PART B
VANGUARD® EXPLORER™ FUND
STATEMENT OF ADDITIONAL INFORMATION
February 27, 2026
This Statement of Additional Information (SAI) is not a prospectus but should be read in conjunction with the Fund’s current prospectus (dated February 27, 2026). To obtain, without charge, a prospectus, the most recent report to shareholders, or the Fund’s financial statements hereby incorporated by reference, please visit https://vgi.vg/fund- literature or contact The Vanguard Group, Inc. (Vanguard).
Phone: Investor Information Department at 800-662-7447
Online: vanguard.com
TABLE OF CONTENTS
DESCRIPTION OF THE TRUST
Vanguard Explorer Fund (the Trust) currently offers the following fund and share classes (identified by ticker symbol):
|
|
Share Classes1
|
|
Vanguard Fund
|
Investor
|
Admiral
|
|
Vanguard Explorer Fund
|
VEXPX
|
VEXRX
|
|
1 Individually, a class; collectively, the classes.
|
|
|
The Trust has the ability to offer additional funds or classes of shares. There is no limit on the number of full and fractional shares that may be issued for a single fund or class of shares.
Organization
The Trust was organized as a Delaware corporation in 1967 and reorganized as a Maryland corporation in 1973. It was subsequently reorganized as a Delaware statutory trust in 1998. Prior to its reorganization as a Delaware statutory trust, the Trust was known as Vanguard Explorer Fund, Inc. The Trust is registered with the United States Securities and Exchange Commission (SEC) under the Investment Company Act of 1940 (the 1940 Act) as an open-end, management investment company. Vanguard Explorer Fund (the Fund) is classified as diversified within the meaning of the 1940 Act.
Service Providers
Custodian. State Street Bank and Trust Company, One Congress Street, Suite 1 Boston, MA 02114, serves as the Fund’s custodian. The custodian is responsible for maintaining the Fund’s assets, keeping all necessary accounts and records of Fund assets, and appointing any foreign subcustodians or foreign securities depositories.
Independent Registered Public Accounting Firm. PricewaterhouseCoopers LLP, Two Commerce Square, Suite 1800, 2001 Market Street, Philadelphia, PA 19103-7042, serves as the Fund’s independent registered public accounting firm. The independent registered public accounting firm audits the Fund’s annual financial statements and provides other related services.
Investment Advisors. ArrowMark Colorado Holdings, LLC, 100 Fillmore Street, Suite 325, Denver, CO 80206; ClearBridge Investments, LLC, One Madison Avenue, New York, NY, 10010; Stephens Investment Management Group, LLC, 111 Center Street, Suite 2110, Little Rock, AR 72201; Wellington Management Company LLP, 280 Congress Street, Boston, MA 02210; and The Vanguard Group, Inc., P.O. Box 2600, Valley Forge, PA 19482, through its wholly owned subsidiary, Vanguard Portfolio Management, LLC (VPM). VPM exercises portfolio management and investment stewardship responsibilities for the Fund.
Transfer and Dividend-Paying Agent. The Fund’s transfer agent and dividend-paying agent is Vanguard, P.O. Box 2600, Valley Forge, PA 19482.
Characteristics of the Fund’s Shares
Restrictions on Holding or Disposing of Shares. There are no restrictions on the right of shareholders to retain or dispose of the Fund’s shares, other than those described in the Fund’s current prospectus and elsewhere in this Statement of Additional Information. The Fund or class may be terminated by reorganization into another mutual fund or class or by liquidation and distribution of the assets of the Fund or class. Unless terminated by reorganization or liquidation, the Fund and share classes will continue indefinitely.
Shareholder Liability. The Trust is organized under Delaware law, which provides that shareholders of a statutory trust are entitled to the same limitations of personal liability as shareholders of a corporation organized under Delaware law. This means that a shareholder of the Fund generally will not be personally liable for payment of the Fund’s debts. Some state courts, however, may not apply Delaware law on this point. We believe that the possibility of such a situation arising is remote.
Dividend Rights. The shareholders of each class of the Fund are entitled to receive any dividends or other distributions declared by the Fund for each such class. No shares of the Fund have priority or preference over any other shares of the Fund with respect to distributions. Distributions will be made from the assets of the Fund and will be paid ratably to all shareholders of a particular class according to the number of shares of the class held by shareholders on the record date. The amount of dividends per share may vary between separate share classes of the Fund based upon differences in the net asset values of the different classes and differences in the way that expenses are allocated between share classes pursuant to a multiple class plan approved by the Fund’s board of trustees.
Voting Rights. Shareholders are entitled to vote on a matter if (1) the matter concerns an amendment to the Declaration of Trust that would adversely affect to a material degree the rights and preferences of the shares of the Fund or any class; (2) the trustees determine that it is necessary or desirable to obtain a shareholder vote; (3) a merger or consolidation, share conversion, share exchange, or sale of assets is proposed and a shareholder vote is required by the 1940 Act to approve the transaction; or (4) a shareholder vote is required under the 1940 Act. The 1940 Act requires a shareholder vote under various circumstances, including to elect or remove trustees upon the written request of shareholders representing 10% or more of the Fund’s net assets, to change any fundamental policy of the Fund (please see Fundamental Policies), and to enter into certain merger transactions. Unless otherwise required by applicable law, shareholders of the Fund receive one vote for each dollar of net asset value owned on the record date and a fractional
vote for each fractional dollar of net asset value owned on the record date. However, only the shares of the Fund or the class affected by a particular matter are entitled to vote on that matter. In addition, each class has exclusive voting rights on any matter submitted to shareholders that relates solely to that class, and each class has separate voting rights on any matter submitted to shareholders in which the interests of one class differ from the interests of another. Voting rights are noncumulative and cannot be modified without a majority vote by the shareholders.
Liquidation Rights. In the event that the Fund is liquidated, shareholders will be entitled to receive a pro rata share of the Fund’s net assets. In the event that a class of shares is liquidated, shareholders of that class will be entitled to receive a pro rata share of the Fund’s net assets that are allocated to that class. Shareholders may receive cash, securities, or a combination of the two.
Preemptive Rights. There are no preemptive rights associated with the Fund’s shares.
Conversion Rights. Fund shareholders may convert their shares to another class of shares of the same Fund upon the satisfaction of any then-applicable eligibility requirements as described in the Fund’s current prospectus.
Redemption Provisions. The Fund’s redemption provisions are described in its current prospectus and elsewhere in this Statement of Additional Information.
Sinking Fund Provisions. The Fund has no sinking fund provisions.
Calls or Assessment. The Fund’s shares, when issued, are fully paid and non-assessable.
Shareholder Rights. Any limitations on a shareholder’s right to bring an action do not apply to claims arising under the federal securities laws to the extent that any such federal securities laws, rules, or regulations do not permit such limitations. The Trust’s bylaws place limitations on the forum in which certain claims against or related to the Trust, a trustee, an officer, or other employee of the Trust may be heard. The Trust’s bylaws also provide that shareholders waive the right to trial by jury to the fullest extent permitted by law.
Tax Status of the Fund
The Fund expects to qualify each year for treatment as a “regulated investment company” under Subchapter M of the Internal Revenue Code of 1986, as amended (the IRC). This special tax status means that the Fund will not be liable for federal tax on income and capital gains distributed to shareholders. In order to preserve its tax status, the Fund must comply with certain requirements relating to the source of its income and the diversification of its assets. If the Fund fails to meet these requirements in any taxable year, the Fund will, in some cases, be able to cure such failure, including by paying a fund-level tax, paying interest, making additional distributions, and/or disposing of certain assets. If the Fund is ineligible to or otherwise does not cure such failure for any year, it will be subject to tax on its taxable income at corporate rates, and all distributions from earnings and profits, including any distributions of net tax-exempt income and net long-term capital gains, will be taxable to shareholders as ordinary income. In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest, and make substantial distributions before regaining its tax status as a regulated investment company.
Dividends received and distributed by the Fund on shares of stock of domestic corporations (excluding Real Estate Investment Trusts (REITs)) and certain foreign corporations generally may be eligible to be reported by the Fund, and treated by individual shareholders, as “qualified dividend income” taxed at long-term capital gain rates instead of at higher ordinary income tax rates. Individuals must satisfy holding period and other requirements in order to be eligible for such treatment. Also, distributions attributable to income earned on the Fund’s securities lending transactions, including substitute dividend payments received by the Fund with respect to a security out on loan, will not be eligible for treatment as qualified dividend income.
Taxable ordinary dividends received and distributed by the Fund on its REIT holdings may be eligible to be reported by the Fund, and treated by individual shareholders, as “qualified REIT dividends” that are eligible for a 20% deduction on their federal income tax returns. Individuals must satisfy holding period and other requirements in order to be eligible for this deduction. Shareholders should consult their own tax professionals concerning their eligibility for this deduction.
Dividends received and distributed by the Fund on shares of stock of domestic corporations (excluding REITs) may be eligible for the dividends-received deduction applicable to corporate shareholders. Corporations must satisfy certain requirements in order to claim the deduction. Also, distributions attributable to income earned on the Fund’s securities lending transactions, including substitute dividend payments received by the Fund with respect to a security out on loan, will not be eligible for the dividends-received deduction.
The Fund may declare a capital gain dividend consisting of the excess (if any) of net realized long-term capital gains over net realized short-term capital losses. Net capital gains for a fiscal year are computed by taking into account any capital loss carryforwards of the Fund. Capital losses may be carried forward indefinitely and retain their character as either short-term or long-term.
FUNDAMENTAL POLICIES
The Fund is subject to the following fundamental investment policies, which cannot be changed in any material way without the approval of the holders of a majority of the Fund’s shares. For these purposes, a “majority” of shares means shares representing the lesser of (1) 67% or more of the Fund’s net assets voted, so long as shares representing more than 50% of the Fund’s net assets are present or represented by proxy or (2) more than 50% of the Fund’s net assets.
Borrowing. The Fund may borrow money only as permitted by the 1940 Act or other governing statute, by the Rules thereunder, or by the SEC or other regulatory agency with authority over the Fund.
Commodities. The Fund may invest in commodities only as permitted by the 1940 Act or other governing statute, by the Rules thereunder, or by the SEC or other regulatory agency with authority over the Fund.
Diversification. With respect to 75% of its total assets, the Fund may not: (1) purchase more than 10% of the outstanding voting securities of any one issuer; or (2) purchase securities of any issuer if, as a result, more than 5% of the Fund’s total assets would be invested in that issuer’s securities. This limitation does not apply to obligations of the U.S. government or its agencies or instrumentalities.
Industry Concentration. The Fund will not concentrate its investments in the securities of issuers whose principal business activities are in the same industry or group of industries.
Investment Objective. The investment objective of the Fund may not be materially changed without a shareholder vote.
Loans. The Fund may make loans to another person only as permitted by the 1940 Act or other governing statute, by the Rules thereunder, or by the SEC or other regulatory agency with authority over the Fund.
Real Estate. The Fund may not invest directly in real estate unless it is acquired as a result of ownership of securities or other instruments. This restriction shall not prevent the Fund from investing in securities or other instruments (1) issued by companies that invest, deal, or otherwise engage in transactions in real estate or (2) backed or secured by real estate or interests in real estate.
Senior Securities. The Fund may not issue senior securities except as permitted by the 1940 Act or other governing statute, by the Rules thereunder, or by the SEC or other regulatory agency with authority over the Fund.
Underwriting. The Fund may not act as an underwriter of another issuer’s securities, except to the extent that the Fund may be deemed to be an underwriter within the meaning of the Securities Act of 1933 (the 1933 Act), in connection with the purchase and sale of portfolio securities.
Compliance with the fundamental policies previously described is generally measured at the time the securities are purchased. Unless otherwise required by the 1940 Act (as is the case with borrowing), if a percentage restriction is adhered to at the time the investment is made, a later change in percentage resulting from a change in the market value of assets will not constitute a violation of such restriction. All fundamental policies must comply with applicable regulatory requirements. For more details, see Investment Strategies, Risks, and Nonfundamental Policies.
None of these policies prevent the Fund from having an ownership interest in Vanguard. As a part owner of Vanguard, the Fund may own securities issued by Vanguard, make loans to Vanguard, and contribute to Vanguard’s costs or other financial requirements. See Management of the Fund for more information.
INVESTMENT STRATEGIES, RISKS, AND NONFUNDAMENTAL POLICIES
Some of the investment strategies and policies described on the following pages and in the Fund’s prospectus set forth percentage limitations on the Fund’s investment in, or holdings of, certain securities or other assets. Unless otherwise required by law, compliance with these strategies and policies will be determined immediately after the acquisition of such securities or assets by the Fund. Subsequent changes in values, net assets, or other circumstances will not be considered when determining whether the investment complies with the Fund’s investment strategies and policies.
The following investment strategies, risks, and policies supplement the Fund’s investment strategies, risks, and policies set forth in the prospectus. With respect to the different investments discussed as follows, the Fund may acquire such investments to the extent consistent with its investment strategies and policies.
Borrowing. A fund’s ability to borrow money is limited by its investment policies and limitations; by the 1940 Act; and by applicable exemptions, no-action letters, interpretations, and other pronouncements issued from time to time by the SEC and its staff or any other regulatory authority with jurisdiction. Under the 1940 Act, a fund is required to maintain continuous asset coverage (i.e., total assets including borrowings, less liabilities exclusive of borrowings) of 300% of the amount borrowed, with an exception for borrowings not in excess of 5% of the fund’s total assets (at the time of borrowing) made for temporary or emergency purposes. Any borrowings for temporary purposes in excess of 5% of the fund’s total assets must maintain continuous asset coverage. If the 300% asset coverage should decline as a result of market fluctuations or for other reasons, a fund may be required to sell some of its portfolio holdings within three days (excluding Sundays and holidays) to reduce the debt and restore the 300% asset coverage, even though it may be disadvantageous from an investment standpoint to sell securities at that time.
Borrowing will tend to exaggerate the effect on net asset value of any increase or decrease in the market value of a fund’s portfolio. Money borrowed will be subject to interest costs that may or may not be recovered by earnings on the securities purchased with the proceeds of such borrowing. A fund also may be required to maintain minimum average balances in connection with a borrowing or to pay a commitment or other fee to maintain a line of credit; either of these requirements would increase the cost of borrowing over the stated interest rate.
A borrowing transaction will not be considered to constitute the issuance, by a fund, of a “senior security,” as that term is defined in Section 18(g) of the 1940 Act, and therefore such transaction will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by a fund, if the fund complies with Rule 18f-4 under the 1940 Act.
Common Stock. Common stock represents an equity or ownership interest in an issuer. Common stock typically entitles the owner to vote on the election of directors and other important matters, as well as to receive dividends on such stock. In the event an issuer is liquidated or declares bankruptcy, the claims of owners of bonds, other debt holders, and owners of preferred stock take precedence over the claims of those who own common stock.
Convertible Securities. Convertible securities are hybrid securities that combine the investment characteristics of bonds and common stocks. Convertible securities typically consist of debt securities or preferred stock that may be converted (on a voluntary or mandatory basis) within a specified period of time (normally for the entire life of the security) into a certain amount of common stock or other equity security of the same or a different issuer at a predetermined price. Convertible securities also include debt securities with warrants or common stock attached and derivatives combining the features of debt securities and equity securities. Other convertible securities with features and risks not specifically referred to herein may become available in the future. Convertible securities involve risks similar to those of both fixed income and equity securities. In a corporation’s capital structure, convertible securities are senior to common stock but are usually subordinated to senior debt obligations of the issuer.
The market value of a convertible security is a function of its “investment value” and its “conversion value.” A security’s “investment value” represents the value of the security without its conversion feature (i.e., a nonconvertible debt security). The investment value may be determined by reference to its credit quality and the current value of its yield to maturity or probable call date. At any given time, investment value is dependent upon such factors as the general level of interest rates, the yield of similar nonconvertible securities, the financial strength of the issuer, and the seniority of the security in the issuer’s capital structure. A security’s “conversion value” is determined by multiplying the number of shares the holder is entitled to receive upon conversion or exchange by the current price of the underlying security. If the conversion value of a convertible security is significantly below its investment value, the convertible security will trade like nonconvertible debt or preferred stock and its market value will not be influenced greatly by fluctuations in the market price of the underlying security. In that circumstance, the convertible security takes on the characteristics of a bond, and its price moves in the opposite direction from interest rates. Conversely, if the conversion value of a convertible security is near or above its investment value, the market value of the convertible security will be more heavily influenced by fluctuations in the market price of the underlying security. In that case, the convertible security’s price may be as volatile as that of common stock. Because both interest rates and market movements can influence its value, a convertible security generally is not as sensitive to interest rates as a similar debt security, nor is it as sensitive to changes in share price as its underlying equity security. Convertible securities are often rated below investment-grade or are not rated, and they are generally subject to a high degree of credit risk.
Although all markets are prone to change over time, the generally high rate at which convertible securities are retired (through mandatory or scheduled conversions by issuers or through voluntary redemptions by holders) and replaced
with newly issued convertible securities may cause the convertible securities market to change more rapidly than other markets. For example, a concentration of available convertible securities in a few economic sectors could elevate the sensitivity of the convertible securities market to the volatility of the equity markets and to the specific risks of those sectors. Moreover, convertible securities with innovative structures, such as mandatory-conversion securities and equity-linked securities, have increased the sensitivity of the convertible securities market to the volatility of the equity markets and to the special risks of those innovations, which may include risks different from, and possibly greater than, those associated with traditional convertible securities. A convertible security may be subject to redemption at the option of the issuer at a price set in the governing instrument of the convertible security. If a convertible security held by a fund is subject to such redemption option and is called for redemption, the fund must allow the issuer to redeem the security, convert it into the underlying common stock, or sell the security to a third party.
Cybersecurity Risks. A cybersecurity incident could subject the Vanguard funds, their advisors, and/or their third-party service providers to operational and financial risks. Cybersecurity incidents typically result from a deliberate attack, which could take multiple forms (e.g., phishing, malware, ransomware, or denial-of-service attacks), or wrongdoing by an authorized individual. In either case, sensitive assets, information, or data could fall into the hands of unauthorized individuals and potentially cause operational disruption. To prevent or reduce the impact of a cybersecurity incident, Vanguard has implemented controls, such as technological safeguards and business continuity plans. Cybersecurity risks are also present for third-party service providers (such as investment advisors, transfer agents, and custodians) that support the Vanguard funds. Vanguard has processes for assessing the cybersecurity programs implemented by a fund’s third-party service providers. These processes help reduce the risk of potential incidents that could impact a Vanguard fund and/or its shareholders.
Despite the measures described above, a cybersecurity incident could still disrupt business operations, which could affect a fund and/or its shareholders. Examples of impacts that might occur as a result of a cybersecurity incident include: a fund being unable to calculate its net asset value (NAV) or process transactions, fund shareholders being unable to place transactions or otherwise conduct business with Vanguard, or a fund being unable to safeguard its data or the personal information of its shareholders.
Debt Securities. A debt security, sometimes called a fixed income security, consists of a certificate or other evidence of a debt (secured or unsecured) upon which the issuer of the debt security promises to pay the holder a fixed, variable, or floating rate of interest for a specified length of time and to repay the debt on the specified maturity date. Some debt securities, such as zero-coupon bonds, do not make regular interest payments but are issued at a discount to their principal or maturity value. Debt securities include a variety of fixed income obligations, including, but not limited to, corporate bonds, government securities, municipal securities, convertible securities, mortgage-backed securities, and asset-backed securities. Debt securities include investment-grade securities, non-investment-grade securities, and unrated securities. Debt securities are subject to a variety of risks, such as interest rate risk, income risk, call risk, prepayment risk, extension risk, inflation risk, credit risk, liquidity risk, coupon deferral risk, lower recovery value risk, and (in the case of foreign securities) country risk and currency risk. The reorganization of an issuer under the federal bankruptcy laws or an out-of-court restructuring of an issuer’s capital structure may result in the issuer’s debt securities being cancelled without repayment, repaid only in part, or repaid in part or in whole through an exchange thereof for any combination of cash, debt securities, convertible securities, equity securities, or other instruments or rights in respect to the same issuer or a related entity.
Debt Securities—Non-Investment-Grade Securities. Non-investment-grade securities, also referred to as “high-yield securities” or “junk bonds,” are debt securities that are rated lower than the four highest rating categories by a nationally recognized statistical rating organization (e.g., lower than Baa3/P-2 by Moody’s Ratings or below BBB-/A-2 by S&P Global Ratings) or, if unrated, are determined to be of comparable quality by the fund’s advisor. These securities are generally considered to be, on balance, predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation, and they will generally involve more credit risk than securities in the investment-grade categories. Non-investment-grade securities generally provide greater income and opportunity for capital appreciation than higher quality securities, but they also typically entail greater price volatility and principal and income risk.
Analysis of the creditworthiness of issuers of high-yield securities may be more complex than for issuers of investment-grade securities. Thus, reliance on credit ratings in making investment decisions entails greater risks for high-yield securities than for investment-grade securities. The success of a fund’s advisor in managing high-yield securities is more dependent upon its own credit analysis than is the case with investment-grade securities.
Some high-yield securities are issued by smaller, less-seasoned companies, while others are issued as part of a corporate restructuring such as an acquisition, a merger, or a leveraged buyout. Companies that issue high-yield
securities are often highly leveraged and may not have more traditional methods of financing available to them. Therefore, the risk associated with acquiring the securities of such issuers generally is greater than is the case with investment-grade securities. Some high-yield securities were once rated as investment-grade but have been downgraded to junk bond status because of financial difficulties experienced by their issuers.
The market values of high-yield securities tend to reflect individual issuer developments to a greater extent than do investment-grade securities, which in general react to fluctuations in the general level of interest rates. High-yield securities also tend to be more sensitive to economic conditions than are investment-grade securities. An actual or anticipated economic downturn or sustained period of rising interest rates, for example, could cause a decline in junk bond prices because the advent of a recession could lessen the ability of a highly leveraged company to make principal and interest payments on its debt securities. If an issuer of high-yield securities defaults, in addition to risking payment of all or a portion of interest and principal, a fund investing in such securities may incur additional expenses to seek recovery.
The secondary market on which high-yield securities are traded may be less liquid than the market for investment-grade securities. Less liquidity in the secondary trading market could adversely affect the ability of a fund’s advisor to sell a high-yield security or the price at which a fund’s advisor could sell a high-yield security, and it could also adversely affect the daily net asset value of fund shares. When secondary markets for high-yield securities are less liquid than the market for investment-grade securities, it may be more difficult to value the securities because such valuation may require more research, and elements of judgment may play a greater role in the valuation of the securities.
Except as otherwise provided in a fund’s prospectus, if a credit rating agency changes the rating of a portfolio security held by a fund, the fund may retain the portfolio security if its advisor deems it in the best interests of shareholders.
Depositary Receipts. Depositary receipts (also sold as participatory notes) are securities that evidence ownership interests in a security or a pool of securities that have been deposited with a “depository.” Depositary receipts may be sponsored or unsponsored and include American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), and Global Depositary Receipts (GDRs). For ADRs, the depository is typically a U.S. financial institution, and the underlying securities are issued by a foreign issuer. For other depositary receipts, the depository may be a foreign or a U.S. entity, and the underlying securities may have a foreign or a U.S. issuer. Depositary receipts will not necessarily be denominated in the same currency as their underlying securities. Generally, ADRs are issued in registered form, denominated in U.S. dollars, and designed for use in the U.S. securities markets. Other depositary receipts, such as GDRs and EDRs, may be issued in bearer form and denominated in other currencies, and they are generally designed for use in securities markets outside the United States. Although the two types of depositary receipt facilities (sponsored and unsponsored) are similar, there are differences regarding a holder’s rights and obligations and the practices of market participants.
A depository may establish an unsponsored facility without participation by (or acquiescence of) the underlying issuer; typically, however, the depository requests a letter of nonobjection from the underlying issuer prior to establishing the facility. Holders of unsponsored depositary receipts generally bear all the costs of the facility. The depository usually charges fees upon the deposit and withdrawal of the underlying securities, the conversion of dividends into U.S. dollars or other currency, the disposition of noncash distributions, and the performance of other services. The depository of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the underlying issuer or to pass through voting rights to depositary receipt holders with respect to the underlying securities.
Sponsored depositary receipt facilities are created in generally the same manner as unsponsored facilities, except that sponsored depositary receipts are established jointly by a depository and the underlying issuer through a deposit agreement. The deposit agreement sets out the rights and responsibilities of the underlying issuer, the depository, and the depositary receipt holders. With sponsored facilities, the underlying issuer typically bears some of the costs of the depositary receipts (such as dividend payment fees of the depository), although most sponsored depositary receipt holders may bear costs such as deposit and withdrawal fees. Depositories of most sponsored depositary receipts agree to distribute notices of shareholder meetings, voting instructions, and other shareholder communications and information to the depositary receipt holders at the underlying issuer’s request.
For purposes of a fund’s investment policies, investments in depositary receipts will be deemed to be investments in the underlying securities. Thus, a depositary receipt representing ownership of common stock will be treated as common stock. Depositary receipts do not eliminate all of the risks associated with directly investing in the securities of foreign issuers.
Derivatives. A derivative is a financial instrument that has a value based on—or “derived from”—the values of other assets, reference rates, or indexes. Derivatives may relate to a wide variety of underlying references, such as commodities, stocks, bonds, interest rates, currency exchange rates, and related indexes. Derivatives include futures contracts and options on futures contracts, certain forward-commitment transactions, options on securities, caps, floors, collars, swap agreements, and certain other financial instruments. Some derivatives, such as futures contracts and certain options, are traded on U.S. commodity and securities exchanges, while other derivatives, such as swap agreements, may be privately negotiated and entered into in the over-the-counter market (OTC Derivatives) or may be cleared through a clearinghouse (Cleared Derivatives) and traded on an exchange or swap execution facility. As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), certain swap agreements, such as certain standardized credit default and interest rate swap agreements, must be cleared through a clearinghouse and traded on an exchange or swap execution facility. This could result in an increase in the overall costs of such transactions. While the intent of derivatives regulatory reform is to mitigate risks associated with derivatives markets, the regulations could, among other things, increase liquidity and decrease pricing for more standardized products while decreasing liquidity and increasing pricing for less standardized products. The risks associated with the use of derivatives are different from, and possibly greater than, the risks associated with investing directly in the securities or assets on which the derivatives are based.
Derivatives may be used for a variety of purposes, including—but not limited to—hedging, managing risk, seeking to stay fully invested, seeking to reduce transaction costs, seeking to simulate an investment in equity or debt securities or other investments, and seeking to add value by using derivatives to more efficiently implement portfolio positions when derivatives are favorably priced relative to equity or debt securities or other investments. A fund may use derivatives as an alternate means to obtain economic exposure if the fund is required to limit its investment in a particular issuer or industry. Some investors may use derivatives primarily for speculative purposes while other uses of derivatives may not constitute speculation. There is no assurance that any derivatives strategy used by a fund’s advisor will succeed. The other parties to a fund’s OTC Derivatives contracts (usually referred to as “counterparties”) will not be considered the issuers thereof for purposes of certain provisions of the 1940 Act and the IRC, although such OTC Derivatives may qualify as securities or investments under such laws. A fund’s advisor(s), however, will monitor and adjust, as appropriate, the fund’s credit risk exposure to OTC Derivative counterparties.
Derivative products are highly specialized instruments that require investment techniques and risk analyses different from those associated with stocks, bonds, and other traditional investments. The use of a derivative requires an understanding not only of the underlying instrument but also of the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions.
When a fund enters into a Cleared Derivative, an initial margin deposit with a Futures Commission Merchant (FCM) is required. Initial margin deposits are typically calculated as an amount equal to the volatility in market value of a Cleared Derivative over a fixed period. If the value of the fund’s Cleared Derivatives declines, the fund will be required to make additional “variation margin” payments to the FCM to settle the change in value. If the value of the fund’s Cleared Derivatives increases, the FCM will be required to make additional “variation margin” payments to the fund to settle the change in value. This process is known as “marking-to-market” and is calculated on a daily basis.
For OTC Derivatives, a fund is subject to the risk that a loss may be sustained as a result of the insolvency or bankruptcy of the counterparty or the failure of the counterparty to make required payments or otherwise comply with the terms of the contract. Additionally, the use of credit derivatives can result in losses if a fund’s advisor does not correctly evaluate the creditworthiness of the issuer on which the credit derivative is based.
Derivatives may be subject to liquidity risk, which exists when a particular derivative is difficult to purchase or sell. If a derivative transaction is particularly large or if the relevant market is illiquid (as is the case with certain OTC Derivatives), it may not be possible to initiate a transaction or liquidate a position at an advantageous time or price.
Derivatives may be subject to pricing or “basis” risk, which exists when a particular derivative becomes extraordinarily expensive relative to historical prices or the prices of corresponding cash market instruments. Under certain market conditions, it may not be economically feasible to initiate a transaction or liquidate a position in time to avoid a loss or take advantage of an opportunity.
Because certain derivatives have a leverage component, adverse changes in the value or level of the underlying asset, reference rate, or index can result in a loss substantially greater than the amount invested in the derivative itself. Certain
derivatives have the potential for unlimited loss, regardless of the size of the initial investment. A derivative transaction will not be considered to constitute the issuance, by a fund, of a “senior security,” as that term is defined in Section 18(g) of the 1940 Act, and therefore such transaction will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by a fund, if the fund complies with Rule 18f-4.
Like most other investments, derivative instruments are subject to the risk that the market value of the instrument will change in a way detrimental to a fund’s interest. A fund bears the risk that its advisor will incorrectly forecast future market trends or the values of assets, reference rates, indexes, or other financial or economic factors in establishing derivative positions for the fund. If the advisor attempts to use a derivative as a hedge against, or as a substitute for, a portfolio investment, the fund will be exposed to the risk that the derivative will have or will develop imperfect or no correlation with the portfolio investment. This could cause substantial losses for the fund. Although hedging strategies involving derivative instruments can reduce the risk of loss, they can also reduce the opportunity for gain or even result in losses by offsetting favorable price movements in other fund investments. Many derivatives (in particular, OTC Derivatives) are complex and often valued subjectively. Improper valuations can result in increased cash payment requirements to counterparties or a loss of value to a fund.
Securities and Exchange Commission Rule 18f-4 governs the use of derivatives by registered investment companies. Rule 18f-4 imposes limits on the amount of derivatives a fund can enter into, treats derivatives as senior securities, and requires funds whose use of derivatives exceeds a limited specified exposure amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager.
The Fund intends to comply with Rule 4.5 under the Commodity Exchange Act (CEA), under which a fund and Vanguard may be excluded from the definition of the term Commodity Pool Operator (CPO) if the fund meets certain conditions such as limiting its investments in certain CEA-regulated instruments (e.g., futures, options, or swaps) and complying with certain marketing restrictions. Accordingly, Vanguard is not subject to registration or regulation as a CPO with respect to the Fund under the CEA. The Fund will only enter into futures contracts and futures options that are traded on a U.S. or foreign exchange, board of trade, or similar entity or that are quoted on an automated quotation system.
Environmental, Social, and Governance (ESG) Considerations. A Vanguard fund’s consideration of ESG risk factors is driven first and foremost by the investment objective and principal investment strategies disclosed in the fund’s prospectus. For Vanguard funds whose index providers or advisors select securities based on disclosed ESG criteria (ESG funds), the ESG fund’s prospectus provides information about the ESG fund’s use of ESG criteria and related ESG investing risks.
Unless specifically disclosed in a fund’s prospectus, Vanguard funds do not seek to implement specific ESG impacts or strategies. However, except with respect to Vanguard equity index funds, a Vanguard fund’s advisor may consider risk factors that could be categorized as “ESG” as a component of the fund’s investment process if the advisor deems such risk factors to be financially material, either quantitatively or qualitatively. For example, as determined by the fund’s advisor, certain ESG risk factors may be considered as a means to assess long-term risk to shareholder value (e.g., risk analysis, credit analysis, or investment opportunities) as the advisor deems appropriate. Consideration of ESG risk factors will vary depending on a fund’s particular investment strategies as disclosed in its prospectus. The weight given to specific risk factors may vary across types of investments, industries, regions, and issuers and may change over time. Consideration of certain ESG risk factors may affect a fund’s exposure to certain issuers or industries. For purposes of this disclosure, “ESG risk factors” refers to financially material risk factors that could be viewed as ESG-focused. However, there are significant differences in how such terms are interpreted across funds, advisors, index providers, and individuals. It is possible that an advisor will not identify or evaluate every ESG risk factor that an investor would expect to be identified or evaluated, or that the advisor may not categorize a specific risk factor as “ESG.” The advisor’s assessment of an issuer may differ from that of other funds or an investor’s assessment of such issuer. As a result, securities selected by the advisor may not reflect the beliefs and values of any particular investor.
An advisor may be dependent on the availability of timely, complete, and accurate ESG data being reported by issuers and/or third-party research providers to evaluate ESG risk factors. ESG risk factors are often not uniformly measured or defined, which could impact an advisor’s ability to assess an issuer. Where ESG risk factor analysis is used as one part of an overall investment process (as may be the case for some or all of the funds included in this Statement of Additional Information), such funds may still invest in securities of issuers that all market participants may not view as ESG-focused.
Proxy Voting and Engagement. Vanguard’s proxy voting administration services are organized into separate teams (Investment Stewardship Teams) within two wholly owned subsidiaries, Vanguard Capital Management, LLC (VCM) and Vanguard Portfolio Management, LLC (VPM). On behalf of the board of trustees of each Vanguard fund for which VCM
and/or VPM exercises portfolio management and investment stewardship responsibilities, VCM and/or VPM, as applicable, administers proxy voting for the equity holdings of such funds. The Investment Stewardship Teams may each independently engage with issuers to better understand how they are addressing material risks, including material ESG risks. Specifically, the Investment Stewardship Teams may each independently engage with company leaders and directors to understand how they oversee, mitigate, and disclose material risks to shareholders.
For Vanguard funds advised by third-party advisory firms independent of Vanguard, such third-party advisory firms are responsible for administration of proxy voting and engagement with respect to the equity holdings they manage on behalf of the fund. A fund’s third-party advisor may consider various ESG risks to be material to companies and may have their own practices and policies related to engagement. For example, the advisor may consider environmental risks such as climate change to be a material risk to many companies and their shareholders’ long-term financial success. As a result, certain third-party advisors engage with particular issuers held by the fund(s) they manage to advocate for science-based targets to address long-term risk to shareholder value resulting from climate change as long as such targets are not contrary to the investment objective and strategy of such fund(s).
Regulatory Environment. The regulatory landscape for ESG investing is still developing, both within the United States and globally. As society’s focus on particular ESG issues, such as climate change, continues to evolve, the emphasis and direction of governmental policies are subject to change.
Exchange-Traded Funds. A fund may purchase shares of exchange-traded funds (ETFs). Typically, a fund would purchase ETF shares for the same reason it would purchase (and as an alternative to purchasing) futures contracts: to obtain exposure to all or a portion of the stock or bond market. ETF shares enjoy several advantages over futures. Depending on the market, the holding period, and other factors, ETF shares can be less costly and more tax-efficient than futures. In addition, ETF shares can be purchased for smaller sums, offer exposure to market sectors and styles for which there is no suitable or liquid futures contract, and do not involve leverage.
An investment in an ETF generally presents the same principal risks as an investment in a conventional fund (i.e., one that is not exchange-traded) that has the same investment objective, strategies, and policies. The price of an ETF can fluctuate within a wide range, and a fund could lose money investing in an ETF if the prices of the securities owned by the ETF go down. In addition, ETFs are subject to the following risks that do not apply to conventional funds: (1) the market price of an ETF’s shares may trade at a discount or a premium to their net asset value; (2) an active trading market for an ETF’s shares may not develop or be maintained; and (3) trading of an ETF’s shares may be halted by the activation of individual or marketwide trading halts (which halt trading for a specific period of time when the price of a particular security or overall market prices decline by a specified percentage). Trading of an ETF’s shares may also be halted if the shares are delisted from the exchange without first being listed on another exchange or if the listing exchange’s officials determine that such action is appropriate in the interest of a fair and orderly market or for the protection of investors.
Most ETFs are investment companies. Therefore, a fund’s purchases of ETF shares generally are subject to the limitations on, and the risks of, a fund’s investments in other investment companies, which are described under the heading “Other Investment Companies.”
Foreign Securities. Typically, foreign securities are considered to be equity or debt securities issued by entities organized, domiciled, or with a principal executive office outside the United States, such as foreign corporations and governments. Securities issued by certain companies organized outside the United States may not be deemed to be foreign securities if the company’s principal operations are conducted from the United States or when the company’s equity securities trade principally on a U.S. stock exchange. Foreign securities may trade in U.S. or foreign securities markets. A fund may make foreign investments either directly by purchasing foreign securities or indirectly by purchasing depositary receipts or depositary shares of similar instruments (depositary receipts) for foreign securities. Direct investments in foreign securities may be made either on foreign securities exchanges or in the over-the-counter (OTC) markets. Investing in foreign securities involves certain special risk considerations that are not typically associated with investing in securities of U.S. companies or governments.
Because foreign issuers are not generally subject to uniform accounting, auditing, and financial reporting standards and practices comparable to those applicable to U.S. issuers, there may be less publicly available information about certain foreign issuers than about U.S. issuers. Evidence of securities ownership may be uncertain in many foreign countries.
As a result, there are risks that could result in a loss to the fund, including, but not limited to, the risk that a fund’s trade details could be incorrectly or fraudulently entered at the time of a transaction. Securities of foreign issuers are generally more volatile and less liquid than securities of comparable U.S. issuers, and foreign investments may be effected through structures that may be complex or confusing. In certain countries, there is less government supervision and
regulation of stock exchanges, brokers, and listed companies than in the United States. The risk that securities traded on foreign exchanges may be suspended, either by the issuers themselves, by an exchange, or by government authorities, is also heightened. In addition, with respect to certain foreign countries, there is the possibility of expropriation or confiscatory taxation or other adverse tax consequences, political or social instability, changes to laws and regulations or interpretations of laws and regulations, war, terrorism, nationalization, limitations on the removal of funds or other assets, or diplomatic developments that could affect U.S. investments in those countries. Additionally, the imposition of sanctions, exchange controls (including repatriation restrictions), confiscations, trade restrictions (including tariffs), and other government restrictions on the United States by a foreign country, or imposed on a foreign country or issuer by the United States, could impair a fund’s ability to buy, sell, hold, receive, deliver, or otherwise transact in certain investment securities. Sanctions could also affect the value and/or liquidity of a foreign security.
Although an advisor will endeavor to achieve the most favorable execution costs for a fund’s portfolio transactions in foreign securities under the circumstances, commissions and other transaction costs are generally higher than those on U.S. securities. In addition, it is expected that the custodian arrangement expenses for a fund that invests primarily in foreign securities will be somewhat greater than the expenses for a fund that invests primarily in domestic securities. Additionally, bankruptcy laws vary by jurisdiction and cash deposits may be subject to a custodian’s creditors. Certain foreign governments levy withholding or other taxes against dividend and interest income from, capital gains on the sale of, or transactions in foreign securities. Although in some countries a portion of these taxes is recoverable by the fund, the nonrecovered portion of foreign withholding taxes will reduce the income received from such securities.
The value of the foreign securities held by a fund that are not U.S. dollar-denominated may be significantly affected by changes in currency exchange rates. The U.S. dollar value of a foreign security generally decreases when the value of the U.S. dollar rises against the foreign currency in which the security is denominated, and it tends to increase when the value of the U.S. dollar falls against such currency (as discussed under the heading “Foreign Securities—Foreign Currency Transactions,” a fund may attempt to hedge its currency risks). In addition, the value of fund assets may be affected by losses and other expenses incurred from converting between various currencies in order to purchase and sell foreign securities, as well as by currency restrictions, exchange control regulations, currency devaluations, and political and economic developments.
Foreign Securities—Emerging Markets Risk. Investing in emerging market countries involves certain risks not typically associated with investing in the United States, and it imposes risks greater than, or in addition to, risks of investing in more developed foreign countries. These risks may significantly affect the value of emerging market investments and include: (i) nationalization or expropriation of assets or confiscatory taxation; (ii) currency devaluations and other currency exchange rate fluctuations; (iii) greater social, economic, and political uncertainty and instability (including amplified risk of war and terrorism); (iv) more substantial government involvement and control over the economy; (v) less government supervision and regulation of the securities markets and participants in those markets and possible arbitrary and unpredictable enforcement of securities regulations and other laws, which may increase the risk of market manipulation; (vi) controls on foreign investment and limitations on repatriation of invested capital and on a fund’s ability to exchange local currencies for U.S. dollars; (vii) unavailability of currency-hedging techniques in certain emerging market countries; (viii) generally smaller, less seasoned, or newly organized companies; (ix) differences in, or lack of, corporate governance, accounting, auditing, recordkeeping, and financial reporting standards, which may result in unavailability of material information about issuers and impede evaluation of such issuers; (x) difficulty in obtaining and/or enforcing a judgment in a court outside the United States; and (xi) greater price volatility, substantially less liquidity, and significantly smaller market capitalization of securities markets. Also, any change in the leadership or politics of emerging market countries, or the countries that exercise a significant influence over those countries, may halt the expansion of or reverse the liberalization of foreign investment policies now occurring and adversely affect existing investment opportunities. Furthermore, high rates of inflation and rapid fluctuations in inflation rates have had, and may continue to have, negative effects on the economies and securities markets of certain emerging market countries. Custodial expenses and other investment-related costs are often more expensive in emerging market countries, which can reduce a fund’s income from investments in securities or debt instruments of emerging market country issuers. Additionally, information regarding companies located in emerging markets may be less available and less reliable, which can impede the ability to evaluate such companies. There may also be limited regulatory oversight of certain foreign subcustodians that hold foreign securities subject to the supervision of a fund’s primary U.S.-based custodian. A fund may be limited in its ability to recover assets if a foreign subcustodian becomes bankrupt or otherwise unable or unwilling to return assets to the fund, which may expose the fund to risk, especially in circumstances where the fund’s primary custodian may not be contractually obligated to make the fund whole for the particular loss.
Emerging market investments also carry the risk that strained international relations may give rise to retaliatory actions,
including actions through financial markets such as purchase and ownership restrictions, sanctions, tariffs, seizure of assets, cyberattacks, and unpredictable enforcement of securities regulations and other laws. Such actual and/or threatened retaliatory actions may impact emerging market economies and issuers in which a fund invests. For example, in China, ownership of companies in certain sectors by foreign individuals and entities is prohibited.
Foreign Securities—Foreign Currency Transactions. The value in U.S. dollars of a fund’s non-dollar-denominated foreign securities may be affected favorably or unfavorably by changes in foreign currency exchange rates and exchange control regulations, and the fund may incur costs in connection with conversions between various currencies. To seek to minimize the impact of such factors on net asset values, a fund may engage in foreign currency transactions in connection with its investments in foreign securities. A fund will enter into foreign currency transactions only to attempt to “hedge” the currency risk associated with investing in foreign securities. Although such transactions tend to minimize the risk of loss that would result from a decline in the value of the hedged currency, they also may limit any potential gain that might result should the value of such currency increase.
Currency exchange transactions may be conducted either on a spot (i.e., cash) basis at the rate prevailing in the currency exchange market or through forward contracts to purchase or sell foreign currencies. A forward currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. These contracts are entered into with large commercial banks or other currency traders who are participants in the interbank market. Currency exchange transactions also may be effected through the use of swap agreements or other derivatives.
Currency exchange transactions may be considered borrowings. A currency exchange transaction will not be considered to constitute the issuance, by a fund, of a “senior security,” as that term is defined in Section 18(g) of the 1940 Act, and therefore such transaction will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by a fund, if the fund complies with Rule 18f-4.
By entering into a forward contract for the purchase or sale of foreign currency involved in underlying security transactions, a fund may be able to protect itself against part or all of the possible loss between trade and settlement dates for that purchase or sale resulting from an adverse change in the relationship between the U.S. dollar and such foreign currency. This practice is sometimes referred to as “transaction hedging.” In addition, when a fund’s advisor reasonably believes that a particular foreign currency may suffer a substantial decline against the U.S. dollar, a fund may enter into a forward contract to sell an amount of foreign currency approximating the value of some or all of its portfolio securities denominated in such foreign currency. This practice is sometimes referred to as “portfolio hedging.” Similarly, when a fund’s advisor reasonably believes that the U.S. dollar may suffer a substantial decline against a foreign currency, a fund may enter into a forward contract to buy that foreign currency for a fixed dollar amount.
A fund may also attempt to hedge its foreign currency exchange rate risk by engaging in currency futures, options, and “cross-hedge” transactions. In cross-hedge transactions, a fund holding securities denominated in one foreign currency will enter into a forward currency contract to buy or sell a different foreign currency (one that a fund’s advisor reasonably believes generally tracks the currency being hedged with regard to price movements). A fund’s advisor may select the tracking (or substitute) currency rather than the currency in which the security is denominated for various reasons, including in order to take advantage of pricing or other opportunities presented by the tracking currency or to take advantage of a more liquid or more efficient market for the tracking currency. Such cross-hedges are expected to help protect a fund against an increase or decrease in the value of the U.S. dollar against certain foreign currencies.
A fund may hold a portion of its assets in bank deposits denominated in foreign currencies so as to facilitate investment in foreign securities as well as protect against currency fluctuations and the need to convert such assets into U.S. dollars (thereby also reducing transaction costs). To the extent these assets are converted back into U.S. dollars, the value of the assets so maintained will be affected favorably or unfavorably by changes in foreign currency exchange rates and exchange control regulations.
Forecasting the movement of the currency market is extremely difficult. Whether any hedging strategy will be successful is highly uncertain. Moreover, it is impossible to forecast with precision the market value of portfolio securities at the expiration of a forward currency contract. Accordingly, a fund may be required to buy or sell additional currency on the spot market (and bear the expense of such transaction) if its advisor’s predictions regarding the movement of foreign currency or securities markets prove inaccurate. In addition, the use of cross-hedging transactions may involve special risks and may leave a fund in a less advantageous position than if such a hedge had not been established. Because forward currency contracts are privately negotiated transactions, there can be no assurance that a fund will have flexibility to roll over a forward currency contract upon its expiration if it desires to do so. Additionally, there can be no assurance that the other party to the contract will perform its services thereunder.
Foreign Securities—Foreign Investment Companies. Some of the countries in which a fund may invest may not permit, or may place economic restrictions on, direct investment by outside investors. Fund investments in such countries may be permitted only through foreign government-approved or authorized investment vehicles, which may include other investment companies. Such investments may be made through registered or unregistered closed-end investment companies that invest in foreign securities. Investing through such vehicles may involve layered fees or expenses and may also be subject to the limitations on, and the risks of, a fund’s investments in other investment companies, which are described under the heading “Other Investment Companies.”
