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Fund expense changes reported in March

March 28, 2014

In March 2014, a number of Vanguard funds issued revised prospectuses. Typically, when this occurs, some funds' expense ratios—essentially, operating costs that are passed on to investors—go up or down, while others report no changes.

The funds issuing revised prospectuses in March are listed in the table below this article.


The less you pay to invest, the more you keep in your pocket. It's that simple.

Since our founding nearly 40 years ago, Vanguard has focused on keeping operating costs low. As a client, you pay us only what it costs us to run the Vanguard mutual funds—period. That's why, on average, other companies' mutual funds are 5 times more expensive than ours.*

Because your investment costs have a major effect on your net returns (here's why), we believe it's important for you to pay close attention to them. Seemingly minor differences in expense ratios can add up significantly over time. (Expense ratios are the portion of a mutual fund's operating expenses passed on to shareholders, shown as a percentage of the fund's total assets.)

The nuts and bolts of fund expenses

In 2013, the average expense ratio of Vanguard mutual funds was 0.19%, far lower than the industry average of 1.08% (source: Lipper, a Thomson Reuters company).

Here's what those numbers mean in a nutshell: Each percentage point in an expense ratio represents an annual charge of $100 against every $10,000 you invest in that fund. In other words, if you have $10,000 in a hypothetical fund with a 0.50% expense ratio, you're charged $50 each year. So, a 0.15% expense reduction would save you $15, while a 0.15% increase would cost you an extra $15.

The chart below shows how strongly costs can affect your savings over the long term. In one scenario, represented by the red line, the investor pays 0.25% every year. In the other, represented by the orange line, she pays 0.90%. (A "no cost" scenario is shown for comparison's sake.) After three decades, the lower-cost investor comes out ahead by nearly $100,000:

The long-term impact of investment costs
Assuming a starting balance of $100,000 and a yearly return of 6%, which is reinvested

The long-term impact of investment costs

Note: This illustration depicts the impact of expenses over a 30-year period. The hypothetical portfolio has a starting value of $100,000 and grows by an average of 6% annually. The portfolio balances shown are hypothetical and do not reflect any particular investment. The final account balances do not reflect any taxes or penalties that might be due upon distribution. Costs are one factor impacting total returns. There may be other material differences between products that must be considered prior to investing. Source: Vanguard.

Why do expense ratios change from time to time? Market activity can be a big factor. Expenses can go up or down in response to changes in a fund's assets and/or changes in the cost of managing it. For example, strong performance could lead to economies of scale that result in a cost reduction, while shrinking assets could force expenses to go up.

Another factor: When Vanguard hires an outside advisory firm to help manage a fund, the contract usually includes performance-based bonuses and penalties. If the fund's performance exceeds that of a particular benchmark, the advisor's compensation increases. If performance falls short, the advisor's compensation declines. This approach, naturally, helps us make sure the interests of our advisory firms are in sync with our funds' shareholders.

How Vanguard is different

Unlike many other fund companies, Vanguard doesn't generate profits for private owners. Instead, our unique corporate structure—along with our relentless efforts to keep costs low—has resulted in savings that let our clients keep more of their returns.

Although we're firmly committed to reducing costs, we don't do so simply for the sake of appearances. Vanguard's history of low costs is rooted in our corporate philosophy—it's not a marketing gimmick. And while we believe investment costs should be an important part of your decision-making process, a change in a fund's expense ratio (whether up or down) shouldn't necessarily be the only reason you buy or sell shares.

You also need to consider your personal financial goals, your time frame, and your tolerance for bearing the risks of investing. And don't overlook the potential tax implications of your decisions, as taxes can be viewed as another cost of investing, and can impact your net returns.

Also, think carefully before basing any investment decision on performance. Buying a fund solely because it's done well in the past, or selling a fund that has performed poorly, can turn into a costly mistake—a mistake that may outweigh the considerable benefits of a low expense ratio.

*Based on 2013 U.S. mutual fund industry average expense ratio of 1.08% and Vanguard's average expense ratio of 0.19%. Source: Lipper, a Thomson Reuters Company.


Vanguard funds issuing revised prospectuses in March 2014

Vanguard fund Share class Former
expense ratio
Current
expense ratio*
Effective date
Balanced Index Fund Admiral™ 0.10% 0.09% Arrow 03/28/2014
Balanced Index Fund Investor 0.24% 0.24%     03/28/2014
Balanced Index Fund Signal® 0.10% 0.09% Arrow 03/28/2014
California Intermediate-Term Tax-Exempt Fund Admiral 0.12% 0.12%     03/27/2014
California Intermediate-Term Tax-Exempt Fund Investor 0.20% 0.20%     03/27/2014
California Long-Term Tax-Exempt Fund Admiral 0.12% 0.12%     03/27/2014
California Long-Term Tax-Exempt Fund Investor 0.20% 0.20%     03/27/2014
California Tax-Exempt Money Market Fund Investor 0.16% 0.16%     03/27/2014
Convertible Securities Fund Investor 0.52% 0.63% Arrow 03/26/2014
Managed Payout Fund Investor 0.43% 0.34% Arrow 03/28/2014
Massachusetts Tax-Exempt Fund Investor 0.16% 0.16%     03/27/2014
New Jersey Long-Term Tax-Exempt Fund Admiral 0.12% 0.12%     03/27/2014
New Jersey Long-Term Tax-Exempt Fund Investor 0.20% 0.20%     03/27/2014
New Jersey Tax-Exempt Money Market Fund Investor 0.16% 0.16%     03/27/2014
New York Long-Term Tax-Exempt Fund Admiral 0.12% 0.12%     03/27/2014
New York Long-Term Tax-Exempt Fund Investor 0.20% 0.20%     03/27/2014
New York Tax-Exempt Money Market Fund Investor 0.16% 0.16%     03/27/2014
Ohio Long-Term Tax-Exempt Fund Investor 0.16% 0.16%     03/27/2014
Ohio Tax-Exempt Money Market Fund Investor 0.16% 0.16%     03/27/2014
Pennsylvania Long-Term Tax-Exempt Fund Admiral 0.12% 0.12%     03/27/2014
Pennsylvania Long-Term Tax-Exempt Fund Investor 0.20% 0.20%     03/27/2014
Pennsylvania Tax-Exempt Money Market Fund Investor 0.16% 0.16%     03/27/2014
Wellington™ Fund Admiral 0.17% 0.18% Arrow 03/25/2014
Wellington Fund Investor 0.25% 0.26% Arrow 03/25/2014

*As of the fund's most recent prospectus.

Notes:

  • All investing is subject to risk, including the possible loss of the money you invest.
  • An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund.
  • Bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer's ability to make payments.
  • Although the income from a municipal bond fund is exempt from federal tax, you may owe taxes on any capital gains realized through the fund's trading or through your own redemption of shares. For some investors, a portion of the fund's income may be subject to state and local taxes, as well as to the federal Alternative Minimum Tax.
  • Vanguard is client-owned. As a client owner, you own the funds that own Vanguard.
  • We recommend that you consult a tax or financial advisor about your individual situation.
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