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Vanguard's mission: We want you to find value and values

February 20, 2014

Vanguard is virtually a virtual firm—no skyscraper towering in Manhattan, no corner investment centers dotting the landscape, no celebrity spokesperson attesting to our virtues on TV. To most of our clients, we are a P.O. box in Valley Forge, Pennsylvania, a bookmark on a computer or mobile device, or a friendly voice at a toll-free number.

So why have investors entrusted nearly $2.4 trillion to Vanguard?

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The Vanguard value proposition of low costs, competitive investment performance, and responsive service is undoubtedly part of the answer. We believe, however, that another critical element is the Vanguard values proposition—the combination of a unique corporate structure, a sense of mission, and highly dedicated people—that distinguishes us from other investment management firms.

A unique structure

Vanguard was founded in 1975 and embodies the simple but revolutionary idea that a mutual fund company should be managed in the sole interest of its clients. We are structured as a "mutual" mutual fund company—owned by the funds themselves, rather than by a private or publicly traded parent firm. The Vanguard funds, in turn, are owned by their shareholders, including you.

Under this client-owned operating structure, Vanguard provides management, administrative, and other services to its funds on an "at cost" basis. The tangible benefit for you and your fellow clients is that there is no profit retained by Vanguard and no dividends to pay to public shareholders. As a result, the expense ratios of Vanguard's funds and ETFs tend to be considerably lower overall than industry averages.* This means you keep more of your investment returns—an advantage that compounds over time.

The second benefit, less tangible but no less important, is that our structure ensures the alignment of our interests with your interests. We serve no one else, so we put the interests of our clients first in every decision that we make.

The Vanguard Pledge

Vanguard developed the following Pledge to Clients so that you can know what to expect of us, and what we expect of ourselves.

We promise to:

• Put our investors' interests first at all times.

• Manage investments with prudence, a long-term perspective, and the goal of providing returns consistently better than those of competitors.

• Hold ourselves to the highest standards of ethical behavior and fiduciary responsibility. Strive to be the highest-value provider of investment services by offering outstanding performance and service while keeping costs as low as possible.

• Communicate candidly about investment risks and costs as well as potential rewards.

• Maintain highly ef fective controls to protect the assets and confidential information that are entrusted to us.

• Employ a talented, diligent, and diverse crew to ensure that our clients are well served.

• Adapt, evolve, and continuously improve in pursuit of excellence in all we do.

Vanguard's structure also offers a degree of stability that many firms in the broader financial services industry are hard-pressed to match. With no quarterly earnings expectations to meet and no growth targets to achieve, we have the freedom to take a long-term view on how best to manage our business and the funds. In an era that sees financial firms continually merging and consolidating, you can be assured that the Vanguard you invest with today will be the same company serving you tomorrow.

A meaningful mission

The benefits of our structure would be greatly diminished without a clear mission to guide and galvanize the Vanguard crew in serving our client-owners. Our statement of purpose is clear and simple: "To take a stand for all investors, to treat them fairly, and to give them the best chance for investment success."

It is a statement imprinted on company mouse pads and magnets, but most importantly on the mindset of our 14,000 crew members as they go about serving you each day. There is a definite sense of mission among crew, for both changing the world of investing and changing the way the world invests. And their zeal is recognized externally.

Morningstar, the highly respected fund rating firm, produced a report in 2013 titled "Can Vanguard keep the faith while expanding even further?" Here's a telling excerpt:

There's reason to trust the firm, which earns an A grade for its culture in Morningstar's Stewardship methodology. When Vanguard talks of moving overseas, it is not only to help diversify the firm's assets and to attract global talent—both of which help ensure the organization can thrive—but also to earnestly help investors around the world to achieve better results through diversification, low costs, and rebalancing. Vanguard's mantra is no different today or in other regions, and that has served investors well over the firm's 40-year existence.

It is immensely gratifying that Morningstar understood that Vanguard has 14,000 missionaries. But it is also a great reminder to us that our culture needs to be perpetuated as our firm continues to grow.

People make the difference

We frequently ask our institutional clients—organizations that invest many millions of dollars with Vanguard and that entrust us with the financial futures of their employees—why they chose this company. In many cases, the answer is the Vanguard people.

Unlike most of our individual shareholders, many institutional clients have an opportunity to visit our headquarters and view our investment management operations, leading-edge technology, and service capabilities firsthand. Many have told us that they come away not only with a better understanding of Vanguard's global size and scope, but with a sincere appreciation for the passion, integrity, energy, and dedication of our crew.

In a Harvard Business Review blog on the ethical lapses and cultural shortcomings of Wall Street, Tom Davenport, a professor at Babson College, observed: "In fact, if [one] would like to study a culture that does put clients first, they should hop in a limo and go 110 miles southwest to Valley Forge, Pa.—the home of the Vanguard Group."

Well put, as Vanguard is far removed from Wall Street—both geographically and philosophically, guided by the noble idea that an investment company should exist to make money for you, not from you.

*As of December 31, 2012, Vanguard's average expense ratio was 0.19% for mutual funds and 0.15% for ETFs, compared with the industry average of 1.11% for mutual funds and 0.58% for ETFs, according to Lipper, a Thomson Reuters Company.

Note: All investing is subject to risk, including the possible loss of the money you invest.

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