Vgfa 2013-09

A PUBLICATION OF FUND FAMILY SHAREHOLDER ASSOCIATION • Vol. 23, No. 9
Taper-on, Taper-off
Funny, but for all the talk of “risk-on” and “risk-off” earlier this year—as
Europe’s markets and economies were teetering on the brink, backing away and then
pushing to the edge again—I haven’t heard anyone talking about “taper-on, taper-off.”
But that’s what’s been driving the markets of late (besides the slow build towards a strike
on Syria), and in the perverse logic that only Wall Street can conjure, strong economic
news, which should be good for stocks, instead suggests Fed tapering, and stocks sell off.
Yes, there are those who believe the Fed’s stimulus program is the only thing holding
the U.S. economy together, and so when the thundering herds (of sheep) begin to see
light and brightness in the economy, they instinctively sell. As I said, it’s perverse.
Hopefully, some of the rumor that is driving prices will be put to rest on September
18 after the Fed’s two-day meeting, where I expect they’ll say they are, at most, tapering
a tiny amount. My bet’s on no taper at all. Why? For one thing, have you noticed what’s
happened to home mortgage rates since the taper tantrum began? They’re up big, and
if tapering (or the talk of tapering) cracks its foundation, then the entire house comes
tumbling down. Kill the housing recovery and you kill the labor recovery, the durables
recovery (July’s report notwithstanding), the materials recovery and more.
Of course, bond market scare tactics were out in full force in August. One adviser
who I thought knew better cited the rising yield of the “typical” long bond having hit
3.84% in mid-August. Typical? 3.84%? That’s the 30-year Treasury, which is about as
typical a bond for most investors as Corvettes are typical two-seaters.
The standard measure of the bond market is the 10-year Treasury, where the volume
is currently 50% larger than that of the 30-year. That’s why it’s often referred to as the
“benchmark bond.” The yield on the 10-year Treasury was 1.76% coming into 2013.
The Independent Adviser for Vanguard Investors and FFSA are completely independent of The Vanguard Group, Inc.
FUNDS FOCUS > Growth Funds—Large-Caps
Opportunity, With the Right Navigator
Opportunity remains, but check your expectations at the door. That was my mes-
sage on aggressive growth funds last month, and—spoiler alert—it applies to large
growth funds as well.
Let’s start at the beginning: What do I mean by growth?
I consider a growth stock one where a company is growing earnings faster than the
overall market, and is generating little or no yield. Over the past several years, some
growth companies have built up huge cash hoards, and a few, like Apple, have recently
given in to the pressure and started to return some of that money to shareholders in the
form of dividends and hefty stock buybacks.
DOW JONES INDUSTRIALS
August Close: 14810.31
STANDARD & POOR’S 500
2700
2950
3200
3450
3700
AJJMAMFJDNOS
NASDAQ COMPOSITE
0.00%
0.04%
0.08%
0.12%
0.16%
AJJMAMFJDNOS
3-MO.TREASURY BILLYIELD
August Close: 0.02%
1.4%
1.8%
2.2%
2.6%
3.0%
AJJMAMFJDNOS
10-YR.TREASURY NOTE YIELD
August Close: 2.75%
12000
13000
14000
15000
16000
AJJMAMFJDNOS
1350
1450
1550
1650
1750
AJJMAMFJDNOS
AVERAGEVANGUARD INVESTOR*
August: -2.0 YTD: 6.4%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
AJJMAMFJDNOS
*See the footnotes on page 2.
Model Portfolios................................................................2
When the Facts Change....................................................3
Performance Review.................................................... 8-11
Beware the Bloat............................................................. 12
Yield Confusion................................................................ 13
September’s Payouts....................................................... 13
Breaking an Alliance........................................................ 14
Dan’s Do-It-Now Action Recommendations.................... 16
PIN 1375
S E P T E M B E R 2 0 1 3
SEE TAPER PAGE 15 >
S P E C I A L E X P A N D E D 1 6 - P A G E I S S U E
>SEE FOCUS PAGE 4

2 • Fund Family Shareholder Association www.adviseronline.com
This Month’s Changes
We sold GNMA on Aug. 30 at $10.39 and
bought Short-Term Investment-Grade at
$10.65. Please see page 3 for the details
About our Model Portfolios The Growth
portfolio is aimed at investors with long
time horizons who can withstand a certain
amount of monthly volatility in exchange for
above-average returns. Most appropriate for
younger investors who continue to add money
as markets gyrate. Since inception the model
has been slightly less volatile than the stock
market. The Conservative Growth portfolio
is appropriate for investors seeking to match
the market’s risk-adjusted returns over time.
Since inception it has been just 80% as volatile
as the stock market. The Income portfolio is
designed for investors who desire a higher
level of income plus the opportunity for capital
growth with low risk, such as retirees or near-
retirees. Since inception the model has been
only two-thirds as volatile as the stock market.
Returns have been substantially higher than
the bond market. The Growth Index model is
designed for young investors who wish to index
exclusively. All Model relative volatility figures
are measured against the stock market.
When trades are recommended we will
announce them on our Hotline and they will
also appear on this page.
Our Average Vanguard Investor index (see
page 1) measures the monthly performance of
the typical Vanguard fund investor. The aver-
age Vanguard Investor index (VII) is a dollar-
weighted performance measure for the entire
Vanguard fund group, including stock, bond,
balanced and money market funds. It provides
a yardstick against which to measure an indi-
vidual portfolio’s performance.
Note: All returns are total returns with dis-
tributions reinvested. Flagship investors may
open new accounts in all “closed” funds in the
model portfolios. If you don’t qualify, here are
some alternatives. While Capital Opportunity
has reopened I still recommend investors
consider PRIMECAP Odyssey Aggressive
Growth (POAGX) as an alternative. PRIMECAP
Odyssey Stock (POSKX) is the preferred
replacement for PRIMECAP Core. Both can be
purchased directly at www.OdysseyFunds.com
or for a fee through Vanguard Brokerage. With
High-Yield Corporate closed, use Fidelity High
Income (SPHIX).
M O D E L P O R T F O L I O S
The Alternative Funds in the table to the left
are for both current and past recommendations
I’ve made for Vanguard funds that either closed
or were saddled with high minimums. Some
of these funds have subsequently closed, but
many of you own them, so I’ve provided this
performance data for your interest. Note that
HGHAX is typically sold with a front-end load,
though clients of private money managers can
sometimes buy the fund no-load. Please refer
to the note above for my current alternative
recommendations.
PAST ALTERNATIVES TO CLOSED/HIGH MINIMUM FUNDS
Fund Ticker
8/30
Price
Aug.
Return
YTD
Return
12-Mo.
Return
3-Year
Return
5-Year
Return Alternative For
Artisan MidCap ARTMX $44.94 -1.5% 19.7% 22.8% 21.7% 11.6% Capital Opp.
Artisan MidCap Value ARTQX $25.23 -2.7% 21.4% 27.7% 19.7% 10.2% Selected Value
Polaris Global Value PGVFX $18.03 -1.9% 18.4% 26.6% 17.6% 7.2% Global Equity
Fidelity International SmallCap FISMX $23.90 -0.0% 17.4% 29.2% 14.2% 6.9% International Expl.
Fidelity International SmallCap Opp. FSCOX $12.41 -1.9% 9.6% 20.5% 14.6% 3.2% International Expl.
T. Rowe International Discovery PRIDX $50.11 -1.2% 8.7% 19.7% 12.6% 6.8% International Expl.
Hartford Healthcare HGHAX $26.00 -2.0% 28.4% 32.0% 24.3% 10.3% Health Care
ICON Healthcare ICHCX $21.45 -2.0% 24.1% 26.8% 23.0% 9.4% Health Care
PRIMECAP Odyssey Growth POGRX $21.83 -1.4% 25.9% 29.2% 21.2% 10.8% PRIMECAP
PRIMECAP Odyssey Aggressive Growth POAGX $26.44 -0.1% 35.7% 38.0% 27.0% 17.0% Capital Opp.
PRIMECAP Odyssey Stock POSKX $19.10 -1.9% 19.5% 24.1% 18.3% 8.5% PRIMECAP Core
Fidelity High Income SPHIX $9.19 -0.8% 2.0% 5.9% 8.9% 9.7% High-Yield Corporate
GROWTH MODEL
Ticker Shares NAV Value % Mo. Return
Selected Value VASVX 5,738 $25.81 $148,108 23% -1.8%
S&P MidCap 400 Growth ETF IVOG 1,762 $80.92 $142,549 23% -4.3%
Dividend Growth VDIGX 6,800 $19.26 $130,977 21% -2.6%
Capital Opportunity VHCOX 2,805 $42.25 $118,531 19% -2.1%
Health Care VGHCX 224 $173.71 $38,868 6% -2.1%
Short-Term Inv.-Grade VFSTX 2,251 $10.65 $23,970 4% NA
International Growth VWIGX 1,129 $20.42 $23,060 4% -1.8%
TOTAL $626,064
Past
PERFORMANCE
2012: 14.3% 2001: -6.4%
2011: -1.4% 2000: 20.4%
2010: 14.3% 1999: 36.3%
2009: 34.4% 1998: 23.5%
2008: -38.4% 1997: 23.2%
2007: 10.0% 1996: 16.6%
2006: 18.4% 1995 26.1%
2005: 11.4% 1994: -0.2%
2004: 15.7% 1993: 16.6%
2003: 32.0% 1992: 6.1%
2002: -17.8% 1991: 28.9%
CURRENT
PERFORMANCE
Aug. -2.6% YTD 18.0% 1-yr 23.1% 3-yr 17.0% 5-yr 7.4%
Risk last 24 months 0.96 Risk since inception 0.97
Beg. Value: $50,000 (1/1/91)
CONSERVATIVE GROWTH MODEL
Capital Opportunity VHCOX 2,127 $42.25 $89,877 20% -2.1%
S&P MidCap 400 ETF IVOO 827 $79.69 $65,906 15% -3.8%
Selected Value VASVX 2,304 $25.81 $59,470 14% -1.8%
High-Yield Corporate VWEHX 6,543 $5.90 $38,601 9% -1.0%
International Growth VWIGX 1,446 $20.42 $29,529 7% -1.8%
TOTAL $439,504
Past
PERFORMANCE
2012: 13.8% 2001: -3.5%
2011: 1.0% 2000: 14.0%
2010: 12.0% 1999: 19.7%
2009: 29.1% 1998: 15.2%
2008: -33.6% 1997: 22.6%
2007: 8.6% 1996: 17.6%
2006: 15.8% 1995 21.5%
2005: 8.8% 1994: 1.1%
2004: 13.0% 1993: 14.9%
2003: 28.9% 1992: 6.5%
2002: -16.4% 1991: 26.0%CURRENT
PERFORMANCE
Aug. -2.2% YTD 15.6% 1-yr 20.7% 3-yr 15.8% 5-yr 7.2%
Beg. Value: $50,000 (1/1/91)
INCOME MODEL
Int-Term Investment-Grade VFICX 6,943 $9.71 $67,421 21% -1.0%
PRIMECAP Core VPCCX 3,705 $17.89 $66,275 20% -1.8%
High-Yield Corporate VWEHX 6,112 $5.90 $36,062 11% -1.0%
MidCap Index VIMSX 665 $26.72 $17,760 5% -2.5%
International Growth VWIGX 592 $20.42 $12,090 4% -1.8%
TOTAL $324,287
Past
PERFORMANCE
2012: 11.5% 2001: -1.1%
2011: 5.1% 2000: -3.5%
2010: 11.2% 1999: 9.9%
2009: 21.9% 1998: 18.2%
2008: -24.1% 1997: 22.5%
2007: 3.8% 1996: 18.4%
2006: 10.6% 1995 28.4%
2005: 6.2% 1994: -1.2%
2004: 8.4% 1993: 10.8%
2003: 19.1% 1992: 6.3%
2002: -4.5% 1991: 22.4%CURRENT
PERFORMANCE
Aug. -1.7% YTD 8.8% 1-yr 11.9% 3-yr 11.8% 5-yr 6.8%
Beg. Value: $50,000 (1/1/91)
GROWTH INDEX MODEL
S&P MidCap 400 Growth ETF IVOG 904 $80.92 $73,115 28% -4.3%
MidCap Value ETF VOE 853 $70.42 $60,097 23% -2.9%
Dividend Appreciation ETF VIG 786 $67.29 $52,891 20% -3.6%
S&P 500 Growth ETF VOOG 485 $77.27 $37,475 14% -2.5%
Health Care ETF VHT 189 $89.85 $16,974 7% -3.4%
Short-Term Corporate ETF VCSH 133 $78.93 $10,518 4% -0.2%
Total International Stock ETF VXUS 201 $47.07 $9,458 4% -1.5%
TOTAL $260,528
CURRENT
PERFORMANCE
Aug. 3.3% YTD 14.9% 1-yr 19.1% 3-yr 16.9% 5-yr 7.0%
Beg. Value: $50,000 (3/1/95)
Past
PERFORMANCE
2012: 14.8% 2003: 28.2%
2011: -0.3% 2002: -16.9%
2010: 18.8% 2001: -2.4%
2009: 33.2% 2000: -15.6%
2008: -40.3% 1999: 21.4%
2007: 11.7% 1998: 26.7%
2006: 16.0% 1997: 25.8%
2005: 12.1% 1996: 19.9%
2004: 15.1%

