropriate advantage of your position with our firm to benefit yourself, your family, or any other person;
    4.      You must comply with all applicable laws, rules and regulations, and make a good faith effort to comply with the spirit and intent of all such laws, rules and regulations; and
    5.      You must comply with all other policies and procedures of our firm including those in this Manual and in our Employee Handbook.

         In this Code, we use the term “client” to mean all investment advisory and investment management clients of Sanders Capital, including any investment company or other collective investment vehicle for which we provide investment management services.

         Certain personal trading restrictions under this Code also apply to any other person whose investment decisions you control or influence or in whose investments you have a direct or indirect beneficial ownership. For example, you are generally considered to have a direct or indirect beneficial ownership of any security owned by your spouse or other family member sharing your immediate household.1

    1 Beneficial ownership is interpreted in the same manner as in determining whether a person is subject to the provisions of Section 16 of the Securities Exchange Act of 1934, Rule 16a-1.


     

    B. Protection of Clients’ Material Nonpublic Information

         As more fully discussed within the Privacy Policy, staff are expected to exercise diligence and care in maintaining and protecting clients’ nonpublic, confidential information, including individual clients’ names.

         You are also expected to not divulge information regarding the firm’s investment transactions on behalf of clients or the holdings in any client’s account to anyone outside of the firm, except:

    1.      As necessary to complete transactions or account changes (for example, communications with brokers and custodians);
    2.      As necessary to maintain or service a client or his/her account (for example, communications with a client’s accountant, if authorized by the client);
    3.      With various service providers providing administrative functions for the firm (such as its technology service provider), but only after it has entered into a contractual agreement that prohibits the service provider from disclosing or using confidential information except as necessary to carry out its assigned responsibilities;
    4.      With the client’s written consent; or
    5.      As required or permitted by applicable law.

    C. Prohibition on Insider Trading

         The securities laws and our policies prohibit persons or entities from trading on inside information, in other words information that is “material” and “nonpublic.” These laws and our policies also prohibit informing others of inside information, commonly called “tipping”. Information may be material and nonpublic if there is a substantial likelihood that a reasonable investor would consider the information important in making his or her investment decisions and the information is not generally available in the marketplace. The information may come from the company itself, or may come from other sources. Some common examples of information that might be considered material are information about a pending merger or acquisition, information about the resignation of a CEO, knowledge of a company’s earnings, and information about major natural resource discoveries. Such information may reasonably be expected to affect the market price of a security when disclosed.

         Neither the firm, on behalf of clients, nor the staff, in their Personal Accounts, are permitted to trade in a security of a company when in possession of inside information or inform others of this information except as provided below.

         If you believe you, or any other member of the staff, is in possession of inside information, or you have questions about whether you or another staff member may be in possession of insider information, you should follow these procedures:

    1.      Do not trade or recommend to others that they trade while you are in possession of the information.
    2.      Immediately cease contact with the source of the information and consult with the General Counsel.

     

    3.      Do not communicate the information to anyone else, including your supervisor, the Chief Investment Officers, research analysts, or anyone else inside or outside the firm.
    4.      After the General Counsel has reviewed the information and whether it has been made public, she will instruct you whether to continue the prohibition on trading in the security and communicating with others, because she has determined that the information is inside information, or inform you that the information is not inside information and you are free of trading and communications restrictions. She may also take other steps as appropriate, including
     
  • Prohibiting all firm trading activity in the security.
     
  • Requesting the issuer or other appropriate parties to disseminate the information promptly to the public if the information is nonpublic.
     
  • Restricting access to all files, including computer files, containing material, nonpublic information.
     
  • Consulting with other senior members of the firm or outside counsel.

         In addition, the General Counsel will confidentially document the firm’s actions in addressing the material inside information.

         Trading on or communicating inside information to others may expose you to stringent penalties. Penalties may be imposed internally by the firm; additionally, if you trade on or communicate material, nonpublic information to others, you may be subject to legal penalties as well, including fines and jail sentences.

    D. Expert Consulting Networks2

         The utilization of expert consulting networks within the financial services industry has resulted in allegations that some experts have transmitted material inside information to the firms that utilize them. Sanders Capital has developed the following policies to mitigate against this risk:

    1.      Before the firm utilizes any expert consulting network, the General Counsel will review the compliance policies of the network and the contract that the network utilizes with its consultants to ensure that its procedures and policies around insider trading are robust.
    2.      Research analysts must receive approval from a Chief Investment Officer to the utilization of a consultant from an approved network and the scope of the inquiry with the consultant.
    3.      The General Counsel should be consulted prior to any assignment that raises concerns that the consultation may give rise to the receipt of inside information. Any consultation with an expert who is currently employed at a company whose stock is publicly traded must be approved.
    4.      No consultant who currently works at, or is an advisor to, a company in which the firm has investments or is considering an investment can be utilized; if the consultant has worked in such a company in the prior six months the consultation must be approved by the General Counsel.

    2 Added September 19, 2012


     

    5.      If practicable, two staff members (e.g., a research analyst and a CIO or two research analysts) will participate in each call or meeting with an expert consultant.
    6.      The General Counsel will periodically review notes taken by a research analyst during a consultation (if any) or the questions the analyst discussed with the expert.
    7.      Policies surrounding the utilization of expert consulting networks will be reviewed during the staff annual compliance meeting.

    If despite these precautions, you believe a conversation with a consultant has resulted in you obtaining inside information you should discuss this at once with the General Counsel and not with any other party within or outside the firm.

    E. Personal Conduct

         As noted above, staff are expected to conduct themselves with the utmost integrity and to avoid any actual or perceived conflict with clients. In the interest of fulfilling this fiduciary responsibility, the firm has developed the following policies:

    1.      Gift and Entertainment Policy and Reporting Procedures3. Staff are prohibited from
      receiving      (or giving) any gift, gratuity, hospitality or other offering of more than a de
      minimis      value (approximately $100) from (or to) any person or entity doing business with
      Sanders      Capital. This gift policy generally does not apply to reasonable business
      entertainment,      such as a dinner, where the staff member is present and business issues are
      the      primary purpose of the entertainment. In no event should staff give or receive a gift of
      cash      or a cash equivalent (e.g., a gift certificate). Golf outings, trips to Yankees or Mets
      games,      and similar entertainments are also not permitted.
      Staff      should be aware that certain clients, including public and private pension funds, may
      have      strict rules against receiving gifts and/or business entertainment of even de minimis
      value.     
      The      following procedures should be followed for staff who propose to give or receive gifts or
      entertainment.      This will help us document our compliance with our gift and entertainment
      policy.      In addition, we may be asked to provide such information to our ERISA clients to
      enable      them to fulfill their reporting obligations under ERISA. These procedures are set forth
      below:     
      a)      Prior Approval
      
  • to accepting from, or giving any gift or entertainment to, an ERISA or
      
  • client, you should pre-clear it with Compliance. You should also clear
      
  • gifts or entertainment that raise issues of appropriateness.
      b)      Reporting.
      
  • must promptly inform Compliance of any gifts (other than those of nominal value
      
  • e.g., a baseball cap, pen, or other token item) or entertainment offered to or received

    3 Revised August 24, 2011; September 19, 2012


     

    by them in connection with their employment at Sanders Capital. An email notification to the CCO is sufficient. In the email, you should provide the following information:

    • The date of the gift or entertainment
    • The name of the provider and its relationship to the firm (e.g., broker, client, potential client)
    • The nature of the gift or entertainment (e.g., drinks, dinner), the purpose of any entertainment and
    • the approximate value of the gift or entertainment.

    If a gift has been received that would violate the firm's gift policy, Compliance will require that it be returned or, if that is impractical for any reason, that it be donated to charity.

    c)      Gift and Entertainment Log
      Compliance will maintain a log of all gifts given or received.

    If you have any questions or concerns related to an anticipated gift or entertainment, or about this policy, you should contact Compliance.

    (Revised August 24, 2011; September 19, 2012)

    2.      Service as Director for an Outside Company. Staff are not permitted to serve as a director of any public company. If you wish to serve as a director of a private company (other than a nonprofit organization) you must obtain the approval of your supervisor and the General Counsel. In reviewing your request, they will determine whether such service is consistent with the interests of the firm and our clients.
    3.      Outside Business Interests. Staff are expected to devote their full working time to the business of the firm. Any staff member wishing to engage in outside business activities must seek approval from his or her supervisor and the General Counsel, who will grant such permission only if such outside employment is deemed not to interfere with or conflict with the staff member’s duties to the firm or our clients.
    4.      Charitable Contributions. Staff are prohibited from making charitable contributions for the purpose of obtaining or retaining advisory contracts with charitable organizations. In addition, staff are prohibited from considering the firm’s current or anticipated business relationships as a factor in soliciting charitable contributions.

    F. Political Contributions; Solicitation of Government Business

         Staff and the firm are prohibited from making or soliciting political contributions for the purpose of influencing, obtaining or retaining advisory contracts with state or local government entities. The SEC has adopted rules that impose severe penalties on advisory firms that make, or whose "covered associates" make, political contributions to the campaigns of state and local


     

    government officials or candidates for such office for the purpose of obtaining investment advisory business. Certain state and local jurisdictions also have their own pay to play laws. These laws, in some cases, require registration of a staff member or the firm as a lobbyist. Other laws cover political contributions of family members. Staff who solicit state and local government business should confer with the General Counsel regarding the applicability of any local or state laws to their solicitation of business with government entities.

         We have adopted "Pay to Play Policies", a copy of which is included as Appendix B, to comply with the SEC rules. Key requirements of our policies are summarized below:

    1.      Staff members must pre-clear any political contribution to any state or local government official or any candidate for such a position with the General Counsel prior to making the contribution. Forms to obtain such approval can be obtained from the General Counsel.
    2.      The General Counsel will determine whether the proposed direct or indirect (in the case of a PAC or political party) recipient is, or if elected would be, in a position to select or influence the selection of an advisor for a state or local government plan.
    3.      Contributions which must be pre-cleared include gifts of money, facilities, personnel, or other items of value to the state or local government official or candidate, or to a PAC or state or local political party.
    4.      You are allowed to volunteer your time in a political campaign (but not your home for political meetings or other items of value).
    5.      You cannot encourage others, including family members, to make contributions you cannot make.
    6.      Certain de minimis contributions to officials or candidates who select or influence the appointment of advisors may be permitted by the General Counsel: $150 with respect to each election (primary and general) where the staff member cannot vote for the official or candidate, $350 dollars for each election where the staff member can vote for the official or candidate.
    7.      Staff will be required to report quarterly on their contributions.
    8.      The General Counsel will maintain the records required by the rule.

         Please consult Appendix B for further details. You can also address questions to the General Counsel.

    G. Personal Trading Policy

         Sanders Capital has determined that, given the size of the staff and the proximity within which we work, each of us is an “access person” of the firm. An access person is defined as a person who is involved in making decisions regarding the purchase or sale of securities in clients’ accounts or who has access to knowledge about the actual securities being purchased, sold or held in client accounts.

         Our obligations as fiduciaries require us in our professional endeavors to put the interests of our clients before our own personal investment interests. Our rules are designed to ensure that our research and investment decisions benefit clients’ accounts first and foremost and that our


     

    staff’s personal investments be made only if they do not negatively affect our clients’ interests and only after client interests are satisfied. We encourage you to meet your own investment needs by investing in accounts managed by the firm, open-end mutual funds, accounts managed by a fiduciary on a fully discretionary basis, or in other investments which do not raise potential conflicts.

         Our rules regarding personal trading by staff also apply to the accounts of your family members who live in the same household or other persons whose accounts you control or directly or indirectly influence (e.g., by making recommendations regarding securities to purchase, hold, or sell). All such accounts are considered “Personal Accounts” of yours.

         Our policies and procedures regarding trading in your Personal Accounts are more fully set forth in Appendix C. The following is a summary of the major requirements:

    1.      You must report all securities holdings in your Personal Accounts when you join the staff and make periodic reports thereafter.
    2.      You must pre-clear transactions in your Personal Accounts prior to executing them; certain exceptions apply with respect to transactions that do not raise conflicts issues, e.g., the purchase or sale of a US government security or a mutual fund.
    3.      You must not purchase or sell securities which the firm is considering purchasing or selling for clients ahead of the time clients' orders are executed or the firm has decided against the contemplated transaction ("front running").
    4.      Your purchases of individual securities are subject to a one-year holding period; additionally, you will not be able to sell the security thereafter while the security is being held in client accounts.
    5.      You cannot participate in initial public offerings.

         You should familiarize yourself with the instructions and procedures in Appendix C and fully comply with each of them.

    H. Firm Review of Personal Transaction Reports

         The General Counsel or her designee will review the quarterly and annual holdings reports of staff to determine that any securities transactions have been entered into only after approval was given in accordance with these policies. The General Counsel will promptly report to the Board any material violations of the firm’s Personal Trading Policies and will report on all violations in the Annual Compliance Report to the Board. The Chief Financial Officer or another member of the board of managers will review the Personal Accounts of the General Counsel; in no case should a staff member review his or her own report.

    I. Record Keeping Requirements under the Code of Ethics

         Sanders Capital’s recordkeeping requirements under the Code of Ethics are outlined in detail in Section IX. The General Counsel is responsible for ensuring that every violation of the Code is documented as well as any action taken as a result of the violation. Other records that


     

    must be retained, as explained more fully in Section IX, include copies of the staff's securities holdings and trading reports.

