Vanguard US Total Market Shares Index ETF

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1 Analyst(s): Rodney Lay, Jason Patton Vanguard US Total Market Shares Standard & Poor s View Standard & Poor's Fund Services has rated the Vanguard US Total Market Shares (the ETF or VTS) as 'STRONG'. This is based on the view that the ETF provides efficient and tax-effective exposure to the MSCI US Broad Market Index (the benchmark). The ETF seeks to closely track, before fees and expenses, the returns of the benchmark. Consistent with this objective, VTS is based on a near full-replication portfolio-construction method, with the fund holding the vast majority of the 3,494 constituents stocks of the benchmark at, or very close to market weight. The ETF is issued and managed by Vanguard Investments Australia Ltd. (Vanguard or the manager). The ETF is based on Vanguard's unique and patented share class structure in which the ETF units are one share class with an equivalent index fund. In the case of VTS, that index fund is the Vanguard Total Stock Market Index Fund (the underlying fund). The unique structure introduces a range of potential benefits and disadvantages. However, if history is any guide, the structure is likely to provide a range of cost and taxation efficiencies for investors in the ETF. The efficiencies of the underlying fund will transfer to the ETF. Historically, the underlying fund has proved to be the most tax-efficient index-tracking managed fund in the domestic market. We expect this efficiency to persist. Investor Suitability A precondition is the investor seeks a broad exposure to the U.S. equities market, with the portfolio representing approximately 99.5% of the total U.S. equities market, and includes large-, mid-, small-, and micro-cap companies. VTS has proved to be a highly tax-efficient investment vehicle. VTS may generate a superior after-tax return for investors other than those with a zero percent marginal tax rate. A "core and satellite" option with regards to portfolio construction, with the core component being the fund. Returns will predominantly be in the form of capital rather than income. The fund is not suitable for yield-seeking investors. The risk-return profile of the investment is relatively high, with historical levels ranging from 16% to 22% per year. Key Strengths The share class structure is likely to provide ETF investors with a range of benefits, including lower costs and overall a more taxefficient investment vehicle. It also allows the funding of fees and index rebalancing without potentially selling assets and crystallising embedded capital gains. The CDI structure provides investors with access to a U.S. ETF with a particularly low MER of 7 basis points (bps). Historical performance of the underlying fund has been very true to style, with very low tracking error and relative underperformance largely attributable to the MER. A simple and transparent portfolio-construction method, with the ETF based on a near-perfect replication method. Key Weaknesses While we believe the share class structure will provide net benefits to investors, the structure potentially complicates the tax efficiency of the investment vehicle and may dilute the inherent efficiencies of the creation-redemption process that is unique to ETFs. The share class structure introduces the risk that VTS will crystallise embedded capital gains to fund large redemption requests. As Vanguard Australia is not directly involved with the management of VTS, the level of transparency and availability of information is lower than Vanguard's domestic ETFs and managed funds. Risks International ETFs are subject to greater bid/ask and premium/discount to NAV risks as the underlying index stocks are trading out of ASX hours. As a U.S.-based vehicle, it has international tax considerations. Sector: Exchange-traded funds ASX Code: VTS Investment Manager: Vanguard Investments Australia Ltd. ETF Holdings: 3,389 Benchmark: MSCI US Broad Market Index MER (%): 0.07% Inception Date (AUS): May, 2009 Distributions: Annually Size (A$ mil.): A$25.8 (Australian domiciled). US$17.9 billion Release Authorised by: Leanne Milton The contents of this report are subject to the terms of the disclaimer on the final page. EXCHANGE-TRADED FUND April 29, 2011 Page 1

2 Product Overview Investors in VTS will hold CHESS Depositary Interests (CDIs) rather than a U.S. ETF security. CDIs are Australian financial instruments designed to give its holders rights and entitlements in relation to holding U.S. ETF securities. A depositary nominee (CHESS Depositary Nominees Pty Ltd.) holds title on behalf of CDI holders. CDIs have taxation implications for investors, specifically withholding and estate tax. Investors should refer to the taxation section below for a discussion. VTS is quoted on the AQUA market of the Australian Securities Exchange and can be traded like any other listed security. Vanguard has appointed Susquehanna Pacific Pty Ltd. as lead market maker and authorised participant (AP). Susquehanna is required to make a market in the fund and to continuously quote prices for the units. Vanguard has also appointed four