portfolio strategies

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1 By size, using mega-cap Vanguard ETF portfolio strategies By size, using mega-cap Options for implementing equity and bond exposure in your clients portfolios FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION.

2 Contents Core Core portfolio example 1 Domestic equity Domestic equity strategies 3 By size 3 By size, using mega-cap 3 By size, using large-cap 3 By sector 4 By size and style 4 S&P domestic equity strategies 5 By size 5 By size and style 5 Russell domestic equity strategies 6 By size 6 By size and style 6 International equity International equity strategies 7 By size 7 By size and region 7 Global equity Global equity strategies 9 By size 9 By size and region 9 Vanguard is not responsible for determining the suitability for any underlying client on whose behalf you use this information. As a financial advisor, it remains your responsibility to make a suitability determination for your clients, so you should review carefully the information presented and make your own determination as to its appropriateness before you rely on it. FFf FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION.

3 Domestic fixed income Targeted duration strategy 11 Broad bond market strategy 11 Corporate/government strategy Excludes mortgage-backed securities 12 Government overweight strategy Using 100% governments 13 Using governments and corporates 14 Using governments, corporates, and mortgage-backed securities 15 Corporate overweight strategy Using 100% corporates 16 Using corporates and governments 17 Using corporates, governments, and mortgage-backed securities 18 Inflation-protection strategy 19 Liability-driven investing strategy 20 Portfolio with a 40% fixed income weighting 20 Portfolio with a 60% fixed income weighting 21 Global fixed income Global fixed income strategy 23 Appendix Sector weightings and portfolio characteristics 24 FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION.

4 When it comes to constructing and maintaining your clients investment portfolios, having flexibility and choice is key. This guide contains sample strategies that show you potential options for fine-tuning your clients portfolio allocations to achieve their investment objectives. Vanguard ETFs offer you a wide range of investment choices for your clients, all backed by the Vanguard name and standards of scrutiny. All data shown are as of December 31, 2016, unless otherwise noted. Strategy totals may not equal 100% due to rounding. FFf FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION.

5 Core portfolio example Core By size 24% Total International Stock VXUS 29% Total Stock Market VTI 21% Total Bond Market BND 26% Total International Bond BNDX Portfolio weighted expense ratio: 0.10% 1 1 All portfolio weighted expense ratios referenced throughout this brochure were calculated using the expense ratios stated in each product s most recent prospectus as of December 31, The products current expense ratios may be higher or lower than the figures used in the calculation. FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION. 1

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7 Achieving domestic equity exposure By size 100% Total Stock Market VTI Portfolio weighted expense ratio: 0.05% Domestic equity By size, using mega-cap 72% Mega Cap MGC 14% Mid-Cap VO 13% Small-Cap VB 2% Micro-Cap (no Vanguard ETF) Portfolio weighted expense ratio: 0.07% By size, using large-cap 85% Large-Cap VV 13% Small-Cap VB 2% Micro-Cap (no Vanguard ETF) Portfolio weighted expense ratio: 0.07% FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION. 3

8 Achieving domestic equity exposure By sector 20% Information Technology VGT 15% Financials VFH 13% Health Care VHT 13% Consumer Discretionary VCR 11% Industrials VIS 8% Consumer Staples VDC 7% Energy VDE 4% Real Estate 1 VNQ 3% Materials VAW 3% Utilities VPU 2% Telecommunication Services VOX Portfolio weighted expense ratio: 0.10% By size and style 39% Mega Cap Value MGV 32% Mega Cap Growth MGK 8% Mid-Cap Value VOE 7% Small-Cap Value VBR 6% Mid-Cap Growth VOT 6% Small-Cap Growth VBK 2% Micro-Cap (no Vanguard ETF) Portfolio weighted expense ratio: 0.07% 1 Vanguard REIT Index Fund will not include approximately 15.0% of the market cap of the sector (approximately 12.5% specialized REITS and 3.0% real estate development & management). 4 FFf FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION.

