P.O. Box 2600
Valley Forge, PA 19482-2600
610-669-8439
christyn_l_rossman@vanguard.com
| March 21, 2016 | |
| Asen Parachkevov, Esq. | |
| U.S. Securities and Exchange Commission | via electronic filing |
| 100 F Street, N.E. | |
| Washington, DC 20549 | |
| RE: | Vanguard Charlotte Funds; File No. 333-177613 |
| Post-Effective Amendment No. 8 – Vanguard Total International Bond Index Fund | |
| (Institutional Select share class) |
Vanguard Bond Index Funds; File No. 33-06001
Post-Effective Amendment No. 71 – Vanguard Total Bond Market Index Fund (Institutional Select share class)
Vanguard Index Funds; File No. 2-56846
Post-Effective Amendment No. 144 – Vanguard Total Stock Market Index Fund; Vanguard Extended Market Index Fund; Vanguard 500 Index Fund (Institutional Select share class of each Fund)
Vanguard STAR Funds; File No. 2-88373
Post-Effective Amendment No. 83 – Vanguard Total International Stock Index Fund (Institutional Select share class)
Dear Mr. Parachkevov,
This letter responds to your comments provided on March 15, 2016, on the above-referenced post-effective amendments. The comments apply to the specifically named Funds and where applicable, conforming changes will be made to the other Funds.
| Comment 1: | Vanguard Total International Bond Index Fund – Prospectus –Principal Investment |
| Strategies | |
| Comment: | Please confirm if the Fund will invest in collateral debt obligations or collateral loan |
| obligations in any material manner. | |
| Response: | We confirm that the Fund’s target index does not presently include these security types in |
| its methodology and therefore, these investments would not be part of the Fund’s | |
| principal investment strategy to track the index by sampling the index constituents. | |
| Asen Parachkevov, Esq. |
| March 21, 2016 |
| Page 2 |
| Comment 2: | Vanguard Total International Bond Index Fund – Prospectus –Principal Investment |
| Strategies | |
| Comment: | In this section, there is discussion that the target index is capped to comply with |
| investment company diversification standards of the Internal Revenue Code. Please | |
| consider revising the disclosure to state that the Fund is considered nondiversified within | |
| the meaning of the Investment Company Act of 1940. | |
| Response: | We amended the Institutional Select share class disclosure to clarify that the index |
| methodology is not designed to satisfy the diversification requirements of the Investment | |
| Company Act of 1940. Conforming changes will be made in the next post-effective | |
| amendment filed for the other share classes of the Fund. | |
| Comment 3: | Vanguard Total International Bond Index Fund – Prospectus –Principal Investment |
| Strategies | |
| Comment: | The Fund’s principal investment strategy states that “The Fund will attempt to hedge its |
| foreign currency exposure in order to correlate to the returns of the Index, which is U.S. | |
| dollar hedged. Such hedging is intended to minimize the currency risk associated with | |
| investment in bonds denominated in currencies other than the U.S. dollar.” Please | |
| confirm what type of derivative investments will be used for hedging purposes, and | |
| consider adding disclosure to the strategy section. | |
| Response: | In the “More on the Fund” section, under “Other Investment Policies and Risks” the |
| following disclosure is included: | |
| “The Fund will enter into foreign currency exchange forward contracts, which are a type | |
| of derivative, in order to hedge its foreign currency exposure. A foreign currency | |
| exchange forward contract is an agreement to buy or sell a currency at a specific price on | |
| a specific date, usually 30, 60, or 90 days in the future. These contracts will be used in an | |
| effort to offset any changes in the dollar value of foreign bonds attributable to changes in | |
| the value of the bonds’ local currencies relative to the U.S. dollar. Although such | |
| contracts can protect the Fund from unfavorable fluctuations in currency exchange rates, | |
| they also reduce or eliminate any chance for the Fund to benefit from favorable exchange | |
| rate fluctuations. Notably, foreign currency exchange forward contracts do not prevent | |
| the Fund’s securities from falling in value for reasons unrelated to currency exchange | |
| rates, such as interest rate increases, credit downgrades, etc.” | |
| We have considered the comment and do not plan to modify the principal investment | |
| strategy disclosure in this filing. We believe that the “More on the Fund” section of the | |
| prospectus provides an appropriate level of detail for shareholders to understand the | |
| hedging strategy. However, we will again consider whether additional specificity is | |
| appropriate for all share classes of the Fund at the next annual update in order to ensure | |
| consistent disclosure is provided to all shareholders. | |
| Asen Parachkevov, Esq. |
| March 21, 2016 |
| Page 3 |
| Comment 4: | Vanguard Total International Bond Index Fund –Prospectus – More on the Fund | |
| Comment: | In the “Market Exposure” section, it states that “Interest rate risk should be moderate for | |
| the Fund because it invests in a geographically diverse mix of short-, intermediate-, and | ||
| long-term bonds.” Please confirm that this language is consistent with the Fund’s dollar- | ||
| weighted average maturity stated in the “Principal Investment Strategies” section. | ||
| Response: | As of the Fund’s fiscal year end, the distribution by effective maturity of the Fund’s | |
| holdings (representative of that of the Fund’s index) were as follows: | ||
| Distribution by Effective Maturity (% of portfolio) | ||
| Under 1 Year | 2.1% | |
| 13 Years | 19.7 | |
| 35 Years | 21.2 | |
| 510 Years | 30.6 | |
| 1020 Years | 15.7 | |
| 2030 Years | 8.4 | |
| Over 30 Years | 2.3 | |
We have considered the comment and given the portion of the Fund’s portfolio invested in bonds with shorter terms than the dollar-weighted average maturity, we believe the risk disclosure is consistent with the Fund’s holdings.
