ETF Shares Product Description
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ETF Shares Product Description Document Transcript

  • 1. Online Brochure Contents Click the links below to move quickly through this document. Vanguard® ETF® Shares • Vanguard® Bond ETF Shares Product Description • Vanguard® U.S. Stock ETF Shares Product Description • Vanguard® Sector ETF Shares Product Description • Vanguard® International ETF Shares Product Description • Vanguard® Extended Duration Treasury ETF Shares Product Description To print this kit: You can print selected pages by clicking your browser’s printer icon and entering the appropriate PDF page numbers. You can also print this kit in its entirety by clicking the printer icon and selecting “All.”
  • 2. Product Description for Vanguard U.S. Stock ETFs
  • 3. What are Vanguard U.S. Stock ETFs? Vanguard U.S. Stock ETFs are exchange-traded shares issued by one of the following Vanguard U.S. Stock Index Funds: ETF share class Fund (Trading symbol) Target index Vanguard Total Stock Vanguard Total Stock MSCI® US Broad Market Index Fund Market ETF (VTI) Market Index Vanguard Extended Vanguard Extended S&P Completion Market Index Fund Market ETF (VXF) Index Vanguard Mega Cap Vanguard Mega Cap MSCI US Large-Cap 300 Index Fund 300 ETF (MGC) 300 Index Vanguard Mega Cap Vanguard Mega Cap MSCI US Large-Cap 300 Growth 300 Growth Growth Index Index Fund ETF (MGK) Vanguard Mega Cap Vanguard Mega Cap MSCI US Large-Cap 300 Value 300 Value ETF (MGV) Value Index Index Fund Vanguard Large-Cap Vanguard Large-Cap MSCI US Prime Index Fund ETF (VV) Market 750 Index Vanguard Mid-Cap Vanguard Mid-Cap MSCI US Mid Value Index Fund Value ETF (VOE) Cap Value Index Vanguard Mid-Cap Vanguard Mid-Cap MSCI US Mid Index Fund ETF (VO) Cap 450 Index Vanguard Mid-Cap Vanguard Mid-Cap MSCI US Mid Growth Index Fund Growth ETF (VOT) Cap Growth Index Vanguard Small-Cap Vanguard Small-Cap MSCI US Small Index Fund ETF (VB) Cap 1750 Index Vanguard Value Vanguard Value MSCI US Prime Index Fund ETF (VTV) Market Value Index Vanguard Small-Cap Vanguard Small-Cap MSCI US Small Value Index Fund Value ETF (VBR) Cap Value Index Vanguard Growth Vanguard Growth MSCI US Prime Index Fund ETF (VUG) Market Growth Index Vanguard Small-Cap Vanguard Small-Cap MSCI US Small Growth Index Fund Growth ETF (VBK) Cap Growth Index Vanguard Dividend Vanguard Dividend Dividend Achievers Appreciation Appreciation Select Index1 Index Fund ETF (VIG) Vanguard High Vanguard High FTSE High Dividend Yield Dividend Yield Dividend Yield Index Fund ETF (VYM) Index 1 Administered exclusively for Vanguard by Mergent, Inc. 1
  • 4. The funds issue conventional mutual fund shares (Investor, Admiral™, Signal®, and/or Institutional Shares) as well as exchange-traded ETF Shares. There are significant differences between conventional mutual fund shares and ETF Shares, and it is important that you be aware of those differences. How do a fund’s ETF Shares differ from its conventional shares? Conventional shares of a Vanguard mutual fund are bought from and redeemed with the issuing fund (either directly or through a fund supermarket) for cash at a net asset value (NAV) typically calculated once a day. ETF Shares, by contrast, cannot be bought from or redeemed with the issuing fund, except as noted on page 6 (see “How do I buy and sell ETF Shares?”). Rather, you must buy and sell ETF Shares through a broker. Your purchase or sale of a fund’s ETF Shares will occur not at the daily NAV, but at market prices that change throughout the day based on the supply of, and demand for, ETF Shares and on changes in the prices of the fund’s portfolio holdings. At any given time, the market price of a fund’s ETF Shares may be more than, less than, or equal to the NAV of those shares. Like common stocks (and unlike conventional mutual fund shares), ETF Shares will be listed for trading on a national securities exchange—in this case, the NYSE Arca, Inc. (NYSE Arca). What are the investment objectives and investment strategies of the various Vanguard U.S. Stock ETFs? Each U.S. Stock ETF is designed to give investors exposure to a segment of the U.S. stock market (or, in the case of Vanguard Total Stock Market ETF the , entire U.S. stock market) by seeking to tracking the performance of a benchmark index. Each Vanguard fund that issues U.S. stock ETF Shares (except the funds that 2
  • 5. issue Total Stock Market and Extended Market ETF Shares) invests all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index. For more information on the indexes tracked by Vanguard ETFs™, go to www.mscibarra.com or www.dividendachievers.com. • Total Stock Market ETF gives investors exposure to the entire U.S. stock market. It seeks to track the MSCI US Broad Market Index, which includes large-, mid-, and small-cap companies. This index represents 99.5% or more of the capitalization of the U.S. equity market. The Fund that issues Total Stock Market ETF Shares typically invests all, or substantially all, of its assets in the top 95% of its target index’s total market capitalization and in a representative sample of the remaining stocks. • Extended Market ETF gives investors exposure to mid- and small-cap U.S. stocks. It seeks to track the Standard & Poor’s (S&P) Completion Index, which consists of all the U.S. common stocks regularly traded on the New York and American Stock Exchanges and the Nasdaq over-the-counter market, except those stocks included in the S&P 500 Index. The Fund that issues Extended Market ETF Shares invests all, or substantially all, of its assets in 1,200 stocks in its target index (covering nearly 80% of the index’s total market capitalization) and in a representative sample of the remaining stocks. • Mega Cap 300 ETF seeks to track the performance of the MSCI US Large-Cap 300 Index, a free-float adjusted, market-capitalization-weighted index designed to measure equity market performance of large-capitalization stocks. The Fund that issues Mega Cap 300 ETF Shares invests all, or substantially all, of its assets in the stocks that make up the Index, holding each stock in approximately the same proportion as its weighting in the Index. 3
  • 6. • Mega Cap 300 Growth ETF seeks to track the performance of the MSCI US Large Cap Growth Index, which represents the growth companies of the MSCI US Large Cap 300 Index. The index is a free-float adjusted, market-capitalization-weighted index designed to measure equity market performance of large-capitalization growth stocks. The Fund that issues Mega Cap 300 Growth ETF Shares invests all, or substantially all, of its assets in the stocks that make up the Index, holding each stock in approximately the same proportion as its weighting in the Index. • Mega Cap 300 Value ETF seeks to track the performance of the MSCI US Large Cap Value Index, which represents the value companies of the MSCI US Large Cap 300 Index. The index is a free-float adjusted, market-capitalization-weighted index designed to measure equity market performance of large-capitalization value stocks. The Fund that issues Mega Cap 300 Value ETF Shares invests all, or substantially all, of its assets in the stocks that make up the Index, holding each stock in approximately the same proportion as its weighting in the Index. • Large-Cap ETF seeks to track the MSCI US Prime Market 750 Index, a broadly diversified index of stocks, predominantly of large U.S. companies. • Mid-Cap Value ETF seeks to track the MSCI US Mid Cap Value Index, a broadly diversified index of value stocks of medium-size U.S. companies. • Mid-Cap ETF seeks to track the MSCI US Mid Cap 450 Index, a broadly diversified index of stocks of medium-size U.S. companies. • Mid-Cap Growth ETF seeks to track the MSCI US Mid Cap Growth Index, a broadly diversified index of growth stocks of medium-size U.S. companies. • Small-Cap ETF seeks to track the MSCI US Small Cap 1750 Index, a broadly diversified index of stocks of small U.S. companies. • Value ETF seeks to track the MSCI US Prime Market Value Index, a broadly diversified index predominantly made up of value stocks of large U.S. companies. 4
  • 7. • Small-Cap Value ETF seeks to track the MSCI US Small Cap Value Index, a broadly diversified index of value stocks of small U.S. companies. • Growth ETF seeks to track the MSCI US Prime Market Growth Index, a broadly diversified index predominantly made up of growth stocks of large U.S. companies. • Small-Cap Growth ETF seeks to track the MSCI US Small Cap Growth Index, a broadly diversified index of growth stocks of small U.S. companies. • Dividend Appreciation ETF seeks to track the Dividend Achievers Select Index, a broadly diversified index of common stocks of companies that have a record of increasing dividends over time. • High Dividend Yield ETF seeks to track the FTSE High Dividend Yield Index, a broadly diversified index of common stocks of companies that pay dividends that generally are higher than average. What are the risks of owning Vanguard U.S. Stock ETFs? • When you own one of the Vanguard U.S. Stock ETFs, you own shares of a fund that holds a portfolio of stocks. The price of a fund’s ETF Shares will rise and fall as the stocks held by the fund fluctuate in value. An investment in a Vanguard U.S. Stock ETF could lose money over short or even long periods. • Vanguard U.S. Stock ETFs are 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. • Vanguard U.S. Stock ETFs (except Vanguard Total Stock Market ETF) are subject to investment style risk, which is the chance that returns from the market segment in which a particular fund invests (such as small-cap value stocks) will trail returns from the overall stock market. Specific types of stocks tend to go through cycles of doing better—or worse— than the stock market in general. These periods have, in the past, lasted for as long as several years. 5
