Vanguard Reports Lower Expense Ratios for 53 Mutual Fund and ETF Shares

VALLEY FORGE, PA (DECEMBER 22, 2015)— Vanguard clients saved a total of $12.4 million as a result of lower expense ratios reported today for 53 individual mutual fund shares, including 21 exchange-traded fund shares (ETFs).1

“Vanguard continues to set the standard as the industry’s low-cost leader, reducing costs not just on a subset of products, but across our funds and ETFs,” said Vanguard CEO Bill McNabb. “We have a track record of nearly 40 years of lowering the cost of investing for our clients and we have every intention of continuing to lower the cost of investing.”

Vanguard reported expense ratio reductions for the 12 months ended August 2015 for a range of fund share classes (Investor, Admiral, ETF, Institutional, and Institutional Plus) in five fund categories, as summarized below:

- Bond index. Twenty-four Vanguard bond index fund shares reported lower expense ratios. For example, the $13.2 billion Vanguard Short-Term Corporate Bond Index Fund reported the following reductions: Admiral Shares, 2 basis points to 0.10%; ETF Shares, 2 basis points to 0.10%; and Institutional Shares, 2 basis points to 0.07%. A basis point is one-hundredth of 1%.

- Equity sector index. Twenty equity sector index fund shares reported lower expense ratios. The largest of these funds, the $8.7 billion Vanguard Information Technology Index Fund, reported reductions on Admiral and ETF Shares of 2 basis points to 0.10%.

- Size/style index. Six size/style index fund shares that seek to track CRSP benchmarks reported lower expense ratios. The largest of these funds, the $2.2 billion Vanguard Mega Cap Growth Index Fund, reported that the expense ratios of its Institutional and ETF Shares declined by 2 basis points to 0.08% and 0.09%, respectively.

- Social index. Two social index fund shares reported lower expense ratios. The $2 billion Vanguard FTSE Social Index Fund reported expense ratio reductions on Investor Shares of 2 basis points to 0.25% and Institutional Shares of 1 basis point to 0.15%.

- Actively managed equity. One actively managed fund reported a lower expense ratio. The $307.6 million Vanguard Explorer Value Fund reported an expense ratio of 0.65%, a drop of 1 basis point from the 2014 figure.

The accompanying attachment provides a complete list of the fund and ETF shares reporting expense ratio changes for the fiscal year ended August 2015. Any additional 2015 fiscal-year expense ratio changes will be reported in 2016 as fund prospectuses are published. Expense ratios are reported on an annual basis and represent actual operating expenses for the prior fiscal year.

During the 2015 calendar year, Vanguard reported expense ratio reductions for 102 individual mutual fund shares, of which 28 were ETF shares, inclusive of the latest round of reductions. In calendar year 2014, Vanguard reported lower expense ratios for 90 individual mutual fund shares, including 31 ETF shares.

Incentive payment results in expense ratio increase

The $7 billion Vanguard U.S. Growth Fund was the only fund in this round to report an increase in its expense ratio. The fund’s Investor and Admiral Shares reported an increase of 3 basis points, to 0.47% and 0.33%, respectively. In this instance, the changes are largely the result of an incentive fee paid to the fund’s advisors.

Vanguard aligns the interests of its external investment advisory firms with those of shareholders by using incentive/penalty arrangements. Under the majority of Vanguard fund advisory agreements, an external advisor’s base advisory fee can be adjusted up or down to reflect the fund’s investment performance relative to the total return of an appropriate market benchmark over a 36-month period. In effect, the advisor is rewarded for outperforming a market benchmark and penalized for underperforming it. Vanguard is one of the few firms in the industry to employ performance incentive/penalty arrangements.

A history of lowering expenses

Vanguard has a long history of bringing lower costs to investors. In 1975, when Vanguard managed $1.8 billion in U.S. fund assets, the average expense ratio for the Vanguard funds was 0.89%. Today, Vanguard manages $3.2 trillion in U.S. fund assets and the average expense ratio is 0.18%. (On an asset-weighted basis, the average expense ratio is even lower, at 0.14%.)

In 2004, when Vanguard managed $6 billion in ETF assets, the average expense ratio for Vanguard’s ETFs was 0.22%. Today, Vanguard manages $484.7 billion in U.S. ETF assets and the average expense ratio is 0.13%. (On an asset-weighted basis, the average expense ratio is even lower, at 0.10%.)2

Low cost can improve investor outcomes

Keeping costs low is a pillar of Vanguard’s investment philosophy. Vanguard’s Principles for Investing Success outlines four tenets: 1) Create clear and appropriate goals, 2) develop a suitable asset allocation using broadly diversified funds, 3) minimize cost, and 4) maintain perspective and long-term discipline. Cost is significant because every dollar paid in management fees or trading commissions is simply a dollar less that potentially could be earning return.

Morningstar Inc. demonstrated the importance of cost in a 2010 study of expense ratios and fund performance. In the study, Morningstar researchers found that in every period, low-cost funds outperformed high-cost funds.3

About Vanguard

Vanguard is one of the world’s largest investment management companies. As of November 30, 2015, Vanguard managed more than $3.4 trillion in global assets. The firm, headquartered in Valley Forge, Pennsylvania, offers more than 300 funds to its more than 20 million investors worldwide. For more information, visit vanguard.com.

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1Vanguard calculation based on average fund assets over a 12-month period and the change in expense ratios through fiscal year August 2015.

2 Source: Vanguard

3A copy of the Morningstar report can be found here.

All asset figures are as of November 30, 2015, unless otherwise stated.

For more information about Vanguard funds and ETFs, visit vanguard.com or call 800-662-7447 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.

Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market with the assistance of a stockbroker. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

Past performance is no guarantee of future results.

All investments are subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.

Investments in bond funds are subject to interest rate, credit, and inflation risk.

Investments in securities issued by non-U.S. companies are subject to risks including country/regional risk and currency risk.

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

U.S. Patent Nos. 6,879,964; 7,337,138; 7,720,749; 7,925,573; 8,090,646; and 8,417,623.

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