Schedule 14A Information

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]

Check the appropriate box: [ ] Preliminary Proxy Statement

[ ]Confidential, for Use of the Commission only (as permitted by Rule 14a-6(e)(2))

[ ] Definitive Proxy Statement

[X] Definitive Additional Materials

[ ] Soliciting Material under Rule 14a-12

Vanguard Admiral Funds
Vanguard Bond Index Funds
Vanguard CMT Funds
Vanguard California Tax-Free Funds
Vanguard Charlotte Funds
Vanguard Chester Funds
Vanguard Convertible Securities Fund
Vanguard Explorer Fund
Vanguard Fenway Funds
Vanguard Fixed Income Securities Funds
Vanguard Horizon Funds
Vanguard Index Funds
Vanguard Institutional Index Funds
Vanguard International Equity Index Funds
Vanguard Malvern Funds
Vanguard Massachusetts Tax-Exempt Funds
Vanguard Money Market Reserves
Vanguard Montgomery Funds
Vanguard Morgan Growth Fund
Vanguard Municipal Bond Funds
Vanguard New Jersey Tax-Free Funds
Vanguard New York Tax-Free Funds
Vanguard Ohio Tax-Free Funds
Vanguard Pennsylvania Tax-Free Funds
Vanguard Quantitative Funds
Vanguard Scottsdale Funds
Vanguard Specialized Funds
Vanguard STAR Funds

 

Vanguard Tax-Managed Funds
Vanguard Trustees’ Equity Fund
Vanguard Valley Forge Funds
Vanguard Variable Insurance Funds
Vanguard Wellesley Income Fund
Vanguard Wellington Fund
Vanguard Whitehall Funds
Vanguard Windsor Funds
Vanguard World Funds

(Name of Registrant as Specified in its Declaration of Trust)

 

 

 

 

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General proxy questions

What is a proxy?

A proxy is the legal authority or means to permit a shareholder’s vote to be registered without his or her physical presence at an annual or special shareholder meeting. Shareholders may vote their proxy by mail, over the phone, or online.

Why is Vanguard conducting a shareholder meeting and proxy?

Most importantly, shareholders are being asked to elect all fund trustees. Trustees oversee the funds to make sure they effectively serve the interests of shareholders. Shareholders are also being asked to vote on several fund policy proposals that will help Vanguard manage the funds more efficiently and effectively. Vanguard’s fund trustees believe that the policy proposals, if approved, will give the funds more operational flexibility and will be in the best interests of their shareholders.

Which Vanguard funds are involved in the proxy?

The 2017 proxy involves all U.S.-domiciled Vanguard funds. Click here for a complete list of funds.

Who can vote?

Generally speaking, any person who owns shares of a U.S.-domiciled Vanguard fund on the “record date” of August 16, 2017, can vote, even if that person later sells those shares. This includes investors living outside the United States who are invested in a U.S.-domiciled Vanguard fund. However, there may be instances in which the authority to vote resides with a retirement plan sponsor or financial advisor.

When does voting occur?

Voting by proxy will start on August 16, 2017. Shareholders can vote once they receive their proxy materials after that date. Voting concludes on November 15, 2017, at the Joint Special Meeting of Shareholders in Scottsdale, Arizona.

What is a Special Meeting of Shareholders?

A Special Meeting of Shareholders is a meeting called by a fund’s board of trustees to obtain a shareholder vote on one or more proposals. In this case, a Joint Special Meeting will be held so that shareholders of multiple funds can participate at the same meeting. Vanguard shareholders have the right to vote on important proposals concerning the fund or funds that they own. The vast majority of Vanguard shareholders vote by proxy in advance of the meeting rather than by attending in person.

How often do the Vanguard funds hold shareholder meetings?

The Vanguard funds hold shareholder meetings only when shareholder approval is required to move forward with a particular transaction or policy change or, as in this case, when appropriate to address the composition of the board of trustees and make several fund policy changes. The last time the Vanguard funds held a shareholder meeting to elect trustees was in 2009.

Why is my vote important?

Vanguard fund shareholders are owners of the funds, so their participation in the voting process is important for the funds to be able to elect trustees and operate more efficiently and effectively. Vanguard is asking shareholders to vote promptly so that the funds can avoid the extra cost of seeking the required level of shareholder participation before voting concludes at the shareholder meeting on November 15, 2017.

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How do I vote?

Shareholders may vote in one of four ways:

(1) Online, at the website listed on your proxy card or voting instruction card. Follow the on-screen instructions.

(2) By phone, by calling the number listed on your proxy card or voting instruction card. Follow the recorded instructions, available 24 hours a day.

(3) By mail, by signing and dating the proxy card or voting instruction card and returning it using the postage-paid envelope.

(4) In person, at the shareholder meeting on November 15, 2017, at the DoubleTree Paradise

Valley-Scottsdale, 5401 N. Scottsdale Rd., Scottsdale, Arizona 85250.

We encourage shareholders to vote online or by phone, using the voting control number and security code that appear on their proxy card or the voting control number that appears on their voting instruction card. These methods save the Vanguard funds the most money, as they require no return postage.

What if I want to change my vote?

If you would like to change your previous vote, you may vote again using any of the methods described above. The last vote that the shareholder casts is the one that counts.

What is a proxy card?

A proxy card is a ballot used to vote by mail.

What is a voting instruction card?

A voting instruction card is another kind of ballot used to vote by mail. Voting instruction cards are provided to fund shareholders who invest through certain intermediaries including Vanguard Brokerage Services. In these cases, shareholders are instructing their intermediaries as to how they want their shares voted. The intermediaries then place the votes pursuant to the shareholder’s instructions.

Why didn’t I get a proxy statement and proxy card or voting instruction card?

A shareholder must hold one or more U.S.-domiciled Vanguard funds as of the record date of August 16, 2017. Also, you should verify the following:

• Do you own shares through a broker-dealer or bank?

ê If so, check with your broker or bank.

• If you are signed up for e-delivery of proxy statements, confirm that your email address is correct on vanguard.com.

• If you are not signed up for e-delivery, confirm your mailing address at vanguard.com.

• Are you invested only in an institutional or 529 plan held directly with Vanguard?

ê If yes, then it is possible that the plan sponsor or State plan sponsor has the voting authority. If that is the case, you would not have received proxy materials.

• If you’re still unable to locate voting materials, call 866-963-5746 to speak with a Computershare representative.

What should I do if my security code and/or control number is not working?

For all technical difficulties, shareholders should call Computershare at 866-963-5746 to speak with a representative.

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During what hours is the Computershare voting call center open?