Foreign Securities—Russian Market Risk. There are significant risks inherent in investing in Russian securities. The underdeveloped state of Russia’s banking system subjects the settlement, clearing, and registration of securities transactions to significant risks. In March of 2013, the National Settlement Depository (NSD) began acting as a central depository for the majority of Russian equity securities; however, pursuant to a Russian presidential decree, the NSD no longer serves as a system for the central handling of Russian equities. Instead, ownership records are now maintained by registrars located throughout Russia.
For Russian issuers, ownership records are maintained only by registrars who are under contract with the issuers. Russian subcustodians maintain copies of the registrar’s records (Share Extracts) on its premises. The registrars may not be independent from the issuer, are not necessarily subject to effective state supervision, and may not be licensed with any governmental entity. A fund will endeavor to ensure by itself or through a custodian or other agent that the fund’s interest continues to be appropriately recorded for Russian issuers by inspecting the share register and by obtaining extracts of share registers through regular confirmations. However, these extracts have no legal enforceability, and the possibility exists that a subsequent illegal amendment or other fraudulent act may deprive the fund of its ownership rights or may improperly dilute its interest. In addition, although applicable Russian regulations impose liability on registrars for losses resulting from their errors, a fund may find it difficult to enforce any rights it may have against the registrar or issuer of the securities in the event of loss of share registration.
Russia’s large-scale invasion of Ukraine has resulted in sanctions against Russian governmental institutions, Russian entities, and Russian individuals that may result in the devaluation of Russian currency; a downgrade in the country’s credit rating; a freeze of Russian foreign assets; a decline in the value and liquidity of Russian securities, properties, or interests; and other adverse consequences to the Russian economy and Russian assets. In addition, a fund’s ability to price, buy, sell, receive, or deliver Russian investments has been and may continue to be impaired. These sanctions, divestment of interests in or curtailment of business dealing with Russia by large corporations and the U.S. states, and the resulting disruption of the Russian economy, may cause volatility in other regional and global markets and may negatively impact the performance of various sectors and industries, as well as companies in other countries, which could have a negative effect on the performance of a fund, even if the fund does not have direct exposure to securities of Russian issuers.
Futures Contracts and Options on Futures Contracts. Futures contracts and options on futures contracts are derivatives. A futures contract is a standardized agreement between two parties to buy or sell at a specific time in the future a specific quantity of a commodity at a specific price. The commodity may consist of an asset, a reference rate, or an index. A security futures contract relates to the sale of a specific quantity of shares of a single equity security or a narrow-based securities index. The value of a futures contract tends to increase and decrease in tandem with the value of the underlying commodity. The buyer of a futures contract enters into an agreement to purchase the underlying commodity on the settlement date and is said to be “long” the contract. The seller of a futures contract enters into an agreement to sell the underlying commodity on the settlement date and is said to be “short” the contract. The price at which a futures contract is entered into is established either in the electronic marketplace or by open outcry on the floor of an exchange between exchange members acting as traders or brokers. Open futures contracts can be liquidated or closed out by physical delivery of the underlying commodity or payment of the cash settlement amount on the settlement date, depending on the terms of the particular contract. Some financial futures contracts (such as security futures) provide for physical settlement at maturity. Other financial futures contracts (such as those relating to interest rates, foreign currencies, and broad-based securities indexes) generally provide for cash settlement at maturity. In the case of cash-settled futures contracts, the cash settlement amount is equal to the difference between the final settlement or market price for the relevant commodity on the last trading day of the contract and the price for the relevant commodity agreed upon at the outset of the contract. Most futures contracts, however, are not held until maturity but instead are “offset” before the settlement date through the establishment of an opposite and equal futures position.
The purchaser or seller of a futures contract is not required to deliver or pay for the underlying commodity unless the contract is held until the settlement date. However, both the purchaser and seller are required to deposit “initial margin”
with a futures commission merchant (FCM) when the futures contract is entered into. Initial margin deposits are typically calculated as an amount equal to the volatility in market value of a contract over a fixed period. If the value of the fund’s position declines, the fund will be required to make additional “variation margin” payments to the FCM to settle the change in value. If the value of the fund’s position increases, the FCM will be required to make additional “variation margin” payments to the fund to settle the change in value. This process is known as “marking-to-market” and is calculated on a daily basis. A futures transaction will not be considered to constitute the issuance, by a fund, of a “senior security,” as that term is defined in Section 18(g) of the 1940 Act, and therefore such transaction will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by a fund, if the fund complies with
Rule 18f-4.
An option on a futures contract (or futures option) conveys the right, but not the obligation, to purchase (in the case of a call option) or sell (in the case of a put option) a specific futures contract at a specific price (called the “exercise” or “strike” price) any time before the option expires. The seller of an option is called an option writer. The purchase price of an option is called the premium. The potential loss to an option buyer is limited to the amount of the premium plus transaction costs. This will be the case, for example, if the option is held and not exercised prior to its expiration date. Generally, an option writer sells options with the goal of obtaining the premium paid by the option buyer. If an option sold by an option writer expires without being exercised, the writer retains the full amount of the premium. The option writer, however, has unlimited economic risk because its potential loss, except to the extent offset by the premium received when the option was written, is equal to the amount the option is “in-the-money” at the expiration date. A call option is in-the-money if the value of the underlying futures contract exceeds the exercise price of the option. A put option is in-the-money if the exercise price of the option exceeds the value of the underlying futures contract. Generally, any profit realized by an option buyer represents a loss for the option writer.
A fund that takes the position of a writer of a futures option is required to deposit and maintain initial and variation margin with respect to the option, as previously described in the case of futures contracts. A futures option transaction will not be considered to constitute the issuance, by a fund, of a “senior security,” as that term is defined in Section 18(g) of the 1940 Act, and therefore such transaction will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by a fund, if the fund complies with Rule 18f-4.
Futures Contracts and Options on Futures Contracts—Risks. The risk of loss in trading futures contracts and in writing futures options can be substantial because of the low margin deposits required, the extremely high degree of leverage involved in futures and options pricing, and the potential high volatility of the futures markets. As a result, a relatively small price movement in a futures position may result in immediate and substantial loss (or gain) for the investor. For example, if at the time of purchase, 10% of the value of the futures contract is deposited as margin, a subsequent 10% decrease in the value of the futures contract would result in a total loss of the margin deposit, before any deduction for the transaction costs, if the account were then closed out. A 15% decrease would result in a loss equal to 150% of the original margin deposit if the contract were closed out. Thus, a purchase or sale of a futures contract, and the writing of a futures option, may result in losses in excess of the amount invested in the position. In the event of adverse price movements, a fund would continue to be required to make daily cash payments to maintain its required margin. In such situations, if the fund has insufficient cash, it may have to sell portfolio securities to meet daily margin requirements at a time when it may be disadvantageous to do so. In addition, on the settlement date, a fund may be required to make delivery of the instruments underlying the futures positions it holds.
A fund could suffer losses if it is unable to close out a futures contract or a futures option because of an illiquid secondary market. Futures contracts and futures options may be closed out only on an exchange that provides a secondary market for such products. However, there can be no assurance that a liquid secondary market will exist for any particular futures product at any specific time. Thus, it may not be possible to close a futures or option position. Moreover, most futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day’s settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day, and therefore does not limit potential losses because the limit may prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of future positions and subjecting some futures traders to substantial losses. The inability to close futures and options positions also could have an adverse impact on the ability to hedge a portfolio investment or to establish a substitute for a portfolio investment. U.S. Treasury futures are generally not subject to such daily limits.
A fund bears the risk that its advisor will incorrectly predict future market trends. If a fund’s advisor attempts to use a futures contract or a futures option as a hedge against, or as a substitute for, a portfolio investment, the fund will be exposed to the risk that the futures position will have or will develop imperfect or no correlation with the portfolio investment. This could cause substantial losses for the fund. Although hedging strategies involving futures products can reduce the risk of loss, they can also reduce the opportunity for gain or even result in losses by offsetting favorable price movements in other fund investments.
A fund could lose margin payments it has deposited with its FCM if, for example, the FCM breaches its agreement with the fund or becomes insolvent or goes into bankruptcy. In that event, the fund may be entitled to return of margin owed to it only in proportion to the amount received by the FCM’s other customers, potentially resulting in losses to the fund.
Interfund Borrowing and Lending. The SEC has granted an exemption permitting registered open-end Vanguard funds to participate in Vanguard’s interfund lending program. This program allows the Vanguard funds to borrow money from and lend money to each other for temporary or emergency purposes. The program is subject to a number of conditions, including, among other things, the requirements that (1) no fund may borrow or lend money through the program unless it receives a more favorable interest rate than is typically available from a bank for a comparable transaction, (2) no fund may lend money if the loan would cause its aggregate outstanding loans through the program to exceed 15% of its net assets at the time of the loan, and (3) a fund’s interfund loans to any one fund shall not exceed 5% of the lending fund’s net assets. In addition, a Vanguard fund may participate in the program only if and to the extent that such participation is consistent with the fund’s investment objective and investment policies. The boards of trustees of the Vanguard funds are responsible for overseeing the interfund lending program. Any delay in repayment to a lending fund could result in a lost investment opportunity or additional borrowing costs.
Investing for Control. Each Vanguard fund invests in securities and other instruments for the sole purpose of achieving a specific investment objective. As such, a Vanguard fund does not seek to acquire, individually or collectively with any other Vanguard fund, enough of a company’s outstanding voting stock to have control over management decisions. A Vanguard fund does not invest for the purpose of controlling a company’s management.
Legal and Regulatory Risk. Vanguard funds and their advisors are subject to an extensive and complex set of laws and regulations. These laws and regulations have evolved rapidly in recent years and likely will continue to evolve. Changes and additions to laws and regulations can result in unintended or unexpected impacts, including impacts to the value of a fund’s investments, a fund’s investment strategy, and/or a fund’s ability to manage tax consequences. Changes in how laws and regulations are interpreted could similarly impact a fund. In addition, complying with new or changing laws or regulations generally can be expected to increase operational costs, which can have a negative impact on fund performance.
Market Disruption. Significant market disruptions, such as those caused by pandemics, natural or environmental disasters, war, acts of terrorism, or other events, can adversely affect local and global markets and normal market operations. Market disruptions may exacerbate political, social, and economic risks discussed above and in a fund’s prospectus. Additionally, market disruptions may result in increased market volatility; regulatory trading halts; closure of domestic or foreign exchanges, markets, or governments; or market participants operating pursuant to business continuity plans for indeterminate periods of time. Such events can be highly disruptive to economies and markets and significantly impact individual companies, sectors, industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value of a fund’s investments and operation of a fund. These events could also result in the closure of businesses that are integral to a fund’s operations or otherwise disrupt the ability of employees of fund service providers to perform essential tasks on behalf of a fund.
Options. An option is a derivative. An option on a security (or index) is a contract that gives the holder of the option, in return for the payment of a “premium,” the right, but not the obligation, to buy from (in the case of a call option) or sell to (in the case of a put option) the writer of the option the security underlying the option (or the cash value of the index) at a specified exercise price prior to the expiration date of the option. The writer of an option on a security has the obligation upon exercise of the option to deliver the underlying security upon payment of the exercise price (in the case of a call option) or to pay the exercise price upon delivery of the underlying security (in the case of a put option). The writer of an option on an index has the obligation upon exercise of the option to pay an amount equal to the cash value of the index minus the exercise price, multiplied by the specified multiplier for the index option. The multiplier for an index option determines the size of the investment position the option represents. Unlike exchange-traded options, which are standardized with respect to the underlying instrument, expiration date, contract size, and strike price, the
terms of over-the-counter (OTC) options (options not traded on exchanges) generally are established through negotiation with the other party to the option contract. Although this type of arrangement allows the purchaser or writer greater flexibility to tailor an option to its needs, OTC options generally involve credit risk to the counterparty, whereas for exchange-traded, centrally cleared options, credit risk is mutualized through the involvement of the applicable clearing house.
The buyer (or holder) of an option is said to be “long” the option, while the seller (or writer) of an option is said to be “short” the option. A call option grants to the holder the right to buy (and obligates the writer to sell) the underlying security at the strike price, which is the predetermined price at which the option may be exercised. A put option grants to the holder the right to sell (and obligates the writer to buy) the underlying security at the strike price. The purchase price of an option is called the “premium.” The potential loss to an option buyer is limited to the amount of the premium plus transaction costs. This will be the case if the option is held and not exercised prior to its expiration date. Generally, an option writer sells options with the goal of obtaining the premium paid by the option buyer, but that person could also seek to profit from an anticipated rise or decline in option prices. If an option sold by an option writer expires without being exercised, the writer retains the full amount of the premium. The option writer, however, has unlimited economic risk because its potential loss, except to the extent offset by the premium received when the option was written, is equal to the amount the option is “in-the-money” at the expiration date. A call option is in-the-money if the value of the underlying position exceeds the exercise price of the option. A put option is in-the-money if the exercise price of the option exceeds the value of the underlying position. Generally, any profit realized by an option buyer represents a loss for the option writer. The writing of an option will not be considered to constitute the issuance, by a fund, of a “senior security,” as that term is defined in Section 18(g) of the 1940 Act, and therefore such transaction will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by a fund, if the fund complies with
Rule 18f-4.
If a trading market, in particular options, were to become unavailable, investors in those options (such as the Fund) would be unable to close out their positions until trading resumes, and they may be faced with substantial losses if the value of the underlying instrument moves adversely during that time. Even if the market were to remain available, there may be times when options prices will not maintain their customary or anticipated relationships to the prices of the underlying instruments and related instruments. Lack of investor interest, changes in volatility, or other factors or conditions might adversely affect the liquidity, efficiency, continuity, or even the orderliness of the market for particular options.
A fund bears the risk that its advisor will not accurately predict future market trends. If a fund’s advisor attempts to use an option as a hedge against, or as a substitute for, a portfolio investment, the fund will be exposed to the risk that the option will have or will develop imperfect or no correlation with the portfolio investment, which could cause substantial losses for the fund. Although hedging strategies involving options can reduce the risk of loss, they can also reduce the opportunity for gain or even result in losses by offsetting favorable price movements in other fund investments. Many options, in particular OTC options, are complex and often valued based on subjective factors. Improper valuations can result in increased cash payment requirements to counterparties or a loss of value to a fund.
OTC Swap Agreements. An over-the-counter (OTC) swap agreement, which is a type of derivative, is an agreement between two parties (counterparties) to exchange payments at specified dates (periodic payment dates) on the basis of a specified amount (notional amount) with the payments calculated with reference to a specified asset, reference rate, or index.
Examples of OTC swap agreements include, but are not limited to, interest rate swaps, credit default swaps, equity swaps, commodity swaps, foreign currency swaps, index swaps, excess return swaps, and total return swaps. Most OTC swap agreements provide that when the periodic payment dates for both parties are the same, payments are netted and only the net amount is paid to the counterparty entitled to receive the net payment. Consequently, a fund’s current obligations (or rights) under an OTC swap agreement will generally be equal only to the net amount to be paid or received under the agreement, based on the relative values of the positions held by each counterparty. OTC swap agreements allow for a wide variety of transactions. For example, fixed rate payments may be exchanged for floating rate payments; U.S. dollar-denominated payments may be exchanged for payments denominated in a different currency; and payments tied to the price of one asset, reference rate, or index may be exchanged for payments tied to the price of another asset, reference rate, or index.
An OTC option on an OTC swap agreement, also called a “swaption,” is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based “premium.” A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return of a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties.
The use of OTC swap agreements by a fund entails certain risks, which may be different from, or possibly greater than, the risks associated with investing directly in the securities and other investments that are the referenced asset for the swap agreement. OTC swaps are highly specialized instruments that require investment techniques, risk analyses, and tax planning different from those associated with stocks, bonds, and other traditional investments. The use of an OTC swap requires an understanding not only of the referenced asset, reference rate, or index but also of the swap itself, without the benefit of observing the performance of the swap under all possible market conditions.
OTC swap agreements may be subject to liquidity risk, which exists when a particular swap is difficult to purchase or sell. If an OTC swap transaction is particularly large or if the relevant market is illiquid (as is the case with many OTC swaps), it may not be possible to initiate a transaction or liquidate a position at an advantageous time or price, which may result in significant losses. In addition, OTC swap transactions may be subject to a fund’s limitation on investments in illiquid securities.
OTC swap agreements may be subject to pricing risk, which exists when a particular swap becomes extraordinarily expensive or inexpensive relative to historical prices or the prices of corresponding cash market instruments. Under certain market conditions, it may not be economically feasible to initiate a transaction or liquidate a position in time to avoid a loss or take advantage of an opportunity or to realize the intrinsic value of the OTC swap agreement.
Because certain OTC swap agreements have a leverage component, adverse changes in the value or level of the underlying asset, reference rate, or index can result in a loss substantially greater than the amount invested in the swap itself. Certain OTC swaps have the potential for unlimited loss, regardless of the size of the initial investment. A leveraged OTC swap transaction will not be considered to constitute the issuance, by a fund, of a “senior security,” as that term is defined in Section 18(g) of the 1940 Act, and therefore such transaction will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by a fund, if the fund complies with Rule 18f-4.
Like most other investments, OTC swap agreements are subject to the risk that the market value of the instrument will change in a way detrimental to a fund’s interest. A fund bears the risk that its advisor will not accurately forecast future market trends or the values of assets, reference rates, indexes, or other economic factors in establishing OTC swap positions for the fund. If a fund’s advisor attempts to use an OTC swap as a hedge against, or as a substitute for, a portfolio investment, the fund will be exposed to the risk that the OTC swap will have or will develop imperfect or no correlation with the portfolio investment. This could cause substantial losses for the fund. Although hedging strategies involving OTC swap instruments can reduce the risk of loss, they can also reduce the opportunity for gain or even result in losses by offsetting favorable price movements in other fund investments. Many OTC swaps are complex and often valued subjectively. Improper valuations can result in increased cash payment requirements to counterparties or a loss of value to a fund.
The use of an OTC swap agreement also involves the risk that a loss may be sustained as a result of the insolvency or bankruptcy of the counterparty or the failure of the counterparty to make required payments or otherwise comply with the terms of the agreement. Additionally, the use of credit default swaps can result in losses if a fund’s advisor does not correctly evaluate the creditworthiness of the issuer on which the credit swap is based.
Other Investment Companies. A fund may invest in other investment companies, including ETFs, non-exchange traded U.S. registered open-end investment companies (mutual funds), and closed-end investment companies, to the extent permitted by applicable law or SEC exemption. Under Section 12(d)(1) of the 1940 Act, a fund may invest up to 10% of its assets in shares of investment companies generally and up to 5% of its assets in any one investment company, as long as no investment represents more than 3% of the voting stock of an acquired investment company. In addition, no funds for which Vanguard acts as an advisor through a wholly owned subsidiary (VCM and/or VPM) may, in the aggregate, own more than 10% of the voting stock of a closed-end investment company. SEC Rule 12d1-4 under the 1940 Act permits registered investment companies to invest in other registered investment companies beyond the limits in Section 12(d)(1), subject to certain conditions, including that funds with different investment advisors must enter into a fund of funds investment agreement. Rule 12d1-4 is also designed to limit the use of complex fund structures. Under Rule 12d1-4, an acquired fund is prohibited from purchasing or otherwise acquiring the securities of another investment company or private fund if, immediately after the purchase, the securities of investment companies and private funds owned by the acquired fund have an aggregate value in excess of 10% of the value of the acquired fund’s
total assets, subject to certain limited exceptions. Accordingly, to the extent a fund’s shares are sold to other investment companies in reliance on Rule 12d1-4, the acquired fund will be limited in the amount it could invest in other investment companies and private funds. If a fund invests in other investment companies, shareholders will bear not only their proportionate share of the fund’s expenses (including operating expenses and the fees of the advisor), but they also may indirectly bear similar expenses of the underlying investment companies. Certain investment companies, such as business development companies (BDCs), are more akin to operating companies and, as such, their expenses are not direct expenses paid by fund shareholders and are not used to calculate the fund’s net asset value. SEC rules nevertheless require that any expenses incurred by a BDC be included in a fund’s expense ratio as “Acquired Fund Fees and Expenses.” The expense ratio of a fund that holds a BDC will thus overstate what the fund actually spends on portfolio management, administrative services, and other shareholder services by an amount equal to these Acquired Fund Fees and Expenses. The Acquired Fund Fees and Expenses are not included in a fund’s financial statements, which provide a clearer picture of a fund’s actual operating expenses. Shareholders would also be exposed to the risks associated not only with the investments of the fund but also with the portfolio investments of the underlying investment companies. Certain types of investment companies, such as closed-end investment companies, issue a fixed number of shares that typically trade on a stock exchange or over-the-counter at a premium or discount to their net asset value. Others are continuously offered at net asset value but also may be traded on the secondary market.
A fund may be limited to purchasing a particular share class of other investment companies (underlying funds). In certain cases, an investor may be able to purchase lower-cost shares of such underlying funds separately, and therefore be able to construct, and maintain over time, a similar portfolio of investments while incurring lower overall expenses.
Ownership Limitations and Regulatory Relief. As the Vanguard funds continue to grow, they may be increasingly impacted by ownership limitations that apply to certain securities held by the Vanguard funds (“limited securities”). An ownership limitation restricts the amount of a security that funds within the same fund complex or funds advised by the same investment advisor can own. These limitations may apply even where an external manager or different affiliate of Vanguard provides investment advisory services to a fund. Ownership restrictions and limitations can apply to certain industries (for example, banking, insurance, and utilities), certain issuers (who may, for example, have mechanisms such as poison pills in place to prevent takeovers), or certain transactions, and will also vary significantly in different contexts. A fund can be subject to more than one ownership limitation depending on its holdings, and each ownership limitation can impact multiple securities held by a fund.
Ownership limitations can restrict or impair a fund’s investment activities in a variety of ways. To meet the requirements of a limitation or restriction, a fund may be unable to purchase or directly hold a security the fund would otherwise purchase or hold if the limitation did not apply. For index funds, this means a fund may not be able to track its index as closely as it would if it was not subject to an ownership limitation because the fund cannot buy its desired amount of an impacted security. For actively managed funds, this means a fund may miss an opportunity to invest in an impacted security that the fund’s investment advisor otherwise would invest in if the fund were not subject to an ownership limitation. These types of restrictions could negatively impact a fund’s performance.
When a Vanguard fund is subject to an ownership limitation, Vanguard or the fund typically will seek permission to exceed the limitation. However, there is no guarantee that permission will be granted, or that, once granted, it will not be modified or revoked at a later date. If this happens, the fund could be required to sell or otherwise dispose of holdings in one or more issuers to comply with limitations. In the event that a regulator revokes relief from ownership limitations for the Vanguard funds and other large fund complexes at the same time, there could be significant negative market impacts in the applicable industries and increased volatility in the share prices of the relevant securities. Sudden loss of ownership limitation relief relating to one or more limited securities could potentially result in wider bid-ask spreads and premium/discounts in ETF shares, and in extreme scenarios, impact the trading of ETF shares.
In order to obtain permission to exceed an ownership limitation, Vanguard may have to agree to certain conditions that will impact its ability to exercise rights on behalf of funds. For example, Vanguard may be required to agree to vote proxies in a certain way for any securities Vanguard funds hold that exceed a particular ownership limitation. Regulatory relief may also depend on the operational independence of certain Vanguard subsidiaries and/or business divisions and applicable regulators’ recognition of such operational independence.
For situations in which the Vanguard funds do not have or are unable to obtain permission to exceed ownership limitations, the Vanguard funds and their advisors have adopted policies designed to allocate ownership of impacted securities across applicable Vanguard products in a manner that is fair and equitable over time in order to minimize the potential conflicts of interest that could arise in making such allocation determinations. These allocation policies could result in certain Vanguard products obtaining zero or reduced direct exposure to one or more impacted securities and/or
indirect exposure to impacted securities. In order to obtain indirect exposure, funds may use derivatives (such as total return swaps) or invest in totally held subsidiaries that hold the impacted securities. Both of these ways of obtaining indirect exposure are more costly than owning securities of the issuer directly. Depending on the circumstances, certain Vanguard funds may incur and bear the costs associated with transactions entered into for these purposes that other Vanguard funds do not incur and bear. With respect to an index fund, these added costs could also result in tracking error relative to the fund’s target index. There is no guarantee that laws and regulations always will allow that indirect exposure to limited securities may be omitted for purposes of determining the Vanguard funds’ exposure to limited securities and compliance with the applicable ownership limitations. In such circumstances, the Vanguard funds could not use these techniques and would be required to sell down the indirect and/or direct holdings in the applicable limited securities.
In addition, there is no guarantee that Vanguard funds will be able to obtain some or all of the derivatives that Vanguard funds want in order to gain indirect exposure to a limited security. This limited availability of derivatives may impact the ability of a fund to meet its investment objective or invest in accordance with its investment strategy, and/or have additional impacts to fund performance. Additionally, funds that use derivatives for indirect exposure are subject to derivatives-related risks.
Ownership limitations and the use of derivatives to address ownership limitations could result in unanticipated tax consequences to a fund that may affect the amount, timing, and character of distributions to shareholders. The taxation of derivatives can be complex and, depending upon the type and amount of derivatives employed by a fund, the tax consequences of using derivatives could be worse than the tax consequences that result from direct exposure to impacted securities.
Ownership limitations are highly complex. It is possible that, despite a fund’s intent to either comply with or be granted permission to exceed ownership limitations, it may inadvertently breach a limit.
Preferred Stock. Preferred stock represents an equity or ownership interest in an issuer. Preferred stock normally pays dividends at a specified rate and has precedence over common stock in the event the issuer is liquidated or declares bankruptcy. However, in the event an issuer is liquidated or declares bankruptcy, the claims of owners of bonds take precedence over the claims of those who own preferred and common stock. Preferred stock, unlike common stock, often has a stated dividend rate payable from the corporation’s earnings. Preferred stock dividends may be cumulative or noncumulative, participating, or auction rate. “Cumulative” dividend provisions require all or a portion of prior unpaid dividends to be paid before dividends can be paid to the issuer’s common stock. “Participating” preferred stock may be entitled to a dividend exceeding the stated dividend in certain cases. If interest rates rise, the fixed dividend on preferred stocks may be less attractive, causing the price of such stocks to decline. Preferred stock may have mandatory sinking fund provisions, as well as provisions allowing the stock to be called or redeemed, which can limit the benefit of a decline in interest rates. Preferred stock is subject to many of the risks to which common stock and debt securities are subject. In addition, preferred stock may be subject to more abrupt or erratic price movements than common stock or debt securities because preferred stock may trade with less frequency and in more limited volume.
Reliance on Service Providers, Data Providers, and Other Technology. Vanguard funds rely upon the performance of service providers to execute several key functions, which may include functions integral to a fund’s operations. Failure by any service provider to carry out its obligations to a fund could disrupt the business of the fund and could have an adverse effect on the fund’s performance. A fund’s service providers’ reliance on certain technology or information vendors (e.g., trading systems, investment analysis tools, benchmark analytics, and tax and accounting tools) could also adversely affect a fund and its shareholders. For example, a fund’s investment advisor may use models and/or data with respect to potential investments for the fund. When models or data prove to be incorrect or incomplete, any decisions made in reliance upon such models or data expose a fund to potential risks.
Repurchase Agreements. A repurchase agreement is an agreement under which a fund acquires a debt security (generally a security issued by the U.S. government or an agency thereof, a banker’s acceptance, or a certificate of deposit) from a bank, a broker, a dealer, or another counterparty that meets minimum credit requirements and simultaneously agrees to resell such security to the seller at an agreed-upon price and date (normally, the next business day). Because the security purchased constitutes collateral for the repurchase obligation, a repurchase agreement may be considered a loan that is collateralized by the security purchased. The resale price reflects an agreed-upon interest rate effective for the period the instrument is held by a fund and is unrelated to the interest rate on the underlying instrument. In these transactions, the securities acquired by a fund (including accrued interest earned thereon) must have a total value in excess of the value of the repurchase agreement and be held by a custodian bank until
repurchased. In addition, a fund’s investment advisor will monitor a fund’s repurchase agreement transactions generally and will evaluate the creditworthiness of any bank, broker, dealer, or other counterparty that meets minimum credit requirements to a repurchase agreement relating to a fund. The aggregate amount of any such agreements is not limited, except to the extent required by law.
The use of repurchase agreements involves certain risks. One risk is the seller’s ability to pay the agreed-upon repurchase price on the repurchase date. If the seller defaults, the fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under bankruptcy laws, the disposition of the collateral may be delayed or limited. For example, if the other party to the agreement becomes insolvent and subject to liquidation or reorganization under bankruptcy or other laws, a court may determine that the underlying security is collateral for a loan by the fund not within its control, and therefore the realization by the fund on such collateral may be automatically stayed. Finally, it is possible that the fund may not be able to substantiate its interest in the underlying security and may be deemed an unsecured creditor of the other party to the agreement.
Restricted and Illiquid Securities/Investments (including Private Placements). Illiquid securities/investments are investments that a fund reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the investment. The SEC generally limits aggregate holdings of illiquid securities/investments by a mutual fund to 15% of its net assets (5% for money market funds). A fund may experience difficulty valuing and selling illiquid securities/investments and, in some cases, may be unable to value or sell certain illiquid securities for an indefinite period of time. Illiquid securities may include a wide variety of investments, such as (1) repurchase agreements maturing in more than seven days (unless the agreements have demand/redemption features), (2) OTC options contracts and certain other derivatives (including certain swap agreements), (3) fixed time deposits that are not subject to prepayment or do not provide for withdrawal penalties upon prepayment (other than overnight deposits), (4) certain loan interests and other direct debt instruments,
(5)certain municipal lease obligations, (6) private equity investments, (7) commercial paper issued pursuant to Section 4(a)(2) of the 1933 Act, and (8) securities whose disposition is restricted under the federal securities laws. Illiquid securities/investments may include restricted, privately placed securities (such as private investments in public equity (PIPEs) or special purpose acquisition companies (SPACs)) that, under the federal securities laws, generally may be resold only to qualified institutional buyers. If a market develops for a restricted security held by a fund, it may be treated as a liquid security in accordance with guidelines approved by the board of trustees.
Reverse Repurchase Agreements. In a reverse repurchase agreement, a fund sells a security to another party, such as a bank or broker-dealer, in return for cash and agrees to repurchase that security at an agreed-upon price and time. Under a reverse repurchase agreement, the fund continues to receive any principal and interest payments on the underlying security during the term of the agreement. Reverse repurchase agreements involve the risk that the market value of securities retained by the fund may decline below the repurchase price of the securities sold by the fund that it is obligated to repurchase. In addition to the risk of such a loss, fees charged to the fund may exceed the return the fund earns from investing the proceeds received from the reverse repurchase agreement transaction. A reverse repurchase agreement may be considered a borrowing transaction for purposes of the 1940 Act. A reverse repurchase agreement transaction will not be considered to constitute the issuance, by a fund, of a “senior security,” as that term is defined in Section 18(g) of the 1940 Act, and therefore such transaction will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by a fund, if the fund complies with Rule 18f-4. A fund will enter into reverse repurchase agreements only with parties whose creditworthiness has been reviewed and found satisfactory by the advisor. If the buyer in a reverse repurchase agreement becomes insolvent or files for bankruptcy, a fund’s use of proceeds from the sale may be restricted while the other party or its trustee or receiver determines if it will honor the fund’s right to repurchase the securities. If the fund is unable to recover the securities it sold in a reverse repurchase agreement, it would realize a loss equal to the difference between the value of the securities and the payment it received for them.
Securities Lending. A fund may lend its securities to financial institutions (typically brokers, dealers, and banks) to generate income for the fund. There are certain risks associated with lending securities, including counterparty, credit, market, regulatory, tax, and operational risks. Vanguard considers the creditworthiness of the borrower, among other factors, in making decisions with respect to the lending of securities, subject to oversight by the board of trustees. If the borrower defaults on its obligation to return the securities lent because of insolvency or other reasons, a fund could experience delays and costs in recovering the securities lent or in gaining access to the collateral. These delays and costs could be greater for certain types of foreign securities, as well as certain types of borrowers that are subject to global regulatory regimes. If a fund is not able to recover the securities lent, the fund may sell the collateral and
purchase a replacement security in the market. Collateral investments are subject to market appreciation or depreciation. The value of the collateral could decrease below the value of the replacement investment by the time the replacement investment is purchased. Currently, a fund invests cash collateral into Vanguard Market Liquidity Fund, an affiliated money market fund that invests primarily in high-quality, short-term money market instruments.
The terms and the structure of the loan arrangements, as well as the aggregate amount of securities loans, must be consistent with the 1940 Act and the rules or interpretations of the SEC thereunder. These provisions limit the amount of securities a fund may lend to 331⁄3% of the fund’s total assets and require that (1) the borrower pledge and maintain with the fund collateral consisting of cash, an irrevocable letter of credit, or securities issued or guaranteed by the U.S. government having at all times not less than 100% of the value of the securities lent; (2) the borrower add to such collateral whenever the price of the securities lent rises (i.e., the borrower “marks to market” on a daily basis); (3) the loan be made subject to termination by the fund at any time; and (4) the fund receives reasonable interest on the loan (which may include the fund investing any cash collateral in interest-bearing short-term investments), any distribution on the lent securities, and any increase in their market value. Loan arrangements made by a fund will comply with any other applicable regulatory requirements. At the present time, the SEC does not object if an investment company pays reasonable negotiated fees in connection with lent securities, so long as such fees are set forth in a written contract and approved by the investment company’s trustees. In addition, voting rights pass with the lent securities, but if a fund has knowledge that a material event will occur affecting securities on loan, and in respect to which the holder of the securities will be entitled to vote or consent, the lender must be entitled to call the loaned securities in time to vote or consent. A fund bears the risk that there may be a delay in the return of the securities, which may impair the fund’s ability to vote on such a matter. See Tax Status of the Fund for information about certain tax consequences related to a fund’s securities lending activities.
Pursuant to Vanguard’s securities lending policy, Vanguard’s fixed income and money market funds are not permitted to, and do not, lend their investment securities.
Tax Matters—Federal Tax Discussion. Discussion herein of U.S. federal income tax matters summarizes some of the important, generally applicable U.S. federal tax considerations relevant to investment in a fund based on the IRC, U.S. Treasury regulations, and other applicable authorities. These authorities are subject to change by legislative, administrative, or judicial action, possibly with retroactive effect. The Fund has not requested and will not request an advance ruling from the Internal Revenue Service (IRS) as to the U.S. federal income tax matters discussed in this Statement of Additional Information. In some cases, a fund’s tax position may be uncertain under current tax law and an adverse determination or future guidance by the IRS with respect to such a position could adversely affect the fund and its shareholders, including the fund’s ability to continue to qualify as a regulated investment company or to continue to pursue its current investment strategy. A shareholder should consult their tax professional for information regarding the particular situation and the possible application of U.S. federal, state, local, foreign, and other taxes.
Tax Matters—Federal Tax Treatment of Derivatives, Hedging, and Related Transactions. A fund’s transactions in derivative instruments (including, but not limited to, options, futures, forward contracts, and swap agreements), as well as any of the fund’s hedging, short sale, securities loan, or similar transactions, may be subject to one or more special tax rules that accelerate income to the fund, defer losses to the fund, cause adjustments in the holding periods of the fund’s securities, convert long-term capital gains into short-term capital gains, or convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing, and character of distributions to shareholders.
Because these and other tax rules applicable to these types of transactions are in some cases uncertain under current law, an adverse determination or future guidance by the IRS with respect to these rules (which determination or guidance could be retroactive) may affect whether a fund has made sufficient distributions, and otherwise satisfied the relevant requirements, to maintain its qualification as a regulated investment company and avoid a fund-level tax.
Tax Matters—Federal Tax Treatment of Futures Contracts. For federal income tax purposes, a fund generally must recognize, as of the end of each taxable year, any net unrealized gains and losses on certain futures contracts, as well as any gains and losses actually realized during the year. In these cases, any gain or loss recognized with respect to a futures contract is considered to be 60% long-term capital gain or loss and 40% short-term capital gain or loss, without regard to the holding period of the contract. Gains and losses on certain other futures contracts (primarily non-U.S. futures contracts) are not recognized until the contracts are closed and are treated as long-term or short-term,
depending on the holding period of the contract. Sales of futures contracts that are intended to hedge against a change in the value of securities held by a fund may affect the holding period of such securities and, consequently, the nature of the gain or loss on such securities upon disposition. A fund may be required to defer the recognition of losses on one position, such as futures contracts, to the extent of any unrecognized gains on a related offsetting position held by the fund.
A fund will distribute to shareholders annually any net capital gains that have been recognized for federal income tax purposes on futures transactions. Such distributions will be combined with distributions of capital gains realized on the fund’s other investments, and shareholders will be advised on the nature of the distributions.
Tax Matters—Federal Tax Treatment of Non-U.S. Currency Transactions. Special rules generally govern the federal income tax treatment of a fund’s transactions in the following: non-U.S. currencies; non-U.S. currency-denominated debt obligations; and certain non-U.S. currency options, futures contracts, forward contracts, and similar instruments.
Accordingly, if a fund engages in these types of transactions it may have ordinary income or loss to the extent that such income or loss results from fluctuations in the value of the non-U.S. currency concerned. Such ordinary income could accelerate fund distributions to shareholders and increase the distributions taxed to shareholders as ordinary income. Any ordinary loss so created will generally reduce ordinary income distributions and, in some cases, could require the recharacterization of prior ordinary income distributions. Net ordinary losses cannot be carried forward by the fund to offset income or gains realized in subsequent taxable years.
Any gain or loss attributable to the non-U.S. currency component of a transaction engaged in by a fund that is not subject to these special currency rules (such as foreign equity investments other than certain preferred stocks) will generally be treated as a capital gain or loss and will not be segregated from the gain or loss on the underlying transaction.
To the extent a fund engages in non-U.S. currency hedging, the fund may elect or be required to apply other rules that could affect the character, timing, or amount of the fund’s gains and losses. For more information, see “Tax Matters—Federal Tax Treatment of Derivatives, Hedging, and Related Transactions.”
Tax Matters—Foreign Tax Credit. Foreign governments may withhold taxes on dividends and interest paid with respect to foreign securities held by a fund. Foreign governments may also impose taxes on other payments or gains with respect to foreign securities. If, at the close of its fiscal year, more than 50% of a fund’s total assets are invested in securities of foreign issuers, the fund may elect to pass through to shareholders the ability to deduct or, if they meet certain holding period requirements, take a credit for foreign taxes paid by the fund. Similarly, if at the close of each quarter of a fund’s taxable year, at least 50% of its total assets consist of interests in other regulated investment companies, the fund is permitted to elect to pass through to its shareholders the foreign income taxes paid by the fund in connection with foreign securities held directly by the fund or held by a regulated investment company in which the fund invests that has elected to pass through such taxes to shareholders.
Tax Matters—Passive Foreign Investment Companies. To the extent that a fund invests in stock in a foreign company, such stock may constitute an equity investment in a passive foreign investment company (PFIC). A foreign company is generally a PFIC if 75% or more of its gross income is passive or if 50% or more of its assets produce passive income. Capital gains on the sale of an interest in a PFIC will be deemed ordinary income regardless of how long a fund held it. Also, a fund may be subject to corporate income tax and an interest charge on certain dividends and capital gains earned in respect to PFIC interests, whether or not such amounts are distributed to shareholders. To avoid such tax and interest, a fund may elect to “mark to market” its PFIC interests, that is, to treat such interests as sold on the last day of a fund’s fiscal year, and to recognize any unrealized gains (or losses, to the extent of previously recognized gains) as ordinary income (or loss) each year. Distributions from a fund that are attributable to income or gains earned in respect to PFIC interests are characterized as ordinary income.
Tax Matters—Real Estate Mortgage Investment Conduits. If a fund invests directly or indirectly, including through a REIT or other pass-through entity, in residual interests in real estate mortgage investment conduits (REMICs) or equity interests in taxable mortgage pools (TMPs), a portion of the fund’s income that is attributable to a residual interest in a REMIC or an equity interest in a TMP (such portion referred to in the IRC as an “excess inclusion”) will be subject to U.S. federal income tax in all events—including potentially at the fund level—under a notice issued by the IRS in October 2006 and U.S. Treasury regulations that have yet to be issued but may apply retroactively. This notice also provides, and the regulations are expected to provide, that excess inclusion income of a regulated investment company will be allocated to shareholders of the regulated investment company in proportion to the dividends received by such shareholders, with the same consequences as if the shareholders held the related interest directly. In general, excess inclusion income allocated to shareholders (1) cannot be offset by net operating losses (subject to a limited exception
for certain thrift institutions); (2) will constitute unrelated business taxable income (UBTI) to entities (including a qualified pension plan, an individual retirement account, a 401(k) plan, a Keogh plan, or other tax-exempt entity) subject to tax on UBTI, thereby potentially requiring such an entity, which otherwise might not be required, to file a tax return and pay tax on such income; and (3) in the case of a non-U.S. investor, will not qualify for any reduction in U.S. federal withholding tax. A shareholder will be subject to U.S. federal income tax on such inclusions notwithstanding any exemption from such income tax otherwise available under the IRC. As a result, a fund investing in such interests may not be suitable for charitable remainder trusts. See “Tax Matters—Tax-Exempt Investors.”
Tax Matters—Tax Considerations for Non-U.S. Investors. U.S. withholding and estate taxes and certain U.S. tax reporting requirements may apply to any investments made by non-U.S. investors in Vanguard funds. Certain properly reported distributions of qualifying interest income or short-term capital gain made by a fund to its non-U.S. investors are exempt from U.S. withholding taxes, provided the investors furnish valid tax documentation (i.e., IRS Form W-8) certifying as to their non-U.S. status.
A fund is permitted, but is not required, to report any of its distributions as eligible for such relief, and some distributions (e.g., distributions of interest a fund receives from non-U.S. issuers) are not eligible for this relief. For some funds, Vanguard has chosen to report qualifying distributions and apply the withholding exemption to those distributions when made to non-U.S. shareholders who invest directly with Vanguard. For other funds, Vanguard may choose not to apply the withholding exemption to qualifying fund distributions made to direct shareholders, but may provide the reporting to such shareholders. In these cases, a shareholder may be able to reclaim such withholding tax directly from the IRS.
If shareholders hold fund shares (including ETF shares) through a broker or intermediary, their broker or intermediary may apply this relief to properly reported qualifying distributions made to shareholders with respect to those shares. If a shareholder’s broker or intermediary instead collects withholding tax where the fund has provided the proper reporting, the shareholder may be able to reclaim such withholding tax from the IRS. Please consult your broker or intermediary regarding the application of these rules.
This relief does not apply to any withholding required under the Foreign Account Tax Compliance Act (FATCA), which generally requires a fund to obtain information sufficient to identify the status of each of its shareholders. If a shareholder fails to provide this information or otherwise fails to comply with FATCA, a fund may be required to withhold under FATCA at a rate of 30% with respect to that shareholder on fund distributions. Please consult your tax advisor for more information about these rules.
Tax Matters—Tax-Exempt Investors. Income of a fund that would be UBTI if earned directly by a tax-exempt entity will not generally be attributed as UBTI to a tax-exempt shareholder of the fund. Notwithstanding this “blocking” effect, a tax-exempt shareholder could realize UBTI by virtue of its investment in a fund if shares in the fund constitute debt-financed property in the hands of the tax-exempt shareholder within the meaning of IRC Section 514(b).
A tax-exempt shareholder may also recognize UBTI if a fund recognizes “excess inclusion income” derived from direct or indirect investments in residual interests in REMICs or equity interests in TMPs. See “Tax Matters—Real Estate Mortgage Investment Conduits.”
In addition, special tax consequences apply to charitable remainder trusts that invest in a fund that invests directly or indirectly in residual interests in REMICs or equity interests in TMPs. Charitable remainder trusts and other tax-exempt investors are urged to consult their tax advisors concerning the consequences of investing in a fund.
Time Deposits. Time deposits are subject to the same risks that pertain to domestic issuers of money market instruments, most notably credit risk (and, to a lesser extent, income risk, market risk, and liquidity risk). Additionally, time deposits of foreign branches of U.S. banks and foreign branches of foreign banks may be subject to certain sovereign risks. One such risk is the possibility that a sovereign country might prevent capital, in the form of U.S. dollars, from flowing across its borders. Other risks include adverse political and economic developments, the extent and quality of government regulation of financial markets and institutions, the imposition of foreign withholding taxes, and expropriation or nationalization of foreign issuers. However, time deposits of such issuers will undergo the same type of credit analysis as domestic issuers in which a Vanguard fund invests and will have at least the same financial strength as the domestic issuers approved for the fund.
Warrants. Warrants are instruments that give the holder the right, but not the obligation, to buy an equity security at a specific price for a specific period of time. Changes in the value of a warrant do not necessarily correspond to changes in the value of its underlying security. The price of a warrant may be more volatile than the price of its underlying security, and a warrant may offer greater potential for capital appreciation as well as capital loss. Warrants do not entitle a holder to dividends or voting rights with respect to the underlying security and do not represent any rights in the assets
B-23
of the issuing company. A warrant ceases to have value if it is not exercised prior to its expiration date. These factors can make warrants more speculative than other types of investments. Other kinds of warrants exist, including, but not limited to, warrants linked to countries’ economic performance or to commodity prices such as oil prices. These warrants may be subject to risk from fluctuation of underlying assets or indexes, as well as credit risk that the issuer does not pay on the obligations and risk that the data used for warrant payment calculation does not accurately reflect the true underlying commodity price or economic performance.
When-Issued, Delayed-Delivery, and Forward-Commitment Transactions. When-issued, delayed-delivery, and forward-commitment transactions involve a commitment to purchase or sell specific securities at a predetermined price or yield in which payment and delivery take place after the customary settlement period for that type of security. Typically, no interest accrues to the purchaser until the security is delivered. When purchasing securities pursuant to one of these transactions, payment for the securities is not required until the delivery date. However, the purchaser assumes the rights and risks of ownership, including the risks of price and yield fluctuations and the risk that the security will not be issued as anticipated. When a fund has sold a security pursuant to one of these transactions, the fund does not participate in further gains or losses with respect to the security. If the other party to a delayed-delivery transaction fails to deliver or pay for the securities, the fund could miss a favorable price or yield opportunity or suffer a loss. A fund may renegotiate a when-issued or forward-commitment transaction and may sell the underlying securities before delivery, which may result in capital gains or losses for the fund. When-issued, delayed-delivery, and forward-commitment transactions will not be considered to constitute the issuance, by a fund, of a “senior security,” as that term is defined in Section 18(g) of the 1940 Act, and therefore such transaction will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by the fund, if the fund complies with Rule 18f-4.