    J. Code of Ethics and Personal Trading Policy Sanctions

         Upon discovering a violation of this policy, the General Counsel may impose any sanctions as deemed appropriate, including disgorgement of profits, reversal of the trade or suspension of trading privileges. In severe cases of violations and in the case of repeated violations, the Board of Managers may suspend or terminate the employment of a staff member. For additional information on general sanctions for violation of the firm’s policies, refer to the Sanctions Policy.

    K. New and Annual Staff Acknowledgement

         New staff members must acknowledge they have read, and understand and agree to comply with, this Code of Ethics and Personal Trading Policy. All staff members are required to acknowledge they have complied and will continue to comply with this Code of Ethics and Personal Trading Policy annually in connection with the firm’s annual policy manual acknowledgement process.

    EX-99.CODE ETH 8 wellingtoncoepolicy30-042017.htm COE WELLINGTON wellingtoncoepolicy30-042017.htm - Generated by SEC Publisher for SEC Filing

    WELLINGTON MANAGEMENT

    Code of Ethics

    PERSONAL INVESTING

    GIFTS AND ENTERTAINMENT

    OUTSIDE ACTIVITIES

    CLIENT CONFIDENTIALITY

    30 April 2017


     

    WELLINGTON MANAGEMENT

    Code of Ethics

    A MESSAGE FROM OUR CEO

    Our business is built on a foundation of trust — the trust of our clients, earned over many years. It is our most valuable asset, and if lost, it cannot easily be regained. There are examples across our industry of companies that have lost sight of this lesson, and they serve as strong reminders that our business requires a mindset of eternal vigilance.

    Each and every one of us has a role to play in sustaining our clients’ trust. We must test every decision we make, no matter how small, against our fiduciary obligations and our high ethical standards. If there is the slightest doubt about whether a decision is in the best interests of our clients, then bring it to someone’s attention — your manager, the Legal and Compliance team, or any of my direct reports. But don’t just let it go. This is what it means to be a fiduciary: complete dedication to conscientious stewardship of client assets.

    To support this mandate, our Code of Ethics sets out standards for our personal conduct, including personal investing, acceptance of gifts and entertainment, outside activities, and client confidentiality. Please take the time to read the Code, familiarize yourself with the rules, and determine what you need to do to comply with them. Remember, too, that while our Code of Ethics is reviewed and updated regularly, no set of rules can address every possible circumstance. And so I ask you to remain vigilant, exercise good judgment, ask for help when you need it, consider not just the letter but the spirit of the laws that govern our industry, and do your part to safeguard our clients’ trust.

    Sincerely,

    Brendan J. Swords
    President and Chief Executive Officer

    “The reputation of a thousand years may be determined by the conduct of one hour.”

    • Ancient proverb

     

    WELLINGTON MANAGEMENT    
    Code of Ethics    
     
     
     
    Contents    
     
    Standards of conduct   2
    Who is subject to the Code of Ethics?   2
    Personal investing   3
    Which types of investments and related activities    
    are prohibited?   3
    Which investment accounts must be reported? 4  
    What are the reporting responsibilities for all personnel? 5  
    What are the preclearance responsibilities for all personnel?   6
    What are the additional requirements for investment professionals? 7  
    Gifts and entertainment 9  
    Outside activities   10
    Client confidentiality   10
    How we enforce our Code of Ethics   10
    Exceptions from the Code of Ethics   11
    Closing   11

     

    Before You Get Started: Accessing the Code of Ethics System

    The Code of Ethics System is accessible through the Intranet under Applications or direct access: https://fs1.wellmanage.com/adfs/ls/IdpInitiatedSignOn.aspx?loginToRp=ptaconnect.com

    1


     

    WELLINGTON MANAGEMENT

    Code of Ethics

    STANDARDS OF CONDUCT

    Our standards of conduct are straightforward and essential. Any transaction or activity that violates either of the standards of conduct below is prohibited, regardless of whether it meets the technical rules found elsewhere in the Code of Ethics.

    1)      We act as fiduciaries to our clients. Each of us must put our clients’ interests above our own and must not take advantage of our management of clients’ assets for our own benefit. Our firm’s policies and procedures implement these principles with respect to our conduct of the firm’s business. This Code of Ethics implements the same principles with respect to our personal conduct. The procedures set forth in the Code govern specific transactions, but each of us must be mindful at all times that our behavior, including our personal investing activity, must meet our fiduciary obligations to our clients.
    2)      We act with integrity and in accordance with both the letter and the spirit of the law. Our business is highly regulated, and we are committed as a firm to compliance with those regulations. Each of us must also recognize our obligations as individuals to understand and obey the laws that apply to us in the conduct of our duties. They include laws and regulations that apply specifically to investment advisors, as well as more broadly applicable laws ranging from the prohibition against trading on material nonpublic information and other forms of market abuse to anticorruption statutes such as the US Foreign Corrupt Practices Act and the UK Bribery Act. The firm provides training on their requirements. Each of us must take advantage of these resources to ensure that our own conduct complies with the law.

    WHO IS SUBJECT TO THE CODE OF ETHICS?

    Our Code of Ethics applies to all employees of Wellington Management, and its affiliates around the world. Its restrictions on personal investing also apply to temporary personnel (including co-ops and interns) and consultants whose tenure with Wellington Management exceeds 90 days and who are deemed by the Chief Compliance Officer to have access to nonpublic investment research, client holdings, or trade information.

    All Wellington Management personnel receive a copy of the Code of Ethics (and any amendments) and must certify, upon joining the firm and annually thereafter, that they have read and understood it and have complied with its requirements.

    Adherence to the Code of Ethics is a basic condition of employment. Failure to adhere to our Code of Ethics may result in disciplinary action, including termination of employment.

    If you have any doubt as to the appropriateness of any activity, believe that you have violated the Code, or become aware of a violation of the Code by another individual, you should consult the manager of the Code of Ethics Team, Chief Compliance Officer, General Counsel, or Chair of the Ethics Committee. You also have the right to report violations of law or regulation directly to relevant governmental agencies. You do not need the firm’s prior authorization to make any such report or disclosures and are not required to notify the firm that you have done so.

    General questions regarding our Code of Ethics may be directed to the Code of Ethics Team via email at #Code of Ethics Team or through the Code of Ethics hotline, 617-790-8330 (x68330).

    PERSONAL INVESTING

    2


     

    WELLINGTON MANAGEMENT

    Code of Ethics

    As fiduciaries, each of us must avoid taking personal advantage of our knowledge of investment activity in client accounts. Although our Code of Ethics sets out a number of specific restrictions on personal investing designed to reflect this principle, no set of rules can anticipate every situation. Each of us must adhere to the spirit, and not just the letter, of our Code in meeting this fiduciary obligation to our clients.

    WHICH TYPES OF INVESTMENTS AND RELATED ACTIVITIES ARE PROHIBITED?

    Our Code of Ethics prohibits the following personal investments and investment-related activities:

  • Purchasing or selling the following:
     
  • Initial public offerings (IPOs) of any securities
     
  • Securities of an issuer being bought or sold on behalf of clients until one trading day after such buying or selling is completed or canceled
     
  • Securities of an issuer that is the subject of a new, changed, or reissued but unchanged action recommendation from a global industry research or fixed income credit analyst until two business days following issuance or reissuance of the recommendation
     
  • Securities of an issuer that is mentioned at the Morning Meeting or the Early Morning Meeting until two business days following the meeting
     
  • Securities that are the subject of a firmwide restriction
     
  • Single-stock futures
     
  • Options with an expiration date that is within 60 calendar days of the transaction date
     
  • Securities of broker/dealers (or their affiliates) that the firm has approved for execution of client trades
     
  • Securities of any securities market or exchange on which the firm trades on behalf of clients
  • Purchasing an equity security if your aggregate ownership of the equity security exceeds 0.05% of the total shares
     
  • of the issuer
  • Taking a profit from any trading activity within a 60 calendar day window (see box for more detail)
  • Using a derivative instrument to circumvent a restriction in the Code of Ethics

    Short-Term Trading

    You are prohibited from profiting from the purchase and sale (or sale and purchase) of the same or equivalent securities within 60 calendar days. For example, if you buy shares of stock (or options on such shares) and then sell those shares within 60 days at a profit, an exception will be identified and any gain from the transactions must be surrendered. Gains are calculated based on a last in, first out (LIFO) method for purposes of this restriction. This short-term trading rule does not apply to securities exempt from the Code’s preclearance requirements.

    3


     

    WELLINGTON MANAGEMENT

    Code of Ethics

    WHICH INVESTMENT ACCOUNTS MUST BE REPORTED?

    You are required to report any investment account over which you exercise investment discretion or from which any of the following individuals enjoy economic benefits: (i) your spouse, domestic partner, or minor children, and (ii) any other dependents living in your household.

    AND that holds or is capable of holding any of the following covered investments:

    • Shares of stocks, ADRs, or other equity securities (including any security convertible into equity securities)
    • Bonds or notes (other than sovereign government bonds issued by Canada, France, Germany, Italy, Japan, the United Kingdom, or the United States, as well as bankers’ acceptances, CDs, commercial paper, and high-quality, short-term debt instruments)
    • Interest in a variable annuity product in which the underlying assets are held in a subaccount managed by Wellington Management
    • Shares of exchange-traded funds (ETFs)
    • Shares of closed-end funds
    • Options on securities
    • Securities futures
    • Interest in private placement securities (other than Wellington Management Sponsored Products)
    • Shares of funds managed by Wellington Management (other than money market funds)

    Please see Appendix A for a detailed summary of reporting requirements by security type.

    Web Resource: Wellington-Managed Fund List

    An up-to-date list of funds managed by Wellington Management is available through the Code of Ethics System under Documents. Please note that any transactions in Wellington-Managed funds must comply with the funds' rules on short-term trading of fund shares.

    For purposes of the Code of Ethics, these investment accounts are referred to as reportable accounts. Examples of common account types include brokerage accounts, retirement accounts, employee stock compensation plans, and transfer agent accounts. Reportable accounts also include those from which you or an immediate family member may benefit indirectly, such as a family trust or family partnership, and accounts in which you have a joint ownership interest, such as a joint brokerage account.

    Please contact the Code of Ethics Team for guidance if you hold any securities in physical certificate form.

    Still Not Sure? Contact Us

    If you are not sure if a particular account is required to be reported, contact the Code of Ethics Team by email at #Code of Ethics Team or through the Code of Ethics hotline, 617-790-8330 (x68330).

    Accounts Not Requiring Reporting

    You do not need to report the following accounts via the Code of Ethics System since the administrator will provide the Code of Ethics Team with access to relevant holdings and transaction information:

    • Accounts maintained within the Wellington Retirement and Pension Plan or similar firm-sponsored retirement or benefit plans identified by the Ethics Committee

    4


     

    WELLINGTON MANAGEMENT

    Code of Ethics

    Accounts maintained directly with Wellington Trust Company or other Wellington Management Sponsored Products

    Although these accounts do not need to be reported, your investment activities in these accounts must comply with the standards of conduct embodied in our Code of Ethics.

    Managed Account Exemptions

    An account from which you or immediate family members could benefit financially, but over which neither you nor they have any investment discretion or influence (a managed account), may be exempted from the Code of Ethics’ personal investing requirements upon written request and approval. An example of a managed account would be a professionally advised account about which you will not be consulted or have any input on specific transactions placed by the investment manager prior to their execution. To request a managed account exemption, you must complete a Managed Account Letter (available online via the Code of Ethics System) and return it the Code of Ethics Team.

    Web Resource: Managed Account Letter

    To request a managed account exemption, complete the Managed Account Letter available through the Code of Ethics System under Documents.

    Designated Brokers For U.S. Reportable Accounts

    U.S-based reportable accounts must be held at one or more of the brokers on the Designated Brokers List. This requirement does not apply to managed accounts that are exempt from certain provisions of the Code of Ethics, employee stock purchase and stock option plans and other accounts (including pension, retirement and compensation accounts) required to be held at a specific broker.

    New employees must transfer all reportable accounts to a Designated Broker within 45 days from the start of their employment.

    Web Resource: Designated Brokers List

    The Designated Brokers List is available on the Intranet and the Code of Ethics System under Documents.

    WHAT ARE THE REPORTING RESPONSIBILITIES FOR ALL PERSONNEL?

    Initial and Annual Holdings Reports

    You must disclose all reportable accounts and all covered investments you hold within 10 calendar days after you begin employment at or association with Wellington Management. You will be required to review and update your holdings and securities account information annually thereafter.

    For initial holdings reports, holdings information must be current as of a date no more than 45 days prior to the date you became covered by the Code of Ethics. Please note that you cannot make personal trades until you have filed an initial holdings report via the Code of Ethics System on the Intranet.

    For subsequent annual reports, holdings information must be current as of a date no more than 45 days prior to the date the report is submitted. Please note that your annual holdings report must account for both volitional and non-volitional transactions.

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    WELLINGTON MANAGEMENT

    Code of Ethics

    At the time you file your initial and annual reports, you will be asked to confirm that you have read and understood the Code of Ethics and any amendments.

    Non-volitional transactions include:

    • Investments made through automatic dividend reinvestment or rebalancing plans and stock purchase plan acquisitions
    • Transactions that result from corporate actions applicable to all similar security holders (such as splits, tender offers, mergers, and stock dividends)

    Quarterly Transactions Reports

    You must submit a quarterly transaction report no later than 30 calendar days after quarter-end via the Code of Ethics System on the Intranet, even if you did not make any personal trades during that quarter. In the report, you must either confirm that you did not make any personal trades (except for those resulting from non-volitional events) or provide information regarding all volitional transactions in covered investments.

    Web Resource: How to File Reports on the Code of Ethics System

    Required reports must be filed electronically via the Code of Ethics System. Please see the Code of Ethics System’s homepage for more details.