The touch-tone voting service is available 24 hours a day. Computershare representatives are available to take votes and answer questions Monday through Friday from 9 a.m. to 11 p.m. Eastern time and Saturdays from noon to 6 p.m. Eastern time.

If voting by mail, how should I sign the proxy card or voting instruction card?

Shareholders should sign their name exactly as it appears on the proxy card or voting instruction card they received along with their proxy statement. For a joint account, either owner of the account may sign the card, but one of the joint owners must sign the name exactly as it appears on the card. The proxy card or voting instruction card for other types of accounts should be signed in a way that indicates the signer’s authority—for example, “John Brown, Custodian.”

If I lose my return envelope, where should I mail my proxy card to vote?

Shareholders are not required to mail their proxy cards, and they may vote by phone or online using the information on their proxy card or voting instruction card. However, if you wish to mail your vote, send your completed proxy card or voting instruction card to: PROXY TABULATOR, PO Box 43131, Providence, RI 02940-9920.

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Proposal to elect trustees for each fund

(For all shareholders of U.S.-domiciled funds)

Each fund’s board of trustees recommends a vote FOR this proposal.

What is the current composition of the board for each fund?

There are currently ten trustees on the board for each fund. Nine are independent, meaning they have no affiliation with Vanguard or the funds apart from any investments they may choose to make as private individuals.

Vanguard’s chief executive officer, F. William McNabb III, serves as chairman of the board and Mark Loughridge serves as lead independent trustee.

Why are fund shareholders being asked to elect trustees?

Obtaining shareholder approval of the full slate of trustee nominees will enable the new nominees (who were not previously elected by shareholders)—Mortimer J. Buckley, Deanna Mulligan, and Sarah Bloom Raskin—to join each fund’s board of trustees. Each fund’s board will then (i) be 100% elected by shareholders and (ii) will have flexibility for future appointments as circumstances warrant.

Shareholders must elect at least one-half of a fund’s board of trustees. In addition, a fund’s board can fill any board vacancies by appointment only if, immediately after the board fills the vacancy, at least two-thirds of the trustees are ones whom shareholders had elected. The ability to appoint is important, because without it the funds would have to hold expensive shareholder meetings for each new trustee each time a vacancy needed to be filled. Given the current composition of the funds’ boards, however, the funds are not able to add new trustees through appointment.

Importantly, a long-serving elected trustee, Rajiv L. Gupta, plans to retire from each fund’s board at the end of December 2017.

 

2 If elected as trustee of the Vanguard funds, Mr. Buckley will be considered an “interested person,” as defined in the Investment Company Act of 1940, of each Vanguard fund because he also holds the position of president of Vanguard.

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3 Mr. McNabb is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the Vanguard funds and because of his position at Vanguard.

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4 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 adviser. 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.

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How many of the nominees will be independent trustees if elected?

Ten of the twelve nominees—all but Mr. McNabb and Mr. Buckley—will be independent trustees if elected by shareholders.

How many of the trustee nominees have ownership shares in Vanguard funds?

All the nominees allocate personal assets among the Vanguard funds according to their own investment needs. Each nominee owns more than $100,000 worth of shares of Vanguard funds. As a group, each fund’s nominees own less than 1% of the outstanding shares of that fund.

How are the boards of each Vanguard fund structured?

The Vanguard funds are grouped into 37 separate trusts. Each trust is made up of one or more Vanguard funds (which are sometimes called “series” of the trust). Funds that are part of the same trust elect their trustees jointly.

The same individuals currently serve as trustees for all the Vanguard funds. There are important benefits in having the board of each fund include trustees who serve on the boards of the other Vanguard funds. Service on multiple fund boards gives the trustees greater familiarity with operations that are common to all Vanguard funds. Such service also permits the trustees to address common issues knowledgeably and consistently. It also avoids the substantial additional costs, administrative complexities, and redundancies that would result from having a different board of trustees for every Vanguard fund.

Although there are many areas of common interest among the funds, the trustees recognize that they are responsible for exercising their responsibilities at all times on a fund-by-fund basis.

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How long will each trustee serve if elected?

If elected, each trustee will serve until he or she resigns, retires, or is removed from the board as provided in the fund’s governing documents. The trustees believe that, as a general matter, each trustee should retire from the board no later than the end of the year in which the trustee attains age 72. However, the trustees believe that a majority of the independent trustees should be permitted to allow any independent trustee who attains age 72 to continue to serve on the board for a temporary period (not to exceed one year) if exceptional circumstances are present and if a temporary extension of service is determined to be in the best interests of the Vanguard funds.

A trustee may be removed from the board by a shareholder vote representing two-thirds of the total combined net asset value of all fund shares under the same trust. If a nominee is unable to accept election, or subsequently leaves the board before the next election, the board of trustees may, in its discretion, select another person to fill the vacancy.

What are the responsibilities of the board of each fund?

The primary responsibility of the board of trustees of each fund is to oversee the management of the fund for the benefit of shareholders. Each board has a supermajority of independent trustees who are not “interested persons” of the funds. Mr. McNabb and Mr. Buckley would be the only interested trustees on the funds’ boards. The independent trustees bring a broad range of relevant backgrounds, experience, and skills to the boards, particularly in those domains critical to the funds and their shareholders.

In exercising their oversight responsibilities, the trustees focus on matters they determine to be vitally important to fund shareholders. This includes not only the management, performance, and risk management of the funds, but also the approval of arrangements with material service providers (e.g., fund custodians).

The investment acumen, experience, and objective thinking of the independent trustees are invaluable assets for the funds’ shareholders and Vanguard management. Holding management accountable to a group of independent, highly experienced, and qualified individuals who act solely on behalf of shareholders makes management more effective in the long run.

Each fund’s board of trustees met seven times during its last fiscal year. No trustee attended fewer than 75% of the total meetings of the board and 75% of the total meetings of the board committees on which he or she serves.

How are trustees selected?

The independent trustees’ nominating committee nominates candidates for election to the board of trustees of each fund. Oversight of the funds and their management by a group of highly qualified trustees is critical to the long-term investment outcomes of our fund investors. To that end, the board has identified a range of capabilities relevant to the funds’ operations that the trustees—in aggregate—must bring to bear as fiduciaries for fund shareholders. The board expects that all trustees will be of the highest integrity, committed to acting solely in fund investors’ best interests, and have a track record of substantial professional accomplishment.

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The following table reflects the board’s assessment of each trustee’s background and its relevance to oversight of the funds:

Although each trustee and nominee may not be equally skilled in each area the board deems important, the board
believes that a variety of skills and experience—as well as diversity along dimensions such as age, tenure, gender,
and ethnicity—will result in a board uniquely suited to serve investors’ long-term interests.