other APs and has a total of three market makers. Returns to investors consist of annual distributions and capital gains/losses on the sale of units in the secondary market. All benefits associated with the underlying stocks flow through to investors, including dividends and bonus and rights issues. VTS was issued in May 2009 (the U.S. ETF in May 2001) and had net assets of A$25.8 million in January The U.S. ETF and underlying fund have net assets of US$17.9 billion and US$150.4 billion, respectively. Share Class Structure Vanguard ETFs are based on a unique and patented share class structure. While other ETFs are stand-alone entities, most Vanguard ETFs, including VTS, are structured as a share class within large index funds. The share class structure was established in the U.S. in 2001 and patented in the U.S. in The rationale was that Vanguard sought to provide short-term investors and market "timers" with a means of purchasing shares while helping long-term investors in their managed funds. Specifically, Vanguard stated that the purchase and redemption process by short-term investors in its managed funds increased the fund's realisation of capital gains, increased fund expenses, and hindered the manager's ability to achieve its investment objectives of tracking the index. The share class structure has implications for both ETF and managed fund investors, both positive and potentially negative. The structure will generally lead to lower costs but the effect on tax efficiency is complicated. The issues pertaining to the share class structure are detailed in the relevant sections of this report. Taxation Domestic and cross-listed ETFs are treated differently for tax purposes. The table below provided by Vanguard discusses how tax is applied and treated in various circumstances. S&P advises that tax consequences depend on individual circumstances and investors should seek their own taxation advice. The above comments regarding taxation treatment are based on S&P's understanding, but cannot be considered tax advice. Cross-Listed Taxation Treatment Cross-listed ETF Distributions form part of the investor's assessable income in Distributions the year paid Distributions from the U.S. ETF are subject to U.S. withholding tax. The rate can be limited to 15% if the investor Tax credits fills out a W-8 BEN form. Australian investors may be able to claim a tax offset for the U.S. withholding tax paid. If the investor sells cross-listed securities they may be Capital gains subject to capital gains tax on realised gains. U.S. estate tax may apply upon the death of an investor. Estate tax However, the amount of tax may be reduced under an Australian/U.S. estate tax treaty. Low High Income return Capital return Cost Tax efficiency Manager experience Fees And Costs Investors in ETFs incur both direct and indirect costs comprising: A management expense ratio (MER); A bid/ask spread when buying and selling units; A potential premium/discount to net asset value (NAV) when buying and selling units; Portfolio transaction costs associated with turnover in the underlying constituent stocks which are captured in the NAV of the ETF. The costs are tabled below, with the bid/ask and discount/premium based on historical averages. Overall, VTS is probably at the slightly higher end of total costs in the domestic ETF market, but it is low when compared to ETFs in Australia that simply hold international securities. Fees And Costs Cost Amount (%) MER 0.07 Bid/ask Up to ~0.35 Portfolio turnover costs 0.04 Premium/Discount to NAV Up to ~0.25 Ex post total costs Up to ~0.71 MER The MER, at 7 bps, is the same that applies to U.S. investors. This is particularly low for the domestic market. Vanguard can offer this low MER partly because the Vanguard share class structure takes advantage of the economies of scale obtained from managing a larger fund pool. Bid/Ask Spread The bid/ask spread is an indirect cost borne by investors. The level of the bid/ask spread is a function of market liquidity in the ETF units and The contents of this report are subject to the terms of the disclaimer on the final page. EXCHANGE-TRADED FUND April 29, 2011 Page 2

3 may also be a function of the maximum bid/ask spread levels maintained by authorised participants and market makers. In the case of VTS, the average bid/ask spread of the product in the U.S. is especially low (2 bps) due to the significant trading volume in the secondary market. However, factors including the domestically relatively low trading volumes, the fluctuation in the A$ exchange rate with the US$, and the different time zone for trading in underlying securities, all contribute to a materially higher bid/ask spread (average of around 35 bps). Variability of the spread from day to day and during the course of a trading day is also a contributing factor. However, as a safeguard, in the absence of a natural market in which two investors are transacting, the product's market makers, through their presence "in the screen" ensure the maximum spread is limited to no more than 60 bps (the actual spread is typically tighter than the maximum). Premium/Discount To NAV Similar to the