    Duplicate Statements and Trade Confirmations

    For each of your reportable accounts, you are required to provide duplicate statements and duplicate trade confirmations to Wellington Management. To arrange for the delivery of duplicate statements and trade confirmations, please contact the Code of Ethics Team for the appropriate form. Return the completed form to the Code of Ethics Team, which will submit it to the brokerage firm on your behalf. If the brokerage firm or other firm from which you currently receive statements is not able to send statements and confirmations directly to Wellington Management, you will be required to submit copies promptly after you receive them, unless you receive an exemption from this requirement under the procedures outlined on page 11.

    WHAT ARE THE PRECLEARANCE RESPONSIBILITIES FOR ALL PERSONNEL?

    Preclearance of Publicly Traded Securities

    You must receive clearance before buying or selling stocks, bonds, options, and most other publicly traded securities in any reportable account. A full list of the categories of publicly traded securities requiring preclearance, and of certain exceptions to this requirement, is included in Appendix A. Transactions in accounts that are not reportable accounts do not require preclearance or reporting.

    Preclearance requests must be submitted online via the Code of Ethics System, which is accessible through the Intranet. If clearance is granted, the approval will be effective for a period of 24 hours. If you preclear a transaction and then place a limit order with your broker, that limit order must either be executed or expire at the end of the 24-hour period. If you want to execute the order after the 24-hour period expires, you must resubmit your preclearance request.

    If you have questions regarding the preclearance requirements, please refer to the FAQs available on the Code of Ethics System or contact the Code of Ethics Team.

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    WELLINGTON MANAGEMENT

    Code of Ethics

    Please note that preclearance approval does not alter your responsibility to ensure that each personal securities transaction complies with the general standards of conduct, the reporting requirements, the restrictions on short-term trading, or the special rules for investment professionals set out in our Code of Ethics.

    Web Resource: How to File a Preclearance Request

    Preclearance must be obtained using the Code of Ethics System. Once the necessary information is submitted, your preclearance request will be approved or denied within seconds.

    Caution on Short Sales, Margin Transactions, and Options

    You may engage in short sales and margin transactions and may purchase or sell options provided you receive preclearance and meet all other applicable requirements under our Code of Ethics (including the additional rules for investment professionals described on page 8). Please note, however, that these types of transactions can have unintended consequences. For example, any sale by your broker to cover a margin call or to buy in a short position will be in violation of the Code unless precleared. Likewise, any volitional sale of securities acquired at the expiration of a long call option will be in violation of the Code unless precleared. You are responsible for ensuring any subsequent volitional actions relating to these types of transactions meet the requirements of the Code.

    Preclearance of Private Placement Securities

    You cannot invest in securities offered to potential investors in a private placement without first obtaining prior approval.

    Approval may be granted after a review of the facts and circumstances, including whether:

    • an investment in the securities is likely to result in future conflicts with client accounts (e.g., upon a future public offering), and
    • you are being offered the opportunity due to your employment at or association with Wellington Management.

    If you have questions regarding whether an investment would be deemed a private placement security under the Code, please refer to the FAQs about private placements available on the Code of Ethics System, or contact the Code of Ethics Team.

    To request approval, you must submit a Private Placement Approval Form (available online via the Code of Ethics System) to the Code of Ethics Team. Investments in our own privately offered investment vehicles (our Sponsored Products), including collective investment funds and common trust funds maintained by Wellington Trust Company, NA, our hedge funds, and our non-US domiciled funds (Wellington Management Portfolios), have been approved under the Code and therefore do not require the submission of a Private Placement Approval Form.

    Web Resource: Private Placement Approval Form

    To request approval for a private placement, complete the Private Placement Approval Form available through the Code of Ethics System under Documents.

    7


     

    WELLINGTON MANAGEMENT

    Code of Ethics

    WHAT ARE THE ADDITIONAL REQUIREMENTS FOR INVESTMENT PROFESSIONALS?

    If you are a portfolio manager, research analyst, or other investment professional who has portfolio management responsibilities for a client account (e.g., designated portfolio managers, backup portfolio managers, investment team members), or who otherwise has direct authority to make decisions to buy or sell securities in a client account (referred to here as an investment professional), you are required to adhere to additional rules and restrictions on your personal securities transactions. However, as no set of rules can anticipate every situation, you must remember to place our clients’ interests first whenever you transact in securities that are also held in client accounts you manage.

    The following provisions of the code are intended to allow investment professionals to make long-term investments in securities. However, you may not be able to sell personal investments for extended periods of time and therefore should consider the liquidity, tax planning, market, and similar risks associated with making personal investments in securities of an issuer that are or may be held in client accounts.

    • Investment Professional Blackout Periods –You cannot buy or sell a security for a period of 14 calendar days before or after any transaction in the same issuer by a client account for which you serve as an investment professional. In addition, You may not sell personal holdings in a security of the same issuer that is held by a client account for which you serve as an investment professional until the later of the following periods: (i) one calendar year from the date of your last purchase and (ii) 90 calendar days after all of your client accounts liquidate all holdings of the same issuer.

    If you anticipate receiving a cash flow or redemption request in a client portfolio that will result in the purchase or sale of securities that you also hold in your personal account, you should take care to avoid transactions in those securities in your personal account in the days leading up to the client transactions. However, unanticipated cash flows and redemptions in client accounts and unexpected market events do occur from time to time, and a personal trade made in the prior 14 days should never prevent you from buying or selling a security in a client account if the trade would be in the client’s best interest. If you find yourself in that situation and need to buy or sell a security in a client account within the 14 calendar days following your personal transaction in a security of the same issuer, you should attempt to notify the Code of Ethics Team (by email at #Code of Ethics Team or through the Code of Ethics hotline, 617-790-8330 [x68330]) or your local Compliance Officer in advance of placing the trade. If you are unable to reach any of those individuals and the trade is time sensitive, you should proceed with the client trade and notify the Code of Ethics Team promptly after submitting it.

    • Short Sales by an Investment Professional – An investment professional may not personally take a short position in a security of an issuer in which he or she holds a long position in a client account.

    8


     

    WELLINGTON MANAGEMENT

    Code of Ethics

    GIFTS AND ENTERTAINMENT

    Our guiding principle of “client, firm, self” also governs the receipt of gifts and entertainment from clients, consultants, broker/dealers, research providers, vendors, companies in which we may invest, and others with whom the firm does business. As fiduciaries to our clients, we must always place our clients’ interests first and cannot allow gifts or entertainment opportunities to influence the actions we take on behalf of our clients. In keeping with this standard, you must follow several specific requirements:

    Accepting Gifts – You may only accept gifts of nominal value, which include logoed items, flower arrangements, gift baskets, and food, as well as other gifts with an approximate value of less than US$100 or the local equivalent per year from a single source. You may not accept a gift of cash, including a cash equivalent such as a gift card, regardless of the amount. If you receive a gift that violates the Code, you must return the gift or consult with the Chief Compliance Officer to determine appropriate action under the circumstances.

    Accepting Business Meals – Business meals are permitted provided that neither the cost nor the frequency is excessive and there is a legitimate business purpose. If the host is a broker/dealer or research provider, the host must be reimbursed for the full amount of your proportionate share of the total cost of the meal if the approximate value of the meal is more than US$100 or the local equivalent.

    Accepting Entertainment Opportunities – The firm recognizes that participation in entertainment opportunities with representatives from organizations with which the firm does business, such as consultants, broker/dealers, research providers, vendors, and companies in which we may invest, can help to further legitimate business interests. However, participation in such entertainment opportunities should be infrequent and is subject to the following conditions:

    1)      A representative of the hosting organization must be present;
    2)      The primary purpose of the event must be to discuss business or to build a business relationship;
    3)      You must receive prior approval from your business manager;
    4)      If the host is a broker/dealer or research provider, the host must be reimbursed for the full amount of the
     
  • opportunity; and
    5)      For all other entertainment opportunities, the host must be reimbursed for the full face value of any entertainment
     
  • if:
     
  • the entertainment opportunity requires a ticket with a face value of more than US$200 or the local equivalent, or is a high-profile event (e.g., a major sporting event),
     
  • you wish to accept more than one ticket, or
     
  • the host has invited numerous Wellington Management representatives.

    Business managers must clear their own participation under the circumstances described above with the Chief Compliance Officer or Chair of the Ethics Committee.

    Please note that even if you pay for the full face value of a ticket, you may attend the event only if the host is present.

    Lodging and Air Travel – You may not accept a gift of lodging or air travel in connection with any entertainment opportunity. If you participate in an entertainment opportunity for which lodging or air travel is paid for by the host, you must reimburse the host for the equivalent cost, as determined by Wellington Management’s travel manager.

    9


     

    WELLINGTON MANAGEMENT

    Code of Ethics

    Soliciting Gifts, Entertainment Opportunities, or Contributions – In your capacity as an employee of the firm, you may not solicit gifts, entertainment opportunities, or charitable or political contributions for yourself, or on behalf of clients, prospects, or others, from brokers, vendors, clients, or consultants with whom the firm conducts business or from companies in which the firm may invest.

    Sourcing Entertainment Opportunities – You may not request tickets to entertainment events from the firm’s Trading department or any other Wellington Management department or employee, nor from any broker, vendor, company in which we may invest, or other organization with which the firm conducts business.

    OUTSIDE ACTIVITIES

    While the firm recognizes that you may engage in business or charitable activities in your personal time, you must take steps to avoid conflicts of interest between your private interests and our clients’ interests. As a result, all significant outside business or charitable activities (e.g., additional employment, consulting work, directorships or officerships) must be approved by your business manager and by the Chief Compliance Officer, General Counsel, or Chair of the Ethics Committee prior to the acceptance of such a position (or if you are new, upon joining the firm). Approval will be granted only if it is determined that the activity does not present a significant conflict of interest. Directorships in public companies (or companies reasonably expected to become public companies) will generally not be authorized, while service with charitable organizations generally will be permitted.

    CLIENT CONFIDENTIALITY

    Any nonpublic information concerning our clients that you acquire in connection with your employment at the firm is confidential. This includes information regarding actual or contemplated investment decisions, portfolio composition, research recommendations, and client interests. You should not discuss client business, including the existence of a client relationship, with outsiders unless it is a necessary part of your job responsibilities.

    10


     

    WELLINGTON MANAGEMENT

    Code of Ethics

    HOW WE ENFORCE OUR CODE OF ETHICS

    Legal and Compliance is responsible for monitoring compliance with the Code of Ethics. Members of Legal and Compliance will periodically request certifications and review holdings and transaction reports for potential violations. They may also request additional information or reports.

    It is our collective responsibility to uphold the Code of Ethics. In addition to the formal reporting requirements described in this Code of Ethics, you have a responsibility to report any violations of the Code. If you have any doubt as to the appropriateness of any activity, believe that you have violated the Code, or become aware of a violation of the Code by another individual, you should consult the manager of the Code of Ethics Team, Chief Compliance Officer, General Counsel, or Chair of the Ethics Committee.

    Potential violations of the Code of Ethics will be investigated and considered by representatives of Legal and Compliance and/or the Ethics Committee. All violations of the Code of Ethics will be reported to the Chief Compliance Officer. Violations are taken seriously and may result in sanctions or other consequences, including:

    • a warning
    • referral to your business manager and/or senior management
    • reversal of a trade or the return of a gift
    • disgorgement of profits or of the value of a gift
    • a limitation or restriction on personal investing
    • termination of employment
    • referral to civil or criminal authorities

    If you become aware of any potential conflicts of interest that you believe are not addressed by our Code of Ethics or other policies, please contact the Chief Compliance Officer, the General Counsel, or the manager of the Code of Ethics Team.

    EXCEPTIONS FROM THE CODE OF ETHICS

    The Chief Compliance Officer may grant an exception from the Code, including preclearance, other trading restrictions, and certain reporting requirements on a case-by-case basis if it is determined that the proposed conduct involves no opportunity for abuse and does not conflict with client interests. Exceptions are expected to be rare. If you wish to seek an exception, you must submit a written request to the Code of Ethics Team describing the nature of the exception and the reason(s) it is being sought.

    CLOSING

    As a firm, we seek excellence in the people we employ, the products and services we offer, the way we meet our ethical and fiduciary responsibilities, and the working environment we create for ourselves. Our Code of Ethics embodies that commitment. Accordingly, each of us must take care that our actions fully meet the high standards of conduct and professional behavior we have adopted. Most importantly, we must all remember “client, firm, self” is our most fundamental guiding principle.

    11


     

    WELLINGTON MANAGEMENT

    Code of Ethics

    APPENDIX A – PART 1

    No Preclearance or Reporting Required:

    • Open-end investment funds not managed by Wellington Management1
    • Interests in a variable annuity product in which the underlying assets are held in a fund not managed by Wellington Management
    • Direct obligations of the US government (including obligations issued by GNMA and PEFCO) or the governments of Canada, France, Germany, Italy, Japan, or the United Kingdom
    • Cash
    • Money market instruments or other short-term debt instruments rated P-1 or P-2, A-1 or A-2, or their equivalents2
    • Bankers’ acceptances, CDs, commercial paper
    • Wellington Trust Company Pools
    • Wellington Sponsored Hedge Funds
    • Securities futures and options on direct obligations of the US government or the governments of Canada, France, Germany, Italy, Japan, or the United Kingdom, and associated derivatives
    • Options, forwards, and futures on commodities and foreign exchange, and associated derivatives
    • Transactions in approved managed accounts

    Reporting of Securities Transactions Required (no need to preclear and not subject to the 60-day holding period):

    • Open-end investment funds managed by Wellington Management1 (other than money market funds)
    • Interests in a variable annuity or insurance product in which the underlying assets are held in a fund managed by Wellington Management
    • Futures and options on securities indices
    • ETFs listed in Appendix A – Part 2 and derivatives on these securities
    • Gifts of securities to you or a reportable account
    • Gifts of securities from you or a reportable account
    • Non-volitional transactions (splits, tender offers, mergers, stock dividends, dividend reinvestments, etc.)