  • 8. • The market price of a fund’s ETF Shares may differ from the NAV of those shares. The difference between market price and NAV is expected to be small most of the time, but in times of extreme market volatility the difference may become significant. • Although Vanguard U.S. Stock ETFs will be listed for trading on the NYSE Arca, it is possible that an active trading market may not be maintained. • Trading of a fund’s ETF Shares on the NYSE Arca may be halted if NYSE Arca officials deem such action appropriate, if the shares are delisted from the NYSE Arca, or if the activation of marketwide “circuit breakers” (which are tied to large decreases in the Dow Jones Industrial Average) halts stock trading generally. How do I buy and sell ETF Shares? You can buy and sell ETF Shares on the secondary market in the same way you buy and sell any other exchange-traded security—through a broker. In most cases, the broker will charge you a commission to execute the transaction. Unless imposed by your broker, there is no minimum dollar amount you must invest and no minimum number of ETF Shares you must buy. ETF Shares cannot be purchased or redeemed directly with the issuing fund except by certain authorized broker-dealers. These broker-dealers may purchase and redeem ETF Shares only in large blocks worth several million dollars and only in exchange for baskets of securities rather than cash. In addition, owners of conventional mutual fund shares issued by one of Vanguard’s U.S. stock index funds may convert those shares into ETF Shares. To initiate a conversion, you must contact your broker. Vanguard charges a fee for conversions, and your broker may impose an additional fee. Please note that a fund’s ETF Shares may not be converted into or exchanged for conventional mutual fund shares of the same fund or ETF Shares of another fund. 6
  • 9. What fees and expenses will I incur to buy, own, and sell Vanguard U.S. Stock ETFs? When you buy or sell ETF Shares through a broker, you will pay a commission in an amount that will vary depending on the firm. You will also incur the cost of the “bid-asked spread, which is the difference ” between the price a dealer will pay for a security and the somewhat higher price at which the dealer will sell the same security. The total annual operating expenses (i.e., the “expense ratio”) through fiscal year 2007 were as follows: Total Stock Market ETF 0.07% (7 basis points) Extended Market ETF 0.08% (8 basis points) Mega Cap 300 ETF1 0.13% (13 basis points) Mega Cap 300 Growth ETF1 0.13% (13 basis points) Mega Cap 300 Value ETF1 0.13% (13 basis points) Large-Cap ETF 0.07% (7 basis points) Mid-Cap Value ETF 0.13% (13 basis points) Mid-Cap ETF 0.13% (13 basis points) Mid-Cap Growth ETF 0.13% (13 basis points) Small-Cap ETF 0.10% (10 basis points) Value ETF 0.10% (10 basis points) Small-Cap Value ETF 0.11% (11 basis points) Growth ETF 0.10% (10 basis points) Small-Cap Growth ETF 0.11% (11 basis points) Dividend Appreciation ETF 0.28% (28 basis points) High Dividend Yield ETF 0.25% (25 basis points) 1 Inception date: December 10, 2007. 7
  • 10. How often will I receive distributions of dividends and capital gains? Can I reinvest these distributions? Dividends for Total Stock Market, Mega Cap 300, Mega Cap 300 Growth, Mega Cap 300 Value, Large- Cap, Value, Growth, Dividend Appreciation, and High Dividend Yield ETFs are distributed quarterly in March, June, September, and December. Dividends for Extended Market, Mid-Cap Value, Mid-Cap, Mid-Cap Growth, Small-Cap, Small-Cap Value, and Small-Cap Growth ETFs are distributed annually in December. For all U.S. stock ETFs, capital gains, if any, are distributed in December. Each Vanguard U.S. Stock ETF may occasionally make a supplemental distribution at some other time during the year. Some brokers are able to reinvest dividend and capital gains distributions in additional ETF Shares, while others are not. Please ask your broker whether it offers a reinvestment service and, if so, whether there is a charge for the service. If your broker does not offer a reinvestment service, you will receive all dividend and capital gains distributions in cash. Who manages the funds that issue U.S. Stock ETF Shares? All of the Vanguard funds that issue U.S. Stock ETFs are advised and managed by The Vanguard Group, Inc. (Vanguard), a registered investment advisor. As an owner of ETF Shares, do I receive services from Vanguard? Because you hold ETF Shares through a brokerage account, Vanguard will have no record of your ownership (unless your broker is Vanguard Brokerage Services®). Your broker will service your account. For example, the broker will provide account statements, confirmations of your purchases and sales of ETF Shares, and year-end tax information. It also will be responsible for ensuring that you receive shareholder 8
  • 11. reports and other communications from the fund whose ETF Shares you own. You will receive certain services (e.g., dividend reinvestment and average cost information) only if your broker offers those services. Where can I find price information about Vanguard U.S. Stock ETFs? The closing market price of each issue of ETF Shares on the preceding business day is published in the business section of most major newspapers in the listing of stocks traded on the NYSE Arca. Vanguard’s website at www.vanguard.com shows the preceding business day’s closing NAV and closing market price, as well as historical performance information. The website also discloses how frequently each issue of ETF Shares traded at a premium or discount to NAV (based on closing NAVs and market prices) and the magnitude of those premiums and discounts. What other information can you tell me about ETF Shares? • Each Vanguard fund that issues ETF Shares reserves the right to substitute a different index for the index it currently tracks if the current index is discontinued, if the fund’s license with the sponsor of the current index is terminated, or for any other reason determined in good faith by the fund’s board of trustees. In every such instance, the substitute index would measure the same market segment as the current index. • If a fund’s ETF Shares are delisted from the NYSE Arca, Vanguard will seek to list the shares on another stock exchange, convert the ETF Shares into conventional shares of the same fund, or redeem the ETF Shares at NAV. • ETF Shares are investment company securities subject to the restrictions of section 12(d)(1) of the Investment Company Act of 1940. 9
  • 12. Institutional Division P Box 2900 .O. Valley Forge, PA 19482-2900 Connect with Vanguard ® > www.vanguard.com For more information about FTSE International Limited does not Vanguard ETF™ Shares, visit sponsor, endorse, or promote the fund; www.vanguard.com, call is not in any way connected to it; and does not accept any liability in 866-499-8473, or contact your relation to its issue, operation, and broker to obtain a product trading. Standard & Poor’s® and S&P ® description and prospectus. are trademarks of The McGraw-Hill Investment objectives, risks, Companies, Inc., and have been licensed charges, expenses, and other for use by The Vanguard Group, Inc. important information are Vanguard mutual funds are not sponsored, endorsed, sold, or promoted contained in these documents; by Standard & Poor’s, and Standard & read and consider them Poor’s makes no representation regarding carefully before investing. the advisability of investing in the funds. The funds or securities referred to Dividend Achievers is a trademark of herein that are offered by The Vanguard Mergent, Inc., and has been licensed Group and track an MSCI index are for use by The Vanguard Group, Inc. not sponsored, endorsed, or promoted Vanguard mutual funds are not by MSCI, and MSCI bears no liability sponsored, endorsed, sold, or promoted with respect to any such funds or by Mergent, and Mergent makes no securities. For such funds or securities, representation regarding the advisability the prospectus or the Statement of of investing in the funds. “FTSE®” is a Additional Information contains a trademark jointly owned by the London more detailed description of the limited Stock Exchange plc and The Financial relationship MSCI has with The Vanguard Times Limited and is used by FTSE Group and any related funds. International Limited under license. The FTSE High Dividend Yield Index is calculated by FTSE International Limited. © 2008 The Vanguard Group, Inc. All rights reserved. U.S. Pat. No. 6,879,964 B2; 7,337,138. Vanguard Marketing Corporation, Distributor. VIPPD 102008
  • 13. Product Description for Vanguard U.S. ® Sector ETFs