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I strive to be a disciplined inves-
tor, and when I buy a mutual fund, I
expect to be invested in it for years.
However, not every decision is going
to play out as I expect, and to be
a successful investor (and a valuable
resource to you), I need to be honest
and flexible enough to admit when that
has happened, and move on. This is the
situation I find myself in with GNMA.
Let’s go back to November 2012,
when I first recommended sell-
ing Short-Term Investment-Grade
to purchase GNMA in the Model
Portfolios. At the time, my thesis
behind GNMA was that we could pick
up more yield and continue to get good
portfolio protection. And while rising
interest rates were a concern, GNMA
had a duration (a measure of how sen-
sitive a bond or bond fund is to interest
rates) of 3.4 years and a history of suc-
cessfully navigating rising interest rate
environments.
How has that thesis played out over
the past 10 months or so?
First, GNMA’s yield advantage has
shrunk from 1.27% at the time of the
trade to only 0.63% through August. In
fact, I have learned that yield reporting
on GNMA and other mortgage-only
funds can be a moving target for some
very technical reasons. (I have more on
that on page 13.)
GNMA’s duration has also extended
out to 5.8 years, and is now on par with
Total Bond Market on this measure.
Though its duration is now longer,
GNMA is yielding less (according to
Vanguard’s reporting) than it was when
we made the trade.
Now, what about navigating a rising
rate environment? May through June
was a test, as the 10-yearTreasury’s yield
went from 1.67% to 2.48%. GNMA lost
3.4% in May and June, slightly worse
than Total Bond Market’s 3.3% decline
and nearly three times greater than
Short-Term Investment-Grade’s 1.3%
loss. Did I expect GNMA to deliver
positive returns in that environment? Of
course not. But I was looking for it to
hold up better than it did.
As John Maynard Keynes is said to
have responded to an inquiry from a
critic, “When the facts change, I change
my mind. What do you do, sir?”
GNMA remains a well-managed,
high quality fund, but my thesis has
not played out and I don’t believe
the future portends better things for
the fund. That isn’t to say that it’s
been a disaster owning GNMA. The
fund only lost 3.2% from the end
of October 2012 through the end of
August. That’s a whole lot better than
Long-Term Treasury’s 11.2% loss,
for example, but even Intermediate-
Term Treasury lost 3.2%.
So yes, there was an opportunity
cost. It wasn’t much, but it was some-
thing. Our positions in GNMA ranged
from 5% to 10% in the three Model
Portfolios that held the fund. Over the
10 months we owned it, Short-Term
Investment-Grade lost 0.5%. So had we
not made the trade, our performance
would have been better by between
0.16% and 0.31%—hardly something
to lose sleep over, but quantifiable
nonetheless.
With that in mind, on Friday, Aug.
30 we cut our losses and traded our
positions in GNMA held in three
of our Model Portfolios into Short-
Term Investment-Grade. No trade was
required in the Growth Index Model,
where we stuck with Short-Term
Corporate ETF. (Investors in the high-
est income tax brackets looking to cut
their taxable income by as much as
possible can earn a taxable-equivalent
yield in Limited-Term Tax-Exempt.)
For those investors in taxable
accounts, there is one silver lining to
this trade: The realization of a loss,
which can be used to offset gains and
reduce future tax bills. It isn’t much,
but it’s something.
While our foray into GNMA didn’t go
as planned, if we step back and consider
the Model Portfolios as a whole, rather
than focus on any one position, they are
generating strong returns. Despite this
misstep, my philosophy of “buying the
manager, not the fund” will continue to
serve us well in the years ahead. n
TRADE
When the Facts Change
As John Maynard Keynes
is said to have responded
to an inquiry from a critic,
“When the facts change, I
change my mind. What do
you do, sir?”

While profit growth defines growth
stocks, it’s a different story for growth
funds. In my book, a growth fund is one
where the emphasis is on capital appre-
ciation, not generating income. Some
fund managers aim to accomplish this
by searching for companies where prof-
its are growing rapidly. Other managers
look for companies whose assets are
so undervalued that market recognition
of that value will generate great price
appreciation. Some commentators split
this between growth and value invest-
ing, but to my way of thinking they are
two sides of the same coin.
Consider the duo at Capital Value,
for instance: They may use a value
investor’s orientation in building their
portfolio, but the fund is definitely a
“growth” fund, with a yield well below
the market’s.
What I’m looking for in a growth
fund is the ability to power a portfolio
by producing long-term gains that can
be banked five, 10, 20 or even 40 years
into the future.
Opportunity Remains
Why I do see opportunity in large
growth funds? Valuations and sentiment.
Large growth funds may not be as
attractive as they were in late 2008
and early 2009, but after a greater than
150% run for the stock market, nothing
is as cheap as it was back in the throes
of the bear market.
For instance, look at the price-to-
earnings (p-e) ratio, or the amount an
investor pays for each dollar of earn-
ings, for Growth Index’s portfolio, a
proxy for large growth funds: At 22.3,
Growth Index’s p-e ratio is close to
twice as high as the 13.1 it traded for
at the end of 2008. Still, I don’t think
that’s super expensive. Over the past
18 years or so, the average p-e for
Growth Index has been 25.9, a number
which includes the tech boom, when
p-e’s jumped above 50—an unsustain-
able and unprecedented level. If I look
over the past 10 years as a more nor-
mal period, the average p-e ratio drops
to 21.3. So large growth stocks are
not on sale, but they also don’t appear
to be pushing the outer bounds of the
envelope.
How do large growth stocks com-
pare to the rest of the market? The chart
above looks at the p-e ratios of Growth
Index and Total Stock Market. Again,
based strictly on earnings, prices are
reasonable, with p-e’s relative to the
stock market slightly below their long-
term average.
When it comes to sentiment, I look
for areas of the market that investors
have piled into and those they may be
neglecting. When everyone agrees that
growth stocks are the place to be, then
the party may be over for that asset
class (or strategy). You have to wonder,
who is left to buy? Opportunity lies
in finding pockets of the market that
investors are avoiding. It’s safe to say
investors have not shown large growth
funds much love these past few years,
despite being relatively cheap and only
recently posting strong returns.
The strongest signal investors can
give is by voting with their feet—or rath-
er, their wallets. And every single one of
Vanguard’s actively managed large-cap
growth funds has seen more money exit
than come in (on a monthly basis) since
the market bottom in February 2009.
Some of these outflows are deserved,
as a number of these funds are multi-
managed messes—more on this below.
Another piece of the story is that
one of the best funds in the space,
PRIMECAP, is closed to new inves-
tors. Yes, being closed keeps it from
growing too large, but since the end
of February 2009, shareholders have
pulled nearly $8 billion out of the fund,
which hasn’t had a single month of
positive net flows since June 2009. (In
spite of the outflows, at $35 billion in
size, it’s about 75% larger than it was
in March 2009.) For a fund run by some
of the best stock pickers in the business,
and in the midst of a major bull mar-
ket, the fact that money is flowing out
rather than in is shocking—even if it is
closed. (Maybe investors are following
my advice and buying the private-label
PRIMECAP Odyssey funds instead?)
Growth Index has gathered about $6
billion in new money since February
2009, so some investors have found their
way into the space. But consider that
over the same period, investors added
$75 billion or so to Total Bond Market,
about $63 billion to Total International
Stock, and roughly $42 billion to
Emerging Markets Stock Index.
At best, I can say that investors have
neglected large-cap growth funds, and
this creates opportunity.
Expectations Check
At the outset, I said investors need to
check their expectations at the door. The
last few years have been very strong
for large-cap growth funds. The chart
below shows rolling three-year returns
going back to the late 1980s for the old-
est of Vanguard’s options. Over the past
three years, these funds have returned
nearly 20% a year. As the chart shows,
returns of that level are not unprec-
edented, but they are also not sustain-
able. Compounding your wealth at 20%
a year over the course of a career would
put you in the pantheon of investing
legends alongside Warren Buffett. Most
FOCUS FROM PAGE 1>
GrowthStocksare
FairlyPriced
6/95
6/97
6/99
6/01
6/03
6/05
6/07
6/09
6/11
6/13
Growth Idx./Total Stock Mkt.
Average
0.50
0.75
1.00
1.25
1.50
1.75
2.00
Ratioofgrowthstockp-e’stototalmarketp-e’s
Rolling3-YearReturns
7/91
7/93
7/95
7/97
7/99
7/01
7/03
7/05
7/07
7/09
7/11
7/13
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
Morgan Growth
PRIMECAP
U.S. Growth
500 Index

of the managers tapped by Vanguard to
run its funds are far from legendary, and
even if they were, their funds are likely
to be held back by the multimanager
approach that most are encumbered by.
PRIMECAP Management comes
closest to this level of success over the
very long term by returning 13.3% a year
since PRIMECAP’s launch in November
1984. Through July, the fund has outper-
formed 500 Index by 2.5% a year. (And
that 2.5% a year really compounds over
time.) Do I expect the PRIMECAP team
to continue to generate market-beating
returns and drive growth of your and
my money? Absolutely. But the odds of
maintaining a 20%-return-a-year pace
from current stock market levels are
against them (and everyone else).
Keep in mind that, as I discussed
last month, even if the stock market
just holds steady at this level between
now and next February, the five-year
return numbers are going to start look-
ing equally juicy. This doesn’t mean
we can’t generate decent returns going
forward, but beware of extrapolating
the past into the future.
So, how are Vanguard investors like
us playing large-cap growth funds?
Longtime readers know (and you’ve
probably already picked up) that, with-
out a doubt, the best growth manag-
er at Vanguard, large or small, is the
PRIMECAP Management team. I’ll get
into its individual funds in a moment,
but the other half of the story is that
Vanguard has picked some real losers
among growth managers, and where it
may have found some good managers,
they are buried in multimanaged funds.
With a handful of ETFs in the mix,
only about half of the large-cap growth
funds in the Vanguard stable are actively
managed, and only the PRIMECAP-run
funds have a single outside adviser for
the portfolio. Let’s take a closer look at
what Vanguard has to offer in the space.
Growth Equity
Sell. Over the long haul, this fund’s
performance suffers mightily from the
missteps of its original manager. Turner
Investments, a firm whose principals
never saw a growth stock they didn’t
like, has been gone for nearly five years
now. Unfortunately, the two replace-
ment sub-advisers can’t seem to beat
or even match their benchmark, the
Russell 1000 Growth Index, though
they’ve come close.
Baillie Gifford took over a portion of
the fund inApril 2008, and when Turner
was fired in January 2009, the portfolio
was divided in half between Baillie
Gifford and a new manager, Jennison
Associates. As with all management
changes, the hope was to breathe new
life into this fund. From the end of
January 2009 through August 2013,
the fund has gained 121.7%, or 19.0%
a year, which, on its face, isn’t shabby.
But the bogey has gained 130.3%, or
20.0% a year. Growth Index has com-
pounded at 19.6% per year over the
period. I will give the managers credit
for keeping pace with their Vanguard
growth fund peers over that period.
So there has been some improvement
under the new sub-advisers, but the
case still is not convincing. (And, by
the way, the Vanguard Board seems to
agree with me—not one director owns
a share here.)
Growth Index; S&P 500 Growth
ETF; Russell 1000 Growth ETF;
Mega Cap Growth ETF
Buy Growth Index, S&P 500
Growth ETF and MegaCap Growth
ETF. Hold Russell 1000 Growth ETF.
I don’t blame investors who feel
overwhelmed by the investment choices
they face. Vanguard isn’t making it any
easier on them by offering four large-
cap growth index funds (or ETFs).
Maybe performance can help us sep-
arate these funds? Vanguard brought the
S&P and Russell-based ETFs to market
nearly three years ago, in September
2010. From the end of September 2010
through August 2013, performance has
been remarkably similar among these
funds, with gains ranging from S&P
500 Growth ETF’s 52.4% to Growth
Index’s 52.9%. At least over this live
track record, we can’t glean too much
from performance.
Growth Index and MegaCap
Growth ETF recently saw their under-
lying bogey change from MSCI to
CRSP indexes. I’ve said before that I
don’t see this as a cause for concern.
And despite this change, Growth Index
remains a tough hurdle to surpass.
An investor might be drawn to
MegaCap Growth ETF, since it at
least sounds distinct from the others.
However, as the table on page 6 shows,
S&P 500 Growth ETF is also “mega
cap,” since its median company is $74.0
billion in size, which is roughly equal
to MegaCap Growth’s $79.7 billion
median. And despite the implied dif-
ference in company size, there has not
been a distinction in performance over
the past several years.
The table also indicates that the port-
folios of all four index funds look awful-
ly similar. Technology and consumer-
related companies make up about half of
the portfolios, while telecom and utility
companies barely make the cut. Apple is
the top holding across the board.
When it comes down to it, I lean
toward S&P 500 Growth ETF, and I hold
it in the Growth Index Model Portfolio.
S&P is more selective when construct-
ing its indexes, and this tends to result in
holding higher-quality companies. The
companies in this ETF are also cheaper
and somewhat larger than peers. I also
like the fact that the S&P option devotes
more of its portfolio to health care
stocks than its siblings. For my money
I prefer to partner with the team from
PRIMECAP management, but the S&P
500 Growth ETF will do in a pinch.
Morgan Growth
Hold. At what point does an active
fund become an index fund?
Vanguard has managed to keep
GrowthEquityNotRebornYet
7/93
7/95
7/97
7/99
7/01
7/03
7/05
7/07
7/09
7/11
7/13
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1.15
1.20
1.25
1.30 rising line = Fund outperforms Russell 1000 Growth index
April 2008 -
Baillie Gifford
given a
portion of
fund portfolio
▼
▼
Turner fired, Jennison
Associates handed
50% of fund
>