Regulatory Restrictions in India. Shares of Vanguard Explorer Fund have not been, and will not be, registered under the laws of India and are not intended to benefit from any laws in India promulgated for the protection of shareholders. As a result of regulatory requirements in India, shares of the Fund shall not be knowingly offered to (directly or indirectly) or sold or delivered to (within India); transferred to or purchased by; or held by, for, on the account of, or for the benefit of (i) a “person resident in India” (as defined under applicable Indian law), (ii) an “overseas corporate body” or a “person of Indian origin” (as defined under applicable Indian law), or (iii) any other entity or person disqualified or otherwise prohibited from accessing the Indian securities market under applicable laws, as may be amended from time to time. Investors, prior to purchasing shares of the Fund, must satisfy themselves regarding compliance with these requirements.
SHARE PRICE
Multiple-class funds do not have a single share price. Rather, each class has a share price, also known as net asset value (NAV), which is typically calculated as of the close of regular trading on the New York Stock Exchange (NYSE), generally 4 p.m., Eastern time, on each day that the NYSE is open for business (a business day). In the rare event the NYSE experiences unanticipated disruptions and is unavailable at the close of the trading day, the Fund reserves the right to treat such day as a business day and calculate NAVs as of the close of regular trading on the Nasdaq (or another alternate exchange if the Nasdaq is unavailable, as determined at Vanguard’s discretion), generally 4 p.m., Eastern time. The NAV per share is computed by dividing the total assets, minus liabilities, allocated to the share class by the number of Fund shares outstanding for that class. On U.S. holidays or other days when the NYSE is closed, the NAV is not calculated, and the Fund does not sell or redeem shares. However, on those days the value of the Fund’s assets may be affected to the extent that the Fund holds securities that change in value on those days (such as foreign securities that trade on foreign markets that are open).
The NYSE typically observes the following holidays: New Year’s Day; Martin Luther King, Jr., Day; Presidents’ Day (Washington’s Birthday); Good Friday; Memorial Day; Juneteenth National Independence Day; Independence Day; Labor Day; Thanksgiving Day; and Christmas Day. Although the Fund expects the same holidays to be observed in the future, the NYSE may modify its holiday schedule or hours of operation at any time.
PURCHASE AND REDEMPTION OF SHARES
Purchase of Shares
The purchase price of shares of the Fund is the NAV per share next determined after the purchase request is received in good order, as defined in the Fund’s prospectus.
Exchange of Securities for Shares of the Fund. Shares of the Fund may be purchased “in kind” (i.e., in exchange for securities, rather than for cash) at the discretion of the Fund’s portfolio manager. Such securities must not be restricted as to transfer and must have a value that is readily ascertainable. Securities accepted by the Fund will be valued, as set forth in the Fund’s prospectus, as of the time of the next determination of NAV after such acceptance. All dividend, subscription, or other rights that are reflected in the market price of accepted securities at the time of valuation become the property of the Fund and must be delivered to the Fund by the investor upon receipt from the issuer. A gain or loss for federal income tax purposes, depending upon the cost of the securities tendered, would be realized by the investor upon the exchange. Investors interested in purchasing fund shares in kind should contact Vanguard.
Redemption of Shares
The redemption price of shares of the Fund is the NAV per share next determined after the redemption request is received in good order, as defined in the Fund’s prospectus.
The Fund can postpone payment of redemption proceeds for up to seven calendar days. In addition, the Fund can suspend redemptions and/or postpone payments of redemption proceeds beyond seven calendar days (1) during any period that the NYSE is closed or trading on the NYSE is restricted as determined by the SEC; (2) during any period when an emergency exists, as defined by the SEC, as a result of which it is not reasonably practicable for the Fund to dispose of securities it owns or to fairly determine the value of its assets; or (3) for such other periods as the SEC may permit.
The Trust has filed a notice of election with the SEC to pay in cash all redemptions requested by any shareholder of record limited in amount during any 90-day period to the lesser of $250,000 or 1% of the net assets of the Fund at the beginning of such period.
If the Fund determines that it would be detrimental to the best interests of the remaining shareholders of the Fund to make payment wholly or partly in cash, the Fund may pay the redemption price in whole or in part by a distribution in kind of readily marketable securities held by the Fund in lieu of cash in conformity with applicable rules of the SEC and in accordance with procedures adopted by the Fund’s board of trustees. Redemptions in-kind may benefit a fund and its shareholders by reducing the need for a fund to maintain significant cash reserves and/or to sell securities held by the fund to meet redemption requests or for other reasons. However, this activity may adversely affect the market value of the securities redeemed in-kind and, consequently, the NAV of the fund. Investors may incur brokerage charges on the sale of such securities received in payment of redemptions.
The Fund does not charge a redemption fee. Shares redeemed may be worth more or less than what was paid for them, depending on the market value of the securities held by the Fund.
Vanguard processes purchase and redemption requests through a pooled account. Pending investment direction or distribution of redemption proceeds, the assets in the pooled account are invested and any earnings (the “float”) are allocated proportionately among the Vanguard funds in order to offset fund expenses. Other than the float, Vanguard treats assets held in the pooled account as the assets of each shareholder making such purchase or redemption request.
Right to Change Policies
Vanguard reserves the right, without notice, to (1) alter, add, or discontinue any conditions of purchase (including eligibility requirements), redemption, exchange, conversion, service, or privilege at any time and (2) alter, impose, discontinue, or waive any purchase fee, redemption fee, account service fee, or other fee charged to a shareholder or a group of shareholders. Changes may affect any or all investors. These actions will be taken when, at the sole discretion of Vanguard management, Vanguard believes they are in the best interest of a fund.
Account Restrictions
Vanguard reserves the right to: (1) redeem all or a portion of a fund/account to meet a legal obligation, including tax withholding, tax lien, garnishment order, or other obligation imposed on your account by a court or government agency;
(2)redeem shares, close an account, or suspend account privileges, features, or options in the case of threatening conduct or activity; (3) redeem shares, close an account, or suspend account privileges, features, or options if Vanguard believes or suspects that not doing so could result in a suspicious, fraudulent, or illegal transaction; (4) place restrictions on the ability to redeem any or all shares in an account if it is required to do so by a court or government agency; (5) place restrictions on the ability to redeem any or all shares in an account if Vanguard believes that doing so will prevent
fraud or financial exploitation or abuse, or will protect vulnerable investors when permitted by applicable law, regulations, or SEC guidance; (6) freeze any account and/or suspend account services if Vanguard has received reasonable notice of a dispute regarding the assets in an account, including notice of a dispute between the registered or beneficial account owners; and (7) freeze any account and/or suspend account services upon initial notification to Vanguard of the death of an account owner.
Investing With Vanguard Through Other Firms
The Fund has authorized certain agents to accept on its behalf purchase and redemption orders, and those agents are authorized to designate other intermediaries to accept purchase and redemption orders on the Fund’s behalf (collectively, Authorized Agents). The Fund will be deemed to have received a purchase or redemption order when an Authorized Agent accepts the order in accordance with the Fund’s instructions. In most instances, a customer order that is properly transmitted to an Authorized Agent will be priced at the NAV per share next determined after the order is received by the Authorized Agent.
MANAGEMENT OF THE FUND
Vanguard
The Fund is part of the Vanguard group of investment companies, which consists of over 200 funds. Each fund is a series of a Delaware statutory trust. The funds obtain virtually all of their corporate management, administrative, and distribution services through the trusts’ jointly owned subsidiary, Vanguard. Vanguard may contract with certain third-party service providers to assist Vanguard in providing certain administrative and/or accounting services with respect to the funds, subject to Vanguard’s oversight. Vanguard also provides investment advisory services to certain Vanguard funds through VCM and/or VPM, each a wholly owned subsidiary of Vanguard established in 2025. All of these services are provided at Vanguard’s total cost of operations pursuant to the Fifth Amended and Restated Funds’ Service Agreement (the Agreement). In addition, as permitted by the Agreement, a wholly owned subsidiary of Vanguard (VCM and/or VPM) exercises portfolio management and certain investment stewardship responsibilities for certain Vanguard funds pursuant to an intercompany service agreement between Vanguard and such wholly owned subsidiary. These portfolio management and investment stewardship services are provided at cost.
Vanguard employs a supporting staff of management and administrative personnel needed to provide the requisite services to the funds and also furnishes the funds with necessary office space, furnishings, and equipment. In rendering investment management services to certain funds through a wholly owned subsidiary (VCM and/or VPM), Vanguard may also use the resources of its foreign wholly owned subsidiaries that are not registered as investment advisers with the SEC, using “participating affiliate arrangements.” Participating affiliate arrangements are arrangements used in reliance on guidance of the staff of the SEC and recognized by the SEC that allow a US-registered investment adviser to use investment management resources of unregistered affiliates, subject to the regulatory supervision of the registered adviser. Each fund (other than a fund of funds) pays its share of Vanguard’s total expenses, which are allocated among the funds under methods approved by the board of trustees of each fund. In addition, each fund bears its own direct expenses, such as legal, auditing, and custodial fees.
Pursuant to an agreement between Vanguard and State Street Bank and Trust Company (State Street), State Street provides services for the Fund. These services include, but are not limited to: (i) the calculation of the Fund’s daily NAVs and (ii) the furnishing of financial reports. The fees paid to State Street under this agreement are based on a combination of flat and asset based fees. During the fiscal years ended October 31, 2023, 2024, and 2025, State Street had received fees from the Fund for administrative services rendered as follows:
|
Vanguard Fund
|
2023
|
2024
|
2025
|
|
Vanguard Explorer Fund
|
$21,500.04
|
$21,520.86
|
$21,749.88
|
The funds’ officers are also employees of Vanguard.
Vanguard (including VCM and VPM), Vanguard Marketing Corporation (VMC), the funds, and the funds’ advisors have adopted codes of ethics designed to prevent employees who may have access to nonpublic information about the trading activities of the funds (access persons) from profiting from that information. The codes of ethics permit access
persons to invest in securities for their own accounts, including securities that may be held by a fund, but place substantive and procedural restrictions on the trading activities of access persons. For example, the codes of ethics require that access persons receive advance approval for most securities trades to ensure that there is no conflict with the trading activities of the funds.
Vanguard was established and operates under the Agreement. The Agreement provides that each Vanguard fund may be called upon to invest up to 0.40% of its net assets in Vanguard. The amounts that each fund has invested are adjusted from time to time in order to maintain the proportionate relationship between each fund’s relative net assets and its contribution to Vanguard’s capital.
As of October 31, 2025, the Fund had contributed capital to Vanguard as follows:
|
|
Capital
|
Percentage of
|
Percent of
|
|
|
Contribution
|
Fund’s Average
|
Vanguard’s
|
|
Vanguard Fund
|
to Vanguard
|
Net Assets
|
Capitalization
|
|
Vanguard Explorer Fund
|
$500,000
|
Less than 0.01%
|
0.20%
|
Management. Corporate management and administrative services include (1) executive staff, (2) accounting and financial, (3) legal and regulatory, (4) shareholder account maintenance, (5) monitoring and control of custodian relationships, (6) shareholder reporting, (7) review and evaluation of advisory and other services provided to the funds by third parties, and (8) such other services necessary to operate the funds at the lowest reasonable cost in accordance with the Agreement.
Distribution. Vanguard Marketing Corporation, 100 Vanguard Boulevard, Malvern, PA 19355, a wholly owned subsidiary of Vanguard, is the principal underwriter for the funds and in that capacity performs and finances marketing, promotional, and distribution activities (collectively, marketing and distribution activities) that are primarily intended to result in the sale of the funds’ shares. VMC offers shares of each fund for sale on a continuous basis and will use all reasonable efforts in connection with the distribution of shares of the funds. VMC performs marketing and distribution activities in accordance with the conditions of a 1981 SEC exemptive order that permits the Vanguard funds to internalize and jointly finance the marketing, promotion, and distribution of their shares. The funds’ trustees review and approve the marketing and distribution expenses incurred by the funds, including the nature and cost of the activities and the desirability of each fund’s continued participation in the joint arrangement.
To ensure that each fund’s participation in the joint arrangement falls within a reasonable range of fairness, each fund contributes to VMC’s marketing and distribution expenses in accordance with an SEC-approved formula. Under that formula, one half of the marketing and distribution expenses are allocated among the funds based upon their relative net assets. The remaining half of those expenses is allocated among the funds based upon each fund’s sales for the preceding 24 months relative to the total sales of the funds as a group, provided, however, that no fund’s aggregate quarterly rate of contribution for marketing and distribution expenses shall exceed 125% of the average marketing and distribution expense rate for Vanguard and that no fund shall incur annual marketing and distribution expenses in excess of 0.20% of its average month-end net assets. Each fund’s contribution to these marketing and distribution expenses helps to maintain and enhance the attractiveness and viability of the Vanguard complex as a whole, which benefits all of the funds and their shareholders.
VMC’s principal marketing and distribution expenses are for advertising, promotional materials, and marketing personnel. Other marketing and distribution activities of an administrative nature that VMC undertakes on behalf of the funds may include, but are not limited to:
■Conducting or publishing Vanguard-generated research and analysis concerning the funds, other investments, the financial markets, or the economy.
■Providing views, opinions, advice, or commentary concerning the funds, other investments, the financial markets, or the economy.
■Providing analytical, statistical, performance, or other information concerning the funds, other investments, the financial markets, or the economy.
■Providing administrative services in connection with investments in the funds or other investments, including, but not limited to, shareholder services, recordkeeping services, and educational services.
■Providing products or services that assist investors or financial service providers (as defined below) in the investment decision-making process.
VMC performs most marketing and distribution activities itself. Some activities may be conducted by third parties pursuant to shared marketing arrangements under which VMC agrees to share the costs and performance of marketing and distribution activities in concert with a financial service provider. Financial service providers include, but are not limited to, investment advisors, broker-dealers, financial planners, financial consultants, banks, and insurance companies. Under these cost- and performance-sharing arrangements, VMC may pay or reimburse a financial service provider (or a third party it retains) for marketing and distribution activities that VMC would otherwise perform. VMC’s cost- and performance-sharing arrangements may be established in connection with Vanguard investment products or services offered or provided to or through the financial service providers.
VMC’s arrangements for shared marketing and distribution activities may vary among financial service providers, and its payments or reimbursements to financial service providers in connection with shared marketing and distribution activities may be significant. VMC, as a matter of policy, does not pay asset-based fees, sales-based fees, or account-based fees to financial service providers in connection with its marketing and distribution activities for the Vanguard funds. VMC does make fixed dollar payments to financial service providers when sponsoring, jointly sponsoring, financially supporting, or participating in conferences, programs, seminars, presentations, meetings, or other events involving fund shareholders, financial service providers, or others concerning the funds, other investments, the financial markets, or the economy, such as industry conferences, prospecting trips, due diligence visits, training or education meetings, and sales presentations. VMC also makes fixed dollar payments to financial service providers for data regarding funds, such as statistical information regarding sales of fund shares. In addition, VMC makes fixed dollar payments for expenses associated with financial service providers’ use of Vanguard’s funds including, but not limited to, the use of funds in model portfolios. These payments may be used for services including, but not limited to, technology support and development; platform support and development; due diligence related to products used on a platform; legal, regulatory, and compliance expenses related to a platform; and other platform-related services.
In connection with its marketing and distribution activities, VMC may give financial service providers (or their representatives) (1) promotional items of nominal value that display Vanguard’s logo, such as golf balls, shirts, towels, pens, and mouse pads; (2) gifts that do not exceed $100 per person annually and are not preconditioned on achievement of a sales target; (3) an occasional meal, a ticket to a sporting event or the theater, or comparable entertainment that is neither so frequent nor so extensive as to raise any question of propriety and is not preconditioned on achievement of a sales target; and (4) reasonable travel and lodging accommodations to facilitate participation in marketing and distribution activities.
VMC policy prohibits marketing and distribution activities that are intended, designed, or likely to compromise suitability determinations by, or the fulfillment of any fiduciary duties or other obligations that apply to, financial service providers. Nonetheless, VMC’s marketing and distribution activities are primarily intended to result in the sale of the funds’ shares, and as such, its activities, including shared marketing and distribution activities and fixed dollar payments as described above, may influence applicable financial service providers (or their representatives) to recommend, promote, include, or invest in a Vanguard fund or share class. In addition, Vanguard or any of its subsidiaries may retain a financial service provider to provide consulting or other services, and that financial service provider also may provide services to investors. Investors should consider the possibility that any of these activities, relationships, or payments may influence a financial service provider’s (or its representatives’) decision to recommend, promote, include, or invest in a Vanguard fund or share class. Each financial service provider should consider its suitability determinations, fiduciary duties, and other legal obligations (or those of its representatives) in connection with any decision to consider, recommend, promote, include, or invest in a Vanguard fund or share class.
The following table describes the expenses of Vanguard and VMC that are incurred by the Fund. Amounts captioned “Management and Administrative Expenses” include the Fund’s allocated share of expenses associated with the management, administrative, and transfer agency services Vanguard provides to the Vanguard funds. Amounts captioned “Marketing and Distribution Expenses” include the Fund’s allocated share of expenses associated with the marketing and distribution activities that VMC conducts on behalf of the Vanguard funds.
As is the case with all mutual funds, transaction costs incurred by the Fund for buying and selling securities are not reflected in the table. Annual Shared Fund Operating Expenses are based on expenses incurred in the fiscal years ended October 31, 2023, 2024, and 2025, and are presented as a percentage of the Fund’s average month-end net assets.
|
|
Annual Shared Fund Operating Expenses
|
|
|
|
|
(Shared Expenses Deducted From Fund Assets)
|
|
|
|
Vanguard Fund
|
2023
|
2024
|
2025
|
|
Vanguard Explorer Fund
|
|
|
|
|
Management and Administrative Expenses
|
0.14%
|
0.14%
|
0.14%
|
|
Marketing and Distribution Expenses
|
Less than 0.01
|
Less than 0.01
|
Less than 0.01
|
|
|
|
|
|
The Fund’s investment advisors may direct certain security trades, subject to obtaining the best price and execution, to brokers who have agreed to rebate to the Fund part of the commissions generated. Such rebates are used solely to reduce the Fund’s management and administrative expenses and are not reflected in these totals.
Officers and Trustees
Each Vanguard fund is governed by the board of trustees of its trust and a single set of officers. Consistent with the board’s corporate governance principles, the trustees believe that their primary responsibility is oversight of the management of each fund for the benefit of its shareholders, not day-to-day management. The trustees set broad policies for the funds; select investment advisors; monitor fund operations, regulatory compliance, performance, and costs; nominate and select new trustees; and elect fund officers. Vanguard manages the day-to-day operations of the funds under the direction of the board of trustees.
The trustees play an active role, as a full board and at the committee level, in overseeing risk management for the funds. The trustees delegate the day-to-day risk management of the funds to various groups, including portfolio review, investment management, risk management, compliance, legal, fund accounting, and fund services and oversight. These groups provide the trustees with regular reports regarding investment, valuation, liquidity, and compliance, as well as the risks associated with each. The trustees also oversee risk management for the funds through regular interactions with the funds’ internal and external auditors.
The full board participates in the funds’ risk oversight, in part, through the Vanguard funds’ compliance program, which covers the following broad areas of compliance: investment and other operations; recordkeeping; valuation and pricing; communications and disclosure; reporting and accounting; oversight of service providers; fund governance; and codes of ethics, insider trading controls, and protection of nonpublic information. The program seeks to identify and assess risk through various methods, including through regular interdisciplinary communications between compliance professionals and business personnel who participate on a daily basis in risk management on behalf of the funds. The funds’ chief compliance officer regularly provides reports to the board in writing and in person.
The Audit and Risk Committee of the board, which is composed of Sarah Bloom Raskin, Peter F. Volanakis, Tara Bunch, Mark Loughridge, and Barbara Venneman each of whom is an independent trustee, oversees the management of financial risks and controls and enterprise-wide risk management. The Audit and Risk Committee serves as the channel of communication between the independent auditors of the funds and the board with respect to financial statements and financial reporting processes, systems of internal control, and the audit process. The committee also serves as a channel of communication between risk management personnel and the board with respect to enterprise-wide risk management. Vanguard’s head of internal audit reports directly to the Audit and Risk Committee. The committee receives reports in writing and in person on a regular basis from Vanguard’s head of internal audit and Vanguard’s chief risk officer. Although the Audit and Risk Committee is responsible for overseeing the management of financial risks and controls and enterprise-wide risk management, the entire board is regularly informed of these risks through the committee’s reports.
All of the trustees bring to each fund’s board a wealth of executive leadership experience derived from their service as executives (in many cases chief executive officers), board members, and leaders of diverse public operating companies, academic institutions, and other organizations. In determining whether an individual is qualified to serve as a trustee of the funds, the board considers a wide variety of information about the trustee, and multiple factors contribute to the board’s decision. Each trustee is determined to have the experience, skills, and attributes necessary to serve the funds and their shareholders because each trustee demonstrates an exceptional ability to consider complex business and financial matters, evaluate the relative importance and priority of issues, make decisions, and contribute effectively to the deliberations of the board. The board also considers the individual experience of each trustee and determines that the trustee’s professional experience, education, and background contribute to the diversity of perspectives on the
board. The business acumen, experience, and objective thinking of the trustees are considered invaluable assets for Vanguard management and, ultimately, the Vanguard funds’ shareholders. The specific roles and experience of each board member that factor into this determination are presented on the following pages. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482.
|
|
|
|
Principal Occupation(s)
|
Number of
|
|
|
|
Vanguard
|
During the Past Five Years,
|
Vanguard Funds
|
|
|
Position(s)
|
Funds’ Trustee/
|
Outside Directorships,
|
Overseen by
|
|
Name, Year of Birth
|
Held With Fund
|
Officer Since
|
and Other Experience
|
Trustee/Officer
|
|
Interested Trustee
|
|
|
|
|
|
Salim Ramji1
|
Chief Executive
|
CEO and
|
Chief executive officer and president of each of the
|
228
|
|
(1970)
|
Officer and
|
President since
|
investment companies served by Vanguard
|
|
|
|
President
|
July 2024;
|
(2024–present). Chief executive officer and director of
|
|
|
|
|
Trustee since
|
Vanguard (2024–present). Global head of iShares and
|
|
|
|
|
February 2025
|
of index investing of BlackRock (2019–2024) and
|
|
|
|
|
|
member of iShares fund board (2019–2024). Head of
|
|
|
|
|
|
U.S. Wealth Advisory of BlackRock (2015–2019).
|
|
|
|
|
|
Member of the international leadership council of the
|
|
|
|
|
|
University of Toronto.
|
|
|
David Hunt2
|
Trustee
|
February 2026
|
Chairman (January–July 2025) and president and
|
228
|
|
(1961)
|
|
|
chief executive officer (2011–2025) of PGIM, Inc.
|
|
|
|
|
|
(investment firm). Managing director (2008–present)
|
|
|
|
|
|
of Pointe Mecox Capital, LLC (investment firm).
|
|
|
|
|
|
Member of the board of Sportime Holdings (recreation
|
|
|
|
|
|
management company).
|
|
|
Kenneth Jacobs3
|
Trustee
|
February 2026
|
Senior chairman of the board (2025–present),
|
228
|
|
(1958)
|
|
|
executive chairman (2023–2024), and chairman and
|
|
|
|
|
|
chief executive officer (2009–2023) of Lazard, Inc.
|
|
|
|
|
|
(financial advisory and asset management firm). Vice
|
|
|
|
|
|
chair of the board of the University of Chicago, vice
|
|
|
|
|
|
chair of the board of The Brookings Institution
|
|
|
|
|
|
(nonpartisan public policy research), and member of
|
|
|
|
|
|
the board of the Partnership for New York City
|
|
|
|
|
|
(organization of New York City businesses).
|
|
1 Mr. Ramji is considered an “interested person” as defined in the 1940 Act because he is an officer of the Funds.
2 Mr. Hunt is considered an “interested person” (as defined in the 1940 Act) of each series offered by Vanguard World Fund because of the roles he previously held with Jennison Associates LLC (Jennison) and its related entities, PGIM, Inc. and Prudential Financial, Inc. (Prudential) and his ownership of Prudential securities. Jennison provides investment advisory services for a portion of Vanguard U.S. Growth Fund, a series of Vanguard World Fund. For Vanguard Trusts other than Vanguard World Fund, Mr. Hunt is considered an independent trustee as defined in the 1940 Act.
3 Mr. Jacobs is considered an “interested person” (as defined in the 1940 Act) of the Vanguard funds given his relationship with Lazard, Inc. (Lazard) and the professional services provided to Vanguard by Lazard-affiliated entities.
|
Independent Trustees
|
|
|
|
|
|
Tara Bunch
|
Trustee
|
November 2021
|
Head of global operations at Airbnb (2020–present).
|
228
|
|
(1962)
|
|
|
Vice president of AppleCare (2012–2020). Member of
|
|
|
|
|
|
the boards of the University of California, Berkeley
|
|
|
|
|
|
School of Engineering, and Santa Clara University’s
|
|
|
|
|
|
School of Business.
|
|
|
Mark Loughridge
|
Independent
|
March 2012
|
Senior vice president and chief financial officer (retired
|
228
|
|
(1953)
|
Chair
|
|
2013) of IBM (information technology services).
|
|
|
|
|
|
Fiduciary member of IBM’s Retirement Plan
|
|
|
|
|
|
Committee (2004–2013), senior vice president and
|
|
|
|
|
|
general manager (2002–2004) of IBM Global
|
|
|
|
|
|
Financing, and vice president and controller
|
|
|
|
|
|
(1998–2002) of IBM. Member of the Council on
|
|
|
|
|
|
Chicago Booth.
|
|
|
|
|
|
Principal Occupation(s)
|
Number of
|
|
|
|
Vanguard
|
During the Past Five Years,
|
Vanguard Funds
|
|
|
Position(s)
|
Funds’ Trustee/
|
Outside Directorships,
|
Overseen by
|
|
Name, Year of Birth
|
Held With Fund
|
Officer Since
|
and Other Experience
|
Trustee/Officer
|
|
Scott C. Malpass
|
Trustee
|
March 2012
|
Co-founder and managing partner (2022–present) of
|
228
|
|
(1962)
|
|
|
Grafton Street Partners (investment advisory firm).
|
|
|
|
|
|
Chief investment officer and vice president of the
|
|
|
|
|
|
University of Notre Dame (retired 2020). Chair of the
|
|
|
|
|
|
board of Catholic Investment Services, Inc.
|
|
|
|
|
|
(investment advisor). Member of the board of directors
|
|
|
|
|
|
of Paxos Trust Company (finance).
|
|
|
John Murphy
|
Trustee
|
February 2025
|
President (2022–present), chief financial officer
|
228
|
|
(1962)
|
|
|
(2019–present), and president of the Asia Pacific
|
|
|
|
|
|
group (2016–2018) of The Coca-Cola Company
|
|
|
|
|
|
(TCCC). Member of the board of directors of
|
|
|
|
|
|
Mexico-based Coca-Cola FEMSA (beverage bottler
|
|
|
|
|
|
company); The Coca-Cola Foundation (TCCC’s
|
|
|
|
|
|
philanthropic arm); and Engage (innovation and
|
|
|
|
|
|
corporate venture platform supporting startups).
|
|
|
|
|
|
Member of the board of trustees of the Woodruff Arts
|
|
|
|
|
|
Center.
|
|
|
Lubos Pastor
|
Trustee
|
January 2024
|
Charles P. McQuaid Distinguished Service Professor
|
228
|
|
(1974)
|
|
|
of Finance (2023–present) at the University of
|
|
|
|
|
|
Chicago Booth School of Business; Charles P.
|
|
|
|
|
|
McQuaid Professor of Finance at the University of
|
|
|
|
|
|
Chicago Booth School of Business (2009–2023).
|
|
|
|
|
|
Managing director (2024–present) of Andersen
|
|
|
|
|
|
(professional services) and a member of the Advisory
|
|
|
|
|
|
Board of the Andersen Institute for Finance and
|
|
|
|
|
|
Economics. Member of the board of the Fama-Miller
|
|
|
|
|
|
Center for Research in Finance. Research associate
|
|
|
|
|
|
at the National Bureau of Economic Research.
|
|
|
Rebecca Patterson
|
Trustee
|
February 2025
|
Chief investment strategist at Bridgewater Associates
|
228
|
|
(1968)
|
|
|
LP (2020–2023). Chief investment officer at Bessemer
|
|
|
|
|
|
Trust (2012–2019). Member of the Council on Foreign
|
|
|
|
|
|
Relations and the Economic Club of New York. Chair
|
|
|
|
|
|
of the Board of Directors of the Council for Economic
|
|
|
|
|
|
Education. Member of the Board of the University of
|
|
|
|
|
|
Florida Investment Corporation.
|
|
|
André F. Perold
|
Trustee
|
December 2004
|
George Gund Professor of Finance and Banking,
|
228
|
|
(1952)
|
|
|
Emeritus at the Harvard Business School (retired
|
|
|
|
|
|
2011). Chief investment officer and partner of
|
|
|
|
|
|
HighVista Strategies LLC (private investment firm).
|
|
|
|
|
|
Board member of RIT Capital Partners (investment
|
|
|
|
|
|
firm).
|
|
|
Sarah Bloom Raskin
|
Trustee
|
January 2018
|
Deputy secretary (2014–2017) of the U.S. Department
|
228
|
|
(1961)
|
|
|
of the Treasury. Governor (2010–2014) of the Federal
|
|
|
|
|
|
Reserve Board. Commissioner (2007–2010) of
|
|
|
|
|
|
financial regulation for the State of Maryland. Colin W.
|
|
|
|
|
|
Brown Distinguished Professor of the Practice, Duke
|
|
|
|
|
|
Law School (2021–present); Rubenstein fellow, Duke
|
|
|
|
|
|
University (2017–2020); distinguished fellow of the
|
|
|
|
|
|
Global Financial Markets Center, Duke Law School
|
|
|
|
|
|
(2020–2022); and senior fellow, Duke Center on Risk
|
|
|
|
|
|
(2020–present).
|
|
|
Grant Reid
|
Trustee
|
July 2023
|
Senior operating partner (2023–present) of CVC
|
228
|
|
(1959)
|
|
|
Capital (alternative investment manager). Chief
|
|
|
|
|
|
executive officer and president (2014–2022) and
|
|
|
|
|
|
member of the board of directors (2015–2022) of
|
|
Mars, Incorporated (multinational manufacturer).
Member of the board of directors of Marriott
International, Inc.
|
|
|
|
Principal Occupation(s)
|
Number of
|
|
|
|
Vanguard
|
During the Past Five Years,
|
Vanguard Funds
|
|
|
Position(s)
|
Funds’ Trustee/
|
Outside Directorships,
|
Overseen by
|
|
Name, Year of Birth
|
Held With Fund
|
Officer Since
|
and Other Experience
|
Trustee/Officer
|
|
David Thomas
|
Trustee
|
July 2021
|
President Emeritus of Morehouse College
|
228
|
|
(1956)
|
|
|
(2018–2025). Professor of Business Administration,
|
|
|
|
|
|
Emeritus at Harvard University (2017–2018) and dean
|
|
|
|
|
|
(2011–2016) and professor of management at
|
|
|
|
|
|
Georgetown University, McDonough School of
|
|
|
|
|
|
Business (2016–2017). Director of DTE Energy
|
|
|
|
|
|
Company. Trustee of Commonfund.
|
|
|
Barbara Venneman
|
Trustee
|
February 2025
|
Global head of Deloitte Digital (retired 2024) and
|
228
|
|
(1964)
|
|
|
member of the Deloitte Global Consulting Executive
|
|
|
|
|
|
Committee (retired 2024) at Deloitte Consulting LLP.
|
|
|
Peter F. Volanakis
|
Trustee
|
July 2009
|
President and chief operating officer (retired 2010) of
|
228
|
|
(1955)
|
|
|
Corning Incorporated (communications equipment)
|
|
|
|
|
|
and director of Corning Incorporated (2000–2010) and
|
|
|
|
|
|
Dow Corning (2001–2010). Overseer of the Amos
|
|
|
|
|
|
Tuck School of Business Administration, Dartmouth
|
|
|
|
|
|
College (2001–2013). Member of the BMW Group
|
|
|
|
|
|
Mobility Council.
|
|
|
Executive Officers
|
|
|
|
|
|
Jacqueline Angell
|
Chief
|
November 2022
|
Principal of Vanguard. Chief compliance officer
|
228
|
|
(1974)
|
Compliance
|
|
(2022–present) of Vanguard and of each of the
|
|
|
|
Officer
|
|
investment companies served by Vanguard. Chief
|
|
|
|
|
|
compliance officer (2018–2022) and deputy chief
|
|
|
|
|
|
compliance officer (2017–2019) of State Street.
|
|
|
John Bendl
|
Finance Director
|
July 2025
|
Finance director (July 2025–present) of each of the
|
228
|
|
(1970)
|
|
|
investment companies served by Vanguard. Managing
|
|
|
|
|
|
director (July 2025–present) of Vanguard. Chief
|
|
|
|
|
|
financial officer (July 2025–present) of Vanguard.
|
|
|
|
|
|
Senior Vice President and Director (July
|
|
|
|
|
|
2025–present) of Vanguard Marketing Corporation.
|
|
|
|
|
|
Head of Financial Planning and Analysis and
|
|
|
|
|
|
Enterprise Strategic Services (2024–2025) of
|
|
|
|
|
|
Vanguard. Divisional chief financial officer of
|
|
|
|
|
|
Vanguard’s International division (2021–2024). Chief
|
|
|
|
|
|
financial officer (2019–2021) of each of the investment
|
|
|
|
|
|
companies served by Vanguard. Chief accounting
|
|
|
|
|
|
officer, treasurer, and controller (2017–2019) of
|
|
|
|
|
|
Vanguard. Partner (2003–2016) at KPMG (audit, tax,
|
|
|
|
|
|
and advisory services).
|
|
|
Glenn Booraem
|
Investment
|
January 2026
|
Principal of Vanguard. Investment stewardship officer
|
228
|
|
(1967)
|
Stewardship
|
|
of each of the investment companies served by
|
|
|
|
Officer
|
|
Vanguard (2026–present). Head of Investment
|
|
|
|
|
|
Stewardship Research & Policy (2024–2026) at
|
|
|
|
|
|
Vanguard. Investment stewardship officer
|
|
|
|
|
|
(2017–2020), treasurer (2015–2017), and controller
|
|
|
|
|
|
(2010–2015) of each of the investment companies
|
|
|
|
|
|
served by Vanguard.
|
|
|
Christine Buchanan
|
Chief Financial
|
November 2017
|
Principal of Vanguard. Chief financial officer
|
228
|
|
(1970)
|
Officer
|
|
(2021–present) and treasurer (2017–2021) of each of
|
|
|
|
|
|
the investment companies served by Vanguard.
|
|
|
|
|
|
Partner (2005–2017) at KPMG (audit, tax, and
|
|
|
|
|
|
advisory services).
|
|
|
Carolyn Cross
|
Investment
|
January 2026
|
Principal of Vanguard. Investment stewardship officer
|
228
|
|
(1983)
|
Stewardship
|
|
of each of the investment companies served by
|
|
|
|
Officer
|
|
Vanguard (2026–present). Co-head of Investment
|
|
|
|
|
|
Stewardship Americas (2021–2026) and Senior
|
|
|
|
|
|
Manager of Investment Methodology in Personal
|
|
|
|
|
|
Advisor Services (2019–2021) at Vanguard.
|
|
|
|
|
|
Principal Occupation(s)
|
Number of
|
|
|
|
Vanguard
|
During the Past Five Years,
|
Vanguard Funds
|
|
|
Position(s)
|
Funds’ Trustee/
|
Outside Directorships,
|
Overseen by
|
|
Name, Year of Birth
|
Held With Fund
|
Officer Since
|
and Other Experience
|
Trustee/Officer
|
|
Gregory Davis
|
Vice President
|
July 2024
|
Vice president of each of the investment companies
|
228
|
|
(1970)
|
|
|
served by Vanguard (2024–present). President
|
|
|
|
|
|
(2024–present) and director (2024–present) of
|
|
|
|
|
|
Vanguard. Chief investment officer (2017–present) of
|
|
|
|
|
|
Vanguard. Principal (2014–present) and head of the
|
|
|
|
|
|
Fixed Income Group (2014–2017) of Vanguard.
|
|
|
|
|
|
Asia-Pacific chief investment officer (2013–2014) and
|
|
|
|
|
|
director of Vanguard Investments Australia, Ltd.
|
|
|
|
|
|
(2013–2014). Member of the Treasury Borrowing
|
|
|
|
|
|
Advisory Committee of the U.S. Department of the
|
|
|
|
|
|
Treasury. Member of the investment advisory
|
|
|
|
|
|
committee on Financial Markets for the Federal
|
|
|
|
|
|
Reserve Bank of New York. Vice chairman of the
|
|
|
|
|
|
board of the Children’s Hospital of Philadelphia.
|
|
|
Ashley Grim
|
Treasurer
|
February 2022
|
Treasurer (2022–present) of each of the investment
|
228
|
|
(1984)
|
|
|
companies served by Vanguard. Fund transfer agent
|
|
|
|
|
|
controller (2019–2022) and director of Audit Services
|
|
|
|
|
|
(2017–2019) at Vanguard. Senior manager
|
|
|
|
|
|
(2015–2017) at PricewaterhouseCoopers (audit and
|
|
|
|
|
|
assurance, consulting, and tax services).
|
|
|
Natalie Lamarque
|
Secretary
|
September 2025
|
Chief Legal Officer of Vanguard (September
|
228
|
|
(1976)
|
|
|
2025–present). Secretary (September 2025–present)
|
|
|
|
|
|
of Vanguard and each of the investment companies
|
|
|
|
|
|
served by Vanguard. Managing director (September
|
|
|
|
|
|
2025–present) of Vanguard. General Counsel and
|
|
|
|
|
|
Secretary (2022–2025) at Principal Financial Group.
|
|
|
|
|
|
General Counsel (2020–2022) and Deputy General
|
|
|
|
|
|
Counsel (2019–2020) at New York Life Insurance
|
|
|
|
|
|
Company. Member of the board of visitors for Duke
|
|
|
|
|
|
University School of Law. Member of the board of
|
|
|
|
|
|
trustees for City Year New York. Member of the
|
|
|
|
|
|
advisory board for New York University School of Law,
|
|
|
|
|
|
Program on Corporate Compliance and Enforcement.
|
|
|
Jodi Miller
|
Finance Director
|
September 2022
|
Principal of Vanguard. Finance director
|
228
|
|
(1980)
|
|
|
(2022–present) of each of the investment companies
|
|
|
|
|
|
served by Vanguard. Head of Enterprise Investment
|
|
|
|
|
|
Services (2020–present), head of Retail Client
|
|
|
|
|
|
Services & Operations (2020–2022), and head of
|
|
|
|
|
|
Retail Strategic Support (2018–2020) at Vanguard.
|
|
|
Matt Piro
|
Manager
|
July 2025
|
Principal of Vanguard. Manager oversight officer (July
|
228
|
|
(1980)
|
Oversight Officer
|
|
2025–present) of each of the investment companies
|
|
|
|
|
|
served by Vanguard. Global head of Oversight &
|
|
Manager Search (2022–present) of Vanguard. Global head of ESG product (2017–2021) of Vanguard. Head of product – Europe (2017–2021) of Vanguard. Senior investment director of Oversight & Manager Search (2012–2017) of Vanguard.
Mr. Hunt is independent for each Vanguard Trust other than the Vanguard World Fund Trust. With the exception of Mr. Ramji and Mr. Jacobs, all of the other trustees are independent. The trustees designate a chair of the board. Mr.
Loughridge, an independent trustee, serves as chair. The independent chair is a spokesperson and principal point of contact for the trustees, including the independent trustees, and is responsible for coordinating the activities of the trustees, including calling regular executive sessions of the independent trustees, developing the agenda of each board meeting together with the chief executive officer, and chairing the meetings of the trustees.
Board Committees: The Trust’s board has the following committees:
■Audit and Risk Committee: This committee oversees the accounting and financial reporting policies, the systems of internal controls, the independent audits of each fund, and enterprise-wide risk management. Ms. Raskin and Mr. Volanakis co-chair the committee. The following independent trustees serve as members of the committee: Ms. Bunch, Mr. Loughridge, and Ms. Venneman. The committee held five meetings during the Trust’s fiscal year ended October 31, 2025.
■Compensation Committee: This committee oversees the compensation programs established by each fund for the benefit of its trustees. Mr. Reid chairs the committee. The following independent trustees serve as members of the committee: Mr. Loughridge, Mr. Murphy, and Ms. Patterson. The committee held six meetings during the Trust’s fiscal year ended October 31, 2025.
■Executive Committee (formerly Independent Governance Committee): This committee assists the board in fulfilling its responsibilities and is empowered, when exigent circumstances require, to exercise board powers in the intervals between board meetings unless such action is prohibited by applicable law or Trust bylaws. Mr. Loughridge chairs the committee. The following trustees serve as members of the committee: Mr. Jacobs, Mr. Pastor, Mr. Perold, Mr. Ramji, Ms. Raskin, and Mr. Volanakis. The committee held one meeting during the Trust’s fiscal year ended
October 31, 2025.
■Investment Committees: These committees oversee the investment advisors to the funds. The committees are
responsible for: approving the funds’ investment advisory agreements and allocation of assets among advisors, overseeing the funds’ proxy voting, and approving policies used to vote fund proxies. Mr. Pastor and Mr. Malpass each chair one of the committees and each trustee serves on at least one of the two investment committees, with each committee comprised of a majority of the funds’ independent trustees. Each investment committee held two meetings during the Trust’s fiscal year ended October 31, 2025.
■Nominating Committee: This committee nominates candidates for election to the board of trustees of each fund. The committee also has the authority to recommend the removal of any trustee. Ms. Bunch chairs the committee. The following independent trustees serve as members of the committee: Mr. Loughridge, Mr. Malpass, Dr. Thomas, and Ms. Venneman. The committee held three meetings during the Trust’s fiscal year ended October 31, 2025.
The Nominating Committee will consider shareholder recommendations for trustee nominees. Shareholders may send recommendations to Ms. Bunch, chair of the committee.
Trustees retire in accordance with the funds’ governing documents and policies, and typically by age 75.
Trustee Compensation
The same individuals serve as trustees of all Vanguard funds and each fund pays a proportionate share of the trustees’ compensation. Vanguard funds also employ their officers on a shared basis; however, officers are compensated by Vanguard, not the funds.
Independent and Non-Executive Interested Trustees. The funds compensate their independent trustees and non-executive interested trustees in two ways:
■The trustees receive an annual fee for their service to the funds, which is subject to reduction based on absences from scheduled board meetings.
■The trustees are reimbursed for the travel and other expenses that they incur in attending board meetings.
“Interested” Executive Trustee. Mr. Ramji serves as a trustee, but is not compensated in this capacity. He is, however, compensated in his role as an officer of Vanguard.
Compensation Table. The following table provides compensation details for each of the trustees. We list the amounts paid as compensation by the Fund for each trustee. In addition, the table shows the total amount of compensation paid to each trustee by all Vanguard funds.
VANGUARD EXPLORER FUND
TRUSTEES’ COMPENSATION TABLE
|
|
Aggregate
|
Total Compensation
|
|
|
Compensation From
|
From All Vanguard
|
|
Trustee
|
the Funds1
|
Funds Paid to Trustees2
|
|
Salim Ramji3
|
—
|
—
|
|
David Hunt4
|
—
|
—
|
|
Kenneth Jacobs5
|
—
|
—
|
|
Tara Bunch
|
$ 991
|
$415,000
|
|
Emerson U. Fullwood6
|
422
|
88,333
|
|
F. Joseph Loughrey7
|
470
|
98,333
|
|
Mark Loughridge
|
1,256
|
525,000
|
|
Scott C. Malpass
|
931
|
390,000
|
|
John Murphy8
|
681
|
380,000
|
|
Lubos Pastor
|
931
|
390,000
|
|
Rebecca Patterson9
|
685
|
350,833
|
|
André F. Perold
|
907
|
387,500
|
|
Sarah Bloom Raskin
|
991
|
415,000
|
|
Grant Reid
|
931
|
390,000
|
|
David Thomas
|
907
|
380,000
|
|
Barbara Venneman10
|
685
|
350,833
|
|
Peter F. Volanakis
|
991
|
415,000
|
|
|
|
|
1 The amounts shown in this column are based on the Trust’s fiscal year ended October 31, 2025.
2The amounts reported in this column reflect the total compensation paid to each trustee for his or her service as trustee of 228 Vanguard funds for the 2025 calendar year and include any amount a trustee has elected to defer. During the 2025 calendar year, the following trustees elected to defer all or a portion of their compensation as follows: Ms. Bunch, $415,000; Mr. Perold, $387,500; Ms. Raskin,
$207,500; Mr. Reid, $390,000; and Dr. Thomas, $190,000.
3Mr. Ramji became a member of the Funds’ board effective February 26, 2025.
4 Mr. Hunt became a member of the Funds’ board effective February 24, 2026.
5 Mr. Jacobs became a member of the Funds’ board effective February 24, 2026.
6 Mr. Fullwood retired from the Funds’ board effective February 26, 2025.
7 Mr. Loughrey retired from the Funds’ board effective February 26, 2025.
8 Mr. Murphy became a member of the Funds’ board effective February 26, 2025.
9 Ms. Patterson became a member of the Funds’ board effective February 26, 2025. 10 Ms. Venneman became a member of the Funds’ board effective February 26, 2025.
Ownership of Fund Shares
All trustees allocate their investments among the various Vanguard funds based on their own investment needs. The following table shows each trustee’s ownership of shares of the Fund and of all Vanguard funds served by the trustee as of December 31, 2025.
VANGUARD EXPLORER FUND
|
|
|
Dollar Range of
|
Aggregate Dollar Range
|
|
|
|
Fund Shares
|
of Vanguard Fund Shares
|
|
Vanguard Fund
|
Trustee
|
Owned by Trustee
|
Owned by Trustee
|
|
Vanguard Explorer Fund
|
Salim Ramji
|
—
|
Over $100,000
|
|
|
David Hunt
|
—
|
Over $100,000
|
|
|
Kenneth Jacobs
|
—
|
Over $100,000
|
|
|
Tara Bunch
|
—
|
Over $100,000
|
|
|
Mark Loughridge
|
—
|
Over $100,000
|
|
|
Scott C. Malpass
|
—
|
Over $100,000
|
|
|
John Murphy
|
—
|
Over $100,000
|
|
|
Lubos Pastor
|
—
|
Over $100,000
|
|
|
Rebecca Patterson
|
—
|
Over $100,000
|
|
|
André Perold
|
—
|
Over $100,000
|
|
|
Sarah Bloom Raskin
|
—
|
Over $100,000
|
|
|
Grant Reid
|
—
|
Over $100,000
|
|
|
David Thomas
|
—
|
Over $100,000
|
|
|
Barbara Venneman
|
—
|
Over $100,000
|
|
|
Peter F. Volanakis
|
—
|
Over $100,000
|
As of January 31, 2026, the trustees and officers of the funds owned, in the aggregate, less than 1% of each class of each fund’s outstanding shares.