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Proposal to approve a manager-of-managers arrangement with third-party investment advisors

(For all shareholders of funds listed here)

Each fund’s board of trustees recommend a vote FOR this proposal.

What are shareholders being asked to approve?

If approved, this proposal would allow 147 U.S.-domiciled Vanguard funds, including all Vanguard-managed index funds and 18 Vanguard-managed active funds, to enter into or materially amend investment advisory agreements with third-party investment advisors without first obtaining additional approval.

(Click here for a list of the affected funds.)

How will the funds and fund shareholders benefit from passage of this proposal?

If approved, this proposal would give the funds flexibility to enter into and materially amend investment advisory contracts without prior shareholder approval, potentially saving shareholders from additional fund expenses and delays associated with obtaining shareholder approval.

Vanguard has over 20 years of experience in identifying, evaluating, and monitoring investment advisors; selecting and refining investment objectives; and evaluating and negotiating low-cost advisory fees. Approval of this proposal would allow the funds to benefit from Vanguard’s expertise in recommending and monitoring the most suitable third-party investment advisors for the funds and negotiating competitive fees with those advisors.

In addition, approval of this proposal would bring consistency to the Vanguard fund complex by allowing all funds to benefit from the existing manager-of-managers arrangement when structuring their advisory arrangements, as several funds currently have this flexibility. Approval of this proposal would also give the Vanguard funds many of the same benefits enjoyed by a wide range of competitors that rely on similar permission to structure their advisory arrangements.

Lastly, having this flexibility would enhance the funds’ business continuity plans by providing an additional option for the funds to continue operating should an event, such as a natural disaster, significantly disrupt Vanguard’s operations.

If approved, what changes will the funds be able to make without prior shareholder approval?

If this proposal is approved, each fund’s board of trustees would be required to approve any new or amended advisory agreements and would continue to provide oversight of the investment advisor selection and engagement process. The trustees would periodically review and consider for renewal all investment advisory agreements with any third-party investment advisors.

Each fund will have the flexibility to enter into and materially amend an investment advisory agreement with a third-party advisor if the fund’s trustees approve the agreement or amendments. Once approved, a fund would be able to make the following changes without prior shareholder approval:

• A fund may reallocate its assets among existing advisors;

• A fund may allocate a portion of its assets to one or more advisors;

• A fund may replace existing advisors with a different advisor;

• A fund may continue an advisory agreement where a change of management control of the advisor would otherwise require shareholder approval.

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Will shareholders be notified in the event that a fund enters into or materially changes an investment advisory agreement with a new third-party advisor?

Within 90 days of hiring a new third-party advisor, Vanguard would provide a statement to shareholders containing certain information about the new advisor and the related advisory agreement.

Are there currently any plans to change a fund’s advisory arrangements based on this proposal?

No. Vanguard has not recommended, and no fund’s board of trustees has approved, any changes to a fund’s advisory arrangements in anticipation of receiving approval of this proposal.

What happens if shareholders do not approve this proposal?

If shareholders of a fund do not approve this proposal, then the fund will not be permitted to rely on the existing manager-of-managers arrangement and would be required to obtain shareholder approval before entering into or materially amending an investment advisory agreement with a third-party advisor.

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Proposal to approve a new manager-of-managers arrangement with wholly owned subsidiaries of Vanguard

(For all shareholders of U.S.-domiciled funds)

Each fund’s board of trustees recommends a vote FOR this proposal.

What are shareholders being asked to approve?

If approved, and pending approval of a U.S. Securities and Exchange Commission (SEC) exemptive application, this proposal would enable all U.S.-domiciled Vanguard funds to enter into or materially amend investment advisory agreements with wholly owned subsidiaries of Vanguard.

How will the funds and fund shareholders benefit from the passing of this proposal?

If approved, this proposal would give the funds flexibility to enter into and materially amend investment advisory contracts with third-party investment advisors and wholly owned subsidiaries of Vanguard without first obtaining additional shareholder approval. This flexibility could potentially save shareholders additional fund expenses and delays associated with obtaining shareholder approval.

Approving this proposal would also allow the funds to leverage certain capabilities of Vanguard’s non-U.S. subsidiaries, which would be particularly valuable for funds that transact in non-U.S. markets. More specifically, funds would benefit from the ability to participate in the new-issue market outside of normal U.S. business hours, leverage relationships with brokers in local markets, and gain access to local issuers through investor calls and in-person meetings.

Lastly, having this flexibility would enhance the funds’ business continuity plans by providing an additional option for the funds to continue operating should an event, such as a natural disaster, significantly disrupt Vanguard’s operations.

How is this proposal different from the proposal seeking approval of the existing manager-of-managers arrangement with third-party investment advisors?

The proposal to approve an existing manager-of-managers arrangement with third-party investment advisors seeks shareholder approval to rely on existing SEC permission that was granted in 1993. It permits funds to enter into and materially amend investment advisory agreements with third-party investment advisors, but it does not extend to agreements with wholly owned subsidiaries of Vanguard. The proposal to approve a new manager-of-managers arrangement with wholly owned subsidiaries of Vanguard would allow the funds to enter into or materially amend investment advisor agreements with both third-party investment advisors and wholly owned subsidiaries of Vanguard, provided that the SEC grants the funds’ application for permission.

Why are shareholders being asked to vote on both manager-of-managers proposals?

Although the SEC has issued a large number of similar manager-of-managers orders, there is no guarantee it will grant the funds’ requested permission. If the SEC denies the funds’ request for a new managers-of-managers arrangement, the funds would not be able to enact the new arrangement even if shareholders approve the manager-of-managers proposal involving wholly owned subsidiaries.

How does the proposal support the best interests of fund shareholders?

If the SEC grants the funds’ requested permission and shareholders approve this proposal, then under the new manager-of-managers arrangement, each fund’s board of trustees would be required to approve any new or amended advisory agreements and would continue to provide oversight of the investment advisor selection and engagement process.

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In addition, whenever Vanguard recommends an investment advisory change for a fund involving one of Vanguard’s wholly owned subsidiaries, the board of trustees of the fund must find that such change is in the best interests of the fund and its subsidiaries and does not involve a conflict of interest from which Vanguard or its wholly owned subsidiary derives an inappropriate advantage. Each year, a fund’s board of trustees would review and consider for renewal all investment advisory agreements with any third-party investment advisors.

If approved, what changes will the funds be able to make without prior shareholder approval?