bid/ask spread, the premium/discount to NAV is an indirect cost borne by transacting investors, albeit one that may work either to the advantage or disadvantage of those transacting. Determining the historical premium/discount profile of an ETF one that trades "out of hours" of the trading in the underlying stocks is problematic. Over the course of the trading day in Australia, determining the NAV of the ETF is based on a range of equities market signals. At the open, the NAV is a function of the closing NAV in the U.S. as well as the direction of equities futures during the interim. During the day, the NAV will take leads from the direction of Asian equities markets, etc., as they open. For ETFs that trade out of hours, there is always an inherent risk that the NAV at the time of purchase/sale will differ from that upon the open at the home market. However, this risk is a random walk it may work in the favour of the investor or may not. Nevertheless, it is an additional risk. On account of this risk, market makers will generally price in higher bid/ask spreads. Portfolio Turnover Transaction Costs Portfolio turnover generates transaction costs such as brokerage, custody costs, and potential market costs. These are indirect costs that detract from NAV. Turnover is a function of index-rebalancing, portfolio-construction optimisation techniques, and cash flow management associated with dividend flows and distribution payments. VTS's portfolio turnover has been relatively low, with the fund recording turnover of 5.3% for the year ended December Estimated transaction costs are particularly low at 0.37 bps (as a percentage of FUM) for Portfolio Composition The fund employs a "passive management" or indexing investment approach designed to track the performance of the MSCI US Broad Market Index, which represents 99.5% or more of the total market capitalisation of all the U.S. common stocks regularly traded on the New York Stock Exchange and the Nasdaq over-the-counter market. The fund typically holds all 1,200 to 1,300 stocks that constitute 95% of the market. The fund then holds a representative sample of those remaining to reach a total number of 3,300 3,400 stocks. The fund uses index futures contracts to a limited extent, with the objectives of maintaining full exposure to the stock market, enhancing returns, maintaining liquidity, and minimising transaction costs. The fund may purchase futures contracts to immediately invest incoming net cash flow or sell futures in response to cash outflows, thereby simulating a fully invested position in the underlying index while maintaining a cash balance for liquidity. The fund may seek to enhance returns by using futures contracts instead of the underlying securities when futures are believed to be priced more attractively than the underlying securities. S&P considers the primary risk associated with the use of futures tracking error risk associated with imperfect correlation between changes in the value of the index and prices of futures contracts as minimal. Top 10 Holdings (Dec. 31, 2010) Security % of Portfolio Exxon Mobil Corp. 2.6 Apple Inc. 2.1 Microsoft Corp. 1.5 General Electric Co. 1.4 Procter & Gamble Co. 1.3 International Business Machines Corp. 1.3 Chevron Corp. 1.3 AT&T Inc. 1.2 Johnson & Johnson Inc. 1.2 JPMorgan Chase & Co. 1.2 TOTAL 15.1 Sector Diversification (September 2010) Sector % of ETF Consumer discretionary 11.5 Consumer staples 9.2 Energy 11.3 Financials 16.3 Health care 11.2 Industrials 11.3 Information technology 18.8 Materials 4.2 Telecommunication services 2.8 Utilities 3.4 TOTAL Portfolio Construction And Management The fund replicates more than 95% of the market capitalisation of the index and invests in a representative sample of the remaining stocks. The fund holds a broadly diversified collection of securities that, in aggregate, approximates the full index in terms of key characteristics. These key characteristics include industry weightings and market capitalisation, as well as certain financial measures, such as price/earnings (PE) ratio and dividend yield. The contents of this report are subject to the terms of the disclaimer on the final page. EXCHANGE-TRADED FUND April 29, 2011 Page 3

4 Vanguard's optimisation approach pays careful attention to managing cash flows and index changes to reduce trading in the portfolio, and the associated transaction costs, turnover, and realised capital gains. Rather than administrative rebalancing, risk targets allow rebalancing on an "as needed" basis. With each trade, Vanguard considers the costs of brokerage and tax, balancing these transaction costs and market effect against the expected risks (and effect on tracking error), to match the market returns. The manager aims to time and parcel share trades to take advantage of any reduction in tax costs, and monitors brokerage costs. Treatment Of Index Changes Index changes are implemented around or on the change date of the index. If a change can be implemented without market effect, that change is typically implemented on the same day as the index change. Where market risks exist, index changes are typically implemented a week