  • 14. What are Vanguard U.S. Sector ETFs? Vanguard U.S. Sector ETFs are exchange-traded shares issued by one of the following Vanguard U.S. Sector Index Funds: ETF share class Fund (Trading symbol) Target index Vanguard Consumer Vanguard Consumer MSCI® US Investable Discretionary Discretionary Market Consumer Index Fund ETF (VCR) Discretionary Index Vanguard Consumer Vanguard Consumer MSCI US Investable Staples Index Fund Staples ETF Market Consumer (VDC) Staples Index Vanguard Energy Vanguard Energy MSCI US Investable Index Fund ETF (VDE) Market Energy Index Vanguard Financials Vanguard Financials MSCI US Investable Index Fund ETF (VFH) Market Financials Index Vanguard Health Vanguard Health MSCI US Investable Care Index Fund Care ETF (VHT) Market Health Care Index Vanguard Industrials Vanguard Industrials MSCI US Investable Index Fund ETF (VIS) Market Industrials Index Vanguard Information Vanguard Information MSCI US Investable Technology Technology Market Information Index Fund ETF (VGT) Technology Index Vanguard Materials Vanguard Materials MSCI US Investable Index Fund ETF (VAW) Market Materials Index Vanguard REIT Vanguard REIT MSCI US Index Fund ETF (VNQ) REIT Index Vanguard Vanguard MSCI US Investable Telecommunication Telecommunication Market Telecommuni- Services Index Fund Services ETF (VOX) cation Services Index Vanguard Utilities Vanguard Utilities MSCI US Investable Index Fund ETF (VPU) Market Utilities Index The funds issue conventional mutual fund shares as well as exchange-traded ETF Shares. There are significant differences between conventional mutual fund shares and ETF Shares, and it is important that you be aware of those differences. 1
  • 15. How do a fund’s ETF Shares differ from its conventional shares? Conventional shares of a Vanguard mutual fund are bought from and redeemed with the issuing fund (either directly or through a fund supermarket) for cash at a net asset value (NAV) typically calculated once a day. ETF Shares, by contrast, cannot be bought from or redeemed with the issuing fund, except as noted on page 7 (see “How do I buy and sell ETF Shares?”). Rather, you must buy and sell ETF Shares through a broker. Your purchase or sale of a fund’s ETF Shares will occur not at the daily NAV, but at market prices that change throughout the day based on the supply of, and demand for, ETF shares and on changes in the prices of the fund’s portfolio holdings. At any given time, the market price of a fund’s ETF Shares may be more than, less than, or equal to the NAV of those shares. Like common stocks (and unlike conventional mutual fund shares), ETF Shares will be listed for trading on a national securities exchange—in this case, the NYSE Arca, Inc. (NYSE Arca). What are the investment objectives and investment strategies of the various Vanguard U.S. Sector ETFs? Each U.S. Sector ETF is designed to give investors exposure to a segment of the U.S. stock market by tracking the performance of a benchmark index. In each case, other than Vanguard REIT ETF , the index is a subset of the MSCI US Investable Market 2500 Index, with companies classified into different sectors according to the Global Industry Classification Standard. • Consumer Discretionary ETF seeks to track the performance of the MSCI US Investable Market Consumer Discretionary Index, an index of stocks issued by U.S. companies within the consumer discretionary sector. This sector is made up of those manufacturing and service industries that tend to be the most sensitive to economic cycles. Among the 2
  • 16. industries included in the manufacturing segment are: automotive, household durable goods, textiles and apparel, and leisure equipment. The services segment includes hotels, restaurants and other leisure facilities, media production and services, and consumer retailing and services. • Consumer Staples ETF seeks to track the performance of the MSCI US Investable Market Consumer Staples Index, an index of stocks issued by U.S. companies within the consumer staples sector. This sector is made up of companies whose businesses are less sensitive to economic cycles. It includes manufacturers and distributors of food, beverages, and tobacco, as well as producers of nondurable household goods and personal products. It also includes food and drug retailing companies as well as hypermarkets and consumer supercenters. • Energy ETF seeks to track the performance of the MSCI US Investable Market Energy Index, an index of stocks issued by U.S. companies within the energy sector. This sector is made up of companies whose businesses are dominated by either of the following activities: the construction or provision of oil rigs, drilling equipment, and other energy-related services and equipment (such as seismic data collection); or companies engaged in the exploration, production, marketing, refining, and/or transportation of oil and gas products, coal, and other consumable fuels. • Financials ETF seeks to track the performance of the MSCI US Investable Market Financials Index, an index of stocks issued by U.S. companies within the financials sector. This sector is made up of companies involved in activities such as banking, mortgage finance, consumer finance, specialized finance, investment banking and brokerage, asset management and custody, corporate lending, insurance, financial investment, and real estate (including REITs). • Health Care ETF seeks to track the performance of the MSCI US Investable Market Health Care Index, an index of stocks issued by U.S. companies within the health care sector. This sector is made up of two main industry groups. The first group includes companies 3
  • 17. that manufacture health care equipment and supplies or provide healthcare-related services (such as distributors of health care products, providers of basic health care services, and owners and operators of health care facilities and organizations). The second group includes companies primarily involved in the research, development, production, and marketing of pharmaceuticals and biotechnology products. • Industrials ETF seeks to track the performance of the MSCI US Investable Market Industrials Index, an index of stocks issued by U.S. companies within the industrials sector. This sector is made up of companies whose businesses are dominated by one of the following activities: the manufacture and distribution of capital goods (including aerospace and defense, construction, engineering and building products, electrical equipment, and industrial machinery); the provision of commercial services and supplies (including printing, employment, environmental, and office services); or the provision of transportation services (including airlines, couriers, marine, road and rail, and transportation infrastructure). • Information Technology ETF seeks to track the performance of the MSCI US Investable Market Information Technology Index, an index of stocks issued by U.S. companies within the information technology sector. This sector is made up of companies in the following three general areas: technology software and services, including companies that primarily develop software in various fields (such as the Internet, applications, systems, databases management, and/or home entertainment) and companies that provide information technology consulting and services, data processing, and outsourced services; technology hardware and equipment, including manufacturers and distributors of communications equipment, computers and peripherals, electronic equipment, and related instruments; and semiconductors and semiconductor equipment manufacturers. • Materials ETF seeks to track the performance of the MSCI US Investable Market Materials Index, an index of stocks issued by U.S. companies within the 4
  • 18. materials sector. This sector is made up of companies in a wide range of commodity-related manufacturing industries. Included within this sector are companies that manufacture chemicals, construction materials, glass, paper, forest products, and related packaging products, as well as metals, minerals, and mining companies, including producers of steel. • REIT ETF seeks to track the performance of the MSCI US REIT Index, an index of stocks issued by U.S. equity real estate investment trusts. Equity REITs are companies that own and manage real estate properties, including retail, office, residential apartment, industrial, and other types of properties. Equity REITs generate income from rental and lease payments, and they offer the potential for growth from property appreciation as well as occasional capital gains from the sale of property. • Telecommunication Services ETF seeks to track the performance of the MSCI US Investable Market Telecommunications Services Index, an index of stocks issued by U.S. companies within the telecommunications services sector. This sector is made up of companies that provide communications services primarily through fixed-line, cellular, wireless, high bandwidth, and/or fiber-optic cable networks. • Utilities ETF seeks to track the performance of the MSCI US Investable Market Utilities Index, an index of stocks issued by U.S. companies within the utilities sector. This sector is made up of electric, gas, and water utility companies as well as companies that operate as independent producers and/or distributors of power. The sector includes both nuclear and nonnuclear facilities. What are the risks of owning Vanguard U.S. Sector ETFs? • When you own one of the Vanguard U.S. Sector ETFs, you own shares of a fund that holds a portfolio of stocks. The price of a fund’s ETF Shares will rise and fall as the stocks held by the fund fluctuate in value. An investment in a Vanguard U.S. Sector ETF could lose money over short or even long periods. 5