    Preclearance and Reporting of Securities Transactions Required:

    • Bonds and notes (other than direct obligations of the US government or the governments of Canada, France, Germany, Italy, Japan, or the United Kingdom, as well as bankers’ acceptances, CDs, commercial paper, and high-quality, short- term debt instruments)
    • Stock (common and preferred) or other equity securities, including any security convertible into equity securities
    • Closed-end funds
    • ETFs not listed in Appendix A – Part 2
    • American Depositary Receipts
    • Options on securities (but not their non-volitional exercise or expiration)
    • Warrants
    • Rights
    • Unit investment trusts

    12


     

    WELLINGTON MANAGEMENT

    Code of Ethics

    Prohibited Investments and Activities:

    • Initial public offerings (IPOs) of any securities
    • Single-stock futures2
    • Options expiring within 60 days of purchase
    • Securities being bought or sold on behalf of clients until one trading day after such buying or selling is completed or canceled
    • Securities of an issuer that is the subject of a new, changed, or reissued but unchanged action recommendation from a global industry research or fixed income credit analyst until two business days following issuance or reissuance of the recommendation
    • Securities of an issuer that is mentioned at the Morning Meeting or the Early Morning Meeting until two business days following the meeting
    • Securities on the firmwide restricted list
    • Profiting from any short-term (i.e., within 60 days) trading activity
    • Securities of broker/dealers or their affiliates with which the firm conducts business
    • Securities of any securities market or exchange on which the firm trades
    • Using a derivative instrument to circumvent the requirements of the Code of Ethics
    • Purchasing an equity security if your aggregate ownership of the equity security exceeds 0.05% of the total shares outstanding of the issuer

    13


     

    WELLINGTON MANAGEMENT

    Code of Ethics

    APPENDIX A – PART 2

    ETFS APPROVED FOR PERSONAL TRADING WITHOUT PRECLEARANCE (BUT REQUIRING REPORTING) All regional/country exchange share listings of ETFs listed are also approved

    This is a partial list. The complete and up-to-date list is available on the Code of Ethics System on the Intranet.

    Ticker

    United States: Equity

    AAXJ ACWI BRF DIA DVY ECH EEB EEM EFA EFG EFV EPI EPP EWA EWC EWG EWH EWJ EWM EWS EWT EWU EWY EZU FXI GDX GDXJ IBB ICF IEV

    Name

    iShares MSCI All COUNTRY ASIA iShares MSCI ACWI Index Fund Market Vectors Brazil Small-CA DIAMONDS Trust SERIES I iShares DJ Select Dividend iShares MSCI Chile Investable Claymore/BNY BRIC ETF iShares MSCI EMERGING MKT IN iShares MSCI EAFE INDEX FUND iShares MSCI EAFE GROWTH INX iShares MSCI EAFE VALUE INX Wisdomtree India Earnings Fund iShares MSCI PACIFIC EX JPN iShares MSCI AUSTRALIA INDEX iShares MSCI CANADA iShares MSCI GERMANY INDEX iShares MSCI HONG KONG INDEX iShares MSCI JAPAN INDEX FD iShares MSCI MALAYSIA iShares MSCI SINGAPORE iShares MSCI TAIWAN INDEX FD iShares MSCI UNITED KINGDOM iShares MSCI SOUTH KOREA IND iShares MSCI EMU iShares FTSE/XINHUA CHINA 25 Market Vectors Gold Miners Market Vectors Gold Miners Min iShares NASDAQ BIOTECH INDX iShares COHEN & STEERS RLTY iShares S&P EUROPE 350

     

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    WELLINGTON MANAGEMENT

    Code of Ethics

    IGE IJH IJJ IJK IJR IJS IJT ILF INP IOO IVE IVV IVW IWB IWD IWF IWM IWN IWO IWP IWR IWS IWV IXC IYR IYW MDY MOO OEF PBW PFF

    PGX PHO QID QLD

    QQQ

    RSP RSX RWM

    iShares GOLDMAN SACHS NAT RE iShares S&P Midcap 400 iShares S&P Midcap 400/VALUE iShares S&P Midcap 400/GRWTH iShares S&P SmallCap 600 iShares S&P SmallCap 600/VAL iShares S&P SmallCap 600/GRO iShares S&P Latin Amer 40 IDX iPath MSCI India Index ETN iShares S&P GLOBAL 100 iShares S&P 500 VALUE INDEX iShares S&P 500 INDEX FUND iShares S&P 500 GROWTH INDEX iShares Russell 1000 INDEX iShares Russell 1000 VALUE iShares Russell 1000 GROWTH iShares Russell 2000 iShares Russell 2000 VALUE iShares Russell 2000 GROWTH iShares Russell Midcap GRWTH iShares Russell Midcap INDEX iShares Russell Midcap VALUE iShares Russell 3000 INDEX iShares S&P GLBL ENERGY SECT iShares DJ US REAL ESTATE iShares DJ US TECHNOLOGY SEC Midcap SPDR Trust SERIES 1 Market Vectors AGRIBUSINESS iShares S&P 100 INDEX FUND PowerShares WILDERHILL CLEAN ENERGY iShares S&P PREF STK INDX FN

    Powershares Preferred Portfolio PowerSharesGLOBAL WATER ProShares UltraShort QQQ ProShares Ultra QQQ

    PowerShares QQQ

    Rydex S&P EQUAL WEIGHT ETF Market Vectors RUSSIA ETF ProShares Short Russell 2000

     

    15


     

    WELLINGTON MANAGEMENT

    Code of Ethics

    RWR RWX SCZ SDS SDY

    SH

    SKF SPY SRS SSO TWM UWM UYG VB

    VBK VBR VEA VEU VGK

    VIG VNQ

    VO VPL

    VTI VTV

    VUG VV

    VWO VXX

    XLB XLE XLF XLI XLK XLP XLU XLV

    XLY XME

    DJ Wilshire REIT ETF SPDR DJ WILS INTL RE iShares MSCI EAFE Small Cap In ProShares UltraShort S&P500 SPDR Divident ETF

    ProShares Short S&P500

    ProShares UltraShort FINANCIALS SPDR Trust SERIES 1 UltraShort REAL ESTATE ProShares ProShares Ultra S&P500 UltraShort Russell2000 ProShares ProShares Ultra Russell2000 ProShares Ultra FINANCIALS Vanguard SMALL-CAP ETF

    Vanguard SMALL-CAP GRWTH ETF Vanguard SMALL-CAP VALUE ETF Vanguard EUROPE PACIFIC ETF Vanguard FTSE ALL-WORLD EX-U Vanguard EUROPEAN ETF

    Vanguard DIVIDEND APPREC ETF Vanguard REIT ETF

    Vanguard MID-CAP ETF Vanguard PACIFIC ETF

    Vanguard TOTAL STOCK MKT ETF Vanguard VALUE ETF

    Vanguard GROWTH ETF Vanguard LARGE-CAP ETF

    Vanguard EMERGING MARKET ETF iPath S&P 500 VIX

    MATERIALS Select SECTOR SPDR ENERGY Select SECTOR SPDR FINANCIAL Select SECTOR SPDR INDUSTRIAL Select SECT SPDR TECHNOLOGY Select SECT SPDR CONSUMER STAPLES SPDR UTILITIES Select SECTOR SPDR HEALTH CARE Select SECTOR

    CONSUMER DISCRETIONARY Select SPDR SPDR S&P Metals & Mining ETF

     

    16


     

    WELLINGTON MANAGEMENT  
     
    Code of Ethics  
     
     
     

    XOP

    United States: Fixed Income

    AGG BIV BSV BOND BSV BWX BZF CYB ELD EMB HYG IEF IEI JNK LQD MBB MUB PCY

    PST SHY

    TBF

    TBT TIP TLT

    VCSH

    S&P Oil & Gas Expland Prod

    iShares Lehman AGG BOND FUND Vanguard Intermediate-Term Bon Vanguard Total Bond Market PIMCO Total Return Bond ETF Vanguard Short-Term Bond ETF SPDR barclays Int Trea Bnd ETF Wisdomtree Brazilian Real Fund Wisdomtree Dreyfus China Yuan Fund Wisdomtree Emerging Markets Bond ETF JPM Emerging Markets Bond ETF iShares IBOXX H/Y CORP BOND iShares Lehman 7-10YR TREAS iShares Lehman 3-7 YEAR TREASURY SPDR Barclays Capital High Yield Bond ETF iShares GS$ INVESTOP CORP BD iShares MBS Bond Fund iShares S&P National Municipal Bond Fund Powershares EM MAR SOV DE PT

    ProShares UltraShort Lehman 7-10 Year Treasury iShares Lehman 1-3YR TRS BD

    ProShares Short 20+ Treasury

    UltraShort Lehman 20+ Year Treasury ProShares iShares Lehman TRES INF PR S iShares Lehman 20+ YR TREAS

    Vanguard Short-Term Corporate

     

    United States: Commodity Trusts and ETNs

    AMJ CORN COW DBA DBB DBC DBE DBO DBP DGZ

    JPMorgan Alerian MLP Index ETN Corn ETF iPath DJ-AIG Livestock TR Sub-Index Powershares DB Agriculture Fund Powershares DB Base Metals Fund Powershares DB Commodity Index Powershares DB Energy Fund Powershares DB Oil Fund Powershares DB Precious Metals Fund Powershares DB Gold Short ETN

     

    17


     

    WELLINGTON MANAGEMENT

    Code of Ethics

    DJP DNO GAZ GLD GLL GSG JJA JJC JJE JJG JJM JJN JJS JJU SGG SLV UCO UGA UGL UHN UNG USO ZSL

    United States: Currency Trusts

    DBV EUO FXA FXB FXC FXE FXF FXM FXS FXY UDN UUP YCS

    Australia: Equity

    STW.AX

    iPath Dow Jones - AIG Commodity Unicted States Short Oil Fund L iPath DJ-AIG Natural Gas TR Sub-Index StreetTRACKS Gold Fund UltraShort Gold iShares S&P GSCI Commodity Index iPath DJ-AIG Agriculture TR Sub-Index iPath DJ-AIG Copper TR Sub-Index iPath DJ-AIG Energy TR Sub-Index iPath DJ-AIG Grains TR Sub-Index iPath DJ-AIG Industrial Metals TR Sub-Index iPath DJ-AIG Nickel TR Sub-Index iPath DJ-AIG Softs TR Sub-Index iPath DJ-AIG Aluminum TR Sub-Index iPath DJ-UBS Sugar Subindex TR iShares Silver Trust Ultra DJ-AIG Crude Oil United States Gasoline Fund Ultra Gold United States Heating Oil Fund United States Natural Gas Fund United States Oil Fund UltraShort Silver

    Powershares DB G10 Currency Harvest Fund UltraShort Euro Australian Dollar British Pound Canadian Dollar Euro Swiss Franc Mexican Peso Swedish Krona Japanese Yen Powershares DB US Dollar Bearish Fund Powershares DB US Dollar Bullish Fund UltraShort Yen

    S&P/ASX 200 Index

     

    18


     

    WELLINGTON MANAGEMENT

    Code of Ethics

    England: Equity

    EUN LN IEEM LN FXC LN IJPN LN ISF LN IUSA LN IWRD LN

    iShares DJ STOXX 50 iShares MSCI EMERGING MKTS iShares FTSE/XINHUA CHINA 25 iShares MSCI JAPAN FUND iShares PLC-ISHARES FTSE 100 iShares S&P 500 INDEX FUND iShares MSCI WORLD

    England: Fixed Income  
    IEBC LN iShares Barclays Capital Euro
    Hong Kong: Equity  

    2800 HK 2823 HK 2827 HK 2828 HK 2833 HK

    Japan: Equity

    1305 JP 1306 JP 1308 JP 1320 JP 1321 JP 1330 JP

    TRACKER FUND OF HONG KONG iShares A50 CHINA TRACKER WISE - CSI 300 CHINA TRACKER HANG SENG H-SHARE IDX ETF HANG SENG INDEX ETF

    DAIWA ETF = TOPIX NOMURA ETF - TOPIX NIKKO ETF - TOPIX DAIWA ETF – NIKKEI 225 NOMURA ETF – NIKKEI 225 NIKKO ETF – 225

     

    This appendix is current as of 23 June 2014, and may be amended at the discretion of the Ethics Committee.