from hiring or firing anyone here for
nearly five years, but with five different
firms sub-advising Morgan Growth,
what you get is a middle-of-the-road,
no-conviction mid- to large-cap growth
stock amalgam. With five firms stirring
the pot, no one can do too much dam-
age on their own—but they can’t really
drive performance higher, either.
Though its low expenses make it an
able competitor in the broad mutual
fund universe, the fund has continued
to lag its Russell 3000 Growth Index
benchmark since the three newest man-
agers were hired—Jennison Associates
in January 2007, and Kalmar and
Frontier Capital in November 2008.
The fund is neither low-risk nor high-
return. During the 2007 to 2009 market
tumble, it hit a new MCL of -50.3%,
compared to -52.8% for Growth Index.
However, during the same period
PRIMECAP’s worst drawdown was
-44.3% and PRIMECAP Core’s was
-43.0%.
Even former Vanguard chairman
Jack Bogle, years ago, said that Morgan
Growth is “an average fund. It’s not a
star.” If I’m not buying a star, why not
just buy the index, keep costs low and
accept that I’ll get average performance?
PRIMECAP
Buy. As I mentioned above, the
PRIMECAP Management team has
delivered market-beating returns over a
very long stretch of time. How do they
do it?
As with all of PRIMECAP Manage-
ment’s funds, this one is a growth-at-a-
reasonable-price, or GARP, fund. The
managers look for companies with the
potential for strong earnings growth, but
which are currently selling for less than
comparable growth companies—most
likely because there’s some negative fac-
tor influencing most investors’ percep-
tion of the company’s value. Each of the
five managers is responsible for manag-
ing a sleeve of the fund. The end result of
this approach is a high-conviction portfo-
lio with 131 stocks and over one-third of
the assets in the 10 largest holdings. The
fund does hold some mid-caps, though
by dint of its size, large-caps play a pre-
dominant role in the portfolio.
While the long-term track record
is impressive, keep in mind that
PRIMECAP does not beat the market
month in and month out. In fact, since
the fund’s inception, it has only outper-
formed 500 Index, Vanguard’s flagship
S&P index fund, 56% of the time on a
monthly basis. But when PRIMECAP
outperforms, it more than makes up for
the times it lags, by a large margin.
While this fund is closed to new
investors, its near-clone, PRIMECAP
Odyssey Growth (POGRX), is wide
open and, because of its smaller size,
is nimbler and has substantially out-
performed this granddaddy since
its introduction in November 2004.
Through August 2013, the new fund is
up 126.7% versus 104.6% for gramps.
Vanguard offers the Odyssey funds
through its brokerage service, and as I
have long recommended, unless taxes
you’ll pay selling your Vanguard hold-
ings are a concern, you have no excuse
for sticking with the original, which
is still great, but not as great. At a
minimum, I’d take any distributions
PRIMECAP makes and invest them in
the Odyssey fund.
PRIMECAP Core
Buy. The youngest PRIMECAP-run
fund at Vanguard is also closed to new
investors. Too bad. This slightly less-
growthy version of PRIMECAP has
a lot going for it, including a smaller
asset base compared to its big brothers.
This is the only PRIMECAP-run
fund at Vanguard that’s outperformed
its Odyssey sibling, mainly because it
has a lower expense ratio. PRIMECAP
Core and PRIMECAP Odyssey Stock
(POSKX) were launched at virtually
the same time and are very, very simi-
lar, so that expense difference is key.
Since inception in December 2004,
PRIMECAP Core has outperformed
PRIMECAP by a narrow margin,
103.1% versus 93.9%
As I said, with less of a “growth”
tilt, this is more of a “core” fund than
PRIMECAP or Odyssey Growth, and
hence it is also the least risky of the
PRIMECAP Management-run funds. It
is a well-run fund, but if you can toler-
ate a bit more risk, you may be able to
reap higher returns in Odyssey Growth.
Social Index
Buy. Like Growth Index, Social
Index is a large-cap growth fund with
a portfolio of brand-name stocks,
including Johnson & Johnson, Google
>
Growth Index Funds
Growth Idx. S&P 500 Gro. ETF Russell 1000 Gro. ETF MegaCap Gro. Idx.
7/31/2013 7/31/2013 7/31/2013 7/31/2013
Number of stocks 341 296 612 138
P/E 22.3 19.0 21.6 20.5
P/Book 4.1 3.5 4.7 4.2
Med. Mkt. Cap-$ billions $51.2 $74.0 $50.3 $79.7
Expense Ratio 0.24% / 0.10%* 0.15% 0.15% 0.12%
Top Sector Allocations
Technology 26.1% 26.6% 21.7% 29.2%
Consumer Services 20.9% 17.6% 22.7% 21.4%
Financials 12.0% 9.5% 8.1% 11.5%
Industrials 11.5% 7.9% 12.4% 8.9%
Consumer Goods 10.6% 10.8% 11.1% 10.3%
Health Care 9.3% 16.7% 12.0% 8.9%
Top-10 25% 25% 21% 32%
1 Apple Apple Apple Apple
2 Google Google Microsoft Google
3 IBM Exxon Mobil Google IBM
4 Coca-Cola Bank of America IBM Coca-Cola
5 Philip Morris Coca-Cola Coca-Cola Philip Morris
6 Comcast Philip Morris Philip Morris Comcast
7 Intel Merck Verizon Intel
8 Home Depot Johnson & Johnson PepsiCo Home Depot
9 Oracle Microsoft Home Depot Oracle
10 QUALCOMM PepsiCo Oracle QUALCOMM
*Investor shares and ETF shares. Admiral shares are also 0.10%. Also, Vanguard’s Russell and CRSP indexes use different definitions for the
“sectors” their indexes are allocated to, so comparisons are approximate.

and Pepsi. In its early years, the fund
tracked a Calvert index, but it switched
to a FTSE benchmark in late 2005.
Over time, Social Index and Growth
Index have traded the lead in the perfor-
mance derby. For the past several years,
the performance of financials, 27.7% of
Social Index’s portfolio versus 12.0%
for Growth Index, has dictated which
led the way. For instance, Social Index
was the tortoise to Growth Index’s
hare from late 2006 through the end
of the bear market in March 2009 as
its comparatively higher allocation to
financials hurt—a lot.
If you believe that investing in Social
Index will make the world better—or
make you feel better—or that over time
companies screened for attractive social
characteristics will win out, then by
all means, buy it. (I’m a skeptic on all
three and believe that you should first
invest to profit, and then support orga-
nizations whose missions match your
own social goals.) Plus, will you really
sleep well knowing that large financial
companies like JPMorgan Chase, Wells
Fargo and Bank of America are all in
Social Index’s top 10, and will probably
stay there unless they go bankrupt? I
wouldn’t.
STAR LifeStrategy Growth
Sell. Vanguard continues to tinker
with the allocations here. In fall 2010
the fund picked up a greater allocation
to foreign stocks. About a year later
in 2011, Asset Allocation (which was
merged away into Balanced Index) was
dropped from the mix. And just several
months ago the fund picked up a small
allocation to Total International Bond.
Today its holdings are divided among
four index funds: Total Stock Market
(56% of assets), Total International
Stock (24%), Total Bond Market II
(a clone of Total Bond Market, 16%)
and Total International Bond (4%). For
those counting, that’s 80% in stock
funds and 20% in bond funds.
I think investors can do better follow-
ing one of my Model Portfolios and mak-
ing strategic changes to their holdings
rather than watching the grass grow under
their feet or letting Vanguard make the
changes when it opens a new fund. My
Conservative Growth Model Portfolio
allocates a little more than 80% of assets
to stocks and has beaten the pants off
of this option since inception through
August, up 461.5% versus 318.5%. The
Growth Model Portfolio has almost dou-
bled this fund’s return since inception.
Don’t bother investing here.
AdmiralTax-Managed Capital
Appreciation
Sell. In a few words, this is a good
concept, but one that appears outdated.
This index fund aims to track the
Russell 1000 index while minimizing
taxes. Vanguard’s indexing group buys
a selection of the Russell index’s stocks
(about 650 of them) that pay little or no
dividends while still trying to mimic the
overall index in terms of industry alloca-
tion, market capitalization and the like.
There’s absolutely nothing wrong
with trying to minimize taxes. But with
the introduction of the Russell 1000
ETF—which by its nature should be
highly tax-efficient—what’s the real
value here? Why do the minimums
remain so high ($10,000 versus $3,000
for most funds)? Why not just invest in
an already tax-efficient ETF or index
fund? Don’t let the tax tail wag the
investment dog, or let a tax-saving
name blind you to the other options
available at lower minimums.
U.S. Growth
Sell. Will this fund ever be a buy
again? I’ve got my fingers crossed,
but they’re probably going to stay that
way for a long, long time. U.S. Growth
appearstohavestabilizedafterVanguard
finally fired AllianceBernstein in fall
2010. It’s been nearly three years since
Delaware Investments and Wellington
Management joined existing manag-
er William Blair & Co on the fund,
and since then performance has about
matched indexes and sibling funds.
Staying afloat is better than sink-
ing, but it is not enough to convince
me to put my dollars here. It’s a shame
this fund can’t be juiced up, because
Vanguard could use a good, well-man-
aged large-cap growth fund that’s open
to new shareholders. As it stands, this
one doesn’t fit that bill. n
Active Large-Cap Growth Funds
Growth Equity Morgan Growth PRIMECAP PRIMECAP Core U.S. Growth
7/31/2013 7/31/2013 7/31/2013 7/31/2013 7/31/2013
# of stocks 83 334 131 145 118
P/E 24.0 22.1 20 20.6 24.9
P/Book 3.5 3.6 3.4 3.2 4.0
Med. Mkt. Cap. $33.6 $35.2 $51.8 $51.8 $39.1
Foreign 5.4% 2.9% 11.2% 13.1% 3.4%
Cash 2.8% 1.9% 4.2% 5.3% 0.7%
Sector Allocation
Consumer Disc. 15.7% 19.6% 8.8% 10.7% 23.2%
ConsumerStaples 9.1% 7.2% 0.7% 1.6% 6.3%
Energy 6.4% 4.4% 4.2% 3.4% 6.1%
Financials 15.4% 5.4% 5.4% 8.0% 7.5%
Health Care 18.8% 16.2% 33.2% 30.7% 12.5%
Industrials 8.8% 12.8% 13.9% 14.4% 5.9%
Info Tech 22.5% 29.9% 31.0% 26.1% 33.7%
Materials 2.6% 3.2% 2.7% 4.5% 2.6%
Telecom 0.7% 1.3% 0.0% 0.0% 2.2%
Utilities 0.0% 0.0% 0.1% 0.6% 0.0%
Top-10 23% 17% 41% 33% 27%
1 Google Cisco Systems Biogen Idec Amgen Google
2 eBay Google Amgen Roche Mastercard
3 Berkshire Hathaway Apple Google Biogen Idec Visa
4 US Bancorp Microsoft Roche Eli Lilly priceline.com
5 Progressive Gilead Sciences Eli Lilly Google Apple
6 Johnson & Johnson Home Depot Texas Instruments Marsh & McLennan eBay
7 First Republic Bank Costco Wholesale FedEx Johnson & Johnson EOG Resources
8 Apple Amgen Microsoft Novartis Allergan
9 Monsanto Wal-Mart Adobe Systems Texas Instruments QUALCOMM
10 Pfizer TJX Novartis Medtronic Celgene