| Comment 5: | Vanguard Total Bond Market Index Fund – Prospectus – Principal Investment |
| Strategies | |
| Comment: | Please confirm if the Fund will invest in collateral debt obligations, collateral loan |
| obligations, or asset-backed securities in any material manner. | |
| Response: | We confirm that the Fund’s target index does not presently include collateral debt |
| obligations and collateral loan obligations in its methodology. While the Fund’s target | |
| index methodology does include a small exposure to asset-backed securities, these | |
| securities currently comprise less than 1% of the Fund’s holdings. Therefore, these | |
| investments are not considered part of the Fund’s principal investment strategy to track | |
| the index by sampling the index constituents. | |
| Comment 6: | Vanguard Total Bond Market Index Fund – Prospectus – Principal Investment |
| Strategies | |
| Comment: | Please include the Fund’s dollar-weighted average maturity as of the fiscal year end for |
| consistency with similar disclosure in the “Principal Investment Strategies” section of | |
| Vanguard Total International Bond Index Fund. | |
| Response: | We will modify the disclosure as requested. |
| Comment 7: | Vanguard Total Bond Market Index Fund – Prospectus – Investing With Vanguard |
| Comment: | In this section, there is a discussion that the Fund reserves the right to charge a |
| transaction fee of 0.25% on aggregate share purchases that equal or exceed $500 million | |
Asen Parachkevov, Esq.
March 21, 2016
Page 4
| over a 12-month period. Please confirm that this situation is generally not applicable to | |
| the average investor and also that an investor will receive advance notice before being | |
| charged the transaction fee. If so, please consider revising the disclosure to clarify that | |
| the transaction fee is voluntary (i.e., that the investor will receive advance | |
| communication about applicability if a large transaction was not cleared prior to placing | |
| the trade). | |
| Response: | We have modified the disclosure as follows to clarify the discretionary nature of the |
| purchase fee: | |
| “The Fund reserves the right to charge a 0.25% transaction fee to investors whose | |
| aggregate share purchases into the Fund exceed $500 million. The Fund may impose this | |
| transaction fee if an investor’s aggregate purchases into the Fund over a 12-month period | |
| exceed, or are expected to exceed, the indicated amount upon notice to the client in | |
| conjunction with a purchase that triggers application of the fee. The fee will be assessed | |
| only if the client elects to proceed with the purchase. Generally, this fee will not apply to | |
| transactions coordinated in advance between a client and Vanguard.” | |
| Comment 8: | Vanguard Total Stock Market Index Fund – Prospectus – Principal Investment |
| Strategies | |
| Comment: | Please confirm if derivative investments will be used as a principal investment strategy. |
| Response: | We confirm that derivative investments are not part of the Fund’s principal investment |
| strategy. | |
| Comment 9: | Vanguard Total International Stock Index Fund – Prospectus –Principal |
| Investment Strategies | |
| Comment: | Please confirm if derivative investments will be used as a principal investment strategy. |
| Response: | We confirm that derivative investments are not part of the Fund’s principal investment |
| strategy. | |
| Comment 10: | All Funds – Prospectus – Average Annual Total Returns Table |
| Comment: | Pursuant to Item 4 of Form N-1A, please consider including information about the |
| spliced index in the narrative explanation accompanying the bar chart and table for each | |
| Fund. | |
| Response: | In response to staff comments received in August 2010, the definition of the spliced |
| index was removed from the Item 4 disclosure. In response to your comments, we will | |
| restore these descriptions for the Institutional Select share class prospectuses as | |
| responsive to Item 4, Instruction 2(b) in the subsequent post-effective amendment. We | |
| will look to make conforming changes in subsequent post-effective amendments. | |
| Asen Parachkevov, Esq. |
| March 21, 2016 |
| Page 5 |
| Comment 11: | All Funds –Prospectus – Purchase and Sale of Fund Shares |
| Comment: | Please confirm that the Institutional Select share class investment minimums may only |
| differ for a Vanguard collective investment trust with a similar mandate and, if there are | |
| other exceptions to the minimums, please update the prospectus disclosure accordingly. | |
| Response: | We confirm that the Institutional Select share class investment minimums may only differ |
| for a Vanguard collective investment trust with a similar mandate. We believe the | |
| eligibility requirements are appropriately disclosed in the “Investing With Vanguard” | |
| section of the prospectus. | |
Tandy Requirements
As required by the SEC, the Funds acknowledge that:
| · | Each Fund is responsible for the adequacy and accuracy of the disclosure in the filing. |
| · | Staff comments or changes in response to staff comments in the filings reviewed by the staff |
| do not foreclose the Commission from taking any action with respect to the filing. | |
| · | A Fund may not assert staff comments as a defense in any proceeding initiated by the |
| Commission or any person under the federal securities laws of the United States. |
Please contact me at (610) 669-8439 with any questions or comments regarding the above response.
Thank you.
Sincerely,
Christyn L. Rossman
Associate Counsel
The Vanguard Group, Inc.