  • 19. • Vanguard U.S. Sector ETFs are 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. • Vanguard U.S. Sector ETFs are subject to sector risk, which is the chance that there will be overall problems affecting a particular sector, or that returns from a particular sector will trail returns from the overall stock market. Because each Vanguard U.S. sector index fund invests all, or substantially all, of its assets in a particular sector, each fund’s performance largely depends on the overall condition of the sector in which it invests. • Vanguard U.S. Sector ETF Shares are subject to nondiversification risk, which is the chance that a fund’s performance could be hurt disproportionately by the poor performance of relatively few stocks or even a single stock. Each Vanguard U.S. sector index fund is considered nondiversified, which means that it may invest a greater percentage of its assets in securities of particular issuers as compared with other mutual funds. • Vanguard U.S. Sector ETFs that sample their target indexes to comply with IRS diversification rules, which include Consumer Staples, Energy, and Telecommunication Services ETFs, may experience a greater degree of tracking error than other Vanguard ETFs™. • The market price of a fund’s ETF Shares may differ from the NAV of those shares. The difference between market price and NAV is expected to be small most of the time, but in times of extreme market volatility the difference may become significant. • Although Vanguard U.S. Sector ETFs will be listed for trading on the NYSE Arca, it is possible that an active trading market may not be maintained. • Trading of a fund’s ETF Shares on the NYSE Arca may be halted if NYSE Arca officials deem such action appropriate, if the shares are delisted from the NYSE Arca, or if the activation of marketwide “circuit breakers” (which are tied to large decreases in the Dow Jones Industrial Average) halts stock trading generally. 6
  • 20. How do I buy and sell ETF Shares? You can buy and sell ETF Shares on the secondary market in the same way you buy and sell any other exchange-traded security—through a broker. In most cases, the broker will charge you a commission to execute the transaction. Unless imposed by your broker, there is no minimum dollar amount you must invest and no minimum number of ETF Shares you must buy. ETF Shares cannot be purchased or redeemed directly with the issuing fund except by certain authorized broker-dealers. These broker-dealers may purchase and redeem ETF Shares only in large blocks worth several million dollars and only in exchange for baskets of securities rather than cash. In addition, owners of conventional mutual fund shares issued by one of Vanguard’s U.S. sector index funds may convert those shares into ETF Shares. To initiate a conversion, you must contact your broker. Vanguard charges a fee for conversions, and your broker may impose an additional fee. Please note that a fund’s ETF Shares may not be converted into or exchanged for conventional mutual fund shares of the same fund or ETF Shares of another fund. What fees and expenses will I incur to buy, own, and sell Vanguard U.S. Sector ETFs? When you buy or sell ETF Shares through a broker, you will pay a commission in an amount that will vary depending on the firm. You will also incur the cost of the “bid-asked spread, which is the difference ” between the price a dealer will pay for a security and the somewhat higher price at which the dealer will sell the same security. The total annual operating expenses (i.e., the expense ratio) for each of the U.S. Sector ETFs through fiscal year 2007 were as follows: 0.22% ($2.20 per $1,000 of average net assets), except for Vanguard REIT ETF which , was 0.10% ($1.00 per $1,000 of average net assets), and Vanguard Telecommunication Services ETF which , was 0.23% ($2.30 per $1,000 of average net assets). 7
  • 21. How often will I receive distributions of dividends and capital gains? Can I reinvest these distributions? Except as noted, U.S. Sector ETFs distribute dividends in December. Financials, REIT, and Utilities ETFs distribute dividends (a portion of which, in the case of REIT ETF may be attributable to return of capital) , quarterly in March, June, September, and December. U.S. Sector ETFs distribute capital gains, if any, in December; REIT ETF may occasionally make a supplemental distribution at some other time during the year. Some brokers are able to reinvest dividend and capital gains distributions in additional ETF Shares, while others are not. Please ask your broker whether it offers a reinvestment service and, if so, whether there is a charge for the service. If your broker does not offer a reinvestment service, you will receive all dividend and capital gains distributions in cash. Who manages the funds that issue U.S. Sector ETF Shares? All of the Vanguard funds that issue U.S. Sector ETFs are advised and managed by The Vanguard Group, Inc. (Vanguard), a registered investment advisor. As an owner of ETF Shares, do I receive services from Vanguard? Because you hold ETF Shares through a brokerage account, Vanguard will have no record of your ownership (unless your broker is Vanguard Brokerage Services®). Your broker will service your account. For example, the broker will provide account statements, confirmations of your purchases and sales of ETF Shares, and year-end tax information. It also will be responsible for ensuring that you receive shareholder reports and other communications from the fund whose ETF Shares you own. You will receive certain services (e.g., dividend reinvestment and average-cost information) only if your broker offers those services. 8
  • 22. Where can I find price information about Vanguard U.S. Sector ETFs? The closing market price of each issue of ETF Shares on the preceding business day is published in the business section of most major newspapers in the listing of stocks traded on the NYSE Arca. Vanguard’s website at www.vanguard.com shows the preceding business day’s closing NAV and closing market price, as well as historical performance information. The website also discloses how frequently each issue of ETF Shares traded at a premium or discount to NAV (based on closing NAVs and market prices) and the magnitude of those premiums and discounts. What other information can you tell me about ETF Shares? • Each Vanguard fund that issues ETF Shares reserves the right to substitute a different index for the index it currently tracks if the current index is discontinued, if the fund’s license with the sponsor of the current index is terminated, or for any other reason determined in good faith by the fund’s board of trustees. In every such instance, the substitute index would measure the same market segment as the current index. • If a fund’s ETF Shares are delisted from the NYSE Arca, Vanguard will seek to list the shares on another stock exchange, convert the ETF Shares into conventional shares of the same fund, or redeem the ETF Shares at NAV. • ETF Shares are investment company securities subject to the restrictions of section 12(d)(1) of the Investment Company Act of 1940. 9
  • 23. Institutional Division P Box 2900 .O. Valley Forge, PA 19482-2900 Connect with Vanguard ® > www.vanguard.com For more information about Vanguard ETF ™ Shares, visit www.vanguard.com, call 866-499-8473, or contact your broker to obtain a product description and prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in these documents; read and consider them carefully before investing. The funds or securities referred to herein that are offered by The Vanguard Group and track an MSCI index are not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such funds or securities. For such funds or securities, the prospectus or the Statement of Additional Information contains a more detailed description of the limited relationship MSCI has with The Vanguard Group. Vanguard, Vanguard ETFs, Vanguard ETF, Vanguard Brokerage Services, Connect with Vanguard, and the ship logo are trademarks of The Vanguard Group, Inc. All other trademarks are the exclusive property of their respective owners. © 2008 The Vanguard Group, Inc. All rights reserved. U.S. Pat. No. 6,879,964 B2; 7,337,138. Vanguard Marketing Corporation, Distributor. DIPPV 082008
  • 24. Product Description for Vanguard International ® Stock ETFs
  • 25. What are international stock ETFs? International stock ETFs are exchange-traded shares issued by one of the following Vanguard® international stock funds: ETF share class Fund (Trading symbol) Target index Vanguard FTSE Vanguard FTSE FTSE All-World All-World ex-US All-World ex-US ex US Index Index Fund ETF (VEU) Vanguard Tax- Vanguard MSCI® EAFE® Index Managed Europe Pacific International Fund ETF (VEA) Vanguard European Vanguard European MSCI Europe Index Stock Index Fund ETF (VGK) Vanguard Pacific Vanguard Pacific MSCI Pacific Index Stock Index Fund ETF (VPL) Vanguard Emerging Vanguard Emerging MSCI Emerging Markets Stock Markets ETF (VWO) Markets Index Index Fund Vanguard Total Vanguard Total FTSE All-World Index World Stock World Stock Index Fund ETF (VT) The funds issue conventional mutual fund shares (Investor, Admiral™, Signal™, or Institutional Shares) as well as ETF Shares. There are significant differences between conventional mutual fund shares and ETF Shares, and it is important that you be aware of those differences. How do a fund’s ETF Shares differ from its conventional shares? Conventional shares of a Vanguard mutual fund are bought from and redeemed with the issuing fund (either directly or through a fund supermarket) at a net asset value (NAV) calculated once a day. ETF Shares, by contrast, cannot be bought from or redeemed with the issuing fund, except as noted on page 5 (see “How do I buy and sell ETF Shares?”). Rather, you must buy and sell ETF Shares through a brokerage firm. Your purchase or sale of a fund’s ETF Shares will occur not at the daily NAV, but at market prices that change throughout the day based on the supply of and demand for shares. At any given time, the market price of a fund’s ETF Shares may be more than, less than, or equal to the 1