P E R F O R M A N C E R E V I E W
VANGUARD EQUITY FUNDS
Fund (fund #) Ticker Minimum Loads Advice
8/30
Price
Aug.
Return
YTD
Return
12-Mo.
Return
3-Year
Return
5-Year
Return
12-Mo.
Yield Risk
SECTOR
Energy (51) VGENX $3K — Hold $64.05 -0.4% 8.4% 10.4% 12.3% 0.5% 2.2% 1.70
Precious Metals & Mining (53) VGPMX $3K — Sell $11.02 4.5% -30.9% -25.9% -13.5% -11.2% 3.6% 2.42
Health Care (52) VGHCX $3K — Buy $173.71 -2.1% 24.3% 28.8% 21.6% 11.6% 1.5% 0.77
REIT Index (123) VGSIX $3K — Hold $21.45 -6.9% -0.2% 0.4% 12.6% 5.5% 3.7% 1.41
Global ex-U.S. Real Estate Index (738) VGXRX $3K 0.25%f/0.25%r Hold $21.00 -2.5% -3.2% 12.2% — — 5.9% 1.59
AGGRESSIVE GROWTH
Capital Opportunity (111) VHCOX $3K — Buy $42.25 -2.1% 25.7% 33.7% 20.5% 8.7% 0.9% 1.16
Explorer (24) VEXPX $3K — Hold $98.93 -1.7% 24.5% 30.8% 22.1% 9.6% 0.3% 1.36
Explorer Value (1690) VEVFX $3K — Hold $29.39 -3.4% 20.2% 29.2% 21.6% — 1.0% 1.27
MidCap Growth (301) VMGRX $3K — Sell $24.14 -2.3% 18.5% 21.4% 20.5% 9.8% 0.3% 1.16
SmallCap Growth Index (861) VISGX $3K — Buy $30.27 -1.9% 20.9% 26.5% 23.0% 10.3% 0.7% 1.40
SmallCap Index (48) NAESX $3K — Hold $46.36 -3.2% 19.7% 26.3% 21.1% 9.7% 1.4% 1.34
SmallCap Value Index (860) VISVX $3K — Hold $20.51 -4.2% 17.9% 25.6% 19.0% 8.8% 2.1% 1.29
Strategic Equity (114) VSEQX $3K — Hold $25.86 -3.6% 20.6% 26.9% 22.4% 8.3% 1.4% 1.36
Strategic SmallCap Equity (615) VSTCX $3K — Hold $26.30 -4.1% 21.1% 27.3% 22.6% 8.7% 1.4% 1.44
Admiral Tax-Managed SmallCap (116) VTMSX $10K — Sell $37.68 -2.5% 21.0% 26.3% 22.5% 9.4% 1.3% 1.28
GROWTH
Capital Value (328) VCVLX $3K — Buy $13.82 -3.6% 24.6% 35.8% 19.1% 12.6% 1.4% 1.53
Extended Market Index (98) VEXMX $3K — Sell $55.09 -2.8% 20.2% 26.9% 20.7% 9.3% 1.3% 1.32
Growth Equity (544) VGEQX $3K — Sell $14.24 -1.5% 16.0% 17.4% 18.1% 6.2% 0.9% 1.08
Growth Index (9) VIGRX $3K — Buy $41.69 -1.7% 14.4% 15.4% 19.0% 7.9% 1.3% 1.08
MidCap Growth Index (832) VMGIX $3K — Buy $31.83 -2.0% 17.9% 22.9% 19.3% 7.8% 0.5% 1.32
MidCap Index (859) VIMSX $3K — Buy $26.72 -2.5% 18.9% 24.8% 19.2% 9.0% 1.1% 1.21
MidCap Value Index (835) VMVIX $3K — Hold $27.69 -2.9% 19.6% 26.3% 18.8% 9.8% 1.5% 1.13
Morgan Growth (26) VMRGX $3K — Hold $23.17 -2.0% 16.4% 17.5% 18.1% 6.8% 0.9% 1.19
PRIMECAP (59) (CLOSED) VPMCX — — Buy $83.66 -1.7% 20.4% 25.4% 18.2% 7.7% 1.1% 1.05
PRIMECAP Core (1220) (CLOSED) VPCCX — — Buy $17.89 -1.8% 19.8% 24.9% 18.6% 8.9% 1.4% 0.99
Selected Value (934) VASVX $3K — Buy $25.81 -1.8% 23.0% 29.3% 20.2% 11.2% 1.7% 1.07
Social Index (213) VFTSX $3K — Buy $10.28 -3.1% 19.7% 25.9% 19.4% 7.3% 1.4% 1.06
STAR Growth (122) VASGX $3K — Sell $25.20 -2.1% 9.3% 13.7% 12.6% 5.2% 2.5% 0.89
Admiral Tax-Mgd. Capital App. (5102) VTCLX $10K — Sell $83.02 -2.8% 16.7% 19.9% 18.8% 7.6% 1.7% 1.05
U.S. Growth (23) VWUSX $3K — Sell $24.67 -1.2% 16.0% 19.3% 19.3% 7.3% 0.5% 1.22
GROWTH & INCOME
500 Index (40) VFINX $3K — Buy $151.04 -2.9% 16.0% 18.5% 18.2% 7.2% 1.9% 1.00
Convertible Securities (82) VCVSX $3K — Buy $13.97 -1.5% 11.5% 16.4% 11.3% 8.0% 2.9% 0.77
Diversified Equity (608) VDEQX $3K — Sell $27.26 -2.5% 18.2% 22.5% 19.4% 8.0% 1.3% 1.14
Dividend Appreciation Index (602) VDAIX $3K — Buy $26.93 -3.5% 14.1% 16.9% 16.6% 7.8% 2.1% 0.88
Dividend Growth (57) VDIGX $3K — Buy $19.26 -2.6% 16.9% 18.4% 18.1% 8.4% 1.9% 0.78
Equity Income (65) VEIPX $3K — Buy $27.68 -3.6% 16.2% 18.9% 19.5% 8.9% 2.6% 0.85
Growth & Income (93) VQNPX $3K — Sell $35.00 -3.2% 16.4% 18.9% 18.9% 6.4% 1.8% 1.03
High Dividend Yield Index (623) VHDYX $3K — Buy $22.41 -3.9% 16.3% 17.9% 19.2% 8.2% 2.9% 0.82
LargeCap Index (307) VLACX $3K — Buy $30.35 -2.8% 16.3% 19.1% 18.4% 7.4% 1.8% 1.02
Market Neutral (634) VMNFX $250K — Sell $10.50 -1.3% 3.4% 1.6% 2.9% -1.9% 0.5% 0.26
STAR Moderate Growth (914) VSMGX $3K — Sell $21.61 -1.7% 6.2% 9.5% 10.2% 5.3% 2.4% 0.67
Admiral Tax-Mgd. Growth & Income (5101) VTGLX $10K — Sell $73.45 -2.9% 16.1% 18.6% 18.3% 7.2% 2.0% 1.00
Total Stock Market Index (85) VTSMX $3K — Hold $41.30 -2.8% 16.9% 20.1% 18.8% 7.7% 1.8% 1.05
U.S. Value (124) VUVLX $3K — Hold $14.06 -4.2% 18.5% 24.4% 20.3% 6.7% 2.1% 1.10
Value Index (6) VIVAX $3K — Hold $26.79 -3.6% 18.1% 22.8% 17.6% 6.8% 2.3% 1.00
Windsor (22) VWNDX $3K — Hold $18.05 -3.0% 20.0% 28.2% 19.7% 8.7% 1.4% 1.16
Windsor II (73) VWNFX $3K — Buy $33.87 -3.1% 16.5% 20.7% 18.6% 7.4% 2.1% 1.00
BALANCED
Balanced Index (2) VBINX $3K — Hold $25.59 -2.0% 8.6% 10.5% 12.3% 7.0% 1.9% 0.62
Mgd. Payout Growth (1497) VPGFX $25K — — $19.87 -2.1% 8.7% 11.8% 12.2% 5.4% 2.5% 0.97
Mgd. Payout Growth & Distrib. (1498) VPGDX $25K — — $18.24 -1.8% 6.7% 8.9% 10.8% 5.4% 4.5% 0.81
Mgd. Payout Distribution Focus (1499) VPDFX $25K — — $14.95 -1.6% 5.6% 7.2% 9.7% 5.3% 7.5% 0.70
STAR (56) VGSTX $1K — Hold $22.20 -1.6% 7.5% 11.8% 11.5% 6.8% 2.0% 0.74
STAR Conservative Growth (724) VSCGX $3K — Sell $17.33 -1.4% 3.1% 5.3% 7.4% 4.8% 2.3% 0.46
STAR Income (723) VASIX $3K — Sell $14.10 -1.0% 0.2% 1.3% 4.8% 4.4% 2.1% 0.27
Admiral Tax-Managed Balanced (103) VTMFX $10K — Sell $23.29 -1.8% 5.8% 7.9% 10.2% 6.4% 2.2% 0.51
Wellesley Income (27) VWINX $3K — Hold $24.60 -1.9% 3.6% 5.2% 9.2% 8.5% 3.0% 0.40
Wellington (21) VWELX $3K — Buy $36.78 -2.2% 10.1% 13.3% 12.7% 7.6% 2.6% 0.66
TARGET RETIREMENT
Target Retirement 2060 (1691) VTTSX $1K — — $24.16 -2.3% 10.8% 15.8% — — 1.3% —
Target Retirement 2055 (1487) VFFVX $1K — — $27.48 -2.3% 10.8% 15.8% 14.2% — 1.6% 1.00
Target Retirement 2050 (699) VFIFX $1K — — $25.58 -2.3% 10.8% 15.8% 14.1% 6.1% 1.9% 1.00
Target Retirement 2045 (306) VTIVX $1K — — $16.12 -2.3% 10.8% 15.8% 14.1% 6.1% 2.0% 1.00
Target Retirement 2040 (696) VFORX $1K — — $25.68 -2.3% 10.8% 15.8% 14.1% 6.2% 1.9% 1.00
Target Retirement 2035 (305) VTTHX $1K — — $15.51 -2.2% 10.1% 14.8% 13.8% 5.9% 2.0% 0.97
Target Retirement 2030 (695) VTHRX $1K — — $25.48 -2.0% 9.0% 13.3% 12.9% 5.8% 2.0% 0.89
Target Retirement 2025 (304) VTTVX $1K — — $14.65 -1.9% 7.8% 11.7% 12.0% 5.8% 2.0% 0.80
Target Retirement 2020 (682) VTWNX $1K — — $25.41 -1.8% 6.6% 10.1% 11.0% 5.8% 2.0% 0.72
Target Retirement 2015 (303) VTXVX $1K — — $14.08 -1.6% 5.2% 8.3% 10.0% 5.8% 2.1% 0.63
Target Retirement 2010 (681) VTENX $1K — — $24.90 -1.3% 3.2% 5.7% 8.8% 5.6% 2.1% 0.51
Target Retirement Income (308) VTINX $1K — — $12.26 -1.1% 1.4% 3.1% 6.8% 5.5% 2.2% 0.37
Our ratings: Buy: Best choice. Generally funds held in our Model Portfolios or funds with similar objectives. HOLD: Current prospects for the fund are not as good as those with a Buy rating. However, investors
who own shares in the fund may wish to assess tax costs of trading into a Buy-rated fund. SELL: The fund’s long-term prospects are not as compelling as other funds’, or other factors may make the fund unattract-
ive compared to alternatives. “+” is a rating upgrade over the previous month; “-” is a downgrade.
Investors should weigh all tax implications of fund switches before making a sale or purchase. Some closed funds are available for purchase by high-net-worth investors. All funds charge a $20 annual account fee
unless you have $10,000 in the fund, $100,000 with Vanguard or accept all paperwork through online means.