prior and following the index change. The degree of market risk is partly a function of the significant size of the ETF and underlying managed fund. Trading Strategies An ETF provider can reduce transaction costs through a number of methods, including internal crossing and establishing low brokerage rates across a panel of brokers. To the extent allowed by law, Vanguard does cross securities among other Vanguard funds to minimise trading costs and market effect. Additionally, the portfolio managers may use alternative exchanges that allow for significant price improvement in order to lower trading costs. As noted above, estimated transaction costs are particularly low at 0.37 bps (as a percentage of FUM) for Cash Flow Management Cash flows are a function of the receipt of distributions from constituent stocks and the payment of those distributions and any realised capital gains to unit holders. Additionally, given Vanguard's share class structure, cash flows are also a function of net flows in the underlying managed fund. As noted above, the average (futures-backed) cash position of VTS is high (relative to a stand-alone ETF) in order that a buffer exists to fund large redemption requests. While this introduces tracking error risk, the basis risk inherent between the futures contract and the performance of the index is minimal. A history of net inflows has mitigated the cash flow-related risks inherent in the share class structure. Specifically, it has limited the need to sell shares to fund redemption requests. While we believe this will continue (based on the strong market position, reputation, and track record of the underlying fund) it nevertheless introduces another risk and complication of the share class structure compared to a stand-alone ETF. Risk Management The primary consideration in managing portfolio risk is tracking error. The portfolio is internally managed to ex ante level of around 0.1%. Given an ex post measure will typically exceed the ex ante, the average historical level of around 0.2% indicates the manager has been successful in managing risk. At a stock and sector level there are no formal limits, but the objective of tracking the index dictates active weights are never significant. Active weights are almost invariably confined to index additions and deletions and generally for a period of no more than a week prior and post the index change. The active position as a percentage of FUM is negligible and, hence, so too is the effect on tracking error. The manager uses a proprietary risk management and portfolio construction tool. A separate risk team is responsible for portfolio monitoring. The rolling three-year tracking error is illustrated below. The range is within a level that can be considered true to style. The slight increase in tracking error during the global financial crisis can be mainly attributed to the large capital issuance during this period and the increase in market volatility. Chart 1 Rolling 1-Year Tracking Error (September 2010) 0.12% 0.10% 0.08% 0.06% 0.04% 0.02% 0.00% Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 VTS rolling 1-yr TE Tax Event Efficiency Tax efficiency is an important component to an S&P ETF rating, as it is a key differentiating feature between ETFs and index-tracking funds. Vanguard's share class structure complicates the tax efficiency of VTS relative to a stand-alone ETF. It is important to note that taxes are managed at the overall portfolio level, and not at the share class level. As a result, tax events in Vanguard's share class investment vehicles affect all investors, both ETF and managed fund investors. Historically, the underlying fund has proved to be an extremely taxefficient vehicle, and more so than other domestic index-tracking managed funds and comparable ETFs. In our view, while ever the net flows remain positive, or not significantly negative, VTS is likely to remain highly tax efficient. Internal Portfolio Turnover VTS's potential tax efficiency in relation to internal portfolio turnover is high given the low degree of turnover (an average 5% per year over the past five years). Additionally, the share class structure allows the funding of fees and index rebalancing without potentially selling assets. With a stand-alone ETF, the structure is more likely to have to sell down assets and, hence potentially crystallise embedded capital gains. The high turnover rate in 2005 was attributable to activity related to a change in the fund s target index. The contents of this report are subject to the terms of the disclaimer on the final page. EXCHANGE-TRADED FUND April 29, 2011 Page 4