As of January 31, 2026, the following owned of record 5% or more of the outstanding shares of each class:
|
|
|
|
Percentage
|
|
Vanguard Fund
|
Share Class
|
Owner and Address
|
of Ownership
|
|
Vanguard Explorer Fund
|
Investor Shares
|
National Financial Services LLC, Jersey
|
6.08%
|
|
|
|
City, NJ
|
|
|
|
|
Charles Schwab & Co., Inc., San
|
9.08%
|
|
|
|
Francisco, CA
|
|
|
|
|
Vanguard Diversified Equity Fund,
|
14.57%
|
|
|
|
Valley Forge, PA
|
|
|
|
Admiral Shares
|
Charles Schwab & Co., Inc., San
|
5.07%
|
|
|
|
Francisco, CA
|
|
|
|
|
Fidelity Investments Institutional
|
18.32%
|
|
|
|
Operations Company Inc., Covington,
|
|
|
|
|
KY
|
|
Portfolio Holdings Disclosure Policies and Procedures
Introduction
Vanguard and the boards of trustees of the Vanguard funds (the Boards) have adopted Portfolio Holdings Disclosure Policies and Procedures (Policies and Procedures) to govern the disclosure of the portfolio holdings of each Vanguard fund. Vanguard and the Boards considered each of the circumstances under which Vanguard fund portfolio holdings may be disclosed to different categories of persons under the Policies and Procedures.1 Vanguard and the Boards also considered actual and potential material conflicts that could arise in such circumstances between the interests of Vanguard fund shareholders, on the one hand, and those of the fund’s investment advisor, sub-advisor, distributor, or any affiliated person of the fund, its investment advisor, sub-advisor, or its distributor, on the other. After giving due consideration to such matters and after the exercise of their fiduciary duties and reasonable business judgment, Vanguard and the Boards determined that the Vanguard funds have a legitimate business purpose for disclosing
1Any disclosure of portfolio holdings will be subject to, and consistent with, the Information Barrier Policy.
portfolio holdings to the persons described in each of the circumstances set forth in the Policies and Procedures and that the Policies and Procedures are reasonably designed to ensure that disclosure of portfolio holdings and information about portfolio holdings is in the best interests of fund shareholders and appropriately addresses the potential for material conflicts of interest.
The Boards exercise continuing oversight of the disclosure of Vanguard fund portfolio holdings by (1) overseeing the implementation and enforcement of the Policies and Procedures, the Code of Ethical Conduct, and the Policies and Procedures Designed to Prevent the Misuse of Inside Information (collectively, the portfolio holdings governing policies) by the chief compliance officer of Vanguard and the Vanguard funds; (2) considering reports and recommendations by the chief compliance officer concerning any material compliance matters (as defined in Rule 38a-1 under the 1940 Act and Rule 206(4)-7 under the Investment Advisers Act of 1940) that may arise in connection with any portfolio holdings governing policies; and (3) considering whether to approve or ratify any amendment to any portfolio holdings governing policies.
Vanguard and the Boards reserve the right to amend the Policies and Procedures at any time and from time to time without prior notice at their sole discretion. For purposes of the Policies and Procedures, the term “portfolio holdings” means the equity and debt securities (e.g., stocks and bonds) held by a Vanguard fund and does not mean the cash equivalent investments, derivatives, and other investment positions (collectively, other investment positions) held by the fund.
Online Disclosure of Complete Portfolio Holdings
Actively managed equity funds, unless otherwise stated, generally will seek to disclose complete portfolio holdings as of the end of the most recent calendar quarter online at vanguard.com, 30 calendar days after the end of the calendar quarter. Actively managed fixed income funds will seek to disclose complete portfolio holdings as of the end of the most recent month online at vanguard.com, 15 calendar days after the end of the month. Each Vanguard fund relying on Rule 6c-11 under the 1940 Act (e.g., standalone ETFs) generally will seek to disclose complete portfolio holdings, including other investment positions, at the beginning of each business day. These portfolio holdings, including other investment positions, will be disclosed online at vanguard.com. In accordance with Rule 2a-7 under the 1940 Act, each of the Vanguard money market funds will disclose the fund’s complete portfolio holdings as of the last business day of the prior month online at vanguard.com no later than the fifth business day of the current month. The complete portfolio holdings information for money market funds will remain available online for at least six months after the initial posting. Each Vanguard index fund, other than those Vanguard index funds relying on Rule 6c-11 under the 1940 Act (e.g., standalone ETFs), generally will seek to disclose the fund’s complete portfolio holdings as of the end of the most recent month online at vanguard.com, 15 calendar days after the end of the month.
Online disclosure of complete portfolio holdings is made to all categories of persons, including individual investors, institutional investors, intermediaries, third-party service providers, rating and ranking organizations, affiliated persons of a Vanguard fund, and all other persons. Vanguard will review complete portfolio holdings before disclosure is made and, except with respect to the complete portfolio holdings of the Vanguard money market funds, may withhold any portion of the fund’s complete portfolio holdings from disclosure when deemed to be in the best interests of the fund after consultation with a Vanguard fund’s investment advisor.
Disclosure of Complete Portfolio Holdings to Service Providers Subject to Confidentiality and Trading Restrictions
Vanguard, VCM, and VPM (each, an Advisor and collectively, the Advisors), for legitimate business purposes, may disclose Vanguard fund complete portfolio holdings at times it deems necessary and appropriate to rating and ranking organizations; financial printers; proxy voting service providers; pricing information vendors; issuers of guaranteed investment contracts for stable value portfolios; third parties that deliver analytical, statistical, or consulting services; and other third parties that provide services (collectively, Service Providers) to Vanguard, VCM, VPM, other Vanguard subsidiaries, and/or the Vanguard funds. Disclosure of complete portfolio holdings to a Service Provider is conditioned on the Service Provider being subject to a written agreement imposing a duty of confidentiality, including a duty not to trade on the basis of any material nonpublic information.
The frequency with which complete portfolio holdings may be disclosed to a Service Provider, and the length of the lag, if any, between the date of the information and the date on which the information is disclosed to the Service Provider, is determined based on the facts and circumstances, including, without limitation, the nature of the portfolio holdings information to be disclosed, the risk of harm to the funds and their shareholders, and the legitimate business purposes served by such disclosure. The frequency of disclosure to a Service Provider varies and may be as frequent as daily,
B-37
with no lag. Disclosure of Vanguard fund complete portfolio holdings by Vanguard to a Service Provider must be authorized by a Vanguard fund officer or a Principal in Vanguard’s Portfolio Review Department or Office of the General Counsel. Any disclosure of Vanguard fund complete portfolio holdings to a Service Provider as previously described may also include a list of the other investment positions that make up the fund, such as cash equivalent investments and derivatives.
Currently, Vanguard fund complete portfolio holdings are disclosed to the following Service Providers as part of ongoing arrangements that serve legitimate business purposes: Abel/Noser Corporation; Advisor Software, Inc.; Alcom Printing Group Inc.; Apple Press, L.C.; Bloomberg L.P.; Brilliant Graphics, Inc.; Broadridge Financial Solutions, Inc.; Brown Brothers Harriman & Co.; Canon Business Process Services; Charles River Systems, Inc.; Confluence Technology Inc.; Eagle Investments; Equilend; FactSet Research Systems Inc.; Gresham Technologies, Plc.; Institutional Shareholder Services, Inc.; Intellicor, LLC; Investment Technology Group, Inc.; Lipper, Inc.; Markit WSO Corporation; McMunn Associates Inc.; Morningstar, Inc.; Phoenix Lithographing Corporation; Pirium Systems Limited; Reuters America Inc.;
R.R.Donnelley, Inc.; Schvey, Inc. d/b/a Axoni; SimCorp USA Inc.; State Street Bank and Trust Company; Stonewain Systems Inc.; and Trade Informatics LLC.
Disclosure of Complete Portfolio Holdings to Vanguard Affiliates and Certain Fiduciaries Subject to Confidentiality and Trading Restrictions
Vanguard fund complete portfolio holdings may be disclosed between and among the following persons (collectively, Affiliates and Fiduciaries) for legitimate business purposes within the scope of their official duties and responsibilities, subject to such persons’ continuing legal duty of confidentiality and legal duty not to trade on the basis of any material nonpublic information, as such duties are imposed under the Code of Ethical Conduct, the Policies and Procedures Designed to Prevent the Misuse of Inside Information, the Information Barrier Policy, by agreement, or under applicable laws, rules, and regulations: (1) persons who are subject to the Code of Ethical Conduct, the Policies and Procedures Designed to Prevent the Misuse of Inside Information, and/or the Information Barrier Policy; (2) an investment advisor, sub-advisor, distributor, administrator, transfer agent, or custodian to a Vanguard fund; (3) an accounting firm, an auditing firm, or outside legal counsel retained by Vanguard, VCM, VPM, other Vanguard subsidiaries, or a Vanguard fund; (4) an investment advisor to whom complete portfolio holdings are disclosed for due diligence purposes when the advisor is in merger or acquisition talks with a Vanguard fund’s current advisor; and (5) a newly hired investment advisor or sub-advisor to whom complete portfolio holdings are disclosed prior to the time it commences its duties.
The frequency with which complete portfolio holdings may be disclosed between and among Affiliates and Fiduciaries, and the length of the lag, if any, between the date of the information and the date on which the information is disclosed between and among the Affiliates and Fiduciaries, is determined by such Affiliates and Fiduciaries based on the facts and circumstances, including, without limitation, the nature of the portfolio holdings information to be disclosed, the risk of harm to the funds and their shareholders, and the legitimate business purposes served by such disclosure. The frequency of disclosure between and among Affiliates and Fiduciaries varies and may be as frequent as daily, with no lag. Any disclosure of Vanguard fund complete portfolio holdings to any Affiliates and Fiduciaries as previously described may also include a list of the other investment positions that make up the fund, such as cash equivalent investments and derivatives. Disclosure of Vanguard fund complete portfolio holdings or other investment positions by the Advisors, VMC, or a Vanguard fund to Affiliates and Fiduciaries must be authorized by a Vanguard fund officer or a Principal of Vanguard. Any disclosure of portfolio holdings to Vanguard Affiliates will be subject to, and consistent with, the Information Barrier Policy.
Currently, Vanguard discloses complete portfolio holdings to the following Affiliates and Fiduciaries as part of ongoing arrangements that serve legitimate business purposes: Vanguard and each investment advisor, sub-advisor, custodian, and independent registered public accounting firm identified in each fund’s Statement of Additional Information.
Disclosure of Portfolio Holdings to Trading Counterparties in the Normal Course of Managing a Fund’s Assets
An investment advisor, sub-advisor, administrator, or custodian for a Vanguard fund may, for legitimate business purposes within the scope of its official duties and responsibilities, disclose portfolio holdings (whether partial portfolio holdings or complete portfolio holdings) and other investment positions that make up the fund to any trading counterparty, including one or more broker-dealers or banks, during the course of, or in connection with, normal day-to-day securities and derivatives transactions with or through such trading counterparties subject to the counterparty’s legal obligation not to use or disclose material nonpublic information concerning the fund’s portfolio holdings, other investment positions, securities transactions, or derivatives transactions without the consent of the fund
or its agents. The Vanguard funds have not given their consent to any such use or disclosure and no person or agent of the Advisors is authorized to give such consent except as approved in writing by the Boards of the Vanguard funds. Disclosure of portfolio holdings or other investment positions by the Advisors to trading counterparties must be authorized by a Vanguard fund officer or a Principal of Vanguard.
In addition to the disclosures described below to Authorized Participants, a Vanguard fund investment advisor or administrator may also disclose portfolio holdings information to other current or prospective fund shareholders in connection with the dissemination of information necessary for transactions in Creation Units (as defined below) or other large transactions with a Vanguard fund. Such shareholders are typically Authorized Participants or other financial institutions that have been authorized by VMC to purchase and redeem large blocks of shares, but may also include market makers and other institutional market participants and entities to whom a Vanguard fund advisor or administrator may provide information in connection with transactions in a Vanguard fund.
Disclosure of Nonmaterial Information
The Policies and Procedures permit Vanguard fund officers, Vanguard fund portfolio managers, and other Vanguard representatives (collectively, Approved Vanguard Representatives) to disclose any views, opinions, judgments, advice, or commentary, or any analytical, statistical, performance, or other information, in connection with or relating to a Vanguard fund or its portfolio holdings and/or other investment positions (collectively, commentary and analysis) or any changes in the portfolio holdings of a Vanguard fund that occurred after the end of the most recent calendar quarter (recent portfolio changes) to any person if (1) such disclosure serves a legitimate business purpose, (2) such disclosure does not effectively result in the disclosure of the complete portfolio holdings of any Vanguard fund (which can be disclosed only in accordance with the Policies and Procedures), and (3) such information does not constitute material nonpublic information. Disclosure of commentary and analysis or recent portfolio changes by Vanguard, VMC, or a Vanguard fund must be authorized by a Vanguard fund officer or a Principal of Vanguard.
An Approved Vanguard Representative must make a good faith determination whether the information constitutes material nonpublic information, which involves an assessment of the particular facts and circumstances. Vanguard believes that in most cases recent portfolio changes that involve a few or even several securities in a diversified portfolio or commentary and analysis would be immaterial and would not convey any advantage to a recipient in making an investment decision concerning a Vanguard fund. Nonexclusive examples of commentary and analysis about a Vanguard fund include (1) the allocation of the fund’s portfolio holdings and other investment positions among various asset classes, sectors, industries, and countries; (2) the characteristics of the stock and bond components of the fund’s portfolio holdings and other investment positions; (3) the attribution of fund returns by asset class, sector, industry, and country; and (4) the volatility characteristics of the fund. Approved Vanguard Representatives may, at their sole discretion, deny any request for information made by any person, and may do so for any reason or for no reason. Approved Vanguard Representatives include, for purposes of the Policies and Procedures, persons employed by or associated with Vanguard or a subsidiary of Vanguard who have been authorized by Vanguard’s Portfolio Review Department to disclose recent portfolio changes and/or commentary and analysis in accordance with the Policies and Procedures.
Disclosure of Portfolio Holdings Related Information to the Issuer of a Security for Legitimate Business Purposes
Vanguard, at its sole discretion, may disclose portfolio holdings information concerning a security held by one or more Vanguard funds to the issuer of such security if the issuer presents, to the satisfaction of Vanguard’s Fund Services and Oversight unit, convincing evidence that the issuer has a legitimate business purpose for such information. Disclosure of this information to an issuer is conditioned on the issuer being subject to a written agreement imposing a duty of confidentiality, including a duty not to trade on the basis of any material nonpublic information. The frequency with which portfolio holdings information concerning a security may be disclosed to the issuer of such security, and the length of the lag, if any, between the date of the information and the date on which the information is disclosed to the issuer, is determined based on the facts and circumstances, including, without limitation, the nature of the portfolio holdings information to be disclosed, the risk of harm to the funds and their shareholders, and the legitimate business purposes served by such disclosure. The frequency of disclosure to an issuer cannot be determined in advance of a specific request and will vary based upon the particular facts and circumstances and the legitimate business purposes, but in unusual situations could be as frequent as daily, with no lag. Disclosure of portfolio holdings information concerning a security held by one or more Vanguard funds to the issuer of such security must be authorized by a Vanguard fund officer or a Principal in Vanguard’s Portfolio Review Department, Oversight and Manager Search team, or Office of the General Counsel, or the equity trading units within VCM or VPM.
Disclosure of Portfolio Holdings as Required by Applicable Law
Vanguard fund portfolio holdings (whether partial portfolio holdings or complete portfolio holdings) and other investment positions that make up a fund shall be disclosed to any person as required by applicable laws, rules, and regulations. Examples of such required disclosure include, but are not limited to, disclosure of Vanguard fund portfolio holdings (1) in a filing or submission with the SEC or another regulatory body, (2) in connection with seeking recovery on defaulted bonds in a federal bankruptcy case, (3) in connection with a lawsuit, or (4) as required by court order. Disclosure of portfolio holdings or other investment positions by the Advisors, VMC, or a Vanguard fund as required by applicable laws, rules, and regulations must be authorized by a Vanguard fund officer or a Principal of Vanguard.
Prohibitions on Disclosure of Portfolio Holdings
No person is authorized to disclose Vanguard fund portfolio holdings or other investment positions (whether online at vanguard.com, in writing, by fax, by email, orally, or by other means) except in accordance with the Policies and Procedures. In addition, no person is authorized to make disclosure pursuant to the Policies and Procedures if such disclosure is otherwise unlawful under the antifraud provisions of the federal securities laws (as defined in Rule 38a-1 under the 1940 Act). Furthermore, Vanguard’s management, at its sole discretion, may determine not to disclose portfolio holdings or other investment positions that make up a Vanguard fund to any person who would otherwise be eligible to receive such information under the Policies and Procedures, or may determine to make such disclosures publicly as provided by the Policies and Procedures.
Prohibitions on Receipt of Compensation or Other Consideration
The Policies and Procedures prohibit a Vanguard fund, its investment advisor, and any other person or entity from paying or receiving any compensation or other consideration of any type for the purpose of obtaining disclosure of Vanguard fund portfolio holdings or other investment positions. “Consideration” includes any agreement to maintain assets in the fund or in other investment companies or accounts managed by the investment advisor or sub-advisor or by any affiliated person of the investment advisor or sub-advisor.
INVESTMENT ADVISORY AND OTHER SERVICES
The Trust currently uses the following investment advisors:
■ArrowMark Colorado Holdings, LLC (ArrowMark Partners) provides investment advisory services for a portion of Vanguard Explorer Fund.
■ClearBridge Investments, LLC (ClearBridge) provides investment advisory services for a portion of Vanguard Explorer Fund.
■Stephens Investment Management Group, LLC (SIMG) provides investment advisory services for a portion of Vanguard Explorer Fund.
■Wellington Management Company LLP (Wellington Management) provides investment advisory services for a portion of Vanguard Explorer Fund.
■Vanguard provides investment advisory services for a portion of Vanguard Explorer Fund through its wholly owned subsidiary, VPM.
For funds that are advised by independent third-party advisory firms unaffiliated with Vanguard, the board of trustees of each fund hires investment advisory firms, not individual portfolio managers, to provide investment advisory services to such funds. Vanguard negotiates each advisory agreement, which contains advisory fee arrangements, on an arm’s length basis with the advisory firm. Each advisory agreement is reviewed annually by each fund’s board of trustees, taking into account numerous factors, which include, without limitation, the nature, extent, and quality of the services provided; investment performance; and the fair market value of the services provided. Each advisory agreement is between the Trust and the advisory firm, not between the Trust and the portfolio manager. The structure of the advisory fee paid to each unaffiliated investment advisory firm is described in the following sections. In addition, each firm has established policies and procedures designed to address the potential for conflicts of interest. Each firm’s compensation structure and management of potential conflicts of interest are summarized by the advisory firm in the following sections for the fiscal year ended October 31, 2025.
A fund is a party to an investment advisory agreement with each of its independent third-party advisors whereby the advisor manages the investment and reinvestment of the portion of the fund’s assets that the fund’s board of trustees determines to assign to the advisor. In this capacity, each advisor continuously reviews, supervises, and administers the
B-40
fund’s investment program for its portion of the fund’s assets. Hereafter, each portion is referred to as the advisor’s Portfolio. Each advisor discharges its responsibilities subject to the supervision and oversight of Vanguard’s Oversight and Manager Search team and the officers and trustees of the fund. Vanguard’s Oversight and Manager Search team is responsible for recommending changes in a fund’s advisory arrangements to the fund’s board of trustees, including changes in the amount of assets allocated to each advisor and recommendations to hire, terminate, or replace an advisor.
The Fund pays each of its independent third-party investment advisors a base fee plus or minus a performance adjustment. The base fee, which is paid quarterly, is a percentage of average daily net assets managed by the advisor during the most recent fiscal quarter. The base fee has breakpoints, which means that the percentage declines as assets go up. The performance adjustment, also paid quarterly, is based on the cumulative total return of each advisor’s portion of the Fund relative to that of the Russell 2500 Growth Index over the preceding 36-month period (60-month period for ArrowMark Partners and SIMG).
During the fiscal years ended October 31, 2023, 2024, and 2025, Vanguard Explorer Fund incurred aggregate investment advisory fees and expenses of approximately $32,417,000 (before a performance-based increase of $8,107,000), $35,526,000 (before a performance-based increase of $6,403,000), and $34,491,000 (before a performance-based decrease of $3,776,000), respectively.
Of the aggregate fees and expenses previously described, the investment advisory expenses paid to Vanguard for the fiscal year ended October 31, 2025, were $1,083,000 (representing an effective annual rate of less than 0.01%). The investment advisory fees paid to the remaining advisors for the fiscal year ended October 31, 2025, were $29,632,000 (representing an effective annual rate of 0.16%).
A. ArrowMark Colorado Holdings, LLC (ArrowMark Partners)
ArrowMark Partners, located in Denver, Colorado, is an investment advisory firm founded in 2007.
1. Other Accounts Managed
The following table provides information relating to the other accounts managed by the portfolio managers of the Fund as of the fiscal year ended October 31, 2025 (unless otherwise noted):
|
|
|
|
|
|
|
Total assets in
|
|
|
|
|
|
|
No. of accounts with
|
accounts with
|
|
|
|
No. of
|
|
|
performance-based
|
performance-based
|
|
Portfolio Manager
|
|
accounts
|
Total assets
|
fees
|
|
fees
|
|
Chad Meade
|
Registered investment companies1
|
2
|
$21.1B
|
2
|
$21.1B
|
|
|
Other pooled investment vehicles
|
0
|
$
|
0
|
0
|
$
|
0
|
|
|
Other accounts
|
8
|
$
|
573M
|
1
|
$
|
85M
|
|
Brian Schaub
|
Registered investment companies1
|
2
|
$21.1B
|
2
|
$21.1B
|
|
|
Other pooled investment vehicles
|
0
|
$
|
0
|
0
|
$
|
0
|
|
|
Other accounts
|
8
|
$
|
573M
|
1
|
$
|
85M
|
|
|
|
|
|
|
|
|
|
1 Includes Vanguard Explorer Fund which held assets of $20.5 billion as of October 31, 2025.
2. Material Conflicts of Interest
Potential conflicts could include a portfolio manager’s knowledge about the size, timing, and possible market impact of a fund’s trades, whereby the portfolio manager could use this information to the advantage or disadvantage of another fund. A fund’s portfolio managers may be able to select or otherwise influence the selection of the brokers and dealers that are used to execute securities transactions for a fund. In addition to executing trades, some brokers and dealers provide managers with brokerage research services, which may result in the payment of higher brokerage fees than might have otherwise been available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to a fund, a portfolio manager’s decision as to the selection of brokers and dealers could potentially yield disproportionate costs and benefits among the individual funds.
A fund’s portfolio managers and analysts may also face other potential conflicts of interest in managing the funds, and the description above is not a complete description of every conflict that could be deemed to exist in managing both the
B-41
funds and other accounts. In addition, the portfolio managers or analysts may also manage other accounts (including their personal assets or the assets of family members) in their personal capacity. The management of these accounts may also involve certain of the potential conflicts described above. Investment personnel, including the portfolio managers and analysts, are subject to restrictions on engaging in personal securities transactions pursuant to a Code of Ethics adopted by ArrowMark Partners and the funds. Although the potential for conflicts of interest may exist, the funds and ArrowMark Partners believe that they have established policies and procedures that seek to minimize potential conflicts of interest and to ensure that the purchase and sale of securities among all managed accounts are fairly and equitably executed and allocated.
3. Description of Compensation
Compensation for portfolio managers is designed to link the performance of each portfolio manager to shareholder objectives. All portfolio manager compensation through a base salary and bonus is paid by ArrowMark. The total compensation of a portfolio manager will be based on a combination of the pre-tax performance of each fund managed by the portfolio manager against applicable benchmark(s) as well as against its relevant peer group, with primary emphasis given to three year performance. Peer groups may include Lipper, Morningstar, and other customized universes of funds managed. Portfolio managers are incentivized for outperformance, but receive no extra compensation for being top decile performers, which minimizes the possibility of portfolio managers taking undue risk to be top performers.
4. Ownership of Securities
As of October 31, 2025, Mr. Meade and Mr. Schaub did not own any shares of the Fund.
B. ClearBridge Investments, LLC (ClearBridge)
ClearBridge, headquartered in New York, New York, is a global investment management firm rebranded in 2005, with a legacy dating back to 1962. The firm is an independently managed, wholly owned subsidiary of Franklin Resources, Inc. ClearBridge manages assets across domestic, international, global, and specialty equity strategies. The firm also has offices in Baltimore, Ft. Lauderdale, London, San Mateo, Calgary, and Sydney.
1. Other Accounts Managed
The following table provides information relating to the other accounts managed by the portfolio managers of the Fund as of the fiscal year ended October 31, 2025 (unless otherwise noted).
|
|
|
|
|
|
|
Total assets in
|
|
|
|
|
|
|
No. of accounts with
|
accounts with
|
|
|
|
No. of
|
|
|
performance-based
|
performance-based
|
|
Portfolio Manager
|
|
accounts
|
Total assets
|
fees
|
|
fees
|
|
Brian Angerame
|
Registered investment companies1
|
4
|
$22.7B
|
1
|
$20.5B
|
|
|
Other pooled investment vehicles
|
1
|
$
|
5M
|
0
|
$
|
0
|
|
|
Other accounts
|
3,360
|
$
|
685M
|
0
|
$
|
0
|
|
Aram Green
|
Registered investment companies1
|
8
|
$32.3B
|
1
|
$20.5B
|
|
|
Other pooled investment vehicles
|
4
|
$
|
718M
|
0
|
$
|
0
|
|
|
Other accounts
|
34,057
|
$18.9B
|
0
|
$
|
0
|
|
Matthew Lilling
|
Registered investment companies1
|
4
|
$22.7B
|
1
|
$20.5B
|
|
|
Other pooled investment vehicles
|
1
|
$
|
5M
|
0
|
$
|
0
|
|
|
Other accounts
|
3,360
|
$
|
685M
|
0
|
$
|
0
|
|
Jeffrey Bailin
|
Registered investment companies1
|
4
|
$23.5B
|
1
|
$20.5B
|
|
|
Other pooled investment vehicles
|
2
|
$
|
542M
|
0
|
$
|
0
|
|
|
Other accounts
|
1,351
|
$
|
601M
|
0
|
$
|
0
|
|
|
|
|
|
|
|
|
|
1 Includes Vanguard Explorer Fund which held assets of $20.5 billion as of October 31, 2025.
2. Material Conflicts of Interest
Potential conflicts of interest may arise when the Fund’s portfolio managers also have day-to-day management responsibilities with respect to one or more other funds or other accounts, as is the case for the Fund’s portfolio managers.
ClearBridge has adopted compliance policies and procedures that are designed to address various conflicts of interest that may arise for ClearBridge as subadviser and the individuals that each employs. For example, ClearBridge seeks to minimize the effects of competing interests for the time and attention of portfolio managers by assigning portfolio managers to manage funds and accounts that share a similar investment style. ClearBridge has also adopted trade allocation procedures that are designed to facilitate the fair allocation of investment opportunities among multiple funds and accounts. There is no guarantee, however, that the policies and procedures adopted by ClearBridge will be able to detect and/or prevent every situation in which an actual or potential conflict may appear.
These potential conflicts include:
Allocation of Limited Time and Attention. A portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies.
Allocation of Investment Opportunities. If a portfolio manager identifies an investment opportunity that may be suitable for multiple funds and/or accounts, the opportunity may be allocated among these several funds or accounts, which may limit a fund’s ability to take full advantage of the investment opportunity. ClearBridge has adopted policies and procedures to ensure that all accounts, including the Fund, are treated equitably.
Pursuit of Differing Strategies. At times, a portfolio manager may determine that an investment opportunity may be appropriate for only some of the funds and/or accounts for which he or she exercises investment responsibility, or may decide that certain of the funds and/or accounts should take differing positions with respect to a particular security. In these cases, the portfolio manager may place separate transactions for one or more funds or accounts, which may affect the market price of the security or the execution of the transaction, or both, to the detriment or benefit of one or more other funds and/or accounts.
Selection of Broker/Dealers. In addition to executing trades, some broker/dealers provide brokerage and research services (as those terms are defined in Section 28(e) of the 1934 Act), which may result in the payment of higher brokerage fees than might have otherwise been available. These services may be more beneficial to certain funds or accounts than to others. For this reason, ClearBridge has formed a brokerage committee that reviews, among other things, the allocation of brokerage to broker/dealers, best execution, and soft dollar usage.
Variation in Compensation. A conflict of interest may arise where the financial or other benefits available to the portfolio manager differ among the funds and/or accounts that he or she manages. If the structure of the manager’s management fee (and the percentage paid to ClearBridge) differs among funds and/or accounts (such as where certain funds or accounts pay higher management fees or performance-based management fees), the portfolio manager might be motivated to help certain funds and/or accounts over others. The portfolio manager might be motivated to favor funds and/or accounts in which he or she has an interest or in which the manager and/or its affiliates have interests. Similarly, the desire to maintain assets under management or to enhance the portfolio manager’s performance record or to derive other rewards, financial or otherwise, could influence the portfolio manager in affording preferential treatment to those funds and/or accounts that could most significantly benefit the portfolio manager.
3. Description of Compensation
ClearBridge Portfolio Managers participate in a competitive compensation program that is designed to attract and retain outstanding talent and closely align the interests of its investment professionals with those of its clients and overall Firm results. The total compensation program includes a competitive base salary and a significant incentive component that rewards high performance standards, integrity, and collaboration consistent with the Firm’s values. A portion of annual bonuses can be deferred into compensation plans that vest over the course of several years after the grant date.
Deferrals are tied to portfolio performance, company equity products, and Franklin Resources stock.
Base salary is fixed and primarily determined based on market factors and the experience and responsibilities of the individual. Salaries are reviewed using relevant industry market data, obtained through regular participation in an external compensation benchmarking exercise, to ensure fixed pay remains competitive. Salaries are typically reviewed at least annually.
Discretionary compensation can include:
■Cash Incentive Award
■Deferred Compensation - mandatory programs that typically defer a portion of discretionary year-end compensation into company managed funds. Portfolio Managers generally have required allocations in their main product, with the option to invest in additional managed funds. As a result, Portfolio Managers may have up to 100% of this award allocated to their primary managed product or its performance. For research analysts, 100% of the deferred amount is allocated among our managed funds. For U.S.-based employees, these investments are company assets held on the balance sheet and distributed to employees as shares, subject to applicable vesting requirements. Outside the United States, a third-party administrator tracks the performance as a notional investment, which is then paid out to employees in cash following vesting requirements.
■Restricted Stock Deferral - a mandatory program that typically defers a portion of discretionary year-end compensation into Franklin Resources restricted stock. The award is paid out to employees in shares subject to vesting requirements.
Several factors are considered by the ClearBridge Chief Executive Officer and Chief Investment Officer when determining discretionary compensation for Portfolio Managers. These include but are not limited to:
■Investment performance. A Portfolio Manager’s compensation is linked to the investment performance of the fund/accounts managed by the Portfolio Manager. Investment performance is calculated for 1-, 3-, and 5-year periods measured against the applicable product benchmark (e.g., a securities index and, with respect to a fund, the benchmark set forth in the fund’s Prospectus) and relative to applicable industry peer groups. The greatest weight is generally placed on 3- and 5-year performance.
■Appropriate risk positioning that is consistent with the strategy’s investment philosophy and approach to generation of alpha;
■Overall Firm profitability and performance;
■Amount and nature of assets managed by the Portfolio Manager;
■Contributions for asset retention, gathering and client satisfaction;
■Contribution to mentoring, coaching and/or supervising;
■Contribution and communication of investment ideas in ClearBridge’s investment meetings and on a day-to-day basis;
■Market compensation survey research by independent third parties
4. Ownership of Securities
As of October 31, 2025, Mr. Angerame, Mr. Green, Mr. Lilling, and Mr. Bailin did not own any shares of the Fund.
C. Stephens Investment Management Group, LLC (SIMG)
SIMG, located in Little Rock, Arkansas, is a subsidiary of Stephens Investments Holdings, a privately held and family owned company.
1. Other Accounts Managed
The following table provides information relating to the other accounts managed by the portfolio manager of the Fund as of the fiscal year ended October 31, 2025 (unless otherwise noted).
|
|
|
|
|
|
Total assets in
|
|
|
|
|
|
No. of accounts with
|
accounts with
|
|
|
|
No. of
|
|
performance-based
|
performance-based
|
|
Portfolio Manager
|
|
accounts
|
Total assets
|
fees
|
fees
|
|
Ryan E. Crane
|
Registered investment companies1
|
5
|
$22.8B
|
1
|
$20.5B
|
|
|
|
|
|
|
Total assets in
|
|
|
|
|
|
No. of accounts with
|
accounts with
|
|
|
No. of
|
|
|
performance-based
|
performance-based
|
|
Portfolio Manager
|
accounts
|
Total assets
|
fees
|
|
fees
|
|
Other pooled investment vehicles
|
1
|
$
|
55M
|
0
|
$
|
0
|
|
Other accounts
|
64
|
$
|
2.4B
|
0
|
$
|
0
|
1 Includes Vanguard Explorer Fund which held assets of $20.5 billion as of October 31, 2025.
2. Material Conflicts of Interest
SIMG manages a number of separate accounts and three other registered investment companies, which utilize similar investment strategies as the Fund. These separate accounts are charged an asset based fee by SIMG. The firm has established policies and procedures to address the potential conflicts of interest inherent in managing portfolios for multiple clients. These policies and procedures are designed to prevent and detect favorable treatment of one account over another, and include policies for allocating trades equitably across multiple accounts, monitoring the composition of client portfolios to ensure that each reflects the investment profile of that client, and reviewing the performance of accounts of similar styles. Additionally, each employee of SIMG is bound by its Code of Ethics, which establishes policies and procedures designed to ensure that clients’ interests are placed before those of an individual or the firm.
3. Description of Compensation
All of the portfolio managers receive compensation in the form of a fixed salary and performance bonus. The performance bonus can represent a significant portion of the total compensation. The amount of a portfolio manager’s bonus is a function of our products’ asset weighted one-, three-, and five-year performance relative to the appropriate benchmark and peer group. Portfolio managers with sector specific responsibilities receive a portion of their bonus based on performance contribution and attribution analysis based on each individual’s performance within their respective sectors. Mr. Crane’s bonus as team leader is more a function of the product’s performance (in the manner described above), and less sensitive to individual stock picks. His bonus also has a subjective portion that is related in part to our firm’s level of profitability. Each member of the portfolio management team participates in the firm’s annual profits on a pro-rata basis and receives a portion of the overall net profits of SIMG. Performance is measured over the most recent calendar year.
4. Ownership of Securities
As of October 31, 2025, Mr. Crane owned shares of the Fund within the $100,001 - $500,000 range.
D. Wellington Management Company LLP (Wellington Management)
Wellington Management is a Delaware limited liability partnership with principal offices at 280 Congress Street, Boston, MA 02210. Wellington Management is a professional investment counseling firm that provides investment services to investment companies, employee benefit plans, endowments, foundations, and other institutions. Wellington Management and its predecessor organizations have provided investment advisory services for over 90 years. Wellington Management is owned by the partners of Wellington Management Group LLP, a Massachusetts limited liability partnership.
1. Other Accounts Managed
The following table provides information relating to the other accounts managed by the portfolio manager of the Fund as of the fiscal year ended October 31, 2025 (unless otherwise noted).
|
|
|
|
|
|
|
Total assets in
|
|
|
|
|
|
|
No. of accounts with
|
accounts with
|
|
|
|
No. of
|
|
|
performance-based
|
performance-based
|
|
Portfolio Manager
|
|
accounts
|
Total assets
|
fees
|
|
fees
|
|
Daniel Fitzpatrick
|
Registered investment companies1
|
3
|
$20.7B
|
1
|
$20.5B
|
|
|
Other pooled investment vehicles
|
4
|
$
|
789M
|
0
|
$
|
0
|
|
|
Other accounts
|
7
|
$
|
2.9B
|
1
|
$
|
32M
|
|
|
|
|
|
|
|
|
|
1 Includes Vanguard Explorer Fund which held assets of $20.5 billion as of October 31, 2025.
2. Material Conflicts of Interest
Individual investment professionals at Wellington Management manage multiple accounts for multiple clients. These accounts may include mutual funds, separate accounts (assets managed on behalf of institutions, such as pension funds, insurance companies, foundations, or separately managed account programs sponsored by financial intermediaries), bank common trust accounts, and hedge funds. The Wellington Management Portfolio’s or Fund’s manager listed in the prospectus who is primarily responsible for the day-to-day management of the Wellington Management Portfolio or Fund (Portfolio Manager) generally manages accounts in several different investment styles. These accounts may have investment objectives, strategies, time horizons, tax considerations, and risk profiles that differ from those of the Wellington Management Portfolio or Fund. The Portfolio Manager makes investment decisions for each account, including the Wellington Management Portfolio or Fund, based on the investment objectives, policies, practices, benchmarks, cash flows, tax, and other relevant investment considerations applicable to that account. Consequently, the Portfolio Manager may purchase or sell securities, including initial public offerings (IPOs), for one account and not another account, and the performance of securities purchased for one account may vary from the performance of securities purchased for other accounts. Alternatively, these accounts may be managed in a similar fashion to the Wellington Management Portfolio or Fund and thus the accounts may have similar—and in some cases nearly identical—objectives, strategies, and/or holdings to those of the Wellington Management Portfolio or Fund.
The Portfolio Manager or other investment professionals at Wellington Management may place transactions on behalf of other accounts that are directly or indirectly contrary to investment decisions made on behalf of the Wellington Management Portfolio or Fund, or make investment decisions that are similar to those made for the Wellington Management Portfolio or Fund, both of which have the potential to adversely impact the Wellington Management Portfolio or Fund depending on market conditions. For example, an investment professional may purchase a security in one account while appropriately selling that same security in another account. Similarly, the Portfolio Manager may purchase the same security for the Wellington Management Portfolio or Fund and one or more other accounts at or about the same time. In those instances, the other accounts will have access to their respective holdings prior to the public disclosure of the Wellington Management Portfolio’s or Fund’s holdings. In addition, some of these accounts have fee structures, including performance fees, which are or have the potential to be higher, in some cases significantly higher, than the fees Wellington Management receives for managing the Wellington Management Portfolio or Fund. Mr. Fitzpatrick also manages accounts which pay performance allocations to Wellington Management or its affiliates. Because incentive payments paid by Wellington Management to the Portfolio Manager are tied to revenues earned by Wellington Management and, where noted, to the performance achieved by the manager in each account, the incentives associated with any given account may be significantly higher or lower than those associated with other accounts managed by a given Portfolio Manager. Finally, the Portfolio Manager may hold shares or investments in the other pooled investment vehicles and/or other accounts identified above.
Wellington Management’s goal is to meet its fiduciary obligation to treat all clients fairly and provide high-quality investment services to all of its clients. Wellington Management has adopted and implemented policies and procedures, including brokerage and trade allocation policies and procedures, which it believes address the conflicts associated with managing multiple accounts for multiple clients. In addition, Wellington Management monitors a variety of areas, including compliance with primary account guidelines, the allocation of IPOs, and compliance with the firm’s Code of Ethics, and places additional investment restrictions on investment professionals who manage hedge funds and certain other accounts. Furthermore, senior investment and business personnel at Wellington Management periodically review the performance of Wellington Management’s investment professionals. Although Wellington Management does not track the time an investment professional spends on a single account, Wellington Management does periodically assess whether an investment professional has adequate time and resources to effectively manage the investment professional’s various client mandates.
3. Description of Compensation
Wellington Management receives a fee based on the assets under management of the Wellington Management Portfolio or Fund as set forth in the Investment Advisory Agreement between Wellington Management and the Trust on behalf of the Fund. Wellington Management pays its investment professionals out of its total revenues, including the advisory fees earned with respect to the Wellington Management Portfolio or Fund. The following relates to the fiscal year ended October 31, 2025.
Wellington Management’s compensation structure is designed to attract and retain high-caliber investment professionals necessary to deliver high-quality investment management services to its clients. Wellington Management’s compensation of the Wellington Management Portfolio’s or Fund’s manager listed in the prospectus who is primarily responsible for the day-to-day management of the Wellington Management Portfolio or Fund includes a base salary and incentive components. The base salary for the Portfolio Manager who is a partner (a “Partner”) of Wellington Management Group LLP, the ultimate holding company of Wellington Management, is generally a fixed amount that is determined by the managing partners of Wellington Management Group LLP.
The Portfolio Manager is eligible to receive an incentive payment based on the revenues earned by Wellington Management from the Wellington Management Portfolio and generally each other account managed by the Portfolio Manager. The Portfolio Manager’s incentive payment relating to the Wellington Management Portfolio is linked to the net pre-tax performance of the Wellington Management Portfolio managed by the Portfolio Manager compared to the Russell 2500 Growth Index over one-, three-, and five-year periods, with an emphasis on five-year results. Wellington Management applies similar incentive compensation structures (although the benchmarks or peer groups, time periods, and rates may differ) to other accounts managed by the Portfolio Manager, including accounts with performance fees.
Portfolio-based incentives across all accounts managed by an investment professional can, and typically do, represent a significant portion of an investment professional’s overall compensation; incentive compensation varies significantly by individual and can vary significantly from year to year. The Portfolio Manager may also be eligible for bonus payments based on his overall contribution to Wellington Management’s business operations. Senior management at Wellington Management may reward individuals as it deems appropriate based on other factors. Each Partner is eligible to participate in a Partner-funded tax-qualified retirement plan, the contributions to which are made pursuant to an actuarial formula. Mr. Fitzpatrick is a Partner.
4. Ownership of Securities
As of October 31, 2025, Mr. Fitzpatrick owned shares of the Fund in an amount exceeding $1 million.
E. Vanguard Portfolio Management, LLC (VPM)
Vanguard provides investment advisory services for a portion of Vanguard Explorer Fund through its wholly owned subsidiary, VPM. These services are provided by experienced investment management professionals who are employed by Vanguard and are associated persons of VPM. The compensation and other expenses of these investment management professionals are allocated among the funds utilizing these services.
1. Other Accounts Managed
The following table provides information relating to the other accounts managed by the portfolio manager of the Fund as of the fiscal year ended October 31, 2025 (unless otherwise noted):
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
No. of accounts
|
in accounts with
|
|
Portfolio
|
|
No. of
|
|
Total
|
with performance-based
|
performance-based
|
|
Manager
|
|
accounts
|
assets
|
fees
|
fees
|
|
Cesar Orosco
|
Registered investment companies1
|
5
|
$34.1B
|
0
|
$0
|
|
|
Other pooled investment vehicles
|
0
|
$
|
0
|
0
|
$0
|
|
|
Other accounts
|
0
|
$
|
0
|
0
|
$0
|
|
|
|
|
|
|
|
|
1 Includes Vanguard Explorer Fund, which held assets of $20.5 billion as of October 31, 2025
2. Material Conflicts of Interest
At VPM, individual portfolio managers may manage multiple accounts for multiple clients. In addition to mutual funds, these accounts may include separate accounts, collective trusts, and offshore funds. Managing multiple funds or accounts may give rise to potential conflicts of interest including, for example, conflicts among investment strategies and conflicts in the allocation of investment opportunities. VPM manages potential conflicts between funds or accounts through allocation policies and procedures, internal review processes, and oversight by trustees and independent third parties. VPM has developed trade allocation procedures and controls to ensure that no one client, regardless of type, is intentionally favored at the expense of another. Allocation policies are designed to address potential conflicts in situations in which two or more funds or accounts participate in investment decisions involving the same securities.
3. Description of Compensation
This section describes the compensation of the Vanguard employee(s) who manage(s) the Fund. Each such portfolio manager is an associated person of VPM. As of the date of this Statement of Additional Information, a portfolio manager’s compensation generally consists of base salary, bonus, and payments under Vanguard’s long-term incentive compensation program. In addition, portfolio managers are eligible for the standard retirement benefits and health and welfare benefits available to all Vanguard employees. Also, certain portfolio managers may be eligible for additional retirement benefits under several supplemental retirement plans that Vanguard adopted in the 1980s to restore dollar-for-dollar the benefits of management employees that had been cut back solely as a result of tax law changes. These plans are structured to provide the same retirement benefits as the standard retirement plans.
In the case of portfolio managers responsible for managing multiple Vanguard funds or accounts, the method used to determine their compensation is the same for all funds and investment accounts they manage. A portfolio manager’s base salary is determined by the manager’s experience and performance in the role, taking into account the ongoing compensation benchmark analyses performed by Vanguard’s Human Resources Department. A portfolio manager’s base salary is generally a fixed amount that may change as a result of an annual review, upon assumption of new duties, or when a market adjustment of the position occurs.
A portfolio manager’s bonus is determined by a number of factors, including the performance of all Vanguard clients and the performance of the portfolio manager’s group within Vanguard. The performance of a portfolio manager’s group within Vanguard is determined based on gross, pre-tax performance of each fund managed by the group relative to expectations for how the funds should have performed, given the funds’ investment objectives, policies, strategies, and limitations, and the market environment during the measurement period. For the portion of the Fund managed by Vanguard through VPM, the performance factor depends on how successfully a portfolio manager’s group outperforms these expectations and maintains the risk parameters of the funds managed by the group over a three-year period. Additional factors considered in determining a portfolio manager’s bonus include the performance of the funds managed by the portfolio manager, the portfolio manager’s contributions to the investment management functions within the sub-asset class, contributions to the development of other investment professionals and supporting staff, and overall contributions to strategic planning and decisions for the investment group. The target bonus is expressed as a percentage of base salary. The actual bonus paid may be more or less than the target bonus, based on how well the portfolio manager satisfies the objectives previously described. The bonus is paid on an annual basis.
Under the long-term incentive compensation program, eligible full-time employees receive a payment from Vanguard’s long-term incentive compensation plan that is based on a number of factors, including their years of service, job level, performance rating, perceived potential, and market position. Each year, Vanguard’s independent directors determine the amount of the long-term incentive compensation award for that year based on the investment performance of the Vanguard funds relative to competitors and Vanguard’s operating efficiencies in providing services to the Vanguard funds.