VANGUARD EQUITY FUNDS (CONT.)
Fund (fund #) Ticker Minimum Loads Advice
8/30
Price
Aug.
Return
YTD
Return
12-Mo.
Return
3-Year
Return
5-Year
Return
12-Mo.
Yield Risk
INTERNATIONAL/GLOBAL
Developed Markets Index (227) VDMIX $3K — Sell $10.46 -1.4% 7.3% 18.6% 9.4% 1.9% 3.2% 1.33
Emerging Markets Stock Index (533) VEIEX $3K — Hold $24.07 -3.2% -12.9% -2.0% 0.1% 1.2% 3.7% 1.67
Emerging Markets Select Stock (752) VMMSX $3K — Hold $18.03 -2.5% -9.6% 2.5% — — 1.3% 1.68
European Index (79) VEURX $3K — Hold $27.43 -1.3% 8.0% 20.2% 10.5% 1.6% 5.0% 1.48
Global Equity (129) VHGEX $3K — Buy $20.76 -2.7% 11.2% 19.9% 13.4% 4.0% 1.6% 1.19
International Explorer (126) VINEX $3K — Hold $16.58 -0.7% 12.7% 23.3% 9.7% 5.1% 2.4% 1.35
International Growth (81) VWIGX $3K — Buy $20.42 -1.8% 6.0% 17.5% 9.9% 3.8% 1.7% 1.51
International Value (46) VTRIX $3K — Hold $33.12 -1.5% 6.2% 19.2% 8.5% 1.8% 2.5% 1.38
Pacific Index (72) VPACX $3K — Hold $10.68 -1.6% 6.3% 16.2% 7.8% 2.8% 3.8% 1.19
Admiral T-M International (127) VTMGX $10K — Sell $11.87 -1.4% 7.5% 18.9% 9.4% 2.0% 4.7% 1.32
Total International Stock Index (113) VGTSX $3K — Hold $15.10 -1.6% 2.4% 13.1% 6.9% 1.5% 4.4% 1.38
Total World Stock Index (628) VTWSX $3K — Hold $21.55 -2.3% 8.6% 16.1% 11.8% 4.2% 3.1% 1.18
World ex-U.S. Index (770) VFWIX $3K — Sell $17.94 -1.7% 1.8% 12.8% 6.9% 1.6% 4.3% 1.39
World ex-U.S. SmallCap Index (1684) VFSVX $3K 0.5%f&r Hold $35.26 -1.3% 3.8% 14.7% 7.6% — 3.6% 1.48
Minimum refers to the dollar amount (e.g., $3K means
$3,000) needed to open a new taxable account. Loads are
denoted with an “f” for front-end and “r” for back-end.
Holding periods are noted for loads imposed on sales of
shares held less than two months (<2 mo.) or one year (<1).
3-year and 5-year returns are compound, annualized
returns. Average maturity is in years for bond funds and
days for money market funds. 12-month yields are based
on trailing 12-month dividend/income distributions. SEC
yields are reported 30-day yields. Taxable equivalent
yields are based on SEC yields. For state funds, taxable
equivalent yields incorporate state taxes. Risk is fund vola-
tility measured over the previous 24 months. Equity fund risk
is measured against the S&P 500 index. Bond fund risk is
measured against the Barclays Aggregate Bond index.
Annuity ratings May differ from taxable funds since choices
in the annuity area are more limited.
* Tax equivalent yields incorporate the 3.8% health care sur-
tax into the 33%, 35% and 39.6% tax rates.
** Fund sold with a 0.75% front-end load
VANGUARD VARIABLE ANNUITIES
Fund (fund #) Advice
8/30
Price
Aug.
Return
YTD
Return
12-Mo.
Return
3-Year
Return
5-Year
Return Risk
Money Market Annuity (64) — $1.90 -0.0% -0.1% -0.2% -0.1% 0.1% —
Short-Term Inv.-Grade Annuity (144) Buy $17.87 -0.3% -0.4% 0.4% 1.9% 3.7% 0.56
Total Bond Market Annuity (67) Hold $34.68 -0.6% -3.1% -3.1% 2.1% 4.5% 1.02
High-Yield Bond Annuity (146) Buy $27.18 -1.0% 0.1% 4.1% 8.3% 8.6% 2.24
Conservative Allocation Annuity (801) Hold $22.89 -1.4% 2.9% 5.0% — — —
Moderate Allocation Annuity (803) Hold $24.17 -1.8% 5.9% 9.2% — — —
Balanced Annuity (69) Buy $69.34 -2.3% 9.9% 13.1% 12.4% 7.4% 0.67
Capital Growth Annuity (603) Buy $28.55 -1.6% 19.6% 24.7% 18.1% 7.8% 1.03
Diversified Value Annuity (145) Buy $23.59 -3.2% 15.6% 18.7% 18.1% 7.4% 0.94
Equity Income Annuity (8) Buy $56.67 -3.6% 16.0% 18.6% 19.0% 8.4% 0.85
Equity Index Annuity (68) Buy $61.81 -2.9% 15.8% 18.2% 17.9% 6.9% 1.00
Growth Annuity (10) Sell $29.87 -1.3% 15.7% 18.7% 18.9% 7.0% 1.21
MidCap Index Annuity (143) Buy $36.64 -2.5% 18.6% 24.4% 18.8% 8.7% 1.21
REIT Index Annuity (147) Hold $40.24 -6.9% -0.4% 0.0% 12.2% 5.0% 1.41
Small Company Growth Annuity (160) Hold $53.25 -1.1% 23.3% 27.5% 23.0% 11.9% 1.35
Total Stock Market Annuity (604) Hold $22.85 -2.9% 16.6% 19.7% 18.3% 7.2% 1.05
International Annuity (86) Buy $34.11 -1.7% 5.8% 17.5% 9.7% 3.7% 1.51
VANGUARD INCOME FUNDS
Fund (fund #) Ticker Advice
Avg.
Mat.
8/30
Price
Aug.
Return
YTD
Return
12-Mo.
Return
3-Year
Return
5-Year
Return
12-Mo.
Yield
SEC
Yield
—— Tax Equivalent Yield ——
Risk25% 28% 36.8%*
38.8%*
43.4%*
TAXABLE INCOME
Short-Term Treasury (32) VFISX Sell 2.2 $10.67 -0.2% -0.4% -0.3% 0.7% 2.0% 0.3% 0.27% — — — — — 0.22
Short-Term Federal (49) VSGBX Sell 2.8 $10.67 -0.2% -0.8% -0.7% 1.0% 2.7% 0.5% 0.53% — — — — — 0.33
Short-Term Inflation Index (1967) VTIPX Hold 2.7 $24.64 -0.5% -1.8% — — — 0.1% -1.06% — — — — — 0.73
Short-Term Investment-Grade (39) VFSTX Buy 3.4 $10.65 -0.2% -0.3% 0.7% 2.1% 3.7% 1.8% 1.47% — — — — — 0.53
Short-Term Bond Index (132) VBISX Hold 2.8 $10.48 -0.3% -0.6% -0.3% 1.3% 3.0% 1.2% 0.72% — — — — — 0.37
Inflation-Protected Sec. (119) VIPSX Hold 8.8 $13.25 -1.7% -8.4% -7.4% 3.4% 3.8% 2.4% -0.10% — — — — — 2.03
Intermed. Treasury (35) VFITX Sell 5.5 $11.19 -1.0% -3.4% -3.6% 2.0% 4.5% 1.4% 1.41% — — — — — 1.09
Intermed. Investment-Grade (71) VFICX Buy 6.7 $9.71 -1.0% -3.1% -1.4% 4.1% 6.8% 3.3% 2.88% — — — — — 1.51
Intermed.-Term Bond Index (314) VBIIX Hold 7.3 $11.17 -1.3% -4.5% -3.7% 3.3% 6.4% 2.9% 2.67% — — — — — 1.54
Total Bond Market (84) VBMFX Hold 7.4 $10.58 -0.6% -3.0% -2.8% 2.3% 4.8% 2.4% 1.97% — — — — — 1.00
GNMA (36) VFIIX Sell- 8.2 $10.39 -0.3% -3.3% -3.4% 2.2% 4.7% 2.3% 2.10% — — — — — 0.83
Long-Term Treasury (83) VUSTX Sell 23.9 $11.42 -1.3% -10.6% -13.5% 2.5% 6.2% 3.2% 3.31% — — — — — 4.73
Long-Term Investment-Grade (28) VWESX Hold 24.5 $9.69 -1.5% -7.5% -7.0% 4.8% 8.8% 5.0% 4.78% — — — — — 3.38
Long-Term Bond Index (522) VBLTX Sell 24.0 $12.56 -1.5% -9.4% -10.0% 3.9% 7.9% 4.4% 4.47% — — — — — 3.59
High-Yield Corporate (29) (CLOSED) VWEHX Buy 6.9 $5.90 -1.0% 0.4% 4.6% 8.8% 9.2% 6.0% 4.94% — — — — — 2.27
Emerging Mkts. Govt. Bond Idx. (1120)** VGOVX Buy 10.3 $9.33 -2.4% — — — — 0.9% 4.78% — — — — — 3.01
Total International Bond Index (1231) VTIBX Hold 8.2 $9.84 -0.5% — — — — 0.4% 1.69% — — — — — 0.98
MONEY MARKET
Admiral Treasury MM (11) (CLOSED) VUSXX — 53 $1.00 0.0% 0.0% 0.0% 0.0% 0.2% 0.0% 0.01% — — — — — —
Federal MM (33) (CLOSED) VMFXX — 56 $1.00 0.0% 0.0% 0.0% 0.0% 0.2% 0.0% 0.02% — — — — — —
Prime MM (30) VMMXX — 59 $1.00 0.0% 0.0% 0.0% 0.0% 0.3% 0.0% 0.01% — — — — — —
Tax-Exempt Money Market (45) VMSXX — 53 $1.00 0.0% 0.0% 0.0% 0.1% 0.3% 0.0% 0.01% 0.0% 0.0% 0.0% 0.0% 0.0% —
CA Tax-Exempt MM (62) VCTXX — 54 $1.00 0.0% 0.0% 0.0% 0.0% 0.2% 0.0% 0.01% 0.0% 0.0% 0.0% 0.0% 0.0% —
NJ Tax-Exempt MM (95) VNJXX — 41 $1.00 0.0% 0.0% 0.0% 0.0% 0.2% 0.0% 0.01% 0.0% 0.0% 0.0% 0.0% 0.0% —
NY Tax-Exempt MM (163) VYFXX — 37 $1.00 0.0% 0.0% 0.0% 0.0% 0.2% 0.0% 0.01% 0.0% 0.0% 0.0% 0.0% 0.0% —
OH Tax-Exempt MM (96) VOHXX — 40 $1.00 0.0% 0.0% 0.0% 0.1% 0.3% 0.0% 0.01% 0.0% 0.0% 0.0% 0.0% 0.0% —
PA Tax-Exempt MM (63) VPTXX — 30 $1.00 0.0% 0.0% 0.0% 0.0% 0.3% 0.0% 0.01% 0.0% 0.0% 0.0% 0.0% 0.0% —
TAX-FREE INCOME
Short-Term Tax-Exempt (41) VWSTX Buy 1.3 $15.82 -0.1% 0.0% 0.2% 0.8% 1.5% 0.9% 0.41% 0.5% 0.6% 0.6% 0.7% 0.7% 0.16
Limited-Term Tax-Exempt (31) VMLTX Buy 2.9 $10.96 -0.3% -0.6% -0.3% 1.3% 2.4% 1.7% 0.90% 1.2% 1.3% 1.4% 1.5% 1.6% 0.46
Intermed.-Term Tax-Exempt (42) VWITX Buy 5.8 $13.54 -1.0% -3.9% -2.8% 2.2% 4.1% 3.2% 2.55% 3.4% 3.5% 4.0% 4.2% 4.5% 1.38
Long-Term Tax-Exempt (43) VWLTX Hold 9.3 $10.84 -1.5% -5.8% -4.3% 2.4% 4.2% 4.0% 3.58% 4.8% 5.0% 5.7% 5.8% 6.3% 1.71
High-Yield Tax-Exempt (44) VWAHX Hold 10.5 $10.35 -1.9% -5.9% -4.2% 2.8% 4.6% 4.1% 3.84% 5.1% 5.3% 6.1% 6.3% 6.8% 1.74
STATE TAX-FREE
CA Intermed. Tax-Exempt (100) VCAIX Buy 5.8 $11.09 -0.9% -3.5% -2.0% 2.8% 4.2% 3.4% 2.56% 3.8% 4.0% 4.5% 4.7% 5.0% 1.43
CA Long-T. Tax-Exempt (75) VCITX Sell 9.6 $11.01 -1.4% -5.9% -4.1% 2.7% 4.0% 4.1% 3.65% 5.4% 5.7% 6.4% 6.6% 7.2% 1.84
MA Tax-Exempt (168) VMATX Sell 8.6 $10.02 -1.3% -6.3% -5.4% 1.6% 3.7% 3.4% 3.14% 4.4% 4.6% 5.2% 5.4% 5.9% 1.73
NJ Long-T. Tax-Exempt (14) VNJTX Sell 9.2 $11.40 -1.2% -5.4% -4.4% 2.0% 3.8% 3.8% 3.43% 5.0% 5.2% 6.0% 6.2% 6.7% 1.67
NY Long-T. Tax-Exempt (76) VNYTX Sell 8.4 $10.87 -1.3% -5.7% -4.5% 2.0% 3.8% 3.6% 3.35% 4.9% 5.1% 5.8% 6.0% 6.5% 1.65
OH Long-T. Tax-Exempt (97) VOHIX Sell 10.4 $11.62 -1.6% -6.3% -4.8% 2.0% 4.0% 3.9% 3.79% 5.4% 5.6% 6.4% 6.6% 7.2% 1.71
PA Long-T. Tax-Exempt (77) VPAIX Sell 10.1 $10.80 -1.5% -5.6% -4.4% 2.1% 3.9% 3.9% 3.65% 5.0% 5.2% 6.0% 6.2% 6.7% 1.61