9 Achieving domestic equity exposure using S&P By size 82% S&P 500 VOO 18% Extended Market VXF Portfolio weighted expense ratio: 0.06% 89% S&P 500 VOO 7% S&P Mid-Cap 400 IVOO 3% S&P Small-Cap 600 VIOO Portfolio weighted expense ratio: 0.06% By size and style 46% S&P 500 Growth VOOG 44% S&P 500 Value VOOV 4% S&P Mid-Cap 400 Growth IVOG 4% S&P Mid-Cap 400 Value IVOV 2% S&P Small-Cap 600 Growth VIOG 2% S&P Small-Cap 600 Value VIOV Portfolio weighted expense ratio: 0.16% FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION. 5

10 Achieving domestic equity exposure using Russell By size 100% Russell 3000 VTHR Portfolio weighted expense ratio: 0.15% 92% Russell 1000 VONE 8% Russell 2000 VTWO Portfolio weighted expense ratio: 0.12% By size and style 47% Russell 1000 Value VONV 45% Russell 1000 Growth VONG 4% Russell 2000 Growth VTWG 4% Russell 2000 Value VTWV Portfolio weighted expense ratio: 0.13% 6 FFf FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION.

11 Achieving international equity exposure By size 100% Total International Stock VXUS Portfolio weighted expense ratio: 0.13% 89% FTSE All-World ex-us VEU 11% FTSE All-World ex-us Small-Cap VSS Portfolio weighted expense ratio: 0.13% International equity By size and region 81% FTSE Developed Markets VEA 19% FTSE Emerging Markets VWO Portfolio weighted expense ratio: 0.10% 44% FTSE Europe VGK 30% FTSE Pacific VPL 19% FTSE Emerging Markets VWO 7% Canada (no Vanguard ETF) 1% Israel (no Vanguard ETF) Portfolio weighted expense ratio: 0.12% FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION. 7

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13 Global equity Achieving global equity exposure By size 100% Total World Stock VT Portfolio weighted expense ratio: 0.14% 53% Total Stock Market VTI 47% Total International Stock VXUS Portfolio weighted expense ratio: 0.09% By size and region 54% Total Stock Market VTI 37% FTSE Developed Markets VEA 9% FTSE Emerging Markets VWO Portfolio weighted expense ratio: 0.07% FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION. 9

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15 Broad bond market strategy Expense Ticker Fund name Benchmark ratio Duration BND Total Bond Market ETF Bloomberg Barclays 0.06% 5.9 yrs. U.S. Aggregate BSV Short-Term Bond ETF Bloomberg Barclays U.S. 1 5 Year Government/Credit BLV Long-Term Bond ETF Bloomberg Barclays U.S. Long Government/Credit 1 Target duration Avg. spread (years) 2 BND BSV BLV above Treasury % 100% 0% 0.30% Domestic fixed income 1 Duration is the measure of the sensitivity of bond and bond fund prices to interest rate movements. Vanguard is using option-adjusted duration, which incorporates the expected duration-shortening effect of an issuer s embedded call provision. 2 Target duration can be subject to rounding. 3 Average market duration as represented by that of the Bloomberg Barclays U.S. Aggregate. FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION. 11

16 Corporate/government strategy Excludes mortgage-backed securities Expense Ticker Fund name Benchmark ratio Duration BIV Intermediate-Term Bloomberg Barclays 0.09% 6.5 yrs. U.S Year Bond ETF Government/Credit BSV Short-Term Bond ETF Bloomberg Barclays U.S. 1 5 Year Government/Credit BLV Long-Term Bond ETF Bloomberg Barclays U.S. Long Government/Credit Target duration Avg. spread (years) BIV BSV BLV above Treasury % 100% 0% 0.30% Average market duration as represented by that of the Bloomberg Barclays U.S. Aggregate. 12 FFf FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION.

17 Government overweight strategy Using 100% governments Expense Ticker Fund name Benchmark ratio Duration VGSH Short-Term Bloomberg Barclays 0.07% 1.9 yrs. Government Bond ETF U.S. 1 3 Year Government Float Adjusted Index VGIT Intermediate-Term Bloomberg Barclays Government Bond ETF U.S Year Government Float Adjusted Index VGLT Long-Term Bloomberg Barclays Government Bond ETF U.S. Long Government Target duration Avg. spread (years) VGSH VGIT VGLT above Treasury % 0% 0% 0.02% FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION. 13