4. Ownership of Securities
As of October 31, 2025, the named portfolio manager owned shares of the Fund he managed as follows:
|
Cesar Orosco
|
|
|
|
|
|
Dollar Range
|
|
|
|
|
|
|
|
|
|
|
|
$10,001
|
$50,001
|
|
$100,001
|
$500,001
|
|
|
|
|
None
|
$1 to $10k
|
to $50k
|
|
to $100k
|
to $500k
|
|
to $1m
|
Over $1m
|
|
Vanguard Explorer Fund
|
|
|
|
|
|
|
|
|
x
|
|
|
|
|
|
|
|
|
Duration and Termination of Investment Advisory Agreements
The Fund’s current investment advisory agreements with the unaffiliated advisors are renewable for successive one-year periods, only if (1) each renewal is specifically approved by a vote of the Fund’s board of trustees, including the affirmative votes of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of considering such approval, or (2) each renewal is specifically approved by a vote of a majority of the Fund’s outstanding voting securities. An agreement is automatically terminated if assigned and may be terminated without penalty at any time either (1) by vote of the board of trustees of the Fund upon thirty (30) days’ written notice to the advisor, (2) by a vote of a majority of the Fund’s outstanding voting securities upon 30 days’ written notice to the advisor, or (3) by the advisor upon ninety (90) days’ written notice to the Fund.
Vanguard provides investment advisory services to the Fund through its wholly owned subsidiary, VPM, pursuant to the terms of the Fifth Amended and Restated Funds’ Service Agreement and an intercompany service agreement between Vanguard and VPM (ISA). The Agreement will continue in full force and effect until terminated or amended by mutual agreement of the Vanguard funds and Vanguard. With respect to the Fund, the ISA will continue, unless terminated sooner in accordance with the terms of the ISA, for one year from the date it was approved for the Fund. At the end of this one-year period, the ISA will continue automatically with respect to the Fund for successive periods of 12 months each, provided that such continuance is approved at least annually (i) by the board of trustees of the Fund or (ii) by vote of a majority of the outstanding voting securities of the Fund.
Securities Lending
The following table describes the securities lending activities of the Fund during the fiscal year ended October 31, 2025.
|
Vanguard Fund
|
Securities Lending Activities
|
|
Vanguard Explorer Fund
|
|
|
Gross income from securities lending activities
|
$2,492,806
|
|
Fees paid to securities lending agent from a revenue split
|
$0
|
|
Fees paid for any cash collateral management service (including fees deducted from a pooled cash
|
|
|
collateral reinvestment vehicle) that are not included in the revenue split
|
$2,409
|
|
Administrative fees not included in revenue split
|
$13,630
|
|
Indemnification fee not included in revenue split
|
$0
|
|
Rebate (paid to borrower)
|
$1,948,908
|
|
Other fees not included in revenue split (specify)
|
$0
|
|
Aggregate fees/compensation for securities lending activities
|
$1,964,947
|
|
Net income from securities lending activities
|
$527,859
|
|
|
|
The services provided by Brown Brothers Harriman & Co. and Vanguard, each acting separately as securities lending agents for certain Vanguard funds, include coordinating the selection of securities to be loaned to approved borrowers;
negotiating the terms of the loan; monitoring the value of the securities loaned and corresponding collateral, marking to market daily; coordinating the investment of cash collateral in the funds’ approved cash collateral reinvestment vehicle; monitoring dividends and coordinating material proxy votes relating to loaned securities; and transferring, recalling, and arranging the return of loaned securities to the funds upon termination of the loan.
PORTFOLIO TRANSACTIONS
The advisor decides which securities to buy and sell on behalf of the Fund and then selects the brokers or dealers that will execute the trades on an agency basis or the dealers with whom the trades will be effected on a principal basis. For each trade, the advisor must select a broker-dealer that it believes will provide “best execution.” Best execution does not necessarily mean paying the lowest spread or commission rate available. In seeking best execution, the SEC has said that an advisor should consider the full range of a broker-dealer’s services. The factors considered by the advisor in seeking best execution include, but are not limited to, the broker-dealer’s execution capability, clearance and settlement services, commission rate, trading expertise, willingness and ability to commit capital, ability to provide anonymity, financial responsibility, reputation and integrity, responsiveness, access to underwritten offerings and secondary markets, and access to company management, as well as the value of any research provided by the broker-dealer. In assessing which broker-dealer can provide best execution for a particular trade, the advisor also may consider the timing and size of the order and available liquidity and current market conditions. Subject to applicable legal requirements, the advisor may select a broker based partly on brokerage or research services provided to the advisor and its clients, including the Fund. The advisor may cause the Fund to pay a higher commission than other brokers would charge if the advisor determines in good faith that the amount of the commission is reasonable in relation to the value of services provided. The advisor also may receive brokerage or research services from broker-dealers that are provided at no charge in recognition of the volume of trades directed to the broker. To the extent research services or products may be a factor in selecting brokers, services and products may include written research reports analyzing performance or securities, discussions with research analysts, meetings with corporate executives to obtain oral reports on company performance, market data, and other products and services that will assist the advisor in its investment decision-making process. The research services provided by brokers through which the Fund effects securities transactions may be used by the advisor in servicing all of its accounts, and some of the services may not be used by the advisor in connection with the Fund.
During the fiscal years ended October 31, 2023, 2024, and 2025, the Fund paid the following approximate amounts in brokerage commissions. Brokerage commissions paid by a fund may be substantially different from year to year for multiple reasons, such as overall fund performance, market volatility, trading volumes, cash flows, or changes to the securities that make up the fund or a fund’s target index.
|
Vanguard Fund
|
2023
|
2024
|
2025
|
|
Vanguard Explorer Fund
|
$7,796,000
|
$6,709,000
|
$10,194,000
|
|
|
|
|
|
Some securities that are considered for investment by the Fund may also be appropriate for other Vanguard funds or for other clients served by the advisors. If such securities are compatible with the investment policies of the Fund and one or more of an advisor’s other clients, and are considered for purchase or sale at or about the same time, then transactions in such securities may be aggregated by the advisor, and the purchased securities or sale proceeds may be allocated among the participating Vanguard funds and the other participating clients of the advisor in a manner deemed equitable by the advisor. Although there may be no specified formula for allocating such transactions, the allocation methods used, and the results of such allocations, will be subject to periodic review by the Fund’s board of trustees.
As of October 31, 2025, the Fund held securities of its “regular brokers or dealers,” as that term is defined in Rule 10b-1 of the 1940 Act, as follows:
|
Vanguard Fund
|
Regular Broker or Dealer (or Parent)
|
Aggregate Holdings
|
|
Vanguard Explorer Fund
|
Evercore Group, LLC
|
$38,840,000
|
|
|
|
|
PROXY VOTING
I. Proxy Voting Policies
Each Vanguard fund advised by Vanguard through VPM (each, a VPM-Advised Fund and together, the VPM-Advised Funds) retains the authority to vote proxies received with respect to the shares of equity securities held in a
VPM-Advised Fund portfolio. The trustees of each VPM-Advised Fund have adopted proxy voting procedures and guidelines, to be administered by VPM and the VPM Investment Stewardship Team, which govern proxy voting for each VPM-Advised Fund retaining proxy voting authority. This policy is included in Appendix A. The Board of each Vanguard fund advised by a manager not affiliated with Vanguard has delegated the authority to vote proxies related to the portfolio securities held by each fund to its respective advisor(s). Each advisor will vote such proxies in accordance with its own proxy voting policies and procedures, which are included (or summarized) in Appendix B. Vanguard Investor Choice is offered as a program within participating Vanguard funds; see Appendix C.
Vanguard has entered into agreements with various state, federal, and non-U.S. regulators and with certain issuers that limit the amount of shares that the funds may vote at their discretion for particular securities. For these securities, the funds are able to vote a limited portion of the shares at their discretion. Any additional shares generally are voted in the same proportion as votes cast by the issuer’s entire shareholder base (i.e., mirror voted), or the fund is not permitted to vote such shares. Further, the boards of trustees of Vanguard funds have adopted policies that will result in certain funds mirror voting a higher proportion of the shares they own in a regulated issuer in order to permit certain other funds (generally advised by managers not affiliated with Vanguard) to mirror vote none, or a lower proportion, of their shares in such regulated issuer.
II. Securities Lending
There may be occasions when Vanguard needs to restrict lending of and/or recall securities that are out on loan in order to vote the full position at a shareholder meeting. For the VPM-Advised Funds, Vanguard has processes to monitor securities on loan and to evaluate any circumstances that may require it to restrict and/or attempt to recall the security. In making such a decision, Vanguard considers:
■The subject of the vote and whether, based on Vanguard’s knowledge and experience, Vanguard believes the topic is potentially material to the corporate governance and/or long-term performance of the company;
■The funds’ individual and/or aggregate equity investment in a company, and whether Vanguard estimates that voting funds’ shares would affect the shareholder meeting outcome; and
■The long-term impact to Vanguard fund shareholders, evaluating whether Vanguard believes the benefits of voting a company’s shares would outweigh the benefits of stock lending revenues in a particular instance.
Additionally, Vanguard has processes in place for advisors unaffiliated with Vanguard who have been delegated authority to vote proxies on behalf of certain Vanguard funds to inform Vanguard of an upcoming vote the advisor deems to be material in accordance with such advisor’s proxy voting policies and procedures in order for Vanguard to instruct the recall of the security.
III. Conflicts of Interest
The proxy voting procedures for VPM-Advised Funds require that voting personnel act as fiduciaries and must conduct their activities at all times in accordance with the following standards: (i) fund shareholders’ interests come first; (ii) conflicts of interest must be avoided and mitigated to the extent possible; and (iii) compromising situations must be avoided.
The VPM Investment Stewardship Team maintains separation from VCM and the VCM Investment Stewardship Team and from other groups within Vanguard that are responsible for sales, marketing, client service, and vendor/partner relationships. Proxy voting personnel are required to disclose potential conflicts of interest and must recuse themselves from all voting decisions and engagement activities in such instances. In certain circumstances, the VPM Investment Stewardship Team may refrain from voting shares of a company, or may engage an independent third-party fiduciary to vote proxies.
Each externally managed Vanguard fund has adopted the proxy voting guidelines of its advisor(s) and votes in accordance with the external advisors’ guidelines and procedures. Each advisor has its own procedures for managing conflicts of interest in the best interests of fund shareholders.
Certain Vanguard funds (owner funds) may, from time to time, own shares of other Vanguard funds (underlying funds). If an underlying fund submits a matter to a vote of its shareholders, votes for and against such matters on behalf of the owner funds will be cast in the same proportion as the votes of the other shareholders in the underlying fund.
To obtain a free copy of a report that details how the funds voted the proxies relating to the portfolio securities held by the funds for the prior 12-month period ended June 30, log on to vanguard.com or visit the SEC’s website at sec.gov.
FINANCIAL STATEMENTS
The Fund’s financial statements for the fiscal year ended October 31, 2025, and the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, appearing therein, are incorporated by reference into this Statement of Additional Information. For a more complete discussion of the Fund’s performance, please see the Fund’s annual reports to shareholders, which may be obtained without charge.
APPENDIX A
Fund Proxy Policy – Funds with Proxy Voting Administered by Vanguard Portfolio Management
Introduction
This proxy voting policy (the Policy) describes general positions on proxy proposals that may be subject to a shareholder vote at U.S.-domiciled companies and is aligned with governance practices believed to support long-term shareholder returns. The Policy has been adopted by the boards (or relevant governing bodies) of funds and portfolios managed by certain Vanguard-affiliated entities including U.S.-domiciled mutual funds and ETFs advised by Vanguard Portfolio Management, LLC (VPM), as well as the boards of Vanguard Fiduciary Trust Company and Vanguard Global Advisers, LLC in connection with their management of certain equity index and quantitative equity funds and portfolios (together with the U.S.-domiciled mutual funds and ETFs advised by VPM, the “Funds”). The adoption of this Policy is anchored in the belief that effective corporate governance practices support long-term investment returns.
It is important to note that proposals—whether submitted by company management or other shareholders—often require a facts-and-circumstances analysis based on an expansive set of factors. While the Policy may recommend a particular voting decision, all proposals are voted case by case as determined in the best interests of each Fund consistent with its investment objective. The Policy is applied over an extended period of time; as such, if a company’s board is not responsive to voting results on certain matters, support may be withheld for those and other matters in the future.
As a baseline, the Policy looks for companies to abide by the relevant governance frameworks (e.g., listing standards, governance codes, laws, regulations, etc.) of the market(s) in which they are listed. While the Policy is informed by such frameworks, final voting decisions may differ from the application of those frameworks due to the investment stewardship team’s independent research, analysis, and engagement. In addition, this Policy and its application to specific voting matters are predicated on the relevant Funds’ acquisition and ownership of securities in the ordinary course of business, without the intent of influencing company strategy or changing the control of the issuer. These Funds will not nominate directors, solicit or participate in the solicitation of proxies, or submit shareholder proposals at portfolio companies. The application of this Policy to specific voting matters will also adhere to any passivity requirements to which the Funds and/or The Vanguard Group, Inc. and any of its subsidiaries (collectively, Vanguard) may be subject.
Pillar I: Board Composition and Effectiveness
The Funds believe that in order to maximize the long-term return of shareholders’ investments in each company, the individuals who serve as board directors to represent the interests of all shareholders should be appropriately independent, experienced, committed, capable, and diverse. Diversity of thought, background, and experiences meaningfully contribute to the ability of boards to serve as effective, engaged stewards of shareholders’ interests. The evaluation of portfolio company boards will be informed by relevant market-specific governance frameworks (e.g., listing standards, governance codes, laws, regulations, etc.).
Board and Key Committee Independence1
In order to appropriately represent shareholder interests in the oversight of company management, a majority of directors of a noncontrolled company should be independent, as should all of the members of the board’s key committees (audit, compensation, and nominating/governance or their equivalents).2
1Certain exchange-listing standards and regulatory provisions may apply more limited (or no) independence requirements to the boards of controlled companies (i.e., those in which a majority voting interest is held by company insiders or affiliates). In such cases, the majority of compensation and nominating/governance committee members should be independent; audit committees are expected to be entirely independent regardless of a company’s control status. Committee composition at controlled companies that is inconsistent with these independence expectations may generally result in votes against nonindependent members of the committee in question, as well as the members of the nominating committee.
2 The relevant exchange-listing standards provide an exception to the majority board independence requirement for controlled companies (companies in which more than 50% of the voting securities are controlled by a shareholder or group of affiliated shareholders). Accordingly, this guideline applies only to noncontrolled companies. A noncontrolled company is a company in which 50% or less of the voting power for the election of its directors is held by a single person, entity, or group.
A director’s independence will generally be determined based on a company’s disclosure in the context of relevant market-specific governance frameworks (e.g., listing standards, governance codes, laws, regulations, etc.) supplemented by independent research and/or engagement.
In cases where a noncontrolled company does not maintain a majority independent board, votes against members of the nominating committee and all nonindependent members of that board may be recommended. In cases where a noncontrolled company board is not majority independent over multiple years, votes may be recommended against the entire board. In cases where any of the key committees of a noncontrolled company are not entirely independent, votes may be recommended against (a) the nonindependent members of that committee, and (b) all of the members of the board’s nominating committee. (In the absence of an explicit nominating committee, votes will generally be recommended against those directors responsible for nominating and/or appointing directors; this may include the entire board.)
At controlled companies, support will generally be recommended for a nonindependent director on a compensation committee or a nominating and governance committee, so long as the relevant committee is majority independent.
In both instances, if nominating committee members are not up for election in a given year, votes against any other relevant board member(s) may be recommended.
Independent Board Leadership
The Funds believe that shareholders’ interests are best served by board leadership that is independent of company management. While this may take the form of an independent chair of the board or a lead independent director (with sufficiently robust authority and responsibilities), the Funds generally believe that determining the appropriate independent board leadership structure should be within the purview of the board. Certain shareholder proposals seek to require that companies do not permit the same person to serve as both CEO and chair of the board of directors. Proponents believe that separation of these duties will create a more independent board.
Given the Funds’ belief that this matter should be within the purview of a company’s board, votes will generally be recommended against shareholder proposals to separate the CEO and chair roles. Votes for such proposals may be recommended if there are significant concerns regarding the independence or effectiveness of the board at the company in question.
Board Composition
The Funds believe that boards should be fit for purpose by reflecting sufficient breadth of skills, experiences, and perspectives resulting in cognitive diversity that enables effective, independent oversight on behalf of all shareholders. The appropriate mix of skills, experiences, and perspectives is unique to each board and should reflect expertise related to the company’s strategy and material risks from a variety of vantage points.
To this end, the Funds believe that companies should produce fulsome disclosure of a board’s process for building, assessing, and maintaining an effective board well suited to supporting the company’s strategy, long-term performance, and shareholder returns. Such fulsome disclosure may include the range of skills, background, and experiences that each board member provides and their alignment with the company’s strategy (often presented as a skills matrix). Such disclosure may also cover the board’s process for evaluating the composition and effectiveness of their board on a regular basis, the identification of gaps and opportunities to be addressed through board refreshment and evolution, and a robust nomination (and renomination) process to ensure the right mix of skills, experiences, and perspectives in the future.
A board’s composition should comply with requirements set by relevant market-specific governance frameworks (e.g., listing standards, governance codes, laws, regulations, etc.) and be consistent with market norms in the markets in which the company is listed. To the extent that a board’s composition is inconsistent with such requirements or differs from prevailing market norms, the board’s rationale for such differences (and any anticipated actions) should be explained in the company’s public disclosures.
Votes against the nomination/governance committee chair may be recommended if, based on research and/or engagement, a company’s board composition and/or related disclosure is inconsistent with relevant market-specific governance frameworks or market norms.
Director Capacity and Commitments
Directors’ responsibilities are complex and time-consuming. Therefore, shareholders seek to understand whether the number of directorship positions held by a director makes it challenging for that director to dedicate the requisite time and attention to effectively fulfill their responsibilities at each company (sometimes referred to as being “overboarded”). While no two boards are identical and time commitments for directorships may vary, the Funds believe that limitations on the number of board positions held by individual directors may be appropriate, absent compelling evidence to the contrary.
Votes may generally be recommended against any director who is a public company executive and sits on more than two public company boards. In this instance, votes will typically be recommended against the nominee at each company where they serve as a nonexecutive director, but not at the company where they serve as an executive.
Similarly, votes may also generally be recommended against any director who serves on more than four public company boards. In such cases, votes will typically be recommended against the director at each company except the one (if any) where they serve as board chair or lead independent director.
In certain instances, support will be considered for a director who would otherwise be considered overboarded under the standards above, taking into account relevant market-specific governance frameworks or company-specific facts and circumstances.
The Funds believe that portfolio companies should adopt good governance practices regarding director commitments, including a policy regarding director capacity and commitments and disclosure of the board’s oversight of the implementation of that policy. Helpful disclosure includes a discussion of the company’s policy (e.g., what limits are in place) and, if a nominee for director exceeds the policy, any considerations and rationale for the director’s nomination. Additionally, it is good practice to include disclosure of how the board developed its policy and how frequently it is reviewed to ensure it remains appropriate.
Director Attendance
Votes will generally be recommended against directors who attended less than 75% of board or committee meetings (in the aggregate) in the previous year unless an extenuating circumstance is disclosed, or they have served on the board for less than one year.
Director Accountability
Directors are generally nominated by boards and elected by shareholders to represent their interests. If there are instances in which the board has failed to adequately consider actions approved by a majority of shareholders, unilaterally taken action against shareholder interests, or, based on independent analysis, failed in its oversight role, votes against those directors deemed responsible (generally based on their functional or committee-level responsibilities) may be recommended. Such conditions will generally not apply to a director who has served less than one year on the board and/or applicable committee, but in such instances may apply to another relevant director in their place.
Contested Director Elections
Contested director elections will be analyzed case by case. The analysis of proxy contests focuses on three key areas:
■The case for change at the target company.
■How has the company performed relative to its peers?
■How effectively has the current board overseen the company’s strategy and execution?
■How does the dissident’s case strengthen the target company’s long-term shareholder returns?
■The quality of company governance.
■How effectively has the company’s governance structure supported shareholder rights consistent with market norms?
■Has the board been sufficiently accessible and responsive to shareholder input in the past?
■The quality of the company’s and dissident’s board nominees.
■Is the incumbent board (and/or the company’s nominees) sufficiently independent, capable, and effective to serve long-term shareholder interests?
■Having made a compelling case for change, do the dissident’s nominees appear better aligned with long-term shareholder interests relative to the company’s nominees?
Pillar II: Board Oversight of Strategy and Risk
Boards are responsible for effective oversight and governance of their companies’ most relevant and material risks and for governance of their companies’ long-term strategy. Boards should take a thorough, integrated, thoughtful approach to identifying, quantifying, mitigating, and disclosing risks that have the potential to affect shareholder returns over the long term. Boards should communicate their approach to risk oversight to shareholders through their normal course of business.
Capitalization
■Increase in authorized common stock. Increases in authorized common stock will generally be supported if the proposed increase represents potential dilution less than or equal to 100%. Increases of more than 100% dilution may be supported if the increase is to be used for a stock split.
■Reverse stock split. Reverse splits of outstanding shares will generally be supported if the number of shares authorized is proportionately reduced and the difference in reduction results in dilution equal to or less than 100%. Regardless of the level of dilution, reverse splits will generally be supported if necessary for the company to remain listed on its current exchange.
■Decrease in outstanding shares to reduce costs. Proposals to reduce outstanding shares to reduce costs will generally be supported if the level at which affected investors are cashed out is not material.
■Amendment of authorized common stock/preferred stock. Proposals to create, amend, or issue common or preferred stock will generally be supported unless the rights of the issuance are materially different from the rights of current shareholders (i.e., differential voting rights) or they include a blank-check provision. Proposals to create such stock will generally be opposed if the accompanying disclosure does not include a statement affirming that the new issuance will not be used for anti-takeover purposes.
■Tracking stock. Issuance of tracking stock as a dividend to current shareholders will generally be supported. Proposals to offer tracking stock through an initial public offering will be supported case by case based on the proposed use of the proceeds, as will proposals calling for the elimination of tracking stock.
Mergers, Acquisitions, and Financial Transactions
Transactions are assessed based on the likelihood that they will preserve or create long-term returns for shareholders. All mergers, acquisitions, and financial transactions will be considered case by case based on a governance-centric evaluation focused on four key areas:
■Valuation
■Does the consideration provided in the transaction appear consistent with other similar transactions (adjusting for size, sector, scope, etc.)?
■Rationale
■Has the board sufficiently articulated how this transaction is aligned with the company’s long-term shareholder returns?
■Board oversight of the deal process
■Has the board provided sufficient evidence of the rigor of the evaluation process? This could include disclosures such as an independent valuation report or fairness opinion, a discussion of the board’s process for evaluating alternative opportunities, management incentives, or other relevant disclosures.
■How did the board manage any potential conflicts of interest among the parties to the transaction?
■The surviving entity’s governance profile
■Are shareholders’ interests sufficiently protected in any surviving entities (in noncash transactions)?
Bankruptcy Proceedings
All proposals related to bankruptcy proceedings will be evaluated case by case. When evaluating proposals to restructure or liquidate a firm, factors such as the financial prospects of the firm, alternative options, and management incentives will be considered.
Environmental/Social Proposals
Each proposal will be evaluated on its merits and in the context that a company’s board has responsibility for providing effective oversight of strategy and risk management. This oversight includes material sector- and company-specific risks and opportunities that have the potential to affect long-term shareholder returns.
While each proposal will be assessed on its merits and in the context of a company’s public disclosures, vote analysis will also consider these proposals relative to market norms or widely accepted frameworks.
Support may be recommended for a shareholder proposal that:
■Addresses a shortcoming in the company’s current disclosure relative to market norms or to widely accepted investor-oriented frameworks (e.g., the International Sustainability Standards Board (ISSB));
■Reflects an industry-specific, financial materiality-driven approach; and
■Is not overly prescriptive, such as by dictating company strategy or day-to-day operations, time frame, cost, or other matters.
Each of the Funds adopting this policy is a passive investor whose role is not to dictate company strategy or interfere with a company’s day-to-day management. Fulsome disclosure of material risks to long-term shareholder returns by companies is beneficial to the public markets to inform the company’s valuation. Clear, comparable, consistent, and accurate disclosure enables shareholders to understand the strength of a board’s risk oversight. Furthermore, shareholders typically do not have sufficient information about specific business strategies to propose specific operational targets or environmental or social policies for a company, which is a responsibility that resides with management and the board. As such, support is more likely for proposals seeking disclosure of such risks where material and/or for the company’s policies and practices to manage such risks over time.
Independent Auditors
Ratification of management’s proposed independent auditor. Support will generally be recommended for an independent audit committee’s auditor selection absent material misstatement of financials (or other significant concerns about the integrity of the company’s financial statements) or the payment of excessive fees to the independent auditor beyond audit and audit-related services in prior years. The ratification of independent auditors will be considered case by case when there is a material misstatement of financials or other significant concern about the integrity of the company’s financial statements. Votes against the ratification of auditors may be recommended when tax-related and all other fees exceed the audit and audit-related fees, unless the company’s disclosure makes clear that the non-audit fees are for services that do not impair auditor independence.
Rotations of auditing firms. Proposals mandating independent auditor rotation will be considered case by case.
Requirement for a shareholder vote. Shareholder proposals that require companies to submit ratification of independent auditors to a shareholder vote will generally be supported.
Pillar III: Executive Pay
Compensation policies linked to long-term relative performance are fundamental drivers of sustainable, long-term investment returns for a company’s investors. Providing effective disclosure of compensation policies, their alignment with company performance, and their outcomes is crucial to giving shareholders confidence in the link between executives’ incentives and rewards and the long-term returns for shareholders.
Advisory Votes on Executive Compensation (Say on Pay)
Because norms and expectations vary by industry type, company size, company age, and geographic location, the following guidelines illustrate elements of effective executive compensation plans and are not a one-size-fits-all tool.
Considerations when evaluating executive pay fall into three broad categories:
■Alignment of pay and performance. Company disclosure should include evidence of clear alignment between pay outcomes and company performance. This is mainly assessed through alignment of incentive targets with strategy set by the company and analysis of three-year total shareholder return and realized pay over the same period versus a relevant set of peer companies. If there are concerns that pay and performance are not aligned, votes against a pay-related proposal may be considered.
■Compensation plan structure. Plan structures should be aligned with the company’s stated long- term strategy and should support pay-for-performance alignment. Where a plan includes structural issues that have led to, or could in the future lead to, pay-for-performance misalignment, votes against a pay-related proposal may be considered. For compensation structures that are not typical of a market, companies should consider specific disclosure demonstrating how the structure supports long-term returns for shareholders.
■Governance of compensation plans. Boards should articulate a clear philosophy on executive pay, utilize robust processes to evaluate and evolve executive pay plans, and implement executive pay plans responsive to shareholder feedback over time. Boards should also explain these matters to shareholders via company disclosures. Where pay-related proposals consistently receive low support, boards should demonstrate consideration of shareholder concerns.
Executive compensation proposals (including Say on Pay, compensation reports, and compensation policies) will be evaluated case by case. Support is more likely for proposals and plans aligned with long-term shareholder returns. Those that reflect improvements in compensation practices in the interests of long-term shareholder returns may be supported, even if the proposals are not perfectly aligned with all these guidelines.
Without being prescriptive as to the exact structure of a compensation plan, structures and processes that can reasonably be expected to align pay and performance over time are more likely to be supported. Such structures may include a meaningful portion of equity vesting on performance criteria, strategically aligned performance metrics set to rigorous goals, and clear disclosure of the program and outcomes enabling shareholders to understand the connection to long-term shareholder returns, among other factors. When compensation committees choose to include nonfinancial metrics (such as environmental, social, and governance (ESG) metrics), they should have the same rigor, disclosure, and alignment with key strategic goals, material risks, and shareholder returns as other metrics.
The following situations are among those that raise a higher level of concern related to a compensation plan:
■Pay outcomes are significantly higher than those of peers but total shareholder return is well below that of peers.
■The long-term plan makes up less than 50% of total pay.
■The long-term plan has a performance period of less than three years.
■Plan targets are reset or retested or are not rigorous.
■The target for total pay is set above the peer-group median.
The following situations are among those that raise warning signs, or a moderate level of concern:
■The company’s disclosed peer group used to benchmark pay is not comparably aligned with the company in size or sector.
■The plan uses absolute metrics only.
■The plan allows for positive discretion only.
■The company uses one-time (e.g., retention) awards.
■The disclosure related to plan structure or payout is limited.
Where these warning signs exist, elements of strong compensation governance, such as board responsiveness and disclosure that includes data, rationale, and alternatives considered, can sometimes serve to mitigate these concerns.
Say on Pay Frequency
Votes will generally be recommended for annual Say on Pay frequency (as opposed to a vote every two or three years).
Additional Executive Pay Matters
Severance packages/golden parachutes. Proposals to approve severance packages (or “golden parachutes”) will generally be supported unless they are excessive or unreasonable (i.e., cash severance payments that total more than
2.99times salary plus targeted bonus and/or have single trigger cash or equity payments). New or renewed severance agreements that provide excessive or unreasonable severance should be submitted to shareholders for approval. If a company’s current severance arrangements are deemed excessive or unreasonable, shareholder proposals requiring that future golden parachutes be put to a vote, provided that ratification after the fact is permitted, may be supported.
Proposals to approve Say on Severance will generally be supported unless they are excessive or unreasonable.
Shareholder proposals on pay for superior performance. Shareholder proposals that call for companies to set standards that require pay for superior performance will generally not be supported, particularly when the proposal calls for specific performance standards.
Adopting, Amending, and/or Adding Shares to Equity Compensation Plans
Appropriately designed stock-based compensation plans, administered by an independent board committee and approved by shareholders, can be an effective way to align the interests of management, employees, and directors with long-term shareholder returns.
Compensation plan proposals will be considered case by case. A plan or proposal will be evaluated in the context of several factors to determine whether it balances the interests of employees and the company’s other shareholders.
These factors include the industry in which a company operates, market capitalization, and competitors for talent. Support is more likely for a proposal in circumstances that include the following:
■Senior executives must hold a minimum amount of company stock (frequently expressed as a multiple of salary).
■Stock acquired through equity awards must be held for a certain period.
■The program includes performance-vesting awards, indexed options, or other performance-linked grants.
■Concentration of equity grants to senior executives is limited.
■Stock-based compensation is clearly used as a substitute for cash in delivering market-competitive total pay.
Votes against a proposal are more likely in circumstances that include the following:
■Total potential dilution (including all stock-based plans) exceeds 20% of shares outstanding.
■Annual equity grants have exceeded 4% of shares outstanding.
■The plan permits repricing or replacement of options without shareholder approval.
■The plan provides for the issuance of reload options.
■The plan contains an automatic share replenishment (“evergreen”) feature.
Additional Employee Compensation Matters
Repricing or replacing underwater options. Support is more likely for proposals to reprice or exchange stock options that meet the following three considerations:
■Value neutrality. An exchange/repricing proposal should be value-neutral.
■Exclusion of executive and director participation. Executives and directors should not participate in an exchange or repricing. If they do, the board should clearly state why the program is necessary to retain and provide incentives to executives and directors for the benefit of long-term shareholder returns.
■Additional vesting requirements. New shares granted in an exchange should vest no earlier than the vesting date of the shares for which they were exchanged, and preferably later.
Granting stock options. Management proposals to grant one-time stock options may be opposed if dilution limits are exceeded. Other proposals will be evaluated case by case.
Adopting deferred compensation plan. Proposals to adopt a deferred compensation plan will generally be supported unless the plan includes discounts.
Adopting or adding shares to an employee stock purchase plan. Proposals to adopt or add shares to employee stock purchase plans will generally be supported unless they allow employees to purchase shares at a price less than 85% of fair market value.
Amending a 401(k) plan to allow excess benefits. Proposals to amend a 401(k) plan to allow for excess benefits will generally be supported.
Nonemployee Director Compensation
Proposals to adopt or amend nonexecutive director equity compensation plans, including stock award plans, will be evaluated case by case. Considerations include potential dilution, the size of the plan relative to employee equity compensation plans, annual grants made to nonemployee directors, and total director compensation relative to market norms.
Nonemployee director equity compensation plans that allow for repricing, those that contain an evergreen feature (automatic renewal), and nonemployee director pensions will generally be opposed.
All other proposals for nonemployee director compensation will be considered case by case.
Pillar IV: Shareholder Rights
The Funds believe that companies should adopt governance practices to ensure that boards and management serve in the best interests of the shareholders they represent. Such governance practices safeguard and support foundational rights for shareholders. Proposals on many of the following matters may be submitted by either company management or shareholders; proposals—irrespective of the proponent—that seek approval for governance structures that safeguard shareholder rights will generally be supported (and those that do not will generally be opposed) as described below.
Board Structure and Director Elections
The Funds believe that each company’s board is generally best positioned to fill director vacancies (subject to shareholder ratification at the next annual meeting) and to set the board’s size, tenure, and other structural provisions, so long as any such provision does not serve as an anti-takeover measure.
Classified (“staggered”) boards. Votes will generally be recommended for proposals to declassify a current board and against proposals to create a classified board.
Cumulative voting. Votes will generally be recommended for management proposals to eliminate cumulative voting and against management or shareholder proposals to adopt cumulative voting.
Majority voting. If the company has plurality voting, votes will generally be recommended for shareholder proposals that require a majority vote for election of directors. Votes will also generally be recommended for management proposals to implement majority voting for election of directors. Votes may be recommended against shareholder proposals that require a majority vote for election of directors if the company has a director resignation policy under which a nominee who fails to get a majority of votes is required to resign.
Approval to fill board vacancies without shareholder approval. Votes will generally be recommended for management proposals to allow the directors to fill vacancies on the board if the company requires a majority vote for the election of directors and the board is not classified. Votes will generally be recommended against management proposals to allow directors to fill vacancies on a classified board.
Board authority to set board size. Votes will generally be recommended for management proposals to set the board at a specific size or designate a reasonable range to provide flexibility. However, the anti-takeover effects of such proposals will be considered, particularly in the context of a hostile takeover offer or board contest. Votes will generally be recommended against management proposals to give the board the authority to set the size of the board without shareholder approval at a future time.
Term limits for outside directors. Votes will generally be recommended for management proposals to limit terms of outside directors and against shareholder proposals to limit such terms.
Shareholder Access
Management and shareholder proposals to adopt proxy access will be considered case by case. Generally, votes will be recommended for proposals permitting a shareholder or a group of shareholders (which should not be limited to fewer than 20) representing ownership and holdings thresholds of at least 3% of a company’s outstanding shares for three years to nominate up to 20% of the seats on the board. Any cap on the number of shareholders that can aggregate to satisfy the 3% outstanding share threshold should not be lower than 20.
Shareholder proposals that have differing thresholds will be considered if the company has not adopted any proxy access provision and does not intend to do so.
Additional Share Classes
The Funds believe that the alignment of voting and economic interests is a foundation of good governance. As such, companies issuing, or proposing to issue, more than one class of stock with different classes carrying different voting rights should bear in mind many investors’ “one-share, one-vote” philosophy, while not hindering public capital formation in the equity markets. Furthermore, a newly public, dual-class company should consider adopting a sunset provision that would move the company toward a one-share, one-vote structure over time.
Proposals relating to the introduction of additional share classes with differential voting rights and proposals relating to the elimination of dual-class share structures with differential voting rights will be evaluated case by case.
Defensive Structures
All situations involving defensive structures are reviewed holistically and on a case-by-case basis as facts and circumstances vary widely across issuers and over time.
Shareholder rights plans/poison pills. Votes will generally be recommended against the adoption of poison pill proposals and for shareholder proposals to rescind poison pills, unless company-specific circumstances require that the board and management be provided reasonable time and protection in order to guide the company’s strategy without excessive short-term distractions. This analysis would typically require engagements with both the company and the acquirer/activist to understand the proposal.
■Structures and practices that are short-term in nature (typically terms of one year or less) will generally be supported.
■Shareholder ratification of such plans at the next practicable annual meeting and at each subsequent annual meeting while the plan is in place are preferred. In cases where this is not the practice, a shareholder proposal to adopt such practice may be supported.
■Votes will generally be recommended for net operating loss (NOL) poison pills and proposals to amend securities transfer restrictions that are intended to preserve net operating losses that would be lost as a result of a change in control, as long as the NOLs exist, and the provision sets forth a five-year sunset provision.
Consideration of other stakeholder interests. Management proposals to expand or clarify the authority of the board of directors to consider factors outside the interests of shareholders will be evaluated case by case.
Other anti-takeover provisions. In general, votes will be recommended for proposals to create anti-greenmail provisions and eliminate fair price provisions. Votes may be recommended for shareholder proposals to opt out of anti-takeover provisions in state corporation laws where that is allowed.
Voting Requirements
Absent regulatory requirements, the Funds believe that material matters subject to shareholder approval should require support from no more than a majority of the company’s shares outstanding. As such, votes will generally be recommended against proposals to adopt supermajority vote requirements and for proposals to reduce or eliminate such requirements.
Special Meetings and Written Consent
If a company does not provide shareholders the right to call a special meeting, votes will generally be recommended for management proposals to establish that right. Votes will also generally be recommended for shareholder proposals to establish this right, as long as the ownership threshold for shareholders to have the right to call a special meeting is not below 10% of current shares outstanding.
B-61
If a company already provides shareholders the right to call a special meeting at a threshold of 25% or lower, votes will generally be recommended:
■Against management proposals to increase the ownership threshold above 25%.
■Against shareholder proposals to lower the ownership threshold below the current threshold.
Management proposals to establish the right to act by majority written consent will generally be supported, as will shareholder proposals to adopt this right if shareholders do not have the right to call a special meeting.
Advance Notice of Shareholder Proposals
Votes will generally be recommended for management proposals to adopt advance notice requirements if the provision provides for notice of a minimum of 30 days and a maximum of 120 days before the meeting date and a submission window of at least 30 days prior to the deadline, and reasonable disclosure and ownership requirements that are not overly restrictive or burdensome for shareholders.
Bylaws Amendment Procedures
Votes will generally be recommended against management proposals that give the board the exclusive authority to amend the bylaws.
Change of Company Name
Votes will generally be recommended for proposals to change the company name unless evidence shows that the change would hurt shareholder returns.
Reincorporation
Management proposals to reincorporate to another domicile will be evaluated case by case based on the relative costs and benefits to both the company and shareholders. Considerations include the reasons for the relocation and the differences in regulation, governance, shareholder rights, and potential benefits.
Votes will generally be recommended against shareholder proposals to reincorporate from one domicile to another.
Exclusive Forum/Exclusive Jurisdiction
Management proposals to adopt an exclusive forum provision will be evaluated case by case. Considerations include the reasons for the proposal, regulations, governance, and shareholder rights available in the applicable jurisdiction, and the breadth of the application of the bylaw.
Companies will generally be given latitude on organizational matters and proposals to designate state courts in a company’s state of incorporation or principal place of business will generally be supported. Any such choice of a state or federal court should generally be broad-based, rather than limited to a specific court within a state.
Shareholder Meeting Rules and Procedures
Quorum requirements. Votes will generally be recommended against proposals that would decrease quorum requirements for shareholder meetings below a majority of the shares outstanding unless there are compelling arguments to support such a decrease.
Other such matters that may come before the meeting. Votes will generally be recommended against proposals to approve other such matters that may come before the meeting.
Adjournment of a meeting to solicit more votes. In general, votes will be recommended for proposals to adjourn the meeting if the proposals in question are being supported and against such proposals if they are being opposed.
Bundled proposals. Bundled management proposals will be evaluated case by case.
Change in date, time, or location of annual general meeting. Votes will generally be recommended for management proposals to change the date, time, or location of the annual meeting if the proposed changes are reasonable.
Hybrid/virtual meetings. Votes will generally be recommended for proposals seeking permission to conduct “hybrid” meetings (in which shareholders can attend a meeting of the company in person or elect to participate online). Proposals to conduct “virtual-only” meetings (held entirely through online participation with no corresponding in-person meeting) may be supported. Virtual meetings should be designed by a company so as not to curtail shareholder rights—e.g., by limiting the ability for shareholders to ask questions.
APPENDIX B
ArrowMark Partners Proxy and Corporate Action Voting
Issue
Rule 206(4)-6 under the Advisers Act requires every investment adviser who exercises voting authority with respect to client securities to adopt and implement written policies and procedures, reasonably designed to ensure that the adviser votes proxies and corporate actions in the best interest of its clients. The procedures must address material conflicts that may arise in connection with proxy voting and corporate actions. The Rule further requires the adviser to provide a concise summary of the adviser’s proxy voting and corporate actions processes and offer to provide copies of the complete proxy and corporate action voting policy and procedures to clients upon request. Lastly, the Rule requires that the adviser disclose to clients how they may obtain information on how the adviser voted their proxies and corporate actions.
ArrowMark votes proxies for certain Clients, and therefore has adopted and implemented this Proxy Voting Policy and Procedures.
Risks
In developing this policy and procedures, ArrowMark considered numerous risks associated with its voting of Client proxies. This analysis includes risks such as:
■ArrowMark does not maintain a written proxy and corporate action voting policy as required by Rule 206(4)-6.
■Proxies and corporate actions are not voted in Clients’ best interests.
■Proxies and corporate actions are not identified and voted in a timely manner.
■Conflicts between ArrowMark’s interests and the Client are not identified; therefore, proxies and corporate actions are not voted appropriately.
■Third-party proxy voting services do not vote proxies according to ArrowMark’s instructions and in Clients’ best interests.
■Proxy voting and corporate action records and Client requests to review proxy votes and corporate actions are not maintained.
■Shares that are out on loan are not called back in a timely manner in order for votes on those shares to be cast.
ArrowMark has established the following guidelines to effectuate and monitor its proxy voting policy and procedures.
Proxy Voting Policy
It is the policy of ArrowMark to vote proxies in the best interest of its Clients. Proxies are an asset of a Client, which should be treated with the same care, diligence, and loyalty as any asset belonging to a Client. To that end, ArrowMark will vote in a way that it believes, consistent with its fiduciary duty, will cause the value of the issue to increase the most or decline the least. Consideration will be given to both the short and long term implications of the proposal to be voted on when considering the optimal vote.
ArrowMark may abstain from voting if it deems that abstaining is in its Clients’ best interests. For example, ArrowMark may be unable to vote securities that have been lent by the custodian. Also, proxy voting in certain countries involves “share blocking,” which limits ArrowMark’s ability to sell the affected security during a blocking period that can last for several weeks. ArrowMark believes that the potential consequences of being unable to sell a security usually outweigh the benefits of participating in a proxy vote, so ArrowMark generally abstains from voting when share blocking is required.
To assist ArrowMark in executing its voting responsibilities, we’ve engaged a third party proxy voting specialist, Glass Lewis & Co., LLC (“Glass Lewis” or the “Proxy Manager”). The services provided by Glass Lewis include in-depth research and voting recommendations intended to create shareholder value.
ArrowMark has reviewed the Proxy Manager’s Guidelines, and has determined that such Guidelines are consistent with its fiduciary responsibilities with respect to its Clients. ArrowMark will review any material amendments to such Guidelines.
Any general or specific proxy voting guidelines provided by an advisory Client or its designated agent in writing will supersede this policy.
Procedures for Identification and Voting of Proxies
The Proxy Manager is responsible for ensuring that all proxies received are voted in a timely manner and voted consistently across all portfolios. Although many proxy proposals can be voted in accordance with the Proxy Manager’s established guidelines (the “Guidelines”), ArrowMark retains the right to vote any proposal in a manner differing from the Guidelines. Such deviations from the Guidelines must be approved by the CCO with a written explanation of the rationale for the deviation. ArrowMark, in conjunction with the custodian, is responsible for ensuring that all corporate actions received are addressed in a timely manner and consistent action is taken across all portfolios.
ArrowMark’s authority to vote proxies or act with respect to other corporate actions is established through the delegation of discretionary authority under its investment advisory agreements. Therefore, unless a Client specifically reserves the right, in writing, to vote its own proxies or to take shareholder action with respect to other corporate actions requiring shareholder actions, ArrowMark will vote all proxies and act on all other actions in a timely manner as part of its full discretionary authority over Clients in accordance with established policies and procedures.
Procedures for Glass Lewis Reconciliation
ArrowMark provides Glass Lewis with a daily holdings file representing all accounts in which ArrowMark has proxy voting authority. ArrowMark’s account master file is reconciled with Glass Lewis’ account master file at least quarterly.
The daily reconciliation process performed by Glass Lewis is as follows:
1.ArrowMark’s holdings files from Northern Trust are automatically uploaded daily into the Glass Lewis’ ViewPoint system (“ViewPoint”).
2.If ViewPoint doesn’t recognize security IDs contained in the holdings files, the rejected holdings are sent to Glass Lewis’ securities processing group to be investigated. If there are other errors in the holdings file, the securities processing group will alert the client service manager who will contact ArrowMark.
3.New Meeting Notices and Agendas are automatically uploaded into the ViewPoint system. Each meeting contains one or more security identifiers associated with it.
4.The ViewPoint reconciliation engine determines if there are matches between holdings and meetings for which Glass Lewis has not received ballots. These matches are displayed on the Ballot Reconciliation workbench for ViewPoint client service managers and audit team members.
5.The reconciliation tool can be used for the creation of ballots based on holdings information and the meeting and agenda information. This is a service Glass Lewis offers to clients with accounts that are not contracted with a proxy distribution service, such as Broadridge (“BFS”) or GPD, for the delivery of ballots electronically. The ballots created by Glass Lewis are transmitted directly via email or fax to the custodians once investors’ vote execution instructions are carried out.
6.If reconciliation records are generated for positions in U.S. companies and/or positions in global companies held in accounts custodied at banks that do contract with a proxy distribution service for the delivery of proxy materials, Glass Lewis will consider these records as “missing ballots” if a ballot has not been received by 10 business days prior to meeting date.
7.Multiple times a week Glass Lewis sends an automated reconciliation file to BFS with all of our clients’ “open records.” 24 hours later BFS provides us with a response file containing control numbers or further account setup and/or reconciliation instructions. Control numbers are uploaded immediately into VP by the Ballot Reconciliation team. All remaining open records are researched by individual client service managers (i.e., ballot reconciliation and account setup requests/inquiries are sent by email to the custodian).
8.Once a ballot is created, the corresponding reconciliation record is automatically closed. A record can be closed manually if no ballot is created when the investigation of the issue determines that no ballot will be delivered.
Proxy Review Procedures
On a monthly basis, Glass Lewis provides ArrowMark with two reports: the Proxy Voting Report (“PVR”) and Analyze Voting Activity Report (“AVA”). The CCO or designee will review these reports monthly.