In addition to shareholder approval, the SEC would need to grant Vanguard’s request for permission before the funds could proceed. Assuming both conditions are met, a fund would be able to make the following changes without prior shareholder approval:

• A fund may reallocate its assets among existing advisors, including Vanguard;

• A fund may allocate a portion of its assets to one or more additional advisors, including a wholly owned subsidiary of Vanguard;

• A fund may replace an existing advisor with a different advisor, including a wholly owned subsidiary of Vanguard;

• A fund may continue an advisory agreement when a change of control of the advisor would otherwise require shareholder approval.

Will shareholders be notified in the event that a fund enters into or materially changes an investment advisory agreement?

Within 90 days of hiring a new advisor, the fund must provide to shareholders an information statement, and/or notice of availability of such an information statement on a website, that contains certain information about the new advisor and the related advisory agreement.

Are there currently any plans to change a fund’s advisory arrangements based on this proposal?

No. Vanguard has not recommended, and no fund’s board of trustees has approved, any changes to a fund’s advisory arrangements in anticipation of receiving approval of this proposal.

What happens if shareholders do not approve this proposal?

If shareholders of a fund do not approve the proposal, then the fund will not be permitted to rely on the new manager-of-managers arrangement and would be required to obtain shareholder approval before entering into or materially amending an investment advisory agreement with a wholly owned subsidiary of Vanguard.

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Proposal to change the funds’ investment objective

(For shareholders of Vanguard REIT Index Fund and the REIT Index Portfolio of Vanguard Variable Insurance Fund)

Each fund’s board of trustees recommends a vote FOR this proposal.

What are shareholders being asked to approve?

This proposal solicits shareholder approval to change the investment objective of Vanguard REIT Index Fund and Vanguard Variable Insurance Fund REIT Index Portfolio, as shown here:

 

This change in the objective will allow for a change to the benchmark index of the two funds from the MSCI US REIT Index to the MSCI US Investable Market Real Estate 25/50 Index. This will result in a corresponding name change for the funds, as shown below.

 

Why are these changes being proposed?

In September 2016, several changes were made to the Global Industry Classification Standard (GICS) methodology, an industry-recognized approach to classifying global market sectors, that resulted in the addition of real estate as an 11th GICS sector. This sector now encompasses equity real estate investment trusts (REITs), including certain additional specialized REITs, along with real estate management and development companies.

The changes to the investment objective of the funds are being proposed because they will:

• Align the funds with the updated GICS methodology.

• Broaden the Vanguard funds’ sector lineup for the equities market by allowing the funds to invest not just in equity REITs but also in all real estate-related securities in the sector, which is not currently in our lineup.

• Provide additional investment capacity.

Overall, these changes will align the funds with the newly constituted real estate sector and enable investors in Vanguard’s sector equity index funds to have broader market exposure, effectively increasing the market capitalization of the two funds by approximately 20%. The change will also provide additional investment capacity for the funds, which helps mitigate the impact of limits on how much of any one REIT an investor can own.

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If this proposal is approved, the funds will change their benchmark from the MSCI US REIT Index to the MSCI US

Investable Market Real Estate 25/50 Index.

Why is a shareholder vote required to change the investment objective?

To change the benchmark index of the funds and align them with the new real estate sector, shareholders must approve the change to the investment objective to encompass equity REITs and real estate-related securities. This is required because the investment objective of Vanguard REIT Index Fund and Vanguard Variable Insurance Fund REIT Index Portfolio was established as a fundamental investment policy, so it can be changed only with shareholder approval.

Although the funds seek to provide exposure to publicly traded equity REITs, their investment objective does not currently allow for investment in certain specialized REITs and real estate management and development companies.

What are some of the key characteristics of the existing and proposed new benchmark indexes?

Here is a comparison of the two benchmark indexes:

 

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Will changing the benchmark index require the funds to change their names?

Yes, because the funds currently invest exclusively in U.S. publicly traded equity REITs. The proposed benchmark index includes additional specialized REITs (a type of equity REIT) and real estate management and development companies. Therefore, changing each fund’s name more accurately reflects the securities in which each one seeks to invest.

 

Why will the REIT Index Fund be using a transition index?

The use of a transition index is expected to reduce the transaction costs associated with trading large amounts of securities in a short period. Accordingly, the REIT Index Fund’s board of trustees has determined the use of a transition index to be in the best interests of shareholders.

During the six-month transition, the REIT Index Fund will sell positions in its current holdings while proportionally adding exposure to additional specialized REITs and real estate management and development companies based on each security’s weight in the index. To reduce transaction costs, the REIT Index Fund will seek to track a transition index, the MSCI US Investable Market Real Estate 25/50 Transition Index, for the duration of the transition. The transaction costs for the REIT Index Fund’s transition are expected to be moderate. SEC filings will be made when the REIT Index Fund begins tracking the transition index and again at the conclusion of the transition, at which time the fund will begin to track the MSCI US Investable Market Real Estate 25/50 Index.

When do you expect the REIT Index Fund’s transition to the new index to start?

The REIT Index Fund’s transition to the new benchmark index is contingent upon obtaining shareholder approval of the new investment objective. If shareholders approve the change, then the transition is expected to begin in early 2018. To protect the REIT Index Fund and its investors and to diminish the ability of other investors to trade “in front” of the REIT Index Fund, more specific information regarding the timing of the transition will not be publicly provided.

When do you expect the REIT Index Fund’s transition to the new index to be completed?

Because of the REIT Index Fund’s size and the degree of trading required, the transition is expected to occur over a six-month period. The transition index will be used to minimize transaction costs.

Will a transition index be used for Vanguard Variable Insurance Fund REIT Index Portfolio?

No, the REIT Index Portfolio will not require a transition index because the portfolio is small enough to allow for a transition to the new benchmark index in a shorter time. Because the portfolio is smaller, the transition to the new index will not result in the same level of costs that are associated with transitioning a larger fund, like the REIT Index Fund, to a new index.

Will the benchmark index change result in expense ratio changes for the funds?

No, the benchmark index change is not expected to result in a change to the expense ratio for Vanguard REIT Index Fund or Vanguard Variable Insurance Fund REIT Index Portfolio.

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Will the benchmark index changes trigger capital gains distributions for the funds?

Capital gains distributions are not expected to occur as a result of the benchmark changes. However, actual costs depend on multiple variables, most importantly market conditions at the time of each transition.

Will tracking the broader benchmark indexes lead to better performance for the funds?

This change is not intended to improve or “chase” returns. The new benchmark index will provide broader real estate exposure for investors in the funds. We are continually focused on the long term, and we believe that over time, investors will benefit from broader real estate exposure. In addition, the new benchmark index will provide broader real estate exposure for investors who use our sector lineup for portfolio construction.

Do you expect the benchmark index change to result in higher tracking error for the REIT Index Fund?