18 Government overweight strategy Using governments and corporates (excludes mortgage-backed securities) Expense Ticker Fund name Benchmark ratio Duration BIV Intermediate-Term Bloomberg Barclays 0.09% 6.5 yrs. Bond ETF U.S Year Government/Credit VGSH Short-Term Bloomberg Barclays Government Bond ETF U.S. 1 3 Year Government Float Adjusted Index VGIT Intermediate-Term Bloomberg Barclays Government Bond ETF U.S Year Government Float Adjusted Index VGLT Long-Term Bloomberg Barclays Government Bond ETF U.S. Long Government Target duration Avg. spread (years) BIV VGSH VGIT VGLT above Treasury % 75% 0% 0% 0.16% FFf FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION.

19 Government overweight strategy Using governments, corporates, and mortgage-backed securities Expense Ticker Fund name Benchmark ratio Duration BND Total Bond Market ETF Bloomberg Barclays 0.06% 5.9 yrs. U.S. Aggregate VGSH Short-Term Bloomberg Barclays Government Bond ETF U.S. 1 3 Year Government Float Adjusted Index VGIT Intermediate-Term Bloomberg Barclays Government Bond ETF U.S Year Government Float Adjusted Index VGLT Long-Term Bloomberg Barclays Government Bond ETF U.S. Long Government Target duration Avg. spread (years) BND VGSH VGIT VGLT above Treasury % 40% 0% 0% 0.28% Average market duration as represented by that of the Bloomberg Barclays U.S. Aggregate. FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION. 15

20 Corporate overweight strategy Using 100% corporates Expense Ticker Fund name Benchmark ratio Duration VCSH Short-Term Bloomberg Barclays 0.07% 2.7 yrs. Corporate Bond ETF U.S. 1 5 Year Corporate Bond Index VCIT Intermediate-Term Bloomberg Barclays Corporate Bond ETF U.S Year Corporate Bond Index VCLT Long-Term Bloomberg Barclays Corporate Bond ETF U.S. 10+ Year Corporate Bond Index Target duration Avg. spread (years) VCSH VCIT VCLT above Treasury % 0% 0% 0.90% FFf FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION.

21 Corporate overweight strategy Using corporates and governments (excludes mortgage-backed securities) Expense Ticker Fund name Benchmark ratio Duration BIV Intermediate-Term Bloomberg Barclays 0.09% 6.5 yrs. Bond ETF U.S Year Government/Credit VCSH Short-Term Bloomberg Barclays Corporate Bond ETF U.S. 1 5 Year Corporate Bond Index VCIT Intermediate-Term Bloomberg Barclays Corporate Bond ETF U.S Year Corporate Bond Index VCLT Long-Term Bloomberg Barclays Corporate Bond ETF U.S. 10+ Year Corporate Bond Index Target duration Avg. spread (years) BIV VCSH VCIT VCLT above Treasury % 78% 0% 0% 0.82% FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION. 17

22 Corporate overweight strategy Using corporates, governments, and mortgage-backed securities Expense Ticker Fund name Benchmark ratio Duration BND Total Bond Market ETF Bloomberg Barclays 0.06% 5.9 yrs. U.S. Aggregate VCSH Short-Term Bloomberg Barclays Corporate Bond ETF U.S. 1 5 Year Corporate Bond Index VCIT Intermediate-Term Bloomberg Barclays Corporate Bond ETF U.S Year Corporate Bond Index VCLT Long-Term Bloomberg Barclays Corporate Bond ETF U.S. 10+ Year Corporate Bond Index Target duration Avg. spread (years) BND VCSH VCIT VCLT above Treasury % 40% 0% 0% 0.63% Average market duration as represented by that of the Bloomberg Barclays U.S. Aggregate. 18 FFf FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION.