A PVR provides a snapshot of each meeting voted in a given time period and includes but isn’t limited to the following:
■Agenda Items
■Management Recommendations
■Glass Lewis Recommendations
■ArrowMark’s Policy Recommendations
■Vote Cast
The AVA can be used to get a broad look at ballot data or can be narrowed down very specifically to only include certain data points. These include:
■Meeting Types
■Vote Decisions (with or against management/policy/Glass Lewis)
■Country of Issue
■Specific Meeting Issues
■Proposal Categories
Both the PVR and AVA are able to show the vote recommendations generated by ArrowMark’s Policy, as well as the final vote decision.
Conflicts of Interest
ArrowMark is responsible for monitoring situations where the voting of proxies may present actual or perceived conflicts of interest between itself and Clients.
The following is a non-exhaustive list of potential conflicts of interests that could influence the proxy voting process:
■Conflict: ArrowMark retains an institutional Client, or is in the process of retaining an institutional Client that is affiliated with an issuer that is held in ArrowMark’s Client portfolios. For example, ArrowMark may be retained to manage Company A’s pension fund. Company A is a public company and ArrowMark Client accounts hold shares of Company A. This type of relationship may influence ArrowMark to vote with management on proxies to gain favor with management. Such favor may influence Company A’s decision to continue its advisory relationship with ArrowMark.
■Conflict: ArrowMark retains a Client, or is in the process of retaining a Client that is an officer or director of an issuer that is held in ArrowMark’s Client portfolios. The similar conflicts of interest exist in this relationship as discussed above.
■Conflict: ArrowMark’s Employees maintain a personal and/or business relationship (not an advisory relationship) with issuers or individuals that serve as officers or directors of issuers. For example, the spouse of an Employee may be a high-level executive of an issuer that is held in ArrowMark’s Client portfolios. The spouse could attempt to influence ArrowMark to vote in favor of management.
■Conflict: ArrowMark or an Employee(s) personally owns a significant number of an issuer’s securities that are also held in ArrowMark’s Client portfolios. For any number of reasons, an Employee(s) may seek to vote proxies in a different direction for his/her personal holdings than would otherwise be warranted by the proxy voting policy. The Employee(s) could oppose voting the proxies according to the policy and successfully influence ArrowMark to vote proxies in contradiction to the policy.
Where a proxy proposal raises a material conflict of interest between ArrowMark’s interests and that of one or more its Clients, including a mutual fund client, the Glass Lewis recommendations will be followed.
Glass Lewis Oversight
In addition to oversight elements included in the Review of Third-Party Service Providers Section, ArrowMark will routinely review Glass Lewis’ Conflict of Interest disclosures including their Conflict of Interest Disclosure list and Conflict Avoidance Procedures. See website for conflict information (http://www.glasslewis.com/about-glass-lewis/ disclosure-of-conflict/).
Policy for ArrowMark’s Handling of Corporate Actions
It is the policy of ArrowMark to handle corporate actions in the best interest of its Clients. Corporate actions are integral in maintaining value of an asset of a Client, and should . To that end, ArrowMark will handle corporate actions in a way that it believes, consistent with its fiduciary duty, will cause the value of the asset to increase the most or decline the least. Consideration will be given to both the short and long term implications of the action.
To assist ArrowMark in executing its responsibilities, we’ve engaged our third-party middle office service provider, Northern Trust (“Northern Trust” or the “Middle Office Provider”). The services provided by Northern Trust include acting as an intermediary between ArrowMark and its custodians and prime brokers to facilitate elections for voluntary corporate actions in the market. This service will manage events where there is a market announcement and is offered through the custodians and prime brokers.
ArrowMark has reviewed the Northern Trust Guidelines and processes and has determined that such Guidelines are consistent with its fiduciary responsibilities with respect to its Clients. ArrowMark will review any material amendments to such Guidelines.
Any general or guidelines provided by an advisory Client or its designated agent in writing will supersede this policy.
Procedures for Identification and Voting of Proxies
ArrowMark is responsible for ensuring that all corporate actions are handled in a timely manner and with consistency across all portfolios. ArrowMark utilizes the Northern Trust event manager to access and elect on all corporate actions across client portfolios.
Utilizing Northern Trust, ArrowMark has a centralized view of all custodial/prime broker accounts to man- age the lifecycle of events ranging from notifications, inputting decisions and monitoring payments. The service allows ArrowMark to log into a web based portal accessible by both ArrowMark and the Northern Trust middle office processing teams. The service allows the ArrowMark to view upcoming corporate action and optional dividend events in a calendar or an event queue format, get notified of corporate action event related alerts, enter event responses, track workflow statuses and receive event allocation information.
Procedures for ArrowMark’s Receipt of Class Actions
ArrowMark recognizes that as a fiduciary it has a duty to act with the highest obligation of good faith, loyalty, fair dealing and due care. When a recovery is achieved in a class action, investors who owned shares in the company subject to the action have the option to either: (1) opt out of the class action and pursue their own remedy; or (2) participate in the recovery achieved via the class action. Collecting the recovery involves the completion of a Proof of Claim form which is submitted to the Claims Administrator. After the Claims Administrator receives all Proof of Claims, it dispenses the money from the settlement fund to those persons and entities with valid claims.
ArrowMark has engaged an independent class action service, Battea, to handle all class action proceedings.
Recordkeeping
In accordance with Rule 204-2 under the Advisers Act, ArrowMark will maintain for the time periods set forth in the Rule
(i)These proxy voting procedures and policies, and all amendments thereto;
(ii)All proxy statements received regarding Client securities (provided however, that the we may rely on the proxy statement filed on EDGAR as its records);
(iii)A record of all votes cast on behalf of Clients;
(iv)Records of all Client requests and subsequent responses regarding proxy voting information;
(v)Any documents prepared by ArrowMark that were material to making a decision how to vote or that memorialized the basis for the decision; and
(vi)All records relating to requests made to Clients regarding conflicts of interest in voting the proxy.
Such records will be maintained in a readily accessible manner for a period of at least seven years. Proxy statements on file with EDGAR or maintained by the Proxy Manager are not subject to these retention requirements.
Disclosure
ArrowMark will ensure that Part 2 of Form ADV and/or the Fund documents are updated as necessary to reflect: (i) all material changes to the Proxy Voting Policy and Procedures; and (ii) information about how Clients may obtain information on how ArrowMark voted their securities.
ArrowMark will enter into arrangements with all mutual fund clients to provide any information required to be filed by such mutual fund on Form N-PX 60 days after June 30 of each year, and will provide information as requested by the client mutual funds’ board of directors.
Proxy Solicitation
As a matter of practice, it is ArrowMark’s policy to not reveal or disclose to any Client how ArrowMark may have voted (or intends to vote) on a particular proxy until after such proxies have been counted at a shareholder’s meeting. ArrowMark will never disclose such information to unrelated third parties.
The CCO are to be promptly informed of the receipt of any solicitation from any person to vote proxies on behalf of Clients. At no time may any Employee accept any remuneration in the solicitation of proxies. The CCO should handle all responses to such solicitations.
ClearBridge Investments, LLC Proxy Voting Policies and Procedures
ClearBridge is subject to the Proxy Voting Policies and Procedures that it has adopted to seek to ensure that it votes proxies relating to equity securities in the best interest of client accounts. The following is a brief overview of the policies.
ClearBridge votes proxies for each client account with respect to which it has been authorized or is required by law to vote proxies. In voting proxies, ClearBridge is guided by general fiduciary principles and seeks to act prudently and solely in the best interest of the beneficial owners of the accounts it manages. ClearBridge attempts to consider all factors that could affect the value of the investment and will vote proxies in the manner that it believes will be consistent with efforts to maximize shareholder values. ClearBridge may utilize an external service provider to provide it with information and/or a recommendation with regard to proxy votes. However, such recommendations do not relieve ClearBridge of its responsibility for the proxy vote.
In the case of a proxy issue for which there is a stated position in the policies, ClearBridge generally votes in accordance with such stated position. In the case of a proxy issue for which there is a list of factors set forth in the policies that ClearBridge considers in voting on such issue, ClearBridge considers those factors and votes on a case-by-case basis in accordance with the general principles set forth above. In the case of a proxy issue for which there is no stated position or list of factors that ClearBridge considers in voting on such issue, ClearBridge votes on a case-by-case basis in accordance with the general principles set forth above. Issues for which there is a stated position set forth in the policies or for which there is a list of factors set forth in the policies that ClearBridge considers in voting on such issues fall into a variety of categories, including election of directors, ratification of auditors, proxy and tender offer defenses, capital structure issues, executive and director compensation, mergers and corporate restructuring, and social and environmental issues. The stated position on an issue set forth in the policies can always be superseded, subject to the duty to act solely in the best interest of the beneficial owners of accounts, by the investment management professionals responsible for the account whose shares are being voted. There may be occasions when different investment teams vote differently on the same issue. In addition, in the case of Taft-Hartley clients, ClearBridge will comply with a client direction to vote proxies in accordance with Institutional Shareholder Services’ (ISS) PVS Voting guidelines, which ISS represents to be fully consistent with AFL-CIO guidelines.
In furtherance of ClearBridge’s goal to vote proxies in the best interest of clients, ClearBridge follows procedures designed to identify and address material conflicts that may arise between ClearBridge’s interests and those of its clients before voting proxies on behalf of such clients. To seek to identify conflicts of interest, ClearBridge periodically
notifies ClearBridge employees in writing that they are under an obligation (i) to be aware of the potential for conflicts of interest on the part of ClearBridge with respect to voting proxies on behalf of client accounts both as a result of their personal relationships or ClearBridge’s business relationships and (ii) to bring conflicts of interest of which they become aware to the attention of ClearBridge’s General Counsel/Chief Compliance Officer. ClearBridge also maintains and considers a list of significant ClearBridge relationships that could present a conflict of interest for ClearBridge in voting proxies.
ClearBridge generally takes the position that non-ClearBridge relationships between a Franklin Resources, Inc. (“Franklin”) affiliate and an issuer do not present a conflict of interest for ClearBridge in voting proxies with respect to such issuer. Such position is based on the fact that ClearBridge is operated as an independent business unit from other Franklin business units as well as on the existence of information barriers between ClearBridge and other Franklin business units.
ClearBridge’s Proxy Committee reviews and addresses conflicts of interest. A proxy issue that will be voted in accordance with a stated ClearBridge position on such issue or in accordance with the recommendation of an independent third party is not brought to the attention of the Proxy Committee for a conflict of interest review because ClearBridge’s position is that to the extent a conflict of interest issue exists, it is resolved by voting in accordance with a pre-determined policy or in accordance with the recommendation of an independent third party. With respect to a conflict of interest brought to its attention, the Proxy Committee first determines whether such conflict of interest is material. A conflict of interest is considered material to the extent that it is determined that such conflict is likely to influence, or appear to influence, ClearBridge’s decision-making in voting proxies. If it is determined by the Proxy Committee that a conflict of interest is not material, ClearBridge may vote proxies notwithstanding the existence of the conflict.
If it is determined by the Proxy Committee that a conflict of interest is material, the Proxy Committee is responsible for determining an appropriate method to resolve such conflict of interest before the proxy affected by the conflict of interest is voted. Such determination is based on the particular facts and circumstances, including the importance of the proxy issue and the nature of the conflict of interest.
Stephens Investment Management Group, LLC Proxy Voting Policies and Procedures
Stephens Investment Management Group, LLC (“SIMG”) has adopted the policies and procedures set out below regarding the voting of proxies on securities held in client accounts advised by SIMG (the “Policy”). This Policy is designed by SIMG to comply with its legal, fiduciary and contractual obligations in situations where SIMG has undertaken and agreed to vote client proxies. SIMG is a fiduciary and owes each of its clients a duty of care and loyalty with respect to the services it has undertaken on the client’s behalf, including the voting of proxies. It is the policy of SIMG to vote all proxies on securities held in client investment advisory accounts over which the client has given SIMG voting authority (the “Proxies”) in the best interests of its clients.
RESPONSIBILITY
SIMG’s Board of Managers has responsibility for determining SIMG’s Proxy Voting Policies and Procedures, exceptions to the procedures and the framework for how SIMG will vote Proxies in accordance with these procedures. SIMG’s Proxy Committee consists of the Chief Investment Officer, the Chief Compliance Officer, the Senior Portfolio Manager, Chief Operating Officer, and the Operations Administrator who collectively have a broad and diverse range of experience in the financial services industry.
The responsibility for monitoring the Policy and the practices, disclosures and recordkeeping relating to SIMG’s Proxy voting will be coordinated through SIMG’s compliance department. Regular reports of proxy votes will be provided to SIMG’s Board of Managers. SIMG’s Board of Managers shall review proxy voting on an ongoing basis at the Quarterly Board of Manager meetings.
PROCEDURES
SIMG has established procedures related to Proxy voting to implement the Policy set forth herein. The Policy and procedures may be amended or updated from time to time as appropriate.
Determining Responsibility to Vote Proxies. At the opening of each investment advisory client relationship, proxy voting responsibility, including any applicable regulatory requirements, will be determined, and any client proxy policies and/or guidelines regarding proxy voting will be ascertained. SIMG’s investment management agreements typically specify that SIMG will assume proxy voting authority, unless a client retains such authority.
Retaining Services of A Third Party Proxy Advisory Firm. SIMG’s Proxy Committee has determined that SIMG will utilize the services of a third party proxy advisory firm. In selecting a proxy advisory firm, SIMG will assess whether or not the proxy advisory firm has the necessary capacity and competence to adequately analyze proxy issues. In making this determination, SIMG will consider among other things the adequacy and quality of the proxy advisory firm’s staffing and personnel and the robustness of the proxy advisory firm’s policies and procedures regarding its ability to (i) ensure that its proxy voting recommendations are based on current and accurate information and (ii) identify and address any conflicts of interest and other considerations believed by SIMG to be appropriate considering the nature and quality of the services to be provided to SIMG.
Voting and Voting Guidelines. SIMG has selected Institutional Shareholder Services Inc. (“ISS”), an independent proxy-advisory firm, to provide research, recommendations and other proxy voting services for client Proxies. Absent a determination by SIMG’s Proxy Committee to override ISS’s guidelines and/or recommendations, SIMG will vote all client Proxies in accordance with ISS guidelines and recommendations. SIMG has also retained ISS for its voting agent service to administer its Proxy voting operation. As such, ISS is responsible for submitting all Proxies in a timely manner and for maintaining appropriate records of Proxy votes. SIMG may choose to hire other service providers or replace or supplement any of the services SIMG currently receives from ISS.
ISS maintains Proxy Voting Guidelines and Policies (the “Guidelines”) that address a wide variety of individual topics, including, among others, shareholder voting rights, anti-takeover defenses, board structures, the election of directors, executive compensation, reorganizations, mergers and various shareholder proposals. These Guidelines may be amended by ISS from time to time.
Overrides. While it is generally SIMG’s policy to follow the most current version of the Guidelines and recommendations from ISS, SIMG retains the authority to adopt guidelines from time to time that differ from the Guidelines. In addition, SIMG retains the authority on any particular Proxy vote to vote differently from the Guidelines or a related ISS recommendation. Such authority may be exercised only by the Proxy Committee. With respect to changing any voting guidelines from the ISS Guidelines, the Proxy Committee will consider the reasons for changing the guidelines and will create and maintain a written record reflecting its reasons for adopting the changed guidelines.
Copies of upcoming proxy votes will be circulated to the Proxy Committee along with ISS’s recommendation for each proxy vote. Each Proxy Committee member will review the upcoming votes, and if any member of the Proxy Committee wishes to override ISS’s voting recommendation, a meeting of the Proxy Committee shall be convened to discuss whether to override ISS’s recommendation. The Proxy Committee shall:
(i)consider the reasons for voting in a manner different from the ISS recommendation;
(ii)consider whether there is a material conflict of interest between SIMG and its advisory clients or between the third party proxy advisory firm and any person that would make it inappropriate for the Proxy Committee to vote in a manner different from the ISS recommendations;
(iii)exercise its judgment to vote the Proxy in the best interests of SIMG’s investment advisory clients; and
(iv)create and maintain a written record reflecting the basis for its judgment as to such Proxy vote.
In the event that any member of the Proxy Committee has any material pecuniary interest (direct or indirect) in a Proxy matter that is separate and distinct from that of a shareholder of the Proxy issuer, then the member shall recuse himself from the Proxy Committee’s deliberations regarding that matter.
Input from Others. The Proxy Committee may, with respect to any particular proxy matter under consideration, solicit and/or receive input from any employee of SIMG or its affiliates (e.g., an employee with the Stephens Inc. Research Department), so long as neither the individual nor his or her department have a material interest in the outcome of the proxy matter under consideration that would potentially conflict with the economic interests of SIMG’s advisory clients. For example, the Proxy Committee should not solicit input from a Stephens Inc. investment banker with respect to a proxy matter if Stephens Inc. investment bankers are advising the issuer on the transaction underlying the proxy.
Conflicts of Interest. SIMG is part of a large financial services organization that has investment banking and other business relationships with, and/or ownership interests in, many issuers of securities. Such relationships may, from time
B-70
to time, create or give rise to the appearance of a conflict of interest between SIMG (or its affiliates) and its clients. For example, an affiliate of SIMG may have an investment banking relationship with an issuer of voting securities that could create the potential for a conflict with SIMG’s duty, in the Proxy voting process, to act in the best economic interest of its investment advisory clients. SIMG has implemented procedures designed to prevent conflicts of interest from influencing its Proxy voting decisions. These procedures include information barriers and, most significantly, the use of an independent third party proxy advisory firm to assist SIMG in the Proxy voting process.
Recordkeeping. SIMG shall maintain relevant records, in paper or electronic format, through EDGAR or ISS, including Proxy statements, related research materials, Proxy ballots and votes, on an issue and client basis. SIMG shall also maintain copies of any written client request for Proxy voting information regarding investment advisory client securities and any written responses thereto.
Periodic Review. SIMG will provide ongoing oversight over any third party proxy advisory firm it retains to ensure that SIMG, through the third party, continues to vote proxies in the best interests of SIMG’s clients. Proxy voting for the most recent quarterly period will be presented to SIMG’s Board of Managers and reviewed by them each quarter.
Annually, SIMG shall review this proxy voting policy and its implementation over the past 12 month period. SIMG, as part of this review, shall assess its third party proxy voting advisory firm’s actions and recommendations.
In this review, SIMG shall consider and determine:
•whether or not proxies have been voted in SIMG client best interests and in accordance with SIMG’s proxy voting policy;
•whether or not any conflict of interest was identified in connection with proxy voting;
•whether or not any business changes or other factors have influenced SIMG’s third party proxy advisory firm’s continued effectiveness and independence;
•whether or not SIMG’s proxy advisory firm continues to have the capacity, the systems, technology, controls, staffing and expertise to evaluate relevant company related issues;
•whether SIMG’s proxy advisory firm has an effective process for seeking timely input from issuers and its own clients with respect to its proxy voting policies, methodologies and peer group constructions (including say-on-pay votes).
•whether SIMG’s proxy advisory firm has adequately disclosed its methodologies in formulating voting recommendations such that the SIMG can understand the factors underlying the proxy advisory firm’s voting recommendations; and
•how SIMG’s proxy advisory firm addresses conflicts of interest.
WELLINGTON MANAGEMENT COMPANY LLP
Global Proxy Voting Policies and Procedures
Wellington Management has adopted and implemented policies and procedures that it believes are reasonably designed to ensure that proxies are voted in the best interests of clients for whom it exercises proxy-voting discretion.
The purpose of this document is to outline Wellington Management’s approach to executing proxy voting. Wellington Management’s Proxy Voting Guidelines (the “Guidelines”), which are contained in a separate document, set forth broad guidelines and positions on common proxy issues that Wellington Management uses in voting for proxies. The Guidelines set out our general expectations on how we vote rather than rigid rules that we apply without consideration of the particular facts and circumstances.
Statement of Policy
Wellington Management:
1)Votes client proxies for which clients have affirmatively delegated proxy voting authority, in writing, unless we have arranged in advance with a particular client to limit the circumstances in which it would exercise voting authority, or we determine that it is in the best interest of one or more clients to refrain from voting a given proxy.
2)Seeks to vote proxies in the best financial interests of the client for which we are voting.
B-71
3)Identifies and resolves all material proxy-related conflicts of interest between the firm and our clients in the best interests of the client.
Responsibility and Oversight
The Proxy Voting Team monitors regulatory requirements with respect to proxy voting and works with the firm’s Legal and Compliance Group and the Investment Stewardship Committee to develop practices that implement those requirements. The Proxy Voting Team also acts as a resource for portfolio managers and investment research analysts on proxy matters as needed. Day-to-day administration of the proxy voting process is the responsibility of the Proxy Voting Team. The Investment Stewardship Committee a senior, cross-functional group of experienced professionals, is responsible for oversight of the implementation of the Global Proxy Policy and Procedures, review and approval of the Guidelines, and identification and resolution of conflicts of interest. The Investment Stewardship Committee reviews the Guidelines as well as the Global Proxy Policy and Procedures annually.
Procedures
Use of Third-Party Voting Agent
Wellington Management uses the services of a third-party voting agent for research and to manage the administrative aspects of proxy voting. We view third-party research as an input to our process. Wellington Management complements the research provided by its primary voting agent with research from other firms.
Our primary voting agent processes proxies for client accounts and maintains records of proxies voted. For certain routine issues, as detailed below, votes may be instructed according to standing instructions given to our primary voting agent, which are based on the Guidelines.
We manually review instances where our primary voting agent discloses a material conflict of interest of its own, potentially impacting its research outputs. We perform oversight of our primary voting agent, which involves regular service calls and an annual due diligence exercise, as well as regular touchpoints in the normal course of business.
Receipt of Proxy
If a client requests that Wellington Management votes proxies on its behalf, the client must instruct its custodian bank to deliver all relevant voting materials to Wellington Management or its designated voting agent in a timely manner.
Reconciliation
Proxies for public equity securities received by electronic means are matched to the securities eligible to be voted, and a reminder is sent to custodians/trustees that have not forwarded the proxies due. This reconciliation is performed at the ballot level. Although proxies received for private equity securities, as well as those received in non-electronic format for any securities, are voted as received, Wellington Management is not able to reconcile these ballots and does not notify custodians of non-receipt; Wellington Management is only able to reconcile ballots where clients have consented to providing holdings information with its provider for this purpose.
Proxy Voting Process
Our approach to voting is investment-led and serves as an influential component of our engagement and escalation strategy. The Investment Stewardship Committee, a cross-functional group of experienced professionals, oversees Wellington Management’s activities with regards to proxy voting practices.
Routine issues that can be addressed by the proxy voting guidance below are voted by means of standing instructions communicated to our primary voting agent. Some votes warrant analysis of specific facts and circumstances and therefore are reviewed individually. We examine such vote sources including internal research notes, third-party voting research and company engagement. While manual votes are often resolved by investment research teams, each portfolio manager is empowered to make a final decision for their relevant client portfolio(s), absent a material conflict of interest. Proactive portfolio manager input is sought under certain circumstances, which may include consideration of position size and proposal subject matter and nature. Where portfolio manager input is proactively sought, deliberation across the firm may occur. This collaboration does not prioritize consensus across the firm above all other interests but
rather seeks to inform portfolio managers’ decisions by allowing them to consider multiple perspectives. Portfolio managers may occasionally arrive at different voting conclusions for their clients, resulting in different decisions for the same vote. Voting procedures and the deliberation that occurs before a vote decision are aligned with our role as active owners and fiduciaries for our clients.
Material Conflict of Interest Identification and Resolution Processes
Further detail on our management of conflicts of interest can be found in our Stewardship Conflicts of Interest Policy, available on our website.
Other Considerations
In certain instances, Wellington Management may be unable to vote or may determine not to vote a proxy on behalf of one or more clients. While not exhaustive, the following are potential instances in which a proxy vote might not be entered.
Securities Lending
Clients may elect to participate in securities lending Such lending may impact their ability to have their shares voted. Under certain circumstances, and where practical considerations allow, Wellington Management may determine that the anticipated value of voting could outweigh the benefit to the client resulting from use of securities for lending and recommend that a client attempt to have its custodian recall the security to permit voting of related proxies. We do not borrow shares for the sole purpose of exercising voting rights.
Share Blocking and Re-Registration
Certain countries impose trading restrictions or requirements regarding re-registration of securities held in omnibus accounts in order for shareholders to vote a proxy. The potential impact of such requirements is evaluated when determining whether to vote such proxies.
Lack of Adequate Information, Untimely Receipt of Proxy Materials, or Excessive Costs
Wellington Management may abstain from voting a proxy when the proxy statement or other available information is inadequate to allow for an informed vote, the proxy materials are not delivered in a timely fashion; or, in Wellington Management’s judgment, the costs of voting exceed the expected benefits to clients (included but not limited to instances such as when powers of attorney or consularization or the disclosure of client confidential information are required).
Additional Information
Wellington Management maintains records related to proxies pursuant to Rule 204-2 of the Investment Advisers Act of 1940 (the “Advisers Act”), the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and other applicable laws. In addition, Wellington Management discloses voting decisions through its website, including the rationale for votes against management.
Wellington Management provides clients with a copy of its Global Proxy Policy and Procedures, as well as the Voting Guidelines, upon written request. In addition, Wellington Management will provide specific client information relating to proxy voting to a client upon written request.
|
APPENDIX C
|
|
|
Proxy Voting Under Vanguard Investor Choice
|
|
|
Vanguard Trust
|
Vanguard Fund
|
|
Vanguard Index Funds
|
Vanguard 500 Index Fund
|
|
Vanguard Index Funds
|
Vanguard Extended Market Index Fund
|
|
Vanguard Index Funds
|
Vanguard Growth Index Fund
|
|
Vanguard Index Funds
|
Vanguard Large-Cap Index Fund
|
|
Vanguard Index Funds
|
Vanguard Mid-Cap Index Fund
|
|
Vanguard Index Funds
|
Vanguard Value Index Fund
|
|
Vanguard Institutional Index Funds
|
Vanguard Institutional Index Fund
|
|
Vanguard Specialized Funds
|
Vanguard Dividend Appreciation Index Fund
|
|
Vanguard Tax-Managed Funds
|
Vanguard Tax-Managed Capital Appreciation Fund
|
|
Vanguard Tax-Managed Funds
|
Vanguard Tax-Managed Small-Cap Fund
|
|
Vanguard Whitehall Funds
|
Vanguard High Dividend Yield Index Fund
|
|
Vanguard Scottsdale Funds
|
Vanguard Russell 1000 Index Fund
|
|
Vanguard Admiral Funds
|
Vanguard S&P 500 Growth Index Fund
|
|
Vanguard Admiral Funds
|
Vanguard S&P 500 Value Index Fund
|
|
Vanguard Admiral Funds
|
Vanguard S&P Mid-Cap 400 Index Fund
|
|
Vanguard Admiral Funds
|
Vanguard S&P Mid-Cap 400 Growth Index Fund
|
|
Vanguard Admiral Funds
|
Vanguard S&P Mid-Cap 400 Value Index Fund
|
|
Vanguard Admiral Funds
|
Vanguard S&P Mid-Cap 600 Index Fund
|
|
Vanguard Admiral Funds
|
Vanguard S&P Mid-Cap 600 Growth Index Fund
|
|
Vanguard Admiral Funds
|
Vanguard S&P Mid-Cap 600 Value Index Fund
|
|
Vanguard World Fund
|
Vanguard ESG U.S. Stock ETF
|
|
Vanguard World Fund
|
Vanguard Mega Cap Index Fund
|
|
Vanguard World Fund
|
Vanguard Energy Index Fund
|
|
Vanguard World Fund
|
Vanguard Materials Index Fund
|
|
Vanguard World Fund
|
Vanguard Industrials Index Fund
|
|
Vanguard World Fund
|
Vanguard Consumer Discretionary Index Fund
|
|
Vanguard World Fund
|
Vanguard Consumer Staples Index Fund
|
|
Vanguard World Fund
|
Vanguard Health Care Index Fund
|
|
Vanguard World Fund
|
Vanguard Financials Index Fund
|
|
Vanguard World Fund
|
Vanguard Information Technology Index Fund
|
|
Vanguard World Fund
|
Vanguard Communication Services Index Fund
|
|
Vanguard World Fund
|
Vanguard Utilities Index Fund
|
|
|
|
As approved by the boards of trustees of the above-listed Vanguard trusts (the Boards), Vanguard Investor Choice (Investor Choice) is offered as a program in the above-listed Vanguard funds (Participating Funds). With Investor Choice, shareholders of Participating Funds may choose from among a number of different proxy voting policies through which they may direct how their pro-rata ownership interest in Participating Funds, as of the record date of each portfolio company shareholder meeting within such Participating Funds that occurs after the shareholder has selected a proxy voting policy, will vote on proposals presented for a vote at those shareholder meetings. Certain portfolio company meetings may be excluded as a result of operational issues or other infrequent events where it is determined, based on the facts and circumstances known to Vanguard at the time of the vote, that it is in the best interests of a Participating Fund and its shareholders to apply a consistent vote to all of the Participating Fund’s shares at a particular meeting, including instances where it is necessary to preserve a Participating Fund’s rights.
If you hold shares of a Participating Fund in a Vanguard account, you may participate directly through your Vanguard account. If you hold shares of a Participating Fund outside of a Vanguard account, you may select a policy by visiting proxyvote.com to verify that you are a Participating Fund shareholder. If you hold shares of a Participating Fund outside of a Vanguard account and Broadridge Financial Solutions (Broadridge) has your contact information and information regarding your pro-rata ownership interest in a Participating Fund, you may receive a communication accompanying the semiannual shareholder reports for each Participating Fund for which you hold shares. These communications will contain an invitation and an embedded link that will enable you to select a proxy voting policy.
If you hold shares of a Participating Fund and do not select a proxy voting policy, the proportionate share of your holdings in the Participating Fund will continue to be voted in accordance with the relevant Fund Proxy Policy (see Overview of Proxy Voting Policies for Participating Funds below). As a Participating Fund shareholder, you may change your proxy voting policy selection. You should expect a reasonable delay after any selection is made before it is implemented.
Overview of Proxy Voting Policies for Participating Funds
There are five proxy voting policies that reflect a range of defined proxy voting approaches from which Participating Fund shareholders may choose. The five proxy voting policies are: (i) a Company Board-Aligned Policy; (ii) a third-party policy provided by Egan-Jones Proxy Services (Egan-Jones Wealth-Focused Policy); (iii) a third-party policy provided by Glass Lewis & Co., LLC (Glass Lewis ESG Policy); (iv) a Mirror Voting Policy; and (v) the Fund Proxy Policy for either VCM or VPM Funds, as appropriate, which has been adopted by the trustees of the relevant Vanguard fund and will be administered by the relevant Investment Stewardship Team (the VCM Investment Stewardship Team or the VPM Investment Stewardship Team, as appropriate).
If a proxy voting policy becomes unavailable, the pro-rata ownership position of any Participating Fund shareholders who have selected such policy will be voted in accordance with the relevant Fund Proxy Policy. In addition, the Boards may determine it is in the best interests of Participating Fund shareholders to use a different provider for a proxy voting policy that is substantially the same as one of the policies described below.
■Company Board-Aligned Policy. The pro-rata ownership position of Participating Fund shareholders that select the Company Board-Aligned Policy will be voted in accordance with the recommendations on each proposal made by the portfolio company’s board of directors pursuant to the board’s own fiduciary duty to act in the best interest of the company’s shareholders. In the absence of a recommendation from the portfolio company’s board on a specific proposal, the Participating Fund will cast an ABSTAIN vote on that shareholder’s behalf.
■Egan-Jones Wealth-Focused Policy: The pro-rata ownership position of Participating Fund shareholders that select the Egan-Jones Wealth-Focused Policy will be voted according to proxy voting recommendations from Egan-Jones Proxy Services, a third-party proxy advisor, that is based on the belief, as described by Egan-Jones, that maximizing shareholder value should be the primary focus of corporate governance and management decisions, without being influenced by political or social agendas. This policy by rule rejects proposals based on environmental, social, or political considerations unless they directly contribute to revenue generation at the company receiving the proposal.
This description is qualified in its entirety by reference to the full text of the Egan-Jones Wealth-Focused Policy, which is included below, and details common items to be voted on by shareholders at company meetings, and the criteria used under the policy to analyze such proposals and determine a recommendation.
■Glass Lewis ESG Policy: The pro-rata ownership position of Participating Fund shareholders that select the Glass Lewis ESG Policy will be voted according to proxy voting recommendations from Glass Lewis & Co., LLC, a third-party proxy advisor, that is based on the belief, as described by Glass Lewis, that enhanced disclosures of company policies and practices related to certain environmental, social, and/or governance issues could mitigate company risks and create operational opportunities.
This description is qualified in its entirety by reference to the full text of the Glass Lewis ESG Policy, which is included below, and details common items to be voted on by shareholders at company meetings, and the criteria used under the policy to analyze such proposals and determine a recommendation.
■Mirror Voting Policy: The pro-rata ownership position of Participating Fund shareholders that select the Mirror Voting Policy will be voted in approximately the same proportions as votes cast for the meeting by other shareholders of the security. In instances where proportionate voting cannot be reasonably executed due to operational considerations or other issues, inclusive of meetings at which the election of directors is contested, the Participating Fund will leave your proportionate share unvoted.
The proportionate votes will be based on the votes that have been cast by beneficial owners of a portfolio security in
Broadridge’s network generally as of the day prior to the applicable meeting and, as such, will not reflect all votes that are ultimately cast at the meeting.
■Fund Proxy Policy: See the relevant Fund Proxy Policy, which is included in Appendix A of the Statement of Additional Information for each Participating Fund above.
Retention of Policy Selections for Participating Funds
The policy selections of Participating Fund shareholders that make a policy selection will be retained and may be applied to any future funds participating in Investor Choice that are held by such Participating Fund shareholder within any account where such shareholder is a primary or joint account holder or trustee, so long as such policy selection is still available or a substantially similar policy is approved by the Boards and is included as a policy option.
Additional Proxy Policies for Participating Funds
Company Board-Aligned Policy
Under this policy, proportionate positions will be voted in accordance with the recommendations on each proposal made by the portfolio company’s board of directors pursuant to the board’s own fiduciary duty to act in the best interest of the company’s shareholders. In the absence of a recommendation from the portfolio company’s board on a specific proposal, the Participating Fund will cast ABSTAIN votes on the shareholder’s behalf.
Wealth-Focused Policy Overview
Effective for shareholder meetings held on or after March 1, 2026 Published December 12, 2025
Wealth-Focused Policy Overview
I. Wealth-Focused Policy Overview
Recommendations are based only on protecting and enhancing investor wealth.
Unlike conventional ESG frameworks that impose uniform governance and sustainability standards, this policy’s guiding philosophy is to allow management the freedom to manage, while holding directors accountable for poor returns to shareholders. The policy is not a "board- aligned" policy because directors with poor impact on shareholder returns will be opposed.
Restrictive governance and environmental protection proposals are generally opposed. Proposals promoting diversity, equity, and inclusion are also opposed. Exceptions only exist when proposals are directly tailored to revenue generation.
Director elections
The Wealth-Focused Policy generally supports nominees with a record of responsible leadership, including attending at least 75% of board and committee meetings. Additionally, the TSR of the Company over the director’s tenure is a primary consideration.
Director and executive compensation
The Wealth-Focused Policy supports compensation packages that are in alignment with total shareholder returns. Higher compensation packages are supported if significant shareholder returns have also been delivered.
Governance
The Wealth-Focused Policy generally supports removing board governance restrictions such as splitting CEO and chairman roles, term limits, and area expertise. Likewise, the Wealth-Focused Policy would generally oppose proposals for greater restrictions. The goal is to avoid excluding qualified board members who could drive shareholder returns.
Corporate operations (including human resources, health, safety, and environment)
The Wealth-Focused Policy generally rejects proposals to restrict the operations of the company, including with regards to hiring practices, environmental reporting, or political contributions. The goal is to rely on management and the board to effectively run the company’s operations. Poor shareholder returns due to operational failures will be considered during compensation votes and director elections.
Procedure
The Wealth-Focused Policy generally supports routine and procedural proposals such as those to tabulate proxy voting, elect a clerk, or approve the previous board's actions, so as to not be obstructive to standard practices.
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 2
|
Wealth-Focused Policy Overview
Auditors
The Wealth-Focused Policy generally supports management’s proposed auditor, given that the auditor does not generate outsized non-audit or total audit fees from the company. The goal is to support independent auditors.
Shareholder rights
The Wealth-Focused Policy generally supports broader shareholder rights such as equal voting rights and requiring shareholder approval for bylaw amendments. However, the policy will generally oppose proposals that give shareholders the ability to request fundamental changes to the business operations of the company, such as restructuring. The goal is to allow management and the board to make key business decisions, while enabling shareholders to hold them accountable.
Mergers, acquisitions, and restructuring
The Wealth-Focused Policy supports proposals with a high probability of yielding outsized returns for investors. The fairness opinion by a qualified investment banker or advisor is carefully considered for these proposals.
Capitalization
The Wealth-Focused Policy generally supports managements’ recommendations on the capitalization of the company. The goal is to rely on the expertise of the CEO and CFO. Poor shareholder returns due to capitalization failures will be considered during compensation votes and director elections. Excessive dilution for compensation plans is not supported unless directly tied to shareholder returns.
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 3
|
Wealth-Focused Policy Overview
II. Notable Recommendations
View recommendations of the Wealth-Focused Policy from prior meetings.
Phillips 66
Annual Meeting
May 21, 2025
Opposition Proposal: Election of Directors
Egan-Jones’ Wealth-Focused policy recommends FOR the Elliott Nominees, as we believe their election is in the best interests of the Company and its shareholders. Over the past five years, PSX’s total shareholder return (TSR) has lagged its refining and midstream peers as well as the broader market. Additionally, the Company’s substantial financial losses have been driven largely by elevated operating expenses, particularly in labor, maintenance, and energy. We agree with the dissidents that a strategic shift—refocusing on core assets, especially within the refining segment—is necessary to enhance performance and support long-term value creation.
Harley-Davidson, Inc.
Annual Meeting
May 14, 2025
Management Proposal: Election of Directors
Egan-Jones’ Wealth-Focused policy recommends WITHHOLDING votes from management’s nominees for this withhold campaign. Harley-Davidson yielded -11% returns for investors over the same five-year period in which total market returns were 94%. We therefore recommend withholding votes from three long-standing directors as well as the CEO who have overseen long-term sustained underperformance of the Company.
Tesla Inc.
Annual Meeting
November 6, 2025
Management Proposal: Approval of the 2025 CEO Performance Award
Egan-Jones’ Wealth-Focused policy recommends FOR this proposal. While the potential dilution from the 2025 CEO Performance Award is estimated at 12.75%, which exceeds our typical threshold of shareholder equity dilution, we believe an exception is warranted in this case due to the highly performance-based structure of the potential awards to Mr. Elon Musk and the lengthy period over which these shares will be granted. If the full number of shares is granted over the next 10 years, the annual depletion rate each year will only be approximately 1.3%. Additionally, the combination of performance conditions and time-based vesting requirements is designed to align Mr. Musk’s compensation with long-term shareholder value creation. If Mr. Musk meets the requirements for all twelve tranches of the CEO Performance Award, shareholders of Tesla will see an approximate 700% increase in the value of their stock within 10 years. Hence, we believe that the 2025 Performance CEO Award is aligned with shareholders’ interests.
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 4
|
Wealth-Focused Policy Overview
AMC Entertainment Holdings, Inc.
Annual Meeting
December 10, 2025
Management Proposal: Advisory Vote to Approve Executive Compensation
Egan-Jones’ Wealth-Focused policy recommends AGAINST AMC Holdings’ say-on-pay proposal as we do not believe the compensation amount is in alignment with shareholders’ interests. Specifically, we review the total compensation of the highest paid NEO as compared to Company performance (as measured by TSR). In this case, the TSR during 2024 was -34.8% while the total compensation of the CEO was over $11 million.
Alphabet Inc.
Annual Meeting
June 6, 2025
Shareholder Proposal: Regarding an Enhanced Disclosure on Climate Goals
Egan-Jones’ Wealth-Focused policy recommends AGAINST this enhanced disclosure. Considering the Company already provides extensive disclosure regarding its climate strategy, goals, challenges, and risk-management processes in its annual Environmental Report, we believe that the shareholder proposal is redundant and will not create additional benefits or value for the shareholders.
Apple, Inc.
Annual Meeting
February 25, 2025
Shareholder Proposal: Report on Risks and Impacts of Charitable Giving
Egan-Jones’ Wealth-Focused policy recommends AGAINST this report. Apple already has a well-governed corporate donations program, including strict safeguards such as prohibiting the use of funds for lobbying or political campaigns. The company regularly discloses its charitable activities, making the requested additional report redundant and unlikely to provide meaningful shareholder benefit, while unnecessarily intruding into Apple’s ordinary business operations.
Amazon.com, Inc.
Annual Meeting
May 21, 2025
Shareholder Proposal: Audit Report on Warehouse Working Conditions
Egan-Jones’ Wealth-Focused policy recommends AGAINST. Considering Amazon has demonstrated a robust commitment to workplace safety, supported by measurable improvements in injury rates and extensive regulatory oversight, we believe that the proposed independent audit is unnecessary. Additionally, commissioning an audit could create legal and reputational risks by implying potential violations and providing a roadmap for future litigation, ultimately exposing shareholders to substantial long-term costs.
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 5
|
Wealth-Focused Policy Overview
Comcast Corporation
Annual Meeting
June 18, 2025
Shareholder Proposal: Adopt Policy for an Independent Chairman
Egan-Jones’ Wealth-Focused policy recommends AGAINST. Egan-Jones’ Wealth-Focused policy recommends AGAINST
because we believe that having an independent chairman is not a one-size-fits-all principle. We believe that the Board should have flexibility in determining a leadership structure that is conducive to the company’s goal of maximizing shareholder value.
International Business Machines Corp. (IBM)
Annual Meeting
April 29, 2025
Shareholder Proposal: Report on Hiring/Recruitment Discrimination
Egan-Jones’ Wealth-Focused policy recommends AGAINST because we believe that IBM already maintains transparent, legally compliant, and non-discriminatory hiring practices. As such, producing the requested report would be unnecessary, burdensome, and divert resources from more meaningful priorities.
Exxon Mobil Corporation
Annual Meeting
May 28, 2025
Management Proposal: Ratify the Appointment of Independent Auditor
Egan-Jones’ Wealth-Focused policy recommends FOR the ratification of PricewaterhouseCoopers LLP as auditors, as we believe that neither the audit fees for the most recent fiscal year nor the disciplinary actions taken against the firm over the past decade raise concerns about the auditor's integrity, professionalism, or independence.
Eli Lilly and Company
Annual Meeting
May 5, 2025
Management Proposal: Proposal to Amend the Company’s Articles of Incorporation to Eliminate Supermajority Voting Provisions
Egan-Jones’ Wealth-Focused policy recommends FOR the elimination of supermajority voting provisions in the Company’s Articles of Incorporation, as they grant disproportionate power to a minority of shareholders. Adopting a simple majority standard would ensure equal and fair representation for all shareholders and enable a more meaningful voting process.
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 6
|
Wealth-Focused Policy Overview
Core Scientific, Inc.
Special Meeting
October 30, 2025
Management Proposal: Approval of the Agreement and Plan of Merger
Egan-Jones’ Wealth-Focused policy recommends AGAINST the merger of Core Scientific with CoreWeave. We believe that while the proposed merger may offer operational synergies, the terms of the transaction materially undervalue Core Scientific relative to its intrinsic potential and the stock price. Additionally, given the all-stock nature of the transaction and the volatile share price of CoreWeave, the transaction is highly risky for Core Scientific shareholders. Given the company’s strong fundamentals, long-term contracts, and clear growth trajectory as a standalone entity, we believe shareholders are better served by rejecting the current offer.
ProPhase Labs, Inc.
Annual Meeting
November 24, 2025
Management Proposal: Authorization for Amendment to Authorize Additional Shares
Egan-Jones’ Wealth-Focused policy recommends FOR the issuance of additional shares of common stock because we generally support proposals to issue more shares when the new proposed stock is less than 50% of total authorized shares of common stock, or when the increase is tied to a specific transaction or financing proposal or when the share pool was used up due to equity plans. The Company seeks to increase its authorized common stock to ensure sufficient unissued shares to satisfy obligations under its $3 million 20% OID senior secured promissory note and related July 2025 warrants. We believe this purpose is reasonable and therefore fair and advisable to shareholders.
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 7
|
Wealth-Focused Policy Overview
III. Detailed vote recommendations
View recommendations per category and region.