During the six-month trading/transition period, the REIT Index Fund will sample and replicate the transition benchmark. As a result, the fund is expected to temporarily incur a slightly higher tracking error. After the transition, the tracking error is expected to narrow.

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Proposal to reclassify the diversification status to nondiversified

(For shareholders of Vanguard REIT Index Fund)

The fund’s board of trustees recommends a vote FOR this proposal.

Why is the REIT Index Fund proposing to change its diversification status?

Changing the diversification status of the REIT Index Fund from diversified to nondiversified, as defined by the Investment Company Act of 1940 (the “1940 Act”), is being proposed to provide additional flexibility to the fund to track its benchmark index, as such tracking can be more challenging for a diversified fund investing in a specific industry sector. By moving to a nondiversified status, the REIT Index Fund will be able to own securities in its index in the appropriate weight as the fund continues to grow. Changing the diversification status of the REIT Index Fund will also align the fund with the diversification status of Vanguard’s other sector equity index funds.

What does “diversified” mean, as defined by the 1940 Act?

Under the 1940 Act, a mutual fund is designated as diversified or nondiversified, depending in part on its ownership of the issuers in which the fund invests. A “diversified” mutual fund must abide by certain rules that limit aggregate ownership of securities in the fund’s investment portfolio. For example, diversified funds are limited in their ability to own more than 10% of the voting stock of single issuers. Some industry sectors, such as the REIT market, are more concentrated than others and therefore can present challenges for large diversified funds seeking to invest in securities in such sectors.

If the proposal is approved, additional disclosure related to nondiversification risk will be required in the prospectus, but the day-to-day management of the REIT Index Fund will remain the same.

The REIT Index Fund must continue to comply with Internal Revenue Code asset diversification requirements.

Shareholders of the REIT Index Fund approved changing the fund’s diversification status to nondiversified in 2002. Why is shareholder approval required again?

The REIT Index Fund operated as a diversified fund for three consecutive years after the 2002 shareholder approval, meaning it did not hold more than 10% of the voting stock of a single issuer or otherwise operate as nondiversified. Under the 1940 Act, the REIT Index Fund was then automatically reclassified as diversified; that change did not require shareholder approval. However, the 1940 Act does require that shareholder approval must be obtained for the REIT Index Fund to change its status from diversified to nondiversified.

Will the REIT Index Fund’s principal risks change if the fund becomes nondiversified?

The REIT Index Fund will continue to invest in securities represented in its benchmark index and will operate as a nondiversified fund only as necessary to track its benchmark index. In such a case, the REIT Index Fund’s risk profile may increase, because a nondiversified fund may invest a greater percentage of its assets in a particular issuer or a group of issuers or may own more of an issuer’s voting stock than a diversified fund.

Are other Vanguard funds nondiversified?

Yes, currently 27 Vanguard funds have a nondiversified status, including all Vanguard sector equity index funds.

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Proposal to adopt the Funds’ Service Agreement

(For shareholders of Vanguard Institutional Index Fund and Vanguard Institutional Total Stock Market Index Fund)

Each fund’s board of trustees recommends a vote FOR this proposal.

What is the Funds’ Service Agreement (FSA)?

All publicly available Vanguard funds, except for Vanguard Institutional Index Fund and Vanguard Institutional Total Stock Market Index Fund, operate under an “internalized” management structure in accordance with exemptive orders issued by the SEC and with a service agreement among all the other funds and Vanguard. The FSA sets the terms under which the Vanguard funds capitalize, operate, and share the expenses of Vanguard. Under the FSA, Vanguard and its affiliates provide corporate management, administrative, transfer agency, distribution, and investment advisory services to the funds based on Vanguard’s cost of operations.

Why has the board decided to approve the adoption of the FSA by the two institutional funds?

The board’s decision was based on the best interests of shareholders of both funds and the benefits that shareholders are expected to derive from each of the funds’ becoming a party to the FSA. Vanguard Institutional Index Fund and Vanguard Institutional Total Stock Market Index Fund are the only publicly offered Vanguard mutual funds that are not parties to the FSA. Harmonizing the funds’ advisory and distribution arrangements offers the potential for lower costs, broader access to lower-cost share classes, and operational effectiveness for institutional fund shareholders.

In addition, each Vanguard fund that is currently a party to the FSA might benefit from long-term shared economies of scale by bringing in the assets of the institutional funds and spreading Vanguard’s cost allocation methodology over those funds along with the existing member funds.

What is the impact on the institutional funds if shareholders approve adopting the FSA?

If shareholders approve the institutional funds’ adoption of the FSA, Institutional class shareholders of both funds are expected to see immediate expense ratio reductions as outlined below:

Institutional Index Fund and Institutional Total Stock Market Index Fund

 

In addition, by combining the assets of the institutional funds along with those of all other publicly available Vanguard mutual funds and by sharing in the economies of scale that derive from the growth of the Vanguard fund complex, the institutional funds could potentially see additional expense ratio reductions in the future.

Page 22

 

Will the institutional funds’ minimum initial investments change if shareholders approve the funds’ adoption of the FSA?

Yes. If shareholders approve the institutional funds’ adoption of the FSA, shareholders of the institutional funds could see immediate broader access to lower-cost share classes through the proposed reduction of minimum initial investments as outlined below:

 

 

What are the differences between the institutional funds’ advisory/distribution arrangements and those in the FSA?

The FSA describes the terms under which almost all of Vanguard’s U.S.-domiciled funds capitalize, operate, and share the expenses of Vanguard. Under the FSA, Vanguard and Vanguard Marketing Corporation provide investment advisory and distribution services based on Vanguard’s cost of operations.

The institutional funds are the only publicly available U.S.-domiciled Vanguard funds that are not a party to the FSA. Rather, they receive services pursuant to two separate agreements in which they pay a set fee for those services.

If shareholders agree to authorizing the institutional funds to adopt the FSA as outlined above, the institutional funds’ shareholders will be agreeing to their funds operating under the terms in which all other publicly available Vanguard funds capitalize, operate, and share the expenses of Vanguard as set forth by the FSA. Under the FSA, the institutional funds would become owners of Vanguard by making a capital contribution to Vanguard, which may be adjusted from time to time, and they may be called upon to invest up to 0.40% of their net assets in Vanguard. Based on net assets as of May 31, 2017, each institutional fund’s investment in Vanguard would be less than 0.01% of its net assets. The institutional funds’ expenses will be based on their respective allocated portions of Vanguard’s expenses, similar to the other Vanguard funds.

Are the institutional funds similar to Vanguard 500 Index Fund and Vanguard Total Stock Market Index Fund?