    19

    EX-99.CODE ETH 9 globalcoe-november2017.htm GLOBAL COE globalcoe-november2017.htm - Generated by SEC Publisher for SEC Filing

    Code of Ethics

    Do the right thing



     

    Table of Contents  
    Message from our CEO  
    The Code of Ethics at a Glance 2
    Section 1. Background 4
    Section 2. Standards of Conduct 4
    2.1 Conflicts of Interest  

     

    (a)      What is a conflict of interest?
    (b)      When can conflicts of interest arise?
    (c)      What types of conflicts of interest should be avoided?
    (d)      Which conflicts of interest do I need to disclose?
    (e)      When and how do I disclose conflicts of interest?
    Section 3. Outside Business Activities 6
    3.1 Outside Business Activity Requirements for all Crew Members  

     

    (a)      What outside activities are generally prohibited?
    (b)      What activities require preclearance?
    (c)      What activities do not require preclearance?
    (d)      When and how do I preclear an outside business activity?
    Section 4. Gift and Entertainment Policy 10
    Section 5. Anti-Bribery Policy 10
    Section 6. Duty of Confidentiality 10
    Section 7. Personal Trading Activities 10

     

    7.1      Trading Prohibitions and Requirements for all Crew Members
    (a)      What are the trading prohibitions applicable to all Crew Members?
    (b)      Are all Crew Members required to hold Securities in a Brokerage Account at Vanguard?
    (c)      Are there additional trading requirements or restrictions for Crew Members?
    7.2      Trading Prohibitions and Requirements for Fund Access Persons
    (a)      What are the trade preclearance requirements?
    (b)      How does a Fund Access Person obtain preclearance?
    (c)      How long is a preclearance approval valid?
    (d)      Which types of securities transactions do not require preclearance for Fund Access Persons?
    (e)      Are there any prohibited transactions by Fund Access Persons?
    (f)      What are the blackout periods for Fund Access Persons?
    (g)      What happens if a Fund Access Person makes a prohibited purchase or sale during a blackout period (e.g., trades after a Vanguard Fund without approval)?

     

    Table of Contents (continued)

    (h)      What happens if a Fund Access Person makes a permitted purchase or sale during a blackout period (e.g.,trades before a Vanguard Fund)?
    (i)      Are there any waivers to the above blackout periods?
    (j)      What happens if a Fund Access Person makes a “short-term trade” in a Vanguard Fund?
    7.3      Crew Member Obligations when Purchasing, Redeeming, or Holding Vanguard Funds
    Section 8. Reporting Requirements 18
    8.1 Reporting Requirements for U.S. Crew Members  

     

    (a)      What are the standard reporting requirements for U.S. Crew Members?
    (b)      What additional reporting requirements exist for U.S. Fund Access Persons and VAI Access Persons?
    8.2      Reporting Requirements for Non-U.S. Crew Members
    (a)      What are the standard reporting requirements for Non-U.S. Crew Members?
    (b)      What are the additional reporting requirements for Non-U.S. Crew Members that are Fund Access Persons?
    8.3      Obligations for all Crew Members to Report Violations

    Section 9. Certification Requirements 22

    9.1      Certification Requirements for all Crew Members
    (a)      What are the certification requirements as a new Crew Member?
    (b)      What are the annual certification requirements?
    Section 10. Sanctions 22
    Section 11. Vanguard Expatriates 22
    Appendix A. Definitions 24
    Appendix B. Additional Personal Trading Activities 29

     

    B.1      Australia
    (a)      What are the Vanguard Fund reporting requirements for Crew Members in Australia?
    B.2      Japan
    (a)      What are the additional trading restrictions for Crew Members in Japan?
    B.3      U.S. VAI Access Persons
    (a)      What are the additional trading restrictions for U.S. Crew Members that are VAI Access Persons?
    B.4      Non-U.S. Crew Members that have Discretionary Management Arrangements
    (a)      Do I need to report discretionary Investment management arrangements if I am a non-U.S. Crew Member that is a Fund Access Person?

    Appendix C: Independent Directors and Trustees (U.S. Crew Only) 30


     


    Do the right thing

    At Vanguard, the trust of our clients is our greatest asset. And that trust can only be preserved if each one of us does the right thing on behalf of Vanguard and our clients.

    Our Code of Ethics is built on our commitment to maintaining the highest standards of ethical behavior and fiduciary responsibility. Our actions, decisions, and interests should never compete with the interests of Vanguard or our clients.

    All crew members are responsible for understanding and complying with our Code of Ethics. Please know and follow the policies that apply to you, and be accountable for your actions. If you are a manager, help your crew to understand and comply with the Code of Ethics through your words and your actions.

    Use the Code of Ethics as your guide when faced with challenging decisions or circumstances. But remember, the Code of Ethics is a document. It cannot anticipate every situation. Ultimately, we rely on your sense of personal integrity to protect and enhance Vanguard’s reputation. Never underestimate the importance of your own ethical conduct in our mission to treat investors fairly and give them the best chance to succeed.


    F. William McNabb III
    Chairman and Chief Executive Officer


     

    The Code of Ethics at a Glance

    Below are some of the general requirements of the Code of Ethics which impact Crew Members the most. These are for guidance only and are not a substitute for the Code of Ethics itself. Each should be read in conjunction with its provisions.

    1. Clients’ Interests Come First

    You must avoid serving your own personal interests ahead of the interests of Vanguard Clients.

    2. Conflicts of Interest

    Your actions, decisions, and interests should not compete or conflict with Vanguard’s or Vanguard Clients’ interests. You must report potential conflicts of interest to the Compliance Department.

    3. Business Activities Outside of Vanguard

    You may engage in outside business activities that do not conflict with Vanguard’s interests; however, you must obtain approval from the Compliance Department for certain outside business activities.

    4. Gifts and Entertainment

    When doing business with clients, vendors, potential clients, and others, you must abide by limitations on giving and receiving gifts and business entertainment. In addition, you must report all gifts and entertainment to the Compliance Department.

    5. Anti-Bribery

    You are prohibited from engaging or participating in any form of bribery.

    6. Insider Trading

    You are prohibited from buying or selling any Security while in the possession of material, non-public information about the issuer of the Security.

    7. Personal Trading Activities

    You are required to abide by the Code of Ethics requirements related to holding, reporting, and trading Securities for personal benefit. Personal trading restrictions and reporting requirements vary depending on the rules of the country you are working in and whether you are an Access Person or a Non-Access Person.

    8. Certification Requirements

    On an annual basis, you are required to acknowledge that you understand the Code of Ethics and will comply with its provisions.

    2


     

    Clients’ Interests Come First

    You must avoid serving your own personal interests ahead of the interests of Vanguard Clients.


     

    Section 1. Background

    The Code of Ethics (“Code”) has been approved and adopted by the board of directors of The Vanguard Group, Inc. (“Vanguard”), the boards of trustees of each of the Vanguard Funds, and the boards of directors of each of Vanguard’s affiliates, as applicable. Unless stated otherwise, the Code applies to all Crew Members. The Code also contains provisions applicable to Independent Directors and Trustees (see Appendix C).

    Section 2. Standards of Conduct

    Our standards of conduct are straightforward and essential. Any transaction or activity that violates either of the standards of conduct described below is prohibited, regardless of whether it meets technical rules found elsewhere in the Code.

    Vanguard consistently seeks to earn and maintain the trust and loyalty of our clients by adhering to the highest standards of ethical behavior and fiduciary responsibility. Accordingly, we must conduct ourselves in accordance with applicable law and regulations, and the following standards of conduct:

    Vanguard Clients’ interests come first. You must at all times place the interests of Vanguard Clients first. In particular, you must avoid serving your own personal interests ahead of the interests of Vanguard Clients.

    Conflicts of interest must be avoided. Your actions, decisions, and interests should not compete or conflict with Vanguard’s interests or the interests of Vanguard Clients.

    2.1 Conflicts of Interest

    2.1(a) What is a conflict of interest?

    A conflict of interest is defined as any situation where financial or other personal factors can compromise independence, objectivity, or professional judgment. A conflict of interest exists when personal or other business interests compete, or give the appearance of competing,

    with your duty to serve the interests of Vanguard and Vanguard Clients.

    2.1(b) When can conflicts of interest arise?

    Even the perception of a conflict could negatively affect Vanguard and harm our reputation. It’s important to understand the following conflict situations:

    Actual conflict of interest. A situation where your personal interests directly conflict with your current duties and responsibilities.

    Perceived conflict of interest. A situation where it appears that personal interests inappropriately influence the performance of your duties and responsibilities—whether founded or not.

    Potential conflict of interest. A situation that could arise in the future where your personal interests would affect official duties and responsibilities.

    Depending on your role at Vanguard, potential for conflict may also arise where an Immediate Family Member is employed by a company with which Vanguard has a relationship. For example, if your spouse is employed as a trader at a brokerage firm that executes Vanguard Fund trades, and you are a phone associate, a conflict may not exist; however, if you hold a position in the Investment Management Group or Fund Financial Services, a potential conflict exists.

    2.1(c) What types of conflicts of interest should be avoided?

    Generally, you should avoid the following:

    Any business interest that competes, directly or indirectly, with the interests of Vanguard.

    Any situation where you would benefit, directly or indirectly, from Vanguard’s dealings with others.

    4


     


    Your actions, decisions, and
    interests should not compete
    or conflict with Vanguard’s or
    Vanguard Clients’ interests.
    You must report potential
    conflicts of interest to the
    Compliance Department.


     

    2.1(d) Which conflicts of interest do I need to disclose?

    You should avoid situations where a conflict of interest could arise. You are required to disclose the following information: Any situation that may present the potential for a conflict of interest with Vanguard’s business or the interests of Vanguard Clients.

    Any employment arrangements of your Immediate Family Members that may present the potential for conflict with Vanguard and its activities.

    2.1(e) When and how do I disclose conflicts of interest?

    You should report potential conflicts to the Compliance Department as soon as they arise. Please also contact the Compliance Department if you encounter a conflict that is not explicitly addressed by our policies or is potentially significant to a business area or across divisions.

    Web Resource – To disclose potential conflicts of interest, complete the Outside Business Activities and Conflicts of Interest Form under My CrewNet/My Compliance on CrewNet.

    Vanguard affiliates or your specific department may have additional policies regarding conflicts of interest that you must also follow.

    Section 3. Outside Business Activities

    You are permitted to engage in outside business activities (permanent, part-time, or one-time assignment) during your personal time. However, those activities should not adversely affect Vanguard or present a conflict of interest. Your job at Vanguard should come first over other business opportunities, nonprofit activities, or a second job. Be mindful of potential conflicts, obtain any necessary approvals, and be aware that you may be required to discontinue an activity if a conflict exists.

    In addition to the requirements and restrictions in this section, the following supplemental policies may apply to you: Senior Executive Covered Activity Policy (officers and crew members in roles designated as M6/ P6/S6 or higher).

    Managing Director Outside Business Activity Policy.

    If there is a conflict between a more restrictive requirement in the Code and the requirements in these policies, the requirements outlined in the Senior Executive Covered Activity Policy or the Managing Director Outside Business Activity Policy should be followed.

    Web Resource – U.S. Crew Members who hold a FINRA license are also required to comply with the Outside Business Activity section of the Form U4 Reporting Obligations page on CrewNet.

    3.1 Outside Business Activity Requirements for all Crew Members 3.1(a) What outside activities are generally prohibited?

    The following activities are generally prohibited: Holding a second job with any company or organization whose activities could create a conflict of interest with your employment at Vanguard. This includes, but is not limited to, selling Securities, term insurance, or fixed or variable annuities; providing Investment advice or financial planning; or engaging in any business activity similar to Vanguard’s or your job at Vanguard.

    Working, including serving as a director, officer, or in an advisory capacity, for any business or enterprise that competes with Vanguard.

    Working for any organization that could benefit from your knowledge of confidential Vanguard information, such as new Vanguard products, services, or technology.

    Serving on the board of a publicly traded company (or on the board of a company reasonably expected to become a public company through an IPO).

    Using Vanguard time, equipment, services, Crew Members, or property for the benefit of the outside business activity.

    6


     


    You may engage in outside business activities that do not conflict with Vanguard’s interests; however, you must obtain approval from the Compliance Department for certain outside business activities.


     

    Allowing your activities, or the time you spend on them, to interfere with the performance of your job.

    Accepting a business opportunity from someone who does, or seeks to do, business with Vanguard if the person made the offer because of your position at Vanguard.

    Selling interests, soliciting investors, or referring participants to a Private Securities Transaction.

    3.1(b) What activities require preclearance?

    You are required to obtain written prior approval for the following outside activities:

    Compensated positions held outside of Vanguard.

    All entrepreneurial activities, including home and family businesses and independent consulting.

    Volunteer positions that involve recommending or approving Securities for an organization. This includes, but is not limited to, serving on the finance or investment committee of a nonprofit organization, or serving as treasurer for a homeowners association or on a school board.

    Any activity where your role is similar or closely related to your responsibilities at Vanguard.

    Any government position, whether paid or unpaid, elected or appointed (e.g., an elected official or member, director, officer, or employee of a government agency, authority, advisory board or other board, such as a public school or library board).

    Any official position with any federal, state, or local government authority, or service as a board member or in any representative capacity for any civic, public interest, or regional business interest organization (e.g., you are the executive director of a local chamber of commerce or on the board of a wildlife protection organization).

    Any compensated or non-compensated position on a private company board. This includes positions on boards of nonprofit organizations; charitable foundations; universities; hospitals; and civic, religious, or fraternal organizations.

    Any position on a panel or committee of an index provider.

    Acting as a real estate agent or conducting any mortgage-related activities.

    Any teaching positions where the subject matter relates to Vanguard business that is not in the course of your duties for Vanguard.

    3.1(c) What activities do not require preclearance?

    You are not required to obtain written approval for the following activities:

    Compensated positions in a retail business—for example, positions in retail or department stores or in the food service industry.

    Ownership of a second home, rental property, or Investment property.

    Selling items on online auction sites, so long as it is not operated as a business.

    Unpaid positions with holding companies, trusts, or non-operating entities that hold your or your family’s real estate or other Investments, provided the Securities would not otherwise require approval if held directly.

    3.1(d) When and how do I preclear an outside business activity?

    You are required to obtain approval for outside business activities:

    If you are already participating in an activity upon joining Vanguard.

    Before accepting any new activity.

    If there are any changes to a previously reported activity.

    In some situations, you will receive a follow-up form from the Compliance Department requiring that you obtain approval from a Vanguard Officer or Managing Director.