5 Chart 2 Annual Portfolio Turnover ( ) 14% 12% 10% 8% 6% 4% 2% 0% Turnover Redemptions in the Underlying Managed Fund This is a risk unique to Vanguard's ETF share class structure. In the event of net redemptions, the manager may be required to sell underlying securities to fund redemption requests, possibly realising a CGT event. Historically, the risk has not materialised, partly because net flows have generally been positive. In the context of net inflows, the share class structure has the advantage that, over time, it accumulates a large number of share lots, with a distribution of low-cost lots and high-cost lots. Should securities need to be sold from the fund in order to meet redemptions (or fund distributions), the manager can sell the highestcost lots potentially at a loss, thereby realising capital losses that may be used to offset any gains. Essentially, as long as net fund flows generally remain positive, redemptions from the underlying managed fund are unlikely to generate tax inefficiencies for ETF investors. Tax Lot Management Vanguard adopts two different tax-management strategies; one for the ETF and the other for the managed fund. In the case of the ETF, the manager can push out low-cost-basis shares of their portfolio through in-kind redemptions. For the managed fund, Vanguard offsets portfolio gains with losses from sales of high-cost-basis shares in response to redemptions by investors in the mutual fund share classes. These realised losses can be used to offset current and future gains. For the managed fund, redemptions for the wholesale class allows Vanguard to sell the highest-cost-basis tax lots, triggering a loss that can be offset by any current or future realised capital gains. Stocks are selected that have been held for less than 12 months to maximise the loss. Creation and Redemption The creation and redemption process that is unique to ETFs is a key component in the potential tax efficiency of an ETF relative to a managed fund. The transfer of ETF units through the redemption process is classed as an in-kind transfer, and hence not a taxable event. The process enables ETF managers to unload low-cost share parcels, thereby reducing the embedded unrealised capital gains within the portfolio. According to VTS's annual report, the level of creation activity over the past two-year period has materially exceeded the level of redemption activity. If this persists it suggests that the potential benefits of the process may not transpire. Assuming the U.S. ETF market continues to grow strongly, then this situation is unlikely to change over the foreseeable future. We would also note that Vanguard's share class structure has the potential to dilute the benefits of the redemption process where the net assets of the ETF are outweighed by the underlying fund. The ETF represents approximately 38% of total fund size. Historical Tax Event Efficiency Net inflows, a large futures-backed cash position, and the continual acquisition of share lots over time has contributed to a distribution profile characterised by the distribution of income rather than realised capital gains Historically, VTS has proved to be highly tax efficient no component of annual distributions has constituted a distribution of realised capital gains. Furthermore, in terms of the embedded risk, if the fund was sold down entirely, the ETF would crystallise a realised capital gain of 12% of NAV. Whether the resultant distribution is tax effective depends on whether the underlying shares have been held for less than 12 months. Given Vanguard's tax lot management method, it is probably reasonable to expect that the component of the overall capital distribution not eligible for the discount would be limited. Performance Since inception the performance of VTS has been very true to style. VTS has recorded an average tracking error of around 7 bps and excess performance has ranged from 0 10 bps. Volatility is relatively high ranging from 16% to 22%. Chart 3 Rolling 1-Year Tracking Error (January 2011) 0.12% 0.10% 0.08% 0.06% 0.04% 0.02% 0.00% Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 VTS rolling 1-yr TE Source: Vanguard Investments Australia Ltd, S&P Historically, the ETF has yielded around 1.7% per year. VTS is a capital rather than an income play. The contents of this report are subject to the terms of the disclaimer on the final page. EXCHANGE-TRADED FUND April 29, 2011 Page 5

6 Chart 4 Historical Performance (January 2011) Index 175% 150% 125% 100% 75% 50% 25% 0% Distributions ($/shr) (RHS) VTI Benchmark Risk/Return Metrics % p.a. (January 2011) Metric 1-Year 3-Year 5-Year Incept Total returns MSCI US Broad Market Index Excess performance Standard deviation Tracking error Distribution $/Shr fixed interest asset classes as well as global infrastructure. It also now provides seven ETFs to domestic investors. Funds Under Management (December, 2010) Sector Funds Under Management (A$ billion) Cash 8.6 Australian fixed interest 6.3 International fixed interest 4.0 Australian listed property 2.8 International listed property 1.9 Australian shares 22.8 International shares 22.7 Emerging markets shares 1.4 Global infrastructure 0.4 Hedged portfolios 13.5 Total 82.0 Management Group Profile Vanguard Investments Australia Ltd. is a 100% subsidiary of the Vanguard Group. The Australian operation opened in 1996 and was the first non-u.s. base for the parent company. Vanguard Group was founded in 1975, but has a history going back to Since establishing the first indexed mutual fund in the U.S. in 1976, the Vanguard Group has grown into one of the world's largest investmentmanagement companies. It specialises in low-cost investment funds