DISTRIBUTIONS
Fund Dist.
AugUST Regular
Short-Term Treasury $0.00
Short-Term Federal $0.00
Short-Term Investment-Grade $0.02
Short-Term Bond Index $0.01
Intermediate-Term Treasury $0.01
Intermediate-Term Investment-Grade $0.03
Intermediate-Term Bond Index $0.03
Total Bond Market Index $0.02
GNMA $0.02
Long-Term Treasury $0.03
Long-Term Investment-Grade $0.04
Long-Term Bond Index $0.05
High-Yield Corporate $0.03
Emerging Markets Govt. Bond $0.03
Total International Bond $0.01
Admiral Treasury MM $0.00001
Federal MM $0.00002
Prime MM $0.00001
Tax-Exempt MM $0.00001
CA Tax-Exempt MM $0.00001
NJ Tax-Exempt MM $0.00001
NY Tax-Exempt MM $0.00001
OH Tax-Exempt MM $0.00001
PA Tax-Exempt MM $0.00001
Short-Term Tax-Exempt $0.01
Limited-Term Tax-Exempt $0.02
Intermediate-Term Tax-Exempt $0.04
Long-Term Tax-Exempt $0.04
High-Yield Tax-Exempt $0.04
CA Int.-Term Tax-Exempt $0.03
CA Long-Term Tax-Exempt $0.04
MA Tax-Exempt $0.03
NJ Long-Term Tax-Exempt $0.04
NY Long-Term Tax-Exempt $0.03
OH Long-Term Tax-Exempt $0.04
PA Long-Term Tax-Exempt $0.04
ETF DISTRIBUTIONS
Short-Term Government Bond $0.01
Short-Term Corporate Bond $0.12
Short-Term Bond $0.08
Intermed.-Term Government Bond $0.07
Intermed.-Term Corporate Bond $0.22
Intermediate-Term Bond $0.22
Total Bond Market $0.17
Mortgage-Backed Securities Bond $0.05
Long-Term Government Bond $0.20
Long-Term Corporate Bond $0.35
Long-Term Bond $0.33
Emerging Markets Govt. Bond $0.26
Total International Bond $0.07
VANGUARD AdmiraL FUNDS
Admiral Fund (fund #) Ticker Min.
8/30
Price
Aug.
Return
YTD
Return
12-Mo.
Return
3-Year
Return
5-Year
Return
SEC
Yield
ADMIRAL SECTOR SHARES
Consumer Discret. Index (5483) VCDAX $100K $48.34 -2.7% 23.0% 30.5% 26.6% 15.7% —
Consumer Staples Index (5484) VCSAX $100K $50.28 -4.2% 16.0% 16.4% 18.2% 10.8% —
Energy (551) VGELX $50K $120.27 -0.3% 8.5% 10.4% 12.4% 0.6% —
Energy Index (5480) VENAX $100K $58.18 -1.5% 13.8% 14.9% 17.6% 2.9% —
Financials Index (5486) VFAIX $100K $19.95 -5.0% 17.7% 27.1% 14.8% 1.7% —
Health Care (552) VGHAX $50K $73.30 -2.1% 24.3% 28.8% 21.6% 11.7% —
Health Care Index (5485) VHCIX $100K $44.99 -3.2% 25.5% 30.0% 23.9% 11.5% —
Industrials Index (5482) VINAX $100K $43.24 -2.7% 18.2% 26.7% 19.7% 6.7% —
Info.Technology Index (5487) VITAX $100K $39.75 -0.4% 12.3% 8.2% 17.3% 8.7% —
Materials Index (5481) VMIAX $100K $46.34 -0.6% 8.1% 16.1% 14.0% 3.8% —
REIT Index (5123) VGSLX $10K $91.53 -6.8% -0.1% 0.5% 12.7% 5.6% —
Telecom Svcs. Index (5488) VTCAX $100K $40.02 -4.5% 12.2% 14.8% 14.7% 8.1% —
Utilities Index (5489) VUIAX $100K $40.80 -5.2% 10.0% 8.8% 12.0% 4.8% —
ADMIRAL Equity SHARES
Capital Opportunity (5111) VHCAX $50K $97.60 -2.1% 25.7% 33.8% 20.6% 8.8% —
Explorer (5024) VEXRX $50K $92.11 -1.7% 24.6% 31.0% 22.3% 9.8% —
SmallCap Growth Index (5861) VSGAX $10K $37.90 -1.9% 21.1% 26.7% — — —
SmallCap Index (548) VSMAX $10K $46.42 -3.2% 19.8% 26.5% 21.3% 9.8% —
SmallCap Value Index (5860) VSIAX $10K $36.79 -4.2% 17.9% 25.7% — — —
Extended Mkt. Index (598) VEXAX $10K $55.14 -2.8% 20.3% 27.1% 20.9% 9.4% —
Growth Index (509) VIGAX $10K $41.70 -1.7% 14.5% 15.6% 19.2% 8.0% —
MidCap Growth Index (5832) VMGMX $10K $34.88 -2.0% 18.1% 23.1% — — —
MidCap Index (5859) VIMAX $10K $121.35 -2.5% 19.0% 24.9% 19.4% 9.1% —
MidCap Value Index VMVAX $10K $36.46 -3.0% 19.7% 26.4% — — —
Morgan Growth (526) VMRAX $50K $71.87 -2.0% 16.5% 17.7% 18.3% 7.0% —
PRIMECAP (559) (CLOSED) VPMAX — $86.82 -1.7% 20.5% 25.5% 18.3% 7.8% —
U.S. Growth (523) VWUAX $50K $63.91 -1.1% 16.2% 19.5% 19.5% 7.5% —
500 Index (540) VFIAX $10K $151.07 -2.9% 16.1% 18.7% 18.4% 7.3% —
Equity Income (565) VEIRX $50K $58.03 -3.5% 16.3% 19.1% 19.6% 9.0% —
Growth & Income (593) VGIAX $50K $57.15 -3.1% 16.5% 19.1% 19.0% 6.6% —
LargeCap Index (5307) VLCAX $10K $37.96 -2.8% 16.5% 19.3% 18.5% 7.5% —
Total Stock Market Index (585) VTSAX $10K $41.32 -2.8% 17.0% 20.2% 18.9% 7.8% —
Value Index (506) VVIAX $10K $26.79 -3.6% 18.2% 22.9% 17.7% 6.9% —
Windsor (5022) VWNEX $50K $60.89 -3.0% 20.1% 28.3% 19.8% 8.8% —
Windsor II (573) VWNAX $50K $60.12 -3.1% 16.6% 20.8% 18.7% 7.5% —
Balanced Index (502) VBIAX $10K $25.60 -1.9% 8.8% 10.7% 12.4% 7.2% —
Wellesley Income (527) VWIAX $50K $59.59 -1.9% 3.6% 5.3% 9.3% 8.5% —
Wellington (521) VWENX $50K $63.53 -2.2% 10.1% 13.4% 12.8% 7.7% —
Developed Markets Index (5227) VDMAX $10K $30.12 -1.4% 7.4% 18.8% — — —
Emerging Markets Stock Index (5533) VEMAX $10K $31.62 -3.2% -12.8% -1.8% 0.3% 1.3% —
European Index (579) VEUSX $10K $63.90 -1.3% 8.1% 20.4% 10.6% 1.7% —
International Growth (581) VWILX $50K $64.98 -1.8% 6.0% 17.7% 10.0% 3.9% —
Pacific Index (572) VPADX $10K $69.30 -1.6% 6.4% 16.4% 8.0% 3.0% —
Total International Stock Index (569) VTIAX $10K $25.25 -1.7% 2.4% 13.2% — — —
World ex-U.S. Index (570) VFWAX $10K $28.27 -1.7% 1.9% 12.9% — — —
ADMIRAL INCOME SHARES
Short-Term Treasury (532) VFIRX $50K $10.67 -0.1% -0.4% -0.2% 0.8% 2.1% 0.37%
Short-Term Federal (549) VSGDX $50K $10.67 -0.2% -0.8% -0.6% 1.1% 2.8% 0.63%
Short-Term Inflation Index (567) VTAPX $10K $24.66 -0.5% -1.8% — — — -0.96%
Short-Term Inv.-Grade (539) VFSUX $50K $10.65 -0.2% -0.3% 0.8% 2.2% 3.8% 1.57%
Short-Term Bond Idx. (5132) VBIRX $10K $10.48 -0.3% -0.5% -0.2% 1.4% 3.1% 0.82%
Inflation-Protected Securities (5119) VAIPX $50K $26.02 -1.7% -8.3% -7.3% 3.6% 3.9% 0.00%
Interm.-Term Treasury (535) VFIUX $50K $11.19 -1.0% -3.3% -3.5% 2.1% 4.6% 1.51%
Interm.-Term Inv.-Grade (571) VFIDX $50K $9.71 -0.9% -3.1% -1.3% 4.2% 6.9% 2.98%
Intermed.-Term Bond Idx. (5314) VBILX $10K $11.17 -1.2% -4.4% -3.6% 3.4% 6.5% 2.77%
Total Bond Market (584) VBTLX $10K $10.58 -0.6% -2.9% -2.7% 2.4% 4.9% 2.09%
GNMA (536) VFIJX $50K $10.39 -0.3% -3.2% -3.3% 2.3% 4.8% 2.20%
Long-Term Treasury (583) VUSUX $50K $11.42 -1.3% -10.6% -13.4% 2.6% 6.3% 3.41%
Long-Term Inv.-Grade (568) VWETX $50K $9.69 -1.5% -7.4% -6.9% 4.9% 8.9% 4.88%
High-Yield Corporate (529) (CLOSED) VWEAX — $5.90 -1.0% 0.4% 4.7% 8.9% 9.3% 5.04%
Emerging Markets Govt. Bond Index (520)** VGAVX $10K $18.66 -2.4% — — — — 4.93%
Total International Bond Index (511) VTABX $10K $19.69 -0.5% — — — — 1.72%
Short-Term Tax-Exempt (541) VWSUX $50K $15.82 -0.1% 0.1% 0.3% 0.8% 1.6% 0.49%
Limited-Term Tax-Exempt (531) VMLUX $50K $10.96 -0.3% -0.6% -0.2% 1.3% 2.5% 0.98%
Interm.-Term Tax-Exempt (542) VWIUX $50K $13.54 -1.0% -3.9% -2.8% 2.3% 4.2% 2.63%
Long-Term Tax-Exempt (543) VWLUX $50K $10.84 -1.5% -5.7% -4.2% 2.5% 4.3% 3.66%
High-Yield Tax-Exempt (5044) VWALX $50K $10.35 -1.9% -5.9% -4.1% 2.9% 4.7% 3.92%
CA Intermed. Tax-Exempt (5100) VCADX $50K $11.09 -0.9% -3.4% -2.0% 2.8% 4.3% 2.64%
CA Long-T. Tax-Exempt (575) VCLAX — $11.01 -1.4% -5.8% -4.0% 2.8% 4.1% 3.73%
NJ Tax-Exempt (514) VNJUX $50K $11.40 -1.2% -5.3% -4.3% 2.1% 3.9% 3.51%
NY Tax-Exempt (576) VNYUX $50K $10.87 -1.3% -5.6% -4.5% 2.0% 3.9% 3.43%
PA Tax-Exempt (577) VPALX $50K $10.80 -1.5% -5.6% -4.3% 2.1% 4.0% 3.73%
Distributions are per share. All distributions are
reinvested at month-end Net Asset Value unless
otherwise noted.
Admiral shares are identical to regular, “investor” shares (and my recommendations are the same as those for “investor” shares) except that their
operating expenses are several basis points lower. (One basis point equals one one-hundredth of a percent.) For instance, a fund with an operating
expense ratio of, say, 0.25%, might have Admiral shares available with an operating expense ratio of 0.21%.
** Fund sold with a 0.75% front-end load

Vanguard exchange-traded fund shares can be bought and sold like stocks, anytime markets are open. They are expected to track the performance of Vanguard’s like-named index funds closely, though not precisely.
Price and performance are based on actual closing prices, not net asset value. Individual investor performance can vary depending on price variability during the trading day. Buy, Sell and Hold ratings may differ from
open-end versions of the same index funds listed in the Investor share section of the Performance Review if an alternative ETF is better or worse.
VANGUARD EXCHANGE-TRADED FUNDS
Fund Ticker Advice
8/30
Price
Aug.
Return
YTD
Return
12-Mo.
Return
3-Year
Return
5-Year
Return
12-Mo.
Yield
SEC
Yield Risk
BROAD EQUITY ETFs
SmallCap Growth VBK Buy $107.83 -1.9% 21.1% 26.8% 23.3% 10.4% 0.9% — 1.41
S&P SmallCap 600 Growth VIOG Buy $87.77 -1.5% 22.5% 25.4% — — 0.9% — 1.22
Russell 2000 Growth VTWG Hold $85.59 -1.9% 23.8% 27.9% — — 0.7% — 1.44
SmallCap VB Hold $96.83 -3.2% 19.7% 26.5% 21.3% 9.8% 1.6% — 1.34
S&P SmallCap 600 VIOO Hold $84.98 -2.4% 21.0% 26.4% — — 1.2% — 1.31
Russell 2000 VTWO Hold $80.46 -3.2% 20.1% 26.1% — — 1.3% — 1.34
SmallCap Value VBR Hold $85.70 -4.2% 18.0% 25.8% 19.2% 9.0% 2.2% — 1.30
S&P SmallCap 600 Value VIOV Hold $82.97 -3.1% 20.0% 27.8% — — 1.1% — 1.34
Russell 2000 Value VTWV Hold $75.48 -4.4% 16.8% 24.1% — — 1.6% — 1.38
Extended Market VXF Sell $72.62 -2.9% 20.1% 27.1% 20.9% 9.4% 1.4% — 1.33
Growth VUG Hold $80.98 -1.9% 14.5% 15.6% 19.2% 8.0% 1.4% — 1.07
S&P 500 Growth VOOG Buy $77.27 -2.5% 15.0% 14.9% — — 1.7% — 0.90
Russell 1000 Growth VONG Hold $77.02 -1.7% 15.5% 16.3% — — 1.6% — 1.00
MegaCap Growth MGK Buy $62.67 -1.6% 13.7% 14.0% 19.1% 7.9% 1.6% — 1.04
MidCap Growth VOT Hold $80.99 -2.1% 18.1% 23.0% 19.5% 7.9% 0.6% — 1.33
S&P MidCap 400 Growth IVOG Buy $80.92 -4.3% 15.7% 20.6% — — 0.6% — 1.29
MidCap VO Buy $97.96 -2.6% 18.9% 24.9% 19.4% 9.1% 1.2% — 1.21
S&P MidCap 400 IVOO Buy $79.69 -3.8% 17.1% 23.5% — — 0.9% — 1.20
MidCap Value VOE Hold $70.42 -2.9% 19.8% 26.5% 19.0% 9.9% 1.6% — 1.13
S&P MidCap 400 Value IVOV Buy $77.90 -4.0% 18.7% 26.2% — — 1.4% — 1.35
S&P 500 VOO Buy $74.85 -3.1% 15.9% 18.4% — — 2.0% — 1.00
Russell 1000 VONE Buy $75.40 -2.8% 16.7% 19.7% — — 1.9% — 1.02
Dividend Appreciation VIG Buy $67.29 -3.6% 14.0% 16.9% 16.7% 7.9% 2.2% — 0.87
High Dividend Yield VYM Buy $56.59 -3.9% 16.2% 18.0% 19.3% 8.3% 3.0% — 0.81
LargeCap VV Buy $75.13 -2.9% 16.4% 19.2% 18.5% 7.5% 1.9% — 1.02
MegaCap MGC Buy $55.94 -3.0% 15.7% 17.8% 18.3% 7.1% 2.1% — 0.99
Total Stock Market VTI Hold $84.77 -3.0% 16.7% 19.9% 18.9% 7.7% 2.0% — 1.05
Russell 3000 VTHR Hold $75.79 -2.8% 17.1% 20.3% — — 1.7% — 1.03
Value VTV Hold $68.63 -3.7% 18.1% 22.7% 17.7% 6.9% 2.4% — 1.00
S&P 500 Value VOOV Hold $73.59 -4.0% 17.0% 22.6% — — 2.1% — 1.11
Russell 1000 Value VONV Hold $73.82 -3.8% 17.7% 22.6% — — 2.1% — 1.04
MegaCap Value MGV Hold $49.66 -3.8% 17.8% 22.0% 17.5% 6.2% 2.5% — 1.00
INTERNATIONAL ETFs
Emerging Markets VWO Hold $37.72 -3.4% -14.1% -2.4% -0.0% 1.1% 4.1% — 1.81
Developed Markets VEA Sell $36.85 -1.6% 6.7% 18.5% 9.3% 1.8% 4.7% — 1.34
European VGK Hold $51.04 -1.5% 7.1% 20.0% 10.5% 1.5% 5.2% — 1.53
Pacific VPL Hold $56.03 -1.5% 6.0% 16.4% 8.0% 2.9% 4.0% — 1.21
Total International Stock VXUS Hold $47.07 -1.5% 1.6% 13.4% — — 4.5% — 1.38
Total World Stock VT Hold $52.84 -2.5% 8.2% 16.1% 11.9% 4.5% 3.3% — 1.21
World ex-U.S. VEU Sell $45.38 -2.0% 0.8% 12.4% 6.9% 1.6% 4.5% — 1.44
World ex-U.S. SmallCap VSS Hold $92.91 -1.0% 3.2% 15.2% 8.0% — 3.9% — 1.49
SECTOR ETFs
Consumer Discretionary VCR NA $93.46 -2.7% 23.2% 30.5% 26.7% 15.7% 1.2% — 1.12
Consumer Staples VDC NA $102.00 -4.3% 16.0% 16.5% 18.2% 10.8% 2.5% — 0.74
Energy VDE NA $116.54 -1.5% 14.0% 15.0% 17.6% 2.8% 1.7% — 1.64
Financials VFH NA $39.80 -5.1% 17.6% 27.0% 14.8% 1.6% 2.0% — 1.41
Health Care VHT NA $89.85 -3.4% 25.4% 29.6% 23.9% 11.5% 1.3% — 0.90
Industrials VIS NA $84.15 -2.9% 18.1% 26.6% 19.7% 6.8% 1.8% — 1.28
Information Tech. VGT NA $77.67 -0.4% 12.4% 8.2% 17.3% 8.6% 1.1% — 1.22
Materials VAW NA $91.00 -0.6% 8.1% 16.1% 14.0% 3.8% 1.7% — 1.71
REIT VNQ NA $64.50 -7.0% -0.3% 0.3% 12.6% 5.5% 3.9% — 1.41
Global ex-U.S. Real Estate VNQI NA $52.69 -2.2% -4.0% 10.1% — — 6.1% — 1.61
Telecom. Services VOX NA $78.45 -4.6% 12.1% 14.7% 14.6% 7.5% 3.1% — 0.99
Utilities VPU NA $81.26 -5.3% 9.9% 8.7% 11.9% 4.5% 3.8% — 0.95
Income ETFs
Short-Term Government VGSH Sell $60.74 -0.1% -0.1% -0.1% 0.6% — 0.3% 0.24% 0.13
Short-Term Inflation Bond VTIP Hold $49.14 -0.5% -2.0% — — — 0.1% -0.96% 0.75
Short-Term Corporate VCSH Buy $78.93 -0.2% -0.5% 0.6% 2.8% — 1.9% 1.63% 0.85
Short-Term Bond BSV Hold $80.04 -0.3% -0.4% -0.2% 1.4% 3.1% 2.3% 0.82% 0.37
Int.-Term Government Bond VGIT Sell $62.92 -1.0% -3.0% -3.3% 2.1% — 1.4% 1.47% 1.10
Int.-Term Corporate VCIT Buy $82.23 -1.1% -4.2% -2.3% 4.4% — 3.3% 3.58% 2.04
Int.-Term Bond BIV Hold $82.52 -1.1% -4.5% -3.6% 3.3% 6.4% 3.1% 2.77% 1.58
Total Bond Market BND Hold $80.16 -0.9% -3.1% -2.9% 2.3% 4.7% 2.5% 2.09% 1.01
Mortgage-Backed Securities VMBS Sell- $50.72 -0.5% -2.4% -2.9% 1.9% — 0.6% 0.95% 0.67
Long-Term Government VGLT Sell $66.34 -1.3% -10.2% -13.2% 2.6% — 3.1% 3.49% 4.80
Long-Term Corporate VCLT Hold $81.95 -1.4% -7.8% -7.9% 4.5% — 4.9% 5.17% 3.75
Long-Term Bond BLV Sell $82.85 -1.4% -9.4% -10.2% 3.8% 7.8% 4.5% 4.57% 3.61
Ext. Duration Treasury EDV Sell $96.29 -1.1% -15.7% -21.0% 3.2% 7.5% 3.7% 3.80% 9.14
Emerging Markets Govt. Bond VWOB Buy $74.52 -2.7% — — — — 0.6% 4.93% —
Total International Bond BNDX Hold $49.32 0.6% — — — — 0.3% 1.72% —