    Note: Vanguard Officers may not accept or participate in any form of outside activities unless they have received written approval from a Vanguard Managing Director or the Chief Executive Officer in addition to receiving written approval from the Compliance Department.

    8


     

    Gifts and Entertainment

    When doing business with clients, vendors, potential clients, and others, you must abide by limitations on giving and receiving gifts and business entertainment. In addition, you must report all gifts and entertainment to the Compliance Department.


     

    Web Resource – To seek preclearance for an outside activity, or to report a change or discontinuation of an outside activity, complete the Outside Business Activities and Conflicts of Interest Form under My CrewNet/My Compliance on CrewNet.

    Section 4. Gift and Entertainment Policy

    You are subject to Vanguard’s Gift and Entertainment Policy, which is considered an integral part of the Code. There are restrictions on the extent to which gifts or entertainment may be received from or provided to any third party.

    Web Resource – Refer to the Gift and Entertainment Policy on the Code of Ethics Resource page on CrewNet for information and guidelines.

    Section 5. Anti-Bribery Policy

    You are subject to Vanguard’s Anti-Bribery Policy, which prohibits the offer, promise, payment, or provision of money or anything of value to any party for the purpose of improperly obtaining, directing, or retaining business or securing an improper advantage for Vanguard.

    Web Resource – Refer to the Anti-Bribery Policy on the Code of Ethics Resource page on CrewNet for information and guidelines.

    Section 6. Duty of Confidentiality

    You must keep confidential any non-public information that you may have obtained while working at Vanguard at all times. This information includes, but is not limited to:

    Information on the Vanguard Funds (e.g., recent or impending Securities transactions, activities of the funds’ advisors, offerings of new funds, changes to fund minimums or other provisions in the prospectus, or closings of funds).

    Information on current or prospective Vanguard Clients (e.g., their personal information, Investments, or account transactions).

    Information about other Crew Members or Independent Directors and Trustees (e.g., their pay, benefits, position level, and performance ratings).

    Information on Vanguard business activities (e.g., new services, products, technology, or business initiatives).

    You must not reveal confidential information to any party that does not have a clear and compelling need to know such information.

    Section 7. Personal Trading Activities

    You must avoid taking personal advantage of your knowledge of Securities activity in Vanguard Funds or in client accounts. The Code includes specific restrictions on personal investing but cannot anticipate every fact pattern or situation. You should adhere at all times to the spirit, and not just the letter, of the Code.

    7.1Trading Prohibitions and Requirements for all Crew Members

    7.1(a) What are the trading prohibitions applicable to all Crew Members?

    Engaging in conduct that is deceitful, fraudulent, or manipulative, or that involves false or misleading statements, in connection with the purchase or sale of a Security by a Vanguard Fund.

    Intentionally, recklessly, or negligently circulating false information or rumors that may affect the Securities markets or may be perceived as market manipulation.

    10


     


    You are prohibited from
    engaging or participating
    in any form of bribery.


     

    Trading on knowledge of Vanguard Fund activities. Taking personal advantage of knowledge of recent or impending Securities activities of the Vanguard Funds or their Investment advisors. You are prohibited from purchasing or selling—directly or indirectly—any Security or Related Security when you know that the Security is being purchased or sold, or considered for purchase or sale, by a Vanguard Fund (with the exception of an index fund). This prohibition applies to all Securities in which the person has acquired or will acquire Beneficial Ownership.

    Vanguard InsiderTrading Policies. You are subject to the Insider Trading Policy of the Vanguard affiliate for which you work. The Insider Trading Policies are considered an integral part of the Code. Each Insider Trading Policy prohibits you from buying or selling any Security while in possession of material, non-public information about the issuer of the Security. The policies prohibit you from communicating any non-public information about any Security or issuer of Securities to third parties.

    Web Resource – Refer to your local Insider Trading Policy on the Code of Ethics Resource page on CrewNet for further information.

    7.1(b) Are all Crew Members required to hold Securities in a Brokerage Account at Vanguard?

    U.S. Crew Members and their Immediate Family Members are required to hold all Reportable Securities within a Vanguard Brokerage Account.

    New Crew Members will have 60 days to complete the transfer of all Reportable Securities from an investment firm to Vanguard.

    Quick Guide: Refer to
    the Securities to be Held
    at Vanguard document,
    which can be accessed
    from the Code of Ethics
    on CrewNet.

    Non-U.S. Crew Members and their Immediate Family Members may trade and hold Reportable Securities with a non-Vanguard brokerage firm. Crew Members shall arrange, where possible, for their local Compliance Department to receive duplicate statements and confirmations directly from the brokerage firm.

    Quick Guide: Refer
    to the Trading and
    Reporting Requirements
    for Non-Access Persons
    document, which can be
    accessed from the Code
    of Ethics on CrewNet.

    7.1(c) Are there additional trading requirements or restrictions for Crew Members?

    There are additional trading requirements and restrictions for Crew Members in Australia and Japan, and for VAI Access Persons in the United States (see Appendix B). In addition, there are specific provisions for non-U.S. Crew Members who are Fund Access Persons and who have discretionary Investment management arrangements with a third party.

    In addition, your local Compliance Department has authority, with appropriate notice to you, to apply any or all of the trading restrictions specified in Section 7.2 to Non-Access Persons. For example, Access Person provisions may be applied to a Non-Access Person who gains access, through system access or otherwise, to Vanguard Fund impending purchases or sales of Securities.

    12


     


    You are prohibited from buying or selling any Security while in the possession of material, non-public information about the issuer of the Security.


     

    7.2 Trading Prohibitions and Requirements for Fund Access Persons

    The requirements of this Section 7.2 apply to all transactions or holdings in which Fund Access Persons have or will acquire Beneficial Ownership of Securities.

    7.2(a) What are the trade preclearance requirements?

    You must obtain, for yourself and on behalf of your Immediate Family Members, preclearance for any transaction in a Covered Security.

    Quick Guide: Refer
    to the Trading and
    Reporting Requirements
    for Fund Access Persons
    document, which can be
    accessed from the Code
    of Ethics on CrewNet.

    7.2(b) How does a Fund Access Person obtain preclearance?

    Preclearance requests must be submitted by completing the Preclearance Form on My CrewNet/ My Compliance or by contacting the Compliance Department. You must wait until you receive approval from the system before entering your trade either online or with your broker. Transactions in Covered Securities may not be executed before you receive approval.

    Attempting to gain approval after the transaction has occurred is not permitted. Completing a personal trade before receiving approval or after the approval window expires constitutes a violation of the Code of Ethics. See Section 10 for more information regarding the sanctions that may be imposed as a result of a violation.

    Same day limit orders are permitted; however, good ‘til cancelled orders (such as orders that stay open indefinitely until a security reaches a specified market price) are not permitted.

    Web Resource – To seek preclearance, complete the Preclearance Form under My CrewNet/My Compliance on CrewNet.

    7.2(c) How long is a preclearance approval valid?

    U.S.      Crew Members: If you receive approval for
    a      market order, it will be effective until the close

    of trading on the same business day, unless otherwise revoked (e.g., if you receive approval on Monday, it is effective until market close on Monday). If you receive approval for a limit order, it must either be executed or expire at the close of trading on the same business day. If you wish to execute the limit order after the close of trading on the day you received approval, you must resubmit a preclearance request. Preclearance for limit orders is good for same day transactions only.

    Non-U.S. Crew Members: If you receive approval, transactions must be executed no later than the end of trading on the next business day after the preclearance is granted. If the transaction is not placed within that time, you must submit a new request for approval before placing the transaction. If you preclear a limit order, that limit order must either be executed or expire at the end of the next business day. If you want to execute the order after the next business day period expires, you must resubmit your preclearance request.

    7.2(d) Which types of Securities transactions do not require preclearance for Fund Access Persons?

    You are not required to obtain preclearance for the following:

    Purchases or sales where the person requesting preclearance has no direct or indirect influence or control (e.g., a Fund Access Person has a trust in his name but is not the trustee who places the transaction, provided the Fund Access Person has granted full Investment Discretion to the trustee and there has been no prior communication between them regarding the transaction).

    14


     

    Corporate actions in Covered Securities such as stock dividends, stock splits, mergers, consolidations, spin-offs, or other similar corporate reorganizations or distributions.

    Purchases or sales made as a part of an Automatic Investment Program.

    Purchases made upon the exercise of rights by an issuer in proportion to all holders of a class of its Securities, to the extent such rights were acquired for such issuer.

    Acquisitions of Covered Securities through gifts or bequests.

    7.2(e) Are there any prohibited transactions by Fund Access Persons?

    Private Placements. You are prohibited from acquiring Securities in a Private Placement without prior approval from the Compliance Department. If you receive approval to purchase Securities in a Private Placement, you must disclose that Security if it subsequently goes to public offer or is pending listing on an exchange.

    Web Resource – To seek preclearance of a Private Placement, complete the Outside Business Activities and Conflicts of Interest Form under My CrewNet/My Compliance on CrewNet.

    Futures and Options. You are prohibited from entering into, acquiring, or selling any Futures contract (including single stock futures) or any Option on any Security (including Options on ETFs).

    IPOs. You are prohibited from acquiring Securities in an initial public offering.

    Short-Selling. You are prohibited from selling short any Security that you do not own or from otherwise engaging in Short-Selling activities.

    Short-TermTrading. You are prohibited from purchasing and then selling any Covered Security at a profit, as well as selling and then repurchasing a Covered Security at a lower price within 60 calendar days. A last-in-first-out accounting methodology will be applied to a

    series of Security purchases when applying this holding rule. If you realize profits on short-term trades, you will be required to relinquish the profits. In addition, the trade will be recorded as a violation of the Code. For example, you are not permitted to sell a security at $12 that you purchased within the prior 60 days for $10. Similarly, you are not permitted to purchase a security at $10 that you sold within the prior 60 days for $12.

    Spread Bets. You are prohibited from participating in Spread Betting on Securities, indexes, interest rates, currencies, or commodities.

    7.2(f) What are the blackout periods for Fund Access Persons?

    There are restrictions that apply to a transaction in a Covered Security if a Vanguard Fund has bought or sold the same (or Related) Covered Security within seven (7) calendar days.

    There are two types of blackout periods:

    Prohibited: the purchase or sale of a Covered Security after a Vanguard Fund trades in the same (or Related) Covered Security.

    Note: Will result in a violation of the Code and could require you to sell the Covered Security and relinquish profits.

    Permitted: the purchase or sale of a Covered Security seven calendar days before a Vanguard Fund purchases or sells the same (or Related) Covered Security.

    Note: Even permitted purchases and sales could have consequences (e.g., extended holding period or relinquishing profits).

    The Compliance Department may exempt from these prohibitions certain trades during blackout periods that coincide with trading by certain Vanguard Funds (e.g., index funds).

    15


     

    Quick Guide: Refer
    to the Trading and
    Reporting Requirements
    for Fund Access Persons
    document, which can be
    accessed from the Code
    of Ethics on CrewNet.

    7.2(g) What happens if a Fund Access Person makes a prohibited purchase or sale during a blackout period (e.g., trades after a Vanguard Fund without approval)?

    If you make a prohibited purchase, you must sell the Covered Security and relinquish any gain from the transaction (exclusive of commissions). In addition, the trade will be recorded as a violation of the Code.

    If you make a prohibited sale, you must relinquish the difference (exclusive of commissions) between the sale price you received and the Vanguard Fund’s sale price (as long as your sale price is higher), multiplied by the number of shares you sold. In addition, the trade will be recorded as a violation of the Code.

    Local law may also dictate the extent to which gains must be relinquished.

    7.2(h) What happens if a Fund Access Person makes a permitted purchase or sale during a blackout period (e.g., trades before a Vanguard Fund)?

    If you make a permitted purchase, you are not permitted to sell the Covered Security at a profit for six months after the Vanguard Fund’s purchase.

    If you make a permitted sale, you must relinquish the difference (exclusive of commissions) between the sale price you received and the Vanguard Fund’s sale price (as long as your sale price is higher), multiplied by the number of shares you sold.

    If you make a prohibited sale within the six-month period at a profit, you must relinquish the difference

    (exclusive of commissions) between the purchase and sale prices you received multiplied by the number of shares you sold. In addition, the trade will be recorded as a violation of the Code.

    Local law may also dictate the extent to which gains must be relinquished.

    7.2(i) Are there any waivers to the above blackout periods?

    The Compliance Department may waive the blackout restriction as it applies to the sale of a Covered Security if the Chief Compliance Officer (CCO) determines that its application creates a significant hardship to you (e.g., repeated rejection of preclearance requests) and, in the opinion of the CCO, there is no conflict between your trade and the Vanguard Fund trade.

    Web Resource – To request a hardship exemption, complete the Hardship Waiver Request Form on the Code of Ethics Resource page on CrewNet.

    7.2(j) What happens if a Fund Access Person makes a “short-term trade” in a Vanguard Fund?

    The Compliance Department will monitor trading in Vanguard Funds and will review situations where Vanguard Fund shares are redeemed within 30 calendar days of purchase (a “short-term trade”). You may be required to relinquish any profit made on a short-term trade and will be subject to disciplinary action if the Compliance Department determines that the short-term trade was detrimental to the interests of a Vanguard Fund or a Vanguard Client or that there is a history of frequent trading by the Crew Member or his or her Immediate Family Members. For purposes of this paragraph:

    A redemption includes a redemption by any means, including an exchange out of a Vanguard Fund.

    This policy does not cover purchases and redemptions/sales (i) into or out of Vanguard money market funds, Vanguard short-term bond funds, or Vanguard ETFs; or (ii) through an Automatic Investment Program.