Proposals by management | Accounting
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Accept an accounting
|
|
|
World
|
|
|
|
|
|
We generally recommend FOR because
|
|
|
|
irregularity
|
|
|
|
|
|
|
|
|
according to our policy, the financial statements
|
|
|
|
|
|
|
|
|
|
|
|
|
give a true and fair view of the financial position
|
|
|
|
|
|
|
|
|
|
|
|
|
of the Company for the recent fiscal year, and of
|
|
|
|
|
|
|
|
|
|
|
|
|
its financial performance and its cash flows for
|
|
|
|
|
|
|
|
|
|
|
|
|
the year then ended in accordance with the law.
|
|
|
|
Accept the financial
|
|
World
|
|
North America
|
|
We generally recommend FOR because
|
|
|
statements/statutory
|
|
|
|
|
|
|
|
according to our policy, the financial statements
|
|
|
report
|
|
|
|
|
|
|
|
give a true and fair view of the financial position
|
|
|
|
|
|
|
|
|
|
|
|
of the Company for the recent fiscal year, and of
|
|
|
|
|
|
|
|
|
|
|
|
its financial performance and its cash flows for
|
|
|
|
|
|
|
|
|
|
|
|
the year then ended in accordance with the law.
|
|
|
Approve a special
|
|
|
China, Western
|
|
|
|
|
|
We recommend FOR this Proposal, because
|
|
|
|
transactions financial
|
|
|
Europe, Latin
|
|
|
|
|
|
according to our policy, approving the special
|
|
|
|
report
|
|
|
America
|
|
|
|
|
|
transactions financial report ensures
|
|
|
|
|
|
|
|
|
|
|
|
|
transparency and gives shareholders a clear
|
|
|
|
|
|
|
|
|
|
|
|
|
overview of significant transactions, supporting
|
|
|
|
|
|
|
|
|
|
|
|
|
informed decision-making.
|
|
|
|
Receive the annual report
|
|
World
|
|
North America
|
|
We generally recommend FOR because
|
|
|
and accounts
|
|
|
|
|
|
|
|
according to our policy, the financial statements
|
|
|
|
|
|
|
|
|
|
|
|
give a true and fair view of the financial position
|
|
|
|
|
|
|
|
|
|
|
|
of the Company for the recent fiscal year, and of
|
|
|
|
|
|
|
|
|
|
|
|
its financial performance and its cash flows for
|
|
|
|
|
|
|
|
|
|
|
|
the year then ended in accordance with the law.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 8
|
Wealth-Focused Policy Overview
Proposals by management | Auditor
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Approve the discharge of
|
|
|
Western
|
|
|
|
|
|
We generally recommend FOR because after
|
|
|
|
the auditors
|
|
|
Europe
|
|
|
|
|
|
reviewing the auditor acts for the fiscal year that
|
|
|
|
|
|
|
|
|
|
|
|
|
has ended, we find it advisable to grant
|
|
|
|
|
|
|
|
|
|
|
|
|
discharge from liability to the auditors.
|
|
|
|
Ratify auditor AND director
|
|
World
|
|
United States
|
|
We generally recommend FOR the auditor when
|
|
|
remuneration
|
|
|
|
|
|
|
|
the non-audit fees do not make up a substantial
|
|
|
|
|
|
|
|
|
|
|
|
proportion of all fees the auditor is charging the
|
|
|
|
|
|
|
|
|
|
|
|
company and when the total audit fees are
|
|
|
|
|
|
|
|
|
|
|
|
reasonable given the company's size. The
|
|
|
|
|
|
|
|
|
|
|
|
purpose is to maintain some independence for
|
|
|
|
|
|
|
|
|
|
|
|
the auditor.
|
|
|
Ratify auditor appointment
|
|
|
Emerging &
|
|
|
|
|
|
We generally recommend FOR the auditor when
|
|
|
|
and remuneration
|
|
|
Frontier Asia-
|
|
|
|
|
|
the non-audit fees do not make up a substantial
|
|
|
|
|
|
|
Pacific, Western
|
|
|
|
|
|
proportion of all fees the auditor is charging the
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
company and when the total audit fees are
|
|
|
|
|
|
|
|
|
|
|
|
|
reasonable given the company's size. The
|
|
|
|
|
|
|
|
|
|
|
|
|
purpose is to maintain some independence for
|
|
|
|
|
|
|
|
|
|
|
|
|
the auditor.
|
|
|
|
Ratify the appointment of a
|
|
World
|
|
|
|
|
We recommend FOR this Proposal, because
|
|
|
non-statutory auditor
|
|
|
|
|
|
|
|
according to our policy, ratifying the
|
|
|
|
|
|
|
|
|
|
|
|
appointment of a non-statutory auditor
|
|
|
|
|
|
|
|
|
|
|
|
strengthens oversight and reinforces the
|
|
|
|
|
|
|
|
|
|
|
|
integrity of reporting.
|
|
|
Ratify the appointment of a
|
|
|
China, Western
|
|
|
|
|
|
We recommend FOR this Proposal, because
|
|
|
|
special transactions auditor
|
|
|
Europe, Latin
|
|
|
|
|
|
according to our policy, ratifying the
|
|
|
|
|
|
|
America
|
|
|
|
|
|
appointment of a special transactions auditor
|
|
|
|
|
|
|
|
|
|
|
|
|
ensures independent review of significant
|
|
|
|
|
|
|
|
|
|
|
|
|
transactions and strengthens disclosure and
|
|
|
|
|
|
|
|
|
|
|
|
|
transparency.
|
|
|
|
Ratify the appointment of
|
|
World
|
|
|
|
|
We generally recommend FOR the auditor when
|
|
|
an auditor
|
|
|
|
|
|
|
|
the non-audit fees do not make up a substantial
|
|
|
|
|
|
|
|
|
|
|
|
proportion of all fees the auditor is charging the
|
|
|
|
|
|
|
|
|
|
|
|
company and when the total audit fees are
|
|
|
|
|
|
|
|
|
|
|
|
reasonable given the company's size. The
|
|
|
|
|
|
|
|
|
|
|
|
purpose is to maintain some independence for
|
|
|
|
|
|
|
|
|
|
|
|
the auditor.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 9
|
Wealth-Focused Policy Overview
|
Ratify the appointment of
|
Western
|
|
We recommend AGAINST this Proposal, because
|
|
statutory AND
|
Europe
|
|
according to our policy, ratifying the
|
|
sustainability auditors
|
|
|
appointment of statutory and sustainability
|
|
|
|
|
auditors may not directly align with the priorities
|
|
|
|
|
of shareholders, as the proposal emphasizes ESG
|
|
|
|
|
and non-financial reporting oversight rather
|
|
|
|
|
than measures that drive immediate financial
|
|
|
|
|
returns or shareholder value.
|
|
Remove the auditor
|
World
|
|
We generally recommend a vote FOR the
|
|
|
|
|
removal of the auditors whenever the Company
|
|
|
|
|
may deem it necessary to ensure auditor
|
|
|
|
|
independence and integrity.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 10
|
Wealth-Focused Policy Overview
Proposals by management | Capitalization
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Allot securities
|
|
|
Western
|
|
|
|
|
|
We generally recommend FOR because
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
according to our policy, the allotment of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
or securities will enable the Company to
|
|
|
|
|
|
|
|
|
|
|
|
|
capitalize on future business opportunities. This
|
|
|
|
|
|
|
|
|
|
|
|
|
flexibility provides the Company with the ability
|
|
|
|
|
|
|
|
|
|
|
|
|
to act promptly and strategically to business
|
|
|
|
|
|
|
|
|
|
|
|
|
decisions, ensuring it remains competitive and
|
|
|
|
|
|
|
|
|
|
|
|
|
well-positioned for long-term success.
|
|
|
|
Appropriate
|
|
World
|
|
North America
|
|
We recommend FOR this Proposal, because
|
|
|
profits/surplus/retained
|
|
|
|
|
|
|
|
according to our policy, allocating corporate
|
|
|
earnings
|
|
|
|
|
|
|
|
earnings through appropriate distribution of
|
|
|
|
|
|
|
|
|
|
|
|
profits, surplus, or retained earnings supports
|
|
|
|
|
|
|
|
|
|
|
|
shareholder interests and long-term value
|
|
|
|
|
|
|
|
|
|
|
|
creation.
|
|
|
Approve a share
|
|
|
Emerging &
|
|
|
|
|
|
We generally recommend a vote FOR because
|
|
|
|
repurchase plan
|
|
|
Frontier Asia-
|
|
|
|
|
|
according to our policy, the proposed share
|
|
|
|
|
|
|
Pacific, Western
|
|
|
|
|
|
repurchase plan would grant the Company
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
greater flexibility in managing its capital
|
|
|
|
|
|
|
|
|
|
|
|
|
structure. Furthermore, share repurchases are
|
|
|
|
|
|
|
|
|
|
|
|
|
widely regarded as an effective strategy for
|
|
|
|
|
|
|
|
|
|
|
|
|
enhancing shareholder value and financial
|
|
|
|
|
|
|
|
|
|
|
|
|
position of companies.
|
|
|
|
Approve a stock exchange
|
|
World
|
|
|
|
|
We generally recommend FOR because
|
|
|
listing
|
|
|
|
|
|
|
|
according to our policy, approval of the stock
|
|
|
|
|
|
|
|
|
|
|
|
exchange listing would create investment
|
|
|
|
|
|
|
|
|
|
|
|
opportunities for the Company and provide
|
|
|
|
|
|
|
|
|
|
|
|
greater liquidity while diversifying the risks
|
|
|
|
|
|
|
|
|
|
|
|
associated with it.
|
|
|
Approve a stock terms
|
|
|
World
|
|
|
|
|
|
This proposal is considered on a case-by-case
|
|
|
|
revision
|
|
|
|
|
|
|
|
|
basis by the guidelines committee.
|
|
|
|
Approve adjustment in the
|
|
Emerging &
|
|
|
|
|
We recommend FOR this Proposal, because
|
|
|
share repurchase price
|
|
Frontier Asia-
|
|
|
|
|
according to our policy, allocating corporate
|
|
|
|
|
|
Pacific
|
|
|
|
|
earnings through appropriate distribution of
|
|
|
|
|
|
|
|
|
|
|
|
profits, surplus, or retained earnings supports
|
|
|
|
|
|
|
|
|
|
|
|
shareholder interests and long-term value
|
|
|
|
|
|
|
|
|
|
|
|
creation.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 11
|
Wealth-Focused Policy Overview
|
Approve capital
|
Emerging &
|
|
We recommend FOR this Proposal, because
|
|
utilization/cash
|
Frontier Asia-
|
|
according to our policy, the proposed capital or
|
|
management
|
Pacific
|
|
cash utilization enables the company to support
|
|
|
|
|
its strategic initiatives and efficiently finance its
|
|
|
|
|
operations.
|
|
Approve credit and/or debt
|
Emerging &
|
|
We recommend FOR this Proposal, because
|
|
financing
|
Frontier Asia-
|
|
according to our policy, approving credit or debt
|
|
|
Pacific
|
|
financing provides the company with the
|
|
|
|
|
necessary capital to support strategic initiatives,
|
|
|
|
|
maintain liquidity, and ensure financial flexibility.
|
|
Approve dividends
|
World
|
North America
|
We generally recommend FOR this Proposal,
|
|
|
|
|
because according to our policy, the proposed
|
|
|
|
|
dividend distribution is financially prudent,
|
|
|
|
|
maintains sufficient liquidity, and supports
|
|
|
|
|
consistent shareholder returns.
|
|
Change share par value
|
World
|
|
We generally recommend FOR when the new
|
|
|
|
|
par value is less than or equal to old par value.
|
|
|
|
|
|
|
Conduct a stock split
|
World
|
|
We generally recommend FOR because
|
|
|
|
|
according to our policy, the proposed reverse
|
|
|
|
|
stock split would make the Company’s common
|
|
|
|
|
stock a more attractive and cost-effective
|
|
|
|
|
investment for many investors, thereby
|
|
|
|
|
enhancing the liquidity of current stockholders
|
|
|
|
|
and potentially broadening the investor base.
|
|
Distribute
|
World
|
North America
|
We generally recommend FOR because
|
|
profit/dividend/etc
|
|
|
according to our policy, the proposed
|
|
according to a sharing plan
|
|
|
distribution plan will not put the company´s
|
|
|
|
|
liquidity at risk.
|
|
Exchange debt for equity
|
World
|
|
We generally recommend a vote FOR because
|
|
|
|
|
according to our policy, the proposed exchange
|
|
|
|
|
of debt for equity would strengthen the
|
|
|
|
|
Company’s financial position by reducing its
|
|
|
|
|
liabilities, improving its balance sheet and
|
|
|
|
|
enhancing its creditworthiness.
|
|
Increase authorized shares
|
World
|
Brazil
|
We generally recommend FOR except when one
|
|
|
|
|
of the following conditions is met: 1) The new
|
|
|
|
|
proposed stock is >50% of total authorized
|
|
|
|
|
shares of common stock; 2) The increase is NOT
|
|
|
|
|
tied to a specific transaction or financing
|
|
|
|
|
proposal; and 3) The Share pool was NOT used
|
|
|
|
|
up due to equity plans.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 12
|
Wealth-Focused Policy Overview
|
Increase authorized shares
|
Brazil
|
|
We generally recommend FOR except when one
|
|
|
|
|
of the following conditions is met: 1) The
|
|
|
|
|
increase is NOT tied to a specific transaction or
|
|
|
|
|
financing proposal; and 2) The Share pool was
|
|
|
|
|
NOT used up due to equity plans.
|
|
Issue bonds
|
World
|
|
We generally recommend FOR because
|
|
|
|
|
according to our policy, approval of this proposal
|
|
|
|
|
will give the Company greater flexibility in
|
|
|
|
|
considering and planning for future corporate
|
|
|
|
|
needs, including, but not limited to, stock
|
|
|
|
|
dividends, grants under equity compensation
|
|
|
|
|
plans, stock splits, financings, potential strategic
|
|
|
|
|
transactions, including mergers, acquisitions,
|
|
|
|
|
and business combinations, as well as other
|
|
|
|
|
general corporate transactions.
|
|
Issue shares
|
World
|
|
We generally recommend FOR when there is a
|
|
|
|
|
purpose for the share issuance and when the
|
|
|
|
|
shareholder rights on the issued shares will not
|
|
|
|
|
be superior to outstanding shares.
|
|
Issue shares below NAV
|
World
|
|
We generally recommend FOR because
|
|
|
|
|
according to our policy, issuing shares below net
|
|
|
|
|
asset value (NAV) would provide the Fund with
|
|
|
|
|
flexibility in raising capital, reducing debt,
|
|
|
|
|
preventing insolvency, and funding strategic
|
|
|
|
|
acquisitions or growth opportunities. While it
|
|
|
|
|
typically leads to dilution, a discounted issuance
|
|
|
|
|
can be used in ways that may ultimately
|
|
|
|
|
enhance shareholder value, improve financial
|
|
|
|
|
stability, and position the company for long-term
|
|
|
|
|
success.
|
|
Issue shares upon exercise
|
World
|
|
We generally recommend FOR because
|
|
of warrants
|
|
|
according to our policy, the proposed issuance
|
|
|
|
|
of shares will provide the Company with a
|
|
|
|
|
source of capital to fund its corporate endeavors
|
|
|
|
|
and activities.
|
|
Re-price options
|
World
|
|
We generally recommend FOR re-pricing options
|
|
|
|
|
when external and uncontrollable market factors
|
|
|
|
|
caused the stock price to decrease.
|
|
Repurchase and/or cancel
|
Emerging &
|
|
We recommend FOR this Proposal because,
|
|
shares
|
Frontier Asia-
|
|
according to our policy, share
|
|
|
Pacific, Western
|
|
repurchase/cancellation can enhance
|
|
|
Europe
|
|
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 13
|
Wealth-Focused Policy Overview
|
|
|
|
shareholder value and provide the company
|
|
|
|
|
with flexibility in managing its capital effectively.
|
|
Repurchase bonds
|
World
|
|
We recommend FOR this Proposal because,
|
|
|
|
|
according to our policy, repurchase of bonds
|
|
|
|
|
allows the company to manage its debt
|
|
|
|
|
efficiently, reduce interest expenses, and
|
|
|
|
|
optimize its capital structure, ultimately
|
|
|
|
|
supporting financial flexibility and long-term
|
|
|
|
|
shareholder value.
|
|
Create a new class of
|
World
|
|
We generally recommend FOR these proposals
|
|
shares
|
|
|
when the new class of shares to be created will
|
|
|
|
|
not have blank-check authority and will not have
|
|
|
|
|
superior voting rights to the existing class of
|
|
|
|
|
shares.
|
|
Reclassify/convert shares
|
World
|
|
We generally recommend FOR if the conversion
|
|
|
|
|
would provide equal rights to shareholders.
|
|
|
|
|
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 14
|
Wealth-Focused Policy Overview
Proposals by management | Climate/Resources
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Approve the sustainability
|
|
|
Western
|
|
|
|
|
|
We generally recommend a vote AGAINST
|
|
|
|
auditor
|
|
|
Europe
|
|
|
|
|
|
because according to our policy, the
|
|
|
|
|
|
|
|
|
|
|
|
|
appointment of a separate sustainability auditor
|
|
|
|
|
|
|
|
|
|
|
|
|
is unwarranted, given that the Company already
|
|
|
|
|
|
|
|
|
|
|
|
|
integrates sustainability into its existing audit
|
|
|
|
|
|
|
|
|
|
|
|
|
process. The Company’s current approach
|
|
|
|
|
|
|
|
|
|
|
|
|
effectively addresses sustainability concerns
|
|
|
|
|
|
|
|
|
|
|
|
|
without the need for additional oversight.
|
|
|
|
|
|
|
|
|
|
|
|
|
Furthermore, approval of this proposal would
|
|
|
|
|
|
|
|
|
|
|
|
|
impose unnecessary costs and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
burdens, diverting resources from other critical
|
|
|
|
|
|
|
|
|
|
|
|
|
business priorities.
|
|
|
|
Approve the sustainability
|
|
Western
|
|
|
|
|
We generally recommend a vote AGAINST
|
|
|
report
|
|
Europe,
|
|
|
|
|
because, according to our policy, approval of this
|
|
|
|
|
|
Australia
|
|
|
|
|
proposal would result in the Company incurring
|
|
|
|
|
|
|
|
|
|
|
|
unnecessary costs and expenses by duplicating
|
|
|
|
|
|
|
|
|
|
|
|
efforts that are already underway.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 15
|
Wealth-Focused Policy Overview
Proposals by management | Compensation
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Advise on executive
|
|
|
World
|
|
|
|
|
|
We generally recommend FOR when the total
|
|
|
|
compensation (say-on-pay)
|
|
|
|
|
|
|
|
|
compensation is reasonable considering the
|
|
|
|
|
|
|
|
|
|
|
|
|
company's performance as measured by change
|
|
|
|
|
|
|
|
|
|
|
|
|
in adjusted stock price.
|
|
|
|
Approve a stock
|
|
United States
|
|
|
|
|
We generally recommend FOR when the plan
|
|
|
compensation plan (non-
|
|
|
|
|
|
|
|
results in dilution of 10% or less and when the
|
|
|
SPAC)
|
|
|
|
|
|
|
|
average burn rate over the last three years is 3%
|
|
|
|
|
|
|
|
|
|
|
|
or less (or the company has been public for five
|
|
|
|
|
|
|
|
|
|
|
|
years or less).
|
|
|
Approve a stock
|
|
|
World
|
|
|
United States
|
|
|
We generally recommend FOR when the plan
|
|
|
|
compensation plan (non-
|
|
|
|
|
|
|
|
|
results in dilution of 10% or less.
|
|
|
|
SPAC)
|
|
|
|
|
|
|
|
|
|
|
|
|
Approve a stock
|
|
World
|
|
|
|
|
We recommend a vote AGAINST this proposal
|
|
|
compensation plan (SPAC)
|
|
|
|
|
|
|
|
because according to our policy, this proposal
|
|
|
|
|
|
|
|
|
|
|
|
would dilute shareholder value in this special
|
|
|
|
|
|
|
|
|
|
|
|
purpose acquisition company and is therefore
|
|
|
|
|
|
|
|
|
|
|
|
not in the shareholders' best interests. Because
|
|
|
|
|
|
|
|
|
|
|
|
the company is a SPAC, management is already
|
|
|
|
|
|
|
|
|
|
|
|
highly incentivized through founder shares and
|
|
|
|
|
|
|
|
|
|
|
|
warrants, and an incentive stock option plan
|
|
|
|
|
|
|
|
|
|
|
|
would be unnecessary and potentially excessive.
|
|
|
Approve an employee
|
|
|
World
|
|
|
|
|
|
We generally recommend FOR when the plan is
|
|
|
|
stock purchase plan
|
|
|
|
|
|
|
|
|
qualified under Section 423(c) or has dilution of
|
|
|
|
|
|
|
|
|
|
|
|
|
10% or less and when there is no evergreen
|
|
|
|
|
|
|
|
|
|
|
|
|
provision.
|
|
|
|
Approve an
|
|
Emerging &
|
|
|
|
|
This proposal is considered on a case-by-case
|
|
|
employment/management
|
|
Frontier Asia-
|
|
|
|
|
basis by the guidelines committee.
|
|
|
/severance/partnership
|
|
Pacific, Western
|
|
|
|
|
|
|
|
|
agreement
|
|
Europe
|
|
|
|
|
|
|
|
|
Approve bonuses
|
|
|
Western
|
|
|
|
|
|
We generally recommend FOR when the total
|
|
|
|
|
|
|
Europe,
|
|
|
|
|
|
compensation is reasonable considering the
|
|
|
|
|
|
|
Australia, Israel
|
|
|
|
|
|
company's performance as measured by change
|
|
|
|
|
|
|
|
|
|
|
|
|
in adjusted stock price.
|
|
|
|
Approve
|
|
Western
|
|
|
|
|
We generally recommend FOR because
|
|
|
executive/director/related
|
|
Europe
|
|
|
|
|
according to our policy, the related party
|
|
|
party transactions
|
|
|
|
|
|
|
|
transaction is advisable, substantively and
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 16
|
Wealth-Focused Policy Overview
|
|
|
|
procedurally fair to, and in the best interests of
|
|
|
|
|
the Company and its shareholders.
|
|
|
|
|
|
|
Approve future executive
|
Western
|
|
We generally recommend FOR when the
|
|
remuneration
|
Europe, Eastern
|
|
proposed compensation includes performance-
|
|
|
Europe &
|
|
based metrics.
|
|
|
Central Asia,
|
|
|
|
|
Middle East &
|
|
|
|
|
North Africa
|
|
|
|
Approve other
|
World
|
|
This proposal is considered on a case-by-case
|
|
compensation
|
|
|
basis by the guidelines committee.
|
|
|
|
|
|
|
Approve the executive
|
Middle East &
|
|
We generally recommend FOR when the total
|
|
compensation policy
|
North Africa,
|
|
compensation is reasonable considering the
|
|
|
Western
|
|
company's performance as measured by change
|
|
|
Europe, Eastern
|
|
in adjusted stock price.
|
|
|
Europe &
|
|
|
|
|
Central Asia
|
|
|
|
Approve the non-executive
|
Emerging &
|
|
We recommend FOR this Proposal, because
|
|
directors' compensation
|
Frontier Asia-
|
|
according to our policy, the proposed non-
|
|
|
Pacific, Western
|
|
executive directors’ compensation is
|
|
|
Europe, Eastern
|
|
commensurate with their contributions and
|
|
|
Europe &
|
|
supports the company in remaining competitive
|
|
|
Central Asia
|
|
in attracting and retaining skilled board
|
|
|
|
|
members.
|
|
Decide the frequency of
|
World
|
|
We generally recommend an annual frequency
|
|
the executive
|
|
|
for the say-on-pay vote.
|
|
compensation vote
|
|
|
|
|
Reduce the legal reserve
|
Emerging &
|
|
We generally recommend FOR because
|
|
|
Frontier Asia-
|
|
according to our policy, the proposed reduction
|
|
|
Pacific, Western
|
|
of legal reserves is commensurate with the
|
|
|
Europe,
|
|
Company’s current financial position and would
|
|
|
Developed
|
|
strengthen its cashflow.
|
|
|
Asia-Pacific
|
|
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 17
|
Wealth-Focused Policy Overview
Proposals by management | Directors
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Allow for the removal of
|
|
|
World
|
|
|
|
|
|
We generally recommend AGAINST the proposal
|
|
|
|
directors only with cause
|
|
|
|
|
|
|
|
|
because according to our policy, directors should
|
|
|
|
|
|
|
|
|
|
|
|
|
be removed with or without cause. This level of
|
|
|
|
|
|
|
|
|
|
|
|
|
flexibility allows the Company to make
|
|
|
|
|
|
|
|
|
|
|
|
|
necessary changes to its leadership when
|
|
|
|
|
|
|
|
|
|
|
|
|
deemed appropriate. Allowing for the removal
|
|
|
|
|
|
|
|
|
|
|
|
|
of directors with or without cause ensures that
|
|
|
|
|
|
|
|
|
|
|
|
|
the Board can effectively address issues such as
|
|
|
|
|
|
|
|
|
|
|
|
|
performance concerns and maintain the best
|
|
|
|
|
|
|
|
|
|
|
|
|
interests of the Company and its shareholders.
|
|
|
|
Allow for the removal of
|
|
World
|
|
|
|
|
We generally recommend a vote FOR because
|
|
|
directors without cause
|
|
|
|
|
|
|
|
according to our policy, allowing shareholders to
|
|
|
|
|
|
|
|
|
|
|
|
remove a director without cause enhances
|
|
|
|
|
|
|
|
|
|
|
|
accountability and strengthens shareholder
|
|
|
|
|
|
|
|
|
|
|
|
rights. This provision empowers shareholders to
|
|
|
|
|
|
|
|
|
|
|
|
take action if they believe a director is not acting
|
|
|
|
|
|
|
|
|
|
|
|
in the best interests of the company, ensuring
|
|
|
|
|
|
|
|
|
|
|
|
greater transparency and governance.
|
|
|
Approve director
|
|
|
World
|
|
|
|
|
|
We generally recommend FOR because
|
|
|
|
indemnification
|
|
|
|
|
|
|
|
|
according to our policy, approval of director
|
|
|
|
|
|
|
|
|
|
|
|
|
indemnification would enable the Company to
|
|
|
|
|
|
|
|
|
|
|
|
|
provide a greater scope of protection to
|
|
|
|
|
|
|
|
|
|
|
|
|
directors in cases of litigations. Further, such a
|
|
|
|
|
|
|
|
|
|
|
|
|
provision would also help the Company to
|
|
|
|
|
|
|
|
|
|
|
|
|
attract, retain and motivate its directors whose
|
|
|
|
|
|
|
|
|
|
|
|
|
efforts are essential to the Company's success.
|
|
|
|
Approve director liability
|
|
World
|
|
|
|
|
We generally recommend FOR because
|
|
|
insurance
|
|
|
|
|
|
|
|
according to our policy, approval of director
|
|
|
|
|
|
|
|
|
|
|
|
liability insurance would enable the Company to
|
|
|
|
|
|
|
|
|
|
|
|
provide a greater scope of protection to
|
|
|
|
|
|
|
|
|
|
|
|
directors in cases of litigations. Further, such a
|
|
|
|
|
|
|
|
|
|
|
|
provision would also help the Company to
|
|
|
|
|
|
|
|
|
|
|
|
attract, retain and motivate its directors whose
|
|
|
|
|
|
|
|
|
|
|
|
efforts are essential to the Company's success.
|
|
|
Approve election and
|
|
|
Developed
|
|
|
|
|
|
We generally recommend FOR when the
|
|
|
|
remuneration for the
|
|
|
Asia-Pacific,
|
|
|
|
|
|
director(s) passes our election of director test
|
|
|
|
executive director(s)
|
|
|
|
|
|
|
|
|
and the executive compensation passes our test.
|
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 18
|
Wealth-Focused Policy Overview
|
|
Western
|
|
If any director or the executive compensation
|
|
|
Europe
|
|
does not pass our tests, we will recommend
|
|
|
|
|
against the proposal.
|
|
Approve election and
|
Developed
|
|
We generally recommend FOR when the change
|
|
remuneration for the non-
|
Asia-Pacific,
|
|
in adjusted stock price over the director's tenure
|
|
executive director(s)
|
Western
|
|
is not poor (given that the director tenure is at
|
|
|
Europe
|
|
least three years) and when the candidate
|
|
|
|
|
attended at least 75% of all board and
|
|
|
|
|
committee meetings.
|
|
Approve financial
|
Western
|
|
We generally recommend FOR because
|
|
statements and discharge
|
Europe, Eastern
|
|
according to our policy, the financial statements
|
|
directors
|
Europe &
|
|
give a true and fair view of the financial position
|
|
|
Central Asia
|
|
of the Company for the recent fiscal year, and of
|
|
|
|
|
its financial performance and its cash flows for
|
|
|
|
|
the year then ended in accordance with the law.
|
|
Approve the directors'
|
Western
|
|
We generally recommend FOR because approval
|
|
report
|
Europe, Eastern
|
|
of the directors' report is in the best interests of
|
|
|
Europe &
|
|
the Company and its shareholders.
|
|
|
Central Asia
|
|
|
|
Approve the discharge of
|
Western
|
|
We generally recommend FOR because
|
|
the board and president
|
Europe, Eastern
|
|
according to our policy, we find no breach of
|
|
|
Europe &
|
|
fiduciary duty that compromised the Company
|
|
|
Central Asia
|
|
and shareholders’ interests for the fiscal year
|
|
|
|
|
that has ended.
|
|
Approve the discharge of
|
Western
|
|
We generally recommend FOR because
|
|
the management board
|
Europe, Eastern
|
|
according to our policy, we find no breach of
|
|
|
Europe &
|
|
fiduciary duty that compromised the Company
|
|
|
Central Asia
|
|
and shareholders’ interests for the fiscal year
|
|
|
|
|
that has ended.
|
|
Approve the discharge of
|
Western
|
|
We generally recommend FOR because
|
|
the supervisory board
|
Europe, Eastern
|
|
according to our policy, we find no breach of
|
|
|
Europe &
|
|
fiduciary duty that compromised the Company
|
|
|
Central Asia
|
|
and shareholders’ interests for the fiscal year
|
|
|
|
|
that has ended.
|
|
Approve the previous
|
Western
|
|
We generally recommend FOR because
|
|
board's actions
|
Europe, Eastern
|
|
according to our policy, we find no breach of
|
|
|
Europe &
|
|
fiduciary duty that compromised the Company
|
|
|
Central Asia
|
|
and shareholders’ interests for the fiscal year
|
|
|
|
|
that has ended.
|
|
Approve the spill
|
Australia
|
|
We generally recommend FOR this resolution
|
|
resolution
|
|
|
when the company has failed our executive
|
|
|
|
|
compensation test.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 19
|
Wealth-Focused Policy Overview
|
Authorize exculpation of
|
World
|
|
We generally recommend a vote FOR because
|
|
officers (DGCL)
|
|
|
according to our policy, implementation of the
|
|
|
|
|
exculpation provision pursuant to Delaware Law
|
|
|
|
|
will enable the Company to attract, retain and
|
|
|
|
|
motivate its officers whose efforts are essential
|
|
|
|
|
to the Company's success. Additionally,
|
|
|
|
|
Delaware's exculpation law strikes a balanced
|
|
|
|
|
approach, offering protection to directors while
|
|
|
|
|
ensuring accountability for significant breaches
|
|
|
|
|
of their fiduciary duties.
|
|
Authorize the board to
|
Western
|
|
We generally recommend FOR because approval
|
|
execute legal formalities
|
Europe, Eastern
|
|
of the proposal is necessary in order to carry out
|
|
|
Europe &
|
|
the legal formalities related to the meeting.
|
|
|
Central Asia,
|
|
|
|
|
Emerging &
|
|
|
|
|
Frontier Asia-
|
|
|
|
|
Pacific
|
|
|
|
Authorize the board to fill
|
World
|
|
We generally recommend FOR if the appointees
|
|
vacancies
|
|
|
will face a shareholder vote at the next annual
|
|
|
|
|
meeting.
|
|
Change the size of the
|
World
|
|
We generally recommend FOR if the board size
|
|
board of directors
|
|
|
is between 5 and 15.
|
|
Classify the board
|
World
|
|
We generally recommend AGAINST because
|
|
|
|
|
according to our policy, staggered terms for
|
|
|
|
|
directors increase the difficulty for shareholders
|
|
|
|
|
to make fundamental changes to the
|
|
|
|
|
composition and behavior of a board. We prefer
|
|
|
|
|
that the entire board of a company be elected
|
|
|
|
|
annually to provide appropriate responsiveness
|
|
|
|
|
to shareholders.
|
|
Declassify the board
|
World
|
|
We generally recommend FOR because
|
|
|
|
|
according to our policy, staggered terms for
|
|
|
|
|
directors increase the difficulty for shareholders
|
|
|
|
|
to make fundamental changes to the
|
|
|
|
|
composition and behavior of a board. We prefer
|
|
|
|
|
that the entire board of a company be elected
|
|
|
|
|
annually to provide appropriate responsiveness
|
|
|
|
|
to shareholders.
|
|
Delegate authority to a
|
Western
|
|
We generally recommend FOR because the
|
|
committee
|
Europe
|
|
delegation of authority to the committee is in
|
|
|
|
|
the best interests of the Company and its
|
|
|
|
|
shareholders.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 20
|
Wealth-Focused Policy Overview
|
Elect a company
|
Western
|
|
We generally recommend FOR because
|
|
clerk/secretary
|
Europe, Eastern
|
|
according to our policy, the nominee appears
|
|
|
Europe &
|
|
qualified.
|
|
|
Central Asia
|
|
|
|
Elect a director to board
|
World
|
|
We generally recommend FOR when the change
|
|
|
|
|
in adjusted stock price over the director's tenure
|
|
|
|
|
is not poor (given that the director tenure is at
|
|
|
|
|
least three years) and when the candidate
|
|
|
|
|
attended at least 75% of all board and
|
|
|
|
|
committee meetings.
|
|
Elect a director to
|
World
|
|
We generally recommend FOR when the change
|
|
committee
|
|
|
in adjusted stock price over the director's tenure
|
|
|
|
|
is not poor (given that the director tenure is at
|
|
|
|
|
least three years) and when the candidate
|
|
|
|
|
attended at least 75% of all board and
|
|
|
|
|
committee meetings.
|
|
Elect directors and appoint
|
Western
|
|
We generally recommend FOR when the
|
|
the auditor
|
Europe
|
|
director(s) passes our election of director test
|
|
|
|
|
and the auditor passes our auditor ratification
|
|
|
|
|
test. If any director or the auditor does not pass
|
|
|
|
|
our tests, we will recommend against the
|
|
|
|
|
proposal.
|
|
Elect directors and fix the
|
Canada,
|
|
We generally recommend FOR when the change
|
|
number of directors
|
Western
|
|
in adjusted stock price over the director's tenure
|
|
|
Europe
|
|
is not poor (given that the director tenure is at
|
|
|
|
|
least three years) and when the candidate
|
|
|
|
|
attended at least 75% of all board and
|
|
|
|
|
committee meetings.
|
|
Elect multiple directors to
|
World
|
United States,
|
We generally recommend FOR when each
|
|
the board
|
|
United
|
director passes our election of director test. If
|
|
|
|
Kingdom
|
any director does not pass this test, we will
|
|
|
|
|
recommend against the proposal.
|
|
Eliminate the retirement
|
World
|
|
We generally recommend FOR this proposal
|
|
age requirement
|
|
|
because, in accordance with our policy, the
|
|
|
|
|
Company and its shareholders are in the best
|
|
|
|
|
position to determine the approach to corporate
|
|
|
|
|
governance, particularly board composition.
|
|
|
|
|
Imposing inflexible rules, such as age limits for
|
|
|
|
|
outside directors, does not necessarily correlate
|
|
|
|
|
with returns or benefits for shareholders. Similar
|
|
|
|
|
to arbitrary term limits, age limits could force
|
|
|
|
|
valuable directors off the board solely based on
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 21
|
Wealth-Focused Policy Overview
|
|
|
|
their age, potentially undermining the
|
|
|
|
|
effectiveness of the board.
|
|
Fix the number of directors
|
Canada,
|
|
We generally recommend FOR if the board size
|
|
|
Western
|
|
is between 5 and 15.
|
|
|
Europe
|
|
|
|
Receive the directors'
|
World
|
North America
|
We generally recommend FOR because
|
|
report
|
|
|
according to our policy, the financial statements
|
|
|
|
|
give a true and fair view of the financial position
|
|
|
|
|
of the Company for the recent fiscal year, and of
|
|
|
|
|
its financial performance and its cash flows for
|
|
|
|
|
the year that has ended.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 22
|
Wealth-Focused Policy Overview
Proposals by management | Legal and compliance
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Adopt an exclusive forum
|
|
|
World
|
|
|
|
|
|
We generally recommend FOR because
|
|
|
|
for disputes
|
|
|
|
|
|
|
|
|
according to our policy, having an exclusive
|
|
|
|
|
|
|
|
|
|
|
|
|
forum will allow the Company to address
|
|
|
|
|
|
|
|
|
|
|
|
|
disputes and litigations in an exclusive
|
|
|
|
|
|
|
|
|
|
|
|
|
jurisdiction, with familiarity of the law, and
|
|
|
|
|
|
|
|
|
|
|
|
|
reduce the administrative cost and burden
|
|
|
|
|
|
|
|
|
|
|
|
|
related to settlement.
|
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 23
|
Wealth-Focused Policy Overview
Proposals by management | M&A / Structure
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Adopt an anti-greenmail
|
|
|
World
|
|
|
|
|
|
We generally recommend FOR because
|
|
|
|
provision
|
|
|
|
|
|
|
|
|
according to our policy, the adoption of an anti-
|
|
|
|
|
|
|
|
|
|
|
|
|
greenmail provision will prevent the likelihood
|
|
|
|
|
|
|
|
|
|
|
|
|
of potential hostile takeover which could be
|
|
|
|
|
|
|
|
|
|
|
|
|
detrimental to the shareholders’ interests.
|
|
|
|
Advise on merger related
|
|
World
|
|
|
|
|
We generally recommend FOR when 1) the total
|
|
|
compensation
|
|
|
|
|
|
|
|
severance package doesn't exceed 3X the
|
|
|
|
|
|
|
|
|
|
|
|
previous year's CAP for the highest paid NEO.
|
|
|
Approve a joint venture
|
|
|
World
|
|
|
|
|
|
This proposal is considered on a case-by-case
|
|
|
|
agreement
|
|
|
|
|
|
|
|
|
basis by the guidelines committee.
|
|
|
|
Approve a liquidation plan
|
|
World
|
|
|
|
|
We generally recommend FOR if the following
|
|
|
|
|
|
|
|
|
|
|
|
conditions are met: the transaction is the best
|
|
|
|
|
|
|
|
|
|
|
|
strategic alternative for the company and the
|
|
|
|
|
|
|
|
|
|
|
|
appraisal value is fair.
|
|
|
Approve an anti-takeover
|
|
|
Australia
|
|
|
|
|
|
This proposal is considered on a case-by-case
|
|
|
|
measure(s)
|
|
|
|
|
|
|
|
|
basis by the guidelines committee.
|
|
|
|
Approve an extension
|
|
World
|
|
|
|
|
We generally recommend FOR when the trust
|
|
|
amendment proposal (for
|
|
|
|
|
|
|
|
deposit payment is not less than the previous
|
|
|
SPACs)
|
|
|
|
|
|
|
|
trust deposit payment.
|
|
|
Approve an M&A
|
|
|
World
|
|
|
|
|
|
This proposal is considered on a case-by-case
|
|
|
|
agreement (sale or
|
|
|
|
|
|
|
|
|
basis by the guidelines committee.
|
|
|
|
purchase)
|
|
|
|
|
|
|
|
|
|
|
|
|
Approve an M&A-related
|
|
World
|
|
|
|
|
This proposal is considered on a case-by-case
|
|
|
share issuance
|
|
|
|
|
|
|
|
basis by the guidelines committee.
|
|
|
|
|
|
|
|
|
|
|
|
|
Approve an opt-out plan
|
|
|
World
|
|
|
|
|
|
This proposal is considered on a case-by-case
|
|
|
|
|
|
|
|
|
|
|
|
|
basis by the guidelines committee.
|
|
|
|
Approve the restructuring
|
|
World
|
|
|
|
|
This proposal is considered on a case-by-case
|
|
|
plan
|
|
|
|
|
|
|
|
basis by the guidelines committee.
|
|
|
|
|
|
|
|
|
|
|
|
|
Change the domicile /
|
|
|
World
|
|
|
|
|
|
We generally recommend FOR because
|
|
|
|
jurisdiction of
|
|
|
|
|
|
|
|
|
according to our policy, changing the Company’s
|
|
|
|
incorporation
|
|
|
|
|
|
|
|
|
legal domicile is necessary to align the legal
|
|
|
|
|
|
|
|
|
|
|
|
|
structure of the Company in a manner that is
|
|
|
|
|
|
|
|
|
|
|
|
|
more consistent with their business objectives.
|
|
|
|
Proceed with bankruptcy
|
|
World
|
|
|
|
|
We generally recommend FOR because
|
|
|
|
|
|
|
|
|
|
|
|
according to our policy, approval of the
|
|
|
|
|
|
|
|
|
|
|
|
bankruptcy plan is the best available alternative
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 24
|
Wealth-Focused Policy Overview
|
|
|
|
in order for the Company to provide a
|
|
|
|
|
reasonable value for its shareholders.
|
|
|
|
|
|
|
Remove an antitakeover
|
World
|
|
We recommend FOR this Proposal, because,
|
|
provision(s)
|
|
|
according to our policy, the removal of the
|
|
|
|
|
antitakeover provision can increase shareholder
|
|
|
|
|
value by enhancing market responsiveness and
|
|
|
|
|
facilitating potential takeovers that may lead to
|
|
|
|
|
premium buyouts.
|
|
Ratify a poison pill
|
World
|
|
We generally recommend a vote FOR because
|
|
|
|
|
according to our policy, approval of the proposal
|
|
|
|
|
will acknowledge both the advantages and
|
|
|
|
|
inherent risks of implementing a shareholder
|
|
|
|
|
rights plan, or poison pill. While these plans can
|
|
|
|
|
deter hostile takeovers, they also carry the risk
|
|
|
|
|
of management entrenchment in some cases.
|
|
|
|
|
Ensuring that shareholders are given a voice on
|
|
|
|
|
the advisability of such a plan is crucial to
|
|
|
|
|
safeguarding the Company from these risks,
|
|
|
|
|
promoting transparency, and maintaining a
|
|
|
|
|
balance between protecting shareholder
|
|
|
|
|
interests and preventing potential misuse of the
|
|
|
|
|
plan.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 25
|
Wealth-Focused Policy Overview
Proposals by management | Meeting and Proxy Statement
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Adopt notice and access
|
|
|
World
|
|
|
|
|
|
We generally recommend FOR because
|
|
|
|
provisions
|
|
|
|
|
|
|
|
|
according to our policy, approval of the notice
|
|
|
|
|
|
|
|
|
|
|
|
|
and access provision would provide
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholders with sufficient disclosure and
|
|
|
|
|
|
|
|
|
|
|
|
|
ample time to make informed decisions
|
|
|
|
|
|
|
|
|
|
|
|
|
regarding the election of directors at
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholder meetings. This provision ensures
|
|
|
|
|
|
|
|
|
|
|
|
|
that shareholders have the opportunity to
|
|
|
|
|
|
|
|
|
|
|
|
|
review relevant information regarding the
|
|
|
|
|
|
|
|
|
|
|
|
|
nominees, the Company's performance, and
|
|
|
|
|
|
|
|
|
|
|
|
|
other important matters, therefore enabling the
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholders to participate meaningfully in the
|
|
|
|
|
|
|
|
|
|
|
|
|
governance process.
|
|
|
|
Approve administrative
|
|
World
|
|
|
|
|
We recommend FOR this Proposal, because
|
|
|
and/or procedural items
|
|
|
|
|
|
|
|
according to our policy, approving administrative
|
|
|
|
|
|
|
|
|
|
|
|
and procedural items related to the convening
|
|
|
|
|
|
|
|
|
|
|
|
of shareholder meetings ensures proper
|
|
|
|
|
|
|
|
|
|
|
|
organization, compliance with governance
|
|
|
|
|
|
|
|
|
|
|
|
requirements, and smooth conduct of
|
|
|
|
|
|
|
|
|
|
|
|
proceedings.
|
|
|
Change the
|
|
|
World
|
|
|
|
|
|
We generally recommend FOR because
|
|
|
|
location/date/time of a
|
|
|
|
|
|
|
|
|
according to our policy, the proposed change
|
|
|
|
shareholder meeting
|
|
|
|
|
|
|
|
|
will increase the likelihood of increased
|
|
|
|
|
|
|
|
|
|
|
|
|
attendance rate in meetings, not to mention the
|
|
|
|
|
|
|
|
|
|
|
|
|
benefits of flexibility and improved accessibility
|
|
|
|
|
|
|
|
|
|
|
|
|
to shareholders.
|
|
|
|
Indicate if you are a
|
|
Canada, Israel,
|
|
|
|
|
This test will indicate NO if the shareholder is
|
|
|
controlling shareholder or
|
|
Latin America
|
|
|
|
|
not a controlling shareholder and does not have
|
|
|
have a personal interest in
|
|
|
|
|
|
|
|
a personal interest in the approval of this
|
|
|
the proposal
|
|
|
|
|
|
|
|
proposal.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 26
|
Wealth-Focused Policy Overview
Proposals by management | Mutual Fund
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Adopt an investment policy
|
|
|
World
|
|
|
|
|
|
We generally recommend FOR if the investment
|
|
|
|
|
|
|
|
|
|
|
|
|
strategy is cogent.
|
|
|
|
Approve the company as
|
|
World
|
|
|
|
|
This proposal is considered on a case-by-case
|
|
|
investment trust
|
|
|
|
|
|
|
|
basis by the guidelines committee.
|
|
|
|
|
|
|
|
|
|
|
|
|
Approve the fundamental
|
|
|
World
|
|
|
|
|
|
We generally recommend FOR because
|
|
|
|
investment objective
|
|
|
|
|
|
|
|
|
according to our policy, a fundamental
|
|
|
|
|
|
|
|
|
|
|
|
|
investment objective for funds will ensure that
|
|
|
|
|
|
|
|
|
|
|
|
|
any revision or matter related to the fund’s
|
|
|
|
|
|
|
|
|
|
|
|
|
activities will be brought up for shareholder
|
|
|
|
|
|
|
|
|
|
|
|
|
approval, thereby protecting their interests as
|
|
|
|
|
|
|
|
|
|
|
|
|
shareowners. By involving shareholders in key
|
|
|
|
|
|
|
|
|
|
|
|
|
decisions, the Company reinforces transparency,
|
|
|
|
|
|
|
|
|
|
|
|
|
accountability, and the protection of
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholder value.
|
|
|
|
Approve the investment
|
|
World
|
|
|
|
|
We generally recommend FOR if the following
|
|
|
advisory agreement
|
|
|
|
|
|
|
|
conditions are met: the investment fees are
|
|
|
|
|
|
|
|
|
|
|
|
reasonable (3% or less) and the investment
|
|
|
|
|
|
|
|
|
|
|
|
strategy is cogent.
|
|
|
Approve the non-
|
|
|
World
|
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
|
fundamental investment
|
|
|
|
|
|
|
|
|
according to our policy, a fundamental
|
|
|
|
objective
|
|
|
|
|
|
|
|
|
investment objective for funds will ensure that
|
|
|
|
|
|
|
|
|
|
|
|
|
any revision or matter related to the fund’s
|
|
|
|
|
|
|
|
|
|
|
|
|
activities will be brought up for shareholder
|
|
|
|
|
|
|
|
|
|
|
|
|
approval, thereby protecting their interests as
|
|
|
|
|
|
|
|
|
|
|
|
|
shareowners.
|
|
|
|
Approve the reorganization
|
|
World
|
|
|
|
|
This proposal is considered on a case-by-case
|
|
|
|
|
|
|
|
|
|
|
|
basis by the guidelines committee.
|
|
|
|
|
|
|
|
|
|
|
|
|
Approve the sub-
|
|
|
World
|
|
|
|
|
|
We generally recommend FOR sub-investment
|
|
|
|
investment advisory
|
|
|
|
|
|
|
|
|
advisory agreements when the sub-advisory
|
|
|
|
agreement
|
|
|
|
|
|
|
|
|
fees are paid by the primary adviser and the
|
|
|
|
|
|
|
|
|
|
|
|
|
investment strategy is cogent.