23 Inflation-protection strategy Using U.S. broad-market and short-term inflation-protected securities Expense Ticker Fund name Benchmark ratio Duration BND Total Bond Market ETF Bloomberg Barclays 0.06% 5.9 yrs. U.S. Aggregate VTIP Short-Term Bloomberg Barclays Inflation-Protected Securities ETF U.S. Treasury Inflation-Protected Securities (TIPS) 0 5 Year Index Target duration Avg. spread (years) BND VTIP above Treasury % 30% 0.26% FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION. 19

24 Liability-driven investing strategy Portfolio with a 40% fixed income weighting Expense Ticker Fund name Benchmark ratio Duration BND Total Bond Market ETF Bloomberg Barclays 0.06% 5.9 yrs. U.S. Aggregate BIV Intermediate-Term Bloomberg Barclays Bond ETF U.S Year Government/Credit BLV Long-Term Bond ETF Bloomberg Barclays U.S. Long Government/Credit EDV Extended Duration Bloomberg Barclays Treasury ETF U.S. Treasury STRIPS Year Equal Par Bond Index Total Bond Total liability portfolio portfolio Liability Blended duration Fixed duration duration risk- spread to (years) income BND BIV BLV EDV (years) (years) hedged Treasury 10 40% 100% 0% 0% 0% % 0.18% FFf FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION.

25 Liability-driven investing strategy Portfolio with a 60% fixed income weighting Expense Ticker Fund name Benchmark ratio Duration BND Total Bond Market ETF Bloomberg Barclays 0.06% 5.9 yrs. U.S. Aggregate BIV Intermediate-Term Bloomberg Barclays Bond ETF U.S Year Government/Credit BLV Long-Term Bond ETF Bloomberg Barclays U.S. Long Government/Credit EDV Extended Duration Bloomberg Barclays Treasury ETF U.S. Treasury STRIPS Year Equal Par Bond Index Total Bond Total liability portfolio portfolio Liability Blended duration Fixed duration duration risk- spread to (years) income BND BIV BLV EDV (years) (years) hedged Treasury 10 60% 100% 0% 0% 0% % 0.28% FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION. 21

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27 Global fixed income strategy Using U.S. and international broad-market and emerging markets government securities Expense Ticker Fund name Benchmark ratio Duration BND Total Bond Market ETF Bloomberg Barclays 0.06% 5.9 yrs. U.S. Aggregate BNDX Total International Bloomberg Barclays Bond ETF Global Aggregate ex-usd Float Adjusted RIC Capped Index (USD Hedged) VWOB Emerging Markets Bloomberg Barclays Government Bond ETF USD Emerging Markets Government RIC Capped Index Average Percentage Target duration spread above Noninvestment (years) BND BNDX VWOB Treasury grade % 20% 0% 0.46% 0.1% FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION. 23 Global fixed income

28 Appendix Sector weightings and portfolio characteristics 1 Sector weightings FTSE CRSP MSCI S&P Global FTSE US Total US Broad Composite Russell All Cap Global Market Market ex US All Cap Index Index Index Index Index Index Consumer Discretionary 12% 13% 12% 12% 12% 12% Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Real Estate Telecommunication Services Utilities Price/earnings ratio Dividend yield 1.92% 1.93% 1.97% 1.93% 2.91% 2.39% Median market capitalization $54.3B $53.8B $64.2B $55.7B $22.5B $34.8B Source: FactSet. 1 These portfolio characteristics and sector weightings were derived from the indexes referenced above as of December 31, FFf FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION.

29 The Emerging Markets Government Bond ETF is subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer s ability to make payments. The ETF seeks to track the performance of an index that measures the investment return of dollar-denominated bonds issued by governments of emerging market countries (including government agencies and government-owned corporations). Because the ETF invests only in U.S. dollar-denominated bonds, U.S.-based shareholders are not subject to currency risk, although if an issuer s home currency declines relative to the U.S. dollar, it could negatively affect perceptions of the issuer s ability to make payments, which could cause the issuer s bonds to decline in value. The Emerging Markets Government Bond ETF is subject to risks including country/ regional risk, which is the chance that political upheaval, financial troubles, or natural disasters will adversely affect the value of securities issued by foreign governments, and emerging market risk, which is the chance that bonds of governments located in emerging markets will be substantially more volatile and substantially less liquid than the bonds of governments located in more developed foreign markets.