    16


     

    Personal Trading Activities

    You are required to abide by the Code of Ethics requirements related to holding, reporting, and trading Securities for personal benefit. Personal trading restrictions and reporting requirements vary depending on the rules of the country you are working in and whether you are an Access Person or a Non-Access Person.



     

    7.3 Crew Member Obligations when Purchasing, Redeeming, or Holding Vanguard Funds

    The following is a summary of obligations applicable to Crew Members who purchase, redeem, or hold Vanguard Funds:

    When purchasing, exchanging, or redeeming shares of Vanguard Funds, you and your Immediate Family Members must adhere to the policies and standards set forth in the funds’ prospectuses, including policies on market-timing and frequent trading.

    If you are considered a Fund Access Person or a VAI Access Person, you will be required to disclose any internal and external accounts holding Vanguard Funds; however, you will not be required to seek prior trade approval for purchases or redemptions in Vanguard Funds from the Compliance Department.

    If you are considered a Fund Access Person, the Compliance Department will monitor short-term trading (purchase and sale within 30 days) in Vanguard Funds. See Section 7.2(j).

    U.S. Crew Members may hold Vanguard Funds outside of Vanguard; however, Vanguard ETFs must be held in a Vanguard brokerage account.

    All Non-U.S. Crew Members are required to report holdings and transactions in Vanguard ETFs. Additionally, Non-U.S. Crew Members that are Fund Access Persons are required to report holdings and transactions in Vanguard mutual funds.

    Section 8. Reporting Requirements

    The reporting requirements of this Section 8 apply to all transactions or holdings in which Crew Members have or will acquire Beneficial Ownership of Securities.

    8.1 Reporting Requirements for U.S. Crew Members

    8.1(a) What are the standard reporting requirements for U.S. Crew Members?

    Initial Holdings Report – All new Crew Members are required to complete and submit to the Compliance Department an Initial Holdings Report disclosing all Covered Accounts and all Reportable Securities when they join Vanguard. This includes Brokerage Accounts held at Vanguard as well as those held at another financial institution. This information must be current as of 45 calendar days prior to joining Vanguard.

    Web Resource – New hires will receive an Initial Holdings Report via email. Status of completion can be found in CrewNet under My CrewNet/My Compliance.

    In addition, you must notify the Compliance Department if you or an Immediate Family Member has subsequently opened or intends to open a Covered Account with a financial institution (e.g., broker, dealer, advisor, or any other professional money manager), has acquired holdings in Reportable Securities, or if a preexisting Covered Account (including a Vanguard Brokerage Account) becomes associated with you (such as through marriage or inheritance).

    Disclose new Covered Accounts and holdings by sending an email to “Vanguard Compliance.”

    Quick Guide: Refer to the
    Trading and Reporting
    Requirements for
    Non-Access Persons
    document, which can be
    accessed from the Code
    of Ethics on CrewNet.

    Duplicate statements and transaction confirmations. You must disclose transactions in Reportable Securities made by you and your Immediate Family Members. For Brokerage accounts held at Vanguard that you have disclosed, the Compliance Department will receive transaction confirmations automatically. For each approved Covered Account and any holdings of

    18


     

    Reportable Securities held outside of Vanguard, it is your responsibility to ensure that duplicate statements and transaction confirmations are delivered to the Compliance Department. If the outside investment firm is not able to send statements and transaction confirmations directly to Vanguard, you will be required to submit copies immediately after you receive them, unless you receive an exemption from this requirement from the Compliance Department. Transaction confirmations and statements are not required if the account does not have the ability to hold Securities (e.g., a traditional checking account).

    8.1(b) What additional reporting requirements exist for U.S. Fund Access Persons and VAI Access Persons?

    Initial Holdings Report – In addition to the standard reporting requirements for all new U.S. Crew Members, you must also disclose the following:

    Covered Accounts where you exercise Investment Discretion.

    Accounts, 529 college savings plans, and annuity or insurance products holding Vanguard Funds.

    Quick Guide: Refer to
    the Trading and Reporting
    Requirements for Fund
    Access Persons and the
    Trading and Reporting
    Requirements for
    VAI Access Persons
    documents, which can be
    accessed from the Code
    of Ethics on CrewNet.

    The information must be sent to the Compliance Department no later than ten (10) calendar days after you become a Fund Access or VAI Access Person.

    QuarterlyTransaction Report You must report to the Compliance Department, within 30 days after the end of each calendar quarter, any transactions in Reportable Securities, holdings in Vanguard

    Funds, 529 plans, and Annuity or Insurance products invested in Vanguard Funds held outside of Vanguard. You are not required to disclose transactions if the Compliance Department receives duplicate confirmations or statements within 30 calendar days after the end of each calendar quarter. If there are no transactions in Reportable Securities or new Covered Accounts to disclose, the report should state “None.”

    Annual Holdings Report – Each year, through the Annual Crew Certification, you must confirm that you have reported all Covered Accounts, holdings in Reportable Securities, and Vanguard mutual funds held outside of Vanguard.

    8.2 Reporting Requirements for Non-U.S. Crew Members

    8.2(a) What are the standard reporting requirements for Non-U.S. Crew Members?

    Initial Holdings Report – All new Crew Members are required to disclose all Covered Accounts and holdings of Reportable Securities to their local Compliance Department when they join Vanguard. This includes disclosure of all Covered Accounts where transactions are made under an Automatic Investment Program. The account and Security information will be requested and completed through the New Crew Certification process. This information must be current as of 45 calendar days prior to joining Vanguard.

    Web Resource – Disclose Covered Accounts and holdings in Reportable Securities within the Accounts and Holdings section under My CrewNet/My Compliance on CrewNet.

    In addition, you must disclose if you or an Immediate Family Member has subsequently opened a Covered Account with a financial institution (e.g., broker, dealer, advisor, or any other professional money manager), has acquired holdings in Reportable Securities, or if a preexisting Covered Account becomes associated with you (such as through marriage or inheritance).

    19


     

    Quick Guide: Refer
    to the Trading and
    Reporting Requirements
    for Non-Access Persons
    document, which can be
    accessed from the Code
    of Ethics on CrewNet.

    Reporting transactions You are required to report to your local Compliance Department any transactions in Reportable Securities. You do not have to report each transaction in a Covered Account if the transactions are made under an Automatic Investment Program.

    Web Resource – Disclose Reportable Securities transactions within the Accounts and Holdings section under My CrewNet/My Compliance on CrewNet.

    Duplicate statements and transaction confirmations For each Covered Account and holdings in Reportable Securities, it is your responsibility to ensure that duplicate statements and transaction confirmations are being delivered to your local Compliance Department. If the Investment firm is not able to send statements and confirmations directly to Vanguard, you will be required to submit copies immediately after you receive them, unless you receive an exemption from this requirement from the Compliance Department. You do not have to send transaction confirmations if the transactions are made under an Automatic Investment Program.

    Note: Have the Investment firm mail copies or interoffice mail transaction confirmations and statements to your local Compliance Department immediately upon your receipt.

    8.2(b) What are the additional reporting requirements for Non-U.S. Crew Members that are Fund Access Persons?

    Initial Holdings Report – In addition to the standard reporting requirements for all new Non-U.S. Crew Members, you must also disclose the following: Covered Accounts where you exercise Investment Discretion.

    Accounts, pension plans, and annuity or insurance products holding Vanguard Funds.

    Accounts holding Vanguard Funds where transactions are made under an Automatic Investment Program.

    The information must be sent to the Compliance Department no later than ten (10) calendar days after you become a Fund Access Person.

    Web Resource – Disclose Covered Accounts, holdings in Vanguard Funds, and Reportable Securities within the Accounts and Holdings section under My CrewNet/My Compliance on CrewNet.

    Quick Guide: Refer
    to the Trading and
    Reporting Requirements
    for Fund Access Persons
    document, which can be
    accessed from the Code
    of Ethics on CrewNet.

    QuarterlyTransaction Reports You must report to the Compliance Department, within 30 days after the end of each calendar quarter, any transactions in Reportable Securities, holdings in Vanguard Funds, 529 plans, and Annuity or Insurance products invested in Vanguard Funds held outside of Vanguard. You are not required to disclose transactions if the Compliance Department receives duplicate confirmations or statements within 30 calendar days after the end of each calendar quarter. If there are no transactions in Reportable Securities or new Covered Accounts to disclose, the report should state “None.”

    20


     

    Certification

    Requirements

    On an annual basis,
    you are required to
    acknowledge that
    you understand the
    Code of Ethics and
    will comply with its
    provisions.


     

    Annual Holdings Report – Each year, through the Annual Crew Certification, you must confirm that you have reported all Covered Accounts, Reportable Securities, and Vanguard mutual funds.

    For Fund Access Persons of Vanguard Investments Hong Kong, Limited (VIHK) the holdings disclosure requirement is semi-annual, including the provision of statements.

    8.3 Obligations for all Crew Members to Report Violations

    Any Crew Member who is aware of a violation of the Code should report the violation to his local Compliance Department immediately.

    Section 9. Certification Requirements

    9.1 Certification Requirements for all Crew Members

    9.1(a) What are the certification requirements as a new Crew Member?

    New Crew Certification All new Crew Members must certify to the Compliance Department, that (i) they have read and understand the Code, (ii) they will comply with all requirements of the Code, and (iii) they will report all required transactions.

    9.1(b) What are the annual certification requirements?

    Annual Crew Certification All Crew Members must certify annually that (i) they have read and understand the Code, (ii) they have and will continue to comply with all requirements of the Code, and (iii) they will report all required transactions. In addition, Fund Access and VAI Access Persons must confirm that they have reported all Covered Accounts and Reportable Securities required pursuant to the requirements of the Code.

    Section 10. Sanctions

    Potential violations of the Code will be investigated by your local Compliance Department. All violations of the Code will be reported to the Vanguard CCO. The Compliance Department (as authorized by the CCO) will impose whatever sanctions are considered to be necessary and appropriate under the circumstances and in the best interests of Vanguard Clients. These sanctions, subject to local laws, may include, without limitation, bans on personal trading, disgorgement of trading profits, and personnel action, including termination of employment, where appropriate.

    The CCO, in his or her discretion, may waive compliance with any particular provision of this Code if he or she deems it necessary to avoid an unjust result and there is no apparent conflict of interest.

    Section 11. Vanguard Expatriates

    If you have been seconded from your country of employment (“Home Country”) to an overseas affiliate (“Host Country”), you must follow the following reporting requirements:

    All Outside Business Activities preclearance requests must be submitted to the Home Country for approval.

    All gifts and entertainment must be submitted to the Host Country for approval.

    Where applicable, any application for preapproval of personal account dealing and associated account holdings and trade reporting must be submitted to the Home Country.

    22


     

    Appendices

    Appendix A.

    Definitions

    Appendix B.

    Additional Personal Trading Activities

    Appendix C.

    Independent Directors and Trustees (U.S. Crew Only)


     

    Appendix A. Definitions

    The following definitions apply throughout the Code.

    American Depository Receipts (ADRs) A receipt that represents a specific number of shares of a foreign-based corporation held by a U.S. bank and entitles the holder to all dividends and capital gains. Through ADRs, investors can buy shares of foreign-based companies in the United States instead of in foreign markets.

    Automatic Investment Program

    A program in which regular periodic purchases (or withdrawals) are made automatically in (or from) Investment accounts, according to a predetermined schedule and allocation. An Automatic Investment Program includes a dividend reinvestment plan.

    Bankers’ Acceptance

    A money market instrument guaranteed by a bank; it is generally used by nonfinancial firms for international trade.

    Beneficial Ownership

    The opportunity to directly or indirectly—through any contract, arrangement, understanding, relationship, or otherwise—share at any time in any economic interest or profit derived from an ownership of or a transaction in a Security. You are deemed to have Beneficial Ownership in the following:

    Any Security owned individually by you.

    Any Security owned by an Immediate Family Member.

    Any Security owned in joint tenancy, as tenants in common, or in other joint ownership arrangements.

    Any Security in which an Immediate Family Member has Beneficial Ownership if the Security is held in an account over which you have decision-making authority (e.g., you act as a trustee, executor, or guardian, or you provide Investment advice).

    Your interest as a general partner or manager/ member in Securities held by a general or limited partnership or limited liability company.

    Your interest as a member of an Investment club or an organization that is formed for the purpose of investing in a pool of monies or Securities.

    Your ownership of Securities as a trustee of a trust in which either you or an Immediate Family Member has a vested interest in the principal or income of the trust or your ownership of a vested interest in a trust.

    Securities owned by a corporation which is directly or indirectly controlled by, or under common control with, such person.

    Bond

    A debt security (“IOU”) issued by a corporation, government, or government agency in exchange for the money the bondholder lends it.

    Bribery

    The act of making an illegal payment from one party to another, usually in return for a legal or financial favor.

    Brokerage Account

    Any account where a Crew Member can transact in Securities, including Automatic Investment Programs, employee stock purchase programs, and employee stock option programs.

    Certificate of Deposit (CD)

    An insured, interest-bearing deposit at a bank that requires the depositor to keep the money invested for a specified period.

    Closed-End Fund

    A fund that offers a fixed number of shares. The fixed number of shares outstanding are offered during an initial subscription period, similar to an initial public offering. After the subscription period is closed, the shares are traded on an exchange between investors, like a regular stock.

    Commercial Paper

    A promissory note issued by a large company in need of short-term financing.

    24


     

    Contract for Difference (CFD)

    A contract between two parties, typically described as buyer and seller, stipulating that the seller will pay the difference between the current value of an asset and its value at contract time. (If the difference is negative, then the buyer pays instead of the seller.)