Yes, the institutional funds are similar to these funds in that they track the same market segments and indexes. When Vanguard Institutional Index Fund was launched in 1990 and Vanguard Institutional Total Stock Market Index Fund in 2001, they were launched outside of the FSA’s internalized management structure, because doing so was necessary at that time to provide competitive pricing for institutional investors.

Upon adoption of the FSA, will historical performance of the institutional funds still be available?

Yes, historical performance of the institutional funds will be unaffected by adoption of the FSA.

Page 23

 

Shareholder proposal: Genocide-free investing

(For shareholders of certain funds listed here)

Each fund’s board of trustees recommends a vote AGAINST this proposal.

Why are we including this shareholder proposal?

A shareholder can submit a proposal for inclusion in a fund’s proxy statement, as long as the shareholder meets certain eligibility and procedural requirements outlined by federal securities laws. Certain Vanguard fund shareholders have complied with these requirements, so we are including their proposal.

What is the shareholder proposal?

As submitted by shareholders of certain funds, without modification, the proposal requested that the board of trustees of the Vanguard funds listed here institute transparent procedures to avoid holding investments in companies that, in management’s judgment, substantially contribute to genocide or crimes against humanity, the most egregious violations of human rights. Such procedures may include time-limited engagement with problem companies if management believes that their behavior can be changed.

What is Vanguard’s position on this issue?

The board’s statement of opposition is as follows:

The trustees of the funds recommend that you vote against this proposal. While the humanitarian issues on which this proposal is ultimately focused are of consequence and deep concern, meaningful, long-term solutions to these issues require diplomatic and political resources to come together to implement change. Importantly, your funds are compliant with all applicable U.S. laws on this matter. In addition, the proposal would interfere with the advisors’ fiduciary duty to manage your funds in line with their investment objectives and strategies. Finally, we believe that the divestment contemplated by the proposal would be an ineffective means to implement the social change it seeks.

Vanguard is fully compliant with all applicable U.S. laws and regulations.

The United States government, through its policymakers, has established a clear legal framework wherein investments in companies that are owned or controlled by the government of Sudan, among other countries, are prohibited. The proposal does not take into account that the funds are compliant with these laws.

As an investment firm with a very large client base, Vanguard is periodically asked by clients to modify our investments for a variety of reasons—from environmental and social issues to humanitarian and political concerns. We simply cannot manage the funds in an effective manner that would address all of these issues as well as, or better than, policymakers while fulfilling our fiduciary obligation to shareholders.

The addition of further investment constraints is not in fund shareholders’ best interests.

Placing additional and specifically prescriptive constraints on a portfolio manager’s investable universe, based on factors unrelated to a fund’s stated investment objective and/or investment strategies, could interfere with the fund’s obligation to its investors. Each of the Vanguard funds is required to invest shareholders’ assets pursuant to a given fund’s stated objective. In the case of actively managed funds, which seek to provide varying degrees of current income and/or long-term capital appreciation, they are managed in adherence to tightly prescribed parameters related to the geography, size, sector and/or style (for example, growth versus value) of the companies in which they invest. Constraints imposed by third parties could impair the ability of portfolio managers to provide fund shareholders investment returns that are competitive with similar funds. Index funds typically seek to track the performance of a benchmark index that represents either the broad market or a subset of the market based on geography, size, sector and/or style. As such, limiting a fund’s ability to invest in all of the constituent companies in its benchmark index could introduce deviation (that is, tracking error) between the fund’s performance and that of its benchmark index, which would be detrimental to the fund’s shareholders.

Page 24

 

Divestment is an ineffective means to implement social change.

The trustees believe that divestment—especially in cases where a company bears no direct relation to the issue at hand—is a particularly ineffective remedy. Selling a company’s shares into the secondary market (that is, not back to the subject company itself) has no direct impact on the company’s capitalization, and it simply puts the shares into the hands of another owner (one perhaps with less concern for the underlying issues). Additionally, as investors in publicly traded companies, the funds are not well poised to influence matters that extend well beyond the operations of their portfolio companies. While we understand the concerns of shareholders who have submitted the proposal, we believe that ending genocide requires diplomatic and political solutions.

Page 25

 

Funds and their relevant proposals

Proposal key

 

• Variable Insurance Fund

• Reclassify the diversification status of the REIT Index Fund to nondiversified

• Adopt the Funds’ Service Agreement for Vanguard Institutional Index Fund and Vanguard Institutional Total

• Stock Market Index Fund

• Shareholder proposal: Genocide-free investing

 

Page 26

 

 

Page 27

 

 

Page 28

 

 

Page 29

 

For more information about Vanguard funds, visit institutional.vanguard.com or call 800-523-1036 to obtain a prospectus or, if available, a summary prospectus.

Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing. Please note that a preliminary prospectus is subject to change.”

The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGrawHill Companies, Inc. (“S&P”) and is licensed for use by Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party involved in making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

The funds or securities referred to herein are not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such funds or securities or any index on which such funds or securities are based. The preliminary proxy statement the Vanguard funds filed with the SEC contains a more detailed description of the limited relationship MSCI has with The Vanguard Group, Inc. and any related funds.

All investing is subject to risk, including the possible loss of money you invest.

Funds that concentrate on a relatively narrow market sector face the risk of higher shareprice volatility.

© 1995–2017 The Vanguard Group, Inc. All right reserved. Vanguard Marketing Corporation, Distributor of the Vanguard Funds.

Page 30

 

Shareholders of each U.S.-based Vanguard fund are being asked to elect a board of trustees and approve several policy changes that will allow us to harmonize policies across our U.S.-based funds. Approval of these proposals is important since it will put into place people and policies that will help us continue to protect shareholders’ interests, manage our funds efficiently, and lower the cost of investing for shareholders.

Each fund’s board of trustees recommends a vote for each of the following proposals:

Elect trustees

Twelve individuals have been nominated for election as Vanguard fund trustees. If approved, the newly elected trustees would serve together on each fund’s board, effective January 1, 2018. The names and biographical details of the nominees are available in the proxy statement.

      Enable all U.S.-based Vanguard funds to retain third-party investment advisors

This management proposal asks shareholders to extend the ability of Vanguard-managed index funds and a subset of Vanguard-managed active funds to enter into or materially amend investment advisory agreements with third-party investment advisors without obtaining shareholder approval.

Enable all U.S.-based Vanguard funds to retain

Vanguard-affiliated investment advisors

This management proposal asks shareholders to give approval for all funds to rely on a pending U.S.

Securities and Exchange Commission exemptive application that, if granted, would permit the funds to enter into or materially amend investment advisory agreements with Vanguard subsidiaries without obtaining shareholder approval.