with a focus on index management. As of Dec. 31, 2011 Vanguard locally managed over A$82 billion in funds, predominantly for institutional investors, but also for Australian and non-u.s. international retail investors. The split by asset class is diversified, with Australian and global share offerings accounting for approximately half of funds under management. Team VTS is based on a rules-based methodology and utilises systems developed by Vanguard globally. By its nature, and based on adequate resources domestically, key person risk is extremely low in relation to the VTS product. As VTS is cross-listed from the U.S., the portfolio management is undertaken offshore by Vanguard's quant equity group, led by chief investment officer George Sauter. Portfolio manager is Gerard O'Reilly. Funds Under Management Vanguard manages a total of 92 index-tracking managed fund mandates in Australia, across Australian and international equities and The contents of this report are subject to the terms of the disclaimer on the final page. EXCHANGE-TRADED FUND April 29, 2011 Page 6

7 ETF Rating Methodology The Exchange Traded Fund (ETF) rating philosophy emphasises the structural aspects of an ETF more than the abilities of the investment manager. The emphasis reflects the non-discretionary, rules-based nature of ETFs and the objective of generating beta and minimising index-tracking error, rather than alpha through discretionary investment selection. ETF Rating Process The evaluation of an ETF addresses: product features, investment process, performance, and team. In turn, each category comprises a number of subcategories including: fees and costs, tax-efficiency, securities lending, portfolio construction and management, historical performance and portfolio composition, and business management and team. ETF Rating Definitions S&P has assigned a 'Very Strong' rating to the product based on its conviction that it can meet its objectives over the stated time period. The product has scored exceptionally in a number of categories but may not be suitable for all investors. S&P has assigned a 'Strong' rating to the product based on its conviction that it can meet its objectives over the stated time period. The product has scored strongly in a number of categories but may not be suitable for all investors. S&P has assigned a 'Sound' rating to the product based on its conviction that it can meet its objectives over the stated time period. The product has scored satisfactorily in a number of categories but may not be suitable for all investors. S&P has assigned a 'Pass' rating to the product based on its conviction that it can meet its objectives over the stated time period. The product has passed a number of categories but may not be suitable for all investors. S&P has assigned a 'Weak' rating to the product based on its conviction that it cannot meet its objectives over the stated time period. The product has scored weakly in a number of categories and may not be suitable for most investors. An 'On Hold' designation is a suspension of a rating pending further analysis of a material change in the characteristics of a product. Glossary Of Terms Exchange Traded Fund (ETF) Benchmark Authorised Participant (AP) FUM Funds Under Management Information Ratio MER Management Expense Ratio Sharpe Ratio Standard Deviation Tracking Error Ex Ante Tracking Error Ex Post Tracking Error Exchange Traded Fund (ETF): An ETF is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets, such as stocks, and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day. Most ETFs track an index. The standard (e.g. an index) against which an ETF is measured against to evaluate performance. An entity chosen by an exchange-traded fund's (ETF) sponsor to undertake the responsibility of the creation and redemption process. The total value of the funds managed by an asset management firm. This is a measure of the relative reward for the relative risk taken excess returns of an investment (above the benchmark) divided by the tracking error. A positive information ratio would indicate efficient use of risk by the manager. This ratio is a calculation of investment management, marketing, trusteeship, legal, accounting and auditing costs among others, of an investment expressed as a percentage of the investment s net asset value. It is the ongoing charges for managing the investment. This is a measure of risk-adjusted performance, measuring the absolute reward for the absolute risk taken return of the investment minus the risk-free rate (e.g. bank bills) divided by the standard deviation. The higher the Sharpe ratio the greater the efficiency produced by the manager. Measure of the variability or volatility of the monthly returns of the fund. How closely a portfolio follows or "tracks" an index to which it is benchmarked. (the standard deviation of monthly excess returns against the benchmark). Predicted or forecast of tracking error. Historical or actual tracking error. The contents of this report are subject to the terms of the disclaimer on the final page. EXCHANGE-TRADED FUND April 29, 2011 Page 7

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