|
|
|
|
Change the fund's
|
|
World
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
fundamental restriction to
|
|
|
|
|
|
|
|
according to our policy, approval of the proposal
|
|
|
non-fundamental
|
|
|
|
|
|
|
|
would increase the Fund’s exposure to
|
|
|
|
|
|
|
|
|
|
|
|
significant losses arising from investment in
|
|
|
|
|
|
|
|
|
|
|
|
high-risk assets. Moreover, contrary to a
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 27
|
Wealth-Focused Policy Overview
|
|
|
|
fundamental investment restriction, non-
|
|
|
|
|
fundamental investment restrictions are often
|
|
|
|
|
focused on short-term investing which is subject
|
|
|
|
|
to market volatility and fluctuations.
|
|
Convert the closed-end
|
World
|
|
We generally recommend FOR because
|
|
fund to an open-end fund
|
|
|
according to our policy, the conversion to an
|
|
|
|
|
open-end fund would provide for portfolio
|
|
|
|
|
diversification hence reducing the Company's
|
|
|
|
|
risk exposure, and at the same time providing
|
|
|
|
|
greater liquidity to its shareholders.
|
|
Issue/approve a 12b-1 plan
|
World
|
|
We generally recommend FOR because
|
|
(the distribution of funds
|
|
|
according to our policy, approval of the 12b-1
|
|
through intermediaries)
|
|
|
plan would enable the Fund to facilitate its
|
|
|
|
|
distribution and sale through various
|
|
|
|
|
intermediaries, which would be beneficial in
|
|
|
|
|
improving its asset position.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 28
|
Wealth-Focused Policy Overview
Proposals by management | Other
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Amend other
|
|
|
World
|
|
|
|
|
|
This proposal is considered on a case-by-case
|
|
|
|
articles/bylaws/charter
|
|
|
|
|
|
|
|
|
basis by the guidelines committee.
|
|
|
|
Appoint a rating agency
|
|
Western
|
|
|
|
|
We generally recommend FOR because the
|
|
|
|
|
|
Europe, Eastern
|
|
|
|
|
appointment of the proposed rating agency is in
|
|
|
|
|
|
Europe &
|
|
|
|
|
the best interests of the Company and its
|
|
|
|
|
|
Central Asia,
|
|
|
|
|
shareholders.
|
|
|
|
|
|
Emerging &
|
|
|
|
|
|
|
|
|
|
|
|
Frontier Asia-
|
|
|
|
|
|
|
|
|
|
|
|
Pacific,
|
|
|
|
|
|
|
|
|
|
|
|
Developed
|
|
|
|
|
|
|
|
|
|
|
|
Asia-Pacific,
|
|
|
|
|
|
|
|
|
|
|
|
Latin America
|
|
|
|
|
|
|
|
|
Approve appointment of a
|
|
|
Middle East &
|
|
|
|
|
|
We recommend FOR this Proposal, because
|
|
|
|
(non-director) executive
|
|
|
North Africa,
|
|
|
|
|
|
according to our policy, approving the
|
|
|
|
|
|
|
Western
|
|
|
|
|
|
appointment of the executive ensures the
|
|
|
|
|
|
|
Europe, Eastern
|
|
|
|
|
|
company has the necessary management in
|
|
|
|
|
|
|
Europe &
|
|
|
|
|
|
place to support operational continuity.
|
|
|
|
|
|
|
Central Asia
|
|
|
|
|
|
|
|
|
|
Approve company related-
|
|
Emerging &
|
|
|
|
|
We recommend FOR the proposed transaction
|
|
|
party transactions
|
|
Frontier Asia-
|
|
|
|
|
as we believe it will allow the company to
|
|
|
|
|
|
Pacific,
|
|
|
|
|
execute on its operational and strategic
|
|
|
|
|
|
Developed
|
|
|
|
|
objectives.
|
|
|
|
|
|
Asia-Pacific,
|
|
|
|
|
|
|
|
|
|
|
|
Western
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
|
Approve other company
|
|
|
World
|
|
|
|
|
|
This proposal is considered on a case-by-case
|
|
|
|
policies
|
|
|
|
|
|
|
|
|
basis by the guidelines committee.
|
|
|
|
Approve political &
|
|
United
|
|
|
|
|
We generally recommend FOR because
|
|
|
charitable contributions
|
|
Kingdom
|
|
|
|
|
according to our policy, it is necessary to allow
|
|
|
|
|
|
|
|
|
|
|
|
the Company to fund charitable and political
|
|
|
|
|
|
|
|
|
|
|
|
activities, which is in the best interests of
|
|
|
|
|
|
|
|
|
|
|
|
shareholders. Such contributions can enhance
|
|
|
|
|
|
|
|
|
|
|
|
the Company’s reputation, strengthen
|
|
|
|
|
|
|
|
|
|
|
|
stakeholder relationships, and support its
|
|
|
|
|
|
|
|
|
|
|
|
broader social and corporate responsibility
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 29
|
Wealth-Focused Policy Overview
|
|
|
|
goals, ultimately benefiting long-term
|
|
|
|
|
shareholder value.
|
|
|
|
|
|
|
Approve the appointment
|
World
|
|
We generally recommend FOR when the change
|
|
of a (director) executive
|
|
|
in adjusted stock price over the director's tenure
|
|
|
|
|
is not poor (given that the director tenure is at
|
|
|
|
|
least three years) and when the candidate
|
|
|
|
|
attended at least 75% of all board and
|
|
|
|
|
committee meetings.
|
|
Approve the company
|
World
|
|
We generally recommend FOR because
|
|
name change
|
|
|
according to our policy, the proposed name
|
|
|
|
|
change supports strategic changes that enhance
|
|
|
|
|
the Company’s business objectives.
|
|
|
|
|
Furthermore, the proposed name change will
|
|
|
|
|
more effectively reflect the Company's mission
|
|
|
|
|
and vision, thereby strengthening its marketing
|
|
|
|
|
and branding efforts and improving its overall
|
|
|
|
|
market positioning.
|
|
Approve the continuance
|
Canada
|
|
We generally recommend FOR because
|
|
of company
|
|
|
according to our policy, approval of this proposal
|
|
|
|
|
is in the best interests of the Company and its
|
|
|
|
|
shareholders.
|
|
Approve the convening of
|
Western
|
|
We generally recommend FOR because approval
|
|
the corporate assembly
|
Europe
|
|
of the convening of the corporate assembly or
|
|
|
|
|
shareholders' meeting is in the best interests of
|
|
|
|
|
the Company and its shareholders.
|
|
Approve the staking
|
World
|
|
We recommend FOR the Proposal, because
|
|
consideration
|
|
|
according to our policy, approving staking
|
|
|
|
|
consideration in blockchain networks enhances
|
|
|
|
|
yield by supporting network security and
|
|
|
|
|
transaction validation. This complies with
|
|
|
|
|
regulatory standards, reflecting responsible
|
|
|
|
|
digital asset management and industry best
|
|
|
|
|
practices.
|
|
Approve the staking fee
|
World
|
|
We recommend FOR approval of the staking fee,
|
|
|
|
|
because according to our policy, the fee helps
|
|
|
|
|
cover the Company’s operational costs
|
|
|
|
|
associated with staking activities. The fee aligns
|
|
|
|
|
with industry standards and ensures
|
|
|
|
|
transparency and fairness to clients in digital
|
|
|
|
|
asset staking services.
|
|
Attend to other business
|
World
|
|
We generally recommend FOR when the
|
|
|
|
|
company is domiciled in the US or Canada.
|
|
|
|
|
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 30
|
Wealth-Focused Policy Overview
|
Ratify decisions made in
|
Western
|
|
We generally recommend FOR when the act is
|
|
the prior fiscal year
|
Europe, Eastern
|
|
related to routine matters such as the
|
|
|
Europe &
|
|
distribution of dividends, release from liability,
|
|
|
Central Asia
|
|
or decisions made in the fiscal year that has
|
|
|
|
|
ended.
|
|
Reimburse proxy contest
|
World
|
|
This proposal is considered on a case-by-case
|
|
expenses
|
|
|
basis by the guidelines committee.
|
|
|
|
|
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 31
|
Wealth-Focused Policy Overview
Proposals by management | Shareholder Rights
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Adopt an advanced notice
|
|
|
Canada
|
|
|
|
|
|
We generally recommend FOR when the policy
|
|
|
|
requirement
|
|
|
|
|
|
|
|
|
stipulates that nominations must be submitted
|
|
|
|
|
|
|
|
|
|
|
|
|
no later than 30-65 days before the annual
|
|
|
|
|
|
|
|
|
|
|
|
|
meeting and that nominations must be
|
|
|
|
|
|
|
|
|
|
|
|
|
submitted no earlier than 30-65 days prior to
|
|
|
|
|
|
|
|
|
|
|
|
|
the annual meeting.
|
|
|
|
Adopt an advanced notice
|
|
United States,
|
|
|
|
|
We generally recommend FOR when the policy
|
|
|
requirement
|
|
Australia
|
|
|
|
|
stipulates that nominations must be submitted
|
|
|
|
|
|
|
|
|
|
|
|
no later than 60-90 days prior to the annual
|
|
|
|
|
|
|
|
|
|
|
|
meeting and that nominations must be
|
|
|
|
|
|
|
|
|
|
|
|
submitted no earlier than 120-150 days prior to
|
|
|
|
|
|
|
|
|
|
|
|
the annual meeting.
|
|
|
Adopt, renew, or amend a
|
|
|
World
|
|
|
|
|
|
We generally recommend FOR if the proposed
|
|
|
|
shareholder rights plan
|
|
|
|
|
|
|
|
|
plan expands rights for shareholders.
|
|
|
|
Adopt/increase proxy
|
|
World
|
|
|
|
|
We generally recommend a vote AGAINST
|
|
|
access
|
|
|
|
|
|
|
|
because according to our policy, , the adoption
|
|
|
|
|
|
|
|
|
|
|
|
of a "proxy access" bylaw is not a universal
|
|
|
|
|
|
|
|
|
|
|
|
solution to allegations of unresponsiveness to
|
|
|
|
|
|
|
|
|
|
|
|
shareholder concerns. We believe that voting
|
|
|
|
|
|
|
|
|
|
|
|
decisions should be based on the governance
|
|
|
|
|
|
|
|
|
|
|
|
practices and performance of individual
|
|
|
|
|
|
|
|
|
|
|
|
companies. We believe that implementing this
|
|
|
|
|
|
|
|
|
|
|
|
bylaw could undermine the integrity of the
|
|
|
|
|
|
|
|
|
|
|
|
director election process.
|
|
|
Allow virtual-only
|
|
|
World
|
|
|
|
|
|
We generally recommend FOR because
|
|
|
|
shareholder meetings
|
|
|
|
|
|
|
|
|
according to our policy, virtual meetings will
|
|
|
|
|
|
|
|
|
|
|
|
|
increase the likelihood of an improved
|
|
|
|
|
|
|
|
|
|
|
|
|
attendance rate in meetings, not to mention the
|
|
|
|
|
|
|
|
|
|
|
|
|
benefits of flexibility, reducing costs and
|
|
|
|
|
|
|
|
|
|
|
|
|
improved accessibility.
|
|
|
|
Approve preemptive rights
|
|
Western
|
|
|
|
|
We generally recommend FOR because
|
|
|
|
|
|
Europe
|
|
|
|
|
according to our policy, pre-emptive rights allow
|
|
|
|
|
|
|
|
|
|
|
|
shareholders to maintain their proportional
|
|
|
|
|
|
|
|
|
|
|
|
ownership in the Company in the event of new
|
|
|
|
|
|
|
|
|
|
|
|
share issuance, protecting their interests and
|
|
|
|
|
|
|
|
|
|
|
|
ensuring they are not diluted by future equity
|
|
|
|
|
|
|
|
|
|
|
|
offerings.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 32
|
Wealth-Focused Policy Overview
|
Eliminate preemptive rights
|
United
|
|
We generally recommend FOR because
|
|
|
Kingdom
|
|
according to our policy, the elimination of pre-
|
|
|
|
|
emptive rights would provide the Company with
|
|
|
|
|
greater flexibility to finance business
|
|
|
|
|
opportunities and conduct a rights issue without
|
|
|
|
|
being restricted by the stringent requirements of
|
|
|
|
|
statutory pre-emption provisions.
|
|
Establish the right to call a
|
World
|
|
We generally recommend FOR if the proposal
|
|
special meeting
|
|
|
will strengthen shareholder rights (i.e. lower the
|
|
|
|
|
threshold required to call a special meeting).
|
|
Expand the right to act by
|
World
|
|
We generally recommend FOR because
|
|
written consent
|
|
|
according to our policy, the right to act on
|
|
|
|
|
written consent allows an increased
|
|
|
|
|
participation of shareholders in the voting
|
|
|
|
|
process, thereby democratizing voting and
|
|
|
|
|
giving shareholders the right to act
|
|
|
|
|
independently from the management.
|
|
Redeem a shareholder
|
World
|
|
We generally recommend FOR when the
|
|
rights plan
|
|
|
additional shares for the beneficiaries of the
|
|
|
|
|
poison pill are more attractive than takeover by
|
|
|
|
|
a hostile party.
|
|
Restrict the right to act by
|
World
|
|
We generally recommend AGAINST because
|
|
written consent
|
|
|
according to our policy, the right to act on
|
|
|
|
|
written consent allows an increased
|
|
|
|
|
participation of shareholders in the voting
|
|
|
|
|
process, thereby democratizing voting and
|
|
|
|
|
giving the shareholders the right to act
|
|
|
|
|
independently from the management.
|
|
Restrict the right to call a
|
World
|
|
We generally recommend AGAINST the proposal
|
|
special meeting
|
|
|
because according to our policy, the ability of
|
|
|
|
|
shareholders to call special meetings is widely
|
|
|
|
|
regarded as an important aspect of good
|
|
|
|
|
corporate governance. We believe the
|
|
|
|
|
Company’s current threshold appropriately
|
|
|
|
|
balances the rights of shareholders to call a
|
|
|
|
|
special meeting with the broader interests of the
|
|
|
|
|
Company and its shareholders.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 33
|
Wealth-Focused Policy Overview
Proposals by management | Voting
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Adopt confidential voting
|
|
|
World
|
|
|
|
|
|
We generally recommend FOR because
|
|
|
|
|
|
|
|
|
|
|
|
|
according to our policy, approval of the proposal
|
|
|
|
|
|
|
|
|
|
|
|
|
will preserve the confidentiality and integrity of
|
|
|
|
|
|
|
|
|
|
|
|
|
vote outcomes.
|
|
|
|
Adopt unequal voting
|
|
World
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
rights
|
|
|
|
|
|
|
|
according to our policy, in order to provide equal
|
|
|
|
|
|
|
|
|
|
|
|
voting rights to all shareholders, companies
|
|
|
|
|
|
|
|
|
|
|
|
should not utilize dual class capital structures.
|
|
|
Amend the quorum/voting
|
|
|
World
|
|
|
|
|
|
We generally recommend FOR when the
|
|
|
|
requirement
|
|
|
|
|
|
|
|
|
proposed quorum is at least 33% of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
entitled to vote.
|
|
|
|
Approve cumulative voting
|
|
World
|
|
China
|
|
We generally recommend AGAINST because
|
|
|
|
|
|
|
|
|
|
|
|
according to our policy cumulative voting could
|
|
|
|
|
|
|
|
|
|
|
|
make it possible for an individual shareholder or
|
|
|
|
|
|
|
|
|
|
|
|
group of shareholders with special interests to
|
|
|
|
|
|
|
|
|
|
|
|
elect one or more directors to the Company’s
|
|
|
|
|
|
|
|
|
|
|
|
Board of directors to represent their particular
|
|
|
|
|
|
|
|
|
|
|
|
interests. Such a shareholder or group of
|
|
|
|
|
|
|
|
|
|
|
|
shareholders could have goals that are
|
|
|
|
|
|
|
|
|
|
|
|
inconsistent, and could conflict with, the
|
|
|
|
|
|
|
|
|
|
|
|
interests and goals of the majority of the
|
|
|
|
|
|
|
|
|
|
|
|
Company’s shareholders.
|
|
|
Approve cumulative voting
|
|
|
China
|
|
|
|
|
|
We generally recommend FOR because
|
|
|
|
|
|
|
|
|
|
|
|
|
according to our policy, cumulative voting allows
|
|
|
|
|
|
|
|
|
|
|
|
|
a significant group of shareholders to elect a
|
|
|
|
|
|
|
|
|
|
|
|
|
director of its choice - safeguarding minority
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholder interests and bringing independent
|
|
|
|
|
|
|
|
|
|
|
|
|
perspectives to Board decisions.
|
|
|
|
Approve plurality voting
|
|
World
|
|
|
|
|
We generally recommend for plurality voting
|
|
|
|
|
|
|
|
|
|
|
|
when plurality voting will only be used in
|
|
|
|
|
|
|
|
|
|
|
|
contested situations. In uncontested situations,
|
|
|
|
|
|
|
|
|
|
|
|
we do not prefer for plurality voting to be used.
|
|
|
Approve/increase
|
|
|
World
|
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
|
supermajority voting
|
|
|
|
|
|
|
|
|
according to our policy, a simple majority vote
|
|
|
|
|
|
|
|
|
|
|
|
|
will strengthen the Company’s corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
governance practice. Contrary to supermajority
|
|
|
|
|
|
|
|
|
|
|
|
|
voting, a simple majority standard will give the
|
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 34
|
Wealth-Focused Policy Overview
|
|
|
|
shareholders equal and fair representation in
|
|
|
|
|
the Company by limiting the power of
|
|
|
|
|
shareholders who own a large stake in the
|
|
|
|
|
entity, therefore, paving the way for a more
|
|
|
|
|
meaningful voting outcome.
|
|
Eliminate cumulative
|
World
|
|
We generally recommend FOR because
|
|
voting
|
|
|
according to our policy cumulative voting could
|
|
|
|
|
make it possible for an individual shareholder or
|
|
|
|
|
group of shareholders with special interests to
|
|
|
|
|
elect one or more directors to the Company’s
|
|
|
|
|
Board of directors to represent their particular
|
|
|
|
|
interests. Such a shareholder or group of
|
|
|
|
|
shareholders could have goals that are
|
|
|
|
|
inconsistent, and could conflict with, the
|
|
|
|
|
interests and goals of the majority of the
|
|
|
|
|
Company’s shareholders.
|
|
Eliminate or reduce
|
World
|
|
We generally recommend FOR because
|
|
supermajority voting
|
|
|
according to our policy, a simple majority vote
|
|
|
|
|
will strengthen the Company’s corporate
|
|
|
|
|
governance practice. Contrary to supermajority
|
|
|
|
|
voting, a simple majority standard will give the
|
|
|
|
|
shareholders equal and fair representation in
|
|
|
|
|
the Company by limiting the power of
|
|
|
|
|
shareholders who own a large stake in the entity
|
|
|
|
|
and paving the way for a more meaningful
|
|
|
|
|
voting outcome.
|
|
Eliminate unequal voting
|
World
|
|
We generally recommend FOR because
|
|
rights
|
|
|
according to our policy, companies should
|
|
|
|
|
ensure that all shareholders are provided with
|
|
|
|
|
equal voting rights, promoting fairness,
|
|
|
|
|
accountability, and alignment between
|
|
|
|
|
economic ownership and control. By adopting a
|
|
|
|
|
one-share, one-vote structure, the Company can
|
|
|
|
|
better uphold shareholder democracy and
|
|
|
|
|
support long-term value creation for all
|
|
|
|
|
investors.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 35
|
Wealth-Focused Policy Overview
Proposals by shareholders | Auditors
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Appoint an auditor
|
|
|
World
|
|
|
|
|
|
We generally recommend a vote AGAINST
|
|
|
|
|
|
|
|
|
|
|
|
|
because according to our policy, the
|
|
|
|
|
|
|
|
|
|
|
|
|
appointment of auditors is a responsibility
|
|
|
|
|
|
|
|
|
|
|
|
|
entrusted to the board of directors, specifically
|
|
|
|
|
|
|
|
|
|
|
|
|
the Audit Committee. In our view, the
|
|
|
|
|
|
|
|
|
|
|
|
|
procedures governing the selection of auditors
|
|
|
|
|
|
|
|
|
|
|
|
|
adhere to standard corporate governance and
|
|
|
|
|
|
|
|
|
|
|
|
|
accounting practices. Unless there are significant
|
|
|
|
|
|
|
|
|
|
|
|
|
concerns that could jeopardize the integrity and
|
|
|
|
|
|
|
|
|
|
|
|
|
independence of the auditors, we believe that
|
|
|
|
|
|
|
|
|
|
|
|
|
approving this proposal is neither necessary nor
|
|
|
|
|
|
|
|
|
|
|
|
|
justified at this time.
|
|
|
|
Limit auditor non-audit
|
|
World
|
|
|
|
|
We generally recommend FOR because
|
|
|
services
|
|
|
|
|
|
|
|
according to our policy, auditors should not
|
|
|
|
|
|
|
|
|
|
|
|
provide non-audit services. This practice ensures
|
|
|
|
|
|
|
|
|
|
|
|
the independence and integrity of the audit
|
|
|
|
|
|
|
|
|
|
|
|
process, maintaining objectivity and minimizing
|
|
|
|
|
|
|
|
|
|
|
|
any potential conflicts of interest that could
|
|
|
|
|
|
|
|
|
|
|
|
undermine the reliability of the Company's
|
|
|
|
|
|
|
|
|
|
|
|
financial reporting.
|
|
|
Rotate the auditor
|
|
|
World
|
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
|
|
|
|
|
|
|
|
|
|
according to our policy, we believe that it is in
|
|
|
|
|
|
|
|
|
|
|
|
|
the best interests of shareholders for the board
|
|
|
|
|
|
|
|
|
|
|
|
|
to maintain flexibility to choose and rotate
|
|
|
|
|
|
|
|
|
|
|
|
|
auditors.
|
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 36
|
Wealth-Focused Policy Overview
Proposals by shareholders | Board Report
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Report on board member
|
|
|
World
|
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
|
information
|
|
|
|
|
|
|
|
|
according to our policy, the information being
|
|
|
|
|
|
|
|
|
|
|
|
|
requested in the shareholder proposal is
|
|
|
|
|
|
|
|
|
|
|
|
|
unnecessary and will not result in any additional
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit to the shareholders.
|
|
|
|
Report on board oversight
|
|
World
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
|
|
|
|
|
|
|
|
|
according to our policy, although board
|
|
|
|
|
|
|
|
|
|
|
|
oversight is essential, channels already exist for
|
|
|
|
|
|
|
|
|
|
|
|
effective board oversight.
|
|
|
Report on proxy voting
|
|
|
World
|
|
|
|
|
|
We generally recommend AGAINST this proposal
|
|
|
|
review
|
|
|
|
|
|
|
|
|
because the Company is already required to
|
|
|
|
|
|
|
|
|
|
|
|
|
outline their proxy voting process. As such, and
|
|
|
|
|
|
|
|
|
|
|
|
|
in accordance with our policy, we do not believe
|
|
|
|
|
|
|
|
|
|
|
|
|
that the requested proxy voting report would
|
|
|
|
|
|
|
|
|
|
|
|
|
provide no incremental or meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
information to the Company’s shareholders.
|
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 37
|
Wealth-Focused Policy Overview
Proposals by shareholders | Capitalization
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Issue dividends
|
|
|
World
|
|
|
|
|
|
We recommend a vote AGAINST this proposal
|
|
|
|
|
|
|
|
|
|
|
|
|
because according to our policy, the Company’s
|
|
|
|
|
|
|
|
|
|
|
|
|
dividend payout plan should be governed by the
|
|
|
|
|
|
|
|
|
|
|
|
|
board of directors after taking into account
|
|
|
|
|
|
|
|
|
|
|
|
|
relevant factors such as the Company’s liquidity
|
|
|
|
|
|
|
|
|
|
|
|
|
and financial position.
|
|
|
|
Issue shares
|
|
World
|
|
|
|
|
We generally recommend a vote AGAINST this
|
|
|
|
|
|
|
|
|
|
|
|
proposal because according to our policy, the
|
|
|
|
|
|
|
|
|
|
|
|
approval could cause potential excessive dilution
|
|
|
|
|
|
|
|
|
|
|
|
in the interests of the shareholders and could
|
|
|
|
|
|
|
|
|
|
|
|
potentially overvalue the Company’s stock price
|
|
|
|
|
|
|
|
|
|
|
|
with such an excessive issuance that is
|
|
|
|
|
|
|
|
|
|
|
|
disproportionate to its needs.
|
|
|
Require shareholder
|
|
|
World
|
|
|
|
|
|
This proposal is considered on a case-by-case
|
|
|
|
approval to authorize the
|
|
|
|
|
|
|
|
|
basis by the guidelines committee.
|
|
|
|
issuance of
|
|
|
|
|
|
|
|
|
|
|
|
|
bonds/debentures
|
|
|
|
|
|
|
|
|
|
|
|
|
Require shareholder
|
|
World
|
|
|
|
|
We generally recommend FOR because
|
|
|
approval to reclassify
|
|
|
|
|
|
|
|
according to our policy, companies should
|
|
|
shares or conversion rights
|
|
|
|
|
|
|
|
ensure that all shareholders are provided with
|
|
|
|
|
|
|
|
|
|
|
|
equal voting rights, promoting fairness,
|
|
|
|
|
|
|
|
|
|
|
|
accountability, and alignment between
|
|
|
|
|
|
|
|
|
|
|
|
economic ownership and control. By adopting a
|
|
|
|
|
|
|
|
|
|
|
|
one-share, one-vote structure, the Company can
|
|
|
|
|
|
|
|
|
|
|
|
better uphold shareholder democracy and
|
|
|
|
|
|
|
|
|
|
|
|
support long-term value creation for all
|
|
|
|
|
|
|
|
|
|
|
|
investors.
|
|
|
Create a new class of
|
|
|
World
|
|
|
|
|
|
We generally recommend FOR these proposals
|
|
|
|
shares
|
|
|
|
|
|
|
|
|
when the new class of shares to be created will
|
|
|
|
|
|
|
|
|
|
|
|
|
not have blank-check authority and will not have
|
|
|
|
|
|
|
|
|
|
|
|
|
superior voting rights to the existing class of
|
|
|
|
|
|
|
|
|
|
|
|
|
shares.
|
|
|
|
Reclassify/convert shares
|
|
World
|
|
|
|
|
We generally recommend FOR if the conversion
|
|
|
|
|
|
|
|
|
|
|
|
would provide equal rights to shareholders.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 38
|
Wealth-Focused Policy Overview
Proposals by shareholders | Climate/Resources
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Adopt a climate action plan
|
|
|
World
|
|
|
|
|
|
We generally recommend AGAINST the
|
|
|
|
/ emissions reduction /
|
|
|
|
|
|
|
|
|
proposal, because, according to our policy, its
|
|
|
|
resource restriction
|
|
|
|
|
|
|
|
|
approval would not provide additional benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
or value to shareholders, given the Company’s
|
|
|
|
|
|
|
|
|
|
|
|
|
existing robust policy and strategy on climate
|
|
|
|
|
|
|
|
|
|
|
|
|
change.
|
|
|
|
Adopt a GMO policy
|
|
World
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
|
|
|
|
|
|
|
|
|
according to our policy, approval of the proposal
|
|
|
|
|
|
|
|
|
|
|
|
would impose unnecessary burdens on the
|
|
|
|
|
|
|
|
|
|
|
|
Company's operations.
|
|
|
Adopt animal welfare
|
|
|
World
|
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
|
standards
|
|
|
|
|
|
|
|
|
according to our policy, the matters raised in the
|
|
|
|
|
|
|
|
|
|
|
|
|
proposal have already been addressed by the
|
|
|
|
|
|
|
|
|
|
|
|
|
Company. Moreover, the proposal advocates for
|
|
|
|
|
|
|
|
|
|
|
|
|
impractical and imprudent actions that could
|
|
|
|
|
|
|
|
|
|
|
|
|
negatively impact the business and its results.
|
|
|
|
Approve an annual
|
|
World
|
|
|
|
|
We generally recommend a vote AGAINST
|
|
|
advisory vote on climate
|
|
|
|
|
|
|
|
because according to our policy, adopting this
|
|
|
change
|
|
|
|
|
|
|
|
proposal is unnecessary and unwarranted in
|
|
|
|
|
|
|
|
|
|
|
|
light of the Company’s existing approach to
|
|
|
|
|
|
|
|
|
|
|
|
climate change and sustainability. The Company
|
|
|
|
|
|
|
|
|
|
|
|
already implements effective strategies in these
|
|
|
|
|
|
|
|
|
|
|
|
areas, making the proposal redundant.
|
|
|
|
|
|
|
|
|
|
|
|
Furthermore, approval would result in
|
|
|
|
|
|
|
|
|
|
|
|
significant administrative costs and financial
|
|
|
|
|
|
|
|
|
|
|
|
burdens, diverting resources from other critical
|
|
|
|
|
|
|
|
|
|
|
|
initiatives.
|
|
|
Reduce fossil fuel financing
|
|
|
World
|
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
|
|
|
|
|
|
|
|
|
|
according to our policy, the Company is already
|
|
|
|
|
|
|
|
|
|
|
|
|
committed to meeting its climate action goals
|
|
|
|
|
|
|
|
|
|
|
|
|
related to sustainable financing. As businesses
|
|
|
|
|
|
|
|
|
|
|
|
|
move to achieving their net zero goals, we
|
|
|
|
|
|
|
|
|
|
|
|
|
believe that the Company’s current policies in
|
|
|
|
|
|
|
|
|
|
|
|
|
financing will bridge the transition to a low
|
|
|
|
|
|
|
|
|
|
|
|
|
carbon economy.
|
|
|
|
Report on animal welfare
|
|
World
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
|
|
|
|
|
|
|
|
|
according to our policy and given the current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 39
|
Wealth-Focused Policy Overview
|
|
|
|
applicable laws and regulations that the
|
|
|
|
|
Company must comply with, we do not believe
|
|
|
|
|
that the requested report would add meaningful
|
|
|
|
|
value to the policies, processes, practices, and
|
|
|
|
|
resources that are already in place. Additionally,
|
|
|
|
|
approval of this proposal would result in the
|
|
|
|
|
Company incurring unnecessary costs and
|
|
|
|
|
expenses as it is in the best interests of
|
|
|
|
|
shareholders for the board to manage the
|
|
|
|
|
Company’s disclosures and risks.
|
|
Report on costs and risks
|
World
|
|
We generally recommend AGAINST because
|
|
associated with a climate
|
|
|
according to our policy, approval of this proposal
|
|
(or similar) plan
|
|
|
would result in the Company incurring
|
|
|
|
|
unnecessary costs and expenses by duplicating
|
|
|
|
|
efforts that are already underway and providing
|
|
|
|
|
additional reports with information that is
|
|
|
|
|
already available to shareholders.
|
|
Report on GMO
|
World
|
|
We generally recommend AGAINST because
|
|
|
|
|
according to our policy, preparing a report
|
|
|
|
|
regarding GMOs would provide no incremental
|
|
|
|
|
and meaningful information to the Company’s
|
|
|
|
|
shareholders. Moreover, given the Company’s
|
|
|
|
|
current compliance with SEC reporting
|
|
|
|
|
requirements and other government regulators
|
|
|
|
|
of GMOs, we believe that approval of this
|
|
|
|
|
proposal will accrue unnecessary costs and
|
|
|
|
|
administrative burden to the Company.
|
|
Report on the company's
|
World
|
|
We generally recommend AGAINST because
|
|
climate plan / emissions /
|
|
|
according to our policy and given the current
|
|
resource use
|
|
|
applicable laws and regulations that the
|
|
|
|
|
Company must comply with, we do not believe
|
|
|
|
|
that the requested report would add meaningful
|
|
|
|
|
value to the policies, processes, practices, and
|
|
|
|
|
resources that are already in place. Additionally,
|
|
|
|
|
approval of this proposal would result in the
|
|
|
|
|
Company incurring unnecessary costs and
|
|
|
|
|
expenses as it is in the best interests of
|
|
|
|
|
shareholders for the board to manage the
|
|
|
|
|
Company’s disclosures and risks.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 40
|
Wealth-Focused Policy Overview
Proposals by shareholders | Compensation
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Amend the clawback
|
|
|
World
|
|
|
|
|
|
We generally recommend FOR when the
|
|
|
|
provision
|
|
|
|
|
|
|
|
|
proposal is only asking to expand the clawback
|
|
|
|
|
|
|
|
|
|
|
|
|
provision to include fraud and misconduct.
|
|
|
|
Approve a retirement plan
|
|
World
|
|
|
|
|
This proposal is considered on a case-by-case
|
|
|
|
|
|
|
|
|
|
|
|
basis by the guidelines committee.
|
|
|
|
|
|
|
|
|
|
|
|
|
Cap executive gross pay
|
|
|
World
|
|
|
|
|
|
We generally recommend AGAINST this proposal
|
|
|
|
|
|
|
|
|
|
|
|
|
because according to our policy, implementing a
|
|
|
|
|
|
|
|
|
|
|
|
|
cap on executive compensation gross pay, could
|
|
|
|
|
|
|
|
|
|
|
|
|
negatively impact the hiring and retention of the
|
|
|
|
|
|
|
|
|
|
|
|
|
Company's key executives and employees. Such
|
|
|
|
|
|
|
|
|
|
|
|
|
a restriction would limit the Company’s ability to
|
|
|
|
|
|
|
|
|
|
|
|
|
fully capitalize on the skills, expertise, and
|
|
|
|
|
|
|
|
|
|
|
|
|
experience that individual leaders bring to the
|
|
|
|
|
|
|
|
|
|
|
|
|
organization.
|
|
|
|
Change the use of ESG
|
|
World
|
|
|
|
|
We generally recommend AGAINST this
|
|
|
metrics in compensation
|
|
|
|
|
|
|
|
Proposal, because according to our policy,
|
|
|
|
|
|
|
|
|
|
|
|
altering the use of ESG metrics in compensation
|
|
|
|
|
|
|
|
|
|
|
|
could weaken the alignment of pay with
|
|
|
|
|
|
|
|
|
|
|
|
shareholder interests and established best
|
|
|
|
|
|
|
|
|
|
|
|
practices, which emphasize transparent,
|
|
|
|
|
|
|
|
|
|
|
|
measurable, and material goals.
|
|
|
Deduct stock buybacks
|
|
|
World
|
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
|
from pay
|
|
|
|
|
|
|
|
|
according to our policy, adoption of the proposal
|
|
|
|
|
|
|
|
|
|
|
|
|
will not enhance the Company’s compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
decision-making process.
|
|
|
|
Discontinue executive
|
|
World
|
|
|
|
|
We generally recommend a vote AGAINST
|
|
|
perquisites
|
|
|
|
|
|
|
|
because according to our policy, the absolute
|
|
|
|
|
|
|
|
|
|
|
|
elimination of perquisites granted to executives
|
|
|
|
|
|
|
|
|
|
|
|
could place the Company at a competitive
|
|
|
|
|
|
|
|
|
|
|
|
disadvantage when it comes to hiring, retaining,
|
|
|
|
|
|
|
|
|
|
|
|
and attracting top-tier leaders.
|
|
|
Discontinue stock option
|
|
|
World
|
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
|
and bonus programs
|
|
|
|
|
|
|
|
|
according to our policy, approval of the proposal
|
|
|
|
|
|
|
|
|
|
|
|
|
would impose arbitrary limits on the
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation committee and put the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
at a competitive disadvantage compared to
|
|
|
|
|
|
|
|
|
|
|
|
|
peers.
|
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 41
|
Wealth-Focused Policy Overview
|
Discontinue the
|
World
|
|
We generally recommend AGAINST because
|
|
professional services
|
|
|
according to our policy, it is the benefit of the
|
|
allowance
|
|
|
Company to retain flexibility with respect to
|
|
|
|
|
executive compensation, rather than commit to
|
|
|
|
|
arbitrary principles which could place the
|
|
|
|
|
Company at a competitive disadvantage in
|
|
|
|
|
recruiting and retaining top talent.
|
|
Implement an advisory
|
World
|
|
We recommend FOR this Proposal, because
|
|
vote on executive
|
|
|
according to our policy, an advisory vote on
|
|
compensation
|
|
|
executive compensation helps ensure that pay
|
|
|
|
|
practices remain fair, transparent, and aligned
|
|
|
|
|
with shareholder interests.
|
|
Implement double
|
World
|
|
We generally recommend FOR because
|
|
triggered vesting
|
|
|
according to our policy, vesting of equity awards
|
|
|
|
|
over a period of time is intended to promote
|
|
|
|
|
long-term improvements in performance. The
|
|
|
|
|
link between pay and long-term performance
|
|
|
|
|
can be severed if awards pay out on an
|
|
|
|
|
accelerated schedule. More importantly, a
|
|
|
|
|
double trigger vesting provision would provide
|
|
|
|
|
protection to the Company’s employees in the
|
|
|
|
|
event of transition or change of control.
|
|
Include legal/compliance
|
World
|
|
We recommend AGAINST this Proposal, because
|
|
costs in adjustments
|
|
|
according to our policy, including legal and
|
|
|
|
|
compliance costs in performance adjustments
|
|
|
|
|
could weaken accountability by shielding
|
|
|
|
|
management from the consequences of
|
|
|
|
|
compliance or regulatory failures. Allowing such
|
|
|
|
|
expenses to be adjusted out of performance
|
|
|
|
|
metrics may distort true company performance
|
|
|
|
|
and undermine the link between executive pay
|
|
|
|
|
and effective risk oversight.
|
|
Include performance
|
World
|
|
We generally recommend FOR this resolution
|
|
metrics in compensation
|
|
|
when the company has failed our executive
|
|
|
|
|
compensation test.
|
|
Prohibit equity vesting for
|
World
|
|
We generally recommend AGAINST the
|
|
government service
|
|
|
proposal, as, according to our policy, its
|
|
|
|
|
implementation could hinder the Company’s
|
|
|
|
|
ability to attract key employees. Additionally, it
|
|
|
|
|
could inadvertently penalize individuals who
|
|
|
|
|
may wish to enter or return to governmental
|
|
|
|
|
service.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 42
|
Wealth-Focused Policy Overview
|
Remove tax gross-ups
|
World
|
|
We generally recommend AGAINST because
|
|
|
|
|
according to our policy, it is the benefit of the
|
|
|
|
|
Company to retain flexibility with respect to
|
|
|
|
|
executive compensation, rather than commit to
|
|
|
|
|
arbitrary principles which could place the
|
|
|
|
|
Company at a competitive disadvantage in
|
|
|
|
|
recruiting and retaining top talent. We believe
|
|
|
|
|
that it is ultimately in the shareholders’ best
|
|
|
|
|
interests that discretionary responsibilities for
|
|
|
|
|
this ongoing process continue to be vested in
|
|
|
|
|
the Board.
|
|
Report on executive
|
World
|
|
We generally recommend AGAINST because
|
|
compensation
|
|
|
according to our policy and given the current
|
|
|
|
|
applicable laws and regulations that the
|
|
|
|
|
Company must comply with, we do not believe
|
|
|
|
|
that the requested report would add meaningful
|
|
|
|
|
value to the policies, processes, practices, and
|
|
|
|
|
resources that are already in place. Additionally,
|
|
|
|
|
approval of this proposal would result in the
|
|
|
|
|
Company incurring unnecessary costs and
|
|
|
|
|
expenses as it is in the best interests of
|
|
|
|
|
shareholders for the board to manage the
|
|
|
|
|
Company’s disclosures and risks.
|
|
Require a shareholder vote
|
World
|
|
We generally recommend FOR because
|
|
to ratify executive or
|
|
|
according to our policy, excessive executive
|
|
director severance pay
|
|
|
compensation packages has been an ongoing
|
|
|
|
|
cause of concern among shareholders and
|
|
|
|
|
investors. While the Company argues that its
|
|
|
|
|
severance and termination payments are
|
|
|
|
|
reasonable, we believe that it is in the best
|
|
|
|
|
interests of the stockholders if they ratify
|
|
|
|
|
executive compensation in such form. We
|
|
|
|
|
believe that approval of this proposal will enable
|
|
|
|
|
the stockholders to voice their views and
|
|
|
|
|
opinions regarding the Company’s executive
|
|
|
|
|
severance payments and will ensure decisions
|
|
|
|
|
are in their best interests.
|
|
Require that executives
|
World
|
|
We generally recommend AGAINST because
|
|
retain shares
|
|
|
according to our policy, the Company’s current
|
|
|
|
|
stock ownership requirement strikes an
|
|
|
|
|
appropriate balance of encouraging focus on the
|
|
|
|
|
long-term performance of the Company and the
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 43
|
Wealth-Focused Policy Overview
|
|
|
|
strong alignment with shareholder interests,
|
|
|
|
|
while enabling the Company to attract and
|
|
|
|
|
retain the best people in the industry.
|
|
Use a deferral period for
|
World
|
|
We generally recommend AGAINST because
|
|
compensation
|
|
|
according to our policy, the existing
|
|
|
|
|
compensation practice already reflects
|
|
|
|
|
alignment with the long-term performance and
|
|
|
|
|
goals of the Company.
|
|
Use GAAP metrics for
|
World
|
|
We generally recommend AGAINST this proposal
|
|
compensation
|
|
|
because, in accordance with our policy, approval
|
|
|
|
|
would impose rigid targets that could hinder the
|
|
|
|
|
Company's ability to adapt to adjustments and
|
|
|
|
|
fluctuations beyond its control. Additionally,
|
|
|
|
|
using GAAP metrics in compensation could
|
|
|
|
|
misalign the Company’s short-term financial
|
|
|
|
|
goals with its long-term success, and increase
|
|
|
|
|
the complexity of measuring and rewarding
|
|
|
|
|
performance. We believe that approval of the
|
|
|
|
|
proposal could undermine the Compensation
|
|
|
|
|
Committee’s flexibility in determining the most
|
|
|
|
|
appropriate metrics for the Company’s financial
|
|
|
|
|
circumstances.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 44
|
Wealth-Focused Policy Overview
Proposals by shareholders | Directors
|
|
Proposal
|
|
|
Region(s) to
|
|
|
Region(s) to
|
|
|
Vote Recommendation
|
|
|
|
|
|
|
Include
|
|
|
Exclude
|
|
|
|
|
|
|
Allow for the removal of
|
|
|
World
|
|
|
|
|
|
We generally recommend FOR the proposal
|
|
|
|
directors without cause
|
|
|
|
|
|
|
|
|
because according to our policy, allowing to
|
|
|
|
|
|
|
|
|
|
|
|
|
remove directors without cause provides
|
|
|
|
|
|
|
|
|
|
|
|
|
flexibility to the Company to make necessary
|
|
|
|
|
|
|
|
|
|
|
|
|
changes to its leadership when deemed
|
|
|
|
|
|
|
|
|
|
|
|
|
appropriate. Allowing for the removal of
|
|
|
|
|
|
|
|
|
|
|
|
|
directors without cause ensures that the Board
|
|
|
|
|
|
|
|
|
|
|
|
|
can effectively address issues such as
|
|
|
|
|
|
|
|
|
|
|
|
|
performance concerns and maintain the best
|
|
|
|
|
|
|
|
|
|
|
|
|
interests of the Company and its shareholders.
|
|
|
|
Amend the
|
|
World
|
|
|
|
|
We generally recommend FOR because
|
|
|
indemnification/liability
|
|
|
|
|
|
|
|
according to our policy, approval of the
|
|
|
provisions for directors
|
|
|
|
|
|
|
|
indemnification and liability provisions will
|
|
|
|
|
|
|
|
|
|
|
|
enable the Company to attract, retain, and
|
|
|
|
|
|
|
|
|
|
|
|
motivate its directors, whose efforts are crucial
|
|
|
|
|
|
|
|
|
|
|
|
to its long-term success. By providing directors
|
|
|
|
|
|
|
|
|
|
|
|
with appropriate protection against personal
|
|
|
|
|
|
|
|
|
|
|
|
liability, the Company ensures that directors can
|
|
|
|
|
|
|
|
|
|
|
|
make decisions in the best interests of the
|
|
|
|
|
|
|
|
|
|
|
|
Company without undue concern about
|
|
|
|
|
|
|
|
|
|
|
|
personal financial risks.
|
|
|
Change the size of the
|
|
|
World
|
|
|
|
|
|
We generally recommend a vote AGAINST
|
|
|
|
board of directors
|
|
|
|
|
|
|
|
|
because according to our policy, we believe that
|
|
|
|
|
|
|
|
|
|
|
|
|
a board should ideally consist of between five
|
|
|
|
|
|
|
|
|
|
|
|
|
and fifteen members. This size strikes an
|
|
|
|
|
|
|
|
|
|
|
|
|
appropriate balance between meeting the
|
|
|
|
|
|
|
|
|
|
|
|
|
Company’s needs and ensuring effective
|
|
|
|
|
|
|
|
|
|
|
|
|
oversight.
|
|
|
|
Classify the board
|
|
World
|
|
|
|
|
We generally recommend AGAINST because
|
|
|
|
|
|
|
|
|
|
|
|
according to our policy, staggered terms for
|
|
|
|
|
|
|
|
|
|
|
|
directors increase the difficulty for shareholders
|
|
|
|
|
|
|
|
|
|
|
|
to make fundamental changes to the
|
|
|
|
|
|
|
|
|
|
|
|
composition and behavior of a board. We prefer
|
|
|
|
|
|
|
|
|
|
|
|
that the entire board of a company be elected
|
|
|
|
|
|
|
|
|
|
|
|
annually to provide appropriate responsiveness
|
|
|
|
|
|
|
|
|
|
|
|
to shareholders.
|
|
Egan-Jones Proxy Services, Since 2002 | research@ejproxy.com
|
Published December 2025 | 45
|
Wealth-Focused Policy Overview
|
Create a CEO succession
|
World
|
|
We generally recommend FOR because
|
|
plan
|
|
|
according to our policy, a CEO succession plan
|
|
|
|
|
would safeguard a smooth transition and
|
|
|
|
|
alignment into a new leadership whenever the
|
|
|
|
|
need arises, thereby ensuring continuity and
|
|
|
|
|
shareholder confidence in the Company.
|
|
Create a key committee
|
World
|
|
We generally recommend FOR because
|
|
|
|
|
according to our policy, the board of directors
|
|
|
|
|
should establish key Board committees—namely
|
|
|
|
|
Audit, Compensation, and Nominating
|
|
|
|
|
committees—composed solely of independent
|
|
|
|
|
outside directors. This structure ensures sound
|
|
|
|
|
corporate governance practices, enhances
|
|
|
|
|
objectivity, and strengthens the oversight of
|
|
|
|
|
critical areas within the Company.
|
|
Create a non-key
|
World
|
|
We generally recommend AGAINST because
|
|
committee
|
|
|
according to our policy, implementing the
|
|
|
|
|
proposal would not justify the administrative
|
|
|
|
|
costs and efforts, nor would it provide a
|
|
|
|
|
corresponding meaningful benefit to the
|
|
|
|
|
|