      Broaden the investment objectives for Vanguard’s two REIT offerings

This management proposal asks shareholders to approve a change in the investment objectives for Vanguard REIT Index Fund and the REIT Index

Portfolio of Vanguard Variable Insurance Fund. The change would broaden their mandate to include real estate management and development companies.

      Change in the diversification status of Vanguard REIT Index Fund

This management proposal asks shareholders to approve a change in the diversification status of the

REIT Index Fund from diversified to nondiversified, as defined by the Investment Company Act of 1940.

      Approve new advisory, administration, and distribution arrangements for two funds

This management proposal asks shareholders to approve new investment advisory, administration, and distribution arrangements for Vanguard Total

Stock Market Index Fund by adopting the Vanguard

Funds’ Service Agreement.

 

 

 

What is a proxy?

A proxy is the legal authority or means to permit a shareholder’s vote to be registered without the shareholder’s physical presence at an annual or a special shareholder meeting. Shareholders may vote their proxy by mail, by phone, or online.

What now?

Like other U.S. mutual funds, Vanguard funds periodically holds shareholder meetings when shareholder approval is needed for certain matters affecting the funds. At an upcoming shareholder meeting, or by proxy beforehand, shareholders will vote on the election of trustees for all U.S.-based Vanguard funds. Shareholders will also be asked to vote on several fund policy proposals that, if approved, will harmonize fund policies and give the funds more operational flexibility while acting in what we believe to be the best interests of their shareholders.

Your fund. Your vote.

When voting opens on August 16, you will have several resources and voting options available to make it easy to participate:

“ We encourage
Vanguard fund
shareholders to vote
on these important
proposals, which will
put in place the people
and policies to enable
us to continue to lower
the cost of investing
and enhance the
management of our
funds with the ultimate
goal of improving
client outcomes. “
— Vanguard CEO Bill McNabb

 

Vanguard proposals

Shareholders will vote on the following proposals presented by Vanguard in the proxy statement:

Elect trustees.

Trustees oversee the funds to make sure they effectively serve the interests of shareholders.

Shareholders of each U.S.-based Vanguard fund will be asked to elect a board of trustees.

      Enable all U.S.-based Vanguard funds to retain third-party investment advisors.

This management proposal asks shareholders to extend the ability of Vanguard-managed index funds and a subset of Vanguard-managed active funds to enter into or materially amend investment advisory agreements with third-party investment advisors without obtaining shareholder approval.

Enable all U.S.-based Vanguard funds to retain

Vanguard-affiliated investment advisors.

This management proposal asks shareholders to give approval for all funds to rely on a pending U.S.

Securities and Exchange Commission exemptive application that, if granted, would permit the funds to enter into or materially amend investment advisory agreements with Vanguard subsidiaries without obtaining shareholder approval.

      Broaden the investment objectives for Vanguard’s two REIT offerings.

This management proposal asks shareholders to approve a change in the investment objectives for

Vanguard REIT Index Fund and the REIT Index

Portfolio of Vanguard Variable Insurance Fund. The change would broaden their mandate to include real estate management and development companies.

      Change in the diversification status of Vanguard REIT Index Fund.

This management proposal asks shareholders to approve a change in the diversification status of the REIT Index Fund from diversified to nondiversified, as defined by the Investment

Company Act of 1940, to allow the fund to track more closely its benchmark index.

      Approve new advisory, administration, and distribution arrangements for two funds.

This management proposal asks shareholders to approve new investment advisory, administration, and distribution arrangements for Vanguard

Institutional Index Fund and Vanguard Institutional

Total Stock Market Index Fund by adopting the

Vanguard Funds’ Service Agreement.

Shareholder proposals

In addition, shareholders of certain funds will be able to vote on a proposal submitted by other shareholders. The proposal seeks to prescribe specific investment limits for several funds.

Connect with Vanguard^® > 800-997-2798

For more information about Vanguard funds, visit advisors.vanguard.com or call 800-997-2798 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing. Please note that a preliminary prospectus is subject to change.

All investments are subject to risk, including the possible loss of the money you invest.

Funds that concentrate on a relatively narrow market sector face the risk of higher share-price volatility.

Vanguard Financial
Advisor Services^™

P .O. Box 2900
Valley Forge, PA 19482-2900

© 2017 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing Corporation, Distributor.

FAPRXCP 082017

 

 

What is a proxy?

Mutual funds schedule shareholder meetings when they need shareholders to vote on certain proposals affecting funds.

The proxy campaign takes place before the shareholder meeting to facilitate shareholder voting and to help ensure that a quorum of shareholders participates in the meeting either by proxy or in person.

For a proposal to pass, votes representing a certain percentage of the assets in the affected fund must be cast in favor of it—either before or during the shareholder meeting. The proxy process is regulated by the U.S. Securities and Exchange Commission (SEC).

Why is Vanguard conducting a 2017 proxy campaign?

Vanguard has scheduled a shareholder meeting for Wednesday, November 15, 2017, in Scottsdale, Arizona.

At the meeting, shareholders will vote on:

1

 

 

2017 proxy timeline

3

 

What’s on the ballot

Shareholders are being asked to elect their fund trustees and approve several policy changes across Vanguard’s U.S.-domiciled fund lineup.

This slate of trustees encompasses individuals with diverse backgrounds and a broad range of experience. Their chief responsibility is to oversee the funds to make sure they’re managed in the best interests of their shareholders.

 

The Vanguard funds’ boards have submitted the following proposals, which the boards recommend voting for:

 

Shareholders of certain funds submitted an additional proposal, which the funds’ boards recommend voting against:

 

4

 

Your fund. Your vote.

Starting in late August, several voting options and resources will be available to make it easy for shareholders to participate:

> Voting will conclude Wednesday, November 15, 2017, at the

shareholder meeting in Scottsdale, Arizona.

5

 

 

Vanguard Institutional
Investor Group
P.O. Box 2900
Valley Forge, PA 19482-2900

Important information

For more information about Vanguard funds, visit institutional.vanguard.com or call 800-523-1036 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.

All investing is subject to risk, including the possible loss of the money you invest. Funds that concentrate on a relatively narrow market sector face the risk of higher share-price volatility. In a diversified portfolio, gains from some investments may help offset losses from others. However, diversification does not ensure a profit or protect against a loss.

For institutional use only. Not for distribution to retail investors.

© 2017 The Vanguard Group, Inc.
All rights reserved.

Vanguard Marketing Corporation, Distributor.
LEMBY 082017

 

 

 

 

 

 

 

 

Election of a board of trustees for each fund

Proposal in brief

• To elect trustees for each fund.