  • 26. NAV of those shares. Like common stocks (and unlike conventional mutual fund shares), ETF Shares will be listed for trading on a stock exchange—in these cases, the American Stock Exchange or NYSE Arca (each a “national securities exchange”). What are the investment objectives and investment strategies of the various international stock ETFs? Each issue of international stock ETFs is designed to give investors exposure to a segment of the international stock market by tracking the performance of a benchmark index. Each Vanguard fund that issues international stock ETF Shares invests all, or substantially all, of its assets in the stocks that make up the fund’s target index, holding each stock in approximately the same proportion as its weighting in the index. For more information on the indexes tracked by international stock ETFs, go to www.mscibarra.com or www.ftse.com. • Vanguard FTSE All-World ex-US ETF gives investors exposure to developed and emerging stock markets around the world. It seeks to track the FTSE All-World ex US Index, which includes approximately 2,200 stocks of companies located in 46 countries, including both developed and emerging markets. As of March 31, 2008, the largest markets covered in the index were the United Kingdom, Japan, France, Germany, Australia, and Switzerland (which made up 15%, 14%, 9%, 7%, 5%, and 5%, respectively, of the Index’s market capitalization). • Vanguard Europe Pacific ETF gives investors exposure to the Europe and Pacific markets. It seeks to track the MSCI EAFE Index, which includes approximately 1,200 common stocks of companies located in 21 countries in Europe, Australia, Asia, and the Far East. • Vanguard European ETF gives investors exposure to European stock markets. It seeks to track the MSCI Europe Index, which consists of approximately 600 common stocks of companies located in 16 European 2
  • 27. countries—mostly companies in the United Kingdom, France, Germany, and Switzerland which made up 31%, 16%, 13%, and 10%, respectively, of the Index’s market capitalization, as of March 31, 2008. Other countries represented in the index include Austria, Belgium, Denmark, Finland, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, and Sweden. • Vanguard Pacific ETF gives investors exposure to the stock markets of Japan and other major markets of the Pacific region. It seeks to track the MSCI Pacific Index, which consists of approximately 550 common stocks of companies located primarily in Japan, Australia, Hong Kong, Singapore, and New Zealand. As of March 31, 2008, Japan and Australia made up 67% and 21%, respectively, of the Index’s market capitalization. • Vanguard Emerging Markets ETF gives investors exposure to emerging stock markets around the world. It seeks to track the MSCI Emerging Markets Index, which includes approximately 850 common stocks of companies located in 25 emerging markets of Europe, Asia, Africa, and Latin America. Five countries—China, South Korea, Brazil, Taiwan, and Russia—collectively represent a majority of the Index, with 14%, 14%, 14%, 12%, and 10%, respectively, of the Index’s market capitalization as of March 31, 2008. Other countries represented in the index include Argentina, Chile, Colombia, the Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Malaysia, Mexico, Morocco, Pakistan, Peru, the Philippines, Poland, South Africa, Thailand, and Turkey. • Vanguard Total World Stock ETF gives investors exposure to developed and emerging markets around the world. It seeks to track the FTSE All-World Index, which includes approximately 2,900 stocks of companies located in 47 countries, including both developed and emerging markets. As of March 31, 2008, the largest markets covered in the Index were the United States, the United Kingdom, Japan, France, and Germany which made up 41%, 9%, 9%, 5%, and 4%, respectively, of the Index’s market capitalization. 3
  • 28. What are the risks of owning international stock ETFs? • When you own international stock ETFs, you own shares of a fund that holds a portfolio of stocks. The price of a fund’s ETF Shares will rise and fall as the stocks held by the fund fluctuate in value. An investment in international stock ETFs could lose money over short or even long periods. • International stock ETFs are 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. In addition, investments in foreign stock markets can be riskier than U.S. stock investments. The prices of foreign stocks and the prices of U.S. stocks have, at times, moved in opposite directions. • International stock ETFs are subject to country risk, which is the chance that world events—such as political upheaval, financial troubles, or natural disasters—will adversely affect the value of companies in a particular country. Each issue of international stock ETFs, especially Pacific ETFs, have significant exposure to a small number of countries. An investment in international stock ETFs therefore may involve a higher degree of country risk than an investment in more geographically diversified international funds. • European and Pacific ETFs are subject to regional risk, which is the chance that an entire region will be hurt by political upheaval, financial troubles, or natural disasters. • Emerging Markets ETF and, to a lesser degree, FTSE All-World ex-US ETF and Total World Stock ETF are , subject to emerging markets risk, which is the chance that emerging markets will be substantially more volatile, and substantially less liquid, than the more developed foreign markets. • International stock ETFs are subject to currency risk, which 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. 4
  • 29. • The market price of a fund’s ETF Shares will vary somewhat from the NAV of those shares. Therefore, you may pay more than NAV when purchasing ETF Shares and you may receive less than NAV when selling them. The variation between market price and NAV is expected to be small most of the time, but in times of extreme market volatility the difference may become significant. • Although international stock ETFs will be listed for trading on a national securities exchange, it is possible that an active trading market may not develop or be maintained. • Trading of a fund’s ETF Shares on a national securities exchange may be halted if exchange officials deem such action appropriate, the shares are delisted from the exchange, or the activation of marketwide “circuit breakers” (which are tied to large decreases in stock prices) halts stock trading generally. How do I buy and sell ETF Shares? You buy and sell ETF Shares in the same way you buy and sell any other exchange-traded security—through a brokerage firm. The firm will charge you a commission to execute the transaction. Unless imposed by your brokerage firm, there is no minimum dollar amount you must invest and no minimum number of ETF Shares you must purchase. ETF Shares cannot be purchased or redeemed directly with the issuing fund except by certain authorized broker-dealers. These broker-dealers may purchase and redeem ETF Shares only in large blocks worth several million dollars and only in exchange for baskets of securities or, in the case of Emerging Markets ETF and to a lesser extent FTSE All-World ex-US ETF and Total World Stock ETF securities and cash. , In addition, owners of conventional mutual fund shares issued by one of Vanguard’s international funds may convert those shares into ETF Shares. To initiate a conversion, you must contact your brokerage firm. Vanguard charges a fee for conversions, and your brokerage firm may impose an additional fee. Please 5
  • 30. note that a fund’s ETF Shares may not be converted into or exchanged for conventional mutual fund shares of the same fund or ETF Shares of another fund. What fees and expenses will I incur to buy, own, and sell international stock ETFs? When you buy or sell ETF Shares through a brokerage firm, you will pay commissions in an amount that will vary depending on the firm. You will also incur the cost of the “bid-asked spread, which is the difference ” between the price a dealer will pay for a security and the somewhat higher price at which the dealer will sell the same security. The total annual operating expenses (i.e., the “expense ratio”) for the international stock ETFs are expected to be: FTSE All-World ex-US ETF: 0.25% (25 basis points) = $2.50 per $1,000 of average net assets Europe Pacific ETF: 0.12% (12 basis points) = $1.20 per $1,000 of average net assets European ETF: 0.12% (12 basis points) = $1.20 per $1,000 of average net assets Pacific ETF: 0.12% (12 basis points) = $1.20 per $1,000 of average net assets Emerging Markets ETF: 0.25% (25 basis points) = $2.50 per $1,000 of average net assets Total World Stock ETF: 0.25% (25 basis points) = $2.50 per $1,000 of average net assets How often will I receive distributions of dividends and capital gains? Can I reinvest these distributions? Vanguard’s international funds generally distribute dividends and capital gains, if any, in December. Some brokerage firms are able to reinvest dividend and capital gains distributions in additional ETF Shares, while others are not. Please ask your firm whether it offers a reinvestment service and, if so, whether there is a charge for the service. If your brokerage firm does not offer a reinvestment service, you will receive all dividends and capital gains distributions in cash. 6
