Section 1 Why is Vanguard making the change and what is full swing pricing?

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1 Vanguard Investment Series plc Swing pricing Q&A 3 July 2017 We are proposing to replace the current preset and anti-dilution levies on Vanguard Investment Series funds with a full swing pricing model. The following document has been prepared to address questions you may have on the topic. It is organized into three sections: Section 1 - Why is Vanguard making the change and what is full swing pricing? Section 2 - How does the shareholder proxy voting work? Section 3 - Operational Q&A's around swing pricing Section 1 Why is Vanguard making the change and what is full swing pricing? Why are we making the change? Vanguard believes that costs matter. As such, we seek to protect the interests of investors in our funds from costs which would dilute their value. To date, we have primarily achieved this through the application of preset dilution levies (PDLs) and anti-dilution levies (ADLs), which work to offset costs incurred by subscribing/redeeming investors. As our business has evolved, more investors and intermediaries have told us that they find this method operationally more challenging than using the swing-pricing method favoured by other firms. Given this feedback and regulatory developments since the original decision was made, we are taking this opportunity to move to a swing pricing method. A rigorous analysis considering costs, average flows, flow direction, etc. was conducted to confirm that the swing methodology provides the best solution to existing investors. Why did we go with PDLs/ADLs previously? Prior to making the original decision, we analysed the various methods available to protect investors in the funds. Based on the knowledge we had at the time and in the context of the pertaining regulatory and business background, we concluded that PDLs and ADLs represented the best approach. PDLs and ADLs have worked well and have successfully covered the bulk of the costs that would have a material impact on the funds to which they applied. We also regularly reviewed the level of PDLs and ADLs to ensure they were appropriate given the level of cash flow and costs incurred by the funds. Since making the original decision, we have gathered considerable client feedback and the regulatory background has also changed. While we still think PDLs and ADLs are fair, on balance, we have now concluded that swing pricing is a better all-round solution. Swing pricing affords a number of benefits: Swing pricing is more operationally manageable by larger intermediaries operating via some platforms. This will allow more investors to access our funds over time, increasing scale benefits which are ultimately passed on to our investors in the form of lower fees.

2 By adopting a swing methodology that accounts for all cash flows on a given day and swings the price accordingly, we can ensure that no transaction costs caused by investing/redeeming clients are borne by the existing holders in the fund. Swing pricing ensures consistent treatment in all circumstances of all investor transactions on any given dealing day as a dilution adjustment will normally be applied whenever there are net purchases or net redemptions. It is aligned with investor demand and should encourage further investment into the company, thereby reducing total expense ratios for existing investors. Similar or better long-term tracking with less performance drag as existing investors are insulated from the costs associated with clients transacting in the fund. What is swing pricing? Swing pricing works by adjusting the price for all deals on a given day up or down according to net cash flows in a given fund. 1. We calculate the net asset value of the fund, which is the value of all the investments held in the portfolio. 2. Dividing this by the number of shares in issue gives the underlying share price. 3. Next, we assess cash flows in the fund. If there are more purchases than sales, the fund is in net inflow and we swing the underlying price upwards by a predetermined swing factor. 4. If there are more sales than purchases, the fund is in net outflow and we swing the price downwards by the same swing factor. What are our guiding principles for swing pricing? Guiding principles Cost neutral Calculation Regular review Communication Swing factors should be calculated accurately and reviewed regularly to ensure they reflect current trading costs, so the fund neither gains nor loses as a result of client-driven trading. Commissions (for equity), bid-ask spreads (for fixed income), financial transaction taxes and foreign exchange costs are taken into consideration. Market impact is not typically included as it is not possible to predict (positive or negative). Factors are rounded down to the nearest basis point. (Example 22.2 calculation = 22 factor and 0.6 calculation = 0.0 factor). Head of Global Fund Accounting chairs a quarterly meeting with U.K. chief operating officer and representatives from Investment Management Group and Risk Management Group. Holds ad hoc meetings as market events require. The swung price will be the price that is published. However, unswung NAVs and swing factors can be used for internal purposes to explain any significant divergence from the benchmark, should a client inquire. For more information review our client-facing piece, "A PlainTalk TM guide to swing pricing". Section 2 How does the shareholder proxy voting work? How many votes are needed for the proposal to be accepted? The implementation of swing pricing will be approved if at least 75 per cent of the total number of votes cast are in favour of it. The quorum for the Annual General Meeting (AGM) at which the resolution will be proposed is two or more shareholders present in person or by proxy.