Having shown that six sub-advis-
ers and 11 different portfolio manag-
ers isn’t enough to make its active
Explorer capable of outperforming a
simple index fund, Vanguard added a
seventh management outfit and 12th
manager to the gigantic small-cap
growth fund on Aug. 12.
Ryan E. Crane of Stephens
Investment Management (Little Rock,
AR and Houston, TX) will be taking on
a small portion of Explorer, and there is
every expectation that the position will
grow over time.
Amazingly, Vanguard doesn’t seem
to recognize that a small-cap growth
fund with $11.2 billion in assets can’t
be an index-beater when they’ve got so
many cooks in the kitchen.
Or maybe they DO realize the fund
is a has-been. Only one board member,
Alfred Rankin, owns shares in Explorer.
Chairman Bill McNabb doesn’t. And
just six of Explorer’s portfolio managers
own shares in the fund, with just one
manager, Ken Abrams of Wellington,
with more than $1 million invested there.
Whether you consider Explorer’s
long-term relative performance against
the index benchmark that Vanguard
uses, as illustrated in the chart below,
or its rolling performance, as in the
first chart above, the fund simply can’t
get out of its own, bloated way. Jack
Bogle once said, “Everyone knows that
if you have multiple managers, you end
up with index-like performance.” Amen
to that.
The one saving grace here is that,
based on returns for Stephens’ Small-
Mid Growth strategy, the team has
been able to outperform Explorer since
2005, the period for which public data
is available. Of course, whether the
outperformance of a tiny sliver of the
fund will be able to move this battle-
ship remains to be seen. Ken Abrams’
and Jack Granahan’s long-term track
records are Explorer beaters, but the
fund is simply over-burdened.
You might ask why various manag-
ers of the fund don’t see this as a los-
ing strategy. Well, it’s not a loser for
the individual managers, because each
one’s portion or sleeve of the portfolio
is considered independently when bonus
time rolls around. One or two managers
can beat the benchmark that Vanguard
has established for each of their port-
folios (the Russell 2500 Growth index,
which the fund is measured against, or
the Russell 2500 or the Russell 2000
or some combination) and earn their
performance bonuses no matter what
happens to the overall fund and its share-
holders. (Maybe that’s why so few man-
EXPLORER
Beware the Bloat
ExplorerhasLagged
foraDecade
6/99
6/00
6/01
6/02
6/03
6/04
6/05
6/06
6/07
6/08
6/09
6/10
6/11
6/12
6/13
Explorer vs. Russell 2500 Growth
Index Over Rolling 5-Year Periods
Explorer vs. Russell 2500 Growth
Index Over Rolling 3-Year Periods
0.85
0.90
0.95
1.00
1.05
1.10
1.15 rising line = Explorer outperforms
Explorervs.Russell2500
GrowthIndex
6/95
6/96
6/97
6/98
6/99
6/00
6/01
6/02
6/03
6/04
6/05
6/06
6/07
6/08
6/09
6/10
6/11
6/12
6/13
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50 rising line = Explorer outperforms
Century
hired
▼
AXA Rosenberg hired
Kalmar hired
▼
GMO
fired
▼
▼
▼
AXA fired
▼
Chartwell and
Vanguard
added to fund
agers commit lots of dollars here—why
invest in the work of your competitors/
peers who you may not believe are as
good as you are?) In fact, there’ve been
a couple of times over the past few years
when the fund has paid a performance
bonus despite the fact that its trailing
three-year return lagged the benchmark.
Apparently, one or two managers can be
earning a bonus that outweighs the give-
backs the other managers are paying
and, voilà, fund shareholders pay extra
for overall fund underperformance.
Vanguard seems to think that the fact
that Explorer outperforms the average
high-expense-ratio small-cap growth
fund makes the strategy a good one. But
consider that the only reason Explorer is
outperforming the average fund (a pretty
meager hurdle to overcome) is because
its expense ratio of 0.51% is 94 basis
points, or 0.94%, lower than its small-
cap growth fund competitors. It isn’t that
many hands are making lighter work
here, it’s that they are getting a pass
because Vanguard runs cheap funds.
National Airlines once asked, “Is this
any way to run an airline?” I might ask,
“Is this any way to run a mutual fund?”
Does anyone remember National? n
StephensHas
OutperformedExplorer
6/05
12/05
6/06
12/06
6/07
12/07
6/08
12/08
6/09
12/09
6/10
12/10
6/11
12/11
6/12
12/12
6/13
$50
$70
$90
$110
$130
$150
$170
$190
$210
$230
Explorer
Stephens SMID Cap Growth
Vanguard seems to think the fact that Explorer out-
performs the average high-expense-ratio small-cap
growth fund makes their strategy a good one.

DISTRIBUTIONS
TO COME
September’s Payouts
Amazingly, we’re almost three quarters of
the way through the year, and it’s time for
September’s quarterly distributions.
Taxable investors directing distributions
into their money market accounts—some-
thing I recommend instead of automatically
reinvesting in the fund from which the
distributions come—will be able to redeploy
the money into underweighted funds rather
than having to sell shares down the road.
The regular quarterly income fund and ETF
payers include:
500 Index
Balanced Index
Convertible Securities
Developed Markets ETF
Dividend Appreciation Index
Emerging Markets Index
Equity Income
European Index
Extended Duration Treasury ETF
Financials Index
Global ex-U.S. Real Estate Index
Growth Index
High Dividend Yield Index
Inflation-Protected Securities
Large-Cap Index
MegaCap ETF
MegaCap Growth ETF
MegaCap Value ETF
Pacific Index
REIT Index
Russell 1000 ETF
Russell 1000 Growth ETF
Russell 1000 Value ETF
Russell 3000 ETF
S&P 500 Growth ETF
S&P 500 Value ETF
Short-Term Inflation-Protected Sec. Index
STAR LifeStrategy Conservative Growth
STAR LifeStrategy Income
Target Retirement Income
Tax-Managed Balanced
Tax-Managed Growth & Income
Tax-Managed International
Total International Stock Index
Total Stock Market Index
Total World Stock Index
Utilities Index
Value Index
Wellesley Income
Wellington
World ex-U.S. Index
World ex-U.S. Small-Cap Index
six-month period those dividends prob-
ably contributed an additional 1% in
total return.
The 12-month yield, also called a
distribution yield, or distributed yield
consists of all interest or dividend
income payments plus any capital gains
distributions made by the fund over the
preceding 12 months, as a percentage
of the current share price.
The distribution yield can differ dra-
matically from the SEC yield for many
reasons. First, the SEC yield is mea-
sured over the preceding 30 days, so in
a rising interest rate environment, the
SEC yield may look higher than the
distribution yield, which incorporates
income that may have been paid when
interest rates were lower.
Also, not all SEC yields are com-
parable. For your typical bond fund,
the SEC yield is based on the yield
to maturity for the past 30 days for
all the holdings in the fund. For the
typical stock fund, the SEC yield is
You’ve asked and I’ve tried, over the
years, to answer questions I think will
benefit a large number of our FFSA
members. I hope this helps. –DPW
Why are the “12-Month Return” and
“12-Month Yield” of the bond funds
on page 9 so very different?
Great question. The simple answer
is that total return is a combination of
both yield and price changes. And the
12-month yield, which is not the same
as the SEC yield you see reported on
most fund company websites, deals
solely with distributions. The differ-
ences are important.
First, the 12-month returns for all
the funds in the Performance Review
pages are total returns, calculated using
both the change in share price over the
prior 12 months as well as the value
of any reinvested interest, dividends
or capital gains paid during that peri-
od. This differs from a “price return,”
which doesn’t take any distributions
into account.
Most returns you’ll see for mutual
funds are total returns. And it should
be said that total returns incorporate
expense ratios. I’ve heard investors
compare two funds with identical
returns and then say, “But this one
returned less because its expense ratio
is higher.” Wrong. They returned the
same amount despite the fact that one’s
expense ratio was higher.
Be aware, by the way, that when you
see returns quoted for indexes, like the
Dow Jones Industrial Average or the
S&P 500, unless it is specifically stated
that the number is a total return, then
it’s probably a price-only return. The
news media will say, for instance, “The
Dow gained 1,000 points over the last
six months, up 7%.” That may be cor-
rect for the index itself, but if dividends
were paid out over that period (and over
six months, they almost certainly were),
then the total return for the index will
be higher. In fact, if the Dow is yielding
about 2%, you can estimate that over a
Questions and Answers
Yield Confusion
Bond Fund Distribution Yields
1-mo 3-mo 6-mo
High-Yield Corporate 6.01% 6.04% 6.04%
Long-Term Inv.-Grade 4.96% 4.99% 4.94%
Long-Term Bond Index 4.33% 4.34% 4.32%
CA Long-Term Tax-Ex. 3.98% 4.02% 3.98%
High-Yield Tax-Exempt 3.98% 3.96% 3.94%
Long-Term Tax-Exempt 3.97% 4.01% 3.94%
OH Long-Term Tax-Ex. 3.79% 3.77% 3.74%
PA Long-Term Tax-Ex. 3.78% 3.79% 3.76%
NJ Long-Term Tax-Ex. 3.69% 3.74% 3.67%
NY Long-Term Tax-Ex. 3.54% 3.56% 3.50%
MA Tax-Exempt 3.29% 3.28% 3.26%
Int.-Term Inv.-Grade 3.16% 3.21% 3.20%
CA Int.-Term Tax-Ex. 3.16% 3.35% 3.37%
Int.-Term Tax-Exempt 3.12% 3.13% 3.07%
Long-Term Treasury 3.06% 3.14% 3.14%
Int.-Term Bond Index 2.85% 2.90% 2.90%
Total Bond Mkt. Idx. 2.30% 2.32% 2.32%
GNMA 2.19% 2.24% 2.22%
Short-Term Inv.-Grade 1.65% 1.68% 1.73%
Limited-Term Tax-Ex. 1.60% 1.67% 1.68%
Int.-Term Treasury 1.40% 1.42% 1.42%
Short-Term Bond Index 1.06% 1.12% 1.17%
Short-Term Tax-Exempt 0.83% 0.90% 0.91%
Short-Term Federal 0.48% 0.49% 0.48%
Short-Term Treasury 0.30% 0.32% 0.33%
All data through June 30, 2013, annualized.
>