  • 31. Who manages the funds that issue international stock ETF Shares? All of the Vanguard funds that issue international stock ETF Shares are advised and managed by The Vanguard Group, Inc. (Vanguard), a registered investment advisor. As an owner of ETF Shares, do I receive services from Vanguard? Because you hold ETF Shares through a brokerage account, Vanguard will have no record of your ownership (unless your broker is Vanguard Brokerage Services®). Your brokerage firm will service your account. For example, the firm will provide account statements, confirmations of your purchases and sales of ETF Shares, and year-end tax information. It also will be responsible for ensuring that you receive shareholder reports and other communications from the fund whose ETF Shares you own. You will receive certain services (e.g., dividend reinvestment and average cost information) only if your brokerage firm offers those services. Where can I find price information about international stock ETFs? The closing market price of each issue of ETF Shares on the preceding business day is published in the business section of many major newspapers in the listing of stocks traded on a national securities exchange. Vanguard’s website at www.vanguard.com shows the preceding business day’s closing NAV and closing market price. The website also discloses how frequently each issue of ETF Shares traded at a premium or discount to NAV (based on closing NAVs and market prices), and the magnitude of those premiums and discounts. 7
  • 32. What other information can you tell me about ETF Shares? • Each Vanguard fund that issues ETF Shares reserves the right to substitute a different index for the index it currently tracks if the current index is discontinued, the fund’s license with the sponsor of the current index is terminated, or for any other reason determined in good faith by the fund’s board of trustees. In every such instance, the substitute index will measure the same general market or market sector as the current index. • If a fund’s ETF Shares are delisted from a national securities exchange, Vanguard will seek to list the shares on another stock exchange, convert the ETF Shares into conventional shares of the same fund, or redeem the ETF Shares at NAV. • ETF Shares are investment company securities subject to the restrictions of section 12(d)(1) of the Investment Company Act of 1940. 8
  • 33. Institutional Division P Box 2900 .O. Valley Forge, PA 19482-2900 Connect with Vanguard ® > www.vanguard.com For more information about Vanguard, Vanguard ETF, Admiral, Signal, Vanguard ETF™ Shares, visit Vanguard Brokerage Services, Connect with www.vanguard.com, call Vanguard, and the ship logo are trademarks of The Vanguard Group, Inc. The funds or 866-499-8473, or contact your securities referred to herein that are broker to obtain a product offered by The Vanguard Group and track description and prospectus. an MSCI index are not sponsored, endorsed, Investment objectives, risks, or promoted by MSCI, and MSCI bears no charges, expenses, and other liability with respect to any such funds or important information are securities. For such funds or securities, the prospectus or the Statement of Additional contained in these documents; Information contains a more detailed read and consider them description of the limited relationship carefully before investing. MSCI has with The Vanguard Group. “FTSE®” is a trademark jointly owned by the London Stock Exchange plc and The Financial Times Limited, and is used by FTSE International Limited under license. The FTSE All-World ex USA Index is calculated by FTSE International Limited. FTSE International Limited does not sponsor, endorse, or promote the fund; is not in any way connected to it; and does not accept any liability in relation to its issue, operation, and trading. All other trademarks are the exclusive property of their respective owners. © 2008 The Vanguard Group, Inc. All rights reserved. U.S. Pat. No. 6,879,964 B2; 7,337,138. Vanguard Marketing Corporation, Distributor. VIPD 062008
  • 34. Product Description for Vanguard Bond ETFs™
  • 35. What are Vanguard Bond ETFs? Vanguard Bond ETFs are exchange-traded shares issued by one of the following Vanguard Bond Index Funds: ETF share class Fund (Trading symbol) Target index Vanguard Total Vanguard Total Lehman Brothers Bond Market Bond Market U.S. Aggregate Index Fund ETF (BND) Bond Index Vanguard Vanguard Lehman Brothers Short-Term Short-Term 1–5 Year U.S. Bond Index Fund Bond ETF (BSV) Government/ Credit Index Vanguard Vanguard Lehman Brothers Intermediate-Term Intermediate-Term 5–10 Year U.S. Bond Index Fund Bond ETF (BIV) Government/ Credit Index Vanguard Vanguard Lehman Brothers Long-Term Long-Term U.S. Long Bond Index Fund Bond ETF (BLV) Government/ Credit Index The funds issue conventional mutual fund shares (Investor, Admiral™, Signal®, and/or Institutional Shares) as well as ETF Shares. There are significant differences between conventional mutual fund shares and ETF Shares, and it is important that you be aware of those differences. 1
  • 36. How do a fund’s ETF Shares differ from its conventional shares? Conventional shares of a Vanguard mutual fund are bought from and redeemed with the issuing fund (either directly or through a fund supermarket) for cash at a net asset value (NAV) typically calculated once a day. ETF Shares, by contrast, cannot be bought from or redeemed with the issuing fund, except as noted on page 5 (see “How do I buy and sell ETF Shares?”). Rather, you must buy and sell ETF Shares through a broker. Your purchase or sale of a fund’s ETF Shares will occur not at the daily NAV, but at market prices that change throughout the day based on the supply of, and demand for, ETF Shares and on changes in the prices of the fund’s portfolio holdings. At any given time, the market price of a fund’s ETF Shares may be more than, less than, or equal to the NAV of those shares. Like common stocks (and unlike conventional mutual fund shares), ETF Shares will be listed for trading on a national securities exchange—in this case, the NYSE Arca, Inc. (NYSE Arca). What are the investment objectives and investment strategies of the various Vanguard Bond ETFs? Each Vanguard Bond ETF™ is designed to give investors exposure to a segment of the U.S. taxable, investment- grade bond market by seeking to track the performance of a benchmark index. Each ETF invests by sampling its target index, meaning that it holds a range of securities that, in the aggregate, approximates the full index in terms of key characteristics (average maturity, average credit quality, issuer type, and yield) and risk factors. For more information on the indexes tracked by the Vanguard Bond ETFs, go to www.lehman.com/fi/indices. 2
  • 37. • Total Bond Market ETF seeks to track the Lehman Brothers U.S. Aggregate Bond Index. This index represents a wide spectrum of public, investment- grade, taxable, fixed income securities in the United States—including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities— all with maturities of more than 1 year. • Short-Term Bond ETF seeks to track the Lehman Brothers 1–5 Year U.S. Government/Credit Index. This index includes all medium and larger issues of U.S. government, investment-grade corporate, and investment-grade international dollar-denominated bonds that have maturities between 1 and 5 years and are publicly issued. • Intermediate-Term Bond ETF seeks to track the Lehman Brothers 5–10 Year U.S. Government/Credit Index. This index includes all medium and larger issues of U.S. government, investment-grade corporate, and investment-grade international dollar-denominated bonds that have maturities between 5 and 10 years and are publicly issued. • Long-Term Bond ETF seeks to track the Lehman Brothers U.S. Long Government/Credit Index. This index includes all medium and larger issues of U.S. government, investment-grade corporate, and investment-grade international dollar-denominated bonds that have maturities of greater than 10 years and are publicly issued. 3
  • 38. What are the risks of owning Vanguard Bond ETFs? • When you own one of the Vanguard Bond ETFs, you own shares of a fund that holds a portfolio of bonds. The price of a fund’s ETF Shares will rise and fall as the bonds held by the fund fluctuate in value. An investment in a Vanguard Bond ETF could lose money over short or even long periods. • Vanguard Bond ETFs are subject to interest rate risk, which is the chance that bond prices overall will decline because of rising interest rates. The longer the time until a bond matures, the more sensitive the price of the bond is to changes in interest rates. Accordingly, interest rate risk should be high for the Long-Term Bond ETF moderate for the Total Bond , Market ETF and the Intermediate-Term Bond ETF , and low for the Short-Term Bond ETF . • Vanguard Bond ETFs are subject to income risk, which is the chance that the fund’s income will decline because of falling interest rates. Income risk should be high for the Short-Term Bond ETF moderate , for the Total Bond Market ETF and the Intermediate- Term Bond ETF and low for the Long-Term Bond ETF , . • Vanguard Bond ETFs are subject to credit risk, which is the chance that a bond issuer will fail to pay interest and principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of that bond to decline. Credit risk should be low for the funds because each fund purchases only bonds that are issued by the U.S. Treasury or are of investment-grade quality. • Vanguard Bond ETFs are subject to index sampling risk, which is the chance that the securities selected for the fund, in the aggregate, will not provide investment performance matching that of the fund’s index. Index sampling risk should be low for each of the funds. 4