3 It should be noted that there will be a single resolution covering the umbrella, rather than separate voting within the funds. Each shareholder is entitled to a number of votes equal to the aggregate net asset value of their shareholding, expressed or converted into US dollars and calculated as at the record date (which is 48 hours before the AGM). Who gets to vote? Any person who owned shares in any of the funds on the record date, and who still holds them at the time of the meeting. If shares are held in nominee name we will send notice to the nominee and they will collect votes from underlying investors and vote proportionally for/against based on the results. I have only a few shares why should I bother to vote? Because it s your chance to have a say and your vote makes a difference. If we do not achieve a quorum for the meeting, the voting will be adjourned to the same day in the next week at the same time and place, or to such other day and at such other time and place as the directors may determine. We will give notice of the day and time of the adjourned meeting and, at that meeting, any one or more shareholders present in person or by proxy will form a quorum. How do I vote? You can vote in two ways: 1. In person: a shareholder is entitled to attend and vote at the meeting in respect of shares of which he or she is the registered holder as at 10 a.m., Irish time, on 24 July 2017 and of which he or she remains the holder at the time of the meeting. The meeting will take place at 70 Sir John Rogerson s Quay, Dublin 2, Ireland at 10 a.m., Irish time, on 26 July By proxy: a shareholder is entitled to (a) appoint a proxy to attend and vote in his or her stead; or (b) vote using a proxy form, which should be mailed using the reply-paid envelope provided and must be received at least 48 hours before the time of the meeting (10 a.m., Irish time, on 24 July 2017 meeting to be held at 10 a.m., Irish time, on 26 July 2017). What s the deadline for submitting my vote? We encourage you to vote as soon as possible to make sure that your fund receives enough votes to act on the proposals. The final opportunity to cast your vote is at the shareholder meeting on 26 July Note that, to be valid, a proxy form must be returned in accordance with the instructions written on it no later than 48 hours before the time of the meeting (10 a.m., Irish time, on 24 July 2017 meeting to be held at 10 a.m., Irish time, on 26 July 2017). How do I sign the proxy card? You should sign your name exactly as it appears on the register. In the case of a jointly held account, any one holder can sign, but if more than one returns a voting card, the votes of the shareholder whose name appears first in the register of shareholders will be accepted. The proxy card or voting instruction card for other types of accounts should be signed in a way that indicates the signer s authority for example, John Brown, Custodian. What happens if shareholders do not approve the implementation of swing pricing? The implementation of swing pricing will not proceed and the application of ADLs and PDLs will remain. How will I know the outcome of the vote? We will be sending a notice to shareholders on 31 July 2017 to inform them of the result. We will also make an announcement on the Irish Stock Exchange. Section 3 Operational Q&A's around swing pricing

4 Will the net asset value (NAV) impacted by the swing pricing be the default NAV for fund data? Yes, the swung NAV will be the official published NAV for the fund. The unswung NAV may be made available upon request to answer performance queries. To request an unswung NAV, you should your Vanguard contact explaining why you need it. The unswung NAV will then be sent through an automated distribution process. Will the calculation of swing pricing affect when the NAV is published online and sent to clients or the timing of when reports and contract notes are sent to clients? No. In client reports, etc., will there be any variances and differences between existing clients and new clients? No. The dealing NAV, which may or may not be swung on any given day, will be the official NAV for the fund and the price used in any client reports or financial statements. What is the methodology for calculating swing factors? There are different components for equity and fixed income funds, as shown in table below: Swing factors Equity Fixed Income Commissions Spreads Financial transaction tax Stamp duty charges Custodian transaction fees Current bid-ask spread estimates from traders and independent third-party sources Fiscal charges Note: The factors will be reviewed on a regular basis. Some of our clients wrap our funds into fund-of-fund or other structures. What steps are we taking to give these clients, and other parties such as custodians, the right tools and enough time to make the necessary changes successfully? Once we know the outcome of the vote, we will advise the impacted clients and service providers early to help them meet their deadlines. The project team will work with the client-facing teams to work through a timeline for implementation. Will the change to swing pricing impact trading with the transfer agents, and will they need to change anything in trade confirmations, etc.? Generally, no changes are needed on statements, contract notes or other confirmations. These documents intentionally do not mention a specific dilution policy but rather refer readers to the prospectus. The prospectus will be updated the day the change comes into effect. What impact will swing pricing have on tracking error, and how does full swing pricing compare with partial in this regard? From a short-term perspective, the funds will experience increased tracking differences, on a day-by-day

5 basis, as the fund is potentially swung either up or down depending on the direction of cash flow. However, over the longer term, and more importantly, full swing pricing will ensure more of the fund transaction costs are recouped, making each fund whole on a daily basis. This should reduce performance drag and improve tracking error over the long term. What role did MiFID II play in our decision to proceed? Does MiFID II require something like swing pricing, or does this just help us to comply? The decision to move to swing pricing at this time was independent of MiFID II. However, the decision to complete this change before January 2018 was largely driven by MiFID II. MiFID II comes into effect in January 2018 and requires reporting of costs and charges. We've taken the opportunity to avoid duplicate work and simplify our cost and charges before MiFID II takes effect. Swing pricing integrates the swing factor into the official NAV, which means these charges do not require separate disclosure. What can we say to existing investors who have paid the PDL in entering the fund if we move to a swing pricing methodology? A move to swing pricing will provide better dilution protection for existing investors. Anyone that has paid a PDL must be an existing investor and it is in their best interest for us to ensure that all future investors pay their share on the way in. The payment of a PDL on the way in would have been equivalent to a swing on the way in, so it's not really a double charge. Important information This document is directed at professional investors only as defined under the MiFID Directive. Not for Public Distribution. The material contained in this document is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information in this document is general in nature and does not constitute legal, tax, or investment advice. Potential investors are urged to consult their professional advisers on the implications of making an investment in, holding or disposing of shares of, and the receipt of distribution from any investment. The value of investments, and the income from them, may fall or rise and investors may get back less than they invested. Vanguard Investment Series plc has been authorised by the Central Bank of Ireland as a UCITS and has been registered for public distribution in certain EU countries. Prospective investors are referred to the Vanguard Investment Series plc prospectus for further information. Prospective investors are also urged to consult their own professional advisers on the implications of making an investment in, and holding or disposing shares of the Funds and the receipt of distributions with respect to such shares under the law of the countries in which they are liable to taxation. The Manager of Vanguard Investment Series plc is Vanguard Group (Ireland) Limited. Vanguard Asset Management, Limited is a distributor of Vanguard Investment Series plc. For further information on the fund s investment policy, please refer to the Key Investor Information Document ( KIID for the fund. The KIIDs are available in local languages from Vanguard via our website Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority Vanguard Asset Management, Limited. All rights reserved.

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