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.