  • 39. • The market price of a fund’s ETF Shares may differ from the NAV of those shares. The difference between market price and NAV is expected to be small most of the time, but in times of extreme market volatility, the difference may become significant. • Although Vanguard Bond ETFs will be listed for trading on the NYSE Arca, it is possible that an active trading market may not be maintained. • Trading of a fund’s ETF Shares on the NYSE Arca may be halted if NYSE Arca officials deem such action appropriate, if the shares are delisted from the NYSE Arca, or if the activation of marketwide “circuit breakers” (which are tied to large decreases in the Dow Jones Industrial Average) halts stock trading generally. How do I buy and sell ETF Shares? You can buy and sell ETF Shares on the secondary market in the same way you buy and sell any other exchange-traded security—through a broker. In most cases, the broker will charge you a commission to execute the transaction. Unless imposed by your broker, there is no minimum dollar amount you must invest and no minimum number of ETF Shares you must buy. ETF Shares cannot be purchased or redeemed directly with the issuing fund except by certain authorized broker-dealers. These broker-dealers may purchase and redeem ETF Shares only in large blocks worth several million dollars and only in exchange for baskets of securities rather than cash. 5
  • 40. What fees and expenses will I incur to buy, own, and sell Vanguard Bond ETFs? Investors in an ETF bear two types of costs: ownership costs, which consist of the fund’s operating expenses, and transaction costs, which consist of the costs incurred in buying and selling the fund’s shares. Ownership costs: The total annualized operating expenses (i.e., the “expense ratio”) for each of the Vanguard Bond ETFs through fiscal year 2007 was 0.11% (11 basis points). Transaction costs: When you buy or sell an ETF through a broker, you will pay a commission in an amount that will vary depending on the firm. You will also incur the cost of the “bid-asked spread, which is ” the difference between the price a dealer will pay for a security and the somewhat higher price at which the dealer will sell the same security. 6
  • 41. How often will I receive distributions of dividends and capital gains? Can I reinvest these distributions? Each Vanguard Bond ETF declares and distributes dividends monthly; capital gains, if any, are distributed in December. Some brokers are able to reinvest dividend and capital gains distributions in additional ETF Shares, while others are not. Please ask your broker whether it offers a reinvestment service and, if so, whether there is a charge for the service. If your broker does not offer a reinvestment service, you will receive all dividend and capital gains distributions in cash. As with all exchange-traded funds, reinvestment of dividend and capital gains distributions in additional shares of the Vanguard Bond ETFs will occur several business days after the ex-dividend date (the date when a distribution of dividends or capital gains is deducted from the price of the fund’s shares); the exact number of days depends on your broker. During that time, the amount of your distribution will not be invested in the fund and therefore will not participate in the fund’s income, gains, and losses. Who manages the funds that issue Vanguard Bond ETF Shares? All of the Vanguard bond funds that issue ETF Shares are advised and managed by The Vanguard Group, Inc. (Vanguard), a registered investment advisor. 7
  • 42. As an owner of ETF Shares, do I receive services from Vanguard? Because you hold ETF Shares through a brokerage account, Vanguard will have no record of your ownership (unless your broker is Vanguard Brokerage Services®). Your broker will service your account. For example, the broker will provide account statements, confirmations of your purchases and sales of ETF Shares, and year-end tax information. It also will be responsible for ensuring that you receive shareholder reports and other communications from the fund whose ETF Shares you own. You will receive certain services (e.g., dividend reinvestment and average cost information) only if your broker offers those services. Where can I find price information about Vanguard Bond ETFs? Vanguard’s website at www.vanguard.com shows the preceding business day’s closing NAV and closing market price, as well as historical performance information. The website also discloses how frequently each issue of ETF Shares traded at a premium or discount to NAV (based on closing NAVs and market prices) and the magnitude of those premiums and discounts. 8
  • 43. What other information can you tell me about ETF Shares? • Each Vanguard fund that issues ETF Shares reserves the right to substitute a different index for the index it currently tracks if the current index is discontinued, if the fund’s license with the sponsor of the current index is terminated, or for any other reason determined in good faith by the fund’s board of trustees. In every such instance, the substitute index would measure the same general market or market segment as the current index. • If a fund’s ETF Shares are delisted from the NYSE Arca, Vanguard will seek to list the shares on another stock exchange, convert the ETF Shares into conventional shares of the same fund, or redeem the ETF Shares at NAV. • ETF Shares are investment company securities subject to the restrictions of section 12(d)(1) of the Investment Company Act of 1940. 9
  • 44. Institutional Division P Box 2900 .O. Valley Forge, PA 19482-2900 Connect with Vanguard ® > www.vanguard.com For more information about Vanguard Bond ETFs are not sponsored, Vanguard ETF Shares, visit endorsed, sold or promoted by www.vanguard.com, call Lehman Brothers. Lehman makes no representation or warranty, express or 866-499-8473, or contact your implied, to the owners of Vanguard broker to obtain a product Bond ETFs or any member of the public description and prospectus. regarding the advisability of investing Investment objectives, risks, in securities generally or in Vanguard charges, expenses, and other Bond ETFs particularly or the ability of important information are the Lehman Index to track general bond market performance. Lehman hereby contained in these documents; expressly disclaims all warranties of read and consider them merchantability and fitness for a carefully before investing. particular purpose with respect to the Lehman Index and any data included therein. Lehman’s only relationship to Vanguard and Vanguard Bond ETFs is the licensing of the Lehman Index, which is determined, composed, and calculated by Lehman without regard to Vanguard or Vanguard Bond ETFs. Lehman is not responsible for and has not participated in the determination of the timing, prices, or quantities of Vanguard Bond ETFs to be issued. © 2008 The Vanguard Group, Inc. All rights reserved. U.S. Pat. No. 6,879,964 B2; 7,337,138. Vanguard Marketing Corporation, Distributor. VBIPD 102008
  • 45. Product Description for Vanguard Extended Duration Treasury ETF
  • 46. What is Vanguard Extended Duration Treasury ETF? Vanguard Extended Duration Treasury ETF is an exchange-traded class of shares issued by: ETF share class Fund (Trading symbol) Target index Vanguard Extended Vanguard Extended Lehman Brothers Duration Treasury Duration Treasury Treasury STRIPS Index Fund ETF (EDV) 20–30 Year Equal Par Bond Index The fund issues conventional mutual fund shares (Institutional and Institutional Plus Shares) as well as ETF Shares. There are significant differences between conventional mutual fund shares and ETF Shares, and it is important that you be aware of those differences. Vanguard Extended Duration Treasury Index Fund is primarily intended for pension plans and other institutional investors that desire to closely match long-term liabilities with a portfolio of U.S. Treasury securities of similar long-term duration. Interest rate risk is expected to be extremely high for the fund because it invests mainly in zero-coupon long-term bonds, which have prices that are very sensitive to interest rate changes. Because the fund invests mainly in Treasury STRIPS with maturities ranging from 20 to 30 years, rising interest rates may cause the value of the fund’s investments to decline significantly. Prospective investors are urged to consult with their own advisors to determine the suitability of investment in the fund and the relationship of this investment to their overall investment programs and financial and tax positions. 1
  • 47. How do a fund’s ETF Shares differ from its conventional shares? Conventional shares of a Vanguard mutual fund are bought from and redeemed with the issuing fund (either directly or through a fund supermarket) for cash at a net asset value (NAV) typically calculated once a day. ETF Shares, by contrast, cannot be bought from or redeemed with the issuing fund, except as noted on page 4 (see “How do I buy and sell ETF Shares?”). Rather, you must buy and sell ETF Shares through a broker. Your purchase or sale of a fund’s ETF Shares will occur not at the daily NAV, but at market prices that change throughout the day based on the supply of, and demand for, ETF Shares and on changes in the prices of the fund’s portfolio holdings. At any given time, the market price of a fund’s ETF Shares may be more than, less than, or equal to the NAV of those shares. Like common stocks (and unlike conventional mutual fund shares), ETF Shares will be listed for trading on a national securities exchange—in this case, the NYSE Arca, Inc. (NYSE Arca). What are the investment objectives and investment strategies of Vanguard Extended Duration Treasury ETF? Vanguard Extended Duration Treasury ETF is designed to give investors exposure to a segment of the U.S. bond market by seeking to track the performance of a benchmark index. The ETF invests by sampling its target index, meaning that it holds a range of securities that, in the aggregate, approximates the full index in terms of key characteristics and other risk factors. These factors include duration, cash flow, and quality of the underlying bonds. For more information on the index tracked by Vanguard Extended Duration Treasury ETF go to www.lehman.com/fi/indices. , Extended Duration Treasury ETF seeks to track the Lehman Brothers Treasury STRIPS 20–30 Year Equal 2