    Covered Account

    A Brokerage Account or any other type of account that holds, or is capable of holding, Reportable Securities.

    Covered Security

    Any Security (as defined below), other than (i) Direct Obligations of a Government; (ii) Bankers’ Acceptances, bank Certificates of Deposit, Commercial Paper, and High-Quality Short-Term Debt Instruments, including Repurchase Agreements; (iii) shares issued by Open-End Investment companies (although for European subsidiaries, this is limited to UCITS schemes, a non-UCITS retail scheme, or another fund that is subject to supervision under the law of an EEA state which is an index fund or which requires an equivalent level of risk spreading in their assets); (iv) life policies; and (v) exchange-traded funds and exchange-traded notes.

    Crew Member

    All employees, officers, directors, and trustees of Vanguard or a Vanguard fund.

    Debenture

    An unsecured debt obligation backed only by the general credit of the borrower.

    Direct Obligations of a Government

    A debt that is backed by the full taxing power of any government. These Securities are generally considered to be of the very highest quality.

    Evidence of Indebtedness

    Written agreements for enforceable obligations to pay money.

    Exchange-Traded Fund (ETF)

    An investment with characteristics of both mutual funds and individual stocks. Many ETFs track an index, a commodity, or a basket of assets. Unlike mutual funds, ETFs can be traded throughout the day. ETFs often have lower expense ratios but must be purchased and sold through a broker, which means you may incur commissions.

    Exchange-Traded Note (ETN)

    A senior, unsecured, unsubordinated debt Security issued by a financial institution, backed only by the credit of the issuer. ETNs have a maturity date but typically pay no periodic coupon interest and offer no principal protection. At maturity, an ETN investor receives a cash payment linked to the performance of the corresponding index, less fees.

    Fund Access Person

    Any officer, director, or trustee of Vanguard or a Vanguard Fund, excluding Independent Directors and Trustees, and any Crew Member who, in the course of his or her regular duties, participates in the selection of a Vanguard Fund’s Securities or who works in a Vanguard department or unit that has access to information regarding a Vanguard Fund’s impending purchases or sales of Securities. For Crew Members who are not officers, the Compliance Department designates Fund Access Persons by department number.

    Quick Guide: Refer to
    the Fund Access Person
    Departments document,
    which can be accessed
    from the Code of Ethics
    on CrewNet.

    Futures/Futures Contract

    A contract to buy or sell specific amounts of a commodity or financial instrument (such as grain, a foreign currency, or an index) for an agreed-upon price at a certain time in the future. Sometimes the arrangements in a contract prescribe that settlements are made through cash payments, rather than the delivery of physical goods or Securities; this is called Contract for Difference.

    25


     

    High-Quality Short-Term Debt Instrument An instrument that has a maturity at issuance of less than 366 days and that is rated in one of the two highest ratings categories by a nationally recognized statistical rating organization, or an instrument that is unrated but determined by Vanguard to be of comparable quality.

    Immediate Family Members Your spouse, domestic partner (an unrelated adult with whom you share your home and contribute to each other’s support), and minor children.

    Independent Directors and Trustees

    Any director or trustee who is not an “interested person” of a Vanguard fund within the meaning of Section 2(a)(19) of the Investment Company Act of 1940.

    Initial Public Offering (IPO)

    A corporation’s first offering of common stock to the public.

    Investment

    A monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price.

    Investment Contract

    Any contract, transaction, or scheme whereby a person invests money in a common enterprise and is led to expect profits solely from the efforts of the promoter or third party.

    Investment Discretion

    The authority an individual may exercise, with respect to investment control or trading discretion, on another person’s account (e.g., executor, trustee, or power of attorney).

    Money Market Fund

    A mutual fund that seeks income, liquidity, and a stable share price by investing in very short-term investments. Money market funds are suitable for the cash reserves portion of a portfolio or for holding funds you’ll need soon.

    Non-Access Person

    Any Crew Member who is not a Fund Access Person or Vanguard Advisers, Inc. (VAI) Access Person.

    Note

    A financial security that generally has a longer term than a bill, but a shorter term than a bond. However, the duration of a note can vary significantly and may not always fall neatly into this categorization. Notes are similar to bonds in that they are sold at, above, or below face (par) value; make regular interest payments; and have a specified term until maturity.

    Open-End Fund

    A mutual fund that has an unlimited number of shares available for purchase.

    Option

    The right, but not the obligation, to buy (for a call Option) or sell (for a put Option) a specific amount of a given stock, commodity, currency, index, or debt, at a specified price (the strike price) during a specified period or on one particular date.

    Private Placement

    The sale of securities to a relatively small number of select investors (as opposed to a public issue, in which Securities are made available for sale on the open market) in order to raise capital. Investors involved in private placements are usually large banks, mutual funds, insurance companies, and pension funds.

    Private Securities Transaction

    An Investment in an enterprise or unregistered security that is not typically held in a traditional Brokerage Account. They are personal Securities outside of Vanguard, which includes interests in limited partnerships, Private Placements, or restricted stock.

    26


     

    Real Estate Investment Trust (REIT)

    A publicly traded company that invests in real estate and distributes almost all of its taxable income to shareholders. REITs often specialize in a particular kind of property. They can, for example, invest in real estate such as office buildings, shopping centers, or hotels; purchase real estate (an equity REIT); and provide loans to building developers (a mortgage REIT). REITs offer the opportunity for smaller investors to invest in real estate.

    Related Security

    Any Security or instrument that provides economic exposure to the same company or entity—provided, however, that equity instruments will not be considered related to fixed income instruments (other than convertible Bonds) and vice-versa. For example, all of the following instruments would be related to the common Stock of Company X: Options, Futures, Rights, and Warrants on Company X common Stock; preferred Stock issued by Company X; and Bonds convertible into Company X common Stock. Similarly, different Bonds issued by Company X would be related to one another.

    Reportable Securities

    Any Covered Security (as defined above), ETFs, and ETNs.

    Repurchase Agreement

    An arrangement by which the seller of an asset agrees, at the time of the sale, to buy back the asset at a specific price and, typically, on a given date.

    Rights

    A Security giving stockholders entitlement to purchase new shares issued by the corporation at a predetermined price (normally at a discount to the current market price) in proportion to the number of shares already owned. Rights are issued only for a short period of time, after which they expire.

    Security

    Any Stock, Bond, money market instrument, Note, evidence of indebtedness, debenture, Warrant, Option, Investment Contract, ETF, ETN, or any other Investment or interest commonly known as a Security.

    Short-Selling

    The sale of a Security that the investor does not own to take advantage of an anticipated decline in the price of the security. To sell short, the investor must borrow the security from a broker to make delivery to the buyer.

    Spread-Betting

    A way of trading that enables you to profit from the movement of a wide range of markets from shares to currencies, commodities and interest rates. It allows you to trade on whether the price quoted for these financial instruments will go up or down.

    Stock

    A Security that represents part ownership, or equity, in a corporation. Each share of stock is a proportional stake in the corporation’s assets and profits, some of which could be paid out as dividends.

    Unit Investment Trust (UIT)

    An SEC-registered Investment company that purchases a fixed, unmanaged portfolio of income-producing Securities and then sells shares in the trust to investors, usually in units of at least $1,000.

    Vanguard

    The Vanguard Group, Inc. (VGI) and any of its affiliates including, but not limited to, Vanguard Global Advisor’s Inc., Vanguard National Trust Company, Vanguard Advisor’s Inc., Vanguard Investments Australia Ltd, Vanguard Investments Hong Kong Ltd, Vanguard Investments Japan, Ltd, Vanguard Investments Singapore, Ltd, Vanguard Asset Services, Ltd, Vanguard Asset Management, Ltd (and any branch office thereof), Vanguard Investments, UK Ltd, Vanguard Investments Switzerland GmbH, Vanguard Group (Ireland) Limited, and Vanguard Investments Canada Inc.

    27


     

    Vanguard Advisers, Inc. (VAI) Access Person Any VAI officer, as well as any Crew Member who is involved in making Securities recommendations to VAI clients, or has significant levels of interaction or dealings with VAI clients for the purposes of providing VAI services to clients. For VAI Crew Members who are not officers, the Compliance Department designates access persons by department numbers.

    Quick Guide: Refer to
    the VAI Access Person
    Departments document,
    which can be accessed
    from the Code of Ethics
    on CrewNet.

    Vanguard Clients

    The clients of VGI, or any of its affiliates, and investors in the Vanguard Funds, including the Vanguard Funds themselves.

    Vanguard Expat

    A Crew Member employed by a Vanguard entity in a country other than the one in which he or she is working. For example, Vanguard sends you from your job in the Pennsylvania office to work for an extended period in its London office; once you are in London, you would be considered an expatriate or “expat.”

    Vanguard Funds

    The mutual funds, ETFs, and any other accounts sponsored or managed by Vanguard. This includes, but is not limited to, separately managed accounts and collective trusts.

    Vanguard Officers

    Those Vanguard Crew Members at a Principal-level position or higher.

    Warrant

    An entitlement to purchase a certain amount of common stock at a set price (usually higher than the current price) during an extended period of time. Usually issued with a fixed-income security to enhance its marketability, a warrant can be transferred, traded, or exercised by the holder.

    28


     

    Appendix B. Additional Personal Trading Activities

    B.1      Australia
    B.1(a)      What are the Vanguard Fund reporting

    requirements for Crew Members in Australia?

    Crew Members and their Immediate Family Members in Australia will be required to disclose their Vanguard Fund accounts in My CrewNet/ My Compliance but are not required to report transactions in Vanguard Funds to the local Compliance Department. For monitoring purposes, the local Compliance Department will access their records via the transfer agency system maintained at VIA, as required.

    Note: Trades in Vanguard ETFs are required to be reported, as these records are not held by VIA.

    B.2      Japan
    B.2(a)      What are the additional trading

    restrictions for Crew Members in Japan?

    Crew Members are prohibited from activities including, but not limited to, placing an order with other association members (i.e., Investment firms), for the sale, purchase, or other transaction in Securities, without obtaining prior written consent from their local Compliance Department; and engaging in margin transactions, Securities-related derivatives transactions, and specified OTC derivatives transactions on their own account.

    B.3      U.S. VAI Access Persons
    B.3(a)      What are the additional trading

    restrictions for U.S. Crew Members that are VAI Access Persons?

    You are subject to the following restrictions with respect to any transaction in which you will acquire any direct or indirect Beneficial Ownership:

    Prohibition on Private Placements. You are prohibited from acquiring Securities in a Private Placement without prior approval from your

    local Compliance Department. In the event you receive approval to purchase Securities in a Private Placement, you must disclose that Investment if you play any part in a Vanguard Client’s later consideration of an Investment in the issuer.

    Prohibition on IPOs. You are prohibited from acquiring Securities in an IPO.

    Prohibition on Short-Selling. You are prohibited from selling any Security that you do not own or otherwise engaging in “Short-Selling” activities.

    Prohibition on short-term trading. You are prohibited from purchasing and then selling any Covered Security at a profit, as well as selling and then repurchasing the Covered Security at a lower price within 60 calendar days. A last-in-first-out accounting methodology will be applied to a series of Securities purchases when applying this holding rule. If you realize profits on such short-term trades, you must relinquish the profits to The Vanguard Group Foundation (exclusive of commissions).

    Prohibition on short-term trading on options.

    You may hold options on a Covered Security until you exercise the options or the options expire. However, you may not otherwise close any open positions within 60 calendar days. If you realize profits on such short-term trades, you must relinquish such profits to The Vanguard Group Foundation (exclusive of commissions). For example, you would not be permitted to sell a Covered Security at $12 that you purchased within the prior 60 days for $10. Similarly, you would not be permitted to purchase a Covered Security at $10 that you had sold within the prior 60 days for $12.

    B.4 Non-U.S. Crew Members that have Discretionary Management Arrangements

    B.4(a) Do I need to report discretionary Investment management arrangements if I am a non-U.S. Crew Member that is a Fund Access Person?

    If you, your spouse, or domestic partner have an arrangement in place with a third party to manage Securities on a discretionary basis,

    29


     

    you must provide a copy of the discretionary management agreement to your local Compliance Department in advance of any transactions subject to the agreement. In addition, a Discretionary Management Approval Form must be submitted online via the Code of Ethics System, which is accessible through CrewNet.

    Web Resource – Complete the Discretionary Management Approval Form during account setup in My CrewNet/My Compliance.

    If your local Compliance Department deems that the arrangement does not allow any prior communication or instruction in connection with the transaction between you or your Immediate Family Member and the portfolio manager of the account, the arrangement will be approved. You and your Immediate Family Members will not need to obtain preclearance of trades or report transactions or holdings that are subject to such an arrangement. However, you will be required to provide holdings and transaction reports to your local Compliance Department. If your local Compliance Department does not approve the arrangement, then the general requirements of the Code will apply.

    Appendix C: Independent Directors and Trustees (U.S. Crew Only)

    Independent Directors and Trustees of the Vanguard Funds are required to report Securities transactions to the Compliance Department only when a transaction is completed within 15 days of a security being purchased or sold by a Vanguard Fund and the Director/Trustee had knowledge (or should have had knowledge) of the transaction.

    Additionally, the following Sections of the Code are applicable to Independent Directors and Trustees:

    Sections

    Standards of Conduct (excludes the

    Section 2

    reporting requirements for conflicts of interest)

    Section 5 Section 6

    Section 7

    Anti-Bribery Policy Duty of Confidentiality

    Personal Securities Activities 7.1(a) and 7.3 (first bullet)

     

    30


     

    Do the right thing


     


    © 2017 The Vanguard Group, Inc.

    All rights reserved.

    BBBBLVCN 112017

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