Breadth of fund impact

• All U.S.-based Vanguard funds.

Rationale

• A fund’s board can fill board vacancies only if, immediately after filling the vacancy, at least two-thirds of the trustees were elected by shareholders, in accordance with federal law.

• At this time, the Vanguard funds' boards cannot appoint any new trustees without shareholder approval. Therefore, shareholder approval is needed to elect Vanguard’s new president, Tim Buckley, and two other new nominees, Deanna Mulligan and Sarah Bloom Raskin.

Nominees

Twelve individuals have been nominated for election as Vanguard
fund trustees, ten of whom would be “independent” trustees:

	Two interested nominees: Vanguard Chairman Bill McNabb
	and	newly elected President Tim Buckley.
	Eight current independent trustees: Mark Loughridge, who is
	the lead independent trustee; and Emerson U. Fullwood, Amy
	Gutmann, JoAnn Heffernan Heisen, F. Joseph Loughrey, Scott
	C. Malpass, André F. Perold, and Peter F. Volanakis.
	Two new independent trustee nominees: Sarah Bloom Raskin,
	former	U.S. deputy secretary of the Treasury, and Deanna
	Mulligan,	president and CEO of The Guardian Life Insurance
	Company	of America.
	If approved, the newly elected trustees would be serving
	together	as the funds’ boards effective January 1, 2018.

 

 

Approval of a manager-of-managers arrangement with third-party investment advisors

Proposal in brief

• To enable all Vanguard-managed index funds and a subset of Vanguard-managed active funds to enter into or materially amend investment advisory agreements with third-party investment advisors, without obtaining additional shareholder approval in the future. Several funds already operate under this policy.

Breadth of fund impact

• All Vanguard-managed index funds and a subset of Vanguard-managed active funds that currently do not have this flexibility.

Rationale

• Provides flexibility for the funds to appoint a third-party investment advisor, capitalizing on Vanguard’s expertise in selecting highly qualified advisors at a low cost.

• Eliminates the substantial costs and delays associated with soliciting shareholder approval.

• Harmonizes policies across U.S.-based Vanguard funds and provides the funds with similar flexibility to that of many of their competitors.

• Protects shareholders of the funds should a contingency event at Vanguard occur in the future.

Vanguard does not have any current plans to make changes to any fund's advisory arrangement as a result of receiving approval of this proposal.

 

 

Approval of a manager-of-managers arrangement with wholly owned subsidiaries of Vanguard

Proposal in brief

• To enable all funds to rely on a pending U.S. Securities and Exchange Commission exemptive application that, if granted, would permit the funds to enter into, or materially amend, investment advisory agreements with wholly owned Vanguard subsidiaries without obtaining additional shareholder approval in the future.

Breadth of fund impact

• All Vanguard funds.

Rationale

• Provides flexibility to appoint a Vanguard subsidiary in an advisory capacity to help manage the funds in the most efficient and effective manner.

• Eliminates the substantial costs and delays associated with soliciting shareholder approval.

• Protects shareholders of the funds should a contingency event at Vanguard occur in the future.

Vanguard does not have any current plans to make changes to a fund’s advisory arrangement as a result of receiving approval of this proposal.

 

 

Adopt the Funds’ Service Agreement for Vanguard Institutional Index Fund and Vanguard Institutional Total Stock Market Index Fund

Proposal in brief

• To approve a new investment advisory, administrative, and distribution arrangement for Vanguard Institutional Index Fund and Vanguard Institutional Total Stock Market Index Fund by adopting the Vanguard Funds’ Service Agreement.

Breadth of fund impact

• Vanguard Institutional Index Fund and Vanguard Institutional Total Stock Market Index Fund.

Rationale

• Offers potential for lower cost.

• Offers investors broader access to lower-cost share classes.

• Harmonizes the investment advisory, administrative, and distribution arrangements for all publicly available U.S.- based Vanguard mutual funds.

 

 

Approval of Funds’ Service Agreement for Vanguard Institutional Index Fund and Vanguard Institutional Total Stock Market Index Fund

Key changes, if approved

Lower expense ratios for Institutional class shares of both funds and a reduction in the minimum initial investments for three of the funds' four share classes.

 

 

 

Approval of Funds’ Service Agreement for Vanguard Institutional Index Fund and Vanguard Institutional Total Stock Market Index Fund

Additional key changes, if approved

By adopting the Service Agreement, each fund will become a Vanguard member fund. Each Vanguard member fund pays its share of Vanguard's total expenses, which are allocated to the Vanguard funds under methods approved by the board of trustees of each Vanguard fund.

Each fund will make an initial capital contribution to Vanguard, which will be adjusted from time to time. Additionally, each Vanguard fund that is a party to the Service Agreement may be called upon to invest up to 0.40% of its net assets in Vanguard.

Based on net assets as of May 31, 2017, the Institutional Index Fund’s investment in Vanguard would be approximately $14.1 million, constituting 5.7% of Vanguard’s total capital and 0.0063% of the fund’s net assets, and the Institutional Total Stock Market Index Fund’s investment in Vanguard would be approximately $2.5 million, constituting 1% of Vanguard’s total capital and 0.0063% of the fund’s net assets.

 

 

Approval of an investment objective change for Vanguard REIT Index Fund

Proposal in brief

• To approve a change in the investment objective for Vanguard REIT Index Fund and Vanguard REIT Index Portfolio of Vanguard Variable Insurance Fund. The change would broaden the mandate to include real estate management and development companies.

Breadth of fund impact

• The Vanguard REIT Index Fund and the Vanguard REIT Index Portfolio of Vanguard Variable Insurance Fund.

Rationale

• Aligns the funds with the newly constituted Global Industry Classification Standard (GICS) real estate sector.

• Enables investors who use Vanguard’s sector equity index funds to have broader exposure to the U.S. equity market.

• Provides additional investment capacity.

 

 

Approval of an investment objective change for Vanguard REIT Index Fund and the REIT Index of Vanguard Variable Insurance Fund

 

• To reduce the transaction costs associated with trading large amounts of securities in a short period of time, the REIT Index Fund will track a transition index for approximately six months starting in early 2018. This will allow the fund to gradually sell securities and invest proceeds in select specialized REITs and real estate management and development companies. The transaction costs for the REIT Index Fund transition are expected to be moderate. The REIT Index Portfolio of the Variable Insurance Fund is not expected to track a transition index. Because of the modest size of the portfolio, transaction costs are expected to be minimal.

• Shareholders will not be asked to vote on the name change or the benchmark change of the funds; however, changing the benchmark will necessitate a change to the names of the funds.