based on the dividend for the last
30 days of the prior month. And just to
confuse things further, money market
SEC yields are based on the last seven
days of income, annualized. Inflation-
Protected Securities and its little
brother Short-Term Inflation Index
calculate their SEC yields based on the
prior 30 days ending in the prior week.
And finally, GNMA is an odd duck
unto itself. It’s complicated, but the way
the SEC requires Vanguard to report the
yield on this fund has almost no easy
comparison with the SEC yield on more
traditional bond funds. You can com-
pare it to other GNMA funds, but com-
paring the yield to, say, Intermediate-
Term Investment-Grade is an apples-
to-bananas comparison.
Partly, the difference stems from
the fact that GNMA’s yield is calcu-
lated based on the actual income that’s
paid by the bonds in the portfolio.
Remember, GNMA bonds can see their
yields decline if the underlying mort-
gages are prepaid—i.e., paid off before
they are due to mature. So, using a
“yield to maturity” calculation isn’t
valid, according to the SEC.
Also, the GNMA market consists of
something called “to be announced”
securities, which don’t have a yield
per se but are essentially contracts for
GNMA securities still in formation.
TBAs are a kind of virtual security,
and GNMA manager Michael Garrett
uses these securities in the portfolio to
provide liquidity at times, adding to the
problematic calculation of a “yield” for
the fund. In fact, Total Bond Market’s
yield is also impacted by the dif-
ferent calculations used for different
segments of its portfolio—and with
25% of the fund invested in mortgage
securities, well, its yield is a hybrid
calculation.
While Vanguard marks its bond
funds’ yields with footnotes on its web-
site (though it doesn’t make the specific
distinction with Total Bond Market),
there’s no real discussion given to the
differences in these yields, and hence,
when you see them all lined up in
a row on vanguard.com you’re led
to believe they are comparable. Also,
Vanguard doesn’t explain the differenc-
es between various yields in its reports
to shareholders, either. The January
2013 annual report for its government
bond funds, for example, shows a table
of yields from both the end of January
2012 and January 2013 ranked from
lowest to highest. But, in fact, GNMA’s
yield can’t be compared directly with
the other funds’.
The takeaway from my standpoint,
is that the only way to compare funds
is to look at their distributed yields.
You can look at 12-month yields, which
are found in the Performance Review
every month, or even shorter com-
parisons. For instance, in the table
on page 13, I’ve calculated and then
annualized the one-month, three-month
and six-month distribution yields for
Vanguard’s bond funds through the
end of June. (I skipped the two new
foreign bond funds, where distribu-
tions may still be finding their level
after just one month, and the inflation
funds, as their numbers are skewed by
their payout schedules and the inflation
components.) The table’s numbers will
give you a better feel for the payouts
the funds have been making recently,
but give no guidance on what they’ll
pay this month, or next. Then again,
the figures on vanguard.com don’t help
much in that regard, either.
In a nutshell, long-term funds, and
particularly the tax-exempt funds, are
paying out some fairly substantial yields
compared to their shorter-term siblings.
Also, note that muni fund yields have
actually expanded a tiny bit over the
past month from what they were paying
over the past several months. Selling
in that part of the market has made the
bonds increasingly attractive. n
>
Indeed, dumping AllianceBernstein was
good for shareholders.
Over at International Value, drop-
pingtheAllianceBernsteinteamandpick-
ing up ARGA Investment Management
in the process didn’t reduce the man-
agement muddle very much, but when
Vanguard also pink-slipped long-time
manager Hansberger Global Investors,
the fund began the weight-reduction pro-
cess it so badly needed.
It’s always hard to tell—particularly
during transitions—who’s contributing
down to 14%. As AllianceBernstein’s
role diminished, Global Equity’s per-
formance began to improve, and since
its firing, the fund’s outperformance
versus Total World Stock Index has
gotten even better.
As I wrote a year ago when Vanguard
made the firing public, “This may be one
of the best moves Vanguard could have
made…I expect that, over time [Global
Equity] will once again show better
long-term relative performance when
compared to Total World Stock Index.”
It’s been just a year since
AllianceBernstein was finally given the
boot by Vanguard after years of sub-par
performance and questions about the
firm’s stability. While a year is short, I
thought it would be worthwhile check-
ing in on the fortunes of the funds that
shed their AllianceBernstein anchors.
AtGlobalEquity,AllianceBernstein
had managed as much as 31% of the
fund’s assets in its heyday. By the time
of the final report on its role in the
fund, that “sleeve” had been knocked
Management
Breaking an Alliance
GNMA is an odd duck unto
itself. You can compare it
to other GNMA funds, but
otherwise it’s an apples-to-
bananas comparison.

the most to performance, but as the sec-
ond chart to the right shows, it doesn’t
really matter as far as 2013 is con-
cerned. International Value has been on
a tear relative to Total International,
and is up 6.2% so far this year versus
the index fund’s 2.4% gain.
A year ago I wrote that I really
haven’t been a fan of International
Value for some time and remained a bit
skeptical given the paucity of informa-
tion I was able to find on ARGA’s track
record. That being said, it has definitely
improved on a relative basis since the
manager musical chairs came to an end.
But I’ll repeat what I wrote a year ago:
“I’ll stick with International Growth
for my foreign stock exposure.” As
noted, while International Value has
gained 6.2% this year, International
Growth is up 6.0%.
Finally, last month I took a long
look at the venerable Windsor, which
is definitely seeing the benefits of hav-
ing dumped AllianceBernstein for Pzena
Investment Management. Of course, Jim
Mordy of Wellington is doing the heavy
lifting, and his excellence is show-
ing. Windsor is up 20.0% for the year
through August versus Value Index’s
gain of 18.1%.
InternationalValuevs.
TotalInternational
7/03
7/06
7/07
7/08
7/09
7/10
7/11
7/12
7/13
0.96
0.98
1.00
1.02
1.04
1.06
1.08 rising line = International Value outperforms
Alliance
Bernstein
fired
▼
▼
Hansberger
fired
GlobalEquityvs.
TotalWorldStockIndex
6/95
6/96
6/97
6/98
6/99
6/00
6/01
6/02
6/03
6/04
6/05
6/06
6/07
6/08
6/09
6/10
6/11
6/12
6/13
0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50 rising line = Global Equity outperforms
Alliance
Bernstein
fired
▼
Alliance
Bernstein
added as
third
manager
▼
Baillie
Gifford
added as
fourth
manager
▼
▼
Acadian Asset Management
joins Marathon on fund
Again,oneyearisaveryshortperiodof
time, and yet, on both Global Equity and
InternationalValue in particular,Vanguard
made what I consider the correct move to
reduce the number of managers running
the funds. This is precisely the opposite of
what the firm continues to do at Explorer,
as I explain on page 12. n
At the end of August, it was 2.75%
after having hit a high of 2.92%. That
increase of 99 basis points (or 0.99%),
translated into a loss of 6.9% for bond
holders.
Only eight of Vanguard bond funds
have fallen that much or more this year.
Extended Duration Treasury ETF and
Long-Term Treasury are off 15.7%
and 10.6%, respectively. But they are
far from typical. Total Bond Market is
down a more moderate 3.0%. You and
I don’t own long bonds, and you won’t
find them in my Model Portfolios. We
do own High-Yield Corporate, which
has managed to hold on to a small gain
this year, up 0.4%. GNMA, which is
off 3.3% on the year, has been a disap-
pointment, and as it has not lived up
to my expectations, I am dropping it
from my Model Portfolios. (See page 3
for more on this trade.) Another hold-
ing, Intermediate-Term Investment-
Grade, is off just 3.1%.
Seeing losses in any part of our port-
folios is never fun, but unless you were
caught holding “typical” long-maturity
bonds, the pain just hasn’t been that
acute. Bonds still deserve a role in a
diversified portfolio, and all of my
Models fit that description.
As we head into September, I
expect both bond and stock markets to
become more volatile. (And no, I don’t
expect more market mayhem akin to
the Nasdaq’s 3-hour trading halt.) Not
only will investors be waiting for
the Fed’s post-meeting revelations,
but September 15 marks the five-year
anniversary of the Lehman Bros. bank-
ruptcy, and I can only imagine the dire
headlines that will accompany articles
and blog posts heralding why it almost
certainly could happen again. First off,
those kinds of apocalyptic analyses
should be taken with a large grain of
salt. In addition, remember that you
and I aren’t investing in indexes that
seek to “own the market”, and by
extension both the best and worst of
the financial behemoths. Our active
managers are making choices for us
and, I’m confident, will avoid any
Lehmans they find.
Managed Change
It isn’t written in stone, but I think
change is brewing for the Managed
Payout funds, which hit their five-
year birthday this summer. Reading
between the lines of the most recent
semiannual letter to shareholders, I’d
say Vanguard’s preparing to make a
move. Yes, Vanguard says it “remains
committed to the managed payout fund
concept,” but that doesn’t mean it is
committed to the current funds’ oper-
ating principles. The motive for the
change is simple: The funds haven’t
delivered on their objectives.
Let’s start with Managed Payout
Distribution Focus. Vanguard says the
fund “seeks to maintain the dollar
value of an investor’s original invest-
ment and payment amounts over the
long term.” Consider an investor who
invested $25,000 (the minimum) into
the fund at the end of June 2008, a
month after inception and, as would be
expected, withdrew all of the income
and capital gains over the past five
years. By the end of June 2013, that
$25,000 would have shrunk to $19,717.
Okay, that’s one strike against the fund
for not maintaining the dollar value
of the original investment. And the
monthly payout? In June 2013 the
investor would have received a $45.43
payout, down from $62.61 five years
ago. Strike two.
AsforManagedPayoutGrowth
TAPER FROM PAGE 1>
>

Daniel P. Wiener is America’s leading expert on the Vanguard family of funds. He is founder of the Fund Family
Shareholder Association and chief executive officer and chief investment strategist of Adviser Investments, LLC,
a Newton, Massachusetts, investment advisory firm (800-492-6868). As editor of The Independent Adviser for
Vanguard Investors, he is a five-time recipient of the Newsletter Publishers Foundation’s Editorial Excellence
Award. He also edits the annual Independent Guide to the Vanguard Funds. Mr. Wiener is often quoted in the
nation’s leading financial publications.
DAN’S DO-IT-NOW ACTION RECOMMENDATIONS
4 Opportunities still remain with large growth funds, which have enjoyed a nice run the past
three years. But keep your expectations in check. PRIMECAP is the best of the bunch.
(See page 2)
4 GNMA isn’t living up to my expectations. It’s time to cut our losses and trade back into
Short-Term Investment-Grade for more consistent short-maturity bond exposure.
(See page 3)
4 Explorer picked up a seventh sub-advisor in August. One more cook in the kitchen isn’t
going to straighten out this bloated behemoth of a small-cap fund. (See page 7)
TheNew
AdviserOnline
Times change, and so does technol-
ogy. Back in 1991, I would write the monthly
newsletter at my Macintosh, print it at
the copy shop, and, with the help of my
then 6-year-old son, fold, label and post it
to subscribers. In 1992, I got the help of
designer par excellence John Hall for the
print edition, and later in the ‘90s, the team
at InvestorPlace Media set up AdviserOnline
for the web.
Since then, our site has gone through a
few redesigns, and June brought the lat-
est. It’s more streamlined, easier to use,
and even better, mobile-ready, putting all
the Vanguard news you need literally right
at your fingertips on your mobile phone or
tablet. Here’s what’s new:
n Cleaner look with fewer sidebars
n Updated navigation for easier access
to Customer Service, Special Reports
and the annual Independent Guide to the
Vanguard Funds
n Improved Customer Service page for
fast answers to common questions
n Custom views for the Model Portfolios
Visit the new AdviserOnline.com today.
If you have any questions or problems, call
us at 800-211-7641 or email us at service@
adviseronline.com.
and Distribution, the record isn’t
much better. This fund “seeks to make
monthly payouts that, over time, keep
pace with inflation.” A $25,000 invest-
ment would have generated a monthly
payout of a bit more than $110 at the
start of the five-year period. But by
June 2013, the monthly payout would
have shrunk to $93 plus a few pennies.
Yet, over those five years, inflation
rose 7.1%. Had the fund delivered on
its goal, the monthly payout should
have been closer to $118. As for the
initial $25,000 invested, it would have
dropped to $23,929.
Managed Payout Growth Focus has
the lofty aim to “increase monthly pay-
outs and the invested capital at a rate that
outpaces inflation over time.” A $25,000
investment five years ago would have
grown to $26,024. Unfortunately, that
4.1% gain is several points shy of the
7.1% rise in inflation. And monthly pay-
outs decreased from $67 to $57, or 15%.
Yes, on a total return basis, the
Managed Payout funds are all up
between 22% and 24% over the five
years ending in June 2013. But the
funds were built with the express objec-
tive of delivering monthly income,
which would be spent, not plowed back
into more shares. Investors wagering
that Vanguard would deliver on its
promises have been disappointed, as
has Vanguard. Let’s see what changes
may come.
TIPSTraders Warned
Late in August, Vanguard filed an
amendment to its prospectus for Short-
Term Inflation-Protected Index giving
it the right to reject quick trading in the
fund. That’s not to say that there’s any
evidence of lots of short-term trading—
since inception last October, the fund
has only seen monthly inflows, includ-
ing Vanguard’s own switch from big
brother Inflation-Protected Securities
in its Target Retirement funds. But,
given all the anxiety over inflation, Fed
policy and investors’general skittishness
around the bond market, Vanguard’s
making sure the language is in the pro-
spectus and investors (those who read it,
anyway) are forewarned. Obviously, if
you wanted to trade the fund, the ETF
shares are the way to go.
Finally, I was amused to see
Vanguard’s PR guy,Andy Clarke, trying
to link the launch of 500 Index in 1976
to the Declaration of Independence in a
blog post in late August. (Note to Andy:
Independence Day was in July.) Clarke
writes the fund was a “declaration
of independence from ruinous invest-
ment fees.” Well, not really. 500 Index
began life as a load fund, so rather
than declaring independence, the fund
(which eventually went no-load) sim-
ply followed the trend of the day, ding-
ing early shareholders with a marketing
fee. But why let the facts get in the way
of a good (if twisted) metaphor? n

Vgfa 2013-09

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