30 The Vanguard ETFs are not sponsored, endorsed, sold, or promoted by Barclays Risk Analytics and Index Solutions Limited or its affiliates ( Barclays ). Barclays does not make any representation regarding the advisability of investing in Vanguard ETFs or the advisability of investing in securities generally. Barclays only relationship with Vanguard is the licensing of the Index, which is determined, composed, and calculated by Barclays without regard to Vanguard or the Vanguard ETFs. Barclays has no obligation to take the needs of Vanguard or the owners of the Vanguard ETFs into consideration in determining, composing, or calculating the Index. Barclays has no obligation or liability in connection with administration, marketing, or trading of the Vanguard ETFs. The S&P 500, S&P 500 Growth, S&P 500 Value, S&P Completion, S&P MidCap 400, S&P MidCap 400 Growth, S&P MidCap 400 Value, S&P SmallCap 600, S&P SmallCap 600 Growth, S&P SmallCap 600 Value, and S&P Global ex-u.s. Property are products of S&P Dow Jones Indices LLC ( SPDJI ), and have been licensed for use by Vanguard. Standard & Poor s and S&P are registered trademarks of Standard & Poor s Financial Services LLC ( S&P ); Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC ( Dow Jones ); S&P and S&P 500 are trademarks of S&P; and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Vanguard. Vanguard s S&P 500, S&P 500 Growth, S&P 500 Value, Extended Market, S&P Mid-Cap 400, S&P Mid-Cap 400 Growth, S&P Mid-Cap 400 Value, S&P Small-Cap 600, S&P Small-Cap 600 Growth, S&P Small-Cap 600 Value, and Global ex-u.s. Real Estate are not sponsored, endorsed, sold, or promoted by SPDJI, Dow Jones, S&P, or their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P 500, S&P 500 Growth, S&P 500 Value, S&P Completion, S&P MidCap 400, S&P MidCap 400 Growth, S&P MidCap 400 Value, S&P SmallCap 600, S&P SmallCap 600 Growth, S&P SmallCap 600 Value, or S&P Global ex-u.s. Property Indexes. Russell 1000, Russell 1000 Value, Russell 1000 Growth, Russell 2000, Russell 2000 Value, Russell 2000 Growth, Russell 3000, and Russell are registered trademarks of Russell Investments and have been licensed for use by The Vanguard Group, Inc. The Products are not sponsored, endorsed, sold, or promoted by Russell Investments and Russell Investments makes no representation regarding the advisability of investing in the Products. The funds or securities referred to herein are not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such funds or securities. For any such funds or securities, the prospectus or the Statement of Additional Information contains a more detailed description of the limited relationship MSCI has with The Vanguard Group and any related funds. London Stock Exchange Group companies include FTSE International Limited ( FTSE ), Frank Russell Company ( Russell ), MTS Next Limited ( MTS ), and FTSE TMX Global Debt Capital Markets Inc. ( FTSE TMX ). All rights reserved. FTSE, Russell, MTS, FTSE TMX, FTSE Russell, and other service marks and trademarks related to the FTSE or Russell indexes are trademarks of the London Stock Exchange Group companies and are used by FTSE, MTS, FTSE TMX, and Russell under license. All information is provided for information purposes only. No responsibility or liability can be accepted by the London Stock Exchange Group companies nor their licensors for any errors or for any loss from use of this publication. Neither the London Stock Exchange Group companies nor any of their licensors make any claim, prediction, warranty, or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE High Dividend Yield, FTSE Global All Cap, FTSE Global All Cap ex US, FTSE All-World ex US, FTSE Global Small Cap ex US, FTSE Developed All Cap ex US Transition, FTSE Developed Europe All Cap, FTSE Developed Asia Pacific All Cap, and FTSE Emerging Markets All Cap China A Inclusion Indexes or the fitness or suitability of the Indexes for any particular purpose to which they might be put.

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32 Vanguard Financial Advisor Services TM P.O. Box 2900 Valley Forge, PA Connect with Vanguard > advisors.vanguard.com > For more information about Vanguard funds and Vanguard ETF Shares, visit our website or call us to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing. Investors cannot invest directly in an index. All Vanguard ETFs are subject to risk, including the possible loss of the money you invest. Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling. FOR FINANCIAL ADVISORS AND INSTITUTIONS ONLY. NOT FOR PUBLIC DISTRIBUTION The Vanguard Group, Inc. All rights reserved. U.S. Patent Nos. 6,879,964; 7,337,138; 7,720,749; 7,925,573; 8,090,646; and 8,417,623. Vanguard Marketing Corporation, Distributor. FAEPSG