  • 48. Par Bond Index. This index includes zero-coupon U.S. Treasury securities (Treasury STRIPS) with maturities ranging from 20 to 30 years. A Treasury STRIP represents a single coupon payment, or a single principal payment, from a U.S. Treasury security that has been "stripped" into separately tradable components. What are the risks of owning Vanguard Extended Duration Treasury ETF? • When you own Vanguard Extended Duration Treasury ETF you own shares of the fund that holds a portfolio of , Treasury STRIPS. The price of the fund’s ETF Shares will rise and fall as Treasury STRIPS held by the fund fluctuate in value. An investment in Vanguard Extended Duration Treasury ETF could lose money over short or even long periods. • Vanguard Extended Duration Treasury ETF is subject to interest rate risk, which is the chance that bond prices overall will decline because of rising interest rates. Interest rate risk is expected to be extremely high for the fund because it invests mainly in zero-coupon long-term bonds, which have prices that are very sensitive to interest rate changes. Because the fund invests mainly in Treasury STRIPS with maturities ranging from 20 to 30 years, rising interest rates may cause the value of the fund’s investments to decline significantly. • Vanguard Extended Duration Treasury ETF is subject to index sampling risk, which is the chance that the securities selected for the fund, in the aggregate, will not provide investment performance matching that of the fund’s index. Index sampling risk should be low for the fund. • The market price of the fund’s ETF Shares may differ from the NAV of those shares. The difference between market price and NAV is expected to be small most of the time, but in times of extreme market volatility the difference may become significant. 3
  • 49. • Although Vanguard Extended Duration Treasury ETF will be listed for trading on the NYSE Arca, it is possible that an active trading market may not be maintained. • Trading of the fund’s ETF Shares on the NYSE Arca may be halted if NYSE Arca officials deem such action appropriate, if the shares are delisted from the NYSE Arca, or if the activation of marketwide “circuit breakers” (which are tied to large decreases in the Dow Jones Industrial Average) halts stock trading generally. How do I buy and sell ETF Shares? You can buy and sell ETF Shares on the secondary market in the same way you buy and sell any other exchange-traded security—through a broker. In most cases, the broker will charge you a commission to execute the transaction. Unless imposed by your broker, there is no minimum dollar amount you must invest and no minimum number of ETF Shares you must buy. ETF Shares cannot be purchased or redeemed directly with the issuing fund except by certain authorized broker-dealers. These broker-dealers may purchase and redeem ETF Shares only in large blocks worth several million dollars and only in exchange for baskets of securities rather than cash. What fees and expenses will I incur to buy, own, and sell Vanguard Extended Duration Treasury ETF Shares? Investors in an ETF bear two types of costs: ownership costs, which consist of the ETF’s operating expenses; and transaction costs, which consist of the costs incurred in buying and selling the fund’s shares. Ownership costs: The total annualized operating expenses (i.e., the expense ratio) for Vanguard Extended Duration Treasury ETF through fiscal year 2007 were 0.14% (14 basis points). 4
  • 50. Transaction costs: When you buy or sell an ETF through a broker, you will pay a commission in an amount that will vary depending on the firm. You will also incur the cost of the “bid-asked spread, which is ” the difference between the price a dealer will pay for a security and the somewhat higher price at which the dealer will sell the same security. How often will I receive distributions of dividends and capital gains? Can I reinvest these distributions? Vanguard Extended Duration Treasury ETF’s income dividends accrue daily and are distributed quarterly in March, June, September, and December. Capital gains, if any, are distributed in December. Some brokers are able to reinvest dividend and capital gains distributions in additional ETF Shares, while others are not. Please ask your broker whether it offers a reinvestment service and, if so, whether there is a charge for the service. If your broker does not offer a reinvestment service, you will receive all dividend and capital gains distributions in cash. As with all exchange-traded funds, reinvestment of dividend and capital gains distributions in additional shares of the Vanguard Extended Duration Treasury ETF will occur several business days after the ex-dividend date (the date when a distribution of dividends or capital gains is deducted from the price of the fund’s shares); the exact number of days depends on your broker. During that time, the amount of your distribution will not be invested in the ETF and therefore will not participate in the ETF income, gains, and losses. Who manages Vanguard Extended Duration Treasury Index Fund and its ETF Shares? Vanguard Extended Duration Treasury Index Fund and its ETF Shares are advised and managed by The Vanguard Group, Inc. (Vanguard), a registered investment advisor. 5
  • 51. As an owner of ETF Shares, do I receive services from Vanguard? Because you hold ETF Shares through a brokerage account, Vanguard will have no record of your ownership (unless your broker is Vanguard Brokerage Services®). Your broker will service your account. For example, the broker will provide account statements, confirmations of your purchases and sales of ETF Shares, and year-end tax information. It also will be responsible for ensuring that you receive shareholder reports and other communications from the fund whose ETF Shares you own. You will receive certain services (e.g., dividend reinvestment and average cost information) only if your broker offers those services. Where can I find price information about Vanguard Extended Duration Treasury ETF? Vanguard’s website at www.vanguard.com shows the preceding business day’s closing NAV and closing market price, as well as historical performance information. The website also discloses how frequently each issue of ETF Shares traded at a premium or discount to NAV (based on closing NAVs and market prices) and the magnitude of those premiums and discounts. What other information can you tell me about ETF Shares? • Each Vanguard fund that issues ETF Shares reserves the right to substitute a different index for the index it currently tracks if the current index is discontinued, if the fund’s license with the sponsor of the current index is terminated, or for any other reason determined in good faith by the fund’s board of trustees. In every such instance, the substitute index would measure the same market segment as the current index. 6
  • 52. • If a fund’s ETF Shares are delisted from the NYSE Arca, Vanguard will seek to list the shares on another stock exchange, convert the ETF Shares into conventional shares of the same fund, or redeem the ETF Shares at NAV. • ETF Shares are investment company securities subject to the restrictions of section 12(d)(1) of the Investment Company Act of 1940. 7
  • 53. Institutional Division P Box 2900 .O. Valley Forge, PA 19482-2900 Connect with Vanguard ® > www.vanguard.com For more information about Vanguard Extended Duration Treasury ETF is Vanguard ETF™ Shares, visit not sponsored, endorsed, sold, or promoted www.vanguard.com, call by Lehman Brothers. Lehman makes no representation or warranty, express or 866-499-8473, or contact your implied, to the owners of Vanguard broker to obtain a product Extended Duration Treasury ETF or any description and prospectus. member of the public regarding the Investment objectives, risks, advisability of investing in securities charges, expenses, and other generally or in Vanguard Extended Duration important information are Treasury ETF particularly or the ability of the Lehman Index to track general bond market contained in these documents; performance. Lehman hereby expressly read and consider them disclaims all warranties of merchantability carefully before investing. and fitness for a particular purpose with respect to the Lehman Index and any data included therein. Lehman’s only relationship to Vanguard and Vanguard Extended Duration Treasury ETF is the licensing of the Lehman Index which is determined, composed, and calculated by Lehman without regard to Vanguard or Vanguard Extended Duration Treasury ETF. Lehman is not responsible for and has not participated in the determination of the timing, prices, or quantities of Vanguard Extended Duration Treasury ETF to be issued. © 2008 The Vanguard Group, Inc. All rights reserved. U.S. Pat. No. 6,879,964 B2; 7,337,138. Vanguard Marketing Corporation, Distributor. VEDPD 102008